REG - Carnival PLC - 3rd Quarter Results
30/09/2022 16:45
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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
(http://www.cunard.com) .
SCHEDULE A
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in millions, except per share data)
Three Months Ended August 31, Nine Months Ended
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 Ended August 31, Nine Months Ended
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 31, November 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 12 11
authorized; 1,243 shares at 2022 and 1,116 shares at 2021 issued
Ordinary shares of Carnival plc, $1.66 par value; 217 shares at 2022 and 2021 361 361
issued
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 (8,464) (8,466)
shares at 2022 and 67 shares at 2021 of Carnival plc, at cost
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
Common Ordinary Additional Retained AOCI Treasury Total shareholders' equity
stock shares paid-in earnings stock
capital
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
Common Ordinary Additional Retained AOCI Treasury Total shareholders' equity
stock shares paid-in earnings stock
capital
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,
€1.0 billion and £0.2 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 £350 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 31, November 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
EUR floating rate Nov 2022 - Jun 2025 EURIBOR + 2.7% - 3.8% 829 951
Floating rate Jun 2025 - Oct 2028 LIBOR + 3.0% - 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
Floating rate Feb 2023 - Sep 2024 LIBOR + 3.8% - 4.5% 590 590
GBP floating rate Feb 2025 SONIA + 0.9% (d) 410 467
EUR floating rate Dec 2021 - Mar 2026 EURIBOR + 1.8% - 4.8% 800 1,375
Export Credit Facilities
Floating rate Feb 2022 - Dec 2031 LIBOR + 0.5% - 1.5% 1,312 1,363
Fixed rate Aug 2027 - Dec 2032 2.4% - 3.4% 3,240 3,488
EUR floating rate Feb 2022 - Dec 2033 EURIBOR + 0.2% - 1.6% 3,102 2,742
EUR fixed rate Feb 2031 - 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 carrying 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, 2022 November 30, 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
Carrying Fair Value Carrying Fair Value
Value Value
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 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
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 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
(in millions) NAA EA Total
Segment Segment
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 August 31, Nine Months Ended
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
(in millions) Balance Sheet Location August 31, 2022 November 30, 2021
Derivative assets
Derivatives designated as hedging instruments
Cross currency swaps (a) Prepaid expenses and other $- $1
Total derivative assets $- $1
Derivative liabilities
Derivatives designated as hedging instruments
Cross currency swaps (a) Other long-term liabilities $- $8
Interest rate swaps (b) Accrued liabilities 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
(in millions) Gross Amounts Gross Amounts Offset in the Balance Sheet Total Net Amounts Presented in the Balance Sheet Gross Amounts not Offset in the Balance Sheet Net Amounts
Assets $- $- $- $- $-
Liabilities $1 $- $1 $- $1
November 30, 2021
(in millions) Gross Amounts Gross Amounts Offset in the Balance Sheet Total Net Amounts Presented in the Balance Sheet Gross Amounts not Offset in the Balance 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 Ended August 31, Nine Months Ended
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,
(in millions) Revenues Operating costs and Selling Depreciation Operating
expenses and and income (loss)
administrative amortization
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,
(in millions) Revenues Operating costs and Selling Depreciation Operating
expenses and and income (loss)
administrative amortization
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:
(in millions) Three Months Ended August 31, 2022 Nine Months Ended August 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
(in millions) August 31, 2022 November 30, 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 $7,107 $8,976
Cash Flows)
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
• Booking levels • Liquidity and credit ratings
• Occupancy • Adjusted earnings per share
• Interest, tax and fuel expenses • Return to guest cruise operations
• Currency exchange rates • Impact of the COVID-19 coronavirus global pandemic on our
financial condition and results of operations
• Estimates of ship depreciable lives and residual values
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 Ended August 31, Nine Months Ended
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 Ended August 31, Nine Months Ended
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 Ended August 31, Nine Months Ended
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(®) by CARNIVAL(®) 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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