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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, 1998
[ ] 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 November 3, 1998, there were 14,191,020 shares of Common Stock
outstanding.
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AMERICAN CLASSIC VOYAGES CO.
INDEX
<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
- ---------------- ----
<S> <C> <C>
Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for
the Three Months and Nine Months Ended September 30,
1998 and 1997.......................................... 3
Condensed Consolidated Balance Sheets at September 30,
1998 and December 31, 1997............................. 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1998 and 1997...... 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...................................... 16
Item 6. Exhibits and Reports on Form 8-K....................... 16
</TABLE>
2
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AMERICAN CLASSIC VOYAGES CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues...................................................... $50,920 $49,746 $145,123 $132,474
Cost of operations (exclusive of depreciation expense shown
below)........................................................ 32,736 30,140 95,168 81,974
------- ------- -------- --------
Gross profit.................................................. 18,184 19,606 49,955 50,500
Selling, general and administrative expenses.................. 10,156 9,150 35,544 31,326
Depreciation expense.......................................... 4,230 4,358 12,719 11,494
------- ------- -------- --------
Operating income.............................................. 3,798 6,098 1,692 7,680
Interest income............................................... 272 277 786 796
Interest expense.............................................. 1,646 1,758 5,002 5,211
Other income.................................................. -- -- 300 --
------- ------- -------- --------
Income (loss) before income taxes............................. 2,424 4,617 (2,224) 3,265
Income tax expense (benefit).................................. 970 1,847 (890) 1,306
------- ------- -------- --------
Net income (loss)............................................. $1,454 $2,770 $(1,334) $1,959
------- ------- -------- --------
Per Share Information
Basic:
Basic weighted average shares outstanding................... 14,145 13,962 14,111 13,938
Earnings (loss) per share................................... $0.10 $0.20 $(0.09) $0.14
Diluted:
Diluted weighted average shares outstanding................. 14,543 14,349 14,111 14,232
Earnings (loss) per share................................... $0.10 $0.19 $(0.09) $0.14
</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,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents......................... $27,233 $19,187
Restricted short-term investments................. 60 325
Accounts receivable............................... 1,257 1,299
Prepaid expenses and other current assets......... 8,363 7,813
------------- ------------
Total current assets............................ 36,913 28,624
Property and equipment, net....................... 163,637 171,105
Deferred income taxes, net........................ 10,635 9,564
Other assets...................................... 2,614 1,602
------------- ------------
Total assets.................................... $213,799 $210,895
============= ============
LIABILITIES
Accounts payable.................................. $11,318 $14,282
Other accrued liabilities......................... 16,481 18,093
Current portion of long-term debt................. 4,100 4,100
Unearned passenger revenues....................... 43,839 33,713
------------- ------------
Total current liabilities....................... 75,738 70,188
Long-term debt, less current portion.............. 78,226 81,488
------------- ------------
Total liabilities............................... 153,964 151,676
============= ============
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; 14,227,522 and 14,006,015 shares
issued, respectively)............................ 142 140
Additional paid-in capital........................ 79,764 77,059
Accumulated deficit............................... (19,314) (17,980)
Common stock in Treasury, at cost (51,000 shares). (757) --
------------- ------------
Total stockholders' equity...................... 59,835 59,219
------------- ------------
$213,799 $210,895
============= ============
</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,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income................................. $(1,334) $1,959
Depreciation expense.............................. 12,719 11,494
Gain on sale of assets............................ (300) --
Changes in working capital and other:
Working capital changes and other................. (5,307) (2,657)
Unearned passenger revenues....................... 10,126 8,741
------- -------
Net cash provided by operating activities......... 15,904 19,537
------- -------
INVESTING ACTIVITIES:
Decrease in restricted short-term investments..... 265 2,333
Capital expenditures.............................. (6,104) (17,915)
Proceeds from sale of assets...................... 300 --
------- -------
