<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: July 1, 1999
VIAD CORP
(Exact name of registrant as specified in its charter)
DELAWARE 001-11015 36-1169950
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) 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
<PAGE>
ITEM 5. Other Events.
On July 1, 1999, Viad Corp ("Viad") completed the previously announced
sale of its airline catering business, conducted by Dobbs International
Services, Inc. in the United States and by Dobbs International (U.K.)
Limited in the United Kingdom (referred to collectively as "Dobbs").
Dobbs was sold in a stock transaction to SAirGroup for aggregate cash
consideration of approximately $780 million. Effective April 1, 1998,
Viad had previously sold its Aircraft Services International Group
("ASIG"), which conducted aircraft fueling and ground-handling
operations. The sale of Dobbs completed the disposition of Viad's airline
catering and services segment.
The accompanying financial statements and other financial information
(filed as Exhibit 99 and specifically incorporated by reference into this
report) have been prepared to reflect the historical financial position
and results of continuing operations as adjusted for the reclassification
of the airline catering and services businesses as discontinued
operations. The financial statements and other information contained in
Viad's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, are modified or superseded to the extent that the information
contained in Exhibit 99 modifies or supersedes such statements and other
information.
ITEM 7. Financial Statements and Exhibits.
(c) Exhibits.
(23) Independent Auditors' Consent to the incorporation by
reference into specific registration statements on Form
S-3 or on Form S-8 of their reports contained in or
incorporated by reference into this report.
(99) Additional Exhibit
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 hereunto duly authorized.
VIAD CORP
By: /s/ Catherine L. Stevenson
----------------------------------
Catherine L. Stevenson
Controller
DATE: August 25, 1999
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
Viad Corp
Phoenix, Arizona
We consent to the incorporation by reference in Registration Statement Nos.
33-54465 and 33-55360 on Form S-3 and Nos. 33-41870, 333-63397, 33-56531,
333-63399 and 333-35231 on Form S-8 of Viad Corp, of our report dated
February 19, 1999, except for Note D regarding the completion of the sale of
the airline catering business, as to which the date is August 23, 1999,
appearing in this Form 8-K of Viad Corp for the year ended December 31, 1998.
By: /s/ Deloitte & Touche LLP
- -----------------------------
Deloitte & Touche LLP
Phoenix, Arizona
August 23, 1999
<PAGE>
EXHIBIT 99
VIAD CORP SELECTED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS (000 omitted)
Revenues (1) $1,612,759 $1,486,351 $1,397,925 $1,170,356 $1,038,298
=======================================================================================================================
Income from continuing operations (2) $ 97,344 $ 56,519 $ 30,142 $ 36,059 $ 28,516
Income (loss) from discontinued operations (3) 53,296 41,275 (1,765) (38,743) 111,795
Extraordinary charge for early retirement of debt (8,458)
Cumulative effect of change in accounting principle (4) (13,875)
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 150,640 $ 89,336 $ 28,377 $ (16,559) $ 140,311
=======================================================================================================================
DILUTED INCOME PER COMMON SHARE (dollars)
Continuing operations (2) $ 0.98 $ 0.59 $ 0.32 $ 0.40 $ 0.32
Discontinued operations (3) 0.54 0.44 (0.02) (0.44) 1.29
Extraordinary charge (0.09)
Cumulative effect of change in accounting principle (4) (0.16)
- -----------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per common share $ 1.52 $ 0.94 $ 0.30 $ (0.20) $ 1.61
=======================================================================================================================
Average outstanding and potentially dilutive
common shares (000 omitted) 98,367 93,786 91,339 88,479 86,507
=======================================================================================================================
BASIC INCOME PER COMMON SHARE (dollars)
Continuing operations (2) $ 1.02 $ 0.61 $ 0.33 $ 0.40 $ 0.32
Discontinued operations (3) 0.56 0.45 (0.02) (0.44) 1.32
Extraordinary charge (0.09)
Cumulative effect of change in accounting principle (4) (0.16)
- -----------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per common share $ 1.58 $ 0.97 $ 0.31 $ (0.20) $ 1.64
=======================================================================================================================
Average outstanding common shares (000 omitted) 94,382 90,804 88,814 86,543 84,861
=======================================================================================================================
Dividends declared per common share (5) $ 0.32 $ 0.32 $ 0.48 $ 0.62 $ 0.59
=======================================================================================================================
FINANCIAL POSITION AT YEAR-END (000 omitted)
Total assets $4,688,292 $3,609,208 $3,344,844 $3,615,596 $3,125,265
Total debt (5) 534,453 410,049 520,954 888,967 741,472
$4.75 Redeemable preferred stock 6,625 6,612 6,604 6,597 6,590
Common stock and other equity (5) 645,881 529,161 432,218 548,169 555,093
=======================================================================================================================
OTHER DATA
EBITDA (000 omitted) (1, 6) $ 189,878 $ 150,731 $ 129,054 $ 114,017 $ 104,541
Debt-to-capital ratio (7) 45% 43% 54% 61% 57%
Market capitalization (000 omitted) (5) $2,882,567 $1,818,276 $1,478,256 $2,605,575 $1,825,178
Stockholders of record 37,960 52,953 69,772 63,925 55,241
=======================================================================================================================
</TABLE>
(1) Viad payment services subsidiaries are investing increasing amounts in
tax-exempt securities. On a fully taxable equivalent basis using a
combined income tax rate of 39%, revenues and EBITDA would be higher by
$39,309,000, $28,724,000, $21,489,000, $16,000,000 and $7,897,000 for
1998, 1997, 1996, 1995 and 1994, respectively.
(2) Includes nonrecurring gains on sales of businesses of $19,654,000, or
$0.20 per diluted share ($0.21 per basic share) and a provision for
payments previously received pursuant to patent infringement litigation
of $6,917,000, or $0.07 per diluted and basic share in 1998; and a
nonrecurring gain on the sale of Viad's interest in the Phoenix Suns of
$19,025,000, or $0.21 per diluted and basic share, and nonrecurring
spin-off costs and management transition expenses of $28,985,000, or
$0.32 per diluted and basic share, in 1996. See Note C of Notes to
Consolidated Financial Statements. Excluding these items, diluted income
per share from continuing operations was $0.85 in 1998 and $0.43 in 1996.
(3) See Notes A and D of Notes to Consolidated Financial Statements.
(4) Initial application of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
(5) The declines in dividends declared per common share in 1997 and 1996, as
well as the decline in total debt, common stock and other equity and
market capitalization in 1996, reflect the spin-off of the consumer
products business to stockholders on August 15, 1996.
(6) EBITDA is defined as income from continuing operations before interest
expense, income taxes, depreciation and amortization and the nonrecurring
items described above. EBITDA data are presented as a measure of the
ability to service debt, fund capital expenditures and finance growth.
Such data should not be considered an alternative to net income,
operating income, cash flows from operations or other operating or
liquidity performance measures prescribed by generally accepted
accounting principles. Cash expenditures for various long-term assets,
interest expense and income taxes have been, and will be, incurred which
are not reflected in the EBITDA presentations.
(7) Debt-to-capital is defined as total debt divided by capital. Capital is
defined as total debt plus minority interests, preferred stock and common
stock and other equity.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS:
Viad is now focusing on two principal service businesses: Payment Services
and Convention and Event Services.
Effective June 1, 1998, Viad acquired MoneyGram Payment Systems, Inc.
("MoneyGram"), a provider of consumer money wire transfer services.
MoneyGram's operations from the date of acquisition are included in Viad's
Payment Services reportable segment.
On July 1, 1999, Viad Corp ("Viad") completed the previously announced sale
of its airline catering business, conducted by Dobbs International Services,
Inc. in the United States and by Dobbs International (U.K.) Limited in the
United Kingdom (referred to collectively as "Dobbs"). Effective April 1,
1998, Viad sold its Aircraft Services International Group ("ASIG"), which
conducted aircraft fueling and ground-handling operations. The sale of Dobbs
completed the disposition of Viad's airline catering and services segment.
The revenues and results of operations of Dobbs and ASIG through the
respective dates of disposition, and the gain on the sale of ASIG, are
presented as discontinued operations. In addition, the revenues and results
of the cruise line business (sale finalized in early 1997), the consumer
products business (spun off to stockholders in August 1996) and the 68.5
percent ownership interest in the Canadian intercity bus transportation
business (disposed of in May 1996) are also presented as discontinued
operations through the respective dates of disposition. See Note D of Notes
to Consolidated Financial Statements.
Viad has also disposed of several additional noncore businesses (but not
classified as discontinued operations) in order to concentrate on its core
businesses. In October 1997, Viad completed the sale of two small United
Kingdom travel tour companies, with the gain on sale recognized in 1998 after
release of all related guarantees and bonding. On September 15, 1998, Viad
sold its duty-free and shipboard concessions business, Greyhound Leisure
Services, Inc. ("GLSI"). As discussed further under "Recent Developments,"
Viad completed the sale of the contract foodservice operations and the public
service division of Restaura, Inc. in late January 1999 and March 1999,
respectively. The revenues and results of these businesses are included in
Viad's results through the respective sale dates and are reported under "Sold
businesses" in the segment information presented in Note Q of Notes to
Consolidated Financial Statements.
The following discussion and analysis should be read in conjunction with the
accompanying Consolidated Financial Statements, which include the accounts of
Viad and all of its subsidiaries. All per share figures discussed are stated
on the diluted basis.
1998 VS. 1997:
Revenues for 1998 were $1.61 billion compared with $1.49 billion in 1997.
Viad Payment Services subsidiaries continue to invest increasing amounts of
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 a fully taxable equivalent basis, and
excluding the effects of the sold businesses not classified as discontinued
operations noted above, revenues of ongoing operations increased 20 percent.
Income from continuing operations for 1998 was $97.3 million, or $0.98 per
share. Excluding the gains on sales of businesses of $19.6 million, or $0.20
per share, and the provision for payments previously received pursuant to
patent litigation of $6.9 million, or $0.07 per share, income from continuing
operations was $84.6 million, or $0.85 per share, compared to income from
continuing operations of $56.5 million, or $0.59 per share, in 1997. See Note
C of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
(000 omitted, except per share data) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
INCOME FROM CONTINUING OPERATIONS:
BEFORE NONRECURRING ITEMS $ 84,607 $56,519
Gains on sales of businesses 19,654
Provision for payments previously received
pursuant to patent infringement litigation (6,917)
- -----------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS $ 97,344 $56,519
=======================================================================
DILUTED INCOME PER COMMON SHARE
FROM CONTINUING OPERATIONS:
BEFORE NONRECURRING ITEMS $ 0.85 $ 0.59
Gains on sales of businesses 0.20
Provision for payments previously received
pursuant to patent infringement litigation (0.07)
- -----------------------------------------------------------------------
INCOME PER COMMON SHARE
FROM CONTINUING OPERATIONS $ 0.98 $ 0.59
=======================================================================
</TABLE>
Net income for 1998 was $150.6 million, or $1.52 per share. The 1998 net
income includes income from discontinued operations of $53.3 million, or
$0.54 per share. Net income for 1997 was $89.3 million, or $0.94 per share,
including income from discontinued operations of $41.3 million, or $0.44 per
share, and after deducting an extraordinary charge of $8.5 million, or $0.09
per share, for the early retirement of debt. See Note D of Notes to
Consolidated Financial Statements.
There were 4.6 million more average outstanding and potentially dilutive
common shares in 1998 than in 1997, due primarily to the acquisition of Game
Financial Corporation ("Game") in December 1997 (for approximately 2.6
million shares of Viad stock), stock option exercises and the effects of a
higher Viad stock
<PAGE>
price on the calculation of additional common shares arising from unexercised
stock options. A stock repurchase program commenced in July 1998 to replace
common shares issued upon exercise of stock options and in connection with
other stock compensation plans.
PAYMENT SERVICES. Revenues of the Payment Services segment on the fully
taxable equivalent basis were $431.2 million in 1998 compared to $234.9
million in 1997, an 84 percent increase over 1997 segment revenues. The 1998
revenues included MoneyGram (acquired as of June 1, 1998) and Game (acquired
in December 1997). Excluding the results of MoneyGram and Game from both
periods, revenues on the fully taxable equivalent basis increased 26 percent.
Excluding the effects in 1998 and 1997 of the patent litigation matter
discussed in Note C of Notes to Consolidated Financial Statements, net income
increased $11.5 million, or 29 percent, in 1998. These results were
accomplished despite incremental costs to remediate key systems to be Year
2000 compliant and were driven by continuing strong growth in traditional
Travelers Express money order and official check operations, supplemented by
Game and MoneyGram results.
CONVENTION AND EVENT SERVICES. Revenues of the Convention and Event Services
segment were $849.2 million in 1998, an increase of $21.7 million, or 3
percent, from 1997 revenues of $827.5 million. GES Exposition Services
("GES") concentrated on eliminating low-margin business during 1998,
resulting in a disproportionately low revenue increase. Net income for the
segment increased $7.6 million, or 22 percent, to $42.9 million in 1998 from
$35.3 million in 1997. Both GES and Exhibitgroup/Giltspur had solid gains in
net income due to improved cost controls and higher margin business in 1998.
TRAVEL AND RECREATION SERVICES. The ongoing travel and recreation businesses
include the Canadian travel tour service subsidiary, which operates tours and
charters in the Canadian Rockies and engages in hotel operations and snocoach
tours of the Columbia Icefield; and the Recreation Division of Viad, which
operates concessions at America West Arena and Bank One Ballpark in Phoenix,
Arizona, and also operates, through a subsidiary, the historic lodges at
Glacier National Park. Revenues of the travel and recreation businesses
increased $11.7 million, or 13 percent, to $103.0 million in 1998. The
revenue increase resulted primarily from the first year's operation of
concessions at Bank One Ballpark, home of the new Arizona Diamondbacks major
league baseball franchise, partially offset by a decline in Japanese and
other Asian tourism into Canada. Net income for the travel and recreation
businesses was $9.5 million, an increase of $1.7 million, or 21 percent, over
that of 1997, primarily from the addition of the Bank One Ballpark operation
as well as improved cost controls.
CORPORATE ACTIVITIES, NET. These expenses decreased $7.2 million from 1997 to
1998. In addition to ongoing cost reduction efforts, Viad began charging its
operating companies an increased allocation of corporate expenses in 1998.
INTEREST EXPENSE. Interest expense decreased from $34.3 million in 1997 to
$27.2 million in 1998. Interest expense from new borrowings for the June 1998
acquisition of MoneyGram was more than offset by the effects of repayment of
debt and termination of related interest rate swap agreements with proceeds
from the sales of noncore assets and businesses in 1997 and 1998.
INCOME TAXES. Excluding the effect of nonrecurring items, the 1998 effective
tax rate was 19.4 percent, up from 16.5 percent in 1997. The relatively low
effective tax rate is primarily attributable to increased tax-exempt
investment income.
