REG - Carnival PLC - Final Results
27/01/2023 17:30
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RNS Number : 1601O Carnival PLC 27 January 2023
January 27, 2023
RELEASE OF CARNIVAL CORPORATION & PLC JOINT ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED NOVEMBER 30, 2022.
Carnival Corporation & plc announced its fourth quarter results of
operations in its earnings release issued on December 21, 2022. 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 2022 annual
consolidated financial statements, which reported results are unchanged from
those previously announced on December 21, 2022.
The information included in the Form 10-K (Schedule A) 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, 2022, management's
discussion and analysis of financial conditions and results of operations, and
information on Carnival Corporation and Carnival plc's sales and purchases of
their equity securities and use of proceeds from such sales.
The Directors consider that within the Carnival Corporation and Carnival plc
dual listed company arrangement, the most appropriate presentation of Carnival
plc's results and financial position is by reference to the Carnival
Corporation & plc U.S. GAAP unaudited consolidated financial statements.
MEDIA
CONTACT
INVESTOR RELATIONS CONTACT
Jody
Venturoni Beth
Roberts
001 469 797
6380
001 305 406 4832
The Form 10-K 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
https://data.fca.org.uk/#/nsm/nationalstoragemechanism. Additional
information can be obtained via Carnival Corporation & plc's website
listed above or by writing to Carnival plc at Carnival House, 100 Harbour
Parade, Southampton, SO15 1ST, United Kingdom.
Carnival Corporation & plc is the largest global cruise company and among
the largest leisure travel companies with a portfolio of world-class cruise
lines. With operations in North America, Australia, Europe and Asia, its
portfolio features - AIDA Cruises, Carnival Cruise Line, Costa Cruises,
Cunard, Holland America Line, Princess Cruises, P&O Cruises (Australia),
P&O Cruises (UK) and Seabourn. Additional information can be found on
www.carnivalcorp.com, www.carnivalsustainability.com, www.carnival.com,
www.princess.com, www.hollandamerica.com, www.pocruises.com.au,
www.seabourn.com, www.costacruise.com, www.aida.de, www.pocruises.com and
www.cunard.com.
SCHEDULE A
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in millions, except per share data)
Years Ended November 30,
2022 2021 2020
Revenues
Passenger ticket $7,022 $1,000 $3,684
Onboard and other 5,147 908 1,910
12,168 1,908 5,595
Operating Costs and Expenses
Commissions, transportation and other 1,630 269 1,139
Onboard and other 1,528 272 605
Payroll and related 2,181 1,309 1,780
Fuel 2,157 680 823
Food 863 187 413
Ship and other impairments 440 591 1,967
Other operating 2,958 1,346 1,518
11,757 4,655 8,245
Selling and administrative 2,515 1,885 1,878
Depreciation and amortization 2,275 2,233 2,241
Goodwill impairments - 226 2,096
16,547 8,997 14,460
Operating Income (Loss) (4,379) (7,089) (8,865)
Nonoperating Income (Expense)
Interest income 74 12 18
Interest expense, net of capitalized interest (1,609) (1,601) (895)
Gain (loss) on debt extinguishment, net (1) (670) (459)
Other income (expense), net (165) (173) (52)
(1,701) (2,433) (1,388)
Income (Loss) Before Income Taxes (6,080) (9,522) (10,253)
Income Tax Benefit (Expense), Net (14) 21 17
Net Income (Loss) $(6,093) $(9,501) $(10,236)
Earnings Per Share
Basic $(5.16) $(8.46) $(13.20)
Diluted $(5.16) $(8.46) $(13.20)
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,
2022 2021 2020
Net Income (Loss) $(6,093) $(9,501) $(10,236)
Items Included in Other Comprehensive Income (Loss)
Change in foreign currency translation adjustment (503) (118) 578
Other 22 53 51
Other Comprehensive Income (Loss) (481) (65) 630
Total Comprehensive Income (Loss) $(6,574) $(9,567) $(9,606)
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,
2022 2021
ASSETS
Current Assets
Cash and cash equivalents $4,029 $8,939
Restricted cash 1,988 14
Short-term investments - 200
Trade and other receivables, net 395 246
Inventories 428 356
Prepaid expenses and other 652 379
Total current assets 7,492 10,133
Property and Equipment, Net 38,687 38,107
Operating Lease Right-of-Use Assets 1,274 1,333
Goodwill 579 579
Other Intangibles 1,156 1,181
Other Assets 2,515 2,011
$51,703 $53,344
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $200 $2,790
Current portion of long-term debt 2,393 1,927
Current portion of operating lease liabilities 146 142
Accounts payable 1,050 797
Accrued liabilities and other 1,942 1,641
Customer deposits 4,874 3,112
Total current liabilities 10,605 10,408
Long-Term Debt 31,953 28,509
Long-Term Operating Lease Liabilities 1,189 1,239
Other Long-Term Liabilities 891 1,043
Commitments and Contingencies
Shareholders' Equity
Carnival Corporation common stock, $0.01 par value; 1,960 shares authorized; 12 11
1,244 shares at 2022 and 1,116 shares at 2021 issued
Carnival plc ordinary shares, $1.66 par value; 217 shares at 2022 and 2021 361 361
issued
Additional paid-in capital 16,872 15,292
Retained earnings 269 6,448
Accumulated other comprehensive income (loss) ("AOCI") (1,982) (1,501)
Treasury stock, 130 shares at 2022 and 2021 of Carnival Corporation and 72 (8,468) (8,466)
shares at 2022 and 67 shares at 2021 of Carnival plc, at cost
Total shareholders' equity 7,065 12,144
$51,703 $53,344
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,
2022 2021 2020
OPERATING ACTIVITIES
Net income (loss) $(6,093) $(9,501) $(10,236)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities
Depreciation and amortization 2,275 2,233 2,241
Impairments 470 834 4,063
(Gain) loss on debt extinguishment 1 668 459
(Income) loss from equity-method investments 38 129 20
Share-based compensation 101 121 105
Amortization of discounts and debt issue costs 171 172 119
Noncash lease expense 148 140 172
Other, net 57 137 (56)
(2,832) (5,067) (3,114)
Changes in operating assets and liabilities
Receivables (171) (7) 125
Inventories (95) (63) 77
Prepaid expenses and other (874) (1,070) (209)
Accounts payable 283 206 (165)
Accrued liabilities and other 341 601 (311)
Customer deposits 1,679 1,291 (2,703)
Net cash provided by (used in) operating activities (1,670) (4,109) (6,301)
INVESTING ACTIVITIES
Purchases of property and equipment (4,940) (3,607) (3,620)
Proceeds from sales of ships and other 70 351 334
Purchase of minority interest (1) (90) (81)
Purchase of short-term investments (315) (2,873) -
Proceeds from maturity of short-term investments 515 2,673 -
Other, net (96) 3 127
Net cash provided by (used in) investing activities (4,767) (3,543) (3,240)
FINANCING ACTIVITIES
Proceeds from (repayments of) short-term borrowings, net (2,590) (293) 2,852
Principal repayments of long-term debt (2,075) (5,956) (1,621)
Premium paid on extinguishment of debt (1) (545) -
Proceeds from issuance of long-term debt 7,209 13,042 15,020
Dividends paid - - (689)
Purchases of common stock - - (12)
Issuance of common stock, net 1,180 1,009 3,249
Issuance of common stock under the Stock Swap Program 95 206 -
Purchase of treasury stock under the Stock Swap Program (87) (188) -
Debt issue costs and other, net (154) (327) (150)
Net cash provided by (used in) financing activities 3,577 6,949 18,650
Effect of exchange rate changes on cash, cash equivalents and restricted cash (79) (13) 53
Net increase (decrease) in cash, cash equivalents and restricted cash (2,940) (715) 9,161
Cash, cash equivalents and restricted cash at beginning of year 8,976 9,692 530
Cash, cash equivalents and restricted cash at end of year $6,037 $8,976 $9,692
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, 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)
Issuances of common stock, net 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
Net income (loss) - - - (6,093) - - (6,093)
Other comprehensive income (loss) - - - - (481) - (481)
Issuances of common stock, net 1 - 1,178 - - - 1,180
Issuance of Convertible Notes - - 229 - - - 229
Purchases and issuances under the Stock Swap program, net - - 95 - - (87) 8
Issuance of treasury shares for vested share-based awards - - - (85) - 85 -
Share-based compensation and other - - 79 (1) - - 78
At November 30, 2022 $12 $361 $16,872 $269 $(1,982) $(8,468) $7,065
The accompanying notes are an integral part of these consolidated financial
statements.
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 2022 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 the largest global cruise company and among the largest leisure travel
companies with a portfolio of world-class cruise lines. With operations in
North America, Australia, Europe and Asia, our portfolio features - AIDA
Cruises, Carnival Cruise Line, Costa Cruises, Cunard, Holland America Line,
Princess Cruises, P&O Cruises (Australia), P&O Cruises (UK) and
Seabourn.
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 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 March 2020 and began resuming guest cruise operations in 2021.
Based on the evolving nature of COVID-19 and our ongoing collaboration with
local and national public health authorities, we have responsibly relaxed our
related protocols, including greatly reducing or eliminating testing
requirements and vaccination protocols to more closely align with the broader
travel industry and strengthening our competitiveness.
As part of our liquidity management, we rely on estimates of our future
liquidity, which includes numerous assumptions that are subject to various
risks and uncertainties. The principal assumptions used to estimate our future
liquidity consist of:
• Our continued cruise operations and expected timing of cash
collections for cruise bookings
• Expected increases in revenue in 2023 on a per passenger basis
compared to 2019, particularly with the responsible relaxation of COVID-19
related protocols aligning towards land-based vacation alternatives and
strengthening our competitiveness
• Expected improvement in occupancy on a year-over-year basis
returning to historical levels in the summer of 2023
• Stabilization of fuel prices around November 2022 year-end
prices
• Continued stabilization of inflationary pressures on costs,
moderated by a larger-more efficient fleet as compared to 2019
In addition, we make certain assumptions about new ship deliveries,
improvements and removals, and consider the future export credit financings
that are associated with the new ship deliveries.
We have a substantial debt balance as a result of the pause in guest cruise
operations and require a significant amount of liquidity or cash provided by
operating activities to service our debt. In addition, the continued effects
of the pandemic, inflation, higher fuel prices, higher interest rates and
fluctuations in foreign currency rates are collectively having a material
negative impact on our financial results. The full extent of the collective
impact of these items is uncertain and may be amplified by our substantial
debt balance. We believe we have made reasonable estimates and judgments of
the impact of these events within our consolidated financial statements and
there may be changes to those estimates in future periods.
For almost three years, we have taken appropriate actions to manage our
liquidity, including completing various capital market transactions, obtaining
relevant financial covenant amendments or waivers (see Note 5 - "Debt"),
accelerating the removal of certain ships from the fleet, and during the
pause, reducing capital expenditures and operating expenses. As of November
30, 2022, 97% of our capacity has resumed guest cruise operations and is
serving guests.
Based on these actions and our assumptions, and considering our $8.6 billion
of liquidity including cash, restricted cash from the 2028 Senior Priority
Notes which became unrestricted in December 2022 and borrowings available
under our $1.7 billion, €1.0 billion and £0.2 billion multi-currency
revolving credit facility (the "Revolving Facility") at November 30, 2022, we
believe that we have sufficient liquidity to fund our obligations and expect
to remain in compliance with our financial covenants for at least the next
twelve months from the issuance of these financial statements.
We will continue to pursue various opportunities to raise additional capital
to fund obligations associated with future debt maturities and/or to extend
the maturity dates associated with our existing indebtedness including our
Revolving Facility and obtain relevant financial covenant amendments or
waivers, if needed. Actions to raise capital may include issuances of debt,
convertible debt or equity in private or public transactions or entering into
new and extended credit facilities.
