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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-9264
AMERICAN CLASSIC VOYAGES CO.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 31-0303330
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer identification No.)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, IL 60606
(Address of principal executive offices) (Zip Code)
</TABLE>
(312) 258-1890
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
As of October 31, 1996, there were 13,864,774 shares of Common Stock
outstanding.
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AMERICAN CLASSIC VOYAGES CO.
INDEX
<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
- ---------------- ----
<S> <C> <C> <C>
Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the
Three Months and Nine Months Ended September 30, 1996
and 1995............................................... 3
Condensed Consolidated Balance Sheets at September 30,
1996 and December 31, 1995............................. 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1996 and 1995...... 5
Notes to Condensed Consolidated Financial Statements... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9
Part II. Other Information:
Item 1. Legal Proceedings...................................... 15
Item 6. Exhibits and Reports on Form 8-K....................... 15
</TABLE>
2
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AMERICAN CLASSIC VOYAGES CO.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
1996 1995 1996 1995
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues............................................... $50,059 $51,964 $ 141,309 $141,948
Cost of operations (exclusive of depreciation and
amortization shown below).............................. 32,109 33,302 92,082 105,979
------- ------- --------- -------
Gross profit........................................... 17,950 18,662 49,227 35,969
Selling, general and administrative expenses........... 9,568 11,077 34,530 37,228
Depreciation and amortization expense.................. 3,548 3,400 10,934 8,347
Impairment write-down (Note 4)......................... -- -- 38,390 --
One-time pre-opening costs............................. -- -- -- 5,900
------- ------- --------- ------
Operating income (loss)................................ 4,834 4,185 (34,627) (15,506)
Interest income........................................ 172 297 623 1,405
Interest expense....................................... 1,977 2,728 6,306 3,628
------- ------- --------- -------
Income (loss) before income taxes and minority interest 3,029 1,754 (40,310) (17,729)
Income tax (expense) benefit........................... (178) (600) 271 5,500
Minority interest in loss.............................. -- 499 -- 2,361
-------- ------- --------- ------
Net income (loss)...................................... $ 2,851 $ 1,653 $ (40,039) $(9,868)
======= ====== ========= ======
Per Share Information:
Average common and common equivalent shares outstanding 13,805 13,990 13,783 13,762
======= ====== ========= ======
Earnings (loss) per share.............................. $ 0.21 $ 0.12 $ (2.90) $ (0.72)
======= ====== ========= ======
Cash dividends declared per share...................... $ -- $ -- $ -- $ 0.08
======= ====== ========= ======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
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AMERICAN CLASSIC VOYAGES CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except shares and par value)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................ $ 8,099 $ 6,048
Restricted short-term investments........................................ 2,957 10,681
Accounts receivable...................................................... 2,042 1,134
Prepaid expenses and other current assets ............................... 7,597 6,612
-------- --------
Total current assets................................................... 20,695 24,475
Property and equipment, net.............................................. 178,822 211,959
Other assets............................................................. 6,147 6,320
Goodwill, net............................................................ -- 4,719
-------- --------
Total assets........................................................... $205,664 $247,473
======== ========
LIABILITIES
Accounts payable......................................................... $ 9,593 $ 13,073
Other accrued expenses................................................... 23,600 27,437
Current portion of long-term debt........................................ 4,100 3,746
Unearned passenger revenues.............................................. 40,139 28,532
-------- --------
Total current liabilities.............................................. 77,432 72,788
Long-term debt, less current maturities.................................. 96,236 103,272
-------- --------
Total liabilities...................................................... 173,668 176,060
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value (5,000,000 shares authorized, none
issued and outstanding).................................................. -- --
Common stock, $.01 par value (20,000,000 shares authorized,
13,821,834 and 13,769,512 shares issued and outstanding,
respectively)........................................................... 138 138
Additional paid-in capital............................................... 74,670 74,048
Accumulated deficit...................................................... (42,812) (2,773)
-------- --------
Total stockholders' equity ............................................ 31,996 71,413
-------- --------
$205,664 $247,473
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
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AMERICAN CLASSIC VOYAGES CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................... $ (40,039) $(9,868)
Depreciation and amortization............................. 10,934 8,347
Minority interest......................................... -- (2,361)
Impairment write-down (Note 4)............................ 38,390 --
Changes in working capital and other:
Working capital changes and other..................... (5,857) (9,905)
Unearned passenger revenues........................... 11,607 6,257
--------- --------
Net cash provided by (used in) operating activities....... 15,035 (7,530)
--------- --------
INVESTING ACTIVITIES:
Decrease (increase) in restricted short-term investments... 7,724 (2,270)
Decrease in restricted investment.......................... -- 13,619
Capital expenditures....................................... (13,863) (41,159)
--------- --------
Net cash used in investing activities..................... (6,139) (29,810)
--------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings................................... 6,903 90,589
Repayment of borrowings.................................... (13,585) (50,000)
Issuance of common stock................................... 203 51
Dividends.................................................. -- (1,101)
Deferred financing fees.................................... (366) (1,450)
--------- --------
Net cash (used in) provided by financing activities....... (6,845) 38,089
--------- --------
Increase in cash and cash equivalents....................... 2,051 749
Cash and cash equivalents, beginning of period.............. 6,048 12,224
--------- --------
Cash and cash equivalents, end of period.................... $ 8,099 $ 12,973
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest (net of capitalized interest).................... $ 6,104 $ 2,215
Income taxes.............................................. $ 425 $ (237)
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
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AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION:
These accompanying unaudited Condensed Consolidated Financial Statements
("Financial Statements") have been prepared pursuant to Securities and
Exchange Commission ("SEC") rules and regulations and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included on Form 10-K for the year ended December 31, 1995 (the "Annual
Report") for American Classic Voyages Co. ("AMCV") and its subsidiaries. These
Financial Statements include the accounts of AMCV and its wholly owned
subsidiaries, The Delta Queen Steamboat Co. ("DQSC") and Great Hawaiian Cruise
Line, Inc. ("GHCL") (collectively with such subsidiaries, the "Company"). The
following notes to the Financial Statements highlight significant changes to
the notes included in the Annual Report and such interim disclosures as
required by the SEC. These Financial Statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the interim
financial statements. All adjustments, with the exception of the impairment
write-down discussed in Note 4, are of a normal and recurring nature. Certain
previously reported amounts have been reclassified to conform to the 1996
presentation.
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 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.
2. PROPERTY AND EQUIPMENT:
Property and equipment includes the estimated salvage value for the
Constitution of $2.5 million. The Constitution will not be returned to service
and will remain in wet berth at a shipyard in Portland, Oregon while the
Company explores various other options for the vessel (see Note 4 for further
information).
3. DEBT:
Long-term debt consisted of (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
U.S. Government Guaranteed Ship Financing Note, American Queen Series,
floating rate notes due semi-annually beginning February 24, 1996 through
August 24, 2005............................................................ $ 21,812 $ 24,236
U.S. Government Guaranteed Ship Financing Bond, American Queen Series,
7.68% fixed rate, sinking fund bonds due semi-annually beginning
February 24, 2006 through June 2, 2020..................................... 36,353 36,353
U.S. Government Guaranteed Ship Financing Note, Independence Series A,
floating rate notes due semi-annually beginning June 7, 1996 through
December 7, 2005........................................................... 12,553 13,214
U.S. Government Guaranteed Ship Financing Bond, Independence Series A,
6.84% fixed rate sinking fund bonds due semi-annually beginning June 7,
2006 through December 7, 2015.............................................. 13,215 13,215
U.S. Government Guaranteed Ship Financing Note, Independence Series B,
floating rate notes due semi-annually beginning December 7, 1996 through
December 7, 2005............................................................ 3,363 --
U.S. Government Guaranteed Ship Financing Bond, Independence Series B,
7.46% fixed rate sinking fund bonds due semi-annually beginning June 7,
2006 through December 7, 2015................................................ 3,540 --
Revolving credit facility...................................................... 9,500 20,000
-------- --------
100,336 107,018
Less current portion........................................................... 4,100 3,746
-------- --------
$ 96,236 $103,272
======== ========
</TABLE>
6
<PAGE> 7
On March 28, 1996, a subsidiary of GHCL issued $6.9 million of debt guaranteed
by the U.S. Government through the U.S. Department of Transportation, Maritime
Administration ("MARAD"). This debt is the second series ("Series B") of the
$26.4 million issue that was completed on December 7, 1995 and therefore
contains the same covenants and security as the original issue which was
guaranteed by GHCL and secured by the first mortgage of the Independence. The
Series B debt consists of $3.4 million of notes due December 7, 2005 with a
floating interest rate equal to London Interbank Offered Rate ("LIBOR") plus
0.27% and $3.5 million of 7.46% fixed rate bonds due December 7, 2015. Interest
payments on the notes and bonds, as well as principal payments on the notes,
are payable semi-annually beginning December 7, 1996. Principal payments on the
bonds are payable semi-annually beginning June 7, 2006. In addition, the Series
B debt required the subsidiary to increase the six-month debt service deposit
to $2.2 million. This deposit will be released when either GHCL or its
subsidiary meets certain cash flow and debt-to-equity ratios.
The Company used a portion of the proceeds from the Series B financing to fund
amounts owed to the Newport News Shipbuilding and Dry Dock Company (the
"Shipyard") as part of the litigation settlement as further discussed in Note
6. The remaining proceeds were used, in part, to pay down a portion of amounts
outstanding under its revolving credit facility.
On April 22, 1996, the Company modified the total borrowing availability under
its amended and restated credit agreement with a group of financial
institutions with The Chase Manhattan Bank (formerly Chemical Bank), as agent
(the "Credit Agreement"). The Credit Agreement provides a revolving credit
facility, subject to certain covenants, of up to $25.0 million with a final
maturity on March 31, 1999 (see Note 7 for further information). Borrowings
bear interest, at the option of the Company, equal to either (i) the greater of
The Chase Manhattan Bank's prime rate or certain alternative base rates plus a
margin ranging from 0% to 1.25%, or (ii) LIBOR plus a margin ranging from 1.0%
to 2.25%. The Company is also required to pay a commitment fee on the unused
portion of the facility at a rate ranging from 0.375% to 0.5% per annum. The
Credit Agreement is guaranteed by AMCV and secured by substantially all the
assets of DQSC, excluding the American Queen. The Credit Agreement contains
various limitations, restrictions and financial covenants which, among other
things, requires maintenance of certain financial ratios, restricts additional
indebtedness, limits intercompany advances to $20.0 million and limits the
payment of dividends from DQSC to AMCV to $2.0 million per annum.
As of September 30, 1996, the Company was in compliance with all covenants
under its various debt agreements.
4. IMPAIRMENT WRITE-DOWN:
After evaluating the scope and cost of the Constitution reconstruction project
as well as considering various alternatives, the Company announced on April 29,
1996 its decision not to renovate or return the Constitution to service. The
Constitution was removed from service on June 27, 1995 and is currently in wet
berth at a shipyard in Portland, Oregon. In the first quarter of 1996, in
connection with the foregoing decision, the Company recognized an impairment
write-down of $38.4 million, composed of (a) $36.1 million directly related to
the write-down of the vessel and its allocated goodwill to an estimated salvage
value of $2.5 million, and (b) $2.3 million which represented the remaining
goodwill balance from the GHCL acquisition. The Company reserved for the
estimated costs to be incurred on behalf of the Constitution until its eventual
disposition. These costs include insurance, wet berthing fees and general
maintenance of the vessel. As of September 30, 1996, the balance of this
reserve was $3.6 million.
The impairment write-down was recognized in accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of", which the
Company adopted effective January 1, 1996. SFAS No. 121 establishes accounting
standards for recognizing the impairment of long-lived assets, identifiable
intangibles and goodwill, whether to be disposed of or to be held and used. In
general, SFAS No. 121 requires recognition of an impairment loss when the sum
of undiscounted expected future cash flows is less than the carrying amount of
such assets.
7
<PAGE> 8
5. STOCK OPTIONS:
Activity under the Company's stock option plans from December 31, 1995 through
September 30, 1996 was:
<TABLE>
<CAPTION>
Executive Stock
Option Plan 1992 Plan Price Per Share
--------------- ----------------------- -----------------
Shares Shares Shares
Subject to Subject to Subject to
Options Options SARs
--------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 323,971 1,179,410 280,000 $3.25 - $20.42
Options granted --- 171,500 --- 7.97 - 11.43
Options exercised (42,900) --- --- 3.25
Options canceled --- (366,168) (55,000) 9.50 - 20.42
------- --------- -------
Balance at September 30, 1996 281,071 984,742 225,000 $3.25 - $20.42
======= ========= =======
</TABLE>
With respect to SFAS 123, "Accounting for Stock-based Compensation", which
became effective January 1, 1996, the Company will continue its current
accounting for employee stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, as permitted under SFAS 123. In
addition, the Company will disclose the pro forma effect of the fair value
accounting method in the notes to its annual consolidated financial statements,
as required.
6. LITIGATION SETTLEMENT:
As discussed in Note 10 to the Consolidated Financial Statements included in
the Annual Report, in February 1996, the Company settled its dispute with the
Shipyard which arose during the renovation of the Independence. In March 1996,
the Company, in accordance with the settlement agreement, paid an additional
$8.7 million composed of (a) the remaining escrow balance of $6.4 million, and
(b) $2.3 million upon the closing of the Series B debt as previously discussed
in Note 3.
7. SUBSEQUENT EVENT:
On October 16, 1996, the Company sold its subsidiary which owns the Maison
Dupuy Hotel ("Hotel") in New Orleans to the Thayer Lodging Group ("Thayer") for
$22.0 million in cash. In addition, the Company entered into a Profit
Participation Agreement with Thayer which will provide for future payments
within the next seven years of up to $2.0 million based on the future
performance of the Hotel. The Company will also receive preferred rates at the
Hotel for its passengers and employees who require lodging in New Orleans for
the next two years. In return, the Company has agreed to provide Thayer a
minimum of $0.6 million of this business in each of these years.
Upon the sale of the Hotel, the Company was required to pay down its
outstanding borrowings, which were $9.5 million, under its Credit Agreement. In
addition, the borrowing availability under the Credit Agreement was reduced
from $25.0 million to $15.0 million and the Company will be required every
calendar year to maintain a 30-day period when the outstanding borrowings
cannot exceed $7.5 million. The balance of the Hotel sale proceeds will be used
for general corporate purposes.
8
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AMERICAN CLASSIC VOYAGES CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
American Classic Voyages Co. ("AMCV," or along with its subsidiaries, the
"Company"), is a holding company which owns and controls The Delta Queen
Steamboat Co. ("DQSC") and Great Hawaiian Cruise Line, Inc. ("GHCL"). The
following discusses the Company's consolidated results of operations and
financial condition for the third quarter and nine month period ended
September 30, 1996 versus the comparable periods ended September 30, 1995.
This section should be read in conjunction with the Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report for the year ended December 31, 1995.
The Company, through its various subsidiaries, operates two cruise lines:
"Delta Queen", which owns and operates the American Queen, Mississippi Queen
and Delta Queen steamboats, and "American Hawaii", which owns and operates the
Independence steamship. American Hawaii also owns the Constitution steamship
which was removed from service on June 27, 1995. The Constitution will not be
returned to service and will remain in wet berth at a shipyard in Portland,
Oregon while the Company explores various other options for the vessel. The
Company also owned and operated the Maison Dupuy Hotel (the "Hotel") located
in New Orleans, prior to its sale on October 16, 1996, as discussed in Note 7
of the Condensed Consolidated Financial Statements.
The Company's operations are seasonal. Historically, there is greater
passenger interest in the spring and fall months of the year at Delta Queen.
Furthermore, the vessels are typically out of service in January of each year,
undergoing a lay-up for routine repair and maintenance. American Hawaii
experiences greater passenger interest in the spring and summer months of the
year. Current interim results of operations include an impairment write-down
as discussed in Note 4 of the Condensed Consolidated Financial Statements. In
addition, the Delta Queen will be taken out of service for one month beginning
in mid-December 1996 to undergo its scheduled U.S. Coast Guard hull inspection
while this same procedure for the Independence will occur during its
month-long drydocking beginning mid-May 1997. The American Queen, launched in
mid-1995, will undergo its first annual lay-up during the month of January
1997. As a result of the factors mentioned above, interim results of
operations are not necessarily indicative of results for a full year.
RESULTS OF OPERATIONS
The following tables set forth various financial results and operating
statistics for the three months and nine months ended September 30, 1996 and
1995 (in thousands):
FINANCIAL DATA
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- ---------------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues.................... $50,059 $51,964 $141,309 $141,948
======= ======= ======== ========
Operating income (loss)..... $ 4,834 $ 4,185 $(34,627) $(15,506)
======= ======= ======== ========
Net income (loss)........... $ 2,851 $ 1,653 $(40,039) $ (9,868)
======= ======= ======== ========
</TABLE>
9
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OPERATING STATISTICS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- --------------------
1996 1995 1996 1995
------- ------ ------ ------
<S> <C> <C> <C> <C>
Fare revenue per passenger night............. $211 $233 $213 $207
Total revenue per passenger night............ $279 $307 $282 $287
Weighted average operating days (1):
DELTA QUEEN............................... 92 92 258 183
AMERICAN HAWAII........................... 92 46 274 225
Vessels capacity per day (berths) (2):
DELTA QUEEN............................... 1,024 1,024 1,024 1,024
AMERICAN HAWAII........................... 817 1,590 817 1,590
Capacity passenger nights (3)................ 169,372 167,992 488,252 545,230
Passenger nights (4)......................... 173,150 164,643 481,467 475,858
Physical occupancy percentage (berths) (5)... 102% 98% 99% 87%
</TABLE>
(1) Weighted average operating days for each cruise line is determined by
dividing capacity passenger nights for each cruise line by the cruise
line's total vessel capacity per day.
(2) Vessel capacity per day represents the number of passengers each cruise
line can carry assuming double occupancy for cabins which accommodate two
or more passengers. Some cabins on the Independence and the American
Queen can accommodate three or four passengers.
(3) Capacity passenger nights is determined by multiplying, for the
respective period, the actual operating days of each vessel by each
vessel's capacity per day.
(4) A passenger night represents one passenger spending one night on a
vessel; for example, one passenger taking a three-night cruise would
generate three passenger nights.
(5) Physical occupancy percentage is passenger nights divided by capacity
passenger nights.
10
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QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1995
Consolidated third quarter 1996 revenues of $50.1 million represented a $1.9
million decrease from third quarter 1995 revenues of $52.0 million. American
Hawaii revenues increased $1.6 million, reflecting a 4% increase in
Independence fare revenue per passenger night ("fare per diems") and a 7%
increase in passenger nights. Delta Queen's revenues decreased $3.5 million
reflecting an 18% decrease in fare per diems, slightly offset by a 4% increase
in passenger nights. Delta Queen's fare per diems decreased as a result of
management's strategy of discounting fares in the first nine months of 1996 in
an effort to maintain historically high occupancy levels and to help shift the
booking cycle to its optimal schedule of six to nine months in advance.
Additionally, prior year fare per diems reflected the high demand associated
with the American Queen's initial inaugural cruises (the American Queen began
her first cruise in the prior year on June 27, 1995). The consolidated fare per
diems for the third quarter of 1996 decreased 9% to $211 as the increase in
American Hawaii's fare per diems did not fully offset the decrease in Delta
Queen's fare per diems.
Consolidated cost of operations decreased to $32.1 million for the third
quarter of 1996 from $33.3 million for the same period in 1995. Delta Queen's
operating costs decreased $1.0 million which was primarily due to (a) a
decrease in commission expense corresponding with the decrease in revenues as
discussed above, and (b) a decrease in passenger and vessel expenses on the
American Queen as these costs were stabilized over the past year with one year
of operating experience.
Consolidated selling, general and administrative expenses ("SG&A") decreased to
$9.6 million for the third quarter of 1996 from $11.1 million for the same
quarter in 1995. American Hawaii's SG&A decreased $1.1 million primarily due to
lower planned selling and marketing expenses.
Interest expense decreased $0.8 million due to a lower weighted average
interest rate on outstanding borrowings during the quarter ended September 30,
1996 than in the same period of the prior year. The Company's effective tax
rate for the third quarter of 1996 only included a provision for certain state
taxes whereas in the same period for 1995, the effective tax rate also included
a Federal tax provision. For the nine months ended September 30, 1996, the
Company recognized a valuation allowance for the full amount of the Federal tax
benefit due to the possibility that the deferred tax asset created may not be
realized in the future. However, management is currently evaluating the need
for such a valuation allowance. As the minority interest in GHCL was redeemed
in December 1995, net income for the quarter ended September 30, 1996 reflected
100% ownership of GHCL by the Company.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1995
Consolidated revenues of $141.3 million represented a $0.6 million decrease
from 1995 revenues of $141.9 million. American Hawaii's revenues decreased
$10.5 million, or 13%. This decrease was mainly due to a 37% decrease in
capacity as a result of the Constitution's removal from service on June 27,
1995, partially offset by improvements on the Independence in fare per diems
and occupancy, which increased by 10% and 13%, respectively, compared to 1995.
Delta Queen's revenues increased $9.9 million, or 16%, reflecting a 41%
increase in passenger nights for the period, offset by a 17% decrease in fare
per diems. The decrease in fare per diems as compared to 1995 was attributable
to management's strategy of discounting fares in the first nine months of 1996
in an effort to maintain historically high occupancy levels and to help shift
the booking cycle to its optimal schedule of six to nine months in advance. The
consolidated fare per diems for the first nine months of 1996 increased 3% to
$213 as the increase in American Hawaii's fare per diems more than offset the
decrease in Delta Queen's fare per diems. Consolidated total revenue per diems
decreased by 2% to $282 due to a reduction in the percentage of passengers at
both cruise lines electing to purchase air travel through the Company.
Consolidated cost of operations decreased to $92.1 million for the first nine
months of 1996 from $106.0 million for the comparable period of 1995. American
Hawaii's operating costs decreased $23.0 million primarily due to the
Constitution's removal from service and realization of operating cost savings
on the Independence as a result of cost cutting efforts undertaken since the
second half of 1995. Delta Queen's operating costs increased $9.1 million, or
26%, primarily due to the addition of the American Queen.
11
<PAGE> 12
Consolidated SG&A, before one-time charges, decreased to $34.5 million for the
first nine months of 1996 from $37.2 million for the same period in 1995. Delta
Queen's additional capacity resulted in increased marketing and corporate
overhead expenditures but was offset by the reduction in American Hawaii's
marketing and corporate overhead expenditures as only one ship was in
operation. The $2.6 million increase in depreciation expense was due to the
addition of the American Queen while depreciation at American Hawaii remained
unchanged as the increased depreciation on the Independence was offset by the
suspension of depreciation on the Constitution upon its removal from service in
the prior year.
After evaluating the scope and cost of the Constitution reconstruction project
as well as considering various alternatives, the Company announced on April 29,
1996 its decision not to renovate or return the Constitution to service. In
connection with this decision, the Company recognized an impairment write-down
of $38.4 million in the first quarter of 1996. Excluding this write-down, the
consolidated operating income for the first nine months ended September 30,
1996 was $3.8 million as compared to an operating loss, before one-time
pre-opening costs of $5.9 million, of $9.6 million in 1995.
The $38.4 million impairment write-down was composed of (a) $36.1 million
directly related to the write-down of the vessel and its allocated goodwill to
an estimated salvage value of $2.5 million, and (b) $2.3 million which
represented the remaining goodwill balance from the American Hawaii
acquisition. The Company has reserved for the estimated costs to be incurred on
behalf of the Constitution until its eventual disposition. These costs include
insurance, wet berthing fees and general maintenance of the vessel. As of
September 30, 1996, the balance of this reserve was $3.6 million. The
impairment write-down was recognized in accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of", which the
Company adopted effective January 1, 1996.
Interest expense increased $2.7 million due to a greater outstanding debt
balance in 1996 and capitalization of interest costs in 1995 related to the
American Queen construction. The Company's effective tax rate for the first
nine months of 1996 represented a benefit for certain state taxes. A valuation
allowance was recognized for the full amount of the Federal tax benefit
recorded in the first nine months of 1996 due to the possibility that the
deferred tax asset created may not be realized in the future. However,
management is currently evaluating the need for such a valuation allowance. As
the minority interest in GHCL was redeemed in December 1995, the net loss for
the first nine months of 1996 reflected 100% ownership of GHCL by the Company.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Operating Activities
For the nine months ended September 30, 1996, cash provided by operations
before changes in unearned passenger revenues ("Operating Cash Flow") was $3.4
million compared to cash used in operations of $14.5 million in the prior
year. Operating Cash Flow reflected the improved operating performance of
American Hawaii in the first nine months of 1996, as discussed previously
under Results of Operations. Unearned passenger revenues, representing
passenger cruise deposits, increased $11.6 million in the first nine months of
1996 reflecting the seasonal increase in advance reservation levels typically
experienced at Delta Queen.
