REG - Carnival PLC - 1st Quarter Results <Origin Href="QuoteRef">CCL.L</Origin> - Part 2
30/03/2017 14:10
- Part 2: For the preceding part double click ID:nRSd0511Ba
effect of foreign currency swaps
and interest rate swaps, was as follows:
February 28, 2017 November 30, 2016
Fixed rate 29 % 28 %
Euro fixed rate 35 % 35 %
Floating rate 15 % 14 %
Euro floating rate 21 % 23 %
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, committed financing facilities, contingent
obligations, derivative instruments, insurance contracts 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 currently believe the risk of nonperformance by any of our significant
counterparties is remote. At February 28, 2017, our exposures under foreign
currency and fuel derivative contracts 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 prior to sailing. 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 these 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, charter-hire agreements and contingent
obligations. We do not normally require collateral or other security to
support normal credit sales.
NOTE 5 - Segment Information
We have four reportable segments that are comprised of (1) North America, (2)
EAA, (3) Cruise Support and (4) Tour and Other. Our 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 North America segment includes Carnival Cruise Line, Holland America Line,
Princess and Seabourn. Our EAA segment includes AIDA, Costa, Cunard, P&O
Cruises (Australia) and P&O Cruises (UK). The operations of these reporting
units have been aggregated into two reportable segments based on the
similarity of their economic and other characteristics, including types of
customers, regulatory environment, maintenance requirements, supporting
systems and processes and products and services they provide. Our Cruise
Support segment represents certain of our port and related facilities and
other services that are provided 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.
Selected information for our segments was as follows (in millions):
Three Months Ended February 28/29,
Revenues Operating costs and Selling Depreciation Operating
expenses and and income (loss)
administrative amortization
2017
North America $ 2,405 $ 1,470 $ 320 $ 273 $ 342
EAA 1,338 946 172 146 74
Cruise Support 39 6 55 11 (33 )
Tour and Other 9 13 2 9 (15 )
$ 3,791 $ 2,435 $ 549 $ 439 $ 368
2016
North America $ 2,218 $ 1,315 $ 311 $ 255 $ 337
EAA 1,389 910 175 147 157
Cruise Support 34 5 63 11 (45 )
Tour and Other 10 13 2 10 (15 )
$ 3,651 $ 2,243 $ 551 $ 423 $ 434
NOTE 6 - Earnings Per Share
Our basic and diluted earnings per share were computed as follows (in
millions, except per share data):
Three Months Ended February 28/29,
2017 2016
Net income for basic and diluted earnings per share $ 352 $ 142
Weighted-average common and ordinary shares outstanding 725 766
Dilutive effect of equity plans 3 3
Diluted weighted-average shares outstanding 728 769
Basic and diluted earnings per share $ 0.48 $ 0.18
NOTE 7 - Shareholders' Equity
During the three months ended February 28, 2017, we repurchased 1.4 million
shares of Carnival plc ordinary shares for $75 million under our general
repurchase authorization program (the "Repurchase Program"). From March 1,
2017 through March 24, 2017, we repurchased 0.8 million shares of Carnival plc
ordinary shares for $44 million under the Repurchase Program. Accordingly, at
March 24, 2017, the remaining Carnival Corporation availability under the
Repurchase Program was $280 million.
