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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, 1997
[ ] 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)
DELAWARE 31-0303330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, IL 60606
(Address of principal executive offices) (Zip Code)
(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, 1997, there were 13,986,344 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, 1997
and 1996....................................................................... 3
Condensed Consolidated Balance Sheets at September 30,
1997 and December 31, 1996..................................................... 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1997 and 1996.............................. 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,
--------------------------------------------
1997 1996 1997 1996
-------- ------- -------- ---------
<S> <C> <C> <C> <C>
Revenues............................................................. $49,746 $49,776 $132,474 $ 140,425
Cost of operations (exclusive of depreciation and
amortization shown below).......................................... 30,140 31,826 81,974 91,198
-------- ------- -------- ---------
Gross profit......................................................... 19,606 17,950 50,500 49,227
Selling, general and administrative expenses......................... 9,150 9,568 31,326 34,530
Depreciation and amortization expense................................ 4,358 3,548 11,494 10,934
Impairment write-down (Note 4)....................................... - - - 38,390
-------- ------- -------- ---------
Operating income (loss).............................................. 6,098 4,834 7,680 (34,627)
Interest income...................................................... 277 172 796 623
Interest expense..................................................... 1,758 1,977 5,211 6,306
-------- ------- -------- ---------
Income (loss) before income taxes.................................... 4,617 3,029 3,265 (40,310)
Income tax expense (benefit)......................................... 1,847 178 1,306 (271)
-------- ------- -------- ---------
Net income (loss).................................................... $ 2,770 $ 2,851 $ 1,959 $ (40,039)
======== ======= ======== =========
Per Share Information:
Primary:
Average common and common equivalent shares
outstanding.......................................................... 14,349 13,805 14,232 13,783
Earnings (loss) per common and common equivalent ======== ======= ======== =========
share................................................................ $ 0.19 $ 0.21 $ 0.14 $ (2.90)
======== ======= ======== =========
Fully Diluted:
Average common and common equivalent shares
outstanding.......................................................... 14,640 14,004 14,619 13,783
======== ======= ======== =========
Earnings (loss) per share assuming full dilution..................... $ 0.19 $ 0.20 $ 0.13 $ (2.90)
======== ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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AMERICAN CLASSIC VOYAGES CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except shares and par value)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 19,474 $ 17,908
Restricted short-term investments................ 624 2,957
Accounts receivable.............................. 1,084 3,734
Prepaid expenses and other current assets........ 9,989 7,640
------------ ------------
Total current assets.......................... 31,171 32,239
Property and equipment, net...................... 172,624 166,883
Deferred tax asset, net.......................... 10,125 10,968
Other assets..................................... 1,645 1,774
------------ ------------
Total assets.................................. $215,565 $211,864
============ ============
LIABILITIES
Accounts payable................................. $ 12,536 $ 10,683
Other accrued expenses........................... 17,650 24,532
Current portion of long-term debt................ 4,410 4,100
Unearned passenger revenues...................... 40,410 31,669
------------ ------------
Total current liabilities..................... 75,006 70,984
Long-term debt, less current maturities.......... 82,326 85,898
------------ ------------
Total liabilities............................. 157,332 156,882
------------ ------------
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; 13,958,066 and 13,867,829 shares
issued and outstanding, respectively)........... 140 139
Additional paid-in capital....................... 76,543 75,252
Accumulated deficit.............................. (18,450) (20,409)
------------ ------------
Total stockholders' equity.................... 58,233 54,982
------------ ------------
$215,565 $211,864
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed 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,
--------------------
1997 1996
------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................ $ 1,959 $(40,039)
Depreciation and amortization................ 11,494 10,934
Impairment write-down (Note 4)............... - 38,390
Changes in working capital and other:
Working capital changes and other........ (2,657) (5,857)
Unearned passenger revenues.............. 8,741 11,607
------- --------
Net cash provided by operating activities.... 19,537 15,035
------- --------
INVESTING ACTIVITIES:
Decrease in restricted short-term investments.... 2,333 7,724
Capital expenditures............................. (17,915) (13,863)
------- --------
Net cash used in investing activities........ (15,582) (6,139)
------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings......................... - 6,903
Repayment of borrowings.......................... (3,262) (13,585)
Issuance of common stock......................... 873 203
Deferred financing fees.......................... - (366)
------- --------
Net cash used in financing activities........ (2,389) (6,845)
------- --------
Increase in cash and cash equivalents............. 1,566 2,051
Cash and cash equivalents, beginning of period.... 17,908 6,048
------- --------
Cash and cash equivalents, end of period.......... $19,474 $ 8,099
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................... $ 5,159 $ 6,104
Income taxes................................. $ 194 $ 425
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(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, 1996 (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 such adjustments are of a normal and recurring
nature. Certain previously reported amounts have been reclassified to conform
to the 1997 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. RECENT PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", which
requires dual presentation of basic and diluted earnings per share. The Company
will adopt the new standard, as required, in the fourth quarter of 1997.
