Viad Corp (VVI) 2003 Q4 法說會逐字稿

Good day, everyone, and welcome to the Viad fourth quarter 2003 earnings release conference call.

Today's conference is being recorded.

At this time, I would like to turn the call over to Ms. Ellen Ingersoll, the Chief Financial Officer.

Please go ahead, ma'am.

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 substitute forward-looking statements.

Actual results may differ materially from those projected in the forward-looking statements.

Additional information concerning business and other risks factors that could cause actual results from 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.

Our press release is available on our web site at www.viad.com.

One last comment before we begin.

This conference call may not be recorded or reproduced in transcript without the explicitly written permission of Viad.

Bob Bohannon, Chairman and CEO of Viad Corp.

Good morning, everyone.

We are glad you are with us today.

We have the operating company presidents, Philip Milne at Travelers, Paul Dykstra of GES and Kim Fracalossi of Exhibit Group.

Here is Ellen, our CFO.

An update of the progress toward separation of Travelers.

The Board of Directors of Viad have pursued the separation of Travelers by means of a tax free spin off.

Keep in mind that this transaction is subject to a number of conditions including, among other things, receipt of satisfying ruling from the Internal Revenue Service, confirmation of long term debt of Travelers, availability of satisfactory banking and credit arrangements and each of the businesses and final approval of the Board of Directors of Viad.

We're pleased to tell you made good progress toward this separation.

On July 29, we announced that we plan to attend for all public debt, pay off all commercial paper and redeem all outstanding preferred stock in connection with the transaction.

On August 5, we filed with the Internal Revenue Service tax free ruling on the proposed separation and the IRS is currently reviewing that request.

On December 29, we filed a form 10 registration statement with the SEC and the SEC we believe is currently reviewing the document.

In terms of the next step, we are currently working on securing banking arrangements and credit facilities for each of the businesses.

It's not expected to be consummated earlier than third quarter of 2004 and no assurances can be given that any such spin off will occur.

Now for the fourth quarter of '03 and full year of '03.

Let me begin by referring to your tables 1 and 2 in the earnings press release.

For the fourth quarter, net income was 30 cents per diluted share compared to last year's fourth quarter net income of 6 cents per diluted share.

And the 2002 fourth quarter included a restructuring charge of approximately $13.3 million after tax.

Full year 2003 income from continuing operations was $1.29 per diluted share and diluted earnings per share was $1.31.

The difference between the $1.29 and $1.31 is back on the third quarter you'll recall we had some income from discontinued operations that were recorded in the third quarter.

Let me note that fourth quarter and full year 2003 results did include several one time items.

First, $4.6 million, 2.9 after tax reversal of interest expense related to some favorable income tax settlements that we had.

We had a curtailment gain of 3.8, 2.3 after tax that resulted when we froze the divine pension benefit plan and restructuring recoveries total $3.5 million, 2.1 after tax in the fourth quarter.

These recoveries result of change in the estimates of future cash outflows, mainly related to very favorable sublease income at sublease facilities.

Going the other way, we had expenses incurred in the preparation of [inaudible] 1.2 million after tax in the fourth quarter and absent the effect of one time items, earnings for the fourth quarter should say for full year would have been at the high end of guidance range and that $1.20 to $1.23.

For the fourth quarter, segment operating income was 34.9 million, up 27% compared to the 2002 fourth quarter operating income of 27.5.

The increase in operating income was attributable to growth in MoneyGram for Travelers Express and improve performance of convention companies.

Full year 2003, segment operating income was 170.3 million, down from 176.9 million in 2002 and the decrease was primarily driven by lower interest rates at Travelers express.

Full year 2002 income from continuing operation 112.4 million up from 96 million in 2003.

Fourth quarter cash and corporate investments up 10.5 million from last quarter and stand at 163.1.

We did use cash to pay down 4 million in debt during the quarter.

The debt to capital ratio now stands at 23%.

And year-end debt outstanding was 251.4 and net debt was 88.3, the balance sheet is very strong.

EBITDA shown in table 2 of the press release was 50.6 million for the quarter, up from 18.2 million in the fourth quarter 2002.

For the year, EBITDA was 216.2, up from 196.0 million in the previous year and the fourth quarter and full year 2002 EBITDA included 20.5 million restructuring charge.

Free cash flow for the quarter 29.7, down from 33.9 million in the fourth quarter 2002.

For the year, free cash flow was 110.4 million down as expected from 140.68 million.

In the previous year, we received a large tax refund of approximately 11 million and in addition in 2002 when we acquired the minority interest in MoneyGram we had to pay them a $8 million dividend as well.

For the segment highlights, payment services revenue was up 4.1% from the fourth quarter 2002.

Opt income also up 12% quarter over quarter due to strong transaction growth by MoneyGram.

Full year 2003 payment services revenues increased 3.6%, operating income decreased by 8%.

These results reflect the impact of the interest rate environment on the payment services investment income that we've talked about quite a bit in the past.

Revenue for the convention event services segment down 13%.

However, because of the restructuring activities and cost cutting initiatives in 2003, the segment showed operating income of 2.1 million as compared to an operating loss of 1.3 million in the 2002 fourth quarter.

Full year 2003 revenue was down for the segment by merely 9% but operating income was up 19% reflecting the very positive contribution from improved cost and operating income efficiencies at both GES and Exhibitgroup/Giltspur.

Travel and recreation businesses revenue up 3% and operating loss of 2 million and operating loss of 2.3 million in the 2002 fourth quarter.

