FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
[ ] 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: 0-20961
COMMODORE HOLDINGS LIMITED
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
BERMUDA N/A
--------------------------------- ----------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, FL 33021
--------------------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(954) 967-2100
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant has (1) 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) been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
The Registrant had 8,649,118 Shares of Common Stock, par value $.01 per share,
outstanding at August 14, 2000.
<PAGE>
Commodore Holdings Limited
Table of Contents
Page No.
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Part II Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. A - Exhibits 15
B - Reports on Form 8-K 15
<PAGE>
Part I: Financial Information
Item 1: Financial Statements
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 1999
------------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 5,453,000 $ 20,504,000
Restricted cash 336,000 977,000
Trade and other receivables, net 1,873,000 1,044,000
Due from affiliates 663,000 2,903,000
Inventories 3,329,000 2,614,000
Prepaid expenses 4,827,000 2,214,000
Other current assets 408,000 69,000
------------- -------------
Total current assets 16,889,000 30,325,000
Property and equipment, net 149,680,000 49,722,000
Investment in joint ventures 1,531,000 1,974,000
Long-term receivable - affiliate 4,201,000 4,973,000
Other assets 2,600,000 1,693,000
------------- -------------
$ 174,901,000 $ 88,687,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 9,740,000 $ 3,652,000
Note payable 2,000,000 --
Accounts payable 16,036,000 8,692,000
Accrued liabilities 2,675,000 1,695,000
Due to affiliates 1,620,000 1,564,000
Customer deposits 14,776,000 8,720,000
Accrued interest 135,000 192,000
Capital lease obligations 314,000 61,000
------------- -------------
Total current liabilities 47,296,000 24,576,000
Long-term debt, including capital lease obligations
of $488,000 and $171,000, respectively 96,102,000 26,996,000
Convertible subordinated debentures 5,000,000 --
Due to affiliates - long-term 1,000,000 --
Minority interest in subsidiaries 39,000 2,940,000
Redeemable preferred stock 2,500,000 --
Stockholders' equity
Preferred stock - Series B - authorized 800,000
shares of $.01 par value; issued and outstanding
500,000 and 400,000 shares, respectively 5,000 4,000
Common stock - authorized 100,000,000 shares
of $.01 par value; issued and outstanding
8,649,118 and 7,647,618 shares, respectively 86,000 76,000
Paid-in capital 26,971,000 21,481,000
(Accumulated deficit) retained earnings (4,098,000) 12,614,000
------------- -------------
Total stockholders' equity 22,964,000 34,175,000
------------- -------------
$ 174,901,000 $ 88,687,000
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
2000 1999 2000 1999
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenues $ 24,740,000 $ 16,755,000 $ 61,925,000 $ 41,021,000
Expenses
Operating 20,786,000 10,558,000 49,538,000 27,044,000
Marketing, selling and administrative 5,142,000 2,733,000 10,756,000 6,960,000
Depreciation and amortization 1,643,000 665,000 3,561,000 1,755,000
--------------------------- ---------------------------
27,571,000 13,956,000 63,855,000 35,759,000
--------------------------- ---------------------------
Operating (loss) income (2,831,000) 2,799,000 (1,930,000) 5,262,000
Other income (expense)
Interest income 123,000 156,000 452,000 442,000
Interest expense (2,528,000) (536,000) (4,658,000) (1,333,000)
Unusual and nonrecurring losses (14,929,000) -- (14,929,000) --
Minority interest share of unusual
and nonrecurring losses 4,629,000 -- 5,629,000 --
Minority interest share of loss (earnings)
of other consolidated joint ventures 1,966,000 (506,000) 1,901,000 (838,000)
Equity in net (loss) earnings of
unconsolidated joint ventures (660,000) 252,000 (1,532,000) (323,000)
--------------------------- ---------------------------
(11,399,000) (634,000) (13,137,000) (2,052,000)
--------------------------- ---------------------------
Net (loss) earnings before cumulative effect of change
in accounting principle and provision for preferred
stock dividend (14,230,000) 2,165,000 (15,067,000) 3,210,000
Cumulative effect of change in accounting principle -- -- 231,000 --
--------------------------- ---------------------------
Net (loss) earnings before provision for
preferred stock dividend (14,230,000) 2,165,000 (15,298,000) 3,210,000
Preferred stock dividend 176,000 100,000 414,000 167,000
--------------------------- ---------------------------
Net (loss) earnings available for common stockholders $(14,406,000) $ 2,065,000 $(15,712,000) $ 3,043,000
=========================== ===========================
(Loss) earnings per share available for common
stockholders - Basic
Net (loss) earnings before cumulative effect of
change in accounting principle $ (1.67) $ 0.28 $ (1.94) $ 0.41
Cumulative effect of change in accounting principle -- -- (0.03) --
--------------------------- ---------------------------
Net (loss) earnings available for common stockholders $ (1.67) $ 0.28 $ (1.97) $ 0.41
=========================== ===========================
