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, 1997
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 October 31, 1997, 96,506,631 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) 1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 9,957 $ 4,422
Receivables, less allowance of
$12,053 and $12,744 172,099 163,262
Inventories 103,617 93,730
Deferred income taxes 25,245 32,567
Other current assets 53,375 59,562
---------- ----------
364,293 353,543
Funds, agents' receivables and current
maturities of investments restricted
for payment service obligations,
after eliminating $90,000 invested
in Viad commercial paper 449,408 670,258
---------- ----------
Total current assets 813,701 1,023,801
Investments restricted for
payment service obligations 1,452,167 1,144,279
Property and equipment 454,256 473,039
Other investments and assets 115,613 125,705
Investment in discontinued operations 97,958
Deferred income taxes 77,238 47,904
Intangibles 548,235 540,626
---------- ----------
$ 3,461,210 $ 3,453,312
========== ==========
September 30, December 31,
(000 omitted, except share data) 1997 1996
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 150,781 $ 148,990
Accrued compensation 63,573 68,976
Other current liabilities 181,919 263,049
Current portion of long-term debt 3,169 2,348
---------- ----------
399,442 483,363
Payment service obligations 1,954,664 1,869,480
---------- ----------
Total current liabilities 2,354,106 2,352,843
Long-term debt 421,089 518,779
Pension and other benefits 66,561 61,689
Other deferred items and insurance reserves 103,364 73,291
Minority interests 8,514 7,888
$4.75 Redeemable preferred stock 6,611 6,604
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 290,097 282,203
Retained income 185,506 146,664
Cumulative translation adjustments (2,837) (1,519)
Unearned employee benefits (120,132) (118,766)
Unrealized gain on securities
available for sale 9,374 205
Common stock in treasury, at cost,
370,301 and 1,162,718 shares (6,706) (22,232)
---------- ----------
Total common stock and other equity 500,965 432,218
---------- ----------
$ 3,461,210 $ 3,453,312
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
VIAD CORP
STATEMENT OF CONSOLIDATED INCOME
Quarter ended September 30, 1997 1996
(000 omitted, except per share data) ---------- ----------
REVENUES $ 622,226 $ 598,290
---------- ----------
Costs and expenses:
Costs of sales and services 553,971 534,538
Unallocated corporate expense
and other items, net 6,910 7,335
Sale of trade accounts receivable expense 1,110 808
Spin-off costs and management transition expenses 3,000
Interest expense 11,471 13,520
Minority interests 555 936
---------- ----------
574,017 560,137
---------- ----------
Income before income taxes 48,209 38,153
Income taxes 14,359 13,064
---------- ----------
INCOME FROM CONTINUING OPERATIONS 33,850 25,089
Loss from discontinued operations (4,667)
---------- ----------
NET INCOME $ 33,850 $ 20,422
========== ==========
INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ 0.36 $ 0.27
Discontinued operations (0.05)
---------- ----------
NET INCOME PER COMMON SHARE $ 0.36 $ 0.22
========== ==========
Dividends declared per common share $ 0.08 $ 0.08
========== ==========
Average outstanding common
and equivalent shares 94,339 92,192
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
VIAD CORP
STATEMENT OF CONSOLIDATED INCOME
Nine months ended September 30, 1997 1996
(000 omitted, except per share data) ---------- ----------
REVENUES $ 1,806,897 $ 1,698,041
---------- ----------
Costs and expenses:
Costs of sales and services 1,641,286 1,544,736
Unallocated corporate expense
and other items, net 22,412 25,248
Sale of trade accounts receivable expense 3,330 1,818
Spin-off costs and management transition expenses 15,000
Interest expense 38,073 40,554
Minority interests 1,039 1,571
---------- ----------
1,706,140 1,628,927
---------- ----------
Income before income taxes 100,757 69,114
Income taxes 29,712 26,507
---------- ----------
INCOME FROM CONTINUING OPERATIONS 71,045 42,607
Income from discontinued operations 16,427
---------- ----------
Income before extraordinary charge 71,045 59,034
Extraordinary charge for early retirement
of debt, net of tax benefit of $4,554 (8,458)
---------- ----------
NET INCOME $ 62,587 $ 59,034
========== ==========
INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ 0.75 $ 0.46
Discontinued operations 0.18
---------- ----------
Income before extraordinary charge 0.75 0.64
Extraordinary charge (0.09)