1997 VS. 1996:
Revenues for 1997 were $1.49 billion compared with $1.40 billion in 1996. On
a fully taxable equivalent basis, and excluding businesses sold but not
classified as discontinued operations, revenues of ongoing operations rose 9
percent.
Income from continuing operations was $56.5 million, or $0.59 per share, in
1997. Before nonrecurring items, 1996 income from continuing operations was
$40.1 million, or $0.43 per share. After a nonrecurring gain on the sale of
Viad's interest in the Phoenix Suns of $19.0 million, or $0.21 per share, and
nonrecurring spin-off costs and management transition expenses of $29.0
million, or $0.32 per share, 1996 income from continuing operations was $30.1
million, or $0.32 per share.
Viad reported 1997 net income of $89.3 million, or $0.94 per share, compared
to $28.4 million, or $0.30 per share, in 1996. The 1997 net income includes
income from discontinued operations of $41.3 million, or $0.44 per share, but
is after deducting an extraordinary charge of $8.5 million, or $0.09 per
share, for early retirement of debt. The 1996 net income is after deducting a
loss from discontinued operations of $1.8 million, or $0.02 per share. See
Note D of Notes to Consolidated Financial Statements.
PAYMENT SERVICES. Revenues of the Payment Services companies on the fully
taxable equivalent basis were $234.9 million in 1997, up $43.4 million, or 23
percent, over those of 1996. Net income increased $7.2 million, or 21
percent. The growth over 1996 was due to an increase in money order and
official check volume, as well as business generated from several smaller
acquisitions made in 1997. The acquisition of Game was completed in December
1997 but had little impact on 1997 results.
3
<PAGE>
CONVENTION AND EVENT SERVICES. Revenues of the Convention and Event Services
segment were $827.5 million, an increase of $53.5 million, or 7 percent, over
1996 revenues of $774.0 million. Included in 1996 were nonrecurring revenues
from the Atlanta Olympic Games and the Democratic National Convention. Net
income increased $3.9 million, or 13 percent, as a result of efficiencies
from the consolidation of Exhibitgroup/ Giltspur facilities, better margins
from building exhibits, and improved show management cost controls at GES.
TRAVEL AND RECREATION SERVICES. Revenues and net income of the ongoing travel
and recreation businesses decreased $100,000 and $200,000, respectively, from
1996 to 1997, as a decline in Japanese tourism into Canada in the second half
of 1997 was mostly offset by increased concession business at America West
Arena, due to having a full year of Phoenix Coyotes hockey games in 1997
compared to calendar year 1996's initial (September through December) hockey
schedule.
CORPORATE ACTIVITIES, NET. These expenses decreased $4.2 million in 1997 from
those in 1996, primarily as a result of cost reduction efforts.
INTEREST EXPENSE. Interest expense in 1997 decreased $4.1 million from that
of 1996. Viad repurchased $58.4 million par value of its 10.5 percent
subordinated debentures at a premium in March 1997, resulting in the
extraordinary charge for early retirement of debt and lower ongoing interest
expense. In addition, proceeds from the sales of noncore assets and
businesses resulted in lower debt levels and reduced interest expense.
INCOME TAXES. The 1997 effective tax rate was 16.5 percent. Excluding the
effect of nonrecurring items, the 1996 effective tax rate was 14.0 percent.
The relatively low effective tax rate is primarily attributable to tax-exempt
investment income. The increase in the effective tax rate from 1996 to 1997
arises primarily because the tax-exempt investment income is proportionately
lower compared to total taxable income in 1997.
LIQUIDITY AND CAPITAL RESOURCES:
Proceeds from the previously discussed sales of noncore assets and businesses
in 1997 and 1998 were used to repay short-term borrowings and, in 1998, to
terminate certain related interest rate swap agreements, resulting in lower
ongoing interest expense. See "Recent Developments" for a discussion of the
Dobbs sale and related use of proceeds.
In mid-1998, Viad completed its cash tender offer for MoneyGram at $17.35 per
share, for a total acquisition cost of approximately $286.5 million. The
acquisition was financed with cash and short-term borrowings supported by
Viad's long-term revolving bank credit agreement.
Viad's total debt at December 31, 1998, was $534.5 million compared with
$410.1 million at December 31, 1997. The debt-to-capital ratio at December
31, 1998, was 0.45 to 1, up slightly from 0.43 to 1 at December 31, 1997.
Capital is defined as total debt plus minority interests, preferred stock and
common stock and other equity.
Under a Shelf Registration filed in 1994 with the Securities and Exchange
Commission, Viad can issue up to an aggregate $500 million of debt and equity
securities. No securities have yet been issued under the program.
With respect to working capital, in order to minimize the effects of
borrowing costs on earnings, Viad strives to maintain current assets
(principally cash, inventories and receivables) at the lowest practicable
levels while at the same time taking advantage of the payment terms offered
by trade creditors and obtaining advance deposits from customers for certain
projects and services. These efforts notwithstanding, working capital
requirements fluctuate significantly from seasonal factors as well as changes
in levels of receivables and inventories caused by numerous business factors.
Viad satisfies a portion of its working capital and other financing
requirements with short-term borrowings (through commercial paper, bank note
programs and bank lines of credit) and the sale of trade accounts receivable.
As discussed in Note I of Notes to Consolidated Financial Statements,
short-term borrowings are supported by a $300 million long-term revolving
bank credit agreement.
As discussed in Note O of Notes to Consolidated Financial Statements, Viad
has an agreement to sell up to $75 million of trade accounts receivable under
which the purchaser has agreed to invest collected amounts in new purchases
on a revolving basis. The receivables sold totaled $27.4 million at December
31, 1998 (excluding $47.6 million trade receivables sold by Dobbs and now
classified as discontinued operations). The agreement expires in August 2000
but is expected to be extended annually.
During July 1998, Viad announced a stock repurchase program for the purpose
of replacing common shares issued upon exercise of stock options and in
connection with other stock compensation plans, with the intended effect of
reducing dilution caused by the issuance of such shares. In 1998, a total of
909,000 shares were purchased under the program for $23 million. Total
proceeds received from the issuances of treasury stock related to stock
option exercises in 1998 were $17 million.
Capital spending has been reduced by obtaining, where appropriate, equipment
and other property under operating leases. Viad's capital asset needs and
working capital requirements are expected to be financed primarily with
internally generated funds.
4
<PAGE>
Cash flows from operations, trade accounts receivable sales and proceeds from
the sales of noncore businesses and assets during the past three years have
generally been sufficient to fund capital expenditures, purchase businesses
and pay cash dividends to stockholders. Viad expects these trends to
continue, with operating cash flows and, to a lesser extent, proceeds from
the sale of noncore businesses and assets generally being sufficient to
finance its business. Should financing requirements exceed such sources of
funds, Viad believes it has adequate external financing sources available,
including Viad's $300 million long-term revolving bank credit agreement and
its $500 million Shelf Registration, to cover any such shortfall.
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, defined as
income from continuing operations before interest expense, income taxes,
depreciation and amortization and nonrecurring items and including the fully
taxable equivalent adjustment, increased 28 percent to $229 million in 1998,
while EBITDA in 1997 increased 19 percent to $179 million.
Viad's Payment Service operations generate funds from the sale of money
orders and other payment instruments (classified as "Payment service
obligations"). The proceeds of such sales are invested by Payment Services
subsidiaries, in accordance with applicable state laws, in high-quality,
readily liquid debt instruments (classified, along with cash on hand and cash
in transit from agents, as "Funds, agents' receivables and current maturities
of investments restricted for payment service obligations"), which before
consolidating eliminations included investment-grade commercial paper issued
by Viad and supported along with the rest of Viad's outstanding commercial
paper by a credit commitment under a long-term revolving bank credit
agreement, as described in Note I of Notes to Consolidated Financial
Statements; and in a portfolio of longer-term high-quality investments
(approximately 99 percent of the investments at December 31, 1998, have
ratings of A- or higher or are collateralized by federal agency securities),
including federal, state and municipal obligations, asset-backed securities
and corporate debt securities (classified as "Investments restricted for
payment service obligations"). These investments are restricted by state
regulatory agencies for use by the Payment Services subsidiary to satisfy the
liability to pay, upon presentment, the face amount of such payment service
obligations. In addition, certain funds and other investments of Payment
Services subsidiaries are available for such obligations. Accordingly, such
assets of Payment Services subsidiaries are not available to satisfy working
capital or other financing requirements of Viad. 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.
In September 1997, a Viad 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. In June 1998, the maximum amount to be sold under the agreement was
increased to $400 million, and the expiration date was extended to June 30,
2003. Items in the program include receivables from bill payment and money
order agents. The receivables are sold in order to accelerate payment
services' cash flow for investments in admissible securities.
As discussed in Note J of Notes to Consolidated Financial Statements, Viad
sold treasury stock in 1992 to Viad's Employee Equity Trust (the "Trust") for
a $200 million promissory note. This Trust is being used to fund certain
existing employee compensation and benefit plans over the scheduled 15-year
term of the Trust. For financial reporting purposes, the Trust is
consolidated with Viad. The fair market value of the shares held by the
Trust, representing unearned employee benefits, was recorded as a deduction
from common stock and other equity, and is reduced as employee benefits are
funded. At December 31, 1998, a total of 4,495,736 shares remained in the
Trust and were available to fund future benefit obligations.
As indicated in Note M of Notes to Consolidated Financial Statements, Viad
has certain unfunded pension and other postretirement benefit plans that
require payments over extended periods of time. Such future benefit payments
are not expected to materially affect Viad's liquidity.
As of December 31, 1998, Viad has recorded U.S. deferred income tax assets
totaling $99 million, which Viad believes to be fully realizable in future
years. The realization of such benefits will require average annual taxable
income over the next 15 years (the current Federal net operating loss
carryforward period) of approximately $19 million. Viad's average U.S. pretax
income from continuing operations, exclusive of nondeductible goodwill
amortization and minority interests, over the past three years has been $69
million. Furthermore, $42 million of the deferred income tax benefits relate
to unfunded pension, compensation and other employee benefits which will
become deductible for income tax purposes as paid, which will occur over
extended periods of time.
Viad is subject to various environmental laws and regulations of the United
States as well as of the states and other countries in whose jurisdictions
Viad has or had operations and is subject to certain international
agreements. As is the case with many companies, Viad faces exposure to actual
or potential claims and lawsuits involving environmental matters. Although
Viad is a party to certain environmental disputes, Viad believes
5
<PAGE>
that any liabilities resulting therefrom, after taking into consideration
amounts already provided for, exclusive of any potential insurance recovery,
should not have a material effect on Viad's financial position or results of
operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
Viad's primary market risk exposure is interest rate risk.
As discussed in Notes A and F of Notes to Consolidated Financial Statements,
Viad's portfolio of investment securities arises primarily from the sale of
payment instruments (principally money orders and official checks) by Viad
Payment Services subsidiaries. The proceeds of such sales are invested in
permissible securities (primarily debt instruments), in accordance with
applicable state laws, pending the settlement, upon presentment, of the
payment instrument obligations. Although Viad's investment portfolio exposes
Viad to certain credit risks, Viad believes the high quality of its
investments reduces this risk substantially (approximately 99 percent of the
investments at December 31, 1998, have ratings of A- or higher or are
collateralized by federal agency securities).
As discussed in Note O of Notes to Consolidated Financial Statements,
derivatives are used as part of Viad's risk management strategy to manage
exposure to fluctuations in short-term interest rates. Derivatives are not
used for speculative purposes.
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 commissions and expense of
selling receivables are computed based on short-term variable interest rates,
and thus Viad is subject 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. The fair
value of such swap agreements, while not recorded on Viad's balance sheet,
generally increases when market values of fixed rate debt investments held by
Payment Services subsidiaries decline (and vice versa).
Viad is also exposed to short-term interest rate risk on certain of its debt
obligations and trade accounts receivable sales. Viad currently does not use
derivative financial instruments to hedge cash flows for such obligations.
A 10 percent proportionate increase (decrease) in short-term interest rates
in 1999, as compared to the average level of interest rates in 1998, would
result in an increase (decrease) in pre-tax income of approximately $900,000.
This estimate takes into consideration expected investment positions,
commissions paid to selling agents, growth in new business, agents'
receivable sales and the effects of the swap agreements. The estimate also
assumes that the borrowing level and trade accounts receivable sales levels
subject to fluctuating interest rates will approximate 1998 levels.
READINESS FOR THE YEAR 2000:
Viad is continuing the implementation of initiatives necessary to make its
systems, products and infrastructure "Year 2000" compliant on a timely basis,
including replacing and/or updating certain systems. Internal initiatives to
address Year 2000 compliance within each business unit have been broken down
into various phases, including the following:
1. Identification of business systems and applications subject to Year 2000
risk;
2. Assessment of such business systems and applications to determine
the appropriate method of correcting Year 2000 problems;
3. Implementation of corrective measures to bring systems and applications to
Year 2000 compliance;
4. Testing and maintaining Year 2000 compliance.
Although no assurances can be made, Viad believes that it has identified all
material systems and applications that are subject to Year 2000 risk and has
either achieved Year 2000 compliance or initiated the implementation of plans
to achieve timely Year 2000 compliance for such systems. A significant
portion of Viad's Year 2000 initiatives have been finished with the remainder
in various stages of completion. Viad's entire Year 2000 project is expected
to be completed by the end of 1999. Incremental costs (primarily for software
consultants and outside programming help) necessary to bring systems and
applications into Year 2000 compliance are being expensed as incurred. Viad
currently estimates that the incremental cost of its Year 2000 projects will
total approximately $14 million, of which approximately 60 percent and 10
percent was expensed in 1998 and 1997, respectively. A substantial portion of
the aggregate Year 2000 cost estimate pertains to efforts at Viad's payment
services operations, where remediation of several key systems was completed
by the end of 1999's first quarter. The Year 2000 costs are exclusive of
costs which would have been incurred as part of normal systems and
application replacements and/or upgrades to meet current and future business
needs. Viad continues to monitor and evaluate the additional efforts and
costs associated with the Year 2000 initiative.
Viad is also communicating with key vendors, service providers, customers and
other third parties with whom business is conducted to determine the nature
of any impact of Year 2000 issues on Viad. While Viad does not anticipate any
material adverse effect on its business or its financial position or results
of operations as a result of failure of such parties to achieve Year 2000
readiness, no assurance can be given that the parties on whom Viad relies
will have accurately assessed and completed their Year 2000 remediation
requirements. Viad's aggregate cost estimate does not include any
6
<PAGE>
expenses that may be incurred as a result of the failure of any such parties
to become Year 2000 compliant.
