-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JbV/YgQ4kj1aEddnWzK/yzTmaALEs7mUwE6siU7W+vIixtIb2lbIwRgwFRZnGq3A Tm0Wst6GzCQ4T3Xmoz0QYw== 0000815097-97-000010.txt : 19971016 0000815097-97-000010.hdr.sgml : 19971016 ACCESSION NUMBER: 0000815097-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971015 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARNIVAL CORP CENTRAL INDEX KEY: 0000815097 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] IRS NUMBER: 591562976 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09610 FILM NUMBER: 97695930 BUSINESS ADDRESS: STREET 1: 3655 N W 87TH AVE STREET 2: PO BOX 1347 CITY: MIAMI STATE: FL ZIP: 33178 BUSINESS PHONE: 3055992600 MAIL ADDRESS: STREET 1: 3655 N W 87TH AVE STREET 2: PO BOX 1347 CITY: MIAMI STATE: FL ZIP: 33178 FORMER COMPANY: FORMER CONFORMED NAME: CARNIVAL CRUISE LINES INC DATE OF NAME CHANGE: 19920703 10-Q 1 [NOTIFY] 72731,737 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ________________ Commission file number 1-9610 CARNIVAL CORPORATION (Exact name of registrant as specified in its charter) Republic of Panama 59-1562976 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3655 N.W. 87th Avenue, Miami, Florida 33178-2428 (Address of principal executive offices) (zip code) (305) 599-2600 (Registrant's telephone number, including area code) None. (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No__ Indicate the number of shares outstanding of each of the issuers classes of common stock, as of October 10, 1997. Class A Common Stock, $.01 par value: 297,179,242 shares CARNIVAL CORPORATION I N D E X
Page Part I. Financial Information Item 1: Financial Statements Consolidated Balance Sheets - August 31, 1997 and November 30, 1996 1 Consolidated Statements of Operations - Nine and Three Months Ended August 31, 1997 and August 31, 1996 2 Consolidated Statements of Cash Flows - Nine Months Ended August 31, 1997 and August 31, 1996 3 Notes to Consolidated Financial Statements 4 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II. Other Information Item 1: Legal Proceedings 17 Item 5: Other Information 17 Item 6: Exhibits and Reports on Form 8-K 17 /TABLE PART I. FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS CARNIVAL CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except per share data)
August 31, November 30, ASSETS 1997 1996 CURRENT ASSETS Cash and cash equivalents $ 215,438 $ 111,629 Short-term investments 10,313 12,486 Accounts receivable 49,753 38,109 Consumable inventories, at average cost 54,394 53,281 Prepaid expenses and other 75,134 75,428 Total current assets 405,032 290,933 PROPERTY AND EQUIPMENT, NET 4,131,672 4,099,038 OTHER ASSETS Investments in and advances to affiliates 427,718 430,330 Goodwill, less accumulated amortization of $60,511 in 1997 and $55,274 in 1996 214,352 219,589 Other assets 62,991 61,998 $5,241,765 $5,101,888 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 62,089 $ 66,369 Accounts payable 112,021 84,748 Accrued liabilities 143,208 126,511 Customer deposits 394,598 352,698 Dividends payable 32,688 32,416 Total current liabilities 744,604 662,742 LONG-TERM DEBT 926,487 1,277,529 CONVERTIBLE NOTES 39,103 DEFERRED INCOME AND OTHER LONG-TERM LIABILITIES 75,434 91,630 COMMITMENTS AND CONTINGENCIES (Note 6) SHAREHOLDERS' EQUITY Class A Common Stock; $.01 par value; one vote per share; 399,500 shares authorized; 297,179 and 239,733 shares issued and outstanding 2,972 2,397 Class B Common Stock; $.01 par value; five votes per share; 100,500 shares authorized; 0 and 54,957 shares issued and outstanding 550 Paid-in-capital 865,132 819,610 Retained earnings 2,620,440 2,207,781 Other 6,696 546 Total shareholders' equity 3,495,240 3,030,884 $5,241,765 $5,101,888
The accompanying notes are an integral part of these financial statements. CARNIVAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Nine Months Three Months Ended August 31, Ended August 31, 1997 1996 1997 1996 REVENUES $1,923,117 $1,737,613 $805,421 $771,989 COSTS AND EXPENSES Operating expenses 1,022,742 962,435 388,120 396,195 Selling and administrative 221,702 209,221 65,483 68,978 Depreciation and amortization 125,886 107,597 43,228 39,661 1,370,330 1,279,253 496,831 504,834 OPERATING INCOME BEFORE INCOME (LOSS) FROM AFFILIATED OPERATIONS 552,787 458,360 308,590 267,155 INCOME (LOSS) FROM AFFILIATED OPERATIONS (1,323) 12,956 10,371 12,793 OPERATING INCOME 551,464 471,316 318,961 279,948 NONOPERATING INCOME (EXPENSE) Interest income 5,742 17,280 2,360 2,176 Interest expense, net of capitalized interest (43,510) (49,889) (11,974) (16,673) Other income 5,561 23,778 3,456 18,709 Income tax expense (8,557) (11,006) (14,910) (16,029) (40,764) (19,837) (21,068) (11,817) NET INCOME $ 510,700 $ 451,479 $297,893 $268,131 EARNINGS PER SHARE $1.71 $1.56 $1.00 $.92
The accompanying notes are an integral part of these financial statements. CARNIVAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Nine Months Ended August 31, 1997 1996 OPERATING ACTIVITIES Net income $ 510,700 $ 451,479 Adjustments Depreciation and amortization 125,886 107,597 Dividends received less equity in income from affiliates 8,236 (9,719) Loss on sale of Crystal Palace notes receivable 15,835 Other (2,615) 3,950 Changes in operating assets and liabilities Increase in receivables (12,350) (8,511) Increase in consumable inventories (1,113) (2,447) Decrease in prepaid and other 86 3,829 Increase in accounts payable 27,273 46,068 Increase in accrued liabilities 10,997 29,002 Increase in customer deposits 41,900 19,159 Net cash provided from operations 709,000 656,242 INVESTING ACTIVITIES Decrease in short-term investments, net 2,173 31,335 Additions to property and equipment, net (158,913) (514,154) Proceeds from litigation settlements applied to cost of ships 43,050 Additions to investments in and advances to affiliates, net (780) (185,554) (Increase) decrease in other non-current assets (993) 96,807 Net cash used for investing activities (158,513) (528,516) FINANCING ACTIVITIES Principal payments of long-term debt (383,484) (683,953) Dividends paid (97,769) (77,389) Proceeds from long-term debt 28,131 663,003 Issuance of common stock 6,444 2,999 Net cash used for financing activities (446,678) (95,340) Net increase in cash and cash equivalents 103,809 32,386 Cash and cash equivalents at beginning of period 111,629 53,365 Cash and cash equivalents at end of period $ 215,438 $ 85,751 Supplemental disclosure of non-cash transactions Conversion of 4-1/2% Convertible Notes into Class A Common Stock $ 39,085 $ 70,113 Issuance of Class A Common Stock in connection with investment in Airtours plc $ $ 144,171 Conversion of Class B Common Stock into Class A Common Stock $ 550 $
