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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
COMMISSION FILE NUMBER: 0-9264
AMERICAN CLASSIC VOYAGES CO.
(Exact name of registrant as specified in its charter)
DELAWARE 31-0303330
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, IL 60606
(Address of principal executive offices) (Zip Code)
(312) 258-1890
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of August 10, 2000, there were 20,929,256 shares of Common Stock outstanding.
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AMERICAN CLASSIC VOYAGES CO.
INDEX
<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
---------------- ----
<S> <C> <C>
Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999......................................................... 3
Condensed Consolidated Statements of Operations for the
Three Months and Six Months Ended June 30, 2000 and 1999.................. 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999....................................... 5
Notes to Condensed Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............... 16
Part II. Other Information:
Item 1. Legal Proceedings......................................................... 17
Item 6. Exhibits and Reports on Form 8-K.......................................... 17
</TABLE>
2
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AMERICAN CLASSIC VOYAGES CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except shares and par value)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................... $ 58,368 $ 42,399
Restricted cash..................................................................... 30,289 289
Short-term investments.............................................................. 13,274 --
Accounts receivable................................................................. 2,578 1,205
Inventory........................................................................... 3,336 2,529
Prepaid air tickets................................................................. 3,372 1,930
Prepaid expenses and other current assets........................................... 4,593 3,491
----------- -----------
Total current assets........................................................... 115,810 51,843
Property and equipment, net......................................................... 190,174 150,797
Vessels under construction.......................................................... 143,589 74,601
Deferred income taxes, net.......................................................... 16,240 12,446
Other assets........................................................................ 7,640 4,303
----------- -----------
Total assets................................................................... $ 473,453 $ 293,990
=========== ===========
LIABILITIES
Accounts payable.................................................................... $ 14,826 $ 14,534
Note payable........................................................................ 25,000 --
Other accrued liabilities........................................................... 25,633 23,712
Current portion of long-term debt................................................... 4,100 4,100
Unearned passenger revenues......................................................... 55,348 41,381
----------- -----------
Total current liabilities...................................................... 124,907 83,727
Long-term debt, less current portion................................................ 71,238 80,463
----------- -----------
Total liabilities.............................................................. $ 196,145 $ 164,190
=========== ===========
Company-obligated mandatorily redeemable convertible preferred securities of
subsidiary trust holding solely 7% convertible
subordinated debentures of the Company......................................... $ 100,000 $ --
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value (10,000,000 and 5,000,000 shares
authorized, respectively; none issued and outstanding)............................ $ -- $ --
Common stock, $.01 par value (100,000,000 and 40,000,000 shares authorized,
respectively; 20,971,423 and 18,653,206 shares issued, respectively)................ 210 187
Additional paid-in capital.......................................................... 203,532 151,094
Accumulated deficit................................................................. (24,629) (19,573)
Common stock in treasury, at cost (51,000 shares)................................... (757) (757)
Unearned restricted stock and stock units........................................... (1,048) (1,151)
----------- -----------
Total stockholders' equity..................................................... 177,308 129,800
----------- -----------
Total liabilities and stockholders' equity..................................... $ 473,453 $ 293,990
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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AMERICAN CLASSIC VOYAGES CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues................................................ $ 58,302 $ 55,200 $ 97,262 $ 95,766
Cost of operations (exclusive of depreciation expense
shown below).......................................... 35,434 33,694 63,669 62,462
----------- ------------ ----------- ------------
Gross profit............................................ 22,868 21,506 33,593 33,304
Selling, general and administrative expenses............ 16,808 12,584 33,172 29,449
Depreciation expense.................................... 4,015 4,187 7,956 8,342
----------- ------------ ----------- ------------
Operating income (loss) ................................ 2,045 4,735 (7,535) (4,487)
Interest income......................................... 1,901 889 3,164 1,211
Interest expense and other financing costs.............. 27 1,500 1,031 3,070
Other expense........................................... 7 -- 7 --
----------- ------------ ----------- ------------
Income (loss) before income taxes and accrued
distributions on convertible preferred securities
