Viad Corp (VVI) 2002 Q2 法說會逐字稿

Please stand-by. Thank you for standing by. Good day every one and welcome to the Viad second quarter 2002 earnings release. Today's conference is being recorded. At this time I would like to turn the call over to Miss Ellen Ingersoll The Chief Financial Officer. Please go ahead mam.

Good morning 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 statements. Additional information concerning business and other risk factors that could cause actual results to materially differ from those in the forward looking statements is contained under the caption froward looking statements

financial statements

to securities and exchange commission.

Before we begin today I would remind you beginning with the first quarter of 2002 financial results now request the implementation of statement and financial accounting standards No. 142. As you know this pronouncement means the good will is no longer amortized you're operating expenses.

For comparability in our comments we will present results without good amortization for the second quarter of 2001. I'll talk more about that 142 momentarily. Also the 2001 numbers discussed throughout this conference call will be before non-returning items and lastly all Viad and payment services revenues and operating income are on a taxable equivalent basis.

I'd like to introduce Bob Bohannon, Chairman, CEO and President of Viad Corp.

Good morning everyone, thanks very much for being with us. We have the operating Company Presidents on the line

Travelers Express,

for GES,

of Exhibit group/Giltspur and of course here you just heard from Ellen Ingersoll, Chief Financial Officer.

Before I begin the prepared remarks I do want to take a minute to highlight the news that you already know, but was very exciting for us. We recently announced that

previously Viads chief financial officer, has been promoted to President and CEO of Viads Exhibitgroup/Giltspur division. I've worked with

for many years now, those of you who know her will agree with me that she's very smart and has great leadership qualities, 100 percent integrity and knows when to make a decision, and Kim and I have agreed that her mission at Exhibitgroup/Giltspur is very simple and that's to make Exhibitgroup/Giltspur a world class company, and I have no doubt that she'll be a great success.

Stepping into the CFO spot as you know is Ellen Ingersoll. Ellen was previously the VP controller here at Viads since January of this year and we are very pleased now to have her in the role of CFO. When you get to know Ellen you will agree with me that she too has 100 percent integrity , a great common-sense and has a demonstrated record of success in the accounting and finance profession, and of course later on you will hear from Ellen.

Up front let me talk about some issues that are in the news everyday and regard to corporate responsibility and accountability, corporate governments, compliance with the law and often times stock ownership management.

Let me just mention a few things about corporate governments, I think it's very important for you to know. Every Viad director other than myself is completely independent.

There are no conflicts of interest and any family business or financial relationships with Viad in any shape, form or fashion.

Our audit committee, compensation committee, corporate governors, denominating committee, they are composed entirely of independent directors.

Since I have been CEO the audit committee has met in executive session at least three times a year with

our outside auditor and with the Chief Financial Officer, the Vice President Controller and the Vice President Internal Audit with our company.

In addition the audit committee has always had the sole authority to hire or fire the external auditor.

I might add too that

has rotated their partners in charge since I have been CEO I've worked with three different audit partners.

Direct denomination is made by the corporate governors an-nominating committee by vote of independent directors, I have never referred a director to the corporate governors committee, they've come from other sources.

I'd like to point out too that there are no loans or other financial combinations that have been made to directors or senior management to acquire stock or for any other purpose other than the context of minimal relocation expenses from time to time that we do have to do, but again these amounts are very minimal and they are paid back as soon as their relocation is complete.

Our corporate governors committee, they have compared our corporate governor's principles with the guidelines published by calipers the business round table and the New York Stock Exchange, and we believe our practices conform in substantially all respects to the best practices advocated by these organizations.

Let me touch just a bit about compliance with the law.

We have had a very active legal compliance program called "always honest" for some time.

It was designed to ensure that we comply with the law to identify any illegal activities of employees and to respond immediately to correct any compliance failures.

The compliance program has been in place since 1994, shortly after the U.S.

commission established compliance guidelines.

The program is implemented across the entire enterprise, as part of this program we have an 800 number that all employees and various communications that we do, where they encourage to use, to report any unlawful act or any act that could damage the company.

The corporate compliance department monitors the 800 number and the department is headed by an ex-assistant attorney general of the state of Arizona.

Integrity and legal compliance are core values of Viad and we believe our "always honest" program strengthens our work place.

Just a bit about stock ownership before I talk about the numbers.

We have had stock ownership guidelines at Viad for many years which require executives to own a minimum amount of stock.

Minimum required ownership varies depending on salary, ranging from one and half times to five times salary in my case.

Guidelines are intended to align the financial interest of executives with the financial interest of our shareholders.

We expect that executives will meet the guidelines and hold the stock as long-term investment.

I should point out that since I have been CEO, I have never sold a single share of Viad stock, nor have I exercised a single option.

We believe simply that shareholders make better long-term decisions than non-shareholders and we're going to continue to enforce these guidelines.

