Viad Corp (VVI) 2001 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Viad Corporation (Company: Viad Corp. ; Ticker: VVI; URL: http://www.viad.com/) fourth quarter earnings release conference call. At this time all participants are in a listen-only mode and latter we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Bob Bohannon, Chief Executive Officer, and Miss Kim Fracalossi, Chief Financial Officer. Miss Fracalossi you may begin.

Right, thank you very much. Good morning, everybody, and thank you for attending our conference call. I'd like to remind everyone that certain statements made during this conference call, which are not historical facts, may constitute forward looking statements. Actual results may differ materially from those projected in the forward-looking statement. Additional information concerning business and other risks factors that could also cause actual results to materially differ from those in the forward looking statements is contained under the caption forward looking statements in Viad's financial statements filed with the Securities and Exchange Commission.

Another item before we begin. All references and comparisons involving 2000

incoming and margins, earnings per share, and cash earnings per share, as it relates to Viad and the convention events services segment made during the call are as re-stated. The 2001 numbers discussed throughout the presentation will be before restructuring charges and other items. And lastly, all Viad and payment services revenues and operating incomes are on attachable equivalent basis.

Now I would like to introduce Bob Bohannon, Chairman, CEO, and President of Viad Corp.

Good morning everyone. Thanks very much for being with us today. We have the operating company presidents on the line, Phil Milne, Travelers Express, Paul Dykstra for GES, and Gordon Anderson, Exhibitgroup/Giltspur, and of course in Phoenix, Kim is with me.

Overall, 2001 ended with stronger than anticipated results. Earnings per-share was 29 cents, which exceeded the high end of the range we'd given on the last conference call. Operation results for 2001 were solid given a very, very difficult year. Fourth quarter results again demonstrated the value and market strength of Travelers. And even in the hard hit convention and events segments, GES and Exhibitgroup showed sequential improvement from the third quarter, which was very, very good news.

For those of you who saw the press release this morning, you know that we have restated earnings to 1998, 1999, and 2000, primarily attributable to work in process and raw material inventories at the Exhibitgroup/Giltspur operating company. The restatement will reduce Viad's cumulative per year income from continuing operations by a total of 12.4 million from 370 million as follows. Two point six million for 1998, 6.1 million for 1999, and 3.7 million for 2000.

Exhibitgroup/Giltspur is one of two operating companies within Viad's convention and events segment. And as you hear discussion today about the restatement, please keep in mind some important facts. First the restatement applies only to Exhibitgroup/Giltspur.

Second, this is a voluntary restatement. Viad conducted a comprehensive review of Exhibitgroup/Giltspur various operating divisions in conjunction with the previously announced closure and all consolidation of certain facilities.

Third, as you'll recall, we brought in Gordon Anderson as Exhibitgroup's President and CEO in January 2001. And at that time, and in light of a deteriorating economy, his primary objective was to analyze Exhibitgroup's current operating structure. They have long operated with a number of local manufacturing facilities throughout the country, which were found to be inefficient. We were running far below the capacity in those plants.

As a result of that analysis, we announced a restructuring plan and are in the process of reducing the number of manufacturing locations from 15 to five, excluding foreign operations. We have taken appropriate steps including an accelerated plan for centralizing the finance and accounting functions intended to ensure that this will not occur again in the future.

Let me explain the fundamental issue leading to the restatement. In conjunction with the company's efforts to close and consolidate these Exhibitgroup facilities, we conducted a comprehensive review of Exhibitgroup's divisions including detailed reconciliation of the general ledger accounts. We found that some locations had not completed reconciliations of some work in process, raw material inventory, and other accounts. And so simply put, this led to an over statement of these accounts, which subsequently had to be written down. We have identified the reasons and have taken steps to correct these deficiencies. And Kim will explain those steps to you later on in the -- in the call.

As you would expect, we are very, very disappointed and clearly embarrassed by this restatement. At the same time I am pleased that we caught the issue and I want to commend Kim, her finance team, and management for their diligence in identifying the issue, bringing it to our attention, and quickly implementing procedures to ensure it doesn't happen again.

Let me now turn to the business results for the full year of 2001. Earning per share was solid, $1.29 per share before restructuring charges and other items. This is down 15.7 percent from 2000 EPS of $1.53 per share. And by most measures 2001 performance is clearly below that of 2000.

Revenues for the full year of 1.7 billion were down about four percent, or roughly 70 million from last year. Operating income was down 10.6 percent, or about 27 million. And operating margins fell 100 basis points from 14.3 percent to 13.3.

Cash flow defined as earnings before interest, taxes, depreciation, and amortization, also decreased in the prior year. The weak economy of 2001, damaged further on September 11th, offered few growth prospects for our primary customers and the convention and events segment. These companies reduced exhibit building, convention attendance, and marketing expenditures.

But despite a very difficult year, there were bright spots, including the continued success of Travelers and improvements in our convention and events companies, along with a few good wins that hopefully will bode well for the future.

For the fourth quarter, Travelers is expected to deliver strong growth with official check and MoneyGram. They produce 11 percent growth in operating income on revenue of 13.3 percent increase. For the convention and events segment revenue declined by 31 percent, which resulted in operating loss of $4.8 million for the quarter.

Our restructuring efforts are primarily focused on this segment of the business, and I'll talk a bit about the status of that restructuring effort in a moment.

A couple of other notes about the quarter, the company did not repurchase any shares and we paid down about 7 million of debt from the end of the third quarter, consistent with our efforts to maintain a strong balance sheet. Additionally we added about 19 million of cash to our short-term investments bringing that to about 170 million, and total cash and cash equivalents now are about 218 million.

Regarding the restructure last quarter we announced the companies restructuring plan that would total slightly over 66 million. These plans include the closure and consolidation of certain facilities and severance. About 70 percent, or not quite 50 million of our restructuring charge, applies to Exhibitgroup/Giltspur.

To date we're on schedule and while we still have a ways to go on the completion side, we are on time and on schedule. We have some additional actions to complete the first and second quarter as planned, but we see no impediments to continued progress, particularly with Exhibitgroup/Giltspur. We are pleased with the results so far, and we're starting to see the benefits of some of these restructuring efforts.

Regarding the segments, I'll start with convention and events services segment first. I'm pleased to say convention and events services segments performed better than our post-September 11th forecast. Though revenues were down as anticipated, with a decline of just over 30 percent for the quarter, we were very pleased on the proof of the cost savings initiatives we implemented through, particularly those associated with the restructure activities and several others such as some pay cuts, reduced travel, and entertainment costs implemented at the end of September.

In the quarter, revenue for the segment was 169 million, a decrease of 31.4 percent from the prior year's 246 million. This was about on forecast. Operating losses for the segment were negative 4.8 million versus a profit of 1.9 million in the prior years fourth quarter, and compared it to an operating loss of 7.1

in the third quarter '01 on slightly fourth quarter revenues. So in other words we had improvement over the third quarter sequentially showing 130 basis points improvement in operating margins before restructuring charges and other items. And again we're pleased that we're

performed more efficiently in these very, very difficult times.

