UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
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 0-26420
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AMBASSADORS INTERNATIONAL, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 91-1688605
- - ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
Dwight D. Eisenhower Building
110 South Ferrall Street
Spokane, Washington 99202
- - ------------------------------- -----------------
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (509) 534-6200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
-----
Indicate number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Common shares outstanding as of April 30, 1996: 6,615,030
This report, including all exhibits and attachments, contains 15
pages.
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AMBASSADORS INTERNATIONAL, INC.
FORM 10-QSB QUARTERLY REPORT
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of
Operation 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
Ambassadors International, Inc.
Consolidated Balance Sheets (Unaudited)
March 31, 1996 and December 31, 1995
March 31, December 31,
1996 1995
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $21,699,524 $12,974,252
Restricted cash equivalents 45,000 45,000
Investments 491,430 275,488
Accounts receivable (including
$46,246 and $33,218 from officers
and employees) 143,633 679,600
Notes receivable, due within one
year 89,785 2,334
Prepaid program costs and expenses 1,402,510 425,530
Deferred income taxes 1,215,388 454,666
----------- -----------
Total current assets 25,087,270 14,856,870
Property, plant and equipment, net 1,356,806 1,122,494
Notes receivable, due after one year 36,345 36,447
Goodwill and covenant not to compete,
net 999,955
Other assets 4,496
----------- -----------
Total assets $27,484,872 $16,015,811
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
Ambassadors International, Inc.
Consolidated Balance Sheets (Unaudited), Continued
March 31, 1996 and December 31, 1995
March 31, December 31,
1996 1995
----------- ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ 1,464,634 $ 1,287,559
Participants' deposits 15,657,029 3,462,350
Long-term debt, due within one year 9,555 11,138
----------- -----------
Total current liabilities 17,131,218 4,761,047
Deferred income taxes 113,958 113,958
Long-term debt, due after one year 5,760 5,760
----------- -----------
Total liabilities 17,250,936 4,880,765
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value;
2,000,000 shares authorized;
none issued and outstanding
Common stock, $.01 par value;
authorized, 20,000,000 shares;
issued and outstanding, 6,615,030
and 6,535,030 shares 66,150 65,350
Additional paid-in capital 12,501,668 11,926,468
Accumulated deficit (2,333,882) (856,772)
----------- -----------
Total stockholders' equity 10,233,936 11,135,046
----------- -----------
Total liabilities and stock-
holders' equity $27,484,872 $16,015,811
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
Ambassadors International, Inc.
Consolidated Statements of Operations (Unaudited)
for the three months ended March 31, 1996 and 1995
1996 1995
----------- -----------
Revenue $ 594,181 $ 181,911
----------- -----------
Operating expenses:
Selling and tour promotion expenses 1,911,660 1,295,145
General and administrative expenses 1,337,240 1,040,581
----------- -----------
3,248,900 2,335,726
----------- -----------
Operating loss (2,654,719) (2,153,815)
----------- -----------
Other income (expense):
Interest expense (416) (646)
Interest and dividend income 195,359 63,211
Realized and unrealized gain
on investments and other 221,871 25,383
Other, net 73 2,668
----------- -----------
416,887 90,616
----------- -----------
Loss before income taxes (2,237,832) (2,063,199)
Income tax benefit 760,722
----------- -----------
Net loss $(1,477,110) $(2,063,199)
=========== ===========
Pro forma information:
Loss before income taxes $(2,063,199)
Pro forma adjustment to record
income tax benefit 701,488
----------- -----------
Net loss $(1,477,110) $(1,361,711)
=========== ===========
Net loss per share $ (0.22) $ (0.27)
=========== ===========
Shares used in pro forma
calculation 6,615,030 4,995,030
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
Ambassadors International, Inc.
Consolidated Statements of Cash Flows (Unaudited)
for the three months ended March 31, 1996 and 1995
1996 1995
----------- -----------
Cash flows from operating activities:
Net loss $(1,477,110) $(2,063,199)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 98,131 53,209
Deferred income tax benefit (760,722)
Gain on investments (221,871) (20,320)
Loss on sale of property, plant
and equipment 880
Change in assets and liabilities,
net of effects of purchases of
subsidiaries:
Accounts receivable 865,042 188,487
Prepaid program costs and
expenses (525,150) (737,482)
Other assets (514,999)
Accounts payable and accrued
expenses (445,911) (1,835,469)
Accrued incentive compensation (2,403,600)
Participants' deposits 11,203,091 13,798,703
----------- -----------
Net cash provided by
operating activities 8,736,380 6,465,330
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and
equipment (115,709) (90,040)
Proceeds from sale of property, plant
and equipment 1,220
Purchase of investments (5,000) (38,335)
Cash received from acquisitions of
subsidiaries, net of cash paid 197,314
Payments received on notes receivable 150 524
Origination of note receivable (87,500)
----------- -----------
Net cash used in investing
activities (9,525) (127,851)
----------- -----------
The accompanying notes are an integral part of the consolidated
financial statements.
