Carnival Cruises 2004 Annual Report Download - page 43

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
40 Carnival Corporation & plc
Other non-cruise revenues increased $169 million, or
96%, to $345 million in reported 2003 from $176 million
in reported 2002 due to the consolidation of Princess
Tours and P&O Travel Ltd.
Costs and Expenses
Net cruise costs increased $652 million, or 21%, to
$3.77 billion in pro forma 2003 from $3.12 billion in pro
forma 2002. The 17.5% increase in pro forma ALBD’s
accounted for $546 million of the increase, and the
remaining $106 million was from increased net cruise
costs per ALBD, which increased 2.9% in pro forma
2003 compared to pro forma 2002 (gross cruise cost
per ALBD increased 0.2%). Net cruise costs per ALBD
increased primarily due to a 20% increase in fuel prices
and the weak U.S. dollar relative to the euro and the
sterling, partially offset by the economies of scale asso-
ciated with the 17.5% pro forma ALBD increase. Gross
cruise costs increased $797 million, or 18%, in pro forma
2003 to $5.28 billion from $4.45 billion in pro forma
2002 primarily for the same reasons as net cruise costs.
Net cruise costs increased $1.25 billion, or 61%, to
$3.27 billion in reported 2003 from $2.03 billion in reported
2002. The increase in reported ALBD’s accounted for
$1.12 billion of the increase and the remaining $130 mil-
lion was from increased net cruise costs per ALBD,
which increased 3.9% in reported 2003 compared to
reported 2002 (gross cruise cost per ALBD increased
3.9%). Gross cruise costs increased $1.72 billion, or
61%, in reported 2003 to $4.52 billion from $2.80 billion
in reported 2002 primarily for the same reasons as net
cruise costs and a higher proportion of P&O Princess
brands’ customers who purchased air from us.
Other non-cruise operating expense increased $131
million, or 90.3%, to $276 million in reported 2003 from
$145 million in reported 2002 due to the consolidation
of Princess Tours and P&O Travel.
Depreciation and amortization expense increased by
$119 million, or 22.3%, to $653 million in pro forma 2003
from $534 million in pro forma 2002 largely due to the
expansion of the combined fleet and ship improvement
expenditures, as well as the impact of a weaker U.S.
dollar. Depreciation and amortization increased by $203
million, or 53.1%, to $585 million in reported 2003 from
$382 million in reported 2002. Approximately $126 mil-
lion of this increase was from the consolidation of the
former P&O Princess acquired operations. The majority
of the remaining increase was a result of the expansion
of the Carnival Corporation fleet and ship improvement
expenditures.
Nonoperating (Expense) Income
Net interest expense, excluding capitalized interest,
increased to $217 million in reported 2003 from $118
million in reported 2002, or $99 million, which increase
consisted primarily of a $125 million increase in interest
expense from our increased level of average borrowings
and a weaker U.S. dollar, partially offset by a $31 million
decrease in interest expense due to lower average bor-
rowing rates. The higher average debt balances were
primarily a result of our consolidation of the former P&O
Princess debt and new ship deliveries.
Income Taxes
The income tax expense of $29 million in reported
2003 was primarily due to the consolidation of Carnival
plc’s U.S. based Princess Tours and Costa’s Italian tax-
able income.
Liquidity and Capital Resources
Sources and Uses of Cash
Our business provided $3.22 billion of net cash from
operations during fiscal 2004, an increase of $1.28 billion,
or 66.4%, compared to fiscal 2003, due primarily to a
full year in 2004 of the P&O Princess operations and
significantly higher cash flows from operations. We con-
tinue to generate substantial cash from operations and
remain in a strong financial position.
During fiscal 2004, our net expenditures for capital
projects were $3.59 billion, of which $3.22 billion was
spent for our ongoing new shipbuilding program, includ-
ing the final delivery payments for seven new ships. The
remaining capital expenditures consisted primarily of
$219 million for ship improvements and refurbishments,
and $151 million for Alaska tour assets, cruise port facil-
ity developments and information technology assets.
During fiscal 2004, we borrowed $843 million, which
were used primarily to finance a portion of the Diamond
Princess and Sapphire Princess purchase prices. During
fiscal 2004, we made $932 million of debt repayments,
which included $330 million of debt repaid prior to its
maturity date in order to reduce our borrowing rates.
Finally, we borrowed $272 million of net short-term
bank borrowings primarily to make a portion of the final
ship delivery payment for the Costa Magica. We also
paid cash dividends of $400 million in fiscal 2004.