REG - Carnival PLC - Final Results <Origin Href="QuoteRef">CCL.L</Origin> - Part 3

CarnivalAnnouncement

29/01/2018 14:40

- Part 3: For the preceding part double click  ID:nRSc2341Db 

                  1,451,917                        $  53.98    
 Vested                            (1,454,381  )                    $  38.18    
 Forfeited                         (193,806    )                    $  47.76    
 Outstanding at November 30, 2016  3,413,125                        $  48.03    
 Granted                           1,116,314                        $  54.79    
 Vested                            (1,466,690  )                    $  38.95    
 Forfeited                         (112,781    )                    $  51.72    
 Outstanding at November 30, 2017  2,949,968                        $  51.82    
 
 
As of November 30, 2017, there was $59 million of total unrecognized compensation cost related to equity awards, which is
expected to be recognized over a weighted-average period of 1.4 years. 
 
Defined Benefit Pension Plans 
 
We have several single-employer defined benefit pension plans, which cover some of our shipboard and shoreside employees.
The U.S. and UK shoreside employee plans are closed to new membership and are funded at or above the level required by U.S.
or UK regulations. The remaining defined benefit plans are primarily unfunded. In determining all of our plans' benefit
obligations at November 30, 2017 and 2016, we assumed a weighted-average discount rate of 2.7% for 2017 and 2.9% for 2016. 
 
In addition, we participate in two multiemployer defined benefit pension plans in the UK, the British Merchant Navy
Officers Pension Fund (registration number 10005645) ("MNOPF"), which is divided into two sections, the "New Section" and
the "Old Section" and the British Merchant Navy Ratings Pension Fund (registration number 10005646) ("MNRPF").
Collectively, we refer to these as "the multiemployer plans." The multiemployer plans are maintained for the benefit of the
employees of the participating employers who make contributions to the plans. However, contributions made by employers,
including us, may be used to provide benefits to employees of other participating employers, and if any of the
participating employers withdraw from the multiemployer plans or fail to make their required contributions, any unfunded
obligations would be the responsibility of the remaining participating employers. We are contractually obligated to make
all required contributions as determined by the plans' trustees. All of our multiemployer plans are closed to new
membership and future benefit accrual. The MNOPF Old Section is fully funded. 
 
We expense our portion of the MNOPF New Section deficit as amounts are invoiced by, and become due and payable to, the
trustees. We accrue and expense our portion of the MNRPF deficit based on our estimated probable obligation from the most
recent actuarial review. Total expense for all defined benefit pension plans, including the multiemployer plans, was $53
million in 2017, $27 million in 2016 and $47 million in 2015. 
 
Based on the most recent valuation at March 31, 2015 of the MNOPF New Section, it was determined that this plan was 90%
funded. In 2017, 2016 and 2015, our contributions to the MNOPF New Section did not exceed 5% of total contributions to the
fund. Based on the most recent valuation at March 31, 2014 of the MNRPF, it was determined that this plan was 67% funded.
In 2017 and 2016, our contributions to the MNRPF did not exceed 5% of total contributions to the fund. In 2015, our
contributions to the MNRPF exceeded 5% of total contributions to the fund. It is possible that we will be required to fund
and expense additional amounts for the multiemployer plans in the future; however, such amounts are not expected to be
material to our consolidated financial statements. The trustee has carried out a triennial valuation at March 31, 2017 and
consulted with employers on it but the valuation has not yet been finalized. 
 
Defined Contribution Plans 
 
We have several defined contribution plans available to most of our employees. We contribute to these plans based on
employee contributions, salary levels and length of service. Total expense for these plans was $37 million in 2017 and $30
million in 2016 and 2015. 
 
NOTE 13 - Earnings Per Share 
 
                                                      Years Ended November 30,  
 (in millions, except per share data)                 2017                             2016       2015  
 Net income for basic and diluted earnings per share  $                         2,606             $     2,779         $  1,757    
 Weighted-average shares outstanding                  722                                    745               777    
 Dilutive effect of equity plans                      3                                      2                 2      
 Diluted weighted-average shares outstanding          725                                    747               779    
 Basic earnings per share                             $                         3.61              $     3.73          $  2.26     
 Diluted earnings per share                           $                         3.59              $     3.72          $  2.26     
 
 
NOTE 14 - Supplemental Cash Flow Information 
 
Cash paid for interest, net of capitalized interest, was $191 million in 2017, $211 million in 2016 and $216 million in
2015. In addition, cash paid for income taxes, net of recoveries, was $43 million in 2017, $48 million in 2016 and $40
million in 2015. 
 
