Viad Corp (VVI) 2005 Q4 法說會逐字稿

Good day, everyone, and welcome to the Viad 2005 fourth quarter and full year earnings release conference call.

Today's conference is being recorded.

At this time I would like to turn the call over to Ms. Carrie Long.

Please go ahead, ma'am.

Good morning and thank you for attending our conference call.

Before we begin I would like to remind everyone that certain statements made during this call which are not historical fact may constitute forward-looking statements and 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 can be found in Viad's annual and quarterly reports filed with the Securities and Exchange Commission.

This conference call may not be recorded or reproduced in transcripts without the explicit written permission of Viad and during today's call we will refer to tables one and two in the press release.

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

And now I will introduce Bob Bohannon, CEO of Viad.

Thanks, Carrie.

Good morning, everyone.

Thanks very much for being with us today.

Today you will hear from Paul Dykstra, our Chief Operating Officer, Kevin Rabbitt, President of GES, Kim Fracalossi, President of Exhibit Group, and Ellen Ingersoll, our Chief Financial Officer.

Before we discuss the results for the quarter and full year, I want to first talk about today's announcement regarding share repurchases.

During 2005 our cash balances grew by 37.6 million to a little over 152 million.

We continue to evaluate the best uses of our cash to maximize shareholder value and total shareholder return.

And today's announcement concerning our plans to repurchase up to 1 million common shares increases our flexibility to accomplish this objective.

As we've talked about before our first priority for capital deployment is a strategic acquisition and this has not changed.

But with 152 million in cash and only 17 million in debt, we believe that today's announcement regarding share repurchase will not preclude us from making such an acquisition.

Share repurchases have been our first priority after acquisitions.

And given the strength of our balance sheet and the fact that our cash balances continues to grow, we believe it is prudent now to repurchase some shares.

On the acquisition front, we continue to see and evaluate promising opportunities.

But as we've talked about many times in the past, we will only acquire though if we can by the right company at the right price.

And so with that, I would now like to turn it over to Paul to discuss our full year and fourth quarter results.

Paul?

Thanks, Bob.

Good morning and thanks for joining us.

As I discuss our full year and fourth quarter results, you may want to refer to tables one and two in the earnings press release.

Full year income before impairment losses was 37 million or $1.66 per diluted share, up 59% compared to 23.3 million or $1.07 per diluted share in 2004.

These results exceeded our prior guidance of $1.38 to $1.42 per diluted share.

The impairment losses we recorded during 2005 related to the third quarter write down of assets that were damaged as a result of Hurricane Katrina and amounted to $508,000 after tax, or $0.02 per share.

Our full year income from continuing operations, which includes the impairment losses, was 36.5 million or $1.64 per diluted share.

Full year revenue was 826.3 million, up 40.6 million or 5.2% from 2004.

And segment operating income was 64.2 million, up 10.8 or 20.3% from 2004.

Our fourth quarter results also came in much better than last year and our prior guidance.

For the fourth quarter income from continuing operations was 3.6 million or $0.16 per share, as compared to a loss before impairment losses of 6 million or $0.27 per share in the 2004 fourth quarter and prior guidance of a loss of $0.08 to $0.12 per share.

Revenue was 158.6 million, up 6.4 million or 4.2% from the prior year quarter, and segment operating income was 2.8 million as compared to a loss of 5.2 million in the fourth quarter of 2004.

As we mentioned in our press release, our 2005 results included favorable tax settlements of 2.7 million, or $0.12 per share in the fourth quarter, and 4.7 million, or $0.21 per share for the full year.

While these settlements certainly contributed to do our strong year-over-year growth, it is important to note that we also saw very strong growth in our operating results.

Excluding the favorable tax settlements of 4.7 million in 2005 and 2.4 million that we recognized in 2004, our growth and income before impairment losses was 55%.

This strong growth was driven mainly by improved profitability at Exhibitgroup/Giltspur, which Kim will talk about later.

While Exhibitgroup was the main driver of growth and operating results, all of our companies performed well in 2005.

Now let's move on to the individual operating segment results, again you may want to refer to table one of the press release which provides revenues and operating income for each of the operating segments.

First I'll turn it over to Kevin Rabbitt to talk about GES.

Kevin.

