What Went Wrong on Those Carnival Cruise Ships

[npcl]

1 minute ago, CruiserBruce said:

Are you considering the $4.5 billion in deposits as cash on hand, or just liabilities?

the 4.5 billion were short term liabilities.  Basically cash was going out the door as fast as the deposits were coming in.  

 

The only cash at the end of the year was $500 million

 

Though at the end of Feb cash was higher around 1.1 billion if I remember correctly, but deposits was actually higher at 4.6 billion.

[fishin' musician]

10 minutes ago, npcl said:

When this stated CCL had about $500 million in cash and over 4.5 Billion is customer deposits.  with current liabilities running 5X current assets.

 

On the other hand United airlines for example had more in cash or equivalent than they did in customer deposits.

 

Understandable as the two industries have completely different payment models.  Does United Airlines even take deposits?

 

[npcl]

Just now, fishin' musician said:

 

Understandable as the two industries have completely different payment models.  Does United Airlines even take deposits?

 

Yes when ever you book a ticket and pay for it in advance,  that is the equivalent as a cruise ship deposit.  On some airlines the line item is advance ticket sales, but functionally it is the same purpose as cruise lines deposits for cruise lines it represents monies received for cruises not yet taken, for airlines it is tickets sold for flights not yet flown.

[bluesea321]

10 minutes ago, npcl said:

When this stated CCL had about $500 million in cash and over 4.5 Billion is customer deposits.  with current liabilities running 5X current assets.

 

I was aware that CCL had about $500 million in cash prior to the new debt/stock offerings however I was not aware of the $4.5 Billion in customer deposits.  Can you point me to a source?

[fishin' musician]

Is that 4.6 billion in deposits or receivables?

[npcl]

1 minute ago, CarelessAndConfused said:

 

A lot of that 4.5 billion is for the future, even all the way out to 2022.  And a lot of that hasn't and may not ever need to be dealt with in a refund fashion.  Of the refund related liabilities, a lot of it rolled over permanently as a non-cash liability in the last few weeks.  Who could say what the true cash liability is that they will ultimately have to give back, but it's a substantially less than 4.5 billion.

 

 

I have to disagree on you comment. that

 

Do a lot of people pay for their cruise in full more than a year in advance?

 

Considering that the cruise lines in general require full payment around 75 days in advance I will point out that in 2019 CCL received 14.1 billion in fare revenue.  If everyone paid at the last possible second 75 days is 20.5% of a year so that would mean that at least 2.9 billion is money for cruises within the final payment date.  Since some TA's set it at 90 days and since most pay a little in advance  the amount is probably more like 3.5 billion. All of that money certainly will be refunded or converted.  Based upon CCL's own comments they have been successful in converting 45% of their refunds to FCCs. so that would leave the amount in cash refunds for a 3 month period to be 1.6 to 1.9 billion to be refunded.  Quite a bit more than their cash on hand.

 

 

 

 

[npcl]

6 minutes ago, fishin' musician said:

Is that 4.6 billion in deposits or receivables?

liabilities carried on the books indicating money received for cruises not yet take.  Basically money they would owe if the cruises did not occur.

[npcl]

1 minute ago, CarelessAndConfused said:

 

The $4.6 billion is an aggregate total for all future cruises that CCL has received from cruiser deposits and payments.  For instance, if I pay $5,000 to take a cruise,  CCL records that as a deferred revenue in the current liabilities of their balance sheet.

 

So in a word, the 4.6 billion is a "liability".  It represents a total of all of the deposits or partial/full payments that they have received PRIOR to the sail date.

 

While cruise lines normally issues one off refunds here and there due to various individual circumstances, for the most part, the "liability" gets relieved by the cruise line by providing the cruise on the scheduled date.  So if they have $3 million total deposits and fare payments on hand when the ship sails, after it docks, CCL no longer has that $3 million as a "liability" and transfers the money to "revenue".  Of course the issue at the moment is that they have tons more cash refunds to deal with then they normally would. 

