[NOTIFY] 72731,737
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28,May 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission file number 1-9610
CARNIVAL CORPORATION
(Exact name of registrant as specified in its charter)
Republic of Panama 59-1562976
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3655 N.W. 87th Avenue, Miami, Florida 33178-2428
(Address of principal executive offices)
(zip code)
(305) 599-2600
(Registrant's telephone number, including area code)
None.
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No__
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of April 7,July 9, 1998.
Class A
Common Stock, $.01 par value: 297,441,411595,327,624 shares outstanding
CARNIVAL CORPORATION
I N D E X
Page
Part I. Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets -
February 28,May 31, 1998 and November 30, 1997 1
Consolidated Statements of Operations -
Six and Three Months Ended February 28,May 31, 1998
and February 28, 1997 2
Consolidated Statements of Cash Flows -
ThreeSix Months Ended February 28,May 31, 1998 and February 28, 1997 3
Notes to Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information
Item 1: Legal Proceedings 1516
Item 4: Submission of Matters to a Vote of
Security Holders 17
Item 5: Other Information 1819
Item 6: Exhibits and Reports on Form 8-K 1819
/TABLE
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CARNIVAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
February 28,May 31, November 30,
1998 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 114,072120,600 $ 139,989
Short-term investments 9,7189,414 9,738
Accounts receivable, 61,349net 66,503 57,090
Consumable inventories, at average cost 56,02676,226 54,970
Prepaid expenses and other 85,799102,754 74,238
Total current assets 326,964375,497 336,025
PROPERTY AND EQUIPMENT, NET 4,647,9685,469,814 4,327,413
OTHER ASSETS
Investments in and advances to affiliates 457,584425,715 479,329
Goodwill, less accumulated amortization of
$64,002$65,746 and $62,256 210,861403,077 212,607
Other assets 76,31137,733 71,401
$5,719,688$6,711,836 $5,426,775
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 50,90058,457 $ 59,620
Accounts payable 99,475187,897 106,783
Accrued liabilities 151,933169,048 154,253
Customer deposits 483,301755,890 420,908
Dividends payable 44,60844,619 44,578
Total current liabilities 830,2171,215,911 786,142
LONG-TERM DEBT 1,189,7791,557,016 1,015,294
DEFERRED INCOME AND
OTHER LONG-TERM LIABILITIES 22,48123,907 20,241
MINORITY INTEREST 123,079
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY
Class A Common Stock; $.01 par value;
one vote per
share; 399,500960,000 shares authorized; 297,389594,924 and
297,204594,408 shares issued and outstanding 2,974 2,972
Class B Common5,949 5,944
Preferred Stock; $.01 par value; five
votes per share; 100,50040,000 shares
authorized; zero sharesnone issued andor outstanding
Paid-in-capital 872,938 866,097871,676 863,125
Retained earnings 2,796,5192,912,499 2,731,213
Other 4,7801,799 4,816
Total shareholders' equity 3,677,2113,791,923 3,605,098
$5,719,688$6,711,836 $5,426,775
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Six Months Three Months
Ended February 28,May 31, Ended May 31,
1998 1997 1998 1997
REVENUES $557,838 $521,082$1,219,196 $1,117,696 $661,358 $596,614
COSTS AND EXPENSES
Operating expenses 307,595 296,938669,951 634,622 362,356 337,684
Selling and administrative 78,834 79,503163,784 156,219 84,950 76,716
Depreciation and amortization 43,008 40,697
429,437 417,13889,266 82,658 46,258 41,961
923,001 873,499 493,564 456,361
OPERATING INCOME BEFORE
LOSS FROM AFFILIATED
OPERATIONS 128,401 103,944296,195 244,197 167,794 140,253
LOSS FROM AFFILIATED
OPERATIONS (10,681) (8,982)(13,034) (11,694) (2,353) (2,712)
OPERATING INCOME 117,720 94,962283,161 232,503 165,441 137,541
NONOPERATING INCOME (EXPENSE)
Interest income 3,737 1,8175,885 3,382 2,148 1,565
Interest expense, net of
capitalized interest (12,559) (17,090)(24,735) (31,536) (12,176) (14,446)
Other (expense) income (3,271) 1,646(662) 2,105 2,609 459
Income tax benefit 4,287 4,025
(7,806) (9,602)6,861 6,353 2,574 2,328
(12,651) (19,696) (4,845) (10,094)
NET INCOME $109,914 $ 85,360270,510 $ 212,807 $160,596 $127,447
EARNINGS PER SHARE:
Basic $.37 $.29$.45 $.36 $.27 $.21
Diluted $.37 $.29
PRO FORMA EARNINGS PER SHARE (Note 9):
Basic $.18 $.14
Diluted $.18 $.14$.45 $.36 $.27 $.21
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
ThreeSix Months Ended February 28,May 31,
1998 1997
OPERATING ACTIVITIES
Net income $109,914 $ 85,360270,510 $212,807
Adjustments
Depreciation and amortization 43,008 40,69789,266 82,658
Loss from affiliated operations
and dividends received 21,231 15,85723,621 17,334
Other 5,083 2407,047 (834)
Changes in operating assets and liabilities,
excluding effect of businesses acquired
Increase in:
Receivables (5,143) (4,776)(4,291) (11,441)
Consumable inventories (1,056) (386)(4,690) (1,621)
Prepaid expenses and other (11,639) (9,488)(20,196) (16,505)
Increase (decrease) in:
Accounts payable (7,308) 25,27338,109 23,387
Accrued liabilities (2,320) (9,941)2,321 (6,821)
Customer deposits 62,393 51,764191,165 137,934
Net cash provided from operations 214,163 194,600592,862 436,898
INVESTING ACTIVITIES
Decrease in short-term investments net 20 43324 106
Additions to property and equipment, net (361,739) (62,346)(702,184) (84,132)
Repayment of advances to affiliates, net 2,991 32,135
(Increase) decrease3,606 35,986
Acquisition of Cunard, net of
cash received upon acquisition and
consolidation of Seabourn (246,097)
Decrease (increase) in other non-current assets (4,910) 3,18634,438 (1,039)
Net cash used for investing activities (363,638) (26,982)(909,913) (49,079)
FINANCING ACTIVITIES
Principal payments of long-term debt (147,407) (182,853)(801,841) (369,997)
Dividends paid (44,578) (32,416)(89,183) (65,090)
Proceeds from long-term debt 313,158 21,546
Issuance1,184,588 25,272
Proceeds from issuance of common stock 2,385 3,4044,098 3,993
Net cash provided from (used for)
financing activities 123,558 (190,319)297,662 (405,822)
Net decrease in cash and
cash equivalents (25,917) (22,701)(19,389) (18,003)
Cash and cash equivalents at beginning
of period 139,989 111,629
Cash and cash equivalents at end of period $114,072 $ 88,928120,600 $ 93,626
Supplemental disclosure of non-cash transactions
Conversion of 4-1/2% Convertible Notes into
Class A Common Stock $ - $ 39,085
The accompanying notes are an integral part of these financial statements.
CARNIVAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS FOR PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by Carnival
Corporation, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission.
The accompanying consolidated balance sheet at February 28, 1998 and the
consolidated statements of operations for the three months ended February 28,
1998 and 1997 and consolidated statements of cash flows for the three months
ended February 28, 1998 and 1997 are unaudited and, in the opinion of
management, contain all adjustments, consisting of only normal recurring
accruals, necessary for a fair presentation. The operations of Carnival
Corporation and its subsidiaries (the "Company") are seasonal and results for
interim periods are not necessarily indicative of the results for the entire
year.
The accompanying financial statements include the consolidated balance
sheets and statements of operations and cash flows of the Company and its
subsidiaries. All material intercompany transactions and accounts have been
eliminated in consolidation. Certain amounts in prior periods have been
reclassified to conform with the current period's presentation.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consisted39,085
The accompanying notes are an integral part of these consolidated
financial statements.
CARNIVAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS FOR PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by
Carnival Corporation, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission.
The accompanying consolidated balance sheet at May 31, 1998 and the
consolidated statements of operations for the six and three months ended
May 31, 1998 and 1997 and consolidated statements of cash flows for the
six months ended May 31, 1998 and 1997 are unaudited and, in the opinion
of management, contain all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation. The operations of
Carnival Corporation and its subsidiaries and affiliates are seasonal and
results for interim periods are not necessarily indicative of the results
for the entire year. Certain amounts in prior periods have been
reclassified to conform with the current period's presentation.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Vessels $4,850,985$5,467,120 $4,536,382
Vessels under construction 209,244465,852 182,929
5,060,2295,932,972 4,719,311
Land, buildings and improvements 198,211202,064 194,013
Transportation and other equipment 277,812294,885 268,520
Total property and equipment 5,536,2526,429,921 5,181,844
Less - accumulated depreciation and
amortization (888,284)(960,107) (854,431)
$4,647,968$5,469,814 $4,327,413
Interest costs associated with the construction of vessels and
buildings until they are placed in service, are capitalized during the construction period and amounted to
$6.4$16.0 million and $3.5$7.4 million for the six months ended May 31, 1998 and
1997, respectively, and $9.6 million and $3.9 million for the three months
ended February 28,May 31, 1998 and 1997, respectively.