of subsidiary trust..................................... 3,912 4,124 (5,409) (6,346)
Income tax (expense) benefit............................ (1,445) (1,649) 1,999 2,538
Accrued distributions on convertible preferred
securities of subsidiary trust, net of income
tax benefit of $668 and $963, respectively......... 1,143 -- 1,646 --
----------- ------------ ----------- ------------
Net income (loss)....................................... $ 1,324 $ 2,475 $ (5,056) $ (3,808)
=========== ============ =========== ============
Per Share Information
Basic:
Weighted-average shares outstanding................ 20,853 17,209 20,208 15,773
Income (loss) per share............................ $ 0.06 $ 0.14 $ (0.25) $ (0.24)
Diluted:
Weighted-average shares outstanding................ 21,396 17,891 20,208 15,773
Income (loss) per share............................ $ 0.06 $ 0.14 $ (0.25) $ (0.24)
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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AMERICAN CLASSIC VOYAGES CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------------
2000 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ....................................................................... $ (5,056) $ (3,808)
Depreciation expense........................................................ 7,956 8,342
Changes in working capital and other:
Working capital changes and other....................................... (5,412) (4,248)
Unearned passenger revenues............................................. 13,967 21,974
---------- ----------
Net cash provided by operating activities................................... 11,455 22,260
---------- ----------
INVESTING ACTIVITIES:
Capital expenditures............................................................ (116,321) (15,060)
Purchase of marketable securities............................................... (13,274) --
Increase in restricted investments.............................................. (30,000) --
---------- ----------
Net cash used in investing activities....................................... (159,595) (15,060)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from borrowings........................................................ 41,300 2,000
Repayment of borrowings......................................................... (25,525) (4,050)
Issuance of convertible preferred securities of subsidiary trust................ 100,000 --
Proceeds from issuance of common stock, net..................................... 52,418 64,798
Deferred financing fees......................................................... (4,084) (2,134)
---------- ----------
Net cash provided by financing activities.................................. 164,109 60,614
---------- ----------
Increase in cash and cash equivalents.............................................. 15,969 67,814
Cash and cash equivalents, beginning of period..................................... 42,399 27,004
---------- ----------
Cash and cash equivalents, end of period........................................... $ 58,368 $ 94,818
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of capitalized interest)...................................... $ 949 $ 2,863
Income taxes................................................................ 71 100
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
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AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
1. BASIS OF PRESENTATION
These accompanying unaudited Condensed Consolidated Financial Statements
("Financial Statements") have been prepared pursuant to Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included on Form 10-K
for the year ended December 31, 1999 (the "Form 10-K") for American Classic
Voyages Co. ("AMCV") and its subsidiaries. These Financial Statements include
the accounts of AMCV and its wholly owned subsidiaries, The Delta Queen
Steamboat Co. ("DQSC"), Great Hawaiian Cruise Line, Inc. ("GHCL") and Project
America, Inc. (collectively with such subsidiaries, the "Company"). The
following notes to the Financial Statements highlight significant changes to the
notes included in the Form 10-K and such interim disclosures as required by the
SEC. These Financial Statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature. Certain
previously reported amounts have been reclassified to conform to the 2000
presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2. RESTRICTED CASH
The $30 million increase in restricted cash through June 30, 2000 reflects $30
million invested in a certificate of deposit which is being used as a collateral
deposit for a letter of credit related to an October 2000 ship acquisition (see
Notes 7 and 8 for further information).
3. SHORT-TERM INVESTMENTS
Under the definitions provided in Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities, the
Company has purchased securities which have been classified as available for
sale and are, therefore, recorded at their fair values. The fair value for these
securities approximates cost due to the short maturities of the instruments.
4. VESSELS UNDER CONSTRUCTION
Capitalized interest on the vessels under construction amounted to $2.0 million
and $0 for the three months ended June 30, 2000 and 1999, respectively.
Capitalized interest amounted to $4.0 million and $0 for the six months ended
June 30, 2000 and 1999, respectively.
The Columbia Queen riverboat was placed into service on May 27, 2000 and its
capitalized cost of $42.4 million, including capitalized interest, was
transferred from vessels under construction to property and equipment. The
vessel is being depreciated over 30 years with a 15% salvage value.
5. NOTE PAYABLE
On February 10, 2000, the Company issued $25 million of notes guaranteed by the
Maritime Administration ("MARAD"). This is the first issuance of debt under the
$1.1 billion of financing guarantees from MARAD for the construction of the
Hawaii cruise vessels. The notes bear interest at LIBOR minus 0.05%. Interest is
payable quarterly beginning April 28, 2000. The entire principal amount is due
on January 31, 2001. The Company intends to refinance these notes on or before
the maturity date.
