<DOCUMENT>
<TYPE>10-K/A
<SEQUENCE>1
<FILENAME>nov02_10ka3.txt
<DESCRIPTION>FORM 10-K/A AMENDMENT NO.3 FOR THE FISCAL YEAR ENDED 11/30/02
<TEXT>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 3
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission file number 1-9610
CARNIVAL CORPORATION
(Exact name of registrant as specified in its charter)
Republic of Panama 59-1562976
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3655 N.W. 87th Avenue, Miami, Florida 33178-2428
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 599-2600
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
Common Stock New York Stock
($.01 par value) Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes X No___
The aggregate market value of the voting stock held by non-affiliates
of the Registrant is approximately $7.1 billion based upon the closing
market price on February 10, 2003 of a share of common stock on the New York
Stock Exchange as reported by the Wall Street Journal.
At February 10, 2003 the Registrant had outstanding 586,969,154 shares
of its common stock, $.01 par value.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1)(2) Financial Statements and Schedules
The financial statements shown in Exhibit 13 are amended in their
entirety to comply with Securities and Exchange Commission Regulation G and
to reclassify our segment information in Note 12 to the financial statements
to conform to our fiscal 2003 presentation, and are incorporated herein by
reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CARNIVAL CORPORATION
/s/ Micky Arison Chairman of the Board of May 5, 2003
Micky Arison Directors and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Micky Arison Chairman of the Board of May 5, 2003
Micky Arison Directors and Chief Executive
Officer
/s/ Howard S. Frank Vice Chairman of the Board of May 5, 2003
Howard S. Frank Directors and Chief Operating
Officer
/s/ Gerald R. Cahill Senior Vice President-Finance May 5, 2003
Gerald R. Cahill and Chief Financial and
Accounting Officer
/s/ Richard G. Capen, Jr. Director May 5, 2003
Richard G. Capen, Jr.
/s/ Robert H. Dickinson Director May 5, 2003
Robert H. Dickinson
/s/ Arnold W. Donald Director May 5, 2003
Arnold W. Donald
--------------------- Director May 5, 2003
Pier Luigi Foschi
--------------------- Director May 5, 2003
Baroness Hogg
/s/ A. Kirk Lanterman Director May 5, 2003
A. Kirk Lanterman
/s/ Modesto A. Maidique Director May 5, 2003
Modesto A. Maidique
--------------------- Director May 5, 2003
Sir John Parker
--------------------- Director May 5, 2003
Peter Ratcliffe
/s/ Stuart Subotnick Director May 5, 2003
Stuart Subotnick
/s/ Uzi Zucker Director May 5, 2003
Uzi Zucker
CERTIFICATIONS
I, Micky Arison, certify that:
1. I have reviewed this annual report on Form 10-K/A of Carnival
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 5, 2003
/s/ Micky Arison
Micky Arison
Chairman of the Board of Directors
and Chief Executive Officer
I, Howard S. Frank, certify that:
1. I have reviewed this annual report on Form 10-K/A of Carnival
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 5, 2003
/s/ Howard S. Frank
Howard S. Frank
Vice Chairman of the Board of
Directors and Chief
Operating Officer
I, Gerald R. Cahill, certify that:
1. I have reviewed this annual report on Form 10-K/A of Carnival
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 5, 2003
/s/ Gerald R. Cahill
Gerald R. Cahill
Senior Vice President-Finance
and Chief Financial and
Accounting Officer
EXHIBIT 13
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share)
Years Ended November 30,
2002 2001 2000
Revenues $4,368,269 $4,535,751 $3,778,542
Costs and Expenses
Operating 2,311,919 2,468,730 2,058,342
Selling and administrative 611,948 618,664 487,403
Depreciation and amortization 382,343 372,224 287,667
Impairment charge 20,000 140,378
Loss (income) from affiliated
operations, net 44,024 (37,828)
3,326,210 3,644,020 2,795,584
Operating Income 1,042,059 891,731 982,958
Nonoperating (Expense) Income
Interest income 32,140 34,255 16,506
Interest expense, net of
capitalized interest (110,740) (120,692) (41,372)
Other (expense) income, net (4,080) 108,649 8,460
(82,680) 22,212 (16,406)
Income Before Income Taxes 959,379 913,943 966,552
Income Tax Benefit (Expense), Net 56,562 12,257 (1,094)
Net Income $1,015,941 $ 926,200 $ 965,458
Earnings Per Share
Basic $1.73 $1.58 $1.61
Diluted $1.73 $1.58 $1.60
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
November 30,
ASSETS 2002 2001
Current Assets
Cash and cash equivalents $ 666,700 $ 1,421,300
Short-term investments 39,005 36,784
Accounts receivable, net 108,327 90,763
Inventories 91,310 91,996
Prepaid expenses and other 148,420 113,798
Fair value of hedged firm commitments 78,390 204,347
Total current assets 1,132,152 1,958,988
Property and Equipment, Net 10,115,404 8,390,230
Goodwill 681,056 651,814
Other Assets 297,175 188,915
Fair Value of Hedged Firm Commitments 109,061 373,605
$12,334,848 $11,563,552
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 148,642 $ 21,764
Accounts payable 268,687 269,467
Accrued liabilities 290,391 298,032
Customer deposits 770,637 627,698
Dividends payable 61,612 61,548
Fair value of derivative contracts 79,837 201,731
Total current liabilities 1,619,806 1,480,240
Long-Term Debt 3,011,969 2,954,854
Deferred Income and Other Long-Term Liabilities 170,814 157,998
Fair Value of Derivative Contracts 114,356 379,683
Commitments and Contingencies (Notes 7 and 8)
Shareholders' Equity
Common stock; $.01 par value; 960,000 shares
authorized; 586,788 shares issued and
outstanding at 2002 (620,019 shares issued
at 2001) 5,868 6,200
Additional paid-in capital 1,089,125 1,805,248
Retained earnings 6,325,850 5,556,296
Unearned stock compensation (11,181) (12,398)
Accumulated other comprehensive income (loss) 8,241 (36,932)
Treasury stock; 33,848 shares at cost (727,637)
Total shareholders' equity 7,417,903 6,590,777
$12,334,848 $11,563,552
The accompanying notes are an integral part of these consolidated financial
statements
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
Years Ended November 30,
2002 2001 2000
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,015,941 $ 926,200 $ 965,458
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 382,343 372,224 287,667
Impairment charge 20,000 140,378
Gain on sale of investments in affiliates, net (116,698)
Loss (income) from affiliated operations
and dividends received 56,910 (21,362)
Accretion of original issue discount 19,294 2,174 199
Other 14,664 19,025 (14,888)
Changes in operating assets and liabilities,
excluding businesses acquired and consolidated
(Increase) decrease in
Receivables (5,452) (7,134) (15,132)
Inventories 1,667 8,455 (8,205)
Prepaid expenses and other (80,593) 43,691 (21,972)
(Decrease) increase in
Accounts payable (12,011) (63,227) 58,133
Accrued and other liabilities (28,380) (335) (5,977)
Customer deposits 141,559 (142,727) 55,614
Net cash provided by operating activities 1,469,032 1,238,936 1,279,535
INVESTING ACTIVITIES
Additions to property and equipment, net (1,986,482) (826,568) (1,003,348)
Proceeds from sale of investments
in affiliates 531,225
Proceeds from sale of property and equipment 4,071 15,000 51,350
Acquisition of consolidated subsidiary, net (383,640)
Sale (purchase) of
short-term investments, net 2,213 (33,395) 22,170
Other, net (39,855) (28,178) 21,441
Net cash used in investing activities (2,020,053) (341,916) (1,292,027)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 231,940 2,574,281 1,020,091
Purchase of treasury stock (705,137)
Principal repayments of long-term debt (189,678) (1,971,026) (388,429)
Dividends paid (246,323) (245,844) (254,333)
Proceeds from issuance of common stock, net 7,240 5,274 7,811
Other, principally debt issuance costs (1,544) (25,531)
Net cash (used in) provided by
financing activities (198,365) 337,154 (319,997)
Effect of exchange rate changes on cash and
cash equivalents (5,214) (2,156)
Net (decrease) increase in cash and
cash equivalents (754,600) 1,232,018 (332,489)
Cash and cash equivalents at beginning
of year 1,421,300 189,282 521,771
Cash and cash equivalents at end of year $ 666,700 $1,421,300 $ 189,282
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
Unearned Accumulated Total
Compre- Additional stock other share-
hensive Common paid-in Retained compen- comprehensive Treasury holders'
income stock capital earnings sation income (loss) stock equity
<S> <C> <C> <C> <C> <C> C> <C> <C>
Balances at
November 30, 1999 $6,170 $1,757,408 $4,176,498 $(9,945) $ 1,116 $5,931,247
Comprehensive income:
Net income $ 965,458 965,458 965,458
Foreign currency
translation
adjustment (73,943) (73,943) (73,943)
Unrealized losses on
marketable
securities, net (2,232) (2,232) (2,232)
Total comprehensive
income $ 889,283
Cash dividends (250,923) (250,923)
Issuance of stock under
stock plans 6 15,489 (5,977) 9,518
Amortization of unearned stock
compensation 3,639 3,639
Effect of conforming Costa's
reporting period (7,010) (7,010)
Purchase of treasury stock (705,137) (705,137)
Balances at
November 30, 2000 6,176 1,772,897 4,884,023 (12,283) (75,059)(705,137)5,870,617
Comprehensive income:
Net income $ 926,200 926,200 926,200
Foreign currency
translation
adjustment, net 45,781 45,781 45,781
Unrealized gains on
marketable
securities, net 6,411 6,411 6,411
Minimum pension
liability adjustment (5,521) (5,521) (5,521)
Changes related to cash
flow derivative
hedges, net (4,330) (4,330) (4,330)
Transition adjustment
for cash flow
derivative hedges (4,214) (4,214) (4,214)
Total comprehensive
income $ 964,327
Cash dividends (246,021) (246,021)
Issuance of stock under
stock plans 24 32,351 (4,601) (22,500) 5,274
Amortization of unearned stock
compensation 4,486 4,486
Effect of conforming Airtours'
reporting period (7,906) (7,906)
Balances at
November 30, 2001 6,200 1,805,248 5,556,296 (12,398) (36,932) (727,637)6,590,777
Comprehensive income:
Net income $1,015,941 1,015,941 1,015,941
Foreign currency
translation
adjustment 51,294 51,294 51,294
Minimum pension liability
adjustment (9,166) (9,166) (9,166)
Unrealized gains on
marketable
securities, net 2,579 2,579 2,579
Changes related to
cash flow derivative
hedges, net 466 466 466
Total
comprehensive
income $1,061,114
Cash dividends (246,387) (246,387)
Issuance of stock under
stock plans 6 11,176 (3,942) 7,240
Retirement of
treasury stock (338) (727,299) 727,637
Amortization of unearned stock
compensation 5,159 5,159
Balances at November
30, 2002 $5,868 $1,089,125 $6,325,850 $(11,181) $ 8,241 $ $7,417,903
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
CARNIVAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - General
Description of Business
Carnival Corporation is a Panamanian corporation and, together with its
consolidated subsidiaries, is referred to collectively in these consolidated
financial statements and elsewhere in this 2002 Annual Report as "our," "us"
and "we." We are a global cruise vacation and leisure travel provider that
operates six cruise lines under the brand names Carnival Cruise Lines
("CCL"), Costa Cruises ("Costa"), Cunard Line ("Cunard"), Holland America
Line ("Holland America"), Seabourn Cruise Line ("Seabourn") and Windstar
Cruises ("Windstar") and a tour business, Holland America Tours ("Tours").
CCL operates eighteen cruise ships with destinations primarily to the
Caribbean, the Bahamas and the Mexican Riviera. Holland America operates
eleven cruise ships with destinations primarily to Alaska, the Caribbean and
Europe. Costa operates eight cruise ships with destinations primarily to
Europe, the Caribbean and South America. Cunard operates two premium/luxury
cruise ships and Seabourn and Windstar each operate three luxury cruise
ships with destinations to the Caribbean, Europe, Central America, Tahiti
and other worldwide destinations. Our current fleet of 45 ships has a
passenger capacity of 67,282 lower berths. Tours is a leading cruise/tour
operator in Alaska and the Canadian Yukon. Tours also markets sightseeing
packages, both separately and as a part of our cruise/tour packages.
Preparation of Financial Statements
The preparation of our consolidated financial statements in accordance
with accounting principles generally accepted in the United States of
America requires us to make estimates and assumptions that affect the
amounts reported and disclosed in our financial statements. Actual results
could differ from these estimates. All material intercompany accounts,
transactions and unrealized profits and losses on transactions within our
consolidated group and with affiliates are eliminated in consolidation.
NOTE 2 - Summary Of Significant Accounting Policies
Basis of Presentation
We consolidate subsidiaries over which we have control, as typically
evidenced by a direct ownership interest of greater than 50%. For
affiliates where significant influence over financial and operating policies
exists, as typically evidenced by a direct ownership interest from 20% to
50%, the investment is accounted for using the equity method. See Note 5.