In response to a specific requirement set forth in a recent Securities and
Exchange Commission release, Viad believes that the most reasonably likely
worst case scenario would involve the failure by Viad to achieve timely Year
2000 compliance of its remaining systems and/or the failure of third parties
to be Year 2000 compliant, which in turn would result in increased costs
associated with additional staffing and remediation efforts to address
shortfalls in systems compliance and increased costs to meet processing,
service and production requirements, all of which could have a material
adverse effect on Viad and its results of operations. As a part of its Year
2000 initiative, Viad is developing contingency plans for actions that would
need to be taken in the event any critical system of Viad and/or key vendors,
service providers, customers and other third parties with whom Viad conducts
business was not Year 2000 compliant.
Viad believes, based on information available to date, that it will be able
to accomplish its total Year 2000 transition by the end of 1999, without any
material adverse effect on its business operations, products, financial
position or results of operations. However, due to the complexity and
pervasiveness of the Year 2000 issues and in particular the uncertainty
regarding the compliance programs of third parties, no assurance can be given
that successful transition will be achieved by the Year 2000 deadline or that
Viad would not suffer any material adverse effect on its business, financial
position or results of operations if such changes are not completed timely.
RECENT DEVELOPMENTS:
Viad completed the sale of the contract foodservice operations and public
service division of Restaura, Inc. in late January 1999 and March 1999,
respectively. Viad retained Restaura's leisure and entertainment group that
includes the restaurant and concession contracts at Bank One Ballpark and
America West Arena, as well as the operation of historic lodges at Glacier
National Park. The sale was recorded in the first quarter of 1999.
On July 1, 1999, Viad received approximately $780 million in cash proceeds
upon the sale of Dobbs. A portion of the proceeds was immediately used to
repay short-term borrowings, with the balance temporarily invested in debt
securities. As announced previously, Viad ultimately anticipates utilizing
the net proceeds (after payment of taxes on the gain on sale of Dobbs) to
repurchase $100 million to $150 million of its common stock, to repay $100
million of debt, and to fund strategic acquisitions in Viad's core business
areas.
FORWARD-LOOKING STATEMENTS:
As provided by the "Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995," Viad cautions readers that, in addition to
the historical information contained herein, this Annual Report includes
certain forward-looking statements, assumptions and discussions, including
those relating to expectations of or current trends in consumer demand, new
business, ongoing cost reduction efforts, Year 2000 compliance issues 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, consolidation and growth
patterns within the industries in which Viad competes, and the timely
achievement of Year 2000 compliance by Viad and third parties with whom Viad
conducts business, 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 Annual Report.
<PAGE>
VIAD CORP CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, (000 omitted, except share data) 1998 1997
=======================================================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,554 $ 17,097
Receivables 97,262 78,208
Inventories 61,185 92,892
Deferred income taxes 31,954 27,009
Other current assets 32,992 24,165
- -----------------------------------------------------------------------------------------------------------------------
238,947 239,371
Funds, agents' receivables and current maturities of investments
restricted for payment service obligations, after
eliminating $90,000 invested in Viad commercial paper 561,266 617,887
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 800,213 857,258
Investments restricted for payment service obligations 2,415,588 1,615,464
Property and equipment 294,595 283,298
Investment in discontinued operations 386,300 422,877
Other investments and assets 121,856 98,669
Deferred income taxes 66,814 73,009
Intangibles 602,926 258,633
- -----------------------------------------------------------------------------------------------------------------------
$4,688,292 $3,609,208
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 109,332 $ 116,792
Accrued compensation 57,404 41,117
Other current liabilities 118,661 87,400
Current portion of long-term debt 3,105 32,200
- -----------------------------------------------------------------------------------------------------------------------
288,502 277,509
Payment service obligations 2,999,930 2,248,004
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,288,432 2,525,513
Long-term debt 531,348 377,849
Pension and other benefits 74,529 57,449
Other deferred items and insurance liabilities 138,381 104,246
Commitments and contingent liabilities (Notes N, O and P)
Minority interests 3,096 8,378
$4.75 Redeemable preferred stock 6,625 6,612
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 327,866 291,414
Retained income 328,305 209,127
Unearned employee benefits and other (162,543) (121,968)
Accumulated other comprehensive income:
Unrealized gain on securities classified as available for sale, net of tax 18,231 13,625
Cumulative translation adjustments (7,009) (3,022)
Common stock in treasury, at cost, 344,858 and 516,926 shares (8,579) (9,625)
- ------------------------------------------------------------------------------------------------------------------------
Total common stock and other equity 645,881 529,161
- ------------------------------------------------------------------------------------------------------------------------
$4,688,292 $3,609,208
========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
8
<PAGE>
VIAD CORP CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (000 omitted, except per share data) 1998 1997 1996
=======================================================================================================================
<S> <C> <C> <C>
REVENUES $1,612,759 $1,486,351 $1,397,925
- -----------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Costs of sales and services 1,454,152 1,351,717 1,275,613
Corporate activities, net 24,207 31,388 35,542
Interest expense 27,212 34,296 38,381
Nonrecurring items:
Gains on sales of businesses (33,484)
Provision for payments previously received
pursuant to patent infringement litigation 10,642
Gain on sale of interest in Phoenix Suns (30,489)
Spin-off costs and management transition expenses 33,000
Minority interests 2,165 1,237 1,752
- -----------------------------------------------------------------------------------------------------------------------
1,484,894 1,418,638 1,353,799
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 127,865 67,713 44,126
Income taxes 30,521 11,194 13,984
- -----------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 97,344 56,519 30,142
Income (loss) from discontinued operations 53,296 41,275 (1,765)
- -----------------------------------------------------------------------------------------------------------------------
Income before extraordinary charge 150,640 97,794 28,377
Extraordinary charge for early retirement of debt, net of tax benefit of $4,554 (8,458)
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 150,640 $ 89,336 $ 28,377
=======================================================================================================================
DILUTED INCOME PER COMMON SHARE
Continuing operations $ 0.98 $ 0.59 $ 0.32
Discontinued operations 0.54 0.44 (0.02)
- -----------------------------------------------------------------------------------------------------------------------
Income before extraordinary charge 1.52 1.03 0.30
Extraordinary charge (0.09)
- -----------------------------------------------------------------------------------------------------------------------
Diluted net income per common share $ 1.52 $ 0.94 $ 0.30
=======================================================================================================================
Average outstanding and potentially dilutive common shares 98,367 93,786 91,339
=======================================================================================================================
BASIC INCOME PER COMMON SHARE
Continuing operations $ 1.02 $ 0.61 $ 0.33
Discontinued operations 0.56 0.45 (0.02)
- -----------------------------------------------------------------------------------------------------------------------
Income before extraordinary charge 1.58 1.06 0.31
Extraordinary charge (0.09)
- -----------------------------------------------------------------------------------------------------------------------
Basic net income per common share $ 1.58 $ 0.97 $ 0.31
=======================================================================================================================
Average outstanding common shares 94,382 90,804 88,814
=======================================================================================================================
Dividends declared per common share $ 0.32 $ 0.32 $ 0.48
=======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
9
<PAGE>
VIAD CORP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (000 omitted) 1998 1997 1996
=======================================================================================================================
<S> <C> <C> <C>
NET INCOME $ 150,640 $ 89,336 $ 28,377
Other comprehensive income:
Unrealized gain (loss) on securities classified as available for sale:
Holding gains (losses) arising during the period, net of
tax provision (benefit) of $7,562, $11,410 and $(56) 11,827 17,846 (87)
Reclassification adjustment for net realized gains included in net income,
net of tax provision of $4,617, $2,830 and $745 (7,221) (4,426) (1,164)
- -----------------------------------------------------------------------------------------------------------------------
4,606 13,420 (1,251)
- -----------------------------------------------------------------------------------------------------------------------
Unrealized foreign currency translation adjustments:
Holding gains (losses) arising during the period (4,038) (2,591) 19
Reclassification adjustment for sales of investments in
foreign entities included in net income 51 1,088 12,266
- -----------------------------------------------------------------------------------------------------------------------
(3,987) (1,503) 12,285
- -----------------------------------------------------------------------------------------------------------------------
Other comprehensive income 619 11,917 11,034
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 151,259 $ 101,253 $ 39,411
=======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
10
<PAGE>
VIAD CORP CONSOLIDATED STATEMENT OF COMMON STOCK AND OTHER EQUITY
<TABLE>
<CAPTION>
Common Shares
------------------------------
Employee
Equity Common Additional Retained
(000 omitted) Issued Trust Treasury Stock Capital Income
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 97,109 (6,279) (2,878) $ 145,663 $ 362,205 $ 322,439
Net income 28,377
Dividends on common and
preferred stock (43,869)
Distribution of consumer products
business to Viad stockholders (88,607) (160,026)
Disposition of Canadian intercity bus
transportation business
Treasury shares issued in
connection with dividend
reinvestment plan 517 3,168
Employee benefit plans 608 1,200 (7,916)
Employee Equity Trust adjustment to
market value 13,422
Unrealized translation gain
Unrealized loss on securities
classified as available
for sale
Other, net (2) (69) (257)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 97,109 (5,671) (1,163) 145,663 282,203 146,664
Net income 89,336
Dividends on common and
preferred stock (30,295)
Treasury shares acquired in
connection with dividend
reinvestment plan (90) (329)
Employee benefit plans 598 797 (7,017)
Employee Equity Trust
adjustment to market value 14,793
Acquisition of subsidiary
accounted for as a
pooling of interests 2,631 3,947 875 4,382
Unrealized translation loss
Unrealized gain on securities
classified as available
for sale
Other, net (61) 889 (960)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 99,740 (5,073) (517) 149,610 291,414 209,127
Net income 150,640
Dividends on common and
preferred stock (31,480)
Employee benefit plans 577 1,081 (15,422)
Employee Equity Trust
adjustment to market value 51,892
Treasury shares acquired (909)
Unrealized translation loss
Unrealized gain on securities
classified as available
for sale
Other, net (18) 18
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 99,740 (4,496) (345) $ 149,610 $ 327,866 $ 328,305
=================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
11
<PAGE>
VIAD CORP CONSOLIDATED STATEMENT OF COMMON STOCK AND OTHER EQUITY, CONTINUED
<TABLE>
<CAPTION>
Accumulated Other Comprehensive Income
---------------------------------------------
Unrealized
Gain on Subtotal
Unearned Securities Accumulated
Employee Classified Cumulative Other Common
Benefits as Available Translation Comprehensive Stock in
(000 omitted) and Other for Sale Adjustments Income Treasury Total
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $(213,996) $ 1,456 $(18,380) $ (16,924) $ (51,218) $ 548,169
Net income 28,377
Dividends on common and
preferred stock (43,869)
Distribution of consumer products
business to Viad stockholders 88,607 4,576 4,576 (155,450)
Disposition of Canadian intercity
bus transportation business 12,266 12,266 12,266
Treasury shares issued in
connection with dividend
reinvestment plan 9,417 12,585
Employee benefit plans 20,045 19,584 31,713
Employee Equity Trust
adjustment to market value (13,422) --
Unrealized translation gain 19 19 19
Unrealized loss on securities
classified as available
for sale (1,251) (1,251) (1,251)
Other, net (15) (341)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 (118,766) 205 (1,519) (1,314) (22,232) 432,218
Net income 89,336
Dividends on common and
preferred stock (30,295)
Treasury shares acquired in
connection with dividend
reinvestment plan (1,817) (2,146)
Employee benefit plans 11,591 15,410 19,984
Employee Equity Trust
adjustment to market value (14,793) --
Acquisition of subsidiary
accounted for as a
pooling of interests 9,204
Unrealized translation loss (1,503) (1,503) (1,503)
Unrealized gain on securities
classified as available
for sale 13,420 13,420 13,420
Other, net (986) (1,057)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 (121,968) 13,625 (3,022) 10,603 (9,625) 529,161
Net income 150,640
Dividends on common and
preferred stock (31,480)
Employee benefit plans 11,317 24,027 19,922
Employee Equity Trust
adjustment to market value (51,892) --
Treasury shares acquired (22,979) (22,979)
Unrealized translation loss (3,987) (3,987) (3,987)
Unrealized gain on securities
classified as available
for sale 4,606 4,606 4,606
Other, net (2) (2)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $(162,543) $ 18,231 $ (7,009) $ 11,222 $ (8,579) $ 645,881
===============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
12
<PAGE>
VIAD CORP CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (000 omitted) 1998 1997 1996
=======================================================================================================================
<S> <C> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES
Net income $ 150,640 $ 89,336 $ 28,377
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 57,643 48,722 44,036
Deferred income taxes 1,563 1,437 7,077
Spin-off costs and management transition expenses 33,000
(Income) loss from discontinued operations (53,296) (41,275) 1,765
Extraordinary charge for early retirement of debt 8,458
Gains on sales of businesses, property and other assets, net (51,730) (17,341) (42,382)
Other noncash items, net 12,793 8,849 11,095
Change in operating assets and liabilities:
Receivables and inventories (32,579) (5,822) 23,594
Payment service assets and obligations, net 779,217 466,559 236,736
Accounts payable and accrued compensation 17,911 11,865 30,494
Other assets and liabilities, net (48,992) (49,486) (35,636)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 833,170 521,302 338,156
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES
Capital expenditures (54,832) (72,104) (57,171)
Purchase of asset previously leased (20,986)
Acquisitions of businesses, net of cash acquired (343,771) (10,495) (19,309)
Proceeds from sales of businesses, property and other assets, net 194,154 204,723 61,839
Investments restricted for payment service obligations:
Proceeds from sales and maturities of securities
classified as available for sale 839,128 819,813 581,192
Proceeds from maturities of securities classified as held to maturity 103,231 48,201 25,584
Purchases of securities classified as available for sale (1,602,002) (1,141,753) (630,685)
Purchases of securities classified as held to maturity (96,309) (191,340) (241,616)
Investments in and advances from discontinued operations, net 58,766 996 36,698
- -----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (901,635) (362,945) (243,468)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES
Proceeds from long-term borrowings 3,926
Payments on long-term borrowings (32,639) (75,946) (77,464)
Premium paid upon early retirement of debt (13,012)
Net change in short-term borrowings classified as long-term debt 150,000 (34,000) (12,888)
Dividends on common and preferred stock (31,480) (30,295) (43,869)
Proceeds from issuances of treasury stock 17,216 12,466 40,032
Common stock purchased for treasury (22,979)
Cash payments on interest rate swap agreements related to debt (17,122) (6,424) (13,255)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 66,922 (147,211) (107,444)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,543) 11,146 (12,756)
Cash and cash equivalents, beginning of year 17,097 5,951 18,707
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 15,554 $ 17,097 $ 5,951
=======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
13
<PAGE>
VIAD CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998, 1997 and 1996
A. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements of Viad
Corp ("Viad") include the accounts of Viad and all of its subsidiaries.
