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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-25990
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INTRAV, INC.
(Exact name of registrant as specified in its charter)
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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)
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 / /
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The Company had 5,174,850 shares of common stock outstanding at October 31,
1998.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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<TABLE>
INTRAV, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Program revenues $41,269 $36,423 $90,045 $87,502
Cost of operations 32,805 29,806 71,021 70,721
------- ------- ------- -------
Gross profit 8,464 6,617 19,024 16,781
Selling, general and administrative 4,246 4,072 11,097 11,470
Depreciation and amortization 531 338 1,400 979
------- ------- ------- -------
Operating income 3,687 2,207 6,527 4,332
Investment income 367 293 805 743
Interest expense (188) - (452) (85)
------- ------- ------- -------
Income before provision for income taxes 3,866 2,500 6,880 4,990
Provision for income taxes 1,391 900 2,477 1,796
------- ------- ------- -------
Net income $ 2,475 $ 1,600 $ 4,403 $ 3,194
------- ------- ------- -------
Basic earnings per share of stock:
Earnings per share $ 0.48 $ 0.32 $ 0.86 $ 0.63
------- ------- ------- -------
Weighted average number of shares
outstanding 5,160 5,074 5,121 5,113
------- ------- ------- -------
Diluted earnings per share of stock:
Earnings per share $ 0.47 $ 0.31 $ 0.84 $ 0.62
------- ------- ------- -------
Weighted average number of shares
outstanding 5,295 5,110 5,243 5,128
------- ------- ------- -------
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
INTRAV, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,211 $ 5,951
Restricted cash 9,324 4,720
Restricted marketable securities 4,795 4,745
Prepaid program costs 15,889 7,182
Prepaid expenses 1,551 811
Deferred income taxes 716 716
Other current assets 1,361 1,240
-------- --------
Total current assets 34,847 25,365
Property and equipment - net 36,785 26,198
Prepaid promotion costs 4,902 5,155
Other assets 2,070 83
-------- --------
Total $ 78,604 $ 56,801
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,034 $ 3,455
Accrued expenses 12,249 5,102
Deferred revenue 38,049 26,838
Deferred compensation - 1,451
-------- --------
Total current liabilities 54,332 36,846
Deferred income taxes 6,988 6,988
Long-term debt 8,300 7,450
Shareholders' equity:
Preferred stock, $.01 par value - authorized, 5,000,000
shares; issued and outstanding, none - -
Common stock, $.01 par value; 20,000,000 shares
authorized; 5,325,000 shares issued and 5,174,850 and
5,071,850 shares outstanding as of September 30, 1998 and
December 31, 1997, respectively 53 53
Additional paid-in capital 22,187 22,228
Retained earnings (accumulated deficit) (12,181) (14,660)
-------- --------
10,059 7,621
Less cost of common stock in treasury - 150,150
shares at September 30, 1998 and 253,150 at December 31, 1997 (1,075) (2,104)
-------- --------
Total shareholders' equity 8,984 5,517
-------- --------
Total $ 78,604 $ 56,801
======== ========
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
INTRAV, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,403 $ 3,194
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,400 979
Amortization of bond premium 17 4
Gain on sale of marketable securities (2)
Deferred income taxes (2)
Changes in assets and liabilities which provided (used) cash:
Restricted cash (4,604) (4,748)
Prepaid expenses and other assets (9,181) (4,435)
Other current assets (121) 375
Accounts payable and accrued expenses 7,726 2,697
Deferred revenue 11,211 7,986
Deferred compensation (1,451) 306
-------- -------
Net cash provided by operating activities 9,400 6,354
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (11,987) (3,446)
Escrow deposit for Oceanic Odyssey purchase (2,000) -
Sales of marketable securities 5,292 2,776
Purchases of marketable securities (5,359) (1,982)
-------- -------
Net cash used in investing activities (14,054) (2,652)
======== =======
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility 11,500 -
Payments on revolving credit facility (10,650) (3,000)
Dividends paid (1,923) (1,913)
Proceeds from sale of (purchase of) treasury stock 987 (861)
Net cash paid to Windsor, Inc. - (427)
-------- -------
Net cash used in financing activities (86) (6,201)
-------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,740) (2,499)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,951 6,670
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,211 $ 4,171
======== =======
See notes to consolidated financial statements.