SCHEDULE B
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 our
outlook including, but not limited to, the forecasting of our:
• 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 in this joint Quarterly
Report on Form 10-Q. 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:
• Incidents, such as ship incidents, security incidents, the spread of
contagious diseases and threats thereof, adverse weather conditions or other
natural disasters and the related adverse publicity affecting our reputation
and the health, safety, security and satisfaction of guests and crew
• Economic conditions and adverse world events affecting the safety and
security of travel, such as civil unrest, armed conflicts and terrorist
attacks
• Changes in and compliance with laws and regulations relating to
environment, health, safety, security, tax and anti-corruption under which we
operate
• Disruptions and other damages to our information technology and other
networks and operations, and breaches in data security
• Ability to recruit, develop and retain qualified personnel
• Increases in fuel prices
• Fluctuations in foreign currency exchange rates
• Misallocation of capital among our ship, joint venture and other
strategic investments
• Future operating cash flow may not be sufficient to fund future
obligations and we may be unable to obtain financing
• Overcapacity in the cruise ship and land-based vacation industry
• Deterioration of our cruise brands' strengths and our inability to
implement our strategies
• 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
• Inability to implement our shipbuilding programs and ship repairs,
maintenance and refurbishments on terms that are favorable or consistent with
our expectations and increases to our repairs and maintenance expenses and
refurbishment costs as our fleet ages
• Failure to keep pace with developments in technology
• Geographic regions in which we try to expand our business may be slow
to develop and ultimately not develop how we expect and our international
operations are subject to additional risks not generally applicable to our
U.S. operations
• Competition from the cruise ship and land-based vacation industry
• Economic, market and political factors that are beyond our control
• Litigation, enforcement actions, fines or penalties
• Lack of continuing availability of attractive, convenient and safe
port destinations on terms that are favorable or consistent with our
expectations
• Union disputes and other employee relationship issues
• Decisions to self-insure against various risks or the inability to
obtain insurance for certain risks at reasonable rates
• Reliance on third-party providers of various services integral to the
operations of our business
• Business activities that involve our co-investment with third parties
• Disruptions in the global financial markets or other events that may
negatively affect the ability of our counterparties and others to perform
their obligations to us
• Our shareholders may be subject to the uncertainties of a foreign
legal system since Carnival Corporation and Carnival plc are not U.S.
corporations
• Small group of shareholders may be able to effectively control the
outcome of shareholder voting
• Provisions in Carnival Corporation's and Carnival plc's constitutional
documents may prevent or discourage takeovers and business combinations that
our shareholders might consider to be in their best interests
• The DLC arrangement involves risks not associated with the more common
ways of combining the operations of two companies
The ordering of the risk factors set forth above is not intended to reflect
any Company 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 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.
Outlook
On March 28, 2017, we said that we expected our adjusted diluted earnings per
share for the 2017 second quarter to be in the range of $0.43 to $0.47 and
2017 full year to be in the range of $3.50 to $3.70 (see "Key Performance
Non-GAAP Financial Indicators"). Our guidance was based on the following
assumptions:
2017 Second Quarter 2017 Full Year
Fuel price per metric ton $359 $362
Currencies
U.S. dollar to euro $1.08 to E1 $1.07 to E1
U.S. dollar to sterling $1.25 to £1 $1.25 to £1
U.S. dollar to Australian dollar $0.76 to A$1 $0.76 to A$1
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 have not provided a reconciliation of forecasted U.S. GAAP
earnings per share to forecasted adjusted earnings per share because
preparation of meaningful U.S. GAAP forecasts of 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. While
we forecast realized gains and losses on fuel derivatives by applying current
Brent prices to the derivatives that settle in the forecast period, we do not
forecast the impact of unrealized gains and losses on fuel derivatives because
we do not believe they are an indication of our future earnings performance.
We are unable to determine the future impact of gains or losses on ships
sales, restructuring expenses and other non-core gains and charges.
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. You should
read the above forward-looking statements together with the discussion of the
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 2016 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 February 28/29,
2017 2016
Available Lower Berth Days ("ALBDs") (in thousands) (a) (b) 20,024 19,290
Occupancy percentage (c) 104.6 % 104.0 %
Passengers carried (in thousands) 2,769 2,559
Fuel consumption in metric tons (in thousands) 818 816
Fuel consumption in metric tons per thousand ALBDs 40.9 42.3
Fuel cost per metric ton consumed $ 362 $ 229
Currencies
U.S. dollar to euro $ 1.06 $ 1.10
U.S. dollar to sterling $ 1.24 $ 1.45
U.S. dollar to Australian dollar $ 0.75 $ 0.71
(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 February 28, 2017 compared to the
three months ended February 29, 2016, we had a 3.8% capacity increase in ALBDs
comprised of a 5.2% capacity increase in our North America segment and a 1.8%
capacity increase in our EAA segment.
