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Carnival PLC - 3rd Quarter Results

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Carnival PLC
26 September 2019
 

September 26, 2019

 

RELEASE OF CARNIVAL CORPORATION & PLC QUARTERLY REPORT ON FORM 10-Q FOR THE THIRD QUARTER OF 2019

 

Carnival Corporation & plc is hereby announcing that today it has released its three and nine months results of operations in its earnings release and filed its joint Quarterly Report on Form 10-Q ("Form 10-Q") with the U.S. Securities and Exchange Commission ("SEC") containing the Carnival Corporation & plc 2019 three and nine months unaudited consolidated financial statements.

 

The information included in the attached Schedules A, B and C is extracted from the Form 10-Q and has been prepared in accordance with SEC rules and regulations. The Carnival Corporation & plc unaudited consolidated financial statements contained in the Form 10-Q have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP").

 

•       Schedule A contains the Carnival Corporation & plc unaudited consolidated financial statements as of and for the three and nine months ended August 31, 2019

•       Schedule B contains management's discussion and analysis ("MD&A") of financial conditions and results of operations

•       Schedule C contains information on Carnival Corporation and Carnival plc's sales and purchases of their equity securities and use of proceeds from such sales

 

The Directors consider that within the Carnival Corporation and Carnival plc dual listed company arrangement, the most appropriate presentation of Carnival plc's results and financial position is by reference to the Carnival Corporation & plc U.S. GAAP unaudited consolidated financial statements.

 

MEDIA CONTACT                                                                                INVESTOR RELATIONS CONTACT

Roger Frizzell                                                                                           Beth Roberts

001 305 406 7862                                                                                     001 305 406 4832

 

The Form 10-Q, including the portions extracted for this announcement, is available for viewing on the SEC website at www.sec.gov under Carnival Corporation or Carnival plc or the Carnival Corporation & plc website at www.carnivalcorp.com or www.carnivalplc.com. A copy of the Form 10-Q has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm. Additional information can be obtained via Carnival Corporation & plc's website listed above or by writing to Carnival plc at Carnival House, 100 Harbour Parade, Southampton, SO15 1ST, United Kingdom.

 

Carnival Corporation & plc is the world's largest leisure travel company and among the most profitable and financially strong in the cruise and vacation industries, with a portfolio of nine of the world's leading cruise lines. With operations in North America, Australia, Europe and Asia, its portfolio features Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn, P&O Cruises (Australia), Costa Cruises, AIDA Cruises, P&O Cruises (UK) and Cunard.

 

Together, the corporation's cruise lines operate 102 ships with 241,000 lower berths visiting over 700 ports around the world, with 19 new ships scheduled to be delivered through 2025. Carnival Corporation & plc also operates Holland America Princess Alaska Tours, the leading tour company in Alaska and the Canadian Yukon. Traded on both the New York and London Stock Exchanges, Carnival Corporation & plc is the only group in the world to be included in both the S&P 500 and the FTSE 100 indices.

 

 

With a long history of innovation and providing guests with extraordinary vacation experiences, Carnival Corporation has received thousands of industry awards - including recognition by the Consumer Technology Association™ as a CES® 2019 Innovation Awards Honoree for Ocean Medallion™. A revolutionary wearable device that contains a proprietary blend of communication technologies. Ocean Medallion enables the world's first interactive guest experience platform transforming vacation travel on a large scale into a highly personalized level of customized service. The prestigious CES Innovation Awards honor outstanding design and engineering in consumer technology products.

 

Additional information can be found on www.carnival.com, www.princess.com, www.hollandamerica.com, www.seabourn.com, www.pocruises.com.au, www.costacruise.com, www.aida.de, www.pocruises.com and www.cunard.com.

 

SCHEDULE A

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

CARNIVAL CORPORATION & PLC

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in millions, except per share data)

 

 

Three Months Ended
August 31,

 

Nine Months Ended
August 31,

 

2019

 

2018

 

2019

 

2018

Revenues

 

 

 

 

 

 

 

Cruise

 

 

 

 

 

 

 

  Passenger ticket

$

4,477

 

 

$

4,353

 

 

$

10,934

 

 

$

10,694

 

  Onboard and other

1,855

 

 

1,316

 

 

4,811

 

 

3,509

 

Tour and other

200

 

 

167

 

 

299

 

 

222

 

 

6,533

 

 

5,836

 

 

16,043

 

 

14,425

 

Operating Costs and Expenses

 

 

 

 

 

 

 

Cruise

 

 

 

 

 

 

 

  Commissions, transportation and other

803

 

 

760

 

 

2,125

 

 

2,000

 

  Onboard and other

668

 

 

207

 

 

1,620

 

 

485

 

  Payroll and related

548

 

 

537

 

 

1,671

 

 

1,638

 

  Fuel

401

 

 

434

 

 

1,204

 

 

1,166

 

  Food

284

 

 

275

 

 

821

 

 

804

 

  Other ship operating

719

 

 

655

 

 

2,192

 

 

2,115

 

Tour and other

109

 

 

90

 

 

198

 

 

140

 

 

3,532

 

 

2,958

 

 

9,833

 

 

8,348

 

Selling and administrative

563

 

 

573

 

 

1,813

 

 

1,794

 

Depreciation and amortization

548

 

 

511

 

 

1,607

 

 

1,510

 

 

4,643

 

 

4,042

 

 

13,252

 

 

11,653

 

Operating Income

1,890

 

 

1,794

 

 

2,791

 

 

2,772

 

Nonoperating Income (Expense)

 

 

 

 

 

 

 

Interest income

8

 

 

5

 

 

16

 

 

10

 

Interest expense, net of capitalized interest

(52

)

 

(49

)

 

(157

)

 

(147

)

Gains on fuel derivatives, net

-

 

 

4

 

 

-

 

 

61

 

Other income (expense), net

(19

)

 

(9

)

 

(27

)

 

2

 

 

(63

)

 

(50

)

 

(168

)

 

(74

)

Income Before Income Taxes

1,827

 

 

1,744

 

 

2,624

 

 

2,699

 

Income Tax Expense, Net

(47

)

 

(37

)

 

(56

)

 

(40

)

Net Income

$

1,780

 

 

$

1,707

 

 

$

2,567

 

 

$

2,659

 

Earnings Per Share

 

 

 

 

 

 

 

Basic

$

2.58

 

 

$

2.42

 

 

$

3.72

 

 

$

3.73

 

Diluted

$

2.58

 

 

$

2.41

 

 

$

3.71

 

 

$

3.72

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  CARNIVAL CORPORATION & PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in millions)

 

 

Three Months Ended
August 31,

 

Nine Months Ended
August 31,

 

2019

 

2018

 

2019

 

2018

Net Income

$

1,780

 

 

$

1,707

 

 

$

2,567

 

 

$

2,659

 

Items Included in Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

(101

)

 

15

 

 

(215

)

 

(50

)

Other

(6

)

 

-

 

 

(19

)

 

(9

)

Other Comprehensive Income (Loss)

(107

)

 

14

 

 

(234

)

 

(59

)

Total Comprehensive Income

$

1,674

 

 

$

1,722

 

 

$

2,333

 

 

$

2,600

 

The accompanying notes are an integral part of these consolidated financial statements.

 

CARNIVAL CORPORATION & PLC

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in millions, except par values)

 

 

August 31,
 2019

 

November 30,
 2018

ASSETS

 

 

 

Current Assets

 

 

 

Cash and cash equivalents

$

1,153

 

 

$

982

 

Trade and other receivables, net

441

 

 

358

 

Inventories

482

 

 

450

 

Prepaid expenses and other

635

 

 

436

 

  Total current assets

2,712

 

 

2,225

 

Property and Equipment, Net

36,466

 

 

35,336

 

Goodwill

2,886

 

 

2,925

 

Other Intangibles

1,166

 

 

1,176

 

Other Assets

771

 

 

738

 

 

$

44,001

 

 

$

42,401

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

Current Liabilities

 

 

 

Short-term borrowings

$

238

 

 

$

848

 

Current portion of long-term debt

1,607

 

 

1,578

 

Accounts payable

695

 

 

730

 

Accrued liabilities and other

1,718

 

 

1,654

 

Customer deposits

4,674

 

 

4,395

 

  Total current liabilities

8,932

 

 

9,204

 

Long-Term Debt

8,893

 

 

7,897

 

Other Long-Term Liabilities

882

 

 

856

 

Contingencies

 

 

 

Shareholders' Equity

 

 

 

Common stock of Carnival Corporation, $0.01 par value; 1,960 shares authorized; 657 shares at 2019 and 656 shares at 2018 issued

7

 

 

7

 

Ordinary shares of Carnival plc, $1.66 par value; 217 shares at 2019 and 2018 issued

358

 

 

358

 

Additional paid-in capital

8,798

 

 

8,756

 

Retained earnings

26,576

 

 

25,066

 

Accumulated other comprehensive income (loss) ("AOCI")

(2,183

)

 

(1,949

)

Treasury stock, 130 shares at 2019 and 129 shares at 2018 of Carnival Corporation and 57 shares at 2019 and 48 shares at 2018 of Carnival plc, at cost

(8,261

)

 

(7,795

)

  Total shareholders' equity

25,295

 

 

24,443

 

 

$

44,001

 

 

$

42,401

 

The accompanying notes are an integral part of these consolidated financial statements.

 

CARNIVAL CORPORATION & PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in millions)

 

 

Nine Months Ended
August 31,

 

2019

 

2018

OPERATING ACTIVITIES

 

 

 

Net income

$

2,567

 

 

$

2,659

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities

 

 

 

Depreciation and amortization

1,607

 

 

1,510

 

Impairments

26

 

 

16

 

Gains on fuel derivatives, net

-

 

 

(61

)

Share-based compensation

38

 

 

49

 

Other, net

29

 

 

(22

)

 

4,266

 

 

4,151

 

Changes in operating assets and liabilities

 

 

 

Receivables

(101

)

 

(61

)

Inventories

22

 

 

(19

)

Prepaid expenses and other

(220

)

 

76

 

Accounts payable

(25

)

 

(94

)

Accrued liabilities and other

63

 

 

(166

)

Customer deposits

409

 

 

549

 

Net cash provided by (used in) operating activities

4,414

 

 

4,436

 

INVESTING ACTIVITIES

 

 

 

Purchases of property and equipment

(3,448

)

 

(2,784

)

Proceeds from sales of ships

15

 

 

282

 

Payments of fuel derivative settlements

(6

)

 

(37

)

Other, net

122

 

 

(79

)

Net cash provided by (used in) investing activities

(3,317

)

 

(2,617

)

FINANCING ACTIVITIES

 

 

 

Proceeds from (repayments of) short-term borrowings, net

(600

)

 

182

 

Principal repayments of long-term debt

(472

)

 

(1,271

)

Proceeds from issuance of long-term debt

1,722

 

 

1,618

 

Dividends paid

(1,041

)

 

(1,003

)

Purchases of treasury stock

(472

)

 

(1,205

)

Other, net

(49

)

 

(28

)

Net cash provided by (used in) financing activities

(912

)

 

(1,707

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(11

)

 

7

 

Net increase (decrease) in cash, cash equivalents and restricted cash

174

 

 

120

 

Cash, cash equivalents and restricted cash at beginning of period

996

 

 

422

 

Cash, cash equivalents and restricted cash at end of period

$

1,170

 

 

$

541

 

The accompanying notes are an integral part of these consolidated financial statements.