Full year 2003, revenue for the travel and rec businesses down nearly 9%, operating income was down nearly 24%.

These results reflect lower bookings primarily related to SARS and travel related issues as well as the effect of the forest fires in Glacier Park during the storm season and fires in about a BANFF Canada.

On the event services segment, in that performance you might want to refer to table 1, the results for the.

That's in the press release.

Now I would like the turn it officer to Paul Dykstra to talk about GES.

Paul?

Thanks, Bob.

Good morning, everyone.

GES performance was better than expected in the fourth quarter and despite being challenged by a difficult market, 2003 was a great year for our company.

Drove significant margin improvement and increased operating income by 11% over 2002 and even though our revenue was down.

This was accomplished through outstanding cost control throughout our organization from servicing our shows more efficiency to mine missing corporate overhead.

Created value in 2003 through diligent management of working capital yielded strong free cash flow.

These positive financial results are evident to the solid business fundamentals we continue to improve upon.

In addition to working hard on increasing value for our shareholders, GES has also been driving increased value for our show management and exhibiter customers.

If you recall, in 2002, we introduced GES national service center gave exhibiters one stop point of contact for placing orders before and during the show and source for information regarding general show and venue inquiries.

During 2003, we continued to build on this concept.

We enhanced the exhibitors experience with increased hours of operation, decreased average speed of answer and improved technology.

We further enhanced our exhibitor services by introducing our exhibiter value program.

This service is offered through our new outbound call service added to the national service center.

This program was designed to enhance the exhibitors return on objectives and to ensure a more positive experience for the exhibitor.

The program's been a winner for all classes of exhibitors.

Our centralization created detail so we can spend time with less sophisticated exhibitors with more in-depth consultation services and depicters who attend multiple events they have one number to call for all needs.

Our team at GES committed to deliver high level of value to pre-show orders, easy move in and ready access to customer service and show floor personnel.

Through this commitment, we improved our customer service scores in every category from 2002 to 2003.

Our focus on increasing the value we provide to exhibitors has been key to some of our recent re-signing.

In the fourth quarter we resigned better than 90 million of future business which means that over 80000 million for 2003 and beyond.

Let me talk a little bit about the industry.

For 2004, we expect that the convention industry will remain a bit soft.

As I have said before, shows go with the industry as they serve and, therefore, we expect ought automotive, construction and perform well.

We will continue to see softness in manufacturing and many other technology shows.

The economy and corporate earnings are showing improvement and should translate into increased show presence, but not until the back half of 2004 and into 2005.

I would like to remind you that the diversity of our portfolio of business is a natural hedge for exposure to any particular industry.

I would also comment at this point that the consumer electronics show which kicks off the year for GES in early January each year came in very, very strong, attendance was up, the size of the show was up and we hope that is a precursor for a stronger show season.

While we do not believe that 2004 will bring a full rebound of the convention industry, we believe 2004 will be another good year for GES.

We will continue to focus on driving value for customers and improving margins through efficient execution and reinvention.

Our flagship operation and headquarters in Las Vegas will continue to lead the way to our success.

Las Vegas is home to three of the top ten convention centers in North America and top 200 trade shows in 2003 and percentage projected to increase over the next few years.

Leading market share in Las Vegas we will positioned to pursue and leverage new opportunities here.

Finally, I am excited about our future.

We are the industry leader and gaining momentum.

We have substantial market share, efficient processes and outstanding customer service which makes GES well positioned to benefit from an industry turn around.

We have a commitment to continuance improvement and intend to continue winning for our client and shareholders.

Bob?

Thanks, Paul.

Kim, will you talk now about Exhibit Group?

Yes, thank you.

Exhibitgroup/Giltspur had a solid fourth quarter in 2003 with our restructuring in centralization cost savings starting to fall to the bottom line.

Strong operating margin improvements this quarter over last year's fourth quarter and this improvement was on an anticipated year-over-year revenue decline.

During the quarter, we won several new clients including a major pharmaceutical company, two electronics company, leading telecommunications company, a home building company, and good for us the list goes on.

We've started to make inroads in some new segments this year as well like the home building segment.

We have a strong appropriate list in steady extreme of RFP's to which we are currently responding.

We also received positive feed back from our clients during several of our recent shows particularly the RS and A show which is the radiology show late November, early December.

And the international CES show which took place in the first week of January that Paul had mentioned.

On the cost side, we've surpassed the targets that we set in our restructuring and centralization plans from a year earlier.

We've completed essentially all of our manufacturing centralization and our property transfer and almost all of our planned head count reductions.

We reduced our sixth and semi-variable costs by approximately 11 million in 2003 or 17 million and this is pretax on an annualized basis.

This significantly exceeded our projections of approximately 9 million in pre-tax savings for 2003 and 12 to 14 million that we projected on an annualized basis.

Again, as I've mentioned on previous calls, this projected level of savings was not contingent upon revenue improvement.

It was true cost savings.

The good news is that we will see even more through put on these savings when we get our volume back.

Now, in addition to our restructuring in centralization activities, we also continued our work of reinventing and stream lining our business processes of realigning our work force to capture nor value in the manufacturing process.

We will continue these efforts.

In first and second quarters of 2004, we will be extending the scope and depth of our manufacturing quality assurance program.

We will also be extending our functional centralization plans in several new areas to increase productivity and the economy of sale and scope and through more control points over both work quality and discretionary expenditures.