Net cash used in investing activities............. (5,539) (15,582)
------- -------
FINANCING ACTIVITIES:
Repayment of borrowings........................... (3,262) (3,262)
Purchase of common stock.......................... (757) --
Issuance of common stock.......................... 2,219 873
Deferred financing fees........................... (519) --
------- -------
Net cash used in financing activities............. (2,319) (2,389)
------- -------
Increase in cash and cash equivalents............. 8,046 1,566
Cash and cash equivalents, beginning of period.... 19,187 17,908
------- -------
Cash and cash equivalents, end of period.......... $27,233 $19,474
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.......................................... $4,982 $5,159
Income taxes...................................... -- 194
</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, 1998
(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, 1997 (the "Form 10-K")
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 Form 10-K 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 1998
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 ("FASB") issued
Statement of Financial Standards ("SFAS") No. 129, "Disclosure of Information
about Capital Structure." This statement is effective for financial statements
for periods ending after December 15, 1997. See activities presented below:
<TABLE>
<CAPTION>
Common Stock: Shares of Stock
<S> <C>
At December 31, 1997........................................ 14,006,015
Issued under employee benefit plans including exercises of
stock options.............................................. 214,507
Issued upon conversion of stock units........................ 7,000
-----------
At September 30, 1998........................................ 14,227,522
-----------
Treasury Stock:
At December 31, 1997........................................ --
Purchased.................................................... 51,000
-----------
At September 30, 1998........................................ 51,000
-----------
</TABLE>
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information," which requires the reporting of certain
information about operating segments and related disclosures about products and
services, geographic areas, and major customers. The Company is required to
adopt the new standard in 1998; however, this statement need not be applied to
interim financial statements during the initial year.
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3. EARNINGS PER SHARE:
In February 1997, FASB issued SFAS No. 128, "Earnings Per Share", which
requires dual presentation of basic and diluted earnings per share. The
Company has adopted the new standard and earnings per share information for
prior years has been restated accordingly. See reconciliations presented (in
thousands, except per share data) below:
<TABLE>
<CAPTION>
For the Nine
For the Three Months Ended Months Ended
September 30, September 30
----------------------------- -------------
1998 1997 1997
----------------- ---------- -------------
<S> <C> <C> <C>
Basic:....................................................
Net income................................................ $ 1,454 $ 2,770 $ 1,959
Weighted average shares................................... 14,145 13,962 13,938
----------------- ---------- -------------
Basic per share amount.................................... $ 0.10 $ 0.20 $ 0.14
----------------- ---------- -------------
Diluted:
Net income................................................ $ 1,454 $ 2,770 $ 1,959
Weighted average shares................................... 14,145 13,962 13,938
Additional shares assuming exercise of dilutive stock
options and immediate vesting of stock units.............. 398 387 294
----------------- ---------- -------------
Diluted weighted average shares........................... 14,543 14,349 14,232
----------------- ---------- -------------
Diluted per share amount.................................. $ 0.10 $ 0.19 $ 0.14
----------------- ---------- -------------
</TABLE>
As the Company reported a net loss for the nine months ended September 30,
1998, diluted earnings per share was computed in the same manner as basic
earnings per share.
7
<PAGE> 8
4. DEBT:
Long-term debt consisted of (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
U.S. Government Guaranteed Ship Financing Note, American Queen
Series, LIBOR + 0.25% floating rate notes due semi-annually
beginning February 24, 1996 through August 24, 2005............ $16,809 $19,233
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............... 36,198 36,198
U.S. Government Guaranteed Ship Financing Note, Independence
Series A, LIBOR + 0.27% floating rate notes due semi-annually
beginning June 7, 1996 through December 7, 2005................ 9,909 10,570
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, LIBOR + 0.27% floating rate notes due semi-annually
beginning December 7, 1996 through December 7, 2005............ 2,655 2,832
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) -- --
------------- -------------
82,326 85,588
Less current portion........................................... 4,100 4,100
------------- -------------
$78,226 $81,488
------------- -------------
</TABLE>
As of September 30, 1998, the Company complied with all covenants under its
various debt agreements.