The accompanying notes are an integral part of these financial statements. CARNIVAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS FOR PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS The financial statements included herein have been prepared by Carnival Corporation without audit pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying consolidated balance sheet at August 31, 1997, and the consolidated statements of operations for the nine and three months ended August 31, 1997 and August 31, 1996 and consolidated statements of cash flows for the nine months ended August 31, 1997 and 1996 are unaudited and, in the opinion of management, contain all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation. The operations of Carnival Corporation and its subsidiaries (the "Company") are seasonal and results for interim periods are not necessarily indicative of the results for the entire year. The accompanying financial statements include the consolidated balance sheets and statements of operations and cash flows of the Company and its subsidiaries. All material intercompany transactions and accounts have been eliminated in consolidation. Certain amounts in prior periods have been reclassified to conform with the current period's presentation. NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
Vessels $4,273,942 $4,269,403 Vessels under construction 236,623 163,178 4,510,565 4,432,581 Land, buildings and improvements 186,968 170,466 Transportation and other equipment 255,014 204,776 Total property and equipment 4,952,547 4,807,823 Less - accumulated depreciation and amortization (820,875) (708,785) $4,131,672 $4,099,038
Interest costs associated with the construction of vessels and buildings, until they are placed in service, are capitalized and amounted to $12.3 million and $18.7 million for the nine months ended August 31, 1997 and August 31, 1996, respectively, and $4.9 million for each of the three months ended August 31, 1997 and 1996. NOTE 3 - LONG-TERM DEBT AND CONVERTIBLE NOTES Long-term debt consisted of the following:
Commercial Paper $161,624 $ 307,298 Unsecured 5.75% Notes Due March 15, 1998 200,000 200,000 $200 Million Multi-currency Revolving Credit Facility Due 2001 166,000 Mortgages and other loans payable bearing interest at rates ranging from 8% to 9.9%, secured by vessels, maturing through 1999 98,447 140,277 Unsecured 6.15% Notes Due October 1, 2003 124,958 124,953 Unsecured 7.20% Debentures Due October 1, 2023 124,875 124,871 Unsecured 7.7% Notes Due July 15, 2004 99,921 99,913 Unsecured 7.05% Notes Due May 15, 2005 99,846 99,831 Other loans payable 78,905 80,755 988,576 1,343,898 Less portion due within one year (62,089) (66,369) $926,487 $1,277,529
The Company's commercial paper program is supported by a one billion dollar unsecured revolving credit facility due 2001 (the "U.S. Dollar Revolver"). In January 1997, the Company extended its commercial paper programs to include its $200 Million Multi-currency Revolving Credit Facility Due 2001 (the "Multi-currency Revolving Credit Facility"). Both revolving credit facilities bear interest at a maximum of LIBOR plus 14 basis points ("BPS") and provide for a facility fee of six BPS on the total facility. Any funds outstanding under the commercial paper programs reduce the aggregate amount available under the U.S. Dollar Revolver and the Multi-currency Revolving Credit Facility. As of August 31, 1997, the Company had $162 million outstanding under its commercial paper programs and $1,038 million available for borrowing under the U.S. Dollar Revolver and Multi-currency Revolving Credit Facility. The commercial paper outstanding as of August 31, 1997 bears interest at 5.59% and was due in October 1997. Since the commercial paper programs are backed by long-term revolving credit facilities, balances outstanding under the commercial paper programs have been classified as long-term in the accompanying balance sheets. The Unsecured 5.75% Notes Due March 15, 1998 are expected to be repaid through borrowings under the commercial paper programs, the Company's U.S. Dollar Revolver or through the issuance of additional long-term debt and, as such, have been classified as long-term in the accompanying August 31, 1997 balance sheet. During December 1996, the remaining outstanding amount of the Company's 4-1/2% Convertible Subordinated Notes Due July 1, 1997 were converted into approximately 2.2 million shares of the Class A Common Stock of the Company(the "Class A Common Stock"). NOTE 4 - SHAREHOLDERS' EQUITY The following represents an analysis of the changes in shareholders' equity for the nine months ended August 31, 1997:
COMMON STOCK $.01 PAR VALUE PAID-IN RETAINED CLASS A CLASS B CAPITAL EARNINGS OTHER TOTAL (in thousands) Balance November 30, 1996 $2,397 $550 $819,610 $2,207,781 $ 546 $3,030,884 Net income for the period 510,700 510,700 Cash dividends (98,041) (98,041) Changes in securities valuation allowance 312 312 Foreign currency translation adjustment 4,840 4,840 Issuance of common stock upon conversion of Convertible Notes 23 39,755 39,778 Conversion of Class B Common Stock into Class A Common Stock 550 (550) Issuance of stock to employees under stock plans 2 5,767 (100) 5,669 Vested portion of common stock under restricted stock plan 1,098 1,098 Balance August 31, 1997 $2,972 $ 0 $865,132 $2,620,440 $6,696 $3,495,240 Conversion of Class B Common Stock On July 15, 1997, The Micky Arison 1994 "B" Trust (the "B Trust"), a U.S. trust whose primary beneficiary is Micky Arison, the Company's Chairman of the Board, exercised its right to convert all of the 54,957,142 shares of Class B Common Stock held by it into an equal number of shares of Class A