On July 1, 1999, Viad completed the sale of its airline catering business,
conducted by Dobbs International Services, Inc. in the United States and by
Dobbs International (U.K.) Limited in the United Kingdom (referred to
collectively as "Dobbs"). Effective April 1, 1998, Viad sold its Aircraft
Services International Group ("ASIG"), which conducted aircraft fueling and
ground-handling operations. The sale of Dobbs completed the disposition of
Viad's airline catering and services segment. The accompanying financial
statements have been prepared to reflect the historical financial position
and results of operations as adjusted for the reclassification of the airline
catering and services businesses as discontinued operations for all periods
presented. See Note D.
The Consolidated Financial Statements are prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures at the date of the financial statements and the
reported results of operations during the period. Actual results may vary
from those estimates.
Intercompany accounts and transactions between Viad and its subsidiaries have
been eliminated in consolidation. Consolidated revenues, operating income and
interest expense reflect the elimination of intercompany interest payments on
$90 million invested in Viad commercial paper by a Payment Services
subsidiary. The elimination has no effect on Viad's income from continuing
operations or net income.
Described below are those accounting policies significant to Viad, including
those selected from acceptable alternatives.
CASH EQUIVALENTS. Viad considers all highly liquid investments with original
maturities of three months or less as cash equivalents.
INVENTORIES. Inventories, which consist primarily of exhibit materials, food
and supplies used in providing services, are stated at the lower of cost
(first-in, first-out and average cost methods) or market.
FUNDS AND AGENTS' RECEIVABLES AND INVESTMENTS RESTRICTED FOR PAYMENT SERVICE
OBLIGATIONS. Viad Payment Services subsidiaries generate funds from the sale
of money orders and other payment instruments (with the related liability
classified as "Payment service obligations"). The proceeds of such sales are
invested primarily in permissible securities, principally debt instruments
(classified, along with cash on hand and cash in transit from agents, as
"Funds, agents' receivables and current maturities of investments restricted
for payment service obligations") which, before consolidating eliminations,
included investment-grade commercial paper issued by Viad and supported along
with the rest of Viad's outstanding commercial paper by a credit commitment
under a long-term revolving bank credit agreement, as described in Note I;
and in a portfolio of high-quality, longer-term debt instruments
(approximately 99% of the investments at December 31, 1998, have ratings of
A- or higher or are collateralized by federal agency securities), including
federal, state and municipal obligations, asset-backed securities and
corporate debt securities (classified as "Investments restricted for payment
service obligations"). These investments are restricted by state regulatory
agencies for use by Viad's Payment Services subsidiaries to satisfy the
liability to pay, upon presentment, the face amount of such payment service
obligations. In addition, certain funds and other investments of Payment
Services subsidiaries are available for such obligations. Accordingly, such
assets of Payment Services subsidiaries are not available to satisfy working
capital or other financing requirements of Viad.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," Viad
classifies securities as either available for sale or held to maturity. See
Note F.
LONG-LIVED ASSETS. Viad reviews the carrying values of its long-lived assets
and identifiable intangibles for possible impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable in accordance with the provisions of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of."
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost, net of
impairment write-downs and accumulated depreciation. Property and equipment
are depreciated principally on the straight-line basis over the following
useful lives: buildings, from 15 to 40 years; equipment, from 3 to 10 years;
and leasehold improvements over the shorter of the lease term or useful life.
INTANGIBLES. Intangibles are carried at cost less accumulated amortization.
Intangibles are amortized on the straight-line method over the estimated
lives or periods of expected benefit, but not in excess of 40 years. Viad
evaluates the carrying value of goodwill and other intangible assets at each
reporting period for possible impairment in accordance with the provisions of
SFAS No. 121.
14
<PAGE>
PENSION AND OTHER BENEFITS. Trusteed, noncontributory pension plans cover a
significant portion of employees, with benefit levels supplemented in most
cases by defined matching company stock contributions to employees' 401(k)
plans. The 401(k) plans are available to almost all employees, including
those not covered by the defined benefit plans. Defined benefits are based
primarily on final average pay and years of service. Funding policies provide
that payments to defined benefit pension trusts shall be at least equal to
the minimum funding required by applicable regulations. Certain defined
pension benefits, primarily those in excess of benefit levels permitted under
qualified pension plans, are unfunded.
Viad has unfunded defined benefit postretirement plans that provide medical
and life insurance for certain eligible employees, retirees and dependents.
The related postretirement benefit liabilities are recognized over the period
that services are provided by employees.
DERIVATIVES. Derivatives are used as part of Viad's risk management strategy
to manage exposure to fluctuations in interest rates. Derivatives are not
used for speculative purposes. Amounts receivable or payable under swap
agreements are accrued and recognized as an adjustment to the expense of the
related transaction.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133, which was amended by SFAS No. 137, "Deferral of the Effective Date
of FASB Statement No. 133," will be effective for Viad's financial statements
as of January 1, 2001. The statement requires that entities record all
derivatives as assets or liabilities, measured at fair value, with the change
in fair value recognized in earnings or in other comprehensive income,
depending on the use of the derivative and whether it qualifies for hedge
accounting. Viad is in the process of evaluating the impact which will result
upon adoption of this standard.
STOCK-BASED COMPENSATION. As permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation," Viad uses the intrinsic value method prescribed by
APB No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock-based compensation plans.
NET INCOME PER COMMON SHARE. Employee Stock Ownership Plan ("ESOP") shares
are treated as outstanding for net income per share calculations. Shares held
by the Employee Equity Trust (the "Trust") are not considered outstanding for
net income per share calculations until the shares are released from the
Trust.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform with the 1998 presentation.
B. ACQUISITIONS OF BUSINESSES
Effective June 1, 1998, Viad acquired MoneyGram Payment Systems, Inc.
("MoneyGram"), a provider of consumer money wire transfer services. Also
during 1998, Viad acquired several convention and event services companies.
During 1997, Viad acquired several payment services businesses, including the
nation's largest processor of rebate checks and a regional money order
business. In addition, in December 1997, Viad acquired all of the common
stock of Game Financial Corporation ("Game") in exchange for 2,631,000 shares
of Viad's common stock. Game provides cash access services to casinos and
other gaming establishments. The Game acquisition was accounted for as a
pooling of interests.
During 1996, Viad purchased two convention and event services companies. Viad
also acquired the remaining minority interest in its Canadian tourism
business, Brewster Transport Company Limited, in a noncash exchange, as
described in Note D.
Except for the Game pooling, the acquisitions were accounted for as
purchases. The purchase prices, including acquisition costs, were allocated
to the net tangible and identifiable intangible assets acquired based on
estimated fair values at the dates of the acquisitions. The difference
between the purchase prices and the related fair values of net assets
acquired represents goodwill. Viad is still gathering certain information
required to complete the allocation of the MoneyGram purchase price. Further
adjustments may arise as a result of this analysis.
The accompanying financial statements include the accounts and results of
operations from the dates of acquisition. The results of operations of the
acquired companies from the beginning of the year to the dates of acquisition
are not material to the consolidated results of operations. In addition,
prior period financial statements have not been restated for the pooling of
interests, as the results of Game for such periods were not significant.
Net cash paid, assets acquired and debt and other liabilities assumed in all
acquisitions of businesses accounted for as purchases for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997 1996
===============================================================================
<S> <C> <C> <C>
Assets acquired:
Property and equipment $ 16,082 $ 367 $ 1,790
Intangibles, primarily goodwill (1) 357,943 10,128 15,782
Other assets 41,723 10,790
Debt and other liabilities assumed (71,977) (9,053)
- -------------------------------------------------------------------------------
Net cash paid $343,771 $10,495 $19,309
===============================================================================
</TABLE>
(1) Excludes additional goodwill of $15,688,000 recorded in 1996 in
connection with the acquisition of the remaining minority interest in the
Canadian tourism business in a noncash exchange.
15
<PAGE>
C. NONRECURRING ITEMS
On September 15, 1998, Viad completed the sale of its duty-free and shipboard
concessions business, Greyhound Leisure Services, Inc. ("GLSI"). The gain on
sale, after deducting costs of sale and related expense provisions, was
$26,684,000 ($15,650,000 after-tax).
In the fourth quarter of 1998, Viad obtained release of all guarantees and
bonding relating to its former United Kingdom travel and tour subsidiaries,
Crystal Holidays and Jetsave, which had been sold in October 1997.
Accordingly, the gain on sale of these subsidiaries, which was deferred
pending resolution of the contingencies, was recognized in 1998's fourth
quarter. The gain on sale of Crystal Holidays and Jetsave, after deducting
costs of sale and related expense provisions, was $6,800,000 ($4,004,000
after-tax).
On January 27, 1999, Viad sold the contract foodservice operations of
Restaura, Inc. The public service division units of Restaura were sold in
March 1999. Viad is retaining the leisure and entertainment group that
includes the restaurant and concession contracts at Bank One Ballpark and
America West Arena, as well as Glacier Park, Inc. The sale was recorded in
the first quarter of 1999.
Results of operations up to dates of sale of these sold businesses (not
classified as discontinued operations) are summarized in Note Q.
Following protracted efforts, including formal mediation, to settle patent
infringement litigation initiated by Viad's Payment Services subsidiary,
Travelers Express Company, Inc. ("TECI"), against Integrated Payment Systems
("IPS"), a subsidiary of First Data Corporation, TECI petitioned the Federal
District Court in May 1998 to set aside a settlement term sheet entered into
over three years previously because of the parties' failure to agree on final
settlement terms. At the same time, TECI tendered back to IPS amounts which
IPS had paid to TECI pursuant to the term sheet. The Court granted TECI's
motion and set a future trial date for its patent infringement lawsuit
against IPS. While TECI expects a favorable outcome, the timing and amount of
recovery pursuant to litigation cannot be assured. Accordingly, TECI recorded
a one-time provision in the second quarter of 1998 for payments received from
IPS and recorded as income in prior years, plus interest thereon and related
expenses totaling $10,642,000 ($6,917,000 after-tax).
On December 31, 1996, Viad sold its 26 percent limited partnership interest
in the Phoenix Suns National Basketball Association team. The gain, after
deducting transaction costs and carrying amount of the investment, was
$30,489,000 ($19,025,000 after-tax).
As discussed in Note D, on August 15, 1996, Viad completed the spin-off of
its consumer products business to stockholders. Spin-off costs and management
transition expenses totaling $33,000,000 ($28,985,000 after-tax) were
recorded as expenses of continuing operations. In addition, $5,000,000 of
such costs, without tax benefit, were allocated to the consumer products
business and are classified as discontinued operations expense. These charges
are comprised primarily of spin-off transaction costs, professional fees and
compensation required by certain former executive officers' employment
contracts.
D. DISCONTINUED OPERATIONS
As discussed in Note A, on July 1, 1999, Viad completed the sale of its
airline catering business, conducted by Dobbs. Effective April 1, 1998, Viad
sold ASIG, which conducted aircraft fueling and ground-handling operations.
The sale of Dobbs completed the disposition of Viad's airline catering and
services segment. After repaying short-term borrowings with proceeds of the
ASIG sale, Viad terminated related interest rate swap agreements. The gain on
sale of ASIG, after deducting costs of sale and related expense provisions,
was $13,201,000 (after-tax) and is included in discontinued operations.
On August 15, 1996, Viad completed the spin-off of its consumer products
business, now conducted under the name The Dial Corporation. In effecting the
spin-off, the holders of common stock of Viad received a distribution (the
"Distribution") of one share of common stock of The Dial Corporation for each
share of Viad common stock.
In connection with the Distribution, Viad borrowed $280,000,000 under a new
$350,000,000 bank credit facility and used the proceeds to repay
floating-rate indebtedness of Viad. The credit facility and related liability
were then assumed by The Dial Corporation upon the spin-off. Viad also
transferred a variable-to-fixed interest rate swap agreement in the notional
amount of $65,000,000 to The Dial Corporation. Interest expense of
$13,096,000 in 1996 was allocated to the consumer products business based on
interest on the debt and interest rate swap assumed by The Dial Corporation.
Effective May 31, 1996, shareholders of Greyhound Lines of Canada ("GLOC")
voted to separate its intercity bus transportation business and its tourism
business into two independent companies. At the same time, GLOC minority
shareholders approved an automatic share exchange proposal whereby their
ownership interests in the tourism business, aggregating 31.5 percent, were
exchanged for Viad's 68.5 percent ownership interest in the intercity bus
transportation company such that Viad became the owner of 100 percent of the
tourism company, Brewster Transport Company Limited, in exchange for its
ownership in the intercity bus transportation company.
In February 1997, Viad's Board of Directors approved plans to dispose of
Viad's cruise line business, operated by Premier Cruise Lines. In March 1997,
Viad sold the Star/Ship Atlantic, and on April 17, 1997, Viad finalized the
sale of Premier Cruise Lines.
16
<PAGE>
Revenues applicable to the airline catering and services segment totaled
$922,632,000 in 1998, $924,373,000 in 1997 and $857,953,000 in 1996. Revenues
applicable to the operations of the discontinued consumer products, Canadian
intercity bus transportation and cruise line businesses totaled $998,792,000
in 1996.
The caption "Income (loss) from discontinued operations" in the Consolidated
Statement of Income for the years ended December 31 includes the following:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997 1996
================================================================================
<S> <C> <C> <C>
Airline catering and services segment:
Income from operations, net of tax provision
of $28,573, $29,959 and $27,914 (1) $40,095 $41,275 $ 38,929
Gain on sale of ASIG, net of tax
provision of $7,954 13,201
- --------------------------------------------------------------------------------
53,296 41,275 38,929
- --------------------------------------------------------------------------------
Consumer products business income from
operations, net of tax provision of $22,817 (2) 30,620
- --------------------------------------------------------------------------------
Canadian intercity bus transportation business:
Loss from operations, net of tax benefit of $510 (583)
Transaction costs, loss on disposition
and foreign currency translation losses (3) (15,866)
- --------------------------------------------------------------------------------
(16,449)
- --------------------------------------------------------------------------------
Cruise line business:
Loss from operations, net of tax benefit of $174 (70)
Provision for loss on disposal, net of tax
benefit of $19,250 (4) (35,750)
- --------------------------------------------------------------------------------
(35,820)
- --------------------------------------------------------------------------------
Provisions related to previously discontinued
businesses, net of tax benefit of $10,955 (5) (19,045)
- --------------------------------------------------------------------------------
Income (loss) from discontinued operations $53,296 $41,275 $ (1,765)
================================================================================
</TABLE>
(1) Interest expense not directly attributable to other Viad operations of
$6,862,000 in 1998, $7,610,000 in 1997 and $7,288,000 in 1996, was
allocated to the airline catering and services segment based on the
amount of intercompany interest that had historically been charged by
Viad on interest-bearing advances based on the prime lending rate.
(2) After deducting spin-off costs and management transition expenses of
$5,000,000, without tax benefit.