Prior to our acquisition of Costa in late fiscal 2000, we accounted for
our 50% interest in Costa using the equity method and recorded our portion
of Costa's operating results as earnings from affiliated operations on a
two-month lag basis. As of November 30, 2000, we changed how we report
Costa's operating results from a two-month lag basis to reporting on Costa's
current month's results. Accordingly, our November 30, 2000 consolidated
balance sheet included Costa's November 30, 2000 balance sheet. The impact
of conforming Costa's reporting period on our fiscal 2000 revenues,
operating income and net income was not material. Commencing in fiscal
2001, Costa's results of operations were also consolidated on a current
month basis in the same manner as our other wholly-owned subsidiaries. See
Note 17.
Cash and Cash Equivalents and Short-Term Investments
Cash and cash equivalents include investments with original maturities
of three months or less are stated at cost. At November 30, 2002 and 2001,
cash and cash equivalents included $616 million and $1.38 billion of
investments, respectively, primarily comprised of strong investment grade
asset-backed debt obligations and money market funds.
Short-term investments are comprised of marketable debt and equity
securities which are categorized as available for sale and, accordingly, are
stated at their fair values. Unrealized gains and losses are included as a
component of accumulated other comprehensive income (loss) ("AOCI") within
shareholders' equity until realized. The specific identification method is
used to determine realized gains or losses.
Inventories
Inventories consist primarily of provisions, spare parts, supplies and
fuel carried at the lower of cost or market. Cost is determined using the
weighted average or first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization was computed using the straight-line method over our estimates
of average useful lives and residual values, as a percentage of original
cost, as follows:
Residual
Values Years
Ships 15% 30
Buildings and improvements 0-10% 5-40
Transportation equipment and other 0-25% 2-20
Leasehold improvements,
including port facilities Shorter of lease term
or related asset life
We review our long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of these assets
may not be fully recoverable. The assessment of possible impairment is
based on our ability to recover the carrying value of our asset based on our
estimate of its undiscounted future cash flows. If these estimated
undiscounted future cash flows are less than the carrying value of the
asset, an impairment charge is recognized for the excess, if any, of the
assets carrying value over its estimated fair value (see Notes 4 and 16).
Dry-dock costs are included in prepaid expenses and are amortized to
operating expenses using the straight-line method generally over one year.
Ship improvement costs that we believe add value to our ships are
capitalized to the ships, and depreciated over the improvements' estimated
useful lives, while costs of repairs and maintenance are charged to expense
as incurred. We capitalize interest on ships and other capital projects
during their construction period. Upon the replacement or refurbishment of
previously capitalized ship components, these assets' estimated cost and
accumulated depreciation are written-off and any resulting gain or loss is
recognized in our results of operations. No such material gains or losses
were recognized in fiscal 2002, 2001 or 2000. See Note 3.
Gains or losses on the sale of property and equipment are classified as
nonoperating other income or expense. In fiscal 2002, we realized an $8
million loss on the sale of the former Nieuw Amsterdam.
Goodwill
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets" requires companies to stop amortizing goodwill
and requires an annual, or when events or circumstances dictate a more
frequent, impairment review of goodwill. Accordingly, upon adoption of SFAS
No. 142 on December 1, 2001, we ceased amortizing our goodwill, all of which
has been allocated to our Costa, Cunard and Holland America reportable
units, which are all part of our reportable cruise segment. We completed
the transitional and annual impairment tests of these reporting units'
existing goodwill as of December 1, 2001 and July 31, 2002, respectively,
and determined that their goodwill was not impaired. There has been no
change to our goodwill carrying amount since November 30, 2001, other than
the change resulting from using a different foreign currency translation
rate at November 30, 2002 compared to November 30, 2001. If goodwill
amortization, including goodwill expensed as part of our loss or income from
affiliated operations, had not been recorded for fiscal 2001 and 2000 our
adjusted net income and adjusted basic and diluted earnings per share would
have been as follows (in thousands, except per share amounts):
2001 2000
Net income $926,200 $965,458
Goodwill amortization 25,480 23,046
Adjusted net income $951,680 $988,504
Adjusted earnings per share
Basic $1.63 $1.65
Diluted $1.62 $1.64
The SFAS No. 142 goodwill impairment review consists of a two-step
process of first determining the fair value of the reporting unit and
comparing it to the carrying value of the net assets allocated to the
reporting unit. Fair values of our reporting units were determined based on
our estimates of comparable market price or discounted future cash flows.
If this fair value exceeds the carrying value, which was the case for our
reporting units, no further analysis or goodwill write-down is required. If
the fair value of the reporting unit is less than the carrying value of the
net assets, the implied fair value of the reporting unit is allocated to all
the underlying assets and liabilities, including both recognized and
unrecognized tangible and intangible assets, based on their fair value. If
necessary, goodwill is then written-down to its implied fair value.
Prior to fiscal 2002, our goodwill was reviewed for impairment pursuant
to the same policy as our other long-lived assets as discussed above (see
Note 4) and our goodwill was amortized over 40 years using the straight-line
method. In addition, accumulated goodwill amortization at November 30, 2001
was $118 million.
Derivative Instruments and Hedging Activities
We utilize derivative instruments, such as forward foreign currency
contracts to limit our exposure to fluctuations in foreign currency exchange
rates and interest rate swaps to manage our interest rate exposure and to
achieve a desired proportion of variable and fixed rate debt (see Note 11).
Our most significant contracts to buy foreign currency are forward
contracts entered into to fix the cost in United States ("U.S.") dollars of
seven of our foreign currency denominated shipbuilding commitments (see Note
7). If our shipbuilding contract is denominated in the functional currency
of the cruise line that is expected to be operating the ship, we have not
entered into a forward foreign currency contract to hedge that commitment.
Effective December 1, 2000, we adopted SFAS No. 133, as amended,
"Accounting for Derivative Instruments and Hedging Activities," which
requires that all derivative instruments be recorded on our balance sheet at
their fair values. Derivatives that are not hedges must be recorded at fair
value and the changes in fair value must be immediately included in
earnings. If a derivative is a fair value hedge, then changes in the fair
value of the derivative are offset against the changes in the fair value of
the underlying hedged firm commitment. If a derivative is a cash flow
hedge, then changes in the fair value of the derivative are recognized as a
component of AOCI until the underlying hedged item is recognized in
earnings. The ineffective portion of a hedge derivative's change in fair
value is immediately recognized in earnings. We formally document all
relationships between hedging instruments and hedged items, as well as our
risk management objectives and strategies for undertaking our hedge
transactions. Upon adoption, we recorded an adjustment of $4.2 million in
AOCI to record the unrealized net losses from our cash flow hedges that
existed on December 1, 2000.
The total $187 million and $578 million of current and long-term fair
value of hedged firm commitment assets on our November 30, 2002 and 2001
balance sheets, respectively, includes $178 million and $567 million,
respectively, of unrealized gains on our shipbuilding commitments
denominated in foreign currencies because of the strengthening of the dollar
compared to the euro. In addition, the total $194 million and $581 million
of fair value of derivative contract liabilities on our November 30, 2002
and 2001 balance sheets, respectively, includes $178 million and $567
million of unrealized losses on our forward foreign currency contracts
relating to those same shipbuilding commitments, which are used to fix the
cost of our shipbuilding commitments in U.S. dollars, and effectively
offsets the related hedged firm commitment assets.
We classify the fair value of our derivative contracts and the fair
value of our offsetting hedged firm commitments as either current or long-
term liabilities and assets depending on whether the maturity date of the
derivative contract is within or beyond one year from our balance sheet
dates, respectively. The cash flows from derivatives treated as hedges are
classified in our statements of cash flows in the same category as the item
being hedged.
Derivative gains and losses included in AOCI are reclassified into
earnings at the same time the underlying hedged transaction is recorded in
earnings. During fiscal 2002 and 2001, all net changes in the fair value of
both our fair value hedges and the offsetting hedged firm commitments and
our cash flow hedges were immaterial, as were any ineffective portions of
these hedges. No fair value hedges or cash flow hedges were derecognized or
discontinued in fiscal 2002 and 2001, and the amount of estimated unrealized
net losses which are expected to be reclassified to earnings in the next
twelve months is not material. At November 30, 2002 and 2001, AOCI included
$8 million and $8.5 million of unrealized net losses, respectively, from
cash flow hedge derivatives, which were substantially all variable to fixed
interest rate swap agreements.
Finally, if any of the three shipyards with which we have contracted to
build our ships is unable to perform, we would still be required to perform
under our foreign currency forward contracts related to that shipyard's
shipbuilding contracts. Accordingly, based upon the circumstances, we may
have to discontinue the accounting for those forward contracts as hedges, if
the shipyard cannot perform.
Prior to fiscal 2001, changes in the fair values of and any discounts
or premiums on, our shipbuilding forward foreign currency contract hedges
were recorded at maturity, which coincided with the dates when the related
foreign currency payments were to be made, with any resulting gains or
losses recorded as a decrease or increase, respectively, to the cost paid
for our ships.
Revenue and Expense Recognition
Guest cruise deposits represent unearned revenues and are initially
recorded as customer deposit liabilities on our balance sheet when received.
Customer deposits are subsequently recognized as cruise revenues, together
with revenues from onboard activities and all associated direct costs of a
voyage, generally upon completion of voyages with durations of ten days or
less and on a pro rata basis for voyages in excess of ten days. Future
travel discount vouchers issued to guests are recorded as a reduction of
revenues when such vouchers are utilized. Revenues and expenses from our
tour and related services are recognized at the time the services are
performed or expenses are incurred.
Advertising Costs
Substantially all of our advertising costs are charged to expense as
incurred, except costs which result in tangible assets, such as brochures,
which are recorded as prepaid expenses and charged to expense as consumed.
Media production costs are also recorded as prepaid expenses and charged to
expense upon the first airing of the advertisement. Advertising expenses
totaled $208 million, $214 million and $181 million in fiscal 2002, 2001 and
2000, respectively. At November 30, 2002 and 2001, the amount of
advertising costs included in prepaid expenses was not material.
Foreign Currency Translations and Transactions
For our foreign subsidiaries and affiliates using the local currency as
their functional currency, assets and liabilities are translated at exchange
rates in effect at the balance sheet dates. Translation adjustments
resulting from this process are reported in AOCI. Revenues and expenses of
these foreign subsidiaries and affiliates are translated at weighted-average
exchange rates for the period. Exchange gains and losses arising from
transactions denominated in a currency other than the functional currency of
the entity involved are immediately included in our earnings.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during each
period. Diluted earnings per share is computed by dividing net income by the
weighted-average number of shares of common stock, common stock equivalents
and other potentially dilutive securities outstanding during each period.
See Note 14.
Stock-Based Compensation
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," we
elected to use the intrinsic value method of accounting for our employee and
director stock-based compensation awards. Accordingly, we have not
recognized compensation expense for our noncompensatory employee and
director stock option awards. Our pro forma net income and earnings per
share for fiscal 2002 and 2001, had we elected to adopt the fair value
approach of SFAS No. 123, which charges earnings for the estimated fair
value of stock options, would have been $991 million and $904 million and
$1.69 and $1.54, respectively, and would not have been materially different
from reported net income and earnings per share for fiscal 2000.
As determined below, the weighted-average fair values of options we
granted during fiscal 2002, 2001 and 2000 were $12.16, $12.67 and $13.31 per
share, respectively, at the dates of grant. As recommended by SFAS No. 123,
the fair values of options were estimated using the Black-Scholes option
pricing model with the following weighted-average assumptions for fiscal
2002, 2001 and 2000, respectively; expected dividend yields of 1.23%, 1.16%
and 1.17%; expected volatility of 48.0%, 50.0% and 28.9%; risk free interest
rates of 4.3%, 4.5% and 6.4%; and expected option life of six years for all
periods.
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that have no vesting or trading
restrictions and are fully transferable. In addition, option-pricing models
require the input of subjective assumptions, including expected stock price
volatility. Because our options have characteristics different from those of
traded options, the existing models do not necessarily provide a reliable
single measure of the fair value of our options.
Concentrations of Credit Risk
As part of our ongoing control procedures, we monitor concentrations of
credit risk associated with financial and other institutions with which we
conduct significant business. Credit risk, including counterparty
nonperformance under derivative instruments, contingent obligations and new
ship progress payment guarantees, is considered minimal, as we primarily
conduct business with large, well-established financial institutions who
have long-term credit ratings of A or above and we seek to diversify our
counterparties. In addition, we have established guidelines regarding
credit ratings and investment maturities that we follow to maintain safety
and liquidity. We do not anticipate nonperformance by any of our
significant counterparties.
We also monitor the creditworthiness of our customers to which we grant
credit terms in the normal course of our business. Concentrations of credit
risk associated with these receivables are considered minimal primarily due
to their short maturities. We have experienced only minimal credit losses
on our trade receivables. We do not normally require collateral or other
security to support normal credit sales. However, we do normally require
collateral and/or guarantees to support notes receivable on significant
asset sales and new ship progress payments to shipyards.
Reclassifications
Reclassifications have been made to prior year amounts to conform to
the current year presentation.
NOTE 3 - Property and Equipment
Property and equipment consisted of the following (in thousands):
November 30,
2002 2001
Ships $10,665,958 $ 8,892,412
Ships under construction 712,447 592,781
11,378,405 9,485,193
Land, buildings and improvements,
and port facilities 314,448 264,294
Transportation equipment and other 409,310 349,188
Total property and equipment 12,102,163 10,098,675
Less accumulated depreciation and amortization (1,986,759) (1,708,445)
$10,115,404 $ 8,390,230
Capitalized interest, primarily on our ships under construction,
amounted to $39 million, $29 million and $41 million in fiscal 2002, 2001
and 2000, respectively. Ships under construction include progress payments
for the construction of the ship, as well as design and engineering fees,
capitalized interest, construction oversight costs and various owner
supplied items. At November 30, 2002, two ships with an aggregate net book
value of $623 million were pledged as collateral pursuant to a $119 million
note and a $463 million contingent obligation (see Notes 6 and 8).