All of these efforts are allowing us to deliver better and more consistent customer service levels which is a central focus for our team in 2004.

Our biggest challenge this coming year will be to continue to keep our top line as strong as possible in an environment of continued caution and restricted client spending.

We are hopeful that the environment is improving, however, we tend to lag in an upturn and this is due primarily to client budgets being set before this upturn is being felt.

That said we are continue to aggressively pursue new customers.

When the economy rebounds, as we know it will, we will have positioned Exhibitgroup/Giltspur to emerge was the strongest exhibit and design company in our industry.

None of our competitors with leverage of support that Viad can provide and view can invest in their core businesses as Exhibitgroup/Giltspur has done in the past year.

The new customers that we currently have and the ones that we are pursuing demand the incorporates strengths from their trade show partner and anticipate they will continue to express a clear preference for Exhibitgroup/Giltspur as the industry's premiere provider.

We believe that when the dust settles on fiscal 2003, Exhibitgroup/Giltspur will show a slight increase in market share as we did in 2002.

These anticipated share gains will occur through customer retention and the relative strength of some of our segment specific businesses like health care.

We are simply holding more ground than many of our smaller competitors and we also expect to report some major new account wins in 2004.

And these share gains mean greater comes of scale which further guidance the competitive gap that exists between Exhibitgroup/Giltspur and our smaller less advantage competitors.

Our goal is to continue to leverage our strength relative to the competition to win.

Back to you, Bob.

Thanks, Kim.

Phil, I will turn it over to you to talk with Travelers.

Thanks, Bob.

Good morning, everyone.

Thank you for joining us today.

Before I review results, as Bob mentioned earlier, I will just remind everyone that we plan to operate under the name MoneyGram International, Inc., after the spin off.

Our form 10 has been filed under the name MoneyGram international.

We think MoneyGram International is a great name for the company because the MoneyGram brand is recognized around the world as the best value for safe and reliable money transfer payment services.

Until the spin off and in these comments today, we will go by our name Travelers Express.

We are excited about our process.

As presented in our recent SEC form 10 filing, among many benefits the spin off will provide the company greater ability to focus our capital and management attention on strategic growth initiatives and give us direct access to the capital markets.

Travelers Express is a growth company that offers and continue to offer attractive returns to investors over the long term.

Future growth will come from continued organic growth from money wide transfer magna carta, increased scale and operating and payment products that are consumer focused leverage existing technologies and distribution networks and take advantage of the low cost processing network such as ACH.

Acquisitions that extend our network and our product offerings and Travelers Express currently offers three major products and services representing 90% of Travelers revenue and operating income.

These are global money transfers, money orders, and outsource official check services to banks and other financial institutions.

Our global money transfer business is leading the company's growth.

Since we purchased the money transfer business back in 1998 we have invested in developing the best technology in customer service.

That investment is paying off.

Our global money transfer business has 10 consecutive quarters of transaction growth over 25%.

With worldwide immigration expected to continue to grow, we expect to see future growth in this business similar to the growth rates we report today.

We lead the market with our money order product, money order is a highly profitable business for us.

Anticipate that over the next decade paper based forms of payment will decline to decline and replaced by electronic payment products.

Plan to participate in this market by introducing new product and offers.

We have hired several key employees in the US and London to step up our product development and initiatives.

In the meantime, plain volumes continue to focus on cost controls.

We expect our profit margins to remain strong in the money order business.

Our official check business is still an appealing product for bank customers despite low interest rate.

This business will continue to be important part of our strategy.

Focusing efforts on pricing the business to increase the fee component and we've had success to date in doing that.

We believe this business will remain relatively stable in 2004 compared to 2003 as we overcome a year of defining interest rates.

I would like to turn our attention to the fourth quarter and full year 2003 results.

Now, fourth quarter and full year 2003 results for the payment service segment are shown in table 1 of the press release.

Previously in the fourth quarter revenue was 105.2 million up operating income up 34.8 million up 12.1%.

For the full year 2003, revenue was 801.6 million up 3.6 percent driven by strong results in the money transfer business offset by the decline in investment income due to lower interest rates.

Segment operating income was 115 million, down 8.4%, the decline in operating income is predominantly due to effect of lower interest rates on the portfolio.

I will talk more about the float portfolio in just a minute.

Let me give you some insights as to the performance in our three major product lines, I would like to start with global money transfer.

Our global money transfer business which uses the MoneyGram brand name had a terrific quarter.

Revenue up over 18% with transaction volume up over 30% over the fourth quarter of last year.

For full year 2003, money transfer revenues were up over 20% with transaction volume up over 31%.

International originated earnings grew by 23% and over 29% in full year 2003.

In particular, international volume benefit from the agent locations including the UK and China and of course our targeted marketing programs.

Domestic originated transactions including our express payment product increased 33% in the quarter and 36% in 2003.

Domestic business benefited from the signing of additional biller relationships for our express payment urgent payment service and our ongoing co-marketing efforts with major customers.

The majority of domestic growth is attributable to our express money payment product.

Terrific product grown tremendously since especially since we signed Walmart.

Transaction volume to Mexico grew 31% in comparison to last year's fourth quarter and 16% in 2003.

Volume to Mexico benefit I had from an increase independent acts and key markets and targeted advertising campaigns.

Global money officer agent base up 11% compared to prior year fourth quarter and now stands at about 63,000.

Shifting gears to money orders, declined nearly 5% in the fourth quarter and 6% in 2003.

