UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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þ
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QUARTERLY
report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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For
the quarterly period ended September 30,
2008
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OR
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o
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TRANSITION
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For the
transition period from _______
to _______.
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Commission file number
0-26420
AMBASSADORS GROUP,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
(State
or Other Jurisdiction of
Incorporation or
Organization)
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91-1957010
(I.R.S.
Employer
Identification
No.)
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Dwight
D. Eisenhower Building
2001
South Flint Road
Spokane,
WA
(Address of Principal
Executive Offices)
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99224
(Zip
Code)
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Registrant’s Telephone Number,
Including Area Code: (509) 568-7800
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.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer” and “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
o
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Large
Accelerated filer
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þ
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Accelerated
filer
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o
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Non-Accelerated
filer
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o
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Smaller
reporting company
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
The
number of shares outstanding of the registrant’s Common Stock, $0.01 par value,
as of October 30, 2008 was 19,024,592.
AMBASSADORS GROUP, INC.
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
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Page
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PART
I – FINANCIAL INFORMATION
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Item 1.
Financial Statements (Unaudited)
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Consolidated
Balance Sheets
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1
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Consolidated
Statements of Operations
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2
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Consolidated
Statements of Comprehensive Income
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3
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Consolidated
Statements of Cash Flows
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4
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Notes
to Consolidated Financial Statements
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5
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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
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15
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Item 3.
Quantitative and Qualitative Disclosures About Market Risk
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20
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Item 4. Controls and
Procedures
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21
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PART
II – OTHER INFORMATION
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Item 1A. Risk Factors
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22
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Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
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22
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Item 6. Exhibits
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22
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SIGNATURES
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23
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EXHIBIT
INDEX
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PART I
FINANCIAL
INFORMATION
Item 1. FINANCIAL
STATEMENTS
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September
30, 2008 and December 31, 2007
(dollars
in thousands, except share and per share data)
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September
30,
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December
31,
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2008
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2007
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$
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8,088
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$
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17,281
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Available-for-sale
securities
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53,750
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67,713
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Foreign
currency exchange contracts
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|
—
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3,461
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Prepaid
program costs and expenses
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|
8,638
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|
3,624
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Accounts
receivable
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1,598
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|
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|
641
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|
Deferred
tax asset
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|
1,288
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|
|
|
—
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Total
current assets
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73,362
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|
92,720
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Property
and equipment, net
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28,353
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27,454
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Available-for-sale
securities
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2,100
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—
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Deferred
tax asset
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1,559
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1,338
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Intangible
assets
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2,362
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—
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Goodwill
and other assets
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6,967
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|
192
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Total
assets
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$
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114,703
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$
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121,704
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Current
liabilities:
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Accounts
payable
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$
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5,310
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$
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2,425
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Accrued
expenses
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5,518
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2,862
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Foreign
currency exchange contracts
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3,533
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—
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Deferred
tax liability
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—
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1,096
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Participants’
deposits
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21,976
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|
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42,723
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Current
portion of long-term capital lease and other
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22
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187
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Total
current liabilities
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36,359
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49,293
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Capital
lease
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—
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11
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Total
liabilities
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36,359
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49,304
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STOCKHOLDERS’
EQUITY
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Preferred
stock, $0.01 par value; 2,000,000 shares authorized; none issued and
outstanding
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—
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—
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Common
stock, $0.01 par value; 50,000,000 shares authorized; 18,791,008 and
19,345,924 shares issued and outstanding, respectively
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186
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192
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Additional
paid-in capital
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—
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1,082
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Retained
earnings
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80,416
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68,709
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Accumulated
other comprehensive income
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(2,258
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)
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2,417
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Total
stockholders’ equity
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78,344
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72,400
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Total
liabilities and stockholders’ equity
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$
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114,703
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$
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121,704
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The
accompanying condensed notes are an integral part of the consolidated financial
statements.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the
three and nine months ended September 30, 2008 and 2007
(dollars
in thousands, except per-share amounts)
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Nine
months ended
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Three
months ended
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September
30,
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September
30,
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2008
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2007
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2008
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2007
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Net
revenue, non-directly delivered programs
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$
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62,067
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$
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80,997
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$
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28,952
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$
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42,571
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Gross
revenue, directly delivered programs
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27,285
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27,185
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10,552
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9,567
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Internet
content and advertising revenue
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933
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|
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—
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615
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|
|
|
—
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Total
revenue
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90,285
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|
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108,182
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40,119
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52,138
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Cost
of sales, directly delivered programs
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16,971
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15,916
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7,026
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6,169
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Cost
of sales, internet content and advertising
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109
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|
—
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75
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—
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Gross
margin
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|
73,205
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92,266
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|
33,018
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|
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45,969
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Operating
expenses:
|
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Selling
and marketing
|
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29,606
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29,066
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|
11,272
|
|
|
|
10,185
|
General
and administrative
|
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|
8,913
|
|
|
|
9,503
|
|
|
|
2,822
|
|
|
|
3,479
|
Total
operating expenses
|
|
|
38,519
|
|
|
|
38,569
|
|
|
|
14,094
|
|
|
|
13,664
|
Operating
income
|
|
|
34,686
|
|
|
|
53,697
|
|
|
|
18,924
|
|
|
|
32,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2,475
|
|
|
|
3,337
|
|
|
|
667
|
|
|
|
1,000
|
Income
before income taxes
|
|
|
37,161
|
|
|
|
57,034
|
|
|
|
19,591
|
|
|
|
33,305
|
Income
tax provision
|
|
|
12,153
|
|
|
|
18,565
|
|
|
|
6,293
|
|
|
|
10,801
|
Net
income
|
|
$
|
25,008
|
|
|
$
|
38,469
|
|
|
$
|
13,298
|
|
|
$
|
22,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share — basic
|
|
$
|
1.33
|
|
|
$
|
1.98
|
|
|
$
|
0.72
|
|
|
$
|
1.16
|
Weighted-average
common shares outstanding — basic
|
|
|
18,798
|
|
|
|
19,423
|
|
|
|
18,580
|
|
|
|
19,394
|
Net
income per share — diluted
|
|
$
|
1.29
|
|
|
$
|
1.91
|
|
|
$
|
0.70
|
|
|
$
|
1.12
|
Weighted-average
common shares outstanding — diluted
|
|
|
19,320
|
|
|
|
20,172
|
|
|
|
19,087
|
|
|
|
20,125
|
The
accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the
three and nine months ended September 30, 2008 and 2007
(dollars
in thousands)
|
|
|
Nine
months ended
|
|
|
|
Three
months ended
|
|
|
|
|
September
30,
|
|
|
|
September
30,
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2007
|
|
Net
income
|
|
$
|
25,008
|
|
|
$
|
38,469
|
|
|
$
|
13,298
|
|
|
$
|
22,504
|
|
Unrealized
gain (loss) on foreign currency exchange contracts, net of income tax
benefit (provision) of $2,448, $(125), $2,389, and $(565)
|
|
|
(4,546)
|
|
|
|
233
|
|
|
|
(4,437)
|
|
|
|
1,049
|
|
Unrealized
gain (loss) on available-for-sale securities, net of income tax benefit
(provision) of $69, $(49), $80, and $(86)
|
|
|
(129)
|
|
|
|
90
|
|
|
|
(148)
|
|
|
|
159
|
|
Comprehensive
income
|
|
$
|
20,333
|
|
|
$
|
38,792
|
|
|
$
|
8,713
|
|
|
$
|
23,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
AMBASSADORS
GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the
nine months ended September 30, 2008 and 2007
(dollars in
thousands
)
|
|
UNAUDITED
|
|
|
|
Nine
months ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
25,008
|
|
|
$
|
38,469
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,480
|
|
|
|
1,632
|
|
Deferred
income tax benefit
|
|
|
(126
|
)
|
|
|
—
|
|
Stock-based
compensation
|
|
|
1,574
|
|
|
|
1,450
|
|
Excess
tax benefit from stock-based compensation
|
|
|
(116
|
)
|
|
|
(2,696
|
)
|
Gain
on sale of assets
|
|
|
(25
|
)
|
|
|
—
|
|
Write-down
of property and equipment
|
|
|
—
|
|
|
|
336
|
|
Change
in assets and liabilities, net of business acquired:
|
|
|
|
|
|
|
|
|
Accounts
receivable and other current assets
|
|
|
(653
|
)
|
|
|
(98
|
)
|
Prepaid
program costs and expenses
|
|
|
(5,011
|
)
|
|
|
(2,741
|
)
|
Accounts
payable, accrued expenses, and other current liabilities
|
|
|
6,253
|
|
|
|
12,128
|
|
Participants’
deposits
|
|
|
(20,747
|
)
|
|
|
(39,027
|
)
|
Net
cash provided by operating activities
|
|
|
8,637
|
|
|
|
9,453
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment and other, net
|
|
|
(4,018
|
)
|
|
|
(18,726
|
)
|
Purchase
of intangibles
|
|
|
(95
|
)
|
|
|
—
|
|
Net
cash paid for acquisition
|
|
|
(9,280
|
)
|
|
|
—
|
|
Net
change in available-for-sale securities
|
|
|
11,665
|
|
|
|
24,698
|
|
Net
cash provided by (used in) investing activities
|
|
|
(1,728
|
)
|
|
|
5,972
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Dividend
payment to shareholders
|
|
|
(6,609
|
)
|
|
|
(6,712
|
)
|
Repurchase
of common stock
|
|
|
(9,865
|
)
|
|
|
(35,621
|
)
|
Proceeds
from exercise of stock options
|
|
|
395
|
|
|
|
1,952
|
|
Excess
tax benefit from stock-based compensation
|
|
|
116
|
|
|
|
2,696
|
|
Capital
lease payments and other
|
|
|
(139
|
)
|
|
|
(142
|
)
|
Net
cash used in financing activities
|
|
|
(16,102
|
)
|
|
|
(37,827
|
)
|
Net
decrease in cash and cash equivalents
|
|
|
(9,193
|
)
|
|
|
(22,402
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
17,281
|
|
|
|
36,784
|
|
Cash
and cash equivalents, end of period
|
|
$
|
8,088
|
|
|
$
|
14,382
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
AMBASSADORS
GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Basis of Presentation
Ambassadors
Group, Inc. is a leading educational travel company that organizes and promotes
international and domestic educational travel and sports programs for youth,
athletes and professionals and provides over 8 million pages of online research
content through www.BookRags.com. These consolidated financial statements
include the accounts of Ambassadors Group, Inc. and our wholly owned
subsidiaries, Ambassador Programs, Inc., BookRags, Inc., Ambassadors Specialty
Group, Inc., Ambassadors Unlimited, LLC and Marketing Production Systems, LLC.
