REG - Carnival PLC - Final Results <Origin Href="QuoteRef">CCL.L</Origin> - Part 4
29/01/2016 15:00
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operating a safe and reliable fleet and protecting the health, safety and security of our guests,
employees and all others working on our behalf, thereby promoting an organization that is free of injuries, illness and
loss. We continue to focus on further enhancing the safety measures onboard all of our ships. We are also devoted to
protecting the environment in which our vessels sail and the communities in which we operate. We are dedicated to fully
complying with, or exceeding, all relevant legal and statutory requirements related to health, environment, safety,
security and sustainability throughout our business.
We employ an average of 82,200 crew members, including officers, onboard the ships we currently operate, which excludes
employees who are on a leave. We also have an average of 10,000 full-time and 2,400 part-time/seasonal shoreside
employees. Our goal is to recruit, develop and retain the finest shipboard and shoreside employees. A team of highly
motivated and engaged employees is key to delivering vacation experiences that exceed our guests' expectations. We are a
diverse organization and value and support our talented and diverse employee base. We also are committed to employing
people from around the world and hiring them based on the quality of their experience, skills, education and character,
without regard for their identification with any group or classification of people.
In 2015, we introduced P&O Cruises (UK)'s 3,647-passenger Britannia, the largest ship ever built specifically for British
guests and named by Her Majesty, Queen Elizabeth II. In addition, we signed eight new ship orders this year. As of January
22, 2016, we have a total of 17 cruise ships scheduled to be delivered between 2016 and 2020. Some of these ships will
replace existing capacity as less efficient ships exit our fleet. Since 2006, we have removed 17 ships from our fleet and
will remove one more ship in March 2016. We have a disciplined, measured approach to capacity growth so that we achieve an
optimal balance of supply and demand to maximize our profitability.
Outlook for the 2016 First Quarter and Full Year
On December 18, 2015, we said that we expected our adjusted diluted earnings per share for the 2016 first quarter to be in
the range of $0.28 to $0.32 and 2016 full year to be in the range of $3.10 to $3.40 (see "Key Performance Non-GAAP
Financial Indicators"). Our guidance was based on the assumptions in the table below.
On January 26, 2016, updated only for the current assumptions in the table below, our adjusted diluted earnings per share
for the 2016 full year would decrease by $0.08. This decrease was caused by foreign currency exchange rates, including both
foreign currency translational and transactional impacts of $0.11 per share, partially offset by a $0.03 per share increase
due to lower fuel prices, net of forecasted realized losses on fuel derivatives. In addition, our adjusted diluted
earnings per share for the 2016 first quarter would decrease by $0.02.
2016 Assumptions
December 18, 2015 January 26, 2016
First quarter fuel cost per metric ton consumed $239 $226
Full year fuel cost per metric ton consumed $246 $222
First quarter currencies
U.S. dollar to Euro $1.10 $1.08
U.S. dollar to Sterling $1.51 $1.44
U.S. dollar to Australian dollar $0.73 $0.71
U.S. dollar to Canadian dollar $0.73 $0.71
Full year currencies
U.S. dollar to Euro $1.10 $1.08
U.S. dollar to Sterling $1.51 $1.43
U.S. dollar to Australian dollar $0.73 $0.70
U.S. dollar to Canadian dollar $0.73 $0.71
The fuel and currency assumptions used in our guidance change daily and, accordingly, our forecasts change daily based on
the changes in these assumptions.
The above forward-looking statements involve risks, uncertainties and assumptions with respect to us. There are many
factors that could cause our actual results to differ materially from those expressed above including, but not limited to,
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, economic conditions and adverse world
events, changes in and compliance with various laws and regulations under which we operate and other factors that could
adversely impact our revenues, costs and expenses. You should read the above forward-looking statements together with the
discussion of these and other risks under "Cautionary Note Concerning Factors That May Affect Future Results."