  

CARNIVAL CORPORATION & PLC

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

(in millions)

 

 

Three Months Ended

 

Common
stock

 

Ordinary
shares

 

Additional
paid-in
capital

 

Retained
earnings

 

AOCI

 

Treasury
stock

 

Total
shareholders'
equity

At May 31, 2018

$

7

 

 

$

358

 

 

$

8,721

 

 

$

23,564

 

 

$

(1,855

)

 

$

(6,862

)

 

$

23,933

 

Net income

-

 

 

-

 

 

-

 

 

1,707

 

 

-

 

 

-

 

 

1,707

 

Other comprehensive income (loss)

-

 

 

-

 

 

-

 

 

-

 

 

14

 

 

-

 

 

14

 

Cash dividends declared ($0.50 per share)

-

 

 

-

 

 

-

 

 

(350

)

 

-

 

 

-

 

 

(350

)

Purchases of treasury stock under the Repurchase Program and other

-

 

 

-

 

 

19

 

 

-

 

 

-

 

 

(670

)

 

(651

)

At August 31, 2018

$

7

 

 

$

358

 

 

$

8,741

 

 

$

24,921

 

 

$

(1,840

)

 

$

(7,533

)

 

$

24,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2019

$

7

 

 

$

358

 

 

$

8,785

 

 

$

25,138

 

 

$

(2,076

)

 

$

(8,104

)

 

$

24,108

 

Net income

-

 

 

-

 

 

-

 

 

1,780

 

 

-

 

 

-

 

 

1,780

 

Other comprehensive income (loss)

-

 

 

-

 

 

-

 

 

-

 

 

(107

)

 

-

 

 

(107

)

Cash dividends declared ($0.50 per share)

-

 

 

-

 

 

-

 

 

(342

)

 

-

 

 

-

 

 

(342

)

Purchases of treasury stock under the Repurchase Program and other

-

 

 

-

 

 

13

 

 

-

 

 

-

 

 

(157

)

 

(144

)

At August 31, 2019

$

7

 

 

$

358

 

 

$

8,798

 

 

$

26,576

 

 

$

(2,183

)

 

$

(8,261

)

 

$

25,295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Common
stock

 

Ordinary
shares

 

Additional
paid-in
capital

 

Retained
earnings

 

AOCI

 

Treasury
stock

 

Total
shareholders'
equity

At November 30, 2017

$

7

 

 

$

358

 

 

$

8,690

 

 

$

23,292

 

 

$

(1,782

)

 

$

(6,349

)

 

$

24,216

 

Net income

-

 

 

-

 

 

-

 

 

2,659

 

 

-

 

 

-

 

 

2,659

 

Other comprehensive income (loss)

-

 

 

-

 

 

-

 

 

-

 

 

(59

)

 

-

 

 

(59

)

Cash dividends declared ($1.45 per share)

-

 

 

-

 

 

-

 

 

(1,029

)

 

-

 

 

-

 

 

(1,029

)

Purchases of treasury stock under the Repurchase Program and other

-

 

 

-

 

 

51

 

 

-

 

 

-

 

 

(1,184

)

 

(1,133

)

At August 31, 2018

$

7

 

 

$

358

 

 

$

8,741

 

 

$

24,921

 

 

$

(1,840

)

 

$

(7,533

)

 

$

24,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At November 30, 2018

$

7

 

 

$

358

 

 

$

8,756

 

 

$

25,066

 

 

$

(1,949

)

 

$

(7,795

)

 

$

24,443

 

Changes in accounting principles (a)

-

 

 

-

 

 

-

 

 

(24

)

 

-

 

 

-

 

 

(24

)

Net income

-

 

 

-

 

 

-

 

 

2,567

 

 

-

 

 

-

 

 

2,567

 

Other comprehensive income (loss)

-

 

 

-

 

 

-

 

 

-

 

 

(234

)

 

-

 

 

(234

)

Cash dividends declared ($1.50 per share)

-

 

 

-

 

 

-

 

 

(1,034

)

 

-

 

 

-

 

 

(1,034

)

Purchases of treasury stock under the Repurchase Program and other

-

 

 

-

 

 

42

 

 

-

 

 

-

 

 

(467

)

 

(424

)

At August 31, 2019

$

7

 

 

$

358

 

 

$

8,798

 

 

$

26,576

 

 

$

(2,183

)

 

$

(8,261

)

 

$

25,295

 

 

(a)         We adopted the provisions of Revenue from Contracts with Customers and Derivatives and Hedging on December 1, 2018.

The accompanying notes are an integral part of these consolidated financial statements.

 

CARNIVAL CORPORATION & PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - General

 

The consolidated financial statements include the accounts of Carnival Corporation and Carnival plc and their respective subsidiaries. Together with their consolidated subsidiaries, they are referred to collectively in these consolidated financial statements and elsewhere in this joint Quarterly Report on Form 10-Q as "Carnival Corporation & plc," "our," "us" and "we."

 

     Basis of Presentation

The Consolidated Statements of Income, the Consolidated Statements of Comprehensive Income, the Consolidated Statements of Cash Flows and the Consolidated Statements of Shareholders' Equity for the three and nine months ended August 31, 2019 and 2018, and the Consolidated Balance Sheet at August 31, 2019 are unaudited and, in the opinion of our management, contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement. Our interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in the Carnival Corporation & plc 2018 joint Annual Report on Form 10-K ("Form 10-K") filed with the U.S. Securities and Exchange Commission on January 28, 2019. Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire year.

 

     Accounting Pronouncements

 

The Financial Accounting Standards Board (the "FASB") issued guidance, Revenue from Contracts with Customers ("ASC 606"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. On December 1, 2018, we adopted this guidance using the modified retrospective method for all contracts as of the adoption date. Results for reporting periods beginning after December 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 605.

 

The impact of the adoption of ASC 606 on our consolidated financial statements primarily relates to the gross presentation of prepaid travel agent commissions (Consolidated Balance Sheet), shore excursions and other onboard revenues and costs (Consolidated Statement of Income) which were historically presented net. As of December 1, 2018, we recorded a cumulative effect adjustment of $24 million to retained earnings related to the accounting for our loyalty programs.

 

The following tables summarize the impacts of ASC 606 adoption on our consolidated financial statements:

 

Three Months Ended August 31, 2019

(in millions)

Prior to adoption of ASC 606

 

Adjustments

 

As Reported

Consolidated Statement of Income

 

 

 

 

 

Onboard and other (Revenues)

$

1,407

 

 

$

449

 

 

$

1,855

 

Revenues (Total)

$

6,084

 

 

$

449

 

 

$

6,533

 

Onboard and other (Operating Costs and Expenses)

$

219

 

 

$

449

 

 

$

668

 

Operating Costs and Expenses (Total)

$

4,194

 

 

$

449

 

 

$

4,643

 

Operating Income

$

1,890

 

 

$

-

 

 

$

1,890

 

Net Income

$

1,780

 

 

$

-

 

 

$

1,780

 

 

 

 

 

 

 

 

Nine Months Ended August 31, 2019

(in millions)

Prior to adoption of ASC 606

 

Adjustments

 

As Reported

Consolidated Statement of Income

 

 

 

 

 

Onboard and other (Revenues)

$

3,696

 

 

$

1,115

 

 

$

4,811

 

Revenues (Total)

$

14,929

 

 

$

1,115

 

 

$

16,043

 

Onboard and other (Operating Costs and Expenses)

$

506

 

 

$

1,115

 

 

$

1,620

 

Operating Costs and Expenses (Total)

$

12,137

 

 

$

1,115

 

 

$

13,252

 

Operating Income

$

2,791

 

 

$

-

 

 

$

2,791

 

Net Income

$

2,567

 

 

$

-

 

 

$

2,567

 

 

 

 

 

 

 

 

At August 31, 2019

(in millions)

Prior to adoption of ASC 606

 

Adjustments

 

As Reported

Consolidated Balance Sheet

 

 

 

 

 

Prepaid expenses and other

$

488

 

 

$

147

 

 

$

635

 

Total current assets

$

2,565

 

 

$

147

 

 

$

2,712

 

Customer deposits

$

4,527

 

 

$

147

 

 

$

4,674

 

Total current liabilities

$

8,784

 

 

$

147

 

 

$

8,932

 

 

 

 

 

 

 

 

Nine Months Ended August 31, 2019

(in millions)

Prior to adoption of ASC 606

 

Adjustments

 

As Reported

Consolidated Statement of Cash Flows

 

 

 

 

 

Prepaid expenses and other

$

(73

)

 

$

(147

)

 

$

(220

)

Customer deposits

$

262

 

 

$

147

 

 

$

409

 

Net cash provided by operating activities

$

4,414

 

 

$

-

 

 

$

4,414

 

 

The FASB issued amended guidance, Business Combinations - Clarifying the Definition of a Business, which assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. On December 1, 2018, we adopted this guidance using the prospective transition method. The adoption of this guidance had no impact on our consolidated financial statements.

 

The FASB issued amended guidance, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are aimed at reducing the existing diversity in practice. On December 1, 2018, we adopted this guidance using the retrospective method for each period presented. The adoption of this guidance had no impact on our consolidated financial statements.

 

The FASB issued amended guidance, Statement of Cash Flows - Restricted Cash. On December 1, 2018, we adopted this guidance using the retrospective method for each period presented. As a result, we now present restricted cash with cash and cash equivalents in the statement of cash flows. The reclassification of restricted cash balances from investing activities to changes in cash, cash equivalents and restricted cash was not material for the period presented.

 

The FASB issued amended guidance, Service Concession Arrangements, which clarifies that the grantor in a service arrangement should be considered the customer of the operating entity in all cases. On December 1, 2018, we adopted this guidance using the modified retrospective method. The adoption of this guidance had no impact on our consolidated financial statements.

 

The FASB issued amended guidance, Derivatives and Hedging, which targeted improvements to accounting for hedging activities such as hedging strategies, effectiveness assessments and recognition of derivative gains or losses. On December 1, 2018, we early adopted this guidance using the modified retrospective approach, which did not have a material impact on our financial statements. At the time of adoption, we changed the method by which we assess effectiveness for outstanding net investment hedges from the forward method to the spot method. Under the spot method, the change in fair value of the hedging instrument attributable to hedge effectiveness remains in AOCI until the net investment is sold or liquidated, while the impact attributable to components excluded from the assessment of hedge effectiveness is recorded in interest expense, net of capitalized interest, on a systematic and rational basis. Previous gains or losses incurred under the forward method related to net investment hedges will remain in AOCI within the foreign currency translation adjustments component and will be reclassified to earnings when the net investment is sold or liquidated. As required by this guidance, we have also added certain disclosures about hedging activities and their effect on our consolidated financial statements.

 

The FASB issued guidance, Leases, which requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. This guidance is required to be adopted by us in the first quarter of 2020 and must be applied using a modified retrospective approach which allows entities to either apply the new lease standard to the beginning of the earliest period presented or only to the current period consolidated financial statements. The initial adoption of this guidance is expected to increase both our total assets and total liabilities, reflecting the lease rights and obligations arising from our lease arrangements, and will require additional disclosures. We are evaluating certain contractual arrangements to determine if they contain an implicit right to use an asset that would qualify as a leasing arrangement under the new guidance.

 

The FASB issued amended guidance, Intangibles - Goodwill and Other - Internal-Use Software, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. The expense related to deferred implementation costs is required to be presented in the same income statement line item as the related hosting fees. Additionally, the payments for deferred implementation costs are required to be presented in the same line item in the statement of cash flows as payments for the related hosting fees. This guidance is required to be adopted by us in the first quarter of 2021 and must be applied using either a prospective or a retrospective approach. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

 

NOTE 2 - Revenue and Expense Recognition

 

Guest cruise deposits represent unearned revenues and are initially included in customer deposit liabilities when received. Customer deposits are subsequently recognized as cruise revenues, together with revenues from onboard and other activities, and all associated direct costs and expenses of a voyage are recognized as cruise costs and expenses, upon completion of voyages with durations of ten nights or less and on a pro rata basis for voyages in excess of ten nights. The impact of recognizing these shorter duration cruise revenues and costs and expenses on a completed voyage basis versus on a pro rata basis is not significant. Certain of our product offerings are bundled and we allocate the value of the bundled services and goods between passenger ticket revenues, onboard and other revenues and tour and other revenues based upon the estimated standalone selling prices of those goods and services.

 

Future travel discount vouchers are included as a reduction of cruise passenger ticket revenues when such vouchers are utilized. Guest cancellation fees are recognized in cruise passenger ticket revenues at the time of cancellation.

 

Our sale to guests of air and other transportation to and from airports near the home ports of our ships are included in cruise passenger ticket revenues, and the related cost of purchasing these services are included in cruise transportation costs. The proceeds that we collect from the sales of third-party shore excursions are included in onboard and other revenues and the related costs are included in onboard and other costs. The amounts collected on behalf of our onboard concessionaires, net of the amounts remitted to them, are included in onboard and other cruise revenues as concession revenues. All of these amounts are recognized on a completed voyage or pro rata basis as discussed above.

 

Cruise passenger ticket revenues include fees, taxes and charges collected by us from our guests. A portion of these fees, taxes and charges vary with guest head counts and are directly imposed on a revenue-producing arrangement. This portion of the fees, taxes and charges is expensed in commissions, transportation and other costs when the corresponding revenues are recognized. For the three and nine months ended August 31, the fees, taxes and charges included in passenger ticket revenues and commissions, transportation and other costs were $186 million and $503 million in 2019 and $174 million and $465 million in 2018. The remaining portion of fees, taxes and charges are also included in cruise passenger ticket revenues and are expensed in other ship operating expenses when the corresponding revenues are recognized.

 

Revenues and expenses from our hotel and transportation operations, which are included in our Tour and Other segment, are recognized at the time the services are performed or expenses are incurred. Revenues from the long-term leasing of ships, which are also included in our Tour and Other segment, are recognized ratably over the term of the agreement.

