View:
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 February 28, 2001
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 issuer's classes
of common stock as of the latest practicable date.
Common Stock, $.01 par value - 584,729,270 shares as of April 11, 2001
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CARNIVAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par value)
February 28, November 30,
2001 2000
ASSETS
Current Assets
Cash and cash equivalents $ 133,111 $ 189,282
Accounts receivable, net 109,030 95,361
Consumable inventories 101,316 100,451
Prepaid expenses and other 173,102 164,388
Fair value of hedged firm commitments 68,614
Total current assets 585,173 549,482
Property and Equipment, Net 8,076,334 8,001,318
Investments in and Advances to Affiliates 423,590 437,391
Goodwill, less Accumulated Amortization of
$104,863 and $99,670 706,700 701,385
Other Assets 132,224 141,744
Fair Value of Hedged Firm Commitments 361,290
$10,285,311 $9,831,320
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 505,891 $ 248,219
Accounts payable 302,802 332,694
Accrued liabilities 267,052 302,585
Customer deposits 770,605 770,425
Dividends payable 61,395 61,371
Fair value of derivative contracts 67,415
Total current liabilities 1,975,160 1,715,294
Long-Term Debt 1,854,719 2,099,077
Deferred Income and Other Long-Term Liabilities 149,582 146,332
Fair Value of Derivative Contracts 363,288
Commitments and Contingencies (Note 5)
Shareholders' Equity
Common Stock; $.01 par value; 960,000 shares
authorized; 617,803 and 617,568 shares
issued 6,178 6,176
Additional paid-in capital 1,778,260 1,772,897
Retained earnings 4,950,578 4,884,023
Unearned stock compensation (14,532) (12,283)
Accumulated other comprehensive loss (72,785) (75,059)
Treasury Stock; 33,087 shares at cost (705,137) (705,137)
Total shareholders' equity 5,942,562 5,870,617
$10,285,311 $9,831,320
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended February 28/29,
2001 2000
Revenues $1,007,606 $824,878
Costs and Expenses
Operating expenses 600,120 465,440
Selling and administrative 155,891 120,879
Depreciation and amortization 91,591 67,604
847,602 653,923
Operating Income Before
Loss From Affiliated Operations 160,004 170,955
Loss From Affiliated
Operations, Net (21,063) (11,437)
Operating Income 138,941 159,518
Nonoperating (Expense) Income
Interest income 3,778 6,939
Interest expense, net of
capitalized interest (31,872) (8,589)
Other income, net 11,946 8,897
Income tax benefit 5,157 4,752
(10,991) 11,999
Net Income $ 127,950 $171,517
Earnings Per Share:
Basic $.22 $.28
Diluted $.22 $.28
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Three Months Ended February 28/29,
2001 2000
OPERATING ACTIVITIES
Net income $127,950 $171,517
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 91,591 67,604
Dividends received and loss
from affiliated operations, net 33,949 24,547
Other 532 2,640
Changes in operating assets and liabilities:
Increase in:
Receivables (13,938) (20,033)
Consumable inventories (866) (2,741)
Prepaid expenses and other (7,337) (24,663)
Increase (decrease) in:
Accounts payable (29,894) 1,642
Accrued liabilities (35,054) (40,090)
Customer deposits 181 (15,163)
Net cash provided from operating
activities 167,114 165,260
INVESTING ACTIVITIES
Additions to property and equipment (120,829) (93,046)
Decrease in short-term investments 27 16,463
Other, net (6,222) 2,761
Net cash used for investing activities (127,024) (73,822)
FINANCING ACTIVITIES
Proceeds from long-term debt 666,081 7,364
Principal payments of long-term debt (702,843) (7,715)
Dividends paid (61,371) (64,774)
Proceeds from issuance of Common Stock, net 2,086 4,680
Net cash used for financing
activities (96,047) (60,445)
Effect of exchange rate on cash and
cash equivalents (214)
Net (decrease) increase in cash and
cash equivalents (56,171) 30,993
Cash and cash equivalents at beginning
of period 189,282 521,771
Cash and cash equivalents at end of period $133,111 $552,764
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
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 February 28, 2001 and the
consolidated statements of operations for the three months ended February
28/29, 2001 and 2000 and the consolidated statements of cash flows for the
three months ended February 28/29, 2001 and 2000 are unaudited and, in the
opinion of management, contain all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation. During fiscal 2000,
the Company accounted for its 50% interest in Costa's operating results using
the equity method and recorded its portion of Costa's operating results as
earnings from affiliated operations. Since the Company acquired the
remaining 50% interest in Costa in late 2000, commencing in fiscal 2001,
Costa's results of operations were consolidated in the same manner as the
Company's other subsidiaries. The operations of Carnival Corporation and its
consolidated subsidiaries (referred to collectively as the "Company") and its
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 consisted of the following (in thousands):
February 28, November 30,
2001 2000
Ships $8,634,977 $8,575,563
Ships under construction 409,917 320,480
9,044,894 8,896,043
Land, buildings and improvements 281,310 279,095
Transportation equipment and other 313,945 310,525
Total property and equipment 9,640,149 9,485,663
Less accumulated depreciation and
amortization (1,563,815) (1,484,345)
$8,076,334 $8,001,318
Capitalized interest, primarily on ships under construction, amounted to
$6.6 million and $10.0 million for the three months ended February 28/29,
2001 and 2000, respectively.
