1
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 June 30, 2000
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 June 30, 2000, 92,837,060 shares of Common Stock ($1.50 par value) were
outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIAD CORP
CONSOLIDATED BALANCE SHEETS
June 30, 2000 December 31,
(000 omitted, except number of shares) (Unaudited) 1999
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 42,468 $ 33,106
Short-term investments 28,442 95,545
Receivables 76,511 43,276
Inventories 101,170 73,687
Deferred income taxes 35,122 36,990
Other current assets 39,807 36,664
- ----------------------------------------------------------------------------------------------------------------
323,520 319,268
Funds, agents' receivables and current maturities of investments
restricted for payment service obligations, after eliminating
$25,000 and $50,000 invested in Viad commercial paper 780,524 602,893
- ----------------------------------------------------------------------------------------------------------------
Total current assets 1,104,044 922,161
Investments in securities 166,262 173,359
Investments restricted for payment service obligations 3,248,764 2,936,171
Property and equipment 305,580 313,623
Other investments and assets 110,582 121,159
Deferred income taxes 94,093 115,058
Intangibles 646,270 629,340
- ----------------------------------------------------------------------------------------------------------------
$ 5,675,595 $ 5,210,871
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank loans $ 13,523 $ 13,855
Accounts payable 114,834 82,465
Other current liabilities 203,806 204,228
Current portion of long-term debt 26,323 32,814
- ----------------------------------------------------------------------------------------------------------------
358,486 333,362
Payment service obligations 3,988,729 3,587,834
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 4,347,215 3,921,196
Long-term debt 359,291 342,603
Pension and other postretirement benefits 71,369 71,402
Other deferred items and insurance liabilities 140,821 154,435
Minority interests 3,900 5,950
$4.75 Redeemable preferred stock 6,649 6,640
Common stock and other equity:
Common stock, $1.50 par value, 200,000,000 shares
authorized, 99,739,925 shares issued 149,610 149,610
Additional capital 276,138 289,798
Retained income 695,103 643,352
Unearned employee benefits and other (109,354) (129,818)
Accumulated other comprehensive income:
Unrealized loss on securities classified as available for sale (54,004) (70,021)
Cumulative translation adjustments (7,119) (4,935)
Minimum pension liability adjustment (1,674) (1,674)
Common stock in treasury, at cost, 6,902,865 and 5,497,132 shares (202,350) (167,667)
- ----------------------------------------------------------------------------------------------------------------
Total common stock and other equity 746,350 708,645
- ----------------------------------------------------------------------------------------------------------------
$ 5,675,595 $ 5,210,871
================================================================================================================
See Notes to Consolidated Financial Statements.
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VIAD CORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Quarter ended June 30, Six months ended June 30,
(000 omitted, except per share data) 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Revenues (Note H):
Ongoing operations $ 464,165 $ 407,508 $ 867,083 $ 764,637
Sold businesses 12,363 12,888 17,664 29,164
- ----------------------------------------------------------------------------------------------------------------
476,528 420,396 884,747 793,801
- ----------------------------------------------------------------------------------------------------------------
Costs and expenses:
Costs of sales and services 416,306 365,648 783,234 708,653
Corporate activities 4,757 5,141 9,518 10,294
Net interest expense 2,298 7,132 4,431 13,627
Minority interests 370 785 508 1,286
- ----------------------------------------------------------------------------------------------------------------
423,731 378,706 797,691 733,860
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes 52,797 41,690 87,056 59,941
Income taxes 10,489 8,666 18,695 12,067
- ----------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 42,308 33,024 68,361 47,874
Income from discontinued operations 11,143 16,678
- ----------------------------------------------------------------------------------------------------------------
NET INCOME $ 42,308 $ 44,167 $ 68,361 $ 64,552
================================================================================================================
DILUTED INCOME PER COMMON SHARE:
CONTINUING OPERATIONS $ 0.46 $ 0.33 $ 0.74 $ 0.48
Discontinued operations 0.12 0.17
- ----------------------------------------------------------------------------------------------------------------
Net income per share $ 0.46 $ 0.45 $ 0.74 $ 0.65
================================================================================================================
BASIC INCOME PER COMMON SHARE:
Continuing operations $ 0.47 $ 0.34 $ 0.76 $ 0.49
Discontinued operations 0.12 0.18
- ----------------------------------------------------------------------------------------------------------------
Net income per share $ 0.47 $ 0.46 $ 0.76 $ 0.67
================================================================================================================
Average outstanding common shares 89,301 94,863 89,608 94,751
Additional dilutive shares related
to stock-based compensation 2,447 3,645 2,369 3,729
- ----------------------------------------------------------------------------------------------------------------
Average outstanding and potentially
dilutive common shares 91,748 98,508 91,977 98,480
================================================================================================================
Dividends declared per common share $ 0.09 $ 0.09 $ 0.18 $ 0.17
================================================================================================================
Preferred stock dividends $ 284 $ 282 $ 567 $ 565
================================================================================================================
See Notes to Consolidated Financial Statements.
