<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 8-K/A
AMENDMENT #1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: December 31, 1996
COMMISSION FILE NUMBER 0-25990
-----------------------------------
INTRAV, INC.
(Exact name of registrant as specified in its charter)
-----------------------------------
MISSOURI 43-1323155
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7711 BONHOMME AVENUE, ST. LOUIS, MISSOURI 63105
(Address of principal executive offices)
(314) 727-0500
(Registrant's telephone number, including area code)
NO CHANGES
(Former name, former address and former fiscal year, if changed since last
report)
-----------------------------------
<PAGE> 2
This Amendment to the Current Report on Form 8-K filed by the Registrant with
the Securities and Exchange Commission on January 14, 1997 is being filed in
order to amend Item 7 thereto as set forth below. The undersigned Registrant
hereby amends the following item of its Current Report on Form 8-K,
originally filed with the Securities and Exchange Commission on January 14,
1997 as set forth on the pages attached hereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
- -------------------------------------------------------------------------------
The following financial statements and exhibits are filed as part of this
report where indicated.
(a) Financial statements of businesses acquired, prepared pursuant to Rule
3-05 of Regulation S-X:
Businesses acquired: Clipper Cruise Line, Inc., Clipper Adventure
Cruises, Inc., Republic Cruise Line, Inc., Liberty Cruise Line, Inc.
Independent Auditors' Report
Combined Balance Sheets
Combined Statements of Income
Combined Statements of Shareholder's Equity (Deficit)
Combined Statements of Cash Flows
Notes to Combined Financial Statements
(b) Financial statements of Intrav, Inc. required pursuant to Article 11 of
Regulation S-X:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Pro forma financial information is not included due to the
common ownership and control of all entities involved.
Consequently, the acquisition has been accounted for in a
manner similar to the pooling-of-interests method and,
accordingly, all financial data has been restated to include
the accounts and results of operations of Clipper for all
periods prior to the acquisition.
<PAGE> 3
(c) Exhibits in accordance with Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
4 Revolving Credit Agreement, dated December 31, 1996, between the
Registrant and Boatmen's National Bank of St. Louis. In accordance
with Item 601(b)(4)(iii) of Regulation S-K, such agreement has been
omitted. The Registrant will furnish a copy of such agreement to the
Commission upon request.<F*>
10 Agreement for Purchase and Sale of Stock by and among Intrav, Inc.,
Clipper Cruise Line, Inc., Republic Cruise Line, Inc., Liberty Cruise
Line, Inc., Clipper Adventure Cruises, Inc., and Windsor, Inc. dated
November 13, 1996, as amended by that certain First Amendment, dated
December 18, 1996.<F*>
23.1 Consent of Deloitte & Touche LLP
<FN>
<F*> Previously filed as Exhibit to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission on January 14, 1997.
</TABLE>
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.
INTRAV, INC.
(Registrant)
Date: March 14, 1997 /s/ Michael A. DiRaimondo
-----------------------------------------
Michael A. DiRaimondo
Senior Vice President and Chief Financial
Officer
<PAGE> 4
CLIPPER CRUISE LINE, INC.,
CLIPPER ADVENTURE CRUISES, INC.,
REPUBLIC CRUISE LINE, INC. AND
LIBERTY CRUISE LINE, INC.
COMBINED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1995 AND 1996 AND
EACH OF THE TWO YEARS IN THE
PERIOD ENDED DECEMBER 31, 1996 AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 5
CLIPPER CRUISE LINE, INC.,
CLIPPER ADVENTURE CRUISES, INC.,
REPUBLIC CRUISE LINE, INC. AND
LIBERTY CRUISE LINE, INC.
<TABLE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
COMBINED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1996:
Combined Balance Sheets 2
Combined Statements of Income 3
Combined Statements of Shareholder's Equity (Deficit) 4
Combined Statements of Cash Flows 5
Notes to Combined Financial Statements 6-12
</TABLE>
<PAGE> 6
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Clipper Cruise Line, Inc., Clipper Adventure Cruises, Inc.,
Republic Cruise Line, Inc. and Liberty Cruise Line, Inc.
We have audited the accompanying combined balance sheets of Clipper Cruise
Line, Inc., Clipper Adventure Cruises, Inc., Republic Cruise Line, Inc. and
Liberty Cruise Line, Inc. as of December 31, 1995 and 1996, and the related
combined statements of income, shareholder's equity (deficit), and cash flows
for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Companies' management.
Our responsibility is to express an opinion on these financial statements
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, such combined financial statements present fairly, in all
material respects, the combined financial position of Clipper Cruise Line,
Inc., Clipper Adventure Cruises, Inc., Republic Cruise Line, Inc. and Liberty
Cruise Line, Inc. at December 31, 1995 and 1996, and the combined results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
February 14, 1997
<PAGE> 7
CLIPPER CRUISE LINE, INC.,
CLIPPER ADVENTURE CRUISES, INC.,
REPUBLIC CRUISE LINE, INC. AND
LIBERTY CRUISE LINE, INC.
<TABLE>
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
ASSETS 1995 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,112,544 $ 3,864,579
Restricted cash (Note 3) 2,283,452 1,917,247
Restricted marketable securities (Notes 3 and 8) 4,529,100 4,751,400
Inventory 527,248 683,988
Prepaid program costs 446,741 443,943
Prepaid expenses 383,192 503,727
Other current assets 263,551 153,852
Deferred taxes (Note 6) 188,260 180,000
------------ ------------
Total current assets 11,734,088 12,498,736
PROPERTY AND EQUIPMENT - Net (Note 4) 15,960,596 15,583,900
PREPAID PROMOTION COSTS AND OTHER ASSETS 1,525,813 1,368,395
------------ ------------
TOTAL $ 29,220,497 $ 29,451,031
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 1,321,417 $ 1,966,977
Accrued expenses 1,109,623 1,190,690
Deferred revenue 6,465,203 6,965,852
Payable to Windsor, Inc. (Note 12) 5,442,874 5,432,024
Current maturities of long-term debt (Note 10) 702,000
Accrued interest - payable to Windsor, Inc. (Note 12) 184,989 213,331
------------ ------------
Total current liabilities 15,226,106 15,768,874
DEFERRED COMPENSATION (Note 9) 672,216 1,012,173
DEFERRED TAXES (Note 6) 4,729,000 4,645,000
LONG-TERM DEBT - Less current maturities (Note 10) 10,317,000 -
COMMITMENTS AND CONTINGENCIES (Note 7) - -
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock (Note 11) 2,000 2,000
Additional paid-in capital 8,921,500 19,170,633
Accumulated deficit (10,669,974) (11,143,479)
Unrealized gain (loss) on marketable securities (Note 8) 22,649 (4,170)
------------ ------------
Total shareholder's equity (deficit) (1,723,825) 8,024,984
------------ ------------
TOTAL $ 29,220,497 $ 29,451,031
============ ============
See accompanying notes to financial statements.