NOTE 3 - LONG-TERM DEBT
Long-term debt consistedconsists of the following:
Commercial Paper $ 265,169306,877 $ 288,614
Unsecured 5.75% Notes Due March 15, 1998 200,000 200,000
Mortgages and other loans payable bearing interest
at rates ranging from 8%6.3% to 9.9%, secured by
vessels, maturing through 1999 70,418209,461 79,830
Unsecured 6.65% Debentures dueDue January 15, 2028 199,229199,236
Unsecured 5.65% Notes Due October 15, 2000 199,789
Unsecured 6.15% Notes Due April 15, 2008 199,486
Unsecured 6.15% Notes Due October 1, 2003 124,962124,963 124,960
Unsecured 7.20% Debentures Due October 1, 2023 124,877124,879 124,876
Unsecured 7.7% Notes Due July 15, 2004 99,92799,930 99,924
Unsecured 7.05% Notes Due May 15, 2005 99,85699,861 99,851
Other loans payable 56,24150,991 56,859
1,240,6791,615,473 1,074,914
Less portion due within one year (50,900)(58,457) (59,620)
$1,189,779 $1,015,294
The Company's commercial paper program is supported by a one billion
dollar unsecured revolving credit facility due December 2001 (the "U.S.
Dollar Revolver") and a $200 Million Multi-currency Revolving Credit Facility
Due 2002 (the "Multi-currency Revolving Credit Facility"). Both revolving
credit facilities bear interest at a maximum of LIBOR plus 14 basis points
("BPS") and provide for a facility fee of six BPS on the total facility. Any
funds outstanding under the commercial paper programs reduce the aggregate
amount available under the U.S. Dollar Revolver and the Multi-currency
Revolving Credit Facility. Since the commercial paper is backed by the
long-term revolving credit facilities, balances outstanding under the
commercial paper programs have been classified as long-term in the
accompanying balance sheets. As of February 28, 1998, the Company had $935
million available for borrowing under the U.S. Dollar Revolver and
Multi-currency Revolving Credit facilities.
The Unsecured 5.75% Notes Due March 15, 1998 (the "5.75% Notes") were
paid when due through other borrowings classified as long-term and, as such,
the 5.75% Notes have been classified as long-term in the accompanying
February 28, 1998 balance sheet.
In April 1998, the Company will issue $200 million of Unsecured 5.65%
Notes due October 15, 2000 and $200 million of Unsecured 6.15% Notes due
April 15, 2008.
NOTE 4 - SHAREHOLDERS' EQUITY
The following represents an$1,557,016 $1,015,294
/TABLE
NOTE 4 - SHAREHOLDERS' EQUITY
An analysis of the changes in shareholders' equity
for the three months ended February 28, 1998:
COMMON STOCK
$.01 PAR VALUE PAID-IN RETAINED
CLASS A CLASS B CAPITAL EARNINGS OTHER TOTAL
(in thousands)
Balance November 30, 1997 $2,972 $ $866,097 $2,731,213 $4,816 $3,605,098
Net income for the period 109,914 109,914
Cash dividends (44,608) (44,608)
Changes in securities
valuation allowance 71 71
Foreign currency
translation adjustment 2,477 2,477
Issuance of stock to
employees under stock
plans 2 6,841 (2,905) 3,938
Vested portion of common
stock under restricted
stock plan 321 321
Balance February 28,six months
ended May 31, 1998 $2,974 $ $872,938 $2,796,519 $4,780 $3,677,211
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Capital Expenditures
The following table provides a description of ships under contract for
constructionis as of February 28,follows:
COMMON PAID-IN- RETAINED
STOCK CAPITAL EARNINGS OTHER TOTAL
(in thousands)
Balances at November 30,
1997 as previously
reported $2,972 $866,097 $2,731,213 $4,816 $3,605,098
Two-for-one stock split
effective June 12, 1998 2,972 (2,972)
Balances at November 30,
1997 as adjusted 5,944 863,125 2,731,213 4,816 3,605,098
Net income 270,510 270,510
Cash dividends (89,224) (89,224)
Changes in securities
valuation allowance 113 113
Foreign currency
translation adjustment (906) (906)
Issuance of stock to
employees under stock
plans 5 8,551 (2,905) 5,651
Vested portion of common
stock under restricted
stock plan 681 681
Balances at May 31, 1998 $5,949 $871,676 $2,912,499 $1,799 $3,791,923
/TABLE
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Capital Expenditures
A description of ships under contract for construction at May 31, 1998
is as follows (in millions, except berth data):
Expected Number
Service of Lower Estimated Remaining
Vessel Date(1) Shipyard Berths Total Cost to Be Paid
Carnival Cruise Lines
Paradise 12/98 Masa-Yards 2,040 $ 300 $ 246
Carnival Triumph 7/99 Fincantieri(2) 2,766 410 326
Carnival Victory 8/00 Fincantieri 2,766 440 434
CCL Newbuild 12/00 Masa-Yards 2,100 375 358
Total Carnival Cruise Lines 9,672 1,525 1,364
Holland America Line
Volendam 8/99 Fincantieri(2) 1,440 300 257
Zaandam 3/00 Fincantieri(2) 1,440 300 273
HAL Newbuild 9/00 Fincantieri(2) 1,380 300 65
Total Holland America Line 4,260 900 595
Total 13,932 $2,425 $1,959
Expected Number
Service of Lower Estimated Remaining
Vessel Date(1) Shipyard Berths Cost To Be Paid
Carnival Cruise Lines
Paradise 11/98 Masa-Yards 2,040 $ 300 $ 251
Carnival Triumph 7/99 Fincantieri(2) 2,766 410 328
Carnival Victory 8/00 Fincantieri 2,766 440 435
CCL Newbuild 12/00 Masa-Yards 2,100 375 375
Total Carnival Cruise Lines 9,672 1,525 1,389
Holland America Line
Volendam 6/99 Fincantieri(2) 1,440 300 259
Zaandam 12/99 Fincantieri(2) 1,440 300 274
HAL Newbuild 9/00 Fincantieri(2) 1,380 300 300
Total Holland America Line 4,260 900 833
Windstar Cruises
Wind Surf 5/98 Purchase(3) 312 45 39
Total 14,244 $2,470 $2,261
(1) The expected service date is the date the vessel is expected to begin
revenue generating activities.
(2) The construction contracts with such shipyards are denominated in
Italian Lire. Contracts have been fixed into U.S. Dollars through the
utilization of forward currency contracts.
(3) The Wind Surf is the existing Club Med I which the Company acquired in
March 1998 from Club Mediterranee, S.A. and Services et Transports.
In connection with the vessels under construction described in the above
table, the Company has paid $209 million through February 28, 1998 and
anticipates paying approximately $629 million during the twelve month period
ending February 28, 1999 and approximately $1.6 billion beyond February 28,
1999.
In addition to the ship contracts listed above, the Company has options
to construct two additional vessels for Carnival Cruise Lines for delivery in
2001 and 2002. No assurance can be given that these two options will be
exercised. The Company is also in negotiations with several shipbuilding
yards for a new class of vessel for Holland America Line.
Litigation
Several actions (collectively the "Passenger Complaints") have been
filed against the Company or Holland America Westours on behalf of purported
classes of persons who paid port charges to the Company or Holland America
Westours, alleging that statements made in advertising and promotional
materials concerning port charges were false and misleading. Four such
actions are pending against the Company in the Circuit Court for Miami-Dade
County, Florida, and others were filed against the Company in state or
federal courts in Tennessee, Arizona, Ohio, Kentucky, Michigan, Georgia,
Alabama, and Illinois. One such action was filed against Holland America
Westours in the Superior Court in King County, Washington. The Florida,
Tennessee, Alabama, Illinois and Washington actions have been brought on
behalf of purported nationwide classes; the others on behalf of purported
statewide classes. The Passenger Complaints allege violations of the various
state consumer protection acts and claims of fraud, conversion, breach of
fiduciary duties and unjust enrichment. Plaintiffs seek compensatory damages
or, alternatively, refunds of portions of port charges paid, attorneys' fees,
costs, prejudgment interest, punitive damages and injunctive and declaratory
relief.
The Company's motion to dismiss amended complaints in the Florida
actions was granted in part and denied in part. The court has lifted, solely
with respect to the issue of class certification, a previously-imposed stay
on discovery. In each of the other actions, the Company filed motions to
dismiss or transfer on the grounds of inconvenient forum. The Kentucky,
Arizona, Tennessee, Michigan and Alabama Courts granted the Company's motions
dismissing those actions. The Company's motions are still under judicial
consideration in each of the other actions with the exception of the Ohio
action where the case has been remanded to state court and the Company will
again renew its motion to dismiss on the inconvenient forum issue. Holland
America Westours' motion to dismiss the Washington action was denied, as was
the plaintiffs' motion for class certification.
Holland America Westours recently entered into a settlement agreement
for the Washington action which is subject to court approval. If approved,
Holland America Westours will issue travel vouchers with a face value of
$10-$50 depending on specified criteria, to certain of its passengers who
are U.S. residents and who sailed between April 1992 and April 1996, and pay
a portion of the plaintiff's legal fees. The impact of the settlement on the
Company is not reasonably estimable since both the amount of the travel
vouchers to be redeemed and the effect of the travel voucher redemption on
revenues is not known. Accordingly, the Company has not established a
liability for the travel voucher portion of the settlement and will account
for the redemption of the vouchers as a reduction of future revenues. The
Company does not believe the settlement will have a material adverse impact on
the Company's financial condition or results of operations.