The reduction in volume is due to loss of volume from Kroger and credit related agents terminations in 2002.

Optimistic about this business.

Experienced strong margins and solid growth at Walmart and the additional of Albertsons in third quarter will cash or loss volumes in beginning of 2004.

Additionally, in the fourth quarter, we signed our second largest money order customer to four year contract.

Moving on to PrimeLink/Official Check.

Investable decline in the fourth quarter.

Declined by 3% in compare to the fourth quarter 2002.

As expected, mortgage refinance money ran off in the portfolio as the market for residential mortgage refinances slowed.

PrimeLink installation back occupy $67 million.

This backlog is a little lower than previous courts.

Reflects lower interest rates.

Interest rates came down over the course of 2003 lead type for signing bank business increased.

We continue to see interest and have signed new banks in the fourth quarter.

As we discussed before remain bullish on this product and believe long term value in the portfolio generated by PrimeLink.

Let me provide a little more detail about investment results.

The investment portfolio consists of balances of course from our money order business and our PrimeLink official check business.

About 80% of average investigatable balance related to official check business which earns a spread.

That spread is essentially the difference between investment revenue and floating rate commissions.

We do utilize interest rate swaps to fix the floating rate commissions.

In contrast, the money order portfolio earns float revenue and we do not pay commissions.

With the growth in the OC portfolio, the company has experienced greater compression in net float income.

Contributing to the compression had been the unprecedented mortgage refinance activity that has caused us to hold substantially higher cash balances over the last several quarters and we reinvested that historically lower rates.

Faster than turn over of the mortgage bond holding within our investment portfolio which caused reinvestment of funds at lower rates and interest rate swaps used to fix our costs of commissions to OC banks.

The recent quarters the fixed rate on the swaps relatively high in comparison to our investment rate.

In the fourth quarter, the investment results better than expected for a few reasons.

One, mortgage prepayment speeds were lower than we anticipated and average investable balances declined with the decrease in the refinancing visit.

Positive impact as funds short term and rates we earned less than commission paid to banks.

Fourth quarter also did some rebalancing of the portfolio to reduce the risk to change and interest rates.

Rebalancing continued to reevaluate our hedging strategy.

The evaluation continually looks at balances.

Hedging ratio and the interest rate environment.

Currently balances declined, as I mentioned earlier, and interest rates are reasonably stable.

And in this situation, the need to enter swaps is lower.

However, as rates increase, we expect to replace swaps that mature.

As of December 31, 2003, there were about 3.1 billion of swaps outstanding at an average rate of around 5%. 350 million mature in 2004 and another 975 million in 2005.

Assuming rates remain relatively low roll off of swaps positive impact in 2004 but primarily impact will be in 2005.

Now I would like to give a little bit of guidance.

For 2004, the following assumptions are implicit in Viad's guidance for the payment services segment.

First quarter money transfer transaction volumes should continue to grow at a rate similar to the fourth.

Full year transaction growth should be in the 30% range.

In the first quarter, money order volume transactions will be consistent with the fourth quarter.

For the full year, money order volume transactions are expected to remain stable and we expect margins to remain very strong.

Average investable balances expected to decline in the range of 2 to 600 million for the year.

Expect the overall net investment margin for first quarter 2004 to remain relatively stable in comparison to the fourth quarter of 2003.

For the full year we expect our net investment margin to be in the range of 110 to 125 basis points.

Of course, actual performance will depend on a variety of factors including interest rates, yields available on new investments, prepayments speeds, hedging strategies and other factors as I close I want to thank you for your continued interest and support of Travelers Express and we continue to be very excited about our future.

Bob, back to you.

Thanks, Phil.

I will ask Ellen to discuss some financial numbers.

Sure.

As shown in table 2 to the press release, EBITDA was 50.6 million during the quarter versus 18.2 million in the fourth quarter 2002.

This difference is primarily due to higher operating income in 2003 and restructuring recoveries during the 2003 quarters 3.5 million versus restructuring charges in the 2002 quarter of 20.5 million.

As also shown in table 2, free cash flow as cash from operations excluding the change in Travelers payment services and assets and obligations less expenditures versus 33.9 million last year.

Payment services average investable balances down 3% for the quarter.

PrimeLink official check balances down 3.3% for the quarter.

At December 31, 2003, Viad had total cash and corporate investments of 163.1 million.

Our total debt at the end of the quarter was 251.4 million bringing our debt to cash ratio to 22.8%.

We paid down 4 million in the quarter from 255.4 million at the end of September 2003.

Net income income 2.5 million, difference of net interest recognize of 2002.

This difference is related to the 4.6 million reversal of interest expense related to favorable income tax supplements that Bob mentioned earlier.

Capital expenditures for the quarter 13.5 million, up 10.2% from 12.3 million in the prior year's fourth quarter.

The income tax rate for full year 2003 was 28.3% versus 23.7% for 2002.

The increase in the rate for the year 2003 compared to 2002 is due to lower proportion of tax exempt income to pretax income.

Finally, average outstanding and potentially dilutive shares for the quarter with 86,891,000 compared to 86 million, 68,000 in fourth quarter of 2002.

Now back to you, Bob.

Thanks, Ellen.

I'll wrap up my comments and we'll open the call to questions.

Let me give some guidance for the full year in first quarter of 2004.

Please keep in mind the guidance is subject to change as we talked about before, the visibility for the convention event businesses still cloudy especially for Exhibitgroup/Giltspur.