Critical Accounting Estimates
Our critical accounting estimates are those that 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 78% of
our total assets at November 30, 2015. 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 2015,
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 that we believe add value to our ships and have a useful life greater than
one year, and depreciate those improvements over the shorter of their or the ships' estimated remaining useful life, while
the costs of repairs and maintenance, including minor improvement costs and dry-dock expenses, are charged to expense as
incurred. Finally, when we record the retirement of a ship component that is 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 2015 ship depreciation expense
would have increased by approximately $40 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 2015 ship depreciation expense
would have increased by approximately $210 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, accordingly, 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 and our methods consistently applied in all material respects 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 cruise brands.
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 maintain identifiable cash flows that are independent of the cash flows of other assets and
liabilities. See Note 11 - "Fair Value Measurements, Derivative Instruments and Hedging Activities" in the consolidated
financial statements for a discussion of ship impairment charges recorded in 2014 and 2013.
We believe it is more-likely-than-not ("MLTN") that each of our cruise brands' estimated fair value that carry goodwill at
November 30, 2015 exceeded their carrying value. We also believe that it is MLTN that the estimated fair value of each of
our cruise brands' trademarks recorded at November 30, 2015 exceeded their carrying values. See Note 11 - "Fair Value
Measurements, Derivative Instruments and Hedging Activities" in the consolidated financial statements for additional
discussion of our goodwill and trademark impairment reviews.
The determination of 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 will have economic benefit to us and their estimated
residual values.
In performing qualitative assessments of our cruise brands that carry goodwill, qualitative factors that we consider to
determine their effect on each of the cruise brand's estimated fair values include industry and market conditions,
macroeconomic conditions, changes to WACC, overall financial performance, changes in fuel prices and capital expenditures.
In determining the estimated fair values of cruise brands utilizing discounted future cash flow analysis for our
quantitative goodwill impairment tests, significant judgments are made related to forecasted operating results, including
net revenue yields and net cruise costs including fuel prices; capacity changes, including the expected rotation of vessels
into, or out of, the cruise brand; WACC of market participants, adjusted for the risk attributable to the geographic
regions in which the cruise brand operates; capital expenditures; proceeds from forecasted dispositions of ships and
terminal values.
In addition, in performing our qualitative assessments of our cruise brands' significant trademarks, qualitative factors
that we consider to determine their effect on each of the cruise brand's recorded trademarks' estimated fair values include
industry and market conditions, macroeconomic conditions, changes to the WACC, changes in royalty rates and overall
financial performance. In determining our trademark estimated fair values for our quantitative impairment tests, we also
use discounted future cash flow analysis, which requires some of the same significant judgments discussed above.
Specifically, determining the estimated amount of royalties that we are relieved from having to pay for the use of the
associated trademarks is based upon forecasted cruise revenues and a market participant's royalty rate. The royalty rates
are estimated primarily using comparable royalty agreements for similar industries.
We believe that we have made reasonable estimates and judgments in determining whether our cruise ships, goodwill and
trademarks have been impaired. However, if there is a change in assumptions used or if there is a change in the conditions
or circumstances influencing fair values in the future, then we may need to recognize an 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, such as contractual nonperformance by our Asian ship charter tour operators and financial and other
institutions with which we conduct significant 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. 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
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. 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. See Note 8 - "Contingencies," Note 9 - "Taxation" and Note 11 - "Fair Value Measurements,
Derivative Instruments and Hedging Activities" in the consolidated financial statements for additional information
concerning our contingencies.
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 with respect to their resolution. 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
revisions 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. The cruise ticket price typically includes accommodations, most meals,
some non-alcoholic beverages and most onboard entertainment. We also collect fees, taxes and other charges from our guests,
and
• sales of goods and services primarily onboard our ships not included in the cruise ticket price including substantially
all liquor and some non-alcoholic beverage sales, casino gaming, shore excursions, gift shop sales, photo sales,
communication services, full service spas, specialty themed restaurants, cruise vacation protection programs and pre- and
post-cruise land packages. 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, air and other transportation related costs, fees, taxes and other charges
that vary with guest head counts and related credit and debit card or direct debit 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 sales, communication costs, costs of cruise vacation protection programs, costs of pre- and post-cruise land
packages and related credit and debit card or direct debit fees. Concession revenues do not have significant associated
expenses because the costs and services incurred for concession revenues are borne by our concessionaires,
• fuel costs, which include fuel delivery costs,
• payroll and related costs, which represent all costs related to our shipboard personnel, including deck and engine
crew, including officers, 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 and
• 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.
