TIDMCCL
RNS Number : 6283N
Carnival PLC
30 September 2021
September 30, 2021
RELEASE OF CARNIVAL CORPORATION & PLC QUARTERLY REPORT ON
FORM 10-Q FOR THE THIRD QUARTER OF 2021
Carnival Corporation & plc is hereby announcing that today
it has filed its joint Quarterly Report on Form 10-Q ("Form 10-Q")
with the U.S. Securities and Exchange Commission ("SEC") containing
the Carnival Corporation & plc 2021 three and nine months
unaudited consolidated financial statements.
The information included in the attached Schedules A, B and C is
extracted from the Form 10-Q and has been prepared in accordance
with SEC rules and regulations. The Carnival Corporation & plc
unaudited consolidated financial statements contained in the Form
10-Q have been prepared in accordance with generally accepted
accounting principles in the United States of America ("U.S.
GAAP").
-- Schedule A contains the Carnival Corporation & plc
unaudited consolidated financial statements as of and for the three
and nine months ended August 31, 2021
-- Schedule B contains management's discussion and analysis
("MD&A") of financial conditions and results of operations
-- Schedule C contains information on Carnival Corporation and
Carnival plc's sales and purchases of their equity securities and
use of proceeds from such sales
The Directors consider that within the Carnival Corporation and
Carnival plc dual listed company arrangement, the most appropriate
presentation of Carnival plc's results and financial position is by
reference to the Carnival Corporation & plc U.S. GAAP unaudited
consolidated financial statements.
MEDIA CONTACT INVESTOR RELATIONS CONTACT
Roger Frizzell Beth Roberts
001 305 406 7862 001 305 406 4832
The Form 10-Q, including the portions extracted for this
announcement, is available for viewing on the SEC website at
www.sec.gov under Carnival Corporation or Carnival plc or the
Carnival Corporation & plc website at www.carnivalcorp.com or
www.carnivalplc.com. A copy of the Form 10-Q has been submitted to
the National Storage Mechanism and will shortly be available for
inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism.
Additional information can be obtained via Carnival Corporation
& plc's website listed above or by writing to Carnival plc at
Carnival House, 100 Harbour Parade, Southampton, SO15 1ST, United
Kingdom.
Carnival Corporation & plc is one of the world's largest
leisure travel companies with a portfolio of nine of the world's
leading cruise lines. With operations in North America, Australia,
Europe and Asia, its portfolio features - Carnival Cruise Line,
Princess Cruises, Holland America Line, P&O Cruises
(Australia), Seabourn, Costa Cruises, AIDA Cruises, P&O Cruises
(UK) and Cunard.
Additional information can be found on www.carnivalcorp.com,
www.carnivalsustainability.com, www.carnival.com, www.princess.com,
www.hollandamerica.com, www.pocruises.com.au, www.seabourn.com,
www.costacruise.com, www.aida.de, www.pocruises.com and
www.cunard.com .
SCHEDULE A
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in millions, except per share data)
Three Months Ended Nine Months Ended
August 31, August 31,
----------------------
2021 2020 2021 2020
------------ -------- ----------- ----------
Revenues
Passenger ticket $ 303 $ - $ 326 $ 3,680
Onboard and other 243 31 295 1,881
------------ -------- ----------- --------
546 31 621 5,561
------------ -------- ----------- --------
Operating Costs and Expenses
Commissions, transportation and other 79 34 116 1,098
Onboard and other 72 9 94 593
Payroll and related 375 248 834 1,563
Fuel 182 121 398 718
Food 52 19 80 404
Ship and other impairments 475 910 524 1,829
Other operating 381 208 786 1,349
------------ -------- ----------- --------
1,616 1,549 2,832 7,556
Selling and administrative 425 265 1,305 1,435
Depreciation and amortization 562 551 1,681 1,698
Goodwill impairments - - - 2,096
------------ -------- ----------- --------
2,603 2,364 5,817 12,784
------------ -------- ----------- --------
Operating Income (Loss) (2,057) (2,333) (5,196) (7,223)
------------ -------- ----------- --------
Nonoperating Income (Expense)
Interest income 3 3 10 15
Interest expense, net of capitalized
interest (418) (310) (1,253) (547)
Gains (losses) on debt extinguishment,
net (376) (220) (372) (220)
Other income (expense), net (11) (1) (87) (41)
------------ -------- ----------- --------
(802) (528) (1,702) (793)
------------ -------- ----------- --------
Income (Loss) Before Income Taxes (2,859) (2,861) (6,898) (8,016)
Income Tax Benefit (Expense), Net 23 2 17 2
------------ -------- ----------- --------
Net Income (Loss) $ (2,836) $(2,858) $ (6,881) $(8,014)
======== ======= ======= =======
Earnings Per Share
Basic $ (2.50) $ (3.69) $ (6.14) $(11.03)
======== ======= ======= =======
Diluted $ (2.50) $ (3.69) $ (6.14) $(11.03)
======== ======= ======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in millions)
Three Months
Ended August Nine Months Ended
31, August 31,
------------------
2021 2020 2021 2020
-------- -------- ----------- ----------
Net Income (Loss) $(2,836) $(2,858) $ (6,881) $(8,014)
------- ------- ------- -------
Items Included in Other Comprehensive Income
(Loss)
Change in foreign currency translation
adjustment (224) 519 79 567
Other 1 4 8 60
-------- -------- ----------- --------
Other Comprehensive Income (Loss) (223) 524 87 627
-------- -------- ----------- --------
Total Comprehensive Income (Loss) $(3,059) $(2,335) $ (6,794) $(7,387)
======= ======= ======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except par values)
August November
31, 30, 2020
2021
------- -------------
ASSETS
Current Assets
Cash and cash equivalents $ 7,151 $ 9,513
Short-term investments 647 -
Trade and other receivables, net 281 273
Inventories 322 335
Prepaid expenses and other 508 443
------- -----------
Total current assets 8,909 10,563
------- -----------
Property and Equipment, Net 38,917 38,073
Operating Lease Right-of-Use Assets 1,366 1,370
Goodwill 810 807
Other Intangibles 1,190 1,186
Other Assets 2,323 1,594
------- -----------
$53,514 $ 53,593
====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 3,099 $ 3,084
Current portion of long-term debt 1,303 1,742
Current portion of operating lease liabilities 142 151
Accounts payable 672 624
Accrued liabilities and other 1,568 1,144
Customer deposits 2,707 1,940
------- -----------
Total current liabilities 9,491 8,686
------- -----------
Long-Term Debt 26,831 22,130
Long-Term Operating Lease Liabilities 1,269 1,273
Other Long-Term Liabilities 1,061 949
Contingencies and Commitments
Shareholders' Equity
Common stock of Carnival Corporation, $0.01 par value;
1,960 shares authorized; 1,110 shares at 2021 and
1,060 shares at 2020 issued 11 11
Ordinary shares of Carnival plc, $1.66 par value;
217 shares at 2021 and 2020 issued 361 361
Additional paid-in capital 15,146 13,948
Retained earnings 9,194 16,075
Accumulated other comprehensive income (loss) ("AOCI") (1,349) (1,436)
Treasury stock, 130 shares at 2021 and 2020 of Carnival
Corporation and 63 shares at 2021 and 60 shares at
2020 of Carnival plc, at cost (8,500) (8,404)
------- -----------
Total shareholders' equity 14,863 20,555
------- -----------
$53,514 $ 53,593
====== =======
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Nine Months Ended
August 31,
-----------------------
2021 2020
----------- ----------
OPERATING ACTIVITIES
Net income (loss) $ (6,881) $(8,014)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 1,681 1,698
Impairments 541 3,925
(Gain) loss on extinguishment of debt 372 220
Share-based compensation 95 52
Amortization of discounts and debt issue costs 131 78
Noncash lease expense 106 138
(Gain) loss on ship sales and other, net 120 (47)
----------- --------
(3,834) (1,951)
Changes in operating assets and liabilities
Receivables (37) 25
Inventories (19) 71
Prepaid expenses and other (1,221) 9
Accounts payable 15 (97)
Accrued liabilities and other 458 (169)
Customer deposits 897 (2,539)
----------- --------
Net cash provided by (used in) operating activities (3,741) (4,649)
----------- --------
INVESTING ACTIVITIES
Purchases of property and equipment (3,120) (1,899)
Proceeds from sales of ships and other 351 271
Purchase of minority interest (90) (81)
Purchase of short-term investments (2,672) -
Proceeds from maturity of short-term investments 2,026 -
Derivative settlements and other, net (29) 257
----------- --------
Net cash provided by (used in) investing activities (3,535) (1,452)
----------- --------
FINANCING ACTIVITIES
Proceeds from (repayments of) short-term borrowings, net 17 3,141
Principal repayments of long-term debt (3,507) (896)
Premium paid on extinguishment of debt (286) -
Proceeds from issuance of long-term debt 7,900 11,468
Dividends paid - (689)
Issuance of common stock, net 1,003 778
Issuance of common stock under the Stock Swap program 105 -
Purchases of treasury stock under the Stock Swap program (94) -
Debt issue costs and other, net (239) (103)
----------- --------
Net cash provided by (used in) financing activities 4,899 13,699
----------- --------
Effect of exchange rate changes on cash, cash equivalents
and restricted cash 13 63
----------- --------
Net increase (decrease) in cash, cash equivalents and
restricted cash (2,363) 7,661
Cash, cash equivalents and restricted cash at beginning
of period 9,692 530
----------- --------
Cash, cash equivalents and restricted cash at end of period $ 7,329 $ 8,191
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(in millions)
Three Months Ended
-------------------------------------------------------------------------------------
Additional Total
Common Ordinary paid-in Retained Treasury shareholders'
stock shares capital earnings AOCI stock equity
-------- ---------- ------------ ---------- -------- -------- -----------------
At May 31, 2020 $ 7 $ 360 $ 9,683 $ 21,155 $(1,962) $(8,404) $ 20,840
Net income
(loss) - - - (2,858) - - (2,858)
Other
comprehensive
income
(loss) - - - - 524 - 524
Issuance of
common stock
related to
the
repurchase
of
Convertible
Notes - - 222 - - - 222
Repurchase of
Convertible
Notes 1 - 765 - - - 766
Other - - 9 - - - 9
-------- ---------- ------------ ---------- -------- -------- ---------------
At August 31,
2020 $ 8 $ 361 $ 10,680 $ 18,297 $(1,439) $(8,404) $ 19,503
==== === ===== === ======= ====== ======= ======= ==== =========
At May 31, 2021 $ 11 $ 361 $ 15,005 $ 12,030 $(1,126) $(8,404) $ 17,876
Net income
(loss) - - - (2,836) - - (2,836)
Other
comprehensive
income
(loss) - - - - (223) - (223)
Issuance of
common stock,
net - - 7 - - - 7
Conversion of
Convertible
Notes - - 2 - - - 2
Purchases and
issuances
under the
Stock Swap
program - - 105 - - (95) 10
Other - - 28 - - - 28
-------- ---------- ------------ ---------- -------- -------- ---------------
At August 31,
2021 $ 11 $ 361 $ 15,146 $ 9,194 $(1,349) $(8,500) $ 14,863
==== === ===== === ======= ====== ======= ======= ==== =========
Nine Months Ended
-------------------------------------------------------------------------------------
Additional Total
Common Ordinary paid-in Retained Treasury shareholders'
stock shares capital earnings AOCI stock equity
-------- ---------- ------------ ---------- -------- -------- -----------------
At November 30, 2019 $ 7 $ 358 $ 8,807 $ 26,653 $(2,066) $(8,394) $ 25,365
Net income (loss) - - - (8,014) - - (8,014)
Other
comprehensive
income
(loss) - - - - 627 - 627
Cash dividends
declared
($0.50 per share) - - - (342) - - (342)
Issuance of common
stock 1 - 777 - - - 778
Issuance and
repurchase
of Convertible
Notes 1 - 1,051 - - - 1,052
Purchases of
treasury
stock under the
Repurchase
Program and other - 2 44 - - (10) 36
-------- ---------- ------------ ---------- -------- -------- ---------------
At August 31, 2020 $ 8 $ 361 $ 10,680 $ 18,297 $(1,439) $(8,404) $ 19,503
==== === ===== ======== ====== ======= ======= ==== =========
At November 30, 2020 $ 11 $ 361 $ 13,948 $ 16,075 $(1,436) $(8,404) $ 20,555
Net income (loss) - - - (6,881) - - (6,881)
Other
comprehensive
income
(loss) - - - - 87 - 87
Issuance of common
stock,
net - - 1,003 - - - 1,003
Conversion of
Convertible
Notes - - 2 - - - 2
Purchases and
issuances
under the Stock
Swap program - - 105 - - (95) 10
Other - - 88 - - - 88
-------- ---------- ------------ ---------- -------- -------- ---------------
At August 31, 2021 $ 11 $ 361 $ 15,146 $ 9,194 $(1,349) $(8,500) $ 14,863
==== === ===== ======== ====== ======= ======= ==== =========
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - General
The consolidated financial statements include the accounts of
Carnival Corporation and Carnival plc and their respective
subsidiaries. Together with their consolidated subsidiaries, they
are referred to collectively in these consolidated financial
statements and elsewhere in this joint Quarterly Report on Form
10-Q as "Carnival Corporation & plc," "our," "us" and "we."