                                                               

     Customer Deposits

 

Our payment terms generally require an initial deposit to confirm a reservation, with the balance due prior to the voyage. Cash received from guests in advance of the cruise is recorded in customer deposits and in other long-term liabilities on our Consolidated Balance Sheets. These amounts include refundable deposits. We had customer deposits of $4.9 billion and $4.7 billion as of August 31, 2019 and December 1, 2018. During the nine months ended August 31, 2019, we recognized revenues of $4.1 billion related to our customer deposits as of December 1, 2018. Our customer deposits balance changes due to the seasonal nature of cash collections, the recognition of revenue and foreign currency translation.

 

     Contract Receivables

 

Although we generally require full payment from our customers prior to or concurrently with their cruise, we grant credit terms to a relatively small portion of our revenue source. We also have receivables from credit card merchants for cruise ticket purchases and onboard revenue. These receivables are included within trade and other receivables, net.

 

     Contract Assets

 

Contract assets are amounts paid prior to the start of a voyage, which we record as an asset within prepaid expenses and other and which are subsequently recognized as commissions, transportation and other at the time of revenue recognition. We have contract assets of $147 million and $151 million as of August 31, 2019 and December 1, 2018.

 

NOTE 3 - Unsecured Debt

 

At August 31, 2019, our short-term borrowings consisted of euro-denominated commercial paper of $238 million. For the nine months ended August 31, 2019, there were no borrowings or repayments of commercial paper with original maturities greater than three months. For the nine months ended August 31, 2018, we had borrowings of $2 million and repayments of $2 million of commercial paper with original maturities greater than three months.

 

In December 2018, we borrowed $852 million under an export credit facility due in semi-annual installments through 2031.

 

In February 2019, we borrowed $587 million under a euro-denominated export credit facility due in semi-annual installments through 2031. We also entered into an $899 million export credit facility, which may be drawn in euro or U.S. dollars in 2023 and will be due in semi-annual installments through 2035. The interest rate on this export credit facility can be fixed or floating, at our discretion.

 

In March 2019, we borrowed $283 million under two euro-denominated floating rate bank loans due in 2023.

 

In August 2019, we amended and restated our existing multi-currency revolving credit facility which was scheduled to expire in 2021. The amended and restated five-year multi-currency revolving credit facility of $3.0 billion (comprised of $1.7 billion, €1.0 billion and £150 million) expires in 2024.

 

NOTE 4 - Contingencies

     Litigation

On May 2, 2019, two lawsuits were filed against Carnival Corporation in the U.S. District Court for the Southern District of Florida under Title III of the Cuban Liberty and Democratic Solidarity Act, also known as the Helms-Burton Act. The complaint filed by Havana Docks Corporation alleges it holds an interest in the Havana Cruise Port Terminal and the complaint filed by Javier Garcia-Bengochea alleges that he holds an interest in the Port of Santiago, Cuba, both of which were expropriated by the Cuban Government. The complaints further allege that Carnival Cruise Line "trafficked" in those properties by embarking and disembarking passengers at these facilities. The plaintiffs seek all available statutory remedies, including the value of the expropriated property, plus interest, treble damages, attorneys' fees and costs. The court denied our motion to dismiss the complaints filed by Havana Docks Corporation and Javier Garcia-Bengochea, on August 28, 2019 and August 26, 2019, respectively.

We believe we have meritorious defenses to the claims and intend to vigorously defend against them. We do not believe that it is likely that the outcome of these matters will be material, but litigation is inherently unpredictable and there can be no assurances that the final outcome of the case might not be material to our operating results or financial condition.

Additionally, in the normal course of our business, various claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits, or any settlement of claims and lawsuits, are covered by insurance and the maximum amount of our liability, net of any insurance recoverables, is typically limited to our self-insurance retention levels. We believe the ultimate outcome of these claims, lawsuits and settlements, as applicable, each and in the aggregate, will not have a material impact on our consolidated financial statements.

     Contingent Obligations - Indemnifications

Some of the debt contracts we enter into include indemnification provisions obligating us to make payments to the counterparty if certain events occur. These contingencies generally relate to changes in taxes or changes in laws which increase our lender's costs. There are no stated or notional amounts included in the indemnification clauses, and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses.

 

NOTE 5 - Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risks

Fair Value Measurements

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured using inputs in one of the following three categories:

•       Level 1 measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.

•       Level 2 measurements are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or market data other than quoted prices that are observable for the assets or liabilities.

•       Level 3 measurements are based on unobservable data that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.

Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, certain estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange.

 

Financial Instruments that are not Measured at Fair Value on a Recurring Basis

 

August 31, 2019

 

November 30, 2018

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

(in millions)

 

Level 1

 

Level 2

 

Level 3

 

Level 1

 

Level 2

 

Level 3

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term other assets (a)

$

186

 

 

$

-

 

 

$

31

 

 

$

154

 

 

$

127

 

 

$

-

 

 

$

30

 

 

$

95

 

Total

$

186

 

 

$

-

 

 

$

31

 

 

$

154

 

 

$

127

 

 

$

-

 

 

$

30

 

 

$

95

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate debt (b)

$

6,560

 

 

$

-

 

 

$

6,947

 

 

$

-

 

 

$

5,699

 

 

$

-

 

 

$

5,799

 

 

$

-

 

Floating rate debt (b)

4,278

 

 

-

 

 

4,338

 

 

-

 

 

4,695

 

 

-

 

 

4,727

 

 

-

 

Total

$

10,839

 

 

$

-

 

 

$

11,285

 

 

$

-

 

 

$

10,394

 

 

$

-

 

 

$

10,526

 

 

$

-

 

 

(a)         Long-term other assets are comprised of notes receivables, which include loans on ship sales. The fair values of our Level 2 notes receivable were based on estimated future cash flows discounted at appropriate market interest rates. The fair values of our Level 3 notes receivable were estimated using risk-adjusted discount rates.

(b)         The debt amounts above do not include the impact of interest rate swaps or debt issuance costs. The fair values of our publicly-traded notes were based on their unadjusted quoted market prices in markets that are not sufficiently active to be Level 1 and, accordingly, are considered Level 2. The fair values of our other debt were estimated based on current market interest rates being applied to this debt.

 

Financial Instruments that are Measured at Fair Value on a Recurring Basis

 

August 31, 2019

 

November 30, 2018

(in millions)

Level 1

 

Level 2

 

Level 3

 

Level 1

 

Level 2

 

Level 3

Assets

 

 

 

 

 

 

 

 

 

 

 

$

1,153

 

 

$

-

 

 

$

-

 

 

$

982

 

 

$

-

 

 

$

-

 

16

 

 

-

 

 

-

 

 

14

 

 

-

 

 

-

 

-

 

 

37

 

 

-

 

 

-

 

 

-

 

 

-

 

Total

$

1,170

 

 

$

37

 

 

$

-

 

 

$

996

 

 

$

-

 

 

$

-

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

$

-

 

 

$

25

 

 

$

-

 

 

$

-

 

 

$

29

 

 

$

-

 

Total

$

-

 

 

$

25

 

 

$

-

 

 

$

-

 

 

$

29

 

 

$

-

 

 

Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis

Valuation of Goodwill and Trademarks

 

Goodwill

(in millions)

NAA (a)
Segment

 

EA (b)
Segment

 

Total

At November 30, 2018

$

1,898

 

 

$

1,027

 

 

$

2,925

 

Foreign currency translation adjustment

-

 

 

(39

)

 

(39

)

At August 31, 2019

$

1,898

 

 

$

988

 

 

$

2,886

 

(a)           North America & Australia ("NAA")

(b)           Europe & Asia ("EA")

 

Trademarks

(in millions)

NAA
Segment

 

EA
Segment

 

Total

At November 30, 2018

$

927

 

 

$

242

 

 

$

1,169

 

Foreign currency translation adjustment

-

 

 

(10

)

 

(10

)

At August 31, 2019

$

927

 

 

$

232

 

 

$

1,159

 

 

The determination of our reporting unit goodwill and trademark fair values includes numerous assumptions that are subject to various risks and uncertainties. We believe that we have made reasonable estimates and judgments. A change in the conditions, circumstances or strategy, including decisions about the allocation of new ships amongst brands and the transfer of ships between brands (influencing fair values in the future), may result in a need to recognize an impairment charge.

 

Derivative Instruments and Hedging Activities

 

(in millions)

Balance Sheet Location

 

August 31, 2019

 

November 30, 2018

Derivative assets

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

Cross currency swaps (a)

Prepaid expenses and other

 

$

20

 

 

$

-

 

 

Other assets

 

18

 

 

-

 

Total derivative assets

 

 

$

37

 

 

$

-

 

Derivative liabilities

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

Cross currency swaps (a)

Accrued liabilities and other

 

$

-

 

 

$

5

 

Foreign currency zero cost collars (b)

Accrued liabilities and other

 

5

 

 

-

 

Interest rate swaps (c)

Accrued liabilities and other

 

7

 

 

8

 

 

Other long-term liabilities

 

12

 

 

11

 

 

 

 

25

 

 

23

 

Derivatives not designated as hedging instruments

 

 

 

 

 

Fuel

Accrued liabilities and other

 

-

 

 

6

 

Total derivative liabilities

 

 

$

25

 

 

$

29

 

 

(a)         At August 31, 2019 and November 30, 2018, we had cross currency swaps totaling $943 million and $156 million, respectively, that are designated as hedges of our net investment in foreign operations with a euro-denominated functional currency. At August 31, 2019, these cross currency swaps settle through December 2030.

(b)         At August 31, 2019, we had foreign currency derivatives consisting of foreign currency zero cost collars that are designated as foreign currency cash flow hedges for a portion of our euro-denominated shipbuilding payments. See "Newbuild Currency Risks" below for additional information regarding these derivatives.

(c)         We have interest rate swaps designated as cash flow hedges whereby we receive floating interest rate payments in exchange for making fixed interest rate payments. These interest rate swap agreements effectively changed $326 million at August 31, 2019 and $385 million at November 30, 2018 of EURIBOR-based floating rate euro debt to fixed rate euro debt. At August 31, 2019, these interest rate swaps settle through March 2025.

 

Our derivative contracts include rights of offset with our counterparties. We have elected to net certain of our derivative assets and liabilities within counterparties.

 

 

August 31, 2019

(in millions)

 

Gross Amounts

 

Gross Amounts Offset in the Balance Sheet

 

Total Net Amounts Presented in the Balance Sheet

 

Gross Amounts not Offset in the Balance Sheet

 

Net Amounts

Assets

 

$

38

 

 

$

(1

)

 

$

37

 

 

$

(1

)

 

$

36

 

Liabilities

 

$

26

 

 

$

(1

)

 

$

25

 

 

$

(1

)

 

$

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30, 2018

(in millions)

 

Gross Amounts

 

Gross Amounts Offset in the Balance Sheet

 

Total Net Amounts Presented in the Balance Sheet

 

Gross Amounts not Offset in the Balance Sheet

 

Net Amounts

Assets

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Liabilities

 

$

29

 

 

$

-

 

 

$

29

 

 

$

-

 

 

$

29

 

The effect of our derivatives qualifying and designated as hedging instruments recognized in other comprehensive income (loss) and in income was as follows:

 

Three Months Ended
August 31,

 

Nine Months Ended
August 31,

(in millions)

2019

 

2018

 

2019

 

2018

Gains (losses) recognized in AOCI:

 

 

 

 

 

 

 

Cross currency swaps - net investment hedges

$

19

 

 

$

3

 

 

$

38

 

 

$

13

 

Foreign currency zero cost collars - cash flow hedges

$

(4

)

 

$

(1

)

 

$

(5

)

 

$

(11

)

Interest rate swaps - cash flow hedges

$

(1

)

 

$

1

 

 

$

(1

)

 

$

5

 

Gains (losses) reclassified from AOCI - cash flow hedges:

 

 

 

 

 

 

 

Interest rate swaps - Interest expense, net of capitalized interest

$

(2

)

 

$

(2

)

 

$

(6

)

 

$

(8

)

Foreign currency zero cost collars - Depreciation and amortization

$

-

 

 

$

-

 

 

$

1

 

 

$

-

 

Gains (losses) recognized on derivative instruments (amount excluded from effectiveness testing - net investment hedges)

 

 

 

 

 

 

 

Cross currency swaps - Interest expense, net of capitalized interest

$

6

 

 

$

-

 

 

$

16

 

 

$

-

 

 

The amount of estimated cash flow hedges' unrealized gains and losses that are expected to be reclassified to earnings in the next twelve months is not significant.

Financial Risks

Fuel Price Risks

We manage our exposure to fuel price risk by managing our consumption of fuel. Substantially all of our exposure to market risk for changes in fuel prices relates to the consumption of fuel on our ships. We manage fuel consumption through ship maintenance practices, modifying our itineraries and implementing innovative technologies. We are also adding new, more fuel efficient ships to our fleet and are strategically disposing of smaller, less fuel efficient ships.

