EXHIBIT 13
CARNIVAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
ASSETS NOVEMBER 30,
1997 1996
CURRENT ASSETS
Cash and cash equivalents $ 139,989 $ 111,629
Short-term investments 9,738 12,486
Accounts receivable 57,090 38,109
Consumable inventories, at average cost 54,970 53,281
Prepaid expenses and other 74,238 75,428
Total current assets 336,025 290,933
PROPERTY AND EQUIPMENT, net 4,327,413 4,099,038
OTHER ASSETS
Investments in and advances to affiliates 479,329 430,330
Goodwill, less accumulated amortization of
$62,256 and $55,274 212,607 219,589
Other assets 71,401 61,998
$5,426,775 $5,101,888
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 59,620 $ 66,369
Accounts payable 106,783 84,748
Accrued liabilities 154,253 126,511
Customer deposits 420,908 352,698
Dividends payable 44,578 32,416
Total current liabilities 786,142 662,742
LONG-TERM DEBT 1,015,294 1,277,529
CONVERTIBLE NOTES 39,103
DEFERRED INCOME AND OTHER LONG-TERM LIABILITIES 20,241 91,630
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY
Class A Common Stock; $.01 par value; one
vote per share; 399,500 shares authorized;
297,204 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;
zero and 54,957 shares issued and outstanding 550
Paid-in-capital 866,097 819,610
Retained earnings 2,731,213 2,207,781
Other 4,816 546
Total shareholders' equity 3,605,098 3,030,884
$5,426,775 $5,101,888
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
YEARS ENDED NOVEMBER 30,
1997 1996 1995
REVENUES $2,447,468 $2,212,572 $1,998,150
COSTS AND EXPENSES
Operating expenses 1,322,669 1,241,269 1,131,113
Selling and administrative 296,533 274,855 248,566
Depreciation and amortization 167,287 144,987 128,433
1,786,489 1,661,111 1,508,112
OPERATING INCOME BEFORE INCOME FROM
AFFILIATED OPERATIONS 660,979 551,461 490,038
INCOME FROM AFFILIATED OPERATIONS, NET 53,091 45,967
OPERATING INCOME 714,070 597,428 490,038
NONOPERATING INCOME (EXPENSE)
Interest income 8,675 18,597 14,403
Interest expense, net of
capitalized interest (55,898) (64,092) (63,080)
Other income 5,436 23,414 19,104
Income tax expense (6,233) (9,045) (9,374)
(48,020) (31,126) (38,947)
NET INCOME $ 666,050 $ 566,302 $ 451,091
EARNINGS PER SHARE $2.23 $1.95 $1.59
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED NOVEMBER 30,
1997 1996 1995
OPERATING ACTIVITIES
Net income $666,050 $566,302 $451,091
Adjustments to reconcile net income to
net cash provided from operating activities:
Depreciation and amortization 167,287 144,987 128,433
Income from affiliates in excess of
dividends received (46,569) (43,224)
Other 2,540 19,639 7,681
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables (21,229) (4,432) (12,655)
Consumable inventories (1,689) (4,461) (3,698)
Prepaid expenses and other 903 (4,919) (20,849)
Increase (Decrease) in:
Accounts payable 22,035 (5,489) 3,487
Accrued liabilities 20,042 13,028 (1,385)
Customer deposits 68,210 60,092 35,101
Net cash provided from operating
activities 877,580 741,523 587,206
INVESTING ACTIVITIES
Decrease in short-term investments, net 2,748 37,710 19,720
Additions to property and equipment, net(497,657) (901,905) (485,097)
Proceeds from sale of fixed assets 17,041 94,291 1,196
Proceeds from litigation settlements
applied to cost of ships 43,050 19,426
Purchase of equity interests in
affiliates (38,378) (163,112)
Other reductions in (additions to)
investments in and advances to affiliates39,540 (23,903) 11,783
Decrease (increase) in other assets 21,805 94,644 (95,108)
Net cash used for investing activities (454,901) (819,225) (528,080)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 5,162 3,728 49,032
Principal payments of long-term debt (424,391) (735,246) (406,600)
Dividends paid (130,456) (103,877) (85,098)
Proceeds from long-term debt 155,366 971,361 382,800
Net cash (used for) provided from
financing activities (394,319) 135,966 (59,866)
Net increase (decrease) in cash and
cash equivalents 28,360 58,264 (740)
Cash and cash equivalents at beginning
of year 111,629 53,365 54,105
Cash and cash equivalents at end of year $139,989 $111,629 $ 53,365
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
Carnival Corporation and subsidiaries (the "Company") operate three
separate cruise lines under the names Carnival Cruise Lines, Holland
America Line and Windstar Cruises and a tour business, Holland America
Westours. Carnival Cruise Lines operates eleven cruise ships primarily
cruising in the Caribbean, Mexican Riviera and Alaska. Holland America
Line operates eight cruise ships cruising primarily in Alaska, the
Caribbean and the Mediterranean and Windstar Cruises operates three luxury,
sail-powered vessels which call on more exotic locations inaccessible to
larger ships. Holland America Westours markets sight-seeing tours and
cruise/tour packages to Alaska. Holland America Westours also operates 14
hotels in Alaska and the Canadian Yukon, two luxury day boats offering
tours to the glaciers of Alaska and the Yukon River, over 300 motor coaches
used for sight-seeing and charters in the states of Washington and Alaska
and in the Canadian Rockies and 13 private domed rail cars which are run on
the Alaska Railroad between Anchorage and Fairbanks. The Company markets
its services primarily in North America.
The Company has an approximate 50% direct equity interest in two
cruise operations, Seabourn Cruise Line Limited ("Seabourn") and Il Ponte
S.p.A., the parent company of Costa Crociere, S.p.A. ("Costa"). In
addition, the Company has a 28% interest in Airtours plc ("Airtours"), a
large publicly traded air-inclusive integrated tour company headquartered
in the United Kingdom, and a 23% interest in a casino and hotel management
company, CHC International, Inc. ("CHC"). Seabourn operates three luxury
cruise vessels to worldwide destinations. Costa operates seven cruise
ships in the Mediterranean, Northern Europe, the Caribbean and South
America and its cruises are marketed primarily to Europeans. Airtours
provides holidays for approximately five million people per year primarily
from the United Kingdom and Scandinavia and operates 34 aircraft, three
cruise ships and approximately 30 hotels. CHC manages casinos in the
United States and Canada.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Preparation of Financial Statements
The accompanying financial statements present the consolidated balance
sheets, statements of operations and cash flows of the Company.
Preparation of financial statements in accordance with generally accepted
accounting principles requires the use of management estimates. Actual
results could differ from these estimates. All material intercompany
transactions and accounts have been eliminated in consolidation.
Cash and Cash Equivalents and Short-term Investments
Cash and cash equivalents includes investments with original
maturities of three months or less and are stated at cost which
approximates market. Included in cash and cash equivalents at November 30,
1997 and 1996 is $105 million of investments which are primarily comprised
of commercial paper and $73 million of certificates of deposit,
respectively.
Short-term investments are primarily comprised of marketable debt
securities, including U.S. Government and corporate debt securities. These
investments are categorized as available for sale and, in accordance with
SFAS 115, are stated at their fair value. Unrealized holding gains and
losses are included as a component of shareholders' equity until realized.
