##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-26420
 
 AMBASSADORS INTERNATIONAL, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 
 Delaware
    
    91-1688605(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)
 1071 Camelback Street
Newport Beach, California 92660
(Address of Principal Executive Offices)
 Registrants Telephone Number, Including Area Code: (949) 759-5900
 
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
 o þ
 The
number of shares of the registrants Common Stock outstanding as
of July 29, 2008 was
11,138,067.




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##### 



AMBASSADORS INTERNATIONAL, INC.  FORM 10-Q QUARTERLY REPORT
 TABLE OF CONTENTS
 PART I FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at June 30, 2008 (unaudited) and
December 31, 2007
    
    
    1Condensed Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2008 and 2007 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Six Months Ended June
30, 2008 and 2007 (unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31Item 4T. Controls and Procedures
    
    
    31PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    33SIGNATURES
    
    
    34EXHIBIT INDEX
    
    
    35Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 Ambassadors International, Inc.
 
 Condensed Consolidated Balance Sheets
 (in thousands, except share and per share data)
    
    June 30, 2008
    
    
    December 31, 2007(unaudited)Assets:Current assets:Cash and cash equivalents
    
    $
    9,659
    
    
    $
    21,998Restricted cash
    
    
    40,524
    
    
    
    31,084Available-for-sale securities
    
    
    217
    
    
    
    2,514Accounts and other receivables, net of allowance of $1,999 at
June 30, 2008 and $2,332 at December 31, 2007
    
    
    34,507
    
    
    
    40,798Costs in excess of billings on construction contracts
    
    
    10,438
    
    
    
    8,410Premiums receivable
    
    
    7,112
    
    
    
    10,188Reinsurance recoverable
    
    
    672
    
    
    
    1,148Inventory
    
    
    6,951
    
    
    
    5,751Deferred income taxes, net
    
    
    
    
    
    
    1,262Prepaid costs and other current assets
    
    
    12,685
    
    
    
    8,530Total current assets
    
    
    122,765
    
    
    
    131,683Property, vessels and equipment, net
    
    
    216,706
    
    
    
    219,793Goodwill
    
    
    9,181
    
    
    
    9,181Other intangibles, net
    
    
    11,407
    
    
    
    11,152Other assets
    
    
    4,408
    
    
    
    4,680Total assets
    
    $
    364,467
    
    
    $
    376,489Liabilities:Current liabilities:Accounts payable
    
    $
    34,206
    
    
    $
    36,564Passenger and participant deposits
    
    
    58,926
    
    
    
    47,067Accrued expenses
    
    
    16,628
    
    
    
    16,175Billings in excess of costs on construction contracts
    
    
    9,318
    
    
    
    13,108Loss and loss adjustment expense reserves
    
    
    4,437
    
    
    
    6,674Deferred income taxes, net
    
    
    711
    
    
    
    Current portion of long term debt
    
    
    5,049
    
    
    
    5,479Total current liabilities
    
    
    129,275
    
    
    
    125,067Long term
debt, net of current portion and net of discount of $2,191 at
June 30, 2008 and
$2,479 at December 31, 2007
    
    
    159,737
    
    
    
    161,584Long term deferred tax liabilities
    
    
    194
    
    
    
    1,676Long term passenger and participant deposits
    
    
    5
    
    
    
    35Total liabilities
    
    
    289,211
    
    
    
    288,362Commitments and contingencies (Note 11)Stockholders equity:Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 40,000,000 shares authorized; 10,888,067
and 10,888,655 shares issued and outstanding at June 30, 2008 and
December 31, 2007, respectively
    
    
    108
    
    
    
    108Additional paid-in capital
    
    
    98,400
    
    
    
    97,634Accumulated deficit
    
    
    (25,518
    )
    
    
    (11,170
    )Accumulated other comprehensive income
    
    
    2,266
    
    
    
    1,555Total stockholders equity
    
    
    75,256
    
    
    
    88,127Total liabilities and stockholders equity
    
    $
    364,467
    
    
    $
    376,489
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  1




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##### Table of Contents



Ambassadors International, Inc.
 
 Condensed Consolidated Statements of Operations
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands, except per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(unaudited)
    
    
    (unaudited)Revenues:Passenger ticket revenue
    
    $
    37,983
    
    
    $
    41,137
    
    
    $
    56,766
    
    
    $
    45,980Onboard and other cruise revenue
    
    
    6,698
    
    
    
    5,922
    
    
    
    11,672
    
    
    
    6,281Marine revenue
    
    
    31,314
    
    
    
    28,565
    
    
    
    60,666
    
    
    
    52,049Travel, incentive and event related
    
    
    4,608
    
    
    
    4,476
    
    
    
    8,334
    
    
    
    8,000Net insurance premiums earned
    
    
    
    
    
    
    168
    
    
    
    5
    
    
    
    82280,603
    
    
    
    80,268
    
    
    
    137,443
    
    
    
    113,132Costs and operating expenses:Cruise operating expenses:Compensation and benefits
    
    
    8,639
    
    
    
    8,951
    
    
    
    13,250
    
    
    
    10,763Passenger expenses
    
    
    2,983
    
    
    
    3,459
    
    
    
    4,363
    
    
    
    4,218Materials and services
    
    
    17,244
    
    
    
    14,853
    
    
    
    27,119
    
    
    
    17,888Repairs and maintenance
    
    
    3,721
    
    
    
    4,434
    
    
    
    5,950
    
    
    
    4,751Other cruise operating expenses
    
    
    3,849
    
    
    
    3,953
    
    
    
    6,355
    
    
    
    5,03136,436
    
    
    
    35,650
    
    
    
    57,037
    
    
    
    42,651Cost of marine revenue
    
    
    24,134
    
    
    
    22,007
    
    
    
    46,679
    
    
    
    41,451Selling and tour promotion
    
    
    2,617
    
    
    
    6,284
    
    
    
    9,033
    
    
    
    12,808General and administrative
    
    
    14,373
    
    
    
    14,283
    
    
    
    29,372
    
    
    
    25,603Depreciation and amortization
    
    
    3,917
    
    
    
    3,128
    
    
    
    7,393
    
    
    
    4,688Loss and loss adjustment expenses, insurance acquisition costs and
other operating expenses
    
    
    68
    
    
    
    277
    
    
    
    165
    
    
    
    99281,545
    
    
    
    81,629
    
    
    
    149,679
    
    
    
    128,193Operating loss
    
    
    (942
    )
    
    
    (1,361
    )
    
    
    (12,236
    )
    
    
    (15,061
    )Other income (expense):Interest and dividend income
    
    
    338
    
    
    
    1,067
    
    
    
    805
    
    
    
    1,759Interest expense
    
    
    (1,618
    )
    
    
    (2,190
    )
    
    
    (3,691
    )
    
    
    (3,195
    )Realized losses on sale of available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )Other, net
    
    
    (128
    )
    
    
    574
    
    
    
    689
    
    
    
    384(1,408
    )
    
    
    (549
    )
    
    
    (2,197
    )
    
    
    (1,100
    )Loss before provision (benefit) for income taxes
    
    
    (2,350
    )
    
    
    (1,910
    )
    
    
    (14,433
    )
    
    
    (16,161
    )Provision (benefit) for income taxes
    
    
    21
    
    
    
    (7,680
    )
    
    
    (85
    )
    
    
    (13,369
    )Net income (loss)
    
    $
    (2,371
    )
    
    $
    5,770
    
    
    $
    (14,348
    )
    
    $
    (2,792
    )Earnings (loss) per share (Note 8):Basic
    
    $
    (0.22
    )
    
    $
    0.52
    
    
    $
    (1.32
    )
    
    $
    (0.25
    )Diluted
    
    $
    (0.22
    )
    
    $
    0.48
    
    
    $
    (1.32
    )
    
    $
    (0.25
    )Weighted-average common shares outstanding:Basic
    
    
    10,891
    
    
    
    11,083
    
    
    
    10,889
    
    
    
    11,086Diluted
    
    
    10,891
    
    
    
    13,349
    
    
    
    10,889
    
    
    
    11,086Dividends per common share
    
    $
    
    
    
    $
    0.10
    
    
    $
    
    
    
    $
    0.20
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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Ambassadors International, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 Six Months EndedJune 30,(in thousands)
    
    2008
    
    
    2007(unaudited)Cash flows from operating activities:Net loss
    
    $
    (14,348
    )
    
    $
    (2,792
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    7,393
    
    
    
    4,688Amortization of debt discount and offering costs
    
    
    329
    
    
    
    164Loss on sale of available for sale securities
    
    
    
    
    
    
    48Stock-based compensation expense
    
    
    745
    
    
    
    791Undistributed (earnings) losses from equity investments
    
    
    72
    
    
    
