TIDMCCL
RNS Number : 4169B
Carnival PLC
30 September 2022
September 30, 2022
RELEASE OF CARNIVAL CORPORATION & PLC QUARTERLY REPORT ON
FORM 10-Q
FOR THE THIRD QUARTER OF 2022
Carnival Corporation & plc is hereby announcing that today
it has released its three and nine months results of operations in
its earnings release and 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 nine months ended August 31, 2022.
The information included in the Form 10-Q (Schedule A) has been
prepared in accordance with SEC rules and regulations. The Carnival
Corporation & plc unaudited consolidated financial statements
contained in the Form 10-Q have been prepared in accordance with
generally accepted accounting principles in the United States of
America ( " U.S. GAAP " ).
Schedule A contains the Carnival Corporation & plc unaudited
consolidated financial statements as of and for the three and nine
months ended August 31, 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 arrangement, the most appropriate
presentation of Carnival plc's results and financial position is by
reference to the Carnival Corporation & plc U.S. GAAP unaudited
consolidated financial statements.
MEDIA CONTACT INVESTOR RELATIONS CONTACT
Roger Frizzell Beth Roberts
001 305 406 7862 001 305 406 4832
The Form 10-Q is available for viewing on the SEC website at
www.sec.gov under Carnival Corporation or Carnival plc or the
Carnival Corporation & plc website at www.carnivalcorp.com or
www.carnivalplc.com. A copy of the Form 10-Q has been submitted to
the National Storage Mechanism and will shortly be available for
inspection at
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
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 Nine Months Ended
Ended August 31, August 31,
-------------------
2022 2021 2022 2021
-------- --------- --------- --------
Revenues
Passenger ticket $2,595 $303 $4,753 $326
Onboard and other 1,711 243 3,577 295
-------- --------- --------- --------
4,305 546 8,329 621
-------- --------- --------- --------
Operating Costs and Expenses
Commissions, transportation and other 565 79 1,141 116
Onboard and other 537 72 1,060 94
Payroll and related 563 375 1,601 834
Fuel 668 182 1,577 398
Food 259 52 586 80
Ship and other impairments - 475 8 524
Other operating 787 381 2,118 786
-------- --------- --------- --------
3,379 1,616 8,092 2,832
Selling and administrative 625 425 1,774 1,305
Depreciation and amortization 581 562 1,707 1,681
4,585 2,603 11,573 5,817
-------- --------- --------- --------
Operating Income (Loss) (279) (2,057) (3,244) (5,196)
-------- --------- --------- --------
Nonoperating Income (Expense)
Interest income 24 3 34 10
Interest expense, net of capitalized
interest (422) (418) (1,161) (1,253)
Gain (loss) on debt extinguishment,
net - (376) - (372)
Other income (expense), net (81) (11) (108) (87)
-------- --------- --------- --------
(479) (802) (1,235) (1,702)
-------- --------- --------- --------
Income (Loss) Before Income Taxes (759) (2,859) (4,478) (6,898)
Income Tax Benefit (Expense), Net (11) 23 (17) 17
-------- --------- --------- --------
Net Income (Loss) $(770) $(2,836) $(4,495) $(6,881)
======== ========= ========= ========
Earnings Per Share
Basic $(0.65) $(2.50) $(3.89) $(6.14)
======== ========= ========= ========
Diluted $(0.65) $(2.50) $(3.89) $(6.14)
======== ========= ========= ========
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in millions)
Three Months Nine Months
Ended August Ended
31, August 31,
------------------
2022 2021 2022 2021
-------- -------- -------- --------
Net Income (Loss) $(770) $(2,836) $(4,495) $(6,881)
-------- -------- -------- --------
Items Included in Other Comprehensive
Income (Loss)
Change in foreign currency translation
adjustment (283) (224) (529) 79
Other 1 1 6 8
-------- -------- -------- --------
Other Comprehensive Income (Loss) (282) (223) (523) 87
-------- -------- -------- --------
Total Comprehensive Income (Loss) $(1,052) $(3,059) $(5,018) $(6,794)
======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except par values)
August November
31, 30, 2021
2022
------- ---------
ASSETS
Current Assets
Cash and cash equivalents $7,071 $8,939
Short-term investments - 200
Trade and other receivables, net 360 246
Inventories 420 356
Prepaid expenses and other 581 392
------- ---------
Total current assets 8,432 10,133
------- ---------
Property and Equipment, Net 38,137 38,107
Operating Lease Right-of-Use Assets 1,163 1,333
Goodwill 579 579
Other Intangibles 1,151 1,181
Other Assets 2,455 2,011
------- ---------
$51,917 $53,344
======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $2,675 $2,790
Current portion of long-term debt 2,877 1,927
Current portion of operating lease liabilities 139 142
Accounts payable 920 797
Accrued liabilities and other 1,873 1,641
Customer deposits 4,470 3,112
------- ---------
Total current liabilities 12,954 10,408
------- ---------
Long-Term Debt 28,518 28,509
Long-Term Operating Lease Liabilities 1,076 1,239
Other Long-Term Liabilities 989 1,043
Contingencies and Commitments
Shareholders' Equity
Common stock of Carnival Corporation, $0.01 par value;
1,960 shares authorized; 1,243 shares at 2022 and
1,116 shares at 2021 issued 12 11
Ordinary shares of Carnival plc, $1.66 par value;
217 shares at 2022 and 2021 issued 361 361
Additional paid-in capital 16,626 15,292
Retained earnings 1,868 6,448
Accumulated other comprehensive income (loss) ("AOCI") (2,024) (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 (8,464) (8,466)
------- ---------
Total shareholders' equity 8,379 12,144
------- ---------
$51,917 $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)
Nine Months
Ended August
31, 2022
------------------
2022 2021
-------- --------
OPERATING ACTIVITIES
Net income (loss) $(4,495) $(6,881)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 1,707 1,681
Impairments 8 541
(Gain) loss on debt extinguishment - 372
(Income) loss from equity-method investments - 35
Share-based compensation 79 95
Amortization of discounts and debt issue costs 131 131
Noncash lease expense 103 106
Other, net 30 85
-------- --------
(2,438) (3,834)
Changes in operating assets and liabilities
Receivables (134) (37)
Inventories (87) (19)
Prepaid expenses and other (716) (1,221)
Accounts payable 176 15
Accrued liabilities and other 262 458
Customer deposits 1,383 897
-------- --------
Net cash provided by (used in) operating activities (1,553) (3,741)
-------- --------
INVESTING ACTIVITIES
Purchases of property and equipment (3,759) (3,120)
Proceeds from sales of ships and other 55 351