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VIAD CORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Quarter ended June 30, Six months ended June 30,
(000 omitted) 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 42,308 $ 44,167 $ 68,361 $ 64,552
- ----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities
classified as available for sale:
Holding gains (losses) arising during the period 1,030 (39,283) 16,836 (43,430)
Reclassification adjustment for realized gains included
in net income (673) (802) (819) (2,209)
- -----------------------------------------------------------------------------------------------------------------------------------
357 (40,085) 16,017 (45,639)
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized foreign currency translation adjustments:
Holding gains (losses) arising during the period (1,829) 1,022 (2,184) 1,203
- -----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (1,472) (39,063) 13,833 (44,436)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 40,836 $ 5,104 $ 82,194 $ 20,116
===================================================================================================================================
See Notes to Consolidated Financial Statements.
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VIAD CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
(000 omitted) 2000 1999
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income $ 68,361 $ 64,552
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 35,499 30,114
Deferred income taxes 12,543 (9,025)
Income from discontinued operations (16,678)
Gains on sales of businesses, property and other assets, net (2,390) (4,391)
Other noncash items, net 2,011 6,133
Change in operating assets and liabilities:
Receivables and inventories (49,451) 4,383
Payment service assets and obligations, net 219,427 398,115
Accounts payable and accrued compensation 10,661 (16,250)
Other assets and liabilities, net (3,772) (5,998)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 292,889 450,955
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Capital expenditures (18,590) (25,456)
Acquisitions of businesses, net of cash acquired (24,155) (10,587)
Proceeds from sales of businesses, property and other assets, net 2,858 53,991
Proceeds from sales and maturities of securities 970,835 581,316
Purchases of securities (1,175,860) (981,208)
Cash used by discontinued operations (34,598)
- ---------------------------------------------------------------------------------------------------------
Net cash used by investing activities (244,912) (416,542)
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Payments on long-term borrowings (30,319) (2,337)
Net change in short-term borrowings 39,805 33,000
Dividends on common and preferred stock (16,728) (16,754)
Exercise of stock options 7,084 16,240
Common stock purchased for treasury (38,457) (55,010)
- ---------------------------------------------------------------------------------------------------------
Net cash used by financing activities (38,615) (24,861)
- ---------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 9,362 9,552
Cash and cash equivalents, beginning of year 33,106 15,554
- ---------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,468 $ 25,106
=========================================================================================================
See Notes to Consolidated Financial Statements.
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VIAD CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PREPARATION
The Consolidated Financial Statements of Viad Corp ("Viad") include the accounts
of 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 on Form 10-K for the year ended December 31, 1999.
On July 13, 2000, Viad completed the sale of its concession operations at
America West Arena and Bank One Ballpark in Phoenix, Arizona. The sale of the
concession operations will be recorded in the third quarter of 2000.
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 June 30, 2000, and its results of operations and its cash flows for the
quarters and six months ended June 30, 2000 and 1999 have been included. Interim
results of operations are not necessarily indicative of the results of
operations for the full year.
Certain prior year amounts have been reclassified to conform with the 2000
presentation.
