REG - Carnival PLC - Half-year Report <Origin Href="QuoteRef">CCL.L</Origin> - Part 4
18/07/2017 16:01
- Part 4: For the preceding part double click ID:nRSR4213Lc
$ 1.00 $ 1.05
Diluted $ 0.99 $ 1.04
The accompanying notes are an integral part of these Interim Financial Statements. These Interim Financial Statements only present the Carnival plc consolidated IFRS Interim Financial Statements and, accordingly, do not include the consolidated IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival plc's results and financial position is considered to be by reference to the U.S. GAAP unaudited consolidated financial statements of Carnival Corporation & plc ("DLC Financial Statements"), which are included within the attached Schedule A. For information, set out below is the consolidated earnings per share included within the DLC Financial Statements (Schedule A) of this Interim Financial
Report for the six months ended May 31:
2017 2016
DLC basic earnings per share $ 1.01 $ 0.99
DLC diluted earnings per share $ 1.00 $ 0.98
DLC adjusted diluted earnings per share $ 0.90 $ 0.88
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in millions)
Six Months Ended May 31,
2017 2016
Net Income $ 215 $ 226
Other Comprehensive Income
Items that will not be reclassified through the Statements of Income
Actuarial losses on post-employment benefit obligations (2 ) (15 )
Items that may be reclassified through the Statements of Income
Changes in foreign currency translation adjustment 236 47
Other 2 -
238 47
Other Comprehensive Income 236 32
Total Comprehensive Income $ 451 $ 258
The accompanying notes are an integral part of these Interim Financial Statements. These Interim Financial Statements only
present the Carnival plc consolidated IFRS Interim Financial Statements and, accordingly, do not include the consolidated
IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival plc's results and financial position is considered to be by reference to the DLC Financial Statements, which are included within the attached Schedule A.
CARNIVAL PLC
INTERIM CONDENSED GROUP BALANCE SHEETS
(UNAUDITED)
(in millions)
May 31, November 30,
2017 2016
ASSETS
Current Assets
Cash and cash equivalents $ 275 $ 225
Trade and other receivables, net 153 144
Inventories 185 124
Prepaid expenses and other 200 210
Total current assets 813 703
Property and Equipment, Net 13,045 12,188
Goodwill 587 560
Other Intangibles 49 46
Other Assets 242 166
$ 14,736 $ 13,663
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 675 $ 457
Current portion of long-term debt 195 270
Amount owed to the Carnival Corporation group 1,205 154
Accounts payable 293 306
Accrued liabilities and other 680 917
Customer deposits 1,561 1,224
Total current liabilities 4,609 3,328
Long-Term Debt 1,594 2,261
Other Long-Term Liabilities 248 238
Shareholders' Equity
Share capital 358 358
Share premium 162 154
Retained earnings 8,960 8,907
Reserves (1,195 ) (1,583 )
Total shareholders' equity 8,285 7,836
$ 14,736 $ 13,663
The accompanying notes are an integral part of these Interim Financial Statements. These Interim Financial Statements only
present the Carnival plc consolidated IFRS Interim Financial Statements and, accordingly, do not include the consolidated
IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival plc's results and financial position is considered to be by reference to the DLC Financial Statements, which are included within the attached Schedule A.
