UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
Commission file number 001-11015
VIAD CORP
(Exact name of registrant as specified in its charter)
DELAWARE 36-1169950
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 N. CENTRAL AVE., PHOENIX, ARIZONA 85077
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 207-4000
Indicate by check mark whether the registrant (1) has filed all
Exchange Act reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months, and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
--------- ---------
As of September 30, 1996, 95,607,699 shares of Common Stock
($1.50 par value) were outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VIAD CORP
CONSOLIDATED BALANCE SHEET
September 30, December 31,
(000 omitted) 1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 9,174 $ 16,133
Receivables, less allowance of
$17,637 and $14,793 189,972 161,600
Inventories 94,580 84,462
Deferred income taxes 23,996 31,639
Other current assets 57,593 42,170
---------- ----------
375,315 336,004
Funds, agents' receivables and
current maturities of investments,
substantially all restricted for
payment service obligations, after
eliminating $90,000 invested in
Viad commercial paper 533,350 786,081
---------- ----------
Total current assets 908,665 1,122,085
Investments restricted for
payment service obligations 1,004,309 880,035
Property and equipment 593,199 561,569
Other investments and assets 107,916 103,508
Investments in discontinued operations -- 481,269
Deferred income taxes 63,229 55,882
Intangibles 541,996 519,332
---------- ----------
$ 3,219,314 $ 3,723,680
========== ==========
September 30, December 31,
(000 omitted, except number of shares) 1996 1995
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 159,096 $ 118,212
Accrued compensation 60,830 64,918
Other current liabilities 221,767 248,581
Current portion of long-term debt 2,237 77,450
---------- ----------
443,930 509,161
Payment service obligations 1,600,685 1,739,508
---------- ----------
Total current liabilities 2,044,615 2,248,669
Long-term debt 582,460 811,841
Pension and other benefits 64,286 59,967
Other deferred items and insurance reserves 50,531 35,819
Minority interests 8,887 12,618
$4.75 Redeemable preferred stock 6,604 6,597
Common stock and other equity:
Common stock, $1.50 par value,
200,000,000 shares authorized,
97,108,724 shares issued 145,663 145,663
Additional capital 272,770 362,205
Retained income 185,353 322,439
Cumulative translation adjustments (1,447) (18,380)
Unearned employee benefits (106,116) (213,996)
Unrealized gain (loss) on securities
available for sale (5,375) 1,456
Common stock in treasury, at cost,
1,501,025 and 2,877,500 shares (28,917) (51,218)
---------- ----------
Total common stock and other equity 461,931 548,169
---------- ----------
$ 3,219,314 $ 3,723,680
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
VIAD CORP
STATEMENT OF CONSOLIDATED INCOME
Quarter ended September 30, 1996 1995
(000 omitted, except per share data) ---------- ----------
REVENUES $ 623,127 $ 542,675
---------- ----------
Costs and expenses:
Costs of sales and services 558,476 484,329
Asset write-downs 55,500
Unallocated corporate expense
and other items, net 8,143 6,839
Spin-off transaction costs 3,000
Interest expense 14,357 14,097
Minority interests 936 1,933
---------- ----------
584,912 562,698
---------- ----------
Income (loss) before income taxes 38,215 (20,023)
Income taxes (benefit) 13,064 (7,901)
---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 25,151 (12,122)
Income (loss) from discontinued operations (4,729) (77,615)
---------- ----------
NET INCOME (LOSS) $ 20,422 $ (89,737)
========== ==========
INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ 0.27 $ (0.15)
Discontinued operations (0.05) (0.87)
---------- ----------
NET INCOME (LOSS) PER COMMON SHARE $ 0.22 $ (1.02)
========== ==========
Dividends declared per common share $ 0.08 $ 0.16
========== ==========
Average outstanding common
and equivalent shares 92,192 88,760
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
VIAD CORP
STATEMENT OF CONSOLIDATED INCOME
Nine months ended September 30, 1996 1995
(000 omitted, except per share data) ---------- ----------
REVENUES $ 1,775,142 $ 1,540,104
---------- ----------
Costs and expenses:
Costs of sales and services 1,615,957 1,398,657
Asset write-downs 55,500
Unallocated corporate expense
and other items, net 27,066 24,458
Spin-off transaction costs 15,000
Interest expense 43,065 40,618
Minority interests 1,571 2,673
---------- ----------
1,702,659 1,521,906
---------- ----------
Income before income taxes 72,483 18,198
Income taxes 27,620 3,820
---------- ----------