    (221
    )Foreign currency translation
    
    
    831
    
    
    
    395Deferred income taxes
    
    
    (498
    )
    
    
    (19
    )Change in assets and liabilities, net of effects of business acquisitions and dispositions:Accounts and other receivables
    
    
    6,291
    
    
    
    (14,808
    )Costs in excess of billings on construction contracts
    
    
    (2,028
    )
    
    
    436Premiums receivable
    
    
    3,076
    
    
    
    2,610Deferred policy acquisition costs
    
    
    
    
    
    
    303Reinsurance recoverable
    
    
    476
    
    
    
    909Prepaid insurance premiums
    
    
    
    
    
    
    228Inventory
    
    
    (1,200
    )
    
    
    (704
    )Prepaid costs and other current assets
    
    
    (4,196
    )
    
    
    (25,117
    )Other assets
    
    
    250
    
    
    
    315Accounts payable and accrued expenses
    
    
    (1,837
    )
    
    
    14,519Passenger and participant deposits
    
    
    11,829
    
    
    
    29,831Billings in excess of costs on construction contracts
    
    
    (3,790
    )
    
    
    5,608Loss and loss adjustment expense reserves
    
    
    (2,237
    )
    
    
    (3,851
    )Unearned premiums
    
    
    
    
    
    
    (1,111
    )Other
    
    
    
    
    
    
    (21
    )Net cash provided by operating activities
    
    
    1,158
    
    
    
    12,201Cash flows from investing activities:Proceeds from sale of available-for-sale securities
    
    
    2,338
    
    
    
    34,978Purchase of available-for-sale securities
    
    
    (53
    )
    
    
    (335
    )Restricted cash
    
    
    (10,337
    )
    
    
    (30,971
    )Cash paid for acquisitions of subsidiaries, net of cash received
    
    
    
    
    
    
    (10,954
    )Purchase of property and equipment
    
    
    (3,352
    )
    
    
    (11,117
    )Net cash used in investing activities
    
    
    (11,404
    )
    
    
    (18,399
    )Cash flows from financing activities:Proceeds from line of credit
    
    
    481
    
    
    
    1,045Proceeds from exercise of stock options
    
    
    21
    
    
    
    101Proceeds from issuance of convertible notes
    
    
    
    
    
    
    97,000Payments on debt
    
    
    (2,595
    )
    
    
    (62,334
    )Convertible debt offering costs
    
    
    
    
    
    
    (3,281
    )Common stock dividends paid
    
    
    
    
    
    
    (2,168
    )Repurchase of common stock
    
    
    
    
    
    
    (1,577
    )Net cash (used in) provided by financing activities
    
    
    (2,093
    )
    
    
    28,786Net change in cash and cash equivalents
    
    $
    (12,339
    )
    
    $
    22,588Cash and cash equivalents, beginning of period
    
    
    21,998
    
    
    
    8,246Cash and cash equivalents, end of period
    
    $
    9,659
    
    
    $
    30,834
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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##### Table of Contents



Ambassadors International, Inc.
 
 Notes to Condensed Consolidated Financial Statements (unaudited)
 1.
    
    Description of the Company and Basis of PresentationThe CompanyAmbassadors International, Inc. (the Company) was founded in 1967 as a travel services
company incorporated in Washington and reincorporated in Delaware in 1995. The Company operates
through four wholly-owned subsidiaries: (i) Ambassadors, LLC (Ambassadors), which commenced
operations in 1996; (ii) Cypress Reinsurance, Ltd (Cypress Re), which commenced operations in
2004; (iii) Ambassadors Marine Group, LLC (AMG), which commenced operations in 2006; and
(iv) Ambassadors Cruise Group, LLC (ACG), which commenced operations in 2006. ACG formed a
wholly-owned subsidiary, Ambassadors International Cruise Group, LLC (AICG) which acquired
Windstar Sail Cruises Limited (Windstar Cruises) in April 2007.The Company operates in the following four business segments: (i) cruise, which includes the
operations of ACG, (ii) marine, which includes the operations of AMG, (iii) travel and events,
which includes the operations of Ambassadors, and (iv) corporate and other, which consists of
general corporate assets (primarily cash and cash equivalents and investments), the operations
of Cypress Re and other activities which are not directly related to the Companys cruise,
marine and travel and events operating segments.The following further describes the operations of the Companys business segments:
 
    
    Cruise This segment operates Majestic America Line and Windstar Cruises brands
within ACG. Majestic America Line is a domestic provider of overnight passenger cruises
along inland rivers and coastal waterways of North America. The Company acquired seven
U.S.-flagged cruise ships under the Majestic America Line brand, including the
223-passenger Empress of the North, the 142-passenger Queen of the West, the
436-passenger American Queen®, the 412-passenger Mississippi
Queen®, the 176-passenger Delta Queen®, the 48-passenger Contessa,
and the 150-passenger Columbia Queen. The Company acquired its U.S. cruise operations
through a series of acquisitions. In January 2006, ACG acquired American West Steamboat
Company, LLC (American West), a cruise company that offers cruises through Alaskas
Inside Passage and on the Columbia and Snake rivers. In April 2006, the Company
acquired the cruise-related assets of Delta Queen Steamboat Company, Inc. (Delta
Queen). On April 2, 2007, ACG, through its wholly-owned subsidiary, AICG, acquired
Windstar Cruises, an international-flagged small ship cruise line that operates a
three-ship fleet that includes the 312-passenger Wind Surf, 148-passenger Wind Spirit,
and 148-passenger Wind Star.The 2008 cruise schedule includes cruises through Alaskas Inside Passage onboard the
Empress of the North, and on the Columbia and Snake Rivers onboard the Empress of the
North, Columbia Queenand Queen of the West. The Company also offers historical cruises
onboard the American Queen®, Delta Queen®and Mississippi
Queen® on many American rivers, including the Mississippi, Ohio, Tennessee,
Cumberland and Arkansas Rivers, with stops at many American historic cities, battle
grounds and estates, including New Orleans, Memphis and St. Louis. Each of the Companys
cruises offers an onboard historian and naturalist and shore excursions to enhance
passengers understanding of the wildlife, history and cultures of the areas traveled. The
Companys 2008 cruise schedule also includes destinations in the Greek Isles, Caribbean
Islands and Costa Rica and cruises on the Mediterranean, the Adriatic, and the Panama
Canal on one of the three Windstar Cruises ships.In April 2008, the Company announced its intention to sell the Majestic America Line. As
of June 30, 2008, the net assets of the Majestic America Line did not qualify for
held-for-sale treatment under Statement Financial Accounting Standard (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, The Company also
determined that there was no impairment of the assets of Majestic America Line as of June
30, 2008.
 
    
    Marine This segment includes marina design, manufacturing and construction
services. The Company also offers marine operations, shipyard services, management and
consulting services to marina owners. The Companys marine operations primarily consist
of Bellingham Marine Industries, Inc. (Bellingham Marine) acquired on July 21, 2006
and BellPort Group, Inc. (BellPort), acquired in February 2005. Bellingham Marine is
a global marina builder, providing design and construction services to marina owners
throughout the world. The Companys marine business customer base is widespread and
geographically diverse, and includes corporations, government agencies and private
individuals. In February 2008, in order to further expand the Companys shipyard
operations, BellPort purchased certain assets related to Anacapa Marine Services, a
shipyard business located in Channel Islands Harbor in Oxnard, California, for $0.4
million.
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Ambassadors International, Inc.
 Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
    
    Travel and Events Operating under the Ambassadors, LLC brand, this segment
develops, markets, and manages meetings and incentive programs for a nationwide roster
of corporate clients utilizing incentive travel, merchandise award programs and
corporate meeting management services. It provides comprehensive hotel reservation,
registration and travel services for meetings, conventions, expositions and trade shows.
It also develops, markets, and distributes event portfolio management technology
solutions for corporations and large associations.
 
