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Operator
Good day, everyone, and welcome to the Viad second-quarter 2003 earnings release.
Today's conference is being recorded.
At this time, for opening remarks I would like to turn the call over to Miss Ellen Ingersoll, the Chief Financial Officer.
Please go ahead, ma'am.
ELLEN INGERSOLL - CFO
Thank you.
Good morning and thank you for attending our conference call.
I would 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 "Forward-looking Statements" in Viad's financial statements filed with the Securities and Exchange Commission.
During today's call we will refer to tables 1 through 3 in the press release.
You may want to have the press release in front of you as you listen to our comments.
The press release is available on the homepage of our web site at www.Viad.com.
Just one last comment before we begin.
This conference call may not be recorded or reproduced in transcript without the explicit written permission of Viad.
Now I'll introduce Bob Bohannon -- Chairman, CEO, and President of Viad Corp.
ROBERT BOHANNON - Chairman, President, and CEO
Good morning, everyone.
Thanks for being with us today.
As usual we have the operating company presidents on the line -- Phil Milne at Travelers, Paul Dykstra (ph) for GES, Kim Fracalossi at Exhibitgroup/Giltspur and you just heard from Ellen, our CFO.
Last quarter, we talked about giving you a sense of our strategic direction for the company.
After careful analysis and discussion with outside advisors, our Board of Directors, shareholders and others, the Board of Directors of Viad has authorized the company to pursue the separation of Travelers Express business from the remaining Viad businesses by means of a tax-free spinoff.
The transaction would be subject to a number of conditions including, among other things, receipt of a satisfactory ruling from the Internal Revenue Service, confirmation of a long-term debt of Travelers Express would have an investment-grade rating, availability of satisfactory banking and credit arrangements for each of the businesses and -- of course -- final approval of the Board of Directors of Viad.
We intend to file for the Internal Revenue Service ruling on or before August 8.
The company will tender for all of its public debt -- existing public debt -- concurrent with the transaction and the transaction is not expected to be consummated earlier than the first quarter of 2004 and of course no assurances can be given any such transaction will be consummated.
We don't -- unlike last time around, we don't intend to do an IPO and Citigroup Global Markets and Lehman Brothers have been retained to advise on the transaction.
We look at a number of possible scenarios for increasing shareholder value including leveraging up to buy back shares.
These were certainly viable options but in the final analysis we decided it was most important for long-term growth in shareholder value for Travelers to have their own currency.
With this currency they will have greater ability to grow and compete for attractive acquisition targets and also the attraction of capital for that growth.
Recently we elected not to do an IPO -- is that we believe the balance sheets of remaining Viad and Travelers Express are sufficient.
Travelers Express have an investment-grade rating.
And we also wanted to avoid the market timing risk of an IPO.
As a result of today's announcement about the company's intention to separate Travelers, Standard & Poor's will put Viad on credit watch with negative implications.
The reason for this action is that the existing debt of Viad will -- in all probability -- not be investment-grade following the separation of Travelers.
But I want to make it very clear that this part of the transaction we're going to tender for all of Viad's existing public debt.
Now, during the quarter we met with the rating agencies about the possibility of separating Travelers.
In the course of these discussions we have received preliminary positive indications that if Travelers Express is separated, and based on certain balance sheet assumptions, a stand-alone Travelers Express entity would have an investment-grade rating.
And we said many times before one of the primary conditions in a separation of Travelers is that it is able to obtain an investment-grade rating on a stand-alone basis.
We, obviously, are very excited about the direction of the company.
We believe that this is the right thing to do, and we also believe this is the right time to do it.
And we look forward to reporting our progress to you as we take steps to make the separation happen.
At this time this is about as specific as I can be about the separation but we will update you as frequently as possible as events unfold.
On the second quarter of '03 let me refer you to tables 1 and 2 in the earnings press release.
For the quarter, earnings per share was 47 cents up 38 percent compared to last year's second quarter of 34 and 7 cents above the consensus estimate.
Segment operating income was 59.5 million up 13 percent compared to last year's second quarter (indiscernible) income of 52 5.
The increase predominantly driven by positive show rotation our Convention and Event segment as well as cost improvements (indiscernible) in that segment.
During second-quarter Viad's balance sheet sustained its strength.
Our cash and corporate investment stand at 122 million.
We used cash to pay off 100 million in medium-term notes that came due in mid June and at June 30, '03 the debt stands at 262 million.
EBITDA cash flow shown in table 2 of the press release was 71.3 million for the quarter up from $59 million in the second quarter of '02.
Free cash flow for the quarter was 20 million down slightly from the 21.1 in the second quarter of '02.
Some segment highlights.
Payment services revenue growth was up 6 percent this quarter over second quarter of '02.
Operating income was down 10 percent quarter over quarter due to lower interest rates.
Revenue for the Convention and Event services segment exceeded our expectations due to positive show rotations in the quarter and better-than-expected results on certain shows.
Revenue was up from last year's quarter by 12% and operating income was up 75 percent for the quarter.
Operating income for the segment also exceeded our expectations, largely due to positive show rotation but also to Paul Dykstra's (ph) and Kimbra Fracalossi's credit, due to cost reductions and efficiency improvements.
I should also note that both revenue and opt income segment would have been up absent any benefit of favorable show rotation.
Now on the Convention and Event segment, again, you might want to refer to table 1 of the press release.
Table 1 includes revenues and up income in the operating segments and with that I will turn it over to Paul Dykstra to talk about GES.
Paul.
UNIDENTIFIED CORPORATE PARTICIPANT
Thanks, everybody.
In the second quarter, GES's were significantly better than the second quarter of 2002, due to cost improvements and favorable show rotation.
In a continuing trend GES produced strong operating cash flow in the quarter.
The favorable show rotation is primarily due to the National Plastics Exposition in Chicago this year, and this show is one of the largest tradeshows in the world and it occurs every third year.
We had good revenue diversity in the quarter.
The top 10 shows accounted for approximately one-third of our revenue.
Many industry groups were represented, including manufacturing, electronics, real estate, technology, and medical.
We continued to see some technology weakness but the diversity of the portfolio offsets exposure to that industry.
Also in the quarterly we re-signed approximately 100 million of future business which ensures that about 70 percent of our revenues are contracted to long-term agreements for '03 and '04.
The remainder of the year GES will be challenged to deliver better revenue than last year.
The rotating nature of some of the larger shows in the industry can make it difficult to compare performance across quarters and revenue will be affected by negative show rotation in the third quarter because the International Manufacturing Technology Show and the International Woodworking Fair will not be held in 2003 since they occur every other year.
The fourth quarter should be stable, relative to 2002.
At this time, we're expecting flat rotation in 2004 but the magnitude will not be known until all contract negotiations have been completed.
In past quarters I've spoken to you about GES's ability to offer strong profits and good cash flow because we know we're doing the right things to make our company even better.
Our operating results and cash flow tell us we are doing the right thing.
Like many, we're looking forward to improvements in the economy, because we know we're well positioned to provide superior service while improving returns for our shareholders.
Despite a very tough environment, GES is very strong and getting better every day.
We're committed to continuing to deliver great performance.
Bob?
ROBERT BOHANNON - Chairman, President, and CEO
Thanks Paul.
Now I am going to turn it over to Kim Fracalossi -- Kim?
KIMBRA FRACALOSSI - President and CEO, Exhibitgroup/Giltspur
Thanks, Bob, Exhibitgroup/Giltspur had a good second quarter, despite challenging Convention Event and Market conditions.
Though we continued to face weak demand our second-quarter 2003 revenues did improve in comparison to the second-quarter 2002.
