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 August 31, 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 - 586,164,247 shares as of September 26,
200
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CARNIVAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par value)
August 31, November 30,
2001 2000
ASSETS
Current Assets
Cash and cash equivalents $ 1,155,236 $ 189,282
Accounts receivable, net 113,455 95,361
Consumable inventories 96,337 100,451
Prepaid expenses and other 142,220 164,388
Fair value of hedged firm commitments 118,486
Total current assets 1,625,734 549,482
Property and Equipment, Net 8,427,846 8,001,318
Investments in and Advances to Affiliates 437,391
Goodwill, less Accumulated Amortization of
$113,031 and $99,670 662,339 701,385
Other Assets 180,288 141,744
Fair Value of Hedged Firm Commitments 379,599
$11,275,806 $9,831,320
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 181,848 $ 248,219
Accounts payable 299,534 332,694
Accrued liabilities 307,940 302,585
Customer deposits 750,393 770,425
Dividends payable 61,547 61,371
Fair value of derivative contracts 120,007
Total current liabilities 1,721,269 1,715,294
Long-Term Debt 2,478,482 2,099,077
Deferred Income and Other Long-Term Liabilities 145,984 146,332
Fair Value of Derivative Contracts 383,655
Commitments and Contingencies (Note 5)
Shareholders' Equity
Common stock; $.01 par value; 960,000 shares
authorized; 620,006 and 617,568 shares
issued 6,200 6,176
Additional paid-in capital 1,805,050 1,772,897
Retained earnings 5,501,532 4,884,023
Unearned stock compensation (13,590) (12,283)
Accumulated other comprehensive loss (25,139) (75,059)
Treasury stock; 33,848 and 33,087 shares at cost (727,637) (705,137)
Total shareholders' equity 6,546,416 5,870,617
$11,275,806 $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)
Nine Months Three Months
Ended August 31, Ended August 31,
2001 2000 2001 2000
Revenues $3,576,649 $2,928,216 $1,489,918 $1,228,211
Costs and Expenses
Operating expenses 1,920,832 1,577,285 719,378 614,724
Selling and administrative 457,252 361,035 146,797 119,329
Depreciation and amortization 280,958 211,140 97,008 75,248
Impairment loss 101,389 101,389
2,760,431 2,149,460 1,064,572 809,301
Operating Income Before
(Loss) Income From Affiliated
Operations 816,218 778,756 425,346 418,910
(Loss) Income From Affiliated
Operations, Net (44,024) (4,361) 1,548
Operating Income 772,194 774,395 425,346 420,458
Nonoperating Income (Expense)
Interest income 22,750 14,051 12,972 2,592
Interest expense, net of
capitalized interest (92,210) (25,198) (30,100) (9,738)
Other income (expense), net 105,459 12,241 93,133 (6,005)
Income tax benefit (expense) 1,695 (3,826) (6,376) (11,117)
37,694 (2,732) 69,629 (24,268)
Net Income $ 809,888 $ 771,663 $ 494,975 $ 396,190
Earnings Per Share:
Basic $1.39 $1.28 $.84 $.67
Diluted $1.38 $1.27 $.84 $.67
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine Months Ended August 31,
2001 2000
OPERATING ACTIVITIES
Net income $ 809,888 $ 771,663
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 280,958 211,140
Dividends received and loss
from affiliated operations, net 56,910 20,827
Other, net (2,009) 3,819
Changes in operating assets and liabilities:
(Increase)decrease in:
Receivables (18,275) (26,916)
Consumable inventories 4,114 (8,334)
Prepaid expenses and other 23,018 (21,851)
(Decrease) increase in:
Accounts payable (33,160) 32,744
Accrued liabilities 4,137 (7,288)
Customer deposits (20,032) 25,866
Net cash provided from operating
activities 1,105,549 1,001,670
INVESTING ACTIVITIES
Additions to property and equipment (713,328) (882,460)
Proceeds from sale of investments
in affiliates, net 531,471 303
Other, net (23,931) 4,827
Net cash used for investing activities (205,788) (877,330)
FINANCING ACTIVITIES
Proceeds from long-term debt 1,972,566 395,930
Principal payments of long-term debt (1,708,746) (10,476)
Dividends paid (184,297) (192,964)
Proceeds from issuance of common stock, net 5,076 7,677
Purchase of treasury stock (705,137)
Debt issuance costs (16,351)
Net cash provided from (used for)
financing activities 68,248 (504,970)
Effect of exchange rate changes on cash and
cash equivalents (2,055) _______
Net increase (decrease) in cash and
cash equivalents 965,954 (380,630)
Cash and cash equivalents at beginning
of period 189,282 521,771
Cash and cash equivalents at end of period $1,155,236 $ 141,141
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 accompanying financial statements have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. As used in this document, the terms "we," "our," and "us"
refers to Carnival Corporation and its consolidated subsidiaries.
