REG - Carnival PLC - Final Results <Origin Href="QuoteRef">CCL.L</Origin> - Part 5

CarnivalAnnouncement

29/01/2015 15:01

- Part 5: For the preceding part double click  ID:nRSc4427Dd 

and lower fuel prices, which accounted for $111
million, partially offset by our 2.9% capacity increase in ALBDs, which accounted for $68 million. 
 
Gross cruise costs increased by $473 million, or 4.0% to $12.4 billion in 2013 from $11.9 billion in 2012 for principally
the same reasons as discussed above. 
 
Liquidity, Financial Condition and Capital Resources 
 
Our primary financial goals are to profitably grow our cruise business and increase our return on invested capital,
reaching double digit returns in the next three to four years, while maintaining a strong balance sheet. Our ability to
generate significant operating cash flows allows us to internally fund our capital investments. Our goal is to return
excess free cash flows to our shareholders in the form of additional dividends and/or share buybacks. In addition, we are
committed to maintaining our strong investment grade credit ratings, which are among the highest in the leisure travel
industry. Other objectives of our capital structure policy are to maintain a sufficient level of liquidity with our
available cash and cash equivalents and committed financings for immediate and future liquidity needs, and a reasonable
debt maturity profile that is spread out over a number of years. 
 
Based on our historical results, projections and financial condition, we believe that our future operating cash flows and
liquidity will be sufficient to fund all of our expected capital projects including shipbuilding commitments, ship
improvements, debt service requirements, working capital needs and other firm commitments over the next several years. We
believe that our ability to generate significant operating cash flows and our strong balance sheet as evidenced by our
investment grade credit ratings provide us with the ability in most financial credit market environments to obtain debt
financing, as needed. Our future operating cash flows and our ability to issue debt can be adversely impacted by numerous
factors outside our control including, but not limited to, those noted under "Cautionary Note Concerning Factors That May
Affect Future Results." If our long-term senior unsecured credit ratings were to be downgraded or assigned a negative
outlook, our access to and cost of debt financing may be negatively impacted. 
 
At November 30, 2014, we had a working capital deficit of $5.4 billion. This deficit included $3.0 billion of current
customer deposits, which represent the passenger revenues already collected for cruises departing over the next twelve
months and, accordingly, are substantially more like deferred revenue balances rather than actual current cash liabilities.
Our November 30, 2014 working capital deficit also included $1.7 billion of current debt obligations. We continue to
generate significant cash from operations and have a strong balance sheet. This strong balance sheet provides us with the
ability to refinance our current debt obligations before, or as they become due, in most financial credit market
environments. We also have our revolving credit facilities available to provide long-term rollover financing should the
need arise, or if we choose to do so. After excluding current customer deposits and current debt obligations from our
November 30, 2014 working capital deficit balance, our non-GAAP adjusted working capital deficit was $661 million. Our
business model, along with our strong balance sheet and unsecured revolving credit facilities, allows us to operate with a
working capital deficit and still meet our operating, investing and financing needs. We believe we will continue to have
working capital deficits for the foreseeable future. 
 
At November 30, 2013, the U.S. dollar was $1.63 to sterling, $1.36 to the euro and $0.91 to the Australian dollar. Had
these November 30, 2013 currency exchange rates been used to translate our November 30, 2014 non-U.S. dollar functional
currency operations' assets and liabilities instead of the November 30, 2014 U.S. dollar exchange rates of $1.56 to
sterling, $1.25 to the euro and $0.85 to the Australian dollar, our total assets and liabilities would have been higher by
$1.2 billion and $565 million, respectively. 
 
Sources and Uses of Cash 
 
Our business provided $3.4 billion of net cash from operations during 2014, an increase of $596 million, or 21%, compared
to $2.8 billion in 2013. This increase was substantially due to more cash being provided from our operating results and an
increase in customer deposits. 
 
During 2014, our expenditures for capital projects were $2.6 billion, of which $1.5 billion was spent on our ongoing new
shipbuilding program, substantially for Regal Princess and Costa Diadema. In addition to our new shipbuilding program, we
had capital expenditures of $754 million for ship improvements and replacements and $305 million for information
technology, buildings and improvements, and other assets. Furthermore, in 2014 we sold Costa Voyager and received $42
million in cash proceeds. 
 
During 2014, we borrowed a net $617 million of short-term borrowings in connection with our availability of, and needs for,
cash at various times throughout the year. In addition, during 2014 we repaid $2.5 billion of long-term debt, including
early repayments of $839 million of three bank loans and $590 million of two export credit facilities. Furthermore, during
2014 we borrowed $1.6 billion of new long-term debt under two export credit facilities and three bank loans. Finally,
during 2014 we paid cash dividends of $776 million. 
 