Thank, Paul.

We finished the year in line with our prior guidance.

Revenue for the fourth quarter, which is seasonally slow quarter for us, was 99.6 million and our operating loss was $869,000.

For the full year revenue was 568 million, up 27.9 million or 5.2% from 2004.

Operating income was 43.6 million as compared to 43.3 million in 2004, and operating margins were 7.7% as compared to 8% in 2004.

We realized solid growth in our revenue versus 2004 with positive base same show growth every quarter.

Base same show growth is one performance measurement that we use and it refers to revenue growth in our shows that occur in the same city in the same quarter of every year.

For the fourth quarter our base same show growth was 8.4% and for the full year it was 6.8%.

We attribute this growth to continued improvement in the industry and the efforts of our products and services group to increase penetration into exhibitor discretionary spending.

For the year our exhibitor discretionary(ph) revenue increased 7.9% from 2004, out pacing our overall revenue growth of 5.2%.

The relatively strong growth of exhibit discretionary revenue compared to other areas creates an adverse mix of business shift away from higher margin material handling revenue.

Therefore the result of the growth is two-fold.

While generating incremental operating income, it also results in a lower blended operating margin.

Our 2005 operating margins were also negatively impacted by reduced freight density, higher petroleum costs and the disruption of trade show activity caused by Hurricane Katrina.

As a reminder, the freight density is a result of exhibitors using lighter weight components in their exhibits and bringing less products on to the show floor which negatively impacts our higher margin material handling revenue.

As we've discussed in the past, the increased cost of petroleum drives up prices of many petroleum based products that we use, including carpet, transportation and plastics.

To help offset the impact of higher prices in these products due to petroleum supply challenges, we announced a petroleum surcharge at the beginning of 2005 fourth quarter.

Since then we've been working with our clients to either implement this surcharge or make other changes to our pricing and or exhibitor service that will achieve a similar effect.

We still have work to do on this process but our efforts thus far has been successful.

We've also been working very hard to drive productivity improvements through the implementation of best practices and utilization of new technology.

These efforts, along with the revenue growth from our products and services group, enabled us to produce strong operating results despite challenges we faced in 2005.

Now I will quickly cover our revenue backlog before commenting on our 2006 outlook.

During the fourth quarter we signed 116 million of future bookings and we have over 60% of our planned 2006 revenue under contract and our total revenue backlog for 2006 and beyond stands at 981 million.

Looking ahead to 2006, we expect to realize growth in both revenue and operating income.

Show rotation is not expected to have a meaningful impact on our full year revenue, however, it will change our quarterly revenue pattern.

For the first quarter we expect negative show rotation revenue of about 22 million as several large shows, including CONEXPO-CON/AGG and ProMat, rotate out.

In the second quarter we expect positive show rotation revenue of about 9 million.

The third quarter is expected to be positive by about 24 million and the fourth quarter show rotation is expected to negatively impact revenue by about 7 million.

Now let me give some more specific guidance for the 2006 first quarter.

We expect first quarter revenue to be in the range of 180 to 190 million and operating income is expected to be in the range of 18.5 to 20.5 million.

Overall we are optimistic about 2006.

We continue to see improvement in the exhibition [inaudible] industry and growth in our portfolio of shows.

The Consumer Electronics Show in early January got our year off to a solid start.

The show continued expansion and square footage this year, with considerable growth versus the 2005 occurrence.

CS has always been a very strong show and we are certainly not expecting growth of this magnitude from all or our shows.

Nonetheless, the growth in this show is a positive early indicator for the industry as we begin the new year.

Internally we continue to drive incremental productivity improvements and profitable revenue growth with focused efforts to address the specific challenges we face.

We will also continue to do a great job controlling costs where we can in order to deliver quality products and services and great customer service at a terrific value to our customers and strong returns to our shareholders.

The GES team is certainly committed to winning in 2006 for all of our stakeholders.

Thanks, Kevin.

Next I am going to ask Kim Fracalossi to comment on Exhibitgroup/Giltspur.

Kim.

Thanks, Paul.

For the past year you've heard me talk about the work we've been doing to reduce our breakeven point to 180 million in revenue.

I'm happy to report that we've achieved this goal.

Our full year operating income was 511,000 on revenue of 184.3 million.