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Six Months Ended May 31,
2017 2016
OPERATING ACTIVITIES
Income before income taxes $ 218 $ 226
Adjustments to reconcile income before income taxes to net cash provided by operating activities
Depreciation and amortisation 321 335
Share-based compensation 6 5
Interest expense, net 17 27
Other, net 34 (12 )
378 355
Changes in operating assets and liabilities
Receivables 8 (29 )
Inventories (57 ) 25
Prepaid expenses and other (11 ) 34
Accounts payable (5 ) (44 )
Accrued and other liabilities (10 ) (72 )
Customer deposits 305 95
Cash provided by operations before interest and income taxes 826 590
Interest received - -
Interest paid (22 ) (28 )
Income taxes paid, net (9 ) (21 )
Net cash provided by operating activities 795 541
INVESTING ACTIVITIES
Additions to property and equipment (589 ) (390 )
Other, net 35 (48 )
Net cash used in investing activities (554 ) (438 )
FINANCING ACTIVITIES
Changes in amounts owed to the Carnival Corporation group 62 (212 )
Proceeds from (repayments of) short-term borrowings, net 182 (27 )
Principal repayments of long-term debt (132 ) (142 )
Dividends paid (149 ) (130 )
Purchases of treasury shares (152 ) -
Other, net (15 ) (8 )
Net cash used in financing activities (204 ) (519 )
Effect of exchange rate changes on cash and cash equivalents 13 (1 )
Net increase (decrease) in cash and cash equivalents 50 (417 )
Cash and cash equivalents at beginning of period 225 821
Cash and cash equivalents at end of period $ 275 $ 404
The accompanying notes are an integral part of these Interim Financial Statements. These Interim Financial Statements only
present the Carnival plc consolidated IFRS Interim Financial Statements and, accordingly, do not include the consolidated
IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival plc's results and financial position is considered to be by reference to the DLC Financial Statements, which are included within the attached Schedule A.
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(in millions)
Reserves
Share capital Share premium Retained earnings Translation reserve Cash flow hedges Treasury shares Other reserves Merger reserve Total Total shareholders' equity
2016
Balances at November 30, 2015 $ 358 $ 143 $ 8,362 $ (2,057 ) $ (65 ) $ - $ - $ 1,503 $ (619 ) $ 8,244
Comprehensive income
Net income - - 226 - - - - - - 226
Changes in foreign currency translation adjustment - - - 47 - - - - 47 47
Other, net - - (15 ) (2 ) 2 - - - - (15 )
Total comprehensive income - - 211 45 2 - - - 47 258
Cash dividends declared - - (139 ) - - - - - - (139 )
Other, net - - 6 - - - - - - 6
Balances at May 31, 2016 $ 358 $ 143 $ 8,440 $ (2,012 ) $ (63 ) $ - $ - $ 1,503 $ (572 ) $ 8,369
2017
Balances at November 30, 2016 $ 358 $ 154 $ 8,907 $ (2,598 ) $ (60 ) $ (36 ) $ (392 ) $ 1,503 $ (1,583 ) $ 7,836
Comprehensive income
Net income - - 215 - - - - - - 215
Changes in foreign currency translation adjustment - - - 236 - - - - 236 236
Other, net - - (2 ) - 2 - - - 2 -
Total comprehensive income - - 213 236 2 - - - 238 451
Purchase of treasury shares - - - - - (157 ) - - (157 ) (157 )
Share repurchase obligations - - - - - - 307 - 307 307
Cash dividends declared - - (159 ) - - - - - - (159 )
Other, net - 8 (1 ) - - - - - - 7
Balances at May 31, 2017............................ $ 358 $ 162 $ 8,960 $ (2,362 ) $ (58 ) $ (193 ) $ (85 ) $ 1,503 $ (1,195 ) $ 8,285
The accompanying notes are an integral part of these Interim Financial Statements. These Interim Financial Statements only
present the Carnival plc consolidated IFRS Interim Financial Statements and, accordingly, do not include the consolidated
IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival plc's results and financial position is considered to be by reference to the DLC Financial Statements, which are included within the attached Schedule A.
CARNIVAL PLC
NOTES TO INTERIM CONDENSED GROUP FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - General
Basis of Preparation
Carnival plc was incorporated in England and Wales in 2000 and its headquarters is located at Carnival House, 100 Harbour
Parade, Southampton, SO15 1ST, United Kingdom (registration number 4039524). The Interim Financial Statements have been
prepared on the basis of the accounting policies and methods of computation, including estimates and assumptions, adopted
and disclosed in Carnival plc and its subsidiaries and associates (referred to collectively in these Interim Financial
Statements as the "Group," "our," "us" and "we") consolidated statutory financial statements for the year ended November
30, 2016. These Interim Financial Statements were approved by the Board of Directors on July 18, 2017.