Weighted average number of common stock
outstanding - Basic 8,649,000 7,504,000 7,985,000 7,433,000
=========================== ===========================
(Loss) earnings per share available for common
stockholders - Diluted
Net (loss) earnings before cumulative effect of
change in accounting principle $ (1.67) $ 0.22 $ (1.94) $ 0.35
Cumulative effect of change in accounting principle -- -- (0.03) --
--------------------------- ---------------------------
Net (loss) earnings available for common stockholders $ (1.67) $ 0.22 $ (1.97) $ 0.35
=========================== ===========================
Weighted average number of common stock
outstanding - Diluted 8,649,000 9,724,000 7,985,000 9,178,000
=========================== ===========================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock (Accumulated
------------------------------------- Additional Deficit)
Number of Par Number of Par Paid-in Retained
Shares Value Shares Value Capital Earnings Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
September 30, 1999 400,000 $ 4,000 7,647,618 $ 76,000 $21,481,000 $12,614,000 $34,175,000
Redemption of
preferred stock (400,000) (4,000) (3,996,000) - (4,000,000)
Issuance of
preferred stock, net 500,000 5,000 4,735,000 - 4,740,000
Issuance of
common stock 1,001,500 10,000 4,494,000 - 4,504,000
Fair value of options
to nonemployees - - - - 257,000 - 257,000
Net loss - - - - - (16,712,000) (16,712,000)
-----------------------------------------------------------------------------
Balances at
June 30, 2000 500,000 $ 5,000 8,649,118 $ 86,000 $26,971,000 $(4,098,000) $22,964,000
=============================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net (loss) earnings $(16,298,000) $ 3,210,000
Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities
Cumulative effect of change in accounting principle 231,000 -
Impairment loss 11,704,000 -
Depreciation of property and equipment 3,561,000 1,755,000
Amortization of deferred drydock 1,851,000 1,454,000
Amortization of deferred loan costs 131,000 -
Fair value of options to nonemployees 53,000 88,000
Undistributed equity in loss of joint ventures 1,532,000 323,000
(Increase) decrease in operating assets
Restricted cash 641,000 (902,000)
Trade and other receivables (829,000) (674,000)
Due from affiliates 2,240,000 (1,803,000)
Inventories (715,000) (339,000)
Prepaid expenses and other current assets (4,497,000) (3,084,000)
Other assets (1,144,000) (378,000)
Increase (decrease) in operating liabilities
Accounts payable 7,344,000 (2,144,000)
Accrued liabilities (718,000) 1,431,000
Due to affiliate 56,000 1,154,000
Customer deposits 6,056,000 2,378,000
Accrued interest (57,000) 26,000
------------ -----------
Net cash provided by operating activities 11,142,000 2,495,000
------------ -----------
Cash flows from investing activities
Capital expenditures (108,592,000) (5,770,000)
Long-term receivable - affiliate 772,000 (2,614,000)
Investments - restricted - 4,629,000
Investment in unconsolidated joint ventures (1,089,000) (251,000)
(Decrease) increase in minority interest in subsidiaries (1,901,000) 837,000
------------ -----------
Net cash used in investing activities (110,810,000) (3,169,000)
------------ -----------
Cash flows from financing activities
Principal payments on debt (2,153,000) (12,181,000)
Proceeds from long-term debt 77,345,000 16,600,000
Proceeds from notes payable 2,000,000 -
Proceeds from sale of redeemable preferred stock 2,500,000 -
Redemption of preferred stock (4,000,000) -
Proceeds from sale of preferred stock, net 4,740,000 3,670,000
Proceeds from exercise of warrants 4,000 528,000
Proceeds from sale of convertible subordinated debentures 5,000,000 -
Payment of loan costs (405,000) (394,000)
Preferred stock dividends paid (414,000) (328,000)
------------ -----------
Net cash provided by financing activities 84,617,000 7,895,000
------------ -----------
Net (decrease) increase in cash and cash equivalents (15,051,000) 7,221,000
Cash and cash equivalents at beginning of period 20,504,000 3,172,000
------------ -----------
Cash and cash equivalents at end of period $ 5,453,000 $10,393,000
============ ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 4,501,000 $ 1,071,000
============ ===========
Cash paid during the period for taxes $ - $ -
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. The financial statements for the nine months ended June 30, 2000 and 1999,
included herein have been prepared by Commodore Holdings Limited (the "Company")
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. All adjustments which are, in the opinion of management,
necessary for a fair statement for the results of the three months and nine
months ended June 30, 2000 and 1999, are included. Certain information and
footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the financial statements for the year ended
September 30, 1999, contained in the Company's annual report on Form 10-K.
2. EARNINGS PER SHARE. The Company's basic earnings per share is calculated by
dividing net earnings available for common shareholders by the weighted average
shares outstanding during the period. The computation of diluted earnings per
share includes all dilutive common stock equivalents in the weighted average
shares outstanding.