Now in respect to the numbers, many of you if you've read the press release this morning you noticed that Viad has expensed 2.3 million, after tax and deferred costs, associated with the proposed

. We are required to recognize these costs through earnings because, in the light of the current market environment and the difficult economy, we have postponed this transaction.

As we've told you before, we have always considered various strategic options for enhancing shareholder value. Consistent with this focus, in the last quarter of 2001, we started the process to do an

. We initiated this transaction because we believed

is ready to stand alone.

However, current valuations and market uncertainties, including the credit market, warrant that we hold off for now. We will continue to look at all strategic options, as we have always done, and will act when we believe the action will benefit the majority of shareholders.

Now for the earnings side, in the second quarter earnings per share was 36 cents, right in line with the consensus. VAT down 20 percent compared to last years second quarter 45. Revenues were down 8.5 percent to 419 million. Operating income was 66.6, down 11.2 from 75 in the second quarter of 2001. EBITDA cash flow was 73.2 for the quarter, down from 85.9 in the second quarter of '01.

Travel, assorted growth that was dampened by lower interest rates on cash and invested balances, I'll talk about that shortly, they produced 7.8 percent growth on operating income on revenue growth of 10.1 percent.

In the convention and event services segment, performance was pretty much in line, a little bit better in fact, with our expectations. Operating income decreased 43 percent on a revenue decline of not quite 22.

Now let me talk about the major business segments. On convention and event, the convention and event services segment performed as anticipated this quarter. If you'll recall, on our last earnings call, we told you that given the economy we expected second quarter performance to be significantly below last year, and it was. We expected that technology shows shrinkage, or attendance and exhibit refurbishments instead of new bills, would lead to lower revenues for the quarter and for the year.

To offset the lost revenue, we implemented our restructuring plan last year, and the restructuring now is virtually complete. The segment showed a revenue decline of not quite 22 percent, down to 199 million from prior years 254. Operating income was 14.4 versus 25.4 in the prior years second quarter, down 43 percent. Margins were 7.2, down from 10 percent in the 2001 second quarter.

Paul and now Kent will continue to dry up operating efficiencies and cut costs to mitigate the decline in revenue.

This was a very tough quarter for comparison purposes for convention and event. Because at quarter, the second quarter, '01, while there were signs that the economy was headed down, many companies had already committed to second quarter '01 shows. While some still elected to drop out in quarter 2 '01, many didn't, but did in the second quarter of this year.

At GES, they had a solid quarter, the results were better than expected, despite the very heavy mix of technology shows in the quarter. And virtually all of the technology shows were down significantly, year over year. And as anticipated, many shows had fewer exhibitors this year, versus last year. However, the negative impact was partially offset by a good performance in non-technology shows.

Medical shows in particular have done well this year. GES, they have completed their restructuring activities but Paul and his team are continuing to look for potential cost improvement and they believe there are more to be had.

But their efforts though are showing through, while we don't give you the numbers for these companies in the segment, break them out, I can tell you that GES had very solid cash flow and operating income, which contributed significantly to total corporate cash flow and operating income.

We still see weaknesses and most business sectors particularly and obviously the technology and telecommunications side. This weakness means less spending through our conventions and trade shows and fewer exhibitors, and contributes to what we call show swinkage. This show swinkage will continue throughout the remaining of 2002 and likely into 2003. Therefore we're still maintaining a very cautious outlook for both GES and Exhibitgroup.

On Exhibitgroup their top line growth was weak as expected in the second quarter due to the lack of command for new exhibits . To put this in perspective refurbishing brings in about 30 percent of the revenue of a new build. A changing business environment highlights why our restructuring activity was so important for this business, and we have been successful in implementing the restructure plan, and the planned benefits of the cost cutting will accrue to a specific group, however, the true benefits will not be seen until the revenue returns to higher levels.

The visibility on this side of the business is still very limited. Exhibitgroups primarily Fortune 1000 companies have limited there spending budgets and consequently they're just not building new exhibits or boosts. They're still refurbishing old exhibits and they are waiting for the last minute to make decisions on the exhibit, which makes it very difficult for us to plan.

We talked before, we do not believe this is a fundamental change in the industry we believe this is a cyclical business as fortunes track the dotcom telecom technology rise and fall, and whose downturn was magnified by the events of September 11.

We believe we are experiencing a downward cycle that will level off at some point and return to a more normalized revenue base. Our restructure efforts outlined in the third quarter of last year are virtually complete.

With that and additional cost cutting efforts currently under way we believe Exhibitgroup will deliver attractive returns when the economy turns around. We believe very very strongly in the future of this industry and in this company.

The good news through all of this bad news though for us is that this is an industry that will probably turn out to be the survival of the fittest. We have capital, most companies in this industry don't. Just a week or so ago the number four competitors shut the doors. In addition, many customer exhibits are getting stale, and so at some point companies are going to have to start building, so the industry will come back and we plan to capitalize on that comeback when it does come around.

