REG - Carnival PLC - Final Results
27/01/2022 18:35
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RNS Number : 9086Z Carnival PLC 27 January 2022
January 27, 2022
RELEASE OF CARNIVAL CORPORATION & PLC JOINT ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED NOVEMBER 30, 2021
Carnival Corporation & plc announced its fourth quarter results of
operations in its earnings release issued on December 20, 2021. Carnival
Corporation & plc is hereby announcing that today it has filed its joint
Annual Report on Form 10-K ("Form 10-K") with the U.S. Securities and Exchange
Commission ("SEC") containing the Carnival Corporation & plc 2021 annual
consolidated financial statements, which reported results are unchanged from
those previously announced on December 20, 2021. The following update on
recent developments is included in the Form 10-K:
Resumption of Guest Cruise Operations
In the face of the global impact of COVID-19, we paused our guest cruise
operations in mid-March 2020. As of January 13, 2022, eight of our nine
brands, or 67% of capacity, had resumed guest cruise operations as part of our
gradual return to service. We expect to have our full fleet back in operation
for our summer season where we historically generate the largest share of our
operating income. Since the beginning of our fiscal year, we have experienced
an impact on bookings for our near-term sailings, including higher
cancellations resulting from an increase in pre-travel positive test results
and challenges in the availability of timely pre-travel tests. In addition, in
the last few weeks we have seen a dampening of the booking activity for the
second half of 2022 relative to 2019. Despite the disruption caused by Omicron
to the airlines and other forms of travel, we expect to be able to
successfully operate over 96% of our previously disclosed available lower
berth days ("ALBD's") in the first quarter of 2022.
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 consolidated financial statements.
The information included in the attached Schedules A, B and C is extracted
from the Form 10-K and has been prepared in accordance with SEC rules and
regulations. The Carnival Corporation & plc consolidated financial
statements contained in the Form 10-K 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
consolidated financial statements as of and for the year ended November 30,
2021
▪ Schedule B contains management's discussion and analysis
("MD&A") of financial conditions and results of operations
▪ Schedule C contains information on Carnival Corporation and
Carnival plc's sales and purchases of their equity securities and use of
proceeds from such sales
MEDIA
CONTACT
INVESTOR RELATIONS CONTACT
Roger
Frizzell
Beth Roberts
001 305 406
7862
001 305 406 4832
The Form 10-K, including the portions extracted for this announcement, is
available for viewing on the SEC website at www.sec.gov under Carnival
Corporation or Carnival plc or the Carnival Corporation & plc website at
www.carnivalcorp.com or www.carnivalplc.com. A copy of the Form 10-K has been
submitted to the National Storage Mechanism and will shortly be available for
inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism. Additional
information can be obtained via Carnival Corporation & plc's website
listed above or by writing to Carnival plc at Carnival House, 100 Harbour
Parade, Southampton, SO15 1ST, United Kingdom.
Carnival Corporation & plc is one of the world's largest leisure travel
companies with a portfolio of nine of the world's leading cruise lines. With
operations in North America, Australia, Europe and Asia, its portfolio
features - Carnival Cruise Line, Princess Cruises, Holland America
Line, P&O Cruises (Australia), Seabourn, Costa Cruises, AIDA Cruises,
P&O Cruises (UK) and Cunard.
Additional information can be found on www.carnivalcorp.com,
www.carnivalsustainability.com, www.carnival.com, www.princess.com,
www.hollandamerica.com, www.pocruises.com.au, www.seabourn.com,
www.costacruise.com, www.aida.de, www.pocruises.com and www.cunard.com
(http://www.cunard.com) .
SCHEDULE A
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in millions, except per share data)
Years Ended November 30,
2021 2020 2019
Revenues
Passenger ticket $1,000 $3,684 $14,104
Onboard and other 908 1,910 6,721
1,908 5,595 20,825
Operating Costs and Expenses
Commissions, transportation and other 269 1,139 2,720
Onboard and other 272 605 2,101
Payroll and related 1,309 1,780 2,249
Fuel 680 823 1,562
Food 187 413 1,083
Ship and other impairments 591 1,967 26
Other operating 1,346 1,518 3,167
4,655 8,245 12,909
Selling and administrative 1,885 1,878 2,480
Depreciation and amortization 2,233 2,241 2,160
Goodwill impairments 226 2,096 -
8,997 14,460 17,549
Operating Income (Loss) (7,089) (8,865) 3,276
Nonoperating Income (Expense)
Interest income 12 18 23
Interest expense, net of capitalized interest (1,601) (895) (206)
Gains (losses) on debt extinguishment, net (670) (459) -
Other income (expense), net (173) (52) (32)
(2,433) (1,388) (215)
Income (Loss) Before Income Taxes (9,522) (10,253) 3,060
Income Tax Benefit (Expense), Net 21 17 (71)
Net Income (Loss) $(9,501) $(10,236) $2,990
Earnings Per Share
Basic $(8.46) $(13.20) $4.34
Diluted $(8.46) $(13.20) $4.32
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
Years Ended November 30,
2021 2020 2019
Net Income (Loss) $(9,501) $(10,236) $2,990
Items Included in Other Comprehensive Income (Loss)
Change in foreign currency translation adjustment (118) 578 (86)
Other 53 51 (31)
Other Comprehensive Income (Loss) (65) 630 (117)
Total Comprehensive Income (Loss) $(9,567) $(9,606) $2,873
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(in millions, except par values)
November 30,
2021 2020
ASSETS
Current Assets
Cash and cash equivalents $8,939 $9,513
Short-term investments 200 -
Trade and other receivables, net 246 273
Inventories 356 335
Prepaid expenses and other 392 443
Total current assets 10,133 10,563
Property and Equipment, Net 38,107 38,073
Operating Lease Right-of-Use Assets 1,333 1,370
Goodwill 579 807
Other Intangibles 1,181 1,186
Other Assets 2,011 1,594
$53,344 $53,593
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $2,790 $3,084
Current portion of long-term debt 1,927 1,742
Current portion of operating lease liabilities 142 151
Accounts payable 797 624
Accrued liabilities and other 1,641 1,144
Customer deposits 3,112 1,940
Total current liabilities 10,408 8,686
Long-Term Debt 28,509 22,130
Long-Term Operating Lease Liabilities 1,239 1,273
Other Long-Term Liabilities 1,043 949
Commitments and Contingencies
Shareholders' Equity
Common stock of Carnival Corporation, $0.01 par value; 1,960 shares 11 11
authorized; 1,116 shares at 2021 and 1,060 shares at 2020 issued
Ordinary shares of Carnival plc, $1.66 par value; 217 shares at 2021 and 2020 361 361
issued
Additional paid-in capital 15,292 13,948
Retained earnings 6,448 16,075
Accumulated other comprehensive income (loss) ("AOCI") (1,501) (1,436)
Treasury stock, 130 shares at 2021 and 2020 of Carnival Corporation and 67 (8,466) (8,404)
shares at 2021 and 60 shares at 2020 of Carnival plc, at cost
Total shareholders' equity 12,144 20,555
$53,344 $53,593
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Years Ended November 30,
2021 2020 2019
OPERATING ACTIVITIES
Net income (loss) $(9,501) $(10,236) $2,990
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities
Depreciation and amortization 2,233 2,241 2,160
Impairments 834 4,063 26
(Gains) losses on debt extinguishment 668 459 -
(Income) loss from equity-method investments 129 20 (15)
Share-based compensation 121 105 46
Amortization of discounts and debt issue costs 172 119 22
Noncash lease expense 140 172 -
Other, net 137 (56) 37
(5,067) (3,114) 5,265
Changes in operating assets and liabilities
Receivables (7) 125 (114)
Inventories (63) 77 79
Prepaid expenses and other (1,070) (209) (254)
Accounts payable 206 (165) 34
Accrued liabilities and other 601 (311) 80
Customer deposits 1,291 (2,703) 387
Net cash provided by (used in) operating activities (4,109) (6,301) 5,475
INVESTING ACTIVITIES
Purchases of property and equipment (3,607) (3,620) (5,429)
Proceeds from sales of ships and other 351 334 26
Purchase of minority interest (90) (81) -
Purchases of short-term investments (2,873) - -
Proceeds from maturity of short-term investments 2,673 - -
Derivative settlements and other, net 3 127 126
Net cash provided by (used in) investing activities (3,543) (3,240) (5,277)
FINANCING ACTIVITIES
Proceeds from (repayments of) short-term borrowings, net (293) 2,852 (605)
Principal repayments of long-term debt (5,956) (1,621) (1,651)
Premium paid on extinguishment of debt (545) - -
Proceeds from issuance of long-term debt 13,042 15,020 3,674
Dividends paid - (689) (1,387)
Purchases of common stock - (12) (603)
Issuance of common stock, net 1,009 3,249 4
Issuance of common stock under the Stock Swap Program 206 - -
Purchase of treasury stock under the Stock Swap Program (188) - -
Debt issue costs and other, net (327) (150) (86)
Net cash provided by (used in) financing activities 6,949 18,650 (655)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (13) 53 (9)
Net increase (decrease) in cash, cash equivalents and restricted cash (715) 9,161 (465)
Cash, cash equivalents and restricted cash at beginning of year 9,692 530 996
Cash, cash equivalents and restricted cash at end of year $8,976 $9,692 $530
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions)
Common Ordinary Additional Retained AOCI Treasury Total
stock shares paid-in earnings stock shareholders'
capital equity
At November 30, 2018 $7 $358 $8,756 $25,066 $(1,949) $(7,795) $24,443
Change in accounting principle (a) - - - (24) - - (24)
Net income (loss) - - - 2,990 - - 2,990
Other comprehensive income (loss) - - - - (117) - (117)
Cash dividends declared - - - (1,379) - - (1,379)
Purchases of treasury stock under the Repurchase Program and other - - 51 - - (599) (548)
At November 30, 2019 7 358 8,807 26,653 (2,066) (8,394) 25,365
Net income (loss) - - - (10,236) - - (10,236)
Other comprehensive income (loss) - - - - 630 - 630
Cash dividends declared - - - (342) - - (342)
Issuance of common stock 2 - 3,247 - - - 3,249
Issuance and repurchase of Convertible Notes (net settled through a registered 2 - 1,798 - - - 1,799
direct offering)
Purchases of treasury stock under the Repurchase Program and other - 2 97 - - (10) 89
At November 30, 2020 11 361 13,948 16,075 (1,436) (8,404) 20,555
Net income (loss) - - - (9,501) - - (9,501)
Other comprehensive income (loss) - - - - (65) - (65)
Issuance of common stock, net - - 1,009 - - - 1,009
Conversion of Convertible Notes - - 15 - - - 15
Purchases and issuances under the Stock Swap program - - 206 - - (188) 19
Issuance of treasury shares for vested share-based awards - - - (126) - 126 -
Share-based compensation and other - - 113 - - - 113
At November 30, 2021 $11 $361 $15,292 $6,448 $(1,501) $(8,466) $12,144
The accompanying notes are an integral part of these consolidated financial
statements.
(a) We adopted the provisions of Revenue from Contracts with
Customers and Derivatives and Hedging on December 1, 2018.
CARNIVAL CORPORATION & PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - General
Description of Business
Carnival Corporation was incorporated in Panama in 1974 and Carnival plc was
incorporated in England and Wales in 2000. Together with their consolidated
subsidiaries, they are referred to collectively in these consolidated
financial statements and elsewhere in this 2021 Annual Report as "Carnival
Corporation & plc," "our," "us" and "we." The consolidated financial
statements include the accounts of Carnival Corporation and Carnival plc and
their respective subsidiaries.
We are a leisure travel company with a portfolio of nine of the world's
leading cruise lines. With operations in North America, Australia, Europe and
Asia, our portfolio features - Carnival Cruise Line, Princess Cruises, Holland
America Line, P&O Cruises (Australia), Seabourn, Costa Cruises, AIDA
Cruises, P&O Cruises (UK) and Cunard.
DLC Arrangement
Carnival Corporation and Carnival plc operate a dual listed company ("DLC")
arrangement, whereby the businesses of Carnival Corporation and Carnival plc
are combined through a number of contracts and provisions in Carnival
Corporation's Articles of Incorporation and By-Laws and Carnival plc's
Articles of Association. The two companies operate as a single economic
enterprise with a single senior executive management team and identical Boards
of Directors, but each has retained its separate legal identity. Each
company's shares are publicly traded on the New York Stock Exchange ("NYSE")
for Carnival Corporation and the London Stock Exchange for Carnival plc. The
Carnival plc American Depositary Shares are traded on the NYSE.
The constitutional documents of each company provide that, on most matters,
the holders of the common equity of both companies effectively vote as a
single body. The Equalization and Governance Agreement between Carnival
Corporation and Carnival plc provides for the equalization of dividends and
liquidation distributions based on an equalization ratio and contains
provisions relating to the governance of the DLC arrangement. Because the
equalization ratio is 1 to 1, one share of Carnival Corporation common stock
and one Carnival plc ordinary share are generally entitled to the same
distributions.
Under deeds of guarantee executed in connection with the DLC arrangement, as
well as stand-alone guarantees executed since that time, each of Carnival
Corporation and Carnival plc have effectively cross guaranteed all
indebtedness and certain other monetary obligations of each other. Once the
written demand is made, the holders of indebtedness or other obligations may
immediately commence an action against the relevant guarantor.
Under the terms of the DLC arrangement, Carnival Corporation and Carnival plc
are permitted to transfer assets between the companies, make loans to or
investments in each other and otherwise enter into intercompany transactions.
In addition, the cash flows and assets of one company are required to be used
to pay the obligations of the other company, if necessary.
Given the DLC arrangement, we believe that providing separate financial
statements for each of Carnival Corporation and Carnival plc would not present
a true and fair view of the economic realities of their operations.
Accordingly, separate financial statements for Carnival Corporation and
Carnival plc have not been presented.
Liquidity and Management's Plans
In the face of the global impact of COVID-19, we paused our guest cruise
operations in mid-March 2020. As of January 13, 2022, eight of our nine
brands, or 67% of capacity, had resumed guest cruise operations as part of our
gradual return to service. The extent of the effects of COVID-19 on our
business are uncertain and will depend on future developments, including, but
not limited to, the duration and continued severity of COVID-19 and the length
of time it takes to return the company to profitability. The ongoing effects
of COVID-19 have had, and will continue to have, a material negative impact on
our financial results and liquidity.
The estimation of our future liquidity requirements includes numerous
assumptions that are subject to various risks and uncertainties. The principal
assumptions used to estimate our future liquidity requirements consist of:
• Expected continued gradual resumption of guest cruise
operations, with the full fleet expected to be back in operation for our
summer season, where we historically generate the largest share of our
operating income
• Expected sustained increase in revenue per passenger cruise day
through a combination of both passenger ticket and onboard revenue as compared
to 2019
• Expected gradual increase in occupancy levels during the
resumption of guest cruise operations, with the return to historical occupancy
levels in 2023
• Expected continued spend to maintain enhanced health and safety
protocols and to support the resumption of guest cruise operations, including
completing the return of crew members to our ships
• Maintaining collateral and reserves at reasonable levels
In addition, we make certain assumptions about new ship deliveries,
improvements and disposals, and consider the future export credit financings
that are associated with the ship deliveries.
We cannot make assurances that our assumptions used to estimate our liquidity
requirements may not change because we have never previously experienced a
complete cessation and subsequent gradual resumption of our guest cruise
operations, and as a consequence, our ability to be predictive is uncertain.
In addition, the magnitude and duration of the global pandemic are uncertain.
We have made reasonable estimates and judgments of the impact of COVID-19
within our consolidated financial statements and there may be changes to those
estimates in future periods. We have taken actions to improve our liquidity,
including completing various capital market transactions, capital expenditure
and operating expense reductions and accelerating the removal of certain ships
from our fleet. In addition, we expect to continue to pursue refinancing
opportunities to reduce interest expense and extend maturities.
Based on these actions and our assumptions regarding the impact of COVID-19,
considering our $9.4 billion of liquidity including cash, short-term
investments and borrowings available under our revolving facility at November
30, 2021, as well as our expected continued gradual return to service, we have
concluded that we have sufficient liquidity to satisfy our obligations for at
least the next twelve months.
NOTE 2 - Summary of Significant Accounting Policies
Basis of Presentation
We consolidate entities over which we have control, as typically evidenced by
a voting control of greater than 50% or for which we are the primary
beneficiary, whereby we have the power to direct the most significant
activities and the obligation to absorb significant losses or receive
significant benefits from the entity. We do not separately present our
noncontrolling interests in the consolidated financial statements since the
amounts are immaterial. For affiliates we do not control but where significant
influence over financial and operating policies exists, as typically evidenced
by a voting control of 20% to 50%, the investment is accounted for using the
equity method.
For 2019, we reclassified $390 million from tour and other revenues to
onboard and other revenues as well as $268 million from tour and other costs
and expenses to other operating cost and expenses in order to conform to the
current year presentation.
Preparation of Financial Statements
The preparation of our 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 in our consolidated financial
statements. The full extent to which the effects of COVID-19 will directly or
indirectly impact our business, operations, results of operations and
financial condition, will depend on future developments that are highly
uncertain including our valuation of goodwill and trademarks, impairment of
ships, collectability of trade and notes receivables, amount of reserve funds
related to customer deposits as well as provisions for pending litigation. We
believe that we have made reasonable estimates and judgments within our
financial statements and there may be changes to those estimates in future
periods. Actual results may differ from the estimates used in preparing our
consolidated financial statements. All material intercompany balances and
transactions are eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include investments with maturities of three months
or less at acquisition which are stated at cost and present insignificant risk
of changes in value.
Short-term Investments
Short-term investments include investments with maturities of three to 12
months which are stated at cost and present insignificant risk of changes in
value.