Financial Accounting Standards Board (FASB) Statement No. 128 "Earnings
Per Share" requires the dual presentation of basic and diluted earnings per
share on the face of the statement of earnings. The reconciliation between the
computation is as follows:
<TABLE>
<CAPTION>
Three Net (loss) Net (loss)
months ended earnings- Basic Basic earnings- Diluted Diluted
June 30, Basic Shares EPS Diluted Shares EPS
------------ ------------ --------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
2000 $(14,406,000) 8,649,000 $ (1.67) $(14,406,000) 8,649,000 $ (1.67)
1999 $ 2,065,000 7,504,000 $ 0.28 $ 2,165,000 9,724,000 $ 0.22
</TABLE>
<TABLE>
<CAPTION>
Nine Net (loss) Net (loss)
months ended earnings- Basic Basic earnings- Diluted Diluted
June 30, Basic Shares EPS Diluted Shares EPS
------------ ------------ --------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
2000 $(16,712,000) 7,985,000 $ (2.09) $(16,712,000) 7,985,000 $ (2.09)
1999 $ 3,043,000 7,433,000 $ 0.41 $ 3,210,000 9,178,000 $ 0.35
</TABLE>
Included in diluted shares are common stock equivalents relating to
options, warrants and preferred stock of 0 and 2,220,000 for the three months
ended June 30, 2000 and 1999, respectively and 0 and 1,745,000 for the nine
months ended June 30, 2000 and 1999, respectively. Net earnings were adjusted to
calculate the diluted earnings per share by adding back $100,000 and $167,000 of
preferred stock dividends for the three and nine months ended June 30, 1999,
respectively. Common stock equivalents were not considered in the calculation of
diluted earnings per share, for the three and nine month periods ended June 30,
2000, due to their antidilutive effect.
Page 6
<PAGE>
3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE.
A condensed summary of the assets and liabilities and results of
operations of the Capri Cruises joint venture follows:
<TABLE>
<CAPTION>
As of
June 30,
--------
2000 1999
----------- ----------
<S> <C> <C>
Current assets $ 2,237,000 $3,588,000
Property and equipment, net 3,465,000 4,009,000
Other assets -- 96,000
----------- ----------
Total assets $ 5,702,000 $7,693,000
=========== ==========
Current liabilities $ 2,404,000 $4,341,000
Other liabilities 234,000 536,000
Partners' capital accounts 3,064,000 2,816,000
----------- ----------
Total liabilities and
partners' capital $ 5,702,000 $7,693,000
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
-------------------------- -----------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $6,662,000 $6,335,000 $17,752,000 $16,478,000
Expenses 6,443,000 5,831,000 17,937,000 17,125,000
---------- ---------- ----------- -----------
Net earnings (loss) $ 219,000 $ 504,000 $ (185,000) $ (647,000)
========== ========== =========== ===========
</TABLE>
4. LONG-TERM DEBT. On January 28, 2000, the Company purchased the Crown Dynasty
(the "Vessel") for $86,200,000. The Company financed its purchase of the Vessel
through loans in the aggregate principal amount of $51,720,000 from Merita Bank
Plc, Christiana Bank og Kreditkasse ASA, and Skandinaviska Enskilda Banken AB
(publ), and through a loan in the principal amount of $24,480,000 provided by
Eff-Shipping Limited, an affiliate of the seller of the Vessel. Such loans are
guaranteed by the Company and secured by mortgages on the Vessel and certain
other collateral related to the Vessel. The Company also used the proceeds from
the issuance of 11% convertible subordinated debentures in the principal amount
of $5,000,000 and 11% Series B Convertible Preferred Stock with a face value of
$5,000,000 to finance the balance of the purchase price. The Company also
redeemed $4,000,000 of Series B Convertible Preferred Stock at face value in
connection with the new issuances. The net proceeds from these financings, after
reduction for the redemption of the $4,000,000 of Series B Convertible Preferred
Stock, was approximately $81,131,000. The Company obtained the balance of the
purchase price for the Vessel from cash from its operations.
Under several of the Company's loan agreements, including the loans for
the acquisition of the Vessel, the Company is required to maintain certain
financial ratios related to liquidity, net worth, leverage and debt service
coverage. At June 30, 2000, the Company was not in compliance with certain of
its ratios and believed that it would not be in compliance with such ratios
between such date and the end of fiscal year 2000. The Company contacted its
lenders and obtained waivers or their written agreement to temporarily reset
these ratios through the end of fiscal 2000. In addition, one of the Company's
lenders agreed to loan the Company the short-term $2 million Nordbanken Note
Payable to assist the Company in its efforts to repay vendors of the Enchanted
Sun.
The Company plans to negotiate amendments to its loan agreements with
its lenders to permanently ease certain of its financial ratios. The Company's
lenders have indicated their willingness to reset such ratios, but have not yet
suggested to the Company what ratios will be acceptable to them. The Company
believes that the decision of its lenders will be based on its ability to
implement its business plan, including its ability to redeploy the Enchanted
Sun. The Company has been in discussions with several third parties regarding
the purchase or charter of the Enchanted Sun and believes that it will be able
to redeploy the vessel on terms acceptable to its lenders. If the Company is
successful, based on its lenders' actions in making the Nordbanken Note Payable
and waiving the ratio violations to date, the Company believes its lenders will
reset its financial ratios at levels it can meet. Based on these beliefs, the
Company has presented the portion of its debt due in the next twelve months as a
current liability with the balance shown as long-term debt.