In June and August 1996, two complaints were filed against the Company
and Holland America Westours, respectively, in California Superior Court and
in February 1998 a purported statewide class action complaint was filed
against the Company in Alabama state court (collectively the "Travel Agent
Complaints") on behalf of purported classes of travel agencies who during the
past four years booked a cruise with the Company or Holland America Westours,
claiming that advertising practices regarding port charges resulted in an
improper commission bypass. These actions allege claims of breach of
contract, negligent misrepresentation, unjust enrichment, unlawful business
practices and common law fraud, and they seek unspecified compensatory
damages (or alternatively, the payment of usual and customary commissions on
port charges paid by passengers in excess of certain charges levied by
government authorities), an accounting, attorneys' fees and costs, punitive
damages and injunctive relief. The court granted the motions of the Company
and Holland America Westours to dismiss one of the California actions and
stay the second such action on grounds of forum non conveniens. The
plaintiff in the dismissed California action filed a complaint in Florida
similar to the one it had filed in California. The Company has moved to
dismiss this complaint. The Company removed the Alabama case to federal
court and its motions to dismiss or transfer on the grounds of inconvenient
forum are pending.
The pending Passenger and Travel Agent Complaints are in preliminary
stages and it is not now possible to determine the ultimate outcome of the
lawsuits. Management believes that the Company has substantial and
meritorious defenses to the claims. Management understands that purported
class actions similar to the Passenger and Travel Agent Complaints have been
filed against several other cruise lines.
In the normal course of business, various other claims and lawsuits
have been filed or are pending against the Company. The majority of these
claims and lawsuits are covered by insurance. Management believes the
outcome of any such suits which are not covered by insurance would not have a
material adverse effect on the Company's financial condition or results of
operations.
NOTE 6 - EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("FAS 128"), and per share amounts have been
computed thereunder as follows (in thousands, except per share data):
Three Months Ended February 28,
1998 1997
BASIC:
Net Income $109,914 $ 85,360
Average common shares outstanding 297,367 296,739
Basic per share amount $ .37 $ .29(1) The expected service date is the date the vessel is expected to begin
revenue generating activities.
(2) The construction contracts with such shipyards are denominated in
Italian Lire. Contracts have been fixed into U.S. Dollars through the
utilization of forward currency contracts.
In connection with the vessels under construction described in the
above table, Carnival Corporation and its majority owned subsidiaries ("the
Company") have paid $466 million through May 31, 1998 and anticipate paying
approximately $347 million during the twelve month period ending May 31,
1999 and approximately $1.6 billion beyond May 31, 1999.
Litigation
Several actions (collectively the "Passenger Complaints") have been
filed against Carnival Corporation or Holland America Westours on behalf of
purported classes of persons who paid port charges to Carnival Corporation
or Holland America Westours, alleging that statements made in advertising
and promotional materials concerning port charges were false and
misleading. The Passenger Complaints allege violations of the various
state consumer protection acts and claims of fraud, conversion, breach of
fiduciary duties and unjust enrichment. Plaintiffs seek compensatory
damages or, alternatively, refunds of portions of port charges paid,
attorneys' fees, costs, prejudgment interest, punitive damages and
injunctive and declaratory relief.
Holland America Westours recently entered into a settlement agreement
for the one Passenger Complaint filed against it. The settlement agreement
was preliminarily approved by the court and is now subject to final court
approval. If approved, Holland America Westours will issue travel vouchers
with a face value of $10-$50 depending on specified criteria, to certain of
its passengers who are U.S. residents and who sailed between April 1992 and
April 1996, and pay a portion of the plaintiff's legal fees. The impact of
the settlement on the Company is not reasonably estimable since both the
amount of the travel vouchers to be redeemed and the effect of the travel
voucher redemption on revenues is not known. Accordingly, the Company has
not established a liability for the travel voucher portion of the
settlement and will account for the redemption of the vouchers as a
reduction of future revenues. However, the Company has previously
established a liability for the estimated distribution costs of the
settlement notice and plaintiff's legal cost. The Company does not believe
the settlement will have a material adverse impact on the Company's
financial condition or results of operations.
Three complaints were filed against Carnival Corporation and/or
Holland America Westours (collectively the "Travel Agent Complaints") on
behalf of purported classes of travel agencies who during the past four
years booked a cruise with Carnival Corporation or Holland America
Westours, claiming that advertising practices regarding port charges
resulted in an improper commission bypass. These actions allege claims of
breach of contract, negligent misrepresentation, unjust enrichment,
unlawful business practices and common law fraud, and they seek unspecified
compensatory damages (or alternatively, the payment of usual and customary
commissions on port charges paid by passengers in excess of certain charges
levied by government authorities), an accounting, attorneys' fees and
costs, punitive damages and injunctive relief.
The pending Passenger and Travel Agent Complaints are in preliminary
stages and it is not now possible to determine the ultimate outcome of the
lawsuits. Management believes it has meritorious defenses to the claims.
Management understands that purported class actions similar to the
Passenger and Travel Agent Complaints have been filed against several other
cruise lines.
In the normal course of business, various other claims and lawsuits
have been filed or are pending against the Company. The majority of these
claims and lawsuits are covered by insurance. Management believes the
outcome of any such suits which are not covered by insurance would not have
a material adverse effect on the Company's financial condition or results
of operations.
NOTE 6 - EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("FAS 128"), and per share amounts have been
computed thereunder as follows (in thousands, except per share data):
Six Months Three Months
Ended May 31, Ended May 31,
1998 1997 1998 1997
BASIC:
Net income $270,510 $212,807 $160,596 $127,447
Average common shares outstanding 594,744 593,807 594,857 594,128
Basic per share amount $ .45 $ .36 $ .27 $ .21
DILUTED:
Net income $270,510 $212,807 $160,596 $127,447
Interest expense related to 4.5%
Convertible Subordinated Notes 38
Income available assuming dilution $270,510 $212,845 $160,596 $127,447
Average common shares outstanding 594,744 593,807 594,857 594,128
Effect of dilutive securities:
Additional shares issuable upon
assumed conversion of 4.5%
Convertible Subordinated Notes 256
Various employee stock plans 3,404 2,014 3,663 2,124
Average shares outstanding
assuming dilution 598,148 596,077 598,520 596,252
Diluted per share amount $ .45 $ .36 $ .27 $ .21
DILUTED:
Net Income $109,914 $ 85,360
Interest expense related to 4.5%
Convertible Subordinated Notes 38
Income available assuming dilution $109,914 $ 85,398
Average common shares outstanding 297,367 296,739
Effect of dilutive securities:
Additional shares issuable upon
assumed conversion of 4.5%
Convertible Subordinated Notes 259
Various employee stock plans 1,539 949
Average shares outstanding
assuming dilution 298,906 297,947
Diluted per share amount $ .37 $ .29
NOTE 7 - RECENT DEVELOPMENTS
In April 1998, the Company announced that it is the majority participant
in a group of investors which entered into an agreement to acquire the
business of Cunard Line Limited ("Cunard") for $500 million. The $500
million is expected to be paid through the assumption of approximately $48
million of existing debt and $72 million of negative working capital with the
remaining $380 million payable in cash. The Company's portion of the cash
payment is expected to be approximately $266 million. Cunard is a cruise
company operating five cruise ships in the luxury market. The Company
anticipates that Seabourn Cruise Line, which is 50% owned by the Company,
will be merged with the business operations of Cunard simultaneous with the
closing of the acquisition. The Company expects to have an approximate
two-thirds interest in the merged Cunard/Seabourn entity. The transaction is
subject to the expiration of the Hart-Scott-Rodino waiting period and other
customary closing conditions.
NOTE 8 - RECENT PRONOUNCEMENTS
The AICPA issued a statement of position on start-up or pre-operating
costs in April 1998. The statement of position requires that all start-up or
pre-operating costs be expensed as incurred and is effective for the Company
commencing December 1, 1999. The unamortized balance of prepaid start-up
costs in the Company's financial statements as of February 28, 1998 was
approximately $9.4 million.
NOTE 9 - STOCK SPLIT
On April 13, 1998, the Company approved a two-for-one split of the Class
A Common Stock. The additional shares will be distributed on June 12, 1998
to shareholders of record on May 29, 1998. The shares presented in the
consolidated balance sheets as of February 28, 1998 and November 30, 1997 and
the number of shares used in the computation of earnings per share in the
consolidated statements of operations for the three month periods ended
February 28, 1998 and 1997 were based on the actual number of shares
outstanding before giving effect to the stock split. On a pro forma basis,
giving effect to the stock split, the outstanding shares on the balance
sheets and the revised earnings per share would be as follows:
Pro Forma Issued and Outstanding Shares
of Class A Common Stock as of:
February 28, 1998 594,778,000
November 30, 1997 594,408,000NOTE 7 - ACQUISITION
On May 28, 1998, the Company and a group of investors acquired the
operating assets of Cunard, a cruise company operating five luxury cruise
ships, for $500 million, adjusted for working capital and debt assumed.
After the adjustment for working capital and debt assumed, the Company's
portion of the investment was approximately $255 million. Goodwill
generated from the transaction is being amortized using the straight line
method over 40 years. The Company is accounting for the acquisition using
the purchase accounting method. Simultaneous with the acquisition, Seabourn
Cruise Line Limited ("Seabourn"), a luxury cruise line in which the Company
owned a 50% interest, was merged with Cunard. The Company owns approximately
68% of the merged entity, which is named Cunard Line Limited. Commencing on
May 28, 1998, the financial results of Cunard Line Limited have been
included in the Company's consolidated financial statements. Prior to May
28, 1998, the Company's 50% interest in Seabourn was accounted for using the
equity method of accounting.
Had the above transactions occurred on December 1, 1996, the Company's
consolidated revenues would have been approximately $1,309 million and
$1,440 million for the six months ended May 31, 1997 and 1998,
respectively, and net income would not have materially changed.
Under certain circumstances, ending May 28, 2001, the minority
shareholders of Cunard Line Limited can require the Company to issue
approximately five million shares, subject to adjustment, of its Common
Stock in exchange for their ownership interest of approximately 32% in
Cunard Line Limited. Additionally, the Company has the option, at any
time, to purchase the 32% minority interest in Cunard Line Limited for the
same amount.
