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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER 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)
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Delaware 91-1688605
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(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
Dwight D. Eisenhower Building
110 S. Ferrall Street
Spokane, WA 99202
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(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, Including Area Code: (509) 534-6200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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Title of Each Class
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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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the Registrant, based upon the closing sales price of the
Common Stock on the Nasdaq Stock Market on March 22, 2000, was $114,711,984. The
number of shares of the registrant's Common Stock outstanding as of March 22,
2000 was 9,559,332.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement relating to the 2000
Annual Meeting of Stockholders are incorporated by reference into Part III.
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TABLE OF CONTENTS
PART I
Item 1. Business 1
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security
Holders 11
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 12
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management 26
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 27
SIGNATURES 28
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PART I
Item 1. BUSINESS
OVERVIEW
Ambassadors International, Inc., a Delaware corporation, is a leading
educational travel, meetings and incentive management and convention services
company which, through its wholly owned subsidiaries, is engaged primarily in
the business of (i) promoting and organizing international educational travel
and sports programs on a worldwide basis for students, athletes and
professionals (the "Education Group"); (ii) developing, marketing and managing
meetings and incentive programs for a nationwide roster of corporate clients
that utilize incentive travel, merchandise award programs and corporate meeting
management services (the "Performance Group"); and (iii) providing comprehensive
hotel reservation, registration and travel services for meetings, conventions,
expositions and trade shows (the "Services Group").
The Education Group is comprised of the Company's wholly-owned subsidiary,
Ambassadors Education Group, Inc., a Delaware corporation ("AEG"), and AEG's
wholly-owned subsidiaries, Ambassadors Programs, Inc., a Delaware corporation
("API"), and Ambassadors Sports Group, Inc., a Delaware corporation ("ASG"). The
Performance Group is comprised of the Company's wholly owned subsidiary,
Ambassadors Performance Group, Inc., a Delaware corporation ("APG"). The
Services Group is comprised of the Company's wholly-owned subsidiary,
Ambassadors Services Group, Inc. (formerly known as Ambassadors Performance
Housing, Inc.) ("ASGI"). References to the Company herein include Ambassadors
International, Inc. and its subsidiaries, unless the context otherwise requires.
The Company was originally incorporated in the State of Washington in 1967 under
the name International Ambassador Programs, Inc. to provide international
educational travel programs for students and adults. The Company was
reincorporated in the State of Delaware in 1995. The Company's principal
executive offices are located at Dwight D. Eisenhower Building, 110 S. Ferrall
Street, Spokane, Washington 99202, and its telephone number is (509) 534-6200.
EDUCATION GROUP
The Company's Education Group has been active since the Company was founded in
1967. The Education Group consists of several specialized private-label travel
programs, including (i) the "People to People Student Ambassador Programs"
("Student Ambassador Programs"), which provide opportunities for junior high,
senior high and grade school students to visit foreign countries to learn about
the politics, economy and culture of such countries, (ii) the "People to People
Sports Ambassador Programs" ("Sports Ambassador Programs"), which provide
opportunities for junior high and senior high school athletes to participate in
domestic and international sports travel programs, and (iii) the "People to
People Ambassador Programs" ("Professional Exchange Programs"), which provide
foreign travel experiences for adults, with
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emphasis on meetings and seminars between participants and persons in similar
professions abroad. See "Business-Education Group."
Since 1983, the Company has organized programs for more than 93,600 students,
49,600 adults and 3,100 athletes in more than 35 countries on 5 continents. In
1999, the Company's educational travel programs featured visits to such
countries as Australia, China, France, Germany, Great Britain, India, Italy and
New Zealand. In 1999, approximately 17,310 participants traveled on the
Company's educational programs.
A majority of the Education Group's programs are organized in connection with
People to People International ("People to People"), a private, non-profit
organization dedicated to the promotion of world peace through cultural
exchange. People to People was founded by President Dwight D. Eisenhower in 1956
and was originally administered by the U.S. State Department. Seven Presidents
since President Eisenhower have served as Honorary Chairman of People to People,
including President Bill Clinton, who currently holds that position. Mary
Eisenhower, recently elected Chief Executive Officer of People to People, also
continues her grandfather's legacy by serving the organization. Subject to
certain exceptions, the Company's agreements with People to People give the
Company the exclusive right to develop and conduct programs for kindergarten
through college age students using the People to People name and the
non-exclusive right to develop and conduct programs for adults using the People
to People name. In January 2000, the Company extended its agreements with People
to People through the year 2010 and, at the election of the Company, the
agreements may be further extended through 2020. The Company believes that its
long association with People to People has been a major factor in its ability to
provide quality educational student and adult travel programs, and that this
relationship provides the Company with greater access to foreign governmental
agencies, officials and institutions.
The Company also believes that its association with People to People and the
continued efforts of management have provided the foundation for the Company to
develop and maintain strong strategic alliances including but not limited to
those with Yosemite National Institutes, the American Youth Soccer Organization,
the Amateur Athletic Union, and USA Volleyball.
PERFORMANCE GROUP
During 1996, the Company commenced operations of its Performance Group through
the acquisition of two existing entities. These operations were expanded in 1998
through the acquisition of two additional entities. In the fourth quarter of
1999, the Company decided to outsource the incentive merchandising component of
its incentives business on a direct fulfillment basis.
The Performance Group develops, markets and manages performance improvement
programs for a nationwide roster of clients. The programs offer services in
performance improvement programs and business meeting management services. The
performance improvement programs utilize debit cards, travel incentives and
merchandise awards (on an outsourcing basis), designed
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to help clients achieve sales goals, improve productivity, and attract and
retain qualified employees. The business meeting management services assist
clients in planning, coordinating and producing business meetings and
conferences. These clients include both small and large businesses including
Fortune 500 companies. The Company intends to grow this segment of the business
internally and may make selective acquisitions of travel and travel-related
businesses.
SERVICES GROUP
The Company's Services Group operates its hotel reservation business for
conventions, tradeshows and large specialty events through ASGI. The Services
Group commenced operations in 1998 though the acquisition of two existing
companies. With the acquisition of Advanced Registration Systems, Inc. in 1999,
ASGI added pre-registration and on-site registration services to its list of
services offered. During 1999, the Services Group operations located in Boston,
Massachusetts were consolidated with the operations in Atlanta, Georgia pursuant
to a restructuring plan. Also pursuant to the restructuring plan, all finance
and accounting functions were consolidated into the Newport Beach, California
office.
The Services Group provides comprehensive hotel reservation, registration, and
travel services for large event planners, housing and registering thousands of
attendees. The hotel services include negotiating hotel room blocks, creating
sub-blocks and fulfilling thousands of requests for hotel rooms for large
city-wide events. Hotel reservation requests are received by mail, fax and over
the telephone by the Company's call center staff. In 1999, the Services Group
began accepting reservation requests over the Internet and by e-mail. Through
recent proprietary technology developments, the Company has become fully capable
of utilizing the Internet, allowing it to book hotel reservations over the
Internet.
The Services Group registration technology assists planners in pre-registering
attendees for multiple show events. For on-site registration, the Company
operates through an efficient distribution network with the capability of
registering thousands of attendees in a short period of time, and in several
different locations. The Services Group also offers attendees and event
exhibitors various forms of lead retrieval systems for rent.
BUSINESS
EDUCATION GROUP
Through its Education Group, the Company promotes and organizes educational
travel programs for students, adults and athletes, principally using the People
to People name. The Company has the exclusive right to develop and conduct
programs for kindergarten through college age students using the People to
People name. The Company also has the non-exclusive right to develop, market and
operate programs for adults using the People to People name; however, at the
present time the Company is the only entity that has been given this right by
People to People. These rights have been granted pursuant to agreements with
People to People, which expire in 2010 and, at the election of the Company, may
be further extended through
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2020. The principal offices of the Company's Education Group are located in
Spokane, Washington.
The Company also operates certain specialty travel programs for niche markets.
The Company has entered into an alliance with Yosemite National Institutes, a
non-profit organization with operations in Yosemite National Park, Olympic
National Park and Golden Gate National Recreation Area. The agreement with
Yosemite National Institutes is exclusive, except that Yosemite National
Institutes may conduct its own programs. The Company also has an agreement with
the American Youth Soccer Organization to provide international travel for its
players. In 1999, these programs included travel to France, the United Kingdom,
Ireland and the Netherlands to play soccer matches against local teams.
STUDENT AMBASSADOR PROGRAMS. The Company's Student Ambassador Programs provide
an opportunity for students in the sixth through twelfth grades to visit one or
more foreign countries to learn about the politics, economy and culture of such
countries. The Company markets its Student Ambassador Programs through a
combination of direct mail and local informational meetings. Representatives of
the Company review candidate applications and conduct informational meetings
throughout the country from September through February, after which selected
applicants register to participate in the program.
Student Ambassador Program delegations depart during the summer months, May
through August, and generally travel for approximately 14-23 days, during which
time each delegation visits one or more foreign countries. Each delegation
generally consists of approximately 30-47 students and several teachers, who act
as the delegation's leaders. Teachers and students comprising a delegation
generally come from the same locale. Local guides in each country assist the
delegation in their travels.
Programs are designed by the Company's staff of international planners and
researchers to provide an educational and entertaining travel experience by
exposing students to the history, government, economy and culture of the country
or countries visited. In each country, the Company contracts with overseas
program coordinators to provide day-to-day oversight of the programs.
Additionally, a local guide trained by the Company accompanies the group
throughout the duration of its program. In most instances, the Company also
arranges to provide students the opportunity for a homestay (a brief stay with a
host family) which gives students a glimpse of daily life in the visited
country.
Students who complete certain written assignments and other projects can receive
high school and university credit for their participation in the program.
Universities which recognize academic credit include Stanford University,
University of California, Los Angeles, and Georgetown University.
SPORTS AMBASSADOR PROGRAMS. The Company, which had limited sports programs in
previous years, expanded the number of sports offered within its programs to 15
different sports through an acquisition in June 1999. The Company's Sports
Ambassador Programs provide an
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opportunity for athletes from age 9 to 19 to compete in international
tournaments with teams from across the world and explore the host country's
culture. The Company markets its Sports Ambassador Programs through a
combination of direct mail and local informational meetings. Interested athletes
apply to the program and are accepted after a review process conducted by
representatives of the Company.
Participants in the Sports Ambassador Programs depart during the summer months
and travel for 9 to 14 days. Teams are formed based on gender, age and
geographic location. Many teams will be comprised of athletes from different
states. To facilitate a cohesive and effective team, a training program precedes
each program in which the teams practice and focus on individual skill
fundamentals. In each tournament, the Company contracts with overseas tournament
organizers to provide day-to-day oversight of the programs. Additionally,
athletes are exposed to international culture through Company arranged
educational excursions.
Athletes in grades 6 through 12 who complete certain written assignments and
projects can receive high school and university credit for their participation
in the program.
PROFESSIONAL EXCHANGE PROGRAMS. The Company's Professional Exchange Programs
provide adults with common interests the opportunity to travel abroad to meet
and exchange ideas with foreign citizens who have similar backgrounds, interests
or professions. The Company markets its Professional Exchange Programs through a
direct mail marketing effort throughout the year. Programs originate from the
Company's internal marketing and research staff who identify potential
delegation topics and leaders. Adult programs have been conducted in such areas
as agriculture, economics, education, medicine and science.
The Company believes that its Professional Exchange Programs provide
participants with enriching experiences and deeper understandings of foreign
cultures and peoples than visits arranged independently or through travel
agencies. The Professional Exchange Programs operate year-round and are
generally designed to provide a specialized adult educational experience.
Professional Exchange Programs travel 10 to 14 days. Unlike travel programs
provided by travel agencies, these professional exchanges are intended largely
as working trips, with a significant amount of the participant's time involved
in organized meetings, seminars and round-table discussions with their foreign
counterparts, inspection visits to major foreign facilities and institutions and
informal gatherings with foreign counterparts. Each program is led by a
delegation leader chosen by the Company based upon his or her recognition in the
field and expertise regarding the special focus of the particular program.
The Company acquired additional People to People business through an acquisition
in February 1996, which included, among other things, (1) the right to operate
adult educational and exchange travel programs under the tradenames "American
People Ambassador Programs" and "Missions in Understanding" and (2) rights under
an agreement with People to People to operate additional travel programs.
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PERFORMANCE GROUP
The Performance Group develops, markets and manages performance improvement
programs for a nationwide roster of corporate clients. The programs offer
services in performance improvement programs and business meeting management
services. The Performance Group commenced its operations through a series of
acquisitions beginning in 1996. The principal offices of the Performance Group
are located in Newport Beach, California.
In offering performance improvement programs and business meeting management
services, the Performance Group follows a strategy aimed at developing and
implementing programs tailored to each client's objectives. The Company's
employees first meet with existing or potential clients to determine their
business objectives and their performance enhancement opportunities. Once a
client agrees to pursue a program, the Company works with the client to
determine the scope of the program by identifying concepts and parameters in
terms of purpose, costs, time and employee participation. These programs are
designed to incrementally increase revenues and profits for the client.
Subsequently, the Company's employees develop and provide customized services
that fall within the identified parameters.
Performance Group employees participate in various aspects of a client's program
development. The staff of creative writers and graphic designers generally
delivers promotional campaigns and materials that are complete from concept
through production, including design, printing, collating, labeling and mailing.