---------- ----------
NET INCOME PER COMMON SHARE $ 0.66 $ 0.64
========== ==========
Dividends declared per common share $ 0.24 $ 0.40
========== ==========
Average outstanding common
and equivalent shares 93,632 91,338
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
VIAD CORP
STATEMENT OF RETAINED INCOME
Nine months ended September 30, 1997 1996
(000 omitted) ---------- ----------
Balance, beginning of year $ 146,664 $ 322,439
Net income 62,587 59,034
Dividends on common and preferred stock (22,715) (36,374)
Distribution of the consumer products
business to Viad stockholders (1,216) (160,026)
Other 186 280
---------- ----------
Balance, end of period $ 185,506 $ 185,353
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
VIAD CORP
STATEMENT OF CONSOLIDATED CASH FLOWS
Nine months ended September 30, 1997 1996
(000 omitted) ---------- ----------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income $ 62,587 $ 59,034
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 58,995 55,616
Deferred income taxes 2,879 7,305
Income from discontinued operations (16,427)
Extraordinary charge for early retirement of debt 8,458
Spin-off costs and management transition expenses 15,000
Other noncash items, net (3,215) 3,216
Change in operating assets and liabilities:
Receivables and inventories (20,576) (37,102)
Payment service current assets and
obligations, net 198,847 130,893
Proceeds from agents' receivables sold 119,396
Accounts payable and accrued compensation (3,612) 32,972
Other assets and liabilities, net (42,570) (48,495)
---------- ----------
Net cash provided by operating activities 381,189 202,012
---------- ----------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Capital expenditures (71,178) (47,333)
Purchase of asset previously leased (20,997)
Acquisitions of businesses, net of cash acquired (18,676) (19,396)
Proceeds from sales of property and equipment, net 89,852 8,242
Investments restricted for payment service obligations:
Proceeds from sales and maturities of securities
classified as available for sale 535,441 379,925
Proceeds from maturities of securities
classified as held to maturity 25,061 7,784
Purchases of securities classified as
available for sale (765,767) (384,606)
Purchases of securities classified as
held to maturity (97,525) (157,253)
Investments in and advances from discontinued
operations, net 66,545 32,693
---------- ----------
Net cash used by investing activities (257,244) (179,944)
---------- ----------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Payments on long-term borrowings (75,780) (77,666)
Premium paid upon early retirement of debt (13,012)
Net change in short-term borrowings (21,003) 51,966
Dividends on common and preferred stock (22,715) (36,374)
Proceeds from sales of treasury stock 16,373 38,377
Cash payments on interest rate swaps (2,273) (6,009)
---------- ----------
Net cash used by financing activities (118,410) (29,706)
---------- ----------
Net increase (decrease) in cash
and cash equivalents 5,535 (7,638)
Cash and cash equivalents, beginning of year 4,422 17,945
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,957 $ 10,307
========== ==========
<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")
include the accounts for Viad and all of its subsidiaries. This
information should be read in conjunction with the financial
statements set forth in the Viad Corp Annual Report to
Stockholders for the year ended December 31, 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,
1997, and its results of operations and its cash flows for the
quarters and nine months ended September 30, 1997 and 1996 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,
1997 1996
----------- -----------
(000 omitted)
Securities available for sale, at
fair value (amortized cost of
$981,476 and $748,642) $ 996,843 $ 748,977
Securities held to maturity, at
amortized cost (fair value of
$484,255 and $403,278) 478,152 405,921
----------- ----------
1,474,995 1,154,898
Less current maturities (22,828) (10,619)
----------- ----------
$ 1,452,167 $ 1,144,279
=========== ==========
NOTE C--Sale of Viad Tower
During May 1997, Viad sold its corporate headquarters building
for $73,000,000, before expenses of sale. As part of the
transaction, Viad is leasing back the portion of the building it
currently occupies for nearly 15 years. Accordingly, the excess
of the net sales price over the net book value of the building
was deferred and is being amortized over the remaining term of
the lease.