5. ACCUMULATED DEFICIT:
Changes in accumulated deficit for the nine months ended September 30, 1998
were (in thousands):
<TABLE>
<S> <C>
Accumulated deficit at December 31, 1997. $(17,980)
Net loss................................. (1,334)
----------
Accumulated deficit at September 30, 1998 $(19,314)
----------
</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
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.
The following discusses the Company's consolidated results of operations and
financial condition for the three month and nine month periods ended September
30, 1998 versus the comparable periods ended September 30, 1997. 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 Form
10-K for the year ended December 31, 1997.
Delta Queen's operations are seasonal. Historically, there is greater
passenger interest and 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.
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, 1998 and
1997 (in thousands):
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues.................. $50,920 $49,746 $145,123 $132,474
========= ========= ========= =========
Operating income.......... $3,798 $6,098 $1,692 $7,680
========= ========= ========= =========
Net income (loss)......... $1,454 $2,770 $ (1,334) $1,959
========= ========= ========= =========
</TABLE>
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OPERATING STATISTICS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------------------------
1998 1997 1998 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Fare revenue per passenger night.......... $222 $224 $222 $230
Total revenue per passenger night......... $308 $297 $313 $304
Weighted average operating days (1):
DELTA QUEEN............................. 92 92 256 254
AMERICAN HAWAII......................... 92 92 273 245
Vessels capacity per day (berths) (2):
DELTA QUEEN............................. 1,026 1,026 1,026 1,026
AMERICAN HAWAII......................... 867 865 867 835
Passenger nights (3)...................... 165,539 167,710 464,361 436,085
Physical occupancy percentage (berths) (4) 95% 96% 93% 94%
</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. 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.
(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) 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.
(4) Physical occupancy percentage is passenger nights divided by capacity
passenger nights.
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QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997
Consolidated third quarter 1998 revenues increased $1.1 million to $50.9 million
from $49.8 million for the third quarter 1997 representing a $0.9 million
decrease in fare revenues combined with a $2.0 million increase in other
revenues. Delta Queen's fare revenues decreased $1.5 million, reflecting a 7%
decrease in passenger nights offset by a 1% increase in fare revenue per
passenger night ("fare per diems"). American Hawaii's fare revenues increased
$0.6 million on a 5% increase in passenger nights while fare per diems decreased
by 1%. The $2.0 million increase in other revenues was mainly due to the
increase in passenger nights at American Hawaii and an increase in passengers
electing to purchase air travel through American Hawaii under various air
promotions. As a result, consolidated total revenues per passenger night
increased to $308. As discussed below, the increase in air revenue was offset
by a corresponding increase in related air expenses.
Consolidated cost of operations increased $2.6 million to $32.7 million for the
third quarter of 1998 from $30.1 million for the comparable period of 1997.
American Hawaii's operating costs increased $3.3 million as a result of
increased passenger nights and an increase in air package expenses corresponding
to the related air revenue increase, as noted above. Delta Queen's operating
costs decreased $0.7 million primarily corresponding to the decrease in
passenger nights. Consolidated gross profit decreased $1.4 million for the third
quarter 1998 as compared to 1997.
Consolidated selling, general and administrative ("SG&A") expenses increased
$1.0 million to $10.2 million for the third quarter of 1998 from $9.2 million
for the same period in 1997. The increase was primarily due to an increase in
marketing and administrative expenses for both cruise lines. Included in third
quarter 1998 consolidated SG&A expenses were $0.6 million of expenses related to
capacity expansion at American Hawaii and at Delta Queen. The comparable period
of 1997 also included $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 for capacity expansion at American Hawaii. Depreciation expense
for the third quarter of 1998 was consistent with 1997.
As a result of increases in expenses as detailed above, consolidated operating
income for the third quarter of 1998 was $3.8 million as compared to $6.1
million for the comparable period of 1997.