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6. DEBT
Long-term debt consisted of (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
U.S. Government Guaranteed Ship Financing Note, American Queen Series............. $ 13,173 $ 14,385
U.S. Government Guaranteed Ship Financing Bond, American Queen Series............. 36,198 36,198
U.S. Government Guaranteed Ship Financing Note, Independence Series A ............ 7,265 7,926
U.S. Government Guaranteed Ship Financing Bond, Independence Series A............. 13,215 13,215
U.S. Government Guaranteed Ship Financing Note, Independence Series B ............ 1,947 2,124
U.S. Government Guaranteed Ship Financing Bond, Independence Series B............. 3,540 3,540
Chase credit facility (maximum availability of $70 million) ...................... -- 7,175
-------------- --------------
75,338 84,563
Less current portion.............................................................. 4,100 4,100
-------------- --------------
$ 71,238 $ 80,463
============== ==============
</TABLE>
The Chase credit facility is available only for the conversion of the Columbia
Queen riverboat, the construction of the first two coastal vessels, and Delta
Queen working capital. The 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.
In 1999, the Company received a commitment from MARAD for up to $1.1 billion in
financing guarantees. The commitment amount represents 87.5% of the total
maximum potential cost of the initial two Hawaii vessels, including shipyard
costs, contingencies, capitalized interest, and guarantee fees. See Notes 5 and
11 for further information.
On March 31, 2000, the Company received a commitment from MARAD for up to $78.3
million in financing guarantees. The commitment amount represents 87.5% of the
total maximum potential cost of the initial two coastal vessels currently under
construction, including shipyard costs, contingencies, capitalized interest, and
guarantee fees.
As of June 30, 2000, the Company complied with all covenants under its various
debt agreements.
7. TRUST PREFERRED SECURITIES
On February 22, 2000, the Company completed an offering of 2,000,000
Company-obligated mandatorily redeemable convertible preferred securities of a
subsidiary trust ("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 outstanding preferred securities may be
redeemed for cash at the Company's option on or after February 19, 2003. The net
proceeds to the Company, after underwriting fees and other costs, were
approximately $96.5 million. A portion of the proceeds were used to fund the $30
million letter of credit facility related to the ms Nieuw Amsterdam purchase
(see Note 8 for further information) and to pay down outstanding amounts on the
Chase credit facility. The underwriters' overallotment option of 300,000
additional trust preferred securities was not exercised.
8. COMMITMENTS AND CONTINGENCIES
In 1999, the Company finalized an agreement with Holland America Line to
purchase the ms Nieuw Amsterdam for $114.5 million. The purchase agreement
required the Company to make an earnest money deposit of $30 million by January
17, 2000. The Company arranged for an unsecured letter of credit facility with
The Chase Manhattan Bank for up to $30 million and satisfied the deposit
requirement by posting a letter of credit for $30 million.
7
<PAGE> 8
In 1999, persons and entities affiliated with Equity Group Investments, Inc.
("Equity"), the Company's largest stockholder, guaranteed the letter of credit
facility for the Company with The Chase Manhattan Bank for up to $30 million.
Under an agreement dated October 15, 1999, as consideration for issuance of the
guarantee, the Company paid Equity a commitment fee of $500,000 in 1999 and
agreed to pay Equity additional compensation in the form of stock appreciation
units contingent, in part, upon appreciation in the Company's common stock.
Equity's rights to receive this additional compensation vested, on a monthly
basis, during the period that the guarantee remained outstanding. On February
22, 2000, the Company deposited $30 million into a cash collateral account with
Chase from proceeds received by the Company from the Company's securities
offering, as discussed in Note 7, thereby terminating the Equity guarantee. The
Company has the right to retire Equity's stock appreciation units by paying a
per unit price, which escalates each year, during the first three years after
issuance. The price of the Company's right to retire Equity's stock appreciation
units is $11 per share if the Company retires the units by October 15, 2000, $13
per share if the Company retires the units by October 15, 2001, and $15 per
share if the Company retires the units by October 15, 2002. If the Company does
not retire Equity's stock appreciation units during the first three years after
issuance, Equity may exercise, during the fourth and fifth years after issuance,
its right to receive payment based upon the market value of the Company's common
stock at such time. On or before the first three anniversary dates of the
issuance of Equity's stock appreciation units, the Company will evaluate whether
to exercise its right to retire the units based on the Company's then current
stock price and other factors.
Holland America Line has agreed to provide financing for the remaining portion
of the purchase price of the ms Nieuw Amsterdam 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.
9. STOCKHOLDERS' EQUITY
ACCUMULATED DEFICIT
Changes in accumulated deficit for the six months ended June 30, 2000 were (in
thousands):
Accumulated deficit at December 31, 1999............. $(19,573)
Net loss............................................. (5,056)
---------
Accumulated deficit at June 30, 2000................. $(24,629)
=========
COMMON STOCK OFFERING
On February 22, 2000, the Company completed an offering of an additional
2,000,000 shares of common stock. The proceeds to the Company, after
underwriting commissions and other costs, were $46.8 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.
