RNS Number : 2341D
Carnival PLC
29 January 2018
 

January 29, 2018

 

RELEASE OF CARNIVAL CORPORATION & PLC ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED NOVEMBER 30, 2017

 

Carnival Corporation & plc announced its fourth quarter and annual results of operations in its earnings release issued on December 19, 2017. Carnival Corporation & plc is hereby announcing that today it has filed its joint Annual Report on Form 10-K ("Form 10-K") with the U.S. Securities and Exchange Commission ("SEC") containing the Carnival Corporation & plc 2017 annual consolidated financial statements, which reported results are unchanged from those previously announced on December 19, 2017. Carnival Corporation & plc has provided a fuel price and currency update in its "Outlook for the 2018 First Quarter and Full Year," which is included in Schedule B.

 

The information included in the attached Schedules A, B and C is extracted from the Form 10-K and has been prepared in accordance with SEC rules and regulations. The Carnival Corporation & plc  consolidated financial statements contained in the Form 10-K have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP").

 

•       Schedule A contains the Carnival Corporation & plc consolidated financial statements as of and for the year ended November 30, 2017

•       Schedule B contains management's discussion and analysis ("MD&A") of financial conditions and results of operations

•       Schedule C contains information on Carnival Corporation and Carnival plc's sales and purchases of their equity securities and use of proceeds from such sales

 

The Directors consider that within the Carnival Corporation and Carnival plc dual listed company arrangement, the most appropriate presentation of Carnival plc's results and financial position is by reference to the Carnival Corporation & plc U.S. GAAP consolidated financial statements.

 

All these schedules (A, B and C) are presented together as Carnival plc's annual report in accordance with the requirements of the UK Disclosure and Transparency Rules.

 

MEDIA CONTACT                                                                                 INVESTOR RELATIONS CONTACT

Roger Frizzell                                                                                           Beth Roberts

001 305 406 7862                                                                                     001 305 406 4832

 

The Form 10-K, including the portions extracted for this announcement, is available for viewing on the SEC website at www.sec.gov under Carnival Corporation or Carnival plc or the Carnival Corporation & plc website at www.carnivalcorp.com or www.carnivalplc.com. A copy of the Form 10-K has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm. Additional information can be obtained via Carnival Corporation & plc's website listed above or by writing to Carnival plc at Carnival House, 100 Harbour Parade, Southampton, SO15 1ST, United Kingdom.

 

Carnival Corporation & plc is the world's largest leisure travel company and among the most profitable and financially strong in the cruise and vacation industries, with a portfolio of 10 dynamic brands that include nine of the world's leading cruise lines. With operations in North America, Europe, Australia and Asia, its portfolio features Carnival Cruise Line, Holland America Line, Princess Cruises, Seabourn, AIDA Cruises, Costa Cruises, Cunard, P&O Cruises (Australia) and P&O Cruises (UK), as well as Fathom, the corporation's immersion and enrichment experience brand.

 

Together, the corporation's cruise lines operate 103 ships with 232,000 lower berths visiting over 700 ports around the world, with 18 new ships scheduled to be delivered between 2018 and 2022. Carnival Corporation & plc also operates Holland America Princess Alaska Tours, the leading tour company in Alaska and the Canadian Yukon. Traded on both the New York and London Stock Exchanges, Carnival Corporation & plc is the only group in the world to be included in both the S&P 500 and the FTSE 100 indices.

In 2017, Fast Company recognized Carnival Corporation as being among the "Top 10 Most Innovative Companies" in both the design and travel categories. Fast Company specifically recognized Carnival Corporation for its work in developing Ocean Medallion™, a high-tech wearable device that enables the world's first interactive guest experience platform capable of transforming vacation travel into a highly personalized and elevated level of customized service. 

 

Additional information can be found on www.carnival.com, www.fathom.org, www.hollandamerica.com, www.princess.com, www.seabourn.com, www.aida.de, www.costacruise.com, www.cunard.com, www.pocruises.com.au and www.pocruises.com.

 

 

SCHEDULE A

 

CARNIVAL CORPORATION & PLC

CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share data)

 

 

Years Ended November 30,

 

2017

 

2016

 

2015

Revenues

 

 

 

 

 

Cruise

 

 

 

 

 

Passenger ticket

$

12,944

 

 

$

12,090

 

 

$

11,601

 

Onboard and other

4,330

 

 

4,068

 

 

3,887

 

Tour and other

236

 

 

231

 

 

226

 

 

17,510

 

 

16,389

 

 

15,714

 

Operating Costs and Expenses

 

 

 

 

 

Cruise

 

 

 

 

 

Commissions, transportation and other

2,359

 

 

2,240

 

 

2,161

 

Onboard and other

587

 

 

553

 

 

526

 

Payroll and related

2,107

 

 

1,993

 

 

1,859

 

Fuel

1,244

 

 

915

 

 

1,249

 

Food

1,031

 

 

1,005

 

 

981

 

Other ship operating

3,010

 

 

2,525

 

 

2,516

 

Tour and other

163

 

 

152

 

 

155

 

 

10,501

 

 

9,383

 

 

9,447

 

Selling and administrative

2,265

 

 

2,197

 

 

2,067

 

Depreciation and amortization

1,846

 

 

1,738

 

 

1,626

 

Goodwill and trademark impairment

89

 

 

-

 

 

-

 

 

14,701

 

 

13,318

 

 

13,140

 

Operating Income

2,809

 

 

3,071

 

 

2,574

 

Nonoperating Income (Expense)

 

 

 

 

 

Interest income

9

 

 

6

 

 

8

 

Interest expense, net of capitalized interest

(198

)

 

(223

)

 

(217

)

Gains (losses) on fuel derivatives, net

35

 

 

(47

)

 

(576

)

Other income, net

11

 

 

21

 

 

10

 

 

(143

)

 

(243

)

 

(775

)

Income Before Income Taxes

2,666

 

 

2,828

 

 

1,799

 

Income Tax Expense, Net

(60

)

 

(49

)

 

(42

)

Net Income

$

2,606

 

 

$

2,779

 

 

$

1,757

 

Earnings Per Share

 

 

 

 

 

Basic

$

3.61

 

 

$

3.73

 

 

$

2.26

 

Diluted

$

3.59

 

 

$

3.72

 

 

$

2.26

 

Dividends Declared Per Share

$

1.60

 

 

$

1.35

 

 

$

1.10

 

The accompanying notes are an integral part of these consolidated financial statements.

CARNIVAL CORPORATION & PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

 

 

Years Ended November 30,

 

2017

 

2016

 

2015

Net Income

$

2,606

 

 

$

2,779

 

 

$

1,757

 

Items Included in Other Comprehensive Income (Loss)

 

 

 

 

 

Change in foreign currency translation adjustment

590

 

 

(675

)

 

(1,078

)

Other

82

 

 

(38

)

 

(47

)

Other Comprehensive Income (Loss)

672

 

 

(713

)

 

(1,125

)

Total Comprehensive Income

$

3,278

 

 

$

2,066

 

 

$

632

 

The accompanying notes are an integral part of these consolidated financial statements.

CARNIVAL CORPORATION & PLC

CONSOLIDATED BALANCE SHEETS

(in millions, except par values)

 

 

November 30,

 

2017

 

2016

ASSETS

 

 

 

Current Assets

 

 

 

Cash and cash equivalents

$

395

 

 

$

603

 

Trade and other receivables, net

312

 

 

298

 

Inventories

387

 

 

322

 

Prepaid expenses and other

502

 

 

466

 

Total current assets

1,596

 

 

1,689

 

Property and Equipment, Net

34,430

 

 

32,429

 

Goodwill

2,967

 

 

2,910

 

Other Intangibles

1,200

 

 

1,275

 

Other Assets

585

 

 

578

 

 

$

40,778

 

 

$

38,881

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

Current Liabilities

 

 

 

Short-term borrowings

$

485

 

 

$

457

 

Current portion of long-term debt

1,717

 

 

640

 

Accounts payable

762

 

 

713

 

Accrued liabilities and other

1,877

 

 

1,740

 

Customer deposits

3,958

 

 

3,522

 

Total current liabilities

8,800

 

 

7,072

 

Long-Term Debt

6,993

 

 

8,302

 

Other Long-Term Liabilities

769

 

 

910

 

Commitments and Contingencies

 

 

 

Shareholders' Equity

 

 

 

Common stock of Carnival Corporation, $0.01 par value; 1,960 shares authorized; 655 shares at 2017 and 654 shares at 2016 issued

7

 

 

7

 

Ordinary shares of Carnival plc, $1.66 par value; 217 shares at 2017 and 2016 issued

358

 

 

358

 

Additional paid-in capital

8,690

 

 

8,632

 

Retained earnings

23,292

 

 

21,843

 

Accumulated other comprehensive loss

(1,782

)

 

(2,454

)

Treasury stock, 122 shares at 2017 and 118 shares at 2016 of Carnival Corporation and 32 shares at 2017 and 27 shares at 2016 of Carnival plc, at cost

(6,349

)

 

(5,789

)

Total shareholders' equity

24,216

 

 

22,597

 

 

$

40,778

 

 

$

38,881

 

The accompanying notes are an integral part of these consolidated financial statements.

CARNIVAL CORPORATION & PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 

 

Years Ended November 30,

 

2017

 

2016

 

2015

OPERATING ACTIVITIES

 

 

 

 

 

Net income

$

2,606

 

 

$

2,779

 

 

$

1,757

 

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

1,846

 

 

1,738

 

 

1,626

 

Impairments

392

 

 

-

 

 

-

 

(Gains) losses on fuel derivatives, net

(35

)

 

47

 

 

576

 

Share-based compensation

63

 

 

55

 

 

55

 

Other, net

51

 

 

71

 

 

32

 

 

4,923

 

 

4,690

 

 

4,046

 

Changes in operating assets and liabilities

 

 

 

 

 

Receivables

6

 

 

(22

)

 

4

 

Inventories

(49

)

 

1

 

 

5

 

Prepaid expenses and other

(13

)

 

11

 

 

131

 

Accounts payable

21

 

 

109

 

 

36

 

Accrued and other liabilities

73

 

 

(21

)

 

(31

)

Customer deposits

361

 

 

366

 

 

354

 

Net cash provided by operating activities

5,322

 

 

5,134

 

 

4,545

 

INVESTING ACTIVITIES

 

 

 

 

 

Purchases of property and equipment

(2,944

)

 

(3,062

)

 

(2,294

)

Payments of fuel derivative settlements

(203

)

 

(291

)

 

(219

)

Other, net

58

 

 

30

 

 

35

 

Net cash used in investing activities

(3,089

)

 

(3,323

)

 

(2,478

)

FINANCING ACTIVITIES

 

 

 

 

 

(Repayments of) proceeds from short-term borrowings, net

(29

)

 

447

 

 

(633

)

Principal repayments of long-term debt

(1,227

)

 

(1,278

)

 

(1,238

)

Proceeds from issuance of long-term debt

467

 

 

1,542

 

 

2,041

 

Dividends paid

(1,087

)

 

(977

)

 

(816

)

Purchases of treasury stock

(552

)

 

(2,340

)

 

(533

)

Sales of treasury stock

-

 

 

40

 

 

264

 

Other, net

(24

)

 

(25

)

 

(27

)

Net cash used in financing activities

(2,452

)

 

(2,591

)

 

(942

)

Effect of exchange rate changes on cash and cash equivalents

11

 

 

(12

)

 

(61

)

Net (decrease) increase in cash and cash equivalents

(208

)

 

(792

)

 

1,064

 

Cash and cash equivalents at beginning of year

603

 

 

1,395

 

 

331

 

Cash and cash equivalents at end of year

$

395

 

 

$

603

 

 

$

1,395

 

The accompanying notes are an integral part of these consolidated financial statements.

CARNIVAL CORPORATION & PLC

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in millions)

 

 

Common
stock

 

Ordinary
shares

 

Additional
paid-in
capital

 

Retained
earnings

 

Accumulated other comprehensive loss

 

Treasury
stock

 

Total
shareholders'
equity

At November 30, 2014

$

7

 

 

$

358

 

 

$

8,384

 

 

$

19,158

 

 

$

(616

)

 

$

(3,087

)

 

$

24,204

 

Net income

-

 

 

-

 

 

-

 

 

1,757

 

 

-

 

 

-

 

 

1,757

 

Other comprehensive loss

-

 

 

-

 

 

-

 

 

-

 

 

(1,125

)

 

-

 

 

(1,125

)

Cash dividends declared

-

 

 

-

 

 

-

 

 

(855

)

 

-

 

 

-

 

 

(855

)

Purchases and sales under the Stock Swap program, net

-

 

 

-

 

 

119

 

 

-

 

 

-

 

 

(112

)

 

7

 

Purchases of treasury stock under the Repurchase Program and other

-

 

 

-

 

 

59

 

 

-

 

 

-

 

 

(276

)

 

(217

)

At November 30, 2015

7

 

 

358

 

 

8,562

 

 

20,060

 

 

(1,741

)

 

(3,475

)

 

23,771

 

Net income

-

 

 

-

 

 

-

 

 

2,779

 

 

-

 

 

-

 

 

2,779

 

Other comprehensive loss

-

 

 

-

 

 

-

 

 

-

 

 

(713

)

 

-

 

 

(713

)

Cash dividends declared

-

 

 

-

 

 

-

 

 

(996

)

 

-

 

 

-

 

 

(996

)

Purchases and sales under the Stock Swap program, net

-

 

 

-

 

 

14

 

 

-

 

 

-

 

 

(13

)

 

1

 

Purchases of treasury stock under the Repurchase Program and other

-

 

 

-

 

 

56

 

 

-

 

 

-

 

 

(2,301

)

 

(2,245

)

At November 30, 2016

7

 

 

358

 

 

8,632

 

 

21,843

 

 

(2,454

)

 

(5,789

)

 

22,597

 

Change in accounting principle (a)

-

 

 

-

 

 

2

 

 

(2

)

 

-

 

 

-

 

 

-

 

Net income

-

 

 

-

 

 

-

 

 

2,606

 

 

-

 

 

-

 

 

2,606

 

Other comprehensive income

-

 

 

-

 

 

-

 

 

-

 

 

672

 

 

-

 

 

672

 

Cash dividends declared

-

 

 

-

 

 

-

 

 

(1,155

)

 

-

 

 

-

 

 

(1,155

)

Purchases of treasury stock under the Repurchase Program and other

-

 

 

-

 

 

56

 

 

-

 

 

-

 

 

(560

)

 

(504

)

At November 30, 2017

$

7

 

 

$

358

 

 

$

8,690

 

 

$

23,292

 

 

$

(1,782

)

 

$

(6,349

)

 

$

24,216

 

The accompanying notes are an integral part of these consolidated financial statements.

 

(a)       We elected to early adopt the provisions of ASU 2016-09, Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting, on December 1, 2016 using the modified retrospective approach. The impact primarily related to forfeitures.

CARNIVAL CORPORATION & PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - General

 

Description of Business

 

Carnival Corporation was incorporated in Panama in 1972 and Carnival plc was incorporated in England and Wales in 2000. Together with their consolidated subsidiaries, they are referred to collectively in these consolidated financial statements and elsewhere in this 2017 Annual Report as "Carnival Corporation & plc," "our," "us" and "we." The consolidated financial statements include the accounts of Carnival Corporation and Carnival plc and their respective subsidiaries. 

 

We are the world's largest leisure travel company and among the most profitable and financially strong in the cruise and vacation industries. We are also the largest cruise company, carrying nearly half of global cruise guests, and a leading provider of vacations to all major cruise destinations throughout the world. With operations in North America, Europe, Australia and Asia, we operate over 100 cruise ships within a portfolio of leading global, regional and national cruise brands that sell tailored cruise products, services and vacation experiences in all the world's most desirable destinations.

 

DLC Arrangement

 

Carnival Corporation and Carnival plc operate a dual listed company ("DLC") arrangement, whereby the businesses of Carnival Corporation and Carnival plc are combined through a number of contracts and provisions in Carnival Corporation's Articles of Incorporation and By-Laws and Carnival plc's Articles of Association. The two companies operate as a single economic enterprise with a single senior executive management team and identical Boards of Directors, but each has retained its separate legal identity. Each company's shares are publicly traded; on the New York Stock Exchange ("NYSE") for Carnival Corporation and the London Stock Exchange ("LSE") for Carnival plc. The Carnival plc American Depository Shares are traded on the NYSE.

 

The constitutional documents of each company provide that, on most matters, the holders of the common equity of both companies effectively vote as a single body. The Equalization and Governance Agreement between Carnival Corporation and Carnival plc provides for the equalization of dividends and liquidation distributions based on an equalization ratio and contains provisions relating to the governance of the DLC arrangement. Because the equalization ratio is 1 to 1, one share of Carnival Corporation common stock and one Carnival plc ordinary share are generally entitled to the same distributions. 

 

Under deeds of guarantee executed in connection with the DLC arrangement, as well as stand-alone guarantees executed since that time, each of Carnival Corporation and Carnival plc have effectively cross guaranteed all indebtedness and certain other monetary obligations of each other. Once the written demand is made, the holders of indebtedness or other obligations may immediately commence an action against the relevant guarantor. 

 

Under the terms of the DLC arrangement, Carnival Corporation and Carnival plc are permitted to transfer assets between the companies, make loans to or investments in each other and otherwise enter into intercompany transactions. In addition, the cash flows and assets of one company are required to be used to pay the obligations of the other company, if necessary.

 

Given the DLC arrangement, we believe that providing separate financial statements for each of Carnival Corporation and Carnival plc would not present a true and fair view of the economic realities of their operations. Accordingly, separate financial statements for Carnival Corporation and Carnival plc have not been presented.

NOTE 2 - Summary of Significant Accounting Policies

 

Basis of Presentation

 

We consolidate entities over which we have control, as typically evidenced by a voting control of greater than 50% or for which we are the primary beneficiary, whereby we have the power to direct the most significant activities and the obligation to absorb significant losses or receive significant benefits from the entity. We do not separately present our noncontrolling interests in the consolidated financial statements since the amounts are immaterial. For affiliates we do not control but where significant influence over financial and operating policies exists, as typically evidenced by a voting control of 20% to 50%, the investment is accounted for using the equity method.

 

 

Preparation of Financial Statements

 

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported and disclosed in our consolidated financial statements. Actual results may differ from the estimates used in preparing our consolidated financial statements. All significant intercompany balances and transactions are eliminated in consolidation.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include investments with maturities of three months or less at acquisition, which are stated at cost.