Property and Equipment
Property and equipment is stated at cost. Depreciation and
amortization is computed using the straight-line method over the following
estimated useful lives:
YEARS
Vessels 25-30
Buildings 20-40
Equipment 2-20
Leasehold improvements shorter of the term
of lease or related
asset life
The Company capitalizes interest on vessels and other capital projects
during the construction period. Interest is capitalized using rates
equivalent to the average borrowing rate of the Company's long-term debt.
Costs associated with drydocking are capitalized and charged to
expense over the lesser of 12 months or the period to the next scheduled
drydocking.
The Company reviews long-lived assets, identifiable intangibles,
goodwill and reserves for impairment whenever events or changes in
circumstances indicate the carrying amount of the assets may not be fully
recoverable.
Investments in Affiliates
The Company accounts for such investments based on its ability to
exercise influence over financial and operating policies of the investee or
its relative ownership interest. The Company consolidates affiliates in
which it has control or a direct ownership interest of greater than 50%.
For affiliates where significant influence exists or where the level of
ownership is between 20% and 50%, the investment is accounted for using the
equity method. When the Company does not have significant influence, the
level of ownership interest is less than 20% or where the ability to
exercise control or significant influence is temporary, the cost method of
accounting is followed.
The Company's percentage share of the affiliated companies' net income
(loss), net of amortization of goodwill, as well as any related interest
income or royalty fee income from those affiliates is recorded as "Income
from Affiliated Operations" in the accompanying statements of operations.
The Company's investments in and advances to affiliates are reported as
"Investments in and Advances to Affiliates" in the accompanying balance
sheets. Also included in "Investments in and Advances to Affiliates" is
goodwill relating to affiliates totaling $266 million which is being
amortized over periods ranging from 30 to 40 years.
Goodwill
Goodwill of $275 million resulting from the acquisition of HAL
Antillen, N.V. ("HAL"), the parent company of Holland America Line,
Windstar Cruises and Holland America Westours, is being amortized using the
straight-line method over 40 years.
Revenue Recognition
Customer cruise deposits, which represent unearned revenue, are
included in the balance sheet when received and are recognized as cruise
revenue upon completion of voyages with durations of ten days or less and
on a pro rata basis, computed using the number of days completed during the
reporting period, for voyages in excess of ten days. Revenues from tour
and related services are recognized at the time the service is performed.
Advertising Costs
The Company capitalizes and amortizes direct-response advertising and
expenses other advertising costs as incurred except for costs which result
in tangible assets, such as brochures, which are treated as prepaid
supplies and charged to operations as consumed. Advertising expense
totaled $112 million in 1997, $109 million in 1996 and $98 million in 1995.
Financial Instruments
The Company's financial instruments include forward foreign currency
contracts and interest rate swap transactions held for purposes other than
trading. These contracts are entered into to hedge the impact of foreign
currency and interest rate fluctuations. Changes in the market value and
any discounts or premiums on forward foreign currency contracts which hedge
exposures of firm commitments related to the construction of cruise ships
are recorded when the related foreign currency payments are made with any
resulting gain or loss included in the cost of the vessel. Changes in the
market value and any discounts or premiums on forward foreign currency
contracts which hedge exposures related to certain of the Company's
investments in affiliates are recognized currently as an increase or
decrease directly to shareholders' equity. Changes in market value of
forward foreign currency agreements entered into to hedge estimated foreign
currency transactions are recognized into income currently. Discounts and
premiums related to forward agreements entered into to hedge estimated
foreign currency transactions are amortized to income over the life of the
agreement. Gains and losses on interest rate swap transactions designated
as hedges are recorded as reductions or increases in interest expense over
the life of the swap agreement.
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 the vote or value 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 July 15, 1997,
the date upon which all of the Class B Common Stock of the Company (the
"Class B Common Stock") was converted to Class A Common Stock (the
"Conversion Date"), all of the outstanding shares of Class B Common Stock
of the Company, which represented more than 50% of the total combined
voting power of all classes of stock, was owned by The Micky Arison 1994
"B" Trust (the "B Trust"), which is a "United States Person", and thus, the
Company met the definition of a CFC. Accordingly, the Company believes
that it met the CFC Test for its entire 1997 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.
Earnings Per Share
Earnings per share computations are based on the weighted average
number of shares of Class A and B Common Stock and common equivalent shares
(related to stock options) outstanding during each of the years. Total
shares used in the computation were 298.2 million, 290.2 million and 284.2
million for fiscal 1997, 1996 and 1995, respectively.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
November 30,
1997 1996
(in thousands)
Vessels $4,536,382 $4,269,403
Vessels under construction 182,929 163,178
4,719,311 4,432,581
Land, buildings and improvements 194,013 170,466
Transportation and other equipment 268,520 204,776
Total property and equipment 5,181,844 4,807,823
Less-accumulated depreciation and amortization (854,431) (708,785)
$4,327,413 $4,099,038
Interest costs associated with the construction of vessels and
buildings are capitalized during the construction period and amounted to
$16.8 million in 1997, $25.8 million in 1996 and $18.8 million in 1995.
NOTE 4 - INVESTMENTS IN AND ADVANCES TO AFFILIATES
In June 1997, the Company and Airtours completed a joint offer to
acquire the equity securities of Costa, an Italian cruise company. 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. As of November 30, 1997, Il Ponte owned 98% of the ordinary
share capital, 93% of the savings shares and 47% of the savings share
warrants of Costa. The cost of acquiring the Company's portion of Il Ponte
and Costa was approximately $133 million, of which approximately $95
million was paid by Il Ponte and the balance was paid by the Company. The
$95 million which was paid by Il Ponte was funded by borrowings which the
Company guaranteed. In January 1998, Il Ponte completed a tender offer for
the remaining shares of Costa and currently owns approximately 100% of the
ordinary share capital, savings shares and savings share warrants of Costa.
The Company's portion of the cost of the tender for the remaining shares
was approximately $8 million and was funded by Il Ponte increasing the
borrowing discussed above to approximately $103 million. The Company is
recording its equity in Il Ponte's results of operations on a two month lag
basis.
In April 1996, the Company acquired its 28% interest in Airtours for
approximately $307 million. Approximately $163 million was paid in cash
and the balance in 5,301,186 shares of the Company's Class A Common Stock.
As of November 30, 1997, the market value of the Company's investment in
Airtours, based on the closing price of Airtours' stock on the London Stock
Exchange, was approximately $830 million as compared with the book value of
the Company's investment in Airtours of $370 million. The Company is
recording its equity in Airtours' results of operations on a two month lag
basis.
The Company owns a 23% interest in CHC. In addition, the Company
holds $16 million of 6% notes receivable (the "TCC Notes") from the sale of
a 25% interest in CHC to other shareholders of CHC (the "TCC Principals").
One of the TCC Principals is a member of the Company's board of directors.
The TCC Notes contain a put option which the TCC Principals can exercise,
requiring the Company to repurchase 25% of CHC in exchange for the full
principal and interest due under the TCC Notes. If not exercised, the
option expires in November 1998. In October 1997, CHC 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. As of November 30,
1997, the carrying value of the Company's CHC investment, including the TCC
Notes, is approximately $24 million and is included in "Investments in and
advances to affiliates" in the accompanying balance sheets.