Purchase of minority interest (1) (90)
Purchase of short-term investments (315) (2,672)
Proceeds from maturity of short-term investments 515 2,026
Derivative settlements and other, net 38 (29)
-------- --------
Net cash provided by (used in) investing activities (3,467) (3,535)
-------- --------
FINANCING ACTIVITIES
Proceeds from (repayments of) short-term borrowings, net (114) 17
Principal repayments of long-term debt (1,073) (3,507)
Premium paid on extinguishment of debt - (286)
Proceeds from issuance of long-term debt 3,334 7,900
Issuance of common stock, net 1,180 1,003
Issuance of common stock under the Stock Swap Program 89 105
Purchase of treasury stock under the Stock Swap Program (82) (94)
Debt issue costs and other, net (117) (239)
-------- --------
Net cash provided by (used in) financing activities 3,217 4,899
-------- --------
Effect of exchange rate changes on cash, cash equivalents
and restricted cash (67) 13
-------- --------
Net increase (decrease) in cash, cash equivalents and
restricted cash (1,870) (2,363)
Cash, cash equivalents and restricted cash at beginning
of period 8,976 9,692
-------- --------
Cash, cash equivalents and restricted cash at end of period $7,107 $7,329
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(in millions)
Three Months Ended
---------------------------------------------------------------------------
Additional Total
Common Ordinary paid-in Retained Treasury shareholders'
stock shares capital earnings AOCI stock equity
------ -------- ---------- --------- -------- -------- --------------
At May 31, 2021 $11 $361 $15,005 $12,030 $(1,126) $(8,404) $17,876
Net income (loss) - - - (2,836) - - (2,836)
Other comprehensive income
(loss) - - - - (223) - (223)
Issuance of common stock,
net - - 7 - - - 7
Conversion of Convertible
Notes - - 2 - - - 2
Purchases and issuances
under the Stock Swap
Program - - 105 - - (95) 10
Share-based compensation
and other - - 28 - - - 28
------ -------- ---------- --------- -------- -------- --------------
At August 31, 2021 $11 $361 $15,146 $9,194 $(1,349) $(8,500) $14,863
====== ======== ========== ========= ======== ======== ==============
At May 31, 2022 $11 $361 $15,457 $2,649 $(1,742) $(8,476) $8,260
Net income (loss) - - - (770) - - (770)
Other comprehensive income
(loss) - - - - (282) - (282)
Issuances of common stock,
net 1 - 1,148 - - - 1,149
Issuance of treasury
shares
for vested share-based
awards - - - (12) - 12 -
Share-based compensation
and other - - 22 - - - 22
------ -------- ---------- --------- -------- -------- --------------
At August 31, 2022 $12 $361 $16,626 $1,868 $(2,024) $(8,464) $8,379
====== ======== ========== ========= ======== ======== ==============
Nine 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) - - - (6,881) - - (6,881)
Other comprehensive income
(loss) - - - - 87 - 87
Issuance of common stock,
net - - 1,003 - - - 1,003
Conversion of Convertible
Notes - - 2 - - - 2
Purchases and issuances
under the Stock Swap
Program - - 105 - - (95) 10
Share-based compensation
and other - - 88 - - - 88
------ -------- ---------- --------- -------- -------- --------------
At August 31, 2021 $11 $361 $15,146 $9,194 $(1,349) $(8,500) $14,863
====== ======== ========== ========= ======== ======== ==============
At November 30, 2021 $11 $361 $15,292 $6,448 $(1,501) $(8,466) $12,144
Net income (loss) - - - (4,495) - - (4,495)
Other comprehensive income
(loss) - - - - (523) - (523)
Issuances of common stock,
net 1 - 1,178 - - - 1,180
Purchases and issuances
under the Stock Swap
program,
net - - 89 - - (82) 8
Issuance of treasury
shares
for vested share-based
awards - - - (84) - 84 -
Share-based compensation
and other - - 67 (1) - - 66
------ -------- ---------- --------- -------- -------- --------------
At August 31, 2022 $12 $361 $16,626 $1,868 $(2,024) $(8,464) $8,379
====== ======== ========== ========= ======== ======== ==============
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 and began resuming guest
cruise operations in 2021. As of August 31, 2022, 93% of our
capacity was serving guests.
COVID-19 and its ongoing effects, inflation, higher fuel prices
and higher interest rates are collectively having a material impact
on our business, including our results of operations, liquidity and
financial position. The extent of the collective impact of such
items is uncertain and will depend on future developments,
including the length of time it takes to return the company to
profitability.
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 resumption of guest cruise operations
-- Expected increases in revenue in 2023 on a per passenger
basis compared to 2019, particularly with the relaxation of
COVID-19 related protocols aligning towards land-based vacation
alternatives
-- Expected improvement in occupancy on a year-over-year basis
returning to historical levels during 2023
-- Expected moderation of fuel prices continuing into the fourth quarter of 2022 and 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
resumption of our guest cruise operations, and as a consequence,
our ability to be predictive is uncertain. In addition, the effects
of the COVID-19 global pandemic, inflation, higher fuel prices and
higher interest rates 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, and may continue as
appropriate to take, 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. We expect to continue to address
maturities well in advance and obtain relevant financial covenant
amendments or waivers, as needed.
Based on these actions and our assumptions, considering our $7.4
billion of liquidity including cash and borrowings available under
our $1.7 billion, EUR1.0 billion and GBP0.2 billion multi-currency
revolving credit facility (the "Revolving Facility") at August 31,
2022, as well as our continued return to service, we have concluded
that we have sufficient liquidity to satisfy our obligations for at
least the next twelve months.
Basis of Presentation
The Consolidated Statements of Income (Loss), the Consolidated
Statements of Comprehensive Income (Loss) and the Consolidated
Statements of Shareholders' Equity for the three and nine months
ended August 31, 2022 and 2021, the Consolidated Statements of Cash
Flows for the nine months ended August 31, 2022 and 2021 and the
Consolidated Balance Sheet at August 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.
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,
inflation, higher fuel prices and higher interest rates 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 uncertain.