    
    Corporate and Other This segment consists of general corporate assets
(primarily cash and cash equivalents and investments), the operations of Cypress Re and
other activities which are not directly related to the Companys cruise, marine or
travel and events segments. Cypress Re reinsures property and casualty risks written by
licensed United States insurers. The lines of business that are currently being
reinsured include commercial auto liability, commercial physical damage and workers
compensation. These risks are associated with members of highly selective affinity
groups or associations. Cypress Re has not entered into any new programs in 2007 and
2008.
 SeasonalityThe Companys businesses are seasonal. Prior to 2006, the majority of the Companys operating
results was recognized in the first and second quarters of each fiscal year, which correspond
to the busy season for the Companys travel and events services. As a result of the
acquisitions within the Companys cruise segment and the size of its cruise operations in
relation to its overall operations, since 2006, a majority of the Companys operating results
has been recognized in the second and third quarters of each fiscal year, which coincide with
the cruising season.Basis of PresentationThe accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with United States generally accepted accounting principles (GAAP) for interim
financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 2008 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2008 or any other future
periods.The condensed consolidated balance sheet at December 31, 2007 has been derived from the audited
consolidated financial statements at that date but does not include all of the information and
footnotes required by GAAP for complete financial statements. Certain reclassifications have
been made to the 2007 condensed consolidated financial statements to conform to the 2008
presentation. For further information, refer to the consolidated financial statements and
footnotes thereto included in the Companys annual report on Form 10-K for the year ended
December 31, 2007.Fair Value MeasurementsEffective January 1, 2008, the Company implemented the requirements of SFAS No. 157, Fair Value
Measurements (SFAS No. 157) for its financial assets and liabilities. SFAS No. 157 refines
the definition of fair value, expands disclosure requirements about fair value measurements and
establishes specific requirements as well as guidelines for a consistent framework to measure
fair value. SFAS No. 157 defines fair value as the price that would be received to sell an
asset, or paid to transfer a liability, in an orderly transaction between market participants.
Further, SFAS No. 157 requires the Company to maximize the use of observable market inputs,
minimize the use of unobservable market inputs and disclose in the form of an outlined
hierarchy the details of such fair value measurements.
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Ambassadors International, Inc.
 Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 SFAS No. 157 specifies a hierarchy of valuation techniques based on whether the inputs to a
fair value measurement are considered to be observable or unobservable in a marketplace.
Observable inputs reflect market data obtained from independent sources, while unobservable
inputs reflect the Companys market assumptions. This hierarchy requires the use of observable
market data when available. These two types of inputs have created the following fair value
hierarchy:
 
    
    Level 1  quoted prices for identical instruments in active markets;
 
    
    Level 2  quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and model-derived
valuations in which significant inputs and significant value drivers are observable in
active markets; and
 
    
    Level 3  valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are unobservable.
 The Company measures fair value using a set of standardized procedures that are outlined herein
for all financial assets and liabilities which are required to be measured at fair value. When
available, the Company utilizes quoted market prices from an independent third party source to
determine fair value and classifies such items in Level 1. In some instances where a market
price may be available, but in an inactive or over-the-counter market where significant
fluctuations in pricing could occur, the Company would consistently choose the dealer (market
maker) pricing estimate and classify the financial asset or liability in Level 2.If quoted market prices or inputs are not available, fair value measurements are based upon
valuation models that utilize current market or independently sourced market inputs, such as
interest rates, option volatilities, credit spreads, etc. Items valued using such
internally-generated valuation techniques are classified according to the lowest level input
that is significant to the fair value measurement. As a result, a financial asset or liability
could be classified in either Level 2 or 3 even though there may be some significant inputs
that are readily observable. Internal models and techniques used by the Company include
discounted cash flow and Black-Scholes-Merton option valuation models. The adoption of SFAS No.
157 did not have a material impact on the Companys consolidated financial position or results
of operations.On February 12, 2008, the Financial Accounting Standards
Board (FASB) amended the implementation of SFAS No. 157 related to
non-financial assets and liabilities until fiscal periods beginning after November 15, 2008. As
a result, the Company has not applied the above fair value procedures to its goodwill and
long-lived asset impairment analyses during the current period. The Company believes that the
adoption of SFAS No. 157 for non-financial assets and liabilities will not have a material
impact on its consolidated financial position or results of operations upon implementation for
fiscal periods beginning after November 15, 2008.The following table illustrates the Companys fair value measurements of its financial assets
and liabilities as classified in the fair value hierarchy, associated unrealized and realized
gains and losses, as well as purchases, sales, issuances, settlements (net) or transfers out of
a Level 1 classification. Realized gains and losses are recorded in other income, net on the
Companys consolidated statement of operations (in thousands):
 Change inFair Value
    
    
    Fair Value
    
    
    Unrealized
    
    
    RealizedFair Value Hierarchy
    
    June 30, 2008
    
    
    December 31, 2007
    
    
    Gain/(Loss)(1)
    
    
    Gain/(Loss)(1)Level 1
    
    $
    217
    
    
    $
    2,514
    
    
    $
    (13
    )
    