Liquidity and Management's Plans
In the face of the global impact of COVID-19, we paused our
guest cruise operations in mid-March 2020. As of August 31, 2021,
eight of our nine brands have resumed guest cruise operations as
part of our gradual return to service, with 35% of our capacity
operating with guests on board. Significant events affecting
travel, including COVID-19 and our gradual resumption of guest
cruise operations, have had and continue to have an impact on
booking patterns. The full extent of the impact will be determined
by our gradual return to service and the length of time COVID-19
influences travel decisions. We believe that the ongoing effects of
COVID-19 have had, and will continue to have, a material negative
impact on our financial results and liquidity.
The estimation of our future liquidity requirements includes
numerous assumptions that are subject to various risks and
uncertainties. The principal assumptions used to estimate our
future liquidity requirements consist of:
-- Expected continued gradual resumption of guest cruise operations
-- Expected lower than comparable historical occupancy levels
during the resumption of guest cruise operations
-- Expected incremental spend for the resumption of guest cruise
operations, including completing the return of our ships to guest
cruise operations, returning crew members to our ships and
maintaining enhanced health and safety protocols
In addition, we make certain assumptions about new ship
deliveries, improvements and disposals, and consider the future
export credit financings that are associated with the ship
deliveries.
We cannot make assurances that our assumptions used to estimate
our liquidity requirements may not change because we have never
previously experienced a complete cessation of our guest cruise
operations, and as a consequence, our ability to be predictive is
uncertain. In addition, the magnitude and duration of the global
pandemic are uncertain. We have made reasonable estimates and
judgments of the impact of COVID-19 within our consolidated
financial statements and there may be changes to those estimates in
future periods. We continue to expect a net loss on both a U.S.
GAAP and adjusted basis for the fourth quarter of 2021 and full
year ending November 30, 2021. We have taken actions to improve our
liquidity, including completing various capital market
transactions, capital expenditure and operating expense reductions,
and accelerating the removal of certain ships from our fleet. In
addition, we expect to continue to pursue refinancing opportunities
to reduce interest expense and extend maturities.
Based on these actions and our assumptions regarding the impact
of COVID-19, considering our $7.8 billion of liquidity including
cash and short-term investments at August 31, 2021, as well as our
expected continued gradual return to service, we have concluded
that we have sufficient liquidity to satisfy our obligations for at
least the next twelve months.
Basis of Presentation
The Consolidated Statements of Income (Loss), the Consolidated
Statements of Comprehensive Income (Loss) and the Consolidated
Statements of Shareholders' Equity for the three and nine months
ended August 31, 2021 and 2020, Consolidated Statements of Cash
Flows for the nine months ended August 31, 2021 and 2020, and the
Consolidated Balance Sheet at August 31, 2021 are unaudited and, in
the opinion of our management, contain all adjustments, consisting
of only normal recurring adjustments, necessary for a fair
statement. Our interim consolidated financial statements should be
read in conjunction with the audited consolidated financial
statements and the related notes included in the Carnival
Corporation & plc 2020 joint Annual Report on Form 10-K ("Form
10-K") filed with the U.S. Securities and Exchange Commission on
January 26, 2021.
COVID-19 and the Use of Estimates and Risks and Uncertainty
The preparation of our interim consolidated financial statements
in conformity with accounting principles generally accepted in the
United States of America ("U.S. GAAP") requires management to make
estimates and assumptions that affect the amounts reported and
disclosed. The full extent to which the effects of COVID-19 will
directly or indirectly impact our business, operations, results of
operations and financial condition, including our valuation of
goodwill and trademarks, impairment of ships, collectability of
trade and notes receivables as well as provisions for pending
litigation, will depend on future developments that are highly
uncertain. We have made reasonable estimates and judgments of the
impact of COVID-19 within our financial statements and there may be
changes to those estimates in future periods.
Accounting Pronouncements
The Financial Accounting Standards Board issued guidance, Debt -
Debt with Conversion and Other Options and Derivative and Hedging -
Contracts in Entity's Own Equity, which simplifies the accounting
for convertible instruments. This guidance eliminates certain
models that require separate accounting for embedded conversion
features, in certain cases. Additionally, among other changes, the
guidance eliminates certain of the conditions for equity
classification for contracts in an entity's own equity. The
guidance also requires entities to use the if-converted method for
all convertible instruments in the diluted earnings per share
calculation and include the effect of share settlement for
instruments that may be settled in cash or shares, except for
certain liability-classified share-based payment awards. This
guidance is required to be adopted by us in the first quarter of
2023 and must be applied using either a modified or full
retrospective approach. We are currently evaluating the impact this
guidance will have on our consolidated financial statements.
NOTE 2 - Revenue and Expense Recognition
Guest cruise deposits are initially included in customer deposit
liabilities when received. Customer deposits are subsequently
recognized as cruise revenues, together with revenues from onboard
and other activities, and all associated direct costs and expenses
of a voyage are recognized as cruise costs and expenses, upon
completion of voyages with durations of ten nights or less and on a
pro rata basis for voyages in excess of ten nights. The impact of
recognizing these shorter duration cruise revenues and costs and
expenses on a completed voyage basis versus on a pro rata basis is
not material. Certain of our product offerings are bundled and we
allocate the value of the bundled services and goods between
passenger ticket revenues and onboard and other revenues based upon
the estimated standalone selling prices of those goods and
services. Guest cancellation fees, when applicable, are recognized
in passenger ticket revenues at the time of cancellation.
Our sales to guests of air and other transportation to and from
airports near the home ports of our ships are included in passenger
ticket revenues, and the related costs of purchasing these services
are included in transportation costs. The proceeds that we collect
from the sales of third-party shore excursions are included in
onboard and other revenues and the related costs are included in
onboard and other costs. The amounts collected on behalf of our
onboard concessionaires, net of the amounts remitted to them, are
included in onboard and other revenues as concession revenues. All
of these amounts are recognized on a completed voyage or pro rata
basis as discussed above.
Passenger ticket revenues include fees, taxes and charges
collected by us from our guests. A portion of these fees, taxes and
charges vary with guest head counts and are directly imposed on a
revenue-producing arrangement. This portion of the fees, taxes and
charges is expensed in commissions, transportation and other costs
when the corresponding revenues are recognized. For the three and
nine months ended August 31, 2021, fees, taxes, and charges
included in commissions, transportation and other costs were
immaterial. For the three and nine months ended August 31, 2020,
fees, taxes, and charges included in commissions, transportation
and other costs were immaterial and $213 million, respectively. The
remaining portion of fees, taxes and charges are expensed in other
operating expenses when the corresponding revenues are
recognized.
Revenues and expenses from our hotel and transportation
operations, which are included in our Tour and Other segment, are
recognized at the time the services are performed. Revenues from
the long-term leasing of ships, which are also included in our Tour
and Other segment, are recognized ratably over the term of the
agreement.
Customer Deposits
Our payment terms generally require an initial deposit to
confirm a reservation, with the balance due prior to the voyage.
Cash received from guests in advance of the cruise is recorded in
customer deposits and in other long-term liabilities on our
Consolidated Balance Sheets. These amounts include refundable
deposits. We have provided flexibility to guests with bookings on
sailings cancelled due to itinerary disruptions by allowing guests
to receive enhanced future cruise credits ("FCC") or elect to
receive refunds in cash. Enhanced FCCs provide the guest with an
additional credit value above the original cash deposit received
and are recognized as a discount applied to the future cruise in
the period used. We have paid and expect to continue to pay cash
refunds of customer deposits with respect to a portion of cancelled
cruises. The amount of cash refunds to be paid may depend on the
continued level of guest acceptance of FCCs and future cruise
cancellations. We record a liability for unexpired FCCs to the
extent we have received and not refunded cash from guests for
cancelled bookings. We had customer deposits of $3.1 billion as of
August 31, 2021 and $2.2 billion as of November 30, 2020. As of
August 31, 2021, the current portion of customer deposits was $2.7
billion. This amount includes deposits related to cancelled cruises
prior to the election of a cash refund by guests. Refunds payable
to guests who have elected cash refunds are recorded in accounts
payable. Due to uncertainties associated with the gradual
resumption of guest cruise operations we are unable to estimate the
amount of the August 31, 2021 customer deposits that will be
recognized in earnings compared to amounts that will be refunded to
customers or issued as a credit for future travel. During the nine
months ended August 31, 2021 and 2020, we recognized revenues of an
immaterial amount and $3.3 billion, respectively, related to our
customer deposits as of November 30, 2020 and 2019. Historically,
our customer deposits balance changes due to the seasonal nature of
cash collections, the recognition of revenue, refund of customer
deposits and foreign currency translation.
Contract Receivables
Although we generally require full payment from our customers
prior to or concurrently with their cruise, we grant credit terms
to a relatively small portion of our revenue source. We also have
receivables from credit card merchants for cruise ticket purchases
and onboard revenue. These receivables are included within trade
and other receivables, net. We have agreements with a number of
credit card processors that transact customer deposits related to
our cruise vacations. Certain of these agreements allow the credit
card processors to request, under certain circumstances, that we
provide a reserve fund in cash. These reserve funds are included in
other assets.
Contract Assets
Contract assets are amounts paid prior to the start of a voyage,
which we record as an asset within prepaid expenses and other and
which are subsequently recognized as commissions, transportation
and other at the time of revenue recognition or at the time of
voyage cancellation. We have contract assets of an immaterial
amount as of August 31, 2021 and November 30, 2020.
NOTE 3 - Debt
Short-Term Borrowings
As of August 31, 2021 and November 30, 2020, our short-term
borrowings consisted of the $3.1 billion under our multi-currency
revolving credit facility (the "Revolving Facility"). For the nine
months ended August 31, 2021, there were no borrowings or
repayments of commercial paper with original maturities greater
than three months. For the nine months ended August 31, 2020, we
had borrowings of $525 million and repayments of $192 million of
commercial paper with original maturities greater than three
months.
Export Credit Facility Borrowings
In December 2020, we borrowed $1.5 billion under export credit
facilities due in semi-annual installments through 2033.
In July 2021, we borrowed $544 million under an export credit
facility due in semi-annual installments through 2033.
2027 Senior Unsecured Notes
In February 2021, we issued an aggregate principal amount of
$3.5 billion senior unsecured notes that mature on March 1, 2027
(the "2027 Senior Unsecured Notes"). The 2027 Senior Unsecured
Notes bear interest at a rate of 5.8% per year.
Repricing of 2025 Secured Term Loan
In June 2021, we entered into an amendment to reprice our $2.8
billion 2025 Secured Term Loan (the "2025 Secured Term Loan"). The
amended U.S. dollar tranche bears interest at a rate per annum
equal to LIBOR (with a 0.75% floor) plus 3%. The amended euro
tranche bears interest at a rate per annum equal to EURIBOR (with a
0% floor) plus 3.75%.
2028 Senior Secured Notes
In July 2021, we issued $2.4 billion aggregate principal amount
of 4% first-priority senior secured notes due in 2028 (the "2028
Senior Secured Notes"). We used the net proceeds from the issuance
to purchase $2.0 billion aggregate principal amount of the 2023
Senior Secured Notes. The 2028 Senior Secured Notes mature on
August 1, 2028. The 2028 Senior Secured Notes are secured on a
first-priority basis by collateral, which includes vessels and
material intellectual property with a net book value of
approximately $26.3 billion as of August 31, 2021 and certain other
assets.