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 2021, we reclassified $14 million from prepaid expenses and other to
restricted cash 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 the pandemic, inflation,
higher fuel prices, higher interest rates and fluctuations in foreign currency
rates will directly or indirectly impact our business, operations, results of
operations and financial condition, including our valuation of goodwill and
trademarks, impairment of ships and collectability of trade and notes
receivables, will depend on future developments that are uncertain. We have
made reasonable estimates and judgments of such items within our financial
statements and there may be changes to those estimates in future periods.
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.
Restricted Cash
Restricted cash is classified as short-term or long-term based on the expected
timing of our ability to access or use the amounts. The long-term portion is
included within other assets. Substantially all restricted cash as of November
30, 2022 relates to the net proceeds from the issuance of our 2028 Senior
Priority Notes, which became unrestricted in December 2022.
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.
Trade and Other Receivables
Although we generally require full payment from our customers prior to or
concurrently with their cruise, we grant credit terms to a relatively small
portion of our revenue source. We have receivables from credit card merchants
and travel agents for cruise ticket purchases and onboard revenue. These
receivables are included within trade and other receivables, net. We have
agreements with a number of credit card processors that transact customer
deposits related to our cruise vacations. Certain of these agreements allow
the credit card processors to request, under certain circumstances, that we
provide a reserve fund in cash. These reserve funds are included in other
assets.
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. We capitalize interest as part of the cost of capital
projects incurred during construction. Depreciation is computed using the
straight-line method over our estimated useful lives of the assets to a
residual value, 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. Any
liquidated damages received from shipyards are recorded as reductions to the
cost basis of the ship.
We have a capital program for the improvement of our ships and for asset
replacements 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
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 those incurred when a ship is
taken out-of-service for scheduled maintenance, and minor improvement costs
and expenses, are charged to expense as incurred.
In addition, 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.
We have estimated our ships' useful lives at 30 years and residual values at
15% of our original ship cost. Our ship useful life and residual value
estimates take into consideration the estimated weighted-average useful lives
of the ships' major component systems, such as hull, superstructure, main
electric, engines and cabins. We also take into consideration the impact of
technological changes, historical useful lives of similarly-built ships,
long-term cruise and vacation market conditions and regulatory changes,
including those related to the environment and climate change. 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 as well as our expectations of the long-term viability of
the secondary cruise ship market. We review estimated useful lives and
residual values for reasonableness whenever events or circumstances
significantly change.
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 its estimated fair value.
Leases
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 Sheets.
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.
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. Judgment is required in estimating the fair
value of our reporting unit.
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.
Equity Method Investments
Equity method investments are initially recognized at cost and are included in
other assets in the Consolidated Balance Sheets. Our proportionate interest in
their results is included in other income (expense), net in the Consolidated
Statements of Income.
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 have in the past and may in the future 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 2022, 2021 and 2020. 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 and advance onboard purchases are initially included in
customer deposits when received. Customer deposits are subsequently recognized
as cruise revenues, together with revenues from onboard and other activities,
and all associated direct costs and expenses of a voyage are recognized as
cruise costs and expenses, upon completion of voyages with durations of ten
nights or less and on a pro rata basis for voyages in excess of ten nights.
The impact of recognizing these shorter duration cruise revenues and costs and
expenses on a completed voyage basis versus on a pro rata basis is not
material. Certain of our product offerings are bundled and we allocate the
value of the bundled services and goods between passenger ticket revenues and
onboard and other revenues based upon the estimated standalone selling prices
of those goods and services. Guest cancellation fees, when applicable, are
recognized in passenger ticket revenues at the time of cancellation.
Our sales to guests of air and other transportation to and from airports near
the home ports of our ships are included in passenger ticket revenues, and the
related costs of purchasing these services are included in transportation
costs. The proceeds that we collect from the sales of third-party shore
excursions are included in onboard and other revenues and the related costs
are included in onboard and other costs. The amounts collected on behalf of
our onboard concessionaires, net of the amounts remitted to them, are included
in onboard and other revenues as concession revenues. All of these amounts are
recognized on a completed voyage or pro rata basis as discussed above.
Passenger ticket revenues include fees, taxes and charges collected by us from
our guests. The fees, taxes and charges that vary with guest head counts and
are directly imposed on a revenue-producing arrangement are expensed in
commissions, transportation and other costs when the corresponding revenues
are recognized. These fees, taxes and charges included in commissions,
transportation and other costs were $438 million in 2022, $73 million in 2021
and $215 million in 2020. The remaining portion of fees, taxes and charges are
expensed in other operating expenses when the corresponding revenues are
recognized.
Revenues and expenses from our hotel and transportation operations, which are
included in our Tour and Other segment, are recognized at the time the
services are performed.
Customer Deposits
Our payment terms generally require an initial deposit to confirm a
reservation, with the balance due prior to the voyage. Cash received from
guests in advance of the cruise is recorded in customer deposits and in other
long-term liabilities on our Consolidated Balance Sheets. These amounts
include refundable deposits. In certain situations, we have provided
flexibility to guests by allowing guests to rebook at a future date, receive
future cruise credits ("FCCs") or elect to receive refunds in cash. We have at
times issued enhanced FCCs. Enhanced FCCs provide the guest with an additional
credit value above the original cash deposit received, and the enhanced value
is recognized as a discount applied to the future cruise in the period used.
We record a liability for unexpired FCCs to the extent we have received and
not refunded cash from guests for cancelled bookings. We had total customer
deposits of $5.1 billion and $3.5 billion as of November 30, 2022 and 2021,
which includes approximately $210 million of unredeemed FCCs as of November
30, 2022. Given the uncertainty of travel demand caused by COVID-19 and lack
of comparable historical experience of FCC redemptions, we are unable to
estimate the number of FCCs that will not be used in future periods. Refunds
payable to guests who have elected cash refunds are recorded in accounts
payable. During 2022 and 2021, we recognized revenues of $1.9 billion and
$0.1 billion related to our customer deposits as of November 30, 2021 and
2020. Historically, our customer deposits balance changes due to the seasonal
nature of cash collections, the recognition of revenue, refunds of customer
deposits and foreign currency changes.
Contract Costs
We recognize incremental travel agent commissions and credit and debit card
fees incurred as a result of obtaining the ticket contract as assets when paid
prior to the start of a voyage. We record these amounts within prepaid
expenses and other and subsequently recognize these amounts as commissions,
transportation and other at the time of revenue recognition or at the time of
voyage cancellation. We had incremental costs of obtaining contracts with
customers recognized as assets of $218 million and $55 million as of
November 30, 2022 and 2021.
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 $744 million in 2022, $340 million in
2021 and $348 million in 2020. 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
In March 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standard Update ("ASU") No. 2020-04, Reference Rate Reform (Topic
848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting ("ASU No. 2020-04"), which provides temporary optional expedients
and exceptions to accounting guidance on contract modifications and hedge
accounting to ease entities' financial reporting burdens as the market
transitions from the London Interbank Offered Rate ("LIBOR") and other
interbank offered rates to alternative reference rates. ASU 2020-04 is
effective upon issuance. In December 2022, the FASB deferred the date for
which this guidance can be applied from December 31, 2022 to December 31,
2024. The use of LIBOR was phased out at the end of 2021, although the
phase-out of U.S. dollar LIBOR for existing agreements has been delayed until
June 2023. We continue to monitor developments related to the LIBOR transition
and identification of an alternative, market-accepted rate.
In December 2021, we amended our £350 million long-term debt agreement which
referenced the British Pound sterling ("GBP") LIBOR to the Sterling Overnight
Index Average ("SONIA") and applied the practical expedient. This amendment
did not have a material impact on our consolidated financial statements. As of
November 30, 2022, approximately $5.8 billion of our outstanding indebtedness
bears interest at floating rates referenced to U.S. dollar LIBOR with maturity
dates extending beyond June 30, 2023. We are currently evaluating our
contracts referenced to U.S. dollar LIBOR and working with our creditors on
updating credit agreements as necessary to include language regarding the
successor or alternate rate to LIBOR. We do not expect the adoption of this
standard to have a material impact on our consolidated financial statements
during the LIBOR transition period.
The FASB issued guidance, Debt - Debt with Conversion and Other Options and
Derivative and Hedging - Contracts in Entity's Own Equity, which simplifies
the accounting for convertible instruments. This guidance eliminates certain
models that require separate accounting for embedded conversion features, in
certain cases. Additionally, among other changes, the guidance eliminates
certain of the conditions for equity classification for contracts in an
entity's own equity. The guidance also requires entities to use the
if-converted method for all convertible instruments in the diluted earnings
per share calculation and include the effect of share settlement for
instruments that may be settled in cash or shares, except for certain
liability-classified share-based payment awards. We will adopt this guidance
in the first quarter of 2023 using the modified retrospective approach. We do
not expect the adoption of this guidance to have a material impact on our
consolidated financial statements.
In September 2022, the FASB issued ASU No. 2022-04, Liabilities-Supplier
Finance Programs (Subtopic 405-50) - Disclosure of Supplier Finance Program
Obligations. This ASU requires that a buyer in a supplier finance program
disclose sufficient information about the program to allow a user of financial
statements to understand the program's nature, activity during the period,
changes from period to period, and potential magnitude. This ASU is expected
to improve financial reporting by requiring new disclosures about the
programs, thereby allowing financial statement users to better consider the
effect of the programs on an entity's working capital, liquidity, and cash
flows. This ASU is effective for fiscal years beginning after December 15,
2022, except for the amendment on roll forward information which is effective
for fiscal years beginning after December 15, 2023. We are currently
evaluating the impact of the new guidance on the disclosures to our
consolidated financial statements.
NOTE 3 - Property and Equipment
November 30,
(in millions) 2022 2021
Ships and ship improvements $52,908 $50,501
Ships under construction 785 1,536
Other property and equipment 3,970 3,928
Total property and equipment 57,663 55,965
Less accumulated depreciation (18,976) (17,858)
$38,687 $38,107
Capitalized interest amounted to $48 million in 2022, $83 million in 2021 and
$66 million in 2020.
Sales of Ships
During 2022, we entered into an agreement to sell one EA segment ship and
completed the sales of two NAA segment ships and one EA segment ship, all of
which collectively represents a passenger-capacity reduction of 4,110 berths
for our EA segment and 4,110 berths for our NAA segment. Additionally, in
December 2022, we entered into an agreement to sell one EA segment ship, which
represents a passenger-capacity reduction of 1,270 berths.
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 - Equity Method Investments
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
$12 million in 2022, $11 million in 2021 and $38 million in 2020. As of
November 30, 2022, our investment in Grand Bahama was $43 million, consisting
of $10 million in equity and a loan of $33 million. 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.
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 2022, 2021 and
2020. As a result of the effects of the pause and subsequent resumption of our
guest cruise operations on the 2022 and 2021 Alaska seasons, we evaluated
whether our investment in White Pass was other than temporarily impaired and
performed impairment assessments. As a result of our assessments, we
recognized impairment charges for 2022 and 2021 of $30 million and
$17 million in other income (expense), net. As of November 30, 2022, our
investment in White Pass was $50 million, consisting of $18 million in equity
and a loan of $32 million. 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.
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. We provided an immaterial amount
of services to CSSC-Carnival during both 2022 and 2021 and we paid
CSSC-Carnival a total of $55 million for the lease of ships during 2021. As
of November 30, 2022 and 2021, our investment in CSSC-Carnival was
$70 million and $119 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 2022 we did not make any capital
contributions to CSSC-Carnival. During 2021 we made capital contributions to
CSSC-Carnival in the amount of $90 million.
