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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 March 31, 2001
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 March 31, 2001, 88,001,465 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
March 31, 2001 December 31,
(000 omitted, except share data) (Unaudited) 2000
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 40,732 $ 42,298
Short-term investments 64,840 42,538
Receivables 146,570 115,792
Inventories 85,334 83,272
Deferred income taxes 39,892 40,050
Other current assets 37,659 32,511
- -----------------------------------------------------------------------------------------------------------------
415,027 356,461
Funds, agents' receivables and current maturities of investments
restricted for payment service obligations 1,444,112 1,194,545
- -----------------------------------------------------------------------------------------------------------------
Total current assets 1,859,139 1,551,006
Investments in securities 50,307 41,018
Investments restricted for payment service obligations 3,698,539 3,630,615
Property and equipment 286,194 290,016
Other investments and assets 108,052 102,967
Deferred income taxes 51,093 46,596
Intangibles 632,918 638,013
- -----------------------------------------------------------------------------------------------------------------
$ 6,686,242 $ 6,300,231
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank loans $ 19,355 $ 2,666
Accounts payable 87,036 81,146
Other current liabilities 211,686 180,738
Current portion of long-term debt 42,134 67,134
- -----------------------------------------------------------------------------------------------------------------
360,211 331,684
Payment service obligations 4,922,135 4,607,296
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 5,282,346 4,938,980
Long-term debt 384,363 377,306
Pension and other postretirement benefits 72,596 74,280
Other deferred items and insurance liabilities 197,575 135,588
Minority interests 4,000 4,263
$4.75 Redeemable preferred stock 6,663 6,658
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 238,324 245,634
Retained income 771,405 755,041
Unearned employee benefits and other (84,583) (94,804)
Accumulated other comprehensive income:
Unrealized gain on securities classified as available for sale 26,695 656
Unrealized loss on derivative financial instruments (40,705)
Cumulative translation adjustments (12,432) (8,612)
Minimum pension liability adjustment (1,795) (1,795)
Common stock in treasury, at cost, 11,738,460 and 10,676,444 shares (307,820) (282,574)
- -----------------------------------------------------------------------------------------------------------------
Total common stock and other equity 738,699 763,156
- -----------------------------------------------------------------------------------------------------------------
$ 6,686,242 $ 6,300,231
=================================================================================================================
See Notes to Consolidated Financial Statements.
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VIAD CORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended March 31,
(000 omitted, except per share data) 2001 2000
- --------------------------------------------------------------------------------------------------------------
Revenues $ 459,564 $ 408,219
- --------------------------------------------------------------------------------------------------------------
Costs and expenses:
Costs of sales and services 414,678 366,928
Corporate activities and minority interests 4,567 4,899
Net interest expense 6,265 2,133
- --------------------------------------------------------------------------------------------------------------
425,510 373,960
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 34,054 34,259
Income taxes 9,752 8,206
- --------------------------------------------------------------------------------------------------------------
NET INCOME $ 24,302 $ 26,053
==============================================================================================================
DILUTED NET INCOME PER COMMON SHARE $ 0.28 $ 0.28
Average outstanding and potentially
dilutive common shares 86,672 92,205
==============================================================================================================
BASIC NET INCOME PER COMMON SHARE $ 0.28 $ 0.29
Average outstanding common shares 85,560 89,847
==============================================================================================================
Dividends declared per common share $ 0.09 $ 0.09
==============================================================================================================
Preferred stock dividends $ 284 $ 283
==============================================================================================================
See Notes to Consolidated Financial Statements.