We are also preparing for continued weakness in the segment throughout 2002. However, our commitment s to weather the storm while continuing to focus on the elements, these business that have went out within out control, costs, execution, attracting new customers, and serving existing customers extremely well. We're not pessimistic at all about this segment, but we don't know when the economy will turn around, or when companies will get back to normal levels. So we're going to plan for another difficult year in 2002.

The good news though is that we're well on our way to having our cost structures in line, and even with the soft economy we should see improvement in operating performance of this segment.

On GES, GES had a better quarter than we forecast in terms of revenue and margin performance. In the immediate days after September 11th we experienced outright show cancellations. Most of the cancellations were in the third quarter and that of course had significant impact on the third quarter's reported results. In the fourth quarter, exhibitor cancellations were less than anticipated. With these results, GES' operations and costs of improvements are evident in improved margins. At this time we are not seeing substantial show cancellations for 2002, however, we continue to believe the risk of show shrinkage is real so we'll be cautious in the outlook for the full year 2002.

I should tell you that a large show we did early January, the square footage in that show was essentially flat to last year. There's another large show we're going to be doing at the end of January. That show is projecting to be up over last year, but we do have a couple shows in February that already are projecting to be down. So we're still getting a mixed bag. Some shows are doing very well and are projecting to do well. Others flat, others are projecting to be down.

Another nice positive note about GES, they've had some recent nice signings on renewals, but also we recently announced the signing of IMTS. This is one of the largest trade shows in the world, a brand new account for us. This show falls late in 2002, which is typically a slow time for GES. So we're very excited all in all about the progress that we're beginning to see at GES.

On Exhibitgroup, last quarter we talked about Exhibitgroup's customer base, the fortune 1,000 companies. We said then that they had cut back on spending by refurbishing older exhibits or pushing new bills into the future quarter. In the fourth quarter there were few orders for new exhibits, and this was compounded by outright cancellations in the aftermath of September 11th. As a result, Exhibitgroup's revenues and margins were hit hard last year, and we continue to be cautious about the coming year with respect to companies building new exhibits.

That said, we're still excited about this business despite the downturn we've witnessed in the industry. In addition to improvements to be achieved through restructuring, they're looking at several ways to drive incremental revenue such as developing new product offerings for a wide array of client marketing efforts including smaller show venues.

On the payment services segment, very pleased again with Travelers performance and particularly with official check and MoneyGram. As I mentioned earlier, operating income grew 11 percent on a 13.3 percent increase in the revenue of the quarter. For the full year, revenue grew 13.3 percent as well with operating income of 10.3 percent.

Very, very pleased to announce the Travelers has signed Wal*Mart (Company: Wal*Mart Stores Inc.; Ticker: WMT ; URL: http://www.wal-mart.com/) for MoneyGram at all of Wal*Mart's 2,700 U.S. locations. The majority of stores will be rolled out by the second quarter 2000 and full roll out should be completed essentially by year-end. All Wal*Mart stores will be using Delta Works at point of sale product, and Delta Works is a single platform for money orders and wire transfers. This was a great win for Phil and Travelers. They've worked very, very long and hard on this one, and it's just terrific to see that all that work now has paid off into a terrific signing.

Another note on Travelers on the technology front, we have Beta testing our official check Prime

product. This is a new product. Prime

is an Internet check printing system that will extend the application of the official check product line, not only at bank branch locations, but into other financial services businesses as well, any that require revoked check disbursement from a central authorization point. That can include firms that do home equity lines. That could include firms that do first mortgages.

Let me now give just a bit more detail on the three main product lines of Travelers. On MoneyGram, MoneyGram and Express Payment Transaction Group in combination with a sizable turn around in Mexico are driving MoneyGram's overall growth. The transaction volume growth was strong. Quarterly, transaction growth for MoneyGram increased over 35 percent compared to last year. It was up 25 percent on a year over year basis. And you'll recall in the third quarter we reported that at 29 percent transaction growth for the third and again over 35 for the fourth.

All corridors are showing improvement, with particularly strong growth in international as well as accelerating growth in the Mexico corridor, and Cambio Plus is our leading growth product in this quarter. Over half of our volume from Mexico now comes through Cambio Plus. The Mexico agent base is now over 5,000, double what it was last year at this time. And in addition, international transactions grew slightly over 36 percent.

On official checks the continuing trend of bank outsourcing has created great opportunities, the growth of the sow seed business. Travelers value proposition is clearly appealing to customers as evidenced by significant new signings this year and a continued strong pipeline. In the fourth quarter 2001 balances grew in excess of 34 percent over Q4 2000.

We announced during the quarter that Huntington Bank and Sovereign Bank signed with Travelers and Travelers now is in the process of putting those up. The official check backlog is still strong and the pipeline for potential sales is still very strong as well.

On money orders, money order volume was flat this quarter. This product line continues to show though very strong margins in cash flow. In 2001, given the economy, we have been more cautious in signing new agreements with agents particularly any with lower credit

and have pruned agents who've failed to consistently meet our credit requirements. In keeping with this conservative approach in this slow economy, this year at Travelers we also increased our credit reserves and intensified the credit review process. We now have roughly 2,300 Wal*Mart locations offering money orders and we plan to install the remaining 400 locations in 2002.

Just a note about the travel and recreational services segment, this segment represents about 5 percent of our overall company review. The two companies from this category, Glacier and Brewster, have had very good performances in recent years. 2001 was simply not a good year for the travel business. Revenues and operating income both for the quarter and the year were below 2000 levels. Traffic in the national parks was down. Travel from the Far East was down, and it's not clear when that will change.

I think the good news here is that these businesses are relatively self-sustaining. I've been very, very pleased with what they've done on cost containment and they do have a good operating flexibility and management talent to weather these down markets.

Before I summarize and give the 2002 guidance, I'd like to turn the discussion over to Kim

to discuss some other matters.

Kim.

Thanks Bob.

The

steps taken to make sure that we don't end up in the same position on the re-statement. First and foremost we've accelerated our plans for centralizing Exhibitgroup/Giltspur's accounting and finance functions. Among other things this will allow us to improve the quality and technical capabilities of our finance personnel and to simplify processes and standardize procedures. We've made a series of changes regarding our accounting controls and policies, which are being implemented. And as we centralize we'll continue to develop additional best practices.

Now, I'll provide some financials and as a reminder all references and comparisons to 2000 as it relates to Viad are as re-stated. As previously mentioned for the quarter, cash EPS defined as income plus after tax goodwill amortization decreased by 8.3 percent from 2000, 33 cents in '01 versus 36 cents in '00 for the quarter. And for the year cash EPS decreased 13.7 percent from 2000, $1.45 in '01 versus $1.68 in '00.

For the quarter, cash flow defined as earnings before interest, taxes, depreciation, amortization on a gross sub-basis was 62.9 million versus 68.8 million in 2000, down 8.5 percent. For the full year, cash flow EBITDA on the same basis was 289 million, down 11.1 percent from 325 million in 2000.