The Company has developed computerized monitoring systems and provides each
client with lists generated by internally-designed software programs which track
the program participants and enable the client to know the status of each
participant at any time. Additionally, the Company provides a program
coordinator to formulate, maintain and finalize each aspect of the client's
event.
For its services, the Company is usually paid a percentage markup of the cost of
the program components including air and ground transportation, promotional
gifts, meals and hotel accommodations. In addition, the Company is reimbursed
for expenses incurred in organizing the program.
SERVICES GROUP
Through ASGI, the Company provides comprehensive hotel reservation, registration
and travel services for meetings, conventions, expositions and trade shows. The
contracts for these services generally cover an annual meeting or event and may
be for a term of one to several years. Pursuant to these agreements, the Company
provides a wide range of services associated with booking hotel space and guest
registration, including securing sufficient and appropriate hotel room
inventories, coordinating blocking and booking of all hotel rooms, monitoring
the status and volume of reservations, accepting individual and group
reservations, mailing reservation confirmations and providing an on-site housing
services desk at a meeting site to coordinate attendees' housing needs. For
providing these and other services, the Company generally
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receives a fixed commission, which is paid directly by the hotels. The principal
offices of the Services Group are located in Newport Beach, California.
SPECIALTY GROUP
Through Ambassadors Specialty Group, Inc., a Delaware Corporation, (the
"Specialty Group"), a wholly-owned subsidiary of the Company, the Company has a
minority investment in Grand Prix Tours, Inc. ("GPT"), which organizes and
operates over 39 programs annually to motor racing events in the United States
and internationally. GPT is the largest such travel company in the United
States.
The Specialty Group also has a minority interest in Scheduled Airlines Traffic
Offices, Inc. ("SATO"), which primarily serves the travel needs of the U.S.
government and military.
The Specialty Group has an indirect minority interest in GetThere.com, a company
engaged in the travel business via the Internet.
Through the Specialty Group, the Company organizes and operates high-end golf
and golf-related tours, trips and programs, both within the United States and
internationally. These programs are offered both as land programs at private
country clubs and as part of certain cruise line itineraries. The principal
offices of the Specialty Group are located in Newport Beach, California.
RECENT ACQUISITIONS
On January 25, 1999, the Company purchased a minority interest in connection
with the acquisition by a group of investors of all of the capital stock of
SATO. SATO is a travel management firm handling travel management services
primarily to the U.S. military and U.S. government, with the remainder to major
U.S. corporations. SATO was owned by eleven domestic airlines prior to this
transaction. The Company also entered into a Management Agreement (the
"Management Agreement") with SATO Travel Holding Co., Inc., the newly-formed
parent corporation of SATO to provide general financial and management
consulting services to SATO. In consideration for providing these services, the
Company will be paid a management fee and will be reimbursed for reasonable
expenses incurred in connection with the rendering of services under the
Management Agreement. The term of the Management Agreement is five years,
subject to earlier termination under certain circumstances.
On June 1, 1999, the Company's Education Group acquired certain assets of Travel
Dynamics, Inc. ("TDI"). TDI primarily provided youth sports travel programs and
youth educational travel programs.
On September 30, 1999, the Company's Services Group acquired all of the capital
stock of Advanced Registration Systems, Inc. ("ARS"). ARS was primarily involved
in pre-registration
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and on-site registration services for trade shows. This acquisition expanded the
operations of the Company's Services Group to full-service registration and
convention organization and services.
BUSINESS STRATEGY
The Company believes that high quality programs and exceptional customer service
are and will remain key elements of the Company's success. The Company's
strategy is to maintain its quality standards while increasing its volume of
business. To increase its business, the Company intends to (i) expand the
marketing and tour volume of its existing student and sports travel programs,
(ii) introduce new student travel programs and strategic alliances, (iii)
broaden its adult travel programs, (iv) expand the scope of services through
enhanced technology and increase the market penetration of the Performance and
Services Groups, and (v) pursue selective acquisitions of travel and performance
improvement businesses.
COMPETITION
The travel industry in general, and the educational segment of the travel
industry in particular, is highly competitive. The Company's student programs
compete with similar educational travel programs operated by other individuals
and organizations, as well as independent programs organized and sponsored by
local teachers with the assistance of local travel agents. The Company's
professional programs also compete with independent professional associations
that sponsor and organize their own travel programs through the assistance of
local travel agents, and other organizations that design travel programs for
adults.
The Company believes that the barriers to entry for any future competitors are
relatively low. Certain organizations engaged in the travel business have
substantially greater financial, marketing and sales resources than the Company.
There can be no assurance that the Company's present or future competitors will
not exert significant competitive pressures on the Company.
The Company believes that the principal basis of competition in the educational
segment of the market are the quality and uniqueness of the educational program
offered, customer service, reputation and program cost. The Company believes
that its agreements with People to People, as well as its years of experience
organizing student educational programs and established relationships with
public officials, organizations and residents in countries in which it provides
programs, allow the Company to provide an educational opportunity that is not
easily duplicated by competitors' programs.
The Performance Group also competes in segments of the travel industry that are
highly competitive. In the meeting management and incentives businesses, the
Company competes with companies which are larger and have greater resources than
the Company. The Company believes that, although some potential clients will
focus on price alone, other clients will also be interested in the quality of
the programs developed by the Company and the excellent customer service
provided by the Company. The Company believes that its programs are not easily
duplicated by its competitors.
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The Services Group operates within a highly competitive, technical segment of
the travel industry. The Company competes regarding price and service, but
believes its technology is a key element of its service.
SERVICEMARKS
The Company has registered a variety of service and trademarks, including the
names "High School Student Ambassador Program," "Citizen Ambassador Program" and
"Youth Summit." In addition, the Company has the right, subject to certain
exceptions, to use People to People's name, servicemark and logo for use in
marketing student and adult programs. The Company also owns the exclusive right
to the names "American People Ambassador Programs" and "Missions in
Understanding." The Company believes that the strength of its service and
trademarks is valuable to its business and intends to continue to protect and
promote its marks as appropriate. However, the Company believes that its
business is not dependent upon any trademark or servicemark.
INSURANCE
The Company maintains insurance coverage in amounts it believes are adequate for
its business, including a $5 million professional liability policy and a $10
million umbrella policy. The Company also maintains a $1 million general
liability and property coverage policy. The Company has not experienced
difficulty in obtaining adequate insurance coverage. There is no assurance that
the insurance maintained by the Company will be adequate in the event of a
claim, or that such insurance will continue to be available in the future.
EMPLOYEES
On February 29, 2000, the Company employed 333 employees, of which 315 were
full-time employees. Of the Company's full-time employees, 146 are located in
Spokane, Washington; 80 are located in Newport Beach, California; 53 are located
in Atlanta, Georgia; 15 are located in Novato, California; 6 are located in
Westlake Village, California; 4 are located in Alexandria, Virginia; 4 are
located in St. Louis, Missouri; 3 are located in Charlotte, North Carolina; 2
are located in Winnebago, Illinois; one is located in New Orleans, Louisiana;
and one is located in Lehi, Utah. The Company has 109 full-time employees
engaged in marketing and sales and 206 full-time employees in operations,
administration and finance. The Company also employs temporary labor on a
seasonal basis to assist it with its direct marketing efforts in recognition of
the fact that the Company's travel programs are seasonal in nature. None of the
Company's employees is subject to collective bargaining agreements or is
represented by a union. The Company believes that its labor relations are good.
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Item 2. PROPERTIES
The principal executive offices of the Company, consisting of approximately
45,000 square feet, are located in Spokane, Washington and are occupied pursuant
to a lease dated January 3, 1995 that expires December 31, 2004. The lease
currently provides for monthly rental payments of $36,992. The Company may
cancel the lease without penalty (upon one year's prior notice) and also may
extend the term of the lease for an additional ten year period upon providing
written notice to the Lessor of its intention to exercise such option at least
six months prior to the end of the initial term. If the Company elects to
exercise the extension option, the monthly rental during the renewal period will
be the fair market rental value of the leased premises as of the date the option
is exercised (as determined based on market rentals of similar properties in the
Spokane, Washington area). The owner of the premises is a partnership consisting
of two former principals of the Company, who subsequently sold their interest in
the Company in January 1995.
The Company occupies offices totaling approximately 27,000 square feet in
Newport Beach, California, pursuant to a lease dated June 15, 1998 which expires
in 2005. The lease currently provides for monthly rental payments of
approximately $30,000. The Company subleases approximately 4,800 square feet to
two sublessee's for $5,600 per month.
The Company occupies offices totaling approximately 18,100 square feet in
Atlanta, Georgia. The lease currently provides for monthly rental payments of
approximately $22,000 per month and the lease expires in 2002.
The Company occupies office space totaling 2,400 square feet in Novato,
California pursuant to a lease dated September 1, 1998 which expires in 2003.
The lease currently provides for monthly rental payments of $5,645 and will
increase in subsequent years based on the local consumer price index.
The Company occupies office space totaling approximately 1,800 square feet in
Alexandria, Virginia, with current monthly rental payments of approximately
$2,200. This lease expires in November of 2001.
The Company also leases approximately 900 square feet of office space in
Winnebago, Illinois for a monthly rental of $598 pursuant to a lease that
expires in August 2000.
The Company leases, but no longer occupies, office space totaling approximately
15,900 square feet in Watertown, Massachusetts with current monthly rental
payments of $15,640. This lease expires in 2002. The Company has subleased this
location effective January 31, 2000. The monthly sublease rental payment is
$29,150 per month and expires concurrently with the master lease during 2002.
The Company leases, but no longer occupies, office space totaling approximately
3,100 square feet in Westlake Village, California with current monthly rental
payments of $4,407. This lease expires January 31, 2001. The Company has
subleased this location effective March 1, 2000. The monthly sublease rental
payment is $4,249 per month and expires concurrently with the master lease on
January 31, 2001.
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The Company also leases, but no longer occupies, approximately 4,500 square feet
of office space in Newport Beach, California. The lease expires in June 2000,
and currently provides for monthly rental payments of $4,742. The Company
subleases this space to one sublessee for a monthly rental of $7,194 and the
sublease expires concurrently with master lease.
Management believes that its existing facilities are sufficient to meet its
present needs and anticipated needs for the foreseeable future. However,
additional facilities may be required in connection with future business
acquisitions.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings other than
ordinary routine litigation incidental to its business, the outcome of which the
Company believes will not have a material adverse effect on its business,
financial condition, cash flows or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK MARKET AND OTHER INFORMATION
The Company's common stock has been traded on the Nasdaq National Market under
the symbol "AMIE" since August 3, 1995. Prior to such date, there was no public
trading market for the Company's equity securities. As of March 21, 2000, there
were approximately 41 holders of record of the Company's Common Stock. This
number does not include beneficial owners holding shares through nominee or
street name.
The following table sets forth the high and low sale prices of a share of the
Company's Common Stock as reported on the Nasdaq National Market for the periods
indicated:
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High Low
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1998:
Quarter ended March 31, 1998 $26.75 $17.50
Quarter ended June 30, 1998 $30.75 $24.50
Quarter ended September 30, 1998 $31.88 $15.75
Quarter ended December 31, 1998 $17.91 $13.00
1999:
Quarter ended March 31, 1999 $16.63 $11.81
Quarter ended June 30, 1999 $15.50 $13.63
Quarter ended September 30, 1999 $14.88 $12.50
Quarter ended December 31, 1999 $13.69 $ 9.88
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DIVIDEND POLICY
The Company has not paid any dividends since the consummation of its initial
public offering of securities in 1995 and intends to continue to retain its
earnings for use in the operation and expansion of its business and therefore
does not anticipate declaring any cash dividends in the foreseeable future. The
payment of dividends in the future will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors, in its discretion, deems relevant.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services of Los Angeles, California serves as transfer
agent and registrar of the Company's Common Stock.
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CHANGES IN SECURITIES
In November 1998, the Board of Directors of the Company authorized the
repurchase of the Company's common stock up to an approved amount in the open
market or through private transactions. This repurchase program is ongoing and
as of the end of 1999, the Company has repurchased 595,500 shares.
In June and September 1999, the Company issued 95,361 shares of its Common Stock
in connection with its 1999 acquisition of Travel Dynamics, Inc. and its 1998
acquisition of Incentives Associates, Inc.
The foregoing issuances were made directly by the officers and directors of the
Company and no underwriting discounts or commissions were paid. The foregoing
transactions were exempt from the registration provisions of the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) thereof for
issuances of securities not involving a public offering and exempt from
registration under applicable state securities laws.
Each of the persons with whom the Company's Common Stock was issued represented
to the Company, substantially as follows: that he or it acquired the securities
for his or its own account, for investment purposes only and not with a view to
or for sale in connection with any distribution thereof. Certificates evidencing
the Common Stock issued in these transactions bear restrictive legends to such
effect and state further that the securities have not been registered under the
Securities Act or state securities laws and may not be sold, pledged or
otherwise transferred without registration under the Securities Act or an
exemption therefrom.