All significant intercompany accounts and transactions are eliminated in
consolidation.
On May
15, 2008, we acquired 100 percent of the outstanding common shares of BookRags,
Inc. BookRags is an educational website providing book summaries, critical
essays, as well as online study guides, biographies and references to
encyclopedia articles. The results of BookRags' operations have been included in
the consolidated financial statements since that date. See Note 6, BookRags
Acquisition, for more information.
Gross
receipts reflect total payments received by us for directly delivered and
non-directly delivered programs and internet content and advertising revenues.
For non-directly delivered travel programs, we do not actively manage the
operations of each program, and our remaining performance obligation for these
programs after they convene is perfunctory. Therefore, revenue from these
programs is presented net of direct program costs, including accommodation and
transportation costs, and recognized when the program convenes. For directly
delivered programs, however, we organize and operate all activities including
speakers, facilitators, events, accommodations and transportation. As such, we
recognize the gross revenue and cost of sales of these directly delivered
programs over the period the programs are operating. We recognize withdrawal
fees concurrent with the revenue recognition from the related programs. Internet
content and advertising revenues are recognized at the point of sale and
corresponding to an advertisement being viewed on the BookRags site,
respectively. Revenue from annual subscriptions for content access to the
website is deferred and recognized monthly over the term of the subscription.
Cost of internet content sales include amortization of intangible assets and
licensing agreement costs.
In our
opinion, the consolidated financial statements contain all adjustments necessary
to present fairly our financial position at September 30, 2008 and December 31,
2007, our results of operations for the three and nine months ended September
30, 2008 and 2007, and our cash flows for the nine months ended September 30,
2008 and 2007.
2.
Income Per Share
Net
income per share — basic is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Net
income per share — diluted is computed by increasing the weighted-average number
of common shares outstanding by the additional common shares that would have
been outstanding if the dilutive potential common shares had been
issued.
The
following table presents a reconciliation of basic and diluted earnings per
share (“EPS”) computations and the number of dilutive securities (stock options
and grants) that were not included in the dilutive EPS calculation because they
were anti-dilutive (in thousands, except per-share amounts):
|
|
Nine
months ended September 30,
|
|
|
Three
months ended September 30,
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for basic and diluted earnings per share
|
|
$
|
25,008
|
|
|
$
|
38,469
|
|
|
$
|
13,298
|
|
|
$
|
22,504
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding – basic
|
|
|
18,798
|
|
|
|
19,423
|
|
|
|
18,580
|
|
|
|
19,394
|
Effect
of dilutive common stock options
|
|
|
419
|
|
|
|
665
|
|
|
|
394
|
|
|
|
638
|
Effect
of dilutive common stock grants
|
|
|
103
|
|
|
|
84
|
|
|
|
113
|
|
|
|
93
|
Weighted
average shares outstanding – diluted
|
|
|
19,320
|
|
|
|
20,172
|
|
|
|
19,087
|
|
|
|
20,125
|
Net
income per share – basic
|
|
$
|
1.33
|
|
|
$
|
1.98
|
|
|
$
|
0.72
|
|
|
$
|
1.16
|
Net
income per share - diluted
|
|
$
|
1.29
|
|
|
$
|
1.91
|
|
|
$
|
0.70
|
|
|
$
|
1.12
|
AMBASSADORS
GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For
the three and nine months ended September 30, 2008 approximately 597,030 and
289,160 stock options have been excluded from the calculation of diluted
earnings per share because their effect would be anti-dilutive. For the three
and nine months ended September 30, 2007, the effects of a negligible number of
stock options have been excluded from the calculation of diluted earnings per
share because their effect would be anti-dilutive.
3.
Available-for-Sale Securities
At
September 30, 2008 and December 31, 2007, the cost and estimated fair values of
our investments in state and municipal securities and corporate obligations were
as follows (in thousands).
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gain
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value/
Carrying
Value
|
September
30, 2008
|
|
$
|
55,787
|
|
|
$
|
63
|
|
|
$
|
—
|
|
|
$
|
55,850
|
December 31,
2007
|
|
$
|
67,453
|
|
|
$
|
260
|
|
|
$
|
—
|
|
|
$
|
67,713
|
At
September 30, 2008, the amortized cost and fair value of the available-for-sale
securities, by contractual maturity, were as follows (in
thousands):
|
|
Amortized
Cost
|
|
|
Fair
Value
|
Auction
rate securities, due one year or less
|
|
$
|
2,100
|
|
|
$
|
2,100
|
Other
securities due one year or less
|
|
|
4,686
|
|
|
|
4,679
|
Other
securities due after one year through three years
|
|
|
49,001
|
|
|
|
49,071
|
|
|
$
|
55,787
|
|
|
$
|
55,850
|
On
September 30, 2008, we had a total of approximately $63.9 million in cash, cash
equivalents, and available-for-sale securities, which included approximately
$2.1 million of investments in auction rate securities (“ARS”). The remaining
$61.8 million in investments are comprised of municipal securities, which we
have the ability to liquidate at any time. During 2008, we experienced three
failed ARS auctions, representing principal and accrued interest of
approximately $2.1 million. Due to the longer term nature of the next auctions
and the continued uncertainty in the financial markets, these ARS values have
been classified as long term assets.
Our ARS
portfolio is comprised of three AA rated investments. Based on the high-level
credit rating and the current restructuring within the aggregate ARS market, we
believe that the current illiquidity of our failed ARS’s is temporary. We will,
however, reassess the liquidity in future reporting periods based on several
factors, including the success or failure of future auctions, possible failure
of the investment to be redeemed, deterioration of the credit rating of the
investment, market risk and other factors. Such reassessment may change the
classification or valuation of these investments. We believe that the current
lack of liquidity relating to our ARS investments will have no impact on our
ability to fund our ongoing operations and growth initiatives.
AMBASSADORS
GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4.