For the quarter, free cash flow, defined as cash from operations excluding the change in Travelers payment service assets and obligations, less capital expenditures and dividends, was 33.4 million, up 193 percent from the 11.4 million in the same period of 2000. For the full year, free cash flow was 135 million, up 66 percent over the prior year's 82 million.

Payment services average investable balances were up nicely for both the quarter and the year. For the quarter average investable balances were 5.7 billion, up 34.5 percent from 4.2 billion in 2000. For the year average investable balances were five billion, up 31.2 percent from 3.8 billion.

Viad's total debt at the end of the fourth quarter was about 397 million, down about seven million from the third quarter and our debt-to-capital ratio is 35.2 percent, slight improvement over the third quarter. Net interest expense for the quarter was lower than last year because of lower interest rates and lower average debt during the quarter.

At December 30, 2001, we had investments of 169.6 million as Bob had mentioned. This is an increase of 19.5 million from September 30, 2000. This gives us about 218 million in cash, cash equivalent, short-term investments.

Depreciation amortization for the quarter was 16.5 million and for the full year 69 million, about even with last year. Remember, that for 2002 the goodwill amortization will no longer be deducted and amounts to about 16 cents EPS.

Capital expenditures for the quarter were 13.5 million versus 14 million in 2000 and for the full year cap ex was about 50 million, up about five million from the prior year. The income tax rate for the year before non-recurring items and restructuring charges was 23.6 percent versus 15.2 percent in 2000.

In summary, I'd like to say we're a strong, healthy company and will continue to strengthen our balance sheet and drive cash flow.

Now I turn it back to Bob.

Thanks Kim.

Before wrapping up my comments and opening the call to questions, I'd like to take a moment to give some guidance for 2002. In 2002, we're committed to managing our way through what we see as a continued soft economic conditions. We will continue to focus on reducing our cost structure and the convention of in-services segment, driving growth in the payment services segment and delivering strong cash flow at the consolidated level.

Regarding guidance for the major segments of the year, Travelers should have another strong year. Revenue growth should be in the low teens for the year. At the convention and event segment revenue growth for 2002 is forecast to be down from five to 10 percent from 2001.

As I mentioned in the last call and early in my comments today we just don't know when this industry will turn around. We don't know when companies will increase spending. We don't know when people will get back to flying at normalized levels.

For total Viad, we're projecting EPS growth in the range of three to six percent, which translates into EPS in a range of $1.49 to $1.53, excluding the amortization of goodwill or $1.27 to $1.33 including goodwill, which will not be allowed in 2002.

By anyone's measurement 2001 was an extremely difficult year. We had more than our share of disappointments but we also had some very heroic performances by some exceptionally dedicated individuals at corporate and in every company of Viad. We're going to continue our restructure. We're going to continue our relentless focus on cost controls and we're going to continue to act quickly and decisively when we see opportunities as well as issues. In addition, we're going to continue to keep all of our strategic options open and, in order to do that, a strong balance sheet is required. We're committed in 2002 to make our balance sheet even stronger than it was at year-end 2001.

And, lastly, I must tell you that every Viad employee is committed to doing their absolute best so that we can have as good a year as possible in 2002, whatever the economic conditions may be. In addition to great people, our companies are fundamentally strong, they serve growing markets and they stand ready to capture new opportunities.

Now with that, operator, I would like to open the call to Q&A.

Thank you, sir.

And ladies and gentlemen, at this time if you have a question, please press the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, if you have a question, please press the number one key.

Please stand by for questions.

Our first question is from Jack Kelly of Goldman Sachs (Company: The Goldman Sachs Group Inc.; Ticker: GS; URL: http://www.gs.com/).

Morning, Bob.

Bob, a couple questions, the bulk of them are on convention services and maybe just dividing those questions into two buckets. Number one, in talking about convention services, I guess primarily Exhibitgroup, can you talk about from pure restructuring, this is before the re-statement, the pure restructuring actions that you're taking, you mentioned 50 million of the charge was at Exhibitgroup. It would seem to be just based on the cost savings that should be accruing at Exhibitgroup '02 over '01 because these actions have been, you know, were taken earlier in '01, that we should be seeing an earnings pick up at Exhibitgroup. You know, even if the top line kind of remains sluggish. So, if you could just kind of address that and maybe tell us how much of the restructuring has been done and, you know, et cetera and why and maybe it isn't a swing, I don't know, but it didn't sound like it.

Secondly, then moving and then also what ultimately the margin goal there can be because I think in the past as a group you talked about, you know, hopefully getting double digit margins in convention services, which is obviously a combination of GES and Exhibitgroup. So is that no longer an attainable objective?

You know, secondly with regard to the group...

Jack?

Yes.

So I don't lose any of this, let me answer this first part.

OK.

Then we'll continue with the second part, if that's OK.

Yes.

Yes, we announced at the third quarter call that in respect to cost expense take out and that type thing, we would have then over $30 million in takeouts. We are going to see a good bit of that that will fall through. What we're being very cautious on, though, is that we don't have a good feel at this point with respect to what the related revenue is going to be. Now, if that continues to fall there are additional actions we can take, obviously, on the cost side but I think that, you know, if you look back Exhibitgroup last year, it wasn't a robust quarter from a revenue standpoint the first quarter but, nevertheless, we had not started seeing the full effects of the economic slowdown.

So we probably are being reasonably cautious on that. I think that's prudent to do it that way because, again, we just can't say with any great degree of accuracy or confidence at this point, what those revenues will be. As I mentioned, we've not seen our customer base open up the spending spigots yet. We have seen more talking about simply refurbishing and if you refurbish versus building new, you pick up about 25 to 30 percent on a revenue side is what you would if you had a new build.

On the margin side, on Exhibitgroup, you know, it's interesting because when you through Exhibitgroup, we have some terrific cities out there that are doing very, very, very well on the whole margin side. So we know what's possible if you have certain cities that do that. And that's a lot of factor, as you know, of leadership. It's a lot of factor of good cost controls, that type thing. So we have some terrific best practices out there. And double digits is very possible. Not only possible, we've seen it done. I mean, it is being done in some of those cities. That's factual.

OK. Just on the restructuring, if we isolate it on the 30, putting aside what happens to the top line. I know this gets dissipated, but how much of a pick up in operating

should we kind of factor in just based on a successful restructuring program in '02?

Actually, it's difficult because it is dependent on the revenue. And Exhibitgroup wasn't the total 30. The 30 is sort of our range of savings was for the total company. And you probably put some kind of factor, you know, to knock it down because a big portion of it is in the convention/event services segment. And the throughput on that cost savings is in fact dependent on the revenue. So, we're being a bit cautious. In a normalized year, you ought to be able to get that 25 to 30 million pre-tax savings without a problem. But in this year, you know, I say you've got to knock it down probably 25 to 30 percent because of the revenue.

OK. OK. That's fair. And then on the, on the restatement, I'm not sure I understand what happened. I mean, I see the words, but could you just -- obviously, I guess, these are places that are closed. The people are fired who were responsible for this. But, what exactly happened, Bob, in terms of this work in process that went back two years or so?