Debt Holidays
We amended substantially all of our drawn export credit
facilities to defer approximately $1.0 billion of principal
payments that would otherwise have been due over a one year period
commencing April 1, 2021 until March 31, 2022, with repayments to
be made over the following five years. Of these amendments, the
deferral of an aggregate principal amount of $0.7 billion became
effective as of August 31, 2021, and an aggregate principal amount
of $0.3 billion became effective after August 31, 2021. The
cumulative deferred principal amount of the debt holiday amendments
is approximately $1.7 billion, inclusive of the amendments entered
into in 2020 and through September 14, 2021. In addition, these
amendments aligned the financial covenants of substantially all our
drawn export credit facilities with our other facilities.
Covenant Compliance
Our Revolving Facility, our unsecured bank loans and
substantially all of our drawn export credit facilities as of
September 14, 2021 contain one or more covenants that require us
to:
-- Maintain minimum interest coverage (EBITDA to consolidated
net interest charges (the "Interest Coverage Covenant") at the end
of each fiscal quarter from February 28, 2023, at a ratio of not
less than 2.0 to 1.0 for the February 28, 2023 and May 31, 2023
testing dates, 2.5 to 1.0 for the August 31, 2023 and November 30,
2023 testing dates, and 3.0 to 1.0 for the February 28, 2024
testing date onwards, or through their respective maturity
dates
-- Maintain minimum shareholders' equity of $5.0 billion
-- Limit our debt to capital percentage (the "Debt to Capital
Covenant") through the August 31, 2021 testing date at a percentage
not to exceed 65%. From the November 30, 2021 testing date until
the May 31, 2023 testing date, the Debt to Capital Covenant is not
to exceed 75%, following which it will be tested at levels which
decline ratably to 65% for the May 31, 2024 testing date
onwards
-- Maintain minimum liquidity of $1.0 billion through February 29, 2024
-- Adhere to certain restrictive covenants through November 30, 2024
-- Restrict the granting of guarantees and security interests
for certain of our outstanding debt through November 30, 2024
-- Limit the amounts of our secured assets as well as secured and other indebtedness
In addition, export credit facilities with $0.4 billion
outstanding indebtedness contain covenants that require us to,
among other things, maintain the Interest Coverage Covenant of not
less than 3.0 to 1.0 at the end of each fiscal quarter and the Debt
to Capital Covenant not to exceed 65% at the end of each fiscal
quarter. We have entered into supplemental agreements to waive
compliance with the Interest Coverage Covenant and the Debt to
Capital Covenant under these export credit facilities through
November 30, 2022. We will be required to comply with such
covenants beginning with the next testing date of February 28,
2023.
At August 31, 2021, we were in compliance with the applicable
covenants under our debt agreements. Generally, if an event of
default under any debt agreement occurs, then, pursuant to cross
default acceleration clauses, substantially all of our outstanding
debt and derivative contract payables could become due, and all
debt and derivative contracts could be terminated. Any financial
covenant amendment may lead to increased costs, increased interest
rates, additional restrictive covenants and other available lender
protections that would be applicable. Carnival Corporation or
Carnival plc and certain of our subsidiaries have guaranteed
substantially all of our indebtedness.
As of August 31, 2021, the scheduled maturities of our debt are
as follows:
(in millions)
Year Principal Payments
----------------------
2021 4Q $ 198
2022 2,448
2023 4,503
2024 (a) 4,724
2025 4,106
Thereafter 15,986
--------------------
Total $ 31,964
=== ===============
(a) Includes the $3.1 billion Revolving Facility. The Revolving
Facility was fully drawn in 2020 for a six-month term. We may
continue to re-borrow amounts under the Revolving Facility through
August 2024 subject to satisfaction of the conditions in the
facility. The Revolving Facility also includes an emissions linked
margin adjustment whereby, after the initial applicable margin is
set per the margin pricing grid, the margin may be adjusted based
on performance in achieving certain agreed annual carbon emissions
goals. We are required to pay a commitment fee on any undrawn
portion.
NOTE 4 - Contingencies and Commitments
Litigation
We are routinely involved in legal proceedings, claims,
disputes, regulatory matters and governmental inspections or
investigations arising in the ordinary course of or incidental to
our business, including those noted below. Additionally, as a
result of the impact of COVID-19, litigation claims, enforcement
actions, regulatory actions and investigations, including, but not
limited to, those arising from personal injury and loss of life,
have been and may, in the future, be asserted against us. We expect
many of these claims and actions, or any settlement of these claims
and actions, to be covered by insurance and historically the
maximum amount of our liability, net of any insurance recoverables,
has been limited to our self-insurance retention levels.
We record provisions in the consolidated financial statements
for pending litigation when we determine that an unfavorable
outcome is probable and the amount of the loss can be reasonably
estimated.
Legal proceedings and government investigations are subject to
inherent uncertainties, and unfavorable rulings or other events
could occur. Unfavorable resolutions could involve substantial
monetary damages. In addition, in matters for which conduct
remedies are sought, unfavorable resolutions could include an
injunction or other order prohibiting us from selling one or more
products at all or in particular ways, precluding particular
business practices or requiring other remedies. An unfavorable
outcome might result in a material adverse impact on our business,
results of operations, financial position or liquidity.
As previously disclosed, on May 2, 2019, two lawsuits were filed
against Carnival Corporation in the U.S. District Court for the
Southern District of Florida under Title III of the Cuban Liberty
and Democratic Solidarity Act, also known as the Helms-Burton Act,
alleging that Carnival "trafficked" in confiscated Cuban property
when certain ships docked at certain ports in Cuba, and that this
alleged "trafficking" entitles the plaintiffs to treble damages
(the "Cuba Matters"). On July 9, 2020, the court granted our motion
for judgment on the pleadings in the Cuba Matter filed by Javier
Garcia Bengochea, and dismissed the plaintiff's action with
prejudice. On August 6, 2020, Bengochea filed a notice of appeal.
On August 2, 2021, the court continued the trial date in the second
Cuba Matter to February 28, 2022. We continue to believe we have a
meritorious defense to these actions and we believe that any
liability which may arise as a result of these actions will not
have a material impact on our consolidated financial
statements.
Contingent Obligations - Indemnifications
Some of the debt contracts we enter into include indemnification
provisions obligating us to make payments to the counterparty if
certain events occur. These contingencies generally relate to
changes in taxes or changes in laws which increase the lender's
costs. There are no stated or notional amounts included in the
indemnification clauses, and we are not able to estimate the
maximum potential amount of future payments, if any, under these
indemnification clauses.
Other Contingencies
We have agreements with a number of credit card processors that
transact customer deposits related to our cruise vacations. Certain
of these agreements allow the credit card processors to request,
under certain circumstances, that we provide a reserve fund in
cash. Although the agreements vary, these requirements may
generally be satisfied either through a withheld percentage of
customer payments or providing cash funds directly to the credit
card processor. As of August 31, 2021, and November 30, 2020, we
had $1.4 billion and $0.4 billion, respectively, in reserve funds
related to our customer deposits withheld to satisfy these
requirements which are included within other assets. We continue to
expect to provide reserve funds under these agreements.
Additionally, as of August 31, 2021, and November 30, 2020, we had
$167 million and $166 million, respectively, of cash collateral in
escrow, of which $137 million and $136 million is included within
prepaid expenses and other.
We have been, and may continue to be, impacted by breaches in
data security and lapses in data privacy, which occur from time to
time. These can vary in scope and intent from inadvertent events to
malicious motivated attacks.
We detected ransomware attacks in August 2020 and December 2020
which resulted in unauthorized access to our information technology
systems. We engaged a major cybersecurity firm to investigate these
matters and notified law enforcement and regulators of these
incidents. For the August 2020 event, the investigation phase is
complete, as are the communication and reporting phases. We
determined that the unauthorized third-party gained access to
certain personal information relating to some guests, employees and
crew for some of our operations. For the December 2020 event, the
investigation and remediation phases are in process. Regulators
were notified, and several, including the primary regulatory
authority in the European Union, have closed their files on this
matter.
We have been contacted by various regulatory agencies regarding
these and other cyber incidents. The New York Department of
Financial Services ("NY DFS") has notified us of their intent to
commence proceedings seeking penalties if settlement cannot be
reached in advance of litigation. To date, we have not been able to
reach an agreement with NY DFS. In addition, State Attorneys
General from a number of states have completed their investigation
of a data security event announced in March 2020, and the Company
is currently negotiating a settlement with the relevant State
Attorneys General.
We continue to work with regulators regarding cyber incidents we
have experienced. We have incurred legal and other costs in
connection with cyber incidents that have impacted us. While at
this time we do not believe that these incidents will have a
material adverse effect on our business, operations or financial
results, no assurances can be given about the future and we may be
subject to future litigation, attacks or incidents that could have
such a material adverse effect.
COVID-19 Actions
Private Actions
We have been named in a number of individual actions related to
COVID-19. Private parties have brought approximately 72 lawsuits as
of September 22, 2021 in several U.S. federal and state courts as
well as in France, Italy and Brazil. These actions include tort
claims based on a variety of theories, including negligence and
failure to warn. The plaintiffs in these actions allege a variety
of injuries: some plaintiffs confined their claim to emotional
distress, while others allege injuries arising from testing
positive for COVID-19. A smaller number of actions include wrongful
death claims. As of September 22, 2021, 38 of these individual
actions have now been dismissed or settled. These actions were
settled for immaterial amounts.
Additionally, as of September 22, 2021, ten purported class
actions have been brought by former guests from Ruby Princess,
Diamond Princess, Grand Princess, Coral Princess, Costa Luminosa or
Zaandam in several U.S. federal courts and in the Federal Court of
Australia. These actions include tort claims based on a variety of
theories, including negligence, gross negligence and failure to
warn, physical injuries and severe emotional distress associated
with being exposed to and/or contracting COVID-19 onboard. As of
September 22, 2021, five of these class actions have either been
settled individually or had their class allegations dismissed by
the courts. These actions were settled for immaterial amounts.
All COVID-19 actions seek monetary damages and most seek
additional punitive damages in unspecified amounts.
As previously disclosed, a consolidated class action complaint
with new lead plaintiffs, the New England Carpenters Pension and
Guaranteed Annuity Fund and the Massachusetts Laborers' Pension and
Annuity Fund, was filed in the U.S. District Court for the Southern
District of Florida on December 15, 2020. Plaintiffs filed a second
amended complaint on July 2, 2021 and on August 6, 2021, we filed a
motion to dismiss.
We continue to take proper actions to defend against the above
claims.
Governmental Inquiries and Investigations
Federal and non-U.S. governmental agencies and officials are
investigating or otherwise seeking information, testimony and/or
documents, regarding COVID-19 incidents and related matters. We are
investigating these matters internally and are cooperating with all
requests. The investigations could result in the imposition of
civil and criminal penalties in the future.
Ship Commitments
As of August 31, 2021, we expect the timing of our new ship
growth capital commitments to be as follows:
(in millions)
Year
Remainder of 2021 $ 337
2022 4,468
2023 2,675
2024 1,681
2025 984
Thereafter -
-------
$10,146
======
NOTE 5 - Fair Value Measurements, Derivative Instruments and
Hedging Activities and Financial Risks
Fair Value Measurements
Fair value is defined as the amount that would be received for
selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date and
is measured using inputs in one of the following three
categories:
-- Level 1 measurements are based on unadjusted quoted prices in
active markets for identical assets or liabilities that we have the
ability to access. Valuation of these items does not entail a
significant amount of judgment.
-- Level 2 measurements are based on quoted prices for similar
assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not
active or market data other than quoted prices that are observable
for the assets or liabilities.
-- Level 3 measurements are based on unobservable data that are
supported by little or no market activity and are significant to
the fair value of the assets or liabilities.
Considerable judgment may be required in interpreting market
data used to develop the estimates of fair value. Accordingly,
certain estimates of fair value presented herein are not
necessarily indicative of the amounts that could be realized in a
current or future market exchange.
Financial Instruments that are not Measured at Fair Value on a
Recurring Basis
August 31, 2021 November 30, 2020
Fair Value Fair Value
Carrying Level Level Level Carrying Level Level Level
(in millions) Value 1 2 3 Value 1 2 3
---------- ------- ------- ------- ---------- ------- ------- ---------
Liabilities
Fixed rate
debt (a) $ 19,812 $ - $20,470 $ - $ 15,547 $ - $16,258 $ -
Floating
rate debt
(a) 12,152 - 11,432 - 12,034 - 11,412 -
---------- ------- ------- ------- ---------- ------- ------- -------
Total $ 31,964 $ - $31,902 $ - $ 27,581 $ - $27,670 $ -
====== === ====== === ====== === ====== ===
(a) The debt amounts above do not include the impact of interest
rate swaps or debt issuance costs. The fair values of our
publicly-traded notes were based on their unadjusted quoted market
prices in markets that are not sufficiently active to be Level 1
and, accordingly, are considered Level 2. The fair values of our
other debt were estimated based on current market interest rates
being applied to this debt.
Financial Instruments that are Measured at Fair Value on a
Recurring Basis
August 31, 2021 November 30, 2020
Level Level Level Level Level Level
(in millions) 1 2 3 1 2 3
------------ ----- ------- ------------ ------- ---------
Assets
Cash and cash equivalents $ 7,151 $ -$ - $ 9,513 $ - $ -
Restricted cash 178 - - 179 - -
Short-term investments (a) 647 - - - - -
Total $ 7,975 $ -$ - $ 9,692 $ - $ -
======== ==== === ======== === ===
Liabilities
Derivative financial
instruments $ - $ 7$ - $ - $ 10 $ -
-------- ---- --- -------- --- ---
Total $ - $ 7$ - $ - $ 10 $ -
======== ==== === ======== === ===
(a) Short term investments consist of marketable securities with
original maturities of between three and twelve months.
Nonfinancial Instruments that are Measured at Fair Value on a
Nonrecurring Basis
Valuation of Goodwill and Trademarks
As of July 31, 2021, we performed our annual goodwill and
trademark impairment reviews and determined there was no impairment
for goodwill or trademarks. There was no impairment for the three
months ended August 31, 2020. We recognized goodwill impairment
charges of $2.1 billion for the nine months ended August 31,
2020.
The determination of the fair value of our reporting units'
goodwill and trademarks includes numerous assumptions that are
subject to various risks and uncertainties. The effect of COVID-19
and the gradual resumption have created some uncertainty in
forecasting the operating results and future cash flows used in our
impairment analyses. We believe that we have made reasonable
estimates and judgments. A change in the conditions, circumstances
or strategy (including decisions about the allocation of new ships
amongst brands and the transfer of ships between brands), which
influence determinations of fair value, may result in a need to
recognize an additional impairment charge. The principal
assumptions, all of which are considered Level 3 inputs, used in
our cash flow analyses consisted of:
-- The pace of our return to service, changes in market
conditions and port or other restrictions
-- Forecasted revenues net of our most significant variable
costs, which are travel agent commissions, costs of air and other
transportation, and certain other costs that are directly
associated with onboard and other revenues including credit and
debit card fees
-- The allocation of new ships and the timing of the transfer or
sale of ships amongst brands, as well as the estimated proceeds
from ship sales
-- Weighted-average cost of capital of market participants,
adjusted for the risk attributable to the geographic regions in
which these cruise brands operate
Refer to Note 1 - "General, COVID-19 and the Use of Estimates
and Risks and Uncertainty" for additional discussion.
Goodwill
EA
NAA Segment
(in millions) Segment (a) (b) Total
-------------- ---------- ---------
November 30, 2020 $ 579 $ 228 $ 807
Foreign currency translation adjustment - 4 3
-------------- ---------- -------
August 31, 2021 $ 579 $ 231 $ 810
=== ========= ====== ===
(a) North America and Australia ("NAA")
(b) Europe and Asia ("EA")
Trademarks
NAA EA
(in millions) Segment Segment Total
---------- ---------- --------
November 30, 2020 $ 927 $ 253 $1,180
Foreign currency translation adjustment - 4 3
---------- ---------- ------
August 31, 2021 $ 927 $ 256 $1,183
====== ====== =====
Impairment of Ships
We review our long-lived assets for impairment whenever events
or circumstances indicate potential impairment. As of August 31,
2021, as a result of the continued effect of COVID-19 on our
business and our updated expectations for certain of our ships, we
determined that these ships had net carrying values that exceeded
their respective estimated undiscounted future cash flows. As of
May 31, 2021, we also determined that one ship, which we
subsequently sold, had a net carrying value that exceeded its
estimated undiscounted future cash flows. We determined the fair
value of these ships based on their estimated selling values. We
believe that we have made reasonable estimates and judgments. A
change in the principal assumptions, which influences the
determination of fair value, may result in a need to perform
additional impairment reviews. The principal assumptions, all of
which are considered Level 3 inputs, used in our cash flow analyses
consisted of:
-- Timing of the respective ship's return to service, changes in
market conditions and port or other restrictions
-- Forecasted ship revenues net of our most significant variable
costs, which are travel agent commissions, costs of air and other
transportation and certain other costs that are directly associated
with onboard and other revenues, including credit and debit card
fees
-- Timing of the sale of ships and estimated proceeds
The impairment charges summarized in the table below are
included in ship and other impairments in our Consolidated
Statements of Income (Loss).
Three Months Ended Nine Months Ended
August 31, August 31,
(in millions) 2021 2020 2021 2020
------------ ---------- ---------- -----------
NAA Segment $ 273 $ 836 $ 273 $ 1,356
EA Segment 202 2 251 311
------------ ---------- ---------- ---------
Total ship impairments $ 475 $ 838 $ 524 $ 1,667
=== ======= ====== ====== ========
Refer to Note 1 - "General, COVID-19 and the Use of Estimates
and Risks and Uncertainty" for additional discussion.
Derivative Instruments and Hedging Activities
August 31, November
(in millions) Balance Sheet Location 2021 30, 2020
Derivative liabilities
Derivatives designated as hedging
instruments
Accrued liabilities
Interest rate swaps (a) and other $ 3 $ 5
Other long-term
liabilities 3 5
------------ -----------
Total derivative liabilities $ 7 $ 10
===== ===== === ======
(a) We have interest rate swaps designated as cash flow hedges
whereby we receive floating interest rate payments in exchange for
making fixed interest rate payments. These interest rate swap
agreements effectively changed $192 million at August 31, 2021 and
$248 million at November 30, 2020 of EURIBOR-based floating rate
euro debt to fixed rate euro debt. At August 31, 2021, these
interest rate swaps settle through 2025.
Our derivative contracts include rights of offset with our
counterparties. We have elected to net certain of our derivative
assets and liabilities within counterparties.
August 31, 2021
Total Net
Gross Amounts Amounts Gross Amounts
Offset in Presented in not Offset
the Balance the Balance in the Balance
(in millions) Gross Amounts Sheet Sheet Sheet Net Amounts
-------------- --------------- --------------- ---------------- ---------------
Assets $ - $ - $ - $ - $ -
Liabilities $ 7 $ - $ 7 $ - $ 7
November 30, 2020
Total Net
Gross Amounts Amounts Gross Amounts
Offset in Presented in not Offset
the Balance the Balance in the Balance
(in millions) Gross Amounts Sheet Sheet Sheet Net Amounts
-------------- --------------- --------------- ---------------- ---------------
Assets $ - $ - $ - $ - $ -
Liabilities $ 10 $ - $ 10 $ - $ 10
The effect of our derivatives qualifying and being designated as
hedging instruments recognized in other comprehensive income (loss)
and in net income (loss) was as follows:
Three Months
Ended August Nine Months Ended
31, August 31,
-------------------
(in millions) 2021 2020 2021 2020
--------- -------- ----------- ------------
Gains (losses) recognized in AOCI:
Cross currency swaps - net investment
hedges - included component $ - $ - $ - $ 131
Cross currency swaps - net investment
hedges - excluded component $ - $ - $ - $ (1)
Foreign currency zero cost collars - cash
flow hedges $ - $ 3 $ - $ 2
Foreign currency forwards - cash flow
hedges $ - $ - $ - $ 53
Interest rate swaps - cash flow hedges $ 1 $ 1 $ 3 $ 5
Gains (losses) reclassified from AOCI
- cash flow hedges:
Interest rate swaps - Interest expense,
net of capitalized interest $ (1) $ (1) $ (4) $ (4)
Foreign currency zero cost collars - Depreciation
and amortization $ 1 $ - $ 1 $ -
Gains (losses) recognized on derivative
instruments (amount excluded from effectiveness
testing - net investment hedges)
Cross currency swaps - Interest expense,
net of capitalized interest $ - $ - $ - $ 12
The amount of estimated cash flow hedges' unrealized gains and
losses that are expected to be reclassified to earnings in the next
twelve months is not material.
Financial Risks
Fuel Price Risks
We manage our exposure to fuel price risk by managing our
consumption of fuel. Substantially all of our exposure to market
risk for changes in fuel prices relates to the consumption of fuel
on our ships. We manage fuel consumption through ship maintenance
practices, modifying our itineraries and implementing innovative
technologies.
Foreign Currency Exchange Rate Risks
Overall Strategy
We manage our exposure to fluctuations in foreign currency
exchange rates through our normal operating and financing
activities, including netting certain exposures to take advantage
of any natural offsets and, when considered appropriate, through
the use of derivative and non-derivative financial instruments. Our
primary focus is to monitor our exposure to, and manage, the
economic foreign currency exchange risks faced by our operations
and realized if we exchange one currency for another. We currently
only hedge certain of our ship commitments and net investments in
foreign operations. The financial impacts of the hedging
instruments we do employ generally offset the changes in the
underlying exposures being hedged.
Operational Currency Risks
Our operations primarily utilize the U.S. dollar, Australian
dollar, euro or sterling as their functional currencies. Our
operations also have revenue and expenses denominated in
non-functional currencies. Movements in foreign currency exchange
rates affect our financial statements.
Investment Currency Risks
We consider our investments in foreign operations to be
denominated in stable currencies and of a long-term nature. We
partially mitigate the currency exposure of our investments in
foreign operations by designating a portion of our foreign currency
debt and derivatives as hedges of these investments. As of August
31, 2021, we have designated $481 million of our
sterling-denominated debt as non-derivative hedges of our net
investments in foreign operations. For the three and nine months
ended August 31, 2021, we recognized $15 million of gains and $35
million of losses, respectively, on these non-derivative net
investment hedges in the cumulative translation adjustment section
of other comprehensive income (loss). We also have $9.5 billion of
euro-denominated debt, which provides an economic offset for our
operations with euro functional currency.
Newbuild Currency Risks
Our shipbuilding contracts are typically denominated in euros.
Our decision to hedge a non-functional currency ship commitment for
our cruise brands is made on a case-by-case basis, considering the
amount and duration of the exposure, market volatility, economic
trends, our overall expected net cash flows by currency and other
offsetting risks. We have used foreign currency derivative
contracts to manage foreign currency exchange rate risk for some of
our ship construction payments.
At August 31, 2021, our remaining newbuild currency exchange
rate risk primarily relates to euro-denominated newbuild contract
payments to non-euro functional currency brands, which represent a
total unhedged commitment of $8.4 billion for newbuilds scheduled
to be delivered through 2025.
The cost of shipbuilding orders that we may place in the future
that is denominated in a different currency than our cruise brands'
will be affected by foreign currency exchange rate fluctuations.
These foreign currency exchange rate fluctuations may affect our
decision to order new cruise ships.
Interest Rate Risks
We manage our exposure to fluctuations in interest rates through
our debt portfolio management and investment strategies. We
evaluate our debt portfolio to determine whether to make periodic
adjustments to the mix of fixed and floating rate debt through the
use of interest rate swaps and the issuance of new debt.
Concentrations of Credit Risk
As part of our ongoing control procedures, we monitor
concentrations of credit risk associated with financial and other
institutions with which we conduct significant business. We seek to
manage these credit risk exposures, including counterparty
nonperformance primarily associated with our cash equivalents,
investments, notes receivables, reserve funds related to customer
deposits, future financing facilities, contingent obligations,
derivative instruments, insurance contracts, long-term ship
charters and new ship progress payment guarantees, by:
-- Conducting business with well-established financial
institutions, insurance companies and export credit agencies
-- Diversifying our counterparties
-- Having guidelines regarding credit ratings and investment
maturities that we follow to help safeguard liquidity and minimize
risk
-- Generally requiring collateral and/or guarantees to support
notes receivable on significant asset sales, long-term ship
charters and new ship progress payments to shipyards
At August 31, 2021, our exposures under derivative instruments
were not material. We also monitor the creditworthiness of travel
agencies and tour operators in Asia, Australia and Europe, which
includes charter-hire agreements in Asia and credit and debit card
providers to which we extend credit in the normal course of our
business. Concentrations of credit risk associated with trade
receivables and other receivables, charter-hire agreements and
contingent obligations are not considered to be material,
principally due to the large number of unrelated accounts, the
nature of these contingent obligations and their short maturities.
Normally, we have not required collateral or other security to
support normal credit sales. Historically, we have not experienced
significant credit losses, including counterparty nonperformance,
however, because of the impact COVID-19 is having on economies, we
have experienced, and may continue to experience, an increase in
credit losses.
Our credit exposure also includes contingent obligations related
to cash payments received directly by travel agents and tour
operators for cash collected by them on cruise sales in Australia
and most of Europe where we are obligated to honor our guests'
cruise payments made by them to their travel agents and tour
operators regardless of whether we have received these
payments.
NOTE 6 - Segment Information
Our operating segments are reported on the same basis as the
internally reported information that is provided to our chief
operating decision maker ("CODM"), who is the President and Chief
Executive Officer of Carnival Corporation and Carnival plc. The
CODM assesses performance and makes decisions to allocate resources
for Carnival Corporation & plc based upon review of the results
across all of our segments. Our four reportable segments are
comprised of (1) NAA cruise operations, (2) EA cruise operations,
(3) Cruise Support and (4) Tour and Other.
The operating segments within each of our NAA and EA reportable
segments have been aggregated based on the similarity of their
economic and other characteristics, including geographic guest
sourcing. Our Cruise Support segment includes our portfolio of
leading port destinations and other services, all of which are
operated for the benefit of our cruise brands. Our Tour and Other
segment represents the hotel and transportation operations of
Holland America Princess Alaska Tours and other operations.
Three Months Ended August 31,
Operating Selling Depreciation
costs and and and Operating
(in millions) Revenues expenses administrative amortization income (loss)
---------- ------------ ----------------- --------------- ----------------
2021
NAA $ 271 $ 966 $ 219 $ 343 $ (1,257)
EA 232 610 139 180 (696)
Cruise Support 14 13 61 34 (94)
Tour and Other 28 27 6 6 (10)
---------- ------------ ----------------- --------------- ----------------
$ 546 $ 1,616 $ 425 $ 562 $ (2,057)
====== ======== === ============ === ========== ============
2020
NAA $ 15 $ 1,292 $ 144 $ 348 $ (1,770)
EA (4) 225 71 165 (465)
Cruise Support 1 12 44 32 (86)
Tour and Other 20 20 5 6 (11)
---------- ------------ ----------------- --------------- ----------------
$ 31 $ 1,549 $ 265 $ 551 $ (2,333)
====== ======== === ============ === ========== ============
Nine Months Ended August 31,
Operating Selling Depreciation
costs and and and Operating
(in millions) Revenues expenses administrative amortization income (loss)
---------- ------------ ----------------- --------------- ----------------
2021
NAA $ 291 $ 1,647 $ 672 $ 1,018 $ (3,046)
EA 274 1,106 378 550 (1,760)
Cruise Support 15 28 232 95 (341)
Tour and Other 42 51 23 18 (49)
---------- ------------ ----------------- --------------- ----------------
$ 621 $ 2,832 $ 1,305 $ 1,681 $ (5,196)
====== ======== === ============ === ========== ============
2020
NAA $ 3,612 $ 5,197 $ 841 $ 1,081 $ (4,827) (a)
EA 1,785 2,314 404 499 (2,208) (b)
Cruise Support 67 (22) 170 96 (177)
Tour and Other 96 67 19 22 (12)
---------- ------------ ----------------- --------------- ----------------
$ 5,561 $ 7,556 $ 1,435 $ 1,698 $ (7,223)
====== ======== === ============ === ========== ============
(a) Includes $1.3 billion of goodwill impairment charges.
(b) Includes $777 million of goodwill impairment charges.
Revenue by geographic areas, which are based on where our guests
are sourced, were as follows:
Nine Months
Ended August
(in millions) 31, 2020
-----------------
North America $ 3,065
Europe 1,622
Australia and Asia 681
Other 192
---------------
$ 5,561
=== ==========
As a result of the gradual resumption of our guest cruise
operations, we have experienced a minimal amount of revenue for the
three and nine months ended August 31, 2021 and the three months
ended August 31, 2020. As a result, current year data is not
meaningful and is not included in the table.
NOTE 7 - Earnings Per Share
Three Months Ended Nine Months Ended
August 31, August 31,
---------------------- -----------------------
(in millions, except per share data) 2021 2020 2021 2020
------------ -------- ----------- ----------
Net income (loss) for basic and diluted
earnings per share $ (2,836) $(2,858) $ (6,881) $(8,014)
======== ======= ======= =======
Weighted-average shares outstanding 1,133 775 1,120 727
Dilutive effect of equity plans - - - -
------------ -------- ----------- --------
Diluted weighted-average shares outstanding 1,133 775 1,120 727
============ ======== =========== ========
Basic earnings per share $ (2.50) $ (3.69) $ (6.14) $(11.03)
======== ======= ======= =======
Diluted earnings per share $ (2.50) $ (3.69) $ (6.14) $(11.03)
======== ======= ======= =======
Antidilutive shares excluded from diluted earnings per share
computations were as follows:
Three Months Ended Nine Months Ended
August 31, August 31,
(in millions) 2021 2020 2021 2020
----------- ------- ---------- ---------
Equity awards 3 - 3 1
Convertible Notes 54 186 54 102
----------- ------- ---------- -------
Total antidilutive securities 56 186 57 103
=========== ======= ========== =======
NOTE 8 - Supplemental Cash Flow Information
November 30,
(in millions) August 31, 2021 2020
----------------- ----------------
Cash and cash equivalents (Consolidated
Balance Sheets) $ 7,151 $ 9,513
Restricted cash included in prepaid expenses
and other and other assets 178 179
----------------- --------------
Total cash, cash equivalents and restricted
cash (Consolidated Statements of Cash Flows) $ 7,329 $ 9,692
=== ============ ==========
NOTE 9 - Other Assets
We have a minority interest in the White Pass & Yukon Route
("White Pass") that includes port, railroad and retail operations
in Skagway, Alaska. As a result of the effects of COVID-19 on the
2021 Alaska season, we evaluated whether our investment in White
Pass was other than temporarily impaired and performed an
impairment assessment during the quarter ended February 28, 2021.
As a result of our assessment, we recognized an impairment charge
of $17 million for our investment in White Pass in other income
(expense), net. As of August 31, 2021, our investment in White Pass
was $76 million, consisting of $51 million in equity and a loan of
$25 million. As of November 30, 2020, our investment in White Pass
was $94 million, consisting of $75 million in equity and a loan of
$19 million.
We have a minority interest in CSSC Carnival Cruise Shipping
Limited ("CSSC-Carnival"), a China-based cruise company which will
operate its own fleet designed to serve the Chinese market. Our
investment in CSSC-Carnival was $207 million as of August 31, 2021
and $140 million as of November 30, 2020. In December 2019, we sold
to CSSC-Carnival a controlling interest in an entity with full
ownership of two EA segment ships and recognized a related gain of
$107 million, included in other operating expenses in our
Consolidated Statements of Income (Loss). In April 2021, we sold to
CSSC-Carnival our remaining $283 million investment in the minority
interest of the same entity.
NOTE 10 - Property and Equipment
Ship Sales
During 2021, we completed the sale of one NAA segment ship,
which represents a passenger-capacity reduction of 670 for our NAA
segment and one EA segment ship, which represents a
passenger-capacity reduction of 1,180 for our EA segment.
NOTE 11 - Shareholders' Equity
Stock Swap Program
We have a program that allows us to realize a net cash benefit
when Carnival Corporation common stock is trading at a premium to
the price of Carnival plc ordinary shares (the "Stock Swap
Program").
During the three and nine months ended August 31, 2021, under
the Stock Swap Program, we sold 4.6 million shares of Carnival
Corporation's common stock and repurchased the same amount of
Carnival plc ordinary shares resulting in net proceeds of $10
million, which were used for general corporate purposes. During
2020, there were no sales or repurchases under the Stock Swap
Program.
Equity Offering
In February 2021, we completed a public offering of 40.5 million
shares of Carnival Corporation's common stock at a price per share
of $25.10, resulting in net proceeds of $996 million.
SCHEDULE B
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Cautionary Note Concerning Factors That May Affect Future
Results
Some of the statements, estimates or projections contained in
this document are "forward-looking statements" that involve risks,
uncertainties and assumptions with respect to us, including some
statements concerning future results, operations, outlooks, plans,
goals, reputation, cash flows, liquidity and other events which
have not yet occurred. These statements are intended to qualify for
the safe harbors from liability provided by Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements other than statements of
historical facts are statements that could be deemed
forward-looking. These statements are based on current
expectations, estimates, forecasts and projections about our
business and the industry in which we operate and the beliefs and
assumptions of our management. We have tried, whenever possible, to
identify these statements by using words like "will," "may,"
"could," "should," "would," "believe," "depends," "expect," "goal,"
"anticipate," "forecast," "project," "future," "intend," "plan,"
"estimate," "target," "indicate," "outlook," and similar
expressions of future intent or the negative of such terms.
Forward-looking statements include those statements that relate
to our outlook and financial position including, but not limited
to, statements regarding:
* Pricing * Goodwill, ship and trademark fair values
* Liquidity and credit ratings
* Booking levels
* Adjusted earnings per share
* Occupancy
* Return to guest cruise operations
* Interest, tax and fuel expenses
* Currency exchange rates
* Estimates of ship depreciable lives and residual * Impact of the COVID-19 coronavirus global pandemic on
values our financial condition and results of operations
Because forward-looking statements involve risks and
uncertainties, there are many factors that could cause our actual
results, performance or achievements to differ materially from
those expressed or implied by our forward-looking statements. This
note contains important cautionary statements of the known factors
that we consider could materially affect the accuracy of our
forward-looking statements and adversely affect our business,
results of operations and financial position. Additionally, many of
these risks and uncertainties are currently amplified by and will
continue to be amplified by, or in the future may be amplified by,
the COVID-19 outbreak. It is not possible to predict or identify
all such risks. There may be additional risks that we consider
immaterial or which are unknown. These factors include, but are not
limited to, the following:
-- COVID-19 has had, and is expected to continue to have, a
significant impact on our financial condition and operations, which
impacts our ability to obtain acceptable financing to fund
resulting reductions in cash from operations. The current, and
uncertain future, impact of the COVID-19 outbreak, including its
effect on the ability or desire of people to travel (including on
cruises), is expected to continue to impact our results,
operations, outlooks, plans, goals, reputation, litigation, cash
flows, liquidity, and stock price.
-- World events impacting the ability or desire of people to
travel have and may continue to lead to a decline in demand for
cruises.
-- Incidents concerning our ships, guests or the cruise vacation
industry as well as adverse weather conditions and other natural
disasters have in the past and may, in the future, impact the
satisfaction of our guests and crew and lead to reputational
damage.
-- Changes in and non-compliance with laws and regulations under
which we operate, such as those relating to health, environment,
safety and security, data privacy and protection, anti-corruption,
economic sanctions, trade protection and tax have in the past and
may, in the future, lead to litigation, enforcement actions, fines,
penalties and reputational damage.
-- Breaches in data security and lapses in data privacy as well
as disruptions and other damages to our principal offices,
information technology operations and system networks, including
the recent ransomware incidents, and failure to keep pace with
developments in technology may adversely impact our business
operations, the satisfaction of our guests and crew and may lead to
reputational damage.
-- Ability to recruit, develop and retain qualified shipboard
personnel who live away from home for extended periods of time may
adversely impact our business operations, guest services and
satisfaction.