</TABLE>
4
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INTRAV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DESCRIPTION OF BUSINESS
INTRAV, Inc. ("INTRAV" or the "Company") is a leading operator of deluxe,
escorted travel programs and cruises. Its programs and cruises are designed
to attract affluent, well-educated individuals desiring first-class travel
and cruise experiences. In 1997, INTRAV offered and operated 82 travel
programs with 305 departures. Its programs include cruises aboard its
subsidiary Clipper Cruise Line's 100-passenger M/V Nantucket Clipper and
138-passenger M/V Yorktown Clipper, and as of April 1998, cruises aboard its
newly acquired 122-passenger, M/S Clipper Adventurer. Also included are
INTRAV's Around the World by Private Concorde and L1011 Jet programs as well
as other land and cruise programs in Europe, Asia, Africa, Australia,
Antarctica, the Caribbean, and South America. Since 1959, over 400,000
travelers have participated in INTRAV's worldwide travel programs and
cruises.
The tour and cruise industry in the U.S. comprises wholesale tour operators
and cruise operators which package tours and cruises using retail travel
agency outlets as their primary distribution system. INTRAV, however, has
historically functioned as a designer, packager and retailer of its own
products, marketing to "affinity groups" in the educational, cultural and
professional market, i.e., university alumni associations, museums, medical
associations, etc., through the use of direct mail.
The increased costs of postage, paper and printing, and the deteriorating
direct-mail conversions of promotions sponsored by many affinity groups
warranted an adjustment in INTRAV's marketing strategy to include
distribution through retail travel agents. With the acquisition of Clipper
Cruise Line, Inc., and related companies on December 31, 1996, INTRAV was
able to utilize Clipper's established travel agent relationships to market to
the general public, without losing its established position in the affinity
group market.
ACCOUNTING POLICIES
Interim Adjustments - The unaudited financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion of
management of the Company, the financial statements include all adjustments,
which consist of normal recurring accruals, necessary to present fairly the
financial information for such periods. These financial statements should be
read in conjunction with the audited financial statements for the year ended
December 31, 1997 contained in the Company's Annual Report on Form 10-K,
dated March 27, 1998, as filed with the Securities and Exchange Commission.
Results of operations for the nine months ended September 30, 1998 are not
necessarily indicative of the results which may be expected for the full year
ending December 31, 1998.
Earnings Per Share of Stock - Basic earnings per share of stock is computed
using the weighted average number of common shares outstanding during the
applicable period. Diluted earnings per share of stock is computed using the
weighted average number of common shares outstanding and common stock
equivalents
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(outstanding stock options). Weighted average shares of common stock and common
stock equivalents used in the calculation of basic and diluted earnings per
share are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted average shares outstanding (Basic EPS) 5,160 5,074 5,121 5,113
Stock option equivalents 135 36 122 15
------- ------- ------- -------
Weighted average shares outstanding and
stock option equivalents (Diluted EPS) 5,295 5,110 5,243 5,128
======= ======= ======= =======
</TABLE>
Stock option equivalents included in the diluted earnings per share
calculation were determined using the treasury stock method. Under the
treasury stock method, outstanding stock options are dilutive when the
average market price of the Company's common stock exceeds the option price
during a period. In addition, proceeds from the assumed exercise of dilutive
options along with the related tax benefit are assumed to be used to
repurchase common shares at the average market price of such stock during the
period.
Comprehensive Income - In June 1997, the Financial Accounting Standards Board
("FASB") issued statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting Comprehensive Income. This statement established standards for the
reporting and display of Comprehensive Income and its components. This
statement is required to be implemented in financial statements issued for
periods ending after December 15, 1997. For the nine-month periods ended
September 30, 1998 and 1997, the Company did not incur items to be reported
in "Comprehensive Income" that were not already included in reported "net
income". As a result, comprehensive income and net income were the same for
these periods.
New Accounting Pronouncement - In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The Company is
in the process of evaluating the new standard, and at this time, does not
know the impact.
LONG-TERM DEBT
The Company has received a commitment to amend its bank revolving credit
facility to increase permitted borrowings from $20 million to $30 million.
The increase will allow for additional funding, as necessary, for the
anticipated purchase in November 1998 of the 120-passenger luxury vessel
Oceanic Odyssey. In February 1998, the Company amended the revolving credit
facility to increase permitted borrowings from $15 million to $20 million, to
allow for the extensive renovations of its newly acquired 122-passenger
vessel M/S Clipper Adventurer. As of September 30, 1998, the Company had
outstanding borrowings of $8.3 million.