 

Inventories

 

Inventories consist substantially of food, beverages, hotel supplies, fuel and gift shop merchandise, which are all carried at the lower of cost or market. Cost is determined using the weighted-average or first-in, first-out methods.

 

Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over our estimates of useful lives and residual values, as a percentage of original cost, as follows:

 

Years

 

Residual
Values

Ships

30

 

15%

Ship improvements

3-30

 

  0%

Buildings and improvements

10-40

 

0% or 10%

Computer hardware and software

3-12

 

0% or 10%

Transportation equipment and other

3-20

 

0% or 10%

Leasehold improvements, including port facilities

Shorter of the remaining lease term or related asset life (3-30)

 

0%

As of November 30, 2017, we operated 103 cruise ships.

 

The cost of ships under construction include progress payments for the construction of new ships, as well as design and engineering fees, capitalized interest, construction oversight costs and various owner supplied items. We account for ship improvement costs by capitalizing those costs we believe add value to our ships and have a useful life greater than one year and depreciate those improvements over their estimated useful life. We have a capital program for the improvement of our ships and for asset replacements in order to enhance the effectiveness and efficiency of our operations; to comply with, or exceed all relevant legal and statutory requirements related to health, environment, safety, security and sustainability; and to gain strategic benefits or provide improved product innovations to our guests.

 

We capitalize interest as part of the cost of capital projects during their construction period. The specifically identified or estimated cost and accumulated depreciation of previously capitalized ship components are written-off upon retirement, which may result in a loss on disposal that is also included in other ship operating expenses. Liquidated damages received from shipyards as a result of late ship delivery are recorded as reductions to the cost basis of the ship.

 

The costs of repairs and maintenance, including minor improvement costs and dry-dock expenses, are charged to expense as incurred and included in other ship operating expenses. Dry-dock expenses primarily represent planned major maintenance activities that are incurred when a ship is taken out-of-service for scheduled maintenance.

 

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. Upon the occurrence of a triggering event, the assessment of possible impairment is based on our ability to recover the carrying value of our asset from the asset's estimated 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 asset's carrying value over its estimated fair value. The lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the individual ship level. A significant amount of judgment is required in estimating the future cash flows and fair values of our cruise ships.

 

Goodwill and Other Intangibles

 

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business acquisition. We review our goodwill for impairment at least annually and as events or circumstances dictate. All of our goodwill has been allocated to our reporting units. The impairment review for goodwill allows us to first assess qualitative factors to determine whether it is necessary to perform the more detailed quantitative goodwill impairment test. We would perform the quantitative test if our qualitative assessment determined it is more-likely-than-not that a reporting unit's estimated fair value is less than its carrying amount. We may also elect to bypass the qualitative assessment and proceed directly to the quantitative test for any reporting unit. When performing the quantitative test, if the estimated fair value of the reporting unit exceeds its carrying value, no further analysis is required. However, if the estimated fair value of the reporting unit is less than the carrying value, goodwill is written down based on the difference between the reporting unit's carrying amount and its fair value, limited to the amount of goodwill allocated to the reporting unit.

 

Trademarks represent substantially all of our other intangibles. For certain acquisitions, we have allocated a portion of the purchase prices to the acquiree's identified trademarks. Trademarks are estimated to have an indefinite useful life and are not amortizable but are reviewed for impairment at least annually and as events or circumstances dictate. The impairment review for trademarks also allows us to first assess qualitative factors to determine whether it is necessary to perform a more detailed quantitative trademark impairment test. We would perform the quantitative test if our qualitative assessment determined it was more-likely-than-not that the trademarks are impaired. We may also elect to bypass the qualitative assessment and proceed directly to the quantitative test. Our trademarks would be considered impaired if their carrying value exceeds their estimated fair value. The costs of developing and maintaining our trademarks are expensed as incurred.

 

A significant amount of judgment is required in estimating the fair values of our reporting units and trademarks.

 

Derivatives and Other Financial Instruments

 

We utilize derivative and non-derivative financial instruments, such as foreign currency forwards, options and swaps, foreign currency debt obligations and foreign currency cash balances, to manage our exposure to fluctuations in certain foreign currency exchange rates. We use interest rate swaps to manage our interest rate exposure to achieve a desired proportion of fixed and floating rate debt. In addition, we have fuel derivatives settling in 2018 to mitigate a portion of the risk to our future cash flows attributable to potential fuel price increases, which we define as our "economic risk." Our policy is to not use any financial instruments for trading or other speculative purposes.

 

All derivatives are recorded at fair value. If a derivative is designated as a cash flow hedge, then the effective portion of the changes in the fair value of the derivative is recognized as a component of accumulated other comprehensive income ("AOCI") until the underlying hedged item is recognized in earnings or the forecasted transaction is no longer probable. If a derivative or a non-derivative financial instrument is designated as a hedge of our net investment in a foreign operation, then changes in the fair value of the financial instrument are recognized as a component of AOCI to offset a portion of the change in the translated value of the net investment being hedged until the investment is sold or substantially liquidated. Any ineffective portion is immediately recognized in earnings. For derivatives that do not qualify for hedge accounting treatment, the change in fair value is recognized in earnings.

 

We classify the fair value of all our derivative contracts as either current or long-term, depending on the maturity date of the derivative contract. The cash flows from derivatives treated as hedges are classified in our Consolidated Statements of Cash Flows in the same category as the item being hedged. Our cash flows related to fuel derivatives are classified within investing activities.

 

We measure our derivatives using valuations that are calibrated to the initial trade prices. Subsequent valuations are based on observable inputs and other variables included in the valuation model such as interest rate, yield and commodity price curves, forward currency exchange rates, credit spreads, maturity dates, volatilities and netting arrangements. We use the income approach to value derivatives for foreign currency options and forwards, interest rate swaps and fuel derivatives using observable market data for all significant inputs and standard valuation techniques to convert future amounts to a single present value amount, assuming that participants are motivated but not compelled to transact.

 

Foreign Currency Translation and Transactions

 

Each foreign entity determines its functional currency by reference to its primary economic environment. We translate the assets and liabilities of our foreign entities that have functional currencies other than the U.S. dollar at exchange rates in effect at the balance sheet date. Revenues and expenses of these foreign entities are translated at weighted-average exchange rates for the period. Equity is translated at historical rates and the resulting foreign currency translation adjustments are included as a component of AOCI, which is a separate component of shareholders' equity. Therefore, the U.S. dollar value of the non-equity translated items in our consolidated financial statements will fluctuate from period to period, depending on the changing value of the U.S. dollar versus these currencies.

 

We execute transactions in a number of different currencies. Exchange rate gains and losses arising from changes in foreign currency exchange rates between the time an expense is recorded and when it is settled are recognized currently in other income, net. The remeasurement of monetary assets and liabilities denominated in a currency other than the functional currency of the entity involved is also recognized in other income, net, unless such monetary liabilities have been designated to act as hedges of net investments in our foreign entities. The net gains or losses resulting from foreign currency transactions were insignificant in 2017, 2016 and 2015. In addition, the unrealized gains or losses on our long-term intercompany receivables and payables which are denominated in a non-functional currency and which are not expected to be repaid in the foreseeable future are recorded as foreign currency translation adjustments included as a component of AOCI.

 

Revenue and Expense Recognition

 

Guest cruise deposits represent unearned revenues and are initially included in customer deposit liabilities when received. Customer deposits are subsequently recognized as cruise revenues, together with revenues from onboard and other activities, and all associated direct costs and expenses of a voyage are recognized as cruise costs and expenses, upon completion of voyages with durations of ten nights or less and on a pro rata basis for voyages in excess of ten nights. The impact of recognizing these shorter duration cruise revenues and costs and expenses on a completed voyage basis versus on a pro rata basis is not significant. Future travel discount vouchers are included as a reduction of cruise passenger ticket revenues when such vouchers are utilized. Guest cancellation fees are recognized in cruise passenger ticket revenues at the time of cancellation. Revenue is recognized net of expected discounts.

 

Our sale to guests of air and other transportation to and from airports near the home ports of our ships are included in cruise passenger ticket revenues, and the related cost of purchasing these services are included in cruise transportation costs. The proceeds that we collect from the sales of third-party shore excursions and on behalf of our onboard concessionaires, net of the amounts remitted to them, are included in onboard and other cruise revenues as concession revenues. All of these amounts are recognized on a completed voyage or pro rata basis as discussed above.

 

Cruise passenger ticket revenues include fees, taxes and charges collected by us from our guests. A portion of these fees, taxes and charges vary with guest head counts and are directly imposed on a revenue-producing arrangement. This portion of the fees, taxes and charges is expensed in commissions, transportation and other costs when the corresponding revenues are recognized. These fees, taxes and charges included in passenger ticket revenues and commissions, transportation and other costs were $579 million in 2017, $540 million in 2016 and $524 million in 2015. The remaining portion of fees, taxes and charges are also included in cruise passenger ticket revenues and are expensed in other ship operating expenses when the corresponding revenues are recognized.

 

Revenues and expenses from our hotel and transportation operations, which are included in our Tour and Other segment, are recognized at the time the services are performed or expenses are incurred. Revenues from the long-term leasing of ships, which are also included in our Tour and Other segment, are recognized ratably over the term of the agreement.

 

Insurance

 

We maintain insurance to cover a number of risks including illness and injury to crew, guest injuries, pollution, other third-party claims in connection with our cruise activities, damage to hull and machinery for each of our ships, war risks, workers' compensation, directors' and officers' liability, property damage and general liability for shoreside third-party claims. We recognize insurance recoverables from third-party insurers up to the amount of recorded losses at the time the recovery is probable and upon settlement for amounts in excess of the recorded losses. All of our insurance policies are subject to coverage limits, exclusions and deductible levels. The liabilities associated with crew illnesses and crew and guest injury claims, including all legal costs, are estimated based on the specific merits of the individual claims or actuarially estimated based on historical claims experience, loss development factors and other assumptions.

 

Selling and Administrative Expenses

 

Selling expenses include a broad range of advertising, marketing and promotional expenses. Advertising is charged to expense as incurred, except for media production costs, which are expensed upon the first airing of the advertisement. Selling expenses totaled $645 million in 2017, $630 million in 2016 and $627 million in 2015. Administrative expenses represent the costs of our shoreside ship support, reservations and other administrative functions, and include salaries and related benefits, professional fees and building occupancy costs, which are typically expensed as incurred.

 

Share-Based Compensation

 

We recognize compensation expense for all share-based compensation awards using the fair value method. For time-based share awards, we recognize compensation cost ratably using the straight-line attribution method over the expected vesting period or to the retirement eligibility date, if less than the vesting period. For performance-based share awards, we estimate compensation cost based on the probability of the performance condition being achieved and recognize expense ratably using the straight-line attribution method over the expected vesting period. If all or a portion of the performance condition is not expected to be met, the appropriate amount of previously recognized compensation expense is reversed and future compensation expense is adjusted accordingly. For market-based share awards, we recognize compensation cost ratably using the straight-line attribution method over the expected vesting period. If the target market conditions are not expected to be met, compensation expense will still be recognized. In addition, we account for forfeitures as they are incurred.

 

Earnings Per Share

 

Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares and common stock equivalents outstanding during each period. For earnings per share purposes, Carnival Corporation common stock and Carnival plc ordinary shares are considered a single class of shares since they have equivalent rights.

 

Accounting Pronouncements

 

The Financial Accounting Standards Board (the "FASB") issued guidance, Presentation of Financial Statements - Going Concern, which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date the financial statements are issued and to provide related disclosures. On November 30, 2017, we adopted this guidance and it did not have a material impact to our consolidated financial statements.

 

The FASB issued guidance, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. When effective, this standard will replace most existing revenue recognition guidance in U.S. GAAP. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not comprehensively addressed in U.S. GAAP. This guidance is required to be adopted by us in the first quarter of 2019 and can be applied using either a retrospective or a modified retrospective approach. Based on our assessment to date, we expect to enhance our disclosures with respect to revenue recognition in anticipation of our compliance with the new standard. We are currently evaluating any other impact this guidance will have on our consolidated financial statements.

 

The FASB issued amended guidance, Business Combinations - Clarifying the Definition of a Business, which assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is required to be adopted by us in the first quarter of 2019 on a prospective basis. Early adoption is permitted, including adoption in an interim period. The adoption of this guidance is not expected to have a material impact to our consolidated financial statements.

 

The FASB issued amended guidance, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are aimed at reducing the existing diversity in practice. This guidance is required to be adopted by us in the first quarter of 2019 and must be applied using a retrospective approach for each period presented. Early adoption is permitted, including adoption in an interim period. The adoption of this guidance is not expected to have a material impact to our consolidated financial statements.

 

The FASB issued amended guidance, Statement of Cash Flows - Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents in the statement of cash flows. This guidance is required to be adopted by us in the first quarter of 2019 and must be applied using a retrospective approach to each period presented. Early adoption is permitted, including adoption in an interim period. The adoption of this guidance is not expected to have a material impact to our consolidated financial statements.

The FASB issued amended guidance, Compensation - Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires the bifurcation of net benefit cost. This guidance is required to be adopted by us in the first quarter of 2019 and must be applied using a retrospective approach for the presentation of the service cost component and the other components of net benefit cost, and on a prospective basis for the capitalization of only the service cost component of net benefit cost. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact to our consolidated financial statements.

 

The FASB issued amended guidance, Service Concession Arrangements, which clarifies that the grantor in a service arrangement should be considered the customer of the operating entity in all cases. This guidance is required to be adopted by us in the first quarter of 2019 and can be applied using either a retrospective or a modified retrospective approach. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

 

The FASB issued guidance, Leases, which requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. This guidance is required to be adopted by us in the first quarter of 2020 and must be applied using a modified retrospective approach. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

 

The FASB issued guidance, Derivatives and Hedging, which targeted improvements to accounting for hedging activities such as hedging strategies, effectiveness assessments, and recognition of derivative gains or losses. This guidance is required to be adopted by us in the first quarter of 2020 and must be applied using a modified retrospective approach. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

NOTE 3 - Property and Equipment

 

November 30,

 (in millions)

2017

 

2016

Ships and ship improvements

$

46,744

 

 

$

44,122

 

Ships under construction

790

 

 

725

 

Other property and equipment

3,331

 

 

2,677

 

Total property and equipment

50,865

 

 

47,524

 

Less accumulated depreciation

(16,435

)

 

(15,095

)

 

$

34,430

 

 

$

32,429

 

 

Capitalized interest amounted to $28 million in 2017, $26 million in 2016 and $22 million in 2015.

 

Sales of Ships

 

In April 2017, we transferred an EAA segment 1,550-passenger capacity ship under a bareboat charter agreement which was accounted for as a sale.

 

In July 2017, we entered into a bareboat charter agreement, which will be accounted for as a sale, for an EAA segment 1,300-passenger capacity ship. The ship will be transferred to the charterer in April 2018.

 

In September 2017, we entered into an agreement to sell an EAA segment 700-passenger capacity ship. The ship will be transferred to the buyer in March 2018.

NOTE 4 - Other Assets

 

We have a 40% noncontrolling interest in Grand Bahama Shipyard Ltd. ("Grand Bahama"), a ship repair and maintenance facility. Grand Bahama provided services to us of $97 million in 2017, $58 million in 2016 and $33 million in 2015.

NOTE 5 - Unsecured Debt

 

November 30, 2017

 

November 30,

 (in millions)

Interest Rates

 

Maturities Through

 

2017

 

2016

Long-Term Debt

 

 

 

 

 

 

 

Export Credit Facilities

 

 

 

 

 

 

 

Fixed rate

2.4% to 5.0%

 

2028

 

$

860

 

 

$

941

 

EUR fixed rate

3.8% to 4.5%

 

2025

 

229

 

 

233

 

Floating rate

2.0% to 2.1%

 

2022

 

307

 

 

793

 

EUR floating rate

0.0% to 0.7%

 

2027

 

1,596

 

 

1,649

 

Bank Loans

 

 

 

 

 

 

 

EUR fixed rate

0.2% to 3.9%

 

2021

 

653

 

 

612

 

Floating rate

2.2% to 2.3%

 

2022

 

500

 

 

800

 

EUR floating rate

0.4% to 0.8%

 

2021

 

355

 

 

319

 

GBP floating rate

1.0%

 

2018

 

415

 

-

 

-

 

Private Placement Notes

 

 

 

 

 

 

 

EUR fixed rate

7.3%

 

2018

 

57

 

 

51

 

Publicly-Traded Notes

 

 

 

 

 

 

 

Fixed rate

1.9% to 7.9%

 

2028

 

1,717

 

 

1,717

 

EUR fixed rate

1.1% to 1.9%

 

2022

 

2,072

 

 

1,857

 

Other

-

 

-

 

-

 

 

25

 

Short-Term Borrowings

 

 

 

 

 

 

 

Floating rate commercial paper

1.5%

 

2018

 

420

 

 

-

 

EUR floating rate commercial paper

(0.1)%

 

2018

 

65

 

 

451

 

EUR floating rate bank loans

-

 

-

 

-

 

 

6

 

Total Debt

 

 

 

 

9,246

 

 

9,454

 

Less: Unamortized debt issuance costs

 

 

 

 

(51

)

 

(55

)

Total Debt, net of unamortized debt issuance costs

 

 

 

 

9,195

 

 

9,399

 

Less: Short-term borrowings

 

 

 

 

(485

)

 

(457

)

Less: Current portion of long-term debt

 

 

 

 

(1,717

)

 

(640

)

Long-Term Debt

 

 

 

 

$

6,993

 

 

$

8,302

 

                         

 

The debt table does not include the impact of our foreign currency and interest rate swaps. The interest rates on some of our debt, and in the case of our main revolving credit facility, fluctuate based on the applicable rating of senior unsecured long-term securities of Carnival Corporation or Carnival plc. We use the net proceeds from our borrowings for payments related to the purchases of new ships and general corporate purposes. For the twelve months ended November 30, 2017, we had borrowings of $111 million and repayments of $364 million of commercial paper with original maturities greater than three months.

 

Interest-bearing debt is recorded at initial fair value, which normally reflects the proceeds received by us, net of debt issuance costs, and is subsequently stated at amortized cost. On December 1, 2016, we adopted the FASB issued amended guidance Interest - Imputation of Interest and reclassified $55 million from Other Assets to Long-Term Debt on our November 30, 2016 Consolidated Balance Sheet. Debt issuance costs are generally amortized to interest expense using the straight-line method, which approximates the effective interest method, over the term of the debt. In addition, all debt issue discounts and premiums are amortized to interest expense using the effective interest rate method over the term of the notes.