Future Commitments and Funding Sources 
 
At November 30, 2014, our contractual cash obligations, including ship construction contracts entered into through January
22, 2015, were as follows (in millions): 
 
                                                                     Payments Due by                                          
                                                                     2015                      2016                2017            2018             2019            Thereafter       Total         
 Recorded Contractual Cash Obligations                                                                                                                                                                           
 Short-term borrowings                                               $                666                                                                                                          $      666             
 Long-term debt (a)                                                  1,059                     $     1,785               $    634                $  1,302           $           685                $      2,957           8,422             
 Other long-term liabilities reflected on the balance     sheet (b)  -                         245                 187             158              59              175                     824                  
 Unrecorded Contractual Cash Obligations                                                                                                                                                                         
 Shipbuilding (c)                                                                     1,560          1,881               815              1,371            -                    -                  5,627                
 Operating leases (c)                                                56                        45                  30              25               24              147                     327                  
 Port facilities and other (c)                                       231                       188                 141             110              70              600                     1,340                
 Purchase obligations (d)                                            903                       71                  30              22               14              4                       1,044                
 Fixed rate interest payments (e)                                    182                       157                 127             103              86              331                     986                  
 Floating rate interest payments (e)                                 37                        43                  48              48               43              127                     346                  
 Total Contractual Cash Obligations (f)                              $                4,694          $      4,415             $    2,012            $      3,139                $    981                  $      4,341           $  19,582      
 
 
(a)           Our long-term debt has a weighted-average maturity of 4.3 years. See Note 5 - "Unsecured Debt" in the
consolidated financial statements for additional information regarding these debt obligations. 
 
(b)           Represents cash outflows for certain of our long-term liabilities that could be reasonably estimated. The
primary outflows are for estimates of our compensation plans' obligations, crew and guest claims, uncertain income tax
position liabilities and certain deferred income taxes. Customer deposits and certain other deferred income taxes have been
excluded from the table because they do not require a cash settlement in the future. 
 
(c)           Our shipbuilding contractual obligations are legal commitments and, accordingly, cannot be cancelled without
cause by the shipyards or us, and such cancellation will subject the defaulting party to significant contractual
liquidating damage payments. See Note 6 - "Commitments" in the consolidated financial statements for additional information
regarding these contractual cash obligations. 
 
(d)           Represents legally-binding commitments to purchase inventory and other goods and services made in the normal
course of business to meet operational requirements. Many of our contracts contain clauses that allow us to terminate the
contract with notice, either with or without a termination penalty. Termination penalties are generally an amount less than
the original obligation. Historically, we have not had any significant defaults of our contractual obligations or incurred
significant penalties for their termination. 
 
(e)           Fixed rate interest payments represent cash outflows for fixed interest payments, including interest swapped
from a floating rate to a fixed rate. Floating rate interest payments represent forecasted cash outflows for interest
payments on floating rate debt, including interest swapped from a fixed rate to a floating rate, using the November 30,
2014 forward interest rates for the remaining terms of the loans. 
 
(f)            Amounts payable in foreign currencies, which are principally the euro, sterling and Australian dollars, are
based on the November 30, 2014 exchange rates. 
 
As of November 30, 2014, as adjusted for our new ship orders through January 22, 2015, our total annual capital
expenditures consist of ships under contract for construction, estimated improvements to existing ships and shoreside
assets and for 2015, 2016, 2017 and 2018 are expected to be $3.0 billion, $3.3 billion, $2.1 billion and $2.5 billion,
respectively. 
 
The year-over-year percentage increase in our annual capacity is currently expected to be 2.0%, 4.4%, 2.8% and 1.9% for
2015, 2016, 2017 and 2018, respectively. These percentage increases are expected to result primarily from contracted new
ships entering service, partially offset by Costa Celebration, Grand Holiday and Seabourn Pride having left the fleet
through January 22, 2015, and Seabourn Legend, Seabourn Spirit and Ocean Princess leaving the fleet by April 2015, May 2015
and March 2016, respectively. 
 
Our Boards of Directors have authorized, subject to certain restrictions, the repurchase of up to an aggregate of $1
billion of Carnival Corporation common stock and/or Carnival plc ordinary shares under the Repurchase Program. Since March
2013, the remaining availability under the Repurchase Program was $975 million. See Note 9 - "Shareholders' Equity" in the
consolidated financial statements for a further discussion of the Repurchase Program. 
 