</TABLE>
- 2 -
<PAGE> 8
CLIPPER CRUISE LINE, INC.,
CLIPPER ADVENTURE CRUISES, INC.,
REPUBLIC CRUISE LINE, INC., AND
LIBERTY CRUISE LINE, INC.
<TABLE>
COMBINED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1996
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
1995 1996
<S> <C> <C>
Program revenues $ 25,877,635 $ 26,555,452
Cost of operations 17,136,694 17,308,157
------------ ------------
Gross profit 8,740,941 9,247,295
Selling, general and administrative (including related party
expenses of $644,574 and $353,435) (Notes 9 and 12) 4,910,779 6,016,625
Depreciation and amortization 1,201,898 1,182,078
------------ ------------
Operating income 2,628,264 2,048,592
Investment income - net 656,139 568,055
Interest expense (including related party expenses of $1,086,263
and $812,549) (Note 12) (2,341,537) (1,903,486)
------------ ------------
Income before provision for income taxes and extraordinary item 942,866 713,161
Provision for income taxes (Note 6) 339,000 257,000
------------ ------------
Income before extraordinary item 603,866 456,161
Extraordinary item - loss on early extinguishment
of debt (net of tax benefit of $194,000) (Note 10) - 343,802
------------ ------------
Net income $ 603,866 $ 112,359
============ ============
See accompanying notes to financial statements.
</TABLE>
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<PAGE> 9
CLIPPER CRUISE LINE, INC.,
CLIPPER ADVENTURE CRUISES, INC.,
REPUBLIC CRUISE LINE, INC. AND
LIBERTY CRUISE LINE, INC.
<TABLE>
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995 AND 1996
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Total
Unrealized Share-
Additional Gain (Loss) on holder's
Common Paid-In Accumulated Investment Equity
Stock Capital Deficit Securities (Deficit)
--------- ------------------------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1995 $ 2,000 $ 8,921,500 $ (11,273,840) $ (139,048) $ (2,489,388)
Unrealized gain on investment securities
(Note 8) 161,697 161,697
Net income 603,866 603,866
------- ------------ ------------- ---------- ------------
BALANCES AT DECEMBER 31, 1995 2,000 8,921,500 (10,669,974) 22,649 (1,723,825)
Unrealized loss on investment securities
(Note 8) (26,819) (26,819)
Dividends paid (585,864) (585,864)
Additional contribution of capital by
Windsor, Inc. (Note 12) 10,249,133 10,249,133
Net income 112,359 112,359
------- ------------ ------------- ---------- ------------
BALANCES AT DECEMBER 31, 1996 $ 2,000 $ 19,170,633 $ (11,143,479) $ (4,170) $ 8,024,984
======= ============ ============= ========== ============
See accompanying notes to financial statements.
</TABLE>
- 4 -
<PAGE> 10
<TABLE>
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
1995 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 603,866 $ 112,359
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary item - 121,914
Depreciation and amortization 1,201,898 1,182,078
Amortization of bond premium 5,755 24,409
Amortization of deferred financing costs 17,382 15,100
Gain on sale of marketable securities (137,860) (35,456)
Loss on disposal of equipment 35,203
Deferred income taxes (160,000) (61,000)
Changes in assets and liabilities which provided (used) cash:
Restricted cash 2,810,462 366,205
Inventory 3,170 (156,740)
Prepaid expenses and other assets 62,002 (14,503)
Accounts payable and accrued expenses (282,988) 754,969
Deferred revenue (2,223,948) 500,649
Deferred compensation 284,728 339,957
----------- -----------
Net cash provided by operating activities 2,219,670 3,149,941
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (373,614) (778,513)
Sales of marketable securities 6,177,675 3,006,250
Purchases of marketable securities (6,095,070) (3,259,063)
----------- -----------
Net cash used in investing activities (291,009) (1,031,326)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (712,000) (11,019,000)
Dividends paid (585,864)
Net cash received from Windsor, Inc. (Note 11) 739,000 10,238,284
----------- -----------
Net cash provided by (used in) investing activities 27,000 (1,366,580)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENT 1,955,661 752,035
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,156,883 3,112,544
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,112,544 $ 3,864,579
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 2,316,708 $ 1,846,632
Noncash contribution of capital (Note 12) - 10,249,133
See accompanying notes to financial statements.
</TABLE>
- 5 -
<PAGE> 11
CLIPPER CRUISE LINE, INC.,
CLIPPER ADVENTURE CRUISES, INC.,
REPUBLIC CRUISE LINE, INC. AND
LIBERTY CRUISE LINE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Clipper Cruise Line, Inc. ("CCL") and Clipper Adventure Cruises, Inc.
("CAC") are leading designers, organizers, marketers and operators of
deluxe, escorted, domestic and international travel cruises. The
Companies' programs are designed to appeal to higher income
individuals desiring first-class travel experiences. The Companies
market substantially all of their programs via direct mail through
sponsoring "affinity groups", or directly to the ultimate traveler.
Clipper Cruise Line, Inc. charters cruise ships exclusively through
Republic Cruise Line, Inc. ("RCL") and Liberty Cruise Line, Inc.
("LCL"), affiliates of the Companies. Clipper Adventure Cruises,
Inc. has, in the past, chartered a ship from Discoverer Reederei.
The Companies had common ownership by Windsor, Inc. until December
31, 1996. On December 31, 1996, all of the outstanding common stock
of the Companies (CCL, CAC, RCL and LCL) was sold by Windsor, Inc. to
Intrav, Inc., a common ownership affiliate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION - The accompanying combined financial
statements display the accounts of CCL, CAC, RCL and LCL collectively
referred to herein as the Companies. All intercompany transactions
among these companies have been eliminated. All four companies
mentioned (CCL, CAC, RCL and LCL) are under common management and
were wholly-owned by Windsor, Inc. (see Note 1).
REVENUE RECOGNITION - Program revenues are recognized as income upon
completion of a tour. Deferred revenue consists of amounts received
for tours which have not yet been completed.
PROMOTION AND PROGRAM COSTS - The Companies expense promotion costs
as incurred, except for direct-response advertising. Direct-response
advertising and program costs are deferred until the revenue from the
related program is recognized. Promotion expenses were $2,315,205
and $2,149,389 for 1995 and 1996, respectively.
CASH EQUIVALENTS - For purposes of reporting cash flows, the
Companies consider all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES - The Companies' marketable securities,
including restricted marketable securities, have been classified as
available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized holding gains and losses, net of
taxes, reported as a separate component of shareholder's equity.
INVENTORIES - Inventories are valued at the lower of cost or market;
cost is determined by the first-in, first-out (FIFO) method for
substantially all inventories.