On Payment services segment overall travelers performed as expected this quarter, MoneyGram an official check for all top line growth. As I mentioned earlier the operating income grew 7.8 percent, revenue grew 10.1.

At our industrial analyst meeting in New York in May we explained that we expected revenue growth to be in the low double digits with operating growth to be in the high single digits. The actual growth rates are lower than last year, primarily due to three factors; 1. Substantially lower interest rates on overnight money that's kept for liquidity purposes. Two, reinvestment all rates due to increase portfolio turnover, particularly mortgage back securities and three, fewer newer personal check balances coming in due to slow down in mortgage refinance and commercial lending activity.

As we've explained on these calls before, travelers must hold a portion of the portfolio in the overnight market to meet payment obligations. In the second quarter 2000, overnight cash balances were invested at about 300 basis points less in the overnight market than in the second quarter of 2001.

If

awaits constant at quarter 201 levels, travels revenue would have been in the 11 to 12 percent range and the operating income growth would have been in the low double digits. Additionally, portfolio investment turnover has increased since last year, largely attributable to replacement of travels security investments with mortgage banks securities. I think you'll recall last year that travels divested a substantial portion of its tax

securities.

In an effort resolved the odds alternative minimum tax status because Viad had lower taxable income from convention and event it was necessary to divest these

. The mortgage securities had a lower yield than bonds. In addition, subsequent to September 11th, there's a big spike in the fourth quarter and first quarter of this year of refinancing activity.

In other words, we received our money back much faster than anticipated and so this too had some impact on the performance of travels. Other news to travels this quarter, they have completed their money gram roll out to Wallmarts to 2,700 plus US

. The installation and training at all of the locations is essentially complete and we are currently in the process working with Wallwart

in advertising at the stores on a rolling basis.

There's not a lot of discussion about money gram in Wallmart, let me say first that we are extremely pleased with this arrangement and that we're seeing initial volumes in excess of our expectations. MoneyGram was a great bid with Wallmart's value proposition. This and our delta works technology were the reasons Wallmart's selected money gram. Wallmart has been a great business partner and we're very very proud to be associated with them.

On the technology front, Wallmart's team continues to develop enhancements to delta works and we are close to rolling our form three. Form three facilitates the MoneyGram customer interaction by illuminating paperwork. Let me now talk a bit more about the product lines, money gram, official checks and money orders.

MoneyGram

transaction growth are contributing significantly to travelers growth. The transaction volumes grew 32 percent year over year, the Asian base grew 25 percent year over year. Transaction volume growth and revenue growth predominantly came from international and Express pay. MoneyGram's international business grew and this is all business excluding domestic UF'S in Mexico.

In terms of owed transaction volumes and Asian growth, transactions grew nearly 41 percent. Growth in the US to Mexico continues.

closed the fixed price product is becoming a larger portion of the US to Mexico wire transfer transaction volume and while over half of the volume to Mexico now goes through

.

Transaction volume growth to Mexico was five percent. The average dollar transaction amount wired throughout MoneyGram was up seven percent year over year and again that's the average dollar amount that's wired this quarter verses quarter last year throughout MoneyGram. was up seven percent year-over-year, and again, that's the average dollar amount that's wired this quarter versus the quarter last year throughout MoneyGram. On the official check side, the continuing trend of bank outsourcing creates a great opportunity for growth of that product. They continue to be a leading driver of the revenue growth that travels. The backlog remains strong, and the potential customer list remains large. Re-financed activity is a big driver of this business and also bank commercial loans are a big driver, and despite

investment balances being up 25 percent for the quarter, this year versus last year, the top 25 bank customers have seen slippage because of fewer commercial loans and fewer re-finance accounts in the second quarter.

We believe the outlook for the official check business in 2002 and the next several years, is very good, because about half still remains in-house. Our money orders report is much the same as last quarter, the money order volume was down slightly compared to last year's second quarter. As I mentioned before in 2001, and the first two quarters of 2002, we eliminated some agents to preserve credit quality, and some as seen, continue to do that because we have been in a very very brutal credit environment. This means we will probably not see any meaningful increase and transaction volumes in 2002. That said, the money order business is a great business for travelers that continues to contribute greatly to there operating margin.

Now, before I summarize and give guidance, let me turn the discussion over to Ellen to go through the financials. Ellen?

Thank you Bob. During the quarter, Viad completed a transitional retirement cast for goodwill resulting in an impairment loss of $40 million. This is 37.7 million after tax, related to the goodwill of Exibitgroup: Thanks. Let me now talk about the guidance. We are lowering the EPS guidance for the year, due to the 3.3 million after tax, that we spent in preparation for the

and then also severance costs, which represented about three and a half percent, in EPS.

In addition, we're lowering expectations for Travelers operating income growth, due to a lower interest environment.