6
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Ambassadors International, Inc.
Consolidated Statements of Cash Flows (Unaudited), Continued
for the three months ended March 31, 1996 and 1995
1996 1995
----------- -----------
Cash flows from financing activities:
Redemption and retirement of common
stock $(1,820,000)
Origination of notes receivable from
stockholders (2,000,000)
Repayment of notes receivable from
stockholders 896,063
Payments of long-term debt $ (1,583) (2,357)
Payments of notes payable due to
stockholders (76,690)
----------- -----------
Net cash used in financing
activities (1,583) (3,002,984)
----------- -----------
Net increase in cash and cash
equivalents 8,725,272 3,334,495
Cash and cash equivalents, beginning
of period 12,974,252 6,633,578
----------- -----------
Cash and cash equivalents, end of
period $21,699,524 $ 9,968,073
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 416 $ 643
Noncash investing and financing
activities:
Estimated market value of common
shares issued for acquisition of
subsidiary $ 576,000
The accompanying notes are an integral part of the consolidated
financial statements.
7
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AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been
prepared by Ambassadors International, Inc. (the Company),
without audit, 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 as permitted by
such rules and regulations. The Company believes the
disclosures included herein are adequate; however, these
consolidated statements should be read in conjunction with the
financial statements and the notes thereto for the year ended
December 31, 1995 previously filed with the Securities and
Exchange Commission on Form 10-KSB.
In the opinion of management, these unaudited, consolidated
financial statements contain all of the adjustments (normal and
recurring in nature) necessary to present fairly the
consolidated financial position of the Company at March 31,
1996, and the consolidated results of operations and cash flows
for the three-month periods ended March 31, 1996. The results
of operations for the periods presented may not be indicative of
those which may be expected for the full year.
2. PRINCIPLES OF CONSOLIDATION
The Company was incorporated in the state of Washington in 1967
and was reincorporated on August 4, 1995 in the state of
Delaware. The consolidated financial statements include the
accounts of Ambassadors International, Inc., its subsidiary,
Ambassador Programs, Inc. (API) and in 1996, the Company's or
API's subsidiaries, The Helin Organization and American People
Ambassador Programs. All significant intercompany accounts and
transactions are eliminated in consolidation.
3. INCOME TAXES
From January 1, 1994 through August 4, 1995, Ambassadors
International, Inc., was treated for federal income tax purposes
as an S corporation under Subchapter S of the Internal Revenue
Code. As a result, the Company's earnings for such period were
taxed at the stockholder level. Beginning August 5, 1995, the
Company's earnings have been taxed as a C corporation and
provisions for income taxes have been provided in the Company's
consolidated financial statements. For the three months ended
March 31, 1996, the Company recorded a deferred tax benefit of
$760,722 to reflect the benefit of the net operating loss at the
federal statutory rate. The Company believes that it is more
likely than not that the net operating loss will be realized
through the generation of future taxable income.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. PRO FORMA STATEMENT OF OPERATIONS INFORMATION
The pro forma statement of operations for the three-month period
ended March 31, 1995 presents the pro forma effects on the
historical information to record income taxes. An income tax
benefit has been recorded to reflect income taxes at statutory
rates applied to the pro forma loss before income taxes as if
the Company were taxed as a C corporation rather than an S
corporation.
5. 1996 ACQUISITIONS
On January 29, 1996, the Company acquired all of the outstanding
common stock of The Helin Organization, which is located in
Newport Beach, California. The Helin Organization is a meeting
management and incentive travel company and has become a
separate division of the Company.
On February 7, 1996, API acquired the assets of American People
Ambassador Programs (APAP). APAP has offices in Winnebago,
Illinois and Birmingham, Alabama and provides adult travel
programs that are very similar to the Company's adult programs.
The former president of APAP has entered into an employment
agreement with API and will continue to market the APAP
programs.
