REG - Carnival PLC - 3rd Quarter Results
29/09/2023 15:30
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RNS Number : 2270O Carnival PLC 29 September 2023
September 29, 2023
RELEASE OF CARNIVAL CORPORATION & PLC QUARTERLY REPORT ON FORM 10-Q
FOR THE THIRD QUARTER OF 2023
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, 2023.
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 Form 10-Q which
includes unaudited consolidated financial statements as of and for the three
and nine months ended August 31, 2023, 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
Jody
Venturoni
Beth Roberts
001 469 797
6380
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 the largest global cruise company, and among
the largest leisure travel companies, with a portfolio of world-class cruise
lines - AIDA Cruises, Carnival Cruise Line, Costa Cruises, Cunard, Holland
America Line, P&O Cruises (Australia), P&O Cruises (UK), Princess
Cruises, and Seabourn.
Additional information can be found on www.carnivalcorp.com, www.aida.de,
www.carnival.com, www.costacruise.com, www.cunard.com, www.hollandamerica.com,
www.pocruises.com.au, www.pocruises.com, www.princess.com and
www.seabourn.com. For more information on Carnival Corporation's
industry-leading sustainability initiatives, visit
www.carnivalsustainability.com.
SCHEDULE A
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in millions, except per share data)
Three Months Ended Nine Months Ended
August 31,
August 31,
2023 2022 2023 2022
Revenues
Passenger ticket $4,546 $2,595 $10,557 $4,753
Onboard and other 2,308 1,711 5,640 3,577
6,854 4,305 16,197 8,329
Operating Expenses
Commissions, transportation and other 823 565 2,097 1,141
Onboard and other 752 537 1,785 1,060
Payroll and related 585 563 1,768 1,601
Fuel 468 668 1,492 1,577
Food 364 259 1,000 586
Ship and other impairments - - - 8
Other operating 928 787 2,546 2,118
Cruise and tour operating expenses 3,921 3,379 10,688 8,092
Selling and administrative 713 625 2,162 1,774
Depreciation and amortization 596 581 1,774 1,707
5,230 4,585 14,624 11,573
Operating Income (Loss) 1,624 (279) 1,572 (3,244)
Nonoperating Income (Expense)
Interest income 59 24 183 34
Interest expense, net of capitalized interest (518) (422) (1,600) (1,161)
Debt extinguishment and modification costs (81) - (112) -
Other income (expense), net (19) (81) (67) (108)
(559) (479) (1,595) (1,235)
Income (Loss) Before Income Taxes 1,065 (759) (23) (4,478)
Income Tax Benefit (Expense), Net 9 (11) (3) (17)
Net Income (Loss) $1,074 $(770) $(26) $(4,495)
Earnings Per Share
Basic $0.85 $(0.65) $(0.02) $(3.89)
Diluted $0.79 $(0.65) $(0.02) $(3.89)
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 Nine Months Ended
August 31,
August 31,
2023 2022 2023 2022
Net Income (Loss) $1,074 $(770) $(26) $(4,495)
Items Included in Other Comprehensive Income (Loss)
Change in foreign currency translation adjustment (17) (283) 82 (529)
Other 24 1 4 6
Other Comprehensive Income (Loss) 7 (282) 86 (523)
Total Comprehensive Income (Loss) $1,081 $(1,052) $60 $(5,018)
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, 2022
2023
ASSETS
Current Assets
Cash and cash equivalents $2,842 $4,029
Restricted cash 18 1,988
Trade and other receivables, net 485 395
Inventories 483 428
Prepaid expenses and other 855 652
Total current assets 4,683 7,492
Property and Equipment, Net 39,952 38,687
Operating Lease Right-of-Use Assets, Net 1,277 1,274
Goodwill 579 579
Other Intangibles 1,168 1,156
Other Assets 2,098 2,515
$49,756 $51,703
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $- $200
Current portion of long-term debt 1,780 2,393
Current portion of operating lease liabilities 153 146
Accounts payable 1,103 1,050
Accrued liabilities and other 2,017 1,942
Customer deposits 5,955 4,874
Total current liabilities 11,008 10,605
Long-Term Debt 29,516 31,953
Long-Term Operating Lease Liabilities 1,180 1,189
Other Long-Term Liabilities 1,091 891
Contingencies and Commitments
Shareholders' Equity
Carnival Corporation common stock, $0.01 par value; 1,960 shares authorized; 12 12
1,250 shares at 2023 and 1,244 shares at 2022 issued
Carnival plc ordinary shares, $1.66 par value; 217 shares at 2023 and 2022 361 361
issued
Additional paid-in capital 16,699 16,872
Retained earnings 233 269
Accumulated other comprehensive income (loss) ("AOCI") (1,896) (1,982)
Treasury stock, 130 shares at 2023 and 2022 of Carnival Corporation and 73 (8,449) (8,468)
shares at 2023 and 72 shares at 2022 of Carnival plc, at cost
Total shareholders' equity 6,960 7,065
$49,756 $51,703
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,
2023 2022
OPERATING ACTIVITIES
Net income (loss) $(26) $(4,495)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities
Depreciation and amortization 1,774 1,707
Impairments 19 8
(Gain) loss on debt extinguishment 99 -
(Income) loss from equity-method investments 16 -
Share-based compensation 43 79
Amortization of discounts and debt issue costs 126 131
Noncash lease expense 109 103
Gain on sales of ships (54) (6)
Other 39 36
2,145 (2,438)
Changes in operating assets and liabilities
Receivables (99) (134)
Inventories (43) (87)
Prepaid expenses and other assets 74 (716)
Accounts payable 31 176
Accrued liabilities and other 155 262
Customer deposits 1,097 1,383
Net cash provided by (used in) operating activities 3,359 (1,553)
INVESTING ACTIVITIES
Purchases of property and equipment (2,609) (3,759)
Proceeds from sales of ships 260 55
Purchase of short-term investments - (315)
Proceeds from maturity of short-term investments - 515
Other 28 37
Net cash provided by (used in) investing activities (2,322) (3,467)
FINANCING ACTIVITIES
Repayments of short-term borrowings (200) (114)
Principal repayments of long-term debt (6,828) (1,073)
Debt issuance costs (116) (116)
Debt extinguishment costs (67) -
Proceeds from issuance of long-term debt 2,961 3,334
Proceeds from issuance of common stock 5 1,180
Proceeds from issuance of common stock under the Stock Swap Program 22 89
Purchase of treasury stock under the Stock Swap Program (20) (82)
Other 14 -
Net cash provided by (used in) financing activities (4,229) 3,217
Effect of exchange rate changes on cash, cash equivalents and restricted cash 25 (67)
Net increase (decrease) in cash, cash equivalents and restricted cash (3,166) (1,870)
Cash, cash equivalents and restricted cash at beginning of period 6,037 8,976
Cash, cash equivalents and restricted cash at end of period $2,870 $7,107
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 (accumulated deficit) stock
capital
At May 31, 2023 $12 $361 $16,684 $(841) $(1,903) $(8,449) $5,865
Net income (loss) - - - 1,074 - - 1,074
Other comprehensive income (loss) - - - - 7 - 7
Share-based compensation and other - - 15 - - - 15
At August 31, 2023 $12 $361 $16,699 $233 $(1,896) $(8,449) $6,960
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, 2022 $12 $361 $16,872 $269 $(1,982) $(8,468) $7,065
Change in accounting principle (a) - - (229) (10) - - (239)
Net income (loss) - - - (26) - - (26)
Other comprehensive income (loss) - - - - 86 - 86
Issuances of common stock, net - - 5 - - - 5
Conversion of Convertible Notes - - 3 - - - 3
Purchases and issuances under the Stock Swap program, net - - 22 - - (20) 2
Issuance of treasury shares for vested share-based awards - - (41) - - 41 -
Share-based compensation and other - - 67 - - (2) 65
At August 31, 2023 $12 $361 $16,699 $233 $(1,896) $(8,449) $6,960
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.
