<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
Commission file number 001-11015
VIAD CORP
(Exact name of registrant as specified in its charter)
DELAWARE 36-1169950
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 N. CENTRAL AVE., PHOENIX, ARIZONA 85077
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 207-4000
Indicate by check mark whether the registrant (1) has filed all Exchange Act
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
--------- --------
As of September 29, 2000, 92,237,850 shares of Common Stock ($1.50 par value)
were outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIAD CORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 2000 December 31,
(000 omitted, except number of shares) (Unaudited) 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 46,241 $ 33,106
Short-term investments 35,028 95,545
Receivables 120,913 43,276
Inventories 89,196 73,687
Deferred income taxes 35,829 36,990
Other current assets 39,905 36,664
------------------------------------------------------------------------------------------------------------------
367,112 319,268
Funds, agents' receivables and current maturities of investments
restricted for payment service obligations, after eliminating
$12,500 and $50,000 invested in Viad commercial paper 678,952 602,893
------------------------------------------------------------------------------------------------------------------
Total current assets 1,046,064 922,161
Investments in securities 114,636 173,359
Investments restricted for payment service obligations 3,584,270 2,936,171
Property and equipment 288,254 313,623
Other investments and assets 100,424 121,159
Deferred income taxes 77,578 115,058
Intangibles 638,802 629,340
------------------------------------------------------------------------------------------------------------------
$ 5,850,028 $ 5,210,871
==================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank loans $ 9,270 $ 13,855
Accounts payable 86,760 82,465
Other current liabilities 215,315 204,228
Current portion of long-term debt 26,323 32,814
------------------------------------------------------------------------------------------------------------------
337,668 333,362
Payment service obligations 4,122,060 3,587,834
------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,459,728 3,921,196
Long-term debt 394,039 342,603
Pension and other postretirement benefits 71,417 71,402
Other deferred items and insurance liabilities 134,249 154,435
Minority interests 3,773 5,950
$4.75 Redeemable preferred stock 6,653 6,640
Common stock and other equity:
Common stock, $1.50 par value, 200,000,000 shares
authorized, 99,739,925 shares issued 149,610 149,610
Additional capital 269,441 289,798
Retained income 730,892 643,352
Unearned employee benefits and other (106,828) (129,818)
Accumulated other comprehensive income:
Unrealized loss on securities classified as available for sale (34,590) (70,021)
Cumulative translation adjustments (8,983) (4,935)
Minimum pension liability adjustment (1,674) (1,674)
Common stock in treasury, at cost, 7,502,075 and 5,497,132 shares (217,699) (167,667)
------------------------------------------------------------------------------------------------------------------
Total common stock and other equity 780,169 708,645
------------------------------------------------------------------------------------------------------------------
$ 5,850,028 $ 5,210,871
==================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
Page 2
<PAGE> 3
VIAD CORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended September 30, Nine months ended September 30,
(000 omitted, except per share data) 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Ongoing operations $ 427,657 $ 384,724 $ 1,294,740 $ 1,149,361
Sold businesses 1,359 9,498 19,023 38,662
------------------------------------------------------------------------------------------------------------------------
429,016 394,222 1,313,763 1,188,023
------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Costs of sales and services 373,054 339,535 1,156,288 1,048,188
Corporate activities and minority interests 3,414 4,615 13,440 16,195
Net interest expense (income) 3,281 (1,822) 7,712 11,805
Nonrecurring income (2,091) (528) (2,091) (528)
------------------------------------------------------------------------------------------------------------------------
377,658 341,800 1,175,349 1,075,660
------------------------------------------------------------------------------------------------------------------------
Income before income taxes 51,358 52,422 138,414 112,363
Income taxes 7,346 11,899 26,041 23,966
------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 44,012 40,523 112,373 88,397
Income from discontinued operations 202,276 218,954
------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 44,012 $ 242,799 $ 112,373 $ 307,351
========================================================================================================================
DILUTED INCOME PER COMMON SHARE:
CONTINUING OPERATIONS $ 0.48 $ 0.42 $ 1.22 $ 0.90
Discontinued operations 2.12 2.24
------------------------------------------------------------------------------------------------------------------------
Net income per share $ 0.48 $ 2.54 $ 1.22 $ 3.14
========================================================================================================================
BASIC INCOME PER COMMON SHARE:
Continuing operations $ 0.49 $ 0.43 $ 1.25 $ 0.93
Discontinued operations 2.21 2.34
------------------------------------------------------------------------------------------------------------------------
Net income per share $ 0.49 $ 2.64 $ 1.25 $ 3.27
========================================================================================================================
Average outstanding common shares 88,977 92,001 89,398 93,835
Additional dilutive shares related
to stock-based compensation 2,310 3,421 2,349 3,625
------------------------------------------------------------------------------------------------------------------------
Average outstanding and potentially
dilutive common shares 91,287 95,422 91,747 97,460