- 6 -
<PAGE> 12
PROPERTY, AMORTIZATION AND DEPRECIATION - Property and equipment is
recorded at cost. Amortization and depreciation is computed using
accelerated and straight-line methods over the estimated useful lives
of the individual assets. Capitalized software costs are amortized
over 5 to 8 years, office furniture and equipment is depreciated over
5 to 7 years and leasehold improvements are amortized over the life
of the related lease. The cruise ships are depreciated over 25 years
and cruise ship equipment over 5 to 7 years. The Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, for 1996. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and
used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset
may not be recoverable. SFAS No. 121 also requires that long-lived
assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to
sell. Adoption of this standard had no material impact to the
Company's financial condition or results of operations.
INCOME TAXES - The Companies account for income taxes in accordance
with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109
requires an asset and liability approach for financial accounting and
reporting for deferred income taxes. Under this method, deferred tax
assets and liabilities are determined based on temporary differences
between the financial statement and tax bases of assets and
liabilities by applying enacted tax rates applicable to future years
in which the differences are expected to reverse. The Companies'
provisions for income taxes are computed as if the Companies filed
their annual tax returns on a separate company basis. The results of
operations of the Companies are included in the consolidated U.S.
Corporation income tax return of Windsor, Inc., and the current
portion of the federal income tax provision is satisfied by the
Companies via a charge or credit to the "Payable to Parent" account.
USE OF MANAGEMENT ESTIMATES - The preparation of financial statements
in conformity with generally accepted accounting principles requires
that management make certain estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements. The reported amounts of revenues and expenses during the
reporting period may also be affected by the estimates and
assumptions management is required to make. Actual results may
differ from those estimates.
3. RESTRICTED CASH AND MARKETABLE SECURITIES
U.S. law requires CCL and CAC to maintain financial protection for
passenger advance payments for Company-operated cruises embarking in
U.S. ports. The Company has established escrow arrangements to
comply with the law and has voluntarily extended the escrow
protection to all advance passenger payments for Clipper cruises.
Under the arrangements, monies received from passengers for cruises
are held in escrow accounts until the respective cruises have been
completed. At December 31, 1995 and 1996, cash equivalents and
marketable securities amounting to $6,812,552 and $6,668,647,
respectively, were held in escrow.
- 7 -
<PAGE> 13
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cruise ships $ 26,226,616 $ 26,884,859
Cruise ship equipment 507,531 558,985
Computer hardware and software 219,278 265,167
Office furniture and equipment 194,281 194,281
Warehouse facilities 45,755 45,755
------------ ------------
27,193,461 27,949,047
Less accumulated depreciation (11,232,865) (12,365,147)
------------ ------------
Total property and equipment $ 15,960,596 $ 15,583,900
============ ============
</TABLE>
5. OPERATING LEASES
The Companies lease various office facilities and equipment under
noncancellable operating leases. At December 31, 1996, future
minimum payments under these leases with initial or remaining terms
of one year or more were:
<TABLE>
<CAPTION>
Office
Space Other Total
<S> <C> <C> <C>
1997 $ 170,076 $ 56,339 $ 226,415
1998 170,076 50,687 220,763
1999 173,478 34,164 207,642
2000 176,947 16,416 193,363
2001 and thereafter 180,486 2,750 183,236
--------- --------- -----------
Total $ 871,063 $ 160,356 $ 1,031,419
========= ========= ===========
</TABLE>
Windsor Management Corporation, as agent for Windsor Real Estate
Inc., an affiliated entity, is the lessor of the office space (see
Note 12).
Rental expense for the years ended December 31, 1995 and 1996 was
$216,863 and $233,407, respectively.
6. INCOME TAXES
The principal temporary differences that give rise to net deferred
income tax liabilities relate to depreciation on the cruise ships,
equipment having lower tax bases than book bases and accelerated tax
deductions for the cost of tour marketing materials.
- 8 -
<PAGE> 14
Provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995 1996
---- ----
<S> <C> <C>
Current:
Federal $ 471,000 $ 259,000
State 28,000 15,000
Deferred:
Federal (151,000) (58,000)
State (9,000) (3,000)
---------- ----------
Total $ 339,000 $ 213,000
========== ==========
</TABLE>
Factors causing the effective tax rate to differ from the statutory
federal income tax rate were:
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------
1995 1996
---- ----
<S> <C> <C>
Statutory rate 34.0% 34.0%
State and local income taxes, net of U.S. federal income tax benefit 2.0 2.0
---- ----
Effective rate 36.0% 36.0%
==== ====
</TABLE>
The Companies' current and noncurrent deferred taxes included in the
balance sheets as of December 31, 1995 and 1996 consisted of the
following deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1995
------------------------------------------------
Deferred Deferred
Tax Tax Net
Assets Liabilities Liability
<S> <C> <C> <C>
Property and equipment $ - $4,478,000 $4,478,000
Promotional costs 462,000 462,000
Accruals 453,000 (453,000)
Unrealized gain on marketable securities 12,740 12,740
Other 41,000 41,000
-------- ---------- ----------
Total $453,000 $4,993,740 $4,540,740
======== ========== ==========
Current $242,000 $ 53,740 $ (188,260)
Noncurrent 211,000 4,940,000 4,729,000
-------- ---------- ----------
Total $453,000 $4,993,740 $4,540,740
======== ========== ==========
</TABLE>
- 9 -
<PAGE> 15
<TABLE>
<CAPTION>
1996
------------------------------------------------
Deferred Deferred
Tax Tax Net
Assets Liabilities Liability
<S> <C> <C> <C>
Property and equipment $ - $4,501,000 $4,501,000
Promotional costs 455,000 455,000
Accruals 532,000 (532,000)
Unrealized gain on marketable securities 2,000 (2,000)
Other 43,000 43,000
-------- ---------- ----------
Total $534,000 $4,999,000 $4,465,000
======== ========== ==========
Current $223,000 $ 43,000 $ (180,000)
Noncurrent 311,000 4,956,000 4,645,000
-------- ---------- ----------
Total $534,000 $4,999,000 $4,465,000
======== ========== ==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
PROFIT SHARING PLAN - The Companies participate in a multi-employer
profit sharing plan sponsored by Windsor, Inc. covering substantially
all employees. In its sole discretion, the Companies may match a
percentage of the employees' before-tax contributions and may also
make a nonmatching contribution. An employee is not required to make
before-tax contributions in order to receive a company nonmatching
contribution. Company contributions, which are subject to the
discretion of the Board of Directors, amounted to approximately
$70,000 in 1995 and $75,000 in 1996, respectively.