13
<PAGE> 17
Item 6. SELECTED FINANCIAL DATA
Selected Financial data as of and for the year ended
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
STATEMENT OF INCOME DATA (A): (dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating revenues $ 43,988 $ 40,148 $ 26,541 $ 18,843 $ 17,133
Operating expenses:
Selling and tour Promotion 18,624 15,555 9,826 8,420 8,694
General and Administrative 19,243 15,577 8,210 5,770 4,676
Restructuring and write-down
of intangible assets 8,107 -- -- -- --
Operating income (loss) (1,986) 9,016 8,505 4,653 3,763
Net income 1,839 8,362 5,637 3,947 5,157
Pro forma net income (B) -- -- -- -- 3,179
Net income per share - basic (B) $ 0.19 $ 0.93 $ 0.83 $ 0.60 $ 0.57
Net income per share - diluted (B) $ 0.19 $ 0.92 $ 0.82 $ 0.59 $ 0.56
BALANCE SHEET DATA (C):
Cash and cash equivalents $ 18,461 $ 55,290 $ 22,871 $ 18,281 $ 12,974
Total assets 142,763 127,732 34,449 27,269 16,016
Long-term debt 400 145 329 -- 6
Total stockholder's equity 108,269 107,049 22,556 16,783 11,135
SELECTED OPERATING DATA:
Gross program receipts
(rounded to nearest thousand) $139,000 $116,000 $ 80,000 $ 57,000 $ 47,000
</TABLE>
(A) During 1995, the Company's statement of income data reflect only that of
the Education Group. In early 1996, the Company commenced operations of
its Performance Group through the acquisition of an entity engaged in
this business. In December 1996 and September 1997, the Company continued
the expansion of its Performance Group through two additional
acquisitions. In 1998, additional acquisitions are included in the
statement of income as of February, April, May, and July commencing
operations of the Services Group and enhancing the Performance Group.
Acquisitions added to the Company's statement of income within the
Education Group in June 1999 and within the Services Group in September
1999. All of these acquisitions are included in the Company's statement
of income since their respective dates of acquisition.
14
<PAGE> 18
(B) The pro forma results of operations reflect the income tax provision as
if the Company were taxed as a C corporation rather than an S corporation
for 1995.
(C) All of the Company's acquisitions have been accounted for under the
purchase method of accounting. Therefore, the balance sheet data include
the accounts of the acquired entities as of their respective dates of
acquisition. Since one of the acquisitions occurred effective December
31, 1996, the balance sheet data includes the accounts of this entity as
of December 31, 1996; however, the results of operations of this entity
are not included in the statement of income data until the year ended
December 31, 1997.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto in this Annual Report on
Form 10-K. Certain statements contained herein that are not related to
historical results, including, without limitation, statements regarding the
Company's business strategy and objectives, future financial position,
expectations about pending litigation and estimated cost savings, are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended, and
involve risks and uncertainties. Actual results could differ materially from
those discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below. All forward-looking statements contained in this Annual Report on Form
10-K are qualified in their entirety by this statement.
General
The Company is engaged primarily in (i) promoting and organizing international
educational travel programs on a worldwide basis for students, athletes, and
adults, (ii) developing, marketing and managing meetings and incentive programs,
and (iii) providing comprehensive hotel reservation, registration, and travel
services for meetings, conventions, expositions, and trade shows.
Since its initial public offering in August 1995, the Company has expanded its
operations primarily through internal growth and a series of acquisitions of
businesses within the travel and performance improvement industries. Prior to
1996, the Company's business was conducted through its Education Group.
In January 1996, the Company completed the acquisition of The Helin Organization
and commenced operations of the Performance Group. This acquisition was followed
in February 1996 by the acquisition of certain assets of Marc L. Bright and
Associates and an acquisition in June 1999 of certain assets of Travel Dynamics,
Inc., which expanded the business of the Company's already existing Education
Group. In December 1996, the Company acquired
15
<PAGE> 19
Bitterman & Associates, Inc.; in September 1997, the Company acquired certain of
the assets of Debol & Associates; in February 1998, the Company acquired the
stock of Travel Incentives, Inc.; and in May 1998, the Company acquired the
stock of Incentive Associates, Inc., the cumulative effect of which was to
further expand the Company's Performance Group. The Services Group was commenced
in February 1998 with the purchase of certain of the assets of Rogal America,
Co., and expanded with the acquisitions in July 1998 of the assets of
Destination, Inc., and in September 1999 of the stock of Advanced Registration
Systems, Inc. In May 1998, the Company acquired the assets of I.G.S. Travel
Corporation, which commenced the operations of the Specialty Group. All of these
acquisitions were accounted for under the purchase method of accounting.
Therefore, the results of operations of the acquired businesses are included in
the Company's results of operations since their respective dates of acquisition.
Gross program receipts reflect the total payments received by the Company from
Education Group participants and Performance Group and Services Group clients.
Gross program receipts less program pass-through expenses constitute the
Company's revenues. Program pass-through expenses include all direct costs
associated with the Company's programs including costs related to airfare,
ships, hotels, meals, ground transportation, guides, professional exchanges,
changes in currency exchange rates and merchandise costs. The Company recognizes
gross program receipts, pass-through expenses and revenues upon the departure of
the program participant or as the service is rendered. Operating expenses, which
are expensed by the Company as incurred, are the costs related to the creation
of programs, promotional materials and marketing costs, salaries, rent, other
general and administrative expenses and all of the Company's ordinary expenses.
The Company's policy is to obtain payment for substantially all travel services
prior to entering into commitments for incurring expenses relating to such
travel.
The Company's businesses are seasonal. The majority of the Company's travel
programs occur in May through July and October of each year. The Company has
historically earned more than three-quarters of its annual revenues in the
second and third quarters, which has more than offset operating losses incurred
during the rest of the year. The Company anticipates that this trend will
continue for the foreseeable future. The Company's annual results would be
adversely affected if the Company's revenues were to be substantially below
seasonal norms during these periods. The Company's operating results may
fluctuate as a result of many factors, including the mix of Education,
Performance, and Services Group programs and services, the mix of programs and
program destinations offered by the Company and its competitors, the
introduction and acceptance of new programs and program enhancements by the
Company and its competitors, timing of program completions, cancellation rates,
competitive conditions in the industry, marketing expenses, extreme weather
conditions, international conflicts, timing of and costs relating to
acquisitions, changes in relationships with certain travel providers, economic
factors and other considerations affecting travel.
The substantial majority of the Education Group's programs take place outside
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
16
<PAGE> 20
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
anticipated recurring purchases, and accordingly, are not entered into for
speculative purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Market Risk."
Results of Operations
The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items bear to consolidated revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Operating expenses:
Selling and tour promotion 42.3% 38.7% 37.0%
General and administrative 43.8% 38.8% 31.0%
Restructuring and write-down
of intangible assets 18.4%
----- ----- -----
Total operating expenses 104.5% 77.5% 68.0%
----- ----- -----
Operating income (loss) (4.5)% 22.4% 32.0%
----- ----- -----
Other income 11.1% 8.8% 1.8%
Income before income taxes 6.6% 31.2% 33.8%
Income tax provision 2.4% 10.7% 12.6%
----- ----- -----
Net income 4.2% 20.8% 21.2%
===== ===== =====
</TABLE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998
The Company's gross program receipt growth to $139.3 million in 1999 from $115.8
million in 1998 led to an organizational change from two operating divisions in
1998, the Education Group and the Performance Group, to three operating
divisions in 1999: the Education Group, the Performance Group and the Services
Group. Prior to 1999, the Services Group operated as part of the Performance
Group. This re-organization enabled management to more effectively focus on the
unique product, customer and competitor attributes of each market.
17
<PAGE> 21
All divisions continued to focus on and build their customer bases in 1999. The
Education Group strengthened the international sports programs within its
curriculum through the acquisition of Travel Dynamics, Inc., an international
youth travel organization specializing in sports programs. The Performance Group
increased sales over the year by adding new customers as well as further
penetrating existing clientele. The Services Group acquired a company that added
registration services, technology expertise and new clients.
Overall, gross program receipts increased by 20% to $139.3 million in 1999 from
$115.8 million in 1998, an increase of $23.5 million. Net revenue increased by
10% to $44.0 million in 1999 from $40.1 million in 1998, an increase of $3.9
million.
Gross margins (revenue as a percentage of gross program receipts) slightly
decreased during 1999 to 32% from 35% during 1998. This net decrease resulted
from a combination of increased gross margins in the Education Group, offset by
growth in the lower margined Performance Group business.
Selling and tour promotion expenses increased during 1999 to $18.7 million from
$15.6 million in 1998, an increase of $3.1 million. The majority of this
increase is attributable to the Education Group's acquisition and the resulting
increased sales and marketing support for the enhanced sports product line.
General and administrative expenses increased during 1999 to $19.2 million from
$15.6 million in 1998, an increase of $3.6 million. A significant portion of
this increase is the result of full-year ownership of the acquisitions made
during 1998. In addition, the Services Group acquired a company in the fall of
1999, which impacted the general and administrative expenses incurred by the
Company.
During the fourth quarter of 1999, the Company initiated and completed a
significant restructuring effort, impacting both the Performance and Services
Groups. As a result, the Company incurred restructuring and write-down of
intangible assets and property and equipment and the consolidation of offices as
follows (in thousands):
<TABLE>
<CAPTION>
RESTRUCTURING RESERVE
AND BALANCE AT
CASH/ IMPAIRMENT DECEMBER 31,
NON-CASH CHARGE ACTIVITY 1999
-------- ------ -------- ----
<S> <C> <C> <C> <C>
Write-down of intangible assets Non-cash $6,838 $6,838 $ --
Severance and related charges Cash 700 134 566
Consolidation of offices Cash 299 27 272
Write-down of property and
equipment Non-cash 270 270 --
------ ------ ------
Total restructuring charges $8,107 $7,269 $ 838
====== ====== ======
</TABLE>
18
<PAGE> 22
Cash spent on the restructuring has been funded from operations, and the Company
expects operations to continue to fund the remaining reserve within 2000.
The Company also outsourced the incentive merchandise component of its
Performance Group and consolidated the operations of the Services Group. The
restructuring plan involved the closure of the Company's Boston, Massachusetts
and Minneapolis, Minnesota offices, eliminating approximately 60 positions. This
restructure has positioned the Company to eliminate duplicate administrative
costs and create efficiencies within the core business segments. However, the
Company estimates the net savings to be insignificant.
Excluding these restructuring and write-down charges totaling $8.1 million, the
Company's operating income during 1999 decreased to $6.1 million from $9.0
million in 1998. Full-year ownership of 1998 acquisitions combined with the
additional expenses resulting from two 1999 acquisitions caused operating
expenses to increase year over year. Operating expenses increased $6.8 million
to $37.9 million excluding restructuring and write-down of intangible assets in
1999 from $31.1 million in 1998.
Operating income (loss) in 1999 decreased to $(2.0) million from $9.0 million in
1998 primarily due to the restructuring and write-down of intangible assets
during 1999. However, combinations of lower margins within the Performance Group
and Services Group and increased expenses from full year ownership of 1998
acquisitions also contributed to lower operating income (loss) during the
current year. Operating income in 1999 excluding restructuring and write-down of
intangible assets was $6.1 million.
Other income in 1999 consisted primarily of interest income generated by cash,
cash equivalents, and short-term investments and management fees. At December
31, 1999, the Company had $100.2 million in cash, cash equivalents and
short-term investments, compared to $93.0 million on December 31, 1998. The
Company realized interest and dividend income of $3.8 million in 1999, compared
to $3.6 million in 1998. The Company also realized $0.9 million in management
fees in 1999 from an investment, of which a portion is non-recurring in nature.
The Company's effective tax rate increased slightly to 36% during 1999 from 34%
during 1998. This slight increase is a combination of the tax effect of the 1999
restructuring plan, combined with decreases in the tax rate due to the Company's
cash management and investment strategies. These strategies resulted in a
significant amount of tax-exempt interest income. In 1999, due to the
restructuring and write-down charges, the Company saved approximately $1.0
million in income tax payments. The Company recorded an income tax provision of
$1.0 million in 1999 compared to $4.3 million in 1998.
19
<PAGE> 23
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
The Company was organized in two operating divisions: the Education Group and
the Performance Group. Both groups strengthened their business in 1998 by
growing their sales volume. The Education Group focused on internal growth and
posted gains in both sales volume and gross margin percentage. The Performance
Group grew through both internal sales increases and a series of acquisitions
designed to broaden the product appeal, geographic scope, and sales force
capabilities of the Performance Group.
Overall, gross program receipts grew by 44%, to $115.8 million in 1998, from
$80.5 million in 1997, an increase of $35.3 million. Net revenue grew by 51% to
$40.1 million in 1998, from $26.5 million in 1997, an increase of $13.6 million.
Gross margins (revenues as a percentage of gross program receipts) strengthened
during 1998 to 35%, from 33% during 1997. This increase was driven by improved
gross margin percentages in both the Education and Performance Groups. The
Performance Group strengthened its gross margins primarily through the addition
of a new product line, housing registration for convention services, while the
Education Group continued to achieve strong margins.
Selling and tour promotion expenses increased during 1998 when compared to 1997
by $5.7 million. For the year ended December 31, 1998, selling and tour
promotion expenses totaled $15.5 million in comparison to $9.8 million for the
year ended December 31, 1997. Existing business contributed marginally to this
increase, while the new customers, clients and product lines added by the four
acquisitions in the Performance Group during 1998 accounted for the substantial
majority of this increase.
General and administrative expenses increased to $15.6 million in 1998 from $8.2
million during 1997. Existing businesses contributed marginally to this
increase, while the new customers, clients and product lines added by the four
acquisitions in the Performance Group during 1998 accounted for the substantial
majority of this increase.