Because of the strength of our second-quarter shows and positive show rotation.
The (indiscernible) Show which occurs every two years took place this year in the second quarter and as Paul had mentioned the Plastic Show which occurs every three years took place in the second quarter and those were both good shows for us.
Operating income also improved because our restructuring and centralization cost savings are beginning to fall to the bottom line.
As I mentioned in the first quarter call, we will see the throughput on those savings when we get the volume back.
Visibility for the remainder of 2003 remains poor.
Our biggest challenge this year is keeping our top line as strong as possible in an environment of diminished corporate spending and caution.
We are working to develop products and service offerings that deliver value to the customer, like our new exhibit leasing program developed in partnership with Wells Fargo Bank.
Ours is the first leasing program in the industry, offered in affiliation with a major banking partner.
Our leasing program provides Exhibitgroup/Giltspur customers with the opportunity to lease premium custom exhibits for a low monthly or quarterly payment -- an important benefit when corporate budgets are tight.
We anticipate that this program could drive incremental revenue for us.
There are other selected bright spots in industries such as health care and automotive better using face-to-face marketing to introduce new products.
In addition, we continued to aggressively pursue new customers and recently won a major new wall development customer for our kiosk business.
On the cost side, as of June 2003, we are on target with our restructuring and centralization plan.
We've completed over 90 percent of our manufacturing centralization, 95 percent of our property transfers, and just over 75 percent of our headcount reduction.
As planned and previously reported, we're on target to complete the work by the end of the third quarter.
And consistent with our original estimates, this will reduce our (indiscernible) variable cost by 12 to 14 million pretax on an annualized basis with approximately 8 to 9 million in pretax savings occurring in this year.
The projected level of savings is not contingent upon any revenue improvement.
These are true cost savings.
As of the first quarter, we realized just over 10 percent of the projected annual cost savings and as of the second quarter we realized just over 20 percent of additional cost savings.
Our accumulative total cost improvement of over 30 percent year-to-date.
In addition to our restructuring and centralization activities we also continue our work of reinventing and streamlining our business processes and realigning our workforce to capture more value in the manufacturing process.
With regard to revenue, our revenue will remain under pressure for the remainder of 2003.
We knew going into 2003 that many of the companies that we do business with would not be spending as much with us this year as in past years.
And, as I previously mentioned, visibility for 2003 is poor and many of our client companies struggle with their own uncertainties.
Now many economists are predicting a second half rebound which -- if it occurs -- should benefit Exhibitgroup Giltspur in 2004.
We will have a better sense of what 2004 will look like once our client companies complete their marketing and advertising budgets for next year.
And typically this occurs in late fall.
The list goes on but the point of all the activities is that when the economy rebounds we will have positioned Exhibitgroup Giltspur to emerge as the strongest and most steadfast exhibit building company in the industry.
Our company will weather the protracted economic downturn because we remain strong, both financially and organizationally.
None of our competitors can leverage the level of financial supports that Viad provides.
And few can afford to invest in their core businesses as Exhibitgroup Giltspur is currently investing.
The large new customers we currently have and the ones we're pursuing demand the financial strength from the tradeshow partner and will continue to use our help as a source -- and will continue to use our help as a source of advantage.
We believe that when the dust settles on fiscal 2003, Exhibitgroup Giltspur will have increased market share in the industry as we did in 2002.
These share gains are likely to occur through customer retention and the relative strength of some of our segment specific business -- like health care -- rather than just through revenue growth.
We're holding more ground in many of our small competitors and the share gains means greater economy to scale which widens the competitive gap that exists between Exhibitgroup/Giltspur and our smaller less advantaged competitors.
Our goal is to continue to leverage our strength, relative to competition into wins.
We are on target for a successful and prosperous future.
Bob, back to you.
ROBERT BOHANNON - Chairman, President, and CEO
Thanks, Kim.
Let's go on to the payment of services segment.
Phil.
PHIL MILNE - President and CEO, Travelers Express
Good morning, everyone.
Thanks for joining us.
Second-quarter results for the payment services segment are shown in table 1 of the press release.
In the second quarter, revenue growth was 6 percent while operating income declined 10 percent.
In the quarter, operating income declined due to lower interest rates and prepayment of our mortgage-backed securities.
Year-to-date revenue growth was 5 percent and operating income declined by 15 percent primarily driven by the impairment charges taken in the first quarter of 2003 and lower interest rate environment.
MoneyGram -- which is entirely a fee business -- was the most significant contributor to overall growth for Travelers Express this quarter and so far this year.
We are very pleased with the progress we're seeing in the global wire transfer business.
This is the eighth consecutive quarter of transaction volume growth of over 25 percent.
This is a great business that we expect to continue to grow at a very healthy pace.
A recent article in the June 15th issue of Time magazine sized the international remittance market at nearly $140 billion.
The article reports that growth in remittances is expected to be 28 percent over the next three years.
This is a real robust market and it has a great deal of opportunity in it before us.
The other driver of growth for Travelers Express over the last few years has been the Prime Link official check business.
In this business revenues and income are primarily flow derived and, unfortunately, the current low-interest rate environment continues to hold back growth in this business.
However, total average investable balances -- the balances for which we derived that flowed income -- do continue to grow.
The total portfolio grew 25 percent as compared to second-quarter 2002 to $7.1 billion.
Increasing flow balances are great for the future but in a down rate environment, the decline in interest rates offsets the benefit of balance growth.
Table 3 of the press release shows the impact of lower rates for the second-quarter.
If you look at the section labelled "Changes in Flowed Income and Commission Expense" and the lower half of the page labeled quarter ended June 30th, you'll see that, while higher balances had a positive impact of $21 million in revenue and about $7 million in net flow income, this impact was offset by lower interest rates which caused a decrease in revenue of 25 million and a decrease in flowed income of 13 million.
On average, for the quarter, short-term interest rates were down over 50 basis points and the five-year treasury was down over 175 basis points compared to last year's second quarter.
This is significant because it means that our cash balances are invested at very low overnight rates.
It also means that as our portfolio investments -- predominantly mortgage-backed securities -- prepay, they have to be reinvested in lower yielding assets. (indiscernible) experiencing operating income or margins squeeze because we have paid fixed interest rates swaps hedging our liabilities to official check banks and these swaps don't reprice down as quickly as maturing or prepaying investments.
However we expect to see a benefit in 2004 as 845 million of swaps mature in the remainder of this year and through the first quarter of 2004.
The remaining majority reprices between 2005 and 2008.
Looking at our core operating businesses they continue to perform very very well.
MoneyGram showed excellent results this quarter, revenues were up nearly 20 percent with transaction volume of 30 percent this quarter over second quarter last year.
For the first half of 2003, MoneyGram revenues were up 23 percent with transaction volume up 32 percent.
And let me give you some performance measures for MoneyGram for the second quarter and for year-to-date.
International originated transactions grew by 33 percent in the quarter and 40 percent year-to-date reflecting the strength of MoneyGram's international business.
Domestic originated transactions -- including our Express Pay product -- also increased 35 percent in the quarter and 37 percent year-to-date.
A transaction volume to Mexico grew 9 percent in comparison to last year's second quarter.
And our agent basis up 8 percent compared to the prior year's second quarter and stands at about 60,000 on a worldwide basis.
Moving on to Prime Link Official Check, this business contributed slightly to revenue growth and was the reason for the decline in Travelers operating income this quarter.
However, it still showed growth and balances and new signings.
Our average check official check average investable balances grew over 33 percent to $5.8 million for the second quarter as compared to the second quarter of 2002.