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VIAD CORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three months ended March 31,
(000 omitted) 2001 2000
- ------------------------------------------------------------------------------------------------------------
Net income $ 24,302 $ 26,053
- ------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income, net of tax:
Unrealized gain on securities classified as available for sale:
Transition adjustment, effective January 1, 2001, resulting
from the transfer of securities classified as held-to-maturity
to securities classified as available-for-sale 3,772 -
Holding gains arising during the period 25,200 15,806
Reclassification adjustment for net realized gains
included in net income (2,933) (146)
- ------------------------------------------------------------------------------------------------------------
26,039 15,660
- ------------------------------------------------------------------------------------------------------------
Unrealized loss on derivative financial instruments:
Cumulative effect of transition adjustment upon initial application of
Statement of Financial Accounting Standards No. 133 on January 1, 2001 (7,501)
Holding losses arising during the period (34,850)
Net reclassifications from other comprehensive income
to net income 1,646
- ------------------------------------------------------------------------------------------------------------
(40,705) -
- ------------------------------------------------------------------------------------------------------------
Unrealized foreign currency translation adjustments:
Holding losses arising during the period (3,820) (355)
- ------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income (18,486) 15,305
- ------------------------------------------------------------------------------------------------------------
Comprehensive income $ 5,816 $ 41,358
============================================================================================================
See Notes to Consolidated Financial Statements.
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VIAD CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
(000 omitted) 2001 2000
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income $ 24,302 $ 26,053
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,174 16,121
Deferred income taxes 5,128 8,592
Other noncash items, net (3,062) 308
Change in operating assets and liabilities:
Receivables and inventories (34,206) (39,990)
Accounts payable and accrued compensation 9,231 (15,641)
Other assets and liabilities, net 13,688 (2,317)
- --------------------------------------------------------------------------------------------------------------
33,255 (6,874)
Payment service assets and obligations, net 62,069 44,817
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 95,324 37,943
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Capital expenditures (12,445) (7,307)
Acquisitions of businesses, net of cash acquired (24,179)
Proceeds from dispositions of businesses, property and other assets, net 161 11,309
Proceeds from sales and maturities of securities 792,229 432,925
Purchases of securities (841,370) (482,143)
- --------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (61,425) (69,395)
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Payments on long-term borrowings (25,164) (30,161)
Net change in short-term borrowings 24,186 81,948
Dividends on common and preferred stock (8,001) (8,403)
Exercise of stock options 7,532 951
Common stock purchased for treasury (34,018) (13,654)
- --------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (35,465) 30,681
- --------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,566) (771)
Cash and cash equivalents, beginning of year 42,298 33,106
- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 40,732 $ 32,335
==============================================================================================================
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, 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 ("APB") Opinion No. 28,
"Interim Financial Reporting" and the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" as discussed in Note D. 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 March 31, 2001, and its results of
operations and its cash flows for the quarters and three months ended March 31,
2001 and 2000 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 2001
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 subsidiaries to satisfy the liability to pay, upon presentment, the face
amount of such payment service obligations. In addition, certain other assets of
Payment Services subsidiaries are available if necessary to meet such
obligations. Accordingly, such assets 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 net proceeds of selling receivables from its bill
payment and money order agents through swap agreements (see Note D). The swap
agreements effectively convert such variable rates to fixed rates.
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 swap agreements:
March 31, December 31,
(000 omitted) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Funds, agents' receivables and current maturities of
investments restricted for payment service obligations $ 1,444,112 $ 1,194,545
Investments restricted for payment service obligations (1) 3,698,539 3,630,615
Other assets available for payment service obligations 20,793 24,781
Payment service obligations (4,922,135) (4,607,296)
Fair value of swap agreements (2) (65,647) (12,297)
- ---------------------------------------------------------------------------------------------------------
Total $ 175,662 $ 230,348
=========================================================================================================
(1) 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 SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (see Note C).
(2) The fair value represents the estimated amounts that Viad would pay to
counterparties to terminate the swap agreements at March 31, 2001 and December
31, 2000. At December 31, 2000, the fair value of such swap agreements were not
included in Viad's Consolidated Balance Sheet (see Note D).
NOTE C - INVESTMENTS RESTRICTED FOR PAYMENT SERVICE OBLIGATIONS
Effective January 1, 2001, Viad elected to transfer $260,026,000 in carrying
value of securities classified as held-to-maturity to securities classified as
available-for-sale as permitted in conjunction with the initial application of
SFAS No. 133 without calling into question management's intent or ability to
hold other securities as held-to-maturity. The transfer was reflected as an
increase in the carrying value of the investments of $6,184,000, with a
corresponding deferred tax liability of $2,412,000 and a transition adjustment
of $3,772,000 reflected in other comprehensive income.