The gains in both gross program receipts and net revenue enabled the Company to
realize operating income of $9.0 million in 1998 compared to $8.5 million in
1997, an increase of $0.5 million.
Other income in 1998 consisted primarily of interest income generated by cash
and cash equivalents and available-for-sale securities. As of December 31, 1998,
the Company had $93.0 million in cash, cash equivalents and short term
investments, compared to $22.9 million on December 31, 1997. This $70.1 million
increase is primarily attributable to the Company's secondary offering of stock
in April 1998, in which the Company realized net proceeds of $70.3 million. In
addition, the Company generated $8.8 million in cash from operations. As a
result, the Company realized interest and dividend income of $3.6 million in
1998, compared to $1.6 million in 1997, an increase of $2.0 million.
20
<PAGE> 24
Other income also included unrealized foreign currency gains or losses. 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. Beginning July 1, 1998, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting
for Derivative Instruments and Hedging Activities." Therefore, the effective
portion of any unrealized gains or losses on foreign exchange contracts are no
longer recorded in other income, but are recorded as other comprehensive income
and are accumulated as a component of stockholders' equity. Realized gains and
losses on these contracts are recorded as a cost of the related travel program
when the contracts mature and are utilized. Prior to July 1, 1998, all
unrealized gains and losses and foreign exchange contracts and options were
recorded in the statement of income as other income or expense. The Company
reduced its unrealized foreign exchange losses from $1.1 million in 1997 to an
insignificant amount in 1998.
The Company reduced its effective tax rate to 34% in 1998, from 37% in 1997.
This improvement in the effective tax rate was primarily due to the Company's
cash management and investment strategies in 1998, which resulted in the
Company's obtaining a significant amount of tax-exempt interest income. The
Company recorded an income tax provision of $4.3 million in 1998, compared to
$3.3 million in 1997.
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 years ended December 31, 1999, 1998 and
1997 was $14.4 million, $8.8 million and $5.9 million, respectively. The
increase in cash flow from operations in 1999 is due to enhanced collections of
participant deposits and timing of accounts payable and accrued expense
payments. The increase in cash flow from operations in 1998 versus 1997 resulted
primarily from the increase in net income of $2.7 million.
Net cash used in investing activities for the years ended December 31, 1999,
1998, and 1997 was $44.3 million, $46.7 million, and $1.2 million respectively.
The investing activities during 1999 primarily related to investing the
available-for-sale securities as well as $7.9 million spent on acquisitions and
other investments. The net cash used in investing activities increased in 1998
primarily due to investing the proceeds from the Company's secondary offering,
as well as $6.8 million spent on acquisitions. The investing activities during
1997 were due primarily to leasehold improvements in the corporate headquarters
facilities as well as an acquisition in the third quarter of the year.
21
<PAGE> 25
The Company does not have any material capital expenditure commitments for 2000.
However, the terms of the Company's acquisitions of certain businesses include
contingent consideration. Additionally, the Company is continuing to pursue
further acquisitions of related travel and performance improvement businesses
that may require the use of cash and cash equivalents. No such acquisitions are
currently pending and no assurance can be given that definitive agreements for
any such acquisitions will be entered into, or, if they are entered into, that
they will be on terms favorable to the Company.
As of December 31, 1999, 1998 and 1997, the Company had $0.7 million, $0.3
million and $0.5 million, respectively, in long-term debt as a result of
acquisitions during 1999 and 1997.
Net cash used in financing activities during 1999 totaling $6.9 million
primarily relates to the purchase and retirement of common stock totaling $7.3
million. Net cash provided by financing activities during 1998 was $70.3 million
as a result of the Company's secondary offering of the Company's Common Stock
during April 1998. Net cash used during 1997 was insignificant. The Company has
a credit facility available with Bank of America, with a current limit of up to
$50.0 million for foreign currency purchases and foreign exchange forward
contracts. This credit facility is renewable annually and the Company expects it
to be renewed prior to July 2000.
As of December 31, 1999, the Company had approximately $100.2 million of cash
and cash equivalents and available-for-sale securities, including program
participant funds of $22.7 million. Under the Company's cancellation policy, a
program participant may be entitled to a refund of a portion of his or her
deposit, less certain fees, depending on the timing of cancellation. Management
believes that 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 at least through 2000.
MARKET RISK
The following table summarizes the financial instruments other than derivative
financial instruments held by the Company at December 31, 1999 and 1998, which
are sensitive to changes in interest rates. This table presents principal cash
flows for available-for-sale securities and notes payable outstanding at
December 31, 1999 and 1998 by contractual maturity date and the related average
interest rate and fair value (amounts in thousands):
22
<PAGE> 26
<TABLE>
<CAPTION>
Year Ending December 31, December 31, 1999 December 31, 1998
-------------------------------- ------------------- -------------------
Fair Fair
2000 2001 2002 Total Value Total Value
----- ----- ----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. government and agency
obligations $ 72,420 $ -- $ -- $72,420 $72,420 $37,660 $37,660
Interest rate 4.0% -- -- 4.0% -- 3.7% --
Notes payable $ 346 $ 200 $ 200 $ 746 $ 746 $ 331 $ 331
Interest rate (fixed) 4.5% 4.5% 4.5% 4.5% -- 6.5% --
</TABLE>
Additionally, the Company has an equity investment with a fair value of $9.3
million at December 31, 1999.
The substantial majority of the Education Group's travel programs take place
outside the United States and most foreign suppliers require payment in currency
other than the U.S. dollar. Accordingly, the Company is exposed to foreign
currency risk relative to changes in foreign currency exchange rates between
those currencies and the U.S. dollar. The Company has a program to provide a
hedge against certain of these foreign currency risks. The Company uses forward
contracts which allow the Company to acquire the foreign currency at a fixed
price for a specified period of time. Some of the Company's forward contracts
include a synthetic component if a pre-determined trigger occurs during the term
of the contract. Additionally, the Company 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 utilized. The Company also purchases future
contracts to similarly hedge its foreign currency risk. The Company is exposed
to credit risk under the foreign currency contracts and options to the extent
that the counterparty is unable to perform under the agreement. The fair value
of foreign currency exchange contracts is based on quoted market prices and the
spot rate of the foreign currencies subject to contracts at year end. The fair
value of the foreign currency options is based on the estimated amount to
terminate the put and call contracts with the counterparties at year end.
The table below provides information about the Company's derivative financial
instruments that are sensitive to foreign currency exchange rates. For foreign
currency forward exchange agreements, the table presents the notional amounts
and weighted average exchange rates. All contracts mature in 2000. These
notional amounts generally are used to calculate the contractual payments to be
exchanged under the contract. None of these contracts is entered into for
trading purposes. At December 31, 1999 and 1998, the Company had outstanding
forward contracts as follows (amounts in thousands):
23
<PAGE> 27
<TABLE>
<CAPTION>
U.S. Dollar U.S. Dollar Average
December 31, 1999 Contract Amount Contractual Exchange Rate
- ----------------- --------------- -------------------------
<S> <C> <C>
Forward contracts
(pay $U.S./ receive foreign currency):
Australian dollar $ 2,054 $ 0.75
British pound 6,997 1.59
--------
$ 9,051
========
Forward contracts with synthetic option
(Pay $U.S./receive foreign currency):
Danish Krone $ 2,278 $ 0.14
Euro dollar 6,945 0.93
British Pound 7,304 1.66
New Zealand dollar 2,859 0.55
Australian dollar 2,145 0.66
--------
$ 21,531
========
</TABLE>
<TABLE>
<CAPTION>
U.S. Dollar U.S. Dollar Average
December 31, 1998 Contract Amount Contractual Exchange Rate
- ----------------- --------------- -------------------------
<S> <C> <C>
Forward contracts
(pay $U.S./ receive foreign currency):
Australian dollar $ 3,450 $ 0.67
New Zealand dollar 63 0.51
British pound 776 1.66
--------
$ 4,289
========
Call options purchased
(pay $U.S./ receive foreign currency):
Australian dollar $ 1,750 $ 0.70
New Zealand dollar 550 0.55
British pound 7,380 1.64
--------
$ 9,680
========
Put options sold
(pay $U.S./ receive foreign currency):
Australian dollar $ 714 $ 0.70
New Zealand dollar 227 0.63
--------
$ 941
========
</TABLE>
At December 31, 1999 and 1998, the Company had unrealized foreign currency
losses associated with these financial instruments of approximately $369,000 and
$289,000, respectively.
24
<PAGE> 28
YEAR 2000 COMPLIANCE
The Company did not have any Year 2000 complications. The Company had a
comprehensive Year 2000 project designed to identify and assess the risks
associated with its information systems, products, operations and
infrastructure. The Company has been storing years as a four-digit field in all
mission critical databases since 1995. Most of the software which the Company
uses, including all of its finance software, has been certified as Year 2000
compliant. In addition, the Company has obtained Year 2000 compliance statements
from the manufacturers of the Company's hardware and software products. The
costs incurred by the Company associated with Year 2000 compliance were
immaterial.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by reference to the
section entitled "Market Risk" in Management's Discussion and Analysis of
Results of Operations and Financial Condition (Part II, Item 7).
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Company are submitted as a separate section of
this Form 10-K on pages F-1 through F-24.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE> 29
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is hereby incorporated by reference from
the Registrant's definitive Proxy Statement for the fiscal year ended December
31, 1999, which Proxy Statement is expected to be filed with the Securities and
Exchange Commission on or about April 12, 2000.
Item 11. EXECUTIVE COMPENSATION
The information called for by this item is hereby incorporated by reference from
the Registrant's definitive Proxy Statement for the fiscal year ended December
31, 1999, which Proxy Statement is expected to be filed with the Securities and
Exchange Commission on or about April 12, 2000.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is hereby incorporated by reference from
the Registrant's definitive Proxy Statement for the fiscal year ended December
31, 1999, which Proxy Statement is expected to be filed with the Securities and
Exchange Commission on or about April 12, 2000.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is hereby incorporated by reference from
the Registrant's definitive Proxy Statement for the fiscal year ended December
31, 1999, which Proxy Statement is expected to be filed with the Securities and
Exchange Commission on or about April 12, 2000.
26
<PAGE> 30
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of Report
(1) FINANCIAL STATEMENTS INCLUDED IN ITEM 8:
<TABLE>
<S> <C>
Report of Independent Accountants F-1
Consolidated Balance Sheets at December 31,
1999 and 1998 F-2
Consolidated Statements of Income for the years
ended December 31, 1999, 1998 and 1997 F-3
Consolidated Statements of Comprehensive
Income for the years ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1999,
1998 and 1997 F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7 - F-24
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULES INCLUDED IN ITEM 8:
No financial statement schedules are presented as the required
information is either not applicable or included in the
Consolidated Financial Statements or notes thereto.
(3) EXHIBITS
The exhibits listed on the accompanying Exhibit Index are
filed as part of this Annual Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
27
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMBASSADORS INTERNATIONAL, INC.
(Registrant)
Date: March 30, 2000 By: /s/ JEFFREY D. THOMAS
--------------------------------
Jeffrey D. Thomas,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ JOHN A. UEBERROTH President and
- --------------------------- Chief Executive Officer March 30, 2000
John A. Ueberroth (Principal Executive Officer)
/s/ PETER V. UEBERROTH Chairman of the Board March 30, 2000
- --------------------------- of Directors
Peter V. Ueberroth
/s/ JEFFREY D. THOMAS Chief Financial Officer March 30, 2000
- --------------------------- (Principal Financial and
Jeffrey D. Thomas Accounting Officer)
/s/ JAMES L. EASTON Director March 30, 2000
- ---------------------------
James L. Easton
/s/ RAFER L. JOHNSON Director March 30, 2000
- ---------------------------
Rafer L. Johnson
/s/ JOHN C. SPENCE Director March 30, 2000
- ---------------------------
John C. Spence
/s/ RICHARD D. C. WHILDEN Director March 30, 2000
- ---------------------------
Richard D.C. Whilden
</TABLE>
28
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<S> <C>
2.1 Form of Reincorporation Agreement (l)
2.2 Rescission Agreement (l)
2.3 Stock Purchase Agreement (l)
2.4 Redemption Agreement (l)
3.1 Certificate of Incorporation of Ambassadors International, Inc. (1)
3.2 By-Laws of Ambassadors International, Inc. (l)
4.1 Specimen Stock Certificate (l)
10.1 People to People Contract - Student Ambassador Program (l)
10.2 People to People Contract - Citizen Ambassador Program (l)
10.3 Form of Equity Participation Plan of Ambassadors International, Inc. (1)
10.4 Form of Registration Rights Agreement among the Company, John and Peter Ueberroth, and certain
other stockholders (l)
10.5 Form of Indemnification Agreement for officers and directors (1)
10.6 Commercial Lease dated December 21, 1992 between Portolese and Sample Investments and
International Ambassador Programs, Inc. (1)
10.7 First Amendment to Commercial Lease dated January 3, 1995 between Portolese and Sample
Investments and International Ambassador Programs, Inc. (l)
10.8 Form of Employment Agreement with Executive Officers (l)
10.9 Form of Note between the Company and the Ueberroths relating to the
Distribution (l)
10.10 General Contract between People to People and M.L. Bright Associates dated July 1, 1995 and
Assignment documents to the Company dated February 6, 1996 (2)
10.11 Agreement and Plan of Merger, effective as of December 11, 1996 by and among Ambassadors
International, Inc., a Delaware corporation, Ambassadors Performance Improvement, Inc., a
Delaware corporation and wholly owned subsidiary of Ambassadors, Bitterman & Associates, Inc., a
Minnesota corporation, and Michael H. Bitterman (3)
10.12 Asset Purchase Agreement dated as of February 5, 1998 by and among the company, Ambassador
Performance Group, Inc., Rogal America, Co. and Andrew Rogal (4)
10.13 Lease dated December 20, 1996 between Rogal America, Inc. and Ark-Les Corp. (5)
10.14 Industrial Lease dated 19- between the Company and the Irvine Company (5)
10.15 The Amended and Restated 1995 Equity Participation Plan of Ambassadors International, Inc. (6)
10.16 The Atlanta Merchandise Mart Lease Agreement dated April 17, 1998 by and between AMC, Inc. and
Destination, Inc. (6)
10.17 Agreement and Plan of Merger, dated May 22, 1998 by and among Ambassadors International, Inc.,
Ambassador Performance Group, Inc., Incentive Associates, Inc., Wayne Wright and Russ Medevic (7)
10.18 Asset Purchase Agreement, dated July 17, 1998 by and among Ambassadors International, Inc.,
Ambassador Performance Group, Inc., Destination, Inc. and Gregory S. Cunningham(8)
</TABLE>
29
<PAGE> 33
<TABLE>
<S> <C>
10.19 Lease dated July 24, 1998 by and between the Joseph Pell and Eda Pell Revocable Trust dated
August 19, 1989 and Ambassador Performance Group, Inc.(9)
10.20 The Amended and Restated 1995 Equity Participation Plan of Ambassadors International, Inc.,
as amended by the Company's Shareholders at the 1999 Annual Meeting of Shareholders
held on May 14, 1999.(10)
10.21 Amendment to General Contracts dated January 22, 2000 by and among People to People
International, Ambassadors International Inc., and Ambassadors Programs, Inc. (11)
21.1 Subsidiaries of Ambassadors International, Inc.(11)
23.1 Consent of PricewaterhouseCoopers LLP(11)
24.1 Powers of Attorney(11)
27.1 Financial Data Schedule(11)
</TABLE>
- ----------
(1) Filed as an exhibit of the same number to the Company's
Registration Statement on Form S-1 (Registration No.
