Carnival Corporation & plc — Fiscal 2009 Form 10-K Summary
Business context and reporting period
This joint Form 10-K covers Carnival Corporation and Carnival plc, which operate as a dual-listed company and single economic enterprise with common management and boards. The filing reports the fiscal year ended November 30, 2009, rather than a standalone 2009 fourth quarter. Carnival is the world's largest cruise company, operating 93 ships across 11 brands and serving North America, Europe, Australia and New Zealand, Asia, and South America.
- Passenger capacity at November 30, 2009: 180,746 lower berths.
- Fiscal 2009 cruise passengers: 8.519 million.
- Fiscal 2009 occupancy: 105.5%, compared with 105.7% in 2008.
- Approximately 48% of revenue was generated from passengers sourced outside North America, compared with 45% in 2008 and 40% in 2007.
Financial metrics, liquidity, and capital structure
The supplied filing text incorporates the selected financial data, management's discussion and analysis, balance sheets, statements of operations, and statements of cash flows by reference to Exhibit 13, but does not include those financial statement values. Accordingly, the filing text provided here does not provide clear figures for revenue, net income, earnings per share, operating cash flow, free cash flow, operating margins, total debt, cash, or liquidity balances.
- Fuel represented 14.7% of total cruise operating expenses in 2009, compared with 20.3% in 2008 and 14.9% in 2007.
- The company maintained investment-grade ratings: senior unsecured long-term debt rated A3 by Moody's and BBB+ by Standard & Poor's; short-term ratings were P-2 and A-2, respectively.
- S&P changed its outlook from negative to stable in late January 2010, citing improving advance bookings, pricing trends, consumer spending, and U.S. and European GDP expectations.
- The company stated that operating cash flow historically funded the majority of capital investment, but the provided text does not quantify operating cash flow or available liquidity.
- The quarterly dividend was suspended beginning March 2009. The boards reinstated a March 2010 dividend of $0.10 per share, subject to future board discretion.
- At January 28, 2010, $787 million remained available under the general share repurchase authorization. Management stated that general repurchases were not presently intended except for stock-swap activity.
- At November 30, 2009, the company's net investment in and notes receivable from Grand Bahama Shipyard was $76 million.
Material changes versus comparable periods
- Passenger volume increased to 8.519 million in 2009 from 8.183 million in 2008, while capacity increased to 180,746 from 169,040 lower berths.
- Occupancy declined modestly to 105.5% from 105.7%, despite higher passenger volume.
- International sourcing continued to expand, with non-North-American revenue exposure rising to 48% from 45%.
- Fuel costs declined as a proportion of cruise operating expenses from 20.3% to 14.7%, following the late-2008 decline in fuel prices. Substantially all brands discontinued fuel supplements.
- Carnival purchased the remaining 25% minority interest in Ibero in July 2009, making the Spanish cruise line wholly owned.
- The company took delivery of Carnival Dream, two Costa ships, AIDAluna, Seabourn Odyssey, and other new vessels during the period and transferred Carnival Holiday to Ibero.
- Artemis was sold in October 2009 and leased back through April 2011; the Ocean Village brand was being phased out, with its ship planned for transfer to P&O Cruises Australia in November 2010.
Guidance, outlook, commentary, and unusual items
- As of January 28, 2010, Carnival had 13 ships under construction or contract, with 30,442 passenger berths and expected deliveries from February 2010 through June 2012. Net additions were expected to increase passenger capacity by approximately 15.3% from January 2010 levels.
- Management expected North American capacity to grow at approximately 3% compounded annually through 2012 and European capacity at approximately 9%, with most near-term growth coming from European brands.
- The company intended to add an average of two to three ships annually in 2012 and beyond and to expand through redeployment into Australia, New Zealand, Asia, and South America.
- Management viewed improving global economic conditions, low cruise-market penetration, demographic trends, and emerging markets as long-term growth opportunities, while acknowledging that demand remained discretionary and sensitive to consumer confidence.
- Environmental regulation is expected to increase fuel and compliance costs. The company estimated that a proposed U.S. and Canadian Emission Control Area could increase annual fuel costs by approximately $50 million to $70 million beginning in 2012 and that stricter 0.1% sulfur requirements could add approximately $100 million to $130 million annually beginning in 2015.
- Potential risks include economic weakness, fuel prices, foreign exchange, overcapacity and discounting, accidents and contagious disease, adverse publicity, environmental and safety regulation, shipyard delays, financing availability, insurance costs, port access, information-technology disruption, tax changes, and risks associated with the dual-listed-company structure.
- The Florida Attorney General closed its investigation into fuel supplements in December 2009 without taking action.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of November 30, 2009. PricewaterhouseCoopers audited the financial statements and internal controls.
Most important facts for an investor to verify
- Obtain Exhibit 13 and verify fiscal 2009 revenue, net income, diluted EPS, operating cash flow, capital expenditures, cash, debt, liquidity, and margin data, which are absent from the supplied text.
- Assess whether the 13-ship newbuild program and related contractual commitments are supportable under projected operating cash flow and financing capacity.
- Monitor advance bookings, pricing, occupancy, and net revenue yields as indicators of recovery from the 2009 economic downturn.
- Evaluate exposure to fuel prices, low-sulfur fuel requirements, foreign currency movements, and potential environmental compliance costs.
- Review the sustainability of the reinstated dividend in light of capital commitments, debt maturities, credit ratings, and liquidity.
- Consider the potential tax impact if the company's Section 883 exemptions or applicable treaty protections are challenged or changed.
- Review health, safety, security, environmental, insurance, shipyard, port, and litigation contingencies, including the company's self-insurance exposure.