    $
    Level 2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Settlements (net) or transfers out of Level I during the six months ended June 30, 2008
amounted to $2,284. Restricted CashThe Companys cruise passenger deposits are primarily received through credit card
transactions. At December 31, 2007, the Company had $17.1 million of restricted cash held by
banks in cash equivalents and a certificate of deposit in order to secure its processing of
passenger deposits through credit cards. The restricted amounts were negotiated between the
Company and the bank based on a percentage of the expected future volume of credit card
transactions within a standard twelve-month period. At June 30, 2008, the total amount of
restricted cash held by banks was $27.4 million.
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Ambassadors International, Inc.
 Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 On March 27, 2007, the Company amended its credit facility with a bank to reduce its revolving
line of credit from $20.0 million to $12.5 million and established a $12.5 million certificate
of deposit with the bank to secure its outstanding letters of credit. The certificate amount
was based on the Companys current letters of credit then outstanding. On July 18, 2008, the
Company amended its credit facility to $7.5 million and reduced the corresponding certificate
of deposit accordingly.As of June 30, 2008 and December 31, 2007, the $0.6 million and $1.5 million, respectively, of
the Companys restricted cash represented principal and interest payments made to a depository
account which was used to pay bondholders of certain of the Companys vessel debt in August
2008 as required under the loan agreement.Revenue RecognitionThe Company recognizes revenue in accordance with GAAP, including SEC Staff Accounting Bulletin
No. 104, Revenue Recognition, and EITF 99-19, Reporting Revenue Gross as a Principal Versus
Net as an Agent. The Company recognizes revenue when persuasive evidence of an arrangement
exists, the service fee is fixed or determinable, collectibility is reasonably assured and
delivery has occurred.Passenger Ticket Revenue and Onboard and Other Cruise RevenuesThe Company records passenger ticket revenue net of applicable discounts and recognizes
passenger ticket revenue and related costs of revenue when the cruise is completed. The Company
generally receives from its customers a partially refundable deposit within one week of booking
a tour, with the balance typically remitted 60 days prior to the departure date. If customers
cancel their trip, the nonrefundable portion of their deposit is recognized as revenue on the
date of cancellation. Passenger revenue representing travel insurance purchased at the time of
reservation is recognized upon the completion of the cruise or passenger cancellation,
whichever is earlier and the Companys obligation has been met. Onboard and other cruise
revenue consisting of beverage and souvenir sales and optional shore excursions are deferred
and recognized as revenue when the cruise is completed.Marine RevenueThe Company recognizes revenue for marine and related services, and shipyard related revenue in
accordance with the American Institute of Certified Public Accountants Statement of Position
No. 81-1 Accounting for Performance of Construction-Type and Production-Type Contracts.Revenues from fixed-price marine construction contracts are recognized on the
percentage-of-completion method, whereby a portion of the contract revenue, based on contract
costs incurred to date compared with total estimated costs at completion (based on Companys
estimates), is recognized as revenue each period. Revenues from cost-plus contracts are
recognized on the basis of costs incurred, plus the fee earned. Estimates of fees earned are
based on negotiated fee amounts or managements assessment of the fee amounts that are likely
to be earned. Each of these methods approximates percentage of completion revenue recognition
based on contract costs incurred to date compared with total estimated costs at completion.
The Company uses the completed contract method for shipyard related contracts for which
reasonably dependable estimates cannot be made.On occasion, the Company or its customers may seek to modify a contract to accommodate a change
in the scope of the work, such as changes in specifications, method or manner of performance,
equipment, materials, or period of performance, or to account for customer-caused delays,
errors in specifications or design, contract terminations, or other causes of unanticipated
additional costs. Such change orders or claims are evaluated according to their
characteristics and the circumstances under which they occur, taking into consideration such
factors as the probability of recovery, the Companys experience in negotiating change orders
and claims, and the adequacy of documentation substantiating the costs of such change order or
claim. Costs attributable to unpriced change orders and claims are accounted for as costs of
contract performance in the period in which the costs are incurred, and revenue is recognized
to the extent of costs incurred. Revenue in excess of costs attributable to unpriced change
orders is recorded when realization is assured beyond a reasonable doubt, based on the
Companys experience with the customer or when a bona fide pricing offer has been provided by
the customer. Receivables related to unpriced change orders and claims are not material.The Company follows these revenue recognition methods because reasonably dependable estimates
of the revenue, costs and profits applicable to various stages of a contract can generally be
made. Recognized revenues and profit are subject to revisions as the contract progresses to
completion. If the Company does not accurately estimate the resources required or the scope of
work to be performed, or does not manage its projects properly within the planned periods of
time, or satisfy its obligations under the contracts, then profit may be significantly and
negatively affected or losses on contracts may need to be recognized. On a regular basis, the
Company reviews contract performance, costs incurred, and estimated costs to complete.
Revisions to revenue and profit estimates are reflected in income in the period in which the
facts that give rise to the revisions become known. Provisions for anticipated losses on
contracts are reflected in income in the period in which the loss becomes known.
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Ambassadors International, Inc.
 Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 A contract may be regarded as substantially completed if remaining costs and potential risks
are insignificant in amount. The Company considers a contract to be substantially completed
upon delivery of the product, acceptance by the customer and compliance with contract
performance specifications.The asset, costs in excess of billings on construction contracts, represents revenues
recognized in excess of amounts billed. The liability, billings in excess of costs on
construction contracts, represents billings in excess of revenues recognized.Travel, Incentive and Event RelatedThe Company bills travel participants, mainly consisting of large corporations, in advance, and
records the cash received as a participant deposit. The Company pays for certain direct program
costs such as airfare, hotel and other program costs in advance of travel, which are recorded
as prepaid program costs. Travel revenue and related costs are recognized when travel convenes
and such revenue is classified as travel and incentive related. This revenue is reported on a
net basis, reflecting the net effect of gross billings to the client less any direct program
costs.The Company recognizes revenue from hotel reservation, registration and related travel services
when the convention operates. Revenue from the sale of merchandise is recognized when the
merchandise is shipped, the service has been provided or when the redemption periods have
expired. The Company defers revenue from prepaid, certificate-based merchandise incentive
programs until the Companys obligations are fulfilled or upon managements estimates (based
upon historical trends) that it is remote that the certificate will be redeemed. These revenues
are reported on a net basis, reflecting the net effect of gross billings to the client less any
direct program or merchandise costs.Net Insurance Premiums EarnedInsurance premiums are recognized as revenue over the period of the insurance contracts in
proportion to the amount of the insurance coverage provided. The insurance contracts are
typically twelve months in duration and are considered short-duration contracts. Unearned
premiums represent the unearned portion of the insurance contracts as of the balance sheet
date.Ceded reinsurance premiums relate to reinsurance purchased (excess of loss and aggregate stop
loss) to mitigate potential losses from severe adverse loss development, both on a per accident
claim basis and in the aggregate. These ceded reinsurance transactions are recognized as a
reduction of premium revenue in the same manner in which the insurance contract is recognized
as premium revenue.Property, Vessels and EquipmentProperty, vessels and equipment are stated at cost, net of accumulated depreciation. The
Company expenses the cost of maintenance and repairs that do not improve or extend the lives of
the respective assets when incurred. Major additions and betterments are capitalized. The
Companys ships are capitalized and depreciated using the straight-line method over the
expected useful life ranging up to 30 years, net of a residual value that generally is
approximately 15%. Ship replacement parts are capitalized and depreciated upon being placed in
service. Office and shop equipment is capitalized and depreciated using the straight-line
method over the expected useful life of the equipment, ranging up to 10 years. Leasehold
improvements are amortized using the straight-line method over the lesser of the expected
useful life of the improvement or the term of the related lease.The Company performs reviews for the impairment of property, vessels and equipment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. When property, vessels and equipment are sold or retired, the Company removes the
related cost and accumulated depreciation from the accounts and recognizes any gain or loss in
the statement of operations. Judgments and estimates made related to property, vessels and
equipment are affected by factors such as economic conditions, changes in resale values and
changes in operating performance. This process requires the use of estimates and assumptions,
which are subject to a high degree of judgment. If these assumptions change in the future, the
Company may be required to record impairment charges for these assets. No impairment charges
were recorded for the periods ended June 30, 2008 and 2007.
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Ambassadors International, Inc.
 Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 Long-lived Assets including Intangible AssetsGoodwill and intangible assets with indefinite useful lives are tested for impairment at least
annually or sooner whenever events or changes in circumstances indicate that they may be
impaired. The Companys management evaluates recoverability using both subjective and objective
factors. Subjective factors include the evaluation of industry and product trends and the
Companys strategic focus. Objective factors include managements best estimates of projected
future earnings and cash flows. The Company uses a discounted cash flow model to estimate the
fair market value of each of its reporting units when it tests goodwill for impairment.
Assumptions used include growth rates for revenues and expenses, investment yields on deposits,
any future capital expenditure requirements and appropriate discount rates. The Company
established reporting units based on its current reporting structure. For purposes of testing
goodwill for impairment, goodwill was allocated to these reporting units to the extent it
related to each reporting unit. Intangible assets with finite lives are tested for impairment
using an undiscounted cash flow model. The Company amortizes intangible assets with finite
lives over their estimated useful lives and reviews them for impairment at least annually or
sooner whenever events or changes in circumstances indicate that they may be impaired. The
majority of the Companys intangible assets were assigned lives based on contract values
associated with each intangible asset. The Company amortizes its acquired intangible assets
with finite lives over a period ranging from five to 20 years. No impairment charges were
recorded for the periods ended June 30, 2008 and 2007.Income TaxesThe Company accounts for income taxes in accordance with the provisions of SFAS No. 109, which
requires an asset and liability approach that requires the recognition of deferred tax assets
and deferred tax liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount expected to be
realized.DrydockingThe Company capitalizes drydocking costs as incurred and amortizes such costs over the period
to the next scheduled drydock. The Company believes that the deferral method provides a better
matching of revenues and expenses. Drydocking costs are included in prepaid and other current
assets and in long term assets in the accompanying balance sheet and are amortized over the
cruising season between scheduled drydockings. As of June 30, 2008, the Company had
approximately $3.8 million in unamortized drydock costs that related to the 2008 season and
beyond, of which, approximately $2.9 million is included in prepaid costs and other current
assets and approximately $0.9 million is included in other long term assets in the accompanying
balance sheet and will be amortized over the period to the next scheduled drydock.Accounting for Stock-Based CompensationIn December 2004, the FASB issued SFAS No. 123 (revised 2004) Share Based Payment (SFAS
No. 123R). SFAS No.123R supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the fair value
approach in SFAS No. 123R is similar to the fair value approach described in SFAS No. 123. In
2005, the Company used the Black-Scholes-Merton formula to estimate the fair value of stock
options granted to employees. The Company adopted SFAS No. 123R, using the modified-prospective
method, beginning January 1, 2006. Based on the terms of the Companys plans, the Company was
not required to record a cumulative effect related to its plans. The Company also elected to
continue to estimate the fair value of stock options using the Black-Scholes-Merton formula.
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Ambassadors International, Inc.
 Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 The following table details the stock-based compensation costs included in general and
administrative expense (in thousands):
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Compensation cost related to stock options
    
    $
    174
    
    
    $
    154
    
    
    $
    394
    
    
    $
    368Compensation cost related to restricted stock
    
    
    151
    
    
    
    100
    
    
    
    351
    
    
    
    423Total stock-based compensation costs
    
    $
    325
    
    
    $
    254
    
    
    $
    745
    
    
    $
    791
 As of June 30, 2008, total unrecognized compensation cost related to nonvested stock-based
compensation arrangements granted under the stock option plans expected for the remainder of
2008 and in future years through 2011, respectively, were approximately $0.3 million and $0.4 million. This expected cost does
not include the impact of any future stock-based compensation awards. During the six months
ended June 30, 2008 and 2007, there were no grants of stock options or restricted stock, and
2,412 common shares and 26,255 common shares, respectively, were issued from exercise of stock
options. Additionally, during the six months ended June 30, 2008 and 2007, 3,000 unvested
restricted common shares and 24,000 unvested restricted common shares, respectively, were
cancelled due to employee terminations.Dividends DeclaredOn September 2, 2003, the Companys board of directors authorized a new dividend policy of
paying stockholders $0.40 per share annually, distributable at $0.10 per share on a quarterly
basis. The Company and its board of directors intend to continually review the dividend policy
to ensure compliance with capital requirements, regulatory limitations, the Companys financial
position and other conditions which may affect the Companys desire or ability to pay dividends
in the future. Subsequent to the dividend declared in May 2007, the Companys board of
directors did not approve any additional dividends for 2007 or for the first six months of
2008.The following dividends were declared in 2007 on the dates indicated (in thousands):
 Record Date
    