As compared to 2004 that's an improvement of 10.2 million in operating income, on a revenue increase of 6.2 million.

I'm very proud of this achievement and most especially proud of the hard work and dedication of the Exhibitgroup/Giltspur team.

We finished the year with much stronger results than we had previously anticipated.

Not only did we realize more fourth quarter revenue than expected, but we also realized a much better mix on that revenue.

While we had previously expected a revenue mix similar to that experienced in the prior year's fourth quarter, during which our mix of construction revenue was roughly 23%, we actually realized about a 30% construction revenue mix, as some clients either increased their spending budgets for the fourth quarter or pushed to spend the remaining budget dollars before the end of the year.

Because our construction margins are stronger than the margins of our show services, this more favorable mix made a big impact on our operating income and on our margins.

Our fourth quarter operating income was 4.6 million on revenue of 52.1 million, giving us operating margins of 8.8%.

This shows the results that we are able to deliver with our improved infrastructure when we have a better mix of construction revenue.

And even though our mix improved in the fourth quarter to 30%, it was still well below the 40 to 45% mix that we experienced prior to the downturn in 2001.

We are realizing the benefits of the work that that we have been doing over the past few years to drive productivity improvement and to increase the profitability of our show service offering.

The 2005 fourth quarter marked our second straight quarter with improved construction revenue on a year-over-year basis.

And the 2005 full year marked our first year of revenue growth since 2000.

We think this is a very positive sign for the health of the exhibit and event industry and for the increased demand for exhibit construction.

While we are certainly encouraged by this, I do want to caution that we still don't have great visibility over that construction revenue mix this year.

Because most companies typically don't build a new exhibit every year, much of the new exhibit construction revenue that we received in 2005 won't recur in 2006.

And as is the case every year, what we need to do is to secure new exhibit spending by other clients to fill this gap.

Having said that, our outlook for the 2006 full year is for modest revenue growth.

For the first quarter we expect revenue to be in the range of 33 to 38 million.

And we expect operating results to be in the range of a loss of 1 million to a loss of 2.5 million.

This compares to our 2005 first quarter operating loss of 1.8 million on revenue of 46.4 million.

The expectation of lower revenues in the first quarter of 2006 versus prior year is driven by three factors.

One, in the first quarter of 2005 we benefit from client spending to exhibit at CONEXPO-CON/AGG, one of the largest trade shows in North America.

This show only takes place once every three years, so we won't see that benefit again until 2008.

Two, we are also expecting a shift in some client spending from the first quarter to the second and third quarters.

And this is based upon the clients 2006 planned trade show program schedule.

And three, our first quarter 2005 included revenue from a couple of clients that we did not resign during the first half of last year.

Before closing, I would also like to remind you that we will be effected by show rotation in the second and third quarters.

A major European air show that took place in 2005 second quarter will take place in the 2006 third quarter.

The air show provides us with roughly 10 million in annual revenue.

In closing, we continue to see good RFP activity and our win ratio remains strong.

We are realizing great throughput on our revenue and we are very focused on growing that revenue.

We will never stop working to reduce costs and to drive productivity improvements.

Fortunately we've got a more efficient infrastructure in place now and some sales momentum behind us, putting us in a great position to grow the business profitably.

With continued improvement in the industry and solid execution by the Exhibitgroup/Giltspur team, we expect that 2006 will be another year of improved results.

Paul, back to you.

Thank you, Kim.

Now I will cover highlights for the travel and recreation segment.

The travel and recreation services segment finished the year in line with our prior guidance, posting a fourth quarter operating loss of 930,000 on revenue of 6.8 million.

Fourth quarter is seasonally very slow for this segment.

For the full year revenue was 73.9 million up 9.6% and segment operating income was 20.1 million up 1.8% from 2004.

The strong revenue growth was primarily driven by increased occupancy at Brewster's Mount Royal Hotel and at Glacier Park's inns and lodges, as well as an increase in passenger volume at Brewster's Gondola.

The Mount Royal Hotel's occupancy percentage was up 650 basis points for the year and the number of rooms occupied at Glacier Park's properties increased by 3%.

Gondola passenger volumes increased 5.4% for the year.

And while passengers at the ice field were slightly lower this year, Brewster was able to drive incremental revenue at this attraction through price increases.

