-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SLwFjKDCfo2N9Ze+UeD/nNTkfWcF86KeXHdqFiTmJmfThVo9okgjGtTx8gEoTojk uWDwDvW43iUChXSduXVycA== 0000950114-97-000142.txt : 19970317 0000950114-97-000142.hdr.sgml : 19970317 ACCESSION NUMBER: 0000950114-97-000142 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970314 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTRAV INC CENTRAL INDEX KEY: 0000942317 STANDARD INDUSTRIAL CLASSIFICATION: TRANSPORTATION SERVICES [4700] IRS NUMBER: 431323155 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25990 FILM NUMBER: 97556624 BUSINESS ADDRESS: STREET 1: 7711 BONHOMME AVE CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3147270500 MAIL ADDRESS: STREET 1: 7711 BONHOMME AVE CITY: ST LOUIS STATE: MO ZIP: 63105-1961 8-K/A 1 INTRAV, INC. FORM 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------- FORM 8-K/A AMENDMENT #1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: December 31, 1996 COMMISSION FILE NUMBER 0-25990 ----------------------------------- INTRAV, INC. (Exact name of registrant as specified in its charter) ----------------------------------- MISSOURI 43-1323155 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 7711 BONHOMME AVENUE, ST. LOUIS, MISSOURI 63105 (Address of principal executive offices) (314) 727-0500 (Registrant's telephone number, including area code) NO CHANGES (Former name, former address and former fiscal year, if changed since last report) ----------------------------------- 2 This Amendment to the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on January 14, 1997 is being filed in order to amend Item 7 thereto as set forth below. The undersigned Registrant hereby amends the following item of its Current Report on Form 8-K, originally filed with the Securities and Exchange Commission on January 14, 1997 as set forth on the pages attached hereto. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS - ------------------------------------------------------------------------------- The following financial statements and exhibits are filed as part of this report where indicated. (a) Financial statements of businesses acquired, prepared pursuant to Rule 3-05 of Regulation S-X: Businesses acquired: Clipper Cruise Line, Inc., Clipper Adventure Cruises, Inc., Republic Cruise Line, Inc., Liberty Cruise Line, Inc. Independent Auditors' Report Combined Balance Sheets Combined Statements of Income Combined Statements of Shareholder's Equity (Deficit) Combined Statements of Cash Flows Notes to Combined Financial Statements (b) Financial statements of Intrav, Inc. required pursuant to Article 11 of Regulation S-X: Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Pro forma financial information is not included due to the common ownership and control of all entities involved. Consequently, the acquisition has been accounted for in a manner similar to the pooling-of-interests method and, accordingly, all financial data has been restated to include the accounts and results of operations of Clipper for all periods prior to the acquisition. 3 (c) Exhibits in accordance with Item 601 of Regulation S-K:
Exhibit No. Description - ----------- ----------- 4 Revolving Credit Agreement, dated December 31, 1996, between the Registrant and Boatmen's National Bank of St. Louis. In accordance with Item 601(b)(4)(iii) of Regulation S-K, such agreement has been omitted. The Registrant will furnish a copy of such agreement to the Commission upon request. 10 Agreement for Purchase and Sale of Stock by and among Intrav, Inc., Clipper Cruise Line, Inc., Republic Cruise Line, Inc., Liberty Cruise Line, Inc., Clipper Adventure Cruises, Inc., and Windsor, Inc. dated November 13, 1996, as amended by that certain First Amendment, dated December 18, 1996. 23.1 Consent of Deloitte & Touche LLP Previously filed as Exhibit to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 14, 1997.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTRAV, INC. (Registrant) Date: March 14, 1997 /s/ Michael A. DiRaimondo ----------------------------------------- Michael A. DiRaimondo Senior Vice President and Chief Financial Officer 4 CLIPPER CRUISE LINE, INC., CLIPPER ADVENTURE CRUISES, INC., REPUBLIC CRUISE LINE, INC. AND LIBERTY CRUISE LINE, INC. COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1996 AND EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1996 AND INDEPENDENT AUDITORS' REPORT 5 CLIPPER CRUISE LINE, INC., CLIPPER ADVENTURE CRUISES, INC., REPUBLIC CRUISE LINE, INC. AND LIBERTY CRUISE LINE, INC. TABLE OF CONTENTS - -----------------------------------------------------------------------
PAGE INDEPENDENT AUDITORS' REPORT 1 COMBINED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996: Combined Balance Sheets 2 Combined Statements of Income 3 Combined Statements of Shareholder's Equity (Deficit) 4 Combined Statements of Cash Flows 5 Notes to Combined Financial Statements 6-12
6 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholder of Clipper Cruise Line, Inc., Clipper Adventure Cruises, Inc., Republic Cruise Line, Inc. and Liberty Cruise Line, Inc. We have audited the accompanying combined balance sheets of Clipper Cruise Line, Inc., Clipper Adventure Cruises, Inc., Republic Cruise Line, Inc. and Liberty Cruise Line, Inc. as of December 31, 1995 and 1996, and the related combined statements of income, shareholder's equity (deficit), and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such combined financial statements present fairly, in all material respects, the combined financial position of Clipper Cruise Line, Inc., Clipper Adventure Cruises, Inc., Republic Cruise Line, Inc. and Liberty Cruise Line, Inc. at December 31, 1995 and 1996, and the combined results of their operations and their cash flows for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP St. Louis, Missouri February 14, 1997 7 CLIPPER CRUISE LINE, INC., CLIPPER ADVENTURE CRUISES, INC., REPUBLIC CRUISE LINE, INC. AND LIBERTY CRUISE LINE, INC. COMBINED BALANCE SHEETS DECEMBER 31, 1995 AND 1996 - -------------------------------------------------------------------------------------------------------------
ASSETS 1995 1996 CURRENT ASSETS: Cash and cash equivalents $ 3,112,544 $ 3,864,579 Restricted cash (Note 3) 2,283,452 1,917,247 Restricted marketable securities (Notes 3 and 8) 4,529,100 4,751,400 Inventory 527,248 683,988 Prepaid program costs 446,741 443,943 Prepaid expenses 383,192 503,727 Other current assets 263,551 153,852 Deferred taxes (Note 6) 188,260 180,000 ------------ ------------ Total current assets 11,734,088 12,498,736 PROPERTY AND EQUIPMENT - Net (Note 4) 15,960,596 15,583,900 PREPAID PROMOTION COSTS AND OTHER ASSETS 1,525,813 1,368,395 ------------ ------------ TOTAL $ 29,220,497 $ 29,451,031 ============ ============ LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable $ 1,321,417 $ 1,966,977 Accrued expenses 1,109,623 1,190,690 Deferred revenue 6,465,203 6,965,852 Payable to Windsor, Inc. (Note 12) 5,442,874 5,432,024 Current maturities of long-term debt (Note 10) 702,000 Accrued interest - payable to Windsor, Inc. (Note 12) 184,989 213,331 ------------ ------------ Total current liabilities 15,226,106 15,768,874 DEFERRED COMPENSATION (Note 9) 672,216 1,012,173 DEFERRED TAXES (Note 6) 4,729,000 4,645,000 LONG-TERM DEBT - Less current maturities (Note 10) 10,317,000 - COMMITMENTS AND CONTINGENCIES (Note 7) - - SHAREHOLDER'S EQUITY (DEFICIT): Common stock (Note 11) 2,000 2,000 Additional paid-in capital 8,921,500 19,170,633 Accumulated deficit (10,669,974) (11,143,479) Unrealized gain (loss) on marketable securities (Note 8) 22,649 (4,170) ------------ ------------ Total shareholder's equity (deficit) (1,723,825) 8,024,984 ------------ ------------ TOTAL $ 29,220,497 $ 29,451,031 ============ ============ See accompanying notes to financial statements.