NOTE B - ASSETS RESTRICTED FOR PAYMENT SERVICE OBLIGATIONS
Viad's Payment Services subsidiaries generate funds from the sale of money
orders and other payment instruments, with the related liabilities classified as
"Payment service obligations." Substantially all of the proceeds of such sales,
along with certain additional subsidiary funds, are invested in permissible
securities, principally debt instruments. Such investments, along with related
cash and funds in transit, are restricted by state regulatory agencies for use
by the subsidiary to satisfy the liability to pay, upon presentment, the face
amount of such payment service obligations. In addition, certain funds and other
investments and the fair value of off-balance-sheet swap agreements (described
below) of Payment Services subsidiaries are available if necessary to meet such
obligations. Accordingly, such assets of Payment Services subsidiaries are not
available to satisfy working capital or other financing requirements of Viad.
As described in notes to Viad's annual financial statements, a Payment Services
subsidiary hedges a substantial portion of the variable rate commission payments
to its selling agents and the variable rate expense of selling receivables from
its bill payment and money order agents through the purchase of swap agreements.
The swap agreements effectively convert such variable rate payments to fixed
rate payments. The fair value of such swap agreements, while not recorded on
Viad's Consolidated Balance Sheets, normally increases when the fair values of
fixed rate, long-term debt investments held by Payment Services subsidiaries
decline (and vice versa).
Under normal circumstances, the swap agreements will not be terminated prior to
maturity, nor is there any requirement to sell long-term debt securities prior
to maturity, as the funds flow from ongoing sales of money orders and other
payment instruments and funds from maturing long-term and short-term investments
are expected to be adequate to settle payment service items as they are
presented.
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The following is a summary of asset and liability carrying amounts related to
the payment service obligations, including additional subsidiary funds and the
fair value of related off-balance-sheet swap agreements:
June 30, December 31,
(000 omitted) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Funds, agents' receivables and current maturities of
investments restricted for payment service obligations,
including $25,000 and $50,000 invested in
Viad commercial paper (1) $ 805,524 $ 652,893
Investments restricted for payment service obligations (2) 3,248,764 2,936,171
Other assets available for payment service obligations 14,307 3,009
Payment service obligations (3,988,729) (3,587,834)
Fair value of off-balance-sheet swap agreements (3) 58,991 56,708
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 138,857 $ 60,947
===========================================================================================================================
(1) The commercial paper is supported by Viad's revolving bank credit agreement
(see Note E).
(2) Securities classified as "available for sale" are carried at market value,
and securities classified as "held to maturity" are carried at amortized cost in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (see Note C). The
decrease in the unrealized loss for the first six months of 2000 was due
principally to decreases in longer-term market interest rates.
(3) The fair value represents the estimated amounts that Viad would receive from
counterparties to terminate the swap agreements at June 30, 2000 and December
31, 1999.
NOTE C - INVESTMENTS RESTRICTED FOR PAYMENT SERVICE OBLIGATIONS
Investments restricted for payment service obligations include the following
debt and equity securities:
June 30, December 31,
(000 omitted) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Securities classified as available for sale, at fair value
(amortized cost of $2,355,930 and $2,278,793) $ 2,270,841 $ 2,167,250
Securities classified as held to maturity, at amortized cost
(fair value of $985,184 and $771,668) 990,130 788,068
- ---------------------------------------------------------------------------------------------------------------------------
3,260,971 2,955,318
Less current maturities (12,207) (19,147)
- ---------------------------------------------------------------------------------------------------------------------------
$ 3,248,764 $ 2,936,171
===========================================================================================================================
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NOTE D - NET INTEREST EXPENSE
Net interest expense consists of the following:
Quarter ended June 30, Six months ended June 30,
(000 omitted) 2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense $ 6,041 $ 7,132 $ 12,652 $ 13,627
Interest income (1) (3,743) (8,221)
- --------------------------------------------------------------------------------------------------------------------------------
Net interest expense $ 2,298 $ 7,132 $ 4,431 $ 13,627
================================================================================================================================
(1) Represents income related to investment of a portion of the proceeds from
the sale of Dobbs International Services, Inc. (sold July 1, 1999). These
securities are included in the Consolidated Balance Sheets under the caption,
"Investments in securities" with the current portion and investments with
original maturities of three months or less included under the caption,
"Short-term investments."