(3) Includes spin-off and exchange transaction costs of $1,579,000 associated
with the disposition of the Canadian intercity bus transportation
business, along with a noncash loss recorded on the disposition of
$2,021,000 and recognition of 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, "Foreign Currency Translation."
(4) Includes a $1,950,000 (after-tax) provision for operating losses during
the phase-out period.
(5) Represents additional provisions for self insurance, legal and
remediation matters arising from previously discontinued businesses.
E. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of diluted
and basic per share computations for income from continuing operations as
required by SFAS No. 128, "Earnings Per Share":
<TABLE>
<CAPTION>
(000 omitted, except per share data) 1998 1997 1996
=====================================================================================
<S> <C> <C> <C>
Income from continuing operations $97,344 $56,519 $30,142
Less: Preferred stock dividends (1,129) (1,127) (1,125)
- -------------------------------------------------------------------------------------
Income available to common
stockholders $96,215 $55,392 $29,017
=====================================================================================
Average outstanding common shares 94,382 90,804 88,814
Additional dilutive shares related to
stock-based compensation 3,985 2,982 2,525
- -------------------------------------------------------------------------------------
Average outstanding and potentially
dilutive common shares 98,367 93,786 91,339
=====================================================================================
Diluted income per share from
continuing operations $ 0.98 $ 0.59 $ 0.32
=====================================================================================
Basic income per share from
continuing operations $ 1.02 $ 0.61 $ 0.33
=====================================================================================
</TABLE>
F. INVESTMENTS IN DEBT AND EQUITY SECURITIES
As discussed in Note A, Viad Payment Services subsidiaries generate funds
from the issuance of money orders and other payment instruments, with the
related liabilities classified as "Payment service obligations." The funds
are invested primarily 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. Securities are included in the Consolidated
Balance Sheet under the caption, "Investments restricted for payment service
obligations," except for those securities expected to be sold or maturing
within one year, which are included under the caption, "Funds, agents'
receivables and current maturities of investments restricted for payment
service obligations." In addition, certain funds and other investments of
Payment Services subsidiaries are available for such obligations.
Accordingly, such assets of Payment Services subsidiaries are not available
to satisfy working capital or other financing requirements of Viad.
As described further in Note O, a Payment Services subsidiary hedges a
substantial portion of the variable rate commission payments to its selling
agents through the purchase of swap agreements, which convert the variable
rate commission payments to fixed rate payments. The fair value of such swap
agreements, while not recorded on Viad's Consolidated Balance Sheet,
generally increases when market values of fixed rate debt investments held by
Payment Services subsidiaries decline (and vice versa).
17
<PAGE>
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.
Presented as additional information below is a summary of asset and liability
carrying amounts related to the payment service obligations, followed by the
fair value of related off-balance-sheet swap agreements at December 31:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997
===========================================================================
<S> <C> <C>
Funds, agents' receivables and current
maturities of investments restricted for
payment service obligations, including
$90,000 invested in Viad commercial paper (1) $ 651,266 $ 707,887
Investments restricted for payment service
obligations (2) 2,415,588 1,615,464
Other assets available for payment service
obligations 33,987 22,971
Payment service obligations (2,999,930) (2,248,004)
Fair value (liability) of off-balance-sheet
swap agreements (3) (25,097) (2,916)
- ---------------------------------------------------------------------------
Total (2) $ 75,814 $ 95,402
===========================================================================
</TABLE>
(1) See Note I for description of Viad's revolving bank credit agreement, which
supports its commercial paper obligations.
(2) As noted below, securities classified as available for sale are carried at
fair market value, and securities classified as held to maturity are carried
at amortized cost. The fair value of securities classified as available for
sale exceeded amortized cost by $29,887,000 and $22,335,000 at December 31,
1998 and 1997, respectively. The market value of securities classified as
held to maturity exceeded carrying amounts by $16,963,000 and $10,724,000
at December 31, 1998 and 1997, respectively.
(3) The fair value represents the estimated amount that Viad would pay to
counterparties to terminate the swap agreements at December 31.
Securities are classified as available for sale or held to maturity as required
by SFAS No. 115.
Viad regularly monitors credit and market risk exposures and takes steps to
mitigate the likelihood of these exposures resulting in actual loss. Although
Viad's investment portfolio exposes Viad to certain credit risks, Viad believes
the high quality of its investments reduces this risk substantially
(approximately 99% of the investments at December 31, 1998 have ratings of A- or
higher or are collateralized by federal agency securities).
SECURITIES CLASSIFIED AS AVAILABLE FOR SALE. Securities that are being held for
indefinite periods of time, including those securities which may be sold in
response to needs for liquidity or changes in interest rates, are classified as
securities available for sale and are carried at fair value. The net unrealized
holding gains of $18,231,000 and $13,625,000 (net of deferred tax liability of
$11,656,000 and $8,710,000, respectively) at December 31, 1998 and 1997,
respectively, are included in the Consolidated Balance Sheet as a component of
"Accumulated other comprehensive income." The increase in the unrealized gain
during 1998 and 1997 was due principally to decreases in longer-term market
interest rates.
A summary of securities classified as available for sale at December 31, 1998 is
presented below:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(000 omitted) Cost Gains Losses Value
=========================================================================
<S> <C> <C> <C> <C>
U.S. Government
agencies $ 16,193 $ 2 $ 14 $ 16,181
Obligations of states and
political subdivisions 954,237 30,613 397 984,453
Corporate debt securities 16,937 2,963 13,974
Mortgage-backed and other
asset-backed securities 778,417 7,306 2,789 782,934
Preferred stock 80,360 700 2,571 78,489
- -------------------------------------------------------------------------
Securities classified as
available for sale $1,846,144 $ 38,621 $ 8,734 $1,876,031
=========================================================================
</TABLE>
A summary of securities classified as available for sale at December 31, 1997
is presented below:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(000 omitted) Cost Gains Losses Value
=========================================================================
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 616,826 $ 19,796 $ 19 $ 636,603
Corporate debt securities 21,913 7 1,865 20,055
Mortgage-backed and other
asset-backed securities 393,140 3,301 254 396,187
Preferred stock 42,492 1,433 64 43,861
- -------------------------------------------------------------------------
Securities classified as
available for sale $1,074,371 $ 24,537 $ 2,202 $1,096,706
=========================================================================
</TABLE>
Gross gains of $11,843,000, $7,986,000 and $3,039,000 were realized during 1998,
1997 and 1996, respectively. Gross losses of $5,000, $730,000 and $1,130,000
were realized during 1998, 1997 and 1996, respectively. Gross gains and losses
are based on the specific identification method of determining cost.
-18-
<PAGE>
SECURITIES CLASSIFIED AS HELD TO MATURITY. Securities classified as held to
maturity, which consist of securities that management has the ability and intent
to hold to maturity, are carried at amortized cost, and are summarized as
follows at December 31, 1998:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(000 omitted) Cost Gains Losses Value
=========================================================================
<S> <C> <C> <C> <C>
U.S. Government
agencies $ 55,059 $ 441 $ 30 $ 55,470
Obligations of states and
political subdivisions 350,374 15,573 112 365,835
Corporate debt securities 20,507 193 33 20,667
Mortgage-backed and other
asset-backed securities 120,743 1,384 316 121,811
Other securities 3,018 137 2,881
- -------------------------------------------------------------------------
Securities classified as
held to maturity $ 549,701 $17,591 $ 628 $ 566,664
=========================================================================
</TABLE>
A summary of securities classified as held to maturity at December 31, 1997, is
presented below:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(000 omitted) Cost Gains Losses Value
=========================================================================
<S> <C> <C> <C> <C>
U.S. Government
agencies $ 57,110 $ -- $ 563 $ 56,547
Obligations of states and
political subdivisions 307,652 11,293 48 318,897
Corporate debt securities 55,707 397 55,310
Mortgage-backed and other
asset-backed securities 125,273 985 86 126,172
Other securities 3,031 460 2,571
- -------------------------------------------------------------------------
Securities classified as
held to maturity $ 548,773 $12,278 $1,554 $ 559,497
=========================================================================
</TABLE>
SCHEDULED MATURITIES. Scheduled maturities of securities at December 31, 1998
is presented below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------ ----------------
Amortized Fair Amortized Fair
(000 omitted) Cost Value Cost Value
=========================================================================
<S> <C> <C> <C> <C>
Due in:
1999 $ 2,790 $ 2,792 $ 7,352 $ 7,472
2000-2003 30,012 29,402 58,260 58,690
2004-2008 330,576 341,420 94,880 97,929
2009 and later 624,786 641,791 268,466 280,762
Mortgage-backed and
other asset-backed
securities 777,620 782,137 120,743 121,811
Preferred stock 80,360 78,489
- -------------------------------------------------------------------------
$1,846,144 $1,876,031 $549,701 $ 566,664
=========================================================================
</TABLE>
Actual maturities may differ from scheduled maturities because the borrowers
have the right to call or prepay certain obligations, sometimes without
penalties. Maturities of mortgage-backed and other asset-backed securities
depend on the repayment characteristics and experience of the underlying
obligations.
G. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997
============================================================
<S> <C> <C>
Land $ 19,267 $ 23,810
Buildings and leasehold improvements 111,548 105,199
Equipment 416,621 382,451
- ------------------------------------------------------------
547,436 511,460
Less accumulated depreciation 252,841 228,162
- ------------------------------------------------------------
Property and equipment $294,595 $283,298
============================================================
</TABLE>
H. INTANGIBLES
Intangibles at December 31 consisted of the following:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997
============================================================
<S> <C> <C>
Goodwill $598,465 $240,011
Other intangibles 54,474 58,694
- ------------------------------------------------------------
652,939 298,705
Less accumulated amortization 50,013 40,072
- ------------------------------------------------------------
Intangibles $602,926 $258,633
============================================================
</TABLE>
I. DEBT
Long-term debt at December 31 was as follows:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997
==========================================================================
<S> <C> <C>
Senior debt: (1)
Short-term borrowings:
Promissory notes, 5.8% (1998) and 6.2% (1997)
weighted average interest rate at
December 31 $148,000 $ 50,000
Commercial paper, 5.8% weighted
average interest rate at December 31 (2) 52,000
Senior notes, 6.2% weighted average interest
rate at December 31, due to 2009 269,711 299,647
Guarantee of ESOP debt, floating rate indexed
to LIBOR, 4.6% (1998) and 5.0% (1997) at
December 31, due to 2009 22,000 24,000
Real estate mortgages and other obligations,
5.7% (1998) and 5.3% (1997) weighted
average interest rate at December 31,
due to 2016 24,239 17,899
- ---------------------------------------------------------------------------
515,950 391,546
Subordinated debt, 10.5% debentures, due 2006 18,503 18,503
- ---------------------------------------------------------------------------
Total debt 534,453 410,049
Less current portion 3,105 32,200
- ---------------------------------------------------------------------------
Long-term debt $531,348 $377,849
===========================================================================
</TABLE>
(1) Rates shown are exclusive of the effects of commitment fees and other costs
of long-term revolving bank credit used to support short-term borrowings,
and for 1997, exclusive of the effects of interest rate swap agreements
related to certain short-term and long-term borrowings.
(2) After eliminating $90,000,000 of commercial paper issued by Viad to a
payment services subsidiary.
-19-
<PAGE>
Viad satisfies its short-term borrowing requirements with bank lines of
credit and the issuance of commercial paper and promissory notes. At December
31, 1998, outstanding promissory notes and commercial paper, including the
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, which expires on August 15, 2002. Annually, at Viad's request and
with the participating banks' consent, the term of the agreement may be
extended for another one-year period. The interest rate applicable to
borrowings under the $300,000,000 credit commitment is, at Viad's option,
indexed to the bank prime rate or the London Interbank Offering Rate
("LIBOR"), plus appropriate spreads over such indices during the period of
the credit agreement. The agreement also provides for commitment fees. Such
spreads and fees will change moderately should Viad's debt ratings change.
Viad, in the event that it becomes advisable, intends to exercise its right
under the agreement to borrow for the purpose of refinancing short-term
borrowings; accordingly, short-term borrowings totaling $200,000,000 and
$50,000,000 at December 31, 1998 and 1997, respectively, have been classified
as long-term debt.
Annual maturities of long-term debt due in the next five years will
approximate $3,105,000 (1999), $32,810,000 (2000), $68,588,000 (2001),
$242,609,000 (2002), $102,459,000 (2003) and $84,882,000 thereafter. Included
in the year 2002 is $200,000,000 which represents the maturity of short-term
borrowings assuming they had been refinanced utilizing the revolving credit
facility described above.
Viad previously entered into (a) interest rate swap agreements which
converted floating interest rates on existing and anticipated replacement
short-term borrowings into fixed interest rates ("variable-to-fixed swaps")
and (b) interest rate swap agreements which converted fixed interest rates on
a portion of the Senior notes into floating interest rates
("fixed-to-variable swaps"). The net effect of such interest rate swap
agreements was to increase interest expense by $2,296,000, $5,041,000 and
$3,404,000 for 1998, 1997 and 1996, respectively. After repaying short-term
borrowings with proceeds from the sale of ASIG, Viad terminated related
interest rate swap agreements. At December 31, 1998, there were no interest
rate swap agreements used to hedge debt obligations.
The weighted average interest rate on total debt, inclusive of the effect of
interest rate swap agreements and excluding interest expense unrelated to
debt obligations, was 6.7%, 7.5% and 7.8% for 1998, 1997 and 1996,
respectively. Excluding the interest rate swap agreements, the weighted
average interest rate related to debt obligations was 6.3%, 6.5% and 7.4% for
1998, 1997 and 1996, respectively.
Interest paid in 1998, 1997 and 1996 was $38,367,000, $40,089,000 and
$61,234,000, respectively, including amounts charged to discontinued
operations in 1996.
Under a Shelf Registration filed in 1994 with the Securities and Exchange
Commission, Viad can issue up to an aggregate $500,000,000 of debt and equity
securities. No securities have been issued under the program.
Viad's long-term debt agreements include various restrictive covenants and
require the maintenance of certain defined financial ratios with which Viad
is in compliance.
J. PREFERRED STOCK AND COMMON STOCK AND OTHER EQUITY
Viad has 442,352 shares of $4.75 Preferred Stock authorized, of which 358,352
shares are issued. The holders of the $4.75 Preferred Stock are entitled to a
liquidation preference of $100 per share and to annual cumulative sinking
fund redemptions of 6,000 shares. Viad presently holds 123,373 shares which
will be applied to this sinking fund requirement; the 234,979 shares held by
others are scheduled to be redeemed in the years 2019 to 2058. In addition,
Viad has authorized 5,000,000 and 2,000,000 shares of Preferred Stock and
Junior Participating Preferred Stock, respectively.