Common Stock. Prior to July 1, 1997, the B Trust had been restricted from converting such shares under a stockholders agreement with the Company. Prior to the conversion of the Class B Common Stock, the B Trust was the controlling stockholder of the Company. The holder of Class B Common Stock had the power to elect 75% of the directors of the Company and the Class B Common Stock had five votes per share (as opposed to one vote per share for the Class A Common Stock) for all other voting matters. As a result of the conversion of the Class B Common Stock, (i) there are no shares of Class B Common Stock outstanding, (ii) all holders of Class A Common Stock (including the B Trust) vote as one class in all elections for directors, and (iii) all shares of Class A Common Stock (including the shares held by the B Trust) have one vote per share for all other voting matters. As a result of the conversion, the B Trust owns 18.49% of the outstanding Class A Common Stock of the Company. Although the B Trust is not currently a party to any proxy or voting trust arrangements with respect to the Class A Common Stock that it holds, the B Trust is not prohibited from entering into such arrangements in the future.
NOTE 5 - TAXATION Income Taxes Non U.S. companies are exempt from U.S. corporate income tax on U.S. source income from international passenger cruise operations if (i) their countries of incorporation exempt shipping operations of U.S. persons from income tax (the "Incorporation Test") and (ii) they meet either the "CFC Test" or the "Publicly Traded Test." The Company and its subsidiaries involved in the cruise ship operations meet the Incorporation Test because they are incorporated in countries which provide the required exemption to U.S. persons involved in shipping operations. A Company meets the CFC Test if it is a controlled foreign corporation ("CFC") on any day during its fiscal year. A CFC is defined by the Internal Revenue Code as a foreign corporation more than 50% of whose stock is owned by U.S. persons, each of whom owns or is considered to own 10% or more of the corporation's voting power ("U.S. Shareholders"). Through the conversion date of July 15, 1997 (the "Conversion Date") all of the outstanding shares of Class B Common Stock of the Company (the "Class B Common Stock") which represented more than 50% of the total combined voting power of all classes of stock, was owned by the B Trust, which is a "United States Person", and thus, the Company meets the definition of a CFC. Accordingly, the Company believes that it will meet the CFC Test for its entire current taxable year. A corporation meets the Publicly Traded Test if the stock of the corporation (or the direct or indirect corporate parent thereof) is "primarily and regularly traded on an established securities market" in the United States. Although no Treasury regulations have been promulgated that explain when stock is primarily and regularly traded for purposes of this exemption, Treasury regulations have been promulgated interpreting a similar phrase under another section. Under that section's regulations, stock is considered primarily and regularly traded if: (i) 80% (by vote and value) of the stock of the corporation is listed on an established securities market in the United States where more shares are traded than in any other country, (ii) trades of such stock are effected on such market, other than in de minimis quantities, on at least 60 days during the taxable year, (iii) the aggregate number of shares so traded is equal to 10% or more of the average number of shares outstanding during the taxable year, and (iv) the company is not "closely held." The Company believes that it will meet the foregoing requirements for the portion of its taxable year beginning after the Conversion Date and for future taxable years. Accordingly, the Company believes that virtually all of its income (with the exception of its United States source income from the operation of transportation, hotel and tour business of HAL Antillen N.V.) is exempt from United States federal income taxes. However, if the Company or the subsidiaries were found to meet neither the CFC Test nor the Publicly Traded Test for 1997 or any future year, much of their income would become subject to taxation by the United States at higher than normal corporate tax rates. NOTE 6 - COMMITMENTS AND CONTINGENCIES Capital Expenditures The following table provides a description of ships currently under contract for construction (in millions of dollars):
Expected Number Estimated Remaining Service Contract of Lower Total Cost to Be Vessel Date Denomination Berths Cost Paid Holland America Line: Rotterdam VI 11/97 Lire 1,320 $ 270 $ 186 HAL Newbuild 3/99 Lire 1,440 300 285 HAL Newbuild 10/99 Lire 1,440 300 285 Carnival Cruise Lines: Elation 3/98 U. S. Dollar 2,040 300 248 Paradise 12/98 U. S. Dollar 2,040 300 281 Carnival Triumph 7/99 Lire 2,640 400 352 Carnival Victory 8/00 U. S. Dollar 2,640 430 426 13,560 $2,300 $2,063
Contracts denominated in foreign currencies have been fixed into U.S. Dollars through the utilization of forward currency contracts. In connection with the vessels under construction described above, the Company has paid $237 million through August 31, 1997 and anticipates paying approximately $570 million during the twelve month period ending August 31, 1998 and approximately $1.5 billion beyond August 31, 1998. In September 1997, the Company announced that it is in negotiations with shipyards for an additional newbuilding package for its Carnival Cruise Lines, Holland America Line and Costa brands which is expected to approach $2 billion. In addition, in April 1997 the Company reached an agreement to acquire the Club Med I, a 312 berth vessel, from Club Mediterranee, S.A. and Services et Transports for approximately $45 million. The Company anticipates closing on the purchase of the vessel in early 1998, with the vessel beginning operation in the Company's luxury sail-cruise company, Windstar Cruises, in May 1998. Litigation Several actions (collectively the "Port Charges Complaints") have been filed against the Company or Holland America Westours on behalf of purported classes of persons who