UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) FEBRUARY 1, 1999
TRAVEL SERVICES INTERNATIONAL, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 0-29298 52-2030324
- ------------------------- ------------ --------------
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification No.)
220 CONGRESS PARK DRIVE, DELRAY BEACH, FLORIDA 33445
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 561-266-0860
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
<S> <C>
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
AHI INTERNATIONAL CORPORATION AUDITED FINANCIAL STATEMENTS PAGE
Report of Independent Certified Public Accountants 3
Balance Sheet as of December 31, 1998 4
Statement of Operations and Retained Earnings for the Year
Ended December 31, 1998 5
Statement of Cash Flows for the Year Ended December 31, 1998 6
Notes to Financial Statements 7
(B) PRO FORMA FINANCIAL INFORMATION.
TRAVEL SERVICES INTERNATIONAL, INC. AND ACQUIRED SUBSIDIARY PAGE
Unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 1998 10
Unaudited Pro Forma Condensed Combined Statement of Income
for the Year Ended December 31, 1998 11
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements 12
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
AHI International Corporation:
We have audited the accompanying balance sheet of AHI International Corporation
(the "Company"), an Illinois corporation, as of December 31, 1998, and the
related statements of operations and retained earnings and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AHI International Corporation
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
February 16, 1999.
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AHI INTERNATIONAL CORPORATION
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,830,795
Investments 667,678
Prepaid tour costs 6,873,300
Accounts receivable 835,253
Receivables from employees 72,036
Other current assets 176,974
------------
Total current assets 18,456,036
PROPERTY AND EQUIPMENT, net 741,919
------------
Total assets $ 19,197,955
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 12,923
Customer deposits 10,884,270
Trade payables 4,442,284
Accrued liabilities 725,422
State income tax payable 59,510
------------
Total current liabilities 16,124,409
------------
COMMITMENTS (Note 4)
SHAREHOLDERS' EQUITY:
Common shares, no par value; 100,000 shares authorized;
20,682 shares issued and outstanding 6,894
Retained earnings 3,066,652
------------
Total shareholders' equity 3,073,546
------------
Total liabilities and shareholders' equity $ 19,197,955
============
The accompanying notes to financial statements are an integral part of this
balance sheet.
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AHI INTERNATIONAL CORPORATION
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1998
NET REVENUES $ 15,736,503
OPERATING EXPENSES 8,363,851
------------
Gross profit 7,372,652
GENERAL AND ADMINISTRATIVE EXPENSES 3,635,114
------------
Income from operations 3,737,538
OTHER INCOME (EXPENSE):
Interest income 488,801
Interest expense (3,931)
Loss on sale of fixed assets (105,460)
Other, net (12,518)
------------
Total other income (expense) 366,892
------------
Income before provision for state income taxes 4,104,430
PROVISION FOR STATE INCOME TAXES 61,779
------------
Net income 4,042,651
RETAINED EARNINGS, beginning of year 1,145,400
DISTRIBUTIONS (2,121,399)
------------
RETAINED EARNINGS, end of year $ 3,066,652
============
The accompanying notes to financial statements are an integral part of this
statement.
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AHI INTERNATIONAL CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,042,651
Adjustments to reconcile net income to
net cash flows provided by operating activities-
Depreciation 167,115
Loss on sale of fixed assets 105,460
Changes in assets and liabilities:
Prepaid tour costs (667,988)
Accounts receivable 66,771
Receivables from employees 2,814
Other current assets (41,561)
Customer deposits (754,510)
Trade payables (362,262)
Other current liabilities 197,997
-----------
Net cash flows from operating activities 2,756,487
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (668,806)
Proceeds from sale of property and equipment 5,680
Proceeds from sale of investments 291,473
-----------
Net cash flows used in investing activities (371,653)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders (2,121,399)
-----------
Net increase in cash and cash equivalents 263,435
CASH AND CASH EQUIVALENTS, beginning of year 9,567,360
-----------
CASH AND CASH EQUIVALENTS, end of year $ 9,830,795
===========
The accompanying notes to financial statements are an integral part of this
statement.