Our North America segment's capacity increase was caused by:
• Full quarter impact from one Carnival Cruise Line 3,930-passenger
capacity ship delivered in 2016
• Full quarter impact from one Holland America Line 2,650-passenger
capacity ship delivered in 2016
• Fewer ship dry-dock days in 2017 compared to 2016
• Full quarter impact from one Seabourn 600-passenger capacity ship
delivered in 2016
• Partially offset by the full quarter impact from one Princess Cruises
670-passenger capacity ship removed from service in 2016
Our EAA segment's capacity increase was caused by:
• Full quarter impact from one AIDA 3,290-passenger capacity ship
delivered in 2016
This increase was partially offset by:
• Less ship operating days in 2017 compared to 2016 due to the 2016 leap
year
• More ship dry-dock days in 2017 compared to 2016
(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 February 28, 2017 ("2017") Compared to Three Months Ended
February 29, 2016 ("2016")
Revenues
Consolidated
Cruise passenger ticket revenues made up 74% of our 2017 total revenues.
Cruise passenger ticket revenues increased by $86 million, or 3.2%, to $2.8
billion in 2017 from $2.7 billion in 2016.
This increase was caused by:
• $103 million - 3.8% capacity increase in ALBDs
• $71 million - increase in cruise ticket revenue, driven primarily by
price improvements due to demand in our Caribbean program for our North
America segment and European and Caribbean programs for our EAA segment,
partially offset by net unfavorable foreign currency transactional impacts
• $15 million - a slight increase in occupancy
These increases were partially offset by:
• $77 million- foreign currency translational impact from a stronger
U.S. dollar against the functional currencies of our foreign operations
("foreign currency translational impact")
• $26 million - decrease in air transportation revenues from guests who
purchased their tickets from us
The remaining 26% of 2017 total revenues were substantially all comprised of
onboard and other cruise revenues, which increased by $55 million, or 6.0%, to
$978 million in 2017 from $923 million in 2016.
This increase was caused by:
• $35 million - 3.8% capacity increase in ALBDs
• $31 million - higher onboard spending by our guests
These increases were partially offset by the foreign currency translational
impact, which accounted for $14 million.
Onboard and other revenues included concession revenues that were $227 million
in both 2017 and 2016.
North America Segment
Cruise passenger ticket revenues made up 72% of our North America segment's
2017 total revenues. Cruise passenger ticket revenues increased by $133
million, or 8.4%, to $1.7 billion in 2017 compared to $1.6 billion in 2016.
The increase was substantially due to:
• $82 million - 5.2% capacity increase in ALBDs
• $39 million - increase in cruise ticket revenue, driven primarily by
price improvements due to demand in our Caribbean program, partially offset by
net unfavorable foreign currency transactional impacts
The remaining 28% of our North America segment's 2017 total revenues were
comprised of onboard and other cruise revenues, which increased by $53
million, or 8.5%, to $683 million in 2017 from $630 million in 2016.
This increase was caused by:
• $33 million - 5.2% capacity increase in ALBDs
• $21 million - higher onboard spending by our guests
Onboard and other revenues included concession revenues that increased by $4
million, or 2.4%, to $155 million in 2017 from $151 million in 2016.
EAA Segment
Cruise passenger ticket revenues made up 81% of our EAA segment's 2017 total
revenues. Cruise passenger ticket revenues decreased by $50 million, or 4.4%,
and was $1.1 billion in both 2017 and 2016.
This decrease was caused by:
• $77 million - foreign currency translational impact
• $25 million - decrease in air transportation revenues from guests who
purchased their tickets from us
These decreases were partially offset by:
• $20 million - 1.8% capacity increase in ALBDs
• $19 million - increase in cruise ticket revenue driven primarily by
price improvements due to demand in our European and Caribbean programs,
partially offset by net unfavorable foreign currency transactional impacts
The remaining 19% of our EAA segment's 2017 total revenues were comprised of
onboard and other cruise revenues, which remained the same at $254 million in
both 2017 and 2016.
