UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
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 March 31, 1998
OR
[ ] TRANSITION report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
-------- --------
Commission file number 0-26420
-------
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, 1998: 9,815,979
<PAGE>
AMBASSADORS INTERNATIONAL, INC.
FORM 10-Q QUARTERLY REPORT
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, 1998 and December 31, 1997
March 31, December 31,
1998 1997
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $30,027,666 $22,870,546
Restricted cash equivalents 125,000 125,000
Accounts receivable 1,743,305 1,753,369
Inventory 79,501 76,033
Prepaid program costs and expenses 5,025,226 2,004,995
Deferred income taxes 31,229 31,229
Other assets 423,478 422,096
----------- -----------
Total current assets 37,455,405 27,283,268
Property and equipment, net 2,508,735 2,148,305
Other investments 462,500 462,500
Goodwill and covenant-not-to-compete,
net of $684,540 and $470,196 of
accumulated amortization 15,598,699 4,442,734
Other assets 118,442 85,573
Deferred income taxes 26,608 26,608
----------- -----------
Total assets $56,170,389 $34,448,988
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED), CONTINUED
March 31, 1998 and December 31, 1997
March 31, December 31,
1998 1997
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,024,727 $ 1,616,120
Accrued expenses 483,597 724,008
Participants' deposits 27,038,978 7,397,924
Customer advances 892,142 980,834
Notes payable 145,201 171,241
Unrealized loss on foreign currency
exchange contracts 511,808 674,625
----------- -----------
Total current liabilities 31,096,453 11,564,752
Notes payable due after one year 357,239 328,696
----------- -----------
Total liabilities 31,453,692 11,893,448
----------- -----------
Shareholders' 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, 6,977,278
and 6,768,223 shares 69,773 67,682
Additional paid-in capital 17,216,061 13,760,963
Retained earnings 7,430,863 8,726,895
----------- -----------
Total shareholders' equity 24,716,697 22,555,540
----------- -----------
Total liabilities and share-
holders' equity $56,170,389 $34,448,988
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS (UNAUDITED)
for the three months ended March 31, 1998 and 1997
1998 1997
----------- -----------
Revenues $ 3,020,714 $ 1,981,653
----------- -----------
Operating expenses:
Selling and tour promotion 2,745,125 2,135,782
General and administrative 2,806,352 1,892,826
----------- -----------
5,551,477 4,028,608
----------- -----------
Operating loss (2,530,763) (2,046,955)
----------- -----------
Other income (expense):
Interest expense (5,367) (321)
Interest and dividend income 315,372 315,514
Realized and unrealized gain
(loss) on investments 162,817 (261,513)
Other, net 747 464
------------ -----------
473,569 54,144
----------- -----------
Loss before income taxes (2,057,194) (1,992,811)
Income tax benefit 761,162 614,755
----------- -----------
Net loss and comprehensive loss $(1,296,032) $(1,378,056)
=========== ===========
Net loss per share - basic and
diluted $ (0.19) $ (0.20)
=========== ===========
Weighted average shares outstanding 6,888,501 6,754,037
=========== ===========
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, 1998 and 1997
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss $(1,296,032) $(1,378,056)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 343,815 201,602
Deferred income tax benefit (7,017)
(Gain) loss on investments (162,817) 261,513
Change in assets and liabilities,
net of effects of purchases of
subsidiaries:
Restricted cash (23,000)
Accounts receivable 959,819 (1,043,017)
Inventory (3,468) (7,704)
Prepaid program costs and
expenses (2,980,567) (2,002,398)
Other assets (824) 9,285
Accounts payable and accrued
expenses (547,395) (747,068)
Participants' deposits 16,556,626 17,411,267
Customer advances (88,692) (232,493)
----------- -----------
Net cash provided by
operating activities 12,780,465 12,442,914
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (162,960) (272,814)
Net cash paid for acquisition of
subsidiaries (5,375,264) (88,051)
Payment for covenant-not-to-compete (50,000) (12,500)
Issuance of note receivable (162,354)
----------- -----------
Net cash used in investing
activities (5,588,224) (535,719)
----------- -----------
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, 1998 and 1997
1998 1997
----------- -----------
Cash flows from financing activities:
Payments of notes payable $ (48,872) $ (197,856)
Cash received from exercise of stock
options 13,751 4,041
----------- -----------
Net cash used in financing
activities (35,121) (193,815)
----------- -----------
Net increase in cash and cash
equivalents 7,157,120 11,713,380
Cash and cash equivalents, beginning
of period 22,870,546 18,281,433
----------- -----------
Cash and cash equivalents, end of
period $30,027,666 $29,994,813
=========== ===========
Noncash investing and financing
activities:
Estimated market value of common
shares issued for acquisition of
subsidiaries $ 3,443,438
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, 1997 previously filed with
the Securities and Exchange Commission on Form 10-K.
