[NOTIFY] 72731,737
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1998
OR
[ ] 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 1-9610
CARNIVAL CORPORATION
(Exact name of registrant as specified in its charter)
Republic of Panama 59-1562976
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3655 N.W. 87th Avenue, Miami, Florida 33178-2428
(Address of principal executive offices)
(zip code)
(305) 599-2600
(Registrant's telephone number, including area code)
None.
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No__
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of July 9, 1998.
Common Stock, $.01 par value: 595,327,624 shares outstanding
CARNIVAL CORPORATION
I N D E X
Page
Part I. Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets -
May 31, 1998 and November 30, 1997 1
Consolidated Statements of Operations -
Six and Three Months Ended May 31, 1998
and 1997 2
Consolidated Statements of Cash Flows -
Six Months Ended May 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information
Item 1: Legal Proceedings 16
Item 4: Submission of Matters to a Vote of
Security Holders 17
Item 5: Other Information 19
Item 6: Exhibits and Reports on Form 8-K 19
/TABLE
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CARNIVAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
May 31, November 30,
1998 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 120,600 $ 139,989
Short-term investments 9,414 9,738
Accounts receivable, net 66,503 57,090
Consumable inventories, at average cost 76,226 54,970
Prepaid expenses and other 102,754 74,238
Total current assets 375,497 336,025
PROPERTY AND EQUIPMENT, NET 5,469,814 4,327,413
OTHER ASSETS
Investments in and advances to affiliates 425,715 479,329
Goodwill, less accumulated amortization of
$65,746 and $62,256 403,077 212,607
Other assets 37,733 71,401
$6,711,836 $5,426,775
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 58,457 $ 59,620
Accounts payable 187,897 106,783
Accrued liabilities 169,048 154,253
Customer deposits 755,890 420,908
Dividends payable 44,619 44,578
Total current liabilities 1,215,911 786,142
LONG-TERM DEBT 1,557,016 1,015,294
OTHER LONG-TERM LIABILITIES 23,907 20,241
MINORITY INTEREST 123,079
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY
Common Stock; $.01 par value;
960,000 shares authorized; 594,924 and
594,408 shares issued and outstanding 5,949 5,944
Preferred Stock; $.01 par value; 40,000 shares
authorized; none issued or outstanding
Paid-in-capital 871,676 863,125
Retained earnings 2,912,499 2,731,213
Other 1,799 4,816
Total shareholders' equity 3,791,923 3,605,098
$6,711,836 $5,426,775
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Six Months Three Months
Ended May 31, Ended May 31,
1998 1997 1998 1997
REVENUES $1,219,196 $1,117,696 $661,358 $596,614
COSTS AND EXPENSES
Operating expenses 669,951 634,622 362,356 337,684
Selling and administrative 163,784 156,219 84,950 76,716
Depreciation and amortization 89,266 82,658 46,258 41,961
923,001 873,499 493,564 456,361
OPERATING INCOME BEFORE
LOSS FROM AFFILIATED
OPERATIONS 296,195 244,197 167,794 140,253
LOSS FROM AFFILIATED
OPERATIONS (13,034) (11,694) (2,353) (2,712)
OPERATING INCOME 283,161 232,503 165,441 137,541
NONOPERATING INCOME (EXPENSE)
Interest income 5,885 3,382 2,148 1,565
Interest expense, net of
capitalized interest (24,735) (31,536) (12,176) (14,446)
Other (expense) income (662) 2,105 2,609 459
Income tax benefit 6,861 6,353 2,574 2,328
(12,651) (19,696) (4,845) (10,094)
NET INCOME $ 270,510 $ 212,807 $160,596 $127,447
EARNINGS PER SHARE:
Basic $.45 $.36 $.27 $.21
Diluted $.45 $.36 $.27 $.21
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended May 31,
1998 1997
OPERATING ACTIVITIES
Net income $ 270,510 $212,807
Adjustments
Depreciation and amortization 89,266 82,658
Loss from affiliated operations
and dividends received 23,621 17,334
Other 7,047 (834)
Changes in operating assets and liabilities,
excluding effect of businesses acquired
Increase in:
Receivables (4,291) (11,441)
Consumable inventories (4,690) (1,621)
Prepaid expenses and other (20,196) (16,505)
Increase (decrease) in:
Accounts payable 38,109 23,387
Accrued liabilities 2,321 (6,821)
Customer deposits 191,165 137,934
Net cash provided from operations 592,862 436,898
INVESTING ACTIVITIES
Decrease in short-term investments 324 106
Additions to property and equipment, net (702,184) (84,132)
Repayment of advances to affiliates, net 3,606 35,986
Acquisition of Cunard, net of
cash received upon acquisition and
consolidation of Seabourn (246,097)
Decrease (increase) in other assets 34,438 (1,039)
Net cash used for investing activities (909,913) (49,079)
FINANCING ACTIVITIES
Principal payments of long-term debt (801,841) (369,997)
Dividends paid (89,183) (65,090)
Proceeds from long-term debt 1,184,588 25,272
Proceeds from issuance of common stock 4,098 3,993
Net cash provided from (used for)
financing activities 297,662 (405,822)
Net decrease in cash and
cash equivalents (19,389) (18,003)
Cash and cash equivalents at beginning
of period 139,989 111,629
Cash and cash equivalents at end of period $ 120,600 $ 93,626
Supplemental disclosure of non-cash transactions
Conversion of 4-1/2% Convertible Notes into
Class A Common Stock $ 39,085
The accompanying notes are an integral part of these consolidated
financial statements.
CARNIVAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS FOR PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by
Carnival Corporation, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission.
The accompanying consolidated balance sheet at May 31, 1998 and the
consolidated statements of operations for the six and three months ended
May 31, 1998 and 1997 and consolidated statements of cash flows for the
six months ended May 31, 1998 and 1997 are unaudited and, in the opinion
of management, contain all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation. The operations of
Carnival Corporation and its subsidiaries and affiliates are seasonal and
results for interim periods are not necessarily indicative of the results
for the entire year. Certain amounts in prior periods have been
reclassified to conform with the current period's presentation.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Vessels $5,467,120 $4,536,382
Vessels under construction 465,852 182,929
5,932,972 4,719,311
Land, buildings and improvements 202,064 194,013
Transportation and other equipment 294,885 268,520
Total property and equipment 6,429,921 5,181,844
Less - accumulated depreciation and
amortization (960,107) (854,431)
$5,469,814 $4,327,413
Interest costs associated with the construction of vessels and
buildings are capitalized during the construction period and amounted to
$16.0 million and $7.4 million for the six months ended May 31, 1998 and
1997, respectively, and $9.6 million and $3.9 million for the three months
ended May 31, 1998 and 1997, respectively.
NOTE 3 - LONG-TERM DEBT
Long-term debt consists of the following:
Commercial Paper $ 306,877 $ 288,614
Unsecured 5.75% Notes Due March 15, 1998 200,000
Mortgages and other loans payable bearing interest
at rates ranging from 6.3% to 9.9%, secured by
vessels, maturing through 1999 209,461 79,830
Unsecured 6.65% Debentures Due January 15, 2028 199,236
Unsecured 5.65% Notes Due October 15, 2000 199,789
Unsecured 6.15% Notes Due April 15, 2008 199,486
Unsecured 6.15% Notes Due October 1, 2003 124,963 124,960
Unsecured 7.20% Debentures Due October 1, 2023 124,879 124,876
Unsecured 7.7% Notes Due July 15, 2004 99,930 99,924
Unsecured 7.05% Notes Due May 15, 2005 99,861 99,851
Other loans payable 50,991 56,859
1,615,473 1,074,914
Less portion due within one year (58,457) (59,620)
$1,557,016 $1,015,294
/TABLE
NOTE 4 - SHAREHOLDERS' EQUITY
An analysis of the changes in shareholders' equity for the six months
ended May 31, 1998 is as follows:
COMMON PAID-IN- RETAINED
STOCK CAPITAL EARNINGS OTHER TOTAL
(in thousands)
Balances at November 30,
1997 as previously
reported $2,972 $866,097 $2,731,213 $4,816 $3,605,098
Two-for-one stock split
effective June 12, 1998 2,972 (2,972)
Balances at November 30,
1997 as adjusted 5,944 863,125 2,731,213 4,816 3,605,098
Net income 270,510 270,510
Cash dividends (89,224) (89,224)
Changes in securities
valuation allowance 113 113
Foreign currency
translation adjustment (906) (906)
Issuance of stock to
employees under stock
plans 5 8,551 (2,905) 5,651
Vested portion of common
stock under restricted
stock plan 681 681
Balances at May 31, 1998 $5,949 $871,676 $2,912,499 $1,799 $3,791,923
/TABLE
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Capital Expenditures
A description of ships under contract for construction at May 31, 1998
is as follows (in millions, except berth data):
Expected Number
Service of Lower Estimated Remaining
Vessel Date(1) Shipyard Berths Total Cost to Be Paid
Carnival Cruise Lines
Paradise 12/98 Masa-Yards 2,040 $ 300 $ 246
Carnival Triumph 7/99 Fincantieri(2) 2,766 410 326
Carnival Victory 8/00 Fincantieri 2,766 440 434
CCL Newbuild 12/00 Masa-Yards 2,100 375 358
Total Carnival Cruise Lines 9,672 1,525 1,364
Holland America Line
Volendam 8/99 Fincantieri(2) 1,440 300 257
Zaandam 3/00 Fincantieri(2) 1,440 300 273
HAL Newbuild 9/00 Fincantieri(2) 1,380 300 65
Total Holland America Line 4,260 900 595
Total 13,932 $2,425 $1,959
(1) The expected service date is the date the vessel is expected to begin
revenue generating activities.
(2) The construction contracts with such shipyards are denominated in
Italian Lire. Contracts have been fixed into U.S. Dollars through the
utilization of forward currency contracts.
In connection with the vessels under construction described in the
above table, Carnival Corporation and its majority owned subsidiaries ("the
Company") have paid $466 million through May 31, 1998 and anticipate paying
approximately $347 million during the twelve month period ending May 31,
1999 and approximately $1.6 billion beyond May 31, 1999.