For segment information related to our North America and EAA cruise brands' revenues, expenses, operating income and other
financial information, see Note 12 - "Segment Information" in the consolidated financial statements.
Statistical Information
Years Ended November 30,
2015 2014 2013
ALBDs (in thousands) (a) (b) 77,307 76,000 74,033
Occupancy percentage (c) 104.8 % 104.1 % 105.1 %
Passengers carried (in thousands) 10,837 10,566 10,061
Fuel consumption in metric tons (in thousands) 3,181 3,194 3,266
Fuel consumption in metric tons per ALBD 0.041 0.042 0.044
Fuel cost per metric ton consumed $ 393 $ 636 $ 676
Currencies
U.S. dollar to Euro $ 1.12 $ 1.34 $ 1.32
U.S. dollar to Sterling $ 1.54 $ 1.66 $ 1.56
U.S. dollar to Australian dollar $ 0.76 $ 0.91 $ 0.98
U.S. dollar to Canadian dollar $ 0.79 $ 0.91 $ 0.97
(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 2015 compared to 2014, we had a 1.7% capacity increase in ALBDs comprised of a 4.1% capacity increase in
our EAA brands and a slight capacity increase in our North America brands.
Our EAA brands' capacity increase was caused by:
• full year impact from one Costa 3,692-passenger capacity ship delivered in 2014 and
• the partial year impact from one P&O Cruises (UK) 3,647-passenger capacity ship delivered in 2015.
These increases were partially offset by:
• full year impact from the bareboat charter/sale of a Costa ship and a former Ibero ship and
• more ship dry-dock days in 2015 compared to 2014.
Our North America brands' slight capacity increase was caused by the full year impact from one Princess 3,560-passenger
capacity ship delivered in 2014.
This increase was partially offset by:
• more ship dry-dock days in 2015 compared to 2014 and
• fewer ship operating days due to pro rated voyages.
In 2014 compared to 2013, we had a 2.7% capacity increase in ALBDs comprised of a 4.3% capacity increase in our North
America brands and a minor capacity increase in our EAA brands.
Our North America brands' capacity increase was caused by:
• the full year impact from one Princess 3,560-passenger capacity ship delivered in 2013;
• the partial year impact from one Princess 3,560-passenger capacity ship delivered in 2014 and
• fewer ship dry-dock days in 2014 compared to 2013.
(c) In accordance with cruise industry practice, occupancy is calculated using a denominator of ALBDs, which
assumes two
passengers per cabin even though some cabins can accommodate three or more passengers. Percentages in excess of 100%
indicate that on average more than two passengers occupied some cabins.
2015 Compared to 2014
Revision of Prior Period Financial Statements
Management's discussion and analysis of the results of operations is based on the revised Consolidated Statement of Income
for the year ended November 30, 2014 (see "Note 1 - General - Revision of Prior Period Financial Statements" in the
consolidated financial statements for additional discussion).
Revenues
Consolidated
Cruise passenger ticket revenues made up 74% of our 2015 total revenues. Cruise passenger ticket revenues decreased by $288
million, or 2.4%, to $11.6 billion in 2015 from $11.9 billion in 2014.
This decrease was caused by the foreign currency translational impact from a stronger U.S. dollar against the euro,
sterling and the
Australian dollar ("2015 foreign currency translational impact"), which accounted for $715 million.
This decrease was partially offset by:
• $205 million - 1.7% capacity increase in ALBDs;
• $155 million - net increase in cruise ticket pricing, driven primarily by improvements in Alaskan and Caribbean
itineraries for
our North America brands and Mediterranean and North European itineraries for our EAA brands, mostly offset by net
unfavorable foreign currency transactional impacts and
• $86 million - slight increase in occupancy.