These Interim Financial Statements have been prepared in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority ("FCA") and with International Accounting Standard 34 "Interim Financial
Reporting" as adopted by the European Union ("IAS 34"). The Interim Financial Statements should be read in conjunction with
the audited annual financial statements for the year ended November 30, 2016, which were prepared in accordance with
International Financial Reporting Standards as adopted by the European Union ("IFRS"). Our Interim Financial Statements are
presented in U.S. dollars as this is our presentation currency.
Carnival Corporation and Carnival plc operate a dual listed company ("DLC"), known as Carnival Corporation & plc, whereby
the businesses of Carnival Corporation and Carnival plc are combined through a number of contracts and through provisions
in Carnival Corporation's Articles of Incorporation and By-Laws and Carnival plc's Articles of Association. The two
companies operate as if they are a single economic enterprise with a single senior executive management team and identical
Boards of Directors, but each has retained its separate legal identity. Each company's shares are publicly traded; on the
New York Stock Exchange ("NYSE") for Carnival Corporation and the London Stock Exchange ("LSE") for Carnival plc. In
addition, Carnival plc American Depository Shares are traded on the NYSE. The contracts governing the DLC arrangement
provide that Carnival Corporation and Carnival plc each continue to have separate Boards of Directors, but the Boards of
Directors and senior executive management of both companies are identical. Further details relating to the DLC arrangement
are included in Note 3 of the 2016 DLC Financial Statements, which do not form part of these Carnival plc Interim Financial
Statements.
These Interim Financial Statements are required to satisfy reporting requirements of the United Kingdom Listing Authority
and do not include the IFRS consolidated results and financial position of Carnival Corporation and its subsidiaries. The
Directors consider that within the DLC arrangement, the most appropriate presentation of Carnival plc's results and
financial position is by reference to the Carnival Corporation and plc U.S. GAAP consolidated financial statements.
Schedule A to this announcement, which consists of the DLC Financial Statements for the three and six months ended May 31,
2017, are provided to shareholders as other information. In addition, the related management commentary has been included
in Schedule B to this announcement as other information. Schedules A & B do not form part of these Carnival plc Interim
Financial Statements.
The assessment of liquidity, financial conditions and capital resources within Schedule B indicates that Carnival
Corporation & plc is well positioned to meet its commitments and obligations. In light of these circumstances, the Board of
Directors of the Group have a reasonable expectation that Carnival Corporation & plc has adequate resources to continue its
operational existence and continue to adopt the going concern basis of preparing the Carnival plc Interim Financial
Statements.
The preparation of our Interim Financial Statements in conformity with IFRS requires management to make estimates and
assumptions that affect the application of policies as well as reported and disclosed amounts in these financial
statements. The estimates and underlying assumptions are based on historical experience and various other factors that we
believe to be reasonable under the circumstances and form the basis of making judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from the estimates used in
preparing these Interim Financial Statements.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period or in the period of the revision
and future periods if the revision affects both current and future periods.
Status of Financial Statements
Our Interim Financial Statements for the six months ended May 31, 2017 have not been audited or reviewed by the auditors.
Our Interim Financial Statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act
2006. Statutory accounts for the year ended November 30, 2016 were approved by the Board of Directors on January 30, 2017
and delivered to the Registrar of Companies. The report of the auditors on those accounts was (i) unqualified, (ii) did not
contain an emphasis of matter paragraph and (iii) did not contain any statement under section 498 of the Companies Act
2006.
Accounting Pronouncements
The International Accounting Standards Board ("IASB") issued a new standard, IFRS 15, Accounting for Revenue from Contracts
with Customers. This standard will replace IAS 18 which covers contracts for goods and services and IAS 11 which covers
construction contracts. IFRS 15 requires an entity to recognise the amount of revenue to which it expects to be entitled to
when the transfer of control of the promised goods or services passes to the customers. The standard also requires more
detailed disclosures and provides additional guidance for transactions that were not comprehensively addressed under
current IFRS, introducing the use of a five step model. This standard is mandatory for financial years commencing on or
after January 1, 2018, and the expected date of adoption by us is for the financial year commencing December 1, 2018 by
either restating all years presented in our financial statements or by recording the impact of adoption as an adjustment to
retained earnings at the beginning of the year of adoption. We are currently evaluating the impact that this standard will
have on our Group financial statements.