Litigation
Several actions (collectively the "Passenger Complaints") have been
filed against Carnival Corporation or Holland America Westours on behalf of
purported classes of persons who paid port charges to Carnival Corporation
or Holland America Westours, alleging that statements made in advertising
and promotional materials concerning port charges were false and
misleading. The Passenger Complaints allege violations of the various
state consumer protection acts and claims of fraud, conversion, breach of
fiduciary duties and unjust enrichment. Plaintiffs seek compensatory
damages or, alternatively, refunds of portions of port charges paid,
attorneys' fees, costs, prejudgment interest, punitive damages and
injunctive and declaratory relief.
Holland America Westours recently entered into a settlement agreement
for the one Passenger Complaint filed against it. The settlement agreement
was preliminarily approved by the court and is now subject to final court
approval. If approved, Holland America Westours will issue travel vouchers
with a face value of $10-$50 depending on specified criteria, to certain of
its passengers who are U.S. residents and who sailed between April 1992 and
April 1996, and pay a portion of the plaintiff's legal fees. The impact of
the settlement on the Company is not reasonably estimable since both the
amount of the travel vouchers to be redeemed and the effect of the travel
voucher redemption on revenues is not known. Accordingly, the Company has
not established a liability for the travel voucher portion of the
settlement and will account for the redemption of the vouchers as a
reduction of future revenues. However, the Company has previously
established a liability for the estimated distribution costs of the
settlement notice and plaintiff's legal cost. The Company does not believe
the settlement will have a material adverse impact on the Company's
financial condition or results of operations.
Three complaints were filed against Carnival Corporation and/or
Holland America Westours (collectively the "Travel Agent Complaints") on
behalf of purported classes of travel agencies who during the past four
years booked a cruise with Carnival Corporation or Holland America
Westours, claiming that advertising practices regarding port charges
resulted in an improper commission bypass. These actions allege claims of
breach of contract, negligent misrepresentation, unjust enrichment,
unlawful business practices and common law fraud, and they seek unspecified
compensatory damages (or alternatively, the payment of usual and customary
commissions on port charges paid by passengers in excess of certain charges
levied by government authorities), an accounting, attorneys' fees and
costs, punitive damages and injunctive relief.
The pending Passenger and Travel Agent Complaints are in preliminary
stages and it is not now possible to determine the ultimate outcome of the
lawsuits. Management believes it has meritorious defenses to the claims.
Management understands that purported class actions similar to the
Passenger and Travel Agent Complaints have been filed against several other
cruise lines.
In the normal course of business, various other claims and lawsuits
have been filed or are pending against the Company. The majority of these
claims and lawsuits are covered by insurance. Management believes the
outcome of any such suits which are not covered by insurance would not have
a material adverse effect on the Company's financial condition or results
of operations.
NOTE 6 - EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("FAS 128"), and per share amounts have been
computed thereunder as follows (in thousands, except per share data):
Six Months Three Months
Ended May 31, Ended May 31,
1998 1997 1998 1997
BASIC:
Net income $270,510 $212,807 $160,596 $127,447
Average common shares outstanding 594,744 593,807 594,857 594,128
Basic per share amount $ .45 $ .36 $ .27 $ .21
DILUTED:
Net income $270,510 $212,807 $160,596 $127,447
Interest expense related to 4.5%
Convertible Subordinated Notes 38
Income available assuming dilution $270,510 $212,845 $160,596 $127,447
Average common shares outstanding 594,744 593,807 594,857 594,128
Effect of dilutive securities:
Additional shares issuable upon
assumed conversion of 4.5%
Convertible Subordinated Notes 256
Various employee stock plans 3,404 2,014 3,663 2,124
Average shares outstanding
assuming dilution 598,148 596,077 598,520 596,252
Diluted per share amount $ .45 $ .36 $ .27 $ .21
NOTE 7 - ACQUISITION
On May 28, 1998, the Company and a group of investors acquired the
operating assets of Cunard, a cruise company operating five luxury cruise
ships, for $500 million, adjusted for working capital and debt assumed.
After the adjustment for working capital and debt assumed, the Company's
portion of the investment was approximately $255 million. Goodwill
generated from the transaction is being amortized using the straight line
method over 40 years. The Company is accounting for the acquisition using
the purchase accounting method. Simultaneous with the acquisition, Seabourn
Cruise Line Limited ("Seabourn"), a luxury cruise line in which the Company
owned a 50% interest, was merged with Cunard. The Company owns approximately
68% of the merged entity, which is named Cunard Line Limited. Commencing on
May 28, 1998, the financial results of Cunard Line Limited have been
included in the Company's consolidated financial statements. Prior to May
28, 1998, the Company's 50% interest in Seabourn was accounted for using the
equity method of accounting.
Had the above transactions occurred on December 1, 1996, the Company's
consolidated revenues would have been approximately $1,309 million and
$1,440 million for the six months ended May 31, 1997 and 1998,
respectively, and net income would not have materially changed.
Under certain circumstances, ending May 28, 2001, the minority
shareholders of Cunard Line Limited can require the Company to issue
approximately five million shares, subject to adjustment, of its Common
Stock in exchange for their ownership interest of approximately 32% in
Cunard Line Limited. Additionally, the Company has the option, at any
time, to purchase the 32% minority interest in Cunard Line Limited for the
same amount.