We have made reasonable estimates and judgments of such items
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 August 31, 2022,
approximately $8.4 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. We will adopt this guidance in the first quarter of 2023
using the modified retrospective approach. We do not expect the
adoption of this guidance to have a material impact 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 nine months ended August 31, fees,
taxes, and charges included in commissions, transportation and
other costs were $141 million and $305 million in 2022 and were $16
million and $28 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 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 $4.8 billion as of August 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
nine months ended August 31, 2022 and 2021, we recognized revenues
of $1.7 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.
Trade and Other 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 have
receivables from credit card merchants and travel agents 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 $191 million as of
August 31, 2022 and $55 million as of November 30, 2021.
NOTE 3 - Debt
August November
31, 30,
---------------------------- ------- --------
(in millions) Maturity Rate (a) (b) 2022 2021
------------ -------------- ------- --------
Secured Debt
----------------------------
Notes
Notes Feb 2026 10.5% $775 $775
EUR Notes Feb 2026 10.1% 425 481
Notes Jun 2027 7.9% 192 192
Notes Aug 2027 9.9% 900 900
Notes Aug 2028 4.0% 2,406 2,406
Loans
EUR fixed rate Nov 2022 5.5% - 6.2% 67 98
Nov 2022 - EURIBOR + 2.7%
EUR floating rate Jun 2025 - 3.8% 829 951
Jun 2025 - LIBOR + 3.0%
Floating rate Oct 2028 - 3.3% 4,111 4,137
------- --------
Total Secured Debt 9,704 9,939
------- --------
Unsecured Debt
----------------------------
Revolver
Facility (c) LIBOR + 0.7% 2,675 2,790
Notes
EUR Notes Nov 2022 1.9% 550 622
Convertible Notes Apr 2023 5.8% 183 522
Notes Oct 2023 7.2% 125 125
Convertible Notes Oct 2024 5.8% 339 -
Notes Mar 2026 7.6% 1,450 1,450
EUR Notes Mar 2026 7.6% 500 566
Notes Mar 2027 5.8% 3,500 3,500
Notes Jan 2028 6.7% 200 200
Notes May 2029 6.0% 2,000 2,000
EUR Notes Oct 2029 1.0% 600 679
Notes Jun 2030 10.5% 1,000 -
Loans
Feb 2023 - LIBOR + 3.8%
Floating rate Sep 2024 - 4.5% 590 590
SONIA + 0.9%
GBP floating rate Feb 2025 (d) 410 467
Dec 2021 - EURIBOR + 1.8%
EUR floating rate Mar 2026 - 4.8% 800 1,375
Export Credit Facilities
Feb 2022 - LIBOR + 0.5%
Floating rate Dec 2031 - 1.5% 1,312 1,363
Aug 2027 -
Fixed rate Dec 2032 2.4% - 3.4% 3,240 3,488
Feb 2022 - EURIBOR + 0.2%
EUR floating rate Dec 2033 - 1.6% 3,102 2,742
Feb 2031 -
EUR fixed rate Jan 2034 1.1% - 1.6% 2,529 1,551
------- --------
Total Unsecured Debt 25,104 24,031
------- --------
Total Debt 34,808 33,970
Less: unamortized debt
issuance costs and
discounts (737) (744)
------- --------
Total Debt, net of
unamortized debt issuance
costs and discounts 34,071 33,226
------- --------
Less: short-term borrowings (2,675) (2,790)
Less: current portion
of long-term debt (2,877) (1,927)
------- --------
Long-Term Debt $28,518 $28,509
======= ========
(a) Substantially all of our variable debt has a 0.0% to 0.75% floor.
(b) The above debt table does not include the impact of our
interest rate swaps and as of November 30, 2021, it also excludes
the impact of our foreign currency swaps. As of August 31, 2022, we
had no foreign currency swaps. The interest rates on some of our
debt, including our Revolving Facility, fluctuate based on the
applicable rating of senior unsecured long-term securities of
Carnival Corporation or Carnival plc.
(c) 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 August 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.
(d) As of August 31, 2022 the interest rate for the GBP
unsecured loan was linked to SONIA and subject to a credit
adjustment spread ranging from 0.03% to 0.28%. As of November 30,
2021, this loan was referenced to GBP LIBOR.
Carnival Corporation and/or Carnival plc is the primary obligor
of all of our debt, with the exception of $0.6 billion of debt for
which our subsidiary Costa Crociere S.p.A. is the primary obligor,
and which is guaranteed by Carnival Corporation and Carnival
plc.
Short-Term Borrowings
As of August 31, 2022 and November 30, 2021, our short-term
borrowings consisted of $2.7 billion and $2.8 billion under our
Revolving Facility.
Export Credit Facility Borrowings
During the nine months ended August 31, 2022, we borrowed $2.3
billion under export credit facilities due in semi-annual
installments through 2034. As of August 31, 2022, the net book
value of the vessels subject to negative pledges was $13.0
billion.
Secured Debt
Our secured debt is secured on either a first or second-priority
basis, depending on the instrument, by certain collateral, which
includes vessels and certain assets related to those vessels and
material intellectual property (combined net book value of
approximately $24.0 billion, including $22.4 billion related to
vessels and certain assets related to those vessels) as of August
31, 2022 and certain other assets.
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.
Convertible Notes
In 2020, we issued $2.0 billion aggregate principal amount of
5.75% convertible senior notes due 2023 (the "2023 Convertible
Notes"). The 2023 Convertible Notes mature on April 1, 2023, unless
earlier repurchased or redeemed by us or earlier converted in
accordance with their terms prior to the maturity date. Since April
2020, we repurchased, exchanged and converted a portion of the 2023
Convertible Notes which resulted in a decrease of the principal
amount of the 2023 Convertible Notes to $0.2 billion.
In August 2022, we issued $339 million aggregate principal
amount of 5.75% convertible senior notes due 2024 (the "2024
Convertible Notes" and, together with the 2023 Convertible Notes,
the "Convertible Notes") pursuant to privately-negotiated non-cash
exchange agreements with certain holders of the 2023 Convertible
Notes, pursuant to which such holders agreed to exchange their 2023
Convertible Notes for an equal amount of 2024 Convertible Notes.
The 2024 Convertible Notes mature on October 1, 2024, unless
earlier repurchased or redeemed by us or earlier converted in
accordance with their terms prior to the maturity date.
