1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------------------- FORM 10-Q [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NUMBER: 0-9264 AMERICAN CLASSIC VOYAGES CO. (Exact name of registrant as specified in its charter) DELAWARE 31-0303330 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) TWO NORTH RIVERSIDE PLAZA, CHICAGO, IL 60606 (Address of principal executive offices) (Zip Code) (312) 258-1890 (Registrant's telephone number, including area code) 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 [ ] As of May 8, 2000, there were 20,776,928 shares of Common Stock outstanding. ================================================================================ 2 AMERICAN CLASSIC VOYAGES CO. INDEX ITEM DESCRIPTION PAGE ---------------- ---- Part I. Financial Information: Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets at March 31, 2000 and December 31, 1999......................................................... 3 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999.................................... 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999.................................... 5 Notes to Condensed Consolidated Financial Statements.......................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk ................... 14 Part II. Other Information: Item 1. Legal Proceedings............................................................. 15 Item 6. Exhibits and Reports on Form 8-K.............................................. 15 2 3 AMERICAN CLASSIC VOYAGES CO. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except shares and par value) (Unaudited) (Audited) March 31, December 31, 2000 1999 ------------ ----------- ASSETS Cash and cash equivalents .................................................. $ 87,061 $ 42,399 Restricted cash ............................................................ 55,289 289 Short-term investments ..................................................... 13,326 -- Accounts receivable ........................................................ 1,492 1,205 Prepaid air tickets ........................................................ 3,282 1,930 Prepaid expenses and other current assets .................................. 6,643 6,020 --------- --------- Total current assets .................................................. 167,093 51,843 Property and equipment, net ................................................ 150,989 150,797 Vessels under construction ................................................. 124,428 74,601 Deferred income taxes, net ................................................. 16,909 12,446 Other assets ............................................................... 7,657 4,303 --------- --------- Total assets .......................................................... $ 467,076 $ 293,990 --------- --------- LIABILITIES Accounts payable ........................................................... $ 16,538 $ 14,534 Note payable ............................................................... 25,000 -- Other accrued liabilities .................................................. 18,078 23,712 Current portion of long-term debt .......................................... 4,100 4,100 Unearned passenger revenues ................................................ 58,019 41,381 --------- --------- Total current liabilities ............................................. 121,735 83,727 Long-term debt, less current portion ....................................... 72,076 80,463 --------- --------- Total liabilities ..................................................... $ 193,811 $ 164,190 --------- --------- Company-obligated mandatorily redeemable convertible preferred securities of subsidiary trust holding solely 7% convertible subordinated debentures of the Company .................... $ 100,000 -- COMMITMENTS AND CONTINGENCIES (NOTE 8) STOCKHOLDERS' EQUITY Preferred stock, $.01 par value (5,000,000 shares authorized, none issued and outstanding) ................................ $ -- $ -- Common stock, $.01 par value (40,000,000 shares authorized; 20,806,987 and 18,653,206 shares issued, respectively) ..................... 208 187 Additional paid-in capital ................................................. 200,890 151,094 Accumulated deficit ........................................................ (25,953) (19,573) Common stock in treasury, at cost (51,000 shares) .......................... (757) (757) Unearned restricted stock and stock units .................................. (1,123) (1,151) --------- --------- Total stockholders' equity ............................................ 173,265 129,800 --------- --------- Total liabilities and stockholders' equity ............................ $ 467,076 $ 293,990 --------- --------- The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 AMERICAN CLASSIC VOYAGES CO. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) For the Three Months Ended March 31, ------------------- 2000 1999 -------- -------- Revenues .............................................................. $ 38,960 $ 40,566 Cost of operations (exclusive of depreciation expense shown below)..... 28,235 28,768 ------- ------- Gross profit .......................................................... 10,725 11,798 Selling, general and administrative expenses .......................... 16,364 16,865 Depreciation expense .................................................. 3,941 4,155 ------- ------- Operating loss ........................................................ (9,580) (9,222) Interest income ....................................................... 1,263 322 Interest expense and other financing costs ............................ 1,004 1,570 ------- ------- Loss before income taxes and accrued distributions on convertible preferrred securities of subsidiary trust ........................ (9,321) (10,470) Income tax benefit .................................................... 3,444 4,187 Accrued distributions on convertible preferred securities of subsidiary trust, net of income tax benefit of $295 ......................... 503 -- ------- ------- Net loss .............................................................. (6,380) (6,283) ------- ------- PER SHARE INFORMATION Basic: Weighted-average shares outstanding .................................. 19,562 14,321 Loss per share ..................................................... (0.33) (0.44) Diluted: Weighted-average shares outstanding .................................. 19,562 14,321 Loss per share ..................................................... $ (0.33) $ (0.44) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 AMERICAN CLASSIC VOYAGES CO. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) For the Three Months Ended March 31, --------------------- 2000 1999 ---------- --------- OPERATING ACTIVITIES: Net loss ....................................................... (6,380) (6,283) Depreciation expense ....................................... 3,941 4,155 Changes in working capital and other: Working capital changes and other ...................... (10,081) (5,015) Unearned passenger revenues ............................ 16,638 16,760 -------- -------- Net cash provided by operating activities .................. 4,118 9,617 -------- -------- INVESTING ACTIVITIES: Capital expenditures ........................................... (53,960) (4,775) Purchase of marketable securities .............................. (13,326) -- Increase in restricted investments ......................... (55,000) -- -------- -------- Net cash used in investing activities ...................... (122,286) (4,775) -------- -------- FINANCING ACTIVITIES: Proceeds from borrowings ....................................... 41,300 -- Repayment of borrowings ........................................ (24,687) (1,212) Issuance of common stock ....................................... 49,699 880 Issuance of convertible preferred securities of subsidiary trust 100,000 -- Deferred financing fees ........................................ (3,482) (580) -------- -------- Net cash provided by (used in) financing activities ........ 162,830 (912) -------- -------- Increase in cash and cash equivalents ............................. 44,662 3,930 Cash and cash equivalents, beginning of period .................... 42,399 27,004 -------- -------- Cash and cash equivalents, end of period .......................... 87,061 30,934 -------- -------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of capitalized interest) ..................... $ 949 $ 1,946 Income taxes ............................................... 7 100 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 (Unaudited) 1. BASIS OF PRESENTATION These accompanying unaudited Condensed Consolidated Financial Statements ("Financial Statements") have been prepared pursuant to Securities and Exchange Commission ("SEC") rules and regulations and should be read in conjunction with the Consolidated Financial Statements and Notes thereto included on Form 10-K for the year ended December 31, 1999 (the "Form 10-K") for American Classic Voyages Co. ("AMCV") and its subsidiaries. These Financial Statements include the accounts of AMCV and its wholly owned subsidiaries, The Delta Queen Steamboat Co. ("DQSC"), Great Hawaiian Cruise Line, Inc. ("GHCL") and Project America, Inc. (collectively with such subsidiaries, the "Company"). The following notes to the Financial Statements highlight significant changes to the notes included in the Form 10-K and such interim disclosures as required by the SEC. These Financial Statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. Certain previously reported amounts have been reclassified to conform to the 2000 presentation. 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 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. 2. RESTRICTED CASH The $55 million increase in restricted cash through March 31, 2000 reflects: (1) $25 million of proceeds from a debt issuance which were placed into an escrow account (see Note 5 for further information) and (2) $30 million invested in a certificate of deposit which is being used as a collateral deposit for a letter of credit related to an October 2000 ship acquisition (see Note 8 for further information). 3. SHORT-TERM INVESTMENTS Under the definitions provided in Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company has purchased securities which have been classified as available for sale and are, therefore, recorded at their fair values. The fair value for these securities approximates cost due to the short maturities of the instruments. 4. VESSELS UNDER CONSTRUCTION Capitalized interest on the vessels under construction amounted to $2.0 million and $0 for the three months ended March 31, 2000 and 1999, respectively. 