10-QPeriod: Q2 FY2003

CARNIVAL CORP Quarterly Report for Q2 Ended May 31, 2003

Filed July 15, 2003For Securities:CCL

Summary

Carnival Corporation & plc's filing for the quarter ended May 31, 2003, highlights a significant operational and structural shift due to the recent Dual Listed Company (DLC) transaction with Carnival plc. While overall revenues saw a substantial increase year-over-year, driven primarily by the consolidation of Carnival plc, net income and earnings per share have declined compared to the prior year. This performance is attributed to increased operating expenses, higher interest expenses stemming from increased borrowings, and the impact of consumer concerns regarding global events. Despite the revenue growth and the strategic benefits expected from the DLC integration, investors should note the lower profitability. The company is investing heavily in new ships, which is contributing to increased depreciation and capital expenditures. Management expresses confidence in future liquidity and ability to fund commitments through operations and existing credit facilities, but also acknowledges potential risks related to economic conditions, competition, and operational costs. The report also details ongoing legal matters and operational commitments, particularly related to shipbuilding, which will continue to impact financial performance.

Key Highlights

  • 1Total revenues increased by 25% for the six months ended May 31, 2003, reaching $2.37 billion, largely due to the consolidation of Carnival plc following the recent DLC transaction.
  • 2Net income decreased by 21.7% to $254.7 million for the six months ended May 31, 2003, compared to $323.8 million in the prior year.
  • 3Diluted earnings per share fell to $0.40 for the six months ended May 31, 2003, down from $0.55 in the same period last year.
  • 4Operating income decreased by 18.0% to $300.2 million for the six months ended May 31, 2003.
  • 5The company's balance sheet shows a significant increase in Property and Equipment and Goodwill, reflecting the acquisition of Carnival plc.
  • 6Total debt has increased substantially, with long-term debt rising from $3.01 billion to $6.71 billion year-over-year, primarily due to the DLC transaction.
  • 7The company has significant future commitments related to shipbuilding, with approximately $6.7 billion in non-cancelable shipbuilding commitments due over the next three years, including $4.2 billion within the next twelve months.

Frequently Asked Questions

The DLC transaction with Carnival plc significantly increased reported revenues due to consolidation, showing a 25% rise for the six months ended May 31, 2003. However, net income and earnings per share declined compared to the prior year, impacted by higher operating and interest expenses associated with the combined entity and increased debt.

The decrease in net income and EPS is primarily attributed to a significant rise in operating expenses (36% increase year-over-year for the six months) and selling and administrative expenses (33% increase), partly due to the integration of Carnival plc and increased ship capacity. Higher interest expenses, driven by increased borrowings to finance the DLC transaction, also contributed to the decline.

Carnival Corporation & plc has substantially increased its long-term debt to finance the DLC transaction. The company's liquidity remains strong, supported by $1.45 billion in cash, cash equivalents, and short-term investments, and $1.79 billion available under revolving credit facilities. Management believes current liquidity and future operating cash flows are sufficient to meet obligations, including debt service and significant shipbuilding commitments.

The company has substantial future commitments for shipbuilding, totaling approximately $6.7 billion over the next three years. These capital expenditures, along with debt service and other obligations, are expected to be funded through a combination of operating cash flows, existing credit facilities, and potential future financing from public or private markets.