NOTE 3 - LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
February 28, November 30,
2001 2000
Unsecured Debentures and Notes, bearing
interest at rates ranging from 6.15% to
7.7%, due through 2028 $ 848,687 $ 848,657
Unsecured euro notes, bearing interest at
rates ranging from euribor plus 0.17% to
euribor plus 1.0% (4.9% to 5.8% at
February 28, 2001), due 2001, 2005
and 2006 (a)(b)(c) 856,163 475,400
Commercial paper, bearing interest at 5.4%
at February 28, 2001, due in 2001 324,612 342,846
Unsecured euro note, bearing interest at
euribor plus 0.25% (a)(b) 338,676
$200 million multi-currency revolving credit
facility drawn in euros, bearing interest
at 5.0% at February 28, 2001 (a)(c) 161,283 160,862
Euro note, secured by one ship, bearing
interest at euribor plus 0.5% (5.3% at
February 28, 2001), due through 2008 (a) 137,971 141,628
Other 31,894 39,227
2,360,610 2,347,296
Less portion due within one year (505,891) (248,219)
$1,854,719 $2,099,077
(a) Euro denominated notes have been translated to U.S. dollars at the period
end exchange rate.
(b) On December 13, 2000, the Company repaid the $338.7 million unsecured
euro note from the proceeds of a five-year unsecured euro note of
approximately $250 million and another unsecured euro note.
(c) On March 22, 2001, the Company repaid the outstanding amount drawn under
its $200 million credit facility and an unsecured euro note of
approximately $105 million from the proceeds received from $266 million
of unsecured euro notes, bearing interest at an effective rate of 5.57%,
due in 2006. Since the debt outstanding at February 28, 2001 was repaid
with long-term debt the outstanding balances have been classified as
long-term in the February 28, 2001 balance sheet.
The Company has a commitment from a European financial institution to
provide Costa with a five-year, $225 million unsecured euro denominated
revolving credit facility, bearing interest at euribor plus 0.525%. The
Company intends to refinance a $70 million unsecured euro note, due in 2001,
with the proceeds from this facility and, accordingly, has classified this
$70 million of outstanding debt as long-term in the February 28, 2001 balance
sheet.
NOTE 4 - SHAREHOLDERS' EQUITY
The Company's Articles of Incorporation authorizes the Board of
Directors, at its discretion, to issue up to 40 million shares of Preferred
Stock. The Preferred Stock is issuable in series which may vary as to certain
rights and preferences at the discretion of the Board of Directors and has a
$.01 par value. At February 28, 2001 and November 30, 2000, no Preferred
Stock had been issued.
During the three months ended February 28/29, 2001 and 2000, the Company
declared cash dividends of $.105 per share each period, or an aggregate of
$61.4 million and $64.8 million, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Ship Commitments
A description of ships under contract for construction at February 28,
2001 was as follows (dollars in millions):
Expected Estimated
Service Passenger Total
Ship Date(1) Shipyard Capacity(2) Cost(3)
Carnival Cruise Lines
Carnival Spirit 4/01 Masa-Yards 2,124 $ 375
Carnival Pride 1/02 Masa-Yards (4) 2,124 375
Carnival Legend 9/02 Masa-Yards (4) 2,124 375
Carnival Conquest 12/02 Fincantieri 2,974 500
Carnival Glory 8/03 Fincantieri 2,974 500
Carnival Miracle 4/04 Masa-Yards (4) 2,124 375
Carnival Valor 11/04 Fincantieri(4) 2,974 500
Total Carnival Cruise Lines 17,418 3,000
Holland America Line
Zuiderdam 11/02 Fincantieri(4) 1,848 410
Oosterdam 8/03 Fincantieri(4) 1,848 410
Newbuild 2/04 Fincantieri(4) 1,848 410
Newbuild 10/04 Fincantieri(4) 1,848 410
Newbuild 6/05 Fincantieri(4) 1,848 410
Total Holland America Line 9,240 2,050
Costa Cruises
Newbuild 7/03 Masa-Yards (5) 2,112 340
Newbuild 1/04 Fincantieri(6) 2,740 395
Newbuild 12/04 Fincantieri(6) 2,740 395
Total Costa Cruises 7,592 1,130
Cunard
Queen Mary 2 12/03 Chantiers de
l'Atlantique(4) 2,620 780
Total Cunard 2,620 780
Total 36,870 $6,960
(1) The expected service date is the date the ship is expected to begin
revenue generating activities.