The preliminary impact on the Company's assets and liabilities related to
the acquisition of Cunard and consolidation of Seabourn was as follows (in
millions):
Fair value of Cunard assets $544
Seabourn assets consolidated 191
Liabilities assumed (357)
Minority interest (123)
Cash paid for acquisition 255
Cash of acquired companies (9)
Net cash paid as reflected
in the Statement of Cash Flows $246
Pro Forma Earnings Per Share:
Basic Diluted
Three Months Ended:
February 28, 1998 $.18 $.18
February 28, 1997 $.14 $.14
In addition, on April 13, 1998 the Company's shareholders approved
amendments to the Company's Amended and Restated Articles of Incorporation to
eliminate the Class B Common Stock, increase the authorized number of shares
of Class A Common Stock to 960,000,000 and authorize 40,000,000 shares of
"blank check" preferred stock.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements under this caption, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", constitute
"forward-looking statements" under the Private Securities Litigation Reform
Act of 1995 (the "Reform Act"). See "PART II. OTHER INFORMATION, ITEM 5(a)
Forward-Looking Statements".
General
The Company earns its cruise revenues primarily from (i) the sale of
passenger tickets, which includes accommodations, meals, and most shipboard
activities, (ii) the sale of air transportation to and from the cruise ship
and (iii) the sale of goods and services on board its cruise ships, such as
casino gaming, liquor sales, gift shop sales and other related services. The
Company also derives revenues from the tour and related operations of HAL
Antillen N.V. ("HAL"), which owns Holland America Westours and Holland
America Cruise Line.
The following table presents selected segment and statistical
information for the periods indicated:
Three Months Ended February 28,
1998 1997
(in thousands, except selected statistical information)
REVENUES:
Cruise $550,977 $514,022
Tour 7,039 7,195
Intersegment revenues (178) (135)
$557,838 $521,082
OPERATING EXPENSES:
Cruise $298,770 $287,717
Tour 9,003 9,356
Intersegment expenses (178) (135)
$307,595 $296,938
OPERATING INCOME:
Cruise $142,424 $116,057
Tour (10,521) (10,729)
Loss from affiliates and
corporate expenses (14,183) (10,366)
$117,720 $ 94,962
SELECTED STATISTICAL INFORMATION:
Passengers Carried 427,000 455,000
Passenger Cruise Days (1) 2,827,000 2,818,000
Occupancy Percentage 105.9% 106.4%
(1) A passenger cruise day is one passenger sailing for a period of one day.
For example, one passenger sailing on a one week cruise is seven passenger
cruise days.
The following table presents operations data expressed as a percentage
of total revenues for the periods indicated:
Three Months Ended February 28,
1998 1997
REVENUES 100% 100%
COSTS AND EXPENSES:
Operating expenses 55 57
Selling and administrative 14 15
Depreciation and amortization 8 8
OPERATING INCOME BEFORE
LOSS FROM AFFILIATED
OPERATIONS 23 20
Loss from affiliated
operations (2) (2)
OPERATING INCOME 21 18
NONOPERATING INCOME (EXPENSE) (1) (2)
NET INCOME 20% 16%
The Company's cruise and tour operations experience varying degrees of
seasonality. The Company's revenue from the sale of passenger tickets for
Carnival Cruise Lines' ("Carnival") ships is moderately seasonal.
Historically, demand for Carnival cruises has been greater during the periods
from late June through August and lower during the fall months. HAL cruise
revenues are more seasonal than Carnival's cruise revenues. Demand for HAL
cruises is strongest during the summer months when HAL ships operate in
Alaska and Europe for which HAL obtains higher pricing. Demand for HAL
cruises is lower during the winter months when HAL ships sail in more
competitive markets. The Company's tour revenues are extremely seasonal with
a majority of tour revenues generated during the late spring and summer
months in conjunction with the Alaska cruise season.
In June 1997, the Company and Airtours plc ("Airtours"), a large
publicly traded (London Stock Exchange) travel company in which the Company
holds a 28% interest, each acquired a 50% interest in Il Ponte S.p.A.
("Costa"), the parent company of Costa Crociere S.p.A., an Italian cruise
company. The Company records its interest in Airtours and Costa using the
equity basis of accounting and records its portion of Airtours' and Costa's
operating results on a two month lag basis. Costa's and Airtours' earnings
are seasonal due to the seasonal nature of the European leisure travel
industry and Mediterranean cruise season. During the last several years,
Airtours' and Costa's quarters ending June 30 and September 30 have been
profitable, with the quarter ending September 30 being their most profitable
quarter. During this same period, Airtours and Costa experienced seasonal
losses in their quarters ending December 31 and March 31.
Three Months Ended February 28, 1998 Compared
To Three Months Ended February 28, 1997
Revenues
The increase in total revenues of $36.8 million, or 7.1%, was due to a
7.2% increase in cruise revenues. The increase in cruise revenues of $37.0
million was primarily the result of a 6.9% increase in total revenue per
passenger cruise day and a .7% increase in capacity, offset slightly by a .4%
decrease in occupancy rates. Total revenue per passenger cruise day
increased primarily because of strong demand for the Company's cruise brands
and the introduction of Holland America Line's new Rotterdam in November
1997, which has obtained higher pricing. In addition, total revenue per
passenger cruise day was increased by 1.1% in 1998 because of a larger number
of passengers electing to use the Company's air program. When a passenger
elects to use the Company's air program, rather than purchase his/her own air
transportation, both the Company's cruise revenues and operating expenses
increase by approximately the same amount.
Average capacity is expected to increase 4.1% during the second quarter
of fiscal 1998 and 5.7% during the fiscal year ending November 30, 1998 as
compared to the same periods of fiscal 1997. The increases are primarily a
result of the introduction into service of Holland America's new Rotterdam in
November 1997, Carnival Cruise Lines' Elation in March 1998 and Windstar
Cruises' Wind Surf in May 1998. The year over year percentage increase in
average capacity resulting from the delivery of vessels currently under
contract for construction for the fiscal years ending November 30, 1999 and
2000 is expected to approximate 14% in each year.
Costs and Expenses
Operating expenses increased $10.7 million, or 3.6%. Cruise operating
costs increased by $11.1 million, or 3.8%, to $298.8 million in the first
quarter of 1998 from $287.7 million in the first quarter of 1997, primarily
due to an increase in airfare costs resulting from a higher percentage of
passengers electing the Company's air program and a higher rate per air
passenger as well as an increase in commission expense associated with the
increase in pricing.
Selling and administrative costs decreased $.7 million, or .8%,
primarily due to a decrease in advertising expense, partially offset by
increases in payroll and related costs.
Depreciation and amortization increased by $2.3 million, or 5.7%, to
$43.0 million in the first quarter of 1998 from $40.7 million in the first
quarter of 1997 primarily due to the additional depreciation associated with
the introduction into service of Holland America Line's new Rotterdam.
Affiliated Operations
During the first quarter of 1998, the Company recorded $10.7 million of
losses from affiliated operations as compared with $9.0 million of losses in
the first quarter of 1997. The Company's portion of Airtours' losses
increased $2.1 million to $8.1 million in the first quarter of 1998. The
Company also recorded losses of $.9 million during the first quarter of 1998
related to its interest in Costa. See the General section above for a
description of the seasonal nature of the operations of Airtours and Costa.
Nonoperating Income (Expense)
Interest income increased $1.9 million in 1998 primarily due to an
increase in average cash balances and notes receivable. Gross interest
expense (excluding capitalized interest) decreased $1.7 million in 1998 as a
result of reduced average debt balances. Capitalized interest increased $2.9
million due to higher levels of investments in ship construction projects
during the first quarter of fiscal 1998 as compared with the first quarter of
fiscal 1997.
Other expense in the first quarter of fiscal 1998 of $3.3 million
primarily relates to the accrual of certain litigation costs.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
The Company's business provided $214.2 million of net cash from
operations during the three months ended February 28, 1998, an increase of
10.1% compared to the corresponding period in 1997.
During the three months ended February 28, 1998, the Company expended
approximately $361.7 million on capital projects, of which $337.4 million was
spent in connection with its ongoing shipbuilding program. The expenditures
included the final payment on Carnival Cruise Lines' Elation, which the
Company took delivery of in late February. The nonshipbuilding capital
expenditures consisted primarily of improvements to a private island in the
Caribbean, which HAL began to use during the first quarter of 1998 as a
destination for certain of its itineraries, transportation equipment, vessel
refurbishments, tour assets and other equipment.
The Company made scheduled principal payments totaling approximately
$9.4 million under various individual vessel mortgage loans during the three
months ended February 28, 1998. During this same period, the Company made
net repayments of $23.4 million under its commercial paper programs. In
January 1998 the Company completed an offering of $200 million of 6.65%
debentures due January 15, 2028.
Future Commitments
The Company has contracts for the delivery of seven new vessels and the
Wind Surf over the next three years. The Company will pay approximately $629
million during the twelve months ending February 28, 1999 relating to the
construction and delivery of those new cruise ships and approximately $1.6
billion beyond February 28, 1999. In addition to the ships contracted for
delivery, the Company has options to construct two vessels for Carnival
Cruise Lines for delivery in 2001 and 2002. No assurance can be given that
these options will be exercised. The Company is also in negotiations with
several shipbuilding yards for a new class of vessel for Holland America Line.
At February 28, 1998, the Company had $1.2 billion of long-term debt of
which $250.9 million is due during the twelve months ending February 28,
1999. Included in the $250.9 million of debt due during the twelve months
ending February 28, 1999 is $200.0 million of Unsecured 5.75% Notes Due March
15, 1998 which the Company repaid in March 1998 through borrowings under the
commercial paper programs. See Note 3 in the accompanying financial
statements for more information regarding the Company's debt.