(a) We adopted the provisions of Debt - Debt with Conversion and Other
Options and Derivative and Hedging - Contracts in Entity's Own Equity on
December 1, 2022.
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
As of August 31, 2023, we had $5.7 billion of liquidity including cash and
cash equivalents and borrowings available under our $1.7 billion,
€1.0 billion and £0.2 billion multi-currency revolving credit facility
(the "Revolving Facility"). We believe that we have sufficient liquidity to
fund our obligations and expect to remain in compliance with our financial
covenants for at least the next twelve months from the issuance of these
financial statements. Refer to Note 3 - "Debt" for additional details
regarding the applicable financial covenants.
We will continue to pursue various opportunities to refinance future debt
maturities to reduce interest expense and/or to extend the maturity dates
associated with our existing indebtedness and obtain relevant financial
covenant amendments or waivers, if needed.
Basis of Presentation
The Consolidated Statements of Income (Loss), the Consolidated Statements of
Comprehensive Income (Loss), the Consolidated Statements of Cash Flows and the
Consolidated Statements of Shareholders' Equity for the three and nine months
ended August 31, 2023 and 2022, and the Consolidated Balance Sheet at August
31, 2023 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 2022 joint Annual
Report on Form 10-K ("Form 10-K") filed with the U.S. Securities and Exchange
Commission on January 27, 2023. Our operations are seasonal and results for
interim periods are not necessarily indicative of the results for the entire
year.
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 the pandemic, inflation, higher fuel prices, higher taxes, higher
interest rates and fluctuations in foreign currency 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 and collectability of trade and notes receivables, 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
guidance, Reference Rate Reform: Facilitation of the Effects of Reference Rate
Reform on Financial Reporting, 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. In December 2022, the
FASB deferred the date through which this guidance can be applied from
December 31, 2022 to December 31, 2024. We adopted this new guidance during
2022 and applied it prospectively to contract modifications related to a
change in reference rate. As of August 31, 2023, all of our outstanding debt
and derivative instruments referenced to U.S. dollar LIBOR were transitioned
to Term Secured Overnight Financing Rate ("SOFR"). The adoption of this
guidance did not have a material impact on our consolidated financial
statements.
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. On December 1, 2022, we
adopted this guidance using the modified retrospective approach to recognize
our convertible notes as single unit liability instruments, as they do not
qualify as derivatives under ASC 815, Derivatives and Hedging, and were not
issued at a substantial premium. Accordingly, upon adoption we recorded a
$239 million increase to debt, primarily as a result of the reversal of the
remaining non-cash convertible debt discount, as well as a reduction of
$229 million to additional paid in capital. The cumulative effect of the
adoption of this guidance resulted in a $10 million decrease to retained
earnings.
In September 2022, the FASB issued guidance, Liabilities-Supplier Finance
Programs - Disclosure of Supplier Finance Program Obligations. This guidance
requires that a buyer in a supplier finance program disclose sufficient
information about the program to allow a user of financial statements to
understand the program's nature, activity during the period, changes from
period to period, and potential magnitude. This guidance is expected to
improve financial reporting by requiring new disclosures about the programs,
thereby allowing financial statement users to better consider the effect of
the programs on an entity's working capital, liquidity, and cash flows. This
guidance is required to be adopted by us in the first quarter of 2024, except
for the amendment on roll forward information which is required to be adopted
by us for the financial year commencing on December 1, 2024. We are currently
evaluating the impact of the new guidance on the disclosures to our
consolidated financial statements.
NOTE 2 - Revenue and Expense Recognition
Guest cruise deposits and advance onboard purchases are initially included in
customer deposits 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 $211
million and $555 million in 2023 and $141 million and $305 million in 2022.
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 $6.3 billion as of August 31, 2023 and $5.1 billion as of
November 30, 2022, which includes approximately $160 million of unredeemed
FCCs as of August 31, 2023, of which approximately $114 million are
refundable. Given the lack of comparable historical experience of FCC
redemptions, we are unable to estimate the amount of FCCs that will be used in
future periods or that may be refunded. Refunds payable to guests who have
elected cash refunds are recorded in accounts payable. During the nine months
ended August 31, 2023 and 2022, we recognized revenues of $3.9 billion and
$1.7 billion related to our customer deposits as of November 30, 2022 and
2021. Our customer deposits balance changes due to the seasonal nature of cash
collections, the recognition of revenue, refunds of customer deposits and
foreign currency changes.
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 and are less
allowances for expected credit losses. 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 Costs
We recognize incremental travel agent commissions and credit and debit card
fees incurred as a result of obtaining the ticket contract as assets when paid
prior to the start of a voyage. 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 incremental costs of obtaining contracts with
customers recognized as assets of $272 million as of August 31, 2023 and
$218 million as of November 30, 2022.