(2) In accordance with cruise industry practice, passenger capacity is
calculated based on two passengers per cabin even though some cabins can
accommodate three or four passengers.
(3) Estimated total cost of the completed ship includes the contract price
with the shipyard, design and engineering fees, capitalized interest, various
owner supplied items and construction oversight costs.
(4) These construction contracts are denominated in German marks, Italian
lira or euros and have been fixed into U.S. dollars through the utilization
of forward foreign currency contracts.
(5) This construction contract is denominated in German marks which has a
fixed exchange rate with Costa's functional currency, which is the Italian
lira. The unpaid portion of the estimated total cost has been translated
into U.S. dollars using the February 28, 2001 exchange rate.
(6) These construction contracts are denominated in Italian lira, and the
unpaid portion of the estimated total costs have been translated into U.S.
dollars using the February 28, 2001 exchange rate.
In connection with the ships under contract for construction, the
Company has paid approximately $410 million through February 28, 2001 and
anticipates paying approximately $1 billion during the twelve month period
ending February 28, 2002 and approximately $5.6 billion thereafter.
Litigation
Several actions (collectively the "Passenger Complaints") have been
filed against the Company on behalf of purported classes of persons who paid
port charges to Carnival Cruise Lines ("Carnival"), Holland America Line
("Holland America") and Costa Cruises ("Costa"), 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.
Certain of the Passenger Complaints filed against Carnival have been
dismissed. The remaining actions have been consolidated into one action in
Florida. Carnival recently entered into an agreement to settle this
remaining action. The settlement has been preliminarily approved by the
trial court. Under the settlement agreement, Carnival would issue travel
vouchers with a face value of $25-$55 depending on specified criteria, to
certain of its passengers who sailed between April 1992 and June 1997. The
vouchers also provide class members with a cash redemption option of up to
20% of the face value. The aggregate face value of travel vouchers that
Carnival may issue if this settlement is approved, assuming no cash
redemptions, is approximately $125 million. Alternatively, if all passengers
elected the cash redemption feature, the vouchers could be redeemed for
approximately $25 million in cash. Pursuant to the settlement, Carnival will
pay the plaintiffs' legal fees, as awarded by the court, up to a specified
amount. The notices to class members were mailed and class members had until
April 10, 2001 to elect out of the class. A final settlement hearing is
currently scheduled for May 2001 where it is anticipated that the court will
issue final approval of this settlement. Thereafter, assuming the settlement
is approved, the vouchers will be mailed. At February 28, 2001 and November
30, 2000, an estimated accrued liability of approximately $23 million has
been included in the accompanying balance sheets for the estimated cash
redemptions and settlement costs of this port charge litigation.
Holland America Tours has entered into a settlement agreement for the
one Passenger Complaint filed against it. The settlement agreement was
approved by the trial court on September 28, 1998. Under the settlement
agreement, Holland America would issue a total of approximately $14 million
in 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 would pay a portion of the plaintiffs'
legal fees.
One member of the Holland America Tours settlement class appealed the
trial court's approval of the settlement. In August 2000, the court of
appeals refused to approve the settlement and remanded the case to the trial
court. At the request of Holland America Tours the Washington Supreme Court
has agreed to review the court of appeals ruling. A decision by the
Washington Supreme Court is expected by the end of 2001.
If the Passenger Complaint settlements are implemented as described
above, the amount and timing of the travel vouchers to be redeemed for travel
and the effects of the travel voucher redemption on revenues are not
reasonably determinable. Accordingly, the Company will account for the non-
cash redemption of the vouchers as a reduction of future revenues.
Several actions have been filed against Carnival, Holland America Tours,
Cunard Line ("Cunard") and Costa alleging that they violated the Americans
with Disabilities Act ("ADA") by failing to make certain of their cruise
ships accessible to individuals with disabilities (collectively the "ADA
Complaints"). Plaintiffs seek injunctive relief and fees and costs. Certain
of the plaintiffs also seek statutory damages, including punitive damages. On
January 19, 2001, Carnival reached an agreement in principle with the
plaintiffs to settle its major ADA Complaint. Pursuant to the agreement,
Carnival will make certain modifications to its existing 15 ships.
Management believes that the estimated total cost of the modifications will
not have a material effect on the Company's financial statements. Given the
settlement reached in the Carnival case, the plaintiff has agreed to dismiss
without prejudice the ADA Complaint against Cunard. The remaining actions
are proceeding.