INCOME FROM CONTINUING OPERATIONS 44,863 14,378
Income (loss) from discontinued operations 14,171 (38,963)
---------- ----------
Income (loss) before cumulative effect of
change in accounting principle 59,034 (24,585)
Cumulative effect, net of tax benefit of $8,459,
to January 1, 1995, of initial application of
SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (13,875)
---------- ----------
NET INCOME (LOSS) $ 59,034 $ (38,460)
========== ==========
INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ 0.48 $ 0.15
Discontinued operations 0.16 (0.43)
---------- ----------
Income (loss) before cumulative effect of
change in accounting principle 0.64 (0.28)
Cumulative effect of change in accounting
principle (0.16)
---------- ----------
NET INCOME (LOSS) PER COMMON SHARE $ 0.64 $ (0.44)
========== ==========
Dividends declared per common share $ 0.40 $ 0.46
========== ==========
Average outstanding common
and equivalent shares 91,338 88,394
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
/TABLE
VIAD CORP
STATEMENT OF RETAINED INCOME
Nine months ended September 30, 1996 1995
(000 omitted) ---------- ----------
Balance, beginning of year $ 322,439 $ 393,233
Net income (loss) 59,034 (38,460)
Dividends on common and preferred stock (36,374) (40,686)
Distribution of the consumer products business
to Viad stockholders (160,026)
Other 280 1,217
---------- ----------
Balance, end of period $ 185,353 $ 315,304
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
VIAD CORP
STATEMENT OF CONSOLIDATED CASH FLOWS
Nine months ended September 30, 1996 1995
(000 omitted) ---------- ----------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income (loss) $ 59,034 $ (38,460)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 63,637 57,525
Deferred income taxes 7,402 (16,751)
Spin-off transaction costs 15,000
Asset write-downs 55,500
Discontinued operations (income) loss (14,171) 38,963
Cumulative effect of change in accounting principle 13,875
Curtailment gain (3,477)
Other noncash items, net 3,828 827
Change in operating assets and liabilities:
Receivables and inventories (40,829) (33,173)
Payment service assets and
obligations, net 130,893 119,685
Accounts payable and accrued compensation 34,293 25,123
Other assets and liabilities, net (51,448) (29,401)
---------- ----------
Net cash provided by operating activities 207,639 190,236
---------- ----------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Capital expenditures (48,568) (38,540)
Purchases of cruise ships previously leased (111,103)
Acquisitions of businesses, net of cash acquired (19,396) (25,060)
Proceeds from sales of property and equipment 8,254 5,639
Investments restricted for payment service obligations:
Proceeds from sales and maturities of securities
classified as available for sale 379,925 390,833
Proceeds from maturities of securities
classified as held to maturity 7,784 12,201
Purchases of securities classified as
available for sale (384,606) (403,416)
Purchases of securities classified as
held to maturity (157,253) (103,463)
Investments in and advances from (to)
discontinued operations, net 15,109 (9,331)
Other, net (348) (63)
---------- ----------
Net cash used by investing activities (199,099) (282,303)
---------- ----------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from long-term borrowings -- 40,000
Payments on long-term borrowings (77,666) (2,218)
Net change in short-term borrowings 51,966 25,810
Dividends on common and preferred stock (36,374) (40,686)
Proceeds from sales of treasury stock 38,377 25,505
Net change in receivables sold 14,207 39,553
Cash payments on interest rate swaps (6,009) (9,509)
---------- ----------
Net cash (used) provided by financing activities (15,499) 78,455
---------- ----------
Net decrease in cash and cash equivalents (6,959) (13,612)
Cash and cash equivalents, beginning of year 16,133 24,514
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,174 $ 10,902
========== ==========
Noncash investing and financing activities
include the following:
Assumption of debt by The Dial Corporation $ 280,000
Distribution of equity in the consumer products
business to Viad stockholders 155,450
----------
435,450
Acquisition of minority interest in the
Canadian tourism business and other assets
in exchange for Viad's ownership in the
intercity bus transportation business 44,881
----------
Decrease in investments in discontinued operations $ 480,331
==========
<FN>
See Notes to Consolidated Financial Statements.
VIAD CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--Basis of Preparation
The Consolidated Financial Statements of Viad Corp ("Viad"),
previously known as The Dial Corp, include the accounts of Viad
and all of its subsidiaries.