Our Crime Link installation backlog stands at $112 million.
During the second-quarter we signed new bank customers including First Alliance Mortgage Company and Chemical Financial Corps.
The prospects for significant new bank signings in 2003 look good.
We have a number of good prospects in the pipeline with over 600 million of potential new balances.
Money Order was down on a quarter over quarter basis as expected on a volume side.
Our approval rate for new agents signings is increasing and the first half we signed about as many new money order agents as we did in all of 2002.
Margins remain very strong for this business.
Relative to our guidance for 2003, the following assumptions are implicit in our guidance.
MoneyGram transaction volume continues to grow at rates similar to the first half of the year.
Money order transactions are expected to be about the same as the second quarter for the remaining two quarters of this year, average investable balances are still expected to grow in the range of $750--$850 million and we expect the overall net investment yield on the flow portfolio to continue to decline this year.
We assume that there are no more Fed funds rate cuts for the remainder of the year.
We also assume that we will experience strong prepayment activity in the third quarter and into the fourth-quarter as the big refinance wave that occurred in the late second quarter impacts our portfolio.
The recent lows in five and ten year senior treasury rates were driven by market concerns about deflation and a flight (indiscernible) following Freddie Mac's recent situation resulted in this late second-quarter spike in refinance activity.
We believe our net interest margin will bottom out at around 1 percent in the third quarter and then begin to increase late in the fourth quarter.
We also expected in 2004 our margin will improve as recent (indiscernible) activity finally slowed down and new balances are added to our portfolio (indiscernible) at a higher rate and of course as the fixed rate swaps mature.
To wrap up, from an operating perspective MoneyGram is performing well by all measures.
And we're seeing good solid performance in the money order business.
We continue to grow balance add new customer crime link business.
The effective interest rates on our portfolio margin is a challenge and will continue to be for all of 2003.
However, signs look good for 2004.
The economy is gaining momentum and we're rapidly expanding the agent network that will support our volume and our revenue growth of the future.
Back to you, Bob.
ROBERT BOHANNON - Chairman, President, and CEO
Thanks, Phil.
Ellen will go through some of the financial highlights for the quarter.
Ellen.
ELLEN INGERSOLL - CFO
Thanks, Bob.
As shown in table 2 to the press release cash flow EBITDA was 71.3 million vs. 59.1 million in 2002 -- up 20.6 percent.
Also shown in table 2, free cash flow -- defined as cash from operations, excluding the change in Travelers payment service assets and obligations, less capital expenditures and dividends -- was 20 million for the quarter versus 21.1 million last year.
Payment services total average investable balances were up almost 25 percent for the quarter, official check balances were up nearly 34 percent for the quarter.
At June 30, 2003, Viad had total cash in corporate investments of 122 million.
This is a decrease of 182 million from the December 31 2002 amount due to the MIL acquisition and repayment of 100 million in medium-term notes.
Viad's total debt at the end of the quarter was 262 million bringing our debt to capital ratio to 24.4 percent.
We paid down over 94 million in the quarter from 356 million at the end of March 2003.
Net interest expense for the quarter decreased 506,000 when compared to the second quarter of 2002.
Depreciation and amortization for the quarter was 12.6 million and this is comparable with last year's amount.
Capital expenditures for the quarter were 11 million, up slightly from 10.7 million from the prior year's second quarter.
The income tax rate for the first six months of 2003 was 26.1 percent versus 27 percent for 2002.
And the average outstanding and potentially dilutive shares for the quarter were 86,508,000 compared to 87,672,000 in the second quarter of 2002.
And back to you, Bob.
ROBERT BOHANNON - Chairman, President, and CEO
Okay.
Let me now give you some guidance for the full year and third quarter please.
Just a couple of notes about the guidance.
Please keep in mind that it's subject to change as we talked about before, the visibility for conventional events business is still not good particularly for Exhibitgroup and also Travelers slow paced revenues can be effected by changes in interest rates and other market factors.
For the third quarter, we expect earnings to be lower than the third quarter of '02.
Diluted EPS is expected to be in the range of third quarter, 25 to 28.
Payment services segment revenues expected to remain relatively flat to third quarter 2002 revenue of 203.8.
And payment services segment operating income is expected to decline by a low to mid 20's rate from a third quarter 2002 income of 33.8 and, again, that's going to be driven by the late second-quarter huge spike and new refinancing after the ten year treasure had hit an all-time low of 311 in mid June.
Convention and Event services revenues expected to decrease in the low to mid 20's rates due to negative show rotation compared to third quarter 2002.
And Convention and Event segment operating income is expected to fall slightly below break even, compared to third quarter 2002 opt (ph) income of 2.2 million and, again, due to negative show rotation.
For the full year, we are lowering guidance from the previous range of $1.34 to $1.39.
All of this is attributable to Travelers Express and again the refinancing spike second-quarter of '03 so for 2003, diluted EPS is now expected to be in the range of $1.20 to $1.23.
And as I mentioned this just reflects simply even more substantial compression in Travelers net flow margin than projected at the end of first quarter of '03.
We -- contributing the margin compression are the swaps, fixed rate payment obligations associated with these swaps, the maturity and turnover of the swaps, slower much lower than the mortgage backs that are prepaying, much faster than anticipated.
I think Phil talked about this.
It bears repeating -- we will have about 800 not quite 850 million of swaps maturing at the end of the fourth-quarter of 03 early first quarter of '04 and the remaining 3 billion of swaps will mature 2005 through 2008.
So some pickup '04 and clearly '05 and beyond.
This guidance also assumes for seasonal business that we talked about in the second half of the Convention and Event services company.
When payment services -- payment services segment revenues expected to grow at a low to mid single digit range in comparison to 2002 revenue of 773.6 and payment services segment operating income for the full year is expected to decline at a low to midteens rate in comparison to 2002 opt income of 125 5.
That's due mostly to interest rates and of course the impairment that we talked about last quarter.
Phil took you through the revenue and opt income outlook and the assumptions options there in respect to transaction volume, interest rates etc. and on Convention and Event services segment for the full year, revenues expected to decline high single digit rate comparison to '02 revenue of 786.2 primarily due to decreased demand for exhibit construction.
And on the operating income the operating income for Convention and Event we expect to increase mid to high teens rate in comparison to 2002 opt income of 37.6.
Primarily due to ongoing cost reductions and operating process improvements.
Then the reason we're lowering guidance is due to the effect of low interest rates on Travelers' portfolio.
We can't talk enough about it in respect to, again, what happened on the rates.
We'll talk about the -- we do expect the investment portfolio yield to decline for the remainder of the year.
Again that will be particularly true in third quarter because this huge new refinancing wave and expect pick up from there starting '04.
This refinancing activity that has been -- while high -- reasonably steady, again, hit a new all-time refinance index high in June -- it was 5,000 before it dropped and hit 10,000 by the end of June on the refinancing index.
We just simply did not anticipate those new lows on the ten year treasuries.
As Phil mentioned, too, that was driven by a lot of concerns and comments about the deflation that was made and also about the Freddie Mac situation.
And since mortgage rates price had a spread (indiscernible) treasury (indiscernible) 3.11, another big refinance (indiscernible ) (inaudible) followed.
So they're going to experience a much greater level of prepayments than we had anticipated and we've adjusted our numbers accordingly.
Let me close my comments today by saying that first, again, we're very very excited and optimistic about the direction we've chosen.
We think that this separation of Travelers from the company is the right path to take and as I mentioned upfront, we will keep you informed as we reach milestones along the way.
Travelers is a great company.