The remaining 26% of 2015 total revenues were substantially all comprised of onboard and other cruise revenues, which
increased by
$107 million, or 2.8%, to $3.9 billion in 2015 from $3.8 billion in 2014.
This increase was caused by:
• $185 million - higher onboard spending by our guests;
• $65 million - 1.7% capacity increase in ALBDs and
• $27 million - slight increase in occupancy.
These increases were partially offset by the 2015 foreign currency translational impact, which accounted for $165 million.
Onboard and other revenues included concession revenues that decreased slightly and remained at $1.1 billion in both 2015
and 2014.
North America Brands
Cruise passenger ticket revenues made up 72% of our North America brands' 2015 total revenues. Cruise passenger ticket
revenues increased by $152 million, or 2.2% to $7.0 billion in 2015 from $6.9 billion in 2014.
This increase was caused by:
• $132 million - 2.0 percentage point increase in occupancy and
• $26 million - net increase in cruise ticket pricing, driven primarily by improvements in Alaskan and Caribbean
itineraries, mostly offset by unfavorable foreign currency transactional impacts.
The remaining 28% of our North America brands' 2015 total revenues were comprised of onboard and other cruise revenues,
which increased by $149 million, or 5.8%, to $2.7 billion in 2015 from $2.6 billion in 2014.
This increase was caused by:
• $110 million - higher onboard spending by our guests and
• $49 million - 2.0 percentage point increase in occupancy.
These increases were partially offset by lower third party revenues, which accounted for $18 million.
Onboard and other revenues included concession revenues that increased by $12 million, or 1.6%, to $747 million in 2015
from $735 million in 2014.
EAA Brands
Cruise passenger ticket revenues made up 82% of our EAA brands' 2015 total revenues. Cruise passenger ticket revenues
decreased by $430 million, or 8.5%, to $4.6 billion in 2015 from $5.0 billion 2014.
This decrease was caused by:
• $715 million - 2015 foreign currency translational impact and
• $58 million - 1.2 percentage point decrease in occupancy.
These decreases were partially offset by:
• $205 million - 4.1% capacity increase in ALBDs and
• $135 million - increase in cruise ticket pricing, driven primarily by improvements in Mediterranean and North
European
itineraries and favorable foreign currency transactional impacts.
The remaining 18% of our EAA brands' 2015 total revenues were comprised of onboard and other cruise revenues, which
decreased by $81 million, or 7.3%, to $1.0 billion in 2015 from $1.1 billion in 2014.
This decrease was caused by the 2015 foreign currency translational impact, which accounted for $165 million.
This decrease was partially offset by:
• $51 million - higher onboard spending by our guests and
• $45 million - 4.1% capacity increase in ALBDs.
Onboard and other revenues included concession revenues that decreased by $38 million, or 10%, to $329 million in 2015 from
$367 million in 2014. This decrease was caused by the 2015 foreign currency translational impact.
Costs and Expenses
Consolidated
Operating costs and expenses decreased by $973 million, or 9.3%, to $9.4 billion in 2015 from $10.4 billion in 2014.
This decrease was caused by:
• $776 million - lower fuel prices;
• $475 million - 2015 foreign currency translational impact;
• $53 million - nonrecurrence of impairment charges incurred in 2014 related to Grand Celebration and Grand Holiday;
• $43 million - lower fuel consumption per ALBD and
• $20 million - gain on a litigation settlement.
These decreases were partially offset by:
• $176 million - 1.7% capacity increase in ALBDs;
• $106 million - higher dry-dock expenses as a result of higher number of dry-dock days;
• $37 million - nonrecurrence of a gain from the sale of Costa Voyager in 2014;
• $28 million - slight increase in occupancy and
• $47 million - various other operating expenses, net, partially offset by favorable foreign currency transactional
impacts.
Selling and administrative expenses remained flat at $2.1 billion in both 2015 and 2014.
Depreciation and amortization expenses decreased slightly and remained at $1.6 billion in both 2015 and 2014.
Our total costs and expenses as a percentage of revenues decreased to 84% in 2015 from 89% in 2014.