========================================================================================================================
Dividends declared per common share $ 0.09 $ 0.09 $ 0.27 $ 0.26
========================================================================================================================
Preferred stock dividends $ 283 $ 283 $ 850 $ 848
========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
Page 3
<PAGE> 4
VIAD CORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended September 30, Nine months ended September 30,
(000 omitted) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 44,012 $ 242,799 $ 112,373 $ 307,351
--------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities
classified as available for sale:
Holding gains (losses) arising during the period 19,658 (18,230) 36,494 (61,660)
Reclassification adjustment for realized gains
included in net income (244) (1,766) (1,063) (3,975)
--------------------------------------------------------------------------------------------------------------------------
19,414 (19,996) 35,431 (65,635)
--------------------------------------------------------------------------------------------------------------------------
Unrealized foreign currency translation adjustments:
Holding gains (losses) arising during the period (1,864) (615) (4,048) 588
Reclassification adjustment for sale of
investment in a foreign entity
included in net income 1,008 1,008
--------------------------------------------------------------------------------------------------------------------------
(1,864) 393 (4,048) 1,596
--------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 17,550 (19,603) 31,383 (64,039)
--------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 61,562 $ 223,196 $ 143,756 $ 243,312
==========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
Page 4
<PAGE> 5
VIAD CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
(000 omitted) 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income $ 112,373 $ 307,351
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 51,121 45,481
Deferred income taxes 9,945 (14,016)
Income from discontinued operations (218,954)
Gains on dispositions of businesses, property and other assets, net (12,994) (7,727)
Other noncash items, net 12,334 13,477
Change in operating assets and liabilities:
Receivables and inventories (85,088) (12,265)
Payment service assets and obligations, net 455,167 580,537
Accounts payable and accrued compensation (11,708) (5,738)
Other assets and liabilities, net 678 (44,133)
---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 531,828 644,013
---------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Capital expenditures (30,955) (39,309)
Acquisitions of businesses, net of cash acquired (24,155) (29,521)
Proceeds from dispositions of businesses, property and other assets, net 32,526 55,935
Proceeds from sales and maturities of securities 1,105,179 912,460
Purchases of securities (1,565,738) (1,977,365)
Cash provided by discontinued operations 739,044
---------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (483,143) (338,756)
---------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Payments on long-term borrowings (31,073) (3,290)
Net change in short-term borrowings 71,415 (122,000)
Dividends on common and preferred stock (25,047) (25,264)
Exercise of stock options 11,908 27,031
Common stock purchased for treasury (62,753) (178,961)
---------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (35,550) (302,484)
---------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 13,135 2,773
Cash and cash equivalents, beginning of year 33,106 15,554
---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 46,241 $ 18,327
=====================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
Page 5
<PAGE> 6
VIAD CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PREPARATION
The Consolidated Financial Statements of Viad Corp ("Viad") include the accounts
of Viad and all of its subsidiaries. This information should be read in
conjunction with the financial statements set forth in the Viad Corp Annual
Report on Form 10-K for the year ended December 31, 1999.
On July 13, 2000, Viad sold its concession operations at America West Arena and
Bank One Ballpark in Phoenix, Arizona. The sale of the concession operations was
recorded in the third quarter of 2000 (see Note G).
Accounting policies utilized in the preparation of the financial information
herein presented are the same as set forth in Viad's annual financial statements
except as modified for interim accounting policies which are within the
guidelines set forth in Accounting Principles Board ("APB") Opinion No. 28,
"Interim Financial Reporting." The interim consolidated financial information is
unaudited. In the opinion of management, all adjustments, consisting only of
normal recurring accruals, necessary to present fairly Viad's financial position
as of September 30, 2000, and its results of operations and its cash flows for
the quarters and nine months ended September 30, 2000 and 1999 have been
included. Interim results of operations are not necessarily indicative of the
results of operations for the full year.
Certain prior year amounts have been reclassified to conform with the 2000
presentation.
NOTE B - ASSETS RESTRICTED FOR PAYMENT SERVICE OBLIGATIONS
Viad's Payment Services subsidiaries generate funds from the sale of money
orders and other payment instruments, with the related liabilities classified as
"Payment service obligations." Substantially all of the proceeds of such sales,
along with certain additional subsidiary funds, are invested in permissible
securities, principally debt instruments. Such investments, along with related
cash and funds in transit, are restricted by state regulatory agencies for use
by the subsidiary to satisfy the liability to pay, upon presentment, the face
amount of such payment service obligations. In addition, certain funds and other
investments and the fair value of off-balance-sheet swap agreements (described
below) of Payment Services subsidiaries are available if necessary to meet such
obligations. Accordingly, such assets of Payment Services subsidiaries are not
available to satisfy working capital or other financing requirements of Viad.
