TIDMCCL
RNS Number : 7122Q
Carnival PLC
29 June 2022
June 29, 2022
RELEASE OF CARNIVAL CORPORATION & PLC JOINT QUARTERLY REPORT
ON FORM 10-Q FOR THE SECOND QUARTER OF 2022 AND CARNIVAL PLC GROUP
HALF-YEARLY FINANCIAL REPORT
Carnival Corporation & plc announced its second quarter
results of operations in its earnings release issued on June 24,
2022. 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 unaudited
consolidated financial statements as of and for the three and six
months ended May 31, 2022.
In addition, the Directors are today presenting in the attached
Schedule A, the unaudited interim condensed financial statements
for the Carnival plc Group ("Interim Financial Statements") as of
and for the six months ended May 31, 2022. The Interim Financial
Statements exclude the consolidated results of Carnival Corporation
and are prepared under International Financial Reporting Standards
as adopted by the United Kingdom.
The information included in the Form 10-Q (Schedule B) 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 B also contains the Carnival Corporation & plc
unaudited consolidated financial statements as of and for the three
and six months ended May 31, 2022, management's discussion and
analysis ("MD&A") of financial conditions and results of
operations, and 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 ("DLC") 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 ("DLC Financial
Statements").
These schedules (A & B) are presented together as Carnival
plc's Group half-yearly financial report ("Interim Financial
Report") in accordance with the requirements of the UK Disclosure
Guidance and Transparency Rules of the Financial Conduct
Authority.
MEDIA CONTACT INVESTOR RELATIONS CONTACT
Roger Frizzell Beth Roberts
001 305 406 7862 001 305 406 4832
The Form 10-Q 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 and the Carnival plc
Group Interim Financial Statements have been submitted to the
National Storage Mechanism and will shortly be available for
inspection at
https://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
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in millions, except per share data)
Six Months Ended
May 31,
2022 2021
--------- ---------
Revenues
Passenger ticket $835 $22
Onboard and other 337 33
--------- ---------
1,172 55
--------- ---------
Operating Costs and Expenses
Commissions, transportation and other 233 12
Onboard and other 93 9
Payroll and related 435 193
Fuel 316 84
Food 86 16
Ship and other impairments - 1
Other operating 490 185
--------- ---------
1,653 500
Selling and administrative 398 306
Depreciation and amortisation 396 395
2,447 1,202
--------- ---------
Operating Income (Loss) (1,276) (1,147)
Nonoperating Income (Expense)
Interest expense, net of capitalised interest (65) (18)
Other income (expense), net 67 (239)
--------- ---------
1 (257)
--------- ---------
Income (Loss) Before Income Taxes (1,275) (1,404)
Income Tax Benefit (Expense), Net (6) (4)
--------- ---------
Net Income (Loss) $(1,280) $(1,408)
========= =========
Earnings Per Share
Basic $(6.90) $(8.91)
========= =========
Diluted $(6.90) $(8.91)
========= =========
The accompanying notes are an integral part of these Interim Financial
Statements.
These Interim Financial Statements only present the Carnival plc
consolidated IFRS Interim Financial Statements and, accordingly,
do not include the consolidated IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival
plc's results and financial position is considered to be by reference
to the DLC Financial Statements.
1
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(UNAUDITED)
(in millions)
Six Months Ended May
31,
2022 2021
---------- ----------
Net Income (Loss) $(1,280) $(1,408)
---------- ----------
Other Comprehensive Income (Loss)
Items that will not be reclassified through
the Statements of Income (Loss)
Remeasurements of post-employment benefit obligations 6 (3)
---------- ----------
Items that may be reclassified through the
Statements of Income (Loss)
Changes in foreign currency translation adjustment (358) 276
Gains (losses) on hedges of net investments
in foreign operations and other 89 29
---------- ----------
(269) 306
Other Comprehensive Income (Loss) (263) 303
---------- ----------
Total Comprehensive Income (Loss) $(1,543) $(1,105)
========== ==========
The accompanying notes are an integral part of these Interim
Financial Statements.
These Interim Financial Statements only present the Carnival plc
consolidated IFRS Interim Financial Statements and, accordingly,
do not include the consolidated IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival
plc's results and financial position is considered to be by reference
to the DLC Financial Statements.
2
CARNIVAL PLC
INTERIM CONDENSED GROUP BALANCE SHEETS
(UNAUDITED)
(in millions)
May 31,
November
2022 30, 2021
-------- ---------
ASSETS
Current Assets
Cash and cash equivalents $502 $434
Trade and other receivables, net 159 140
Inventories 174 146
Prepaid expenses and other 132 109
-------- ---------
Total current assets 968 829
-------- ---------
Property and Equipment, Net 15,667 14,953
Right-of-Use Assets 308 333
Other Assets 767 737
-------- ---------
$17,710 $16,851
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt 1,280 486
Current portion of lease liabilities 34 35
Amount owed to the Carnival Corporation group 6,651 6,204
Accounts payable 428 376
Accrued liabilities and other 487 487
Customer deposits 1,168 831
-------- ---------
Total current liabilities 10,048 8,419
-------- ---------
Long-Term Debt 6,294 5,484
Long-Term Lease Liabilities 277 298
Other Long-Term Liabilities 281 304
Shareholders' Equity
Share capital 361 361
Share premium 143 143
Retained earnings 2,745 4,092
Other reserves (2,439) (2,249)
-------- ---------
Total shareholders' equity 810 2,347
-------- ---------
$17,710 $16,851
======== =========
The accompanying notes are an integral part of these Interim
Financial Statements.
These Interim Financial Statements only present the Carnival plc
consolidated IFRS Interim Financial Statements and, accordingly,
do not include the consolidated IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival
plc's results and financial position is considered to be by reference
to the DLC Financial Statements.
3
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Six Months Ended
May 31,
2022 2021
-------- --------
OPERATING ACTIVITIES
Income (Loss) before income taxes $(1,275) $(1,404)
Adjustments to reconcile income (loss) before income
taxes to net cash provided by (used in) operating
activities
Depreciation and amortisation 396 395
Impairments - 18
Share-based compensation 10 16
Interest expense, net 66 55
Debt modifications (13) (33)
(Income) loss from equity-method investments (5) 16
Other, net 26 48
-------- --------
(794) 516
Changes in operating assets and liabilities
Receivables (34) 30
Inventories (39) (2)
Prepaid expenses and other (109) (59)
Accounts payable 57 (87)
Accrued liabilities and other 52 50
Customer deposits 377 (32)
-------- --------
Cash provided by (used in) operations before interest
and income taxes (490) (989)
Interest paid (58) (42)
Income tax benefit received, net 7 1
-------- --------
Net cash provided by (used in) operating activities (541) (1,030)
-------- --------
INVESTING ACTIVITIES
Purchases of property and equipment (1,985) (1,108)
Proceeds from sales of ships 40 228
Purchase of minority interest - (90)
Other, net (5) (31)
-------- --------
Net cash provided by (used in) investing activities (1,949) (1,001)
-------- --------
FINANCING ACTIVITIES
Changes in amounts owed to the Carnival Corporation
group 614 290
Principal repayments of long-term debt (250) (337)
Proceeds from issuance of long-term debt 2,347 1,534
Finance lease principal payments (18) (29)
Debt issuance cost and other, net (101) (80)
-------- --------
Net cash provided by (used in) financing activities 2,591 1,378
-------- --------
Effect of exchange rate changes on cash and cash
equivalents (33) 14
-------- --------
Net increase (decrease) in cash and cash equivalents 68 (640)
Cash and cash equivalents at beginning of period 434 918
-------- --------
Cash and cash equivalents at end of period $502 $278
======== ========
The accompanying notes are an integral part of these Interim
Financial Statements.
4
These Interim Financial Statements only present the Carnival plc
consolidated IFRS Interim Financial Statements and, accordingly,
do not include the consolidated IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival
plc's results and financial position is considered to be by reference
to the DLC Financial Statements.
5
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(UNAUDITED)
(in millions)
Reserves
Cash Total
Share Share Retained Translation flow Treasury Other Merger shareholders'
capital premium earnings reserve hedges shares reserves reserve Total equity
------- ------- -------- -------------
At November
30, 2020 $361 $185 $7,568 $(1,930) $8 $(1,945) $41 $1,503 $(2,323) $5,791
Comprehensive
income (loss)
Net income
(loss) - - (1,408) - - - - - - (1,408)
Changes in foreign
currency
translation
adjustment - - - 276 - - - - 276 276
Net gains on
cash flow
derivative
hedges - - - - 1 - - - 1 1
Net gains on
hedges of net
investments
in foreign
operations - - - 28 - - - - 28 28
Remeasurements
of
post-employment
benefit
obligations - - (3) - - - - - - (3)
------- ------- -------- ----------- ------ -------- -------- ------- -------- -------------
Total
comprehensive
income - - (1,411) 304 1 - - - 306 (1,105)
Other, net - (42) - - - - 51 - 51 9
------- ------- -------- ----------- ------ -------- -------- ------- -------- -------------
At May 31,
2021 $361 $143 $6,157 $(1,626) $9 $(1,945) $92 $1,503 $(1,966) $4,695
======= ======= ======== =========== ====== ======== ======== ======= ======== =============
At November
30, 2021 $361 $143 $4,092 $(2,049) $11 $(1,818) $105 $1,503 $(2,249) $2,347
Comprehensive
income (loss)
Net income
(loss) - - (1,280) - - - - - - (1,280)
Changes in
foreign
currency
translation
adjustment - - - (358) - - - - (358) (358)
Net gains on
cash flow
derivative
hedges - - - - 7 - - - 7 7
Net gains on
hedges of net
investments
in foreign
operations - - - 82 - - - - 82 82
Remeasurements
of
post-employment
benefit
obligations - - 6 - - - - - - 6
------- ------- -------- ----------- ------ -------- -------- ------- -------- -------------
Total
comprehensive
income (loss) - - (1,274) (276) 7 - - - (269) (1,543)
Issuance of
treasury shares
for vested
share-based
awards - - (72) - - 72 - - 72 -
Other, net - - (1) (3) 3 - 7 - 7 7
------- ------- -------- ----------- ------ -------- -------- ------- -------- -------------
At May 31,
2022 $361 $143 $2,745 $(2,328) $20 $(1,746) $112 $1,503 $(2,439) $810
======= ======= ======== =========== ====== ======== ======== ======= ======== =============
The accompanying notes are an integral part of these Interim
Financial Statements.
These Interim Financial Statements only present the Carnival plc
consolidated IFRS Interim Financial Statements and, accordingly,
do not include the consolidated IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival
plc's results and financial position is considered to be by reference
to the DLC Financial Statements.
6
CARNIVAL PLC
NOTES TO INTERIM CONDENSED GROUP FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - General
Description of Business
Carnival plc was incorporated in England and Wales in 2000 and
is domiciled in the UK with its headquarters located at Carnival
House, 100 Harbour Parade, Southampton, Hampshire, SO15 1ST, UK
(registration number 04039524). The Interim Financial Statements
have been prepared on the basis of the accounting policies and
methods of computation, including estimates and assumptions,
adopted and disclosed in Carnival plc and its subsidiaries and
associates (referred to collectively in these Interim Financial
Statements as the "Group," "our, " "us" and "we") consolidated
statutory financial statements for the year ended November 30,
2021. These Interim Financial Statements were approved by the Audit
Committee of the Board of Directors on June 23, 2022.
DLC Arrangement
Carnival Corporation and Carnival plc operate a dual listed
company ("DLC") arrangement, whereby the businesses of Carnival
Corporation and Carnival plc are combined through a number of
contracts and provisions in Carnival Corporation's Articles of
Incorporation and By-Laws and Carnival plc's Articles of
Association. The two companies operate as a single economic
enterprise with a single senior executive management team and
identical Boards of Directors, but each has retained its separate
legal identity. Each company's shares are publicly traded on the
New York Stock Exchange ("NYSE") for Carnival Corporation and the
London Stock Exchange for Carnival plc. The Carnival plc American
Depositary Shares are traded on the NYSE.
The constitutional documents of each company provide that, on
most matters, the holders of the common equity of both companies
effectively vote as a single body. The Equalization and Governance
Agreement between Carnival Corporation and Carnival plc provides
for the equalization of dividends and liquidation distributions
based on an equalization ratio and contains provisions relating to
the governance of the DLC arrangement. Because the equalization
ratio is 1 to 1, one share of Carnival Corporation common stock and
one Carnival plc ordinary share are generally entitled to the same
distributions.
Under deeds of guarantee executed in connection with the DLC
arrangement, as well as stand-alone guarantees executed since that
time, each of Carnival Corporation and Carnival plc have
effectively cross guaranteed all indebtedness and certain other
monetary obligations of each other. Once the written demand is
made, the holders of indebtedness or other obligations may
immediately commence an action against the relevant guarantor.
Under the terms of the DLC arrangement, Carnival Corporation and
Carnival plc are permitted to transfer assets between the
companies, make loans to or investments in each other and otherwise
enter into intercompany transactions. In addition, the cash flows
and assets of one company are required to be used to pay the
obligations of the other company, if necessary.
The Boards of Directors consider that, within the DLC
arrangement, the most appropriate presentation of our results and
financial position is by reference to the U.S. generally accepted
accounting principles ("U.S. GAAP") DLC Financial Statements
because all significant financial and operating decisions affecting
the DLC companies are made on a joint basis to optimize the
consolidated performance as a single economic entity. Accordingly,
the DLC Financial Statements for the three and six months ended May
31, 2022 are provided to shareholders in Schedule B.
These Interim Financial Statements are required to satisfy
reporting requirements of the United Kingdom's Financial Conduct
Authority ("FCA") and do not include the consolidated results and
financial position of Carnival Corporation and its subsidiaries.
These Interim Financial Statements have been prepared in accordance
with the Disclosure Guidance and Transparency Rules of the FCA and
with International Accounting Standard 34 "Interim Financial
Reporting" as adopted by the UK ("IAS 34"). The Interim Financial
Statements should be read in conjunction with the audited annual
financial statements for the year ended November 30, 2021, which
were prepared in accordance with UK-adopted International Financial
Reporting Standards ("IFRS"). Our Interim Financial Statements are
presented in U.S. dollars as this is our presentation currency.
Status of Financial Statements
Our Interim Financial Statements for the six months ended May
31, 2022 have not been audited or reviewed by the auditors.
7
Our Interim Financial Statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act
2006 Act. Statutory accounts for the year ended November 30, 2021
were approved by the Audit Committee of the Board of Directors on
January 26, 2022 and delivered to the Registrar of Companies. The
report of the auditors on those accounts was (i)
unqualified, (ii) did not contain a material uncertainty related
to going concern and (iii) did not contain any statement under
section 498 of the 2006 Act.
Liquidity and Management's Plans
In the face of the global impact of COVID-19, Carnival
Corporation & plc paused its guest cruise operations in
mid-March 2020. As of May 31, 2022, 86% of Carnival Corporation
& plc's capacity is in guest cruise operation as part of its
ongoing return to service. The extent of the effects of COVID-19 on
Carnival Corporation & plc's business are uncertain and will
depend on future developments, including, but not limited to, the
duration and continued severity of COVID-19 and the length of time
it takes to return the company to profitability. COVID-19 and its
ongoing effects, inflation and higher fuel prices are collectively
having a material impact on its business, including its results of
operations, liquidity and financial position.