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 document are "forward-looking statements" that involve
risks, uncertainties and assumptions with respect to us, including some statements concerning future results, outlooks,
plans, goals and other events which have not yet occurred. These statements are intended to qualify for the safe harbors
from liability provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements other than statements of historical facts are statements that could be deemed forward-looking. These
statements are based on current expectations, estimates, forecasts and projections about our business and the industry in
which we operate and the beliefs and assumptions of our management. We have tried, whenever possible, to identify these
statements by using words like "will," "may," "could," "should," "would," "believe," "depends," "expect," "goal,"
"anticipate," "forecast," "project," "future," "intend," "plan," "estimate," "target," "indicate" 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 2017 Annual Report. 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: 
 
•       The demand for cruises may decline due to adverse world events impacting the ability or desire of people to travel,
including conditions affecting the safety and security of travel, government regulations and requirements, and decline in
consumer confidence 
 
•       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 
 
•       Changes in and compliance with laws and regulations relating to environment, health, safety, security, data privacy
and protection, tax and anti-corruption under which we operate may lead to litigations, enforcement actions, fines, or
penalties 
 
•       Disruptions and other damages to our information technology and other networks and operations, breaches in data
security, lapses in data privacy, and failure to keep pace with developments in technology 
 
•       Ability to recruit, develop and retain qualified shipboard personnel who live on ships away from home for extended
periods of time 
 
•       Increases in fuel prices and availability of fuel supply 
 
•       Fluctuations in foreign currency exchange rates 
 
•       Overcapacity and competition in the cruise ship and land-based vacation industry 
 
•       Continuing financial viability of our travel agent distribution system, air service providers and other key vendors
in our supply chain, as well as 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, as well as increases to our repairs and maintenance expenses and
refurbishment costs as our fleet ages 
 
•       Geographic regions in which we try to expand our business may be slow to develop and ultimately not develop how we
expect 
 
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 2017 Annual Report, 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. 
 
2017 Executive Overview 
 
2017 marked another very strong year for us as we delivered record cash from operations of over $5.3 billion and record
revenues of $17.5 billion. 
 
Key information for 2017 compared to the prior year (see "Key Performance Non-GAAP Financial Indicators" for definitions
and reconciliations): 
 
•       Net income for 2017 of $2.6 billion, or $3.59 diluted earnings per share, compared to $2.8 billion, or $3.72
diluted earnings per share for 2016. 
 
•       Adjusted net income increased 7.4% to $2.8 billion from $2.6 billion in 2016 and adjusted diluted earnings per
share increased to $3.82 from $3.45 in 2016. Adjusted net income excludes unrealized gains on fuel derivatives of $227
million and impairments and other net charges of $390 million for the full year 2017 and unrealized gains on fuel
derivatives of $236 million and other net charges of $37 million for the full year 2016. 
 
•       Revenues increased $1.1 billion to $17.5 billion from $16.4 billion in 2016. 
 
•       Gross revenue yields (revenue per available lower berth day or "ALBD") increased 3.9%. In constant currency, net
revenue yields increased 4.5%, comprised of a 4.9% increase in net passenger ticket revenue yields and a 3.4% increase in
net onboard and other revenue yields. 
 
•       Gross cruise costs including fuel per ALBD increased 7.2%. Net cruise costs excluding fuel per ALBD in constant
currency increased 2.7%. 
 
•       Changes in fuel prices (including realized fuel derivatives) and currency exchange rates decreased earnings by
$0.03 per share. 
 
•       Noncash impairment charges for ships, trademark and goodwill of $392 million resulting primarily from our decision
to strategically realign our business in Australia. 
 
We achieved our highest adjusted diluted earnings per share with strong operational improvement overcoming a significant
drag from fuel and currency and hurricane disruptions. We improved our ROIC to 9.4% and continue to return excess cash to
shareholders. We increased our quarterly dividend twice in 2017 and distributed $1.1 billion in dividends during the year.
Additionally, we invested another nearly $600 million in our ongoing share repurchase program bringing our cumulative
repurchases, in just over two years, to $3.1 billion as of November 30, 2017; all while maintaining our high investment
grade credit rating. 
 
Our strong results affirm the efforts of our 120,000 team members whose commitment and passion enable us to exceed the
expectations of our 12.1 million guests annually, and are also a credit to our travel agent partners who support all of our
brands. It is through their collective efforts that we delivered such strong earnings and we embark upon 2018 with booking
volumes and pricing both ahead of last year. 
 
In addition to our record-breaking financial results, we had many other accomplishments this year which we expect will pay
dividends in 2018 and beyond. 
 
