VIAD CORP - Annual Report: 2016 (Form 10-K)

As filed with the Securities and Exchange Commission on March 6, 2017

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2016

or

For the transition period from ____________ to

Commission file number: 001-11015

Viad Corp

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:

(602) 207-1000

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

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

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

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

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

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

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

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

The aggregate market value of the Common Stock (based on its closing price per share on such date) held by non-affiliates on the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2016) was approximately $618 million.

Registrant had 20,327,636 shares of Common Stock ($1.50 par value) outstanding as of January 31, 2017.

Documents Incorporated by Reference

A portion of the Proxy Statement for the Annual Meeting of Shareholders of Viad Corp, which is scheduled to be held on May 18, 2017, is incorporated by reference into Part III of this Annual Report.

INDEX

PART I

Item 1. Business

Viad Corp (“Viad” or the “Company”) is an international experiential services company with operations in the United States, Canada, the United Kingdom, continental Europe, and the United Arab Emirates. Viad is committed to providing unforgettable experiences to its clients and guests. Viad operates through the following two main business groups:

GES accounted for 88 percent of Viad’s 2016 consolidated revenue and 58 percent of Viad’s 2016 consolidated segment operating income⁽¹⁾. Pursuit accounted for 12 percent of Viad’s 2016 consolidated revenue and 42 percent of Viad’s 2016 consolidated segment operating income⁽¹⁾.

GES is a global, full-service provider for live events that produces exhibitions, conferences, corporate events, and consumer events. GES offers a comprehensive range of live event services, from the design and production of compelling, immersive experiences that engage audiences and build brand awareness, to material handling, rigging, electrical, and other on-site event services. In addition, GES offers clients a full suite of audio-visual services from creative and technology to content and design, along with online tools powered by next generation technologies that help clients easily manage the complexities of their events. GES’ National Servicenter® has been recognized with certification under the J.D. Power and Associates Certified Call Center Program^SM for the past eight years, and GES was named one of the “World’s 50 Largest Agency Companies” for the seventh year in a row by Ad Age.

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GES’ clients include event organizers and corporate brand marketers. Corporate brand marketers include exhibitors and domestic and international corporations that want to promote their brands, services and innovations, feature new products, and build business relationships. GES serves corporate brand marketers when they exhibit at shows and when GES is engaged to manage their global exhibit program or produce their proprietary corporate events. See “Item 1A - Risk Factors - The failure of a large client to renew its services contract or the loss of business from exhibition facilities could adversely impact revenue” for a discussion of the risks related to GES’ client relationships, which is incorporated herein by reference.

GES is divided into two reportable segments based on geography: GES U.S. and GES International.

Markets Served

GES U.S. and GES International both provide a full suite of services for event organizers and corporate brand marketers across four live event markets: (i) Exhibitions; (ii) Conferences; (iii) Corporate Events; and (iv) Consumer Events (collectively, “Live Events”).

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Services Offered

GES offers a comprehensive range of services and innovative technology to event organizers and corporate brand marketers including (i) Core Services; (ii) Event Technology; and (iii) Audio-Visual.

GES U.S. and GES International generally provide the same level of services and products. The following is a general list of exclusive and discretionary services and products provided to Live Event organizers and exhibitors:

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Under various agreements with event organizers of Live Events, GES serves as the official services contractor and provides the services and products listed above. As the official services contractor, GES is designated as the exclusive provider of certain services to exhibitors participating in a Live Event. This designation provides exhibitors with a single point of contact to facilitate a timely, safe, and efficient move-in and move-out of a Live Event and to facilitate an organized, professional, during-show experience. Regardless if GES is the official services contractor of a Live Event, GES competes with other service providers to sell discretionary services to exhibitors. GES also offers discretionary services, combined with complete event program management, including creative design, strategy, and planning to corporate brand marketers across all Live Events in which they participate.

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Seasonality and Show Rotation

GES U.S. and GES International exhibition and event activity can vary significantly from quarter to quarter and year to year depending on the frequency and timing of shows, as some shows are not held each year and some may shift between quarters. During 2016, GES U.S. reported its highest revenue during the second and third quarters. During 2015, GES U.S. reported its highest revenue during the first and second quarters. GES International generally reports its highest revenue during the second and fourth quarters. The show rotation revenue metric refers to the net change in revenue from 2015 to 2016 due to show movement between quarters and years. Show rotation refers to shows that occur less frequently than annually, as well as annual shows that shift quarters from one year to the next. See “Item 1A – Risk Factors – Viad’s businesses are seasonal, which causes results of operations to fluctuate and makes results of operations particularly sensitive to adverse events during peak periods” and “Item 1A – Risk Factors - Show rotation impacts overall profitability and makes comparisons between periods difficult,” which are incorporated herein by reference.

