Gross cruise revenues increased $464 million, or 17.3%, to $3.1 billion in 2008 from $2.7 billion in 2007 for largely the same reasons as discussed below for net cruise revenues. Net cruise revenues increased $363 million, or 17.3%, to $2.5 billion in 2008 from $2.1 billion in 2007. The 10.5% increase in ALBDs between 2008 and 2007 accounted for $219 million of the increase, and the remaining $144 million was from increased net revenue yields, which increased 6.2% in 2008 compared to 2007 (gross revenue yields also increased by 6.2%). Net revenue yields increased in 2008 primarily due to higher ticket prices principally achieved in our North American and Continental European brands and the weaker U.S. dollar relative to the euro and sterling. Net revenue yields as measured on a constant dollar basis increased 3.4% in 2008 compared to 2007, which was comprised of a 4.8% increase in passenger ticket yields, partially offset by a 0.7% decrease in onboard and other yields.
Onboard and other revenues included concessionaire revenues of $186 million in 2008 and $166 million in 2007. Onboard and other revenues increased in 2008 compared to 2007, primarily because of the 10.5% increase in ALBDs.
Gross cruise costs increased $463 million, or 22.6%, in 2008 to $2.5 billion from $2.1 billion in 2007 for largely the same reasons as discussed below for net cruise costs. Net cruise costs increased $362 million, or 24.7%, to $1.8 billion in 2008 from $1.5 billion in 2007. The 10.5% increase in ALBDs between 2008 and 2007 accounted for $154 million of the increase. The balance of $208 million was from increased net cruise costs per ALBD, which increased 12.9% in 2008 compared to 2007 (gross cruise costs per ALBD increased 11.0%). This 12.9% increase was primarily due to a $198 per metric ton increase in fuel cost to $499 per metric ton in 2008, which resulted in an increase in fuel expense of $156 million compared to 2007, a weaker U.S. dollar relative to the euro and sterling and a $21 million increase in dry-dock costs, which was caused by a greater number of ships being dry-docked in 2008 compared to 2007. Net cruise costs per ALBD as measured on a constant dollar basis increased 9.8% in 2008 compared to 2007. On a constant dollar basis, net cruise costs per ALBD, excluding fuel and dry-dock costs were up 0.1%, compared to 2007.
Depreciation and amortization expense increased $41 million, or 15.8%, to $301 million in 2008 from $260 million in 2007 largely due to the 10.5% increase in ALBDs through the addition of new ships, the weaker U.S. dollar compared to the euro and sterling and additional ship improvement expenditures.
Net interest expense, excluding capitalized interest, increased $16 million to $101 million in 2008 from $85 million in 2007. This increase was primarily due to a $22 million increase in interest expense from a higher level of average borrowings, partially offset by a $6 million decrease from lower average interest rates on average borrowings. Capitalized interest increased $3 million during 2008 compared to 2007 primarily due to higher average levels of investment in ship construction projects.
Income tax benefit increased $6 million to $10 million in 2008 from $4 million in 2007 primarily because of the reversal in 2008 of previously recorded deferred tax valuation allowances, which were no longer required. During both the first quarter of 2008 and 2007, we have recorded tax benefits generated by the seasonal losses of our Alaska tour operation.
Liquidity and Capital Resources
Sources and Uses of Cash
Our business provided $373 million of net cash from operations during the three months ended February 29, 2008, a decrease of $224 million, or 37.5%, compared to fiscal 2007. We continue to generate substantial cash from operations and remain in a strong financial position, thus providing us with substantial financial flexibility in meeting operating, investing and financing needs.
During the three months ended February 29, 2008, our net expenditures for capital projects were $258 million, of which $141 million was spent for our ongoing new shipbuilding program. In addition to our new shipbuilding program, we had capital expenditures of $88 million for ship improvements and refurbishments and $29 million for Alaska tour assets, cruise port facility developments, information technology and other assets.
During the three months ended February 29, 2008, we borrowed $1.7 billion of long-term debt under our long-term revolving credit facilities (“Facility”), and we repaid $1.4 billion of long-term debt, which primarily included $1.2 billion also under this Facility and $108 million upon maturity of our 4.4% fixed rate notes. We also received net short-term borrowings of $70 million under our commercial paper program and short-term bank loans during the three months ended February 29, 2008. Finally, we paid cash dividends of $316 million and purchased $84 million of Carnival Corporation common stock and Carnival plc ordinary shares in open market transactions during the three months ended February 29, 2008.