Onboard and other revenues included concession revenues that decreased by $4
million, or 5.3%, to $72 million in 2017 from $76 million in 2016.
Costs and Expenses
Consolidated
Operating costs and expenses increased by $192 million, or 8.6%, to $2.4
billion in 2017 from $2.2 billion in 2016.
This increase was caused by:
• $109 million - higher fuel prices
• $85 million - 3.8% capacity increase in ALBDs
• $29 million - higher ship port costs
• $22 million - higher cruise payroll and related expenses
• $16 million - higher dry-dock expenses and ship repair and maintenance
expenses
These increases were partially offset by:
• $56 million - foreign currency translational impact
• $25 million - decrease in air transportation revenues from guests who
purchased their tickets from us
Selling and administrative expenses slightly decreased by $2 million to $549
million in 2017 from $551 million in 2016.
This decrease was caused by:
• $12 million - foreign currency translational impact
• $12 million - various selling and administrative initiatives
These decreases were partially offset by a 3.8% capacity increase in ALBDs,
which accounted for $21 million.
Depreciation and amortization expenses increased by $16 million, or 3.8%, to
$439 million in 2017 from $423 million in 2016. This increase was primarily
caused by the delivery of new ships and improvements to ship and shoreside
assets, which accounted for $27 million, partially offset by the foreign
currency translational impact, which accounted for $9 million.
North America Segment
Operating costs and expenses increased by $155 million, or 11.8%, to $1.5
billion in 2017 from $1.3 billion in 2016.
This increase was caused by:
• $70 million - higher fuel prices
• $68 million - 5.2% capacity increase in ALBDs
• $13 million - higher ship port costs
• $10 million - higher cruise payroll and related expenses
Selling and administrative expenses increased by $9 million, or 2.9%, to $320
million in 2017 from $311 million in 2016.
Depreciation and amortization expenses increased by $17 million, or 6.8%, to
$273 million in 2017 from $255 million in 2016. This increase was primarily
driven by a 5.2% capacity increase in ALBDs, which accounted for $13 million.
EAA Segment
Operating costs and expenses increased by $36 million, or 4.0%, to $946
million in 2017 from $910 million in 2016.
This increase was caused by:
• $39 million - higher fuel prices
• $29 million - higher dry-dock expenses and other ship repair and
maintenance expenses
• $18 million - higher ship port costs
• $16 million - 1.8% capacity increase in ALBDs
• $12 million - higher cruise payroll and related expenses
These increases were partially offset by:
• $56 million - foreign currency translational impact
• $26 million - decrease in air transportation revenues from guests who
purchased their tickets from us
Selling and administrative expenses decreased by $3 million, or 1.7%, to $172
million in 2017 from $175 million in 2016.
Depreciation and amortization expenses slightly decreased by $1 million to
$146 million in 2017 from $147 million in 2016.
Operating Income
Our consolidated operating income decreased by $66 million, or 15.3%, to $368
million in 2017 from $434 million in 2016. Our North America segment's
operating income increased by $5 million, or 1.5%, to $342 million in 2017
from $337 million in 2016, and our EAA segment's operating income decreased by
$82 million, or 52.4%, to $74 million in 2017 from $157 million in 2016. These
changes were primarily due to the reasons discussed above.
Nonoperating Expense
Gains (losses) on fuel derivatives, net were comprised of the following (in
millions):
Three Months Ended February 28/29,
2017 2016
Unrealized gains (losses) on fuel derivatives, net $ 72 $ (145 )
Realized losses on fuel derivatives, net (45 ) (91 )
Gains (losses) on fuel derivatives, net $ 27 $ (236 )
Key Performance Non-GAAP Financial Indicators
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.
We believe that gains and losses on ship sales and ship impairments and
restructuring and certain other expenses are not part of our core operating
business and, therefore, are not an indication of our future earnings
performance. As such, we exclude these items from non-GAAP measures. 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.