traveled on a Company or Holland America Westours ship and paid port charges to the Company or Holland America Westours. These actions allege that statements made by the Company or Holland America Westours in advertising and promotional materials concerning port charges were false and misleading. Four such actions were filed against the Company in the Circuit Court for Dade County, Florida, and others were filed against the Company in the Chancery Court in Dyer County, Tennessee, the Superior Court in Maricopa County, Arizona and in the following United States District Courts: the Middle District of Louisiana; the Southern District of Ohio, Western Division; the Western District of Kentucky, Louisville Division; the Eastern District of Michigan, Southern Division; the Northern District of Georgia, Atlanta Division; and the Northern District of Alabama, Western Division. One such action was filed against Holland America Westours in the Superior Court in King County, Washington. The Florida, Tennessee, Louisiana, Alabama and Washington actions have been brought on behalf of purported nationwide classes; the other actions on behalf of purported statewide classes. Nationwide classes were conditionally certified in the Tennessee, Louisiana and Alabama actions. The Florida actions allege violations of the Florida Deceptive and Unfair Trade Practices Act, fraudulent inducement, conversion and unjust enrichment. The Tennessee, Louisiana, Kentucky, Michigan, Georgia, Ohio and Alabama actions allege violations of various state consumer protection statutes, fraud, fraudulent misrepresentations and/or omissions, negligent misrepresentations and/or omissions, negligence, breach of fiduciary duties, restitution, unjust enrichment, and breach of implied covenants of good faith and fair dealing. The Washington action alleges claims of negligent misrepresentation, unjust enrichment and violations of the Washington Consumer Protection Act. Plaintiffs in these cases seek compensatory damages (in some cases alleged to be up to $25,000 per putative class member) or, alternatively, refunds of portions of port charges paid, disgorgement of funds, an accounting, attorneys' fees and costs, prejudgment interest, punitive damages and injunctive and declaratory relief. In May 1997, on the Company's motions, the Florida actions were dismissed without prejudice and in June 1997 amended complaints were filed. The Company has moved to dismiss the amended complaints. The Company has filed a motion to dismiss the Louisiana action on the grounds, among others, that the putative representative plaintiff did not purchase a Company cruise, and the plaintiff has indicated that it will stipulate to withdraw the action with prejudice. In the Washington action, Holland America Westours' motion to dismiss was denied, as was the plaintiffs' motion for class certification. The Company has filed motions to dismiss, on the grounds of inconvenient forum, or alternatively transfer to Florida, in the Louisiana, Kentucky, Michigan, Georgia, Ohio and Alabama actions, and motions to dismiss, on the grounds of inconvenient forum, in the Arizona and Tennessee actions. The Arizona Court granted the Company's motion and dismissed that action. In June and August 1996, two complaints were filed against the Company and Holland America Westours, respectively, in California Superior Court in Los Angeles County (collectively the "Travel Agent Complaints") on behalf of purported classes of all travel agencies who during the past four years booked a cruise with the Company or Holland America Westours. The complaints in these actions claim that the Company's and Holland America Westours' advertising practices regarding port charges resulted in an improper commission bypass and allege claims of breach of contract, negligent misrepresentation, unjust enrichment, unlawful business practices and common law fraud. The complaints sought unspecified compensatory damages (or alternatively, the payment of usual and customary commissions on port charges paid by passengers in excess of certain charges levied by government authorities), an accounting, attorneys' fees and costs, punitive damages and injunctive relief. The court granted the motions of the Company and Holland America Westours to dismiss one of the California actions and stay the second such action on grounds of forum non conveniens. The plaintiff in the dismissed California action has filed a complaint similar to the one it had filed in California in the Circuit Court for Dade County, Florida. The Company has moved to dismiss this complaint. An action alleging claims similar to those raised in the California actions, filed in the Judicial District Court in Hennepin County, Minnesota, was withdrawn with prejudice after the Company filed a motion to dismiss on the grounds, among others, that the putative representative plaintiff had not booked any cruises with the Company. The remaining Port Charges and Travel Agent Complaints are in preliminary stages and it is not now possible to determine the ultimate outcome of the lawsuits. Management believes that the Company has substantial and meritorious defenses to the claims. Purported class actions similar to the Port Charges and Travel Agent Complaints have been filed against five other cruise lines. In the normal course of business, various other claims and lawsuits have been filed or are pending against the Company. The majority of these claims and lawsuits are covered by insurance. Management believes the outcome of any such suits which are not covered by insurance would not have a material adverse effect on the Company's financial condition or results of operations. NOTE 7 - RECENT EVENTS In June 1997, the Company and Airtours plc ("Airtours"), a large publicly traded (London Stock Exchange) tour company in which the Company holds a 28% interest, successfully completed the joint offer to acquire an interest in the outstanding equity securities of Costa Crociere, S.p.A. ("Costa"), an Italian cruise company listed on the Milan Stock Exchange. With the completion of the offer, the Company and Airtours each own 50% of Il Ponte, S.p.A. ("Il Ponte"), a holding company which was purchased