10. EARNINGS PER SHARE
Earnings per share have been computed as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
-----------------------
2000 1999
----------- ---------
<S> <C> <C>
Basic:
Net income.................................................. $ 1,324 $ 2,475
Weighted average shares outstanding......................... 20,853 17,209
----------- ---------
Earnings per share ......................................... $ 0.06 $ 0.14
=========== =========
Diluted:
Net income.................................................. $ 1,324 $ 2,475
Weighted average shares outstanding......................... 20,853 17,209
Additional shares issuable under various stock plans........ 543 682
----------- ---------
Diluted weighted average shares outstanding................. 21,396 17,891
----------- ---------
Earnings per share ......................................... $ 0.06 $ 0.14
=========== =========
</TABLE>
8
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As the Company reported losses for the six months ended June 30, 2000 and 1999,
diluted earnings per share was computed in the same manner as basic earnings per
share. Conversion of trust preferred securities is not assumed, as the result
would be antidilutive to the earnings and loss per share.
11. SUBSEQUENT EVENT
On August 10, 2000, the Company issued $50 million of one-year notes guaranteed
by the Maritime Administration. The notes bear interest at LIBOR minus 0.05%.
This is the second 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.
9
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AMERICAN CLASSIC VOYAGES CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
American Classic Voyages Co. 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
Independence steamship. Delta Queen also owns and operates the Columbia Queen
riverboat which began its inaugural cruise on May 27, 2000. We have formed a
third cruise line, United States Lines, to operate the ms Patriot and the new
Hawaii cruise vessels.
Our revenues are composed 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 are composed 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 layups and
drydockings, and fluctuations in airfares. Fare revenue variations are reflected
in our fare revenues per passenger night, which are commonly referred to as fare
per diems, and our occupancy rates.
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.
The following discusses the Company's consolidated results of operations and
financial condition for the three months and six months ended June 30, 2000
versus the comparable periods ended June 30, 1999. This section should be read
in conjunction with the Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Form 10-K for the
year ended December 31, 1999.
10
<PAGE> 11
RESULTS OF OPERATIONS
Operations data expressed as a percentage of total revenue for the periods
indicated is as follows:
Three Months Six Months
Ended June 30, Ended June 30,
--------------- --------------
2000 1999 2000 1999
------ ------ ------ ------
Revenues
100% 100% 100% 100%
Costs and Expenses:
Operating expenses.................. 61 61 65 65
Selling and administrative.......... 29 23 34 31
Depreciation........................ 7 8 8 9
Operating income (loss)................ 4 9 (8) (5)
Net income (loss)...................... 2 4 (5) (4)
Selected operating statistics for the periods indicated are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- --------------------
2000 1999 (5) 2000 1999 (5)
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Fare revenue per passenger night.............. $ 243 $ 232 $ 230 $ 219
Total revenue per passenger night............. $ 330 $ 322 $ 322 $ 313
Weighted average operating days (1):
DELTA QUEEN.............................. 84 91 138 158
AMERICAN HAWAII.......................... 91 91 164 181
Vessels capacity per day (berths) (2):
DELTA QUEEN.............................. 1,183 1,026 1,183 1,026
AMERICAN HAWAII.......................... 867 867 867 867
Passenger nights (3).......................... 176,805 171,470 301,910 306,370
Physical occupancy percentage (berths) (4).... 99.5% 99.5% 98.8% 96.2%
</TABLE>
------------------------
(1) Weighted average operating days for each cruise line is determined by
dividing capacity passenger nights for each cruise line by the cruise
line's total vessel capacity per day. Capacity passenger nights is
determined by multiplying, for the respective period, the actual operating
days of each vessel by each vessel's capacity per day.
(2) Vessel capacity per day represents the number of passengers each cruise
line can carry assuming double occupancy for cabins which accommodate two
or more passengers. Some cabins on the Independence and the American Queen
can accommodate three or four passengers.
(3) A passenger night represents one passenger spending one night on a vessel;
for example, one passenger taking a three-night cruise would generate three
passenger nights.
(4) Physical occupancy percentage is passenger nights divided by capacity
passenger nights.
(5) For the three months ended June 30, 1999, passenger nights, fare and total
revenue per passenger night and occupancy percentage were previously
reported as 168,281, $236, $328 and 98% respectively. For the six months
ended June 30, 1999, passenger nights, fare and total revenue per passenger
night and occupancy percentage were previously reported as 299,655, $224,
$320 and 94%, respectively. 1999 amounts have been recalculated to conform
to the current presentation, which now includes passengers sailing on
complimentary tickets. The current presentation will be used in the future.
11
<PAGE> 12
RESCISSION OF ACCOUNTING METHOD
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 ("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. 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
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 its 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 $2.4 million or $0.13 per share.