Competition

GES U.S. and GES International generally compete across all classes of services and all markets in the Live Events industry on the basis of discernible differences, value, quality, price, convenience, and service. GES has a competitive advantage through its worldwide network of resources, experienced personnel, pioneering service programs and offerings, first class execution, proprietary technology platforms, and financial strength. All known U.S. competitors and most international competitors are privately held companies that provide limited public information regarding their operations. The primary competitor for GES within its Core Services is The Freeman Company (a privately held, U.S. headquartered company); however, there is substantial competition from a large number of service providers in the other categories of service offerings.

Growth Strategy

GES is committed to becoming the preferred global, full-service provider for Live Events. GES holds a dominate market position in Exhibitions and is pursuing a focused and disciplined growth strategy of expanding its market share in the currently under-penetrated Conferences, Corporate Events, and Consumer Events. GES has uniquely combined the art of high-impact creativity, service, and expertise with the science of easy-to-use technology, strategy, and worldwide logistics to help clients gain a greater return from their events and enhance the exhibitor experience.

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With its 2016 acquisition of the assets and operations of ON Services and its 2014 acquisitions of Blitz, onPeak, and N200, GES made significant progress toward creating the most comprehensive suite of services for the Live Events industry. GES extended its audio-visual services to North America with the acquisition of ON Services and beyond North America with the acquisition of Blitz, positioned itself as a leading event registration and data intelligence services provider in Europe with the acquisition of N200, and acquired a leading event accommodations company, onPeak. In 2016, these acquisitions enhanced overall competitiveness, facilitated growth in under-penetrated areas, and formed a basis for a data platform. The Company continues to pursue opportunities to acquire businesses with proven products and services that complement, enhance, or expand current businesses or offer growth opportunities.

Recent Developments of GES

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The Travel & Recreation Group introduced the “Pursuit” brand in 2017 to align all of its businesses around a common vision, mission, and set of core values. Pursuit is a collection of iconic natural and cultural destination travel experiences in North America that showcase the best of Banff, Jasper, Waterton Lakes, Glacier, Denali, and Kenai Fjords National Parks, and Vancouver, Canada. Through Pursuit’s collection of unique hotels and lodges, world-class recreational attractions, and ground transportation services, it connects guests to iconic places through unforgettable, inspiring experiences. Pursuit draws its guests from major markets, including Canada, the United States, China, the United Kingdom, Australia/New Zealand, Asia Pacific, and Europe. Pursuit markets directly to consumers, as well as through distribution channels that include tour operators, tour wholesalers, destination management companies, and retail travel agencies and organizations. Pursuit is composed of the following collections:

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Pursuit is composed of four lines of business: (i) Hospitality (including food and beverage services and retail operations); (ii) Attractions (including food and beverage services and retail operations); (iii) Transportation; and (iv) Travel Planning. These four lines of business work together, driving economies of scope and meaningful scale in and around the iconic destinations of Banff, Jasper, and Waterton Lakes National Parks and Vancouver in Canada, and Glacier, Denali, and Kenai Fjords National Parks in the United States.

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Seasonality

Pursuit experiences peak activity during the summer months. During 2016, 90 percent of Pursuit’s revenue was earned in the second and third quarters. See “Item 1A – Risk Factors – Viad’s businesses are seasonal, which causes results of operations to fluctuate and makes results of operations particularly sensitive to adverse events during peak periods,” which is incorporated herein by reference.

Competition

Pursuit generally competes on the basis of location, uniqueness of facilities, service, quality, and price. Competition exists both locally and regionally across all four lines of business. The hospitality business has a large number of competitors and competes for leisure travelers (both individual and tour groups) across the United States and Canada. Pursuit has a competitive advantage through its distinctive attractions and the iconic destinations of its assets.

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Growth Strategy

Pursuit remains focused on delivering inspiring and unforgettable experiences in iconic locations while growing and enhancing its unique portfolio of integrated tourism assets through its Refresh-Build-Buy growth initiatives.

Pursuit continued to make progress with its Refresh-Build-Buy growth initiatives by completing a major renovation of the Banff Gondola and the Elk + Avenue Hotel during 2016. The Glacier Skywalk continues to win awards and receive international recognition for its innovative design and environmentally sound architecture. Pursuit also complemented its existing assets with the acquisition of Maligne Lake Tours, CATC, and FlyOver Canada in 2016. The Company continues to search for opportunities to acquire or build/construct high return tourism assets in iconic natural and cultural destinations that enjoy perennial demand, bring meaningful scale and market share, and offer cross-selling advantages with a combination of attractions and hotels.

Recent Developments of Pursuit

Financial information on Viad’s reportable segments and geographic areas is contained in Note 21 – Segment Information of the Notes to Financial Statements (Part II, Item 8 of this Annual Report on Form 10-K).