As described in notes to Viad's annual financial statements, a Payment Services
subsidiary hedges a substantial portion of the variable rate commission payments
to its selling agents and the variable rate expense of selling receivables from
its bill payment and money order agents through swap agreements. The swap
agreements effectively convert such variable rate payments to fixed rate
payments. The fair values of such swap agreements, while not recorded on Viad's
Consolidated Balance Sheets, normally increase when the fair values of fixed
rate, long-term debt investments held by Payment Services subsidiaries decline
(and vice versa).
Under normal circumstances, the swap agreements will not be terminated prior to
maturity, nor is there any requirement to sell long-term debt securities prior
to maturity, as the funds flow from ongoing sales of money orders and other
payment instruments and funds from maturing long-term and short-term investments
are expected to be adequate to settle payment service items as they are
presented.
Page 6
<PAGE> 7
The following is a summary of asset and liability carrying amounts related to
the payment service obligations, including additional subsidiary funds and the
fair value of related off-balance-sheet swap agreements:
<TABLE>
<CAPTION>
September 30, December 31,
(000 omitted) 2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Funds, agents' receivables and current maturities of
investments restricted for payment service obligations,
including $12,500 and $50,000 invested in
Viad commercial paper (1) $ 691,452 $ 652,893
Investments restricted for payment service obligations (2) 3,584,270 2,936,171
Other assets available for payment service obligations 25,904 3,009
Payment service obligations (4,122,060) (3,587,834)
Fair value of off-balance-sheet swap agreements (3) 25,966 56,708
------------------------------------------------------------------------------------------------------------------
Total $ 205,532 $ 60,947
==================================================================================================================
</TABLE>
(1) The commercial paper is supported by Viad's revolving bank credit agreement
(see Note D).
(2) Securities classified as "available for sale" are carried at market value,
and securities classified as "held to maturity" are carried at amortized cost in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (see Note C).
(3) The fair value represents the estimated amounts that Viad would receive from
counterparties to terminate the swap agreements at September 30, 2000 and
December 31, 1999.
NOTE C - INVESTMENTS RESTRICTED FOR PAYMENT SERVICE OBLIGATIONS
Investments restricted for payment service obligations include the following
debt and equity securities:
<TABLE>
<CAPTION>
September 30, December 31,
(000 omitted) 2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Securities classified as available for sale, at fair value
(amortized cost of $2,515,750 and $2,278,793) (1) $2,460,024 $2,167,250
Securities classified as held to maturity, at amortized cost
(fair value of $1,136,707 and $771,668) 1,133,350 788,068
------------------------------------------------------------------------------------------------------------------
3,593,374 2,955,318
Less current maturities (9,104) (19,147)
------------------------------------------------------------------------------------------------------------------
$3,584,270 $2,936,171
==================================================================================================================
</TABLE>
(1) The decrease in the unrealized loss for the first nine months of 2000 was
due principally to decreases in longer-term market interest rates.
NOTE D - DEBT
At September 30, 2000 and December 31, 1999, Viad classified as long-term debt
$120,000,000 and $44,000,000, respectively, of short-term borrowings which,
along with the $12,500,000 and $50,000,000, respectively, of commercial paper
issued to a Viad Payment Services subsidiary, are supported by unused
commitments under a $300,000,000 long-term revolving bank credit agreement.
Page 7
<PAGE> 8
NOTE E -- INCOME TAXES
A reconciliation of the provision for income taxes and the amount that would be
computed using statutory federal income tax rates on income taxes for the nine
months ended September 30, is as follows:
<TABLE>
<CAPTION>
(000 omitted) 2000 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computed income taxes at statutory federal income tax rate of 35% $ 48,445 $ 39,327
Nondeductible goodwill amortization 2,536 1,880
State income taxes 2,598 1,983
Tax-exempt income (26,666) (20,620)
Adjustment to estimated annual effective rate (1) (1,500) 725
Other, net 628 671
-----------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 26,041 $ 23,966
=================================================================================================================
</TABLE>
(1) Generally accepted accounting principles for interim financial reporting
(APB Opinion No. 28) requires that income taxes be provided based on the
estimated effective tax rate expected to be applicable for the entire fiscal
year. Accordingly, the estimated tax rate for 2000 is lower than in prior
periods due to higher than previously expected tax-exempt income in proportion
to total pre-tax income, resulting from rapid growth in investments in
tax-exempt securities in the Payment Services segment along with lower operating
income in the Convention and Event Services segment.
NOTE F - SUPPLEMENTARY INFORMATION - REVENUES AND OPERATING INCOME
Viad measures profit and performance of its operations on the basis of operating
income before nonrecurring items. An adjustment is made to the Payment Services
segment to present revenues and operating income on a fully taxable equivalent
basis for income resulting from investments in tax-exempt securities.
Intersegment sales and transfers are not significant. Corporate activities
include expenses not allocated to operations. Consolidated revenues, operating
income and interest expense reflect the elimination of intercompany interest
payments on investments in Viad commercial paper by a Payment Services
subsidiary. Disclosures regarding Viad's reportable segments along with
reconciliations to consolidated totals are presented below.