from the Costa family. Il Ponte in turn now owns 98% of the ordinary share capital, 93% of the savings shares and 47% of the savings share warrants of Costa. The total cost of acquiring Il Ponte and Costa shares was approximately $266 million, of which approximately $190 million was paid by Il Ponte and the balance was paid equally by the Company and Airtours. The $190 million which was paid by Il Ponte was funded by borrowings, of which the Company guaranteed $95 million. The Company is accounting for its investment in Il Ponte using the equity method of accounting on a two month lag basis. In September 1997, the Company announced that it was dissolving its Asian cruise joint venture with Hyundai Merchant Marine (formed in September 1996) and would repurchase the cruise ship Tropicale from the joint venture. The Company expects to record a charge of $3.6 million in the fourth quarter of 1997 resulting from the dissolution of the joint venture. In September 1997, the Company repurchased the Tropicale from the joint venture for $93 million, approximately the same price for which the joint venture purchased the ship from the Company in 1996. The deferred gain of $55.2 million in the Company's August 31, 1997 balance sheet which resulted from the sale of the Tropicale to the joint venture will be reclassified as a reduction of the Company's cost basis of the Tropicale upon its repurchase from the joint venture in September 1997. In October 1997, Carnival Hotels and Casinos ("CHC"), which is 24.9% owned by the Company, entered into a merger agreement with Patriot American Hospitality, Inc. ("Patriot") under which Patriot will acquire CHC's hotel management division in exchange for shares of Patriot's preferred stock. CHC's gaming division will be spun off into a separate subsidiary which will be retained by the existing CHC shareholders. This transaction is expected to result in a small gain which the Company will record when the transaction closes. NOTE 8 - RECENT PRONOUNCEMENTS In January 1997, the Financial Accounting Standards Board issued Statement of Financial Standard ("SFAS") No. 128, "Earnings Per Share" which requires dual presentation of basic and fully diluted earnings per share. The adoption of SFAS No. 128 is not expected to have a material effect on the Company's earnings per share computation. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements under this caption, "Management's Discussion and Analysis of Financial Condition and Results of Operations", constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). See "PART II. OTHER INFORMATION, ITEM 5(a) Forward-Looking Statements". General The Company earns its cruise revenues primarily from (i) the sale of passenger tickets, which include accommodations, meals, most shipboard activities and in many cases airfare, and (ii) the sale of goods and services on board its cruise ships, such as casino gaming, liquor sales, gift shop sales and other related services. The Company also derives revenues from the tour and related operations of HAL Antillen N.V. ("HAL"), which owns Holland America Westours and Holland America Cruise Line. The following table presents selected segment and statistical information for the periods indicated:
Nine Months Ended August 31, Three Months Ended August 31, 1997 1996 1997 1996 (in thousands, except selected statistical information) REVENUES: Cruise $1,753,416 $1,549,004 $668,813 $617,985 Tour 218,681 238,550 181,011 197,772 Intersegment revenues (48,980) (49,941) (44,403) (43,768) $1,923,117 $1,737,613 $805,421 $771,989 OPERATING EXPENSES: Cruise $ 902,786 $ 827,894 $301,170 $295,199 Tour 168,936 184,482 131,353 144,764 Intersegment expenses (48,980) (49,941) (44,403) (43,768) $1,022,742 $ 962,435 $388,120 $396,195 OPERATING INCOME: Cruise $ 539,566 $434,680 $274,282 $228,156 Tour 18,783 26,100 35,391 39,644 Income (loss) from affiliates and corporate expenses (6,885) 10,536 9,288 12,148 $ 551,464 $471,316 $318,961 $279,948 SELECTED STATISTICAL INFORMATION: Passengers Carried 1,504,000 1,351,000 554,000 507,000 Passenger Cruise Days 9,167,000 8,088,000 3,286,000 2,987,000 Occupancy Percentage 109.6% 109.7% 114.3% 114.5%
The following table presents operations data expressed as a percentage of total revenues for the periods indicated:
Nine Months Three Months Ended August 31, Ended August 31, 1997 1996 1997 1996 REVENUES 100% 100% 100% 100% COSTS AND EXPENSES: Operating expenses 53 56 48 51 Selling and administrative 12 12 8 9 Depreciation and amortization 6 6 5 5 OPERATING INCOME BEFORE INCOME FROM AFFILIATED OPERATIONS 29 26 39 35 Income from affiliated operations - 1 1 1 OPERATING INCOME 29 27 40 36 NONOPERATING INCOME (EXPENSE) (2) (1) (3) (1) NET INCOME 27% 26% 37% 35%
The Company's different businesses experience varying degrees of seasonality. The Company's revenue from the sale of passenger tickets for Carnival Cruise Lines' ("Carnival") ships is moderately seasonal. Historically, demand for Carnival cruises has been greatest during the period from late June through August and lower during the fall months. HAL cruise revenues are more seasonal than Carnival's cruise revenues. Demand for HAL cruises is strongest during the summer months when HAL ships operate in Alaska and Europe for which HAL obtains higher pricing. Demand for HAL cruises is lower during the winter months when HAL ships sail in more competitive markets. The Company's tour revenues are extremely seasonal with a large majority of tour revenues generated during the late spring and summer months in conjunction with the Alaska cruise season. In April 1996, the Company made an investment in Airtours which it records using the equity basis of accounting. Starting with the Company's quarter ended August 31, 1996, the Company's portion of Airtours' operating results are being recorded by the Company on a two month lag basis. Airtours' earnings are seasonal due to the nature of the European leisure travel industry. Demand for Airtours vacations is highest during the summer months when Europeans typically take extended vacations. During the last two fiscal years, Airtours' third and fourth fiscal quarters, ending June 30 and September 30, respectively, have been