NOTE D--Sale of Agents' Receivables
In September 1997, Viad's payment services subsidiary entered
into a five year agreement to sell, on a periodic basis,
undivided percentage ownership interests in certain receivables
in an amount not to exceed $250,000,000. The receivables,
representing funds in transit from money order agents, are being
sold in order to accelerate payment services' cash flow for
investment in admissible securities (which are available to
satisfy certain state requirements that qualified assets be equal
to or exceed related payment service obligations at all times).
The agents' receivables sold in the third quarter of 1997 totaled
$119,396,000. The expense of selling such receivables amounted
to approximately $467,000 for the quarter ended September 30,
1997, which has been deducted in arriving at payment service
operating income.
NOTE E--Debt
In September 1997, Viad reduced the aggregate bank commitments
available under a long-term revolving bank credit agreement from
$400,000,000 to $300,000,000. The commitments support short-term
borrowings made through Viad's issuance of commercial paper and
promissory notes. Also in the third quarter, the agreement was
extended an additional year to expire in 2002. At September 30,
1997 and December 31, 1996, Viad classified $62,997,000 and
$84,000,000, respectively, of short-term borrowings supported by
such unused commitments as long-term debt.
As discussed in Liquidity and Capital Resources, in late March
1997, Viad repurchased $58,414,000 par value of its 10.5 percent
subordinated debentures at a premium, resulting in an
extraordinary after-tax charge of $8,458,000.
NOTE F--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:
1997 1996
(000 omitted) ------------ ------------
Computed income taxes at statutory
federal income tax rate of 35% $ 35,265 $ 24,190
Nondeductible goodwill amortization 3,106 2,932
Minority interests 364 550
State income taxes 3,501 2,794
Tax-exempt income (13,676) (9,856)
Spin-off transaction costs 5,250
Adjustment to estimated annual
effective rate 500
Other, net 652 647
----------- -----------
Provision for income taxes $ 29,712 $ 26,507
=========== ===========
NOTE G--Supplementary Information--Revenues and Operating Income
Quarter ended Nine months ended
September 30, September 30,
------------------------- --------------------------
1997 1996 1997 1996
(000 omitted) ----------- ----------- ----------- -----------
Revenues:
Airline Catering
and Services $ 244,537 $ 225,712 $ 687,355 $ 633,694
Convention Services 181,310 191,591 612,977 579,507
Travel and Leisure
and Payment
Services (1) 196,379 180,987 506,565 484,840
----------- ----------- ----------- -----------
$ 622,226 $ 598,290 $ 1,806,897 $ 1,698,041
=========== =========== =========== ===========
Operating Income:
Airline Catering
and Services $ 24,342 $ 22,712 $ 58,788 $ 54,991
Convention
Services 14,046 12,956 54,273 48,759
Travel and Leisure
and Payment
Services (1) 29,867 28,084 52,550 49,555
----------- ----------- ----------- -----------
Total principal
business segments 68,255 63,752 165,611 153,305
Unallocated
corporate expense
and other
items, net (6,910) (7,335) (22,412) (25,248)
Sale of trade
accounts
receivable
expense (1,110) (808) (3,330) (1,818)
----------- ----------- ----------- -----------
$ 60,235 $ 55,609 $ 139,869 $ 126,239
=========== =========== =========== ===========
<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 $7,103,000 and $6,136,000 for the 1997 and 1996
quarters, respectively, and by $21,040,000 and $15,163,000 for the 1997 and 1996
nine month periods, respectively.