5. REDEEMABLE PREFERRED STOCK. On March 30, 2000, the Company sold 250 shares of
its Series C Convertible Preferred Stock (the "Series C Stock") and a warrant to
purchase 75,000 shares of the Company's Common Stock at an exercise price of
$6.25 per share for an aggregate of
Page 7
<PAGE>
$2,500,000. The Series C Stock is convertible immediately into shares of the
Company's Common Stock at a rate of $4.50 per share. The proceeds of the sale
were used for general working capital purposes. In addition, commencing April
30, 2001, the holders of the Series C Stock have the right, for a 90-day period,
to request that the Company redeem all or a portion of the Series C Stock for
$10,500 per share. The Company has not identified how it proposes to fund this
repurchase if the holders of the Series C Stock exercise their option, assuming
the Company is legally permitted to repurchase the Series C Stock at the time
the holders exercise their option.
6. SUSPENSION OF OPERATIONS OF CORONADO SEAS, LLC. The Company announced on June
3, 2000 that its Coronado Seas joint venture had suspended day cruises between
San Diego, California and Rosarito, Mexico. Upon commencing operations in April
2000, Coronado Seas encountered logistical problems at the new pier in Rosarito
and was unable to disembark passengers at the pier on a regular basis. So as not
to disappoint passengers, the Company and one of its partners in Coronado Seas,
the Viejas Band of Kumeyaay Indians ("Viejas"), decided to suspend operations
indefinitely.
In connection with the shutdown of operations of Coronado and the
partial satisfaction of claims of vendors who provided goods and services to the
Enchanted Sun, the ship operated by Coronado Seas, Commodore agreed to lend $2
million and Viejas agreed to lend $1 million (the "Settlement Loans") to
Coronado and Albuferra Investments, Inc. ("Albuferra"), the owner of the
Enchanted Sun. Viejas also agreed write off all of its claims against Albuferra
and to satisfy certain other claims against Coronado and Albuferra equal to
approximately $1 million. The Settlement Loans do not bear interest and will be
repaid from the net proceeds of any charter, sale or other re-deployment of the
Enchanted Sun to each of Commodore and Viejas. The Viejas' portion of the
Settlement Loans is shown as "Due to affiliate-Long-term." The Settlement Loans
were made in May and June 2000.
Commodore is using the proceeds from the Settlement Loans exclusively
to settle the claims of Albuferra's vendors and to pay for the repositioning and
maintenance of the Enchanted Sun pending its re-deployment or sale by Albuferra.
Neither Commodore nor Viejas is required to loan any additional funds to either
Coronado or Albuferra; however, if the Settlement Loans are insufficient to
satisfy all of the vendor claims and pay for the repositioning and maintenance
of the Enchanted Sun, Commodore may loan additional funds to Albuferra. After
the last cruise operated by Coronado, Coronado removed the Viejas name from the
Enchanted Sun.
A condensed summary of the results of operations of the Coronado Seas joint
venture follows:
Three Months Nine Months
Ended Ended
June 30, 2000
----------------------------
Revenues $ 757,000 $ 757,000
Expenses 3,062,000 5,073,000
----------- -----------
Net loss $(2,305,000) $(4,316,000)
=========== ===========
Effective June 2000, the Company, pursuant to the Settlement Agreement
with Viejas, obtained majority ownership of Coronado Seas and began accounting
for it as a consolidated subsidiary of the Company.
In order to obtain its portion of the Settlement Loan, the Company
borrowed $2 million from Nordbanken AB on June 20, 2000. The loan is secured by
a second mortgage on the Enchanted Isle and bears interest at LIBOR plus 2% per
annum. The term of the loan is six months and principal and interest on the loan
are due at its maturity. The Company also agreed to grant a third mortgage in
the amount of $2 million on the Enchanted Isle to EFF-Shipping Limited as
additional security for its loan on the Vessel.
Page 8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is an analysis of the Company's results of operations,
liquidity and capital resources. To the extent that such analysis contains
statements which are not of a historical nature, such statements are
forward-looking statements, which involve risks and uncertainties. These risks
include competing in a saturated industry against modern and larger fleets, the
ability of the Company to obtain additional financing to fund its continued
operations and for the acquisition of additional ships, a high percentage of
debt on assets owned by the Company, the Company's deficit working capital
position, the potential for additional governmental regulations, the need for
expensive upgrades and/or maintenance to aging vessels, general economic factors
in markets where the Company operates, and other factors discussed in the
Company's filings with the Securities and Exchange Commission.
Results of Operations
Three Months Ended June 30, 2000, Compared to Three Months Ended June 30, 1999
Revenues increased by $7,985,000 for the quarter ended June 30, 2000
compared to the quarter ended June 30, 1999. This increase was due to the
addition of the Crown Dynasty to the Company's fleet in December 1999 and was
partially offset by a decline in revenues of approximately $1,775,000 associated
with the Universe Explorer due to a decline in load factors on its Alaska
cruises from 93% in the quarter ended June 30, 1999 to 66% for the quarter ended
June 30, 2000 and a 23-day increase in the number of days the Universe Explorer
operated on this program during fiscal 2000.