- 2 - 8 CLIPPER CRUISE LINE, INC., CLIPPER ADVENTURE CRUISES, INC., REPUBLIC CRUISE LINE, INC., AND LIBERTY CRUISE LINE, INC. COMBINED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1995 AND 1996 - -------------------------------------------------------------------------------------------------------------
1995 1996 Program revenues $ 25,877,635 $ 26,555,452 Cost of operations 17,136,694 17,308,157 ------------ ------------ Gross profit 8,740,941 9,247,295 Selling, general and administrative (including related party expenses of $644,574 and $353,435) (Notes 9 and 12) 4,910,779 6,016,625 Depreciation and amortization 1,201,898 1,182,078 ------------ ------------ Operating income 2,628,264 2,048,592 Investment income - net 656,139 568,055 Interest expense (including related party expenses of $1,086,263 and $812,549) (Note 12) (2,341,537) (1,903,486) ------------ ------------ Income before provision for income taxes and extraordinary item 942,866 713,161 Provision for income taxes (Note 6) 339,000 257,000 ------------ ------------ Income before extraordinary item 603,866 456,161 Extraordinary item - loss on early extinguishment of debt (net of tax benefit of $194,000) (Note 10) - 343,802 ------------ ------------ Net income $ 603,866 $ 112,359 ============ ============ See accompanying notes to financial statements.
- 3 - 9 CLIPPER CRUISE LINE, INC., CLIPPER ADVENTURE CRUISES, INC., REPUBLIC CRUISE LINE, INC. AND LIBERTY CRUISE LINE, INC. COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 1995 AND 1996 - -----------------------------------------------------------------------------------------------------------------------
Total Unrealized Share- Additional Gain (Loss) on holder's Common Paid-In Accumulated Investment Equity Stock Capital Deficit Securities (Deficit) --------- ------------------------------ -------------- --------------- BALANCES AT JANUARY 1, 1995 $ 2,000 $ 8,921,500 $ (11,273,840) $ (139,048) $ (2,489,388) Unrealized gain on investment securities (Note 8) 161,697 161,697 Net income 603,866 603,866 ------- ------------ ------------- ---------- ------------ BALANCES AT DECEMBER 31, 1995 2,000 8,921,500 (10,669,974) 22,649 (1,723,825) Unrealized loss on investment securities (Note 8) (26,819) (26,819) Dividends paid (585,864) (585,864) Additional contribution of capital by Windsor, Inc. (Note 12) 10,249,133 10,249,133 Net income 112,359 112,359 ------- ------------ ------------- ---------- ------------ BALANCES AT DECEMBER 31, 1996 $ 2,000 $ 19,170,633 $ (11,143,479) $ (4,170) $ 8,024,984 ======= ============ ============= ========== ============ See accompanying notes to financial statements.
- 4 - 10 COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995 AND 1996 - -------------------------------------------------------------------------------------------------------------
1995 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 603,866 $ 112,359 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item - 121,914 Depreciation and amortization 1,201,898 1,182,078 Amortization of bond premium 5,755 24,409 Amortization of deferred financing costs 17,382 15,100 Gain on sale of marketable securities (137,860) (35,456) Loss on disposal of equipment 35,203 Deferred income taxes (160,000) (61,000) Changes in assets and liabilities which provided (used) cash: Restricted cash 2,810,462 366,205 Inventory 3,170 (156,740) Prepaid expenses and other assets 62,002 (14,503) Accounts payable and accrued expenses (282,988) 754,969 Deferred revenue (2,223,948) 500,649 Deferred compensation 284,728 339,957 ----------- ----------- Net cash provided by operating activities 2,219,670 3,149,941 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (373,614) (778,513) Sales of marketable securities 6,177,675 3,006,250 Purchases of marketable securities (6,095,070) (3,259,063) ----------- ----------- Net cash used in investing activities (291,009) (1,031,326) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of long-term debt (712,000) (11,019,000) Dividends paid (585,864) Net cash received from Windsor, Inc. (Note 11) 739,000 10,238,284 ----------- ----------- Net cash provided by (used in) investing activities 27,000 (1,366,580) ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENT 1,955,661 752,035 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,156,883 3,112,544 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,112,544 $ 3,864,579 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 2,316,708 $ 1,846,632 Noncash contribution of capital (Note 12) - 10,249,133 See accompanying notes to financial statements.