Intellectual Property

Viad and its subsidiaries own or have the right to use registered trademarks and trademarks pending registration, used in their businesses, including Global Experience Specialists & design^®, GES^®, GES Servicenter^®, GES National Servicenter^®, GES MarketWorks^®, The Art and Science of Engagement^®, Trade Show Rigging TSR^®, TSE Trade Show Electrical & design^®, Earth Explorers^®, Compass Direct^®, ethnoMetrics^®, eXPRESSO^®, FIT^®, FLYOVER^®, eco-sense^®, ONPEAK^®, Above Banff^®, Alaska Denali Travel^®, Alaska Denali Escapes^®, Alaska Heritage Tours^®, Kenai Fjords Tours & design^®, Kenai Fjords Wilderness Lodge^®, Seward Windsong Lodge & design^®, Talkeetna Alaskan Lodge^®, Explore Rockies^®, Denali Backcountry Adventure^®, Denali Backcountry Lodge^®, and Denali Cabins^®. Viad and its subsidiaries also own or have the right to use many registered trademarks and trademarks pending registration outside of the United States, including GES^®, ShowTech^®, Brewster Travel Canada & design^®, Brewster Attractions Explore & design^®, Brewster Hospitality Refresh & design^®, Glacier Skywalk^®, Above Banff^®, Explore Rockies^®, FLYOVER^®, Soaring Over Canada^®, Elk + Avenue Hotel^®, Brewster Epic Summer Pass^®, and escape.connect.refresh.explore^®. Viad also has trademark applications in process both in and outside the United States relating to the Pursuit brand. United States trademark registrations are for a term of 10 years and are renewable every 10 years as long as the trademarks are used in the regular course of business.

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The Company owns patents that it believes provide competitive advantages in the marketplace for its exhibit and exhibition services. Its patented technology relating to a modular structure having a load-bearing surface provides efficiencies and cost savings in the design, manufacture, assembly, take down, and maintenance of displays and exhibitions. Its patented invention relating to a surface-covering installation tool and method not only reduces direct labor costs, but provides improved worker safety. The Company also owns a number of design patents for its retail merchandising units. United States utility patents are currently granted for a term of 20 years from the date a patent application is filed and United States design patents are currently granted for a term of 14 years from the date granted. GES has extensive design libraries with copyright protections and owns copyright registrations for a number of the designs within its design libraries. Copyright protection for such work is 95 years from the date of publication or 120 years from creation, whichever is shorter.

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

Government Regulation and Compliance

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

Some of Viad’s current and former businesses are subject to U.S. federal and state environmental regulations, including laws enacted under the Comprehensive Environmental Response, Compensation and Liability Act, or its state law counterparts. Compliance with federal, state and local environmental, health and safety provisions, including, but not limited to, those regulating the discharge of materials into the environment and other actions relating to the environment, have not had, and are not expected to have, a material effect on Viad’s capital expenditures, competitive position, financial condition or results of operations. See “Item 1A - Risk Factors - Liabilities relating to prior and discontinued operations may adversely affect results of operations” and Note 20 – Litigation, Claims, Contingencies, and Other of the Notes to the Consolidated Financial Statements (Part II, Item 8 of this Annual Report on Form 10-K) for a discussion of the risks related to liabilities arising from the Company’s compliance with federal, state, and local environmental laws, which are incorporated herein by reference.

Employees

Viad’s businesses had the following number of employees as of December 31, 2016:

Viad believes that relations with its employees are good and that collective-bargaining agreements expiring in 2017 will be renegotiated in the ordinary course of business without a material adverse effect on Viad’s operations.

Viad is governed by a Board of Directors comprised of seven non-employee directors and one employee director, and has an executive management team consisting of five executive officers.

Financial Information about Restructuring Charges

Refer to Note 18 – Restructuring Charges of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Annual Report on Form 10-K) for information regarding restructuring charges.

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Financial Information about Segments

Refer to Note 21 – Segment Information of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Annual Report on Form 10-K) for segment financial information.

Financial Information about Geographic Areas

Refer to Note 21 – Segment Information of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Annual Report on Form 10-K) for geographic area financial information.

Available Information

Viad’s website address is www.viad.com. All of Viad’s filings with the Securities and Exchange Commission (“SEC”), including Viad’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are available free of charge on Viad’s website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained on Viad’s website is neither a part of, nor incorporated by reference into, this Annual Report on Form 10-K. In addition, the public may read and copy materials that Viad filed with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the public reference room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC’s website address is www.sec.gov.

Viad’s investor relations website is www.viad.com/investors/investor-center/default.aspx and includes key information about the Company’s corporate governance initiatives, including its Corporate Governance Guidelines, charters of the committees of the Board of Directors, Code of Ethics, and information concerning Viad’s Board of Directors and methods for communicating with directors.

Item 1A. Risk Factors

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

Completed acquisitions may not perform as anticipated or be integrated as planned. Viad has acquired businesses and intends to continue to pursue opportunities to acquire businesses that complement, enhance or expand Viad’s current businesses, or offer growth opportunities to Viad. Acquisitions can involve a number of risks, including the failure to achieve the financial and strategic goals and other benefits from the acquisition; the inability to successfully integrate the acquired business into Viad’s ongoing businesses; the inability to retain key personnel or customers of the acquired business; the inability to successfully integrate financial reporting and internal control systems; increased debt; new regulatory requirements; the disruption of Viad’s ongoing businesses and distraction of senior management and employees of Viad from other opportunities and challenges due to the integration of the acquired business; and the potential existence of unknown liabilities or contingencies not disclosed to or known by Viad prior to closing the acquisition or not otherwise provided for through the purchase agreement. If Viad makes changes to its business strategy or if external conditions adversely affect its business operations, the Company may also be required to record an impairment charge to goodwill or intangible assets.

