VIAD CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2003
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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes [x] No [ ]

As of July 31, 2003, 88,367,415 shares of Common Stock ($1.50 par value) were outstanding.

TABLE OF CONTENTS


PART I. Financial Information
	Item 1. Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. Other Information
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Index to Exhibits
Exhibit 3.A
Exhibit 10.A
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. Financial Information

Item 1. Financial Statements

VIAD CORP
CONSOLIDATED BALANCE SHEETS


						December 31,
			June 30, 2003			2002

			(unaudited)
			(in thousands, except share data)
Assets
Current assets:
	Cash and cash equivalents		$	39,329		$	57,219
	Other investments in securities			82,272			246,338
	Receivables, net			76,352			50,818
	Inventories			30,877			41,839
	Deferred income taxes			51,157			55,747
	Other current assets			38,108			35,366

				318,095			487,327
	Funds, agent receivables and current maturities of investments available or restricted for payment service obligations			2,335,079			1,904,015

	Total current assets			2,653,174			2,391,342
Investments available or restricted for payment service obligations				6,834,750			6,268,080
Property and equipment, net				251,707			248,099
Other investments and assets				53,805			58,079
Deferred income taxes				98,436			125,894
Goodwill				650,846			549,461
Other intangible assets, net				34,456			34,474

Total Assets			$	10,577,174		$	9,675,429

Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable		$	62,414		$	63,188
	Other current liabilities			200,683			230,857
	Current portion of long-term debt			4,238			103,995

				267,335			398,040
	Payment service obligations			8,876,741			7,945,760

	Total current liabilities			9,144,076			8,343,800
Long-term debt				257,312			257,662
Pension and other postretirement benefits				113,088			110,895
Derivative financial instruments				115,354			126,527
Other deferred items and insurance liabilities				138,482			133,288
Minority interests				3,455			18,659
$4.75 Redeemable preferred stock				6,718			6,704
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			211,835			215,872
	Retained income			828,367			781,441
	Unearned employee benefits and other			(62,446	)		(66,143	)
	Accumulated other comprehensive income (loss):
		Unrealized gain on securities classified as available-for-sale		131,260			91,640
		Unrealized loss on derivative financial instruments		(138,601	)		(150,557	)
		Cumulative foreign currency translation adjustments		5,614			(9,655	)
		Minimum pension liability adjustment		(34,274	)		(34,274	)
	Common stock in treasury, at cost, 11,373,343 and 11,638,090 shares			(292,676	)		(300,040	)

	Total common stock and other equity			798,689			677,894

Total Liabilities and Stockholders’ Equity			$	10,577,174		$	9,675,429

See Notes to Consolidated Financial Statements.

Page 2

VIAD CORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


			Three months ended June 30,					Six months ended June 30,

			2003			2002		2003			2002

						(as restated,					(as restated,
						See Note 2)					See Note 2)
			(in thousands, except per share data)
Revenues:
	Convention show services		$	161,511		$	142,773	$	336,453		$	336,152
	Payment services transaction fees			118,750			107,345		233,194			205,649
	Payment services investment income			84,890			84,477		159,457			167,018
	Exhibit design and construction			62,386			56,677		109,500			118,105
	Hospitality and recreation services			12,293			13,129		15,575			16,299

		Total revenues		439,830			404,401		854,179			843,223

Costs and expenses:
	Costs of services			323,503			298,284		651,375			632,008
	Costs of products sold			56,810			53,656		106,115			112,428
	Corporate activities and minority interests			2,956			7,291		6,701			11,851
	Net interest expense			3,069			3,575		6,117			7,364
	Restructuring recovery			(1,276	)		—		(1,276	)		—

		Total costs and expenses		385,062			362,806		769,032			763,651

Income before income taxes and change in accounting principle				54,768			41,595		85,147			79,572
Income tax expense				13,900			11,880		22,248			21,461

Income before change in accounting principle				40,868			29,715		62,899			58,111
Change in accounting principle, net of tax				—			—		—			(37,739	)

Net income			$	40,868		$	29,715	$	62,899		$	20,372

Diluted income per common share
Income per share before change in accounting principle			$	0.47		$	0.34	$	0.72		$	0.66
Change in accounting principle, net of tax				—			—		—			(0.43	)

Net income per common share			$	0.47		$	0.34	$	0.72		$	0.23

Average outstanding and potentially dilutive common shares				86,508			87,672		86,418			87,200

Basic income per common share
Income per share before change in accounting principle			$	0.47		$	0.34	$	0.72		$	0.67
Change in accounting principle, net of tax				—			—		—			(0.44	)

Net income per common share			$	0.47		$	0.34	$	0.72		$	0.23

Average outstanding common shares				86,224			86,693		86,116			86,394

Dividends declared per common share			$	0.09		$	0.09	$	0.18		$	0.18

See Notes to Consolidated Financial Statements.

Page 3

VIAD CORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)


			Three months ended June 30,						Six months ended June 30,

			2003			2002			2003			2002

						(as restated,						(as restated,
						See Note 2)						See Note 2)
			(in thousands)
Net income			$	40,868		$	29,715		$	62,899		$	20,372

Other comprehensive income:
	Unrealized gains (losses) on available-for-sale securities:
		Reclassification of securities from held-to-maturity to available-for-sale, net of tax expense		—			—			30,222			—
		Holding gains arising during the period, net of tax expense		16,966			57,845			13,874			36,891
		Reclassification adjustment for net realized gains included in net income, net of tax expense		(1,754	)		(1,304	)		(4,476	)		(3,453	)

				15,212			56,541			39,620			33,438

	Unrealized gains (losses) on derivative financial instruments:
		Holding losses arising during the period, net of tax benefit		(14,739	)		(72,071	)		(30,993	)		(61,216	)
		Net reclassifications from other comprehensive income to net income, net of tax benefit		21,548			19,895			42,949			38,607

				6,809			(52,176	)		11,956			(22,609	)

	Unrealized foreign currency translation gains			9,478			5,208			15,269			4,867

Other comprehensive income				31,499			9,573			66,845			15,696

Comprehensive income			$	72,367		$	39,288		$	129,744		$	36,068

See Notes to Consolidated Financial Statements.

Page 4

VIAD CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


			Six months ended June 30,

			2003			2002

						(as restated,
						See Note 2)
			(in thousands)
Cash flows from operating activities:
Net income			$	62,899		$	20,372
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			24,794			25,753
	Deferred income taxes			(834	)		4,030
	Change in accounting principle			—			40,000
	Investment impairment charges			20,813			10,309
	Restructuring recovery			(1,276	)		—
	Realized gains on investments and other assets			(7,833	)		(5,882	)
	Other noncash items, net			20,449			5,425
	Change in operating assets and liabilities:
		Receivables		(26,977	)		(16,929	)
		Inventories		10,962			4,434
		Accounts payable		(774	)		(5,757	)
		Other assets and liabilities, net		(22,031	)		11,627

				80,192			93,382
	Change in payment service assets and obligations, net			554,184			(766	)

Net cash provided by operating activities				634,376			92,616

Cash flows from investing activities:
Capital expenditures				(18,183	)		(17,711	)
Acquisition of minority interest, net of proceeds from disposals of property and other assets				(97,416	)		543
Proceeds from sales and maturities of available-for-sale securities				1,943,612			1,253,041
Proceeds from maturities of held-to-maturity securities				283,690			279,057
Purchases of available-for-sale securities				(2,639,873	)		(1,123,574	)
Purchases of held-to-maturity securities				—			(455,119	)

Net cash used in investing activities				(528,170	)		(63,763	)
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