NOTE E - DEBT
At June 30, 2000 and December 31, 1999, Viad classified as long-term debt
$84,137,000 and $44,000,000, respectively, of short-term borrowings which, along
with the $25,000,000 and $50,000,000, respectively, of commercial paper issued
to a Viad Payment Services subsidiary, are supported by unused commitments under
a $300,000,000 long-term revolving bank credit agreement.
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 six months ended June 30, is as follows:
(000 omitted) 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Computed income taxes at statutory federal income tax rate of 35% $ 30,470 $ 20,979
Nondeductible goodwill amortization 1,682 1,624
State income taxes 1,800 1,244
Tax-exempt income (17,072) (13,271)
Adjustment to estimated annual effective rate 1,900 1,750
Other, net (85) (259)
- --------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 18,695 $ 12,067
==========================================================================================================================
NOTE G - IMPACT OF STAFF ACCOUNTING BULLETIN
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101") that summarizes the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Adoption of SAB 101
is not expected to have a material effect on Viad's financial position, results
of operations or cash flows.
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NOTE H - SUPPLEMENTARY INFORMATION - REVENUES AND OPERATING INCOME
Viad measures profit and performance of its operations on the basis of operating
income before nonrecurring items. An adjustment is made to the Payment Services
segment to present revenues and operating income on a fully taxable equivalent
basis for income resulting from investments in tax-exempt securities.
Intersegment sales and transfers are not significant. Corporate activities
include expenses not allocated to operations. Consolidated revenues, operating
income and interest expense reflect the elimination of intercompany interest
payments on investments in Viad commercial paper by a Payment Services
subsidiary.Disclosures regarding Viad's reportable segments along with
reconciliations to consolidated totals are presented below.
Quarter ended June 30, Six months ended June 30,
(000 omitted) 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Revenues:
Payment Services $ 167,635 $ 141,845 $ 319,485 $ 272,980
Convention and Event Services 295,638 259,831 557,490 494,951
- -------------------------------------------------------------------------------------------------------------------------------
Reportable segments 463,273 401,676 876,975 767,931
Travel and Recreation Services 18,415 20,413 22,915 24,275
- -------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL, ONGOING OPERATIONS 481,688 422,089 899,890 792,206
Sold travel and recreation businesses (1) 12,363 12,888 17,664 29,164
Intercompany interest elimination (677) (1,671) (1,622) (3,326)
Less taxable equivalent adjustment (16,846) (12,910) (31,185) (24,243)
- -------------------------------------------------------------------------------------------------------------------------------
$ 476,528 $ 420,396 $ 884,747 $ 793,801
===============================================================================================================================
Operating income:
Payment Services $ 38,310 $ 30,322 $ 68,056 $ 54,452
Convention and Event Services 33,326 33,292 60,790 57,330
- -------------------------------------------------------------------------------------------------------------------------------
Reportable segments 71,636 63,614 128,846 111,782
Travel and Recreation Services 4,815 3,509 3,317 1,644
- -------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL, ONGOING OPERATIONS 76,451 67,123 132,163 113,426
Sold travel and recreation businesses (1) 1,294 2,206 2,157 (709)
Corporate activities (4,757) (5,141) (9,518) (10,294)
Intercompany interest elimination (677) (1,671) (1,622) (3,326)
Less taxable equivalent adjustment (16,846) (12,910) (31,185) (24,243)
- -------------------------------------------------------------------------------------------------------------------------------
55,465 49,607 91,995 74,854
Net interest expense (2,298) (7,132) (4,431) (13,627)
Minority interests (370) (785) (508) (1,286)
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 52,797 $ 41,690 $ 87,056 $ 59,941
===============================================================================================================================
(1) On July 13, 2000, Viad completed the sale of its concession operations at
America West Arena and Bank One Ballpark in Phoenix, Arizona. The sold travel
and recreation businesses category includes revenues and operating results of
the sold concession operations through June 30, 2000, along with the results of
other sold businesses not classified as discontinued operations up to their
respective dates of sale. The sale of the concession operations will be recorded
in the third quarter of 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS:
Viad Corp ("Viad") focuses on two principal service businesses: Payment Services
and Convention and Event Services.