NOTE 3 - Debt
August 31, November 30,
(in millions) Maturity Rate (a) (b) 2023 2022
Secured Subsidiary Guaranteed
Notes
Notes Feb 2026 10.5% $- $775
EUR Notes Feb 2026 10.1% - 439
Notes Jun 2027 7.9% 192 192
Notes Aug 2027 9.9% 870 900
Notes Aug 2028 4.0% 2,406 2,406
Notes Aug 2029 7.0% 500 -
Loans
EUR floating rate Jun 2025 EURIBOR + 3.8% 844 808
Floating rate Jun 2025 - Oct 2028 SOFR + 3.0 - 3.3% 3,576 4,101
Total Secured Subsidiary Guaranteed 8,388 9,621
Senior Priority Subsidiary Guaranteed
Notes May 2028 10.4% 2,030 2,030
Unsecured Subsidiary Guaranteed
Revolver
Facility (c) (c) - 200
Notes
Convertible Notes Apr 2023 5.8% - 96
Convertible Notes Oct 2024 5.8% 426 426
Notes Mar 2026 7.6% 1,362 1,450
EUR Notes Mar 2026 7.6% 544 517
Notes Mar 2027 5.8% 3,260 3,500
Convertible Notes Dec 2027 5.8% 1,131 1,131
Notes May 2029 6.0% 2,000 2,000
Notes Jun 2030 10.5% 1,000 1,000
Loans
Floating rate Jul 2024 - Sep 2024 LIBOR + 3.8% - 590
GBP floating rate Feb 2025 SONIA + 0.9% - 419
EUR floating rate (d) Apr 2024 - Mar 2026 EURIBOR + 2.4 - 4.0% 716 827
Export Credit Facilities
Floating rate Dec 2031 SOFR + 0.8% (e) 583 1,246
Fixed rate Aug 2027 - Dec 2032 2.4 - 3.4% 2,870 3,143
EUR floating rate May 2024 - Nov 2034 EURIBOR + 0.2 - 0.8% 3,165 3,882
EUR fixed rate Feb 2031 - Jul 2037 1.1 - 3.4% 3,640 2,592
Total Unsecured Subsidiary Guaranteed 20,698 23,019
Unsecured Notes (No Subsidiary Guarantee)
Notes Oct 2023 7.2% 125 125
Notes Jan 2028 6.7% 200 200
EUR Notes Oct 2029 1.0% 653 620
Total Unsecured Notes (No Subsidiary Guarantee) 978 945
Total Debt 32,093 35,615
Less: unamortized debt issuance costs and discounts (797) (1,069)
Total Debt, net of unamortized debt issuance costs and discounts 31,296 34,546
Less: short-term borrowings - (200)
Less: current portion of long-term debt (1,780) (2,393)
Long-Term Debt $29,516 $31,953
(a) The reference rates, together with any applicable credit adjustment
spread, for substantially all of our variable debt have 0.0% to 0.75% floors.
During 2023, we amended certain of our variable debt instruments to change the
reference rate from LIBOR to SOFR.
(b) The above debt table excludes the impact of any outstanding derivative
contracts. The interest rates on some of our debt fluctuate based on the
applicable rating of senior unsecured long-term securities of Carnival
Corporation or Carnival plc.
(c) See "Short-Term Borrowings" below.
(d) In March 2023, we entered into an amendment of a EUR floating rate
loan to extend maturity through April 2024.
(e) The interest rate for the unsecured floating rate export credit
facility for the current interest period is referenced to LIBOR.
Carnival Corporation and/or Carnival plc is the primary obligor of all our
outstanding debt excluding the following:
• $0.5 billion under a term loan facility of Costa Crociere
S.p.A. ("Costa"), a subsidiary of Carnival plc
• $2.0 billion of senior priority notes (the "2028 Senior
Priority Notes") issued by Carnival Holdings (Bermuda) Limited ("Carnival
Holdings"), a subsidiary of Carnival Corporation
• $0.2 billion under an export credit facility of Sun Princess
Limited, a subsidiary of Carnival Corporation
• $0.1 billion under an export credit facility of Sun Princess II
Limited, a subsidiary of Carnival Corporation
In addition, Carnival Holdings (Bermuda) II Limited ("Carnival Holdings II")
will be the primary obligor under a $2.1 billion multi-currency revolving
facility ("New Revolving Facility") when the New Revolving Facility replaces
our Revolving Facility upon its maturity in August 2024. See "New Revolving
Facility."
All of our outstanding debt is issued or guaranteed by substantially the same
entities with the exception of the following:
• Up to $250 million of the Costa term loan facility, which is
guaranteed by certain subsidiaries of Carnival plc and Costa that do not
guarantee our other outstanding debt
• Our 2028 Senior Priority Notes, issued by Carnival Holdings,
which does not guarantee our other outstanding debt
• The export credit facilities of Sun Princess Limited and Sun
Princess II Limited, which do not guarantee our other outstanding debt
As of August 31, 2023, the scheduled maturities of our debt are as follows:
(in millions)
Year Principal Payments
4Q 2023 $462
2024 2,046
2025 2,211
2026 3,194
2027 6,690
Thereafter 17,490
Total $32,093
Short-Term Borrowings
As of August 31, 2023, we did not have short-term borrowings. As of November
30, 2022, our short-term borrowings consisted of $0.2 billion under our
Revolving Facility. We may continue to borrow or otherwise utilize available
amounts under the Revolving Facility through August 2024, subject to
satisfaction of the conditions in the facility. We had $2.9 billion available
for borrowing under our Revolving Facility as of August 31, 2023. The
Revolving Facility bears interest at a rate of term SOFR, in relation to any
loan in U.S. dollars, EURIBOR, in relation to any loan in euros or daily
compounding SONIA, in relation to any loan in sterling, plus a margin based on
the long-term credit ratings of Carnival Corporation and 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.
New Revolving Facility
In February 2023, Carnival Holdings II entered into the New Revolving
Facility. The New Revolving Facility may be utilized beginning on August 6,
2024, and will replace our Revolving Facility upon its maturity in August
2024. The termination date of the New Revolving Facility is August 6, 2025,
subject to two, mutual one-year extension options. The new facility also
contains an accordion feature, allowing for additional commitments, up to an
aggregate of $2.9 billion, which are the aggregate commitments under our
Revolving Facility.
Borrowings under the New Revolving Facility will bear interest at a rate of
term SOFR, in relation to any loan in U.S. dollars, EURIBOR, in relation to
any loan in euros or daily compounding SONIA, in relation to any loan in
sterling, plus a margin based on the long-term credit ratings of Carnival
Corporation. The New 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. In addition, we are
required to pay certain fees on the aggregate unused commitments under the New
Revolving Facility and the Revolving Facility.
In connection with the New Revolving Facility, Carnival Corporation, Carnival
plc and its subsidiaries will contribute three unencumbered vessels (net book
value of $3.0 billion as of August 31, 2023) to Carnival Holdings II (which
must be completed no later than February 28, 2024). Each of the vessels will
continue to be operated under one of the Carnival Corporation & plc
brands. Carnival Holdings II does not guarantee our other outstanding debt.
Term Loan Refinancing
In August 2023, we issued $500 million aggregate principal amount of 7.0%
first-priority senior secured notes due on August 15, 2029 (the "2029 Senior
Secured Notes") and borrowed an aggregate principal amount of $1.3 billion
under a new senior secured first lien term loan B facility, which bears
interest at a rate per annum equal to SOFR (with a 0.75% floor) plus 3.0% and
matures on August 8, 2027 (the "New Secured Term Loan Facility"). We used the
proceeds from these borrowings to prepay borrowings outstanding under our
existing first-priority senior secured term loan facility maturing in 2025.
The 2029 Senior Secured Notes and borrowings under the New Secured Term Loan
Facility are fully and unconditionally guaranteed, jointly and severally, on a
first-priority senior secured basis by Carnival plc and certain of our
subsidiaries that also guarantee our existing first- and second-priority
secured indebtedness, certain of our unsecured notes and our convertible
notes. The 2029 Senior Secured Notes and borrowings under the New Secured Term
Loan Facility are included within the total Secured Subsidiary Guaranteed
balance in the debt table above.