CHC pays a royalty fee to the Company of 1% of CHC's gross revenues,
as adjusted, not to be less than $100,000 per year, for the use of the
"Carnival" name. Such fees amounted to approximately $.5 million, $.4
million and $.3 million in fiscal years ended November 30, 1997, 1996 and
1995, respectively of which approximately $.9 million and $.5 million was
receivable as of November 30, 1997 and 1996, respectively.
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 recorded 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. The remaining deferred gain of $55.2 million
which resulted from the sale of the Tropicale to the joint venture in 1996,
was reclassified as a reduction of the Company's cost basis of the
Tropicale upon its repurchase from the joint venture.
It is not practicable to estimate the fair value of Il Ponte as Il
Ponte is not a publicly traded entity and its subsidiary, Costa Crociere
S.p.A., although publicly traded on the Milan Exchange, has had very light
trading volume since the acquisition of the majority of Costa's shares by
Carnival and Airtours.
Financial information for affiliated companies accounted for by the
equity method is as follows (in thousands):
Balance Sheet Data: As of End of Fiscal Year
1997 1996
Current assets $1,297,311 $ 998,172
Noncurrent assets $1,792,080 $ 898,239
Current liabilities $1,359,822 $1,013,805
Noncurrent liabilities $1,233,207 $ 533,672
Minority interest $ 17,766 $ 108
Shareholders' equity $ 478,596 $ 348,826
Income Statement Data: For the Fiscal Year Ended
1997 1996
Net sales $3,965,223 $2,877,892
Gross margin $ 702,162 $ 444,009
Net income $ 174,354 $ 106,605
NOTE 5 - LONG-TERM DEBT AND CONVERTIBLE NOTES
Long-term debt consists of the following:
November 30,
1997 1996
(in thousands)
Commercial Paper $ 288,614 $ 307,298
Unsecured 5.75% Notes Due March 15, 1998 200,000 200,000
$200 Million Multi-currency Revolving
Credit Facility Due 2002 166,000
Mortgages and other loans payable bearing interest
at rates ranging from 8% to 9.9%, secured by
vessels, maturing through 1999 79,830 140,277
Unsecured 6.15% Notes Due October 1, 2003 124,960 124,953
Unsecured 7.20% Debentures Due October 1, 2023 124,876 124,871
Unsecured 7.7% Notes Due July 15, 2004 99,924 99,913
Unsecured 7.05% Notes Due May 15, 2005 99,851 99,831
Other loans payable 56,859 80,755
1,074,914 1,343,898
Less portion due within one year (59,620) (66,369)
$1,015,294 $1,277,529
The commercial paper outstanding as of November 30, 1997 bears
interest at approximately 5.6% and is due in January 1998. Since the
commercial paper is backed by the long-term revolving credit facilities
described below, balances outstanding under the commercial paper programs
have been classified as long-term in the accompanying balance sheets.
The Company's commercial paper program is supported by a one billion
dollar unsecured revolving credit facility due December 2001 (the "U.S.
Dollar Revolver") and a $200 Million Multi-currency Revolving Credit
Facility Due 2002 (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 November 30, 1997, the
Company had $911 million available for borrowing under the U.S. Dollar
Revolver and Multi-currency Revolving Credit facilities.
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 November 30,
1997 balance sheet.
In January 1998, the Company issued $200 million of 6.65% Debentures
due January 15, 2028.
The Company has an interest rate swap agreement which converts the
fixed rate unsecured 5.75% Notes Due March 15, 1998 (the "$200 Million
Notes") to a floating rate LIBOR based loan (see Note 7).
Property and equipment with a net book value of $684 million at
November 30, 1997 is pledged as collateral against the mortgage
indebtedness.
As of November 30, 1997, the scheduled annual maturities of the
Company's long-term debt are summarized as follows (in thousands):
1998 $ 59,620
1999 53,518
2000 2,335
2001 6,720
2002 490,353
Thereafter 462,368
$1,074,914
The Company's 4-1/2% Convertible Subordinated Notes Due July 1, 1997
(the "Convertible Notes") were convertible into 57.55 shares of the
Company's Class A Common Stock per $1,000 of notes. During fiscal 1996 and
early fiscal 1997, substantially all of the Convertible Notes converted
into approximately 6.6 million shares of the Company's Class A Common
Stock.
NOTE 6 - SHAREHOLDERS' EQUITY
The following represents an analysis of the changes in shareholders'
equity for the three years ended November 30, 1997:
COMMON STOCK
$.01 PAR VALUE PAID-IN RETAINED
CLASS A CLASS B CAPITAL EARNINGS OTHER TOTAL
(in thousands)
Balance, November 30, 1994$2,276 $550 $544,947 $1,390,589 $(9,428) $1,928,934
Net income 451,091 451,091
Cash dividends (89,540) (89,540)
Issuance of common stock 21 46,488 46,509
Changes in securities
valuation allowance 2,424 2,424
Issuance of stock to
employees under
stock plans 1 3,376 3,377
Vested portion of common
stock under restricted
stock plan 2,078 2,078
Balance, November 30, 1995 2,298 550 594,811 1,752,140 (4,926) 2,344,873
Net income 566,302 566,302
Cash dividends (110,661) (110,661)
Changes in securities
valuation allowance (199) (199)
Foreign currency
translation adjustment 4,126 4,126
Issuance of stock upon
conversion of
Convertible Notes 44 76,250 76,294
Issuance of stock in
connection with
investment in Airtours 53 144,118 144,171
Issuance of stock to
employees under
stock plans 2 4,431 4,433
Vested portion of common
stock under restricted
stock plan 1,545 1,545
Balance, November 30, 1996 2,397 550 819,610 2,207,781 546 3,030,884
Net income 666,050 666,050
Cash dividends (142,618) (142,618)
Changes in securities
valuation allowance 355 355
Foreign currency
translation adjustment 3,592 3,592
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 6,732 (947) 5,787
Vested portion of common
stock under restricted
stock plan 1,270 1,270
Balance, November 30, 1997$2,972 $866,097 $2,731,213 $ 4,816 $3,605,098
Each share of Class A Common Stock is entitled to one vote and each
share of Class B Common Stock is entitled to five votes, except (i) for
the election of directors, and (ii) as otherwise provided by law.
Annually, the holders of Class A Common Stock, voting as a separate
class, are entitled to elect 25% of the directors to be elected. The
holders of Class B Common Stock, voting as a separate class, are entitled
to elect 75% of the directors to be elected, so long as the number of
shares of Class B Common Stock is at least 12-1/2% of the number of
outstanding shares of both classes of Common Stock.
Each share of Class B Common Stock is convertible at any time into
one share of Class A Common Stock. In that regard, on July 15, 1997, the
B Trust 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. As a result of the
conversion of the Class B Common Stock, there are no shares of Class B
Common Stock outstanding.
So long as there are no Class B shares outstanding, directors that
would have been elected by a separate vote of Class B shareholders will
instead be elected by the holders of Class A Common Stock.
At November 30, 1997 there were approximately 6.2 million shares of
Class A Common Stock reserved for exercise of stock options, issuance of
shares under the employee stock purchase plan, dividend reinvestment plan
and restricted stock plans.
During 1997, the Company declared quarterly cash dividends
aggregating $.48 per share. In October 1997, the Board of Directors
increased the quarterly dividends from $.11 per share to $.15 per share.