    Payment Date
    
    Dividend AmountMarch 12, 2007
    
    March 19, 2007
    
    $
    1,084May 21, 2007
    
    May 31, 2007
    
    
    1,084
 Recent Accounting PronouncementsOn July 16, 2008, the FASB issued Financial Staff Position (FSP) No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities. The FSP requires that all outstanding unvested share-based payment awards that
contain rights to nonforfeitable dividends participate in undistributed earnings with common
shareholders and the issuing entity is required to apply the two-class method of computing
basic and diluted earnings per share. The Company is evaluating FSP No. EITF 03-6-1 but
anticipates that the adoption of this FSP will not have a material effect on its consolidated
financial statements.On May 9, 2008, the FASB issued FSP No. APB14-1, Accounting for Convertible Debt Instruments
That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement). The FSP
requires an issuer of certain convertible debt instruments that may be settled in cash,
commonly referred to as Instruments B and C from EITF Issue No. 90-19, Convertible Bonds with
Issuer Option to Settle for Cash upon Conversion, and any other convertible instruments that
require or permit settlement in any combination of cash and shares at the issuers option, such
as those referred to as Instrument X, to separately account for the liability and equity
components of the instrument in a manner that reflects the issuers nonconvertible debt
borrowing rate. The FSP is effective for the fiscal years beginning after December 15, 2008 and
does not permit early application. However, the transition guidance requires retrospective
application to all periods presented, and does not grandfather existing instruments. The
Company has not yet completed its evaluation of the potential impact of adopting this FSP, but
anticipates a material increase to interest expense related to its $97 million 3.75%
convertible senior notes beginning in 2009 when it adopts the FSP.
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Ambassadors International, Inc.  Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets. FSP No. FAS 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The provisions of
FSP No. FAS 142-3 are effective for fiscal years beginning after December 15, 2008. The
Company is evaluating FSP No. FAS 142-3 and has not yet determined the impact the adoption of
FSP No. FAS 142-3 will have on its consolidated financial statements.In December 2007, the FASB issued SFAS No. 141 (R) Business Combinations. SFAS No. 141(R)
establishes principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141(R) also
establishes disclosure requirements to enable the evaluation of the nature and financial
effects of the business combination. SFAS No. 141(R) is effective for fiscal years beginning
after December 15, 2008. The Company is evaluating SFAS No. 141(R) and has not yet determined
the impact the adoption will have on its consolidated financial statements.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements  an Amendment of Accounting Research Bulletin No. 51. SFAS No. 160
changes the accounting and reporting for minority interests, which will be recharacterized as
non-controlling interests and classified as a component of equity. SFAS No. 160 is effective
on a prospective basis for business combinations that occur in fiscal years beginning after
December 15, 2008. The Company anticipates the adoption of SFAS No. 160 will not have a
material impact on its consolidated financial statements.In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities-an Amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced
disclosures about an entitys derivative and hedging activities, specifically how derivative
and hedging activities affect an entitys financial position, financial performance, and cash
flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161
encourages, but does not require, comparative disclosures for earlier periods at initial
adoption. The Company anticipates the adoption of SFAS No. 161 will not have a material impact
on its consolidated financial statements.2.
    
    Business Acquisitions and InvestmentsBellPort has a 50% ownership interest in Deer Harbor WI, LLC (DHWI). DHWI owns a marina
facility in Deer Harbor, Orcas Island, Washington. The Company recorded its proportional share
of its losses from DHWI of approximately $31,000 and $72,000 for the three and six months ended
June 30, 2008, respectively, and $26,000 and $77,000 for the three and six months ended June
30, 2007, respectively, which are included in other income, net. As of June 30, 2008 and
December 31, 2007, BellPort had a note receivable from DHWI for approximately $1.9 million and
$1.9 million, respectively, which is classified in other assets in the accompanying balance
sheet. The note is secured by a deed of trust on property and bears interest at a variable rate
equal to the London Interbank Offered Rate plus 2.75% per year, adjusted annually. As of
December 31, 2007, the interest rate was 8.06%. All unpaid principal and accrued and unpaid
interest is due no later than November 30, 2011. The Company accounts for its investment in
DHWI on the equity method. At June 30, 2008 and December 31, 2007, the investment in DHWI
represented $1.1 million and $1.2 million, respectively.In order to expand its cruise offerings to include international cruise offerings, on April 2,
2007, the Company, through its wholly-owned subsidiary AICG, completed its acquisition of all
of the issued and outstanding shares of Windstar Cruises from HAL Antillen N.V., a unit of
Carnival Corporation, plc. Under the terms of the purchase agreement, the Company paid
approximately $11.3 million in cash, $60 million in seller financing and assumed approximately
$28.5 million in liabilities. The $60 million in seller financing was payable over ten years at
7% and was collateralized by each of the three Windstar Cruises ships.
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Ambassadors International, Inc.  Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 The Windstar Cruises purchase price was approximately $72.1 million. The following table
summarizes the components of the Windstar Cruises purchase price (in thousands):
 Cash consideration
    
    $
    11,289Seller financing
    
    
    60,000Acquisition costs incurred
    
    
    802Purchase price
    
    $
    72,091
  Cash and cash equivalents
    
    $
    1,137Accounts receivable
    
    
    5Prepaid and other current assets
    
    
    811Inventory
    
    
    965Vessels and equipment
    
    
    90,825Intangible assets
    
    
    7,282Total assets acquired
    
    
    101,025Passenger deposits
    
    
    (22,966
    )Accounts payable and accrued and other expenses
    
    
    (5,995
    )Long term debt
    
    
    (60,000
    )Total liabilities assumed
    
    
    (88,961
    )Net assets acquired
    
    $
    12,064
   Pro FormaWindstar
    
    
    Pro FormaAs Reported
    
    
    Cruises
    
    
    CombinedRevenues
    
    $
    113,132
    
    
    $
    17,463
    
    
    $
    130,595Net loss
    
    $
    (2,792
    )
    
    $
    1,080
    
    
    $
    (1,712
    )Net loss  basic
    
    $
    (0.25
    )
    
    
    
    
    
    $
    (0.15
    )Net loss  diluted
    
    $
    (0.25
    )
    
    
    
    
    
    $
    (0.15
    )
 3.
    
    ReinsuranceIn December 2003, the Company formed Cypress Re and registered it as a Class 3 Reinsurer
pursuant to Section 4 of the Bermuda Monetary Authority Act to carry on business in that
capacity subject to the provisions of that Act. Cypress Re has not entered into any new
programs since 2007.The Company reinsures property and casualty risks written by licensed United States insurers
through Cypress Re. The lines of business that are being reinsured include commercial auto
liability, commercial physical damage and workers compensation. These risks are associated
with members of highly selective affinity groups or associations. Members whose risk is
reinsured under a program must meet certain loss control program qualifications. A member of a
group must pass certain pre-qualification criteria that are part of the underwriting review by
a third party.The assumed reinsurance transactions are typically reinsured through a quota share agreement in
which Cypress Re agrees to accept a certain fixed percentage of premiums written from the
ceding company and in general assumes the same percentage of purchased reinsurance, direct
acquisition costs and ultimate incurred claims.
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Ambassadors International, Inc.  Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 Cypress Re retains the first layer of risk on a per policy basis, which ranges from $250,000 to
$500,000 and the third party reinsurer (through excess of loss reinsurance) retains the next
layer up to the policy limits of $1.0 million. Cypress Re retains losses up to the aggregate
reinsurance limit, which varies with each quota share reinsurance agreement and the third party
reinsurer then pays losses in excess of Cypress Res aggregate reinsurance limit up to $5.0
million. Cypress Re is responsible for any additional losses in excess of the aggregate
reinsurance limit.In 2004, the Company transferred its investment interest in two insurance programs to Cypress
Re. On March 29, 2004, Cypress Re entered into a reinsurance agreement that incorporated the
terms and conditions of the above interest of these programs. The quota share reinsurance
agreement covered a retroactive period from July 1, 2002 through March 29, 2004, as well as a
prospective period from March 29, 2004 to June 30, 2004. The reinsurance agreement meets the
requirements of SFAS No. 113, Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts and has both prospective and retroactive elements.During 2004, Cypress Re entered into additional quota share reinsurance agreements. These
reinsurance agreements represent participation in selective property and casualty programs. The
reinsurance agreements meet the requirements of SFAS No. 113. One of the quota share
reinsurance agreements covers a retroactive period from January 1, 2003 through May 31, 2004
and a prospective period from June 1, 2004 through December 31, 2004. The other agreements
contain only prospective components.Accounting for prospective reinsurance transactions results in premiums and related acquisition
costs being recognized over the remaining period of the insurance contracts reinsured. As of
June 30, 2008, there were no balances in unearned premium reserves, deferred policy acquisition
costs or ceded prepaid reinsurance premiums.Accounting for retroactive reinsurance transactions results in the reinsurer reimbursing the
ceding company for liabilities incurred as a result of past insurable events covered by the
underlying policies reinsured. Loss and loss adjustment expenses are initially recorded at the
estimated ultimate payout amount and any gain from any such transaction is deferred and
amortized into income. Loss and loss adjustment expense reserves are adjusted for changes in
the estimated ultimate payout and the original deferred gain is recalculated and reamortized to
the balance that would have existed had the changes in estimated ultimate payout been available
at the inception of the transaction, resulting in a corresponding charge or credit to income in
the period that the changes in estimated ultimate payout are made. As of June 30, 2008, the
deferred gain on retroactive reinsurance was fully amortized. Cypress Re recognized in income
$19,000 of the previously deferred gain as of June 30, 2007.As of June 30, 2008, premiums receivable, reinsurance recoverable and loss and loss adjustment
expense reserves on the Companys balance sheet include $1.0 million, $0.2 million and $1.6
million, respectively, related to retroactive reinsurance. The June 30, 2008 loss and loss
adjustment expense reserves balance includes $1.3 million for incurred but not reported claims.Cypress Re retrocedes risk to the ceding company under specific excess and aggregate loss
treaties. Cypress Re remains obligated for amounts ceded in the event that the reinsurer does
not meet its obligations.Premiums receivable at June 30, 2008 consists of funds held in trust by the ceding company of
approximately $7.1 million. The funds held in trust primarily consist of high grade corporate
bonds, government bonds and money market funds.As of June 30, 2008, reinsurance recoverable and prepaid reinsurance premiums of $0.7 million
and zero, respectively, relate to a single reinsurer. Cypress Res exposure to credit loss in
the event of non-payment or non-performance is limited to these amounts.
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Ambassadors International, Inc.  Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 The effect of reinsurance on premiums written and earned for the three and six months ended
June 30, 2008 was as follows (in thousands):
 Three Months Ended
    