Page 8
<PAGE> 9
<TABLE>
<CAPTION>
Quarter ended September 30, Nine months ended September 30,
(000 omitted) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Payment Services $ 173,533 $ 152,180 $ 493,018 $ 425,160
Convention and Event Services 228,276 200,902 785,766 695,853
---------------------------------------------------------------------------------------------------------------------
Reportable segments 401,809 353,082 1,278,784 1,121,013
Travel and Recreation Services 43,825 46,462 66,740 70,737
---------------------------------------------------------------------------------------------------------------------
SUBTOTAL, ONGOING OPERATIONS 445,634 399,544 1,345,524 1,191,750
Sold travel and recreation businesses (1) 1,359 9,498 19,023 38,662
Intercompany interest elimination (452) (1,397) (2,074) (4,723)
Less taxable equivalent adjustment (17,525) (13,423) (48,710) (37,666)
---------------------------------------------------------------------------------------------------------------------
$ 429,016 $ 394,222 $ 1,313,763 $ 1,188,023
=====================================================================================================================
Operating income before nonrecurring items:
Payment Services $ 43,566 $ 34,648 $ 111,622 $ 89,100
Convention and Event Services 12,803 18,423 73,593 75,753
---------------------------------------------------------------------------------------------------------------------
Reportable segments 56,369 53,071 185,215 164,853
Travel and Recreation Services 17,260 15,199 20,577 16,843
---------------------------------------------------------------------------------------------------------------------
SUBTOTAL, ONGOING OPERATIONS 73,629 68,270 205,792 181,696
Sold travel and recreation businesses (1) 310 1,237 2,467 528
Corporate activities (2,510) (4,302) (12,028) (14,596)
Intercompany interest elimination (452) (1,397) (2,074) (4,723)
Less taxable equivalent adjustment (17,525) (13,423) (48,710) (37,666)
---------------------------------------------------------------------------------------------------------------------
53,452 50,385 145,447 125,239
Interest expense (5,923) (6,323) (18,575) (19,950)
Interest income (2) 2,642 8,145 10,863 8,145
Nonrecurring income (3) 2,091 528 2,091 528
Minority interests (904) (313) (1,412) (1,599)
---------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 51,358 $ 52,422 $ 138,414 $ 112,363
=====================================================================================================================
</TABLE>
(1) On July 13, 2000, Viad sold its concession operations at America West Arena
and Bank One Ballpark in Phoenix, Arizona. The sold travel and recreation
businesses category includes revenues and operating results of the concession
operations and other businesses sold in early 1999 and not classified as
discontinued operations up to their respective dates of sale. The sale of the
concession operations was recorded in the third quarter of 2000 (see Note G).
(2) Represents income related to investment of a portion of the proceeds from
the sale of Dobbs International Services, Inc. (sold July 1, 1999). These
securities are included in the Consolidated Balance Sheets under the caption,
"Investments in securities" with the current portion and investments with
original maturities of three months or less included under the caption,
"Short-term investments."
(3) See Note G.
NOTE G - NONRECURRING INCOME
Nonrecurring income of $2,091,000 ($877,000, or $0.01 per share, after-tax) was
recorded in the 2000 third quarter. The nonrecurring income included a gain of
$10,256,000 ($5,655,000 after-tax) on the July 13, 2000 sale of Viad's
concession operations, after deducting costs of sale and related expense
provisions. Also included in this item was a charge of $8,165,000 ($4,778,000
after-tax) taken to streamline and consolidate certain operations in Viad's
Convention and Event Services segment. In addition to costs related to
reductions in headcount, the charge included the write-down of certain fixed
assets and facility closure costs.
Nonrecurring income of $528,000 ($224,000 after-tax, or less than $0.01 per
share) was recorded in 1999's third quarter. This included a gain of $7,925,000
($4,945,000 after-tax) for adjustment of a previously reported gain on sale of a
business upon resolution of contingencies, offset by a noncash charge of
$7,397,000 ($4,721,000 after-tax), related to an investment.
Page 9
<PAGE> 10
NOTE H - LITIGATION, CLAIMS AND OTHER CONTINGENCIES
On August 18, 2000, Key3Media Group, Inc. ("Key3Media"), a company spun off by
Ziff-Davis Inc. ("ZD"), terminated a long-term agreement with GES Exposition
Services, Inc. ("GES") to produce trade shows, including the November Comdex
show in Las Vegas. GES and Key3Media are currently in litigation. Viad believes
that the contract was wrongfully terminated and claims significant damages,
including recovery of receivables and prepayments made to ZD in an aggregate
amount totaling approximately $35 million plus additional damages for loss of
future profits. Management intends to vigorously enforce its rights under this
agreement and believes that the ultimate outcome of the litigation is not likely
to have a material effect on Viad's financial statements.