NOTE 7 - FINANCIAL INSTRUMENTS
The Company estimates the fair market value of financial instruments
through the use of public market prices, quotes from financial
institutions and other available information. Considerable judgment is
required in interpreting data to develop estimates of market value and,
accordingly, amounts are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
Short-term Investments
Short-term investments, classified as available for sale at November
30, 1997 and 1996 consisted primarily of U.S. Government Securities with
maturities within ten years. As of November 30, 1997, 1996 and 1995, net
unrealized losses amounted to $.7 million, $1.1 million and $1.6 million,
respectively. Proceeds from the sale of short-term investments for the
years ended November 30, 1997, 1996 and 1995 were approximately $3
million, $38 million and $20 million, respectively. For the purpose of
determining gross realized gains and losses, the cost of short-term
investments sold is based upon specific identification.
Long-term Debt and Convertible Notes
The fair value of the Company's long-term debt, including the
current portion, was approximately $1.089 billion and $1.363 billion at
November 30, 1997 and 1996, respectively, which is approximately $14
million and $19 million more than the carrying value at November 30, 1997
and 1996, respectively. The fair value of the long-term debt is more
than the carrying amount due to the Company's issuance of fixed rate debt
obligations in prior years at interest rates above market rates at
November 30, 1997. The fair value of the Company's long-term debt is
estimated based on the quoted market price for the same or similar issues
or on the applicable year end rates offered to the Company for debt of
similar terms and maturity. At November 30, 1996 the carrying amount of
the Convertible Notes was approximately $29 million less than the fair
value primarily due to increases in the price of the Company's Class A
Common Stock.
Foreign Currency and Interest Rate Swap Agreements
The Company enters into forward foreign currency contracts to reduce
its exposures relating to changes in foreign currency rates. These
instruments are subject to gain or loss from changes in foreign currency
rates, however, any realized gain or loss would generally be offset by
gains or losses on the actual foreign currency transaction. The Company
also enters into interest rate swap agreements to adjust the relationship
between the amount of the Company's fixed and floating rate debt.
Certain exposures to credit losses related to counter party
nonperformance exist, however, the Company does not anticipate
nonperformance by the counter parties as they are primarily large, well-
established financial institutions. The fair values of the Company's
forward and swap hedging instruments discussed below are based on prices
quoted by financial institutions for these or similar instruments,
adjusted for maturity differences.
Several of the Company's contracts for the construction of cruise
vessels are stated in foreign currencies. The Company entered into
forward foreign currency contracts to fix the price of the vessels into
U.S. dollars (see Note 9). As of November 30, 1997 and 1996, these
forward contracts were in a gain position of approximately $8 million and
$114 million, respectively. At the expiration of the forwards, which
coincides with the payments related to vessels under construction, any
gains or losses will be included in the cost of the vessel. The Company
also entered into a forward foreign currency contract totaling
approximately $34 million to hedge its investment in Il Ponte. In
addition, the Company has some expenses in foreign currencies and entered
into foreign currency contracts totaling approximately $20 million to
reduce the impact of changes in exchange rates. As of November 30, 1997,
there were no significant gains or losses related to the Il Ponte hedge
transaction or other currency transactions entered into to hedge
estimated expenses.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company's Chairman of the Board was the indirect majority
shareholder of Carnival Air Lines, Inc. ("Carnival Air"), an airline
which conducted charter services and scheduled carrier services to The
Bahamas, Puerto Rico and other locations in the Caribbean from several
U.S. cities and between various U.S. cities. In September 1997, Carnival
Air was merged with and became a wholly owned subsidiary of Pan Am
Corporation ("Pan Am"). As a result of the merger, the Company's
Chairman of the Board became an indirect shareholder of approximately 42%
of Pan Am. During the fiscal years ended November 30, 1997, 1996 and
1995, the Company paid approximately $1 million, $2 million and $3
million, respectively, to Carnival Air for services associated with
transporting a limited number of the Company's cruise passengers. During
the fiscal year ended November 30, 1997, the Company paid approximately
$.1 million to Pan Am for such services.
The Company also earned license fees of approximately $.5 million,
$.5 million and $.4 million during the fiscal years ended November 30,
1997, 1996 and 1995, respectively, from Carnival Air for the license of
the "Carnival" trademark to Carnival Air. In connection with the merger,
Pan Am agreed to pay to the Company unpaid license fees owed by Carnival
Air. As of November 30, 1997, Pan Am was past due on the unpaid license
fees and owes the Company approximately $1 million, inclusive of
interest. Pan Am has also agreed to discontinue the use of "Carnival"
trademarks on the promotion of its ongoing business and to proceed to
eliminate the marks from its aircraft and other equipment during its
ordinary maintenance schedule. The Company also receives license fees
from CHC (see Note 4).
A director of the Company is a partner in a law firm. The law firm
acted as the Company's primary outside counsel and provided services to
the Company in connection with various litigation, corporate and other
matters during fiscal years ended November 30, 1997, 1996 and 1995. The
Company paid the law firm $1.1 million, $1.0 million and $6.2 million in
fiscal years ended November 30, 1997, 1996 and 1995, respectively.
The owner of a travel agency located in Seattle, Washington is the
wife of the Chief Executive Officer of HAL who is also a director of the
Company. The travel agency sells cruises and other similar products and
receives a commission based on the amount of sales generated. During the
years ended November 30, 1997, 1996 and 1995, the travel agency generated
revenues for the Company of approximately $8 million, $7 million and $5
million, respectively, and received commissions from the Company related
to such revenues of approximately $1.2 million, $1.2 million and $.8
million, respectively.
Pursuant to an agreement between the Company and certain irrevocable
trusts, the beneficiaries of which are the children of the Company's
founder and certain others, the Company has granted to the trusts certain
registration rights with respect to 14,277,028 shares of Class A Common
Stock held for investment by the trusts. The Company has agreed to
prepare and file with the SEC a registration statement and pay all
expenses relating to such registration, except for fees and disbursements
of counsel for the trusts, selling costs, underwriting discounts and
applicable filing fees.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Capital Expenditures
The following table provides a description of ships currently under
contract for construction (in millions, except berth data):
Expected Number Estimated Remaining
Service Contract of Lower Total Cost to Be
Vessel Date Denomination Berths Cost Paid
Holland America Line:
Volendam 6/99 Lire 1,440 $ 300 $ 274
Zaandam 1/00 Lire 1,440 300 286
Carnival Cruise Lines:
Elation 3/98 U. S. Dollar 2,040 300 245
Paradise 12/98 U. S. Dollar 2,040 300 280
Carnival Triumph 7/99 Lire 2,766 410 352
Carnival Victory 8/00 U. S. Dollar 2,766 440 435
Windstar Cruises:
Wind Surf * 5/98 U. S. Dollar 312 45 40
12,804 $2,095 $1,912
* The Wind Surf is the existing Club Med I which the Company is
acquiring from Club Mediterranee, S.A. and Services et Transports.
Contracts denominated in foreign currencies have been fixed into
U.S. Dollars through the utilization of forward currency contracts (see
Note 7). In connection with the vessels under construction described
above, the Company has paid $183 million through November 30, 1997 and
anticipates paying approximately $686 million during the twelve month
period ending November 30, 1998 and approximately $1.2 billion beyond
November 30, 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 cost approximately $2 billion.
