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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
(312) 258-1890
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $333.7 million based upon the last reported sale price of $25.00
per share on March 27, 2000 on The Nasdaq Stock Market. Using beneficial
ownership of stock rules adopted pursuant to Section 13 of the Securities
Exchange Act of 1934, certain persons designated as affiliates for purposes of
this computation may not be held to be affiliates upon judicial determination.
As of March 27, 2000, there were 20,749,653 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
PART III -- Portions of the registrant's definitive Proxy Statement, which
will be filed with the Securities and Exchange Commission by April
24, 2000.
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AMERICAN CLASSIC VOYAGES CO.
INDEX
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ITEM DESCRIPTION PAGE
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<S> <C> <C>
Part I
Item 1 -- Business........................................................................ 3
Item 2 -- Properties...................................................................... 14
Item 3 -- Legal Proceedings............................................................... 15
Item 4 -- Submission of Matters to a Vote of Security Holders............................. 15
Part II
Item 5 -- Market for Registrant's Common Equity and Related
Stockholder Matters............................................................. 16
Item 6 -- Selected Financial Data......................................................... 16
Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................. 16
Item 7A -- Quantitative and Qualitative Disclosures About Market Risk...................... 16
Item 8 -- Financial Statements and Supplementary Data..................................... 16
Item 9 -- Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................................... 16
Part III
Item 10 -- Directors and Executive Officers of the Registrant.............................. 17
Item 11 -- Executive Compensation.......................................................... 17
Item 12 -- Security Ownership of Certain Beneficial Owners
and Management.................................................................. 17
Item 13 -- Certain Relationships and Related Transactions.................................. 17
Part IV
Item 14 -- Exhibits, Financial Statement Schedules,
and Reports on Form 8-K......................................................... 18
</TABLE>
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AMERICAN CLASSIC VOYAGES CO.
PART I
ITEM 1. BUSINESS
GENERAL
American Classic Voyages Co. is the leading provider of overnight passenger
cruises among the Hawaiian Islands and on the Mississippi River system. We
currently operate two cruise lines under the names American Hawaii and Delta
Queen. American Hawaii, acquired in August 1993, operates the S.S. Independence,
a U.S.-flagged ocean liner with 867 total passenger berths. American Hawaii
provides inter-island cruises on a year-round basis among the Hawaiian Islands.
Delta Queen currently operates the Delta Queen, American Queen and Mississippi
Queen, U.S.-flagged paddlewheel steamboats having 1,026 total passenger berths.
Delta Queen provides cruise vacations on the Mississippi, Ohio, Cumberland,
Tennessee, Arkansas, Illinois and Atchafalaya Rivers. We do not offer gaming on
our vessels.
American Classic Voyages Co. is a Delaware corporation incorporated in 1985 as a
holding company that owns and controls The Delta Queen Steamboat Co., which
operates Delta Queen through various subsidiaries, and Great Hawaiian Cruise
Line, Inc., which operates American Hawaii through various subsidiaries.
American Classic Voyages Co. also owns and controls Project America, Inc., which
operates United States Lines(R)through various subsidiaries. American Classic
Voyages Co.'s principal executive offices are located at Two North Riverside
Plaza, Suite 200, Chicago, Illinois 60606. Delta Queen and American Hawaii's
principal administrative offices are located in New Orleans, Louisiana.
We are the largest owner and operator of U.S.-flag passenger vessels. Under the
Passenger Vessel Act of 1886 and related U.S. laws, only U.S. ships that are (1)
U.S. built, (2) owned by U.S. citizens, (3) operated by U.S. crews and officers,
and (4) U.S.-flagged by the U.S. Coast Guard are permitted to operate
exclusively among U.S. ports, including the islands of Hawaii. We are the only
U.S.-flagged, large scale, overnight cruise line operator providing inter-island
vacations among the Hawaiian Islands.
Accordingly, we believe our U.S.-flagged designation provides us with
significant itinerary advantages. Our cruises can visit and explore the beauty
and attractions of the various Hawaiian Islands without having to include a
foreign port in our itineraries, which would involve at least four sailing days
across the Pacific Ocean. On inland U.S. waterways, where Delta Queen operates,
the Passenger Vessel Act requirements effectively prohibit foreign-flagged
vessels from offering competing itineraries.
The U.S. Flag Cruise Ship Pilot Project Statute was enacted in 1997 to develop
the U.S.-flagged cruise ship industry and stimulate commercial construction of
cruise ships in the U.S. In connection with our execution of a definitive
agreement with Ingalls Shipbuilding to construct at least two new vessels in a
U.S. shipyard (see below), we believe that we will have (1) the exclusive right
to operate large U.S.-flagged cruise ships in the domestic trade among the
Hawaiian Islands for the life expectancy of the vessels and (2) the right to
operate the ms Patriot (see below) as a U.S.-flagged ship in the Hawaiian
Islands for a period of two years following delivery of the final new vessel
under the contract. We will enjoy the benefits of the Pilot Project Statute,
however, only if we comply with its terms. The Pilot Project Statute requires,
among other things, as a condition to obtaining these rights that the agreement
to construct the new cruise ships provide that (1) the vessels are built with
more than 867 berths each and (2) delivery of the first vessel be prior to
January 1, 2005 and the second vessel prior to January 1, 2008. The statute does
not restrict the activities of small U.S.-flagged cruise ships with fewer than
275 passengers and less than 10,000 gross tons.
CURRENT OPERATIONS
American Hawaii -- Current Operations
American Hawaii's cruise ship, the S.S. Independence, operates inter-island
cruise vacations among the Hawaiian Islands year round. Built in 1951, the S.S.
Independence has 867 passenger berths. American Hawaii offers primarily seven
day itineraries with ports of call throughout the Hawaiian Islands. The
itinerary affords an opportunity to view Mount Kilauea, one of the world's few
active volcanoes, and the soaring sea cliffs of the inaccessible Na Pali coast.
Many cruise passengers also choose to extend their stay in Hawaii, purchasing
hotel accommodations through American Hawaii. American Hawaii offers more than
50 optional shore excursion activities to passengers to showcase the spectacular
Hawaiian scenery and local attractions.
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Cruise fares on American Hawaii for a seven-day cruise, as stated in the 2000
cruise brochure, range from luxurious suites at $3,435 per person to interior
cabins with a single sofa bed and fold-away upper berth at $1,335 per person,
based on double occupancy. The fare also includes three full service meals per
day, along with mid-afternoon snacks and a late evening buffet, night
entertainment on the vessel and port charges. American Hawaii also offers
seasonal youth programs to attract passengers with children, as the S.S.
Independence has a large number of cabins that can accommodate three and four
passengers.
American Hawaii offers additional services and products to its passengers,
including bar services, beauty salon services, photography services, shore
excursions and gift shop products. American Hawaii also distributes a line of
specialty products through its onboard gift shops utilizing the "American Hawaii
Cruises" logo. In order to facilitate and simplify passengers' travel planning
process, American Hawaii offers air transportation arrangements to and from the
Hawaiian Islands through agreements with several major commercial airlines as
well as trip cancellation insurance.
American Hawaii is marketed as "the best and most convenient" way to experience
the Hawaiian Islands. We accomplish this by focusing on onboard dining,
entertainment, and offering an extensive package of shore excursions at all
stops along the itinerary, as well as by providing a wide variety of activities,
demonstrations and lectures designed to enhance passengers' overall experience
of the unique Hawaiian culture. Additionally, the Hawaii vacation package is
promoted as a convenient and rewarding alternative to land-based multi-island
vacations.
American Hawaii's marketing efforts target consumers who are interested in
Hawaii, cruise enthusiasts and other consumers who fit certain demographic or
geographic profiles. American Hawaii sends out more than six million pieces of
direct mail annually to reach these potential customers in an effort to develop
cruise sales. These direct mailings are made throughout the year to drive
business during certain specific time frames. American Hawaii also sends out the
Holokai Hui News newsletter, aimed at encouraging passengers to repeat, and
sends cooperative direct mail to travel agents to promote cruise sales. The
travel agency community also receives periodic fax broadcasts and a quarterly
newsletter, the Kuaihelani. American Hawaii also places advertisements in
specialized publications such as Islands, Hawaii, Modern Maturity, Car and
Travel and Endless Vacation magazines, and has been the subject of numerous
feature articles in national travel and leisure magazines and newspaper travel
sections.
Delta Queen -- Current Operations
Delta Queen's three paddlewheel steamboats offer cruise itineraries for trips
along the Mississippi, Ohio, Cumberland, Tennessee, Arkansas, Illinois and
Atchafalaya Rivers, as well as the Intracoastal Waterway. Ports of embarkation
and disembarkation, which are typically locations of historical or cultural
significance, include New Orleans, Memphis, St. Louis, St. Paul, Louisville,
Cincinnati, Pittsburgh, Nashville, Chattanooga, and Galveston. Other ports of
call include such towns as Hannibal, Missouri; Prairie du Chien, Wisconsin;
Vicksburg and Natchez, Mississippi; and Shiloh, Tennessee.
According to the Cruise Industry News Market Report, in 1999, Delta Queen
enjoyed a 59% market share of available berths within the domestic rivers and
waterways segments of the overnight cruise market. Delta Queen is marketed to
mature adult travelers as a unique vacation experience aboard classic steamboats
in which the people, sights, romance and history of heartland America are
explored. We believe individuals are attracted to our paddlewheel steamboat
cruises because of the quality of our service, dining, accommodations and
entertainment, as well as the unique characteristics of the steamboat
experience, including the connection to American history.
Delta Queen promotes special cruise packages revolving around specific themes
which allow passengers to participate in activities, meet special guest
lecturers, and enjoy entertainment relevant to the theme. Seasonal theme cruises
include: "Spring Pilgrimage," "Fall Foliage - Autumn in America" and "Old
Fashioned Holidays" while geographic themes include "Dixie Fest," "Cajun
Culture" and "Gardens of the River." Old standbys and continuing favorites are
"Kentucky Derby" cruises that include attendance at the Kentucky Derby horse
race and "The Great Steamboat Race," a reenactment of the famous 19th Century
race between the Natchez and the Robert E. Lee steamboats. For nostalgia and
history lovers, Delta Queen offers "Big Band," "Civil War" and "Fabulous 50s"
theme cruises. In addition, several new theme cruises have been added, such as
"Tramping on the River" cruises featuring impromptu river stops, "The History of
Steamboatin'," which retraces the 1811 voyage of the first successful steamboat
voyage down the Ohio and Mississippi Rivers to New Orleans and "Mississippi
River American Indian" in which the lifestyle, religion and society of America's
first inhabitants is featured.
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The Steamboatin'(TM) cruise fare for an average five-day cruise, as stated in
the 2000/2001 cruise brochure, ranges from luxurious suites at $3,345 per person
to interior cabins with lower and upper passenger berths at $1,445 per person,
based on double occupancy. The fare also includes three full service meals per
day, along with mid-afternoon snacks and a late evening buffet, day and night
entertainment on the vessels and port charges.
To attract additional customers, Delta Queen has developed products which
combine its steamboat cruises with escorted tours and overnight stays at
historic port cities. As a convenience to its passengers, Delta Queen will also
arrange hotel accommodations and air and land transportation to and from the
cruise embarkation and disembarkation points.
Delta Queen annually welcomes back a large number of prior passengers through
its relationship marketing program. New passengers are acquired through targeted
direct mail, direct response advertising and other promotional activity. Media
coverage generated by public relations activity is another method of acquiring
new customers and building brand awareness. In 1999, Steamboatin' vacations were
featured or mentioned in more than 2,600 articles in publications with national
and local circulations. In addition, each year a significant number of new
customers are referred by prior customers. Nearly all Steamboatin' vacations are
booked via travel agents, who receive frequent communications from Delta Queen
and who are supported with collateral and mailing materials.
Sales and Marketing
We maintain one field sales force and one common reservation staff for Delta
Queen, American Hawaii and United States Lines. We sell our cruise products
primarily through two major channels, of which the most significant channel is
travel agents operating throughout the U.S. We have programs which educate
travel agents about the unique nature of our travel experiences, the vessels'
itineraries, special programs, theme cruises and pricing policies. To assist in
generating reservations from travel agents, we engage in both consumer and
trade-oriented advertising, including direct mailings of our cruise lines'
literature to travel agencies. We also maintain contact with travel agents
through our field sales personnel who conduct educational seminars and attend
trade shows. Our second major sales channel is group travel organizers,
consisting of clubs, travel agencies and tour operators who arrange for the sale
of cruise vacations at discounted fares. We provide a variety of incentives to
these organizers, including fare discounts and promotional materials. During
fiscal 1999, no single customer accounted for more than 10% of our consolidated
revenues.
Pricing and Advance Reservations
We issue separate full color sales brochures for Delta Queen, American Hawaii
and United States Lines which contain descriptive information, itineraries and
fare schedules, prior to the beginning of each upcoming calendar year. We price
our cruise fares, based on cabin category, using a single pricing schedule for
each cruise line throughout the calendar year, except for the Columbia Queen and
the ms Patriot, which are priced seasonally. As an inducement for passengers to
book early, we generally offer an early booking discount which typically
consists of the current year's fares to passengers who book more than six to
eight months in advance for the upcoming year. In addition, we offer to group
travel organizers and others limited discounts from our published fare
schedules.
We actively market our cruises up to one year prior to the cruise year and the
level of advance reservations at any given date provides us with an indication
of our future fare revenue. A significant portion of such reservations is booked
more than six months in advance of the cruise date. Generally, customers of each
cruise line must pay a $300 refundable deposit within one week of booking a
cruise with the balance of the cruise fare to be remitted 60 days in advance of
the departure date. Depending upon the proximity of a cancellation to the cruise
date, customers may lose some or all of their deposits or cruise fares. For a
nominal fee, we also offer trip cancellation insurance through a third-party
insurer which allows the customers to reduce their exposure to cancellation
charges. As of March 10, 2000, advance reservations for the 2000 cruise year for
Delta Queen, American Hawaii and United States Lines combined were $129.8
million. As of March 10, 1999, advance reservations for the 1999 cruise year
were $119.8 million. However, we cannot specifically determine the amount of
revenues to be derived from advance reservations as we cannot guarantee that any
particular advance reservation will result in any revenue to us.
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EXPANSION PLANS
We believe that there is significant untapped market potential in the cruise
industry and plan to realize some of this potential by expanding both our Hawaii
and Delta Queen cruise lines. In the Hawaii cruise market, we plan to leverage
our U.S.-flagged designation and the unique competitive advantages offered to us
under the Pilot Project Statute by introducing larger, more modern vessels into
the Hawaii vacation market under the United States Lines banner. We intend to
use this brand name to help us market our Hawaii business. To expand Delta
Queen's position in the U.S. inland waterway cruise market, we plan to extend
our cruise itineraries into the U.S. coastal cruise market with up to five new
coastal cruisers and to introduce a fourth riverboat, the Columbia Queen, to
operate on the Columbia River system in the Pacific Northwest.
Hawaii Expansion Plans
Acquisition and Introduction of ms Patriot
In order to expedite the introduction of a larger, more modern ship into the
Hawaii cruise market, we have agreed to acquire a foreign-built vessel and
operate it as a U.S.-flagged vessel in the Hawaii market. Our operation of a
foreign-built vessel in the Hawaiian Islands is permitted under the terms of the
Pilot Project Statute. We have entered into a contract to purchase the ms Nieuw
Amsterdam from Holland America Line for $114.5 million. Under the terms of the
purchase agreement, the vessel will be delivered in October, 2000. We intend to
rename the 1,214-passenger vessel the ms Patriot. We have scheduled the ms
Patriot's inaugural voyage for December, 2000. The vessel has nine public decks
with 607 passenger staterooms, 68% of which are outside cabins, and including 20
suites. It features two outdoor swimming pools, a spa, a gymnasium, a two-deck
main lounge and six additional lounges and bars, as well as a spacious dining
room, an indoor/outdoor cafe, a boutique and seven passenger elevators. Upon
delivery we plan to renovate portions of the vessel for an estimated cost of $12
million to $16 million by adding a destination learning center, family
activities center, and upgrading the conference and meeting facilities and other
passenger facilities on board. The ms Patriot will offer seven-day cruise
vacations throughout the Hawaiian Islands, sailing from Oahu to Kauai, Maui, and
the island of Hawaii. Guests on the ms Patriot will be able to select numerous
shore excursions featuring some of the Hawaiian Islands' most beautiful
attractions. The ms Patriot cruises will feature American and Hawaiian regional
cuisine, a cultural enrichment program and nightly showplace entertainment.
New Hawaii Vessels
On March 9, 1999, we executed definitive agreements with Ingalls Shipbuilding to
construct at least two new vessels for the Hawaii cruise market. The new Hawaii
cruise ships are currently estimated to cost $440 million each, plus
approximately $30 million for furnishings, fixtures and equipment. Each of the
new vessels is expected to measure approximately 840 feet in length, with 13
decks and approximately 950 cabins containing at least 1,900 passenger berths.
The contract provides that Ingalls Shipbuilding will deliver the first new ship
in January 2003 and the second ship in January 2004. Litton Industries, Ingalls
Shipbuilding's parent company, has provided a performance guarantee of the
contract. Ingalls Shipbuilding will provide a limited warranty for the design,
material and workmanship of each vessel for one year after delivery. In
addition, the shipbuilding contract provides us an option to build up to four
additional vessels. The estimated contract price of the first option vessel is
$487 million and the contract price for subsequent option vessels will be
negotiated between the parties.
We plan to operate the ms Patriot and the new Hawaii vessels under the United
States Lines banner. We acquired the rights to the United States Lines name in
October, 1999. We believe that the United States Lines was a prominent passenger
shipping line in America from the turn of the century through the early 1960's.
Delta Queen Expansion Plans
In order to capitalize upon its strong market position and brand name
recognition, Delta Queen plans to expand its current business by introducing:
(1) a fourth riverboat, the Columbia Queen, offering new itineraries on the
Columbia River system in the Pacific Northwest; and (2) at least two new vessels
capable of offering cruises along U.S. coastal waterways. By extending the Delta
Queen line beyond our country's heartland to the underserved Pacific Northwest
and coastal markets, Delta Queen plans to offer its unique cruising experience
on itineraries highlighting historically or culturally interesting or beautiful
destinations.
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New Riverboat
We have acquired a substantially complete riverboat for $3.2 million and are
currently converting this riverboat into an overnight passenger vessel with 161
passenger berths. When it is complete, we plan to operate it on the Columbia
River system as the Columbia Queen, the fourth member of our Delta Queen fleet.
We have engaged Cascade General, Inc. to perform the conversion work. We have
scheduled the vessel to enter service in May 2000. The total cost to renovate,
relocate, start-up and market the new vessel is estimated to be $25 million to
$28 million. The Columbia Queen will operate approximately 10 months out of the
year from its homeport of Portland, Oregon, and will traverse the Columbia,
Snake and Willamette Rivers in the Pacific Northwest. Itineraries focus on
providing passengers with an adventurous and educational cruise experience. Its
eight-day vacation package features an overnight stay in Portland, a visit to
Mount St. Helens National Monument, a seven-day cruise and many adventurous
excursions from the coastal town of Astoria, Oregon to the exciting Hells Canyon
in Lewiston, Idaho.
Coastal Cruise Vessels
We believe that there are itineraries along the U.S. coastlines with significant
cruise market potential. We plan to capture underserved coastal markets by
building at least two new ships with approximately 226 passenger berths each. We
have entered into a construction contract with Atlantic Marine, Inc. of
Jacksonville, Florida to construct the first two coastal cruise vessels for our
Delta Queen line. Under the construction contract, the first coastal cruise
vessel is scheduled to be delivered in early March 2001 and the second vessel is
scheduled for delivery in June 2001. Each coastal vessel will be approximately
300 feet long, have diesel-electric propulsion systems and "state-of-the-art"
safety technology. The total project cost for each new vessel is approximately
$35 million.
The new Delta Queen coastal cruise vessels will have an historic design inspired
by the Fall River Line vessels which traveled between New York and New England
from 1847 through 1937 and became symbolic of elegant transportation and
gracious service. The new vessels will be decorated in classic New England
federal and nautical decor reminiscent of turn-of-the-century coastal ships,
featuring the "first-class" amenities for which Delta Queen steamboats have come
to be known. Approximately 90% of the passenger berths on each of the vessels
will be in outside cabins. The new vessels will each have features such as
elegant dining rooms with fine artwork, architectural embellishments and
windows, a grand salon for entertainment, two bars, and other services typically
offered on Delta Queen steamboats.
Possible new destinations identified by Delta Queen include the following:
- EASTERN SEABOARD - CALIFORNIA
Halifax, Nova Scotia San Francisco
New Brunswick, Maine Napa Valley's wine country
Boston Harbor
Martha's Vineyard
Chesapeake Bay - PACIFIC NORTHWEST AND ALASKA
New York City Puget Sound
Baltimore Canada's Inside Passage
Annapolis, Maryland The Alaskan coast
Washington, D.C.
Charleston, South Carolina
Savannah, Georgia
Florida's beaches
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OTHER
Government Regulation
Federal maritime law prohibits non-U.S.-flagged vessels from receiving and
discharging passengers at any two U.S. ports without stopping at an intervening
non-U.S. port. Periodically there has been debate about the potential amendment
or repeal of this law and the broader cabotage laws encompassed under the
Passenger Vessel Act and related U.S. laws. In August 1995, we joined the
Maritime Cabotage Task Force, a broad national coalition of 415 companies,
associations and unions representing all modes of domestic transportation. The
task force is responsible for monitoring potential adverse changes in
legislation that could affect the U.S. maritime industry and publicizing the
economic and national security issues relevant to maintaining a strong
U.S.-flagged vessel industry. Through the coalition's efforts, numerous
legislators and key Congressional staff members have been made aware of the
substantive issues and positions surrounding any changes to this legislation. In
1997 and 1998, bills were introduced to the Senate to modify the Passenger
Vessel Act, including allowing foreign-flagged ships into a limited number of
itineraries where there was no existing U.S.-flagged ship in service. None of
these bills were approved by the relevant subcommittees or committees of the
Senate or the House of Representatives.
One of the criteria for operating U.S.-flagged vessels in U.S. domestic trade is
that holders of at least 75% of our shares must be U.S. citizens. In order to
preserve the status of our U.S.-flagged vessels, our certificate of
incorporation contains a provision restricting the transfer of shares of our
common stock to non-U.S. citizens. In addition, we have created separate forms
of stock certificates with legends to indicate whether the stockholder is a U.S.
or non-U.S. citizen.
We are subject to various federal and state regulations which affect the
operations of our vessels. Our U.S.-flagged vessels are subject to regulations
promulgated by the U.S. Department of Transportation and enforced by the Coast
Guard. The Coast Guard conducts both scheduled and unannounced inspections to
determine compliance with these regulations and has the authority to delay or
suspend cruises. The Delta Queen vessels must be drydocked for an inspection of
the hulls' exteriors every five years. Previously, American Hawaii was required
to drydock the S.S. Independence approximately every 18 months for a similar
procedure. The Coast Guard is empowered to increase the interval between
inspections and accordingly, we have requested and received permission from the
Coast Guard to lengthen the interval of the drydocking of the S.S. Independence
to 30 months, subject to annual hull surveys. The S.S. Independence was out of
service for an 18-day period during January 2000 for its drydocking.
Like other entities that operate vessels on U.S. waterways, we are also subject
to certain federal, state and local health and safety laws, regulations and
ordinances, including environmental laws. Periodically, we incur expenditures to
keep our vessels in compliance with applicable laws, regulations and ordinances.