On July 13, 2000, Viad completed the sale of its concession operations at
America West Arena and Bank One Ballpark in Phoenix, Arizona. The sold travel
and recreation businesses category includes revenues and operating results of
the sold concession operations through June 30, 2000, along with the results of
other sold businesses not classified as discontinued operations up to their
respective dates of sale. The sale of the concession operations will be recorded
in the third quarter of 2000.
There were no other 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 "Results of Operations" section of Management's
Discussion and Analysis of Results of Operations and Financial Condition
presented in the Viad Corp Annual Report on Form 10-K for the year ended
December 31, 1999.
All per share figures discussed are stated on the diluted basis.
COMPARISON OF SECOND QUARTER OF 2000 TO THE SECOND QUARTER OF 1999:
In the second quarter of 2000, revenues increased $56.1 million, or 13.4
percent, to $476.5 million from $420.4 million in 1999. Revenues of ongoing
operations on a fully taxable equivalent basis, excluding the sold travel and
recreation businesses, rose 14.1 percent for the quarter.
Income from continuing operations for the second quarter of 2000 was $42.3
million, or $0.46 per share, an increase of 39.4 percent on a per share basis
from the 1999 second quarter income from continuing operations of $33.0 million,
or $0.33 per share. Cash earnings per share on the diluted basis, defined as
income from continuing operations plus after-tax goodwill amortization, was
$0.50, up 39 percent from the 1999 second quarter. Cash earnings per share does
not represent a measure of cash flows from operations as defined by generally
accepted accounting principles, and may not be comparable to similarly titled
measures reported by other companies.
Net income for the second quarter of 2000 was also $42.3 million, or $0.46 per
share, compared to $44.2 million, or $0.45 per share, in the second quarter of
1999. The second quarter of 1999 included $11.1 million, or $0.12 per share,
income from discontinued operations, representing the operating results of Dobbs
International Services, Inc. ("Dobbs"), sold July 1, 1999.
There were 6.8 million fewer average outstanding and potentially dilutive common
shares in the second quarter of 2000 than in the second quarter of 1999, due
primarily to stock repurchases made in 2000. In addition, a lower average Viad
stock price in 2000 contributed to fewer additional dilutive shares related to
unexercised stock options.
PAYMENT SERVICES. A Payment Services subsidiary invests substantial amounts of
its growing money order and official check funds in tax-exempt securities, which
have lower pre-tax yields but produce higher income on an after-tax basis than
comparable taxable investments. On the fully taxable equivalent basis, second
quarter 2000 revenues of the Payment Services segment were $167.6 million, up
$25.8 million, or 18.2 percent, from 1999 second quarter revenues. Operating
income increased $8.0 million, or 26.3 percent. Operating margins on the fully
taxable equivalent basis were 22.9 percent in the second quarter of 2000, up
from 21.4 percent in the 1999 first quarter. Results were
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driven by continuing strong growth and the ramp up of key new accounts in
official check and money orders which resulted in higher investment income.
Average invested funds grew 30 percent over the 1999 quarter. Game Financial's
solid operations also contributed to the quarter. Transaction volume growth for
MoneyGram was strong in Latin America and international money transfers, offset
partially by continued weakness in the U.S.-to-Mexico corridor. The number of
MoneyGram agent locations grew 20 percent year-over-year and increased 26
percent internationally.
CONVENTION AND EVENT SERVICES. Convention and Event Services revenues increased
$35.8 million, or 13.8 percent, to $295.6 million in the second quarter of 2000.
Operating income for the segment was even with that of the second quarter of
1999. Operating margins were 11.3 percent in the second quarter of 2000 versus
12.8 percent in the second quarter of 1999. Exhibitgroup/Giltspur reported
strong gains in both revenue and operating income. GES Exposition Services also
reported higher revenues for the quarter, but show rotation, higher show
production costs and slower than anticipated profit generation on start-up
products resulted in lower operating income compared to the 1999 quarter.
