Carnival Corporation has reported net income of $500.8 million, or $0.85 per share, on revenues of $1.44 billion for its third quarter ended Aug. 31, 2002, compared to net income of $494.9 million, or $0.84 per share, on revenues of $1.49 billion for the third quarter of 2001.

Net income for the nine months ended Aug. 31, 2002 was $824.6 million, or $1.40 per share, on revenues of $3.33 billion, compared to net income of $809.9 million, or $1.38 per share, on revenues of $3.58 billion for the same period in 2001.

Carnival Chairman Micky Arison pointed out that the company has experienced continued yield improvement in 2002 despite economic uncertainties, political unrest and the lingering effects of Sept. 11. He said he expected yield improvement to continue in the fourth quarter.

2003 and 2004

"We are extremely well positioned for 2003 and 2004," Arison said. ''New ships tend to give you momentum and push yields up," he said. "That is why we are so optimistic about 2003 and 2004."

Carnival Cruise Lines will receive its largest ship ever next month when the 110,000-ton, 2,974-passenger Carnival Conquest is delivered.

Holland America Line (HAL) will receive two Panamax ships, the 1,800-passenger Zuiderdam in November (2002) and the Oosterdam in June of 2003.

Costa Crociere will take delivery of the Costa Mediterranea in May and the Costa Fortuna in mid-November of 2003. The 105,000-ton, 2,720-passenger Fortuna is the largest ship ever built for Italian flag, according to Arison, who added that the "exposure in the Italian market will be enormous."

And, Cunard Line will take delivery of the QM2 in December of 2003 - "the largest passenger vessel ever built, which will position Cunard strongly," Arison said. Advance ticket sales for the QM2 are $50 million with the first cruise more than a year off.

Carnival Corporation will boost its capacity by 17.9 percent in 2003: 15.5 percent in Q1, 16.6 percent in Q2, 20.5 percent in Q3, and 18.8 percent in Q4.

In 2003, 65 percent of the Carnival brands' capacity will be in the Caribbean and Mexican Riviera, 10 percent will be in the Mediterranean, six percent will be in Western and Northern Europe, six percent will be in Alaska and 13 percent will be divided among other regions.

But it is too early to comment specifically on bookings for the respective markets for 2003, for Europe or Alaska, according to Vice Chairman Howard Frank, who said that Carnival finished up pretty well this year in both Europe and Alaska.

4th Q

Fuel costs are expected to be up in the fourth quarter too, along with higher advertising expenses, according to Gary Cahill, senior vice president of finance and CFO, who said that the strong Euro and pound will also have an impact.

Added Frank, "We expect revenue yield to be in the positive range of one to three percent."

The fourth quarter will also see a capacity increase of 8.2 percent year over year, "basically from Carnival and Costa," Frank said.

Carnival executives said that bookings continued to be close in. And although a strong booking trend started in early July, they said it was hard to predict pricing and bookings. Frank explained that it was up to each brand to decide what direction it would take: whether to price aggressively now or to maintain a high price point. With the different brands pursuing different strategies, he said it was difficult to tie it all together for a clear picture of pricing and booking trends. He added that newspaper pricing was misleading and was generally lead-in prices.

"But for now, pricing is ahead for Q1 and Q2 for 2003 where we ended up for Q1 and Q2 in 2002," Frank added. He said that the prospects for 2003 were looking good and that he was bullish on next year.

Added Arison, "Our brands are positioned differently from quarter to quarter and have performed remarkably for the past nine months."

What If?

If a new war were to break out in the Middle East, Arison said that the Carnival brands reacted well in the past and are expected to do so in the future.

He said that during the Gulf War in 1991, Carnival repositioned ships as late as February. "Obviously the later you move, the more of a problem it is," he said. "The latest you can move is in Q1."

"But we are much stronger now and much more diversified," Arison continued. "We have brands that are strong everywhere," he added. Sixteen percent of the company's capacity, mainly from Costa and Cunard, will be deployed in Europe in 2003.

Arison added that the Carnival brands had probably moved ships around less than anybody else in the aftermath of 9/11. "Too many companies are taking business-as-usual and moving too many ships too fast to Europe," he said.

Takeover

If Carnival is successful in its takeover of P&O Princess Cruises (POC), Frank underscored that Carnival will maintain its investment grade.

"We are the highest-rated company in the leisure industry," added Arison.

And Cahill chimed in: "Even if we leverage up, (to a level) which is substantial for us, it will still be way below our competition and we will manage it down."

Carnival currently has approximately $1.35 billion in cash and $3.1 billion in debt. Its debt-to-total­ capitalization ratio is 30 percent.

If Carnival's bid to acquire POC is successful, the company will then look at each company, including POC, which it needs to understand better, to determine the future growth course, according to Frank.

"We are very disciplined builders," he said. "We took the opportunity to build a sister ship (to the Carnival Conquest) because the price was so attractive." Frank added that Carnival does not only look at the cost per berth when considering a newbuilding but also ilie cabin mix in terms of outside cabins with verandahs that are more profitable. He said that Carnival decides whether to buy new ships based on the respective management teams' conviction that the tonnage will be profitable.

3Q 2002

According to Arison, the net yield decline in the third quarter of this year versus last year was less ilian one percent, compared to the previous guidance of three to four percent, and a significant improvement from ilie 5.3 percent decline reported in the second quarter.

2002 third quarter earnings included a $34 million income tax benefit from Costa resulting from Italian investment tax laws. This was partially offset by a $20 million write-down of a vessel. (Carnival would not identify the vessel, but it is assumed to be the Caronia or the Noordam.) In addition was a $13 million reduction in earnings during the third quarter resulting from cancelled cruises by HAL and repair costs, plus higher fuel costs. Ad spending was also up in conjunction with the delivery of the Carnival Legend and in preparation for the Carnival Conquest and the Zuiderdam.

Occupancy for the third quarter was 113.7 percent this year with 1,036,000 passengers, compared to 113.0% and 994,000 passengers last year.

"We have had small increases in earnings every quarter this year," commented Cahill, "with only a two percent increase in capacity. In light of the impact of 9/11, we believe we are one of the few companies to repeat earnings increases each quarter."