We do not anticipate making any material expenditures in 2000 with respect to
environmental matters. However, the coverage and attendant compliance costs
associated with such laws, regulations and ordinances may result in future
additional costs to our operations.
Federal law requires that vessels for 50 or more overnight passengers be
constructed of fire retardant materials. Since 1968 Congress has granted the
Delta Queen eight consecutive exemptions from the Safety at Sea Act requirement
because of fire prevention and safety enhancements made to the vessel and the
Delta Queen's historic status. The statute exempting the Delta Queen requires us
to notify potential passengers that the Delta Queen does not comply with
applicable fire standards and prohibits us from disclaiming liability for loss
due to fire caused by our negligence. The current exemption has been extended to
November 1, 2008. Our ability to operate the Delta Queen is dependent upon
retaining our current Congressional exemption and obtaining additional
exemptions subsequent to 2008. Ocean-going passenger vessels were required to
make enhancements to life safety systems by October 1, 1997 in order to comply
with federal law. The S.S. Independence was brought into compliance during its
spring 1997 drydock.
The Federal Maritime Commission regulates passenger vessels with 50 or more
passenger 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. We have been approved as a
self-insurer by the Federal Maritime Commission, and therefore, subject to
continued approval, are not required to post security for passenger cruise
deposits. The Federal Maritime Commission has reviewed its standards and in June
1996 issued proposed regulations to increase significantly the financial
responsibility requirements. We filed our objection to the proposals, as we
believe that the Federal Maritime Commission'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. At this time, we cannot predict if the proposed changes will be
approved as currently constituted, or at all.
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Competition
The vacation industry is highly fragmented and characterized by a significant
degree of competition among a large number of participants, including cruise
lines, land-based destination resorts, sightseeing tours and a wide range of
other vacation options. Our vessels compete against all of these vacation
options. Since leisure spending is discretionary, adverse economic conditions
affecting our customer base, including uncertainty over inflation and interest
rate fluctuations, may negatively impact our performance.
Within the cruise industry, we believe that cruise destination, cruise product,
and pricing are the primary methods of competition. We also believe that our
status as an operator of U.S.-flagged vessels provides us with a competitive
advantage.
American Hawaii is the sole U.S.-flagged overnight cruise ship operator and the
largest provider of cruise vacations among the Hawaiian Islands. American Hawaii
competes with operators of foreign-flagged cruise ships which visit the Hawaiian
Islands on voyages greater than seven days. Under U.S. law, foreign-flagged
ships must include a foreign port in each of their itineraries. This means that
foreign-flagged ships visiting Hawaii must spend at least four days sailing
across the Pacific Ocean in order to visit a foreign port. Our cruises can visit
and explore the beauty of the various Hawaiian Islands without having to visit a
foreign port.
Delta Queen is the largest provider of overnight cruises in the domestic
waterways and rivers cruise market. There are several other smaller U.S.-flagged
providers of overnight domestic cruises, including two providers who primarily
operate overnight river cruises. We believe that Delta Queen's principal
competitive strengths include its strong brand recognition, the distinctive
nature of its products, its luxurious accommodations, and its high level of
service.
Seasonality
Delta Queen's operations are seasonal. Historically, we have had greater
passenger interest and higher yields in the spring and fall months of the year.
The vessels typically undergo their annual layups in December or January. While
American Hawaii has historically experienced greater passenger interest in the
summer and fall months of the year, quarterly variations in its revenues are
much smaller than those of Delta Queen. During the summer months, in particular,
American Hawaii tends to have average occupancies in excess of 100% as the
number of families sharing cabins with children increases significantly during
this period.
Insurance
We carry marine liability insurance on our vessels through Steamship Mutual
Underwriting Association (Bermuda) Limited ("Steamship Mutual"), a non-profit,
mutual protection and indemnity association. Our marine liability insurance
arrangements are typical of common marine industry practices and, subject to
certain deductibles, provide coverage for losses, other than hull physical
damage losses, including casualty damage by the vessels and claims by crew
members, passengers and other third parties. The policy has no maximum limit of
liability coverage, except for a $500 million limit, per occurrence, for oil
pollution liability claims. As a member of Steamship Mutual, we pay our annual
premiums based largely on our risk characteristics and loss experience, and the
loss experience of other members. In addition, because Steamship Mutual and
other maritime mutual indemnity associations around the world pool a portion of
their loss experience in risk sharing arrangements, Steamship Mutual also may be
affected by the loss experience of other mutual protection and indemnity
organizations.
Our annual protection and indemnity insurance premium consists of an advance
call which recently has approximated 71% of the expected total annual premium,
and a supplemental call determined by Steamship Mutual's managing directors
later in the year. We may be liable for a supplemental call in excess of the
anticipated amount in the event that Steamship Mutual incurs heavy losses or
experiences unusual circumstances.
We also carry hull and machinery coverage with various insurers, which insures
against physical loss and damage to the vessels, subject to a $500,000
deductible and/or co-payment requirements per occurrence. The vessels are
insured for their appraised value. Although we believe the risk of a total loss
of our vessels is remote, in all likelihood the replacement costs would exceed
these coverage limits.
We believe our insurance coverage is adequate based on our assessment of the
risks to be insured, the probabilities of loss and the relative cost of
available coverages.
9
<PAGE> 10
Employees
We employed 1,549 persons as of December 31, 1999. Of the vessels' onboard
employees, the American Maritime Officers of the AFL-CIO ("American Maritime
Officers") represented approximately 138 individuals, and the Seafarers
International Union of North America, Atlantic, Gulf, Lakes and Inland Waters
District of the AFL-CIO ("Seafarers") represented approximately 695 individuals.
The American Maritime Officers' contracts for Delta Queen and American Hawaii
expire in February 2004 and May 2000, respectively, and the Seafarers' contracts
for Delta Queen and American Hawaii expire in December 2003 and May 2000,
respectively. Since 1986, we have not experienced any work stoppages, and we
believe relations with our employees are good.
Factors Concerning Forward-Looking Statements
Certain statements in "Risk Factors" and 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 to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to certain risks, uncertainties and
assumptions.
Words such as "expect," "anticipate," "intend," "plan," "believe," "estimate"
and variations of such words and similar expressions are intended to identify
such forward-looking statements. We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed in this document might not
occur.
RISK FACTORS
Our future financial condition, liquidity and operating results may adversely be
affected by a number of factors, including the following:
THE SEC IS CONDUCTING AN INFORMAL INQUIRY OF OUR ACCOUNTING PRACTICES RELATING
TO DIRECT RESPONSE ADVERTISING COSTS
On January 14, 2000, we announced that the SEC is conducting an informal inquiry
into our accounting practices with respect to direct response advertising costs.
The informal inquiry relates to our adoption of a particular methodology
effective as of January 1, 1999 and our subsequent rescission of that
methodology in November, 1999 due to difficulties encountered implementing the
new method. We have restated our financial statements for the first and second
quarters of 1999 and we believe that we are cooperating with the SEC in their
informal inquiry. We are unable to predict the outcome or impact of the SEC's
informal investigation. However, it is possible that the SEC's informal inquiry
or a subsequent formal inquiry could result in penalties or sanctions against
us. Depending upon the resulting penalties, sanctions or orders, if any, which
we cannot predict at this time, our financial performance could be adversely
affected, our ability to conduct our business could be impaired or we could be
required to make further adjustments to our financial statements. For a more
detailed description of the accounting rescission, see Note 10 to the
Consolidated Financial Statements.
CONSTRUCTION AND RENOVATION DELAYS AND DEVIATIONS FROM SPECIFICATIONS FOR THE
NEW HAWAII AND COASTAL VESSELS MAY ADVERSELY AFFECT EXPANSION PLANS AND FUTURE
FINANCIAL PERFORMANCE
We have entered into contracts to construct at least two new vessels for our
Hawaii cruise business and two new coastal cruisers for the Delta Queen line. We
have also entered into a contract to acquire and renovate an existing foreign
vessel for use in Hawaii and we have acquired and are converting the Columbia
Queen for Delta Queen to be operated on the Columbia River system. Without these
new ships, our future financial performance may be adversely impacted. Ingalls
Shipbuilding, the builders of the new Hawaii cruise ships, has never built a
modern passenger ship and, because no U.S. shipyard has built a passenger ship
in more than 40 years, there is a limited base of experienced subcontractors for
portions of the ships. We cannot assure you that we will be able to successfully
complete construction, conversion or renovation of the Hawaii cruise ships or
the coastal cruisers or that we will be able to complete these projects within
our budgets or expected time frames. Factors that could impact the construction,
conversion or renovation of the new vessels include:
10
<PAGE> 11
- construction delays or complications;
- cost overruns;
- labor stoppages, slowdowns or shortages; and
- compliance with U.S. Coast Guard regulations and
classification society requirements.
Our business strategy has been developed on the assumption that we will be able
to put the Hawaii cruise ships and coastal cruisers into service on a timely
basis. We have also assumed that the ships will perform according to their
design specifications. A significant delay in delivering the vessels, completing
the renovation or conversion or a material deviation from the design
specifications could have a material adverse effect on our business. Also,
events out of the control of the shipyards constructing, converting or
renovating the vessels could delay delivery.
IF WE DO NOT OBTAIN SIGNIFICANT AMOUNTS OF CAPITAL TO BUILD, PURCHASE AND
RENOVATE VESSELS, OUR EXPANSION PLANS AND FUTURE OPERATING RESULTS MAY BE
ADVERSELY AFFECTED
Our expansion plans are based in part on the construction of several new vessels
and the acquisition and renovation of existing vessels to be put into operation
in both the Hawaii market and the U.S. coastal and inland waterways market. Our
expansion plans require us to spend significant amounts of capital in building,
purchasing and renovating vessels. The final cost for these vessels may exceed
our initial estimates and we may be required to seek additional sources of
capital in order to complete the vessels. We cannot assure you that we will be
able to obtain additional financing at commercially acceptable levels to finance
this expansion or to pursue strategic business opportunities. We expect to be
able to use our cash on hand and cash generated from our future operations to
provide a significant portion of these funding needs. Our failure to obtain
enough capital may require us to delay or abandon some of our expansion plans
and could have a material adverse effect on our business.
INCREASED LEVERAGE MAY ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE AND CASH FLOW
We will substantially increase our indebtedness as we finance a significant
portion of the construction costs under existing and contemplated agreements to
acquire, build, convert or renovate new vessels. This higher level of
indebtedness will require us to devote an increased amount of our future cash
flow from operations to the payment of principal and interest on indebtedness.
At December 31, 1999, we had outstanding consolidated total long-term debt of
$80.5 million. We intend to substantially increase our leverage with the debt
required to finance:
- - construction costs for each of the two Hawaii cruise ships projected to be
approximately $470 million;
- - construction costs for each of the first two coastal cruisers expected to be
approximately $35 million;
- - acquisition and renovation costs for the ms Patriot expected to be
approximately $127 to $131 million; and
- - renovation, relocation, start-up and marketing costs for the Columbia Queen
expected to be approximately $25 to $28 million.
We expect that approximately 87.5% of the total cost for the new Hawaii cruise
ships will be financed through Maritime Administration guaranteed private
financing and a substantial portion of Delta Queen's expansion costs may be
financed under a $70 million revolving credit facility from a group of lenders,
with The Chase Manhattan Bank as agent. The seller of the ms Patriot, Holland
America Line, a non-U.S. citizen, has agreed to provide us with financing for
$84.5 million of the purchase price of the ship secured by a preferred mortgage
on the vessel. Under our current expansion plans, and assuming we build,
acquire, renovate and convert all of the ships we currently contemplate, we
could increase our indebtedness to approximately $1.2 billion by 2004. Our
increased leverage could adversely affect our ability to repay debt and reduce
our working capital available for operations.
IF WE ARE UNABLE TO MAINTAIN ADEQUATE MANAGERIAL RESOURCES DURING OUR EXPANSION,
OUR BUSINESS MAY BE ADVERSELY AFFECTED
If we successfully execute our growth strategy, our expansion will place a
significant strain on our managerial resources. Our future performance will
depend upon management's ability to manage our growth effectively, which
includes our ability to:
- expand sales and marketing to fill the passenger berths in our
expanded fleet at profitable rates;
- operate, maintain and support a significantly expanded fleet of
vessels; and
- hire and train additional personnel to staff our expanded fleet and
support operations.
11
<PAGE> 12
The process of expanding our fleet of vessels may result in unforeseen operating
difficulties and may require management attention that would otherwise be
available for the ongoing operation of our existing fleet of vessels. Our
failure to manage our growth effectively may cause us to delay or abandon some
of our expansion plans and may have a material adverse effect on our business.
IF WE ARE UNABLE TO MANAGE OUR FINANCIAL RESOURCES DURING OUR EXPANSION, OUR
FINANCIAL PERFORMANCE MAY BE ADVERSELY AFFECTED
Our plans for expansion call for significant capital expenditures that will not
produce corresponding revenues in the near term which may place a strain on our
capital resources. The process of expanding our fleet of vessels may require
additional financial resources that would otherwise be available for the ongoing
operation of our existing fleet of vessels. Our failure to manage our financial
resources effectively during our expansion could force us to delay or abandon
some of our expansion plans and may have a material adverse effect on our
business.
IF DEMAND FOR OUR NEW CRUISE PRODUCTS FAILS TO DEVELOP AS EXPECTED OR
COMPETITION INCREASES, OUR BUSINESS MAY BE ADVERSELY AFFECTED
The Hawaii, Pacific Northwest and coastal cruise markets where we intend to
deploy our new vessels currently do not have a large supply of cruise operators.
If demand for our new vessels does not develop, our financial performance may
suffer. Our expected deployment of vessels will increase the supply of available
cruises in these markets significantly. We engaged market research firms to
assist us in making our decision to pursue expansion plans. We cannot assure
you, however, that demand for our new cruise products, services and itineraries
will develop. If the market for these new cruise products fails to develop,
develops more slowly than expected or becomes saturated with competitors, our
business may be adversely affected.
INCREASED CAPACITY IN HAWAII MAY REDUCE OCCUPANCY ON THE S.S. INDEPENDENCE,
ADVERSELY AFFECTING REVENUES
The introduction of the ms Patriot or our new cruise ships into the Hawaii
cruise market could cause occupancy or revenue levels on the S.S. Independence
to decline. If revenue levels drop so much that the S.S. Independence generates
operating losses, it may reduce our expected benefits from increased capacity in
Hawaii and could have a material adverse effect on our financial condition.
IF WE CANNOT BENEFIT FROM THE EXCLUSIVE RIGHTS OF THE PILOT PROJECT STATUTE, OUR
REVENUE GROWTH IN HAWAII WOULD BE ADVERSELY AFFECTED
We believe the Pilot Project Statute provides us with the exclusive right to
operate large U.S.-flagged cruise ships in the Hawaiian Islands for the life
expectancy of our new ships. We will enjoy the benefits of the Pilot Project
Statute, however, only if we comply with its terms. Our competitive advantage
could be eliminated or diminished if the Pilot Project Statute were to be
repealed or amended , if our interpretation of its terms is not upheld or if we
fail to satisfy its requirements. This could have a material adverse effect on
our expansion plans. For a more detailed discussion of the Pilot Project
Statute, see "Business -- General."
MODIFICATION OF THE PASSENGER VESSEL ACT MAY ADVERSELY AFFECT OUR BUSINESS
From time to time, proposals are made which would limit or eliminate the terms
of the Passenger Vessel Act. If the Passenger Vessel Act is repealed or amended
to allow foreign-flagged ships the same rights to transport passengers between
U.S. ports as U.S.-flagged ships, we could face considerable competition in all
our lines, including competition from entities with greater financial resources.
Under the Passenger Vessel Act and related laws, only U.S.-flagged ships may
transport passengers between U.S. ports. Consequently, only ships which are U.S.
built, owned, operated and documented may operate between U.S. ports, including
the islands of Hawaii. Foreign-flagged ships may transport passengers between
U.S. ports only if their itineraries include a stop at a foreign port. This
increased competition could have a material adverse effect on our business. For
a more detailed discussion of the Passenger Vessel Act, see "Business --
General."
12
<PAGE> 13
INCREASED COMPETITION IN THE HAWAII CRUISE MARKET AND FROM OTHER VACATION
ALTERNATIVES, MAY ADVERSELY IMPACT OUR FINANCIAL PERFORMANCE
We presently compete against a wide range of vacation alternatives, including
other cruises, destination resorts and sightseeing vacations. Cruise lines or
other entities, including those with greater resources, could introduce
overnight U.S.- flagged vessels in direct competition with our Delta Queen
vessels, which may adversely impact our financial performance. We may also face
additional competition in the Hawaii cruise market from foreign-flagged vessels
as the Hawaii cruise market expands. The entry of direct competition could make
it more difficult for us to maintain or further increase occupancy or prices for
cruise vacations. This could result in lower margins and reduce the
profitability of our business.
AS A MEMBER OF THE VACATION AND LEISURE INDUSTRY, OUR BUSINESS IS SENSITIVE TO
GENERAL ECONOMIC AND BUSINESS CONDITIONS
As a vacation and leisure company providing cruise vacations, we depend on our
customers' leisure spending. Adverse change in the general economic or business
environment could affect our customers by decreasing the amount of money they
spend on leisure activities such as cruising. A decrease in leisure spending
could affect passenger yields and occupancy rates on our ships, which could
adversely affect our financial performance.
IF WE DO NOT COMPLETE DRYDOCKING ON SCHEDULE OR WITHIN BUDGETS, OUR REVENUES MAY
BE ADVERSELY IMPACTED
Operation of our vessels is subject to regulations established by the U.S.
Department of Transportation that are enforced by the U.S. Coast Guard. Among
these regulations is the requirement that the vessels be taken out of operation
and removed from the water for inspection of the exterior of the hull on a
periodic basis, referred to as drydocking. When we drydock one of our vessels as
required, we lose the revenue from that vessel's operations for the period it is
out of service. We also incur the additional cost of the drydocking. The S.S.
Independence must be drydocked every 30 months and the Delta Queen vessels must
be drydocked every five years. For its last drydocking, the S.S. Independence
was out of service for 18 days beginning on January 5, 2000. Drydocks of Delta
Queen vessels take place in the winter months when our revenue yield is lowest.
For its last regularly scheduled drydocking, the Mississippi Queen was out of
service for 51 days beginning on December 1, 1995. For its next scheduled
drydocking, we expect the Mississippi Queen to be out of service for a period of
approximately 31 days commencing January 3, 2001. The Delta Queen was out of
service beginning on December 15, 1996 for 30 days for its last scheduled
drydocking. For its next scheduled drydocking, we expect the Delta Queen to be
out of service for a period of 43 days commencing January 4, 2001. The American
Queen, which first entered service in 1995, was out of service for 10 days for
its first drydocking between January 10, 2000 and January 20, 2000. Its next
drydocking will occur in approximately five years. In years that we are not
required to drydock our Delta Queen vessels, we remove each of these vessels
from service to perform routine repairs and maintenance and capital projects. We
refer to the period that each vessel is removed from service as a layup. For its
last regularly scheduled layup, the Mississippi Queen was out of service
beginning January 8, 2000 for 17 days. The Delta Queen was out of service
beginning on January 3, 2000 for 67 days. The S.S. Independence does not undergo
layups in years that it is not drydocked. We cannot assure you that future
drydocks or layups for any of our vessels will be completed on schedule or
within their budgets.
RIVER AND OCEAN CONDITIONS AND WEATHER FACTORS CAN ADVERSELY AFFECT OPERATIONS
AND OUR FINANCIAL PERFORMANCE
River or ocean conditions and weather factors can adversely affect our operation
and the financial performance of the Delta Queen and American Hawaii lines by
disrupting schedules or reducing operating days. As a result of flooding and
restrictions placed upon commercial travel along the inland rivers, we have, in
the past, canceled or re-routed scheduled cruises. We operate the Hawaii cruise
ship in and around the Hawaiian Islands. As a result, its schedules are subject
to ocean and weather conditions, including hurricane conditions. Weather
conditions could cause us to reschedule or cancel cruises.
THE LOSS OF VESSELS FROM SERVICE WOULD ADVERSELY IMPACT OUR BUSINESS
The loss of any vessel from service due to weather, casualty, mechanical
failure, extended or extraordinary maintenance, or otherwise, could adversely
affect our operating results. We believe we have a commercially reasonable level
of insurance coverage. In the event of a permanent or temporary loss of one or
more of the vessels, however, our insurance would not provide the replacement
costs of the vessels nor fully cover the impact of lost business.
13
<PAGE> 14
ANTI-TAKEOVER AND TRANSFERABILITY LIMITATIONS OF U.S. OWNERSHIP REQUIREMENTS MAY
ADVERSELY AFFECT THE LIQUIDITY OF OUR COMMON STOCK
One of the requirements for having U.S.-flagged vessels operating in U.S.
domestic trade is that 75% of our stockholders must be U.S. citizens and that
non-U.S. citizens cannot exercise control of us. We have restrictions in our
certificate of incorporation limiting the transferability of our common stock or
control to non-U.S. citizens to preserve our U.S.-flagged status. These
limitations may have the effect of decreasing the liquidity of our common stock,
thereby making it more difficult for investors to dispose of their shares in an
orderly manner. We have also added legends to our stock certificates to indicate
the citizenship of our stockholders. These provisions and the level of ownership
by Equity Group Investments, Inc. and its affiliates, which we refer to as the
"Equity Group," may deter a change in control and limit non-U.S. citizens',
including corporations and individuals, purchases of our common stock.
OUR CONTROLLING STOCKHOLDER MAY TAKE ACTIONS THAT ADVERSELY AFFECT OUR BUSINESS
Affiliates of the Equity Group own an aggregate of approximately 40% of the
outstanding shares of our common stock. The Equity Group's level of ownership
may permit it to elect the members of our board of directors who will control
our future direction and operations. This includes decisions regarding the
issuance of securities, dividends, acquisitions and our sale. The Equity Group's
stockholders are, directly or indirectly, trusts created for the benefit of
Samuel Zell, Ann Lurie and their respective families. Mr. Zell is the Chairman
of our board of directors.
SALES OF OUR CONTROLLING STOCKHOLDER'S SHARES COULD HAVE AN ADVERSE EFFECT ON
OUR COMMON STOCK PRICE OR OUR ABILITY TO RAISE CAPITAL
The sale of a substantial number of shares of our common stock by the Equity
Group, or the perception that such a sale could occur, could negatively affect
the market price of our common stock. As of December 31, 1999, the Equity Group
had pledged 4,603,000 of its 7,529,047 shares of our common stock to secure
several loans. If the Equity Group were to default on these loans, the creditors
could acquire the pledged shares. We have been advised by the Equity Group that
it is presently in compliance in all material respects with all covenants and
terms of these loans and has alternative resources with which to service the
loans. Any sale, or the perception that such a sale may occur, could also
materially impair our future ability to raise capital through an offering of
securities.
OUR CONTROLLING STOCKHOLDER MAY HAVE CONFLICTS OF INTEREST WITH COMPETING
INTERESTS
The Equity Group, our controlling stockholder, is an investor directly or
indirectly in various business enterprises, both publicly and privately held.
Mr. Zell is also a officer and/or director in many of these affiliated
businesses. The Equity Group, Mr. Zell and/or these affiliated businesses may
from time to time receive opportunities in various businesses which might
compete with us in our current or future activities. Conflicts of interest may
result from such opportunities. The Equity Group and Mr. Zell have informed us
that neither it, he nor any of these affiliated businesses presently intends to
make investments which would cause a conflict of interest with us.