North America Brands
Operating costs and expenses decreased by $517 million, or 8.2%, to $5.8 billion in 2015 from $6.3 billion in 2014.
This decrease was caused by:
• $503 million - lower fuel prices;
• $41 million - decreases in commissions, transportation and other related expenses;
• $25 million - lower fuel consumption per ALBD;
• $19 million - gain on a litigation settlement and
• $30 million - various other operating expenses, net, which included favorable foreign currency transactional
impacts.
These decreases were partially offset by:
• $58 million - higher dry-dock expenses as a result of higher number of dry-dock days and
• $43 million - 2.0 percentage point increase in occupancy.
Our total costs and expenses as a percentage of revenues decreased to 81% in 2015 from 89% in 2014.
EAA Brands
Operating costs and expenses decreased by $472 million, or 12%, to $3.4 billion in 2015 from $3.9 billion in 2014.
This decrease was caused by:
• $476 million - 2015 foreign currency translational impact;
• $273 million - lower fuel prices and
• $53 million - nonrecurrence of impairment charges incurred in 2014 related to Grand Celebration and Grand Holiday.
These decreases were partially offset by:
• $159 million - 4.1% capacity increase in ALBDs;
• $49 million - higher dry-dock expenses as a result of higher number of dry-dock days;
• $37 million - nonrecurrence of a gain from the sale of Costa Voyager recognized in 2014;
• $26 million - increases in commissions, transportation and other related expenses and
• $59 million - various other operating expenses, net, which included unfavorable foreign currency transactional
impacts.
Our total costs and expenses as a percentage of revenues decreased to 83% in 2015 from 86% in 2014.
Operating Income
Our consolidated operating income increased by $802 million, or 45%, to $2.6 billion in 2015 from $1.8 billion in 2014. Our
North America brands' operating income increased by $766 million, or 74%, to $1.8 billion in 2015 from $1.0 billion in
2014, and our EAA brands' operating income increased by $45 million, or 5.0%, to $938 million in 2015 from $893 million in
2014. These changes were primarily due to the reasons discussed above.
Nonoperating Expense
Net interest expense decreased by $71 million, or 25%, to $217 million in 2015 from $288 million in 2014 primarily due to
lower level of average borrowings, favorable foreign currency exchange rates and lower interest rates.
Losses on fuel derivatives, net were comprised of the following:
Year Ended November 30,
2015 2014
Unrealized losses on fuel derivatives $ (332 ) $ (268 )
Realized losses on fuel derivatives, net (244 ) (3 )
Losses on fuel derivatives, net $ (576 ) $ (271 )
Net income tax expense increased by $33 million to $42 million in 2015 from $9 million in 2014.
Key Performance Non-GAAP Financial Indicators
We use net cruise revenues per ALBD ("net revenue yields"), net cruise costs per ALBD and net cruise costs excluding fuel
per ALBD as significant non-GAAP financial measures of our cruise segments' financial performance. These measures enable us
to separate the impact of predictable capacity changes from the more unpredictable rate changes that affect our business;
gains and losses on ship sales and ship impairments, net; and restructuring expenses that are not part of our core
operating business. We believe these non-GAAP measures provide useful information to investors and expanded insight to
measure our revenue and cost performance as a supplement to our U.S. GAAP consolidated financial statements.
Net revenue yields are commonly used in the cruise industry to measure a company's cruise segment revenue performance and
for revenue management purposes. We use "net cruise revenues" rather than "gross cruise revenues" to calculate net revenue
yields. We believe that net cruise revenues is a more meaningful measure in determining revenue yield than gross cruise
revenues because it reflects the cruise revenues earned net of our most significant variable costs, which are travel agent
commissions, cost of air and other transportation, certain other costs that are directly associated with onboard and other
revenues and credit and debit card fees. Substantially all of our remaining cruise costs are largely fixed, except for the
impact of changing prices and food expenses, once our ship capacity levels have been determined.
Net passenger ticket revenues reflect gross passenger ticket revenues, net of commissions, transportation and other costs.