Fair Value Measurement of Financial Assets
The
following table summarizes our financial assets measured at fair value on a
recurring basis in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 157 as of September 30, 2008 (in thousands). There has
been no change in the fair value of level 3 financial assets.
|
|
|
|
|
Quoted
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
Active
Markets for
|
|
|
Significant
Other
|
|
|
Significant
Other
|
|
|
Balance
as of
|
|
|
Identical
Assets
|
|
|
Observable
Inputs
|
|
|
Unobservable
Inputs
|
|
|
September
30,
2008
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(
Level
3
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
securities
|
|
$
|
7,199
|
|
|
$
|
7,199
|
|
|
$
|
—
|
|
|
$
|
—
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
|
2,100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,100
|
Municipal
securities
|
|
|
53,750
|
|
|
|
53,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
63,049
|
|
|
|
60,949
|
|
|
|
—
|
|
|
|
2,100
|
Foreign
currency exchange contracts
|
|
|
(3,533
|
)
|
|
|
—
|
|
|
|
(3,533
|
)
|
|
|
—
|
Total
financial assets and liabilities
|
|
$
|
59,516
|
|
|
$
|
60,949
|
|
|
$
|
(3,533
|
)
|
|
$
|
2,100
|
Our
financial assets and liabilities are valued using market prices on both active
markets (level 1) and less active markets (level 2). Level 1
instrument valuations are obtained from real-time quotes for transactions in
active exchange markets involving identical assets. Level 2 instrument
valuations are obtained from readily-available pricing sources for comparable
instruments. Our foreign currency exchange contracts are valued using pricing
models. Pricing models take into account the contract terms as well as multiple
inputs where applicable, such as equity prices, interest rate yield curve,
option volatility and currency rates. Our derivative instruments are short-term
in nature, typically one to twelve months. The Level 3 instrument valuation
was obtained as current market quotations were not readily available,
traditional sources were not providing reliable information, unusual market
events had taken place, stale prices existed, or the security remained
illiquid.
The table
below presents a reconciliation for the three and nine months ended September
30, 2008, of assets and liabilities measured at fair value on a recurring basis
using Level 3 inputs:
|
|
Securities
Available
for Sale (a)
|
|
|
|
|
December
31, 2007
|
|
$
|
—
|
Total
realized / unrealized gains (losses):
|
|
|
|
Included
in earnings
|
|
|
—
|
Included
in other comprehensive income:
|
|
|
—
|
Purchases,
issuances, and settlements, net
|
|
|
—
|
Transfers
into Level 3, net
|
|
|
2,100
|
September
30, 2008
|
|
$
|
2,100
|
|
|
|
|
(a)
|
Carried
at fair value prior to our adoption of SFAS
157.
|
Unrealized
loss of $4.7 million, excluded from earnings for the nine months ended
September 30, 2008 and reported as components of other comprehensive
income, are related primarily to the difference in value of our
available-for-sale securities and our foreign exchange contracts at the
beginning and ending of the period. At September 30, 2008, our available for
sale securities had $0.1 million aggregate unrealized gain and our foreign
exchange contracts had an aggregate unrealized loss of $3.5
million.
AMBASSADORS
GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5.
Accounting for Stock-Based Compensation
Effective
November 2001, we adopted our 2001 Equity Participation Plan (the “Plan”).
The Plan provides for the grant of stock options, awards of restricted stock,
performance or other awards or stock appreciation rights to our directors, key
employees and consultants. The maximum number of shares which may be awarded
under the Plan is 3.6 million shares. Approximately 0.5 million shares remain
available for future issuance as of September 30, 2008.
Under the
terms of the Plan, options to purchase shares of our common stock are granted at
a price set by the Compensation Committee of the Board of Directors (the
“Compensation Committee”), not to be less than the par value of a share of
common stock and if granted as performance-based compensation or as incentive
stock options, not to be less than the fair market value of the stock on the
date of grant. The Compensation Committee establishes the vesting period of the
awards, which is generally set at 25 percent per year for four years. Options
may be exercised any time after they vest for a period up to 10 years from
the grant date.
Under the
terms of the Plan, restricted stock grants follow the same grant price
parameters as options. The Compensation Committee also establishes the vesting
period of the grants, which is generally set at 100 percent at the conclusion of
one to four years. Our key employees who have been awarded stock grants and are
full time employees are subject to a four year vesting period, while members of
our Board of Directors who have been awarded stock grants are subject to a one
year vesting period. During the three months ended September 30, 2008 and 2007,
2,567 and 1,400 restricted stock grants were granted to our Board of Directors
or key employees, and during the nine months ended September 30, 2008 and 2007,
approximately 7,300 and 3,900 restricted stock grants were granted to our Board
of Directors or key employees, respectively.
The fair
value of each stock option granted is estimated on the date of grant using the
Black-Scholes option-pricing model. The Black-Scholes option-pricing model was
developed for use in estimating the fair value of options. In addition, option
valuation models require the input of highly subjective assumptions,
particularly expected term, stock price volatility, and forfeiture rate. Our
employee stock options do not trade on a secondary exchange, therefore,
employees do not derive benefit from holding stock options unless there is an
appreciation in the market price of our stock above the grant price. Such an
increase in stock price would benefit all shareholders commensurately. The
assumptions used to calculate the fair value of options granted are evaluated
and revised, as necessary, to reflect market conditions and our experience as of
the date of grant.
The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the nine months ended September 30, 2008 and
2007, and the three months ended September 30, 2008. No options were granted
during the three months ended September 30, 2007.
|
|
Nine
months ended
September 30,
2008
|
|
Nine
months ended
September 30,
2007
|
|
Three
months ended
September 30,
2008
|
Expected
dividend yield
|
|
|
1.88
|
|
%
|
|
|
1.47
|
|
%
|
|
|
2.17
|
|
%
|
Expected
stock price volatility
|
|
|
45.13
|
|
%
|
|
|
37.70
|
|
%
|
|
|
46.45
|
|
%
|
Risk-free
interest rate
|
|
|
3.02
|
|
%
|
|
|
4.63
|
|
%
|
|
|
3.06
|
|
%
|
Expected
life of options
|
|
|
4.34
|
|
years
|
|
|
4.55
|
|
years
|
|
|
4.30
|
|
years
|
Estimated
fair value per option granted
|
|
|
$6.04
|
|
|
|
|
$11.01
|
|
|
|
|
$5.42
|
|
|
The
expected term of the options represents the estimated period of time until
exercise and is based on historical experience of similar awards, giving
consideration to the contractual terms, vesting schedules and expectations of
future employee behavior. Expected stock price volatility is based on historical
volatility of our stock. The risk-free interest rate is based on the implied
yield available on U.S. Treasury zero-coupon issues with an equivalent remaining
term. We have also included our anticipated dividend yield based on quarterly
cash dividends paid to our shareowners. Additionally, an annualized
forfeiture rate of 7.8 percent is used as a best estimate of future forfeitures
based on our historical forfeiture experience. Under the true-up provisions of
SFAS 123(R), the stock-based compensation expense will be adjusted in later
periods if the actual forfeiture rate is different from the
estimate.
AMBASSADORS
GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Total
stock-based compensation expense recognized in the consolidated statement of
operations for the
quarter
ended September 30, 2008 was $0.5 million before income taxes. Of the total
stock-based compensation expense during the quarter, stock option expense was
$0.2 million, restricted stock grant expense was $0.3 million, and the related
total tax benefit was $0.2 million. Total stock-based compensation expense
recognized in the consolidated statement of operations
for the nine
months ended September 30, 2008 was $1.6 million before income taxes. Of the
total stock-based compensation expense during this time period, stock option
expense was $0.7 million, restricted stock grant expense was $0.9 million, and
the related total tax benefit was $0.6 million.
Stock
option and restricted stock transactions during the nine months ended September
30, 2008 were as follows:
|
Restricted
|
|
Weighted
|
|
|
|
Weighted
|
|
Stock
|
|
Average
Grant
|
|
Stock
|
|
Average
|
|
Grants
|
|
Date
Fair Value
|
|
Options
|
|
Exercise
Price
|
Balance
at December 31, 2007
|
221,820
|
|
$
|
20.87
|
|
1,478,202
|
$
|
12.62
|
Granted
|
7,320
|
|
|
17.42
|
|
20,209
|
|
17.38
|
Forfeited
|
—
|
|
|
—
|
|
(2,750)
|
|
17.83
|
Exercised
|
(2,527)
|
|
|
34.65
|
|
(45,262)
|
|
8.71
|
Balance
September 30, 2008
|
226,613
|
|
$
|
20.54
|
|
1,450,399
|
$
|
12.79
|
The
aggregate intrinsic value of outstanding stock options and restricted stock was
$11.5 million and of exercisable stock options and restricted stock was $7.9
million at September 30, 2008, before applicable income taxes, based on our
$15.91 closing stock price at September 30, 2008. This intrinsic value would
have been received by the optionees had all options been exercised on that date.
As of September 30, 2008, total unrecognized stock-based compensation expense
related to non-vested stock options and restricted stock grants was
approximately $3.5 million, which is expected to be recognized over
approximately 3.9 years. During the quarter ended September 30, 2008, the total
intrinsic value of stock options exercised was $0.2 million, and the total fair
value of options which vested was $0.1 million. During the nine months ended
September 30, 2008, the total intrinsic value of stock options exercised was
$0.4 million, and the total fair value of options which vested was $0.3 million.
No restricted stock grants vested during the quarter ended September 30, 2008.
During the nine months ended September 30, 2008, the total fair value of
restricted stock grants which vested was $0.1 million.