ITEM 2. PROPERTIES
We currently operate vessels with a total of 1,893 passenger berths. The
following table represents a list of our current vessels, the year they entered
into service, their estimated passenger capacity based upon double occupancy per
cabin, and their areas of operation:
<TABLE>
<CAPTION>
YEAR VESSEL PASSENGER PRIMARY AREAS
VESSEL ENTERED INTO SERVICE CAPACITY OF OPERATION
- ------ -------------------- -------- -------------
<S> <C> <C> <C>
S.S. Independence(1)........ 1951 867 Hawaii
American Queen.............. 1995 436 Mississippi River System
Mississippi Queen........... 1976 416 Mississippi River System
Delta Queen................. 1926 174 Mississippi River System
</TABLE>
(1) Substantially renovated in 1994.
14
<PAGE> 15
The following table represents a list of the new vessels we currently plan to
build or obtain, together with their estimated delivery dates, and based upon
double occupancy per cabin, their estimated passenger capacity:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
DATE ENTERING INTO SERVICE PASSENGER CAPACITY
-------------------------- ------------------
<S> <C> <C>
United States Lines Vessels:
ms Patriot........................................... December 2000 1,214
Newbuild #1.......................................... January 2003 1,900
Newbuild #2.......................................... January 2004 1,900
Delta Queen Vessels:
Columbia Queen....................................... May 2000 161
Coastal Cruiser #1................................... March 2001 226
Coastal Cruiser #2................................... June 2001 226
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which we are a party or of which any
of our property is the subject, other than ordinary routine litigation and
claims incidental to the business. We believe we maintain adequate insurance
coverage and reserves for such claims.
The SEC is conducting an informal inquiry into our accounting practices with
respect to direct response advertising costs. We are unable to predict the
outcome or impact of the SEC's informal investigation. However, it is possible
that the SEC's informal inquiry or a subsequent formal inquiry could result in
penalties or sanctions against us. Depending upon the resulting penalties,
sanctions or orders, if any, which we cannot predict at this time, our financial
performance could be adversely affected, our ability to conduct our business
could be impaired or we could be required to make further adjustments to our
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Our common stock trades on the Nasdaq National Market tier of The Nasdaq
Stock Market under the symbol: "AMCV". On March 27, 2000, the last
reported sale price for our common stock was $25.00 per share. The
following table indicates the high and low sales price information for
shares of our common stock as reported by The Nasdaq Stock Market:
High Low
--------------------------------------------------------------------
QUARTER ENDED: December 31, 1999 ........... $ 35.25 $ 21.13
September 30, 1999........... 24.94 19.81
June 30, 1999................ 24.00 15.63
March 31, 1999............... 26.06 16.25
QUARTER ENDED: December 31, 1998 ........... $ 17.63 $ 11.38
September 30, 1998........... 17.00 12.50
June 30, 1998................ 24.63 14.75
March 31, 1998............... 23.25 17.25
(b) The number of stockholders of record of common stock on March 24, 2000 was
approximately 641.
(c) We did not pay cash dividends on our common stock during 1998 or 1999. We
currently anticipate that all of our earnings will be retained for planned
construction projects and ongoing business requirements. We do not
anticipate paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to our selected financial data is set forth under
"Selected Financial Data" on page 21.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis is set forth under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on page 22.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A is set forth under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on page 22.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data are as set forth in
the "Index to Consolidated Financial Statements" on page 20.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE> 17
PART III
ITEMS 10, 11, 12 AND 13 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
We will file a definitive proxy statement with the Securities and Exchange
Commission, pursuant to Regulation 14A under the Securities Exchange Act of 1934
(the "Proxy Statement") and relating to the Company's Annual Meeting of
Stockholders to be held on June 21, 2000, not later than April 24, 2000.
Information required by Items 10 through 13 will appear in the Proxy Statement
and is incorporated herein by reference.
17
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The consolidated financial statements of the Company are set
forth in the "Index to Consolidated Financial Statements" on page
20.
(a)(2) Financial Statement Schedules.
Financial Statement Schedules, except those indicated in the
"Index to Consolidated Financial Statements" on page 20, have
been omitted because they are not applicable, not required under
the instructions, or all the information required is set forth in
the financial statements or the notes to the financial
statements.
(a)(3) Exhibits are as set forth in the "Index to Exhibits" on page 50.
(b) Reports on Form 8-K:
Form 8-K dated November 2, 1999 announcing our earnings for the
third quarter of 1999 and our restatement of earnings for the
first and second quarters of 1999.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date March 30, 2000
--------------
AMERICAN CLASSIC VOYAGES CO.
By / s / Philip C. Calian
-----------------------------
Philip C. Calian
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ Samuel Zell Chairman of the Board
- -----------------------------------------------
Samuel Zell
/s/ Philip C. Calian Chief Executive Officer and Director
- ----------------------------------------------- (Principal Executive Officer)
Philip C. Calian
/s/ Randall L. Talcott Vice President-Finance and Treasurer
- ----------------------------------------------- (Principal Financial and Accounting Officer)
Randall L. Talcott
/s/ John R. Berry Director
- -----------------------------------------------
John R. Berry
/s/ Bradbury Dyer, III Director
- -----------------------------------------------
Bradbury Dyer, III
/s/ Laurence S. Geller Director
- -----------------------------------------------
Laurence S. Geller
/s/ Terence C. Golden Director
- -----------------------------------------------
Terence C. Golden
/s/ Arthur A. Greenberg Director
- -----------------------------------------------
Arthur A. Greenberg
/s/ Jerry R. Jacob Director
- -----------------------------------------------
Jerry R. Jacob
/s/ Emanuel L. Rouvelas Director
- -----------------------------------------------
Emanuel L. Rouvelas
/s/ Mark Slezak Director
- -----------------------------------------------
Mark Slezak
/s/ Joseph P. Sullivan Director
- -----------------------------------------------
Joseph P. Sullivan
/s/ Jeffrey N. Watanabe Director
- -----------------------------------------------
Jeffrey N. Watanabe
</TABLE>
19
<PAGE> 20
AMERICAN CLASSIC VOYAGES CO.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
-------
<S> <C>
Selected Financial Data....................................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations......... 22
Independent Auditors' Report.................................................................. 29
Consolidated Financial Statements
Consolidated Balance Sheets.............................................................. 30
Consolidated Statements of Operations.................................................... 31
Consolidated Statements of Cash Flows.................................................... 32
Consolidated Statements of Changes in Stockholders' Equity............................... 33
Notes to Consolidated Financial Statements............................................... 34
Financial Statement Schedules
Schedule I - Condensed Financial Information of Registrant........................... 46
</TABLE>
20
<PAGE> 21
AMERICAN CLASSIC VOYAGES CO.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(In thousands)
Revenues............................... $ 208,717 $ 192,225 $ 177,884 $ 190,408 $ 188,373
----------------------------------------------------------------------
Gross profit........................... 74,854 66,630 66,589 67,863 51,895
----------------------------------------------------------------------
One-time charges(1).................... -- -- -- 38,390 5,900
----------------------------------------------------------------------
Operating income (loss) ............... 1,649 5,486 9,984 (30,465) (14,535)
----------------------------------------------------------------------
Other income (2)....................... 10 300 -- 11,729 --
----------------------------------------------------------------------
Net interest expense and other
financing costs........................ (4,447) (5,522) (5,935) (7,199) (4,002)
----------------------------------------------------------------------
Net income (loss) .................... $ (1,750) $ 157 $ 2,429 $ (17,636) $ (9,671)
----------------------------------------------------------------------
PER SHARE INFORMATION
Basic earnings (loss) per share........ $ (0.10) $ 0.01 $ 0.17 $ (1.28) $ (0.70)
Diluted earnings (loss) per share...... $ (0.10) $ 0.01 $ 0.17 $ (1.28) $ (0.70)
Cash dividends per share............... $ -- $ -- $ -- $ -- $ 0.08
OPERATING STATISTICS
Fare revenue per passenger night....... $ 230 $ 224 $ 228 $ 216 $ 208
Total revenue per passenger night...... $ 323 $ 314 $ 302 $ 287 $ 288
Weighted average operating days(3):
Delta Queen....................... 342 341 337 347 263
American Hawaii................... 365 365 337 366 272
Vessel capacity per day (berths)(4):
Delta Queen....................... 1,026 1,026 1,026 1,024 1,024
American Hawaii................... 867 867 844 817 1,594
Passenger nights(5) ................... 645,196 611,624 588,892 643,891 628,660
Physical occupancy percentage(6) ...... 97% 92% 94% 98% 90%
BALANCE SHEET DATA (at period end)
(In thousands)
Total assets........................... $ 293,990 $ 212,685 $ 210,805 $ 211,864 $ 247,473
Current portion of long-term debt...... 4,100 4,100 4,100 4,100 3,746
Long-term debt......................... 80,463 77,388 81,488 85,898 103,272
Total stockholders' equity............. 129,800 61,907 59,129 54,982 71,413
</TABLE>
- ---------------------------------
(1)In 1996, we decided not to renovate and return the S.S. Constitution to
service, resulting in write-down costs of $38.4 million ($1.89 per share -
net of tax on both a basic and diluted basis). In 1995, we incurred a $5.9
million ($0.28 per share - net of tax on both a basic and diluted basis)
one-time charge that represented costs associated with the introduction of
the American Queen in June of 1995.
(2)In 1996, we sold the Maison Dupuy Hotel located in New Orleans, Louisiana
for a gain of $11.7 million ($0.57 per share - net of tax on both a basic and
diluted basis). In 1998, we received $0.3 million ($0.01 per share - net of
tax on both a basic and diluted basis) of final proceeds under a profit
participation agreement associated with the 1996 sale.
(3)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 the actual operating days of the vessel by each vessel's capacity
per day.
(4)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.
(5)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.
(6)Physical occupancy percentage is passenger nights divided by capacity
passenger nights.
21
<PAGE> 22
AMERICAN CLASSIC VOYAGES CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
American Classic Voyages Co. is a holding company which owns and controls The
Delta Queen Steamboat Co., Great Hawaiian Cruise Line, Inc. and Project America,
Inc. Through our various subsidiaries, we currently operate 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 S.S.
Independence steamship. We have formed a third cruise line, United States Lines,
to operate the ms Patriot and the new Hawaii cruise vessels.
Our revenues are comprised of:
(1) cruise fares;
(2) onboard revenues, such as those from gift shops and shore
excursions; and
(3) trip cancellation insurance and pre- and post-cruise hotel
packages.
Additional revenue is also derived from the sale of airplane tickets to and from
points of embarkation or disembarkation. Our cost for air tickets typically
matches the revenue we generate from sales of airline tickets, so we recognize
minimal profits from such sales.
Our cost of operations is comprised of:
(1) passenger expenses, such as employee payroll and benefits and the
cost of food and beverages;
(2) vessel operating costs including lay-up and drydocking costs for
our vessels;
(3) insurance costs;
(4) commissions paid to travel agents; and
(5) air ticket and hotel costs.
When we receive deposits from passengers for cruises, we establish a liability
for unearned passenger revenue. We recognize these deposits as revenue on a
pro-rata basis during the associated cruise. Our revenues and some of our
expenses vary considerably when measured on a quarterly basis. This is due to
the seasonality of our Delta Queen revenues, the timing of our Delta Queen and
American Hawaii layups and drydockings, and fluctuations in airfares. These
variations are reflected in our fare revenues per passenger night, which are
commonly referred to as fare per diems, and our occupancy rates.
Seasonality
Delta Queen's operations are seasonal. Historically, we have had greater
passenger interest and higher yields in the spring and fall months of the year.
The vessels typically undergo their annual lay-ups in December or January. While
American Hawaii has historically experienced greater passenger interest in the
summer and fall months of the year, quarterly variations in its revenues are
much smaller than those of Delta Queen. During the summer months, in particular,
American Hawaii tends to have average occupancies in excess of 100% as the
number of families sharing cabins with children increases significantly during
this period.
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<PAGE> 23
Selected quarterly data
As a result of seasonality, timing of vessel layups and drydocking and the
factors affecting our revenues, results of operations vary on a quarterly basis.
The following tables set forth selected unaudited quarterly data for 1998 and
1999. We cannot assure you that our historical quarterly results of operations
will be indicative of our future performance. The figures in the tables below
state dollars in thousands, except per share data, fare revenue per passenger
night and percentages.
<TABLE>
<CAPTION>
1998 - Quarters Ended
---------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues ................................. $ 40,668 $ 53,535 $ 50,920 $ 47,102
Gross profit.............................. 11,209 20,562 18,184 16,675
Operating (loss) income .................. (6,143) 4,037 3,798 3,794
Net (loss) income......................... (4,362) 1,574 1,454 1,491
Diluted (loss) income per share........... (0.31) 0.11 0.10 0.10
Fare revenue per passenger night.......... 211 231 222 230
Physical occupancy percentage............. 87% 97% 95% 88%
</TABLE>
<TABLE>
<CAPTION>
1999 - Quarters Ended
---------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues.................................. $ 40,566 $ 55,200 $ 57,460 $ 55,491
Gross profit.............................. 11,798 21,506 21,692 19,858
Operating (loss) income................... (9,222) 4,735 3,714 2,422
Net (loss) income......................... (6,283) 2,475 2,091 (33)
Diluted (loss) income per share........... (0.44) 0.14 0.11 0.00
Fare revenue per passenger night.......... 209 236 231 238
Physical occupancy percentage............. 90% 98% 102% 97%
</TABLE>
On November 2, 1999 we announced that we had rescinded our prior adoption of the
American Institute of Certified Public Accountants Accounting Standards
Executive Committee's Statement of Position No. 93-7, "Reporting on Advertising
Costs," or SOP 93-7, relating to the deferral of direct response advertising
costs. The deferral method provided for in SOP 93-7 was adopted in 1999, and
made effective as of January 1, 1999. Under SOP 93-7, we deferred recognition of
direct response advertising costs related to direct response advertising efforts
for future cruises. These deferred costs were recognized in the periods that the
cruises promoted by the efforts were completed, and the related cruise revenue
recognized. We rescinded our adoption of SOP 93-7 due to difficulties we
encountered in implementing the new method. In rescinding SOP 93-7, we returned
to our prior method of recognizing expenses for direct response advertising
costs when those costs are incurred. As a result of the rescission of SOP 93-7,
we restated our earnings for the first quarter of 1999 to reflect a loss of $6.3
million, or ($0.44) per share compared to our previously reported loss of $4.5
million, or ($0.32) per share. We also restated our earnings for the second
quarter of 1999 to $2.5 million, or $0.14 per share, compared to our previously
reported earnings of $2.3 million, or $0.13 per share.
Operations data expressed as a percentage of total revenue for years indicated
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Revenues....................................... 100% 100% 100%
Costs and expenses:
Operating expenses........................... 64 65 62
Selling, general and administrative.......... 27 23 23
Depreciation................................. 8 9 9
Operating income .............................. 1 3 5
Net income (loss).............................. (1) 0 1
</TABLE>
23
<PAGE> 24
The following discusses our consolidated results of operations and financial
condition for the years ended December 31, 1999, 1998 and 1997 (referred to
herein as 1999, 1998 and 1997).
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Consolidated revenues for 1999 increased $16.5 million to $208.7 million from
$192.2 million for 1998. This represents an $11.3 million increase in fare
revenues combined with a $5.2 million increase in other revenues. American
Hawaii's fare revenues increased $3.8 million. Occupancy rates increased 6% to
105% while fare per diems of $185 were consistent with the prior year. Delta
Queen's fare revenues increased $7.5 million. Occupancy rates increased 4% to
89% and fare per diems increased 5% to $277. As a result, consolidated fare per
diems for 1999 increased 3% to $230. Of the $5.2 million increase in other
revenues, $3.4 million was attributable to increases in passenger air and hotel
revenue corresponding to the occupancy increase at both cruise lines. Air
revenue per passenger night also increased due to higher air fares. As discussed
below, the increase in air revenue was offset by a corresponding increase in
related air expenses. American Hawaii's onboard revenue also increased by $1.8
million reflecting an 8% improvement in onboard revenue per passenger night
combined with the 6% occupancy increase. As a result, consolidated total revenue
per passenger night increased 3% to $323.
Consolidated cost of operations for 1999 increased $8.3 million to $133.9
million from $125.6 million for 1998. As noted above, higher air fare expenses
accounted for $2.9 million of the increase. American Hawaii's operating costs,
before air expenses, increased $2.8 million reflecting higher passenger and
onboard expenses associated with the occupancy increase, and higher fuel costs.
Delta Queen's operating costs, before air expenses, increased $2.6 million
reflecting higher passenger and commission expenses associated with the
occupancy increase, and higher fuel costs. Consolidated maintenance expenses
increased $2.1 million. Consolidated gross profit increased $8.2 million in 1999
from 1998.
Consolidated selling, general and administrative expenses, before capacity
expansion expenses, increased $10.3 million to $52.2 million for 1999 from $41.9
million in 1998. The increase in selling, general and administrative expenses
reflects additional selling and marketing spending at both cruise lines during
the year. Of the additional marketing spending during the year, approximately
$4.8 million was used to promote year 2000 sailings, whereas in the prior year,
approximately $0.7 million was incurred for 1999 sailings. Capacity expansion
costs of $4.6 million in 1999 were $2.3 million higher than in the prior year.
Beginning in the third quarter of 1999, marketing and public relations expenses
for the Columbia Queen were incurred, which amounted to $1.5 million. The
remainder of the increase is attributable to salary and benefits associated with
new personnel hired during 1999 in connection with our capacity expansion.
As a result of increases in expenses in excess of increases in revenues,
consolidated operating income for 1999 was $1.6 million as compared to $5.5
million for 1998.
Interest income increased by $2.0 million as a result of proceeds received by us
upon the sale of additional common stock during 1999. Interest expense and other
financing costs increased during 1999 due to the accrual of $2.6 million payable
to the guarantor of our letter of credit facility related to our agreed upon
purchase of the ms Nieuw Amsterdam in October 2000. We also amortized $0.5
million of deferred financing fees related to this transaction. During the year,
we also capitalized $2.3 million of interest expense related to our vessels
under construction. We capitalized no interest expense in the prior year.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Consolidated revenues for 1998 increased $14.3 million to $192.2 million from
$177.9 million for 1997. This represents a $2.7 million increase in fare
revenues combined with an $11.6 million increase in other revenues. American
Hawaii's fare revenues increased $4.1 million on a 14% increase in passenger
nights mainly due to an 11% increase in capacity associated with additional
operating days in 1998. The number of operating days was higher in 1998 than in
1997 because the S.S. Independence was out of service for a four-week drydock in
1997. American Hawaii's fare per diems, however, decreased by 5%. Delta Queen's
fare revenues decreased $1.4 million, attributable to a 5% decrease in
occupancy, offset by a 3% increase in fare per diems. Consolidated fare per
diems for 1998 decreased 2% to $224, as the decrease in fare per diems at
American Hawaii more than offset the increase in fare per diems at Delta Queen.
The $11.6 million increase in other revenues was mainly due to an increase in
passenger nights at American Hawaii and an increase in passengers electing to
purchase air through American Hawaii under various air promotions. As a result,
consolidated total revenue per passenger night increased 4% to $314. As
discussed below, the increase in air revenue was offset by a corresponding
increase in related air expenses.
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<PAGE> 25
Consolidated cost of operations for 1998 increased $14.3 million to $125.6
million from $111.3 million for 1997. American Hawaii's operating costs
increased $15.0 million primarily as a result of additional operating days and
an increase in air package expenses. The increase in air package expenses was
directly related to the increase in air revenue, as noted above. Delta Queen's
operating costs decreased by $0.7 million reflecting the decrease in occupancy.
Consolidated selling, general and administrative expenses, before capacity
expansion costs, increased $2.0 million to $41.9 million for 1998 from $39.9
million in 1997. The increase in selling, general and administrative expenses
reflects additional selling and marketing spending at both cruise lines in the
first half of the year. Capacity expansion costs of $2.3 million in 1998 were
$1.2 million higher than in the prior year. Capacity expansion expenses were
incurred for a full year during 1998 for both cruise lines, whereas in 1997,
these expenses were incurred in the second half of the year for American Hawaii
only. The $1.3 million increase in depreciation and amortization expense was
attributable to capital expenditures incurred during the 1997 S.S. Independence
drydock and Delta Queen vessel lay-ups completed earlier in 1998.
As a result of increases in expenses as detailed above, consolidated operating
income for 1998 was $5.5 million as compared to $10.0 million for 1997.
Interest expense decreased slightly due to a lower outstanding debt balance
during 1998 while our effective tax rate remained unchanged from the prior year.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Operating Activities
For the year ended December 31, 1999, cash provided by operations, before
changes in unearned passenger revenue, was $24.8 million compared to $12.9
million in 1998. The 1999 increase reflects the accrued, but unpaid as of
December 31, 1999, costs for layups and drydockings, employee bonuses, and
financing fees and changes in other working capital accounts. The increase in
unearned passenger revenues was greater in 1998 than in 1999 due to (1) S.S.
Independence drydock in January 2000, as discussed below, and (2) deposits
received in 1998 for the millennium charter cruises.
Investing Activities
Our capital expenditures of $79.9 million included $71.6 million for vessels
under construction which is comprised mainly of payments to shipyards. Other
capital costs for the new shipbuilding programs include technical design,
engineering and architectural fees. For the Hawaii cruise ships under
construction, we have spent $53.5 million during 1999, while $18.1 million was
spent in 1999 on the Columbia Queen and Delta Queen coastal vessels projects.
Other capital expenditures of $8.3 million were mainly related to our existing
vessels such as layups for our Delta Queen vessels, which were completed earlier
in 1999, and spending in preparation for the S.S. Independence drydock, which
occurred in January 2000.
Financing Activities
We made scheduled principal payments of $4.1 million under the American Queen
and S.S. Independence ship financing notes, borrowed $12.2 million under our
credit facility and repaid $5.0 million of those borrowings. In the second
quarter of 1999, we completed a public offering of an additional 4,025,000
shares of common stock. The net proceeds to us, after offering expenses, were
approximately $63.5 million and are being used for construction of the initial
Hawaii vessel. Additional proceeds from the issuance of common stock were
received from employee stock option exercises. We also paid $3.1 million for
financing efforts related to our new credit facility, Maritime Administration
financing, and ms Patriot financing, as discussed below.
Capital Expenditures and Debt
For the Hawaii cruise market, we are constructing two new cruise ships over the
next five years and plan to introduce an existing foreign-built cruise ship, the
ms Patriot, which we have a contract to acquire, in the Hawaii market prior to
delivery of the new vessels. On March 9, 1999, we signed a definitive agreement
with Ingalls Shipbuilding to construct two passenger ships, each containing
approximately 1,900 passengers berths, with options to build up to four
additional vessels. The estimated construction cost of the two initial ships,
inclusive of shipyard contract price, shipyard incentives, furniture, fixtures,
and owner-furnished equipment, will be approximately $470 million each. The
agreement provides that the first ship will be delivered in January 2003 and the
second ship in January 2004. Over the next twelve months, we
25
<PAGE> 26
expect to spend approximately $200 million on building the two new Hawaii cruise
vessels, which includes anticipated payments to Ingalls Shipbuilding.