Maintenance and repair expenses and dry-dock amortization were $175
million, $160 million and $132 million in fiscal 2002, 2001 and 2000,
respectively.
NOTE 4 - Impairment Charge
During fiscal 2002 and 2001 we reviewed our long-lived assets and
goodwill for which there were indications of possible impairment or as
required annually pursuant to SFAS No. 142. As a result of these reviews,
in fiscal 2002 we reduced the carrying value of one of our ships by
recording an impairment charge of $20 million. In fiscal 2001, we recorded
an impairment charge of $140 million, which consisted principally of a $71
million reduction in the carrying value of ships, a $36 million write-off of
Seabourn goodwill, a $15 million write-down of a Holland America note
receivable and a $11 million loss on the sale of the Seabourn Goddess I and
II. The impaired ships' and note receivable fair values were based on third
party appraisals, negotiations with unrelated third parties or other
available evidence, and the fair value of the impaired goodwill was based on
our estimates of discounted future cash flows.
NOTE 5 - Investments In and Advances To Affiliates
On June 1, 2001, we sold our investment in Airtours plc, which resulted
in a nonoperating net gain of $101 million and net cash proceeds of $492
million. Cumulative foreign currency translation losses of $59 million were
reclassified from AOCI and included in determining this 2001 net gain. We
also recorded a direct charge of $8 million to our retained earnings in
fiscal 2001, which represented our share of Airtours' losses for April and
May 2001, since Airtours results were reported on a two-month lag.
In fiscal 2001, we sold our interest in CRC Holdings, Inc. ("CRC") to
an unrelated third party, which resulted in a nonoperating net gain of $16
million and net cash proceeds of $39 million. One of the members of our
Board of Directors was a principal shareholder in CRC.
Dividends received from affiliates were $13 million and $16 million in
fiscal 2001 and 2000, respectively, which reduced the carrying value of our
investments in affiliates in accordance with the equity method of
accounting.
Income statement and segment information for fiscal 2000 for our
affiliated companies accounted for using the equity method, including
Airtours and Costa, was as follows: revenues - $6.7 billion, gross margin -
$1.3 billion, operating income - $5 million, depreciation and amortization -
$152 million, net income - $20 million and capital expenditures - $650
million. Since we sold our interest in Airtours and CRC during fiscal 2001,
no data has been presented for fiscal 2002 and 2001.
NOTE 6 - Long-Term Debt
Long-term debt consisted of the following (in thousands):
November 30,
2002 (a) 2001 (a)
Euro floating rate note, collateralized by
one Costa ship, bearing interest
at euribor plus 0.5% (4.0% and 4.8%
at November 30, 2002 and 2001,
respectively), due through 2008 $ 118,727 $ 125,770
Unsecured fixed rate notes, bearing interest
at rates ranging from 6.15% to 7.7%, due
through 2028(b) 848,900 848,779
Unsecured floating rate euro notes, bearing interest
at rates ranging from euribor plus 0.35% to
euribor plus 0.53% (3.6% to 4.0% and 3.9% to 4.9%
at November 30, 2002 and 2001, respectively),
due 2005 and 2006 680,377 604,068
Unsecured fixed rate euro notes, bearing interest
at 5.57%, due in 2006 297,195 266,223
Unsecured $1.4 billion revolving credit facility,
bearing interest at libor plus 0.17% (1.6% at
November 30, 2002), due in 2006 50,000
Other 44,468 29,833
Unsecured 2% convertible notes, due in 2021 600,000 600,000
Unsecured zero-coupon convertible notes, net of
discount, with a face value of $1.05 billion,
due in 2021 520,944 501,945
3,160,611 2,976,618
Less portion due within one year (148,642) (21,764)
$3,011,969 $2,954,854
(a) All borrowings are in U.S. dollars unless otherwise noted. Euro
denominated notes have been translated to U.S. dollars at the period end
exchange rates. At November 30, 2002 and 2001, 65% and 66% of our debt
was U.S. dollar denominated and 35% and 34% was euro denominated,
respectively.
(b) These notes are not redeemable prior to maturity.
Our unsecured 2% convertible notes ("2% Notes") and our zero-coupon
convertible notes ("Zero-Coupon Notes") are convertible into 15.3 million
shares and 17.4 million shares, respectively, of our common stock. Our 2%
Notes are convertible at a conversion price of $39.14 per share, subject to
adjustment, during any fiscal quarter for which the closing price of our
common stock is greater than $43.05 per share for a defined duration of
time. Our Zero-Coupon Notes have a 3.75% yield to maturity and are
convertible during any fiscal quarter for which the closing price of our
common stock reaches certain targeted levels for a defined duration of time.
These levels commenced at a low of $31.94 per share for the first quarter of
fiscal 2002 and increase at an annual rate of 3.75% thereafter, until
maturity. The conditions for conversion of our 2% Notes or Zero-Coupon Notes
were not met during fiscal 2002 and 2001.
Subsequent to April 14, 2008, we may redeem all or a portion of our 2%
Notes at their face value plus any unpaid accrued interest, and subsequent
to October 23, 2008, we may redeem all or a portion of our Zero-Coupon Notes
at their accreted value.
In addition, on April 15 of 2005, 2008 and 2011 our 2% Noteholders and
on October 24 of 2006, 2008, 2011 and 2016 our Zero-Coupon Noteholders may
require us to repurchase all or a portion of the outstanding 2% Notes at
their face value plus any unpaid accrued interest and the Zero-Coupon Notes
at their accreted value.
Upon conversion, redemption or repurchase of our 2% Notes and Zero-
Coupon Notes we may choose to deliver common stock, cash or a combination of
cash and common stock with a total value equal to the value of the
consideration otherwise deliverable. If our 2% Notes and Zero-Coupon Notes
were to be put back to us, we expect to settle them for cash and,
accordingly, they are not included in our diluted earnings per share common
stock calculations. However, no assurance can be given that we will have
sufficient liquidity to make such cash payments. See Note 14.
In May 2001, Costa entered into a five-year 257.5 million euro (255.6
million U.S. dollars at the November 30, 2002 exchange rate) unsecured
floating rate euro denominated revolving credit facility, of which $145
million was available at November 30, 2002.
Our $1.4 billion unsecured multi-currency revolving credit facility
matures in June 2006. This facility currently bears interest at
libor/euribor plus 17 basis points ("BPS"), which interest rate spread over
libor/euribor will vary based on changes to our senior unsecured debt
ratings, and provides for an undrawn facility fee of eight BPS. Our
commercial paper program is supported by this revolving credit facility and,
accordingly, any amounts outstanding under our commercial paper program,
none at November 30, 2002 and 2001, reduce the aggregate amount available
under this facility. At November 30, 2002, $1.35 billion of this facility
was available. This facility and other of our loan agreements contain
covenants that require us, among other things, to maintain a minimum debt
service coverage and limits our debt to tangible capital ratio and the
amount of our secured indebtedness. In addition, our ability to draw upon
the then available portion of our $1.4 billion credit facility could be
terminated and we could also be required to repay the amounts outstanding
under our one collateralized and three unsecured euro notes, which amounted
to $722 million at November 30, 2002, if our business suffers a material
adverse change. At November 30, 2002, we were in compliance with all of our
debt covenants.
At November 30, 2002, the scheduled annual maturities of our long-term
debt was as follows (in thousands):
Fiscal
2003 $ 148,642
2004 127,985
2005 907,648(a)
2006 1,387,209(a)
2007 22,833
Thereafter 566,294
$3,160,611
(a) Includes $600 million of our 2% Notes in 2005 and $521 million of our
Zero-Coupon Notes in 2006 based on the date of the noteholders first put
option.
Debt issuance costs are generally amortized to interest expense using
the straight-line method over the term of the notes or to the noteholders
first put option date, whichever is earlier. In addition, all loan issue
discounts are amortized to interest expense using the effective interest
method over the term of the notes.
NOTE 7 - Commitments
Ship Commitments
A description of our ships under contract for construction at November
30, 2002 was as follows (in millions, except passenger capacity data):
Expected Estimated
Service Passenger Total
Ship Date(1) Shipyard Capacity(2) Cost(3)
CCL
Carnival Glory 7/03 Fincantieri 2,974 $ 510
Carnival Miracle 3/04 Masa-Yards (4) 2,124 375
Carnival Valor 11/04 Fincantieri(4) 2,974 510
Newbuild 1/06 Fincantieri 2,974 460
Total CCL 11,046 1,855
Holland America
Oosterdam 7/03 Fincantieri(4) 1,848 410
Westerdam 5/04 Fincantieri(4) 1,848 410
Newbuild 11/05 Fincantieri(4) 1,848 410
Newbuild 6/06 Fincantieri 1,848 390
Total Holland America 7,392 1,620
Costa
Costa Mediterranea 6/03 Masa-Yards (5) 2,114 360
Costa Fortuna 12/03 Fincantieri(5) 2,720 440
Costa Magica 11/04 Fincantieri(5) 2,720 460
Total Costa 7,554 1,260
Cunard
Queen Mary 2 1/04 Chantiers de
l'Atlantique(4) 2,620 780
Newbuild 2/05 Fincantieri(4) 1,968 410
Total Cunard 4,588 1,190
Total 30,580 $5,925
(1) The expected service date is the date the ship is currently expected to
begin its first revenue generating cruise.
(2) In accordance with cruise industry practice, passenger capacity is
calculated based on two passengers per cabin even though some cabins
can accommodate three or more passengers.
(3) Estimated total cost of the completed ship includes the contract price
with the shipyard, design and engineering fees, capitalized interest,
construction oversight costs and various owner supplied items.
(4) These construction contracts are denominated in euros and have been
fixed into U.S. dollars through the utilization of forward foreign
currency contracts. The $178 million of unrealized losses from these
forward contracts has been recorded as fair value of derivative contract
liabilities on our November 30, 2002 balance sheet and are also included
in the above estimated total cost of these construction contracts.
(5) These construction contracts are denominated in euros, which is Costa's
functional currency. The estimated total costs have been translated
into U.S. dollars using the November 30, 2002 exchange rate.
In connection with our ships under contract for construction, we have
paid approximately $712 million through November 30, 2002 and anticipate
paying the remaining estimated total cost as follows (in millions):
Fiscal
2003 $1,630
2004 2,110
2005 1,140
2006 330
$5,210
Proposed Dual-Listed Company Transaction with P&O Princess Cruises plc
("P&O Princess")
After a series of preconditional offers made to the shareholders of P&O
Princess by us, commencing in December 2001, on January 8, 2003 we entered
into an agreement with P&O Princess, the world's third largest cruise
company, providing for a combination of both companies (the "Combined
Group") under a dual-listed company ("DLC") structure.
If the DLC transaction is completed, it would create a combination of
the two companies through a number of contracts and certain amendments to
our Articles of Incorporation and By-Laws and to P&O Princess' Memorandum
and Articles of Association. The two companies would retain their separate
legal identities and each company's shares would continue to be publicly
traded on the New York Stock Exchange for us and the London Stock Exchange
for P&O Princess. However, both companies would operate as if they were a
single economic enterprise. The contracts governing the DLC structure would
provide that the boards of directors of the two companies would be
identical, the companies would be managed by a unified senior management
team and that, as far as possible, P&O Princess' and our shareholders would
be placed in substantially the same economic position as if they held shares
in a single enterprise which owned all of the assets of both companies. The
net effect of the DLC transaction would be that our existing shareholders
would own an economic interest equal to approximately 74% of the Combined
Group and the existing shareholders of P&O Princess would own an economic
interest equal to approximately 26% of the Combined Group. Also in
connection with the DLC transaction, we will be making a Partial Share Offer
("PSO") for 20% of P&O Princess' shares, which will enable P&O Princess
shareholders to exchange P&O Princess shares for our shares on the basis of
0.3004 of our shares for each P&O Princess share up to, in aggregate, a
maximum of 20% of P&O Princess issued share capital. If the maximum number
of P&O Princess' shares are exchanged under the PSO, holders of our shares,
including our new shareholders who exchanged their P&O Princess shares for
our shares under the PSO, would own an economic interest equal to
approximately 79% of the Combined Group and holders of P&O Princess shares
would own an economic interest equal to approximately 21% of the Combined
Group. The PSO is conditional on, among other things, the closing of the DLC
transaction. Upon completion of the DLC transaction, P&O Princess will
reorganize and consolidate its share capital so that one share of P&O
Princess will have the same economic and voting interest as one of our
shares.
The completion of the DLC transaction between P&O Princess and us is
subject to approval by P&O Princess' shareholders and our shareholders. No
assurance can be given that the DLC transaction will be completed and, if it
is completed, when completion will take place. If the DLC transaction is
not completed by September 30, 2003, either party can terminate the
agreement if it is not in material breach of its obligations. We have
incurred $30 million of transaction costs as of November 30, 2002, and
continue to incur costs, which have been or will be deferred in connection
with the DLC transaction. In the event a transaction with P&O Princess is
not consummated, we would be required to write off the above $30 million
plus all costs incurred and deferred subsequent to November 30, 2002,
resulting in an estimated total write-off of approximately $45 million to
$50 million. If the DLC transaction or another transaction with P&O Princess
is completed by us, these deferred costs, together with any additional
direct costs, which may be incurred, would be capitalized as part of the
transaction.