Yes. Jack, I'll give you a little overview. And I'll let Kim explain the technical parts., because that's kind of out of my field. The best example I could give you would be this, if you take, if you take a customer, and let's assume for a second that you're going to do a $3 million exhibit, what you have to do on ultimate billing to that customer, as a general rule, most of these jobs are done on a cost and materials basis plus X mark-up. So you have to keep track, literally, of hundreds of invoices on any particular job. Everything from nails to graphics to lumber, you name it. And that goes into a work in process account. So an awful lot of entries per job.

Ultimately, at the end of that, at the completion, you've got to take all that and go back and bill the customers for that. So it's not what I would call a complicated account, but there's an awful lot of entries that run through

. And what we did at some locations was not do a good job in respect to keeping track of some of these costs and so forth on these related jobs. Beyond all of that, we have many repeat customers, you know, at Exhibitgroup. So jobs overlap, that type thing. And the net of it all, Jack, is that we just didn't do the complete reconciliation of those accounts in a timely fashion. And when we did go out to start shutting down these facilities where every account has got to be reconciled down to zero, that's when all of that popped up. So that's the, that's the business language. And I'll ask Kim if she wants to…

Yes. So basically, you under billed the customer and for the last couple years in, what, maybe five or 10 locations? And then you kind of found out about it when you were going to close them. Is that…

Jack, I think in some instances, we probably, that we probably did under bill some customers. And I'll let Kim add any technical language that she might want to add.

Yes. Basically, this is a very manual job

process that we do here in that the job is to capture costs. And then as you go along for however long a period your building

, you have to estimate the cost on a quarterly basis and then true it up when the job is closed. And what we didn't do well is estimate or true that up at the end. We did have some systems changes over the period in some of these locations over the '98, '99 and 2000 period. So it's possible that some of these costs got hung up there. And we did not truly reconcile it. So only when you were in there looking and cleaning it up did we find some of this.

Jack, I would add, too, that, you know, when you look at Exhibitgroup, we, up through about 2000, did a fair number of small acquisitions. And so, that company ended up on a number of different systems. And as Kim mentioned, as we tried to put most of those on the same platform, that added some complexity to this whole thing.

OK. And just, off that subject, and this is the last question. On payment services, with regard to Wells Fargo (Company: Wells Fargo & Company ; Ticker: WFC ; URL: http://www.wellsfargo.com/) announcement, have you, you know, what's kind of your reaction? Is there anything happening in the marketplace in reaction to that with your competitors maybe reacting to what Wells Fargo might do?

Jack, I'll let Phil in a second give you a full answer. I'll just give you my two cents. You know, Wells Fargo, obviously a very, very, very formidable company. We never discount any competitor that comes into the market. Having said that, we have been in the business for a long, long time. The distribution network on the send side and receive side is key and paramount. There are certain customers that we are after. And that's primarily the

or

.

These are the customers that we target and that avail themselves of our services. It would be very difficult to see a lot of these customers going to a bank to do this. I don't want to speculate on all of what Wells is trying to do. But, if I did take a moment to do that, I'd have to believe that as much what they said in their announcement, that there's other services that they want to sell to these customers. But it's very difficult for me to understand, with

base customer for the MoneyGram product, how many of those would qualify for automobile loan or mortgage loan or that type thing.

So again, I don't discount how formidable they are. But we know from MoneyGram and back in the American Express days when that was first formed how long it took American Express, then First Data, who owned MoneyGram prior to the

of that after they acquired Western Union. We all know how tough it is to build this distribution base. So you had American Express. You had First Data or MoneyGram. They have spent a number of years building this. It's just not an easy thing to do. And Phil, I'll let you pick it up from there.

Hey, Jack. How are you doing?

Good, thank ;you.

Bob, I think that's, you know, a pretty thorough explanation. I guess what I would add is that, you know, we think that there's already a significant amount of competition in Mexico. We think we're really well positioned with the network that we have both on the domestic side and what we have on the Mexican side. And that we're well positioned to compete with whoever comes into that business. So we feel good about what we're doing in Mexico and the value proposition that we're bringing to the consumer.

Thanks.

You bet.

Thank you. Our next question is from Michael Millman of Salomon Smith Barney.

Thank you. I guess a couple questions, as well. One, maybe you could give us some first quarter guidance to go along with the full year guidance. Secondly, looking at the payment service businesses, could you talk about where you expect the margins to be this year and what parts of the business do you expect to be driving them? Thirdly, on the Wal*Mart, how much business do you expect them to generate for MoneyGram? They don't seem necessarily to be in those locations that traditionally has been a big driver of wire services. So sort of curious about that as well.

And then maybe you can talk a little bit about, be a little bit more specific about your official check backlog or pipeline. How much you expect to come on this year. Where official check is on a run rate basis at the current time. And then, finally, could you talk a little bit about what lower rates have done to that business? And when do you start, or do you start to renegotiate some of your rates with your bank customers to kind of true them up to the current realities of rates?

Thanks, Mike. And, Mike, let me take a shot at a couple things. I'll ask Phil to comment in more detail. And then lastly, at the end of all of this, we'll ask Kim on the first quarter guidance.

In respect to Wal*Mart, I would just tell you that, you know, we have been rolling up on the money order product. We know that many customers who use money orders also avail themselves of the MoneyGram wires. And we've had some very, very, very nice growth in those Wal*Mart locations that have implemented the money -- the money order product. So I suspect that the same thing's going to be true on MoneyGram.

And as you know too, when they decide to do something, they do a very, very good, thorough analysis. And they too believe like we do that they have some terrific growth prospects, both on the money order side and the MoneyGram piece.

With the lower rates, and Phil can get into all this, obviously what lower rates do, it

because of liquidity reasons and that type thing, there's also always a certain amount of money that we have to maintain at Travelers for liquidity purposes. So the overnight rates and everything else are down significantly. So it has had an impact on his business.

Phil, would you pick up in respect to the payment services business. The drivers, anything you want to say about Wal*Mart, maybe talk a bit more about the official check, backlogs, pipeline, that type thing? And then comment further on the lower rates, please?

Sure, Bob. Hey, Mike. How are you doing?

OK. How are you?

Good. As far as Wal*Mart goes, you know, I think we expect big things out of that relationship for a couple reasons. As we've rolled out money orders, they have quickly come in

the top two or three of our customers on money orders, and probably will be the largest one by the end of the year, by the end of '02. From a MoneyGram standpoint, I think a couple key things. We think they'll be a significant driver for the express payment product, which is the just in time bill collection product.

And I think we'll also see some real international opportunities in places like Dallas and Houston, the West Coast, the

, LA, Chicago. So I think we see a real huge opportunity for MoneyGram at Wal*Mart. And as Bob said, whatever they do, they do extremely well. So we're very excited about that side of it.

On your margin question, I'd say we'll see expanding margins by product. But you probably will see overall margins down a slight tick because of the change in mix as we grow MoneyGram and official check faster than the money order business.

The

pipeline, Mike, continues to be very strong. We're looking for a real good year on that as well. We have a strong backlog, over a quarter billion to install right now into the first quarter, and with a real strong pipeline of new prospects, probably as strong as we've ever had. And there's a great deal of momentum for outsourcing in that business as we go forward.