The
following table presents information about our common stock options and
restricted grants as of September 30, 2008:
|
|
|
Options and Grants
Outstanding
|
|
|
Options
Exercisable
|
Range
of Exercise Prices
|
|
|
Shares
|
|
|
Weighted
Average Remaining
Contractual
Life
(years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
Restricted
Stock Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.00
|
|
|
|
226,613
|
|
|
|
1.37
|
|
|
$
|
0.00
|
|
|
|
—
|
|
|
|
—
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.47
- 6.93
|
|
|
|
667,728
|
|
|
|
3.07
|
|
|
|
5.63
|
|
|
|
667,728
|
|
|
$
|
5.63
|
|
6.94
- 10.39
|
|
|
|
129,594
|
|
|
|
4.83
|
|
|
|
9.19
|
|
|
|
129,594
|
|
|
|
9.19
|
|
10.40
- 13.86
|
|
|
|
31,225
|
|
|
|
5.04
|
|
|
|
11.73
|
|
|
|
31,225
|
|
|
|
11.73
|
|
13.87
- 17.32
|
|
|
|
326,702
|
|
|
|
7.82
|
|
|
|
16.87
|
|
|
|
108,295
|
|
|
|
16.65
|
|
17.33
- 20.79
|
|
|
|
12,824
|
|
|
|
9.60
|
|
|
|
18.41
|
|
|
|
—
|
|
|
|
—
|
|
20.80
- 24.25
|
|
|
|
48,000
|
|
|
|
6.58
|
|
|
|
21.09
|
|
|
|
32,750
|
|
|
|
21.09
|
|
24.26
- 27.72
|
|
|
|
206,808
|
|
|
|
7.57
|
|
|
|
27.11
|
|
|
|
79,410
|
|
|
|
21.00
|
|
27.73
- 31.18
|
|
|
|
14,859
|
|
|
|
7.89
|
|
|
|
29.42
|
|
|
|
5,429
|
|
|
|
29.03
|
|
31.19
- 34.65
|
|
|
|
12,659
|
|
|
|
8.59
|
|
|
|
34.65
|
|
|
|
3,163
|
|
|
|
34.65
|
|
|
|
|
|
1,677,012
|
|
|
|
4.54
|
|
|
$
|
12.79
|
|
|
|
1,057,594
|
|
|
$
|
9.66
|
AMBASSADORS
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6.
BookRags Acquisition
On May
15, 2008, we acquired 100 percent of the outstanding common shares of BookRags,
Inc. BookRags is an educational website providing book summaries, critical
essays, as well as online study guides, biographies and references to
encyclopedia articles. BookRags operates in an adjacent space to student
travel and education. BookRags’ core audiences of
students,
parents and teachers overlaps with our key demographic, and will enable us to
expand our reach into new media and online channels where this target audience
continues to spend more and more time.
The
aggregate purchase price for BookRags is expected to be approximately $18.7
million, of which $8.7 million was paid at inception, including $8.5 million of
cash to the prior owners and $0.2 million of acquisition expenses. The remaining
purchase price was comprised of common stock valued at $4.5 million and future
earn-out provisions of up to $5.0 million. The $4.5 million value of the
233,584 common stock issued was determined based on a ten day average closing
price of our common stock prior to the date of the acquisition and is subject to
change if escrow conditions are not met. The fair value of the common stock will
be recorded in 2010 as an addition to goodwill, when the actual number of shares
to be granted after escrow conditions are known at the end of the restriction
period. These shares have been excluded from outstanding stock and our basic and
diluted weighted average shares due to the two year escrow requirements within
the purchase agreement. Goodwill is the excess of the purchase price paid over
the fair value of the net assets of the business acquired. Future payments
pursuant to earn-out agreements in 2009 and 2010 will be added to goodwill when
and if required earning thresholds are met. Additionally, we agreed to pay
certain payments to the sellers for taxes associated with the transaction, not
to exceed $0.8 million. Of the $0.8 million, we paid $0.5 million in additional
acquisition costs during the three months ended September 30, 2008, related to
the tax payments plus other insignificant costs associated with the acquisition.
The remaining $0.3 million is subject to finalization for remaining tax
payments. Thus, the $6.8 million in goodwill value at September 30, 2008 is
preliminary and subject to refinement.
The
inclusion of BookRags results of operations to prior periods would have made an
immaterial impact to our results of operations as reported. The following table
summarizes the estimated fair values of the assets acquired and liabilities
assumed at May 15, 2008. The allocation of the purchase price, subject to
finalization, is as follows (in thousands):
|
|
May
15, 2008
|
|
Assets
|
|
|
|
Current
assets
|
|
$
|
209
|
|
Intangible
assets
|
|
|
2,355
|
|
Goodwill
|
|
|
6,245
|
|
Total
assets acquired
|
|
|
8,809
|
|
Liabilities
and net assets acquired
|
|
|
|
|
Current
liabilities
|
|
|
(163
|
)
|
Total
liabilities assumed
|
|
|
(163
|
)
|
Net
assets acquired
|
|
$
|
8,646
|
|
AMBASSADORS
GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Identified
intangible assets as of September 30, 2008 were as follows (in
thousands):
|
|
Gross
Carrying Value
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Value
|
Intangible
assets with determinable lives
|
|
|
|
|
|
|
|
|
Content
license agreements
|
|
$
|
838
|
|
|
$
|
(16
|
)
|
|
$
|
822
|
Content
copyrights
|
|
|
461
|
|
|
|
(16
|
)
|
|
|
445
|
Advertising
relationships
|
|
|
512
|
|
|
|
(48
|
)
|
|
|
464
|
Other
|
|
|
130
|
|
|
|
(16
|
)
|
|
|
114
|
Total
intangible assets with determinable lives
|
|
|
1,941
|
|
|
|
(96
|
)
|
|
|
1,845
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets with indefinite lives
|
|
|
|
|
|
|
|
|
|
|
|
Trade
name
|
|
|
517
|
|
|
|
—
|
|
|
|
517
|
Total
intangible assets with indefinite lives
|
|
|
517
|
|
|
|
—
|
|
|
|
517
|
Total
intangible assets
|
|
$
|
2,458
|
|
|
$
|
(96
|
)
|
|
$
|
2,362
|
Of the
$2.5 million intangible assets, $0.5 million was assigned to a trade name and is
not subject to amortization. The remaining $2.0 million of intangible assets,
which include content license agreements, content copyrights, plagiarism
software, non-compete agreements, and advertising relationships, have a
weighted-average useful life of approximately 12 years and are being amortized
on a straight line basis using the actual life assigned to each asset. During
the quarter ended September 30, 2008, we added $0.1 million to content
copyrights. Amortization expense for the quarter ended September 30, 2008
was $0.1 million.
Estimated
annual amortization expense for each of the ensuing years through December 31,
2013 is as follows (in thousands):
|
|
Estimated
Annual Amortization
|
Remainder
of 2008
|
|
$
|
65
|
2009
|
|
$
|
259
|
2010
|
|
$
|
259
|
2011
|
|
$
|
232
|
2012
|
|
$
|
137
|
2013
|
|
$
|
88
|
Although
goodwill and the trade name intangible are not amortized for financial statement
purposes, they will be subject to impairment review. All of the intangible
assets, including goodwill, are expected to be deductible for income tax
purposes.
7.
Segment Information
Before
the second quarter 2008, our operations were organized into one operating
segment, consisting of educational travel services to students, professionals
and athletes through multiple itineraries within four educational and cultural
program types (Ambassador Programs). The travel programs have been aggregated as
a single reporting segment based on the similarity of their economic
characteristics, as well as services provided. Beginning May 15, 2008 with the
acquisition of BookRags, our operations are organized into two reporting
segments, consisting of (1) Ambassador Programs and (2) BookRags, an internet
research site housing content sales and advertising revenue.
Ambassador
Programs’ gross margin is comprised of gross receipts less direct program costs,
including accommodation, transportation, speakers, facilitators, and event
costs. BookRags’ gross margin is comprised of content and subscription and
advertising revenues via
www.bookrags.com
,
less commissions and amortization of intangible assets directly associated with
sales.