The preliminary impact on the Company's assets and liabilities related to
the acquisition of Cunard and consolidation of Seabourn was as follows (in
millions):
Fair value of Cunard assets $544
Seabourn assets consolidated 191
Liabilities assumed (357)
Minority interest (123)
Cash paid for acquisition 255
Cash of acquired companies (9)
Net cash paid as reflected
in the Statement of Cash Flows $246
NOTE 8 - RECENT PRONOUNCEMENTS
In April 1998, Statement of Position 98-5 - "Reporting on the Costs of
Start-Up Activities" ("SOP") was issued. The SOP 98-5 requires that all
start-up or pre-operating costs be expensed as incurred and is effective
for fiscal years beginning after December 15, 1998. Management believes
that the adoption of the SOP will not have a material impact on the
financial statements.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133") was issued. SFAS 133 establishes a new
model for accounting for derivatives and hedging activities and is
effective for fiscal years beginning after June 15, 1999. The Company is
still in the process of assessing the impact of the adoption of SFAS 133
but does not currently expect the adoption to have a material impact on the
financial statements.
NOTE 9 - STOCK SPLIT
On April 13, 1998, the Board of Directors of the Company approved a
two-for-one split of its Common Stock. The additional shares were
distributed on June 12, 1998 to shareholders of record on May 29, 1998.
All share and per share data presented herein have been retroactively
restated to give effect to this stock split.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements under this caption, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", constitute
"forward-looking statements" under the Private Securities Litigation Reform
Act of 1995 (the "Reform Act"). See "PART II. OTHER INFORMATION, ITEM
5(a) Forward-Looking Statements".
General
The Company earns its cruise revenues primarily from (i) the sale of
passenger tickets, which includes accommodations, meals, and most shipboard
activities, (ii) the sale of air transportation to and from the cruise ship
and (iii) the sale of goods and services on board its cruise ships, such as
casino gaming, liquor sales, gift shop sales and other related services.
The Company also derives revenues from the tour and related operations of
HAL Antillen N.V. ("HAL"), which owns Holland America Westours and Holland
America Cruise Line.
The following table presents selected segment and statistical
information for the periods indicated:
Six Months Ended May 31, Three Months Ended May 31,
1998 1997 1998 1997
(in thousands, except selected statistical
information)
REVENUES:
Cruise $1,182,061 $1,084,603 $631,084 $570,581
Tour 45,453 37,670 38,414 30,475
Intersegment revenues (8,318) (4,577) (8,140) (4,442)
$1,219,196 $1,117,696 $661,358 $596,614
OPERATING EXPENSES:
Cruise $ 633,826 $ 601,616 $335,056 $313,899
Tour 44,443 37,583 35,440 28,227
Intersegment expenses (8,318) (4,577) (8,140) (4,442)
$ 669,951 $ 634,622 $362,356 $337,684
OPERATING INCOME:
Cruise $ 319,844 $ 265,284 $177,420 $149,227
Tour (17,213) (16,608) (6,692) (5,879)
Loss from affiliates and
corporate expenses (19,470) (16,173) (5,287) (5,807)
$ 283,161 $ 232,503 $165,441 $137,541
SELECTED STATISTICAL INFORMATION:
Passengers Carried 923,000 950,000 497,000 495,000
Passenger Cruise
Days (1) 5,931,000 5,880,000 3,104,000 3,062,000
Occupancy Percentage 105.6% 107.2% 105.4% 108.0%
(1) A passenger cruise day is one passenger sailing for a period of one
day. For example, one passenger sailing on a one week cruise is seven
passenger cruise days.
/TABLE
Operations data expressed as a percentage of total revenues for the
periods indicated is as follows:
Six Months Three Months
Ended May 31, Ended May 31,
1998 1997 1998 1997
REVENUES 100% 100% 100% 100%
COSTS AND EXPENSES:
Operating expenses 55 57 55 57
Selling and administrative 14 14 13 13
Depreciation and amortization 7 7 7 7
OPERATING INCOME BEFORE
LOSS FROM AFFILIATED
OPERATIONS 24 22 25 23
Loss from affiliated
operations (1) (1) - -
OPERATING INCOME 23 21 25 23
NONOPERATING EXPENSE (1) (2) (1) (2)
NET INCOME 22% 19% 24% 21%
The Company's cruise and tour operations experience varying degrees of
seasonality. The Company's revenue from the sale of passenger tickets for
its cruise operations is moderately seasonal. Historically, demand for
cruises has been greatest during the summer months. The Company's tour
revenues are extremely seasonal with the majority of tour revenues
generated during the late spring and summer months in conjunction with the
Alaska cruise season.
In June 1997, the Company and Airtours plc ("Airtours"), a publicly
traded (London Stock Exchange) travel company in which the Company holds an
approximate 28% interest, each acquired a 50% interest in Il Ponte S.p.A.