The Company's operating expenses increased by $10,228,000 for the
quarter ended June 30, 2000 compared to the quarter ended June 30, 1999. Of this
increase, $6,823,000 was due to the addition of the Crown Dynasty to the
Company's fleet. The remainder of the increase was primarily due to increases in
the cost of the Company's fuel. The Company's marketing, selling and
administrative expenses increased by $2,409,000 primarily due to the addition of
the Crown Dynasty and the Enchanted Sun to the Company's fleet.
Depreciation and amortization increased by $978,000 for the quarter
ended June 30, 2000 compared to the quarter ended June 30, 1999. Of this
increase, $829,000 was due to the addition of the Crown Dynasty to the Company's
fleet. The remainder of the increase was due to depreciation expense related to
the Enchanted Sun and additional capital expenditures incurred by the Company
(and the associated increase in the value of this ship) in conjunction with the
installation of a sprinkler system on the Universe Explorer in fiscal 1999.
Interest expense increased by $1,992,000 primarily due to the loans associated
with the purchase of the Crown Dynasty and the Enchanted Sun.
In June 2000, the Company recorded an unusual and nonrecurring loss for
the shutdown of the Coronado Seas San Diego operation in the amount of
$14,929,000. Management believes that after the shutdown of this operation, the
book value of the Enchanted Sun, which was the specialized vessel that served
this operation, was in excess of its fair market value. Accordingly, management
wrote down the value of the Enchanted Sun by $11,704,000, which represents the
largest portion of this unusual and nonrecurring loss. The Company's portion of
this loss was reduced by $4,629,000, which represents the share of this loss
attributable to the Company's minority partner in Albuferra Investments, Inc.
("Albuferra"), the owner of the Enchanted Sun. There can be no assurance that
the adjusted book value represents the amount the Company could realize in an
outright sale. If the Company sells the vessel and the sale price is less than
or more than the adjusted book value, the Company will record this difference at
the time of such sale. If the Company obtains an appraisal of the vessel that is
less than the adjusted book value, the Company will record this difference at
the time of such appraisal.
Page 9
<PAGE>
The remainder of the unusual and nonrecurring loss relates to expenses of the
Enchanted Sun the Company expects to incur until the Company sells or redeploys
it. The Company is presently attempting to sell, charter or redeploy the
Enchanted Sun.
The line item for "Minority interest share of loss (earnings) of other
consolidated joint ventures" in the amount of $1,966,000 and ($506,000) for the
three months ended June 30, 2000 and 1999, respectively, relate primarily to
Sea-Comm. Sea-Comm lost approximately $3,932,000 during the three months ended
June 30, 2000 as compared to a profit of approximately $1,012,000 during the
three months ended June 30, 1999. The decline in the earnings of Sea-Comm was
primarily due to a decline in the load factor from 93% to 66% for the Alaska
program during the quarter ended June 30, 2000 and an increase in the number of
days the Universe Explorer operated on the Alaska program from 28 days to 51
days during such quarter. During fiscal 1999, the Universe Explorer operated the
Semester at Sea program during such 23 days.
"Equity in net (loss) earnings of unconsolidated joint ventures" during
the third quarter of fiscal 2000 represents profits and losses associated with
the Company's Capri Cruises and Coronado Seas joint ventures. The Company
accounts for the Capri Cruises joint venture under the equity method. The
Company's 50% investment in Capri Cruises resulted in a net profit of $108,000
for the quarter as compared to a net profit of $202,000 for the quarter ended
June 30, 1999. The Company accounted for the Coronado Seas joint venture under
the equity method until June 2000, when the Company entered into a settlement
agreement (the "Settlement Agreement") with the Viejas Band of Kumeyaay Indians
("Viejas"), one of the Company's partners in Coronado Seas. Pursuant to the
Settlement Agreement, the Company obtained majority ownership of Coronado Seas.
Prior to the date of the Settlement Agreement, the Company's 33% investment in
Coronado Seas resulted in a net loss of $768,000 for the quarter ended June 30,
2000.
Nine Months Ended June 30, 2000, Compared to Nine Months Ended June 30, 1999
Revenues increased by $20,904,000 for the nine months ended June 30,
2000 compared to the nine months ended June 30, 1999. This increase was
attributable to the addition of the Crown Dynasty to the Company's fleet in
December 1999. Additionally, the Universe Explorer was out of service for 60
days during the nine months ended June 30, 1999 for the installation of its
sprinkler system. This increase was partially offset by a reduction in revenues
from the Enchanted Isle due to the drydock of the vessel for 21 days during
fiscal 2000. The Company extended its regularly scheduled drydock on the
Enchanted Isle to allow the start of the installation of a sprinkler system. The
Company is not required to install a sprinkler system until October 2005 but
elected to have the start of the installation commence in December 1999 to avoid
another drydock for such purpose at a later date.
The Company's operating expenses increased by $22,494,000, for the nine
months ended June 30, 2000 compared to the nine months ended June 30, 1999. Of
this increase, $16,709,000 was due to the addition of the Crown Dynasty to the
Company's fleet. The remainder of the increase was due to additional operating
days on the Universe Explorer, increases in the cost of the Company's fuel and
start-up expenses associated with the Company's launch of both the Enchanted Sun
and its new premium Crown Cruise Line brand. This increase was partially offset
by a decline in operating expenses for the Enchanted Isle, which was in drydock
for 21 days.