AMBASSADORS
GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Segment
information for the nine months ended and as of September 30, 2008 is as follows
(in thousands):
|
|
Ambassador
Programs and Other
|
|
|
BookRags
|
|
|
Consolidated
|
|
Total
revenue
|
|
$
|
89,352
|
|
|
$
|
933
|
|
|
$
|
90,285
|
|
Gross
margin
|
|
$
|
72,382
|
|
|
$
|
823
|
|
|
$
|
73,205
|
|
Depreciation
and amortization
|
|
|
(2,384
|
)
|
|
|
(96
|
)
|
|
|
(2,480
|
)
|
Operating
income
|
|
|
34,140
|
|
|
|
546
|
|
|
|
34,686
|
|
Income
tax provision
|
|
|
(11,898
|
)
|
|
|
(255
|
)
|
|
|
(12,153
|
)
|
Net
income
|
|
|
24,702
|
|
|
|
306
|
|
|
|
25,008
|
|
Total
additions to property, plant, and equipment
|
|
|
4,069
|
|
|
|
—
|
|
|
|
4,069
|
|
Total
additions to goodwill and intangible assets
|
|
|
—
|
|
|
|
9,229
|
|
|
|
9,229
|
|
Intangible
assets, excluding goodwill
|
|
|
—
|
|
|
|
2,362
|
|
|
|
2,362
|
|
Total
assets
|
|
|
104,868
|
|
|
|
9,835
|
|
|
|
114,703
|
|
Segment
information for the three months ended and as of September 30, 2008 is as
follows (in thousands)
|
|
Ambassador
Programs and Other
|
|
|
BookRags
|
|
|
Consolidated
|
|
Total
revenue
|
|
$
|
39,504
|
|
|
$
|
615
|
|
|
$
|
40,119
|
|
Gross
margin
|
|
$
|
32,478
|
|
|
$
|
540
|
|
|
$
|
33,018
|
|
Depreciation
and amortization
|
|
|
(809
|
)
|
|
|
(62
|
)
|
|
|
(871
|
)
|
Operating
income
|
|
|
18,572
|
|
|
|
352
|
|
|
|
18,924
|
|
Income
tax provision
|
|
|
(6,104
|
)
|
|
|
(189
|
)
|
|
|
(6,293
|
)
|
Net
income
|
|
|
13,125
|
|
|
|
173
|
|
|
|
13,298
|
|
Total
additions to property, plant, and equipment
|
|
|
1,886
|
|
|
|
—
|
|
|
|
1,886
|
|
Total
additions to goodwill and intangible assets
|
|
|
—
|
|
|
|
586
|
|
|
|
586
|
|
Intangible
assets, excluding goodwill
|
|
|
—
|
|
|
|
2,362
|
|
|
|
2,362
|
|
Total
assets
|
|
|
104,868
|
|
|
|
9,835
|
|
|
|
114,703
|
|
Changes
to the carrying amount of goodwill and other investments during the nine months
ended September 30, 2008 were as follows (in thousands):
|
|
Ambassador
Programs and Other
|
|
|
BookRags
|
|
|
Consolidated
|
|
Goodwill
at December 31, 2007
|
|
$
|
70
|
|
|
$
|
—
|
|
|
$
|
70
|
|
Acquisition
|
|
|
—
|
|
|
|
6,771
|
|
|
|
6,771
|
|
Goodwill
at September 30, 2008
|
|
|
70
|
|
|
|
6,771
|
|
|
|
6,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest at December 31, 2007
|
|
|
122
|
|
|
|
—
|
|
|
|
122
|
|
Equity
earnings on investments
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
Investments
at September 30, 2008
|
|
|
126
|
|
|
|
—
|
|
|
|
126
|
|
Total
goodwill and other investments
|
|
$
|
196
|
|
|
$
|
6,771
|
|
|
$
|
6,967
|
|
As of
September 30, 2008, no sales exist between the two segments. The only
intercompany transactions are expenses paid for by Ambassadors on behalf of
BookRags, which are recorded as intercompany receivables and payables and
eliminated upon consolidation.
All of
our assets are located in the United States. Our revenues as a percentage of
total revenues were derived from travel programs, content sales and advertising
conducted in the following geographic areas for the nine months ended September
30, 2008 and year ended December 31, 2007:
AMBASSADORS
GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
December
31, 2007
|
|
Europe
|
|
|
54
|
%
|
|
|
50
|
%
|
South
Pacific (primarily Australia and New Zealand)
|
|
|
15
|
%
|
|
|
21
|
%
|
Asia
(primarily China)
|
|
|
12
|
%
|
|
|
12
|
%
|
United
States
|
|
|
16
|
%
|
|
|
15
|
%
|
Other
|
|
|
3
|
%
|
|
|
2
|
%
|
8.
Recently Issued Accounting Pronouncements
In
June 2008, the Financial Accounting Standards Board (“FASB”) issued FSP
No. EITF 03-6-1,
Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
(“FSP EITF 03-6-1”). FSP EITF 03-6-1 concludes that unvested share-based
payment awards that contain rights to receive nonforfeitable dividends or
dividend equivalents are participating securities, and thus, should be included
in the two-class method of computing earnings per share (“EPS”). FSP EITF 03-6-1
is effective for fiscal years beginning after December 15, 2008, and
interim periods within those years. Early application of EITF 03-6-1 is
prohibited. It also requires that all prior-period EPS data be adjusted
retrospectively. We have not yet determined the effect, if any, of the adoption
of this statement on our financial condition or results of
operations.
In May
2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted
Accounting Principles
(“SFAS No. 162”), which identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements that are presented in conformity with
generally accepted accounting principles in the United States. SFAS No. 162 will
be effective beginning November 15, 2008. We do not believe that the adoption of
this guidance will have a material impact on our consolidated financial
statements.
In April
2008, the FASB issued Staff Position FAS 142-3,
Determination of the Useful Life of
Intangible Assets
(“FSP FAS 142-3”) which amends the factors an entity
should consider in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under FAS No. 142,
Goodwill and Other Intangible
Assets
(“FAS No. 142”). FSP FAS 142-3 applies to intangible assets that
are acquired individually or with a group of assets and intangible assets
acquired in both business combinations and asset acquisitions. It removes a
provision under FAS No. 142, requiring an entity to consider whether a
contractual renewal or extension clause can be accomplished without substantial
cost or material modifications of the existing terms and conditions associated
with the asset. Instead, FSP FAS 142-3 requires that an entity consider its own
experience in renewing similar arrangements. An entity would consider market
participant assumptions regarding renewal if no such relevant experience exists.
FSP FAS 142-3 is effective for year ends beginning after December 15, 2008 with
early adoption prohibited. We have not yet determined the effect, if any, of the
adoption of this statement on our financial condition or results of
operations.
In
September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(“SFAS 157”) and in February 2008, the FASB issued FASB Staff Position 157-2
Effective Date of FASB
Statement No. 157
(“FSP 157-2”). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in accordance with generally
accepted accounting principles, and expands disclosures about fair value
measurements. This statement does not require any new fair value measurements.
Rather, it applies under other accounting pronouncements that require or permit
fair value measurements. The provisions of this statement are to be applied
prospectively as of the beginning of the fiscal year in which this statement is
initially applied, with any transition adjustment recognized as a
cumulative-effect adjustment to the opening balance of retained earnings. The
provisions of SFAS 157 are effective for the fiscal years beginning after
November 15, 2007 for financial assets and liabilities, except those that
are recognized or disclosed at fair value in the financial statements on at
least an annually recurring basis. The provisions of FSP 157 apply to
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in an entity’s financial statements on at
least an annual recurring basis. FSP provisions delay the effective date of SFAS
157 to fiscal years beginning after November 15, 2008 for non-financial assets
and liabilities. We implemented SFAS 157 on January 1, 2008 for financial assets
and liabilities without any impact on our financial condition or results of
operations. We have not yet determined the effect, if any, of the adoption of
this statement for non-financial assets and liabilities on our financial
condition or results of operations.
AMBASSADORS
GROUP, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In
February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities
(“SFAS 159”). SFAS 159 permits
companies to choose to measure many financial instruments and certain other
items at fair value. SFAS 159 is effective for financial statements issued
for fiscal years beginning after November 15, 2007. We implemented SFAS 159
on January 1, 2008 without any impact on our financial condition or results
of operations.
In
December 2007, the FASB issued SFAS No. 141R,
Business Combinations
(“SFAS 141R”). SFAS
141R will significantly change the accounting for business combinations. Under
SFAS 141R, an acquiring entity will be required to recognize all the assets
acquired and liabilities assumed in a transaction at the acquisition-date fair
value with limited exceptions. SFAS 141R will change the accounting treatment
for certain specific items, including acquisition costs will be generally
expensed as incurred, noncontrolling interests will be valued at fair value at
the acquisition date, acquired contingent liabilities will be recorded at fair
value at the acquisition date and subsequently measured at either the higher of
such amount or the amount determined under existing guidance for non-acquired
contingencies, in-process research and development will be recorded at fair
value as an indefinite-lived intangible asset at the acquisition date,
restructuring costs associated with a business combination will be generally
expensed subsequent to the acquisition date, and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date
generally will affect income tax expense. SFAS 141R also includes a substantial
number of new disclosure requirements. SFAS 141R applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008, or our first quarter of 2009. Earlier adoption is prohibited. We have
not yet determined the effect, if any, of the adoption of this statement on our
financial condition or results of operations.