DIVIDEND DECLARATION
On November 2, 1998, the Company declared a regular quarterly dividend of
$0.125 per share, for shareholders of record on November 30, 1998, to be paid
on December 15, 1998. On August 3, 1998, the Company declared a regular
quarterly dividend of $0.125 per share, for shareholders of record on August
31,
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1998, paid on September 15, 1998. On May 1, 1998, the Company declared a
regular quarterly dividend of $0.125 per share, for shareholders of record on
May 29, 1998, paid on June 15, 1998.
On October 31, 1997, the Company declared a regular quarterly dividend of
$0.125 per share, for shareholders of record on November 28, 1997, paid on
December 15, 1997. On August 1, 1997, the Company declared a regular
quarterly dividend of $0.125 per share, for shareholders of record on August
29, 1997, paid on September 15, 1997. On May 1, 1997, the Company declared a
regular quarterly dividend of $0.125 per share, for shareholders of record on
May 30, 1997, paid on June 16, 1997.
COMMITMENTS AND CONTINGENCIES
On September 4, 1998, the Company entered into a purchase agreement with
Spice Islands Cruises Ltd., ("Spice Islands") to purchase the 120-passenger
luxury cruise ship Oceanic Odyssey for a purchase price of $16.0 million.
The closing of the purchase is subject to a number of conditions, including
satisfactory results of an inspection of the vessel to be conducted while the
vessel is in dry dock in Singapore, and is anticipated to occur on or about
November 15, 1998. At the time of signing the Company deposited $2.0 million
in escrow to secure its obligations under the purchase agreement and will
make an additional $8.5 million cash payment and deliver its one-year
promissory note in the amount of $5.5 million at the time of closing. In
addition, the Company expects to spend up to $2.0 million renovating the
vessel.
Following the vessel purchase, the Company will charter the vessel, on a
bareboat basis (i.e., without crew or provisioning), to Spice Islands for a
period commencing on the closing date of the purchase and ending November 1,
1999. Spice Islands will prepay the full charter fee of $1.7 million to the
Company on the closing date. The charter arrangement will afford the Company
lead time to design and market travel programs for the Vessel while
permitting Spice Islands to fulfill its preexisting cruise obligations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
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GENERAL
The Company generally recognizes the revenues and related costs of operations
upon the completion of each tour or cruise departure. The actual results
reflect the timing of the completion of such departures. Because of the
timing of recognition of revenues and related costs, quarterly comparisons
from year-to-year may not be indicative of the Company's level of business
activity for the comparable quarters or be indicative of the results of
operations for the full year.
Program revenues include revenues from the sale of base travel programs, as
well as optional products and services, including sightseeing, program
extensions, domestic airfare, and medical and educational seminars.
Cost of operations include the costs of airfare, ship, hotel and other
accommodations and services included in the base programs and optional
products and services. Also included are the costs of creating and
distributing promotional materials and promotional expenses for each program.
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PROGRAM REVENUES
Program revenues for the three months ended September 30, 1998 compared to
the third quarter of 1997, increased $4.9 million, or 13.5%, from $36.4
million to $41.3 million. The increase in revenues was primarily
attributable to an increase in the number of travelers from 8,324 in 1997 to
9,199 in 1998 and an increase in the average revenue per traveler of $110,
from $4,376 in 1997 to $4,486 in 1998 due to a change in the mix of programs
offered. This increase in travelers was primarily generated by the new ship
introduced in April 1998, the M/S Clipper Adventurer.
Program revenues for the nine months ended September 30, 1998 compared to the
first nine months of 1997 increased $2.5 million, or 2.9% from $87.5 million
to $90.0 million. This increase was due primarily to an increase in the
average revenue per traveler of $106, from $4,388 in 1997 to $4,494 in 1998,
as the Company replaced some low priced big ship programs with higher priced
small ship programs including those aboard its newly acquired M/S Clipper
Adventurer.
COST OF OPERATIONS
Cost of operations for the three months ended September 30, 1998 compared to
the third quarter of 1997, increased $3.0 million, or 10.1%, from $29.8
million to $32.8 million. This increase was primarily attributable to the
additional passengers generated by the new ship, M/S Clipper Adventurer.
However, cost of operations decreased as a percentage of program revenues
from 81.8% in 1997 to 79.5% in 1998. Furthermore, the Company has been
focusing on improving its return on promotional expenditures. Although
promotional expenses increased from $5.8 million in 1997 to $6.0 million in
1998, promotional expenses as a percentage of program revenues declined from
15.8% in 1997 to 14.6% in 1998.