Investments restricted for payment service obligations include the following
debt and equity securities:
March 31, December 31,
(000 omitted) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Securities classified as available for sale, at fair value
(amortized cost of $2,315,728 and $2,309,645) (1) $ 2,358,710 $ 2,310,493
Securities classified as held to maturity, at amortized cost
(fair value of $1,376,341 and $1,357,531) 1,341,730 1,325,225
- ---------------------------------------------------------------------------------------------------------
3,700,440 3,635,718
Less current maturities (1,901) (5,103)
- ---------------------------------------------------------------------------------------------------------
$ 3,698,539 $ 3,630,615
=========================================================================================================
(1) The increase in the unrealized gain for the first three months of 2001 was
due principally to decreases in longer-term market interest rates.
NOTE D - DERIVATIVE FINANCIAL INSTRUMENTS
Viad uses derivative financial instruments as part of its risk management
strategy to manage exposure to fluctuations in interest and foreign currency
rates. Derivatives are not used for speculative purposes.
A portion of Viad's Payment Services business involves the payment of
variable-rate commissions to selling agents of its official check program. In
addition, a Viad Payment Services subsidiary has agreements to sell,
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on a periodic basis, undivided percentage ownership interests in certain
receivables from bill payment and money order agents. The receivables are sold
at a discount, based on short-term variable interest rates. Variable-to-fixed
rate swap agreements have been entered into to mitigate the effects of
fluctuations on commission expense and on the net proceeds from the agents'
receivable sales.
On January 1, 2001, Viad adopted SFAS No. 133 and its related amendments and
interpretations. SFAS No. 133 requires that entities record all derivatives as
either assets or liabilities, measured at fair value, with the change in fair
value of the derivative recognized in earnings or in other comprehensive income,
depending on the use of the derivative and whether it qualifies for hedge
accounting. Viad's swap agreements have been designated and qualify as cash flow
hedges. The length of time over which future cash flows are hedged ranges from
two to seven years.
Upon adoption of SFAS No. 133, Viad recorded a liability of $12,297,000
(representing the fair value of Viad's swap agreements), a corresponding
deferred tax asset of $4,796,000, and a transition adjustment of $7,501,000
reflected in other comprehensive income. At March 31, 2001, the fair value of
the swap agreements in the Consolidated Balance Sheets was $67,349,000 which
was classified in "Other deferred items and insurance liabilities" and
$1,702,000 which was classified in "Other investments and assets."
The effective portion of the change in fair values of derivatives that qualify
as cash flow hedges under SFAS No. 133 is recorded in other comprehensive
income. Amounts receivable or payable under the swap agreements are reclassified
from other comprehensive income to net income as an adjustment to the expense of
the related transaction. These amounts are included in the Consolidated Income
Statements under "Costs of sales and services." The amount recognized in
earnings due to ineffectiveness of the cash flow hedges was not material. No
cash flow hedges were discontinued during the quarter.
Viad is also exposed to foreign currency exchange risk. Forward contracts used
to hedge assets and liabilities denominated in foreign currencies are recorded
on the Consolidated Balance Sheets at fair value, with the change in fair value
reflected in earnings. Viad records these forward contracts consistent with
the accounting requirements under SFAS No. 52, "Foreign Currency Translation."
While these contracts economically hedge Viad's foreign currency risk, they
are not designated as hedges for accounting purposes under SFAS No. 133. The
effect of changes in foreign exchange rates on the foreign-denominated
receivables and payables, net of the effect of the related forward contracts,
was not significant.
NOTE E - DEBT
At March 31, 2001 and December 31, 2000, Viad classified as long-term debt
$153,000,000 and $145,503,000, respectively, of short-term borrowings. These
borrowings are supported by unused commitments under a $300,000,000 long-term
revolving bank credit agreement.