("Costa"), the parent company of Costa Crociere S.p.A., an Italian cruise
company. The Company records its interest in Airtours and Costa using the
equity basis of accounting and records its portion of Airtours' and Costa's
operating results on a two month lag basis. Demand for Costa's and
Airtours' products is seasonal due to the nature of the European leisure
travel industry and Mediterranean cruise season. Typically, Airtours' and
Costa's quarters ending June 30 and September 30 experience higher demand,
with demand in the quarter ending September 30 being the highest. Demand
for Costa's and Airtours' products is lower in their quarters ending
December 31 and March 31.
Average capacity for the Company's cruise brands, excluding the impact
of the acquisition and consolidation of Cunard and Seabourn, is expected to
increase 6.5% and 11.8% in the third and fourth quarters of fiscal 1998,
respectively, as compared to the same periods of fiscal 1997. These
increases are primarily a result of the introduction into service of
Holland America's new Rotterdam in November 1997, Carnival Cruise Lines'
Elation in March 1998 and Windstar Cruises' Wind Surf in May 1998.
Including the impact of Cunard and Seabourn, average capacity is expected
to increase 19.1% and 24.4% in the third and fourth quarter of fiscal 1998,
respectively, as compared to the same periods of fiscal 1997. The
acquisition and consolidation of Cunard and Seabourn is not expected to
materially effect the Company's consolidated earnings in 1998.
The year over year percentage increase in average cruise capacity,
excluding the impact of Cunard and Seabourn, resulting from the delivery of
vessels currently under contract for construction for the fiscal years
ending November 30, 1998, 1999 and 2000 is expected to approximate 5.7%,
13% and 15%, respectively. Including the impact of Cunard and Seabourn,
the year over year increase in average capacity for the fiscal years ending
November 30, 1998, 1999 and 2000 is expected to approximate 12.0%, 18% and
14%, respectively.
Six Months Ended May 31, 1998 Compared
To Six Months Ended May 31, 1997
Revenues
The increase in total revenues of $101.5 million, or 9.1%, was due to
a 9.0% increase in cruise revenues. The increase in cruise revenues of
$97.5 million was primarily the result of an 8.1% increase in total revenue
per passenger cruise day and a 2.4% increase in capacity, offset slightly
by a 1.5% decrease in occupancy rates. Total capacity increased due to the
addition of new vessels discussed above. Total revenue per passenger
cruise day increased primarily due to strong demand for the Company's
cruise brands and the introduction of Holland America Line's new Rotterdam
in November 1997, which has obtained higher pricing.
Costs and Expenses
Operating expenses increased $35.3 million, or 5.6%. Cruise operating
costs increased by $32.2 million, or 5.4%, to $633.8 million in the first
six months of 1998 from $601.6 million in the first six months of 1997,
primarily due to the impact of the increase in capacity, airfare costs and
commission expense. Airfare costs increased due to a higher rate per air
passenger as well as a higher percentage of passengers electing the
Company's air program. The increase in commission expense was associated
with the increase in passenger ticket revenues.
Selling and administrative costs increased $7.6 million, or 4.8%,
primarily due to increases in payroll and related costs.
Depreciation and amortization increased by $6.6 million, or 8.0%, to
$89.3 million in the first six months of 1998 from $82.7 million in the
first six months of 1997 primarily due to the additional depreciation
associated with the increase in capacity.
Affiliated Operations
During the first six months of 1998, the Company recorded $13.0
million of losses from affiliated operations as compared with $11.7 million
of losses in the first six months of 1997. The Company's portion of
Airtours' losses increased $3.0 million to $11.3 million in the first six
months of 1998. The Company recorded income of $2.3 million during the
first six months of 1998 related to its interest in Costa, which the
Company did not own during the first half of 1997.
Nonoperating Income (Expense)
Interest income increased $2.5 million in 1998 primarily due to an
increase in average cash balances and notes receivable. Gross interest
expense (excluding capitalized interest) increased $1.8 million in 1998
primarily as a result of higher average debt balances. Capitalized
interest increased $8.6 million due to higher levels of investments in ship
construction projects during the first six months of fiscal 1998 as
compared with the first six months of fiscal 1997.
Three Months Ended May 31, 1998 Compared
To Three Months Ended May 31, 1997
Revenues
The increase in total revenues of $64.7 million, or 10.9%, was due to
a 10.6% increase in cruise revenues. The increase in cruise revenues of
$60.5 million was primarily the result of a 9.1% increase in total revenue
per passenger cruise day and a 3.9% increase in capacity, partially offset
by a 2.4% decrease in occupancy rates. Total capacity and revenue per
passenger cruise day increased primarily due to the same reasons discussed
above in the six month explanations.
Costs and Expenses
Operating expenses increased $24.7 million, or 7.3%. Cruise operating
costs increased by $21.2 million, or 6.7%, to $335.1 million in the second
quarter of 1998 from $313.9 million in the second quarter of 1997,
primarily due to the impact of the increase in capacity, airfare costs and
commission expense. Airfare costs increased due to a higher rate per air
passenger as well as a higher percentage of passengers electing the
Company's air program. The increase in commission expense was associated
with the increase in passenger ticket revenues.
Selling and administrative costs increased $8.2 million, or 10.7%,
primarily due to an increase in advertising expense and payroll and related
costs.