Pro forma earnings per share, if SFAS No. 128 had been applied, are as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, 1997 Ended September 30, 1997
------------------------ ------------------------
<S> <C> <C>
Pro forma amounts:
Basic earnings per share $0.20 $0.14
Diluted earnings per share $0.19 $0.14
As reported:
Primary earnings per share $0.19 $0.14
Fully diluted earnings per share $0.19 $0.13
</TABLE>
6
<PAGE> 7
3. DEBT:
Long-term debt consisted of (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<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................................................................... $19,388 $21,812
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.................................................................. 11,231 11,892
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.................................................................. 3,009 3,186
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 3,540
Revolving credit facility (maximum availability of $15 million)..................... - -
------- -------
86,736 89,998
Less current portion........................................... 4,410 4,100
------- -------
$82,326 $85,898
======= =======
</TABLE>
As of September 30, 1997, the Company's restricted short-term investments
included the escrow account for the remaining American Queen construction
costs. The account balance of $0.3 million was released to the Company in
October 1997 and was used to pay down the principal balance of the American
Queen Series.
As of September 30, 1997, the Company complied with all covenants under its
various debt agreements.
4. IMPAIRMENT WRITE-DOWN:
As discussed more fully in the Company's Annual Report, in the first quarter
of 1996, the Company recognized an impairment write-down of $38.4 million
related to its decision not to renovate or return the Constitution to service.
The impairment write-down was recognized in accordance with 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. 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.
In September 1997, the Company entered into a contract to sell the vessel in
the fourth quarter of 1997 for net sale proceeds of $1.8 million. Accordingly,
as of September 30, 1997, the salvage value of the vessel was written down from
$2.5 million to $1.8 million, which was reflected in property and equipment on
the balance sheet. This write-down was offset by a reduction in the reserve
set-up for the estimated costs to be incurred on behalf of the vessel, as
mentioned above.
7
<PAGE> 8
5. ACCUMULATED DEFICIT:
Changes in accumulated deficit for the nine months ended September 30, 1997
were (in thousands):
<TABLE>
<S> <C>
Accumulated deficit at December 31, 1996............. $(20,409)
Net income........................................... 1,959
--------
Accumulated deficit at September 30, 1997............ $(18,450)
========
</TABLE>
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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, 1997 versus the comparable periods ended September 30, 1996.
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, 1996.
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 owned the Constitution steamship
which was removed from service in June 1995 and was sold in November 1997.
The Company wrote-down the value of the vessel to its estimated salvage value
effective March 31, 1996 and then to its net sale proceeds, effective
September 30, 1997. The Company also owned and operated the Maison Dupuy
Hotel ("Hotel") located in New Orleans, prior to its sale in October 1996
("Hotel Sale").
The Company's operations are seasonal. At Delta Queen, historically there is
greater passenger interest at higher yields in the spring and fall months of
the year and the vessels typically undergo an annual lay-up in December and/or
January. American Hawaii historically experiences greater passenger interest
in the summer and fall months of the year. During the summer months, in
particular, American Hawaii tends to have average occupancy in excess of 100%
as the number of families sharing cabins with children increases significantly
during this period.