Interest expense decreased slightly due to a lower outstanding debt balance in
the third quarter of 1998. The Company's consolidated effective tax rate was
40% for both periods in 1998 and 1997.
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NINE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1997
Consolidated revenues for the first nine months of 1998 increased $12.6 million
to $145.1 million from $132.5 million for the first nine months of 1997
representing a $2.9 million increase in fare revenues combined with a $9.7
million increase in other revenues, mainly from the sale of air packages. Delta
Queen's fare revenues decreased $2.0 million, reflecting a slight increase in
fare per diems offset by a 4% decrease in occupancy rates. American Hawaii's
fare revenues increased $4.9 million on a 20% increase in passenger nights
associated with the additional operating days in 1998 as compared to the same
period in 1997 when the Independence was out of service for a four-week drydock.
American Hawaii's fare per diems decreased 6% as a result of price competition
from land-based Hawaiian vacation alternatives, increased Hawaiian port calls
from other cruise lines and a strategic decision by the Company to attract a
greater mix of group business earlier in the booking cycle at lower yields. The
$9.7 million increase in other revenues was mainly due to the increase in
passenger nights at American Hawaii and an increase in passengers electing to
purchase air travel through American Hawaii under various air promotions. As a
result, consolidated total revenues per passenger night increased to $313. As
discussed below, the increase in air revenue was offset by a corresponding
increase in related air expenses.
Consolidated cost of operations increased $13.2 million to $95.2 million for the
first nine months of 1998 from $82.0 million for the comparable period of 1997.
American Hawaii's operating costs increased $14.1 million primarily as a result
of increased operating days and an increase in air package expenses
corresponding to the related air revenue increase, as noted above. Delta
Queen's operating costs decreased slightly by $0.9 million primarily
corresponding to the decrease in occupancy rates. Consolidated gross profit
decreased $0.5 million for the first nine months of 1998.
Consolidated SG&A expenses increased $4.2 million to $35.5 million for the first
nine months of 1998 from $31.3 million for the same period in 1997. Included in
consolidated SG&A expenses were $1.7 million of expenses related to capacity
expansion at American Hawaii and at Delta Queen. The comparable period of 1997
also included $0.9 of relocation costs incurred as a result of the move of
American Hawaii's mainland office from Chicago to New Orleans and costs incurred
for capacity expansion at American Hawaii. The remaining increase was primarily
due to an increase in marketing expenses for both cruise lines. The $1.2 million
increase in depreciation expense was primarily attributable to expenditures
capitalized during the second quarter 1997 Independence drydock and Delta Queen
vessel layups completed earlier in 1998.
As a result of increases in expenses as detailed above, consolidated operating
income for the first nine months of 1998 was $1.7 million as compared to
$7.7 million for the comparable period of 1997.
Interest expense decreased slightly due to a lower outstanding debt balance in
the first nine months of 1998. The Company's consolidated effective tax rate
was 40% for both periods in 1998 and 1997.
12
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LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Operating Activities
For the nine months ended September 30, 1998, cash provided by operations
before changes in unearned passenger revenues ("Operating Cash Flow") was $5.8
million compared to cash provided by operations of $10.8 million in the prior
year. The change in Operating Cash Flow reflected the increase in expenses as
mentioned above and changes in other working capital accounts. Unearned
passenger revenues, representing passenger cruise deposits, increased $10.1
million in the first nine months of 1998 as compared to an increase of $8.7
million in the first nine months of 1997. The increases in both periods
reflect the seasonal increase in advance reservation levels typically
experienced at both cruise lines. The seasonal increase in unearned passenger
revenues was greater in 1998 than in 1997 due to the timing of Delta Queen's
1998 /1999 lay-ups, discussed below, which occur later than the 1997/1998
lay-ups.
Capital Expenditures
Capital expenditures of $6.1 million in the first nine months of 1998 included
$3.8 million related to the Delta Queen and American Queen lay-ups, which were
completed in the first quarter of 1998. Other significant capital expenditures
included $1.6 million related to design fees and costs associated with capacity
expansion at American Hawaii and Delta Queen, as discussed below.