Redemptions and Retirements
During the three months ended August 31, 2023, we redeemed the outstanding
principal amount of $775 million of our 10.5% second-priority senior secured
notes due in 2026 and the outstanding principal amount of $465 million of our
10.1% second-priority senior secured EUR notes due in 2026, and retired
$30 million aggregate principal amount of our 9.9% second-priority senior
secured notes due in 2027. Our second-priority senior secured notes are
included within the total Secured Subsidiary Guaranteed balance in the debt
table above. In addition, we retired $240 million aggregate principal amount
of our 5.8% unsecured notes due in 2027, $88 million aggregate principal
amount of our 7.6% unsecured notes due in 2026 and $750 million of our
unsecured loans maturing from 2024 through 2025. Our unsecured notes and loans
are included within the total Unsecured Subsidiary Guaranteed balance in the
debt table above.
Export Credit Facility Borrowings
During the nine months ended August 31, 2023, we borrowed $1.1 billion under
export credit facilities due in semi-annual installments through 2037. In
addition, we paid down $1.0 billion of floating rate unsecured borrowings
mostly with 2023 and 2024 maturities. As of August 31, 2023, the net book
value of the vessels subject to negative pledges was $15.7 billion.
Collateral and Priority Pool
As of August 31, 2023, the net book value of our ships and ship improvements,
excluding ships under construction, is $37.3 billion. 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 $23.2 billion, including $21.6 billion related to
vessels and certain assets related to those vessels) as of August 31, 2023 and
certain other assets.
As of August 31, 2023, $8.2 billion in net book value of our ships and ship
improvements relate to the priority pool vessels included in the priority pool
of 12 unencumbered vessels (the "Senior Priority Notes Subject Vessels") for
our 2028 Senior Priority Notes. As of August 31, 2023, there was no change in
the identity of the Senior Priority Notes Subject Vessels.
Covenant Compliance
Our Revolving Facility, New Revolving Facility, unsecured loans and export
credit facilities contain certain covenants listed below:
• Maintain minimum interest coverage (adjusted EBITDA to
consolidated net interest charges, as defined in the agreements) (the
"Interest Coverage Covenant") as follows:
◦ For certain of our unsecured loans and our New Revolving
Facility, from the end of each fiscal quarter from August 31, 2024, at a ratio
of not less than 2.0 to 1.0 for each testing date occurring from August 31,
2024 until May 31, 2025, at a ratio of not less than 2.5 to 1.0 for the August
31, 2025 and November 30, 2025 testing dates, and at a ratio of not less than
3.0 to 1.0 for the February 28, 2026 testing date onwards and as applicable
through their respective maturity dates. In addition, for our remaining
unsecured loans that contain this covenant, we entered into letter agreements
to waive compliance with the covenant through the May 31, 2024 testing date.
◦ For our export credit facilities, from the end of each fiscal
quarter from May 31, 2024, at a ratio of not less than 2.0 to 1.0 for each
testing date occurring from May 31, 2024 until May 31, 2025, at a ratio of not
less than 2.5 to 1.0 for the August 31, 2025 and November 30, 2025 testing
dates, and at a ratio of not less than 3.0 to 1.0 for the February 28, 2026
testing date onwards
• For certain of our unsecured loans and export credit facilities,
maintain minimum issued capital and consolidated reserves (as defined in the
agreements) of $5.0 billion
• Limit our debt to capital (as defined in the agreements)
percentage to a percentage not to exceed 72.5% until the August 31, 2023
testing date, following which it will be tested at levels which decline
ratably to 65% from the May 31, 2024 testing date onwards
• Maintain minimum liquidity as follows:
◦ For our New Revolving Facility, minimum liquidity of
$1.5 billion; provided, that if any commitments maturing on June 30, 2025
under our existing first-priority senior secured term loan facility are
outstanding on the March 31, 2025 testing date, our minimum liquidity on such
testing date cannot be less than the greater of (i) the aggregate outstanding
amount of such first-lien term loan facility commitments and (ii)
$1.5 billion
◦ For our other unsecured loans and export credit facilities that
contain this covenant, $1.5 billion through November 30, 2026
• Adhere to certain restrictive covenants through August 2025
• Limit the amounts of our secured assets as well as secured and
other indebtedness
At August 31, 2023, 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 and/or cross-acceleration
clauses therein, substantially all of our outstanding debt and derivative
contract payables could become due, and our 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.
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, the Havana Docks Corporation filed a
lawsuit 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. 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 and accordingly, we
adjusted our estimated liability for this matter. On December 30, 2022, the
court entered judgment against Carnival in the amount of $110 million plus
$4 million in fees and costs. We have filed a notice of appeal and on June
30, 2023, we filed our opening appellate brief.
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. 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. These two cases were consolidated
in the Southern District of Florida. On March 10, 2023, the jury returned a
verdict finding that DeCurtis had breached its contract with Carnival
Corporation and infringed on the Carnival Corporation patent. The jury awarded
Carnival Corporation a total of $21 million in damages. On April 30, 2023,
DeCurtis filed for bankruptcy protection in the United States Bankruptcy Court
for the District of Delaware. Carnival Corporation is defending its interests
in the bankruptcy matter.
COVID-19 Actions
We have been named in a number of individual actions related to COVID-19.
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.
Substantially all of these individual actions have now been dismissed or
settled for immaterial amounts.
As of August 31, 2023, 11 purported class actions have been brought by former
guests in several U.S. federal courts, the Federal Court in Australia, and in
Italy. 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, 2023, 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 and
Italian matters remain. We believe the ultimate outcome of these matters will
not have a material impact on our consolidated financial statements.
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.
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 range from inadvertent events to malicious motivated attacks.
We have incurred legal and other costs in connection with cyber incidents that
have impacted us. The penalties and settlements paid in connection with cyber
incidents over the last three years were not material. While these incidents
did not 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. We continue to expect to provide reserve funds under these
agreements. During the third quarter, $912 million of previously provided
reserve funds related to our customer deposits to satisfy these requirements
were returned to us.
As of August 31, 2023 and November 30, 2022, we had $1.3 billion and
$1.7 billion in reserve funds. Additionally, as of August 31, 2023 and
November 30, 2022, we had $242 million and $229 million in compensating
deposits we are required to maintain and $30 million of cash collateral in
escrow. These balances are included within other assets. In addition, during
the third quarter we provided $413 million in restricted cash deposits which
became unrestricted in August 2023.
Ship Commitments
As of August 31, 2023, we expect the timing of our new ship growth capital
commitments to be as follows:
(in millions)
Year
Remainder of 2023 $267
2024 2,422
2025 957
Thereafter -
$3,645
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, 2023 November 30, 2022
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) $23,208 $- $21,581 $- $23,542 $- $18,620 $-
Floating rate debt (a) 8,885 - 7,899 - 12,074 - 10,036 -
Total $32,093 $- $29,481 $- $35,615 $- $28,656 $-
(a) The debt amounts above do not include the impact of
interest rate swaps or debt issuance costs and discounts. 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, 2023 November 30, 2022
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash equivalents (a) $1,505 $- $- $2,589 $- $-
Restricted cash (b) 28 - - 1,988 - -
Derivative financial instruments - 27 - - 1 -
Total $1,533 $27 $- $4,576 $1 $-
Liabilities
Derivative financial instruments $- $26 $- $- $- $-
Total $- $26 $- $- $- $-
(a) Consists of money market funds and cash investments with
original maturities of less than 90 days.