Results of operations for the first nine months of 1996 include an impairment
write-down as discussed in Note 4 of the Notes to Condensed Consolidated
Financial Statements. In addition, 1996 operating results included the
operations of the Hotel which was sold in October 1996. American Hawaii is
required by the U.S. Coast Guard to drydock the Independence once every 30
months, and as such, the Independence was out of service for a four-week
period ending June 13, 1997 ("Independence Drydock"). 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, 1997 and
1996 (dollars in thousands):
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues....................... $49,746 $49,776 $132,474 $140,425
======= ======= ======== ========
Operating income (loss)........ $ 6,098 $ 4,834 $ 7,680 $(34,627)
======= ======= ======== ========
Net income (loss).............. $ 2,770 $ 2,851 $ 1,959 $(40,039)
======= ======= ======== ========
</TABLE>
9
<PAGE> 10
OPERATING STATISTICS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1997 1996 1997 1996
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Fare revenue per passenger night............. $ 224 $ 209 $ 230 $ 211
Total revenue per passenger night............ $ 297 $ 278 $ 304 $ 280
Weighted average operating days (1):
DELTA QUEEN............................... 92 92 254 258
AMERICAN HAWAII........................... 92 92 245 274
Vessels capacity per day (berths) (2):
DELTA QUEEN............................... 1,026 1,024 1,026 1,024
AMERICAN HAWAII........................... 865 817 835 817
Capacity passenger nights (3)................ 173,956 169,372 465,583 488,252
Passenger nights (4)......................... 167,710 173,150 436,085 481,467
Physical occupancy percentage (berths) (5)... 96% 102% 94% 99%
</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
<PAGE> 11
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996
Consolidated third quarter 1997 revenues were $49.7 million which decreased
slightly from $49.8 million for the third quarter of 1996. Cruise revenues
increased $1.6 million which was offset by a $1.7 million decrease in Hotel
revenues as a result of the Hotel Sale in October 1996. Delta Queen's cruise
revenues increased $3.8 million, reflecting a 17% increase in fare revenue per
passenger night ("fare per diems") slightly offset by a 2% decrease in
occupancy rates. The increase in fare per diems as compared to 1996 was
attributable to the shifting of the booking cycle of when a majority of cabin
inventory is sold to its optimal schedule of six to nine months in advance.
This shifting of the booking cycle reduced the use of discounts to fill open
inventory close to a sailing date. American Hawaii's revenues decreased $2.2
million in the third quarter 1997 due to an 11% decrease in occupancy rates
combined with a 7% decrease in fare per diems, which was due to an increase in
fare discounts. Consolidated fare per diems and consolidated total revenue per
passenger night both increased by 7% to $224 and $297 respectively, primarily
due to the increase in fare per diems at Delta Queen.
Consolidated cost of operations decreased $1.7 million to $30.1 million for the
third quarter of 1997 from $31.8 million for the comparable period of 1996.
Hotel-related costs of operations represented $0.6 million of the 1996 costs.
The remaining decrease in the cost of operations was attributable to lower than
anticipated repair and maintenance expense incurred during the Independence
Drydock and a decrease in passenger air expense as a result of fewer passengers
purchasing add-on air through the Company. Consolidated gross profit for the
cruise lines increased $2.8 million for the third quarter 1997 as compared to
1996.
Consolidated selling, general and administrative ("SG&A") expenses decreased
$0.4 million to $9.2 million for the third quarter of 1997 from $9.6 million
for the same period in 1996. Included in SG&A expenses for the third quarter
1997 were $0.7 million of relocation costs incurred as a result of the move of
American Hawaii's mainland office from Chicago to New Orleans and costs
incurred in planning for capacity expansion in Hawaii. The comparable period
of 1996 also included $0.5 million of Hotel related SG&A expenses. The $0.8
million increase in depreciation expense was attributable to the recently
completed Independence Drydock and capital improvements on Delta Queen vessels
principally placed in service during lay-ups earlier in the year.