For the remainder of the year, the Company anticipates spending approximately
$3.0 million, including capitalized expenditures, on capacity expansion costs
mainly related to the vessel design phase for both American Hawaii and Delta
Queen. In addition, starting December 14, 1998, the Mississippi Queen will
undergo a 37-day lay-up while the Delta Queen will be out of service starting
January 4, 1999 for a scheduled 54-day lay-up in which certain renovations will
be performed. The American Queen will undergo a 15-day lay-up beginning
January 27, 1999. The lay-ups for the three vessels, including repairs and
maintenance, is expected to cost $6.0 million and will be funded from working
capital.
Debt
As of September 30, 1998, 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
announced plans to expand capacity at Delta Queen and 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 strategic business opportunities.
Other
As more fully discussed in the Company's Form 10-K, in October 1997, the
Company announced plans to expand capacity at American Hawaii. The Company
intends to construct two new cruise ships over the next seven years and plans
to introduce an existing foreign-flag cruise ship in the Hawaii market while
awaiting construction of the new vessels. In October 1998, the Company signed
a Letter of Intent with Litton Industries' Ingalls Shipbuilding Division to
construct two passenger ships, each accommodating approximately 1900
passengers, with options to build up to four additional vessels. The
estimated construction cost of the two initial ships will be $400 million
each. The Letter of Intent between the Company and Ingalls is expected to
lead to a design and construction contract by April 1999. The first ship is
expected to be delivered in late 2002 and the second ship nine to eighteen
months following delivery of the initial ship.
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<PAGE> 14
In April 1998, the Company announced plans to expand capacity at Delta Queen.
For the Delta Queen fleet, the Company intends to build up to five new small
coastal ships over the next seven to 10 years. The ships, which will each
accommodate approximately 225 passengers, will cruise in coastal areas and other
itineraries not currently served by existing Delta Queen vessels, such as the
East Coast and the Pacific Northwest of the United States. The Company has
completed naval contract designs and is presently reviewing bids from
approximately 10 U.S. shipyards. The estimated shipyard construction cost of
the ships will be $30 million each. If the Company decides to go forward with
the expansion plan and enter into a shipyard contract, construction of the first
new vessel will begin in early 1999 with its targeted completion in mid-2000.
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. The FMC has reviewed
its standards and in June 1996 issued proposed regulations to increase the
financial responsibility requirements. The Company filed its objection 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 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.
In June 1997, the Board of Directors of the Company approved a stock repurchase
plan. 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 November 3, 1998, the
Company had repurchased 51,000 shares at an average purchase price of $14.84 per
share under the plan.
Impact of Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
system failure, miscalculations and/or other unanticipated problems.
Based on a recent assessment, and the Company's ongoing evaluation of its
information systems, the Company has determined that it will be required to
modify or replace portions of its software to improve those systems. The
Company has confirmed that its reservation and phone system are Year 2000
compliant as well as the onboard financial systems on the Delta Queen vessels.
The Independence's onboard financial system, however, is not Year 2000
compliant. Also, certain imbedded chip systems in place on certain of the
Company's vessels are not Year 2000 compliant. In addition, the Company is
testing its accounting system to determine whether it is Year 2000 compliant and
is exploring the purchase of alternative accounting systems. The Company will
utilize both internal and external resources to reprogram, or replace, and test
the software for the system improvements and Year 2000 modifications. The
Company anticipates completing the system improvements and the Year 2000 project
no later than September 30, 1999, which is prior to any anticipated impact on
its operating systems. It is anticipated that these modifications and
improvements will enable its information systems to function properly with
respect to dates in the year 2000 and thereafter. The Company presently
believes that with modifications to existing software and conversions to new
software, the Year 2000 issue will not pose significant operational problems for
its information systems. However, if such modifications and conversions are not
made, or are not completed timely, the Year 2000 issue could have a material
impact on the operations of the Company.