Foreign Currency Exchange Rate Risks

Overall Strategy

We manage our exposure to fluctuations in foreign currency exchange rates through our normal operating and financing activities, including netting certain exposures to take advantage of any natural offsets and, when considered appropriate, through the use of derivative and non-derivative financial instruments. Our primary focus is to monitor our exposure to, and manage, the economic foreign currency exchange risks faced by our operations and realized if we exchange one currency for another. We currently only hedge certain of our ship commitments and net investments in foreign operations. The financial impacts of the hedging instruments we do employ generally offset the changes in the underlying exposures being hedged.

Operational Currency Risks

Our operations primarily utilize the U.S. dollar, Australian dollar, euro or sterling as their functional currencies. Our operations also have revenue and expenses denominated in non-functional currencies. Movements in foreign currency exchange rates will affect our financial statements.

Investment Currency Risks

We consider our investments in foreign operations to be denominated in stable currencies. Our investments in foreign operations are of a long-term nature. At August 31, 2019, we had $6.6 billion and $806 million of euro- and sterling-denominated debt, respectively, including the effect of cross currency swaps, which provide an economic offset for our operations with euro and sterling functional currency. We also partially mitigate our net investment currency exposures by denominating a portion of our foreign currency intercompany payables in our foreign operations' functional currencies. 

Newbuild Currency Risks

 

Our shipbuilding contracts are typically denominated in euros. Our decision to hedge a non-functional currency ship commitment for our cruise brands is made on a case-by-case basis, considering the amount and duration of the exposure, market volatility, economic trends, our overall expected net cash flows by currency and other offsetting risks. We use foreign currency derivative contracts to manage foreign currency exchange rate risk for some of our ship construction payments. At August 31, 2019, for the following newbuilds, we had foreign currency zero cost collars for a portion of our euro-denominated shipyard payments. These collars are designated as cash flow hedges.

 

Entered Into

 

Matures in

 

Weighted-Average Floor Rate

 

Weighted- Average Ceiling Rate

Carnival Panorama

2019

 

October 2019

 

$

1.05

 

 

$

1.28

 

Enchanted Princess

2019

 

June 2020

 

$

1.04

 

 

$

1.28

 

Mardi Gras

2019

 

August 2020

 

$

1.04

 

 

$

1.28

 

If the spot rate is between the ceiling and floor rates on the date of maturity, then we would not owe or receive any payments under these collars.

At August 31, 2019, our remaining newbuild currency exchange rate risk primarily relates to euro-denominated newbuild contract payments to non-euro functional currency brands, which represent a total unhedged commitment of $7.5 billion for newbuilds scheduled to be delivered from 2020 through 2025.

The cost of shipbuilding orders that we may place in the future that is denominated in a different currency than our cruise brands' will be affected by foreign currency exchange rate fluctuations. These foreign currency exchange rate fluctuations may affect our decision to order new cruise ships.

Interest Rate Risks

We manage our exposure to fluctuations in interest rates through our debt portfolio management and investment strategies. We evaluate our debt portfolio to determine whether to make periodic adjustments to the mix of fixed and floating rate debt through the use of interest rate swaps, issuance of new debt, amendment of existing debt or early retirement of existing debt.

Concentrations of Credit Risk

 

As part of our ongoing control procedures, we monitor concentrations of credit risk associated with financial and other institutions with which we conduct significant business. We seek to minimize these credit risk exposures, including counterparty nonperformance primarily associated with our cash equivalents, investments, notes receivables, committed financing facilities, contingent obligations, derivative instruments, insurance contracts, long-term ship charters and new ship progress payment guarantees, by:

 

•       Conducting business with large, well-established financial institutions, insurance companies and export credit agencies

•       Diversifying our counterparties 

•       Having guidelines regarding credit ratings and investment maturities that we follow to help safeguard liquidity and minimize risk

•       Generally requiring collateral and/or guarantees to support notes receivable on significant asset sales, long-term ship charters and new ship progress payments to shipyards 

 

We believe the risk of nonperformance by any of our significant counterparties is remote. At August 31, 2019, our exposures under foreign currency contracts, cross currency swaps and interest rate swap agreements were not material. We also monitor the creditworthiness of travel agencies and tour operators in Asia, Australia and Europe, which includes charter-hire agreements in Asia and credit and debit card providers to which we extend credit in the normal course of our business. Our credit exposure also includes contingent obligations related to cash payments received directly by travel agents and tour operators for cash collected by them on cruise sales in Australia and most of Europe where we are obligated to honor our guests' cruise payments made by them to their travel agents and tour operators regardless of whether we have received these payments. Concentrations of credit risk associated with trade receivables, charter-hire agreements and contingent obligations are not considered to be material, principally due to the large number of unrelated accounts, the nature of these contingent obligations and their short maturities. We have not experienced significant credit losses on our trade receivables, notes receivables, charter-hire agreements and contingent obligations. We do not normally require collateral or other security to support normal credit sales.

NOTE 6 - Segment Information

Our operating segments are reported on the same basis as the internally reported information that is provided to our chief operating decision maker ("CODM"), who is the President and Chief Executive Officer of Carnival Corporation and Carnival plc. The CODM assesses performance and makes decisions to allocate resources for Carnival Corporation & plc based upon review of the results across all of our segments. Our four reportable segments are comprised of (1) NAA cruise operations, (2) EA cruise operations, (3) Cruise Support and (4) Tour and Other.

 

The operating segments within each of our NAA and EA reportable segments have been aggregated based on the similarity of their economic and other characteristics, including geographic guest sourcing. Our Cruise Support segment includes our portfolio of leading port destinations and other services, all of which are operated for the benefit of our cruise brands. Our Tour and Other segment represents the hotel and transportation operations of Holland America Princess Alaska Tours and other operations.

 

Three Months Ended August 31,

(in millions)

Revenues

 

Operating costs and
expenses

 

Selling
and
administrative

 

Depreciation
and
amortization

 

Operating
income (loss)

2019

 

 

 

 

 

 

 

 

 

NAA

$

4,256

 

 

$

2,327

 

 

$

339

 

 

$

345

 

 

$

1,246

 

EA

2,035

 

 

1,058

 

 

150

 

 

165

 

 

662

 

Cruise Support

42

 

 

39

 

 

65

 

 

29

 

 

(92

)

Tour and Other

200

 

 

109

 

 

9

 

 

9

 

 

74

 

 

$

6,533

 

 

$

3,532

 

 

$

563

 

 

$

548

 

 

$

1,890

 

2018

 

 

 

 

 

 

 

 

 

NAA

$

3,805

 

 

$

1,981

 

 

$

333

 

 

$

323

 

 

$

1,168

 

EA

1,832

 

 

891

 

 

172

 

 

150

 

 

621

 

Cruise Support

31

 

 

(4

)

 

64

 

 

28

 

 

(57

)

Tour and Other

167

 

 

90

 

 

4

 

 

10

 

 

62

 

 

$

5,836

 

 

$

2,958

 

 

$

573

 

 

$

511

 

 

$

1,794

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended August 31,

(in millions)

Revenues

 

Operating costs and
expenses

 

Selling
and
administrative

 

Depreciation
and
amortization

 

Operating
income (loss)

2019

 

 

 

 

 

 

 

 

 

NAA

$

10,495

 

 

$

6,370

 

 

$

1,034

 

 

$

1,012

 

 

$

2,079

 

EA

5,122

 

 

3,166

 

 

540

 

 

483

 

 

933

 

Cruise Support

128

 

 

99

 

 

217

 

 

84

 

 

(272

)

Tour and Other

299

 

 

198

 

 

21

 

 

28

 

 

52

 

 

$

16,043

 

 

$

9,833

 

 

$

1,813

 

 

$

1,607

 

 

$

2,791

 

2018

 

 

 

 

 

 

 

 

 

NAA

$

9,325

 

 

$

5,385

 

 

$

1,039

 

 

$

940

 

 

$

1,961

 

EA

4,784

 

 

2,783

 

 

551

 

 

466

 

 

984

 

Cruise Support

94

 

 

40

 

 

183

 

 

76

 

 

(204

)

Tour and Other

222

 

 

140

 

 

22

 

 

29

 

 

31

 

 

$

14,425

 

 

$

8,348

 

 

$

1,794

 

 

$

1,510

 

 

$

2,772

 

 

Revenue by geographic areas, which are based on where our guests are sourced, were as follows:

(in millions)

Three Months Ended August 31, 2019

 

Nine Months Ended August 31, 2019

North America

$

3,751

 

 

$

8,910

 

Europe

1,738

 

 

4,486

 

Australia and Asia

937

 

 

2,261

 

Other

107

 

 

385

 

 

$

6,533

 

 

$

16,043

 

 

NOTE 7 - Earnings Per Share

 

Three Months Ended
August 31,

 

Nine Months Ended
August 31,

(in millions, except per share data)

2019

 

2018

 

2019

 

2018

Net income for basic and diluted earnings per share

$

1,780

 

 

$

1,707

 

 

$

2,567

 

 

$

2,659

 

Weighted-average shares outstanding

689

 

 

706

 

 

691

 

 

712

 

Dilutive effect of equity plans

2

 

 

2

 

 

2

 

 

2

 

Diluted weighted-average shares outstanding

691

 

 

707

 

 

693

 

 

714

 

Basic earnings per share

$

2.58

 

 

$

2.42

 

 

$

3.72

 

 

$

3.73

 

Diluted earnings per share

$

2.58

 

 

$

2.41

 

 

$

3.71

 

 

$

3.72

 

  

NOTE 8 - Supplemental Cash Flow Information

(in millions)

August 31, 2019

 

November 30, 2018

Cash and cash equivalents (Consolidated Balance Sheets)

$

1,153

 

 

$

982

 

Restricted cash included in prepaid expenses and other and other assets

16

 

 

14

 

Total cash, cash equivalents and restricted cash (Consolidated Statements of Cash Flows)

$

1,170

 

 

$

996

 

 

For the nine months ended August 31, 2019 and 2018, we issued notes receivable upon sale of ships of $104 million and $35 million.

 

NOTE 9 - Property and Equipment

 

In March 2019, we sold and transferred an NAA segment 1,680-passenger capacity ship.

 

In April 2019, we sold and transferred an NAA segment 1,260-passenger capacity ship.

 

In July 2019, we transferred an NAA segment 840-passenger capacity ship.

 

In August 2019, we transferred an EA segment 1,880-passenger capacity ship.

 

SCHEDULE B

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Note Concerning Factors That May Affect Future Results

 

Some of the statements, estimates or projections contained in this document are "forward-looking statements" that involve risks, uncertainties and assumptions with respect to us, including some statements concerning future results, outlooks, plans, goals and other events which have not yet occurred. These statements are intended to qualify for the safe harbors from liability provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts are statements that could be deemed forward-looking. These statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and the beliefs and assumptions of our management. We have tried, whenever possible, to identify these statements by using words like "will," "may," "could," "should," "would," "believe," "depends," "expect," "goal," "anticipate," "forecast," "project," "future," "intend," "plan," "estimate," "target," "indicate," "outlook," and similar expressions of future intent or the negative of such terms.

 

Forward-looking statements include those statements that relate to our outlook and financial position including, but not limited to, statements regarding:

      Net revenue yields

      Net cruise costs, excluding fuel per available lower berth day

      Booking levels

      Estimates of ship depreciable lives and residual values

      Pricing and occupancy

      Goodwill, ship and trademark fair values

      Interest, tax and fuel expenses

      Liquidity

      Currency exchange rates

      Adjusted earnings per share

Because forward-looking statements involve risks and uncertainties, there are many factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied by our forward-looking statements. This note contains important cautionary statements of the known factors that we consider could materially affect the accuracy of our forward looking statements and adversely affect our business, results of operations and financial position. It is not possible to predict or identify all such risks. There may be additional risks that we consider immaterial or which are unknown. These factors include, but are not limited to, the following:

•       Adverse world events impacting the ability or desire of people to travel may lead to a decline in demand for cruises

•       Incidents concerning our ships, guests or the cruise vacation industry as well as adverse weather conditions and other natural disasters may impact the satisfaction of our guests and crew and lead to reputational damage

•       Changes in and non-compliance with laws and regulations under which we operate, such as those relating to health, environment, safety and security, data privacy and protection, anti-corruption, economic sanctions, trade protection and tax may lead to litigation, enforcement actions, fines, penalties and reputational damage

•       Breaches in data security and lapses in data privacy as well as disruptions and other damages to our principal offices, information technology operations and system networks and failure to keep pace with developments in technology may adversely impact our business operations, the satisfaction of our guests and crew and lead to reputational damage

•       Ability to recruit, develop and retain qualified shipboard personnel who live away from home for extended periods of time may adversely impact our business operations, guest services and satisfaction

•       Increases in fuel prices and availability of fuel supply may adversely impact our scheduled itineraries and costs

•       Fluctuations in foreign currency exchange rates may adversely impact our financial results

•       Overcapacity and competition in the cruise and land-based vacation industry may lead to a decline in our cruise sales and pricing

•       Geographic regions in which we try to expand our business may be slow to develop or ultimately not develop how we expect

•       Inability to implement our shipbuilding programs and ship repairs, maintenance and refurbishments may adversely impact our business operations and the satisfaction of our guests

 

The ordering of the risk factors set forth above is not intended to reflect our indication of priority or likelihood.