In addition, in April 1998, the Company will issue $200 million of
Unsecured 5.65% Notes due October 15, 2000 and $200 million of Unsecured
6.15% Notes due April 15, 2008. The Company plans to use the funds from the
April 1998 offerings to repay the commercial paper which was incurred to
repay the Company's $200 million 5.75% notes that were due March 15, 1998
discussed above and to fund the construction of a new vessel for Holland
America Line.
The Company also enters into forward foreign currency contracts to hedge
the impact of foreign currency fluctuations.
In April 1998, the Company announced that it is the majority participant
in a group of investors which entered into an agreement to acquire the
business of Cunard. The $500 million is expected to be paid through the
assumption of approximately $48 million of existing debt and $72 million of
negative working capital with the remaining $380 million payable in cash.
The Company's portion of the cash payment is expected to be approximately
$266 million. The Company anticipates that Seabourn Cruise Line, which is
50% owned by the Company, will be merged with the business operations of
Cunard simultaneous with the closing of the acquisition. The Company expects
to have an approximate two-thirds interest in the merged Cunard/Seabourn
entity. The transaction is subject to the expiration of the Hart-Scott-Rodino
waiting period and other customary closing conditions.
Management has undertaken a company wide program to prepare the
Company's computer systems and other applications for the year 2000.
Possible year 2000 problems create risk for a company in that unforseen
problems in its own computer systems or those of its third party suppliers
could have a material impact on a company's ability to conduct its business
operations. The purpose of the Company's program is to identify significant
year 2000 exposures and to update its computer systems and business
operations to deal with those exposures. The Company expects to incur
internal staff costs as well as consulting and other expenses to prepare the
systems for the year 2000, which are not expected to be material to the
Company's operating results.
Funding Sources
Cash from operations is expected to be the Company's principal source of
capital to fund its debt service requirements and ship construction costs.
In addition, the Company may also fund a portion of these cash requirements
from borrowings under its U.S. Dollar Revolver or commercial paper programs
and/or through the issuance of long-term debt in the public or private
markets. The initial funding of the acquisition of Cunard is expected to be
made through borrowings under the Company's commercial paper programs. As of
February 28, 1998, the Company had $935 million available for borrowing under
its U.S. Dollar Revolver and Multi-currency Revolving Credit Facility.
To the extent that the Company should require or choose to fund future
capital commitments from sources other than operating cash or from borrowings
under its revolving credit facilities and/or commercial paper programs, the
Company believes that it will be able to secure such financing from banks or
through the offering of short-term or long-term debt and/or equity securities
in the public or private markets. Also, the Company has filed Registration
Statements on Form S-3 (the "Shelf Registration") relating to shelf offerings
of debt or equity securities. The remaining aggregate principal amount of
debt or equity securities available under the Shelf Registration, after the
completion of the $400 million offering of notes in April 1998 as discussed
above, is $400 million.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Several actions (collectively the "Passenger Complaints") have been
filed against the Company or Holland America Westours on behalf of purported
classes of passengers who paid port charges to the Company or Holland America
Westours, alleging that statements made in advertising and promotional
materials concerning port charges were false and misleading.
On April 22, May 2, May 6 and October 21, 1996, four complaints were
filed against the Company in the Circuit Court for the Eleventh Judicial
Circuit in Dade County, Florida, by Michelle Hackbarth, Larry Katz, Michelle
A. Sutton, Pedro Rene Mier, and others, respectively, on behalf of purported
nationwide classes. The actions allege violations of the state's consumer
protection act and unjust enrichment, and seek compensatory damages or,
alternatively, refunds of portions of port charges paid, attorneys' fees,
costs, prejudgment interest, punitive damages and injunctive and declaratory
relief. In February 1998, the Company's motions to dismiss the plaintiffs'
second amended complaints were granted in part and denied in part. The court
has lifted, solely with respect to the issue of class certification, a
previously-imposed stay on discovery.
On or about March 25, 1997, a complaint was filed against the Company in
the Chancery Court in Dyer County, Tennessee, by Brent Mezzacasa and others,
on behalf of a purported nationwide class. The complaint also named, as
co-defendants, Norwegian Cruise Lines, Royal Caribbean Cruise Lines, and
Princess Cruise Lines. The action alleged violations of the state's consumer
protection act and fraudulent inducement, and sought damages in an amount
less than $20,000.00 per class member, treble damages, an accounting,
attorneys' fees and costs. Simultaneous with the filing of the complaint,
the court granted Plaintiffs' ex parte motion to conditionally certify the
class. In October 1997, the court granted the Company's motion to dismiss
the case on the grounds of inconvenient forum. Plaintiffs have indicated
that they intend to appeal.
On or about May 13, 1997, a complaint was filed against the Company in
the Superior Court of Maricopa County, Arizona, by Dorothy Luster on behalf
of a purported statewide class. The action alleged violations of the state's
consumer protection act, fraud, and negligence, and sought damages in an
amount between $25,000.00 and $50,000.00 per class member, treble damages, an
accounting, attorneys' fees and costs. In September 1997, the court granted
the Company's motion to dismiss the case on the grounds of inconvenient
forum.
On or about April 16, 1997, a complaint was filed against the Company in
the Court of Common Pleas, Montgomery County, Ohio, by Cathy J. Miller and
others, on behalf of a purported statewide class. The action alleged
violations of the state's consumer protection act, fraudulent
misrepresentation and/or omission, breach of fiduciary duties, restitution
and unjust enrichment, and sought compensatory damages in an amount less than
$50,000.00 per class member, injunctive relief, an accounting, attorneys'
fees and costs. The Company removed the case to The United States District
Court of the Southern District of Ohio in June 1997, and moved to dismiss or
transfer on the grounds of inconvenient forum. Plaintiffs then moved to
remand, and the court granted the plaintiffs' motion. The case is now
pending once again before the state court where the Company intends to renew
its motion to dismiss on the grounds of inconvenient forum.
On or about April 29, 1997, a complaint was filed against the Company in
Kentucky state court by William R. Ackerman and others on behalf of a
purported statewide class. The action alleged violations of the state's
consumer protection act, fraudulent misrepresentation and/or omission, breach
of fiduciary duties, restitution and unjust enrichment, and sought
compensatory damages in an amount less than $50,000.00 per class member,
injunctive relief, an accounting, attorneys' fees and costs. The Company
removed the case to The United States District for the Western District of
Kentucky in May 1997, and then moved to dismiss or transfer on the grounds of
inconvenient forum. Plaintiffs opposed the motion and sought to remand the
case to state court. In January 1998, the court granted the Company's motion
and dismissed the action.
On or about April 16, 1997, a complaint was filed against the Company in
Michigan state court by Kim Drogmiller and others on behalf of a purported
statewide class. The action alleged violations of the state's consumer
protection act, fraud, negligence, breach of fiduciary duties, fraudulent
misrepresentation, negligent misrepresentation and restitution, and sought
compensatory damages in excess of $10,000.00 but less than $75,000.00 per
class member, injunctive relief, an accounting, attorneys' fees and costs.
The Company removed the case to The United States District Court for the
Eastern District of Michigan in June 1997, and then moved to dismiss or
transfer on the grounds of inconvenient forum. Plaintiffs opposed the motion
and sought to remand the case to state court. In March 1998, the court
granted the Company's motion and dismissed the action.
On or about May 13, 1997, a complaint was filed against the Company in
Georgia state court by Elizabeth Forsling on behalf of a purported statewide
class. The action alleged violations of the state's consumer protection act,
fraud, negligence, breach of fiduciary duties, breach of implied covenants of
good faith and fair dealing, fraudulent misrepresentation, negligent
misrepresentation, and restitution/unjust enrichment, and sought compensatory
damages in an amount less than $75,000.00 per class member, or alternatively,
a refund of amounts in excess of those remitted to governmental authorities,
injunctive relief, an accounting, attorneys' fees and costs. The complaint
reserved the right to seek punitive damages. The Company removed the case to
The United States District Court for the Northern District of Georgia in June
1997, and then moved to dismiss or transfer on the grounds of inconvenient
forum. Plaintiff opposed the motion and sought to remand the case to state
court. In October 1997, plaintiff voluntarily withdrew the action, and the
court ordered it dismissed without prejudice. Subsequently, on October 29,
1997, the same plaintiff filed the same claims in the Georgia state court
from which the first action was removed. The Company removed the case and
moved to dismiss, and plaintiff has moved to remand. The motions are now
under judicial consideration.
On or about August 21, 1997, a complaint was filed against the Company
in Alabama state court by Sidney Nelson and others on behalf of a purported
nationwide class. The action alleged fraud, fraudulent concealment, breach of
contract, unjust enrichment and deceit, and sought declaratory relief and
compensatory damages in excess of $10,000.00, but less than $74,000.00 per
class member. The Company removed the case to The United States District
court for the Northern District of Alabama in September 1997, and then moved
to dismiss or transfer on the grounds of inconvenient forum. Plaintiffs
opposed the motion and sought to remand the case to state court. In March
1998, the court granted the Company's motion and dismissed the action.
On or about March 11, 1998, complaint was filed against the Company in
the Circuit Court for the 20th Judicial Circuit in St. Clair County,
Illinois, by John R. Birdsell and others on behalf of a purported nationwide
class. The complaint also names, as co-defendants, Norwegian Cruise Lines,
Royal Caribbean Cruise Lines, and Princess Cruise Lines. The action alleges
violations of the state's consumer protection act, unjust enrichment, and
fraud, and seeks compensatory damages, costs, pre- and post-judgment
interest, and attorneys' fees. The Company intends to move to dismiss on the
grounds of inconvenient forum.