If our agreement with P&O Princess is terminated under certain
circumstances, we would be required to pay P&O Princess a break fee of $49
million. These circumstances include, among other things, our board of
directors withdrawing or adversely modifying its recommendation to
shareholders to approve the DLC transaction, our board of directors
recommending an alternative acquisition proposal to shareholders, or our
shareholders failing to approve the DLC transaction if a third-party
acquisition proposal exists at the time of our meeting or if we breach our
exclusivity covenant and a third party acquisition proposal with respect to
us is completed prior to July 2004. Similarly, P&O Princess would be
obligated to pay us a break fee of $49 million upon the occurrence of
reciprocal circumstances.
If the DLC transaction is completed, we expect to account for it as an
acquisition of P&O Princess by us, which will be accounted for using the
purchase method.
Operating Leases
Rent expense under our operating leases, primarily for office and
warehouse space, was $15 million, $13 million and $10 million in fiscal
2002, 2001 and 2000, respectively. At November 30, 2002, minimum annual
rentals for our operating leases, with initial or remaining terms in excess
of one year, were as follows (in thousands):
Fiscal
2003 $10,700
2004 9,300
2005 9,100
2006 9,100
2007 6,000
Thereafter 25,300
$69,500
Port Facilities and Other
At November 30, 2002, we had commitments through 2027, with initial or
remaining terms in excess of one year, to pay minimum amounts for our annual
usage of port facilities and other contractual commitments as follows (in
thousands):
Fiscal
2003 $ 52,100
2004 38,800
2005 25,300
2006 25,800
2007 27,100
Thereafter 179,600
$348,700
Travel Vouchers
Pursuant to CCL's and Holland America's settlement of litigation,
travel vouchers with face values of $10 to $55 were required to be issued to
qualified past passengers. As of November 30, 2002, approximately $123
million of these travel vouchers are available to be used for future travel
prior to their expiration, principally in fiscal 2005.
NOTE 8 - Contingencies
Litigation
Several actions (collectively, the "ADA Complaints") have been filed
against Costa, Cunard and Tours alleging that they violated the Americans
with Disabilities Act by failing to make certain cruise ships accessible to
individuals with disabilities. The plaintiffs seek injunctive relief to
require modifications to certain vessels to increase accessibility to
disabled passengers and fees and costs. Costa and the plaintiffs have
agreed to settle this action, subject to court approval. Cunard and Tours
are in ongoing settlement negotiations with the plaintiffs.
Three actions (collectively, the "Facsimile Complaints") were filed
against us on behalf of purported classes of persons who received
unsolicited advertisements via facsimile, alleging that we and other
defendants distributed unsolicited advertisements via facsimile in
contravention of the U.S. Telephone Consumer Protection Act. The plaintiffs
seek to enjoin the sending of unsolicited facsimile advertisements and
statutory damages. The advertisements referred to in the Facsimile
Complaints were not sent by us, but rather were distributed by a
professional faxing company at the behest of travel agencies that referenced
a CCL product. We do not advertise directly to the traveling public through
the use of facsimile transmission.
The ultimate outcome of the pending ADA and Facsimile Complaints cannot
be determined at this time. We believe that we have meritorious defenses to
these claims and, accordingly, we intend to vigorously defend against these
actions.
Several actions filed in the U.S. District Court for the Southern
District of Florida against us and four of our executive officers on behalf
of a purported class of persons who purchased our common stock were
consolidated into one action in Florida (the "Stock Purchaser Complaint").
The plaintiffs have claimed that statements we made in public filings
violated federal securities laws and seek unspecified compensatory damages
and attorney and expert fees and costs. Recently, a magistrate judge
recommended that our motion to dismiss the Stock Purchaser Complaint be
granted and that the plaintiffs' amended complaint be dismissed without
prejudice. However, because it was dismissed without prejudice, the
plaintiffs may file a new amended complaint. Nevertheless, the parties have
entered into a memorandum of understanding settling the case pending
confirmatory discovery and judicial approval. A substantial portion of the
$3.4 million settlement amount, which includes plaintiff's attorneys fees,
will be covered by insurance.
In February 2001, Holland America Line-USA, Inc. ("HAL-USA"), our
wholly-owned subsidiary, received a grand jury subpoena requesting that it
produce documents and records relating to the air emissions from Holland
America ships in Alaska. HAL-USA responded to the subpoena. The ultimate
outcome of this matter cannot be determined at this time.
On August 17, 2002, an incident occurred in Juneau, Alaska onboard
Holland America's Ryndam involving a wastewater discharge from the ship. As
a result of this incident, various Ryndam ship officers have received grand
jury subpoenas from the Office of the U.S. Attorney in Anchorage, Alaska
requesting that they appear before a grand jury. One of the subpoenas also
requests the production of Holland America documents, which Holland America
is producing. If the investigation results in charges being filed, a
judgment could include, among other forms of relief, fines and debarment
from federal contracting, which would prohibit operations in Glacier Bay
National Park and Preserve during the period of debarment. The State of
Alaska is separately investigating this incident. The ultimate outcome of
these matters cannot be determined at this time.
Costa has instituted arbitration proceedings in Italy to confirm the
validity of its decision not to deliver its ship, the Costa Classica, to the
shipyard of Cammell Laird Holdings PLC ("Cammell Laird") under a 79 million
euro denominated contract for the conversion and lengthening of the ship.
Costa has also given notice of termination of the contract. It is now
expected that the arbitration tribunal's decision will be made in mid-2004
at the earliest. In the event that an award is given in favor of Cammell
Laird, the amount of damages, which Costa will have to pay, if any, is not
currently determinable. The ultimate outcome of this matter cannot be
determined at this time.
In the normal course of our business, various other claims and lawsuits
have been filed or are pending against us. Most of these claims and
lawsuits are covered by insurance. We are not able to estimate the impact
or the ultimate outcome of any such actions, which are not covered by
insurance.
Contingent Obligations
At November 30, 2002, we had contingent obligations totaling $1.05
billion to participants in lease out and lease back type transactions for
three of our ships. At the inception of the leases, the entire amount of
the contingent obligations was paid by us to major financial institutions to
enable them to directly pay these obligations. Accordingly, these
obligations were considered extinguished, and neither funds nor the
contingent obligations have been included on our balance sheets. We would
only be required to make any payments under these lease contingent
obligations in the remote event of nonperformance by these financial
institutions, all of which have long-term credit ratings of AAA or AA. In
addition, we obtained a direct guarantee from another AAA rated financial
institution for $285 million of the above noted contingent obligations,
thereby reducing even the remote exposure to this portion of the contingent
obligations. If the major financial institutions' credit ratings fall below
AA-, we would be required to move a majority of the funds from these
financial institutions to other highly-rated financial institutions. If our
credit rating falls below BBB, we would be required to provide a standby
letter of credit for $91 million, or alternatively provide mortgages in the
aggregate amount of $91 million on two of our ships.
In the unlikely event that we were to terminate the three lease
agreements early or default on our obligations, we would, as of November 30,
2002 have to pay a total of $180 million in stipulated damages. As of
November 30, 2002, $148 million of standby letters of credit have been
issued by a major financial institution in order to provide further security
for the payment of these contingent stipulated damages. An additional $40
million of standby letters of credit would be required to be issued if our
three credit ratings fall below A-/A3. Between 2017 and 2022, we have the
right to exercise options that would terminate these transactions at no cost
to us. We entered into these three transactions in order to receive $67
million, which was recorded as deferred income on our balance sheets and is
being amortized to nonoperating income through 2022. In the event we were
to default under our $1.4 billion revolving credit facility, we would be
required to post cash collateral to support the stipulated damages standby
letters of credit.
NOTE 9 - Income and Other Taxes
We believe that substantially all of our income, with the exception of
our U.S. source income from the transportation, hotel and tour businesses of
Tours, is exempt from U.S. federal income taxes. If we were found not to
qualify for exemption pursuant to applicable income tax treaties or under
the Internal Revenue Code or if the income tax treaties or Internal Revenue
Code were to be changed in a manner adverse to us, a portion of our income
would become subject to taxation by the U.S. at higher than normal corporate
tax rates.
Some of our subsidiaries, including Costa and Tours, are subject to
foreign and/or U.S. income taxes. In fiscal 2002, we recognized a net $57
million income tax benefit primarily due to a new Italian investment
incentive law, which allowed Costa to receive a $51 million income tax
benefit based on contractual expenditures during 2002 on the construction of
new ships. At November 30, 2002, Costa had a remaining net deferred tax
asset of approximately $45 million relating to the tax benefit of the net
operating loss carryforwards arising from this incentive law, which expire
in 2007. In fiscal 2001, we recognized a $9 million income tax benefit from
Costa primarily due to changes in Italian tax law.
We do not expect to incur income taxes on future distributions of
undistributed earnings of foreign subsidiaries and, accordingly, no deferred
income taxes have been provided for the distribution of these earnings.
In addition to or in place of income taxes, virtually all jurisdictions
where our ships call, impose taxes based on passenger counts, ship tonnage
or some other measure. These taxes, other than those directly charged to
and collected from passengers by us, are recorded as operating expenses in
the accompanying statements of operations.
NOTE 10 - Shareholders' Equity
Our Articles of Incorporation authorize our Board of Directors, at
their discretion, to issue up to 40 million shares of our preferred stock.
At November 30, 2002 and 2001, no preferred stock had been issued.
In February 2000, our Board of Directors authorized the repurchase of
up to $1 billion of our common stock. As of November 30, 2001, we had
repurchased 33.1 million shares of our common stock at a cost of $705
million pursuant to this authorization. In addition in 2001, we received
761,000 shares of our common stock from our chief executive officer valued
at its quoted market price of $23 million, which we recorded as treasury
stock, in payment of the exercise price for two million shares of our common
stock issued to him pursuant to a stock option plan (see Note 13). In
fiscal 2002, we retired all of our treasury stock.
At November 30, 2002, there were 77.5 million shares of our common stock
reserved for issuance pursuant to our convertible notes and our stock
option, employee stock purchase, restricted stock and dividend reinvestment
plans. During fiscal 2002, 2001 and 2000 we declared cash dividends
aggregating $0.42 per share for each year.
At November 30, 2002 and 2001, AOCI included cumulative foreign
currency translation adjustments which increased shareholders' equity by $29
million and decreased shareholders' equity by $22 million, respectively.
NOTE 11 - Financial Instruments
We estimated the fair value of our 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 fair value and, accordingly, amounts are not
necessarily indicative of the amounts that we could realize in a current
market exchange. Our financial instruments are not held for trading or
other speculative purposes.
Cash and Cash Equivalents
The carrying amounts of our cash and cash equivalents approximate their
fair values due to their short maturities.
Other Assets
At November 30, 2002 and 2001, long-term other assets included
marketable securities held in rabbi trusts for certain of our nonqualified
benefit plans and notes and other receivables, principally collateralized by
a ship, the former Nieuw Amsterdam. These assets had carrying and fair
values of $173 million at November 30, 2002 and $143 million at November 30,
2001. Fair values were based on public market prices, estimated discounted
future cash flows or estimated fair value of collateral.
Long-Term Debt
At November 30, 2002 and 2001, the fair value of our long-term debt,
including the current portion, was $3.33 billion and $2.95 billion,
respectively, which was $166 million greater than and $26 million less than
its carrying value on those respective dates. The net difference between the
fair value of our long-term debt and its carrying value was due primarily to
our issuance of debt obligations at fixed interest rates that are below or
above market interest rates in existence at the measurement dates. The fair
values of our unsecured fixed rate notes, convertible notes and unsecured
5.57% euro notes were based on their public market prices. The fair values
of our other long-term debt were estimated based on appropriate market
interest rates being applied to this debt.
Foreign Currency Contracts
We have forward foreign currency contracts, designated as foreign
currency fair value hedges, for seven of our euro denominated shipbuilding
contracts (see Note 7). At November 30, 2002 and 2001, the fair value of
these forward contracts was an unrealized loss of $178 million and $567
million, respectively. These forward contracts mature through 2005. The
fair values of our forward contracts were estimated based on prices quoted
by financial institutions for these instruments.
Interest Rate Swaps
We have interest rate swap agreements designated as fair value hedges
whereby we receive fixed interest rate payments in exchange for making
variable interest rate payments. At November 30, 2002 and 2001, these
interest rate swap agreements effectively changed $225 million of fixed rate
debt with a weighted-average fixed interest rate of 6.8% to Libor-based
floating rate debt.
In addition, we also have interest rate swap agreements designated as
cash flow hedges whereby we receive variable interest rate payments in
exchange for making fixed interest rate payments. At November 30, 2002 and
2001, these interest rate swap agreements effectively changed $468 million
and $637 million, respectively, of euribor floating rate debt to fixed rate
debt with a weighted-average fixed interest rate of 5.5% and 5.3%,
respectively.
These interest rate swap agreements mature through 2006. At November
30, 2002 and 2001, the fair value of our interest rate swaps was a net
unrealized loss of $0.1 million and $3.3 million, respectively. The fair
values of our interest rate swap agreements were estimated based on
appropriate market interest rates being applied to these instruments.