33-93586), and incorporated herein by reference.
(2) Filed as an exhibit of the same number to the Company's Form
10-KSB for the year ended December 31, 1995, and incorporated
herein by reference.
(3) Filed as Exhibit 2.5 to a Current Report on Form 8-K dated
January 3, 1997, and incorporated herein by reference.
(4) Filed as Exhibit 2.6 to a Current Report Form 8-K dated
February 12, 1998 (as amended on Form 8-K/A dated April 2,
1998), and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, and
incorporated herein by reference.
(6) Filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the Quarter Ended June 30, 1998, and incorporated
herein by reference.
(7) Filed as Exhibit 2.5 to a Current Report on Form 8-K, which
was filed on June 5, 1998, and incorporated herein by
reference.
(8) Filed as Exhibit 2.6 to a Current Report on Form 8-K, which
was filed on August 3, 1998, and incorporated herein by
reference.
(9) Filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998, and
incorporated herein by reference.
(10) Filed as Exhibit 4.1 to the Company's Registration Statement
on Form S-8 (Registration No. 333-81023) and incorporated
herein by this reference.
(11) Filed herewith.
30
<PAGE> 34
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Ambassadors International, Inc.
Spokane, Washington
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, changes in
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of Ambassadors International, Inc. and its subsidiaries
(the Company) at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As described in Note 1 to the financial statements, the Company changed its
method of accounting for derivative instruments on July 1, 1998.
/s/ PRICEWATERHOUSECOOPERS LLP
Spokane, Washington
February 11, 2000
F-1
<PAGE> 35
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 18,461 $ 55,290
Restricted cash equivalents 112 152
Available-for-sale securities 81,743 37,660
Accounts receivable 4,897 4,372
Prepaid program costs and expenses 5,868 4,637
Other assets -- 159
--------- ---------
Total current assets 111,081 102,270
Property and equipment, net 4,613 4,200
Other investments 2,936 462
Goodwill and covenants not-to-compete, net of $1,947
and $1,656 of accumulated amortization 22,875 20,657
Deferred income taxes 1,120 --
Other assets 138 143
--------- ---------
Total assets $ 142,763 $ 127,732
========= =========
LIABILITIES:
Current liabilities:
Accounts payable $ 3,941 $ 1,833
Accrued expenses 3,215 1,458
Participants' deposits 22,748 16,487
Notes payable, current portion 346 186
Foreign currency exchange contracts 369 289
Deferred income taxes 3,475 285
--------- ---------
Total current liabilities 34,094 20,538
Notes payable, due after one year 400 145
--------- ---------
Total liabilities 34,494 20,683
--------- ---------
Commitments and contingencies (Notes 2, 7, 11 and 15)
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, 9,496,903 and 9,915,534 shares 95 99
Additional paid-in capital 83,771 90,043
Retained earnings 18,928 17,089
Accumulated other comprehensive income (loss) 5,475 (182)
--------- ---------
Total stockholders' equity 108,269 107,049
--------- ---------
Total liabilities and stockholders' equity $ 142,763 $ 127,732
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
<PAGE> 36
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
REVENUE $ 43,988 $ 40,147 $ 26,541
OPERATING EXPENSES:
Selling and tour promotion 18,624 15,555 9,826
General and administrative 19,243 15,577 8,210
Restructuring and write-down of intangible assets 8,107 -- --
----------- ----------- -----------
45,974 31,132 18,036
----------- ----------- -----------
Operating income (loss) (1,986) 9,015 8,505
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest and dividend income 3,814 3,620 1,588
Realized and unrealized gain (loss)
on foreign currency exchange contracts -- (26) (1,102)
Other, net 1,052 (71) (9)
----------- ----------- -----------
4,866 3,523 477
----------- ----------- -----------
Income before income taxes 2,880 12,538 8,982
Income tax provision 1,041 4,304 3,345
----------- ----------- -----------
Income before cumulative effect of
change in accounting principle 1,839 8,234 5,637
Cumulative effect of change in accounting principle,
net of income taxes of $75 -- 128 --
----------- ----------- -----------
Net income $ 1,839 $ 8,362 $ 5,637
=========== =========== ===========
EARNINGS PER SHARE - BASIC:
Income before cumulative effect
of change in accounting principle $ 0.19 $ 0.92 $ 0.83
Cumulative effect of accounting change -- 0.01 --
----------- ----------- -----------
Net income per share $ 0.19 $ 0.93 $ 0.83
=========== =========== ===========
Weighted-average common shares
outstanding - basic 9,717,627 8,938,812 6,759,541
=========== =========== ===========
EARNINGS PER SHARE - DILUTED:
Income before cumulative effect of
change in accounting principle $ 0.19 $ 0.91 $ 0.82
Cumulative effect of accounting change -- 0.01 --
----------- ----------- -----------
Net income per share $ 0.19 $ 0.92 $ 0.82
=========== =========== ===========
Weighted-average common shares
outstanding - diluted 9,770,023 9,087,398 6,893,231
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 37
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income $ 1,839 $ 8,362 $ 5,637
Unrealized gains on marketable equity
security, net of income taxes of $3,353 5,707 -- --
Unrealized losses on foreign currency exchange
contracts, net of income taxes of $29 and $107 (50) (182) --
------- ------- -------
Comprehensive income $ 7,496 $ 8,180 $ 5,637
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 38
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHEN-
-------------------------- PAID-IN RETAINED SIVE INCOME
SHARES AMOUNT CAPITAL EARNINGS (LOSS) TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996 6,753,887 $ 68 $ 13,625 $ 3,090 $ -- $ 16,783
Stock options exercised 14,336 -- 136 -- -- 136
Net income -- -- -- 5,637 -- 5,637
---------- ---------- ---------- ---------- ---------- ----------
BALANCES, DECEMBER 31, 1997 6,768,223 68 13,761 8,727 -- 22,556
Stock options exercised 18,184 -- 177 -- -- 177
Stock grants issued 12,500 -- 98 -- -- 98
Tax benefit associated with
stock grants and exercise of
stock options -- -- 95 -- -- 95
Stock issued for acquisition
of subsidiaries 277,927 3 5,592 -- -- 5,595
Stock issued for cash, net of
offering costs 2,838,700 28 70,320 -- -- 70,348
Other comprehensive loss, net
of income taxes -- -- -- -- (182) (182)
Net income -- -- -- 8,362 -- 8,362
---------- ---------- ---------- ---------- ---------- ----------
BALANCES, DECEMBER 31, 1998 9,915,534 99 90,043 17,089 (182) 107,049
Stock options exercised 60,037 1 560 -- -- 561
Stock issued as compensation 21,471 -- 218 -- -- 218
Stock purchased and retired (595,500) (6) (7,303) -- -- (7,309)
Tax benefit associated with
stock grants and exercise of
stock options -- -- 110 -- -- 110
Stock issued for acquisition
of subsidiaries 76,145 1 889 -- -- 890
Additional consideration in
satisfaction of purchase
price contingencies 19,216 -- (746) -- -- (746)
Other comprehensive income,
net of income taxes 5,657 5,657
Net income -- -- -- 1,839 -- 1,839
---------- ---------- ---------- ---------- ---------- ----------
BALANCES, DECEMBER 31, 1999 9,496,903 $ 95 $ 83,771 $ 18,928 $ 5,475 $ 108,269
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 39
AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,839 $ 8,362 $ 5,637
Adjustments to reconcile net income to net cash
provided by operating activities:
Write-down of intangible assets 6,838 -- --
Write-down of property and equipment 270 -- --
Depreciation and amortization 2,441 1,943 895
Deferred income tax provision (benefit) (1,254) 450 (196)
Loss on foreign currency exchange contracts -- 26 1,102
Loss on sale of property and equipment -- -- 15
Other, net 287 193 --
Change in assets and liabilities, net of effects
of purchase of subsidiaries:
Restricted cash equivalents 40 (27) (70)
Accounts receivable 964 489 (536)
Prepaid program costs and expenses (542) (1,553) (294)
Other assets 159 162 86
Accounts payable and accrued expenses 2,688 (1,927) (247)
Participants' deposits 676 654 (471)
-------- -------- --------
Net cash provided by operating activities 14,406 8,772 5,921
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,658) (2,148) (1,032)
Proceeds from sale of available-for-sale securities 60,169 -- 637
Purchase of available-for-sale securities (94,929) (37,862) (200)
Purchase of other investments (2,655) -- --
Cash paid for acquisition of subsidiaries, net of cash
received (3,962) (6,554) (199)
Payment for covenant-not-to-compete agreement (1,271) (250) (220)
Change in other assets 4 (57) (49)
Payments received on (issuance of) notes receivable, net -- 162 (162)
-------- -------- --------
Net cash used in investing activities (44,302) (46,709) (1,225)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable (185) (169) (242)
Proceeds from exercise of stock options 561 177 135
Purchase and retirement of common stock (7,309) -- --
Net proceeds from sale of common stock -- 70,348 --
-------- -------- --------
Net cash provided by (used in) financing activities (6,933) 70,356 (107)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (36,829) 32,419 4,589
Cash and cash equivalents, beginning of year 55,290 22,871 18,282
-------- -------- --------
Cash and cash equivalents, end of year $ 18,461 $ 55,290 $ 22,871
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 17 $ 40 $ 10
Cash paid for income taxes 2,520 4,569 3,689
</TABLE>
See Notes 8 and 11 for noncash investing and financing activities.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 40
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF CONSOLIDATION
Ambassadors International, Inc. (the Company) is an educational
travel, travel services and performance improvement company. The
Company's operations are classified in the following segments:
~ Ambassadors Education Group - Promotes and organizes
international educational travel and sports programs for
students, athletes and professionals.
~ Ambassadors Performance Group - Develops, markets and manages
meetings and incentive programs for a nationwide roster of
corporate clients utilizing incentive travel, merchandise award
programs and corporate meeting management services.
~ Ambassadors Services Group - Provides comprehensive hotel
reservation, registration and travel services for meetings,
conventions, expositions and trade shows.
The Company was founded in 1967 and was reincorporated in Delaware
in 1995. The Education Group represented the entire operations of
the Company until 1996 when the Performance Group commenced
operations. The Services Group commenced operations in 1998.
The consolidated financial statements include the accounts of
Ambassadors International, Inc. and its subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation.
CREDIT RISK
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash
equivalents, certain investments and trade accounts receivable. The
Company places its cash and temporary cash investments with high
credit quality institutions. At times, such balances may be in
excess of the federal depository insurance limit or may be on
deposit at institutions which are not covered by this insurance. The
Company believes that its primary trade accounts receivable credit
risk exposure is limited as travel program participants are required
to pay for their entire program costs prior to the program departure
and trade accounts receivable for non-travel related programs are
principally with large credit-worthy corporations.
The Company uses foreign currency exchange contracts as part of an
overall risk-management strategy. These instruments are used as a
means of mitigating exposure to foreign currency risk connected to
anticipated travel programs. In entering into these contracts, the
Company has assumed the risk which might arise from the possible
inability of counterparties to meet the terms of their contracts.
The Company does not expect any losses as a result of counterparty
defaults.
F-7
<PAGE> 41
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company invests cash in excess of operating requirements in
short-term time deposits, money market instruments, government
mutual bond funds and other investments. The Company considers
investments with remaining maturities at date of purchase of three
months or less to be cash equivalents.