NOTE 5 - Debt
November 30,
(in millions) Maturity Rate (a) (b) 2022 2021
Secured Debt
Notes
Notes Feb 2026 10.5% $775 $775
EUR Notes Feb 2026 10.1% 439 481
Notes Jun 2027 7.9% 192 192
Notes Aug 2027 9.9% 900 900
Notes Aug 2028 4.0% 2,406 2,406
Loans
EUR fixed rate Nov 2022 5.5% - 6.2% - 98
EUR floating rate Nov 2022 - Jun 2025 EURIBOR + 3.8% 808 951
Floating rate June 2025 - Oct 2028 LIBOR + 3.0 - 3.3% 4,101 4,137
Total Secured Debt 9,621 9,939
Unsecured Debt
Revolver
Facility (c) LIBOR + 0.7% 200 2,790
Notes
EUR Notes Nov 2022 1.9% - 622
Convertible Notes Apr 2023 5.8% 96 522
Notes Oct 2023 7.2% 125 125
Convertible Notes Oct 2024 5.8% 426 -
Notes Mar 2026 7.6% 1,450 1,450
EUR Notes Mar 2026 7.6% 517 566
Notes Mar 2027 5.8% 3,500 3,500
Convertible Notes Dec 2027 5.8% 1,131 -
Notes Jan 2028 6.7% 200 200
Senior Priority Notes May 2028 10.4% 2,030 -
Notes May 2029 6.0% 2,000 2,000
EUR Notes Oct 2029 1.0% 620 679
Notes Jun 2030 10.5% 1,000 -
Loans
Floating rate Feb 2023 - Sep 2024 LIBOR + 3.8 - 4.5% 590 590
GBP floating rate Feb 2025 SONIA + 0.9% (d) 419 467
EUR floating rate Dec 2021 - Mar 2026 EURIBOR + 1.8 - 2.4% 827 1,375
Export Credit Facilities
Floating rate Feb 2022 - Dec 2031 LIBOR + 0.8 - 1.5% 1,246 1,363
Fixed rate Aug 2027 - Dec 2032 2.4 - 3.4% 3,143 3,488
EUR fixed rate Feb 2031 - Jan 2034 1.1 - 1.6% 2,592 1,551
EUR floating rate Feb 2022 - Nov 2034 EURIBOR + 0.2 - 1.6% 3,882 2,742
Total Unsecured Debt 25,994 24,031
Total Debt 35,615 33,970
Less: unamortized debt issuance costs and discounts (1,069) (744)
Total Debt, net of unamortized debt issuance costs and discounts 34,546 33,226
Less: short-term borrowings (200) (2,790)
Less: current portion of long-term debt (2,393) (1,927)
Long-Term Debt $31,953 $28,509
(a) The reference rates for substantially all of our LIBOR and EURIBOR
based variable debt have 0.0% to 0.75% floors.
(b) The above debt tables do not include the impact of our interest rate
swaps and as of November 30, 2021, it also excludes the impact of our foreign
currency swaps. As of November 30, 2022, we had no foreign currency swaps. The
interest rates on some of our debt, including our Revolving Facility,
fluctuate based on the applicable rating of senior unsecured long-term
securities of Carnival Corporation or Carnival plc.
(c) Amounts outstanding under our Revolving Facility were drawn in 2020
for an initial six-month term. We may continue to re-borrow or otherwise
utilize available amounts under the Revolving Facility through August 2024,
subject to satisfaction of the conditions in the facility. We had
$2.6 billion available for borrowing under our Revolving Facility as of
November 30, 2022. The Revolving Facility also includes an emissions linked
margin adjustment whereby, after the initial applicable margin is set per the
margin pricing grid, the margin may be adjusted based on performance in
achieving certain agreed annual carbon emissions goals. We are required to pay
a commitment fee on any unutilized portion.
(d) As of November 30, 2022 the interest rate for the GBP unsecured loan
was linked to SONIA and subject to a credit adjustment spread ranging from
0.03% to 0.28%. The referenced SONIA rate with the credit adjustment spread is
subject to a 0% floor. As of November 30, 2021, this loan was referenced to
GBP LIBOR.
Carnival Corporation and/or Carnival plc is the primary obligor of all our
outstanding debt excluding $0.5 billion
under a term loan facility of Costa Crociere S.p.A. ("Costa"), a subsidiary of
Carnival plc, and $2.0 billion of 2028 Senior Priority Notes (as defined
below), issued by Carnival Holdings (Bermuda) Limited ("Carnival Holdings"), a
subsidiary of Carnival Corporation. All our outstanding debt is issued or
guaranteed by substantially the same entities with the exception of up to $250
million of the Costa term loan facility, which is guaranteed by certain
subsidiaries of Carnival plc and Costa that do not guarantee our other
outstanding debt, and our 2028 Senior Priority Notes, which are issued by
Carnival Holdings, which does not guarantee our other outstanding debt.
The scheduled maturities of our debt are as follows:
(in millions)
Year Principal Payments
2023 $2,396
2024 (a) 2,645
2025 4,385
2026 4,507
2027 5,662
Thereafter 16,020
Total $35,615
(a) Includes borrowings of $0.2 billion under our Revolving Facility.
Amounts outstanding under our Revolving Facility were drawn in 2020 for an
initial six-month term. We may continue to re-borrow or otherwise utilize
available amounts under the Revolving Facility through August 2024, subject to
satisfaction of the conditions in the facility. We had $2.6 billion available
for borrowing under our Revolving Facility as of November 30, 2022.
Short-Term Borrowings
As of November 30, 2022 and November 30, 2021, our short-term borrowings
consisted of $0.2 billion and $2.8 billion under our Revolving Facility.
Secured Debt
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 3.0%. 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 4.0%
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
2028 Senior Priority Notes
In October 2022, Carnival Holdings issued an aggregate principal amount of
$2.0 billion senior priority notes that mature on May 1, 2028 (the "2028
Senior Priority Notes"). The 2028 Senior Priority Notes bear interest at a
rate of 10.4% per year and are callable beginning May 1, 2025. In connection
with the offering of the 2028 Senior Priority Notes, Carnival Corporation,
Carnival plc and their respective subsidiaries contributed 12 unencumbered
vessels (the "Subject Vessels") to Carnival Holdings, with each of the Subject
Vessels continuing to be operated under one of Carnival Corporation's,
Carnival plc's or one of their respective subsidiaries' brands. As of November
30, 2022, the Subject Vessels had an aggregate net book value of approximately
$8.3 billion. As of November 30, 2022, there was no change in the identity of
the Subject Vessels. See "Collateral and Priority Pool" below.
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
5.8% 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 6.0% per year and are
callable beginning November 1, 2024.
2030 Senior Unsecured Notes
In May 2022, we issued an aggregate principal amount of $1.0 billion senior
unsecured notes that mature on June 1, 2030 (the "2030 Senior Unsecured
Notes"). The 2030 Senior Unsecured Notes bear interest at a rate of 10.5% per
year and are callable beginning June 1, 2025.
Export Credit Facility Borrowings
During the year ended November 30, 2022, we borrowed $3.1 billion under
export credit facilities due in semi-annual installments through 2034. As of
November 30, 2022, the net book value of the vessels subject to negative
pledges was $14.2 billion.
Debt Holidays
In 2021, we amended substantially all of our export credit facilities to defer
approximately $1.0 billion of principal payments that would otherwise have
been due over a period commencing April 1, 2021 until May 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 $1.2 billion as of November 30, 2022.
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 5.8%
convertible senior notes due 2023 (the "2023 Convertible Notes"). The 2023
Convertible Notes mature on April 1, 2023, unless earlier repurchased or
redeemed by us or earlier converted in accordance with their terms prior to
the maturity date. Since April 2020, we repurchased, exchanged and converted a
portion of the 2023 Convertible Notes which resulted in a decrease of the
principal amount of the 2023 Convertible Notes to $0.1 billion.
In August 2022, we issued $339 million aggregate principal amount of 5.8%
convertible senior notes due 2024 (the "2024 Convertible Notes") pursuant to
privately-negotiated non-cash exchange agreements with certain holders of the
2023 Convertible Notes, pursuant to which such holders agreed to exchange
their 2023 Convertible Notes for an equal amount of 2024 Convertible Notes. In
November 2022, we issued an additional $87 million aggregate principal amount
of the 2024 Convertible Notes pursuant to privately-negotiated non-cash
exchange agreements with certain holders of the 2023 Convertible Notes,
pursuant to which such holders agreed to exchange their 2023 Convertible Notes
for an equal amount of additional 2024 Convertible Notes. The 2024 Convertible
Notes mature on October 1, 2024, unless earlier repurchased or redeemed by us
or earlier converted in accordance with their terms prior to the maturity
date.
In November 2022, we issued $1.1 billion aggregate principal amount of 5.8%
convertible senior notes due 2027 (the "2027 Convertible Notes" and, together
with the 2023 Convertible Notes and the 2024 Convertible Notes, the
"Convertible Notes"). The 2027 Convertible Notes mature on December 1, 2027,
unless earlier repurchased or redeemed by us or earlier converted in
accordance with their terms prior to the maturity date.
The Convertible Notes are convertible by holders, subject to the conditions
described within the respective indentures that govern the Convertible Notes,
into cash, shares of Carnival Corporation common stock, or a combination
thereof, at our election. The 2023 Convertible Notes and the 2024 Convertible
Notes each have an initial conversion rate of 100 shares of Carnival
Corporation common stock per $1,000 principal amount of notes, equivalent to
an initial conversion price of $10 per share of common stock. The 2027
Convertible Notes have an initial conversion rate of approximately 75 shares
of Carnival Corporation common stock per $1,000 principal amount of notes,
equivalent to an initial conversion price of approximately $13.39 per share of
common stock. The initial conversion price of the Convertible Notes is subject
to certain anti-dilutive adjustments and may also increase if such Convertible
Notes are converted in connection with a tax redemption or certain corporate
events as described within the respective indentures that govern the
Convertible Notes. The 2024 Convertible Notes were convertible from the date
of issuance of the 2024 Convertible Notes until August 31, 2022, and
thereafter may become convertible if certain conditions are met. As of
November 30, 2022, there were no conditions satisfied which would allow the
holders of the 2023 Convertible Notes, the 2024 Convertible Notes or the 2027
Convertible Notes to convert and therefore the Convertible Notes were not
convertible as of such date. Refer to Note 15 - "Supplemental Cash Flow
Information" for additional detail on transactions related to the Convertible
Notes.
The 2023 Convertible Notes were redeemable, in whole but not in part, at any
time on or prior to December 31, 2022 at a redemption price equal to 100% of
the principal amount thereof, plus accrued and unpaid interest to the
redemption date, if we or any guarantor would have to pay any additional
amounts on the 2023 Convertible Notes due to a change in tax laws, regulations
or rulings or a change in the official application, administration or
interpretation thereof. We may redeem the 2024 Convertible Notes, in whole but
not in part, at any time on or prior to June 30, 2024 at a redemption price
equal to 100% of the principal amount thereof, plus accrued and unpaid
interest to the redemption date, if we or any guarantor would have to pay any
additional amounts on the 2024 Convertible Notes due to a change in tax laws,
regulations or rulings or a change in the official application, administration
or interpretation thereof. We may redeem the 2027 Convertible Notes, in whole
but not in part, at any time on or prior to the 40th scheduled trading day
immediately before the maturity date 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 2027 Convertible Notes due to a change in tax laws, regulations
or rulings or a change in the official application, administration or
interpretation thereof.