On the -- on the lower rates, I think the absolute rate has hurt the revenue growth. Because what we've been able to invest in is at lower rates. I think we have seen some improvement in the yield curve as we are, as we moved out of the fourth quarter and into 2002. And that should help as we bring new business on on the official check side. So we're feeling pretty good about that.

Phil, and I wonder too, go in line with what Mike was asking with respect to some of the

. If you would, spend a minute talking about Prime

.

Sure. Prime

-- and we're very excited about Prime

. And, you know, what we've always felt is we had a great system with our official check system. And we were looking for ways to expand that. And Prime

is going to give us the ability to do that. And really what it is, is remote disbursement of checks from a central authorization point. And it really was the genesis of some customers asking us as they had far flung mortgage operations or auto finance operations, you know, how do I authorize a secured document to be printed in a location far away. And that's really what Prime

will let us do.

We do have our beta customer and that's

Bank. And we'll begin that beta shortly within the next few weeks. But we really are excited. But I think it's going to take the official check product into maybe some non-bank financial, such as the home equity market, the auto finance market and places like that. So we see expanding our world with the official check system and leveraging it beyond the traditional market which was the financial institution. So we're pretty excited about that product. And we think we have great opportunities for it.

Mike, and I don't want to overstate this Prime

, but just with some of the opportunities outside the banks that this could open up to, as Phil mentioned, I mean, they're enormous. So we're in the middle of the beta test. And that goes well, we believe that it will, then obviously, Phil can get his sales people out and get after some markets that we have not been, not been after in the past. And then, so, Mike, lastly, I'll now ask Kim on the first quarter guidance.

Basically, overall, for Viad, the revenue's going to be essentially flat, is what we're forecasting. If you equalize for the goodwill, we should show low double digit off income EPS growth for the overall enterprise. And then for each of the segments, it should be relatively consistent with the full year guidance with traveler's revenue in the low teens and the convention/event services segment down about 10 percent. So we're anticipating this sort of economic environment to continue certainly early in the year as sort of consistent with where it's at right now.

When you said two, if you equalize for the amortization, did you mean -- what did you mean?

That means you have to add it back to last year.

OK.

OK? And then use that growth rate.

Thanks, Mike.

Thank you. Our next question is from Dris Upitis of Credit Suisse First Boston (Company: Credit Suisse Group; Ticker: CSGKY; URL: http://www.credit-suisse.com/).

Hi. Thanks. If you could talk a little bit about the pricing trends that you've seen in light of MoneyGram. You said transactions up about 35 percent. And also then the yield, just in light of the balance being up about 34 percent

.

I think the question revolves around what we're seeing on a per transation and I think for the most part, very stable on that. And I think it's been very stable going to Mexico and the domestic business as well. So I don't think there are really any issues there. Was the other question on yield?

Yes. Well, just the -- it's about two thirds of the business. The volume seems to be growing about 35 percent. And the overall revenue grew about 13 percent in the quarter.

Well MoneyGram is not, is about a third of the company. And…

Right.

… I think, as you see MoneyGram become a bigger and bigger portion of the company, you know, if we can, you know, we will continue to see the revenue growth uptick. I think on the overall revenue side, the lower interest rates have dampened that revenue growth down a little bit. Because we're just not investing at the same levels that we were a year ago as rates have come down dramatically over the last, what, 12 or 13 months.

OK. And then on operating margin, you said because of a mix shift, it's likely that overall operating margin for payment may come off a little bit. Can you give a sense of the size of that? Or alternatively, what overall operating income might do for payment in '02? Some guidance on that growth.

I'll leave the guidance on that growth to Kim. But I think overall margins, you know, if you look at it by product segment, I think you'll see expanding margins on the MoneyGram side. Probably expanding margins on the official check side. Stable, you know, margins on the money order side. But I think what the issue is as, you know, money order is the highest margin product. But the two faster growing products are official check and MoneyGram. So as they become a bigger part of the company, that will bring the overall margins down of Travelers, just because of the mix issue. Not because there are any issues

the products themselves.

OK. Kim, can you give any more specific guidance on the overall operating income type of growth?

For the company?

For Travelers

.

For

, more specifically.

What we -- the guidance we give is we give top line guidance. And then we talk about the margins. So that's all…

.

We don't give the

income

.

OK. And lastly, can you talk just a little bit about the pipeline on the MoneyGram side? Whether there might be some other cross selling opportunities like the Wal*Mart or internationally -- we signed a few international post offices recently. Things along those lines. Thanks.

Phil?

On the pipeline side, we've got a very good pipeline on the MoneyGram side. We still see significant cross sell opportunities for the network. And, you know, on the international side, we've had great growth on our Asian base. And continue to see a lot of opportunities over there. So, you know, I think there's also plenty of non-sellers out there that we continue to focus on as well. Especially some of the mid-sized chains here in the United States. So we continue to see great opportunities for adding key distribution for MoneyGram on a go forward basis.

OK. Thank you.

You bet.

Thank you . Our next question is from Stefan Mykytiuk of Baron Capital.

Yes. Good morning and…

Morning.

A few, a few questions. I guess, first off, Kim, could you just give us what approximately what percent of the portfolio the invested balance now is tax exempt? And where you think that's going in '02?

Yes. I think it's down sort of in the 20, 25 percent range. And it probably should hold relatively consistent here. Isn't that right, Phil?

Yes. I think it's about 25 percent. And yes, I'd say we'll hold it in that range for the balance of '02.

OK. And then on the, on the convention and event side, getting to this, you know, how much of the cost saves you may yield, you know, in the numbers. I guess first off, can you give us some sense now as to where -- it sounds like Exhibitgroup had a worse year than GES. So what the revenue split is like on convention and event at this point. And then, you know, what's the variable cost, you know, how much of your costs are variable in convention/event and how much are fixed? So that we can, you know, if we play around with our revenue number, we can try to figure out what the margins may fall out to.

Yes. At GES represents sort of 60, 65 percent of that segment's revenue. And Exhibitgroup/Giltspur, about 35 percent. And they both have different variable and, variable and fixed cost structures. GES is much more variable. And Exhibitgroup is -- has a higher fixed rate. And that's what we're working on right now. And basically, I think GES is probably, you know, 55, 60 percent variable. And you've got Exhibitgroup is probably 60, 65 percent fixed.

That's a percent of your total costs? Or a percent of revenues?

No. It's a percent of total costs.

OK. OK. And I guess, just on the revenue side, is that a run rate basis, the percent of revenues? Or is that the what '01 was? Or kind of where you think '02 will be?

It's -- historically GES has been about 60 percent of that segment. And Exhibitgroup's been 40. And the projection is probably a little more GES -- our forecast is that GES will probably deliver a little bit more of that revenue in '02.

OK. And lastly, I guess, Bob, what -- I mean, you've said this in the past so many times about, you know, with regards to when or how you might split the company. But what are your current thoughts? And when -- I mean, what are the kind of the signs that you want to see in the convention/event business before you do something to perhaps, you know, split the company into two pieces? And will you wait for, you know, the business to really turn? Or is it when you start to see that it is turning?