•       In November 2017, we debuted the OCEAN experience platform on Regal Princess, ushering in a new era in highly
personalized travel at scale. We are fine tuning and enhancing the platform based on real time learning as we prepare for a
full roll out aboard Regal Princess. We also recently introduced PlayOcean, our proprietary mobile gaming portfolio.
PlayOcean taps into the growing interest in mobile gaming by offering a selection of original games that can be played at
home. 
 
•       We announced a new partnership with Univision to develop the first OCEAN prime-time series, La Gran Sorpresa,
providing programing in Spanish featuring the Hispanic community. The cruise vacation experiences shared in La Gran Sopresa
align with the core values of the Univision audience, focusing on multi-generational family, togetherness, fun and passion
for life. We also launched OceanView, our own proprietary digital streaming network featuring compelling experiential
content twenty-four/seven, and currently available on major digital platforms as well as onboard our ships. OceanView
launched simultaneously with our two new proprietary original content digital productions, Go and Local Eyes, that
complement our three award winning television shows, The Voyager with Josh Garcia on NBC, Ocean Treks with Jeff Corwin on
ABC and Vacation Creation with Tommy Davidson and Andrea Feczko also on ABC. To date, our original content television
programs have garnered over 100 hours of cumulative airtime and reached an audience of over 200 million viewers. 
 
•       Other successful public relations efforts include the premiere of the major motion picture, The Greatest Showman.
on Cunard's Queen Mary 2 as well as Holland America Line's featured cruises in partnership with O Magazine, including
Oprah's own voyage on Eurodam in Alaska. In Italy, our third commercial for our Costa brand featuring Shakira launched on
Christmas Day, continuing that highly successful marketing campaign. These efforts are all engineered to reach audiences
multiple times in multiple ways to help drive demand for our brands, ultimately leading to higher yields. 
 
There have been a number of significant developments in our strategic fleet enhancement plan which is an important part of
our measured capacity growth strategy and includes replacing less efficient ships with new more efficient vessels. In 2017,
we introduced three new state of the art cruise ships, Seabourn Encore, Majestic Princess and AIDAperla, and we signed
agreements with Fincantieri to build three additional ships. At the same time we signed agreements to sell two ships
expected to leave the fleet in 2018, keeping us on pace with our historical average of removing one to two ships per year.
We expect net capacity growth to be around 5% compound annually through 2022 in keeping with our philosophy of measured
capacity growth, as new ships replace some existing capacity. 
 
We also realized a number of other notable accomplishments: 
 
•       We continued the roll out of our new state-of-the-art revenue management system across six of our brands, which is
expected to facilitate further yield uplift. 
 
•       We also accelerated progress on our cost containment efforts delivering more than $100 million of savings. 
 
•       Two of our brands obtained approval and are now operating cruises to Cuba, our contemporary Carnival Cruise Line
sailing from Tampa and our premium Holland America Line brand sailing from Fort Lauderdale. 
 
We continue to make meaningful progress on our 2020 sustainability goals focusing on our environmental, safety, labor and
social performance. We have already reduced our unit fuel consumption by 29% since initiating the effort, and we remain
committed to ongoing reduction in air emissions with the delivery of AIDAperla in 2017, our second cruise ship to be
powered in port by environmentally friendly liquefied natural gas, along with the keel laying of AIDAnova, the first of
seven all-LNG ships on order. 
 
Our commitment to continuous improvement in health, environment, safety and security resulted in our being ranked in the
top quartile of the 100 best Corporate Citizens by Corporate Responsibility magazine, as well as recognition for our
sustainability report which was ranked number-one globally by Corporate Register. We also launched our first dedicated
sustainability report website to expand our sustainability reporting. 
 
We joined pledges to support the advancement of women's leadership and diversity in the workplace drafted by Catalyst (the
leading global nonprofit focused on expanding opportunities for women) and to support and encourage diversity in the
workplace drafted by the Executive Leadership Council (the leading global organization working to empower African-American
corporate leaders). 
 
We remain committed to achieving increased consideration for cruise vacations and continued investment in our guest
experience to create additional consumer demand in excess of measured capacity growth, while at the same time positioning
ourselves further along the path to sustained double digit ROIC. 
 
Outlook for the 2018 First Quarter and Full Year 
 
On December 19, 2017, we disclosed in our earnings release that we expected our adjusted earnings per share for the 2018
first quarter to be in the range of $0.37 to $0.41 and 2018 full year to be in the range of $4.00 to $4.30 (see "Key
Performance Non-GAAP Financial Indicators"). Our guidance was based on the December 19, 2017 assumptions included in the
table below. 
 