On or after December 5, 2025 and on or before the 40th scheduled trading day
immediately before the maturity date, we may redeem for cash all or part of
the 2027 Convertible Notes, at our option, if the last reported sale price of
Carnival Corporation's common stock exceeds 130% of the conversion price then
in effect for at least 20 trading days (whether or not consecutive), including
the trading day immediately preceding the date on which we provide notice of
redemption, during the 30 consecutive trading day period ending on, and
including, the trading day immediately preceding the date on which we provide
notice of redemption. The redemption price will equal 100% of the principal
amount of the 2027 Convertible Notes being redeemed, plus accrued and unpaid
interest to, but excluding, the redemption date.
We account for the Convertible Notes as separate liability and equity
components. We determine 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 is calculated by deducting the carrying
value of the liability component from the initial proceeds of the Convertible
Notes.
The carrying amount of the equity component was $229 million on the date of
issuance of the 2027 Convertible Notes and $286 million on the date of
issuance of the 2023 Convertible Notes. The carrying amount of the equity
component for the 2023 Convertible Notes was reduced to zero in conjunction
with the partial repurchase in August 2020 because at the time of repurchase,
the fair value of the equity component for the portion of the 2023 Convertible
Notes that was repurchased, exceeded the total amount of the equity component
recorded at the time the 2023 Convertible Notes were issued. The fair value of
the conversion option remained unchanged after the exchange of the portion of
the 2023 Convertible Notes for the 2024 Convertible Notes and, as a result,
there was no adjustment to the carrying amount of the equity component.
The debt discount, which represents the excess of the principal amount of the
Convertible Notes over the carrying amount of the liability component on the
date of issuance of the Convertible Notes, is capitalized and amortized to
interest expense under the effective interest rate method over the term of the
respective Convertible Notes. Following the exchange of the portion of the
2023 Convertible Notes for the 2024 Convertible Notes, the remaining
unamortized discount was allocated between the 2023 Convertible Notes and the
2024 Convertible Notes and is amortized to interest expense over each
respective term using the effective interest rate method.
The net carrying value of the liability component of the Convertible Notes was
as follows:
November 30,
(in millions) 2022 2021
Principal $1,653 $522
Less: Unamortized debt discount (274) (45)
$1,380 $478
As of November 30, 2022, the if-converted value on available shares of
137 million for the Convertible Notes was below par.
Collateral and Priority Pool
As of November 30, 2022, the net book value of our ships and ship
improvements, excluding ships under construction, is $36.2 billion. Our
secured debt is secured on either a first or second-priority basis, depending
on the instrument, by certain collateral, which includes vessels and certain
assets related to those vessels and material intellectual property (combined
net book value of approximately $23.6 billion, including $22.0 billion
related to vessels and certain assets related to those vessels) as of November
30, 2022 and certain other assets.
In addition, as of December 9, 2022, $8.3 billion in net book value of our
ships and ship improvements have been transferred to Carnival Holdings. These
vessels are included in the Vessel Priority Pool of Subject Vessels for our
2028 Senior Priority Notes.
Covenant Compliance
As of November 30, 2022, our Revolving Facility, unsecured loans and export
credit facilities contain certain covenants listed below.
• Maintain minimum interest coverage (adjusted EBITDA to
consolidated net interest charges, as defined in the agreements) (the
"Interest Coverage Covenant") at the end of each fiscal quarter from August
31, 2023, at a ratio of not less than 2.0 to 1.0 for the August 31, 2023
testing date, 2.5 to 1.0 for the November 30, 2023 testing date, and 3.0 to
1.0 for the February 29, 2024 testing date onwards, or through their
respective maturity dates.
• Maintain minimum issued capital and consolidated reserves (as
defined in the agreements) of $5.0 billion
• Limit our debt to capital (as defined in the agreements)
percentage from the November 30, 2021 testing date until the May 31, 2023
testing date, to a percentage not to exceed 75%, following which it will be
tested at levels which decline ratably to 65% from the May 31, 2024 testing
date onwards
• Maintain minimum liquidity of $1.5 billion through November 30,
2026
• Adhere to certain restrictive covenants through November 30,
2024
• Limit the amounts of our secured assets as well as secured and
other indebtedness
During 2022, we entered into letter agreements to waive compliance with the
Interest Coverage Covenant under our Revolving Facility and $11.8 billion of
$12.1 billion of our unsecured loans and export credit facilities which
contain this covenant through the February 29, 2024 testing date.
Subsequent to November 30, 2022 and as of January 12, 2023, we entered into
further letter agreements to waive compliance with the Interest Coverage
Covenant under the remaining $0.3 billion of our unsecured loans and export
credit facilities which contain the covenant through the February 29, 2024
testing date and our Revolving Facility through the May 31, 2024 testing date.
We will be required to comply beginning with the next testing date of May 31,
2024 or August 31, 2024, as applicable.
At November 30, 2022, we were in compliance with the applicable covenants
under our debt agreements. Generally, if an event of default under any debt
agreement occurs, then, pursuant to cross-default and/or cross-acceleration
clauses therein, substantially all of our outstanding debt and derivative
contract payables could become due, and our debt and derivative contracts
could be terminated. Any financial covenant amendment may lead to increased
costs, increased interest rates, additional restrictive covenants and other
available lender protections that would be applicable.
Carnival Corporation or Carnival plc and certain of our subsidiaries have
guaranteed substantially all of our indebtedness.
NOTE 6 - Commitments
As of November 30, 2022, we expect the timing of our new ship growth capital
commitments to be as follows:
(in millions)
Year
2023 $1,755
2024 2,400 (a)
2025 895 (a)
Thereafter -
$5,050
(a) As of November 30, 2022, includes a ship subject to financing. Subsequent
to November 30, 2022, we obtained financing for the 2024 and 2025 ship
deliveries, such that these commitments are no longer subject to financing.
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,
the hearings on motions for summary judgment were concluded on January 18,
2022. On March 21, 2022, the court granted summary judgment in favor of Havana
Docks Corporation as to liability. On August 31, 2022, the court determined
that the trebling provision of the Helms-Burton statute applies to damages and
interest and accordingly, we adjusted our estimated liability for this matter.
The court held a status conference on September 22, 2022, at which time it was
determined that a jury trial is no longer necessary. On December 30, 2022, the
court entered judgment against Carnival in the amount of $110 million plus
$4 million in fees and costs. We intend to appeal. In the matter filed by
Javier Bengochea on December 20, 2021, the court issued an order inviting an
amicus brief from the U.S. government on several issues involved in the
appeal. The U.S. government filed its brief and the court ordered the parties
to respond. On May 6, 2022 we filed our response brief. On November 23, 2022,
the Eleventh Circuit entered an order affirming the dismissal of the case in
our favor. We believe that any final liability which may arise as a result of
these actions is unlikely to have a material impact on our consolidated
financial statements.
As previously disclosed, on April 8, 2020, DeCurtis LLC ("DeCurtis"), a former
vendor, filed an action against Carnival Corporation in the U.S. District
Court for the Middle District of Florida seeking declaratory relief that
DeCurtis is not infringing on several of Carnival Corporation's patents in
relation to its OCEAN Medallion systems and technology. The action also raises
certain monopolization claims under The Sherman Antitrust Act of 1890, unfair
competition and tortious interference, and seeks declaratory judgment that
certain Carnival Corporation patents are unenforceable. DeCurtis seeks
damages, including its fees and costs, and seeks declarations that it is not
infringing and/or that Carnival Corporation's patents are unenforceable. On
April 10, 2020, Carnival Corporation filed an action against DeCurtis in the
U.S. District Court for the Southern District of Florida for breach of
contract, trade secrets violations and patent infringement. Carnival
Corporation seeks damages, including its fees and costs, as well as an order
permanently enjoining DeCurtis from engaging in such activities. These two
cases have now been consolidated in the Southern District of Florida. On April
25, 2022, we moved for summary judgment on our breach of contract claims and
on all of DeCurtis's claims. DeCurtis also filed a motion for summary judgment
on certain portions of our claims. Both motions for summary judgment were
fully briefed. On July 28, 2022, the court adopted the Magistrate Judge's
report and recommendation granting our opening claim construction brief and
denying DeCurtis's motion for summary judgment regarding the invalidity of
various patent claims. On November 11, 2022, the Magistrate Judge entered a
Report and Recommendation which recommended that the Court enter an order
denying our motion for summary judgment and granting in part and denying in
part DeCurtis's motion for summary judgment. Both parties have filed
objections to the Report and Recommendation. The court has set the trial date
for February 27, 2023. We believe the ultimate outcome will not have a
material impact on our consolidated financial statements.
COVID-19 Actions
We have been named in a number of individual actions related to COVID-19.
These actions include tort claims based on a variety of theories, including
negligence and failure to warn. The plaintiffs in these actions allege a
variety of injuries: some plaintiffs confined their claim to emotional
distress, while others allege injuries arising from testing positive for
COVID-19. A smaller number of actions include wrongful death claims.
Substantially all of these individual actions have now been dismissed or
settled for immaterial amounts.
As of November 30, 2022, 11 purported class actions have been brought by
former guests in several U.S. federal courts, the Federal Court in Australia,
and in Italy. These actions include tort claims based on a variety of
theories, including negligence, gross negligence and failure to warn, physical
injuries and severe emotional distress associated with being exposed to and/or
contracting COVID-19 onboard. As of November 30, 2022, nine of these class
actions have either been settled individually for immaterial amounts or had
their class allegations dismissed by the courts and only the Australian and
Italian matters remain.
All COVID-19 matters seek monetary damages and most seek additional punitive
damages in unspecified amounts.
We continue to take actions to defend against the above claims.
Regulatory or Governmental Inquiries and Investigations
We have been, and may continue to be, impacted by breaches in data security
and lapses in data privacy, which occur from time to time. These can vary in
scope and intent from inadvertent events to malicious motivated attacks.
As previously disclosed, on June 24, 2022, we finalized a settlement with the
New York Department of Financial Services ("NY DFS") in connection with
previously disclosed cybersecurity events, pursuant to which we have paid an
amount that did not have a material impact on our consolidated financial
statements. In addition, as previously disclosed, we finalized a settlement
with the State Attorneys General from 46 states in connection with the same
cybersecurity events, pursuant to which we have paid an amount that did not
have a material impact on our consolidated financial statements. All
previously disclosed cyber incidents have now been resolved.
We have incurred legal and other costs in connection with cyber incidents that
have impacted us. The penalties and settlements paid in connection with cyber
incidents over the last three years were not material. While these incidents
did not have a material adverse effect on our business, results of operations,
financial position or liquidity, no assurances can be given about the future
and we may be subject to future litigation, attacks or incidents that could
have such a material adverse effect.
On March 14, 2022, the U.S. Department of Justice and the U.S. Environmental
Protection Agency notified us of potential civil penalties and injunctive
relief for alleged Clean Water Act violations by owned and operated vessels
covered by the 2013 Vessel General Permit. We are working with these agencies
to reach a resolution of this matter. We believe the ultimate outcome will not
have a material impact on our consolidated financial statements.
Other Contingent Obligations
Some of the debt contracts we enter into include indemnification provisions
obligating us to make payments to the counterparty if certain events occur.
These contingencies generally relate to changes in taxes or changes in laws
which increase the lender's costs. There are no stated or notional amounts
included in the indemnification clauses, and we are not able to estimate the
maximum potential amount of future payments, if any, under these
indemnification clauses.
We have agreements with a number of credit card processors that transact
customer deposits related to our cruise vacations. Certain of these agreements
allow the credit card processors to request, under certain circumstances, that
we provide a reserve fund in cash. Although the agreements vary, these
requirements may generally be satisfied either through a withheld percentage
of customer payments or providing cash funds directly to the credit card
processor. As of November 30, 2022 and 2021, we had $1.7 billion and
$1.1 billion in reserve funds related to our customer deposits provided to
satisfy these requirements which are included within other assets. We continue
to expect to provide reserve funds under these agreements. Additionally, as of
November 30, 2022 and 2021, we had $30 million of cash collateral in escrow
which is included within other assets.