Litigation
Several actions (collectively the "Passenger Complaints") have been
filed against the Company or Holland America Westours on behalf of
purported classes of persons who paid port charges to the Company or
Holland America Westours, alleging that statements made in advertising
and promotional materials concerning port charges were false and
misleading. Four such actions are pending against the Company in the
Circuit Court for Miami-Dade County, Florida, and others are pending
against the Company in state or federal courts in Tennessee, Arizona,
Ohio, Kentucky, Michigan, Georgia and Alabama. One such action was filed
against Holland America Westours in the Superior Court in King County,
Washington. The Florida, Tennessee, Alabama and Washington actions have
been brought on behalf of purported nationwide classes; the others on
behalf of purported statewide classes. The Passenger Complaints allege
violations of the various state consumer protection acts and claims of
fraud, conversion, breach of fiduciary duties and unjust enrichment.
Plaintiffs seek compensatory damages or, alternatively, refunds of
portions of port charges paid, attorneys' fees, 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. In June 1997 amended complaints were filed,
and the Company's motion to dismiss these complaints is currently under
judicial consideration. The Arizona and Tennessee Courts granted the
Company's motions dismissing those actions, and the plaintiffs in those
cases intend to appeal. The Company's motions are still under judicial
consideration in each of the other actions. Holland America Westours'
motion to dismiss the Washington action was denied, as was the
plaintiffs' motion for class certification.
In June and August 1996, two complaints were filed against the
Company and Holland America Westours, respectively, in California
Superior Court (collectively the "Travel Agent Complaints") on behalf of
purported classes of travel agencies who during the past four years
booked a cruise with the Company or Holland America Westours, claiming
that advertising practices regarding port charges resulted in an improper
commission bypass. These actions allege claims of breach of contract,
negligent misrepresentation, unjust enrichment, unlawful business
practices and common law fraud, and they seek 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 filed a
complaint similar to the one it had filed in California, in Florida. The
Company has moved to dismiss this complaint.
The pending Passenger 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. Management understands that
purported class actions similar to the Passenger and Travel Agent
Complaints have been filed against several 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.
Operating Leases
Rental expense for all operating leases for the years ended November
30, 1997, 1996 and 1995 was approximately $10.6 million, $9.3 million and
$7.6 million, respectively. As of November 30, 1997, minimum annual
rentals for all operating leases, with initial or remaining terms in
excess of one year, were as follows (in thousands):
1998 $ 8,247
1999 5,712
2000 5,799
2001 4,606
2002 3,904
Thereafter 14,410
$42,678
Guaranty
The Company has guaranteed approximately $103 million of the debt of
Il Ponte S.p.A. that was incurred in connection with the Company's
acquisition of an interest in Costa (see Note 4).
NOTE 10 - SEGMENT INFORMATION
The Company's cruise segment currently operates 19 passenger cruise
ships and three luxury sailing vessels. Cruise revenues are comprised of
sales of tickets and other revenues from on-board activities. A tour
business operated by HAL, consisting of 14 hotels, two luxury day boats,
over 300 motor coaches and 13 private domed rail cars comprise the assets
that generate revenue for the tour segment. The corporate segment is
primarily comprised of equity investments and includes the Company's
investments in and advances to affiliates and its portion of the results
of operations of affiliates accounted for using the equity method of
accounting. Intersegment revenues primarily represent charges for the
cruise portion of a tour when a cruise is sold as a part of a tour
package. Segment information for the three years ended November 30, 1997
was as follows:
YEARS ENDED NOVEMBER 30,
1997 1996 1995
(in thousands)
REVENUES
Cruise $2,257,567 $2,003,458 $1,800,775
Tour 242,646 263,356 241,909
Intersegment revenues (52,745) (54,242) (44,534)
$2,447,468 $2,212,572 $1,998,150
GROSS OPERATING PROFIT
Cruise $1,072,758 $ 913,880 $ 810,736
Tour 52,041 57,423 56,301
$1,124,799 $ 971,303 $ 867,037
DEPRECIATION AND AMORTIZATION
Cruise $ 157,454 $ 135,694 $ 119,381
Tour 8,862 8,317 8,129
Corporate 971 976 923
$ 167,287 $ 144,987 $ 128,433
OPERATING INCOME
Cruise $ 656,009 $ 535,814 $ 470,592
Tour 13,262 21,252 24,168
Corporate 44,799 40,362 (4,722)
$ 714,070 $ 597,428 $ 490,038
IDENTIFIABLE ASSETS
Cruise $4,744,140 $4,514,675 $3,910,243
Tour 163,941 150,851 138,313
Corporate 518,694 436,362 56,931
$5,426,775 $5,101,888 $4,105,487
CAPITAL EXPENDITURES
Cruise $ 414,963 $ 841,871 $ 456,920
Tour 42,507 14,964 8,747
Corporate 40,187 1,810
$ 497,657 $ 858,645 $ 465,667
NOTE 11 - EMPLOYEE BENEFIT PLANS
Stock Option Plans
The Company has stock option plans, applicable to Class A Common
Stock, for certain key employees. The plans are administered by a
committee of three directors of the Company (the "Committee") who
determine the employees and directors eligible to participate, the number
of shares for which options are to be granted and the amounts that any
employee or director may exercise within a specified year or years. The
maximum number of shares available to be granted as of November 30, 1997
and 1996 was 3,262,000 and 1,689,000, respectively. Under the terms of
the plans, the option price per share is established by the Committee as
an amount between 50% and 100% of the fair market value of the shares of
Class A Common Stock on the date the option is granted. All options
granted during 1997, 1996 and 1995 were granted at an option price per
share equal to the fair market value of the Company's Class A Common
Stock on the date of grant. Options may be extended for such periods as
may be determined by the Committee but only for so long as the optionee
remains an employee of the Company. The status of options in the stock
option plans was as follows:
Price Number of Shares
Per Share Years Ended November 30,
1997 1996 1995
Unexercised Options-
Beginning of Year $3.88 - $29.94 2,435,940 2,474,736 2,433,236
Options Granted $19.78 - $43.81 429,000 90,000 1,564,000
Options Exercised $3.88 - $29.94 (111,250) (123,996) (90,100)
Options Canceled $14.09 - $22.50 (2,400) (4,800) (1,432,400)
Unexercised Options-
End of Year $3.88 - $43.81 2,751,290 2,435,940 2,474,736
The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" instead of the fair value method. Accordingly, no
compensation cost has been recognized for the stock-based compensation
plans. Had the Company elected to recognize compensation expense under
the fair value method, the Company's pro-forma net income and earnings
per share would be as follows:
Year Ended November 30,
1997 1996
(in thousands, except per share data)
Net Income:
As reported $666,050 $566,302
Pro-forma $664,324 $565,952
Earnings per share:
As reported $2.23 $1.95
Pro-forma $2.23 $1.95
These pro-forma amounts may not be representative of the effect on
pro-forma net income in future years, since the estimated fair value of
stock options is amortized over the vesting period, pro-forma
compensation expense related to grants made prior to 1996 is not
considered and additional options may be granted in future years.
The weighted average fair value of the Company's options granted
during 1997 and 1996 were $11.58 and $8.98 per share, respectively, at
dates of grant. The fair values of options were estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions for the years ended November 30, 1997 and 1996, respectively;
dividend yields of 1.78% for both periods; expected volatility of 22.7%
and 28.6%; risk free interest rates of 6.2% and 5.8%; and expected option
life of 6 years for both periods.
