[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
<TABLE>
<CAPTION>
Page
<S> <C>
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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CARNIVAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
August 31, November 30,
ASSETS 1997 1996
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended August 31, Ended August 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended August 31,
1997 1996
<S> <C> <C>
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 $
</TABLE>
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:
<TABLE>
<Caption
August 31, November 30,
1997 1996
(in thousands)
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<Caption
August 31, November 30,
1997 1996
(in thousands)
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE PAID-IN RETAINED
CLASS A CLASS B CAPITAL EARNINGS OTHER TOTAL
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
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.
<PAGE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Capital Expenditures
The following table provides a description of ships currently under contract
for construction (in millions of dollars):
<TABLE>
<CAPTION>
Expected Number Estimated Remaining
Service Contract of Lower Total Cost to Be
Vessel Date Denomination Berths Cost Paid
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Nine Months Ended August 31, Three Months Ended August 31,
1997 1996 1997 1996
(in thousands, except selected statistical information)
<S> <C> <C> <C> <C>
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%
</TABLE>
The following table presents operations data expressed as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Three Months
Ended August 31, Ended August 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
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%
</TABLE>
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.<PAGE>
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
<TABLE>
<CAPTION>
<S> <C>
(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
<PAGE>
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No. in
Sequential
Numbering
System
<S> <C>
Exhibits
11 Statement Regarding Computation of Per Share Earnings
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 11
CARNIVAL CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
August 31, August 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
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
</TABLE>
*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.
<PAGE>
EXHIBIT 12
CARNIVAL CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
<TABLE>
<CAPTION>
Nine Months Ended August 31,
1997 1996
<S> <C> <C>
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
</TABLE>
________________________
(1) Represents one-third of rental expense, which Company management believes
to be representative of the interest portion of rental expense.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1997
<CASH> 215,438
<SECURITIES> 10,313
<RECEIVABLES> 49,753
<ALLOWANCES> 0
<INVENTORY> 54,394
<CURRENT-ASSETS> 405,032
<PP&E> 4,952,547
<DEPRECIATION> 820,875
<TOTAL-ASSETS> 5,241,765
<CURRENT-LIABILITIES> 744,604
<BONDS> 926,487
<COMMON> 2,972
0
0
<OTHER-SE> 3,492,268
<TOTAL-LIABILITY-AND-EQUITY> 5,241,765
<SALES> 0
<TOTAL-REVENUES> 1,923,117
<CGS> 0
<TOTAL-COSTS> 1,022,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,815
<INCOME-PRETAX> 519,257
<INCOME-TAX> 8,557
<INCOME-CONTINUING> 510,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 510,700
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
</TABLE>