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, 1998, and the
consolidated results of operations and cash flows for the three-
month periods ended March 31, 1998 and 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
Education Group, Inc. (AEG) and Ambassador Performance Group, Inc.
(APG). AEG and APG have several wholly owned operating
subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
3. INCOME TAXES
For the three months ended March 31, 1998 and 1997, the Company
recorded an income tax benefit of approximately $761,000 and
$615,000, respectively, to reflect the benefit of the net
operating loss at the estimated effective federal rate.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. 1998 ACQUISITIONS
In February 1998, the Company acquired certain assets of a company
engaged in providing comprehensive housing reservation,
registration and travel services for meetings, conventions,
expositions and trade shows. The Company is located in Boston,
Massachusetts. A Current Report on Form 8-K dated February 20,
1998 (as amended by Amendment No. 1 on Form 8-K/A dated April 2,
1998) was filed by the Company, which included the pro forma
disclosures of the acquisition. In February 1998, the Company
also acquired all of the outstanding stock of a performance
incentives and meeting management company located in Westlake,
California. The total purchase price for these acquisitions was
$7,550,000 and 192,255 shares of the Company's restricted common
stock and certain contingent consideration. The common stock
issued to effect the transactions was recorded at fair value.
The contingent consideration to be paid is dependent upon the
success of the acquired companies' programs. 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.
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
operations and comprehensive loss since their respective dates of
acquisition.
5. EARNINGS PER SHARE
In February 1997, Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share," was issued. SFAS No. 128
established standards for computing and presenting earnings per
share (EPS). It requires the dual presentation and reconciliation
of basic and diluted EPS. The Company adopted the provisions of
SFAS No. 128 in 1997.
Net income (loss) per share - basic is computed by dividing net
income (loss) by the weighted-average number of common shares
outstanding during the period. Net income (loss) per share -
diluted is computed by increasing the weighted-average number of
common shares outstanding by the additional common shares that
would have been outstanding if the dilutive potential common
shares had been issued.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. EARNINGS PER SHARE, CONTINUED
In accordance with SFAS No. 128, the following table presents a
reconciliation of the numerators and denominators used in the
basic and diluted EPS computations. Also shown is the number of
dilutive securities (stock options) that would have been included
in the dilutive EPS computation if they were not anti-dilutive.
<TABLE>
<CAPTION>
March 31, 1998
------------------------------------------
Weighted-Average
Net Loss Shares Per Share
(Numerator) (Denominator) Amount
----------- ---------------- ---------
<S> <C> <C> <C>
Net loss per share - basic $(1,296,032) 6,888,501 $(0.19)
=========== ========= ======
Net loss per share -
diluted:
Net loss $(1,296,032)
===========
Weighted-average shares
outstanding 6,888,501
Effect of dilutive
securities (A)
---------
6,888,501 $(0.19)
========= ======
<CAPTION>
March 31, 1997
------------------------------------------
Weighted-Average
Net Loss Shares Per Share
(Numerator) (Denominator) Amount
----------- ---------------- ---------
<S> <C> <C> <C>
Net loss per share - basic $(1,378,056) 6,754,037 $(0.20)
=========== ========= ======
Net loss per share -
diluted:
Net loss $(1,378,056)
===========
Weighted-average shares
outstanding 6,754,037
Effect of dilutive
securities (A)
---------
6,754,037 $(0.20)
========= ======
</TABLE>
(A) For the three months ended March 31, 1998 and 1997,
respectively, 228,590 and 23,626 stock options have been
excluded from the calculation of diluted loss per share
because their effect would be anti-dilutive.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was
issued, which requires reporting of comprehensive income.