Operating income growth at this segment was hampered somewhat by higher fuel costs and certain maintenance expenses.

Despite these factors, the travel and recreation services segment still realized very strong operating margins of 27.2%.

Our concession air contract with the National Park Service at Glacier Park has been extended through the end of 2006 and will likely be extended for another two years beyond that.

Early indications are good from continued modest growth at both Brewster and Glacier Park in 2006.

For the seasonally slow first quarter, we expect revenue to be in the range of 4.5 to 5 million, with an operating loss in the range of 1.5 to 2 million, in line with 2005.

For the full year we expect modest improvements in both revenue and operating income and continued strong operating margins and cash flow.

I will now ask Ellen Ingersoll to discuss some financial highlights for the quarter.

Ellen?

Thanks, Paul.

As shown in table two to the earnings release, adjusted EBITDA was 5.6 million during the quarter versus a loss of 2 million in the fourth quarter of 2004.

Also as shown in table two, free cash flow, defined as cash from operations less capital expenditures and dividends, was 8.5 million for the quarter versus free cash outflow of 4.1 million in the 2004 fourth quarter.

And directionally for 2006, free cash flow is expected to approximate net income plus depreciation and amortization minus restructuring payments, CapEx and dividends.

For the full year 2006 our working capital is expected to have a slightly positive impact.

At December 31, 2005, Viad had total cash and cash equivalents of 152.6 million.

We had total debt at the end of the quarter of 17.4 million, with a debt to capital ratio of 4.1%.

Net interest income for the quarter was 621,000 versus net interest expense of 42,000 in the fourth quarter of 2004.

Depreciation and amortization for the quarter was 5.1 million compared to last year's fourth quarter of 7.2 million.

The full year 2006 forecast is approximately 20 million to 22 million.

Our capital expenditures were 6.1 million in both the current and prior year's fourth quarter.

The full year 2006 forecast is approximately 20 million to 22 million.

Payments on Viad's restructuring reserves were 551,000 during the quarter versus 1.3 million in the fourth quarter of 2004.

We expect to make restructuring payments of approximately 1.7 million in 2006.

The 2005 income tax rate for the year, and this is excluding asset impairment losses, was 29.7% versus 34.8% in 2004.

The rates reflect favorable tax settlements totaling 4.7 million in 2005 and 2.4 million in 2004.

The tax rate in 2005, excluding the $4.7 million favorable tax settlements, approximated 39%.

Back to you, Paul.

Thanks, Ellen.

Before wrapping up my comments and opening up the call to questions, let me give some guidance for the 2006 full year and first quarter.

For the full year 2006 we are increasing our guidance for the 2006 based on a more favorable outlook for Exhibitgroup.

We now expect full year income per share, including expected stock option expense of $0.06 a share, to be in the range of $1.49 to $1.60 versus our prior guidance of $1.45 to $1.56.

This compares to 2005 income before impairment losses of $1.66 per share, which included $0.21 per share of favorable tax settlements and did not include any stock option expense.

The guidance range for 2006 assumes an effective tax rate of 39% as compared to the 2005 effective tax rate on income before impairment losses of 29.7%.

Full year revenue is expected to increase by a mid-single digit rate from the 2005 amount of 826.3 million.

Segment operating income is expected to increase by a mid to high-single digit rate from 64.2 million in 2005.

This growth is expected to be driven by improved results at all of our operating companies.

Show rotation is not expected to have a meaningful impact on full year 2006 revenues, but will impact our quarterly revenue pattern, as Kim and Kevin discussed earlier.

For the first quarter we continue to expect income per share to be in the range of $0.35 to $0.43, including expected stock option expense of $0.02 a share.

This compares to income from continuing operations of $0.56 per share in the 2005 first quarter, which did not include any stock option expense.

Revenue is expected to decrease by high-single digit to low teens rate from the 2005 amount of 249.5 million.

Segment operating income is expected to decrease by 5 million to 8 million from the 2005 amount of 22.8 million.

The declines versus 2005 are due primarily to negative share rotation at GES.

Specific first quarter guidance for each of our operating segments can be found in the earnings press release.

To summarize, 2005 was a great year for Viad and its operating companies.