On or about April 19, 1996, a complaint was filed against Holland
America Westours in the Supreme Court in King County, Washington, by Francine
Pickett and others on behalf of a purported nationwide class. The action
alleges violations of the state's consumer protection act, negligent
misrepresentation, and unjust enrichment, and seeks compensatory damages or,
alternatively, refunds of portions of port charges paid, with interest,
punitive damages, attorneys' fees, costs, experts' fees, and injunctive
relief. The court has denied both Holland America Westours' motion to
dismiss and the plaintiffs' motion for class certification.
In order to avoid the continuing expense and risk of protracted
litigation, on April 10, 1998, Holland America Westours entered into a
Settlement Agreement in this lawsuit. Under the Settlement Agreement,
Holland America Westours will issue travel vouchers to most of its passengers
that are U.S. residents and who sailed between April 1992 and April 1996.
The travel vouchers range in face value from $10 - $50 depending on the year
and duration of the cruise. The vouchers, which will be valid for three
years, may be used to pay for future Holland America Westours cruises but
only as to bookings made within 45 days of scheduled departure. While
vouchers are transferable, no more than $50 of vouchers can be used for most
Holland America Westours cruises. As part of the settlement, Holland America
Westours will pay $450,000 towards legal fees incurred by the
plaintiffs. On April 21, 1998, the Settlement Agreement will be submitted to
the court for preliminary approval. If approval is given, notice will be
sent to all potential voucher recipients. The court is expected to hold
another hearing in July or August at which time it will decide whether or not
to grant final approval. The Company does not believe the settlement will
have a material adverse impact on the Company's financial condition or
results of operations.
Several actions (collectively the "Travel Agent Complaints") have been
filed against the Company or Holland America Westours on behalf of purported
classes of travel agencies who booked cruises with the Company or Holland
America Westours, claiming that advertising practices regarding port charges
resulted in an improper commission bypass.
On August 27, 1997, a complaint was filed against the Company in the
Circuit Court for the Eleventh Judicial Circuit in Dade County, Florida, by
N.G.L. Travel Associates, on behalf of a purported nationwide class of
travel agencies who booked cruises with the Company. The action alleges
claims of breach of implied contract, negligent misrepresentation and
concealment, unjust enrichment, and common law fraud, and seeks unspecified
compensatory, punitive and exemplary damages, attorneys' and expert fees, and
injunctive relief. The Company's motion to dismiss the action is now under
judicial consideration.
On August 9, 1996, a complaint was filed against the Company and Holland
America Westours in the Superior Court in Los Angeles, County, California, by
Nelsons Travel Associates, on behalf of purported nationwide classes of
travel agencies who booked cruises with the Company and Holland America
Westours. The action alleged claims of breach of contract, negligent
misrepresentation, unjust enrichment, unlawful business practices and common
law fraud, and sought unspecified compensatory damages, an accounting,
attorneys' fees and costs, punitive damages and injunctive relief. Upon the
Company's and Holland America Westours' motions to dismiss or stay the action
on the grounds of forum non conveniens, the court stayed the action, pending
resolution of the Florida actions.
On February 24, 1998, a complaint was filed against the Company in
Alabama state court by Flora Price and others on behalf of a purported
statewide class of travel agencies who booked cruises with the Company. The
action alleges several claims of fraud, and seeks compensatory damages in an
amount less than $75,000 per class member and attorneys' fees. The Company
removed the case to The United Stated District Court for the Norther District
of Alabama in March 1998, and then moved to dismiss or transfer on the
grounds of inconvenient forum. The Company's motion is now under judicial
consideration.
The pending Passenger and Travel Agent Complaints are in preliminary
stages and it is not now possible to determine the ultimate outcome of the
lawsuits. Management believes that the Company has substantial and
meritorious defenses to the claims. Purported class actions similar to the
Passenger and Travel Agent Complaints have been filed against five other
cruise lines.
In the normal course of business, various other claims and lawsuits have
been filed or are pending against the Company. The majority of these claims
and lawsuits are covered by insurance. Management believes the outcome of
any such suits that are not covered by insurance would not have a material
adverse effect on the Company's financial condition or results of operations.
ITEM 5: Other Information
(a) Forward-Looking Statements
Certain statements in this Form 10-Q and in the future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, and in oral statements made by or with the approval of an
authorized executive officer constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or
achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: general economic and business conditions which may impact levels
of disposable income of consumers and pricing and passenger yields for the
Company's cruise products; consumer demand for cruises; pricing policies
followed by competitors of the Company; increases in cruise industry capacity
in the Caribbean and Alaska;NOTE 8 - RECENT PRONOUNCEMENTS
In April 1998, Statement of Position 98-5 - "Reporting on the Costs of
Start-Up Activities" ("SOP") was issued. The SOP 98-5 requires that all
start-up or pre-operating costs be expensed as incurred and is effective
for fiscal years beginning after December 15, 1998. Management believes
that the adoption of the SOP will not have a material impact on the
financial statements.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133") was issued. SFAS 133 establishes a new
model for accounting for derivatives and hedging activities and is
effective for fiscal years beginning after June 15, 1999. The Company is
still in the process of assessing the impact of the adoption of SFAS 133
but does not currently expect the adoption to have a material impact on the
financial statements.
NOTE 9 - STOCK SPLIT
On April 13, 1998, the Board of Directors of the Company approved a
two-for-one split of its Common Stock. The additional shares were
distributed on June 12, 1998 to shareholders of record on May 29, 1998.
All share and per share data presented herein have been retroactively
restated to give effect to this stock split.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements under this caption, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", constitute
"forward-looking statements" under the Private Securities Litigation Reform
Act of 1995 (the "Reform Act"). See "PART II. OTHER INFORMATION, ITEM
5(a) Forward-Looking Statements".
General
The Company earns its cruise revenues primarily from (i) the sale of
passenger tickets, which includes accommodations, meals, and most shipboard
activities, (ii) the sale of air transportation to and from the cruise ship
and (iii) the sale of goods and services on board its cruise ships, such as
casino gaming, liquor sales, gift shop sales and other related services.
The Company also derives revenues from the tour and related operations of
HAL Antillen N.V. ("HAL"), which owns Holland America Westours and Holland
America Cruise Line.
The following table presents selected segment and statistical
information for the periods indicated:
Six Months Ended May 31, Three Months Ended May 31,
1998 1997 1998 1997
(in thousands, except selected statistical
information)
REVENUES:
Cruise $1,182,061 $1,084,603 $631,084 $570,581
Tour 45,453 37,670 38,414 30,475
Intersegment revenues (8,318) (4,577) (8,140) (4,442)
$1,219,196 $1,117,696 $661,358 $596,614
OPERATING EXPENSES:
Cruise $ 633,826 $ 601,616 $335,056 $313,899
Tour 44,443 37,583 35,440 28,227
Intersegment expenses (8,318) (4,577) (8,140) (4,442)
$ 669,951 $ 634,622 $362,356 $337,684
OPERATING INCOME:
Cruise $ 319,844 $ 265,284 $177,420 $149,227
Tour (17,213) (16,608) (6,692) (5,879)
Loss from affiliates and
corporate expenses (19,470) (16,173) (5,287) (5,807)
$ 283,161 $ 232,503 $165,441 $137,541
SELECTED STATISTICAL INFORMATION:
Passengers Carried 923,000 950,000 497,000 495,000
Passenger Cruise
Days (1) 5,931,000 5,880,000 3,104,000 3,062,000
Occupancy Percentage 105.6% 107.2% 105.4% 108.0%
(1) A passenger cruise day is one passenger sailing for a period of one
day. For example, one passenger sailing on a one week cruise is seven
passenger cruise days.
/TABLE
Operations data expressed as a percentage of total revenues for the
periods indicated is as follows:
Six Months Three Months
Ended May 31, Ended May 31,
1998 1997 1998 1997
REVENUES 100% 100% 100% 100%
COSTS AND EXPENSES:
Operating expenses 55 57 55 57
Selling and administrative 14 14 13 13
Depreciation and amortization 7 7 7 7
OPERATING INCOME BEFORE
LOSS FROM AFFILIATED
OPERATIONS 24 22 25 23
Loss from affiliated
operations (1) (1) - -
OPERATING INCOME 23 21 25 23
NONOPERATING EXPENSE (1) (2) (1) (2)
NET INCOME 22% 19% 24% 21%
The Company's cruise and tour operations experience varying degrees of
seasonality. The Company's revenue from the sale of passenger tickets for
its cruise operations is moderately seasonal. Historically, demand for
cruises has been greatest during the summer months. The Company's tour
revenues are extremely seasonal with the majority of tour revenues
generated during the late spring and summer months in conjunction with the
Alaska cruise season.
In June 1997, the Company and Airtours plc ("Airtours"), a publicly
traded (London Stock Exchange) travel company in which the Company holds an
approximate 28% interest, each acquired a 50% interest in Il Ponte S.p.A.
("Costa"), the parent company of Costa Crociere S.p.A., an Italian cruise
company. The Company records its interest in Airtours and Costa using the
equity basis of accounting and records its portion of Airtours' and Costa's
operating results on a two month lag basis. Demand for Costa's and
Airtours' products is seasonal due to the nature of the European leisure
travel industry and Mediterranean cruise season. Typically, Airtours' and
Costa's quarters ending June 30 and September 30 experience higher demand,
with demand in the quarter ending September 30 being the highest. Demand
for Costa's and Airtours' products is lower in their quarters ending
December 31 and March 31.
