REG - Carnival PLC - Final Results <Origin Href="QuoteRef">CCL.L</Origin> - Part 2
29/01/2018 14:40
- Part 2: For the preceding part double click ID:nRSc2341Da
Fixed rate 1.9% to 7.9% 2028 1,717 1,717
EUR fixed rate 1.1% to 1.9% 2022 2,072 1,857
Other - - - 25
Short-Term Borrowings
Floating rate commercial paper 1.5% 2018 420 -
EUR floating rate commercial paper (0.1)% 2018 65 451
EUR floating rate bank loans - - - 6
Total Debt 9,246 9,454
Less: Unamortized debt issuance costs (51 ) (55 )
Total Debt, net of unamortized debt issuance costs 9,195 9,399
Less: Short-term borrowings (485 ) (457 )
Less: Current portion of long-term debt (1,717 ) (640 )
Long-Term Debt $ 6,993 $ 8,302
The debt table does not include the impact of our foreign currency and interest rate swaps. The interest rates on some of
our debt, and in the case of our main revolving credit facility, fluctuate based on the applicable rating of senior
unsecured long-term securities of Carnival Corporation or Carnival plc. We use the net proceeds from our borrowings for
payments related to the purchases of new ships and general corporate purposes. For the twelve months ended November 30,
2017, we had borrowings of $111 million and repayments of $364 million of commercial paper with original maturities greater
than three months.
Interest-bearing debt is recorded at initial fair value, which normally reflects the proceeds received by us, net of debt
issuance costs, and is subsequently stated at amortized cost. On December 1, 2016, we adopted the FASB issued amended
guidance Interest - Imputation of Interest and reclassified $55 million from Other Assets to Long-Term Debt on our November
30, 2016 Consolidated Balance Sheet. Debt issuance costs are generally amortized to interest expense using the
straight-line method, which approximates the effective interest method, over the term of the debt. In addition, all debt
issue discounts and premiums are amortized to interest expense using the effective interest rate method over the term of
the notes.
Substantially all of our fixed rate debt can be called or prepaid by incurring additional costs. In addition, substantially
all of our debt agreements, including our main revolving credit facility, contain one or more financial covenants that
require us to:
• Maintain minimum debt service coverage
• Maintain minimum shareholders' equity
• Limit our debt to capital and debt to equity ratios
• Limit the amounts of our secured assets as well as secured and other indebtedness
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. At November 30, 2017, we were in compliance with all of our debt covenants.
The scheduled annual maturities of our debt were as follows:
(in millions)
Fiscal November 30, 2017
2018 $ 2,202
2019 2,109
2020 1,315
2021 1,148
2022 1,034
Thereafter 1,438
$ 9,246
Committed Ship Financings
We have unsecured euro and U.S. dollar long-term export credit committed ship financings. These commitments, if drawn at
the time of ship delivery, are generally repayable semi-annually over 12 years. We have the option to cancel each one at
specified dates prior to the underlying ship's delivery date.
Revolving Credit Facilities
At November 30, 2017, we had $3.0 billion of total revolving credit facilities comprised of a $2.7 billion ($1.9 billion,
E500 million and £169 million) multi-currency revolving credit facility that expires in 2021 (the "Facility") and a $300
million revolving credit facility that expires in 2020. A total of $2.5 billion of this capacity was available for drawing,
which is net of outstanding commercial paper. The Facility currently bears interest at LIBOR/EURIBOR plus a margin of 30
basis points ("bps"). The margin varies based on changes to Carnival Corporation's and Carnival plc's long-term senior
unsecured credit ratings. We are required to pay a commitment fee on any undrawn portion.
NOTE 6 - Commitments
Fiscal
(in millions) 2018 2019 2020 2021 2022 Thereafter Total
Shipbuilding $ 2,919 $ 3,819 $ 3,569 $ 2,628 $ 2,357 $ - $ 15,292
Operating leases 49 47 43 34 32 170 375
Port facilities and other 190 182 162 157 151 926 1,768
$ 3,158 $ 4,048 $ 3,774 $ 2,819 $ 2,540 $ 1,096 $ 17,435
NOTE 7 - Contingencies
Litigation
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. Management
believes 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 Obligation - Lease Out and Lease Back Type ("LILO") Transaction
At November 30, 2017, we had an estimated contingent obligation of $123 million. At the inception of the lease, we paid the
aggregate of the net present value of the obligation to a group of major financial institutions, who agreed to act as
payment undertakers and directly pay this obligation. As a result, this contingent obligation is considered extinguished
and neither the funds nor the contingent obligation have been included in our Consolidated Balance Sheets. As of January 2,
2018, this transaction was terminated at no cost.