The accompanying consolidated balance sheet at August 31, 2001 and the
consolidated statements of operations for the nine and three months ended
August 31, 2001 and 2000 and the consolidated statements of cash flows for
the nine months ended August 31, 2001 and 2000 are unaudited and, in the
opinion of our management, contain all adjustments necessary for a fair
presentation. All the adjustments are of a normal recurring nature, except
for our impairment loss adjustment (see Note 8). During fiscal 2000, we
accounted for our 50% interest in Costa's operating results using the
equity method and recorded our portion of Costa's operating results as
earnings from affiliated operations. Since we 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 our other
subsidiaries.
Our operations 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)
(See Note 8):
August 31, November 30,
2001 2000
Ships $8,907,117 $8,575,563
Ships under construction 546,516 320,480
9,453,633 8,896,043
Land, buildings and improvements 273,893 278,338
Transportation equipment and other 346,559 311,282
Total property and equipment 10,074,085 9,485,663
Less accumulated depreciation and
amortization (1,646,239) (1,484,345)
$8,427,846 $8,001,318
Capitalized interest, primarily on ships under construction, amounted
to $21.3 million and $32.9 million for the nine months ended August 31,
2001 and 2000, respectively, and $6.8 million and $11.4 million for the
three months ended August 31, 2001 and 2000, respectively.
NOTE 3 - LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
August 31, November 30,
2001 (a) 2000 (a)
Euro note, secured by one ship, bearing
interest at euribor plus 0.5% (4.8% at
August 31, 2001), due through 2008 $ 128,554 $ 141,628
Unsecured debentures and notes, bearing
interest at rates ranging from 6.15% to
7.7%, due through 2028 848,749 848,657
Unsecured euro notes, bearing interest at
rates ranging from euribor plus 0.19% to
euribor plus 1.0% (4.7% to 5.4% at
August 31, 2001), due 2001, 2005
and 2006 (b) 780,743 475,400
Unsecured euro notes, bearing interest at 5.57%,
due in 2006 272,074
Commercial paper 342,846
Unsecured euro note, bearing interest at
euribor plus 0.25% 338,676
$200 million multi-currency revolving credit
facility drawn in euros 160,862
Unsecured 2% convertible debentures,
due in 2021 600,000
Other 30,210 39,227
2,660,330 2,347,296
Less portion due within one year (181,848) (248,219)
$2,478,482 $2,099,077
(a) All borrowings are in U.S. dollars unless otherwise noted. Euro
denominated notes have been translated to U.S. dollars at the period
end exchange rate.
(b) In May 2001, we entered into a five-year, $235 million unsecured euro
denominated revolving credit facility, of which $207 million was
available at August 31, 2001. We intend to refinance a $70 million
unsecured euro note, due in 2001, with proceeds from this revolver and,
accordingly, have classified this $70 million of outstanding debt as
long-term in the August 31, 2001 balance sheet.
In April 2001 we issued $600 million of unsecured 2% debentures which
are convertible into our common stock at a conversion price of $39.14 per
share, subject to adjustment, during any fiscal quarter for which the
closing price of our common stock is greater than $43.05 for 20 out of the
last 30 trading days of the preceding fiscal quarter. This condition was
not met during the periods ended August 31, 2001 and, accordingly, the 15.3
million shares issuable upon conversion are not included in our earnings
per share computation (see Note 10). Upon conversion of the debentures we
may choose to deliver, in lieu of our common stock, cash or a combination
of cash and common stock with a total value equal to the value of the
common stock otherwise deliverable. Subsequent to April 15, 2008, we may
redeem the debentures for cash at their face value plus any unpaid accrued
interest. In addition, at the option of the debenture holders, on any
April 15 of 2005, 2008, and 2011, we may be required to repurchase any
outstanding debentures at their face value plus any unpaid accrued
interest. If such option is exercised by the holders, we may choose to pay
the purchase price in cash, shares of common stock or a combination of cash
and common stock.
Effective July 2001, we replaced our $1 billion unsecured revolving
credit facility and our $200 million unsecured multi-currency revolving
credit facility with a $1.4 billion unsecured multi-currency revolving
credit facility, due June 2006. The new revolving credit facility bears
interest at libor/euribor plus 17 basis points ("BPS"), which will vary
based on changes to our debt rating, if any, and provides for a facility
fee of eight BPS. Similar to our prior facility, our commercial paper
program is supported by this new facility and, accordingly, any funds
outstanding under our commercial paper program reduces the aggregate amount
available under this facility
NOTE 4 - SHAREHOLDERS' EQUITY
Our Articles of Incorporation authorize our 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 our Board of Directors and has a $.01
par value. At August 31, 2001 and November 30, 2000, no preferred stock
had been issued.