- 5 - 11 CLIPPER CRUISE LINE, INC., CLIPPER ADVENTURE CRUISES, INC., REPUBLIC CRUISE LINE, INC. AND LIBERTY CRUISE LINE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1996 - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS Clipper Cruise Line, Inc. ("CCL") and Clipper Adventure Cruises, Inc. ("CAC") are leading designers, organizers, marketers and operators of deluxe, escorted, domestic and international travel cruises. The Companies' programs are designed to appeal to higher income individuals desiring first-class travel experiences. The Companies market substantially all of their programs via direct mail through sponsoring "affinity groups", or directly to the ultimate traveler. Clipper Cruise Line, Inc. charters cruise ships exclusively through Republic Cruise Line, Inc. ("RCL") and Liberty Cruise Line, Inc. ("LCL"), affiliates of the Companies. Clipper Adventure Cruises, Inc. has, in the past, chartered a ship from Discoverer Reederei. The Companies had common ownership by Windsor, Inc. until December 31, 1996. On December 31, 1996, all of the outstanding common stock of the Companies (CCL, CAC, RCL and LCL) was sold by Windsor, Inc. to Intrav, Inc., a common ownership affiliate. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF COMBINATION - The accompanying combined financial statements display the accounts of CCL, CAC, RCL and LCL collectively referred to herein as the Companies. All intercompany transactions among these companies have been eliminated. All four companies mentioned (CCL, CAC, RCL and LCL) are under common management and were wholly-owned by Windsor, Inc. (see Note 1). REVENUE RECOGNITION - Program revenues are recognized as income upon completion of a tour. Deferred revenue consists of amounts received for tours which have not yet been completed. PROMOTION AND PROGRAM COSTS - The Companies expense promotion costs as incurred, except for direct-response advertising. Direct-response advertising and program costs are deferred until the revenue from the related program is recognized. Promotion expenses were $2,315,205 and $2,149,389 for 1995 and 1996, respectively. CASH EQUIVALENTS - For purposes of reporting cash flows, the Companies consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. MARKETABLE SECURITIES - The Companies' marketable securities, including restricted marketable securities, have been classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized holding gains and losses, net of taxes, reported as a separate component of shareholder's equity. INVENTORIES - Inventories are valued at the lower of cost or market; cost is determined by the first-in, first-out (FIFO) method for substantially all inventories. - 6 - 12 PROPERTY, AMORTIZATION AND DEPRECIATION - Property and equipment is recorded at cost. Amortization and depreciation is computed using accelerated and straight-line methods over the estimated useful lives of the individual assets. Capitalized software costs are amortized over 5 to 8 years, office furniture and equipment is depreciated over 5 to 7 years and leasehold improvements are amortized over the life of the related lease. The cruise ships are depreciated over 25 years and cruise ship equipment over 5 to 7 years. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, for 1996. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. SFAS No. 121 also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. Adoption of this standard had no material impact to the Company's financial condition or results of operations. INCOME TAXES - The Companies account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires an asset and liability approach for financial accounting and reporting for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax bases of assets and liabilities by applying enacted tax rates applicable to future years in which the differences are expected to reverse. The Companies' provisions for income taxes are computed as if the Companies filed their annual tax returns on a separate company basis. The results of operations of the Companies are included in the consolidated U.S. Corporation income tax return of Windsor, Inc., and the current portion of the federal income tax provision is satisfied by the Companies via a charge or credit to the "Payable to Parent" account. USE OF MANAGEMENT ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires that management make certain 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. The reported amounts of revenues and expenses during the reporting period may also be affected by the estimates and assumptions management is required to make. Actual results may differ from those estimates. 3. RESTRICTED CASH AND MARKETABLE SECURITIES U.S. law requires CCL and CAC to maintain financial protection for passenger advance payments for Company-operated cruises embarking in U.S. ports. The Company has established escrow arrangements to comply with the law and has voluntarily extended the escrow protection to all advance passenger payments for Clipper cruises. Under the arrangements, monies received from passengers for cruises are held in escrow accounts until the respective cruises have been completed. At December 31, 1995 and 1996, cash equivalents and marketable securities amounting to $6,812,552 and $6,668,647, respectively, were held in escrow. - 7 - 13 4. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1995 and 1996 consist of the following:
1995 1996 ---- ---- Cruise ships $ 26,226,616 $ 26,884,859 Cruise ship equipment 507,531 558,985 Computer hardware and software 219,278 265,167 Office furniture and equipment 194,281 194,281 Warehouse facilities 45,755 45,755 ------------ ------------ 27,193,461 27,949,047 Less accumulated depreciation (11,232,865) (12,365,147) ------------ ------------ Total property and equipment $ 15,960,596 $ 15,583,900 ============ ============
5. OPERATING LEASES The Companies lease various office facilities and equipment under noncancellable operating leases. At December 31, 1996, future minimum payments under these leases with initial or remaining terms of one year or more were:
Office Space Other Total 1997 $ 170,076 $ 56,339 $ 226,415 1998 170,076 50,687 220,763 1999 173,478 34,164 207,642 2000 176,947 16,416 193,363 2001 and thereafter 180,486 2,750 183,236 --------- --------- ----------- Total $ 871,063 $ 160,356 $ 1,031,419 ========= ========= ===========
Windsor Management Corporation, as agent for Windsor Real Estate Inc., an affiliated entity, is the lessor of the office space (see Note 12). Rental expense for the years ended December 31, 1995 and 1996 was $216,863 and $233,407, respectively. 6. INCOME TAXES The principal temporary differences that give rise to net deferred income tax liabilities relate to depreciation on the cruise ships, equipment having lower tax bases than book bases and accelerated tax deductions for the cost of tour marketing materials. - 8 - 14 Provisions for income taxes consist of the following:
Years Ended December 31, ------------------------------------ 1995 1996 ---- ---- Current: Federal $ 471,000 $ 259,000 State 28,000 15,000 Deferred: Federal (151,000) (58,000) State (9,000) (3,000) ---------- ---------- Total $ 339,000 $ 213,000 ========== ==========
Factors causing the effective tax rate to differ from the statutory federal income tax rate were:
Years Ended December 31, ------------------------ 1995 1996 ---- ---- Statutory rate 34.0% 34.0% State and local income taxes, net of U.S. federal income tax benefit 2.0 2.0 ---- ---- Effective rate 36.0% 36.0% ==== ====
The Companies' current and noncurrent deferred taxes included in the balance sheets as of December 31, 1995 and 1996 consisted of the following deferred tax assets and liabilities:
1995 ------------------------------------------------ Deferred Deferred Tax Tax Net Assets Liabilities Liability Property and equipment $ - $4,478,000 $4,478,000 Promotional costs 462,000 462,000 Accruals 453,000 (453,000) Unrealized gain on marketable securities 12,740 12,740 Other 41,000 41,000 -------- ---------- ---------- Total $453,000 $4,993,740 $4,540,740 ======== ========== ========== Current $242,000 $ 53,740 $ (188,260) Noncurrent 211,000 4,940,000 4,729,000 -------- ---------- ---------- Total $453,000 $4,993,740 $4,540,740 ======== ========== ==========
- 9 - 15
1996 ------------------------------------------------ Deferred Deferred Tax Tax Net Assets Liabilities Liability Property and equipment $ - $4,501,000 $4,501,000 Promotional costs 455,000 455,000 Accruals 532,000 (532,000) Unrealized gain on marketable securities 2,000 (2,000) Other 43,000 43,000 -------- ---------- ---------- Total $534,000 $4,999,000 $4,465,000 ======== ========== ========== Current $223,000 $ 43,000 $ (180,000) Noncurrent 311,000 4,956,000 4,645,000 -------- ---------- ---------- Total $534,000 $4,999,000 $4,465,000 ======== ========== ==========