We drove very strong growth in segment operating income through successful revenue initiatives that led to both incremental revenue and increased profitability.

We continue to see improvement in the exhibition and event industry and we are executing very well internally.

Our goal is to carry this momentum into 2006.

We have now seen two consecutive quarters of improvement in exhibit construction revenue mix at Exhibitgroup.

And we are cautiously optimistic that we will continue to see growth going forward.

However, because we don't have good visibility over exhibit construction revenue, our full year guidance for Exhibitgroup assumes only a modest increase in revenue.

Given the productivity improvements that Exhibitgroup has realized, we should have great upside if we can drive more revenue through that business.

Either way, we are committed to producing another year of improved results in 2006.

Now before we close, I would like to turn the call back over to Bob Bohannon for some final remarks.

Bob.

Okay, thanks, Paul.

As you heard from Paul and our management team, 2005 was a great year for Viad and we are optimistic about 2006.

As I turned over my responsibilities to Paul, I'm happy to say that Viad is financially and operationally very strong.

Our balance sheet will provide us great flexibility as we go forward.

We have great market positions in the industries we serve.

We have first rate employees and a strong management team with considerable talent and experience.

We've had some years where we have faced some terrific headwinds, particularly in the convention and event segment side, but now we believe that we have a little wind on our backs.

And we all believe that the best days of Viad are ahead.

So with that we will close and take your questions.

Thank you, Mr. Bohannon. [OPERATION INSTRUCTIONS] Our first question will come from Kartik Mehta with Midwest Research.

Good morning.

A question for you, Paul, on the Exhibitgroup business.

In one of the statements you say you have a favorable outlook, but then you later went on to say you don't have good visibility.

So is the upside to the earnings and maybe your thought for Exhibitgroup because of the productivity gains it has had, or maybe because there has been greater activity from a contract perspective and that will be reflected in the first half?

Good morning, Kartik.

Let me take a shot at that and then I will ask Kim to comment as well.

I think we've always said we do have limited visibility, despite our best efforts, in that business.

Certainly we saw a better fourth quarter than we previously expected and we are hoping that that momentum continues going into the future.

But definitely we still have some visibility issues with the construction mix and just general corporate spending in that arena.

We are forecasting modest growth in that business.

I think that was the comment that we made.

But our biggest issue is still the continuing lack of visibility and really knowing what the strength of the spending is going to be.

Kim, do you want to comment on that?

Yes, that's what -- basically what Paul had summarized is accurate.

The issue is what type of revenue are we going to get.

And historically I had mentioned that the mix is anywhere from 40, 45, in the good years and we should be in the 30, 35 range in a normalized environment.

When we touch that 30 to 35%, as we just entered that in the fourth quarter, we performed very well.

The question for us is what kind of revenue, what is the mix of that revenue in the new year.

And that's the part that's difficult to predict.

We have had a couple of quarters where we've seen an increase on a year-over-year basis.

So we are encouraged by that.

But it makes sense for us to be a little cautious because we have a full year where we are not completely sure yet.

It's not like the customers have indicated to us that they have significant dollars they are going to spend.

And, Bob, a question on the acquisition side.

Is that a matter of price or opportunity?

Have you seen a lot of opportunities but the prices hasn't been right or is it the fact that maybe you just haven't seen the right opportunities for the business mix you are looking for.

It's a little bit all over the lot.

When we look back at '05, we had two real good opportunities where we also thought it would be a good cultural fit.

And we ruled out other things because we didn't think it would be a good cultural fit.

Now in these particular two and one we talked about in the third quarter, it got down to price.

There is a lot of money out there, particularly from the private groups.

On the first one we had early in the year, we would have loved to have had it, but it just got beyond what we thought would be a price that we could pay and have something good for our shareholders on a go forward basis.

We are not really interested in doing anything of a dilutive nature.

We want everything to at least be neutral, slightly accretive the first year and with good prospects on a go forward basis.

And the one in the third quarter, again, that got down to a matter of a big difference of about 10% on the price.

So I will tell you, though, there are a lot of interesting things we are working very hard but there is still a lot of money out there, too.

But we are going to maintain the discipline.

And as we've talked about before, if we can't do that then share repurchase is a very good option for us.

Thank you very much, Bob.