NOTE I - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138,
an amendment to SFAS No. 133. Viad will adopt these statements effective January
1, 2001. The statements require 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 has a team in
place to address the adoption and implementation of the statements. The adoption
of SFAS No. 133 and SFAS No. 138 is not expected to have a material effect on
Viad's consolidated results of operations or cash flows. However, as discussed
in Note B and in "Quantitative and Qualitative Disclosures About Market Risk,"
the fair value of swap agreements is currently not recorded on the Consolidated
Balance Sheets. If the statements had been adopted January 1, 2000, total assets
and other comprehensive income at September 30, 2000 would have been higher by
$15.8 million.
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"), that summarizes the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Adoption of SAB 101
is not expected to have a material effect on Viad's financial statements.
Page 10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS:
Viad Corp ("Viad") focuses on two principal service businesses: Payment Services
and Convention and Event Services.
On July 13, 2000, Viad sold its concession operations at America West Arena and
Bank One Ballpark in Phoenix, Arizona. The sale of the concession operations was
recorded in the third quarter of 2000.
There were no other material changes in the nature of Viad's business, nor were
there any other changes in the general characteristics of its operations as
described and discussed in the "Results of Operations" section of Management's
Discussion and Analysis of Results of Operations and Financial Condition
presented in the Viad Corp Annual Report on Form 10-K for the year ended
December 31, 1999.
All per share figures discussed are stated on the diluted basis.
COMPARISON OF THIRD QUARTER OF 2000 TO THE THIRD QUARTER OF 1999:
In the third quarter of 2000, revenues increased $34.8 million, or 8.8 percent,
to $429.0 million from $394.2 million in 1999. Revenues of ongoing operations on
a fully taxable equivalent basis, excluding the sold travel and recreation
businesses, rose 11.5 percent for the quarter.
Including the nonrecurring income described in Note G of Notes to Consolidated
Financial Statements, income from continuing operations for the third quarter of
2000 was $44.0 million, or $0.48 per share, compared to $40.5 million, or $0.42
per share, for the third quarter of 1999. Income from continuing operations
before nonrecurring income increased 12 percent on a per share basis to $43.1
million, or $0.47 per share, compared with comparable income of $40.3 million,
or $0.42 per share, in the 1999 quarter.
<TABLE>
<CAPTION>
Quarter ended September 30,
(000 omitted, except per share data) 2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME FROM CONTINUING OPERATIONS,
BEFORE NONRECURRING INCOME $ 43,135 $ 40,299
Nonrecurring income 877 224
---------------------------------------------------------------------------------------------
Income from continuing operations $ 44,012 $ 40,523
=============================================================================================
DILUTED INCOME PER COMMON SHARE:
INCOME FROM CONTINUING OPERATIONS,
BEFORE NONRECURRING INCOME $ 0.47 $ 0.42
Nonrecurring income 0.01
---------------------------------------------------------------------------------------------
Income from continuing operations $ 0.48 $ 0.42
=============================================================================================
</TABLE>
Cash earnings per share on the diluted basis, defined as income from continuing
operations before nonrecurring income plus after-tax goodwill amortization, was
$0.51, up 13 percent from the 1999 third quarter. Cash earnings per share does
not represent a measure of cash flows from operations as defined by generally
accepted accounting principles, and may not be comparable to similarly titled
measures reported by other companies.
Page 11
<PAGE> 12
Net income for the third quarter of 2000 was also $44.0 million, or $0.48 per
share, compared to $242.8 million, or $2.54 per share, in the third quarter of
1999. The third quarter of 1999 included income from discontinued operations of
$202.3 million, or $2.12 per share, comprised primarily of the gain on sale of
Dobbs International Services, Inc. ("Dobbs").
There were 4.1 million fewer average outstanding and potentially dilutive common
shares in the third quarter of 2000 than in the third quarter of 1999, due
primarily to stock repurchases made in 2000. In addition, a lower average Viad
stock price in 2000 contributed to fewer additional dilutive shares related to
unexercised stock options.
PAYMENT SERVICES. A Payment Services subsidiary invests substantial amounts of
its growing money order and official check funds in tax-exempt securities, which
have lower pre-tax yields but produce higher income on an after-tax basis than
comparable taxable investments. On the fully taxable equivalent basis, third
quarter 2000 revenues of the Payment Services segment were $173.5 million, up
$21.4 million, or 14.0 percent, from 1999 third quarter revenues. On the same
basis, operating income increased $8.9 million, or 25.7 percent. Operating
margins on the fully taxable equivalent basis were 25.1 percent in the third
quarter of 2000, up from 22.8 percent in the 1999 third quarter. Results were
driven by continuing strong growth in all product lines, including the ongoing
rollout of several key new accounts. Average invested funds grew over 20 percent
from the 1999 quarter, resulting in higher investment income. Transaction volume
growth for MoneyGram was more than 25 percent for the quarter (excluding the
U.S.-to-Mexico corridor), led by strong growth in Latin America and
international money transfers. Weakness in the U.S.-to-Mexico corridor continued
during the quarter. The number of MoneyGram agent locations grew more than 25
percent year-over-year with over 45 percent growth in international locations.