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AHI INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. ORGANIZATION AND NATURE OF BUSINESS
The Company, an Illinois corporation, is engaged primarily in arranging group
travel tours, principally marketed through college alumni associations. On
February 1, 1999, pursuant to a purchase agreement dated January 8, 1999, the
Company became a wholly owned subsidiary of Travel Services International, Inc.
in a transaction accounted for using the purchase method of accounting. The
purchase price consisted of $24.0 million in cash and 145,400 shares of common
stock of Travel Services International, Inc.
b. REVENUE RECOGNITION
Revenues from tours and the related costs are recognized when the tour
commences. The Company prepays certain tour costs, and the recognition of such
tour costs are deferred until the tour commences. These costs include direct
mail solicitation costs, which are deferred until the tour commences.
Additionally, to the extent the Company has received customer deposits, they are
deferred until the tour commences.
c. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
d. INVESTMENTS
Investments are recorded at fair market value. Investments are comprised of a
certificate of deposit, which bears interest at 4.40%, and an investment
portfolio with Salomon Smith Barney. The investment portfolio was sold by the
Company during February 1999 at a loss of $15,006, which has been recognized in
the accompanying 1998 statement of operations in other expense.
e. RECEIVABLES FROM EMPLOYEES
Receivables from employees are comprised of advances on sales commissions and a
receivable from the previous owner of the Company, which was fully repaid during
February 1999. The receivables relating to advances on sales commissions are due
on demand.
f. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is based on estimated
useful lives and is provided on the straight-line method. The useful lives of
property and equipment for purposes of computing depreciation range from three
to five years.
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g. OPERATING EXPENSES
Operating expenses include sales commissions, salaries, direct mail
solicitation, communication, credit card fees and other costs associated with
the selling and processing of tour reservations.
h. INCOME TAXES
In 1998, the Company operated under the provisions of Chapter S of the Internal
Revenue Code, whereby its income is treated for income tax purposes
substantially as if the corporation were a partnership. Accordingly, no
provision has been made by the Company for U.S. Federal income taxes or for
state income taxes in those states which recognize the Chapter S election. The
Company is subject to the 1.5% State of Illinois replacement tax.
i. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The Company estimates costs
based on current foreign currency rates. Because these estimates are made well
in advance of payments to vendors, actual costs could vary significantly from
the estimates as a result of foreign currency fluctuations.
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 is comprised of:
Office equipment $ 495,769
Furniture and fixtures 389,814
Vehicles 22,397
Leasehold improvements 141,734
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1,049,714
Accumulated depreciation (307,795)
------------
Property and equipment, net $ 741,919
============
3. NOTE PAYABLE
Note payable is secured by a computer software license, bears interest at 12%
and is due in monthly installments through August 1999.
Cash payments for interest were $2,713 for 1998.
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4. LEASE OBLIGATIONS
The Company leases certain of its building and office equipment under operating
leases. Future minimum lease payments under noncancellable operating leases as
of December 31, 1998 are as follows:
1999 $ 463,436
2000 474,194
2001 483,131
2002 492,068
2003 471,934
Thereafter 522,785
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Total future minimum lease payments $ 2,907,548
=============
Rental expense under noncancellable operating leases was $437,125 for 1998.
5. EMPLOYEE RETIREMENT PLAN
The Company has a noncontributory profit-sharing plan, which covers all eligible
employees, and a 401(k) plan, which is contributory and offered to all eligible
employees. The annual Company contributions to the profit-sharing and the 401(k)
plans are at the discretion of the Board of Directors. Company contributions
made to the 401(k) plan were $76,145 in 1998. There were no contributions made
to the profit-sharing plan for 1998.