Contingent Obligations - Indemnifications
Some of the debt contracts that 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 lenders' 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 8 - Taxation
A summary of our principal taxes and exemptions in the jurisdictions where our significant operations are located is as
follows:
U.S. Income Tax
We are primarily foreign corporations engaged in the business of operating cruise ships in international transportation. We
also own and operate, among other businesses, the U.S. hotel and transportation business of Holland America Princess Alaska
Tours through U.S. corporations.
Our North American cruise ship businesses and certain ship-owning subsidiaries are engaged in a trade or business within
the U.S. Depending on its itinerary, any particular ship may generate income from sources within the U.S. We believe that
our U.S. source income and the income of our ship-owning subsidiaries, to the extent derived from, or incidental to, the
international operation of a ship or ships, is currently exempt from U.S. federal income and branch profit taxes.
Our domestic U.S. operations, principally the hotel and transportation business of Holland America Princess Alaska Tours,
are subject to federal and state income taxation in the U.S.
In general, under Section 883 of the Internal Revenue Code, certain non-U.S. corporations (such as our North American
cruise ship businesses) are not subject to U.S. federal income tax or branch profits tax on U.S. source income derived
from, or incidental to, the international operation of a ship or ships. Applicable U.S. Treasury regulations provide in
general that a foreign corporation will qualify for the benefits of Section 883 if, in relevant part, (i) the foreign
country in which the foreign corporation is organized grants an equivalent exemption to corporations organized in the U.S.
in respect of each category of shipping income for which an exemption is being claimed under Section 883 (an "equivalent
exemption jurisdiction") and (ii) the foreign corporation meets a defined publicly-traded corporation stock ownership test
(the "publicly-traded test"). Subsidiaries of foreign corporations that are organized in an equivalent exemption
jurisdiction and meet the publicly-traded test also benefit from Section 883. We believe that Panama is an equivalent
exemption jurisdiction and that Carnival Corporation currently satisfies the publicly-traded test under the regulations.
Accordingly, substantially all of Carnival Corporation's income is exempt from U.S. federal income and branch profit
taxes.
Regulations under Section 883 list certain activities that the Internal Revenue Service ("IRS") does not consider to be
incidental to the international operation of ships and, therefore, the income attributable to such activities, to the
extent such income is U.S. source, does not qualify for the Section 883 exemption. Among the activities identified as not
incidental are income from the sale of air transportation, transfers, shore excursions and pre- and post-cruise land
packages to the extent earned from sources within the U.S.
We believe that the U.S. source transportation income earned by Carnival plc and its subsidiaries currently qualifies for
exemption from U.S. federal income tax under applicable bilateral U.S. income tax treaties.
Carnival Corporation and Carnival plc and certain of their subsidiaries are subject to various U.S. state income taxes
generally imposed on each state's portion of the U.S. source income subject to U.S. federal income taxes. However, the
state of Alaska imposes an income tax on its allocated portion of the total income of our companies doing business in
Alaska and certain of their subsidiaries.
UK and Australian Income Tax
Cunard, P&O Cruises (UK) and P&O Cruises (Australia) are divisions of Carnival plc and have elected to enter the UK tonnage
tax under a rolling ten-year term and, accordingly, reapply every year. Companies to which the tonnage tax regime applies
pay corporation taxes on profits calculated by reference to the net tonnage of qualifying ships. UK corporation tax is not
chargeable under the normal UK tax rules on these brands' relevant shipping income. Relevant shipping income includes
income from the operation of qualifying ships and from shipping related activities.
For a company to be eligible for the regime, it must be subject to UK corporation tax and, among other matters, operate
qualifying ships that are strategically and commercially managed in the UK. Companies within UK tonnage tax are also
subject to a seafarer training requirement.