8. MARKETABLE SECURITIES
At December 31, 1995 and 1996, the Companies' investments in
marketable securities are classified as available-for-sale and
include the following:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and agency securities $4,493,711 $35,389 $ - $4,529,100
========== ======= ======== ==========
<CAPTION>
1996
--------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and agency securities $4,757,570 $ $ 6,170 $4,751,400
========== ======= ======== ==========
</TABLE>
- 10 -
<PAGE> 16
The contractual maturities of debt securities as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Less than one year $3,005,275 $2,994,300
One to five years 1,752,295 1,757,100
========== ==========
Total $4,757,570 $4,751,400
========== ==========
</TABLE>
The proceeds from sales of securities were $6,177,676 and $3,006,250
for 1995 and 1996, respectively. The gross realized gains and
(losses) were $146,500 and $(8,640) for 1995 and $35,456 and $-0- for
1996, respectively. The changes in net unrealized holding gain or
(loss) that have been included in shareholders' equity (deficit) were
$252,652 and $(41,905) for 1995 and 1996, respectively. For the
purposes of determining gross realized gains and losses, the cost of
securities sold is based upon specific identification.
9. DEFERRED COMPENSATION
Clipper Cruise Line, Inc. and one of its key employees entered into
an Incentive Bonus Agreement on January 1, 1990, continuing for each
full calendar year of employment through December 31, 1999. Under
the agreement, the employee earns a minimum annual deferred bonus of
$50,000 plus 5% of the first $1,000,000 of pre-tax earnings (as
defined in the agreement) and 10% of any pre-tax earnings in excess
of $1,000,000. The cumulative bonus amounts vest at 10% per year,
with vested bonus amounts earning interest at 10% per year. Expenses
(including interest) under this agreement are $284,728 and $339,957
for 1995 and 1996, respectively.
Additionally, the agreement provided for an additional bonus upon the
sale of Clipper based on a percentage of the net sales price (as
defined). In connection with the sale discussed in Note 1, the
employee received a bonus of approximately $1,000,000.
10. LONG-TERM DEBT
At December 31, 1995, long-term debt consisted of two series of
United States Government Guaranteed Ship Financing Bonds with an
aggregate outstanding balance of $11,019,000, due in installments
through 2012, which carried interest rates from 9.85% to 10.20%. The
Company had pledged the cruise ships as collateral under the terms of
the agreements.
In December 1996, the Company prepaid $10,518,000 to retire the
outstanding principal of both series of bonds. As required under the
bond agreements, the Company paid an additional $416,000 prepayment
premium for the early retirement of the bonds. Accordingly, the
Company recorded an extraordinary loss of $537,802 ($343,802 net of
taxes) consisting of the prepayment premium and the write-off of
deferred financing costs related to the early extinguishment of the
debt.
11. COMMON STOCK
The common stock of CCL, RCL and LCL consists of 500 shares each of
authorized, issued and outstanding stock at $1 par value. The common
stock of CAC consists of 3,000 shares authorized, of which 500 are
issued and outstanding at $1 par value.
- 11 -
<PAGE> 17
12. RELATED PARTY TRANSACTIONS
The Companies were wholly-owned by Windsor, Inc. ("Windsor") until
December 31, 1996 (see Note 1). Windsor provided certain
administrative services, principally for employee benefits, legal,
tax and insurance matters, for which it charged a fee. Fees paid to
Windsor for these services totaled $296,000 and $55,000 in 1995 and
1996, respectively.
The payable to Windsor represents an interest-bearing payable
resulting from the various transactions between the Companies and
Windsor, Inc. During 1996, Windsor contributed $10,249,133 to
capital through a reduction of the Companies' payable to Windsor.
The Companies paid interest at rates of 10.25% and 7.0% for 1995 and
1996, respectively. This indebtedness was assumed by Intrav at
December 31, 1996 in connection with the sale transaction discussed
in Note 1.
The Companies lease their principal offices from Windsor Management
Corporation, as agent for Windsor Real Estate, Inc. Windsor
Management Corporation and Windsor Real Estate, Inc., are
wholly-owned subsidiaries of Windsor. The lease expires at December
31, 2001 and includes a renewal option for one additional five-year
period. Annual rent under the lease is $170,076, plus various
escalation payments.
The Companies receive information processing services from Intrav, a
common ownership affiliate. Payments made to Intrav totaled $176,000
and $125,262 in 1995 and 1996, respectively.
* * * * * *
- 12 -
<PAGE> 18
INTRAV, INC.
CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1995 AND 1996 AND
EACH OF THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1996 AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 19
<TABLE>
INTRAV, INC.
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report 2
Consolidated Balance Sheets as of December 31, 1995 and 1996 3
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995 and 1996 4
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1994, 1995
and 1996 5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 6
Notes to Consolidated Financial Statements 8
</TABLE>
- 1 -
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Intrav, Inc.
We have audited the accompanying consolidated balance sheets of Intrav, Inc.
as of December 31, 1995 and 1996, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Intrav, Inc. at December 31,
1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
February 14, 1997
- 2 -
<PAGE> 21
<TABLE>
INTRAV, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
-----------------------------------
ASSETS 1995 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $12,178,044 $ 6,670,062
Restricted cash (Note 3) 2,283,452 1,917,247
Marketable securities (Note 8) 12,234,069 776,430
Restricted marketable securities (Notes 3 and 8) 4,529,100 4,751,400
Prepaid program costs 8,153,138 9,821,338
Prepaid expenses 531,485 867,345
Other current assets 1,585,750 1,519,399
----------- ------------
Total current assets 41,495,038 26,323,221
Property and equipment - net (Note 4) 18,271,193 17,569,058
Prepaid promotion costs and other assets 9,200,091 8,701,828
----------- ------------
Total $68,966,322 $ 52,594,107
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,869,182 $ 3,298,318
Accrued expenses 3,368,385 3,896,660
Deferred revenue 31,976,494 29,096,267
Income taxes payable 536,000 616,539
Payable to Windsor, Inc. (Notes 1 and 11) 5,627,863 426,331
Current maturities of long-term debt 702,000
Deferred income taxes (Note 6) 2,650,740 2,404,000
----------- ------------
Total current liabilities 47,730,664 39,738,115
Deferred compensation (Note 9) 672,216 1,012,173
Deferred income taxes (Note 6) 5,276,000 5,063,000
Long-term debt - less current maturities (Note 10) 10,317,000 3,000,000
Commitments and contingencies (Note 7) - -
Shareholders' equity:
Preferred stock, $.01 par value - authorized, 5,000,000 shares;
issued and outstanding, none - -
Common stock, $.01 par value - authorized, 20,000,000 shares;
issued, 5,325,000 shares; outstanding, 5,325,000 shares in 1995
and 5,151,600 in 1996 53,250 53,250
Additional paid-in capital 11,940,338 22,189,471
Retained earnings (accumulated deficit) (7,098,795) (17,055,152)
Unrealized gain (loss) on marketable securities (Note 8) 75,649 (2,370)
----------- ------------
4,970,442 5,185,199
Less cost of common stock in treasury, 173,400 shares in 1996 (1,404,380)
----------- ------------
Total shareholders' equity 4,970,442 3,780,819
----------- ------------
Total $68,966,322 $ 52,594,107
=========== ============
See accompanying notes to consolidated financial statements.