Viad’s businesses and results of operations are adversely affected by deterioration in general economic conditions. Viad’s businesses are sensitive to fluctuations in general economic conditions and are impacted by changes in the cost of materials and operating supplies. The results of operations for GES U.S. and GES International depend largely on the number of exhibitions held and on the size of exhibitors’ marketing expenditures, which in turn depend partly on the strength of particular industries in which exhibitors operate. The number and size of exhibitions generally decrease when the economy weakens.

Further, many exhibitors’ marketing budgets are partly discretionary, and are frequently among the first expenditures reduced by exhibitors when economic conditions deteriorate, resulting in reduced spending by exhibitors for the Company’s services. Marketing expenditures often are not increased until economic conditions improve. As a result, during periods of general economic weakness, the results of operations for GES are adversely affected.

Revenue from Pursuit depends largely on the amount of disposable income that consumers have available for travel and vacations. This amount decreases during periods of weak general economic conditions.

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

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

During 2016, GES derived approximately 24 percent of its revenue and 19 percent of its segment operating income from GES International. During 2016, Pursuit derived approximately 59 percent of its revenue and 74 percent 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 of Pursuit.

Show rotation impacts overall profitability and makes comparisons between periods difficult. The business activities of GES are largely dependent upon the frequency, timing, and location of exhibitions and events. Some large exhibitions are not held annually (they may be held once every two or three years or longer) or may be held at a different time of year than when previously held. In addition, the same exhibition may be held in different locations in different years, and may result in Viad generating lower margins if the exhibition shifts to a higher-cost city. The factors described above may cause the results of operations for those businesses to fluctuate significantly from quarter to quarter or from year to year, making periodic comparisons difficult.

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

The failure of a large client to renew its services contract or the loss of business from exhibition facilities could adversely impact revenue. Although no single client accounted for more than 6.1 percent of Viad’s consolidated revenue in 2016, GES U.S. and GES International have a relatively small number of large exhibition event organizers and large customer accounts. Consistent with industry practice, and only after a favorable review of credit worthiness, some of those larger clients have also been granted extended payment terms. The loss of any of these large clients, or the failure of such clients to pay in accordance with any extended payment terms, could have a material adverse effect on the results of operations of GES U.S. and GES International.

In addition, revenue of GES may be significantly impacted if certain exhibition facilities choose to in-source electrical, plumbing, or other services. When GES is hired as the official services contractor for an exhibition, the event organizer contractually grants an exclusive right to perform those electrical and plumbing services, subject to the exhibition facility’s option to in-source the services (either by performing the services themselves or by hiring a separate service provider). Many exhibition facilities are under financial pressure as a result of conditions generally affecting their industry, including an increased supply of exhibition space. As a result, some of those facilities have sought to in-source all or a large portion of those services. If a large number of facilities with which GES has those relationships choose to in-source those services, such a decision could have a material adverse effect on Viad’s results of operations.

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

Viad’s businesses are seasonal, which causes results of operations to fluctuate and makes results of operations particularly sensitive to adverse events during peak periods. Exhibition and event activity for GES U.S. and GES International varies significantly depending on the frequency and timing of shows, as some shows are not held each year and some may shift between quarters. Pursuit experiences peak activity during the summer months. During 2016, 90 percent of Pursuit’s revenue was earned in the second and third quarters. Because of the seasonal nature of Viad’s businesses, adverse events or conditions occurring during peak periods could have a material adverse effect on Viad’s results of operations.

New capital projects may not be commercially successful. From time to time, in an effort to seize opportunities that complement, enhance, and expand its businesses, Viad pursues new capital projects. Capital projects are subject to a number of risks, including unanticipated delays, cost overruns, and the failure to achieve established financial and strategic goals, as well as additional risks specific to a project. The occurrence of any of the events described above could prevent a new capital project from performing in accordance with Viad’s commercial expectations and could have a material adverse effect on its businesses and results of operations.

Transportation disruptions and increases in transportation costs could adversely affect Viad’s businesses and results of operations. GES U.S. and GES International rely on independent transportation carriers to send materials and exhibits to and from exhibitions, warehouse facilities, and customer facilities. If Viad’s customers and suppliers were unable to secure the services of those independent transportation carriers at favorable rates, it could have a material adverse effect on Viad’s businesses and results of operations. In addition, disruption of transportation services because of weather-related problems, strikes, lockouts, or other events could adversely affect their ability to supply services to customers and could cause the cancellation of exhibitions, which may have a material adverse effect on the businesses and results of operations.