The Company's restricted cash equivalents represent certificates of
deposit issued in the Company's name and held by four airline
companies as collateral for airfare purchase agreements.
Additionally, at December 31, 1999, the Company had $1.2 million of
standby letters of credit for the airline companies. The letters of
credit expire in 2000.
DERIVATIVE FINANCIAL INSTRUMENTS
In June 1998, Statement of Financial Accounting Standards No. 133
(SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities" was issued. The Company elected to implement the
Statement early on July 1, 1998. The Statement requires that all
derivative instruments be recorded on the balance sheet at fair
value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending
on whether a derivative is designated as part of a hedge transaction
and, if it is, depending on the type of hedge transaction. For cash
flow hedge transactions in which the Company is hedging the
variability of cash flows related to a variable-rate asset,
liability or a forecasted transaction, changes in the fair value of
the derivative instrument will be reported in other comprehensive
income. The gains and losses on the derivative instruments that are
reported in other comprehensive income will be reclassified as
earnings in the periods in which earnings are impacted by the
variability of the cash flows of the hedged item. The ineffective
portion of all hedges will be recognized in current period earnings.
The adoption of SFAS 133 on July 1, 1998 resulted in the cumulative
effect of an accounting change of $128,000, net of income taxes,
being recognized as income in the statement of income.
Prior to the adoption of SFAS 133 on July 1, 1998, the Company
classified the foreign currency contracts as trading securities with
realized and unrealized gains and losses on these securities
recognized in the statement of income.
INVESTMENTS
The Company classifies its marketable investments as
available-for-sale securities. Available-for-sale securities consist
of debt and equity securities which are carried at fair value.
Unrealized gains and losses on available-for-sale securities are
excluded from operations and reported as accumulated other
comprehensive income, net of deferred income taxes. Realized gains
and losses on the sale of available-for-sale securities are
recognized on a specific identification basis in the statement of
income in the period the investments are sold.
F-8
<PAGE> 42
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
INVESTMENTS, CONTINUED
The Company classifies its minority investments in other operating
companies and joint ventures as other investments. The Company owns
a 20% interest in a company which provides packaged tours primarily
to Formula One, Indy Car and NASCAR races. This investment is
reported on the equity method. The Company also owns a 15% interest
in a joint venture whose sole investment is stock of an internet
company that completed an initial public offering during 1999. The
sale of the internet stock is restricted due to the initial public
offering. The Company has recorded its investment in the joint
venture at the market value of the underlying equity security of the
internet company in 1999. The chairman of the board of the internet
company is also a director of the Company. Also, the President and
Chief Executive Officer of the Company is a director of the internet
company. In January 1999, the Company purchased a minority interest
in another joint venture. The joint venture owns the capital stock
of Scheduled Airlines Traffic Offices, Inc. (SATO). SATO primarily
serves the needs of the U.S. government and military. This
investment is reported at the lower of cost or estimated net
realizable value. The President and Chief Executive Officer of the
Company is also the co-chairman of the board of directors and the
Company's Chief Financial Officer is a director of the joint
venture.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Cost of maintenance and
repairs which do not improve or extend the lives of the respective
assets are expensed currently. Major additions and betterments are
capitalized. Depreciation and amortization are provided over the
lesser of the estimated useful lives of the respective assets or the
lease term (including extensions), using the straight-line method,
generally 5 to 8 years.
When property and equipment are sold or retired, the related cost
and accumulated depreciation are removed from the accounts and any
gain or loss is recognized in operations.
GOODWILL AND COVENANTS-NOT-TO-COMPETE
Goodwill is being amortized using the straight-line method over 10
to 30 years. Costs of covenants-not-to-compete are amortized using
the straight-line method over the term of the agreements, generally
5 to 10 years. The Company periodically assesses the recoverability
of the recorded goodwill based upon the expected undiscounted cash
flows of the business operations that generated the goodwill.
REVENUE RECOGNITION
The Company bills travel participants in advance, which are recorded
as participants' deposits. The Company pays for certain direct
program costs such as airfare, hotel, rail passes and other program
costs in advance of travel, which are recorded as prepaid program
costs and expenses. The Company recognizes travel revenue and
related costs when travel convenes.
Revenue from hotel reservation, registration and related travel
services is recognized when the convention commences. Revenue from
the sale of merchandise is recognized when the merchandise is
shipped. Revenue from pre-paid certificate-based merchandise
incentive programs is deferred until the Company's obligations are
fulfilled or upon management's estimates (based upon historical
trends) that the certificate will not be redeemed. Revenue is
recognized from printing and administration based upon the
percentage of completion of the related program.
F-9
<PAGE> 43
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
SELLING AND TOUR PROMOTION EXPENSES
The Company expenses all selling and tour promotion expenses as
incurred.
EARNINGS PER SHARE
Earnings per share - basic is computed by dividing net income by the
weighted-average number of common shares outstanding during the
period. Earnings 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
potentially dilutive common shares had been issued.
ACCOUNTING FOR STOCK OPTIONS
As permitted by Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation", the Company
has chosen to measure compensation cost for stock-based employee
compensation plans using the intrinsic value method of accounting
prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and to provide the
disclosure only requirements of SFAS 123.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with
the 1999 presentation. These reclassifications had no effect on net
income or retained earnings as previously reported.
2. DERIVATIVE FINANCIAL INSTRUMENTS:
The substantial majority of the Education Group's travel programs take
place outside of the United States and most foreign suppliers require
payment in currency other than the U.S. dollar. Accordingly, the Company
is exposed to foreign currency risk relative to changes in foreign
currency exchange rates between those currencies and the U.S. dollar.
The Company has a program to provide a hedge against certain of these
foreign currency risks. The Company uses forward contracts which allow
the Company to acquire the foreign currency at a fixed price for a
specified period of time. Some of the Company's forward contracts
include a synthetic component if a pre-determined trigger occurs during
the term of the contract. Additionally, the Company 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.
F-10
<PAGE> 44
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
2. DERIVATIVE FINANCIAL INSTRUMENTS, CONTINUED:
The strike prices on these options generally straddle the exchange rate
at the time the options are purchased and utilized. The Company also
purchases future contracts to similarly hedge its foreign currency risk.
All of the Company's derivatives at December 31, 1999 and 1998 are cash
flow hedges of forecasted transactions. The Company has a $50,000,000
credit facility through July 2000 to support foreign currency purchases
and foreign exchange forward contracts.
At December 31, 1999, the Company had outstanding forward contracts as
follows (in thousands):
<TABLE>
<CAPTION>
NOTIONAL
CURRENCY AMOUNT MATURES
-------- ------ -------
<S> <C> <C>
Forward contracts:
Australian dollar $ 2,054 May 2000
British pound 6,997 April - July 2000
-------
$9,051
======
Forward contracts with synthetic option:
Danish Krone $ 2,278 March - July 2000
Euro dollar 6,945 April - June 2000
British pound 7,304 May - June 2000
New Zealand dollar 2,859 May - July 2000
Australian dollar 2,145 June 2000
-------
$21,531
=======
</TABLE>
At December 31, 1998, the Company had outstanding forward contracts and
call and put options to purchase and sell foreign currencies as follows
(in thousands):
<TABLE>
<CAPTION>
NOTIONAL
CURRENCY AMOUNT MATURES
-------- ------ -------
<S> <C> <C>
Forward contracts:
Australian dollar $ 3,450 March - July 1999
British pound 776 April 1999
New Zealand dollar 63 June 1999
--------
$ 4,289
========
Call options purchased:
Australian dollar $ 1,750 March 1999
New Zealand dollar 550 April 1999
British pound 7,380 June 1999
--------
$ 9,680
========
</TABLE>
F-11
<PAGE> 45
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
2. DERIVATIVE FINANCIAL INSTRUMENTS, CONTINUED:
<TABLE>
<CAPTION>
NOTIONAL
CURRENCY AMOUNT MATURES
-------- ------ -------
<S> <C> <C>
Put options sold:
Australian dollar $ 714 March 1999
New Zealand dollar 227 April 1999
--------
$ 941
========
</TABLE>
At December 31, 1999 and 1998, the Company had net unrealized losses
associated with these financial instruments of $369,000 and $289,000,
respectively. Since all of the Company's outstanding contracts at
December 31, 1999 mature in 2000, all of the unrealized losses are
expected to be reclassified to revenue during the year ending December
31, 2000.
Prior to the adoption of SFAS 133 on July 1, 1998, the Company
classified the foreign currency contracts as trading securities with
realized and unrealized gains and losses on these securities recognized
in the statement of income based upon the fair value of the investment.
Since July 1, 1998, unrealized gains or losses associated with these
transactions are reported in other comprehensive income. Any realized
gains or losses associated with these transactions are recognized in the
Company's operations in the period the contracts are closed. The net
unrealized loss reclassified to revenue from other comprehensive income
for the years ended December 31, 1999 and 1998 (subsequent to the
adoption of SFAS 133) was $289,000 and $0, respectively. Income taxes on
the unrealized losses reclassified in 1999 was $107,000.
3. INVESTMENTS:
At December 31, 1999 and 1998, the cost and estimated fair values of the
Company's investments in marketable equity securities and U.S.
government and agency obligations were as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS FAIR VALUE/
UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
December 31, 1999:
U.S. government and agency
obligations $72,420 $ -- $ -- $72,420
======= ============== ============= =======
Marketable equity securities $ 263 $ 9,060 $ -- $ 9,323
======= ============== ============= =======
December 31, 1998:
U.S. government and agency
obligations $37,660 $ -- $ -- $37,660
======= ============== ============= =======
</TABLE>
Substantially all U.S. government and agency obligations mature or are
callable in 2000. Net realized gains (losses) on investments of $26,000
and $(427,000) for the years ended December 31, 1998 and 1997,
respectively, were included in the determination of net income.
At December 31, 1999 and 1998, the Company also had approximately
$2,900,000 and $462,000, respectively, of other investments representing
the carrying value of 20% or less owned entities. Substantially all of
these investments are recorded at cost.
F-12
<PAGE> 46
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Office furniture, fixtures and equipment $ 2,879 $ 2,848
Computer equipment 4,479 3,407
Leasehold improvements 1,327 1,058
------- -------
8,685 7,313
Less accumulated depreciation and amortization (4,072) (3,113)
------- -------
$ 4,613 $ 4,200
======= =======
</TABLE>
Depreciation and amortization expense on property and equipment of
approximately $1,161,000, $757,000 and $444,000 for the years ended
December 31, 1999, 1998 and 1997, respectively, were included in the
determination of net income.
5. NOTES PAYABLE:
In conjunction with certain acquisitions (see Note 11), the Company has
issued two unsecured notes payable which were outstanding at December
31, 1999 and 1998 as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Note payable, due in quarterly payments of $50
plus interest at 6.5% $ 146 $ 331
Note payable, due in annual payments of $200 plus
interest of approximately 4.0% 600 --
----- -----
746 331
Less: current portion (346) (186)
----- -----
Notes payable, due after one year $ 400 $ 145
===== =====
</TABLE>
At December 31, 1999, the notes are due as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000 $346
2001 200
2002 200
----
$746
====
</TABLE>
The holders of these notes are current or previous employees of the Company.
Interest expense incurred on these notes payable was $17,000 and $28,000 for the
years ended December 31, 1999 and 1998, respectively.
F-13
<PAGE> 47
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
6. INCOME TAXES:
The provision (benefit) for income taxes for the years ended December
31, 1999, 1998 and 1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current:
Federal $ 2,023 $ 3,541 $ 3,396
State 272 313 145
Deferred (1,254) 450 (196)
------- ------- -------
$ 1,041 $ 4,304 $ 3,345
======= ======= =======
</TABLE>
Components of the net deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 ASSETS LIABILITIES TOTAL
----------------- ------- ----------- -------
<S> <C> <C> <C>
Accrued vacation $ 104 $ $ 104
Depreciation (289) (289)
Unrealized gain on marketable equity securities (3,353) (3,353)
Unrealized loss on foreign currency exchange
contracts 136 136
Amortization of goodwill and non-compete
agreements 1,088 1,088
Net operating loss carryforwards 346 346
Customer advances (471) (471)
Allowance for uncollectible accounts receivable 48 48
Other 61 (25) 36
------- ------- -------
Total temporary differences and tax attributes $ 1,783 $(4,138) $(2,355)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998 ASSETS LIABILITIES TOTAL
----------------- ------- ----------- -------
<S> <C> <C> <C>
Accrued vacation $ 81 $ 81
Depreciation $ (198) (198)
Unrealized loss on foreign currency exchange
contracts 107 107
Amortization of goodwill and non-compete
agreements (84) (84)
Net operating loss carryforwards 293 293
Customer advances (493) (493)
Inventory valuation 29 29
Other 1 (21) (20)
------- ----------- -----
Total temporary differences and tax attributes $ 511 $ (796) $ (285)
======= =========== =======
</TABLE>
F-14
<PAGE> 48
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
6. INCOME TAXES, CONTINUED:
The income tax provision (benefit) for the years ended December 31,
1999, 1998 and 1997 differs from that computed using the federal
statutory rate applied to income before income taxes as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- -------------------
AMOUNT % AMOUNT % AMOUNT %
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Provision at the federal statutory rate $ 979 34.0% $ 4,388 35.0% $ 3,054 34.0%
Nondeductible goodwill amortization 161 5.6 144 1.1 79 0.9
Write-down of intangible assets 652 22.6 -- -- -- --
State income tax, net of federal benefit 80 2.8 203 1.6 68 0.8
Tax exempt interest (884) (30.7) (404) (3.2) -- --
Adjustment of prior years' taxes -- -- -- -- 104 1.2
Other 53 1.8 (27) (0.2) 40 0.3
------- ------ ------- ------ ------- ------
$ 1,041 36.1% $ 4,304 34.3% $ 3,345 37.2%
======= ====== ======= ====== ======= ======
</TABLE>
At December 31, 1999, the Company has federal and state net operating
loss (NOL) carryforwards of approximately $793,000 and $883,000,
respectively. Federal NOL carryforwards can be used to offset future
regular taxable income of the subsidiary, up to $133,000 annually and
expire in 2011. State NOL carryforwards have no annual limitations and
expire beginning in 2018.