For the full year, our outlook for the convention, as in services segment is where relative decline of 10 to 15 percent from 2001 levels, and this is consistent with the guidance we gave as a condition of segment last quarter.

For the third quarter, we anticipate earnings per share to be in the range of 35 to 37 cents, the famous services segment, will again show continued growth, and the performance is expected to deliver revenue growth in the low double digits, for the quarter with operating income growth similar to the second quarter.

We anticipate that in the convention of in services segment, revenue growth will be up slightly, and will begin to show quarter over quarter improvement in operating income.

In addition, given our share price, we plan to repurchase one to two million in our shares between now and the end of the year.

Last comment, looking back over the last twelve months, I think, all in all, some remarkable progress has been made by people, it has done an awful lot, we have improved our operating cost structure through a major restructuring, which strengthen our balance sheets significantly, despite an extremely difficult economic environment, and all of this was accomplished again during one of the toughest environments that I've seen and it particularly hit our convention and travel businesses, very very hard.

So, with that, I'd now like to open the call, operator, up to the Q and A portion.

Thank you, today's question and answer session, will be conducted electronically.

If you would like to ask a question, please press star followed by the digit one on your touch-tone phone.

Again, if you would like to ask a question, please press star followed by the digit one.

We will take questions in the order that we receive them, and we'll take as many questions as time permits.

We'll pause for one moment to assemble our roster.

Our first question comes from Mr. Jack Kelly, with Goldman Sacks.

It's really about the IPO, with regard to convention service is, do you believe that margins at the June quarter were at low ebb, number one and number two, in the past, I think, you've talked about objectives of 12 to 13 percent for both companies, is that still a realistic one, and how quickly you might see progress in that direction, and then secondly, with regard to the ITO, I assumed it was a kind of partial idea, Bob, and you know, that would then obviously at some point to the splitting of the company, or maybe if you could just a little, to some extent, give us some color on that?

Sure, Jack, we hope and we believe, although, I wouldn't predict where the bottom is on anything these days, given everything that has happened, but, if you can assume that we are pretty much at the bottom, we think, yeah, the margins of the second quarter, should be about at the low ebb.

In respect to the returning back the 12, 13 percent range, we believe that, Paul Dyster believes it, Ken Brackelossi believes it, and I believe it, because, given all of the restructuring efforts that we have undertaken, to get the costs in line, we think that it is entirely possible given a reasonable business market.

The other thing, that we have believed and talk about and I think its very important, in the exhibit group side in that industry I think there is going to be a survival of the fittest because that industry has been very fragmented, there has not been a lot of companies that have had a lot of capitol attached to them as I mentioned we saw the number four company that just shut the doors a week or so ago, so that's the other reason we believe given that and we're getting more reasonable industry if you will, those margins should be obtainable.

In respect to

what we had contemplated was that we would do an initial

, the reasoning for that, so that both companies particularly

but both companies to travelers, but both companies could go out with very strong balance sheets and could stand up to any type of environment, and our thoughts were that if in fact the partial

was successful then our plans were to fully spend travelers, we have spent a lot of time with the rating agencies and many others and as I said in my comments we had thought that the company now was large enough and strong enough to stand on its on, we still believe that and as I also said when we conclude that the timings right, I mean there is nothing to stop us from doing anything but I'll point out that we've always tried to take all of the strategic alternatives in consideration and that we'll continue to do.

So Jack I hope I answered everything that, I think it has three, I hope I answered all of those.

Thank you.

Our next question comes from

with Midwest Research.

Morning, I wanted to ask you a couple of questions first on the convention business, as you look at this business does it make sense to acquire anybody or any particular line of business or is it better as people continue to struggle that have weaker balance sheets to wait for them to go out of business and then take your opportunity?

Yeah, we as you know three, four years ago during the big grow up in that industry we were active acquirers and that type thing, what we believe today is that a shake out is coming, they're driven by economics and we think that puts us in great shape, the other thing that we do believe given everything that has happened in the credit world, that Fortune 1000, companies are going to start paying a lot more attention to who their partners are, how financially strong they are, and we think as that happens that certainly is going to help us, it will also help other competitors in that industry too, but, so there are a whole host of things we think that's converging in that industry that over time should be a benefit to Viad and a lot of that is because of our balance sheet.

So our conclusion has been that we're not really interested in bailing anyone out and what we do hope is that obviously with the great employees in a lot of that industry, that type thing, that they'll look at the odds as a great pillar of strength during a very terrible storm, so we obviously would look to try to hire great people out of that industry, Ken has plenty of jobs there that they can do in respect to sales opportunities and up taking.

A question on the Travelers Express businesses as far as

, as you at the

business, I know it's early on. But what has been the mix in terms of moneygram versus money transfer businesses, are they done mostly money order or have you seen a good amount of money transfer business out of that.

Phil do you want to pick that one up?