Based on fuel prices and foreign currency exchange rates as of January 24, 2018 included in the table below, our adjusted
earnings per share for the 2018 first quarter would increase by $0.02 and for the 2018 full year would increase by $0.15.
The increase for the 2018 full year was caused by the impact of changes in foreign currency exchange rates of $0.17 per
share, partially offset by higher fuel prices, net of lower forecasted realized losses on fuel derivatives of $0.02 per
share. 
 
                                    December 19, 2017        January 24, 2018    
                                    Full Year 2018           First Quarter 2018    Full Year 2018        First Quarter 2018  
 Fuel cost per metric ton consumed  $                  442                         $               420                         $  458       $  434     
 Currencies (USD to 1)                                                                                                       
 AUD                                $                  0.76                        $               0.76                        $  0.80      $  0.79    
 CAD                                $                  0.78                        $               0.78                        $  0.81      $  0.80    
 EUR                                $                  1.18                        $               1.18                        $  1.23      $  1.22    
 GBP                                $                  1.34                        $               1.34                        $  1.42      $  1.40    
 RMB                                $                  0.15                        $               0.15                        $  0.16      $  0.16    
 
 
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." 
 
New Accounting Pronouncements 
 
Refer to our consolidated financial statements for further information on Accounting Pronouncements. 
 
Critical Accounting Estimates 
 
Our critical accounting estimates are those we believe require our most significant judgments about the effect of matters
that are inherently uncertain. A discussion of our critical accounting estimates, the underlying judgments and
uncertainties used to make them and the likelihood that materially different estimates would be reported under different
conditions or using different assumptions is as follows: 
 
Ship Accounting 
 
Our most significant assets are our ships, including ship improvements and ships under construction, which represent 80% of
our total assets at November 30, 2017. We make several critical accounting estimates with respect to our ship accounting.
First, in order to compute our ships' depreciation expense, which represented 11% of our cruise costs and expenses in 2017,
we have to estimate the useful life of each of our ships as well as their residual values. Secondly, we account for ship
improvement costs by capitalizing those costs we believe add value to our ships and have a useful life greater than one
year and depreciate those improvements over its estimated remaining useful life. The costs of repairs and maintenance,
including minor improvement costs and dry-dock expenses, are charged to expense as incurred. When we record the retirement
of a ship component included within the ship's cost basis, we may have to estimate the net book value of the asset being
retired in order to remove it from the ship's cost basis. 
 
We determine the useful life of our ships and ship improvements based on our estimates of the period over which the assets
will be of economic benefit to us, including the impact of long-term vacation market conditions, marketing and technical
obsolescence, competition, physical deterioration, historical useful lives of similarly-built ships, regulatory constraints
and maintenance requirements. In addition, we consider estimates of the weighted-average useful lives of the ships' major
component systems, such as the hull, cabins, main electric, superstructure and engines. Taking all of this into
consideration, we have estimated our new ships' useful lives at 30 years. 
 
We determine the residual value of our ships based on our long-term estimates of their resale value at the end of their
useful life to us but before the end of their physical and economic lives to others, historical resale values of our and
other cruise ships and viability of the secondary cruise ship market. We have estimated our residual values at 15% of our
original ship cost. 
 
Given the large size and complexity of our ships, ship accounting estimates require considerable judgment and are
inherently uncertain. We do not have cost segregation studies performed to specifically componentize our ships. In
addition, since we do not separately componentize our ships, we do not identify and track depreciation of original ship
components. Therefore, we typically have to estimate the net book value of components that are retired, based primarily
upon their replacement cost, their age and their original estimated useful lives. 
 
If materially different conditions existed, or if we materially changed our assumptions of ship useful lives and residual
values, our depreciation expense, loss on retirement of ship components and net book value of our ships would be materially
different. In addition, if we change our assumptions in making our determinations as to whether improvements to a ship add
value, the amounts we expense each year as repair and maintenance expense could increase, which would be partially offset
by a decrease in depreciation expense, resulting from a reduction in capitalized costs. Our 2017 ship depreciation expense
would have increased by approximately $41 million assuming we had reduced our estimated 30-year ship useful life estimate
by one year at the time we took delivery or acquired each of our ships. In addition, our 2017 ship depreciation expense
would have increased by approximately $215 million assuming we had estimated our ships to have no residual value at the
time of their delivery or acquisition. 
 
We believe that the estimates we made for ship accounting purposes are reasonable and our methods are consistently applied
in all material respects and result in depreciation expense that is based on a rational and systematic method to equitably
allocate the costs of our ships to the periods during which we use them. In addition, we believe that the estimates we made
are reasonable. We applied our methods consistently in determining (1) the useful life and residual values of our ships,
including ship improvements; (2) which improvement costs add value to our ships and (3) the net book value of ship
component assets being retired. Finally, we believe our critical ship accounting estimates are generally comparable with
those of other major cruise companies. 
 