Comprehensive income is defined as the change in equity of a
business enterprise arising from non-owner sources. There was no
effect of implementing this statement January 1, 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures About Segments for an Enterprise and Related
Information." This Statement requires presentation of segment
information in reports to shareholders, including disclosures
about the products and services an entity provides and its major
customers. The disclosure required by this statement will be
provided in the Company's 1998 annual financial statements.
7. SUBSEQUENT EVENTS:
On April 29, 1997, the Company completed a public offering of
2,838,700 shares of the Company's common stock. The net proceeds
of approximately $70.8 million, after underwriting fees but before
other offering costs, will be used for the acquisition of travel
and performance improvement companies and related businesses and
for general corporate purposes. As of May 14, 1998, the Company
has engaged in informal acquisition discussions with a number of
companies; however, the Company is not currently a party to any
agreements with respect to any specific acquisition.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This Quarterly Report on Form 10-Q 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, 1998 TO THE THREE MONTHS
ENDED MARCH 31, 1997
GROSS PROGRAM RECEIPTS
----------------------
Gross program receipts increased $1.8 million to $9.4 million in the
first quarter of 1998 from $7.6 million in the first quarter of 1997.
This increase can be principally attributed to an 8% increase in the
number of program participants in the Company's Education Group
(Education Group) and two acquisitions within the Company's
Performance Group (Performance Group) in the first quarter of 1998.
NET REVENUE
-----------
The increase in gross program receipts resulted in a 52% increase in
net revenue to $3.0 million in 1998 from $2.0 million in 1997. This
increase is due from the two aforementioned acquisitions within the
Performance Group as well as growth within the Education Group in the
number of participants and in increased gross receipts per
participant.
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 1998, selling and tour promotion expenses
were $2.7 million compared to $2.1 million in the prior year. This
increase is the result of acquisitions and the assumption of their
additional costs as well as an increase in marketing campaigns in the
first quarter of 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
-----------------------------------
General and administrative expenses were $2.8 million in the first
quarter of 1998 in comparison to $1.9 million in 1997. This increase
is primarily due to the acquisition of two companies and their related
general and administrative expenses.
<PAGE>
OTHER INCOME/EXPENSE
--------------------
Other income includes foreign currency gains or losses and interest
income. Other income and expense increased $0.4 million in the first
quarter of 1998 in comparison to the first quarter of 1997. This
increase is directly related to gains in the current period in the
Company's foreign currency contracts versus losses in the comparable
period of 1997.
The unrealized gain at March 31, 1998 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,
1998 was approximately $17.4 million.
INCOME TAXES
------------
The Company has recorded an income tax benefit of approximately $0.8
million for the quarter ended March 31, 1998 in comparison to a $0.6
million tax benefit for the quarter ended March 31, 1997. Income tax
benefits have been recorded based upon the estimated effective income
tax rate applied to the pre-tax loss.
SEASONALITY
-----------
Due to the seasonality of the Education Group's business, 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 $1.3 million or $0.19 per share
in the first quarter of 1998 compared to a $1.4 million net loss or
$0.20 per share in the comparable 1997 quarter.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's business is not capital intensive. However, the Company
does retain funds for working capital purposes in order to conduct
sales and marketing efforts for future programs and to facilitate
acquisitions of other companies.
<PAGE>
Net cash provided by operations for the quarter ended March 31, 1998
and 1997, respectively, was approximately $12.8 million and $12.4
million. The increase in operating cash flows from 1997 to 1998 can
be attributed to the timing of cash receipts from Education Group
participants and the increase in Education Group program
participation.