On August 15, 1996, Viad spun off its consumer products business,
now conducted under the name The Dial Corporation. Viad also
disposed of its 68.5 percent ownership interest in its Canadian
intercity bus transportation business on May 31, 1996. The
accompanying financial statements have been prepared to reflect
Viad's historical financial position and results of operations as
adjusted for the reclassification of the consumer products and
Canadian intercity bus transportation businesses as discontinued
operations. See Note F of Notes to Consolidated Financial
Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations.
This information should be read in conjunction with the financial
statements set forth in The Dial Corp Annual Report to
Stockholders for the year ended December 31, 1995 and the Viad
Corp Form 8-K dated as of August 15, 1996 (filed September 13,
1996).
Accounting policies utilized in the preparation of the financial
information herein presented are the same as set forth in Viad's
annual financial statements except as modified for interim
accounting policies which are within the guidelines set forth in
Accounting Principles Board Opinion No. 28, "Interim Financial
Reporting." The interim consolidated financial information is
unaudited. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, necessary to
present fairly Viad's financial position as of September 30,
1996, its results of operations for the quarters and nine months
ended September 30, 1996 and 1995, and its cash flows for the
nine months ended September 30, 1996 and 1995 have been included.
Interim results of operations are not necessarily indicative of
the results of operations for the full year.
NOTE B--Investments Restricted for Payment Service Obligations
Investments restricted for payment service obligations include
the following debt and equity securities:
September 30, December 31,
1996 1995
----------- -----------
(000 omitted)
Securities available for sale, at
fair value (amortized cost of
$704,267 and $701,143) $ 695,456 $ 703,450
Securities held to maturity, at
amortized cost (fair value of
$334,014 and $191,186) 339,524 190,271
----------- ----------
1,034,980 893,721
Less current maturities (30,671) (13,686)
----------- ----------
$ 1,004,309 $ 880,035
=========== ==========
NOTE C--Debt
At September 30, 1996 and December 31, 1995, Viad classified as
long-term debt $149 million and $377 million, respectively, of
short-term borrowings supported by unused commitments under a
long-term revolving bank credit agreement. In connection with
the August 15, 1996, Distribution of the consumer products
business, Viad borrowed $280 million under a new $350 million
bank credit facility and used the proceeds to repay floating rate
indebtedness of Viad. The credit facility and the related
liability were then assumed by The Dial Corporation, effectively
transferring $280 million of Viad's outstanding indebtedness to
The Dial Corporation. Viad's reduced short-term borrowings are
supported by unused commitments under a $400 million long-term
revolving bank credit agreement. See Management's Discussion and
Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources.
NOTE D--Supplementary Information--Revenues and Operating Income
Quarter ended Nine months ended
September 30, September 30,
------------------------- --------------------------
1996 1995 1996 1995
(000 omitted) ----------- ----------- ----------- -----------
Revenues:
Airline Catering
and Services $ 225,712 $ 212,951 $ 633,694 $ 603,916
Convention Services 191,591 130,302 579,507 416,287
Travel and Leisure
and Payment
Services (1) 205,824 199,422 561,941 519,901
----------- ----------- ----------- -----------
$ 623,127 $ 542,675 $ 1,775,142 $ 1,540,104
=========== =========== =========== ===========
Operating Income (Loss):
Airline Catering
and Services (2) $ 22,712 $ 21,029 $ 54,991 $ 51,058
Convention
Services (3) 12,956 9,896 48,759 41,526
Travel and Leisure
and Payment
Services (1)(4) 28,983 (28,079) 55,435 (6,637)
----------- ----------- ----------- -----------
Total principal
business segments 64,651 2,846 159,185 85,947
Unallocated
corporate expense
and other
items, net (2) (8,143) (6,839) (27,066) (24,458)
----------- ----------- ----------- -----------
$ 56,508 $ (3,993) $ 132,119 $ 61,489
=========== =========== =========== ===========
<FN>
(1) Viad's payment services subsidiary is investing increasing amounts in tax-
exempt securities. On a fully taxable equivalent basis, revenues and operating
income would be higher by $6,136,000 and $4,129,000 for the 1996 and 1995
quarter, respectively, and by $15,163,000 and $11,501,000 for the 1996 and 1995
nine month periods, respectively.
(2) During 1996, Viad reclassified expenses related to its receivables sales
program from Costs of sales and services to Unallocated corporate expense and
other items, net. As a result, operating income of the Airline Catering and
Services segment and unallocated corporate expense each increased by $530,000,
$1,601,000 and $1,010,000 for the quarter ended September 30, 1995, the nine
months ended September 30, 1995, and the first six months of 1996, respectively.