NOTE H--Discontinued Operations
The caption, "Income (loss) from discontinued operations" presented
in the Statement of Consolidated Income for the quarter and nine
months ended September 30, 1996, includes the following, after
income taxes where applicable:
Quarter ended Nine months ended
September 30, 1996 September 30, 1996
------------------ ------------------
(000 omitted)
Consumer products business
(spun off August 15, 1996
as The Dial Corporation):
Income (loss) from operations $ (3,729) $ 35,620
Spin-off costs and management
transition expenses (1,000) (5,000)
----------- -----------
(4,729) 30,620
----------- -----------
Canadian intercity bus transportation
business, net of applicable minority
interests (disposed of May 31, 1996):
Loss from operations (583)
Transaction costs, loss on
disposition and foreign
currency translation losses (1) (15,866)
-----------
(16,449)
-----------
Cruise line business (sold
April 17, 1997):
Income from operations 62 2,256
----------- -----------
Income (loss) from discontinued
operations $ (4,667) $ 16,427
=========== ===========
<FN>
(1) Includes spin-off and exchange transaction costs, totaling $1,579,000,
associated with the disposition of the Canadian intercity bus transportation
business, along with a loss recorded on the disposition of $2,021,000 and
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 I--Dividends Declared Per Common Share
The decline in dividends declared per common share for the nine
months ended September 30, 1997, as compared to the first nine
months of 1996, reflects the spin-off of Viad's consumer products
business, now conducted under the name The Dial Corporation, on
August 15, 1996. Viad's quarterly dividend decreased from $0.16
per share to $0.08 per share following the spin-off. The Dial
Corporation's initial quarterly dividend of $0.08 per share after
the spin-off maintained the $0.16 quarterly dividend for
stockholders who retained shares of both companies following the
spin-off.
NOTE J--Impact of New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share." SFAS No. 128 requires the dual
presentation of basic and diluted earnings per share ("EPS") on the
face of the income statement and requires a reconciliation of the
numerators and denominators of basic and diluted EPS calculations.
SFAS No. 128 will be effective for Viad's 1997 fiscal year. Early
adoption of the Statement is not permitted. Pro forma basic and
diluted net income per common share as defined for the third
quarter and nine month periods ended September 30 would be as
follows had SFAS No. 128 been adopted for those periods:
Quarter ended Nine months ended
September 30, September 30,
------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
Basic $ 0.37 $ 0.23 $ 0.68 $ 0.66
Diluted 0.36 0.22 0.66 0.64
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," to be effective in 1998. SFAS No. 130
establishes standards for reporting and displaying comprehensive
income and its components. The adoption of SFAS No. 130 will not
affect net income as previously reported.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
requires disclosure of certain financial and descriptive
information for each reportable operating segment based on
management's internal organizational decision making structure.
SFAS No. 131 also establishes standards for disclosures relating to
products and services, geographic areas and major customers. The
new disclosures required by SFAS No. 131 will be effective for
Viad's financial statements for the year ending December 31, 1998.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS:
There were no material changes in the nature of Viad's business, nor
were there any other changes in the general characteristics of its
operations as described and discussed in the first paragraph of the
results section of Management's Discussion and Analysis of Results of
Operations and Financial Condition presented in the Viad Corp Annual
Report to Stockholders for the year ended December 31, 1996.
COMPARISON OF THIRD QUARTER OF 1997 TO THE THIRD QUARTER OF 1996:
In the third quarter of 1997, revenues increased $23.9 million, or 4.0
percent, to $622.2 million from $598.3 million in 1996. The 1997
third quarter operating income of Viad's principal business segments
increased $4.5 million, or 7.1 percent, over that of 1996. Viad's
payment services subsidiary continues to invest increasing amounts of
its growing money order and official check funds in tax-exempt
securities. On a fully taxable equivalent basis, revenues rose 4.1
percent and operating income was up 7.8 percent.