Travelers float base revenues can be affected by changes and interest rates and other market factors.

For the first quarter of '04, diluted earnings per share is expected to be range of 30 to 33 cents.

Payment services segment revenues expected to increase at mid to high single digit rate in comparison to the first quarter of 2003 revenue of 189.0.

Payment services segment operating income is expected to be between 28 to 30 million in comparison to 2003 first quarter segment operating income of 20.1.

And the net float margin is expected to remain relatively stable compared to the 2003 fourth quarter merger.

Convention and event services segment revenues expected to decrease at a mid to high single digit rate in comparison to first quarter 2003 revenue of 222.1.

Largely due to negative show rotation in the first quarter for GES.

Convention event services operating income expected to be relatively flat compared to first quarter of 2003, apt opt income of 18.6.

Travel and recreation results similar to 2003 first quarter results.

Full year, the guidance for the full year that we are going to talk about assumes no separation of Travelers from Viad.

If the separation occurs, there will be certain separation costs related to debt prepayment and stock redemption and for legal accounting and investment banking services among others as we described in the form 10.

For 2004, Viad corps diluted earnings per share expected in the range of 1.35 to $1.40.

Keep in mind absent the effects of the one time items, the 2003 earnings would have been at the high end of the guidance range and that range was $1.20 to $1.23.

Payment services segment guidance for full year 2004 we expect revenues there to grow at high single to low double-digit rate in comparison to 2003 revenue of 801.6 million.

Segment operating income is expected to grow at high single digit to low teens rate for 2003, segment operating income of 115 million.

The guidance there assumes a net float margin in the range of 110 to 125.

And still about the ranges is dependent on variety of factors including changes in interest rates, hedging strategies, prepayment fees and other factors.

Convention and event segment, the segment revenues expected to improve slightly in 2004 from 2003 revenue of 717.3 and convention and event services segment operating income is expected to increase at high single digits rate, the low double-digit rate as compared to 2003 segment opt income of 44.9 million.

Travel and recreation services revenue expected to grow at mid means rate from 2003 revenue of 53.2 and operating income is expected to increase by 30 to 40% from 2003 operating income of 10.5.

Let me close my comments today by saying I know Phil and his team are very excited and Kim's team are excited too the direction of the company.

We have reached several important milestones tort the separation of Travelers Express.

We hope to complete the operation in next few months and believe our timing is right.

Interest rates have stopped a downward trajectory.

Economy is improving and consumer confidence has improved.

Signs that business confidence is improving, too.

As you all know, arising stock market has a great psychological impact.

So according, we believe that overall 2004 will be a better year for all of our companies.

In 2004, we expect that revenue will remain under pressure and the convention event businesses and the wild card as we've talked about before for convention event will be corporate spending.

It is not clear yet the lack of corporate spending on trade shows and exhibits will begin to significantly reverse in 2004.

Despite revenue pressure, though, we are confident that we will continue to trend of operating margin improvement in the convention event businesses.

For Travelers a few bodily well and beyond.

Continued strong growth in global money transfer business, driving strong growth in fee revenues.

Continued success in getting more fee income in OC business and lessening the reliance on float income and continued profitability in the money order business.

As we look a bit beyond '04, if the recovery in the economy holds, 2005 should be a good break out year for all of our companies.

So with that, I thank you very much for listening.

I know this was a little bit long today.

We will close now and take your questions.

Thank you.

Our first question comes from Dris Upitas with CSFB.

Hi.

Good morning.

Just, first of all, on payment, a question on the net interest margin, you said you are guiding to 1.1 to 1.25 in '04 but reported a little over 1.4 in the fourth quarter and said that'll be flat in 1Q.

Help us better understand what net interest margin trends we should look for the over the course of year.

A couple things.

One would be we are thinking that spreads will tighten over the course of the year for new products and I think the other one would be question of the timing when we start getting back into the swap market.

I think those are the two reasons we have the range where we do.

Okay.

And could you just give a little more color around the money order business, the trends that you saw there and the quarter and the outlook for '04.

I think for '04, well, we were right on where we thought we'd be in the fourth quarter, '04 we are looking for to stabilize maybe flat to maybe a slight upturn.

We do have a major customer that we are in the middle of rolling out and that's Albertsons.

So that will help quite a bit in 2004.

So may be flat to some slight growth is the outlook.

For payment overall, the growth in operating income that you are looking for in the first quarter and the full year, remind us of the final effect of charges in '03.

I think the first quarter had a particularly large one in payment to give us a better apples to apples since for that growth.

Are you talking about first quarter of last year?

First quarter of '03, yeah.

I think you had 20 million of opt income, but I think there was a decent charge in there; is that right?

Yes.

I think the net charge in the first quarter was 20 million, correct.

Okay.

So apples to apples it's actually still it is going to be down a little bit?

Apples to apples, well, remember, the effect of that was to compress spreads further in conjunction with what we saw in the mortgage because we actually wrote those securities down.

Right.

I think that it that is worth elaborating on.

On first quarter in '03 when we took the impairment charges we had some debt instruments very high yield of a little over 10% and in effect we took and wrote those down.

I don't have the exact numbers, to around 6%.

So what you have then is an ongoing decrease on about $260 million of that.

Now, having said that, since we had the level of the yield over the remaining life on that write down, I am hopeful as those things continue to pay and so forth there's going to be some nice pick up in the out years.