During the nine months ended August 31, 2001 and 2000, we declared
cash dividends of $.315 per share each period, or an aggregate of $184.5
million and $189.7 million, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Ship Commitments
A description of ships under contract for construction at August 31,
2001 was as follows (dollars in millions):
Expected Estimated
Service Passenger Total
Ship Date(1) Shipyard Capacity(2) Cost(3)
C>
Carnival Cruise Lines
Carnival Pride 1/02 Masa-Yards (4) 2,124 $ 375
Carnival Legend 8/02 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 15,294 2,625
Holland America Line
Zuiderdam 11/02 Fincantieri(4) 1,848 410
Oosterdam 7/03 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
Costa Mediterranea 7/03 Masa-Yards (5) 2,114 340
Costa Fortuna 1/04 Fincantieri(6) 2,720 395
Costa Magica 12/04 Fincantieri(6) 2,720 395
Total Costa Cruises 7,554 1,130
Cunard Line
Queen Mary 2 12/03 Chantiers de
l'Atlantique(4) 2,620 780
Total Cunard Line 2,620 780
Total 34,708 $6,585
(1) The expected service date is the date the ship is currently 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 estimated total cost has been translated into U.S. dollars using
the August 31, 2001 exchange rate.
(6) These construction contracts are denominated in Italian lira, and the
estimated total costs have been translated into U.S. dollars using the
August 31, 2001 exchange rate.
In connection with the ships under contract for construction, we have
paid approximately $547 million through August 31, 2001 and we anticipate
paying approximately $940 million during the twelve months ending August
31, 2002 and approximately $5.1 billion thereafter.
Litigation
Several actions (collectively the "Passenger Complaints") have been
filed against us 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.
Carnival recently entered into an agreement to settle the Passenger
Complaint filed against it. A final order and judgment approving the
settlement was signed by the trial court. Under the settlement agreement,
Carnival will 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 will issue, assuming no cash
redemptions, is approximately $125 million. Alternatively, if all
passengers elect the cash redemption feature, the vouchers could be
redeemed for approximately $25 million in cash. Pursuant to the
settlement, Carnival has paid the plaintiffs' legal fees awarded by the
court.
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.
At August 31, 2001 and November 30, 2000, an estimated accrued
liability of approximately $19 million and $24 million, respectively, has
been included in the accompanying balance sheets for the estimated cash
redemptions and settlement costs of the Passenger Complaints.
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, we 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 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. Carnival has reached
an agreement with the plaintiffs to settle its ADA Complaint. Pursuant to
the agreement, Carnival would make certain modifications to its existing 15
ships. A hearing was held in September where certain procedural objections
were raised. We anticipate the court issuing a final decision on whether
to grant final approval of the settlement in late October. We believe that
the estimated total cost of the modifications will not have a material
effect on our financial position. The actions against Holland America
Tours and Costa are proceeding.
Several actions filed in the U.S. District Court for the Southern
District of Florida against us and four of our 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 we made 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. We believe that we and our officers, as applicable, have
meritorious defenses to these claims and, accordingly, we all intend to
vigorously defend against all such claims.
In August 2000, we received a grand jury subpoena requesting that we
produce documents and records concerning environmental matters. We
produced documents in response to the subpoena and are engaged in
discussions with the Office of the United States Attorney for the Southern
District of Florida. No charges have been lodged against us. In the event
that the investigation results in adverse findings with regard to our
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."), our wholly
owned subsidiary, received a grand jury subpoena requesting that it produce
documents and records relating to the air emissions from Holland America
ships in Alaska. HAL, Inc. is responding 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 $70 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 at the
earliest by mid-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, we believe that
the arbitration proceeding will result in a favorable outcome for us.
In the normal course of business, various other claims and lawsuits
have been filed or are pending against us. The majority of these claims
and lawsuits are covered by insurance. We believe the outcome of any such
suits, which are not covered by insurance, would not have a material
adverse effect on our financial statements.
Contingent Obligations
We have certain contingent obligations, including letters of credit,
to participants in lease out and lease back type transactions for three
ships which, at August 31, 2001, totaled approximately $780 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 we be required to make any payments under these contingent
obligations. Between 2017 and 2022, as applicable, we have the right to
exercise purchase options that would terminate these transactions.
NOTE 6 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective December 1, 2000, we adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, as amended, "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 and
the changes in fair value must be included in earnings. If a derivative is
a fair value hedge, changes in the fair value of the derivative are offset
against the changes in the fair value of the underlying hedged firm
commitments. If a derivative is a cash flow hedge, changes in the fair
value of the derivative are recognized in comprehensive income until the
underlying hedged item is recognized in earnings. The ineffective portion
of a hedge derivative's change in fair value is immediately recognized in
earnings. For the periods ended August 31, 2001, all net changes in the
fair value of both the fair value hedges and the related hedged firm
commitments and the cash flow hedges were immaterial, as were any
ineffective portions of these hedges.