profitable, with the fourth quarter being its most profitable quarter. During this same period, Airtours experienced seasonal losses in its first and second fiscal quarters ending on December 31 and March 31, respectively. In June 1997, the Company made an investment in Costa (See Note 7), which it is recording using the equity basis of accounting. Starting with the Company's quarter ending November 30, 1997, the Company's portion of Costa's operating results will be recorded by the Company on a two month lag basis. Historically, demand for Costa's cruises has been greatest during the summer months when their ships operate in the Mediterranean and Northern Europe for which they obtain higher pricing. Demand for Costa cruises is lower during the winter months when their ships sail in more competitive markets. Nine Months Ended August 31, 1997 Compared To Nine Months Ended August 31, 1996 Revenues The increase in total revenues of $185.5 million, or 10.7%, from the first nine months of 1996 to the first nine months of 1997 was due to a 13.2% increase in cruise revenues which was partially offset by a decrease in tour revenues. The increase in cruise revenues was primarily the result of a 13.4% increase in capacity for the period resulting from the addition of Carnival Cruise Lines' cruise ships Inspiration and Carnival Destiny in March and November 1996, respectively, and Holland America Line's cruise ship Veendam in May 1996. The capacity increase resulting from the introduction of new vessels was partially offset by the removal from service from the Carnival Cruise Lines fleet of the Festivale in April 1996. Occupancy, gross revenue per passenger cruise day and gross yield (total revenue per available lower berth day) were all about the same level as in 1996. However, gross revenue per passenger cruise day and gross yield were reduced in 1997 by a decrease in the number of passengers electing to use the Company's air program. When a passenger elects to purchase his/her own air transportation, rather than use the Company's air program, both the Company's cruise revenues and operating expenses decrease by approximately the same amount. Tour revenues decreased $19.9 million, or 8.3%, due to a decrease in the number of tours sold. Average capacity is expected to increase approximately 7.2% during the fourth fiscal quarter of 1997 as compared with the same period in 1996. Average capacity is expected to increase approximately 11.9% during the fiscal year ending November 30, 1997 as compared with the fiscal year ended November 30, 1996. The increases in capacity are primarily a result of the introduction into service of the vessels described above and have been adjusted for the delay in delivery of the Rotterdam VI discussed below. The Company had been expecting to take delivery of the Rotterdam VI from the shipyard on about October 1, 1997. The Rotterdam VI is to replace the Rotterdam V which was sold by the Company in early October. On September 18, 1997 the Company announced that the shipyard had informed the Company that the Rotterdam VI's delivery would be delayed and consequently the Company was canceling its first two cruises. Because of this delay, the Company has canceled a third cruise for the new Rotterdam. The Company believes that the cancellation of these cruises will reduce its earnings for the fourth quarter by approximately nine million dollars. Costs and Expenses Operating expenses increased $60.3 million, or 6.3%, from the first nine months of 1996 to the first nine months of 1997. Cruise operating costs increased by $74.9 million, or 9.0%, to $902.8 million in the first nine months of 1997 from $827.9 million in the first nine months of 1996, primarily due to additional costs associated with the increased capacity. Tour operating costs decreased $15.5 million, or 8.4%, primarily due to the reduction in tour volume. Selling and administrative costs increased $12.5 million, or 6.0%, during the first nine months of 1997 as compared with the same nine months of 1996 primarily due to an increase in payroll and related costs as well as other miscellaneous expenses associated with the increase in capacity. Depreciation and amortization increased by $18.3 million, or 17.0%, to $125.9 million in the first nine months of 1997 from $107.6 million in the first nine months of 1996 primarily due to the addition of the Inspiration, the Veendam and the Carnival Destiny. Affiliated Operations During the first nine months of 1997, the Company recorded $1.3 million of losses from affiliated operations. Approximately $1.4 million of losses were attributable to the Company's 28% interest in Airtours, acquired in April 1996. Airtours' earnings are seasonal, historically incurring losses during its first two fiscal quarters and profits during its last two fiscal quarters. See "General" above for a further discussion of Airtours' seasonality. For the first nine months of 1996, the Company recorded profits of $5.0 million attributable to its interest in Airtours. Had the Company owned its interest in Airtours during the entire nine months of 1996, the Company's earnings for the 1996 period, excluding the cost of capital, would have been reduced by approximately $10.6 million. Nonoperating Income (Expense) Interest income decreased $11.5 million in 1997 primarily due to a decrease in cash balances and notes receivable. Cash balances were unusually high during the early months of fiscal 1996, because of United Kingdom regulatory requirements which caused the Company to deposit funds in escrow approximately three months prior to acquiring an interest in Airtours. Notes receivable decreased due to the sale by the Company in the second quarter of 1996 of its holding of 13% senior secured notes due 2003 of Kloster Cruise Limited. Gross interest expense (excluding capitalized interest) decreased $12.8 million in 1997 as a result of reduced debt balances. Capitalized interest decreased $6.4 million due to lower levels of investments in ship construction projects during the first half of 1997 as compared with the same period in 1996. Other income decreased by $18.2 million in 1997 primarily because the first nine months of fiscal 1996 included a $32 million gain from the settlement of bankruptcy claims against Wartsila Marine Industries Incorporated less a loss of $15.8 million from the sale of certain notes receivable. Included in other income in the first nine months of 1997 is $3.2 million which represents the net effect of the recognition of the remaining deferred gain from the sale of Carnival Cruise Lines' Festivale, less a loss from the sale of Holland America Line's Rotterdam V. Three Months Ended August 31, 1997 Compared To Three Months Ended August 31, 1996 Revenues The increase in total revenues of $33.4 million, or 4.3%, from the third quarter of 1996 to the third quarter of 1997 was due to an 8.2% increase in cruise revenues which was partially offset by a decrease in tour revenues. The increase in cruise revenues of $50.8 million was primarily the result of a 10.2% increase in capacity resulting from the addition of Carnival Cruise Lines' cruise ship Carnival Destiny in November 1996. Occupancy rates were down .2% and gross revenue per passenger cruise day was down 1.6% resulting in a decrease of 1.8% in gross yield. Gross revenue per passenger cruise day and gross yield both decreased because of a reduction in the number of passengers electing to use the Company's air program. See Revenues for the Nine Months Ended August 31, 1997 Compared To Nine Months Ended August 31, 1996 discussion above. Tour revenues decreased $16.8 million, or 8.5%, due to a decrease in the number of tours sold. Costs and Expenses Operating expenses decreased $8.1 million, or 2.0%, from the third quarter of 1996 to the third quarter of 1997. Cruise operating costs increased by $6.0 million, or 2.0%, to $301.2 million in the third quarter of 1997 from $295.2 million in the third quarter of 1996, primarily due to additional costs associated with the increased capacity. Tour operating costs decreased $13.4 million, or 9.3%, primarily due to the reduction in tour revenues. Selling and administrative costs decreased $3.5 million, or 5.1%, primarily due to a decrease in advertising expense during the third quarter of 1997 as compared with the same quarter of 1996 partially offset by increases in payroll and related costs as well as other miscellaneous expenses associated with the increase in capacity. Depreciation and amortization increased by $3.6 million, or 9.0%, to $43.2 million in the third quarter of 1997 from $39.7 million in the third quarter of 1996 primarily due to the addition of the Carnival Destiny. Affiliated Operations During the third quarter of 1997, the Company recorded $10.4 million of income from affiliated operations as compared with $12.8 million in the third quarter of 1996. The Company's portion of Airtours earnings increased $1.9 million to $6.9 million in the third quarter ended August 31, 1997, however this increase was more than offset by decreases in the Company's portion of income from other equity investments. Nonoperating Income (Expense) Interest income and capitalized interest essentially remained at the same levels as experienced in the third quarter of 1996. Gross interest expense (excluding capitalized interest) decreased $4.7 million in the third quarter of fiscal 1997 due to lower debt balances. Other income (expense) decreased $15.3 million primarily for the same reasons discussed in the Nonoperating Income (Expense) explanation in the Nine Months Ended August 31, 1997 Compared To Nine Months Ended August 31, 1996 section above. LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash The Company's business provided $709.0 million of net cash from operations during the nine months ended August 31, 1997, an increase of 8.0% compared to the corresponding period in 1996. During the nine months ended August 31, 1997, the Company expended approximately $158.9 million on capital projects, of which $74.1 million was spent in connection with its ongoing shipbuilding program. The remainder was spent on the acquisition of a private island in the Caribbean, to be used as a destination for certain HAL itineraries, transportation equipment, vessel refurbishments, tour assets and other equipment. The Company made scheduled principal payments totaling approximately $41.8 million under various individual vessel mortgage loans during the nine months ended August 31, 1997. During this same period, the Company made net repayments of $311.7 million under its commercial paper programs. In June 1997, the Company and Airtours completed the acquisition of Costa, an Italian cruise company listed on the Milan Stock Exchange. The total cost of the Costa acquisition was approximately $266 million, with the Company and Airtours each responsible for funding fifty percent of the total cost. See Note 7 of Notes to Consolidated Financial Statements for a description of funding for the acquisition. Future Commitments The Company has contracts for the delivery of seven new vessels over the next three years. The Company will pay approximately $570 million during the twelve month period ending August 31, 1998 relating to the construction and delivery of those new cruise ships and approximately $1.5 billion beyond August 31, 1998. The Company also has an agreement to acquire a 312 berth cruise ship in the spring of 1998 for approximately $45 million. At August 31, 1997, the Company had $988.6 million of long-term debt of which $262.1 million is due during the twelve month period ending August 31, 1998. Included in the $262.1 million of debt due during the next twelve months is $200.0 million of Unsecured 5.75% Notes Due March 15, 1998 which the Company plans to repay through borrowings under the commercial paper programs or through issuance of long-term debt. See Note 3 in the accompanying financial statements for more information regarding the Company's debt. The Company also enters into forward foreign currency contracts and interest rate swap agreements to hedge the impact of foreign currency and interest rate fluctuations. Funding Sources Cash from operations is expected to be the Company's principal source of capital to fund its debt service requirements and ship construction costs. In addition, the Company may also fund a portion of these cash requirements from borrowings under its U.S. Dollar Revolver or commercial paper programs and/or through the issuance of long-term debt in the public or private markets. As of August 31, 1997, the Company had $1,038 million available for borrowing under its U.S. Dollar Revolver and Multi-currency Revolving Credit Facility. To the extent that the Company should require or choose to fund future capital commitments from sources other than operating cash or from borrowings under its revolving credit facilities and/or commercial paper programs, the Company believes that it will be able to secure such financing from banks or through the offering of short-term or long-term debt and/or equity securities in the public or private markets. In this regard, the Company has filed two Registration Statements on Form S-3 (the "Shelf Registration") relating to a shelf offering of up to $500 million aggregate principal amount of debt or equity securities. At August 31, 1997, a balance of $270 million aggregate principal amount of debt or equity securities remains available for issuance under the Shelf Registration. PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The discussions of legal proceedings set forth in "PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS, NOTE 6 - COMMITMENTS AND CONTINGENCIES" contained herein and "PART I. ITEM 3. LEGAL PROCEEDINGS" in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996 are incorporated by reference into this Item. ITEM 5: Other Information (a) Forward-Looking Statements Certain statements in this Form 10-Q and in the future filings by the Company with the Securities and Exchange Commission, in the Company's press releases, and in oral statements made by or with the approval of an authorized executive officer constitute "forward-looking statements" within the meaning of the Reform Act. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions which may impact levels of disposable income of consumers and pricing and passenger yields for the Company's cruise products; consumer demand for cruises; pricing policies followed by competitors of the Company; increases in cruise industry capacity in the Caribbean and Alaska; changes in tax laws and regulations (see Part II - - Other Information, Item 5 - Other Information (b) - Taxation of the Company in the Company's filing of Form 10-Q for the period ended May 31, 1997); the ability of the Company to implement its shipbuilding program and to expand its business outside the North American market where it has less experience; delivery of new vessels on schedule and at the contracted price; weather patterns in the Caribbean; unscheduled ship repairs and drydocking; incidents involving cruise vessels at sea; and changes in laws and government regulations applicable to the Company (including the implementation of the "Safety of Life at Sea Convention" and changes in Federal Maritime Commission surety and guaranty arrangements). ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits 11 Statement Regarding Computation of Per Share Earnings 12 Ratio of Earnings to Fixed Charges 27 Financial Data Schedule (b) Reports on Form 8-K Current report on Form 8-K (File No. 1-9610) filed with the Commission on June 26, 1997 related to a bid for the acquisition of Celebrity Cruise Line. /TABLE SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. CARNIVAL CORPORATION Dated: October 14, 1997 BY/s/ Micky Arison Micky Arison Chairman of the Board and Chief Executive Officer Dated: October 14, 1997 BY/s/ Howard S. Frank Howard S. Frank Vice-Chairman, Chief Financial and Accounting Officer INDEX TO EXHIBITS
Page No. in Sequential Numbering System Exhibits 11 Statement Regarding Computation of Per Share Earnings 12 Ratio of Earnings to Fixed Charges 27 Financial Data Schedule
EX-11 2 EXHIBIT 11 CARNIVAL CORPORATION STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (in thousands, except per share data)
Nine Months Ended Three Months Ended August 31, August 31, 1997 1996 1997 1996 Net income $510,700 $451,479 $297,893 $268,131 Adjustments to net income for the purpose of computing fully diluted earnings per share: Interest reduction from assumed conversion of 4.5% Convertible Subordinated Notes 4,100 1,328 Adjusted net income $510,700 $455,579 $297,893 $269,459 Weighted average shares outstanding 298,062 288,524 298,346 291,171 Adjustments to weighted average shares outstanding for the purpose of computing fully diluted earnings per share: Additional shares issuable upon assumed conversion of 4.5% Convertible Subordinated Notes 6,542 6,388 Adjusted weighted average shares outstanding 298,062 295,066 298,346 297,559 Earnings per share: Primary $1.71 $1.56 $1.00 $0.92 Fully Diluted* $1.71 $1.54 $1.00 $0.91
*In accordance with Accounting Principles Board Opinion No. 15, the Company does not present fully diluted EPS in its financial statements because the Company's convertible securities were anti-dilutive or resulted in a less than 3% dilution for the periods presented. EX-12 3 EXHIBIT 12 CARNIVAL CORPORATION RATIO OF EARNINGS TO FIXED CHARGES (in thousands, except ratios)
Nine Months Ended August 31, 1997 1996 Net income $510,700 $451,479 Income tax expense 8,557 11,006 Income before income tax expense 519,257 462,485 Adjustment to earnings: Dividends received less equity in income from affiliates 8,236 (9,719) Earnings as adjusted 527,493 452,766 Fixed Charges: Interest expense, net 43,510 49,889 Interest portion of rental expense (1) 1,761 1,626 Capitalized interest 12,305 18,679 Total fixed charges 57,576 70,194 Fixed charges not affecting earnings: Capitalized interest 12,305 18,679 Earnings before fixed charges $572,764 $504,281 Ratio of earnings to fixed charges 9.9 x 7.2 x
________________________ (1) Represents one-third of rental expense, which Company management believes to be representative of the interest portion of rental expense. EX-27 4 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 1,000 9-MOS NOV-30-1997 AUG-31-1997 215,438 10,313 49,753 0 54,394 405,032 4,952,547 820,875 5,241,765 744,604 926,487 2,972 0 0 3,492,268 5,241,765 0 1,923,117 0 1,022,742 0 0 55,815 519,257 8,557 510,700 0 0 0 510,700 1.71 1.71
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