Our UK non-shipping activities that do not qualify under the UK tonnage tax regime remain subject to normal UK corporation
tax. Dividends received from subsidiaries of Carnival plc doing business outside the UK are generally exempt from UK
corporation tax.
P&O Cruises (Australia) and all of the other cruise ships operated internationally by Carnival plc for the cruise segment
of the Australian vacation region are exempt from Australian corporation tax by virtue of the UK/Australian income tax
treaty.
Italian and German Income Tax
In early 2015, Costa and AIDA re-elected to enter the Italian tonnage tax regime through 2024 and can reapply for an
additional ten-year period beginning in early 2025. Companies to which the tonnage tax regime applies pay corporation taxes
on shipping profits calculated by reference to the net tonnage of qualifying ships.
Most of Costa's and AIDA's earnings that are not eligible for taxation under the Italian tonnage tax regime will be taxed
at an effective tax rate of 5.5%.
Substantially all of AIDA's earnings are exempt from German income taxes by virtue of the Germany/Italy income tax treaty.
Asian Countries Income Taxes
Substantially all of our brands' income from their international operation in Asian countries is exempt from income tax by
virtue of relevant income tax treaties.
Other
We recognize income tax provisions for uncertain tax positions, based solely on their technical merits, when it is more
likely than not to be sustained upon examination by the relevant tax authority. The tax benefit to be recognized is
measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution. Based
on all known facts and circumstances and current tax law, we believe that the total amount of our uncertain income tax
position liabilities and related accrued interest are not significant to our financial position. All interest expense
related to income tax liabilities is included in income tax expense.
We do not expect to incur income taxes on future distributions of undistributed earnings of foreign subsidiaries and,
accordingly, no deferred income taxes have been provided for the distribution of these earnings. In addition to or in place
of income taxes, virtually all jurisdictions where our ships call impose taxes, fees and other charges based on guest
counts, ship tonnage, passenger capacity or some other measure, and these taxes, fees and other charges are included in
commissions, transportation and other costs and other ship operating expenses.
NOTE 9 - Shareholders' Equity
Under a share repurchase program effective 2004, we are authorized to repurchase Carnival Corporation common stock and
Carnival plc ordinary shares (the "Repurchase Program"). On April 6, 2017, the Boards of Directors 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.
Carnival Corporation Carnival plc
(in millions) Number of Shares Repurchased Dollar Amount Paid for Shares Repurchased Number of Shares Repurchased Dollar Amount Paid for Shares Repurchased
2017 3.3 $ 223 5.6 $ 335
2016 47.8 $ 2,264 0.7 $ 35
2015 5.3 $ 276 - $ -
In addition to the Repurchase Program, we have programs that allow us to obtain an economic benefit when either Carnival
Corporation common stock is trading at a premium to the price of Carnival plc ordinary shares or Carnival plc ordinary
shares are trading at a premium to Carnival Corporation common stock (the "Stock Swap Programs").
During 2016 and 2015, under the Stock Swap Programs, a subsidiary of Carnival Corporation, sold 0.9 million and 5.1 million
of Carnival plc ordinary shares for net proceeds of $40 million and $264 million, respectively. Substantially all of the
net proceeds from these sales were used to purchase 0.9 million shares in 2016, and 5.1 million shares in 2015 of Carnival
Corporation common stock. Carnival Corporation sold these Carnival plc ordinary shares owned by the subsidiary only to the
extent it was able to repurchase an equivalent number of shares of Carnival Corporation common stock in the U.S.
During 2017, there were no sales or repurchases under the Stock Swap Programs. During 2016 and 2015, there were no sales of
Carnival Corporation common stock or repurchases of Carnival plc ordinary shares under the Stock Swap Programs.
Accumulated Other Comprehensive Loss
November 30,
(in millions) 2017 2016
Cumulative foreign currency translation adjustments, net $ (1,675 ) $ (2,266 )
Unrecognized pension expenses (94 ) (120 )
Unrealized losses on marketable securities - (3 )
Net losses on cash flow derivative hedges (13 ) (65 )
$ (1,782 ) $ (2,454 )
During 2017, 2016 and 2015, there were $18 million, $7 million and $13 million of unrecognized pension expenses that were
reclassified out of accumulated other comprehensive loss and were included within payroll and related expenses and selling
and administrative expenses.