-- Increases in fuel prices, changes in the types of fuel
consumed and availability of fuel supply may adversely impact our
scheduled itineraries and costs.
-- Fluctuations in foreign currency exchange rates may adversely impact our financial results.
-- Overcapacity and competition in the cruise and land-based
vacation industry may lead to a decline in our cruise sales,
pricing and destination options.
-- Inability to implement our shipbuilding programs and ship
repairs, maintenance and refurbishments may adversely impact our
business operations and the satisfaction of our guests.
The ordering of the risk factors set forth above is not intended
to reflect our indication of priority or likelihood.
Forward-looking statements should not be relied upon as a
prediction of actual results. Subject to any continuing obligations
under applicable law or any relevant stock exchange rules, we
expressly disclaim any obligation to disseminate, after the date of
this document, any updates or revisions to any such forward-looking
statements to reflect any change in expectations or events,
conditions or circumstances on which any such statements are
based.
Recent Developments
Resumption of Guest Cruise Operations
As of August 31, 2021, eight of our nine brands have resumed
guest cruise operations as part of our gradual return to service,
with 35% of our capacity operating with guests on board. We have
already announced plans to resume guest cruise operations with 50
ships, or 61% of our capacity, by November 30, 2021 and 71 ships,
or 75% of our capacity, by June 2022, with more announcements
forthcoming for the remaining ships. Consistent with our planned
gradual resumption of guest cruise operations, we continue to
expect to have our full fleet back in operation in the spring of
2022.
Update on Refinancing
Refer to "Liquidity, Financial Condition and Capital
Resources."
Refer to "Risk factors" - "COVID-19 has had, and is expected to
continue to have, a significant impact on our financial condition
and operations, which impacts our ability to obtain acceptable
financing to fund resulting reductions in cash from operations. The
current, and uncertain future, impact of the COVID-19 outbreak,
including its effect on the ability or desire of people to travel
(including on cruises), is expected to continue to impact our
results, operations, outlooks, plans, goals, reputation,
litigation, cash flows, liquidity, and stock price."
New Accounting Pronouncements
Refer to Note 1 - "General, Accounting Pronouncements" of the
consolidated financial statements for additional discussion
regarding accounting pronouncements.
Critical Accounting Estimates
For a discussion of our critical accounting estimates, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" that is included in the Form 10-K.
Seasonality
Our passenger ticket revenues are seasonal. Historically, demand
for cruises has been greatest during our third quarter, which
includes the Northern Hemisphere summer months, although 2021 will
continue to be adversely impacted by COVID-19. This higher demand
during the third quarter results in higher ticket prices and
occupancy levels and, accordingly, the largest share of our
operating income is earned during this period. This historical
trend has been disrupted by the pause and gradual resumption of
guest cruise operations. In addition, substantially all of Holland
America Princess Alaska Tours' revenue and net income (loss) is
generated from May through September in conjunction with Alaska's
cruise season. During 2021, the Alaska cruise season has been and
will continue to be adversely impacted by the effects of
COVID-19.
Statistical Information
Three Months Ended Nine Months Ended
August 31, August 31,
------------------------ -------------------------
2021 2020 2021 2020
--------------- ------- --------------- --------
Available Lower Berth Days ("ALBDs")
(in thousands) (a) 3,788 (c) 4,405 (c)
Occupancy percentage (b) 54.2% (c) 50.4% (c)
Fuel consumption in metric tons (in
thousands) 344 325 852 1,639
Fuel cost per metric ton consumed $ 537 $ 371 $ 472 $ 438
Currencies (USD to 1)
AUD $ 0.75 $ 0.70 $ 0.76 $ 0.67
CAD $ 0.80 $ 0.74 $ 0.80 $ 0.74
EUR $ 1.19 $ 1.15 $ 1.20 $ 1.12
GBP $ 1.39 $ 1.28 $ 1.38 $ 1.27
RMB $ 0.15 $ 0.14 $ 0.15 $ 0.14
(a) ALBD is a standard of passenger capacity for the period that
we use to approximate rate and capacity variances, based on
consistently applied formulas that we use to perform analyses to
determine the main non-capacity driven factors that cause our
cruise revenues and expenses to vary. ALBDs assume that each cabin
we offer for sale accommodates two passengers and is computed by
multiplying passenger capacity by revenue-producing ship operating
days in the period.
(b) In accordance with cruise industry practice, occupancy is
calculated using a denominator of ALBDs, which assumes two
passengers per cabin even though some cabins can accommodate three
or more passengers. Percentages in excess of 100% indicate that on
average more than two passengers occupied some cabins.
(c) As a result of pause in guest cruise operations in 2020,
prior year data for these metrics was not meaningful and was not
included in the table.
We paused our guest cruise operations in mid-March 2020 and were
in a pause for a majority of 2020. In 2021, we began the gradual
resumption of guest cruise operations which is continuing to have a
material impact on all aspects of our business.
Results of Operations
Consolidated
Three Months Nine Months
Ended Ended August
August 31, 31,
------------------ ------- ------------------ -------
% increase % increase
(in millions) 2021 2020 Change (decrease) 2021 2020 Change (decrease)
-------- -------- -------- ------------ -------- -------- -------- ------------
Revenues
Passenger
ticket $ 303 $ - $ 303 100% $ 326 $ 3,680 $(3,354) (91)%
Onboard and
other 243 31 212 676% 295 1,881 (1,586) (84)%
-------- -------- -------- ------- -------- -------- -------- -------
546 31 515 1643% 621 5,561 (4,940) (89)%
-------- -------- -------- ------- -------- -------- -------- -------
Operating Costs
and
Expenses
Commissions,
transportation
and other 79 34 44 128% 116 1,098 (983) (89)%
Onboard and
other 72 9 64 749% 94 593 (499) (84)%
Payroll and
related 375 248 126 51% 834 1,563 (729) (47)%
Fuel 182 121 61 51% 398 718 (320) (45)%
Food 52 19 33 172% 80 404 (325) (80)%
Ship and other
impairments 475 910 (435) (48)% 524 1,829 (1,305) (71)%
Other operating 381 208 174 84% 786 1,349 (564) (42)%
-------- -------- -------- ------- -------- -------- -------- -------
1,616 1,549 67 4% 2,832 7,556 (4,724) (63)%
Selling and
administrative 425 265 161 61% 1,305 1,435 (130) (9)%
Depreciation
and
amortization 562 551 11 2% 1,681 1,698 (17) (1)%
Goodwill
impairment - - - 100% - 2,096 (2,096) (100)%
-------- -------- -------- ------- -------- -------- -------- -------
2,603 2,364 239 10% 5,817 12,784 (6,967) (54)%
-------- -------- -------- ------- -------- -------- -------- -------
Operating Income
(Loss) $(2,057) $(2,333) $ 276 (12)% $(5,196) $(7,223) $ 2,027 (28)%
======= ======= === === ======= ======= ======= ======= =======
NAA
Three Months Nine Months
Ended Ended August
August 31, 31,
------------------ ------- ------------------ -------
% increase % increase
(in millions) 2021 2020 Change (decrease) 2021 2020 Change (decrease)
-------- -------- -------- ------------ -------- -------- -------- ------------
Revenues
Passenger
ticket $ 151 $ 5 $ 145 2818% $ 152 $ 2,329 $(2,177) (93)%
Onboard and
other 121 9 111 1174% 139 1,283 (1,145) (89)%
-------- -------- -------- ------- -------- -------- -------- -------
271 15 257 1753% 291 3,612 (3,321) (92)%
-------- -------- -------- ------- -------- -------- -------- -------
Operating Costs
and
Expenses 966 1,292 (326) (25)% 1,647 5,197 (3,551) (68)%
Selling and
administrative 219 144 75 52% 672 841 (169) (20)%
Depreciation
and
amortization 343 348 (6) (2)% 1,018 1,081 (63) (6)%
Goodwill
impairment - - - -% - 1,319 (1,319) (100)%
-------- -------- -------- ------- -------- -------- -------- -------
1,528 1,785 (257) (14)% 3,337 8,439 (5,102) (60)%
-------- -------- -------- ------- -------- -------- -------- -------
Operating
Income (Loss) $(1,257) $(1,770) $ 514 (29)% $(3,046) $(4,827) $ 1,781 (37)%
======= ======= === === ======= ======= ======= ======= =======
EA
Three Months Nine Months
Ended Ended August
August 31, 31,
-------------- -------- ------------------ -------
% increase % increase
(in millions) 2021 2020 Change (decrease) 2021 2020 Change (decrease)
------ ------ ------ ------------ -------- -------- -------- ------------
Revenues
Passenger
ticket $ 164 $ (4) $ 168 (3763)% $ 186 $ 1,393 $(1,207) (87)%
Onboard and
other 69 - 69 100% 88 393 (305) (78)%
------ ------ ------ -------- -------- -------- -------- -------
232 (4) 237 (5294)% 274 1,785 (1,512) (85)%
------ ------ ------ -------- -------- -------- -------- -------
Operating Costs
and
Expenses 610 225 385 171% 1,106 2,314 (1,208) (52)%
Selling and
administrative 139 71 68 95% 378 404 (26) (6)%
Depreciation
and
amortization 180 165 15 9% 550 499 51 10%
Goodwill
impairment - - - -% - 777 (777) (100)%
------ ------ ------ -------- -------- -------- -------- -------
929 461 468 102% 2,034 3,994 (1,960) (49)%
------ ------ ------ -------- -------- -------- -------- -------
Operating
Income (Loss) $(696) $(465) $(231) 50% $(1,760) $(2,208) $ 448 (20)%
===== ===== ===== ======== ======= ======= ======= =======
We paused our guest cruise operations in mid-March 2020. As of
August 31, 2021, eight of our nine brands have resumed guest cruise
operations as part of our gradual return to service. The gradual
resumption of guest cruise operations is continuing to have a
material impact on all aspects of our business, including our
liquidity, financial position and results of operations. The full
extent of the impact will be determined by our gradual return to
service and the length of time COVID-19 influences travel
decisions.
As of August 31, 2021, 35% of our capacity was operating with
guests on board. As a result of the gradual resumption of our guest
cruise operations, revenues for the three months ended August 31,
2021 have increased compared to the three months ended August 31,
2020, which was a period of full pause in guest cruise operations.
Revenues for the nine months ended August 31, 2021 have decreased
compared to the nine months ended August 31, 2020 as a result of
the pause in guest operations beginning in the second quarter of
2020. Occupancy in the third quarter of 2021 was 54%, which is
considerably lower than our historical levels. We continue to
expect a net loss on both a U.S. GAAP and adjusted basis for the
fourth quarter of 2021 and the full year ending November 30,
2021.
As we continue our return to service, we expect to continue
incurring incremental restart related spend including the cost of
returning ships to guest cruise operations, returning crew members
to our ships and maintaining enhanced health and safety protocols.
During 2020, while maintaining compliance, environmental protection
and safety, we significantly reduced ship operating expenses,
including cruise payroll and related expenses, food, fuel,
insurance and port charges by transitioning ships into paused
status, either at anchor or in port, and staffed at a safe manning
level.
There were no goodwill impairment charges for the three and nine
months ended August 31, 2021 and for the three months ended August
31, 2020. For the nine months ended August 31, 2020, we recognized
goodwill impairment charges of $2.1 billion.
We recognized ship impairment charges of $0.5 billion and $0.8
billion for the three months ended August 31, 2021 and 2020,
respectively and $0.5 billion and $1.7 billion for the nine months
ended August 31, 2021 and 2020, respectively.
Nonoperating Income (Expense)
Interest expense, net of capitalized interest, increased by $107
million to $418 million for the three months ended August 31, 2021
from $310 million for the three months ended August 31, 2020.
Interest expense, net of capitalized interest, increased by $0.7
billion to $1.3 billion for the nine months ended August 31, 2021
from $0.5 billion for the nine months ended August 31, 2020. These
increases were caused by additional debt borrowings with higher
interest rates since the pause in guest cruise operations.
Loss on debt extinguishment increased by $156 million to $376
million for the three months ended August 31, 2021 from $220
million for the three months ended August 31, 2020. Loss on debt
extinguishment increased by $153 million to $372 million for the
nine months ended August 31, 2021 from $220 million for the nine
months ended August 31, 2020. These increases were caused by the
repurchase of $2.0 billion of the aggregate principal of the 2023
Senior Secured Notes.