Sure just for backroom, we did have about 19 hundred or two thousand money order locations, already in existence, before we rolled out moneygram in the first half of the year. So we did pick up additional locations for money orders, when we did the moneygram roll out and, so we had an existing large base of money order sales.

Overall though, we've been very pleased with the money resale that we've gotten traditionally out of

and the additional locations have been great as well and I think as Bob said earlier, we're very pleased with the rolled our of moneygram and it has exceeded our exceptions interns of volume. So, we see a very very bright future for us on moneygram and money orders in

.

And one last question on that. I know some

your testing the ability to dispense the money orders through the ATM. Do you see this as a, you know, an additional distribution system, within the

or will that replace the counter distribution system and will you eventually add money transfers to the ATM side?

I think that there's potential for doing more stand alone key offs through money orders and we certainly looking at combining money transfer in the stand alone key out, whether or not

would decide to replace the counter with those, I guess that's really something they would have explore, but certainly the technology is there and you know, we

demonstrate the ability to do it, money orders to do that technology and our experimenting with doing money transfers through it as well. So the technology does exists.

If you would add on too, about Concord EFS in the partnership there.

Certainly I think as we announced earlier in the year, we're working with Concord EFS right now, to do money transfers through their ATM network and so that would be a part of that mix as well and we're pretty excited about the potential for that down the road.

Well thank you very much.

Your welcome.

Our next questions comes from Kristian Cooper with Lehman Brothers.

Good morning, thanks for taking my call. Did convention any event services have any revenue contribution in the quarter from any purchased acquisitions, timing assets, from deals closed in the last 12 months?

No.

OK. Could you give us Travelers total float backlog at the end of the quarter?

Phil?

Are you looking for the total of what we are going to install, in back log for insulation?

Yeah.

It's about 120 million right now.

OK. Do you have Travelers average float balance during the quarter?

Yeah, just a second.

The average investors balance for the quarter, 1.7 million.

Yeah, Phil?

Sorry 1.7 billion.

Sorry billion.

.

And then, could you update us on any change in pricing trends with moneygram?

Phil?

Interns of what we're doing or what we're seeing in the market place?

Both?

I think we have seen, some pricing trends of lower cost. of products into Mexico. I think the international side has been very stable as the domestic side has been so I think while we're seeing some pricing pressure would be in the street level to Mexico and maybe a few of the Latin American countries not seeing any of that really overseas.

Express payments has been very stable as domestic have so I guess that would be the mix.

And now is the Mexican pressure coming from some U. S. based banks or is coming from the smaller Mom & Pops shops in Mexico?

It is the smaller Mom & Pop shops.

Could you guys break out the DNA for us, you gave us the total in the quarter, do you have it by component?

that question.

Sure.

Sorry I have a lot of house keeping questions.

I don't have it right here.

That's fine I can get it.

I can certainly get it for you though.

Christy will give her a call

will be happy to give it to you.

That'll be absolutely fine. I have one more question for you and then I'll get off. Diluted share count rose about one million shares sequentially, could you speak to that?

It's all from a, options and anything's that had to do with performance space, stock compensation, but we still have a lot of options left from the old Dial days and so it was not any options exercised by any of our work, existing executive officers but the share figure has been because of the options.

OK, thank you very much.

Thank you.

Moving on, we'll take our next question from

with Credit Swiss First Boston.

Hi, first if you could just elaborate a little bit on the money order decline that you thought you attributed that to the agents credit quality and a reduction there, are there any other falling trends either economic related or otherwise that your seeing there and if I not mistaken that's the highest margin business within the peanut services as well, is that right?

Your correct. Phil you want to answer that.

I think the bulk of what we're seeing on money orders is really caused by us being much more selective on the agent side both in terms of new agents we're taking on and pruning existing agents that were concerned about from a credit quality stand point.

I think we, same store sales are probably not as robust as they were previously but I'd say the bulk of it is coming from really the agent side and our selection or de-selection I guess would be the better word for it.

OK and then just on the international MoneyGram locations can you give an update both on the Italian post office and if there're other similar large opportunities out there that your competing for right now?

Sure, we continue to be very pleased with the Italian post office business and I can really tell you that one has ex-speeded our expectations in terms of growth and right now we're working with them really trying to decide what remaining locations we want to bring up and under what schedule we want to do that.

In answer to your second question or second part of that question, yeah, there are other

opportunities out there like that and we're currently working on a couple of them.

OK and then lastly, just a question on the interest rates sensitivities that would effect results for the rest of the year, could you just review a little bit your hedging activity and what the issues there, if we see any other fluctuation

unlikely to go much lower but if there's a pick up interest rates, if we should see that turn around or what the hedging situation looks like right now?

I think our you know whatever our interest rate forecast is worth certainly we do the best we can I think we've seen the drop kind of hitting in the second half of the year and it's hard to imagine them going much lower than they are were projecting them for the second half of the year and yes the way the portfolio's hedged out and brakes are heading back up that would be beneficial to us.