We declared quarterly cash dividends on all of our common stock and ordinary shares as follows:
Quarters Ended
(in millions, except per share data) February 28/29 May 31 August 31 November 30
2017
Dividends declared per share $ 0.35 $ 0.40 $ 0.40 $ 0.45
Dividends declared $ 251 $ 291 $ 289 $ 324
2016
Dividends declared per share $ 0.30 $ 0.35 $ 0.35 $ 0.35
Dividends declared $ 225 $ 261 $ 256 $ 254
2015
Dividends declared per share $ 0.25 $ 0.25 $ 0.30 $ 0.30
Dividends declared $ 194 $ 194 $ 234 $ 233
Carnival Corporation's Articles of Incorporation authorize its Board of Directors, at its discretion, to issue up to 40
million shares of preferred stock. At November 30, 2017 and 2016, no Carnival Corporation preferred stock had been issued
and only a nominal amount of Carnival plc preference shares had been issued.
NOTE 10 - Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risk
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
November 30, 2017 November 30, 2016
Carrying Fair Value Carrying Fair Value
Value Value
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Long-term other assets (a) $ 126 $ - $ 49 $ 75 $ 99 $ 1 $ 68 $ 31
Total $ 126 $ - $ 49 $ 75 $ 99 $ 1 $ 68 $ 31
Liabilities
Fixed rate debt (b) $ 5,588 $ - $ 5,892 $ - $ 5,436 $ - $ 5,727 $ -
Floating rate debt (b) 3,658 - 3,697 - 4,018 - 4,048 -
Total $ 9,246 $ - $ 9,589 $ - $ 9,454 $ - $ 9,775 $ -
(a) Long-term other assets is comprised of notes receivables. The fair values of our Level 2 notes receivables 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
November 30, 2017 November 30, 2016
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash and cash equivalents $ 395 $ - $ - $ 603 $ - $ -
Restricted cash 26 - - 60 - -
Short-term investments - - - - - 21
Marketable securities held in rabbi trusts (a) 97 - - 93 4 -
Derivative financial instruments - 15 - - 15 -
Total $ 518 $ 15 $ - $ 756 $ 19 $ 21
Liabilities
Derivative financial instruments $ - $ 161 $ - $ - $ 434 $ -
Total $ - $ 161 $ - $ - $ 434 $ -
(a) At November 30, 2017 and 2016, the use of marketable securities held in rabbi trusts is restricted to funding
certain deferred compensation and non-qualified U.S. pension plans.
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
Valuation of Goodwill and Other Intangibles
As of July 31, 2017, we performed our annual goodwill and trademark impairment reviews and we determined there was no
impairment for goodwill or trademarks related to AIDA, Carnival Cruise Line, Costa, Cunard, Holland America Line, Princess
Cruises and P&O Cruises (UK).
During the third quarter of 2017, we made a decision to strategically realign our business in Australia, which includes
reducing
capacity in P&O Cruises (Australia). We performed discounted cash flow analyses and determined that the estimated fair
values of the P&O Cruises (Australia) reporting unit and its trademark no longer exceeded their carrying values. We
recognized a goodwill impairment charge of $38 million and a trademark impairment charge of $50 million during the third
quarter of 2017.
The determination of our reporting unit goodwill and trademark fair values includes numerous assumptions that are subject
to
various risks and uncertainties. The principal assumptions, all of which are considered Level 3 inputs, used in our cash
flow
analyses consisted of:
• Forecasted operating results, including net revenue yields and net cruise costs including fuel prices
• Capacity changes and the expected rotation of vessels into or out of each of these cruise brands, including
decisions about the allocation of new ships amongst brands, the transfer of ships between brands and the timing of ship
dispositions
• Weighted-average cost of capital of market participants, adjusted for the risk attributable to the geographic
regions in which these cruise brands operate
• Capital expenditures, proceeds from forecasted dispositions of ships and terminal values
We believe that we have made reasonable estimates and judgments. Changes in the conditions or circumstances may result in a
need to recognize an additional impairment charge.