Restricted Stock Plans
The Company has restricted stock plans under which certain key
employees are granted restricted shares of the Company's Class A Common
Stock. Shares are awarded in the name of each of the participants, who
have all the rights of other Class A stockholders, subject to certain
restriction and forfeiture provisions. Unearned compensation is recorded
at the date of award based on the market value of the shares on the date
of grant. Unearned compensation is amortized to expense over the vesting
period. As of November 30, 1997 there were 1,919,319 shares issued under
the plans of which 118,719 remain to be vested.
Defined Contribution Plans
HAL has two defined contribution plans available to substantially
all U.S. and Canadian employees. HAL contributes to these plans based on
employee contributions and salary levels. Total expense relating to
these plans in fiscal year ended November 30, 1997, 1996 and 1995 was
approximately $2.5 million, $2.4 million and $2.4 million, respectively.
Defined Benefit Pension Plans
The Company adopted two defined benefit pension plans (qualified and
non-qualified) effective January 1, 1989 which together covered all
full-time employees of Carnival Corporation working in the United States,
excluding HAL employees. Effective January 1, 1998, the Company
established a 401(K)/profit sharing plan and a non-qualified
savings/profit sharing plan with the intent to largely replace the
defined benefit plans. As a result, no further benefits will accrue
under the qualified defined benefit plan effective December 31, 1997.
Also, effective January 1, 1998, participants in the non-qualified
defined benefit plan elected to either remain in the non-qualified
defined benefit plan or participate in the non-qualified savings/profit
sharing plan.
Carnival Corporation's funding policy for the qualified defined
benefit plan is to annually contribute at least the minimum amount
required under the applicable labor regulations.
Pension costs for the qualified and non-qualified defined benefit
plans were approximately $2.2 million, $2.2 million and $1.6 million for
the years ended November 30, 1997, 1996 and 1995, respectively. The
curtailment of the benefits under the qualified and non-qualified defined
benefit plans resulted in a minimal gain.
The funded status of the defined benefit pension plans at November
30, 1997, which reflects the defined benefit plan curtailments discussed
above, and November 30, 1996 was as follows:
Qualified Non-Qualified
(in thousands) (in thousands)
1997 1996 1997 1996
Accumulated benefit obligation:
Vested $ 6,597 $5,014 $7,327 $5,376
Non-vested 329 180 145
$ 6,597 $5,343 $7,507 $5,521
Projected benefit obligation $ 6,597 $8,449 $8,723 $8,049
Plan assets (8,802) (6,737)
(Overfunded) unfunded accumulated
benefits (2,205) 1,712 8,723 8,049
Unrecognized prior service cost (322) (326) (174)
Unrecognized losses (1,789) (1,390)
(Prepaid) accrued pension obligation$(2,205) $ (399) $8,397 $6,485
Assumptions used in accounting for the defined benefit pension
plans are as follows:
Discount rate at end of year 7.5%
Rate of increase in future compensation levels 5.0%*
Expected long-term rate of return on assets 8.5%
* Only applies to non-qualified defined benefit plan in 1997.
NOTE 12 - RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Standard ("SFAS") No. 128, "Earnings Per Share"
which requires dual presentation of basic and diluted earnings per share
rather than the current requirement for "primary" earnings per share.
SFAS No. 128 is effective for periods ending after December 15, 1997 and
early adoption is not permitted. Pro-forma basic and diluted earnings
per share, as compared with primary earnings per share currently
presented in the Company's financial statements for the years ended
November 30, 1997, 1996 and 1995, is as follows:
YEARS ENDED NOVEMBER 30,
1997 1996 1995
Earnings Per Share:
As reported $2.23 $1.95 $1.59
Pro-forma:
Basic $2.24 $1.96 $1.59
Diluted $2.23 $1.92 $1.57
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
YEARS ENDED NOVEMBER 30,
1997 1996 1995
(in thousands)
Cash paid during the year for:
Interest (net of amount capitalized) $ 56,967 $ 68,337 $ 62,868
Income taxes $ 5,755 $ 8,752 $ 8,671
Noncash investing and financing activities:
Class A Common Stock issued for various
stock plans $ 2,247 $ 1,102 $ 854
Class A Common Stock issued for conversion
of Convertible Notes (see Note 5) $ 39,085 $ 76,294
Class A Common Stock issued for acquisition
of an interest in Airtours (see Note 4) $144,171
Conversion of Class B Common Stock
into Class A Common Stock $ 550
Sale of Rotterdam V $ 31,208
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Carnival Corporation
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations and of cash flows
present fairly, in all material respects, the financial position of
Carnival Corporation and its subsidiaries at November 30, 1997 and 1996,
and the results of their operations and their cash flows for each of the
three years in the period ended November 30, 1997, in conformity with
generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
/s/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Miami, Florida
January 19, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Carnival Corporation and its subsidiaries (the "Company") earns its
cruise revenues primarily from (i) the sale of passenger tickets, which
includes 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").
For selected segment information related to the Company's revenues,
gross operating profit, operating income and other financial
information, see Note 10 in the accompanying financial statements. The
following table presents operations data expressed as a percentage of
total revenues and selected statistical information for the periods
indicated:
YEARS ENDED NOVEMBER 30,
1997 1996 1995
REVENUES 100% 100% 100%
COSTS AND EXPENSES:
Operating expenses 54 56 57
Selling and administrative 12 12 12
Depreciation and amortization 7 7 6
OPERATING INCOME BEFORE INCOME
FROM AFFILIATED OPERATIONS 27 25 25
INCOME FROM AFFILIATED OPERATIONS, NET 2 2
OPERATING INCOME 29 27 25
NONOPERATING INCOME (EXPENSE) (2) (1) (2)
NET INCOME 27% 26% 23%
SELECTED STATISTICAL INFORMATION:
Passengers carried 1,945,000 1,764,000 1,543,000
Passenger cruise days 11,908,000 10,583,000 9,201,000
Occupancy percentage 108.3% 107.6% 105.0%
GENERAL
The growth in the Company's revenues during the last three fiscal
years has primarily been a function of the expansion of its fleet
capacity.
Fixed costs, including depreciation, fuel, insurance and crew costs
represent more than one-third of the Company's operating expenses and do
not significantly change in relation to changes in passenger loads and
aggregate passenger ticket revenue.
The Company's cruise and tour operations 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 greater
during the periods 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 majority of tour revenues
generated during the late spring and summer months in conjunction with
the Alaska cruise season.
Average cruise capacity for the three cruise lines wholly-owned by
the Company is expected to increase 6% during fiscal 1998 as a result of
the introduction into service of Carnival's cruise ship Elation in March
1998. Average capacity is expected to increase 13% and 15% during fiscal
1999 and 2000, respectively, as a result of new vessel deliveries.
In June 1997, the Company acquired an interest in Il Ponte S.p.A.
("Costa"), the parent company of Costa Crociere S.p.A., which it records
using the equity basis of accounting. Starting with the Company's
quarter ended November 30, 1997, the Company's portion of Costa's
operating results were recorded by the Company on a two month lag basis.
The Company's portion of Airtours plc's ("Airtours") operating results
are similarly recorded on a two month lag basis. Costa's and Airtours'
earnings are seasonal due to the seasonal nature of the European leisure
travel industry and Mediterranean cruise season. During the last
several years, Airtours' and Costa's quarters ending June 30 and
September 30 have been profitable, with the quarter ending September 30
being their most profitable quarter. During this same period, Airtours
and Costa experienced seasonal losses in their quarters ending December
31 and March 31.