</TABLE>
- 3 -
<PAGE> 22
<TABLE>
INTRAV, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years Ended December 31,
----------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Program revenues $108,875,553 $114,844,709 $126,080,751
Cost of operations 83,933,984 91,034,709 101,651,057
------------ ------------ ------------
Gross profit 24,941,569 23,810,000 24,429,694
Selling, general and administrative (including
related party expenses of $947,120, $1,198,588
and $985,057) (Notes 9 and 11) 15,586,347 15,135,000 16,924,172
Depreciation and amortization 1,852,882 1,787,002 1,849,098
------------ ------------ ------------
Operating income 7,502,340 6,887,998 5,656,424
Investment income 1,265,181 1,882,492 1,642,882
Interest expense (including related party expenses
of $727,779, $1,086,263 and $812,549) (2,058,858) (2,369,517) (1,903,486)
------------ ------------ ------------
Income before provision for income taxes and
extraordinary item 6,708,663 6,400,973 5,395,820
Provision for income taxes (Note 6) 2,330,000 2,254,000 1,887,000
------------ ------------ ------------
Income before extraordinary item 4,378,663 4,146,973 3,508,820
Extraordinary item - loss related to early extinguish-
ment of debt (net of tax benefit of $194,000)
(Note 10) - - (343,802)
------------ ------------ ------------
Net income $ 4,378,663 $ 4,146,973 $ 3,165,018
============ ============ ============
Net income per common share:
Income before extraordinary item $ 0.88 $ 0.80 $ 0.68
Extraordinary item (0.07)
------------ ------------ ------------
Net income per common share $ 0.88 $ 0.80 $ 0.61
============ ============ ============
Weighted average number of common shares
outstanding 5,000,000 5,200,000 5,195,000
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
- 4 -
<PAGE> 23
<TABLE>
INTRAV, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Common Stock Unrealized
------------------ Gain
Number of Additional (Loss) on Total
Outstanding Paid-In Retained Investment Treasury Shareholders'
Shares Amount Capital Earnings Securities Stock Equity
---------- ------- ----------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1994, as
previously reported...............................5,000,000 $50,000 $ 350,509 $ 1,787,281 $ 36,000 $ - $ 2,223,790
Acquisition of Clipper Cruise Line, treated
as pooling-of-interest (Note 1)................. 8,923,500 (11,580,461) (2,656,961)
--------- ------- ----------- ------------ --------- ----------- -----------
BALANCES AT JANUARY 1, 1994,
as restated ......................................5,000,000 50,000 9,274,009 (9,793,180) 36,000 - (433,171)
Net income ....................................... 4,378,663 4,378,663
Dividends ........................................ (4,500,000) (4,500,000)
Unrealized loss on investment securities
(Note 8) ....................................... (538,048) (538,048)
--------- ------- ----------- ------------ --------- ----------- -----------
BALANCES AT DECEMBER 31, 1994 ......................5,000,000 50,000 9,274,009 (9,914,517) (502,048) - (1,092,556)
Issuance of stock ................................ 325,000 3,250 2,666,329 2,669,579
Net income ....................................... 4,146,972 4,146,972
Dividends ........................................ (1,331,250) (1,331,250)
Unrealized gain on investment securities
(Note 8) ....................................... 577,697 577,697
--------- ------- ----------- ------------ --------- ----------- -----------
BALANCES AT DECEMBER 31, 1995 ......................5,325,000 53,250 11,940,338 (7,098,795) 75,649 - 4,970,442
Contributed capital (Note 1)...................... 10,249,133 10,249,133
Acquisition of Clipper Cruise Line (Note 1) (9,939,398) (9,939,398)
Net income ....................................... 3,165,018 3,165,018
Dividends paid to Intrav, Inc. shareholders.. (2,596,113) (2,596,113)
Dividends paid to Windsor, Inc.................... (585,864) (585,864)
Unrealized loss on investment securities
(Note 8) ....................................... (78,019) (78,019)
Purchase of 173,400 shares of common
stock for treasury.............................. (1,404,380) (1,404,380)
--------- ------- ----------- ------------ --------- ----------- -----------
BALANCES AT DECEMBER 31, 1995 ......................5,325,000 $53,250 $22,189,471 $(17,055,152) $ (2,370) $(1,404,380) $ 3,780,819
========= ======= =========== ============ ========= =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
- 5 -
<PAGE> 24
<TABLE>
INTRAV, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31,
---------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 4,378,663 $ 4,146,973 $ 3,165,018
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary item....................................... 121,914
Depreciation and amortization............................ 1,852,882 1,787,002 1,849,098
Amortization of bond premium............................. 78,306 53,223 68,354
Amortization of deferred financing costs................. 18,440 17,382 15,100
Gain on sale of marketable securities.................... (248,679) (62,419)
Loss on disposal of equipment............................ 33,727 35,203
Deferred income taxes.................................... 239,000 1,181,000 (415,000)
Changes in assets and liabilities which provided
(used) cash:
Restricted cash...................................... (527,065) 2,810,462 366,205
Prepaid expenses and other assets.................... 1,132,349 (5,521,598) (1,864,339)
Other current assets................................. 331,671 169,219 66,350
Accounts payable and accrued expenses................ 1,624,903 (1,105,061) 957,411
Deferred revenue..................................... 6,358,188 1,632,066 (2,880,227)
Deferred compensation................................ 153,559 284,728 339,957
Income taxes payable................................. 542,000 (6,000) 80,539
----------- ------------ ------------
Net cash from operating activities................... 16,216,623 5,235,920 1,807,961
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................... (529,805) (944,216) (1,120,092)
Sales of marketable securities............................... 6,187,130 17,052,355 28,200,134
Purchases of marketable securities........................... (8,736,056) (19,737,545) (17,093,489)
----------- ------------ ------------
Net cash provided by (used in) investing
activities......................................... (3,078,731) (3,629,406) 9,986,553
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt .................................. (712,000) (712,000) (11,019,000)
Proceeds from revolving line-of-credit....................... 3,000,000
Net proceeds from issuance of common stock................... 2,669,579
Purchase of treasury stock................................... (1,404,380)
Dividends paid............................................... (3,000,000) (2,831,250) (3,181,977)
Proceeds from short-term borrowings.......................... 682,649 3,000,000
Payments on short-term borrowings............................ (2,616,943) (3,000,000)
Payment to Windsor, Inc. for acquisition of
Clipper.................................................... (9,726,398)
Net cash received from (paid to) Windsor, Inc................ (399,979) 1,337,287 5,029,259
----------- ------------ ------------
Net cash provided by (used in) financing
activities......................................... (6,046,273) 463,616 (17,302,496)
----------- ------------ ------------
(Continued)
- 6 -
<PAGE> 25
<CAPTION>
INTRAV, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
---------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS............................................. $ 7,091,619 $ 2,070,130 $ (5,507,982)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD.......................................... 3,016,295 10,107,914 12,178,044
----------- ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD................................................ $10,107,914 $ 12,178,044 $ 6,670,062
=========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for taxes........................................ $ 1,198,000 $ 580,000 $ 1,582,000
Noncash contribution of capital................ - - 10,249,133
Cash paid for interest..................................... 1,860,587 2,316,708 1,846,632
See accompanying notes to consolidated financial statements. (Concluded)
</TABLE>
- 7 -
<PAGE> 26
INTRAV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Intrav, Inc. ("INTRAV" or the "Company") is a leading designer,
organizer, marketer and operator of deluxe, escorted, international
travel programs. The Company's programs are designed to appeal to
higher income individuals desiring first-class travel experiences.