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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 three months ended March 31, is as follows:
(000 omitted) 2001 2000
- ------------------------------------------------------------------------------------------------------------
Computed income taxes at statutory
federal income tax rate $ 11,919 35.0% $ 11,991 35.0%
Nondeductible goodwill amortization 871 2.6% 703 2.1%
State income taxes 1,151 3.4% 788 2.3%
Other, net 230 0.6% 355 1.0%
- ------------------------------------------------------------------------------------------------------------
14,171 41.6% 13,837 40.4%
Tax-exempt income (7,219) (21.2%) (8,131) (23.7%)
Adjustment to estimated annual effective rate (1) 2,800 8.2% 2,500 7.3%
- ------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 9,752 28.6% $ 8,206 24.0%
============================================================================================================
(1) Generally accepted accounting principles for interim financial reporting
(APB Opinion No. 28) requires that income taxes be provided based on the
estimated effective tax rate expected to be applicable for the entire fiscal
year. The estimated tax rate for 2001 is higher than in the 2000 quarter due to
lower tax-exempt income in proportion to total pre-tax income resulting from the
decline in investments in tax-exempt securities in the Payment Services segment.
NOTE G - SUPPLEMENTARY INFORMATION - REVENUES AND OPERATING INCOME
Viad measures profit and performance of its operations on the basis of operating
income. An adjustment is made to the Payment Services segment to present
revenues and operating income on a fully taxable equivalent basis to reflect
income resulting from amounts invested in tax-exempt securities. Intersegment
sales and transfers are not significant. Consolidated revenues, operating income
and interest expense reflect the elimination (in the 2000 period) 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.
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Three months ended March 31,
(000 omitted) 2001 2000
- ------------------------------------------------------------------------------------------------------------
Revenues:
Payment Services $ 179,298 $ 151,850
Convention and Event Services 289,509 261,852
- ------------------------------------------------------------------------------------------------------------
Reportable segments 468,807 413,702
Travel and Recreation Services 3,659 4,500
- ------------------------------------------------------------------------------------------------------------
SUBTOTAL, ONGOING OPERATIONS 472,466 418,202
Sold travel & recreation businesses 5,301
Intercompany interest elimination (945)
Less taxable equivalent adjustment (12,902) (14,339)
- ------------------------------------------------------------------------------------------------------------
$ 459,564 $ 408,219
============================================================================================================
Operating income:
Payment Services $ 34,795 $ 29,746
Convention and Event Services 24,743 27,464
- ------------------------------------------------------------------------------------------------------------
Reportable segments 59,538 57,210
Travel and Recreation Services (1,750) (1,498)
- ------------------------------------------------------------------------------------------------------------
SUBTOTAL, ONGOING OPERATIONS 57,788 55,712
Sold travel & recreation businesses 863
Corporate activities and minority interests (4,567) (4,899)
Intercompany interest elimination (945)
Less taxable equivalent adjustment (12,902) (14,339)
- ------------------------------------------------------------------------------------------------------------
40,319 36,392
Other investment income 1,280 4,478
Interest expense (7,545) (6,611)
- ------------------------------------------------------------------------------------------------------------
Income before income taxes $ 34,054 $ 34,259
============================================================================================================
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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.
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 "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, 2000.
All per share figures discussed are stated on the diluted basis.
COMPARISON OF FIRST QUARTER OF 2001 TO THE FIRST QUARTER OF 2000:
In the first quarter of 2001, revenues increased $51.3 million, or 12.6 percent,
to $459.6 million from $408.2 million in 2000. Payment Services invests in an
appropriate mix of tax-exempt and taxable investments. The tax-exempt
investments have lower pre-tax yields but produce higher income on an after-tax
basis than comparable taxable investments. Revenues of ongoing operations on the
fully taxable equivalent basis, excluding the sold travel and recreation
businesses, rose 13.0 percent for the quarter.
Net income for the first quarter of 2001 was $24.3 million, or $0.28 per share,
compared to $26.1 million, or $0.28 per share, for the first quarter of 2000.
Cash earnings per share, defined as income plus after-tax goodwill amortization,
was $0.32, even with the first quarter of 2000. 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.
There were 5.5 million fewer average outstanding and potentially dilutive common
shares in the first quarter of 2001 than in the first quarter of 2000, due
primarily to share repurchase programs throughout 2000 and in the first quarter
of 2001.
