Note 3. Acquisition of Businesses

Maligne Lake Tours

On January 4, 2016, the Company acquired the assets and operations of Maligne Tours Ltd. (“Maligne Lake Tours”), which provides interpretive boat tours and related services at Maligne Lake, the largest lake in Jasper National Park. The purchase price was $20.9 million Canadian dollars (approximately $15.0 million U.S. dollars) in cash, subject to certain adjustments.

The following table summarizes the allocation of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed based on the estimated fair value as of the acquisition date. The purchase price allocation remains open and may be adjusted as a result of the finalization of the Company’s purchase price allocation procedures related to the assessment of accrued liabilities, property and equipment, and intangible assets.

(in thousands)
Purchase price paid as:
Cash			$	14,962

Fair value of net assets acquired:
Inventories	$	246
Prepaid expenses		2
Property and equipment		4,133
Intangible assets		9,244
Total assets acquired		13,625
Customer deposits		15
Total liabilities assumed		15
Total fair value of net assets acquired				13,610
Excess purchase price over fair value of net assets acquired (“goodwill”)			$	1,352

Under the acquisition method of accounting, the purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over the fair value of net assets acquired was recorded as goodwill. Goodwill is included in the Travel & Recreation Group and the primary factor that contributed to the purchase price resulting in the recognition of goodwill relates to future growth opportunities when combined with the Company’s other businesses. Goodwill is expected to be deductible for tax purposes pursuant to Canadian tax regulations. The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature. Transaction costs associated with the acquisition of Maligne Lake Tours were $0.1 million in 2016 and $0.2 million in 2015, and are included in corporate activities in Viad’s condensed consolidated statements of operations.

Identified intangible assets acquired in the Maligne Lake Tours acquisition totaled $9.2 million and consist of operating licenses, customer relationships, and trade name. The weighted-average amortization period related to the intangible assets is 26.7 years, largely attributable to operating licenses amortized over the remaining Parks Canada lease of 29 years.

The results of operations of Maligne Lake Tours have been included in Viad’s condensed consolidated financial statements from the date of acquisition. During the three months ended September 30, 2016, revenue and operating income related to Maligne Lake Tours were $4.7 million and $2.4 million, respectively. During the nine months ended September 30, 2016, revenue and operating income related to Maligne Lake Tours were $6.3 million and $2.3 million, respectively.

CATC

On March 11, 2016, the Company acquired 100 percent of the equity interest in CATC, the operator of an Alaskan tourism business that includes a marine sightseeing tour business, three lodges, and a package tour business. The purchase price was $45.0 million in cash, subject to certain adjustments.

The following table summarizes the updated allocation of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed based on the estimated fair value as of the acquisition date. During the nine months ended September 30, 2016, the Company made certain purchase accounting measurement period adjustments based on refinements to assumptions used in the preliminary valuation of approximately $89,000 from working capital receivable, $0.1 million to accounts payable, and $16,000 from accrued liabilities. All other balances in the following table remain unchanged. The purchase price allocation remains open and may be adjusted as a result of the finalization of the Company’s purchase price allocation procedures related to the assessment of property and equipment, and intangible assets.

(in thousands)
Purchase price paid as:
Cash			$	45,000
Working capital				(35	)
Cash acquired				(2,196	)
Purchase price, net of cash acquired				42,769

Fair value of net assets acquired:
Accounts receivable	$	8
Inventories		921
Prepaid expenses		82
Property and equipment		43,470
Intangible assets		980
Total assets acquired		45,461
Accounts payable		306
Accrued liabilities		434
Customer deposits		1,952
Total liabilities assumed		2,692
Total fair value of net assets acquired				42,769
Excess purchase price over fair value of net assets acquired (“goodwill”)			$	—

Under the acquisition method of accounting, the purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature. Transaction costs associated with the acquisition of CATC were $0.1 million in 2016 and $0.6 million in 2015 and are included in corporate activities in Viad’s condensed consolidated statements of operations.