These companies were acquired for $200,000 cash, shares of the
Company's common stock and contingent consideration. The
contingent consideration is dependent upon the success of one of
the subsidiary's travel programs. These acquisitions have been
accounted for using the purchase method of accounting. The
Company recorded goodwill of approximately $973,000 in
connection with these acquisitions. The goodwill is being
amortized over 10 years on a straight-line basis. The
contingent consideration will be accounted for as goodwill and
will be amortized accordingly when, and if, the contingency is
removed and additional consideration is paid. The results of
operations of the acquired companies is included in the 1996
operations from the respective dates of their acquisitions.
Assuming the companies had been acquired on January 1, 1995,
revenue of the Company would have been approximately $18.5
million for the year ended December 31, 1995. Net income and
pro forma earnings per share would not have been materially
different than as previously reported by the Company for 1995.
9
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
This Quarterly Report on Form 10-QSB contains forward-looking
statements. A forward-looking statement may contain words such as
"will continue to be," "will be," "continue to," "expect to,"
"anticipates that," "to be" or "can impact." Management cautions
that forward-looking statements are subject to risks and
uncertainties that could cause the Company's actual results to
differ materially from those projected in forward-looking
statements.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 TO THE THREE MONTHS
ENDED MARCH 31, 1995
During the first quarter of 1996, the Company and its subsidiary
acquired two other companies which operate travel programs.
Although these companies contributed to the gross program receipts
and revenue of the consolidated group in the first quarter of 1996,
due to the timing of the acquisitions and future changes which
management plans to make to the operations of these companies,
management believes that the future contribution of these two
acquisitions will increase.
GROSS PROGRAM RECEIPTS
- - ----------------------
Gross program receipts increased $1.7 million from $.6 million in
the first quarter of 1995 to $2.3 million in the first quarter of
1996. This increase can be principally attributed to a 30% increase
in the number of API program participants and the acquisition of the
Helin Organization (Helin). The number of program participants
traveling during the first quarter of 1996 was 904 compared to 124
in the comparable 1995 period. The 1996 total includes 743 program
participants from Helin programs which contributed $1.4 million to
gross program receipts for the first quarter of 1996.
The average API price of those traveling in the first quarter
increased 13% in 1996 in comparison to 1995. This increase can be
attributed to traveler interest in certain destinations, such as
South Africa, that have higher program prices.
SELLING AND TOUR PROMOTION EXPENSES
- - -----------------------------------
The Company's policy is to expense all selling and tour promotion
costs as they are incurred.
For the first quarter of 1996, selling and tour promotion expenses
were $1.9 million compared to $1.3 million in the prior year. This
difference is the result of the Helin acquisition and the assumption
of their marketing costs, as well as increases in marketing efforts
for API.
GENERAL AND ADMINISTRATIVE EXPENSES
- - -----------------------------------
General and administrative expenses were $1.3 million in the first
quarter of 1996 in comparison to $1.0 million in 1995. This
10
<PAGE>
increase is primarily due to the addition of two subsidiaries and
increased professional fees related to being a publicly-held company
versus a privately-held company.
OTHER INCOME/EXPENSE
- - --------------------
Other income includes foreign currency gains or losses and interest
income. Other income and expense increased $0.3 million in the
first quarter of 1996 in comparison to the first quarter of 1995. A
portion of this increase can be attributed to increased interest
income earned on cash received from the initial public offering, and
$0.2 million gain on the Company's foreign currency financial
instruments in the first quarter of 1996.
The unrealized gain is primarily due to the Company's forward
foreign currency contracts which are marked to market. The Company
enters into forward foreign exchange contracts and foreign currency
option contracts to offset certain operational exposures from
changes in foreign currency exchange rates. These foreign exchange
contracts and options are entered into to support normal recurring
purchases, and accordingly, are not entered into for speculative
purposes. Forward foreign exchange contracts are utilized to manage
the risk associated with currency fluctuations on certain purchase
commitments. The Company is exposed to credit risk under the
forward contracts and options to the extent that the counterparty is
unable to perform under the agreement. The Company anticipates
hedging the majority of its foreign currency risk in future periods.
There can be no assurance that the Company's hedging strategies will
be successful in mitigating the impact of foreign currency
fluctuations. The face amount of forward foreign exchange contracts
outstanding at March 31, 1996 was approximately $7.6 million.
INCOME TAXES
- - ------------
Due to the change in status from an S Corporation to a C Corporation
in August 1995, the Company has recorded an income tax benefit of
approximately $0.8 million for the quarter ended March 31, 1996 in
comparison to no income tax benefit for the quarter ended
March 31, 1995. The 1996 deferred income tax benefit is primarily
due to the recognition of the benefit of the Company's net operating
loss at the federal statutory tax rate of 34%. The pro forma income
tax benefit for the first quarter of 1995 assumes the Company was a
C Corporation during the quarter and reflects the federal statutory
tax rate of 34%.