Well, what we've always said whenever anyone has asked about the possibility of that is that -- and it's still the same thing today -- that we obviously want to do what is in the absolute best interest of the shareholders. And at some point, if that means split it up type thing, we would clearly do that. In other words, there's nothing holding us back if it makes great sense for the shareholders. In respect to convention, there's no doubt that we got caught and, you know, given the downturn in the economy, with a lot of the fixed expense at Exhibitgroup, and to a lesser extent, at GES.

September the 11th, clearly accelerated that. And as we mentioned earlier, you know, we're taking 15 manufacturing locations here in the U.S. We're going down to five. That's going to give us some agility in that business that we have never, ever had. So I don't want to say that today that these businesses are fixed because they never are. And there's a lot of hard work ahead of us. And Paul and Gordon and that whole group, they're looking every day at additional best practices, at more costs, that type thing.

But my point

is that I don't believe that there's anything there that has permanently impaired either GES or Exhibitgroup. And is simply a matter of getting our cost structure in a line with what the relevant revenue opportunities are. So that's a bit long winded. I apologize. But these two business, again, I believe, have a terrific futures. We obviously need some help from the economy. But what I do know is that when the economy picks back up, we're going to be much more agile in respect to being able to do things that we've never been able to do before. So…

OK. Thanks. And lastly, payment acquisitions? Is there, is there, you know, I assume you're still looking. Are you finding that pricing has become more attractive? Or that you're more willing to bite on something?

Well, Phil and -- I'll let Phil comment in a second. I mean, Phil and his team, I mean, they continue to look. Our biggest concern, I mean, given all the uncertainty that if anything unusual happened in the economy, that type thing, if something's worth X today, what's it going to be worth X in six months? Now we're not close to anything at Travelers. They continue to look very hard. And, Phil, do you want to pick up from there?

Yes. I think we continue to look for, you know, acquisitions that would either, you know, add to one of the product lines or add something strategic to the company. But as Bob said, I don't think there's anything imminent that we've got on the table right now. But we like the space very much. And we'll continue to look for opportunities within the payment services area.

The other thing that I would say on that is that when you look at official check and when you look at MoneyGram, and particularly on MoneyGram, I mean, we've had a great run on official checks. There's still a lot more left of that run. But MoneyGram's a baby. And we had to spend about 20, $25 million on systems. And spent almost two years after we acquired that company to get the systems as such that we could go out and try to aggressively market it. A lot of that now is starting to pay off.

As I mentioned earlier, we had 29 percent transaction growth for the third quarter. We're over 35 this quarter. And my point, we've got some terrific products in house. And now Prime

on the official check. Is that -- and this type of error, too, I mean, given some of the growth characteristics of those two things I just mentioned, we're more likely to err on spending on things that we know and know well. And putting in some additional marketing money in, and that type thing. Because we know those products well. We know what the growth characteristics are. And we're not guessing on anything, if you will.

OK. Terrific. Thanks so much.

Thanks.

Thank you. Our next question is from Donald Wang of Reich & Tang.

Two questions. A year ago, in the spring of '01, you announced relationship with Bancomer in Mexico. Could you please clarify that relationship in regards to the Wells Fargo partnership with Bancomer? Second question, of the 30 million in cost savings expected out of the exhibit company, how much of that is a permanent reduction in costs such that when revenue does come back, those costs don't?

Donald, on the first piece, again, I'll comment and then I'll certainly ask Phil to. And we'll get Kim to pick up the second part of that question. Bancomer is an agent for, a distribution, a receive agent for us in Mexico. We did not have an exclusive with them. You may recall, if I give you a reminder, back when we purchased MoneyGram, we had, MoneyGram had an exclusive with Banamex of Mexico. And we had thought at that time that one of the big issues in trying to grow in that market was having -- simply being tied into one person.

Banamex today is still a MoneyGram distributor. They also do that for Western Union. And it's the same thing with Bancomer. Bancomer distributes for us. They will distribute apparently for Wells Fargo. So I think the neat thing about that market is that the banks there -- with all of these distribution points -- there aren't -- the exclusive contracts are going away and that just opens up the -- opens up the whole market.

Kim, do you want to talk about the second -- Phil, I'm sorry, do you want to comment on that also?

Yes, Bob, I guess I would add that -- Don -- that Bancomer is a real important relationship and it's quickly become our largest pay out agent. Our strategy down there has really been to have multiple points of distribution in Mexico and a mix between retail and financial institutions. So we have Bancomer -- and they do pay out for other players as well. We have Banamex. We have Wal*Mart, which has become a very important part of our distribution in Mexico. And we also have a lot of retailers in some of the smaller towns -- a network of pharmacies.

So what we are really trying to do is make sure we have the right mix of coverage down in Mexico. And we think we're well along the way to achieving that. And Bancomer played a significant role in that as has Wal*Mart, Banamex, and then some of the smaller retailers in the smaller towns.

Phil, is non-exclusivity common worldwide for the wire transfer business?

No -- but in Mexico it's very common.

So outside Mexico the agent base is exclusive to MoneyGram?

Pretty much, Don.

Thank you.

You bet.

And on the cost savings -- 75-80 percent was related to the segment itself. And those should all be permanent changes to the cost structure. We should be able to leverage that existing -- once we get the numbers -- the dollars out we should be able to leverage that very well -- that whole amount of savings.

Because a lot of it is related to facilities -- rental, utilities -- that type thing as well as the people in those facilities. So…

And we can take on a lot more capacity without adding any facilities or any people.

Don, the other thing I should mention there in respect to what Kim said about the capacity side is that in these remaining manufacturing plants we're only talking one shift. We can always do double shifts -- that type of thing. So there's a lot of -- a lot of good things if and when business picks back up there's a way to really leverage this thing and given all the stand-alones that we had before there was just no way to do that.

And remember that would be on flat revenues as we had projected -- not on a declining revenue base.

I understand. Thank you very much.

Thank you.

Thank you. Our next question is from Adam Waldo of Lehman Brothers (Company: Lehman Brothers Holdings Inc.; Ticker: LEH ; URL: http://www.lehman.com/)

Yes -- good morning, Bob, Kim…

Hi.

… Phil, and whoever else is on the call. A couple of clean up questions here hopefully. With the Wells Fargo entry in the U.S. to Mexico can you give us a little color, either Bob or Phil, on how it may impact or if it will impact your other business relationships with Wells Fargo as a result of the Norwest merger?

Adam, on that -- we've had a great relationship with Wells Fargo for years. And they are a

major clearing bank for us. And

I've got to be careful how I say this but to the extent that they became a very, very strong competitor, obviously we'd have to look at that whole relationship down the road as they would, too.

But if their strategy is to -- what they want to do is to do this business with those customers that they can cross sell other products to I don't think then in that respect we're going to be competing very much.

Phil, do you want to pick up on that?

Yes -- I think -- hey, Adam, how are you doing?

Fine. How are you, Phil?