NOTE 12 - Segment Information
Our cruise segment included six cruise brands (five, excluding Costa,
prior to fiscal 2001), which have been aggregated as a single reportable
segment based on the similarity of their economic and other characteristics.
Cruise revenues are comprised of sales of passenger cruise tickets, which
includes accommodations, meals and most onboard activities, in some cases
the sale of air transportation to and from our cruise ships, and the sale of
certain onboard activities and other services. The tour segment represents
the transportation, hotel and tour operations of Tours.
The significant accounting policies of the segments are the same as
those described in Note 2 - "Summary of Significant Accounting Policies."
Cruise revenues included intersegment revenues, which primarily represent
billings to the tour segment for the cruise portion of a tour when a cruise
is sold as a part of a tour package. In addition, cruise and tour operating
expenses included a cost allocation of certain corporate and other expenses.
Information for the cruise and tour segments for fiscal 2002, 2001 and 2000
was as follows (in thousands)
<TABLE>
Operating Depreciation
income and Capital Total
Revenues (loss) amortization expenditures assets
2002
<S> <C> <C> <C> <C> <C>
Cruise (b) $4,229,124 $1,055,460 (a) $ 370,998 $ 1,949,680 $12,120,443
Tour 175,831 (13,401) 11,345 36,802 214,405(c)
Intersegment
elimination (36,686)
$4,368,269 $1,042,059 $ 382,343 $ 1,986,482 $12,334,848
2001
Cruise (b) $4,357,942 $ 946,112 (a) $ 360,750 $ 801,460 $11,375,256
Tour 229,483 (10,357)(a) 11,474 25,108 188,296(c)
Affiliated
operations(d) (44,024)
Intersegment
elimination (51,674)
$4,535,751 $ 891,731 $ 372,224 $ 826,568 $11,563,552
2000
Cruise (b) $3,578,372 $ 937,466 $ 276,842 $ 973,219 $ 9,194,207
Tour 259,662 7,664 10,825 30,129 199,722(c)
Affiliated
operations 37,828(b) 437,391
Intersegment
elimination (59,492)
$3,778,542 $ 982,958 $ 287,667 $1,003,348 $ 9,831,320
</TABLE>
(a) Cruise operating income included impairment charges of $20 million in
2002 and $134 million in 2001 and Tour operating loss included $6
million in 2001 (see Note 4).
(b) In 2002 and 2001, the cruise segment information included Costa. At
November 30, 2000, Costa's total assets were included in the cruise
segment, but its 2000 results of operations were included in the
affiliated operations segment (See Notes 2 and 17). In addition, in 2003
we commenced allocating all corporate expenses to our cruise segment.
Accordingly, the presentations for fiscal 2002, 2001 and 2000 have been
reclassified to allocate, the previously unallocated, 2002, 2001 and
2000 corporate expenses to our cruise segment.
(c) Tour assets primarily included hotels in Alaska and the Canadian Yukon,
luxury dayboats offering tours to the glaciers of Alaska and the Yukon
River, motor coaches used for sightseeing and charters in the states of
Washington and Alaska, British Columbia, Canada and the Canadian Yukon
and private, domed rail cars, which are run on the Alaska Railroad
between Anchorage and Fairbanks.
(d) On June 1, 2001, we sold our investment in Airtours. Accordingly, we
did not record any equity in the earnings or losses from the affiliated
operations of Airtours after our quarter ended May 31, 2001.
See Note 5 for affiliated operations segment information, which were
not included in our consolidated operations.
Foreign revenues for our cruise brands, excluding Costa in 2000,
represent sales generated from outside the U.S. primarily by foreign tour
operators and foreign travel agencies. The majority of these foreign
revenues are from Italy, Canada, United Kingdom, France, Germany and Spain.
Substantially all of our long-lived assets are located outside of the U.S.
and consist principally of our goodwill, ships and ships under construction.
Revenue information by geographic area for fiscal 2002, 2001 and 2000 was as
follows (in thousands):
2002 2001 2000
U.S. $ 3,292,533 $ 3,489,913 $3,180,667
Foreign 1,075,736 1,045,838 597,875
$ 4,368,269 $ 4,535,751 $3,778,542
NOTE 13 - Benefit Plans
Stock Option Plans
We have stock option plans primarily for supervisory and management
level employees and members of our Board of Directors. The plans are
administered by a committee of three of our directors (the "Committee")
which determines who is eligible to participate, the number of shares for
which options are to be granted and the amounts that may be exercised within
a specified term. The option exercise price is generally set by the
Committee at 100% of the fair market value of the common stock on the date
the option is granted. Substantially all options granted during fiscal 2002,
2001 and 2000 were granted at an exercise price per share equal to the fair
market value of our common stock on the date of grant. Employee options
generally have vested evenly over five years and have a ten year term and
director options granted prior to fiscal 2001 have vested immediately and
have a five or ten year term. Director options granted subsequent to fiscal
2000 will vest evenly over five years and have a ten year term. At November
30, 2002, options for 40.7 million shares were available for future grants
under the above plans. A summary of the activity and status of our stock
option plans was as follows:
<TABLE>
Weighted
Average Exercise Price Number of Options
Per Share Years Ended November 30,
2002 2001 2000 2002 2001 2000
<S> <C> <C> <C> <C> <C> <C>
Outstanding options-
beginning of year $28.95 $26.80 $22.70 12,774,293 8,840,793 6,517,168
Options granted $26.54 $26.44 $35.92 33,000 6,580,250 2,910,575
Options exercised $14.35 $11.70 $13.43 (404,615) (2,218,075) (244,850)
Options canceled $32.80 $35.15 $35.91 (573,720) (428,675) (342,100)
Outstanding options-
end of year $29.26 $28.95 $26.80 11,828,958 12,774,293 8,840,793
Options exercisable-
end of year $28.71 $25.96 $15.82 4,775,894 2,972,498 4,042,452
Information with respect to outstanding and exercisable stock options at November 30,
2002 was as follows:
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Exercise Remaining Exercise Exercise
Price Range Shares Life (Years) Price Shares Price
$ 1.94-$ 2.25 32,980 (a) $ 2.06 32,980 $ 2.06
$ 6.94-$10.31 17,300 0.7 $ 9.76 17,300 $ 9.76
$10.59-$15.00 666,050 2.3 $11.32 666,050 $11.32
$16.28-$22.57 3,901,084 8.1 $21.66 1,236,830 $20.75
$24.63-$27.78 1,182,894 6.3 $26.24 667,294 $26.35
$28.21-$34.88 3,070,500 8.1 $30.05 673,100 $30.47
$36.72-$41.34 102,000 5.8 $38.09 77,200 $38.05
$43.56-$48.56 2,856,150 6.7 $44.36 1,405,140 $44.57
Total 11,828,958 7.2 $29.26 4,775,894 $28.71
</TABLE
(a) These stock options do not have an expiration date.
Restricted Stock Plan
We have a restricted stock plan under which three executive officers
have been issued restricted shares of our common stock. These shares have
the same rights as our common stock, except for restriction and forfeiture
provisions. During fiscal 2002, 2001 and 2000, 150,000 shares of common
stock were issued each year, which were valued at $4 million, $5 million and
$6 million, respectively. Unearned stock compensation was recorded within
shareholders' equity at the date of award based on the quoted market price
of the shares on the date of grant and is amortized to expense using the
straight-line method from the grant date through the vesting date. These
shares vest five years after the grant date. As of November 30, 2002 and
2001 there were 750,000 shares and 647,000 shares, respectively, issued
under the plan which remain to be vested.
Defined Benefit Pension Plans
We have one qualified and one nonqualified defined benefit pension plan
that are available to full-time CCL and corporate shoreside employees (the
"Shoreside Plans"), who were employed by CCL or corporate before January 1,
1998. Our funding policy for this qualified plan is to annually contribute
at least the amount required under the applicable labor regulations. The
nonqualified plan is unfunded. In addition, we have five nonqualified
defined benefit plans, one for the CCL shipboard employees, except for deck
and engine officers, two for Holland America shipboard employees, except for
officers, one for certain Holland America shipboard officers, and one
supplemental executive retirement plan ("SERP") in which two executive
officers currently participate. The Carnival shipboard nonqualified plan is
funded by contributions into a rabbi trust and the Holland America and SERP
plans, are unfunded. In addition, Cunard Line Limited participated in an
industry-wide merchant navy officers ("MNO") defined benefit plan that is
available to certain Cunard shipboard officers. Our MNO plan expense is
based on the amount of contributions required by the plan. Total expense
for these defined benefit pension plans was $11 million, $8 million and $6
million in fiscal 2002, 2001 and 2000, respectively.
A minimum pension liability adjustment is required when the actuarial
present value of accumulated benefits exceeds plan assets and accrued
pension liabilities. At November 30, 2002 and 2001, the CCL shipboard plan
and the Shoreside Plans have aggregated additional minimum pension liability
adjustments, less allowable intangible assets, of $14.7 million and $5.5
million, respectively, which are included in AOCI.
Defined Contribution Plans
We have several defined contribution plans available to substantially
all U.S. and Canadian employees, to Cunard's United Kingdom employees, to
Seabourn's Scandinavian shipboard officers and to CCL's shipboard deck and
engine officers. We contribute to these plans based on employee
contributions, salary levels and length of service. Total expense relating
to these plans was $8 million in both fiscal 2002 and 2001 and $7 million in
fiscal 2000.
Employee Stock Purchase Plan
We have an Employee Stock Purchase Plan, which is authorized to issue
up to 4,000,000 shares of our common stock to substantially all of our
employees. The purchase price is derived from a formula based on 85% of the
fair market value of our common stock during the six-month purchase period,
as defined. During fiscal 2002, 2001 and 2000, we issued 62,223, 82,733 and
171,886 shares, respectively, at a weighted-average share price of $23.92,
$21.94 and $26.36, respectively, under this plan.
NOTE 14 - Earnings Per Share
Our basic and diluted earnings per share were computed as follows (in
thousands, except per share data):
Years Ended November 30,
2002 2001 2000
Net income $1,015,941 $926,200 $965,458
Weighted average common shares
outstanding 586,567 585,064 599,665
Dilutive effect of stock plans 1,489 1,798 2,247
Diluted weighted average shares
outstanding 588,056 586,862 601,912
Basic earnings per share $1.73 $1.58 $1.61
Diluted earnings per share $1.73 $1.58 $1.60
During fiscal 2002, 2001 and 2000, the exercise prices for 6.0 million,
5.4 million and 4.4 million options, respectively, were greater than the
average fair market prices of our common stock for those periods and,
consequently, were excluded from our diluted earnings per share computations
since they were anti-dilutive.
In addition, our 2002 and 2001 diluted earnings per share computation
did not include 32.7 million shares of our common stock issuable upon
conversion of our 2% Notes and Zero-Coupon Notes, as this common stock was
not issuable under the contingent conversion provisions of these debt
instruments (see Note 6).
NOTE 15 - Supplemental Cash Flow Information
Years Ended November 30,
2002 2001 2000
(in thousands)
Cash paid (received) for
Interest, net of amount capitalized $110,148 $109,321 $40,431
Income taxes, net $ 19 $ 3,931 $ (800)
Noncash investing and financing activities
Common stock received as payment of
stock option exercise price $ 22,500
Notes received upon the sale of
the Nieuw Amsterdam $59,935 $84,500
NOTE 16 - Recent Accounting Pronouncements
In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" was issued. SFAS No. 144 requires (i) the
recognition and measurement of the impairment of long-lived assets to be
held and used and (ii) the measurement of long-lived assets to be held for
sale. We have completed our review of SFAS No. 144 and its adoption on
December 1, 2002 did not have a material effect on our financial statements.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities" was issued. SFAS No. 146 requires that liabilities
for costs associated with an exit activity or disposal of long-lived assets
be recognized when the liabilities are incurred and can be measured at fair
value. SFAS No. 146 is effective for us for any exit or disposal activities
that are initiated after December 31, 2002.
In November 2002, Financial Accounting Standards Board Interpretation
("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantors, Including Indirect Guarantees of Indebtedness of Others" was
issued. FIN 45 requires that upon issuance of a guarantee, the guarantor
must recognize a liability for the fair value of the obligation it assumes
under the guarantee. Guarantors will also be required to meet expanded
disclosure obligations. The initial recognition and measurement provisions
of FIN No. 45 are effective for guarantees issued or modified after December
31, 2002. The disclosure requirements are effective for annual and interim
financial statements that end after December 15, 2002.
In December 2002, SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS No. 123" was
issued. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee and director compensation. In addition,
this statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS No. 148 is effective
for annual financial statements for fiscal years ending after December 15,
2002 and for interim financial statements commencing after such date.
NOTE 17 - Costa Acquisition
From June 1997 through September 28, 2000, we owned 50% of Costa. On
September 29, 2000, we acquired the remaining 50% interest in Costa from
Airtours at a cost of $511 million. Substantially all of the purchase price
was funded by euro denominated borrowings. We accounted for this
transaction using the purchase accounting method. Had the above transaction
occurred on December 1, 1999, our unaudited consolidated revenues for fiscal
2000 would have been approximately $4.3 billion. The impact on our
unaudited consolidated net income and earnings per share for fiscal 2000
would not have been material.
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, cash flows and shareholders' equity
present fairly, in all material respects, the financial position of Carnival
Corporation and its subsidiaries at November 30, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years
in the period ended November 30, 2002 in conformity with accounting
principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America,
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 our opinion.