SEASONALITY
- - -----------
Due to the seasonality of the core business of Ambassadors
International, Inc., the first quarter of the fiscal year has
significantly fewer programs traveling than the other quarters of
the year. Thus, the Company budgeted and incurred a net loss of
approximately $1.5 million or $0.22 per share in the first quarter
of 1996 compared to a $1.4 million pro forma net loss or $0.27 per
share in the comparable 1995 quarter.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company's business is not capital intensive. However, the
Company does retain funds for operating purposes in order to conduct
sales and marketing efforts for future programs and to facilitate
acquisitions of other companies.
Net cash provided by operations for the quarter ended March 31, 1996
and 1995, respectively, was approximately $8.7 million and $6.5
million. The increase in cash flows from 1995 to 1996 can be
attributed to the timing of cash receipts from participants and the
reduction in payment of approximately $2.4 million of incentive
compensation which was paid in 1995 and did not recur in 1996.
Capital expenditures, of approximately $0.1 million were funded from
operations. Also, the Company's acquisition of two subsidiaries in
early 1996 resulted in net cash inflow of approximately $0.2
million. The Company does not have any material capital expenditure
commitments for the ensuing year. However, the Company's
acquisition of a subsidiary in 1996 included contingent
consideration. The remaining contingent consideration, which is
dependent upon the success of the travel programs of one of the
companies, will not have a significant effect on the Company's cash
flows. Also, the Company is continuing to pursue further
acquisitions of related travel businesses that will require some of
its available cash and cash equivalents. The Company had no
significant long- or short-term debt as of March 31, 1996.
The Company has a credit facility available with Seafirst Bank for
$7.5 million U.S. dollars for foreign currency purchases and forward
contracts.
At March 31, 1996, the Company had approximately $21.7 million of
cash and cash equivalents. Management believes cash flows from
operations will be sufficient to fund the Company's anticipated
operating needs, capital expenditures and acquisitions for the
ensuing year.
FOREIGN CURRENCY; HEDGING POLICY
- - ---------------------------------
The substantial majority of the Company's programs take place
outside of the United States and most foreign suppliers require
payment in their own currency rather than U.S. dollars.
Accordingly, the Company is exposed to foreign currency risks in
certain countries as foreign currency exchange rates between those
currencies and the U.S. dollar fluctuate. In 1993, the Company
initiated a program to hedge against these foreign currency risks
in the currencies of countries in which the largest amount of
program pass-through expenses are denominated in foreign currency.
To hedge against foreign currency risks, the Company has used
forward contracts which allow the Company to acquire the foreign
currency at a fixed price for a specified period of time. The
Company also uses foreign currency call options which provide the
12
<PAGE>
Company with the option to acquire certain foreign currencies at a
fixed exchange rate and time period. Concurrent with the purchase
of a foreign currency call option, the Company sells a foreign
currency put option to minimize the net premium paid for the call
option. The strike prices on these options generally straddle the
exchange rate at the time the options are purchased and sold.
Additionally, the Company purchases futures contracts to similarly
hedge its foreign currency risk. The Company is exposed to credit
risk under the forward contracts and options to the extent that the
counterparty is unable to perform under the agreement. The Company
anticipates hedging the majority of its foreign currency risk in
future periods. There can be no assurance that the Company's
hedging strategies will be successful in mitigating the impact of
foreign currency fluctuations.
NEW ACCOUNTING PRONOUNCEMENT
- - ----------------------------
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation." The Statement
establishes financial accounting and reporting standards for stock-
based employee compensation plans. The Statement encourages all
entities to adopt a fair value based method of accounting, but
allows an entity to continue to measure compensation cost for those
plans using the intrinsic value method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees."
The Company adopted the disclosure requirements only of SFAS No.
123 on January 1, 1996. Therefore, there was no effect on the
consolidated financial statements of adopting SFAS No. 123.
Items 2, 3, 4 and 5 are not presented as they are not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits: 27 - Financial Data Schedule
Reports on Form 8-K:
-- January 23, 1996 - Item 5 reported the acquisition of
The Helin Organization
-- February 6, 1996 - Item 5 reported the acquisition of
American People Ambassador Programs
13
<PAGE>
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.
AMBASSADORS INTERNATIONAL, INC.
Date: May 14, 1996 By: /s/Jeffrey D. Thomas
------------------------------------
Jeffrey D. Thomas,
Chief Financial Officer
14
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