Several actions filed against the Company and four of its officers on
behalf of a purported class of purchasers of Common Stock of the Company were
consolidated into one action in Florida (the "Stock Purchase Complaint").
The plaintiffs are claiming that statements made by the Company in public
filings violate federal securities laws and seek unspecified compensatory
damages, attorneys' fees and costs and expert fees. This action is
proceeding.
It is not now possible to determine the ultimate outcome of the pending
Passenger, ADA and Stock Purchase Complaints, if such claims should proceed
to trial. Management believes that the Company and these officers, as
applicable, have meritorious defenses to these claims and, accordingly, the
parties intend to vigorously defend against all such claims.
In August 2000, the Company received a grand jury subpoena requesting
that the Company produce documents and records concerning environmental
matters. The Company has produced documents in response to the subpoena and
is engaged in discussions with the Office of the United States Attorney for
the Southern District of Florida. No charges have been lodged against the
Company. In the event that the investigation results in adverse findings
with regard to the Company's compliance with U.S. laws pertaining to the
environment, a judgment could include fines and mandatory provisions relating
to future compliance practices, among other forms of relief. The ultimate
outcome of this matter cannot be determined at this time.
In February 2001, Holland America Line, Inc. ("HAL, Inc."), a wholly
owned subsidiary, received a grand jury subpoena requesting that HAL, Inc.
produce documents and records relating to the air emissions from Holland
America's ships in Alaska. HAL, Inc. intends to respond to the subpoena.
Costa has instituted arbitration proceedings in Italy to confirm the
validity of its decision not to deliver its ship, the Costa Classica, to the
shipyard of Cammell Laird Holdings PLC ("Cammell Laird") under an
approximate $75 million contract for the conversion and lengthening of the
ship. Costa has also given notice of termination of the contract. It is
expected that the arbitration tribunal's decision will be made by early 2003.
In the event that an award is given in favor of Cammell Laird the amount of
damages which Costa will have to pay, if any, is not currently determinable.
In addition, it is not currently possible to determine the ultimate outcome
of this matter, however, management believes that the arbitration proceeding
will result in a favorable outcome for the Company.
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 statements.
Contingent Obligations
The Company has certain contingent obligations, including letters of
credit, to participants in lease out and lease back type transactions for
three ships which, at February 28, 2001, totaled approximately $770 million.
Only in the remote event of nonperformance by certain major financial
institutions, all of which have long-term credit ratings of AAA or AA, would
the Company be required to make any payments under these contingent
obligations. Between 2017 and 2022, as applicable, the Company has the right
to exercise purchase options that would terminate these transactions.
Other Contingency
In February, 2001, a three judge panel of the Ninth U.S. Circuit Court
of Appeals overturned a decision of the U.S. District Court for the District
of Alaska and ordered the District Court to enjoin a 1996 decision by the
National Park Service ("NPS") that had authorized additional cruise ship
entry permits for Glacier Bay National Park. The Court of Appeals held that
the NPS should have prepared an environmental impact statement prior to
increasing the number of permits. As a consequence of the 1996 NPS decision,
Holland America had been able to obtain additional entry permits for the
2000-2004 period. Other cruise lines had also received additional entry
permits. At this time it is not clear whether the court injunction will
affect the 2001 Alaska cruise season since the District Court was given
discretion as to whether or not to defer issuing the injunction until after
the 2001 season. In addition, the decision can still be appealed by the NPS
to the full Ninth Circuit Court of Appeals and/or the U.S. Supreme Court.
Holland America will also be clarifying with the NPS as to exactly how many
permits may be impacted. However, most Holland America permits will not be
withdrawn as a result of this decision since they were in effect prior to the
1996 decision. In addition, alternative destinations in Alaska can be
substituted for Glacier Bay. Accordingly, management believes that if any
permits are withdrawn, the impact on the Company's financial statements will
not be material.
NOTE 6 - COMPREHENSIVE INCOME
Comprehensive income for the three months ended February 28/29, 2001 and
2000 was as follows (in thousands):
2001 2000
Net income $127,950 $171,517
Changes in securities valuation
allowance 1,176 (784)
Foreign currency translation
adjustment 1,897 (18,689)
Changes related to cash flow
derivative hedges (799)
Total comprehensive income $130,224 $152,044
NOTE 7 - SEGMENT INFORMATION
The Company's cruise segment includes six and five cruise brands in
fiscal 2001 and fiscal 2000, respectively, which have been aggregated as a
single operating segment based on the similarity of their economic and other
characteristics. Cruise revenues are comprised of sales of passenger cruise
tickets, including, in some cases, air transportation to and from the cruise
ships, and revenues from certain onboard activities and other related
services. The tour segment represents the operations of Holland America
Tours.