Forward-looking statements should not be relied upon as a prediction of actual results. Subject to any continuing obligations under applicable law or any relevant stock exchange rules, we expressly disclaim any obligation to disseminate, after the date of this document, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based. 

New Accounting Pronouncements

 

Refer to our consolidated financial statements for further information on New Accounting Pronouncements.

 

Critical Accounting Estimates

 

For a discussion of our critical accounting estimates, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" that is included in the Form 10-K.

 

Seasonality

 

Our revenues from the sale of passenger tickets are seasonal. Historically, demand for cruises has been greatest during our third quarter, which includes the Northern Hemisphere summer months. This higher demand during the third quarter results in higher ticket prices and occupancy levels and, accordingly, the largest share of our operating income is earned during this period. The seasonality of our results also increases due to ships being taken out-of-service for maintenance, which we schedule during non-peak demand periods. In addition, substantially all of Holland America Princess Alaska Tours' revenue and net income is generated from May through September in conjunction with the Alaska cruise season.

Statistical Information

 

Three Months Ended

August 31,

 

Nine Months Ended
August 31,

 

2019

 

2018

 

2019

 

2018

Available Lower Berth Days ("ALBDs") (in thousands) (a) (b)

22,727

 

 

21,475

 

 

65,671

 

 

62,626

 

Occupancy percentage (c)

113.0

%

 

112.6

%

 

107.8

%

 

107.8

%

Passengers carried (in thousands)

3,752

 

 

3,562

 

 

9,790

 

 

9,393

 

Fuel consumption in metric tons (in thousands)

822

 

 

818

 

 

2,487

 

 

2,458

 

Fuel consumption in metric tons per thousand ALBDs

36.2

 

 

38.1

 

 

37.9

 

 

39.3

 

Fuel cost per metric ton consumed

$

487

 

 

$

531

 

 

$

484

 

 

$

474

 

Currencies (USD to 1)

 

 

 

 

 

 

 

AUD

$

0.69

 

 

$

0.74

 

 

$

0.70

 

 

$

0.76

 

CAD

$

0.76

 

 

$

0.76

 

 

$

0.75

 

 

$

0.78

 

EUR

$

1.12

 

 

$

1.16

 

 

$

1.13

 

 

$

1.20

 

GBP

$

1.24

 

 

$

1.31

 

 

$

1.28

 

 

$

1.36

 

RMB

$

0.14

 

 

$

0.15

 

 

$

0.15

 

 

$

0.15

 

 

(a)         ALBD is a standard measure of passenger capacity for the period that we use to approximate rate and capacity variances, based on consistently applied formulas that we use to perform analyses to determine the main non-capacity driven factors that cause our cruise revenues and expenses to vary. ALBDs assume that each cabin we offer for sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-producing ship operating days in the period.

 

(b)         For the three months ended August 31, 2019 compared to the three months ended August 31, 2018, we had a 5.8% capacity increase in ALBDs comprised of a 1.7% capacity increase in our NAA segment and a 13% capacity increase in our EA segment.

 

Our NAA segment's capacity increase was caused by the full period impact from one Holland America Line 2,670-passenger capacity ship that entered into service in December 2018.

 

The increase in our NAA segment's capacity was partially offset by:

•       Full period impact from one P&O Cruises (Australia) 1,680-passenger capacity ship removed from service in March 2019

•       Full period impact from one P&O Cruises (Australia) 1,260-passenger capacity ship removed from service in April 2019

•       Partial period impact from one Holland America Line 835-passenger capacity ship removed from service in July 2019

 

Our EA segment's capacity increase was caused by:

•       Full period impact from one AIDA 5,230-passenger capacity ship that entered into service in December 2018

•       Full period impact from one Costa Cruises 4,200-passenger capacity ship that entered into service in March 2019

 

The increase in our EA segment's capacity was partially offset by the partial period impact from one P&O UK 1,880-passenger capacity ship removed from service in August 2019.

 

For the nine months ended August 31, 2019 compared to the nine months ended August 31, 2018, we had a 4.9% capacity increase in ALBDs comprised of a 2.4% capacity increase in our NAA segment and a 9.2% capacity increase in our EA segment.

 

Our NAA segment's capacity increase was caused by:

•       Partial period impact from one Carnival Cruise Line 3,960-passenger capacity ship that entered into service in April 2018

•       Partial period impact from one Seabourn 600-passenger capacity ship that entered into service in May 2018

•       Partial period impact from one Holland America Line 2,670-passenger capacity ship that entered into service in December 2018

 

The increase in our NAA segment's capacity was partially offset by:

•       Partial period impact from one P&O Cruises (Australia) 1,680-passenger capacity ship removed from service in March 2019

•       Partial period impact from one P&O Cruises (Australia) 1,260-passenger capacity ship removed from service in April 2019

•       Partial period impact from one Holland America Line 835-passenger capacity ship removed from service in July 2019

 

Our EA segment's capacity increase was caused by:

•       Partial period impact from one AIDA 5,230-passenger capacity ship that entered into service in December 2018

•       Partial period impact from one Costa Cruises 4,200-passenger capacity ship that entered into service in March 2019

 

The increase in our EA segment's capacity was partially offset by:

•       Partial period impact from one P&O Cruises (UK) 700-passenger capacity ship removed from service in March 2018

•       Partial period impact from one Costa Cruises 1,300-passenger capacity ship removed from service in April 2018

•       Partial period impact from one P&O UK 1,880-passenger capacity ship removed from service in August 2019

 

(c)           In accordance with cruise industry practice, occupancy is calculated using a denominator of ALBDs, which assumes two passengers per cabin even though some cabins can accommodate three or more passengers. Percentages in excess of 100% indicate that on average more than two passengers occupied some cabins.

Three Months Ended August 31, 2019 ("2019") Compared to Three Months Ended August 31, 2018 ("2018")

 

Revenues

 

Consolidated

 

Cruise passenger ticket revenues made up 69% of our 2019 total revenues. Cruise passenger ticket revenues increased by $124 million, or 2.9%, to $4.5 billion in 2019 from $4.4 billion in 2018.

 

This increase was caused by:

•       $254 million - 5.8% capacity increase in ALBDs

•       $27 million - increase in air transportation revenues

•       $13 million - increase in occupancy

 

These increases were partially offset by:

•       $103 million - decrease in cruise ticket revenues, primarily driven by sourcing in Continental Europe and net unfavorable foreign currency transactional impact, partially offset by price improvements in the Caribbean program

•       $72 million - net unfavorable foreign currency translational impact

 

Onboard and other cruise revenues made up 28% of our 2019 total revenues. Onboard and other cruise revenues increased by $539 million, or 41%, to $1.9 billion in 2019 from $1.3 billion in 2018.

 

This increase was caused by:

•       $449 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance

•       $77 million - 5.8% capacity increase in ALBDs

•       $23 million - higher onboard spending by our guests

 

These increases were partially offset by net unfavorable foreign currency translational impact of $20 million.

 

Tour and other revenues made up 3.1% of our 2019 total revenues. Tour and other revenues increased by $33 million, or 20%, to $200 million in 2019 from $167 million in 2018.

 

Concession revenues, which are included in onboard and other revenues, increased by $11 million, or 3.1%, to $361 million in 2019 from $350 million in 2018.

 

NAA Segment

 

Cruise passenger ticket revenues made up 68% of our NAA segment's 2019 total revenues. Cruise passenger ticket revenues increased by $60 million, or 2.1%, to $2.9 billion in 2019 from $2.8 billion in 2018.

 

This increase was caused by:

•       $48 million - 1.7% capacity increase in ALBDs

•       $24 million -  increase in air transportation revenues

 

The remaining 32% of our NAA segment's 2019 total revenues were comprised of onboard and other cruise revenues, which increased by $391 million, or 40%, to $1.4 billion in 2019 from $1.0 billion in 2018.

 

This increase was caused by:

•       $357 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance

•       $16 million - 1.7% capacity increase in ALBDs

•       $13 million - increase in other revenues

•       $10 million - higher onboard spending by our guests

 

Concession revenues, which are included in onboard and other revenues, increased by $2 million, or 0.9%, to $253 million in 2019 from $251 million in 2018.

 

EA Segment

 

Cruise passenger ticket revenues made up 79% of our EA segment's 2019 total revenues. Cruise passenger ticket revenues increased by $81 million, or 5.3%, to $1.6 billion in 2019 compared to $1.5 billion in 2018.

 

This increase was caused by:

•       $200 million - 13% capacity increase in ALBDs

•       $23 million - increase in occupancy

 

These increases were partially offset by:

•       $76 million - decrease in cruise ticket revenues, primarily driven by sourcing in Continental Europe

•       $68 million - net unfavorable foreign currency translational impact

 

The remaining 21% of our EA segment's 2019 total revenues were comprised of onboard and other cruise revenues, which increased by $121 million, or 40%, to $426 million in 2019 from $305 million in 2018.

 

This increase was caused by:

•       $85 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance

•       $40 million - 13% capacity increase in ALBDs

•       $10 million - higher onboard spending by our guests

 

These increases were partially offset by net unfavorable foreign currency translational impact of $18 million.

 

Concession revenues, which are included in onboard and other revenues, increased by $8 million, or 8.4%, to $108 million in 2019 from $100 million in 2018.

 

Costs and Expenses

 

Consolidated

 

Operating costs and expenses increased by $574 million, or 19%, to $3.5 billion in 2019 from $3.0 billion in 2018.

 

This increase was caused by:

•       $449 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance

•       $167 million - 5.8% capacity increase in ALBDs

•       $21 million - gains on ship sales in 2018, net of gains on ship sales in 2019

•       $18 million - increase in tour and other costs

•       $17 million - increase in various other ship operating costs

 

These increases were partially offset by:

•       $43 million - net favorable foreign currency translational impact

•       $36 million - lower fuel prices

•       $23 million - lower fuel consumption per ALBD

•       $10 million - lower cruise payroll and related expenses

 

Selling and administrative expenses decreased by $10 million, or 1.8%, to $563 million in 2019 from $573 million in 2018.

 

Depreciation and amortization expenses increased by $37 million, or 7.3%, to $548 million in 2019 from $511 million in 2018.

 

NAA Segment

 

Operating costs and expenses increased by $346 million, or 17%, to $2.3 billion in 2019 from $2.0 billion in 2018.

 

This increase was caused by:

•       $357 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance

•       $33 million - 1.7% capacity increase in ALBDs

•       $19 million - higher commissions, transportation and other expenses

 

These increases were partially offset by:

•       $29 million - lower fuel prices

•       $27 million - lower cruise payroll and related expenses

 

Selling and administrative expenses increased by $5 million, or 1.6%, to $339 million in 2019 from $333 million in 2018.

 

Depreciation and amortization expenses increased by $21 million, or 6.6%, to $345 million in 2019 from $323 million in 2018.

 

EA Segment

 

Operating costs and expenses increased by $167 million, or 19%, to $1.1 billion in 2019 from $0.9 billion in 2018.

 

This increase was caused by:

•       $117 million - 13% capacity increase in ALBDs

•       $85 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance

•       $16 million - various other ship operating costs

 

These increases were partially offset by:

•       $39 million - net favorable foreign currency translational impact

•       $14 million - lower fuel consumption per ALBD

 

Selling and administrative expenses decreased by $21 million, or 12%, to $150 million in 2019 from $172 million in 2018. This decrease was driven by the timing of advertising expenses between quarters.

 

Depreciation and amortization expenses increased by $15 million, or 10%, to $165 million in 2019 from $150 million in 2018. This increase was caused by a 13% capacity increase in ALBDs, which accounted for $20 million.

 

Operating Income

 

Our consolidated operating income increased by $96 million, or 5.3%, to $1.9 billion in 2019 from $1.8 billion in 2018. Our NAA segment's operating income increased by $78 million, or 6.7%, to $1.2 billion in 2019 compared to $1.2 billion in 2018, and our EA segment's operating income increased by $42 million, or 6.7%, to $662 million in 2019 from $621 million in 2018. These changes were primarily due to the reasons discussed above.