(b) The restricted cash amount at August 31, 2023 includes
$10 million, which is included in other assets.
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring
Basis
Valuation of Goodwill and Trademarks
As of July 31, 2023, we performed our annual goodwill and trademark impairment
reviews and determined there was no impairment for goodwill or trademarks.
As of August 31, 2023 and November 30, 2022, goodwill for our North America
and Australia ("NAA") segment was $579 million.
Trademarks
(in millions) NAA Europe Total
Segment Segment
November 30, 2022 $927 $224 $1,151
Exchange movements - 12 12
August 31, 2023 $927 $236 $1,163
Derivative Instruments and Hedging Activities
(in millions) Balance Sheet Location August 31, 2023 November 30, 2022
Derivative assets
Derivatives designated as hedging instruments
Interest rate swaps (a) Prepaid expenses and other $25 $1
Other assets - 1
Derivatives not designated as hedging instruments
Interest rate swaps (a) Prepaid expenses and other 1 -
Total derivative assets $27 $1
Derivative liabilities
Derivatives designated as hedging instruments
Cross currency swaps (b) Other long-term liabilities $9 $-
Interest rate swaps (a) Other long-term liabilities 16 -
Total derivative liabilities $26 $-
(a) We have interest rate swaps whereby we receive
EURIBOR-based floating interest rate payments in exchange for making fixed
interest rate payments. These interest rate swap agreements effectively
changed $70 million at August 31, 2023 and $89 million at November 30, 2022
of EURIBOR-based floating rate euro debt to fixed rate euro debt. As of August
31, 2023, these EURIBOR-based interest rate swaps were not designated as cash
flow hedges. As of November 30, 2022, one of these swaps was designated as a
cash flow hedge. During the nine months ended August 31, 2023 we entered into
interest rate swap agreements which effectively changed $2.5 billion at
August 31, 2023 of variable rate debt to fixed rate debt. At August 31, 2023,
these interest rate swaps settle through 2027 and are designated as cash flow
hedges.
(b) At August 31, 2023, we had a cross currency swap totaling
$663 million that is designated as a hedge of our net investment in foreign
operations with euro-denominated functional currencies. At August 31, 2023,
this cross currency swap settles through 2024.
Our derivative contracts include rights of offset with our counterparties. As
of August 31, 2023 and November 30, 2022, there was no netting for our
derivative assets and liabilities. The amounts that were not offset in the
balance sheet were not material.
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 Nine Months Ended
August 31, August 31,
(in millions) 2023 2022 2023 2022
Gains (losses) recognized in AOCI:
Cross currency swaps - net investment hedges - included component $(10) $40 $(1) $72
Cross currency swaps - net investment hedges - excluded component $1 $(7) $(3) $(26)
Interest rate swaps - cash flow hedges $25 $1 $6 $10
Gains (losses) reclassified from AOCI - cash flow hedges:
Interest rate swaps - Interest expense, net of capitalized interest $12 $- $22 $(1)
Foreign currency zero cost collars - Depreciation and amortization $- $1 $1 $2
Gains (losses) recognized on derivative instruments (amount excluded from
effectiveness testing - net investment hedges)
Cross currency swaps - Interest expense, net of capitalized interest $3 $2 $7 $5
The amount of gains and losses on derivatives not designated as hedging
instruments recognized in earnings during the three and nine months ended
August 31, 2023 and estimated cash flow hedges' unrealized gains and losses
that are expected to be reclassified to earnings in the next twelve months are
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 fleet optimization, improving our existing fleet's energy efficiency,
designing more energy-efficient itineraries and investing in new technologies,
including alternative fuels.
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, 2023, we had a cross currency swap with a notional amount of
$663 million, which is designated as a hedge of our net investments in
foreign operations. During 2023, we also had sterling-denominated debt
designated as a non-derivative hedge of our net investment in foreign
operations. The $450 million principal balance of this sterling-denominated
debt was repaid in July 2023. For the three and nine months ended August 31,
2023, we recognized $29 million and $38 million of losses on these 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, 2023, our remaining newbuild currency exchange rate risk relates
to euro-denominated newbuild contract payments for non-euro functional
currency brands, which represent a total unhedged commitment of $3.2 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' functional
currency 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 and
cash equivalents, investments, notes receivables, reserve funds related to
customer deposits, future financing facilities, contingent obligations,
derivative instruments, insurance contracts 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 and new ship progress payments to
shipyards
We also monitor the creditworthiness of travel agencies and tour operators in
Australia and Europe and credit and debit card providers to which we extend
credit in the normal course of our business. 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.
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 and have not experienced significant credit
losses.
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) Europe cruise operations ("Europe"), (3) Cruise Support and
(4) Tour and Other.
The operating segments within each of our NAA and Europe 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
2023
NAA $4,566 $2,661 $420 $377 $1,107
Europe (a) 2,060 1,124 199 168 569
Cruise Support 56 30 87 47 (109)
Tour and Other 172 105 7 3 56
$6,854 $3,921 $713 $596 $1,624
2022
NAA $2,880 $2,280 $368 $358 $(126)
Europe (a) 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)
Nine Months Ended August 31,
(in millions) Revenues Operating costs and Selling Depreciation Operating
expenses and and income (loss)
administrative amortization
2023
NAA $11,000 $7,132 $1,295 $1,115 $1,458
Europe (a) 4,819 3,303 634 506 376
Cruise Support 162 85 211 137 (271)
Tour and Other 216 169 21 17 9
$16,197 $10,688 $2,162 $1,774 $1,572
2022
NAA $5,672 $5,335 $1,078 $1,046 $(1,787)
Europe (a) 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)
(a) Beginning in the first quarter of 2023, we renamed the Europe and Asia
segment to Europe segment.