The IASB issued a new standard, IFRS 16, regarding accounting for leases. This standard will result in almost all leases
being recognised on the balance sheet, as the distinction between operating and finance leases is removed. The only
exceptions are short-term and low-value leases. The total operating lease cost, currently expensed to the Income Statement
as incurred, will be split into a financing element and an operating element. This standard will also lead to additional
qualitative and quantitative disclosures. IFRS 16 is mandatory for financial years commencing on or after January 1, 2019,
and will be adopted by us for the financial year commencing December 1, 2019. We are currently evaluating the impact this
guidance will have on our Group financial statements.
The IASB issued a new standard, IFRS 9, regarding accounting for Financial Instruments, which replaces the previous
standard and will include changes on classification, measurement and derecognition of financial instruments, including a
new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting
requirements. IFRS 9 must be applied for financial years commencing on or after January 1, 2018, and will be adopted by us
for the financial year commencing December 1, 2018. We are currently evaluating the impact that this standard will have on
our Group financial statements.
The IASB issued amendments to the standard, IAS 7, regarding accounting for Statement of Cash Flows, which requires an
entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from
financing activities, including both changes arising from cash flows and non-cash changes for the financial year commencing
December 1, 2017.
The IASB issued amendments to IAS 1, regarding an initiative to improve and simplify disclosures within existing disclosure
requirements. On December 1, 2016 we adopted this standard.
NOTE 2 - Property and Equipment
The reconciliation of changes to property and equipment was as follows (in millions):
Balance at November 30, 2016 $ 12,188
Foreign currency translation adjustment 535
Additions 727
Disposals (86 )
Depreciation (319 )
Balance at May 31, 2017 $ 13,045
In April 2017, we transferred an EAA segment 1,550-passenger capacity ship under a bareboat charter agreement to an
unrelated entity which was accounted for as a sale.
NOTE 3 - Goodwill and Other Intangibles
The reconciliation of the changes in the carrying amounts of our goodwill was as follows (in millions):
Balance at November 30, 2016 $ 560
Foreign currency translation adjustment 27
Balance at May 31, 2017 $ 587
At July 31, 2016, we performed our annual goodwill impairment reviews and no goodwill was impaired.
The determination of our cash generating units' goodwill recoverable amounts includes numerous assumptions that are subject
to various risks and uncertainties. We believe that we have made reasonable estimates and judgments. A change in the
conditions, circumstances or strategy, including decisions about the allocation of new ships amongst brands and the
transfer of ships between brands (influencing fair values in the future), may result in a need to recognise an impairment
charge.
The reconciliation of the changes in the net carrying amounts of our other intangible assets subject to amortisation, which
represent port usage rights, was as follows (in millions):
Balance at November 30, 2016 $ 46
Additions 4
Amortisation (2 )
Foreign currency translation adjustment 1
Balance at May 31, 2017 $ 49
NOTE 4 - Unsecured Debt
At May 31, 2017, our short-term borrowings included euro-denominated commercial paper of $670 million.
In January 2017, we entered into an approximately $800 million export credit facility, which may be drawn in euro or U.S.
dollars in 2021 and will be due in semi-annual installments through 2033. The interest rate on this export credit facility
can be fixed or floating, at our discretion.
In April 2017, we entered into two euro-denominated export credit facilities totaling $1.6 billion. These facilities are
expected to be drawn in 2021 and 2022 and will be due in semi-annual installments through 2033 and 2034, respectively. The
interest rate on these export credit facilities can be fixed or floating, at our discretion.
In May 2017, we novated $733 million of our euro-denominated export credit facilities to Carnival Corporation. This
transaction represents a non-cash item in the statement of cash flows.