Viad has one Preferred Stock Purchase Right ("Right") outstanding on each
outstanding share of its common stock. The Rights contain provisions to
protect stockholders in the event of an unsolicited attempt to acquire Viad
which is not believed by the Board of Directors to be in the best interest of
stockholders. The Rights are represented by the common share certificates and
are not exercisable or transferable apart from the common stock until such a
situation arises. The Rights may be redeemed by Viad at $0.025 per Right
prior to the time any person or group has acquired 20% or more of Viad's
shares. Viad has reserved 1,000,000 shares of Junior Participating Preferred
Stock for issuance in connection with the Rights.
Viad funds a portion of its matching contributions to employees' 401(k) plans
through a leveraged ESOP. All eligible employees of Viad and its
participating affiliates, other than certain employees covered by collective
bargaining agreements that do not expressly provide for participation of such
employees in an ESOP, may participate in the ESOP.
The ESOP borrowed $40,000,000 to purchase treasury shares in 1989. The ESOP's
obligation to repay this borrowing is guaranteed by Viad; therefore, the
unpaid balance of the borrowing ($22,000,000 and $24,000,000 at December 31,
1998 and 1997, respectively) has been reflected in the accompanying balance
sheet as long-term debt. The same amounts, representing unearned employee
benefits, have been recorded as a deduction from common stock and other
equity. The liability is reduced as the ESOP repays the borrowing, and the
-20-
<PAGE>
amount in common stock and other equity is reduced as the employee benefits
are charged to expense. The ESOP intends to repay the loan (plus interest)
using Viad contributions and dividends received on the shares of common stock
held by the ESOP.
Information regarding ESOP transactions for the years ended December 31 was
as follows:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997 1996
========================================================================
<S> <C> <C> <C>
Amounts paid by ESOP for:
Debt repayment $2,000 $2,000 $2,000
Interest 1,098 1,187 1,200
Amounts received from Viad as:
Dividends 884 856 999
Contributions 2,205 2,226 2,064
</TABLE>
Shares are released for allocation to participants based upon the ratio of
the year's principal and interest payments to the sum of the total principal
and interest payments expected over the remaining life of the plan. Expense
of the ESOP is recognized based upon the greater of cumulative cash payments
to the plan or 80% of the cumulative expense that would have been recognized
under the shares allocated method, in accordance with Emerging Issues Task
Force Abstract No. 89-8, "Expense Recognition for Employee Stock Ownership
Plans." Under this method, Viad has recorded expense of $2,205,000,
$2,123,000 and $2,138,000 in 1998, 1997 and 1996, respectively.
Unallocated shares held by the ESOP totaled 2,575,000 and 2,867,000 at
December 31, 1998 and 1997, respectively. Shares allocated during 1998 and
1997 totaled 292,000 and 297,000, respectively.
In 1992, Viad sold treasury stock to Viad's Employee Equity Trust (the
"Trust") for a $200,000,000 promissory note. The Trust is used to fund
certain existing employee compensation and benefit plans. For financial
reporting purposes, the Trust is consolidated with Viad and the promissory
note ($43,315,000 at December 31, 1998) and dividend and interest
transactions are eliminated in consolidation. The fair market value of the
4,495,736 remaining shares held by the Trust at December 31, 1998,
representing employee benefits, is shown as a deduction from common stock and
other equity and is reduced as employee benefits are funded. The difference
between the cost and fair value of shares held is included in additional
capital. Related unearned employee benefits at December 31, 1998 and 1997
were $136,558,000 and $97,968,000, respectively.
At December 31, 1998, retained income of $169,736,000 was unrestricted as to
payment of dividends by Viad.
A total of 94,899,331 common shares were issued and outstanding for income
per share calculations at December 31, 1998, after deducting treasury shares
and the Trust shares.
K. STOCK-BASED COMPENSATION
In 1997, stockholders adopted the 1997 Viad Corp Omnibus Incentive Plan
("Omnibus Plan"). The Omnibus Plan, which replaced prior incentive plans,
provides for the following types of awards to officers, directors and certain
key employees: (a) stock options (both incentive stock options and
nonqualified stock options); (b) stock appreciation rights ("SARs"); (c)
restricted stock; and (d) performance-based awards. The number of shares
available for grant under the Omnibus Plan in each calendar year is equal to
2% of the total number of shares of common stock outstanding as of the first
day of each year. Any shares available for grant in a particular calendar
year which are not, in fact, granted in such year shall be added to the
shares available for grant in any subsequent calendar year. In addition, no
more than 7,500,000 shares of common stock will be cumulatively available for
incentive stock option grants over the life of the Omnibus Plan.
Stock options are granted for terms of ten years at an exercise price based
on the market value at the date of grant. Stock options are exercisable 50%
after one year with the balance exercisable after two years from the date of
grant.
SARs and Limited SARs ("LSARs") were granted, with terms of ten years, under
the 1983 Stock Option and Incentive Plan. SARs are exercisable under the same
terms as stock options, while LSARs vest fully at date of grant and are
exercisable only for a limited period (in the event of certain tender or
exchange offers for Viad's common stock). SARs and/or LSARs are issued in
tandem with certain stock options and the exercise of one reduces, to the
extent exercised, the number of shares represented by the other(s). SAR
exercises totaled 2,812 and 131,520 shares in 1997 and 1996, respectively.
There were no SARs exercised in 1998.
Performance-based stock awards (97,600, 120,900 and 141,700 shares awarded in
1998, 1997 and 1996, respectively, at an estimated fair value per share of
$24.78, $18.34 and $13.88, respectively) vest at the end of a three-year
period from the date of grant, based on total shareholder return relative to
the applicable stock index and the proxy comparator groups specified at the
time of each award. Vested shares with respect to performance periods
beginning in 1995, 1994 and 1993 totaled 83,226 in 1998, 109,787 in 1997 and
39,596 in 1996, respectively. Throughout the performance period, holders of
the performance-based stock have the right to receive dividends and vote the
shares but may not sell, assign, transfer, pledge or otherwise encumber the
stock.
-21-
<PAGE>
Information with respect to stock options for the years ended December 31, at
historical number of shares and option exercise prices, is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price(1)
===============================================================================
<S> <C> <C>
Options outstanding at December 31, 1995 8,275,924 $ 18.55
Before spin-off of the consumer products business:
Granted 50,000 28.75
Exercised (1,488,373) 15.44
Canceled (159,070) 15.20
Modification due to the Distribution, net (3) 1,968,392 N/A
After spin-off of the consumer products business:
Granted 1,691,100 13.88
Exercised (236,229) 9.26
Canceled (78,837) 12.80
- --------------------------------------------------------------
Options outstanding at December 31, 1996 (2) 10,022,907 10.82
Granted 1,143,100 18.33
Conversion of Game options (4) 235,228 7.95
Exercised (1,391,630) 9.73
Canceled (202,578) 13.91
- --------------------------------------------------------------
Options outstanding at December 31, 1997 (2) 9,807,027 11.72
Granted 962,100 24.79
Exercised (1,883,697) 10.05
Canceled (163,511) 18.84
- --------------------------------------------------------------
Options outstanding at December 31, 1998 (2) 8,721,919 13.38
==============================================================
</TABLE>
(1) Weighted average exercise prices for 1995 and 1996 up to the date of
modification are based on original grant pricing before modification due to
the Distribution described in Note D.
(2) Options exercisable totaled 7,342,669 shares, 8,052,840 shares and 7,580,872
shares at December 31, 1998, 1997 and 1996, respectively.
(3) Net of options surrendered by employees of Viad who became employees of The
Dial Corporation after the Distribution.
(4) Existing Game options were converted into options to purchase Viad shares
upon the acquisition of Game (see Note B). The original number of Game stock
options and exercise prices were adjusted to reflect the acquisition
exchange ratio.
The following tables summarize information concerning stock options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
=============================================================================
Weighted
Weighted Average
Range of Remaining Exercise
Exercise Prices Shares Contractual Life Price
=============================================================================
<S> <C> <C> <C>
$3.93 to $7.54 1,201,668 1.9 years $ 6.90
$9.33 to $12.22 3,209,057 4.0 years 10.96
$13.05 to $18.06 2,411,500 6.2 years 13.51
$18.34 to $25.25 1,899,694 8.8 years 21.41
- -----------------------------------------------------------------------------
$3.93 to $25.25 8,721,919 5.4 years 13.38
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
=============================================================================
Weighted
Average
Range of Exercise
Exercise Prices Shares Price
=============================================================================
<S> <C> <C>
$3.93 to $7.54 1,201,668 $ 6.90
$9.33 to $12.22 3,209,057 10.96
$13.05 to $18.06 2,404,700 13.50
$18.34 to $25.25 527,244 18.56
- -----------------------------------------------------------------------------
$3.93 to $25.25 7,342,669 11.67
=============================================================================
</TABLE>
Viad applies APB No. 25 and related interpretations in accounting for its
stock-based compensation plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans other than for
performance-based stock awards and SAR exercises, which gave rise to
compensation expense aggregating $3,753,000, $3,858,000 and $4,444,000 in
1998, 1997 and 1996, respectively.
Assuming Viad had recognized compensation cost for stock options and
performance-based stock awards in accordance with the fair value method of
accounting defined in SFAS No. 123, income from continuing operations and
diluted income per share from continuing operations would be as presented in
the table below. The effects of applying SFAS No. 123 in this disclosure are
not necessarily indicative of future amounts.
<TABLE>
<CAPTION>
(000 omitted, except per share data) 1998 1997 1996
=============================================================================
<S> <C> <C> <C>
Income from continuing operations $ 97,344 $ 56,519 $ 30,142
Additional compensation: (1)
Stock option grants and
performance-based stock awards (4,631) (3,279) (2,876)
Modification of existing stock
option grants (2) (5,716)
- -----------------------------------------------------------------------------
Pro forma income from continuing
operations $ 92,713 $ 53,240 $ 21,550
=============================================================================
Pro forma diluted income per share
from continuing operations $ 0.93 $ 0.56 $ 0.22
=============================================================================
</TABLE>
(1) Compensation cost calculated under SFAS No. 123 is expensed ratably over the
vesting period. Compensation cost is net of estimated forfeitures and the
tax benefit on nonqualified stock options.
(2) In connection with the spin-off of the consumer products business on August
15, 1996, the number of shares and the exercise price of each option held by
employees of Viad who remained employees of Viad after the spin-off were
modified so that the aggregate exercise price and the aggregate spread
before the spin-off were preserved at the time of the spin-off. SFAS No. 123
requires such options modified as a result of a spin-off to be treated as
new grants.
-22-
<PAGE>
For purposes of applying SFAS No. 123, the estimated fair value of stock
options granted during 1998, 1997 and 1996 was $7.16, $5.04 and $3.47 per
share, respectively. The fair value of each stock option grant is estimated
on the date of grant using the Black-Scholes option pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
==========================================================
<S> <C> <C> <C>
Expected dividend yield 1.30% 1.70% 2.30%
Expected volatility 24.40% 23.60% 22.00%
Risk-free interest rate 5.78% 6.13% 6.38%
Expected life 5 YEARS 5 years 5 years
</TABLE>
L. INCOME TAXES
Deferred income tax assets (liabilities) included in the Consolidated Balance
Sheet at December 31 related to the following:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997
=================================================================
<S> <C> <C>
Property and equipment $(25,197) $(27,453)
Deferred income 10,178 10,568
Pension, compensation and other
employee benefits 41,643 34,820
Provisions for losses 40,155 32,451
Unrealized gain on securities classified
as available for sale (11,656) (8,710)
Deferred state income taxes 5,681 6,750
Capital loss carryforward 20,170
Alternative minimum tax credit carryforward 5,193
Other deferred income tax assets 43,104 41,251
Other deferred income tax liabilities (20,031) (20,639)
- -----------------------------------------------------------------
89,070 89,208
Foreign deferred tax liabilities included above 9,698 10,810
- ----------------------------------------------------------------
United States deferred tax assets $ 98,768 $100,018
================================================================
</TABLE>
The provision for income taxes on income from continuing operations for the
years ended December 31 consisted of the following:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997 1996
================================================================
<S> <C> <C> <C>
Current:
United States:
Federal $18,221 $ 589 $(1,767)
State 4,538 2,088 3,461
Foreign 6,199 7,080 5,213
- ----------------------------------------------------------------
28,958 9,757 6,907
Deferred 1,563 1,437 7,077
- ----------------------------------------------------------------
Income taxes $30,521 $11,194 $13,984
================================================================
</TABLE>
Certain tax benefits related primarily to stock option exercises and dividends
paid to the ESOP are credited to common stock and other equity and amounted to
$6,875,000, $2,491,000 and $3,401,000 in 1998, 1997 and 1996, respectively.
Eligible subsidiaries (including the consumer products business up to the
spin-off date) are included in the consolidated federal and other applicable
income tax returns of Viad. Certain benefits of filing such returns, including
tax losses and credits which would not have been available to certain
subsidiaries on a separate return basis, have been credited to such subsidiaries
by Viad. These benefits are included in the determination of the income taxes of
those subsidiaries.
Income taxes paid in 1998, 1997 and 1996, including amounts paid on behalf of
the consumer products business for the periods up to the spin-off date as part
of consolidated federal and other applicable tax returns of Viad, amounted to
$23,334,000, $18,804,000 and $17,167,000, respectively.
A reconciliation of the provision for income taxes on income from continuing
operations and the amount that would be computed using statutory federal income
tax rates for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997 1996
===================================================================
<S> <C> <C> <C>
Computed income taxes at statutory
federal income tax rate of 35% $ 44,753 $ 23,700 $ 15,444
Nondeductible goodwill amortization 1,605 992 959
Minority interests 758 433 613
State income taxes 2,631 1,823 3,574
Tax-exempt income (21,519) (15,725) (11,764)
Spin-off costs and management
transition expenses 6,300
Other, net 2,293 (29) (1,142)
- --------------------------------------------------------------------
Income taxes $ 30,521 $ 11,194 $ 13,984
====================================================================
</TABLE>
United States and foreign income before income taxes from continuing operations
for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997 1996
==============================================================
<S> <C> <C> <C>
United States $111,643 $52,971 $27,413
Foreign, principally Canada and
United Kingdom 16,222 14,742 16,713
- ---------------------------------------------------------------
Income before income taxes $127,865 $67,713 $44,126
===============================================================
</TABLE>
-23-
<PAGE>
M. PENSION AND OTHER BENEFITS
PENSION BENEFITS. The following table indicates the plans' funded status and
amounts recognized in Viad's Consolidated Balance Sheet at December 31:
<TABLE>
<CAPTION>
FUNDED PLANS UNFUNDED PLANS
-------------- --------------
(000 omitted) 1998 1997 1998 1997
=====================================================================
<S> <C> <C> <C> <C>
Change in projected
benefit obligation:
Benefit obligation at
beginning of year $110,011 $105,219 $27,468 $ 22,808
Service cost 1,824 2,978 707 611
Interest cost 8,012 7,888 2,115 1,966
Plan amendments 181 997 1,787
Actuarial adjustments (1) 10,867 1,501 2,197 1,921
Curtailments (2,462) (1,738) (133)
Benefits paid (7,441) (5,837) (1,808) (1,625)
- ----------------------------------------------------------------------
Benefit obligation
at end of year (2) 120,992 110,011 31,543 27,468
- ----------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets
at beginning of year 126,374 106,612 N/A N/A
Actual return on plan assets 21,637 25,553
Company contributions 42 46 1,808 1,625
Benefits paid (7,441) (5,837) (1,808) (1,625)
- ----------------------------------------------------------------------
Fair value of plan assets
at end of year 140,612 126,374 N/A N/A
- ----------------------------------------------------------------------
Plan assets over (under)
projected benefit obligation 19,620 16,363 (31,543) (27,468)
Unrecognized net transition
(asset) obligation (2,128) (3,033) 516 763
Unrecognized prior
service cost 919 1,041 5,536 5,831
Unrecognized actuarial
(gain) loss (4,328) (1,485) 7,121 5,517
- ----------------------------------------------------------------------
Net amount recognized $ 14,083 $ 12,886 $(18,370) $(15,357)
======================================================================
</TABLE>
(1) The increased actuarial adjustment in 1998 arose primarily as a result of
the reduction in the discount rate assumption from 7.5% to 7.0%.
