SEC Company Response from CARNIVAL CORP (CCL) (CIK 0000815097) (CCL) — Apr 29, 2008
CARNIVAL CORP (CCL) (CIK 0000815097)
Date: April 29, 2008 · CIK: 0000815097 · Accession: 0001169232-08-001774
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-09610, 001-15136
Referenced dates: March 20, 2008
Letter
Securities and Exchange Commission Division of Corporate Finance Attention: Mr. David Humphrey Carnival Corporation/Carnival plc (“we” or the “Company”) Form 10-K for the Year Ended November 30, File No. 001-09610 and 001-15136
RE:
Dear Mr. Humphrey:
The staff of the Securities and Exchange Commission reviewed the Company’s Form 10-K for the year ended November 30, 2007 and transmitted their comments in your letter dated March 20, 2008 (the “Comment Letter”). We set out below our responses to the staff’s comments on behalf of the Company. For ease of reference, we have reproduced each of the staff’s comments and followed it with the Company’s response:
Form 10-K for the year ended November 30, 2007
Notes to consolidated financial statements
General
1.
We note you use the U.S. dollar as your reporting currency, and present all amounts in your financial statements as such. However, throughout the financial statement notes, you have presented disclosure of certain transactions (debt, acquisitions) in the currency in which they were transacted, without consistently presenting the U.S. dollar equivalent. This not only causes inconsistencies within the document, but makes it difficult for the reader to compare disclosed amounts to those presented in the financial statements. Although we are aware that presentation of a U.S. dollar equivalent will, in some cases, require an estimate, the disclosure of the U.S. dollar equivalent is important for consistency and clarity within the document. Please revise accordingly.
RESPONSE: In future filings, we will adopt a format in which all disclosures will be in U.S. dollars and, when considered relevant, we will subsequently provide the foreign currency equivalent in parentheses. In addition, as discussed with the staff, the currency presentation of our ship commitment disclosure in Note 6 on page F-15 will remain unchanged. Within this note, our individual ship commitments are disclosed in their contracted currencies, as adjusted for the impact of foreign currency derivatives, and we also provide these adjusted contracted currency totals and their U.S. dollar equivalents, translated at the period end rate. We believe this format of disclosing our individual ship construction commitments provides investors with useful information regarding our most significant commitments.
Note 2 – Summary of significant accounting policies
Cash and Cash Equivalents and Short-Term Investments, page F-6
2.
We note from the cash flow statement that significant purchases and sales of short-term investments occurred in the most recent fiscal year. We assume that you classify and account for these securities as available-for-sale securities and that there are no significant unrealized holding gains or losses at either of the balance sheet dates. If our assumptions are not correct, please explain. Please also expand your related disclosures in future filings. If these securities are “auction-rate” securities, further clarify this fact as well.
RESPONSE: The staff’s assumptions are correct. During the year, we invested in, and divested, auction-rate securities which we held as available-for-sale securities as part of our cash management program. At the beginning and end of the year, the amount we had invested in these securities was nil and $20 million, respectively, and we had recorded a $5 million unrealized loss in accumulated other comprehensive income as of the end of 2007. At November 30, 2007, our one remaining auction-rate security was reported within long-term “Other Assets,” as the auction had failed in November 2007 and we believe full recovery of this investment will extend beyond one year. We have the ability and intent to hold this security until maturity, if necessary. In future filings, we will expand our disclosure to note that our investments are held as available-for-sale securities and we will also disclose our auction rate security holding, if material.
Revenue and expense recognition, page F-8
3.
We note your policy of recognizing revenue upon the completion of voyages up to ten days, and on a pro rata basis for voyages over ten days. Please explain the difference in revenue recognition policies for two seemingly similar transactions.
RESPONSE: There is no difference between these two types of transactions other than the duration of the voyage and the corresponding difference in revenues and expenses incurred by longer duration cruises.
For convenience, we have adopted a completed voyage revenue and expense recognition policy for short duration voyages (10 nights or less) versus the pro rata revenue and expense recognition method for longer duration voyages.
Completed voyage revenue and expense recognition results in significantly fewer estimates. In addition, it is less burdensome. Furthermore, since the financial impact of accounting under the completed voyage method versus using the pro rata revenue and expense recognition method does not produce materially different results, we believe the use of the completed voyage method for shorter duration cruises is reasonable. However, it would be possible to have a significant distortion in revenue and expense recognition between quarters, if we used the completed voyage revenue and expense recognition method on longer voyages. Therefore, we use pro rata revenue and expense recognition for our longer voyages.