 

Nonoperating Income (Expense)

(in millions)

Three Months Ended August 31, 2018

Unrealized gains on fuel derivatives, net

$

8

 

Realized losses on fuel derivatives, net

(4

)

Gains on fuel derivatives, net

$

4

 

 

There were no unrealized or realized gains or losses on fuel derivatives for the three months ended August 31, 2019.

 

Explanations of Non-GAAP Financial Measures

 

Non-GAAP Financial Measures

 

We use net cruise revenues per ALBD ("net revenue yields"), net cruise costs excluding fuel per ALBD, adjusted net income and adjusted earnings per share as non-GAAP financial measures of our cruise segments' and the company's financial performance. These non-GAAP financial measures are provided along with U.S. GAAP gross cruise revenues per ALBD ("gross revenue yields"), gross cruise costs per ALBD and U.S. GAAP net income and U.S. GAAP earnings per share. 

 

Net revenue yields and net cruise costs excluding fuel per ALBD enable us to separate the impact of predictable capacity or ALBD changes from price and other changes that affect our business. We believe these non-GAAP measures provide useful information to investors and expanded insight to measure our revenue and cost performance as a supplement to our U.S. GAAP consolidated financial statements.

 

Under U.S. GAAP, the realized and unrealized gains and losses on fuel derivatives not qualifying as fuel hedges are recognized currently in earnings. We believe that unrealized gains and losses on fuel derivatives are not an indication of our earnings performance since they relate to future periods and may not ultimately be realized in our future earnings. Therefore, we believe it is more meaningful for the unrealized gains and losses on fuel derivatives to be excluded from our net income and earnings per share and, accordingly, we present adjusted net income and adjusted earnings per share excluding these unrealized gains and losses.

 

We believe that gains and losses on ship sales, impairment charges, restructuring and other expenses are not part of our core operating business and are not an indication of our future earnings performance. Therefore, we believe it is more meaningful for gains and losses on ship sales, impairment charges, and restructuring and other non-core gains and charges to be excluded from our net income and earnings per share and, accordingly, we present adjusted net income and adjusted earnings per share excluding these items.

 

The presentation of our non-GAAP financial information is not intended to be considered in isolation from, as substitute for, or superior to the financial information prepared in accordance with U.S. GAAP. It is possible that our non-GAAP financial measures may not be exactly comparable to the like-kind information presented by other companies, which is a potential risk associated with using these measures to compare us to other companies.

 

Net revenue yields are commonly used in the cruise industry to measure a company's cruise segment revenue performance and for revenue management purposes. We use "net cruise revenues" rather than "gross cruise revenues" to calculate net revenue yields. We believe that net cruise revenues is a more meaningful measure in determining revenue yield than gross cruise revenues because it reflects the cruise revenues earned net of our most significant variable costs, which are travel agent commissions, cost of air and other transportation, certain other costs that are directly associated with onboard and other revenues and credit and debit card fees. 

 

Net passenger ticket revenues reflect gross passenger ticket revenues, net of commissions, transportation and other costs.

 

Net onboard and other revenues reflect gross onboard and other revenues, net of onboard and other cruise costs.

 

Net cruise costs excluding fuel per ALBD is the measure we use to monitor our ability to control our cruise segments' costs rather than gross cruise costs per ALBD. We exclude the same variable costs that are included in the calculation of net cruise revenues as well as fuel expense to calculate net cruise costs without fuel to avoid duplicating these variable costs in our non-GAAP financial measures. Substantially all of our net cruise costs excluding fuel are largely fixed, except for the impact of changing prices, once the number of ALBDs has been determined.

 

Reconciliation of Forecasted Data

 

We have not provided a reconciliation of forecasted gross cruise revenues to forecasted net cruise revenues or forecasted gross cruise costs to forecasted net cruise costs without fuel or forecasted U.S. GAAP net income to forecasted adjusted net income or forecasted U.S. GAAP earnings per share to forecasted adjusted earnings per share because preparation of meaningful U.S. GAAP forecasts of gross cruise revenues, gross cruise costs, net income and earnings per share would require unreasonable effort. We are unable to predict, without unreasonable effort, the future movement of foreign exchange rates and fuel prices. We are unable to determine the future impact of gains or losses on ships sales, restructuring expenses and other non-core gains and charges.

Constant Dollar and Constant Currency

 

Our operations primarily utilize the U.S. dollar, Australian dollar, euro and sterling as functional currencies to measure results and financial condition. Functional currencies other than the U.S. dollar subject us to foreign currency translational risk. Our operations also have revenues and expenses that are in currencies other than their functional currency, which subject us to foreign currency transactional risk.

 

We report net revenue yields, net passenger revenue yields, net onboard and other revenue yields and net cruise costs excluding fuel per ALBD on a "constant dollar" and "constant currency" basis assuming the 2019 periods' currency exchange rates have remained constant with the 2018 periods' rates. These metrics facilitate a comparative view for the changes in our business in an environment with fluctuating exchange rates.

 

Constant dollar reporting removes only the impact of changes in exchange rates on the translation of our operations.

 

Constant currency reporting removes the impact of changes in exchange rates on the translation of our operations (as in constant dollar) plus the transactional impact of changes in exchange rates from revenues and expenses that are denominated in a currency other than the functional currency.

 

Examples:

 

•       The translation of our operations with functional currencies other than U.S. dollar to our U.S. dollar reporting currency results in decreases in reported U.S. dollar revenues and expenses if the U.S. dollar strengthens against these foreign currencies and increases in reported U.S. dollar revenues and expenses if the U.S. dollar weakens against these foreign currencies.

 

•       Our operations have revenue and expense transactions in currencies other than their functional currency. If their functional currency strengthens against these other currencies, it reduces the functional currency revenues and expenses. If the functional currency weakens against these other currencies, it increases the functional currency revenues and expenses.

Consolidated gross and net revenue yields were computed by dividing the gross and net cruise revenues by ALBDs as follows:

 

Three Months Ended August 31,

(dollars in millions, except yields)

2019

 

2019
Constant
Dollar

 

2018

Passenger ticket revenues

$

4,477

 

 

$

4,549

 

 

$

4,353

 

Onboard and other revenues

1,855

 

 

1,875

 

 

1,316

 

Gross cruise revenues

6,333

 

 

6,424

 

 

5,669

 

Less cruise costs

 

 

 

 

 

Commissions, transportation and other

(803

)

 

(814

)

 

(760

)

Onboard and other

(668

)

 

(674

)

 

(207

)

 

(1,471

)

 

(1,488

)

 

(967

)

Net passenger ticket revenues

3,674

 

 

3,734

 

 

3,593

 

Net onboard and other revenues

1,187

 

 

1,201

 

 

1,109

 

Net cruise revenues

$

4,862

 

 

$

4,936

 

 

$

4,702

 

ALBDs

22,727,296

 

 

22,727,296

 

 

21,475,014

 

 

 

 

 

 

 

Gross revenue yields

$

 

 

$

 

 

$

263.98

 

% increase (decrease)

5.6

%

 

7.1

%

 

 

Net revenue yields

$

213.91

 

 

$

217.17

 

 

$

218.96

 

% increase (decrease)

(2.3

)%

 

(0.8

)%

 

 

Net passenger ticket revenue yields

$

161.66

 

 

$

164.32

 

 

$

167.31

 

     % increase (decrease)

(3.4

)%

 

(1.8

)%

 

 

Net onboard and other revenue yields

$

52.25

 

 

$

52.85

 

 

$

51.65

 

     % increase (decrease)

1.2

%

 

2.3

%

 

 

 

 

Three Months Ended August 31,

(dollars in millions, except yields)

2019

 

2019
Constant
Currency

 

2018

Net passenger ticket revenues

$

 

 

$

3,754

 

 

$

3,593

 

Net onboard and other revenues

1,187

 

 

1,199

 

 

1,109

 

Net cruise revenues

$

4,862

 

 

$

4,953

 

 

$

4,702

 

ALBDs

22,727,296

 

 

22,727,296

 

 

21,475,014

 

 

 

 

 

 

 

Net revenue yields

$

 

 

$

 

 

$

218.96

 

% increase (decrease)

(2.3

)%

 

(0.5

)%

 

 

Net passenger ticket revenue yields

$

161.66

 

 

$

165.18

 

 

$

167.31

 

% increase (decrease)

(3.4

)%

 

(1.3

)%

 

 

Net onboard and other revenue yields

$

52.25

 

 

$

52.77

 

 

$

51.65

 

% increase (decrease)

1.2

%

 

2.2

%

 

 

 

Consolidated gross and net cruise costs and net cruise costs excluding fuel per ALBD were computed by dividing the gross and net cruise costs and net cruise costs excluding fuel by ALBDs as follows:

 

Three Months Ended August 31,

(dollars in millions, except costs per ALBD)

2019

 

2019
Constant
Dollar

 

2018

Cruise operating expenses

$

3,423

 

 

$

3,466

 

 

$

2,867

 

Cruise selling and administrative expenses

554

 

 

562

 

 

569

 

Gross cruise costs

3,978

 

 

4,028

 

 

3,436

 

Less cruise costs included above

 

 

 

 

 

Commissions, transportation and other

(803

)

 

(814

)

 

(760

)

     Onboard and other

(668

)

 

(674

)

 

(207

)

     Gains (losses) on ship sales and impairments

(3

)

 

(3

)

 

27

 

     Restructuring expenses

-

 

 

-

 

 

-

 

     Other

(23

)

 

(23

)

 

-

 

Net cruise costs

2,480

 

 

2,513

 

 

2,496

 

Less fuel

(401

)

 

(401

)

 

(434

)

Net cruise costs excluding fuel

$

2,079

 

 

$

2,112

 

 

$

2,062

 

ALBDs

22,727,296

 

 

22,727,296

 

 

21,475,014

 

 

 

 

 

 

 

Gross cruise costs per ALBD

$

175.01

 

 

$

177.23

 

 

$

160.02

 

% increase (decrease)

9.4

%

 

10.8

%

 

 

Net cruise costs excluding fuel per ALBD

$

91.49

 

 

$

92.94

 

 

$

96.03

 

% increase (decrease)

(4.7

)%

 

(3.2

)%

 

 

 

 

Three Months Ended August 31,

(dollars in millions, except costs per ALBD)

2019

 

2019
Constant
Currency

 

2018

Net cruise costs excluding fuel

$

2,079

 

 

$

2,113

 

 

$

2,062

 

ALBDs

22,727,296

 

 

22,727,296

 

 

21,475,014

 

 

 

 

 

 

 

Net cruise costs excluding fuel per ALBD

$

91.49

 

 

$

92.98

 

 

$

96.03

 

% increase (decrease)

(4.7

)%

 

(3.2

)%

 

 

 

Adjusted fully diluted earnings per share was computed as follows:

 

Three Months Ended

 

August 31,

(in millions, except per share data)

2019

 

2018

Net income

 

 

 

     U.S. GAAP net income

$

1,780

 

 

$

1,707

 

     Unrealized (gains) losses on fuel derivatives, net

-

 

 

(8

)

     (Gains) losses on ship sales and impairments

14

 

 

(27

)

     Restructuring expenses

-

 

 

-

 

     Other

25

 

 

-

 

     Adjusted net income

$

1,819

 

 

$

1,673

 

Weighted-average shares outstanding

691

 

 

707

 

 

 

 

 

Earnings per share

 

 

 

     U.S. GAAP earnings per share

$

2.58

 

 

$

2.41

 

     Unrealized (gains) losses on fuel derivatives, net

-

 

 

(0.01

)

     (Gains) losses on ship sales and impairments

0.02

 

 

(0.04

)

     Restructuring expenses

-

 

 

-

 

     Other

0.04

 

 

-

 

     Adjusted earnings per share

$

2.63

 

 

$

2.36

 

 

 

 

 

Net cruise revenues increased by $159 million, or 3.4%, to $4.9 billion in 2019 from $4.7 billion in 2018.

The increase was caused by a 5.8% capacity increase in ALBDs of $274 million.

This increase was partially offset by:

•       $92 million - net unfavorable foreign currency impacts (including both the foreign currency translational and transactional impacts)

•       $23 million - 0.5% decrease in constant currency net revenue yields

The 0.5% decrease in net revenue yields on a constant currency basis was due to a 1.3% decrease in net passenger ticket revenue yields partially offset by a 2.2% increase in net onboard and other revenue yields.

This 1.3% decrease in net passenger ticket revenue yields was comprised of a 0.8% increase from our NAA segment, driven by price improvements in the Caribbean program, offset by a 3.5% decrease from our EA segment primarily driven by sourcing in Continental Europe.

The 2.2% increase in net onboard and other revenue yields was comprised of a 2.0% increase from our NAA segment and a 3.0% increase from our EA segment.

Net cruise costs excluding fuel increased by $17 million, or 0.8%, to $2.1 billion in 2019 compared to $2.1 billion in 2018.