Income from continuing operations for the third quarter of 1997 was
$33.9 million, or $0.36 per share. Income from continuing operations
for the third quarter of 1996 was $25.1 million, or $0.27 per share,
after deducting a provision for spin-off costs and management
transition expenses of $3.0 million, or $0.03 per share.
Net income for the third quarter of 1997 was $33.9 million, or $0.36
per share. Net income for the third quarter of 1996 was $20.4
million, or $0.22 per share, which included a loss from discontinued
operations of $4.7 million, or $0.05 per share. See Note H of Notes
to Consolidated Financial Statements.
There were 2.1 million more average common and equivalent shares
outstanding in the 1997 quarter than in the 1996 quarter, due
primarily to the effects of stock option exercises and other issuances
related to employee benefit plans.
AIRLINE CATERING AND SERVICES.
The third quarter 1997 revenues of the Airline Catering and Services
group were $244.5 million, an 8.3 percent increase from the 1996 third
quarter revenues of $225.7 million. On a fully comparable basis, the
revenue increase was 7.1 percent, as the reported 1996 revenues did
not include two catering kitchens which had only been 50 percent owned
in 1996. Operating income increased $1.6 million, or 7.2 percent,
over that of the 1996 third quarter. This performance was led by
airline catering, with into-plane fueling and ground handling showing
some improvement in operating income despite slightly lower revenues
resulting from eliminating certain low-margin business. Catering
revenues and operating income increased primarily as a result of new
business added over the past year, including the acquisition of a
flight kitchen in Miami in early 1997. Operating margins for the
segment were 10.0 percent as compared with 10.1 percent in 1996. When
the 1996 unconsolidated revenues from the two catering kitchens which
had only been 50 percent owned are considered, last year's margin
would have been 10.0 percent, even with 1997 on a fully comparable
basis.
CONVENTION SERVICES.
Convention Services third quarter 1997 revenues decreased $10.3
million, or 5.4 percent, to $181.3 million from $191.6 million in the
1996 third quarter. The third quarter of 1996 included revenues from
the Atlanta Olympic Games and the Democratic National Convention.
Despite the lower revenues, operating income increased $1.1 million,
or 8.4 percent, and operating margins improved to 7.7 percent from 6.8
percent in the 1996 third quarter. These increases were achieved as
the result of efficiencies gained from the consolidation of Giltspur
Inc. operations with Exhibitgroup, strong segment revenue growth
(excluding the effects of the one-time events mentioned above) and
improved show management cost controls at GES Exposition Services.
TRAVEL AND LEISURE AND PAYMENT SERVICES.
Revenues of the Travel and Leisure and Payment Services companies were
$196.4 million for the third quarter of 1997, up $15.4 million from
those of the 1996 third quarter. Operating income increased 6.3
percent to $29.9 million. On the fully taxable equivalent basis,
third quarter revenues and operating income would be higher by $7.1
million and $6.1 million in 1997 and 1996, respectively, resulting in
an 8.7 percent revenue increase and an 8.0 percent operating income
increase. Operating margins on the fully taxable equivalent basis
would be 18.2 percent in the third quarter of 1997, down slightly from
18.3 percent in the 1996 third quarter.
On the fully taxable equivalent basis, payment services revenues and
operating income increased $11.2 million and $2.4 million,
respectively, over those of 1996's third quarter, primarily as a
result of increased investment income arising from larger investment
balances and the contribution from two acquisitions by payment
services made in the first quarter of 1997.
Duty Free and shipboard concession revenues and operating income
increased $4.0 million and $400,000, respectively, over those of the
1996 third quarter, due primarily to an increase in the number of
shipboard passenger days and increased sales at Miami International
Airport.