The Convertible Notes are convertible by holders, subject to the
conditions described within the respective indentures that govern
the Convertible Notes, into cash, shares of Carnival Corporation
common stock, or a combination thereof, at our election. The
Convertible Notes have an initial conversion rate of 100 shares of
Carnival Corporation common stock per $1,000 principal amount of
the Convertible Notes, equivalent to an initial conversion price of
$10 per share of common stock. The initial conversion price of the
Convertible Notes is subject to certain anti-dilutive adjustments
and may also increase if such Convertible Notes are converted in
connection with a tax redemption or certain corporate events. The
2024 Convertible Notes were convertible from the date of issuance
of the 2024 Convertible Notes until August 31, 2022, and thereafter
may become convertible if certain conditions are met. As of August
31, 2022, no condition allowing holders of the 2023 Convertible
Notes or the 2024 Convertible Notes to convert had been met and
therefore the Convertible Notes are not convertible.
We may redeem the 2023 Convertible Notes, in whole but not in
part, at any time on or prior to December 31, 2022 at a redemption
price equal to 100% of the principal amount thereof, plus accrued
and unpaid interest to the redemption date, if we or any guarantor
would have to pay any additional amounts on the 2023 Convertible
Notes due to a change in tax laws, regulations or rulings or a
change in the official application, administration or
interpretation thereof. We may redeem the 2024 Convertible Notes,
in whole but not in part, at any time on or prior to June 30, 2024
at a redemption price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest to the redemption date,
if we or any guarantor would have to pay any additional amounts on
the 2024 Convertible Notes due to a change in tax laws, regulations
or rulings or a change in the official application, administration
or interpretation thereof.
We account for the Convertible Notes as separate liability and
equity components. We determined the car rying amount of the
liability component as the present value of its cash flows.
The carrying amount of the equity component representing the
conversion option was $286 million on the date of issuance of the
2023 Convertible Notes and was calculated by deducting the carrying
value of the liability component from the initial proceeds from the
2023 Convertible Notes. The carrying amount of the equity component
was reduced to zero in conjunction with the partial repurchase of
Convertible Notes in August 2020 because at the time of repurchase,
the fair value of the equity component for the portion of the
Convertible Notes that was repurchased, exceeded the total amount
of the equity component recorded at the time the Convertible Notes
were issued. The fair value of the conversion option remained
unchanged after the exchange of the portion of the 2023 Convertible
Notes for the 2024 Convertible Notes and, as a result, there was no
adjustment to the carrying amount of the equity component.
The debt discount, which represented the excess of the principal
amount of the 2023 Convertible Notes over the carrying amount of
the liability component on the date of issuance of the 2023
Convertible Notes, was capitalized and amortized to interest
expense under the effective interest rate method over the term of
the 2023 Convertible Notes. Following the exchange of the portion
of the 2023 Convertible Notes for the 2024 Convertible Notes, the
remaining unamortized discount was allocated between the 2023
Convertible Notes and the 2024 Convertible Notes and is amortized
to interest expense over each respective term using the effective
interest rate method.
The net carrying value of the liability component of the
Convertible Notes was as follows:
(in millions) August 31, November 30,
2022 2021
---------- ------------
Principal $522 $522
Less: Unamortized debt discount (22) (45)
---------- ------------
$501 $478
========== ============
As of August 31, 2022, the if-converted value on available
shares of 52 million for the Convertible Notes was below par.
Covenant Compliance
As of August 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) (the "Interest Coverage
Covenant") 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
During August and September 2022, we entered into letter
agreements to waive compliance with the Interest Coverage Covenant
under our Revolving Facility and $0.7 billion of $11.4 billion of
our unsecured loans and export credit facilities, which contain the
covenant through February 29, 2024. We will be required to comply
beginning with the next testing date of May 31, 2024.
At August 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 August 31, 2022, the scheduled maturities of our debt are
as follows:
(in millions)
Year Principal Payments
------------------
4Q 2022 $991
2023 2,377
2024 (a) 4,935
2025 4,258
2026 4,385
Thereafter 17,862
------------------
Total $34,808
==================
(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 August 31, 2022.
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. On
August 31, 2022, the court determined that the trebling provision
of the Helms-Burton statute applies to damages and interest.
Accordingly, we have adjusted our estimated liability for this
matter as of August 31, 2022. The court held a status conference on
September 22, 2022, at which time it was determined that a jury
trial is no longer necessary. All remaining issues, including
calculation of damages and certain pending constitutional matters,
will be addressed via briefing to the court. The briefing schedule
is set to have all briefing completed on December 2, 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. On July 28, 2022, the court
adopted the Magistrate Judge's report and recommendation granting
our opening claim construction brief and denying DeCurtis's motion
for summary judgment regarding the invalidity of various patent
claims. The court has set the trial date for February 27, 2023. 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 August 31, 2022 in several U.S. federal and state
courts as well as others in France, Belgium, 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 August 31, 2022, 71 of
these individual actions in the U.S. have now been dismissed or
settled for immaterial amounts and two remain. We believe the
ultimate outcome of the remaining individual actions will not have
a material impact on our consolidated financial statements.
Additionally, as of August 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 August
31, 2022, nine of these class actions have either been settled
individually for immaterial amounts or had their class allegations
dismissed by the courts and only the Australian matter remains.
All COVID-19 matters seek monetary damages and most seek
additional punitive damages in unspecified amounts.
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.
Other 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.
As previously disclosed, on June 24, 2022, we finalized a
settlement with the New York Department of Financial Services ("NY
DFS") in connection with previously disclosed cybersecurity events,
pursuant to which we have paid an amount that did not have a
material impact on our consolidated financial statements. In
addition, as previously disclosed, we finalized a settlement with
the State Attorneys General from 46 states in connection with the
same cybersecurity events, pursuant to which we have paid an amount
that did 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 U.S. Department of Justice and the U.S.
Environmental Protection Agency notified us 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. We are working with these agencies to reach a
resolution of this matter. We believe the ultimate outcome will not
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 August 31, 2022 and November 30, 2021, we had
$1.6 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 August
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 August 31, 2022, we expect the timing of our new ship
growth capital commitments to be as follows:
(in millions)
Year
Remainder of 2022 $1,117
2023 2,268
2024 1,499 (a)
2025 864 (a)
Thereafter -
$5,748
======
(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
August 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) $20,980 $- $16,431 $- $19,555 $- $19,013 $-
Floating rate debt (a) 13,828 - 12,004 - 14,415 - 13,451 -
-------- ----- ------- ----- -------- ----- ------- -----
Total $34,808 $- $28,435 $- $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
August 31, 2022 November 30, 2021
Level Level Level Level Level Level
(in millions) 1 2 3 1 2 3
------ ----- ----- ------- ----- -----
Assets
Cash and cash equivalents $7,071 $- $- $8,939 $- $-
Short-term investments (a) - - - 200 - -
Derivative financial instruments - - - - 1 -
------ ----- ----- ------- ----- -----
Total $7,071 $- $- $9,139 $1 $-
====== ===== ===== ======= ===== =====
Liabilities
Derivative financial instruments $- $1 $- $- $13 $-
------ ----- ----- ------- ----- -----
Total $- $1 $- $- $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
As of July 31, 2022, we performed our annual goodwill and
trademark impairment reviews and determined there was no impairment
for goodwill or trademarks.