Inventories
Inventories consist substantially of food, beverages, hotel supplies, fuel and
retail merchandise, which are all carried at the lower of cost or net
realizable value. Cost is determined using the weighted-average or first-in,
first-out methods.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
any impairment charges. Depreciation is computed using the straight-line
method over our estimates of useful lives and residual values, as a percentage
of original cost, as follows:
Years Residual
Values
Ships 30 15%
Ship improvements 3-30 0%
Buildings and improvements 10-40 0%
Computer hardware and software 2-12 0%
Transportation equipment and other 3-20 0%
Leasehold improvements, including port facilities Shorter of the remaining lease term or related asset life (3-30) 0%
The cost of ships under construction includes progress payments for the
construction of new ships, as well as design and engineering fees, capitalized
interest, construction oversight costs and various owner supplied items. We
account for ship improvement costs, including replacements of certain
significant components and parts, by capitalizing those costs we believe add
value to our ships and have a useful life greater than one year and
depreciating those improvements over their estimated remaining useful life. We
have a capital program for the improvement of our ships and for asset
replacements in order to enhance the effectiveness and efficiency of our
operations; to comply with, or exceed, all relevant legal and statutory
requirements related to health, environment, safety, security and
sustainability; and to gain strategic benefits or provide improved product
innovations to our guests.
We capitalize interest as part of the cost of capital projects during their
construction period. The specifically identified or estimated cost and
accumulated depreciation of previously capitalized ship components are
written-off upon retirement, which may result in a loss on disposal that is
also included in other operating expenses. Liquidated damages received from
shipyards as a result of late ship delivery are recorded as reductions to the
cost basis of the ship.
The costs of repairs and maintenance, including minor improvement costs and
expenses related to dry-docks, are charged to expense as incurred and included
in other operating expenses. Dry-dock expenses primarily represent maintenance
activities that are incurred when a ship is taken out-of-service for scheduled
maintenance.
We review our long-lived assets for impairment whenever events or
circumstances indicate that the carrying amounts of these assets may not be
recoverable. Upon the occurrence of a triggering event, the assessment of
possible impairment is based on our ability to recover the carrying value of
our asset from the asset's estimated undiscounted future cash flows. If these
estimated undiscounted future cash flows are less than the carrying value of
the asset, an impairment charge is recognized for the excess, if any, of the
asset's carrying value over its estimated fair value. The lowest level for
which we maintain identifiable cash flows that are independent of the cash
flows of other assets and liabilities is at the individual ship level. A
significant amount of judgment is required in estimating the future cash flows
and fair values of our cruise ships.
Goodwill and Other Intangibles
Goodwill represents the excess of the purchase price over the fair value of
identifiable net assets acquired in a business acquisition. We review our
goodwill for impairment as of July 31 every year, or more frequently if events
or circumstances dictate. All of our goodwill has been allocated to our
reporting units. The impairment review for goodwill allows us to first assess
qualitative factors to determine whether it is necessary to perform the more
detailed quantitative goodwill impairment test. We would perform the
quantitative test if our qualitative assessment determined it is
more-likely-than-not that a reporting unit's estimated fair value is less than
its carrying amount. We may also elect to bypass the qualitative assessment
and proceed directly to the quantitative test for any reporting unit. When
performing the quantitative test, if the estimated fair value of the reporting
unit exceeds its carrying value, no further analysis is required. However, if
the estimated fair value of the reporting unit is less than the carrying
value, goodwill is written down based on the difference between the reporting
unit's carrying amount and its fair value, limited to the amount of goodwill
allocated to the reporting unit. A significant amount of judgment is required
in estimating the fair values of our reporting units.
Trademarks represent substantially all of our other intangibles. Trademarks
are estimated to have an indefinite useful life and are not amortizable but
are reviewed for impairment at least annually and as events or circumstances
dictate. The impairment review for trademarks also allows us to first assess
qualitative factors to determine whether it is necessary to perform a more
detailed quantitative trademark impairment test. We would perform the
quantitative test if our qualitative assessment determined it was
more-likely-than-not that the trademarks are impaired. We may also elect to
bypass the qualitative assessment and proceed directly to the quantitative
test. Our trademarks would be considered impaired if their carrying value
exceeds their estimated fair value.
Debt and Debt Issuance Costs
Debt is recorded at initial fair value, which normally reflects the proceeds
received by us, net of debt issuance costs. Debt is subsequently stated at
amortized cost. Debt issuance costs are generally amortized to interest
expense using the straight-line method, which approximates the effective
interest method, over the term of the debt. Debt issue discounts and premiums
are generally amortized to interest expense using the effective interest rate
method over the term of the debt.
Derivatives and Other Financial Instruments
We utilize derivative and non-derivative financial instruments, such as
foreign currency forwards, options and swaps, foreign currency debt
obligations and foreign currency cash balances, to manage our exposure to
fluctuations in certain foreign currency exchange rates. We use interest rate
swaps primarily to manage our interest rate exposure to achieve a desired
proportion of fixed and floating rate debt. Our policy is to not use
financial instruments for trading or other speculative purposes.
All derivatives are recorded at fair value. If a derivative is designated as a
cash flow hedge, then the change in the fair value of the derivative is
recognized as a component of AOCI until the underlying hedged item is
recognized in earnings or the forecasted transaction is no longer
probable. If a derivative or a non-derivative financial instrument is
designated as a hedge of our net investment in a foreign operation, then
changes in the effective portion of the fair value of the financial instrument
are recognized as a component of AOCI to offset the change in the translated
value of the designated portion of net investment being hedged until the
investment is sold or substantially liquidated, while the impact attributable
to components excluded from the assessment of hedge effectiveness is recorded
in interest expense, net of capitalized interest, on a systematic and rational
basis. For derivatives that do not qualify for hedge accounting treatment, the
change in fair value is recognized in earnings.
We classify the fair value of all our derivative contracts as either current
or long-term, depending on the maturity date of the derivative contract. The
cash flows from derivatives treated as cash flow hedges are classified in our
Consolidated Statements of Cash Flows in the same category as the item being
hedged.
Derivative valuations are based on observable inputs such as interest rates
and commodity price curves, forward currency exchange rates, credit spreads,
maturity dates, volatilities, and cross currency basis spreads. We use the
income approach to value derivatives for foreign currency options and
forwards, interest rate swaps and cross currency swaps using observable market
data for all significant inputs and standard valuation techniques to convert
future amounts to a single present value amount, assuming that participants
are motivated but not compelled to transact.
Foreign Currency Translation and Transactions
These financial statements are presented in U.S. dollars. Each foreign entity
determines its functional currency by reference to its primary economic
environment. Our most significant foreign entities utilize the U.S. dollar,
Euro, Sterling or the Australian dollar as their functional currencies. We
translate the assets and liabilities of our foreign entities that have
functional currencies other than the U.S. dollar at exchange rates in effect
at the balance sheet date. Revenues and expenses of these foreign entities are
translated at the average rate for the period. Equity is translated at
historical rates and the resulting foreign currency translation adjustments
are included as a component of AOCI, which is a separate component of
shareholders' equity. Therefore, the U.S. dollar value of the non-equity
translated items in our consolidated financial statements will fluctuate from
period to period, depending on the changing value of the U.S. dollar versus
these currencies.
We execute transactions in a number of different currencies. At the date that
the transaction is recognized, each asset, liability, revenue, expense, gain
or loss arising from the transaction is measured and recorded in the
functional currency of the recording entity using the exchange rate in effect
at that date. At each balance sheet date, recorded monetary balances
denominated in a currency other than the functional currency are adjusted
using the exchange rate at the balance sheet date, with gains or losses
recorded in other income or other expense, unless such monetary balances have
been designated as hedges of net investments in our foreign entities. The net
gains or losses resulting from foreign currency transactions were not material
in 2021, 2020 and 2019. In addition, the unrealized gains or losses on our
long-term intercompany receivables and payables which are denominated in a
non-functional currency and which are not expected to be repaid in the
foreseeable future are recorded as foreign currency translation adjustments
included as a component of AOCI.
Revenue and Expense Recognition
Guest cruise deposits are initially included in customer deposit liabilities
when received. Customer deposits are subsequently recognized as cruise
revenues, together with revenues from onboard and other activities, and all
associated direct costs and expenses of a voyage are recognized as cruise
costs and expenses, upon completion of voyages with durations of ten nights or
less and on a pro rata basis for voyages in excess of ten nights. The impact
of recognizing these shorter duration cruise revenues and costs and expenses
on a completed voyage basis versus on a pro rata basis is not material.
Certain of our product offerings are bundled and we allocate the value of the
bundled services and goods between passenger ticket revenues and onboard and
other revenues based upon the estimated standalone selling prices of those
goods and services. Guest cancellation fees, when applicable, are recognized
in passenger ticket revenues at the time of cancellation.
Our sales to guests of air and other transportation to and from airports near
the home ports of our ships are included in passenger ticket revenues, and the
related costs of purchasing these services are included in transportation
costs. The proceeds that we collect from the sales of third-party shore
excursions are included in onboard and other revenues and the related costs
are included in onboard and other costs. The amounts collected on behalf of
our onboard concessionaires, net of the amounts remitted to them, are included
in onboard and other revenues as concession revenues. All of these amounts are
recognized on a completed voyage or pro rata basis as discussed above.
Passenger ticket revenues include fees, taxes and charges collected by us from
our guests. A portion of these fees, taxes and charges vary with guest head
counts and are directly imposed on a revenue-producing arrangement. This
portion of the fees, taxes and charges is expensed in commissions,
transportation and other costs when the corresponding revenues are
recognized. These fees, taxes and charges included in commissions,
transportation and other costs were $73 million in 2021, $215 million in 2020
and $659 million in 2019. 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. We have provided flexibility to guests with
bookings on sailings cancelled due to itinerary disruptions by allowing guests
to receive enhanced future cruise credits ("FCC") or elect to receive refunds
in cash. Enhanced FCCs provide the guest with an additional credit value above
the original cash deposit received, and the enhanced value is recognized as a
discount applied to the future cruise in the period used. We have paid and
expect to continue to pay cash refunds of customer deposits with respect to a
portion of cancelled cruises. The amount of cash refunds to be paid may depend
on the continued level of guest acceptance of FCCs and future cruise
cancellations. We record a liability for unexpired FCCs to the extent we have
received and not refunded cash from guests for cancelled bookings. We had
total customer deposits of $3.5 billion and $2.2 billion as of November 30,
2021 and 2020. Refunds payable to guests who have elected cash refunds are
recorded in accounts payable. During 2021 and 2020, we recognized revenues of
$0.1 billion and $3.2 billion related to our customer deposits as of
November 30, 2020 and 2019. Historically, our customer deposits balance
changes due to the seasonal nature of cash collections, the recognition of
revenue, refunds of customer deposits and foreign currency translation.
Contract Receivables
Although we generally require full payment from our customers prior to or
concurrently with their cruise, we grant credit terms to a relatively small
portion of our revenue source. We also have receivables from credit card
merchants for cruise ticket purchases and onboard revenue. These receivables
are included within trade and other receivables, net. We have agreements with
a number of credit card processors that transact customer deposits related to
our cruise vacations. Certain of these agreements allow the credit card
processors to request, under certain circumstances, that we provide a reserve
fund in cash. These reserve funds are included in other assets.
Contract Assets
Contract assets are amounts paid prior to the start of a voyage, which we
record as an asset within prepaid expenses and other and which are
subsequently recognized as commissions, transportation and other at the time
of revenue recognition or at the time of voyage cancellation. We have contract
assets of an immaterial amount as of November 30, 2021 and 2020.
Insurance
We use a combination of insurance and self-insurance to cover a number of
risks including illness and injury to crew, guest injuries, pollution, other
third-party claims in connection with our cruise activities, damage to hull
and machinery for each of our ships, war risks, workers' compensation,
directors' and officers' liability, property damage and general liability for
shoreside third-party claims. We recognize insurance recoverables from
third-party insurers up to the amount of recorded losses at the time the
recovery is probable and upon settlement for amounts in excess of the recorded
losses. All of our insurance policies are subject to coverage limits,
exclusions and deductible levels. The liabilities associated with crew
illnesses and crew and guest injury claims, including all legal costs, are
estimated based on the specific merits of the individual claims or actuarially
estimated based on historical claims experience, loss development factors and
other assumptions.
Selling and Administrative Expenses
Selling expenses include a broad range of advertising, marketing and
promotional expenses. Advertising is charged to expense as incurred, except
for media production costs, which are expensed upon the first airing of the
advertisement. Selling expenses totaled $340 million in 2021, $348 million in
2020 and $728 million in 2019. Administrative expenses represent the costs of
our shoreside support, reservations and other administrative functions, and
include salaries and related benefits, professional fees and building
occupancy costs, which are typically expensed as incurred.
Share-Based Compensation
We recognize compensation expense for all share-based compensation awards
using the fair value method. For time-based share awards, we recognize
compensation cost ratably using the straight-line attribution method over the
expected vesting period or to the retirement eligibility date, if earlier than
the vesting period. For performance-based share awards, we estimate
compensation cost based on the probability of the performance condition being
achieved and recognize expense ratably using the straight-line attribution
method over the expected vesting period. If all or a portion of the
performance condition is not expected to be met, the appropriate amount of
previously recognized compensation expense is reversed and future compensation
expense is adjusted accordingly. For market-based share awards, we recognize
compensation cost ratably using the straight-line attribution method over the
expected vesting period. If the target market conditions are not expected to
be met, compensation expense will still be recognized. We account for
forfeitures as they occur.
Earnings Per Share
Basic earnings per share is computed by dividing net income (loss) by the
weighted-average number of shares outstanding during each period. Diluted
earnings per share is computed by dividing net income (loss) by the
weighted-average number of shares and common stock equivalents outstanding
during each period. For earnings per share purposes, Carnival Corporation
common stock and Carnival plc ordinary shares are considered a single class of
shares since they have equivalent rights.
Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") issued guidance, Debt - Debt
with Conversion and Other Options and Derivative and Hedging - Contracts in
Entity's Own Equity, which simplifies the accounting for convertible
instruments. This guidance eliminates certain models that require separate
accounting for embedded conversion features, in certain cases. Additionally,
among other changes, the guidance eliminates certain of the conditions for
equity classification for contracts in an entity's own equity. The guidance
also requires entities to use the if-converted method for all convertible
instruments in the diluted earnings per share calculation and include the
effect of share settlement for instruments that may be settled in cash or
shares, except for certain liability-classified share-based payment awards.
This guidance is required to be adopted by us in the first quarter of 2023 and
must be applied using either a modified or full retrospective approach. We are
currently evaluating the impact this guidance will have on our consolidated
financial statements.
NOTE 3 - Property and Equipment
November 30,
(in millions) 2021 2020
Ships and ship improvements $50,501 $49,803
Ships under construction 1,536 1,354
Other property and equipment 3,928 3,992
Total property and equipment 55,965 55,148
Less accumulated depreciation (17,858) (17,075)
$38,107 $38,073
Capitalized interest amounted to $83 million in 2021, $66 million in 2020 and
$39 million in 2019.
Sales of Ships
During 2021, we completed the sale of one NAA segment ship, which represents a
passenger-capacity reduction of 670 berths for our NAA segment and one EA
segment ship, which represents a passenger-capacity reduction of 1,180 berths
for our EA segment.
Refer to Note 10 - "Fair Value Measurements, Derivative Instruments and
Hedging Activities and Financial Risks, Nonfinancial Instruments that are
Measured at Fair Value on a Nonrecurring Basis, Impairment of Ships" for
additional discussion.
NOTE 4 - Other Assets
We have a minority interest in Grand Bahama Shipyard Ltd. ("Grand Bahama"), a
ship repair and maintenance facility. Grand Bahama provided services to us of
$11 million in 2021, $38 million in 2020 and $62 million in 2019. As of
November 30, 2021, our investment in Grand Bahama was $47 million, consisting
of $14 million in equity and a loan of $33 million. As of November 30, 2020,
our investment in Grand Bahama was $55 million, consisting of $13 million in
equity and a loan of $42 million.
We have a minority interest in the White Pass & Yukon Route ("White
Pass") that includes port, railroad and retail operations in Skagway, Alaska.
White Pass provided an immaterial amount of services to us in 2021. White Pass
provided no services to us in 2020. As a result of the effects of COVID-19 on
the 2021 Alaska season, we evaluated whether our investment in White Pass was
other than temporarily impaired and performed an impairment assessment. As a
result of our assessment, we recognized an impairment charge of $17 million
for our investment in White Pass in other income (expense), net. As of
November 30, 2021, our investment in White Pass was $76 million, consisting
of $49 million in equity and a loan of $27 million. As of November 30, 2020,
our investment in White Pass was $94 million, consisting of $75 million in
equity and a loan of $19 million.
We have a minority interest in CSSC Carnival Cruise Shipping Limited
("CSSC-Carnival"), a China-based cruise company which will operate its own
fleet designed to serve the Chinese market. As of November 30, 2021 and 2020,
our investment in CSSC-Carnival was $119 million and $140 million. During
2020, we sold to CSSC-Carnival a controlling interest in an entity with full
ownership of two EA segment ships and recognized a related gain of
$107 million, included in other operating expenses in our Consolidated
Statements of Income (Loss). During 2021, we sold to CSSC-Carnival our
remaining $283 million investment in the minority interest of the same
entity. During 2021 and 2020, we made capital contributions to CSSC-Carnival
in the amount of $90 million and $81 million, respectively. For the years
ending November 30, 2021 and 2020, we paid CSSC-Carnival a total of
$55 million for the lease of ships.
Refer to Note 7 - "Contingencies, Other Contingencies" for discussion
regarding credit card processor reserve funds which are also included in the
other assets balance on the Consolidated Balance Sheets.