Fiscal Year Ended November 30, 1997 Compared
To Fiscal Year Ended November 30, 1996
Revenues
The increase in total revenues of $234.9 million, or 10.6%, from
1996 to 1997 was due to a 12.7% increase in cruise revenues which was
partially offset by a decrease in tour revenues. The increase in cruise
revenues was primarily the result of an 11.7% increase in capacity for
the period resulting from the addition of Carnival's 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 also affected by the removal from service from Carnival's
fleet of the Festivale in April 1996 and Holland America Line's
Rotterdam V in September 1997. The Rotterdam VI entered service in
November 1997, approximately five weeks later than planned because of
late delivery by the shipyard. The expected impact on the Company's
fourth quarter 1997 net earnings from the late delivery of the Rotterdam
was largely mitigated.
Occupancy rates in fiscal 1997 were up .7% and gross revenue per
passenger cruise day was up .1% resulting in an increase of .9% in gross
yield (total revenue per lower berth).
Revenues from the Company's tour operations decreased $20.7
million, or 7.9%, to $242.6 million in 1997 from $263.4 million in 1996.
The decrease was primarily the result of a decrease in the tour and
transportation revenues due to a reduction in the number of tour
passengers.
Costs and Expenses
Operating expenses increased $81.4 million, or 6.6%, from 1996 to
1997. Cruise operating costs increased by $95.2 million, or 8.7%, to
$1,184.8 million in 1997 from $1,089.6 million in 1996, primarily due to
additional costs associated with the increased capacity in 1997. Tour
operating expenses decreased $15.3 million, or 7.4%, from 1996 to 1997
primarily due to the decrease in tour passengers.
Selling and administrative costs increased $21.7 million, or 7.9%,
primarily due to an increase in payroll and related costs associated
with the increase in capacity during 1997 as compared with 1996.
Depreciation and amortization increased by $22.3 million, or 15.4%,
to $167.3 million in 1997 from $145.0 million in 1996 primarily due to
the addition of the Inspiration, the Carnival Destiny and the Veendam.
Affiliated Operations
Approximately $35.7 million of income from affiliated operations in
1997 was attributable to the Company's 28% interest in Airtours,
acquired in April 1996. See "Affiliated Operations" for the "Fiscal
Year Ended November 30, 1996 Compared To Fiscal Year Ended November 30,
1995" below for a description of the Company's equity in earnings from
Airtours in 1996.
In June 1997 the Company acquired an approximate 50% interest in
Costa. The Company is recording its share of Costa's earnings on a two
month lag basis. During 1997, the Company's share of earnings from
Costa, amounting to $15.5 million, was recorded for Costa's three months
ended September 30, 1997. Costa's earnings are seasonal and most of
Costa's earnings are generated in their quarter ended September 30.
See "General" above for a discussion of Airtours' and Costa's
seasonality. See Note 4 in the accompanying financial statements for
more information regarding the Company's equity investments.
Nonoperating Income (Expense)
Interest income decreased $9.9 million in 1997 primarily due to a
decrease in cash balances and notes receivable. See "Nonoperating
Income (Expense)" for the "Fiscal Year Ended November 30, 1996 Compared
To Fiscal Year Ended November 30, 1995" below for a description of the
higher cash and notes receivable balances in 1996. Gross interest
expense (excluding capitalized interest) decreased $17.1 million in 1997
as a result of reduced debt balances. Capitalized interest decreased
$9.0 million due to lower levels of investments in ship construction
projects during fiscal 1997 as compared with fiscal 1996.
Other income in fiscal 1997 of $5.4 million represents the net
effect of the recognition of the remaining deferred gain from the sale
of Carnival's Festivale, less a loss from the sale of Holland America
Line's Rotterdam V, and certain other miscellaneous gains and losses.
See "Nonoperating Income (Expense)" for the "Fiscal Year Ended November
30, 1996 Compared To Fiscal Year Ended November 30, 1995" below for a
description of items included in other income (expense) in fiscal 1996.
Fiscal Year Ended November 30, 1996 Compared
To Fiscal Year Ended November 30, 1995
Revenues
The increase in total revenues of $214.4 million, or 10.7%, from
1995 to 1996 was comprised primarily of a $202.7 million, or 11.3%,
increase in cruise revenues for the period. The increase in cruise
revenues was primarily the result of a 12.2% increase in capacity for
the period resulting from the introduction into service of Carnival's
cruise ships Imagination in July 1995 and Inspiration in March 1996 and
Holland America Line's cruise ship Veendam in May 1996 less the removal
from service from Carnival's fleet of the Festivale in April 1996.
Occupancy rates were up 2.5% and gross revenue per passenger cruise day
was down 3.3% resulting in a decrease of .9% in gross yield (total
revenue per lower berth). Gross revenue per passenger cruise day
decreased primarily due to a reduction in the percentage of passengers
electing the Company's air program and due to slightly lower pricing in
the cruise market. 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. Also affecting cruise revenues in 1995
were lost revenues resulting from the cancellation of four one-week
cruises in order to repair minor fire damage to Carnival's Celebration.
Revenues from the Company's tour operations increased $21.4
million, or 8.9%, to $263.4 million in 1996 from $241.9 million in 1995.
The increase was primarily the result of an increase in the tour and
transportation revenues due to an increase in the number of tour
passengers.
Costs and Expenses
Operating expenses increased $110.2 million, or 9.7%, from 1995 to
1996. Cruise operating costs increased by $99.5 million, or 10.1%, to
$1,089.6 million in 1996 from $990.0 million in 1995, primarily due to
additional costs associated with the increased capacity in 1996. Tour
operating expenses increased $20.3 million, or 11.0%, from 1995 to 1996
primarily due to an increase in tour passengers.
Selling and administrative costs increased $26.3 million, or 10.6%,
primarily due to an 11.6% increase in advertising expenses and an
increase in payroll and related costs associated with the increase in
capacity during 1996 as compared with 1995.
Depreciation and amortization increased by $16.6 million, or 12.9%,
to $145.0 million in 1996 from $128.4 million in 1995 primarily due to
the addition of the Imagination, the Inspiration and the Veendam.
Affiliated Operations
During fiscal 1996, the Company recorded $46.0 million of earnings
from affiliated operations. A significant portion of such earnings are
attributable to the Company's investment in Airtours. The Company
acquired its equity interest in Airtours in April 1996 and is recording
its share of Airtours' earnings on a two month lag basis. During 1996,
the Company's share of earnings for Airtours was recorded for Airtours'
six months ended September 30, 1996 which amounted to $35.7 million
excluding the Company's capital costs incurred in connection with the
investment. Airtours' operations are seasonal and historically have
resulted in losses for the first half of its fiscal year. Had the
Company recorded its equity in Airtours' earnings for Airtours' entire
fiscal year ended September 30, 1996, the Company's share of Airtours'
earnings would have been $22.2 million instead of the $35.7 million
recorded by the Company in 1996.
Nonoperating Income (Expense)
Interest income increased $4.2 million primarily due to the
Company's holding of 13 percent senior secured notes (which were
redeemed in April 1996) of Norwegian Cruise Line, Ltd. and, to a lesser
degree, increases in cash balances. Cash balances, up to the closing of
the Airtours transaction in April 1996, increased due to United Kingdom
regulatory requirements applicable to the Company's tender offer to
acquire its interest in Airtours. Gross interest expense (excluding
capitalized interest) increased $8.0 million primarily as a result of
additional borrowings required in connection with the Company's
investment in Airtours. Capitalized interest increased $7.0 million due
to higher investment levels in vessels under construction.