 

Substantially all of our fixed rate debt can be called or prepaid by incurring additional costs. In addition, substantially all of our debt agreements, including our main revolving credit facility, contain one or more financial covenants that require us to:

 

•               Maintain minimum debt service coverage

•               Maintain minimum shareholders' equity

•               Limit our debt to capital and debt to equity ratios 

•               Limit the amounts of our secured assets as well as secured and other indebtedness

 

Generally, if an event of default under any debt agreement occurs, then pursuant to cross default acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated. At November 30, 2017, we were in compliance with all of our debt covenants.

 

The scheduled annual maturities of our debt were as follows:

(in millions)

 

 

Fiscal

 

November 30, 2017

2018

 

$

2,202

 

2019

 

2,109

 

2020

 

1,315

 

2021

 

1,148

 

2022

 

1,034

 

Thereafter

 

1,438

 

 

 

$

9,246

 

 

Committed Ship Financings

 

We have unsecured euro and U.S. dollar long-term export credit committed ship financings. These commitments, if drawn at the time of ship delivery, are generally repayable semi-annually over 12 years. We have the option to cancel each one at specified dates prior to the underlying ship's delivery date.

 

Revolving Credit Facilities

 

At November 30, 2017, we had $3.0 billion of total revolving credit facilities comprised of a $2.7 billion ($1.9 billion, €500 million and £169 million) multi-currency revolving credit facility that expires in 2021 (the "Facility") and a $300 million revolving credit facility that expires in 2020. A total of $2.5 billion of this capacity was available for drawing, which is net of outstanding commercial paper. The Facility currently bears interest at LIBOR/EURIBOR plus a margin of 30 basis points ("bps"). The margin varies based on changes to Carnival Corporation's and Carnival plc's long-term senior unsecured credit ratings. We are required to pay a commitment fee on any undrawn portion.

NOTE 6 - Commitments

 

Fiscal

 

 

 

 

(in millions)

2018

 

2019

 

2020

 

2021

 

2022

 

Thereafter

 

Total

Shipbuilding

$

2,919

 

 

$

3,819

 

 

$

3,569

 

 

$

2,628

 

 

$

2,357

 

 

$

-

 

 

$

15,292

 

Operating leases

49

 

 

47

 

 

43

 

 

34

 

 

32

 

 

170

 

 

375

 

Port facilities and other

190

 

 

182

 

 

162

 

 

157

 

 

151

 

 

926

 

 

1,768

 

 

$

3,158

 

 

$

4,048

 

 

$

3,774

 

 

$

2,819

 

 

$

2,540

 

 

$

1,096

 

 

$

17,435

 

 

NOTE 7 - Contingencies

 

Litigation

 

In the normal course of our business, various claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits, or any settlement of claims and lawsuits, are covered by insurance and the maximum amount of our liability, net of any insurance recoverables, is typically limited to our self-insurance retention levels. Management believes the ultimate outcome of these claims, lawsuits, and settlements, as applicable, each and in the aggregate, will not have a material impact on our consolidated financial statements.

 

Contingent Obligation - Lease Out and Lease Back Type ("LILO") Transaction

 

At November 30, 2017, we had an estimated contingent obligation of $123 million. At the inception of the lease, we paid the aggregate of the net present value of the obligation to a group of major financial institutions, who agreed to act as payment undertakers and directly pay this obligation. As a result, this contingent obligation is considered extinguished and neither the funds nor the contingent obligation have been included in our Consolidated Balance Sheets. As of January 2, 2018, this transaction was terminated at no cost.

 

Contingent Obligations - Indemnifications

 

Some of the debt contracts that we enter into include indemnification provisions obligating us to make payments to the counterparty if certain events occur. These contingencies generally relate to changes in taxes or changes in laws which increase lenders' costs. There are no stated or notional amounts included in the indemnification clauses, and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses.

NOTE 8 - Taxation

 

A summary of our principal taxes and exemptions in the jurisdictions where our significant operations are located is as follows:

 

U.S. Income Tax

 

We are primarily foreign corporations engaged in the business of operating cruise ships in international transportation. We also own and operate, among other businesses, the U.S. hotel and transportation business of Holland America Princess Alaska Tours through U.S. corporations.

 

Our North American cruise ship businesses and certain ship-owning subsidiaries are engaged in a trade or business within the U.S. Depending on its itinerary, any particular ship may generate income from sources within the U.S. We believe that our U.S. source income and the income of our ship-owning subsidiaries, to the extent derived from, or incidental to, the international operation of a ship or ships, is currently exempt from U.S. federal income and branch profit taxes.

 

Our domestic U.S. operations, principally the hotel and transportation business of Holland America Princess Alaska Tours, are subject to federal and state income taxation in the U.S.

 

In general, under Section 883 of the Internal Revenue Code, certain non-U.S. corporations (such as our North American cruise ship businesses) are not subject to U.S. federal income tax or branch profits tax on U.S. source income derived from, or incidental to, the international operation of a ship or ships. Applicable U.S. Treasury regulations provide in general that a foreign corporation will qualify for the benefits of Section 883 if, in relevant part, (i) the foreign country in which the foreign corporation is organized grants an equivalent exemption to corporations organized in the U.S. in respect of each category of shipping income for which an exemption is being claimed under Section 883 (an "equivalent exemption jurisdiction") and (ii) the foreign corporation meets a defined publicly-traded corporation stock ownership test (the "publicly-traded test"). Subsidiaries of foreign corporations that are organized in an equivalent exemption jurisdiction and meet the publicly-traded test also benefit from Section 883. We believe that Panama is an equivalent exemption jurisdiction and that Carnival Corporation currently satisfies the publicly-traded test under the regulations. Accordingly, substantially all of Carnival Corporation's income is exempt from U.S. federal income and branch profit taxes.

 

Regulations under Section 883 list certain activities that the Internal Revenue Service ("IRS") does not consider to be incidental to the international operation of ships and, therefore, the income attributable to such activities, to the extent such income is U.S. source, does not qualify for the Section 883 exemption. Among the activities identified as not incidental are income from the sale of air transportation, transfers, shore excursions and pre- and post-cruise land packages to the extent earned from sources within the U.S.

 

We believe that the U.S. source transportation income earned by Carnival plc and its subsidiaries currently qualifies for exemption from U.S. federal income tax under applicable bilateral U.S. income tax treaties.

 

Carnival Corporation and Carnival plc and certain of their subsidiaries are subject to various U.S. state income taxes generally imposed on each state's portion of the U.S. source income subject to U.S. federal income taxes. However, the state of Alaska imposes an income tax on its allocated portion of the total income of our companies doing business in Alaska and certain of their subsidiaries.

 

UK and Australian Income Tax

 

Cunard, P&O Cruises (UK) and P&O Cruises (Australia) are divisions of Carnival plc and have elected to enter the UK tonnage tax under a rolling ten-year term and, accordingly, reapply every year. Companies to which the tonnage tax regime applies pay corporation taxes on profits calculated by reference to the net tonnage of qualifying ships. UK corporation tax is not chargeable under the normal UK tax rules on these brands' relevant shipping income. Relevant shipping income includes income from the operation of qualifying ships and from shipping related activities.

 

For a company to be eligible for the regime, it must be subject to UK corporation tax and, among other matters, operate qualifying ships that are strategically and commercially managed in the UK. Companies within UK tonnage tax are also subject to a seafarer training requirement.

 

Our UK non-shipping activities that do not qualify under the UK tonnage tax regime remain subject to normal UK corporation tax. Dividends received from subsidiaries of Carnival plc doing business outside the UK are generally exempt from UK corporation tax.

 

P&O Cruises (Australia) and all of the other cruise ships operated internationally by Carnival plc for the cruise segment of the Australian vacation region are exempt from Australian corporation tax by virtue of the UK/Australian income tax treaty.

 

Italian and German Income Tax

 

In early 2015, Costa and AIDA re-elected to enter the Italian tonnage tax regime through 2024 and can reapply for an additional ten-year period beginning in early 2025. Companies to which the tonnage tax regime applies pay corporation taxes on shipping profits calculated by reference to the net tonnage of qualifying ships.

 

Most of Costa's and AIDA's earnings that are not eligible for taxation under the Italian tonnage tax regime will be taxed at an effective tax rate of 5.5%.

 

Substantially all of AIDA's earnings are exempt from German income taxes by virtue of the Germany/Italy income tax treaty.

 

Asian Countries Income Taxes

 

Substantially all of our brands' income from their international operation in Asian countries is exempt from income tax by virtue of relevant income tax treaties.

 

Other

 

We recognize income tax provisions for uncertain tax positions, based solely on their technical merits, when it is more likely than not to be sustained upon examination by the relevant tax authority. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution. Based on all known facts and circumstances and current tax law, we believe that the total amount of our uncertain income tax position liabilities and related accrued interest are not significant to our financial position. All interest expense related to income tax liabilities is included in income tax expense.

 

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, fees and other charges based on guest counts, ship tonnage, passenger capacity or some other measure, and these taxes, fees and other charges are included in commissions, transportation and other costs and other ship operating expenses.

NOTE 9 - Shareholders' Equity

 

Under a share repurchase program effective 2004, we are authorized to repurchase Carnival Corporation common stock and Carnival plc ordinary shares (the "Repurchase Program"). On April 6, 2017, the Boards of Directors approved a modification of the general authorization under the Repurchase Program, which replenished the remaining authorized repurchases at the time of the approval to $1.0 billion. The Repurchase Program does not have an expiration date and may be discontinued by our Boards of Directors at any time. 

 

Carnival Corporation

 

Carnival plc

(in millions)

Number of Shares Repurchased

 

Dollar Amount Paid for Shares Repurchased

 

Number of Shares Repurchased

 

Dollar Amount Paid for Shares Repurchased

2017

3.3

 

 

$

223

 

 

5.6

 

 

$

335

 

2016

47.8

 

 

$

2,264

 

 

0.7

 

 

$

35

 

2015

5.3

 

 

$

276

 

 

-

 

 

$

-

 

 

In addition to the Repurchase Program, we have programs that allow us to obtain an economic benefit when either Carnival Corporation common stock is trading at a premium to the price of Carnival plc ordinary shares or Carnival plc ordinary shares are trading at a premium to Carnival Corporation common stock (the "Stock Swap Programs").

 

During 2016 and 2015, under the Stock Swap Programs, a subsidiary of Carnival Corporation, sold 0.9 million and 5.1 million of Carnival plc ordinary shares for net proceeds of $40 million and $264 million, respectively. Substantially all of the net proceeds from these sales were used to purchase 0.9 million shares in 2016, and 5.1 million shares in 2015 of Carnival Corporation common stock. Carnival Corporation sold these Carnival plc ordinary shares owned by the subsidiary only to the extent it was able to repurchase an equivalent number of shares of Carnival Corporation common stock in the U.S.

 

During 2017, there were no sales or repurchases under the Stock Swap Programs. During 2016 and 2015, there were no sales of Carnival Corporation common stock or repurchases of Carnival plc ordinary shares under the Stock Swap Programs.

 

Accumulated Other Comprehensive Loss

 

November 30,

(in millions)

2017

 

2016

Cumulative foreign currency translation adjustments, net

$

(1,675

)

 

$

(2,266

)

Unrecognized pension expenses

(94

)

 

(120

)

Unrealized losses on marketable securities

-

 

 

(3

)

Net losses on cash flow derivative hedges

(13

)

 

(65

)

 

$

(1,782

)

 

$

(2,454

)

 

During 2017, 2016 and 2015, there were $18 million, $7 million and $13 million of unrecognized pension expenses that were reclassified out of accumulated other comprehensive loss and were included within payroll and related expenses and selling and administrative expenses.

 

We declared quarterly cash dividends on all of our common stock and ordinary shares as follows:

 

Quarters Ended

(in millions, except per share data)

February 28/29

 

May 31

 

August 31

 

November 30

2017

 

 

 

 

 

 

 

Dividends declared per share

$

0.35

 

 

$

0.40

 

 

$

0.40

 

 

$

0.45

 

Dividends declared

$

251

 

 

$

291

 

 

$

289

 

 

$

324

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

Dividends declared per share

$

0.30

 

 

$

0.35

 

 

$

0.35

 

 

$

0.35

 

Dividends declared

$

225

 

 

$

261

 

 

$

256

 

 

$

254

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

Dividends declared per share

$

0.25

 

 

$

0.25

 

 

$

0.30

 

 

$

0.30

 

Dividends declared

$

194

 

 

$

194

 

 

$

234

 

 

$

233

 

 

Carnival Corporation's Articles of Incorporation authorize its Board of Directors, at its discretion, to issue up to 40 million shares of preferred stock. At November 30, 2017 and 2016, no Carnival Corporation preferred stock had been issued and only a nominal amount of Carnival plc preference shares had been issued.

NOTE 10 - Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risk

 

Fair Value Measurements

 

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured using inputs in one of the following three categories:

 

•       Level 1 measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.

 

•       Level 2 measurements are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or market data other than quoted prices that are observable for the assets or liabilities.

 

•       Level 3 measurements are based on unobservable data that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.

 

Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, certain estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange.

Financial Instruments that are not Measured at Fair Value on a Recurring Basis

 

November 30, 2017

 

November 30, 2016

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

(in millions)

 

Level 1

 

Level 2

 

Level 3

 

Level 1

 

Level 2

 

Level 3

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term other assets (a)

$

126

 

 

$

-

 

 

$

49

 

 

$

75

 

 

$

99

 

 

$

1

 

 

$

68

 

 

$

31

 

Total

$

126

 

 

$

-

 

 

$

49

 

 

$

75

 

 

$

99

 

 

$

1

 

 

$

68

 

 

$

31

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate debt (b)

$

5,588

 

 

$

-

 

 

$

5,892

 

 

$

-

 

 

$

5,436

 

 

$

-

 

 

$

5,727

 

 

$

-

 

Floating rate debt (b)

3,658

 

 

-

 

 

3,697

 

 

-

 

 

4,018

 

 

-

 

 

4,048

 

 

-

 

Total

$

9,246

 

 

$

-

 

 

$

9,589

 

 

$

-

 

 

$

9,454

 

 

$

-

 

 

$

9,775

 

 

$

-

 

 

 

(a)         Long-term other assets is comprised of notes receivables. The fair values of our Level 2 notes receivables were based on estimated future cash flows discounted at appropriate market interest rates. The fair values of our Level 3 notes receivable were estimated using risk-adjusted discount rates.

(b)         The debt amounts above do not include the impact of interest rate swaps or debt issuance costs. The fair values of our publicly-traded notes were based on their unadjusted quoted market prices in markets that are not sufficiently active to be Level 1 and, accordingly, are considered Level 2. The fair values of our other debt were estimated based on current market interest rates being applied to this debt.

Financial Instruments that are Measured at Fair Value on a Recurring Basis

 

November 30, 2017

 

November 30, 2016

(in millions)

Level 1

 

Level 2

 

Level 3

 

Level 1

 

Level 2

 

Level 3

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

395

 

 

$

-

 

 

$

-

 

 

$

603

 

 

$

-

 

 

$

-

 

Restricted cash

26

 

 

-

 

 

-

 

 

60

 

 

-

 

 

-

 

Short-term investments

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

21

 

Marketable securities held in rabbi trusts (a)

97

 

 

-

 

 

-

 

 

93

 

 

4

 

 

-

 

Derivative financial instruments

-

 

 

15

 

 

-

 

 

-

 

 

15

 

 

-

 

Total

$

518

 

 

$

15

 

 

$

-

 

 

$

756

 

 

$

19

 

 

$

21

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

$

-

 

 

$

161

 

 

$

-

 

 

$

-

 

 

$

434

 

 

$

-

 

Total

$

-

 

 

$

161

 

 

$

-

 

 

$

-

 

 

$

434

 

 

$

-

 

 

(a)       At November 30, 2017 and 2016, the use of marketable securities held in rabbi trusts is restricted to funding certain deferred compensation and non-qualified U.S. pension plans.

Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis

 

Valuation of Goodwill and Other Intangibles

 

As of July 31, 2017, we performed our annual goodwill and trademark impairment reviews and we determined there was no

impairment for goodwill or trademarks related to AIDA, Carnival Cruise Line, Costa, Cunard, Holland America Line, Princess

Cruises and P&O Cruises (UK).

 

During the third quarter of 2017, we made a decision to strategically realign our business in Australia, which includes reducing

capacity in P&O Cruises (Australia). We performed discounted cash flow analyses and determined that the estimated fair values of the P&O Cruises (Australia) reporting unit and its trademark no longer exceeded their carrying values. We recognized a goodwill impairment charge of $38 million and a trademark impairment charge of $50 million during the third quarter of 2017.

 

The determination of our reporting unit goodwill and trademark fair values includes numerous assumptions that are subject to

various risks and uncertainties. The principal assumptions, all of which are considered Level 3 inputs, used in our cash flow

analyses consisted of:

 

•       Forecasted operating results, including net revenue yields and net cruise costs including fuel prices

•       Capacity changes and the expected rotation of vessels into or out of each of these cruise brands, including decisions about the allocation of new ships amongst brands, the transfer of ships between brands and the timing of ship dispositions

•       Weighted-average cost of capital of market participants, adjusted for the risk attributable to the geographic regions in which these cruise brands operate

•       Capital expenditures, proceeds from forecasted dispositions of ships and terminal values

 

We believe that we have made reasonable estimates and judgments. Changes in the conditions or circumstances may result in a need to recognize an additional impairment charge.