Goodwill
(in millions) North America EAA Total
Segment Segment
At November 30, 2015 $ 1,898 $ 1,112 $ 3,010
Foreign currency translation adjustment - (100 ) (100 )
At November 30, 2016 1,898 1,012 2,910
Impairment charge - (38 ) (38 )
Foreign currency translation adjustment - 95 95
At November 30, 2017 $ 1,898 $ 1,069 $ 2,967
Trademarks
(in millions) North America EAA Total
Segment Segment
At November 30, 2015 $ 927 $ 307 $ 1,234
Foreign currency translation adjustment - (28 ) (28 )
At November 30, 2016 927 279 1,206
Impairment charge - (50 ) (50 )
Foreign currency translation adjustment - 23 23
At November 30, 2017 $ 927 $ 252 $ 1,179
Impairments of Ships
We review our long-lived assets for impairment whenever events or circumstances indicate potential impairment. Primarily as
a
result of our decision during the third quarter of 2017 to strategically realign our business in Australia, which includes
reducing
capacity in P&O Cruises (Australia), we performed undiscounted cash flow analyses on certain ships as of July 31, 2017.
Based on these undiscounted cash flow analyses, we determined that certain ships had net carrying values that exceeded
their estimated undiscounted future cash flows. We estimated the July 31, 2017 fair values of these ships based on their
discounted cash flows and comparable market transactions. We then compared these estimated fair values to the net carrying
values and, as a result, we recognized $304 million of ship impairment charges in the EAA segment, included in other ship
operating expenses of our consolidated statements of income for the third quarter of 2017.
The principal assumptions used in our analyses consisted of forecasted future operating results, including net revenue
yields and net cruise costs including fuel prices, estimated ship sale proceeds, and changes in strategy, including
decisions about the transfer of ships between brands. All principal assumptions are considered Level 3 inputs.
Derivative Instruments and Hedging Activities
November 30,
(in millions) Balance Sheet Location 2017 2016
Derivative assets
Derivatives designated as hedging instruments
Net investment hedges (a) Prepaid expenses and other $ 3 $ 12
Other assets - 3
Foreign currency zero cost collars (b) Prepaid expenses and other 12 -
Total derivative assets $ 15 $ 15
Derivative liabilities
Derivatives designated as hedging instruments
Net investment hedges (a) Accrued liabilities and other $ 13 $ 26
Other long-term liabilities 17 -
Interest rate swaps (c) Accrued liabilities and other 10 10
Other long-term liabilities 17 23
Foreign currency zero cost collars (b) Accrued liabilities and other - 12
Other long-term liabilities - 21
57 92
Derivatives not designated as hedging instruments
Fuel (d) Accrued liabilities and other 95 198
Other long-term liabilities 9 144
104 342
Total derivative liabilities $ 161 $ 434
(a) At November 30, 2017 and 2016, we had foreign currency swaps totaling $324 million and $291 million,
respectively, that are designated as hedges of our net investments in foreign operations with a euro-denominated functional
currency. At November 30, 2017, these foreign currency swaps settle through September 2019. At November 30, 2016 we had
foreign currency forwards totaling $456 million that were designated as hedges of our net investments in foreign
operations, which have a euro-denominated functional currency.
(b) At November 30, 2017 and 2016, 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 euro 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 $479
million at November 30, 2017 and $500 million at November 30, 2016 of EURIBOR-based floating rate euro debt to fixed rate
euro debt. At November 30, 2017, these interest rate swaps settle through March 2025.
(d) At November 30, 2017 and 2016, we had fuel derivatives consisting of zero cost collars on Brent crude oil
("Brent") to cover a portion of our estimated fuel consumption through 2018. See "Fuel Price Risks" below for additional
information regarding these fuel derivatives.
Our derivative contracts include rights of offset with our counterparties. We have elected to net certain of our derivative
assets and liabilities within counterparties.