NOTE 5 - Debt
November 30,
(in millions) Maturity Rate (a) (c) 2021 2020
Secured Debt
Notes
Notes Apr 2023 11.5% $- $4,000
Notes Feb 2026 10.5% 775 775
EUR Notes Feb 2026 10.1% 481 508
Notes Jun 2027 7.9% 192 192
Notes Aug 2027 9.9% 900 900
Notes Aug 2028 4.0% 2,406 -
Loans
EUR fixed rate Jul 2024 - May 2025 5.5 - 6.2% 98 136
EUR floating rate Jun 2025 - Oct 2026 EURIBOR + 2.7 - 3.8% 951 1,026
Floating rate Jun 2025 - Oct 2028 LIBOR + 3.0 - 3.3% 4,137 1,855
Total Secured Debt 9,939 9,393
Unsecured Debt
Revolver
Facility (b) LIBOR + 0.7% 2,790 3,083
Notes
EUR Notes Feb 2021 1.6% - 429
EUR Notes Nov 2022 1.9% 622 658
Convertible Notes Apr 2023 5.8% 522 537
Notes Oct 2023 7.2% 125 125
Notes Mar 2026 7.6% 1,450 1,450
EUR Notes Mar 2026 7.6% 566 598
Notes Mar 2027 5.8% 3,500 -
Notes Jan 2028 6.7% 200 200
Notes May 2029 6.0% 2,000 -
EUR Notes Oct 2029 1.0% 679 718
Loans
EUR fixed rate Mar 2021 - Sep 2021 0.3 - 3.9% - 32
Floating rate Feb 2023 - Sep 2024 LIBOR + 3.8 - 4.5% 590 300
GBP floating rate Feb 2025 GBP LIBOR + 0.9% 467 881
EUR floating rate Dec 2021 - Mar 2026 EURIBOR + 0.3 - 4.8% 1,375 1,860
Export Credit Facilities
Floating rate Feb 2022 - Dec 2031 LIBOR + 0.5 - 1.5% 1,363 1,138
EUR floating rate Feb 2022 - Dec 2032 EURIBOR + 0.2 - 1.6% 2,742 1,891
Fixed rate Aug 2027 - Dec 2032 2.4 - 3.4% 3,488 3,131
EUR fixed rate Feb 2031 - Jul 2033 1.1 - 1.6% 1,551 1,159
Total Unsecured Debt 24,031 18,188
Total Debt 33,970 27,581
Less: unamortized debt issuance costs and discounts (744) (624)
Total Debt, net of unamortized debt issuance costs and discounts 33,226 26,957
Less: short-term borrowings (2,790) (3,084)
Less: current portion of long-term debt (1,927) (1,742)
Long-Term Debt $28,509 $22,130
The scheduled maturities of our debt are as follows:
November 30, 2021
(in millions) Rate (a) (c) 2022 2023 2024 2025 2026 Thereafter
Secured Debt
Notes
Notes 10.5% $- $- $- $- $775 $-
EUR Notes 10.1% - - - - 481 -
Notes 7.9% - - - - - 192
Notes 9.9% - - - - - 900
Notes 4.0% - - - - - 2,406
Loans
EUR fixed rate 5.5 - 6.2% 30 30 30 8 - -
EUR floating rate EURIBOR + 2.7 - 3.8% 20 20 20 878 11 -
Floating rate LIBOR + 3.0 - 3.3% 36 42 42 1,804 23 2,191
Total Secured Debt 86 92 92 2,690 1,290 5,688
Unsecured Debt
Revolver
Facility LIBOR + 0.7% - - 2,790 - - -
Notes
EUR Notes 1.9% 622 - - - - -
Convertible Notes 5.8% - 522 - - - -
Notes 7.2% - 125 - - - -
Notes 7.6% - - - - 1,450 -
EUR Notes 7.6% - - - - 566 -
Notes 5.8% - - - - - 3,500
Notes 6.7% - - - - - 200
Notes 6.0% - - - - - 2,000
EUR Notes 1.0% - - - - - 679
Loans
Floating rate LIBOR + 3.8 - 4.5% - 290 300 - - -
GBP floating rate GBP LIBOR + 0.9% - - 93 374 - -
EUR floating rate EURIBOR + 0.3 - 4.8% 413 490 189 189 94 -
Export Credit Facilities
Floating rate LIBOR + 0.5 - 1.5% 202 246 246 186 163 406
EUR floating rate EURIBOR + 0.2 - 1.6% 269 468 441 364 317 952
Fixed rate 2.4 - 3.4% 260 387 387 387 387 1,596
EUR fixed rate 1.1 - 1.6% 74 144 144 144 144 832
Total Unsecured Debt 1,840 2,673 4,590 1,642 3,120 10,165
Total Debt $1,927 $2,765 $4,682 $4,332 $4,411 $15,854
(a) Substantially all of our variable debt has a 0.0% to 0.75% floor.
(b) Amounts outstanding under our $1.7 billion, €1.0 billion and
£0.2 billion multi-currency revolving credit facility (the "Revolving
Facility") were drawn in 2020 for an initial six-month term. We may continue
to re-borrow or otherwise utilize available amounts under the Revolving
Facility through August 2024, subject to satisfaction of the conditions in the
facility. We had $0.2 billion available for borrowing under our Revolving
Facility as of November 30, 2021. The Revolving Facility also includes an
emissions linked margin adjustment whereby, after the initial applicable
margin is set per the margin pricing grid, the margin may be adjusted based on
performance in achieving certain agreed annual carbon emissions goals. We are
required to pay a commitment fee on any unutilized portion.
(c) The above debt tables do not include the impact of our foreign
currency and interest rate swaps. The interest rates on some of our debt, and
in the case of our Revolving Facility, fluctuate based on the applicable
rating of senior unsecured long-term securities of Carnival Corporation or
Carnival plc.
Secured Debt
Our secured debt is secured on a first-priority basis by collateral, which
includes vessels and material intellectual property with a net book value of
approximately $25.6 billion as of November 30, 2021 and certain other assets.
Repricing of 2025 Secured Term Loan
In June 2021, we entered into an amendment to reprice our $2.8 billion 2025
Secured Term Loan (the "2025 Secured Term Loan"). The amended U.S. dollar
tranche bears interest at a rate per annum equal to LIBOR (with a 0.75% floor)
plus 3%. The amended euro tranche bears interest at a rate per annum equal to
EURIBOR (with a 0% floor) plus 3.75%.
2028 Senior Secured Notes
In July 2021, we issued $2.4 billion aggregate principal amount of 4%
first-priority senior secured notes due in 2028 (the "2028 Senior Secured
Notes"). We used the net proceeds from the issuance to purchase $2.0 billion
aggregate principal amount of the 2023 Senior Secured Notes and to pay accrued
interest on such notes and related fees and expenses. The 2028 Senior Secured
Notes mature on August 1, 2028.
2028 Senior Secured Term Loan
In October 2021, we borrowed an aggregate principal amount of $2.3 billion
under a new term loan. We used the net proceeds from this borrowing to redeem
the $2.0 billion outstanding aggregate principal amount of the 2023 Senior
Secured Notes and to pay accrued interest on such notes and related fees and
expenses. Borrowings under the new term loan bear interest at a rate per annum
equal to LIBOR (with a 0.75% floor) plus 3.25% and mature on October 18, 2028.
Unsecured Debt
2027 Senior Unsecured Notes
In February 2021, we issued an aggregate principal amount of $3.5 billion
senior unsecured notes that mature on March 1, 2027
(the "2027 Senior Unsecured Notes"). The 2027 Senior Unsecured Notes bear
interest at a rate of 5.75% per year.
2029 Senior Unsecured Notes
In November 2021, we issued an aggregate principal amount of $2.0 billion
senior unsecured notes that mature on May 1, 2029 (the "2029 Senior Unsecured
Notes"), intended to refinance various 2022 and other debt maturities. The
2029 Senior Unsecured Notes bear interest at a rate of 6% per year and are
callable beginning November 1, 2024.
Export Credit Facility Borrowing
In December 2020, we borrowed $1.5 billion under export credit facilities due
in semi-annual installments through 2033.
In July 2021, we borrowed $544 million under an export credit facility due in
semi-annual installments through 2033.
Debt Holidays
In 2021, we amended all of our export credit facilities to defer approximately
$1.0 billion of principal payments that would otherwise have been due over a
one year period commencing April 1, 2021 until March 31, 2022, with repayments
to be made over the following five years. The cumulative deferred principal
amount of the debt holiday amendments, inclusive of the amendments entered
into in 2020, is approximately $1.7 billion. In addition, these amendments
aligned the financial covenants of all our export credit facilities with our
other facilities.
Convertible Notes
In 2020, we issued $2.0 billion aggregate principal amount of 5.75%
convertible senior notes due 2023 (the "Convertible Notes"). The Convertible
Notes mature on April 1, 2023, unless earlier repurchased or redeemed by us or
earlier converted in accordance with their terms prior to the maturity date.
Since April 2020, we have had repurchases and conversions of convertible debt
as a result of which the principal amount of debt decreased by $1.5 billion.
The Convertible Notes are convertible by holders, subject to the conditions
described within the indenture that governs the Convertible Notes, into cash,
shares of Carnival Corporation common stock, or a combination thereof, at our
election. The Convertible Notes have an initial conversion rate of 100 shares
of Carnival Corporation common stock per $1,000 principal amount of the
Convertible Notes, equivalent to an initial conversion price of $10 per share
of common stock. The initial conversion price is subject to certain
anti-dilutive adjustments and may also increase if the Convertible Notes are
converted in connection with a tax redemption or certain corporate events. As
of November 30, 2021, a condition allowing holders of the Convertible Notes to
convert has been met and therefore the Convertible Notes are convertible.
Refer to Note 15 - "Supplemental Cash Flow Information" for additional detail
on transactions related to the Convertible Notes.
We may redeem the Convertible Notes, in whole but not in part, at any time on
or prior to December 31, 2022 at a redemption price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest to the redemption
date, if we or any guarantor would have to pay any additional amounts on the
Convertible Notes due to a change in tax laws, regulations or rulings or a
change in the official application, administration or interpretation thereof.
We account for the Convertible Notes as separate liability and equity
components. We determined the carrying amount of the liability component as
the present value of its cash flows.
The carrying amount of the equity component representing the conversion option
was $286 million on the date of issuance and was calculated by deducting the
carrying value of the liability component from the initial proceeds from the
Convertible Notes. The excess of the principal amount of the Convertible Notes
over the carrying amount of the liability component represents a debt discount
that is amortized to interest expense over the term of the Convertible Notes
under the effective interest rate method using an effective annual interest
rate of 12.9%. The carrying amount of the equity component was reduced to zero
in conjunction with the partial repurchase of Convertible Notes in August 2020
because at the time of repurchase, the fair value of the equity component for
the portion of the Convertible Notes that was repurchased, exceeded the total
amount of the equity component recorded at the time the Convertible Notes were
issued.
The net carrying value of the liability component of the Convertible Notes was
as follows:
November 30,
(in millions) 2021 2020
Principal $522 $537
Less: Unamortized debt discount (45) (76)
$478 $461
The interest expense recognized related to the Convertible Notes was as
follows:
November 30,
(in millions) 2021 2020
Contractual interest expense $31 $58
Amortization of debt discount 29 50
$60 $109
As of November 30, 2021, the if-converted value above par was $398 million on
available shares of 52 million for the Convertible Notes.
Covenant Compliance
Our Revolving Facility, unsecured loans and our export credit facilities, as
of January 13, 2022, contain one or more covenants that require us to:
• Maintain minimum interest coverage (EBITDA to consolidated net
interest charges (the "Interest Coverage Covenant")) at the end of each fiscal
quarter from February 28, 2023, at a ratio of not less than 2.0 to 1.0 for the
February 28, 2023 and May 31, 2023 testing dates, 2.5 to 1.0 for the August
31, 2023 and
November 30, 2023 testing dates, and 3.0 to 1.0 for the February 28, 2024
testing date onwards, or through their
respective maturity dates
• Maintain minimum shareholders' equity of $5.0 billion
• From the November 30, 2021 testing date until the May 31, 2023
testing date, the Debt to Capital Covenant is not to exceed 75%, following
which it will be tested at levels which decline ratably to 65% from the May
31, 2024 testing date onwards
• Maintain minimum liquidity of $1.0 billion through February 29,
2024
• Adhere to certain restrictive covenants through November 30,
2024
• Restrict the granting of guarantees and security interests for
certain of our outstanding debt through November 30,
2024
• Limit the amounts of our secured assets as well as secured and
other indebtedness
At November 30, 2021, we were in compliance with the applicable covenants
under our debt agreements. Generally, if an event of default under any debt
agreement occurs, then, pursuant to cross default acceleration clauses,
substantially all of our outstanding debt and derivative contract payables
could become due, and all debt and derivative contracts could be terminated.
Any financial covenant amendment may lead to increased costs, increased
interest rates, additional restrictive covenants and other available lender
protections that would be applicable.
Carnival Corporation or Carnival plc and certain of our subsidiaries have
guaranteed substantially all of our indebtedness.
NOTE 6 - Commitments
Newbuild capital expenditures as of November 30, 2021:
(in millions)
Year
2022 $4,355
2023 2,576
2024 1,641
2025 987
2026 and thereafter -
$9,560
NOTE 7 - Contingencies
Litigation
We are routinely involved in legal proceedings, claims, disputes, regulatory
matters and governmental inspections or investigations arising in the ordinary
course of or incidental to our business, including those noted below.
Additionally, as a result of the impact of COVID-19, litigation claims,
enforcement actions, regulatory actions and investigations, including, but not
limited to, those arising from personal injury and loss of life, have been and
may, in the future, be asserted against us. We expect many of these claims and
actions, or any settlement of these claims and actions, to be covered by
insurance and historically the maximum amount of our liability, net of any
insurance recoverables, has been limited to our self-insurance retention
levels.
We record provisions in the consolidated financial statements for pending
litigation when we determine that an unfavorable outcome is probable and the
amount of the loss can be reasonably estimated.
Legal proceedings and government investigations are subject to inherent
uncertainties, and unfavorable rulings or other events could occur.
Unfavorable resolutions could involve substantial monetary damages. In
addition, in matters for which conduct remedies are sought, unfavorable
resolutions could include an injunction or other order prohibiting us from
selling one or more products at all or in particular ways, precluding
particular business practices or requiring other remedies. An unfavorable
outcome might result in a material adverse impact on our business, results of
operations, financial position or liquidity.
As previously disclosed, on May 2, 2019, two lawsuits were filed against
Carnival Corporation in the U.S. District Court for the Southern District of
Florida under Title III of the Cuban Liberty and Democratic Solidarity Act,
also known as the Helms-Burton Act, alleging that Carnival Corporation
"trafficked" in confiscated Cuban property when certain ships docked at
certain ports in Cuba, and that this alleged "trafficking" entitles the
plaintiffs to treble damages. In the matter filed by Havana Docks Corporation,
on January 12, 2022, the court continued the trial date to May 23, 2022.
Motions for summary judgment have been filed and hearings were concluded on
January 18, 2022. In the matter filed by Javier Bengochea, on October 4, 2021,
the U.S. Court of Appeals for the Eleventh Circuit Court heard oral arguments
and on December 20, 2021, the court issued an order inviting an amicus brief
from the U.S. government on several issues involved in the appeal. We continue
to believe we have a meritorious defense to these actions and we believe that
any liability which may arise as a result of these actions will not have a
material impact on our consolidated financial statements.
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 Middle District of Florida seeking declaratory relief that DeCurtis
is not infringing on several of Carnival Corporation's patents in relation to
its OCEAN Medallion systems and technology. The action also raises certain
monopolization claims under The Sherman Antitrust Act of 1890, unfair
competition and tortious interference, and seeks declaratory judgment that
certain Carnival Corporation patents are unenforceable. DeCurtis seeks
damages, including its fees and costs, and seeks declarations that it is not
infringing and/or that Carnival Corporation's patents are unenforceable. On
April 10, 2020, Carnival Corporation filed an action against DeCurtis in the
Southern District of Florida for breach of contract, trade secrets violations
and patent infringement. Carnival Corporation seeks damages, including its
fees and costs, as well as an order permanently enjoining DeCurtis from
engaging in such activities. These two cases have now been consolidated in the
Southern District of Florida. The parties' motions to dismiss in both actions
have been granted in part and denied in part. Answers have been filed by both
parties. We believe the ultimate outcome will not have a material impact on
our consolidated financial statements. Additionally, on April 8, 2021,
DeCurtis filed challenges to several of Carnival Corporation's patents with
the U.S. Patent and Trademark Office, seeking to invalidate certain patents on
the basis of alleged prior art, overbreadth of the patents, and obviousness of
the technologies. On October 12, 2021 a ruling was issued upholding Carnival
Corporation's patents, therefore bringing this separate matter to a close.
Contingent Obligations - Indemnifications
Some of the debt contracts we enter into include indemnification provisions
obligating us to make payments to the counterparty if certain events occur.
These contingencies generally relate to changes in taxes or changes in laws
which increase the lender's costs. There are no stated or notional amounts
included in the indemnification clauses, and we are not able to estimate the
maximum potential amount of future payments, if any, under these
indemnification clauses.
Other Contingencies
We have agreements with a number of credit card processors that transact
customer deposits related to our cruise vacations. Certain of these agreements
allow the credit card processors to request, under certain circumstances, that
we provide a reserve fund in cash. Although the agreements vary, these
requirements may generally be satisfied either through a withheld percentage
of customer payments or providing cash funds directly to the credit card
processor. As of November 30, 2021 and 2020, we had $1.1 billion and
$0.4 billion, respectively, in reserve funds related to our customer deposits
withheld to satisfy these requirements which are included in other assets. We
continue to expect to provide reserve funds under these agreements.
Additionally, as of November 30, 2021, we had $30 million of cash collateral
in escrow which is included within other assets. As of November 30, 2020, we
had $166 million of cash collateral in escrow of which $136 million was
included within prepaid expenses and other.
We have and may continue to be impacted by breaches in data security and
lapses in data privacy, which occur from time to time. These can vary in scope
and intent from inadvertent events to malicious motivated attacks.
We detected ransomware attacks in August 2020 and December 2020 which resulted
in unauthorized access to our information technology systems. We engaged a
major cybersecurity firm to investigate these matters and notified law
enforcement and regulators of these incidents. For the August 2020 event, the
investigation, communication and reporting phases are complete. We determined
that the unauthorized third-party gained access to certain personal
information relating to some guests, employees and crew for some of our
operations. For the December 2020 event, the investigation and remediation
phases are in process. Regulators were notified, and several, including the
primary regulatory authority in the European Union, have closed their files on
this matter.