Revenue by geographic areas, which are based on where our guests are sourced,
were as follows:
Three Months Ended Nine Months Ended
August 31, August 31,
(in millions) 2023 2022 2023 2022
North America $4,253 $2,753 $9,937 $5,491
Europe 2,165 1,456 4,798 2,676
Australia 238 56 883 60
Other 198 40 578 101
$6,854 $4,305 $16,197 $8,329
NOTE 7 - Earnings Per Share
Three Months Ended Nine Months Ended
August 31, August 31,
(in millions, except per share data) 2023 2022 2023 2022
Net income (loss) $1,074 $(770) $(26) $(4,495)
Interest expense on dilutive convertible notes 24 - - -
Net income (loss) for diluted earnings per share $1,098 $(770) $(26) $(4,495)
Weighted-average shares outstanding 1,263 1,185 1,262 1,154
Dilutive effect of equity awards 6 - - -
Dilutive effect of convertible notes 127 - - -
Diluted weighted-average shares outstanding 1,396 1,185 1,262 1,154
Basic earnings per share $0.85 $(0.65) $(0.02) $(3.89)
Diluted earnings per share $0.79 $(0.65) $(0.02) $(3.89)
Antidilutive shares excluded from diluted earnings per share computations were
as follows:
Three Months Ended Nine Months Ended
August 31, August 31,
(in millions) 2023 2022 2023 2022
Equity awards - - 3 1
Convertible Notes - 52 131 52
Total antidilutive securities - 52 134 54
NOTE 8 - Supplemental Cash Flow Information
(in millions) August 31, 2023 November 30, 2022
Cash and cash equivalents (Consolidated Balance Sheets) $2,842 $4,029
Restricted cash (Consolidated Balance Sheets) 18 1,988
Restricted cash (included in other assets) 10 20
Total cash, cash equivalents and restricted cash (Consolidated Statements of $2,870 $6,037
Cash Flows)
NOTE 9 - Property and Equipment
Ship Sales
During 2023, we completed the sale of two Europe segment ships and one NAA
segment ship, which represents a passenger-capacity reduction of 3,970 berths
for our Europe segment and 460 berths for our NAA segment. We will continue to
operate the NAA segment ship under a bareboat charter agreement through
September 2024. In addition, we entered into an agreement to sell one Europe
segment ship which represents a passenger-capacity reduction of 1,270 berths.
NOTE 10 - Equity Method Investments
In July 2023, we entered into an agreement with our JV partner to exit our
noncontrolling interest in Adora Cruises Limited ("Adora Cruises"), formerly
CSSC Carnival Cruise Shipping Limited, a China-based cruise company. The
transaction was completed in September 2023. During the third quarter, we
recognized an impairment in our investment in Adora Cruises of $19 million,
which is recorded within other income (expense).
NOTE 11 - 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, 2023 and 2022, there were no sales or
repurchases under the Stock Swap Program. During the nine months ended August
31, 2023 and 2022, we sold 2.3 million and 5.2 million shares of Carnival
Corporation common stock and repurchased the same amount of Carnival plc
ordinary shares under the Stock Swap Program, resulting in net proceeds of
$2 million and $8 million, which were used for general corporate purposes.
In addition, during the three months ended August 31, 2023 and 2022, there
were no sales of Carnival Corporation common stock. During the nine months
ended August 31, 2023 and 2022, we sold 0.5 million and 1.6 million shares
of Carnival Corporation common stock at an average price per share of $9.83
and $19.27, resulting in net proceeds of $5 million and $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 • Adjusted net income (loss)
• Booking levels • Adjusted EBITDA
• Occupancy • Adjusted earnings per share
• Interest, tax and fuel expenses • Adjusted free cash flow
• Currency exchange rates • Net per diems
• Goodwill, ship and trademark fair values • Net yields
• Liquidity and credit ratings • Adjusted cruise costs per ALBD
• Investment grade leverage metrics • Adjusted cruise costs excluding fuel per ALBD
• Estimates of ship depreciable lives and residual values • Adjusted return on invested capital
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 our substantial debt balance as a result of the pause of our guest cruise
operations. There may be additional risks that we consider immaterial or which
are unknown. These factors include, but are not limited to, the following:
• Events and conditions around the world, including war and other
military actions, such as the war in Ukraine, inflation, higher fuel prices,
higher taxes, 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 as well as negative impacts to our operating
costs and profitability.
• Pandemics have in the past and may in the future have a
significant negative impact on our financial condition and operations.
• Incidents concerning our ships, guests or the cruise industry
have in the past and may, in the future, negatively 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, labor and employment, 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 team members, our inability to recruit or retain
qualified shoreside and shipboard team members 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 may be
unable to deliver on their commitments, which could negatively 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 negatively impact 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.
• Failure to successfully implement our business strategy
following our resumption of guest cruise operations would negatively impact
the occupancy levels and pricing of our cruises and could have a material
adverse effect on our business. We require a significant amount of cash to
service our debt and sustain our operations. Our ability to generate cash
depends on many factors, including those beyond our control, and we may not be
able to generate cash required to service our debt and sustain our operations.
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- and climate-related statements may be based on
standards and tools for measuring progress that are still developing, internal
controls and processes that continue to evolve, and assumptions and
predictions that are subject to change in the future and may not be generally
shared.
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. 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. Our results are also
impacted by ships being taken out-of-service for planned maintenance, which we
schedule during non-peak seasons. 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 cost of fuel and increases in other related
costs are reasonably likely to continue to impact our profitability in both
the short and long-term.
• We believe inflation and interest rates are reasonably likely to
continue to impact our profitability.
• We believe a potential global minimum tax as well as any other
changes in domestic and international tax rules and regulations could have a
material impact on our effective tax rate.
• 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 have a material negative impact on our
future financial results. The full impact of climate change to our business is
not yet known.
Statistical Information
Three Months Ended Nine Months Ended
August 31,
August 31,
2023 2022 2023 2022
Passenger Cruise Days ("PCDs") (in millions) (a) 25.8 17.7 67.8 36.4
Available Lower Berth Days ("ALBDs") (in millions) (b) 23.7 21.0 68.1 51.0
Occupancy percentage (c) 109% 84% 100% 71%
Passengers carried (in millions) 3.6 2.6 9.3 5.2
Fuel consumption in metric tons (in millions) 0.7 0.7 2.2 1.9
Fuel consumption in metric tons per thousand ALBDs 31.1 33.4 32.3 37.2
Fuel cost per metric ton consumed $636 $958 $681 $836
Currencies (USD to 1)
AUD $0.66 $0.70 $0.67 $0.71
CAD $0.75 $0.78 $0.74 $0.78
EUR $1.09 $1.03 $1.08 $1.08
GBP $1.27 $1.21 $1.24 $1.28
Notes to Statistical Information
(a) PCD represents the number of cruise passengers on a voyage multiplied
by the number of revenue-producing ship operating days for that voyage.
(b) ALBD is a standard measure of passenger capacity for the period that
we use to approximate rate and capacity variances, based on consistently
applied formulas that we use to perform analyses to determine the main
non-capacity driven factors that cause our cruise revenues and expenses to
vary. ALBDs assume that each cabin we offer for sale accommodates two
passengers and is computed by multiplying passenger capacity by
revenue-producing ship operating days in the period.
(c) Occupancy, in accordance with cruise industry practice, is calculated
using a numerator of PCDs and a denominator of ALBDs, which assumes two
passengers per cabin even though some cabins can accommodate three or more
passengers. Percentages in excess of 100% indicate that on average more than
two passengers occupied some cabins.