In the first quarter of 1996, the Company recognized an impairment write-down
of $38.4 million related to its decision not to renovate or return the
Constitution to service. In September, 1997, the Company entered into a
contract to sell the vessel for net sale proceeds of $1.8 million.
Accordingly, as of September 30, 1997, the salvage value of the vessel was
written down from $2.5 million to $1.8 million, which was reflected in property
and equipment on the balance sheet. This write-down was offset by a reduction
in the reserve set-up for the estimated costs to be incurred on behalf of the
vessel until its eventual disposition.
Consolidated cruise operating income for the third quarter of 1997 was $6.1
million, as compared to a cruise operating income of $4.3 million for the
comparable period of 1996, which included Hotel operating income of $0.5
million.
Interest expense decreased $0.2 million due to a lower outstanding debt
balance in the third quarter of 1997. The Company's consolidated effective tax
rate was higher in the third quarter of 1997 as compared to the same period in
1996. 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. The Company subsequently reviewed its position and in the fourth
quarter of 1996 recognized an adjustment for the full amount of the Federal
tax benefit.
11
<PAGE> 12
NINE MONTHS ENDED SEPTEMBER 30, 1997 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1996
Consolidated revenues for the first nine months of 1997 decreased $7.9 million
to $132.5 million from $140.4 million for the first nine months of 1996
representing a $2.4 million decrease in cruise revenues combined with a $5.5
million decrease in Hotel revenues as a result of the Hotel Sale. Delta
Queen's cruise revenues increased $11.0 million, reflecting an 18% increase in
fare per diems combined with an 18% increase in revenue from air and land
packages. The increase in fare per diems as compared to 1996 was attributable
to the shifting of the booking cycle of when a majority of cabin inventory is
sold to its optimal schedule of six to nine months in advance. This shifting
of the booking cycle reduced the use of discounts to fill open inventory close
to a sailing date. American Hawaii's revenues decreased $13.4 million as a
result of a 11% decrease in operating days due to the Independence Drydock
combined with a 10% decrease in occupancy rates. Consolidated fare per diems
for the first nine months of 1997 increased 9% to $230, and consolidated total
revenue per passenger night increased 8% to $304, primarily due to the increase
in fare per diems at Delta Queen.
Consolidated cost of operations decreased $9.2 million to $82.0 million for the
first nine months of 1997 from $91.2 million for the comparable period of 1996.
Hotel-related costs of operations represented $1.8 million of the 1996 costs.
American Hawaii's operating costs decreased $8.9 million primarily as a result
of the Independence Drydock while Delta Queen's cruise operating costs
increased $1.5 million, or 4%. Savings in Delta Queen's passenger and vessel
expenses were offset by an increase in air and land package expense
corresponding to the increased sales of air and land packages. Consolidated
gross profit for the cruise lines increased $5.0 million for the first nine
months of 1997.
Consolidated SG&A decreased $3.2 million to $31.3 million for the first nine
months of 1997 from $34.5 million for the same period in 1996. Of the $3.2
million decrease, $1.5 million was attributable to the Hotel, with the
remainder of the decrease primarily due to the implementation of cost savings
measures. Also included in SG&A expenses for the first nine months of 1997
were $0.9 million of relocation costs and costs incurred for planning for
capacity expansion in Hawaii. The $0.6 million increase in depreciation and
amortization expense was attributable to the recently completed Independence
Drydock and capital improvements on Delta Queen vessels during lay-ups earlier
in the year.
In the first quarter of 1996, the Company recognized an impairment write-down
of $38.4 million related to its decision not to renovate or return the
Constitution to service. In September, 1997, the Company entered into a
contract to sell the vessel for net sale proceeds of $1.8 million.
Accordingly, as of September 30, 1997, the salvage value of the vessel was
written down from $2.5 million to $1.8 million, which was reflected in property
and equipment on the balance sheet. This write-down was offset by a reduction
in the reserve set-up for the estimated costs to be incurred on behalf of the
vessel until its eventual disposition.