We will finance a significant portion of the construction cost of the Hawaii
cruise ships through the Maritime Administration, which provides guarantees of
private financing for new vessel construction projects conducted in U.S.
shipyards. In April 1999, we received commitments from the Maritime
Administration for financing guarantees for debt up to 87.5% of the cost of the
vessels. The guaranteed debt will be accessed during the construction period,
with interest payments during that period capitalized as part of the cost of
construction. In the current market, this type of debt generally bears interest
at a rate of 100 to 150 basis points over the comparable U.S. government
obligations and can have a term of up to 25 years from the date of delivery of
the vessel. The loans generally amortize on a straight line basis over the term
of the loan commencing after the delivery date. Fees associated with obtaining
the financing guarantees included a one-time investigation fee of approximately
$1.4 million, which we paid to the Maritime Administration in April 1999. In
addition, the Maritime Administration imposes an annual guarantee fee of not
less than 1/4 of 1% and not more than 1% of the indebtedness, reduced by any
required escrow, based upon the obligor's ratio of long-term debt to
stockholders' equity. The present value of the sum of the annual guarantee fees
is payable at the closing of the Maritime Administration guaranteed financing
and will be capitalized as part of the vessel cost. On February 10, 2000, we
issued $25 million of one year notes guaranteed by the Maritime Administration.
These notes bear interest at the London Interbank Offered Rate, or LIBOR, minus
0.05%.
On October 15, 1999, we finalized an agreement with Holland America Line to
purchase the ms Nieuw Amsterdam for $114.5 million. The purchase agreement
required us to make an earnest money deposit of $18 million by October 18, 1999
and an additional $12 million by January 17, 2000. We arranged for an unsecured
letter of credit facility with The Chase Manhattan Bank for up to $30 million
and have satisfied the deposit requirements by posting letters of credit for $18
million and $12 million. Outstanding letters of credit under this facility bear
a fee equal to 0.25% per annum if we deposit cash collateral to secure the
letter of credit and 2.125% per annum if we do not have cash collateral. We are
also required to pay a commitment fee of 0.375% per annum on the unused portion
of the facility.
Persons and entities affiliated with Equity Group, our largest stockholder,
guaranteed the letter of credit facility to The Chase Manhattan Bank thereby
allowing us to obtain the facility from its inception until February 22, 2000.
We paid Equity Group a commitment fee of $0.5 million and agreed to pay Equity
Group additional compensation contingent upon appreciation in our common stock.
Equity Group's rights to receive this additional compensation vested, on a
monthly basis, during the period that the guarantee remained outstanding. Equity
Group may exercise its rights to receive such payment in the fourth and fifth
years, subject to our right to pay such additional fee at any time within the
next three years at escalating amounts and tied to the rights vested by Equity
Group. On February 22, 2000 we deposited $30 million into a cash collateral
account with Chase from proceeds received by us from our securities offerings,
as discussed below, thereby terminating the Equity Group guarantee. We intend to
pay to Equity Group amounts attributable to the vested rights by October 2000.
In addition, Holland America Line has agreed to provide financing for the
remaining portion of the purchase price totaling $84.5 million for 75 months at
the prevailing prime rate. The Holland America Line financing will be secured by
a first preferred ship mortgage. Prior to introducing the ms Patriot into
service in December 2000, we expect to spend approximately $12 to $16 million on
improvements to the ship. This will be funded from cash on hand or funds from
operations.
We entered into a construction contract, as of May 1999, with Atlantic Marine,
Inc. of Jacksonville, Florida to construct the first two coastal cruise vessels
for our Delta Queen line. Under the construction contract, the price of the
vessels will be $30 million each. We expect each coastal cruise vessel to have a
total project cost, including furnishing, fixtures and equipment, of
approximately $35 million. The coastal cruise vessels will be approximately 300
feet long and provide accommodations for up to 226 passengers. The contract
provides that the delivery date will be March 2001 for the first vessel and June
2001 for the second vessel. Atlantic Marine will provide a limited warranty for
the work, parts, and components of each vessel fabricated by the yard for one
year after delivery.
Over the next twelve months, we expect to spend approximately $35 million to $40
million on building the new coastal cruise vessels, which also includes
anticipated payments to Atlantic Marine. We have applied to the Maritime
Administration for financing guarantees for the two coastal cruise vessels now
under construction.
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<PAGE> 27
In May 1999, we acquired a substantially complete riverboat originally built for
the casino trade that we are converting and will operate as the fourth Delta
Queen riverboat. We expect that vessel, which will be known as the Columbia
Queen, will enter service in May 2000 operating weekly cruise vacations out of
Portland on the Columbia River system. We originally entered into an agreement
with Nichols Bros. Boat Builders, Inc. to renovate the Columbia Queen. However,
we recently terminated that agreement and entered into an agreement with Cascade
General, Inc. to convert the 218 foot boat into an overnight passenger vessel
with 161 passenger berths. We paid $3.2 million to acquire the vessel and
estimate that the total renovation, relocation, start-up and marketing costs,
inclusive of the $14 million contract with Cascade General, to be $25 million to
$28 million.
In February 1999, The Delta Queen Steamboat Co. entered into a credit agreement
with a group of lenders, with The Chase Manhattan Bank as agent. This credit
agreement provides for a revolving credit facility of up to $70 million to fund
the expansion of our Delta Queen line. This $70 million facility replaced our
prior credit facility with Chase Manhattan. Borrowings under the new credit
facility bear interest at either (1) the greater of Chase Manhattan's prime rate
or alternative base rates plus a margin ranging from 0.50% to 1.50%, or (2) the
London Interbank Offered Rate plus a margin ranging from 1.50% to 2.50%. We are
also charged a fee of 0.50% per annum on any unused commitment. The new credit
facility is secured by all of the assets of The Delta Queen Steamboat Co.,
except for the American Queen. The new credit facility limits the dividends The
Delta Queen Steamboat Co. may pay to between $5 million and $15 million per year
when aggregated with investments and other payments.
On February 22, 2000 we completed an offering of an additional 2,000,000 shares
of common stock. The proceeds to us, after underwriting commissions, were $47.1
million and are being used for construction of the second Hawaii vessel. The
underwriters' overallotment option of 300,000 additional shares was not
exercised.
On February 22, 2000 we also completed an offering of 2,000,000 trust
convertible preferred securities. Each $50 security bears interest at 7% and is
convertible at the holder's election into 1.6207 shares of common stock. The
proceeds to us, after underwriting fees, were $96.8 million. A portion of the
proceeds were used to fund the letter of credit facility related to the ms Nieuw
Amsterdam purchase and to pay outstanding amounts on the Chase credit facility.
The underwriters' overallotment option of 300,000 additional preferred
securities was not exercised.
In the first quarter of 2000, the three existing Delta Queen vessels' lay-ups
were completed which cost approximately $6.7 million, including capital
expenditures, repairs and maintenance. These amounts were funded from working
capital and the Delta Queen credit facility. For its most recent drydocking, the
S.S. Independence was out of service for 18 days beginning January 5, 2000. This
drydocking cost approximately $5.9 million, including capital expenditures,
repairs and maintenance and was funded from cash on hand.
As of December 31, 1999, we complied with all covenants under our various debt
agreements.
We believe we will have adequate access to capital resources, both internally
and externally, to meet our current short-term and long-term capital
commitments. Such resources may include cash on hand, new borrowings from
lenders, and the ability to secure additional financing through the capital
markets. We continually evaluate opportunities to increase capacity at both
Delta Queen and in Hawaii and to strategically grow our business. Although we
believe that we have obtained sufficient equity and debt financing from the
capital markets to satisfy our financial obligations relating to construction of
the new vessels, and to acquire, renovate and introduce the ms Patriot into
service, we cannot assure you that we will be able to obtain additional
financing, if necessary, at commercially acceptable levels to finance these
projects and, if we so choose, to pursue strategic business opportunities. If we
fail to obtain such financing, we may have to postpone or abandon some of our
plans.
OTHER MATTERS
Stock Repurchase Plan
In June 1997, our board of directors approved a stock repurchase plan. The plan
authorizes us to repurchase up to one million shares of our stock. These shares
may be purchased from time to time in the public market or through privately
negotiated transactions. As of December 31, 1998, we had repurchased 51,000
shares at an average purchase price of $14.84 per share under the plan. We have
not purchased any additional shares since then and currently have no intention
to repurchase any additional shares of common stock.
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<PAGE> 28
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards 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. We have reviewed Statement of Financial
Standards No. 131 and have determined that we operate as a single business
segment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that derivatives be recognized in the balance sheet at fair value and
specifies the accounting for changes in fair value. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" to defer
the effective date of SFAS No. 133, until fiscal years beginning after June 15,
2000. While we currently have no derivative financial instruments and do not
currently engage in hedging activities, we may engage in derivative and hedging
activities in the future, and therefore would be affected by the pronouncement.
The impact of SFAS No. 133 on our consolidated financial statements would depend
on a variety of factors including the level of future hedging activities, the
types of hedging instruments used and the effectiveness of such instruments.
Year 2000
Many computer programs were written using two digits rather than four to define
the applicable year. As a result, on January 1, 2000, any of our computer
programs that had time sensitive software might have recognized a date using "0"
as the year 1900 rather than the year 2000.
We previously established internally staffed project teams to address Year 2000
issues. Each team formulated a plan that focused on Year 2000 compliance efforts
for information technology systems and non-information technology systems. This
plan addressed (1) information technology systems software and hardware such as
reservations, accounting and associated systems, personal computers and software
and (2) non-information technology systems such as embedded chip systems in
building facilities, shipboard navigation, control, power generation systems,
and communication systems.
Our total costs for system improvements and the Year 2000 project were
approximately $0.9 million. These efforts were funded from working capital. Of
the total project cost, approximately $0.5 million was attributable to the
implementation of a new accounting system. This amount included new software,
new hardware, consulting fees and maintenance, of which $0.3 million was
capitalized or classified as prepaid maintenance. Another $0.1 million of
capital outlays was attributable to the upgrading of the S.S. Independence's
onboard financial system. The remaining $0.3 million was expensed as incurred
and did not have a material impact on the results of operations. The Year 2000
project represented less than 10% of our information systems budget.
We have adopted contingency plans to identify and determine how to handle our
most probable worst case scenarios. To date, we have not experienced any
material disruptions due to Year 2000 problems.
Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates.
Our principal market risk is due to changes in interest rates which affects us
directly in our borrowing activities. At December 31, 1999, our long-term
variable rate debt had a carrying value of $31.6 million.
We will be issuing up to $1.1 billion in debt related to our shipbuilding
program for the Hawaii cruise vessels. This debt will be subject to the
prevailing market conditions at the time it is issued. On February 10, 2000, we
issued $25 million of one-year notes, which bear interest at LIBOR minus 0.05%.
We may manage our interest rate risk through interest rate hedging techniques.
However, we currently do not use such techniques. Should we use interest rate
hedging techniques, we may not be successful in reducing or eliminating our
interest rate risk in the future.
Other market risks to which we are exposed relate to food and fuel commodity
prices, which we do not typically manage through the use of financial
instruments. Increases in food and fuel commodity prices could materially affect
our operating results.
28
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
American Classic Voyages Co.
We have audited the accompanying consolidated balance sheets of American Classic
Voyages Co. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of management
of American Classic Voyages Co. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Classic
Voyages Co. and subsidiaries as of December 31, 1999 and 1998 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
KPMG LLP
Chicago, Illinois
February 28, 2000
29
<PAGE> 30
AMERICAN CLASSIC VOYAGES CO.
CONSOLIDATED BALANCE SHEETS
(In thousands except shares and par value)
<TABLE>
<CAPTION>
December 31,
1999 1998
-----------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ...................................................... $ 42,399 $ 27,004
Restricted short-term investments .............................................. 289 60
Accounts receivable ............................................................ 1,205 1,989
Inventory ...................................................................... 2,529 2,413
Prepaid air tickets ............................................................ 1,930 2,527
Prepaid expenses and other current assets ...................................... 3,491 4,006
----------------------
Total current assets ...................................................... 51,843 37,999
======================
Property and equipment, net .................................................... 150,797 159,079
Vessels under construction ..................................................... 74,601 3,050
Deferred income taxes, net ..................................................... 12,446 10,011
Other assets ................................................................... 4,303 2,546
----------------------
Total assets .............................................................. $ 293,990 $ 212,685
======================
LIABILITIES
Accounts payable ............................................................... $ 14,534 $ 13,493
Other accrued liabilities ...................................................... 23,712 16,500
Current portion of long-term debt .............................................. 4,100 4,100
Unearned passenger revenues .................................................... 41,381 39,297
----------------------
Total current liabilities ................................................. 83,727 73,390
Long-term debt, less current portion ........................................... 80,463 77,388
----------------------
Total liabilities ......................................................... 164,190 150,778
======================
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value (5,000,000 shares authorized, none
issued and outstanding) ..................................................... -- --
Common stock, $0.01 par value (40,000,000 and 20,000,000 shares authorized,
respectively; 18,653,206 and 14,293,931 shares issued,
respectively) ............................................................... 187 143
Additional paid-in capital ..................................................... 151,094 80,451
Accumulated deficit ............................................................ (19,573) (17,823)
Common stock in treasury, at cost (51,000 shares) .............................. (757) (757)
Unearned restricted stock and stock units ...................................... (1,151) (107)
----------------------
Total stockholders' equity ................................................ 129,800 61,907
----------------------
$ 293,990 $ 212,685
======================
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
30
<PAGE> 31
AMERICAN CLASSIC VOYAGES CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
-----------------------------------
<S> <C> <C> <C>
Revenues ...................................................... $ 208,717 $ 192,225 $ 177,884
Cost of operations (exclusive of depreciation shown below)..... 133,863 125,595 111,295
-----------------------------------
Gross profit .................................................. 74,854 66,630 66,589
Selling, general and administrative expenses .................. 56,765 44,232 41,015
Depreciation expense .......................................... 16,440 16,912 15,590
-----------------------------------
Operating income .............................................. 1,649 5,486 9,984
Interest income ............................................... 3,102 1,117 1,028
Interest expense and other financing costs .................... 7,549 6,639 6,963
Other income .................................................. 10 300 --
-----------------------------------
(Loss) income before income taxes ............................. (2,788) 264 4,049
Income tax benefit (expense) .................................. 1,038 (107) (1,620)
-----------------------------------
Net (loss) income ............................................. $ (1,750) $ 157 $ 2,429
===================================
PER SHARE INFORMATION
Basic:
Weighted-average shares outstanding ...................... 17,167 14,137 13,952
Earnings (loss) per share ................................ $ (0.10) $ 0.01 $ 0.17
Diluted:
Weighted-average shares outstanding ...................... 17,167 14,777 14,338
Earnings (loss) per share ................................ $ (0.10) $ 0.01 $ 0.17
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
31
<PAGE> 32
AMERICAN CLASSIC VOYAGES CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
--------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income ........................................ $ (1,750) $ 157 $ 2,429
ADJUSTMENTS TO RECONCILE
NET (LOSS) INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Depreciation expense ..................................... 16,440 16,912 15,590
Gain on sale of assets ................................... -- (300) --
Changes in certain working
capital accounts and other
Accounts receivable ............................. 784 (690) 2,435
Accounts payable ................................ 1,039 (789) 3,599
Other accrued liabilities ....................... 8,210 (529) (5,344)
Other assets .................................... (1,050) (258) 1,576
Unearned passenger revenues ..................... 2,084 5,584 2,044
Prepaid expenses and other ...................... 1,103 (1,563) 85
--------------------------------
Net cash provided by operating activities ................ 26,860 18,524 22,414
--------------------------------
INVESTING ACTIVITIES
(Increase) decrease in restricted investments ............ (229) 265 2,632
Capital expenditures ..................................... (79,866) (8,789) (22,326)
Proceeds from sale of assets ............................. -- 300 1,830
--------------------------------
Net cash used in investing activities .................... (80,095) (8,224) (17,864)
--------------------------------
FINANCING ACTIVITIES
Proceeds from borrowings ................................. 12,200 -- --
Repayments of borrowings ................................. (9,125) (4,100) (4,410)
Purchase of common stock ................................. -- (757) --
Issuance of common stock ................................. 68,697 2,907 1,139
Deferred financing fees .................................. (3,142) (533) --
--------------------------------
Net cash provided by (used in) financing activities ...... 68,630 (2,483) (3,271)
--------------------------------
Increase in cash and cash equivalents .................... 15,395 7,817 1,279
Cash and cash equivalents, beginning of period ........... 27,004 19,187 17,908
--------------------------------
Cash and cash equivalents, end of period ................. $ 42,399 $ 27,004 $ 19,187
================================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of capitalized interest) ............... $ 4,189 $ 6,438 $ 6,791
Income taxes ......................................... $ 258 $ 232 $ 249
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
32
<PAGE> 33
AMERICAN CLASSIC VOYAGES CO.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Unearned
Additional Restricted Total
Common Paid-in Accumulated Treasury Stock and Stock Stockholders'
Stock Capital Deficit Stock Units Equity
--------- ----------- - --------- --------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ..................... $ 139 $ 75,252 $ (20,409) $ -- $ -- $ 54,982
Net income ..................................... -- -- 2,429 -- -- 2,429
Stock units issued to Directors, net ........... -- 219 -- -- (90) 129
Stock issued under option and benefit plans .... 1 1,588 -- -- -- 1,589
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1997 ..................... 140 77,059 (17,980) -- (90) 59,129
Net income ..................................... -- -- 157 -- -- 157
Stock units earned ............................. -- -- -- -- 90 90
Stock units issued to Directors, net ........... -- 138 -- -- (107) 31
Stock issued under option and benefit plans..... 3 3,254 -- -- -- 3,257
Purchase of treasury stock ..................... -- -- -- (757) -- (757)
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1998 ..................... 143 80,451 (17,823) (757) (107) 61,907
Net loss ....................................... -- -- (1,750) -- -- (1,750)
Stock units earned ............................. -- -- -- -- 107 107
Stock units issued to Directors, net ........... -- 205 -- -- (103) 102
Restricted stock grant ......................... -- 1,397 -- -- (1,048) 349
Stock issued under option and benefit plans..... 4 4,336 -- -- -- 4,340
Stock offering, net of expenses ................ 40 63,464 -- -- -- 63,504
Tax benefit from exercise of stock options ..... -- 1,241 -- -- -- 1,241
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1999 ..................... $ 187 $ 151,094 $ (19,573) $ (757) $ (1,151) $ 129,800
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
33
<PAGE> 34
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
American Classic Voyages Co., through its subsidiaries, operates three cruise
lines under the names of The Delta Queen Steamboat Co., American Hawaii Cruises
and United States Lines. The Delta Queen Steamboat Co., through its
subsidiaries, owns and operates the American Queen, Mississippi Queen and Delta
Queen steamboats which conduct overnight cruise operations on certain U.S.
inland waterways. Delta Queen will also operate the Columbia Queen following its
construction, beginning in the spring of 2000. Great Hawaiian Cruise Line, Inc.,
doing business as American Hawaii Cruises, through its subsidiaries, owns and
operates the S.S. Independence steamship providing overnight cruises among the
Hawaiian Islands. American Hawaii also owned the S.S. Constitution steamship
which was removed from service in June 1995 and was sold on November 4, 1997.
Project America Inc., doing business as United States Lines ("USL"), through its
subsidiaries, will own and operate the ms Patriot and the new Hawaii vessels.
PRINCIPLES OF CONSOLIDATION
The accompanying Consolidated Financial Statements include the accounts of
American Classic Voyages Co. ("AMCV") and its wholly owned subsidiaries,
including The Delta Queen Steamboat Co. ("DQSC"), Great Hawaiian Cruise Line,
Inc. ("GHCL") and Project America, Inc. (collectively with such subsidiaries,
the "Company"). The accompanying Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain previously reported amounts have been reclassified to
conform to the 1999 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent 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.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of three
months or less are considered cash equivalents.
RESTRICTED SHORT-TERM INVESTMENTS
As of December 31, 1998, restricted short-term investments reflected cash
pledged as collateral on outstanding letters of credit related to certain
contracts with vendors. As of December 31, 1999, restricted short-term
investments also reflected amounts in escrow related to the construction of the
Columbia Queen.
INVENTORIES
Inventories consists of provisions, supplies, fuel and gift shop merchandise
carried at the lower of cost (weighted-average) or market.
PREPAID AIR TICKETS
Prepaid air tickets consists of air tickets purchased by the Company and resold
to passengers in advance of sailings.
PROPERTY AND EQUIPMENT
Property and equipment primarily consists of vessels and leasehold improvements
which are recorded at cost. Construction-in-progress represents expenditures for
the vessels under lay-up and/or drydock. Depreciation is computed using the
straight-line method based upon the estimated useful lives of the various
classes of assets ranging from 3 to 40 years. Lay-up and drydock expenditures
relating to vessel improvements or betterments are capitalized. In addition,
lay-up and drydock expenditures relating to cleaning, repairs and maintenance
are accrued evenly over the period to the next scheduled lay-up and/or drydock
and are based on the best available estimate of total costs. The accrual for
these costs is included in other accrued liabilities and was $5.1 million and
$2.4 million at December 31, 1999 and 1998, respectively. The Company reviews
long-lived assets, identifiable intangibles, goodwill, and reserves for
impairment whenever events or changes in circumstances indicate the carrying
amount of the assets may not be fully recoverable.
34
<PAGE> 35
VESSELS UNDER CONSTRUCTION
Vessels under construction consists mainly of payments to shipyards as part of
the Company's various new shipbuilding programs (See Note 5 for further
information). Additional capitalized costs include technical design,
engineering, and architectural fees. Interest costs associated with the vessels
under construction are capitalized during the construction period and were $2.3
million for the year ended December 31, 1999. No interest costs were capitalized
in 1998.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between carrying amounts and the tax bases
of other assets and liabilities.
REVENUE AND EXPENSE RECOGNITION
The Company generally receives passenger fares up to 60 days prior to the cruise
date and are recorded as a liability for unearned passenger revenue. The
liability is recognized as revenue on a pro-rata basis during the associated
cruise. The Company is self-insured in respect of guaranteeing the Company's
passenger cruise deposits. Advertising costs are expensed as incurred except for
brochure costs, which result in tangible assets. Brochure costs are recorded as
prepaid expenses and charged to expense as consumed.
EARNINGS PER SHARE INFORMATION
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding. Diluted earnings per share
is computed in a similar manner except that the denominator is increased to
include dilutive potential common shares from stock options and stock units. See
Note 2 for a reconciliation of basic and diluted earnings per share.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include restricted short-term investments,
accounts receivable, accounts payable, other accrued expenses and long-term
debt. At December 31, 1999 and 1998, the fair values of all financial
instruments were not materially different from their carrying or contract
values.
STOCK-BASED COMPENSATION PLANS
The Company has elected to account for employee stock-based compensation plans
in accordance with Accounting Principles Board Opinion No. 25, as permitted
under Statement of Financial Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation". See Note 8 for pro forma effect for the fair value
accounting method, as defined in SFAS No. 123.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("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 has reviewed SFAS No. 131 and has determined that the
Company operates as a single business segment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that derivatives be recognized in the balance sheet at fair value and
specifies the accounting for changes in fair value. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" to defer
the effective date of SFAS No. 133, until fiscal years beginning after June 15,
2000. While we currently have no derivative financial instruments and do not
currently engage in hedging activities, we may engage in derivative and hedging
activities in the future, and therefore would be affected by the pronouncement.
The impact of SFAS No. 133 on our consolidated financial statements, however,
would depend on a variety of factors including the level of future hedging
activities, the types of hedging instruments used and the effectiveness of such
instruments.