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.
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. While we forecast realized gains and losses on fuel
derivatives by applying current Brent prices to the derivatives that settle in
the forecast period, we do not forecast the impact of unrealized gains and
losses on fuel derivatives because we do not believe they are an indication of
our future earnings performance. 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 EAA segment and Cruise Support segment operations utilize the euro,
sterling and Australian dollar as their functional currencies to measure their
results and financial condition. This subjects us to foreign currency
translational risk. Our North America, EAA and Cruise Support segment
operations also have revenues and expenses that are in a currency other than
their functional currency. This subjects 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 2017 periods'
currency exchange rates have remained constant with the 2016 periods' rates.
These metrics facilitate a comparative view for the changes in our business in
an environment with fluctuating exchange rates.
Constant dollar reporting is a non-GAAP financial measure that removes only
the impact of changes in exchange rates on the
translation of our EAA segment and Cruise Support segment operations.
Constant currency reporting is a non-GAAP financial measure that removes the
impact of changes in exchange rates on the translation of our EAA segment and
Cruise Support segment 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 for our
North America, EAA and Cruise Support segments.
Examples:
• The translation of our EAA segment 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.
• Our North American segment operations have a U.S. dollar functional
currency but also have revenue and expense transactions in currencies other
than the U.S. dollar. If the U.S. dollar strengthens against these other
currencies, it reduces the U.S. dollar revenues and expenses. If the U.S.
dollar weakens against these other currencies, it increases the U.S. dollar
revenues and expenses.
• Our EAA segment operations have euro, sterling and Australian dollar
functional currencies but also 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.
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 and ship impairments and
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 and ship
impairments 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.
Consolidated gross and net revenue yields were computed by dividing the gross
and net cruise revenues by ALBDs as follows (dollars in millions, except
yields):
Three Months Ended February 28/29,
2017 2017 2016
Constant
Dollar
Passenger ticket revenues $ 2,804 $ 2,881 $ 2,718
Onboard and other revenues 978 993 923
Gross cruise revenues 3,782 3,874 3,641
Less cruise costs
Commissions, transportation and other (569 ) (587 ) (582 )
Onboard and other (125 ) (127 ) (117 )
(694 ) (714 ) (699 )
Net passenger ticket revenues 2,235 2,294 2,136
Net onboard and other revenues 853 866 806
Net cruise revenues $ 3,088 $ 3,160 $ 2,942
ALBDs 20,024,045 20,024,045 19,289,910
Gross revenue yields $ 188.87 $ 193.44 $ 188.77
% increase vs. 2016 0.1 % 2.5 %
Net revenue yields $ 154.22 $ 157.75 $ 152.50
% increase vs. 2016 1.1 % 3.4 %
Net passenger ticket revenue yields $ 111.60 $ 114.53 $ 110.71
% increase vs. 2016 0.8 % 3.4 %
Net onboard and other revenue yields $ 42.62 $ 43.22 $ 41.78
% increase vs. 2016 2.0 % 3.4 %
Three Months Ended February 28/29,
2017 2017 2016
Constant
Currency
Net passenger ticket revenues $ 2,235 $ 2,308 $ 2,136
Net onboard and other revenues 853 861 806
Net cruise revenues $ 3,088 $ 3,169 $ 2,942
ALBDs 20,024,045 20,024,045 19,289,910
Net revenue yields $ 154.22 $ 158.25 $ 152.50
% increase vs. 2016 1.1 % 3.8 %
Net passenger ticket revenue yields $ 111.60 $ 115.26 $ 110.71
% increase vs. 2016 0.8 % 4.1 %