 

Goodwill

(in millions)

North America
Segment

 

EAA
Segment

 

Total

At November 30, 2015

$

1,898

 

 

$

1,112

 

 

$

3,010

 

Foreign currency translation adjustment

-

 

 

(100

)

 

(100

)

At November 30, 2016

1,898

 

 

1,012

 

 

2,910

 

Impairment charge

-

 

 

(38

)

 

(38

)

Foreign currency translation adjustment

-

 

 

95

 

 

95

 

At November 30, 2017

$

1,898

 

 

$

1,069

 

 

$

2,967

 

 

 

 

Trademarks

(in millions)

North America
Segment

 

EAA
Segment

 

Total

At November 30, 2015

$

927

 

 

$

307

 

 

$

1,234

 

Foreign currency translation adjustment

-

 

 

(28

)

 

(28

)

At November 30, 2016

927

 

 

279

 

 

1,206

 

Impairment charge

-

 

 

(50

)

 

(50

)

Foreign currency translation adjustment

-

 

 

23

 

 

23

 

At November 30, 2017

$

927

 

 

$

252

 

 

$

1,179

 

 

Impairments of Ships

 

We review our long-lived assets for impairment whenever events or circumstances indicate potential impairment. Primarily as a

result of our decision during the third quarter of 2017 to strategically realign our business in Australia, which includes reducing

capacity in P&O Cruises (Australia), we performed undiscounted cash flow analyses on certain ships as of July 31, 2017. Based on these undiscounted cash flow analyses, we determined that certain ships had net carrying values that exceeded their estimated undiscounted future cash flows. We estimated the July 31, 2017 fair values of these ships based on their discounted cash flows and comparable market transactions. We then compared these estimated fair values to the net carrying values and, as a result, we recognized $304 million of ship impairment charges in the EAA segment, included in other ship operating expenses of our consolidated statements of income for the third quarter of 2017.

 

The principal assumptions used in our analyses consisted of forecasted future operating results, including net revenue yields and net cruise costs including fuel prices, estimated ship sale proceeds, and changes in strategy, including decisions about the transfer of ships between brands. All principal assumptions are considered Level 3 inputs.

Derivative Instruments and Hedging Activities

 

 

 

November 30,

(in millions)

Balance Sheet Location

 

2017

 

2016

Derivative assets

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

Net investment hedges (a)

Prepaid expenses and other

 

$

3

 

 

$

12

 

 

Other assets

 

-

 

 

3

 

Foreign currency zero cost collars (b)

Prepaid expenses and other

 

12

 

 

-

 

Total derivative assets

 

 

$

15

 

 

$

15

 

Derivative liabilities

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

Net investment hedges (a)

Accrued liabilities and other

 

$

13

 

 

$

26

 

 

Other long-term liabilities

 

17

 

 

-

 

Interest rate swaps (c)

Accrued liabilities and other

 

10

 

 

10

 

 

Other long-term liabilities

 

17

 

 

23

 

Foreign currency zero cost collars (b)

Accrued liabilities and other

 

-

 

 

12

 

 

Other long-term liabilities

 

-

 

 

21

 

 

 

 

57

 

 

92

 

Derivatives not designated as hedging instruments

 

 

 

 

 

Fuel (d)

Accrued liabilities and other

 

95

 

 

198

 

 

Other long-term liabilities

 

9

 

 

144

 

 

 

 

104

 

 

342

 

Total derivative liabilities

 

 

$

161

 

 

$

434

 

 

(a)       At November 30, 2017 and 2016, we had foreign currency swaps totaling $324 million and $291 million, respectively, that are designated as hedges of our net investments in foreign operations with a euro-denominated functional currency. At November 30, 2017, these foreign currency swaps settle through September 2019. At November 30, 2016 we had foreign currency forwards totaling $456 million that were designated as hedges of our net investments in foreign operations, which have a euro-denominated functional currency. 

(b)       At November 30, 2017 and 2016, we had foreign currency derivatives consisting of foreign currency zero cost collars that are designated as foreign currency cash flow hedges for a portion of our euro-denominated shipbuilding payments. See "Newbuild Currency Risks" below for additional information regarding these derivatives.

(c)       We have euro interest rate swaps designated as cash flow hedges whereby we receive floating interest rate payments in exchange for making fixed interest rate payments. These interest rate swap agreements effectively changed $479 million at November 30, 2017 and $500 million at November 30, 2016 of EURIBOR-based floating rate euro debt to fixed rate euro debt. At November 30, 2017, these interest rate swaps settle through March 2025.

(d)       At November 30, 2017 and 2016, we had fuel derivatives consisting of zero cost collars on Brent crude oil ("Brent") to cover a portion of our estimated fuel consumption through 2018. See "Fuel Price Risks" below for additional information regarding these fuel derivatives.

 

Our derivative contracts include rights of offset with our counterparties. We have elected to net certain of our derivative assets and liabilities within counterparties.

 

November 30, 2017

(in millions)

Gross Amounts

 

Gross Amounts Offset in the Balance Sheet

 

Total Net Amounts Presented in the Balance Sheet

 

Gross Amounts not Offset in the Balance Sheet

 

Net Amounts

Assets

$

15

 

 

$

-

 

 

$

15

 

 

$

(8

)

 

$

7

 

Liabilities

$

161

 

 

$

-

 

 

$

161

 

 

$

(8

)

 

$

153

 

 

 

 

 

 

 

 

 

 

 

 

November 30, 2016

(in millions)

Gross Amounts

 

Gross Amounts Offset in the Balance Sheet

 

Total Net Amounts Presented in the Balance Sheet

 

Gross Amounts not Offset in the Balance Sheet

 

Net Amounts

Assets

$

15

 

 

$

-

 

 

$

15

 

 

$

(15

)

 

$

-

 

Liabilities

$

434

 

 

$

-

 

 

$

434

 

 

$

(15

)

 

$

419

 

 

The effective gain (loss) portions of our derivatives qualifying and designated as hedging instruments recognized in other comprehensive income (loss) were as follows:

 

November 30,

(in millions)

2017

 

2016

 

2015

Net investment hedges

$

(31

)

 

$

(33

)

 

$

58

 

Foreign currency zero cost collars - cash flow hedges

$

45

 

 

$

(8

)

 

$

(57

)

Interest rate swaps - cash flow hedges

$

8

 

 

$

8

 

 

$

2

 

 

There are no credit risk related contingent features in our derivative agreements, except for bilateral credit provisions within our fuel derivative counterparty agreements. These provisions require cash collateral to be posted or received to the extent the fuel derivative fair value payable to or receivable from an individual counterparty exceeds $100 million. At November 30, 2017 and 2016, no collateral was required to be posted to or received from our fuel derivative counterparties.

 

The amount of estimated cash flow hedges' unrealized gains and losses that are expected to be reclassified to earnings in the next twelve months is not significant.

Financial Risk

 

Fuel Price Risks

 

Substantially all of our exposure to market risk for changes in fuel prices relates to the consumption of fuel on our ships. We have Brent call options and Brent put options, collectively referred to as zero cost collars, that establish ceiling and floor prices and mitigate a portion of our economic risk attributable to potential fuel price increases. To maximize operational flexibility we utilized derivative markets with significant trading liquidity.

 

Our zero cost collars are based on Brent prices whereas the actual fuel used on our ships is marine fuel. Changes in the Brent prices may not show a high degree of correlation with changes in our underlying marine fuel prices. We will not realize any economic gain or loss upon the monthly maturities of our zero cost collars unless the average monthly price of Brent is above the ceiling price or below the floor price. We believe that these zero cost collars will act as economic hedges; however, hedge accounting is not applied.

 

November 30,

(in millions)

2017

 

2016

 

2015

Unrealized gains (losses) on fuel derivatives, net

$

227

 

 

$

236

 

 

$

(332

)

Realized losses on fuel derivatives, net

(192

)

 

(283

)

 

(244

)

Gains (losses) on fuel derivatives, net

$

35

 

 

$

(47

)

 

$

(576

)

 

At November 30, 2017, our outstanding fuel derivatives consisted of zero cost collars on Brent as follows:

Maturities (a)

Transaction
Dates

 

Barrels
(in thousands)

 

Weighted-Average
Floor  Prices

 

Weighted-Average
Ceiling  Prices

Fiscal 2018

 

 

 

 

 

 

 

 

January 2014

 

2,700

 

 

$

75

 

 

$

110

 

 

October 2014

 

3,000

 

 

$

80

 

 

$

114

 

 

 

 

5,700

 

 

 

 

 

 

(a)       Fuel derivatives mature evenly over each month in 2018.

Foreign Currency Exchange Rate Risks

 

Overall Strategy

 

We manage our exposure to fluctuations in foreign currency exchange rates through our normal operating and financing activities, including netting certain exposures to take advantage of any natural offsets and, when considered appropriate, through the use of derivative and non-derivative financial instruments. Our primary focus is to monitor our exposure to, and manage, the economic foreign currency exchange risks faced by our operations and realized if we exchange one currency for another. We currently only hedge certain of our ship commitments and net investments in foreign operations. The financial impacts of the hedging instruments we do employ generally offset the changes in the underlying exposures being hedged.

 

Operational Currency Risks

 

Our EAA segment operations generate significant revenues and incur significant expenses in their functional currencies, which subjects us to "foreign currency translational" risk related to these currencies. Accordingly, exchange rate fluctuations in their functional currencies against the U.S. dollar will affect our reported financial results since the reporting currency for our consolidated financial statements is the U.S. dollar. Any strengthening of the U.S. dollar against these foreign currencies has the financial statement effect of decreasing the U.S. dollar values reported for this segment's revenues and expenses. Any weakening of the U.S. dollar has the opposite effect.

 

Substantially all of our operations also have non-functional currency risk related to their international sales. In addition, we have a portion of our operating expenses denominated in non-functional currencies. Accordingly, we also have "foreign currency transactional" risks related to changes in the exchange rates for our revenues and expenses that are in a currency other than the functional currency. The revenues and expenses which occur in the same non-functional currencies create some degree of natural offset.

 

Investment Currency Risks

 

We consider our investments in foreign operations to be denominated in stable currencies. Our investments in foreign operations are of a long-term nature. We have $5.3 billion and $415 million of euro- and sterling-denominated debt, respectively, including the effect of foreign currency swaps, which provides an economic offset for our operations with euro and sterling functional currency. We also partially mitigate our net investment currency exposures by denominating a portion of our foreign currency intercompany payables in our foreign operations' functional currencies. 

 

Newbuild Currency Risks

 

Our shipbuilding contracts are typically denominated in euros. Our decision to hedge a non-functional currency ship commitment for our cruise brands is made on a case-by-case basis, considering the amount and duration of the exposure, market volatility, economic trends, our overall expected net cash flows by currency and other offsetting risks. We use foreign currency derivative contracts to manage foreign currency exchange rate risk for some of our ship construction payments.

At November 30, 2017 for the following newbuilds, we had foreign currency zero cost collars for a portion of euro-denominated shipyard payments. These collars are designated as cash flow hedges.

 

Entered Into

 

Matures in

 

Weighted-Average Floor Rate

 

Weighted- Average Ceiling Rate

Carnival Horizon

2016

 

March 2018

 

$

1.02

 

 

$

1.25

 

Seabourn Ovation

2016

 

April 2018

 

$

1.02

 

 

$

1.25

 

Nieuw Statendam

2016

 

November 2018

 

$

1.05

 

 

$

1.25

 

 

If the spot rate is between the ceiling and floor rates on the date of maturity, then we would not owe or receive any payments under these collars.

 

At November 30, 2017, our remaining newbuild currency exchange rate risk primarily relates to euro-denominated newbuild contract payments, which represent a total unhedged commitment of $6.8 billion and substantially all relates to newbuilds scheduled to be delivered in 2019 through 2022 to non-euro functional currency brands.

 

The cost of shipbuilding orders that we may place in the future that is denominated in a different currency than our cruise brands' will be affected by foreign currency exchange rate fluctuations. These foreign currency exchange rate fluctuations may affect our decision to order new cruise ships.

 

Interest Rate Risks

 

We manage our exposure to fluctuations in interest rates through our debt portfolio management and investment strategies. We evaluate our debt portfolio to determine whether to make periodic adjustments to the mix of fixed and floating rate debt through the use of interest rate swaps, issuance of new debt, amendment of existing debt or early retirement of existing debt.

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. We seek to minimize these credit risk exposures, including counterparty nonperformance primarily associated with our cash equivalents, investments, committed financing facilities, contingent obligations, derivative instruments, insurance contracts and new ship progress payment guarantees, by:

 

•       Conducting business with large, well-established financial institutions, insurance companies and export credit agencies

•       Diversifying our counterparties

•       Having guidelines regarding credit ratings and investment maturities that we follow to help safeguard liquidity and minimize risk

•       Generally requiring collateral and/or guarantees to support notes receivable on significant asset sales, long-term ship charters and new ship progress payments to shipyards 

 

We currently believe the risk of nonperformance by any of our significant counterparties is remote. At November 30, 2017, our exposures under foreign currency and fuel derivative contracts and interest rate swap agreements were not material.

We also monitor the creditworthiness of travel agencies and tour operators in Asia, Australia and Europe, which includes charter-hire agreements in Asia and credit and debit card providers to which we extend credit in the normal course of our business. Our credit exposure also includes contingent obligations related to cash payments received directly by travel agents and tour operators for cash collected by them on cruise sales in Australia and most of Europe where we are obligated to honor our guests' cruise payments made by them to their travel agents and tour operators regardless of whether we have received these payments. Concentrations of credit risk associated with these trade receivables, charter-hire agreements and contingent obligations are not considered to be material, principally due to the large number of unrelated accounts, the nature of these contingent obligations and their short maturities. We have not experienced significant credit losses on our trade receivables, charter-hire agreements and contingent obligations. We do not normally require collateral or other security to support normal credit sales.

NOTE 11 - Segment Information

 

We have four reportable segments that are comprised of (1) North America, (2) EAA, (3) Cruise Support and (4) Tour and Other. Our segments are reported on the same basis as the internally reported information that is provided to our chief operating decision maker ("CODM"), who is the President and Chief Executive Officer of Carnival Corporation and Carnival plc. The CODM assesses performance and makes decisions to allocate resources for Carnival Corporation & plc based upon review of the results across all of our segments.

 

Our North America segment includes Carnival Cruise Line, Holland America Line, Princess Cruises and Seabourn. Our EAA segment includes AIDA, Costa, Cunard, P&O Cruises (Australia) and P&O Cruises (UK). The operations of these reporting units have been aggregated into two reportable segments based on the similarity of their economic and other characteristics, including types of customers, regulatory environment, maintenance requirements, supporting systems and processes and products and services they provide. Our Cruise Support segment represents certain of our port and related facilities and other services that are provided for the benefit of our cruise brands. Our Tour and Other segment represents the hotel and transportation operations of Holland America Princess Alaska Tours and other operations.

 

As of and for the years ended November 30,

(in millions)

Revenues

 

Operating Costs and
Expenses

 

Selling
and
Administrative

 

Depreciation
and
Amortization

 

Operating
Income (Loss)

 

Capital
Expenditures

 

Total
Assets

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

$

11,135

 

 

$

6,338

 

 

$

1,284

 

 

$

1,136

 

 

$

2,376

 

 

$

1,497

 

 

$

23,907

 

EAA

6,158

 

 

4,082

 

 

720

 

 

620

 

 

648

 

(a)

 

 

14,672

 

Cruise Support

129

 

 

66

 

 

246

 

 

53

 

 

(235

)

 

 

 

1,739

 

Tour and Other

236

 

 

163

 

 

15

 

 

37

 

 

20

 

 

 

 

459

 

Intersegment elimination

(148

)

 

(148

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

$

17,510

 

 

$

10,501

 

 

$

2,265

 

 

$

1,846

 

 

$

2,809

 

 

$

2,944

 

 

$

40,778

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

$

10,267

 

 

$

5,786

 

 

$

1,220

 

 

$

1,056

 

 

$

2,205

 

 

$

2,069

 

 

$

23,454

 

EAA

5,906

 

 

3,524

 

 

691

 

 

599

 

 

1,092

 

 

 

 

13,456

 

Cruise Support

131

 

 

67

 

 

278

 

 

42

 

 

(256

)

 

 

 

1,513

 

Tour and Other

231

 

 

152

 

 

8

 

 

41

 

 

30

 

 

 

 

458

 

Intersegment elimination

(146

)

 

(146

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

$

16,389

 

 

$

9,383

 

 

$

2,197

 

 

$

1,738

 

 

$

3,071

 

 

$

3,062

 

 

$

38,881

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

$

9,866

 

 

$

5,925

 

 

$

1,140

 

 

$

994

 

 

$

1,807

 

 

$

854

 

 

$

22,420

 

EAA

5,636

 

 

3,442

 

 

695

 

 

561

 

 

938

 

 

 

 

14,076

 

Cruise Support

119

 

 

58

 

 

223

 

 

27

 

 

(189

)

 

 

 

2,248

 

Tour and Other

226

 

 

155

 

 

9

 

 

44

 

 

18

 

 

 

 

493

 

Intersegment elimination

(133

)

 

(133

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

$

15,714

 

 

$

9,447

 

 

$

2,067

 

 

$

1,626

 

 

$

2,574

 

 

$

2,294

 

 

$

39,237

 

 

(a)       Includes $89 million of impairment charges related to EAA's goodwill and trademarks.

 

A portion of the North America segment's revenues includes revenues for the tour portion of a cruise when a cruise and land tour package are sold together by Holland America Line and Princess Cruises. These intersegment tour revenues, which are also included in our Tour and Other segment, are eliminated by the North America segment's revenues and operating expenses in the line "Intersegment elimination."

 

Tour and Other segment assets primarily include hotels and lodges in the state of Alaska and the Canadian Yukon, motorcoaches used for sightseeing and charters, glass-domed railcars, which run on the Alaska Railroad, and our owned ships that we leased out under long-term charters to unaffiliated entities.

 

Revenues by geographic areas, which are based on where our guests are sourced, were as follows:

 

Years Ended November 30,

(in millions)

2017

 

2016

 

2015

North America

$

9,195

 

 

$

8,327

 

 

$

8,015

 

Europe

5,414

 

 

5,254

 

 

5,133

 

Australia and Asia

2,604

 

 

2,506

 

 

2,256

 

Other

297

 

 

302

 

 

310

 

 

$

17,510

 

 

$

16,389

 

 

$

15,714

 

 

Substantially all of our long-lived assets consist of our ships and move between geographic areas.

NOTE 12 - Compensation Plans

 

Equity Plans

 

We issue our share-based compensation awards, which at November 30, 2017 included time-based share awards (restricted stock awards and restricted stock units), performance-based share awards and market-based share awards (collectively "equity awards"), under the Carnival Corporation and Carnival plc stock plans. Equity awards are principally granted to management level employees and members of our Boards of Directors. The plans are administered by the Compensation Committee which is made up of independent directors who determine which employees are eligible to participate, the monetary value or number of shares for which equity awards are to be granted and the amounts that may be exercised or sold within a specified term. We had an aggregate of 15.5 million shares available for future grant at November 30, 2017. We fulfill our equity award obligations using shares purchased in the open market or with unissued shares or treasury shares. Our equity awards generally vest over a three-year period, subject to earlier vesting under certain conditions.