(3) Includes a one-time gain of $3,477,000 ($2,260,000 or $0.03 per share
after-tax) in the second quarter of 1995 due to the curtailment of certain
postretirement medical benefits by a convention services subsidiary.
(4) Carrying value of certain Premier Cruise Lines intangibles and other assets
were written down $55,500,000 in the third quarter of 1995, in light of current
and anticipated conditions in its cruise market.
NOTE E--Income Taxes
A reconciliation of the provision for income taxes and the amount
that would be computed using statutory federal income tax rates on
income before income taxes for the nine months ended September 30,
is as follows:
1996 1995
(000 omitted) ------------ ------------
Computed income taxes at statutory
federal income tax rate of 35% $ 25,369 $ 6,369
Nondeductible goodwill amortization 2,932 2,089
Minority interests 550 936
State income taxes 2,729 2,758
Tax-exempt income (9,856) (7,476)
Spin-off transaction costs 5,250
Other, net 646 (856)
----------- -----------
Provision for income taxes $ 27,620 $ 3,820
=========== ===========
NOTE F--Discontinued Operations
The caption, "Income (loss) from discontinued operations" presented in
the Statement of Consolidated Income includes the following, after
income taxes where applicable:
Quarter ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1996 1995 1996 1995
(000 omitted) ----------- ----------- ----------- -----------
Consumer products
business:
Income (loss) from
operations through
August 15, 1996,
before restructuring
charges and spin-
off transaction
costs (1) $ (3,729) $ 2,328 $ 35,620 $ 44,808
Restructuring
charges (82,100) (82,100)
Spin-off
transaction
costs (2) (1,000) (5,000)
----------- ----------- ----------- -----------
(4,729) (79,772) 30,620 (37,292)
----------- ----------- ----------- -----------
Canadian intercity
bus transportation
business, net of
minority interests:
Income (loss) from
operations through
May 31, 1996 -- 2,157 (583) 2,150
Cumulative effect of
initial application
of SFAS No. 121 (3,821)
Spin-off and exchange
transaction costs
and loss on
disposition (3) (3,600)
Recognition of
previously
unrealized foreign
currency translation
losses upon
disposition (3) (12,266)
----------- ----------- ----------- -----------
-- 2,157 (16,449) (1,671)
----------- ----------- ----------- -----------
Discontinued
operations $ (4,729) $ (77,615) $ 14,171 $ (38,963)
=========== =========== =========== ===========
<FN>
(1) In conjunction with the spin-off of Viad's consumer products business,
certain liabilities and deferred income tax assets related to specified pension
and postretirement plans of former employees of Armour and Company, which was
previously a subsidiary of Viad, were transferred to and assumed by The Dial
Corporation. Income (loss) from operations of the consumer products business
includes expenses arising from such items.
(2) In connection with the spin-off of Viad's consumer products business on
August 15, 1996, estimated spin-off transaction costs totaling $20,000,000
without tax benefit have been recorded, of which $16,000,000 was recorded in the
second quarter of 1996 (including $4,000,000 allocated to the consumer products
business) and $4,000,000 was recorded in the third quarter of 1996 (including
$1,000,000 allocated to the consumer products business).
(3) Spin-off and exchange transaction costs totaling $1,579,000, associated with
the May 31, 1996 disposition of the Canadian intercity bus transportation
business, were recorded in the second quarter of 1996, along with a noncash loss
on the disposition of $2,021,000 and the recognition of previously unrealized
foreign currency translation losses of $12,266,000. The translation losses had
previously been deducted from common stock and other equity in accordance with
SFAS No. 52.
NOTE G--Dividends Declared Per Common Share
The third quarter common stock dividend of $0.08 per share was
declared on August 15, 1996, payable to stockholders of record
August 30, 1996. This was the first common stock dividend declared
since the spin-off of the consumer products business and, when
added together with The Dial Corporation's third quarter dividend
declaration of $0.08 per common share, results in a combined
dividend rate for Viad and The Dial Corporation for the quarter and
year-to-date comparable to the dividend rate of The Dial Corp prior
to the spin-off.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS:
On August 15, 1996, Viad Corp ("Viad"), previously known as The
Dial Corp, completed the spin-off of its consumer products
business, now conducted under the name The Dial Corporation. In
effecting the spin-off, one share of The Dial Corporation common
stock was distributed for each share of Viad common stock
outstanding (the "Distribution").