Selected segment information for the three months ended February 28/29,
2001 and 2000 was as follows (in thousands):
2001 2000
Operating Operating
income income
Revenues (loss) Revenues (loss)
Cruise $1,000,391 $174,835 $817,851 $184,134
Tour 7,688 (10,479) 7,435 (11,552)
Affiliated operations (21,063) (11,437)
Intersegment elimination (473) (408)
Corporate (4,352) (1,627)
$1,007,606 $138,941 $824,878 $159,518
Selected segment information which is not included in the Company's
consolidated operations for the Company's affiliated operations segment for
the three months ended February 28/29, 2001 and 2000 was as follows (in
thousands):
2001 2000
Revenues $1,500,754 $1,170,554
Net loss $ (76,837) $ (44,024)
The table above represents 100% of the affiliated companies' results of
operations, and includes Costa in 2000 but not in 2001.
NOTE 8 - EARNINGS PER SHARE
Earnings per share were computed as follows (in thousands, except per
share data):
Three Months Ended February 28/29,
2001 2000
BASIC:
Net income $127,950 $171,517
Average common shares outstanding 584,608 617,127
Earnings per share $ .22 $ .28
DILUTED:
Net income $127,950 $171,517
Average common shares outstanding 584,608 617,127
Effect of dilutive securities-
shares issuable under various
stock option plans 2,525 3,110
Average shares outstanding
assuming dilution 587,133 620,237
Earnings per share $ .22 $ .28
NOTE 9 - ACCOUNTING CHANGE
Effective December 1, 2000, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which requires that all derivative
instruments be recorded on the balance sheet at their fair value.
Derivatives that are not hedges must be recorded at fair value through
earnings. If a derivative is a fair value hedge, changes in the fair value
of the hedged derivative are offset against the changes in the fair value of
the underlying firm commitments. If a derivative is a cash flow hedge,
changes in the fair value of the derivative are recognized in other
comprehensive (loss) income until the underlying hedged item is recognized in
earnings. The ineffective portion of the derivative's change in fair value
is immediately recognized in earnings. For the quarter ended February 28,
2001, all net changes in fair value of the fair value hedges and the cash
flow hedges were immaterial, as was any ineffective portions of these hedges.
The Company has not made any changes to its hedge related risk
management policies as a result of adopting SFAS No. 133. The fair value of
hedged firm commitments assets represent the unrealized gains on the
Company's hedged shipbuilding commitments. The fair value of derivative
contracts liabilities principally represent the unrealized losses on the
Company's forward foreign currency contracts which are used to fix the cost
of its shipbuilding commitments in U.S. dollars.
NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial
Statements" to provide guidance on the recognition, presentation and
disclosure of revenues in financial statements. In June 2000, the SEC issued
SAB 101B, which delays the Company's implementation date of SAB 101 until not
later than September 1, 2001. The Company has completed its review and
believes that its current revenue recognition policies are in conformity, in
all material respects, with this SAB and does not expect that its adoption
will have a material impact on its financial statements.
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Certain statements under Item 2, "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. See "PART II. OTHER INFORMATION, Item 5.(a)Forward-Looking
Statements".
RESULTS OF OPERATIONS
The Company earns its cruise revenues primarily from (i) the sale of
passenger cruise tickets, which includes accommodations, meals, and most
onboard activities, (ii) the sale of air transportation to and from the
cruise ships and (iii) the sale of goods and services on board its cruise
ships, such as casino gaming, bar sales, gift shop sales and other related
services. The Company also derives revenues from the tour and related
operations of Holland America Tours.
For selected segment information related to the Company's revenues,
operating income and affiliated operations segment see Note 7 in the
accompanying financial statements. Operations data expressed as a percentage
of total revenues and selected statistical information for the periods
indicated was as follows:
Three Months Ended February 28/29,
2001 2000
Revenues 100% 100%
Costs and Expenses
Operating expenses 60 56
Selling and administrative 15 15
Depreciation and amortization 9 8
Operating Income Before Loss
from Affiliated Operations 16 21
Loss from Affiliated
Operations, Net (2) (1)
Operating Income 14 20
Nonoperating (Expense) Income (1) 1
Net Income 13% 21%
Selected Statistical Information (in thousands):
Passengers carried 786 566
Passenger cruise days (1) 5,203 3,839
Occupancy percentage 105.2% 103.4%
(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.
GENERAL
The Company's cruise, tour and affiliated 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 highly seasonal with a vast majority of tour revenues
generated during the late spring and summer months in conjunction with the
Alaska cruise season. Airtours, the Company's 25% owned equity affiliate, has
revenues which are very seasonal due primarily to the nature of the European
leisure travel industry. Typically, Airtours' quarters ending June 30 and
September 30 experience higher revenues, with revenues in the quarter ending
September 30 being the highest.