The increase was caused by a 5.8% capacity increase in ALBDs of $120 million.

 

This increase was partially offset by:

•       $69 million - 3.2% decrease in constant currency net cruise costs excluding fuel

•       $34 million - net favorable foreign currency impacts (including both the foreign currency translational and transactional impacts)

 

Fuel costs decreased by $34 million, or 7.7%, to $401 million in 2019 from $434 million in 2018.

This decrease was caused by:

•       $36 million - lower fuel prices

•       $23 million - lower fuel consumption per ALBD

               

These decreases were partially offset by a 5.8% capacity increase in ALBDs of $25 million.  

Nine Months Ended August 31, 2019 ("2019") Compared to Nine Months Ended August 31, 2018 ("2018")

 

Revenues

 

Consolidated

 

Cruise passenger ticket revenues made up 68% of our 2019 total revenues. Cruise passenger ticket revenues increased by $239 million, or 2.2%, to $10.9 billion in 2019 from $10.7 billion in 2018.

 

This increase was caused by:

•       $530 million - 4.9% capacity increase in ALBDs

•       $92 million - increase in air transportation revenues

 

These increases were partially offset by:

•       $256 million -  net unfavorable foreign currency translational impact

•       $127 million - decrease in cruise ticket revenues, primarily driven by sourcing in Continental Europe and net unfavorable foreign currency transactional impact, partially offset by price improvements in the Caribbean program

 

Onboard and other cruise revenues made up 30% of 2019 total revenues. Onboard and other cruise revenues increased by $1.3 billion, or 37%, to $4.8 billion in 2019 from $3.5 billion in 2018.

 

This increase was caused by:

•       $1.1 billion - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance

•       $172 million - 4.9% capacity increase in ALBDs

•       $82 million - higher onboard spending by our guests

 

These increases were partially offset by net unfavorable foreign currency translation impact of $74 million.

 

Tour and other revenues made up 1.9% of our 2019 total revenues. Tour and other revenues increased by $77 million, or 35%, to $299 million in 2019 from $222 million in 2018.

 

Concession revenues, which are included in onboard and other revenues, increased by $20 million, or 2.3%, to $888 million in 2019 from $868 million in 2018.

 

NAA Segment

 

Cruise passenger ticket revenues made up 66% of our NAA segment's 2019 total revenues. Cruise passenger ticket revenues increased by $203 million, or 3.0%, to $7.0 billion in 2019 from $6.8 billion in 2018.

 

This increase was caused by:

•       $155 million - 2.4% capacity increase in ALBDs

•       $50 million - increase in air transportation revenues

•       $20 million - increase in cruise ticket revenues, driven primarily by price improvements in the Caribbean program, partially offset by net unfavorable foreign currency transactional impact

 

The remaining 34% of our NAA segment's 2019 total revenues were comprised of onboard and other cruise revenues, which increased by $967 million, or 38%, to $3.5 billion in 2019 from $2.6 billion in 2018.

 

This increase was driven by:

•       $882 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance

•       $59 million - 2.4% capacity increase in ALBDs

Concession revenues, which are included in onboard and other revenues, increased by $13 million, or 2.1%, to $628 million in 2019 from $615 million in 2018.

 

EA Segment

 

Cruise passenger ticket revenues made up 79% of our EA segment's 2019 total revenues. Cruise passenger ticket revenues increased by $69 million, or 1.7%, to $4.0 billion in 2019 compared to $4.0 billion in 2018.

 

This increase was caused by:

•       $371 million - 9.2% capacity increase in ALBDs

•       $39 million - increase in air transportation revenues

 

These increases were partially offset by:

•       $240 million - net unfavorable foreign currency translational impact

•       $107 million - decrease in cruise ticket revenues, primarily driven by sourcing in Continental Europe

 

The remaining 21% of our EA segment's 2019 total revenues were comprised of onboard and other cruise revenues, which increased by $269 million, or 32%, to $1.1 billion in 2019 from $0.8 billion in 2018.

 

This increase was caused by:

•       $212 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance

•       $77 million - 9.2% capacity increase in ALBDs

•       $44 million - higher onboard spending by our guests

 

These increases were partially offset by net unfavorable foreign currency translational impact of $66 million.

 

Concession revenues, which are included in onboard and other revenues, increased by $7 million, or 2.8%, to $259 million in 2019 from $252 million in 2018.

 

Costs and Expenses

 

Consolidated

 

Operating costs and expenses increased by $1.5 billion, or 18%, to $9.8 billion in 2019 from $8.3 billion in 2018.

 

This increase was caused by:

•       $1.1 billion - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance

•       $400 million - 4.9% capacity increase in ALBDs

•       $84 million - higher commissions, transportation and other expense

•       $58 million - increase in tour and other costs

•       $55 million - increase in various other ship operating costs

•       $35 million - gains on ship sales in 2018, net of gains on ship sales in 2019

•       $26 million - higher fuel prices

 

These increases were partially offset by:

•       $186 million - net favorable foreign currency translational impact

•       $68 million - lower dry-dock expenses and repair and maintenance expenses

•       $44 million - lower fuel consumption per ALBD

 

Selling and administrative expenses increased by $19 million, or 1.0%, to $1.8 billion in 2019 compared to $1.8 billion in 2018.

 

Depreciation and amortization expenses increased by $96 million, or 6.4%, to $1.6 billion in 2019 from $1.5 billion in 2018.

 

NAA Segment

 

Operating costs and expenses increased by $984 million, or 18%, to $6.4 billion in 2019 from $5.4 billion in 2018.

 

This increase was caused by:

•       $882 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance

•       $126 million - 2.4% capacity increase in ALBDs

•       $61 million - higher commissions, transportation and other expenses

 

These increases were partially offset by:

•       $42 million -  lower dry-dock expenses and repair and maintenance expenses

•       $37 million - lower cruise payroll and related expenses

 

Selling and administrative expenses decreased by $4 million, or 0.4%, to $1.0 billion in 2019 compared to $1.0 billion in 2018.

 

Depreciation and amortization expenses increased by $72 million, or 7.6%, to $1.0 billion in 2019 from $0.9 billion in 2018.

 

EA Segment

 

Operating costs and expenses increased by $383 million, or 14%, to $3.2 billion in 2019 from $2.8 billion in 2018.

 

This increase was caused by:

•       $246 million - 9.2% capacity increase in ALBDs

•       $212 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance

•       $46 million - gains on ship sales in 2018, net of costs on ship sales in 2019

•       $31 million - higher commissions, transportation and other expenses

•       $32 million - various other ship operating costs

 

These increases were partially offset by:

•       $171 million - net favorable foreign currency translational impact

•       $29 million - lower fuel consumption per ALBD

•       $25 million - lower dry-dock expenses and repair and maintenance expenses

 

Selling and administrative expenses decreased by $10 million, or 1.9% to $540 million in 2019 from $551 million in 2018.

 

Depreciation and amortization expenses increased by $17 million, or 3.7%, to $483 million in 2019 from $466 million in 2018.

 

Operating Income

 

Our consolidated operating income increased by $19 million, or 0.7%, to $2.8 billion in 2019 compared to $2.8 billion in 2018. Our NAA segment's operating income increased by $119 million, or 6.1%, to $2.1 billion in 2019 from $2.0 billion in 2018, and our EA segment's operating income decreased by $50 million, or 5.1%, to $933 million in 2019 from $984 million in 2018. These changes were primarily due to the reasons discussed above.

 

Nonoperating Income (Expense)

 

Nine Months Ended August 31,

(in millions)

2018

Unrealized gains on fuel derivatives, net

$

90

 

Realized losses on fuel derivatives, net

(29

)

Gains on fuel derivatives, net

$

61

 

 

There were no unrealized or realized gains or losses on fuel derivatives for the nine months ended August 31, 2019.

 

Key Performance Non-GAAP Financial Indicators

Consolidated gross and net revenue yields were computed by dividing the gross and net cruise revenues by ALBDs as follows:

 

Nine Months Ended August 31,

(dollars in millions, except yields)

2019

 

2019
Constant
Dollar

 

2018

Passenger ticket revenues

$

10,934

 

 

$

11,190

 

 

$

10,694

 

Onboard and other revenues

4,811

 

 

4,885

 

 

3,509

 

Gross cruise revenues

15,744

 

 

16,075

 

 

14,203

 

Less cruise costs

 

 

 

 

 

     Commissions, transportation and other

(2,125

)

 

(2,182

)

 

(2,000

)

     Onboard and other

(1,620

)

 

(1,642

)

 

(485

)

 

(3,746

)

 

(3,825

)

 

(2,485

)

Net passenger ticket revenues

8,808

 

 

9,008

 

 

8,694

 

Net onboard and other revenues

3,190

 

 

3,243

 

 

3,024

 

Net cruise revenues

$

11,999

 

 

$

12,250

 

 

$

11,718

 

ALBDs

65,671,215

 

 

65,671,215

 

 

62,626,499

 

 

 

 

 

 

 

Gross revenue yields

$

239.74

 

 

$

244.78

 

 

$

226.78

 

% increase (decrease)

5.7

%

 

7.9

%

 

 

Net revenue yields

$

182.71

 

 

$

186.54

 

 

$

187.10

 

% increase (decrease)

(2.3

)%

 

(0.3

)%

 

 

Net passenger ticket revenue yields

$

134.13

 

 

$

137.16

 

 

$

138.82

 

% increase (decrease)

(3.4

)%

 

(1.2

)%

 

 

Net onboard and other revenue yields

$

48.58

 

 

$

49.38

 

 

$

48.28

 

% increase (decrease)

0.6

%

 

2.3

%

 

 

 

 

Nine Months Ended August 31,

(dollars in millions, except yields)

2019

 

2019
Constant
Currency

 

2018

Net passenger ticket revenues

$

 

 

$

 

 

$

8,694

 

Net onboard and other revenues

3,190

 

 

3,244

 

 

3,024

 

Net cruise revenues

$

11,999

 

 

$

12,315

 

 

$

11,718

 

ALBDs

65,671,215

 

 

65,671,215

 

 

62,626,499

 

 

 

 

 

 

 

Net revenue yields

$

 

 

$

 

 

$

187.10

 

% increase (decrease)

(2.3

)%

 

0.2

%

 

 

Net passenger ticket revenue yields

$

134.13

 

 

$

138.13

 

 

$

138.82

 

% increase (decrease)

(3.4

)%

 

(0.5

)%

 

 

Net onboard and other revenue yields

$

48.58

 

 

$

49.39

 

 

$

48.28

 

% increase (decrease)

0.6

%

 

2.3

%

 

 

 

Consolidated gross and net cruise costs and net cruise costs excluding fuel per ALBD were computed by dividing the gross and net cruise costs and net cruise costs excluding fuel by ALBDs as follows:

 

Nine Months Ended August 31,

(dollars in millions, except costs per ALBD)

2019

 

2019
Constant
Dollar

 

2018

Cruise operating expenses

$

 

 

$

 

 

$

8,208

 

Cruise selling and administrative expenses

1,792

 

 

1,828

 

 

1,772

 

Gross cruise costs

11,426

 

 

11,649

 

 

9,980

 

Less cruise costs included above

 

 

 

 

 

     Commissions, transportation and other

(2,125

)

 

(2,182

)

 

(2,000

)

     Onboard and other

(1,620

)

 

(1,642

)

 

(485

)

    Gains (losses) on ship sales and impairments

11

 

 

12

 

 

39

 

     Restructuring expenses

-

 

 

-

 

 

-

 

     Other

(43

)

 

(43

)

 

(1

)

Net cruise costs

7,648

 

 

7,793

 

 

7,532

 

Less fuel

(1,204

)

 

(1,204

)

 

(1,166

)

Net cruise costs excluding fuel

$

6,444

 

 

$

6,588

 

 

$

6,367

 

ALBDs

65,671,215

 

 

65,671,215

 

 

62,626,499

 

 

 

 

 

 

 

Gross cruise costs per ALBD

$

 

 

$

 

 

$

159.36

 

% increase (decrease)

9.2

%

 

11.3

%

 

 

Net cruise costs excluding fuel per ALBD

$

98.12

 

 

$

100.32

 

 

$

101.66

 

% increase (decrease)

(3.5

)%

 

(1.3

)%

 

 

 

 

Nine Months Ended August 31,

(dollars in millions, except costs per ALBD)

2019

 

2019
Constant
Currency

 

2018

Net cruise costs excluding fuel

$

6,444

 

 

$

6,596

 

 

$

6,367

 

ALBDs

65,671,215

 

 

65,671,215

 

 

62,626,499

 

 

 

 

 

 

 

Net cruise costs excluding fuel per ALBD

$

98.12

 

 

$

100.44

 

 

$

101.66

 

% increase (decrease)

(3.5

)%

 

(1.2

)%

 

 

 

Adjusted fully diluted earnings per share was computed as follows:

 

Nine Months Ended

 

August 31,

(in millions, except per share data)

2019

 

2018

Net income

 

 

 

     U.S. GAAP net income

$

2,567

 

 

$

2,659

 

     Unrealized (gains) losses on fuel derivatives, net

-

 

 

(90

)

     (Gains) losses on ship sales and impairments

-

 

 

(39

)

     Restructuring expenses

-

 

 

-

 

     Other

47

 

 

7

 

     Adjusted net income

$

2,614

 

 

$

2,537

 

Weighted-average shares outstanding

693

 

 

714

 

 

 

 

 

Earnings per share

 

 

 

     U.S. GAAP earnings per share

$

3.71

 

 

$

3.72

 

     Unrealized (gains) losses on fuel derivatives, net

-

 

 

(0.13

)

     (Gains) losses on ship sales and impairments

-

 

 

(0.05

)

     Restructuring expenses

-

 

 

-

 

     Other

0.07

 

 

0.01

 

     Adjusted earnings per share

$

3.77

 

 

$

3.55

 

 

 

 

 

Net cruise revenues increased by $281 million, or 2.4%, to $12.0 billion in 2019 from $11.7 billion in 2018.