Travel tour service revenues and operating income decreased $1.3
million and $1.5 million, respectively, from those of the 1996 third
quarter, as Japanese tourism into Canada and European tourism to the
United States were both down from 1996 levels. See Recent
Developments.
Food service companies revenues and operating income increased $2.5
million and $800,000, respectively, in the 1997 third quarter, due
primarily to higher revenues at America West Arena and Glacier Park.
UNALLOCATED CORPORATE EXPENSE AND OTHER ITEMS, NET.
Unallocated corporate expense and other items, net, decreased $400,000
from the third quarter of 1996.
SALE OF TRADE ACCOUNTS RECEIVABLE EXPENSE.
Expenses from the sale of trade accounts receivable were higher by
$300,000 in the third quarter of 1997 compared to the third quarter of
1996. The average level of such accounts receivable sold by
continuing operations was higher in 1997 than in 1996, as Viad still
had consumer products trade receivables in the program up to the
August 15, 1996, spin-off of the consumer products business, now
reclassified to discontinued operations.
INTEREST EXPENSE.
Interest expense decreased $2.0 million in the 1997 third quarter.
Viad repurchased $58.4 million par value of its 10.5 percent
subordinated debentures in late March 1997, resulting in lower
interest expense in the third quarter of 1997 compared to the 1996
quarter. In addition, cash proceeds from the sale of the Star/Ship
Atlantic in March, the disposition of Premier Cruise Lines in April
and the sale/leaseback of Viad's corporate headquarters building in
May resulted in lower debt levels and reduced interest expense.
INCOME TAXES.
The effective tax rate in the 1997 third quarter was 29.8 percent.
Excluding the effects of the $3.0 million provision for spin-off costs
and management transition expenses without tax benefit, the effective
tax rate for the third quarter of 1996 was 31.7 percent. The
reduction in the effective tax rate results primarily from the
increased use of tax-exempt investments by Viad's payment services
subsidiary.
COMPARISON OF FIRST NINE MONTHS OF 1997 TO THE
FIRST NINE MONTHS OF 1996:
Revenues for the first nine months of 1997 increased $108.9 million,
or 6.4 percent, to $1.8 billion from $1.7 billion in the same period
of 1996. Operating income of Viad's principal business segments
increased $12.3 million, or 8.0 percent, over that of 1996. On the
fully taxable equivalent basis, revenues rose 6.7 percent and
operating income was up 10.8 percent.
Income from continuing operations for the first nine months of 1997
was $71.0 million, or $0.75 per share. Income from continuing
operations for the first nine months of 1996 was $42.6 million, or
$0.46 per share, after deducting a provision for spin-off costs and
management transition expenses of $15.0 million, or $0.16 per share.
For the first nine months of 1997, net income was $62.6 million, or
$0.66 per share, after deducting an extraordinary charge of $8.5
million (net of tax benefit of $4.6 million), or $0.09 per share, for
the early retirement of debt. Net income for the same period of 1996
was $59.0 million, or $0.64 per share, which included income from
discontinued operations of $16.4 million, or $0.18 per share.
There were 2.3 million more average common and equivalent shares
outstanding in 1997 than in 1996, due primarily to the effects of
stock option exercises and other issuances related to employee benefit
plans.
AIRLINE CATERING AND SERVICES.
Nine month revenues of the Airline Catering and Services group were
$687.4 million in 1997, an 8.5 percent increase from the 1996 nine
month revenues of $633.7 million. On a fully comparable basis, the
revenue increase was 6.8 percent, as the reported 1996 revenues did
not include two catering kitchens which had only been 50 percent owned
in 1996. Operating income increased $3.8 million, or 6.9 percent, to
$58.8 million for the first nine months of 1997. The segment
performance was led by airline catering. Catering revenues and
operating income increased primarily as a result of new business
added, including the acquisition of a flight kitchen in Miami in early
1997. Operating margins were 8.6 percent in 1997 compared with 8.7
percent in 1996. On a fully comparable basis, including
unconsolidated 1996 revenues from the two catering kitchens which had
only been 50 percent owned, the 1996 operating margin would have been
8.5 percent.