7. COMMITMENTS AND CONTINGENCIES:
The Company leases office facilities and office equipment under
non-cancelable operating leases. At December 31, 1999, future
non-cancelable lease commitments, net of sublease income, are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000 $ 1,083
2001 1,092
2002 985
2003 964
2004 943
2005 211
---------
$ 5,278
=========
</TABLE>
Total rent expense for the years ended December 31, 1999, 1998 and 1997
was approximately $1,743,000, $1,319,000 and $747,000, respectively. The
Company may cancel the lease on the Company's Education Group office
without penalty (upon one year's prior notice) and also may extend the
term of the lease for an additional ten-year period upon providing
written notice to the lessor at least six months prior to the end of the
initial lease term in 2004.
F-15
<PAGE> 49
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
7. COMMITMENTS AND CONTINGENCIES, CONTINUED:
The Company entered into agreements to sublease office facilities in
Newport Beach, California. Sublease rental income for the years ended
December 31, 1999 and 1998 was approximately $60,000 and $40,000,
respectively. The Company also entered into an agreement to sublease
office facilities in Boston, Massachusetts on February 1, 2000. Future
minimum rental income under the non-cancelable subleases is
approximately $393,000, $350,000 and $146,000 for the years ended
December 31, 2000, 2001 and 2002, respectively.
The Company is subject to claims, suits and complaints which have arisen
in the ordinary course of business. In the opinion of management and its
legal counsel, all matters are adequately covered by insurance or, if
not covered, are without merit or are of such a nature, or involve such
amounts as would not have a material effect on the financial position,
cash flows or results of operations of the Company.
8. STOCK PLANS:
The Company adopted the 1995 Equity Participation Plan (the Plan) during
1995 and amended and restated the Plan in 1999 and 1998. The Plan
provides for the grant of stock options, awards of restricted stock,
performance or other awards or stock appreciation rights to directors,
key employees and consultants of the Company. The maximum number of
shares which may be awarded under the Plan is 1,400,000 shares. Awards
cannot exceed 100,000 shares to any individual in a calendar year.
Under the terms of the Plan, options to purchase shares of the Company's
common stock are granted at a price set by the Compensation Committee of
the Board of Directors, not to be less than the par value of a share of
common stock and if granted as performance-based compensation or as
incentive stock options, no less than the fair market value of the stock
on the date of grant. The Compensation Committee establishes the vesting
period of the awards. The options may be exercised any time after they
are fully vested for a period up to 10 years from the grant date.
Had compensation cost for the Company's plans been determined based on
the fair value at the grant dates for awards under the plans consistent
with the method of SFAS No. 123, the Company's net income and net income
per share would have been changed to the pro forma amounts indicated
below (in thousands except per share data):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Income before cumulative effect
of change in accounting principle $1,839 $ 800 $8,234 $7,648 $5,637 $5,388
Cumulative effect of change in
accounting principle -- -- 128 128 -- --
------ ------ ------ ------ ------ ------
Net income $1,839 $ 800 $8,362 $7,776 $5,637 $5,388
====== ====== ====== ====== ====== ======
</TABLE>
F-16
<PAGE> 50
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
8. STOCK PLANS, CONTINUED:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Net income per share - basic:
Income before cumulative effect
of change in accounting principle $ 0.19 $ 0.08 $ 0.92 $ 0.86 $ 0.83 $ 0.80
Cumulative effect of accounting
change -- -- 0.01 0.01 -- --
------ ------ ------ ------ ------ ------
Net income per share - basic $ 0.19 $ 0.08 $ 0.93 $ 0.87 $ 0.83 $ 0.80
====== ====== ====== ====== ====== ======
Net income per share - diluted:
Income before cumulative
effect of change in accounting
principle $ 0.19 $ 0.08 $ 0.91 $ 0.84 $ 0.82 $ 0.78
Cumulative effect of accounting
change -- -- 0.01 0.01 -- --
------ ------ ------ ------ ------ ------
Net income per share - diluted $ 0.19 $ 0.08 $ 0.92 $ 0.85 $ 0.82 $ 0.78
====== ====== ====== ====== ====== ======
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Dividend yield 0.0% 0.0% 0.0%
Expected volatility 58% 55% 63%
Risk free interest rates 5.3% 4.8% 6.5%
Expected option lives 5.9 years 10 years 9.7 years
</TABLE>
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE EXPIRATION
SHARES EXERCISE PRICE DATE
------ -------------- ----
<S> <C> <C> <C>
Balance, December 31, 1996 241,363 $ 9.66 2005-2006
Granted 269,950 10.84 2007
Forfeited (49,925) 9.53
Exercised (14,336) 9.47
--------- -------
Balance, December 31, 1997 447,052 10.39 2005-2007
Granted 247,100 24.43 2008
Forfeited (33,779) 14.94
Exercised (18,184) 9.82
--------- -------
Balance, December 31, 1998 642,189 15.52 2005-2008
Granted 375,800 12.60 2009
Forfeited (171,965) 15.61
Exercised (60,037) 9.19
--------- -------
Balance, December 31, 1999 785,987 $ 14.61 2005-2009
========= =======
</TABLE>
F-17
<PAGE> 51
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
8. STOCK PLANS, CONTINUED:
The following table presents information about the options as of
December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
----------------------------------
NUMBER OF RANGE OF REMAINING
SHARES EXERCISE PRICE EXERCISE PRICE LIFE (YEARS)
--------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Exercisable options 45,000 $ 5.85 - 8.78 $ 8.41 5.8
Exercisable options 115,338 8.79 - 11.70 9.85 7.8
Exercisable options 750 11.71 - 14.63 13.75 9.3
Exercisable options 47,600 14.64 - 17.55 15.07 7.2
Exercisable options 10,108 17.56 - 20.48 20.38 7.1
Exercisable options 25 20.49 - 23.40 20.75 0.2
Exercisable options 12,159 23.41 - 26.33 26.25 8.4
Exercisable options 17,533 26.34 - 29.25 29.17 8.0
-------- --------------- ------
Total exercisable 248,513 5.85 - 29.25 13.19
Unexercisable options 159,138 8.79 - 11.70 10.29 7.8
Unexercisable options 226,300 11.71 - 14.63 13.69 9.3
Unexercisable options 53,475 14.64 - 17.55 15.24 7.2
Unexercisable options 20,967 17.56 - 20.48 20.38 7.1
Unexercisable options 33,078 23.41 - 26.33 26.25 8.4
Unexercisable options 44,516 26.34 - 29.25 29.16 8.0
-------- --------------- ------
Total all options 785,987 $ 5.85 - 29.25 $14.61 8.1
======== =============== ====== =====
Exercisable, December 31, 1998 171,514 $ 9.97
======== ======
Exercisable, December 31, 1997 76,326 $ 9.34
======== ======
</TABLE>
The weighted-average fair value of options granted during 1999, 1998 and
1997 were $7.38, $12.15 and $8.32 per share, respectively.
In addition to the stock options above, during 1997, the Company granted
an executive 50,000 shares of the Company's stock which vests over four
years. The executive terminated his employment during 1999 prior to
25,000 shares being vested. The Company incurred compensation expense of
approximately $98,000, $98,000 and $53,000 in 1999, 1998 and 1997,
respectively, related to this grant of shares.
9. EMPLOYEE BENEFIT PLAN:
Effective January 1, 1993, the Company established a noncontributory
profit sharing plan which covers substantially all employees. During
1996, the assets of the plan were transferred into a new 401(k)
Profit-Sharing Plan (the Plan).
F-18
<PAGE> 52
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
9. EMPLOYEE BENEFIT PLAN, CONTINUED:
Employees are eligible to participate in the Plan upon six months of
service and 21 years of age. Employees may contribute up to 15% of their
salary, subject to the maximum contribution allowed by the Internal
Revenue Service. The Company's matching contribution is discretionary
based upon approval by management. Employees are 100% vested in their
contributions and vest in Company matching contributions equally over
four years. During the years ended December 31, 1999, 1998 and 1997, the
Company contributed approximately $72,000, $81,000 and $26,000 to the
Plan, respectively.
10. COMMON STOCK:
In April 1998, the Company completed a public offering of 2,838,700
shares of the Company's common stock. During the years ended December
31, 1999 and 1998, a portion of the $70.3 million net proceeds have been
used for business acquisitions. Management intends to use the remaining
net proceeds for additional acquisitions of educational travel and
performance improvement companies and related businesses. These proceeds
will also be used for general corporate purposes.
In November 1998, the Board of Directors of the Company authorized the
repurchase of the Company's common stock (up to an approved amount) in
the open market or through private transactions. This repurchase program
is ongoing and as of December 31, 1999, the Company has repurchased
595,500 shares for approximately $7.3 million.
11. BUSINESS ACQUISITIONS:
In June 1999, the Company acquired certain assets of a company primarily
engaged in providing youth sports travel programs. In September 1999,
the Company also acquired all of the capital stock of a company
primarily involved in registration services for conventions. The total
purchase price for these acquisitions in 1999 was $3.1 million plus the
issuance of a note payable for $600,000, 69,405 shares of the Company's
restricted common stock, and certain contingent consideration as
described below. Total assets acquired and liabilities assumed in these
acquisitions were approximately $3.2 million and $5.9 million,
respectively. Assets acquired consisted primarily of cash, accounts
receivables and prepaid expenses. Liabilities consisted primarily of
accounts payable and participant deposits. The common stock issued to
effect the transactions was recorded at its estimated fair value based
upon quoted market price adjusted for trading restrictions of $800,000.
Goodwill related to these acquisitions of approximately $7.3 million is
being amortized over 25 to 30 years.
In February 1998, the Company acquired certain assets of a company
located in Boston, Massachusetts engaged in providing comprehensive
hotel reservation, registration and travel services for meetings,
conventions, expositions and trade shows. In February 1998, the Company
also acquired all of the outstanding stock of a performance incentive
and meeting management company located in Westlake Village, California.
In April 1998, the Company acquired all of the outstanding stock of a
performance incentive and meeting management company located in Laguna
Hills, California. In May 1998, the Company acquired certain assets of a
specialized golf tour company located in Burbank, California. In July
1998, the Company acquired certain assets of a company located in
Atlanta, Georgia, engaged in providing comprehensive hotel reservation,
registration and travel services for meetings, conventions, expositions
and trade shows.
F-19
<PAGE> 53
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
11. BUSINESS ACQUISITIONS, CONTINUED:
The total purchase price for these acquisitions in 1998 was $11.7
million plus 277,927 shares of the Company's restricted common stock and
certain contingent consideration as described below. Total assets
acquired and liabilities assumed in these acquisitions was approximately
$10.5 million and $10.3 million, respectively. Assets acquired consisted
primarily of cash, accounts receivables and prepaid expenses.
Liabilities consisted primarily of accounts payable and participant
deposits. The common stock issued to effect the transactions was
recorded at its estimated fair value based upon quoted market price
adjusted for trading restrictions of $5.6 million. Goodwill related to
these acquisitions of approximately $17.0 million is being amortized
over 15 to 30 years.
In September 1997, the Company acquired the assets of a company located
in Waconia, Minnesota. The company organizes and operates travel and
other incentive programs, professional meetings, conventions and
seminars for businesses. The total purchase price of this company was
$500,000 in cash, a $541,000 note payable and certain contingent
consideration as described below.
All of the above 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. The contingent consideration to be paid
is dependent upon the success of the acquired companies' programs.
Additionally, contingent consideration for certain of the acquisitions
included provisions for additional stock or cash to be paid if the
market value of the Company's common stock declined below an established
value at a specified future date. All of the contingent consideration,
except for any associated with the market value of the Company's stock,
will be accounted for as goodwill and will be amortized accordingly
when, and if, the contingency is removed and additional consideration is
paid. Additional consideration paid related to market value
contingencies is recorded as an adjustment to stockholders' equity.
During the year ended December 31, 1999, the Company paid approximately
$746,000 and issued 19,216 shares of stock as contingent consideration
related to prior acquisitions.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the 1999 acquisitions had
occurred at January 1, 1998 (in thousands except per share data):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenue $ 44,866 $ 43,463
============== ==========
Net income $ 1,165 $ 8,562
============== ==========
Net income per share - basic $ 0.12 $ 0.95
============== ==========
Net income per share - diluted $ 0.12 $ 0.93
============== ==========
</TABLE>
The above amounts are based upon certain assumptions and estimates which
the Company believes are reasonable and do not reflect any benefit from
economies which might be achieved from combined operations. The pro
forma results do not necessarily represent results which would have
occurred if the acquisitions had taken place on the bases assumed above,
nor are they indicative of the results of future combined operations.
