UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1997
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.
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(Exact name of registrant as specified in its charter)
Delaware 91-1688605
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(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
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(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, 1997: 6,754,337
<PAGE>
AMBASSADORS INTERNATIONAL, INC.
FORM 10-QSB QUARTERLY REPORT
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or Plan of
Operation
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, 1997 and December 31, 1996
March 31, December 31,
1997 1996
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $29,994,813 $18,281,433
Restricted cash equivalents 78,000 55,000
Investments 328,598 590,111
Accounts receivable (including
$3,118 and $14,167 from officers
and employees) 2,512,070 1,469,053
Inventory 164,938 157,234
Prepaid program costs and expenses 3,362,348 1,359,950
Deferred income taxes 31,601 24,584
Note receivable 162,354
Other assets 4,066 12,892
----------- -----------
Total current assets 36,638,788 21,950,257
Property, plant and equipment, net 1,749,953 1,575,486
Investment in joint venture 262,500 262,500
Goodwill, net of $211,737 and
$115,567 accumulated amortization 3,330,105 3,338,224
Covenant-not-to-compete, net of
$26,294 and $19,209 accumulated
amortization 111,206 105,791
Other assets 36,333 36,792
----------- -----------
Total assets $42,128,885 $27,269,050
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED), CONTINUED
March 31, 1997 and December 31, 1996
March 31, December 31,
1997 1996
----------- ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,459,722 $ 1,764,002
Accrued expenses 380,139 822,927
Participants' deposits 22,550,039 5,138,772
Customer advances 2,164,085 2,396,578
Notes payable 3,290 201,146
----------- -----------
Total current liabilities 26,557,275 10,323,425
Deferred income taxes 163,044 163,044
----------- -----------
Total liabilities 26,720,319 10,486,469
----------- -----------
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, 6,754,337
and 6,753,887 shares 67,544 67,539
Additional paid-in capital 13,629,315 13,625,279
Retained earnings 1,711,707 3,089,763
----------- -----------
Total stockholders' equity 15,408,566 16,782,581
----------- -----------
Total liabilities and stock-
holders' equity $42,128,885 $27,269,050
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
for the three months ended March 31, 1997 and 1996
1997 1996
----------- -----------
Revenues $ 1,981,653 $ 594,181
----------- -----------
Operating expenses:
Selling and tour promotion 2,135,782 1,911,660
General and administrative 1,892,826 1,337,240
----------- -----------
4,028,608 3,248,900
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Operating loss (2,046,955) (2,654,719)
----------- -----------
Other income (expense):
Interest expense (321) (416)
Interest and dividend income 315,514 195,359
Realized and unrealized gain (loss)
on investments and other (261,513) 221,871
Other, net 464 73
----------- -----------
54,144 416,887
----------- -----------
Loss before income taxes (1,992,811) (2,237,832)
Income tax benefit 614,755 760,722
----------- -----------
Net loss $(1,378,056) $(1,477,110)
=========== ===========
Net loss per share $ (0.20) $ (0.22)
=========== ===========
Weighted average shares outstanding 6,754,037 6,615,030
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
for the three months ended March 31, 1997 and 1996
1997 1996
----------- -----------
Cash flows from operating activities:
Net loss $(1,378,056) $(1,477,110)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 201,602 98,131
Deferred income tax benefit (7,017) (760,722)
(Gain) loss on investments 261,513 (221,871)
Loss on sale of property, plant
and equipment 880
Change in assets and liabilities,
net of effects of purchases of
subsidiaries:
Restricted cash (23,000)
Accounts receivable (1,043,017) 865,042
Inventory (7,704)
Prepaid program costs and
expenses (2,002,398) (525,150)
Other assets 9,285
Accounts payable and accrued
expenses (747,068) (445,911)
Participants' deposits 17,411,267 11,203,091
Customer advances (232,493)
----------- -----------
Net cash provided by
operating activities 12,442,914 8,736,380
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and
equipment (272,814) (115,709)
Proceeds from sale of property, plant
and equipment 1,220
Purchase of investments (5,000)
Cash (paid) received from acquisitions
of subsidiaries, net of cash paid (88,051) 197,314
Payment for covenant-not-to-compete (12,500)
Amounts received (paid) on notes
receivable (162,354) 150
Origination of note receivable (87,500)
----------- -----------
Net cash used in investing
activities (535,719) (9,525)
----------- -----------
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
for the three months ended March 31, 1997 and 1996
1997 1996
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Cash flows from financing activities:
Payments of notes payable $ (197,856) $ (1,583)
Cash received from exercise of stock
options 4,041
----------- -----------
Net cash used in financing
activities (193,815) (1,583)
----------- -----------
Net increase in cash and cash
equivalents 11,713,380 8,725,272
Cash and cash equivalents, beginning
of period 18,281,433 12,974,252
----------- -----------
Cash and cash equivalents, end of
period $29,994,813 $21,699,524
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 321 $ 416
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.
<PAGE>
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, 1996 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,
1997, and the consolidated results of operations and cash flows
for the three-month periods ended March 31, 1997. 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. and its
subsidiaries, Ambassador Programs, Inc. (API), The Helin
Organization and Ambassador Performance Group, Inc. All
significant intercompany accounts and transactions are
eliminated in consolidation.
3. INCOME TAXES
For the three months ended March 31, 1997, the Company recorded
an income tax benefit of approximately $615,000 to reflect the
benefit of the net operating loss at the estimated effective
federal rate.