As described in Note 2, the Company changed its method of accounting for
derivative instruments and hedging activities in 2001 and ceased amortizing
goodwill in 2002.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
January 29, 2003
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Critical Accounting Estimates
Our critical accounting estimates are those which we believe require
our most significant judgments about the effect of matters that are
inherently uncertain. A discussion of our critical accounting estimates,
the underlying judgments and uncertainties used to make them and the
likelihood that materially different estimates would be reported under
different conditions or using different assumptions, is set forth below:
Ship Accounting
Our most significant assets are our ships and ships under construction,
which represent 78% of our total assets. We make several critical accounting
estimates dealing with our ship accounting. First, we compute our ships'
depreciation expense, which requires us to estimate the average useful life
of each of our ships, as well as their residual values. Secondly, we
account for ship improvement costs by capitalizing those costs, which we
believe will add value to our ships and depreciate those improvements over
their estimated useful lives. Finally, we account for the replacement or
refurbishment of our ship components and recognize the resulting gain or
loss in our results of operations.
We determine the average useful lives of our ships based primarily on
our estimates of the average useful lives of the ships' major component
systems, such as cabins, main diesels, main electric, superstructure and
hull. In addition, we consider, among other things, the impact of
anticipated technological changes, long-term vacation market conditions and
competition and historical useful lives of similarly-built ships. We have
estimated our new ships' average useful lives at 30 years and their residual
values at 15% of our original ship cost.
Given the very large and complex nature of our ships, all the above
ship accounting estimates require considerable judgment and are inherently
uncertain. We do not have cost segregation studies performed to
specifically componentize our ship systems; therefore, our overall estimates
of the relative costs of these component systems are based principally on
general and technical information known about major ship component system
lives and our knowledge of the cruise industry. In addition, we do not
identify and track the depreciation of specific component systems, but
instead utilize estimates when determining the net cost basis of assets
being replaced or refurbished. If materially different conditions existed,
or if we materially changed our assumptions of ship lives and residual
values, our depreciation expense, gain or loss on replacement or
refurbishment of ship assets and net book value of our ships would be
materially different. In addition, if we change our assumptions in making
our determinations as to whether improvements to a ship add value, the
amounts we expense each year as repair and maintenance costs could increase,
partially offset by a decrease in depreciation expense, as less costs would
have been initially capitalized to our ships. Our fiscal 2002 ship
depreciation expense would have increased by approximately $10 million for
every year we reduced our estimated average 30 year ship useful life. In
addition, if our ships were estimated to have no residual value, our fiscal
2002 depreciation expense would have increased by approximately $45 million.
We believe that the estimates we made for ship accounting purposes are
reasonable and our methods are consistently applied and, accordingly, result
in depreciation expense that is based on a rational and systematic method to
equitably allocate the costs of our ships to the periods during which
services are obtained from their use. In addition, we believe that the
estimates we made are reasonable and our methods consistently applied (1) in
determining the overall relative costs of our ships' component systems; (2)
in determining which ship improvement costs add value to our ships; and (3)
in determining the net cost basis of ship component assets being replaced or
refurbished. Finally, we believe our critical ship accounting estimates are
generally comparable with those of other major cruise companies.
Asset Impairment
Our review of our long-lived assets, principally ships and, prior to
fiscal 2002, goodwill, required us to initially estimate the undiscounted
future cash flow of these assets, whenever events or changes in
circumstances indicate that the carrying amount of these assets may not be
fully recoverable. If such analysis indicated that a possible impairment
may exist, as described in Note 2, "Summary of Significant Accounting
Policies - Property and Equipment" in the accompanying financial statements,
we are required to then estimate the fair value of the asset, principally
determined either by third party appraisals, sales price negotiations and
estimated discounted future cash flows, which includes making estimates of
the timing of the future cash flows, discount rates and reflecting varying
degrees of perceived risk. In addition, commencing in fiscal 2002 upon the
adoption of SFAS No. 142, we are also required to estimate the fair value of
our reporting units, such as our cruise lines which have been allocated
goodwill, at least annually to determine if our goodwill has been impaired.
The determination of fair value includes numerous uncertainties, unless
a viable actively traded market exists for the asset or for a comparable
reporting unit, which is usually not the case for cruise ships and cruise
lines. For example, in determining fair values of ships and cruise lines
utilizing discounted forecasted cash flows, significant judgments are made
concerning, among other things, future net revenue yields, operating,
selling and administrative costs per available berth day, interest and
discount rates, cruise itineraries, ship additions and retirements,
technological changes, consumer demand, governmental regulations and the
effects of competition. In addition, third party appraisers are sometimes
used to determine fair values and some of their valuation methodologies are
also subject to similar types of uncertainties. We believe that we have
made reasonable estimates and judgments in determining whether our long-
lived assets and goodwill have been impaired. However, if there is a
material change in the assumptions used in our determination of fair value
or if there is a material change in the conditions or circumstances
influencing fair value, we could be required to recognize a material
impairment charge.
Contingencies
We periodically assess the potential liabilities related to any
lawsuits or claims brought against us, as well as for other known unasserted
claims, including environmental, legal and tax matters. While it is
typically very difficult to determine the timing and ultimate outcome of
these matters, we use our best judgment to determine if it is probable that
we will incur an expense related to the settlement or final adjudication of
such matters and whether a reasonable estimation of such probable loss, if
any, can be made. In assessing probable losses, we make estimates of the
amount of insurance recoveries, if any. We accrue a liability when we
believe a loss is probable and the amount of the loss can be reasonably
estimated, in accordance with the provisions of SFAS No. 5, "Accounting for
Contingencies," as amended. See Note 8 in the accompanying financial
statements for additional information concerning our contingencies.
Given the inherent uncertainty related to the eventual outcome of these
matters and potential insurance recoveries, it is possible that all or some
of these matters may be resolved for amounts materially different from any
provisions or disclosures that we may have made with respect to their
resolution. In addition as new information becomes available, we may need
to reassess the amount of probable liability that needs to be accrued
related to our contingencies. All such revisions in our estimates could
materially impact our results of operations and financial position.
Proposed Exposure Draft
In June 2001, the Accounting Standards Executive Committee issued a
Statement of Position exposure draft, entitled "Accounting for Certain Costs
and Activities Related to Property, Plant and Equipment" ("Proposed SOP").
If issued in its current form, the Proposed SOP would require, among other
things, significant changes to our ship accounting. Specifically, we would
be required to adopt the component method of accounting for our ships, which
may require us, among other things, to maintain very detailed historical
cost records for the components of our ships and may result in changes in
the amount and timing of depreciation and repair and maintenance expenses
and the amount of gain or loss recognized on the replacement or
refurbishment of ship component parts. In addition, we would have to
expense dry-dock costs as incurred instead of amortizing our costs to
expense generally over one year. Finally, we would have to treat liquidated
damages received from shipyards for delay delivery damages as a reduction to
our ships' cost basis instead of our current treatment of recording
liquidated damages as nonoperating income, since they are a reimbursement
for expenses incurred and lost profits. We have not completed an analysis
of the impact this Proposed SOP would have on our financial statements, as
we are uncertain whether, or in what form, this Proposed SOP will be
adopted.
Results of Operations
We earn our cruise revenues primarily from the following:
- the sale of passenger cruise tickets, which includes
accommodations, meals, and most onboard activities,
- the sale of air transportation to and from our cruise ships, and
- the sale of goods and services on board our cruise ships, such as
casino gaming, bar sales, gift shop and photo sales, shore
excursions and spa services.
We also derive revenues from the tour and related operations of Tours.
For segment information related to our revenues, operating income and
other financial information see Note 12 in the accompanying financial
statements.
Operations data expressed as a percentage of total revenues and selected
statistical information were as follows:
Years Ended November 30,
2002 2001 2000
Revenues 100% 100% 100%
Costs and Expenses
Operating 53 54 54
Selling and administrative 14 14 13
Depreciation and amortization 9 8 8
Impairment charge 3
Loss (income) from affiliated
operations, net 1 (1)
76 80 74
Operating Income 24 20 26
Nonoperating Expense (1)
Net Income 23% 20% 26%
Selected Statistical Information
(in thousands, except occupancy)
Passengers carried 3,549 3,385 2,669
Available lower berth days 21,436 20,685 15,888
Occupancy percentages 105.2% 104.7% 105.4%
Commencing in fiscal 2001, our statements of operations and selected
statistical information included the consolidation of Costa's results of
operations. In fiscal 2000, our 50% interest in Costa's results of
operations were recorded in affiliated operations and were not included in
our 2000 statistical information.
General
Our cruise and tour operations experience varying degrees of
seasonality. Our revenue from the sale of passenger tickets for our cruise
operations is moderately seasonal. Historically, demand for cruises has been
greatest during the summer months. Tour's revenues are highly seasonal,
with a vast majority of its revenues generated during the late spring and
summer months in conjunction with the Alaska cruise season.
We currently do not accumulate and report all costs separately for our
onboard and other revenue producing activities because we view these costs
principally as part of the overall cruise services provided to our
passengers. We primarily use, and intend to continue to use, other metrics
to measure our cruise segment performance and help manage this business,
instead of utilizing gross margin analysis. However, we intend to commence
segregating these revenues and their related costs and expenses within our
consolidated statements of operations for the quarter ending August 31,
2003.
The year over year percentage increase in our average passenger
capacity, resulting primarily from new ships entering service, for fiscal
2003, 2004 and 2005 is currently expected to be approximately 17.6%, 16.0%
and 10.2%, respectively.
As discussed in Note 7 in the accompanying financial statements, we
have a proposed DLC transaction with P&O Princess, which is subject to the
approval by P&O Princess' shareholders and our shareholders. If the DLC
transaction is completed, the Combined Group will be the largest cruise
vacation group in the world, based on revenues, passengers carried and
available capacity. As of January 31, 2003, the Combined Group would have
had a fleet of 65 cruise ships offering 99,982 lower berths, with 18
additional cruise ships having 42,260 lower berths scheduled to be added
over the next three and a half years.
See the Liquidity and Capital Resources section below for additional
discussion of the proposed DLC transaction.
Fiscal 2002 ("2002") Compared to Fiscal 2001 ("2001")
Revenues
Revenues decreased $167 million, or 3.7%, in 2002 compared to 2001.
Cruise revenues decreased $129 million, or 3.0%, to $4.23 billion in 2002
from $4.36 billion in 2001. Our cruise revenue change resulted from a 7.0%
decrease in our gross revenue per passenger cruise day, partially offset by
a 3.6% increase in passenger capacity and a 0.5% increase in our occupancy
rate. This decrease in our gross revenue per passenger cruise day was
primarily caused by a significant decline in the number of guests purchasing
air transportation from us in 2002 compared to 2001. When a guest elects to
provide his or her own transportation, rather than purchasing air
transportation from us, both our cruise revenues and operating expenses
decrease by approximately the same amount. Also adding to the reduction in
gross revenue per passenger cruise day was the adverse impact of the
September 11, 2001 events, which resulted in lower cruise ticket prices.
Our cruise revenues discussed above included onboard and other revenues
such as bar sales, casino gaming, shore excursions, gift shop and spa sales,
photo sales and pre-and post-cruise land packages. These activities are
either performed directly by us or by independent concessionaires, from
which we collect a percentage of their revenues. In 2002 and 2001, onboard
and other revenues represented 20.9% and 19.0%, respectively, of our cruise
revenues.
Tour revenues decreased $54 million, or 23.4%, to $176 million in 2002
from $229 million in 2001 principally due to a lower number of Alaska and
Canadian Yukon cruise/tours sold. This revenue decrease was primarily as a
result of one less ship offering land tours to its guests in 2002 compared
to 2001 and increased competition. In addition, three isolated cancellations
of Holland America Alaska cruises in 2002 resulting primarily from
mechanical malfunctions also contributed to this decrease in revenues.
Our tour segment's operating income decreased from $10 million in 1999
to an operating loss of $13 million in 2002. This decrease was primarily
the result of increased competition. Although our tour segment is not
material to our consolidated results, it is an integral part of our Alaska
cruise/tour programs. Accordingly, we recently have and are continuing to
take steps to upgrade the attractiveness of certain of our tour assets.
Specifically, we have entered into contracts for the construction of eight
new domed rail cars and we also expect to purchase additional motor coaches,
renovate and expand two hotels and add new attractive tour destinations to
our programs, such as Kluane National Park.
Costs and Expenses
Operating expenses decreased $157 million, or 6.4%, in 2002 compared to
2001. Cruise operating costs decreased by $130 million, or 5.6%, to $2.20
billion in 2002 from $2.33 billion in 2001. Approximately $116 million of
this decrease was due to reduced air travel and related costs primarily due
to fewer guests purchasing air transportation through us, and $41 million
was primarily due to lower commissions because of lower cruise revenues.
This decrease was partially offset by an increase in fuel and other cruise
operating expenses, which was largely due to costs associated with our 3.6%
increase in passenger capacity. In addition, as a result of having
developed and commencing the implementation of a worldwide environmental
compliance program in 2002, we began to incur additional environmental
compliance costs, which were not material in 2002, but are expected to reach
approximately $10 million annually starting in 2003. Tour operating
expenses decreased $42 million, or 22.3%, to $145 million in 2002 from $187
million in 2001 principally due to the reduction in the number of
cruise/tours sold.