Pressure on operating margins will continue into the third quarter as GES
continues to focus on cost reduction efforts.
TRAVEL AND RECREATION SERVICES. Revenues of the ongoing travel and recreation
businesses were $18.4 million for the second quarter of 2000, down $2.0 million,
or 9.8 percent, from 1999 second quarter revenues, while operating income was up
$1.3 million, or 37.2 percent, in the second quarter of 2000. The decrease in
revenue relates primarily to the discontinuance of a lower margin package tour
business, along with increased competition in the charter and sightseeing
business. Operating income increased due to higher margins and cost reductions.
CORPORATE ACTIVITIES. Expenses of corporate activities decreased 7.5 percent in
the second quarter of 2000 compared to the second quarter of 1999.
NET INTEREST EXPENSE. Interest income of $3.7 million in the second quarter was
generated from the investment of the cash proceeds remaining from the July 1,
1999 sale of Dobbs after repayment of short-term borrowings, repurchase of
treasury shares and the funding of acquisitions. Interest expense in the second
quarter of 2000 decreased $1.1 million from that in the 1999 second quarter as a
result of lower average borrowings during the 2000 quarter, offset partially by
the effects of higher short-term interest rates.
INCOME TAXES. The effective tax rate in the 2000 second quarter was 19.9 percent
compared to 20.8 percent for the second quarter 1999. The relatively low
effective tax rate is primarily attributable to tax-exempt investment income
from Viad's Payment Services businesses.
COMPARISON OF FIRST SIX MONTHS OF 2000 TO THE FIRST SIX MONTHS OF 1999:
Revenues for the first six months of 2000 increased $90.9 million, or 11.5
percent, to $884.7 million from $793.8 million in 1999. Revenues of ongoing
operations on a fully taxable equivalent basis, excluding the sold travel and
recreation businesses, rose 13.6 percent.
Income from continuing operations for the first six months of 2000 was $68.4
million, or $0.74 per share, an increase of 54.2 percent on a per share basis
from the 1999 six months income from continuing operations of $47.9 million, or
$0.48 per share. Cash earnings per share, as defined above, was $0.82 for the
first six months of 2000, up 52 percent from the 1999 period.
Net income for the first six months of 2000 was also $68.4 million, or $0.74 per
share, compared to $64.6 million, or $0.65 per share, in the first six months of
1999. The first six months of 1999 included $16.7 million, or $0.17 per share,
from discontinued operations, representing the operating results of Dobbs.
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There were 6.5 million fewer average outstanding and potentially dilutive common
shares in the first six months of 2000 than in the first six months of 1999, due
primarily to stock repurchases made in 2000. In addition, a lower average Viad
stock price in 2000 contributed to fewer additional dilutive shares related to
unexercised stock options.
PAYMENT SERVICES. On the fully taxable equivalent basis, revenues of the Payment
Services segment for the first six months of 2000 were $319.5 million, up $46.5
million, or 17.0 percent, from 1999 six month revenues, while operating income
increased $13.6 million, or 25.0 percent. Operating margins on the fully taxable
equivalent basis were 21.3 percent for the first six months of 2000, up from
19.9 percent in the first six months of 1999. Results were driven by continuing
strong growth in money order, official check and Game Financial operations, with
the ramp up of key new accounts contributing to the gains. Transaction volume
for MoneyGram grew in the low double digits over the prior year, with strong
growth in Latin America and international, offset partially by continued
weakness in the U.S.-to-Mexico corridor.
CONVENTION AND EVENT SERVICES. Convention and Event Services revenues increased
$62.5 million, or 12.6 percent, to $557.5 million from $495.0 million in the
1999 six month period. Operating income for the segment increased to $60.8
million, up $3.5 million from $57.3 million in the 1999 six months. Operating
margins were 10.9 percent compared with 11.6 percent in 1999.