4. 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. 1996 ACQUISITIONS, CONTINUED
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.
On December 23, 1996, the Company acquired all of the
outstanding common stock of Bitterman & Associates, Inc. (B&A),
which is located in Minneapolis, Minnesota, with sales offices
in Chicago and Winnebago, Illinois; Newport Beach and San
Francisco, California; Philadelphia, Pennsylvania; Fairway,
Kansas; and Lacross, Wisconsin. B&A administers incentive
travel and merchandise programs. Concurrent with the
acquisition, B&A was merged into Ambassador Performance Group,
Inc., a wholly owned subsidiary of the Company.
The total purchase price for the above acquisitions was
$1,450,000 plus 218,857 shares of the Company's restricted
common stock and certain contingent consideration. The common
stock, issued to effect the transaction, was recorded at quoted
market price less a discount to reflect the restricted nature
of the stock. The contingent consideration to be paid is
dependent upon the success of APAP's travel programs. A
portion of 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.
Another portion of the contingent consideration will be
accounted for as compensation expense when, and if, paid. In
connection with the acquisition of APAP, the Company also
entered into a covenant-not-to-compete with a key employee for
a total of $300,000 to be paid over 4.5 years.
These acquisitions have been accounted for using the purchase
method of accounting. The results of operations of these
companies have been included in the consolidated statement of
income since their respective dates of acquisition.
5. INVESTMENTS:
Included in investments is available for sale equity securities
in the amounts of $570,047 and $590,111 at March 31, 1997 and
December 31, 1996, respectively. At March 31, 1997, unrealized
losses on foreign currency forward contracts of $241,449 are
also included in investments.
<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, 1997 TO THE THREE MONTHS
ENDED MARCH 31, 1996
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 changes implemented
subsequent to the first quarter of 1996, contributions of these
entities to the Company's revenues have increased in the first
quarter of 1997 when compared to the first quarter of 1996.
GROSS PROGRAM RECEIPTS
----------------------
Gross program receipts increased $5.3 million from $2.3 million in
the first quarter of 1996 to $7.6 million in the first quarter of
1997. This increase can be principally attributed to an increase
in the number of program participants and the acquisitions of
Bitterman & Associates, Inc., the Helin Organization and American
People Ambassador Programs in 1996.
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 1997, selling and tour promotion expenses
were $2.1 million compared to $1.9 million in the prior year. This
increase is the result of acquisitions and the assumption of their
additional costs.
GENERAL AND ADMINISTRATIVE EXPENSES
-----------------------------------
General and administrative expenses were $1.9 million in the first
quarter of 1997 in comparison to $1.3 million in 1996. This
increase is primarily due to the acquisition of three companies and
their related general and administrative expenses.
OTHER INCOME/EXPENSE
--------------------
Other income includes foreign currency gains or losses and interest
income. Other income and expense decreased $0.4 million in the
first quarter of 1997 in comparison to the first quarter of 1996.
This decrease is directly related to losses in the current period
in the Company's foreign currency contracts.
<PAGE>
The unrealized loss at March 31, 1997 is primarily due to the
Company s forward foreign currency contracts which are marked to
market as the Company does not have firm commitments to purchase
goods or services associated in foreign currencies. 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
anticipated 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, 1997 was approximately
$6.6 million.
INCOME TAXES
------------
The Company has recorded an income tax benefit of approximately
$0.6 million for the quarter ended March 31, 1997 in comparison to
a $0.8 million tax benefit for the quarter ended March 31, 1996.
Income tax benefits have been recorded based upon the estimated
effective income tax rates applied to the pre-tax loss.
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 $1.4 million or $0.20 per share in the first quarter
of 1997 compared to a $1.5 million net loss or $0.22 per share in
the comparable 1996 quarter.
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,
1997 and 1996, respectively, was approximately $12.4 million and
$8.7 million. The increase in operating cash flows from 1996 to
1997 can be attributed to the timing of cash receipts from
participants and the increase in program participation.
Capital expenditures for the quarter ended March 31, 1997, of
approximately $0.3 million, were funded from operations. The
Company does not have any material capital expenditure commitments
for the ensuing year. However, the Company's acquisition of a
<PAGE>
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, 1997.
The Company has a credit facility available with Seafirst Bank for
$15.0 million U.S. dollars for foreign currency purchases and
forward contracts.
At March 31, 1997, the Company had approximately $30.0 million of
cash and cash equivalents. Management believes existing cash and
cash equivalents and 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
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 February 1997, Statement of Financial Accounting Standards
No. 128 (SFAS 128), "Earnings Per Share" was issued. SFAS 128
establishes standards for computing and presenting earnings per
share (EPS) and simplifies the existing standards. This standard
replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires the dual presentation of basic and
<PAGE>
diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. SFAS 128
is effective for financial statements issued for period ending
after December 15, 1997, including interim periods and requires
restatement of all prior-period EPS data presented. The Company
does not believe the application of this standard will have a
material effect on the presentation of its EPS.
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:
On January 1, 1997, the Company filed a Form 8-K related to
the acquisition of Bitterman & Associates, Inc. On March
10, 1997, the Company filed a Form 8-K/A to include the
audited financial statements of Bitterman & Associates,
Inc.
<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 15, 1997 By: /s/Jeffrey D. Thomas
------------------------------------
Jeffrey D. Thomas,
Chief Financial Officer
<PAGE>
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