Depreciation and amortization increased by $4.3 million, or 10.2%, to
$46.3 million in the second quarter of 1998 from $42.0 million in the
second quarter of 1997 primarily due to the additional depreciation
associated with the increase in capacity.
Affiliated Operations
During the second quarter of 1998, the Company recorded $2.4 million
of losses from affiliated operations as compared with $2.7 million of
losses in the second quarter of 1997. The Company's portion of Airtours'
losses increased $.9 million to $3.2 million in the second quarter of 1998.
The Company also recorded income of $3.3 million during the second quarter
of 1998 related to its interest in Costa.
Nonoperating Income (Expense)
Interest income increased $.6 million in 1998 primarily due to an
increase in average cash balances. Gross interest expense (excluding
capitalized interest) increased $3.4 million in 1998 primarily as a result
of higher average debt balances. Capitalized interest increased $5.7
million due to higher levels of investments in ship construction projects
during the second quarter of fiscal 1998 as compared with the second
quarter of fiscal 1997.
Other income in the second quarter of fiscal 1998 of $2.6 million
primarily relates to the settlement of certain notes receivable and an
estimated insurance recovery.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
The Company's business provided $592.9 million of net cash from
operations during the six months ended May 31, 1998, an increase of 35.7%
compared to the corresponding period in 1997.
During the six months ended May 31, 1998, the Company made net
expenditures of approximately $702 million on capital projects, of which
$658 million was spent in connection with its ongoing shipbuilding program.
The expenditures included the final payment on Carnival Cruise Lines'
Elation, which was delivered to the Company in late February, and the
payment of approximately $230 million for the HAL Newbuild scheduled to
enter service in September 2000. In addition, $48 million was paid for the
acquisition of the Wind Surf for Windstar Cruises. The nonshipbuilding
capital expenditures consisted primarily of improvements to a private
island in the Caribbean (HAL began to use the island during the first
quarter of 1998 as a destination for certain of its itineraries),
transportation equipment, vessel refurbishments, tour assets and other
equipment.
The Company paid $255 million related to the acquisition of Cunard
which was funded from working capital and borrowings under the Company's
commercial paper programs. This transaction, including the merger with
Seabourn, also resulted in an additional increase in the Company's
consolidated long term debt of approximately $158 million consisting of $48
million assumed by the Company in connection with the acquisition of Cunard
and $110 million attributable to the consolidation of Seabourn. See Note 7
in the accompanying financial statements.
The Company made scheduled principal payments totaling approximately
$28 million under various individual vessel mortgage loans during the six
months ended May 31, 1998. During this same period, the Company made net
borrowings of $18 million under its commercial paper programs. In March
1998 the Company paid at maturity $200 million due on the Unsecured 5.75%
Notes Due March 15, 1998.
In January 1998 the Company completed an offering of $200 million of
6.65% Debentures Due January 15, 2028. In addition, in April 1998 the
Company completed an offering of $200 million of 5.65% Notes Due October
15, 2000 and $200 million of 6.15% Notes Due April 15, 2008. The proceeds
of these offerings were used to repay $200 million Unsecured 5.75% Notes
Due March 15, 1998 and fund a portion of the capital projects discussed
above.
Future Commitments
The Company has contracts for the delivery of seven new vessels over
the next three years. The Company will pay approximately $347 million
during the twelve months ending May 31, 1999 relating to the construction
and delivery of those new cruise ships and approximately $1.6 billion
beyond May 31, 1999.
In addition to the ship contracts discussed above, the Company has
options to construct two additional vessels for Carnival Cruise Lines for
delivery in 2001 and 2002. The Company is also in negotiations with
several shipbuilding yards for a new class of vessel for Holland America
Line and is in the initial planning phase related to the construction of a
new ship for Cunard. No assurance can be given that the two options for
Carnival Cruise Lines will be exercised, the negotiations for the Holland
America Line vessel will be successful or that the new Cunard shipbuilding
project will be continued.
At May 31, 1998, the Company had $1.6 billion of long-term debt of
which $58 million is due during the twelve months ending May 31, 1999. See
Note 3 in the accompanying financial statements for more information
regarding the Company's debt.
Management has undertaken a company wide program to prepare the
Company's computer systems and other applications for the year 2000.
Possible year 2000 problems create risk for a company in that unforseen
problems in its own computer systems or those of its third party suppliers
could have a material impact on a company's ability to conduct its business
operations. The purpose of the Company's program is to identify
significant year 2000 exposures and to update its computer systems and
business operations to deal with those exposures. The Company expects to
incur internal staff costs as well as consulting fees and other expenses to
prepare the systems for the year 2000, which are not expected to be
material to the Company's operating results. However, if the Company, its
customers or vendors are unable to resolve these issues in a timely manner,
it could result in a material financial risk.
Funding Sources
Cash from operations is expected to be the Company's principal source
of capital to fund its debt service requirements and ship construction
costs. In addition, the Company may also fund a portion of these cash
requirements from borrowings under its revolving credit facilities or
commercial paper programs and/or through the issuance of long-term debt in
the public or private markets. As of May 31, 1998, the Company had $923
million available for borrowing under its revolving credit facilities.