OK, great thanks.

You bet.

Moving on we'll take a question from Mister

with

.

Thank you, this is, just two questions. One is it looks like if you didn't have the expand the legal and related expenses that you would have beaten the guidance for the second quarters just wanted to confirm that and secondly on the you indicated I think that MoneyGram transactions were up 31 percent that the average transaction size was up that rates didn't go down is it fair to assume then that revenue for MoneyGram increased more than 31 percent and if so, if not why not?

Michael I must say that revenue was over 30 percent as well for MoneyGram.

Bob I just might add though Mike as you go forth remember though that expressed payment is at is big part of the mix and that's at a lower price point than the regular transactions.

Can you give us some ideas to what the mix is?

No but really don't want to get in to those types of segments but that is a very fast growing part of our business and really has that's what

has contributed great deal as well .

Michael to you points those transactions growth and revenue growth was over 30 percent.

and the expressed payment growth then we can assume is faster than the average?

That's correct.

OK and the other part of the question or the other question related the second quarter that excluding those charges you would have beaten your guidance of 38, 35 to 38?

Yes.

Yes.

Ya, we had in those two things we had about three and half cents on the APS side.

OK, I'm not sure how that affects the second half?

Well, Michael one of perhaps cautions I don't know again put we have put the plans together at the first part and last part of the year, update them at the first part , I think in the conditional wisdom at that time in thinking was that we would have a little more of a rebound in the second half and perhaps interest rates would be a bit higher then what they currently are and that's not happened and with travelers as I mentioned on the call the amount of money they get to keep just in the over night market is very significant and that's off about 300 basis points or two 0 one to a quarter or I mean quarter two 0 two to quarter two 0 one so we perhaps taken a bit of caution and so forth but we does not appear that there is going to be any increase in rate and so forth it does not appear that there is going to be any type of economic rebound or profits returning in a large weighted company that would cause the, the FEDs to do anything so that's the reason for it, for the

is up is staying fine but through the fourth quarter, we had very, very tough comparable comparisons, particularly in the overnight market.

And the other thing too, is that if we were to,

, if we were to get another refinance wave, we had a refinance wave the fourth quarter and first quarter of this year, and if we were to get another one, and if that sped up the pre-payments on the mortgage packs, we would get that money back a lot faster than we anticipated at a lower rate

.

So, for all of those factors and no other reason.

OK. Thank you.

Thank you.

We'll now move to

.

Good morning. Excuse me. I have a couple of questions.

In the past at Travelers Express, my understanding is that when interest rates fell that there was the possibility and probability that revenues would be offset with higher fees. I see that doesn't seem to be happening here in the second quarter, nor expected to in the second half. Could you talk about that a little bit?

Sure. Phil, as we've always talked about, and Phil, you can pick up in a second and go over anything that I might miss. But, we've always - we've always

Travelers portfolio to take the interest rate side out of the pricing equation, so we could in fact, lock in profits. And that's what they've done.

In respect though to the higher fees, I mean there's a certain amount of re-pricing activity that you can do on money orders, or money-gram, or that type thing, but that - a lot depends on the competitive market condition, at the time. And essentially what really has happened, again, with the amount that we have to keep, and it varies depending on the day of the month, have to keep in the overnight market for liquidity purposes, that's the big issue and that's one of the things that you cannot do an awful lot about.

Now, if that's a permanent impairment, you can certainly do more on the cost side and that type thing, but we do not believe that's any type of permanent impairment, that we're going through a, strictly a situation right now, that doesn't impair anything on a long term basis.

Phil, do you want to pick up from there please?

Sure, and I think, you know, going forward if, as to Bobs point, if you thought that was going to be permanently where it was at, you'd make adjustments in the pricing

more fees, and to look at re-pricing opportunities.

But we do believe that this is just a couple of quarters of hitting a real

on interest rates. And they really, you look at it and you say they can't go any lower, or much lower than they're at, and that they will rebound, you know, as the economy picks up steam.

: OK. And then on the GES side, could you quantify the rate of show shrinkage, and compare that to the prior two quarters?

, you want to take a shot at that?

: Yeah, I don't know if I can give you a real accurate answer, cause I don't have that data right in front of me. But, I think the show shrinkage is definitely abating now, and we've seen some good stabilization in things other than tech.

On the tech side, I would say the shrinkage is probably equal to what we saw last year.

: OK. And when you talk about show shrinkage, do you mean attendance down, or do you mean exhibitors down, or square footage down, or all of the above?

The attendance side of. the equation is really more surely management issue we are most interested in the number of exhibitors, the square footage that they take and also the type of freight and booth that they bring into the show.

OK and last could you talk about your account receivable exposure to K3 media and patent media and how you're handling that exposure.

We do not have any exposure with either of those accounts.

Ah Paul explain that just overall and how that works in the industry.