Net onboard and other revenue yields $ 42.62 $ 42.99 $ 41.78
% increase vs. 2016 2.0 % 2.9 %
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 (dollars in millions, except
costs per ALBD):
Three Months Ended February 28/29,
2017 2017 2016
Constant
Dollar
Cruise operating expenses $ 2,422 $ 2,478 $ 2,229
Cruise selling and administrative expenses 546 558 549
Gross cruise costs 2,968 3,036 2,778
Less cruise costs included above
Commissions, transportation and other (569 ) (587 ) (582 )
Onboard and other (125 ) (127 ) (117 )
Gain on ship sale - - 2
Restructuring expenses - - -
Other 1 1 (16 )
Net cruise costs 2,275 2,323 2,065
Less fuel (297 ) (297 ) (187 )
Net cruise costs excluding fuel $ 1,978 $ 2,026 $ 1,878
ALBDs 20,024,045 20,024,045 19,289,910
Gross cruise costs per ALBD $ 148.24 $ 151.60 $ 144.02
% increase vs. 2016 2.9 % 5.3 %
Net cruise costs excluding fuel per ALBD $ 98.81 $ 101.13 $ 97.35
% increase vs. 2016 1.5 % 3.9 %
Three Months Ended February 28/29,
2017 2017 2016
Constant
Currency
Net cruise costs excluding fuel $ 1,978 $ 2,012 $ 1,878
ALBDs 20,024,045 20,024,045 19,289,910
Net cruise costs excluding fuel per ALBD $ 98.81 $ 100.47 $ 97.35
% increase vs. 2016 1.5 % 3.2 %
Adjusted fully diluted earnings per share was computed as follows (in
millions, except per share data):
Three Months Ended
February 28/29,
2017 2016
Net income
U.S. GAAP net income $ 352 $ 142
Unrealized (gains) losses on fuel derivatives, net (72 ) 145
Gain on ship sale - (2 )
Restructuring expenses - -
Other (1 ) 16
Adjusted net income $ 279 $ 301
Weighted-average shares outstanding 728 769
Earnings per share
U.S. GAAP earnings per share $ 0.48 $ 0.18
Unrealized (gains) losses on fuel derivatives, net (0.10 ) 0.19
Gain on ship sale - -
Restructuring expenses - -
Other - 0.02
Adjusted earnings per share $ 0.38 $ 0.39
Net cruise revenues increased by $146 million, or 5.0%, to $3.1 billion in
2017 from $2.9 billion in 2016.
The increase in net cruise revenues was caused by:
• $112 million - 3.8% capacity increase in ALBDs
• $115 million - 3.8% increase in constant currency net revenue yields
These increases were partially offset by foreign currency impacts (including
both the foreign currency translational and transactional impacts), which
accounted for $81 million.
The 3.8% increase in net revenue yields on a constant currency basis was due
to a 4.1% increase in net passenger ticket revenue yields and a 2.9% increase
in net onboard and other revenue yields.
The 4.1% increase in net passenger ticket revenue yields was driven primarily
by price improvements due to demand in our Caribbean program for our North
America segment and European and Caribbean programs for our EAA segment,
partially offset by net unfavorable foreign currency transactional impacts.
This 4.1% increase in net passenger ticket revenue yields was comprised of a
3.3% increase from our North America segment and a 5.0% increase from our EAA
segment.
The 2.9% increase in net onboard and other revenue yields was caused by
similar increases in our North America and EAA segments.
Gross cruise revenues increased by $141 million, or 3.9%, to $3.8 billion in
2017 from $3.6 billion in 2016 for largely the same reasons as discussed
above.
Net cruise costs excluding fuel increased by $101 million, or 5.4%, to $2.0
billion in 2017 from $1.9 billion in 2016.
The increase in net cruise costs excluding fuel was caused by:
• $71 million - 3.8% capacity increase in ALBDs
• $63 million - 3.2% increase in constant currency net cruise costs
excluding fuel
These increases were partially offset by foreign currency impacts (including
both the foreign currency translational and transactional impacts), which
accounted for $33 million.
The 3.2% increase in constant currency net cruise costs excluding fuel per
ALBD was principally due to the timing of ship repair and maintenance,
dry-dock and general and administrative expenses.