As of August 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 as of August
31, 2022 and November 30, 2021.
Trademarks
NAA EA
(in millions) Segment Segment Total
-------- -------- ------
November 30, 2021 $927 $248 $1,175
Exchange movements - (30) (30)
-------- -------- ------
August 31, 2022 $927 $218 $1,145
======== ======== ======
Impairment of Ships
We review our long-lived assets for impairment whenever events
or circumstances indicate potential impairment. As a result of the
continued effects 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, which we subsequently sold, 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 principal assumptions, including those regarding ship
deployment given Costa Cruises' Asia markets, particularly China,
remain closed to cruising, may result in a need to perform
additional impairment reviews and a need to recognize additional
impairment charges.
The impairment charges summarized in the table below are
included in ship and other impairments in our Consolidated
Statements of Income (Loss).
Three Months Ended Nine Months Ended
August 31, August 31,
-------------------- -------------------
(in millions) 2022 2021 2022 2021
--------- --------- --------- --------
NAA Segment $- $273 $8 $273
EA Segment - 202 - 251
--------- --------- --------- --------
Total ship impairments $- $475 $8 $524
========= ========= ========= ========
Refer to Note 1 - "General, Use of Estimates and Risks and
Uncertainty" for additional discussion.
Derivative Instruments and Hedging Activities
August 31, November 30,
(in millions) Balance Sheet Location 2022 2021
----------------------- ---------- ------------
Derivative assets
Derivatives designated as
hedging instruments
Prepaid expenses
Cross currency swaps (a) and other $- $1
Total derivative assets $- $1
========== ============
Derivative liabilities
Derivatives designated as
hedging instruments
Other long-term
Cross currency swaps (a) liabilities $- $8
Accrued liabilities
Interest rate swaps (b) and other 1 3
Other long-term
liabilities - 2
---------- ------------
Total derivative liabilities $1 $13
========== ============
(a) At August 31, 2022, we had no cross-currency swaps. At
November 30, 2021, we had a cross currency swap totaling $201
million that was designated as a hedge of our net investment in
foreign operations with a euro-denominated functional currency.
(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 $108 million at August 31, 2022 and
$160 million at November 30, 2021 of EURIBOR-based floating rate
euro debt to fixed rate euro debt. At August 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.
August 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 $- $- $- $- $-
Liabilities $1 $- $1 $- $1
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 Nine Months
Ended August Ended
31, August 31,
---------------
(in millions) 2022 2021 2022 2021
------- ------ ------- ----
Gains (losses) recognized in AOCI:
Cross currency swaps - net investment
hedges - included component $40 $- $72 $-
Cross currency swaps - net investment
hedges - excluded component $(7) $- $(26) $-
Interest rate swaps - cash flow hedges $1 $1 $10 $3
Gains (losses) reclassified from AOCI
- cash flow hedges:
Interest rate swaps - Interest expense,
net of capitalized interest $- $(1) $(1) $(4)
Foreign currency zero cost collars - Depreciation
and amortization $1 $1 $2 $1
Gains (losses) recognized on derivative
instruments (amount excluded from effectiveness
testing - net investment hedges)
Cross currency swaps - Interest expense,
net of capitalized interest $2 $- $5 $-
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 August
31, 2022, we have designated $410 million of our
sterling-denominated debt as non-derivative hedges of our net
investments in foreign operations. For the three and nine months
ended August 31, 2022, we recognized $32 million and $57 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, 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 August 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 $5.2 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 August 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 August 31,
-----------------------------------------------------------------------
Operating Selling Depreciation Operating
costs and and and income
(in millions) Revenues expenses administrative amortization (loss)
-------- ---------- --------------- ------------- ---------
2022
NAA $2,880 $2,280 $368 $358 $(126)
EA 1,266 983 173 172 (62)
Cruise Support 41 21 78 36 (94)
Tour and Other 118 94 6 15 3
-------- ---------- --------------- ------------- ---------
$4,305 $3,379 $625 $581 $(279)
======== ========== =============== ============= =========
2021
NAA $271 $966 $219 $343 $(1,257)
EA 232 610 139 180 (696)
Cruise Support 14 13 61 34 (94)
Tour and Other 28 27 6 6 (10)
-------- ---------- --------------- ------------- ---------
$546 $1,616 $425 $562 $(2,057)
======== ========== =============== ============= =========
Nine Months Ended August 31,
-----------------------------------------------------------------------
Operating Selling Depreciation Operating
costs and and and income
(in millions) Revenues expenses administrative amortization (loss)
-------- ---------- --------------- ------------- ---------
2022
NAA $5,672 $5,335 $1,078 $1,046 $(1,787)
EA 2,389 2,529 524 531 (1,196)
Cruise Support 114 76 154 104 (220)
Tour and Other 154 151 17 26 (40)
-------- ---------- --------------- ------------- ---------
$8,329 $8,092 $1,774 $1,707 $(3,244)
======== ========== =============== ============= =========
2021
NAA $291 $1,647 $672 $1,018 $(3,046)
EA 274 1,106 378 550 (1,760)
Cruise Support 15 28 232 95 (341)
Tour and Other 42 51 23 18 (49)
-------- ---------- --------------- ------------- ---------
$621 $2,832 $1,305 $1,681 $(5,196)
======== ========== =============== ============= =========
Revenue by geographic areas, which are based on where our guests
are sourced, were as follows:
Three Months Nine Months
Ended August Ended August
(in millions) 31, 2022 31, 2022
------------- -------------
North America $2,753 $5,491
Europe 1,456 2,676
Australia and Asia 74 97
Other 22 64
------------- -------------
$4,305 $8,329
============= =============
As a result of the pause in our guest cruise operations, revenue
data for the three and nine months ended August 31, 2021 is not
included in the table.
NOTE 7 - Earnings Per Share
Three Months Ended Nine Months Ended
August 31, August 31,
-------------------- -------------------
(in millions, except per share data) 2022 2021 2022 2021
--------- --------- --------- --------
Net income (loss) for basic and diluted
earnings per share $(770) $(2,836) $(4,495) $(6,881)
========= ========= ========= ========
Weighted-average shares outstanding 1,185 1,133 1,154 1,120
Dilutive effect of equity plans - - - -
--------- --------- --------- --------
Diluted weighted-average shares outstanding 1,185 1,133 1,154 1,120
========= ========= ========= ========
Basic earnings per share $(0.65) $(2.50) $(3.89) $(6.14)
========= ========= ========= ========
Diluted earnings per share $(0.65) $(2.50) $(3.89) $(6.14)
========= ========= ========= ========
Antidilutive shares excluded from diluted earnings per share
computations were as follows:
Three Months Ended Nine Months Ended
August 31, August 31,
(in millions) 2022 2021 2022 2021
--------- --------- --------- --------
Equity awards - 3 1 3
Convertible Notes 52 54 52 54
--------- --------- --------- --------
Total antidilutive securities 52 56 54 57
========= ========= ========= ========
NOTE 8 - Supplemental Cash Flow Information
August 31, November 30,
(in millions) 2022 2021
---------- ------------
Cash and cash equivalents (Consolidated
Balance Sheets) $7,071 $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) $7,107 $8,976
========== ============
For the nine months ended August 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 sold one NAA segment ship and one EA segment
ship and entered into an agreement to sell one NAA segment ship,
which collectively represents 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 months ended August 31, 2022, there were no
sales or repurchases under the Stock Swap Program. During the nine
months ended August 31, 2022, we sold 5.2 million of Carnival
Corporation common stock and repurchased the same amount of
Carnival plc ordinary shares, resulting in net proceeds of $8
million, which were used for general corporate purposes. During the
three and nine months ended August 31, 2021, under the Stock Swap
Program, we sold 4.6 million shares of Carnival Corporation common
stock and repurchased the same amount of Carnival plc ordinary
shares resulting in net proceeds of $10 million, which were used
for general corporate purposes.
Outside of public equity offerings, during the three months
ended August 31, 2022, there were no sales of Carnival Corporation
common stock. In addition, outside of public equity offerings,
during the nine months ended August 31, 2022, we sold 1.6 million
shares of Carnival Corporation common stock at an average price per
share of $19.27, resulting in net proceeds of $30 million.
Public Equity Offerings
During the three months ended August 31, 2022, we completed a
public equity offering of 117.5 million shares of Carnival
Corporation common stock at a price per share of $9.95, resulting
in net proceeds of $1.2 billion.
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, and in the future may
continue to 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,
inflation, higher fuel prices, higher interest rates and other
general concerns impacting the ability or desire of people to
travel, have led, and may in the future lead, to a decline in
demand for cruises, impacting our operating costs and
profitability.
-- Incidents concerning our ships, guests or the cruise 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
and other related costs are reasonably likely to continue to impact
our profitability in both the short and long-term.
-- We expect inflation, higher interest rates and supply chain
challenges to continue to weigh on our 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, 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 fourth quarter of 2022 and
continue to expect a net loss for the full year 2022.
Statistical Information
Three Months Ended Nine Months Ended
August 31, August 31,
-------------------- -------------------
2022 2021 2022 2021
---------- -------- ---------- -------
Passenger Cruise Days ("PCDs") (in
thousands) (a) 17,700 2,053 36,363 2,219
Available Lower Berth Days ("ALBDs")
(in thousands) (b) 21,015 3,788 51,004 4,405
Occupancy percentage (c) 84% 54% 71% 50%
Passengers carried (in thousands) 2,571 340 5,233 372
Fuel consumption in metric tons
(in thousands) 701 344 1,899 852
Fuel consumption in metric tons
per thousand ALBDs 33 (d) 37 (d)
Fuel cost per metric ton consumed $958 $537 $836 $472
Currencies (USD to 1)
AUD $0.70 $0.75 $0.71 $0.76
CAD $0.78 $0.80 $0.78 $0.80
EUR $1.03 $1.19 $1.08 $1.20
GBP $1.21 $1.39 $1.28 $1.38
The resumption of guest cruise operations has impacted the
comparability of all aspects of our business.
Notes to Statistical Information
-- PCD represents the number of cruise passengers on a voyage
multiplied by the number of revenue-producing ship operating days
for that voyage.
-- 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.
-- 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.
-- Fuel consumption in metric tons per thousand ALBDs for 2021 is not meaningful.