In addition to the Repurchase Program, the Boards of Directors authorized, in October 2008, the repurchase of up to 19.2
million Carnival plc ordinary shares and, in January 2013, the repurchase of up to 32.8 million shares of Carnival
Corporation common stock under the Stock Swap programs. Depending on market conditions and other factors, we may repurchase
shares of Carnival Corporation common stock and/or Carnival plc ordinary shares under the Repurchase Program and the Stock
Swap programs concurrently. We use the Stock Swap programs in situations where we can obtain an economic benefit because
either Carnival Corporation common stock or Carnival plc ordinary shares are trading at a price that is at a premium or
discount to the price of Carnival plc ordinary shares or Carnival Corporation common stock, as the case may be. Any
realized economic benefit under the Stock Swap programs is used for general corporate purposes, which could include
repurchasing additional stock under the Repurchase Program. Carnival plc ordinary share repurchases under both the
Repurchase Program and the Stock Swap programs require annual shareholder approval. The existing shareholder approval is
limited to a maximum of 21.5 million ordinary shares and is valid until the earlier of the conclusion of the Carnival plc
2015 annual general meeting or October 16, 2015. Finally, under the Stock Swap programs, any sales of the Carnival
Corporation common stock and Carnival plc ordinary shares have been or will be registered under the Securities Act of
1933. 
 
At January 22, 2015, the remaining availability under the Stock Swap programs was 18.1 million Carnival plc ordinary shares
and 32.0 million shares of Carnival Corporation common stock. See Note 9 - "Shareholders' Equity" in the consolidated
financial statements for a further discussion of the Stock Swap programs. 
 
At November 30, 2014, we had liquidity of $4.9 billion. Our liquidity consisted of $92 million of cash and cash
equivalents, which excludes $239 million of cash used for current operations, $2.3 billion available for borrowing under
our revolving credit facilities, net of our commercial paper borrowings, and $2.5 billion under our committed future
financings, which are comprised of ship export credit facilities. Of this $2.5 billion, $0.9 billion and $1.6 billion are
scheduled to be funded in 2015 and 2016, respectively. At November 30, 2014, substantially all of our revolving credit
facilities are scheduled to mature in 2019, except for $300 million that matures in 2020. These commitments are from
numerous large and well-established banks and export credit agencies, which we believe will honor their contractual
agreements with us. 
 
Substantially all of our debt agreements contain financial covenants as described in Note 5 - "Unsecured Debt" in the
consolidated financial statements. At November 30, 2014, we believe we were in compliance with our debt covenants. In
addition, based on, among other things, our forecasted operating results, financial condition and cash flows, we expect to
be in compliance with our debt covenants for the foreseeable future. Generally, if an event of default under any debt
agreement occurs, then pursuant to cross default acceleration clauses, substantially all of our outstanding debt and
derivative contract payables could become due, and all debt and derivative contracts could be terminated. 
 
Quantitative and Qualitative Disclosures About Market Risk 
 
For a discussion of our hedging strategies and market risks, see the discussion below and Note 10 - "Fair Value
Measurements, Derivative Instruments and Hedging Activities" in the consolidated financial statements. 
 
Foreign Currency Exchange Rate Risks 
 
Operational Currency Risks 
 
We have foreign operations that have functional currencies other than the U.S. dollar, which result in foreign currency
translational impacts. Our operations execute transactions in a number of currencies different than their functional
currencies, principally the euro, sterling and Australian and U.S. dollars, which result in foreign currency transactional
impacts. Based on a 10% hypothetical change in all currency exchange rates that were used in our December 19, 2014
guidance, we estimate that our 2015 first quarter and full year December 19, 2014 non-GAAP guidance would change by $0.04
per share and $0.30 per share, respectively, including both the foreign currency translational and transactional impacts. 
 
Investment Currency Risks 
 
We have $403 million of foreign currency forwards that are designated as hedges of our net investments in foreign
operations, which have a euro-denominated functional currency, thus partially offsetting this foreign currency exchange
rate risk. Based on a 10% hypothetical change in the U.S. dollar to euro exchange rate as of November 30, 2014, we estimate
that these foreign currency forwards' fair values would change by $40 million, which would be offset by a corresponding
change of $40 million in the U.S. dollar value of our net investments. 
 
Newbuild Currency Risks 
 
In 2012, we entered into foreign currency zero cost collars that are designated as cash flow hedges for a portion of P&O
Cruises (UK) Britannia's euro-denominated shipyard payments. These collars mature in February 2015 at a weighted-average
ceiling of $287 million and a weighted-average floor of $266 million. In 2014, we entered into foreign currency zero cost
collars that are also designated as cash flow hedges for the remaining unhedged portion of Britannia's euro-denominated
shipyard payments. These collars also mature in February 2015 at a weighted-average ceiling of $281 million and a
weighted-average floor of $274 million. If the spot rate is between the weighted average ceiling and floor rates on the
date of maturity, then we would not owe or receive any payments under these collars. At November 30, 2014, the estimated
fair value of these outstanding foreign currency zero cost collars was a nominal liability. Based on a 10% hypothetical
increase or decrease in the November 30, 2014 sterling rates to euro exchange rates, we estimate the fair value of these
collars would increase $26 million or decrease $27 million, respectively. 
 
On January 22, 2015, we entered into foreign currency zero cost collars that are designated as cash flow hedges for a
portion of a Princess and Seabourn newbuilds' euro-denominated shipyard payments. The Princess newbuild's collars mature in
March 201