To the extent that the Company should require or choose to fund future
capital commitments from sources other than operating cash or from
borrowings under its revolving credit facilities and/or commercial paper
programs, the Company believes that it will be able to secure such
financing from banks or through the offering of short-term debt and/or
equity securities in the public or private markets. Also, the Company has
filed Registration Statements on Form S-3 (the "Shelf Registration")
relating to shelf offerings of debt or equity securities. As of May 31,
1998, the remaining aggregate principal amount of debt or equity securities
available under the Shelf Registration is $400 million.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Several actions collectively referred to as the "Passenger Complaints"
were previously reported in the Company's Annual Report on Form 10-K for
the year ended November 30, 1997 (the "1997 Form 10-K") and Quarterly
Report on Form 10-Q for the quarter ended February 28, 1998 (the "First
Quarter Form 10-Q). The following are the material subsequent developments
in such cases.
In the action filed against the Company in Ohio by Cathy J. Miller,
the Company has filed a motion to dismiss on the grounds of inconvenient
forum and the plaintiffs' response is due July 27, 1998. In the action
filed against the Company in Illinois by John R. Birdsell, the Company has
specially appeared solely to register its objection to the court's exercise
of personal jurisdiction over the Company.
In the action filed against Holland America Westours in Washington by
Francine Pickett, the settlement agreement has received preliminary court
approval. Notice of the settlement is being sent to all potential voucher
recipients. The court will hold another hearing in September 1998, to
decide whether to grant final approval. The Company does not believe the
settlement will have a material adverse impact on the Company's financial
condition or results of operations.
Several actions referred to as the "Travel Agent Complaints" were
previously reported in the 1997 Form 10-K and in the First Quarter Form 10-Q,
and the following are the material subsequent developments in such
cases.
In April 1998, the court dismissed without prejudice the action filed
against the Company in Florida by N.G.L. Travel Associates, and in May 1998
plaintiff filed an amended complaint. The Company's motion to dismiss the
action is now under judicial consideration. On September 12, 1997, a
complaint was filed against Holland America Westours in the Superior Court
of the State of Washington for King County by N.G.L. Travel Associates on
behalf of a purported nationwide class of travel agencies who booked
cruises with Holland America Westours. The action alleges claims of breach
of implied contract, negligent misrepresentation, unjust enrichment,
violation of the Washington Consumer Protection Act and common law fraud,
and seeks unspecified compensatory, punitive and exemplary damages,
attorneys' and expert fees and injunctive relief. The action is still in
the discovery stage. No class has been certified by the court.
The pending Passenger and Travel Agent Complaints are in preliminary
stages and it is not possible to determine the ultimate outcome of the
lawsuits. Management believes it has meritorious defenses to the claims.
Purported class actions similar to the Passenger and Travel Agent
Complaints have been filed against at least five other cruise lines.
On June 19, 1998, HAL Beheer B.V., a Netherlands affiliate that
employs various crew members on board Holland America Line ships
("Beheer"), entered a plea of guilty in the U.S. District Court for the
District of Alaska to: (1) one felony count pursuant to 33 U.S.C. Section
1908(a) for unlawful discharge of oil or an oily mixture from the former Holland
America Line vessel ss Rotterdam; and (2) one felony count pursuant to 33
U.S.C. Section 1908(a) for unlawful failure to properly complete the Oil Record
Book on board the ss Rotterdam. These pleas were entered pursuant to a
Plea Agreement between Beheer and the U.S. Department of Justice.
Under the Plea Agreement, Beheer has agreed to pay a $1,000,000 fine,
pay $1,000,000 to the National Parks Foundation and be placed on probation
for five years. During the probationary period, Beheer is obligated to
take certain measures regarding the handling of bilge waste. The Court is
expected to decide in October 1998 whether or not to accept the
arrangements agreed to in the Plea Agreement. The Plea Agreement followed
an investigation by the U.S. Attorney for the District of Alaska into the
bilge waste handling practices on board the ss Rotterdam during the summer
and early fall of 1994.
Beheer has also entered into a Compliance Agreement with the U.S.
Environmental Protection Agency (EPA), acting on behalf of itself and the
U.S. Department of Interior. Under the Compliance Agreement: (1) Beheer
has agreed to submit to EPA audits and take other measures to ensure
compliance with the environmental laws; and (2) the EPA has agreed not to
seek debarment against Beheer or its affiliates on the basis of the matters
that were the subject of the Alaska investigation. The compliance
Agreement will be in effect for five years.
For a description of other pending litigation, see the 1997 Form 10-K
and the First Quarter Form 10-Q.
In the normal course of business, various other claims and lawsuits
have been filed or are pending against the Company. The majority of these
claims and lawsuits are covered by insurance. Management believes the
outcome of any such suits that are not covered by insurance would not have
a material adverse effect on the Company's financial condition or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April
13, 1998 (the "Annual Meeting"). None of the share information contained
in this item has been adjusted for the stock split that was effective June
12, 1998. Holders of Common Stock were entitled to elect fifteen
directors. On all matters which came before the Annual Meeting, holders of
Common Stock were entitled to one vote for each share held. Proxies for
262,701,376 of the 297,360,204 shares of Common Stock entitled to vote were
received in connection with the Annual Meeting.