Depreciation and amortization increased by $1,806,000 due to the
addition of the Crown Dynasty to the Company's fleet as well as additional
capital expenditures incurred by the Company (and the associated increase in the
value of this ship) in conjunction with the installation of a sprinkler system
on the Universe Explorer in fiscal 1999. Interest expense increased by
$3,325,000 primarily due to the loans associated with the purchase of the Crown
Dynasty and the Enchanted Sun.
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The line item for "Minority interest share of loss (earnings) of other
consolidated joint ventures" in the amount of $1,903,000 and ($838,000) for the
nine months ended June 30, 2000 and 1999, respectively, relate primarily to
Sea-Comm. The decline in the earnings of Sea-Comm was primarily due to a decline
in the load factor from 93% to 66% for the Alaska program during the nine months
ended June 30, 2000 and an increase in the number of days the Universe Explorer
operated on the Alaska program from 28 days to 51 days during such nine months.
During Fiscal 1999, the Universe Explorer operated the Semester at Sea program
during such 23 days. Additionally, the Universe Explorer was out of service for
60 days during the nine months ended June 30, 1999 for the installation of its
sprinkler system.
"Equity in loss of unconsolidated joint ventures" during the nine
months ending June 30, 2000 represents losses associated with the Company's
Capri Cruises and Coronado Seas joint ventures. The Company accounts for the
Capri Cruises joint venture under the equity method. The Company's 50%
investment in Capri Cruises resulted in a net loss of $93,000 for the nine
months as compared to a net loss of $323,000 for the nine months ended June 30,
1999. The Company accounted for the Coronado Seas joint venture under the equity
method until June 2000 when the Company entered into the Settlement Agreement.
Pursuant to the Settlement Agreement, the Company obtained majority ownership of
Coronado Seas. Prior to the date of the Settlement Agreement, the Company's 33%
investment in Coronado Seas resulted in a net loss of $1,438,000 for the nine
months ended June 30, 2000.
Liquidity and Capital Resources
The Company's working capital deficiency was $30,407,000, at June 30,
2000 versus working capital of $5,749,000 at September 30, 1999. The Company's
working capital deficiency was primarily due to increases in accounts payable
(due to the costs related to renovations of the Enchanted Sun and the addition
of the Crown Dynasty to the Company's fleet), increases in customer deposits
(due to the addition of the Crown Dynasty) as well as the net loss for the nine
months ended June 30, 2000, which was due in part to the start-up expenses
associated with the Company's launch of both the Enchanted Sun and its new
premium Crown Cruise Line brand. These contributing factors were offset in part
by increases in prepaid expenses (due to the dry-docking of the Crown Dynasty
and Enchanted Isle).
Cash flows from operations provided $11,142,000 and $2,495,000 for the
nine months ended June 30, 2000 and 1999, respectively. Cash flows used in
operations consisted primarily of the loss for the nine months and increases in
prepaid expenses and other assets (due to the dry-docking of both the Enchanted
Isle and the Crown Dynasty). Cash flows provided by operations consisted
primarily of increases in customer deposits (due to the addition of the Crown
Dynasty), and increases in accounts payable and accrued liabilities (due to
payments owed on the construction in progress on the Enchanted Sun and the
addition of the Crown Dynasty to the Company's fleet).
The Company's cash flows used in investing activities were $110,810,000
and $3,169,000 for the first nine months of fiscal 2000 and 1999, respectively.
The primary reasons for the increase were the capital expenditures related to
the purchase of the Crown Dynasty, the renovation of the Enchanted Sun and the
beginning of the installation of the sprinkler system on the Enchanted Isle.
These increases were partially offset by the additional investment made by
Viejas in Albuferra.
The Company's cash flows provided by financing activities were
$84,617,000 during the nine months ended June 30, 2000 as compared to $7,895,000
for the nine months ended June 30, 1999. The cash flows provided in the nine
months ended June 30, 2000 were primarily due to the Company's drawdown on the
three loans for the purchase of the Crown Dynasty, the Company's drawdown on the
remainder of the proceeds of the Nordbanken loan (for the renovation of the
Enchanted Sun), and the proceeds of a note payable from NordBanken in the amount
of $2,000,000 drawn in June 2000. These amounts were partially offset by the
payments
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the Company made on its various loans in the nine months. During the nine months
ended June 30, 1999, the Company refinanced the loan secured by the Universe
Explorer, which accounted for the increases in the principal payments and
proceeds from long-term debt during the quarter. The net proceeds from this loan
were approximately $1,100,000.
At June 30, 2000, the Company owed $113,156,000 pursuant to the various
loans, capital leases and other debt instruments it has outstanding. (See the
financial statements for the year ended September 30, 1999, contained in the
Company's annual report on Form 10-K for descriptions of the Company's various
loans). In March 2000, the Company sold its interest rate swap on the Key Loan
for approximately $470,000. This amount will be credited to the Company's
interest expense over the life of the Key Loan. The Company's loans bear
interest at rates between 6.97% and 10.89%.