In
December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements
(“SFAS 160”). SFAS 160 requires
certain disclosures relating to noncontrolling interests and clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in a
consolidated entity, reported as equity in the consolidated financial
statements. This statement changes the presentation of the statement of
operations. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008, or our first quarter 2009. Early adoption is prohibited. We
have not yet determined the effect, if any, of the adoption of this statement on
our financial condition or results of operations.
In March,
2008, the FASB issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133
(“SFAS 161”). SFAS 161 requires entities to provide qualitative disclosures
about the objectives and strategies for using derivatives, quantitative data
about the fair value of and gains and losses on derivative contracts, and
details of credit-risk-related contingent features in their hedged positions.
The statement also asks entities to disclose more information about the location
and amounts of derivative instruments in financial statements; how derivatives
and related hedges are accounted for under
SFAS No.
133
,
Accounting for Derivative
Instruments and Hedging Activities;
and how the hedges affect the
entity's financial position, financial performance, and cash flows. The standard
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, or our first quarter 2009, with early
application encouraged, but not required. We have not yet determined the
effect, if any, of the adoption of this statement on our
financial
condition or results of operations.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
The following discussion should be
read in conjunction with our consolidated financial statements and the notes
thereto included in this Quarterly Report on Form 10-Q.
Statements contained in this
Quarterly Report on Form 10-Q, which are not historical in nature, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended (the “Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). These forward-looking statements include, without
limitation, statements in Item 2, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, regarding matters which are not
historical fact, including our intent, belief or current expectations of our
company or our officers with respect to, among other things, trends in the
travel industry, business and growth strategies, use of technology, ability to
integrate acquired businesses, future actions, future performance or results of
operations, and the outcome of contingencies such as legal
proceedings.
Forward-looking statements involve
certain risks and uncertainties that could cause actual results to differ
materially from anticipated results. These risks and uncertainties include
factors affecting the travel industry generally, competition, our ability to
successfully integrate the operations of existing or acquired companies, and a
variety of factors such as conflict in Iraq and the Middle East, periods of
international unrest, the outbreak of disease, changes in the direct-mail
environment, recession, weather conditions and concerns for passenger safety
that could cause a decline in travel demand, as well as the risk factors, and
other factors as may be identified from time to time in our Securities and
Exchange Commission filings or in our press releases. For a more complete
discussion of these risks, please refer to Item 1A Risk Factors disclosure
in our Annual Report on Form 10-K filed on March 6, 2008 and those factors
set forth under Part II, Item 1A Risk Factors set forth in this Quarterly Report
on Form 10-Q.
All
forward-looking statements are expressly qualified in their entirety by these
factors and all related cautionary statements. We do not undertake any
obligation to update any forward-looking statements.
Executive
Overview
We are a
leading educational company that (1) organizes and promotes international and
domestic travel programs for students, athletes and professionals and (2)
provides over 8 million pages of online research content. Youth travel programs
provide opportunities for grade school, middle school and high school students
to learn about the history, government, economy and culture of the foreign and
domestic destinations they visit as well as for middle and high school athletes
to participate in international sports challenges. Our student leader programs
provide educational opportunities for middle school and high school students to
learn leadership, government, college admissions and community involvement
skills at domestic destinations. Our professional programs emphasize meetings
and seminars between delegates and persons in similar professions abroad. The
BookRag’s website,
www.bookrags.com
, is
an educational website that attracts millions of users and advertisers each
month. Students and teachers are able to “research anything” through over 8
million pages of content, including BookRags-created material, licensed
material, user-generated content, and other third party content.
We were
founded in 1967 and our common stock has traded on The NASDAQ Stock Market under
the ticker symbol “EPAX” since March 2002. The consolidated financial statements
include the accounts of Ambassadors Group, Inc. and our wholly owned
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in consolidation.
Effective
May 15, 2008, we acquired 100 percent of the stock in the educational website
BookRags, Inc. (www.bookrags.com). BookRags was founded in 1999, initially
started as a source for online book summaries and notes, and has grown to
additionally include a wide variety of content including lesson plans, film
summaries, biographies, literary criticisms, as well as Wikipedia. The results
of BookRags have been consolidated into our results as of May 15,
2008.
Our
operations are organized into two operating segments, consisting of (1)
educational travel services to students, professionals and athletes through
multiple itineraries within four educational and cultural program types and (2)
educational research content and advertising revenue from BookRags. The travel
programs have been aggregated as a single reporting segment based on the
similarity of their economic characteristics, as well as services
provided.
Our
Seasonality
Our
business is seasonal. The majority of our travel programs occur in June and
July of each year, complimented by the majority of content sales expected
to occur during school years, primarily September to June. We have historically
earned more than 90 percent of our annual revenues in the second and third
quarters, which we anticipate will continue for the foreseeable future.
Historically, these seasonal revenues have more than offset operating losses
incurred during the rest of the year. Our annual results would be adversely
affected if our revenues were to be substantially below seasonal norms during
these periods.
Our
Foreign Currency Exposure
The
majority of our travel programs take place outside the United States and most
foreign suppliers require payment in local currency rather than in U.S. dollars.
Accordingly, we are exposed to foreign currency risks in certain countries as
foreign currency exchange rates between those currencies and the U.S. dollar
fluctuate. We generally hedge against certain of these foreign currency risks.
We use forward contracts and options that allow us to acquire the foreign
currency at a fixed price for a specified period of time. Some of our forward
contracts and options include a variable component if a pre-determined trigger
occurs during the term of the contract.
These
foreign exchange contracts and options are entered into in order to support
normal anticipated recurring purchases and, accordingly, are not entered into
for speculative purposes.
Revenue
and Operating Expenses
Gross
receipts reflect total payments received by us for directly delivered and
non-directly delivered programs, internet content sales, and advertising
revenues. Revenue from non-directly delivered travel programs is presented as
net revenue and recognized as the program convenes. For these programs, we do
not actively deliver the operations of each program, and our remaining
performance obligation for these programs after they convene is perfunctory. For
certain programs, however, we organize and operate all activities including
speakers, facilitators, events, accommodations and transportation. As such, we
recognize the gross revenue and cost of sales of these directly delivered
programs over the period the programs are being delivered. Internet content
sales and advertising revenues are recognized at the point of sale and
corresponding to an advertisement being viewed on the BookRags site,
respectively. Revenue from annual subscriptions for content access to the
website is deferred and recognized monthly over the term of the
subscription.
Generally,
our policy is to obtain payment for substantially all travel services prior to
entering into commitments for incurring expenses relating to such travel.
Program pass-through and direct delivery expenses include all direct costs
associated with our programs, including, but not limited to, costs related to
airfare, hotels, meals, ground transportation, guides, presenters, facilitators,
professional exchanges and changes in currency exchange rates. Cost of internet
content sales include amortization of intangible assets and licensing agreement
costs.
Operating
expenses, which are expensed as incurred, are the costs related to the creation
of programs, promotional materials and marketing costs, salaries, rent, other
general and administrative expenses and all ordinary expenses.
Comparison of the Three Months Ended
September 30, 2008 to the Three Months Ended September 30,
2007
Total
revenue decreased 23 percent to $40.1 million from $52.1 million, and gross
margin decreased 28 percent to $33.0 million from $46.0 million during the third
quarter 2008 in comparison to the third quarter 2007. The decrease in total
revenue and gross margin was a direct result of traveling 17,680 delegates in
the third quarter 2008 in comparison to 24,475 delegates in the third quarter
2007 and increased international air costs. Total revenue and gross margin in
2008 each include $0.6 million and $0.5 million from BookRags Inc, which we
acquired in May 2008
.
Selling
and marketing expenses were $11.3 million and $10.2 million during the third
quarters of 2008 and 2007, respectively. The $1.1 million increase was spent
primarily toward marketing expenses during 2008 for our 2009 travel programs.
General and administrative expenses decreased $0.7 million to $2.8 million from
$3.5 million as a result of reductions in non essential overhead
costs.
Other
income consists primarily of interest income generated by cash, cash equivalents
and available-for-sale securities. Interest income recognized decreased $0.3
million to $0.7 million from $1.0 million during the quarters ended September
30, 2008 and 2007, respectively. This decreased interest income was primarily
due to interest income on lower cash, cash equivalents and available-for-sale
security balances held during the quarter ended September 30, 2008 than those
held during the quarter ended September 30, 2007.
The
income tax provision has been recorded based on a 32.7 percent and 32.5 percent
estimated annual effective income tax rate, applied to the pre-tax income for
the quarters ended September 30, 2008 and 2007, respectively. The difference
from the statutory rate of 35 percent is primarily due to tax exempt
interest.
This
resulted in net income of $13.3 million and $22.5 million, and $0.70 and $1.12
diluted earnings per share being recorded during the third quarters of 2008 and
2007, respectively.
