Carnival Cruises 2007 Annual Report Download - page 41

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
38 | CARNIVAL CORPORATION & PLC
on both a current and constant dollar basis in 2006 compared
to 2005 (gross revenue yields increased by 1.7% in current
dollars). Net revenue yields increased in 2006 primarily from
higher cruise ticket prices, higher onboard revenues and, to a
lesser extent, a 0.4% increase in occupancy. Gross cruise rev-
enues increased $680 million, or 6.3%, in 2006 to $11.42 billion
from $10.74 billion in 2005 for largely the same reasons as net
cruise revenues.
Our 2006 cruise ticket prices for Caribbean itineraries were
lower than in 2005, which were offset by price increases we
achieved primarily from our Alaska and European cruises. We
believe that this reduction in Caribbean pricing was the result
of weaker consumer demand caused primarily from the linger-
ing effects of the unusually strong 2005 hurricane season and
higher fuel and other costs’ adverse impacts on our customers’
discretionary income.
Onboard and other revenues included concession revenues
of $694 million in 2006 and $638 million in 2005. Onboard and
other revenues increased in 2006 compared to 2005, primarily
because of the 4.6% increased ALBDs and increased guest
spending on our ships.
Other non-cruise revenues increased $72 million, or 15.6%,
to $533 million in 2006 from $461 million in 2005 primarily
due to the increase in the number of cruise/tours sold.
Costs and Expenses
Net cruise costs increased $484 million, or 9.3%, to $5.68
billion in 2006 from $5.20 billion in 2005. The 4.6% increase
in ALBDs between 2005 and 2006 accounted for $238 million
of the increase whereas $246 million was from increased net
cruise costs per ALBD, which increased 4.5% in 2006 com-
pared to 2005 (gross cruise costs per ALBD increased 3.9%).
Net cruise costs per ALBD increased primarily due to a $75
increase in fuel cost per metric ton, or 29.0%, to $334 per
metric ton in 2006, which resulted in an additional $209 million
of expense, and a $57 million increase in share-based com-
pensation expense, which was as the result of our adoption
of SFAS No. 123(R) (see Notes 2 and 12 in the accompanying
financial statements). This increase was partially offset by the
non-recurrence in 2006 of a $23 million MNOPF expense. Net
cruise costs per ALBD as measured on a constant dollar basis
increased 4.8% in 2006 compared to 2005. On a constant
dollar basis, net cruise costs per ALBD, excluding increased
fuel prices and incremental share-based compensation
expenses were flat compared to 2005. Gross cruise costs
increased $629 million, or 8.7%, in 2006 to $7.88 billion
from $7.25 billion in 2005 for largely the same reasons as
net cruise costs.
Other non-cruise operating and selling and administrative
expenses increased $63 million, or 15.6%, to $467 million in
2006 from $404 million in 2005 primarily due to the increase
in the number of cruise/tours sold.
Depreciation and amortization expense increased by $86
million, or 9.5%, to $988 million in 2006 from $902 million
in 2005 largely due to the 4.6% increase in ALBDs through
the addition of new ships, and additional ship improvement
expenditures.
Nonoperating (Expense) Income
Net interest expense, excluding capitalized interest, was
$323 million in both 2006 and 2005. This flat interest expense
was primarily due to lower average borrowings offsetting
the impact of higher average interest rates on borrowings.
Capitalized interest increased $16 million during 2006 com-
pared to 2005 primarily due to higher average levels of invest-
ment in ship construction projects and higher average interest
rates on borrowings.
Income Taxes
Income tax expense decreased by $33 million to $39 million
in 2006 from $72 million in 2005 primarily as a result of lower
U.S. income taxes related to the MSC charter in 2006 com-
pared to 2005, and the reversal in 2006 of previously recorded
tax liabilities and deferred tax valuation allowances, which were
no longer required based upon the results of tax authority
audits and other factors.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Our business provided $4.07 billion of net cash from opera-
tions during fiscal 2007, an increase of $436 million, or 12.0%,
compared to fiscal 2006. We continue to generate substantial
cash from operations and remain in a strong financial position,
thus providing us with substantial financial flexibility in meet-
ing operating, investing and financing needs.
During fiscal 2007, our net expenditures for capital projects
were $3.31 billion, of which $2.77 billion was spent for our
ongoing new shipbuilding program, including $2.06 billion for
the final delivery payments for Carnival Freedom, Emerald
Princess, AIDAdiva, Costa Serena and Queen Victoria. In addi-
tion to our new shipbuilding program, we had capital expendi-
tures of $383 million for ship improvements and refurbishments
and $161 million for Alaska tour assets, cruise port facility
developments and information technology assets.