Results of Operations
Consolidated
Three Months Nine Months
Ended August Ended
31, August 31,
---------------- ------------------
(in millions) 2022 2021 Change 2022 2021 Change
------ -------- ------ -------- -------- ------
Revenues
Passenger ticket $2,595 $303 $2,292 $4,753 $326 $4,426
Onboard and other 1,711 243 1,468 3,577 295 3,282
------ -------- ------ -------- -------- ------
4,305 546 3,760 8,329 621 7,708
------ -------- ------ -------- -------- ------
Operating Costs and Expenses
Commissions, transportation
and other 565 79 486 1,141 116 1,025
Onboard and other 537 72 465 1,060 94 966
Payroll and related 563 375 188 1,601 834 767
Fuel 668 182 486 1,577 398 1,179
Food 259 52 208 586 80 506
Ship and other impairments - 475 (475) 8 524 (517)
Other operating 787 381 406 2,118 786 1,332
------ -------- ------ -------- -------- ------
3,379 1,616 1,763 8,092 2,832 5,260
Selling and administrative 625 425 199 1,774 1,305 469
Depreciation and amortization 581 562 19 1,707 1,681 26
4,585 2,603 1,982 11,573 5,817 5,756
------ -------- ------ -------- -------- ------
Operating Income (Loss) (279) (2,057) 1,778 (3,244) (5,196) 1,952
------ -------- ------ -------- -------- ------
Nonoperating Income (Expense)
Interest income 24 3 22 34 10 24
Interest expense, net of capitalized
interest (422) (418) (5) (1,161) (1,253) 92
Gains (losses) on debt extinguishment,
net - (376) 376 - (372) 372
Other income (expense), net (81) (11) (70) (108) (87) (21)
------ -------- ------ -------- -------- ------
(479) (802) 323 (1,235) (1,702) 467
------ -------- ------ -------- -------- ------
Income (Loss) Before Income
Taxes $(759) $(2,859) $2,101 $(4,478) $(6,898) $2,420
====== ======== ====== ======== ======== ======
NAA
Three Months Nine Months
Ended August Ended
31, August 31,
---------------- ------------------
(in millions) 2022 2021 Change 2022 2021 Change
------ -------- ------ -------- -------- ------
Revenues
Passenger ticket $1,716 $151 $1,565 $3,163 $152 $3,011
Onboard and other 1,164 121 1,044 2,509 139 2,370
------ -------- ------ -------- -------- ------
2,880 271 2,609 5,672 291 5,382
------ -------- ------ -------- -------- ------
Operating Costs and Expenses 2,280 966 1,314 5,335 1,647 3,689
Selling and administrative 368 219 149 1,078 672 406
Depreciation and amortization 358 343 16 1,046 1,018 28
3,007 1,528 1,479 7,460 3,337 4,123
------ -------- ------ -------- -------- ------
Operating Income (Loss) $(126) $(1,257) $1,130 $(1,787) $(3,046) $1,259
====== ======== ====== ======== ======== ======
EA
Three Months Nine Months
Ended August Ended
31, August 31,
--------------- ------------------
(in millions) 2022 2021 Change 2022 2021 Change
------ ------- ------ -------- -------- ------
Revenues
Passenger ticket $972 $164 $808 $1,804 $186 $1,619
Onboard and other 294 69 225 585 88 497
------ ------- ------ -------- -------- ------
1,266 232 1,034 2,389 274 2,115
------ ------- ------ -------- -------- ------
Operating Costs and Expenses 983 610 374 2,529 1,106 1,423
Selling and administrative 173 139 34 524 378 146
Depreciation and amortization 172 180 (8) 531 550 (19)
1,328 929 399 3,585 2,034 1,551
------ ------- ------ -------- -------- ------
Operating Income (Loss) $(62) $(696) $634 $(1,196) $(1,760) $564
====== ======= ====== ======== ======== ======
We paused our guest cruise operations in March 2020. We began
our resumption of guest cruise operations in 2021 and continued
into 2022. As of August 31, 2022, 93% of our capacity was serving
guests, compared to 35% as of August 31, 2021. Our NAA segment had
95% of its capacity serving guests as of August 31, 2022, compared
to 31% as of August 31, 2021. Our EA segment had 92% of its
capacity serving guests as of August 31, 2022, compared to 43% as
of August 31, 2021. We expect eight of our nine brands will have
their entire fleet serving guests by the end of the fourth quarter
of 2022. Given Costa Cruises' significant presence in Asia,
particularly China, which remains closed to cruising, the brand
continues to evaluate deployment options and fleet optimization
alternatives beyond the previously announced transfers of Costa
Luminosa to Carnival Cruise Line as well as Costa Venezia and Costa
Firenze to the COSTA(R) by CARNIVAL(R) concept.
The effects of the COVID-19 global pandemic, inflation, higher
fuel prices and higher interest rates 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 August 31, 2022 ("2022") Compared to Three
Months Ended August 31, 2021 ("2021")
Revenues
Consolidated
Cruise passenger ticket revenues made up 60% of our total
revenues in 2022 while onboard and other revenues made up 40%.
Revenues in 2022 increased by $3.8 billion as compared to 2021 due
to the resumption of guest cruise operations and the significant
increase of ships in service. ALBDs increased to 21.0 million in
2022 as compared to 3.8 million in 2021. Occupancy in 2022 was 84%
compared to 54% in 2021.
NAA Segment
Cruise passenger ticket revenues made up 60% of our NAA
segment's total revenues in 2022 while onboard and other cruise
revenues made up 40%. NAA segment revenues in 2022 increased by
$2.6 billion as compared to 2021 due to the resumption of guest
cruise operations and the significant increase of ships in service.
ALBDs increased to 12.6 million in 2022 as compared to 1.4 million
in 2021. Occupancy in 2022 was 92% compared to 68% in 2021.
EA Segment
Cruise passenger ticket revenues made up 77% of our EA segment's
total revenues in 2022 while onboard and other cruise revenues made
up 23%. EA segment revenues in 2022 increased by $1.0 billion as
compared to 2021 due to the resumption of guest cruise operations
and the significant increase of ships in service. ALBDs increased
to 8.5 million in 2022 as compared to 2.4 million in 2021.
Occupancy in 2022 was 73% compared to 47% in 2021.
Operating Costs and Expenses
Consolidated
Operating costs and expenses increased by $1.8 billion to $3.4
billion in 2022 from $1.6 billion in 2021. These increases were
driven by our 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, the cost
of maintaining enhanced health and safety protocols, inflation and
supply chain disruptions. We anticipate that many of these costs
and expenses will end in 2022.
Fuel costs increased by $486 million to $668 million in 2022
from $182 million in 2021. This increase was caused by higher fuel
consumption of 357 thousand metric tons, due to the resumption of
guest cruise operations, and an increase in fuel prices of $421 per
metric ton consumed in 2022 compared to 2021.
There were no ship impairment charges recognized in 2022 and
$475 million of ship impairment charges recognized in 2021.
Selling and administrative expenses increased by $199 million to
$625 million in 2022 from $425 million in 2021. This increase was
caused by higher administrative expenses and increased advertising
and promotional spend incurred as part of our resumption of guest
cruise operations.
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)
Gains (losses) on debt extinguishment, net decreased to $0
million in 2022 from $376 million in 2021.
Nine Months Ended August 31, 2022 ("2022") Compared to Nine
Months Ended August 31, 2021 ("2021")
Revenues
Consolidated
Cruise passenger ticket revenues made up 57% of our total
revenues in 2022 while onboard and other revenues made up 43%.
Revenues in 2022 increased by $7.7 billion as compared to 2021 due
to the resumption of guest cruise operations and the significant
increase of ships in service. ALBDs increased to 51.0 million in
2022 as compared to 4.4 million in 2021. Occupancy in 2022 was 71%
compared to 50% in 2021.
NAA Segment
Cruise passenger ticket revenues made up 56% of our NAA
segment's total revenues in 2022 while onboard and other cruise
revenues made up 44%. NAA segment revenues in 2022 increased by
$5.4 billion as compared to 2021 due to the resumption of guest
cruise operations and the significant increase of ships in service.
ALBDs increased to 31.4 million in 2022 as compared to 1.4 million
in 2021. Occupancy in 2022 was 78% compared to 68% in 2021.