Average capacity for the Company's cruise brands, excluding the impact
of the acquisition and consolidation of Cunard and Seabourn, is expected to
increase 6.5% and 11.8% in the third and fourth quarters of fiscal 1998,
respectively, as compared to the same periods of fiscal 1997. These
increases are primarily a result of the introduction into service of
Holland America's new Rotterdam in November 1997, Carnival Cruise Lines'
Elation in March 1998 and Windstar Cruises' Wind Surf in May 1998.
Including the impact of Cunard and Seabourn, average capacity is expected
to increase 19.1% and 24.4% in the third and fourth quarter of fiscal 1998,
respectively, as compared to the same periods of fiscal 1997. The
acquisition and consolidation of Cunard and Seabourn is not expected to
materially effect the Company's consolidated earnings in 1998.
The year over year percentage increase in average cruise capacity,
excluding the impact of Cunard and Seabourn, resulting from the delivery of
vessels currently under contract for construction for the fiscal years
ending November 30, 1998, 1999 and 2000 is expected to approximate 5.7%,
13% and 15%, respectively. Including the impact of Cunard and Seabourn,
the year over year increase in average capacity for the fiscal years ending
November 30, 1998, 1999 and 2000 is expected to approximate 12.0%, 18% and
14%, respectively.
Six Months Ended May 31, 1998 Compared
To Six Months Ended May 31, 1997
Revenues
The increase in total revenues of $101.5 million, or 9.1%, was due to
a 9.0% increase in cruise revenues. The increase in cruise revenues of
$97.5 million was primarily the result of an 8.1% increase in total revenue
per passenger cruise day and a 2.4% increase in capacity, offset slightly
by a 1.5% decrease in occupancy rates. Total capacity increased due to the
addition of new vessels discussed above. Total revenue per passenger
cruise day increased primarily due to strong demand for the Company's
cruise brands and the introduction of Holland America Line's new Rotterdam
in November 1997, which has obtained higher pricing.
Costs and Expenses
Operating expenses increased $35.3 million, or 5.6%. Cruise operating
costs increased by $32.2 million, or 5.4%, to $633.8 million in the first
six months of 1998 from $601.6 million in the first six months of 1997,
primarily due to the impact of the increase in capacity, airfare costs and
commission expense. Airfare costs increased due to a higher rate per air
passenger as well as a higher percentage of passengers electing the
Company's air program. The increase in commission expense was associated
with the increase in passenger ticket revenues.
Selling and administrative costs increased $7.6 million, or 4.8%,
primarily due to increases in payroll and related costs.
Depreciation and amortization increased by $6.6 million, or 8.0%, to
$89.3 million in the first six months of 1998 from $82.7 million in the
first six months of 1997 primarily due to the additional depreciation
associated with the increase in capacity.
Affiliated Operations
During the first six months of 1998, the Company recorded $13.0
million of losses from affiliated operations as compared with $11.7 million
of losses in the first six months of 1997. The Company's portion of
Airtours' losses increased $3.0 million to $11.3 million in the first six
months of 1998. The Company recorded income of $2.3 million during the
first six months of 1998 related to its interest in Costa, which the
Company did not own during the first half of 1997.
Nonoperating Income (Expense)
Interest income increased $2.5 million in 1998 primarily due to an
increase in average cash balances and notes receivable. Gross interest
expense (excluding capitalized interest) increased $1.8 million in 1998
primarily as a result of higher average debt balances. Capitalized
interest increased $8.6 million due to higher levels of investments in ship
construction projects during the first six months of fiscal 1998 as
compared with the first six months of fiscal 1997.
Three Months Ended May 31, 1998 Compared
To Three Months Ended May 31, 1997
Revenues
The increase in total revenues of $64.7 million, or 10.9%, was due to
a 10.6% increase in cruise revenues. The increase in cruise revenues of
$60.5 million was primarily the result of a 9.1% increase in total revenue
per passenger cruise day and a 3.9% increase in capacity, partially offset
by a 2.4% decrease in occupancy rates. Total capacity and revenue per
passenger cruise day increased primarily due to the same reasons discussed
above in the six month explanations.
Costs and Expenses
Operating expenses increased $24.7 million, or 7.3%. Cruise operating
costs increased by $21.2 million, or 6.7%, to $335.1 million in the second
quarter of 1998 from $313.9 million in the second quarter of 1997,
primarily due to the impact of the increase in capacity, airfare costs and
commission expense. Airfare costs increased due to a higher rate per air
passenger as well as a higher percentage of passengers electing the
Company's air program. The increase in commission expense was associated
with the increase in passenger ticket revenues.
Selling and administrative costs increased $8.2 million, or 10.7%,
primarily due to an increase in advertising expense and payroll and related
costs.
Depreciation and amortization increased by $4.3 million, or 10.2%, to
$46.3 million in the second quarter of 1998 from $42.0 million in the
second quarter of 1997 primarily due to the additional depreciation
associated with the increase in capacity.
Affiliated Operations
During the second quarter of 1998, the Company recorded $2.4 million
of losses from affiliated operations as compared with $2.7 million of
losses in the second quarter of 1997. The Company's portion of Airtours'
losses increased $.9 million to $3.2 million in the second quarter of 1998.
The Company also recorded income of $3.3 million during the second quarter
of 1998 related to its interest in Costa.
Nonoperating Income (Expense)
Interest income increased $.6 million in 1998 primarily due to an
increase in average cash balances. Gross interest expense (excluding
capitalized interest) increased $3.4 million in 1998 primarily as a result
of higher average debt balances. Capitalized interest increased $5.7
million due to higher levels of investments in ship construction projects
during the second quarter of fiscal 1998 as compared with the second
quarter of fiscal 1997.
Other income in the second quarter of fiscal 1998 of $2.6 million
primarily relates to the settlement of certain notes receivable and an
estimated insurance recovery.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
The Company's business provided $592.9 million of net cash from
operations during the six months ended May 31, 1998, an increase of 35.7%
compared to the corresponding period in 1997.
During the six months ended May 31, 1998, the Company made net
expenditures of approximately $702 million on capital projects, of which
$658 million was spent in connection with its ongoing shipbuilding program.
The expenditures included the final payment on Carnival Cruise Lines'
Elation, which was delivered to the Company in late February, and the
payment of approximately $230 million for the HAL Newbuild scheduled to
enter service in September 2000. In addition, $48 million was paid for the
acquisition of the Wind Surf for Windstar Cruises. The nonshipbuilding
capital expenditures consisted primarily of improvements to a private
island in the Caribbean (HAL began to use the island during the first
quarter of 1998 as a destination for certain of its itineraries),
transportation equipment, vessel refurbishments, tour assets and other
equipment.
The Company paid $255 million related to the acquisition of Cunard
which was funded from working capital and borrowings under the Company's
commercial paper programs. This transaction, including the merger with
Seabourn, also resulted in an additional increase in the Company's
consolidated long term debt of approximately $158 million consisting of $48
million assumed by the Company in connection with the acquisition of Cunard
and $110 million attributable to the consolidation of Seabourn. See Note 7
in the accompanying financial statements.
The Company made scheduled principal payments totaling approximately
$28 million under various individual vessel mortgage loans during the six
months ended May 31, 1998. During this same period, the Company made net
borrowings of $18 million under its commercial paper programs. In March
1998 the Company paid at maturity $200 million due on the Unsecured 5.75%
Notes Due March 15, 1998.
In January 1998 the Company completed an offering of $200 million of
6.65% Debentures Due January 15, 2028. In addition, in April 1998 the
Company completed an offering of $200 million of 5.65% Notes Due October
15, 2000 and $200 million of 6.15% Notes Due April 15, 2008. The proceeds
of these offerings were used to repay $200 million Unsecured 5.75% Notes
Due March 15, 1998 and fund a portion of the capital projects discussed
above.
Future Commitments
The Company has contracts for the delivery of seven new vessels over
the next three years. The Company will pay approximately $347 million
during the twelve months ending May 31, 1999 relating to the construction
and delivery of those new cruise ships and approximately $1.6 billion
beyond May 31, 1999.
In addition to the ship contracts discussed above, the Company has
options to construct two additional vessels for Carnival Cruise Lines for
delivery in 2001 and 2002. The Company is also in negotiations with
several shipbuilding yards for a new class of vessel for Holland America
Line and is in the initial planning phase related to the construction of a
new ship for Cunard. No assurance can be given that the two options for
Carnival Cruise Lines will be exercised, the negotiations for the Holland
America Line vessel will be successful or that the new Cunard shipbuilding
project will be continued.
At May 31, 1998, the Company had $1.6 billion of long-term debt of
which $58 million is due during the twelve months ending May 31, 1999. See
Note 3 in the accompanying financial statements for more information
regarding the Company's debt.
Management has undertaken a company wide program to prepare the
Company's computer systems and other applications for the year 2000.
Possible year 2000 problems create risk for a company in that unforseen
problems in its own computer systems or those of its third party suppliers
could have a material impact on a company's ability to conduct its business
operations. The purpose of the Company's program is to identify
significant year 2000 exposures and to update its computer systems and
business operations to deal with those exposures. The Company expects to
incur internal staff costs as well as consulting fees and other expenses to
prepare the systems for the year 2000, which are not expected to be
material to the Company's operating results. However, if the Company, its
customers or vendors are unable to resolve these issues in a timely manner,
it could result in a material financial risk.
Funding Sources
Cash from operations is expected to be the Company's principal source
of capital to fund its debt service requirements and ship construction
costs. In addition, the Company may also fund a portion of these cash
requirements from borrowings under its revolving credit facilities or
commercial paper programs and/or through the issuance of long-term debt in
the public or private markets. As of May 31, 1998, the Company had $923
million available for borrowing under its revolving credit facilities.