RISK AND UNCERTAINTIES
The Company is subject to varying degrees of risk and uncertainty. The Company
insures its vessels and other business assets against insurable risks in a
manner it deems appropriate. The Company believes there is no concentration of
risk with any single customer or supplier, or small group of customers or
suppliers, whose failure or non-performance would materially affect the
Company's results.
35
<PAGE> 36
NOTE 2. EARNINGS PER SHARE
The earnings per share reconciliations presented below for the years ended
December 31, 1998 and 1997 have been prepared pursuant to the requirements of
SFAS No. 128 (in thousands, except per share amount):
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997
---------------------------------- ---------------------------------
Per Per
Numerator Denominator Share Numerator Denominator Share
---------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share................... $157 14,137 $0.01 $2,429 13,952 $0.17
===== =====
Additional shares assuming exercise of
dilutive stock options and immediate
vesting of stock units..................... -- 640 -- 386
---- ------ ------ ------
Diluted earnings per share................. $157 14,777 $0.01 $2,429 14,338 $0.17
==== ====== ===== ====== ====== =====
</TABLE>
For the years ended December 31, 1998 and 1997, options to purchase 858,000 and
523,000 shares of common stock, respectively, at prices ranging from $15.00 to
$20.00 were outstanding during 1998 and 1997, but were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market prices of the common shares.
As the Company reported a net loss for the year ended December 31, 1999, diluted
earnings per share was computed in the same manner as basic earnings per share.
Therefore, at December 31, 1999, outstanding options to purchase 3,433,660
shares of common stock at prices ranging from $3.25 to $29.13, were not included
in the computation of diluted earnings per share.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consisted of (in thousands):
December 31,
1999 1998
----------------------
Vessels ................................. $ 222,666 $ 218,649
Buildings and leasehold improvements .... 7,779 7,704
Construction-in-progress ................ 3,278 813
Other ................................... 9,122 7,706
----------------------
242,845 234,872
Less accumulated depreciation ........... (92,048) (75,793)
----------------------
$ 150,797 $ 159,079
======================
During 1999, $0.3 million of leasehold improvements were written-off along with
$0.2 million of related accumulated depreciation. During 1998, $1.4 million of
leasehold improvements were written-off along with $0.5 million of related
accumulated depreciation upon the amendment to the lease covering the Company's
Chicago headquarters facilities. The company was extended a credit for future
rent by the landlord for the value of the undepreciated leasehold improvements
(See Note 8 for further information).
36
<PAGE> 37
NOTE 4. LONG-TERM DEBT
Long-term debt consisted of (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------------
<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 ............................................... $14,385 $16,809
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 ................................................... 7,926 9,248
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 ................................................... 2,124 2,478
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 $70 million) .............. 7,175 --
-----------------
84,563 81,488
Less current portion ......................................................... 4,100 4,100
-----------------
$80,463 $77,388
=================
</TABLE>
Required principal payments on long-term debt are $4.1 million for each of the
years from 2000 to 2003. Required principal payments on long-term debt in 2004
is $11.3 million. See Note 11 for further information. For the years ended
December 31, 1999 and 1998, the weighted-average interest rate on outstanding
borrowings was approximately 7.6% and 7.0%, respectively.
The American Queen Series and the Independence Series A and B debt are
guaranteed by the U.S. Government through the Maritime Administration ("MARAD")
and are secured by first mortgages on the American Queen and the S.S.
Independence, respectively. These Series contain various covenants which, among
other things, require the compliance with certain financial ratios at the end of
each year.
Upon the issuance of the Independence Series A and B debt in 1995 and 1996, $2.2
million was deposited into an account representing six months of debt service.
The debt service deposit was released to the Company in 1997 as GHCL had met the
required cash flow and debt to equity ratios as of December 31, 1996.
As of December 31, 1996, the Company's restricted short-term investments
included an escrow account for remaining American Queen construction costs in
the amount of $0.3 million, which was released to the Company in October 1997
and was used to pay down the principal balance of the American Queen Series.
In the first quarter of 1999, DQSC, as borrower, closed on a new long-term
credit facility with The Chase Manhattan Bank, as agent, and several participant
banks (the "Chase Facility"). The Chase Facility, which is a $70 million
revolving credit facility maturing in February 2004, replaces the previous
credit facility with Chase Manhattan. Borrowings under the new facility bear
interest at a rate, at the option of DQSC, equal to either (1) the greater of
Chase's prime rate or certain alternative base rates plus a margin ranging from
0.50% to 1.50%, or (2) LIBOR plus a margin ranging from 1.50% to 2.50%. DQSC is
also required to pay an unused commitment fee at a rate of 0.50% per annum.
37
<PAGE> 38
The Chase Facility will be used for the conversion of the fourth Delta Queen
riverboat, the construction of the first two coastal vessels, and Delta Queen
working capital. The new facility is secured by all of the assets of DQSC except
the American Queen, and has various limitations and restrictions on investments,
additional indebtedness, the construction costs of the new vessels, and other
capital expenditures. The Chase Facility also limits dividends by DQSC, when
aggregated with investments and certain other payments, to amounts ranging from
$5 million to $15 million per annum. DQSC is required to comply with certain
financial covenants, including maintenance of minimum interest coverage ratios
and maximum leverage ratios.
On April 8, 1999, the Company received a commitment from the Maritime
Administration for up to $1.1 billion in financing guarantees. The commitment
amount represents 87.5% of the total cost of the initial two Hawaii vessels,
including shipyard costs, capitalized interest, and fees. See Note 11 for
further information.
As of December 31, 1999, the Company complied with all covenants under its
various debt agreements.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under operating leases. The
Company currently leases approximately 21,000 square feet from a partnership
controlled by an affiliated company, at an annual rate of approximately
$100,000. In addition, the Company's mainland headquarters is maintained
pursuant to an assignment from local authorities. The Company paid approximately
$168,000, $165,000 and $160,000 under this arrangement for the years ended
December 31, 1999, 1998 and 1997, respectively. This arrangement may be
terminated at any time by the local authorities upon determination that a
superior maritime use is deemed to exist. Rent expense for the years ended
December 31, 1999, 1998 and 1997 was approximately $662,000, $842,000 and
$916,000, respectively.
The future minimum lease commitments for the next five years and thereafter
under all noncancelable operating leases, excluding assignment payments, as of
December 31, 1999, are $411,000, $428,000, $415,000, $385,000, $271,000 and $0.
The Company is subject to litigation in the ordinary course of business. In the
opinion of management, the outcome of such litigation will not have a material
effect on the results of operations or financial position of the Company as most
is covered by insurance, net of a deductible.
HAWAII VESSELS
On March 9, 1999, the Company executed definitive agreements with Ingalls
Shipbuilding, Inc. to construct at least two new vessels for the Hawaii cruise
market. The new Hawaii cruise ships will have the capacity to accommodate
approximately 1,900 passengers each and are currently estimated to cost $440
million each, plus approximately $30 million each for furnishings, fixtures and
equipment. The contract provides that Ingalls Shipbuilding will deliver the
first new ship in January 2003 and the second ship in January 2004. In addition,
the shipbuilding contract provides the Company an option to build up to four
additional vessels. The estimated contract price of the first option vessel is
$487 million and the contract price for the subsequent option vessels will be
negotiated between the parties. Ingalls Shipbuilding will provide a limited
warranty for the design, material, and workmanship of each vessel for one year
after delivery.
COASTAL VESSELS
The Company entered into a construction contract, as of May 1, 1999, with
Atlantic Marine, Inc. of Jacksonville, Florida to construct at least two coastal
cruise vessels for its Delta Queen line. This contract is the culmination of the
previously announced plans to build a series of up to five new vessels to
provide cruises along U.S. coastal waterways. Under the construction contract,
the contract price of the vessels will be $30 million each and will have a total
project cost, including Company provided furnishings, fixtures and equipment, of
approximately $35 million. The coastal cruise vessels will be approximately 300
feet long and provide accommodations for up to 226 passengers. The contract
provides that the delivery date will be March 2001 for the first vessel and June
2001 for the second vessel. Atlantic Marine will provide a limited warranty for
the work, parts, and components of each vessel fabricated by the yard for one
year after delivery.
38
<PAGE> 39
RIVERBOAT ACQUISITION
In May 1999, the Company acquired a substantially complete riverboat originally
built for the casino trade that the Company will convert and operate as the
fourth Delta Queen riverboat. The Company expects the vessel, which will be
known as the Columbia Queen, will enter service in May 2000 operating weekly
cruise vacations out of Portland on the Columbia River system. The Company
originally entered into an agreement with Nichols Brothers Boat Builders, Inc.
to renovate the Columbia Queen. However, the Company recently terminated that
agreement and entered into an agreement with Cascade General, Inc. to convert
the 218 foot boat into an overnight passenger vessel with 161 passenger berths.
The Company paid $3.2 million to acquire the vessel and estimates the total
renovation, relocation, start-up and marketing costs, inclusive of the $14
million contract with Cascade General, to be $25 million to $28 million.
SHIP PURCHASE
On October 15, 1999, the Company finalized an agreement with Holland America
Line to purchase the ms Nieuw Amsterdam for $114.5 million. The 1,214 passenger
cruise ship is expected to be transferred to the Company in the Fall of 2000 and
will be operated in the Hawaiian Islands by USL as a U.S.-flag vessel named the
ms Patriot. The purchase agreement required the Company to make an earnest money
deposit of $18 million by October 18, 1999 and an additional $12 million by
January 17, 2000. The Company arranged for an unsecured letter of credit
facility with Chase Manhattan Bank for up to $30 million and satisfied the first
deposit requirement by posting an $18 million letter of credit. Outstanding
letters of credit under this facility bear a fee equal to 0.25% per annum if the
Company deposits cash collateral to secure the letter of credit and 2.125% per
annum if the Company does not post cash collateral. The Company is also required
to pay a commitment fee of 0.375% per annum on the unused portion of the
facility.
Persons and entities affiliated with Equity Group Investments, Inc. ("EGI"), the
Company's largest shareholder, guaranteed the letter of credit facility to Chase
Manhattan Bank, thereby allowing the Company to obtain the facility. The Company
has paid EGI a commitment fee of $0.5 million and has agreed to pay EGI
additional compensation contingent upon appreciation in the Company's common
stock. EGI's rights to receive this additional compensation will vest, on a
monthly basis, during the period that the guarantee remains outstanding and will
increase to the extent that amounts are paid by EGI pursuant to the guarantee.
EGI has a period of five years to exercise its rights to receive such payment,
subject to the Company's right to pay such additional fee at any time within the
next three years at escalating amounts and tied to the rights vested by EGI. As
of December 31, 1999, the Company has recorded accrued interest and other
financing expenses of $3.1 million related to this transaction. A committee
comprised of the Company's independent directors negotiated the arrangement with
EGI. The committee received independent legal and financial advice. See Note 11
for further information.
In addition, the purchase agreement with Holland America Line provides for the
transaction to close in October 2000. As part of the purchase agreement, Holland
America Line has agreed to make available to the Company $84.5 million of
financing secured by the vessel.
NOTE 6. STOCKHOLDERS' EQUITY
COMMON STOCK OFFERING
In the second quarter of 1999, the Company completed a public offering of an
additional 4,025,000 shares of common stock. The net proceeds to the Company,
after offering expenses, were $63.5 million and are being used for construction
of the initial Hawaii vessel.
RESTRICTED STOCK
In February 1999, the Company reserved and set aside 72,122 shares of restricted
common stock as compensation for a key salaried employee. Issuance and sale of
these shares is restricted prior to the employee's retirement from the Company.
Unearned compensation was recorded at the date of the restricted stock award
based on the market value of shares. Unearned compensation, which is shown as a
separate component of stockholders' equity, is being amortized to expense over a
four year vesting period, which began in July 1999.
39
<PAGE> 40
NOTE 7. INCOME TAXES
The provision (benefit) for income taxes consisted of (in thousands):
Years Ended December 31,
1999 1998 1997
-----------------------------
Current tax provision (benefit):
Federal .......................... $ -- $ -- $ --
State ............................ 150 213 163
-----------------------------
Total current tax provision ...... 150 213 163
-----------------------------
Deferred tax provision (benefit):
Federal .......................... (712) 89 1,323
State ............................ (476) (195) 134
-----------------------------
Total deferred tax provision ..... (1,188) (106) 1,457
-----------------------------
Total tax provision (benefit) .... $(1,038) $107 $1,620
=============================
The provision (benefit) for income taxes differs from amounts computed by
applying the U.S. statutory Federal income tax rate. The differences are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
-------------------------------
35% 35% 35%
-------------------------------
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate ........ $ (975) $ 93 $1,417
State income taxes (net of Federal benefit) ...... (297) 12 193
Non-deductible expenses .......................... 234 221 313
Other ............................................ -- (219) (303)
-------------------------------
Total tax provision (benefit) .................... $(1,038) $ 107 $ 1,620
===============================
</TABLE>
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below (in
thousands):
December 31,
Deferred tax assets: 1999 1998
-----------------
Insurance costs and reserves ................. $ 1,173 $ 1,097
Non-recurring executive compensation ......... 135 490
Benefit cost accruals ........................ 716 491
Finance cost accruals ........................ 1,030 --
Alternative minimum tax
credit carryforwards ....................... 2,206 2,196
Drydock accruals ............................. 1,995 967
Net operating loss carryforward .............. 36,823 35,090
Goodwill, due to basis differences ........... 3,075 1,270
-----------------
Total deferred tax assets .................... 47,153 41,601
-----------------
Deferred tax liabilities:
Capital construction fund .................... 702 1,237
Property plant and equipment, due to
basis differences and depreciation, net .... 34,005 30,353
-----------------
Total deferred tax liabilities ............... 34,707 31,590
-----------------
Net deferred tax asset ....................... $12,446 $10,011
=================
At December 31, 1999, consolidated net operating losses of approximately $3.0
million, $10.0 million, $36.0 million, $14.0 million, $29.0 million, $5.0
million and $5.7 million, expiring in 2008, 2009, 2010, 2011, 2012, 2018 and
2019, respectively, were available to offset future taxable income of the
Company. The 1999 net operating loss of $5.7 million includes $3.5 million of
deductions related to stock option exercises, the tax benefit of which was
recorded as additional paid in capital.
40
<PAGE> 41
In 1993, the Company established a capital construction fund (the "CCF")
pursuant to Section 607 of the Merchant Marine Act of 1936, into which it
deposited approximately $12.0 million. This fund was primarily used to pay
liabilities assumed in the Acquisition and allowed the Company to accelerate
recognition of certain deductions for qualified capital expenditures for income
tax purposes. As a result of the CCF, the Company has approximately a $2.2
million alternative minimum tax credit carryforward available with no expiration
date.
NOTE 8. RELATED PARTIES
As of December 31, 1999, the largest stockholders of the Company's common stock
were certain affiliates of EGI, including EGI Holdings, Inc. and EGIL
Investments, Inc., which owned an aggregate of 40% of the Company's common
stock. EGI and its affiliates provided certain administrative support services
for the Company, including but not limited to legal, accounting, tax, benefit
and insurance brokerage services. As previously mentioned in Note 5, the Company
leases office space from an affiliate of EGI. In the aggregate, the fees charged
by EGI and its affiliates for such services and rent were approximately $0.4
million, $0.4 million and $0.7 million for the years ended December 31, 1999,
1998 and 1997, respectively. In addition, as previously mentioned in Note 5, the
Company obtained financing guarantees from EGI. These arrangements with EGI and
its affiliates are subject to approval by a majority of the non-affiliated
members of the Company's Board of Directors.
In late 1997, the Company subleased approximately 13,000 square feet of Chicago
office space (the "sublease area") to Equity Office Properties Trust, an
affiliate of EGI. For the years ended December 31, 1998 and 1997, approximately
$78,000 and $23,000, respectively, was received by the Company under the
sublease. In mid-1998, the Company entered into an amended lease agreement
covering the Chicago office space whereby the subleased area was removed from
the lease. The Company was granted a $0.6 million reduction in future rent on
its remaining office space, representing the value of undepreciated leasehold
improvements of the sublease area.
The Company paid approximately $0.6 million and $0.8 million during 1999 and
1998, respectively, for legal services to Preston Gates Ellis & Rouvelas Meeds
("Preston Gates"). Mr. Rouvelas, a Director of the Company since 1998, is a
partner of Preston Gates. The Company paid approximately $0.1 during both 1999
and 1998 for legal services to Watanabe, Ing & Kawashima ("WIK"). Mr. Watanabe,
a Director of the Company since 1998, is a partner of WIK. The Company paid
approximately $0.2 million for recruiting fees to Heidrick & Struggles ("H&S")
during 1999. Mr. Berry, a Director of the Company since 1999, is a partner of
H&S.
NOTE 9. EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
The Company's non-union employees are eligible to participate in the ADVANTAGE
Retirement Savings Plan (as amended and restated October 1, 1987, "ADVANTAGE
Plan"), a profit-sharing plan with a salary deferral feature that qualifies
under Section 401 of the Internal Revenue Code of 1986, as amended. The
ADVANTAGE Plan allows participants to defer a portion of their eligible
compensation on a pre-tax basis. Participant contributions are 100% vested at
the time the contribution is made. Matching contributions are made by the
Company in an amount equal to 100% of the amount of a participant's contribution
with a maximum of 4% of such participant's annual eligible wages, subject to
Internal Revenue Service maximums. In addition, the Company may make
discretionary profit-sharing contributions which are allocated to eligible
employees based on eligible compensation. Company contributions vest over a
five-year period. Matching and profit-sharing contributions approximated
$845,000, $497,000 and $550,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company also maintains a non-qualified deferred compensation plan (the
"Restoration Plan"), effective August 1, 1998. The purpose of the Restoration
Plan is to provide deferrals for eligible employees that may not be made to the
ADVANTAGE Plan because of certain restrictions and limitations in the Code.
Benefits will be paid from employee contributions. The Company's liability under
the Restoration Plan as of December 31, 1999 was $98,000.
The Company also contributes, under collective bargaining agreements, to funds
designed to provide pension and health benefits for its union employees. The
Company contributed $2,419,000, $2,203,000 and $2,147,000 to such plans for the
years ended December 31, 1999, 1998 and 1997, respectively.
41
<PAGE> 42
EMPLOYEE STOCK PURCHASE PLAN
The American Classic Voyages Co. 1995 Employee Stock Purchase Plan (the "ESP
Plan") allows eligible employees to purchase common stock of the Company,
through payroll deductions, at a discounted price from the market price. The
exercise price under the ESP Plan is deemed to be 85% of the lesser of (i) the
market value of the Company's common stock on the last business day of the
offering period or (ii) the greater of (a) the average market value during the
offering period and (b) the market value on the first business day of the
offering period. There is a maximum of 500,000 shares authorized under the ESP
Plan. There were 9,749, 11,622 and 9,718 shares issued during 1999, 1998 and
1997, respectively, at an average price of $17.41, $13.38 and $10.70 per share
for 1999, 1998 and 1997, respectively. At December 31, 1999, approximately
451,000 shares were available for offering under the ESP Plan.
STOCK-BASED COMPENSATION PLANS
The Company granted, as of January 1, 1992, fully vested options to the
Company's then senior executive officers, to purchase shares of common stock, in
lieu of bonus payments (the "Executive Stock Option Plan"). These options are
exercisable, in whole or in part, at any time prior to January 2, 2002, at an
exercise price of $3.25 per share.
The Company adopted the 1992 Stock Option Plan effective January 2, 1992 (the
"1992 Plan") and the 1999 Stock Option Plan effective June 24, 1999 (the "1999
Plan"). Pursuant to the 1992 and 1999 Plans, certain officers, directors, key
employees, and consultants will be offered the opportunity to acquire shares of
the Company's common stock via stock option grants. In addition, the 1992 Plan
provides for the granting of stock units. The exercise price of options granted
under the 1992 and 1999 Plans cannot be less than the fair market value of the
Company's common stock at the date of grant. As of December 31, 1999, 2,464,672
and 3,000,000 shares of the Company's common stock have been reserved for
issuance under the 1992 Plan and 1999 Plan, respectively. Options granted under
the 1992 and 1999 Plans generally vest over a three-year period and expire 10
years from the date of grant. The per share weighted-average fair value of stock
options granted during 1999, 1998 and 1997 was $9.21, $7.86 and $4.25,
respectively, on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions for 1999, 1998 and 1997
respectively: expected volatility of 50%, 53% and 52%, risk-free interest rates
of 6.3%, 4.6% and 5.7%, expected lives of three years and dividend yield of 0%
for all years.
In 1999 and 1998, under the terms of the 1992 Plan, the Company paid each
non-employee director stock units as an annual retainer. The stock units in
general vest at a rate of 25% on the first day of each calendar quarter. The
fully vested stock units will be converted into an equal number of common stock
shares at any time as selected by each director prior to each grant.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation," which defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for those plans using the method of accounting
prescribed by APB No. 25, "Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting in APB No. 25 must make pro forma
disclosures of net income and earnings per share, as if the fair value based
method of accounting defined in this Statement has been applied.
The Company applies APB No. 25 in accounting for its plans and, accordingly, no
compensation cost has been recognized for its stock options in the financial
statements. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, the Company's net
income (loss) and earnings (loss) per share would have been adjusted to the pro
forma amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Net income (loss) As reported $ (1,750) $ 157 $ 2,429
Pro forma (4,396) (2,487) 1,422
Basic earnings (loss) per share As reported $ (0.10) $ 0.01 $ 0.17
Pro forma (0.26) (0.18) 0.10
Diluted earnings (loss) per share As reported $ (0.10) $ 0.01 $ 0.17
Pro forma (0.26) (0.18) 0.10
</TABLE>
42
<PAGE> 43
Pro forma net income (loss) and earnings (loss) per share reflect only options
granted since 1995. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma amounts
presented above because compensation cost is reflected over the options' vesting
period which is generally three years and compensation cost for options granted
prior to January 1, 1995 is not considered.