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 2022 and 2021.
Substantially all of AIDA's earnings are exempt from German income taxes by
virtue of the Germany/Italy income tax treaty.
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
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, 2022 and 2021, no Carnival Corporation preferred stock
or Carnival plc preference shares had been issued.
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
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 2022 and 2021 under the Stock Swap Program, we sold 6.0 million and
8.9 million shares of Carnival Corporation common stock and repurchased the
same amount of Carnival plc ordinary shares resulting in net proceeds of
$8 million and $19 million, which were used for general corporate purposes.
During 2020, 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
2022 6.0 $14.52 3.6
2021 8.9 $20.99 9.5
(a) No ordinary shares of Carnival plc were purchased outside of publicly
announced plans or programs.
Public Equity Offerings
In April 2020, we completed a public offering of 71.9 million shares of
Carnival Corporation 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 common stock at a price per share of $25.10, resulting in
net proceeds of $996 million.
In August 2022, we completed a public offering of 117.5 million shares of
Carnival Corporation common stock at a price per share of $9.95, resulting in
net proceeds of $1.2 billion.
Other
Outside of the Stock Swap Program and the public equity offerings described
above, in 2022 and 2021 we sold 1.6 million and 0.6 million shares of Carnival
Corporation common stock at an average price per share of $19.27 and $21.32,
resulting in net proceeds of $30 million and $13 million.
Accumulated Other Comprehensive Income (Loss)
AOCI
November 30,
(in millions) 2022 2021 2020
Cumulative foreign currency translation adjustments, net $(2,004) $(1,501) $(1,382)
Unrecognized pension expenses (31) (45) (95)
Net gains on cash flow derivative hedges and other 53 44 41
$(1,982) $(1,501) $(1,436)
During 2022, 2021 and 2020, there were $1 million, $7 million and $3 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 Carnival Corporation common stock and Carnival plc ordinary
shares. 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 29 May 31 August 31 November 30
2020
Dividends declared per share $0.50 $- $- $-
Dividends declared $342 $- $- $-
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, 2022 November 30, 2021
Carrying Fair Value Carrying Fair Value
Value Value
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Liabilities
Fixed rate debt (a) $23,542 $- $18,620 $- $19,555 $- $19,013 $-
Floating rate debt (a) 12,074 - 10,036 - 14,415 - 13,451 -
Total $35,615 $- $28,656 $- $33,970 $- $32,463 $-
(a) The debt amounts above do not include the impact of
interest rate swaps or debt issuance costs. The fair values of our
publicly-traded notes were based on their unadjusted quoted market prices in
markets that are not sufficiently active to be Level 1 and, accordingly, are
considered Level 2. The fair values of our other debt were estimated based on
current market interest rates being applied to this debt.
Financial Instruments that are Measured at Fair Value on a Recurring Basis
November 30, 2022 November 30, 2021
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash and cash equivalents $4,029 $- $- $8,939 $- $-
Restricted cash 1,988 - - 38 - -
Short-term investments (a) - - - 200 - -
Derivative financial instruments - 1 - - 1 -
Total $6,016 $1 $- $9,177 $1 $-
Liabilities
Derivative financial instruments $- $- $- $- $13 $-
Total $- $- $- $- $13 $-
(a) Short-term investments consist of marketable
securities with original maturities of between three and twelve months.
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring
Basis
Valuation of Goodwill and Trademarks
As of July 31, 2022, we performed our annual goodwill and trademark impairment
reviews and determined there was no impairment for goodwill and trademarks at
our annual test date.
During 2021 and as a result of the continued 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, 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 the pause and
subsequent resumption of guest cruise operations has 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 2021
cash flow analyses and which resulted in goodwill impairments for all but one
reporting unit 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 assumptions, all of which are considered Level 3 inputs, used in our 2020
cash flow analyses consisted of:
• The timing of our return to service, changes in market
conditions and port or other restrictions
• Forecasted revenues net of our most significant variable costs,
which are travel agent commissions, costs of air and other transportation, and
certain other costs that are directly associated with onboard and other
revenues including credit and debit card fees
• The allocation of new ships and the timing of the transfer or
sale of ships amongst brands, as well as the estimated proceeds from ship
sales
• 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, 2020 $579 $228 $807
Impairment charges - (226) (226)
Exchange movements - (2) (2)
At November 30, 2021 579 - 579
Impairment charges - - -
At November 30, 2022 $579 $- $579
Trademarks
(in millions) NAA Segment EA Segment Total
At November 30, 2020 $927 $253 $1,180
Exchange movements - (5) (5)
At November 30, 2021 927 248 1,175
Exchange movements - (24) (24)
At November 30, 2022 $927 $224 $1,151
Impairment of Ships
We review our long-lived assets for impairment whenever events or
circumstances indicate potential impairment. As a result of the continued
effects of COVID-19 on our business and certain Asia markets which remain
closed to cruising (particularly China), and our updated expectations for our
deployment, we determined that two ships had net carrying values that exceeded
their respective estimated undiscounted future cash flows. We then estimated
the fair value of these ships, based on their estimated selling values, and
recognized ship impairment charges as summarized in the table below.
We performed undiscounted cash flow analyses on certain ships throughout 2021
and 2020 and determined that certain ships had net carrying values that
exceeded their estimated undiscounted future cash flows and fair values, and,
as a result, we recognized ship impairment charges during 2021 and 2020.
We believe we have made reasonable estimates and judgments as part of our
assessments. A change in the principal judgments or estimates may result in a
need to perform additional impairment reviews.
In 2022, the principal assumption used in determining the fair value of these
ships were the estimated sales proceeds, which are considered a Level 3 input.
In 2021, the principal assumptions used in determining the fair value of these
ships were the timing of the sale of ships and estimated proceeds, which are
considered Level 3 inputs.
In 2020, the principal assumptions used in determining the fair value of these
ships consisted of:
• Timing of the respective ship's return to service, changes in
market conditions and port or other restrictions
• Forecasted ship revenues net of our most significant variable
costs, which are travel agent commissions, costs of air and other
transportation and certain other costs that are directly associated with
onboard and other revenues, including credit and debit card fees
• 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) 2022 2021 2020
NAA Segment $8 $273 $1,474
EA Segment 421 318 319
Total ship impairments $428 $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 2022 2021
Derivative assets
Derivatives designated as hedging instruments
Cross currency swaps (a) Prepaid expenses and other $- $1
Interest rate swaps (b) Prepaid expenses and other 1 -
Other assets 1 -
Total derivative assets $1 $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
Other long-term liabilities - 2
Total derivative liabilities $- $13
(a) At November 30, 2022, we had no cross-currency swaps. At
November 30, 2021, we had a cross currency swap totaling $201 million that
was designated as a hedge of our net investment in foreign operations with a
euro-denominated functional currency.
(b) We have interest rate swaps designated as cash flow hedges
whereby we receive floating interest rate payments in exchange for making
fixed interest rate payments. These interest rate swap agreements effectively
changed $89 million at November 30, 2022 and $160 million at November 30, 2021
of EURIBOR-based floating rate euro debt to fixed rate euro debt. At November
30, 2022, these interest rate swaps settle through 2025.
Our derivative contracts include rights of offset with our counterparties. We
have elected to net certain of our derivative assets and liabilities within
counterparties, when applicable.
November 30, 2022
(in millions) Gross Amounts Gross Amounts Offset in the Balance Sheet Total Net Amounts Presented in the Balance Sheet Gross Amounts not Offset in the Balance Sheet Net Amounts
Assets $1 $- $1 $- $1
Liabilities $- $- $- $- $-
November 30, 2021
(in millions) Gross Amounts Gross Amounts Offset in the Balance Sheet Total Net Amounts Presented in the Balance Sheet Gross Amounts not Offset in the Balance Sheet Net Amounts
Assets $1 $- $1 $- $1
Liabilities $13 $- $13 $- $13
The effect of our derivatives qualifying and designated as hedging instruments
recognized in other comprehensive income (loss) and in net income (loss) was
as follows:
November 30,
(in millions) 2022 2021 2020
Gains (losses) recognized in AOCI:
Cross currency swaps - net investment hedges - included component $72 $(1) $131
Cross currency swaps - net investment hedges - excluded component $(26) $(6) $(1)
Foreign currency zero cost collars - cash flow hedges $- $- $1
Foreign currency forwards - cash flow hedges $- $- $53
Interest rate swaps - cash flow hedges $11 $5 $6
Gains (losses) reclassified from AOCI - cash flow hedges:
Interest rate swaps - Interest expense, net of capitalized interest $(2) $(5) $(6)
Foreign currency zero cost collars - Depreciation and amortization $2 $2 $1
Gains (losses) recognized on derivative instruments (amount excluded from
effectiveness testing - net investment hedges)
Cross currency swaps - Interest expense, net of capitalized interest $5 $- $12
The amount of estimated cash flow hedges' unrealized gains and losses that are
expected to be reclassified to earnings in the next twelve months is not
material.
Financial Risks
Fuel Price Risks
We manage our exposure to fuel price risk by managing our consumption of fuel.
Substantially all of our exposure to market risk for changes in fuel prices
relates to the consumption of fuel on our ships. We manage fuel consumption
through ship maintenance practices, modifying our itineraries and implementing
innovative technologies.
Foreign Currency Exchange Rate Risks
Overall Strategy
We manage our exposure to fluctuations in foreign currency exchange rates
through our normal operating and financing activities, including netting
certain exposures to take advantage of any natural offsets and, when
considered appropriate, through the use of derivative and non-derivative
financial instruments. Our primary focus is to monitor our exposure to, and
manage, the economic foreign currency exchange risks faced by our operations
and realized if we exchange one currency for another. We consider hedging
certain of our ship commitments and net investments in foreign operations. The
financial impacts of our hedging instruments generally offset the changes in
the underlying exposures being hedged.
Operational Currency Risks
Our operations primarily utilize the U.S. dollar, Euro, Sterling or the
Australian dollar as their functional currencies. Our operations also have
revenue and expenses denominated in non-functional currencies. Movements in
foreign currency exchange rates affect our financial statements.
Investment Currency Risks
We consider our investments in foreign operations to be denominated in stable
currencies and of a long-term nature. We partially mitigate the currency
exposure of our investments in foreign operations by designating a portion of
our foreign currency debt and derivatives as hedges of these investments. As
of November 30, 2022, we have designated $419 million of our
sterling-denominated debt as non-derivative hedges of our net investments in
foreign operations. In 2022, we recognized $48 million of gains on these
non-derivative net investment hedges in the cumulative translation adjustment
section of other comprehensive income (loss). We also have euro-denominated
debt which provides an economic offset for our operations with euro functional
currency.
Newbuild Currency Risks
Our shipbuilding contracts are typically denominated in euros. Our decision to
hedge a non-functional currency ship commitment for our cruise brands is made
on a case-by-case basis, considering the amount and duration of the exposure,
market volatility, economic trends, our overall expected net cash flows by
currency and other offsetting risks.
At November 30, 2022, our remaining newbuild currency exchange rate risk
primarily relates to euro-denominated newbuild contract payments for non-euro
functional currency brands, which represent a total unhedged commitment of
$4.4 billion for newbuilds scheduled to be delivered through 2025.
The cost of shipbuilding orders that we may place in the future that are
denominated in a different currency than our cruise brands' will be affected
by foreign currency exchange rate fluctuations. These foreign currency
exchange rate fluctuations may affect our decision to order new cruise ships.
Interest Rate Risks
We manage our exposure to fluctuations in interest rates through our debt
portfolio management and investment strategies. We evaluate our debt
portfolio to determine whether to make periodic adjustments to the mix of
fixed and floating rate debt through the use of interest rate swaps and the
issuance of new debt.