(2) The accumulated benefit obligation for the unfunded pension plans was
$25,844,000 and $22,501,000 as of December 31, 1998 and 1997, respectively.
The total amounts recognized in Viad's Consolidated Balance Sheet at December 31
were as follows:
<TABLE>
<CAPTION>
FUNDED PLANS UNFUNDED PLANS
-------------- --------------
(000 omitted) 1998 1997 1998 1997
====================================================================
<S> <C> <C> <C> <C>
Prepaid pension cost $ 14,143 $ 12,968 $ -- $ --
Accrued pension liability (137) (150) (26,073) (22,814)
Intangible asset 13 22 6,301 6,624
Common stock and
other equity 64 46 1,402 833
- --------------------------------------------------------------------
Net amount recognized $ 14,083 $ 12,886 $(18,370) $(15,357)
====================================================================
</TABLE>
Weighted average assumptions used at December 31 were as follows:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997
===============================================================
<S> <C> <C>
Discount rate 7.0% 7.5%
Expected return on plan assets 10.0% 9.5%
Rate of compensation increase 4.5% 4.5%
</TABLE>
Net periodic pension cost for defined benefit plans for the years ended December
31 includes the following components:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997 1996
===============================================================
<S> <C> <C> <C>
Service cost $ 2,531 $ 3,589 $ 3,790
Interest cost 10,127 9,854 8,697
Expected return on plan assets (11,153) (10,198) (9,791)
Amortization of prior service cost 603 521
Recognized net actuarial loss 463 196 1,490
- ---------------------------------------------------------------
Net periodic pension cost $ 2,571 $ 3,962 $ 4,186
===============================================================
</TABLE>
Curtailment gains totaling $1,868,000 in 1998 were primarily attributable to the
sales of businesses. Net curtailment gains totaling $1,632,000 in 1997 were
primarily attributable to freezing plan benefits for a business subsequently
sold. Curtailment gains totaling $987,000 in 1996 were attributable to an
acquired convention and event services company.
Contributions to multiemployer pension plans totaled $11,779,000, $12,141,000
and $10,737,000 in 1998, 1997 and 1996, respectively. Costs of 401(k) defined
contribution and other pension plans totaled $1,644,000, $3,307,000 and
$3,115,000 in 1998, 1997 and 1996, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. Viad and certain of its
subsidiaries have unfunded defined benefit postretirement plans that provide
medical and life insurance for certain eligible employees, retirees and
dependents. In addition, Viad retained the obligations for such benefits for
certain retirees of sold businesses.
The status of the plans as of December 31 is set forth below:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997
================================================================
<S> <C> <C>
Change in accumulated benefit obligation:
Benefit obligation at beginning of year $ 45,584 $ 41,159
Service cost 878 967
Interest cost 2,997 3,165
Plan amendments (2,777)
Actuarial adjustments 2,433 3,020
Curtailments (4,983)
Benefits paid (3,129) (2,727)
- ----------------------------------------------------------------
Benefit obligation at end of year 41,003 45,584
Unrecognized prior service reduction 3,277 1,115
Unrecognized net actuarial gain 3,203 4,175
- ----------------------------------------------------------------
Accrued postretirement benefit cost $ 47,483 $ 50,874
================================================================
Discount rate 7.0% 7.5%
</TABLE>
-24-
<PAGE>
The assumed health care cost trend rate used in measuring the 1998 and 1997
accumulated postretirement benefit obligation was 9% and 10%, respectively,
gradually declining to 5% by the year 2002 and remaining at that level
thereafter for retirees below age 65, and 7% and 7.5%, respectively,
gradually declining to 5% by the year 2002 and remaining at that level
thereafter for retirees above age 65.
The net periodic postretirement benefit cost for the years ended December 31
includes the following components:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997 1996
==========================================================================
<S> <C> <C> <C>
Service cost $ 878 $ 967 $ 794
Interest cost 2,997 3,165 2,936
Amortization of prior service cost (218) (86) (86)
Recognized net actuarial gain (38) (229) (452)
- --------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 3,619 $ 3,817 $ 3,192
==========================================================================
</TABLE>
Curtailment gains totaling $5,147,000 in 1998 were primarily attributable to
the sales of businesses. There were no curtailment gains or losses in 1997 or
1996.
A one-percentage-point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1998 by approximately $4,373,000 and the
ongoing annual expense by approximately $557,000. A one-percentage-point
decrease in the assumed health care cost trend rate for each year would
decrease the accumulated postretirement benefit obligation as of December 31,
1998 by approximately $3,578,000 and the ongoing annual expense by
approximately $445,000.
N. LEASES
Certain offices, equipment and facilities for convention services and exhibit
construction are leased. The leases expire over periods generally ranging
from one to 12 years and some provide for renewal options ranging from one to
32 years. Leases which expire are generally renewed or replaced by similar
leases.
At December 31, 1998, Viad's future minimum rental payments and related
sublease rentals receivable with respect to noncancelable operating leases
with terms in excess of one year were as follows:
<TABLE>
<CAPTION>
Rentals
Receivable
Rental Under
(000 omitted) Payments Subleases
=============================================================
<S> <C> <C>
1999 $ 33,840 $ 1,805
2000 27,617 1,178
2001 22,772 650
2002 19,984 206
2003 16,754 66
Thereafter 60,373 69
- -------------------------------------------------------------
Total $181,340 $ 3,974
=============================================================
</TABLE>
In May 1997, Viad sold its corporate headquarters and is leasing back a
portion of the building. The future minimum rental payments are included in
the table above. The excess of the net sales price over the net book value of
the building was deferred and is being amortized over the term of the
leaseback.
Information regarding net operating lease rentals for the years ended
December 31 is as follows:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997 1996
============================================================
<S> <C> <C> <C>
Minimum rentals $37,444 $39,570 $41,782
Contingent rentals (1) 751 562 887
Sublease rentals (1,169) (1,280) (768)
- ------------------------------------------------------------
Total rentals, net $37,026 $38,852 $41,901
============================================================
</TABLE>
(1) Contingent rentals on operating leases, which are based primarily on
sales and revenues for buildings and leasehold improvements and on usage
for other equipment, exclude contingent fees under concession agreements.
O. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK. Viad is a party to
financial instruments with off-balance-sheet risk which are entered into in
the normal course of business to meet financing needs and to manage exposure
to fluctuations in interest rates. These financial instruments include sale
of receivable agreements and interest rate swap agreements. The instruments
involve, to a varying degree, elements of credit and interest rate risk in
addition to amounts recognized in the financial statements.
At December 31, 1998, Viad had an agreement to sell, on a revolving basis,
undivided participating interests in a defined pool of trade accounts
receivable from customers of Viad's Convention and Event Services businesses
(and the discontinued Airline Catering and Services businesses) in an amount
not to exceed $75,000,000 as a means of accelerating cash flow. The agreement
expires in August 2000 but is expected to be extended annually. Under the
terms of the trade receivables sales agreement, Viad has retained
substantially the same risk of credit loss as if the receivables had not been
sold, as Viad is obligated to replace uncollectible receivables with new
trade accounts receivable. The average balance of proceeds from the sale of
trade accounts receivable approximated $24,656,000, $25,550,000 and
$8,165,000 during 1998, 1997 and 1996, respectively, excluding trade accounts
receivables sold related to the discontinued Airline Catering and Services
businesses of $49,974,000 in 1998, $49,450,000 in 1997 and $43,335,000 in
1996. The expense of selling such receivables, discounted based on short-term
interest rates, was $1,482,000, $1,585,000 and $469,000 in 1998, 1997 and
1996, respectively, and is included in "Costs of sales and services."
In September 1997, a Viad Payment Services subsidiary entered into an
agreement to sell, on a periodic basis, undivided percentage ownership
interests in certain agents' receivables in an amount not to exceed
25
<PAGE>
$250,000,000. In June 1998, the maximum amount to be sold under the agreement
was increased to $400,000,000. The agreement expires in June 2003. Items in
the program include receivables from bill payment and money order agents. The
receivables are sold in order to accelerate payment services' cash flow for
investment in the admissible securities described in Note F. The average
agents' receivables sold approximated $262,000,000 and $125,000,000 during
1998 and the latter part of 1997, respectively. The agents' receivables are
sold at a discount based on short-term variable interest rates. The expense
of selling such receivables was $16,768,000 and $2,790,000 in 1998 and 1997,
respectively, and is included in "Costs of sales and services."
A portion of the Payment Services subsidiary's business involves the payment
of commissions to selling agents of its official check program. The
commissions are computed 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' receivables sales.
The notional amount of the variable-to-fixed swap agreements totaled
$1,425,000,000 at December 31, 1998, with an average pay rate of 5.5% and an
average receive rate of 4.9%. The variable-rate portion of the swaps is
generally based on LIBOR, treasury bill or federal funds rates. The
agreements expire as follows: $150,000,000 (1999), $100,000,000 (2000),
$250,000,000 (2002), $875,000,000 (2003) and $50,000,000 (2007).
The notional amounts of such agreements are used to measure amounts to be
paid or received and do not represent the amount of exposure to credit loss.
The amounts to be paid or received under the swap agreements are accrued
consistently with the terms of the agreements and market interest rates and
are recognized as an adjustment to the expense of the related transaction.
Viad maintains formal procedures for entering into swap transactions, and
management regularly monitors and reports to the Audit Committee of the Board
of Directors on swap activity. The agreements are with major financial
institutions which are currently expected to fully perform under the terms of
the agreements, thereby mitigating the credit risk from the transactions in
the event of nonperformance by the counterparties. In addition, Viad
continuously monitors the credit ratings of the counterparties, and the
likelihood of default is considered remote.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying values of cash and cash
equivalents, receivables, accounts payable and payment service obligations
approximate fair values due to the short-term maturities of these
instruments. The amortized cost and fair value of investments in debt and
equity securities are disclosed in Note F. The carrying amounts and estimated
fair values of Viad's other financial instruments at December 31 are as
follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------
Carrying Fair Carrying Fair
(000 omitted) Amount Value Amount Value
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total debt $(534,453) $ (541,055) $(410,049) $(414,082)
Swap agreements (1) (903) (25,097) (4,357) (20,753)
</TABLE>
(1) Carrying amount represents accrued interest.
The methods and assumptions used to estimate the fair values of the financial
instruments are summarized below. Considerable judgment is required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein may not be indicative of the amounts that Viad
could realize in a current market exchange. The use of different market
assumptions or valuation methodologies may have a material effect on the
estimated fair value amounts.
Debt--The fair value of debt was estimated by discounting the future cash
flows using rates currently available for debt of similar terms and maturity.
The carrying values of the commercial paper and promissory notes were assumed
to approximate fair values due to their short-term maturities.
Swap agreements--The fair value represents the estimated amount that Viad
would pay to counterparties to terminate the swap agreements at December 31.
P. LITIGATION, CLAIMS AND OTHER CONTINGENCIES
Viad and certain subsidiaries are plaintiffs or defendants to various
actions, proceedings and pending claims, including pending or potential
claims by or on behalf of approximately 6,500 former railroad workers
claiming asbestos-related health conditions from exposure to railroad
equipment made by former subsidiaries. Certain of these pending legal actions
are or purport to be class actions. Some of the foregoing involve, or may
involve, compensatory, punitive or other damages. Litigation is subject to
many uncertainties and it is possible that some of the legal actions,
proceedings or claims could be decided against Viad. Although the amount of
liability at December 31, 1998, with respect to these matters is not
ascertainable, Viad believes that any resulting liability will not have a
material effect on Viad's financial position or results of operations.
Viad is subject to various environmental laws and regulations of the United
States as well as of the states and other countries in whose jurisdictions
Viad has or had operations and is subject to certain international
agreements. As is the case with many companies, Viad faces exposure to actual
or potential claims and lawsuits
26
<PAGE>
involving environmental matters. Although Viad is a party to certain
environmental disputes, Viad believes that any liabilities resulting
therefrom, after taking into consideration amounts already provided for,
exclusive of any potential insurance recoveries, will not have a material
effect on Viad's financial position or results of operations.
Q. SEGMENT INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," adopted effective December 31, 1998, changes the way Viad
reports information about its operating segments. SFAS No. 131 requires
disclosure of certain financial information for reportable operating segments
based on management's internal organizational decision-making structure. Viad
measures segment profit and performance based on operating segment income
from continuing operations after minority interests and income taxes, but
before nonrecurring items.
The accounting policies of the operating segments are the same as those
described in Note A, except that an adjustment is made to the Payment
Services segment to present revenues, operating income and income taxes on a
fully taxable equivalent basis to reflect amounts invested in tax-exempt
securities. Consolidated revenues, operating income and interest expense also
reflect the elimination of intercompany interest payments on the $90,000,000
invested in Viad commercial paper by a Payment Services subsidiary. The
elimination has no effect on Viad's income from continuing operations or net
income. Intersegment sales and transfers are not significant. Interest
expense is allocated to operations based on net funds advanced and current
short-term interest rates. Income taxes are allocated based primarily on
separate return calculations for each business. Certain benefits of filing
combined and/or consolidated state income tax returns, including tax losses
and credits which would not have been available to certain subsidiaries on a
separate return basis, have been credited to such subsidiaries by Viad.
Depreciation and amortization are the only significant noncash items for the
reportable segments.
Viad's reportable segments are Payment Services and Convention and Event
Services. The Payment Services segment sells money orders through agents,
performs official check and negotiable instrument clearing services for banks
and credit unions, and provides cash access services to gaming establishments
throughout the United States. In addition, the segment provides consumer
money wire transfer services throughout the world. The Convention and Event
Services segment provides decorating, exhibit preparation, installation and
dismantling, and electrical, transportation and management services for
conventions, tradeshows, associations and other corporate events; and designs
and builds convention, tradeshow, museum and other exhibits and displays
throughout the world.