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

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

Obligations to fund multi-employer pension plans, to which Viad contributes, may have an adverse impact on its results of operations. Viad’s businesses contribute to various multi-employer pension plans based on obligations arising under collective-bargaining agreements covering its union-represented employees. Viad’s contributions to those multi-employer plans in 2016 and 2015 totaled $25.8 million and $22.0 million, respectively. Viad does not directly manage those multi-employer plans, which are generally managed by boards of trustees. Based upon the information available to Viad from plan administrators, management believes that several of those multi-employer plans are underfunded. The Pension Protection Act of 2006 requires pension plans underfunded at certain levels to reduce, over defined time periods, the underfunded status. In addition, under current laws, the termination of a plan, or a voluntary withdrawal from a plan by Viad, or a shrinking contribution base to a plan as a result of the insolvency or withdrawal of other contributing employers to such plan, would require Viad to make payments to such plan for its proportionate share of the plan’s unfunded vested liabilities. Viad cannot determine at this time the amount of additional funding, if any, it may be required to make to those plans. However, plan contribution increases, if any, could have a material adverse effect on Viad’s consolidated financial condition, results of operations, and cash flows. Refer to Note 17 – Pension and Postretirement Benefits of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Annual Report on Form 10-K) for further information.

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The new presidential administration may make substantial changes to fiscal and tax policies that may adversely affect Viad’s business. The new presidential administration has called for substantial change to fiscal and tax policies, which may include comprehensive tax reform. The Company cannot predict the impact, if any, of these changes to its business. However, it is possible that these changes could adversely affect its business. It is likely that some policies adopted by the new presidential administration will benefit the Company and others will negatively affect the Company. Until Viad knows what changes are enacted, the Company will not know whether in total it benefits from, or is negatively affected by, the changes.

Viad competes in competitive industries and increased competition could negatively impact its results of operations. Viad is engaged in a number of highly competitive industries. Competition in the Live Events industry and the exhibits and experiential environments industries is driven by price and service quality, among other factors. To the extent competitors seek to gain or retain their market presence through aggressive underpricing strategies, Viad may be required to lower its prices and rates to avoid the loss of related business, thereby adversely affecting it results of operations. In addition, if Viad is unable to anticipate and respond as effectively as competitors to changing business conditions, including new technologies and business models, Viad could lose market share to its competitors. Viad’s inability to meet the challenges presented by the competitive environment could have a material adverse effect on its results of operations.

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

Terrorist attacks, natural disasters or other catastrophic events may have a negative effect on Viad’s business. The occurrence of catastrophic events ranging from natural disasters (such as hurricanes and floods), health epidemics or pandemics, acts of war or terrorism, or the prospect of these events could disrupt Viad’s businesses. Such catastrophic events could impact GES’ production facilities, preventing the Company from timely completing exhibit fabrication and other projects for customers, and could also cause a cancellation of exhibitions and other events held in public venues or a disruption in the services the Company provides to its customers at convention centers, exhibition halls, hotels, and other public venues. Such catastrophic events could also adversely impact the businesses of Pursuit, which are heavily dependent on the ability and willingness of its guests to travel. The guests serviced by Pursuit tend to delay or postpone vacations if natural conditions differ from those that typically prevail at competing lodges, resorts and attractions during a given season, and catastrophic events could impede the guests’ ability to travel, interrupt the Company’s business operations, and/or cause damage to the Company’s properties. If the conditions arising from such events persist or worsen, they could have a material adverse effect on Viad’s results of operations and financial condition.

Improper disclosure of personal data could result in liability and harm the Company’s reputation. Viad’s businesses store and process a significant amount of personally identifiable information in connection with the services they provide to customers. If the Company’s security controls over personal data, training of employees and vendors on data security, and other practices and procedures do not prevent the improper disclosure of personally identifiable information, the Company’s reputation could be harmed, and the Company could face legal exposure to customers and other liabilities under laws that protect personal data, resulting in increased costs or loss of revenue. Certain of the Company’s services also enable its customers to store and process personal data. Perceptions that the Company’s services do not adequately protect the privacy of personal information could have a material adverse effect on Viad’s businesses and results of operations.

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

Viad’s businesses operate service or production facilities and maintain sales and service offices in the United States, Canada, the United Kingdom, Germany, the United Arab Emirates, and the Netherlands. The principal properties of Viad are operated by GES, Pursuit, and Viad Corporate and Shared Services as follows:

GES U.S.

GES U.S. operates 20 offices and 33 multi-use facilities (manufacturing, sales and design, office, storage and/or warehouse, and truck marshaling yards). The multi-use facilities vary in size up to approximately 677,800 square feet. Two of the multi-use facilities are owned; all other properties are leased or licensed.

GES International

GES International operates 11 offices and 20 multi-use facilities, with three offices and eight multi-use facilities in Canada, four offices and five multi-use facilities in the United Kingdom, one office and two multi-use facilities in Germany, two offices and three multi-use facilities in the United Arab Emirates, and one office and two multi-use facilities in the Netherlands. The multi-use facilities vary in size up to approximately 133,600 square feet. All properties are leased or licensed.