We have not made any changes to our hedge-related risk management
policies as a result of adopting SFAS No. 133. The fair value of hedged
firm commitment assets on our balance sheet principally represents the
unrealized gains on our shipbuilding commitments denominated in foreign
currencies because of the strengthening of the dollar versus these
currencies. The fair value of derivative contract liabilities principally
represents the unrealized losses on our forward foreign currency contracts
relating to those same shipbuilding commitments, which are used to fix the
cost of our shipbuilding commitments in U.S. dollars.
NOTE 7 - COMPREHENSIVE INCOME
Comprehensive income was as follows (in thousands):
Nine Months Three Months
Ended August 31, Ended August 31,
2001 2000 2001 2000
Net income $809,888 $771,663 $494,975 $396,190
SFAS No. 133 transition adjustment (4,214)
Changes in securities valuation
allowance 7,782 (1,286) (351) 404
Foreign currency translation
adjustment 48,031 (49,635) 64,995 (14,402)
Changes related to cash
flow derivative hedges (1,679) (848)
Total comprehensive income $859,808 $720,742 $558,771 $382,192
NOTE 8 - IMPAIRMENT LOSS
During the third quarter of fiscal 2001 we reviewed our long-term
assets for which there were indications of possible impairment. The assets
we reviewed were primarily from our Cunard and Seabourn brands since we had
experienced continued losses from these luxury brands and had recently
restructured their operations and made changes to their senior management.
In addition, in the third quarter we sold two Seabourn ships to an
unaffiliated third party and announced the transfers of a third Seabourn
ship to our Holland America brand. As a result of this review, we recorded
an impairment loss of approximately $101 million which consisted
principally of a $36 million write-off of Seabourn goodwill, a $53 million
reduction in the carrying value of ships, primarily from the Seabourn and
Cunard brands, and an $11 million loss related to the sale of the Seabourn
Goddess I and II. The impaired ships' fair values were based primarily on
third party appraisals and the fair value of the goodwill was based on
discounted cash flows.
NOTE 9 - SEGMENT INFORMATION
Our cruise segment included six cruise brands in fiscal 2001 and five
cruise brands in fiscal 2000 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 was as follows (in thousands):
Nine Months Ended Nine Months Ended
August 31, 2001 August 31, 2000
Operating Operating
income income
Revenues (loss) Revenues (loss)
Cruise 3,412,197 $818,801(a) 2,746,515 $774,598
Tour 212,358 6,686 237,019 14,631
Affiliated operations (b) (44,024) (4,361)
Intersegment elimination (47,906) (55,318)
Corporate (9,269) (10,473)
$3,576,649 $772,194 $2,928,216 $774,395
Three Months Ended Three Months Ended
August 31, 2001 August 31, 2000
Operating Operating
income income
Revenues (loss) Revenues (loss)
Cruise $ 1,357,606 $403,209(a) 1,083,380 $389,767
Tour 173,600 24,847 192,251 32,577
Affiliated operations (b) 1,548
Intersegment elimination (41,288) (47,420)
Corporate (2,710) (3,434)
$ 1,489,918 $425,346 $1,228,211 $420,458
(a) Includes a $101 million impairment loss (see Note 8).
(b) On June 1, 2001 we sold our investment in Airtours plc which resulted
in a nonoperating net gain of approximately $100 million and net cash
proceeds of approximately $492 million. Accordingly, we did not record any
equity in the earnings or losses from the affiliated operations of Airtours
after our quarter ended May 31, 2001. However, we did record a direct
charge of $7.9 million to our retained earnings in the third quarter of
fiscal 2001 which represented our share of Airtours' losses for April and
May 2001, since we had been on a two-month reporting lag.
Selected segment information which is not included in our consolidated
operations for our affiliated operations segment was as follows (in
thousands):
Nine Months Three Months
Ended August 31, Ended August 31, 2000
2001 2000
Revenues $3,131,848 $4,337,039 $1,829,956
Net loss $ (160,258) $ (48,807) $ (355)
The table above represents 100% of our affiliated companies' results of
operations, and excludes Airtours after May 31, 2001 and includes Costa in
2000 but not in 2001.
NOTE 10 - EARNINGS PER SHARE
Basic and diluted earnings per share were computed as follows (in
thousands, except per share data):
Nine Months Three Months
Ended August 31, Ended August 31,
2001 2000 2001 2000
Net income $809,888 $771,663 $494,975 $396,190
Weighted average common shares
outstanding 584,698 604,692 586,078 591,032
Dilutive effect of employee
stock plans 2,046 2,346 1,432 1,521
Dilutive weighted average shares
outstanding 586,744 607,038 587,510 592,553
Basic earnings per share $ 1.39 $ 1.28 $ .84 $ .67
Diluted earnings per share $ 1.38 $ 1.27 $ .84 $ .67
NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS
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. Our adoption of this
SAB on September 1, 2001 did not have a material impact on our financial
statements.