The increase was caused by a 4.9% capacity increase in ALBDs of $580 million.

 

This increase was partially offset by net unfavorable foreign currency impacts (including both the foreign currency translational and transactional impacts) of $316 million.

 

The 0.2% increase in net revenue yields on a constant currency basis was due to a 2.3% increase in net onboard and other revenue yields partially offset by a 0.5% decrease in net passenger ticket revenue yields.

The 0.5% decrease in net passenger ticket revenue yields was primarily driven by sourcing in Continental Europe and net unfavorable foreign currency impact (including both the foreign currency translational and transactional impacts) partially offset by price improvements in the Caribbean program. This 0.5% decrease in net passenger ticket revenue yields was comprised of a 1.1% increase from our NAA segment and a 2.3% decrease from our EA segment.

The 2.3% increase in net onboard and other revenue yields was comprised of a 1.7% increase from our NAA segment and a 3.2% increase from our EA segment.

Net cruise costs excluding fuel increased by $77 million, or 1.2%, to $6.4 billion in 2019 from $6.4 billion in 2018. This increase was caused by a 4.9% capacity increase in ALBDs, which accounted for $308 million.

This increase was partially offset by net favorable foreign currency impacts (including both the foreign currency translational and transactional impacts) of $152 million.

 

Fuel costs increased by $39 million, or 3.3%, to $1.2 billion in 2019 compared to $1.2 billion in 2018.

 

This increase was caused by:

•       $57 million - 4.9% capacity increase in ALBDs

•       $26 million - higher fuel prices

 

These increases were partially offset by lower fuel consumption by ALBD by $44 million.

 Liquidity, Financial Condition and Capital Resources

 

Our primary financial goals are to profitably grow our cruise business and grow ROIC over time, while maintaining a strong balance sheet and strong investment grade credit ratings. (We define ROIC as the twelve-month adjusted earnings before interest divided by the monthly average of debt plus equity minus construction-in-progress.) Our ability to generate significant operating cash flow allows us to internally fund our capital improvements, debt maturities and dividend payments. We have $10.7 billion of committed export credit facilities available to fund the vast majority of our new ship growth capital. Other objectives of our capital structure policy are to maintain a sufficient level of liquidity through our available cash and cash equivalents and committed financings for immediate and future liquidity needs and to maintain a reasonable debt maturity profile.

 

Based on our historical results, projections and financial condition, we believe that our future operating cash flows and liquidity will be sufficient to fund all of our expected capital improvements, new ship growth capital, debt maturities and dividend payments. We believe that our ability to generate significant operating cash flows and our strong balance sheet, as evidenced by our strong investment grade credit ratings, provide us with the ability, in most financial credit market environments, to obtain debt financing.

 

We had a working capital deficit of $6.2 billion as of August 31, 2019 compared to a working capital deficit of $7.0 billion as of November 30, 2018. The decrease in working capital deficit was caused by an increase in cash and cash equivalents and a decrease in short-term debt partially offset by an increase in customer deposits. We operate with a substantial working capital deficit. This deficit is mainly attributable to the fact that, under our business model, substantially all of our passenger ticket receipts are collected in advance of the applicable sailing date. These advance passenger receipts remain a current liability until the sailing date. The cash generated from these advance receipts is used interchangeably with cash on hand from other sources, such as our borrowings and other cash from operations. The cash received as advanced receipts can be used to fund operating expenses, pay down our debt, make long-term investments or any other use of cash. Included within our working capital deficit are $4.7 billion and $4.4 billion of customer deposits as of August 31, 2019 and November 30, 2018, respectively. In addition, we have a relatively low-level of accounts receivable and limited investment in inventories. We generate substantial cash flows from operations and our business model has historically allowed us to maintain this working capital deficit and still meet our operating, investing and financing needs. We expect that we will continue to have working capital deficits in the future.

 

Sources and Uses of Cash

 

     Operating Activities

Our business provided $4.4 billion of net cash from operations during the nine months ended August 31, 2019, a decrease of $22 million, or 0.5%, compared to $4.4 billion for the same period in 2018.

 

    Investing Activities

During the nine months ended August 31, 2019, net cash used in investing activities was $3.3 billion. This was caused by the following:

•       Capital expenditures of $2.2 billion for our ongoing new shipbuilding program

•       Capital expenditures of $1.2 billion for ship improvements and replacements, information technology and buildings and improvements

•       Proceeds from sale of ships of $15 million

 

During the nine months ended August 31, 2018, net cash used in investing activities was $2.6 billion. This was substantially due to the following:

•       Capital expenditures of $1.4 billion for our ongoing new shipbuilding program

•       Capital expenditures of $1.3 billion for ship improvements and replacements, information technology and buildings and improvements

•       Proceeds from sale of ships of $282 million

•       Payments of $37 million for fuel derivative settlements

 

     Financing Activities

During the nine months ended August 31, 2019, net cash used in financing activities of $912 million was caused by the following:

•       Net repayments of short-term borrowings of $600 million in connection with our availability of, and needs for, cash at various times throughout the period

•       Repayments of $472 million of long-term debt

•       Issuances of $1.7 billion of long-term debt

•       Payments of cash dividends of $1.0 billion

•       Purchases of $472 million of Carnival Corporation common stock and Carnival plc ordinary shares in open market transactions under our Repurchase Program

 

During the nine months ended August 31, 2018, net cash used in financing activities of $1.7 billion was substantially due to the following:

•       Net proceeds of short-term borrowings of $182 million in connection with our availability of, and needs for, cash at various times throughout the period

•       Repayments of $1.3 billion of long-term debt

•       Issuances of $1.6 billion of long-term debt

•       Payments of cash dividends of $1.0 billion

•       Purchases of $1.2 billion of Carnival Corporation common stock and Carnival plc ordinary shares in open market transactions under our Repurchase Program

 

Capital Expenditure and Capacity Forecast

 

Our annual capital expenditure forecast consists of contracted new ship growth capital, estimated payments for planned new ship growth capital and capital improvements.

(in billions)

 

2019

 

2020

 

2021

 

2022

Annual capital expenditure forecast

 

$

6.6

 

 

$

5.8

 

 

$

5.9

 

 

$

5.4

 

                                 

 

Our annual capacity forecast consists of contracted new ships and announced dispositions.

 

 

2019

 

2020

 

2021

 

2022

Annual capacity increase

 

4.2

%

 

7.0

%

 

5.3

%

 

5.3

%

                         

 

Funding Sources

 

At August 31, 2019, we had liquidity of $14.5 billion. Our liquidity consisted of $750 million of cash and cash equivalents, which excludes $403 million of cash used for current operations, $3.1 billion available for borrowing under our revolving credit facilities, net of our outstanding commercial paper borrowings, and $10.7 billion under our committed future financings, which are comprised of ship export credit facilities. These commitments are from numerous large and well-established banks and export credit agencies, which we believe will honor their contractual agreements with us.

 

(in billions)

 

2019

 

2020

 

2021

 

2022

 

2023

Availability of committed future financing at August 31, 2019

 

$

2.0

 

 

$

2.8

 

 

$

2.8

 

 

$

2.3

 

 

$

0.9

 

                                         

 

At August 31, 2019, all of our revolving credit facilities are scheduled to mature in 2024, except for $300 million that matures in September 2020.

 

Substantially all of our debt agreements contain financial covenants as described in Note 5 - "Unsecured Debt" in the annual consolidated financial statements, which are included within our Form 10-K. At August 31, 2019, we were in compliance with our debt covenants. In addition, based on, among other things, our forecasted operating results, financial condition and cash flows, we expect to be in compliance with our debt covenants for the foreseeable future. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated. 

Off-Balance Sheet Arrangements

 

We are not a party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interests, certain derivative instruments and variable interest entities that either have, or are reasonably likely to have, a current or future material effect on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

For a discussion of our hedging strategies and market risks, see the discussion below and Note 10 - "Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risks" in our consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations within our Form 10-K.

 

    Operational Currency Risks

 

Our operations primarily utilize the U.S. dollar, Australian dollar, euro or sterling as their functional currencies. Our operations also have revenue and expenses denominated in non-functional currencies. Movements in foreign currency exchange rates will affect our financial statements.

 

Based on a 10% change in all currency exchange rates that were used in our September 26, 2019 guidance, we estimate a less than $0.01 change to our adjusted diluted earnings per share guidance for the fourth quarter.

 

     Interest Rate Risks

 

The composition of our debt, including the effect of foreign currency swaps and interest rate swaps, was as follows:

 

August 31, 2019

Fixed rate

26

%

EUR fixed rate

37

%

Floating rate

5

%

EUR floating rate

24

%

GBP floating rate

7

%

 

     Fuel Price Risks

 

Based on a 10% change in fuel prices versus the current spot price that was used to calculate fuel expense in our September 26, 2019 guidance, we estimate that our adjusted diluted earnings per share guidance would change by the following:

 

•       $0.05 per share for the fourth quarter of 2019

Item 4. Controls and Procedures.

 

A. Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Our President and Chief Executive Officer and our Chief Financial Officer and Chief Accounting Officer have evaluated our disclosure controls and procedures and have concluded, as of August 31, 2019, that they are effective at a reasonable level of assurance, as described above.

 

B. Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the quarter ended August 31, 2019 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Refer to our consolidated financial statements for information on Legal Proceedings.

 

Item 1A. Risk Factors.

 

The risk factors that affect our business and financial results are discussed in "Item 1A. Risk Factors," included in the Form 10-K, and there has been no material change to these risk factors since the Form 10-K filing. We wish to caution the reader that the risk factors discussed in "Item 1A. Risk Factors," included in the Form 10-K, and those described elsewhere in this report or other Securities and Exchange Commission filings, could cause future results to differ materially from those stated in any forward-looking statements. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

 

SCHEDULE C

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

A. Repurchase Program

 

Under a share repurchase program effective 2004, we are authorized to repurchase Carnival Corporation common stock and Carnival plc ordinary shares (the "Repurchase Program"). Effective August 2018, the company approved a modification of the general authorization under the Repurchase Program, which replenished the remaining authorized repurchases at the time of the approval to $1.0 billion. The Repurchase Program does not have an expiration date and may be discontinued by our Boards of Directors at any time.

 

During the three months ended August 31, 2019, no shares of Carnival Corporation common stock were repurchased pursuant to the Repurchase Program.

 

During the three months ended August 31, 2019, repurchases of Carnival plc ordinary shares pursuant to the Repurchase Program were as follows:

Period

 

Total Number of Shares of Carnival plc Purchased (in millions)

 

Average Price Paid per Share of Carnival plc

 

Maximum Dollar Value of Shares That May Yet Be Purchased Under the Repurchase Program
(in millions)

June 1, 2019 through June 30, 2019

 

0.4

 

 

$

43.70

 

 

$

401

 

July 1, 2019 through July 31, 2019

 

1.4

 

 

$

44.21

 

 

$

341

 

August 1, 2019 through August 31, 2019

 

1.9

 

 

$

43.08

 

 

$

260

 

Total

 

3.7

 

 

$

43.57

 

 

 

No shares of Carnival Corporation common stock and Carnival plc ordinary shares were purchased outside of publicly announced plans or programs.

 

B. Carnival plc Shareholder Approvals

 

Carnival plc ordinary share repurchases under the Repurchase Program require annual shareholder approval. The existing shareholder approval is limited to a maximum of 19.2 million ordinary shares and is valid until the earlier of the conclusion of the Carnival plc 2020 annual general meeting or July 15, 2020.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
END
 
 
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