The table below summarizes the activities for 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Executive
Stock
Option Plan 1992 Plan 1992 Plan
----------- -------------------------- -----------
Shares Shares Shares Shares Weighed-Average
Subject to Subject to Subject to Subject to Exercise Price
Options Options Stock Units Options for Options
----------- ---------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 .... 238,131 1,492,422 -- -- $ 10.54
Granted ................... -- 62,000 24,500 -- 12.36
Canceled .................. -- (71,753) (1,450) -- 11.43
Exercised ................. (43,006) (60,290) -- -- 7.90
Converted ................. -- -- (2,650) -- --
----------- ---------- ----------- ----------- -------
Balance at December 31, 1997 .... 195,125 1,422,379 20,400 -- 10.74
Granted ................... -- 1,618,000 14,000 -- 17.10
Canceled .................. (19,512) (151,236) -- -- 13.44
Exercised ................. (50,000) (215,047) -- -- 9.29
Converted ................. -- -- (7,000) -- --
----------- ---------- ----------- ----------- -------
Balance at December 31, 1998 .... 125,613 2,674,096 27,400 -- 14.39
Granted ................... -- 7,500 9,100 999,650 20.69
Canceled .................. -- (48,673) -- -- 14.92
Exercised ................. (86,000) (238,526) -- -- 9.94
----------- ---------- ----------- ----------- -------
Balance at December 31, 1999 .... 39,613 2,394,397 36,500 999,650 $ 16.65
=========== ========== =========== =========== =======
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------
Weighted-Average
Remaining Weighted- Weighted-
Range of Outstanding Contractual Life Average Exercisable Average
Exercise Price at 12/31/99 in Years Exercise Price at 12/31/99 Exercise Price
- -------------------- ------------ ---------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$ 3.25 39,613 2 $ 3.25 39,613 $ 3.25
7.97 - 9.88 359,534 7 8.87 356,201 8.86
10.25 - 15.00 301,751 6 11.66 296,084 11.65
15.32 - 20.00 2,467,612 8 17.28 1,101,544 17.11
22.94 - 29.13 265,150 10 28.98 0 --
- ------------------ ---------- --- --------- --------- ---------
$ 3.25 - $ 29.13 3,433,660 8 $ 16.65 1,793,442 $ 14.26
================== ========== === ========= ========= =========
</TABLE>
43
<PAGE> 44
NOTE 10. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Summarized unaudited quarterly results of operations for 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 March 31, June 30, September 30, December 31,
(In thousands, except per share data) 1999 1999 1999 1999
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ............................. $ 40,566 $ 55,200 $ 57,460 $ 55,491
Gross profit ......................... 11,798 21,506 21,692 19,858
Operating (loss) income .............. (9,222) 4,735 3,714 2,422
Pre-tax (loss) income ................ (10,470) 4,124 3,479 79
Net (loss) income .................... (6,283) 2,475 2,091 (33)
Basic (loss) earnings per share ...... (0.44) 0.14 0.11 0.00
Diluted (loss) earnings per share .... (0.44) 0.14 0.11 0.00
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998 March 31, June 30, September 30, December 31,
(In thousands, except per share data) 1999 1999 1999 1999
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ............................. $ 40,668 $ 53,535 $ 50,920 $ 47,102
Gross profit ......................... 11,209 20,562 18,184 16,675
Operating (loss) income .............. (6,143) 4,037 3,798 3,794
Pre-tax (loss) income ................ (7,262) 2,614 2,424 2,488
Net (loss) income .................... (4,362) 1,574 1,454 1,491
Basic (loss) earnings per share ...... (0.31) 0.11 0.10 0.10
Diluted (loss) earnings per share .... (0.31) 0.11 0.10 0.10
</TABLE>
The sum of quarterly (loss) earnings per common share differs from full-year
amounts due to changes in the number of shares outstanding during the year.
RESCISSION OF ACCOUNTING METHOD
On November 2, 1999, the Company announced that it had rescinded its prior
adoption of the American Institute of Certified Public Accountants Accounting
Standards Executive Committee's Statement of Position ("SOP") No. 93-7,
"Reporting on Advertising Costs," relating to the deferral of direct response
advertising costs. The deferral method provided for in SOP 93-7 was adopted in
1999, and made effective as of January 1, 1999. Pursuant to SOP 93-7, the
Company deferred recognition of direct response advertising costs related to
certain direct response advertising efforts. These deferred costs were
recognized in the periods that the cruises promoted by the efforts were
completed, and the related cruise revenue recognized. The Company rescinded its
adoption of SOP 93-7 due to difficulties encountered in implementing the new
method. In rescinding SOP 93-7, the Company returned to its prior method of
recognizing expenses for direct response advertising costs when those costs are
incurred. As a result of the rescission of SOP 93-7, the Company restated its
earnings for the first quarter of 1999 to reflect a loss of $6.3 million, or
($0.44) per share, compared to its previously reported loss of $4.5 million, or
($0.32) per share. The Company also restated its earnings for the second quarter
of 1999 to $2.5 million, or $0.14 per share, compared to its previously reported
earnings of $2.3 million, or $0.13 per share.
NOTE 11. SUBSEQUENT EVENTS (UNAUDITED)
DEBT ISSUANCE
On February 10, 2000, the Company issued $25 million of one year notes
guaranteed by the Maritime Administration. The notes bear interest at LIBOR
minus 0.05%. This is the first issuance of debt under the $1.1 billion of
financing guarantees from the Maritime Administration for the construction of
the Hawaii cruise vessels. The proceeds are being used for the construction of
the first Hawaii vessel.
44
<PAGE> 45
COMMON STOCK OFFERING
On February 22, 2000, we completed an offering of an additional 2,000,000 shares
of common stock. The proceeds to us, after underwriting commissions, were $47.1
million and are being used for the construction of the second Hawaii vessel. The
underwriters' overallotment option of 300,000 additional shares was not
exercised.
CONVERTIBLE SECURITIES OFFERING
On February 22, 2000, we completed an offering of 2,000,000 trust preferred
securities. Each $50 security bears interest at 7% and is convertible at the
holder's election into 1.6207 shares of common stock. All outstanding preferred
securities will be redeemed on February 15, 2015 or upon early redemption. The
net proceeds to us, after underwriting fees, were $96.8 million. A portion of
the proceeds were used to fund the $30 million letter of credit facility related
to the ms Nieuw Amsterdam purchase, thereby removing EGI from the guarantee, and
to pay down outstanding amounts on the Chase credit facility. The underwriters'
overallotment option of 300,000 additional preferred securities was not
exercised.
45
<PAGE> 46
SCHEDULE I
AMERICAN CLASSIC VOYAGES CO.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
BALANCE SHEETS
(IN THOUSANDS)
December 31,
1999 1998
----------------------
ASSETS
Cash and cash equivalents ..................... $ 30,153 $ 458
Prepaid expenses and other current assets ..... 339 1,841
Property and equipment, net ................... 906 2,771
Other assets .................................. 493 --
Investment in and advances to subsidiaries .... 100,609 60,667
----------------------
$ 132,500 $ 65,737
======================
LIABILITIES
Other liabilities ............................. $ 2,700 $ 3,830
----------------------
STOCKHOLDERS' EQUITY
Common stock .................................. 187 143
Paid-in capital ............................... 151,094 80,451
Accumulated deficit ........................... (19,573) (17,823)
Other ......................................... (1,908) (864)
----------------------
Total stockholders' equity .................... 129,800 61,907
----------------------
$ 132,500 $ 65,737
======================
See accompanying notes to Condensed Financial Statements.
46
<PAGE> 47
SCHEUDLE I
AMERICAN CLASSIC VOYAGES CO.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) - (CONTINUED)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
-------------------------------
<S> <C> <C> <C>
Miscellaneous (expense) revenues ............... $ 1,711 $(1,700) $ (290)
Depreciation expense ........................... (608) (880) (713)
Income tax benefit (expense) ................... (435) 1,068 547
Equity in earnings (losses) of subsidiaries .... (2,418) 1,669 2,885
------------------------------
Net income (loss) .............................. $(1,750) $ 157 $ 2,429
==============================
</TABLE>
See accompanying notes to Condensed Financial Statements.
47
<PAGE> 48
Schedule I
AMERICAN CLASSIC VOYAGES CO.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) - (CONTINUED)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
--------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ............................................ $ (1,750) $ 157 $ 2,429
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
(USED IN) PROVIDED BY OPERATING ACTIVITIES
Depreciation .............................................. 608 880 713
Equity in (earnings) losses of subsidiaries, net .......... 2,418 (1,669) (2,885)
(Increase) decrease in advances to subsidiaries ........... (40,961) (570) 438
(Increase) decrease in prepaid expenses and other ......... 145 (514) 168
(Decrease) increase in other liabilities .................. 678 (1,326) (465)
--------------------------------
Net cash (used in) provided by operating activities ....... (38,862) (3,042) 398
--------------------------------
INVESTING ACTIVITIES
Capital expenditures ......................................... (140) (1,421) (178)
--------------------------------
Net cash used in investing activities ........................ (140) (1,421) (178)
--------------------------------
FINANCING ACTIVITIES
Issuance of common stock ..................................... 68,697 2,907 1,139
Purchase of common stock ..................................... -- (757) --
Deferred financing fees ...................................... -- (533) --
--------------------------------
Net cash provided by financing activities .................... 68,697 1,617 1,139
--------------------------------
Increase (decrease) in cash and cash equivalents ............. 29,695 (2,846) 1,359
Cash and cash equivalents, beginning of period ............... 458 3,304 1,945
--------------------------------
Cash and cash equivalents, end of period ..................... $ 30,153 $ 458 $ 3,304
================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash investing activities:
Cash paid for taxes ..................................... $ 165 $ -- $ --
</TABLE>
See accompanying notes to Condensed Financial Statements.
48
<PAGE> 49
Schedule I
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY) - (CONTINUED)
BASIS OF PRESENTATION
The Condensed Financial Information of American Classic Voyages Co. ("AMCV") has
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 for the years ended December 31, 1999, 1998 and
1997 included herein this Form 10-K. The balance sheets as of December 31, 1999
and 1998, respectively, and the related statements of operations and cash flows
have been prepared on an unconsolidated basis. AMCV's investment in its
subsidiaries is recorded on the equity basis. Certain previously reported
amounts have been reclassified to conform to the 1999 presentation.
DIVIDENDS FROM SUBSIDIARIES
No dividends were paid to AMCV for the years ended December 31, 1999, 1998 and
1997.
INCOME TAXES
AMCV has entered into tax sharing agreements with its subsidiaries which
require each subsidiary to compute its Federal income tax liability on a
separate company basis and to pay amounts so computed to AMCV. No payments were
made under the tax sharing agreement for the years ended December 31, 1999, 1998
and 1997.
In 1993, AMCV established a capital construction fund ("CCF") pursuant to
section 607 of the Merchant Marine Act of 1936. The CCF allows AMCV to
accelerate recognition of Federal income tax deductions for capital expenditures
related to the American Hawaii vessels. A substantial portion of the income
generated by AMCV is eligible for deposit into the CCF; however, expenditures
for the vessels of DQSC are not qualified for this tax treatment. As such, on a
consolidated tax return basis, AMCV was able to obtain the accelerated deduction
treatment on a substantial portion of its taxable income.
49
<PAGE> 50
AMERICAN CLASSIC VOYAGES CO.
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
**3.(i) Second Amended and Restated Certificate of Incorporation of
the Company (filed on March 31, 1999 as Exhibit 3.(i) to the
Company's Form 10-K dated December 31, 1998 and incorporated
herein by reference).
**3.(ii) Third Amended and Restated By-Laws of the Company (filed on
November 15, 1999 as Exhibit 3.(ii) to the Company's Form 10-Q
dated September 30, 1999 and incorporated herein by
reference).
**4.(i) Proof of Common Stock Certificate (filed on February 14, 1992
as Exhibit 4.(i) to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Registration No. 33-45139)
and incorporated herein by reference).
**4.(ii)(a)(1) Credit Agreement, dated as of February 25, 1999, among the
Delta Queen Steamboat Co. (the "Borrower"), the financial
institutions from time to time parties thereto as Lenders (the
"Lenders"), The Chase Manhattan Bank, as Issuing Bank and as
Administrative Agent thereunder (the "Agent"), and Hibernia
National Bank, as Documentation Agent (filed on March 31, 1999
as Exhibit 4.(ii)(a)(1) to the Company's Form 10-K dated
December 31, 1998 and incorporated herein by reference).
**4.(ii)(a)(2) Security Agreement, dated as of February 25, 1999, executed by
the Borrower in favor of the Agent for the benefit of the
Agent and the Lenders (filed on March 31, 1999 as Exhibit
4.(ii)(a)(2) to the Company's Form 10-K dated December 31,
1998 and incorporated herein by reference).
The following entities also have entered into a similar
security agreement with the Agent:
(i) DQSB II, Inc.;
(ii) Great Ocean Cruise Line, L.L.C.;
(iii) Cruise America Travel, Incorporated;
(iv) Great River Cruise Line, L.L.C.; and
(v) DQSC Property Co.
**4.(ii)(a)(3) Stock Pledge Agreement, dated as of February 25, 1999,
executed by the Borrower in favor of the Agent, evidencing the
pledge by the Borrower of all of its 100% interest in the
capital stock of each of Cruise America Travel, Incorporated,
DQSC Property Co. and DQSB II, Inc. (filed on March 31, 1999
as Exhibit 4.(ii)(a)(3) to the Company's Form 10-K dated
December 31, 1998 and incorporated herein by reference).
**4.(ii)(a)(4) Limited Liability Company Pledge Agreement, dated as of
February 25, 1999, executed by the Borrower in favor of the
Agent evidencing the pledge by the Borrower of its 99%
membership interest in each of Great River Cruise Line, L.L.C.
and Great Ocean Cruise Line, L.L.C. (filed on March 31, 1999
as Exhibit 4.(ii)(a)(4) to the Company's Form 10-K dated
December 31, 1998 and incorporated herein by reference).
**4.(ii)(a)(5) Guaranty executed by Cruise America Travel, Incorporated, DQSC
Property Co., DQSB II, Inc., Great Ocean Cruise Line, L.L.C.
and Great River Cruise Line, L.L.C. in favor of the Agent
evidencing the guarantees of the obligations of the Borrower
(filed on March 31, 1999 as Exhibit 4.(ii)(a)(5) to the
Company's Form 10-K dated December 31, 1998 and incorporated
herein by reference).
**4.(ii)(a)(6) Trust Indenture among the Agent, the Lenders, Great River
Cruise Line, L.L.C. and The Chase Manhattan Bank as trustee
(the "DQ Trustee") covering the Delta Queen (a substantially
identical Trust Indenture covering the Mississippi Queen has
also been executed) (filed on March 31, 1999 as Exhibit
4.(ii)(a)(6) to the Company's Form 10-K dated December 31,
1998 and incorporated herein by reference).
50
<PAGE> 51
**4.(ii)(a)(7) Preferred Ship Mortgage covering the Delta Queen executed by
Great River Cruise Line, L.L.C. in favor of the DQ Trustee for
the benefit of the Agent and the Lenders (a substantially
identical Preferred Ship Mortgage covering the Mississippi
Queen has also been executed) (filed on March 31, 1999 as
Exhibit 4.(ii)(a)(7) to the Company's Form 10-K dated December
31, 1998 and incorporated herein by reference).
**4.(ii)(b)(1) Commitment to Guaranty Obligations by the United States of
America accepted by Great AQ Steamboat Co. dated as of August
24, 1995 (filed on November 14, 1995 as Exhibit 4.(ii)(c)(1)
to the Company's Form 10-Q dated September 30, 1995 and
incorporated herein by reference).
**4.(ii)(b)(2) Great AQ Steamboat Co. United States Government Guaranteed
Ship Financing Obligations, American Queen Series Purchase
Agreement dated August 24, 1995 (filed on November 14, 1995 as
Exhibit 4.(ii)(c)(2) to the Company's Form 10-Q dated
September 30, 1995 and incorporated herein by reference).
**4.(ii)(b)(3) Trust Indenture relating to United States Government
Guaranteed Ship Financing Obligations, American Queen Series,
between Great AQ Steamboat Co. and the Bank of New York, dated
as of August 24, 1995 (the "Trust Indenture") along with
Schedule A and Exhibit 1 (filed on November 14, 1995 as
Exhibit 4.(ii)(c)(3) to the Company's Form 10-Q dated
September 30, 1995 and incorporated herein by reference).
**4.(ii)(b)(4) Form of 2005 Note, Guarantee and Trustee's Authentication
Certificate Specimen Note as it relates to the United States
Government Guaranteed Ship Financing Obligation, American
Queen Series (filed on November 14, 1995 as Exhibit
4.(ii)(c)(4) to the Company's Form 10-Q dated September 30,
1995 and incorporated herein by reference).
**4.(ii)(b)(5) Form of 2020 Bond, Guarantee and Trustee's Authentication
Certificate Specimen Bond as it relates to United States
Government Guaranteed Ship Financing Bond, American Queen
Series (filed on November 14, 1995 as Exhibit 4.(ii)(c)(5) to
the Company's Form 10-Q dated September 30, 1995 and
incorporated herein by reference).
**4.(ii)(b)(6) Authorization Agreement between the United States of America
as represented by the Secretary of Transportation and the Bank
of New York as Indenture Trustee under the Trust Indenture
between it and Great AQ Steamboat Co. dated as of August 24,
1995 (filed on November 14, 1995 as Exhibit 4.(ii)(c)(6) to
the Company's Form 10-Q dated September 30, 1995 and
incorporated herein by reference).
**4.(ii)(b)(7) Security Agreement relating to the United States Government
Guaranteed Ship Financing Obligation between Great AQ
Steamboat Co. and the United States of America dated as of
August 24, 1995 (the "Security Agreement") along with Exhibit
1 and the Schedule of Definitions (filed on November 14, 1995
as Exhibit 4.(ii)(c)(7) to the Company's Form 10-Q dated
September 30, 1995 and incorporated herein by reference).
**4.(ii)(b)(8) $60,589,000 Promissory Note dated August 24, 1995 by and
between Great AQ Steamboat Co. and the United States of
America (filed on November 14, 1995 as Exhibit 4.(ii)(c)(8) to
the Company's Form 10-Q dated September 30, 1995 and
incorporated herein by reference).
**4.(ii)(b)(9) Title XI Reserve Fund and Financial Agreement among Great AQ
Steamboat Co. and the United States of America dated as of
August 24, 1995 along with the General Provisions (filed on
November 14, 1995 as Exhibit 4.(ii)(c)(9) to the Company's
Form 10-Q dated September 30, 1995 and incorporated herein by
reference).
**4.(ii)(b)(10) Guaranty Agreement dated August 24, 1995 made by the Delta
Queen Steamboat Co. in favor of the United States of America
(filed on November 14, 1995 as Exhibit 4.(ii)(c)(10) to the
Company's Form 10-Q dated September 30, 1995 and incorporated
herein by reference).
**4.(ii)(b)(11) Assumption and Supplement No. 1 to First Preferred Ship
Mortgage effective as of December 31, 1996 made by and among
Great AQ Steamboat, L.L.C., Great AQ Steamboat Co. and the
United States of America, represented by the Secretary of
Transportation, acting by and through the Maritime
Administrator (filed on May 13, 1997 as Exhibit 4.(ii)(c)(11)
to the Company's Form 10-Q dated March 31, 1997 and
incorporated herein by reference).
51
<PAGE> 52
**4.(ii)(b)(12) Modification and Assumption Agreement entered into March 25,
1997, effective as of December 31, 1996, among The United
States of America, represented by the Secretary of
Transportation, acting by and through the Maritime
Administrator, Great AQ Steamboat, L.L.C., and The Bank of New
York (filed on May 13, 1997 as Exhibit 4.(ii)(c)(12) to the
Company's Form 10-Q dated March 31, 1997 and incorporated
herein by reference).
**4.(ii)(b)(13) Confirmation of Guaranty Agreement effective as of December
31, 1996 made by The Delta Queen Steamboat Co. in favor of the
United States of America, represented by the Secretary of
Transportation, acting by and through the Maritime
Administrator (filed on May 13, 1997 as Exhibit 4.(ii)(c)(13)
to the Company's Form 10-Q dated March 31, 1997 and
incorporated herein by reference).
**4.(ii)(b)(14) Endorsement No. 1 to Secretary's Note Form Great AQ Steamboat,
L.L.C. to the United States of America executed on March 25,
1997, effective as of December 31, 1996 (filed on May 13, 1997
as Exhibit 4.(ii)(c)(14) to the Company's Form 10-Q dated
March 31, 1997 and incorporated herein by reference).
**4.(ii)(b)(15) Subordination Agreement dated as of March 25, 1997 made by and
among Great AQ Steamboat, L.L.C., The Delta Queen Steamboat
Co. and DQSB II, Inc. and the United States of America,
represented by the Secretary of Transportation, acting by and
through the Maritime Administrator (filed on May 13, 1997 as
Exhibit 4.(ii)(c)(15) to the Company's Form 10-Q dated March
31, 1997 and incorporated herein by reference).
**4.(ii)(c)(1) Commitment to Guaranty Obligations by the United States of
America Accepted by Great Independence Ship Co. dated as of
December 7, 1995 (filed on April 1, 1996 as Exhibit
4.(ii)(d)(1) to the Company's Form 10-K dated December 31,
1995).
**4.(ii)(c)(2) Great Independence Ship Co. United States Government
Guaranteed Ship Financing Obligations, Independence Series A
Purchase Agreement dated December 7, 1995 (filed on April 1,
1996 as Exhibit 4.(ii)(d)(2) to the Company's Form 10-K dated
December 31, 1995).
**4.(ii)(c)(3) Trust Indenture relating to United States Government
Guaranteed Ship Financing Obligations, Independence Series A,
between Great Independence Ship Co. and the Bank of New York,
dated as of December 7, 1995 (the "Trust Indenture") along
with Schedule A and Exhibit 1 (filed on April 1, 1996 as
Exhibit 4.(ii)(d)(3) to the Company's Form 10-K dated December
31, 1995).
**4.(ii)(c)(4) Forms of 2005 Note, Guarantee and Trustee's Authentication
Certificate Specimen Note as it relates to the United States
Government Guaranteed Ship Financing Obligation, Independence
Series A (filed on April 1, 1996 as Exhibit 4.(ii)(d)(4) to
the Company's Form 10-K dated December 31, 1995).
**4.(ii)(c)(5) Forms of 2015 Bond, Guarantee and Trustee's Authentication
Certificate Specimen Bond as it relates to United States
Government Guaranteed Ship Financing Bond, Independence Series
A (filed on April 1, 1996 as Exhibit 4.(ii)(d)(5) to the
Company's Form 10-K dated December 31, 1995).
**4.(ii)(c)(6) Authorization Agreement between the United States of America
represented by the Secretary of Transportation and the Bank of
New York as Indenture Trustee under the Trust Indenture
between it and Great Independence Ship Co. dated as of
December 7, 1995 (filed on April 1, 1996 as Exhibit
4.(ii)(d)(6) to the Company's Form 10-K dated December 31,
1995).
**4.(ii)(c)(7) Security Agreement relating to the United States Government
Guaranteed Ship Financing Obligation between Great
Independence Ship Co. and the United States of America dated
as of December 7, 1995 (the "Security Agreement") along with
Exhibit 1 and the Schedule of Definitions (filed on April 1,
1996 as Exhibit 4.(ii)(d)(7) to the Company's Form 10-K dated
December 31, 1995).
**4.(ii)(c)(8) $26,429,000 Promissory Note dated December 7, 1995 by and
between Great Independence Ship Co. and the United States of
America (filed on April 1, 1996 as Exhibit 4.(ii)(d)(8) to the
Company's Form 10-K dated December 31, 1995).
**4.(ii)(c)(9) Title XI Reserve Fund and Financial Agreement between Great
Independence Ship Co. and the United States of America dated
as of December 7, 1995 along with the General Provisions
(filed on April 1, 1996 as Exhibit 4.(ii)(d)(9) to the
Company's Form 10-K dated December 31, 1995).
52
<PAGE> 53
**4.(ii)(c)(10) Guaranty and Security Agreement dated December 7, 1995 made by
the Great Independence Ship Co., Great Hawaiian Cruise Line,
Inc. and Great Hawaiian Properties Corporation in favor of the
United States of America (filed on April 1, 1996 as Exhibit
4.(ii)(d)(10) to the Company's Form 10-K dated December 31,
1995).
**4.(ii)(c)(11) Amendment to Commitment to Guarantee Obligations by the United
States of America Accepted by Great Independence Ship Co.
dated as of March 28, 1996 (filed on May 15, 1996 as Exhibit
4.(ii)(d)(11) to the Company's Form 10-Q dated March 31,
1996).
**4.(ii)(c)(12) Great Independence Ship Co. United Stated Government
Guaranteed Ship Financing Obligations, Independence Series B
Purchase Agreement dated March 28, 1996 (filed on May 15, 1996
as Exhibit 4.(ii)(d)(12) to the Company's Form 10-Q dated
March 31, 1996).