Thank you.

[OPERATOR INSTRUCTIONS] And from Pennant Capital we will hear from Lou Sikes.

Bob, a question for you.

Could you, beyond what you just said, elaborate a little more what you are looking for in acquisitions?

Yes, we are not very interested in anything right now on the Exhibitgroup/Giltspur side.

We've talked about that one before.

At some point in time in the future we may be, but we still want that industry to settle down a bit.

We have been very active on the GES side of the house in looking.

We did in '05 and we continue that into '06.

And with some of the things that we've looked at, again, if we had been able to get them at the right price, I think that our shareholders would have been very pleased with those.

So again, we are scanning a whole host of things and still looking very hard, Lou.

And would that include acquisitions that are outside the broad convention space?

It could potentially.

We think in terms of business services and so forth and all of the things that we do.

And what our strengths are we could bring to certain things.

And if we found an opportunity of where we already have good existing strengths that we could also leverage off the existing infrastructure that we have and so forth.

And if in fact the growth potential for those things would be very strong, high-single, low double-digits on the revenue piece, same thing on the operating side, we would certainly look at that.

So there would have to be some operating connection?

The reason why I am asking these questions is you obviously have spun off MoneyGram.

That was a great business with high growth, low capital intensity, very profitable.

Still it made sense to separate the two businesses and I think you consider that a success.

I'm a little puzzled why you consider acquisitions a priority over stock repurchases.

Well, again, on the definition that we've used, we have not -- while we have not done too many.

I guess the best example I could give you, the last one of big size that we did was MoneyGram in 1998.

Now we've done a lot of small things since that time.

And so the comments that I was making earlier, kind of alludes to something of size.

But if in fact, we could find something of size that would be similar to what we saw at MoneyGram, and back then we saw the potential to have a great business and thankfully that's turn out to be true.

And all I'm suggesting is that if we saw something like that that we thought we could -- similar in characteristics, great margin growth, low capital intensity, that type thing and if in fact we thought we had some strengths that we could do, we would certainly look at something like that.

And when you look at acquisitions like this would you -- I guess what I'm trying to say is I would encourage you to, instead of looking at whether it's accretive versus holding cash, look at whether it's accretive versus buying back your own stock a few years out, given that you just started gaining some traction in a turnaround that looks very promising.

No, Lou, and we agree with you and with what we have -- any time we are looking to deploy any amount of capital we look at exactly that and it's not just for year one.

We do look out and that's the first thing we do, look out.

And that probably is maybe one of the reasons why we have not been able to agree with anyone on price yet.

Okay.

But we are going to continue to model that type thing and we are just not going to do anything silly.

Our next question will come from Tom Bacon with Lehman Brothers.

I was just wondering, Kevin, if you could talk a little bit about those petroleum surcharges and what's going on there and how your customers are responding?

Kevin, can you take that?

Sure, how are you doing, Tom?

Good, how are you?

As I mentioned earlier on the call, as well as at the meeting in New York, the customers are certainly understanding that the cost of petroleum is something that's of major impact.

They see it every day in their home heating bills and filling their gas tanks up at the pump.

So they are working with us actively in which to either implement the surcharge or find alternate methods through pricing or services that can achieve the same overall results.

I'd say that the overall message is that our clients are working with us actively on it.

For Exhibitgroup, in terms of the -- can you tell us what the construction mix was for the full year and maybe give us an idea of in your guidance what you are thinking about there?

Kim?

Yes.

We showed about, just under 24% construction mix for the full year.

Okay.

Versus a 30% mix for the fourth quarter.

Okay.

And that's just a slight increase, not even a full percentage point increase over the prior year.

So we are anticipating and going into the year saying that we are probably going to be around the same mix.

So if we're any better that's upside.

Okay.

Okay?

In terms of the, Bob, in terms of the acquisition front, are you getting to the point now where is it not that you are seeing enough opportunities?

Are you going to start to broaden your horizons in terms of the industries that you are considering or is it just a matter of getting the right price?

We are not broadening anything.

We see some and have seen some very nice things.

I had mentioned that the first thing that we obviously look to right up front, do we have a culture match.

Are our values very similar.

Because I think, as would you agree, it doesn't make any difference what the numbers say.

If you don't have a match in the culture, you are wasting your time.