CONVENTION AND EVENT SERVICES. Convention and Event Services revenues increased
$27.4 million, or 13.6 percent, to $228.3 million in the third quarter of 2000.
Operating income for the segment decreased $5.6 million, or 30.5 percent from
the third quarter of 1999. Operating margins were 5.6 percent in the third
quarter of 2000 compared with 9.2 percent in the third quarter of 1999.
Exhibitgroup/Giltspur reported strong gains in both revenues and operating
income. GES Exposition Services, Inc. ("GES") also reported higher revenues for
the quarter, but continuing higher labor costs, resulting from the tight labor
market and compressed move-in and move-out schedules, as well as increases in
certain show production costs, resulted in lower operating income compared to
the 1999 quarter. Pressure on operating margins will continue as GES continues
to focus on cost reduction efforts. As described in Note H of Notes to
Consolidated Financial Statements, Key3Media Group, Inc. ("Key3Media"), a
company spun off by Ziff-Davis Inc., terminated a long-term agreement with GES
to produce trade shows. Viad believes that the contract was wrongfully
terminated, and GES and Key3Media are currently in litigation. The loss of the
Key3Media shows will impact the fourth quarter 2000 and full year 2001 revenues
by approximately $15 million and $40 million, respectively, but Viad's operating
income for such periods is not expected to be materially impacted. The impact on
the third quarter of 2000 was not material.
TRAVEL AND RECREATION SERVICES. Revenues of the ongoing travel and recreation
businesses were $43.8 million for the third quarter of 2000, down $2.6 million,
or 5.7 percent, from 1999 third quarter revenues, while operating income was up
$2.1 million, or 13.6 percent, in the third quarter of 2000. The decrease in
revenue relates primarily to the discontinuance of a lower margin package tour
business, along with an overall decrease in traffic from U.S. and Canadian
tourists. Operating income increased due to higher margins and cost reductions.
CORPORATE ACTIVITIES. Corporate activities decreased $1.8 million in the third
quarter of 2000 compared to the third quarter of 1999, primarily as a result of
ongoing corporate cost reduction efforts and lower expenses associated with
achievement under Viad's incentive plans, resulting from a lower stock price.
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NET INTEREST EXPENSE (INCOME). Interest income of $2.6 million and $8.1 million
in the third quarter of 2000 and 1999, respectively, was generated from the
investment of the cash proceeds remaining from the July 1, 1999 sale of Dobbs.
The decline in interest income is due primarily to the use of investment
proceeds for the repurchase of treasury shares and the funding of acquisitions.
Interest expense in the third quarter of 2000 decreased $400,000 from that in
the 1999 third quarter
INCOME TAXES. The effective tax rate for continuing operations excluding
nonrecurring items in the 2000 third quarter was 12.4 percent compared to 22.3
percent for the third quarter 1999. The relatively low effective tax rate
compared to the statutory federal rate is primarily attributable to tax-exempt
income from Viad's Payment Services businesses. APB Opinion No. 28 requires that
income taxes be provided based on the estimated effective tax rate expected to
be applicable for the entire fiscal year, with an adjustment of the annual rate
made each quarter. During the third quarter, Viad determined that the estimated
annual tax rate for 2000 is expected to be lower than in prior periods due to
higher than previously expected tax-exempt income in proportion to total pre-tax
income, resulting from rapid growth in investments in tax-exempt securities in
the Payment Services segment along with lower operating income in the Convention
and Event Services Segment. Accordingly, the adjustment of the rate was made in
the third quarter of 2000.
COMPARISON OF FIRST NINE MONTHS OF 2000 TO THE FIRST NINE MONTHS OF 1999:
Revenues for the first nine months of 2000 increased $125.7 million, or 10.6
percent, to $1.3 billion from $1.2 billion in 1999. Revenues of ongoing
operations on a fully taxable equivalent basis, excluding the sold travel and
recreation businesses, rose 12.9 percent.
Income from continuing operations for the first nine months of 2000 was $112.4
million, or $1.22 per share, compared to $88.4 million, or $0.90 per share, for
the same period in 1999. Excluding nonrecurring income of $877,000 ($0.01 per
share) and $224,000 (less than $0.01 per share) for the first nine months of
2000 and 1999, respectively, described in Note G of Notes to Consolidated
Financial Statements, the first nine months 2000 income from continuing
operations was $111.5 million, or $1.21 per share compared to $88.2 million, or
$0.90 per share for the first nine months of 1999, an increase of 34 percent on
a per share basis. Cash earnings per share, as defined above, was $1.33 for the
first nine months of 2000, up 34 percent from the 1999 period.