The Company markets substantially all of its programs via direct mail
through sponsoring "affinity groups", or directly to the ultimate
traveler.
On December 31, 1996, the Company acquired all the outstanding common
stock of Clipper Cruise Line ("Clipper") consisting of Clipper Cruise
Line, Inc. ("CCL"), Clipper Adventure Cruises, Inc. ("CAC"), Republic
Cruise Line, Inc. ("RCL") and Liberty Cruise Line, Inc. ("LCL") from
Windsor, Inc. ("Windsor"), a company controlled by Barney A.
Ebsworth, the Company's Chairman of the Board and majority
stockholder. The Stock Purchase Agreement included an initial
payment of approximately $9,900,000 and the assumption of
indebtedness of $5,500,000 owed by Clipper to Windsor, with an
additional $213,000 to be paid on or before March 31, 1997.
Additional consideration of up to $3,000,000 may be paid to the
extent the cumulative net cruise revenues ("as defined") of Clipper
exceed $70,000,000 in the period January 1, 1996 through December 31,
2000. Due to the common ownership and control of Mr. Ebsworth over
both INTRAV and Clipper, the acquisition has been accounted for in a
manner similar to the pooling-of-interests method and, accordingly,
all financial data has been restated to include the accounts and
results of operations of Clipper for all periods prior to the
acquisition.
Clipper is a leading designer, organizer, marketer and operator of
deluxe, escorted, domestic and international travel cruises. Similar
to INTRAV, its programs are designed to appeal to higher income
individuals desiring first-class travel experiences and are primarily
marketed via direct mail through sponsoring "affinity groups", or
directly to the ultimate traveler. Clipper's travelers cruise
primarily on its two cruise ships from RCL and LCL and in the past,
Clipper has chartered an additional ship from Discoverer Reederei.
As used herein, the term "Company" refers to both Intrav, Inc. and
Clipper.
The consolidated financial information does not contain any material
adjustments to conform the accounting policies of Clipper to that of
the Company. All intercompany transactions have been eliminated.
- 8 -
<PAGE> 27
Net program revenues, net income and related per share amounts of the
separate entities are presented in the following table:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
PROGRAM REVENUES:
INTRAV $ 80,355,063 $ 88,967,074 $ 99,525,299
Clipper 28,520,490 25,877,635 26,555,452
------------ ------------ ------------
$108,875,553 $114,844,709 $126,080,751
============ ============ ============
NET INCOME:
INTRAV $ 4,072,042 $ 3,543,107 $ 3,052,659
Clipper 306,621 603,866 112,359
------------ ------------ ------------
$ 4,378,663 $ 4,146,973 $ 3,165,018
============ ============ ============
NET INCOME PER COMMON SHARE:
INTRAV $ 0.81 $ 0.68 $ 0.59
Clipper 0.07 0.12 0.02
------------ ------------ ------------
$ 0.88 $ 0.80 $ 0.61
============ ============ ============
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
of the Company include the accounts of INTRAV and its wholly-owned
subsidiaries CCL, CAC, RCL and LCL. All significant intercompany
accounts and transactions have been eliminated.
REVENUE RECOGNITION - Program revenues are recognized as income upon
completion of a tour. Deferred revenue consists of amounts received
for tours which have not yet been completed.
PROMOTION AND PROGRAM COSTS - The Company expenses promotion costs as
incurred, except for direct-response advertising. Direct-response
advertising and program costs are deferred until the revenue from the
related program is recognized. Promotion expenses were $13,879,721,
$13,769,877 and $17,712,181 for 1994, 1995 and 1996, respectively.
CURRENCY HEDGES - The Company may enter into contracts to buy foreign
currencies in the future to protect the U.S. dollar value of certain
foreign currency transactions. Except in the infrequent instance of
cancellation of non-U.S. currency cost commitments, the Company's
practices relating to these contracts do not expose the Company to
currency risk from exchange rate movements because the gains and
losses on them offset losses and gains on the cost commitments being
hedged. Gains and losses on currency forward contracts are deferred
and recognized in the same period as the hedged transactions (see
Note 7).
CASH EQUIVALENTS - For purposes of reporting cash flows, the Company
considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES - The Company's marketable securities,
including restricted amounts, have been classified as
available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized holding gains and losses, net of taxes,
reported as a separate component of shareholders' equity.
- 9 -
<PAGE> 28
PROPERTY, AMORTIZATION AND DEPRECIATION - Property and equipment is
recorded at cost. Amortization and depreciation is computed using
accelerated and straight-line methods over the estimated useful lives
of the individual assets. Capitalized software costs are amortized
over 5 to 8 years, office furniture and equipment is depreciated over
5 to 7 years and leasehold improvements are amortized over the life
of the related lease. The cruise ships are depreciated over 25 years
and cruise ship equipment over 5 to 7 years. The Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, for 1996. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and
used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying value of an asset may not
be recoverable. SFAS No. 121 also requires that long-lived assets and
certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. Adoption
of this standard had no material impact to the Company's financial
condition or results of operations.
INCOME TAXES - Deferred income taxes reflect the tax consequences on
future years of differences between tax and financial reporting
amounts. Under this method, deferred tax assets and liabilities are
determined based on temporary differences between the financial
statement and tax bases of assets and liabilities by applying enacted
tax rates applicable to future years in which the differences are
expected to reverse.
Prior to the acquisition discussed in Note 1, Clipper's results of
operations were included in the consolidated U.S. Corporate income
tax return of Windsor. Clipper's provision for income taxes has been
computed as if it filed an annual return on a separate company basis.
The current portion of the income tax provision is satisfied via a
charge or credit to the "Payable to Windsor" account. In the future,
Clipper will file a consolidated return in Intrav.