Identified intangible assets acquired in the CATC acquisition totaled $1.0 million and consist of customer relationships and trade names. The weighted-average amortization period related to the intangible assets is 5.8 years.

The results of operations of CATC have been included in Viad’s condensed consolidated financial statements from the date of acquisition. During the three months ended September 30, 2016, revenue and operating income related to CATC were $18.7 million and $8.0 million, respectively. During the nine months ended September 30, 2016, revenue and operating income related to CATC were $28.1 million and $8.9 million, respectively.

ON Services

On August 11, 2016, the Company acquired the assets and operations of ON Event Services, LLC (“ON Services”), a leading provider of audio-visual production services for live events in the United States. The aggregate purchase price was up to $92.5 million in cash, subject to certain adjustments, which includes an earnout payment (the “Earnout”) of up to $5.5 million. The fair value of the Earnout was valued on the date of acquisition and will be remeasured quarterly based on a probability weighted assessment that the financial performance targets of ON Services may be achieved for 2016. As of the transaction date, the fair value of the Earnout was estimated to be $540,000. Refer to Note 12 – Fair Value Measurements for the estimated fair value of the Earnout as of September 30, 2016.

The following table summarizes the preliminary recording of the fair value of the assets acquired and liabilities assumed as of the acquisition date. Due to the recent timing of the acquisition, the purchase price allocation is not yet finalized and is subject to change within the measurement period (up to one year from the acquisition date) as the assessment of contingent consideration, property and equipment, intangible assets, and working capital is finalized.

(in thousands)
Purchase price paid as:
Cash			$	87,000
Working capital adjustment				972
Contingent consideration				540
Purchase price				88,512

Fair value of net assets acquired:
Accounts receivable	$	4,813
Inventories		270
Prepaid expenses		974
Property and equipment		14,827
Intangible assets		33,340
Total assets acquired		54,224
Accounts payable		879
Accrued liabilities		472
Customer deposits		851
Other liabilities		274
Total liabilities assumed		2,476
Total fair value of net assets acquired				51,748
Excess purchase price over fair value of net assets acquired (“goodwill”)			$	36,764

Under the acquisition method of accounting, the purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over the fair value of net assets acquired was recorded as goodwill. Goodwill is included in the Marketing & Events Group and the primary factor that contributed to the purchase price resulting in the recognition of goodwill primarily relates to future growth opportunities when combined with the Company’s other businesses. Goodwill is expected to be deductible for tax purposes over 15 years. The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature. Transaction costs associated with the acquisition of ON Services were $0.8 million in 2016 and were included in corporate activities in Viad’s condensed consolidated statement of operations.

Identified intangible assets acquired in the ON Services acquisition totaled $33.3 million and consist of customer relationships, trade names, and non-compete agreements. The weighted-average amortization period related to the intangible assets is 10.4 years.

The results of operations of ON Services have been included in Viad’s condensed consolidated financial statements from the date of acquisition. During the three months ended September 30, 2016, revenue and operating income related to ON Services were $7.8 million and $0.5 million, respectively.

Supplementary pro forma financial information

The following table summarizes the unaudited pro forma results of operations attributable to Viad, assuming the above acquisitions had each been completed on January 1, 2015:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2016		2015		2016		2015
Revenue	$	387,751	$	290,205	$	985,482	$	911,762
Depreciation and amortization	$	13,885	$	14,001	$	37,776	$	38,591
Income from continuing operations	$	34,794	$	12,852	$	47,148	$	31,589
Net income attributable to Viad	$	33,581	$	12,001	$	45,612	$	30,841
Diluted income per share ⁽¹⁾	$	1.65	$	0.60	$	2.25	$	1.54
Basic income per share	$	1.65	$	0.60	$	2.25	$	1.54

⁽¹⁾Diluted income per share amount cannot exceed basic income per share.