Comparison of the Nine Months Ended
September 30, 2008 to the Nine Months Ended September 30,
2007
Total
revenue decreased to $90.3 million from $108.2 million, and gross margin
decreased to $73.2 million from $92.3 million in the first nine months of 2008
versus the same time period in 2007. The 21 percent decrease in gross margin was
a direct result of traveling 22 percent less delegates in the first nine months
of 2008 than the same period of 2007. We traveled 38,930 delegates year to date
in 2008 in comparison to 49,900 delegates year to date in 2007.
Selling
and marketing expenses were $29.6 million and $29.1 million year to date
2008 and 2007, respectively. The $0.5 million increase was spent primarily
toward marketing expenses during 2008, focused on our 2009 travel programs.
General and administrative expenses were $8.9 million and $9.5 million year to
date 2008 and 2007, respectively. The $0.6 million decrease resulted from lower
personnel in administrative positions, combined with reductions of non essential
overhead costs.
Other
income in the first nine months of 2008 and 2007 consists primarily of interest
income generated by cash, cash equivalents and available-for-sale securities.
Interest income decreased to $2.5 million from $3.3 million when comparing the
nine months ending September 30, 2008 and 2007, due to lower cash, cash
equivalents and available-for-sale security balances held during the period
ended September 30, 2007.
The
income tax provision has been recorded based on a 32.7 percent and 32.5 percent
estimated annual effective income tax rate, applied to the pre-tax income as of
the nine months ended September 30, 2008 and 2007, respectively.
This
resulted in net income of $25.0 million and $38.4 million, and $1.29 and $1.91
diluted earnings per share being recorded during the nine months ended September
30, 2008 and 2007, respectively.
Liquidity and Capital
Resources
Net cash
provided by operations for the nine months ended September 30, 2008 and 2007 was
$8.6 million and $9.5 million, respectively. The $0.8 million decrease in cash
flow from operations primarily resulted from the net effect of $13.5 million
decreased year over year net income, $5.9 million decreased accounts payable and
accrued expenses, offset by $18.3 million net change in participant’s deposits
from year end for future travel.
Net cash
used in investing activities for the nine months ended September 30, 2008 was
$1.7 million and the net cash provided by investing activities for the nine
months ended September 30, 2007 was $6.0 million. The
$4.2 million
fluctuation was primarily related to the acquisition of BookRags during 2008,
the timing of available-for-sale security purchases and expenditures in 2007
related to the construction of a new office facility.
Net cash
used in financing activities for the nine months ended September 30, 2008 and
2007 was $16.1 million and $37.8 million, respectively. The net change
in financing activities primarily resulted from $25.7 million additional common
stock repurchases during the nine months ended September 30, 2007 in comparison
to the same time period of 2008. During 2008, we paid $6.6 million in cash
dividends and $9.9 million in stock repurchases.
At S
eptember
30, 2008, we had $63.9 million of cash, cash equivalents
and available-for-sale securities. At September 30, 2007, we had $86.2 million
of cash, cash equivalents and available-for-sale securities.
During
2008, we have an unused line of credit in the amount of $20.0 million. The line
of credit covenants include a current ratio greater then 1.10, deployable cash
greater than zero, tangible net worth greater than $40 million and net income
after taxes for the current and previous three quarters of greater than $4.0
million. As of September 30, 2008, we were in compliance with all covenants
and do not expect to be out of compliance through any additional financial
undertakings. Additionally, we have no plans to draw any of these funds in
the immediate future.
Deployable
Cash
Deployable
cash is a non-GAAP) liquidity measure. Deployable cash is calculated as the sum
of cash and cash equivalents, available for sale securities and prepaid program
costs and expenses less the sum of accounts payable, accrued expenses and other
short-term liabilities (excluding deferred taxes), participant deposits and the
current portion of long-term capital lease.
We
believe the deployable cash measurement is useful in understanding cash
available to deploy for future business opportunities. This measurement is
presented as supplementary information to enhance your understanding of, and
highlight trends in, our financial position. Any non-GAAP financial measure used
should not be considered in isolation or as a substitute for measures of
performance or liquidity prepared in accordance with
GAAP.
Deployable Cash
Reconciliation
(in
thousands)
|
|
|
|
September
30,
2008
|
|
|
September
30,
2007
|
|
|
December
31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and available-for-sale securities
|
|
$
|
61,838
|
|
|
$
|
86,173
|
|
|
$
|
84,994
|
|
Prepaid
program cost and expenses
|
|
|
8,638
|
|
|
|
6,527
|
|
|
|
3,624
|
|
Less:
Participants’ deposits
|
|
|
(21,976
|
)
|
|
|
(21,624
|
)
|
|
|
(42,723
|
)
|
Less:
Accounts payable/accruals/other liabilities
|
|
|
(10,828
|
)
|
|
|
(16,810
|
)
|
|
|
(5,287
|
)
|
Less:
Current portion of capital lease
|
|
|
(22
|
)
|
|
|
(199
|
)
|
|
|
(187
|
)
|
Deployable
cash
|
|
$
|
37,650
|
|
|
$
|
54,067
|
|
|
$
|
40,421
|
|
Our
business is not capital intensive. However, we do retain funds for operating
purposes in order to conduct sales and marketing efforts for future
programs.
We
continue to consider acquisitions of educational, travel and youth businesses
that may require the use of cash and cash equivalents. No such acquisitions are
currently pending and no assurance can be given that definitive agreements for
any such acquisitions will be entered into, or, if they are entered into, that
they will be on terms favorable to us.
We do not
have any material capital expenditure commitments for 2008, not already
presented within our September 30, 2008 financial statements or discussed in our
current report on Form 8-K filed on May 21, 2008. We believe that existing cash
and cash equivalents and cash flows from operations will be sufficient to fund
our anticipated operating needs and capital expenditures through 2008 and 2009.
For a more complete discussion of these and other contractual factors, please
refer to our Annual Report on Form 10-K for the year ended December 31,
2007, along with our Quarterly Reports on Form 10-Q and Current Reports on Form
8-K filed during 2008.
Market
Risk
Financial
Instruments
We
classify our marketable debt investments as available-for-sale securities, which
are carried at fair value. Estimated fair value has been determined based upon
quoted prices in active markets for identical assets (level 1). Unrealized gains
and losses on available-for-sale securities are excluded from operations and
reported as accumulated other comprehensive income, net of deferred income
taxes. Unrealized losses recorded during the quarter ended September 30, 2008
approximated $0.1 million. Realized gains and losses on the sale of
available-for-sale securities are recognized on a specific identification basis
in the statement of operations in the period the investments are
sold.
We
evaluate investment securities for other-than-temporary declines in fair value
on a quarterly basis. If the fair value of investment securities falls below
their amortized cost and the decline is deemed to be other-than-temporary, the
securities will be written down to current market value, resulting in a loss
recorded in the statement of operations. There were no investment securities
that management identified to be other-than-temporarily impaired during the
quarter ended September 30, 2008 because any decline in fair value was
attributable to changes in interest rates and not credit quality, and because we
have the ability and intent to hold these investments until a recovery in market
price occurs, or until maturity. Realized losses could occur in future periods
due to a change in our intent to hold the investments to maturity, a change in
our assessment of credit risk, or a change in regulatory or accounting
requirements. Significant increases or decreases in the aggregate fair value of
our available for-sale securities may affect our liquidity and capital
resources, although we believe the credit ratings of investments held
substantiate this risk as low.
At
September 30, 2008 and December 31, 2007, we held $55.9 million and $67.7
million of short-term and long-term investments, consisting primarily of
municipal bonds, variable rate municipal demand notes and various auction rate
securities. The credit markets are currently experiencing significant
uncertainty, and some of this uncertainty has impacted and may continue to
impact the markets where our auction rate securities would be offered. Our
investments are in high-quality, tax-exempt municipal obligations. Some of these
investments are wrapped with insurance by various monoline bond insurers, and
the underlying rating of all the municipalities represented in the portfolio is
investment grade. We do not currently have any direct exposure to
collateralized debt obligations (“CDO”) or other similar structured securities.
We are unable to estimate with certainty the impact, if any, which emerging
credit market conditions may have on the liquidity of our auction rate
securities.
On
September 30, 2008, we had a total of approximately $63.9 million in cash, cash
equivalents, and available-for-sale securities, which included approximately
$2.1 million of investments in auction rate securities (“ARS”). Since March
2008, we experienced three failed ARS auctions, representing principal and
accrued interest totaling approximately $2.1 million. Due to the longer term
nature of the next auctions and the continued uncertainty in the financial
markets, this ARS value has been classified as a long term asset. Between March
31, 2008 and September 30, 2008, we exited positions in $14.4 million in ARS
issues at par plus accrued interest. We believe that the current lack of
liquidity relating to our ARS investments will have no impact on our ability to
fund our ongoing operations and growth initiatives.