But you do get to that one quarter '03 over one quarter '04 as to why it is not quite apples to apples.

Yes.

Dris, to Bob's point there, I think as we've said before, there was an ongoing impact from that it was in terms of spread compression because we did write those down and reduce the level yield.

Okay.

Thanks.

We will now move to Tony Monoico with Midwest Research.

Couple questions.

One question on the convention side.

Are you seeing at all any better trends in the attributer side in terms of number of exhibitors or exhibitors that are intending to open up their pocket books a little bit more the payment services.

I wanted to see can you see any kind of future where this spread between transactions and revenues might tighten in terms of revenues resembling transaction levels a little bit more?

And if you can touch on what kind of mix we have in the express payments overall, maybe just domestically?

Sure.

This is Bob.

I will take a stab.

But the payment services side the skewing of the revenues to transaction largely because of express pay and while express pay is an a lot less in terms of top line revenue, the margins on that product are just outstanding because you don't have the send agent and the receive agent commissions that you have to think about.

I think Phil will elaborate on that.

On the convention side, I think the best way that I would put it is that in '03 given all the uncertainty there we saw a lot of companies that would just yank things out of their marketing budgets and just didn't do an awful lot of things.

In '04, what we believe is going to happen, certain things have gotten back into the budgets, not to the pre-dip level gotten back in the budgets and we believe there's going to be the economy continues to move along, less of a chance for them to do a lot of yanking.

So we are a lot more confident and the other thing I would mention particularly for Kim's business is that we know there has been a big, huge pent up demand building.

Some of these exhibits are getting to be three, four years; typically companies have been a little bit reluctant because of the brand imaging and soft to run too many risks on things like that.

The question becomes how much of that, if any, we will get in '04 and that's why I preferred to '05 to convention side will be a nice break out year if the economy continues to move along.

For Paul's businesses, on the very macro level, I will ask Paul to comment further.

Is that CES this year was just outstanding, attendance was up, square footage and Paul will also tell you that for next year there has been just great signings of five CES for square footage for next year.

Having said that, we had technology show in December.

Is That was down still from the prior year.

So Paul, pick it up from there and then we will go to Kim to comment and then Phil.

Sure, Bob.

Good morning, Tony.

When we look back to 2003 you saw a lot of delayed spending early in the year because people knew there was going to be conflict in the Mel east and that delayed Middle East.

Delayed 13E7BDing.

For 2004 we've seen budgets increased but Bob's point if we don't get off to a strong start those budgets tend to become contingency plans so we need to have continued strong economy and corporate earnings growth and if that happens without any other type of world events I think we will see spending start to increase.

We think that's more towards the back half of the year.

I agree with what Paul was saying there, that's what we are seeing as well.

Though, we are at this point seeing some mixed trends on some industries in particularly those that have \knew\new product introductions, those seem to be holding up pretty well and the customers did get a little bit of additional budget dollars and are looking for doing a little bit more this year.

So that's very positive I think now which is a little different than last year.

And as Bob had mentioned for us, really, the pent up demand, I mean, you can feel that pent up demand and the issue for us, the big question is when is that going to release?

And we are hopeful that that will happen in 2004 so 2005 is a very good year.

Because we do see I think it's for us when you go to a show and you see that one customer that actually does the break out spending on a new exhibit sort of gets everybody else excited for the next year and that's what we are hoping to see as the economy continues along this trend.

So we are cautiously optimistic but still being very cautious in our projection.

Hey, Tony.

Good morning.

I think you are not going to see that mix change over the short term for a couple reasons.

One is express payment is the biggest and our fastest growing segment and because it's at a lower price point.

We do watch that carefully, but I think the other thing that we watch and continuing seeing is continued margin expansion in the money gram business.

So as we continue to grow, that mix will stay where it is at, but we are getting it to the bottom line through margin expansion so we do watch that carefully.

Okay.

Thanks a lot.

Kristen Cooper with Lehman Bros. has our next question.

Good morning, everyone.

You mentioned in your press release the -- end of your comments the reduction in fourth quarter residential mortgage refinance activity.

Have you seen that pick up in the current quarter given the recent decline in rates again?

Good morning.

Yeah, the refi activity has the picked up in the fourth quarter but nothing like our actually the first quarter but nothing like we had seen last year and I think it is much more predictable for us and I think the other thing is that the housing market continues to remain strong, too.

But we are not seeing the wild aberrations we saw in 2003 and I think that is the good news out of it.

Okay.

Thank you.

Secondly, you mentioned in the press release the reason for the fourth quarter results at convention and event would do the seasonal business patterns in the fourth quarter.

How does that explain the year-over-year decline or was it does due to the negative show rotation for the quarter?

Typically for the convention and events side, there's not a lot that goes on in the fourth quarter, not a lot of large shows and soft.

We did so forth.

We did have a couple of technology shows that were in the fourth quarter of '03 that were down from fourth quarter of '02.

Having said that, though, because of some of the restructuring initiatives, because of the some cost take outs, because some of the emphasis put on process by Paul and Kim and so forth, the opt income was better.

Okay.

Finally, more to a previous caller's question, you say in your prepared comments that the 2004 outlook for corporate client spending seems to be on the rise.

Paul had mentioned in his comments that in particular the construction, technology, and health care segments were looking strong with manufacturing remaining soft.

Can we assume then that those are the industries that you are referring to when you say that you see corporate client spending increasing?

Yes.