The following table sets forth the names of the fifteen persons
elected at the Annual Meeting to serve as directors until the next annual
meeting of shareholders of the Company and the number of votes cast for,
against or withheld with respect to each person.
NAME OF DIRECTOR FOR AGAINST WITHHELD
Micky Arison 261,853,561 -0- 847,815
Shari Arison 244,798,656 -0- 17,902,720
Maks L. Birnbach 262,266,468 -0- 434,908
Richard G. Capen, Jr. 262,333,518 -0- 367,858
David Crossland 262,083,416 -0- 617,960
Robert H. Dickinson 262,084,367 -0- 617,009
James M. Dubin 262,164,103 -0- 537,273
Howard S. Frank 262,090,288 -0- 611,088
A. Kirk Lanterman 262,097,134 -0- 604,242
Modesto A. Maidique 243,438,415 -0- 19,262,961
William S. Ruben 262,100,142 -0- 601,234
Stuart S. Subotnick 262,223,628 -0- 477,748
Sherwood M. Weiser 262,074,023 -0- 627,353
Meshulam Zonis 262,082,392 -0- 618,984
Uzi Zucker 260,167,654 -0- 2,533,722
/TABLE
The following table sets forth certain additional matters which were
submitted to the shareholders for approval at the Annual Meeting and the
tabulation of the votes with respect to each such matter.
BROKER
MATTER FOR AGAINST WITHHELD NONVOTES
Approval of Amendments
to the Company's Amended
and Restated Articles of
Incorporation:
a) To eliminate the
Class B Common Stock
and designate a single
class of Common Stock 261,874,159 691,974 135,243 -0-
b) To increase the number
of authorized shares of
Common Stock 247,948,213 14,527,031 226,132 -0-
c) To authorize preferred
stock and grant to the
Board of Directors
authority to designate
the terms of each series
of preferred stock 198,326,475 53,684,242 527,197 10,163,452
d) To make certain procedural
changes recently permitted
under Panamanian law 242,687,168 9,469,083 381,663 10,163,452
Approval of Price Waterhouse
as independent auditors for the
Company for the fiscal year
ending November 30, 1998 262,545,989 81,396 73,991 -0-
ITEM 5: Other Information
(a) Forward-Looking Statements
Certain statements in this Form 10-Q and in the future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, and in oral statements made by or with the approval of an
authorized executive officer constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may cause the actual results, performance or
achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: general economic and business conditions which may impact levels
of disposable income of consumers and pricing and passenger yields for the
Company's cruise products; consumer demand for cruises; pricing policies
followed by competitors of the Company; increases in cruise industry
capacity; changes in tax laws and regulations (see Part II, Item 5 (d) -
Taxation of the Company in the Company's filing of Form 10-K for the period
ended November 30, 1997); the ability of the Company to implement its
shipbuilding program and to expand its business outside the North American
market where it has less experience; delivery of new vessels on schedule
and at the contracted price; weather patterns; unscheduled ship repairs and
drydocking; incidents involving cruise vessels at sea; and changes in laws
and government regulations applicable to the Company.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
Current report on Form 8-K (File No. 1-9610) filed with the
Commission on May 13, 1998 related to the issuance of $200 million of
Unsecured 5.65% Notes Due October 15, 2000 and $200 million of Unsecured
6.15% Notes Due April 15, 2008.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CARNIVAL CORPORATION
Date: July 15, 1998 BY/s/ Howard S. Frank
Howard S. Frank
Vice Chairman and Chief
Operating Officer
Date: July 15, 1998 BY/s/ Gerald R. Cahill
Gerald R. Cahill
Senior Vice President Finance
and Chief Financial and
Accounting Officer
INDEX TO EXHIBITS
Page No. in
Sequential
Numbering
System
Exhibits
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
/TABLE
EXHIBIT 12
CARNIVAL CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
Six Months Ended May 31,
1998 1997
Net income $270,510 $212,807
Income tax benefit (6,861) (6,353)
Income before income tax benefit 263,649 206,454
Adjustment to earnings:
Loss from affiliated operations
and dividends received 23,621 17,334
Earnings as adjusted 287,270 223,788
Fixed Charges:
Interest expense, net 24,735 31,536
Interest portion of rental expense (1) 704 669
Capitalized interest 15,979 7,415
Total fixed charges 41,418 39,620
Fixed charges not affecting earnings:
Capitalized interest (15,979) (7,415)
Earnings before fixed charges $312,709 $255,993
Ratio of earnings to fixed charges 7.6 x 6.5 x
________________________
(1) Represents one-third of rental expense, which management believes
to be representative of the interest portion of rental expense.
5
1,000
6-MOS
NOV-30-1998
MAY-31-1998
120,600
9,414
66,503
0
76,226
375,497
6,429,921
960,107
6,711,836
1,215,911
1,557,016
5,949
0
0
3,785,974
6,711,836
0
1,219,196
0
669,951
0
0
40,714
263,649
(6,861)
270,510
0
0
0
270,510
.45
.45