In June 2017, we entered into a $577 million export credit facility, which may be drawn in euro or U.S. dollars in 2020 and
will be due in semi-annual installments through 2032. The interest rate on this export credit facility can be fixed or
floating, at our discretion.
For the six months ended May 31, 2017, we had borrowings of $111 million and repayments of $364 million of commercial paper
with original maturities greater than three months.
We use the net proceeds from our borrowings for general corporate purposes and purchases of new ships.
NOTE 5 - Ship Commitments
At May 31, 2017, we had seven ships under contract for construction. The estimated total future commitments, including the
contract prices with the shipyards, design and engineering fees, capitalised interest, construction oversight costs and
various owner supplied items are as follows (in millions):
May 31,
Fiscal 2017
2017 $ -
2018 1,011
2019 1,854
2020 1,949
2021 2,246
Total $ 7,060
NOTE 6 - Contingencies
In the normal course of our business, various claims and lawsuits have been filed or are pending against us. Most of these
claims and lawsuits are covered by insurance and the maximum amount of our liability, net of any insurance recoverables, is
typically limited to our self-insurance retention levels. We believe the ultimate outcome of these claims and lawsuits will
not have a material impact on our financial statements.
NOTE 7 - Dividends
The dividends declared, by quarter, were as follows (in millions, except per share data):
Quarters Ended
February 28 / 29 May 31
2017
Dividends declared per share $ 0.35 $ 0.40
Dividend declarations $ 75 $ 85
2016
Dividends declared per share $ 0.30 $ 0.35
Dividend declarations $ 63 $ 76
NOTE 8 - Segment Information
As previously discussed, within the DLC arrangement the most appropriate presentation of Carnival plc's results and
financial position is by reference to the DLC Financial Statements, which are included in Section A, but do not form part
of these Carnival plc Interim Financial Statements. Carnival Corporation & plc has four reportable segments that are
comprised of (1) North America, (2) Europe, Australia & Asia ("EAA"), (3) Cruise Support and (4) Tour and Other. Carnival
Corporation & plc's segments are reported on the same basis as the internally reported information that is provided to our
chief operating decision maker ("CODM"), who is the President and Chief Executive Officer of Carnival Corporation and
Carnival plc. The CODM assesses performance and makes decisions to allocate resources for Carnival Corporation & plc based
upon review of the results across all of our segments.
The Carnival Corporation & plc North America segment includes Carnival Cruise Line, Holland America Line, Princess Cruises
("Princess") and Seabourn. The Carnival Corporation & plc EAA segment includes AIDA Cruises, Costa Cruises, Cunard, P&O
Cruises (Australia) and P&O Cruises (UK). The operations of these reporting units have been aggregated into two reportable
segments based on the similarity of their economic and other characteristics, including types of customers, regulatory
environment, maintenance requirements, supporting systems and processes and products and services they provide. The
Carnival Corporation & plc Cruise Support segment represents certain of its port and related facilities and other services
that are provided for the benefit of its cruise brands. The Carnival Corporation & plc Tour and Other segment represents
the hotel and transportation operations of Holland America Princess Alaska Tours and other operations.
Selected information for the Carnival Corporation & plc segments and the reconciliation to the corresponding Carnival plc
amounts for the six months ended May 31, 2017 and 2016 was as follows (in millions):
Revenues Operatingexpenses Selling andadministrative Depreciationandamortisation Operatingincome(loss)
2017
North America (a) $ 4,986 $ 3,003 $ 639 $ 559 $ 785
EAA (b) 2,648 1,820 344 296 188
Cruise Support 72 17 111 23 (79 )
Tour and Other (a) 46 46 8 18 (26 )
Intersegment elimination (a) (16 ) (16 ) - - -
Carnival Corporation & plc - U.S. GAAP 7,736 4,870 1,102 896 868
Carnival Corporation, U.S. GAAP vs IFRS differences and eliminations (c) (4,403 ) (2,409 ) (709 ) (575 ) (710 )
Carnival plc - IFRS $ 3,333 $ 2,461 $ 393 $ 321 $ 158
2016
North America (a) $ 4,538 $ 2,700 $ 603 $ 519 $ 716
EAA (b) 2,728 1,763 352 299 314
Cruise Support 63 11 123 23 (94 )
Tour and Other (a) 42 41 5 20 (24 )
Intersegment elimination (a) (14 ) (14 ) - - -
Carnival Corporation & plc - U.S. GAAP 7,357 4,501 1,083 861 912
Carnival Corporation, U.S. GAAP vs IFRS differences and eliminations (c) (4,047 ) (2,167 ) (691 ) (526 ) (663 )
Carnival plc - IFRS $ 3,310 $ 2,334 $ 392 $ 335 $ 249
(a) A portion of the North America segment's revenues includes revenues for the tour portion of a cruise when a land tour
package is sold along with a cruise by either Holland America Line or Princess. These intersegment tour revenues, which are
included in the Tour and Other segment, are eliminated directly against the North America segment's revenues and operating
expenses in the line "Intersegment elimination."