Through fiscal 2000, the Company recorded its share of Airtours and
Costa's operating results in earnings from affiliated operations on a two-
month lag basis. Beginning in fiscal 2001, all of Costa's results of
operations were consolidated into the Company's financial statements on a
current month basis, thus eliminating the two-month lag in reporting Costa's
results of operations. This change in the timing of reporting periods, as
well as Costa's greater seasonality, will increase the seasonality of the
Company's quarterly results of operations, most significantly between the
Company's third and fourth fiscal quarters. Costa's seasonally strong summer
results of operations will be recorded in the Company's third quarter in
fiscal 2001 versus in the fourth quarter in fiscal 2000.
Average passenger capacity for the Company's cruise brands, excluding
Costa, is expected to increase by approximately 8.3%, 10.2% and 6.7% in the
second, third and fourth quarters of fiscal 2001, respectively, as compared
to the same periods of fiscal 2000. These increases are primarily a result of
the introduction into service of the Carnival Victory in August 2000, Holland
America's Zaandam and Amsterdam in May 2000 and October 2000, respectively,
and the expected introduction into service of the Carnival Spirit in April
2001, partially offset by the withdrawal from service of Holland America's
Nieuw Amsterdam in October 2000. The consolidation of Costa in fiscal 2001 is
expected to increase the Company's consolidated capacity by an additional
20.7%, 22.4% and 20.3% in the second, third and fourth quarters of fiscal
2001, respectively, although the impact on the Company's net income will be
much less, as a majority of Costa's net income was included in affiliated
operations in prior years.
The year over year percentage increase in the Company's average
passenger capacity resulting from the delivery of ships currently under
contract for construction for fiscal 2002 and 2003 is expected to approximate
7.1% and 14.0%, respectively.
After three years of strong growth in net revenue yields, the cruise
industry experienced pressure on cruise ticket prices throughout fiscal 2000.
During the later part of 2000, management of the Company disclosed a
strategy for 2001 of offering lower cruise ticket prices further in advance
of the departure date to stimulate demand and produce higher booking levels
earlier in the booking cycle in order to stabilize cruise ticket prices.
Through April 6, 2001, cumulative booking volumes for the last three quarters
of fiscal 2001 were approximately 17% ahead of where they were at the same
time last year and outpaced the 9% increase in capacity. The average price
for 2001 bookings remains below the average price for 2000 bookings taken at
this time last year. As previously disclosed by management, slower booking
volumes developed during early March 2001, and this has continued. The
Company expected that the pace of bookings for the balance of the year would
fall below prior year levels because there was less inventory remaining for
sale than at the same point last year. It also appears that some of the
slowdown in the pace of bookings may be a result of external factors related
to the current economic environment combined with the continuing downturn in
the U.S. stock market. Based on the information currently available,
management has not revised its earnings forecasts for the remainder of the
year. However, a continuation in the slowdown in booking volumes for a
prolonged period of time would have an adverse affect on the Company's net
revenue yields and earnings for the balance of the year.
THREE MONTHS ENDED FEBRUARY 28, 2001 ("2001") COMPARED
TO THREE MONTHS ENDED FEBRUARY 29, 2000 ("2000")
Revenues
Revenues increased $182.7 million, or 22.2%, in 2001 compared to 2000,
entirely due to a 22.3% increase in cruise revenues. Approximately $126.2
million of the cruise revenue increase was due to the consolidation of Costa
and $56.3 million was due to increased cruise revenues from the Company's
other brands. The other brands cruise revenue change resulted from an
increase of approximately 14% in passenger capacity and a 2.3% increase in
occupancy rates, partially offset by a 9.4% decrease in gross revenue per
passenger cruise day. This increase in passenger capacity resulted
primarily from the introduction into service of the Carnival Victory in
August 2000 and Holland America's Zaandam and Amsterdam in May 2000 and
October 2000, respectively, partially offset by the sale of the Nieuw
Amsterdam in October 2000. This decrease in gross revenue per passenger
cruise day was primarily due to lower cruise ticket prices for this year's
New Year's cruises compared to the higher-priced Millennium/New Year's
sailings last year. In addition, the Company's luxury cruise brands realized
significantly lower pricing during most of the first quarter of 2001 compared
to the same period last year.
Costs and Expenses
Operating expenses increased $134.7 million, or 28.9%, in 2001 compared
to 2000. Cruise operating costs increased by $135.1 million, or 29.6%, to
$591 million in 2001 from $455.9 million in 2000. Approximately $86.8 million
of the cruise operating cost increase was due to the consolidation of Costa
and the remaining $48.3 million of the increase was from the Company's other
brands. Cruise operating costs, excluding Costa, increased in 2001 primarily
due to additional costs associated with the 14% increase in passenger
capacity. Excluding Costa, cruise operating costs as a percentage of cruise
revenues were 57.7% and 55.7% in 2001 and 2000, respectively.