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2008Written
    
    
    Earned
    
    
    Written
    
    
    EarnedAssumed
    
    $
    
    
    
    $
    
    
    
    $
    5
    
    
    $
    5Ceded
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net premiums
    
    $
    
    
    
    $
    
    
    
    $
    5
    
    
    $
    5
 As of June 30, 2008, the Company had issued approximately $7.4 million in letters of credit
related to property and casualty insurance programs that expire at various dates through 2008.4.
    
    InventoryThe Company maintains inventory of marine construction materials, fuel, supplies, souvenirs and
food and beverage products. Inventories are stated at the lower of cost or market, using
standard costs, which approximates the first-in, first-out method. The components of inventory
as of June 30, 2008 and December 31, 2007 were as follows (in thousands):
 June 30, 2008
    
    
    December 31, 2007Marine construction materials
    
    $
    2,931
    
    
    $
    2,630Food, souvenirs and supplies
    
    
    2,945
    
    
    
    2,390Fuel
    
    
    1,075
    
    
    
    731$
    6,951
    
    
    $
    5,751
 5.
    
    Prepaid costs and other current assetsThe components of prepaid costs and other current assets as of June 30, 2008 and December 31,
2007 were as follows (in thousands):
 June 30, 2008
    
    
    December 31, 2007Current portion of prepaid drydocking costs
    
    $
    2,894
    
    
    $
    997Income tax receivable
    
    
    3,367
    
    
    
    2,385Prepaid program and tour costs
    
    
    2,038
    
    
    
    1,064Current portion of prepaid offering costs
    
    
    75
    
    
    
    78Other prepaid costs and other current assets
    
    
    4,311
    
    
    
    4,006$
    12,685
    
    
    $
    8,530
  14




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##### Table of Contents



Ambassadors International, Inc.  Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 6.
    
    Long term obligationsLong term obligations as of June 30, 2008 and December 31, 2007 were as follows (in thousands):
 June 30, 2008
    
    
    December 31, 2007Loans secured by ship mortgages at
fixed rates varying from 2.3% to 6.5%
due through July 2028
    
    $
    67,628
    
    
    $
    69,743Secured note payable to bank at a fixed
interest rate of 8.245%, due May 2010
    
    
    1,629
    
    
    
    1,656Amounts outstanding under $2.1 million
secured line of credit with an
Australian bank
    
    
    481
    
    
    
    876Loans outstanding with New Zealand banks
    
    
    27
    
    
    
    503.75% Convertible Senior Notes, net of
unamortized discount and offering costs
of $2,191 and $2,479, respectively
    
    
    94,809
    
    
    
    94,521Equipment leases
    
    
    212
    
    
    
    217164,786
    
    
    
    167,063Less: current portion
    
    
    5,049
    
    
    
    5,479Non-current portion
    
    $
    159,737
    
    
    $
    161,584
 At June 30, 2008 and December 31, 2007, the Companys cash-secured revolving credit facility
with a bank in the amount of $12.5 million, had no balances outstanding at the end of each of
the respective periods. On July 18, 2008, the Company amended its credit facility to $7.5
million and reduced the corresponding certificate of deposit accordingly.Loans Secured by Ship MortgagesIn conjunction with ACGs acquisition of American West, the Company assumed $41.5 million in
fixed rate, 4.63% debt payable through 2028 and guaranteed by the United States Government
through the United States Maritime Administration (MARAD) under Title XI, Merchant Marine
Act, 1936, as amended, and is secured by a First Preferred Ship Mortgage on the Empress of the
North. Annual principal payments of $1.8 million plus accrued interest are required through
July 18, 2028.EN Boat, LLC (EN Boat), the owner of the
Empress of the North, was unable to make its
semi-annual payment on the note due July 17, 2008. EN Boat will be unable to cure the payment
default within the 30 day cure period. The Company is actively working with MARAD toward an
orderly transition of the Empress of the Northto MARADs custodial control following its last
scheduled sailing on August 9, 2008. The default under the note should have limited financial
impact due to the fact that recourse is limited to the Empress of the Northand EN Boat has no
other assets.In conjunction with ACGs acquisition of the cruise-related assets of Delta Queen, the Company
assumed $35.0 million of fixed rate, 6.5% debt payable through 2020 and guaranteed by MARAD
under Title XI, Merchant Marine Act, 1936, as amended, and secured by a First Preferred Ship
Mortgage on the American Queen®. Semi-annual principal payments accumulating to $2.4
million annually plus accrued interest are required through June 2020.Bellingham Marine DebtBellingham Marine has a note payable to a bank with a balance of $1.6 million at June 30, 2008,
secured by property, payable in monthly installments of $16,000 including annual interest at a
fixed rate of 8.245%, subject to certain limitations and various financial covenants, due
May 10, 2010. As of June 30, 2008, the Company was in compliance with the financial covenants.Bellingham Marines US operations have an asset-based business loan including an $8.0 million
credit line with its bank secured by all of Bellingham Marines US accounts receivable and
inventory and subject to certain financial covenants such as current ratio, minimum capital
base, maximum leverage and coverage as required by the agreements. The credit line expires on
June 30, 2009 and carries an interest rate of prime rate less 0.5%, adjustable daily or fixed
for 90 days at Bellingham Marines option, and is payable monthly. At June 30, 2008, the
annual interest rate on this credit line was 4.5%, As of June 30, 2008 there were no borrowings
against this credit line and the Company was in compliance with the financial covenants.
  15