5. NOTE PAYABLE On February 10, 2000, the Company issued $25 million of notes guaranteed by the Maritime Administration ("MARAD"). This is the first issuance of debt under the $1.1 billion of financing guarantees from MARAD for the construction of the Hawaii cruise vessels. The notes bear interest at LIBOR minus 0.05%. Interest is payable quarterly beginning April 28, 2000. The entire principal amount is due on January 31, 2001. The Company intends to refinance these notes on or before the maturity date. Upon issuance of the debt, the proceeds of $25 million were deposited into an escrow account. The funds will be released from escrow and the proceeds used for the construction of the first Hawaii vessel, once the Company meets certain equity requirements under MARAD regulations. 6 7 6. DEBT Long-term debt consisted of (in thousands): March 31, December 31, 2000 1999 -------- ------------ U.S. Government Guaranteed Ship Financing Note, American Queen Series ...... $ 13,173 $ 14,385 U.S. Government Guaranteed Ship Financing Bond, American Queen Series ...... 36,198 36,198 U.S. Government Guaranteed Ship Financing Note, Independence Series A ...... 7,926 7,926 U.S. Government Guaranteed Ship Financing Bond, Independence Series A ...... 13,215 13,215 U.S. Government Guaranteed Ship Financing Note, Independence Series B ...... 2,124 2,124 U.S. Government Guaranteed Ship Financing Bond, Independence Series B ...... 3,540 3,540 Revolving credit facility (maximum availability of $70 million) ............ -- 7,175 -------- -------- 76,176 84,563 Less current portion ....................................................... 4,100 4,100 -------- -------- $ 72,076 $ 80,463 ======== ======== The revolving credit facility is available only for the conversion of the fourth Delta Queen riverboat, the construction of the first two coastal vessels, and Delta Queen working capital. The facility is secured by all of the assets of DQSC except the American Queen, and has various limitations and restrictions on investments, additional indebtedness, the construction costs of the new vessels, and other capital expenditures. In 1999, the Company received a commitment from MARAD for up to $1.1 billion in financing guarantees. The commitment amount represents 87.5% of the total maximum potential cost of the initial two Hawaii vessels, including shipyard costs, contingencies, capitalized interest, and guarantee fees. See Note 5 for further information. On March 31, 2000, the Company received a commitment from MARAD for up to $78.3 million in financing guarantees. The commitment amount represents 87.5% of the total maximum potential cost of the initial two coastal vessels currently under construction, including shipyard costs, contingencies, capitalized interest, and guarantee fees. As of March 31, 2000, the Company complied with all covenants under its various debt agreements. 7. TRUST PREFERRED SECURITIES On February 22, 2000, the Company completed an offering of 2,000,000 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust ("trust preferred securities"). Each $50 security bears interest at 7% and is convertible at the holder's election into 1.6207 shares of common stock. All outstanding preferred securities will be redeemed on February 15, 2015 or upon early redemption. The outstanding preferred securities may be redeemed for cash at the Company's option on or after February 19, 2003. The net proceeds to the Company, after underwriting fees and other costs, were approximately $96.5 million. A portion of the proceeds were used to fund the $30 million letter of credit facility related to the ms Nieuw Amsterdam purchase (see Note 8 for further information) and to pay down outstanding amounts on the Chase credit facility. The underwriters' overallotment option of 300,000 additional trust preferred securities was not exercised. 8. COMMITMENTS AND CONTINGENCIES In 1999, the Company finalized an agreement with Holland America Line to purchase the ms Nieuw Amsterdam for $114.5 million. The purchase agreement required the Company to make an earnest money deposit of $30 million by January 17, 2000. The Company arranged for an unsecured letter of credit facility with The Chase Manhattan Bank for up to $30 million and satisfied the deposit requirement by posting letters of credit for $30 million. 7 8 In 1999, persons and entities affiliated with Equity Group Investments, Inc. ("Equity"), the Company's largest stockholder, guaranteed the letter of credit facility for the Company with The Chase Manhattan Bank for up to $30 million. Under an agreement dated October 15, 1999, as consideration for issuance of the guarantee, the Company paid Equity a commitment fee of $500,000 in 1999 and agreed to pay Equity additional compensation in the form of stock appreciation units contingent, in part, upon appreciation in the Company's common stock. Equity's rights to receive this additional compensation vested, on a monthly basis, during the period that the guarantee remained outstanding. On February 22, 2000, the Company deposited $30 million into a cash collateral account with Chase from proceeds received by the Company from the Company's securities offering, as discussed in Note 7, thereby terminating the Equity guarantee. The Company has the right to retire Equity's stock appreciation units by paying a per unit price, which escalates each year, during the first three years after issuance. The Company intends to pay to Equity amounts attributable to the vested units, or $3.2 million, by October 2000. If the Company does not retire Equity's stock appreciation units during the first three years after issuance, Equity may exercise, during the fourth and fifth years after issuance, its right to receive payment based upon the market value of the Company's common stock at such time. Holland America Line has agreed to provide financing for the remaining portion of the purchase price totaling $84.5 million for 75 months at the prevailing prime rate. The Holland America Line financing will be secured by a first preferred ship mortgage. 