Net onboard and other revenues reflect gross onboard and other revenues, net of onboard and other cruise costs. Net
passenger ticket revenue yields and net onboard and other revenue yields are computed by dividing net passenger ticket
revenues and net onboard and other revenues by ALBDs.
Net cruise costs per ALBD and net cruise costs excluding fuel per ALBD are the most significant measures we use to monitor
our ability to control our cruise segments' costs rather than gross cruise costs per ALBD. We exclude the same variable
costs that are included in the calculation of net cruise revenues to calculate net cruise costs with and without fuel to
avoid duplicating these variable costs in our non-GAAP financial measures. In addition, we exclude gains and losses on ship
sales and ship impairments, net and restructuring expenses from our calculation of net cruise costs with and without fuel
as they are not considered part of our core operating business and, therefore, are not an indication of our future earnings
performance. As such, we also believe it is more meaningful for gains and losses on ship sales and ship impairments, net
and restructuring expenses 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.
As a result of our revision of 2014 and 2013 cruise ship operating expenses, our previously reported results changed as
follows (in millions, except per ALBD data):
Year Ended November 30, 2014 Year Ended November 30, 2013
As Previously Reported As Revised As Previously Reported As Revised
Gross cruise costs per ALBD $161.69 $161.93 $166.83 $167.12
Net cruise costs per ALBD $124.35 $124.59 $126.05 $126.34
Net cruise costs excluding fuel per ALBD $97.60 $97.84 $96.23 $96.51
U.S. GAAP net income 1,236 1,216 1,078 1,055
Adjusted net income 1,524 1,504 1,232 1,209
In addition, our EAA cruise brands utilize the euro, sterling and Australian dollar as their functional currency, the
monetary unit of the primary economic environment in which they operate, to measure their results and financial condition.
This subjects us to foreign currency translational risk. All of our North American and EAA cruise brands 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 non-GAAP financial measures on a "constant dollar" and "constant currency" basis assuming the 2015 and 2014
periods' currency exchange rates have remained constant with the 2014 and 2013 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 is a Non-GAAP financial measure that removes only the impact of changes in exchange rates on the
translation of our EAA brands.
Constant currency reporting is a Non-GAAP financial measure that removes the impact of changes in exchange rates on the
translation of our EAA brands (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 both our North America and
EAA brands.
Examples:
• The translation of our EAA brand 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 brands 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 brands have a euro, sterling and Australian dollar functional currency 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.
Our foreign currency transactional impact is more significant to our 2015 results compared to 2014 and 2013 given the
continuing expansion of our global business and the heightened volatility in foreign currency exchange rates. This differed
from previous years when our constant dollar reporting removed substantially all of the impact of changes in currency
exchange rates between periods. Accordingly, we also reported on a constant currency basis beginning in 2015. See
"Quantitative and Qualitative Disclosures About Market Risk" for a further discussion of the 2016 impact of currency
exchange rate changes.
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 have excluded from our earnings guidance the impact of unrealized gains and losses on fuel derivatives because we do not
believe they are an indication of our future earnings performance. Accordingly, our earnings guidance is presented on an
adjusted basis only. As a result, management has not provided a reconciliation between forecasted adjusted earnings per
share guidance and forecasted U.S. GAAP earnings per share guidance because it would be too difficult to prepare a reliable
U.S. GAAP quantitative reconciliation without unreasonable effort. However, we do forecast realized gains and losses on
fuel derivatives by applying current Brent prices to the derivatives that settle in the forecast period.
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The presentation of our non-GAAP financial
information is not intended to be considered in isolation from, as substitute for, or superior to the financial information
prepared in accordance with U.S. GAAP. There are no specific rules for determining our non-GAAP as reported, constant
dollar and constant currency financial measures and, accordingly, they are susceptible to varying calculations, and it is
possible that they may not be exactly comparable to the like-kind information presented by other companies, which is a
potential risk associated with using these measures to compare us to other companies.