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##### Table of Contents



Ambassadors International, Inc.  Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 Bellingham Marines international operations have a $2.1 million line of credit for its
Australian subsidiary with National Australia Bank Limited. Interest is payable monthly at an
annual adjustable rate that is adjusted quarterly and is collateralized by substantially all of
the subsidiarys assets, including any uncalled or unpaid capital. The interest rate at June
30, 2008 was 8.7%. As of June 30, 2008, the balance on the line of credit was $0.5 million.
Bellingham Marines New Zealand operations have two bank loans at an average interest rate of
11.3% and outstanding amounts totaling $27,000. In addition, the international operations have
equipment leases with balances of $212,000 and $217,000 at June 30, 2008 and December 31, 2007,
respectively, secured by the respective equipment payable in monthly installments aggregating
$3,200, including interest, through July 2012.3.75% Convertible Senior NotesOn April 3, 2007, the Company closed the sale of $97.0 million of 3.75% Convertible Senior
Notes due 2027 (Notes) to Thomas Weisel Partners LLC (Initial Purchaser), in a private
offering, pursuant to a purchase agreement dated March 28, 2007. A portion of the proceeds from
the sale of the Notes was used to retire the $60 million in seller financing incurred in
connection with the acquisition of Windstar Cruises as discussed in Note 2 Business
Acquisitions and Investments. The remaining proceeds were to be used for general corporate
purposes and future growth of the Company.The Notes are convertible into shares of the Companys common stock at an initial conversion
rate of 17.8763 shares per $1,000 principal amount of the Notes (which is equivalent to an
initial conversion price of approximately $55.94 per share), subject to adjustment upon the
occurrence of certain events. Interest on the Notes is payable semi-annually in arrears on
April 15 and on October 15 in each year, commencing October 15, 2007. The Company may redeem
the Notes in whole or in part after April 15, 2012. After April 20, 2010 and prior to April 15,
2012, the Company may redeem all or a portion of the Notes only if the price of the Companys
common stock reaches certain thresholds for a specified period of time. Holders of the Notes
may require the Company to purchase all or a portion of the Notes, in cash, on April 15,
2012, April 15, 2017 and April 15, 2022 or upon the occurrence of specified fundamental changes
(as defined in the purchase agreement dated March 28, 2007). If a holder elects to convert
Notes in connection with a specified fundamental change that occurs prior to April 15, 2012,
the Company will in certain circumstances increase the conversion rate by a specified number of
additional shares.In connection with the issuance of the Notes, the Initial Purchaser withheld $2.9 million in
fees from the proceeds of the offering which amount is classified as debt discount and
amortized over a five-year period, the earliest term when the note holders have an option to
require the Company to redeem the Notes. The Company also incurred debt offering costs of $0.5
million. Both the debt discount and debt offering costs are being amortized over the five-year
period using the effective interest rate method. The unamortized debt discount is included as a
component of long-term debt. The unamortized offering costs are included as a component of
prepaid costs and other current assets or other assets, respectively, depending on whether the
unamortized balance is of a short-term or long-term nature.Principal payments on the Companys debt are scheduled to be paid as follows:
 Year Ended December 31,2008 (remaining six months)
    
    $
    2,9182009
    
    
    4,5892010
    
    
    5,8062011
    
    
    4,2672012
    
    
    101,279Thereafter
    
    
    48,118166,977Less: Unamortized discount and offering costs
    
    
    (2,191
    )Less: current portion
    
    
    (5,049
    )Non-current portion
    
    $
    159,737
  16




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##### Table of Contents



Ambassadors International, Inc.  Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 7.
    
    Comprehensive Income (Loss)The components of comprehensive income (loss) are as follows (in thousands):
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    (2,371
    )
    
    $
    5,770
    
    
    $
    (14,348
    )
    
    $
    (2,792
    )Change in unrealized
gain on foreign
currency translation
    
    
    397
    
    
    
    150
    
    
    
    724
    
    
    
    395Change in unrealized
gain (loss) on
available-for-sale
securities, net of
income tax expense of
$0, $0, $0 and $32
    
    
    (14
    )
    
    
    (7
    )
    
    
    (13
    )
    
    
    51$
    (1,988
    )
    
    $
    5,913
    
    
    $
    (13,637
    )
    
    $
    (2,346
    )
 8.
    
    Earnings (Loss) Per ShareBasic earnings (loss) per share (EPS) is computed by dividing net income (loss) by the weighted
average common shares outstanding. Diluted EPS includes the effect of any potential shares
outstanding, which for the Company consists of dilutive stock options and shares issuable under
convertible notes (Notes). The dilutive effect of stock options is calculated using the
treasury stock method with an offset from expected proceeds upon exercise of the stock options
and unrecognized compensation expense. The dilutive effect of the Notes is calculated by adding
back interest expense and amortization offering costs, net of taxes, which would not have been
incurred assuming conversion. Diluted EPS for the three and six months ended June 30, 2008 and
2007 does not include the dilutive effect of stock options and conversion of the Notes into the
Companys common shares since their inclusion would be anti-dilutive.The table below details the components of the basic and diluted EPS calculations (in thousands,
except per share amounts):
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Net income (loss)
    
    $
    (2,371
    )
    
    $
    5,770
    
    
    $
    (14,348
    )
    
    $
    (2,792
    )Add: Interest expense on
convertible debt, net of tax
    
    
    
    
    
    
    528
    
    
    
    
    
    
    
    Add: Amortized offering
costs, net of tax
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    (2,371
    )
    
    $
    6,398
    
    
    $
    (14,348
    )
    
    $
    (2,792
    )Denominator:Weighted-average shares
outstanding  basic
    
    
    10,891
    
    
    
    11,083
    
    
    
    10,889
    
    
    
    11,086Effect of dilutive securities:Stock options
    
    
    
    
    
    
    610
    
    
    
    
    
    
    
    Convertible debt
    
    
    
    
    
    
    1,656
    
    
    
    
    
    
    
    Weighted-average shares
outstanding  diluted
    
    
    10,891
    
    
    
    13,349
    
    
    
    10,889
    
    
    
    11,086Earnings (loss) per share:Basic
    
    $
    (0.22
    )
    
    $
    0.52
    
    
    $
    (1.32
    )
    
    $
    (0.25
    )Diluted
    
    $
    (0.22
    )
    
    $
    0.48
    
    
    $
    (1.32
    )
    
    $
    (0.25
    )
  17




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##### Table of Contents



Ambassadors International, Inc.  Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 9.
    
    Business SegmentsIn January 2007, the Company realigned its business segments into the following four business
segments: (i) cruise, which includes the operations of ACG; (ii) marine, which includes the
operations of AMG; (iii) travel and events, which includes the operations of Ambassadors; and
(iv) corporate and other, which consists of general corporate assets (primarily cash and cash
equivalents and investments), the insurance operations of Cypress Re and other activities that
are not directly related to the Companys cruise, marine and travel and events operating
segments.Summary of business segment information is as follows (in thousands):
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Cruise
    
    $
    44,681
    
    
    $
    47,059
    
    
    $
    68,438
    
    
    $
    52,261Marine
    
    
    31,314
    
    
    
    28,565
    
    
    
    60,666
    
    
    
    52,049Travel and events
    
    
    4,608
    
    
    
    4,476
    
    
    
    8,334
    
    
    
    8,000Corporate and other
    
    
    
    
    
    
    168
    
    
    
    5
    
    
    
    822Total revenue
    
    $
    80,603
    
    
    $
    80,268
    
    
    $
    137,443
    
    
    $
    113,132
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating income (loss):Cruise
    
    $
    (1,840
    )
    
    $
    (2,981
    )
    
    $
    (13,233
    )
    
    $
    (15,523
    )Marine
    
    
    898
    
    
    
    1,595
    
    
    
    1,866
    
    
    
    1,821Travel and events
    
    
    1,038
    
    
    
    1,271
    
    
    
    1,413
    
    
    
    1,632Corporate and other
    
    
    (1,038
    )
    
    
    (1,246
    )
    
    
    (2,282
    )
    
    
    (2,991
    )Total operating loss
    
    $
    (942
    )
    
    $
    (1,361
    )
    
    $
    (12,236
    )
    
    $
    (15,061
    )
 10.
    
    Income TaxesThe Company recorded an income tax benefit of $0.1 million for the six months ended June 30,
2008, compared to $13.4 million for the six months ended June 30, 2007. The Company continues
to record a full valuation allowance on its domestic deferred tax assets.The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax
of multiple state and foreign jurisdictions. With a few exceptions, the Company is no longer
subject to U.S. federal income tax examinations for years before 2004; state and local income
tax examinations before 2003; and foreign income tax examinations before 2003.The Company is not currently under Internal Revenue Service, state, local or foreign
jurisdiction tax examinations.During the six months ended June 30, 2008, the Company recognized approximately $11,000 in
potential interest and penalties associated with uncertain tax positions. The Company does not
expect any significant increases or decreases to its unrecognized tax benefits within 12 months
of this reporting date.
  18




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##### Table of Contents



Ambassadors International, Inc.  Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 11.
    
    Commitments and ContingenciesOn February 26, 2008, the Company and several of its subsidiaries were named in a complaint by
David Giersdorf, the former President of ACG in the Superior Court of Washington for King
County. Mr. Giersdorf has alleged he was improperly terminated and has claimed damages which
appear to be in excess of $70.0 million. Mr. Giersdorfs claims, based on verbal agreements,
include the following: (i) he left a tenured position with Holland America Line (HAL), which
well-positioned him to be the President of HAL earning a multi-million dollar annual salary
until retirement; (ii) he was denied the opportunity to vest in 87,500 option shares and 30,000
restricted stock grants, which should be valued at a $47 per share stock price; (iii) his
assistance in acquiring Windstar and his work in the transition of its vendors and employees
entitles him to approximately $54.0 million; (iv) he is owed compensation for future
acquisitions; and (v) he is owed sums for reputation and emotional damage. The Company believes
all of Mr. Giersdorfs claims lack merit and will defend them vigorously, but is not able at
this time to estimate the outcome of this proceeding.Queen of the WestIn April 2008, a fire occurred in the engine room of the Queen of the West, while the
vessel was cruising between The Dalles and John Day Locks in Oregon. The fire was extinguished with no injuries to guests. The Columbia Queenwas brought into service in April,
earlier than originally scheduled, in order to accommodate guests while the Queen of the West
was undergoing repairs. The incident sailing and eight additional sailings were cancelled.As of June 30, 2008, the Company incurred costs related to relocating passengers and crew,
vessel repair costs and refund passenger deposits totaling $0.4 million which have been
recorded in operations. In addition, the Company lost revenue of $2.4 million as a result of
the cancellations of the nine sailings. The Company is in the process of seeking insurance
related recoveries with respect to this incident.12.
    