The estimation of Carnival Corporation & plc's future
liquidity requirements includes numerous assumptions that are
subject to various risks and uncertainties. The principal
assumptions used to estimate Carnival Corporation & plc's
future liquidity requirements consist of:
-- Continued ongoing resumption of guest cruise operations, with
86% of the fleet back in guest cruise operations as of May 31,
2022
-- Expected increases in revenue in 2023 on a per passenger
basis compared to 2019, particularly as the friction from
restrictive protocols wanes
-- Expected improvement in occupancy throughout 2022 and 2023
-- Expected continued spend to maintain enhanced health and
safety protocols and to support the ongoing resumption of guest
cruise operations, including completing the return of crew members
to its ships
-- Expected moderation of fuel prices beginning in the second
half of 2022 and continuing into 2023
-- Expected inflation and supply chain challenges to continue to
weigh on costs, though moderated by a larger, more efficient fleet
as compared to 2019
-- Maintaining collateral and reserves at reasonable levels
In addition, Carnival Corporation & plc makes certain
assumptions about new ship deliveries, improvements and removals,
and considers the future export credit financings that are
associated with the new ship deliveries.
Carnival Corporation & plc cannot make assurances that its
assumptions used to estimate its liquidity requirements may not
change because they have never previously experienced a complete
cessation and subsequent ongoing resumption of its guest cruise
operations, and as a consequence, their ability to be predictive is
uncertain. In addition, the magnitude and duration of the COVID-19
global pandemic and its ongoing effects, inflation and higher fuel
prices are uncertain. Carnival Corporation & plc has made
reasonable estimates and judgments of the impact of these events
within its consolidated financial statements and there may be
changes to those estimates in future periods. Carnival Corporation
& plc took actions to improve its liquidity, including
completing various capital market transactions, capital expenditure
and operating expense reductions and accelerating the removal of
certain ships from its fleet. In addition, they expect to continue
to pursue various capital market opportunities to extend maturities
and if appropriate, obtain relevant financial covenant
amendments.
Based on these actions and Carnival Corporation & plc's
assumptions regarding the impact of COVID-19, and considering
Carnival Corporation & plc's $7.5 billion of liquidity
including cash, short-term investments and borrowings available
under its revolving facility at May 31, 2022, as well as its
continued ongoing return to service, it has concluded that it has
sufficient liquidity to satisfy its obligations for at least the
next twelve months. In light of these circumstances, the Boards of
Directors of the Group have a reasonable expectation that Carnival
Corporation & plc has adequate resources to continue its
operational existence and continue to adopt the going concern basis
of preparing the Carnival plc Interim Financial Statements. Refer
to Schedule B of this release for additional discussion.
Use of Estimates and Risks and Uncertainty
The preparation of our Interim Financial Statements in
conformity with IFRS as adopted in the UK requires management to
make judgements, estimates and assumptions that affect the
application of policies and reported and disclosed amounts in these
financial statements. The estimates and underlying assumptions are
based on historical experience and various other factors that we
believe to be reasonable under the circumstances and form the basis
of making judgments about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from the estimates used in preparing these Interim
Financial Statements.
8
Key judgements, estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the
revision affects only that period or in the period of the revision
and future periods if the revision affects both current and future
periods. For a detailed discussion of our key
judgements and estimates, see "Significant Accounting
Judgements" and "Key areas of judgements and sources of estimation
uncertainty" included in our 2021 Carnival plc Annual Report.
COVID-19
The full extent to which the effects of COVID-19 will directly
or indirectly impact our business, operations, results of
operations and financial condition, 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.
Climate Change
In preparing these financial statements, management has
considered the expected impacts of climate change and expected
impacts of achieving the Carnival Corporation & plc 2030
sustainability goals. Management has considered the expected
impacts of climate change on a number of key estimates within the
financial statements, including:
-- Estimates related to our future liquidity requirements and viability
-- Estimates of future cash flows used in the valuation of
investment in subsidiaries and ships, when applicable
-- Estimates related to the useful life and residual value of ships
Accounting Pronouncements
The International Accounting Standards Board ("IASB") issued
amendments to the standards, IFRS 9 Financial Instruments, IAS 39
Financial Instruments: Recognition and Measurement, IFRS 7
Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and
IFRS 16 Leases, that address issues that might affect financial
reporting when an existing interest rate benchmark is replaced with
an alternative interest rate. The changes relate to the
modification of financial assets, financial liabilities and lease
liabilities, specific hedge accounting requirements, and disclosure
requirements applying IFRS 7 Financial Instruments: Disclosures to
accompany the amendments regarding modifications and hedge
accounting.
The amendments require that, for financial instruments measured
using amortised cost measurement (that is, financial instruments
classified as amortised cost), changes to the basis for determining
the contractual cash flows required by interest rate benchmark
reform are reflected by adjusting their effective interest rate. No
immediate gain or loss is recognised. These expedients are only
applicable to changes that are required by interest rate benchmark
reform, which is the case if, and only if, the change is necessary
as a direct consequence of interest rate benchmark reform and the
new basis for determining the contractual cash flows is
economically equivalent to the previous basis (that is, the basis
immediately preceding the change).
Where some or all of a change in the basis for determining the
contractual cash flows of a financial liability does not meet the
above criteria, the above practical expedient is first applied to
the changes required by interest rate benchmark reform, including
updating the instrument's effective interest rate. Any additional
changes are accounted for in the normal way (that is, assessed for
modification or derecognition, with the resulting modification gain
/ loss recognised immediately in profit or loss where the
instrument is not derecognised).
In December 2021, we amended our GBP350 million long-term debt
agreement which referenced the British Pound sterling
("GBP") LIBOR to the Sterling Overnight Index Average ("SONIA")
and applied the practical expedient. This amendment did not have a
material impact on our consolidated financial statements. As o f
May 31, 2022, we have $51 million in long-term debt which
references U.S. dollar LIBOR and matures after the transition date
and have not yet transitioned to SOFR or an alternative interest
rate benchmark. We are currently evaluating this contract and
working with our creditors on updating credit agreements as
necessary to include language regarding a successor or alternate
rate to LIBOR. We do not expect the adoption of this standard to
have a material impact on our consolidated financial statements
during the LIBOR transition period.
The IASB has issued amendments to the standard, IAS 1,
Presentation of Financial Statements - Classification of
Liabilities as Current or Non-current, providing a more general
approach to the classification of liabilities based on the
contractual agreements in place at the reporting date. On December
1, 2021, we adopted this guidance retrospectively. This guidance
did not have an impact on our financial statements and as such,
prior period information was not revised.
NOTE 2 - Revenue and Expense Recognition
Guest cruise deposits and advance onboard purchases 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,
9
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.
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.
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. In certain situations, we have provided flexibility to
guests by allowing guests to rebook at a future date, receive
future cruise credits ("FCCs") or elect to receive refunds in cash.
We have at times issued enhanced FCCs. Enhanced FCCs provide the
guest with an additional credit value above the original cash
deposit received, and the enhanced value is recognized as a
discount applied to the future cruise in the period used. We have
paid refunds of customer deposits with respect to a portion of
cancelled cruises. The amount of any future cash refunds may depend
on future cruise cancellations and guest rebookings. We record a
liability for unexpired FCCs to the extent we have received and not
refunded cash from guests for cancelled bookings. We had total
customer deposits of $1.2 billion as of May 31, 2022 and $929
million as of November 30, 2021. Refunds payable to guests who have
elected cash refunds are recorded in accounts payable. During the
six months ended May 31, 2022 and 2021 we recognized revenues of
$0.4 billion and an immaterial amount related to our customer
deposits as of November 30, 2021 and 2020. Historically, our
customer deposits balance changes due to the seasonal nature of
cash collections, the recognition of revenue, refunds 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
as a result of obtaining the ticket contract and include prepaid
travel agent commissions and prepaid credit and debit card fees. We
record these amounts within prepaid expenses and other and
subsequently recognize these amounts as commissions, transportation
and other at the time of revenue recognition or at the time of
voyage cancellation. We had contract assets of $30 million as of
May 31, 2022 and $13 million as of November 30, 2021.
10
NOTE 3 - Property and Equipment
(in millions)
At November 30, 2021 $14,953
Additions 1,967
Disposals (37)
Depreciation (376)
Exchange movements (840)
-------
At May 31, 2022 $15,667
=======
We review our long-lived assets for impairment whenever events
or circumstances indicate potential impairment. During the six
months ended May 31, 2022, we did not record any impairments.
Refer to Note 1 - "General, Use of Estimates and Risks and
Uncertainty" for additional discussion.
Ship Sales
During 2022, we completed the sale of one EA segment ship, which
represents a passenger-capacity reduction of 1,410.
NOTE 4 - Debt
Export Credit Facility Borrowings
During the six months ended May 31, 2022, we borrowed $2.3
billion under export credit facilities due in semi-annual
installments through 2034.
Carnival Corporation or Carnival plc and certain of our
subsidiaries have guaranteed substantially all of our
indebtedness.
Short-Term Borrowings
As of May 31, 2022 and November 30, 2021, Carnival Corporation's
short-term borrowings consisted of $2.7 billion and $2.8 billion
and Carnival plc had no short-term borrowings under the Carnival
Corporation & plc's $1.7 billion, EUR1.0 billion and GBP0.2
billion revolving credit facility (the "Revolving Facility"). As of
May 31, 2022 and November 30, 2021, Carnival Corporation and
Carnival plc had a total availability of $0.3 billion and $0.2
billion under the Revolving Facility.
Covenant Compliance
As of May 31, 2022, Carnival Corporation & plc's Revolving
Facility and substantially all of their unsecured loans and export
credit facilities contain certain covenants, the most restrictive
of which require Carnival Corporation & plc to:
-- Maintain minimum interest coverage (adjusted EBITDA to
consolidated net interest charges) at the end of each fiscal
quarter from August 31, 2023, at a ratio of not less than 2.0 to
1.0 for the August 31, 2023 testing date, 2.5 to 1.0 for the
November 30, 2023 testing date, and 3.0 to 1.0 for the February 29,
2024 testing date onwards, or through their respective maturity
dates
-- Maintain minimum shareholders' equity of $5.0 billion
-- Limit our debt to capital (as defined) percentage from the
November 30, 2021 testing date until the May 31, 2023 testing date,
to a percentage not to exceed 75%, following which it will be
tested at levels which decline ratably to 65% from the May 31, 2024
testing date onwards
-- Maintain minimum liquidity of $1.5 billion through November 30, 2026
-- Adhere to certain restrictive covenants through November 30, 2024
-- Limit the amounts of our secured assets as well as secured and other indebtedness
At May 31, 2022, Carnival Corporation & plc was in
compliance with the applicable covenants under its debt agreements.
Generally, if an event of default under any debt agreement occurs,
then, pursuant to cross default acceleration clauses, substantially
all of its 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.
11
NOTE 5 - Ship Commitments
At May 31, 2022, we had two ships under contract for
construction. The estimated total future commitments, including the
contract prices with the shipyards, design and engineering fees,
capitalised interest, construction oversight costs and various
owner supplied items are as follows:
(in millions) May 31, 2022
------------
Fiscal
Remainder of 2022 $118
2023 977
2024 583
2025 -
------------
Total $1,678
============
NOTE 6 - 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 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.
COVID-19 Actions
Private Actions
We have been named in a number of individual actions related to
COVID-19. Private parties have brought approximately seven
individual lawsuits as of May 31, 2022 in several U.S. federal and
state courts. 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 May
31, 2022, six of these individual actions have now been dismissed
or settled for immaterial amounts and one remains.
Additionally, as of May 31, 2022, eight purported class actions
have been brought by former guests in several U.S. federal courts
and in the Federal Court in 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 May 31, 2022, six of these
class actions have either been settled individually for immaterial
amounts or had their class allegations dismissed by the courts and
two remain.
All COVID-19 matters seek monetary damages and most seek
additional punitive damages in unspecified amounts.
As previously disclosed, on December 15, 2020, a consolidated
class action with 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, alleging violations of Sections
10(b) and 20(a) of the U.S. Securities and
12
Exchange Act of 1934 by making misrepresentations and omissions
related to Carnival Corporation's COVID-19 knowledge and response.
Plaintiffs seek to recover unspecified damages and equitable relief
for the alleged misstatements and omissions. On March 30, 2022, the
court granted our motion to dismiss with prejudice and no appeal
was filed prior to the deadline.
We continue to take 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.
Ot her Regulatory or Governmental Inquiries and
Investigations
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 December 2020 in which an
unauthorized third party gained access to certain of our
information security systems, deployed ransomware, and obtained
personal information related to guests, employees and crew for some
of our operations. We engaged a major cybersecurity firm to
investigate the matter and notified relevant law enforcement and
regulators of the incident. The investigation, communication and
reporting phases are complete.
We have been contacted by various regulatory agencies regarding
this 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. On June 24, 2022, we finalized a
settlement with NY DFS, pursuant to which we will pay an amount
that will not have a material impact on our financial
statements.
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 these
incidents are not expected to have a material adverse effect on our
business, results of operations, financial position or liquidity,
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.
On March 14, 2022, the United States Department of Justice and
the United States Environmental Protection Agency notified Carnival
Corporation & plc of potential civil penalties and injunctive
relief for alleged Clean Water Act violations by owned and operated
vessels covered by the 2013 Vessel General Permit. Carnival
Corporation & plc is working with these agencies to reach a
resolution of this matter. We do not expect this matter to have a
material impact on our financial statements.
Other Contingent Obligations
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.
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 May 31, 2022 and November 30, 2021, we had
$164 million and $110 million, respectively, in reserve funds
related to our customer deposits provided to satisfy these
requirements which are included within other assets. We continue to
expect to provide reserve funds under these agreements.
Additionally, as of May 31, 2022 and November 30, 2021, we had no
outstanding cash collateral in escrow.
13
NOTE 7 - Claims Reserve
We periodically assess the potential liabilities related to any
lawsuits or claims brought against us, as well as for other known
unasserted claims, including environmental, legal, regulatory and
guest and crew matters. While it is typically very difficult to
determine the timing and ultimate outcome of these matters, we use
our best judgement to determine the appropriate amounts to record
in our consolidated financial statements. We accrue a liability and
establish a reserve when we believe a loss is probable and the
amount of the loss can be reasonably estimated. In assessing
probable losses, we make estimates of the amount of probable
insurance recoveries, if any, which are recorded as assets where
appropriate. Such accruals and reserves and the estimated timing of
settlement are typically based on developments to date,
management's estimates of the outcomes of these matters, our
experience in contesting, litigating and settling other similar
matters, historical claims experience, actuarially determined
estimates of liabilities and any related insurance coverage. Given
the inherent uncertainty related to the eventual outcome of these
matters and potential insurance recoveries, it is possible that all
or some of these matters may be resolved for amounts materially
different from any provisions or disclosures that we may have made.
In addition, as new information becomes available, we may need to
reassess the amount of asset or liability that needs to be accrued
related to our contingencies. All such changes in our estimates
could materially impact our results of operations and financial
position.
The changes in our guest, crew and other claims were as
follows:
(in millions) Claims Reserves
---------------
At November 30, 2021 $94
Additional provisions 5
Paid losses (5)
Reversals (11)
Exchange rates 2
---------------
At May 31, 2022 $85
===============
NOTE 8 - Segment Information
As previously discussed, within the DLC arrangement the most
appropriate presentation of Carnival plc's results and financial
position is by reference to the DLC Financial Statements. The
operating segments are reported on the same basis as the internally
reported information that is provided to the chief operating
decision maker ("CODM"), who is the President, Chief Executive
Officer and Chief Climate 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 the segments. Carnival
Corporation & plc has four reportable segments comprised of (1)
North America and Australia cruise operations ("NAA"), (2) Europe
and Asia cruise operations ("EA"), (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.
14
Six Months Ended May 31,
--------------------------------------------------------------------------
Operating Selling Depreciation Operating
costs and and and income
(in millions) Revenues expenses administrative amortisation (loss)
--------- ---------- ---------------- -------------- ---------
2022
NAA $2,792 $3,055 $710 $687 $(1,661)
EA 1,123 1,546 352 359 (1,134)
Cruise Support 73 54 75 68 (126)
Tour and Other 37 57 12 11 (44)
--------- ---------- ---------------- -------------- ---------
Carnival Corporation &
plc
- U.S. GAAP 4,024 4,713 1,149 1,126 (2,964)
Carnival Corporation -
U.S. GAAP (a) (2,852) (3,045) (744) (728) 1,665
Carnival plc - U.S. GAAP
vs IFRS differences (b) - (15) (7) (2) 23
--------- ---------- ---------------- -------------- ---------
Carnival plc - IFRS $1,172 $1,653 $398 $396 $(1,276)
========= ========== ================ ============== =========
2021
NAA $19 $680 $453 $676 $(1,790)
EA 41 496 239 370 (1,064)
Cruise Support - 15 171 61 (247)
Tour and Other 14 25 17 12 (39)
--------- ---------- ---------------- -------------- ---------
Carnival Corporation &
plc
- U.S. GAAP 75 1,216 879 1,119 (3,139)
Carnival Corporation -
U.S. GAAP (a) (20) (660) (566) (717) 1,922
Carnival plc - U.S. GAAP
vs IFRS differences (b) - (56) (7) (6) 70
--------- ---------- ---------------- -------------- ---------
Carnival plc - IFRS $55 $500 $306 $395 $(1,147)
========= ========== ================ ============== =========
(a) Carnival Corporation consists primarily of cruise brands
that do not form part of the Group; however, these brands are
included in Carnival Corporation & plc and thus represent
substantially all of the reconciling items.
(b) The U.S. GAAP vs IFRS accounting differences relate to lease
accounting, pension accounting and differences in depreciation
expense due to differences in the carrying value of ships. For the
six months ended May 31, 2021, the U.S. GAAP vs IFRS accounting
differences also related to differences in valuation of ships.
Revenue by geographic areas, which are based on where our guests
are sourced, were as follows:
Six Months Ended
(in millions) May 31, 2022
----------------
Europe $1,063
North America 53
Australia and Asia 18
Others 38
----------------
$1,172
================
As a result of the pause in our guest cruise operations revenue
data for the six months ended May 31, 2021 is not meaningful and is
not included in the table.
NOTE 9 - Related Party Transactions
There have been no changes in the six months ended May 31, 2022
to the nature of the related party transactions described in the
Group IFRS financial statements for the year ended November 30,
2021 that have a material effect on the financial position or
results of operations of the Group. All amounts owed to the
Carnival Corporation group are unsecured, repayable on demand and
considered short-term in nature.
15
During the six months ended May 31, 2022, Holland America Line
and Princess Cruises purchased land tours from us totaling $10
million. During the six months ended May 31, 2021, Holland America
Line and Princess Cruises did not purchase land tours from us. In
addition, during the six months ended May 31, 2022 we sold pre- and
post-cruise vacations, shore excursions and transportation services
to the Carnival Corporation group. During the six months ended May
31, 2021, we did not sell pre- and post-cruise vacations, shore
excursions or transportation services to the Carnival Corporation
group.
During the six months ended May 31, 2022, Carnival plc continued
to provide a guarantee to the Merchant Navy Officers Pension Fund
for certain employees who have transferred from Carnival plc to a
subsidiary of Carnival Corporation.
Carnival Corporation and its subsidiary, Carnival Investments
Limited owned 39.8 million, or 18.3% at May 31, 2022 and 34.6
million or 15.9% at November 30, 2021 of Carnival plc's ordinary
shares, which are non-voting.
Carnival Corporation & plc has a program that allows it 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,
Carnival Corporation & plc 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.
Within the DLC arrangement, there are instances where the Group
provides services to Carnival Corporation group companies and also
where Carnival Corporation group companies provide services to the
Group.
NOTE 10 - 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. 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 typically earned during this period. This
historical trend was disrupted in 2020 by the pause and in 2021 by
the ongoing 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.
NOTE 11 - Fair Value Measurements and Derivative Instruments and
Hedging Activities
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.
Under deeds of guarantee executed in connection with the DLC
arrangement, as well as stand-alone guarantees
executed since that time, each of Carnival Corporation and
Carnival plc have effectively cross guaranteed all
indebtedness and certain other monetary obligations of each
other. The fair value of cross guarantees within the DLC
arrangement were not significant at May 31, 2022 or November 30,
2021, and are not expected to result in any material loss.
16
Financial Instruments that are not Measured at Fair Value on a
Recurring Basis
May 31, 2022 November 30, 2021
Fair Value Fair Value
(in millions) Carrying Level Level Level Carrying Level Level Level
Value 1 2 3 Value 1 2 3
Liabilities
Fixed rate debt
(a) $4,135 $- $2,602 $- $2,951 $- $2,271 $-
Floating rate debt
(a) 3,704 - 2,889 - 3,171 - 2,763 -
-------- ----- ------ ----- -------- ----- ------ -----
Total $7,839 $- $5,491 $- $6,122 $- $5,034 $-
======== ===== ====== ===== ======== ===== ====== =====
(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
May 31, 2022 November 30, 2021
Level Level Level Level Level Level
(in millions) 1 2 3 1 2 3
----- ----- ----- ------ ------ -----
Assets
Cash and cash equivalents $502 $- $- $434 $- $-
----- ----- ----- ------ ------ -----
Total $502 $- $- $434 $- $-
===== ===== ===== ====== ====== =====
Liabilities
Derivative financial instruments $- $2 $- $- $5 $-
----- ----- ----- ------ ------ -----
Total $- $2 $- $- $5 $-
===== ===== ===== ====== ====== =====
Derivative Instruments and Hedging Activities
Balance Sheet May 31, November
(in millions) Location 2022 30, 2021
-------------------- ------- ---------
Derivative liabilities
Derivatives designated as hedging
instruments
Accrued liabilities
Interest rate swaps (a) and other $1 $3
Other long-term
liabilities - 2
------- ---------
Total derivative liabilities $2 $5
======= =========
(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 $116 million at May 31, 2022 ($147
million at November 30, 2021) of EURIBOR-based floating rate euro
debt to fixed rate euro debt. At May 31, 2022, these interest rate
swaps settle through 2025.
17
Our derivative contracts include rights of offset with our
counterparties.
May 31, 2022
Gross
Amounts
Gross Amounts Total Net not Offset
Offset in Amounts Presented in the
Gross the Balance in the Balance Balance
(in millions) Amounts Sheet Sheet Sheet Net Amounts
-------- ------------- ------------------ ----------- -----------
Assets $- $- $- $- $-
Liabilities $2 $- $2 $- $2
November 30, 2021
Gross
Amounts
Gross Amounts Total Net not Offset
Offset in Amounts Presented in the
Gross the Balance in the Balance Balance
(in millions) Amounts Sheet Sheet Sheet Net Amounts
-------- ------------- ------------------ ----------- -----------
Assets $- $- $- $- $-
Liabilities $5 $- $5 $- $5
The effect of our derivatives qualifying and designated as
hedging instruments recognized in other comprehensive income (loss)
and in income (loss) was as follows:
Six Months Ended May
31,
(in millions) 2022 2021
---------- ----------
Gains (losses) recognized in reserves:
Interest rate swaps - cash flow hedges $7 $2
Gains (losses) reclassified from reserves - cash
flow hedges:
Interest rate swaps - Interest expense, net of
capitalized interest $(1) $(2)
There are no credit risk related contingent features in our
derivative agreements. 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.
NOTE 12 - Government Assistance
During the six months ended May 31, 2022, the Group received
government assistance under schemes provided by various
governments. The total amounts recognized by the Group during the
six months ended May 31, 2022 and 2021 from these schemes was $2
million and $14 million respectively and is offset in payroll and
related expense as well as selling and administrative expenses in
the accompanying Statements of Income (Loss).
NOTE 13 - Principal Risks and Uncertainties
The principal risks and uncertainties affecting our business
activities are included in Item 4. Risk Management and/or
Mitigation of Principal and Emerging Risks within our 2021
Strategic Report and are summarized below. For any changes since
the issuance of our 2021 Strategic Report, we have provided the
detailed risk description below. The ordering and lettering of the
risk factors set forth below is not intended to reflect any Company
indication of priority or likelihood.
COVID-19 and Liquidity/Debt Related Risk Factors
a. COVID-19 has had, and is expected to continue to have, a
significant impact on our financial condition and operations. The
current, and uncertain future, impact of COVID-19, 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.
b. Our substantial debt could adversely affect our financial health and operating flexibility.
c. Despite our leverage, we may incur more debt, which could
adversely affect our business and prevent us from fulfilling our
obligations with respect to our debt.
d. We are subject to maintenance covenants, as well as
restrictive debt covenants, that may limit our ability to finance
future operations and capital needs and pursue business
opportunities and activities. We are also subject to financial
18
covenants that could lead to an acceleration of the indebtedness
of our debt facilities if we fail to comply. If we fail to comply
with any of these covenants, it could have a material adverse
effect on our business.
e. We require a significant amount of cash to service our debt
and sustain our operations. Our ability to generate cash depends on
many factors beyond our control, and we may not be able to generate
cash required to service our debt.
f. Our variable rate indebtedness exposes us to interest rate
volatility, which could cause our debt service obligations to
increase significantly.
g. The covenants in certain of our debt facilities may require
us to secure those facilities in the future.
Operating Risk Factors
a. Events and conditions around the world, including war and
other military actions, such as the current invasion of Ukraine,
heightened inflation and other general concerns impacting the
ability or desire of people to travel have and may lead to a
decline in demand for cruises, impact our operating costs and
profitability.
-- We have been, and may continue to be, impacted by the
public's concerns regarding the health, safety and security of
travel, including government travel advisories and travel
restrictions, political instability and civil unrest, terrorist
attacks, war and military action, most recently the current
invasion of Ukraine, and other general concerns. The current
invasion of Ukraine and its resulting impacts, including supply
chain disruptions, increased fuel prices and international
sanctions and other measures that have been imposed, have adversely
affected, and may continue to adversely affect, our business. These
factors may also have the effect of heightening many other risks to
our business, any of which could materially and adversely affect
our business and results of operations. Additionally, we have been,
and may continue to be, impacted by heightened regulations around
customs and border control, travel bans to and from certain
geographical areas, voluntary changes to our itineraries in light
of geopolitical events, government policies increasing the
difficulty of travel and limitations on issuing international
travel visas. We have been and may continue to be impacted by
inflation and supply chain disruptions and may also be impacted by
adverse changes in the perceived or actual economic climate, such
as global or regional recessions, higher unemployment and
underemployment rates and declines in income levels.
b. Incidents concerning our ships, guests or the cruise vacation
industry have in the past and may, in the future, impact the
satisfaction of our guests and crew and lead to reputational
damage.
c. 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.
d. Factors associated with climate change, including evolving
and increasing regulations, increasing global concern about climate
change and the shift in climate conscious consumerism and
stakeholder scrutiny, and increasing frequency and/or severity of
adverse weather conditions could adversely affect our business.
e. Inability to meet or achieve our sustainability related
goals, aspirations, initiatives, and our public statements and
disclosures regarding them, may expose us to risks that may
adversely impact our business.
f. 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 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.
g. The loss of key employees, our inability to recruit or retain
qualified shoreside and shipboard employees and increased labor
costs could have an adverse effect on our business and results of
operations.
h. Increases in fuel prices, changes in the types of fuel
consumed and availability of fuel supply may adversely impact our
scheduled itineraries and costs.
i. We rely on supply chain vendors who are integral to the
operations of our businesses. These vendors and service providers
are also affected by COVID-19 and may be unable to deliver on their
commitments which could impact our business.
j. Fluctuations in foreign currency exchange rates may adversely impact our financial results.
k. Overcapacity and competition in the cruise and land-based
vacation industry may lead to a decline in our cruise sales,
pricing and destination options.
l. Inability to implement our shipbuilding programs and ship
repairs, maintenance and refurbishments may adversely impact our
business operations and the satisfaction of our guests.
19
NOTE 14 - Task Force on Climate-Related Financial Disclosures
("TCFD")
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view the associated PDF document of Note 14.
http://www.rns-pdf.londonstockexchange.com/rns/7122Q_1-2022-6-29.pdf
For the year ended November 30, 2022, we will include our
climate-related financial disclosures, consistent with the TCFD
recommendations, within our 2022 Annual Report. This is in
accordance with the Listing Rule LR 9.8.6R requirements, which will
be mandatory for us for the year ending November 30, 2022. We have
voluntarily chosen to report our progress on climate related
financial disclosures below, ahead of this mandatory
requirement.
TCFD Pillar Recommended disclosures Page reference(s)
----------------
a) Describe the boards' oversight of climate-related
Governance risks and opportunities. 20-21
-------------------------------------------------------- -----------------
b) Describe management's role in assessing
and managing climate-related risks and opportunities. 21
------------------------------------------------------------------------- -----------------
a) Describe the climate-related risks and opportunities
the organisation has identified over the short,
Strategy medium, and long term. 21-23
-------------------------------------------------------- -----------------
b) Describe the impact of climate-related risks
and opportunities on the organisation's businesses,
strategy, and financial planning. 23-24
------------------------------------------------------------------------- -----------------
c) Describe the resilience of the organisation's
strategy, taking into consideration different
climate-related scenarios, including a 2degC
or lower scenario. 24-25
------------------------------------------------------------------------- -----------------
a) Describe the organisation's processes for
Risk Management identifying and assessing climate-related risks. 25
-------------------------------------------------------- -----------------
b) Describe the organisation's processes for
managing climate-related risks. 25
------------------------------------------------------------------------- -----------------
c) Describe how processes for identifying,
assessing, and managing climate-related risks
are integrated into the organisation's overall
risk management. 25-26
------------------------------------------------------------------------- -----------------
a) Disclose the metrics used by the organisation
to assess climate-related risks and opportunities
Metrics and in line with its strategy and risk management
Targets process. 26
-------------------------------------------------------- -----------------
b) Disclose Scope 1, Scope 2, and, if appropriate,
Scope 3 greenhouse gas (GHG) emissions, and
the related risks. 26
------------------------------------------------------------------------- -----------------
c) Describe the targets used by the organisation
to manage climate-related risks and opportunities
and performance against targets. 26-27
------------------------------------------------------------------------- -----------------
Governance
The Boards of Directors have ultimate oversight of
climate-related risks and opportunities and are directly supported
by members of executive management. The Boards of Directors have
appointed our President and Chief Executive Officer ("CEO") Arnold
Donald to the role of Chief Climate Officer ("CCO") in January
2022. Through this role, he leads the identification of
climate-related risks and opportunities and oversees how these are
embedded in our strategic decision-making and risk management
processes. During 2022, climate-related matters were a recurring
Board discussion item.
To further support our climate-related efforts, we created a
Strategic Risk Evaluation ("SRE") Committee to identify, mitigate,
and monitor climate-related risks and opportunities. The SRE
Committee consists of members of executive management and advisors
and reports to the CCO. The SRE Committee members are David
Bernstein (Chief Financial Officer), Josh Weinstein (Chief
Operations Officer), Bill Burke (Chief Maritime Officer), and Stein
Kruse (Advisor to the CCO & Chairman of the Boards). The
primary responsibilities and common recurring activities of the SRE
Committee are to:
-- Recommend climate strategy, goals, and metrics to the CCO,
who will make ultimate recommendations to the Boards
-- Enable practical implementation of climate goals approved by the Boards
An SRE Committee Charter was adopted and five SRE Committee
meetings have taken place between its creation in January 2022 and
June 2022.
20
Governance Structure
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To enable the CCO and Boards of Directors to fulfil their
responsibility to oversee climate-related risks and opportunities,
a Board Environmental Social and Governance ("ESG") and TCFD
Education Program has been established, with core education
components and optional self-study courses. This ESG and TCFD
Education Program has been developed with support from external
advisors and the Senior Independent Director. The core education
components of the Program are expected to be completed by January
2023.
Executive management is responsible for ensuring we have active
plans and adequate resources to manage and/or mitigate principal
and emerging financial and non-financial risks, including Health,
Environmental, Safety & Security ("HESS") and compliance risks,
identified by the business from the risk assessment processes that
are integrated within our operations. As new risks emerge,
executive management seeks to ensure they are properly reviewed and
monitored. Climate-related risk management is considered part of
management's responsibility.
We are continuously refining and enhancing our existing
processes. During 2022, management performed a qualitative scenario
analysis as described below, to further identify our climate
related risks and opportunities over the short, medium and
long-term. Our process for continuously identifying, assessing and
managing climate-related risks and opportunities is being
developed. Climate-related risks and opportunities are reported up
to the SRE Committee. Please see pages 25-26 for details of our
risk management process.
Strategy
Climate-related Risks and Opportunities
We have qualitatively applied two distinct plausible climate
scenarios, which were used to generate the climate-related risks
and opportunities listed below. We selected a "Steady Path to
Sustainability" scenario, where an average warming is limited to
below 1.5degC above pre-industrial levels by 2100, and a "Regional
Rivalry" scenario, where an average warming rate of 3degC above
pre-industrial levels is reached by 2100 (see further detail on
pages 24-25).
21
As part of our qualitative scenario analysis, we conducted a
series of workshops with the members of the SRE committee and a
cross-section of management to identify material climate-related
risks and opportunities over the following time horizons:
-- Present - 2025 (short-term)
-- 2025 - 2035 (medium-term)
-- 2035 - 2050 (long-term)
The short-term time horizon is consistent with the period we use
for our Viability Statement. The medium-term time horizon aligns
with our existing sustainability goals, while the long-term horizon
is consistent with the useful life of our ships.
Our risks are defined as transition and physical risks.
Opportunities are structured according to thematic areas of focus.
Based on the outcomes of our workshops, we have initially selected
three risks and two opportunities for further assessment and
quantification through quantitative scenario analysis, which we are
in the process of performing. Our 2022 Annual Report will include
additional information on the output of our quantitative scenario
analysis. Our initial selected risks and opportunities for further
development and quantification are in bold in the table below:
Climate-related risks identified through qualitative scenario
analysis
TCFD risk categories Risk summary Time horizon
--------------------
Markets and Cruising no longer aligns to consumers Medium Term
Products / Shifting climate values
Markets (1)
---------------------------------------------- -------------------------
Reduced availability and access to Long Term
fuel
---------------------------------------------- -------------------------
Unable to meet climate-related requirements Medium Term
reduces access to capital / insurance
-------------------- ---------------------------------------------- -------------------------
Policy and Increased costs driven by climate-related Short-Medium Term
Legal (1) regulations
---------------------------------------------- -------------------------
Risk is that cruising (as a carbon-intensive Medium Term
industry) is severely restricted or
subject to bans
-------------------- ---------------------------------------------- -------------------------
Reputation Failure to attract and retain talent Medium Term
(1) due to climate credentials
---------------------------------------------- -------------------------
Increased demand for reducing carbon-intensive Short Term
practices
-------------------- ---------------------------------------------- -------------------------
Technology Lack of viable low carbon technology Medium Term
(1) to replace fossil fuels
-------------------- ---------------------------------------------- -------------------------
Physical Chronic climate change impacting Medium term with expected
supply chain availability and price increases in the long
term
---------------------------------------------- -------------------------
Itineraries are not viable due to Medium term with expected
extreme weather and/or sea level rise increases in the long
term
-------------------- ---------------------------------------------- -------------------------
(1) Transition Risks
22
Climate-related opportunities identified through qualitative
scenario analysis
TCFD opportunity
categories Opportunity summary Time horizon
-------------------
Energy source Support the adaptation of sustainable Medium term
technological advances for the cruise
industry
------------------- --------------------------------------------- -------------------
Market Access Access to new financing options available Short-Medium term
for organisations working on decarbonisation
--------------------------------------------- -------------------
Access to private destinations or Short-Medium term
islands with infrastructure built
by us
--------------------------------------------- -------------------
Attract and retain new customers Short-Medium term
and improve reputation through sustainable
itineraries and activities for changing
climate-induced preferences
--------------------------------------------- -------------------
Positioning as a sustainability leader Short-Medium term
------------------- --------------------------------------------- -------------------
Products & Opportunities for the ship to be the Long Term
Services destination
------------------- --------------------------------------------- -------------------
Resilience Engage with more sustainable and economically Short Term
favourable alternative suppliers
--------------------------------------------- -------------------
Improve resilience to physical climate Short Term
risk through adaptation of itinerary
routes and investment in port infrastructure
------------------- --------------------------------------------- -------------------
Resource Efficiency Improved operational efficiencies Medium term
arising from technological advancements
--------------------------------------------- -------------------
Increased fuel efficiency through Short - Medium term
alternative itinerary planning and
reduced energy use
--------------------------------------------- -------------------
Increased resource efficiency through Medium term
reduced on-board energy demand and
consumption
------------------- --------------------------------------------- -------------------
Impacts
The impacts of climate-related risks and opportunities on the
business presented in the tables above have been qualitatively
assessed.
We presently consider transition risks to be the most
significant in terms of likelihood and impact. The risks with the
highest impact and likelihood of occurrence are associated with the
transition to a low-carbon emission future, in a scenario where we
have not been able to access low-carbon technology, or where these
technologies do not exist and where we have reduced availability
and access to fuel.
The climate-related opportunities with the highest impact are a
mix of mitigation and adaptation opportunities. These include the
positive impacts of supporting the (adaptation) of sustainable
technological advances for our business, improved operational
efficiencies from technological advancements, and more energy
efficient itineraries from investing in port and destination
projects.
Our short and medium-term decarbonization goals focus on
reducing carbon emissions per Available Lower Berth Day ("ALBD")
and carbon emissions per Available Lower Berth Kilometer ("ALB-km")
and we are committed to long-term absolute carbon emissions
reduction goals as part of our aspiration to be net carbon-neutral
by 2050. Our ongoing efforts to achieve our 2030 goals include the
delivery of larger more efficient ships as part of our ongoing
newbuild program, some of which will replace existing ships in our
fleet, as well as investing in energy efficiency projects for our
existing fleet, designing more energy efficient itineraries and
investing in port and destination projects to support these
efforts. We continue to evaluate and implement changes to our
various annual planning processes to further expand our focus on
decarbonization.
23
The actions we are taking via our strategy and financial
planning processes to manage the impacts of climate-related risks
and opportunities are listed below.
Newbuild Program and Supporting Innovation
As part of our plan for carbon footprint reduction, we lead the
cruise industry's use of Liquid Natural Gas ("LNG") powered cruise
ships with a total of 11 next-generation cruise ships that are
expected to join the fleet through 2025, including six ships
already in operation as of May 31, 2022. In total, these 11 ships
are expected to represent 20% of our total future capacity. Whilst
LNG is a fossil fuel and generates carbon emissions, LNG vessels
generate up to 20% less carbon emissions than traditionally powered
ships, while almost eliminating sulfur oxides, reducing nitrogen
oxides by 85% and particulate matter by 95%-100%. The types of
engines that we use are subject to small amounts of methane slip
(the passage of un-combusted methane through the engine). There are
different views relating to the measurement of the environmental
impact of LNG, including the methane slip. Our disclosures report
our emissions, including methane slip, as part of our total carbon
emissions (reported as CO2e) using the 100-year global warming
potential time frame and measured on a "tank to wake" basis. We are
working closely with our engine manufacturers and other technology
providers to mitigate methane slip.
While fossil fuels are currently the only viable option for our
industry, we are closely monitoring technology developments and
partnering with key organizations on research and development to
support our carbon emission reduction goals. For example, we are
partnering to evaluate and pilot maritime scale battery technology
and methanol powered fuel cells and working with classification
societies and other stakeholders to assess lower carbon fuel
options for cruise ships including hydrogen, methanol, eLNG, and
biofuels. We are promoting the use of shore power, enabling ships
to use shoreside electric power where available while in port.
The Mærsk McKinney Møller Center for Zero Carbon Shipping is a
not-for-profit, independent research and development center working
with industry players across the energy and shipping sectors to
mature viable decarbonization pathways for shipping globally.
Together with its partners, the Center facilitates the development
and implementation of new energy and maritime technologies and
accelerates the transition by defining strategic ways to drive the
required systemic and regulatory change. In January 2021, we became
a mission ambassador to the Center's work through a formalized
network and information flow. Joining the Mærsk McKinney Møller
Center for Zero Carbon Shipping is another important step in
establishing a path to zero emission cruising over time.
Investing in projects that improve energy efficiency
Energy efficiency projects are specifically identified,
reviewed, and approved as part of capital planning. An Internal
Decarbonization Premium is being added to the cost of fuel during
the planning process and is used to evaluate the payback period and
return on investment for projects. The non-newbuild capital plan
process is being enhanced by closer monitoring of spend related to
energy efficiency projects. Additionally, approved capital spend
for energy efficiency projects cannot be reallocated to projects
that are not energy efficiency related without CCO approval.
Designing more energy efficient itineraries
We continue to evaluate and implement changes to our various
annual planning processes to further support our focus on
decarbonization. Itinerary planning is a key lever in our low
carbon transition and consideration of climate risk is already
integrated into the ongoing process of itinerary planning. This
process is being enhanced through the recently adopted Corporate
Itinerary Decarbonization Reviews which evaluate the itinerary
planning process of each brand, focused on topics and metrics
related to decarbonization to ensure the processes are robust and
adequately focus on carbon reduction.
Investing in port and destination projects
Other strategic decisions, including how and where to invest in
new infrastructure, are informed by climate-related risks and
opportunities and will be further informed by the outputs of our
quantitative scenario analysis. A climate study was undertaken for
two of our port investments at Grand Port (Grand Bahama Island) and
Half Moon Cay Pier Project (Bahamas), to enhance climate
resilience. Furthermore, our investments in these ports and
destinations will support our efforts to design more energy
efficient itineraries based on their strategic locations.
Scenario Analysis
We have qualitatively applied two distinct plausible climate
scenarios, which were used to generate the risks and opportunities
assessed.
Steady path to sustainability (1.5degC by 2100)
24
Climate: Average temperature increase limited to below 1.5degC above
pre-industrial levels by 2100.
Narrative overview: Under the 1.5degC Steady Path to Sustainability
scenario, the world takes the rapid and strong policy measures required
to meet the ambition of the 2015 Paris Agreement. Low carbon technologies
take over from fossil-fuels, but under this scenario significantly
reduced economic growth is just as important for reaching net zero
emissions by 2050.
==========================================================================
Under this scenario, transition risks are most material and our
resilience is therefore dependent on our ability to effectively
adopt low carbon technologies. This will help us to adhere to
increasing decarbonization requirements set out by key drivers
identified in a low-carbon transition scenario, including existing
and emerging regulation, consumer preferences, and talent markets.
Ultimately, the availability and effective adoption of low carbon
technologies, most notably in the alternative fuels and resource
efficiency spaces, could impact our organization. As a result, our
most impactful opportunity is the enhancement of our reputation and
competitiveness, by supporting the adaptation of sustainable
technological advances for the cruise industry. This will also
further help us to mitigate the risks associated with access to
jurisdictions, access to capital and adherence to regulation.
Regional Rivalry (3degC by 2100)
Climate: Average temperature increase of 3degC above pre-industrial
levels by 2100.
Narrative overview: The 3degC scenario explores a possible route
in which the world is seeing an emergence of tribalism and nationalism.
Low international priority for addressing environmental concerns
leads to strong environmental degradation in some regions. The combination
of impeded development and limited environmental concern results
in poor progress toward climate sustainability. Growing resource
intensity and fossil fuel dependency along with difficulty in achieving
international cooperation and slow technological change imply high
challenges to mitigation.
===========================================================================
This scenario presents a higher emissions future where physical
risks are most material. Business resilience under this scenario is
dependent on our ability to adapt to extreme weather events and
chronic physical risks, which have the potential to limit access to
jurisdictions and impact supply chain resilience due to economic
and physical damage. Under this scenario we can remain resilient by
taking advantage of opportunities to adapt the business model to
support business continuity. These adaptions may include ship or
private locations becoming the destination, as well as adapting
itineraries and investing in port and destination projects.
Risk Management
The qualitative scenario analysis is the foundation of our
climate-risk identification and assessment process and began with
the evaluation of all possible climate-related risks we may face,
to generate an initial list of possible risks. Input from key
stakeholders in the business was obtained through workshops to
identify additional climate risks and opportunities and refine the
list before prioritizing the list of risks and opportunities
identified. Assessment of these risks was performed by the SRE
committee and a cross section of management, who qualitatively
evaluated the impact and likelihood of these risks and
opportunities. Certain financial, regulatory and reputational risks
and opportunities, as described on pages 22-23, were then selected
for more detailed quantitative scenario analysis.
Executive management is responsible for ensuring we have active
plans and adequate resources to manage and/or mitigate principal
and emerging financial and non-financial risks, including HESS and
compliance risks, identified by the business from the risk
assessment processes that are integrated within our operations. As
new risks emerge, executive management seeks to ensure they are
properly reviewed and monitored.
We are continuously refining and enhancing our existing
processes. The SRE Committee was established to oversee the
identification, assessment, management, and monitoring of
climate-related risks and opportunities. They provide
recommendations to the CCO, who ultimately provides recommendations
to the Boards of Directors. Our process for continuously
identifying, assessing and managing climate-related risks and
opportunities is being further developed, and we will include a
description of this process in our 2022 Annual Report .
Overall, the Boards of Directors are responsible for determining
the strategic direction of the company and the nature and extent of
the risk assumed by it. The Boards of Directors carry out a robust
risk assessment to ensure that principal and emerging risks,
including those that would threaten its business model, future
performance, solvency or liquidity are effectively managed
and/or
25
mitigated to help ensure the company is viable. Within our risk
management framework, the Boards of Directors have ultimate
oversight of climate-related risks, which has been identified as a
principal risk, please see the Governance pillar for description of
how climate related risks are overseen.
Metrics and Targets
Metrics
The metrics which are currently used in addressing our
climate-related risks and opportunities are disclosed below. Please
see the Strategy pillar for a list of our most likely and most
impactful risks and opportunities, which have been raised through
our risk identification and assessment process. The SRE committee
recommends metrics to the CCO, who will make ultimate
recommendations to the Boards, as described on page 20.
Our Scope 1 and 2 emissions are reported within our 2021 Annual
Report. We quantify, report, and obtain third-party verification
(under ISO-14064-3:2006) over our annual greenhouse gas ("GHG")
emissions, including our direct (Scope 1) and indirect (Scope 2)
emissions, which comprise our total GHG inventory. Our 2022 GHG
emissions will be included in our 2022 Annual Report as part of our
reporting requirements. We are also assessing and baselining our
scope 3 emissions in 2022 and expect to begin disclosing scope 3
emissions data in the future.
Targets
We have made progress over the past 15 years reducing our carbon
emission intensity and achieving our 2020 goal three years early
(in 2017). We have also made progress towards our 2030 carbon
intensity reduction goals of 40% from a 2008 baseline, measured in
both grams of CO2e per ALB-km and kilograms of CO2e per ALBD.
Through 2019, we reduced our carbon emission intensity on a lower
berth distance basis by 25% relative to 2008 all while growing our
capacity by 47%. Furthermore, because of our efforts, we peaked our
absolute Scope 1 and 2 emissions in 2011.
We decided to update the baseline year for both goals to 2019
from 2008. This new baseline year will help us better communicate
recent progress against our climate goals to our investors and
stakeholders, and modernizes our disclosures in alignment with
developing best practice and reporting standards. Both 2030 goals
require a 20% decrease from 2019. With the updated baseline year,
we have strengthened our goal measured in kilograms of CO2e per
ALBD since the initial 2030 goal would only have required a further
15% reduction from 2019 levels. Our goal measured in grams of CO2e
per ALB-km remains the same.
Carbon Intensity
(g CO2e/ALB-km)
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26
Carbon Intensity
(kg CO2e/ALBD)
Click on, or paste the following link into your web browser to
view the associated PDF document of Note 14.
http://www.rns-pdf.londonstockexchange.com/rns/7122Q_1-2022-6-29.pdf
To support the mitigation of the climate-related risks
identified relating to the restriction of carbon-intensive
industries and fossil fuels, we have set the following 2030 Climate
Action goals and will report on our progress in our 2022 Annual
Report:
2030 Climate Action Goals Goal Baseline Time Horizon
------------------------------------- ------- -------- ------------
Achieve 20% carbon intensity 20% 2019 2030
reduction relative to our 2019
baseline measured (grams of CO2e
per ALB-km)
------------------------------------- ------- -------- ------------
Achieve 20% carbon intensity 20% 2019 2030
reduction relative to our 2019
baseline measured (kilograms
of CO2e per ALBD)
------------------------------------- ------- -------- ------------
Having peaked our Scope 1 and N/A 2019 2030
2 carbon emissions in 2011, we
will continue to reduce emissions
over time, and identify a pathway
to decarbonization.
------------------------------------- ------- -------- ------------
Reduce absolute particulate matter 50% 2015 2030
air emissions by 50% relative
to our 2015 baseline.
------------------------------------- ------- -------- ------------
Increase fleet shore power connection 60% Ongoing 2030
capability to 60% of the fleet.
------------------------------------- ------- -------- ------------
Expand liquefied natural gas Ongoing Ongoing 2030
(LNG) program.
------------------------------------- ------- -------- ------------
Optimize the reach and performance Ongoing Ongoing 2030
of our Advanced Air Quality System
program.
------------------------------------- ------- -------- ------------
Expand battery, fuel cell, and Ongoing Ongoing 2030
biofuel capabilities.
------------------------------------- ------- -------- ------------
Reduce scope 3 supply chain emissions Ongoing Ongoing 2030
associated with food procurement
and waste management.
------------------------------------- ------- -------- ------------
Identify carbon offset options Ongoing Ongoing 2030
only when energy efficiency options
have been exhausted.
------------------------------------- ------- -------- ------------
27
NOTE 15 - Responsibility Statement
The Directors confirm that to the best of their knowledge the
Interim Financial Statements included as Schedule A to this release
have been prepared in accordance with IAS 34 as adopted by the UK,
and that the half-yearly financial report includes a fair review of
the information required by DTR 4.2.7R and DTR 4.2.8R of the
Disclosure Guidance and Transparency Rules of the FCA.
The Directors of Carnival plc are listed in the Carnival plc
Annual Report for the year ended November 30, 2021. No new
Directors have been appointed during the six months ended May 31,
2022. A list of current Directors is maintained and is available
for inspection on the Group's website at www.carnivalplc.com .
By order of the Board
/s/ Micky Arison /s/ Arnold W. Donald
Micky Arison Arnold W. Donald
Chair of the Board of Directors President, Chief Executive
Officer, Chief Climate Officer and Director
June 29, 2022 June 29, 2022
28
SCHEDULE B
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 Six Months Ended
Ended May 31, May 31,
------------------
2022 2021 2022 2021
-------- -------- -------- --------
Revenues
Passenger ticket $1,285 $20 $2,158 $23
Onboard and other 1,116 29 1,866 52
-------- -------- -------- --------
2,401 50 4,024 75
-------- -------- -------- --------
Operating Costs and Expenses
Commissions, transportation and other 325 22 576 37
Onboard and other 314 15 523 22
Payroll and related 533 241 1,038 460
Fuel 545 113 910 216
Food 191 17 327 28
Ship and other impairments - 49 8 49
Other operating 774 224 1,331 404
-------- -------- -------- --------
2,683 681 4,713 1,216
Selling and administrative 619 417 1,149 879
Depreciation and amortization 572 567 1,126 1,119
3,874 1,665 6,988 3,214
-------- -------- -------- --------
Operating Income (Loss) (1,473) (1,616) (2,964) (3,139)
-------- -------- -------- --------
Nonoperating Income (Expense)
Interest income 6 4 9 7
Interest expense, net of capitalized
interest (370) (437) (738) (835)
Gain (loss) on debt extinguishment,
net - 2 - 4
Other income (expense), net 6 (13) (26) (75)
-------- -------- -------- --------
(358) (444) (755) (900)
-------- -------- -------- --------
Income (Loss) Before Income Taxes (1,831) (2,060) (3,719) (4,039)
Income Tax Benefit (Expense), Net (3) (12) (6) (6)
-------- -------- -------- --------
Net Income (Loss) $(1,834) $(2,072) $(3,726) $(4,045)
======== ======== ======== ========
Earnings Per Share
Basic $(1.61) $(1.83) $(3.27) $(3.63)
======== ======== ======== ========
Diluted $(1.61) $(1.83) $(3.27) $(3.63)
======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in millions)
Six Months
Three Months Ended
Ended May 31, May 31,
------------------
2022 2021 2022 2021
-------- -------- -------- --------
Net Income (Loss) $(1,834) $(2,072) $(3,726) $(4,045)
-------- -------- -------- --------
Items Included in Other Comprehensive
Income (Loss)
Change in foreign currency translation
adjustment (260) 104 (246) 303
Other 3 3 5 7
-------- -------- -------- --------
Other Comprehensive Income (Loss) (257) 107 (241) 310
-------- -------- -------- --------
Total Comprehensive Income (Loss) $(2,091) $(1,965) $(3,967) $(3,735)
======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except par values)
May 31, November
30, 2021
2022
-------- ---------
ASSETS
Current Assets
Cash and cash equivalents $7,054 $8,939
Short-term investments 151 200
Trade and other receivables, net 359 246
Inventories 425 356
Prepaid expenses and other 566 392
-------- ---------
Total current assets 8,554 10,133
-------- ---------
Property and Equipment, Net 39,262 38,107
Operating Lease Right-of-Use Assets 1,205 1,333
Goodwill 579 579
Other Intangibles 1,167 1,181
Other Assets 2,221 2,011
-------- ---------
$52,988 $53,344
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $2,675 $2,790
Current portion of long-term debt 3,196 1,927
Current portion of operating lease liabilities 140 142
Accounts payable 912 797
Accrued liabilities and other 1,690 1,641
Customer deposits 4,767 3,112
-------- ---------
Total current liabilities 13,380 10,408
-------- ---------
Long-Term Debt 29,263 28,509
Long-Term Operating Lease Liabilities 1,120 1,239
Other Long-Term Liabilities 965 1,043
Contingencies and Commitments
Shareholders' Equity
Common stock of Carnival Corporation, $0.01 par value;
1,960 shares authorized; 1,125 shares at 2022 and
1,116 shares at 2021 issued 11 11
Ordinary shares of Carnival plc, $1.66 par value;
217 shares at 2022 and 2021 issued 361 361
Additional paid-in capital 15,457 15,292
Retained earnings 2,649 6,448
Accumulated other comprehensive income (loss) ("AOCI") (1,742) (1,501)
Treasury stock, 130 shares at 2022 and 2021 of Carnival
Corporation and 71 shares at 2022 and 67 shares at
2021 of Carnival plc, at cost (8,476) (8,466)
-------- ---------
Total shareholders' equity 8,260 12,144
-------- ---------
$52,988 $53,344
======== =========
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Six Months
Ended May 31,
2022
------------------
2022 2021
-------- --------
OPERATING ACTIVITIES
Net income (loss) $(3,726) $(4,045)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 1,126 1,119
Impairments 8 66
(Gain) loss on debt extinguishment - (4)
(Income) loss from equity-method investments (4) 14
Share-based compensation 54 66
Amortization of discounts and debt issue costs 87 83
Noncash lease expense 68 71
Other, net 12 70
-------- --------
(2,376) (2,559)
Changes in operating assets and liabilities
Receivables (120) 31
Inventories (79) -
Prepaid expenses and other (395) (696)
Accounts payable 139 (119)
Accrued liabilities and other 12 236
Customer deposits 1,611 245
-------- --------
Net cash provided by (used in) operating activities (1,209) (2,862)
-------- --------
INVESTING ACTIVITIES
Purchases of property and equipment (3,221) (2,157)
Proceeds from sales of ships and other 55 324
Purchase of minority interest - (90)
Purchase of short-term investments (315) (2,671)
Proceeds from maturity of short-term investments 364 467
Derivative settlements and other, net 10 (27)
-------- --------
Net cash provided by (used in) investing activities (3,107) (4,155)
-------- --------
FINANCING ACTIVITIES
Proceeds from (repayments of) short-term borrowings, net (114) 17
Principal repayments of long-term debt (684) (1,365)
Proceeds from issuance of long-term debt 3,334 4,980
Issuance of common stock, net 30 996
Issuance of common stock under the Stock Swap Program 89 -
Purchase of treasury stock under the Stock Swap Program (82) -
Debt issue costs and other, net (111) (104)
-------- --------
Net cash provided by (used in) financing activities 2,463 4,523
-------- --------
Effect of exchange rate changes on cash, cash equivalents
and restricted cash (35) 19
-------- --------
Net increase (decrease) in cash, cash equivalents and
restricted cash (1,888) (2,474)
Cash, cash equivalents and restricted cash at beginning
of period 8,976 9,692
-------- --------
Cash, cash equivalents and restricted cash at end of period $7,089 $7,218
======== ========
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 February 28, 2021 $11 $361 $14,977 $14,102 $(1,233) $(8,404) $19,813
Net income (loss) - - - (2,072) - - (2,072)
Other comprehensive income
(loss) - - - - 107 - 107
Other - - 28 - - - 28
------ -------- ---------- --------- -------- -------- --------------
At May 31, 2021 $11 $361 $15,005 $12,030 $(1,126) $(8,404) $17,876
====== ======== ========== ========= ======== ======== ==============
At February 28, 2022 $11 $361 $15,360 $4,493 $(1,486) $(8,428) $10,311
Net income (loss) - - - (1,834) - - (1,834)
Other comprehensive income
(loss) - - - - (257) - (257)
Issuances of common stock,
net - - 15 - - - 15
Purchases and issuances
under the Stock Swap
program,
net - - 62 - - (57) 6
Issuance of treasury
shares
for vested share-based
awards - - - (9) - 9 -
Share-based compensation
and other - - 19 (1) - - 19
------ -------- ---------- --------- -------- -------- --------------
At May 31, 2022 $11 $361 $15,457 $2,649 $(1,742) $(8,476) $8,260
====== ======== ========== ========= ======== ======== ==============
Six Months Ended
---------------------------------------------------------------------------
Additional Total
Common Ordinary paid-in Retained Treasury shareholders'
stock shares capital earnings AOCI stock equity
------ -------- ---------- --------- -------- -------- --------------
At November 30, 2020 $11 $361 $13,948 $16,075 $(1,436) $(8,404) $20,555
Net income (loss) - - - (4,045) - - (4,045)
Other comprehensive income
(loss) - - - - 310 - 310
Issuance of common stock,
net - - 996 - - - 997
Other - - 60 - - - 60
------ -------- ---------- --------- -------- -------- --------------
At May 31, 2021 $11 $361 $15,005 $12,030 $(1,126) $(8,404) $17,876
====== ======== ========== ========= ======== ======== ==============
At November 30, 2021 $11 $361 $15,292 $6,448 $(1,501) $(8,466) $12,144
Net income (loss) - - - (3,726) - - (3,726)
Other comprehensive income
(loss) - - - - (241) - (241)
Issuances of common stock,
net - - 30 - - - 30
Purchases and issuances
under the Stock Swap
program,
net - - 89 - - (82) 8
Issuance of treasury
shares
for vested share-based
awards - - - (72) - 72 -
Share-based compensation
and other - - 45 (1) - - 45
------ -------- ---------- --------- -------- -------- --------------
At May 31, 2022 $11 $361 $15,457 $2,649 $(1,742) $(8,476) $8,260
====== ======== ========== ========= ======== ======== ==============
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 May 31, 2022, 86%
of our capacity was in guest cruise operation as part of our
ongoing return to service. The extent of the effects of COVID-19 on
our business are uncertain and will depend on future developments,
including, but not limited to, the duration and continued severity
of COVID-19 and the length of time it takes to return the company
to profitability. COVID-19 and its ongoing effects, inflation and
higher fuel prices are collectively having a material impact on our
business, including our results of operations, liquidity and
financial position.
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:
-- Continued ongoing resumption of guest cruise operations, with
86% of the fleet back in guest cruise operations as of May 31,
2022
-- Expected increases in revenue in 2023 on a per passenger
basis compared to 2019, particularly as the friction from
restrictive protocols wanes
-- Expected improvement in occupancy throughout 2022 and 2023
-- Expected continued spend to maintain enhanced health and
safety protocols and to support the ongoing resumption of guest
cruise operations, including completing the return of crew members
to our ships
-- Expected moderation of fuel prices beginning in the second
half of 2022 and continuing into 2023
-- Expected inflation and supply chain challenges to continue to
weigh on costs, though moderated by a larger, more efficient fleet
as compared to 2019
-- Maintaining collateral and reserves at reasonable levels
In addition, we make certain assumptions about new ship
deliveries, improvements and removals, and consider the future
export credit financings that are associated with the new 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 and subsequent ongoing
resumption of our guest cruise operations, and as a consequence,
our ability to be predictive is uncertain. In addition, the
magnitude and duration of the COVID-19 global pandemic and its
ongoing effects, inflation and higher fuel prices are uncertain. We
have made reasonable estimates and judgments of the impact of these
events within our consolidated financial statements and there may
be changes to those estimates in future periods. We took 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 various capital market
opportunities to extend maturities and if appropriate, obtain
relevant financial covenant amendments.
Based on these actions and our assumptions regarding the impact
of COVID-19, considering our $7.5 billion of liquidity including
cash, short-term investments and borrowings available under our
revolving facility at May 31, 2022, as well as our continued
ongoing 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 six months
ended May 31, 2022 and 2021, the Consolidated Statements of Cash
Flows for the six months ended May 31, 2022 and 2021 and the
Consolidated Balance Sheet at May 31, 2022 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 2021 joint Annual Report on Form 10-K ("Form
10-K") filed with the U.S. Securities and Exchange Commission on
January 27, 2022.
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
In March 2020, the Financial Accounting Standards Board ("FASB")
issued Accounting Standard Update ("ASU") No. 2020-04, Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting ("ASU No. 2020-04"), which
provides temporary optional expedients and exceptions to accounting
guidance on contract modifications and hedge accounting to ease
entities' financial reporting burdens as the market transitions
from the London Interbank Offered Rate ("LIBOR") and other
interbank offered rates to alternative reference rates. ASU 2020-04
is effective upon issuance and can be applied through December 31,
2022. The use of LIBOR was phased out at the end of 2021, although
the phase-out of U.S. dollar LIBOR for existing agreements has been
delayed until June 2023. We continue to monitor developments
related to the LIBOR transition and identification of an
alternative, market-accepted rate.
In December 2021, we amended our GBP350 million long-term debt
agreement which referenced the British Pound sterling ("GBP") LIBOR
to the Sterling Overnight Index Average ("SONIA") and applied the
practical expedient. This amendment did not have a material impact
on our consolidated financial statements. As of May 31, 2022,
approximately $8.5 billion of our outstanding indebtedness bears
interest at floating rates referenced to U.S. dollar LIBOR with
maturity dates extending beyond June 30, 2023. We are currently
evaluating our contracts referenced to U.S. dollar LIBOR and
working with our creditors on updating credit agreements as
necessary to include language regarding the successor or alternate
rate to LIBOR. We do not expect the adoption of this standard to
have a material impact on our consolidated financial statements
during the LIBOR transition period.
The FASB 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 and advance onboard purchases 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. The fees, taxes and charges that
vary with guest head counts and are directly imposed on a
revenue-producing arrangement are expensed in commissions,
transportation and other costs when the corresponding revenues are
recognized. For the three and six months ended May 31, fees, taxes,
and charges included in commissions, transportation and other costs
were $96 million and $164 million in 2022 and were $5 million and
$12 million in 2021. 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.
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. In certain situations, we have provided flexibility to
guests by allowing guests to rebook at a future date, receive
future cruise credits ("FCCs") or elect to receive refunds in cash.
We have at times issued enhanced FCCs. Enhanced FCCs provide the
guest with an additional credit value above the original cash
deposit received, and the enhanced value is recognized as a
discount applied to the future cruise in the period used. We have
paid refunds of customer deposits with respect to a portion of
cancelled cruises. The amount of any future cash refunds may depend
on future cruise cancellations and guest rebookings. We record a
liability for unexpired FCCs to the extent we have received and not
refunded cash from guests for cancelled bookings. We had total
customer deposits of $5.1 billion as of May 31, 2022 and $3.5
billion as of November 30, 2021. Refunds payable to guests who have
elected cash refunds are recorded in accounts payable. During the
six months ended May 31, 2022 and 2021, we recognized revenues of
$1.4 billion and an immaterial amount related to our customer
deposits as of November 30, 2021 and 2020. Historically, our
customer deposits balance changes due to the seasonal nature of
cash collections, the recognition of revenue, refunds 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
as a result of obtaining the ticket contract and include prepaid
travel agent commissions and prepaid credit and debit card fees. We
record these amounts within prepaid expenses and other and
subsequently recognize these amounts as commissions, transportation
and other at the time of revenue recognition or at the time of
voyage cancellation. We had contract assets of $208 million as of
May 31, 2022 and $55 million as of November 30, 2021.
NOTE 3 - Debt
Short-Term Borrowings
As of May 31, 2022 and November 30, 2021, our short-term
borrowings consisted of $2.7 billion and $2.8 billion under our
$1.7 billion, EUR1.0 billion and GBP0.2 billion revolving credit
facility (the "Revolving Facility").
Export Credit Facility Borrowings
During the six months ended May 31, 2022, we borrowed $2.3
billion under export credit facilities due in semi-annual
installments through 2034.
2030 Senior Unsecured Notes
In May 2022, we issued an aggregate principal amount of $1.0
billion senior unsecured notes that mature on June 1, 2030 (the
"2030 Senior Unsecured Notes"). The 2030 Senior Unsecured Notes
bear interest at a rate of 10.5% per year.
Covenant Compliance
As of May 31, 2022, our Revolving Facility and substantially all
of our unsecured loans and export credit facilities contain certain
covenants, the most restrictive of which require us to:
-- Maintain minimum interest coverage (adjusted EBITDA to
consolidated net interest charges) at the end of each fiscal
quarter from August 31, 2023, at a ratio of not less than 2.0 to
1.0 for the August 31, 2023 testing date, 2.5 to 1.0 for the
November 30, 2023 testing date, and 3.0 to 1.0 for the February 29,
2024 testing date onwards, or through their respective maturity
dates
-- Maintain minimum shareholders' equity of $5.0 billion
-- Limit our debt to capital (as defined) percentage from the
November 30, 2021 testing date until the May 31, 2023 testing date,
to a percentage not to exceed 75%, following which it will be
tested at levels which decline ratably to 65% from the May 31, 2024
testing date onwards
-- Maintain minimum liquidity of $1.5 billion through November 30, 2026
-- Adhere to certain restrictive covenants through November 30, 2024
-- Limit the amounts of our secured assets as well as secured and other indebtedness
At May 31, 2022, 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 May 31, 2022, the scheduled maturities of our debt are as
follows:
(in millions)
Year Principal Payments
------------------
3Q 2022 $397
4Q 2022 943
2023 2,837
2024 (a) 4,705
2025 4,415
2026 4,512
Thereafter 18,116
------------------
Total $35,925
==================
(a) Includes borrowings of $2.7 billion under our Revolving
Facility. Amounts outstanding under our Revolving Facility were
drawn in 2020 for an initial six-month term. We may continue to
re-borrow or otherwise utilize available amounts under the
Revolving Facility through August 2024, subject to satisfaction of
the conditions in the facility. We had $0.3 billion available for
borrowing under our Revolving Facility as of May 31, 2022. 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 unutilized
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 Corporation "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. In the matter filed by Havana Docks Corporation,
the hearings on motions for summary judgment were concluded on
January 18, 2022. On March 21, 2022, the court granted summary
judgment in favor of Havana Docks Corporation as to liability. The
amount of damages will be determined at trial. On March 30, 2022,
we filed a motion seeking clarification on a portion of the court's
order granting summary judgment as to liability. On May 9, 2022,
the court granted the motion for clarification, vacating the
portion of the March 21, 2022 order that had granted summary
judgment in favor of plaintiff upon our Fifth Amendment affirmative
defense. On March 30, 2022, we also filed a motion for
interlocutory appeal and to stay. On May 13, 2022, the court denied
this motion. The court has moved the trial date to September 19,
2022. In the matter filed by Javier Bengochea on December 20, 2021,
the court issued an order inviting an amicus brief from the U.S.
government on several issues involved in the appeal. The U.S.
government filed its brief and the court ordered the parties to
respond. On May 6, 2022 we filed our response brief. We continue to
believe we have a meritorious defense to these actions and we
believe that any final liability which may arise as a result of
these actions is unlikely to have a material impact on our
consolidated financial statements.
As previously disclosed, on April 8, 2020, DeCurtis LLC
("DeCurtis"), a former vendor, filed an action against Carnival
Corporation in the U.S. District Court for the Middle District of
Florida seeking declaratory relief that DeCurtis is not infringing
on several of Carnival Corporation's patents in relation to its
OCEAN Medallion systems and technology. The action also raises
certain monopolization claims under The Sherman Antitrust Act of
1890, unfair competition and tortious interference, and seeks
declaratory judgment that certain Carnival Corporation patents are
unenforceable. DeCurtis seeks damages, including its fees and
costs, and seeks declarations that it is not infringing and/or that
Carnival Corporation's patents are unenforceable. On April 10,
2020, Carnival Corporation filed an action against DeCurtis in the
U.S. District Court for the Southern District of Florida for breach
of contract, trade secrets violations and patent infringement.
Carnival Corporation seeks damages, including its fees and costs,
as well as an order permanently enjoining DeCurtis from engaging in
such activities. These two cases have now been consolidated in the
Southern District of Florida. On April 25, 2022, we moved for
summary judgment on our breach of contract claims and on all of
DeCurtis's claims. DeCurtis also filed a motion for summary
judgment on certain portions of our claims. Both motions for
summary judgment are fully briefed. We believe the ultimate outcome
will not have a material impact on our consolidated financial
statements.
COVID-19 Actions
Private Actions
We have been named in a number of individual actions related to
COVID-19. Private parties have brought approximately 73 individual
lawsuits as of May 31, 2022 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 May 31, 2022, 63 of these individual
actions have now been dismissed or settled for immaterial amounts
and 10 remain.
Additionally, as of May 31, 2022, 10 purported class actions
have been brought by former guests from Ruby Princess, Diamond
Princess, Grand Princess, Coral Princess and 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 May 31,
2022, eight of these class actions have either been settled
individually for immaterial amounts or had their class allegations
dismissed by the courts and two remain.
All COVID-19 matters seek monetary damages and most seek
additional punitive damages in unspecified amounts.
As previously disclosed, on December 15, 2020, a consolidated
class action with 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, alleging violations of Sections
10(b) and 20(a) of the U.S. Securities and Exchange Act of 1934 by
making misrepresentations and omissions related to Carnival
Corporation's COVID-19 knowledge and response. Plaintiffs seek to
recover unspecified damages and equitable relief for the alleged
misstatements and omissions. On March 30, 2022, the court granted
our motion to dismiss with prejudice and no appeal was filed prior
to the deadline.
We continue to take 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.
Ot her Regulatory or Governmental Inquiries and
Investigations
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 responded to a cybersecurity event in May 2019 related to our
email accounts, and detected ransomware attacks in August 2020 and
December 2020, each of which resulted in unauthorized access to our
information technology systems. We engaged a major cybersecurity
firm to investigate these matters and notified relevant law
enforcement and regulators of these incidents.
-- For the May 2019 event, the investigation, communication and
reporting phases are complete. An unauthorized third-party gained
access to certain email accounts, which contained personal
information relating to some guests, employees and crew for some of
our operations.
-- For the August 2020 and December 2020 events, the
investigation, communication and reporting phases are complete. An
unauthorized third-party gained access to certain of our
information security systems, deployed ransomware and obtained
personal information related to guests, employees and crew for some
of our operations.
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. On June 24, 2022, we finalized a
settlement with NY DFS, pursuant to which we will pay an amount
that will not have a material impact on our consolidated financial
statements. In addition, State Attorneys General from 46 states
have completed their investigation of the May 2019 event. On June
22, 2022, we finalized a settlement with the State Attorneys
General from these 46 states, pursuant to which we will pay an
amount that will not have a material impact on our consolidated
financial statements.
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 these
incidents are not expected to have a material adverse effect on our
business, results of operations, financial position or liquidity,
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.
On March 14, 2022, the United States Department of Justice and
the United States Environmental Protection Agency notified Carnival
Corporation & plc of potential civil penalties and injunctive
relief for alleged Clean Water Act violations by owned and operated
vessels covered by the 2013 Vessel General Permit. Carnival
Corporation & plc is working with these agencies to reach a
resolution of this matter. We do not expect this matter to have a
material impact on our consolidated financial statements.
Other Contingent Obligations
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.
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 May 31, 2022 and November 30, 2021, we had
$1.4 billion and $1.1 billion in reserve funds related to our
customer deposits provided to satisfy these requirements which are
included within other assets. We continue to expect to provide
reserve funds under these agreements. Additionally, as of May 31,
2022 and November 30, 2021, we had $30 million of cash collateral
in escrow which is included within other assets.
Ship Commitments
As of May 31, 2022, we expect the timing of our new ship growth
capital commitments to be as follows:
(in millions)
Year
Remainder of 2022 $1,535
2023 2,422
2024 1,608 (a)
2025 927 (a)
2026 -
Thereafter -
------
$6,492
======
(a) Includes a ship subject to financing
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
May 31, 2022 November 30, 2021
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) $21,510 $- $18,515 $- $19,555 $- $19,013 $-
Floating rate debt (a) 14,415 - 12,703 - 14,415 - 13,451 -
-------- ----- ------- ----- -------- ----- ------- -----
Total $35,925 $- $31,219 $- $33,970 $- $32,463 $-
======== ===== ======= ===== ======== ===== ======= =====
(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
May 31, 2022 November 30, 2021
Level Level Level Level Level Level
(in millions) 1 2 3 1 2 3
------ ----- ----- ------- ----- -----
Assets
Cash and cash equivalents $7,054 $- $- $8,939 $- $-
Short-term investments (a) 151 - - 200 - -
Derivative financial instruments - 10 - - 1 -
------ ----- ----- ------- ----- -----
Total $7,205 $10 $- $9,139 $1 $-
====== ===== ===== ======= ===== =====
Liabilities
Derivative financial instruments $- $18 $- $- $13 $-
------ ----- ----- ------- ----- -----
Total $- $18 $- $- $13 $-
====== ===== ===== ======= ===== =====
(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
The determination of the fair value of our reporting units'
goodwill and trademarks includes numerous estimates and underlying
assumptions that are subject to various risks and uncertainties. At
May 31, 2022 and November 30, 2021, goodwill for our North America
and Australia ("NAA") segment was $579 million. We had no goodwill
for our Europe and Asia ("EA") segment at May 31, 2022 and November
30, 2021.
Trademarks
NAA EA
(in millions) Segment Segment Total
-------- -------- ------
November 30, 2021 $927 $248 $1,175
Exchange movements - (13) (13)
-------- -------- ------
May 31, 2022 $927 $234 $1,161
======== ======== ======
Impairment of Ships
We review our long-lived assets for impairment whenever events
or circumstances indicate potential impairment. As a result of the
continued effect of COVID-19 on our business, and our updated
expectations of the estimated selling values for certain of our
ships, we determined that a ship had a net carrying value that
exceeded its estimated discounted future cash flows as of February
28, 2022. We compared the estimated selling value to the net
carrying value and, as a result, recognized ship impairment charges
as summarized in the table below during the first quarter of 2022.
The principal assumption used in our cash flow analyses was the
timing of the sale and its proceeds, which is considered a Level 3
input. We believe that we have made reasonable estimates and
judgments as part of our assessment. A change in the principal
assumptions, which influences the determination of fair value, may
result in a need to perform additional impairment reviews.
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 Six Months Ended
May 31, May 31,
(in millions) 2022 2021 2022 2021
--------- --------- -------- --------
NAA Segment $- $- $8 $-
EA Segment - 49 - 49
--------- --------- -------- --------
Total ship impairments $- $49 $8 $49
========= ========= ======== ========
Refer to Note 1 - "General, COVID-19 and the Use of Estimates
and Risks and Uncertainty" for additional discussion.
Derivative Instruments and Hedging Activities
May 31, November
(in millions) Balance Sheet Location 2022 30, 2021
----------------------- ------- ---------
Derivative assets
Derivatives designated as hedging
instruments
Prepaid expenses
Cross currency swaps (a) and other $10 $1
Total derivative assets $10 $1
======= =========
Derivative liabilities
Derivatives designated as hedging
instruments
Other long-term
Cross currency swaps (a) liabilities $17 $8
Accrued liabilities
Interest rate swaps (b) and other 1 3
Other long-term
liabilities - 2
------- ---------
Total derivative liabilities $18 $13
======= =========
(a) At May 31, 2022, we had cross currency swaps totaling $665
million that are designated as hedges of our net investment in
foreign operations with euro-denominated functional currencies. At
May 31, 2022, these cross currency swaps settle through 2027.
(b) 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 $116 million at May 31, 2022 and
$160 million at November 30, 2021 of EURIBOR-based floating rate
euro debt to fixed rate euro debt. At May 31, 2022, 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, when applicable.
May 31, 2022
Gross Amounts Total Net Amounts Gross Amounts
Offset in Presented in not Offset
Gross the Balance the Balance in the Balance
(in millions) Amounts Sheet Sheet Sheet Net Amounts
-------- ------------- ----------------- --------------- -----------
Assets $10 $- $10 $- $10
Liabilities $18 $- $18 $- $18
November 30, 2021
------------------------------------------------------------------------
Gross Amounts Total Net Amounts Gross Amounts
Offset in Presented in not Offset
Gross the Balance the Balance in the Balance
(in millions) Amounts Sheet Sheet Sheet Net Amounts
-------- ------------- ----------------- --------------- -----------
Assets $1 $- $1 $- $1
Liabilities $13 $- $13 $- $13
The effect of our derivatives qualifying and designated as
hedging instruments recognized in other comprehensive income (loss)
and in net income (loss) was as follows:
Three Months Six Months Ended
Ended May 31, May 31,
----------------
(in millions) 2022 2021 2022 2021
-------- ------ --------- -------
Gains (losses) recognized in AOCI:
Cross currency swaps - net investment
hedges - included component $27 $- $33 $-
Cross currency swaps - net investment
hedges - excluded component $(11) $- $(20) $-
Interest rate swaps - cash flow hedges $6 $1 $9 $2
Gains (losses) reclassified from AOCI
- cash flow hedges:
Interest rate swaps - Interest expense,
net of capitalized interest $(1) $(1) $(1) $(3)
Foreign currency zero cost collars - Depreciation
and amortization $1 $- $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 $3 $- $4 $-
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 consider
hedging certain of our ship commitments and net investments in
foreign operations. The financial impacts of our hedging
instruments generally offset the changes in the underlying
exposures being hedged.
Operational Currency Risks
Our operations primarily utilize the U.S. dollar, Euro, Sterling
or the Australian dollar 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 May 31,
2022, we have designated $442 million of our sterling-denominated
debt as non-derivative hedges of our net investments in foreign
operations. For the three and six months ended May 31, 2022, we
recognized $28 million and $25 million of gains on these
non-derivative net investment hedges in the cumulative translation
adjustment section of other comprehensive income (loss). We also
have euro-denominated debt, including the effect of cross currency
swaps, 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.
At May 31, 2022, 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 $5.6 billion for newbuilds scheduled
to be delivered through 2025.
The cost of shipbuilding orders that we may place in the future
that are 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 May 31, 2022, 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, Chief
Executive Officer and Chief Climate 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 May 31,
-----------------------------------------------------------------------
Operating Selling Depreciation Operating
costs and and and income
(in millions) Revenues expenses administrative amortization (loss)
-------- ---------- --------------- ------------- ---------
2022
NAA $1,666 $1,768 $366 $353 $(821)
EA 666 848 175 179 (536)
Cruise Support 40 26 71 35 (92)
Tour and Other 29 41 6 6 (24)
-------- ---------- --------------- ------------- ---------
$2,401 $2,683 $619 $572 $(1,473)
======== ========== =============== ============= =========
2021
NAA $9 $365 $233 $341 $(930)
EA 33 298 131 186 (582)
Cruise Support - 7 43 33 (82)
Tour and Other 7 12 11 6 (21)
-------- ---------- --------------- ------------- ---------
$50 $681 $417 $567 $(1,616)
======== ========== =============== ============= =========
Six Months Ended May 31,
-----------------------------------------------------------------------
Operating Selling Depreciation Operating
costs and and and income
(in millions) Revenues expenses administrative amortization (loss)
-------- ---------- --------------- ------------- ---------
2022
NAA $2,792 $3,055 $710 $687 $(1,661)
EA 1,123 1,546 352 359 (1,134)
Cruise Support 73 54 75 68 (126)
Tour and Other 37 57 12 11 (44)
-------- ---------- --------------- ------------- ---------
$4,024 $4,713 $1,149 $1,126 $(2,964)
======== ========== =============== ============= =========
2021
NAA $19 $680 $453 $676 $(1,790)
EA 41 496 239 370 (1,064)
Cruise Support - 15 171 61 (247)
Tour and Other 14 25 17 12 (39)
-------- ---------- --------------- ------------- ---------
$75 $1,216 $879 $1,119 $(3,139)
======== ========== =============== ============= =========
Revenue by geographic areas, which are based on where our guests
are sourced, were as follows:
Three Months Six Months
Ended May 31, Ended May 31,
(in millions) 2022 2022
-------------- --------------
North America $1,620 $2,738
Europe 741 1,220
Australia and Asia 15 23
Other 24 42
-------------- --------------
$2,401 $4,024
============== ==============
As a result of the pause in our guest cruise operations, revenue
data for the three and six months ended May 31, 2021 is not
included in the table.
NOTE 7 - Earnings Per Share
Three Months Ended Six Months Ended
May 31, May 31,
-------------------- ------------------
(in millions, except per share data) 2022 2021 2022 2021
--------- --------- -------- --------
Net income (loss) for basic and diluted
earnings per share $(1,834) $(2,072) $(3,726) $(4,045)
========= ========= ======== ========
Weighted-average shares outstanding 1,140 1,132 1,139 1,113
Dilutive effect of equity plans - - - -
--------- --------- -------- --------
Diluted weighted-average shares outstanding 1,140 1,132 1,139 1,113
========= ========= ======== ========
Basic earnings per share $(1.61) $(1.83) $(3.27) $(3.63)
========= ========= ======== ========
Diluted earnings per share $(1.61) $(1.83) $(3.27) $(3.63)
========= ========= ======== ========
Antidilutive shares excluded from diluted earnings per share
computations were as follows:
Three Months Ended Six Months Ended
May 31, May 31,
(in millions) 2022 2021 2022 2021
--------- --------- -------- --------
Equity awards 1 3 2 3
Convertible Notes 52 54 52 54
--------- --------- -------- --------
Total antidilutive securities 53 57 54 57
========= ========= ======== ========
NOTE 8 - Supplemental Cash Flow Information
November 30,
(in millions) May 31, 2022 2021
------------ ------------
Cash and cash equivalents (Consolidated
Balance Sheets) $7,054 $8,939
Restricted cash included in prepaid expenses
and other and other assets 35 38
------------ ------------
Total cash, cash equivalents and restricted
cash (Consolidated Statements of Cash Flows) $7,089 $8,976
============ ============
For the six months ended May 31, 2022 and 2021, we did not have
borrowings or repayments of commercial paper with original
maturities greater than three months.
NOTE 9 - Property and Equipment
Ship Sales
During 2022, we entered into an agreement to sell one NAA
segment ship and completed the sales of one NAA segment ship and
one EA segment ship, which collectively represent a
passenger-capacity reduction of 4,110 for our NAA segment and 1,410
for our EA segment.
Refer to Note 5 - "Fair Value Measurements, Derivative
Instruments and Hedging Activities and Financial Risks,
Nonfinancial Instruments that are Measured at Fair Value on a
Nonrecurring Basis, Impairment of Ships" for additional
discussion.
NOTE 10 - Shareholders' Equity
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 six months ended May 31, 2022, under the
Stock Swap Program, we sold 3.9 million and 5.2 million of Carnival
Corporation's common stock and repurchased the same amount of
Carnival plc ordinary shares, resulting in net proceeds of $6
million and $8 million, which were used for general corporate
purposes. During the three and six months ended May 31, 2021, there
were no sales or repurchases under the Stock Swap Program.
Additionally, during the three and six months ended May 31,
2022, we sold 0.8 million and 1.6 million shares of Carnival
Corporation common stock at an average price per share of $18.54
and $19.27, resulting in net proceeds of $15 million and $30
million.
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,"
"aspiration," "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,
COVID-19. 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. The
current, and uncertain future, impact of COVID-19, 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.
-- Events and conditions around the world, including war and
other military actions, such as the current invasion of Ukraine,
heightened inflation and other general concerns impacting the
ability or desire of people to travel have and may lead to a
decline in demand for cruises, impact our operating costs and
profitability.
-- Incidents concerning our ships, guests or the cruise vacation
industry 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.
-- Factors associated with climate change, including evolving
and increasing regulations, increasing global concern about climate
change and the shift in climate conscious consumerism and
stakeholder scrutiny, and increasing frequency and/or severity of
adverse weather conditions could adversely affect our business.
-- Inability to meet or achieve our sustainability related
goals, aspirations, initiatives, and our public statements and
disclosures regarding them, may expose us to risks that may
adversely impact our business.
-- 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 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.
-- The loss of key employees, our inability to recruit or retain
qualified shoreside and shipboard employees and increased labor
costs could have an adverse effect on our business and results of
operations.
-- Increases in fuel prices, changes in the types of fuel
consumed and availability of fuel supply may adversely impact our
scheduled itineraries and costs.
-- We rely on supply chain vendors who are integral to the
operations of our businesses. These vendors and service providers
are also affected by COVID-19 and may be unable to deliver on their
commitments which could impact our business.
-- 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.
Forward-looking and other statements in this document may also
address our sustainability progress, plans and goals (including
climate change and environmental-related matters). In addition,
historical, current and forward-looking sustainability-related
statements may be based on standards for measuring progress that
are still developing, internal controls and processes that continue
to evolve, and assumptions that are subject to change in the
future.
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. 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 typically earned during this period. This
historical trend was disrupted in 2020 by the pause and in 2021 by
the ongoing 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.
Known Trends and Uncertainties
-- We believe the increased cost of fuel, liquefied natural gas
("LNG") and other related costs are reasonably likely to continue
to impact our profitability in both the short and long-term.
-- We expect inflation and supply chain challenges to continue
to weigh on our operating costs, and they are reasonably likely to
continue to impact our profitability.
-- We believe the increasing global focus on climate change,
including the reduction of carbon emissions and new and evolving
regulatory requirements, is reasonably likely to materially impact
our future costs, capital expenditures and revenues and/or the
relationship between them. The full impact of climate change to our
business is not yet known.
-- In addition, as is the case with the travel and leisure
sector generally, we are experiencing some challenges with onboard
staffing which have resulted in occupancy constraints on certain
voyages and are reasonably likely to impact our profitability in
the short-term.
-- We expect a net loss for the third quarter of 2022. For the
full year 2022, we continue to expect a net loss.
Statistical Information
Three Months Ended Six Months Ended
May 31, May 31,
-------------------- ------------------
2022 2021 2022 2021
---------- -------- --------- -------
Passenger Cruise Days ("PCDs") (in
thousands) (a) 11,434 138 18,663 166
Available Lower Berth Days ("ALBDs")
(in thousands) (b) 16,666 444 29,989 617
Occupancy percentage (c) 69% 31% 62% 27%
Passengers carried (in thousands) 1,652 27 2,663 32
Fuel consumption in metric tons
(in thousands) 632 246 1,198 508
Fuel consumption in metric tons
per thousand ALBDs 37.9 (d) 40.0 (d)
Fuel cost per metric ton consumed $869 $467 $765 $428
Currencies (USD to 1)
AUD $0.73 $0.77 $0.72 $0.77
CAD $0.79 $0.81 $0.79 $0.80
EUR $1.08 $1.20 $1.11 $1.21
GBP $1.29 $1.39 $1.32 $1.38
The ongoing resumption of guest cruise operations is continuing
to have a material impact on all aspects of our business, including
the above statistical information.
Notes to Statistical Information
(a) PCD represents the number of cruise passengers on a voyage
multiplied by the number of revenue-producing ship operating days
for that voyage.
(b) ALBD is a standard measure 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.
(c) Occupancy, in accordance with cruise industry practice, is
calculated using a numerator of PCDs and 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.
(d) Fuel consumption in metric tons per thousand ALBDs for 2021 is not meaningful.
Results of Operations
Consolidated
Six Months
Three Months Ended
Ended May 31, May 31,
------------------ ------------------
(in millions) 2022 2021 Change 2022 2021 Change
-------- -------- ------ -------- -------- ------
Revenues
Passenger ticket $1,285 $20 $1,265 $2,158 $23 $2,135
Onboard and other 1,116 29 1,086 1,866 52 1,814
-------- -------- ------ -------- -------- ------
2,401 50 2,351 4,024 75 3,949
-------- -------- ------ -------- -------- ------
Operating Costs and Expenses
Commissions, transportation and
other 325 22 303 576 37 539
Onboard and other 314 15 300 523 22 501
Payroll and related 533 241 291 1,038 460 579
Fuel 545 113 432 910 216 694
Food 191 17 175 327 28 299
Ship and other impairments - 49 (49) 8 49 (42)
Other operating 774 224 551 1,331 404 927
-------- -------- ------ -------- -------- ------
2,683 681 2,002 4,713 1,216 3,497
Selling and administrative 619 417 201 1,149 879 269
Depreciation and amortization 572 567 5 1,126 1,119 7
3,874 1,665 2,209 6,988 3,214 3,774
-------- -------- ------ -------- -------- ------
Operating Income (Loss) (1,473) (1,616) 142 (2,964) (3,139) 175
-------- -------- ------ -------- -------- ------
Nonoperating Income (Expense)
Interest income 6 4 2 9 7 2
Interest expense, net of capitalized
interest (370) (437) 67 (738) (835) 97
Gains (losses) on debt extinguishment,
net - 2 (2) - 4 (4)
Other income (expense), net 6 (13) 19 (26) (75) 49
-------- -------- ------ -------- -------- ------
(358) (444) 86 (755) (900) 144
-------- -------- ------ -------- -------- ------
Income (Loss) Before Income Taxes $(1,831) $(2,060) $228 $(3,719) $(4,039) $319
======== ======== ====== ======== ======== ======
NAA
Six Months
Three Months Ended
Ended May 31, May 31,
---------------- ------------------
(in millions) 2022 2021 Change 2022 2021 Change
------- ------- ------ -------- -------- ------
Revenues
Passenger ticket $862 $2 $860 $1,447 $1 $1,446
Onboard and other 804 7 798 1,345 18 1,327
------- ------- ------ -------- -------- ------
1,666 9 1,657 2,792 19 2,773
------- ------- ------ -------- -------- ------
Operating Costs and Expenses 1,768 365 1,403 3,055 680 2,375
Selling and administrative 366 233 133 710 453 257
Depreciation and amortization 353 341 12 687 676 12
2,487 939 1,548 4,453 1,809 2,644
------- ------- ------ -------- -------- ------
Operating Income (Loss) $(821) $(930) $109 $(1,661) $(1,790) $129
======= ======= ====== ======== ======== ======
EA
Six Months
Three Months Ended
Ended May 31, May 31,
---------------- ------------------
(in millions) 2022 2021 Change 2022 2021 Change
------- ------- ------ -------- -------- ------
Revenues
Passenger ticket $490 $19 $472 $832 $22 $810
Onboard and other 175 15 161 291 19 271
------- ------- ------ -------- -------- ------
666 33 633 1,123 41 1,082
------- ------- ------ -------- -------- ------
Operating Costs and Expenses 848 298 550 1,546 496 1,050
Selling and administrative 175 131 45 352 239 113
Depreciation and amortization 179 186 (8) 359 370 (11)
1,202 615 587 2,257 1,105 1,152
------- ------- ------ -------- -------- ------
Operating Income (Loss) $(536) $(582) $46 $(1,134) $(1,064) $(70)
======= ======= ====== ======== ======== ======
We paused our guest cruise operations in March 2020. As of May
31, 2022, 86% of our capacity was in guest cruise operation,
compared to 6% as of May 31, 2021. Our NAA segment had 90% of its
capacity in guest cruise operations as of May 31, 2022 and no ships
operating with guests onboard as of May 31, 2021. Our EA segment
had 81% of its capacity in guest cruise operations as of May 31,
2022, compared to 16% as of May 31, 2021 when it had five ships
operating with guests onboard.