Consolidated cruise operating income for the first nine months of 1997 was $7.7
million as compared to a cruise operating income of $1.9 million, excluding the
write-down, for the first nine months of 1996. Hotel operating income for the
first nine months of 1996 was $1.9 million.
Interest expense decreased $1.1 million due to a lower outstanding debt
balance in the first nine months of 1997. The Company's consolidated effective
tax rate was higher in the first nine months of 1997 as compared to the same
period in 1996. 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. The Company subsequently reviewed its position and in
the fourth quarter of 1996 recognized an adjustment for the full amount of the
Federal tax benefit.
12
<PAGE> 13
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Operating Activities
For the nine months ended September 30, 1997, cash received from operations
before changes in unearned passenger revenues ("Operating Cash Flow") was
$10.8 million compared to cash received from operations of $3.4 million in the
prior year. Operating Cash Flow reflected the improved operating performance
of Delta Queen in the first nine months of 1997, as discussed previously under
Results of Operations. Unearned passenger revenues, representing passenger
cruise deposits, increased $8.7 million in the first nine months of 1997
reflecting the seasonal increase in advance reservation levels typically
experienced at both cruise lines.
Capital Expenditures
Capital expenditures of $17.9 million in the first nine months of 1997 included
$12.4 million related to the Independence Drydock costs and $2.9 million
related to the Delta Queen vessel lay-ups.
In addition, as a result of the Company's decision to relocate the sales,
marketing, and accounting departments of American Hawaii from Chicago to New
Orleans, the current operating facility at Robin Street Wharf was expanded and
upgraded, at an approximate cost of $1.7 million in the first nine months of
1997. The work will continue in the fourth quarter of 1997 and is expected to
cost an additional $1.2 million to complete.
The Independence was out of service for a four-week period ending June 13, 1997
for a drydock as required by the U.S. Coast Guard. During this out-of-service
period, 1997 SOLAS upgrades were made, as well as passenger area enhancements
and the build-out of 25 new passenger cabins. The cost of this drydock was
approximately $13.5 million of which $1.1 million represented repairs and
maintenance.
Starting November 30, 1997, the Mississippi Queen will undergo a 15-day lay-up
while the Delta Queen will be out of service starting December 13, 1997 for a
scheduled 82-day lay-up in which certain renovations will be performed. The
American Queen will undergo a 15-day lay-up beginning January 2, 1998. The
lay-up for the three vessels, including repairs and maintenance, is expected to
cost $7.0 million and will be funded from cash on hand.
Debt
As of September 30, 1997, the Company's restricted short-term investments
included the escrow account for the remaining American Queen construction
costs. The account balance of $0.3 million was released to the Company in
October 1997 and was used to pay down the principal balance of the American
Queen Series.
As of September 30, 1997, the Company complied 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 at both Delta Queen and American
Hawaii and to strategically grow its business. As discussed below, the Company
recently announced plans to expand capacity at American Hawaii. As it
proceeds with such plans, the Company intends to seek additional financing,
although it has not yet determined the nature or amount of such financing.
Although the Company believes that it will be able to obtain sufficient
funding from the capital markets to construct the new vessels, there can be no
assurances that the Company will be able to obtain additional financing at
commercially acceptable levels to finance such new construction and, if the
Company so chooses, to pursue a strategic business opportunity.
13
<PAGE> 14
Other
On October 17, 1997, the Company announced its plans to expand capacity at
American Hawaii. The expansion plans are made possible by a recently enacted
law establishing a pilot project to develop the U.S.-flag cruise ship industry
and stimulate commercial construction in U.S. shipyards. The shipbuilding
pilot project was included in the Department of Defense Appropriations Act for
Fiscal Year 1998. The law enables an operator of a U.S.-flag vessel, who
commits to building two privately funded cruise ships in a U.S. shipyard, to
temporarily operate an existing foreign-flag cruise ship while the new ships
are under construction. The Company intends for American Hawaii to add
another vessel in the Hawaii market as early as mid-1999.