Capital expenditures for the quarter ended March 31, 1998, of
approximately $0.2 million, were funded from operations. During the
three months ended March 31, 1998, the Company used $5.4 million net
cash for business acquisitions. The Company does not have any
material capital expenditure commitments for the ensuing year.
However, the Company's acquisitions of certain subsidiaries include
contingent consideration. The remaining contingent consideration,
which is dependent upon the success of the acquired companies'
businesses, will not have a significant effect on the Company's cash
flows. Also, the Company is continuing to pursue further acquisitions
of related travel and performance improvement companies 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, 1998.
The Company has a credit facility available with Seafirst Bank for up
to $23.0 million U.S. dollars for foreign currency purchases and
forward contracts.
At March 31, 1998, the Company had approximately $30.0 million of cash
and cash equivalents. Management believes existing cash and cash
equivalents and cash flows from operations, together with
approximately $70.8 million of proceeds of the common stock offering
which was completed in April 1998, will be sufficient to fund the
Company's anticipated future acquisitions, operating needs and capital
expenditures at least through 1998.
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
local 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. To manage these risks, the Company enters into forward
foreign exchange contracts and foreign currency option contracts.
These foreign exchange contracts and options are entered into to
support normal recurring purchases, and accordingly, are not entered
into for speculative purposes. 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 Company records its forward foreign
exchange contracts at market value on a quarterly basis. Unrealized
and realized gains and losses on these securities are recognized in
the statement of operations and comprehensive loss.
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was
issued, which requires reporting of comprehensive income.
Comprehensive income is defined as the change in equity of a business
enterprise arising from non-owner sources. There was no effect on the
financial statements from implementing this statement January 1, 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments for an Enterprise and Related
Information." This Statement requires presentation of segment
information in reports to shareholders, including disclosures about
the products and services an entity provides and its major customers.
The disclosure required by this statement will be provided in the
Company's 1998 annual financial statements.
PART II
Item 2. Changes in Securities and Use of Proceeds
The Company's Registration Statement for its initial public offering
of securities (File No. 33-93586) became effective on August 3, 1995.
Of the total net proceeds to the Company from the offering in the
amount of $12,054,491, the following amounts were used from the date
of the offering though the date of this report:
Amount of
Category of Use Use
----------------------------------------------------- ----------
Construction of plant, building and facilities $ 0
Purchase and installation of machinery and equipment 0
Purchase of real estate 0
Acquisition of other businesses 8,974,056
Repayment of indebtedness 0
Working capital 612,668
Temporary investments in Bank of America Money Market
and Investment Accounts 2,467,767
Other purposes 0
None of the net proceeds to the Company of the offering was paid to
directors, officers, ten percent shareholders or affiliates of the
Company.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
Exhibits: 27 - Financial Data Schedule
Reports on Form 8-K:
On February 20, 1998, the Company filed a Current Report on
Form 8-K relating to the acquisition of Rogal America, Co. On
April 2, 1998, the Company filed Amendment No. 1 to said Report
on Form 8-K/A to include the audited financial statements of
Rogal America, Co.
<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 13, 1998 By: /s/Jeffrey D. Thomas
------------------------------------
Jeffrey D. Thomas,
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 30152666
<SECURITIES> 0
<RECEIVABLES> 1743305
<ALLOWANCES> 0
<INVENTORY> 79501
<CURRENT-ASSETS> 37455405
<PP&E> 4993892
<DEPRECIATION> 2485157
<TOTAL-ASSETS> 56170389
<CURRENT-LIABILITIES> 31096453
<BONDS> 357239
0
0
<COMMON> 69773
<OTHER-SE> 24646924
<TOTAL-LIABILITY-AND-EQUITY> 56170389
<SALES> 3020714
<TOTAL-REVENUES> 3020714
<CGS> 5551477
<TOTAL-COSTS> 5551477
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5367
<INCOME-PRETAX> (2057194)
<INCOME-TAX> 761162
<INCOME-CONTINUING> (1296032)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1296032)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