Effective May 31, 1996, shareholders of a majority-owned Viad
subsidiary, Greyhound Lines of Canada ("GLOC"), voted to separate
its intercity bus transportation business and its tourism
business into two independent companies. At the same time, GLOC
minority shareholders approved an automatic share exchange
proposal whereby their ownership interests in the tourism
business, aggregating 31.5 percent, were exchanged for Viad's
68.5 percent ownership interest in the intercity bus
transportation company such that Viad became the owner of 100
percent of the tourism company in exchange for its ownership in
the intercity bus transportation business (the "Disposition").
The accompanying financial statements have been prepared to
reflect Viad's historical financial position and results of
operations as adjusted for the reclassification of the consumer
products and Canadian intercity bus transportation businesses as
discontinued operations for all periods presented. See Liquidity
and Capital Resources and Note F of Notes to Consolidated
Financial Statements.
COMPARISON OF THIRD QUARTER OF 1996 TO THE THIRD QUARTER OF 1995:
In the third quarter of 1996, revenues increased $80.5 million,
or 14.8 percent, to $623.1 million. Excluding asset write-downs
of $55.5 million recorded in the third quarter of 1995, 1996
third quarter operating income of Viad's principal business
segments increased $6.3 million, or 10.8 percent, over that of
1995.
Income from continuing operations for the third quarter of 1996
was $25.2 million, or $0.27 per share. Before deducting an
additional provision for estimated spin-off transaction costs of
$3.0 million, or $0.03 per share, income from continuing
operations for the 1996 quarter was $28.2 million, or $0.30 per
share. Excluding after-tax asset write-downs of $35.1 million,
or $0.40 per share, income from continuing operations for the
third quarter of 1995 was $23.0 million, or $0.25 per share.
Net income for the third quarter of 1996 was $20.4 million, or
$0.22 per share, compared to a net loss of $89.7 million, or
$1.02 per share in the 1995 third quarter. The 1996 third
quarter included a loss from discontinued operations of $4.7
million, or $0.05 per share, attributable to the consumer
products business (spun-off on August 15, 1996 as The Dial
Corporation). The 1995 third quarter included a loss from
discontinued operations of $77.6 million, or $0.87 per share,
arising from the consumer products business and the Canadian
intercity bus transportation business (disposal effective May 31,
1996). The 1995 loss from discontinued operations was caused by
restructuring charges of $82.1 million recorded by the consumer
products business. See Note F of Notes to Consolidated Financial
Statements.
AIRLINE CATERING AND SERVICES.
The third quarter 1996 revenues of the Airline Catering and
Services group were $225.7 million, a 6.0 percent increase from
the 1995 third quarter revenues of $213.0 million. Operating
income increased $1.7 million, or 8.0 percent, over that of the
1995 third quarter, and operating margins improved to 10.1
percent from 1995's 9.9 percent. The increase in revenues and
operating income is attributable primarily to new business,
including an eight-city airline catering contract with a major
airline phased in through the first part of 1996.
CONVENTION SERVICES.
Convention Services third quarter 1996 revenues increased $61.3
million, or 47.0 percent, to $191.6 million from $130.3 million
in the 1995 third quarter, as the 1996 period benefitted from the
acquisition of Giltspur Inc. in October 1995. The 1996 quarter
also included revenues from contracts involving the Atlanta
Olympics and the Democratic National Convention. Operating
income increased $3.1 million, or 30.9 percent, as a result of
the increased revenues and improved cost controls. Operating
margins declined from 7.6 percent in the third quarter of 1995 to
6.8 percent in the 1996 quarter, due to the change in the mix of
convention business as a result of the acquisition of Giltspur.
TRAVEL AND LEISURE AND PAYMENT SERVICES.
Revenues of the Travel and Leisure and Payment Services companies
were $205.8 million for the third quarter of 1996, up $6.4
million (3.2 percent) from those of the 1995 third quarter.
Excluding asset write-downs of $55.5 million in the 1995 third
quarter, operating income increased 5.7 percent to $29.0 million.