USE OF MANAGEMENT ESTIMATES - The preparation of financial statements
in conformity with generally accepted accounting principles requires
that management make certain estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements. The reported amounts of revenues and expenses during the
reporting period may also be affected by the estimates and
assumptions management is required to make. Actual results may
differ from those estimates.
COMPUTATION OF NET INCOME PER COMMON SHARE - Net income per common
share is computed by dividing net income by the weighted average
number of shares outstanding. Common share equivalents, in the form
of stock options, are excluded from the calculations as they have no
materially dilutive effect on the per share amounts.
3. RESTRICTED CASH AND MARKETABLE SECURITIES
U.S. law requires Clipper to maintain financial protection for
passenger advance payments for Company-operated cruises embarking in
U.S. ports. The Company has established escrow arrangements to
comply with the law and has voluntarily extended the escrow
protection to all advance passenger payments for such cruises. Under
the arrangements, monies received from passengers for cruises are
held in escrow accounts until the respective cruises have been
completed. At December 31, 1995 and 1996, cash equivalents and
marketable securities amounting to $6,812,552 and $6,668,647,
respectively, were held in escrow.
- 10 -
<PAGE> 29
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Cruise ships $ 26,226,616 $ 26,884,862
Computer hardware and software 3,339,934 3,641,848
Office furniture and equipment 2,456,411 2,541,965
Cruise ship equipment 507,531 558,985
Leasehold improvements 107,287 107,287
Warehouse facilities 45,755 45,755
------------ ------------
32,683,534 33,780,702
Less accumulated depreciation (14,412,341) (16,211,641)
------------ ------------
Total property and equipment $ 18,271,193 $ 17,569,061
============ ============
</TABLE>
5. OPERATING LEASES
The Company leases various office facilities and equipment under
noncancellable operating leases. At December 31, 1996, future
minimum payments under these leases with initial or remaining terms
of one year or more were:
<TABLE>
<CAPTION>
OFFICE
SPACE OTHER TOTAL
<S> <C> <C> <C>
1997 $ 664,150 $247,535 $ 911,685
1998 672,000 52,061 724,061
1999 696,651 34,164 730,815
2000 710,582 16,416 726,998
2001 and thereafter 724,794 2,750 727,544
---------- -------- ----------
Total $3,468,177 $352,926 $3,821,103
========== ======== ==========
</TABLE>
Windsor Management Corporation, as agent for Windsor Real Estate
Inc., an affiliated entity, is the lessor of the office space (see
Note 11).
Rental expense for the years ended December 31, 1994, 1995 and 1996
was $901,756, $954,590 and $866,047, respectively.
- 11 -
<PAGE> 30
6. INCOME TAXES
Provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $2,019,000 $1,005,000 $2,174,000
State 72,000 68,000 128,000
Deferred:
Federal 237,000 1,087,000 (393,000)
State 2,000 94,000 (22,000)
---------- ---------- ----------
Total $2,330,000 $2,254,000 $1,887,000
========== ========== ==========
</TABLE>
Factors causing the effective tax rate to differ from the statutory
federal income tax rate were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate 34.0 % 34.0 % 34.0 %
Nontaxable interest income (1.0) (1.4) (0.1)
State and local income taxes, net of U.S. federal income tax
benefit 1.7 2.6 1.1
Effective rate 34.7 % 35.2 % 35.0 %
</TABLE>
The Company's current and noncurrent deferred taxes included in the
balance sheets as of December 31, 1995 and 1996 consisted of the
following deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1995
--------------------------------------------
DEFERRED DEFERRED
TAX TAX NET
ASSETS LIABILITIES LIABILITY
<S> <C> <C> <C>
Property and equipment $ - $5,025,000 $5,025,000
Promotional costs 3,278,000 3,278,000
Accruals 242,000 (242,000)
Deferred compensation 211,000 (211,000)
Unrealized gain on marketable securities 43,740 43,740
Other 33,000 33,000
-------- ---------- ----------
Total $453,000 $8,379,740 $7,926,740
======== ========== ==========
Current $242,000 $2,892,740 $2,650,740
Noncurrent 211,000 5,487,000 5,276,000
-------- ---------- ----------
Total $453,000 $8,379,740 $7,926,740
======== ========== ==========
</TABLE>
- 12 -
<PAGE> 31
<TABLE>
<CAPTION>
1996
----------------------------------------------------
DEFERRED DEFERRED
TAX TAX NET
ASSETS LIABILITIES LIABILITY
<S> <C> <C> <C>
Property and equipment $ - $4,919,000 $4,919,000
Promotional costs 2,912,000 2,912,000
Accruals 221,000 (221,000)
Deferred compensation 311,000 (311,000)
Unrealized loss on marketable securities 1,000 (1,000)
Other 169,000 169,000
-------- ---------- ----------
Total $533,000 $8,000,000 $7,467,000
======== ========== ==========
Current $222,000 $2,626,000 $2,404,000
Noncurrent 311,000 5,374,000 5,063,000
-------- ---------- ----------
Total $533,000 $8,000,000 $7,467,000
======== ========== ==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Charter Agreements - As of December 31, 1996, the Company has
agreements to charter cruise ships and aircraft for its group travel
programs in 1997 and 1998 amounting to $10,317,000. Commitments
generally may be canceled with penalties from 10 percent to 100
percent.
Profit Sharing Plan - INTRAV sponsors a profit sharing plan covering
substantially all employees. Clipper participates in a
multi-employer profit sharing plan sponsored by Windsor, Inc., an
affiliated company, covering substantially all employees. At their
discretion, each Company may match a percentage of the employees'
before-tax contributions and may also make a nonmatching
contribution. An employee is not required to make before-tax
contributions in order to receive a company nonmatching
contribution. Company contributions for both companies, which are
subject to the discretion of the Board of Directors, amounted to
approximately $820,000 in 1994, $482,000 in 1995 and $372,000 in
1996, respectively.
Standby Letters of Credit - As of December 31, 1996, the Company had
standby letters of credit in place totaling approximately $550,000.
The Company expects that none of its standby letters of credit will
be drawn on.
Currency Contracts - The Company has utilized foreign currency
forward contracts to hedge against fluctuations in the costs of the
currencies used for its international travel programs. At December
31, 1996, the Company had contracts to purchase $1,850,000 (U.S.
equivalent) of non-U.S. currencies for 1997 program operations.