Asset Impairments 
 
Impairment reviews of our cruise ships, goodwill and trademarks require us to make significant estimates to determine the
fair values of these assets and reporting units. 
 
For our cruise ships, we perform our impairment reviews, if required, at the individual cruise ship level, which is the
lowest level for which we have identifiable cash flows independent of the cash flows of other assets and liabilities. See
Note 10 - "Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risk" in the consolidated
financial statements for a discussion of ship impairment charges recorded in 2017. 
 
The determination of ship fair value includes numerous assumptions that are subject to various risks and uncertainties,
unless a comparable, viable actively-traded market exists, which is usually not the case for cruise ships, cruise brands
and trademarks. Our ships' fair values are typically estimated based either on ship sales price negotiations or discounted
future cash flows. The principal assumptions used to calculate our discounted future cash flows include forecasted future
operating results over the expected period. We believe the ships, including their estimated residual values, will have
economic benefit to us. 
 
As of July 31, 2017, we performed our annual goodwill and trademark impairment reviews. See Note 10 - "Fair Value
Measurements, Derivative Instruments and Hedging Activities and Financial Risk" in the consolidated financial statements
for additional discussion of our goodwill and trademark impairment charges recorded in 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. 
 
Contingencies 
 
We periodically assess the potential liabilities related to any lawsuits or claims brought against us, as well as for other
known unasserted claims, including environmental, legal, regulatory, guest and crew and tax matters. In addition, we
periodically assess the recoverability of our trade and other receivables and our charter-hire and other counterparty
credit exposures, by financial and other institutions with which we conduct significant business. Our credit exposure also
includes contingent obligations related to our guests' cash payments received directly by travel agents and tour operators
in Australia and Europe. In most of Europe, we are obligated to honor our guests' cruise payments made to their travel
agents and tour operators regardless of whether we have received these payments. While it is typically very difficult to
determine the timing and ultimate outcome of these matters, we use our best judgment to determine if it is probable, or
more likely than not ("MLTN") for income tax matters, that we will incur an expense related to the settlement or final
adjudication of such matters and whether a reasonable estimation of such probable or MLTN loss, if any, can be made. In
assessing probable losses, we make estimates of the amount of probable insurance recoveries, if any, which are recorded as
assets where appropriate. We accrue a liability and establish a reserve when we believe a loss is probable or MLTN for
income tax matters, and the amount of the loss can be reasonably estimated in accordance with U.S. GAAP. Such accruals and
reserves are typically based on developments to date, management's estimates of the outcomes of these matters, our
experience in contesting, litigating and settling other similar non-income tax matters, historical claims experience,
actuarially determined estimates of liabilities and any related insurance coverages. 
 
Given the inherent uncertainty related to the eventual outcome of these matters and potential insurance recoveries, it is
possible that all or some of these matters may be resolved for amounts materially different from any provisions or
disclosures that we may have made. In addition, as new information becomes available, we may need to reassess the amount of
asset or liability that needs to be accrued related to our contingencies. All such changes in our estimates could
materially impact our results of operations and financial position. 
 
Results of Operations 
 
We earn substantially all of our cruise revenues from the following: 
 
•   Sales of passenger cruise tickets and, in some cases, the sale of air and other transportation to and from airports
near our ships' home ports and cancellation fees. We also collect fees, taxes and other charges from our guests 
 
•   The cruise ticket price typically includes the following: 
 
•         Accommodations 
 
•         Most meals, including snacks at numerous venues 
 
•         Access to amenities such as swimming pools, water slides, water parks, whirlpools, a health club and sun decks 
 
•         Supervised youth programs 
 
•         Entertainment, such as theatrical and comedy shows, live music and nightclubs 
 
•         Visits to multiple destinations 
 
•   Sales of goods and services not included in the cruise ticket price are generally the following: 
 
 •       Substantially all liquor and some non-alcoholic beverage sales  •       Internet and communication services  
 •       Casino gaming                                                   •       Full service spas                    
 •       Shore excursions                                                •       Specialty restaurants                
 •       Gift shop sales                                                 •       Art sales                            
 •       Photo sales                                                     •       Laundry and dry cleaning services    
 
 
These goods and services are provided either directly by us or by independent concessionaires, from which we receive either
a percentage of their revenues or a fee. 
 