 

Shares

 

Weighted-Average
Grant Date Fair
Value

Outstanding at November 30, 2014

4,053,057

 

 

$

37.94

 

Granted

1,253,050

 

 

$

45.70

 

Vested

(1,298,318

)

 

$

31.35

 

Forfeited

(398,394

)

 

$

39.48

 

Outstanding at November 30, 2015

3,609,395

 

 

$

42.84

 

Granted

1,451,917

 

 

$

53.98

 

Vested

(1,454,381

)

 

$

38.18

 

Forfeited

(193,806

)

 

$

47.76

 

Outstanding at November 30, 2016

3,413,125

 

 

$

48.03

 

Granted

1,116,314

 

 

$

54.79

 

Vested

(1,466,690

)

 

$

38.95

 

Forfeited

(112,781

)

 

$

51.72

 

Outstanding at November 30, 2017

2,949,968

 

 

$

51.82

 

 

As of November 30, 2017, there was $59 million of total unrecognized compensation cost related to equity awards, which is expected to be recognized over a weighted-average period of 1.4 years.

 

Defined Benefit Pension Plans

 

We have several single-employer defined benefit pension plans, which cover some of our shipboard and shoreside employees. The U.S. and UK shoreside employee plans are closed to new membership and are funded at or above the level required by U.S. or UK regulations. The remaining defined benefit plans are primarily unfunded. In determining all of our plans' benefit obligations at November 30, 2017 and 2016, we assumed a weighted-average discount rate of 2.7% for 2017 and 2.9% for 2016.

 

In addition, we participate in two multiemployer defined benefit pension plans in the UK, the British Merchant Navy Officers Pension Fund (registration number 10005645) ("MNOPF"), which is divided into two sections, the "New Section" and the "Old Section" and the British Merchant Navy Ratings Pension Fund (registration number 10005646) ("MNRPF"). Collectively, we refer to these as "the multiemployer plans." The multiemployer plans are maintained for the benefit of the employees of the participating employers who make contributions to the plans. However, contributions made by employers, including us, may be used to provide benefits to employees of other participating employers, and if any of the participating employers withdraw from the multiemployer plans or fail to make their required contributions, any unfunded obligations would be the responsibility of the remaining participating employers. We are contractually obligated to make all required contributions as determined by the plans' trustees. All of our multiemployer plans are closed to new membership and future benefit accrual. The MNOPF Old Section is fully funded.

 

We expense our portion of the MNOPF New Section deficit as amounts are invoiced by, and become due and payable to, the trustees. We accrue and expense our portion of the MNRPF deficit based on our estimated probable obligation from the most recent actuarial review. Total expense for all defined benefit pension plans, including the multiemployer plans, was $53 million in 2017, $27 million in 2016 and $47 million in 2015.

 

Based on the most recent valuation at March 31, 2015 of the MNOPF New Section, it was determined that this plan was 90% funded. In 2017, 2016 and 2015, our contributions to the MNOPF New Section did not exceed 5% of total contributions to the fund. Based on the most recent valuation at March 31, 2014 of the MNRPF, it was determined that this plan was 67% funded. In 2017 and 2016, our contributions to the MNRPF did not exceed 5% of total contributions to the fund. In 2015, our contributions to the MNRPF exceeded 5% of total contributions to the fund. It is possible that we will be required to fund and expense additional amounts for the multiemployer plans in the future; however, such amounts are not expected to be material to our consolidated financial statements. The trustee has carried out a triennial valuation at March 31, 2017 and consulted with employers on it but the valuation has not yet been finalized.

 

Defined Contribution Plans

 

We have several defined contribution plans available to most of our employees. We contribute to these plans based on employee contributions, salary levels and length of service. Total expense for these plans was $37 million in 2017 and $30 million in 2016 and 2015.

NOTE 13 - Earnings Per Share

 

Years Ended November 30,

  (in millions, except per share data)

2017

 

2016

 

2015

Net income for basic and diluted earnings per share

$

2,606

 

 

$

2,779

 

 

$

1,757

 

Weighted-average shares outstanding

722

 

 

745

 

 

777

 

Dilutive effect of equity plans

3

 

 

2

 

 

2

 

Diluted weighted-average shares outstanding

725

 

 

747

 

 

779

 

Basic earnings per share

$

3.61

 

 

$

3.73

 

 

$

2.26

 

Diluted earnings per share

$

3.59

 

 

$

3.72

 

 

$

2.26

 

 

NOTE 14 - Supplemental Cash Flow Information

 

Cash paid for interest, net of capitalized interest, was $191 million in 2017, $211 million in 2016 and $216 million in 2015. In addition, cash paid for income taxes, net of recoveries, was $43 million in 2017, $48 million in 2016 and $40 million in 2015.

 

SCHEDULE B

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Cautionary Note Concerning Factors That May Affect Future Results

 

Some of the statements, estimates or projections contained in this document are "forward-looking statements" that involve risks, uncertainties and assumptions with respect to us, including some statements concerning future results, outlooks, plans, goals and other events which have not yet occurred. These statements are intended to qualify for the safe harbors from liability provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts are statements that could be deemed forward-looking. These statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and the beliefs and assumptions of our management. We have tried, whenever possible, to identify these statements by using words like "will," "may," "could," "should," "would," "believe," "depends," "expect," "goal," "anticipate," "forecast," "project," "future," "intend," "plan," "estimate," "target," "indicate" and similar expressions of future intent or the negative of such terms.

 

Forward-looking statements include those statements that may impact our outlook including, but not limited to, the forecasting of our:

      Net revenue yields

      Net cruise costs, excluding fuel per available lower berth day

      Booking levels

      Estimates of ship depreciable lives and residual values

      Pricing and occupancy

      Goodwill, ship and trademark fair values

      Interest, tax and fuel expenses

      Liquidity

      Currency exchange rates

      Adjusted earnings per share

 

Because forward-looking statements involve risks and uncertainties, there are many factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied in this 2017 Annual Report. This note contains important cautionary statements of the known factors that we consider could materially affect the accuracy of our forward-looking statements and adversely affect our business, results of operations and financial position. It is not possible to predict or identify all such risks. There may be additional risks that we consider immaterial or which are unknown. These factors include, but are not limited to, the following:

 

•       The demand for cruises may decline due to adverse world events impacting the ability or desire of people to travel, including conditions affecting the safety and security of travel, government regulations and requirements, and decline in consumer confidence

•       Incidents, such as ship incidents, security incidents, the spread of contagious diseases and threats thereof, adverse weather conditions or other natural disasters and the related adverse publicity affecting our reputation and the health, safety, security and satisfaction of guests and crew

•       Changes in and compliance with laws and regulations relating to environment, health, safety, security, data privacy and protection, tax and anti-corruption under which we operate may lead to litigations, enforcement actions, fines, or penalties

•       Disruptions and other damages to our information technology and other networks and operations, breaches in data security, lapses in data privacy, and failure to keep pace with developments in technology

•       Ability to recruit, develop and retain qualified shipboard personnel who live on ships away from home for extended periods of time

•       Increases in fuel prices and availability of fuel supply

•       Fluctuations in foreign currency exchange rates

•       Overcapacity and competition in the cruise ship and land-based vacation industry

•       Continuing financial viability of our travel agent distribution system, air service providers and other key vendors in our supply chain, as well as reductions in the availability of, and increases in the prices for, the services and products provided by these vendors

•       Inability to implement our shipbuilding programs and ship repairs, maintenance and refurbishments on terms that are favorable or consistent with our expectations, as well as increases to our repairs and maintenance expenses and refurbishment costs as our fleet ages

•       Geographic regions in which we try to expand our business may be slow to develop and ultimately not develop how we expect

 

The ordering of the risk factors set forth above is not intended to reflect any Company indication of priority or likelihood.

Forward-looking statements should not be relied upon as a prediction of actual results. Subject to any continuing obligations under applicable law or any relevant stock exchange rules, we expressly disclaim any obligation to disseminate, after the date of this 2017 Annual Report, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.

2017 Executive Overview

2017 marked another very strong year for us as we delivered record cash from operations of over $5.3 billion and record revenues of $17.5 billion.

 

Key information for 2017 compared to the prior year (see "Key Performance Non-GAAP Financial Indicators" for definitions and reconciliations):

 

•       Net income for 2017 of $2.6 billion, or $3.59 diluted earnings per share, compared to $2.8 billion, or $3.72 diluted earnings per share for 2016.

•       Adjusted net income increased 7.4% to $2.8 billion from $2.6 billion in 2016 and adjusted diluted earnings per share increased to $3.82 from $3.45 in 2016. Adjusted net income excludes unrealized gains on fuel derivatives of $227 million and impairments and other net charges of $390 million for the full year 2017 and unrealized gains on fuel derivatives of $236 million and other net charges of $37 million for the full year 2016.  

•       Revenues increased $1.1 billion to $17.5 billion from $16.4 billion in 2016.

•       Gross revenue yields (revenue per available lower berth day or "ALBD") increased 3.9%. In constant currency, net revenue yields increased 4.5%, comprised of a 4.9% increase in net passenger ticket revenue yields and a 3.4% increase in net onboard and other revenue yields.

•       Gross cruise costs including fuel per ALBD increased 7.2%. Net cruise costs excluding fuel per ALBD in constant currency increased 2.7%. 

•       Changes in fuel prices (including realized fuel derivatives) and currency exchange rates decreased earnings by $0.03 per share.

•       Noncash impairment charges for ships, trademark and goodwill of $392 million resulting primarily from our decision to strategically realign our business in Australia.

 

We achieved our highest adjusted diluted earnings per share with strong operational improvement overcoming a significant drag from fuel and currency and hurricane disruptions. We improved our ROIC to 9.4% and continue to return excess cash to shareholders. We increased our quarterly dividend twice in 2017 and distributed $1.1 billion in dividends during the year. Additionally, we invested another nearly $600 million in our ongoing share repurchase program bringing our cumulative repurchases, in just over two years, to $3.1 billion as of November 30, 2017; all while maintaining our high investment grade credit rating.

 

Our strong results affirm the efforts of our 120,000 team members whose commitment and passion enable us to exceed the expectations of our 12.1 million guests annually, and are also a credit to our travel agent partners who support all of our brands. It is through their collective efforts that we delivered such strong earnings and we embark upon 2018 with booking volumes and pricing both ahead of last year.

 

In addition to our record-breaking financial results, we had many other accomplishments this year which we expect will pay dividends in 2018 and beyond.

 

•       In November 2017, we debuted the OCEAN experience platform on Regal Princess, ushering in a new era in highly personalized travel at scale. We are fine tuning and enhancing the platform based on real time learning as we prepare for a full roll out aboard Regal Princess. We also recently introduced PlayOcean, our proprietary mobile gaming portfolio. PlayOcean taps into the growing interest in mobile gaming by offering a selection of original games that can be played at home.

 

•       We announced a new partnership with Univision to develop the first OCEAN prime-time series, La Gran Sorpresa, providing programing in Spanish featuring the Hispanic community. The cruise vacation experiences shared in La Gran Sopresa align with the core values of the Univision audience, focusing on multi-generational family, togetherness, fun and passion for life. We also launched OceanView™, our own proprietary digital streaming network featuring compelling experiential content twenty-four/seven, and currently available on major digital platforms as well as onboard our ships. OceanView™ launched simultaneously with our two new proprietary original content digital productions, Go and Local Eyes, that complement our three award winning television shows, The Voyager with Josh Garcia on NBC, Ocean Treks with Jeff Corwin on ABC and Vacation Creation with Tommy Davidson and Andrea Feczko also on ABC. To date, our original content television programs have garnered over 100 hours of cumulative airtime and reached an audience of over 200 million viewers.

 

•       Other successful public relations efforts include the premiere of the major motion picture, The Greatest Showman. on Cunard's Queen Mary 2 as well as Holland America Line's featured cruises in partnership with O Magazine, including Oprah's own voyage on Eurodam in Alaska. In Italy, our third commercial for our Costa brand featuring Shakira launched on Christmas Day, continuing that highly successful marketing campaign. These efforts are all engineered to reach audiences multiple times in multiple ways to help drive demand for our brands, ultimately leading to higher yields.

 

There have been a number of significant developments in our strategic fleet enhancement plan which is an important part of our measured capacity growth strategy and includes replacing less efficient ships with new more efficient vessels. In 2017, we introduced three new state of the art cruise ships, Seabourn Encore, Majestic Princess and AIDAperla, and we signed agreements with Fincantieri to build three additional ships. At the same time we signed agreements to sell two ships expected to leave the fleet in 2018, keeping us on pace with our historical average of removing one to two ships per year. We expect net capacity growth to be around 5% compound annually through 2022 in keeping with our philosophy of measured capacity growth, as new ships replace some existing capacity.

 

We also realized a number of other notable accomplishments:

 

•       We continued the roll out of our new state-of-the-art revenue management system across six of our brands, which is expected to facilitate further yield uplift.

 

•       We also accelerated progress on our cost containment efforts delivering more than $100 million of savings.

 

•       Two of our brands obtained approval and are now operating cruises to Cuba, our contemporary Carnival Cruise Line sailing from Tampa and our premium Holland America Line brand sailing from Fort Lauderdale.

 

We continue to make meaningful progress on our 2020 sustainability goals focusing on our environmental, safety, labor and social performance. We have already reduced our unit fuel consumption by 29% since initiating the effort, and we remain committed to ongoing reduction in air emissions with the delivery of AIDAperla in 2017, our second cruise ship to be powered in port by environmentally friendly liquefied natural gas, along with the keel laying of AIDAnova, the first of seven all-LNG ships on order.

 

Our commitment to continuous improvement in health, environment, safety and security resulted in our being ranked in the top quartile of the 100 best Corporate Citizens by Corporate Responsibility magazine, as well as recognition for our sustainability report which was ranked number-one globally by Corporate Register. We also launched our first dedicated sustainability report website to expand our sustainability reporting.

 

We joined pledges to support the advancement of women's leadership and diversity in the workplace drafted by Catalyst (the leading global nonprofit focused on expanding opportunities for women) and to support and encourage diversity in the workplace drafted by the Executive Leadership Council (the leading global organization working to empower African-American corporate leaders).

 

We remain committed to achieving increased consideration for cruise vacations and continued investment in our guest experience to create additional consumer demand in excess of measured capacity growth, while at the same time positioning ourselves further along the path to sustained double digit ROIC.

 

Outlook for the 2018 First Quarter and Full Year

 

On December 19, 2017, we disclosed in our earnings release that we expected our adjusted earnings per share for the 2018 first quarter to be in the range of $0.37 to $0.41 and 2018 full year to be in the range of $4.00 to $4.30 (see "Key Performance Non-GAAP Financial Indicators"). Our guidance was based on the December 19, 2017 assumptions included in the table below.

 

Based on fuel prices and foreign currency exchange rates as of January 24, 2018 included in the table below, our adjusted earnings per share for the 2018 first quarter would increase by $0.02 and for the 2018 full year would increase by $0.15. The increase for the 2018 full year was caused by the impact of changes in foreign currency exchange rates of $0.17 per share, partially offset by higher fuel prices, net of lower forecasted realized losses on fuel derivatives of $0.02 per share.

 

December 19, 2017

 

January 24, 2018

 

    Full Year 2018

 

First Quarter 2018

 

    Full Year 2018

 

First Quarter 2018

Fuel cost per metric ton consumed

$

442

 

 

$

420

 

 

$

458

 

 

$

434

 

Currencies (USD to 1)

 

 

 

 

 

 

 

                     AUD

$

0.76

 

 

$

0.76

 

 

$

0.80

 

 

$

0.79

 

                     CAD

$

0.78

 

 

$

0.78

 

 

$

0.81

 

 

$

0.80

 

                     EUR

$

1.18

 

 

$

1.18

 

 

$

1.23

 

 

$

1.22

 

                     GBP

$

1.34

 

 

$

1.34

 

 

$

1.42

 

 

$

1.40

 

                     RMB

$

0.15

 

 

$

0.15

 

 

$

0.16

 

 

$

0.16

 

 

The fuel and currency assumptions used in our guidance change daily and, accordingly, our forecasts change daily based on the changes in these assumptions. We have not provided a reconciliation of forecasted U.S. GAAP earnings per share to forecasted adjusted earnings per share because preparation of meaningful U.S. GAAP forecasts of earnings per share would require unreasonable effort. We are unable to predict, without unreasonable effort, the future movement of foreign exchange rates and fuel prices. While we forecast realized gains and losses on fuel derivatives by applying current Brent prices to the derivatives that settle in the forecast period, we do not forecast the impact of unrealized gains and losses on fuel derivatives because we do not believe they are an indication of our future earnings performance. We are unable to determine the future impact of gains or losses on ships sales, restructuring expenses and other non-core gains and charges.

 

The above forward-looking statements involve risks, uncertainties and assumptions with respect to us. There are many factors that could cause our actual results to differ materially from those expressed above. You should read the above forward-looking statements together with the discussion of the risks under "Cautionary Note Concerning Factors That May Affect Future Results."

 

New Accounting Pronouncements

 

Refer to our consolidated financial statements for further information on Accounting Pronouncements.

 

Critical Accounting Estimates

 

Our critical accounting estimates are those 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 as follows:

 

                Ship Accounting

 

Our most significant assets are our ships, including ship improvements and ships under construction, which represent 80% of our total assets at November 30, 2017. We make several critical accounting estimates with respect to our ship accounting. First, in order to compute our ships' depreciation expense, which represented 11% of our cruise costs and expenses in 2017, we have to estimate the useful life of each of our ships as well as their residual values. Secondly, we account for ship improvement costs by capitalizing those costs we believe add value to our ships and have a useful life greater than one year and depreciate those improvements over its estimated remaining useful life. The costs of repairs and maintenance, including minor improvement costs and dry-dock expenses, are charged to expense as incurred. When we record the retirement of a ship component included within the ship's cost basis, we may have to estimate the net book value of the asset being retired in order to remove it from the ship's cost basis.

 

We determine the useful life of our ships and ship improvements based on our estimates of the period over which the assets will be of economic benefit to us, including the impact of long-term vacation market conditions, marketing and technical obsolescence, competition, physical deterioration, historical useful lives of similarly-built ships, regulatory constraints and maintenance requirements. In addition, we consider estimates of the weighted-average useful lives of the ships' major component systems, such as the hull, cabins, main electric, superstructure and engines. Taking all of this into consideration, we have estimated our new ships' useful lives at 30 years.