Net income for the first nine months of 2000 was also $112.4 million, or $1.22
per share, compared to $307.4 million, or $3.14 per share, in the first nine
months of 1999. The first nine months of 1999 included $219.0 million, or $2.24
per share, from discontinued operations, which included the operating results of
Dobbs through June 30, 1999 and the gain on sale of Dobbs recorded in the third
quarter of 1999.
There were 5.7 million fewer average outstanding and potentially dilutive common
shares in the first nine months of 2000 than in the first nine months of 1999,
due primarily to stock repurchases made in 2000. In addition, a lower average
Viad stock price in 2000 contributed to fewer additional dilutive shares related
to unexercised stock options.
PAYMENT SERVICES. On the fully taxable equivalent basis, revenues of the Payment
Services segment for the first nine months of 2000 were $493.0 million, up $67.9
million, or 16.0 percent, from 1999 nine month revenues, while operating income
increased $22.5 million, or 25.3 percent. Operating margins on the fully taxable
equivalent basis were 22.6 percent for the first nine months of 2000, up from
21.0 percent in the first nine months of 1999. Results were driven by continuing
strong growth in money order, official check and Game Financial operations, with
the ramp up of key new accounts contributing to the gains. The nine months of
2000 was impacted by continued weakness in the U.S.-to-Mexico corridor for
MoneyGram.
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CONVENTION AND EVENT SERVICES. Convention and Event Services revenues increased
$89.9 million, or 12.9 percent, to $785.8 million from $695.9 million in the
1999 nine month period. Operating income for the segment was $73.6 million
compared to $75.8 million for the 1999 nine month period. Operating margins were
9.4 percent compared with 10.9 percent in 1999. Exhibitgroup/Giltspur reported
strong gains in both revenue and operating income. GES also reported higher
revenues for the period, but higher labor and show production costs and slower
than anticipated profit generation on start-up products resulted in lower
operating income and margins compared to the first nine months of 1999. Pressure
on operating margins will continue as GES continues to focus on cost reduction
efforts. As described in Note H of Notes to Consolidated Financial Statements,
Key3Media terminated a long-term agreement with GES to produce trade shows. Viad
believes that the contract was wrongfully terminated, and GES and Key3Media are
currently in litigation. The loss of the Key3Media shows will impact the fourth
quarter 2000 and full year 2001 revenues by approximately $15 million and $40
million, respectively, but Viad's operating income for such periods is not
expected to be materially impacted.
TRAVEL AND RECREATION SERVICES. For the first nine months of 2000, revenues of
the ongoing travel and recreation businesses were $66.7 million, down $4.0
million, or 5.7 percent, from the first nine months of 1999, while operating
income increased $3.7 million for the same period. The decrease in revenue
relates primarily to the discontinuance of a lower margin package tour business,
along with increased competition in the charter and sightseeing business.
Operating income increased due to higher margins and cost reductions.
CORPORATE ACTIVITIES. Corporate activities decreased $2.6 million in the first
nine months of 2000 compared to the first nine months of 1999, primarily as a
result of ongoing corporate cost reduction efforts.
NET INTEREST EXPENSE (INCOME). Interest income of $10.9 million and $8.1 million
in the first nine months of 2000 and 1999, respectively, was generated from the
investment of the cash proceeds remaining from the July 1, 1999 sale of Dobbs.
Interest expense for the first nine months of 2000 was $18.6 million compared to
$20.0 million for the comparable period of 1999. Lower average borrowings during
2000 were partially offset by the effects of an increase in short-term interest
rates.
INCOME TAXES. The effective tax rate for continuing operations excluding
nonrecurring items for the first nine months of 2000 was 18.2 percent compared
to 21.2 percent for the first nine months of 1999. As discussed previously, the
relatively low effective tax rate compared to the statutory federal rate is
primarily attributable to tax-exempt income from Viad's Payment Services
businesses. APB Opinion No. 28 requires that income taxes be provided based on
the estimated effective tax rate expected to be applicable for the entire fiscal
year. Accordingly, the estimated annual tax rate for 2000 is lower than in prior
periods due to higher than previously expected tax-exempt income in proportion
to total pre-tax income, resulting from rapid growth in investments in
tax-exempt securities in the Payment Services segment along with lower operating
income in the Convention and Event Services Segment.
LIQUIDITY AND CAPITAL RESOURCES:
Viad's total debt at September 30, 2000 was $429.6 million compared with $389.3
million at December 31, 1999. The debt-to-capital ratio was 0.35 to 1 at
September 30, 2000 and at December 31, 1999. The sale of trade accounts
receivable program was terminated in August 2000, resulting in a $50 million
increase in both accounts receivable and debt.