The sale of the Constitution was completed in November, 1997 when the vessel
was delivered to the buyer and net sales proceeds of $1.8 million was received
by the Company.
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 June 1996, the FMC issued proposed regulations to increase the
financial responsibility requirements. The Company filed its opposition to the
proposal, 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 may impose an undue burden on operators. If
implemented, these proposed regulations would be phased in over time and,
among other things, would 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. At this
time, the Company cannot 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.
On July 31, 1997, the Company announced that the Board of Directors of the
Company approved a stock repurchase plan on June 11, 1997. The plan
authorizes the Company to repurchase up to one million shares of its stock.
These shares may be purchased from time to time in the public market or
through privately negotiated transactions. As of September 30, 1997, the
Company has not repurchased any shares under the plan.
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; construction delays and/or cost overruns during regularly scheduled
lay-ups and/or drydocks; delays and/or costs overruns during the development
and/or construction of new vessels; the impact of changes and/or repeal of laws
and implementation of government regulations; an increase in capacity at
American Hawaii or pursuit of a strategic business opportunity; and the ability
to obtain additional financing, if necessary.
14
<PAGE> 15
AMERICAN CLASSIC VOYAGES CO.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
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:
11. Computation of earnings per share
27. Financial data schedule.
b) Reports on Form 8-K:
None
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/ O. Ivy Wu
-------------------------------
O. Ivy Wu
Treasurer
Dated: November 13, 1997
--------------------------
16
<PAGE> 1
Exhibit 11
American Classic Voyages Co.
Computation of Earnings Per Share
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
(In thousands, except per share data) 1997 1996 1997 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings per common and common equivalent
share:
Weighted average number of shares of common
stock outstanding.................................................. 13,962 13,805 13,938 13,783
Additional shares assuming exercise of dilutive stock
options based on treasury stock method using average
market price......................................................... 372 - 288 -
Additional shares assuming immediate vesting of
common stock units................................................... 15 - 6 -
Average common and common equivalent shares ------ ------ ------ --------
outstanding.......................................................... 14,349 13,805 14,232 13,783
====== ====== ====== ========
Net income (loss).................................................... $2,770 $2,851 $1,959 $(40,039)
Earnings (loss) per common and common equivalent ====== ====== ====== ========
share................................................................ $ 0.19 $ 0.21 $0.14 $ (2.90)
====== ====== ====== ========
Net earnings per common share assuming full dilution:
Weighted average number of shares of common
stock outstanding.................................................. 13,962 13,805 13,938 13,783
Additional shares assuming exercise of dilutive stock
options based on treasury stock method using the quarter-
end price if higher than the average market price.................... 663 199 666 -
Additional shares assuming immediate vesting of
common stock units................................................... 15 - 15 -
Average common and common equivalent shares ------ ------ ------ --------
outstanding.......................................................... 14,640 14,004 14,619 13,783
====== ====== ====== ========
Net income (loss).................................................... $2,770 $2,851 $1,959 $(40,039)
====== ====== ====== ========
Earnings (loss) per share assuming full dilution..................... $ 0.19 $ 0.20 $ 0.13 $ (2.90)
====== ====== ====== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,098<F1>
<SECURITIES> 0
<RECEIVABLES> 1,084
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,171
<PP&E> 228,755
<DEPRECIATION> 56,131
<TOTAL-ASSETS> 215,565
<CURRENT-LIABILITIES> 75,006
<BONDS> 82,326
140
0
<COMMON> 0
<OTHER-SE> 58,093
<TOTAL-LIABILITY-AND-EQUITY> 215,565
<SALES> 0
<TOTAL-REVENUES> 132,474
<CGS> 0
<TOTAL-COSTS> 81,974
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,211
<INCOME-PRETAX> 3,265
<INCOME-TAX> 1,306
<INCOME-CONTINUING> 1,959
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,959
<EPS-PRIMARY> $0.14
<EPS-DILUTED> $0.13
<FN>
<F1>Includes restricted short-term investments of $624.
</FN>
</TABLE>