 

We determine the residual value of our ships based on our long-term estimates of their resale value at the end of their useful life to us but before the end of their physical and economic lives to others, historical resale values of our and other cruise ships and viability of the secondary cruise ship market. We have estimated our residual values at 15% of our original ship cost.

 

Given the large size and complexity of our ships, ship accounting estimates require considerable judgment and are inherently uncertain. We do not have cost segregation studies performed to specifically componentize our ships. In addition, since we do not separately componentize our ships, we do not identify and track depreciation of original ship components. Therefore, we typically have to estimate the net book value of components that are retired, based primarily upon their replacement cost, their age and their original estimated useful lives.

 

If materially different conditions existed, or if we materially changed our assumptions of ship useful lives and residual values, our depreciation expense, loss on retirement of ship components 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 expense could increase, which would be partially offset by a decrease in depreciation expense, resulting from a reduction in capitalized costs. Our 2017 ship depreciation expense would have increased by approximately $41 million assuming we had reduced our estimated 30-year ship useful life estimate by one year at the time we took delivery or acquired each of our ships. In addition, our 2017 ship depreciation expense would have increased by approximately $215 million assuming we had estimated our ships to have no residual value at the time of their delivery or acquisition.

 

We believe that the estimates we made for ship accounting purposes are reasonable and our methods are consistently applied in all material respects and 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 we use them. In addition, we believe that the estimates we made are reasonable. We applied our methods consistently in determining (1) the useful life and residual values of our ships, including ship improvements; (2) which improvement costs add value to our ships and (3) the net book value of ship component assets being retired. Finally, we believe our critical ship accounting estimates are generally comparable with those of other major cruise companies.   

 

Asset Impairments

 

Impairment reviews of our cruise ships, goodwill and trademarks require us to make significant estimates to determine the fair values of these assets and reporting units.

 

For our cruise ships, we perform our impairment reviews, if required, at the individual cruise ship level, which is the lowest level for which we have identifiable cash flows independent of the cash flows of other assets and liabilities. See Note 10 - "Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risk" in the consolidated financial statements for a discussion of ship impairment charges recorded in 2017.

 

The determination of ship fair value includes numerous assumptions that are subject to various risks and uncertainties, unless a comparable, viable actively-traded market exists, which is usually not the case for cruise ships, cruise brands and trademarks. Our ships' fair values are typically estimated based either on ship sales price negotiations or discounted future cash flows. The principal assumptions used to calculate our discounted future cash flows include forecasted future operating results over the expected period. We believe the ships, including their estimated residual values, will have economic benefit to us.

 

As of July 31, 2017, we performed our annual goodwill and trademark impairment reviews. See Note 10 - "Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risk" in the consolidated financial statements for additional discussion of our goodwill and trademark impairment charges recorded in 2017.

 

The determination of our reporting unit goodwill and trademark fair values includes numerous assumptions that are subject to

various risks and uncertainties. The principal assumptions, all of which are considered Level 3 inputs, used in our cash flow

analyses consisted of:

 

•       Forecasted operating results, including net revenue yields and net cruise costs including fuel prices

•       Capacity changes and the expected rotation of vessels into or out of each of these cruise brands, including decisions about the allocation of new ships amongst brands, the transfer of ships between brands and the timing of ship dispositions

•       Weighted-average cost of capital of market participants, adjusted for the risk attributable to the geographic regions in which these cruise brands operate

•       Capital expenditures, proceeds from forecasted dispositions of ships and terminal values

 

We believe that we have made reasonable estimates and judgments. Changes in the conditions or circumstances may result in a need to recognize an additional 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, regulatory, guest and crew and tax matters. In addition, we periodically assess the recoverability of our trade and other receivables and our charter-hire and other counterparty credit exposures, by financial and other institutions with which we conduct significant business. Our credit exposure also includes contingent obligations related to our guests' cash payments received directly by travel agents and tour operators in Australia and Europe. In most of Europe, we are obligated to honor our guests' cruise payments made to their travel agents and tour operators regardless of whether we have received these payments. 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, or more likely than not ("MLTN") for income tax matters, that we will incur an expense related to the settlement or final adjudication of such matters and whether a reasonable estimation of such probable or MLTN loss, if any, can be made. In assessing probable losses, we make estimates of the amount of probable insurance recoveries, if any, which are recorded as assets where appropriate. We accrue a liability and establish a reserve when we believe a loss is probable or MLTN for income tax matters, and the amount of the loss can be reasonably estimated in accordance with U.S. GAAP. Such accruals and reserves are typically based on developments to date, management's estimates of the outcomes of these matters, our experience in contesting, litigating and settling other similar non-income tax matters, historical claims experience, actuarially determined estimates of liabilities and any related insurance coverages.

 

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. In addition, as new information becomes available, we may need to reassess the amount of asset or liability that needs to be accrued related to our contingencies. All such changes in our estimates could materially impact our results of operations and financial position.

 

Results of Operations

 

We earn substantially all of our cruise revenues from the following:

 

•   Sales of passenger cruise tickets and, in some cases, the sale of air and other transportation to and from airports near our ships' home ports and cancellation fees. We also collect fees, taxes and other charges from our guests

 

•   The cruise ticket price typically includes the following:

 

•         Accommodations

•         Most meals, including snacks at numerous venues

•         Access to amenities such as swimming pools, water slides, water parks, whirlpools, a health club and sun decks

•         Supervised youth programs

•         Entertainment, such as theatrical and comedy shows, live music and nightclubs

•         Visits to multiple destinations

 

•   Sales of goods and services not included in the cruise ticket price are generally the following:

•       Substantially all liquor and some non-alcoholic beverage sales

•       Internet and communication services
 

•       Casino gaming

•       Full service spas

•       Shore excursions

•       Specialty restaurants
 

•       Gift shop sales

•       Art sales

 

•       Photo sales

•       Laundry and dry cleaning services

 

These goods and services are provided either directly by us or by independent concessionaires, from which we receive either a percentage of their revenues or a fee.

 

We incur cruise operating costs and expenses for the following:

 

•   The costs of passenger cruise bookings, which represent costs that are directly associated with passenger cruise ticket revenues, and include travel agent commissions, cost of air and other transportation and credit and debit card fees

 

•   Onboard and other cruise costs, which represent costs that are directly associated with onboard and other revenues, and include the costs of liquor and some non-alcoholic beverages, costs of tangible goods sold by us in our gift shops and from our photo packages, communication costs, costs of cruise vacation protection programs, costs of pre- and post-cruise land packages and credit and debit card fees

 

•   Fuel costs, which include fuel delivery costs

 

•   Payroll and related costs, which represent all costs related to our shipboard personnel, including bridge and engineering officers and crew and hotel and administrative employees, while costs associated with our shoreside personnel are included in selling and administrative expenses

 

•   Food costs, which include both our guest and crew food costs

 

•   Other ship operating expenses, which include port costs that do not vary with guest head counts; repairs and maintenance, including minor improvements and dry-dock expenses; hotel costs; entertainment; gains and losses on ship sales; ship impairments; freight and logistics; insurance premiums and all other ship operating expenses

 

Concession revenues do not have significant associated expenses because the costs and services incurred for concession revenues are borne by our concessionaires.

 

Statistical Information

 

Years Ended November 30,

 

2017

 

2016

 

2015

ALBDs (in thousands) (a) (b)

82,303

 

 

80,002

 

 

77,307

 

Occupancy percentage (c)

105.9

%

 

105.9

%

 

104.8

%

Passengers carried (in thousands)

12,130

 

 

11,520

 

 

10,840

 

Fuel consumption in metric tons (in thousands)

3,286

 

 

3,233

 

 

3,181

 

Fuel consumption in metric tons per thousand ALBDs

39.9

 

 

40.4

 

 

41.2

 

Fuel cost per metric ton consumed

$

378

 

 

$

283

 

 

$

393

 

Currencies (USD to 1)

 

 

 

 

 

     AUD

$

0.77

 

 

$

0.74

 

 

$

0.76

 

     CAD

$

0.77

 

 

$

0.75

 

 

$

0.79

 

     EUR

$

1.12

 

 

$

1.11

 

 

$

1.12

 

     GBP

$

1.28

 

 

$

1.37

 

 

$

1.54

 

     RMB

$

0.15

 

 

$

0.15

 

 

$

0.16

 

 

(a)       ALBD is a standard measure of passenger capacity for the period that we use to approximate rate and capacity variances, based on consistently applied formulas that we use to perform analyses to determine the main non-capacity driven factors that cause our cruise revenues and expenses to vary. ALBDs assume that each cabin we offer for sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-producing ship operating days in the period.

 

(b)       In 2017 compared to 2016, we had a 2.9% capacity increase in ALBDs comprised of a 3.2% capacity increase in our North America segment and a 2.4% capacity increase in our EAA segment.

 

                Our North America segment's capacity increase was caused by:

•       Full period impact from one Seabourn 600-passenger capacity ship that entered into service in December 2016             

•       Partial period impact from one Holland America Line 2,650-passenger capacity ship that entered into service in April 2016

•       Partial period impact from one Carnival Cruise Line 3,930-passenger capacity ship that entered into service in May 2016

•       Partial period impact from one Princess Cruises 3,560-passenger capacity ship that entered into service in April 2017

               

These increases were offset by the partial period impact from the transfer of one Princess Cruises 2,000-passenger capacity ship to P&O Cruises (Australia) in May 2017.

 

Our EAA segment's capacity increase was caused by:

•       Partial period impact from one AIDA 3,290-passenger capacity ship that entered into service in April 2016

•       Partial period impact from one AIDA 3,290-passenger capacity ship that entered into service in June 2017

•       Partial period impact from the transfer of one Princess Cruises 2,000-passenger capacity ship to P&O Cruises (Australia) that entered into service in July 2017

 

These increases were partially offset by the partial period impact from one P&O Cruises (Australia) 1,550-passenger capacity ship removed from service in April 2017.

 

                In 2016 compared to 2015, we had a 3.5% capacity increase in ALBDs comprised of a 7.5% capacity increase in our EAA segment and a slight capacity increase in our North America segment.

 

                Our North America segment's slight capacity increase was caused by:

•       Partial period impact from one Carnival Cruise Line 3,930-passenger capacity ship delivered in May 2016

•       Partial period impact from one Holland America Line 2,650-passenger capacity ship delivered in April 2016

 

These increases were partially offset by the full period impact from the transfer of two Holland America Line 1,260-passenger capacity ships to P&O Cruises (Australia) in 2015.

 

                Our EAA segment's capacity increase was caused by:

•       Full period impact from the transfer of two Holland America Line 1,260-passenger capacity ships to P&O Cruises

(Australia) in 2015

•       Partial period impact from one P&O Cruises (UK) 3,650-passenger capacity ship delivered in 2015

•       Partial period impact from one AIDA 3,290-passenger capacity ship delivered in April 2016

•       Fewer ship dry-dock days in 2016 compared to 2015

 

(c)       In accordance with cruise industry practice, occupancy is calculated using a denominator of ALBDs, which assumes two

                passengers per cabin even though some cabins can accommodate three or more passengers. Percentages in excess of 100%

                indicate that on average more than two passengers occupied some cabins.

2017 Compared to 2016

 

     Revenues

 

Consolidated

 

Cruise passenger ticket revenues made up 74% of our 2017 total revenues. Cruise passenger ticket revenues increased by $854 million, or 7.1%, to $12.9 billion in 2017 from $12.1 billion in 2016. 

 

This increase was caused by:

•       $517 million - increase in cruise ticket revenues, driven primarily by price improvements in our Caribbean, European and Alaska programs, partially offset by decrease in our China programs

•       $348 million - 2.9% capacity increase in ALBDs

•       $55 million - increase in other passenger revenue

 

These increases were partially offset by:

•       $54 million - foreign currency translational impact from a stronger U.S. dollar against the functional currencies of our foreign operations ("foreign currency translational impact")

•       $20 million - decrease in air transportation revenues

 

The remaining 26% of 2017 total revenues were substantially all comprised of onboard and other cruise revenues, which increased by $262 million, or 6.4%, to $4.3 billion in 2017 from $4.1 billion in 2016.

 

This increase was driven by:

•       $124 million - higher onboard spending by our guests

•       $117 million - 2.9% capacity increase in ALBDs

 

Concession revenues, which are included in onboard and other revenues, increased by $18 million, or 1.8%, to $1.1 billion in 2017 from $1.0 billion in 2016.

 

North America Segment

 

Cruise passenger ticket revenues made up 72% of our North America segment's 2017 total revenues. Cruise passenger ticket revenues increased by $658 million, or 9.0% to $8.0 billion in 2017 from $7.3 billion in 2016. 

 

This increase was caused by:

•       $369 million - increase in cruise ticket revenues, driven primarily by price improvements in Caribbean, European and Alaska programs, partially offset by decrease in our China programs

•       $232 million - 3.2% capacity increase in ALBDs

•       $32 million - increase in occupancy

•       $28 million - increase in other passenger revenue

 

The remaining 28% of our North America segment's 2017 total revenues were comprised of onboard and other cruise revenues, which increased by $208 million, or 7.4%, to $3.0 billion in 2017 from $2.8 billion in 2016. 

 

The increase was driven by:

•       $89 million - 3.2% capacity increase in ALBDs

•       $88 million - higher onboard spending by our guests

 

Concession revenues, which are included in onboard and other revenues, increased by $21 million, or 3.0%, to $722 million in 2017 from $701 million in 2016. 

 

EAA Segment

 

Cruise passenger ticket revenues made up 81% of our EAA segment's 2017 total revenues. Cruise passenger ticket revenues increased by $186 million, or 3.9%, to $5.0 billion in 2017 from $4.8 billion 2016. 

 

This increase was caused by:

•       $141 million - increase in cruise ticket revenues, driven primarily by price improvements in the European programs, partially offset by decrease in the China programs

•       $117 million - 2.4% capacity increase in ALBDs

 

These increases were partially offset by:

•       $54 million - foreign currency translational impact

•       $25 million - decrease in occupancy

 

The remaining 19% of our EAA segment's 2017 total revenues were comprised of onboard and other cruise revenues, which increased by $65 million, or 6.0%, to $1.2 billion in 2017 from $1.1 billion in 2016.

 

The increase was caused by:

•       $47 million - higher onboard spending by our guests

•       $26 million -  2.4% capacity increase in ALBDs

 

Concession revenues, which are included in onboard and other revenues, decreased by $2 million, or 0.6%, to $330 million in 2017 from $332 million in 2016.

 

Costs and Expenses

 

Consolidated

 

Operating costs and expenses increased by $1.1 billion or 12%, to $10.5 billion in 2017 from $9.4 billion in 2016.

 

This increase was caused by:

•       $314 million - higher fuel prices

•       $304 million - impairment of ships, resulting primarily from our decision to strategically realign our business in Australia

•       $265 million - 2.9% capacity increase in ALBDs

•       $68 million - higher cruise payroll and related expenses

•       $67 million - higher port expenses

•       $65 million - higher commissions, transportation and other expenses

•       $64 million - higher dry-dock expenses and repair and maintenance expenses

 

These increases were partially offset by foreign currency translational impact, which accounted for $34 million.

 

Selling and administrative expenses increased by $68 million, or 3.1%, to $2.3 billion in 2017 from $2.2 billion in 2016.

 

Depreciation and amortization expenses increased by $108 million, or 6.2%, to $1.8 billion in 2017 from $1.7 billion in 2016.

 

Goodwill and trademark impairment charges of $89 million include a goodwill impairment charge of $38 million and a trademark impairment charge of $50 million during the third quarter of 2017, resulting from our decision to strategically realign our business in Australia.

 

North America Segment

 

Operating costs and expenses increased by $550 million, or 9.8%, to $6.2 billion in 2017 from $5.6 billion in 2016.

 

This increase was driven by:

•       $196 million - higher fuel prices

•       $179 million - 3.2%  capacity increase in ALBDs

•       $76 million - higher commissions, transportation and other expenses

•       $41 million - higher port expenses

•       $37 million - higher cruise payroll and related expenses

 

Selling and administrative expenses increased by $64 million, or 5.2%, to $1.3 billion in 2017 from $1.2 billion in 2016.

 

Depreciation and amortization expenses increased by $80 million, or 7.6%, to $1.1 billion in 2017 from $1.1 billion in 2016.

 

EAA Segment

 

Operating costs and expenses increased by $558 million, or 16%, to $4.1 billion in 2017 from $3.5 billion in 2016.

 

This increase was caused by:

•       $304 million - impairment of ships, resulting primarily from our decision to strategically realign our business in Australia

•       $118 million - higher fuel prices

•       $86 million - 2.4% capacity increase in ALBDs

•       $56 million - higher dry-dock expenses and repair and maintenance expenses

•       $26 million - higher port expenses

•       $26 million - higher cruise payroll and related expenses

 

These increases were partially offset by:

•       $34 million - foreign currency translational impact

•       $20 million - decrease in air transportation costs

 

Selling and administrative expenses increased by $29 million, or 4.2%, to $720 million in 2017 from $691 million in 2016.

 

Depreciation and amortization expenses increased by $21 million, or 3.5%, to $620 million in 2017 from $599 million in 2016.

 

Goodwill and trademark impairment charges of $89 million include a goodwill impairment charge of $38 million and a trademark impairment charge of $50 million during the third quarter of 2017, resulting from our decision to strategically realign our business in Australia.

 

Operating Income

 

Our consolidated operating income decreased by $262 million, or 8.5%, to $2.8 billion in 2017 from $3.1 billion in 2016. Our North America segment's operating income increased by $171 million, or 7.8%, to $2.4 billion in 2017 from $2.2 billion in 2016, and our EAA segment's operating income decreased by $444 million, or 41%, to $0.6 billion in 2017 from $1.1 billion in 2016. These changes were primarily due to the reasons discussed above.

 

Nonoperating Income (Expense )

 

Years Ended November 30,

(in millions)

2017

 

2016

Unrealized gains on fuel derivatives

$

227

 

 

$

236

 

Realized losses on fuel derivatives, net

(192

)

 

(283

)

Gains (losses) on fuel derivatives, net

$

35

 

 

$

(47

)

 

Key Performance Non-GAAP Financial Indicators

 

Non-GAAP Financial Measures

 

We use net cruise revenues per ALBD ("net revenue yields"), net cruise costs excluding fuel per ALBD, adjusted net income and adjusted earnings per share as non-GAAP financial measures of our cruise segments' and the company's financial performance. These non-GAAP financial measures are provided along with U.S. GAAP gross cruise revenues per ALBD ("gross revenue yields"), gross cruise costs per ALBD and U.S. GAAP net income and U.S. GAAP earnings per share. 