7. COMMITMENTS AND CONTINGENCIES PROFIT SHARING PLAN - The Companies participate in a multi-employer profit sharing plan sponsored by Windsor, Inc. covering substantially all employees. In its sole discretion, the Companies may match a percentage of the employees' before-tax contributions and may also make a nonmatching contribution. An employee is not required to make before-tax contributions in order to receive a company nonmatching contribution. Company contributions, which are subject to the discretion of the Board of Directors, amounted to approximately $70,000 in 1995 and $75,000 in 1996, respectively. 8. MARKETABLE SECURITIES At December 31, 1995 and 1996, the Companies' investments in marketable securities are classified as available-for-sale and include the following:
1995 -------------------------------------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Treasury and agency securities $4,493,711 $35,389 $ - $4,529,100 ========== ======= ======== ========== 1996 -------------------------------------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Treasury and agency securities $4,757,570 $ $ 6,170 $4,751,400 ========== ======= ======== ==========
- 10 - 16 The contractual maturities of debt securities as of December 31, 1996 are as follows:
Amortized Fair Cost Value Less than one year $3,005,275 $2,994,300 One to five years 1,752,295 1,757,100 ========== ========== Total $4,757,570 $4,751,400 ========== ==========
The proceeds from sales of securities were $6,177,676 and $3,006,250 for 1995 and 1996, respectively. The gross realized gains and (losses) were $146,500 and $(8,640) for 1995 and $35,456 and $-0- for 1996, respectively. The changes in net unrealized holding gain or (loss) that have been included in shareholders' equity (deficit) were $252,652 and $(41,905) for 1995 and 1996, respectively. For the purposes of determining gross realized gains and losses, the cost of securities sold is based upon specific identification. 9. DEFERRED COMPENSATION Clipper Cruise Line, Inc. and one of its key employees entered into an Incentive Bonus Agreement on January 1, 1990, continuing for each full calendar year of employment through December 31, 1999. Under the agreement, the employee earns a minimum annual deferred bonus of $50,000 plus 5% of the first $1,000,000 of pre-tax earnings (as defined in the agreement) and 10% of any pre-tax earnings in excess of $1,000,000. The cumulative bonus amounts vest at 10% per year, with vested bonus amounts earning interest at 10% per year. Expenses (including interest) under this agreement are $284,728 and $339,957 for 1995 and 1996, respectively. Additionally, the agreement provided for an additional bonus upon the sale of Clipper based on a percentage of the net sales price (as defined). In connection with the sale discussed in Note 1, the employee received a bonus of approximately $1,000,000. 10. LONG-TERM DEBT At December 31, 1995, long-term debt consisted of two series of United States Government Guaranteed Ship Financing Bonds with an aggregate outstanding balance of $11,019,000, due in installments through 2012, which carried interest rates from 9.85% to 10.20%. The Company had pledged the cruise ships as collateral under the terms of the agreements. In December 1996, the Company prepaid $10,518,000 to retire the outstanding principal of both series of bonds. As required under the bond agreements, the Company paid an additional $416,000 prepayment premium for the early retirement of the bonds. Accordingly, the Company recorded an extraordinary loss of $537,802 ($343,802 net of taxes) consisting of the prepayment premium and the write-off of deferred financing costs related to the early extinguishment of the debt. 11. COMMON STOCK The common stock of CCL, RCL and LCL consists of 500 shares each of authorized, issued and outstanding stock at $1 par value. The common stock of CAC consists of 3,000 shares authorized, of which 500 are issued and outstanding at $1 par value. - 11 - 17 12. RELATED PARTY TRANSACTIONS The Companies were wholly-owned by Windsor, Inc. ("Windsor") until December 31, 1996 (see Note 1). Windsor provided certain administrative services, principally for employee benefits, legal, tax and insurance matters, for which it charged a fee. Fees paid to Windsor for these services totaled $296,000 and $55,000 in 1995 and 1996, respectively. The payable to Windsor represents an interest-bearing payable resulting from the various transactions between the Companies and Windsor, Inc. During 1996, Windsor contributed $10,249,133 to capital through a reduction of the Companies' payable to Windsor. The Companies paid interest at rates of 10.25% and 7.0% for 1995 and 1996, respectively. This indebtedness was assumed by Intrav at December 31, 1996 in connection with the sale transaction discussed in Note 1. The Companies lease their principal offices from Windsor Management Corporation, as agent for Windsor Real Estate, Inc. Windsor Management Corporation and Windsor Real Estate, Inc., are wholly-owned subsidiaries of Windsor. The lease expires at December 31, 2001 and includes a renewal option for one additional five-year period. Annual rent under the lease is $170,076, plus various escalation payments. The Companies receive information processing services from Intrav, a common ownership affiliate. Payments made to Intrav totaled $176,000 and $125,262 in 1995 and 1996, respectively. * * * * * * - 12 - 18 INTRAV, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1996 AND EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996 AND INDEPENDENT AUDITORS' REPORT 19 INTRAV, INC. INDEX TO FINANCIAL STATEMENTS
PAGE Independent Auditors' Report 2 Consolidated Balance Sheets as of December 31, 1995 and 1996 3 Consolidated Statements of Income for the Years Ended December 31, 1994, 1995 and 1996 4 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1994, 1995 and 1996 5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 6 Notes to Consolidated Financial Statements 8
- 1 - 20 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Intrav, Inc. We have audited the accompanying consolidated balance sheets of Intrav, Inc. as of December 31, 1995 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Intrav, Inc. at December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP St. Louis, Missouri February 14, 1997 - 2 - 21 INTRAV, INC. CONSOLIDATED BALANCE SHEETS
December 31, ----------------------------------- ASSETS 1995 1996 ---- ---- Current assets: Cash and cash equivalents $12,178,044 $ 6,670,062 Restricted cash (Note 3) 2,283,452 1,917,247 Marketable securities (Note 8) 12,234,069 776,430 Restricted marketable securities (Notes 3 and 8) 4,529,100 4,751,400 Prepaid program costs 8,153,138 9,821,338 Prepaid expenses 531,485 867,345 Other current assets 1,585,750 1,519,399 ----------- ------------ Total current assets 41,495,038 26,323,221 Property and equipment - net (Note 4) 18,271,193 17,569,058 Prepaid promotion costs and other assets 9,200,091 8,701,828 ----------- ------------ Total $68,966,322 $ 52,594,107 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,869,182 $ 3,298,318 Accrued expenses 3,368,385 3,896,660 Deferred revenue 31,976,494 29,096,267 Income taxes payable 536,000 616,539 Payable to Windsor, Inc. (Notes 1 and 11) 5,627,863 426,331 Current maturities of long-term debt 702,000 Deferred income taxes (Note 6) 2,650,740 2,404,000 ----------- ------------ Total current liabilities 47,730,664 39,738,115 Deferred compensation (Note 9) 672,216 1,012,173 Deferred income taxes (Note 6) 5,276,000 5,063,000 Long-term debt - less current maturities (Note 10) 10,317,000 3,000,000 Commitments and contingencies (Note 7) - - Shareholders' equity: Preferred stock, $.01 par value - authorized, 5,000,000 shares; issued and outstanding, none - - Common stock, $.01 par value - authorized, 20,000,000 shares; issued, 5,325,000 shares; outstanding, 5,325,000 shares in 1995 and 5,151,600 in 1996 53,250 53,250 Additional paid-in capital 11,940,338 22,189,471 Retained earnings (accumulated deficit) (7,098,795) (17,055,152) Unrealized gain (loss) on marketable securities (Note 8) 75,649 (2,370) ----------- ------------ 4,970,442 5,185,199 Less cost of common stock in treasury, 173,400 shares in 1996 (1,404,380) ----------- ------------ Total shareholders' equity 4,970,442 3,780,819 ----------- ------------ Total $68,966,322 $ 52,594,107 =========== ============ See accompanying notes to consolidated financial statements.