Selling and administrative expenses increased $35 million, or 29%, to
$155.9 million in 2001 from $120.9 million in 2000. Approximately $23.9
million of this increase was due to the consolidation of Costa and the
remaining $11.1 million was from the Company's other brands. Selling and
administrative expenses, excluding Costa, increased primarily as a result of
the 14% increase in passenger capacity. Excluding Costa, selling and
administrative expenses as a percentage of revenues were 15% and 14.7% during
2001 and 2000, respectively.
Depreciation and amortization increased $24 million, or 35.5%, in 2001
compared to 2000. This increase was primarily due to the consolidation of
Costa which accounted for approximately $12.3 million and the majority of the
remaining increase is due to the expansion of the fleet.
Affiliated Operations
During 2001, the Company recorded $21.1 million of losses from
affiliated operations as compared with $11.4 million of losses in 2000. The
Company's portion of Airtours' losses in 2001 was $21.0 million as compared
to $16.4 million of losses in 2000. The Company recorded income of $4.8
million during 2000, related to its interest in Costa. In fiscal 2001, Costa
has been consolidated. In March 2001, management announced that its second
quarter earnings are expected to be reduced by approximately $.01 per share
as a result of Airtours recent announcement that they will be taking a "one-
off" charge related to the closing of 120 travel stores in the United
Kingdom. See the "General" section for a discussion of Airtours' and Costa's
seasonality.
Nonoperating (Expense) Income
Interest income decreased $3.2 million in 2001 to $3.8 million from $6.9
million in 2000 due primarily to lower average investment balances primarily
resulting from the purchase of Treasury Stock during 2000.
Gross interest expense (excluding capitalized interest) increased to
$38.4 million in 2001 from $18.6 million in 2000 primarily as a result of
higher average outstanding debt balances. Approximately $16.3 million of
this increase was due to the acquisition and consolidation of Costa and the
remaining increase was due to the purchase of Treasury Stock during 2000.
Capitalized interest decreased $3.4 million during 2001 as compared to 2000
due primarily to lower average levels of investment in ship construction
projects.
Other income in 2001 of $11.9 million primarily relates to a $13 million
gain arising from a settlement agreement with the manufacturers of certain of
the Company's ship propulsion systems to reimburse the Company for lost
revenues and expenses due to disruption in service during 2000.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
The Company's business provided $167.1 million of net cash from
operations during the three months ended February 28, 2001, an increase of
1.1% compared to 2000.
During the three months ended February 28, 2001, the Company's net
expenditures for capital projects were approximately $120.8 million, of which
$90.9 million was spent in connection with its ongoing shipbuilding program.
The nonshipbuilding capital expenditures consisted primarily of ship
refurbishments, information technology assets, tour assets and other.
During the three months ended February 28, 2001, the Company made net
payments of $18.2 million under its commercial paper programs and made
principal payments related to other debt totaling $398.2 million, including
approximately $355 million for the repayment of a short-term unsecured euro
note incurred for the acquisition of Costa. In addition, the Company
received proceeds of $361.5 million during the first quarter of 2001,
including approximately $250 million under a five-year unsecured euro note
and $105 million under a short-term euro borrowing, used to repay the $355
million short-term acquisition debt noted above. Finally, the Company paid
cash dividends of $61.4 million in the first three months of fiscal 2001.
Future Commitments and Funding Sources
As of February 28, 2001, the Company had noncancelable contracts for the
delivery of sixteen new ships over the next five years. The Company's
remaining obligations related to these ships under contract for construction
is to pay approximately $1 billion during the twelve months ending February
28, 2002 and approximately $5.6 billion thereafter.
At February 28, 2001, the Company had $2.36 billion of long-term debt of
which $505.9 million is due during the twelve months ending February 28,
2002. Approximately $325 million of the amount due in the next twelve months
relate to commercial paper issued by the Company and backed by the Company's
revolving credit facilities, which expire in the first quarter of fiscal
2002. The Company intends to replace these revolving credit facilities with
a new long-term facility this year. Although management believes that it will
obtain a new facility, no assurance can be given that this or any new
facility will be obtained. See Notes 3 and 5 in the accompanying financial
statements for more information regarding the Company's debt and commitments.
The Company expects that future cash from operations will be the
Company's principal funding source for capital projects, debt service
requirements, dividend payments and working capital. In addition, as of
February 28, 2001, the Company had $133.1 million of cash and cash
equivalents and $714 million available for borrowing under its revolving
credit facilities. See Note 3 in the accompanying financial statements for
additional information related to funding sources received by the Company in
the second quarter of fiscal 2001.
To the extent that the Company is required to or chooses to fund future
cash requirements from sources other than as discussed above, management
believes that it will be able to secure such financing from banks or through
the offering of debt and/or equity securities in the public or private
markets. However, no assurance can be given that the Company will be able to
obtain any such financing, if necessary.
