Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CCL > SEC Filings for CCL > Form 10-Q on 2-Jul-2014All Recent SEC Filings

Show all filings for CARNIVAL CORP

Form 10-Q for CARNIVAL CORP


2-Jul-2014

Quarterly Report


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 joint Quarterly Report on Form 10-Q 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" and similar expressions of future intent or the negative of such terms.

Forward-looking statements include those statements that may impact, among other things, the forecasting of our non-GAAP earnings per share; net revenue yields; booking levels; pricing; occupancy; operating, financing and tax costs, including fuel expenses; net cruise costs per available lower berth day; estimates of ship depreciable lives and residual values; liquidity; goodwill and trademark fair values and outlook. 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 in this joint Quarterly Report on Form 10-Q. These factors include, but are not limited to, the following:

general economic and business conditions;

increases in fuel prices;

incidents, the spread of contagious diseases and threats thereof, adverse weather conditions or other natural disasters and other incidents affecting the health, safety, security and satisfaction of guests and crew;

the international political climate, armed conflicts, terrorist and pirate attacks, vessel seizures, and threats thereof, and other world events affecting the safety and security of travel;

negative publicity concerning the cruise industry in general or us in particular, including any adverse environmental impacts of cruising;

litigation, enforcement actions, fines or penalties;

economic, market and political factors that are beyond our control, which could increase our operating, financing and other costs;

changes in and compliance with laws and regulations relating to the protection of persons with disabilities, employment, environment, health, safety, security, tax and other regulations under which we operate;

our inability to implement our shipbuilding programs and ship repairs, maintenance and refurbishments on terms that are favorable or consistent with our expectations;

increases to our repairs and maintenance expenses and refurbishment costs as our fleet ages;

lack of continuing availability of attractive, convenient and safe port destinations on terms that are favorable or consistent with our expectations;

continuing financial viability of our travel agent distribution system, air service providers and other key vendors in our supply chain and reductions in the availability of, and increases in the prices for, the services and products provided by these vendors;

disruptions and other damages to our information technology and other networks and operations, and breaches in data security;

failure to keep pace with developments in technology;

competition from and overcapacity in the cruise ship and land-based vacation industry;

loss of key personnel or our ability to recruit or retain qualified personnel;

union disputes and other employee relation issues;

disruptions in the global financial markets or other events may negatively affect the ability of our counterparties and others to perform their obligations to us;

the continued strength of our cruise brands and our ability to implement our brand strategies;

our international operations are subject to additional risks not generally applicable to our U.S. operations;

geographic regions in which we try to expand our business may be slow to develop and ultimately not develop how we expect;

our decisions to self-insure against various risks or our inability to obtain insurance for certain risks at reasonable rates;

fluctuations in foreign currency exchange rates;

whether our future operating cash flow will be sufficient to fund future obligations and whether we will be able to obtain financing, if necessary, in sufficient amounts and on terms that are favorable or consistent with our expectations;

risks associated with the dual listed company arrangement and

uncertainties of a foreign legal system as Carnival Corporation and Carnival plc are not U.S. corporations.

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 joint Quarterly Report on Form 10-Q, 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.


Table of Contents

Outlook

On June 24, 2014, we said that we expected our non-GAAP diluted earnings per share for the 2014 third quarter and full year to be in the ranges of $1.38 to $1.44 and $1.60 to $1.75, respectively (see "Key Performance Non-GAAP Financial Indicators"). Our 2014 third quarter and full year guidance was based on fuel prices of $673 per metric ton and $665 per metric ton, respectively. In addition, our guidance was based on 2014 third quarter and full year currency rates of $1.36 and $1.37 to the euro, $1.70 and $1.68 to sterling, and $0.94 and $0.92 to the Australian dollar, respectively. The fuel and currency assumptions used in our guidance change daily and, accordingly, our forecasts change daily based on the changes in these assumptions.

We believe it is more meaningful to evaluate our earnings performance by excluding, among other things, the impact of unrealized gains and losses on fuel derivatives from non-GAAP diluted earnings per share. Therefore, we do not include any future estimates of unrealized gains and losses on fuel derivatives in our non-GAAP earnings per share guidance. However, we do forecast realized gains and losses on fuel derivatives by applying current Brent prices to the derivatives that settle in the forecast period.