QUARTER ENDED JUNE 30, 2000 COMPARED TO QUARTER ENDED JUNE 30, 1999
Consolidated second quarter 2000 revenues increased $3.1 million to $58.3
million from $55.2 for the second quarter of 1999. This represents a $3.3
million increase in fare revenues combined with a $0.2 million decrease in other
revenues. American Hawaii's fare revenues increased $1.0 million due to an 8%
increase in fare per diems to $196 from $182 offset by a 1% decrease in
occupancy to 105% from 106%. Delta Queen's fare revenues increased $2.3 million.
Capacity increased by 6% due to the Columbia Queen introduction. Occupancy rates
also increased 1% from 94% to 95% and fare per diems increased 2% to $285 from
$279. As a result, consolidated fare per diems for the second quarter of 2000
increased 5% to $243 from $232. The $0.2 million decrease in other revenues was
attributable to a decrease in land package revenue.
Consolidated cost of operations for the second quarter of 2000 increased $1.7
million to $35.4 million from $33.7 million for 1999. American Hawaii's
operating costs decreased $0.3 million reflecting lower commission, air and land
expenses associated with two charter cruises during the current quarter offset
by higher fuel costs. Delta Queen's operating costs increased $2.0 million as a
result of the Columbia Queen introduction and higher fuel costs. Maintenance
expenses also increased by $0.6 million at Delta Queen. Consolidated gross
profit increased $1.4 million in the second quarter of 2000 from 1999 as a
result of the Columbia Queen introduction and higher fare per diems at American
Hawaii.
Consolidated selling, general and administrative expenses increased $4.2 million
to $16.8 million for the second quarter of 2000 from $12.6 million in 1999.
Marketing expenses for the Patriot and the Delta Queen Coastal vessels were $4.2
million. We also incurred $0.7 million of start-up costs during the quarter,
primarily related to the Columbia Queen. We incurred no marketing or start-up
costs in connection with our new vessels in the second quarter of 1999.
Marketing expenses for our vessels in operation were lower than in the prior
year. This decrease was offset by an increase in general and administrative
expenses primarily related to salary and benefits associated with new personnel
hired within the past year and consulting costs incurred in connection with our
capacity expansion efforts.
The consolidated operating income for the second quarter of 2000 was $2.0
million as compared to $4.7 million for 1999.
Interest income increased by $1.0 million as a result of higher average cash and
marketable securities balances resulting from proceeds received by us upon the
sale of additional common stock and other securities in February 2000.
During the current quarter, we capitalized $2.0 million of interest expense
related to our vessels under construction. We capitalized no interest expense in
the prior year.
We accrued for distributions on trust preferred securities of $1.1 million, net
of tax, in the second quarter of 2000 due to the February 2000 issuance of trust
preferred securities.
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SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Consolidated first half 2000 revenues increased $1.5 million to $97.3 million
from $95.8 million for the first half of 1999. This represents a $2.0 million
increase in fare revenues combined with a $0.5 million decrease in other
revenues. American Hawaii's fare revenues decreased $1.2 million due to a 9%
decrease in capacity passenger nights as a result of the scheduled 18-day
Independence drydock. This was offset by a 5% increase in fare per diems to $198
from $188 and a 1% increase in occupancy to 104% from 103%. Delta Queen's fare
revenues increased $3.2 million. Capacity passenger nights increased 1% due to
the Columbia Queen introduction. Occupancy rates also increased 5% from 89% to
94% and fare per diems increased 2% to $260 from $255. As a result, consolidated
fare per diems for the first half of 2000 increased 5% to $230 from $219. The
$0.5 million decrease in other revenues was attributable to fewer capacity
passenger nights at American Hawaii during such period.
Consolidated cost of operations for the first half of 2000 increased $1.2
million to $63.7 million from $62.5 million for 1999. American Hawaii's
operating costs decreased $1.7 million reflecting lower passenger, commission,
air and hotel expenses associated with the capacity passenger night decrease
offset by higher fuel prices. Delta Queen's operating costs increased $2.9
million reflecting the capacity and occupancy increase, and higher fuel costs.
Maintenance expenses also increased by $0.9 million at Delta Queen. Consolidated
gross profit increased $0.3 million in the first half of 2000 from 1999 as a
result of capacity and occupancy increase at Delta Queen offset by the capacity
decrease at American Hawaii.
Consolidated selling, general and administrative expenses increased $3.7 million
to $33.2 million for the first half of 2000 from $29.4 million in 1999.