Our use of two different revenue and expense recognition methods is somewhat analogous to the use within the construction industry of the completed contract revenue and expense recognition method for short duration contracts versus the percentage-of-completion method for long duration contracts or the methods described in EITF 91-9, Revenue and Expense Recognition for Freight Services in Process, which have been applied within the transportation industry.
4.
We further note your policy of recognizing air and other transportation sales on a gross basis, in revenues and expenses. However, you recognize excursion and concession sales on a net basis as a component of revenues. Please explain the difference between these two types of sales which leads to recognizing one on a gross basis and the other on a net basis. Please specifically address the various indicators specified under EITF 99-19 in your response.
RESPONSE:
The main features for each of these services are as follows:
Air and other transportation - This service includes air transportation, ground transfers between the airport and ship, baggage handling and overnight accommodations, when necessary. We purchase the air component of this service in three ways as follows: (1) by blocking the seats in advance of sales to our guests, (2) by
chartering part or all of the aircrafts’ seats or (3) on an individual seat basis as guests book their cruises. We also determine the price to charge our guests for this combination of services, which is packaged with the cruise to create a bundled vacation package.
Shore excursions - We typically pay the shore excursion operators a fixed amount for each guest booked on the tour and establish the price we will offer to our guests. The operator is responsible for all aspects of providing the tour and supplies the personnel and equipment for delivering the service. The operator is typically liable to the guest for providing the service as an independent contractor and is required to maintain adequate insurance coverage to cover this risk.
In the case of shore excursions, our cruise brochures typically identify that shore excursions are optional and are operated by local independent companies. For example, Princess Cruises’ brochure includes the following statement:
“Shore Excursions and Land Tours. These tours are operated by local independent companies. In selling tickets for these optional programs, Princess acts only for other independent companies who provide such programs as independent contractors...........”
Onboard concessions - We enter into agreements with concession operators who supply their own inventory and employees to operate their onboard concession. In return for providing the space onboard our ships and the access to our guests, we receive a percentage of the concessionaires’ revenues, subject to guaranteed minimums.
An analysis of our typical arrangements in terms of the indicators in EITF 99-19 is as follows:
Air and other transportation
Shore excursions
Onboard concessions
As a percentage of total fiscal 2007 revenues
6%
3%
3%
Gross indicators
The company is the primary obligor in the arrangement
Yes1
No
No
The company has general inventory risk (before customer order is placed or upon customer return)
Yes2
No
No
The company has latitude in establishing price
Yes1
Yes
No
The company changes the product or performs part of the service
Yes 1
No
No
The company has discretion in supplier selection
Yes
Yes
Yes
The company is involved in the determination of product or service specifications
Yes1
Partially3
Partially3
The company has physical loss inventory risk (after customer order or during shipping)
N/A
N/A
No
The company has credit risk
Mimimal4
Minimal5
Minimal 5
Net indicators
The supplier (not the company) is the primary obligor in the arrangement
No1
Yes
Yes
The amount the company earns is fixed
No
No
Yes
The supplier (and not the company) has credit risk
Mimimal6
Mimimal6
Mimimal6
See notes to table on page 4.
We package air with our other transportation services and with our cruises, thus creating a bundled vacation package for our guests for which we establish the sales price(s). We coordinate and pay for guests’ arrival to the ship at its next port of call, if guests experience air delays or interruptions. If the air travel that is arranged is unavailable or fails to materialize we, rather than the air carrier, will be responsible for refunding the guest their monies that they paid us for this component of the service.
We reserve a certain number of seats in advance of each voyage when we purchase the air component by blocking seats. We commit to the number of seats we will utilize within a certain number of days prior to our ship departures, and we are assessed for penalties if these seats are not ultimately used by our guests, and thus we have inventory risk. In addition, we have cruise itineraries for which we charter air, and for these arrangements we are exposed to many of the inventory risks and rewards.
We specify minimum standards for the operators.
We extend credit to some of our travel agents and tour operators, mainly in Europe, and consequently we are exposed to their credit risk.
Credit card pre-approval is obtained for all guests’ onboard accounts, or cash deposits are obtained, which mitigates
Show Raw Text
CORRESP
1
filename1.htm
April 29, 2008
Securities and Exchange Commission
Division of Corporate Finance
100
F. Street, N.E.
Washington, D.C. 20549-0305
Attention: Mr. David Humphrey
RE:
Carnival Corporation/Carnival plc (“we” or
the “Company”)
Form 10-K for the Year Ended November 30,
2007
File No. 001-09610 and 001-15136
Dear
Mr. Humphrey:
The staff of the Securities and Exchange Commission reviewed the
Company’s Form 10-K for the year ended November 30, 2007 and transmitted their
comments in your letter dated March 20, 2008 (the “Comment Letter”). We set
out below our responses to the staff’s comments on behalf of the Company. For
ease of reference, we have reproduced each of the staff’s comments and followed
it with the Company’s response:
Form 10-K for the year ended November 30, 2007
Notes to consolidated financial statements
General
1.
We note you use the U.S. dollar as your reporting
currency, and present all amounts in your financial statements as such.
However, throughout the financial statement notes, you have presented
disclosure of certain transactions (debt, acquisitions) in the currency
in which they were transacted, without consistently presenting the U.S.
dollar equivalent. This not only causes inconsistencies within the
document, but makes it difficult for the reader to compare disclosed
amounts to those presented in the financial statements. Although we are
aware that presentation of a U.S. dollar equivalent will, in some
cases, require an estimate, the disclosure of the U.S. dollar
equivalent is important for consistency and clarity within the
document. Please revise accordingly.
RESPONSE: In future filings, we will adopt a format in which all
disclosures will be in U.S. dollars and, when considered relevant, we will subsequently
provide the foreign currency equivalent in parentheses. In addition, as discussed with
the staff, the currency presentation of our ship commitment disclosure in Note 6 on
page F-15 will remain unchanged. Within this note, our individual ship commitments are
disclosed in their contracted currencies, as adjusted for the impact of foreign
currency derivatives, and we also provide these adjusted contracted currency
totals and their U.S. dollar equivalents, translated at the period end rate. We believe
this format of disclosing our individual ship construction commitments provides
investors with useful information regarding our most significant
commitments.
Note 2 – Summary of significant accounting
policies
Cash and Cash Equivalents and Short-Term Investments, page
F-6
2.
We note from the cash flow statement that significant
purchases and sales of short-term investments occurred in the most
recent fiscal year. We assume that you classify and account for these
securities as available-for-sale securities and that there are no
significant unrealized holding gains or losses at either of the balance
sheet dates. If our assumptions are not correct, please explain. Please
also expand your related disclosures in future filings. If these
securities are “auction-rate” securities, further clarify
this fact as well.
RESPONSE: The staff’s assumptions are correct. During the year, we
invested in, and divested, auction-rate securities which we held as available-for-sale
securities as part of our cash management program. At the beginning and end of the
year, the amount we had invested in these securities was nil and $20 million,
respectively, and we had recorded a $5 million unrealized loss in accumulated other
comprehensive income as of the end of 2007. At November 30, 2007, our one remaining
auction-rate security was reported within long-term “Other Assets,” as the
auction had failed in November 2007 and we believe full recovery of this investment
will extend beyond one year. We have the ability and intent to hold this security until
maturity, if necessary. In future filings, we will expand our disclosure to note that
our investments are held as available-for-sale securities and we will also disclose our
auction rate security holding, if material.
Revenue and expense recognition, page F-8
3.
We note your policy of recognizing revenue upon the
completion of voyages up to ten days, and on a pro rata basis for
voyages over ten days. Please explain the difference in revenue
recognition policies for two seemingly similar
transactions.
RESPONSE: There is no difference between these two types of transactions
other than the duration of the voyage and the corresponding difference in revenues and
expenses incurred by longer duration cruises.
For convenience, we have adopted a completed voyage revenue and expense
recognition policy for short duration voyages (10 nights or less) versus the pro rata
revenue and expense recognition method for longer duration voyages.
Completed voyage revenue and expense recognition results in
significantly fewer estimates. In addition, it is less burdensome. Furthermore, since
the financial impact of accounting under the completed voyage method versus using the
pro rata revenue and expense recognition method does not produce materially different
results, we believe the use of the completed voyage method for shorter duration cruises
is reasonable. However, it would be possible to have a significant distortion in
revenue and expense recognition between quarters, if we used the completed voyage
revenue and expense recognition method on longer voyages. Therefore, we use pro rata
revenue and expense recognition for our longer voyages.
Our use of two different revenue and expense recognition methods is
somewhat analogous to the use within the construction industry of the completed
contract revenue and expense recognition method for short duration contracts versus the
percentage-of-completion method for long duration contracts or the methods described in
EITF 91-9, Revenue and Expense Recognition for Freight
Services in Process, which have been applied within the
transportation industry.
4.
We further note your policy of recognizing air and
other transportation sales on a gross basis, in revenues and expenses.
However, you recognize excursion and concession sales on a net basis as
a component of revenues. Please explain the difference between these
two types of sales which leads to recognizing one on a gross basis and
the other on a net basis. Please specifically address the various
indicators specified under EITF 99-19 in your response.
RESPONSE:
The main features for each of these services are as
follows:
Air and other transportation - This service includes air transportation,
ground transfers between the airport and ship, baggage handling and overnight
accommodations, when necessary. We purchase the air component of this service in three
ways as follows: (1) by blocking the seats in advance of sales to our guests, (2)
by
2
chartering part or all of the aircrafts’ seats or (3) on an
individual seat basis as guests book their cruises. We also determine the price to
charge our guests for this combination of services, which is packaged with the cruise
to create a bundled vacation package.
Shore excursions - We typically pay the shore excursion operators a
fixed amount for each guest booked on the tour and establish the price we will offer to
our guests. The operator is responsible for all aspects of providing the tour and
supplies the personnel and equipment for delivering the service. The operator is
typically liable to the guest for providing the service as an independent contractor
and is required to maintain adequate insurance coverage to cover this risk.
In the case of shore excursions, our cruise brochures typically identify
that shore excursions are optional and are operated by local independent companies. For
example, Princess Cruises’ brochure includes the following statement:
“Shore Excursions and Land Tours. These tours are operated by
local independent companies. In selling tickets for these optional programs, Princess
acts only for other independent companies who provide such programs as independent
contractors...........”
Onboard concessions - We enter into agreements with concession operators
who supply their own inventory and employees to operate their onboard concession. In
return for providing the space onboard our ships and the access to our guests, we
receive a percentage of the concessionaires’ revenues, subject to guaranteed
minimums.
An analysis of our typical arrangements in terms of the
indicators in EITF 99-19 is as follows:
Air and other transportation
Shore excursions
Onboard concessions
As a percentage of total fiscal 2007 revenues
6%
3%
3%
Gross indicators
The company is the primary obligor in the
arrangement
Yes1
No
No
The company has general inventory risk (before customer
order is placed or upon customer return)
Yes2
No
No
The company has latitude in establishing
price
Yes1
Yes
No
The company changes the product or performs part of the
service
Yes 1
No
No
The company has discretion in supplier
selection
Yes
Yes
Yes
The company is involved in the determination of product
or service specifications
Yes1
Partially3
Partially3
The company has physical loss inventory risk (after
customer order or during shipping)
N/A
N/A
No
The company has credit risk
Mimimal4
Minimal5
Minimal 5
Net indicators
The supplier (not the company) is the primary obligor in
the arrangement
No1
Yes
Yes
The amount the company earns is fixed
No
No
Yes
The supplier (and not the company) has credit
risk
Mimimal6
Mimimal6
Mimimal6
See
notes to table on page 4.
3
1
We package air with our other transportation services and
with our cruises, thus creating a bundled vacation package for our guests
for which we establish the sales price(s). We coordinate and pay for
guests’ arrival to the ship at its next port of call, if guests
experience air delays or interruptions. If the air travel that is arranged
is unavailable or fails to materialize we, rather than the air carrier,
will be responsible for refunding the guest their monies that they paid us
for this component of the service.
2
We reserve a certain number of seats in advance of each
voyage when we purchase the air component by blocking seats. We commit
to the number of seats we will utilize within a certain number of days
prior to our ship departures, and we are assessed for penalties if
these seats are not ultimately used by our guests, and thus we have
inventory risk. In addition, we have cruise itineraries for which we
charter air, and for these arrangements we are exposed to many of the
inventory risks and rewards.
3
We specify minimum standards for the
operators.
4
We extend credit to some of our travel agents and tour
operators, mainly in Europe, and consequently we are exposed to their
credit risk.
5
Credit card pre-approval is obtained for all
guests’ onboard accounts, or cash deposits are obtained, which
mitigates