Exhibitgroup/Giltspur reported strong gains in both revenue and operating
income. GES Exposition Services also reported higher revenues for the period,
but show rotation, higher show production costs and slower than anticipated
profit generation on start-up products resulted in lower operating income and
margins compared to the first six months of 1999.
TRAVEL AND RECREATION SERVICES. For the first six months of 2000, revenues of
the ongoing travel and recreation businesses were $22.9 million, down $1.4
million, or 5.6 percent, from the first six months of 1999, while operating
income increased $1.7 million for the same period. The decrease in revenue
relates primarily to the discontinuance of a lower margin package tour business,
along with increased competition in the charter and sightseeing business.
Operating income increased due to higher margins and cost reductions.
CORPORATE ACTIVITIES. Expenses of corporate activities decreased 7.5 percent for
the first six months of 2000 compared to the first six months of 1999.
NET INTEREST EXPENSE. Interest income of $8.2 million in the first six months of
2000 was generated from the investment of the cash proceeds remaining from the
July 1, 1999 sale of Dobbs after repayment of short-term borrowings, repurchase
of treasury shares and the funding of acquisitions. Interest expense for the
first six months of 2000 was $12.7 million compared to $13.6 million for the
comparable period of 1999. Lower average borrowings during 2000 were partially
offset by the effects of an increase in short-term interest rates.
INCOME TAXES. The effective tax rate for the first six months of 2000 was 21.5
percent compared to 20.1 percent for the first six months of 1999. The
relatively low effective tax rate is primarily attributable to tax-exempt
investment income from Viad's Payment Services businesses.
LIQUIDITY AND CAPITAL RESOURCES:
Viad's total debt at June 30, 2000 was $399.1 million compared with $389.3
million at December 31, 1999. The debt-to-capital ratio was 0.35 to 1 at June
30, 2000 and at December 31, 1999.
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During the first six months of 2000, Viad repurchased 1,519,000 treasury shares
for $38.5 million under Viad's stock repurchase programs. Net proceeds from the
exercise of stock options, including tax benefits on stock option exercises,
totaled $7.1 million during the first six months of 2000.
The balance of the investments in securities arising from the July 1, 1999 sale
of Dobbs totaled $194.7 million at June 30, 2000. The balance declined $74.2
million since December 31, 1999, primarily as a result of funding acquisitions
during the first quarter of 2000 and the repurchase of treasury shares.
EBITDA is a measure of Viad's ability to service debt, fund capital expenditures
and finance growth, and should be considered in addition to, but not as a
substitute for, other measures of financial performance reported in accordance
with generally accepted accounting principles. EBITDA is defined by Viad as
income from continuing operations before interest expense, income taxes,
depreciation and amortization and includes the fully taxable equivalent
adjustment. EBITDA for the first six months of 2000 was $166.4 million, an
increase of 30.1 percent over that of the comparable 1999 period.
In May 2000, a Viad Payment Services subsidiary amended its agreement to sell
undivided percentage ownership interests in certain receivables from bill
payment and money order agents. The maximum amount to be sold under the
agreement was increased from $400 million to $450 million.
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 on Form 10-K for the year ended December 31, 1999.
FORWARD-LOOKING STATEMENTS:
As provided by the safe harbor provision under the "Private Securities
Litigation Reform Act of 1995," Viad cautions readers that, in addition to the
historical information contained herein, this Quarterly Report on Form 10-Q
includes certain forward-looking statements, assumptions and discussions,
including those relating to expectations of or current trends in future growth,
productivity improvements, consumer demand, new business, investment policies,
cost reduction efforts and market risk disclosures. Such statements involve
risks and uncertainties which may cause results to differ materially from those
set forth in those statements. Among other things, consumer demand patterns,
purchasing decisions related to customer demand for convention and event
services, existing and new competition, industry alliances and consolidation and
growth patterns within the industries in which Viad competes may individually or
in combination impact future results. In addition to the factors mentioned
elsewhere, economic, competitive, governmental, technological, capital
marketplace and other factors could affect the forward-looking statements
contained in this filing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As described in Note B, debt and equity securities classified as "available for
sale" are carried at fair value, with the net unrealized holding gain or loss
included in the Consolidated Balance Sheets as a component of "Accumulated other
comprehensive income." A portion of Viad's Payment Services business involves
the payment of commissions to selling agents of its official check program. A
Viad Payment Services subsidiary has also entered into agreements to sell
receivables from its bill payment and money order agents. The agent commissions
and expense of selling receivables are computed based on short-term variable
interest rates that subject Viad to risk arising from changes in such rates.