9. STOCKHOLDERS' EQUITY ACCUMULATED DEFICIT Changes in accumulated deficit for the three months ended March 31, 2000 were (in thousands): Accumulated deficit at December 31, 1999........................ $ (19,573) Net loss........................................................ (6,380) ---------- Accumulated deficit at March 31, 2000........................... $ (25,953) ---------- COMMON STOCK OFFERING On February 22, 2000, the Company completed an offering of an additional 2,000,000 shares of common stock. The proceeds to the Company, after underwriting commissions and other costs, were $46.8 million and are being used for the construction of the second Hawaii vessel. The underwriters' overallotment option of 300,000 additional shares was not exercised. 10. EARNINGS PER SHARE As the Company reported losses for the quarters ended March 31, 2000 and 1999, diluted earnings per share was computed in the same manner as basic earnings per share. Conversion of trust preferred securities is not assumed, as the result would be antidilutive to the loss per share. 8 9 AMERICAN CLASSIC VOYAGES CO. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL American Classic Voyages Co. is a holding company which owns and controls The Delta Queen Steamboat Co., Great Hawaiian Cruise Line, Inc. and Project America, Inc. Through our various subsidiaries, we currently operate two cruise lines: Delta Queen, which owns and operates the American Queen, Mississippi Queen and Delta Queen steamboats; and American Hawaii, which owns and operates the Independence steamship. Delta Queen also owns and will operate the Columbia Queen steamboat upon completion of its renovation in May 2000. We have formed a third cruise line, United States Lines, to operate the ms Patriot and the new Hawaii cruise vessels. Our revenues are composed of: (1) cruise fares; (2) onboard revenues, such as those from gift shops and shore excursions; and (3) trip cancellation insurance and pre- and post-cruise hotel packages. Additional revenue is also derived from the sale of airplane tickets to and from points of embarkation or disembarkation. Our cost for air tickets typically matches the revenue we generate from sales of airline tickets, so we recognize minimal profits from such sales. Our cost of operations are composed of: (1) passenger expenses, such as employee payroll and benefits and the cost of food and beverages; (2) vessel operating costs including lay-up and drydocking costs for our vessels; (3) insurance costs; (4) commissions paid to travel agents; and (5) air ticket and hotel costs. When we receive deposits from passengers for cruises, we establish a liability for unearned passenger revenue. We recognize these deposits as revenue on a pro-rata basis during the associated cruise. Our revenues and some of our expenses vary considerably when measured on a quarterly basis. This is due to the seasonality of our Delta Queen revenues, the timing of our layups and drydockings, and fluctuations in airfares. These variations are reflected in our fare revenues per passenger night, which are commonly referred to as fare per diems, and our occupancy rates. Delta Queen's operations are seasonal. Historically, we have had greater passenger interest and higher yields in the spring and fall months of the year. The vessels typically undergo their annual layups in December or January. While American Hawaii has historically experienced greater passenger interest in the summer and fall months of the year, quarterly variations in its revenues are much smaller than those of Delta Queen. During the summer months, in particular, American Hawaii tends to have average occupancies in excess of 100% as the number of families sharing cabins with children increases significantly during this period. The following discusses the Company's consolidated results of operations and financial condition for the three month period ended March 31, 2000 versus the comparable period ended March 31, 1999. This section should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Form 10-K for the year ended December 31, 1999. 9 10 RESULTS OF OPERATIONS Operations data expressed as a percentage of total revenue for the periods indicated is as follows: Three Months Ended March 31, -------------------------------- 2000 1999 ------------ ------------- Revenues 100% 100% Costs and Expenses: Operating expenses.................. 72 71 Selling, general and administrative. 42 42 Depreciation........................ 10 10 Operating loss........................... (25) (23) Net loss................................. (16) (15) Selected operating statistics for the periods indicated are as follows: Three Months Ended March 31, -------------------------------- 2000 1999(5) ----------- ----------- Fare revenue per passenger night........... 210 204 Total revenue per passenger night.......... 311 301 Weighted average operating days (1): DELTA QUEEN........................... 63 67 AMERICAN HAWAII....................... 73 90 Vessels capacity per day (berths) (2): DELTA QUEEN........................... 1,026 1,026 AMERICAN HAWAII....................... 867 867 Passenger nights (3)....................... 