Viad's payment services subsidiary continues to invest increasing
amounts in tax-exempt securities. On a fully taxable equivalent
basis, third quarter revenues and operating income would have
been higher by $6.1 million and $4.1 million in 1996 and 1995,
respectively. Operating margins on the fully taxable equivalent
basis would have been 16.6 percent in the third quarter of 1996,
up from 15.5 percent in the 1995 third quarter. The overall
third quarter segment comparison would have been better but for
the June 30, 1996, sale of the Oakbrook, Illinois resort and
conference hotel, which had contributed strong seasonal revenues
and operating income in the 1995 quarter.
On the fully taxable equivalent basis, payment services revenues
and operating income increased $3.8 million and $1.8 million,
respectively, over those of 1995's third quarter, primarily as a
result of increased investment income arising from larger
investment balances.
Duty Free and shipboard concession revenues increased $9.5
million over those of the 1995 third quarter, due primarily to
revision of an airport concession contract (formerly on a
management fee basis) in December 1995, which was offset by a
decrease in the number of shipboard passenger days. Operating
income improved $300,000 as the cost of sales from the revised
airport concession arrangement offset much of the revenue
increases.
Cruise revenues decreased $300,000 from those of the 1995 third
quarter due to a decreased number of passenger days. Excluding
the $55.5 million write-down of Premier Cruise Line assets in the
1995 third quarter, operating results improved $1.3 million over
that of 1995 due to cost reduction efforts.
Travel tour service revenues and operating income increased $3.0
million and $1.6 million, respectively, over those of the 1995
third quarter. Revenues were augmented by tour operations
acquired late in 1995 as well as strong growth in icefield tour
revenues.
Food service companies 1996 third quarter revenues remained even
with the 1995 third quarter. Increased revenues at Glacier Park
due to a later fall closing and increased business at America
West Arena due to the addition of Phoenix Coyotes hockey games
was offset by the closure of two fast food locations earlier in
1996 as well as the closure of the last location at Chicago's
O'Hare Airport in August 1996. Operating income increased
$800,000 as a result of the increased Glacier Park and America
West Arena revenues as well as reduced costs.
UNALLOCATED CORPORATE EXPENSE AND OTHER ITEMS, NET.
There was an increase of $1.3 million over 1995 in these
expenses.
INTEREST EXPENSE.
Interest expense increased $300,000 over 1995's third quarter.
Debt levels for the first part of the 1996 quarter were higher
than in the 1995 quarter, due to expenditures for acquisitions
late in 1995, including the acquisition of Giltspur in October
1995. As noted under Liquidity and Capital Resources, in
connection with the August 15, 1996, spin-off of Viad's consumer
products business, Viad borrowed $280 million under a new $350
million bank credit facility and used the proceeds to repay
floating rate indebtedness of Viad. The credit facility and the
related liability were then assumed by The Dial Corporation,
effectively transferring a portion of Viad's outstanding
indebtedness to The Dial Corporation. Thus, third quarter 1996
debt levels following the spin-off were lower.
INCOME TAXES.
Excluding the effects of the $3.0 million provision for estimated
spin-off transaction costs without tax benefit in 1996, and
excluding the effects of the asset write-downs in the third
quarter of 1995, the effective tax rate in the 1996 third quarter
was 31.7 percent, down from 35.2 percent in 1995. The reduction
in the effective tax rate results primarily from the increased
use of tax-exempt investments by Viad's payment services
subsidiary. In addition, the lower than normal effective
corporate tax rate is due to tax-exempt income becoming a larger
portion of total pre-tax income upon the spin-off of the consumer
products business.
COMPARISON OF FIRST NINE MONTHS OF 1996 TO THE
FIRST NINE MONTHS OF 1995:
Revenues for the first nine months of 1996 increased $235.0
million, or 15.3 percent, to $1.8 billion from $1.5 billion in
the same period of 1995. Excluding the 1995 second quarter one-
time gain of $3.5 million (pre-tax) on curtailment of certain
postretirement medical benefits in the convention services
segment and excluding the 1995 third quarter asset write-downs of
$55.5 million (pre-tax) in the travel and leisure and payment
services segment, 1996 nine month operating income of Viad's
principal business segments increased $17.7 million, or 12.5
percent, over that of the 1995 nine month period.
Income from continuing operations for the first nine months of
1996 was $44.9 million, or $0.48 per share, after deducting
provisions for estimated spin-off transaction costs of $15.0
million, or $0.16 per share. Income from continuing operations
for the first nine months of 1995 was $14.4 million, or $0.15 per
share, after deducting $35.1 million, or $0.40 per share (after-
tax), in asset write-downs and including the curtailment gain of
$2.3 million, or $0.03 per share, after-tax.