Pursuit

Pursuit operates eight offices, 25 retail stores, one bus terminal, six garages, seven attractions (Banff Gondola, Banff Lake Cruise, Columbia Icefield Glacier Adventure, Glacier Skywalk, Maligne Lake Tours, Kenai Fjords Tours, and FlyOver Canada), and 15 hotels/lodges (including ancillary food and beverage services, retail, and recreational facilities). All of the facilities are in the United States or Canada. Properties owned include two offices, 23 retail stores, the bus terminal, four garages, all of the attractions, and all of the hotels/lodges. Properties leased include six offices, two retail stores, and two garages. Properties situated on land subject to multiple long-term ground leases with the Canadian government include four hotels/lodges, an office, all of the owned garages, Banff Gondola, Banff Lake Cruise, Columbia Icefield Glacier Adventure, Glacier Skywalk, Maligne Lake Tours, and FlyOver Canada.

Viad Headquarters

The Company’s headquarters are leased and approximate 19,900 square feet, and are located at 1850 North Central Avenue, Suite 1900 in Phoenix, Arizona 85004-4565.

Management believes that the Company’s facilities are adequate and suitable for its business operations and that capacity is sufficient for current needs. For additional information related to the Company’s lease obligations, refer to Note 11 – Debt and Capital Lease Obligations of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Annual Report on Form 10-K).

Item 3. Legal Proceedings

Refer to Note 20 – Litigation, Claims, Contingencies, and Other of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Annual Report on Form 10-K) for information regarding legal proceedings for which the Company is involved.

Item 4. Mine Safety Disclosures.

Not applicable.

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Other. Executive Officers of the Registrant

The executive officers of Viad as of March 6, 2017 were as follows:

The term of office of the executive officers is until the next annual organization meeting of the Board of Directors of Viad, which is scheduled for May 18, 2017.

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PART II

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

Market Information

Viad’s common stock is traded on the New York Stock Exchange under the symbol VVI. The high and low common stock market prices per share are as follows:

Holders

As of January 31, 2017, there were 5,981 shareholders of record of Viad’s common stock, including 376 shareholders that had not converted their shares following a reverse stock split effective on July 1, 2004.

Dividends

For the year ended December 31, 2016, Viad’s Board of Directors declared the following dividends:

For the year ended December 31, 2015, Viad’s Board of Directors declared the following dividends:

Issuer Purchases of Equity Securities

The following table is the total number of shares of Viad’s common stock that were repurchased during the fourth quarter of 2016 by Viad pursuant to publicly announced plans or programs, as well as from employees, former employees, and non-employee directors surrendering previously owned Viad common stock (outstanding shares) to pay the taxes in connection with the vesting of restricted stock awards.

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The Board of Directors authorized the Company to repurchase shares of its common stock from time to time at prevailing market prices. No shares were repurchased on the open market during the three months ended December 31, 2016. The authorization of the Board of Directors does not have an expiration date.

Effective February 24, 2016, Viad executed an amendment (the “Credit Agreement Amendment”) to its $300 million Amended and Restated Credit Agreement (the “Credit Agreement”). The terms of the Credit Agreement Amendment allow Viad to make dividends, distributions, and repurchases with respect to the Company’s common stock in an amount of up to $20 million per calendar year, but restrict Viad from making any further stock dividends, distributions, or repurchases above such an amount unless the Company’s leverage ratio is less than or equal to 2.50 to 1.00 and no default or unmatured default, as defined in the Credit Agreement, exists. Effective December 28, 2016, Brewster Inc., part of Pursuit, entered into a credit agreement (the “Brewster Credit Agreement”) with a $38 million revolving credit facility (the “Brewster Revolving Credit Facility”). Loans under the Brewster Credit Agreement were used in connection with the Company’s acquisition of FlyOver Canada. Additional loan proceeds will be used for potential future acquisitions in Canada and other general corporate purposes of Brewster Inc. and has a maturity date of December 28, 2017. For additional information on the Credit Agreement, the Credit Agreement Amendment, and the Brewster Credit Agreement refer to Note 11 – Debt and Capital Lease Obligations of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Annual Report on Form 10-K).

Performance Graph

The following graph compares the change from December 31, 2011 to December 31, 2016 in the cumulative total shareholder return on Viad’s common stock, the Standard & Poor’s SmallCap 600 Media Index, the Standard & Poor’s SmallCap 600 Commercial Services & Supplies Index, the Standard & Poor’s SmallCap 600 Index, the Russell 2000 Index, and Standard & Poor’s 500 Index (assuming reinvestment of dividends, as applicable). The graph assumes $100 was invested on December 31, 2011.

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Item 6. Selected Financial Data.

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

The following Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the consolidated financial statements and related notes of Viad Corp (“Viad” or the “Company”). The MD&A is intended to assist in providing an understanding of the Company’s financial condition and results of operations. This discussion contains forward-looking statements that involve risks and uncertainties. Viad’s actual results could differ materially from those anticipated due to various factors discussed under “Risk Factors,” “Forward-Looking Statements,” and elsewhere in this Annual Report on Form 10-K.