**4.(ii)(c)(13) Supplemental Indenture No. 1 relating to United States
Government Guaranteed Ship Financing Obligations, Independence
Series B, between Great Independence Ship Co. and the Bank of
New York, dated as of March 28, 1996 (filed on May 15, 1996 as
Exhibit 4.(ii)(d)(13) to the Company's Form 10-Q dated March
31, 1996).
**4.(ii)(c)(14) Form of 2005 Note, Guarantee and Trustee's Authentication
Certificate Specimen Note as it relates to the United States
Government Guaranteed Ship Financing Obligation, Independence
Series B (filed on May 15, 1996 as Exhibit 4.(ii)(d)(14) to
the Company's Form 10-Q dated March 31, 1996).
**4.(ii)(c)(15) Form of 2015 Bond, Guarantee and Trustee's Authentication
Certificate Specimen Bond as it relates to United States
Government Guaranteed Ship Financing Bond, Independence Series
B (filed on May 15, 1996 as Exhibit 4.(ii)(d)(15) to the
Company's Form 10-Q dated March 31, 1996).
**4.(ii)(c)(16) Amendment No. 1 to Authorization Agreement between the United
States of America represented by the Secretary of
Transportation and the Bank of New York as Indenture Trustee
under the Trust Indenture between it and Great Independence
Ship Co. dated as of March 28, 1996 (filed on May 15, 1996 as
Exhibit 4.(ii)(d)(16) to the Company's Form 10-Q dated March
31, 1996).
**4.(ii)(c)(17) Amendment No. 1 to Security Agreement relating to the United
States Government Guaranteed Ship Financing Obligation between
Great Independence Ship Co. and the United States of America
dated as of March 28, 1996 (the "Security Agreement") (filed
on May 15, 1996 as Exhibit 4.(ii)(d)(17) to the Company's Form
10-Q dated March 31, 1996).
**4.(ii)(c)(18) Endorsement to $6,903,000 Promissory Note dated March 28, 1996
by and between Great Independence Ship Co. and the United
States of America (filed on May 15, 1996 as Exhibit
4.(ii)(d)(18) to the Company's Form 10-Q dated March 31,
1996).
**4.(ii)(c)(19) Amendment No. 1 to Title XI Reserve Fund and Financial
Agreement between Great AQ Steamboat Co. and the United States
of America effective as of January 1, 1996 (filed on August
14, 1996 as Exhibit 4.(ii)(d)(19) to the Company's Form 10-Q
dated June 30, 1996).
9. Not applicable.
**10.(i)(a)(1) Administrative Services Agreement by and between the Company
and Equity Group Investments, Inc. (filed on March 2, 1993 as
Exhibit 10.(i)(A) to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 33-45139)
and incorporated herein by reference).
**10.(ii)(a)(1) Preferential Assignment Agreement dated September 27, 1984, by
and between the Board of Commissioners of the Port of New
Orleans and the Company, including Assignment thereof and
Amendments thereto (filed on January 17, 1992 as Exhibit
10.(ii)(D)(2) to the Company's Registration Statement on Form
S-1 (Registration No. 33-45139) and incorporated herein by
reference).
**10.(ii)(a)(2) Lease dated May 30, 1995 by and between Equity Office
Properties, Inc., as agent for beneficial owner, as Landlord,
and Great Hawaiian Properties Corporation, d/b/a American
Hawaii Cruises, as Tenant (filed on April 1, 1996 as Exhibit
10.(ii)(D)(3) to the Company's Form 10-K dated December 31,
1995).
53
<PAGE> 54
**10.(ii)(a)(3) First Amendment dated March 12, 1997 by and between Equity
Office Properties, Inc., as agent for beneficial owner, as
Landlord, and Great Hawaiian Properties Corporation, d/b/a
American Hawaii Cruises, as Tenant (filed on March 31, 1999 as
Exhibit 10.(ii)(a)(3) to the Company's Form 10-K dated
December 31, 1998 and incorporated herein by reference).
**10.(ii)(a)(4) Assignment and Assumption of Lease dated January 1, 1998
between Great Hawaiian Properties Corporation, d/b/a American
Hawaii Cruises, as Assignor, and American Classic Voyages Co.,
as Assignee (filed on March 31, 1999 as Exhibit 10.(ii)(a)(4)
to the Company's Form 10-K dated December 31, 1998 and
incorporated herein by reference).
**10.(ii)(a)(5) Second Amendment dated August 10, 1998 by and between Equity
Office Properties, Inc., as agent for beneficial owner, as
Landlord, and American Classic Voyages Co., as Tenant (filed
on March 31, 1999 as Exhibit 10.(ii)(a)(5) to the Company's
Form 10-K dated December 31, 1998 and incorporated herein by
reference).
**10.(ii)(a)(6) Lease dated October 16, 1998 by and between MFD Partners, as
Landlord, and American Hawaii Properties Corporation, as
Tenant (filed on March 31, 1999 as Exhibit 10.(ii)(a)(6) to
the Company's Form 10-K dated December 31, 1998 and
incorporated herein by reference).
**10.(iii)(a)(1) Performance Management Objectives Bonus Plan (filed on January
17, 1992 as Exhibit 10.(iii)(A)(2) to the Company's
Registration Statement on Form S-1 (Registration No.
333-44225) and incorporated herein by reference).
**10.(iii)(a)(2) Executive Bonus Plan (filed on January 17, 1992 as Exhibit
10.(iii)(a)(4) to the Company's Registration Statement on Form
S-1 (Registration No. 33-45139) and incorporated herein by
reference).
**10.(iii)(a)(3) American Classic Voyages Co. S. Cody Engle Stock Option
Agreement (filed on January 17, 1992 as Exhibit 10.(iii)(A)(6)
to the Company's Registration Statement on Form S-1
(Registration No. 33-45139) and incorporated herein by
reference).
**10.(iii)(a)(4) American Classic Voyages Co. Dividend Reinvestment and Common
Stock Purchase Plan (filed on June 22, 1994 as part of the
Company's Registration Statement on Form S-3 (Registration No.
33-80614) and incorporated herein by reference).
**10.(iii)(a)(5) American Classic Voyages Co. 1992 Stock Option Plan (filed on
January 14, 1998 as part of the Company's Registration
Statement on Form S-8 (Registration No. 333-44225) and
incorporated herein by reference).
**10.(iii)(a)(6) American Classic Voyages Co. Deferred Compensation Plan (filed
on March 31, 1999 as Exhibit 10.(iii)(a)(6) to the Company's
Form 10-K dated December 31, 1998 and incorporated herein by
reference).
**10.(iv)(a)(1) Master Shipbuilding Contract for Construction of Two Passenger
Vessels by and between Ingalls Shipbuilding, Inc. and Project
America, Inc. for Hulls No. 7671 and 7672, dated March 9,
1999.*
Exhibit A - Shipbuilding Contract for Construction of One
Passenger Vessel by and between Ingalls Shipbuilding, Inc. and
Project America, Inc. for Hull No. 7671, dated March 9, 1999
(a substantially identical Shipbuilding Contract has been
entered into for hull no.7672, with a delivery date of January
2004). (filed as Exhibit 10 to the Company's Form 8-K dated
March 26, 1999 and incorporated herein by reference).
**10.(iv)(a)(2) Construction Contract for Coastal Queen Class Vessel dated May
1, 1999 by and between Coastal Queen Holdings, L.L.C. and
Atlantic Marine, Inc. (filed on May 14, 1999 as Exhibit
10.(iv)(a)(3) to the Company's Form 10-Q dated March 31, 1999
and incorporated herein by reference).*
Appendix One - Coastal Queen Milestone Payments
Appendix Two - Affidavit for Exemption of Boat Sold for
Removal from the State of Florida by a Nonresident Purchaser
Appendix Three - Maker's List
**10.(iv)(a)(3) Guaranty dated May 1, 1999 made by The Delta Queen Steamboat
Co. in favor of Atlantic Marine Inc. (filed on May 14, 1999 as
Exhibit 10.(iv)(a)(4) to the Company's Form 10-Q dated March
31, 1999 and incorporated herein by reference).
54
<PAGE> 55
**10.(iv)(a)(4) Asset Purchase and Sale Agreement dated April 29, 1999 by and
between Capitol Queen & Casino, Inc., as Seller, and The Delta
Queen Steamboat Co., as Purchaser (filed on May 14, 1999 as
Exhibit 10.(iv)(a)(5) to the Company's Form 10-Q dated March
31, 1999 and incorporated herein by reference).
Exhibit A - Escrow Agreement
Exhibit B - Vessel Inventory
Exhibit C - Order Approving Sale of Personal Property Free and
Clear of Liens, Claims and Encumbrances
**10.(iv)(a)(5) Letter of Credit Agreement dated October 15, 1999 between
American Classic Voyages Co. and The Chase Manhattan Bank
(filed on November 9, 1999 as Exhibit 10.(iv)(a)(6) of the
Company's 10-Q/A dated March 31, 1999 and incorporated herein
by reference).
Exhibit A - Form of Irrevocable Letter of Credit
**10.(iv)(a)(6) Amended and Restated Reimbursement Agreement dated October 15,
1999 by and among Samuel Zell, Samuel Zell Revocable Trust and
American Classic Voyages Co. (filed on November 9, 1999 as
Exhibit 10.(iv)(a)(7) of the Company's 10-Q/A dated March 31,
1999 and incorporated herein by reference).
**10.(iv)(a)(7) Memorandum of Agreement dated August 5, 1999 by and between
American Classic Voyages Co., as Buyer, and Hal Antillen N.V.,
as Seller, as amended October 11, 1999 (filed on November 9,
1999 as Exhibit 10.(iv)(a)(6) of the Company's 10-Q/A dated
March 31, 1999 and incorporated herein by reference).
Exhibit A - Vessel Details
Exhibit B - Form of Letter of Credit
Exhibit C - Form of Escrow Agreement
Exhibit D - Form of Promissory Note
Exhibit E - Form of First Preferred Ship Mortgage
Exhibit F - Form of General Assignment of Insurance
Exhibit G - Form of Guarantee
Exhibit H - Excluded Art
**10.(iv)(a)(8) Vessel Conversion Agreement dated August 20, 1999 between
Nichols Brothers Boat Builders, Inc. and The Delta Queen
Steamboat Co.* (filed on November 15, 1999 as Exhibit
10.(iv)(a)(9) to the Company's Form 10-Q dated September 30,
1999 and incorporated herein by reference).
10.(iv)(a)(9) Amended and Restated Agreement dated as of December 22, 1999
by and between Cascade General, Inc. (Shipyard) and The Delta
Queen Steamboat Co. (Owner) for the conversion of the Columbia
Queen.*
11. Not applicable.
12. Not applicable.
13. Not applicable.
16. Not applicable.
18. Not applicable.
21. Subsidiaries of the Company.
22. Not applicable.
23. Consent of KPMG LLP
24. Not applicable.
27. Financial Data Schedule. (for SEC use only)
55
<PAGE> 56
28. Not applicable.
* Certain portions of this exhibit filed herewith have been omitted pursuant
to an application for an order of confidential treatment pursuant to Rule
24b-2 under the Securities and Exchange Act of 1934, as amended. This
non-public information has been filed separately with the Securities and
Exchange Commission.
** Previously filed.
56
<PAGE> 1
Exhibit 10(iv)a(9)
AMENDED AND RESTATED AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT is entered into as of December 22,
1999, by and between Cascade General, Inc. ("SHIPYARD") and The Delta Queen
Steamboat Co. ("OWNER"), a wholly owned subsidiary of American Classic Voyages
Co.
The parties entered into that certain Letter Agreement dated December
17, 1999, pursuant to which the parties agreed to certain terms, conditions and
covenants regarding the conversion of the m/v Columbia Queen (the "VESSEL") and
pursuant to which the parties agreed to amend and supercede the Letter Agreement
by this Amended and Restated Agreement (as so amended and restated, this
"CONTRACT").
Accordingly, the parties agree as follows:
1. Restatement. This Amended and Restated Agreement supercedes and
replaces the Letter Agreement.
2. Contract Documents. The following documents shall be deemed the
"CONTRACT DOCUMENTS": (a) drawings approved by the United States Coast Guard
("USCG") and listed on Exhibit A hereto; (b) preliminary ship construction
specifications dated August 16, 1999 (the "INITIAL SPECIFICATIONS") prepared by
Rodney E. Lay & Associates ("ARCHITECT"), or the Revised Specifications (as such
term is herein after defined) when available; (c) interior arrangements of the
Vessel prepared by Hopeman Brothers, Inc. ("HBI") listed on Exhibit A hereto;
and (d) guidance drawings prepared by Architect listed on Exhibit A hereto. In
the event of any inconsistency between this Contract and the Contract Documents,
this Contract shall take precedence and in the event of any inconsistency among
two or more Contract Documents, the Contract Documents shall take precedence in
descending order above.
The parties acknowledge that certain work has been performed to the
Vessel by Nichols Brothers Boat Builders ("NICHOLS") and that the Initial
Specifications will need to be revised to reflect properly the Conversion Work.
Therefore, the parties agree to work together in good faith to update and revise
the Initial Specifications to reflect properly the Conversion Work, at all times
consistent with the Contract Price (as hereinafter defined). The parties shall
be reasonable and attempt to reach a mutual agreement regarding revised
specifications within 14 calendar days after execution of this Contract (the
"REVISED SPECIFICATIONS"), at which time the Revised Specifications shall
replace and supercede the Initial Specifications.
3. Conversion Work. Shipyard shall perform the Conversion Work (as
such term is hereinafter defined) in accordance with this Contract and the
Contract Documents. The "CONVERSION WORK" shall mean all engineering,
renovation, joiner work and outfitting of the Vessel, as described in the
Contract Documents, to convert, outfit and document the Vessel as a U.S.-Flag
overnight passenger vessel accommodating 161 passengers and 57 crew, and
satisfactorily complete all test and trials on or before the date in accordance
with Section 7 of this Contract. In addition, as part of the Conversion Work,
Shipyard shall (a) contract to have the Vessel transported from its current
location at the Nichols' Langley, Washington facility to Shipyard's facility in
Portland, Oregon (it being acknowledged that the responsibility for preparing
the Vessel for transit shall be Owner's), (b) contract with and provide
management of
<PAGE> 2
the joiner contractor, HBI, which shall perform the joiner work for the Vessel
(provided, that all of HBI's fees shall be paid by Owner either directly or
through Shipyard at Shipyard's option), (c) provide proper storage and handling
of all materials, including those owned by Owner, HBI and other subcontractors,
called for in the Contract Documents, and (d) provide Owner's representatives
with reasonable field service offices and support. Notwithstanding anything to
the contrary in the Contract Documents regarding allocation of fees and expenses
incurred in connection with USCG or other regulatory body approvals (including
inspections and inspection fees), Owner shall be responsible for the design of
the Vessel and for all USCG and other regulatory body approvals of drawings and
design (but, specifically excluding workmanship of Shipyard) and all fees and
costs associated therewith. Shipyard shall perform the Conversion Work in
accordance with USCG or other regulatory body requirements, if applicable, and
consistent with good marine practice.
4. Contract Price.
(a) The price of the Conversion Work (the "CONTRACT PRICE") shall
be determined as follows: (i) for those category items on Exhibit B hereto shown
as a "Not to Exceed" item, the work shall be performed on a time and materials
basis but the price of such item shall not exceed the total amount shown for
such item and, in total, this work will not exceed $____________; (ii) for those
category items on Exhibit B hereto shown as an "Allowance" item, the work shall
be performed on a time and materials basis, and the amount reflected for such
items is an estimate of, and not a fixed price for, the cost for such work;
(iii) within no later than 30 calendar days after the Vessel arrives at
Shipyard's facility, as Shipyard's engineering becomes available, Shipyard shall
propose a Condition Field Report to provide for a fixed price basis for the
categories reflected on Exhibit B hereto as being "Fixed at 30 Days;" and (iv)
HBI's cost for the joiner work will be priced separately pursuant to the joiner
agreement as approved by Owner.
With respect to Section 4(a)(ii) above, the parties acknowledge
that the estimate for each Allowance item was made by Owner and, that unless and
until the parties agree on a fixed price any such Allowance item, the work to be
performed for such item will be on a time and materials basis and that the
amount owed by Owner for such work will not be limited by an Allowance estimate.
(b) If the parties cannot agree on fixed pricing for a particular
category as described above, Conversion Work will be performed on a time and
materials basis. Any Conversion Work priced on a time and materials basis shall
apply a labor rate of $_______ per hour for standard time and $________ per hour
for overtime and holidays and shall include a ______% markup on subcontractor
work and materials. Notwithstanding anything contained in this Section to the
contrary, (i) any materials ordered by Owner (or Nichols on Owner's behalf) and
delivered to Shipyard shall not be marked-up by Shipyard, (ii) for managing HBI,
Shipyard shall be entitled only to a fee equal to _____% of the joiner work
performed at Shipyard's facility, but in no event shall this fee exceed
$___________, and (iii) any materials included in change order work required by
the USCG or any other regulatory body will be priced at Shipyard's cost.
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<PAGE> 3
5. Payment. Within 2 business days after the effective date of this
Contract, Owner shall make an initial down payment on the Contract Price equal
to $500,000. Progress payment invoices shall include a 10% retention until the
aggregate of the retention amounts equal $500,000. Shipyard shall invoice Owner
no more frequently than every 14 calendar days for work performed. Any invoice
for Conversion Work being performed on a time and materials basis shall include
detailed man hour and materials information consistent with Shipyard's customary
billing practices (which shall be subject to Owner's reasonable review of
underlying invoices and labor reports). Any invoice for Conversion Work being
performed on a fixed price basis shall be based on the percentage of work
completed in accordance with a schedule and payment percentages mutually agreed
to by Shipyard and Owner. Owner shall pay approved invoices within 5 business
days and such invoices and the down payment by wire transfer of immediately
available funds to an account designated by Shipyard.
6. Schedule. Within 14 calendar days of the effective date of this
Contract, Shipyard shall deliver to Owner an integrated construction schedule
showing the Conversion Work to be performed by Shipyard and all of its
subcontractors. Shipyard shall update such schedule and deliver to Owner every
14 calendar days thereafter.
7. Completion Date; Bonus; Liquidated Damages. Shipyard shall complete
the Conversion Work (including tests and trials) and the Vessel shall be ready
to depart Shipyard's facility on or before May 22, 2000 at 8:00 a.m. (Pacific
Time) (the "CONTRACT COMPLETION DATE"). Shipyard shall have the right to notify
Owner on or before February 15, 2000 that it intends to complete the Conversion
Work before the Contract Completion Date and shall notify Owner of the projected
completion date, which in no event shall be earlier than May 1, 2000 (such date
shall be deemed the "MODIFIED COMPLETION DATE"). Provided Shipyard notifies
Owner as described in the preceding sentence, Owner shall pay to Shipyard an
early delivery incentive equal to $__________ per day for each day the Vessel is
actually delivered earlier than the Contract Completion Date. In the event
Shipyard does not complete the Conversion Work on or before the Contract
Completion Date (or the Modified Completion Date, if applicable), Shipyard shall
pay Owner, as liquidated damages, the amount of $_________ per day for each day
the Vessel is actually delivered after the Contract Completion Date (or the
Modified Completion Date, if applicable). Subject to the limited warranty set
forth in Section 8 of this Contract, the liquidated damages set forth in this
Section shall be Owner's exclusive remedy for delay or other damages.
8. Warranty.
(a) Conditioned upon full and final payment of all amounts due from
Owner to Shipyard, Shipyard warrants for a period of 180 calendar days from
delivery, that all of the Conversion Work performed by Shipyard under this
Contract has been performed in a good and workmanlike manner, conforms to the
Contract Documents, consists of new materials (unless used or reconditioned
materials are specifically authorized by Owner) and is free from defects in
materials and/or workmanship. In the event a vendor warrants its product for a
period longer than 180 calendar days, Owner shall be entitled to such longer
warranty period. This warranty applies only to workmanship by Shipyard and the
materials fabricated and supplied by Shipyard and its subcontractors and
suppliers; this warranty does not cover defects in the work by Nichols or in the
design of the Vessel by others, nor defects in materials or equipment supplied
by Owner, or by others for the account of Owner, which are incorporated into the
Conversion Work (except that Shipyard's warranty does include a warranty that
Shipyard has installed, in a workmanlike manner, the materials and equipment
supplied by
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<PAGE> 4
Owner, or by others for the account of Owner, for installation by Shipyard). In
addition to the warranty being provided by Shipyard hereunder on all Conversion
Work, but not in lieu thereof, Shipyard shall use all reasonable efforts to
obtain warranties from vendors, suppliers and subcontractors equivalent in scope
and duration to the warranties being provided by Shipyard. All such third-party
warranties shall be made for the benefit of Shipyard and Owner.
(b) In the event written notice of a warranty claim is received by
Shipyard within the warranty term, the obligation of Shipyard shall be to repair
or to replace (whichever Shipyard elects) the defective portion of the work. The
following conditions apply:
(i) Shipyard shall be afforded a reasonable opportunity to
inspect and confirm that the original work was not workmanlike;
(ii) Owner shall cooperate fully in the efforts of Shipyard to
enforce any applicable third party warranty and shall fully pursue all
such third party warranties;
(iii) the cost and responsibility for returning the Vessel or
any parts to Shipyard shall be the responsibility and cost of Owner;
(iv) warranty work shall be done only at the same location as
the original work, or at a different location designated by Shipyard;
and
(v) All items or work repaired or replaced by Shipyard under
this warranty shall be guaranteed by Shipyard for an additional ninety
90 calendar days beyond the date of the repair or replacement.
(c) If, in the opinion of Owner, immediate repairs or replacements
are essential to keep the Vessel on its scheduled operations, such repairs or
replacements will be made by Owner or a contractor, including a shipyard
("REPAIR CONTRACTOR"), of its choice and for the account of Shipyard. If
immediate repairs are not necessary, Shipyard will be notified and be given 5
calendar days within which to examine and correct the defects. If the defects
are not corrected within this period, Owner shall be entitled to have the
defects corrected by a Repair Contractor of Owner's choice for the account of
Shipyard at Repair Contractor's then prevailing rates. However, in no event
shall Owner have a right to be reimbursed by Shipyard for any cost or expense
which is incurred prior to Shipyard (i) being given written notice of the
alleged defect within the warranty period, (ii) Shipyard being given a
reasonable opportunity to inspect the work to verify the existence of the
defect, and (iii) Shipyard being offered a reasonable opportunity to effect
repairs with its own forces.
(d) The foregoing limited warranty is in lieu of all other
warranties on the part of Shipyard. Shipyard expressly disclaims any other
express or implied warranties, including but not limited to any express or
implied warranty of merchantability or of fitness for a particular purpose.
Without limiting the foregoing, in no event shall Shipyard be liable for any
incidental or consequential damages, including, without limitation, loss of
profits or market, loss of use of property, delay damages (except agreed
liquidated damages set forth in Section 7 of the this
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<PAGE> 5
Contract) or consequential damages of any other type, whether arising from the
breach of this Contract or the negligence of Shipyard or any agent of Shipyard,
regardless of whether or not such incidental or consequential damages may have
been foreseeable by the parties.
(e) Under no circumstances shall Shipyard be liable for any claim
arising out of the design of the Vessel or the design of the Conversion Work,
and Owner shall defend, indemnify and hold Shipyard harmless regarding any such
claim.