Consolidated gross and net revenue yields were computed by dividing the gross and net cruise revenues by ALBDs as follows
(dollars in millions, except yields):
Years Ended November 30,
2015 2015 2014 2014 2013
Constant Constant
Dollar Dollar
Passenger ticket revenues $ 11,601 $ 12,316 $ 11,889 $ 11,787 $ 11,648
Onboard and other revenues 3,887 4,052 3,780 3,765 3,598
Gross cruise revenues 15,488 16,368 15,669 15,552 15,246
Less cruise costs
Commissions, transportation and other (2,161 ) (2,324 ) (2,299 ) (2,277 ) (2,303 )
Onboard and other (526 ) (549 ) (519 ) (516 ) (539 )
(2,687 ) (2,873 ) (2,818 ) (2,793 ) (2,842 )
Net passenger ticket revenues 9,440 9,992 9,590 9,510 9,345
Net onboard and other revenues 3,361 3,503 3,261 3,249 3,059
Net cruise revenues $ 12,801 $ 13,495 $ 12,851 $ 12,759 $ 12,404
ALBDs 77,307,323 77,307,323 75,999,952 75,999,952 74,032,939
Gross revenue yields $ 200.34 $ 211.73 $ 206.17 $ 204.63 $ 205.94
% (decrease) increase vs. prior year (2.8 )% 2.7 % 0.1 % (0.6 )%
Net revenue yields $ 165.58 $ 174.57 $ 169.09 $ 167.88 $ 167.56
% (decrease) increase vs. prior year (2.1 )% 3.2 % 0.9 % 0.2 %
Net passenger ticket revenue yields $ 122.11 $ 129.25 $ 126.18 $ 125.14 $ 126.23
% (decrease) increase vs. prior year (3.2 )% 2.4 % 0.0 % (0.9 )%
Net onboard and other revenue yields $ 43.48 $ 45.32 $ 42.90 $ 42.75 $ 41.33
% increase vs. prior year 1.3 % 5.6 % 3.8 % 3.4 %
Years Ended November 30,
2015 2015ConstantCurrency 2014
Net passenger ticket revenues $ 9,440 $ 10,123 $ 9,590
Net onboard and other revenues 3,361 3,513 3,261
Net cruise revenues $ 12,801 $ 13,636 $ 12,851
ALBDs 77,307,323 77,307,323 75,999,952
Net revenue yields $ 165.58 $ 176.39 $ 169.09
% (decrease) increase vs. prior year (2.1 )% 4.3 %
Net passenger ticket revenue yields $ 122.11 $ 130.94 $ 126.18
% (decrease) increase vs. prior year (3.2 )% 3.8 %
Net onboard and other revenue yields $ 43.48 $ 45.45 $ 42.90
% increase vs. prior year 1.3 % 5.9 %
Consolidated gross and net cruise costs and net cruise costs excluding fuel per ALBD were computed by dividing the gross
and net cruise costs and net cruise costs excluding fuel by ALBDs as follows (dollars in millions, except costs per ALBD):
Years Ended November 30,
2015 2015 2014 2014 2013
Constant Constant
Dollar Dollar
Cruise operating expenses $ 9,292 $ 9,767 $ 10,261 $ 10,201 $ 10,502
Cruise selling and administrative expenses 2,058 2,168 2,046 2,035 1,871
Gross cruise costs 11,350 11,935 12,307 12,236 12,373
Less cruise costs included above
Commissions, transportation and other (2,161 ) (2,324 ) (2,299 ) (2,277 ) (2,303 )
Onboard and other (526 ) (549 ) (519 ) (516 ) (539 )
Restructuring expenses (25 ) (30 ) (18 ) (18 ) -
Gains (losses) on ship sales and ship impairments, net 8 8 (2 ) (5 ) (178 )
Net cruise costs 8,646 9,040 9,469 9,420 9,353
Less fuel (1,249 ) (1,249 ) (2,033 ) (2,033 ) (2,208 )
Net cruise costs excluding fuel $ 7,397 $ 7,791 $ 7,436 $ 7,387 $ 7,145
ALBDs 77,307,323 77,307,323 75,999,952 75,999,952 74,032,939
Gross cruise costs per ALBD $ 146.81 $ 154.39 $ 161.93 $ 161.00 $ 167.12
% decrease vs. prior year (9.3 )% (4.7 )% (3.1 )% (3.7 )%
Net cruise costs per ALBD $ 111.83 $ 116.94 $ 124.59 $ 123.94 $ 126.34
% decrease vs. prior year (10.2 )% (6.1 )% (1.4 )% (1.9 )%
Net cruise costs excluding fuel per ALBD $ 95.68 $ 100.78 $ 97.84 $ 97.19 $ 96.51
% (decrease) increase vs. prior year (2.2 )% 3.0 % 1.4 % 0.7 %