Cost of operations for the nine months ended September 30, 1998 compared to
the corresponding period of 1997 increased $0.3 million, or 0.4% from $70.7
million to $71.0 million. Cost of operations decreased as a percentage of
revenues from 80.8% in 1997 to 78.9% in 1998. Program costs increased in
aggregate but decreased as a percentage of revenues due to the Company's
focus on higher margin programs. In addition, promotional expenditures
decreased both in amount (1998, $13.0 million; 1997, $13.8 million) and as a
percentage of revenues (1998, 14.4%; 1997, 15.8%) due to the Company's focus
on more effective promotional expenditures.
GROSS PROFIT
Gross profit for the three months ended September 30, 1998 compared to the
third quarter of 1997, increased $1.9 million, or 28.8%, from $6.6 million to
$8.5 million. Gross profit as a percentage of program revenues, increased
from 18.2% in 1997 to 20.5% in 1998.
Gross profit for the nine months ended September 30, 1998 compared to the
corresponding period of 1997 increased $2.2 million or 13.1% from $16.8
million to $19.0 million. Gross profit as a percentage of program revenues
increased from 19.2% in 1997 to 21.1 % in 1998. The increase in gross profit
and gross profit margins for both the third quarter and nine months was
attributable to the Company's focus on higher margin travel programs and
increasing the number of travelers per promotional dollar expended.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
September 30, 1998 compared to the third quarter of 1997 increased $0.2
million, or 4.9%, from $4.1 million to $4.3 million. This increase was
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primarily attributable to the newly acquired 122-passenger, M/S Clipper
Adventurer, which did not operate in 1997. Selling, general and
administrative expenses decreased as a percentage of program revenues from
11.2% in 1997 to 10.3% in 1998 as a result of higher revenues.
Selling, general and administrative expenses for the nine months ended
September 30, 1998 compared to the corresponding period of 1997 decreased
$0.4 million, or 3.5%, from $11.5 million to $11.1 million. This decrease was
primarily due to reductions in incentive compensation and credit card fee
expenses partially offset by additional expenses attributable to the M/S
Clipper Adventurer. Selling, general and administrative expenses decreased
as a percentage of program revenues from 13.1% in 1997 to 12.3% in 1998. The
reductions in the expenses resulted primarily from realizing the cost
advantages of integrating the Clipper Cruise Line operations within INTRAV.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization, primarily relating to the Clipper Cruise Line
ships and internally developed software, for the three months ended September
30, 1998 compared to the third quarter of 1997, increased $193 thousand, or
57.1%, from $338 thousand to $531 thousand. Depreciation and amortization
increased as a percentage of program revenues from 0.9% in 1997 to 1.3% in
1998.
Depreciation and amortization, for the nine months ended September 30, 1998
compared to the corresponding period of 1997, increased $421 thousand, or
43.0%, from $979 thousand to $1,400 thousand. Depreciation and amortization
increased as a percentage of program revenues from 1.1% in 1997 to 1.6% in
1998. The increase in both the third quarter and the nine months was
primarily related to the introduction of the M/S Clipper Adventurer in April
1998 at a total cost of $18.4 million.
INVESTMENT INCOME
Investment income for the three months ended September 30, 1998 compared to
the third quarter of 1997 increased $74 thousand from $293 thousand to $367
thousand. This increase was due primarily to an increase in restricted cash
balances resulting from the mix of programs. The average monthly balance of
cash and marketable securities during the third quarter increased from $19.4
million in 1997 to $23.4 million in 1998, while the average interest rate was
6.0% in 1997, and 5.9% in 1998.
Investment income for the nine months ended September 30, 1998 compared to
the corresponding period of 1997 increased $62 thousand from $743 thousand to
$805 thousand. This increase was attributable to the increase in the average
monthly balance of cash and marketable securities during the first nine
months from $17.2 million in 1997 to $19.1 million in 1998. The average
interest rate was 5.6% in 1998, and 5.7% in 1997.
INTEREST EXPENSE
Interest expense on amounts borrowed against the Company's bank revolving
credit facility, was $188 thousand for the three months ended September 30,
1998. The Company did not have any borrowings in the third quarter of 1997
and thus no interest expense.
Interest accrued for the nine months ended September 30, 1998 was $721
thousand. However, $270 thousand Of this amount was capitalized as it
related to the conversion-in-progress of the M/S Clipper Adventurer.
