Carnival Corporation & plc 2011 Form 10-K Summary
Business context and reporting period
Carnival Corporation and Carnival plc operate as a dual-listed company with common management and substantially integrated operations. The group is the world’s largest cruise company, operating brands across North America and Europe, Australia & Asia, plus tour, port and cruise-support businesses. The filing covers the fiscal year ended November 30, 2011; the source text does not provide a separate fourth-quarter financial statement.
As of January 23, 2012, the group operated 99 ships with approximately 195,872 passenger berths, serving major global vacation markets. Passenger capacity was approximately 120,640 berths in North America and 75,232 in Europe, Australia & Asia.
Financial metrics and capital structure
- The filing text provided does not include clear consolidated values for revenue, operating income, net income, earnings per share, operating cash flow, free cash flow, total debt, cash, liquidity, or operating margins; those figures are incorporated by reference to Exhibit 13.
- Fuel represented 21% of cruise operating expenses in 2011, compared with 18% in 2010 and 14% in 2009.
- Passenger sourcing outside the United States increased to 56% of revenue in 2011 from 54% in 2010 and 52% in 2009, increasing foreign-currency exposure.
- The company stated that operating cash flow had historically funded its capital investment program and that slowing the newbuilding pace was expected to increase free cash flow.
- Quarterly dividends were $0.25 per share in each quarter of 2011, compared with $0.10 per share in 2010 and no dividends in 2009.
- During fiscal 2011, the company repurchased 13.5 million Carnival Corporation shares for $413 million and 1.3 million Carnival plc ordinary shares for $41 million. Remaining Repurchase Program authorization was $334 million at November 30, 2011.
- Ten ships were under construction, with expected service dates from May 2012 through March 2016 and approximately 31,987 passenger berths. Net additions were expected to increase capacity by approximately 16% relative to the January 2012 fleet after the Costa Concordia withdrawal.
Material changes versus prior comparable periods
- Dividend payments increased to $0.25 per share per quarter in 2011 from $0.10 in 2010.
- Fuel costs became a materially larger operating expense, rising to 21% of cruise operating expenses from 18% in 2010 and 14% in 2009.
- Non-U.S.-sourced passenger revenue increased to 56% from 54% and 52% in the preceding two years.
- The company resumed significant share repurchases in 2011 after no repurchases in 2010 or 2009.
- Passenger volumes carried by Carnival increased to approximately 9.559 million in 2011 from 9.147 million in 2010 and 8.519 million in 2009.
- On January 13, 2012, after the fiscal year-end, Costa Concordia grounded near Isola del Giglio, Italy. The 2,978-passenger ship was significantly damaged and expected to remain out of service for the remainder of fiscal 2012 or longer if repairable.
Guidance, outlook, commentary and risks
- Management expected long-term cruise demand to benefit from low market penetration, demographic trends and growth in Europe, Australia, Asia and South America.
- Based on existing orders, management projected approximately 3% annualized capacity growth for North America and 4% for European brands through 2014, subject to unannounced ship withdrawals and other changes.
- The North American Emission Control Area was expected to increase annual fuel costs by approximately $35 million to $45 million beginning in August 2012. The additional 0.1% sulfur requirement expected from 2015 was estimated to increase annual fuel costs by a further $175 million to $195 million across currently designated ECAs.
- Compliance with the Maritime Labour Convention was expected to increase annual ship operating costs by approximately $20 million to $30 million.
- Costa Concordia had a December 31, 2011 net carrying value of approximately $490 million and insurance coverage of approximately $510 million for physical damage, subject to an estimated $30 million deductible. Third-party liability coverage was subject to an additional deductible of approximately $10 million. The company self-insured loss of use.
- Potential claims, regulatory actions, investigations, environmental liabilities and reputational damage related to Costa Concordia could materially affect results. A purported class action was filed on January 26, 2012, seeking unspecified damages.
- Key broader risks include discretionary consumer demand, fuel prices, accidents and health events, adverse weather, terrorism, political instability, environmental regulation, foreign exchange, shipbuilding commitments, overcapacity, financing availability, insurance costs, vendor and travel-agent financial viability, cybersecurity and international tax changes.
- Management stated that disclosure controls and internal control over financial reporting were effective as of November 30, 2011, with no material changes during the quarter.
Most important facts for an investor to verify
- Verify the consolidated 2011, 2010 and 2009 income statements, balance sheets and cash-flow statements in Exhibit 13, which is not included in the supplied text.
- Verify year-end cash, total debt, scheduled maturities, committed ship payments, available credit facilities and covenant compliance.
- Assess the ultimate repair, removal, impairment, insurance recovery and loss-of-use consequences of Costa Concordia.
- Review booking trends, occupancy, ticket pricing and net revenue yields following the Costa Concordia accident.
- Evaluate the sensitivity of earnings and liquidity to fuel prices, foreign exchange movements and upcoming low-sulfur fuel requirements.
- Review legal, regulatory, environmental and personal-injury claims arising from Costa Concordia and any related insurance coverage.