The COVID-19 global pandemic and its ongoing effects, inflation
and higher fuel prices are collectively having a material negative
impact on all aspects of our business, including our results of
operations, liquidity and financial position. The full extent of
these impacts are uncertain.
Three Months Ended May 31, 2022 Compared to Three Months Ended
May 31, 2021
Revenues
Consolidated
Cruise passenger ticket revenues made up 54% of our total
revenues for the three months ended May 31, 2022 while onboard and
other revenues made up 46%. Revenues for the three months ended May
31, 2022 increased by $2.4 billion as compared to the three months
ended May 31, 2021 due to the ongoing resumption of guest cruise
operations and the significant increase of ships in service. ALBDs
increased to 16.7 million for the three months ended May 31, 2022
as compared to 0.4 million for the three months ended May 31, 2021.
Occupancy for the three months ended May 31, 2022 was 69% compared
to 31% for the three months ended May 31, 2021.
NAA Segment
Cruise passenger ticket revenues made up 52% of our NAA
segment's total revenues for the three months ended May 31, 2022
while onboard and other cruise revenues made up 48%. NAA segment
revenues for the three months ended May 31, 2022 increased by $1.7
billion as compared to the three months ended May 31, 2021 due to
the ongoing resumption of guest cruise operations and the
significant increase of ships in service. ALBDs increased to 10.1
million for the three months ended May 31, 2022 as compared to 0.0
million for the three months ended May 31, 2021. Occupancy for the
three months ended May 31, 2022 was 79%.
EA Segment
Cruise passenger ticket revenues made up 74% of our EA segment's
total revenues for the three months ended May 31, 2022 while
onboard and other cruise revenues made up 26%. EA segment revenues
for the three months ended May 31, 2022 increased by $0.6 billion
as compared to the three months ended May 31, 2021 due to the
ongoing resumption of guest cruise operations and the significant
increase of ships in service. ALBDs increased to 6.6 million for
the three months ended May 31, 2022 as compared to 0.4 million for
the three months ended May 31, 2021. Occupancy for the three months
ended May 31, 2022 was 53% compared to 31% for the three months
ended May 31, 2021.
Operating Costs and Expenses
Consolidated
Operating costs and expenses increased by $2.0 billion to $2.7
billion for the three months ended May 31, 2022 from $0.7 billion
for the three months ended May 31, 2021. These increases were
driven by our ongoing resumption of guest cruise operations and
restart related expenses, including the cost of returning ships to
guest cruise operations and returning crew members to our ships,
higher number of dry-dock days, the cost of maintaining enhanced
health and safety protocols, inflation and supply chain
disruptions. We anticipate that some of these costs and expenses
will end in 2022.
Fuel costs increased by $432 million to $545 million for the
three months ended May 31, 2022 from $113 million for the three
months ended May 31, 2021. This increase was caused by higher fuel
consumption of 386 thousand metric tons, due to the resumption of
guest cruise operations, and an increase in fuel prices of $402 per
metric ton consumed for the three months ended May 31, 2022
compared to the three months ended May 31, 2021.
Selling and administrative expenses increased by $201 million to
$619 million for the three months ended May 31, 2022 from $417
million for the three months ended May 31, 2021. This increase was
caused by increased advertising and promotional spend incurred as
part of our ongoing resumption of guest cruise operations and
higher administrative expenses.
There were no ship impairment charges for the three months ended
May 31, 2022. We recognized a ship impairment charge of $49 million
for the three months ended May 31, 2021.
The drivers in changes in costs and expenses for our NAA and EA
segments are the same as those described for our consolidated
results.
Nonoperating Income (Expense)
Interest expense, net of capitalized interest decreased by $67
million to $370 million for the three months ended May 31, 2022
from $437 million for the three months ended May 31, 2021. The
decrease was caused by a lower average interest rate as a result of
completed refinancing efforts and was partially offset by a higher
average debt balance for the three months ended May 31, 2022
compared to the three months ended May 31, 2021.
Six Months Ended May 31, 2022 Compared to Six Months Ended May
31, 2021
Revenues
Consolidated
Cruise passenger ticket revenues made up 54% of our total
revenues for the six months ended May 31, 2022 while onboard and
other revenues made up 46%. Revenues for the six months ended May
31, 2022 increased by $3.9 billion as compared to the six months
ended May 31, 2021 due to the ongoing resumption of guest cruise
operations and the significant increase of ships in service. ALBDs
increased to 30.0 million for the six months ended May 31, 2022 as
compared to 0.6 million for the six months ended May 31, 2021.
Occupancy for the six months ended May 31, 2022 was 62% compared to
27% for the six months ended May 31, 2021.
NAA Segment
Cruise passenger ticket revenues made up 52% of our NAA
segment's total revenues for the six months ended May 31, 2022
while onboard and other cruise revenues made up 48%. NAA segment
revenues for the six months ended May 31, 2022 increased by $2.8
billion as compared to the six months ended May 31, 2021 due to the
ongoing resumption of guest cruise operations and the significant
increase of ships in service. ALBDs increased to 18.8 million for
the six months ended May 31, 2022 as compared to 0.0 million for
the six months ended May 31, 2021. Occupancy for the six months
ended May 31, 2022 was 70%.
EA Segment
Cruise passenger ticket revenues made up 74% of our EA segment's
total revenues for the six months ended May 31, 2022 while onboard
and other cruise revenues made up 26%. EA segment revenues for the
six months ended May 31, 2022 increased by $1.1 billion as compared
to the six months ended May 31, 2021 due to the ongoing resumption
of guest cruise operations and the significant increase of ships in
service. ALBDs increased to 11.2 million for the six months ended
May 31, 2022 as compared to 0.6 million for the six months ended
May 31, 2021. Occupancy for the six months ended May 31, 2022 was
50% compared to 27% for the six months ended May 31, 2021.
Operating Costs and Expenses
Consolidated
Operating costs and expenses increased by $3.5 billion to $4.7
billion for the six months ended May 31, 2022 from $1.2 billion for
the six months ended May 31, 2021. These increases were driven by
our ongoing resumption of guest cruise operations and restart
related expenses, including the cost of returning ships to guest
cruise operations and returning crew members to our ships, higher
number of dry-dock days, the cost of maintaining enhanced health
and safety protocols, inflation and supply chain disruptions. We
anticipate that some of these costs and expenses will end in
2022.
Fuel costs increased by $694 million to $910 million for the six
months ended May 31, 2022 from $216 million for the six months
ended May 31, 2021. The increase was caused by higher fuel
consumption of 690 thousand metric tons, due to the resumption of
guest cruise operations, and an increase in fuel prices of $336 per
metric ton consumed for the six months ended May 31, 2022 compared
to the six months ended May 31, 2021.
Selling and administrative expenses increased by $0.3 billion to
$1.1 billion for the six months ended May 31, 2022 from $0.9
billion for the six months ended May 31, 2021. The increase was
principally driven by higher advertising and promotional spend
incurred as part of our ongoing resumption of guest cruise
operations.
We recognized a ship impairment charge of $8 million for the six
months ended May 31, 2022 and a ship impairment charge of $49
million for the six months ended May 31, 2021.
The drivers in changes in costs and expenses for our NAA and EA
segments are the same as those described for our consolidated
results.
Nonoperating Income (Expense)
Interest expense, net of capitalized interest, decreased by $97
million to $738 million for the six months ended May 31, 2022 from
$835 million for the six months ended May 31, 2021. The decrease
was caused by a lower average interest rate as a result of
completed refinancing efforts and was partially offset by a higher
average debt balance for the six months ended May 31, 2022 compared
to the six months ended May 31, 2021.
Liquidity, Financial Condition and Capital Resources
As of May 31, 2022, we had $7.5 billion of liquidity including
cash, short-term investments and borrowings available under our
Revolving Facility. During 2022, we will continue to be focused on
pursuing various capital market opportunities to extend maturities
and if appropriate, obtain relevant financial covenant
amendments.
We had a working capital deficit of $4.8 billion as of May 31,
2022 compared to working capital deficit of $0.3 billion as of
November 30, 2021. The increase in working capital deficit was
caused by a decrease in cash and cash equivalents, an increase in
customer deposits and an increase in current portion of long-term
debt. 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 $4.8 billion and $3.1
billion of customer deposits as of May 31, 2022 and November 30,
2021, respectively. We have paid refunds of customer deposits with
respect to a portion of cancelled cruises. The amount of any future
cash refunds may depend on future cruise cancellations and guest
rebookings. 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.
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 $1.2 billion of net cash flows in operating
activities during the six months ended May 31, 2022, a decrease of
$1.7 billion, compared to $2.9 billion of net cash flows used for
the same period in 2021. This decrease was due to an increase in
cash inflows from customer deposits during the six months ended May
31, 2022 compared to the same period in 2021.
Investing Activities
During the six months ended May 31, 2022, net cash used in
investing activities was $3.1 billion. This was driven by the
following:
-- Capital expenditures of $2.6 billion for our ongoing new shipbuilding program
-- Capital expenditures of $581 million for ship improvements
and replacements, information technology and buildings and
improvements
-- Proceeds from sale of ships and other of $55 million
-- Purchases of short-term investments of $315 million
-- Proceeds from maturity of short-term investments of $364 million
During the six months ended May 31, 2021, net cash used in
investing activities was $4.2 billion. This was driven by the
following:
-- Capital expenditures of $2.0 billion for our ongoing new shipbuilding program
-- Capital expenditures of $168 million for ship improvements
and replacements, information technology and buildings and
improvements
-- Proceeds from sale of ships and other of $324 million
-- Purchases of short-term investments of $2.7 billion
-- Proceeds from maturity of short-term investments of $467 million
Financing Activities
During the six months ended May 31, 2022, net cash provided by
financing activities of $2.5 billion was caused by the
following:
-- Issuances of $3.3 billion of long-term debt
-- Repayments of $0.7 billion of long-term debt
-- Payments of $110 million related to debt issuance costs
-- Net repayments of short-term borrowings of $114 million
-- Purchases of $82 million of Carnival plc ordinary shares and
issuances of $89 million of Carnival Corporation common stock under
our Stock Swap Program
During the six months ended May 31, 2021, net cash provided by
financing activities of $4.5 billion was caused by the
following:
-- Repayments of $1.4 billion of long-term debt
-- Issuances of $5.0 billion of long-term debt, including net
proceeds of $3.4 billion from the issuance of the 2027 Senior
Unsecured Notes
-- Net proceeds of $996 million from our public offering of Carnival Corporation common stock
Funding Sources
As of May 31, 2022, we had $7.5 billion of liquidity including
cash, short-term investments and borrowings available under our
revolving facility. In addition, we had $3.1 billion of undrawn
export credit facilities to fund ship deliveries planned through
2024. We plan to use future cash flows from operations to fund our
cash requirements including capital expenditures not funded by our
export credit facilities.
(in billions) 2022 2023 2024
---- ---- ----
Future export credit facilities at May 31, 2022 $0.8 $1.7 $0.6
Our export credit facilities contain various financial covenants
as described in Note 3 - "Debt". At May 31, 2022, 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, after the effect of cross currency
swaps (designated as hedges of net investments) and interest rate
swaps, was as follows:
May 31, 2022
------------
Fixed rate 44%
EUR fixed rate 16%
Floating rate 24%
EUR floating rate 14%
GBP floating rate 1%
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, Chief Executive Officer and Chief Climate Officer
and our Chief Financial Officer and Chief Accounting Officer have
evaluated our disclosure controls and procedures and have
concluded, as of May 31, 2022, 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 May 31, 2022 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" and "Other Regulatory or
Governmental Inquiries and Investigations," 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.
As previously disclosed, Princess Cruises entered into a plea
agreement in December 2016 with the U.S. Department of Justice,
which resulted in a five-year term of probation that started in
2017 and the adoption of a court-supervised environmental
compliance plan. On April 18, 2022, the probation period ended and
the court-supervised environmental compliance plan terminated.
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.
Operating Risk Factors
-- Events and conditions around the world, including war and
other military actions, such as the current invasion of Ukraine,
heightened inflation and other general concerns impacting the
ability or desire of people to travel have and may lead to a
decline in demand for cruises, impact our operating costs and
profitability.
We have been, and may continue to be, impacted by the public's
concerns regarding the health, safety and security of travel,
including government travel advisories and travel restrictions,
political instability and civil unrest, terrorist attacks, war and
military action, most recently the current invasion of Ukraine, and
other general concerns. The current invasion of Ukraine and its
resulting impacts, including supply chain disruptions, increased
fuel prices and international sanctions and other measures that
have been imposed, have adversely affected, and may continue to
adversely affect, our business. These factors may also have the
effect of heightening many other risks to our business, any of
which could materially and adversely affect our business and
results of operations. Additionally, we have been, and may continue
to be, impacted by heightened regulations around customs and border
control, travel bans to and from certain geographical areas,
voluntary changes to our itineraries in light of geopolitical
events, government policies increasing the difficulty of travel and
limitations on issuing international travel visas. We have been and
may continue to be impacted by inflation and supply chain
disruptions and may also be impacted by adverse changes in the
perceived or actual economic climate, such as global or regional
recessions, higher unemployment and underemployment rates and
declines in income levels.
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. 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
purchase of Carnival plc ordinary shares on at least an equivalent
basis.
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 1933, as amended. During the three months ended
May 31, 2022, under the Stock Swap Program, we sold 3.9 million
shares of Carnival Corporation's common stock and repurchased the
same amount of Carnival plc ordinary shares, resulting in net
proceeds of $6 million, which were used for general corporate
purposes. Since the beginning of the Stock Swap Program, first
authorized in June 2021, we have sold 14.1 million shares of
Carnival Corporation's common stock and repurchased the same amount
of Carnival plc ordinary shares, resulting in net proceeds of $27
million.
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)
---------------------------- ---------------- --------------- -------------------------
March 1, 2022 through March
31, 2022 - $- 8.2
April 1, 2022 through April
30, 2022 1.1 $17.52 7.1
May 1, 2022 through May
31, 2022 2.8 $13.20 4.2
---------------- ---------------
Total 3.9 $14.40
================
(a) No ordinary shares of Carnival plc were purchased outside of
publicly announced plans or programs.
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END
IR PPURWQUPPGQB
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