Key Performance Non-GAAP Financial Indicators
The table below reconciles Adjusted net income (loss) and
Adjusted EBITDA to Net income (loss) and Adjusted earnings per
share to Earnings per share for the periods presented:
Three Months Ended Nine Months Ended
August 31, August 31,
---------------------- ---------------------
(in millions, except per share data) 2021 2020 2021 2020
------------ -------- ----------- --------
Net income (loss)
U.S. GAAP net income (loss) $ (2,836) $(2,858) $ (6,881) $(8,014)
(Gains) losses on ship sales and impairments 472 937 510 3,819
(Gains) losses on debt extinguishment,
net 376 220 372 220
Restructuring expenses 2 3 5 42
Other - - 17 3
------------ -------- ----------- --------
Adjusted net income (loss) $ (1,986) $(1,699) $ (5,976) $(3,930)
-------- ------- ------- -------
Interest expense, net of capitalized
interest 418 310 1,253 547
Interest income (3) (3) (10) (15)
Income tax expense, net (23) (2) (17) (2)
Depreciation and amortization 562 551 1,681 1,698
------------ -------- ----------- --------
Adjusted EBITDA $ (1,033) $ (844) $ (3,069) $(1,702)
======== ======= ======= =======
Weighted-average shares outstanding 1,133 775 1,120 727
============ ======== =========== ========
Earnings per share
U.S. GAAP diluted earnings per share $ (2.50) $ (3.69) $ (6.14) $(11.03)
(Gains) losses on ship sales and impairments 0.42 1.21 0.46 5.26
(Gains) losses on debt extinguishment,
net 0.33 0.28 0.33 0.30
Restructuring expenses - - - 0.06
Other - - 0.02 -
------------ -------- ----------- --------
Adjusted earnings per share $ (1.75) $ (2.19) $ (5.34) $ (5.41)
======== ======= ======= =======
Explanations of Non-GAAP Financial Measures
We use adjusted net income (loss) and adjusted earnings per
share as non-GAAP financial measures of our cruise segments' and
the company's financial performance. These non-GAAP financial
measures are provided along with U.S. GAAP net income (loss) and
U.S. GAAP diluted earnings per share.
We believe that gains and losses on ship sales, impairment
charges, gains and losses on debt extinguishments, restructuring
costs, and other gains and losses are not part of our core
operating business and are not an indication of our future earnings
performance. Therefore, we believe it is more meaningful for these
items to be excluded from our net income (loss) and earnings per
share and, accordingly, we present adjusted net income (loss) and
adjusted earnings per share excluding these items.
Adjusted EBITDA is a non-GAAP measure, and we believe that the
presentation of Adjusted EBITDA provides additional information to
investors about our operating profitability adjusted for certain
non-cash items and other gains and expenses that we believe are not
part of our core operating business and are not an indication of
our future earnings performance. Further, we believe that the
presentation of Adjusted EBITDA provides additional information to
investors about our ability to operate our business in compliance
with the restrictions set forth in our debt agreements. We define
Adjusted EBITDA as adjusted net income (loss) adjusted for (i)
interest, (ii) taxes and (iii) depreciation and amortization. There
are material limitations to using Adjusted EBITDA. Adjusted EBITDA
does not take into account certain significant items that directly
affect our net income (loss). These limitations are best addressed
by considering the economic effects of the excluded items
independently, and by considering Adjusted EBITDA in conjunction
with net income (loss) as calculated in accordance with U.S.
GAAP.
The presentation of our non-GAAP financial information is not
intended to be considered in isolation from, as a substitute for,
or superior to the financial information prepared in accordance
with U.S. GAAP. It is possible that our non-GAAP financial measures
may not be exactly comparable to the like-kind information
presented by other companies, which is a potential risk associated
with using these measures to compare us to other companies.
Liquidity, Financial Condition and Capital Resources
As of August 31, 2021, we had $7.8 billion of liquidity
including cash and short-term investments. We have taken
significant actions to preserve cash and obtain additional
financing to increase our liquidity. In addition, we expect to
continue to pursue additional refinancing opportunities to reduce
interest expense and extend maturities. Since December 2020, we
have completed the following:
Liquidity Actions:
-- In December 2020, we borrowed $1.5 billion under export
credit facilities due in semi-annual installments through 2033.
-- In February 2021, we issued an aggregate principal amount of
$3.5 billion senior unsecured notes that mature on March 1, 2027.
The 2027 Senior Unsecured Notes bear interest at a rate of 5.8% per
year.
-- In February 2021, we completed a public offering of 40.5
million shares of Carnival Corporation's common stock at a price
per share of $25.10, resulting in net proceeds of $996 million.
-- In June 2021, we entered into an amendment to reprice our
$2.8 billion 2025 Secured Term Loan (the "2025 Secured Term Loan").
The amended U.S. dollar tranche bears interest at a rate per annum
equal to LIBOR (with a 0.75% floor) plus 3%. The amended euro
tranche bears interest at a rate per annum equal to EURIBOR (with a
0% floor) plus 3.75%.
-- In July 2021, we issued $2.4 billion aggregate principal
amount of 4% first-priority senior secured notes due in 2028 (the
"2028 Senior Secured Notes"). We used the net proceeds from the
issuance to purchase $2.0 billion aggregate principal amount of the
2023 Senior Secured Notes. The 2028 Senior Secured Notes mature on
August 1, 2028.
-- In July 2021, we borrowed $544 million under an export credit
facility due in semi-annual installments through 2033.
-- We amended substantially all of our drawn export credit
facilities to defer approximately $1.0 billion of principal
payments that would otherwise have been due over a one year period
commencing April 1, 2021 until March 31, 2022, with repayments to
be made over the following five years. Of these amendments, the
deferral of an aggregate principal amount of $0.7 billion became
effective as of August 31, 2021, and an aggregate principal amount
of $0.3 billion became effective after August 31, 2021.
Covenant Updates:
-- As of September 14, 2021, we have entered into amendments
aligning the financial covenants of substantially all our drawn
export credit facilities, with the exception of $0.4 billion, with
our other facilities. Refer to Note 3 - "Debt" of the consolidated
financial statements for additional details.
Certain of our debt instruments contain provisions that may
limit our ability to incur or guarantee additional
indebtedness.
As we continue our return to service, we expect to continue
incurring incremental restart related spend including the cost of
returning ships to guest cruise operations, returning crew members
to our ships and maintaining enhanced health and safety protocols.
We expect our monthly average cash burn rate for the fourth quarter
to be higher than the prior quarters of 2021, due to the timing of
incremental restart expenditures. Our monthly average cash burn
rate includes revenues earned on voyages, ongoing ship operating
and administrative expenses, restart spend, working capital changes
(excluding changes in customer deposits), interest expense and
capital expenditures (net of export credit facilities), and
excludes scheduled debt maturities as well as other cash collateral
to be provided.
We had a working capital deficit of $0.6 billion as of August
31, 2021 compared to working capital of $1.9 billion as of November
30, 2020. The decrease in working capital was driven by a decrease
in cash and short-term investments. Historically, during our normal
operations, we operate with a substantial working capital deficit.
This deficit is mainly attributable to the fact that, under our
business model, substantially all of our passenger ticket receipts
are collected in advance of the applicable sailing date. These
advance passenger receipts generally remain a current liability
until the sailing date. The cash generated from these advance
receipts is used interchangeably with cash on hand from other
sources, such as our borrowings and other cash from operations. The
cash received as advanced receipts can be used to fund operating
expenses, pay down our debt, make long-term investments or any
other use of cash. Included within our working capital are $2.7
billion and $1.9 billion of customer deposits as of August 31, 2021
and November 30, 2020, respectively. We have paid and expect to
continue to pay cash refunds of customer deposits with respect to a
portion of cancelled cruises. The amount of cash refunds to be paid
may depend on the level of guest acceptance of FCCs and future
cruise cancellations. We record a liability for FCCs only to the
extent we have received cash from guests with bookings on cancelled
sailings. We have agreements with a number of credit card
processors that transact customer deposits related to our cruise
vacations. Certain of these agreements allow the credit card
processors to request, under certain circumstances, that we provide
a reserve fund in cash. In addition, we have a relatively low-level
of accounts receivable and limited investment in inventories. We
expect that we will have working capital deficits in the future
once we return to normal guest cruise operations.
Refer to Note 1 - "General, Liquidity and Management's Plans" of
the consolidated financial statements for additional discussion
regarding our liquidity.
Sources and Uses of Cash
Operating Activities
Our business used $3.7 billion of net cash flows in operating
activities during the nine months ended August 31, 2021, a decrease
of $0.9 billion, compared to $4.6 billion of net cash used for the
same period in 2020.
Investing Activities
During the nine months ended August 31, 2021, net cash used in
investing activities was $3.5 billion. This was driven by the
following:
-- Capital expenditures of $2.8 billion for our ongoing new shipbuilding program
-- Capital expenditures of $332 million for ship improvements
and replacements, information technology and buildings and
improvements
-- Proceeds from sale of ships and other of $351 million
-- Purchases of short-term investments of $2.7 billion
-- Proceeds from maturity of short-term investments of $2.0 billion
During the nine months ended August 31, 2020, net cash used in
investing activities was $1.5 billion. This was driven by the
following:
-- Capital expenditures of $1.0 billion for our ongoing new shipbuilding program
-- Capital expenditures of $855 million for ship improvements
and replacements, information technology and buildings and
improvements
-- Proceeds from sale of ships of $271 million
-- Proceeds of $220 million from the settlement of outstanding derivatives
Financing Activities
During the nine months ended August 31, 2021, net cash provided
by financing activities of $4.9 billion was caused by the
following:
-- Issuances of $7.9 billion of long-term debt, including net
proceeds of $3.4 billion from the issuance of the 2027 Senior
Unsecured Notes, net proceeds of $2.4 billion from the issuance of
the 2028 Senior Secured Notes, and net proceeds of $2.1 billion
borrowed under export credit facilities to fund ship deliveries
-- Repayments of $3.5 billion of long-term debt, including $2.0
billion repurchase of the 2023 Senior Secured Notes
-- Premium payments of $286 million related to the repurchase of the 2023 Senior Secured Notes
-- Net proceeds of $1.0 billion from Carnival Corporation common stock
-- Purchases of $94 million of Carnival plc ordinary shares and
issuances of $105 million of Carnival Corporation common stock
under our Stock Swap Program
-- Payments of $233 million related to debt issuance costs
During the nine months ended August 31, 2020, net cash provided
by financing activities of $13.7 billion was caused by the
following:
-- Net proceeds from short-term borrowings of $3.1 billion in
connection with our availability of, and needs for, cash at various
times throughout the period, including proceeds of $3.0 billion
from the Revolving Facility
-- Repayments of $896 million of long-term debt, including the
$222 million that was cash settled to repurchase a portion of the
Convertible Notes
-- Issuances of $11.5 billion of long-term debt, including net
proceeds of $3.9 billion from the issuance of the 2023 Senior
Secured Notes, net proceeds of $2.6 billion from the issuance of
the 2025 Secured Term Loan, net proceeds of $2.0 billion from the
issuance of Convertible Notes, net proceeds of $1.2 billion from
the issuance of the 2026 Senior Secured Notes and net proceeds of
$0.9 billion from the issuance of the 2027 Senior Secured
Notes.
-- Payments of cash dividends of $689 million
-- Purchases of $12 million of Carnival plc ordinary shares in
open market transactions under our Repurchase Program
-- Net proceeds of $556 million from our public offering of Carnival Corporation common stock
-- Net proceeds of $222 million from a registered direct
offering of Carnival Corporation common stock used to repurchase a
portion of the Convertible Notes
Funding Sources
As of August 31, 2021, we had $7.8 billion of liquidity
including cash and short-term investments. In addition, we had $5.8
billion of export credit facilities to fund ship deliveries planned
through 2024.
(in billions) 2021 2022 2023 2024
------ ---- ---- ------
Future export credit facilities at August
31, 2021 (a) $ - $3.3 $1.9 $0.6
(a) Under the terms of these export credit facilities, we are
required to comply with the Interest Coverage Covenant and the Debt
to Capital Covenant, among others. We entered into supplemental
agreements to waive compliance with the Interest Coverage Covenant
and the Debt to Capital Covenant for our unfunded export credit
facilities through August 31, 2022 or November 30, 2022, as
applicable. We will be required to comply with such covenants
beginning with the next testing date of November 30, 2022 or
February 28, 2023, as applicable.