- 13 -
<PAGE> 32
8. MARKETABLE SECURITIES
At December 31, 1995 and 1996, the Company's investments in
marketable securities (including restricted amounts) are classified
as available-for-sale and include the following:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury and agency securities $14,683,301 $104,464 $ $14,787,765
State and local government debt
securities 1,960,479 14,925 1,975,404
----------- -------- ------- -----------
Total $16,643,780 $119,389 $ $16,763,169
=========== ======== ======= ===========
<CAPTION>
1996
-------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury and agency securities $4,758,770 $ - $(7,370) $4,751,400
State and local government debt
securities 772,430 4,000 776,430
---------- ------ ------- ----------
Total $5,531,200 $4,000 $(7,370) $5,527,830
========== ====== ======= ==========
</TABLE>
The contractual maturities of debt securities as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COSTS VALUE
<S> <C> <C>
Less than one year $3,260,477 $3,247,874
One to five years 2,270,723 2,279,956
---------- ----------
Total $5,531,200 $5,527,830
========== ==========
</TABLE>
The proceeds from sales of securities were $6,187,130, $17,052,355
and $28,200,134 for 1994, 1995 and 1996, respectively. The gross
realized gains and (losses) were $50,930 and $(97,046) for 1994,
$278,792 and $(30,113) for 1995 and $66,899 and ($4,480) for 1996,
respectively. The changes in net unrealized holding gain or (loss)
that have been included in shareholders' equity were $(84,263),
$904,652 and $(122,905) for 1994, 1995 and 1996, respectively. For
the purposes of determining gross realized gains and losses, the
cost of securities sold is based upon specific identification.
9. DEFERRED COMPENSATION
Clipper entered into an Incentive Bonus Agreement with one of its
key employees on January 1, 1990 (as amended in December 1996),
continuing for each full calendar year of employment through
December 31, 1999. Under the agreement, the employee earns a
minimum annual deferred bonus of $50,000 plus 5% of the first
$1,000,000 of annual pre-tax earnings of Clipper (as defined in the
agreement) and 10% of any annual pre-tax earnings of Clipper in
excess of $1,000,000. The cumulative bonus amount vests at 10% per
year, with vested bonus amount earning interest at 10% per year. The
- 14 -
<PAGE> 33
Company recognized expense under this agreement of $153,559, $284,728
and $339,956 for 1994, 1995 and 1996, respectively.
The agreement also provided for an additional bonus upon the sale of
Clipper based on a percentage of the net sales price (as defined).
In connection with the acquisition discussed in Note 1, the key
employee received a bonus of approximately $1,000,000.
10. LONG-TERM DEBT
At December 31, 1995, long-term debt consisted of two series of
United States Government Guaranteed Financing Bonds with an
aggregate outstanding balance of $11,019,000, due in installments
through 2012, which carried interest rates from 9.85% to 10.20%.
The Company had pledged the cruise ships as collateral under the
terms of the agreements.
In December 1996, the Company prepaid $10,518,000 to retire the
outstanding principal of both series of bonds. As required under
the bond agreements, the Company paid an additional $416,000
prepayment premium for the early retirement of the bonds.
Accordingly, the Company recorded an extraordinary loss of $537,802
($343,802 net of taxes) consisting of the prepayment premium and the
write-off of deferred financing costs related to the early
extinguishment of the debt.
On December 31, 1996, the Company entered into a $10,000,000
revolving credit facility agreement with Boatmen's National Bank of
St. Louis. The agreement includes a provision for a $1,250,000
reduction of the available amount on the first anniversary date of
the agreement, and expires on December 31, 1999. The Company had
outstanding borrowings of $3,000,000 at December 31, 1996.
The agreement provides that the Company may select among various
draw arrangements with varying maturities and interest rates. At
December 31, 1996 the interest rate was 8.25%. The Company has
pledged its personal property, including the cruise ships, as
collateral and must comply with certain financial covenants, under
the terms of the agreement.
11. RELATED PARTY TRANSACTIONS
The Company leases its principal offices from Windsor Management
Corporation, as agent for Windsor Real Estate, Inc. Windsor
Management Corporation and Windsor Real Estate, Inc., are
wholly-owned subsidiaries of Windsor. The lease expires at December
31, 2001 and includes a renewal option for one additional five-year
period. Annual rent under the lease is $664,150, plus various
escalation payments.
Windsor also provides certain administrative services, principally
for employee benefits, legal, tax and insurance matters, for which
it charges a fee. Fees paid to Windsor for these services totaled
$110,000, $352,000 and $66,750 in 1994, 1995 and 1996, respectively.
The payable to Windsor is primarily interest-bearing and results
from the various transactions between the Company and Windsor. The
Company paid interest at rates 7%, 10.25% and 7% for 1994, 1995 and
1996, respectively.
12. INCENTIVE STOCK PLAN
The Company has an incentive stock plan, whereby incentive stock
options, nonqualifying stock options, restricted stock and stock
appreciation rights may be granted to officers, key employees and
outside directors to purchase a specified number of shares of common
stock at a price not less than the
- 15 -
<PAGE> 34
fair market value at the date of grant and for a term not to exceed 10
years. The maximum number of shares available under the plan is
500,000. During 1995, the Company issued options to purchase an
aggregate of 300,000 shares of common stock at an exercise price of
$10.50 per share. Each such option vests over a five-year period with
20% vesting each year. During 1997 options to purchase 88,000 shares
were forfeited.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation cost has been recognized for
the stock option plan. Had compensation cost for the Company's stock
option plan been determined based on the fair value at the grant date
for awards in 1995 consistent with the provisions of SFAS No. 123, the
Company's net income and net income per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995
<S> <C>
Net income - as reported $4,146,973
==========
Net income - pro forma $3,708,973
==========
Net income per common share - as reported $ 0.80
==========
Net income earnings per common share - pro forma $ 0.71
==========
</TABLE>
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following assumptions for stock options granted in 1995; dividend
yield of 4.76%; expected volatility of 0.37501%; risk-free interest
rate of 6.5%; and expected lives of 10 years.
- 16 -
<PAGE> 35
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The results of operations by quarter for 1995 and 1996 were as
follows (in thousands of dollars except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
1995 1996
--------------------------------------- ---------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Program revenues $27,810 $17,415 $34,343 $35,276 $31,363 $16,449 $42,181 $36,088
Cost of operations 22,431 13,511 27,342 27,750 25,369 13,126 34,230 28,926
------- ------- ------- ------- ------- ------- ------- -------
Gross profit $ 5,379 $ 3,904 $ 7,001 $ 7,526 $ 5,994 $ 3,323 $ 7,951 $ 7,162
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) $ 783 $ 141 $ 1,696 $ 1,527 $ 1,023 $ (751) $ 2,310 $ 582
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per share $ 0.16 $ 0.02 $ 0.32 $ 0.28 $ 0.20 $ (0.15) $ 0.44 $ 0.12
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
* * * * * *
- 17 -
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 333-05361 of Intrav, Inc. on Form S-8 of our reports dated February
14, 1997 appearing in this Form 8-K/A of Intrav, Inc. as of December 31,
1996.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
March 14, 1997