In July 2001, SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets" were issued. SFAS No. 141 applies
to all business combinations with a closing date after June 30, 2001. SFAS
No. 141 eliminates the pooling-of interests method of accounting and
further clarifies the criteria for recognition of intangible assets
separately from goodwill. The adoption of this standard is not expected to
have a material effect on our financial statements.
SFAS No. 142 eliminates the amortization of goodwill and indefinite-
lived intangible assets and requires an annual impairment review of these
intangible assets. Identifiable intangible assets with a determinable
useful life will continue to be amortized. The amortization provisions
will immediately apply to goodwill and other intangible assets acquired
after June 30, 2001. Goodwill and other intangible assets acquired prior
to June 30, 2001 will be affected upon adoption. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001, although early adoption
is permitted at the beginning of our fiscal 2002. We have not yet
determined if we will early adopt SFAS No. 142, which will require us to
both cease amortization of our remaining net unamortized goodwill and to
perform an initial impairment test of our existing goodwill as of the
adoption date. We are currently evaluating the impact of such adoption on
our 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
We earn our cruise revenues primarily from:
- the sale of passenger cruise tickets, which includes
accommodations, meals, and most onboard activities,
- the sale of air transportation to and from the cruise ships and
- the sale of goods and services on board the cruise ships, such as
casino gaming, bar sales, gift shop sales and other related
services.
We also derive revenues from the tour and related operations of Holland
America Tours.
For selected segment information related to our revenues, operating
income and affiliated operations segment see Note 9 in the accompanying
financial statements. Operations data expressed as a percentage of total
revenues and selected statistical information was as follows:
Nine Months Three Months
Ended August 31, Ended August 31,
2001 2000 2001 2000
Revenues 100% 100% 100% 100%
Costs and Expenses
Operating expenses 54 54 48 50
Selling and administrative 12 12 10 10
Depreciation and amortization 8 7 7 6
Impairment loss 3 - 7 -
Operating Income Before Loss
from Affiliated Operations 23 27 28 34
Loss from Affiliated
Operations, Net (1) (1) - -
Operating Income 22 26 28 34
Nonoperating Income (Expense) 1 - 5 (2)
Net Income 23% 26% 33% 32%
Selected Statistical Information (in thousands):
Passengers carried 2,596 1,995 994 786
Available lower berth days 15,500 11,808 5,405 4,104
Occupancy percentage 107.0% 106.1% 113.0% 112.4%
Note: Commencing in fiscal 2001, our statements of operations and selected
statistical information include the consolidation of Costa's results of
operations. In fiscal 2000, Costa's results of operations were included in
affiliated operations and were not included in the 2000 statistical
information.
OUTLOOK FOR FOURTH QUARTER OF FISCAL 2001 AND FISCAL 2002
This outlook is based on preliminary indications only and actual
results for the fourth quarter of fiscal 2001 may differ. See "PART II.
OTHER INFORMATION Item 5.(a) Forward-Looking Statements".
As a result of the September 11, 2001 terrorist attacks on the World
Trade Center and the Pentagon and their significant effect on leisure
travel, our operating results will be negatively impacted. During the ten
days subsequent to September 10, 2001, our new booking levels were running
at 50 percent to 60 percent of expected levels. In addition, our
cancellation levels since the attacks have been higher than expected.
Subsequent to our third quarter earnings announcement on September 20,
2001, new booking levels have improved to over 65% of prior year levels,
and cancellations have started to decrease. We estimate that we had
reduced revenues and additional costs totaling approximately $20 million in
the week following September 11, a large portion of which was caused by
guests' inability to reach cruise embarkation ports because of the
curtailment of airline operations. At this time, it is too early to
reasonably estimate the impact of these events on our fourth quarter of
fiscal 2001 or fiscal 2002 results. We do expect that we will have an
increase in insurance expense and certain operating costs, but have not yet
quantified the amounts. However, we still expect to be
profitable for the fiscal 2001 fourth quarter. See "Liquidity and Capital
Resources" for a further discussion of our financial position and our
liquidity. We continue to direct our efforts to take whatever steps are
necessary to mitigate the negative impact of these events. In that regard,
we are currently considering changes in certain of our itineraries. Our
competitors have also recently announced several changes in their
itineraries.
GENERAL
Our cruise and tour operations experience varying degrees of
seasonality. Our revenue from the sale of passenger tickets for our cruise
operations is moderately seasonal. Historically, demand for cruises has
been greatest during the summer months. Our 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.
Through fiscal 2000, we recorded our 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 our 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, has increased the seasonality of our quarterly results of
operations, most significantly between our third and fourth fiscal
quarters. Costa's seasonally strong summer results of operations have been
recorded in our third quarter in fiscal 2001 versus in the fourth quarter
in fiscal 2000. Costa's net income increased $42 million in the third
quarter of 2001, most of which was due to the elimination of this two-month
lag and the full consolidation of Costa.