A growth company and the products are in demand and -- despite the temporary and very very frustrating effects of low-interest rates -- the foundations of future growth are solid and expanding everyday.
This foundation includes the agent bank customer base expanding a wire transfer network, product development capabilities, and discernible differences in technology and customer service.
And on the convention of (indiscernible) side as the economy picks up given the cost of Paul and Kim have taken out, we should see some huge upsize in those two companies because they had been doing the right things to drive back costs, improve efficiencies and providing excellent service to the customers.
Final bit of -- I think the first positive news I've seen about the economy I recently read the Business Roundtable view on the economy.
This was a survey of CEOs in the second quarter and for the first time a majority of those CEOs expect sales to increase over the next six months and there was a very slight increase in respect to the number of CEOs who expect to increase their capital spending and since we're in the services business this, obviously, bodes very very well for us particularly in the Convention and Event side.
So, Amy, with that I'd like to open the call up to questions, please.
Operator
Thank you.
The question-and-answer session will be conducted electronically.
If you'd like to ask a question, please do so by pressing the star key, followed by the digit 1 on your touchtone phone.
If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.
We'll proceed in the order that you signal us and take as many questions as time permits.
Once again, (CALLER INSTRUCTIONS).
We will pause for just a moment to give everyone an opportunity to signal.
Adam Walden with Lehman Brothers.
Adam Walden - Analyst
Good morning, everyone.
Thank you very much for the increased financial reporting and transparency this quarter.
A question about the outlook for net margin and payment services on the float in the fourth quarter.
Phil, you explicitly said about 1 percent expectation on the third.
Could you give us a sense of what you're assuming in the fourth quarter as underlies the company's new guidance and then give us a sense as to why you're confident that that margin is achievable?
PHIL MILNE - President and CEO, Travelers Express
Yeah, I think we see as the refi bubble pushes through in the third quarter we do see an uptick in our net interest margin in the fourth-quarter and I think it's going to be -- I don't think I want to throw out a net interest margin number but we do see it picking up in the fourth-quarter and some of that will also be aided, Adam, by the fact we've got swaps coming off, too, in the fourth quarter as Bob had mentioned.
And then we continue to see that in the first quarter.
So I think the combination of the refi bubble pushing through and the fact that we have swaps -- a great deal of swaps coming off -- that's why we have some confidence that that is going to improve in the fourth quarter.
Adam Walden - Analyst
Would it be fair to say that you (indiscernible) in mostly the effect of the swaps in that increased net margin expectation or is there a bit of the pickup in yield as well?
Give us a sense maybe directionally
UNIDENTIFIED CORPORATE PARTICIPANT
I think both -- (MULTIPLE SPEAKERS) we have baked in the swaps I think we're assuming that rates are going to hang around where they are.
Adam Walden - Analyst
Great and then switching gears over to the C&E side, Kim I wonder if you could just give us a little more specificity on the revenue margin and capital intensity aspects of the economic model at this new leasing offering vs. the traditional business model?
KIMBRA FRACALOSSI - President and CEO, Exhibitgroup/Giltspur
Yes -- there is, with respect to the -- I'm sorry.
Did you want the economic model?
Adam Walden - Analyst
Yes, on the leasing product, how does that work in terms of the revenue persistency and margin expectations and, then, the financing requirements that you bear vs. the client?
KIMBRA FRACALOSSI - President and CEO, Exhibitgroup/Giltspur
We don't bear any on the financing side except as -- depending on how the lease it can be 100 percent ownership at the end and they can have a residual similar to a car lease, actually, is how it is working.
We anticipate that these will be full margin products so this is a good thing for us.
And if they're going to be purchasing at all in the end or returning it there are some refurbishment requirements that go into this so there's incremental revenue associated with that.
So that if at the end, we have to take back the property, there is a small residual that we have to cover but what we anticipate is that the product will be usable and we can put it into our rental inventory and be able to rent it out and actually make some additional money out of.
So, overall, we're actually very excited about this product and we think that it can drive improved margins on the construction piece as well as deliver full margins on the first path.
Adam Walden - Analyst
Thank you all.
Operator
Dris Upitis.
Dris Upitis - Analyst
Just a couple of questions on the payment side of the business.
If I recall correctly, the Wal-Mart MoneyGram business was rolled out in kind of mid to late second quarter of last year in, obviously, another quarter of strong results on the transaction side with MoneyGram -- a little bit of a slowdown from the first quarter.
Is part of that starting to anniversary the Wal-Mart roll out and is that a concern at all for the second half?
ROBERT BOHANNON - Chairman, President, and CEO
Dris, this is Bob -- I will answer then ask Phil.
Saw a little bit of a slowdown in June.
We're not quite certain why although we look at July and transaction volume is back up again to where it was.
So I don't know if we were missing an extra day or something like that in the quarter, but I believe that what we have seen over the past eight quarters is going to continue.
Phil, would you add to that, please?
PHIL MILNE - President and CEO, Travelers Express
I think -- I think we talked a little bit about this on the first quarter conference call.
I think we were a little higher in the first quarter than we had anticipated and maybe a little of that buying from what we thought was second quarter was in the first and there may be a little bit of seasonality on that side, but we're not seeing any trend that suggests that anything has changed on that and we continue to see -- we -- as far as we can see continued growth in that range that we're at on the go forward basis and as Bob said we (indiscernible) here in July.
I don't think there is anything, we're not seeing anything there.
Dris Upitis - Analyst
Okay, is that the right timing -- that it was effectively May of last year that Wal-Mart really got ramped up.
PHIL MILNE - President and CEO, Travelers Express
Yeah we started rolling out I think in March and April but I would not say that there was any Wal-Mart affect from second quarter of last year to this.
They continued to accelerate on their growth and we continued to be extremely pleased with how Wal-Mart is doing, I think is the best way I can put it.
Dris Upitis - Analyst
Great and then on the float balance the increase you saw there, you talked about the refinancing you've seen as well.
How much of the increase in the float balance was associated with refinancing activity this quarter?
PHIL MILNE - President and CEO, Travelers Express
That's a hard one to get exactly your arms around but I would say the bulk of it was from the refi's and if you look at it, in June, over 90 percent of the mortgages in the company were available for re fi and that has dropped back down and is under 60 percent but I would suggest that the balance that we saw pushed through were from refi's.
Dris Upitis - Analyst
And then last question just on the float balance.
You've obviously been running in kind about 1.8 to 2 percent range, and that's coming in a bit here.
What you think this kind of a sustainable float margin through this cycle taking into account both as rates are going down and you're probably getting some benefit from a cheaper source of financing and then as rates potentially start to pick up?
UNIDENTIFIED CORPORATE PARTICIPANT
I think I would just leave it as we see it bottoming out in the third quarter, starting to move up in the fourth quarter.
And then as you look to 2004, we've got a substantial amount of swaps coming off and that continues into 2005.
And we're hoping that, as we see the yield curve steepening out as it has, that that's going to benefit us and we will continue to see an uptick in the net interest margin in 2004.
Operator
Jack Kelly with Goldman Sachs.
Jack Kelly - Analyst
Morning, Bob.
Congratulation on the transaction.
Just a couple of questions about that, and then maybe just one thing on the fundamentals.
Has there been any determination as yet on the management?
I would assume you'd stay with Travelers but if could give us any indication on who will be leading the respective companies?
Secondly, if we look at the kind of corporate expense number, typically when companies break up since there's some duplication expense when the break up corporate expense on average would go up so I just I know it's a tough question but just your feel there.