9. Shipyard Records. Shipyard shall maintain accurate management and
financial records of actual costs incurred during the course of the Conversion
Work. Shipyard will, upon reasonable notice, allow Owner to review records
(except general or operating overhead or its components or profits) kept by
Shipyard relating to the portions of the Conversion Work which are on a time and
materials basis. Shipyard shall maintain books and records during the
performance of this Contract and retain such documents for a period of three
years after the Contract Completion Date (or Modified Completion Date, if
applicable). Such records shall include, but not be limited to labor hours by
craft and by individual, specifying all work done pursuant to change orders, all
invoices, purchase orders, working drawings, and other documents pertaining to
the Conversion Work, including those records relating to equipment furnished by
Shipyard's vendors and subcontractors. Shipyard will make such books and records
available to Owner upon request. Owner may audit the books and records of
Shipyard or its subcontractors to the extent that the books and records relate
to the performance of the Conversion Work or claim.
10. Change Orders. Owner and Shipyard shall each designate in writing
one or more representatives who are authorized to agree to written change
orders. Shipyard may make alterations or changes to the Conversion Work only
upon written approval of Owner and upon arriving at a change order agreement in
writing as to changes in Contract Price and/or delivery schedule. Owner may make
alterations or changes in the Conversion Work only upon written notice to
Shipyard and upon arriving at a change order agreement in writing as to changes
in contract price and/or delivery schedule. The parties shall expedite their
responses to change order requests. To this end, the parties shall establish a
procedure designed to allow the approval of change orders within 48 hours or as
soon as practicable thereafter if adequate information is not presented by the
party requesting approval. Any adjustment to a fixed price portion of Conversion
Work will be based upon estimated time and materials basis in accordance with
the second sentence of Section 4(b) of this Contract, and will reflect loss of
sequence and delay, if any. Any changes in the scope of work, specifications or
drawings required by the USCG or any other regulatory body shall be treated as
alterations under this Section, with materials at cost in accordance with this
Contract. To be effective, all change orders must be made in writing, signed by
the authorized representatives of each party. Disputes as to change orders are
subject to technical arbitration under Section 13 of this Contract.
11. Risk of Loss, Insurance and Indemnification.
(a) Risk of Loss and Shipyard's Risk Insurance. From the time the
Vessel arrives at Shipyard's facility until delivery of the Vessel to Owner,
Shipyard shall have the charge and care of the Vessel and all portions of the
Conversion Work (including materials furnished by Owner after delivery to
Shipyard's facility) and shall take all reasonable precautions against injury or
damage thereto. Shipyard shall rebuild, repair, restore and make
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<PAGE> 6
good all injuries or damages to any portion of the Conversion Work or Vessel. In
the event of a partial loss of the Vessel during the transit to Shipyard's
facility, any repair work shall be performed by Shipyard in accordance with
Section 10 of this Contract. In the event of a complete or constructive total
loss of the Vessel, Owner may terminate this Contract but shall pay Shipyard's
work performed until such termination on a time and materials basis in
accordance with the second sentence of Section 4(b) of this Contract.
(b) Builder's Risk Insurance. As part of the Conversion Work,
Shipyard shall provide builder's risk insurance under the latest full American
Institute Shipyard's Risk form, or broader form, including SRCC clauses, and
protection and indemnity endorsements for the whole of the Vessel and all
machinery, materials, equipment, appurtenances and outfit, including
owner-furnished equipment upon delivery to Shipyard. Such insurance shall be
with insurers acceptable to Owner and shall name each party as their interests
may appear. In the event Owner can obtain the builder's risk insurance on more
competitive terms Owner, at its option, may place the insurance and tender same
to Shipyard. Shipyard's responsibility for the cost of the Builder's Risk
insurance premium as part of the Conversion Work shall not exceed $50,000.
(c) Other Insurance.
(i) Owner shall maintain its existing Comprehensive General
Liability and Worker's Compensation Insurance during the performance of
the Conversion Work.
(ii) Shipyard shall purchase, at its own expense, and maintain
in force at all times during the performance of services under this
Contract, the policies of insurance listed below in such form and with
such underwriters as are acceptable to Owner. Where specific limits are
shown, it is understood that they shall be the minimum acceptable
limits. Acceptance by Owner of deficient evidence does not constitute a
waiver of this requirement. Evidence of the following coverage is
required:
(A) Worker's Compensation Insurance. Shipyard shall
maintain for all employees of Shipyard engaged in work under this
Contract, Worker's Compensation insurance which shall include
coverage for up to statutory limits of the United States
Longshoremen's and Harbor Worker's Act, the statutory limits of the
applicable State Compensation Insurance and in the instance of the
Jones Act, employer's liability protection of not less than
$5,000,000 per person.
(B) Comprehensive Commercial General Liability Insurance.
Coverage limits shall be not less than $5,000,000 combined single
limit per occurrence and annual aggregates where generally
applicable and shall include, to the extent not included in the
builders risk insurance described above, premises-operations,
independent contractors, products/completed operations, broad form
property damage with the watercraft exclusion deleted, blanket
contractual and personal injury endorsements.
(C) Comprehensive Automobile Liability Insurance. Such
insurance shall cover all owned, hired and non-owned vehicles with
coverage limits not less than $1,000,000 combined single limit.
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(D) Excess Liability Insurance. Excess of the policies
enumerated in (A), (B) and
(C) above, in an amount serving to increase primary limits
to $10,000,000 for any one occurrence.
(iii) The cost of any deductibles for the above-stated insurance
provided by the parties shall be the responsibility of the party
obtaining said insurance.
(iv) Broker's Certificates of Insurance for coverage required
hereunder must be furnished to the parties within 7 calendar days of
the coverage being bound. Such evidence, executed by the carrier's
representative and issued to Owner, shall consist of a certificate of
insurance naming the parties as the insured, or additional insured
(including the subcontractor contemplated in Section 3(a) of this
Contract, if required by such party), as indicated above, and include
waivers of subrogation in favor of the additional insured (and their
affiliates, subcontractors and lenders) without liability for the
payment of premiums or deductibles and shall further provide for a
30-day prior written notice of cancellation, non-renewal or material
change.
12. Indemnification. The rights of indemnity between the parties
shall be as follows:
(a) Liability for Shipyard's Personnel. Shipyard releases Owner and
Owners officers, directors, shareholders, agents, employees, independent
contractors, subcontractors, and representatives (collectively, "OWNER
INDEMNITIES") from any liability to Shipyard for, and Shipyard will defend,
indemnify and hold Owner and Owner Indemnities harmless from and against, all
suits, actions, claims and demands, by whomever brought, based on personal
injury or death, whenever occurring, suffered or incurred by Shipyard, its
contractors and subcontractors and the officers, employees, agents and
representatives of any of them arising from or related in any way to performance
of the Conversion Work, regardless of how such personal injury or death is
caused and even if caused by the negligence, whether sole or concurrent or
active or passive, or other legal fault, including strict liability, of Owner
and Owner Indemnities.
(b) Liability for Owner's Personnel. Owner releases Shipyard and
Shipyard's officers, directors, shareholders, agents, employees, independent
contractors, subcontractors, and representatives (collectively, "SHIPYARD
INDEMNITIES") from any liability to Owner for, and Owner will defend, indemnify
and hold Shipyard and Shipyard Indemnities harmless from and against, all suits,
actions, claims and demands, by whomever brought, based on personal injury or
death, whenever occurring, suffered or incurred by Owner, its officers,
employees or subcontractors arising from or related in any way to performance of
the Conversion Work, regardless of how such personal injury or death is caused
and even if caused by the negligence, whether sole or concurrent or active or
passive, or other legal fault, including strict liability, of Shipyard or
Shipyard Indemnities.
(c) Liability for Shipyard's Property. Shipyard releases Owner and
Owner Indemnities from any liability to Shipyard for, and Shipyard will defend,
indemnify and hold Owner Indemnities harmless from and against, all suits,
actions, claims and demands, by whomever brought, based on property damage or
loss, whenever occurring, suffered or incurred by Shipyard, its contractors and
subcontractors and the officers, employees, agents and
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representatives of any of them, arising from or related in any way to
performance of the Conversion Work, regardless of how such damage or loss is
caused and even if caused by the negligence, whether sole or concurrent or
active or passive, or other legal fault, including strict liability, of Owner
and Owner Indemnities.
Except as otherwise provided in this Section or in Section 14 below,
Owner and Shipyard shall look exclusively to the applicable insurance maintained
by the parties and to the provisions of the limited warranty for the payment of
all claims and damages arising out of or related to the Conversion Work.
13. Disputes.
(a) Technical disputes (which shall include disputes arising under
the Contract Documents and Sections 2, 8, 10 and 15 of this Contract, but not
under any other Section of this Contract) will be referred to the ABS Technical
Services (or its successor entity). The fees and expenses of the arbitrators
shall be borne equally by the parties. Any other costs and expenses incurred by
the parties, including attorneys fees, shall be borne by the respective parties.
(b) All disputes other than technical disputes will be referred to
panel of three arbitrators. One arbitrator to be selected by each of Shipyard
and Owner, and the third to be selected by the other two arbitrators.
Arbitrators shall be commercial businessmen with ship construction experience
sitting in Portland Oregon. Arbitration shall be conducted under the rules of
the American Arbitration Association. The fees and expenses of the arbitrators
shall be apportioned between the parties by the arbitrators in accordance with
the findings and results of the arbitrators. Any other costs and expenses
incurred by the parties, including attorneys fees, shall be borne by the
respective parties.
14. Patent Infringement; Indemnification.
(a) Owner shall hold harmless, indemnify, and defend Shipyard and
Shipyard Indemnities from, for, and against all claims, demands, actions, suits,
liabilities, damages, costs, and expenses, including attorney fees, arising out
of or in connection with any claims for alleged infringement of any patents or
intellectual property or proprietary rights of any person arising out of the
design or construction of the Vessel or any component thereof based on the
plans, specifications, material or equipment provided by Owner.
(b) Shipyard shall hold harmless, indemnify and defend Owner and
Owner Indemnities from, for and against all claims, demands, actions, suits,
liabilities, damages, costs, and expenses, including attorney fees, arising out
of or in connection with any claims for alleged infringement of any patents or
intellectual property or proprietary rights of any person arising out of the
design or construction of any component of the Vessel constructed by Shipyard
based upon plans and specifications provided by Shipyard. In the event that
Owner shall be enjoined by a court of competent jurisdiction because of such
patent infringement from using the Vessel for its intended purpose, at its
option, Shipyard may either: (a) procure for Owner a license to continue using
the infringing component, (b) modify the component so as to make it
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noninfringing without seriously impairing its performance, or (c) replace the
component with noninfringing equipment substantially equal in performance.
(c) Defense of any claim, action or suit shall be by counsel
approved by the party entitled to defense under this Section. Such party shall
have the right, at its own expense, to retain separate counsel to participate
in, or monitor the proceedings with respect to, any such claim, action, or suit
for which a defense is provided by the other party pursuant to this Section.
15. Inspection and Acceptance. The detailed manner and method of
performing the Conversion Work shall be under the control of Shipyard, Owner
being interested only in the result obtained. Not withstanding the foregoing,
Owner and its designated representatives shall be given a reasonable opportunity
to inspect the Conversion Work. Inspection by Owner shall be at Owner's risk,
and any testing desired by Owner that is in addition to tests required under the
Contract Documents shall be at Owner's expense and risk. Owner is required to
provide written acceptances of portions of the work as requested by Shipyard
where acceptance or approval by an outside classification society or regulatory
body is not available or applicable. Any such acceptance by Owner shall be
deemed an agreement that the accepted work is in compliance with the Contract
Documents, but no acceptance shall relieve Shipyard of its obligations under
Section 8 of this Contract. Shipyard will, upon notice in writing by Owner or
its representative, correct any deficiencies or defects in the Conversion Work
noted upon inspection. Shipyard shall not be required to delay work because of
the absence of Owner's representative. In the event Shipyard's work is
interrupted, delayed or placed out of sequence because Owner's representative is
not available to attend or conduct any required inspection or testing for which
at least 48 hours advance notice is given, the cost and/or time impact of such a
delay may be claimed as Force Majeure (as such term is hereinafter defined) or a
change requiring a change order. All disputes relating to acceptances or
rejections of work will be treated as technical disputes under Section 13 of
this Contract.
16. Force Majeure.
(a) Neither party shall incur any liability to the extent of, and
the schedule described in Section 6 of this Contract shall be adjusted for,
delays which are occasioned by, any event or circumstance which is beyond the
reasonable control of the party affected, including, but not limited to, riots,
sabotages, acts of war (whether declared or not), blockades, economic embargoes,
terrorist activities, fires, floods, earthquakes, acts of God, strikes,
lockouts, or other labor disturbances (each event, an item of "FORCE MAJEURE").
(b) Shipyard shall have no liability for delays, and the schedule
shall be adjusted for delays, which are caused by act or omission of Owner or
any employee, agent or other contractor of Owner, including any nonconformity,
defect, or delay in delivery of equipment furnished by Owner limited in the
Contract Documents to a particular supplier or manufacturer.
(c) The affected party shall use its reasonable efforts to mitigate
the effects of Force Majeure. As soon as reasonably possible following the
incidence of Force Majeure, the party affected shall notify the other party,
describing the incident and its impact on this Contract.
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Any two or more items of Force Majeure occurring concurrently shall run
concurrently for purposes of calculating any delay period.
(d) Notwithstanding the foregoing, in the event that any items or
items of Force Majeure last in excess of 15 consecutive calendar days or 30
calendar days in the aggregate, Owner shall be entitled to terminate this
Contract without further obligation to Shipyard other than the obligation to pay
Shipyard for any and all work performed by Shipyard up until such termination of
the Contract by Owner, and Shipyard shall be obligated to prepare and place the
Vessel in a condition and mode by which the Vessel can be transported by Owner
to another shipyard for completion of the Conversion Work.
17. Public Announcement. The parties agree to treat this Contract,
including the price, and the agreements and arrangements contemplated hereby in
strict confidence and neither party shall divulge the existence of this
Contract, final negotiations between the parties or any of the terms hereof or
thereof except in furtherance of Contract negotiations or as otherwise permitted
by the non-disclosing party in writing. Notwithstanding the foregoing, nothing
contained herein shall limit either party from making any disclosure required by
law (including the Securities Exchange Act of 1934). Subject to the above, each
party may make public announcements concerning the conversion of the Vessel upon
the prior written consent of the other party.
18. Default Terminations.
(a) Owner shall be entitled (but not bound) to terminate this
Contract in the following circumstances:
(i) Where Shipyard commits a material breach of the terms of,
or fails to perform any of its obligations under, this Contract and
fails to remedy the same within 5 calendar days of receipt of written
notice by Owner stipulating the material breach that has occurred; or
(ii) Where Shipyard fails to staff or prosecute the Conversion
Work in accordance with the schedule identified in Section 6 of this
Contract and fails to remedy the same within 5 calendar days of receipt
of written notice of Owner stating that such a condition exists.
(b) Shipyard shall be entitled (but not bound) to terminate this
Contract where Owner commits a material breach of the terms of, or fails to
perform any of its obligations under, this Contract and fails to remedy the same
within 5 calendar days of receipt of written notice by Shipyard stipulating the
material breach that has occurred.
(c) In the event that either party terminates this Contract under
Sections 18(a) or 18(b), respectively, of this Contract, then such party shall
so notify the other party in writing. Such notice of cancellation shall be
effective as of the date of receipt of the same by recipient and, at Owner's
direction, Shipyard shall then: (i) complete all work required as a minimum to
permit the Vessel to depart from Shipyard's facility in a safe and seaworthy
condition; (ii) thereafter remove its employees, agents and contractors,
together with their equipment, from the Vessel; and (iii) render all necessary
assistance to the Vessel and Owner in leaving Shipyard's facility at the
earliest moment convenient to Owner. In case of such termination, Owner shall be
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liable to pay to Shipyard those parts of the Conversion Work already
incorporated into, supplied or delivered to the Vessel by Shipyard plus any work
described in this Section 18(c) less the amount of the Contract Price then paid
by Owner. Termination of this Contract shall in no sense prejudice any accrued
claim a party may at the time of such termination assert, whether in law or
equity, against the other party including, but not limited to, a claim for
liquidated damages by Owner in accordance with Section 7 of this Contract, but
in no event shall Owner be liable for any incidental or consequential damages,
including without limitation, loss of profit or market, loss of use of property,
delay damages or consequential damages of any other type, whether arising from
the breach of this Contract, regardless of whether or not such incidental or
consequential damages may have been foreseeable by the parties.
19. Liens. Shipyard shall discharge at once or bond or otherwise secure
against all valid liens and attachments which are filed in connection with any
contractor's performance of the Conversion Work and Shipyard shall indemnify and
hold Owner harmless from and against any and all loss and liability resulting
directly or indirectly from such liens and attachments of which any contractor
is given prompt notice. Shipyard hereby waives its rights to a maritime lien
pursuant to Section 31305 of Title 46 of the United States Code and further
agrees not to assert any mechanic's lien or other lien under any applicable
statutes or otherwise for work done or materials, services or equipment
furnished in connection with the Conversion Work. In the event a dispute evolves
which, if not for the preceding sentence, would give rise to a lien right for
Contractor, Owner hereby agrees to post a bond or establish in escrow with the
local federal court in an amount equal to that portion of the Contract Price
still due, as provided under this Contract.
20. Ownership of Drawings. All drawings provided by Owner or its
representatives, and all working drawings and as-built drawings generated by or
through Shipyard, shall remain and become the property of Owner upon the
Contract Completion Date (or the Modified Completion Date, if applicable), at
which time Shipyard shall return or deliver all such drawings to Owner. Shipyard
may retain copies of all such drawings for the exclusive purpose or performing
additional work as required under the limited warranty.
21. Fees and Expenses. Except as set forth above, each party shall
bear its own costs and expenses to date and of negotiating this Contract.
22. Miscellaneous.
(a) Notices. Any notice required under this Contract or the
Contract Documents shall be in writing and shall specifically reference the
Section of this Contract or the Contract Documents under which such notice is
being given. All notices, correspondence, submittals and other communications
relating to this Contract or the Contract Documents shall be addressed as
follows:
(i) To Owner: The Delta Queen Steamboat Co.
c/o American Classic Voyages Co.
Two North Riverside Plaza, Suite 200
Chicago, Illinois 60606
Fax No.: 312-466-6151
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Attn: Tom Gourguechon, Project Manager, and
Jordan B. Allen, Executive Vice President
and General Counsel
(ii) To Shipyard: Cascade General, Inc.
5555 North Channel Avenue
Portland, Oregon 97217
Fax No.: 503-247-1696
Attn: Surendra Menon, Executive Vice President
with copy to: Schwabe Williamson & Wyatt, P.C.
1211 S.W. Fifth Avenue, Suite 1800
Portland, Oregon 97204
Fax No.: 503-796-2900
Attn: C. Kent Roberts
Either party may change such address or telephone numbers by written
notice to the other in accordance herewith and such change shall take effect of
receipt of such notice by the other. All notices and communications under this
Contract shall be mailed, postage prepaid, or by facsimile, with confirmation of
receipt of transmittal, and shall be effective upon receipt thereof by the
parties to whom they are addressed.
(b) Severability. In case any one or more of the provisions
contained in this Contract shall for any reason be held to be invalid, illegal,
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof, and this Contract shall be
construed as if such invalid, illegal, or unenforceable provision had never been
contained herein.
(c) Assignments. Neither this Contract nor any of the rights,
interests or obligations under this Contract shall be assigned by any party
without the prior written consent of the other party. Notwithstanding the
foregoing, Shipyard may assign to its rights, interests or obligations under
this Contract to subcontractors in furtherance of the Conversion Work without
the prior written consent of Owner.
(d) Amendments. No modification or amendment of this Contract shall
be effective unless such modification or amendment shall be in writing and
executed by the parties hereto.
[Remainder of page left intentionally blank]
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IN WITNESS WHEREOF the parties have caused this Amended and Restated
Agreement to be duly executed by their respective authorized officers as of the
day and year first hereinabove written.
SHIPYARD: OWNER:
CASCADE GENERAL, INC. THE DELTA QUEEN STEAMBOAT CO.
By: /s/ Frank Foti By: /s/ Jordan B. Allen
---------------------- -----------------------
Frank Foti, President Jordan B. Allen,
Executive Vice President and
General Counsel
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EXHIBIT 21
SUBSIDIARIES OF
AMERICAN CLASSIC VOYAGES CO.
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Jurisdiction Under Percentage
Name of Subsidiary Which Organized of Ownership
--------------------------------------------------- ----------------------- ---------------------
<S> <C> <C>
The Delta Queen Steamboat Co. Delaware 100%
DQSB II, Inc. Delaware (1)
Cruise America Travel, Incorporated Delaware (1)
Great River Cruise Line, L.L.C. Delaware (2)
Great Ocean Cruise Line, L.L.C. Delaware (2)
Great AQ Steamboat, L.L.C. Delaware (2)
Great Pacific NW Cruise Line, L.L.C. Delaware (2)
Delta Queen Coastal Voyages, L.L.C. Delaware (2)
Coastal Queen West, L.L.C. Delaware (5)
Coastal Queen East, L.L.C. Delaware (5)
AMCV Holdings, Inc. Hawaii 100%
Great Hawaiian Cruise Line, Inc. Delaware (6)
Great Independence Ship Co. Delaware (3)
Great Hawaiian Properties Corporation Delaware (3)
American Hawaii Properties Corporation Delaware (3)
CAT II, Inc. Delaware (3)
Project America, Inc. Delaware (6)
Oceanic Ship Co. Delaware (4)
Project America Ship I, Inc. Delaware (4)
Project America Ship II, Inc. Illinois (4)
Ocean Development Co. Delaware (4)
</TABLE>
(1) 100% owned subsidiary of The Delta Queen Steamboat Co.
(2) 99% owned subsidiary of The Delta Queen Steamboat Co. and
1% owned subsidiary of DQSB II, Inc.
(3) 100% owned subsidiary of Great Hawaiian Cruise Line, Inc.
(4) 100% owned subsidiary of Project America, Inc.
(5) 99% owned subsidiary of Delta Queen Coastal Voyages, L.L.C.
and 1% owned subsidiary of DQSB II, Inc.
(6) 100% owned subsidiary of AMCV Holdings, Inc.
<PAGE> 1
EXHIBIT 23
Consent of KPMG LLP
-------------------
The Board of Directors
American Classic Voyages Co.
We consent to incorporation by reference in the registration statements No.
33-80614 on Form S-3 and No. 333-44225 on Form S-8 of American Classic Voyages
Co. of our report dated February 28, 2000, relating to the consolidated balance
sheets of American Classic Voyages Co. and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999, and the related financial statement schedule,
which report appears in the December 31, 1999 annual report on Form 10-K of
American Classic Voyages Co.
/s/ KPMG LLP
KPMG LLP
Chicago, Illinois
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 42,399<F1>
<SECURITIES> 0
<RECEIVABLES> 1,205
<ALLOWANCES> 0
<INVENTORY> 2,529
<CURRENT-ASSETS> 51,843
<PP&E> 242,845
<DEPRECIATION> 92,048
<TOTAL-ASSETS> 293,990
<CURRENT-LIABILITIES> 83,727
<BONDS> 80,463
187
0
<COMMON> 0
<OTHER-SE> 129,613
<TOTAL-LIABILITY-AND-EQUITY> 293,990
<SALES> 0
<TOTAL-REVENUES> 208,717
<CGS> 0
<TOTAL-COSTS> 133,863
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,549
<INCOME-PRETAX> (2,788)
<INCOME-TAX> (1,038)
<INCOME-CONTINUING> (1,750)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,750)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
<FN>
<F1>Includes restricted short-term investments of $289.
</FN>
</TABLE>