 

We believe that gains and losses on ship sales, impairment charges, restructuring and certain other expenses are not part of our core operating business and, therefore, are not an indication of our future earnings performance. As such, we exclude these items from non-GAAP measures. Net revenue yields and net cruise costs excluding fuel per ALBD enable us to separate the impact of predictable capacity or ALBD changes from price and other changes that affect our business. We believe these non-GAAP measures provide useful information to investors and expanded insight to measure our revenue and cost performance as a supplement to our U.S. GAAP consolidated financial statements.

 

The presentation of our non-GAAP financial information is not intended to be considered in isolation from, as substitute for, or superior to the financial information prepared in accordance with U.S. GAAP. It is possible that our non-GAAP financial measures may not be exactly comparable to the like-kind information presented by other companies, which is a potential risk associated with using these measures to compare us to other companies.

Net revenue yields are commonly used in the cruise industry to measure a company's cruise segment revenue performance and for revenue management purposes. We use "net cruise revenues" rather than "gross cruise revenues" to calculate net revenue yields. We believe that net cruise revenues is a more meaningful measure in determining revenue yield than gross cruise revenues because it reflects the cruise revenues earned net of our most significant variable costs, which are travel agent commissions, cost of air and other transportation, certain other costs that are directly associated with onboard and other revenues and credit and debit card fees. 

 

Net passenger ticket revenues reflect gross passenger ticket revenues, net of commissions, transportation and other costs.

 

Net onboard and other revenues reflect gross onboard and other revenues, net of onboard and other cruise costs.

 

Net cruise costs excluding fuel per ALBD is the measure we use to monitor our ability to control our cruise segments' costs rather than gross cruise costs per ALBD. We exclude the same variable costs that are included in the calculation of net cruise revenues as well as fuel expense to calculate net cruise costs without fuel to avoid duplicating these variable costs in our non-GAAP financial measures. Substantially all of our net cruise costs excluding fuel are largely fixed, except for the impact of changing prices once the number of ALBDs has been determined.

 

We have not provided a reconciliation of forecasted gross cruise revenues to forecasted net cruise revenues or forecasted gross cruise costs to forecasted net cruise costs without fuel or forecasted U.S. GAAP net income to forecasted adjusted net income or forecasted U.S. GAAP earnings per share to forecasted adjusted earnings per share because preparation of meaningful U.S. GAAP forecasts of gross cruise revenues, gross cruise costs, net income and earnings per share would require unreasonable effort. We are unable to predict, without unreasonable effort, the future movement of foreign exchange rates and fuel prices. While we forecast realized gains and losses on fuel derivatives by applying current Brent prices to the derivatives that settle in the forecast period, we do not forecast the impact of unrealized gains and losses on fuel derivatives because we do not believe they are an indication of our future earnings performance. We are unable to determine the future impact of gains or losses on ships sales, restructuring expenses and other non-core gains and charges.

Non-GAAP Constant Dollar and Constant Currency

 

Our EAA segment and Cruise Support segment operations utilize the euro, sterling and Australian dollar as their functional currencies to measure their results and financial condition. This subjects us to foreign currency translational risk. Our North America, EAA and Cruise Support segment operations also have revenues and expenses that are in a currency other than their functional currency. This subjects us to foreign currency transactional risk.

 

We report net revenue yields, net passenger ticket revenue yields, net onboard and other revenue yields and net cruise costs excluding fuel per ALBD on a "constant dollar" and "constant currency" basis assuming the 2017 and 2016 periods' currency exchange rates have remained constant with the 2016 and 2015 periods' rates, respectively. These metrics facilitate a comparative view for the changes in our business in an environment with fluctuating exchange rates.

 

Constant dollar reporting removes only the impact of changes in exchange rates on the translation of our EAA segment and Cruise Support segment operations.

 

Constant currency reporting removes the impact of changes in exchange rates on the translation of our EAA segment and Cruise Support segment operations (as in constant dollar) plus the transactional impact of changes in exchange rates from revenues and expenses that are denominated in a currency other than the functional currency for our North America, EAA and Cruise Support segments.

 

Examples:

 

•       The translation of our EAA segment operations to our U.S. dollar reporting currency results in decreases in reported U.S. dollar revenues and expenses if the U.S. dollar strengthens against these foreign currencies and increases in reported U.S. dollar revenues and expenses if the U.S. dollar weakens against these foreign currencies.

 

•       Our North America segment operations have a U.S. dollar functional currency but also have revenue and expense transactions in currencies other than the U.S. dollar. If the U.S. dollar strengthens against these other currencies, it reduces the U.S. dollar revenues and expenses. If the U.S. dollar weakens against these other currencies, it increases the U.S. dollar revenues and expenses.

 

•       Our EAA segment operations have euro, sterling and Australian dollar functional currencies but also have revenue and expense transactions in currencies other than their functional currency. If their functional currency strengthens against these other currencies, it reduces the functional currency revenues and expenses. If the functional currency weakens against these other currencies, it increases the functional currency revenues and expenses. 

 

Under U.S. GAAP, the realized and unrealized gains and losses on fuel derivatives not qualifying as fuel hedges are recognized currently in earnings. We believe that unrealized gains and losses on fuel derivatives are not an indication of our earnings performance since they relate to future periods and may not ultimately be realized in our future earnings. Therefore, we believe it is more meaningful for the unrealized gains and losses on fuel derivatives to be excluded from our net income and earnings per share and, accordingly, we present adjusted net income and adjusted earnings per share excluding these unrealized gains and losses.

 

We believe that gains and losses on ship sales, impairment charges, restructuring expenses and other non-core gains and charges are not part of our core operating business and are not an indication of our future earnings performance. Therefore, we believe it is more meaningful for gains and losses on ship sales, impairment charges, restructuring expenses and other non-core gains and charges to be excluded from our net income and earnings per share and, accordingly, we present adjusted net income and adjusted earnings per share excluding these items.

 

 

Consolidated gross and net revenue yields were computed by dividing the gross and net cruise revenues by ALBDs as follows:

 

Years Ended November 30,

(in millions, except yields)

2017

 

2017
Constant
Dollar

 

2016

 

2016
Constant 
Dollar

 

2015

Passenger ticket revenues

$

12,944

 

 

$

12,998

 

 

$

12,090

 

 

$

12,305

 

 

$

11,601

 

Onboard and other revenues

4,330

 

 

4,338

 

 

4,068

 

 

4,114

 

 

3,887

 

Gross cruise revenues

17,274

 

 

17,336

 

 

16,158

 

 

16,419

 

 

15,488

 

Less cruise costs

 

 

 

 

 

 

 

 

 

     Commissions, transportation and other

(2,359

)

 

(2,371

)

 

(2,240

)

 

(2,280

)

 

(2,161

)

     Onboard and other

(587

)

 

(589

)

 

(553

)

 

(560

)

 

(526

)

 

(2,946

)

 

(2,960

)

 

(2,793

)

 

(2,840

)

 

(2,687

)

Net passenger ticket revenues

10,585

 

 

10,627

 

 

9,850

 

 

10,025

 

 

9,440

 

Net onboard and other revenues

3,744

 

 

3,749

 

 

3,515

 

 

3,554

 

 

3,361

 

Net cruise revenues

$

14,329

 

 

$

14,376

 

 

$

13,365

 

 

$

13,579

 

 

$

12,801

 

ALBDs

82,302,887

 

 

82,302,887

 

 

80,002,092

 

 

80,002,092

 

 

77,307,323

 

 

 

 

 

 

 

 

 

 

 

Gross revenue yields

$

209.88

 

 

$

210.63

 

 

$

201.97

 

 

$

205.23

 

 

$

200.34

 

% increase

3.9

%

 

4.3

%

 

0.8

%

 

2.4

%

 

 

Net revenue yields

$

174.10

 

 

$

174.67

 

 

$

167.06

 

 

$

169.74

 

 

$

165.58

 

% increase

4.2

%

 

4.6

%

 

0.9

%

 

2.5

%

 

 

Net passenger ticket revenue yields

$

128.62

 

 

$

129.12

 

 

$

123.11

 

 

$

125.31

 

 

$

122.11

 

% increase

4.5

%

 

4.9

%

 

0.8

%

 

2.6

%

 

 

Net onboard and other revenue yields

$

45.48

 

 

$

45.55

 

 

$

43.95

 

 

$

44.43

 

 

$

43.48

 

% increase

3.5

%

 

3.6

%

 

1.1

%

 

2.2

%

 

 

 

 

Years Ended November 30,

(in millions, except yields)

2017

 

2017
Constant
Currency

 

2016

 

2016
Constant
Currency

 

2015

Net passenger ticket revenues

$

10,585

 

 

$

10,632

 

 

$

9,850

 

 

$

10,210

 

 

$

9,440

 

Net onboard and other revenues

3,744

 

 

3,741

 

 

3,515

 

 

3,557

 

 

3,361

 

Net cruise revenues

$

14,329

 

 

$

14,373

 

 

$

13,365

 

 

$

13,767

 

 

$

12,801

 

 

 

 

 

 

 

 

 

 

 

ALBDs

82,302,887

 

 

82,302,887

 

 

80,002,092

 

 

80,002,092

 

 

77,307,323

 

 

 

 

 

 

 

 

 

 

 

Net revenue yields

$

174.10

 

 

$

174.63

 

 

$

167.06

 

 

$

172.08

 

 

$

165.58

 

% increase

4.2

%

 

4.5

%

 

0.9

%

 

3.9

%

 

 

Net passenger ticket revenue yields

$

128.62

 

 

$

129.18

 

 

$

123.11

 

 

$

127.62

 

 

$

122.11

 

% increase

4.5

%

 

4.9

%

 

0.8

%

 

4.5

%

 

 

Net onboard and other revenue yields

$

45.48

 

 

$

45.45

 

 

$

43.95

 

 

$

44.46

 

 

$

43.48

 

% increase

3.5

%

 

3.4

%

 

1.1

%

 

2.3

%

 

 

 

Consolidated gross and net cruise costs and net cruise costs excluding fuel per ALBD were computed by dividing the gross and net cruise costs and net cruise costs excluding fuel by ALBDs as follows:

 

Years Ended November 30,

(in millions, except costs per ALBD)

2017

 

2017
Constant
Dollar

 

2016

 

2016
Constant 
Dollar

 

2015

Cruise operating expenses

$

10,338

 

 

$

10,372

 

 

$

9,231

 

 

$

9,366

 

 

$

9,292

 

Cruise selling and administrative expenses

2,250

 

 

2,259

 

 

2,188

 

 

2,216

 

 

2,058

 

Gross cruise costs

12,588

 

 

12,631

 

 

11,419

 

 

11,582

 

 

11,350

 

Less cruise costs included above

 

 

 

 

 

 

 

 

 

Commissions, transportation and other

(2,359

)

 

(2,371

)

 

(2,240

)

 

(2,280

)

 

(2,161

)

Onboard and other

(587

)

 

(589

)

 

(553

)

 

(560

)

 

(526

)

(Losses) gains on ship sales and impairments

 

(298

)

 

(288

)

 

2

 

 

2

 

 

8

 

Restructuring expenses

(3

)

 

(3

)

 

(2

)

 

(2

)

 

(25

)

Other

-

 

 

-

 

 

(41

)

 

(41

)

 

-

 

Net cruise costs

9,341

 

 

9,380

 

 

8,585

 

 

8,701

 

 

8,646

 

Less fuel

(1,244

)

 

(1,244

)

 

(915

)

 

(915

)

 

(1,249

)

Net cruise costs excluding fuel

$

8,097

 

 

$

8,136

 

 

$

7,670

 

 

$

7,786

 

 

$

7,397

 

ALBDs

82,302,887

 

 

82,302,887

 

 

80,002,092

 

 

80,002,092

 

 

77,307,323

 

 

 

 

 

 

 

 

 

 

 

Gross cruise costs per ALBD

$

152.94

 

 

$

153.46

 

 

$

142.73

 

 

$

144.78

 

 

$

146.81

 

% increase

7.2

%

 

7.5

%

 

(2.8

)%

 

(1.4

)%

 

 

Net cruise costs excluding fuel per ALBD

$

98.37

 

 

$

98.84

 

 

$

95.87

 

 

$

97.34

 

 

$

95.68

 

% increase

2.6

%

 

3.1

%

 

0.2

%

 

1.7

%

 

 

 

 

 

Years Ended November 30,

(in millions, except costs per ALBD)

2017

 

2017
Constant
Currency

 

2016

 

2016
Constant
Currency

 

2015

Net cruise costs excluding fuel

$

8,097

 

 

$

8,108

 

 

$

7,670

 

 

$

7,777

 

 

$

7,397

 

ALBDs

82,302,887

 

 

82,302,887

 

 

80,002,092

 

 

80,002,092

 

 

77,307,323

 

 

 

 

 

 

 

 

 

 

 

Net cruise costs excluding fuel per ALBD

$

98.37

 

 

$

98.51

 

 

$

95.87

 

 

$

97.21

 

 

$

95.68

 

% increase

2.6

%

 

2.7

%

 

0.2

%

 

1.6

%

 

 

 

 

Years Ended November 30,

(in millions, except per share data)

2017

 

2016

 

2015

Net income

 

 

 

 

 

     U.S. GAAP net income

$

2,606

 

 

$

2,779

 

 

$

1,757

 

     Unrealized (gains) losses on fuel derivatives, net

(227

)

 

(236

)

 

332

 

     Losses (gains) on ship sales and impairments

387

 

 

(2

)

 

(8

)

     Restructuring expenses

3

 

 

2

 

 

25

 

     Other

-

 

 

37

 

 

-

 

     Adjusted net income

$

2,770

 

 

$

2,580

 

 

$

2,106

 

Weighted-average shares outstanding

725

 

 

747

 

 

779

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

     U.S. GAAP earnings per share

$

3.59

 

 

$

3.72

 

 

$

2.26

 

     Unrealized (gains) losses on fuel derivatives, net

(0.31

)

 

(0.32

)

 

0.42

 

     Losses (gains) on ship sales and impairments

0.53

 

 

-

 

 

(0.01

)

     Restructuring expenses

-

 

 

-

 

 

0.03

 

     Other

-

 

 

0.05

 

 

-

 

     Adjusted earnings per share

$

3.82

 

 

$

3.45

 

 

$

2.70

 

 

 

 

 

 

 

 

Net cruise revenues increased by $964 million, or 7.2%, to $14.3 billion in 2017 from $13.4 billion in 2016.

 

The increase was caused by:

•      $626 million - 4.5% increase in constant currency net revenue yields

•      $381 million - 2.9% capacity increase in ALBDs

 

These increases were partially offset by foreign currency impacts (including both foreign currency translational and transactional impacts), which accounted for $44 million.

 

The 4.5% increase in net revenue yields on a constant currency basis was due to a 4.9% increase in net passenger ticket revenue yields and a 3.4% increase in net onboard and other revenue yields.

 

The 4.9% increase in net passenger ticket revenue yields was driven primarily by price improvements in our Caribbean, European and Alaska programs for our North America segment and European programs for our EAA segment, partially offset by decreases in our China programs. This 4.9% increase in net passenger ticket revenue yields was comprised of a 5.7% increase from our North America segment and a 3.3% increase from our EAA segment. 

 

The 3.4% increase in net onboard and other revenue yields was caused by similar increases in our North America and EAA segments.

Gross cruise revenues increased by $1.1 billion, or 6.9%, to $17.3 billion in 2017 from $16.2 billion in 2016 for largely the same reasons as discussed above.

 

Net cruise costs excluding fuel increased by $427 million, or 5.6%, to $8.1 billion in 2017 from $7.7 billion in 2016.

 

The increase was caused by:

•      $222 million - 2.9% capacity increase in ALBDs

•      $216 million - 2.7% increase in constant currency net cruise costs excluding fuel

 

These increases were partially offset by:

•      $12 million - foreign currency impacts (including both foreign currency translational and transactional impacts)

 

Fuel costs increased by $329 million, or 36%, to $1,244 million in 2017 from $915 million in 2016. This was driven by higher fuel prices, which accounted for $313 million.

 

Gross cruise costs increased, by $1.2 billion, or 10%, to $12.6 billion in 2017 from $11.4 billion in 2016 for largely the same reasons as discussed above and the impairment of ships, which accounted for $304 million.

 

 

2016 Compared to 2015

 

     Revenues

 

Consolidated

 

Cruise passenger ticket revenues made up 74% of our 2016 total revenues. Cruise passenger ticket revenues increased by $489 million, or 4.2%, to $12.1 billion in 2016 from $11.6 billion in 2015. 

 

This increase was caused by:

 

Years Ended November 30,

 

2016

 

2015

Unrealized gains (losses) on fuel derivatives

$

236

 

 

$

(332

)

Realized losses on fuel derivatives, net

(283

)

 

(244

)

Losses on fuel derivatives, net

$

(47

)

 

$

(576

)

 

 

Key Performance Non-GAAP Financial Indicators

 

Net cruise revenues increased by $564 million, or 4.4%, to $13.4 billion in 2016 from $12.8 billion in 2015.

 

The increase in net cruise revenues was caused by:

Liquidity, Financial Condition and Capital Resources

 

Our primary financial goals are to profitably grow our cruise business and increase our ROIC, reaching double digit returns, while maintaining a strong balance sheet and strong investment grade credit ratings. We define ROIC as the twelve-month adjusted earnings before interest divided by the monthly average of debt plus equity minus construction-in-progress. Our ability to generate significant operating cash flow allows us to internally fund our capital investments. We are committed to returning free cash flow to our shareholders in the form of dividends and/or share repurchases. As we continue to profitably grow our cruise business, we plan to increase our debt level in a manner consistent with maintaining our strong credit metrics. This will allow us to return both free cash flow and incremental debt proceeds to our shareholders in the form of dividends and/or share repurchases. Other objectives of our capital structure policy are to maintain a sufficient level of liquidity with our available cash and cash equivalents and committed financings for immediate and future liquidity needs, and a reasonable debt maturity profile.

 

Based on our historical results, projections and financial condition, we believe that our future operating cash flows and liquidity will be sufficient to fund all of our expected capital projects including shipbuilding commitments, ship improvements, debt service requirements, working capital needs and other firm commitments over the next several years. We believe that our ability to generate significant operating cash flows and our strong balance sheet as evidenced by our investment grade credit ratings provide us with the ability, in most financial credit market environments, to obtain debt financing.