Selling and administrative expenses decreased $7 million, or 1.1%, to
$612 million in 2002 from $619 million in 2001. Selling and administrative
expenses decreased in 2002 primarily because of our 3.9% decrease in selling
and administrative costs per available berth day, partially offset by
additional expenses associated with our 3.6% increase in passenger capacity.
Our costs per available berth day decreased partially because of the cost
containment actions taken after September 11, 2001.
Depreciation and amortization increased by $10 million, or 2.7%, to
$382 million in 2002 from $372 million in 2001. Depreciation and
amortization in 2002 compared to 2001 increased by $30 million primarily as
a result of the expansion of our fleet and ship improvement expenditures,
partially offset by the elimination of $20 million of annual goodwill
amortization upon our adoption of SFAS No. 142 on December 1, 2001 (see Note
2).
See Note 4 in the accompanying financial statements for a discussion of
the 2002 and 2001 impairment charge.
Affiliated Operations
During 2001, we recorded $44 million of losses from affiliated
operations for our portion of Airtours' losses. On June 1, 2001 we sold our
investment in Airtours and, accordingly, we ceased recording Airtours
results as of the end of our second quarter of 2001.
Nonoperating (Expense) Income
Interest income decreased by $2 million in 2002 compared to 2001, which
was comprised of a $25 million reduction in interest income due to lower
average interest rates, partially offset by a $23 million increase in
interest income from our higher average invested cash balances. Interest
expense was the same in 2002 and in 2001, which was comprised of a $22
million increase in interest expense due to our increased level of average
borrowings, offset by a $22 million reduction in interest expense due to
lower average borrowing rates. The higher level of average borrowings in
2002 were due primarily from the issuance of our convertible notes in April
and October 2001. Capitalized interest increased $10 million during 2002
compared to 2001 due primarily to higher average levels of investment in
ship construction projects.
Other expense in 2002 of $4 million consisted primarily of a $8 million
loss, including related expenses, resulting from the sale of Holland
America's former Nieuw Amsterdam, partially offset by $4 million of income
related to the termination of an over funded pension plan.
Income Taxes
The income tax benefit of $57 million recognized in 2002 was
substantially all due to a new Italian investment incentive law, which
allowed Costa to receive an income tax benefit of $51 million based on
contractual expenditures during 2002 on the construction of new ships.
Fiscal 2001 ("2001") Compared to Fiscal 2000 ("2000")
Revenues
Revenues increased $757 million, or 20%, in 2001 compared to 2000.
Cruise revenues increased by $780 million, or 21.8%, to $4.36 billion in
2001 from $3.58 billion in 2000. Approximately $598 million of our cruise
revenue increase was due to the consolidation of Costa, and $182 million was
due to increased revenues from our other brands. Our other brands' cruise
revenues change resulted from an increase of 9.6% in our passenger capacity,
partially offset by a 4.1% decrease in our gross revenue per passenger
cruise day and a slight decrease in our occupancy rate of 0.4%. Our post-
September 11, 2001, cruise results were adversely affected by the September
11, 2001 terrorist attacks, which impacted all leisure travel businesses and
caused significant price competition among alternative vacation options in
order to stimulate demand. We therefore had lower occupancies and prices
during our 2001 fourth quarter. In addition, the slowdown in the general
economic and business conditions throughout fiscal 2001 also adversely
impacted our customers and, accordingly, had an overall negative effect on
our 2001 gross revenues compared to 2000. Our luxury cruise brands, which
comprised approximately 8% of our average capacity during 2001, were
particularly affected by this slowdown and realized significantly lower
pricing during most of 2001 compared to 2000. Finally in 2001 and 2000,
onboard and other revenues represented 19% and 18.8%, respectively, of our
cruise revenues.
Costs and Expenses
Operating expenses increased $410 million, or 19.9%, in 2001 compared
to 2000. Cruise operating costs increased by $423 million, or 22.1%, to
$2.33 billion in 2001 from $1.91 billion in 2000. Approximately $340
million of our cruise operating cost increase was due to the consolidation
of Costa, and the remaining $83 million of the increase was from our other
brands. Cruise operating costs, excluding Costa, increased in 2001
primarily from additional costs associated with our 9.6% increase in
passenger capacity.
Selling and administrative expenses increased $131 million, or 26.9%,
to $619 million in 2001 from $487 million in 2000. Approximately $98
million of our increase was due to the consolidation of Costa, and the
remaining $33 million of the increase was from our other brands. Selling
and administrative expenses, excluding Costa, increased in 2001 primarily
from additional expenses associated with our 9.6% increase in passenger
capacity and the 0.6% increase in our selling and administrative expenses
per available berth day.
Depreciation and amortization increased by $85 million, or 29.4%, to
$372 million in 2001 from $288 million in 2000. This increase was primarily
from our consolidation of Costa, which accounted for approximately $50
million of the increase, and the majority of the remaining $35 million
increase was due to our expansion of the fleet and ship improvement
expenditures.
Affiliated Operations
During 2001, we recorded $44 million of losses from affiliated
operations as compared with $38 million of income in 2000. Our portion of
Airtours' losses in 2001 was $43 million as compared to $41 million of
losses in 2000. In fiscal 2001 Costa's results of operations were
consolidated and were not included in our 2001 affiliated operations. We
recorded income of $77 million during 2000 from our interest in Costa. See
Notes 5 and 17 in the accompanying financial statements for additional
information regarding our affiliated operations and the acquisition of
Costa.
Nonoperating (Expense) Income
Interest income increased by $18 million in 2002 compared to 2001,
which was comprised of a $30 million increase in interest income from our
higher average invested cash balances partially offset by a $12 million
reduction in interest income due to lower average interest rates. Interest
expense increased by $68 million, which was comprised of a $99 million
increase in interest expense due to our increased level of average
borrowings, partially offset by a $31 million reduction in interest expense
due to lower average borrowing rates. The higher level of average borrowings
were primarily from our acquisition and consolidation of Costa and the
issuance of our 2% Notes in April 2001. Capitalized interest decreased $12
million during 2001 compared to 2000 due primarily to lower average levels
of investment in ship construction projects.
Other income in 2001 of $109 million consisted primarily of a gain of
$101 million from the sale of our investment in Airtours, a $13 million gain
from a settlement agreement with the manufacturers of some of our ship
propulsion systems to reimburse us for lost revenues and expenses incurred
due to disruption in service during 2000, a $16 million gain from the sale
of our interest in CRC, partially offset by $9 million of short-term
investment write-downs and $9 million of estimated net litigation expenses.
Income Taxes
An income tax benefit of $12 million was recognized in 2001 compared to
a $1 million expense in 2000. Approximately $9 million of the net increase
in the income tax benefit was from Costa, primarily due to changes in
Italian tax laws.
Liquidity and Capital Resources
Sources and Uses of Cash
Our business provided $1.47 billion of net cash from operations during
fiscal 2002, an increase of $230 million, or 18.6%, compared to fiscal 2001,
due primarily to an increase in customers' advance ticket deposits.
During fiscal 2002, our net expenditures for capital projects were
$1.99 billion, of which $1.76 billion was spent for our ongoing shipbuilding
program. The $230 million of nonshipbuilding capital expenditures consisted
primarily of ship refurbishments, information technology assets, Tour assets
and cruise port facility developments.
During fiscal 2002, we borrowed $232 million, which included $150
million under Costa's euro denominated revolving credit facility and $50
million under our revolving credit facility. In addition, in fiscal 2002,
we made $190 million of principal repayments, primarily on Costa's revolving
credit facility and Costa's collateralized debt. We also paid cash dividends
of $246 million in fiscal 2002.
Future Commitments and Funding Sources
At November 30, 2002, our contractual cash obligations, with initial or
remaining terms in excess of one year, and the effects such obligations are
expected to have on our liquidity and cash flow in future periods were as
follows (in thousands)
<TABLE>
Payments Due by Fiscal
Contractual Cash
Obligations (a) Total 2003 2004 2005 2006 2007 Thereafter
<S> <C> <C> <C> <C> <C> <C> <C>
Shipbuilding $5,210,000 $1,630,000 $2,110,000 $1,140,000 $ 330,000 $ $
Long-term debt 3,160,611 148,642 127,985 907,648 1,387,209 22,833 566,294
Port and other
commitments 348,700 52,100 38,800 25,300 25,800 27,100 179,600
Operating leases 69,500 10,700 9,300 9,100 9,100 6,000 25,300
Total contractual
cash obligations $8,788,811 $1,841,442 $2,286,085 $2,082,048 $1,752,109 $ 55,933 $771,194
</TABLE>
(a) See Notes 6 and 7 in the accompanying financial statements for
additional information regarding our debt and these commitments.
In addition, see Note 7, "Contingent Obligations" and Note 6, "Proposed
Dual-Listed Company Transaction with P&O Princess" and "Travel Vouchers" in
the accompanying financial statements for a discussion of our contingent
obligations related to our three lease-type ship transactions and our DLC
transaction and travel voucher commitments, respectively.
At November 30, 2002, we had liquidity of $2.2 billion, which consisted
of $706 million of cash, cash equivalents and short-term investments and
$1.5 billion available for borrowing under our revolving credit facilities
obtained through a group of banks, which have strong credit ratings. Our
revolving credit facilities mature in 2006. A key to our access to
liquidity is the maintenance of our strong credit ratings. The proposed
combination with P&O Princess under a DLC structure, if completed, may
result in our debt being downgraded from our current ratings. A downgrade
would increase our cost-of-borrowing, although we believe our senior
unsecured debt will retain a strong investment grade rating.
We believe that our existing liquidity, together with our forecasted
cash flow from future operations, will be sufficient to fund most of our
capital projects, debt service requirements, dividend payments and working
capital needs. Our forecasted cash flow from future operations, as well as
our credit ratings, may be adversely affected by various factors, including,
but not limited to, declines in customer demand, increased competition and
overcapacity, the deterioration in general economic and business conditions,
the international political and economic climate, accidents and other
incidents at sea, adverse publicity and increases in fuel prices, as well as
other factors noted under "Cautionary Note Concerning Factors That May
Affect Future Results." To the extent that we are required, or choose, to
fund future cash requirements, including our future shipbuilding
commitments, from sources other than as discussed above, we believe that we
will be able to secure such financing from banks or through the offering of
debt and/or equity securities in the public or private markets. No assurance
can be given that our future operating cash flow will be sufficient to fund
future obligations or that we will be able to obtain additional financing,
if necessary.
Although no assurance can be given, we expect to complete our DLC
transaction with P&O Princess in the second quarter of fiscal 2003. As a
result of the DLC transaction, the Combined Group's outstanding long-term
debt will be approximately $5.7 billion and its shipbuilding commitments for
18 new cruise ships and two river boats will be approximately $7.0 billion,
which is a substantial increase over our existing obligations and
commitments. However, we believe that the Combined Group's liquidity,
including cash and committed financings, and cash flows from future
operations will be sufficient to fund the expected capital projects, debt
service requirements, dividend payments, working capital and other firm
commitments through at least the next twelve months.
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.
Other Matter
Market Risks
We are principally exposed to market risks from fluctuations in foreign
currency exchange rates, bunker fuel prices and interest rates. We seek to
minimize foreign currency and interest rate risks through our normal
operating and financing activities, including netting certain exposures to
take advantage of any natural offsets, through our long-term investment and
debt portfolio strategies and, when considered appropriate, through the use
of derivative financial instruments. The financial impacts of these hedging
instruments are offset by corresponding changes in the underlying exposures
being hedged. Our policy is to not use financial instruments for trading or
other speculative purposes.
Exposure to Foreign Currency Exchange Rates
Our primary foreign currency exchange risk was related to our
outstanding commitments under ship construction contracts denominated in a
currency other than the functional currency of the cruise brand that is
expected to be operating the ship. These non-functional currency
commitments are affected by fluctuations in the value of the functional
currency as compared to the currency in which the shipbuilding contract is
denominated. Foreign currency forward contracts are generally used to
manage this risk (see Notes 2 and 11 in the accompanying financial
statements). Accordingly, increases and decreases in the fair value of these
foreign currency forward contracts offset changes in the fair value of the
hedged non-functional foreign currency denominated ship construction
commitments, thus resulting in the elimination of such risk.
We have forward foreign currency contracts for seven of our euro
denominated shipbuilding contracts (see Note 7 in the accompanying financial
statement). At November 30, 2002, the fair value of these forward contracts
was an unrealized loss of $178 million which is recorded, along with an
offsetting $178 million fair value asset related to our shipbuilding firm
commitments, on our accompanying 2002 balance sheet. These foreign currency
forward contracts mature through 2005. Based upon a 10% strengthening or
weakening of the U.S. dollar compared to the euro as of November 30, 2002,
assuming no changes in comparative interest rates, the estimated fair value
of these contracts would decrease or increase by $235 million, which would
be offset by a decrease or increase of $235 million in the U.S. dollar value
of the related foreign currency ship construction commitments resulting in
no net dollar impact to us.
The cost of shipbuilding orders, which we may place in the future may
be affected by foreign currency exchange rate fluctuations. Should the U.S.
dollar weaken relative to the euro, future orders for new ship construction
in European shipyards may be at higher prices relative to the U.S. dollar.
Additionally, our investments in foreign subsidiaries subjects us to
foreign currency exchange rate risk. We consider our investments in foreign
subsidiaries to be denominated in relatively stable currencies and/or of a
long-term nature and, accordingly, do not typically manage our related
foreign currency exchange rate risk through the use of derivative financial
instruments. However, when we paid the Costa acquisition price, we utilized
debt denominated in euros, the functional currency of Costa, to reduce a
portion of this risk.