The above forward-looking statements involve risks, uncertainties and assumptions with respect to us. There are many factors that could cause our actual results to differ materially from those expressed above including, but not limited to, general economic and business conditions, increases in fuel prices, incidents, spread of contagious diseases, adverse weather conditions, geo-political events, negative publicity and other factors that could adversely impact our revenues, costs and expenses. You should read the above forward-looking statements together with the discussion of these and other risks under "Cautionary Note Concerning Factors That May Affect Future Results."

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 2013 Form 10-K.

Due to the expected absorption of the Ibero operations into Costa in late 2014, Ibero's Grand Celebration will be transferred to Costa and renamed Costa Celebration. Ibero's other ship, Grand Holiday, is currently operating and being marketed for sale. At May 31, 2014, Grand Holiday's estimated undiscounted future cash flows exceeded its net carrying value and, therefore, no ship impairment charge was required. However, if Grand Holiday is sold for less than its carrying value a ship impairment charge will be incurred.

For a further discussion of our May 31, 2014 ship impairment reviews, see "Note
4 - Fair Value Measurements, Derivative Instruments and Hedging Activities" in the accompanying consolidated financial statements.

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                       Six Months Ended
                                                    May 31,                                 May 31,
                                           2014                2013                2014                2013
Available lower berth days
("ALBDs") (in thousands) (a) (b)              18,872              17,993              37,158              35,972
Occupancy percentage (c)                       102.2 %             103.3 %             102.6 %             103.7 %
Passengers carried (in thousands)              2,551               2,364               4,960               4,669
Fuel consumption in metric tons (in
thousands)                                       802                 814               1,603               1,640
Fuel consumption in metric tons per
ALBD                                           0.043               0.045               0.043               0.046
Fuel cost per metric ton consumed      $         657       $         683       $         655       $         680
Currencies
U.S. dollar to 1                      $        1.38       $        1.30       $        1.37       $        1.31
U.S. dollar to 1                      $        1.67       $        1.52       $        1.66       $        1.55
U.S. dollar to Australian dollar       $        0.92       $        1.02       $        0.91       $        1.03

(a) ALBD is a standard measure of passenger capacity for the period, which we use to perform rate and capacity variance 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.


Table of Contents
(b) For the three months ended May 31, 2014 compared to the three months ended May 31, 2013, we had a 4.9% capacity increase in ALBDs comprised of an 8.1% capacity increase in our North America brands, while our EAA brands' capacity was flat.

Our North America brands' capacity increase was caused by:

the full quarter impact from one Princess 3,560-passenger capacity ship delivered in 2013 and

less dry-dock days in 2014 compared to 2013.

For the six months ended May 31, 2014 compared to the six months ended May 31, 2013, we had a 3.3% capacity increase in ALBDs comprised of a 5.5% capacity increase in our North America brands, partially offset by a nominal capacity decrease in our EAA brands.

Our North America brands' capacity increase was caused by:

the full period impact from one Princess 3,560-passenger capacity ship delivered in 2013 and

less dry-dock days in 2014 compared to 2013.

(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 May 31, 2014 ("2014") Compared to Three Months Ended May 31, 2013 ("2013")

Revenues

Consolidated

Cruise passenger ticket revenues made up 74% of our 2014 total revenues. Cruise passenger ticket revenues increased by $85 million, or 3.3%, to $2.7 billion in 2014 from $2.6 billion in 2013.

This increase was caused by:

$128 million - 4.9% capacity increase in ALBDs and

$69 million - translation impact from a weaker U.S. dollar against the euro and sterling, net of a stronger U.S. dollar against the Australian dollar ("net currency impact").

These increases were partially offset by:

$84 million - decrease in cruise ticket pricing and

$28 million - 1.1 percentage point decrease in occupancy.

The remaining 26% of 2014 total revenues were substantially all comprised of onboard and other cruise revenues, which increased by $66 million, or 7.9%, to $905 million in 2014 from $839 million in 2013.

This increase was substantially due to:

$41 million - 4.9% capacity increase in ALBDs;

$13 million - net currency impact and

$10 million - higher onboard spending by our guests.

These increases were partially offset by:

$9 million - 1.1 percentage point decrease in occupancy.

Onboard and other revenues included concession revenues of $258 million in 2014 and $257 million in 2013.

North America Brands

Cruise passenger ticket revenues made up 71% of our 2014 total revenues. Cruise passenger ticket revenues decreased slightly by $17 million, and remained at $1.5 billion in both 2014 and 2013. The majority of this decrease was due to a decrease in cruise ticket pricing, which accounted for $90 million, and a 3.1 percentage point decrease in occupancy, which accounted for $45 million, partially offset by our 8.1% capacity increase in ALBDs, which accounted for $126 million. Our cruise ticket pricing decrease was driven by the promotional pricing environment for the Caribbean resulting from the large increase in industry capacity.