For the first nine months of 1996, net income was $59.0 million,
or $0.64 per share, compared to a net loss of $38.5 million, or
$0.44 per share, for the first nine months of 1995. The 1996
nine month period included income from discontinued operations of
$14.2 million, or $0.16 per share. The 1995 nine month period
included a loss from discontinued operations of $39.0 million, or
$0.43 per share, which was due primarily to restructuring charges
of $82.1 million recorded by the consumer products business in
the third quarter of 1995. See Note F of Notes to Consolidated
Financial Statements. The 1995 period also included a one-time
noncash charge of $13.9 million, or $0.16 per share, to record
the cumulative effect to January 1, 1995, of the initial
application of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
There were 2.9 million more average common and equivalent shares
outstanding in 1996 than in 1995, due primarily to the effects of
stock option exercises and other issuances related to employee
benefit and dividend reinvestment plans, as well as the
conversion of employee stock options upon the spin-off.
AIRLINE CATERING AND SERVICES.
Nine month revenues of the Airline Catering and Services
companies were $633.7 million, a $29.8 million or 4.9 percent
increase from those of the first nine months of 1995, while
operating income increased $3.9 million or 7.7 percent to $55.0
million. New business, including an eight-city airline catering
contract with a major airline phased in through the first part of
1996 and a seven-city contract with another major airline
beginning in mid-1995, offset the adverse impact from severe
weather conditions in the Southeast and on the East Coast which
hampered operations and airline schedules during the first
quarter of 1996. Operating margins improved to 8.7 percent from
1995's 8.5 percent.
CONVENTION SERVICES.
Convention Services' nine month revenues of $579.5 million were
$163.2 million, or 39.2 percent, greater than the 1995 nine month
period, as 1996 benefitted from the acquisition of Giltspur in
October 1995. Excluding the 1995 one-time curtailment gain
described above, 1996 operating income increased 28.1 percent to
$48.8 million, as a result of the Giltspur acquisition and
improved cost controls. On this same basis, operating margins
decreased to 8.4 percent from 9.1 percent, as the mix of
convention business changed with the addition of Giltspur.
TRAVEL AND LEISURE AND PAYMENT SERVICES.
For the first nine months of 1996, revenues of the Travel and
Leisure and Payment Services companies were $561.9 million, up
$42.0 million, or 8.1 percent, from those of the 1995 period.
Excluding the $55.5 million write-down of Premier Cruise Lines
assets in the third quarter of 1995, operating income increased
13.4 percent to $55.4 million. Viad's payment services
subsidiary continues to invest increasing amounts in tax-exempt
securities. On a fully taxable equivalent basis, revenues and
operating income would have been $15.2 million and $11.5 million
higher in 1996 and 1995, respectively. Operating margins on the
fully taxable equivalent basis would be 12.2 percent for the
first nine months of 1996, up from 11.4 percent in the comparable
period of 1995.
On the fully taxable equivalent basis, revenues and operating
income of payment services increased $12.1 million and $5.3
million, respectively, over those of 1995's first nine months,
due principally to increased investment income arising from
larger investment balances.
Duty Free airport and shipboard concession revenues increased
$37.2 million over those of the first nine months of 1995, due
primarily to the December 1995 revision of an airport concession
contract (formerly on a management fee basis). Operating income
improved $1.0 million as the cost of sales from the revised
airport concession arrangement offset much of the revenue
increases.
Cruise revenues for the first nine months of 1996 were $3.7
million higher than those of 1995, due to higher revenue yield
per passenger day as well as the impact on 1995 revenues from
drydocks for ship repairs. Excluding asset write-downs of $55.5
million taken in the third quarter of 1995, operating results
improved $9.2 million due to the increased revenues as well as
cost reduction efforts and lower lease expense resulting from the
1995 purchase of two cruise ships previously leased.
Travel tour service revenues improved $9.4 million over the first
nine months of 1995, while operating results increased $700,000,
as a result of contributions from tour operations acquired in
1995 and strong growth in icefield tour revenues.
Revenues and operating income of the food service companies for
the first nine months of 1996 were down $1.5 million and
$800,000, respectively, from the same period in 1995. A General
Motors strike in March 1996 temporarily closed plants served by
Restaura's contract foodservice operation. In addition, two fast
food locations and the O'Hare Airport foodservice location were
closed during 1996.
UNALLOCATED CORPORATE EXPENSE AND OTHER ITEMS, NET.