CONVENTION SERVICES.
Convention Services' nine month revenues of $613.0 million were $33.5
million, or 5.8 percent, greater than the 1996 nine month period.
Operating income increased 11.3 percent to $54.3 million, and
operating margins increased to 8.9 percent from 8.4 percent in 1996.
These increases were achieved as a result of efficiencies gained from
the consolidation of Giltspur Inc. operations with Exhibitgroup,
strong segment revenue growth (excluding the effects of the Atlanta
Olympic Games and the Democratic National Convention held in 1996) and
improved show management cost controls at GES Exposition Services.
TRAVEL AND LEISURE AND PAYMENT SERVICES.
For the first nine months of 1997, revenues of the Travel and Leisure
and Payment Services companies were $506.6 million, up $21.7 million,
or 4.5 percent, from those of the 1996 nine month period. Operating
income increased 6.0 percent to $52.6 million. On the fully taxable
equivalent basis, nine month revenues and operating income would be
higher by $21.0 million and $15.2 million in 1997 and 1996,
respectively, for a 5.5 percent revenue increase and a 13.7 percent
operating income increase. Excluding the 1996 revenues of Oakbrook
Hills Hotel & Resort, sold June 30, 1996, the nine month revenue
increase was 7.7 percent. Operating margins on the fully taxable
equivalent basis would be 13.9 percent for the first nine months of
1997, up from 12.9 percent in the comparable period of 1996.
On the fully taxable equivalent basis, payment services revenues and
operating income increased $27.7 million and $7.1 million,
respectively, over those of 1996's first nine months, due principally
to increased investment income arising from larger investment balances
and business generated from two acquisitions made in the first quarter
of 1997.
Duty Free airport and shipboard concession revenues and operating
income increased $5.7 million and $500,000, respectively, over those
of the first nine months of 1996, due to an increase in the number of
shipboard passenger days and increased sales at Miami International
Airport.
Travel tour service revenues improved $2.2 million over the first nine
months of 1996, due in part to the effects of an acquisition made in
the third quarter of 1996. Operating results declined $2.4 million as
a consequence of the lower 1997 passenger volumes and higher costs to
provide services. See Recent Developments.
Revenues of the food service companies for the first nine months of
1997 increased $2.2 million over those of the 1996 nine month period.
Increased business at America West Arena (due to the addition of
Phoenix Coyotes hockey games) and increased revenues at General Motors
(due to strikes at certain General Motors plants in the first quarter
of 1996) were partly offset by the closure of certain locations in
1996. Operating income increased $2.4 million, due primarily to the
higher revenues and improved cost efficiencies when compared to the
effects of the strikes on 1996 operations.
UNALLOCATED CORPORATE EXPENSE AND OTHER ITEMS, NET.
Unallocated corporate expense and other items, net, decreased $2.8
million from the same period of 1996.
SALE OF TRADE ACCOUNTS RECEIVABLE EXPENSE.
Expenses from the sale of trade accounts receivable were higher by
$1.5 million in the first nine months of 1997 compared to the same
period of 1996. The average level of accounts receivable sold by
Viad's continuing operations was higher in 1997 than in 1996, as Viad
still had consumer products trade receivables in the program up to the
August 15, 1996, spin-off of the consumer products business, now
reclassified to discontinued operations.
INTEREST EXPENSE.
Interest expense for the first nine months of 1997 decreased $2.5
million from that of the same period of 1996. Viad repurchased $58.4
million par value of its 10.5 percent subordinated debentures in late
March 1997, resulting in lower interest expense. In addition,
proceeds from the sale of the Star/Ship Atlantic, the disposition of
Premier Cruise Lines and the sale of Viad's corporate headquarters
building results in lower debt levels and reduced interest expense.