Results of Operations
Consolidated
Three Months Ended Nine Months Ended
August 31,
August 31,
(in millions) 2023 2022 Change 2023 2022 Change
Revenues
Passenger ticket $4,546 $2,595 $1,951 $10,557 $4,753 $5,804
Onboard and other 2,308 1,711 597 5,640 3,577 2,063
6,854 4,305 2,548 16,197 8,329 7,868
Operating Costs and Expenses
Commissions, transportation and other 823 565 258 2,097 1,141 956
Onboard and other 752 537 215 1,785 1,060 725
Payroll and related 585 563 22 1,768 1,601 167
Fuel 468 668 (199) 1,492 1,577 (86)
Food 364 259 105 1,000 586 414
Ship and other impairments - - - - 8 (8)
Other operating 928 787 141 2,546 2,118 428
Cruise and tour operating expenses 3,921 3,379 542 10,688 8,092 2,596
Selling and administrative 713 625 89 2,162 1,774 388
Depreciation and amortization 596 581 15 1,774 1,707 67
5,230 4,585 645 14,624 11,573 3,052
Operating Income (Loss) 1,624 (279) 1,903 1,572 (3,244) 4,816
Nonoperating Income (Expense)
Interest income 59 24 35 183 34 150
Interest expense, net of capitalized interest (518) (422) (96) (1,600) (1,161) (439)
Debt extinguishment and modification costs (81) - (81) (112) - (112)
Other income (expense), net (19) (81) 62 (67) (108) 41
(559) (479) (80) (1,595) (1,235) (360)
Income (Loss) Before Income Taxes $1,065 $(759) $1,823 $(23) $(4,478) $4,456
NAA
Three Months Ended Nine Months Ended
August 31,
August 31,
(in millions) 2023 2022 Change 2023 2022 Change
Revenues
Passenger ticket $2,963 $1,716 $1,247 $6,896 $3,163 $3,733
Onboard and other 1,603 1,164 439 4,104 2,509 1,595
4,566 2,880 1,686 11,000 5,672 5,328
Operating Costs and Expenses 2,661 2,280 381 7,132 5,335 1,797
Selling and administrative 420 368 52 1,295 1,078 217
Depreciation and amortization 377 358 19 1,115 1,046 69
3,459 3,007 452 9,542 7,460 2,083
Operating Income (Loss) $1,107 $(126) $1,233 $1,458 $(1,787) $3,245
Europe
Three Months Ended Nine Months Ended
August 31,
August 31,
(in millions) 2023 2022 Change 2023 2022 Change
Revenues
Passenger ticket $1,595 $972 $623 $3,699 $1,804 $1,895
Onboard and other 465 294 171 1,120 585 535
2,060 1,266 794 4,819 2,389 2,430
Operating Costs and Expenses 1,124 983 141 3,303 2,529 774
Selling and administrative 199 173 26 634 524 110
Depreciation and amortization 168 172 (4) 506 531 (25)
1,491 1,328 163 4,443 3,585 859
Operating Income (Loss) $569 $(62) $631 $376 $(1,196) $1,572
As a result of the pause in our guest cruise operations, we have a substantial
debt balance and require a significant amount of cash to service our debt. Our
ability to generate cash will be affected by general macroeconomic, financial,
geopolitical, competitive, regulatory and other factors beyond our control.
The full extent of these impacts is uncertain and may be amplified by our
substantial debt balance.
Three Months Ended August 31, 2023 ("2023") Compared to Three Months Ended
August 31, 2022 ("2022")
Revenues
Consolidated
Cruise passenger ticket revenues made up 66% of our total revenues in 2023
while onboard and other revenues made up 34%. Revenues in 2023 increased by
$2.5 billion to $6.9 billion from $4.3 billion in 2022 due to the increase of
ships in service and considerably higher occupancy levels in 2023 as compared
to 2022. Our full fleet was serving guests as of August 31, 2023, compared to
93% as of August 31, 2022. ALBDs increased to 23.7 million in 2023 as compared
to 21.0 million in 2022. Occupancy for 2023 was 109% compared to 84% in 2022.
NAA Segment
Cruise passenger ticket revenues made up 65% of our NAA segment's total
revenues in 2023 while onboard and other cruise revenues made up 35%. NAA
segment revenues in 2023 increased by $1.7 billion to $4.6 billion from $2.9
billion in 2022 due to the increase of ships in service and considerably
higher occupancy levels in 2023 as compared to 2022. Our NAA segment's full
fleet was serving guests as of August 31, 2023, compared to 95% as of August
31, 2022. ALBDs increased to 14.6 million in 2023 as compared to
12.6 million in 2022. Occupancy for 2023 was 111% compared to 92% in 2022.
Europe Segment
Cruise passenger ticket revenues made up 77% of our Europe segment's total
revenues in 2023 while onboard and other cruise revenues made up 23%. Europe
segment revenues in 2023 increased by $0.8 billion to $2.1 billion from $1.3
billion in 2022 due to the increase of ships in service and considerably
higher occupancy levels in 2023 as compared to 2022. Our Europe segment's full
fleet was serving guests as of August 31, 2023, compared to 92% as of August
31, 2022. ALBDs increased to 9.1 million in 2023 as compared to 8.5 million
in 2022. Occupancy for 2023 was 106% compared to 73% in 2022.
Operating Cost and Expenses
Consolidated
Operating costs and expenses increased by $0.5 billion to $3.9 billion in 2023
from $3.4 billion in 2022. These increases were driven by our resumption of
guest cruise operations, an increase in ships in service and considerably
higher occupancy.
Fuel costs decreased by $199 million to $468 million in 2023 from $668 million
in 2022. $238 million of this decrease was caused by lower fuel prices and
changes in fuel mix of $322 per metric ton consumed in 2023 compared to 2022,
partially offset by higher fuel consumption due to the resumption of guest
cruise operations.
Selling and administrative expenses increased by $89 million to $713 million
in 2023 from $625 million in 2022. The increase was principally driven by
increases in administrative expenses incurred as part of our resumption of
guest cruise operations, which includes an increase in incentive compensation
reflecting expected improvements in the company's current and long-term
performance.
The drivers in changes in costs and expenses for our NAA and Europe segments
are the same as those described for our consolidated results.
Nonoperating Income (Expense)
Interest expense, net of capitalized interest, increased by $96 million to
$518 million in 2023 from $422 million in 2022. The increase was caused by a
higher average interest rate in 2023 compared to 2022.
Debt extinguishment and modification costs were $81 million in 2023 as a
result of debt transactions during the quarter, where there were none in 2022.
Nine Months Ended August 31, 2023 ("2023") Compared to Nine Months Ended
August 31, 2022 ("2022")
Revenues
Consolidated
Cruise passenger ticket revenues made up 65% of our total revenues in 2023
while onboard and other revenues made up 35%. Revenues in 2023 increased by
$7.9 billion to $16.2 billion from $8.3 billion in 2022 due to the significant
increase of ships in service and considerably higher occupancy levels in 2023
as compared to 2022. Our full fleet was serving guests as of August 31, 2023,
compared to 93% as of August 31, 2022. ALBDs increased to 68.1 million in 2023
as compared to 51.0 million in 2022. Occupancy for 2023 was 100% compared to
71% in 2022.