Other income increased to $23.4 million in 1996 primarily as a
result of a $32.0 million gain from settlement of bankruptcy claims
against Wartsila less a loss of $15.8 million on the sale of the notes
receivable generated from the sale of Carnival's Crystal Palace Hotel
and Casino. Other income of $19.1 million in 1995 is primarily a result
of a $14.4 million gain from the settlement of litigation with Metra Oy
and a gain from the sale of the Company's entire interest in Epirotiki
Cruise Line. These gains in 1995 were partially offset by the loss from
the Celebration fire incident discussed above and certain other non-related,
non-recurring items.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
The Company's business provided $877.6 million of net cash from
operations during fiscal 1997, an increase of 18.3% compared to the
corresponding period in 1996.
During fiscal 1997, the Company expended approximately $497.7
million on capital projects, of which $294.4 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 $66.4 million under various individual vessel mortgage
loans during fiscal 1997. During this same period, the Company made net
repayments of $184.7 million under its commercial paper programs.
In June 1997, the Company and Airtours completed the acquisition of
Costa. The cost of the acquisition of Costa in the Company's financial
statements was approximately $38 million. In addition, the Company
guaranteed approximately $103 million of indebtedness related to the
acquisition. See Note 4 of Notes to Consolidated Financial Statements
for additional information related to this acquisition.
Future Commitments
The Company has contracts for the delivery of six new vessels over
the next three years. The Company will pay approximately $646 million
during fiscal 1998 relating to the construction and delivery of those
new cruise ships and approximately $1.2 billion beyond November 30,
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 cost approximately $2 billion. The Company also has an
agreement to acquire a 312 berth cruise ship in the spring of 1998 for
approximately $45 million. At November 30, 1997, the Company had
$1,074.9 million of long-term debt of which $259.6 million is due during
fiscal 1998. Included in the $259.6 million of debt due during fiscal
1998 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 5 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.
Management has undertaken a company wide program to prepare the
Company's computer systems and other applications for the year 2000.
Possible year 2000 problems create risk for a company in that unforseen
problems in its own computer systems or those of its third party
suppliers could have a material impact on a company's ability to conduct
its business operations. The purpose of the Company's program is to
identify significant year 2000 exposures and to update its computer
systems and business operations to deal with those exposures. The
Company expects to incur internal staff costs as well as consulting and
other expenses to prepare the systems for the year 2000, which are not
expected to be material to the Company's operating results.
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 November 30, 1997, the
Company had $911 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
January 1998, the Company issued $200 million of 6.65% Debentures due
January 15, 2028. Also, the Company has filed Registration Statements
on Form S-3 (the "Shelf Registration") relating to shelf offerings of
debt or equity securities. The remaining aggregate principal amount of
debt or equity securities available under the Shelf Registration is $800
million.
SELECTED FINANCIAL DATA
The selected financial data presented below for the fiscal years
ended November 30, 1993 through 1997 and as of the end of each such
fiscal year are derived from the financial statements of the Company and
should be read in conjunction with such financial statements and the
related notes.
FISCAL YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993
(in thousands, except per share data)
INCOME STATEMENT DATA:
Total revenues $2,447,468 $2,212,572 $1,998,150 $1,806,016 $1,556,919
Operating income
before income from
affiliated
operations $ 660,979 $ 551,461 $ 490,038 $ 443,674 $ 347,666
Operating income $ 714,070 $ 597,428 $ 490,038 $ 443,674 $ 347,666
Net income $ 666,050 $ 566,302 $ 451,091 $ 381,765 $ 318,170
Earnings per share 1) $2.23 $1.95 $1.59 $1.35 $1.13
Dividends declared
per share (1) $.480 $.380 $.315 $.285 $.280
Passenger cruise days11,908 10,583 9,201 8,102 7,003
Percent of total
capacity(2) 108.3% 107.6% 105.0% 104.0% 105.3%
AS OF NOVEMBER 30,
1997 1996 1995 1994 1993
(in thousands)
BALANCE SHEET DATA:
Total assets $5,426,775 $5,101,888 $4,105,487 $3,669,823 $3,218,920
Long-term debt and
Convertible Notes$1,015,294 $1,316,632 $1,150,031 $1,161,904 $1,031,221
Total shareholders'
equity $3,605,098 $3,030,884 $2,344,873 $1,928,934 $1,627,206
- ----------------------------------
(1) All per share amounts for 1993 and 1994 have been adjusted to reflect
a two-for-one stock split effective November 30, 1994.
(2) In accordance with cruise industry practice, total capacity is
calculated based upon two passengers per cabin even though some cabins
can accommodate three or four passengers. The percentages in excess of
100% indicate that more than two passengers occupied some cabins.
MARKET PRICE FOR CAPITAL STOCK
The following table sets forth for the periods indicated the high
and low market prices for the Class A Common Stock on the New York Stock
Exchange:
SALES PRICE
HIGH LOW
Fiscal Year ended November 30, 1997:
First Quarter $36.750 $29.750
Second Quarter $39.500 $34.125
Third Quarter $45.250 $37.625
Fourth Quarter $54.250 $43.688
Fiscal Year ended November 30, 1996:
First Quarter $29.000 $22.750
Second Quarter $30.125 $26.125
Third Quarter $31.500 $24.500
Fourth Quarter $31.875 $27.375
As of January 12, 1998, there were approximately 3,975 holders of
record of the Company's Class A Common Stock. While no tax treaty
currently exists between the Republic of Panama and the United States,
under current law, the Company believes that distributions to its
shareholders are not subject to taxation under the laws of the Republic
of Panama.
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Quarterly financial results for the year ended November 30, 1997 are
as follows:
FOR THE QUARTER
FIRST SECOND THIRD FOURTH
(in thousands, except per share data)
Total revenues $521,082 $596,614 $805,421 $524,351
Gross profit $224,144 $258,930 $417,301 $224,424
Operating income before income
from affiliated operations $103,944 $140,253 $308,590 $108,192
Operating income $ 94,962 $137,541 $318,961 $162,606
Net income $ 85,360 $127,447 $297,893 $155,350
Earnings per share $.29 $.43 $1.00 $.52
Quarterly financial results for the year ended November 30, 1996 are
as follows:
FOR THE QUARTER
FIRST SECOND THIRD FOURTH
(in thousands, except per share data)
Total revenues $448,788 $516,836 $771,989 $474,959
Gross profit $185,092 $214,292 $375,794 $196,125
Operating income before income
from affiliated operations $ 80,975 $110,230 $267,155 $ 93,101
Operating income $ 80,972 $110,396 $279,948 $126,112
Net income $ 77,065 $106,283 $268,131 $114,823
Earnings per share $.27 $.37 $.92 $.39
FORWARD-LOOKING STATEMENTS
Certain statements under the headings "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere
in this Annual Report constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may cause the actual results, performances or
achievements of the Company to be materially different from any future
results, performances 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; changes in tax laws and regulations (see Part II, Item
5 (d) - Taxation of the Company in the Company's filing of Form 10-K for
the period ended November 30, 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;
unscheduled ship repairs and drydocking; incidents involving cruise
vessels at sea; and changes in laws and government regulations applicable
to the Company.