In addition, on June 1, 2001 we sold our investment in Airtours and,
accordingly, we ceased recording Airtours' results in our affiliated
operations as of the end of our second quarter of fiscal 2001.
Historically, Airtours' results have been very seasonal, with losses
recorded in the first half of our fiscal year and substantially all of
Airtours' profits being recognized in our fourth quarter.
Average passenger capacity for our cruise brands, excluding Costa, is
currently expected to increase by approximately 6.4% in the fourth quarter
of fiscal 2001 as compared to the same period of fiscal 2000. This increase
is primarily a result of the introduction into service of the Carnival
Spirit in April 2001 and Holland America's Amsterdam in October 2000,
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 our consolidated capacity by an additional 20.6% in
the fourth quarter of fiscal 2001, although the impact on our 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 our average passenger
capacity resulting primarily from the delivery of ships currently under
contract for construction for fiscal 2002 and 2003 is currently expected to
approximate 6% and 14%, respectively.
NINE MONTHS ENDED AUGUST 31, 2001 ("2001") COMPARED
TO NINE MONTHS ENDED AUGUST 31, 2000 ("2000")
Revenues
Revenues increased $648.4 million, or 22.1%, in 2001 compared to 2000,
due to a 24.2% increase in cruise revenues. Approximately $456 million of
the cruise revenue increase was due to the consolidation of Costa, and $210
million was due to increased cruise revenues from our other brands. The
other brands' cruise revenue change resulted from an increase of
approximately 10.8% in passenger capacity and a 1.2% increase in occupancy
rates, partially offset by a 4.4% decrease in gross revenue per passenger
cruise day. The 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, our luxury cruise brands, which comprised approximately
10% of our capacity, realized significantly lower pricing during most of
2001 compared to the same period last year.
Costs and Expenses
Operating expenses increased $343.5 million, or 21.8%, in 2001
compared to 2000. Cruise operating costs increased by $352.6 million, or
24.4%, to $1.80 billion in 2001 from $1.44 billion in 2000. Approximately
$262 million of the cruise operating cost increase was due to the
consolidation of Costa, and the remaining $91 million of the increase was
from our other brands. Cruise operating costs, excluding Costa, increased
in 2001 primarily due to additional costs associated with the 10.8%
increase in passenger capacity, partially offset by a 4.1% decrease in
operating expenses per available berth day. Excluding Costa, cruise
operating costs as a percentage of cruise revenues were 51.9% and 52.6% in
2001 and 2000, respectively.
Selling and administrative expenses increased $96.2 million, or 26.7%,
to $457.3 million in 2001 from $361.0 million in 2000. Approximately $72
million of this increase was due to the consolidation of Costa, and the
remaining $24 million was from our other brands. Selling and administrative
expenses, excluding Costa, increased primarily as a result of the 10.8%
increase in passenger capacity, partially offset by a 2.2% decrease in
selling and administrative expenses per available berth day. Excluding
Costa, selling and administrative expenses as a percentage of revenues were
12.3% during both 2001 and 2000.
Depreciation and amortization increased $69.8 million, or 33.1%, in
2001 compared to 2000. This increase was primarily due to the
consolidation of Costa, which accounted for approximately $38 million, and
the majority of the remaining increase was due to the expansion of the
fleet.
Impairment loss in 2001 of $101 million was primarily associated with
our Cunard and Seabourn luxury brands. See Note 8 in the accompanying
financial statements.
Affiliated Operations
During 2001, we recorded $44 million of losses from affiliated
operations as compared with $4.4 million of losses in 2000. Our portion of
Airtours' losses in 2001 was $43.3 million as compared to $31.3 million of
losses in 2000. We recorded income of $24.1 million during 2000 related to
our interest in Costa. During 2000, income from Costa operations included
non-recurring net gains of $10.7 million primarily related to a reversal of
certain of its tax liabilities. In fiscal 2001, Costa has been
consolidated. See the "Nonoperating (Expense) Income" section below and
the following three month analysis for a discussion of certain non-
recurring events and the "General" section for a discussion of Airtours'
and Costa's seasonality.
Nonoperating (Expense) Income
Interest expense, net of interest income (excluding capitalized
interest), increased to $90.8 million in 2001 from $44 million in 2000
primarily as a result of higher average outstanding debt balances ($76
million), partially offset by higher invested cash balances ($14 million)
and lower interest rates ($15 million). The higher debt balances were
primarily due to the acquisition and consolidation of Costa. Capitalized
interest decreased $11.6 million during 2001 as compared to 2000 due
primarily to lower average levels of investment in ship construction
projects.