125,105 134,900 98% 92% Physical occupancy percentage (berths) (4). - -------------------- (1) Weighted average operating days for each cruise line is determined by dividing capacity passenger nights for each cruise line by the cruise line's total vessel capacity per day. Capacity passenger nights is determined by multiplying, for the respective period, the actual operating days of each vessel by each vessel's capacity per day. (2) Vessel capacity per day represents the number of passengers each cruise line can carry assuming double occupancy for cabins which accommodate two or more passengers. Some cabins on the Independence and the American Queen can accommodate three or four passengers. (3) A passenger night represents one passenger spending one night on a vessel; for example, one passenger taking a three-night cruise would generate three passenger nights. (4) Physical occupancy percentage is passenger nights divided by capacity passenger nights (5) 1999 passenger nights, fare and total revenue per passenger night and occupancy percentage were previously reported as 131,374, $209, $309 and 90%, respectively. 1999 amounts have been recalculated to conform to the current presentation, which now includes passengers sailing on complimentary tickets. The current presentation will also be used in the future. 10 11 RESCISSION OF ACCOUNTING METHOD On November 2, 1999, the Company announced that it had rescinded its prior adoption of the American Institute of Certified Public Accountants Accounting Standards Executive Committee's Statement of Position ("SOP") No. 93-7, "Reporting on Advertising Costs," relating to the deferral of direct response advertising costs. The deferral method provided for in SOP 93-7 was adopted in 1999, and made effective as of January 1, 1999. Pursuant to SOP 93-7, the Company deferred recognition of direct response advertising costs related to certain direct response advertising efforts. These deferred costs were recognized in the periods that the cruises promoted by the efforts were completed, and the related cruise revenue recognized. The Company rescinded its adoption of SOP 93-7 due to difficulties encountered in implementing the new method. In rescinding SOP 93-7, the Company returned to its prior method of recognizing expenses for direct response advertising costs when those costs are incurred. As a result of the rescission of SOP 93-7, the Company restated its earnings for the first quarter of 1999 to reflect a loss of $6.3 million, or ($0.44) per share, compared to its previously reported loss of $4.5 million, or ($0.32) per share. QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999 Consolidated first quarter 2000 revenues decreased $1.6 million to $39.0 million from $40.6 for the first quarter of 1999. This represents a $1.2 million decrease in fare revenues combined with a $0.4 million decrease in other revenues. American Hawaii's fare revenues decreased $2.2 million due to a 19% decrease in capacity passenger nights as a result of the scheduled 18-day Independence drydock. This was offset by a 3% increase in fare per diems from $194 to $201 and a 2% increase in occupancy from 100% to 102%. Delta Queen's fare revenues increased $1.0 million. Occupancy rates increased 10% from 83% to 93% and fare per diems increased 1% from $217 to $220. As a result, consolidated fare per diems for the first quarter of 2000 increased 3% from $204 to $210. The $0.4 million decrease in other revenues was attributable to the capacity passenger night decrease at American Hawaii. Consolidated cost of operations for the first quarter of 2000 decreased $0.6 million to $28.2 million from $28.8 million for 1999. American Hawaii's operating costs decreased $1.4 million reflecting lower passenger, commission, air and land expenses associated with the capacity passenger night decrease. Delta Queen's operating costs increased $0.8 million reflecting higher onboard and commission expenses associated with the occupancy increase, and higher fuel costs. Maintenance expenses also increased by $0.3 million at Delta Queen. Consolidated gross profit decreased $1.1 million in the first quarter of 2000 from 1999 as a result of the Independence being out of service for its drydocking. Consolidated selling, general and administrative expenses, before capacity expansion expenses, decreased $2.7 million to $13.4 million for the first quarter of 2000 from $16.2 million in 1999. The decrease in selling, general and administrative expenses reflects reduced marketing spending at both cruise lines during the quarter. Capacity expansion costs of approximately $3.0 million in the first quarter of 2000 were $2.3 million higher than in the prior year. Marketing and public relations expenses for the Columbia Queen and ms Patriot were incurred, which amounted to $1.3 million. The remainder of the increase is attributable to salary and benefits associated with new personnel hired during within the past year in connection with our capacity expansion efforts. The consolidated operating loss for the first quarter of 2000 was $9.6 million as compared to $9.2 million for 1999. Interest income increased by $0.9 million as a result of higher average cash and marketable securities balances resulting from proceeds received by us upon the sale of additional common stock and other securities in April 1999 and February 2000. Interest expense and other financing costs of $1.0 million in the first quarter of 2000 includes an accrual of $0.5 million payable to the guarantor of our letter of credit facility related to our agreed upon purchase of the ms Nieuw Amsterdam in October 2000. We also amortized $0.4 million of deferred financing fees related to this transaction. During the current quarter, we also capitalized $2.0 million of interest expense related to our vessels under construction. We capitalized no interest expense in the prior year. We accrued for distributions on trust preferred securities of $0.5 million, net of tax, in the first quarter of 2000 due to the February 2000 issuance of trust preferred securities. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION Operating Activities For the three months ended March 31, 2000, cash provided by operations was $4.1 million compared to $9.6 million in 1999. The decrease primarily reflects the payment of costs during the first quarter of 2000 that had been accrued as of December 31, 1999 for layups, drydockings and employee bonuses. Such costs accrued at December 31, 1999 were approximately $5.0 million higher than in the prior year. 11 12 Investing Activities Our capital expenditures of $54.0 million included $49.8 million for vessels under construction which mainly consists of payments to shipyards. Other capital costs for the new shipbuilding programs include technical design, engineering and architectural fees. For the Hawaii cruise ships under construction, we have spent $25.9 million during the first quarter of 2000, while $23.9 million was spent on the Columbia Queen and Delta Queen coastal vessels projects. Other capital expenditures of $4.2 million were mainly related to our existing vessels such as layups for our Delta Queen vessels and the Independence drydock, all of which were completed in the first quarter of 2000. With proceeds from our common stock and preferred securities offerings, as described below, we purchased $13.3 million of short-term investments. Proceeds from these offerings were also used to fund a $30 million cash collateral account related to the October 2000 acquisition of the ms Nieuw Amsterdam. The remaining $25 million increase in restricted cash reflects the proceeds placed into escrow from the issuance of $25 million in notes, as described below. Financing Activities Total proceeds from borrowings of $41.3 million reflects the issuance of $25 million of one year notes related to the first Hawaii vessel under construction. The remaining amount represents borrowings under our credit facility. Our total repayments of borrowings of $24.7 million represents the paydown of all outstanding amounts on our credit facility of $23.5 million and scheduled principal payments of $1.2 million under the American Queen ship financing notes. We completed a public offering of an additional 2,000,000 shares of common stock. The net proceeds to us, after underwriting commissions and other costs, were approximately $46.9 million and are being used for construction of the second Hawaii vessel. Additional proceeds from the issuance of common stock were received from employee stock option exercises. We also completed a public offering of 2,000,000 American Classic Voyages Co. obligated mandatorily redeemable convertible preferred securities of a subsidiary trust (trust preferred securities). The net proceeds to us, after underwriting fees and other costs of $3.5 million, were approximately $96.5 million. Capital Expenditures and Debt At March 31, 2000, we had approximately $155.7 million in cash, restricted cash, and short-term investments. These funds, along with future cash from operations and debt to be issued with the financing guarantees from the Maritime Administration, are expected to be our principal source of capital to fund our working capital and debt service requirements, ship construction costs and distributions on trust preferred securities. Additionally, we may also fund a portion of these cash requirements from borrowings under our revolving credit facility of which we had $70 million available to us at March 31, 2000. For the October 2000 acquisition of the ms Nieuw Amsterdam, seller provided financing is also available to us for the remaining amounts due to the seller. For the Hawaii cruise market, we are constructing two new cruise ships over the next five years and plan to introduce an existing foreign-built cruise ship, the ms Patriot, which we have a contract to acquire, in the Hawaii market prior to delivery of the new vessels. In 1999, we signed a definitive agreement with Ingalls Shipbuilding to construct two passenger ships, each containing approximately 1,900 passengers berths, with options to build up to four additional vessels. The estimated construction cost of the two initial ships, inclusive of shipyard contract price, shipyard incentives, furniture, fixtures, and owner-furnished equipment, will be approximately $470 million each. The agreement provides that the first ship will be delivered in January 2003 and the second ship in January 2004. We will finance a significant portion of the construction cost of the Hawaii cruise ships through the Maritime Administration, which provides guarantees of private financing for new vessel construction projects conducted in U.S. shipyards. During the remainder of 2000, we expect to spend approximately $175 million on building the two new Hawaii cruise vessels, which includes anticipated payments to Ingalls Shipbuilding. In 1999, we finalized an agreement with Holland America Line to purchase the ms Nieuw Amsterdam for $114.5 million. We intend to rename the ship and operate it as the ms Patriot. The purchase agreement required us to make an earnest money deposit of $30 million by January 17, 2000. We arranged for an unsecured letter of credit facility with The Chase Manhattan Bank for up to $30 million and satisfied the deposit requirement by posting letters of credit for $30 million. 