Overview

Viad is an international experiential services company with operations in the United States, Canada, the United Kingdom, continental Europe, and the United Arab Emirates. Viad is committed to providing unforgettable experiences to its clients and guests. Viad operates through three reportable business segments: GES U.S., GES International, (collectively, “GES”), and Pursuit.

GES is a global, full-service provider for live events that produces exhibitions, conferences, corporate events, and consumer events. GES offers a comprehensive range of live event services and a full suite of audio-visual services from creative and technology to content and design along with online tools powered by next generation technologies that help them easily manage the complexities of their events.

Pursuit is a collection of iconic natural and cultural destination travel experiences that enjoy perennial demand. Pursuit offers guests distinctive and world renowned experiences through its collection of unique hotels, lodges, recreational attractions, and transportation services. Pursuit remains focused on delivering inspiring and unforgettable experiences in iconic locations while growing and enhancing its unique portfolio of integrated tourism assets.

Non-GAAP Measures

In addition to disclosing financial results that are determined in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company also discloses non-GAAP financial measures of Adjusted EBITDA, Segment operating income, Adjusted Segment EBITDA, organic revenue, and organic segment operating income (collectively, the “Non-GAAP Measures”). The presentation of the 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, the Non-GAAP Measures may not be comparable to similarly titled measures used by other companies. Management believes that the presentation of the Non-GAAP Measures provides useful information to investors regarding Viad’s results of operations for trending, analyzing, and benchmarking the performance and value of Viad’s business.

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The Non-GAAP Measures are considered useful operating metrics as potential variations arising from taxes, depreciation and amortization, debt service costs, impairment charges and recoveries, changes in accounting principles, and the effects of discontinued operations are eliminated, thus resulting in additional measures considered to be indicative of Viad’s ongoing operations and segment performance. Although the Non-GAAP Measures are used as financial measures to assess the performance of the business, the use of these measures is limited because these measures do not consider material costs, expenses, and other items necessary to operate the business. These items include debt service costs, non-cash depreciation and amortization expense associated with long-lived assets, expenses related to U.S. federal, state, local and foreign income taxes, impairment charges or recoveries, and the effects of accounting changes and discontinued operations. Since the Non-GAAP Measures do not consider the above items, a user of Viad’s financial information should consider net income attributable to Viad as an important measure of financial performance because it provides a more complete measure of the Company’s performance.

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

Adjusted EBITDA increased $35.6 million in 2016 primarily due to higher segment operating income at GES and Pursuit. Adjusted EBITDA increased $2.8 million in 2015 primarily due to lower corporate costs, offset in part by higher restructuring charges. Refer to the “Results of Operations” section of this MD&A for a discussion of fluctuations.

Forward-Looking Non-GAAP Financial Measures

The Company has also provided Adjusted Segment EBITDA and segment operating income as forward-looking Non-GAAP Measures within the “Results of Operations” section of this MD&A. The Company does not provide reconciliations of these forward-looking Non-GAAP Measures to the most directly comparable GAAP financial measures because, due to variability and difficulty in making accurate forecasts and projections and/or certain information not being ascertainable or accessible, not all of the information necessary for quantitative reconciliations of these forward-looking Non-GAAP Measures to the most directly comparable GAAP financial measures is available to the Company without unreasonable efforts. Consequently, any attempt to disclose such reconciliations would imply a degree of precision that could be confusing or misleading to investors. It is probable that these forward-looking Non-GAAP Measures may be materially different from the corresponding GAAP Measures.

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Results of Operations

Financial Highlights

** Change is greater than +/- 100 percent

2016 compared with 2015

2015 compared with 2014

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Foreign Exchange Rate Variances

Viad conducts its foreign operations primarily in Canada, the United Kingdom, the Netherlands, Germany, and to a lesser extent, in certain other countries.

The following table summarizes the effects of foreign exchange rate variances on revenue and segment operating results (or “FX Impact”) from Viad’s significant international operations for the years ended December 31, 2016 and 2015, excluding the effect of acquisitions completed during 2016:

2016 compared with 2015

2015 compared with 2014

The following table summarizes the FX Impact on revenue and segment operating results from Viad’s significant international operations for the years ended December 31, 2015 and 2014, excluding the effect of acquisitions completed during 2014:

Viad’s 2016 revenue and segment operating results were primarily impacted by the weakening of the British pound relative to the U.S. dollar. Viad’s 2015 revenue and segment operating results were primarily impacted by the weakening of the British pound and the Canadian dollar relative to the U.S. dollar. Future changes in the exchange rates may impact overall expected profitability and historical period-to-period comparisons when revenue and segment operating results are translated into U.S. dollars.

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Analysis of Revenue and Operating Results by Reportable Segment

GES

2016 compared with 2015

The following table provides a comparison of GES’ reported revenue and segment operating results to organic revenue and organic segment operating results for the years ended December 31, 2016 and 2015 in order to better understand the underlying performance of the segment without the effects of acquisitions or FX Impact.