No there is not money to transfer.  There is a paper transaction when revenue is recognized, but there is not additional cash when that takes place.  Revenue recognition and cash flow are two totally different thing.  They could recognize all of the revenue represented by the deposits received and it would not add one cent of cash to their balance sheet.

 

If you look at all of the CCL 10Ks that amount is consistent.

The 4.5 billion was from the last 10k in December

the 4.6 was from the last 10Q in late Feb, before the cancellations.

[npcl]

4 minutes ago, CarelessAndConfused said:

 

There is no doubt that there is a high correlation between near to sail date and the dispersion of the deposits.  I for one do pay well in advance but that's not the point.  I'm injecting all of the variables in that liability figure.  And a fair amount of it, even if not most, is going to relate to all of those deposits and some advance payments well into the future.

Not well into the future most is accounted for by the final payment date calculations. less than 25% of that total is for deposits longer than 3 months out.

 

 

[npcl]

1 minute ago, CarelessAndConfused said:

 

Nobody ever stated that there is "money to transfer".  And there is no "paper" transaction.  It is merely a journal entry in a computer screen and is usually recorded in mass and not on an individual basis though I couldn't speak to CCL or cruise lines specifically.  As a CPA and MBA, I perfectly understand what revenue recognition and cash flow are.  I have no idea what you are responding to when you write such comments.

 

 

You used the phrase "transfers the money to "revenue"", I was just pointing out that there is no actual cash to transfer, as I said a paper transaction or in your terms a journal transaction.

 

Bottom line the cruise lines did not have anywhere near enough cash to cover the refunds needed prior to their effort to raise 6.25 billion in their bond and stock sale.  

[ontheweb]

1 hour ago, npcl said:

The Diamond had a higher rate of infection 700 out of 3500 compared to 800 out of 5000

OK, and how about the rate at nursing homes? And what about the rate at prisons?

[bluesea321]

2 minutes ago, ontheweb said:

OK, and how about the rate at nursing homes? And what about the rate at prisons?

 

I know what you are saying but I don't think the cruise industry would want to advertise that "they are better than nursing homes and prisons".

[ontheweb]

1 minute ago, bluesea321 said:

 

I know what you are saying but I don't think the cruise industry would want to advertise that "they are better than nursing homes and prisons".

I have not heard Dr. Fauci say prisons should be emptied for at least 100 days or until they comply with CDC guidelines.

 

And I understand that nursing homes have a very fragile population, but they also should be much more medically prepared than cruise ships.

[npcl]

36 minutes ago, CarelessAndConfused said:

 

"money", "balance", "amount", "amortizable amount", "rev rec amount", etc. these are all interchangeable accounting terms that are used in such instances.  No question that at least CCL (as I don't know or care about the status of others at the moment) did not have enough cash.  That's why you won't find one critical post from me prior to April, when they raised the bond financing.  But I'm not sure what that has to do with then and now.

You raised the question of the deposit liabilities being long term, I was just pointing out that most is current quarter.

 

Since most here are not accountants, I was just point out that money in that case did not mean actual money.

 

Sounds like we are in to use a term "violent agreement"  arguing about something, but basically saying the same thing.

Edited April 27, 2020 by npcl

[npcl]

5 minutes ago, ontheweb said:

I have not heard Dr. Fauci say prisons should be emptied for at least 100 days or until they comply with CDC guidelines.

 

And I understand that nursing homes have a very fragile population, but they also should be much more medically prepared than cruise ships.

Not really nursing homes have issues with training and staffing even at the best of times.  

[hobbyfarmer2]

Fact is after SARS(1), MERS, Swine Flu (H1N1) & Ebola and numerous warnings from the very smart people educated with $$$ to know these things;

 

We got caught with our pants down.  Fact.

 

I, for one,  am mad as hell.  Makes me wonder about the answer to the age old question.  Is government in a democracy a reflection of the citizenry or the other way around?

[Roberto256]

6 hours ago, EscapeFromConnecticut said:

Coral has a criminal investigation under way in Australia ... the others cases deserve no less.

 

Ruby.

 

...which has "Escaped Completely" for the Phillipines.