Marketing expenses for the Delta Queen coastal vessels and Patriot were $5.3
million. We also incurred $0.7 million of start-up costs in the first half of
2000, primarily related to the Columbia Queen. We incurred no marketing or
start-up costs in connection with our new vessels in the first half of 1999.
Marketing expenses for our vessels in operation were lower than in the prior
year. This decrease was offset by an increase in general and administrative
expenses primarily related to salary and benefits associated with new personnel
hired or contracted within the past year in connection with our capacity
expansion efforts.
The consolidated operating loss for the first half of 2000 was $7.5 million as
compared to $4.5 million for 1999.
Interest income increased by $2.0 million as a result of higher average cash and
marketable securities balances resulting from proceeds received by us upon the
sale of additional common stock and other securities in April 1999 and February
2000.
Interest expense and other financing costs of $1.0 million in the first half of
2000 represent the accrual of $0.5 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 amortized $0.4 million of deferred financing fees
related to this transaction. During the first half of 2000, we capitalized $4.0
million of interest expense related to our vessels under construction. We
capitalized no interest expense in the prior year.
We accrued for distributions on trust preferred securities of $1.6 million, net
of tax, in the first half of 2000 due to the February 2000 issuance of trust
preferred securities.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Operating Activities
For the six months ended June 30, 2000, cash provided by operations was $11.5
million compared to $22.3 million in 1999. Of the decrease, $8.0 million
reflects a smaller seasonal increase in unearned passenger revenue, which
increased $14.0 million from December 31, 1999 to June 30, 2000, as compared to
an increase of $22.0 million from December 31, 1998 to June 30, 1999. The
increase in unearned passenger revenues was greater in 1999 than in 2000 due to
deposits received in 1999 for millennium cruises and differences in the timing
of receipts of final payment from travel agents. The remainder of the decrease
in cash provided by operations reflects 1) the greater net loss through the
first six months of 2000 as compared to 1999 and 2) the payment of costs during
the first quarter of 2000 that had been accrued as of December 31, 1999 for
layups, drydockings and employee bonuses. Such costs accrued at December 31,
1999 and paid during the first quarter of 2000 were approximately $5.0 million
higher than similar costs accrued at December 31, 1998 and paid in the first
quarter of 1999. Also, at June 30, 2000 remaining capital expenditures for the
Columbia Queen of $5.1 million are included in other accrued liabilities.
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Investing Activities
Our capital expenditures of $116.3 million included $111.4 million for vessels
under construction which mainly consists of payments to shipyards. Other capital
costs for the new shipbuilding programs include technical design, engineering,
architectural fees and capitalized interest. For the Hawaii cruise ships under
construction, we have spent $52.0 million during the first half of 2000, while
$59.4 million was spent on the Columbia Queen and Delta Queen coastal vessels
projects. Remaining expenditures for the Columbia Queen of $5.1 million are
included in other accrued liabilities. Other capital expenditures of $4.9
million were mainly related to layups for our existing Delta Queen vessels and
the Independence drydock, all of which were completed in the first quarter of
2000. With proceeds from our common stock and preferred securities offerings, as
described below, we purchased $13.3 million of short-term investments. Proceeds
from these offerings were also used to fund a $30 million cash collateral
account related to the October 2000 acquisition of the ms Nieuw Amsterdam.
Financing Activities
Total proceeds from borrowings of $41.3 million reflects the issuance of $25
million of one year notes related to the first Hawaii vessel under construction.
The remaining amount represents borrowings under our credit facility. Our total
repayments of borrowings of $25.5 million represents the paydown of all
outstanding amounts on our credit facility of $23.5 million and scheduled
principal payments of $2.0 million under the American Queen and Independence
ship financing notes. We completed a public offering of an additional 2,000,000
shares of common stock. The net proceeds to us, after underwriting commissions
and other costs, were approximately $46.8 million and are being used for
construction of the second Hawaii vessel. Additional proceeds from the issuance
of common stock were received from employee stock option exercises. We also
completed a public offering of 2,000,000 American Classic Voyages Co. obligated
mandatorily redeemable convertible preferred securities of a subsidiary trust
(trust preferred securities). The net proceeds to us, after deferred financing
fees, consisting of underwriting fees and other costs of $3.7 million, were
$96.3 million.
Capital Expenditures and Debt
At June 30, 2000, we had approximately $101.9 million in cash, restricted cash,
and short-term investments. These funds, along with future cash from operations
and debt to be issued with the financing guarantees from the Maritime
Administration, are expected to be our principal source of capital to fund our
working capital and debt service requirements, ship construction costs and
distributions on trust preferred securities. Additionally, we may also fund a
portion of these cash requirements from borrowings under our revolving credit
facility of which we had a maximum of $70 million available to us at June 30,
2000.