 

We had a working capital deficit of $7.2 billion as of November 30, 2017 compared to a working capital deficit of $5.4 billion as of November 30, 2016. The increase in working capital deficit was mainly due to the increase in our net current portion of our borrowings and customer deposits and a decrease in cash and cash equivalents. We operate with a substantial working capital deficit. This deficit is mainly attributable to the fact that, under our business model, substantially all of our passenger ticket receipts are collected in advance of the applicable sailing date. These advance passenger receipts remain a current liability until the sailing date. The cash generated from these advance receipts is used interchangeably with cash on hand from other sources, such as our borrowings and other cash from operations. The cash received as advanced receipts can be used to fund operating expenses, pay down our debt, invest in long term investments or any other use of cash. Included within our working capital deficit are $4.0 billion and $3.5 billion of customer deposits as of November 30, 2017 and 2016, respectively. In addition, we have a relatively low-level of accounts receivable and limited investment in inventories. We generate substantial cash flows from operations and our business model has historically allowed us to maintain this working capital deficit and still meet our operating, investing and financing needs. We expect that we will continue to have working capital deficits in the future.

 

Sources and Uses of Cash

 

     Operating Activities

 

Our business provided $5.3 billion of net cash from operations during 2017, an increase of $188 million, or 3.7%, compared to $5.1 billion in 2016. This increase was caused by an increase in our revenues less expenses settled in cash. During 2016, our business provided $5.1 billion of net cash from operations, an increase of $589 million, or 13%, compared to $4.5 billion in 2015. This increase was caused by more cash being provided from our operating results.

 

     Investing Activities

 

During 2017, net cash used in investing activities was $3.1 billion. This was caused by:

•       Capital expenditures of $1.4 billion for our ongoing new shipbuilding program

•       Capital expenditures of $1.5 billion for ship improvements and replacements, information technology and buildings and improvements

•       Payments of $203 million of fuel derivative settlements

 

During 2016, net cash used in investing activities was $3.3 billion. This was caused by:

•       Capital expenditures of $1.9 billion for ongoing new shipbuilding program

•       Capital expenditures of $1.2 billion for ship improvements and replacements, information technology and buildings and improvements

•       Payments of $291 million of fuel derivative settlements

 

During 2015, net cash used in investing activities was $2.5 billion. This was caused by:

•       Capital expenditures of $981 million for our ongoing new shipbuilding program

•       Capital expenditures of $1.3 billion for ship improvements and replacements, information technology and buildings and improvements

•       Payments of $219 million of fuel derivative settlements

 

    Financing Activities

 

During 2017, net cash used in financing activities of $2.5 billion was substantially due to the following:

•       Net repayments of short-term borrowings of $29 million in connection with our availability of, and needs for, cash at various times throughout the period

•       Repayments of $1.2 billion of long-term debt

•       Issuances of $100 million of long-term debt under a term loan

•       Proceeds of $367 million of long-term debt under an export credit facility

•       Payments of cash dividends of $1.1 billion

•       Purchases of $552 million of Carnival Corporation common stock and Carnival plc ordinary shares in open market transactions under our Repurchase Program

 

During 2016, net cash used in financing activities of $2.6 billion was substantially due to the following:

•       Net proceeds from short-term borrowings of $447 million in connection with our availability of, and needs for, cash at various times throughout the period

•       Repayments of $1.3 billion of long-term debt

•       Issuances of $555 million of euro-denominated publicly-traded notes, which net proceeds were used for general corporate purposes

•       Proceeds of $987 million of long-term debt

•       Payments of cash dividends of $977 million

•       Purchases of $2.3 billion of shares of Carnival Corporation common stock and $35 million of Carnival plc ordinary shares in open market transactions under our Repurchase Program

 

During 2015, net cash used in financing activities of $942 million was substantially due to the following:

•       Net repayments of short-term borrowings of $633 million in connection with our availability of, and needs for, cash at various times throughout the year

•       Repayments of $1.2 billion of long-term debt

•       Issuances of $1.3 billion of publicly-traded notes, which net proceeds were used for generally corporate purposes

•       Net proceeds of $697 million of long-term debt

•       Payments of cash dividends of $816 million

•       Purchases of $276 million of shares of Carnival Corporation common stock in open market transactions under our Repurchase Program

•       Purchases of $257 million and sales of $264 million of treasury stock under our Stock Swap program

 

Future Commitments and Funding Sources

 

 

Payments Due by

 

 

 

 

(in millions)

2018

 

2019

 

2020

 

 

2022

 

Thereafter

 

Total

Debt (a)

$

2,381

 

 

$

2,262

 

 

$

1,445

 

 

$

1,242

 

 

$

1,107

 

 

$

1,653

 

 

$

10,090

 

Other long-term liabilities reflected on the balance

     sheet (b)

-

 

 

136

 

 

83

 

 

66

 

 

58

 

 

189

 

 

532

 

Shipbuilding

2,919

 

 

3,819

 

 

3,569

 

 

2,628

 

 

2,357

 

 

-

 

 

15,292

 

Operating leases

49

 

 

47

 

 

43

 

 

34

 

 

32

 

 

170

 

 

375

 

Port facilities and other

190

 

 

182

 

 

162

 

 

157

 

-

 

151

 

 

926

 

 

1,768

 

Purchase obligations

379

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

379

 

Total Contractual Cash Obligations

$

5,918

 

 

$

6,446

 

 

$

5,302

 

 

$

4,127

 

 

$

3,705

 

 

$

2,938

 

 

$

28,436

 

                                                         

 

(a)       Includes principal as well as interest payments.

(b)       Represents cash outflows for certain of our long-term liabilities which can be reasonably estimated. The primary outflows are for estimates of our compensation plans' obligations, crew and guest claims and certain deferred income taxes. Customer deposits and certain other deferred income taxes have been excluded from the table because they do not require a cash settlement in the future.

 

Our total annual capital expenditures consist of ships under contract for construction and estimated improvements to existing ships and shoreside assets which are expected to be:

 (in billions)

 

2018

 

2019

 

2020

 

2021

 

2022

Total annual capital expenditures

 

$

4.5

 

 

$

5.0

 

 

$

4.8

 

 

$

3.9

 

 

$

3.6

 

                                         

 

The year-over-year percentage increases in our annual capacity are expected to result primarily from contracted new ships entering service and are currently expected to be:

 

 

2018

 

2019

 

2020

 

2021

 

2022

Annual Capacity increase (a)

 

1.9

%

 

5.5

%

 

7.4

%

 

7.5

%

 

3.9

%

                               

(a)       These percentage increases include only contracted ship orders and dispositions.

 

Under a share repurchase program effective 2004, we are authorized to repurchase Carnival Corporation common stock and Carnival plc ordinary shares (the "Repurchase Program"). On April 6, 2017, the Boards of Directors approved a modification of the general authorization under the Repurchase Program, which replenished the remaining authorized repurchases at the time of the approval to $1.0 billion. The Repurchase Program does not have an expiration date and may be discontinued by our Boards of Directors at any time.

 

In addition to the Repurchase Program, we have programs that allow us to obtain an economic benefit when either Carnival Corporation common stock is trading at a premium to the price of Carnival plc ordinary shares or Carnival plc ordinary shares are trading at a premium to Carnival Corporation common stock (the "Stock Swap Programs"). For example:

 

•       In the event Carnival Corporation common stock trades at a premium to Carnival plc ordinary shares, we may elect to sell shares of Carnival Corporation common stock, at prevailing market prices in ordinary brokers' transactions and repurchase an equivalent number of Carnival plc ordinary shares in the UK market. 

 

•       In the event Carnival plc ordinary shares trade at a premium to Carnival Corporation common stock, we may elect to sell ordinary shares of Carnival plc, at prevailing market prices in ordinary brokers' transactions and repurchase an equivalent number of shares of Carnival Corporation common stock in the U.S.

 

Any realized economic benefit under the Stock Swap Programs is used for general corporate purposes, which could include repurchasing additional stock under the Repurchase Program. 

 

During 2017, there were no sales or repurchases under the Stock Swap Programs. During 2016, under the Stock Swap Programs, a subsidiary of Carnival Corporation sold 0.9 million of Carnival plc ordinary shares for net proceeds of $40 million. Substantially all of the net proceeds from these sales were used to purchase 0.9 million shares in 2016 of Carnival Corporation common stock. Any sales of Carnival Corporation common stock and Carnival plc ordinary shares have been or will be registered under the Securities Act of 1933.

 

At November 30, 2017, we had liquidity of $14.2 billion. Our liquidity consisted of $124 million of cash and cash equivalents, which excludes $271 million of cash used for current operations, $2.5 billion available for borrowing under our revolving credit facilities, net of our outstanding commercial paper borrowing, and $11.6 billion under our committed future financings, which are substantially all comprised of ship export credit facilities. These commitments are from numerous large and well-established banks and export credit agencies, which we believe will honor their contractual agreements with us. 

(in millions)

 

2018

 

2019

 

2020

 

2021

 

2022

Availability of committed future financing at                             November 30, 2017

 

$

2,075

 

 

$

2,668

 

 

$

3,015

 

 

$

2,951

 

 

$

928

 

                                         

 

At November 30, 2017, all of our revolving credit facilities are scheduled to mature in 2021, except for $300 million which matures in 2020.

 

Substantially all of our debt agreements contain financial covenants as described in the consolidated financial statements. At November 30, 2017, we were in compliance with our debt covenants. In addition, based on, among other things, our forecasted operating results, financial condition and cash flows, we expect to be in compliance with our debt covenants for the foreseeable future. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated.

 

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 consolidated financial statements.

 

Quantitative and Qualitative Disclosures About Market Risk

 

For a discussion of our hedging strategies and market risks, see the discussion below and the consolidated financial statements.

 

Foreign Currency Exchange Rate Risks

 

Operational Currency Risks

 

We have foreign operations that have functional currencies other than the U.S. dollar, which result in foreign currency translational impacts. We execute transactions in a number of currencies other than their functional currencies, which result in foreign currency transactional impacts. Based on a 10% change in all currency exchange rates that were used in our December 19, 2017 guidance, we estimate that our adjusted diluted earnings per share December 19, 2017 guidance would change by the following:

 

•       $0.46 per share on an annualized basis for 2018

•       $0.02 per share for the first quarter of 2018

 

Investment Currency Risks

 

The foreign currency exchange rates were as follows:

 

November 30,

USD to 1:

2017

 

2016

AUD

$

0.76

 

 

$

0.75

 

CAD

$

0.78

 

 

$

0.75

 

EUR

$

1.18

 

 

$

1.06

 

GBP

$

1.33

 

 

$

1.24

 

RMB

$

0.15

 

 

$

0.14

 

 

If the November 30, 2016 currency exchange rates had been used to translate our November 30, 2017 non-U.S. dollar functional currency operations' assets and liabilities (instead of the November 30, 2017 U.S. dollar exchange rates), our total assets would have been lower by $1.4 billion and our total liabilities would have been lower by $699 million.

 

As of November 30, 2017, we have foreign currency swaps of $324 million which settle through September 2019. These foreign currency swaps are designated as hedges of our net investments in foreign operations, which have a euro-denominated functional currency, thus partially offsetting the foreign currency exchange rate risk. Based on a 10% change in the U.S. dollar to euro exchange rate as of November 30, 2017, we estimate that these foreign currency swaps' fair values and offsetting change in U.S. dollar value of our net investments would change by $33 million.

 

Newbuild Currency Risks

 

At November 30, 2017, we have foreign currency zero cost collars that are designated as cash flow hedges for a portion of euro-denominated shipyard payments for the following newbuilds:

 

Entered Into

 

Matures in

 

Weighted-Average Floor Rate

 

Weighted- Average Ceiling Rate

Carnival Horizon

2016

 

March 2018

 

$

1.02

 

 

$

1.25

 

Seabourn Ovation

2016

 

April 2018

 

$

1.02

 

 

$

1.25

 

Nieuw Statendam

2016

 

November 2018

 

$

1.05

 

 

$

1.25

 

 

If the spot rate is between the ceiling and floor rates on the date of maturity, then we would not owe or receive any payments under these collars. The volatility in the spot rates within the ceiling and floor rates will result in fluctuations in ship costs. At November 30, 2017, the estimated fair value of our outstanding foreign currency zero cost collars was a $11.6 million asset. Based on a 10% increase or decrease in the November 30, 2017 euro to U.S. dollar exchange rates, we estimate the fair value of our foreign currency zero cost collars' liability would decrease $68.3 million or increase $10.3 million, respectively.

 

At November 30, 2017, our remaining newbuild currency exchange rate risk primarily relates to euro-denominated newbuild contract payments, which represent a total unhedged commitment of $6.8 billion and substantially all relates to newbuilds scheduled to be delivered 2019 through 2022 to non-euro functional currency brands. The functional currency cost of each of these ships will increase or decrease based on changes in the exchange rates until the unhedged payments are made under the shipbuilding contract. We may enter into additional foreign currency derivatives to mitigate some of this foreign currency exchange rate risk. Based on a 10% change in euro to U.S. dollar exchange rates as of November 30, 2017, the remaining unhedged cost of these ships would have a corresponding change of $680 million.

 

Interest Rate Risks

 

The composition of our debt, including the effect of foreign currency swaps and interest rate swaps, was as follows:

 

November 30, 2017

Fixed rate

28

%

EUR fixed rate

38

%

Floating rate

10

%

EUR floating rate

20

%

GBP floating rate

4

%

 

At November 30, 2017, we had interest rate swaps that have effectively changed $479 million of EURIBOR-based floating rate euro debt to fixed rate euro debt. Based on a 10% change in the November 30, 2017 market interest rates, our annual interest expense on floating rate debt, including the effect of our interest rate swaps, would change by an insignificant amount. Substantially all of our fixed rate debt can only be called or prepaid by incurring additional costs.

 

Fuel Price Risks

 

Our exposure to market risk for changes in fuel prices substantially all relates to the consumption of fuel on our ships. We expect to consume approximately 3,315 million metric tons of fuel in 2018. Based on a 10% change in fuel prices versus the current spot price that was used to calculate fuel expense in our December 19, 2017 guidance, we estimate that our adjusted diluted earnings per share December 19, 2017 guidance would change by the following:

 

•       $0.21 per share on an annualized basis for 2018

•       $0.05 per share for the first quarter of 2018

 

Based on a 10% change in Brent prices versus the current spot price that was used to calculate realized gains (losses) on fuel derivatives in our December 19, 2017 guidance, we estimate that our adjusted diluted earnings per share December 19, 2017 guidance would change by the following:

 

•       $0.05 per share on an annualized basis for 2018

•       $0.01 per share for the first quarter of 2018

 

Our most recent zero cost collar contract was executed in 2014. At November 30, 2017, our zero cost collars cover a portion of our estimated fuel consumption through 2018. At November 30, 2017, the unrealized losses on our outstanding fuel derivative contracts were $94 million. Based on a 10% increase or decrease in the November 30, 2017 Brent forward price curve, we estimate the fair value of our fuel derivatives' net liability would decrease $31.5 million or increase $34 million, respectively.

SELECTED FINANCIAL DATA

 

The selected consolidated financial data presented below for 2013 through 2017 and as of the end of each such year, except for the statistical data, are derived from our consolidated financial statements and should be read in conjunction with those consolidated financial statements and the related notes.

(in millions, except per share, per ton and currency data)

Years Ended November 30,

2017

 

2016

 

2015

 

2014

 

2013

Statements of Income Data

 

 

 

 

 

 

 

 

 

Revenues

$

17,510

 

 

$

16,389

 

 

$

15,714

 

 

$

15,884

 

 

$

15,456

 

Operating income

$

2,809

 

 

$

3,071

 

 

$

2,574

 

 

$

1,772

 

 

$

1,329

 

Net income

$

2,606

 

 

$

2,779

 

 

$

1,757

 

 

$

1,216

 

 

$

1,055

 

Earnings per share

 

 

 

 

 

 

 

 

 

     Basic

$

3.61

 

 

$

3.73

 

 

$

2.26

 

 

$

1.57

 

 

$

1.36

 

     Diluted

$

3.59

 

 

$

3.72

 

 

$

2.26

 

 

$

1.56

 

 

$

1.36

 

Adjusted net income

$

2,770

 

 

$

2,580

 

 

$

2,106

 

 

$

1,504

 

 

$

1,209

 

Adjusted earnings per share - diluted

$

3.82

 

 

$

3.45

 

 

$

2.70

 

 

$

1.93

 

 

$

1.55

 

Dividends declared per share

$

1.60

 

 

$

1.35

 

 

$

1.10

 

 

$

1.00

 

 

$

1.00

 

Statements of Cash Flow Data

 

 

 

 

 

 

 

 

 

Cash provided by operating activities

$

5,322

 

 

$

5,134

 

 

$

4,545

 

 

$

3,430

 

 

$

2,834

 

Cash used in investing activities

$

3,089

 

 

$

3,323

 

 

$

2,478

 

 

$

2,507

 

 

$

2,056

 

Capital expenditures

$

2,944

 

 

$

3,062

 

 

$

2,294

 

 

$

2,583

 

 

$

2,149

 

Cash used in financing activities

$

2,452

 

 

$

2,591

 

 

$

942

 

 

$

1,028

 

 

$

780

 

Dividends paid

$

1,087

 

 

$

977

 

 

$

816

 

 

$

776

 

 

$

1,164

 

Statistical Data

 

 

 

 

 

 

 

 

 

ALBDs (in thousands)

82,303

 

 

80,002

 

 

77,307

 

 

76,000

 

 

74,033

 

Occupancy percentage

105.9

%

 

105.9

%

 

104.8

%

 

104.1

%

 

105.1

%

Passengers carried (in thousands)

12,130

 

 

11,520

 

 

10,840

 

 

10,570

 

 

10,060

 

Fuel consumption in metric tons (in thousands)

3,286

 

 

3,233

 

 

3,181

 

 

3,194

 

 

3,266

 

Fuel consumption in metric tons per thousand ALBDs

39.9

 

 

40.4

 

 

41.2

 

 

42.0

 

 

44.1

 

Fuel cost per metric ton consumed

$

378

 

 

$

283

 

 

$

393

 

 

$

636

 

 

$

676

 

Currencies (USD to 1)

 

 

 

 

 

 

 

 

 

     AUD

$

0.77

 

 

$

0.74

 

 

$

0.76