OK

We have some arrangements with them where we would owe them money and they would also owe us money, in almost all cases what we would owe them is more than what they would owe us at the end of any given show, so we really don't have any exposure there.

OK

And we also only have one show

of their portfolio.

.

Right.

Right and with

you don't have any of them.

Well we have all of

portfolio.

OK, OK thank you very much.

Thank you.

Moving on to Mr. Chuck Webster with Kidron.

Question was asked, thank you.

Morning Chuck.

Our next question comes from Mr. Chip Whitman with GE Asset Management.

Hi I wonder if you could elaborate on the magnitude of the agent decline on the money-wire side of the business.

Phil.

I don't think we really want to get into those specifics Chip, but we have a really restrained growth of new agents not only be because we're being much more selective on the front end but we have done some pruning of existing agents as we run our scoring models, so that, if you look at what's happened to us in money-orders that would be the bulk of the reason for the situation but that's really caution on the credit side and maintaining good credit quality in the portfolio.

Phil I think add a bit more color though in respect to what you do on the

scores particularly in that small business segment if you will and how you do that.

Yeah we have customized scoring models that take feeds from various services and we run those about every four to five weeks and we look for trends and look for worthy scores to come out and that gives a lift to go and investigate and we do our research and as we see things and trends in those businesses we don't like we exit the business or attempt to get securities so I think that is what's really going on and we're going to continue to be vigilant against that with the state of the credit quality out there and the economy.

Phil if you don't give us precise numbers can you just give us a sense of whether the decline in the second half of the year will be greater or less than or equal to what we've seen in this quarter.

I think it's about the same.

Sorry, we have a less than two percent its own revenue.

Yeah, I think it's about I think well see trends about the same and that's what we're projecting Chip for the rest of the year.

Chip, we continue to see a lot of increase in respect to personal bankruptcies and that type of thing and when you think about personal bankruptcies in their lives a lot of what Phil and his team have had to get out there were a lot of these small shops you know, owned husband and wife that type of thing and they're just going to have to continue to stay very vigilant and we've always found historically you know, that these things move up and down with all the economic conditions going on around.

So, we hope that we're about at the bottom of that and things will

when we turn to a bit more normal basis but they're going to stay very very vigilant and I applaud them for doing what they do cause it's kind of hard to turn your back sometimes on business but it's the right thing to do from a point of quality stand point.

Bob, if your stock continues to climb as it is today, can you give us a sense of when the earliest you are able to be buying your stock back is?

We should be able to start buying back tomorrow.

OK, thank you.

Thank you.

And at this time I would like to remind you if you do have a question please press star followed by the digit one. Moving on we'll take our next question from Mr. Michael Peterson with

Investment management.

Hi, I have two questions. First of all, actually more of a I long just to say that I applaud your decision to at least begin a buy back. It looks to me from the number your suggesting that that's essentially using your free cash flow to buy back shares and that's about it so, your not actually going forward than that and I question that and that's number one.

Number two, I'd like to understand a little bit better your guidance for the year and particularly the third quarter looks very low to me and I'll explain why that is. At least my understanding is just wondered that nobody paid any attention to expect in the third quarter, the travel and recreation services does under normal circumstances have a significant operating income contribution for just that one quarter. So, if your keeping essentially your guidance flat, it looks to me like that, the earlier you can get there, actually your guidance is actually even, slightly flat would be that your expecting modest losses in the convention and events services business?

And if that's the case, I wouldn't really understand that in light of the

actions you've taken to date. If you can comment a little bit on that. Thank you.

Mike thank you. Great question. In respect to the stock side, we're going to have a cash flow for the rest of the year, although again and on the convention side particularly in the fourth quarter, you know that's very very weak from an operating income and cash flow stand point but I think there will be enough cash to do things so, this is how we've made the start.

In respect to the

, I've made a terrible mistake in not pointing out that travel and leisure in the third quarter, that is if they're going to do well, that is there biggest strength and I should have pointed out that obviously that is going to be down from last year. It's not going to be a loss but

and

have been affected a good bit by this economy and so forth.

And in respect to the convention side, they will have positive earnings in the third quarter, but travel and leisure will be down. I apologize, I should have pointed that out.

And it's traditionally a lower quarter for convention and that from the second quarter and so that's a factor as well.

Yes I understood the second point. I guess I'm surprised given what happened and well, I guess your point is

didn't get the September 11th effect last year since most of that occurred prior to September 11th, most of their quarter.

Whatever Mike, whatever was happening in the economy prior to September 11th they certainly got that effect but

different purposes for the most part, their season was pretty much over at the time of September 11th.

OK thank you.

Thank you.

Moving on, we'll hear from Beth

of Woodland Partners.

My question is more strategic in nature, Bob, and it has to do with wanting to get a little more insight into the proposed spin-off, or the potential spin of team and services, and kind of how far you got along in that in the sense of, can that be picked up pretty quickly, and brought to market? And then my second question is, then you're left with two distinct businesses, but one of those businesses still has that travel and leisure side, and you know, how do you view that business strategically, longer term?