Other income in 2001 of $105.5 million included a gain of
approximately $100 million from the sale of our investment in Airtours, a
$13 million gain arising from a settlement agreement with the manufacturers
of certain of our ship propulsion systems to reimburse us for lost revenues
and expenses due to disruption in service during 2000 and a $16 million
gain from the sale of our investment in CRC Holdings, Inc., partially
offset by $9 million of asset write-downs and $13 million of litigation
related expenses.
THREE MONTHS ENDED AUGUST 31, 2001 ("2001") COMPARED
TO THREE MONTHS ENDED AUGUST 31, 2000 ("2000")
Revenues
Revenues increased $261.7 million, or 21.3%, in 2001 compared to 2000,
due to a 25.3% increase in cruise revenues. Approximately $196 million of
the cruise revenue increase was due to the consolidation of Costa, and $78
was due to increased cruise revenues from our other brands. The other
brands' cruise revenue change resulted from an increase of approximately
10.2% in passenger capacity and a 0.7% increase in occupancy rates
partially offset by a 3.6% decrease in gross revenue per passenger cruise
day. The decrease in gross revenue per passenger cruise day was primarily
due to lower cruise ticket prices, especially in our luxury cruise brands.
Costs and Expenses
Operating expenses increased $104.7 million, or 17.0% in 2001 compared
to 2000. Cruise operating costs increased by $109.3 million, or 21.1%, to
$627.5 million in 2001 from $518.3 million in 2000. Approximately $91
million of the cruise operating cost increase was due to the consolidation
of Costa, and the remaining $18 million of the increase was from our other
brands. Cruise operating costs, excluding Costa, increased in 2001
primarily due to additional costs associated with the 10.2% increase in
passenger capacity, partially offset by a 6.0% decrease in operating
expenses per available berth day. Excluding Costa, cruise operating costs
as a percentage of cruise revenues were 46.2% and 47.8% in 2001 and 2000,
respectively.
Selling and administrative expenses increased $27.5 million, or 23.0%,
to $146.8 million in 2001 from $119.3 million in 2000. Approximately $23
million of this increase was due to the consolidation of Costa, and the
remaining $4 million was from our other brands. Selling and administrative
expenses, excluding Costa, increased primarily as a result of the 10.2%
increase in passenger capacity, partially offset by a 4.2% decrease in
selling and administrative expenses per available berth day. Excluding
Costa, selling and administrative expenses as a percentage of revenues were
9.6% and 9.7% during 2001 and 2000, respectively.
Depreciation and amortization increased by $21.8 million, or 28.9% in
2001 compared to 2000. This increase was primarily due to the consolidation
of Costa, which accounted for approximately $13 million, and the majority
of the remaining increase was due to the expansion of the fleet.
See "Cost and Expenses" for the nine months ended August 31, 2001 for
a discussion of the third quarter impairment loss.
Affiliated Operations
On June 1, 2001, we sold our entire interest in Airtours.
Accordingly, subsequent to May 31, 2001, we no longer record any results
from Airtours in our statements of operations. Our portion of Airtours'
losses in 2000 was $3.9 million of losses. We recorded income of $4.2
million during 2000, related to our interest in Costa. In fiscal 2001,
Costa has been consolidated.
Nonoperating (Expense) Income
Interest expense, net of interest income (excluding capitalized
interest), increased to $23.9 million in 2001 from $18.5 million in 2000
primarily as a result of higher average outstanding debt balances ($26
million), partially offset by higher invested cash balances ($13 million)
and lower interest rates ($8 million). The increase in average debt
balances was primarily due to the acquisition and consolidation of Costa.
The increase in cash balances was primarily due to the investment of
proceeds received from the sale of our interest in Airtours and the
issuance of 2% convertible notes. Capitalized interest decreased $4.6
million during 2001 as compared to 2000 due primarily to lower average
level of investment in ship construction projects.
Other income in 2001 of $93.1 million included a gain of approximately
$100 million from the sale of our investment in Airtours, net of a charge
of $7 million for litigation expenses.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Our business provided $1.1 billion of net cash from operations during
the nine months ended August 31, 2001, an increase of 10.4% compared to
2000.
During the nine months ended August 31, 2001, our net expenditures for
capital projects were approximately $713.3 million, of which $592.8 million
was spent in connection with our ongoing shipbuilding program. The
nonshipbuilding capital expenditures consisted primarily of ship
refurbishments, information technology assets, tour assets and other. In
addition, during the nine months ended August 31, 2001 we received $531.5
million of proceeds from the sale of our interest in Airtours and CRC
Holdings, Inc.
During the nine months ended August 31, 2001, we received proceeds of
$710 million and we made payments of $1.03 billion under our commercial
paper programs. We also made principal payments related to other debt
totaling $675 million. In addition, we raised proceeds of approximately
$266 million from the March 2001 issuance of 5.57% unsecured euro notes,
$600 million from the issuance of 2% Convertible Debentures in April 2001
and $396 million primarily from the refinancing of Costa acquisition
related indebtedness. We also paid cash dividends of $184.3 million in the
first nine months of fiscal 2001.