During the first nine months of 2000, Viad repurchased approximately 2.4 million
treasury shares for $62.8 million under Viad's stock repurchase programs. Net
proceeds from the exercise of stock options, including tax benefits, totaled
$11.9 million during the first nine months of 2000.
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The balance of the investments in securities arising from the July 1, 1999 sale
of Dobbs totaled $149.7 million at September 30, 2000. The balance declined
$119.2 million since December 31, 1999, primarily as a result of funding
acquisitions and the repurchase of treasury shares.
EBITDA is a measure of Viad's ability to service debt, fund capital expenditures
and finance growth, and should be considered in addition to, but not as a
substitute for, other measures of financial performance reported in accordance
with generally accepted accounting principles. EBITDA is defined by Viad as
income from continuing operations before interest expense, income taxes,
nonrecurring income, depreciation and amortization and includes the fully
taxable equivalent adjustment. EBITDA for the first nine months of 2000 was
$254.7 million, an increase of 18.5 percent over that of the comparable 1999
period.
There were no other material changes in Viad's financial condition nor were
there any substantive changes relative to matters discussed in the "Liquidity
and Capital Resources" section of Management's Discussion and Analysis of
Results of Operations and Financial Condition as presented in Viad Corp's Annual
Report on Form 10-K for the year ended December 31, 1999.
FORWARD-LOOKING STATEMENTS:
As provided by the safe harbor provision under the "Private Securities
Litigation Reform Act of 1995," Viad cautions readers that, in addition to the
historical information contained herein, this Quarterly Report on Form 10-Q
includes certain forward-looking statements, assumptions and discussions,
including those relating to expectations of or current trends in future growth,
productivity improvements, consumer demand, new business, investment policies,
cost reduction efforts and market risk disclosures. Such statements involve
risks and uncertainties which may cause results to differ materially from those
set forth in those statements. Among other things, gains and losses of
customers, consumer demand patterns, purchasing decisions related to customer
demand for convention and event services, existing and new competition, industry
alliances and consolidation and growth patterns within the industries in which
Viad competes may individually or in combination impact future results. In
addition to the factors mentioned elsewhere, economic, competitive,
governmental, technological, capital marketplace and other factors could affect
the forward-looking statements contained in this filing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As described in Note B, debt and equity securities classified as "available for
sale" are carried at fair value, with the net unrealized holding gain or loss
included in the Consolidated Balance Sheets as a component of "Accumulated other
comprehensive income." A portion of Viad's Payment Services business involves
the payment of commissions to selling agents of its official check program. A
Viad Payment Services subsidiary has also entered into agreements to sell
receivables from its bill payment and money order agents. The agent commissions
and expense of selling receivables are computed based on short-term variable
interest rates that subject Viad to risk arising from changes in such rates.
Viad has hedged a substantial portion of this risk through swap agreements which
convert the variable rate payments to fixed rates. Viad is also exposed to
short-term interest rate risk on certain of its debt obligations and trade
accounts receivable sales.
Based on a hypothetical 10 percent proportionate increase in interest rates from
the average level of interest rates during the last twelve months, and taking
into consideration expected investment positions, commissions payable to selling
agents, growth in new business, the effects of the swap agreements and the
expected borrowing level of variable-rate debt, the annual decrease in pre-tax
income would be approximately $2.2 million. A hypothetical 10 percent
proportionate decrease in interest rates, based on the same set of assumptions,
would result in an annual increase in pre-tax income of approximately $2.4
million.
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The fair value of securities classified as available for sale, the fair value of
the swap agreements and the fair value of fixed-rate debt are sensitive to
changes in interest rates. A 10 percent proportionate increase in interest rates
would result in an estimated decrease in the fair value of securities classified
as available for sale of approximately $94.9 million (along with an after-tax
decrease in accumulated other comprehensive income of approximately $57.8
million), an estimated off-balance-sheet increase in the fair value of Viad's
swap agreements of approximately $49.8 million and an estimated
off-balance-sheet decrease in the fair value of Viad's fixed-rate debt of
approximately $2.9 million. A 10 percent proportionate decrease in interest
rates would result in an estimated increase in the fair value of securities
classified as available for sale of approximately $90.9 million (along with an
after-tax increase in accumulated other comprehensive income of approximately
$55.5 million), an estimated off-balance-sheet decrease in the fair value of
Viad's swap agreements of approximately $49.8 million and an estimated
off-balance-sheet increase in the fair value of Viad's fixed-rate debt of
approximately $2.9 million.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the third quarter
of 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. 10A - Copy of Compensation Plan Amended and
Restated as of August 15, 2000.
Exhibit No. 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed by the registrant during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIAD CORP
(Registrant)
October 24, 2000 By /s/ Catherine L. Stevenson
-----------------------------
Catherine L. Stevenson
Vice President - Controller
(Chief Accounting Officer
and Authorized Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- --------------------------
10A Copy of Compensation Plan Amended and Restated as
of August 15, 2000
27 Financial Data Schedule
