Net cruise revenues increased $737 million, or 16.7%, to $5.1 billion in 2008 from $4.4 billion in 2007. The 9.4% increase in ALBDs between 2008 and 2007 accounted for $413 million of the increase, and the remaining $324 million was from increased net revenue yields, which increased 6.7% in 2008 compared to 2007 (gross revenue yields also increased by 6.9%). Net revenue yields increased in 2008 primarily due to higher ticket prices, the weaker U.S. dollar relative to the euro and sterling and, to a lesser degree, the 0.6% point increase in our occupancy. Net revenue yields as measured on a constant dollar basis increased 3.6% in 2008 compared to 2007, which was comprised of a 5.1% increase in passenger ticket yields, partially offset by a 1.3% decrease in onboard and other yields, which was largely the result of the significant increase in our European brands’ capacity as they typically have lower onboard and other revenue yields. Gross cruise revenues increased $936 million, or 16.9%, to $6.5 billion in 2008 from $5.5 billion in 2007 for largely the same reasons as discussed below for net cruise revenues.
Net cruise costs increased $677 million, or 22.3%, to $3.7 billion in 2008 from $3.0 billion in 2007. The 9.4% increase in ALBDs between 2008 and 2007 accounted for $285 million of the increase. The balance of $392 million was from increased net cruise costs per ALBD, which increased 11.8% in 2008 compared to 2007 (gross cruise costs per ALBD increased 10.6%). This 11.8% increase was primarily due to a $197 per metric ton increase in fuel cost to $514 per metric ton in 2008, which resulted in an increase in fuel expense of $313 million compared to 2007, a weaker U.S. dollar relative to the euro and sterling and a $31 million increase in dry-dock expenses in 2008 compared to 2007. Net cruise costs per ALBD as measured on a constant dollar basis increased 8.5% in 2008 compared to 2007. On a constant dollar basis, net cruise costs per ALBD, excluding fuel and dry-dock costs decreased 0.7%, compared to 2007 due largely to lower selling and administrative expenses, achieved primarily through economies of scale and cost control measures. Gross cruise costs increased $876 million, or 21.0%, in 2008 to $5.0 billion from $4.2 billion in 2007 for largely the same reasons as discussed below for net cruise costs.
Our business provided $1.8 billion of net cash from operations during the six months ended May 31, 2008, a decrease of $277 million, or 13.2%, compared to fiscal 2007. At May 31, 2008 and 2007, we had working capital deficits of $4.9 billion and $5.6 billion, respectively. Our May 31, 2008 deficit included $3.6 billion of customer deposits, which represent the passenger revenues we collect in advance of sailing and, accordingly, is substantially all a deferred revenue item rather than an actual current cash liability. We use our long-term ship assets to realize a portion of this deferred revenue in addition to consuming current assets. In addition, our May 31, 2008 working capital deficit included $1.8 billion of current debt obligations, which included $230 million of convertible debt subject to a put option, which at our option, can be settled by the issuance of common stock, and thus not impact our liquidity, if necessary. After excluding these customer deposits and current debt obligations from our working capital deficit balance, our adjusted working capital is $456 million. We continue to generate substantial cash from operations and have an A-stable credit rating, considerable financial flexibility to refinance our current debt and thereby providing us with the ability to maintain such a substantial working capital deficit, as well as the substantial flexibility to meet our operating, investing and financing needs. As explained above, our business model allows us to operate with significant working capital deficits and, accordingly, we believe these working capital deficits will continue to exist in the future.
During the six months ended May 31, 2008, we borrowed $3.8 billion of long-term debt, primarily under our long-term revolving credit facility (“Facility”) and a ship financing facility, and we repaid $3.4 billion of long-term debt, which primarily included $2.6 billion under the Facility, $302 million of our 1.75% Notes, and $308 million upon maturity of our 4.4% and 6.15% fixed rate notes. Finally, we paid cash dividends of $630 million and purchased $84 million of Carnival Corporation common stock and Carnival plc ordinary shares in open market transactions during the six months ended May 31, 2008.
Commitments and Funding Sources
Our contractual cash obligations as of May 31, 2008 have changed compared to November 30, 2007, including new ship orders placed in December 2007, primarily as a result of our debt and ship delivery payments as noted above. In addition, $860 million of Carnival Corporation convertible debt that was currently due under put options at November 30, 2007 was not put to us and, accordingly, this debt is now classified as long-term at May 31, 2008. As noted above, there is still $230 million of convertible debt remaining due currently, which has a put option in October 2008 and, accordingly, is classified as a current liability at May 31, 2008, however we have the option to repay in cash, common stock or a combination thereof.