Concentrations of Credit Risk
As part of our ongoing control procedures, we monitor concentrations of credit
risk associated with financial and other institutions with which we conduct
significant business. We seek to manage these credit risk exposures,
including counterparty nonperformance primarily associated with our cash
equivalents, investments, notes receivables, reserve funds related to customer
deposits, future financing facilities, contingent obligations, derivative
instruments, insurance contracts, long-term ship charters and new ship
progress payment guarantees, by:
• Conducting business with well-established financial
institutions, insurance companies and export credit agencies
• Diversifying our counterparties
• Having guidelines regarding credit ratings and investment
maturities that we follow to help safeguard liquidity and minimize risk
• Generally requiring collateral and/or guarantees to support
notes receivable on significant asset sales, long-term ship charters and new
ship progress payments to shipyards
At November 30, 2022, our exposures under derivative instruments were not
material. We also monitor the creditworthiness of travel agencies and tour
operators in Australia and Europe and credit and debit card providers to which
we extend credit in the normal course of our business. 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 continued
effects the pandemic 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
The components of expense were as follows:
November 30,
(in millions) 2022 2021 2020
Operating lease expense $192 $203 $203
Variable lease expense (a) (b) $(39) $(100) $(61)
(a) Variable lease expense represents increases or reductions to costs
associated with our multi-year preferential berthing agreements which vary
based on the number of passengers. These costs are recorded within
Commissions, 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 which were in effect during the pause in guest cruise operations
due to COVID-19.
The cash outflow for leases was materially consistent with the lease expense
recognized during 2022.
During 2022, we obtained $111 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, 2022 November 30, 2021
Weighted average remaining lease term - operating leases (in years) 13 12
Weighted average discount rate - operating leases 5.2% 3.8%
As of November 30, 2022, maturities of operating lease liabilities were as
follows:
(in millions)
Year
2023 $198
2024 199
2025 180
2026 167
2027 144
Thereafter 965
Total lease payments 1,853
Less: Present value discount (518)
Present value of lease liabilities $1,335
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, Chief Executive Officer and Chief Climate
Officer of Carnival Corporation and Carnival plc. The CODM assesses
performance and makes decisions to allocate resources for Carnival
Corporation & plc based upon review of the results across all of our
segments. Our four reportable segments are comprised of (1) NAA cruise
operations, (2) EA cruise operations, (3) Cruise Support and (4) Tour and
Other.
The operating segments within each of our NAA and EA reportable segments have
been aggregated based on the similarity of their economic and other
characteristics, including geographic guest sourcing. Our Cruise Support
segment includes our portfolio of leading port destinations and other
services, all of which are operated for the benefit of our cruise brands. Our
Tour and Other segment represents the hotel and transportation operations of
Holland America Princess Alaska Tours and other operations.
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
2022
NAA $8,281 $7,526 $1,517 $1,408 $(2,170) $2,568 $27,413
EA 3,531 3,925 745 692 (1,830) 2,213 15,317
Cruise Support 171 120 225 140 (315) 155 8,461
Tour and Other 185 187 27 36 (64) 4 512
$12,168 $11,757 $2,515 $2,275 $(4,379) $4,940 $51,703
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
(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.
Revenue by geographic areas, which are based on where our guests are sourced,
were as follows:
Years Ended November 30,
(in millions) 2022 2021 2020
North America $7,866 $1,066 $3,084
Europe 3,918 811 1,643
Australia and Asia 312 18 687
Other 72 14 180
$12,168 $1,908 $5,595
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, 2022
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 Committees which are 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
16.7 million shares available for future grant at November 30, 2022. 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, 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
Granted 3,117,638 $17.53
Vested (3,503,118) $24.36
Forfeited (681,197) $36.20
Outstanding at November 30, 2022 6,380,515 $22.67
As of November 30, 2022, there was $52 million of total unrecognized
compensation cost related to equity awards, which is expected to be recognized
over a weighted-average period of 1.5 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) 2022 2021 2022 2021
Change in projected benefit obligation:
Projected benefit obligation as of December 1 $298 $303 $263 $280
Past service cost - - 18 10
Interest cost 5 4 5 4
Benefits paid (12) (10) (15) (5)
Actuarial (gain) loss on plans' liabilities (88) (7) (49) (8)
Plan curtailments, settlements and other (6) 7 1 (19)
Projected benefit obligation as of November 30 198 298 223 263
Change in plan assets:
Fair value of plan assets as of December 1 355 325 12 17
Return (loss) on plans' assets (116) 31 (1) -
Employer contributions 2 1 12 17
Benefits paid (12) (10) (12) (5)
Plan settlements (5) - (1) (17)
Administrative expenses (2) 8 - -
Fair value of plan assets as of November 30 222 355 10 12
Funded status as of November 30 $24 $56 $(213) $(250)
(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) 2022 2021 2022 2021
Other assets $24 $56 $- $-
Accrued liabilities and other $- $- $25 $23
Other long-term liabilities $- $- $188 $227
The accumulated benefit obligation for all defined benefit pension plans was
$386 million and $553 million at November 30, 2022 and 2021, respectively.
Amounts for pension plans with accumulated benefit obligations in excess of
fair value of plan assets are as follows:
November 30,
(in millions) 2022 2021
Projected benefit obligation $223 $263
Accumulated benefit obligation $218 $254
Fair value of plan assets $10 $12
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) 2022 2021 2020 2022 2021 2020
Service cost $- $- $- $18 $10 $20
Interest cost 5 4 5 5 4 6
Expected return on plan assets (6) (6) (8) - - (1)
Amortization of prior service cost - - - - - -
Amortization of net loss (gain) - - - 3 4 4
Settlement loss recognized - - - 1 5 1
Net periodic benefit cost $(1) $(1) $(3) $26 $22 $32
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
2022 2021 2022 2021
Discount rate 4.3% 1.6% 5.4% 2.6%
Rate of compensation increase 2.9% 2.7% 3.0% 3.0%
Weighted average assumptions used to determine net pension income are as
follows:
UK Plan All Other Plans
2022 2021 2020 2022 2021 2020
Discount rate 1.6% 1.6% 1.9% 3.2% 2.3% 2.9%
Expected return on assets -% 1.9% 3.0% 2.3% 2.3% 3.0%
Rate of compensation increase 2.7% 2.3% 2.9% 3.0% 3.0% 2.7%
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 4.3% per annum as of November 30, 2022.
Amounts recognized in AOCI are as follows:
UK Plan All Other Plans
November 30, November 30,
2022 2021 2022 2021
Actuarial losses (gains) recognized in the current year $35 $- $(48) $(7)
Amortization and settlements included in net periodic benefit cost $- $- $(1) $(12)
We anticipate making contributions of $26 million to the plans during 2023.
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
2023 $6 $26
2024 6 25
2025 7 26
2026 7 26
2027 7 27
2028-2032 43 151
$76 $280
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, 2022 and 2021,
respectively, the All Other Plans were unfunded.
The fair values of the plan assets of the UK Plan by investment class are as
follows:
November 30,
2022 2021
Equities $53 $62
U.K. government fixed interest bonds (gilts) $169 $283
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 $2 million in 2022, $28 million in 2021 and
$2 million in 2020.
Based on the most recent valuation at March 31, 2021 of the MNOPF New
Section, it was determined that this plan was 102% funded. In 2022, 2021 and
2020, 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 2022,
2021 and 2020, 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 $40 million in 2022,
$35 million in 2021 and $24 million in 2020.
NOTE 14 - Earnings Per Share
Years Ended November 30,
(in millions, except per share data) 2022 2021 2020
Net income (loss) for basic and diluted earnings per share $(6,093) $(9,501) $(10,236)
Weighted-average shares outstanding 1,180 1,123 775
Dilutive effect of equity plans - - -
Diluted weighted-average shares outstanding 1,180 1,123 775
Basic earnings per share $(5.16) $(8.46) $(13.20)
Diluted earnings per share $(5.16) $(8.46) $(13.20)
Antidilutive shares excluded from diluted earnings per share computations were
as follows:
November 30,
(in millions) 2022 2021 2020
Equity awards 1 3 1
Convertible Notes 55 53 103
Total antidilutive securities 56 56 104
NOTE 15 - Supplemental Cash Flow Information
November 30,
(in millions) 2022 2021
Cash and cash equivalents (Consolidated Balance Sheets) $4,029 $8,939
Restricted cash (Consolidated Balance Sheets) 1,988 14
Restricted cash (included in other assets) 20 24
Total cash, cash equivalents and restricted cash (Consolidated Statements of $6,037 $8,976
Cash Flows)
Cash paid for interest, net of capitalized interest, was $1.4 billion in
2022, $1.3 billion in 2021 and $0.6 billion in 2020. Cash benefit received
(paid) for income taxes, net was not material in 2022, 2021 and 2020. In
addition, non-cash purchases of property and equipment included in accrued
liabilities and other was $100 million in 2022, $127 million in 2021 and
$114 million in 2020.
Substantially all restricted cash as of November 30, 2022 relates to the net
proceeds from the issuance of our 2028 Senior Priority Notes. Under the
indenture governing these notes, the net proceeds are contractually restricted
subject to the satisfaction of certain conditions. These conditions were
satisfied in December 2022 when we completed the transfer of the Subject
Vessels to Carnival Holdings, at which time these amounts became unrestricted.
In August 2022, we issued $339 million aggregate principal amount of 2024
Convertible Notes pursuant to privately-negotiated non-cash exchange
agreements with certain holders of the 2023 Convertible Notes, pursuant to
which such holders agreed to exchange their 2023 Convertible Notes for an
equal amount of 2024 Convertible Notes. In November 2022, we issued an
additional $87 million aggregate principal amount of the 2024 Convertible
Notes pursuant to privately-negotiated non-cash exchange agreements with
certain holders of the 2023 Convertible Notes, pursuant to which such holders
agreed to exchange their 2023 Convertible Notes for an equal amount of
additional 2024 Convertible Notes. In addition, in August and November 2020,
in connection with the repurchase of the 2023 Convertible Notes, as part of
registered direct offerings of Carnival Corporation common stock used to
repurchase a portion of the 2023 Convertible Notes, as an administrative
convenience, we permitted the purchasers of 151.2 million shares 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 2023 Convertible Notes held by them, which is reflected as a
non-cash transaction for the year ended November 30, 2020.
Refer to Note 5 - "Debt" for additional detail relating to our 2028 Senior
Priority Notes and the 2024 Convertible Notes.
For the years ended November 30, 2022 and 2021, 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.
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 • Liquidity and credit ratings
• Booking levels • Adjusted earnings per share
• Occupancy • Adjusted EBITDA
• Interest, tax and fuel expenses • Adjusted Net Income (Loss)
• Currency exchange rates • Estimates of ship depreciable lives and residual values
• Goodwill, ship and trademark fair values
Because forward-looking statements involve risks and uncertainties, there are
many factors that could cause our actual results, performance or achievements
to differ materially from those expressed or implied by our forward-looking
statements. This note contains important cautionary statements of the known
factors that we consider could materially affect the accuracy of our
forward-looking statements and adversely affect our business, results of
operations and financial position. Additionally, many of these risks and
uncertainties are currently, and in the future may continue to be, amplified
by our substantial debt balance as a result of the pause of our guest cruise
operations. There may be additional risks that we consider immaterial or which
are unknown. These factors include, but are not limited to, the following:
• Events and conditions around the world, including war and other
military actions, such as the invasion of Ukraine, inflation, higher fuel
prices, higher interest rates and other general concerns impacting the ability
or desire of people to travel have led, and may in the future lead, to a
decline in demand for cruises, impacting our operating costs and
profitability.
• Pandemics have in the past and may in the future have a
significant negative impact on our financial condition and operations.
• Incidents concerning our ships, guests or the cruise industry
have in the past and may, in the future, negatively impact the satisfaction of
our guests and crew and lead to reputational damage.
• Changes in and non-compliance with laws and regulations under
which we operate, such as those relating to health, environment, safety and
security, data privacy and protection, anti-corruption, economic sanctions,
trade protection, labor and employment, and tax have in the past and may, in
the future, lead to litigation, enforcement actions, fines, penalties and
reputational damage.
• Factors associated with climate change, including evolving and
increasing regulations, increasing global concern about climate change and the
shift in climate conscious consumerism and stakeholder scrutiny, and
increasing frequency and/or severity of adverse weather conditions could
adversely affect our business.
• Inability to meet or achieve our sustainability related goals,
aspirations, initiatives, and our public statements and disclosures regarding
them, may expose us to risks that may adversely impact our business.
• Breaches in data security and lapses in data privacy as well as
disruptions and other damages to our principal offices, information technology
operations and system networks and failure to keep pace with developments in
technology may adversely impact our business operations, the satisfaction of
our guests and crew and may lead to reputational damage.
• The loss of key team members, our inability to recruit or retain
qualified shoreside and shipboard team members and increased labor costs could
have an adverse effect on our business and results of operations.
• Increases in fuel prices, changes in the types of fuel consumed
and availability of fuel supply may adversely impact our scheduled itineraries
and costs.
• We rely on supply chain vendors who are integral to the
operations of our businesses. These vendors and service providers are also
affected by COVID-19 and may be unable to deliver on their commitments which
could negatively impact our business.
• Fluctuations in foreign currency exchange rates may adversely
impact our financial results.
• Overcapacity and competition in the cruise and land-based
vacation industry may negatively impact our cruise sales, pricing and
destination options.
• Inability to implement our shipbuilding programs and ship
repairs, maintenance and refurbishments may adversely impact our business
operations and the satisfaction of our guests.
• Failure to successfully implement our business strategy
following our resumption of guest cruise operations would negatively impact
the occupancy levels and pricing of our cruises and could have a material
adverse effect on our business. We require a significant amount of cash to
service our debt and sustain our operations. Our ability to generate cash
depends on many factors, including those beyond our control, and we may not be
able to generate cash required to service our debt and sustain our operations.
The ordering of the risk factors set forth above is not intended to reflect
our indication of priority or likelihood.
Forward-looking statements should not be relied upon as a prediction of actual
results. Subject to any continuing obligations under applicable law or any
relevant stock exchange rules, we expressly disclaim any obligation to
disseminate, after the date of this document, any updates or revisions to any
such forward-looking statements to reflect any change in expectations or
events, conditions or circumstances on which any such statements are based.
Forward-looking and other statements in this document may also address our
sustainability progress, plans, and goals (including climate change- and
environmental-related matters). In addition, historical, current, and
forward-looking sustainability- and climate-related statements may be based on
standards and tools for measuring progress that are still developing, internal
controls and processes that continue to evolve, and assumptions and
predictions that are subject to change in the future and may not be generally
shared.
2022 Executive Overview
During 2022, we completed a monumental 18-month journey marking our full
return to guest cruise operations. Over the past 18 months we have:
• Returned 90 ships to service
• Re-boarded over 100,000 team members to our ships
• Restarted our unmatched portfolio of eight private island and
port destinations
• Restarted our unrivaled land-based footprint in Alaska and the
Yukon
• Welcomed back nearly nine million guests
Throughout 2022, we progressed on an upward trajectory as we continued to
close the gap to 2019, our most recent full year of guest cruise operations,
and believe we are gaining momentum on our return to profitability.
• For our cruise segments, revenue per passenger cruise day
("PCD") for the fourth quarter of 2022 increased 0.5% compared to a strong
2019, overcoming the dilutive impact of future cruise credits ("FCCs") and
fluctuations in foreign currency. This was better than the third quarter of
2022 which decreased 4.1% compared to 2019.
• Occupancy in the fourth quarter of 2022 was 19 percentage points
below 2019 levels, this was better than the first quarter of 2022 which was 50
percentage points below 2019 levels. We achieved this on growing capacity as
we returned another 35% of our fleet to service in 2022, reaching 99% of our
2019 capacity levels during the fourth quarter.
• Revenue in the fourth quarter of 2022 was $3.8 billion, which
was 80% of 2019 levels. This was better than the third quarter of 2022 which
was 66% of 2019 levels, an improvement of 14 percentage points.
The uneven reopening of cruise travel around the world following the effects
of COVID-19 and the impact the invasion of Ukraine has had on European
countries have had a material impact on our results of operations. While all
of our brands are on an upward trajectory, the pace of the recovery has
trailed for those brands most heavily exposed to these factors as the impacts
have weighed on consumer confidence in those regions resulting in greater
uncertainty and closer-in booking patterns. To mitigate these impacts, we have
made strategic deployment decisions to increase our closer-to-home and shorter
duration itineraries to help reduce the friction of air travel, lower the
overall cost of our vacations and facilitate a closer-in booking environment.
We believe these decisions have positioned us well to attract more
new-to-cruise guests and make us even more of a value proposition compared to
land-based alternatives. Additionally, based on the evolving nature of
COVID-19 and our ongoing collaboration with local and national public health
authorities, our brands responsibly relaxed their COVID-19 related protocols
aligning towards land-based vacation alternatives and strengthening our
competitiveness.
To help support our growth, drive overall revenue generation, elevate
awareness and consideration and enhance demand for both the near- and
long-term, we have significantly increased our advertising activities,
including a nearly 20% increase in our investment during the fourth quarter of
2022 compared to the fourth quarter of 2019. Our brands are utilizing pricing
philosophies to maximize revenue and are sharing best practices across brands.
Having been in pause status for nearly two years, we are also rebuilding
demand by providing our guests with extraordinary cruise vacations, which we
believe will increase the likelihood of our guests recommending our cruise
vacations. In addition, we have a renewed focus on our travel agent partner
relationships and a growing sales force. While building back demand and
enhancing our revenue management tools and strategies, we are working to
optimize the combination of occupancy levels with ticket and onboard prices to
deliver revenue growth in the near-term while maintaining price integrity for
the long-term. We are also not losing sight of our expense base as we have
worked through our restart and continue to absorb and mitigate the impacts of
the high inflationary environment we have all been living in.
During 2022, we continued to focus on minimizing our environmental impact and
achieved a 2% reduction in carbon intensity compared to 2019 (11% reduction
for ships in guest cruise operations), a 30% reduction in food waste compared
to 2019 and used 290 million fewer single use items compared to 2018. We
announced the rollout of Service Power Packages, global fleet upgrades which
will improve energy and fuel efficiency and support our sustainability goals
and announced the expansion of Air Lubrication Systems, which are expected to
generate savings in fuel consumption and reductions in carbon emissions.
Additionally, AIDA Cruises and Holland America Line achieved milestones in
their decarbonization strategies piloting the use of a blend of marine
biofuel. These investments, along with the company's fleet optimization and
itinerary reviews, are expected to drive a 15% reduction in fuel consumption
per ALBD in 2023, along with a 15% reduction in carbon emissions per ALBD on
an annualized basis, both as compared to 2019.
Our fleet optimization efforts included welcoming stunning new flagships for
six of our brands including Carnival Celebration, AIDAcosma, Costa Toscana,
Discovery Princess and Arvia, as well as our first luxury expedition ship,
Seabourn Venture. All of these ships were purpose-built to generate higher
returns. In addition, we announced the removal of additional ships from our
fleet, bringing the cumulative number of smaller-less efficient ships to be
removed from our fleet since the pause to 26. Once completed, these efforts
will result in nearly a quarter of our fleet consisting of newly delivered,
larger-more efficient ships. We also announced Carnival Fun Italian Style™,
a new concept for Carnival Cruise Line's North American guests which will
debut in the spring of 2023 with Costa Venezia followed by Costa Firenze in
the spring of 2024. Additionally during 2022, Costa Luminosa was transferred
to Carnival Cruise Line and began guest operations as Carnival Luminosa.
During 2022, we reduced our capital expenditures by over $500 million as
compared to our previous guidance. We have re-prioritized our expected spend
to reflect the current environment, while maintaining our commitment to seek
excellence in compliance, environmental protection, and in looking after the
safety, health and well-being of every life we touch. In addition, we broke
ground on a new exclusive destination in Grand Bahama Port for our Carnival
Cruise Line brand, which will be an important addition to our current existing
private islands and unique port destinations which had 6 million visits from
our guests in 2022.
Going forward, we are committed to using our expected cash provided by
operating activities to strengthen the balance sheet over time and expect to
be disciplined and rigorous in making newbuild decisions. We have just four
larger ships on order through 2025, plus our second Seabourn luxury expedition
ship to be delivered in 2023. This is our lowest order book in decades.
Overall, we remain focused on driving revenue growth and accelerating our
return to strong profitability. We believe that over time, this revenue
generation and our more focused capital expenditure profile will support
significant free cash flow, and propel us on the path to deleveraging,
investment grade credit ratings and higher return on invested capital. This
has been a truly remarkable year and we have come a long way in an incredibly
short amount of time. We look forward to continuing to deliver unforgettable
happiness to our guests by providing extraordinary cruise vacations in 2023,
while honoring the integrity of every ocean we sail, place we visit and life
we touch.
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 Other Uncertainties
We make several critical accounting estimates with respect to our liquidity.
Based on the evolving nature of COVID-19 and our ongoing collaboration with
local and national public health authorities, we have responsibly relaxed our
related protocols, including greatly reducing or eliminating testing
requirements and vaccination protocols to more closely align with the broader
travel industry and strengthening our competitiveness.
As part of our liquidity management, we rely on estimates of our future
liquidity, which includes numerous assumptions that are subject to various
risks and uncertainties. The principal assumptions used to estimate our future
liquidity consist of:
• Our continued cruise operations and expected timing of cash
collections for cruise bookings
• Expected increases in revenue in 2023 on a per passenger basis
compared to 2019, particularly with the responsible relaxation of COVID-19
related protocols aligning towards land-based vacation alternatives and
strengthening our competitiveness
• Expected improvement in occupancy on a year-over-year basis
returning to historical levels in the summer of 2023
• Stabilization of fuel prices around November 2022 year-end
prices
• Continued stabilization of inflationary pressures on costs,
moderated by a larger-more efficient fleet as compared to 2019
In addition, we make certain assumptions about new ship deliveries,
improvements and removals, and consider the future export credit financings
that are associated with the new ship deliveries.
We have a substantial debt balance as a result of the pause in guest cruise
operations and require a significant amount of liquidity or cash from
operating activities to service our debt. In addition, the continued effects
of the pandemic, inflation, higher fuel prices, higher interest rates and
fluctuations in foreign currency rates are collectively having a material
negative impact on our business. The full extent of the collective impact of
these items is uncertain and may be amplified by our substantial debt balance.
We believe we have made reasonable estimates and judgments of the impact of
these events within our consolidated financial statements and there may be
changes to those estimates in future periods.
For almost three years, we have taken appropriate actions to manage our
liquidity, including completing various capital market transactions, obtaining
relevant financial covenant amendments or waivers, accelerating the removal of
certain ships from the fleet, and during the pause reducing capital
expenditures and operating expenses. As of November 30, 2022, 97% of our
capacity has resumed guest cruise operations and is serving guests.
We will continue to pursue various opportunities to raise additional capital
to fund obligations associated with future debt maturities and/or to extend
the maturity dates associated with our existing indebtedness including our
Revolving Facility and obtain relevant financial covenant amendments or
waivers, if needed. Actions to raise capital may include issuances of debt,
convertible debt or equity in private or public transactions or entering into
new and extended credit facilities.