And then third any view you might have on terms of debt allocation between the two pieces and then on the fundamentals I guess in terms of the show rotation being a positive in the quarter maybe you could maybe quantify that a little bit, but why was that a surprise because you would have known about the National Plastic Show some time ago?
So why would that have been a pleasant surprise vis a vis your expectations?
UNIDENTIFIED CORPORATE PARTICIPANT
Jack, the show rotation was not a surprise at all.
What was a surprise was the strength of some of the shows we had in the quarter.
And so some of the larger shows were stronger than what the show associations and what we anticipated as we applied it.
So I don't want to get too optimistic here and attribute that now to an improved economy or that type thing but it was the first sign that Paul and his team, I think Kim and her team have seen in respect to, perhaps, give me a little bit of a turnaround there but again just shows stronger than what we (indiscernible).
Paul or Kim do you want to add anything to that?
KIMBRA FRACALOSSI - President and CEO, Exhibitgroup/Giltspur
Yes I can add on that.
Going in our planning we will anticipate a certain expenditure on some of the shows and what had happened is that, actually, the expenditures were significantly higher.
And a couple of people who we did not plan on doing a new build in fact did do a new build.
So those are things because the visibility of the revenue is so short in number of weeks vs. how it has been historically to the tune of two to three months, we're down to less than a month on the visibility -- you can be pleasantly surprised.
So what we did is anticipated a much lower volume going into or basically planned on a lower volume and were pleasantly surprised on that because people ended up spending more and constructing more than we had put in our plans.
UNIDENTIFIED CORPORATE PARTICIPANT
Paul, do you have any comment?
Not really Bob.
I think the rotation was pretty much where we thought it would be but Kim's point about visibility being very very short these days is true throughout the industry.
ROBERT BOHANNON - Chairman, President, and CEO
Jack, back to the questions on payment services.
On the debt allocation we've not, we have not finalized those numbers yet.
That's kind of a work in process with the agencies.
And what that will get down to will be the whole -- a fairness issue.
So if we have about 200 million in debt, if we carry about 200 million for the two companies, we know for example that Travelers just used 100 million of that in January for MoneyGram.
So as we work through that just as a general guideline, Travelers will have the bulk of the debt on their books.
On the corporate expense numbers, the nice thing about Travelers and in respect to the way to their business has been set up, (indiscernible) is not going to have to add a lot of corporate overhead because we already have a treasury and investment group there, that type thing.
We clearly will have to add an investor relations section, we will have to add a couple of SEC type accountants for the Ks and Qs and all the public reporting, that type thing and, clearly, a couple of tax people.
But my point we're not going to have to add an awful lot of people at Travelers just by nature of the way the way this has been structured before, driven by the contents of their products and businesses and at remaining Viad we clearly are going to have to take some expenses out although we have been running fairly low corporate overhead.
But there's more to be taken out.
On the management piece itself, Phil is going to continue at Travelers and I will play some role for probably a year or 18 months but that is yet to be determined -- decided.
And the bulk of my time will be spent on the Convention and Event side and Kim and Paul will continue in their roles.
So I think that, Jack, I think that got everything you asked.
Jack Kelly - Analyst
Yes, appreciate that, Bob.
Operator
Carl Brown at Advest Research.
Carl Brown - Analyst
Good morning.
Question on MoneyGram -- speaking more specifically on Wal-Mart, you said, Phil, that you're very pleased with what's happening with Wal-Mart.
Trying to get a sense of how -- whatever the transaction growth is at Wal-Mart, how much of that is actual money transfer and how much of it is just domestic express pay?
Or maybe if you can't get numbers maybe you kind of if you could just talk directionally about if you are seeing growth in both types of transactions?
UNIDENTIFIED CORPORATE PARTICIPANT
Good morning.
I think the answer to that I think is more of it is Express payment but we're seeing growth in both Express payment and international wire transfers and domestic out of Wal-Mart so it's across the board.
Carl Brown - Analyst
And from a -- you've reported your transaction growth.
In terms of -- how fast do you think the industry is growing?
And that that's always been a tough question because there is so many moving parts to this industry but in your opinion, how fast you think the money transfer industry is growing?
UNIDENTIFIED CORPORATE PARTICIPANT
Well you know I guess to go back to the Time Magazine which said we'd grow 28 percent over the next three years.
It is a hard number to get your arms around because there's really nobody out there publishing anything on it.
I think it's safe to assume it is growing double-digit on a global basis and we think that we're growing significantly faster than the market and I think that's probably the best answer I can give you.
Carl Brown - Analyst
What do you think your opportunity is for consolidation in the industry -- there seems like there's a lot of niche players that focus on specific corridors.
Do you think there is opportunity to consolidate or are a lot of these niche players family owned, probably want to stay private.
UNIDENTIFIED CORPORATE PARTICIPANT
I think a lot of them are small entrepreneurs and family owned businesses.
I think you know you certainly would never say we wouldn't but we're very focused right now on adding the right agents in the right areas with the right pricing and promotion and I think that as we focus on those corridors and focus on that strategy that's why we're seeing the growth that we are and I think we are going to continue down that track.
Kartik, I would just add there that one of the things that popped up in respect to the analysis because you bring up a great point with some of the future opportunities and, clearly, this is another reason MoneyGram and other things why we believe Travelers needs their own currency because there are going to be -- we think -- some significant opportunities across that whole payment processing field.
Carl Brown - Analyst
Last question on guidance -- I am trying to better understand the third-quarter guidance.
And I know you talked about the ten year treasury and what is happening to yields and refinancing but has that much changed in the three months since you had your conference call to push your guidance down by 20 some odd cents?
ROBERT BOHANNON - Chairman, President, and CEO
Yes and the big reason is -- I mentioned is when you look at what happened on the ten year treasury's which all the mortgages are priced on that dropped to 311.
Prior to that the refinancing index although high had been running at about 5000.
When that happened, it doubled.
And I think, Phil, I don't know the exact numbers but at 311 and where mortgages were priced, using the conventional rule of thumb on what's eligible for refinancing, 90 percent of the mortgages were (indiscernible) like 85, 90 percent of the mortgages in this country all of a sudden came eligible if you will for lack of a better term for refinancing.
Huge wave of applications popped up and that's, again, what drove the index from the 5 to 10,000.
So this is probably going to turn out to be the largest wave that we have seen.
And we had some very large waves previously when rates had dropped, but a lot of people took advantage of it, and locked into a lower rate and as a result of that, that's what has happened.
We did not -- time we gave guidance we did not we obviously were aware of some people talking about some of the deflation risks but when some of those comments kind of came to (indiscernible) late in the second-quarter and again when we had the unfortunate Freddie Mac situation and that flight to quality in the treasuries, those were the drivers.
And those came very late in the quarter.
Carl Brown - Analyst
As you look at the company and if you separate the pieces in your mind, and the way you look at a company, what do you think in a normalized world the earnings growth potential of payments is and earnings growth potential of what's going to be (indiscernible)?
ROBERT BOHANNON - Chairman, President, and CEO
I believe, organically, for Travelers and I will certainly ask Phil to comment on this with what they're doing on (indiscernible) checks, MoneyGram and money orders, their organic internal growth should be low to mid double-digits.
Now those are in normal markets.
I think that we would be seeing those growth rates today if in fact we had if you will historical norms of rates prior to September 11th.
Phil, do you want to comment on this particular piece?
PHIL MILNE - President and CEO, Travelers Express
No, I think you're spot on on that, Bob.
You know, especially, when you look at --given your rebound and that net interest margin and what we're doing on MoneyGram and growth opportunities on that side and some of the new technology were going to be putting out -- yeah, I think you're spot on on that.