It will probably turn out very poorly.

And so those you can pretty much rule out right away.

The '05, what we saw on two very promising things, we just couldn't get there with what the sellers thought those businesses were worth.

We continue to move along, but as I mentioned, it's got to be something that, as we model to, that if we do that, versus say share repurchase, that it makes good sense.

Okay.

Ellen, I'm sorry, could you give your CapEx guidance for '06 again, please?

Thanks.

Sure.

For '06 we are expected to be in the range of 20 to 22 million, which is in line with D&A for '06.

Okay.

Great.

That's all for me.

Thanks very much.

Sure.

[OPERATOR INSTRUCTIONS] And from Schneider Capital we will hear from Rob Maaten.

Good morning.

I just had a couple of questions to help clarify your guidance a little bit.

It's not a big number, but the option expense, is that mostly in the operating segments or does that all flow through the corporate line?

About a third of it's in the corporate line and the rest in the operating Company,

Okay.

And then on Exhibitgroup, if I recall, you had a little under 5 million of legal expenses earlier in the year.

And you said you expect all divisions to improve in '0.

And I'm just wonder what the base line is for Exhibitgroup, should we add back that legal expense or should we be starting from the 0.5 million number that you mentioned?

Kim, you want to take that?

Sure.

The legal expense was about $4.6 million spread in the first and second quarter of 2005, that's correct.

And if we have the same mix in revenue that we had in 2005, you could in fact add that back.

The question is are we going to have the same mix of business.

And that's the part where we talk about the visibility on the percent of construction is difficult for us to predict.

Okay.

So I guess if I make that assumption, it seems like your overall guidance is pretty flat on the operating profit line and the 4.6 million basically gets you the high, mid to high-single digit operating profit improvement over '05 before any growth in any of the divisions.

Yes, we didn't give any segment performance so I think that's -- are you referring to the overall Viad guidance, because there is no individual segment for the year?

Right.

If I take the 64.2 for the year overall and add the 4.6 back, that basically gets you to the overall mid to high-single digit operating profit guidance that you've given.

We are forecasting GES at the mid to high-single digit rate in revenue, EG at a low-single digit rate, Tom, and travel and rec at a low to mid-single digit rate.

The issue that we have and continue to have, and I know we've talked about this an awful lot on these calls, is the visibility into the construction mix at Exhibitgroup.

We definitely expect to spend legal fees at a much lower rate than we did in 2005.

Okay.

And I would just add that, again, we've gotten battered for four years in the exhibit industry.

It was all going against us.

We are pleased with the 2.2% construction increase we saw in the third quarter of '05, as well as a little over 7% in the fourth quarter.

If in fact those are trends, and I guess once you've been beaten up in an industry the number of years we were on the Exhibitgroup side, we hopefully are still being a little bit cautious.

But I can tell you, I think we are all more optimistic.

And I think as you can see from the fourth quarter, if we can get some revenue improvement through there, there is excellent throughput and we have a real good chance of having a lot better year, perhaps, then what's reflected in our guidance if that revenue does show up.

And it's the right mix, as Kim talked about.

Okay.

And then just one last one on the petroleum surcharge strategy.

Have you seen your competitors pursuing similar strategies at all or are you still kind of waiting for them to hopefully jump on board.

Certainly our competitors have the same issues, use a lot of the same products and fill their trucks up at the pump as well.

I think they've taken a little different strategy in that they are definitely going to have to increase prices as well to cover that cost.

Kevin, you want to comment on that?

You are exactly right there, Paul.

They have announced that certainly facing the same issues, trying to take actions in which to increase pricing which to do it.

We believe the surcharge is a better way to do it because it allows you to adjust it up or down based on the environment from a petroleum standpoint.

Okay.

Thanks a lot.

At this time there appears to be no further questions in the queue.

I would like to turn the call back over to Mr. Paul Dykstra for any closing marks.

Thanks, Christina.

We are certainly going to do everything possible to have another winning year in 2006. 2005 was a great year and we continue to have that commitment for all our stakeholders.

We thank you very much for joining our call and look forward to talking to you again at the end of the first quarter.

Thank you.

That does conclude our teleconference for today.

We would like to thank everyone for your participation and have a wonderful day.