Table of Contents

The remaining 29% of 2014 total revenues were comprised of onboard and other cruise revenues, which increased by $68 million, or 12%, to $621 million in 2014 from $553 million in 2013.

This increase was caused by:

$45 million - 8.1% capacity increase in ALBD;

$15 million - higher onboard spending by our guests and

$11 million - higher other third-party revenues.

These increases were partially offset by:

$16 million - 3.1 percentage point decrease in occupancy.

Onboard and other revenues included concession revenues of $171 million in 2014 and $167 million in 2013.

EAA Brands

Cruise passenger ticket revenues made up 81% of our 2014 total revenues. Cruise passenger ticket revenues increased by $103 million, or 9.6%, to $1.2 billion in 2014 from $1.1 billion in 2013. This increase was substantially due to an increase in net currency impact, which accounted for $69 million, a 1.8 percentage point increase in occupancy, which accounted for $19 million, and an increase in air transportation revenues from guests who purchased their tickets from us, which accounted for $13 million.

The remaining 19% of 2014 total revenues were comprised of onboard and other cruise revenues, which increased by $8 million, or 3.2%, to $269 million in 2014 from $261 million in 2013. This increase was caused by an increase in net currency impact, which accounted for $13 million. Onboard and other revenues included concession revenues of $88 million in 2014 and $89 million in 2013.

Costs and Expenses

Consolidated

Operating costs and expenses increased by $78 million, or 3.1%, to $2.6 billion in 2014 from $2.5 billion in 2013.

This increase was caused by:

$121 million - 4.9% capacity increase in ALBDs;

$45 million - net currency impact;

$24 million - higher dry-dock and other ship repair and maintenance expenses;

$22 million - impairment charge related to Grand Celebration and

$15 million - nonrecurrence in 2014 of a gain in our Tour and Other segment from the 2013 sale of a former Holland America Line ship, which was on charter to an unaffiliated entity.

These increases were partially offset by:

$37 million - gain from the sale of Costa Voyager;

$36 million - nonrecurrence in 2014 of additional costs and expenses related to the 2013 voyage disruptions;

$35 million - lower fuel consumption per ALBD;

$21 million - decreases in commissions, transportation and other related expenses driven by lower cruise ticket pricing and

$20 million - lower fuel prices.

Selling and administrative expenses increased by $55 million, or 12%, to $504 million in 2014 from $449 million in 2013. The increase was principally due to our 4.9% capacity increase in ALBDs, which accounted for $22 million, an increase in net currency impact, which accounted for $10 million, and higher advertising spend, which accounted for $9 million.

Depreciation and amortization expenses increased by $18 million, or 4.6%, to $409 million in 2014 from $391 million in 2013.

Our total costs and expenses as a percentage of revenues of 95.7% in 2014 were essentially flat compared to 2013.

North America Brands

Operating costs and expenses increased by $85 million, or 5.8%, to $1.6 billion in 2014 from $1.5 billion in 2013.

This increase was caused by:

$120 million - 8.1% capacity increase in ALBDs;

$39 million - nonrecurrence in 2014 of an intersegment transaction, which was fully offset in our Cruise Support segment;

$26 million - higher dry-dock and other ship repair and maintenance expenses and


Table of Contents
$17 million - various other operating expenses, net.

These increases were partially offset by:

$36 million - nonrecurrence in 2014 of additional costs and expenses related to the 2013 voyage disruptions;

$31 million - decreases in commissions, transportation and other related expenses caused by lower cruise ticket pricing and a decrease in air transportation costs related to guests who purchased their tickets from us;

$18 million - lower fuel consumption per ALBD;

$17 million - lower fuel prices and

$15 million - 3.1 percentage point decrease in occupancy.

Selling and administrative expenses increased by $26 million, or 10%, to $280 million in 2014 from $254 million in 2013. The increase was caused by our 8.1% capacity increase in ALBDs, which accounted for $21 million, and higher advertising spend, which accounted for $16 million.

Our total costs and expenses as a percentage of revenues increased to 96.6% in 2014 from 93.1% in 2013.

EAA Brands

Operating costs and expenses increased slightly by $11 million and remained at $1.0 billion in both 2014 and 2013.