We incur cruise operating costs and expenses for the following: 
 
•   The costs of passenger cruise bookings, which represent costs that are directly associated with passenger cruise ticket
revenues, and include travel agent commissions, cost of air and other transportation and credit and debit card fees 
 
•   Onboard and other cruise costs, which represent costs that are directly associated with onboard and other revenues, and
include the costs of liquor and some non-alcoholic beverages, costs of tangible goods sold by us in our gift shops and from
our photo packages, communication costs, costs of cruise vacation protection programs, costs of pre- and post-cruise land
packages and credit and debit card fees 
 
•   Fuel costs, which include fuel delivery costs 
 
•   Payroll and related costs, which represent all costs related to our shipboard personnel, including bridge and
engineering officers and crew and hotel and administrative employees, while costs associated with our shoreside personnel
are included in selling and administrative expenses 
 
•   Food costs, which include both our guest and crew food costs 
 
•   Other ship operating expenses, which include port costs that do not vary with guest head counts; repairs and
maintenance, including minor improvements and dry-dock expenses; hotel costs; entertainment; gains and losses on ship
sales; ship impairments; freight and logistics; insurance premiums and all other ship operating expenses 
 
Concession revenues do not have significant associated expenses because the costs and services incurred for concession
revenues are borne by our concessionaires. 
 
Statistical Information 
 
                                                     Years Ended November 30,  
                                                     2017                            2016          2015  
 ALBDs (in thousands) (a) (b)                        82,303                                80,002              77,307     
 Occupancy percentage (c)                            105.9                     %           105.9   %           104.8   %  
 Passengers carried (in thousands)                   12,130                                11,520              10,840     
 Fuel consumption in metric tons (in thousands)      3,286                                 3,233               3,181      
 Fuel consumption in metric tons per thousand ALBDs  39.9                                  40.4                41.2       
 Fuel cost per metric ton consumed                   $                         378                 $     283              $  393     
 Currencies (USD to 1)                                                                                   
 AUD                                                 $                         0.77                $     0.74             $  0.76    
 CAD                                                 $                         0.77                $     0.75             $  0.79    
 EUR                                                 $                         1.12                $     1.11             $  1.12    
 GBP                                                 $                         1.28                $     1.37             $  1.54    
 RMB                                                 $                         0.15                $     0.15             $  0.16    
 
 
(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)       In 2017 compared to 2016, we had a 2.9% capacity increase in ALBDs comprised of a 3.2% capacity increase in our
North America segment and a 2.4% capacity increase in our EAA segment. 
 
Our North America segment's capacity increase was caused by: 
 
•       Full period impact from one Seabourn 600-passenger capacity ship that entered into service in December 2016 
 
•       Partial period impact from one Holland America Line 2,650-passenger capacity ship that entered into service in
April 2016 
 
•       Partial period impact from one Carnival Cruise Line 3,930-passenger capacity ship that entered into service in May
2016 
 
•       Partial period impact from one Princess Cruises 3,560-passenger capacity ship that entered into service in April
2017 
 
These increases were offset by the partial period impact from the transfer of one Princess Cruises 2,000-passenger capacity
ship to P&O Cruises (Australia) in May 2017. 
 
Our EAA segment's capacity increase was caused by: 
 
•       Partial period impact from one AIDA 3,290-passenger capacity ship that entered into service in April 2016 
 
•       Partial period impact from one AIDA 3,290-passenger capacity ship that entered into service in June 2017 
 
•       Partial period impact from the transfer of one Princess Cruises 2,000-passenger capacity ship to P&O Cruises
(Australia) that entered into service in July 2017 
 
These increases were partially offset by the partial period impact from one P&O Cruises (Australia) 1,550-passenger
capacity ship removed from service in April 2017. 
 
In 2016 compared to 2015, we had a 3.5% capacity increase in ALBDs comprised of a 7.5% capacity increase in our EAA segment
and a slight capacity increase in our North America segment. 
 
Our North America segment's slight capacity increase was caused by: 
 
•       Partial period impact from one Carnival Cruise Line 3,930-passenger capacity ship delivered in May 2016 
 
•       Partial period impact from one Holland America Line 2,650-passenger capacity ship delivered in April 2016 
 
These increases were partially offset by the full period impact from the transfer of two Holland America Line
1,260-passenger capacity ships to P&O Cruises (Australia) in 2015. 
 
Our EAA segment's capacity increase was caused by: 
 
•       Full period impact from the transfer of two Holland America Line 1,260-passenger capacity ships to P&O Cruises 
 
(Australia) in 2015 
 
•       Partial period impact from one P&O Cruises (UK) 3,650-passenger capacity ship delivered in 2015 
 
•       Partial period impact from one AIDA 3,290-passenger capacity ship delivered in April 2016 
 
•       Fewer ship dry-dock days in 2016 compared to 2015 
 
(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. 
 