What I attempted to say was that the economy we know has improved, that clearly gives greater confidence and we are seeing signs that if you look at some of the comments coming out from the conference table, the business round table and others, that it seems that there's more confidence on the business side and if that's true, we are hopeful that will lead to some additional capital spending that we have not been doing.

And increased marketing expense as well.

Okay.

Thanks for the clarification.

And Steven Velka with Cafe Financial.

Two questions.

First is in payment services, can you tell us -- I understand the impact that the you are having with the net float income in 2004, but if payment services operating income is up, say, 13%, that's from doing this correctly about $15 million, 8 to 10 of which you are expecting to get in the first quarter.

So that only leaves $6 million incremental operating income for the balance of the year.

So I would wonder, which quarter do you see the most difficult comparison?

Then the second question has to do with whether or not you see any positive show rotation in 2004 at all for the convention event services business?

On the last question, Paul, you speak up, the third quarter of 2004 I think will benefit for some positive show rotation.

Paul; is that correct.

Yes, that's correct.

Phil, you want to pick up on the first part of the Question?

Sure, Bob.

I think that to answer your question, probably the second quarter will be the one that will be the most challenging into the third and then more pick up in the fourth quarter and that's really just due to the year-over-year on the rate comparisons.

Great.

Thank you.

Moving on to our next question from Scott with Clovis Capital.

Quick question again on the float on the spread here.

Do the 146 in the fourth quarter and you think that the first quarter's going to be consistent, you know, to average a 115 for 125 means that somewhere along the line you are going to go below one throughout the year which slightly confusing me for two reasons.

One, you have the swaps coming off this year, a portion of them, two, it's evident from the sequential movement from third quarter to fourth quarter that a lot of the refi business you were losing money on and that way you could explain balance going downward yield going up, relatively flats from Q3 to four Q4.

Can you help us with what is going on?

And you've been keeping a very, very large sum of money as you say very, very short end because you knew rates were going to go up and you did not want to get nailed on that.

As rates go up this throughout the year you would be pushing up duration to get a better spread.

Help me with some of those components because I am somewhat confused.

As we look at the year, I think that we see arising rate environment in the second half of the year in anticipation of the fed moving either right before or right after the election and it is our view as we put together the forecast that we will see spread compression on new products that we would be out purchasing and I think the other thing is that anticipation that we are going to want to take advantage of this lower rate environment in terms of putting some swaps on probably earlier in the year.

I think those would be the two components.

I think that we are guiding our outlook for net spread for the year.

Okay.

Unfortunately that didn't help me.

Explain then the Q3 movement from 93 basis points to 146.

In Q3, 2003, that was when we saw the tremendous amount of refi activity and we were sitting on, you know, I think we were sitting in excess of one 1 billion in cash and why the 93 in Q3.

Going into Q4, we did a little better than we thought as the refi pushed through the system and payment speeds slowed down and that's why we saw a little bit better spread than we thought.

We thought we were going to hang in that during the first quarter then not going to put swaps on.

Probably get back into the second quarter and expect spreads on new products to be a little tighter than they are right now.

As you move on the official check business in with more and more of the product trying to mother it away from a spread and somewhat to a fee, as that flows throughout the year, what effect is that going to have on the spread?

I think for this year obviously we are seeing improvement from the fees and of course we are still fighting a bit of spread compression from the hang over from 2003.

So we've increased I think fees in the business by about 25% through our repricing activities and we are going to continue on push fees as a bigger and bigger component, but we still are fighting some spread compression as a hang over from 2003 into 2004.

Thanks.

We will now go to Matt Russman.

One question to follow-up that.

You talked about you've been having some success in fees and you just said that I think you said you increased them by 25%.

I was wondering if you could give us some more guidance on how big is the percentage of the total profit in that business.

You expect fee income to get this year or next year and maybe some of the how many customers are -- you've been able to get to switch over.

Thanks.

Yeah.

I think in terms of traditionally fees has been a very small part of it and we made great progress in the second half of 2003 on this initiative and we are going to continue to move the mix, but I think the other thing that I always say and I want to continue saying that we see tremendous value over the long term in float.

So we are looking to balance that out a little bit.

But we still like the float very much and we think there's tremendous upside, you know, as we head into 2005.

So it is a bit of a balancing act for us.

We are still going to push fees but we still really like the float and think that there's a lot of long term value on it.

Phil, I think it would be fair to say that on that we've had very little resistance from customers because of the value proposition that you have with that particular product from speed of the customer service on retrieval and all of that and considering that it is not a core product to most of these banks.

Yeah.

I think that's a good point, Bob.

The financial institutions really see this as a total package for them and, you know, we've always felt that we've delivered a superior level of service, they get the online stops, the instant imaging of checks via the internet.

So I think they look at it as an entire package in terms of the product.

We did have a great deal of success moving the business more and more towards a fee component.

Thank you.

Now moving to Michael Millman with Millman Research.

I want to follow mat's question and ask you what the fee is equivalent to in terms of rates.

In other words, I guess banks are happy to get a fee now because rates are so low and their share would be low as well.

But I guess if rates were higher they might not be so happy.

So what's that break point?

Secondly and I think you discussed a little bit of this but in looking at the money gram, at the margins, are the margins driven equally by adding volume to express check as they are to adding volume to the traditional MoneyGram business?

Is it all volume driven?

I will start with the express payment question.

A question we get quite frequently even though express payment is at a lower price point we do have very good margins in that business because we don't have the receive side commission.

