Carnival Cruises 2012 Annual Report Download - page 100

Table of Contents
2012 Executive Overview
This past year has been the most challenging in our history as a result of the Costa Concordia incident. The ship incident had a profound impact on each
and every employee, both shoreside and shipboard, and has driven us to reinforce our commitment to the safety of our guests and crew. We have taken steps
to identify lessons learned and best practices. In addition, we have and will continue to implement improvements to our already established procedures and
training programs. We are also committed to rebuilding Costa’s reputation and strengthening its trust with guests and travel agents. Accordingly, Costa
launched a number of initiatives, including enhancements to existing safety and security procedures, training and related processes and a major international
advertising campaign that targets consumers in its key markets. Over the next few years, we expect to fully recover and continue to build on our leadership
positions.
Net income for 2012 was $1.3 billion, compared to $1.9 billion for the prior year. This decrease was caused by a 2.5% decrease in constant dollar net revenue
yields, higher fuel prices and the Ibero goodwill and trademark impairment charges.
The 2.5% decrease in constant dollar net revenue yields was driven by our EAA brands as a result of the direct and indirect consequences of the ship incident
and the challenging economic environment in Europe. Although our North America brands achieved a slight increase in net revenue yields, they were affected
by the indirect consequences of the ship incident.
Our higher fuel prices in 2012 compared to the prior year were partially offset by lower fuel consumption, which continues our multiple-year fuel consumption
savings trend. Implementing a combination of fuel saving initiatives has allowed us to reduce our rate of fuel consumption by 18% over the past seven years.
In 2012, constant dollar net cruise costs excluding fuel per ALBD had a slight decrease compared to the prior year. On a longer-term basis, our constant dollar
net cruise costs excluding fuel per ALBD have remained flat from 2008 through 2012 despite inflationary pressures.
During 2012, we generated $3.0 billion of cash from operations and used $1.8 billion to fund net capital expenditures, leaving us with $1.2 billion of free
cash flow (defined as cash from operations less net capital expenditures). All of this free cash flow was returned to shareholders through our $0.25 per share
regular quarterly dividend, our $0.50 per share special dividend and by repurchasing 2.6 million of Carnival Corporation common stock. This is the second
consecutive year that we returned all our free cash flow to shareholders.
We believe that adding newer, more efficient ships, as well as improving our existing fleet, will have a positive impact on our profitability. During 2012, we
ordered two new cruise ships – one 4,000-passenger capacity ship for our Carnival Cruise Lines brand and one 2,660-passenger capacity ship for our
Holland America Line brand. These ships will be the largest ever constructed for these two cruise brands. As of January 22, 2013, we currently have nine
cruise ships scheduled to enter service between March 2013 and March 2016, two of which will enter service in 2013 (see “Note 6 – Commitments” in the
accompanying consolidated financial statements). Our current intention is to have an average of two to three new cruise ships enter service annually, some of
which will replace existing capacity from the possible sales of older, less efficient ships. We are strategically timing the introductions of additional ships to our
brands to allow ample time for those lines to further grow their guest base and absorb the new capacity. Our rate of growth is slowing in the more established
regions of North America and Western Europe. We are committed to a measured pace of newbuilds to achieve an optimal balance of supply and demand to
maximize our profitability in these established regions. In addition, we believe that we have significant opportunities to grow our presence in the emerging Asian
cruise region and will continue to redeploy some of our existing ships to that region.
Outlook for the 2013 First Quarter and Full Year
On December 20, 2012, we said that we expected our non-GAAP diluted EPS for the 2013 first quarter and full year would be in the ranges of $0.03 to $0.07
and $2.20 to $2.40, respectively (see “Key Performance Non-GAAP Financial Indicators”). Our guidance was based on fuel prices of $674 per metric ton and
$692 per metric ton for the 2013 first quarter and full year, respectively. In addition, our guidance was based on 2013 first quarter and full year currency
rates of $1.30 to the euro, $1.61 to sterling and $1.05 to the Australian dollar. The fuel and currency assumptions used in our guidance change daily and,
accordingly, our forecasts change daily based on the changes in these assumptions.
We believe it is more meaningful to evaluate our earnings performance by excluding the impact of unrealized gains and losses on fuel derivatives from non-
GAAP diluted EPS. Therefore, we will not include any future estimates of unrealized gains and losses on fuel derivatives in our non-GAAP EPS guidance.
However, we will forecast realized gains and losses on fuel derivatives by applying current Brent prices to the derivatives that settle in the forecast period.
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