We have been contacted by various regulatory agencies regarding these and
other cyber incidents. The New York Department of Financial Services ("NY
DFS") has notified us of their intent to commence proceedings seeking
penalties if settlement cannot be reached in advance of litigation. To date,
we have not been able to reach an agreement with NY DFS. In addition, State
Attorneys General from a number of states have completed their investigation
of a data security event announced in March 2020, and the Company is currently
negotiating a settlement with the relevant State Attorneys General.
We continue to work with regulators regarding cyber incidents we have
experienced. We have incurred legal and other costs in connection with cyber
incidents that have impacted us. While at this time we do not believe that
these incidents will have a material adverse effect on our business,
operations or financial results, no assurances can be given about the future
and we may be subject to future litigation, attacks or incidents that could
have such a material adverse effect.
We are subject to a court-ordered environmental compliance plan supervised by
the U.S. District Court for the Southern District of Florida, which is
operative until April 2022 and subjects our operations to additional review
and other obligations. Failure to comply with the requirements of this
environmental compliance plan or other special conditions of probation could
result in fines, which the court has imposed in the past, and restrictions on
our operations.
COVID-19 Matters
Private Actions
We have been named in a number of individual actions related to COVID-19.
Private parties have brought approximately 82 lawsuits as of January 13, 2022
in several U.S. federal and state courts as well as in France, Italy and
Brazil. These actions include tort claims based on a variety of theories,
including negligence and failure to warn. The plaintiffs in these actions
allege a variety of injuries: some plaintiffs confined their claim to
emotional distress, while others allege injuries arising from testing positive
for COVID-19. A smaller number of actions include wrongful death claims. As of
January 13, 2022, eight of these individual actions have now been dismissed or
settled. These actions were settled for immaterial amounts.
Additionally, as of January 13, 2022, ten purported class actions have been
brought by former guests from Ruby Princess, Diamond Princess, Grand Princess,
Coral Princess, Costa Luminosa or Zaandam in several U.S. federal courts and
in the Federal Court of Australia. These actions include tort claims based on
a variety of theories, including negligence, gross negligence and failure to
warn, physical injuries and severe emotional distress associated with being
exposed to and/or contracting COVID-19 onboard. As of January 13, 2022, five
of these class actions have either been settled individually or had their
class allegations dismissed by the courts. These actions were settled for
immaterial amounts.
All COVID-19 matters seek monetary damages and most seek additional punitive
damages in unspecified amounts.
As previously disclosed, on December 15, 2020, a consolidated class action
with lead plaintiffs, the New England Carpenters Pension and Guaranteed
Annuity Fund and the Massachusetts Laborers' Pension and Annuity Fund was
filed in the U.S. District Court for the Southern District of Florida,
alleging violations of Sections 10(b) and 20(a) of the U.S. Securities and
Exchange Act of 1934 by making misrepresentations and omissions related to
Carnival Corporation's COVID-19 knowledge and response. Plaintiffs seek to
recover unspecified damages and equitable relief for the alleged misstatements
and omissions. The plaintiffs filed a second amended complaint on July 2, 2021
and on August 6, 2021, we filed a motion to dismiss, which has now been fully
briefed.
We continue to take actions to defend against the above claims.
Governmental Inquiries and Investigations
Federal and non-U.S. governmental agencies and officials are investigating or
otherwise seeking information, testimony and/or documents, regarding COVID-19
incidents and related matters. We are investigating these matters internally
and are cooperating with all requests. The investigations could result in the
imposition of civil and criminal penalties in the future.
As previously disclosed, the investigation in New Zealand related to incidents
of COVID-19 on the Ruby Princess has now been closed, concluding we are not in
breach of any rules or regulations.
NOTE 8 - Taxation
A summary of our principal taxes and exemptions in the jurisdictions where our
significant operations are located is as follows:
U.S. Income Tax
We are primarily foreign corporations engaged in the business of operating
cruise ships in international transportation. We also own and operate, among
other businesses, the U.S. hotel and transportation business of Holland
America Princess Alaska Tours through U.S. corporations.
Our North American cruise ship businesses and certain ship-owning subsidiaries
are engaged in a trade or business within the U.S. Depending on its
itinerary, any particular ship may generate income from sources within the
U.S. We believe that our U.S. source income and the income of our ship-owning
subsidiaries, to the extent derived from, or incidental to, the international
operation of a ship or ships, is currently exempt from U.S. federal income and
branch profit taxes.
Our domestic U.S. operations, principally the hotel and transportation
business of Holland America Princess Alaska Tours, are subject to federal and
state income taxation in the U.S.
In general, under Section 883 of the Internal Revenue Code, certain non-U.S.
corporations (such as our North American cruise ship businesses) are not
subject to U.S. federal income tax or branch profits tax on U.S. source income
derived from, or incidental to, the international operation of a ship or
ships. Applicable U.S. Treasury regulations provide in general that a foreign
corporation will qualify for the benefits of Section 883 if, in relevant part,
(i) the foreign country in which the foreign corporation is organized grants
an equivalent exemption to corporations organized in the U.S. in respect of
each category of shipping income for which an exemption is being claimed under
Section 883 (an "equivalent exemption jurisdiction") and (ii) the foreign
corporation meets a defined publicly-traded corporation stock ownership test
(the "publicly-traded test"). Subsidiaries of foreign corporations that are
organized in an equivalent exemption jurisdiction and meet the publicly-traded
test also benefit from Section 883. We believe that Panama is an equivalent
exemption jurisdiction and that Carnival Corporation currently satisfies the
publicly-traded test under the regulations. Accordingly, substantially all of
Carnival Corporation's income is exempt from U.S. federal income and branch
profit taxes.
Regulations under Section 883 list certain activities that the IRS does not
consider to be incidental to the international operation of ships and,
therefore, the income attributable to such activities, to the extent such
income is U.S. source, does not qualify for the Section 883 exemption. Among
the activities identified as not incidental are income from the sale of air
transportation, transfers, shore excursions and pre- and post-cruise land
packages to the extent earned from sources within the U.S.
We believe that the U.S. source transportation income earned by Carnival plc
and its subsidiaries currently qualifies for exemption from U.S. federal
income tax under applicable bilateral U.S. income tax treaties.
Carnival Corporation, Carnival plc and certain subsidiaries are subject to
various U.S. state income taxes generally imposed on each state's portion of
the U.S. source income subject to U.S. federal income taxes. However, the
state of Alaska imposes an income tax on its allocated portion of the total
income of our companies doing business in Alaska and certain of their
subsidiaries.
UK and Australian Income Tax
Cunard, P&O Cruises (UK) and P&O Cruises (Australia) are divisions of
Carnival plc and have elected to enter UK tonnage tax under a rolling ten-year
term and, accordingly, reapply every year. Companies to which the tonnage tax
regime applies pay corporation taxes on profits calculated by reference to the
net tonnage of qualifying ships. UK corporation tax is not chargeable under
the normal UK tax rules on these brands' relevant shipping income. Relevant
shipping income includes income from the operation of qualifying ships and
from shipping related activities.
For a company to be eligible for the regime, it must be subject to UK
corporation tax and, among other matters, operate qualifying ships that are
strategically and commercially managed in the UK. Companies within UK tonnage
tax are also subject to a seafarer training requirement.
Our UK non-shipping activities that do not qualify under the UK tonnage tax
regime remain subject to normal UK corporation tax.
P&O Cruises (Australia) and all of the other cruise ships operated
internationally by Carnival plc for the cruise segment of the Australian
vacation region are exempt from Australian corporation tax by virtue of the
UK/Australian income tax treaty.
Italian and German Income Tax
In 2015, Costa and AIDA re-elected to enter the Italian tonnage tax regime
through 2024 and can reapply for an additional ten-year period beginning in
early 2025. Companies to which the tonnage tax regime applies pay corporation
taxes on shipping profits calculated by reference to the net tonnage of
qualifying ships.
Most of Costa's and AIDA's earnings that are not eligible for taxation under
the Italian tonnage tax regime will be taxed at an effective tax rate of 4.8%
in 2021 and 2020.
Substantially all of AIDA's earnings are exempt from German income taxes by
virtue of the Germany/Italy income tax treaty.
Asian Countries Income Taxes
Substantially all of our brands' income from their international operations in
Asian countries is exempt from income tax by virtue of relevant income tax
treaties.
Other
We recognize income tax provisions for uncertain tax positions, based solely
on their technical merits, when it is more likely than not to be sustained
upon examination by the relevant tax authority. The tax benefit to be
recognized is measured as the largest amount of benefit that is greater than
50% likely of being realized upon ultimate resolution. Based on all known
facts and circumstances and current tax law, we believe that the total amount
of our uncertain income tax position liabilities and related accrued interest
are not material to our financial position. All interest expense related to
income tax liabilities is included in income tax expense.
In addition to or in place of income taxes, virtually all jurisdictions where
our ships call impose taxes, fees and other charges based on guest counts,
ship tonnage, passenger capacity or some other measure, and these taxes, fees
and other charges are included in commissions, transportation and other costs
and other operating expenses.
NOTE 9 - Shareholders' Equity
Share Repurchase Program
Under a share repurchase program effective 2004, we had been authorized to
repurchase Carnival Corporation common stock and Carnival plc ordinary shares
(the "Repurchase Program"). On June 15, 2020, to enhance our liquidity and
comply with restrictions in our recent financing transactions, the Boards of
Directors terminated the Repurchase Program.
Carnival Corporation Carnival plc
(in millions) Number of Shares Repurchased Dollar Amount Paid for Shares Repurchased Number of Shares Repurchased Dollar Amount Paid for Shares Repurchased
2020 - $- 0.2 $10
2019 0.6 $26 12.2 $569
Stock Swap Program
We have a program that allows us to realize a net cash benefit when Carnival
Corporation common stock is trading at a premium to the price of Carnival plc
ordinary shares (the "Stock Swap Program").
During 2021, under the Stock Swap Program, we sold 8.9 million shares of
Carnival Corporation's common stock and repurchased the same amount of
Carnival plc ordinary shares resulting in net proceeds of $19 million, which
were used for general corporate purposes. During 2020 and 2019, there were no
sales or repurchases under the Stock Swap Program.
(in millions, except per share data) Total Number of Shares of Carnival plc Ordinary Shares Purchased (a) Average Price Paid per Share of Carnival plc Ordinary Share Maximum Number of Carnival plc Ordinary Shares That May Yet Be Purchased Under
the Carnival Corporation Stock Swap Program
2021 8.9 $20.99 9.5
(a) No ordinary shares of Carnival plc were purchased outside of publicly
announced plans or programs.
Accumulated Other Comprehensive Income (Loss)
AOCI
November 30,
(in millions) 2021 2020 2019
Cumulative foreign currency translation adjustments, net $(1,501) $(1,382) $(1,961)
Unrecognized pension expenses (45) (95) (88)
Net gains (losses) on cash flow derivative hedges 44 41 (18)
$(1,501) $(1,436) $(2,066)
During 2021, 2020 and 2019, there were $7 million, $3 million and $5 million
of unrecognized pension expenses that were reclassified out of accumulated
other comprehensive loss and were included within payroll and related expenses
and selling and administrative expenses.
Dividends
To enhance our liquidity, as well as comply with the dividend restrictions
contained in our debt agreements, in 2020 we suspended the payment of
dividends on the common stock of Carnival Corporation and the ordinary shares
of Carnival plc. We declared quarterly cash dividends on all of our common
stock and ordinary shares as follows:
Quarters Ended
(in millions, except per share data) February 28/29 May 31 August 31 November 30
2020
Dividends declared per share $0.50 $- $- $-
Dividends declared $342 $- $- $-
2019
Dividends declared per share $0.50 $0.50 $0.50 $0.50
Dividends declared $345 $346 $342 $346
Carnival Corporation's Articles of Incorporation authorize its Boards of
Directors, at its discretion, to issue up to 40 million shares of preferred
stock. At November 30, 2021 and 2020, no Carnival Corporation preferred stock
or Carnival plc preference shares had been issued.
Public Equity Offerings
In April 2020, we completed a public offering of 71.9 million shares of
Carnival Corporation's common stock at a price per share of $8.00, resulting
in net proceeds of $556 million.
In October 2020, we completed our $1.0 billion "at-the-market" ("ATM") equity
offering program that was announced on September 15, 2020, pursuant to which
we sold 67.1 million shares of Carnival Corporation common stock.
In November 2020, we completed our $1.5 billion ATM equity offering program
that was announced on November 10, 2020, pursuant to which we sold
94.5 million shares of Carnival Corporation common stock.
In February 2021, we completed a public offering of 40.5 million shares of
Carnival Corporation's common stock at a price per share of $25.10, resulting
in net proceeds of $996 million.
Since June 2021, we have sold 0.6 million shares of Carnival Corporation
common stock at an average price per share of $21.32, resulting in net
proceeds of $13 million.
NOTE 10 - 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
November 30, 2021 November 30, 2020
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) $19,555 $- $19,013 $- $15,547 $- $16,258 $-
Floating rate debt (a) 14,415 - 13,451 - 12,034 - 11,412 -
Total $33,970 $- $32,463 $- $27,581 $- $27,670 $-
(a) The debt amounts above do not include the impact of
interest rate swaps or debt issuance costs. The fair values of our
publicly-traded notes were based on their unadjusted quoted market prices in
markets that are not sufficiently active to be Level 1 and, accordingly, are
considered Level 2. The fair values of our other debt were estimated based on
current market interest rates being applied to this debt.
Financial Instruments that are Measured at Fair Value on a Recurring Basis
November 30, 2021 November 30, 2020
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash and cash equivalents $8,939 $- $- $9,513 $- $-
Restricted cash 38 - - 179 - -
Short-term investments (a) 200 - - - - -
Derivative financial instruments - 1 - - - -
Total $9,177 $1 $- $9,692 $- $-
Liabilities
Derivative financial instruments $- $13 $- $- $10 $-
Total $- $13 $- $- $10 $-
(a) Short-term investments consist of marketable
securities with original maturities of between three and twelve months.
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring
Basis
Valuation of Goodwill and Trademarks
As a result of the gradual resumption of guest cruise operations and its
effect on our expected future operating cash flows, we performed interim
discounted cash flow analyses for certain reporting units with goodwill as of
May 31, 2021 and determined there was no impairment. As of July 31, 2021, we
performed our annual goodwill and trademark impairments reviews and we
determined there was no impairment for goodwill and trademarks at our annual
test date.
As of November 30, 2021, as a result of the continued gradual resumption of
guest cruise operations, ongoing impacts of COVID-19 and its effect on our
expected future operating cash flows, including changes in estimates related
to the timing of our full return to guest cruise operations and improved
profitability, we performed interim discounted cash flow analyses for our EA
segment reporting units and determined their estimated fair values no longer
exceeded their carrying values. As a result, we recognized goodwill impairment
charges of $226 million and accordingly have no remaining goodwill for those
reporting units.
During 2020, we performed interim discounted cash flow analyses for certain
reporting units with goodwill as of February 29, 2020 and for all reporting
units with goodwill or trademarks as of May 31, 2020 and recognized goodwill
impairment charges of $2.1 billion.
As of July 31, 2020 and 2019, we performed our annual goodwill and trademark
impairment reviews and we determined there was no incremental impairment for
goodwill or trademarks.
The determination of the fair value of our reporting units' goodwill and
trademarks includes numerous estimates and underlying assumptions that are
subject to various risks and uncertainties. The effect of COVID-19 and the
gradual resumption of guest cruise operations have created additional
uncertainty in forecasting the operating results and future cash flows used in
our impairment analyses. We believe that we have made reasonable estimates and
judgments. The assumptions, all of which are considered Level 3 inputs, used
in our cash flow analyses consisted of:
• The timing and pace of our full return to guest cruise
operations
• Weighted-average cost of capital of market participants,
adjusted for the risk attributable to the geographic regions in which these
cruise brands operate ("WACC")
The estimated fair value of the reporting unit with remaining goodwill and of
our trademarks significantly exceeded their carrying value as of the date of
the most recent impairment test. Refer to Note 2 - "Summary of Significant
Accounting Policies, Preparation of Financial Statements" for additional
discussion.
Goodwill
(in millions) NAA Segment EA Segment Total
At November 30, 2019 $1,898 $1,014 $2,912
Impairment charge (1,319) (777) (2,096)
Exchange movements - (9) (9)
At November 30, 2020 579 228 807
Impairment charges - (226) (226)
Exchange movements - (2) (2)
At November 30, 2021 $579 $- $579
Trademarks
(in millions) NAA Segment EA Segment Total
At November 30, 2019 $927 $240 $1,167
Exchange movements - 13 13
At November 30, 2020 927 253 1,180
Exchange movements - (5) (5)
At November 30, 2021 $927 $248 $1,175
Impairments of Ships
We review our long-lived assets for impairment whenever events or
circumstances indicate potential impairment. As a result of the continued
effect of COVID-19 on our business and our updated expectations for certain of
our ships, we determined that these ships had net carrying values that
exceeded their respective estimated undiscounted future cash flows during
2021. We then estimated the fair value of these ships based on their
respective estimated selling values. We then compared these estimated fair
values to the net carrying values and, as a result, we recognized ship
impairment charges as summarized in the table below. We believe we have made
reasonable estimates and judgments as part of our assessments. A change in the
principal assumptions, which influences the determination of fair value, may
result in a need to perform additional impairment reviews. We performed
undiscounted cash flow analyses on certain ships in our fleet throughout 2020
and determined that certain ships had net carrying values that exceeded their
estimated undiscounted future cash flows. The table below summarizes the
impairment charges recognized during 2021 and 2020. We did not recognize ship
impairment charges during 2019. The principal assumption, considered a level 3
input, used in our impairment analyses consisted of the timing of the sale of
ships and estimated proceeds.
The impairment charges summarized in the table below are included in ship and
other impairments in our Consolidated Statements of Income (Loss).
November 30,
(in millions) 2021 2020
NAA Segment $273 $1,474
EA Segment 318 319
Total ship impairments $591 $1,794
Refer to Note 2 - "Summary of Significant Accounting Policies, Preparation of
Financial Statements" for additional discussion.
Derivative Instruments and Hedging Activities
November 30,
(in millions) Balance Sheet Location 2021 2020
Derivative assets
Derivatives designated as hedging instruments
Cross currency swaps (a) Prepaid expenses and other $1 $-
Total derivative assets $1 $-
Derivative liabilities
Derivatives designated as hedging instruments
Cross currency swaps (a) Other long-term liabilities $8 $-
Interest rate swaps (b) Accrued liabilities and other 3 5
Other long-term liabilities 2 5
Total derivative liabilities $13 $10
(a) At November 30, 2021, we had a cross currency swap totaling
$201 million that is designated as a hedge of our net investment in foreign
operations with a euro-denominated functional currency. At November 30, 2021,
this cross currency swap settles through 2028. At November 30, 2020, we had no
cross currency swaps.
(b) We have interest rate swaps designated as cash flow hedges
whereby we receive floating interest rate payments in exchange for making
fixed interest rate payments. These interest rate swap agreements effectively
changed $160 million at November 30, 2021 and $248 million at November 30,
2020 of EURIBOR-based floating rate euro debt to fixed rate euro debt. At
November 30, 2021, these interest rate swaps settle through 2025.
Our derivative contracts include rights of offset with our counterparties. We
have elected to net certain of our derivative assets and liabilities within
counterparties.
November 30, 2021
(in millions) Gross Amounts Gross Amounts Offset in the Balance Sheet Total Net Amounts Presented in the Balance Sheet Gross Amounts not Offset in the Balance Sheet Net Amounts
Assets $1 $- $1 $- $1
Liabilities $13 $- $13 $- $13
November 30, 2020
(in millions) Gross Amounts Gross Amounts Offset in the Balance Sheet Total Net Amounts Presented in the Balance Sheet Gross Amounts not Offset in the Balance Sheet Net Amounts
Assets $- $- $- $- $-
Liabilities $10 $- $10 $- $10
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:
November 30,
(in millions) 2021 2020 2019
Gains (losses) recognized in AOCI:
Cross currency swaps - net investment hedges - included component $(1) $131 $43
Cross currency swaps - net investment hedges - excluded component $(6) $(1) $1
Foreign currency zero cost collars - cash flow hedges $- $1 $(1)
Foreign currency forwards - cash flow hedges $- $53 $-
Interest rate swaps - cash flow hedges $5 $6 $3
Gains (losses) reclassified from AOCI - cash flow hedges:
Interest rate swaps - Interest expense, net of capitalized interest $(5) $(6) $(7)
Foreign currency zero cost collars - Depreciation and amortization $2 $1 $1
Gains (losses) recognized on derivative instruments (amount excluded from
effectiveness testing - net investment hedges)
Cross currency swaps - Interest expense, net of capitalized interest $- $12 $23
The amount of estimated cash flow hedges' unrealized gains and losses that are
expected to be reclassified to earnings in the next twelve months is not
material.
Financial Risk
Fuel Price Risks
We manage our exposure to fuel price risk by managing our consumption of fuel.
Substantially all of our exposure to market risk for changes in fuel prices
relates to the consumption of fuel on our ships. We manage fuel consumption
through ship maintenance practices, modifying our itineraries and implementing
innovative technologies.
Foreign Currency Exchange Rate Risks
Overall Strategy
We manage our exposure to fluctuations in foreign currency exchange rates
through our normal operating and financing activities, including netting
certain exposures to take advantage of any natural offsets and, when
considered appropriate, through the use of derivative and non-derivative
financial instruments. Our primary focus is to monitor our exposure to, and
manage, the economic foreign currency exchange risks faced by our operations
and realized if we exchange one currency for another. We consider hedging
certain of our ship commitments and net investments in foreign operations. The
financial impacts of the hedging instruments we do employ generally offset the
changes in the underlying exposures being hedged.
Operational Currency Risks
Our operations primarily utilize the U.S. dollar, 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 November 30, 2021, we have designated $467 million of our
sterling-denominated debt as non-derivative hedges of our net investments in
foreign operations. In 2021, we recognized $21 million of losses on these
non-derivative net investment hedges in the cumulative translation adjustment
section of other comprehensive income (loss). We also have euro-denominated
debt, including the effect of cross currency swaps, which provides an economic
offset for our operations with euro functional currency.
Newbuild Currency Risks
Our shipbuilding contracts are typically denominated in euros. Our decision to
hedge a non-functional currency ship commitment for our cruise brands is made
on a case-by-case basis, considering the amount and duration of the exposure,
market volatility, economic trends, our overall expected net cash flows by
currency and other offsetting risks. We have used foreign currency
derivative contracts to manage foreign currency exchange rate risk for some of
our ship construction payments.
At November 30, 2021, our remaining newbuild currency exchange rate risk
primarily relates to euro-denominated newbuild contract payments to non-euro
functional currency brands, which represent a total unhedged commitment of
$6.8 billion for newbuilds scheduled to be delivered through 2025.
The cost of shipbuilding orders that we may place in the future that is
denominated in a different currency than our cruise brands' will be affected
by foreign currency exchange rate fluctuations. These foreign currency
exchange rate fluctuations may affect our decision to order new cruise ships.
Interest Rate Risks
We manage our exposure to fluctuations in interest rates through our debt
portfolio management and investment strategies. We evaluate our debt
portfolio to determine whether to make periodic adjustments to the mix of
fixed and floating rate debt through the use of interest rate swaps and the
issuance of new debt.
Concentrations of Credit Risk
As part of our ongoing control procedures, we monitor concentrations of credit
risk associated with financial and other institutions with which we conduct
significant business. We seek to manage these credit risk exposures,
including counterparty nonperformance primarily associated with our cash
equivalents, investments, notes receivables, reserve funds related to customer
deposits, future financing facilities, contingent obligations, derivative
instruments, insurance contracts, long-term ship charters and new ship
progress payment guarantees, by:
• Conducting business with well-established financial
institutions, insurance companies and export credit agencies
• Diversifying our counterparties
• Having guidelines regarding credit ratings and investment
maturities that we follow to help safeguard liquidity and minimize risk
• Generally requiring collateral and/or guarantees to support
notes receivable on significant asset sales, long-term ship charters and new
ship progress payments to shipyards
At November 30, 2021, our exposures under derivative instruments were not
material. We also monitor the creditworthiness of travel agencies and tour
operators in Asia, Australia and Europe, which includes charter-hire
agreements in Asia and credit and debit card providers to which we extend
credit in the normal course of our business. Concentrations of credit risk
associated with trade receivables and other receivables, charter-hire
agreements and contingent obligations are not considered to be material,
principally due to the large number of unrelated accounts, the nature of these
contingent obligations and their short maturities. Normally, we have not
required collateral or other security to support normal credit sales.
Historically, we have not experienced significant credit losses, including
counterparty nonperformance; however, because of the impact COVID-19 is having
on economies, we have experienced, and may continue to experience, an increase
in credit losses.
Our credit exposure also includes contingent obligations related to cash
payments received directly by travel agents and tour operators for cash
collected by them on cruise sales in Australia and most of Europe where we are
obligated to honor our guests' cruise payments made by them to their travel
agents and tour operators regardless of whether we have received these
payments.
NOTE 11 - Leases
On December 1, 2019, the Company adopted the FASB issued guidance, Leases
using the modified retrospective approach. Substantially all of our leases for
which we are the lessee are operating leases of port facilities and real
estate and are included within operating lease right-of-use assets, long-term
operating lease liabilities and current portion of operating lease liabilities
in our Consolidated Balance Sheet as of November 30, 2021.
We have port facilities and real estate lease agreements with lease and
non-lease components, and in such cases, we account for the components as a
single lease component.
We do not recognize lease assets and lease liabilities for any leases with an
original term of less than one year. For some of our port facilities and real
estate lease agreements, we have the option to extend our current lease term
by 1 to 10 years. Generally, we do not include renewal options as a component
of our present value calculation as we are not reasonably certain that we will
exercise the options.
As most of our leases do not have a readily determinable implicit rate, we
estimate the incremental borrowing rate ("IBR") to determine the present value
of lease payments. We apply judgment in estimating the IBR including
considering the term of the lease, the currency in which the lease is
denominated, and the impact of collateral and our credit risk on the rate.
We amortize our lease assets on a straight-line basis over the lease term. The
components of expense were as follows:
November 30,
(in millions) 2021 2020
Operating lease expense $203 $203
Variable lease expense (a) (b) $(100) $(61)
(a) Variable lease expense represents costs associated with our multi-year
preferential berthing agreements which vary based on the number of passengers.
These costs are recorded within commission, transportation and other in our
Consolidated Statements of Income (Loss). Variable and short-term lease costs
related to operating leases, other than the port facilities, were not material
to our consolidated financial statements.
(b) Several of our preferential berthing agreements have force majeure
provisions. We have treated the concessions granted under such provisions as
variable payment adjustments. If our interpretation of the force majeure
provisions is disputed, we could be required to record and make additional
guarantee payments.
The cash outflow for leases was materially consistent with the lease expense
recognized during 2021.
We have multiple agreements, with a total undiscounted minimum commitment of
approximately $321 million, that have been executed but the lease term has
not commenced as of November 30, 2021. These are substantially all related to
our rights to use certain port facilities. The leases are expected to commence
in 2022.
During 2021, we obtained $114 million of right-of-use assets in exchange for
new operating lease liabilities.
Weighted average of the remaining lease terms and weighted average discount
rates are as follows:
November 30, 2021 November 30, 2020
Weighted average remaining lease term - operating leases (in years) 12 13
Weighted average discount rate - operating leases 3.8 % 3.4 %
As of November 30, 2021, maturities of operating lease liabilities were as
follows:
(in millions)
Year
2022 $202
2023 186
2024 167
2025 158
2026 145
Thereafter 880
Total lease payments 1,739
Less: Present value discount (358)
Present value of lease liabilities $1,381
For time charter arrangements where we are the lessor and for transactions
with cruise guests related to the use of cabins, we do not separate lease and
non-lease components. As the non-lease components are the predominant
components in the agreements, we account for these transactions under the
Revenue Recognition guidance.
NOTE 12 - Segment Information
Our operating segments are reported on the same basis as the internally
reported information that is provided to our chief operating decision maker
("CODM"), who is the President and Chief Executive Officer of Carnival
Corporation and Carnival plc. The CODM assesses performance and makes
decisions to allocate resources for Carnival Corporation & plc based upon
review of the results across all of our segments. Our four reportable segments
are comprised of (1) NAA cruise operations, (2) EA cruise operations, (3)
Cruise Support and (4) Tour and Other.
The operating segments within each of our NAA and EA reportable segments have
been aggregated based on the similarity of their economic and other
characteristics. 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.
As of and for the years ended November 30,
(in millions) Revenues Operating costs and expenses Selling and administrative Depreciation and amortization Operating income (loss) Capital expenditures Total assets
2021
NAA $1,108 $2,730 $953 $1,352 $(3,928) $2,397 $25,606
EA 712 1,807 568 728 (2,617) (a) 515 16,088
Cruise Support 42 55 335 129 (477) 660 11,014
Tour and Other 46 63 27 23 (67) 35 637
$1,908 $4,655 $1,885 $2,233 $(7,089) $3,607 $53,344
2020
NAA $3,627 $5,623 $1,066 $1,413 $(5,794) (b) $1,430 $25,257
EA 1,790 2,548 523 672 (2,729) (c) 2,036 16,505
Cruise Support 68 (10) 262 128 (313) 144 11,135
Tour and Other 110 84 27 28 (29) 11 696
$5,595 $8,245 $1,878 $2,241 $(8,865) $3,620 $53,593
2019
NAA $13,612 $8,370 $1,427 $1,364 $2,451 $2,781 $27,102
EA 6,650 4,146 744 645 1,115 2,462 15,473
Cruise Support 173 125 281 115 (347) 143 1,861
Tour and Other 390 268 28 36 56 43 623
$20,825 $12,909 $2,480 $2,160 $3,276 $5,429 $45,058
(a) Includes $226 million of goodwill impairment charges.
(b) Includes $1.3 billion of goodwill impairment charges.
(c) Includes $777 million of goodwill impairment charges.
Revenues by geographic areas, which are based on where our guests are sourced,
were as follows:
Years Ended November 30,
(in millions) 2021 2020 2019
North America $1,066 $3,084 $11,502
Europe 811 1,643 6,318
Australia and Asia 18 687 2,632
Other 14 180 373
$1,908 $5,595 $20,825
Substantially all of our long-lived assets consist of our ships and move
between geographic areas.
NOTE 13 - Compensation Plans and Post-Employment Benefits
Equity Plans
We issue our share-based compensation awards, which at November 30, 2021
included time-based share awards (restricted stock awards and restricted stock
units), performance-based share awards and market-based share awards
(collectively "equity awards"), under the Carnival Corporation and Carnival
plc stock plans. Equity awards are principally granted to management level
employees and members of our Boards of Directors. The plans are administered
by the Compensation Committee which is made up of independent directors who
determine which employees are eligible to participate, the monetary value or
number of shares for which equity awards are to be granted and the amounts
that may be exercised or sold within a specified term. We had an aggregate of
17.6 million shares available for future grant at November 30, 2021. We
fulfill our equity award obligations using shares purchased in the open market
or with unissued or treasury shares. Our equity awards generally vest over a
three-year period, subject to earlier vesting under certain conditions.
Shares Weighted-Average
Grant Date Fair
Value
Outstanding at November 30, 2018 2,280,517 $61.57
Granted 1,357,177 $52.17
Vested (960,693) $53.49
Forfeited (185,625) $56.13
Outstanding at November 30, 2019 2,491,376 $59.97
Granted 9,971,331 $20.72
Vested (1,641,570) $30.68
Forfeited (480,361) $50.96
Outstanding at November 30, 2020 10,340,776 $26.61
Granted 4,453,572 $20.65
Vested (6,618,083) $21.31
Forfeited (729,073) $35.81
Outstanding at November 30, 2021 7,447,192 $26.85
As of November 30, 2021, there was $80 million of total unrecognized
compensation cost related to equity awards, which is expected to be recognized
over a weighted-average period of 1.3 years.
Single-employer Defined Benefit Pension Plans
We maintain several single-employer defined benefit pension plans, which cover
certain of our shipboard and shoreside employees. The U.S. and UK shoreside
employee plans are closed to new membership and are funded at or above the
level required by U.S. or UK regulations. The remaining defined benefit plans
are primarily unfunded. These plans provide pension benefits primarily based
on employee compensation and years of service.
UK Plan (a) All Other Plans
(in millions) 2021 2020 2021 2020
Change in projected benefit obligation:
Projected benefit obligation as of December 1 $303 $299 $280 $259
Past service cost - - 10 20
Interest cost 4 5 4 6
Benefits paid (10) (16) (5) (14)
Actuarial (gain) loss on plans' liabilities (7) 14 (8) 13
Plan curtailments, settlements and other 7 - (19) (4)
Projected benefit obligation as of November 30 298 303 263 280
Change in plan assets:
Fair value of plan assets as of December 1 325 312 17 18
Return on plans' assets 31 23 - 1
Employer contributions 1 6 17 14
Benefits paid (10) (16) (5) (14)
Plan settlements - - (17) (2)
Administrative expenses 8 (1) - -
Fair value of plan assets as of November 30 355 325 12 17
Funded status as of November 30 $56 $22 $(250) $(263)
(a) The P&O Princess Cruises (UK) Pension Scheme ("UK Plan")
The amounts recognized in the Consolidated Balance Sheets for these plans were
as follows:
UK Plan All Other Plans
November 30, November 30,
(in millions) 2021 2020 2021 2020
Other assets $56 $22 $- $-
Accrued liabilities and other $- $- $23 $32
Other long-term liabilities $- $- $227 $231
The accumulated benefit obligation for all defined benefit pension plans was
$553 million and $584 million at November 30, 2021 and 2020, respectively.
Amounts for pension plans with accumulated benefit obligations in excess of
fair value of plan assets are as follows:
November 30,
(in millions) 2021 2020
Projected benefit obligation $263 $280
Accumulated benefit obligation $254 $272
Fair value of plan assets $12 $17
The net benefit cost recognized in the Consolidated Statements of Income
(Loss) were as follows:
UK Plan All Other Plans
November 30, November 30,
(in millions) 2021 2020 2019 2021 2020 2019
Service cost $- $- $- $10 $20 $17
Interest cost 4 5 7 4 6 8
Expected return on plan assets (6) (8) (11) - (1) (1)
Amortization of net loss (gain) - - - 4 4 3
Settlement loss recognized - - - 5 1 -
Net periodic benefit cost $(1) $(3) $(3) $22 $32 $28
The components of net periodic benefit cost other than the service cost
component are included in other income (expense), net in the Consolidated
Statements of Income (Loss).
Weighted average assumptions used to determine the projected benefit
obligation are as follows:
UK Plan All Other Plans
2021 2020 2021 2020
Discount rate 1.6% 1.6% 2.6% 2.2%
Rate of compensation increase 2.7% 2.3% 3.0% 2.8%
Weighted average assumptions used to determine net pension income are as
follows:
UK Plan All Other Plans
2021 2020 2019 2021 2020 2019
Discount rate 1.6% 1.9% 3.0% 2.3% 2.9% 3.5%
Expected return on assets 1.9% 3.0% 4.2% 2.3% 3.0% 3.0%
Rate of compensation increase 2.3% 2.9% 3.4% 3.0% 2.7% 3.0%
The discount rate used to determine the UK Plan's projected benefit obligation
was determined as the single equivalent rate based on applying a yield curve
determined from AA credit rated bonds at the balance sheet date to the cash
flows making up the pension plan's obligations. The discount rate used to
determine the UK Plan's future net periodic benefit cost was determined as the
equivalent rate based on applying each individual spot rate from a yield curve
determined from AA credit rated bonds at the balance sheet date for each
year's cash flow. The UK Plan's expected long-term return on plan assets is
consistent with the long-term investment return target provided to the UK
Plan's fiduciary manager (U.K. government fixed interest bonds (gilts) plus
1.0%) and was 1.8% per annum as of November 30, 2021.
Amounts recognized in AOCI are as follows:
UK Plan All Other Plans
November 30, November 30,
2021 2020 2021 2020
Actuarial losses (gains) recognized in the current year $- $1 $(7) $13
Amortization and settlements included in net periodic benefit cost $- $- $(12) $(8)
We anticipate making contributions of $25 million to the plans during 2022.
Estimated future benefit payments to be made during each of the next five
fiscal years and in the aggregate during the succeeding five fiscal years are
as follows:
(in millions) UK Plan All Other Plans
2022 $7 $24
2023 7 22
2024 7 24
2025 7 27
2026 8 26
2027-2031 41 146
$77 $269
Our investment strategy for our pension plan assets is to maintain a
diversified portfolio of asset classes to produce a sufficient level of
diversification and investment return over the long term. The investment
policy for each plan specifies the type of investment vehicles appropriate for
the plan, asset allocation guidelines, criteria for selection of investment
managers and procedures to monitor overall investment performance, as well as
investment manager performance. As of November 30, 2021 and 2020,
respectively, the All Other Plans were substantially all unfunded.
The fair values of the plan assets of the UK Plan by investment class are as
follows:
November 30,
2021 2020
Equities $62 $55
U.K. government fixed interest bonds (gilts) 283 270
Multiemployer Defined Benefit Pension Plans
We participate in two multiemployer defined benefit pension plans in the UK,
the British Merchant Navy Officers Pension Fund (registration number 10005645)
("MNOPF"), which is divided into two sections, the "New Section" and the "Old
Section" and the British Merchant Navy Ratings Pension Fund (registration
number 10005646) ("MNRPF"). Collectively, we refer to these as "the
multiemployer plans." The multiemployer plans are maintained for the benefit
of the employees of the participating employers who make contributions to the
plans. The risks of participating in these multiemployer plans are different
from single-employer plans, including:
• Contributions made by employers, including us, may be used to
provide benefits to employees of other participating employers
• If any of the participating employers were to withdraw from the
multiemployer plans or fail to make their required contributions, any unfunded
obligations would be the responsibility of the remaining participating
employers.
We are contractually obligated to make all required contributions as
determined by the plans' trustees. All of our multiemployer plans are closed
to new membership and future benefit accrual. The MNOPF Old Section is fully
funded.
We expense our portion of the MNOPF New Section deficit as amounts are
invoiced by, and become due and payable to, the trustees. We accrue and
expense our portion of the MNRPF deficit based on our estimated probable
obligation from the most recent actuarial review. Total expense for the
multiemployer plans was $28 million in 2021, $2 million in 2020 and
$6 million in 2019.
Based on the most recent valuation at March 31, 2018 of the MNOPF New
Section, it was determined that this plan was 98% funded. In 2021, 2020 and
2019, our contributions to the MNOPF New Section did not exceed 5% of total
contributions to the fund. Based on the most recent valuation at March 31,
2020 of the MNRPF, it was determined that this plan was 93% funded. In 2021,
2020 and 2019, our contributions to the MNRPF did not exceed 5% of total
contributions to the fund. It is possible that we will be required to fund and
expense additional amounts for the multiemployer plans in the future; however,
such amounts are not expected to be material to our consolidated financial
statements.
Defined Contribution Plans
We have several defined contribution plans available to most of our employees.
We contribute to these plans based on employee contributions, salary levels
and length of service. Total expense for these plans was $35 million in 2021,
$24 million in 2020 and $41 million in 2019.
NOTE 14 - Earnings Per Share
Years Ended November 30,
(in millions, except per share data) 2021 2020 2019
Net income (loss) for basic and diluted earnings per share $(9,501) $(10,236) $2,990
Weighted-average shares outstanding 1,123 775 690
Dilutive effect of equity plans - - 2
Diluted weighted-average shares outstanding 1,123 775 692
Basic earnings per share $(8.46) $(13.20) $4.34
Diluted earnings per share $(8.46) $(13.20) $4.32
Antidilutive shares excluded from diluted earnings per share computations were
as follows:
November 30,
(in millions) 2021 2020
Equity awards 3 1
Convertible Notes 53 103
Total antidilutive securities 56 104
There were no antidilutive shares excluded from our 2019 diluted earnings per
share computations.
NOTE 15 - Supplemental Cash Flow Information
November 30,
(in millions) 2021 2020
Cash and cash equivalents (Consolidated Balance Sheets) $8,939 $9,513
Restricted cash included in prepaid expenses and other and other assets 38 179
Total cash, cash equivalents and restricted cash (Consolidated Statements of $8,976 $9,692
Cash Flows)
Cash paid for interest, net of capitalized interest, was $1.3 billion in 2021,
$610 million in 2020 and $171 million in 2019. In addition, cash paid for
income taxes, net was not material in 2021 and 2020 and $46 million in 2019.
In connection with the repurchase of the Convertible Notes as part of
registered direct offerings of Carnival Corporation common stock used to
repurchase a portion of the Convertible Notes in August and November 2020, as
an administrative convenience, we permitted the purchasers of 151.2 million
of Carnival Corporation common stock to offset the purchase price payable to
us against our obligation to pay the purchase price for $1.3 billion
aggregate principal amount of the Convertible Notes held by them, which is
reflected as a non-cash transaction for the year ended November 30, 2020.
For the years ended November 30, 2021 and 2019, we did not have borrowings or
repayments of commercial paper with original maturities greater than three
months. For the year ended November 30, 2020, we had borrowings of
$525 million and repayments of $526 million of commercial paper with
original maturities greater than three months.
SCHEDULE B
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Cautionary Note Concerning Factors That May Affect Future Results
Some of the statements, estimates or projections contained in this document
are "forward-looking statements" that involve risks, uncertainties and
assumptions with respect to us, including some statements concerning future
results, operations, outlooks, plans, goals, reputation, cash flows, liquidity
and other events which have not yet occurred. These statements are intended to
qualify for the safe harbors from liability provided by Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements other than statements of historical facts are
statements that could be deemed forward-looking. These statements are based on
current expectations, estimates, forecasts and projections about our business
and the industry in which we operate and the beliefs and assumptions of our
management. We have tried, whenever possible, to identify these statements by
using words like "will," "may," "could," "should," "would," "believe,"
"depends," "expect," "goal," "aspiration," "anticipate," "forecast,"
"project," "future," "intend," "plan," "estimate," "target," "indicate,"
"outlook," and similar expressions of future intent or the negative of such
terms.
Forward-looking statements include those statements that relate to our outlook
and financial position including, but not limited to, statements regarding:
• Pricing • Goodwill, ship and trademark fair values
• Booking levels • Liquidity and credit ratings
• Occupancy • Adjusted earnings per share
• Interest, tax and fuel expenses • Return to guest cruise operations
• Currency exchange rates • Impact of the COVID-19 coronavirus global pandemic on our
financial condition and results of operations
• Estimates of ship depreciable lives and residual values
Because forward-looking statements involve risks and uncertainties, there are
many factors that could cause our actual results, performance or achievements
to differ materially from those expressed or implied by our forward looking
statements. This note contains important cautionary statements of the known
factors that we consider could materially affect the accuracy of our
forward-looking statements and adversely affect our business, results of
operations and financial position. Additionally, many of these risks and
uncertainties are currently amplified by and will continue to be amplified by,
or in the future may be amplified by, COVID-19. It is not possible to predict
or identify all such risks. There may be additional risks that we consider
immaterial or which are unknown. These factors include, but are not limited
to, the following:
• COVID-19 has had, and is expected to continue to have, a
significant impact on our financial condition and operations. The current, and
uncertain future, impact of COVID-19, including its effect on the ability or
desire of people to travel (including on cruises), is expected to continue to
impact our results, operations, outlooks, plans, goals, reputation,
litigation, cash flows, liquidity, and stock price.
• World events impacting the ability or desire of people to travel
have and may continue to lead to a decline in demand for cruises.
• Incidents concerning our ships, guests or the cruise vacation
industry have in the past and may, in the future, impact the satisfaction of
our guests and crew and lead to reputational damage.
• Changes in and non-compliance with laws and regulations under
which we operate, such as those relating to health, environment, safety and
security, data privacy and protection, anti-corruption, economic sanctions,
trade protection and tax have in the past and may, in the future, lead to
litigation, enforcement actions, fines, penalties and reputational damage.
• Factors associated with climate change, including evolving and
increasing regulations, increasing global concern about climate change and the
shift in climate conscious consumerism and stakeholder scrutiny, and
increasing frequency and/or severity of adverse weather conditions could
adversely affect our business.
• Inability to meet or achieve our sustainability related goals,
aspirations, initiatives, and our public statements and disclosures regarding
them, may expose us to risks that may adversely impact our business.
• Breaches in data security and lapses in data privacy as well as
disruptions and other damages to our principal offices, information technology
operations and system networks and failure to keep pace with developments in
technology may adversely impact our business operations, the satisfaction of
our guests and crew and may lead to reputational damage.
• The loss of key employees, our inability to recruit or retain
qualified shoreside and shipboard employees and increased labor costs could
have an adverse effect on our business and results of operations.
• Increases in fuel prices, changes in the types of fuel consumed
and availability of fuel supply may adversely impact our scheduled itineraries
and costs.
• We rely on supply chain vendors who are integral to the
operations of our businesses. These vendors and service providers are also
affected by COVID-19 and may be unable to deliver on their commitments which
could impact our business.
• Fluctuations in foreign currency exchange rates may adversely
impact our financial results.
• Overcapacity and competition in the cruise and land-based
vacation industry may lead to a decline in our cruise sales, pricing and
destination options.
• Inability to implement our shipbuilding programs and ship
repairs, maintenance and refurbishments may adversely impact our business
operations and the satisfaction of our guests.
The ordering of the risk factors set forth above is not intended to reflect
our indication of priority or likelihood.
Forward-looking statements should not be relied upon as a prediction of actual
results. Subject to any continuing obligations under applicable law or any
relevant stock exchange rules, we expressly disclaim any obligation to
disseminate, after the date of this document, any updates or revisions to any
such forward-looking statements to reflect any change in expectations or
events, conditions or circumstances on which any such statements are based.
Forward-looking and other statements in this document may also address our
sustainability progress, plans, and goals (including climate change- and
environmental-related matters). In addition, historical, current, and
forward-looking sustainability-related statements may be based on standards
for measuring progress that are still developing, internal controls and
processes that continue to evolve, and assumptions that are subject to change
in the future.
2021 Executive Overview
During 2021, the Company focused on resuming operations as quickly as
practical in a way that served the best interests of public health, while at
the same time demonstrating prudent stewardship of capital. In addition, we
believe that we have positioned the Company well on the path to profitability
and established effective protocols for COVID-19. We achieved all of this
while reinforcing our commitment to compliance, environmental protection and
the health, safety and well-being of our guests, the people in the communities
we touch and serve, and our shipboard and shoreside employees.
In 2021, we achieved key milestones related to our return to service
including:
• Ending the year with 50 ships in guest cruise operations
compared to one ship in 2020
• Returning over 65,000 crew members to our ships
• Carrying over 1.2 million guests indicating fundamental strength
in demand for cruise vacations
• Delivering an exceptional guest experience with historically
high net promoter scores
We ended the year with $9.4 billion of liquidity including cash, short-term
investments and borrowings available under our revolving credit facility, and
$3.5 billion of customer deposits, an increase of $1.3 billion from 2020. To
date, through our debt management efforts, we refinanced over $9 billion,
reducing our future annual interest by approximately $400 million per year and
extending maturities, optimizing our debt maturity profile.
As of January 13, 2022, eight of our nine cruise brands, or 67% of capacity,
had resumed guest cruise operations. We expect to have our full fleet back in
operation for our summer season where we historically generate the largest
share of our operating income.
The Company achieved important milestones during our return to service and
broadened our commitment to Environmental, Social and Governance ("ESG") goals
with the introduction of our 2030 sustainability goals and 2050 aspirations.
We also achieved many operational milestones:
• Reopened our eight owned and operated private destinations and
port facilities which have been visited by over half of our guests since the
restart:
• Princess Cay • Amber Cove
• Half Moon Cay • Cozumel
• Grand Turk • Santa Cruz De Tenerife
• Mahogany Bay • Barcelona
• Welcomed seven new more efficient ships across our brands:
• Carnival Cruise Line's Mardi Gras, powered by LNG • Holland America Line's Rotterdam
• P&O UK's Iona, powered by LNG • Costa Firenze
• Costa Toscana, powered by LNG • Enchanted Princess
• AIDAcosma, powered by LNG
Our decision to accelerate the exit of 19 ships as part of our fleet
optimization strategy resulted in a more efficient fleet overall and lowered
our planned capacity growth to approximately 2.5% compounded annually from
2019 through 2025, down from 4.5% annually pre-COVID-19. We achieved a unit
cost benefit from the removal of these less efficient ships from our fleet
which will grow from the delivery of the larger and more efficient ships.
Upon returning to full operations, nearly 15% of our capacity will consist of
these recently delivered, larger and more efficient ships which we believe
will expedite our return to profitability and improve our return on invested
capital. In addition, this roster of new ships is expected to drive additional
enthusiasm around our restart plans.
As of January 13, 2022, we are operating the only six cruise ships in the
world currently powered by LNG, which are 20% more carbon efficient. Upon
returning to full cruise operations, our LNG efforts, our fleet optimization
strategy and other innovative efforts to drive energy efficiency, are
forecasted to deliver a 10% reduction in unit fuel consumption on an
annualized basis compared to 2019, a significant achievement on our path to
decarbonization.
Furthermore, the Company is focused on advancing its six critical
sustainability focus areas - climate action; circular economy; good health and
well-being; sustainable tourism; biodiversity and conservation; and diversity,
equity and inclusion. Among these priorities, the Company is committed to
continuing its reduction of carbon emissions and aspires to achieve net
carbon-neutral ship operations by 2050, while minimizing the use of carbon
offsets. While there is currently no clear path to zero carbon emissions in
our industry, we are working to be part of the solution. To achieve the
aspiration of net zero carbon emissions, the Company is partnering with key
organizations to help identify and scale new technologies. We have and expect
to continue to demonstrate leadership in executing carbon reduction
strategies. The Company believes its scale will support its effort to lead the
industry in climate action. The Company's carbon emissions reduction efforts
include improvements in energy efficiency, integrating alternative fuels and
investing in new technologies such as batteries and fuel cells.
Throughout the pause and the gradual resumption of guest cruise operations, we
have been proactively managing to resume guest cruise operations as an even
stronger and more efficient operating company to maximize cash generation and
to deliver strong returns on invested capital. Once we return to full guest
operations, our cash flow will be the primary driver to our return to an
investment grade credit rating over time, creating greater shareholder value.
New Accounting Pronouncements
Refer to our consolidated financial statements for further information on
Accounting Pronouncements.
Critical Accounting Estimates
Our critical accounting estimates are those we believe require our most
significant judgments about the effect of matters that are inherently
uncertain. A discussion of our critical accounting estimates, the underlying
judgments and uncertainties used to make them and the likelihood that
materially different estimates would be reported under different conditions or
using different assumptions is as follows:
Liquidity and COVID-19
We make several critical accounting estimates with respect to our liquidity.
The effects of COVID-19 have had a significant impact on our operations and
liquidity. Significant events affecting travel, including COVID-19 and our
gradual resumption of guest cruise operations, have had and continue to have
an impact on booking patterns. The extent of the effects of COVID-19 on our
business are uncertain and will depend on future developments, including, but
not limited to, the duration and continued severity of COVID-19 and the length
of time it takes to return the company to profitability. The ongoing effects
of COVID-19 have had, and will continue to have, a material negative impact on
our financial results and liquidity.
The estimation of our future liquidity requirements includes numerous
assumptions that are subject to various risks and uncertainties. The principal
assumptions used to estimate our future liquidity requirements consist of:
• Expected continued gradual resumption of guest cruise
operations, with the full fleet expected to be back in operation for our
summer season, where we historically generate the largest share of our
operating income
• Expected sustained increase in revenue per passenger cruise day
through a combination of both passenger ticket and onboard revenue as compared
to 2019
• Expected gradual increase in occupancy levels during the
resumption of guest cruise operations, with the return to historical occupancy
levels in 2023
• Expected continued spend to maintain enhanced health and safety
protocols and to support the resumption of guest cruise operations, including
completing the return of crew members to our ships
• Maintaining collateral and reserves at reasonable levels
We cannot make assurances that our assumptions used to estimate liquidity
requirements may not change because we have never previously experienced a
complete cessation and subsequent gradual resumption of guest cruise
operations, and as a consequence, our ability to be predictive is uncertain.
In addition, the magnitude and duration of the global pandemic are uncertain.
We have made reasonable estimates and judgments of the impact of COVID-19
within our consolidated financial statements and there may be changes to those
estimates in future periods. We expect a net loss on both a U.S. GAAP and
adjusted basis for the first half of 2022 and a profit for the second half of
2022. We have taken actions to improve our liquidity, including completing
various capital market transactions, capital expenditure and operating expense
reductions and accelerating the removal of certain ships from our fleet. In
addition, we expect to continue to pursue refinancing opportunities to reduce
interest expense and extend maturities.
Ship Accounting
We make several critical accounting estimates with respect to our ship
accounting.
We account for ship improvement costs, including replacements of certain
significant components and parts, by capitalizing those costs we believe add
value to our ships and have a useful life greater than one year and
depreciating those improvements over their estimated remaining useful life.
The costs of repairs and maintenance, including minor improvement costs and
expenses related to dry-docks, are charged to expense as incurred. If we
change our assumptions in making our determinations as to whether improvements
to a ship add value, the amounts we expense each year as repair and
maintenance expense could increase, which would be partially offset by a
decrease in depreciation expense, resulting from a reduction in capitalized
costs.
In order to compute our ships' depreciation expense, we apply judgment to
determine their useful lives as well as their residual values. We estimate the
useful life of our ships and ship improvements based on the expected period
over which the assets will be of economic benefit to us, including the impact
of marketing and technical obsolescence, competition, physical deterioration,
historical useful lives of similarly-built ships, regulatory constraints and
maintenance requirements. In addition, we consider estimates of the
weighted-average useful lives of the ships' major component systems, such as
the hull, cabins, main electric, superstructure and engines. Taking all of
this into consideration, we have estimated our new ships' useful lives at 30
years.
We determine the residual value of our ships based on our long-term estimates
of their resale value at the end of their useful life to us but before the end
of their physical and economic lives to others, historical resale values of
our and other cruise ships and viability of the secondary cruise ship market.
We have estimated our residual values at 15% of our original ship cost.
Given the large size and complexity of our ships, ship accounting estimates
require considerable judgment and are inherently uncertain. We do not have
cost segregation studies performed to specifically componentize our ships. In
addition, since we do not separately componentize our ships, we do not
identify and track depreciation of original ship components. Therefore, we
typically have to estimate the net book value of components that are retired,
based primarily upon their replacement cost, their age and their original
estimated useful lives.
If materially different conditions existed, or if we materially changed our
assumptions of ship useful lives and residual values, our depreciation
expense, loss on retirement of ship components and net book value of our ships
would be materially different. Our 2021 ship depreciation expense would have
increased by approximately $45 million assuming we had reduced our estimated
30-year ship useful life estimate by one year at the time we took delivery or
acquired each of our ships. In addition, our 2021 ship depreciation expense
would have increased by approximately $228 million assuming we had estimated
our ships to have no residual value.
We believe that the estimates we made for ship accounting purposes are
reasonable and our methods are consistently applied in all material respects
and result in depreciation expense that is based on a rational and systematic
method to equitably allocate the costs of our ships to the periods during
which we use them.
Valuation of Ships
Impairment reviews of our ships require us to make significant estimates.
We evaluate ship asset impairments at the individual ship level which is the
lowest level for which identifiable cash flows are largely independent of the
cash flows of other assets and liabilities. We review our ships for impairment
whenever events or circumstances indicate that the carrying value of a ship
may not be recoverable. If estimated future cash flows are less than the
carrying value of a ship, an impairment charge is recognized to the extent its
carrying value exceeds fair value.
The estimation of a ship's fair value includes numerous assumptions that are
subject to various risks and uncertainties. The principal assumption used in
our ship impairment reviews consist of the timing of the sale of ships and
estimated proceeds.
We determined the fair value of these ships based on their estimated selling
value. Refer to our consolidated financial statements for additional
discussion of our property and equipment policy, ship impairment reviews and
ship impairment charges recognized during 2021.
We believe that we have made reasonable estimates.
Valuation of Goodwill
Impairment reviews of our goodwill require us to make significant estimates.
We review our goodwill for impairment at the reporting unit level as of July
31 every year, or more frequently if events or circumstances dictate. If the
estimated fair value of any of our reporting units is less than the reporting
unit's carrying value, goodwill is written down based on the difference
between the reporting unit's carrying amount and its estimated fair value,
limited to the amount of goodwill allocated to the reporting unit.
The estimation of our reporting unit fair value includes numerous assumptions
that are subject to various risks and uncertainties. Our pause in guest cruise
operations and the possibility of further extensions created some uncertainty
in forecasting the operating results and future cash flows used in our
impairment analyses. The principal assumptions used in our goodwill impairment
reviews consist of:
• The timing and pace of our full return to guest cruise
operations
• Weighted-average cost of capital of market participants,
adjusted for the risk attributable to the geographic regions in which these
cruise brands operate ("WACC")
The estimated fair value of the reporting unit with remaining goodwill
significantly exceeded its carrying value as of the date of its most recent
quantitative test. Refer to our consolidated financial statements for
additional discussion of our goodwill accounting policy and impairment
reviews.
We believe that we have made reasonable estimates and judgments.
Contingencies
We periodically assess the potential liabilities related to any lawsuits or
claims brought against us, as well as for other known unasserted claims,
including environmental, legal, regulatory and guest and crew matters. While
it is typically very difficult to determine the timing and ultimate outcome of
these matters, we use our best judgment to determine the appropriate amounts
to record in our consolidated financial statements.
We accrue a liability and establish a reserve when we believe a loss is
probable and the amount of the loss can be reasonably estimated. In assessing
probable losses, we make estimates of the amount of probable insurance
recoveries, if any, which are recorded as assets where appropriate. Such
accruals and reserves are typically based on developments to date,
management's estimates of the outcomes of these matters, our experience in
contesting, litigating and settling other similar matters, historical claims
experience, actuarially determined estimates of liabilities and any related
insurance coverage.
Given the inherent uncertainty related to the eventual outcome of these
matters and potential insurance recoveries, it is possible that all or some of
these matters may be resolved for amounts materially different from any
provisions or disclosures that we may have made. In addition, as new
information becomes available, we may need to reassess the amount of asset or
liability that needs to be accrued related to our contingencies. All such
changes in our estimates could materially impact our results of operations and
financial position.
Refer to our consolidated financial statements for additional discussion of
contingencies.
Results of Operations
We have historically earned substantially all of our cruise revenues from the
following:
• Sales of passenger cruise tickets and, in some cases, the sale of air
and other transportation to and from airports near our ships' home ports and
cancellation fees. We also collect fees, taxes and other charges from our
guests. The cruise ticket price typically includes the following:
• Accommodations
• Most meals, including snacks at numerous venues
• Access to amenities such as swimming pools, water slides, water parks,
whirlpools, a health club and sun decks
• Supervised youth programs
• Entertainment, such as theatrical and comedy shows, live music and
nightclubs
• Visits to multiple destinations
• Sales of onboard goods and services not included in the cruise ticket
price. This generally includes the following:
• Beverage sales • Internet and communication services
• Casino gaming • Full service spas
• Shore excursions • Specialty restaurants
• Retail sales • Art sales
• Photo sales • Laundry and dry cleaning services
These goods and services are provided either directly by us or by independent
concessionaires, from which we receive either a percentage of their revenues
or a fee. Concession revenues do not have direct expenses because the costs
and services incurred for concession revenues are borne by our
concessionaires. In 2021, we earned 45% of our cruise revenues from onboard
and other revenue goods and services. In 2019, our most recent full year of
guest cruise operations, we earned 30% of our cruise revenues from onboard and
other revenues.
We earn our tour and other revenues from our hotel and transportation
operations and other revenues.
We incur cruise operating costs and expenses for the following:
• The costs of passenger cruise bookings, which include travel agent
commissions, cost of air and other transportation, port fees, taxes, and
charges that directly vary with guest head counts and credit and debit card
fees
• Onboard and other cruise costs, which include the costs of beverage
sales, costs of shore excursions, costs of retail sales, internet and
communication costs, credit and debit card fees, other onboard costs, costs of
cruise vacation protection programs and pre- and post-cruise land packages
• Payroll and related costs, which include the costs of officers and crew
in bridge, engineering and hotel operations. Substantially all costs
associated with our shoreside personnel are included in selling and
administrative expenses
• Fuel costs, which include fuel delivery costs
• Food costs, which include both our guest and crew food costs
• Other ship operating expenses, which include port costs that do not vary
with guest head counts; repairs and maintenance, including minor improvements
and dry-dock expenses; hotel costs; entertainment; gains and losses on ship
sales; ship impairments; freight and logistics; insurance premiums and all
other ship operating expenses
We incur tour and other costs and expenses for our hotel and transportation
operations and other expenses.
Statistical Information
Years Ended November 30,
2021 2020 2019
Passenger Cruise Days ("PCD") (a) 8,179 26,478 93,397
Available Lower Berth Days ("ALBDs") (in thousands) (b) 14,603 26,117 87,424
Occupancy percentage (c) 56.0% 101.0% 106.8%
Passengers carried (in thousands) 1,223 3,499 12,866
Fuel consumption in metric tons (in thousands) 1,336 1,915 3,312
Fuel cost per metric ton consumed $515 $430 $472
Currencies (USD to 1)
AUD $0.75 $0.68 $0.70
CAD $0.80 $0.74 $0.75
EUR $1.19 $1.13 $1.12
GBP $1.38 $1.28 $1.27
RMB $0.15 $0.14 $0.14
We paused our guest cruise operations in mid-March 2020 and were in a pause
for a majority of 2020. In 2021, we began the gradual resumption of guest
cruise operations which is continuing to have a material impact on all aspects
of our business, including the above statistical information.
Notes to Statistical Information
(a) PCD represents the number of cruise passengers on a voyage
multiplied by the number of revenue-producing ship operating days for that
voyage.
(b) ALBD is a standard measure of passenger capacity for the
period that we use to approximate rate and capacity variances, based on
consistently applied formulas that we use to perform analyses to determine the
main non-capacity driven factors that cause our cruise revenues and expenses
to vary. ALBDs assume that each cabin we offer for sale accommodates two
passengers and is computed by multiplying passenger capacity by
revenue-producing ship operating days in the period.
(c) Occupancy, in accordance with cruise industry practice, is
calculated by 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.
2021 Compared to 2020
Results of Operations
Consolidated
Years Ended November 30, % increase (decrease)
(in millions) 2021 2020 Change
Revenues
Passenger ticket $1,000 $3,684 $(2,684) (73)%
Onboard and other 908 1,910 (1,003) (52)%
1,908 5,595 (3,687) (66)%
Operating Costs and Expenses
Commissions, transportation and other 269 1,139 (870) (76)%
Onboard and other 272 605 (334) (55)%
Payroll and related 1,309 1,780 (471) (26)%
Fuel 680 823 (142) (17)%
Food 187 413 (226) (55)%
Ship and other impairments 591 1,967 (1,376) (70)%
Other operating 1,346 1,518 (172) (11)%
4,655 8,245 (3,590) (44)%
Selling and administrative 1,885 1,878 6 -%
Depreciation and amortization 2,233 2,241 (8) -%
Goodwill impairment 226 2,096 (1,870) (89)%
8,997 14,460 (5,462) (38)%
Operating Income (Loss) $(7,089) $(8,865) $1,776 (20)%
NAA
Years Ended November 30, % increase (decrease)
(in millions) 2021 2020 Change
Revenues
Passenger ticket $555 $2,334 $(1,779) (76)%
Onboard and other 553 1,293 (740) (57)%
1,108 3,627 (2,519) (69)%
Operating Costs and Expenses 2,730 5,623 (2,893) (51)%
Selling and administrative 953 1,066 (113) (11)%
Depreciation and amortization 1,352 1,413 (60) (4)%
Goodwill impairment - 1,319 (1,319) 100%
5,036 9,422 (4,386) (47)%
Operating Income (Loss) $(3,928) $(5,794) $1,867 (32)%
EA
Years Ended November 30, % increase (decrease)
(in millions) 2021 2020 Change
Revenues
Passenger ticket $491 $1,388 $(897) (65)%
Onboard and other 221 402 (181) (45)%
712 1,790 (1,078) (60)%
Operating Costs and Expenses 1,807 2,548 (741) (29)%
Selling and administrative 568 523 46 9%
Depreciation and amortization 728 672 56 8%
Goodwill impairment 226 777 (551) (71)%
3,329 4,519 (1,190) (26)%
Operating Income (Loss) $(2,617) $(2,729) $112 (4)%
We paused our guest cruise operations in March 2020 with minimal cruise
related revenue recognized during the remainder of 2020. In addition, we
incurred incremental COVID-19 related costs associated with repatriating
guests and crew members, enhancing health protocols and sanitizing our ships,
restructuring costs and defending lawsuits. As of November 30, 2021, eight of
our nine brands had resumed guest cruise operations as part of our gradual
return to service. The gradual resumption of guest cruise operations is
continuing to have a material impact on all aspects of our business, including
our liquidity, financial position and results of operations. The full extent
of the impact will be determined by our gradual return to service and the
length of time COVID-19 influences travel decisions.
As of November 30, 2021, 61% of our capacity was operating with guests on
board, which is an increase from November 30, 2020 where we had one ship in
service. Revenues for the year ended November 30, 2021 decreased $3.7 billion,
or 66%, to $1.9 billion from $5.6 billion in 2020 as a result of the pause in
guest cruise operations beginning March 2020 and the gradual resumption in
guest cruise operations in 2021. Occupancy for 2021 was 56%, compared to 101%
in 2020, due to the gradual resumption of guest cruise operations.
During 2021 we incurred, and we expect to continue incurring, incremental
restart-related spend including the cost of returning ships to guest cruise
operations and returning crew members to our ships as well as the incremental
costs of maintaining enhanced health and safety protocols as we continue our
gradual return to service. During 2020, while maintaining compliance,
environmental protection and safety, we significantly reduced ship operating
expenses, including cruise payroll and related expenses, food, fuel, insurance
and port charges by transitioning ships into paused status, either at anchor
or in port, and staffed at a safe manning level.
We recognized goodwill impairment charges of $0.2 billion and $2.1 billion for
the years ended November 30, 2021 and 2020.
We recognized ship impairment charges of $0.6 billion and $1.8 billion as of
November 30, 2021 and 2020.
We believe the increasing cost of fuel, LNG and other related costs, inclusive
of costs related to any potential future carbon emission related regulations,
are reasonably likely to impact our profitability in both the short and
long-term.
In addition, the increasing global focus on climate change, including the
reduction of carbon emissions and new and evolving regulatory requirements, is
reasonably likely to impact our future costs, capital expenditures and
revenues and/or the relationship between them. The full impact of the focus on
climate change is not yet known.
Nonoperating Income (Expense)
Interest expense, net of capitalized interest, increased by $0.7 billion to
$1.6 billion in 2021 from $0.9 billion in 2020. The increase was caused by
our higher average debt balance in 2021 compared to 2020.
Loss on debt extinguishment increased by $212 million to $670 million in 2021
from $459 million in 2020. The increase was caused by the repurchase of $4.0
billion of the aggregate principal of the 2023 Senior Secured Notes.
Key Performance Non-GAAP Financial Indicators
The table below reconciles Adjusted net income (loss) and Adjusted EBITDA to
Net Income (loss) and Adjusted earnings per share to Earnings per share for
the periods presented:
Years Ended November 30,
(dollars in millions, except per share data) 2021 2020 2019
Net income (loss)
U.S. GAAP net income (loss) $(9,501) $(10,236) $2,990
(Gains) losses on ship sales and impairments 802 3,934 (6)
(Gains) losses on debt extinguishment, net 670 459 -
Restructuring expenses 13 47 10
Other 86 3 47
Adjusted net income (loss) $(7,931) $(5,793) $3,041
Interest expense, net of capitalized interest 1,601 895 206
Interest income (12) (18) (23)
Income tax expense, net (21) (17) 71
Depreciation and amortization 2,233 2,241 2,160
Adjusted EBITDA $(4,129) $(2,692) $5,455
Weighted-average shares outstanding 1,123 775 692
Earnings per share
U.S. GAAP earnings per share $(8.46) $(13.20) $4.32
(Gains) losses on ship sales and impairments 0.71 5.08 (0.01)
(Gains) losses on debt extinguishment, net 0.60 0.59 -
Restructuring expenses 0.01 0.06 0.01
Other 0.08 - 0.07
Adjusted earnings per share $(7.06) $(7.47) $4.40
Explanations of Non-GAAP Financial Measures
We use adjusted net income (loss) and adjusted earnings per share as non-GAAP
financial measures of our cruise segments' and the company's financial
performance. These non-GAAP financial measures are provided along with U.S.
GAAP net income (loss) and U.S. GAAP diluted earnings per share.
We believe that gains and losses on ship sales, impairment charges, gains and
losses on debt extinguishments, restructuring costs and other gains and losses
are not part of our core operating business and are not an indication of our
future earnings performance. Therefore, we believe it is more meaningful for
these items to be excluded from our net income (loss) and earnings per share
and, accordingly, we present adjusted net income (loss) and adjusted earnings
per share excluding these items.
Adjusted EBITDA is a non-GAAP measure, and we believe that the presentation of
Adjusted EBITDA provides additional information to investors about our
operating profitability adjusted for certain non-cash items and other gains
and expenses that we believe are not part of our core operating business and
are not an indication of our future earnings performance. Further, we believe
that the presentation of Adjusted EBITDA provides additional information to
investors about our ability to operate our business in compliance with the
restrictions set forth in our debt agreements. We define Adjusted EBITDA as
adjusted net income (loss) adjusted for (i) interest, (ii) taxes and, (iii)
depreciation and amortization. There are material limitations to using
Adjusted EBITDA. Adjusted EBITDA does not take into account certain
significant items that directly affect our net income (loss). These
limitations are best addressed by considering the economic effects of the
excluded items independently, and by considering Adjusted EBITDA in
conjunction with net income (loss) as calculated in accordance with U.S. GAAP.
The presentation of our non-GAAP financial information is not intended to be
considered in isolation from, as substitute for, or superior to the financial
information prepared in accordance with U.S. GAAP. It is possible that our
non-GAAP financial measures may not be exactly comparable to the like-kind
information presented by other companies, which is a potential risk associated
with using these measures to compare us to other companies.
2020 Compared to 2019
Results of Operations
Consolidated
Years Ended November 30, % increase (decrease)
(in millions) 2020 2019 Change
Revenues
Passenger ticket $3,684 $14,104 $(10,420) (74)%
Onboard and other 1,910 6,721 (4,810) (72)%
5,595 20,825 (15,230) (73)%
Operating Costs and Expenses
Commissions, transportation and other 1,139 2,720 (1,582) (58)%
Onboard and other 605 2,101 (1,496) (71)%
Payroll and related 1,780 2,249 (469) (21)%
Fuel 823 1,562 (739) (47)%
Food 413 1,083 (671) (62)%
Ship and other impairments 1,967 26 1,941 7542%
Other operating 1,518 3,167 (1,649) (52)%
8,245 12,909 (4,664) (36)%
Selling and administrative 1,878 2,480 (601) (24)%
Depreciation and amortization 2,241 2,160 81 4%
Goodwill impairment 2,096 - 2,096 100%
14,460 17,549 (3,089) (18)%
Operating Income (Loss) $(8,865) $3,276 $(12,141) (371)%
NAA
Years Ended November 30, % increase (decrease)
(in millions) 2020 2019 Change
Revenues
Passenger ticket $2,334 $8,992 $(6,658) (74)%
Onboard and other 1,293 4,620 (3,327) (72)%
3,627 13,612 (9,985) (73)%
Operating Costs and Expenses 5,623 8,370 (2,747) (33)%
Selling and administrative 1,066 1,427 (361) (25)%
Depreciation and amortization 1,413 1,364 49 4%
Goodwill impairment 1,319 - 1,319 100%
9,422 11,161 (1,739) (16)%
Operating Income (Loss) $(5,794) $2,451 $(8,246) (336)%
EA
Years Ended November 30, % increase (decrease)
(in millions) 2020 2019 Change
Revenues
Passenger ticket $1,388 $5,207 $(3,820) (73)%
Onboard and other 402 1,442 (1,040) (72)%
1,790 6,650 (4,860) (73)%
Operating Costs and Expenses 2,548 4,146 (1,599) (39)%
Selling and administrative 523 744 (221) (30)%
Depreciation and amortization 672 645 27 4%
Goodwill impairment 777 - 777 100%
4,519 5,534 (1,016) (18)%
Operating Income (Loss) $(2,729) $1,115 $(3,845) (345)%
We paused our guest operations in mid-March 2020. We resumed guest cruise
operations in September 2020 as part of our gradual return to service.
During 2020, as a result of the pause in our guest cruise operations, we
experienced meaningfully lower revenues compared to the prior year. This has
resulted in an operating loss for the current period.
While maintaining compliance, environmental protection and safety, we
significantly reduced ship operating expenses, including cruise payroll and
related expenses, food, fuel, insurance and port charges by transitioning
ships into paused status, either at anchor or in port and staffed at a safe
manning level.
In addition, during the year we incurred incremental COVID-19 related costs
associated with repatriating guests and crew members, enhancing health
protocols and sanitizing our ships, restructuring costs and defending
lawsuits.
As a result of the effects of COVID-19 on our expected future operating cash
flows, we recognized goodwill impairment charges of $2.1 billion and ship
impairment charges of $1.8 billion during 2020.
Liquidity, Financial Condition and Capital Resources
As of November 30, 2021, we had $9.4 billion of liquidity including cash,
short-term investments and borrowings available under our revolving facility.
Through our debt management efforts, we have refinanced over $9 billion to
date, reducing our future annual interest expense by approximately $400
million per year and extending maturities, optimizing our debt maturity
profile. During 2022, we will continue to be focused on pursuing refinancing
opportunities to reduce interest rates and extend maturities. Since December
2020, we have completed the following:
• In December 2020, we borrowed $1.5 billion under export credit
facilities due in semi-annual installments through 2033.
• In February 2021, we issued an aggregate principal amount of
$3.5 billion senior unsecured notes that mature on March 1, 2027. The 2027
Senior Unsecured Notes bear interest at a rate of 5.75% per year.
• In February 2021, we completed a public offering of 40.5 million
shares of Carnival Corporation's common stock at a price per share of $25.10,
resulting in net proceeds of $996 million.
• In June 2021, we entered into an amendment to reprice our $2.8
billion 2025 Secured Term Loan (the "2025 Secured Term Loan"). The amended
U.S. dollar tranche bears interest at a rate per annum equal to LIBOR (with a
0.75% floor) plus 3%. The amended euro tranche bears interest at a rate per
annum equal to EURIBOR (with a 0% floor) plus 3.75%.
• In July 2021, we issued $2.4 billion aggregate principal amount
of 4% first-priority senior secured notes due in 2028 (the "2028 Senior
Secured Notes"). We used the net proceeds from the issuance to purchase $2.0
billion aggregate principal amount of the 2023 Senior Secured Notes and to pay
accrued interest on such notes and related fees and expenses. The 2028 Senior
Secured Notes mature on August 1, 2028.
• In July 2021, we borrowed $544 million under an export credit
facility due in semi-annual installments through 2033.
• We amended our export credit facilities to defer approximately
$1.0 billion of principal payments that would otherwise have been due over a
one year period commencing April 1, 2021 until March 31, 2022, with repayments
to be made over the following five years.
• In October 2021, we borrowed an aggregate principal amount of
$2.3 billion under a new term loan. We used the net proceeds from this
borrowing to redeem $2.0 billion outstanding aggregate principal amount of the
2023 Senior Secured Notes and to pay accrued interest on such notes and
related fees and expenses. Borrowings under the new term loan bear interest at
a rate per annum equal to LIBOR (with a 0.75% floor) plus 3.25% and will
mature on October 18, 2028.
• In November 2021, we issued an aggregate principal amount of
$2.0 billion senior unsecured notes that mature on May 1, 2029 (the "2029
Senior Unsecured Notes"), intended to refinance various 2022 maturities. The
2029 Senior Unsecured Notes bear interest at a rate of 6% per year and are
callable beginning November 1, 2024.
• We extended loan maturities totaling approximately $650 million
originally due in 2022 and 2023, to various dates in 2023 through 2026.
We have entered into amendments aligning the financial covenants of all our
export credit facilities with our other facilities. Refer to Note 5 - "Debt"
of the consolidated financial statements and "Funding Sources" below for
additional details.
Certain of our debt instruments contain provisions that may limit our ability
to incur or guarantee additional indebtedness.
We had a working capital deficit of $0.3 billion as of November 30, 2021
compared to a working capital surplus of $1.9 billion as of November 30, 2020.
The decrease in working capital was driven by an increase in customer deposits
and a decrease in cash. Historically we have operated with a substantial
working capital deficit. This deficit is mainly attributable to the fact that,
under our business model, substantially all of our passenger ticket receipts
are collected in advance of the applicable sailing date. These advance
passenger receipts generally remain a current liability until the sailing
date. The cash generated from these advance receipts is used interchangeably
with cash on hand from other sources, such as our borrowings and other cash
from operations. The cash received as advanced receipts can be used to fund
operating expenses, pay down our debt, make long-term investments or any other
use of cash. Included within our working capital are $3.1 billion and $1.9
billion of customer deposits as of November 30, 2021 and 2020, respectively.
We have paid and expect to continue to pay cash refunds of customer deposits
with respect to a portion of cancelled cruises. The amount of cash refunds to
be paid may depend on the level of guest acceptance of FCCs and future cruise
cancellations. We record a liability for FCCs only to the extent we have
received cash from guests with bookings on cancelled sailings. We have
agreements with a number of credit card processors that transact customer
deposits related to our cruise vacations. Certain of these agreements allow
the credit card processors to request, under certain circumstances, that we
provide a reserve fund in cash. In addition, we have a relatively low level of
accounts receivable and limited investment in inventories. We expect that we
will have greater working capital deficits in the future once we return to
full guest cruise operations.
Sources and Uses of Cash
Operating Activities
Our business used $4.1 billion of net cash flows in operating activities
during 2021, a decrease of $2.2 billion, compared to $6.3 billion used in
2020. This decrease was due to the reduction in cash outflows for refunds of
customer deposits and credit card processor reserve funds provided. During
2020, our business used $6.3 billion of net cash from operations, a decrease
of $11.8 billion, compared to $5.5 billion provided in 2019.
Investing Activities
During 2021, net cash used in investing activities was $3.5 billion. This was
caused by:
• Capital expenditures of $3.0 billion for our ongoing new
shipbuilding program
• Capital expenditures of $602 million for ship improvements and
replacements, information technology and buildings and improvements
• Proceeds from sales of ships and other of $351 million
• Purchases of short-term investments of $2.9 billion
• Proceeds from maturity of short-term investments of $2.7 billion
During 2020, net cash used in investing activities was $3.2 billion. This was
caused by:
• Capital expenditures of $2.8 billion for our ongoing new
shipbuilding program
• Capital expenditures of $868 million for ship improvements and
replacements, information technology and buildings and improvements
• Proceeds from sales of ships of $334 million
• Proceeds of $220 million from the settlement of outstanding
derivatives
During 2019, net cash used in investing activities was $5.3 billion. This was
caused by:
• Capital expenditures of $3.8 billion for our ongoing new
shipbuilding program
• Capital expenditures of $1.7 billion for ship improvements and
replacements, information technology and buildings and improvements
• Proceeds from sales of ships of $26 million
Financing Activities
During 2021, net cash provided by financing activities of $6.9 billion was
caused by the following:
• Issuances of $13.0 billion of long-term debt
• Repayments of $6.0 billion of long-term debt
• Premium payments of $545 million related to the extinguishment
of debt
• Net proceeds of $1.0 billion from Carnival Corporation common
stock
• Purchases of $188 million of Carnival plc ordinary shares and
issuances of $206 million of Carnival Corporation common stock under our Stock
Swap Program
• Payments of $319 million related to debt issuance costs
During 2020, net cash provided by financing activities of $18.6 billion was
caused by the following:
• Net proceeds from short-term borrowings of $2.9 billion in
connection with our availability of, and needs for, cash at various times
throughout the period, including proceeds of $3.1 billion from the Revolving
Facility
• Repayments of $1.6 billion of long-term debt
• Issuances of $15.0 billion of long-term debt
• Payments of cash dividends of $689 million
• Net proceeds of $3.0 billion from our public offerings of
Carnival Corporation common stock
• Net proceeds of $222 million from a registered direct offering
of Carnival Corporation common stock used to repurchase a portion of the
Convertible Notes
During 2019, net cash used in financing activities of $655 million was
substantially all due to the following:
• Net proceeds of short-term borrowings of $605 million in
connection with our availability of, and needs for, cash at various times
throughout the period
• Repayments of $1.7 billion of long-term debt
• Issuances of $3.7 billion of long-term debt
• Payments of cash dividends of $1.4 billion
• Purchases of $603 million of Carnival Corporation common stock
and Carnival plc ordinary shares in open market transactions under our
Repurchase Program
Material Cash Requirements
Payments Due by
(in millions) 2022 2023 2024 2025 2026 Total
Debt (a) $3,251 $4,035 $5,922 (c) $5,472 $5,293 $23,973
Newbuild capital expenditures (b) 4,355 2,576 1,641 987 - 9,560
Total $7,606 $6,611 $7,564 $6,459 $5,293 $33,533
(a) Includes principal as well as estimated interest payments and
does not include the impact of any future possible refinancings. Excludes
undrawn export credits.
(b) As of November 30, 2021, we have committed undrawn export
credit facilities of $5.6 billion which fund a portion of our Newbuild
contractual commitments.
(c) Includes borrowings under the Revolving Facility. As of
November 30, 2021, borrowings under the Revolving Facility were $2.8 billion,
which mature in 2024.
Funding Sources
As of November 30, 2021, we had $9.4 billion of liquidity including cash,
short-term investments and borrowings available under our revolving facility.
In addition, we had $5.6 billion of undrawn export credit facilities to fund
ship deliveries planned through 2024. We plan to use future cash flows from
operations to fund our cash requirements including capital expenditures not
funded by our export credit facilities.
(in billions) 2022 2023 2024
Future export credit facilities at November 30, 2021 $3.2 $1.8 $0.6
Our export credit facilities contain various financial covenants as described
in Note 5 - "Debt". At November 30, 2021, we were in compliance with the
applicable covenants under our debt agreements.
Stock Swap Program
We have a program that allows us to realize a net cash benefit when Carnival
Corporation common stock is trading at a premium to the price of Carnival plc
ordinary shares (the "Stock Swap Program"). Under the Stock Swap Program, we
may elect to offer and sell shares of Carnival Corporation common stock at
prevailing market prices in ordinary brokers' transactions and repurchase an
equivalent number of Carnival plc ordinary shares in the UK market.
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 2021, under the Stock Swap Program, we sold 8.9 million shares
of Carnival Corporation's common stock and repurchased the same amount of
Carnival plc ordinary shares, resulting in net proceeds of $19 million which
were used for general corporate purposes. During 2020 and 2019, there were no
sales or repurchases under the Stock Swap Program.
Quantitative and Qualitative Disclosures About Market Risk
For a discussion of our hedging strategies and market risks, see the
discussion below and the consolidated financial statements.
Fuel Price Risks
Substantially all our exposure to market risk for changes in fuel prices
relates to the consumption of fuel on our ships. We have installed Advanced
Air Quality Systems on most of our ships, which has aided in the mitigation of
the financial impact from the ECAs and global 0.5% sulfur requirements.
Foreign Currency Exchange Rate Risks
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 will affect our financial statements.
Investment Currency Risks
The foreign currency exchange rates were as follows:
November 30,
USD to 1: 2021 2020
AUD $0.71 $0.74
CAD $0.78 $0.77
EUR $1.13 $1.20
GBP $1.33 $1.33
RMB $0.16 $0.15
If the November 30, 2020 currency exchange rates had been used to translate
our November 30, 2021 non-U.S. dollar functional currency operations' assets
and liabilities (instead of the November 30, 2021 U.S. dollar exchange rates),
our total assets would have been higher by $667 million and our total
liabilities would have been higher by $359 million.
As of November 30, 2021, we had a cross currency swap totaling of $201 million
which settles through 2028. This cross currency swap is designated as a hedge
of our net investments in foreign operations, which has a euro-denominated
functional currency, thus partially offsetting the foreign currency exchange
rate risk. Based on a 10% change in the U.S. dollar to euro exchange rate as
of November 30, 2021, we estimate that the fair value of this cross currency
swap and offsetting change in U.S. dollar value of our net investments would
change by $22 million.
Newbuild Currency Risks
At November 30, 2021, our remaining newbuild currency exchange rate risk
primarily relates to euro-denominated newbuild contract payments, which
represent a total unhedged commitment of $6.8 billion and relate to newbuilds
scheduled to be delivered from 2021 through 2025 to non-euro functional
currency brands. The functional currency cost of each of these ships will
increase or decrease based on changes in the exchange rates until the unhedged
payments are made under the shipbuilding contract. We may enter into
additional foreign currency derivatives to mitigate some of this foreign
currency exchange rate risk. Based on a 10% change in euro to U.S. dollar
exchange rates as of November 30, 2021, the remaining unhedged cost of these
ships would have a corresponding change of $675 million.
Interest Rate Risks
The composition of our debt, including the effect of cross currency swaps and
interest rate swaps, was as follows:
November 30, 2021
Fixed rate 45%
EUR fixed rate 13%
Floating rate 26%
EUR floating rate 14%
GBP floating rate 1%
At November 30, 2021, we had interest rate swaps that have effectively changed
$160 million of EURIBOR-based floating rate euro debt to fixed rate euro debt.
Based on a 10% change in the November 30, 2021 market interest rates, our 2021
interest expense on floating rate debt, including the effect of our interest
rate swaps, would have changed by an insignificant amount.
COMMON STOCK AND ORDINARY SHARES
Carnival Corporation's common stock, together with paired trust shares of
beneficial interest in the P&O Princess Special Voting Trust, which holds
a Special Voting Share of Carnival plc, is traded on the NYSE under the symbol
"CCL." Carnival plc's ordinary shares trade on the London Stock Exchange under
the symbol "CCL." Carnival plc's American Depositary Shares ("ADSs"), each one
of which represents one Carnival plc ordinary share, are traded on the NYSE
under the symbol "CUK." The depositary for the ADSs is JPMorgan Chase Bank,
N.A.
As of January 13, 2022, there were 2,962 holders of record of Carnival
Corporation common stock and 29,720 holders of record of Carnival plc ordinary
shares and 406 holders of record of Carnival plc ADSs. The past performance
of our share prices cannot be relied on as a guide to their future
performance.
On March 30, 2020, we suspended the payment of dividends on the common stock
of Carnival Corporation and the ordinary shares of Carnival plc.
SCHEDULE C
Issuer Purchases of Equity Securities; Use of Proceeds from Registered
Securities
I. Stock Swap Program
We have a program that allows us to realize a net cash benefit when Carnival
Corporation common stock is trading at a premium to the price of Carnival plc
ordinary shares (the "Stock Swap Program"). Under the Stock Swap Program, we
may elect to offer and sell shares of Carnival Corporation common stock at
prevailing market prices in ordinary brokers' transactions and repurchase an
equivalent number of Carnival plc ordinary shares in the UK market.
Under the Stock Swap Program effective June 2021, the Boards of Directors
authorized the sale of up to $500 million of shares of Carnival Corporation
common stock in the U.S. market and the repurchase of an equivalent number of
Carnival plc ordinary shares.
We may in the future implement a program to allow us to realize 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 November 30, 2021, under the Stock Swap
Program, we sold 4.3 million shares of Carnival Corporation common stock and
repurchased the same amount of Carnival plc ordinary shares, resulting in net
proceeds of $9 million which were used for general corporate purposes. Since
the beginning of the Stock Swap Program, first authorized in June 2021, we
have sold 8.9 million shares of Carnival Corporation's common stock and
repurchased the same amount of Carnival plc ordinary shares, resulting in net
proceeds of $19 million.
Period Total Number of Shares of Carnival plc Ordinary Shares Purchased (a) Average Price Paid per Share of Carnival plc Ordinary Share Maximum Number of Carnival plc Ordinary Shares That May Yet Be Purchased
(in millions) (in millions)
September 1, 2021 through September 30, 2021 - $- 13.8
October 1, 2021 through October 31, 2021 2.5 $15.70 11.3
November 1, 2021 through November 30, 2021 1.9 $15.42 9.5
4.3 $15.58
(a) No ordinary shares of Carnival plc were purchased outside of publicly
announced plans or programs.
II. Carnival plc Shareholder Approvals
Carnival plc ordinary share repurchases under the Stock Swap Program require
annual shareholder approval. The existing shareholder approval was limited to
a maximum of 18.4 million ordinary shares and is valid until the earlier of
the conclusion of the Carnival plc 2022 annual general meeting or October 19,
2022.
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