2017 Compared to 2016 
 
Revenues 
 
Consolidated 
 
Cruise passenger ticket revenues made up 74% of our 2017 total revenues. Cruise passenger ticket revenues increased by $854
million, or 7.1%, to $12.9 billion in 2017 from $12.1 billion in 2016. 
 
This increase was caused by: 
 
•       $517 million - increase in cruise ticket revenues, driven primarily by price improvements in our Caribbean,
European and Alaska programs, partially offset by decrease in our China programs 
 
•       $348 million - 2.9% capacity increase in ALBDs 
 
•       $55 million - increase in other passenger revenue 
 
These increases were partially offset by: 
 
•       $54 million - foreign currency translational impact from a stronger U.S. dollar against the functional currencies
of our foreign operations ("foreign currency translational impact") 
 
•       $20 million - decrease in air transportation revenues 
 
The remaining 26% of 2017 total revenues were substantially all comprised of onboard and other cruise revenues, which
increased by $262 million, or 6.4%, to $4.3 billion in 2017 from $4.1 billion in 2016. 
 
This increase was driven by: 
 
•       $124 million - higher onboard spending by our guests 
 
•       $117 million - 2.9% capacity increase in ALBDs 
 
Concession revenues, which are included in onboard and other revenues, increased by $18 million, or 1.8%, to $1.1 billion
in 2017 from $1.0 billion in 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 $658 million, or 9.0% to $8.0 billion in 2017 from $7.3 billion in 2016. 
 
This increase was caused by: 
 
•       $369 million - increase in cruise ticket revenues, driven primarily by price improvements in Caribbean, European
and Alaska programs, partially offset by decrease in our China programs 
 
•       $232 million - 3.2% capacity increase in ALBDs 
 
•       $32 million - increase in occupancy 
 
•       $28 million - increase in other passenger revenue 
 
The remaining 28% of our North America segment's 2017 total revenues were comprised of onboard and other cruise revenues,
which increased by $208 million, or 7.4%, to $3.0 billion in 2017 from $2.8 billion in 2016. 
 
The increase was driven by: 
 
•       $89 million - 3.2% capacity increase in ALBDs 
 
•       $88 million - higher onboard spending by our guests 
 
Concession revenues, which are included in onboard and other revenues, increased by $21 million, or 3.0%, to $722 million
in 2017 from $701 million in 2016. 
 
EAA Segment 
 
Cruise passenger ticket revenues made up 81% of our EAA segment's 2017 total revenues. Cruise passenger ticket revenues
increased by $186 million, or 3.9%, to $5.0 billion in 2017 from $4.8 billion 2016. 
 
This increase was caused by: 
 
•       $141 million - increase in cruise ticket revenues, driven primarily by price improvements in the European programs,
partially offset by decrease in the China programs 
 
•       $117 million - 2.4% capacity increase in ALBDs 
 
These increases were partially offset by: 
 
•       $54 million - foreign currency translational impact 
 
•       $25 million - decrease in occupancy 
 
The remaining 19% of our EAA segment's 2017 total revenues were comprised of onboard and other cruise revenues, which
increased by $65 million, or 6.0%, to $1.2 billion in 2017 from $1.1 billion in 2016. 
 
The increase was caused by: 
 
•       $47 million - higher onboard spending by our guests 
 
•       $26 million -  2.4% capacity increase in ALBDs 
 
Concession revenues, which are included in onboard and other revenues, decreased by $2 million, or 0.6%, to $330 million in
2017 from $332 million in 2016. 
 
Costs and Expenses 
 
Consolidated 
 
Operating costs and expenses increased by $1.1 billion or 12%, to $10.5 billion in 2017 from $9.4 billion in 2016. 
 
This increase was caused by: 
 
•       $314 million - higher fuel prices 
 
•       $304 million - impairment of ships, resulting primarily from our decision to strategically realign our business in
Australia 
 
•       $265 million - 2.9% capacity increase in ALBDs 
 
•       $68 million - higher cruise payroll and related expenses 
 
•       $67 million - higher port expenses 
 
•       $65 million - higher commissions, transportation and other expenses 
 
•       $64 million - higher dry-dock expenses and repair and maintenance expenses 
 
These increases were partially offset by foreign currency translational impact, which accounted for $34 million. 
 
Selling and administrative expenses increased by $68 million, or 3.1%, to $2.3 billion in 2017 from $2.2 billion in 2016. 
 
Depreciation and amortization expenses increased by $108 million, or 6.2%, to $1.8 billion in 2017 from $1.7 billion in
2016. 
 
Goodwill and trademark impairment charges of $89 million include a goodwill impairment charge of $38 million and a
trademark impairment charge of $50 million during the third quarter of 2017, resulting from our decision to strategically
realign our business in Australia. 
 