INCOME TAXES.
The effective tax rate for the first nine months of 1997 was 29.5
percent. Excluding the effects of the $15.0 million provision for
spin-off costs and management transition expenses without tax benefit,
the effective tax rate for the first nine months of 1996 was 31.5
percent. The reduction in the effective tax rate results primarily
from the increased use of tax-exempt investments by Viad's payment
services subsidiary.
LIQUIDITY AND CAPITAL RESOURCES:
In late March 1997, Viad repurchased $58.4 million par value of its
10.5 percent subordinated debentures at a premium, resulting in an
extraordinary charge of $8.5 million (net of tax benefit of $4.6
million), or $0.09 per share. The tender offer was financed with
general corporate funds, operating cash flow, proceeds from the sale
of certain assets and short-term borrowings. The purpose of the
repurchase was to reduce ongoing interest expense.
In September 1997, Viad reduced the aggregate bank commitments
available under its long-term revolving bank credit agreement from
$400 million to $300 million. Also in the third quarter, the
agreement was extended an additional year to expire in 2002. The
commitments support short-term borrowings made through Viad's issuance
of commercial paper and promissory notes.
Viad's total debt at September 30, 1997 was $424.3 million compared
with $521.1 million at December 31, 1996. The debt-to-capital ratio
at September 30, 1997 was 0.45 to 1, down from 0.54 to 1 at December
31, 1996.
In September 1997, Viad's payment services subsidiary entered into a
five year agreement to sell, on a periodic basis, undivided percentage
ownership interests in certain receivables in an amount not to exceed
$250 million. The receivables, representing funds in transit from
money order agents, are being sold in order to accelerate payment
services' cash flow for investments in admissible securities (which
are available to satisfy certain state requirements that qualified
assets be equal to or exceed related payment service obligations at
all times). See Note D of Notes to Consolidated Financial Statements.
As mentioned previously in Note C of Notes to Consolidated Financial
Statements, in May 1997, Viad sold its corporate headquarters building
for $73.0 million, before selling expenses. In mid-March 1997, Viad
sold the Star/Ship Atlantic for $70.0 million, and in April 1997, Viad
finalized the sale of Premier Cruise Lines for $19.0 million.
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. Increases in the
amount of agents' receivables sold also result in increases in the
levels of investments restricted for payment service obligations
(classified as long-term assets) and lower payment service current
assets.
RECENT DEVELOPMENTS:
In September 1997, Viad announced that it had signed an agreement to
enter into a merger with Game Financial Corporation ("Game"), with
Viad to issue common stock in exchange for 100 percent of the
outstanding shares of Game. Game, which offers cash access services
to casinos and other gaming establishments, will operate as part of
Viad's payment services group. In early October 1997, Viad filed a
Form S-4 registering 2,800,000 shares of common stock. The proxy
statement/prospectus became effective on November 7, 1997. The number
of shares to be issued in the merger depends on Viad's average stock
price for a defined period leading up to the merger date. The
acquisition, which is not material to Viad's results of operations,
is anticipated to be completed by year end.
In October 1997, Viad completed the sale of two small British travel
tour companies from the travel and leisure and payment services
segment.
There were no other 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 Annual Report to Stockholders for the year
ended December 31, 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 1997.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. 10A - Viad Corp Deferred Compensation Plan
Amended and Restated as of August 21, 1997
Exhibit No. 10B - 1997 Viad Corp Omnibus Incentive Plan, As
Amended, filed as Exhibit 4.3 to Viad's Form S-8,
Registration No. 333-35231, is hereby incorporated by
reference.
Exhibit No. 11 - Statement Re Computation of Per Share
Earnings
Exhibit No. 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed by the
registrant during the quarter for which this
report is filed.
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 12, 1997 By /s/ Richard C. Stephan
-------------------------
Richard C. Stephan
Vice President-Controller
(Chief Accounting Officer
and Authorized Officer)