On January 28, 2000, the Company, purchased the 916-passenger cruise
ship Crown Dynasty (the "Vessel"), for $86,200,000. Prior to such purchase, the
Company operated the Vessel pursuant to a bareboat charter with the seller. The
seller granted the Company an option to purchase the Vessel as part of the
charter. In connection with the Company's exercise of its option to purchase the
Vessel, the parties agreed to apply the $4,500,000 security deposit under the
charter to the purchase price for the Vessel.
The Company financed its purchase of the Vessel through loans in the
aggregate principal amount of $51,720,000 from Merita Bank Plc, Christiana Bank
og Kreditkasse ASA, and Skandinaviska Enskilda Banken AB (publ), and through a
loan in the principal amount of $24,480,000 provided by EFF-Shipping Limited, an
affiliate of the Seller. Such loans are guaranteed by the Company and secured by
mortgages on the Vessel and certain other collateral related to the Vessel. The
Company also used the proceeds from the issuance of 11% convertible subordinated
debentures in the principal amount of $5,000,000 and 11% Series B Convertible
Preferred Stock with a face value of $5,000,000 to finance the balance of the
purchase price. The debentures and preferred stock are convertible into Common
Stock beginning twelve months after issuance at $4.0625 per share. Sales of the
underlying Common Stock are restricted to not more than 25% of the Common Stock
per quarter, which amount increases if the Company demands conversion, which it
may do in certain cases. The Company also redeemed $4,000,000 of Series B
Convertible Preferred Stock at face value in connection with the new issuances.
The net proceeds from these financings, after reduction for the redemption of
the $4,000,000 of Series B Convertible Preferred Stock, was approximately
$81,131,000. The Company obtained the balance of the purchase price for the
Vessel from cash from its operations.
Under several of the Company's loan agreements, the Company has agreed
not to incur or create certain additional indebtedness or liens on the Company's
assets without the lenders' consents. The Company is further required to
maintain certain financial ratios related to liquidity, net worth, leverage and
debt service coverage and has further agreed to limit the amount of its
dividends.
At June 30, 2000, the Company was not in compliance with certain of its
financial ratios and believed that it would not be in compliance with such
ratios between such date and the end of fiscal year 2000. The Company contacted
its lenders and obtained waivers or their written agreement to temporarily reset
these ratios through the end of fiscal 2000. In addition, one of the Company's
lenders agreed to loan the Company the short-term $2 million Nordbanken Note
Payable to assist the Company in its efforts to repay vendors of the Enchanted
Sun.
The Company plans to negotiate amendments to its loan agreements with
its lenders to permanently ease certain of its financial ratios. The Company's
lenders have indicated their willingness to reset such ratios, but have not yet
suggested to the Company what ratios will be acceptable to them. The Company
believes that the decision of its lenders will be based on it ability to
implement it business plan, including its ability to redeploy the Enchanted Sun.
The Company has been in discussions with several third parties regarding the
purchase or charter of the Enchanted Sun and believes that it will be able to
redeploy the vessel on terms acceptable to its lenders. If the Company is
successful, based on its lenders' actions in making the Nordbanken Note Payable
and waiving the ratio violations to date, the Company believes its lenders will
reset its financial ratios at levels it can meet. Notwithstanding this belief,
there can be no assurance that the Company's lenders will agree to ease its
financial ratios or that the Company will be able to comply with its existing
financial ratios in the future. If the Company fails to comply with its
financial ratios and its lenders elect not waive such non-compliance, the
Company will need to refinance its loans from other debt or equity sources.
There can be no assurance that the Company will be able to refinance its loans
on favorable terms, or at all, if it needs to do so.
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On March 30, 2000, the Company sold 250 shares of its Series C
Convertible Preferred Stock (the "Series C Stock") and a warrant to purchase
75,000 shares of the Company's Common Stock at an exercise price of $6.25 per
share for an aggregate of $2,500,000. The Series C Stock is convertible
immediately into shares of the Company's Common Stock at a rate of $4.50 per
share. The proceeds of the sale were used for general working capital purposes.
In addition, commencing April 30, 2001, the holders of the Series C Stock have
the right, for a 90-day period, to request that the Company redeem all or a
portion of the Series C Stock for $10,500 per share. The Company has not
identified how it proposes to fund this repurchase if the holders of the Series
C Stock exercise their option, assuming the Company is legally permitted to
repurchase the Series C Stock at the time the holders exercise their option.
As a result of the Company's suspension of its Coronado Sea's
operation, the Company entered into the Settlement Agreement. One of the
purposes of the Settlement Agreement was to cause the Company and Viejas, the
shareholders of Albuferra, the company that owns the Enchanted Sun, to make
certain loans (the "Shareholder Loans") to Albuferra so that Albuferra could pay
its vendors and the maintenance costs of the Enchanted Sun that accrue until
Albuferra sells or otherwise re-deploys the vessel. The Shareholder Loans total
$3 million, and the Company borrowed its $2 million portion of such Shareholder
Loans from Nordbanken (the "Nordbanken Note Payable"). The Nordbanken Note
Payable bears interest at LIBOR plus 2% per annum, is secured by a second
mortgage on the Enchanted Isle and matures in December 2000. Principal and
interest on the Nordbanken Note Payable are due at maturity. The Company also
agreed to grant a third mortgage in the amount of $2 million on the Enchanted
Isle to Eff Shipping Limited as additional security for its loan on the Vessel.