Interest expensed in the year-to-date period of 1998 was $452 thousand.
Interest expense in the
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first nine months of 1997 totaled $85 thousand and represented interest paid on
amounts borrowed to acquire Clipper Cruise Line on December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations, capital expenditures and dividend
payments through cash flows generated from operations and its bank revolving
credit facility.
Net cash provided by operating activities for the nine months ended September
30, 1998 and 1997 was $9.4 million and $6.4 million respectively. Included
in cash provided by operating activities for the nine months ended September
30, 1998 was $4.4 million from net income, $7.7 million from accounts payable
and accrued expenses, $11.2 million from deferred revenue, partially offset
by $4.6 million used in restricted cash and $9.2 million used in prepaid
expenses and other assets.
The Company recognizes program revenues as income upon the completion of each
tour and cruise departure. Deferred revenue balances consist of amounts
received from travelers for tour and cruise departures, which have not been
completed. Of the $38.0 million of deferred revenue at September 30, 1998,
approximately $31.9 million, or 83.9%, related to tour and cruise departures,
which will be completed by December 31, 1998.
Net cash used in investing activities for the nine months ended September 30,
1998 and 1997 was $14.1 million and $2.7 million respectively. Included in
cash used in investing activities for the nine months ended September 30,
1998 was $10.6 million toward the renovation of the M/S Clipper Adventurer,
and the $2.0 million escrowed deposit made to secure the Company's
obligations under the purchase agreement for the Oceanic Odyssey.
The Company paid cash dividends of $1.9 million but raised $987 thousand of
cash proceeds from issuing 103 thousand shares of common stock from its
treasury during the nine months ended September 30, 1998 in satisfaction of
stock purchase options exercised by current and former Company employees.
On December 31, 1996, the Company acquired all the outstanding common stock
of Clipper Cruise Line from Windsor, Inc., a company controlled by Barney A.
Ebsworth, the Company's Chairman of the Board and majority stockholder. Due
to the common ownership and control of Mr. Ebsworth over both the Company and
Clipper Cruise Line, the acquisition was accounted for in a manner similar to
the pooling-of-interests method. The Stock Purchase Agreement provided for
an additional cash consideration of up to $3.0 million that may be paid to
the extent the cumulative net cruise revenues of Clipper Cruise Line exceed
$70.0 million for the period January 1, 1997 through December 31, 2000. The
net cruise revenues were $21.6 million in 1997 and $25.7 million for the nine
months ended September 30, 1998. If such amount becomes due, the Company
will record a liability of $3.0 million and a corresponding reduction in
retained earnings (or increase in accumulated deficit, if applicable), which
will reduce shareholders' equity.
In February 1998, the Company amended the revolving credit facility and
increased permitted borrowings to $20.0 million. Cash flow from operations
together with draws against the revolving credit facility provided funding
for the Company's investment in the M/S Clipper Adventurer and provided
funding for other capital expenditures as needed.
On September 4, 1998, the Company entered into a purchase agreement with a
non-affiliated third party to purchase the 120-passenger luxury cruise ship
Oceanic Odyssey for a purchase price of $16.0 million. The closing of the
purchase is subject to a number of conditions and is anticipated to occur on
or about November
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15, 1998. In addition, the Company expects to spend up to $2.0 million
renovating the vessel. The purchase price and proposed renovations will be
funded by drawings, as needed, against the revolving credit facility.
The Company has received a commitment to amend its bank revolving credit
facility to increase available borrowings from $20.0 million to $30.0 million
and extend its terms from December 31, 2000 to November 1, 2003. The
increase will allow for additional funding, as necessary, for the purchase of
the Oceanic Odyssey, and other capital expenditures.
YEAR 2000 ISSUE
Many currently installed computer systems and software products use a
two-digit dating system that assumes the first two digits of the year are "1"
and "9", a convention adopted years ago when coding space was at a premium.
Therefore, any programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
result in the computer shutting down or malfunctioning. As a result, before
December 31, 1999, computer systems and software used by many companies may
need to be modified, upgraded, or replaced to comply with "Year 2000"
requirements.
The Company relies on computer systems, related software applications and
other control devices in operating and monitoring certain aspects of its
business, including but not limited to, its financial systems (such as
general ledger and accounts payable modules), billing and reservation
systems, internal networks, telecommunications equipment and ship-board
navigational systems and equipment. The Company also relies, directly and
indirectly, on the internal and external systems of various independent
business enterprises, such as its suppliers, third-party contractors,
customers and financial organizations for their accurate exchange with the
Company and use in general operations of date related information.