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,
which we have a contract to acquire, into the Hawaii market prior to delivery of
the new vessels. In 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 $490 million each. The agreement provides that
the first ship will be delivered in January 2003 and the second ship in January
2004. 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. During the next twelve months, we expect to spend
approximately $210 million on building the two new Hawaii cruise vessels, which
includes anticipated payments to Ingalls Shipbuilding.
In 1999, we finalized an agreement with Holland America Line to purchase the ms
Nieuw Amsterdam for $114.5 million. We intend to rename the ship and operate it
as the ms Patriot. The purchase agreement required us to make an earnest money
deposit of $30 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
satisfied the deposit requirement by posting letters of credit for $30 million.
In 1999, persons and entities affiliated with Equity Group Investments, Inc.
("Equity"), our largest stockholder, guaranteed the letter of credit facility
for us with The Chase Manhattan Bank for up to $30 million. Under an agreement
dated October 15, 1999, as consideration for issuance of the guarantee, we paid
Equity a commitment fee of $500,000 in 1999 and agreed to pay Equity additional
compensation in the form of stock appreciation units contingent, in part, upon
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<PAGE> 15
appreciation in our common stock. Equity's rights to receive this additional
compensation vested, on a monthly basis, during the period that the guarantee
remained outstanding. On February 22, 2000, we deposited $30 million into a cash
collateral account with Chase from proceeds received by us from our securities
offering thereby terminating the Equity guarantee. We have the right to retire
Equity's stock appreciation units by paying a per unit price, which escalates
each year, during the first three years after issuance. The price of our right
to retire Equity's stock appreciation units is $11 per share if we retire the
units by October 15, 2000, $13 per share if we retire the units by October 15,
2001, and $15 per share if we retire the units by October 15, 2002. If we do not
retire Equity's stock appreciation units during the first three years after
issuance, Equity may exercise, during the fourth and fifth years after issuance,
its right to receive payment based upon the market value of our common stock at
such time. On or before the first three anniversary dates of the issuance of
Equity's stock appreciation units, we will evaluate whether to exercise our
right to retire the units based on our then current stock price and other
factors.
Holland America Line has agreed to provide financing for the remaining portion
of the purchase price of the ms Nieuw Amsterdam 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.
We entered into a construction contract in 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
construction cost, including furnishing, fixtures and equipment, of
approximately $38 million. The contract provides that the delivery date will be
March 2001 for the first vessel and June 2001 for the second vessel.
During the next twelve months, we expect to spend up to $45 million on building
the new coastal cruise vessels, which includes anticipated payments to Atlantic
Marine. This will be funded from cash on hand and debt guaranteed by the
Maritime Administration. On March 31, 2000, we received a commitment from the
Maritime Administration for up to $78.3 million in financing guarantees. The
commitment amount represents 87.5% of the total maximum potential cost of the
initial two coastal vessels, including shipyard costs, contingencies,
capitalized interest, and guarantee fees.
As of June 30, 2000, 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.
Factors Concerning Forward-Looking Statements
Certain statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" constitute "forward-looking statements"
which we believe are 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 our 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.
Such factors include, among others, the following: the SEC is conducting an
informal inquiry of our accounting practices with
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<PAGE> 16
respect to direct response advertising costs; construction delays and deviations
from specifications for the new vessels may adversely affect expansion plans and
future financial performance; failure to obtain significant amounts of capital
to build, purchase and renovate vessels, may adversely affect our expansion
plans and future operating results; increased leverage may adversely affect our
financial performance and cash flow; inability to maintain adequate managerial
resources during our expansion may adversely affect our business; inability to
manage our financial resources during our expansion may adversely affect our
financial performance; if demand for our new cruise products fails to develop as
expected or competition increases, our business may be adversely affected;
increased capacity in Hawaii may reduce occupancy on the Independence, adversely
affecting revenues; loss of exclusive rights of the Pilot Project Statute may
adversely affect our revenue growth in Hawaii; modification of existing
governmental regulations may adversely affect our business; increased fuel
prices may adversely affect our financial performance; increased competition in
the Hawaii cruise market and from other vacation alternatives may adversely
impact our financial performance; increases in cruise industry capacity may
adversely affect our revenues; sensitivity of the vacation and leisure industry
to general economic and business conditions; failure to complete drydocking on
schedule or within budget may adversely affect our revenues; weather factors can
adversely affect our operations and our financial performance; the loss of
vessels from service would adversely impact our business; anti-takeover and
transferability limitations of U.S. ownership requirements may adversely affect
the liquidity of our common stock; our controlling stockholder may take actions
that adversely affect our business; sales of our controlling stockholder's
shares could have an adverse effect on our common stock price or ability to
raise capital; and our controlling stockholder may have conflicts of interest
with competing interests.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of certain market risks related to us, see Part I Item 7A
"Quantitative and Qualitative Disclosures About Market Risks" in our Annual
Report on Form 10-K for the fiscal year ended December 31, 1999. There have been
no significant developments with respect to exposure to market risk.