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 year
ended November 30, 2000 (the "2000 Form 10-K"). The following are material
subsequent developments in such cases.
On March 3, 2001, the Washington State Supreme Court agreed to hear
Holland America Tours' appeal of its Passenger Complaint.
On March 19, 2001, the Circuit Court for the Eleventh Judicial Circuit
in Miami-Dade County issued an order authorizing the publication of a
supplemental summary notice of the proposed settlement of the Passenger
Complaints against Carnival in a single edition of USA Today.
As previously reported, in August 2000 the Company received a grand
jury subpoena requesting that the Company produce documents and records
concerning environmental matters. Subsequently, the Company has produced
documents in response to the subpoena and is engaged in discussions with the
Office of the United States Attorney for the Southern District of Florida.
No charges have been lodged against the Company. In the event that the
investigation results in adverse findings with regard to the Company's
compliance with U.S. laws pertaining to the environment, a judgment could
include fines and mandatory provisions relating to future compliance
practices, among other forms of relief.
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 and presentations made by or with the
approval of an authorized executive officer of the Company constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company has tried, wherever possible, to
identify such statements by using words such as "anticipate," "assume,"
"believe," "expect," "intend," "plan" and words and terms of similar
substance in connection with any discussion of future operating or financial
performance. All forward-looking statements, including those which may
impact the forecasting of Carnival Corporation's net revenue yields, involve
known and unknown risks, uncertainties and other factors, which may cause the
actual results, performances or achievements of the Company to be materially
different from any future results, performances 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 the net revenue yields
for the Company's cruise products; consumer demand for cruises, including the
effects on consumer demand of armed conflicts, political instability or
adverse media publicity; increases in cruise industry capacity; cruise and
other vacation industry competition; changes in tax laws and regulations; the
ability of the Company to implement its shipbuilding program and to continue
to expand its business outside the North American market; changes in foreign
currency exchange rates, food and fuel commodity prices and interest rates;
weather patterns; unscheduled ship repairs and drydocking; incidents
involving cruise ships; impact of pending or threatened litigation; the
ability of unconsolidated affiliates to successfully implement their business
strategies and changes in laws and regulations applicable to the Company.
The Company does not assume the obligation to update any forward-looking
statements, and unless specifically noted otherwise, all forward-looking
statements speak only as of the date of this report. One should carefully
evaluate such statements in light of factors described in the Company's
filings with the Securities and Exchange Commission, especially on Forms 10-
K, 10-Q and 8-K, if any. In Item 1. Of the Company's Annual Report on Form
10-K for the year ended November 30, 2000 and above, the Company discusses
various important factors, among others, that could cause actual results to
differ from expected or historic results. The Company notes these factors
for investors as permitted by the Private Securities Litigation Reform Act of
1995. One should understand that it is not possible to predict or identify
all such factors. Consequently, the reader should not consider any such list
to be a complete statement of all potential risks or uncertainties.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
12 Ratio of Earnings to Fixed Charges.
(b) Reports on Form 8-K
Current Report on Form 8-K filed with the Commission on December 21,
1999 related to Regulation FD disclosure of supplemental information to the
Company's press release dated December 21, 1999.
Current Report on Form 8-K filed with the Commission on February 26,
2001 related to Regulation FD disclosure of the Company's Unaudited Summary
Consolidated Balance Sheet at November 30, 2000 and its Unaudited Summary
Consolidated Statement of Cash Flows and Unaudited Consolidated Statement of
Shareholders' Equity for the year ended November 30, 2000
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: April 16, 2001 BY/s/ Howard S. Frank
Howard S. Frank
Vice Chairman of the Board of
Directors and Chief
Operating Officer
Date: April 16, 2001 BY/s/ Gerald R. Cahill
Gerald R. Cahill
Senior Vice President-Finance
and Chief Financial and
Accounting Officer
EXHIBIT 12
CARNIVAL CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
Three Months Ended February 28/29,
2001 2000
Net income $127,950 $171,517
Income tax benefit (5,157) (4,752)
Income before income tax expense 122,793 166,765
Adjustment to Earnings:
Loss from affiliate operations
and dividends received 33,949 24,547
Earnings as adjusted 156,742 191,312
Fixed Charges:
Interest expense, net 31,872 8,589
Interest portion of rent expense(1) 879 833
Capitalized interest 6,562 9,998
Total fixed charges 39,313 19,420
Fixed charges not affecting earnings:
Capitalized interest (6,562) (9,998)
Earnings before fixed charges $189,493 $200,734
Ratio of earnings to fixed charges 4.8x 10.3x
(1) Represents one-third of rent expense, which management believes
to be representative of the interest portion of rent expense.