    Impairment or Disposal of Long-Lived AssetsSince 1968, Congress has granted the Delta Queen® eight consecutive exemptions from
the Safety at Sea Act requirement because of fire prevention and safety enhancements made to
the ship and the historic status of the Delta Queen®. The current exemption has been
extended to November 1, 2008. The Companys ability to operate the Delta Queen® was
dependent upon retaining the current Congressional exemption and obtaining additional
exemptions subsequent to 2008. In July 2007, the Company was made aware that the Congressional
exemption would not be extended beyond 2008 and announced 2008 as the farewell season for the
Delta Queen®. The Company reviewed the remaining vessel value of the Delta
Queen® for impairment. Management evaluated the recoverability using both subjective
and objective factors. Subjective factors included the evaluation of industry and product
trends and the Companys strategic focus. Objective factors included managements best
estimates of projected future earnings and cash flows. The Company used a discounted cash flow
model using assumptions including expected revenues and expenses, investment yields on
deposits, any future capital expenditure requirements and appropriate discount rates. Based on
the analysis performed, the Company believes that the remaining vessel value on the Delta
Queen® is recoverable and no impairment charge has been recorded as of June 30,
2008.The Company has decided not to operate the 48-passenger Contessain 2008 and anticipates
selling the vessel in the near future. The Company believes that the remaining vessel value on
the Contessais recoverable and no impairment charge has been recorded as of June 30, 2008.In April 2008, the Company announced its intention to sell the Majestic America Line. As of
June 30, 2008, the net assets of the Majestic America Line did not qualify for held-for-sale
treatment under SFAS No. 144. The Company also determined that there was no impairment of the assets of Majestic America
Line as of June 30, 2008.
  19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
         
    
    Improve our marketing and pricing strategy by creating a multi-channel marketing
approach that embraces the travel agent community, opens up international markets, caters
to charter and incentive business and pursues a strong group support for our unique
offerings;
    
    Reduce our selling expenses by focusing our sales force and targeting our direct mail
campaigns, which enable us to scale our campaign to a level more appropriate for a company
of our size;
    
    Improve our operational execution by partnering with V.Ships to reduce costs while
enhancing the onboard guest experience.
 Critical Accounting Policies
   20




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##### Table of Contents



Revenue Recognition
  Passenger Ticket Revenue and Onboard and Other Cruise Revenues
  Marine Revenue
     21




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##### Table of Contents



Travel, Incentive and Event Related
   Net Insurance Premiums Earned
  Property, Vessels and Equipment
    22




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##### Table of Contents



Drydocking
  Long-Lived Assets Including Intangibles
  Reserve for Loss and Loss Adjustment Expenses
  Reinsurance
   Stock-Based Compensation
   23




---



##### Table of Contents



Income Taxes
  Statistical Terminology and Information for Cruise Operations
 Available Passenger Cruise Days (APCD)
  Occupancy
  Passenger Cruise Days
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(unaudited)
    
    
    (unaudited)Passengers Carried
    
    
    13,898
    
    
    
    17,589
    
    
    
    23,053
    
    
    
    20,644Occupancy Percentage
    
    
    71
    %
    
    
    87
    %
    
    
    78
    %
    
    
    86
    %Passenger Cruise Days
    
    
    100,040
    
    
    
    121,218
    
    
    
    163,283
    
    
    
    139,182APCD
    
    
    140,251
    
    
    
    139,600
    
    
    
    210,450
    
    
    
    161,458
  24




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##### Table of Contents



COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2008 TO THE THREE MONTHS ENDED JUNE 30,
2007
 Revenue
  Cruise Operating Expenses
  Cost of Marine Revenue
  Selling and Tour Promotion Expenses
  General and Administrative Expenses
  Depreciation and Amortization
  Loss and Loss Adjustment Expenses, Insurance Acquisition Costs and Other Operating Expenses
  Operating Loss
   25




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##### Table of Contents



Other Income (Expense)
 Mississippi Queen ®
 Empress of the North Empress of the North Empress of the North Empress of the North
 Income Taxes
   Net Loss
  COMPARISON OF RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2008 TO THE SIX MONTHS ENDED JUNE 30, 2007
 Revenue
  Cruise Operating Expenses
   26




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##### Table of Contents



Cost of Marine Revenue
  Selling and Tour Promotion Expenses
  General and Administrative Expenses
  Depreciation and Amortization
  Loss and Loss Adjustment Expenses, Insurance Acquisition Costs and Other Operating Expenses
  Operating Loss
  Other Income (Expense)
 Queen of the West Empress of the North Mississippi Queen ®
 Empress of the North Empress of the North Empress of the North Empress of the North
  27




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##### Table of Contents



Income Taxes
   Net Loss
  Liquidity and Capital Resources
          28




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##### Table of Contents



Record Date
    
    Payment Date
    
    Dividend AmountMarch 12, 2007
    
    March 19, 2007
    
    $
    1,084May 21, 2007
    
    May 31, 2007
    
    
    1,084
   29




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##### Table of Contents



Trends and Uncertainties
  Cautionary Note Regarding Forward-Looking Statements
  
    
    our ability to effectively and efficiently operate our cruise operations;
 
    
    our ability to effectively and expeditiously divest Majestic America Line;
 
    
    customer cancellation rates;
 
    
    competitive conditions in the industries in which we operate;
 
    
    marketing expenses;
 
    
    extreme weather conditions;
 
    
    timing of and costs related to acquisitions;
 
    
    the impact of new laws and regulations affecting our business;
 
    
    negative incidents involving cruise ships, including those involving the health
and safety of passengers;
 
    
    cruise ship maintenance problems and emergency ship repairs;
 
    
    reduced consumer demand for vacations and cruise vacations;
 
    
    changes in fuel, food, payroll, insurance and security costs;
 
    
    the availability of raw materials;
  30




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##### Table of Contents




    
    our ability to enter into profitable marina construction contracts;
 
    
    changes in relationships with certain travel providers;
 
    
    changes in vacation industry capacity;
 
    
    the mix of programs and events, program destinations and event locations;
 
    
    the introduction and acceptance of new programs and program and event
enhancements by us and our competitors;
 
    
    other economic and geo-political factors and other considerations affecting the
travel industry;
 
    
    changes in United States maritime tax laws;
 
    
    potential claims related to our reinsurance business; and
 
    
    the potentially volatile nature of the reinsurance business.
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
   
 Item 4. Controls and Procedures.
  
 Item 4T. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   31




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  (a)
    
    Election of Directors to hold office for a three-year term or until their respective
successors are duly elected and qualified:
 Nominee
    
    Votes For
    
    
    Votes WithheldBrigitte M. Bren
    
    
    7,697,239
    
    
    
    2,711,646Rafer L. Johnson
    
    
    7,705,280
    
    
    
    2,703,605Robert P. Mosier
    
    
    9,915,962
    
    
    
    492,923Arthur A. Rodney
    
    
    9,906,530
    
    
    
    502,355
 (b)
    
    Appointment of Ernst & Young LLP as our independent registered public accountants for
the fiscal year ending December 31, 2008:
 Votes For
    
    Against
    
    Abstain
    
    Broker Non-Vote10,405,239
    
    3,646
    
    0
    
    0
  
 Item 5. Other Information.
   32




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##### Table of Contents



Item 6. Exhibits.
 Exhibit No.
    
    Description31.1
    
    
    Certification of Chief Executive Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (1)31.2
    
    
    Certification of Chief Financial Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (1)32.1
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (1)32.2
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (1)
 
 (1)
    
    Attached hereto.  33




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##### Table of Contents



Signatures
 
 AMBASSADORS INTERNATIONAL, INC.
(Registrant)Date: July 30, 2008
    By:
    /s/ Blake T. BarnettBlake T. BarnettChief Financial Officer,
(Principal Financial Officer and Duly Authorized Officer)  34




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description31.1
    
    
    Certification of Chief Executive Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (1)31.2
    
    
    Certification of Chief Financial Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (1)32.1
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (1)32.2
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (1)
 
 (1)
    
    Attached hereto.  35