On the Convention and Event -- by the way I should also say that that's their organic side, but if in fact we are successful in separation and Travelers with their own currency that should open up a whole new world of opportunities that they've not been able to go after previously.
On the Convention and Event side, I'll certainly ask Paul and Kim but back to the normal market, we used to think in terms of that business and that industry is somewhere around a good six to eight percent revenue growth with high single to low double-digit of opt.
I'm very very pleased with the cost takeouts and the process efficiency that we have undertaken in both.
We have had two people dedicate a good bit of that.
John Harold at Exhibitgroup I think has done a fantastic job and really there is still a lot on the table for him to go and Kevin Rabbit (ph) over at GES who is driving along with a lot of other people there.
What I believe is that with what they have done in respect to the changing some of the fixed cost structure of that business, if we get back to a normal economy and a little bit of shakeout particularly in the Exhibitgroup side of that industry, 6 to 8 and high single low double-digit should be very very doable.
Paul, Kim -- would you comment on that, please?
UNIDENTIFIED CORPORATE PARTICIPANT
This is Paul.
Visibility is (indiscernible) right now -- He asked the question when things returned to normal with the economy.
Yes, historically, and throughout the 90s there was the 6 to 8 percent growth in this business.
It has shrunk over the last couple of years so we're hoping that we're kind of bottoming out now and that there is a six-month lag then between where we are now and increased spending.
That has been historical, too, there's been economic blips downward, the tradeshow business falls in about six months so we're hoping '04 will show positive growth and get back into that mid single digit organic growth and then, certainly, we have the expectations that we should be able to do better than that based on the people and the product and the service we deliver.
KIMBRA FRACALOSSI - President and CEO, Exhibitgroup/Giltspur
With respect to Exhibitgroup/Giltspur on a normalized basis we think we should grow slightly better than the industry, but the beauty of what we have at the moment is I think there is significant pent-up demand.
So in the short-term, you're probably going to see a bit better revenue growth just as we got clipped on the downside, we should have the benefit of all that pent-up demand on the upside.
So on a normalized world, high single digit should be absolutely doable.
Carl Brown - Analyst
Thank you very much.
Operator
Michael Peterson with Zeno (ph) Investment Management.
Michael Peterson - Analyst
Couple of items on the payment services side if you would.
The 845 in swaps -- could you tell me where those swaps roughly are paying today?
And were they to mature today, looks like they would roll over at around the 250 range but can you tell what they're paying today and what they would roll to today if they matured today?
ROBERT BOHANNON - Chairman, President, and CEO
Phil, Ellen.
ELLEN INGERSOLL - CFO
Phil, I have the average swap today in front of me and we can talk about what it is going to be going forward.
The average swaps for the rest of 2003 are in the 5 percent range.
First quarter 2004 are in the 4 to 5 percent range.
But it will be rolling of.
And then, Phil, if you want to talk about --
PHIL MILNE - President and CEO, Travelers Express
Yes we are going to see as they roll off we are going to have a significant pickup.
UNIDENTIFIED CORPORATE PARTICIPANT
But in respect to swap pricing today.
THE CALLER
Those swaps today are about 2 5, aren't they? 250.
PHIL MILNE - President and CEO, Travelers Express
Yeah over yes I think the 250 the 3 range.
Yes.
THE CALLER
I think you may have mentioned it -- I missed it.
The fee revenues for the wire transfer business -- did you quote a growth rate or something for that year-over-year?
UNIDENTIFIED CORPORATE PARTICIPANT
Yes I think -- oh, year-over-year?
Year-to-date or for the quarter.
THE CALLER
Whatever you're willing to tell.
UNIDENTIFIED CORPORATE PARTICIPANT
For the quarter we said it was just shy 20 percent and for the year I think about 23 percent.
THE CALLER
Okay.
UNIDENTIFIED CORPORATE PARTICIPANT
That's on revenue, Michael, and transaction for the year was 32 and 30 for the quarter.
THE CALLER
Then, back on the investment side.
The new money that you are investing today, is that roughly maybe you have to differentiate between the short-term and normal long-term stuff but where are you investing new money today?
Roughly?
UNIDENTIFIED CORPORATE PARTICIPANT
For our rate or what are we investing in?
THE CALLER
I assume you're investing in normal mix of mortgage-backed?
UNIDENTIFIED CORPORATE PARTICIPANT
That would be correct and I think what we've tried to do, Michael, over the last couple of quarters is we have stayed short, we just didn't think that rates -- although we knew this refi wave was going to happen once the treasuries dropped to the 311 in June, we have stayed relatively short in anticipation that rates would start to backup which they have.
So as rates have risen we can probably start looking at extending the ration now and some of the short money that we put away will start to roll off.
Our strategy was let's not extend duration when rates are at historic 50 year lows, let's stay short and then, as rates start to rise maybe we will start looking at extending some duration and getting back a little bit longer.
THE CALLER
You anticipated my related question and my last question which is that the decline in yield you saw this quarter, then, was again -- I understand the mortgage backed issue, but there was a short-term money component again to it this quarter.
UNIDENTIFIED CORPORATE PARTICIPANT
Oh, absolutely and I think for a couple of reasons.
One is just the level of cash that rolled through and will continue to roll through from the refi's and feds or overnight rates probably under one percent right now and the fact that we just were not going to extend our duration during this period and we didn't believe that it was sustainable at those low rates and we did place short money and I think that was absolutely the right strategy and it is painful a little bit in the short-term but it was the right long-term decision for us.
Operator
Jay Abramson with Kramer Rosenthal and McGlenn.
THE CALLER
Hi, it's Carl Brown.
Just a follow-up to the previous question when you mentioned the average swap was in the 5 percent range for the rest of year was that on the whole portfolio of swaps or is that just the 845 rolling off?
UNIDENTIFIED CORPORATE PARTICIPANT
845.
THE CALLER
Just so I understand correctly how this works, basically, as the swap rolls off you are paying an obligation of 5 percent and if you end up today going out and swapping out if it's 250 basis points you pay on that you will pick up 250 basis points of lower expenses?
UNIDENTIFIED CORPORATE PARTICIPANT
That's correct.
Operator
Michael Millman with Millman Research.
THE CALLER
I'd like to talk about after the spin, what's left of Viad, could you talk a little bit about some color on that company?
You expect to continue to stay in the transportational, the travel piece of that business?
Do you intend to try to substantially grow it by acquisition or slim it down if you will?
And maybe you can give us some idea on how to value that company?
What kind of comps that you're looking at in terms of valuation for that piece?
UNIDENTIFIED CORPORATE PARTICIPANT
Thanks Michael.
On Convention and Event and on the travel side -- meaning Brewster and Glacier Park -- yes, we're going to continue there.
Both Brewster and Glacier Park throw off terrific return on capital.
Both companies good cash flows and very very high margin companies.
On the growth piece itself there's a lot of growth ahead of us.
And Brewster just by getting back to normal because the bulk of Brewster's business comes from Europe and comes from Asia.
And given all of the events over the last couple of years, just the economic downturns clearly Sept. 11 and SARS because when the Europeans come to Canada go to Western Canada many of the flights go through Toronto.
So a lot of Europeans canceled.
So there's a huge organic pickup there once Brewster gets back to normal.
For the Convention and Event side, I think there are all kind of great possibilities for Exhibitgroup and also GES.
On the outside of the organic stuff I think for Kim's business that whole industry has been fragmented for a long time.