Thank you. In respect to the

, the S1 was virtually completed, now we obviously would have to update that for money, I mean for the new numbers and that type of thing, but S1 was virtually complete. So I think that the heavy work has been done, and that should certainly help us in respect to any future timing and so forth, if in fact we go that direction. If that does happen, and you look at, what we could call, remaining Viad, in respect to Brewster and Glacier, we think they're both very very good companies. Historically, they've grown great, EVA, they will again this year, will be lower than last year, but terrific EVA companies, so good cash, good EVA, so we think that that would fit very nicely in the convention of that segment.

Is there anything you know, so the S1 is basically completed, I mean buying the affluent markets network covering, is there anything that's going to get in the way of you not completing that spin-off, I mean are you pretty committed to it?

Well yeah, we were committed to it at the time we started doing all that because we think, certainly

markets are a big factor again to us, always the credit markets, the rating agencies, that type of thing, and we thought that everything was in-line, and if those same circumstances come back, you know, where we think the same way, that is certainly one of the things that we will consider and I think as I've said up front, what we're going to try to do, and what we've always tried to do, and what we're going to try to do in future, what we believe to be in the best interest of the majority shareholders, what's what we want to do, and those circumstances we thought, the best thing for the majority of the shareholders would be to do the

.

OK great, thank you.

Thank you.

And as a final reminder, if you would like to ask a question, please press star followed by the digit one, once again that is star one. We'll now take a question from Mr. James

with

.

Hi. Just a couple of questions. With the

operator in the invention business, going out of business, I guess my question is, how sustainable is that advantage? Let's say the economy comes back in one or two years, how easy is it for

competitor to start up another group, and start taking away business back from you guy, when the economy comes up? In other words, what makes you confident that your market share gains are sustainable when the economy comes back?

I think there are a few things, you know if capital is available to companies and so forth, I mean they can always come in and compete... provided that they're able to hire the right design team, the right manufacturing team and the right account executives so to the extent they have that ability to do that - they can certainly come back in the market and compete.

I think it's like anything though that on the Fortune 1000 companies if they're going to spend the type of money they have to spend at these shows I now that they want some sort of certainty that the exhibit is going to be completed on time, done right that type thing so you would hold that to what we go through that another

would have been erected in the industry in respect to - of financial well being, that remains to be seen, but, as soon is certainly something that we think going through what we've gone through and what this market has gone through it's going to put us in better shape than most of our competitors.

Have you picked up a lot of new names from your - customers that who were with your competitors that went out of business?

We certainly are picking up some and they may not be doing anything right now but that's going to obviously change I think when the economy gets better. But, beyond that I think that the great thing for us though is that there was 70 - about 70 percent of the Fortune 1000 companies that we don't do business with - do there's a ton of activity out there and a ton of things that

and her people can et after.

Right, a point on your

in the official check business - you mentioned that

were lower in the second quarter - weren't interest rates lower year over year - wouldn't that mean that

should pick up - should it pick up in the second quarter?

I hope I don't miss speak and

I'll ask you to bail me out incase if I did miss speak - what we had in the fourth quarter after September the 11th and the rates really started drooping - you had great big rush in the fourth quarter and in the first quarter of consumers going out

in lower rates and refinancing and as you know as a general rule that process takes 30 to 60 days on the refinance side.

So, by the end of the first quarter in that big wave that we had I think for the most part many - a lot of the consumers that were going to refinance had locked in if you will and we're in the process of closing those loans and the second early second quarter we started seeing a drop off of that activity still - don't wanna miss lead you once is that accurate

?

Yeah, that's very accurate and that's very and that's exactly what we saw Bob.

So you were measuring it sequentially but year over year there should have been more

well I don't know maybe not.

And that 's true.

They all got spend in the forth and first quarter.

And that's true statement yes.

OK.

Now it depends on

but there are some who are predicting that in the data we are seeing there are some who predicting there is going be another refinance wave coming through - I don't know whether that's true or not true - Phil do you wanna add anything that?

I would say our outlook is that you will see another wave of refinance activity in the second half of the year and that's what we're you know building into how we look at the business right now.

OK thanks.

Operator.

It appears there are no further questions at this time I would like to turn the call back over to Mr. Bob Bohannon for any additional or closing remarks.

OK again thanks very much for being with us today and we'll keep pushing hard I hope. we've been able to clarify things for you, again good quarter overall,

suggested we would have been up about 3 cents, 3.5 more than we were, that's true.

But perhaps we're being too cautious in the second half, I don't know but we think that right now with so many factors and so forth, whether the equity markets, credit markets, the company, the concerns that they have its best to take a very low profile on a go forward basis right now until we can sort it all out, figure it out.

So thank you very much for being with us.

That concludes today's conference, thank you for your participation.