If any of the Company's suppliers or travel partners do not, or if the Company
itself does not, successfully deal with the Year 2000 issue, the Company could
experience delays in scheduled cruises which could result in lost revenues or
increases in costs and could subject the Company to claims and damages. Problems
with the Year 2000 issue could also result in delays in the Company invoicing
its travel partners or in the Company receiving payments from them which could
then affect the Company's liquidity. Problems with the Year 2000 issue could
affect the activities of the Company's travel partners to the point that their
demand for the Company's cruises is reduced. The severity of these possible
problems would depend on the nature of the problem and how quickly it could be
corrected or an alternative implemented, which is unknown at this time.
As part of its continuing review, the Company is currently communicating with
its major suppliers and travel partners on their Year 2000 compliance issues.
For example, the Company's external air ticketing and credit card processing
software has been determined to be Year 2000 compliant. The Company is also in
the process of determining whether its shoreside building facilities equipment
systems are Year 2000 compliant. However, there can be no guarantee that the
systems of other companies on which the Company's systems rely will be Year 2000
compliant and would not have an adverse effect on the Company's operations,
14
<PAGE> 15
should such systems fail in the Year 2000. The Company has not yet seen any
need for contingency plans for the Year 2000 issue, but this need will be
continuously monitored as the Company acquires more information about the
preparations of its travel partners and suppliers. Some risks of the Year 2000
issue are beyond the control of the Company and its travel partners and
suppliers. For example, no preparations or contingency plan will protect the
Company from a downturn in economic activity caused by the possible ripple
effect throughout the entire economy that could be caused by problems of others
with the Year 2000 issue.
The total cost of the system improvements and the Year 2000 project is estimated
at approximately $1.0 million and is being funded from working capital. Of the
total project cost, approximately $0.5 million is attributable to the possible
implementation of a new accounting system, including new software and hardware,
in addition to consulting fees, which will be capitalized. Another $0.3 million
of capital outlays is attributable to the upgrading of the Independence's
onboard financial system and for the replacement of imbedded chip systems in
certain of the Company's vessels. The remaining $0.2 million, which will be
expensed as incurred and represents less than 10% of the Company's information
systems budget, is not expected to have a material impact on the results of
operations. To date, the Company has incurred approximately $30,000 related to
its systems improvements and the Year 2000 project.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates
given presently available information. These estimates were derived utilizing
numerous assumptions of future events, including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved, and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer code, and similar uncertainties.
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; delays or
the inability to enter into definitive construction agreements on commercially
reasonable terms; development, planning and construction costs; construction
delays and/or cost overruns during regularly scheduled lay-ups and/or drydocks
or in connection with the construction of new vessels; successful completion of
expansion plans, including 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 and/or Delta Queen; pursuit of a strategic
business opportunity; and the ability to obtain additional financing, if
necessary.
15
<PAGE> 16
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:
27. Financial data schedule.
b) Reports on Form 8-K:
None
16
<PAGE> 17
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/ Randall L. Talcott
--------------------------------------
Randall L. Talcott
Treasurer and Chief Accounting Officer
Dated: November 13, 1998
17
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 27,293<F1>
<SECURITIES> 0
<RECEIVABLES> 1,257
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,913
<PP&E> 235,233
<DEPRECIATION> 71,596
<TOTAL-ASSETS> 213,799
<CURRENT-LIABILITIES> 75,738
<BONDS> 78,226
0
0
<COMMON> 142
<OTHER-SE> 59,693
<TOTAL-LIABILITY-AND-EQUITY> 213,799
<SALES> 0
<TOTAL-REVENUES> 145,123
<CGS> 0
<TOTAL-COSTS> 95,168
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,002
<INCOME-PRETAX> (2,224)
<INCOME-TAX> (890)
<INCOME-CONTINUING> (1,334)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,334)
<EPS-PRIMARY> (0.09)
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<FN>
<F1>Includes restricted short-term investments of $60.
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