EA Segment
Cruise passenger ticket revenues made up 76% of our EA segment's
total revenues in 2022 while onboard and other cruise revenues made
up 24%. EA segment revenues in 2022 increased by $2.1 billion as
compared to 2021 due to the resumption of guest cruise operations
and the significant increase of ships in service. ALBDs increased
to 19.6 million in 2022 as compared to 3.0 million in 2021.
Occupancy in 2022 was 60% compared to 43% in 2021.
Operating Costs and Expenses
Consolidated
Operating costs and expenses increased by $5.3 billion to $8.1
billion in 2022 from $2.8 billion in 2021. These increases were
driven by our 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 many of these costs and expenses will end in
2022.
Fuel costs increased by $1.2 billion to $1.6 billion in 2022
from $0.4 billion in 2021. The increase was caused by higher fuel
consumption of 1.0 million metric tons, due to the resumption of
guest cruise operations, and an increase in fuel prices of $364 per
metric ton consumed in 2022 compared to 2021.
We recognized a ship impairment charge of $8 million in 2022 and
ship impairment charges of $524 million in 2021.
Selling and administrative expenses increased by $0.5 billion to
$1.8 billion for 2022 from $1.3 billion in 2021. The increase was
caused by higher administrative expenses and increased advertising
and promotional spend incurred as part of our resumption of guest
cruise operations.
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 $0.1
billion to $1.2 billion in 2022 from $1.3 billion in 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 in 2022 compared to 2021.
Gains (losses) on debt extinguishment, net decreased to $0
million in 2022 from $372 million in 2021.
Liquidity, Financial Condition and Capital Resources
As of August 31, 2022, we had $7.4 billion of liquidity
including cash and borrowings available under our Revolving
Facility. During the remainder of 2022 and 2023 we expect to
continue to address maturities well in advance and obtain relevant
financial covenant amendments or waivers, as needed.
We had a working capital deficit of $4.5 billion as of August
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, a decrease in
short-term investments, an increase in customer deposits and an
increase in current portion of long-term debt. 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 $4.5 billion and $3.1
billion of customer deposits as of August 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 $1.6 billion of net cash flows in operating
activities during the nine months ended August 31, 2022, a decrease
of $2.2 billion, compared to $3.7 billion of net cash flows used
for the same period in 2021. This was due to a decrease in the net
loss and an increase in cash inflows from customer deposits during
the nine months ended August 31, 2022 compared to the same period
in 2021 and other working capital changes.
Investing Activities
During the nine months ended August 31, 2022, net cash used in
investing activities was $3.5 billion. This was driven by the
following:
-- Capital expenditures of $3.0 billion for our ongoing new shipbuilding program
-- Capital expenditures of $776 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 $515 million
During the nine months ended August 31, 2021, net cash used in
investing activities was $3.5 billion. This was driven by the
following:
-- Capital expenditures of $2.8 billion for our ongoing new shipbuilding program
-- Capital expenditures of $332 million for ship improvements
and replacements, information technology and buildings and
improvements
-- Proceeds from sale of ships and other of $351 million
-- Purchases of short-term investments of $2.7 billion
-- Proceeds from maturity of short-term investments of $2.0 billion
Financing Activities
During the nine months ended August 31, 2022, net cash provided
by financing activities of $3.2 billion was caused by the
following:
-- Issuances of $3.3 billion of long-term debt
-- Repayments of $1.1 billion of long-term debt
-- Payments of $116 million related to debt issuance costs
-- Net repayments of short-term borrowings of $114 million
-- Net proceeds of $1.2 billion from the public offering of Carnival Corporation common stock
-- 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 nine months ended August 31, 2021, net cash provided
by financing activities of $4.9 billion was caused by the
following:
-- Issuances of $7.9 billion of long-term debt, including net
proceeds of $3.4 billion from the issuance of the 2027 Senior
Unsecured Notes, net proceeds of $2.4 billion from the issuance of
the 2028 Senior Secured Notes, and net proceeds of $2.1 billion
borrowed under export credit facilities to fund ship deliveries
-- Repayments of $3.5 billion of long-term debt, including $2.0
billion repurchase of the 2023 Senior Secured Notes
-- Premium payments of $286 million related to the repurchase of the 2023 Senior Secured Notes
-- Net proceeds of $1.0 billion from Carnival Corporation common stock
-- Purchases of $94 million of Carnival plc ordinary shares and
issuances of $105 million of Carnival Corporation common stock
under our Stock Swap Program
-- Payments of $233 million related to debt issuance costs
Funding Sources
As of August 31, 2022, we had $7.4 billion of liquidity
including cash and borrowings available under our Revolving
Facility. In addition, we had $2.9 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 August 31, 2022 $0.8 $1.6 $0.5
Our export credit facilities contain various financial covenants
as described in Note 3 - "Debt". At August 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 and interest rate swaps, was as
follows:
August 31,
2022
----------
Fixed rate 47%
EUR fixed rate 14%
Floating rate 25%
EUR floating rate 13%
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 August 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 August 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
may exceed $1 million.
On June 20, 2022, Princess Cruises notified the Australian
Maritime Safety Authorization ("AMSA") and the flag state, Bermuda,
regarding approximately six cubic meters of comminuted food waste
(liquid biodigester effluent) inadvertently discharged by Coral
Princess inside the Great Barrier Reef Marine Park. On June 23,
2022, the UK P&I Club N.V. provided a letter of undertaking for
approximately $1.9 million (being the estimated maximum combined
penalty). We believe the ultimate outcome will not have a material
impact on our consolidated financial statements.
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,
inflation, higher fuel prices, higher interest rates and other
general concerns impacting the ability or desire of people to
travel, have led, and may in the future lead, to a decline in
demand for cruises, impacting 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, higher fuel prices,
higher interest rates 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.
A. 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
August 31, 2022, there were no sales or repurchases under the Stock
Swap Program. Since the beginning of the Stock Swap Program, first
authorized in June 2021, we have sold 14.1 million shares of
Carnival Corporation common stock and repurchased the same amount
of Carnival plc ordinary shares, resulting in net proceeds of $27
million. As of August 31, 2022, the maximum number of Carnival plc
Ordinary Shares that may yet be purchased under the Stock Swap
Program was 4.2 million.
B. Repurchases
No shares of Carnival Corporation common stock and Carnival plc
ordinary shares were purchased outside of publicly announced plans
or programs.
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END
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