We have seen some consolidation going on just by virtue of the fact that capital has dried up and that type thing and we also believe that, when things get back to normal, capital still is going to be much more difficult to obtain for some companies vs. the way that it was during the dotcom height, if you will.
So we see a whole host of factors that are coming through and, then, when we get down to the cost structure that we think we can run in that business and the competitive side, and the strength of the overall companies, there are just a lot of exciting opportunities to come.
I'm not certain that we -- over the next year or two -- would be out looking to eye things necessarily, but what our go forward rule if you will would be if something presents itself and the economics are there, then we would be very happy to do it.
THE CALLER
What about on the convention side?
UNIDENTIFIED CORPORATE PARTICIPANT
That is what I just mentioned, Michael, we would be very very happy to do it there if the economics are right.
What we believe with the rebound that should occur whether '04 '05 it is going to come and there's going to be a lot of opportunity just organically for Kim to do.
But if something does pop up, that is just so attractive it would be too silly to pass on we would certainly go after it.
THE CALLER
And on the convention site?
I'm sorry like on the valuation piece, sorry.
UNIDENTIFIED CORPORATE PARTICIPANT
As you know, from the work that you've done in the past that's a very very -- that's a very tough, tough one to get to because just aren't a lot of companies in that industry outside of us that are publicly traded.
In fact, there are none with the exception of one company that is traded in the U. K. called MICE.
So that's going to be a work in progress.
THE CALLER
Can you give us some ideas as to what your investment bankers are telling you that that might that piece might sell for?
ROBERT BOHANNON - Chairman, President, and CEO
Mike, we are starting to get ranges and so forth but a lot of that is going to be dependent upon final numbers, balance sheet things, when the rebound comes things like that -- so no, I wouldn't give that.
THE CALLER
Getting back to the.
ROBERT BOHANNON - Chairman, President, and CEO
I think that's going to be up for the usual -- not an investment banker or what I may think but it's what the market's going to think.
We think that there is a very very good story there that we can go out and tell.
We think we've got terrific management teams in place with the two heads being Paul and Kim, that have credibility, that can -- I think -- convince the market that they know what they're doing and I think that's going to be a big big challenge of managements to go out and get investors to understand far more about those industries, what makes them tick, what the risk are and those types of things and I think that they can do a very very effective job of it.
THE CALLER
You mentioned how good the Brewster business is -- is it likely to be an area of expansion?
That type of business?
ROBERT BOHANNON - Chairman, President, and CEO
Where they are, a lot of that is in the Canadian National Park.
So the new products if you will are very difficult because of the Park setting, but I can tell you that the Asian and European traffic way way down and if we just get back to where we were prior to all of the events that have unfolded and given what they've done on the cost side as well we will be in perfect shape.
THE CALLER
Should we assume since you're staying with that piece, that you expect some possible extraordinary value to come out of it?
Or is that -- you're staying with it -- unrelated?
ROBERT BOHANNON - Chairman, President, and CEO
No, I'm not a fool, and I think that there's big value in Convention.
I think it is going to be a big job -- us to go out and talk with the right investors and so forth and again, how right and focused those companies and we've not done that before because the big interest, obviously, has been on the (indiscernible) piece and rightfully so.
That's the opportunity and I see that in normal circumstances we have companies that can do very very well throw off very good margins, throw off very nice cash flow and have a very nice return on capital.
So I like all of the things that I see -- and given that normal environment I think it can be done.
Then I think it's up to Kim, Paul, myself and others to get out there and get the word out and demonstrate to people.
THE CALLER
Great -- thanks, Bob.
Operator
As a reminder (CALLER INSTRUCTIONS).
James Pann (ph) with CEE Partners.
THE CALLER
Just a couple of questions.
On the transaction growth where MoneyGram was 30 percent what was the approximate revenue growth of that or how much (indiscernible) (inaudible)
UNIDENTIFIED CORPORATE PARTICIPANT
20.
THE CALLER
20?
The floating growth a lot of that -- the growth in the float area a lot of that was re fi.
What would you say would be the normal float and the normal margin for that segment for the official check segment?
UNIDENTIFIED CORPORATE PARTICIPANT
Normal float and normal margin, yes, I think we are --don't want to be evasive on this answer.
I think that the float is much higher than it would be on a normalized basis because of the refi's and of course the margins getting compressed because of the refi's and the prepays.
I think if you go back and I think we do provide over the last couple of years what the net interest margin has historically been -- it probably gives you a good idea of the ranges.
And I think that the best proxy going forward is that we think that it is going to bottom out in the third, get better in the fourth and continue to get better in 2004 as the rates stabilize, and as we start getting these swaps off the books and reswapping at lower cost.
THE CALLER
What is the base level of the float to correspond with that so we can get a normalized operating contribution from that segment?
UNIDENTIFIED CORPORATE PARTICIPANT
That's a hard one to pin down because we're continuing -- we still like this business very much.
We're continuing to sell the business.
So we will continue to get new growth from that and I think what we have to see is what flushes out from the refi's over the next couple of quarters.
Certainly the bulk of the growth that you saw in the second quarter was due to the refi's.
THE CALLER
Are you saying that when the refi's stop that the -- first the float will decline.
UNIDENTIFIED CORPORATE PARTICIPANT
We will see float decline in the probably fourth-quarter.
THE CALLER
Is there any way we can take like what the last normalized float time period was and grow it by the number of new banks you signed up?
Is there any way to do it that way?
UNIDENTIFIED CORPORATE PARTICIPANT
James maybe, and Phil, directionally I think they are two things.
We were seeing on the normal markets and, again, I'm adjusting this a bit for the size of the portfolio, but we were seeing consistently, Phil, 15 to 20 percent revenue growth.
Correct?
Yes (indiscernible) September 11th and also up margins (indiscernible) pre September 11th and for many years we were seeing somewhere in the 18 to 21 percent range.
PHIL MILNE - President and CEO, Travelers Express
That's correct.
UNIDENTIFIED CORPORATE PARTICIPANT
I think that gives you a good sense directionally and those were what I'd like to term more normal environments.
THE CALLER
Is that for Travelers or --
UNIDENTIFIED CORPORATE PARTICIPANT
No, that is for official check.
THE CALLER
Is there any reason to believe that because of our market share maturation that that pace would have changed the last 18 months or 24 months?
UNIDENTIFIED CORPORATE PARTICIPANT
No.
The margin side has all been driven by the rate factor.
THE CALLER
The last question.
In this spinoff, you said you're going to acquire all your public debt.
Are you just going to issue private debt or are you going to go through the bank?
UNIDENTIFIED CORPORATE PARTICIPANT
We're going to -- for Travelers -- let me back up.
For all the existing debt we have today will be paid off.
Part of that will be from some future cash flow, but the bulk of that will be because we will go out into the debt markets upon this separation and acquire debt for Travelers and for the conviction companies to pay off this existing debt.
THE CALLER
So you are going to issue debt to pay off convention debt or -- are you going to issue debt in Travelers to pay off convention debt?
UNIDENTIFIED CORPORATE PARTICIPANT
No.
Total debt today is 262 million -- pay some of that down in future cash flows, but what we will do to retire the remaining piece of that is to issue some new debt at Travelers and some new debt at Convention -- the new Convention.
All the existing debt.
THE CALLER
I am a little confused.
When the new debt is issued what will the rating agencies say about the new debt?
Won't that also be non investment-grade or credit (indiscernible)
UNIDENTIFIED CORPORATE PARTICIPANT
Not Travelers.
And on the convention side, we've not asked for an investment-grade rating, we've not asked for an investment-grade rating from the rating agencies yet and don't know if we will.