12 13 In 1999, persons and entities affiliated with Equity Group Investments, Inc. ("Equity"), our largest stockholder, guaranteed the letter of credit facility for us with The Chase Manhattan Bank for up to $30 million. Under an agreement dated October 15, 1999, as consideration for issuance of the guarantee, we paid Equity a commitment fee of $500,000 in 1999 and agreed to pay Equity additional compensation in the form of stock appreciation units contingent, in part, upon appreciation in our common stock. Equity's rights to receive this additional compensation vested, on a monthly basis, during the period that the guarantee remained outstanding. On February 22, 2000, we deposited $30 million into a cash collateral account with Chase from proceeds received by us from our securities offering thereby terminating the Equity guarantee. We have the right to retire Equity's stock appreciation units by paying a per unit price, which escalates each year, during the first three years after issuance. We intend to pay to Equity amounts attributable to the vested units, or $3.2 million, by October 2000. If we do not retire Equity's stock appreciation units during the first three years after issuance, Equity may exercise, during the fourth and fifth years after issuance, its right to receive payment based upon the market value of our common stock at such time. In addition, Holland America Line has agreed to provide financing for the remaining portion of the purchase price totaling $84.5 million for 75 months at the prevailing prime rate. The Holland America Line financing will be secured by a first preferred ship mortgage. Prior to introducing the ms Patriot into service in December 2000, we expect to spend approximately $12 to $16 million on improvements to the ship. We entered into a construction contract in 1999 with Atlantic Marine, Inc. of Jacksonville, Florida to construct the first two coastal cruise vessels for our Delta Queen line. Under the construction contract, the price of the vessels will be $30 million each. We expect each coastal cruise vessel to have a total construction cost, including furnishing, fixtures and equipment, of approximately $35 million. The contract provides that the delivery date will be March 2001 for the first vessel and June 2001 for the second vessel. During the remainder of 2000, we expect to spend up to $37 million on building the new coastal cruise vessels, which includes anticipated payments to Atlantic Marine. This will be funded from cash on hand and debt guaranteed by the Maritime Administration. On March 31, 2000, we received a commitment from the Maritime Administration for up to $78.3 million in financing guarantees. The commitment amount represents 87.5% of the total maximum potential cost of the initial two coastal vessels, including shipyard costs, contingencies, capitalized interest, and guarantee fees. In 1999, we acquired a substantially complete riverboat originally built for the casino trade that we are converting and will operate as the fourth Delta Queen riverboat. We expect that vessel, which will be known as the Columbia Queen, will enter service in late May 2000 operating weekly cruise vacations out of Portland on the Columbia River system. We entered into an agreement with Cascade General, Inc. to convert the 218 foot boat into an overnight passenger vessel with 161 passenger berths. We estimate the total capitalized cost of the vessel, including capitalized interest and the initial $3.2 million acquisition cost, to be $35 million to $37 million. In the first quarter of 2000, the three existing Delta Queen vessels' layups were completed which cost approximately $6.7 million, including capital expenditures, repairs and maintenance. These amounts were funded from working capital and the Delta Queen credit facility. For its most recent drydocking, the Independence was out of service for 18 days beginning January 5, 2000. This drydocking cost approximately $5.9 million, including capital expenditures, repairs and maintenance and was funded from cash on hand. As of March 31, 2000, we complied with all covenants under our various debt agreements. We believe we will have adequate access to capital resources, both internally and externally, to meet our current short-term and long-term capital commitments. Such resources may include cash on hand, new borrowings from lenders, and the ability to secure additional financing through the capital markets. We continually evaluate opportunities to increase capacity at both Delta Queen and in Hawaii and to strategically grow our business. Although we believe that we have obtained sufficient equity and debt financing from the capital markets to satisfy our financial obligations relating to construction of the new vessels, and to acquire, renovate and introduce the ms Patriot into service, we cannot assure you that we will be able to obtain additional financing, if necessary, at commercially acceptable levels to finance these projects and, if we so choose, to pursue strategic business opportunities. If we fail to obtain such financing, we may have to postpone or abandon some of our plans. 13 14 OTHER MATTERS Stock Repurchase Plan In June 1997, our board of directors approved a stock repurchase plan. The plan authorizes us to repurchase up to one million shares of our stock. These shares may be purchased from time to time in the public market or through privately negotiated transactions. As of December 31, 1998, we had repurchased 51,000 shares at an average purchase price of $14.84 per share under the plan. We have not purchased any additional shares since then and currently have no intention to repurchase any additional shares of common stock. Factors Concerning Forward-Looking Statements Certain statements in "Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute "forward-looking statements" which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions. Such factors include, among others, the following: the SEC is conducting an informal inquiry of our accounting practices with respect to direct response advertising costs; construction delays and deviations from specifications for the new vessels may adversely affect expansion plans and future financial performance; failure to obtain significant amounts of capital to build, purchase and renovate vessels, may adversely affect our expansion plans and future operating results; increased leverage may adversely affect our financial performance and cash flow; inability to maintain adequate managerial resources during our expansion may adversely affect our business; inability to manage our financial resources during our expansion may adversely affect our financial performance; if demand for our new cruise products fails to develop as expected or competition increases, our business may be adversely affected; increased capacity in Hawaii may reduce occupancy on the Independence, adversely affecting revenues; loss of exclusive rights of the Pilot Project Statute may adversely affect our revenue growth in Hawaii; modification of existing governmental regulations may adversely affect our business; increased competition in the Hawaii cruise market and from other vacation alternatives may adversely impact our financial performance; sensitivity of the vacation and leisure industry to general economic and business conditions; failure to complete drydocking on schedule or within budget may adversely affect our revenues; weather factors can adversely affect our operations and our financial performance; the loss of vessels from service would adversely impact our business; anti-takeover and transferability limitations of U.S. ownership requirements may adversely affect the liquidity of our common stock; our controlling stockholder may take actions that adversely affect our business; sales of our controlling stockholder's shares could have an adverse effect on our common stock price or ability to raise capital; and our controlling stockholder may have conflicts of interest with competing interests. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk For a discussion of certain market risks related to us, see Part I Item 7A "Quantitative and Qualitative Disclosures About Market Risks" in our Annual Report on Form 10-K for the fiscal year ended December 31, 1999. There have been no significant developments with respect to exposure to market risk. 14 15 AMERICAN CLASSIC VOYAGES CO. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings There are no other material legal proceedings, to which the Company is a party or of which any of its property is the subject, other than ordinary routine litigation and claims incidental to the business. The Company believes it maintains adequate insurance coverage and reserves for such claims. ITEM 6. Exhibits and Reports on Form 8-K a) Exhibits: *4.(iii)(a)(1) Junior Convertible Subordinated Indenture dated as of February 22, 2000 between the Company and The Bank of New York, as trustee (includes form of Subordinated Debenture) (filed on February 29, 2000 as exhibit 4.1 to the Company's 8-K and incorporated herein by reference). *4.(iii)(a)(2) Amended and Restated Declaration of Trust of AMCV Capital Trust I among American Classic Voyages Co. (the "Company"), The Bank of New York, as property Trustee, Philip C. Calian, Randall L. Talcott and Jordan B. Allen, as Administrative Trustee (includes form of Preferred Security) (filed on February 29, 2000 as exhibit 4.2 to the Company's 8-K and incorporated herein by reference). *4.(iii)(a)(3) Form of Preferred Security (included in exhibit 4.(iii)(a)(1))(filed on February 29, 2000 as exhibit 4.3 to the Company's 8-K and incorporated herein by reference). *4.(iii)(a)(4) Form of Subordinated Debenture (included in exhibit 4.(iii)(a)(2))(filed on February 29, 2000 as exhibit 4.4 to the Company's 8-K and incorporated herein by reference). *10.(v) Trust Convertible Preferred Securities Guarantee Agreement dated February 22,2000, by the Company and The Bank of New York, as trustee (filed on February 29, 2000 as exhibit 10.1 to the Company's 8-K and incorporated herein by reference). b) Reports on Form 8-K: *Form 8-K dated January 14, 2000 announcing the following: 1. Information on the expansion plans of our Hawaii cruise and Delta Queen businesses. 2. The Securities and Exchange Commission is conducting an informal inquiry into the Company's deferral of direct response advertising costs. *Form 8-K dated February 29, 2000 announcing the Company's completion of public offerings of common stock and Trust Convertible Preferred Securities of AMCV Capital Trust. 27. Financial data schedule. *Previously filed 15 16 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. AMERICAN CLASSIC VOYAGES CO. By: /s/ Philip C. Calian -------------------------------------------- Philip C. Calian Chief Executive Officer By: /s/ Randall L. Talcott -------------------------------------------- Randall L. Talcott Vice President-Finance and Treasurer (Principal Financial and Accounting Officer) Dated: May 11, 2000 ---------------- 16