Future Commitments and Funding Sources
As of August 31, 2001, we had noncancelable contracts for the delivery
of fifteen new ships over the next four years. Our remaining obligations
related to these ships under contract for construction is to pay
approximately $940 million during the twelve months ending August 31, 2002
and approximately $5.1 billion thereafter.
At August 31, 2001, we had $2.66 billion of long-term debt of which
$181.9 million is due during the twelve months ending August 31, 2002. See
Notes 3 and 5 in the accompanying financial statements for more information
regarding our debt and commitments.
At August 31, 2001, we had approximately $1.16 billion of cash and
cash equivalents. In addition, at August 31, 2001, we had $1.6 billion
available for borrowing under our revolving credit facilities.
The recent terrorist attacks could have an adverse effect on our
liquidity as well as that of many other companies in the travel and tourism
industry. We believe that our current liquidity of approximately $2.8
billion, as well as cash flow from future operations, will be sufficient to
fund most or all of our capital projects, debt service requirements and
other commitments. To the extent that we are required, or choose, to fund
future cash requirements from sources other than as discussed in the
preceding sentence, we believe that we 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 future operating cash flow will be sufficient to fund future
obligations or that we will be able to obtain additional financing.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Several actions collectively referred to as the "Passenger Complaints"
were previously reported in our Annual Report on Form 10-K for the year
ended November 30, 2000 (the "2000 Form 10-K"), our Quarterly Reports on
Form 10-Q for the quarters ended February 28, 2001 and May 31, 2001 (the
"Quarterly 2001 10-Qs"). The following are material subsequent
developments in such cases.
On August 30, 2001, the plaintiffs who had filed a notice of appeal
from the trial court order approving the settlement of the Passenger
Complaint against Carnival dismissed their appeal with prejudice. Carnival
expects to mail the travel and cash redemption vouchers to class members in
the near future.
Several actions collectively referred to as the "ADA Complaints" were
previously reported in the 2000 Form 10-K and Quarterly 2001 10-Qs. The
following are material subsequent developments in such cases.
The Department of Justice filed certain procedural objections to the
proposed settlement. A hearing for approval of the settlement was held on
September 25, 2001. At the hearing, the court granted the parties the
opportunity to file additional briefs before October 12, 2001. The court
is expect to issue a final decision by October 19, 2001.
Item 5. Other Information.
(a) Forward-Looking Statements
Certain statements in this Form 10-Q and in the future filings by us
with the Securities and Exchange Commission, in our press releases, and in
oral statements and presentations made by or with the approval of one of
our authorized executive officers constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
We have tried, wherever possible, to identify such statements by using
words such as "anticipate," "believe," "expect," "intend," 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 our net revenue yields
and net earnings, involve known and unknown risks, uncertainties and other
factors, which may cause our actual results, performances or achievements
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 our cruise products; consumer demand for
cruises; effects on consumer demand of armed conflicts, political
instability, terrorism, the availability of air service and adverse media
publicity; increases in cruise industry capacity; cruise and other vacation
industry competition; continued availability of attractive port
destinations; changes in tax laws and regulations; our ability to implement
our shipbuilding program and to continue to expand our business outside the
North American market; our ability to attract and retain shipboard crew;
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 and changes in laws and regulations applicable to us.
We do 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 our filings with
the Securities and Exchange Commission, especially on Forms 10-K, 10-Q and
8-K, if any. In Item 1. of our Annual Report on Form 10-K for the year
ended November 30, 2000 and above, we discuss various important factors,
among others, that could cause actual results to differ from expected or
historic results. We note 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 June 21, 2001
related to the issuance of a press release regarding our second quarter
earnings.
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: September 28, 2001 BY/s/ Howard S. Frank
Howard S. Frank
Vice Chairman of the Board of
Directors and Chief
Operating Officer
Date: September 28, 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)
Nine Months Ended August 31,
2001 2000
Net income $809,888 $771,663
Income tax (benefit) expense (1,695) 3,826
Income before income taxes 808,193 775,489
Adjustment to Earnings:
Dividends received and
loss from affiliated operations 56,910 20,827
Earnings as adjusted 865,103 796,316
Fixed Charges:
Interest expense, net 92,210 25,198
Interest portion of rent expense(1) 2,737 2,538
Capitalized interest 21,320 32,934
Total fixed charges 116,267 60,670
Fixed charges not affecting earnings:
Capitalized interest (21,320) (32,934)
Earnings before fixed charges $960,050 $824,052
Ratio of earnings to fixed charges 8.3x 13.6x
(1) Represents one-third of rent expense, which we believe
to be representative of the interest portion of rent expense.
[NYCorp.1296059v1] i
