Carnival Corporation & plc 2015 Form 10-K Summary
Business Context and Reporting Period
Carnival Corporation and Carnival plc filed a joint Form 10-K for the fiscal year ended November 30, 2015, filed January 29, 2016. The companies operate as a dual-listed company with a single economic enterprise, management team and Boards of Directors, while retaining separate legal identities incorporated in Panama and England and Wales.
Carnival is a global leisure travel and cruise company operating 99 ships across ten global, regional and national brands. It carried approximately 10.837 million cruise guests in 2015 and represented approximately 47% of global cruise guests. The business is reported primarily through North America, Europe, Australia & Asia, Cruise Support, and Tour and Other segments.
Key Operating and Financial Metrics
- Passenger capacity: approximately 215,000 weighted-average lower berths in 2015, compared with 210,000 in 2014.
- Cruise guests carried: approximately 10.837 million in 2015, compared with 10.566 million in 2014.
- Onboard and other revenue represented approximately 25% of total revenue in 2015.
- Fuel represented 13% of cruise operating expenses in 2015, compared with 20% in 2014 and 21% in 2013.
- Fuel consumption rate declined to 84 grams per available lower berth kilometer in 2015 from 87 in 2014.
- Ship fuel greenhouse-gas emission rate declined to 266 grams of CO2e per available lower berth kilometer from 274 in 2014.
- Total ship-fuel greenhouse-gas emissions were approximately 10.1 million tonnes of CO2e in both 2015 and 2014.
- Average workforce included approximately 82,200 shipboard crew members, 10,000 full-time shoreside employees and 2,400 part-time or seasonal shoreside employees.
- 2015 quarterly dividends increased to $0.30 per share for the August and November quarters from $0.25 per share in prior quarters.
- Carnival repurchased approximately 5.3 million Carnival Corporation shares for $276 million in 2015. No program repurchases were made in 2014.
- The source text does not provide clear consolidated values for revenue, operating income, net income, earnings per share, operating cash flow, free cash flow, total debt, cash, liquidity facilities or margin percentages. Those financial statements and management discussion are incorporated by reference from Exhibit 13, which is not included in the supplied text.
Material Changes Versus Prior Comparable Period
- Passenger capacity increased approximately 2.4% from 2014, while guests carried increased approximately 2.6%.
- The company increased its quarterly dividend by 20%, from $0.25 to $0.30 per share, beginning with the third quarter of 2015.
- Fuel expense as a percentage of cruise operating expenses declined materially from 20% to 13%, although the filing does not provide the corresponding dollar amounts in the supplied text.
- Carnival repurchased $276 million of shares in 2015 compared with no repurchases under the program in 2014.
- Passenger capacity deployed to Asia increased to 8% in 2016 planning from 6% in 2015 and 5% in 2014; Australia and New Zealand increased to 9% from 7% in each prior year.
- The company opened Amber Cove, a new port destination in the Dominican Republic, in October 2015.
- In October 2015, Carnival formed a strategic joint venture with China State Shipbuilding Company and China Investment Corporation to launch a new Chinese cruise brand.
- Carnival took delivery of two refurbished ships transferred from Holland America Line to P&O Cruises (Australia) in November 2015.
Outlook, Management Commentary, Risks and Unusual Items
Management’s stated objectives are to profitably grow the cruise business, increase return on invested capital to double-digit levels within two to three years, maintain a strong balance sheet and return free cash flow through dividends and share repurchases. Strategic initiatives include demand generation, revenue management, onboard revenue expansion, cross-brand cost efficiencies, data analytics and measured capacity growth.
Carnival had 17 ships under contract for delivery between 2016 and 2020, representing approximately 61,356 passenger berths. Shipbuilding commitments cannot generally be cancelled without cause and may result in liquidated damages. The company expects new ships to improve fuel efficiency, onboard offerings and economies of scale, while retiring less efficient vessels.
- China is identified as a significant long-term growth opportunity, but expansion depends on demand development, local regulations, travel restrictions, infrastructure and execution of the new joint venture.
- Fuel prices, fuel availability, sulfur-emission rules and the cost and effectiveness of exhaust gas cleaning systems may affect operating costs and liquidity. Carnival expected to have exhaust gas cleaning systems installed on 64 ships by the end of 2016, compared with 40 ships at November 30, 2015.
- Foreign currency exposure is significant; 54% of reported 2015 revenue was derived from guests sourced outside the United States.
- Major risks include ship incidents, contagious diseases, adverse weather, terrorism, geopolitical events, reputational damage, overcapacity, competition, regulatory and environmental compliance, cybersecurity, labor relations, supplier and travel-agent viability, insurance availability, litigation and financing risk.
- Legal proceedings disclosed include investigations relating to alleged pollution-law violations involving Caribbean Princess and Costa neoClassica, and Alaska notices of violation concerning alleged marine-vessel visible-emission standards.
- The company maintains insurance but does not carry coverage for loss of earnings or revenues from ships or other operations and uses deductibles or self-insurance for substantially all insurable risks.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of November 30, 2015. The independent auditor also audited the effectiveness of internal control over financial reporting.
Most Important Facts for Investors to Verify
- Retrieve Exhibit 13 and verify consolidated revenue, net income, diluted earnings per share, operating cash flow, capital expenditures, free cash flow, debt, cash and liquidity commitments.
- Review 2015 versus 2014 revenue yields, occupancy, net cruise costs, margins and segment profitability.
- Examine shipbuilding commitments, scheduled deliveries, expected capital expenditures and related financing requirements.
- Assess the effect of fuel derivatives, foreign-currency derivatives, fuel prices and environmental compliance costs.
- Review the status and potential financial exposure of the disclosed pollution and emissions investigations.
- Evaluate the sustainability of the increased dividend and share-repurchase activity against operating cash flow, debt maturities and future capital needs.
- Monitor demand, pricing and capacity trends in China and other emerging markets, including the new Chinese joint venture.
- Review the full risk-factor disclosure for potential impacts from safety incidents, public health events, cybersecurity breaches, regulation, litigation and insurance limitations.