NAA Segment
Cruise passenger ticket revenues made up 63% of our NAA segment's total
revenues in 2023 while onboard and other cruise revenues made up 37%. NAA
segment revenues in 2023 increased by $5.3 billion to $11.0 billion from $5.7
billion in 2022 due to the significant increase of ships in service and
considerably higher occupancy levels in 2023 as compared to 2022. Our NAA
segment's full fleet was serving guests as of August 31, 2023, compared to 95%
as of August 31, 2022. ALBDs increased to 42.2 million in 2023 as compared to
31.4 million in 2022. Occupancy for 2023 was 104% compared to 78% in 2022.
Europe Segment
Cruise passenger ticket revenues made up 77% of our Europe segment's total
revenues in 2023 while onboard and other cruise revenues made up 23%. Europe
segment revenues in 2023 increased by $2.4 billion to $4.8 billion from
$2.4 billion in 2022 due to the significant increase of ships in service and
considerably higher occupancy levels in 2023 as compared to 2022. Our Europe
segment's full fleet was serving guests as of August 31, 2023, compared to 92%
as of August 31, 2022. ALBDs increased to 25.9 million in 2023 as compared to
19.6 million in 2022. Occupancy for 2023 was 93% compared to 60% in 2022.
Operating Cost and Expenses
Consolidated
Operating costs and expenses increased by $2.6 billion to $10.7 billion in
2023 from $8.1 billion in 2022. These increases were driven by our resumption
of guest cruise operations, an increase in ships in service and considerably
higher occupancy.
Selling and administrative expenses increased by $0.4 billion to $2.2 billion
in 2023 from $1.8 billion in 2022. The increase was caused by increases in
advertising costs and administrative expenses incurred as part of our
resumption of guest cruise operations, which includes an increase in incentive
compensation reflecting expected improvements in the company's current and
long-term performance.
The drivers in changes in costs and expenses for our NAA and Europe segments
are the same as those described for our consolidated results.
Nonoperating Income (Expense)
Interest expense, net of capitalized interest, increased by $0.4 billion to
$1.6 billion in 2023 from $1.2 billion in 2022. The increase was caused by a
higher average interest rate in 2023 compared to 2022.
Debt extinguishment and modification costs were $112 million in 2023 as a
result of debt transactions during the period, where there were none in 2022.
Liquidity, Financial Condition and Capital Resources
As of August 31, 2023, we had $5.7 billion of liquidity including cash and
cash equivalents and borrowings available under our Revolving Facility. We
will continue to pursue various opportunities to refinance future debt
maturities to reduce interest expense and/or to extend the maturity dates
associated with our existing indebtedness and obtain relevant financial
covenant amendments or waivers, if needed.
We had a working capital deficit of $6.3 billion as of August 31, 2023
compared to a working capital deficit of $3.1 billion as of November 30,
2022. The increase in working capital deficit was caused by a decrease in cash
and cash equivalents and restricted cash and an increase in customer deposits,
partially offset by an increase in prepaid expenses and a decrease in
short-term borrowings as well as the 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 on our balance sheet 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 $6.0 billion and $4.9 billion of customer deposits as
of August 31, 2023 and November 30, 2022, respectively. 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," of the consolidated financial statements for
additional discussion regarding our liquidity.
Sources and Uses of Cash
Operating Activities
Our business provided $3.4 billion of net cash flows from operating activities
during the nine months ended August 31, 2023, an increase of $4.9 billion,
compared to $1.6 billion used for the same period in 2022. This was driven by
a decrease in the net loss compared to the same period in 2022 and other
working capital changes.
Investing Activities
During the nine months ended August 31, 2023, net cash used in investing
activities was $2.3 billion. This was driven by:
• Capital expenditures of $1.6 billion for our ongoing new
shipbuilding program
• Capital expenditures of $991 million for ship improvements and
replacements, information technology and buildings and improvements
• Proceeds from sales of ships of $260 million
During the nine months ended August 31, 2022, net cash used in investing
activities was $3.5 billion. This was driven by:
• 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
Financing Activities
During the nine months ended August 31, 2023, net cash used in financing
activities of $4.2 billion was driven by:
• Repayments of $200 million of short term-borrowings
• Repayments of $6.8 billion of long-term debt
• Debt issuance costs of $116 million
• Debt extinguishment costs of $67 million
• Issuances of $3.0 billion of long-term debt
• Proceeds from issuance of $22 million of Carnival Corporation
common stock and purchases of $20 million of Carnival plc ordinary shares
under our Stock Swap Program
During the nine months ended August 31, 2022, net cash provided by financing
activities of $3.2 billion was caused by:
• Net repayments of short-term borrowings of $114 million
• Repayments of $1.1 billion of long-term debt
• Debt issuance costs of $116 million
• Issuances of $3.3 billion of long-term debt
• Net proceeds of $1.2 billion from the public offering of
Carnival Corporation common stock
• Proceeds from issuance of $89 million of Carnival Corporation
common stock and purchases of $82 million of Carnival plc ordinary shares
under our Stock Swap Program
Funding Sources
As of August 31, 2023, we had $5.7 billion of liquidity including
$2.8 billion of cash and cash equivalents and $2.9 billion of borrowings
available under our Revolving Facility, which matures in August 2024. In
February 2023, Carnival Holdings II entered into the New Revolving Facility,
which may be utilized beginning in August 2024, at which date it will replace
our Revolving Facility. Refer to Note 3 - "Debt" of the consolidated financial
statements for additional discussion. In addition, we had $3.0 billion of
undrawn export credit facilities to fund ship deliveries planned through 2025.
We plan to use existing liquidity and future cash flows from operations to
fund our cash requirements including capital expenditures not funded by our
export credit facilities. We seek to manage our credit risk exposures,
including counterparty nonperformance associated with our cash and cash
equivalents, and future financing facilities by conducting business with
well-established financial institutions, and export credit agencies and
diversifying our counterparties.
(in billions) 2023 2024 2025
Future export credit facilities at August 31, 2023 $- $2.2 $0.7
Our export credit facilities contain various financial covenants as described
in Note 3 - "Debt". At August 31, 2023, 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. There have been no
material changes to our exposure to market risks since the date of our 2022
Form 10-K.
Interest Rate Risks
The composition of our debt, interest rate swaps and cross currency swaps, was
as follows:
August 31, 2023
Fixed rate 63%
EUR fixed rate 17%
Floating rate 5%
EUR floating rate 15%
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, 2023, that they
are effective to provide 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, 2023 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 "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). On May 31, 2023, we received a summons from the Australia
Federal Prosecution Service indicating that formal charges are being pursued
against Princess Cruises and the Captain of the vessel. 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 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
A. Stock Swap Program
Our Stock Swap Program 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 as of 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, 2023, 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 17.2 million shares
of Carnival Corporation common stock and repurchased the same amount of
Carnival plc ordinary shares, resulting in net proceeds of $29 million. No
shares of Carnival Corporation common stock or Carnival plc ordinary shares
were repurchased during the three months ended August 31, 2023 outside of the
Stock Swap Program.
Item 5. Other Information.
C. Trading Plans
During the quarter ended August 31, 2023, no director or Section 16 officer
adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1
trading arrangements (in each case, as defined in Item 408(a) of Regulation
S-K).
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