Many of our debt agreements contain various other financial
covenants, including those described in Note 3 - "Debt" and in Note
5 - "Debt" in the annual consolidated financial statements, which
are included within our Form 10-K. At August 31, 2021, we were in
compliance with the applicable covenants under our debt
agreements.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements,
including guarantee contracts, retained or contingent interests,
certain derivative instruments and variable interest entities that
either have, or are reasonably likely to have, a current or future
material effect on our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
For a discussion of our hedging strategies and market risks, see
the discussion below and Note 10 - "Fair Value Measurements,
Derivative Instruments and Hedging Activities and Financial Risks"
in our consolidated financial statements and Management's
Discussion and Analysis of Financial Condition and Results of
Operations within our Form 10-K.
Interest Rate Risks
The composition of our debt, including the effect of interest
rate swaps, was as follows:
August 31, 2021
-----------------
Fixed rate 49%
EUR fixed rate 14%
Floating rate 20%
EUR floating rate 16%
GBP floating rate 2%
Item 4. Controls and Procedures.
A. Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed by
us in the reports that we file or submit under the Securities
Exchange Act of 1934, is recorded, processed, summarized and
reported, within the time periods specified in the U.S. Securities
and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us
in our reports that we file or submit under the Securities Exchange
Act of 1934 is accumulated and communicated to our management,
including our principal executive and principal financial officers,
or persons performing similar functions, as appropriate, to allow
timely decisions regarding required disclosure.
Our President and Chief Executive Officer and our Chief
Financial Officer and Chief Accounting Officer have evaluated our
disclosure controls and procedures and have concluded, as of August
31, 2021, that they are effective at a reasonable level of
assurance, as described above.
B. Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over
financial reporting during the quarter ended August 31, 2021 that
have materially affected or are reasonably likely to materially
affect our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The legal proceedings described in Note 4 - "Contingencies and
Commitments" of our consolidated financial statements, including
those described under "COVID-19 Actions," are incorporated in this
"Legal Proceedings" section by reference. Additionally, SEC rules
require disclosure of certain environmental matters when a
governmental authority is a party to the proceedings and such
proceedings involve potential monetary sanctions that we believe
will exceed $1 million for such proceedings. We are not aware of
any environmental proceedings that exceed this threshold for the
quarter ending August 31, 2021.
Item 1A. Risk Factors.
The risk factors in this Form 10-Q below should be carefully
considered, including the risk factors discussed in "Risk Factors"
and other risks discussed in our Form 10-K. These risks could
materially and adversely affect our results, operations, outlooks,
plans, goals, growth, reputation, cash flows, liquidity, and stock
price. Our business also could be affected by risks that we are not
presently aware of or that we currently consider immaterial to our
operations.
COVID-19 and Liquidity/Debt Related Risk Factors
-- COVID-19 has had, and is expected to continue to have, a
significant impact on our financial condition and operations, which
impacts our ability to obtain acceptable financing to fund
resulting reductions in cash from operations. The current, and
uncertain future, impact of the COVID-19 outbreak, including its
effect on the ability or desire of people to travel (including on
cruises), is expected to continue to impact our results,
operations, outlooks, plans, goals, reputation, litigation, cash
flows, liquidity, and stock price.
The COVID-19 global pandemic is having material negative impacts
on all aspects of our business. We implemented a pause of our guest
cruise operations in mid-March 2020 across all brands. We have
been, and will continue to be, negatively impacted by travel bans
and advisories, and evolving, conflicting and complex restrictions,
recommendations and regulations set by various governmental
authorities. These restrictions, recommendations and regulations
have and may continue to impact our ability to operate our business
in an optimal manner.
As we continue our return to service, we expect to continue
incurring incremental restart related spend including the cost of
returning ships to guest cruise operations, returning crew members
to our ships and maintaining enhanced health and safety protocols.
The industry is subject to and may be further subject to enhanced
health and hygiene requirements in attempts to counteract future
outbreaks, and these requirements may be costly, take a significant
amount of time to implement across our global cruise operations,
and may result in disruptions in guest cruise operations,
incremental costs and loss of revenue.
We intend to continue to make vaccines available to all of our
crew but there can be no assurances that we will be able to source
sufficient vaccines for our global crew. In addition, although
vaccines have proven to be effective in mitigating the risks of
continued spread of COVID-19, there is no guarantee that the
vaccines will continue to be effective against future variants.
Due to the outbreak of COVID-19 on some of our ships, and the
resulting illness and loss of life in certain instances, we have
been the subject of negative publicity, which could have a long
term impact on the appeal of our brands, which would diminish
demand for vacations on our vessels. We cannot predict how long the
negative impact of media attention on our brands will last, or the
level of investment that will be required to address the concerns
of potential travelers through marketing and pricing actions.
We have received, and may continue to receive, lawsuits, other
governmental investigations and other actions stemming from
COVID-19. We cannot predict the quantum or outcome of any such
proceedings, some of which could result in the imposition of civil
and criminal penalties in the future, and the impact that they will
have on our financial results, but any such impact may be material.
We also remain subject to extensive, complex, and closely monitored
obligations under the court-ordered environmental compliance plan
supervised by the U.S. District Court for the Southern District of
Florida, as a result of the previously disclosed settlement
agreement relating to the violation of probation conditions for a
plea agreement entered into by Princess Cruises and the U.S.
Department of Justice in 2016. We remain fully committed to
satisfying those obligations.
We have insurance coverage for certain liabilities, costs and
expenses related to COVID-19 through our participation in
Protection and Indemnity ("P&I") clubs, including coverage for
direct and incremental costs including, but not limited to, certain
quarantine expenses and for certain liabilities to passengers and
crew. P&I clubs are mutual indemnity associations owned by
members. There is a $10 million deductible per occurrence (meaning
per outbreak on a particular ship). We cannot provide assurance
that we will receive insurance proceeds that will compensate us
fully for our liabilities, costs and expenses that exceed the $10
million deductible under these policies. We have no insurance
coverage for loss of revenues or earnings from our ships or other
operations.
In connection with our capacity optimization strategy, we have
accelerated the removal of ships from our fleet which were
previously expected to be sold over the ensuing years. Some of
these agreements for the disposal of vessels have been for
recycling. When we choose to dispose of a ship, there can be no
assurance that there will be a viable buyer to purchase it at a
price that exceeds our net book value, which could result in ship
impairment charges and losses on ship disposals.
The effects of COVID-19 on the operations of shipyards where our
ships are under construction have resulted in delays in ship
deliveries.
We cannot predict the timing of our complete return to service
at historical occupancy and pricing levels and when various ports
will reopen to our ships. If our gradual resumption of guest cruise
operations is delayed or there are future pauses or disruptions in
the resumption of guest cruise operations, it could further
negatively impact our liquidity. As our business is seasonal, the
impact of such a delay or future pause in the resumption of guest
cruise operations will be heightened if such delay or future pause
occurs during the Northern Hemisphere summer months. Moreover, even
as travel advisories and restrictions are lifted, demand for
cruises may be impacted for a significant length of time and we
cannot predict if and when each brand will return to pre-outbreak
demand or fare pricing. In particular, our bookings may be
negatively impacted by the adverse changes in the perceived or
actual economic climate, including higher unemployment rates,
declines in income levels and loss of personal wealth resulting
from the impact of COVID-19. In addition, we cannot predict the
impact COVID-19 will have on our partners, such as travel agencies,
suppliers and other vendors, counterparties and joint ventures. We
may be adversely impacted as a result of the adverse impact our
partners, counterparties and joint ventures suffer.
We have never previously experienced a complete cessation of our
guest cruise operations, and as a consequence, our ability to be
predictive regarding the impact of such a cessation on our brands
and future prospects is uncertain. In particular, we cannot predict
the impact on our financial performance and cash flows (including
as required for cash refunds of deposits) as a result of the
gradual resumptions in our guest cruise operations and the public's
concern regarding the health and safety of travel, especially by
cruise ship, and related decreases in demand for travel and
cruising. Moreover, our ability to attract and retain guests and
our ability to hire and the amounts we must pay our crew depends,
in part, upon the perception and reputation of our company and our
brands and the public's concerns regarding the health and safety of
travel generally, as well as regarding the cruising industry and
our ships specifically. In addition, our ability to re-hire crew
may be negatively impacted as some have obtained alternative
employment during the pause.
Our access to and cost of financing depends on, among other
things, global economic conditions, conditions in the global
financing markets, the availability of sufficient amounts of
financing, our prospects and our credit ratings. As a result of
COVID-19's effects on our operations, Moody's and S&P Global
downgraded our credit ratings to be non-investment grade. If our
credit ratings were to be further downgraded, or general market
conditions were to ascribe higher risk to our rating levels, our
industry, or us, our access to capital and the cost of any debt or
equity financing will be further negatively impacted. In addition,
the terms of future debt agreements could include more restrictive
covenants, or require incremental collateral, which may further
restrict our business operations or be unavailable due to our
covenant restrictions then in effect. There is no guarantee that
debt or equity financings will be available in the future to fund
our obligations, or that they will be available on terms consistent
with our expectations. Additionally,
the impact of COVID-19 on the financial markets may adversely
impact our ability to raise funds.
In addition, the COVID-19 outbreak has significantly increased
economic and demand uncertainty. The effects of COVID-19 have
caused a global recession, which could have a further adverse
impact on our financial condition and operations. In past
recessions, demand for our cruise vacations has been significantly
negatively impacted which has resulted in lower occupancy rates and
adverse pricing, with a corresponding increase in the use of
credits and other means to attract travelers. As a result of the
impact of COVID-19, we continue to expect lower occupancy levels
during our resumption of guest cruise operations and cannot predict
when we will be able to achieve historical occupancy levels.
The extent of the effects of the outbreak on our business and
the cruising industry at large is highly uncertain and will
ultimately depend on future developments, including, but not
limited to, the duration and severity of the outbreak, the length
of time it takes for demand and pricing to return and normal
economic and operating conditions to resume. To the extent COVID-19
adversely affects our business, operations, financial condition and
operating results, it may also have the effect of heightening many
other risks.
SCHEDULE C
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
I. Stock Swap Program
We have a program that allows us to realize a net cash benefit
when Carnival Corporation common stock is trading at a premium to
the price of Carnival plc ordinary shares (the "Stock Swap
Program"). Under the Stock Swap Program, we may elect to offer and
sell shares of Carnival Corporation common stock at prevailing
market prices in ordinary brokers' transactions and repurchase an
equivalent number of Carnival plc ordinary shares in the UK
market.
Under the Stock Swap Program effective June 2021, the Board of
Directors authorized the sale of up to $500 million shares of
Carnival Corporation common stock in the U.S. market and the
repurchase of an equivalent number of Carnival plc ordinary
shares.
We may in the future implement a program to allow us to obtain a
net cash benefit when Carnival plc ordinary shares are trading at a
premium to the price of Carnival Corporation common stock.
Any sales of Carnival Corporation common stock and Carnival plc
ordinary shares have been or will be registered under the
Securities Act of 1993, as amended. During the three months ended
August 31, 2021, under the Stock Swap Program, we sold 4.6 million
shares of Carnival Corporation's common stock and repurchased the
same amount of Carnival plc ordinary shares, resulting in net
proceeds of $10 million, which were used for general corporate
purposes.
Maximum Number
of Carnival plc
Total Number Ordinary Shares
of Shares of Average Price That May Yet Be
Carnival plc Paid per Share Purchased Under
Ordinary Shares of Carnival the Carnival Corporation
Purchased (a) plc Ordinary Stock Swap Program
Period (in millions) Share (in millions)
------------------------------ ---------------- ----------------- ---------------------------
June 1, 2021 through June
30, 2021 0.4 $ 22.88 18.0
July 1, 2021 through July
31, 2021 2.4 $ 20.58 15.7
August 1, 2021 through August
31, 2021 1.9 $ 20.58 13.8
---------------- --- ------------
Total 4.6 $ 20.76
================
(a) No ordinary shares of Carnival plc were purchased outside of
publicly announced plans or programs.
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