Capital Expenditures
The Company incurred capital expenditures of $13.9 million in the first nine
months of 1996. Of this amount, $10.9 million related to the Independence,
which included $8.7 million paid to Newport News Shipbuilding and Dry Dock
Company (the "Shipyard") in March 1996 as part of the litigation settlement for
work performed in 1994. Other significant capital expenditures included $2.6
million for the Delta Queen and Mississippi Queen lay-ups, including completion
of the Mississippi Queen cosmetic renovation.
The Delta Queen will be removed from service on December 15, 1996 to undergo a
drydocking procedure in which its five-year Coast Guard mandated hull
inspection will occur. This procedure, which is in addition to its normal
maintenance lay-up in January 1997, is expected to cost $1.2 million and will
be funded from cash on hand.
12
<PAGE> 13
Debt
On March 28, 1996, a subsidiary of GHCL issued $6.9 million of debt guaranteed
by the U.S. Government through the U.S. Department of Transportation, Maritime
Administration ("MARAD"). This debt is the second series ("Series B") of the
$26.4 million issue that was completed on December 7, 1995 and therefore
contains the same covenants and security as the original issue which was
guaranteed by GHCL and secured by the first mortgage of the Independence. The
Series B debt consists of $3.4 million of notes due December 7, 2005 with a
floating interest rate equal to London Interbank Offered Rate ("LIBOR") plus
0.27% and $3.5 million of 7.46% fixed rate bonds due December 7, 2015. Interest
payments on the notes and bonds, as well as principal payments on the notes are
payable semi-annually beginning December 7, 1996. Principal payments on the
bonds are payable semi-annually beginning June 7, 2006. In addition, the Series
B debt required the subsidiary to increase the debt service deposit to $2.2
million. This deposit will be released when either GHCL or its subsidiary meets
certain cash flow and debt-to-equity ratios. The Company used a portion of the
proceeds from the Series B financing to fund amounts owed to the Shipyard as
part of the litigation settlement as discussed above. The remaining proceeds
were used, in part, to pay down amounts outstanding under its revolving credit
facility.
On April 22, 1996, the Company modified the total borrowing availability under
its amended and restated credit agreement with a group of financial
institutions with The Chase Manhattan Bank (formerly Chemical Bank), as agent
(the "Credit Agreement"). The Credit Agreement provides a revolving credit
facility, subject to certain covenants, of up to $25.0 million with a final
maturity on March 31, 1999 (see discussion under "Subsequent Event" for further
information). Borrowings bear interest, at the option of the Company, equal to
either (i) the greater of The Chase Manhattan Bank's prime rate or certain
alternative base rates plus a margin ranging from 0% to 1.25%, or (ii) LIBOR
plus a margin ranging from 1.0% to 2.25%. The Company is also required to pay a
commitment fee on the unused portion of the facility at a rate ranging from
0.375% to 0.5% per annum. The Credit Agreement is guaranteed by AMCV and
secured by substantially all the assets of DQSC, excluding the American Queen.
The Credit Agreement contains various limitations, restrictions and financial
covenants which, among other things, requires maintenance of certain financial
ratios, restricts additional indebtedness, limits intercompany advances to
$20.0 million and limits the payment of dividends from DQSC to AMCV to $2.0
million per annum.
As of September 30, 1996, the Company was in compliance with all covenants
under its various debt agreements.
The Company believes it will have adequate access to capital resources, both
internally and externally, to meet its short-term and long-term capital
commitments. Such resources may include cash on hand and the ability to secure
additional financing through the capital markets. The Company continually
evaluates opportunities to increase capacity, particularly with regard to the
American Hawaii business. In addition, the Company also evaluates
opportunities to strategically grow the business. If it would elect to
increase capacity or pursue a strategic business opportunity, the Company may
seek to secure additional financing. Notwithstanding, there can be no
assurances that the Company will choose to increase capacity or strategically
grow the business, or, if it elects to do so, that it will obtain additional
financing.
Dividends
In the second half of 1995, the Company's board of directors elected not to
declare a dividend and determined that any future dividend declarations will be
based on the Company's operating performance and its planned capital needs.