- 3 - 22 INTRAV, INC. CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, ---------------------------------------------- 1994 1995 1996 ---- ---- ---- Program revenues $108,875,553 $114,844,709 $126,080,751 Cost of operations 83,933,984 91,034,709 101,651,057 ------------ ------------ ------------ Gross profit 24,941,569 23,810,000 24,429,694 Selling, general and administrative (including related party expenses of $947,120, $1,198,588 and $985,057) (Notes 9 and 11) 15,586,347 15,135,000 16,924,172 Depreciation and amortization 1,852,882 1,787,002 1,849,098 ------------ ------------ ------------ Operating income 7,502,340 6,887,998 5,656,424 Investment income 1,265,181 1,882,492 1,642,882 Interest expense (including related party expenses of $727,779, $1,086,263 and $812,549) (2,058,858) (2,369,517) (1,903,486) ------------ ------------ ------------ Income before provision for income taxes and extraordinary item 6,708,663 6,400,973 5,395,820 Provision for income taxes (Note 6) 2,330,000 2,254,000 1,887,000 ------------ ------------ ------------ Income before extraordinary item 4,378,663 4,146,973 3,508,820 Extraordinary item - loss related to early extinguish- ment of debt (net of tax benefit of $194,000) (Note 10) - - (343,802) ------------ ------------ ------------ Net income $ 4,378,663 $ 4,146,973 $ 3,165,018 ============ ============ ============ Net income per common share: Income before extraordinary item $ 0.88 $ 0.80 $ 0.68 Extraordinary item (0.07) ------------ ------------ ------------ Net income per common share $ 0.88 $ 0.80 $ 0.61 ============ ============ ============ Weighted average number of common shares outstanding 5,000,000 5,200,000 5,195,000 ============ ============ ============ See accompanying notes to consolidated financial statements.
- 4 - 23 INTRAV, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Unrealized ------------------ Gain Number of Additional (Loss) on Total Outstanding Paid-In Retained Investment Treasury Shareholders' Shares Amount Capital Earnings Securities Stock Equity ---------- ------- ----------- ------------- ---------- ----------- ------------- BALANCES AT JANUARY 1, 1994, as previously reported...............................5,000,000 $50,000 $ 350,509 $ 1,787,281 $ 36,000 $ - $ 2,223,790 Acquisition of Clipper Cruise Line, treated as pooling-of-interest (Note 1)................. 8,923,500 (11,580,461) (2,656,961) --------- ------- ----------- ------------ --------- ----------- ----------- BALANCES AT JANUARY 1, 1994, as restated ......................................5,000,000 50,000 9,274,009 (9,793,180) 36,000 - (433,171) Net income ....................................... 4,378,663 4,378,663 Dividends ........................................ (4,500,000) (4,500,000) Unrealized loss on investment securities (Note 8) ....................................... (538,048) (538,048) --------- ------- ----------- ------------ --------- ----------- ----------- BALANCES AT DECEMBER 31, 1994 ......................5,000,000 50,000 9,274,009 (9,914,517) (502,048) - (1,092,556) Issuance of stock ................................ 325,000 3,250 2,666,329 2,669,579 Net income ....................................... 4,146,972 4,146,972 Dividends ........................................ (1,331,250) (1,331,250) Unrealized gain on investment securities (Note 8) ....................................... 577,697 577,697 --------- ------- ----------- ------------ --------- ----------- ----------- BALANCES AT DECEMBER 31, 1995 ......................5,325,000 53,250 11,940,338 (7,098,795) 75,649 - 4,970,442 Contributed capital (Note 1)...................... 10,249,133 10,249,133 Acquisition of Clipper Cruise Line (Note 1) (9,939,398) (9,939,398) Net income ....................................... 3,165,018 3,165,018 Dividends paid to Intrav, Inc. shareholders.. (2,596,113) (2,596,113) Dividends paid to Windsor, Inc.................... (585,864) (585,864) Unrealized loss on investment securities (Note 8) ....................................... (78,019) (78,019) Purchase of 173,400 shares of common stock for treasury.............................. (1,404,380) (1,404,380) --------- ------- ----------- ------------ --------- ----------- ----------- BALANCES AT DECEMBER 31, 1995 ......................5,325,000 $53,250 $22,189,471 $(17,055,152) $ (2,370) $(1,404,380) $ 3,780,819 ========= ======= =========== ============ ========= =========== =========== See accompanying notes to consolidated financial statements.