So I think we are getting margin expansion in money gram from a couple of places, Mike.

One would be, of course, the increased volume and the scale that we are getting out of the back office and I think, two, is the aggressive way the team has gone after costs within the product and attacking things like telecom and other expenses.

So I think it is a combination of excellent cost control and attacking the cost structure and, two, the incredible volume increases we are getting.

Back to the portfolio question, I am trying to understand what you are getting at there, Mike.

But I think in terms of fee, we don't disclose what proportion we have in terms of spread that comes from the fee side.

I think what I would like to leave it as we made good progress on that in 2003.

I think we mentioned that we increased our fee side by 25%.

We are going to continue to focus on that.

But we still like the float and we think that's a nice long term play for us and that's the way we are going to try to manage that business.

Thank you, Phil.

We have a follow-up question from Steven Velka with Cafe Financial.

Two quick follow ups.

The first is I know you revenues certain separation costs that are not necessarily included in your numbers for legal, accounting and investment banking services.

Those appear to be a one-time type cost, but I am wondering if you contemplate additional ongoing company costs as a separate company and, you know, whether or not you can describe those in any detail.

And then the second question is just when you would expect to refi a form 10.

Sure.

Steven, you're right, on the cost that I was referring to for guidance purposes, yeah, those would be the one time events and so forth, the banking fees and legal and accounting, et cetera.

And respect to the Travelers on a go forward basis with certain public company costs, yes, we are certainly going to have some of that.

But the unique thing about Travelers is the investment portfolio and so forth, we've had a treasury operation there, if you will.

We've had full finance and accounting there.

They have been very decentralized, the marketing functions have resided.

They have their own legal function, they've had that.

So my point to all that there's going to be not an awful lot of overhead from a people standpoint that Phil's going to have to add.

He is clearly going to have to add add an Investor Relations department, going to have to add a couple [inaudible, for lack of a better term, SEC accountant and that type of stuff.

There will not be an awful lot on people expense side that he is going to have to do.

Clearly, down the road and doing proxies and annual reports and that type stuff, yeah, he will have that and listing expense of the New York stock exchange but thankfully they have pretty much been self-contained over there and shouldn't be an awful lot that he has to add to it.

Phil, do you want to add anything to that?

No.

I think you captured that correctly, Bob.

We do have quite a bit of what we need as we spin off so I think in terms of that we are in pretty good shape.

Okay.

And then do you expect to refi the form 10.

I'm sorry.

I forgot that one.

We did file as you know December 29 the SEC has assigned a person to that and so forth.

They are in the process of reviewing it.

I say this tongue in cheek.

I hope that with what we filed under 286 pages of it, it is a lengthy document but we believe a very complete document.

So I think we simply have to wait and see what the SEC comments are on the document, if any.

We believe that the format is correct.

On the reverse spin Accounting, we had gone to the SEC prior to the filing of that document to make certain that we were reading the rules properly and they confirmed that we were.

So it is just a matter now of waiting to see if, in fact, there are any changes that have to be made to that document.

And we hope that we will be hearing from the SEC sometime in February.

Okay.

So you don't necessarily have to update it with year-end numbers then.

Is that correct?

We will be updating it with year-end numbers.

We will go through the SEC process.

Question from Patrick with Neuberger.

Can you update it on black rock's study of your investment portfolio.

Yeah.

We have geared to take a look at the portfolio and they good some extensive looks in the third and fourth quarter.

I think for the most part I could characterize it that they were pretty much in alignment with what our strategy was.

They did help us formulate some of the rebalancing that we did in the fourth quarter.

But for the most part, I think we were in lock up in terms of what we thought the strategy was and should be on a go forward basis.

What is the nature of the rebalancing?

Patrick, we sold some munis and that was for A and T purposes and we sold some mortgage product to tighten up some of the duration within that portfolio so I think we sold about half a billion worth of bonds.

That was driven by our discussion of our team and black rock but our team was moving down that past anyway so I think it was a good implication we were going in the right direction and we are glad we engaged those guys to kind of give us that look.

I would add, the black rock people they are terrific and we are very pleased with the relationship that we have with them they will continue to look at Travelers and be an advisor to Phil and that group and they've done some real good work.

Okay.

Final question, just hypothetically, if you had no AMT issue and you were able to invest a portfolio to optimize the spread, do you have an estimate of how much more money you can earn if you didn't have the AMT issue?

I'd forgotten that fully update as of this quarter.

I know as about probably a quarter two ago, if we went a perfect world, and with where munis were at the time with what we had done on mortgage backs and so forth if we could put a lot more I suspect a 20 to $30 million pickup.

Phil, is that about right?

I think maybe in the past that would have been true.

I am not so sure with the current rates that we're getting in munis right now that the number would be quite that big, Bob.

I think spreads would come in I think that gap has diminished.

Certainly, Patrick, if we could be more into munis we would.

I don't know at this point whether we would be pursuing munis as we move 9 or 12 months about and certainly we would have a larger muni other portfolio if we didn't have NA and P position.

That concludes our question and answer session.

I will turn the call back over to you for any closing remarks or comments.

Thank you very much for being with us today.

Again, '04, as I said, should be better for all of our companies if this economy continues to hold.

We are going to work very hard and as fast as we possibly can to ensure a timely separation of Travelers and I think that we are right on track with where we thought we would be.

So, again, thanks for taking the time today.

Hope to see you all soon.

That concludes today's Viad corporation conference call.