F-20
<PAGE> 54
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." The estimated fair value amounts have been
determined using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data and to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable
to estimate that value. Potential income tax ramifications related to
the realization of unrealized gains and losses that would be incurred in
an actual sale and/or settlement have not been taken into consideration.
CASH AND CASH EQUIVALENTS - The carrying value of cash and cash
equivalents approximates fair value due to the nature of the cash
investments.
DERIVATIVES - The fair value of the Company's investments in foreign
currency forward contracts is based on quoted market prices and the
spot rate of the foreign currencies subject to contracts at year
end. The fair value of the Company's foreign currency put and call
options is based on the estimated amount to terminate the put and
call contracts with the counterparties at year end.
INVESTMENTS - The fair value of the Company's investment in debt and
marketable equity securities is based on quoted market prices.
OTHER INVESTMENTS - The fair value of other investments is not
readily determinable.
NOTES PAYABLE - The fair value of the notes payable is based on the
discounted value of contractual cash flows of the notes. The
discount rate is estimated using the rates currently offered for
debt with similar remaining maturities.
The estimated fair values of the financial instruments as of
December 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------ ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 18,461 $ 18,461 $ 55,290 $ 55,290
Derivatives (369) (369) (289) (289)
Investments 81,743 81,743 37,660 37,660
Financial liabilities:
Notes payable 746 746 331 331
</TABLE>
F-21
<PAGE> 55
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
12. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:
LIMITATIONS - The fair value estimates are made at a discrete point
in time based on relevant market information and information about
the financial instruments. Fair value estimates are based on
judgments regarding current economic conditions, risk
characteristics of various financial instruments and other factors.
These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could
significantly affect the estimates. Accordingly, the estimates
presented herein are not necessarily indicative of what the Company
could realize in a current market exchange.
13. EARNINGS PER SHARE:
The following table presents a reconciliation of basic and diluted
earnings per share (EPS) computations and the number of dilutive
securities (stock options) that were included in the dilutive EPS
computation (in thousands except share and per share data).
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Numerator:
Income before cumulative effect of change
in accounting principle $ 1,839 $ 8,234 $ 5,637
Cumulative effect of accounting change -- 128 --
---------- ------------- ----------
Net income for basic and diluted earnings
per share $ 1,839 $ 8,362 $ 5,637
========== ============= ==========
Denominator:
Weighted-average shares outstanding - basic 9,717,627 8,938,812 6,759,541
Effect of dilutive common stock options 52,396 148,586 133,690
---------- ------------- ----------
Weighted-average shares outstanding -
diluted 9,770,023 9,087,398 6,893,231
========== ============= ==========
Earnings per share - basic:
Income before cumulative effect of change
in accounting principle $ 0.19 $ 0.92 $ 0.83
Cumulative effect of accounting change -- 0.01 --
---------- ------------- ----------
$ 0.19 $ 0.93 $ 0.83
========== ============= ==========
Earnings per share - diluted:
Income before cumulative effect of change
in accounting principle $ 0.19 $ 0.91 $ 0.82
Cumulative effect of accounting change -- 0.01 --
---------- ------------- ----------
$ 0.19 $ 0.92 $ 0.82
========== ============= ==========
</TABLE>
At December 31, 1999, 1998 and 1997, there were 434,000, 146,000 and
13,000 additional stock options outstanding. The effects of the shares
which would be issued upon the exercise of these options have been
excluded from the calculation of diluted earnings per share because they
are anti-dilutive.
F-22
<PAGE> 56
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
14. BUSINESS SEGMENTS:
All of the Company's assets are located in the United States. During the
years ended December 31, 1999, 1998 and 1997, the Company's revenues as
a percentage of total revenues were derived from travel programs
conducted in the following geographic areas:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
United States 38% 39% 19%
Europe 31% 30% 35%
South Pacific 24% 19% 24%
China 4% 6% 11%
Other 3% 6% 11%
</TABLE>
The Company operated the Education Group and the Performance Group
segments during 1999, 1998 and 1997. The Services Group has operated in
1999 and 1998. Corporate and other consists of general corporate assets
(primarily cash and cash equivalents, investments and goodwill) and
other activities which are not directly related to the Education,
Performance and Services Groups. Selected financial information related
to these segments is as follows (in thousands):
<TABLE>
<CAPTION>
EDUCATION PERFORMANCE SERVICES CORPORATE
GROUP GROUP GROUP AND OTHER TOTAL
----- ----- ----- --------- -----
<S> <C> <C> <C> <C> <C>
1999:
Revenues $ 26,532 $ 10,474 $ 6,982 $ -- $ 43,988
Depreciation and amortization 517 466 175 1,283 2,441
Operating income (loss) prior
to restructuring and
write-down of intangible
assets 10,085 (700) (231) (3,033) 6,121
Restructuring and write-down
of intangible assets -- 487 782 6,838 8,107
Operating income (loss) 10,085 (1,187) (1,013) (9,871) (1,986)
Total additions to property,
equipment, goodwill and
covenant-to-compete 790 615 263 10,375 12,043
Total assets 43,357 9,016 2,979 87,411 142,763
1998:
Revenues $ 24,407 $ 7,877 $ 7,731 $ 132 $ 40,147
Depreciation and amortization 416 266 51 1,210 1,943
Operating income (loss) 10,786 (1,716) 2,237 (2,292) 9,015
Total additions to property,
equipment, goodwill and
covenant-to-compete 381 1,409 332 17,604 19,726
Total assets 26,011 5,720 3,287 92,714 127,732
1997:
Revenues $ 21,296 $ 5,237 $ -- $ 8 $ 26,541
Depreciation and amortization 335 108 -- 452 895
Operating income (loss) 9,176 490 -- (1,161) 8,505
Total additions to property,
equipment, goodwill and
covenant-to-compete 916 100 -- 1,477 2,493
Total assets 20,930 3,095 -- 10,424 34,449
</TABLE>
F-23
<PAGE> 57
AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
15. RESTRUCTURING PLAN:
During the fourth quarter of 1999, in connection with management's
decision to improve operating efficiencies, outsource the merchandising
business and reduce costs, the Company recorded a restructuring charge
and write-down of intangible assets totaling $8.1 million. The
restructuring plan is anticipated to be completed during the year ended
December 31, 2000. The restructuring plan involved the elimination of
approximately 60 positions, the write-down of intangible assets and
property and equipment and the consolidation of offices as follows (in
thousands):
<TABLE>
<CAPTION>
RESTRUCTURING RESERVE
AND BALANCE AT
CASH/ IMPAIRMENT DECEMBER 31,
NON-CASH CHARGE ACTIVITY 1999
-------- ------ -------- ----
<S> <C> <C> <C> <C>
Write-down of intangible assets Non-cash $6,838 $6,838 $ --
Severance and related charges Cash 700 134 566
Consolidation of offices Cash 299 27 272
Write-down of property and
equipment Non-Cash 270 270 --
------ ------ ------
Total restructuring charges $8,107 $7,269 $ 838
====== ====== ======
</TABLE>
16. RELATED PARTY TRANSACTIONS:
In connection with one of its investments, the Company received a
non-recurring consulting fee and receives quarterly management fees.
Also the Company's Chairman of the Board of Directors is the Managing
Director of a business management company that the Company has paid
consulting fees of $114,000 and $135,000 for the years ended December
31, 1999 and 1998, respectively.
F-24
<PAGE> 1
EXHIBIT 10.21
AMENDMENT TO GENERAL CONTRACTS
THIS AMENDMENT TO GENERAL CONTRACTS ("Amendment") is entered into January
22, 2000, by and among PEOPLE TO PEOPLE INTERNATIONAL ("PTPI"), a Missouri not
for profit corporation qualified as a 501(c)(3) organization, AMBASSADORS
INTERNATIONAL, INC. ("Ambassadors"), a Delaware corporation, and AMBASSADORS
PROGRAMS, INC. ("AP"), a Delaware corporation and a wholly-owned subsidiary of
Ambassadors.
WHEREAS, PTPI and AP (by assignment) are parties to a certain General
Contract dated April 1, 1995 which, among other things, governs the conduct by
AP of high school, junior high (middle) school student travel and
college/university exchange programs sanctioned by PTPI ("Student Travel
Contract");
WHEREAS, PTPI and AP (by assignment) are parties to a certain General
Contract dated April 1, 1995 and a General Contract dated July 1, 1995 which,
among other things, govern the conduct by AP of adult travel and exchange
programs sanctioned by PTPI ("Adult Travel Contracts");
WHEREAS, PTPI, Ambassadors and AP are parties to a certain General
Contract dated February 12, 1999 which, among other things, governs the conduct
by AP of student and youth sports related travel and exchange programs
sanctioned by PTPI ("Student Sports Contract");
WHEREAS, PTPI, Ambassadors and AP are parties to a certain General
Contract dated February 12, 1999 which, among other things, governs the conduct
by AP of adult sports related travel and exchange programs sanctioned by PTPI
("Adult Sports Contract"); and
WHEREAS, the parties hereto wish to extend the terms of the Student
Travel Contract, the Adult Travel Contracts, the Student Sports Contract and
the Adult Sports Contract (hereinafter referred to collectively as "Contracts"
and individually as "Contract").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Notwithstanding anything to the contrary contained therein, the
terms of each of the Contracts shall be extended so that their termination
dates shall be June 30, 2010.
2. AP shall have the option to extend the term of any or all of the
Contracts through June 30, 2020. In order to exercise the option, it must be
done on or before December 31, 2009.
3. Except as specifically set forth in this Amendment, all of the
terms and conditions of the Contracts shall remain in full force and effect.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment the day
and year first above written.
AMBASSADORS INTERNATIONAL, INC.
By: /s/ JOHN UEBERROTH
---------------------------------------
Its: CEO
AMBASSADORS PROGRAMS, INC.
By: /s/ JEFFREY D. THOMAS
---------------------------------------
Its: President
PEOPLE TO PEOPLE INTERNATIONAL
By: /s/ WILLIAM D. JARVIS
---------------------------------------
Its: President
Both parties agree that they will establish new classes of membership for
the various Ambassador Programs and provide a homestay gift package. These
items will be offered as a negative option on Ambassador Program invoices.
2
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF AMBASSADORS INTERNATIONAL, INC.
1. Ambassadors Education Group, Inc., a Delaware corporation
2. Ambassadors Programs, Inc., a Delaware corporation
3. Ambassadors Sports Group, Inc., a Delaware corporation
4. Ambassadors Specialty Group, Inc., a Delaware corporation
5. Ambassadors Performance Group, Inc., a Delaware corporation
6. Ambassadors Services Group, Inc., a Delaware corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-13405) of Ambassadors International, Inc.
of our report dated February 11, 2000 relating to the financial statements,
which appears in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Spokane, Washington
March 24, 2000
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Ambassadors International, Inc. a Delaware
corporation (the "Company"), and the undersigned officers and directors of the
Company, individually and in their respective capacities indicated below, hereby
make, constitute and appoint John A. Ueberroth and Jeffrey D. Thomas, or either
of them, its and their true and lawful attorneys with power of substitution, to
execute on behalf of the Company, the Annual Report on Form 10-K, including all
exhibits and any and all amendments thereto; that John A. Ueberroth and Jeffrey
D. Thomas, or either of them, are each granted full power and authority to do
and perform each and every act and thing whatsoever as either may deem necessary
and advisable to the same extent and with the same effect as the undersigned
might or could do personally in their respective capacities.
This Power of Attorney may be signed by the undersigned in as many counterparts
as may be necessary, each of which so signed shall be deemed to be an original,
and such counterparts together shall constitute one and the same instrument and
notwithstanding the date of execution shall be deemed to bear the date as set
forth below. Furthermore, facsimile signatures shall be deemed to have the same
effect as original signatures.
Dated as of the 30th day of March, 2000.
<TABLE>
<S> <C>
/s/ JOHN A. UEBERROTH /s/ JEFFREY D. THOMAS
- ------------------------------------------------------ ------------------------------------------------
John A. Ueberroth, Director, President and Chief Jeffrey D. Thomas, Chief Financial Officer,
Executive Officer (Principal Executive Officer) (Principal Financial and Accounting Officer)
/s/ PETER V. UEBERROTH /s/ JAMES L. EASTON
- ------------------------------------------------------ ------------------------------------------------
Peter V. Ueberroth, Chairman of the Board of James L. Easton, Director
Directors
/s/ RAFER L. JOHNSON /s/ JOHN C. SPENCE
- ------------------------------------------------------ ------------------------------------------------
Rafer L. Johnson, Director John C. Spence, Director
/s/ RICHARD D. C. WHILDEN
- ------------------------------------------------------
Richard D. C. Whilden, Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,461
<SECURITIES> 81,743
<RECEIVABLES> 4,897
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 111,081
<PP&E> 8,685
<DEPRECIATION> 4,072
<TOTAL-ASSETS> 142,763
<CURRENT-LIABILITIES> 34,094
<BONDS> 400
0
0
<COMMON> 95
<OTHER-SE> 108,174
<TOTAL-LIABILITY-AND-EQUITY> 142,763
<SALES> 43,988
<TOTAL-REVENUES> 43,988
<CGS> 45,974
<TOTAL-COSTS> 45,974
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 2,880
<INCOME-TAX> 1,041
<INCOME-CONTINUING> 1,839
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,839
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.19
</TABLE>