To the extent that the Company should require or choose to fund future
capital commitments from sources other than operating cash or from
borrowings under its revolving credit facilities and/or commercial paper
programs, the Company believes that it will be able to secure such
financing from banks or through the offering of short-term debt and/or
equity securities in the public or private markets. Also, the Company has
filed Registration Statements on Form S-3 (the "Shelf Registration")
relating to shelf offerings of debt or equity securities. As of May 31,
1998, the remaining aggregate principal amount of debt or equity securities
available under the Shelf Registration is $400 million.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Several actions collectively referred to as the "Passenger Complaints"
were previously reported in the Company's Annual Report on Form 10-K for
the year ended November 30, 1997 (the "1997 Form 10-K") and Quarterly
Report on Form 10-Q for the quarter ended February 28, 1998 (the "First
Quarter Form 10-Q). The following are the material subsequent developments
in such cases.
In the action filed against the Company in Ohio by Cathy J. Miller,
the Company has filed a motion to dismiss on the grounds of inconvenient
forum and the plaintiffs' response is due July 27, 1998. In the action
filed against the Company in Illinois by John R. Birdsell, the Company has
specially appeared solely to register its objection to the court's exercise
of personal jurisdiction over the Company.
In the action filed against Holland America Westours in Washington by
Francine Pickett, the settlement agreement has received preliminary court
approval. Notice of the settlement is being sent to all potential voucher
recipients. The court will hold another hearing in September 1998, to
decide whether to grant final approval. The Company does not believe the
settlement will have a material adverse impact on the Company's financial
condition or results of operations.
Several actions referred to as the "Travel Agent Complaints" were
previously reported in the 1997 Form 10-K and in the First Quarter Form 10-Q,
and the following are the material subsequent developments in such
cases.
In April 1998, the court dismissed without prejudice the action filed
against the Company in Florida by N.G.L. Travel Associates, and in May 1998
plaintiff filed an amended complaint. The Company's motion to dismiss the
action is now under judicial consideration. On September 12, 1997, a
complaint was filed against Holland America Westours in the Superior Court
of the State of Washington for King County by N.G.L. Travel Associates on
behalf of a purported nationwide class of travel agencies who booked
cruises with Holland America Westours. The action alleges claims of breach
of implied contract, negligent misrepresentation, unjust enrichment,
violation of the Washington Consumer Protection Act and common law fraud,
and seeks unspecified compensatory, punitive and exemplary damages,
attorneys' and expert fees and injunctive relief. The action is still in
the discovery stage. No class has been certified by the court.
The pending Passenger and Travel Agent Complaints are in preliminary
stages and it is not possible to determine the ultimate outcome of the
lawsuits. Management believes it has meritorious defenses to the claims.
Purported class actions similar to the Passenger and Travel Agent
Complaints have been filed against at least five other cruise lines.
On June 19, 1998, HAL Beheer B.V., a Netherlands affiliate that
employs various crew members on board Holland America Line ships
("Beheer"), entered a plea of guilty in the U.S. District Court for the
District of Alaska to: (1) one felony count pursuant to 33 U.S.C. Section
1908(a) for unlawful discharge of oil or an oily mixture from the former Holland
America Line vessel ss Rotterdam; and (2) one felony count pursuant to 33
U.S.C. Section 1908(a) for unlawful failure to properly complete the Oil Record
Book on board the ss Rotterdam. These pleas were entered pursuant to a
Plea Agreement between Beheer and the U.S. Department of Justice.
Under the Plea Agreement, Beheer has agreed to pay a $1,000,000 fine,
pay $1,000,000 to the National Parks Foundation and be placed on probation
for five years. During the probationary period, Beheer is obligated to
take certain measures regarding the handling of bilge waste. The Court is
expected to decide in October 1998 whether or not to accept the
arrangements agreed to in the Plea Agreement. The Plea Agreement followed
an investigation by the U.S. Attorney for the District of Alaska into the
bilge waste handling practices on board the ss Rotterdam during the summer
and early fall of 1994.
Beheer has also entered into a Compliance Agreement with the U.S.
Environmental Protection Agency (EPA), acting on behalf of itself and the
U.S. Department of Interior. Under the Compliance Agreement: (1) Beheer
has agreed to submit to EPA audits and take other measures to ensure
compliance with the environmental laws; and (2) the EPA has agreed not to
seek debarment against Beheer or its affiliates on the basis of the matters
that were the subject of the Alaska investigation. The compliance
Agreement will be in effect for five years.
For a description of other pending litigation, see the 1997 Form 10-K
and the First Quarter Form 10-Q.
In the normal course of business, various other claims and lawsuits
have been filed or are pending against the Company. The majority of these
claims and lawsuits are covered by insurance. Management believes the
outcome of any such suits that are not covered by insurance would not have
a material adverse effect on the Company's financial condition or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April
13, 1998 (the "Annual Meeting"). None of the share information contained
in this item has been adjusted for the stock split that was effective June
12, 1998. Holders of Common Stock were entitled to elect fifteen
directors. On all matters which came before the Annual Meeting, holders of
Common Stock were entitled to one vote for each share held. Proxies for
262,701,376 of the 297,360,204 shares of Common Stock entitled to vote were
received in connection with the Annual Meeting.
The following table sets forth the names of the fifteen persons
elected at the Annual Meeting to serve as directors until the next annual
meeting of shareholders of the Company and the number of votes cast for,
against or withheld with respect to each person.
NAME OF DIRECTOR FOR AGAINST WITHHELD
Micky Arison 261,853,561 -0- 847,815
Shari Arison 244,798,656 -0- 17,902,720
Maks L. Birnbach 262,266,468 -0- 434,908
Richard G. Capen, Jr. 262,333,518 -0- 367,858
David Crossland 262,083,416 -0- 617,960
Robert H. Dickinson 262,084,367 -0- 617,009
James M. Dubin 262,164,103 -0- 537,273
Howard S. Frank 262,090,288 -0- 611,088
A. Kirk Lanterman 262,097,134 -0- 604,242
Modesto A. Maidique 243,438,415 -0- 19,262,961
William S. Ruben 262,100,142 -0- 601,234
Stuart S. Subotnick 262,223,628 -0- 477,748
Sherwood M. Weiser 262,074,023 -0- 627,353
Meshulam Zonis 262,082,392 -0- 618,984
Uzi Zucker 260,167,654 -0- 2,533,722
/TABLE
The following table sets forth certain additional matters which were
submitted to the shareholders for approval at the Annual Meeting and the
tabulation of the votes with respect to each such matter.
BROKER
MATTER FOR AGAINST WITHHELD NONVOTES
Approval of Amendments
to the Company's Amended
and Restated Articles of
Incorporation:
a) To eliminate the
Class B Common Stock
and designate a single
class of Common Stock 261,874,159 691,974 135,243 -0-
b) To increase the number
of authorized shares of
Common Stock 247,948,213 14,527,031 226,132 -0-
c) To authorize preferred
stock and grant to the
Board of Directors
authority to designate
the terms of each series
of preferred stock 198,326,475 53,684,242 527,197 10,163,452
d) To make certain procedural
changes recently permitted
under Panamanian law 242,687,168 9,469,083 381,663 10,163,452
Approval of Price Waterhouse
as independent auditors for the
Company for the fiscal year
ending November 30, 1998 262,545,989 81,396 73,991 -0-
ITEM 5: Other Information
(a) Forward-Looking Statements
Certain statements in this Form 10-Q and in the future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, and in oral statements made by or with the approval of an
authorized executive officer constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may cause the actual results, performance or
achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: general economic and business conditions which may impact levels
of disposable income of consumers and pricing and passenger yields for the
Company's cruise products; consumer demand for cruises; pricing policies
followed by competitors of the Company; increases in cruise industry
capacity; changes in tax laws and regulations (see Part II, Item 5 (d) -
Taxation of the Company in the Company's filing of Form 10-K for the period
ended November 30, 1997); the ability of the Company to implement its
shipbuilding program and to expand its business outside the North American
market where it has less experience; delivery of new vessels on schedule
and at the contracted price; weather patterns; unscheduled ship repairs and
drydocking; incidents involving cruise vessels at sea; and changes in laws
and government regulations applicable to the Company.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
Current report on Form 8-K (File No. 1-9610) filed with the
Commission on May 13, 1998 related to the issuance of $200 million of
Unsecured 5.65% Notes Due October 15, 2000 and $200 million of Unsecured
6.15% Notes Due April 15, 2008.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CARNIVAL CORPORATION
Date: July 15, 1998 BY/s/ Howard S. Frank
Howard S. Frank
Vice Chairman and Chief
Operating Officer
Date: July 15, 1998 BY/s/ Gerald R. Cahill
Gerald R. Cahill
Senior Vice President Finance
and Chief Financial and
Accounting Officer
INDEX TO EXHIBITS
AND REPORTS ON FORM 8-K
Page No. in
Sequential
Numbering
System
(a)
Exhibits
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
Current report on Form 8-K (File No. 1-9610) filed with the Commission
on January 28, 1998 related to the issuance of $200 million of Unsecured
6.65% Debentures Due January 15, 1998.
/TABLE
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARNIVAL CORPORATION
Dated: April 14, 1998 BY/s/ Howard S. Frank
Howard S. Frank
Vice-Chairman and Chief
Operating Officer
Dated: April 14, 1998 BY/s/ Gerald R. Cahill
Gerald R. Cahill
Senior Vice President Finance
and Chief Financial and
Accounting Officer
INDEX TO EXHIBITS
Page No. in
Sequential
Numbering
System
Exhibits
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule