CASH REFUNDS - THEY JUST DON'T HAVE THE CASH

[Formula280SS]

There are a number of threads on numerous forum cruise lines about cash refunds, available or not, how long, etc. versus future cruise credits and related topics.

 

There is a really good reason (I for one did not know this prior to this pandemic).  Customer deposits, advance payments, etc. are huge in relation to the cash available.  I did not know the extent to which cruise lines used such for basically free financing.

 

Here is a look at the top three, CCL, RCL and NCLH.

 

 

They just don't have the cash.

[njhorseman]

1 hour ago, Formula280SS said:

There are a number of threads on numerous forum cruise lines about cash refunds, available or not, how long, etc. versus future cruise credits and related topics.

 

There is a really good reason (I for one did not know this prior to this pandemic).  Customer deposits, advance payments, etc. are huge in relation to the cash available.  I did not know the extent to which cruise lines used such for basically free financing.

 

Here is a look at the top three, CCL, RCL and NCLH.

 

 

They just don't have the cash.

It's not as if this is a surprise, and it's been discussed on other threads. 

 

Of course those numbers were from well before the current crisis arose. Since then all three companies have significantly pumped up their cash on hand. 

 

Carnival raised around $6 billion through sale of stock and high interest  notes. 

 

 NCL raised $1.55 billion secured by the Epic, as well as reducing their 2020 debt service obligations by negotiating a credit holiday on the financing of six ships, which will mean a lesser drain on their cash during the year. They are also reportedly have hired Goldman Sachs to seek financing for the company, which may include private equity investment in NCLH .

 

Royal Caribbean entered a $2.2 billion secured loan facility and subsequently another $3.48 billion in financing.

 

Of course there's also been a significant draw down of cash since the above referenced 10-Ks and 10-Q were filed, so it will be interesting to see what the next 10-Qs show.

Edited April 26, 2020 by njhorseman

[Formula280SS]

2 hours ago, njhorseman said:

It's not as if this is a surprise, and it's been discussed on other threads. 

 

Of course those numbers were from well before the current crisis arose. Since then all three companies have significantly pumped up their cash on hand. 

 

Yep, next up for SEC financial reporting will be RCL and NCLH for 3/31/2020 and then CCL 5/30/2020.

 

The amount of Customer Deposits will be interesting.

 

Also, the Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cautionary Note Concerning Factors That May Affect Future Results" will also be interesting.

 

2 hours ago, njhorseman said:

Carnival raised around $6 billion through sale of stock and high interest  notes. 

 

 NCL raised $1.55 billion secured by the Epic, as well as reducing their 2020 debt service obligations by negotiating a credit holiday on the financing of six ships, which will mean a lesser drain on their cash during the year. They are also reportedly have hired Goldman Sachs to seek financing for the company, which may include private equity investment in NCLH .

 

Royal Caribbean entered a $2.2 billion secured loan facility and subsequently another $3.48 billion in financing.

 

Yes, I've read such.  It would be interesting to read if, in the debentures and financing agreements if the funds are restricted in any way to future operating costs.  It's mathematical that all of the new funds raised could be significantly depleted if they were used to refund all customer deposits.

 

I wonder if any cruise line will get creative with the future cruise credit and treat it with incremental value; like factored.  If CCL has to pay 11% in interest cost, it would be attractive to have the FCC increase 1% per month (just a thought).  I am aware some are offering different FFC+ arrangement in lieu of cash refunds currently.

 

Regarding NCLH securing Goldman Sachs, not a fan of that idea at all.

 

2 hours ago, njhorseman said:

 

Of course there's also been a significant draw down of cash since the above referenced 10-Ks and 10-Q were filed, so it will be interesting to see what the next 10-Qs show.

 

[SeaShark]

3 hours ago, Formula280SS said:

There are a number of threads on numerous forum cruise lines about cash refunds, available or not, how long, etc. versus future cruise credits and related topics.

 

There is a really good reason (I for one did not know this prior to this pandemic).  Customer deposits, advance payments, etc. are huge in relation to the cash available.  I did not know the extent to which cruise lines used such for basically free financing.

 

Here is a look at the top three, CCL, RCL and NCLH.

 

 

They just don't have the cash.

 

 

Two questions...

 

1) Is this the Customer Deposits number for ALL cruises or just for those under the COVID-19 cancellation period?

 

2) Is this the Customer Deposits number for ALL cruises or just for those customers who are requesting a refund?

 

I would assume that they only need to refund just the cancelled cruises during the COVID-19 period where people are requesting a refund instead of an FCC. Also assuming that they carry no business continuity insurance that would cover them in case something like this happens.

[Formula280SS]

3 minutes ago, SeaShark said:

 

 

Two questions...

 

1) Is this the Customer Deposits number for ALL cruises or just for those under the COVID-19 cancellation period?

 

2) Is this the Customer Deposits number for ALL cruises or just for those customers who are requesting a refund?

 

I would assume that they only need to refund just the cancelled cruises during the COVID-19 period where people are requesting a refund instead of an FCC. Also assuming that they carry no business continuity insurance that would cover them in case something like this happens.

 

Well, as prior reply member noted, these are the pre-COVID annual 10K and quarterly 10Q amounts.

 

You raise a really interesting point, in a number of regards:

 

1.  Customer Deposits appears to be one, big aggregated amount (historically); we don't know much else.

 

2.  IMO, it would appropriate for the amount on the Balance Sheet reference to a 'detailed, stratified, etc. categories based upon a number of elements in the Footnotes to Financial Statements.

 

My attempt at example.  😷

 

 

Thanks for the reply.

 

 

[njhorseman]

48 minutes ago, Formula280SS said:

 

Well, as prior reply member noted, these are the pre-COVID annual 10K and quarterly 10Q amounts.

 

You raise a really interesting point, in a number of regards:

 

1.  Customer Deposits appears to be one, big aggregated amount (historically); we don't know much else.

 

2.  IMO, it would appropriate for the amount on the Balance Sheet reference to a 'detailed, stratified, etc. categories based upon a number of elements in the Footnotes to Financial Statements.

 

My attempt at example.  😷

 

 

Thanks for the reply.

 

 

Of course internally they know all that. Or if the CEO doesn't, then the CFO should be fired...and for that matter the CEO should be fired for not knowing that he needs to know that. 

 

As a retired actuary I'm always amazed by how little data is actually provided in the 10-K and 10-Q. Insurance companies have to file incredibly detailed Annual Statements with the National Association of Insurance Commissioners (NAIC) and state insurance departments that in terms of data make  10-Ks look like the monthly bank statement for your personal checking account in comparison.

[jbcallender]

3 hours ago, njhorseman said:

Of course internally they know all that. Or if the CEO doesn't, then the CFO should be fired...and for that matter the CEO should be fired for not knowing that he needs to know that. 

 

As a retired actuary I'm always amazed by how little data is actually provided in the 10-K and 10-Q. Insurance companies have to file incredibly detailed Annual Statements with the National Association of Insurance Commissioners (NAIC) and state insurance departments that in terms of data make  10-Ks look like the monthly bank statement for your personal checking account in comparison.

There is no accounting disclosure requirement to layer customer deposits, only if they are refundable within one year, they are presented as a current liability.  I honestly don't know the exact cancellation policy, but I am guessing most of the balance would be a current liability.  That would be based on whether they could be subject to refund within one year, not whether the date of the cruise is within one year.

 

As an accountant, I would have expected the cash balances to be a little higher, especially since you are working off a $1.9 billion funding source of customer deposits.  I would have to see some of the other financial ratios and what other liquid assets they have at their disposal.  What does receivables look like?  It doesn't seem that they would have a lot of receivables, but there may be a specialty cruise, charter and convention cruise component that generate significant receivables.

 

These are 2019 statements, pre-covid and would presumably be a "normal" balance sheet presentation after several good years for the cruise industry.  That only says the situation now is now quite a bit more tenuous.

 

For the future, I would want to know what percentage of customers are rebooking and how many are getting refunds.  Obviously the key is converting the re-books at what so far appears  to be a higher price...   

 

[njhorseman]

10 hours ago, jbcallender said:

There is no accounting disclosure requirement to layer customer deposits, only if they are refundable within one year, they are presented as a current liability.  I honestly don't know the exact cancellation policy, but I am guessing most of the balance would be a current liability.  That would be based on whether they could be subject to refund within one year, not whether the date of the cruise is within one year.

 

As an accountant, I would have expected the cash balances to be a little higher, especially since you are working off a $1.9 billion funding source of customer deposits.  I would have to see some of the other financial ratios and what other liquid assets they have at their disposal.  What does receivables look like?  It doesn't seem that they would have a lot of receivables, but there may be a specialty cruise, charter and convention cruise component that generate significant receivables.

 

These are 2019 statements, pre-covid and would presumably be a "normal" balance sheet presentation after several good years for the cruise industry.  That only says the situation now is now quite a bit more tenuous.

 

For the future, I would want to know what percentage of customers are rebooking and how many are getting refunds.  Obviously the key is converting the re-books at what so far appears  to be a higher price...   

 

I made my comments from the point of view of someone who worked n a highly regulated business, insurance. We had to abide by a whole different set of accounting practices, called statutory accounting principles, for purposes of the reporting mandated by the NAIC. We used to joke about having three sets of books, statutory, GAAP, and internal management as opposed to most other businesses that only had two, GAAP and internal. Of course it wasn't really a joke, it was true, but it arose from common finger pointing from the public at large about the industry having two sets of books. We knew it was really three.

 

As far as NCLH's current assets, as of 12/31/19 accounts receivable were only $75 million, inventories $95 million and prepaid expenses and other assets of $307 million. Added to cash of $253 million, total current assets were $730 million. For current liabilities, in addition to addition to the $1.955 billion advance ticket sales, there were $746 million current portion of long term debt, accounts payable of $101 million and accrued expenses and other liabilities of $782 million, for total current liabilities of $3.584 billion.

 

The bottom line is that total current assets amount to only 20% of current liabilities, not much better than the ratio of cash to customer deposits presented in the original post.

 

NCLH just received a debt holiday from Germany's export bank for their six newest ships. This will reduce the current portion of NCLH's long term debt by $386 million.

[wakey16]

17 hours ago, SeaShark said:

 

 

Two questions...

 

1) Is this the Customer Deposits number for ALL cruises or just for those under the COVID-19 cancellation period?

 

2) Is this the Customer Deposits number for ALL cruises or just for those customers who are requesting a refund?

 

I would assume that they only need to refund just the cancelled cruises during the COVID-19 period where people are requesting a refund instead of an FCC. Also assuming that they carry no business continuity insurance that would cover them in case something like this happens.

I am curious how you came about the latitudes pins, I assume these are for NCL

 

[wakey16]

19 hours ago, SeaShark said:

 

 

Two questions...

 

1) Is this the Customer Deposits number for ALL cruises or just for those under the COVID-19 cancellation period?

 

2) Is this the Customer Deposits number for ALL cruises or just for those customers who are requesting a refund?

 

I would assume that they only need to refund just the cancelled cruises during the COVID-19 period where people are requesting a refund instead of an FCC. Also assuming that they carry no business continuity insurance that would cover them in case something like this happens.

Just realised I do have some, forgot about them as had them quite some time.

 

[delaware32]

Bottom line , were completely refunded in under 3 weeks . Yea !

[Formula280SS]

1 hour ago, delaware32 said:

Bottom line , were completely refunded in under 3 weeks . Yea !

 

Nice.

 

Can you help us out with some details?

 

Was it a deposit?

 

Was it partial or full payment?

 

What was the cruise ship and date?

 

Thank you.

[delaware32]

We were paid in full for the 9/20/2020 Getaway trip out of Rome . We used a Cruise Next certificate as a deposit . Everything was refunded . The Cruise Next certificate was back in my My NCL account in less than a week .

[jbcallender]

13 hours ago, njhorseman said:

I made my comments from the point of view of someone who worked n a highly regulated business, insurance. We had to abide by a whole different set of accounting practices, called statutory accounting principles, for purposes of the reporting mandated by the NAIC. We used to joke about having three sets of books, statutory, GAAP, and internal management as opposed to most other businesses that only had two, GAAP and internal. Of course it wasn't really a joke, it was true, but it arose from common finger pointing from the public at large about the industry having two sets of books. We knew it was really three.

 

As far as NCLH's current assets, as of 12/31/19 accounts receivable were only $75 million, inventories $95 million and prepaid expenses and other assets of $307 million. Added to cash of $253 million, total current assets were $730 million. For current liabilities, in addition to addition to the $1.955 billion advance ticket sales, there were $746 million current portion of long term debt, accounts payable of $101 million and accrued expenses and other liabilities of $782 million, for total current liabilities of $3.584 billion.

 

The bottom line is that total current assets amount to only 20% of current liabilities, not much better than the ratio of cash to customer deposits presented in the original post.

 

NCLH just received a debt holiday from Germany's export bank for their six newest ships. This will reduce the current portion of NCLH's long term debt by $386 million.

The old CPA joke..q: How much is 2 plus 2? A: What did you have in mind?  M apologies to the AICPA.

 

Yes, I wouldn't think A/R would be a lot.   That's an ugly quick ratio.  You can't liquidate inventories, that's all food, booze, linen, china, glass and silverware on your boats.  Prepaids are already cash out the door.  Basically, future sales are funding your current expenses.  As long as the process  doesn't stop, you can survive,  but you're one pandemic away from oblivion.