Our ARS
portfolio is comprised of AA rated investments. The long term ARS fair value was
determined based upon a valuation methodology which considered the underlying
credit quality of student loan portfolios and federal government backing of its
collateral as a basis of its valuation. Current market quotations were not
readily available, traditional sources were not providing reliable information,
unusual market events had taken place, stale prices existed, or the security
remained illiquid. The resulting fair value effect did not have an impact on the
results of operations. Based on the high-level credit rating and the current
restructuring within the aggregate ARS market, we believe that the current
illiquidity of our one remaining failed ARS is temporary. We will, however,
reassess its liquidity in future reporting periods based on several factors,
including the success or failure of future auctions, possible failure of the
investment to be redeemed, deterioration of the credit rating of the investment,
market risk and other factors. Such reassessment may change the classification
or valuation of this investment.
Foreign
Currency – Hedging Policy
A
majority of our travel programs take place outside of the United States and most
foreign suppliers require payment in currency other than in U.S. dollars.
Accordingly, we are exposed to foreign currency risks relative to changes in
foreign currency exchange rates between those currencies and the U.S. dollar. We
have a program to provide a hedge against certain of these foreign currency
risks with less than two years maturity, and we use forward contracts and
options that allow us to acquire the foreign currency at a fixed price for a
specified period of time. All of our derivatives are designated as cash-flow
hedges of forecasted transactions.
We
account for these foreign exchange contracts and options in accordance with the
provisions of SFAS No. 133,
Accounting for
Derivative Instruments and Hedging Activities
(“SFAS 133”)
.
The
statement requires that all derivative instruments be recorded on the balance
sheet at fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, depending
on the type of hedge transaction. For qualifying cash-flow hedge transactions in
which we are hedging the variability of cash flows related to a forecasted
transaction, changes in the fair value of the derivative instrument are reported
in other comprehensive income. The gains and losses on the derivative
instruments that are reported in other comprehensive income are reclassified as
earnings in the periods in which earnings are impacted by the variability of the
cash flows of the hedged item. The ineffective portion of all hedges is
recognized in current period earnings. Unrealized gains and losses on foreign
currency exchange contracts that are not qualifying cash-flow hedges as defined
by SFAS 133 are recorded in the statement of operations.
Critical
Accounting Policies and Estimates
The
preparation of consolidated financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities. We
consider our policies associated with cash and investments, valuation of
goodwill and intangible assets, income taxes, foreign currency, revenue
recognition, stock-based compensation and contingencies and litigation to be the
most critical in understanding the judgments that are involved in preparing our
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, and in February
2008, the FASB issued FSP 157-2. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in accordance with generally
accepted accounting principles, and expands disclosures about fair value
measurements. This statement does not require any new fair value measurements.
Rather, it applies under other accounting pronouncements that require or permit
fair value measurements. The provisions of this statement are to be applied
prospectively as of the beginning of the fiscal year in which this statement is
initially applied, with any transition adjustment recognized as a
cumulative-effect adjustment to the opening balance of retained earnings. The
provisions of SFAS 157 are effective for the fiscal years beginning after
November 15, 2007 for financial assets and liabilities, except those that
are recognized or disclosed at fair value in the financial statements on at
least an annually recurring basis. The provisions of FSP 157 apply to
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in an entity’s financial statements on at
least an annual recurring basis. FSP provisions delay the effective date of SFAS
157 to fiscal years beginning after November 15, 2008 for non-financial assets
and liabilities. We implemented SFAS 157 on January 1, 2008 without any impact
on our financial condition or results of operations.
In
February 2007, the FASB issued SFAS No. 159. SFAS 159 permits
companies to choose to measure many financial instruments and certain other
items at fair value. SFAS 159 is effective for financial statements issued
for fiscal years beginning after November 15, 2007. We implemented SFAS 159
on January 1, 2008 without any impact on our financial
condition
or
results of operations.
Item 3. Quantitative and
Qualitative Disclosures about Market Risk
There has been no significant change to market risk as discussed in
Market
Risk, as part of
Item 7,
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
in our 10-K filed March 6, 2008.
A
majority of our travel programs take place outside of the United States and most
foreign suppliers require payment in currency other than the U.S. dollar.
Accordingly, we are exposed to foreign currency risk relative to changes in
foreign currency exchange rates between those currencies and the U.S. dollar. We
have a program to provide a hedge against certain of these foreign currency
risks with less than two years’ maturity. Currently, the U.S. dollar value has
significantly changed against the major currencies that we pay most foreign
suppliers, including the Euro, British pound, Australian dollar and New Zealand
dollar. If the U.S. dollar weakens against these four major currencies, we face
increased costs to travel a delegate abroad, and therefore, increased pressure
on the gross margin percent (gross margin as a percentage of gross program
receipts). We are not able to determine whether the impact of the weakening U.S.
dollar will be material on our business, financial condition, cash flows and
results of operations. See further discussion of these market risks in
Item 2,
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
in this Quarterly Report on Form 10-Q
.
Item 4. Controls and
Procedures
(a) Evaluation of
disclosure controls and procedures
As of
September 30, 2008, the end of the period covered by this report, our chief
executive officer and chief financial officer reviewed and evaluated the
effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rule 13a-15(e) and 15d-15(e)), which are designed to ensure that material
information we must disclose in our report filed or submitted under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded,
processed, summarized, and reported on a timely basis, and have concluded, based
on that evaluation, that as of such date, our disclosure controls and procedures
were effective to ensure that information required to be disclosed by us in
reports that we file or submit
under the
Exchange Act is accumulated and communicated to our chief executive officer and
chief financial officer as appropriate to allow timely decisions regarding
required disclosure.
(b) Changes in
internal control over financial reporting
Except as
described below, there were no changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting during the third quarter
of 2008.
As part
of the acquisition of BookRags during the quarter ended June 30, 2008, we are
integrating BookRags’ finance functions and processes. This integration has and
will result in business process changes. We have designed and implemented
internal control processes to ensure suitable controls over the additional
financial reporting.
On
September 30, 2008 we implemented an enterprise-wide resource planning (“ERP”)
software system. There were no changes in our internal controls over financial
reporting that occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reportin
g.
PART
II
OTHER
INFORMATION
Our risk
factors are discussed in Item 1A,
Risk Factors
, section of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and have
been updated in Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 2008. The risk factors could materially and
adversely affect our future operating results and could cause actual results to
differ materially from those predicated in forward-looking statements we make
about our business.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
Between
May 2004 and November 2007, our Board of Directors authorized the repurchase of
up to $45.0 million of our Common Stock in the open market or through private
transactions. During the quarter ended September 30, 2008, we repurchased
234,589 shares of our Common Stock for $3.4 million. Since inception through
September 30, 2008, we have repurchased approximately 1,794,400 shares of our
Common Stock, adjusted to reflect the effect of our two-for-one stock split of
our Common Stock, for an approximate total of $35.0 million. As of September 30,
2008, approximately $10.0 million remained available for repurchase under the
plan.
Independent
of this share repurchase plan, during the first quarter 2007, our board of
directors approved a single repurchase of 1.2 million shares of our Common Stock
for approximately $33.0 million.
The
following is a summary of issuer purchases of equity securities during the
quarter ended September 30, 2008:
Period
|
|
Total
Number
of
Shares
Purchased
|
|
|
Average
Price
Paid
per
Share
|
|
|
Total
Number of
Shares
Purchased
as Part of Publicly Announced
Plans
or Programs
|
|
|
Maximum
Number
(or
Approximate Dollar Value) of Shares that May Yet Be Purchased Under the
Plans or Programs
|
July
1 – July 31, 2008
|
|
|
234,589
|
|
|
$
|
14.45
|
|
|
|
234,589
|
|
|
$
|
10,000,003
|
August
1 – August 31, 2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000,003
|
September
1 – September 30, 2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000,003
|
Total
|
|
|
234,589
|
|
|
$
|
14.45
|
|
|
|
234,589
|
|
|
$
|
10,000,003
|
Item 6.
Exhibits
|
31.1
|
Certification
under Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
31.2
|
Certification
under Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
32.1
|
Certification
under Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
32.2
|
Certification
under Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, we have duly caused
this report to be signed on our behalf by the undersigned thereunto duly
authorized.
AMBASSADORS
GROUP, INC.
Date:
November 7, 2008
|
By:
|
/s/
CHADWICK J. BYRD
|
|
|
|
Chadwick
J. Byrd
|
|
|
|
Chief
Financial Officer
|
|
EXHIBIT
INDEX
|
31.1
|
Certification
under Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
31.2
|
Certification
under Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
32.1
|
Certification
under Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
32.2
|
Certification
under Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
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