Years Ended November 30,
2015 2015 2014
Constant
Currency
Net cruise costs excluding fuel $ 7,397 $ 7,828 $ 7,436
ALBDs 77,307,323 77,307,323 75,999,952
Net cruise costs excluding fuel per ALBD $ 95.68 $ 101.26 $ 97.84
% (decrease) increase vs. prior year (2.2 )% 3.5 %
Adjusted fully diluted earnings per share was computed as follows (in millions, except per share data):
Years Ended November 30,
2015 2014 2013
Net income
U.S. GAAP net income $ 1,757 $ 1,216 $ 1,055
Restructuring expenses 25 18 -
(Gains) losses on ship sales and ship impairments, net (8 ) 2 (a) 163 (b)
Ibero trademark and other impairment charges - - 27 (c)
Unrealized losses (gains) on fuel derivatives, net 332 268 (36 )
Adjusted net income $ 2,106 $ 1,504 $ 1,209
Weighted-average shares outstanding 779 778 777
Earnings per share
U.S. GAAP earnings per share $ 2.26 $ 1.56 $ 1.36
Restructuring expenses 0.03 0.02 -
(Gains) losses on ship sales and ship impairments, net (0.01 ) - (a) 0.21 (b)
Ibero trademark and other impairment charges - - 0.03 (c)
Unrealized losses (gains) on fuel derivatives, net 0.42 0.35 (0.05 )
Adjusted earnings per share $ 2.70 $ 1.93 $ 1.55
(a) Represents impairment charges of $22 million for Grand Celebration and $31 million for Grand Holiday, partially
offset by gains of $37 million from the sale of Costa Voyager and $14 million from the sale of Ocean Princess.
(b) Substantially due to $176 million of impairment charges related to Costa Classica and Costa Voyager, partially offset
by a $15 million gain in our Tour and Other segment from the sale of a former Holland America Line ship, which was on
charter to an unaffiliated entity.
(c) Represents impairment charges of $14 million for an investment and $13 million for Ibero's remaining trademarks'
carrying value.
Net cruise revenues decreased slightly by $50 million, to $12.8 billion in 2015 from $12.9 billion in 2014.
The slight decrease in net cruise revenues was caused by:
• $695 million - 2015 foreign currency translational impact and
• $141 million - 2015 foreign currency transactional impact.
These decreases were partially offset by:
• $565 million - 4.3% increase in constant currency net revenue yields and
• $221 million - 1.7% capacity increase in ALBDs.
The 4.3% increase in net revenue yields on a constant currency basis was due to a 3.8% increase in net passenger ticket
revenue yields and a 5.9% increase in net onboard and other revenue yields.
The 3.8% increase in net passenger ticket revenue yields was caused by a 5.9% increase from our North America brands and a
slight increase from our EAA brands. The increase in net passenger ticket revenue yields was driven primarily by
improvements in Alaskan and Caribbean itineraries for our North America brands.
The 5.9% increase in net onboard and other revenue yields was caused by a 7.1% increase from our North America brands and a
2.2% increase from our EAA brands.
Gross cruise revenues decreased by $181 million, or 1.2%, to $15.5 billion in 2015 from $15.7 billion in 2014 for largely
the same reasons as discussed above.
Net cruise costs excluding fuel decreased slightly by $39 million and remained at $7.4 billion in 2015 and 2014.
The slight decrease in net cruise costs excluding fuel was caused by:
• $395 million - 2015 foreign currency translational impact and
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