10-QPeriod: Q3 FY2002

CARNIVAL CORP Quarterly Report for Q3 Ended Aug 31, 2002

Filed October 15, 2002For Securities:CCL

Summary

Carnival Corporation's third-quarter 2002 report for the period ending August 31, 2002, indicates a slight year-over-year decrease in revenue, primarily driven by lower gross revenue per passenger cruise day and a reduction in guests purchasing air travel from the company. Despite these revenue challenges, operating expenses were managed effectively, leading to an increase in operating income. The company is actively investing in fleet expansion, with significant capital expenditures on new ships under construction, signaling a long-term growth strategy. Financially, Carnival maintained a strong liquidity position with substantial cash and equivalents and available credit facilities, sufficient to cover upcoming capital projects and debt obligations, excluding the potential cash component of the P&O Princess acquisition. The company is also navigating several legal and regulatory matters, including investigations and lawsuits, which are being vigorously defended. The proposed acquisition of P&O Princess remains a key strategic initiative, though its outcome and potential impact on credit ratings are yet to be determined.

Key Highlights

  • 1Total revenues for the nine months ended August 31, 2002, decreased by 6.8% to $3.33 billion compared to the same period in 2001, with cruise revenues down 6.0%.
  • 2Net income for the nine months increased slightly to $824.6 million from $809.9 million in the prior year, while diluted EPS remained stable at $1.40.
  • 3Operating expenses decreased by 9.7% for the nine-month period, largely due to reduced air travel costs and cost containment initiatives.
  • 4The company is heavily investing in its fleet, with $1.02 billion in capital expenditures during the first nine months, primarily for shipbuilding.
  • 5Carnival reported strong liquidity, with $1.30 billion in cash and cash equivalents and $1.54 billion available under revolving credit facilities.
  • 6A significant event is the ongoing offer to acquire P&O Princess Cruises, which, if successful, could involve a substantial cash component and potentially impact credit ratings.
  • 7The company is facing several legal proceedings, including ADA complaints, a stock purchase lawsuit, and facsimile advertising complaints, which it believes it has defenses against.

Frequently Asked Questions

The primary reason for the revenue decline was a 7.5% decrease in gross revenue per passenger cruise day and a 0.7% decrease in the occupancy rate, largely attributed to the impact of the September 11, 2001 events, leading to lower ticket prices and occupancies. Additionally, there was a significant reduction in guests purchasing air travel through Carnival.

Carnival Corporation is undertaking a substantial shipbuilding program, with $876 million spent on new ships during the first nine months of fiscal 2002. The company has non-cancelable contracts for 15 new ships to be delivered over the next four years, with a significant portion of payments scheduled over the next few years. They anticipate paying approximately $2.1 billion in the twelve months ending August 31, 2003, and $4.0 billion thereafter.

Carnival has made an offer to acquire P&O Princess Cruises, the world's third-largest cruise company, for a combination of stock and potentially a significant cash alternative. Regulatory clearances have been obtained, but the ultimate outcome remains uncertain. If consummated, the cash component could require additional financing and potentially lead to a credit rating downgrade, although the company believes its long-term debt would likely retain investment-grade ratings.

Carnival is managing several legal and regulatory matters, including ADA complaints, stock purchase litigation, and facsimile advertising lawsuits, though they believe they have strong defenses. They also face risks related to the fluctuating costs of fuel, currency exchange rates, and interest rates. The P&O Princess acquisition presents a significant financial undertaking, and there's a contingency related to potential future payments under lease-back transactions for three ships, though these are considered remote.