Other
In March 1996, as part of the litigation settlement with the Shipyard, the
remaining balance of $6.4 million maintained in an escrow account was released
to the Shipyard. In addition, during the first nine months of 1996, $1.8
million was released to the Company from the MARAD escrow account maintained
for remaining American Queen construction costs.
13
<PAGE> 14
The Federal Maritime Commission ("FMC") regulates passenger vessels with 50 or
more berths departing from U.S. ports and requires that operators post security
to be used in the event the operator fails to provide cruise services, or
otherwise satisfy certain financial standards. The Company has been approved as
a self-insurer by the FMC, and therefore, subject to continued approval, is not
required to post security for passenger cruise deposits. In light of a
recent bankruptcy of a cruise operator, the FMC has reviewed its standards and
in June 1996, the FMC issued proposed regulations to increase its financial
responsibility requirements. Comments to the proposals were due by October
1996. The Company filed its objections to the proposals, as it believes that
the FMC's current standards provide passengers with adequate protection in the
event of an operator's non-performance and that further requirements would
impose an undue burden on operators. If implemented, these proposed regulations
would be phased in over time and, among other things, require operators
qualifying as a self-insurer, such as the Company, to satisfy a working capital
test, in addition to the existing net worth test, and to provide third-party
coverage for 25% of its unearned passenger revenue in the form of a surety bond
or similar instrument. The Company cannot at this time predict if the proposed
changes will be approved as currently constituted, or at all. If they are
implemented, the proposed changes would require that the Company establish a
bond to cover a portion of its passenger deposits and payments, which may
impact the Company's liquidity.
Subsequent Event
Upon the sale of the Hotel, the Company was required to pay down its
outstanding borrowings, which were $9.5 million, under its Credit Agreement. In
addition, the borrowing availability under the Credit Agreement was reduced
from $25.0 million to $15.0 million and the Company will be required every
calendar year to maintain a 30-day period when the outstanding borrowings
cannot exceed $7.5 million. The balance of the Hotel sale proceeds will be used
for general corporate purposes.
Factors Concerning Forward-Looking Statements
Certain statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions which may impact passenger yields and occupancy;
weather patterns affecting either the inland waterways in the Continental U.S.
or the Hawaiian Islands; unscheduled repairs and drydocking of the Company's
vessels; the impact of changes in laws and implementation of government
regulations, such as those proposed by the FMC; the need for a valuation
allowance for Federal taxes; the increase in capacity at American Hawaii or
pursuit of a strategic business opportunity; and the ability to obtain
additional financing.
14
<PAGE> 15
AMERICAN CLASSIC VOYAGES CO.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
As discussed in Note 10 to the Consolidated Financial Statements
included in the Annual Report, in February 1996, the Company settled
its dispute with the Shipyard which arose during the renovation of the
Independence. In March 1996, the Company, in accordance with the
settlement agreement, paid an additional $8.7 million comprised of (a)
the remaining escrow balance of $6.4 million, and (b) $2.3 million upon
the closing of the Series B debt as previously discussed in Note 3 of
the Condensed Consolidated Financial Statements.
There are no other material legal proceedings, to which the Company is
a party or of which any of its property is the subject, other than
ordinary routine litigation and claims incidental to the business. The
Company believes it maintains adequate insurance coverage and reserves
for such claims.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits:
27. Financial data schedule.
b) Reports on Form 8-K:
Form 8-K dated August 22, 1996 announcing the sale of the Maison
Dupuy Hotel.
15
<PAGE> 16
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 thereunto duly authorized.
AMERICAN CLASSIC VOYAGES CO.
By: /s/ Philip C. Calian
------------------------
Philip C. Calian
Chief Executive Officer
By: /s/ Kathryn F. Gray
------------------------
Kathryn F. Gray
Controller and Treasurer
Dated: November 13, 1996
-----------------------
16
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,056<F1>
<SECURITIES> 0
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<INVENTORY> 0
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<PP&E> 225,684
<DEPRECIATION> 46,862
<TOTAL-ASSETS> 205,664
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<BONDS> 96,236
<COMMON> 138
0
0
<OTHER-SE> 31,996
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<SALES> 0
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<CGS> 0
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<OTHER-EXPENSES> 38,390
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (40,310)
<INCOME-TAX> (271)
<INCOME-CONTINUING> (40,039)
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<F1>Includes restricted short-term investments of $2,957.
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