Viad has hedged a substantial portion of this risk through the purchase of swap
agreements which convert the variable rate payments to fixed rates. Viad is also
exposed to short-term interest rate risk on certain of its debt obligations and
trade accounts receivable sales.
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Based on a hypothetical 10 percent proportionate increase in interest rates from
the average level of interest rates during the last twelve months, and taking
into consideration expected investment positions, commissions payable to selling
agents, growth in new business, the effects of the swap agreements and the
expected borrowing level of variable-rate debt, the annual increase in pre-tax
income would be approximately $932,000. A hypothetical 10 percent proportionate
decrease in interest rates, based on the same set of assumptions, would result
in an annual decrease in pre-tax income of approximately $766,000.
The fair value of securities classified as available for sale, the fair value of
the swap agreements and the fair value of fixed-rate debt are sensitive to
changes in interest rates. A 10 percent proportionate increase in interest rates
would result in an estimated decrease in the fair value of securities classified
as available for sale of approximately $99.1 million (along with an after-tax
decrease in accumulated other comprehensive income of approximately $60.4
million), an estimated off-balance-sheet increase in the fair value of Viad's
swap agreements of approximately $48.5 million and an estimated
off-balance-sheet decrease in the fair value of Viad's fixed-rate debt of
approximately $3.7 million. A 10 percent proportionate decrease in interest
rates would result in an estimated increase in the fair value of securities
classified as available for sale of approximately $93.3 million (along with an
after-tax increase in accumulated other comprehensive income of approximately
$56.9 million), an estimated off-balance-sheet decrease in the fair value of
Viad's swap agreements of approximately $48.5 million and an estimated
off-balance-sheet increase in the fair value of Viad's fixed-rate debt of
approximately $3.8 million.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of Viad Corp was held May 9,
2000.
(b) Not applicable-(i) proxies for the meeting were solicited pursuant
to Regulation 14 under the Securities Exchange Act of 1934; (ii)
there was no solicitation in opposition to management's nominees as
listed in the proxy statement; and (iii) all such nominees were
elected.
(c) Matters voted upon at the annual meeting for which proxies were
solicited pursuant to Regulation 14 under the Securities Exchange
Act of 1934:
1. The election of Directors as follows:
Robert H. Bohannon
Affirmative Vote ............................ 80,554,468
Withheld Authority .......................... 1,014,481
Douglas L. Rock
Affirmative Vote ............................ 80,697,309
Withheld Authority .......................... 871,640
John C. Tolleson
Affirmative Vote ............................. 80,930,157
Withheld Authority ........................... 638,792
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2. The appointment of Deloitte & Touche LLP to audit the
accounts of Viad and its subsidiaries for the fiscal year
2000.
Affirmative Vote ........................... 81,116,452
Against .................................... 352,801
Abstentions ................................ 99,696
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. 10A - Copy of employment agreement between Viad Corp and
Paul B. Mullen dated March 1, 2000
Exhibit No. 10B - Copy of amendment dated May 9, 2000 to Viad Corp
Supplemental Pension Plan (Amended and Restated as of December 1,
1999)
Exhibit No. 10C - Copy of amendment dated May 9, 2000 to Travelers
Express Company, Inc. Supplemental Pension Plan dated March 30, 1997
Exhibit No. 10D - Copy of amendment dated May 9, 2000 to GES Exposition
Services, Inc. Supplemental Executive Retirement Plan, as amended
effective January 1, 1998
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)
July 25, 2000 By /s/ Catherine L. Stevenson
-----------------------------
Catherine L. Stevenson
Vice-President - Controller
(Chief Accounting Officer
and Authorized Officer)
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