Finally, we sell cruises and incur cruise expenses in foreign
currencies which subjects us to foreign currency exchange risk. The primary
currencies for which we have exchange rate exposure are the U.S. dollar
versus both the euro and the UK Sterling. We do not expect that the impact
of fluctuations in the foreign currency exchange rate on our foreign
currency denominated cruise revenues and expenses to materially affect our
results of operations due primarily to the natural hedges, which are
expected to exist within our operations, including interest expense on euro
denominated borrowings, and the relative stability of the foreign
currencies. However, we will continue to monitor such items to determine if
any actions, such as the issuance of additional foreign currency denominated
debt or use of other financial instruments, would be warranted to reduce
such risk.
Exposure to Bunker Fuel Prices
Cruise ship operating expenses are impacted by changes in bunker fuel
prices. Bunker fuel consumed over the past three fiscal years ranged from
approximately 4.2% in fiscal 2002 to 4.0% in fiscal 2001 and 2000 of our
gross cruise revenues. We have typically not used financial instruments to
hedge our exposure to the bunker fuel price market risk.
Based upon a 10% hypothetical increase or decrease in the November 30,
2002 bunker fuel price, we estimate that our fiscal 2003 bunker fuel cost
would increase or decrease by approximately $19 million compared to fiscal
2002. See "Outlook For Fiscal 2003."
Exposure to Interest Rates
In order to limit our exposure to interest rate fluctuations, we have
entered into a substantial number of fixed rate debt instruments. We
continuously evaluate our debt portfolio, including interest rate swap
agreements, and make periodic adjustments to the mix of floating rate and
fixed rate debt based on our view of interest rate movements. Accordingly
in 2001, we entered into fixed to variable interest rate swap agreements,
which lowered our fiscal 2002 and 2001 interest costs and are also expected
to lower our fiscal 2003 interest costs. At November 30, 2002, 81% of the
interest cost on our debt was effectively fixed and 19% was variable.
At November 30, 2002, our long-term debt had a carrying value of $3.16
billion. At November 30, 2002, our swap agreements effectively changed $225
million of fixed rate debt with a weighted-average fixed interest rate of
6.8% to Libor-based floating rate debt. In addition, interest rate swaps at
November 30, 2002, effectively changed $468 million of euribor floating rate
debt to fixed rate debt with a weighted-average fixed interest rate of 5.5%.
These interest rate swaps mature through 2006. The fair value of our debt
and swaps at November 30, 2002 was $3.33 billion. Based upon a hypothetical
10% decrease or increase in the November 30, 2002 market interest rates, the
fair value of our debt and swaps would increase or decrease by $55 million.
In addition, based upon a hypothetical 10% decrease or increase in our
November 30, 2002 common stock price, the fair value of our convertible
notes would increase or decrease by approximately $26 million.
These hypothetical amounts are determined by considering the impact of
the hypothetical interest rates and common stock price on our existing debt
and interest rate swaps. This analysis does not consider the effects of the
changes in the level of overall economic activity that could exist in such
environments or any relationships which may exist between interest rate and
stock price movements. Furthermore, since substantially all of our fixed
rate debt cannot currently be called or prepaid and a majority of our
variable rate debt is subject to interest rate swaps which effectively fix
the interest rate in the short-term, it is unlikely we would be able to take
any significant steps in the short-term to mitigate our exposure in the
event of a significant decrease in market interest rates.
Selected Financial Data
The selected consolidated financial data presented below for fiscal
1998 through 2002 and as of the end of each such fiscal year, are derived
from our audited financial statements and should be read in conjunction with
those financial statements and the related notes.
<TABLE>
Years Ended November 30,
2002 2001 2000 1999 1998
(in thousands, except per share data and percentages)
Statement of Operations
and Other Data (a)
<S> <C> <C> <C> <C> <C>
Revenues $4,368,269 $4,535,751 $3,778,542 $3,497,470 $3,009,306
Operating income $1,042,059 $ 891,731 $ 982,958 $1,019,699 $ 896,524
Net income(b) $1,015,941(c) $ 926,200(c) $ 965,458 $1,027,240 $ 835,885
Earnings per share (b)
Basic $ 1.73 $ 1.58 $ 1.61 $ 1.68 $ 1.40(d)
Diluted $ 1.73 $ 1.58 $ 1.60 $ 1.66 $ 1.40(d)
Dividends declared
per share $ .420 $ .420 $ .420 $ .375 $ .315(d)
Cash from operations $1,469,032 $1,238,936 $1,279,535 $1,329,724 $1,091,840
Capital expenditures $1,986,482 $ 826,568 $1,003,348 $ 872,984 $1,150,413
Available lower berth
days(e) 21,436 20,685 15,888 14,336 12,237
Passengers carried 3,549 3,385 2,669 2,366 2,045
Occupancy percentages (f) 105.2% 104.7% 105.4% 104.3% 106.3%
As of November 30,
2002 (a) 2001 (a) 2000(a) 1999 1998
(in thousands, except percentages)
Balance Sheet and Other
Data
Total assets $12,334,848(g) $11,563,552(g) $9,831,320 $8,286,355 $7,179,323
Long-term debt, excluding
current portion $ 3,011,969 $ 2,954,854 $2,099,077 $ 867,515 $1,563,014
Total shareholders'
equity $ 7,417,903 $ 6,590,777 $5,870,617 $5,931,247 $4,285,476
Debt to capital(h) 29.9% 31.1% 28.6% 15.3% 27.6%
</TABLE>
(a) From June 1997 through September 28, 2000, we owned 50% of Costa. On
September 29, 2000, we completed the acquisition of the remaining 50%
interest in Costa. We accounted for this transaction using the purchase
accounting method. Prior to the fiscal 2000 acquisition, we accounted
for our 50% interest in Costa using the equity method. Commencing in
fiscal 2001, Costa's results of operations have been consolidated in the
same manner as our other wholly-owned subsidiaries. Our November 30,
2000 and subsequent consolidated balance sheets include Costa's balance
sheet. All statistical information prior to 2001 does not include
Costa. See Notes 5 and 17 in the accompanying financial statements.
(b) Effective December 1, 2001, we adopted SFAS No. 142, which requires us
to stop amortizing goodwill and requires an annual, or when events or
circumstances dictate a more frequent, impairment review of goodwill.
Accordingly, as of December 1, 2001, we no longer amortize our goodwill.
If goodwill had not been recorded for periods prior to December 1, 2001,
our adjusted net income and adjusted basic and diluted earnings per
share would have been as follows (dollars in thousands, except per share
data):
Years Ended November 30,
2001 2000 1999 1998
Net income $926,200 $965,458 $1,027,240 $835,885
Goodwill amortization 25,480 23,046 20,666 17,074
Adjusted net income $951,680 $988,504 $1,047,906 $852,959
Adjusted earnings per share
Basic $1.63 $1.65 $1.71 $1.43
Diluted $1.62 $1.64 $1.70 $1.43
(c) Our net income for fiscal 2002 and 2001 includes an impairment charge of
$20 million and $140 million, respectively, and fiscal 2001 includes a
nonoperating net gain of $101 million from the sale of our investment in
Airtours. In addition, fiscal 2002 includes a $51 million income tax
benefit as a result of a new Italian investment incentive, which allows
Costa to receive an income tax benefit based on contractual expenditures
during 2002 on construction of new ships. See Notes 4, 5 and 9 in the
accompanying financial statements.
(d) The 1998 per share amounts have been adjusted to reflect a two-for-one
stock split effective June 12, 1998.
(e) Represents the total annual passenger capacity, assuming two passengers
per cabin, that our ships offered for sale, which is computed by
multiplying passenger capacity by ship operating days.
(f) In accordance with cruise industry practice, occupancy percentage is
calculated based upon two passengers per cabin even though some cabins
can accommodate three or more passengers. The percentages in excess of
100% indicate that more than two passengers occupied some cabins.
(g) Effective December 1, 2000, we adopted SFAS No. 133, which requires that
all derivative instruments be recorded on our balance sheet. Total 2002
and 2001 assets include $178 million and $567 million, respectively,
which represents the fair value of hedged firm commitments. See Note 2
in the accompanying financial statements.
(h) Represents the percentage of total debt to the sum of total debt and
shareholders' equity.
Market Price for Common Stock
Our common stock is traded on the New York Stock Exchange under the
symbol CCL. Our intra-day high and low common stock sales prices for the
periods indicated were as follows:
High Low
Fiscal 2002:
First Quarter $28.62 $25.05
Second Quarter $34.64 $27.40
Third Quarter $30.90 $22.81
Fourth Quarter $29.78 $22.07
Fiscal 2001:
First Quarter $34.94 $21.94
Second Quarter $33.40 $23.60
Third Quarter $33.74 $25.89
Fourth Quarter $31.47 $16.95
As of January 29, 2003, there were approximately 4,556 holders of
record of our common stock. The Republic of Panama does not currently have
tax treaties with any other country. Under current law, we believe that
distributions to our shareholders, other than residents of Panama or other
business entities conducting business in Panama, are not subject to taxation
under the laws of the Republic of Panama. Dividends that we pay to U.S.
citizens, residents, corporations and to foreign corporations doing business
in the U.S., to the extent treated as "effectively connected" income, will
be taxable as ordinary income for U.S. federal income tax purposes to the
extent of our current or accumulated earnings and profits, but generally
will not qualify for any dividends-received deduction.
Selected Quarterly Financial Data (Unaudited)
Quarterly financial results for fiscal 2002 were as follows:
<TABLE>
Quarters Ended
February 28 May 31 August 31 November 30
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 905,776 $ 989,157 $1,437,655 $1,035,681
Gross profit $ 387,611 $ 455,702 $ 755,412 $ 457,625
Operating income $ 145,812 $ 220,411 $ 488,424(a) $ 187,412(a)
Net income $ 129,640 $ 194,201 $ 500,764 $ 191,336
Earnings per share
Basic $ .22 $ .33 $ .85 $ .33
Diluted $ .22 $ .33 $ .85 $ .33
Dividends declared
per share $ .105 $ .105 $ .105 $ .105
(a) Includes a $17 million and a $34 million income tax benefit in the August 31 and
November 30 quarters, respectively, from Costa, resulting from a new Italian
investment incentive law. In addition, the August 31 quarter includes a $20
million impairment charge.
Quarterly financial results for fiscal 2001 were as follows:
Quarters Ended
February 28 May 31 August 31 November 30
(in thousands, except per share data)
Revenues $1,007,606 $1,079,125 $1,489,918 $959,102
Gross profit $ 407,486 $ 477,791 $ 770,540 $411,204
Operating income $ 138,941 $ 207,907 $ 425,346 $119,537
Net income $ 127,950(a) $ 186,963(b) $ 494,975(c) $116,312(d)
Earnings per share
Basic $ .22 $ .32 $ .84 $ .20
Diluted $ .22 $ .32 $ .84 $ .20
Dividends declared
per share $ .105 $ .105 $ .105 $ .105
</TABLE
(a) Includes a $13 million gain from a settlement agreement with the
manufacturers of some of our ship propulsion systems to reimburse us
for lost revenues and expenses incurred due to disruption in service
during 2000.
(b) Includes a $16 million gain from the sale of our interest in CRC,
partially offset by $9 million of short-term investment write-downs and
$6 million of estimated litigation expenses.
(c) Includes a $101 million impairment charge and $7 million of estimated
litigation expenses, partially offset by a gain of $101 million from the
sale of our investment in Airtours.
(d) Includes a $39 million impairment charge, partially offset by $4 million
of net nonoperating income related to litigation.
EXHIBIT 23
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-3 (No. 33-63563, No. 333-43269, No. 333-68999, No.
333-72729, No. 333-62950 and No. 333-74190), and Registration Statements on
Form S-4 (No. 333-102442 and No. 333-102443) and Registration Statements on
Forms S-8 (No. 33-45287, No. 33-51195, No. 33-53099, No. 333-43885, No. 333-
60558 and No. 333-67394) and Registration Statement on Form S-1 (No. 33-
14844) of Carnival Corporation of our report dated January 29, 2003,
relating to the financial statements, which appears in the Annual Report to
Shareholders, which is incorporated in this Annual Report on Form 10-K.
/s/PRICEWATERHOUSECOOPERS LLP
Miami, Florida
May 5, 2003
EXHIBIT 99.1
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Carnival Corporation (the "Company") Annual
Report on Form 10-K/A for the year ended November 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Micky Arison, certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: May 5, 2003
/s/ Micky Arison
Micky Arison
Chairman of the Board of Directors
and Chief Executive Officer
EXHIBIT 99.2
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Carnival Corporation (the "Company") Annual
Report on Form 10-K/A for the year ended November 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Howard S. Frank, certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: May 5, 2003
/s/ Howard S. Frank
Howard S. Frank
Vice Chairman of the Board of Directors
and Chief Operating Officer
EXHIBIT 99.3
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Carnival Corporation (the "Company") Annual
Report on Form 10-K/A for the year ended November 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Gerald R. Cahill, certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: May 5, 2003
/s/ Gerald R. Cahill
Gerald R. Cahill
Senior Vice President - Finance
and Chief Financial and Accounting
Officer
</TEXT>
</DOCUMENT>