Future Commitments and Funding Sources
Our contractual cash obligations as of February 29, 2008 have changed compared to November 30, 2007, including new ship orders placed in December 2007, primarily as a result of debt changes and new ship progress payments as noted above.
At February 29, 2008, we had liquidity of $4.9 billion, which consisted of $966 million of cash and cash equivalents, $607 million available for borrowing under our Facility, $1.5 billion under our short-term revolving credit facilities, and $1.8 billion under committed ship financing facilities. In March 2008, we entered into ship and other financing commitments, which increased our liquidity by $785 million. Substantially all of our Facility matures in 2012. In addition, in June 2007 we entered into an agreement to sell Cunard Line’sQE2 for delivery to the buyer in November 2008 for $100 million. A key to our access to liquidity is the maintenance of our strong credit ratings.
Based primarily on our historical results, current financial condition and future forecasts, we believe that our existing liquidity and cash flow from future operations will be sufficient to fund most of our expected capital projects, debt service requirements, convertible debt redemptions, dividend payments, working capital and other firm commitments over the next several years. In addition, based on our future forecasted operating results and cash flows for fiscal 2008, we expect to be in compliance with our debt covenants during the remainder of fiscal 2008. However, our forecasted cash flow from future operations, as well as our credit ratings, may be adversely affected by various factors including, but not limited to, those factors noted under “Cautionary Note Concerning Factors That May Affect Future Results.” To the extent that we are required, or choose, to fund future cash requirements, including our future shipbuilding commitments, from sources other than as discussed above, we believe that we will be able to secure such financing from banks or through the offering of debt and/or equity securities in the public or private markets. However, we cannot be certain that our future operating cash flow will be sufficient to fund future obligations or that we will be able to obtain additional financing, if necessary.
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Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interests, certain derivative instruments and variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on our financial statements.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit, is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer have evaluated our disclosure controls and procedures and have concluded, as of February 29, 2008, that they were effective as described above.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended February 29, 2008 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
| |
| Inherent Limitations of Disclosure Controls and Procedures and Internal Control Over Financial Reporting |
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Attorney General is conducting a review of the implementation of fuel supplement programs by certain cruise operators, including some of our cruise lines. The Attorney General is also conducting an investigation to determine whether there is, or has been, a violation of Florida or federal antitrust laws in connection with the setting by us and other unaffiliated cruise lines of certain of their respective fuel supplements. We are providing our full cooperation to the Attorney General’s office.
In February and March 2008, five class action lawsuits were filed in the U.S. District Court for the Southern District of Florida by each of Ablelove, Levin, LeBrun, McManus and Wright against Carnival Corporation, other unaffiliated cruise lines and a trade association, on behalf of individuals affected by the implementation of a fuel supplement. The plaintiffs allege violations of federal antitrust laws and state deceptive and unfair trade practices in connection with the implementation of the fuel supplement. The plaintiffs have moved to consolidate all of the actions. We intend to vigorously defend these matters.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the quarter ended February 29, 2008, purchases by Carnival Corporation of Carnival Corporation’s equity securities that are registered by it pursuant to Section 12 of the Securities Exchange Act of 1934 were as follows:
| | | | | | | | | | | | | | | | | |
Period | | Total Number of
Shares
Purchased in
First Quarter | | Average
Price Paid
per Share | | Maximum Dollar Value
of Shares That May Yet
Be Purchased Under the
Plans or Programs(a) | |
| |
| |
| |
| |
| | | | | | (in millions) | |
|
December 1, 2007 through December
31, 2007 | | | | 561,600 | | | | $ | 44.63 | | | | $ | 788 | | | |
January 1, 2008 through January 31, 2008 | | | | | | | | | | | | | $ | 788 | | | |
February 1, 2008 through February 29, 2008 | | | | | | | | | | | | | $ | 788 | | | |
| | |
|
| | | | | | | | | | | | | |
Total | | | | 561,600 | | | | $ | 44.63 | | | | | | | | |
| | |
|
| | | |
|
| | | | | | | | |
| |
(a) | In June 2006, the Boards of Directors authorized the repurchase of up to an aggregate of $1 billion of Carnival Corporation common stock and/or Carnival plc ordinary shares subject to certain restrictions. On September 19, 2007, the Boards of Directors increased the remaining $578 million authorization back to $1 billion. The repurchase program does not have an expiration date and may be discontinued by our Boards of Directors at any time. All shares in the above table were repurchased pursuant to this program. The Carnival plc share repurchase authorization requires annual shareholder approval and is subject to a maximum of 10.7 million ordinary shares until the earlier of the conclusion of the next Carnival plc annual general meeting, which is scheduled for April 22, 2008, or October 15, 2008. Through March 27, 2008, 8.6 million Carnival plc shares have been repurchased. During the 2008 first quarter we purchased 1.3 million ordinary shares of Carnival plc, which are not registered under Section 12 of the Securities Exchange Act of 1934, at an average price of $43.77. Carnival plc ordinary shares are listed on the London Stock Exchange. |
During the three months ended February 29, 2008, $11,000 and $4,000 of our 2% Notes and zero-coupon notes were converted at their accreted value into 280 shares and 66 shares of Carnival Corporation common stock, respectively, all of which were issued from newly issued common stock and were exempt from registration under Section 3(a)(9) of the Securities Act of 1933.