Pursuant to the Settlement Agreement, neither the Company nor Viejas
has any obligation to loan additional funds to Albuferra if the Shareholder
Loans are insufficient to satisfy all of the Enchanted Sun's vendors and pay its
maintenance costs. Regardless of such limitation, if the Shareholder Loans prove
to be insufficient, in order to maintain good relationships with its vendors,
the Company anticipates that it will seek to borrow additional funds in order to
satisfy all vendor claims and pay all maintenance expenses. The Company is
currently seeking to refinance the Nordbanken Note Payable for a longer term,
and if needed, will likely seek to borrow additional funds to satisfy vendors at
the same time. Any refinancing of the Nordbanken Note Payable will probably be
secured by the Enchanted Isle, which has a fair market value of between $18.75
million and $21.5 million, as estimated by the Company, and which is presently
encumbered by approximately $8.3 million in debt (including the proposed
mortgage to EFF-Shipping). The Company believes that the willingness of its
lenders to refinance the Enchanted Isle to secure a larger loan will depend on
the Company's ability to implement its business plan, including the redeployment
of the Enchanted Sun, as described above. If the Company is successful, the
Company believes one or more of its lenders will refinance this vessel.
Notwithstanding its belief, there can be no assurance that the Company will be
able to refinance the Nordbanken Note Payable or borrow additional funds to pay
vendors, if needed. If the Company is unable to refinance the Nordbanken Note
Payable, it will need to repay such loan from other debt or equity sources,
which may not be available, or attempt to cause the lender to extend the
maturity of the note, the terms of which may not be favorable to the Company. If
the Company requires additional funds to pay vendors and is unable to obtain
such funds, this could adversely affect the Company's ability to obtain trade
credit from its vendors.
Inflation
The impact of inflation on the Company's operations, other than
increases in fuel for the Company's fleet, has not been significant to date. The
Company's fuel cost for the nine months ended June 30, 2000, on a per operating
day basis, increased by approximately 67% over the nine months ended June 30,
1999. Fuel expense represented approximately 19% and 14% of the Company's
operating expenses for the nine months ended June 30, 2000 and 1999,
respectively. There can be no assurance that a high rate of inflation in the
future would not have an adverse effect on the Company's operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's major market risk exposure is to changing interest rates.
The Company's policy is to manage interest rate risk through the use of a
combination of fixed and floating rate instruments, with respect to both its
liquid assets and its debt instruments.
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The Company maintains a portion of its cash and cash equivalents in
financial instruments with original maturities of three months or less. These
financial instruments are subject to interest rate declines. An immediate
decline of 10% in interest rates would reduce the Company's annual interest
income by $21,000.
The EffJohn Loan and Nordbanken Note Payable bear interest at LIBOR
plus 2%, the Crown Dynasty loans bear interest at LIBOR plus margins between
1.75% and 4% and the Key Loan bears interest at the prime rate plus .8%, and
thus are affected by changes in interest rates. In the event that interest rates
increased by 10%, the Company's interest obligations would increase by
approximately $205,000, $775,000, $645,000, $565,000 and $502,000, respectively,
in each of its fiscal years 2000, 2001, 2002, 2003 and 2004.
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Part II. Other Information
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORT ON FORM 8-K.
(a) Exhibits.
Exhibit Number Description
10.1 Loan Agreement dated June 20, 2000 by and between
Nordbanken AB (Publ) and Commodore Holdings Limited
for the Principal Amount of $2,000,000
10.2 Second Naval Mortgage dated June 21, 2000 over
Enchanted Isle executed by Almira Enterprises, Inc.
in favor of Nordbanken AB (Publ)
10.3 Guarantee and Indemnity Agreement dated June 20,
2000 executed by Almira Enterprises, Inc. in favor
of Nordbanken AB (Publ)
27 Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K.
During the quarter ended June 30, 2000, the Company filed a Current
Report on Form 8-K dated June 8, 2000. In Item 5 of such report, the Company
reported the suspension of operations by Coronado Seas.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMODORE HOLDINGS LIMITED
(Registrant)
/s/ Alan Pritzker
---------------------------------------------------
Alan Pritzker
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
August 14, 2000
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Loan Agreement dated June 20, 2000 by and between Nordbanken
AB (Publ) and Commodore Holdings Limited for the Principal
Amount of $2,000,000
10.2 Second Naval Mortgage dated June 21, 2000 over Enchanted
Isle executed by Almira Enterprises, Inc. in favor of
Nordbanken AB (Publ)
10.3 Guarantee and Indemnity Agreement dated June 20, 2000
executed by Almira Enterprises, Inc. in favor of Nordbanken
AB (Publ)
27 Financial Data Schedule (SEC Use Only)