** Change is greater than +/- 100 percent

GES U.S.

GES U.S. revenue increased $105.5 million or 14.6 percent, primarily due to positive show rotation of approximately $59 million, base same-show revenue growth of 4.1 percent, the incremental revenue from the acquisition of ON Services of $21.3 million, new business wins, and increased sales to corporate clients. Base same-show revenue represented 39.1 percent of GES U.S. 2016 organic revenue. Organic revenue increased $84.2 million or 11.7 percent.

GES U.S. operating income increased $26.0 million, primarily due to higher revenue and the strong operating leverage that exists within the GES business. ON Services generated a segment operating loss of $0.8 million during Viad’s partial year of ownership, which included depreciation and amortization expense of $4.0 million. Organic operating income increased $26.8 million.

GES International

GES International revenue decreased $24.1 million or 8.9 percent, primarily due to an unfavorable FX Impact of $22.6 million and negative show rotation of approximately $7 million, offset in part by new business wins. Organic revenue decreased $1.5 million or 0.5 percent.

GES International operating income decreased $2.5 million or 20.6 percent, primarily reflecting lower revenue and investments in personnel and assets to support continued growth of the business. Organic operating income decreased $1.8 million or 15.1 percent.

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2017 Outlook

Although GES has a diversified revenue base and long-term contracts for future shows, its revenue is affected by general economic and industry-specific conditions. The prospects for individual shows tend to be driven by the success of the industry related to those shows. In general, the exhibition and event industry is experiencing modest growth.

For the 2017 full year, management expects GES’ revenue to increase at a mid-single digit rate versus 2016. The August 2016 acquisition of ON Services is expected to provide incremental revenue of $45 million to $48 million and incremental Adjusted Segment EBITDA of $11 million to $13 million. GES show rotation is expected to have a negative impact on revenue of approximately $20 million compared to 2016. GES U.S. base same-show revenue is expected to increase at a mid-single digit rate. Management anticipates an unfavorable FX Impact on GES’ 2017 full year revenue and segment operating income of approximately $20 million and $1 million, respectively. The expected FX Impact reflects the expectation 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 $0.74 during 2017.

Management is executing a strategic growth plan to position GES as the preferred global, full-service provider for Live Events, with further reach to corporate events, consumer events, conferences and exhibitions. In support of this strategy, the Company acquired two leading audio-visual production businesses and three leading event technology businesses since 2014 that complement, enhance, and expand the current business and offer higher-margin growth opportunities. Management continues to pursue additional opportunities to acquire businesses with proven products and services to create the most comprehensive suite of services for the Live Events industry. During 2017, management intends to make selective investments in additional resources to capitalize on continued growth opportunities in under-penetrated categories of Live Events, such as corporate events and consumer events, and in cross-selling new services.

Additionally, management remains focused on improving the profitability of GES through continued efforts to more effectively manage labor costs by driving productivity gains through rigorous and strategic pre-show planning that reduces the ratio of labor costs to revenue. Improving this metric is a top priority of management and the Company continues to develop and enhance tools to support and systematize show site labor planning, measurement, and benchmarking.

2015 compared with 2014

The following table provides a comparison of GES’ reported revenue and segment operating results to organic revenue and organic segment operating results for the years ended December 31, 2015 and 2014 in order to better understand the underlying performance of the segment without the effects of acquisitions or FX Impact.

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GES U.S.

GES U.S. revenue increased $10.0 million or 1.4 percent, primarily due to the incremental revenue of $24.8 million from the acquisition of onPeak, base same-show revenue growth of 8.0 percent, new business wins, and increased sales to corporate clients, offset in part by negative show rotation of approximately $75 million. Base same-show revenue represented 44.7 percent of GES U.S. 2015 organic revenue. Organic revenue decreased $14.7 million or 2.1 percent.

GES U.S. operating income decreased $6.8 million or 31.9 percent, primarily due to negative show rotation revenue and higher performance-based incentives, offset in part by incremental segment operating income of $6.7 million from the acquisition of onPeak. Organic operating income decreased $13.5 million or 62.4 percent.

GES International

GES International revenue increased $23.0 million or 9.2 percent, primarily due to the incremental revenue of $23.5 million from the acquisitions of Blitz and N200, new business wins, increased client spending, and positive show rotation revenue of approximately $4 million, offset in part by an unfavorable FX Impact of $26.0 million. Organic revenue increased $25.5 million or 10.7 percent.

GES International operating income increased $1.9 million or 18.1 percent, primarily due to higher organic revenue and incremental segment operating income from the acquisitions of Blitz and N200 of $0.9 million, offset in part by higher performance-based incentives and an unfavorable FX Impact of $1.0 million. Organic operating income increased $2.0 million or 19.4 percent.

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Pursuit

2016 compared with 2015

The following table provides a comparison of Pursuit’s reported revenue and segment operating results to organic revenue and organic segment operating results for the years ended December 31, 2016 and 2015 in order to better understand the underlying performance of the segment without the effects of acquisitions or FX Impact.