At May 31, 2008, we had liquidity of $5.3 billion, which consisted of $988 million of cash and cash equivalents, $500 million available for borrowing under our Facility, $1.5 billion under our short-term revolving credit facilities, and $2.3 billion under committed ship financing facilities. Substantially all of our Facility matures in 2012. In addition, in June 2008, we terminated $500 million of our $1.5 billion short-term revolving credit facilities, thus reducing our May 31, 2008 liquidity by such amount. Finally, in June 2007 we entered into an agreement to sell Cunard Line’s QE2 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 forecasts, we believe that our existing liquidity and cash flow from future operations will be sufficient to fund the majority of our expected capital projects (including shipbuilding commitments), debt service requirements, convertible debt redemptions, dividend payments, working capital and other firm commitments over the next several years. In addition, we believe that we will be able to secure the necessary financings from banks or through the offering of debt and/or equity securities in the public or private markets or take other actions to fund our remaining future cash requirements. However, our 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.”
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
During the six months ended May 31, 2008, we entered into foreign currency forwards and options that are designated as cash flow hedges of the remaining Carnival Dream shipyard euro payments to lock-in a blended exchange rate of at most $1.584 to the euro and, accordingly, we will have a maximum payment of $723 million for these remaining shipyard payments. However, as a result of the currency options, which are for 50% of these remaining payments, we will benefit if the dollar exchange rate strengthens below $1.584 to the euro.
In addition, we had fair value forward purchase hedges for $532 million that were settled in March 2008 at the time we took delivery of Ventura.
At May 31, 2008, 50%, 38% and 12% (53%, 37% and 10% at November 30, 2007) of our debt was U.S. dollar, euro and sterling-denominated, respectively, including the effect of foreign currency swaps.
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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.
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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 May 31, 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 May 31, 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
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Item 1. | Legal Proceedings. |
The Attorney General concluded its review of the implementation of fuel supplement programs by certain of our cruise lines, pursuant to an agreement under which we made a voluntary refund of the fuel supplement for applicable U.S. bookings. The Attorney General is continuing its investigation to determine whether there is or has been a violation of Florida antitrust laws in connection with the setting by us and other unaffiliated cruise lines of our respective fuel supplements. We are providing our full cooperation to the Attorney General’s office.
As previously reported in our joint Quarter Report on Form 10-Q for the first quarter 2008, in February and March 2008, five class action lawsuits were filed in the U.S. District Court for the Southern District of Florida 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 alleged violations of federal antitrust laws and state deceptive and unfair trade practices in connection with the implementation of the fuel supplement. All of these matters were dismissed on April 14, 2008.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
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. During the 2008 second quarter, there were no repurchases of Carnival Corporation common stock or Carnival plc ordinary shares pursuant to this program. The Carnival plc share repurchase authorization requires annual shareholder approval and is subject to a maximum of 21.3 million ordinary shares until the earlier of the conclusion of the Carnival plc 2009 annual general meeting, or October 21, 2009. At June, 27, 2008, the remaining availability pursuant to our share repurchase program was $788 million.
During the three months ended May 31, 2008, $15,000 of our zero-coupon convertible notes were converted at their accreted value into 248 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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Item 4. | Submission of Matters to a Vote of Security Holders. |
The annual meetings of shareholders of Carnival Corporation & plc was held on April 22, 2008 (the “Annual Meetings”). On all matters which came before the Annual Meetings, holders of Carnival Corporation common stock and Carnival plc ordinary shares were entitled to one vote for each share held. Proxies for 684,436,906 shares entitled to vote were received in connection with the Annual Meetings.