November 30, 2017
(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 $ 15 $ - $ 15 $ (8 ) $ 7
Liabilities $ 161 $ - $ 161 $ (8 ) $ 153
November 30, 2016
(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 $ 15 $ - $ 15 $ (15 ) $ -
Liabilities $ 434 $ - $ 434 $ (15 ) $ 419
The effective gain (loss) portions of our derivatives qualifying and designated as hedging instruments recognized in other
comprehensive income (loss) were as follows:
November 30,
(in millions) 2017 2016 2015
Net investment hedges $ (31 ) $ (33 ) $ 58
Foreign currency zero cost collars - cash flow hedges $ 45 $ (8 ) $ (57 )
Interest rate swaps - cash flow hedges $ 8 $ 8 $ 2
There are no credit risk related contingent features in our derivative agreements, except for bilateral credit provisions
within our fuel derivative counterparty agreements. These provisions require cash collateral to be posted or received to
the extent the fuel derivative fair value payable to or receivable from an individual counterparty exceeds $100 million. At
November 30, 2017 and 2016, no collateral was required to be posted to or received from our fuel derivative
counterparties.
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 Risk
Fuel Price Risks
Substantially all of our exposure to market risk for changes in fuel prices relates to the consumption of fuel on our
ships. We have Brent call options and Brent put options, collectively referred to as zero cost collars, that establish
ceiling and floor prices and mitigate a portion of our economic risk attributable to potential fuel price increases. To
maximize operational flexibility we utilized derivative markets with significant trading liquidity.
Our zero cost collars are based on Brent prices whereas the actual fuel used on our ships is marine fuel. Changes in the
Brent prices may not show a high degree of correlation with changes in our underlying marine fuel prices. We will not
realize any economic gain or loss upon the monthly maturities of our zero cost collars unless the average monthly price of
Brent is above the ceiling price or below the floor price. We believe that these zero cost collars will act as economic
hedges; however, hedge accounting is not applied.
November 30,
(in millions) 2017 2016 2015
Unrealized gains (losses) on fuel derivatives, net $ 227 $ 236 $ (332 )
Realized losses on fuel derivatives, net (192 ) (283 ) (244 )
Gains (losses) on fuel derivatives, net $ 35 $ (47 ) $ (576 )
At November 30, 2017, our outstanding fuel derivatives consisted of zero cost collars on Brent as follows:
Maturities (a) Transaction Barrels Weighted-Average Weighted-Average
Dates (in thousands) Floor Prices Ceiling Prices
Fiscal 2018
January 2014 2,700 $ 75 $ 110
October 2014 3,000 $ 80 $ 114
5,700
(a) Fuel derivatives mature evenly over each month in 2018.
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 EAA segment operations generate significant revenues and incur significant expenses in their functional currencies,
which subjects us to "foreign currency translational" risk related to these currencies. Accordingly, exchange rate
fluctuations in their functional currencies against the U.S. dollar will affect our reported financial results since the
reporting currency for our consolidated financial statements is the U.S. dollar. Any strengthening of the U.S. dollar
against these foreign currencies has the financial statement effect of decreasing the U.S. dollar values reported for this
segment's revenues and expenses. Any weakening of the U.S. dollar has the opposite effect.
Substantially all of our operations also have non-functional currency risk related to their international sales. In
addition, we have a portion of our operating expenses denominated in non-functional currencies. Accordingly, we also have
"foreign currency transactional" risks related to changes in the exchange rates for our revenues and expenses that are in a
currency other than the functional currency. The revenues and expenses which occur in the same non-functional currencies
create some degree of natural offset.
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. We have $5.3 billion and $415 million of euro- and sterling-denominated debt,
respectively, including the effect of foreign currency swaps, which provides 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 November 30, 2017 for the following newbuilds, we had foreign currency zero cost collars for a portion of
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 Horizon 2016 March 2018 $ 1.02 $ 1.25
Seabourn Ovation 2016 April 2018 $ 1.02 $ 1.25
Nieuw Statendam 2016 November 2018 $ 1.05 $ 1.25
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 November 30, 2017, our remaining newbuild currency exchange rate risk primarily relates to euro-denominated newbuild
contract payments, which represent a total unhedged commitment of $6.8 billion and substantially all relates to newbuilds
scheduled to be delivered in 2019 through 2022 to non-euro functional currency brands.