 

Maybe Princess should swap back to their old slogan:  "Where I went wrong."

 

[hobbyfarmer2]

29 minutes ago, CarelessAndConfused said:

 

Good points.  But even on a pragmatic level, why are travel companies not forced to escrow deferred revenue funds.  I understand that the industry norm is for them to use that for cash flow but I think a legislation is required as I don't want to see money that DOESN'T belong to them go toward dividend payouts, stock buybacks, and general operating expenses.  Let them take a couple months to catch up when all is right and then have them operate out of their own pockets and not out of DEPOSITS they have taken from consumers.

 

 

My guess is that escrowing funds would drive the cost of cruising up quite a bit due to the hit in available operating funds.  The cruise lines might have to raise costs and/or borrow to meet day to day needs.  I do admit that I am not an expert on cruise line accounting.  DW and I are fortunate in that we only use discretionary funds to cruise so a loss is not a big thing for us, esp. if it means we can cruise in the future with a sound company.

[Flatbush Flyer]

5 hours ago, CruiserBruce said:

 If you think a company has 100% of the money on hand to refund months worth of bookings...you aren't understanding how companies work.

If they don't have the refund money they will be in violation of their U.S. Federal Maritime Commission licensure to operate in the US.

[AF-1]

CruiserBruce;  thank you for your reply.  Have a nice day

[EscapeFromConnecticut]

43 minutes ago, Roberto256 said:

 

Ruby.

 

...which has "Escaped Completely" for the Phillipines.

 

Maybe Princess should swap back to their old slogan:  "Where I went wrong."

 

 Yes, Ruby .. thanx for the correction. 

[CruiserBruce]

53 minutes ago, Flatbush Flyer said:

If they don't have the refund money they will be in violation of their U.S. Federal Maritime Commission licensure to operate in the US.

What cruise line would have 100% of the money to refund all commitments  (especially 3 or more months of payments) on the spot? Nobody I can think of. That would be crazy. One or two sailings that get canceled due to a hurricane, sure. But literally 10s, if not hundreds of thousands of bookings? Impossible. Totally unrealistic. Remember Carnival Corp has about 100 ships sailing at any given time.

[npcl]

2 hours ago, CarelessAndConfused said:

 

Um no.  YOU raised the 4.6 billion liability amount and held it out, maybe unknowingly, as the full freight of cash liabilities that they were dealing with.  I was just point out that there's a material portion there that isn't a cash liability situation. Certainly it is worth mentioning and then some.  Not to mention all of the Option 1 "refunds" that will essentially have no cash refund liability.

Not quite I put in the original dollar amount , but  Cruise Bruce in post 11, originally raised the issue about the amount of money on hand verse refund amounts, in reponse to which I posted the actual cash and deposit liability amount.  Then he asked a question in post 24, which I answered in post 26.  There were additional comments made in post 27, 28, and 29.

 

Then you commented in post 30 about a lot of that being way out in the future and would not need to be refunded, thus leading to my disagreement with than and the corresponding calculations in post 33.

 

I did not raise it as the full freight of liabilities, merely putting in context the response to post 11 where the comment of refunds vs cash was raised. And I just pointed out that the majority of it was current and 55% of the current amount was going to be refunded.

 

If you want to keep arguing about sequence and terminology I willing to do so all day long.  Nothing much better to do while in 

 

 

 

 

Edited April 27, 2020 by npcl

[bluesea321]

20 minutes ago, npcl said:

If you want to keep arguing about sequence and terminology I willing to do so all day long.

 

Please don't, not of interest to anyone here.  The topic of this thread is relevant, not the back and forth bickering about financials.  

[npcl]

33 minutes ago, CarelessAndConfused said:

 

Perhaps I misinterpreted your post 25 I don't know but then why go through the tangent of trying to defend how much of their liability is that short term or not and the potential liquidity that they are facing.  Why not just write your 3rd paragraph per above as a response then we'd be perfectly clear.

 

 

In the context of the post I was responding to it was clear. 

 

Just as with some of your posts if they were written differently might not have gotten a response.