The matters which were submitted to Carnival Corporation and Carnival plc’s shareholders for approval at the Annual Meetings and the tabulation of the votes with respect to each such matter were as follows:
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Director Elections
| | | | | | | | | | |
Resolution/Proposal | | For | | Against/Withheld (a) | | Abstained | |
| |
| |
|
| |
|
To re-elect Micky Arison as a director of Carnival Corporation and Carnival plc. | | | 651,004,747 | | 32,577,811 | | | 854,348 | | |
| | | | | | | | | | |
To re-elect Ambassador Richard G. Capen, Jr. as a director of Carnival Corporation and Carnival plc. | | | 648,554,122 | | 32,097,051 | | | 3,785,732 | | |
| | | | | | | | | | |
To re-elect Robert H. Dickinson as a director of Carnival Corporation and Carnival plc. | | | 668,798,379 | | 13,921,907 | | | 1,716,619 | | |
| | | | | | | | | | |
To re-elect Arnold W. Donald as a director of Carnival Corporation and Carnival plc. | | | 651,634,860 | | 28,524,709 | | | 4,277,337 | | |
| | | | | | | | | | |
To re-elect Pier Luigi Foschi as a director of Carnival Corporation and Carnival plc. | | | 668,886,056 | | 12,231,436 | | | 3,319,414 | | |
| | | | | | | | | | |
To re-elect Howard S. Frank as a director of Carnival Corporation and Carnival plc. | | | 671,029,361 | | 11,687,288 | | | 1,720,257 | | |
| | | | | | | | | | |
To re-elect Richard J. Glasier as a director of Carnival Corporation and Carnival plc. | | | 651,916,827 | | 28,242,378 | | | 4,277,701 | | |
| | | | | | | | | | |
To re-elect Modesto A. Maidique as a director of Carnival Corporation and Carnival plc. | | | 648,785,238 | | 31,866,325 | | | 3,785,343 | | |
| | | | | | | | | | |
To re-elect Sir John Parker as a director of Carnival Corporation and Carnival plc. | | | 675,652,418 | | 8,690,789 | | | 93,699 | | |
| | | | | | | | | | |
To re-elect Peter G. Ratcliffe as a director of Carnival Corporation and Carnival plc. | | | 668,314,333 | | 14,123,019 | | | 1,999,553 | | |
| | | | | | | | | | |
To re-elect Stuart Subotnick as a director of Carnival Corporation and Carnival plc. | | | 650,807,392 | | 29,842,268 | | | 3,787,245 | | |
| | | | | | | | | | |
To re-elect Laura Weil as a director of Carnival Corporation and Carnival plc. | | | 665,578,236 | | 17,924,019 | | | 934,651 | | |
| | | | | | | | | | |
To re-elect Uzi Zucker as a director of Carnival Corporation and Carnival plc. | | | 660,698,827 | | 19,915,466 | | | 3,822,613 | | |
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(a) | A vote “withheld” by a shareholder of Carnival Corporation is deemed to be a vote against the resolutions re-electing directors. |
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Other Matters
| | | | | | | | | | | | | |
Resolution/Proposal | | For | | Against | | Abstained/
Withheld (b) | | Broker
Non-Votes | |
| |
| |
| |
| |
| |
|
To re-appoint the UK firm of PricewaterhouseCoopers LLP as Carnival plc’s independent auditors and to ratify the selection of the U.S. firm of PricewaterhouseCoopers LLP as Carnival Corporation’s independent registered certified public accounting firm. | | | 679,811,908 | | | 1,412,832 | | | 3,212,166 | | | 0 | |
| | | | | | | | | | | | | |
To authorize the Audit Committee of the Board of Directors of Carnival plc to agree the remuneration of the independent auditors of Carnival plc. | | | 680,173,146 | | | 1,029,351 | | | 3,234,409 | | | 0 | |
| | | | | | | | | | | | | |
To receive the UK accounts and the reports of the directors and auditors of Carnival plc for the financial year ended November 30, 2007. | | | 668,292,284 | | | 10,334,847 | | | 5,809,774 | | | 0 | |
| | | | | | | | | | | | | |
To approve the Directors’ Remuneration Report of Carnival plc as set out in the annual report for the financial year ended November 30, 2007. | | | 652,546,457 | | | 26,433,743 | | | 5,456,705 | | | 0 | |
| | | | | | | | | | | | | |
To approve limits on the authority to allot Carnival plc shares. | | | 679,783,352 | | | 914,049 | | | 3,739,505 | | | 0 | |
| | | | | | | | | | | | | |
To approve the disapplication of pre-emption rights for Carnival plc shares. | | | 676,063,226 | | | 4,562,071 | | | 3,811,609 | | | 0 | |
| | | | | | | | | | | | | |
To approve a general authority for Carnival plc to buy back Carnival plc ordinary shares in the open market. | | | 679,280,167 | | | 555,718 | | | 4,601,020 | | | 0 | |
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(b) | An “abstained” vote by a shareholder of Carnival Corporation means “withheld” for this purpose, that is a vote neither for nor against the resolution. |
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Item 6. Exhibits.
INDEX TO EXHIBITS
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Item 6. Exhibits.
INDEX TO EXHIBITS
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* | Indicates a management contract or compensation plan or arrangement. |
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** | 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: June 27, 2008 | | Date: June 27, 2008 |
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