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TRAVEL SERVICES INTERNATIONAL, INC. AND ACQUIRED SUBSIDARY
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1998
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AHI PRO FORMA
TSI INTERNATIONAL ADJUSTMENTS PRO FORMA
------------ ------------ --------------- -------------
(unaudited) (unaudited)
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ASSETS
Current Assets:
Cash and cash equivalents $ 26,084,008 $ 9,830,795 $ (2,435,000)(1) $ 33,479,803
Accounts receivable, net 15,460,072 835,253 -- 16,295,325
Receivables from affiliates and employees 249,842 72,036 -- 321,878
Prepaid expenses 6,299,692 6,873,300 -- 13,172,992
Deferred income taxes -- -- -- --
Other current assets 1,476,695 844,652 -- 2,321,347
------------ ------------ ------------ ------------
Total current assets 49,570,309 18,456,036 (2,435,000) 65,591,345
Property and equipment, net 22,503,683 741,919 -- 23,245,602
Goodwill, net 105,773,035 -- 27,723,454 (2) 133,496,489
Notes receivables from employees 409,592 -- -- 409,592
Other assets 1,045,401 -- -- 1,045,401
------------ ------------ ------------ ------------
Total assets $179,302,021 $ 19,197,955 $ 25,288,454 $223,788,430
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 257,240 $ 12,923 $ -- $ 270,163
Due to affiliates and employees -- -- -- --
Trade payables and accrued expenses 29,291,234 16,111,486 -- 45,402,720
------------ ------------ ------------ ------------
Total current liabilities 29,548,474 16,124,409 -- 45,672,883
Borrowings under line of credit -- -- 24,000,000 (2) 24,000,000
Long-term debt, net of current portion 2,888,069 -- -- 2,888,069
Deferred income taxes 1,067,343 -- -- 1,067,343
Other long-term liabilities 501,869 -- -- 501,869
Stockholders' Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized;
none outstanding -- -- -- --
Common stock, $0.01 par value; 50,000,000 shares authorized;
13,522,369 shares outstanding 133,770 6,894 (5,440)(2) 135,224
Additional paid-in capital 129,623,103 -- 3,728,894 (2) 133,351,997
Retained earnings 15,539,394 3,066,652 (2,435,000)(1)(2) 16,171,046
------------ ------------ ------------ ------------
Total stockholders' equity 145,296,267 3,073,546 1,288,454 149,658,267
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $179,302,021 $ 19,197,955 $ 25,288,454 $223,788,430
============ ============ ============ ============
</TABLE>
The accompanying notes to these unaudited pro forma condensed combined financial
statements are an integral part of these statements
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TRAVEL SERVICES INTERNATIONAL, INC. AND ACQUIRED SUBSIDARY
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
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AHI PRO FORMA
TSI INTERNATIONAL ADJUSTMENTS PRO FORMA
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(unaudited) (unaudited)
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Net revenues $ 129,854,649 $ 15,736,503 $ -- $ 145,591,152
Operating expenses 70,920,190 8,363,851 -- 79,284,041
------------- ------------- ------------- -------------
Gross profit 58,934,459 7,372,652 -- 66,307,111
General and administrative expenses 34,550,281 3,635,114 (440,000)(3) 37,745,395
Goodwill amortization 2,627,729 -- 792,099 (4) 3,419,828
------------- ------------- ------------- -------------
Income from operations 21,756,449 3,737,538 (352,099) 25,141,888
Interest expense and other, net 28,289 (366,892) 1,680,000 (5) 1,341,397
------------- ------------- ------------- -------------
Income before income taxes 21,728,160 4,104,430 (2,032,099) 23,800,491
Provision for income taxes 9,310,000 61,779 808,600 (6) 10,180,379
------------- ------------- ------------- -------------
Net income $ 12,418,160 $ 4,042,651 $ (2,840,699) $ 13,620,112
============= ============= ============= =============
Diluted pro forma earnings per share $ 0.99 $ 1.08
============= =============
Shares used in computing diluted
pro forma earnings per share 12,516,195 145,400 12,661,595
============= ============= =============
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The accompanying notes to these unaudited pro forma condensed combined financial
statements are an integral part of these statements.
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TRAVEL SERVICES INTERNATIONAL, INC. AND ACQUIRED SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements and related
notes should be read in conjunction with the Company's Form S-1 Registration
Statement dated July 15, 1998 and Form 10-K for the year ended December 31,
1997.
1. Represents agreed-upon pre-closing distributions subsequent to December 31,
1998, as stated in the Stock Purchase Agreement.
2. Represents the entries to record the acquisition of AHI International
Corporation ("AHI") under the purchase method of accounting (based on the
$30.00 closing price of the Company's common stock on the February 2, 1999
transaction closing date)
3. Represents a reduction of salaries derived from contractual agreements,
which establish the compensation of the former owners and certain key
employees (Compensation Differential).
4. Represents the amortization associated with the goodwill acquired, to be
amortized over a period of 35 years.
5. Represents interest expense at a rate of 7.0 % associated with $24 million
of funds borrowed under the Company's revolving credit facility.
6. Represents the incremental provision for federal and state income taxes
relating to the pro forma income.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRAVEL SERVICES INTERNATIONAL, INC.
(Registrant)
Date: February 24, 1998
/S/ JILL M. VALES
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Jill M. Vales
Senior Vice President and Chief Financial Officer
(as both a duly authorized officer of the registrant and
the principal financial officer or chief accounting
officer of the registrant)
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