This will be on the Travelers piece, of public debt vs. bank debt.
Operator
Anything further, Mr. Pann?
THE CALLER
No I will take all my other questions off line.
Thank you.
Operator
Eric Whitman (ph) with Sharon (ph) Boyle Capital Management.
THE CALLER
Could you review the pricing trends for money transfer in serious markets vs. its competitors and also official check, what percentage of that is total payment services and just review the mix?
UNIDENTIFIED CORPORATE PARTICIPANT
On the pricing trends within the wire transfer business and how we price ourselves, Eric, is that -- ?
THE CALLER
Pricing trends you see going on in the industry, Phil.
PHIL MILNE - President and CEO, Travelers Express
In the industry?
I think it really depends on the market, Eric, and we have seen, in places like Mexico, prices have come down over the last few years.
Domestically, I think it has been pretty constant and international I think has been fairly constant over the last couple of years.
And when you get into some specific corridors like a Mexico where a lot of niche players came in prices absolute did come down.
THE CALLER
And official check could you review that percentage of total payment services and (indiscernible) mix of official check?
UNIDENTIFIED CORPORATE PARTICIPANT
I don't think that we have traditionally released what percentage of the company official check's is.
I can maybe from an industry standpoint we think about half the banks have outsourced official checks which leaves a significant marketplace out there for us and -- but I don't think we have traditionally released what percentage it is of Travelers Express.
THE CALLER
What about the mix of the business mortgage, auto, (indiscernible) etc.
UNIDENTIFIED CORPORATE PARTICIPANT
Right now, a lot of it's mortgage.
I think over time probably the bulk of it has traditionally been the mortgage business but it was not to the extent that it is now.
And it was -- there was a lot of auto, a lot of corporate loan and things like that, small-business loan activity and just consumers using it to buy boats, cars, etc..
Operator
Scott Scher with Clovis Capital.
THE CALLER
(indiscernible)
UNIDENTIFIED CORPORATE PARTICIPANT
Scott?
Operator
Mr. Scher, (CALLER INSTRUCTIONS) Your line is open.
Moving on to Steve Monison (ph) with Oscar Weiss (ph) Capital.
THE CALLER
I have a couple of questions about the spin off.
First of all how do you see corporate expenses allocated to Travelers Express vs. the remainder of Viad?
Hello?
UNIDENTIFIED CORPORATE PARTICIPANT
I'm sorry, I don't understand your question.
THE CALLER
Right now, you have corporate expenses for the whole company.
And how much of that expense base do you think will belong to Travelers expense when the company has spun off?
UNIDENTIFIED CORPORATE PARTICIPANT
None of it, again, but I will go back to what I said to a previous question similar to that, and that is that Travelers will have to add some people -- particularly in the accounting areas, SEP purposes and public reporting purposes as well as some tax people and as well as investor relations and so forth.
So the expense today has been being a new publicly traded company as the event occurs Travelers will have to add that cost.
But they would have, on the current Viad expense today, we're going to see some reductions of that because we would be transferring some people to Travelers.
So we've worked through that and Travelers will incur what they actually incur necessary (indiscernible) subsidy publicly traded company and all the attendant filings and reports that go with that. (indiscernible) other cost.
THE CALLER
How much would you anticipate the Viad corporate expenses declining?
UNIDENTIFIED CORPORATE PARTICIPANT
Well we know at a minimum -- in respect to what we have in Travelers today, the size of the company that type thing and then in consideration of some of the discontinued operations that we have, it has declined quite a bit and will continue to decline quite a bit and a good bit of that, though, will be offset by the transfer of employees to travelers.
THE CALLER
Right.
UNIDENTIFIED CORPORATE PARTICIPANT
Some of the existing employees tax, that type tying, Travelers.
THE CALLER
In your discussion with the rating agency they indicated on a preliminary basis that Travelers would be rated investment-grade, given certain balance sheet assumptions.
What are those balance sheet assumptions?
UNIDENTIFIED CORPORATE PARTICIPANT
I can't talk about those.
We have not filed the tax ruling yet and we have not filed form 10 yet with the SEC so I'm not going to be in a position to talk about that until we do that.
And we anticipate the Form 10 will be sometime in late September or mid-October.
THE CALLER
And the last question concerning Convention and Event services business, in the quarter the operating income jumped dramatically compared to the revenue increase, showing the operating leverage that's apparent in the business and also the cost savings.
If we think about improving economy in '04, what kind of incremental leverage do you expect at the Convention and Event services?
In other words, for every increased dollar of revenues how much of an increased profit would you expect in '04, given if we were to think about an improving economy?
UNIDENTIFIED CORPORATE PARTICIPANT
It's going to be a little bit different and we don't have numbers yet but it will be a little bit different -- far different Exhibitgroup and GES -- Kim is going to be able to leverage that dollar much much more than Paul, although Paul will see, I think, some nice benefits.
Kim, Paul, you want to comment on that?
KIMBRA FRACALOSSI - President and CEO, Exhibitgroup/Giltspur
Yes, I think that's exactly right.
I think the leverage and we saw a bit of that in the second quarter, but that's not all of the advantage.
Because we certainly did have the cost savings in there.
We believe that we should be able to have sort of 20, 30 percent throughput on that.
UNIDENTIFIED CORPORATE PARTICIPANT
Something less for GES although, still, I think significant -- wouldn't you agree, Paul?
PAUL DYKSTRA - President and CEO, Exposition Services
Our most profitable dollar is equivalent to a same-store sales type of growth, so organic growth within shows is going to be -- should provide good leverage on the margin side.
Operator
Robert Dodd with Morgan Keegan.
THE CALLER
This is Ram Kasagard (ph) for Robert Dodd.
I got a couple of questions for you.
You had announced a product or testing of a product between (indiscernible) and MoneyGram -- can you give us an update on that, taking into consideration the (indiscernible) data Concord (indiscernible) agreement to merge and what you're finding out about using ATMs as a method for many transfer?
And then, secondly, (indiscernible) spin off of MoneyGram Travelers has there been any offers to acquire MoneyGram.
And was that not considered?
Thank you.
UNIDENTIFIED CORPORATE PARTICIPANT
Ram, I wouldn't -- Phil, I'm going to refer you on the money Concord and start with the MoneyGram question.
PHIL MILNE - President and CEO, Travelers Express
Good morning.
I think on the Star MoneyGram, it's our intent to push forward with that agreement.
And we're expecting them to fill the obligations under the contract of -- that we have between us and Concord on that.
THE CALLER
What are you finding out about using ATMs for money transfer?
Is it a viable method of money transfer (indiscernible) ?
UNIDENTIFIED CORPORATE PARTICIPANT
We think over time it is a viable method of money transfer and I think over time we think it's going to be an important distribution point for us.
So we're excited about the prospects for it.
THE CALLER
Thank you and regarding.
UNIDENTIFIED CORPORATE PARTICIPANT
Regarding your question -- were there any offers on MoneyGram?
Was that your question?
THE CALLER
Yes.
That was the question.
UNIDENTIFIED CORPORATE PARTICIPANT
My answer is no.
Operator
There are no further questions at this time.
Mr. Bohannon, I'd like to turn the conference back over to you for any closing or additional remarks.
ROBERT BOHANNON - Chairman, President, and CEO
Thank you.
I appreciate the time -- I know this thing ran a bit longer.
Just to reiterate.
We're very very excited about the potential separation of Travelers.
We're going to work hard to accomplish that and we also see some light at the end of the tunnel with Travelers, particularly, and --
(CONFERENCE CALL CONCLUDED)