This increase was caused by:

$45 million - net currency impact;

$22 million - impairment charge related to Grand Celebration and

$11 million - increases in air transportation costs related to guests who purchased their tickets from us.

These increases were partially offset by:

$37 million - gain from the sale of Costa Voyager;

$18 million - lower fuel consumption per ALBD and

$12 million - various other operating expenses, net.

Our total costs and expenses as a percentage of revenues decreased to 91.0% in 2014 from 96.2% in 2013.

Operating Income

Our consolidated operating income increased by $3 million, or 2.0%, to $155 million in 2014 from $152 million in 2013. Our North America brands' operating income decreased by $71 million, or 49%, to $73 million in 2014 from $144 million in 2013, and our EAA brands' operating income increased by $79 million, or 155%, to $130 million in 2014 from $51 million in 2013. These changes were primarily due to the reasons discussed above.

Nonoperating Income

Net gains on fuel derivatives were $11 million in 2014 compared to net losses of $31 million in 2013.

Key Performance Non-GAAP Financial Indicators

We use net cruise revenues per ALBD ("net revenue yields"), net cruise costs per ALBD and net cruise costs excluding fuel per ALBD as significant non-GAAP financial measures of our cruise segments' financial performance. These measures enable us to separate the impact of predictable capacity changes from the more unpredictable rate changes that affect our business and gains and losses on ship sales and ship impairments, net that are not part of our core operating 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. generally accepted accounting principles ("U.S. GAAP") consolidated financial statements.

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 card fees. Substantially all of our remaining cruise costs are largely fixed, except for the impact of changing prices and food expenses, once our ship capacity levels have been determined.


Table of Contents

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 passenger ticket revenue yields and net onboard and other revenue yields are computed by dividing net passenger ticket revenues and net onboard and other revenues by ALBDs.

Net cruise costs per ALBD and net cruise costs excluding fuel per ALBD are the most significant measures 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 to calculate net cruise costs with and without fuel to avoid duplicating these variable costs in our non-GAAP financial measures. In addition, we exclude gains and losses on ship sales and ship impairments, net from our calculation of net cruise costs with and without fuel as they are not considered part of our core operating business and, therefore, are not an indication of our future earnings performance. As such, we also believe it is more meaningful for gains and losses on ship sales and ship impairments, net to be excluded from our net income and earnings per share and, accordingly, we present non-GAAP net income and non-GAAP earnings per share excluding these items. Accordingly, we changed our previously reported net cruise costs per ALBD and net cruise costs excluding fuel per ALBD for the six months ended May 31, 2013 from $127.76 to $127.71 and from $96.77 to $96.72, respectively. Additionally, we also changed our previously reported non-GAAP net income for the three and six months ended May 31, 2013 from $72 million to $57 million and from $137 million to $124 million, respectively. Furthermore, we changed our previously reported non-GAAP earnings per share for the three and six months ended May 31, 2013 from $0.09 to $0.07 and from $0.18 to $0.16, respectively. These changes were made to exclude gains and losses on ship sales, net to be consistent with our treatment of these types of charges.

In addition, because our EAA cruise brands utilize the euro, sterling and Australian dollar to measure their results and financial condition, the translation of those operations 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. Accordingly, we also monitor and report these non-GAAP financial measures assuming the 2014 periods currency exchange rates have remained constant with the 2013 periods rates, or on a "constant dollar basis," in order to remove the impact of changes in exchange rates on the translation of our EAA brands. We believe that this is a useful measure since it facilitates a comparative view of the changes in our business in a fluctuating currency exchange rate environment.

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 non-GAAP net income and non-GAAP earnings per share excluding these unrealized gains and losses.

We have not included in our earnings guidance the impact of unrealized gains and losses on fuel derivatives because these unrealized amounts involve a significant amount of uncertainty, and we do not believe they are an indication of our future earnings performance. Accordingly, our earnings guidance is presented on a non-GAAP basis only. As a result, we did not present a reconciliation between forecasted non-GAAP diluted earnings per share guidance and forecasted U.S. GAAP diluted earnings per share guidance, since we do not believe that the reconciliation information would be meaningful.

Our consolidated financial statements are prepared in accordance with U.S. GAAP. 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. There are no specific rules for determining our non-GAAP current and constant dollar financial measures and, accordingly, they are susceptible to varying calculations, and it is possible that they 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.

. . .

  Add CCL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CCL - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.