PAYMENT SERVICES. On the fully taxable equivalent basis, first quarter 2001
revenues of the Payment Services segment were $179.3 million, up $27.4 million,
or 18.1 percent, from 2000 first quarter revenues. On the same basis, operating
income increased $5.0 million, or 17.0 percent. Operating margins on the fully
taxable equivalent basis were 19.4 percent in the first quarter of 2001,
compared with 19.6 percent in the 2000 first quarter. Results were driven by
continuing strong growth in official check and money order operations, offset
slightly by higher costs in gaming cash access services. In spite of some
ongoing softness in the U.S.-to-Mexico corridor, overall MoneyGram continued to
show improvement with transaction volume growing in the mid-teens, led by strong
International and Express Payment transaction volume growth. Average investable
funds were 28 percent higher in the 2000 first quarter, resulting in higher
investment income.
CONVENTION AND EVENT SERVICES. Convention and Event Services revenues increased
$27.7 million, or 10.6 percent, to $289.5 million in the first quarter of 2001.
Operating income for the segment decreased $2.7 million, or 9.9 percent from the
first quarter of 2000. Operating margins were 8.5 percent in the first quarter
of 2001 compared with 10.5 percent in the first quarter of 2000, resulting from
continued higher labor and certain show production costs. The segment continues
to move
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aggressively forward on eliminating and controlling overhead and reducing other
costs from where they were in the latter part of 2000.
TRAVEL AND RECREATION SERVICES. Revenues of the ongoing travel and recreation
businesses were $3.7 million for the first quarter of 2001, compared with $4.5
million in the first quarter 2000, mainly due to a slow winter ski season. The
seasonal operating loss was $1.8 million compared with $1.5 million in the 2000
quarter. The first and fourth quarters are historically the slowest periods for
these businesses due to the seasonal slowdown and the winter closure of the
Glacier Park facilities.
NET INTEREST EXPENSE. Other investment income was $1.3 million and $4.5 million
in the first quarter of 2001 and 2000, respectively. The decline in interest
income is due primarily to the use of investment proceeds for the repurchase of
treasury shares throughout 2000 and in the first quarter of 2001. Interest
expense increased to $7.5 million in the first quarter 2001 compared to $6.6
million in the first quarter of 2000, primarily as a result of higher average
debt levels in the 2001 period.
INCOME TAXES. The effective tax rate in the 2001 first quarter was 28.6 percent
compared to 24.0 percent for the first quarter of 2000. The relatively low
effective tax rate compared to the statutory federal rate is primarily
attributable to tax-exempt income from Viad's Payment Services businesses. APB
Opinion No. 28 requires that income taxes be provided based on the estimated
effective tax rate expected to be applicable for the entire fiscal year. The
estimated annual tax rate for 2001 is expected to be higher than the tax rate in
2000 due to lower tax-exempt income in proportion to total pre-tax income,
resulting from the decline in investments in tax-exempt securities in the
Payment Services segment.
LIQUIDITY AND CAPITAL RESOURCES:
Viad's total debt at March 31, 2001 was $445.9 million compared with $447.1
million at December 31, 2000. The debt-to-capital ratio was 0.37 to 1 at both
March 31, 2001 and December 31, 2000.
In January 2001, Viad announced its intent to repurchase 2 million to 3 million
shares of its common stock in addition to its ongoing program to replace common
shares issued upon exercise of stock options and in connection with other stock
compensation plans. During the first quarter of 2001, Viad repurchased
approximately 1.4 million treasury shares for $34.0 million under its stock
repurchase programs. Net proceeds from the exercise of stock options totaled
$7.5 million during the first three months of 2001.
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 net
income before interest expense, income taxes, depreciation and amortization and
includes the fully taxable equivalent adjustment. EBITDA for the first three
months of 2001 was $72.7 million, up from $71.3 million for the first quarter of
2000.
Effective January 1, 2001, Viad transferred $260.0 million from securities
classified as held-to-maturity to securities classified as available-for-sale as
permitted in conjunction with the initial adoption of Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities."
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, 2000.