The Company is implementing a Year 2000 compliance program. As part of its
compliance program, the Company has developed a plan to: (i) identify all
"business-critical" software that requires modification for the Year 2000 and
complete an estimate of the time and other resources required to complete
software modifications; (ii) receive written or oral confirmation from its
"business-critical" vendors that the services or equipment supplied by such
vendors is or will be Year 2000 compliant; (iii) institute a formal
communication process to keep senior management and the Board of Directors of
the Company apprised of significant Year 2000 issues; and (iv) develop a
schedule for completing necessary Year 2000 modifications in a timely manner.
The Company is underway with the inventory and assessment phases of its Year
2000 Plan for "business-critical" infrastructure and application software.
The Company's plan has been implemented through various phases, depending
upon the functional area and the internal or external nature of the system
involved. For internal systems, the Company has progressed furthest and is
generally in the system conversion and testing phase, notably for its
internally-developed passenger billing and reservation system. This
application should be ready for user testing by early to mid-1999. A
substantial portion of the other office-based software and hardware are
believed to be Y2K-compliant based upon vendor representations, with systems
testing yet to be completed.
The Company has also substantially completed the inventory, assessment and
detailed analysis phases of its Year 2000 Plan for ship-based
"business-critical" navigational and operational equipment and systems.
These "business-critical" systems for the Company's three vessels should be
Y2K-compliant by June 30, 1999.
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The Company believes that the final phases of its Year 2000 Plan will be
completed in advance of December 31, 1999.
The Company has not incurred and, based upon the information available to the
Company at this time, does not expect to incur significant expenditures to
address the Year 2000 Issue. Year 2000 expenses to the Company, consisting
primarily of personnel time, the accelerated replacement of systems and
software, and outside consultation have totaled less than $0.2 million for
the three years ended December 31, 1997. Year 2000 expenses for the nine
months ended September 30, 1998, totaled less than $0.1 million. Projected
costs to the Company for the completion of its Year 2000 program are expected
to be less than $0.5 million. The Company does not believe that its Year
2000 program has resulted in or will result in the postponement of its other
significant information technology projects.
As part of its Year 2000 program, the Company plans to complete in 1999 a
contingency plan, which addresses the most reasonably likely
"business-critical" worst case scenarios. However, the Company cannot be
certain that third parties supporting the Company's systems or providing goods
and services to the Company have resolved or will resolve all Year 2000 issues
in a timely manner. There can be no assurance that third parties will achieve
timely Year 2000 compliance. Failure by the Company or any such third party
to successfully address the relevant Year 2000 issues could result in
disruptions of the Company's business and the incurrence of significant
expenses by the Company. Additionally, the Company could be adversely
affected by any disruption to third parties with which the Company does
business, if suppliers of goods and services to those third parties have not
successfully addressed their Year 2000 issues.
Statements in this "Management's Discussion and Analysis of Results of
Operations and Financial Condition" or made by management of the Company
which contain more than historical information may be considered
forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995) which are subject to risks and uncertainties.
Actual results may differ materially from those expressed in the
forward-looking statements because of important factors identified in this
section.
* * *
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this Form 10-Q relating to the Company's
operating results, and plans and objectives of management for future
operations, including plans or objectives relating to the Company's products
and services, constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Actual results of the
Company may differ materially from those in the forward-looking statements
and may be affected by a number of factors including demand for the Company's
travel programs, unforeseen natural or political events and other factors
contained herein and in the Company's Securities and Exchange Commission
filings.
Because of the foregoing uncertainties which may affect the Company's future
operating results, past performance should not be considered to be a reliable
indicator of future performance, and investors should not use historical
results or trends as determinative of the Company's future performance. In
addition, certain other statements in this Form 10-Q are forward-looking.
Such statements are based on an assessment of a variety of factors,
contingencies and uncertainties deemed relevant by management, including
travel trends, services and management. As a result, the actual results
realized by the Company could differ materially from the statements made
herein. Readers of this Form 10-Q are cautioned not to place undue reliance
on the forward-looking statements made in this Form 10-Q or in the Company's
other securities filings.
12
<PAGE> 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
(a) Not applicable
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) Not applicable.
(b) None.
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: November 3, 1998 /s/ Wayne L. Smith II
--------------------------------------------
Wayne L. Smith II
Executive Vice President and Chief Financial
Officer
(Principal Financial Officer)
14
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