North America Segment 
 
Operating costs and expenses increased by $550 million, or 9.8%, to $6.2 billion in 2017 from $5.6 billion in 2016. 
 
This increase was driven by: 
 
•       $196 million - higher fuel prices 
 
•       $179 million - 3.2%  capacity increase in ALBDs 
 
•       $76 million - higher commissions, transportation and other expenses 
 
•       $41 million - higher port expenses 
 
•       $37 million - higher cruise payroll and related expenses 
 
Selling and administrative expenses increased by $64 million, or 5.2%, to $1.3 billion in 2017 from $1.2 billion in 2016. 
 
Depreciation and amortization expenses increased by $80 million, or 7.6%, to $1.1 billion in 2017 from $1.1 billion in
2016. 
 
EAA Segment 
 
Operating costs and expenses increased by $558 million, or 16%, to $4.1 billion in 2017 from $3.5 billion in 2016. 
 
This increase was caused by: 
 
•       $304 million - impairment of ships, resulting primarily from our decision to strategically realign our business in
Australia 
 
•       $118 million - higher fuel prices 
 
•       $86 million - 2.4% capacity increase in ALBDs 
 
•       $56 million - higher dry-dock expenses and repair and maintenance expenses 
 
•       $26 million - higher port expenses 
 
•       $26 million - higher cruise payroll and related expenses 
 
These increases were partially offset by: 
 
•       $34 million - foreign currency translational impact 
 
•       $20 million - decrease in air transportation costs 
 
Selling and administrative expenses increased by $29 million, or 4.2%, to $720 million in 2017 from $691 million in 2016. 
 
Depreciation and amortization expenses increased by $21 million, or 3.5%, to $620 million in 2017 from $599 million in
2016. 
 
Goodwill and trademark impairment charges of $89 million include a goodwill impairment charge of $38 million and a
trademark impairment charge of $50 million during the third quarter of 2017, resulting from our decision to strategically
realign our business in Australia. 
 
Operating Income 
 
Our consolidated operating income decreased by $262 million, or 8.5%, to $2.8 billion in 2017 from $3.1 billion in 2016.
Our North America segment's operating income increased by $171 million, or 7.8%, to $2.4 billion in 2017 from $2.2 billion
in 2016, and our EAA segment's operating income decreased by $444 million, or 41%, to $0.6 billion in 2017 from $1.1
billion in 2016. These changes were primarily due to the reasons discussed above. 
 
Nonoperating Income (Expense) 
 
                                           Years Ended November 30,  
 (in millions)                             2017                           2016  
 Unrealized gains on fuel derivatives      $                         227              $  236     
 Realized losses on fuel derivatives, net  (192                      )          (283  )  
 Gains (losses) on fuel derivatives, net   $                         35               $  (47  )  
 
 
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, impairment charges, 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. 
 
Non-GAAP 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 ticket 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 and 2016 periods'
currency exchange rates have remained constant with the 2016 and 2015 periods' rates, respectively. These metrics
facilitate a comparative view for the changes in our business in an environment with fluctuating exchange rates. 
 
Constant dollar reporting removes only the impact of changes in exchange rates on the translation of our EAA segment and
Cruise Support segment operations. 
 
Constant currency reporting 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 America 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, impairment charges, restructuring expenses and other non-core gains and
charges are not part of our core operating business and are not an indication of our future earnings performance.
Therefore, we believe it is more meaningful for gains and losses on ship sales, impairment charges, restructuring expenses
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: 
 
                                        Years Ended November 30,  
 (in millions, except yields)           2017                              2017                   2016          2016           2015  
                                                                          Constant                             Constant             
                                                                          Dollar                               Dollar               
 Passenger ticket revenues              $                         12,944                         $     12,998                 $     12,090           $           12,305      $  11,601    
 Onboard and other revenues             4,330                                        4,338                     4,068                4,114            3,887               
 Gross cruise revenues                  17,274                                       17,336                    16,158               16,419           15,488              
 Less cruise costs                                                                                                                  
 Commissions, transportation and other  (2,359                    )                  (2,371      )             (2,240      )        (2,280      )    (2,161      )       
 Onboard and other                      (587                      )                  (589        )             (553        )        (560        )    (526        )       
                                        (2,946                    )                  (2,960      )             (2,793      )        (2,840      )    (2,687      )       
 Net passenger ticket revenues          10,585                                       10,627                    9,850                10,025           9,440               
 Net onboard and other revenues         3,744                                        3,749                     3,515                3,554            3,361               
 Net cruise revenues                    $                         14,329           

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