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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,
ongoing 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, gains and losses
of customers, 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
Viad's primary market risk exposures are fluctuations in interest rates and
foreign exchange rates. Certain derivative financial instruments are used as
part of Viad's risk management strategy to manage exposure to changes in these
rates. Derivatives are not used for speculative purposes.
As described in Notes B and C, 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 as described in Note D. 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 net proceeds from the agents'
receivables sales 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 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.
Upon adoption of SFAS No. 133 on January 1, 2001, Viad recorded a liability of
$12.3 million (representing the fair value of Viad's swap agreements), a
corresponding deferred tax asset of $4.8 million, and a transition adjustment of
$7.5 million in other comprehensive income.
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 decrease in pre-tax
income would be approximately $3.8 million. A hypothetical 10 percent
proportionate decrease in interest rates, based on the same set of assumptions,
would result in an annual increase in pre-tax income of approximately $3.8
million.
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 $78.9 million (along with an after-tax
decrease in accumulated other comprehensive income of approximately $48.1
million), an estimated increase in the fair value of Viad's swap agreements of
approximately $53.6 million (along with an after-tax increase in accumulated
other comprehensive income of $32.7 million) and an estimated off-balance-sheet
decrease in the fair value of Viad's fixed-rate debt of approximately $2.3
million. A 10 percent
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proportionate decrease in interest rates would result in an estimated increase
in the fair value of securities classified as available-for-sale of
approximately $76.4 million (along with an after-tax increase in accumulated
other comprehensive income of approximately $46.6 million), an estimated
decrease in the fair value of Viad's swap agreements of approximately $53.6
million (along with an after-tax decrease in accumulated other comprehensive
income of $32.7 million) and an estimated off-balance-sheet increase in the fair
value of Viad's fixed-rate debt of approximately $2.3 million.
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 first quarter
of 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. 10.A - Copy of 1997 Viad Corp Omnibus Incentive Plan, as
amended through February 15, 2001.
Exhibit No. 10.B - Copy of form of Performance Driven Restricted Stock
Agreement pursuant to the 1997 Viad Corp Omnibus Incentive Plan.
Exhibit No. 10.C - Copy of form of Restricted Stock Agreement pursuant
to the 1997 Viad Corp Omnibus Incentive Plan.
Exhibit No. 10.D - Copy of Viad Corp Management Incentive Plan, as
amended on March 15, 2001.
Exhibit No. 10.E - Copy of Viad Corp Performance Unit Incentive Plan,
as amended on March 15, 2001.
Exhibit No. 10.F(i) - Copy of Amended and Restated Executive Severance
Agreement, as of March 15, 2001, between Viad Corp and Robert H.
Bohannon.
Exhibit No. 10.F(ii) - Copy of forms of Viad Corp Amended and Restated
Executive Severance Plans (First and Second Tier), as of March 15,
2001.
(b) No reports on Form 8-K were filed by the registrant during the quarter
for which this report is filed.
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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)
April 24, 2001 By /s/ Catherine L. Stevenson
-----------------------------
Catherine L. Stevenson
Vice President - Controller
(Chief Accounting Officer
and Authorized Officer)
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INDEX TO EXHIBITS
Exhibit No. 10.A - Copy of 1997 Viad Corp Omnibus Incentive Plan, as
amended through February 15, 2001.
Exhibit No. 10.B - Copy of form of Performance Driven Restricted Stock
Agreement pursuant to the 1997 Viad Corp Omnibus Incentive Plan.
Exhibit No. 10.C - Copy of form of Restricted Stock Agreement pursuant
to the 1997 Viad Corp Omnibus Incentive Plan.
Exhibit No. 10.D - Copy of Viad Corp Management Incentive Plan, as
amended on March 15, 2001.
Exhibit No. 10.E - Copy of Viad Corp Performance Unit Incentive Plan,
as amended on March 15, 2001.
Exhibit No. 10.F(i) - Copy of Amended and Restated Executive Severance
Agreement, as of March 15, 2001, between Viad Corp and Robert H.
Bohannon.
Exhibit No. 10.F(ii) - Copy of forms of Viad Corp Amended and Restated
Executive Severance Plans (First and Second Tier), as of March 15,
2001.
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