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<PAGE> 17
AMERICAN CLASSIC VOYAGES CO.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no other material legal proceedings, to which the Company
is a party or of which any of its property is the subject, other
than ordinary routine litigation and claims incidental to the
business. The Company believes it maintains adequate insurance
coverage and reserves for such claims.
ITEM 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on June
21, 2000 (the "Annual Meeting"). Holders of Common Stock were
entitled to elect twelve directors. On all matters which came before
the Annual Meeting, holders of Common Stock were entitled to one
vote for each share held. Proxies for 20,023,556 of the 20,772,508
shares of Common Stock entitled to vote were received in connection
with the Annual Meeting.
The following table sets forth the names of the twelve persons
elected at the Annual Meeting to serve as directors until the next
annual meeting of shareholders of the Company and the number of
votes cast for, or withheld with respect to each person.
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHELD
<S> <C> <C>
John R. Berry 19,824,748 198,808
Philip C. Calian 19,828,480 195,076
Bradbury Dyer, III 19,797,548 226,008
Laurence S. Geller 19,795,248 228,308
Terence C. Golden 19,826,048 197,508
Arthur Greenberg 19,827,550 196,006
Jerry R. Jacob 19,828,380 195,176
Emanuel L. Rouvelas 19,827,948 195,608
Mark Slezak 19,798,048 225,508
Joseph Sullivan 19,826,278 197,278
Jeffrey N. Watanabe 19,827,949 195,607
Samuel Zell 19,827,954 195,602
</TABLE>
The following table sets forth an additional matter which was
submitted to the shareholders for approval at the Annual Meeting and
the tabulation of the votes with respect to such matter.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Approval of the amendment to the
Company's Certificate of Incorporation 14,671,699 5,343,071 3,786
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits:
3.(iii) Certificate of Amendment to Second Amendment and
Restated Certificate of Incorporation of the
Company
4.(ii)(d)(1) Commitment to Guarantee Obligations dated
February 10, 2000 by The United States of America,
represented by the Secretary of Transportation,
acting by and through the Maritime Administrator,
and accepted by Project America Ship I, Inc., the
Shipowner.
4.(ii)(d)(2) Note Purchase Agreement dated February 10, 2000
as it relates to United States Government
Guaranteed Ship Financing Notes -- Variable Rate
Notes due January 31, 2001 signed by Project
America, Inc., and accepted by Chase Securities,
Inc.
4.(ii)(d)(3) Trust Indenture Relating to United States
Government Guaranteed Ship Financing Obligations
dated February 10, 2000 between Project America
Ship I, Inc., as Shipowner, and The Bank of New
York, as Indenture Trustee.
4.(ii)(d)(4) Authorization Agreement dated February 10, 2000
between The United States of America, represented
by the Secretary of Transportation, acting by and
through the Maritime Administrator, and The Bank
of New York, as the Indenture Trustee under the
Trust Indenture dated February 10, 2000 between
the Indenture Trustee and Project America Ship I,
Inc., the Shipowner.
4.(ii)(d)(5) Security Agreement Relating to United States
Government Guaranteed Ship Financing Obligations
dated February 10,2000 between Project America
Ship I, Inc., as Shipowner, and The United States
of America.
4.(ii)(d)(6) Promissory Note to United States of America dated
February 2000 by Project America Ship I, Inc.
4.(ii)(d)(7) Title XI Reserve Fund and Financial Agreement
dated February 10, 2000 between Project America
Ship I, Inc. and The United States of America,
represented by the Secretary of Transportation,
acting by and through the Maritime Administrator.
4.(ii)(d)(8) Guaranty Agreement in Favor of the United States
of America dated February 10, 2000 by and between
Project America, Inc., as Guarantor, and The
United States of America, represented by the
Secretary of Transportation, acting by and through
the Maritime Administrator.
27. Financial data schedule.
b) Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN CLASSIC VOYAGES CO.
By: /s/ Philip C. Calian
-----------------------------------------------
Philip C. Calian
Chief Executive Officer
By: /s/ Randall L. Talcott
-----------------------------------------------
Randall L. Talcott
Vice President-Finance and Treasurer
(Principal Financial and Accounting Officer)
Dated: August 14, 2000
18