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, 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 November 30, 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. 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 11 - 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 Cruises 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.
As of and for the years ended November 30,
(in millions) Revenues Operating Costs and Selling Depreciation Operating Capital Total
Expenses and and Income (Loss) Expenditures Assets
Administrative Amortization
2017
North America $ 11,135 $ 6,338 $ 1,284 $ 1,136 $ 2,376 $ 1,497 $ 23,907
EAA 6,158 4,082 720 620 648 (a) 1,011 14,672
Cruise Support 129 66 246 53 (235 ) 431 1,739
Tour and Other 236 163 15 37 20 5 459
Intersegment elimination (148 ) (148 ) - - - - -
$ 17,510 $ 10,501 $ 2,265 $ 1,846 $ 2,809 $ 2,944 $ 40,778
2016
North America $ 10,267 $ 5,786 $ 1,220 $ 1,056 $ 2,205 $ 2,069 $ 23,454
EAA 5,906 3,524 691 599 1,092 667 13,456
Cruise Support 131 67 278 42 (256 ) 310 1,513
Tour and Other 231 152 8 41 30 16 458
Intersegment elimination (146 ) (146 ) - - - - -
$ 16,389 $ 9,383 $ 2,197 $ 1,738 $ 3,071 $ 3,062 $ 38,881
2015
North America $ 9,866 $ 5,925 $ 1,140 $ 994 $ 1,807 $ 854 $ 22,420
EAA 5,636 3,442 695 561 938 1,265 14,076
Cruise Support 119 58 223 27 (189 ) 162 2,248
Tour and Other 226 155 9 44 18 13 493
Intersegment elimination (133 ) (133 ) - - - - -
$ 15,714 $ 9,447 $ 2,067 $ 1,626 $ 2,574 $ 2,294 $ 39,237
(a) Includes $89 million of impairment charges related to EAA's goodwill and trademarks.
A portion of the North America segment's revenues includes revenues for the tour portion of a cruise when a cruise and land
tour package are sold together by Holland America Line and Princess Cruises. These intersegment tour revenues, which are
also included in our Tour and Other segment, are eliminated by the North America segment's revenues and operating expenses
in the line "Intersegment elimination."
Tour and Other segment assets primarily include hotels and lodges in the state of Alaska and the Canadian Yukon,
motorcoaches used for sightseeing and charters, glass-domed railcars, which run on the Alaska Railroad, and our owned ships
that we leased out under long-term charters to unaffiliated entities.
Revenues by geographic areas, which are based on where our guests are sourced, were as follows:
Years Ended November 30,
(in millions) 2017 2016 2015
North America $ 9,195 $ 8,327 $ 8,015
Europe 5,414 5,254 5,133
Australia and Asia 2,604 2,506 2,256
Other 297 302 310
$ 17,510 $ 16,389 $ 15,714
Substantially all of our long-lived assets consist of our ships and move between geographic areas.
NOTE 12 - Compensation Plans
Equity Plans
We issue our share-based compensation awards, which at November 30, 2017 included time-based share awards (restricted stock
awards and restricted stock units), performance-based share awards and market-based share awards (collectively "equity
awards"), under the Carnival Corporation and Carnival plc stock plans. Equity awards are principally granted to management
level employees and members of our Boards of Directors. The plans are administered by the Compensation Committee which is
made up of independent directors who determine which employees are eligible to participate, the monetary value or number of
shares for which equity awards are to be granted and the amounts that may be exercised or sold within a specified term. We
had an aggregate of 15.5 million shares available for future grant at November 30, 2017. We fulfill our equity award
obligations using shares purchased in the open market or with unissued shares or treasury shares. Our equity awards
generally vest over a three-year period, subject to earlier vesting under certain conditions.
Shares Weighted-Average
Grant Date Fair
Value
Outstanding at November 30, 2014 4,053,057 $ 37.94
Granted 1,253,050 $ 45.70
Vested (1,298,318 ) $ 31.35
Forfeited (398,394 ) $ 39.48
Outstanding at November 30, 2015 3,609,395 $ 42.84
Granted
- More to follow, for following part double click ID:nRSc2341DcRecent news on Carnival
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