Good. I think Wells Fargo -- they're an important relationship for us not only from what Bob had said but they're also an important customers for us -- that they sell our money orders. Their mortgage business as an express payment client. So -- yes -- I think it goes both ways.

So it's an important relationship. And I think if they -- they will get into that business. They're going into Mexico. But I think they are going after a little bit different customer set. And at this point I really don't see a huge conflict there.

OK. Are you all at liberty to quantify on a consolidated basis within payment roughly what percent of revenue Wells Fargo contributes?

No.

No.

OK. I thought I'd take a chance. On the -- also on the payment services side -- either Bob or Phil -- could you update us on the progress of the Italian post office roll-out? I think you had originally targeted it to be in five or 6,000 locations by the end of 2001. Do you -- did you get to that point? And what should we look for in 2002 and beyond in terms of timing?

Phil?

Adam, I think at this point we're in over 8,000 of the locations.

Oh, that's great -- OK.

So I think we're ahead of where we thought we'd be.

Yes.

I think we're steering towards about 15,000 towards the end of '02. And it's going extremely well. We're very pleased with the progress that we've made on that one.

That's great. And also on the -- on the payment services side -- I don't know if you -- in your prepared remarks, either Bob or Kim, you said what the agent growth was for the fourth quarter and the year as a whole? I know you gave transaction volumes.

Phil -- the agent growth was over locations -- over 25 percent. Is that correct?

Yes -- it was over 25 percent. That's correct, Bob.

OK -- great. And then just a couple of the items on the restatement. I know it's a tough topic. But how are you planning to provide to the financial community, either in SEC filings or in supplemental press releases, restated historical annual income statement, cash flow statement, balance sheet information for the restatement? And, importantly, in terms of 2001 history quarterly restatements so that all of us can get our models trued up.

Yes -- the P&L's in the press release.

OK.

And we're going to file an 8-K and it will be in the same K.

Right. But in terms of the historical quarterly impact?

Yes -- that's in…

Oh, it's all -- because we didn't -- we didn't see that -- OK. Sorry about that.

OK.

And, finally, I guess a lot of the questions I've been trying to get at -- as I see it -- the following issue on convention event services, which is essentially what is the current quarterly fixed cost base in that business if you look at it across both Exhibitgroup and convention? And I think we've all been qualitatively getting at the issue that there's a lot of operating leverage there should revenue pick up. But if you had to toe up the fixed cost base at that segment right now on a quarterly basis roughly what range would you assign to it?

No -- I'm not going to do that now. We're -- as we're sorting through this and trying to lower the cost out we'll have a better guess as we get -- or a better estimate as we get. And I'd just be guessing right now. So…

OK.

… at this moment we're not going to break that out.

OK. Would you be at liberty to discuss that one or two quarters hence, Kim?

Probably.

OK -- thank you.

Thank you.

Thank you.

Our next question is from Jay Abramson of CRM.

Good morning.

Good morning.

A few little technical questions and then a strategic question. On the technical side what kind of operating margin decline are you looking forward to '02 in the payment services side because there's a 50 basis point reduction in that budget differ?

Jay, it will all depend on mix, but, Phil -- with what you see right now in respect to the mix -- what does that look like?

I think it's very minor from what we see at this point, Bob. I think it's directionally just ticking down slightly. But I don't -- I don't think it's a -- it's a big number. It's very minor.

So you would not expect to see the operating income grow more slowly than it did in the fourth quarter as compared to revenues in '02? Because that was a pretty big difference between the 13 and the 11.

Well, as part -- part of what we've got to remember on the op income growth…

You have the

.

… you have a whole host of things. We -- for the year we have

, we have the overnights -- that type stuff. But the other thing -- as MoneyGram -- as Money Gram is growing and growing much more quickly you always have certain expenses and that type thing in respect to installation of equipment and whatever that are always in front of the growth and the revenue as that -- as that gets worked up.

So I don't know, Phil if you want to go any further on that. But that's another factor there.

Yes -- I think -- no -- I really would not like to go too much further with it. I think it's -- relatively what we have seen is what you'll see on a go forward basis. And it really is being driven by the growth that we're seeing in the MoneyGram side as well as the growth on the official check side.

Was the addition to reserves also material this quarter? You mentioned…

Not this quarter. No -- in the fourth quarter it was not material.

And then what's the tax rate assumption for '02, Kim, in the -- in the -- in the guidance?

Up about in a two percent from where we're at -- two to three percent from where we're at right now. So we're at 23 six.

So more like 25 -- 26 percent or so?

Yes.

OK. And then I guess back onto the strategic map to beat the dead horse a little. I think people have been kind on this call. Given how poorly the stock has performed relative to other stocks after the events of 9/11 that have a travel-related business where even the airlines are back to almost where they were prior to those events. It would appear to be still a substantial overhang on the stock because the payment services business is attached to the convention business.

You had talked in the past about rather than just spinning or selling convention maybe doing an IPO of the payment services business as a beginning step to unlock value. Is that something that could be more timely rather than waiting and testing people's patience further for an eventual turnaround on the -- on the convention or travel-related businesses?

Jay, just a couple of things -- and I don't want to -- I don't want to -- I don't want to pick over the first part of your question. But if you look at -- if you look at 2001 the stock was up four percent. And compared to the S&P 500 we were ahead of the game. Now, again, I don't want to -- I don't want to pick on that.

But in respect to -- I don't think that we've tried to suggest anything that there's a waiting game on anything -- rather it's just trying to take advantage of what you're best opportunities are sometimes. So that's probably as far as I should comment because if I say anything else I would be -- just pure speculation and I don't want anyone to make any decision based on some speculation. So I'm sorry -- I'd just better leave it at that.

OK -- no I understand you were saying that the stock is up

year. I'm just looking at how it has responded since -- other companies are getting more of the benefit of the doubt it seems in terms of a rebound on their travel-related businesses. And yet here you have a terrific growth business and payment services that seems to be still getting punished by its alignment with travel-related businesses. Where perhaps because it's still trading as some of a conglomerate you're not getting the benefit of the doubt on either side.

Yes -- no -- and I -- Jay, I have no disagreement with anything that you said.

OK.

Thank you. Our next question is from Peter Monaco of Tudor Investment Corporation.

Good morning. Thank you all for your time.

Good morning.

I joined late so if I bring up a subject which has been addressed simply say so and we'll follow up off line. Related to

, Bob and Kim, I think you've said before that properly sized the revenue base for this business should be something in the neighborhood of $750 million. And if your -- if your estimate is down 10 to 15 percent there next year as correct, that's where we'll land.

Do you still feel that that's the base around which

revenue will fluctuate going forward? And, if that is the revenue base for this company, are you still of a mind that you can restore the 10 percent or higher operating margin there?

And then I've got a couple other questions.

Yes -- on that -- if the 750 -- 800 -- that's simply a matter of -- particularly in Exhibitgroup/Giltspur -- how many locations you have, how much manufacturing capacity you need to do that level of business. And that's why in going from the 15 to five it's going to give us an awful lot of agility -- of flexibility. And where we see a further deterioration, other things you can do -- you don't have to operate five manufacturing plants.