- 5 - 24 INTRAV, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, --------------------------------------------- 1994 1995 1996 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................... $ 4,378,663 $ 4,146,973 $ 3,165,018 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item....................................... 121,914 Depreciation and amortization............................ 1,852,882 1,787,002 1,849,098 Amortization of bond premium............................. 78,306 53,223 68,354 Amortization of deferred financing costs................. 18,440 17,382 15,100 Gain on sale of marketable securities.................... (248,679) (62,419) Loss on disposal of equipment............................ 33,727 35,203 Deferred income taxes.................................... 239,000 1,181,000 (415,000) Changes in assets and liabilities which provided (used) cash: Restricted cash...................................... (527,065) 2,810,462 366,205 Prepaid expenses and other assets.................... 1,132,349 (5,521,598) (1,864,339) Other current assets................................. 331,671 169,219 66,350 Accounts payable and accrued expenses................ 1,624,903 (1,105,061) 957,411 Deferred revenue..................................... 6,358,188 1,632,066 (2,880,227) Deferred compensation................................ 153,559 284,728 339,957 Income taxes payable................................. 542,000 (6,000) 80,539 ----------- ------------ ------------ Net cash from operating activities................... 16,216,623 5,235,920 1,807,961 ----------- ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment.......................... (529,805) (944,216) (1,120,092) Sales of marketable securities............................... 6,187,130 17,052,355 28,200,134 Purchases of marketable securities........................... (8,736,056) (19,737,545) (17,093,489) ----------- ------------ ------------ Net cash provided by (used in) investing activities......................................... (3,078,731) (3,629,406) 9,986,553 ----------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments of long-term debt .................................. (712,000) (712,000) (11,019,000) Proceeds from revolving line-of-credit....................... 3,000,000 Net proceeds from issuance of common stock................... 2,669,579 Purchase of treasury stock................................... (1,404,380) Dividends paid............................................... (3,000,000) (2,831,250) (3,181,977) Proceeds from short-term borrowings.......................... 682,649 3,000,000 Payments on short-term borrowings............................ (2,616,943) (3,000,000) Payment to Windsor, Inc. for acquisition of Clipper.................................................... (9,726,398) Net cash received from (paid to) Windsor, Inc................ (399,979) 1,337,287 5,029,259 ----------- ------------ ------------ Net cash provided by (used in) financing activities......................................... (6,046,273) 463,616 (17,302,496) ----------- ------------ ------------ (Continued) - 6 - 25 INTRAV, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, --------------------------------------------- 1994 1995 1996 ---- ---- ---- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................................. $ 7,091,619 $ 2,070,130 $ (5,507,982) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................................... 3,016,295 10,107,914 12,178,044 ----------- ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD................................................ $10,107,914 $ 12,178,044 $ 6,670,062 =========== ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for taxes........................................ $ 1,198,000 $ 580,000 $ 1,582,000 Noncash contribution of capital................ - - 10,249,133 Cash paid for interest..................................... 1,860,587 2,316,708 1,846,632 See accompanying notes to consolidated financial statements. (Concluded)
- 7 - 26 INTRAV, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Intrav, Inc. ("INTRAV" or the "Company") is a leading designer, organizer, marketer and operator of deluxe, escorted, international travel programs. The Company's programs are designed to appeal to higher income individuals desiring first-class travel experiences. The Company markets substantially all of its programs via direct mail through sponsoring "affinity groups", or directly to the ultimate traveler. On December 31, 1996, the Company acquired all the outstanding common stock of Clipper Cruise Line ("Clipper") consisting of Clipper Cruise Line, Inc. ("CCL"), Clipper Adventure Cruises, Inc. ("CAC"), Republic Cruise Line, Inc. ("RCL") and Liberty Cruise Line, Inc. ("LCL") from Windsor, Inc. ("Windsor"), a company controlled by Barney A. Ebsworth, the Company's Chairman of the Board and majority stockholder. The Stock Purchase Agreement included an initial payment of approximately $9,900,000 and the assumption of indebtedness of $5,500,000 owed by Clipper to Windsor, with an additional $213,000 to be paid on or before March 31, 1997. Additional consideration of up to $3,000,000 may be paid to the extent the cumulative net cruise revenues ("as defined") of Clipper exceed $70,000,000 in the period January 1, 1996 through December 31, 2000. Due to the common ownership and control of Mr. Ebsworth over both INTRAV and Clipper, the acquisition has been accounted for in a manner similar to the pooling-of-interests method and, accordingly, all financial data has been restated to include the accounts and results of operations of Clipper for all periods prior to the acquisition. Clipper is a leading designer, organizer, marketer and operator of deluxe, escorted, domestic and international travel cruises. Similar to INTRAV, its programs are designed to appeal to higher income individuals desiring first-class travel experiences and are primarily marketed via direct mail through sponsoring "affinity groups", or directly to the ultimate traveler. Clipper's travelers cruise primarily on its two cruise ships from RCL and LCL and in the past, Clipper has chartered an additional ship from Discoverer Reederei. As used herein, the term "Company" refers to both Intrav, Inc. and Clipper. The consolidated financial information does not contain any material adjustments to conform the accounting policies of Clipper to that of the Company. All intercompany transactions have been eliminated. - 8 - 27 Net program revenues, net income and related per share amounts of the separate entities are presented in the following table:
1994 1995 1996 PROGRAM REVENUES: INTRAV $ 80,355,063 $ 88,967,074 $ 99,525,299 Clipper 28,520,490 25,877,635 26,555,452 ------------ ------------ ------------ $108,875,553 $114,844,709 $126,080,751 ============ ============ ============ NET INCOME: INTRAV $ 4,072,042 $ 3,543,107 $ 3,052,659 Clipper 306,621 603,866 112,359 ------------ ------------ ------------ $ 4,378,663 $ 4,146,973 $ 3,165,018 ============ ============ ============ NET INCOME PER COMMON SHARE: INTRAV $ 0.81 $ 0.68 $ 0.59 Clipper 0.07 0.12 0.02 ------------ ------------ ------------ $ 0.88 $ 0.80 $ 0.61 ============ ============ ============
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of the Company include the accounts of INTRAV and its wholly-owned subsidiaries CCL, CAC, RCL and LCL. All significant intercompany accounts and transactions have been eliminated. REVENUE RECOGNITION - Program revenues are recognized as income upon completion of a tour. Deferred revenue consists of amounts received for tours which have not yet been completed. PROMOTION AND PROGRAM COSTS - The Company expenses promotion costs as incurred, except for direct-response advertising. Direct-response advertising and program costs are deferred until the revenue from the related program is recognized. Promotion expenses were $13,879,721, $13,769,877 and $17,712,181 for 1994, 1995 and 1996, respectively. CURRENCY HEDGES - The Company may enter into contracts to buy foreign currencies in the future to protect the U.S. dollar value of certain foreign currency transactions. Except in the infrequent instance of cancellation of non-U.S. currency cost commitments, the Company's practices relating to these contracts do not expose the Company to currency risk from exchange rate movements because the gains and losses on them offset losses and gains on the cost commitments being hedged. Gains and losses on currency forward contracts are deferred and recognized in the same period as the hedged transactions (see Note 7). CASH EQUIVALENTS - For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. MARKETABLE SECURITIES - The Company's marketable securities, including restricted amounts, have been classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized holding gains and losses, net of taxes, reported as a separate component of shareholders' equity. - 9 - 28 PROPERTY, AMORTIZATION AND DEPRECIATION - Property and equipment is recorded at cost. Amortization and depreciation is computed using accelerated and straight-line methods over the estimated useful lives of the individual assets. Capitalized software costs are amortized over 5 to 8 years, office furniture and equipment is depreciated over 5 to 7 years and leasehold improvements are amortized over the life of the related lease. The cruise ships are depreciated over 25 years and cruise ship equipment over 5 to 7 years. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, for 1996. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. SFAS No. 121 also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. Adoption of this standard had no material impact to the Company's financial condition or results of operations. INCOME TAXES - Deferred income taxes reflect the tax consequences on future years of differences between tax and financial reporting amounts. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax bases of assets and liabilities by applying enacted tax rates applicable to future years in which the differences are expected to reverse. Prior to the acquisition discussed in Note 1, Clipper's results of operations were included in the consolidated U.S. Corporate income tax return of Windsor. Clipper's provision for income taxes has been computed as if it filed an annual return on a separate company basis. The current portion of the income tax provision is satisfied via a charge or credit to the "Payable to Windsor" account. In the future, Clipper will file a consolidated return in Intrav. USE OF MANAGEMENT ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires that management make certain 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. The reported amounts of revenues and expenses during the reporting period may also be affected by the estimates and assumptions management is required to make. Actual results may differ from those estimates. COMPUTATION OF NET INCOME PER COMMON SHARE - Net income per common share is computed by dividing net income by the weighted average number of shares outstanding. Common share equivalents, in the form of stock options, are excluded from the calculations as they have no materially dilutive effect on the per share amounts. 3. RESTRICTED CASH AND MARKETABLE SECURITIES U.S. law requires Clipper to maintain financial protection for passenger advance payments for Company-operated cruises embarking in U.S. ports. The Company has established escrow arrangements to comply with the law and has voluntarily extended the escrow protection to all advance passenger payments for such cruises. Under the arrangements, monies received from passengers for cruises are held in escrow accounts until the respective cruises have been completed. At December 31, 1995 and 1996, cash equivalents and marketable securities amounting to $6,812,552 and $6,668,647, respectively, were held in escrow. - 10 - 29 4. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1995 and 1996 consist of the following:
1995 1996 Cruise ships $ 26,226,616 $ 26,884,862 Computer hardware and software 3,339,934 3,641,848 Office furniture and equipment 2,456,411 2,541,965 Cruise ship equipment 507,531 558,985 Leasehold improvements 107,287 107,287 Warehouse facilities 45,755 45,755 ------------ ------------ 32,683,534 33,780,702 Less accumulated depreciation (14,412,341) (16,211,641) ------------ ------------ Total property and equipment $ 18,271,193 $ 17,569,061 ============ ============
5. OPERATING LEASES The Company leases various office facilities and equipment under noncancellable operating leases. At December 31, 1996, future minimum payments under these leases with initial or remaining terms of one year or more were:
OFFICE SPACE OTHER TOTAL 1997 $ 664,150 $247,535 $ 911,685 1998 672,000 52,061 724,061 1999 696,651 34,164 730,815 2000 710,582 16,416 726,998 2001 and thereafter 724,794 2,750 727,544 ---------- -------- ---------- Total $3,468,177 $352,926 $3,821,103 ========== ======== ==========
Windsor Management Corporation, as agent for Windsor Real Estate Inc., an affiliated entity, is the lessor of the office space (see Note 11). Rental expense for the years ended December 31, 1994, 1995 and 1996 was $901,756, $954,590 and $866,047, respectively. - 11 - 30 6. INCOME TAXES Provisions for income taxes consist of the following:
YEARS ENDED DECEMBER 31, ---------------------------------------------- 1994 1995 1996 ---- ---- ---- Current: Federal $2,019,000 $1,005,000 $2,174,000 State 72,000 68,000 128,000 Deferred: Federal 237,000 1,087,000 (393,000) State 2,000 94,000 (22,000) ---------- ---------- ---------- Total $2,330,000 $2,254,000 $1,887,000 ========== ========== ==========
Factors causing the effective tax rate to differ from the statutory federal income tax rate were:
YEARS ENDED DECEMBER 31, ---------------------------- 1994 1995 1996 ---- ---- ---- Statutory rate 34.0 % 34.0 % 34.0 % Nontaxable interest income (1.0) (1.4) (0.1) State and local income taxes, net of U.S. federal income tax benefit 1.7 2.6 1.1 Effective rate 34.7 % 35.2 % 35.0 %
The Company's current and noncurrent deferred taxes included in the balance sheets as of December 31, 1995 and 1996 consisted of the following deferred tax assets and liabilities:
1995 -------------------------------------------- DEFERRED DEFERRED TAX TAX NET ASSETS LIABILITIES LIABILITY Property and equipment $ - $5,025,000 $5,025,000 Promotional costs 3,278,000 3,278,000 Accruals 242,000 (242,000) Deferred compensation 211,000 (211,000) Unrealized gain on marketable securities 43,740 43,740 Other 33,000 33,000 -------- ---------- ---------- Total $453,000 $8,379,740 $7,926,740 ======== ========== ========== Current $242,000 $2,892,740 $2,650,740 Noncurrent 211,000 5,487,000 5,276,000 -------- ---------- ---------- Total $453,000 $8,379,740 $7,926,740 ======== ========== ==========
- 12 - 31
1996 ---------------------------------------------------- DEFERRED DEFERRED TAX TAX NET ASSETS LIABILITIES LIABILITY Property and equipment $ - $4,919,000 $4,919,000 Promotional costs 2,912,000 2,912,000 Accruals 221,000 (221,000) Deferred compensation 311,000 (311,000) Unrealized loss on marketable securities 1,000 (1,000) Other 169,000 169,000 -------- ---------- ---------- Total $533,000 $8,000,000 $7,467,000 ======== ========== ========== Current $222,000 $2,626,000 $2,404,000 Noncurrent 311,000 5,374,000 5,063,000 -------- ---------- ---------- Total $533,000 $8,000,000 $7,467,000 ======== ========== ==========
7. COMMITMENTS AND CONTINGENCIES Charter Agreements - As of December 31, 1996, the Company has agreements to charter cruise ships and aircraft for its group travel programs in 1997 and 1998 amounting to $10,317,000. Commitments generally may be canceled with penalties from 10 percent to 100 percent. Profit Sharing Plan - INTRAV sponsors a profit sharing plan covering substantially all employees. Clipper participates in a multi-employer profit sharing plan sponsored by Windsor, Inc., an affiliated company, covering substantially all employees. At their discretion, each Company may match a percentage of the employees' before-tax contributions and may also make a nonmatching contribution. An employee is not required to make before-tax contributions in order to receive a company nonmatching contribution. Company contributions for both companies, which are subject to the discretion of the Board of Directors, amounted to approximately $820,000 in 1994, $482,000 in 1995 and $372,000 in 1996, respectively. Standby Letters of Credit - As of December 31, 1996, the Company had standby letters of credit in place totaling approximately $550,000. The Company expects that none of its standby letters of credit will be drawn on. Currency Contracts - The Company has utilized foreign currency forward contracts to hedge against fluctuations in the costs of the currencies used for its international travel programs. At December 31, 1996, the Company had contracts to purchase $1,850,000 (U.S. equivalent) of non-U.S. currencies for 1997 program operations. - 13 - 32 8. MARKETABLE SECURITIES At December 31, 1995 and 1996, the Company's investments in marketable securities (including restricted amounts) are classified as available-for-sale and include the following:
1995 -------------------------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE U.S. Treasury and agency securities $14,683,301 $104,464 $ $14,787,765 State and local government debt securities 1,960,479 14,925 1,975,404 ----------- -------- ------- ----------- Total $16,643,780 $119,389 $ $16,763,169 =========== ======== ======= =========== 1996 ------------------------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE U.S. Treasury and agency securities $4,758,770 $ - $(7,370) $4,751,400 State and local government debt securities 772,430 4,000 776,430 ---------- ------ ------- ---------- Total $5,531,200 $4,000 $(7,370) $5,527,830 ========== ====== ======= ==========
The contractual maturities of debt securities as of December 31, 1996 are as follows:
AMORTIZED FAIR COSTS VALUE Less than one year $3,260,477 $3,247,874 One to five years 2,270,723 2,279,956 ---------- ---------- Total $5,531,200 $5,527,830 ========== ==========
The proceeds from sales of securities were $6,187,130, $17,052,355 and $28,200,134 for 1994, 1995 and 1996, respectively. The gross realized gains and (losses) were $50,930 and $(97,046) for 1994, $278,792 and $(30,113) for 1995 and $66,899 and ($4,480) for 1996, respectively. The changes in net unrealized holding gain or (loss) that have been included in shareholders' equity were $(84,263), $904,652 and $(122,905) for 1994, 1995 and 1996, respectively. For the purposes of determining gross realized gains and losses, the cost of securities sold is based upon specific identification. 9. DEFERRED COMPENSATION Clipper entered into an Incentive Bonus Agreement with one of its key employees on January 1, 1990 (as amended in December 1996), continuing for each full calendar year of employment through December 31, 1999. Under the agreement, the employee earns a minimum annual deferred bonus of $50,000 plus 5% of the first $1,000,000 of annual pre-tax earnings of Clipper (as defined in the agreement) and 10% of any annual pre-tax earnings of Clipper in excess of $1,000,000. The cumulative bonus amount vests at 10% per year, with vested bonus amount earning interest at 10% per year. The - 14 - 33 Company recognized expense under this agreement of $153,559, $284,728 and $339,956 for 1994, 1995 and 1996, respectively. The agreement also provided for an additional bonus upon the sale of Clipper based on a percentage of the net sales price (as defined). In connection with the acquisition discussed in Note 1, the key employee received a bonus of approximately $1,000,000. 10. LONG-TERM DEBT At December 31, 1995, long-term debt consisted of two series of United States Government Guaranteed Financing Bonds with an aggregate outstanding balance of $11,019,000, due in installments through 2012, which carried interest rates from 9.85% to 10.20%. The Company had pledged the cruise ships as collateral under the terms of the agreements. In December 1996, the Company prepaid $10,518,000 to retire the outstanding principal of both series of bonds. As required under the bond agreements, the Company paid an additional $416,000 prepayment premium for the early retirement of the bonds. Accordingly, the Company recorded an extraordinary loss of $537,802 ($343,802 net of taxes) consisting of the prepayment premium and the write-off of deferred financing costs related to the early extinguishment of the debt. On December 31, 1996, the Company entered into a $10,000,000 revolving credit facility agreement with Boatmen's National Bank of St. Louis. The agreement includes a provision for a $1,250,000 reduction of the available amount on the first anniversary date of the agreement, and expires on December 31, 1999. The Company had outstanding borrowings of $3,000,000 at December 31, 1996. The agreement provides that the Company may select among various draw arrangements with varying maturities and interest rates. At December 31, 1996 the interest rate was 8.25%. The Company has pledged its personal property, including the cruise ships, as collateral and must comply with certain financial covenants, under the terms of the agreement. 11. RELATED PARTY TRANSACTIONS The Company leases its principal offices from Windsor Management Corporation, as agent for Windsor Real Estate, Inc. Windsor Management Corporation and Windsor Real Estate, Inc., are wholly-owned subsidiaries of Windsor. The lease expires at December 31, 2001 and includes a renewal option for one additional five-year period. Annual rent under the lease is $664,150, plus various escalation payments. Windsor also provides certain administrative services, principally for employee benefits, legal, tax and insurance matters, for which it charges a fee. Fees paid to Windsor for these services totaled $110,000, $352,000 and $66,750 in 1994, 1995 and 1996, respectively. The payable to Windsor is primarily interest-bearing and results from the various transactions between the Company and Windsor. The Company paid interest at rates 7%, 10.25% and 7% for 1994, 1995 and 1996, respectively. 12. INCENTIVE STOCK PLAN The Company has an incentive stock plan, whereby incentive stock options, nonqualifying stock options, restricted stock and stock appreciation rights may be granted to officers, key employees and outside directors to purchase a specified number of shares of common stock at a price not less than the - 15 - 34 fair market value at the date of grant and for a term not to exceed 10 years. The maximum number of shares available under the plan is 500,000. During 1995, the Company issued options to purchase an aggregate of 300,000 shares of common stock at an exercise price of $10.50 per share. Each such option vests over a five-year period with 20% vesting each year. During 1997 options to purchase 88,000 shares were forfeited. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized for the stock option plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards in 1995 consistent with the provisions of SFAS No. 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below:
1995 Net income - as reported $4,146,973 ========== Net income - pro forma $3,708,973 ========== Net income per common share - as reported $ 0.80 ========== Net income earnings per common share - pro forma $ 0.71 ==========
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for stock options granted in 1995; dividend yield of 4.76%; expected volatility of 0.37501%; risk-free interest rate of 6.5%; and expected lives of 10 years. - 16 - 35 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The results of operations by quarter for 1995 and 1996 were as follows (in thousands of dollars except per share data):
QUARTER ENDED ------------------------------------------------------------------------------------- 1995 1996 --------------------------------------- --------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 Program revenues $27,810 $17,415 $34,343 $35,276 $31,363 $16,449 $42,181 $36,088 Cost of operations 22,431 13,511 27,342 27,750 25,369 13,126 34,230 28,926 ------- ------- ------- ------- ------- ------- ------- ------- Gross profit $ 5,379 $ 3,904 $ 7,001 $ 7,526 $ 5,994 $ 3,323 $ 7,951 $ 7,162 ======= ======= ======= ======= ======= ======= ======= ======= Net income (loss) $ 783 $ 141 $ 1,696 $ 1,527 $ 1,023 $ (751) $ 2,310 $ 582 ======= ======= ======= ======= ======= ======= ======= ======= Net income (loss) per share $ 0.16 $ 0.02 $ 0.32 $ 0.28 $ 0.20 $ (0.15) $ 0.44 $ 0.12 ======= ======= ======= ======= ======= ======= ======= =======
* * * * * * - 17 - EX-23.1 2 CONSENT OF EXPERT 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-05361 of Intrav, Inc. on Form S-8 of our reports dated February 14, 1997 appearing in this Form 8-K/A of Intrav, Inc. as of December 31, 1996. DELOITTE & TOUCHE LLP St. Louis, Missouri March 14, 1997 -----END PRIVACY-ENHANCED MESSAGE-----