Fuel costs increased by $110 million, or 58.8%, to $297 million in 2017 from
$187 million in 2016. This increase was substantially all due to higher fuel
prices, which accounted for $109 million.
Gross cruise costs increased by $190 million, or 6.8%, to $3.0 billion in 2017
from $2.8 billion in 2016 for principally the same reasons as discussed
above.
Liquidity, Financial Condition and Capital Resources
Our primary financial goals are to profitably grow our cruise business and
increase our return on invested capital ("ROIC"), reaching double digit
returns, 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 investments. We are committed to
returning free cash flow to our shareholders in the form of dividends and/or
share repurchases. As we continue to profitably grow our cruise business, we
plan to increase our debt level in a manner consistent with maintaining our
strong credit metrics. This will allow us to return both free cash flow and
incremental debt proceeds to our shareholders in the form of dividends and/or
share repurchases. Other objectives of our capital structure policy are to
maintain a sufficient level of liquidity with our available cash and cash
equivalents and committed financings for immediate and future liquidity needs,
and 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 projects including shipbuilding
commitments, ship improvements, debt service requirements, working capital
needs and other firm commitments over the next several years. We believe that
our ability to generate significant operating cash flows and our strong
balance sheet as evidenced by our 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 $5.9 billion as of February 28, 2017
compared to a working capital deficit of $5.4 billion as of November 30, 2016.
The increase in working capital deficit was primarily due to the increase in
customer deposits and our net current portion of our borrowings. We operate
with a substantial working capital deficit. This deficit is mainly
attributable to the fact that, under our business model, a vast majority 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, invest in long term
investments or any other use of cash. Included within our working capital
deficit are $3.7 billion and $3.5 billion of customer deposits as of February
28, 2017 and November 30, 2016, 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 $932 million of net cash from operations during the
three months ended February 28, 2017, an increase of $134 million, or 17%,
compared to $798 million for the same period in 2016. This increase was
substantially all due to an increase in our customer deposits.
Investing Activities
During the three months ended February 28, 2017, net cash used in investing
activities was $474 million. This was substantially due to:
• Capital expenditures of $262 million for ship improvements and
replacements
• Capital expenditures of $114 million for information technology,
buildings and improvements and other assets
• Payment of $52 million of fuel derivative settlements
• Our expenditures for capital projects, of which $36 million was spent
on our ongoing new shipbuilding program
During the three months ended February 29, 2016, net cash used in investing
activities was $459 million. This was primarily due to:
• Our expenditures for capital projects, of which $54 million was spent
on our ongoing new shipbuilding program
• Capital expenditures of $207 million for ship improvements and
replacements
• Capital expenditures of $69 million for information technology,
buildings and improvements and other assets
• $88 million of fuel derivative settlements
• $57 million of collateral to one of our fuel derivative
counterparties
Financing Activities
During the three months ended February 28, 2017, net cash used in financing
activities of $615 million was substantially due to the following:
• Repaid $289 million of short-term borrowings, net of new borrowings,
in connection with our availability of, and needs for, cash at various times
throughout the period
• Paid cash dividends of $254 million
• Purchased $69 million of Carnival plc ordinary shares in open market
transactions under our Repurchase Program
During the three months ended February 29, 2016, net cash used in financing
activities of $947 million was substantially due to the following:
• Borrowed a net $235 million of short-term borrowings in connection
with our availability of, and needs for, cash at various times throughout the
period
• Repaid $628 million of long-term debt
• Issued $555 million of publicly-traded notes, which net proceeds are
being used for general corporate purposes
• Paid cash dividends of $232 million
• Purchased $916 million of shares of Carnival Corporation common stock
in open market transactions of which $877 million were purchased under our
Repurchase Program and $39 million were purchased under our Stock Swap
Program
• Sold $40 million of treasury stock under our Stock Swap program
Future Commitments and Funding Sources
Our total annual capital expenditures consist of ships under contract for
construction, including ship construction contracts entered into through March
24, 2017, and estimated improvements to existing ships and shoreside assets
and are expected to be (in billions):
2017 2018 2019
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