So my point in all of that -- whatever the related revenue is we should be able to, simply by watching carefully our capacity side, deal with that. And, as I mentioned, maybe you weren't on the call a little bit earlier -- we have operations in Exhibitgroup that are -- that do have the double digit op margins. So we know it's possible. It's not a -- it's not a dream. It's based on fact.

With GES we have a little less flexibility at GES than we do at Exhibitgroup because at GES you must be in these major convention cities such as New York and Las Vegas -- Chicago -- that type thing.

Where Paul Dykstra and his team have to do a terrific job is making certain that every variable expense that they have is down to an absolute T and that they are using resources from one city to help out other cities during the peak times versus staffing up for peak times and keeping that staff in those cities.

So -- but, again, it's not a -- it's not a pipe dream on the -- on the margins side. We have operations that do it.

Related to that, knowing what you know today and assuming you're in the ballpark on your revenue guidance for

next year, do you, in fact, expect operating to be -- income to be up versus 2001?

Yes.

OK. Share buy back -- you're still in the same mindset with respect to that? Not yet? Waiting for a more benign economic environment, et cetera?

Yes, we have not purchased shares recently. And, again, as much as we talked up the prior call we can all debate on what the share price should be and what it's not and that type thing and what we feel it's worth. And like any CEO or CFO or any other employee we obviously thought share price would be higher. So we're not suggesting by not buying back that we don't think that -- that we think our stock's fully valued. It's not the case at all.

What though we've tried to say is that during times that we've been through unprecedented -- particularly recently both economically and September 11th -- it's just prudent we think, at this time, to build cash for a whole lot of reasons.

One, the investment grade rating is critical to Travelers

. We do not want to do anything ...

Right.

… that would in anyway jeopardize our investment grade ratings and cause us to fall into some disfavor, particularly with the bank official check customers.

And, secondly, it depends on your point of view, but by having cash -- if, in fact, bargains appear -- that type thing -- it's always great to have that flexibility so you can quickly go after them.

Kim, could you just quickly summarize the balance sheet at period end. And are we still in a mode here where, you know, 110 million or thereabouts of free cash flow per year is a very high probability?

To the second -- yes, it's a very high probability. Balance sheet summary, current assets 1.8 million and including investments restricted for payment service obligations.

And other -- your assets are 8.3. Current liability is 6.9. Equity seven -- or about 720. Debt -- 397. That's a quick summary.

Rough estimate of cash?

Oh, yes, cash -- our total investments ...

Right?

... is about 169 1/2 million. And then we have cash and cash equivalents of about 45 million.

And the balance is just the slightly longer term but near liquid securities associated with the

divestiture proceeds?

Correct.

Got it. And then, finally, I just want to make sure, do I understand correctly that the disparity between transaction growth and revenue growth and payment service is not at all driven by pricing issues, but rather two factors, the lower spread-related income and, secondly, the fact that, as you are in growth mode and signing up new relationships and outlets and outlets and what have you, there are expenditures ahead of the -- ahead of the revenues that those generate.

.

I think a couple of things there, Peter. One would be the mix issue even within MoneyGram itself. Remember that the express payment product, which is becoming a very big component of it, is at a lower price point …

Oh, that's right.

… than a regular money transfer. So that's one issue. And then the...

That's right.

... level of interest rates, the other one. So that would probably explain the bulk of it.

Absent, absent -- leaving aside that mix issue and the express versus the

issue, absent the development of price pressures in this -- in the main product line, the payment services, as and when there is a higher interest rate environment, there should be some convergence between the revenue growth rate and the transaction growth rate, assuming the transactions growth rate is sustained.

And I don't mean we converge between, you know, 13 and -- there is a convergence between 13 and 25, but rather everything else equal you might reasonably expect a higher than 13 percent revenue growth rate in payment services.

I don't know that I could draw a linear relationship for you on that one. Certainly if the absolute level of interest rates were to pop up significantly, that would have a big impact on it just because of the sheer size of the findings, you know, that we have seen on official checks. And we're anticipating another good year.

Understand.

OK, fair enough, thank you all.

You bet.

Peter, I would mention one other point about any pricing pressure, which is a good thing. If you look at the U.S. to Mexico corridor, we had a lot of startups that started doing that two or three years ago.

Understand.

And the plain truth of it is Western Union and

are the two premier competitors who can do things quickly of that type thing. Part of the whole start up pressure and that

thing, some of that has fallen by the wayside because of the lack of delivery in a timely fashion in Mexico, that type of thing to the Mexican consumer. And while the pressure is still there for a lot of the startups and the other good, smaller competitors too, it's very, very difficult for anyone to deliver like

and Western Union in a very, very, very timely fashion.

And perhaps I'm stating the obvious, but isn't it fair to say that the more time passes the less important that particular corridor becomes because there are so many other growing and important corridors?

BOHANNON (?): Thank you for making that point. I should have made it and Phil should have made it. And you are so right because every quarter the dependence on Mexico is less and less and less.

Again, we have seen a stabilization there. We started seeing that back, as I recall, first, second quarter this year. And we have had some growth since that bottom that we had back in the -- at the end of 2000, early 2001.

So...

Bob, I guess I would just like to add one point. Yes, our dependence on that gone down, but we also continue to see it as a real good opportunity for us. It's a large market. We think we have great distribution down there. And we think we've got a solid value proposition.

So we look at it as an opportunity on a go forward basis as well.

That's all well and good as long as it's an opportunity and not an a necessity.

Thank you all for your time.

Thank you.

Thank you.

Thank you. Our final question is from Steve Latz of AG Edwards.

Thanks. I just have two questions that are just wrap up questions on some finances again.

In terms of 2002, can you give us an idea on what low interest expense and depreciation and amortization might be?

Yes. Steve, you don't call any more.

Well, you're too busy out there trying to make sure that these accountings things get cleaned up.

Yes. And our cap ex, it should be about where we're at this year. And depreciation, wait -- yes, depreciation will be a little bit more. I think we were about last year. We should be about 53 this year.

OK, and interest expense?

Interest expense, that's a good question. It depends on interest rates. What are those going to do?

I think they're going to be moderately up, but not much.

OK. That's what our will be, moderately up from where they're at now.

OK.

No, Steve, we agree with you. We don't see a great big up-tick, but I don't think we're going -- on the interest rate side, that we will have an appreciable change. And obviously a lot will depend on what we pay down in debt.

Yes, and it will be in the sort of 5, 6 percent rage because a lot of our debt is longer term and is set about 6 percent.

OK, thanks a lot.

Thank you.

Thank you. And Mr. Bohannon, we have no further questions in the queue. I would like to turn the program back to you.

Thank you. And just in closing, again, thanks very, very much for listening today. As I said earlier, we're going to do everything we can to do as well as possible in 2002 with whatever the economic circumstances are.

That's the commitment the

people have, and they're working very, very hard every day to live up to that commitment.

Thank you.

Ladies and gentlemen, this completes today's conference. Thank you for your participation. You may disconnect at this time. Thanks a lot.