Each share of Carnival Corporation common stock issued is paired with a trust share of beneficial interest in the P&O Princess Special Voting Trust, which holds a Special Voting Share issued by Carnival plc in connection with the DLC transaction.
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INDEX TO EXHIBITS
| | | | | | | | | | |
| | | | Incorporated by Reference | | |
| | | |
| | |
Exhibit
Number | | Exhibit Description | | Form | | Exhibit | | Filing
Date | | Filed
Herewith |
| |
| |
| |
| |
| |
|
| | | | | | | | | | |
Articles of incorporation and by-laws | | | | | | |
| | | | | | | | | | |
3.1 | | Third Amended and Restated Articles of Incorporation of Carnival Corporation. | | 8-K | | 3.1 | | 4/17/03 | | |
| | | | | | | | | | |
3.2 | | Second Amended and Restated By-laws of Carnival Corporation. | | 8-K | | 3.1 | | 10/19/07 | | |
| | | | | | | | | | |
3.3 | | Articles of Association of Carnival plc. | | 8-K | | 3.3 | | 4/17/03 | | |
| | | | | | | | | | |
3.4 | | Memorandum of Association of Carnival plc. | | 8-K | | 3.4 | | 4/17/03 | | |
| | | | | | | | | | |
Material contracts | | | | | | | | |
| | | | | | | | | | |
10.1* | | Carnival Corporation & plc Management Incentive Plan. | | | | | | | | X |
| | | | | | | | | | |
10.2* | | Amended and Restated Executive Long-term Compensation Agreement, dated January 15, 2008, between Carnival Corporation and Micky Arison. | | | | | | | | |
| | | | | | | | | | |
10.3* | | Amended and Restated Executive Long-term Compensation Agreement, dated January 15, 2008, between Carnival Corporation and Howard S. Frank. | | | | | | | | X |
| | | | | | | | | | |
10.4* | | Amendment No. 2 of the Employment Agreement, entered into on January 15, 2008 between Peter Ratcliffe and P&O Princess Cruises International Ltd. | | | | | | | | X |
| | | | | | | | | | |
Statement re computation of ratios | | | | | | | | |
| | | | | | | | | | |
12 | | Ratio of Earnings to Fixed Charges. | | | | | | | | X |
| | | | | | | | | | |
Rule 13a–14(a)/15d-14(a) Certifications | | | | | | | | |
| | | | | | | | | | |
31.1 | | Certification of Chief Executive Officer of Carnival Corporation pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | X |
| | | | | | | | | | |
31.2 | | Certification of Chief Operating Officer of Carnival Corporation pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | X |
17
18
| |
* | Indicates a management contract or compensation plan or arrangement. |
| |
** | These items are furnished and not filed. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
CARNIVAL CORPORATION | CARNIVAL PLC |
| |
By: | /s/ Micky Arison | By: | /s/ Micky Arison |
|
| |
|
Micky Arison | Micky Arison |
Chairman of the Board of Directors | Chairman of the Board of Directors |
and Chief Executive Officer | and Chief Executive Officer |
| |
By: | /s/ Howard S. Frank | By: | /s/ Howard S. Frank |
|
| |
|
Howard S. Frank | Howard S. Frank |
Vice Chairman of the Board of | Vice Chairman of the Board of |
Directors and Chief Operating Officer | Directors and Chief Operating Officer |
| |
| |
By: | /s/ David Bernstein | By: | /s/ David Bernstein |
|
| |
|
David Bernstein | David Bernstein |
Senior Vice President and | Senior Vice President and |
Chief Financial Officer | Chief Financial Officer |
| |
Date: March 28, 2008 | Date: March 28, 2008 |
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