(b) Carnival plc consists principally of the EAA segment.
(c) Carnival Corporation consists primarily of cruise brands that do not form part of the Group; however, these brands
are included in Carnival Corporation & plc and thus represent substantially all of the reconciling items. These North
American Carnival Corporation cruise brands are Carnival Cruise Line, Holland America Line, Princess and Seabourn. The U.S.
GAAP vs IFRS accounting differences principally relate to differences in the carrying value of ships and related
depreciation expenses. The eliminations include ship charters between Carnival Corporation and the Group.
NOTE 9 - Related Party Transactions
There have been no changes in the six months ended May 31, 2017 to the nature of the related party transactions described
in the Group IFRS financial statements for the year ended November 30, 2016 that have a material effect on the financial
position or results of operations of the Group. All amounts owed to the Carnival Corporation group are unsecured and
repayable on demand.
During the six months ended May 31, 2017, Holland America Line and Princess purchased land tours from us totaling $16
million ($14 million in 2016) and packaged these land tours for sale with their cruises. In addition, during each of the
six months ended May 31, 2017 and 2016, we sold pre- and post-cruise vacations, shore excursions and transportation
services to the Carnival Corporation group.
During the six months ended May 31, 2017 and 2016, Carnival plc had ship charter agreements with Princess and Carnival
Cruise Line for ships operating in Australia and Asia. Princess and Carnival Cruise Line are subsidiaries of Carnival
Corporation. The total charter payments for the six months ended May 31, 2017 were $340 million ($334 million in 2016),
which were included in other ship operating expenses.
At May 31, 2017 and November 30, 2016, Carnival Corporation owned 1.1 million or 0.5%, of Carnival plc's ordinary shares,
which are non-voting. At May 31, 2017 and November 30, 2016, Carnival Investments Limited ("CIL"), a wholly-owned
subsidiary of Carnival Corporation, owned 24.9 million or 11.5% of Carnival plc's ordinary shares, which are also
non-voting. During the six months ended May 31, 2017, Carnival Corporation and CIL received dividends on their Carnival plc
ordinary shares in the aggregate amount of $18 million.
During the six months ended May 31, 2016, CIL sold 0.9 million of Carnival plc ordinary shares for net proceeds of $40
million. Substantially all of the net proceeds from these sales were used to purchase 0.9 million shares of Carnival
Corporation common stock. Pursuant to our Stock Swap program, Carnival Corporation sold these Carnival plc ordinary shares
owned by CIL only to the extent it was able to repurchase shares of Carnival Corporation common stock in the U.S. on an
equivalent basis.
During the six months ended May 31, 2017, Carnival plc continued to provide a guarantee to the Merchant Navy Officers
Pension Fund for certain employees who have transferred from Carnival plc to a subsidiary of Carnival Corporation.
At May 31, 2017, Carnival plc had floating rate euro-denominated loans from Carnival Corporation totaling $491 million
($389 million at May 31, 2016).
NOTE 10 - Principal Risks and Uncertainties
The principal risks and uncertainties affecting our business activities are included in Item 4. Principal Risks and
Uncertainties of our 2016 Strategic Report and remain the same.