The remaining categories represent ongoing Travel and Recreation Services
businesses below reportable segment quantitative thresholds, sold businesses
not classified as discontinued operations, and corporate and other. These
categories are presented to reconcile to total results. Ongoing Travel and
Recreation Services includes Viad's Canadian travel tour service subsidiary,
which operates tours and charters in the Canadian Rockies and engages in
hotel operations and snocoach tours of the Columbia Icefield; and the
Recreation Division of Viad, which operates concessions at America West Arena
and Bank One Ballpark in Phoenix, Arizona and, through a subsidiary, operates
historic lodges at Glacier National Park. Sold businesses includes GLSI,
Jetsave and Crystal Holidays and the contract foodservice and public service
division operations of Restaura, Inc. as described in Note C. Corporate and
other includes expenses of corporate activities and interest expense not
allocated to operating segments.
GEOGRAPHIC AREAS. Viad's foreign operations are located principally in Canada
and the United Kingdom. Revenues are designated as domestic or foreign based
on the originating location of the revenues. Long-lived assets are attributed
to domestic or foreign based principally on physical location of the assets.
Long-lived assets consist of "Property and equipment" and "Other investments
and assets." The table below presents the financial information by major
geographic area:
<TABLE>
<CAPTION>
(000 omitted) 1998 1997 1996
=================================================================
<S> <C> <C> <C>
Revenues:
United States $1,505,545 $1,356,532 $1,264,732
Foreign 107,214 129,819 133,193
- -----------------------------------------------------------------
Total revenues $1,612,759 $1,486,351 $1,397,925
=================================================================
Long-lived assets:
United States $ 351,365 $ 319,187 $ 346,793
Foreign 65,086 62,780 70,302
- -----------------------------------------------------------------
Total long-lived assets $ 416,451 $ 381,967 $ 417,095
=================================================================
</TABLE>
Disclosures regarding Viad's reportable segments under SFAS No. 131 with
reconciliations to consolidated totals are presented in the accompanying
table. The information for 1997 and 1996 has been restated to conform to the
new presentation. While classification and presentation differ from amounts
previously reported, the adoption of SFAS No. 131 did not affect Viad's
consolidated financial position, results of operations or cash flows as
previously reported.
27
<PAGE>
<TABLE>
<CAPTION>
Income from Income Depreciation
Continuing Operating Interest Taxes and Capital
(000 omitted) Revenues Operations(1) Income(2) Expense (Benefit) Assets Amortization Expenditures
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
Payment Services $ 431,157(4) $ 51,467 $ 87,206(4) $ -- $34,536(4) $3,534,073(3) $18,312 $22,708
Convention and Event
Services 849,165 42,924 87,446 16,159 28,353 546,428 23,072 22,949
- ----------------------------------------------------------------------------------------------------------------------------------
Reportable segments 1,280,322 94,391 174,652 16,159 62,889 4,080,501 41,384 45,657
Other:
Ongoing Travel and
Recreation
Services 102,952 9,523 17,729 1,688 6,160 78,700 5,162 7,413
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal, ongoing
operations 1,383,274 103,914 192,381 17,847 69,049 4,159,201 46,546 53,070
Sold businesses 275,538 7,589 12,279 79 4,017 35,219 6,964 1,003
Corporate and other (26,896) (24,207) 16,030 (13,341) 197,572 4,133 759
Investment in
discontinued
operations 386,300
Gains on sales of
businesses 19,654 13,830
Provision for patent
infringement
payments received (6,917) (10,642) (3,725)
Elimination of
intercompany
interest and
commercial paper (6,744) (6,744) (6,744) (90,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal 1,652,068 97,344 163,067 27,212 69,830 4,688,292 57,643 54,832
Less: Fully taxable
equivalent
adjustment (4) (39,309) (39,309) (39,309)
- ----------------------------------------------------------------------------------------------------------------------------------
$1,612,759 $ 97,344 $123,758 $27,212 $30,521 $4,688,292 $57,643 $54,832
==================================================================================================================================
1997:
Payment Services $ 234,891(4) $ 41,243 $ 65,348(4) $ -- $24,105(4) $2,440,143(3) $10,908 $15,150
Convention and Event
Services 827,500 35,298 72,753 12,718 24,737 424,789 20,192 26,561
- ----------------------------------------------------------------------------------------------------------------------------------
Reportable segments 1,062,391 76,541 138,101 12,718 48,842 2,864,932 31,100 41,711
Other:
Ongoing Travel and
Recreation
Services 91,256 7,863 14,590 497 5,949 80,852 3,998 19,082
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal, ongoing
operations 1,153,647 84,404 152,691 13,215 54,791 2,945,784 35,098 60,793
Sold businesses 368,174 11,861 17,413 (538) 5,134 112,384 8,573 10,436
Corporate and other (39,746) (31,388) 28,365 (20,007) 218,163 5,051 875
Investment in
discontinued
operations 422,877
Elimination of
intercompany
interest and
commercial paper (6,746) (6,746) (6,746) (90,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal 1,515,075 56,519 131,970 34,296 39,918 3,609,208 48,722 72,104
Less: Fully taxable
equivalent
adjustment (4) (28,724) (28,724) (28,724)
- ----------------------------------------------------------------------------------------------------------------------------------
$1,486,351 $ 56,519 $103,246 $34,296 $11,194 $3,609,208 $48,722 $72,104
==================================================================================================================================
1996:
Payment Services $ 191,455(4) $ 34,063 $ 56,019(4) $ -- $21,956(4) $2,033,242(3) $ 9,122 $ 9,805
Convention and Event
Services 774,040 31,368 64,042 11,206 21,468 412,854 18,140 25,258
- ----------------------------------------------------------------------------------------------------------------------------------
Reportable segments 965,495 65,431 120,061 11,206 43,424 2,446,096 27,262 35,063
Other:
Ongoing Travel and
Recreation
Services 91,401 8,076 14,561 639 5,807 67,359 3,708 7,691
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal, ongoing
operations 1,056,896 73,507 134,622 11,845 49,231 2,513,455 30,970 42,754
Sold businesses 369,868 9,950 16,529 (407) 5,273 171,522 7,574 12,312
Corporate and other (43,355) (35,542) 34,293 (26,480) 247,033 5,492 2,105
Investment in
discontinued
operations 502,834
Gain on sale of
interest in
Phoenix Suns 19,025 11,464
Spin-off costs and
management
transition expenses (28,985) (4,015)
Elimination of
intercompany
interest and
commercial paper (7,350) (7,350) (7,350) (90,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal 1,419,414 30,142 108,259 38,381 35,473 3,344,844 44,036 57,171
Less: Fully taxable
equivalent
adjustment (4) (21,489) (21,489) (21,489)
- ----------------------------------------------------------------------------------------------------------------------------------
$1,397,925 $ 30,142 $ 86,770 $38,381 $13,984 $3,344,844 $44,036 $57,171
==================================================================================================================================
</TABLE>
(1) Net income was $150,640,000 (1998), $89,336,000 (1997) and $28,377,000
(1996) after deducting an extraordinary charge of $8,458,000 for the
early retirement of debt in 1997 and including income (loss) from
discontinued operations of $53,296,000 (1998), $41,275,000 (1997) and
($1,765,000) (1996).
(2) Operating income by segment is presented as additional information. The
definition of operating income is revenues less (a) cost of sales and
services, including depreciation, amortization and the expense of selling
receivables, and (b) cost of corporate activities, net.
(3) Includes assets restricted for payment service obligations of
$3,066,854,000 (1998), $2,323,351,000 (1997) and $1,938,919,000 (1996),
including $90,000,000 invested in Viad commercial paper.
(4) The fully taxable equivalent adjustment for Payment Services' income from
tax-exempt securities is calculated based on a combined income tax rate
of 39%.
28
<PAGE>
R. CONDENSED CONSOLIDATED QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
(000 omitted, except per share data) Quarter Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998:
Revenues (1) $ 365,986 $ 427,855 $ 433,613 $ 385,305 $1,612,759
Operating income (1, 2) 17,685 27,543 44,805 33,725 123,758
Net income:
Continuing operations (3) $ 8,432 $ 17,268 $ 44,728 $ 26,916 $ 97,344
Discontinued operations 6,947 23,354 12,305 10,690 53,296
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 15,379 $ 40,622 $ 57,033 $ 37,606 $ 150,640
=======================================================================================================================
Diluted income per common share: (3)
Continuing operations $ 0.08 $ 0.18 $ 0.45 $ 0.27 $ 0.98
Discontinued operations 0.07 0.23 0.13 0.11 0.54
- -----------------------------------------------------------------------------------------------------------------------
Diluted income per common share $ 0.15 $ 0.41 $ 0.58 $ 0.38 $ 1.52
=======================================================================================================================
Basic income per common share: (3)
Continuing operations $ 0.09 $ 0.18 $ 0.47 $ 0.28 $ 1.02
Discontinued operations 0.07 0.25 0.13 0.11 0.56
- -----------------------------------------------------------------------------------------------------------------------
Basic income per common share $ 0.16 $ 0.43 $ 0.60 $ 0.39 $ 1.58
=======================================================================================================================
Fully taxable equivalent adjustment (1) $ 8,231 $ 9,616 $ 10,459 $ 11,003 $ 39,309
=======================================================================================================================
1997:
Revenues (1) $ 356,224 $ 382,275 $ 376,006 $ 371,846 $1,486,351
Operating income (1) 14,575 27,304 34,583 26,784 103,246
Net income:
Continuing operations $ 4,091 $ 15,633 $ 21,131 $ 15,664 $ 56,519
Discontinued operations 6,429 11,042 12,719 11,085 41,275
Extraordinary charge (8,458) (8,458)
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 2,062 $ 26,675 $ 33,850 $ 26,749 $ 89,336
=======================================================================================================================
Diluted income per common share:
Continuing operations $ 0.04 $ 0.17 $ 0.22 $ 0.16 $ 0.59
Discontinued operations 0.07 0.11 0.14 0.12 0.44
Extraordinary charge (0.09) (0.09)
- -----------------------------------------------------------------------------------------------------------------------
Diluted income per common share $ 0.02 $ 0.28 $ 0.36 $ 0.28 $ 0.94
=======================================================================================================================
Basic income per common share:
Continuing operations $ 0.04 $ 0.17 $ 0.23 $ 0.17 $ 0.61
Discontinued operations 0.07 0.12 0.14 0.12 0.45
Extraordinary charge (0.09) (0.09)
- -----------------------------------------------------------------------------------------------------------------------
Basic income per common share $ 0.02 $ 0.29 $ 0.37 $ 0.29 $ 0.97
=======================================================================================================================
Fully taxable equivalent adjustment (1) $ 6,460 $ 7,477 $ 7,103 $ 7,684 $ 28,724
=======================================================================================================================
</TABLE>
(1) Viad Payment Services subsidiaries are investing increasing amounts in
tax-exempt securities. On a fully taxable equivalent basis using a combined
tax rate of 39%, revenues and operating income would be higher by the fully
taxable equivalent adjustments shown above.
(2) After deducting a $10,642,000 provision for payments previously received
pursuant to patent infringement litigation in the second quarter of 1998 as
described in Note C.
(3) Includes a provision for payments previously received pursuant to patent
infringement litigation of $6,917,000 (after-tax), or $0.07 per diluted and
basic share, in the second quarter of 1998; a gain on the sale of GLSI of
$15,650,000 (after-tax), or $0.16 per diluted and basic share, in the third
quarter of 1998; and a gain on the sale of Jetsave and Crystal Holidays of
$4,004,000 (after-tax), or $0.04 per diluted and basic share, in the fourth
quarter of 1998 (see Note C). Excluding these items, 1998 diluted income per
common share from continuing operations was:
First Quarter $ 0.08
Second Quarter 0.25
Third Quarter 0.29
Fourth Quarter 0.23
----
Total $ 0.85
====
29
<PAGE>
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Viad Corp has the responsibility for preparing and assuring
the integrity and objectivity of the accompanying financial statements and
other financial information in this report. The financial statements were
developed using generally accepted accounting principles and appropriate
policies, consistently applied. They reflect, where applicable, management's
best estimates and judgments and include disclosures and explanations which
are relevant to an understanding of the financial affairs of Viad.
Viad's financial statements have been audited by Deloitte & Touche LLP.
Management has made available to Deloitte & Touche LLP all of Viad's
financial records and related data, and has made appropriate and complete
written and oral representations and disclosures in connection with the audit.
Management has established and maintains a system of internal control that it
believes provides reasonable assurance as to the integrity and reliability of
the financial statements, the protection of assets and the prevention and
detection of fraudulent financial reporting. The system of internal control
is believed to provide for appropriate division of responsibilities and is
documented by written policies and procedures that are utilized by employees
involved in the financial reporting process. Management also recognizes its
responsibility for fostering a strong ethical climate. This responsibility is
characterized and reflected in Viad's Code of Corporate Conduct, which is
communicated to all Viad executives and managers as part of an overall
Corporate Compliance Program.
Viad also maintains a comprehensive internal auditing function which
independently monitors compliance and assesses the effectiveness of the
internal controls and recommends potential improvements thereto. In addition,
as part of their audit of Viad's financial statements, the independent
auditors review and evaluate selected internal accounting and other controls
to establish a basis for reliance thereon in determining the audit tests to
be applied. There is close coordination of audit planning and coverage
between Viad's internal auditing function and the independent auditors.
Management has considered the recommendations of both internal auditing and
the independent auditors concerning Viad's system of internal control and has
taken actions believed to be cost-effective in the circumstances to implement
appropriate recommendations and otherwise enhance controls. Management
believes that Viad's system of internal control accomplishes the objectives
discussed herein.
The Board of Directors oversees Viad's financial reporting through its Audit
Committee. The Audit Committee regularly meets with management and, jointly
and separately, with the independent auditors and internal auditing
management to review interest rate swap activity, accounting, auditing and
financial reporting matters, the effectiveness of the Corporate Compliance
Program and during 1998, progress toward Year 2000 compliance.
/s/ RONALD G. NELSON
- -------------------------------
Ronald G. Nelson
Vice President -- Finance
and Treasurer
/s/ CATHERINE L. STEVENSON
- -------------------------------
Catherine L. Stevenson
Controller
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Viad Corp:
We have audited the accompanying consolidated balance sheets of Viad Corp as
of December 31, 1998 and 1997, and the related consolidated statements of
income, comprehensive income, common stock and other equity and of cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Viad Corp as of December 31,
1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------------
Deloitte & Touche LLP
Phoenix, Arizona
February 19, 1999, except for Note D
regarding the completion of the sale
of the airline catering business, as
to which the date is August 23, 1999
31