These items increased $2.6 million over those of 1995.
INTEREST EXPENSE.
Interest expense for the first nine months of 1996 increased $2.4
million over the first nine months of 1995. As discussed in
Liquidity and Capital Resources, in connection with the spin-off
of the consumer products business in August 1996, Viad reduced
its floating rate indebtedness by $280 million. However, average
debt for the nine month period was higher than the comparable
1995 period. The effect of increased debt over 1995 levels was
partially offset by lower interest rates on floating-rate debt.
The increased debt levels were due to expenditures for
acquisitions in 1995, including Giltspur in October 1995 and
purchases of the Star/Ship Majestic in February 1995 and the
Star/Ship Atlantic in July 1995 (both ships were previously
leased).
INCOME TAXES.
Excluding the effects of the $15.0 million provision for
estimated spin-off transaction costs without tax benefit, the
effective tax rate for the first nine months of 1996 was 31.6
percent. Excluding the $55.5 million asset-write downs in 1995,
the 1995 effective tax rate for the comparable period was 32.9
percent. The decrease in the effective tax rate results
primarily from the increased use of tax-exempt investments by
Viad's payment services subsidiary. In addition, the lower than
normal effective corporate tax rate is due to tax-exempt income
becoming a larger portion of total pre-tax income upon the spin-
off of the consumer products business.
LIQUIDITY AND CAPITAL RESOURCES:
In connection with the August 15, 1996 Distribution of the
consumer products business, Viad borrowed $280 million under a
new $350 million bank credit facility and used the proceeds to
repay floating rate indebtedness of Viad. The credit facility
and the related liability were then assumed by The Dial
Corporation, effectively transferring $280 million of Viad's
outstanding indebtedness to The Dial Corporation. Viad's reduced
short-term borrowings are supported by unused commitments under a
$400 million long-term revolving bank credit agreement.
Viad's total debt at September 30, 1996 was $584.7 million
compared with $889.3 million at December 31, 1995. After giving
effect to the Distribution, including the reduced debt noted
above and a noncash $155.5 million reduction of equity (net of a
$4.5 million reduction in unrealized foreign currency translation
losses), the debt-to-capital ratio at September 30, 1996 was 0.55
to 1. The debt-to-capital ratio at December 31, 1995 was 0.61 to
1. On a pro forma basis, after giving effect to the assumption
of debt by The Dial Corporation and the reduction of equity upon
the Distribution, Viad's debt-to-capital ratio would have been
approximately 0.60 to 1 at December 31, 1995.
Fluctuations in the balances of payment service assets and
obligations result from varying levels of sales of money orders
and other payment instruments, the timing of the collections of
agents' receivables and the timing of the presentment of such
instruments.
Other than the Distribution of Viad's consumer products business
and the Disposition of its Canadian intercity bus transportation
business described earlier, there were no material changes in
Viad's financial condition nor were there any substantive changes
relative to matters discussed in the Liquidity and Capital
Resources section of Management's Discussion and Analysis of
Results of Operations and Financial Condition as presented in
Viad Corp's Form 8-K dated as of August 15, 1996.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the third quarter of 1996.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. 10 - Employment Agreement for Robert
Bohannon
Exhibit No. 11 - Statement Re Computation of Per Share
Earnings
Exhibit No. 27 - Financial Data Schedule
(b) Two reports on Form 8-K dated as of August 15,
1996 were filed by the registrant during the
quarter for which this report is filed. The
first Form 8-K (filed August 16, 1996)
reported under Item 5 that Viad had completed
the spin-off of its consumer products business
into an independent, publicly traded company
known as The Dial Corporation. Viad paid a
Distribution dividend of one share of The Dial
Corporation for each share of The Dial Corp
held by stockholders of record on August 5,
1996. Viad also announced the election of two
directors and the appointment of Robert H.
Bohannon as a director and president and chief
operating officer. Related press releases
were filed under Item 7.
The second Form 8-K (filed September 13, 1996)
reported under Item 5 the Distribution of the
consumer products business and the Disposition of
the Canadian intercity bus transportation business,
and set forth in Exhibit 99 of Item 7 Viad's audited
financial statements and certain other financial
information presenting these businesses as
discontinued operations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
VIAD CORP
(Registrant)
November 4, 1996 By /s/Richard C. Stephan
------------------------
Richard C. Stephan
Vice President-Controller
(Chief Accounting Officer
and Authorized Officer)