NOTE 11 - Seasonality
Our revenues from the sale of passenger tickets are seasonal. Historically, demand for cruises has been greatest during our
third quarter, which includes the Northern Hemisphere summer months. This higher demand during the third quarter results in
higher ticket prices and occupancy levels and, accordingly, the largest share of our operating income is earned during this
period. The seasonality of our results also increases due to ships being taken out-of-service for maintenance, which we
schedule during non-peak demand periods. In addition, substantially all of Holland America Princess Alaska Tours' revenue
and net income is generated from May through September in conjunction with the Alaska cruise season.
NOTE 12 - Fair Value Measurements and Derivative Instruments
The Group's activities expose it to a variety of financial risks such as foreign currency risk, fair value risk, cash flow
interest rate risks, credit risk and liquidity risk.
The Interim Financial Statements do not include all financial risk management information and disclosures required in the
annual financial statements; as such, they should be read in conjunction with the Group's annual financial statements at
November 30, 2016 and the DLC Financial Statements for the three and six months ended May 31, 2017. There have been no
significant changes in the risk management policies since November 30, 2016.
Fair Value Measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an
orderly transaction between market participants and measured using inputs in one of the following three categories:
• Level 1 measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities that we
have the ability to access. Valuation of these items does not entail a significant amount of judgment.
• Level 2 measurements are based on quoted prices for similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not active or market data other than quoted prices that are
observable for the assets or liabilities.
• Level 3 measurements are based on unobservable data that are supported by little or no market activity and are
significant to the fair value of the assets or liabilities.
Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly,
certain estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a
current or future market exchange.
Financial Instruments that are not Measured at Fair Value on a Recurring Basis
The carrying values, estimated fair values and basis of valuation of our financial instrument assets and liabilities not
measured at fair value on a recurring basis were as follows (in millions):
May 31, 2017 November 30, 2016
Fair Value Fair Value
Carrying Value Level 1 Level 2 Level 3 Carrying Value Level 1 Level 2 Level 3
Assets
Long-term other assets (a) $ 1 $ - $ - $ 1 $ 4 $ - $ - $ 4
Total $ 1 $ - $ - $ 1 $ 4 $ - $ - $ 4
Liabilities
Fixed rate debt (b) $ 1,020 $ - $ 1,078 $ - $ 1,033 $ - $ 1,093 $ -
Floating rate debt (b) 1,445 - 1,457 - 1,955 - 1,977 -
Total $ 2,465 $ - $ 2,535 $ - $ 2,988 $ - $ 3,070 $ -
(a) Long-term other assets is comprised of a note receivable. The fair value of our Level 3 note receivable was estimated
using a risk-adjusted discount rate.
(b) The debt amounts above do not include the impact of interest rate swaps or debt issuance costs. The fair values of our
debt were estimated based on appropriate market interest rates being applied to this debt.
Financial Instruments that are Measured at Fair Value on a Recurring Basis
The estimated fair value and basis of valuation of our financial instrument assets and liabilities measured at fair value
on a recurring basis were as follows (in millions):
May 31, 2017 November 30, 2016
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash and cash equivalents (a) $ 275 $ - $ - $ 225 $ - $ -
Restricted cash 3 - - 33 - -
Marketable securities held in trust (b) 1 - - 1 - -
Derivative financial instruments - 3 - - 7 -
Total $ 279 $ 3 $ - $ 259 $ 7 $ -
Liabilities
Derivative financial instruments $ - $ 21 $ - $ - $ 23 $ -
Total $ - $ 21 $ - $ - $ 23 $ -
(a) Cash and cash equivalents are comprised of cash and marketable securities with maturities of less than 90 days.
(b) At May 31, 2017, marketable securities held in trusts are restricted to funding certain deferred compensation and
non-qualified U.S. pension plans.
Derivative Instruments and Hedging Activities
The estimated fair values of our derivative financial instruments and their location in the Interim Condensed Group Balance
Sheets were as follows (in millions):
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