Ship Accounting
We make several critical accounting estimates with respect to our ship
accounting including ship improvement costs, estimated useful lives and
residual values.
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 those incurred when a ship is
taken out-of-service for scheduled maintenance, and minor improvement costs
and expenses, 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 addition, 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. 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. Given the large size and
complexity of our ships, ship accounting estimates require considerable
judgment and are inherently uncertain.
In order to compute our ships' depreciation expense, we apply judgment to
determine their useful lives as well as their residual values. We have
estimated our ships' useful lives at 30 years and residual values at 15% of
our original ship cost. Our ship useful life and residual value estimates take
into consideration the estimated weighted-average useful lives of the ships'
major component systems, such as hull, superstructure, main electric, engines
and cabins. We also take into consideration the impact of technological
changes, historical useful lives of similarly-built ships, long-term cruise
and vacation market conditions and regulatory changes, including those related
to the environment and climate change. 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 as
well as our expectations of the long-term viability of the secondary cruise
ship market. We review estimated useful lives and residual values for
reasonableness whenever events or circumstances significantly change. Since
the pause of our guest cruise operations, we have disposed of ships for
amounts significantly below their book value. Management has estimated that
this trend will normalize in the coming years.
The IMO is currently considering various proposals which build on existing
regulations and aim to further reduce GHG emissions within the global shipping
industry. In addition, the EU has proposed several regulations that will
likely impact the cost of fossil fuels, including the recently agreed
inclusion of maritime shipping in the EU's Emission Trading System which is in
the process of being adopted. We have established Climate Action Goals, which
include a carbon intensity reduction goal of 20% by 2030 from the 2019
baseline and aspire to achieve net carbon-neutral ship operations by 2050.
Given a 30-year estimated useful life for our ships, our most recently
delivered vessels' lives will extend beyond this 2050 date. Fossil fuels are
currently the only viable option for our industry and it is not clear when
alternative fuels or other technologies will be commercially viable. While
alternative fuels may provide a path to decarbonization for the maritime
industry, there are significant supply challenges that must be resolved before
viability is reached. We are closely monitoring technology developments and
partnering with key organizations on research and development to support our
sustainability goals and aspirations. Our fleet's engines are capable of being
modified for use with certain alternative fuels and we have begun to test the
use of marine biofuel blends on certain ships in our fleet. In addition, and
in support of our Climate Action Goals, we invest in technologies, including
the use of LNG powered cruise ships, the installation of Advanced Air Quality
Systems on board our ships to aid in the reduction of sulfur emissions, the
use of shore power, enabling ships to use shoreside electric power where
available while in port and various other efficiency related upgrades intended
to reduce our emissions. It is uncertain how proposed and possible regulatory
changes related to the environment and climate change and our 2050
aspirations, may impact our ships' useful lives and residual values and the
impact is dependent on future regulatory actions and technological advances.
As of November 30, 2022, management concluded that there were no changes in
our ship useful lives and residual value estimates.
If materially different conditions existed, or if we materially changed our
assumptions of ship useful lives and residual values, then our depreciation
expense, loss on retirement of ship components and net book value of our ships
would be materially different. Our 2022 ship depreciation expense would have
increased by approximately:
• $47 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
• $237 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 its estimated fair value. Where estimated future cash
flows are used to estimate the recoverable value of a ship, the cash flows
include estimated capital expenditures, including those expected to meet our
2030 Climate Action Goals.
The estimation of a ship's fair value includes numerous assumptions that are
subject to various risks and uncertainties. The principal assumption used in
determining the fair value of these ships was the estimated sales proceeds.
We determined the fair value of these ships based on their respective
estimated selling values, for those ships expected to be disposed of, or
estimated discounted future cash flows and comparable market transactions.
Refer to our consolidated financial statements for additional discussion of
our property and equipment policy, ship impairment reviews and ship impairment
charges recognized during 2022.
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. COVID-19 and its ongoing
effects, inflation, higher fuel prices and higher interest rates have created
additional uncertainty in our impairment analyses. The estimated fair value of
our reporting unit with 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.
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.
Known Trends and Uncertainties
• We believe the increased cost of fuel and other related costs
are reasonably likely to continue to impact our profitability in both the
short and long-term.
• We believe inflation and higher interest rates are reasonably
likely to continue to impact our profitability.
• We believe the increasing global focus on climate change,
including the reduction of carbon emissions and new and evolving regulatory
requirements, is reasonably likely to have a material negative impact on our
future financial results. The full impact of climate change to our business is
not yet known.
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
• Child care and 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 2022, we earned 42% 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,
2022 2021 2020
PCDs (in millions) (a) 54.6 8.2 26.5
ALBDs (in millions) (b) 72.5 14.6 26.1
Occupancy percentage (c) 75% 56% 101%
Passengers carried (in millions) 7.7 1.2 3.5
Fuel consumption in metric tons (in millions) 2.6 1.3 1.9
Fuel consumption in metric tons per thousand ALBDs 36.1 (d) (d)
Fuel cost per metric ton consumed $830 $515 $430
Currencies (USD to 1)
AUD $0.70 $0.75 $0.68
CAD $0.77 $0.80 $0.74
EUR $1.06 $1.19 $1.13
GBP $1.25 $1.38 $1.28
The resumption of guest cruise operations has impacted the comparability of
all aspects of our business.
Notes to Statistical Information
(a) PCD represents the number of cruise passengers on a voyage
multiplied by the number of revenue-producing ship operating days for that
voyage.
(b) ALBD is a standard measure of passenger capacity for the
period that we use to approximate rate and capacity variances, based on
consistently applied formulas that we use to perform analyses to determine the
main non-capacity driven factors that cause our cruise revenues and expenses
to vary. ALBDs assume that each cabin we offer for sale accommodates two
passengers and is computed by multiplying passenger capacity by
revenue-producing ship operating days in the period.
(c) Occupancy, in accordance with cruise industry practice, is
calculated using a numerator of PCDs and a denominator of ALBDs, which assumes
two passengers per cabin even though some cabins can accommodate three or more
passengers. Percentages in excess of 100% indicate that on average more than
two passengers occupied some cabins.
(d) Fuel consumption in metric tons per thousand ALBDs for 2021
and 2020 are not meaningful.
2022 Compared to 2021
Results of Operations
Consolidated
Years Ended November 30,
(in millions) 2022 2021 Change
Revenues
Passenger ticket $7,022 $1,000 $6,022
Onboard and other 5,147 908 4,239
12,168 1,908 10,260
Operating Costs and Expenses
Commissions, transportation and other 1,630 269 1,360
Onboard and other 1,528 272 1,256
Payroll and related 2,181 1,309 871
Fuel 2,157 680 1,477
Food 863 187 676
Ship and other impairments 440 591 (151)
Other operating 2,958 1,346 1,612
11,757 4,655 7,103
Selling and administrative 2,515 1,885 630
Depreciation and amortization 2,275 2,233 43
Goodwill impairment - 226 (226)
16,547 8,997 7,550
Operating Income (Loss) (4,379) (7,089) 2,710
Nonoperating Income (Expense)
Interest income 74 12 62
Interest expense, net of capitalized interest (1,609) (1,601) (8)
Gains (losses) on debt extinguishment, net (1) (670) 670
Other income (expense), net (165) (173) 8
(1,701) (2,433) 732
Income (Loss) Before Income Taxes $(6,080) $(9,522) $3,443
NAA
Years Ended November 30,
(in millions) 2022 2021 Change
Revenues
Passenger ticket $4,692 $555 $4,137
Onboard and other 3,589 553 3,036
8,281 1,108 7,173
Operating Costs and Expenses 7,526 2,730 4,796
Selling and administrative 1,517 953 564
Depreciation and amortization 1,408 1,352 55
10,451 5,036 5,415
Operating Income (Loss) $(2,170) $(3,928) $1,758
EA
Years Ended November 30,
(in millions) 2022 2021 Change
Revenues
Passenger ticket $2,660 $491 $2,169
Onboard and other 872 221 651
3,531 712 2,820
Operating Costs and Expenses 3,925 1,807 2,118
Selling and administrative 745 568 177
Depreciation and amortization 692 728 (37)
Goodwill impairment - 226 (226)
5,361 3,329 2,032
Operating Income (Loss) $(1,830) $(2,617) $787
In the face of the global impact of COVID-19, we paused our guest cruise
operations in mid-March 2020 and began resuming guest cruise operations in
2021. As of November 30, 2022, 97% of our capacity was serving guests compared
to 61% as of November 30, 2021. Our NAA segment's full fleet was serving
guests as of November 30, 2022 compared to 60% of its capacity as of November
30, 2021. Our EA segment had 93% of its capacity serving guests as of November
30, 2022, compared to 63% as of November 30, 2021.
The effects of the pause and subsequent resumption of our guest cruise
operations, inflation, higher fuel prices, higher interest rates and
fluctuations in foreign currency rates are collectively having a material
negative impact on all aspects of our business, including our results of
operations, liquidity and financial position. We have a substantial debt
balance and require a significant amount of cash to service our debt and
sustain our operations, and our ability to generate cash will be affected by
our ability to successfully implement our business strategy, which includes
increasing our occupancy levels and pricing of our cruises, as well as general
macroeconomic, financial, geopolitical, competitive, regulatory and other
factors beyond our control. The full extent of these impacts is uncertain and
may be amplified by our substantial debt balance.
Revenues
Consolidated
Cruise passenger ticket revenues made up 58% of our total revenues in 2022
while onboard and other revenues made up 42%. Revenues for the year ended
November 30, 2022 increased by $10.3 billion to $12.2 billion from $1.9
billion in 2021 due to the ongoing resumption of guest cruise operations and
the significant increase of ships in service. ALBDs increased to 72.5 million
in 2022 as compared to 14.6 million in 2021. Occupancy for 2022 was 75%,
compared to 56% in 2021.
NAA Segment
Cruise passenger ticket revenues made up 57% of our NAA segment's total
revenues in 2022 while onboard and other cruise revenues made up 43%. NAA
segment revenues for 2022 increased by $7.2 billion to $8.3 billion from
$1.1 billion in 2021 due to the ongoing resumption of guest cruise operations
and the significant increase of ships in service. ALBDs increased to
44.3 million in 2022 as compared to 7.2 million in 2021. Occupancy for 2022
was 82% compared to 63% in 2021.
EA Segment
Cruise passenger ticket revenues made up 75% of our EA segment's total
revenues in 2022 while onboard and other cruise revenues made up 25%. EA
segment revenues for 2022 increased by $2.8 billion to $3.5 billion from $0.7
billion in 2021 due to the ongoing resumption of guest cruise operations and
the significant increase of ships in service. ALBDs increased to 28.2 million
in 2022 as compared to 7.4 million in 2021. Occupancy for 2022 was 65%
compared to 50% in 2021.
Operating Cost and Expenses
Consolidated
Operating costs and expenses increased by $7.1 billion to $11.8 billion in
2022 from $4.7 billion in 2021. These increases were driven by our resumption
of guest cruise operations and restart related expenses, including the cost of
returning ships to guest cruise operations and returning crew members to our
ships, the cost of maintaining enhanced health and safety protocols and
inflation.
Fuel costs increased by $1.5 billion to $2.2 billion in 2022 from $0.7 billion
in 2021. $0.7 billion of this increase was driven by higher fuel consumption
of 1.3 million metric tons, due to the resumption of guest cruise operations,
and $0.8 billion was driven by an increase in fuel prices and changes in fuel
mix of $315 per metric ton consumed in 2022 compared to 2021.
We recognized ship and other impairment charges of $440 million in 2022
compared to $591 million in 2021.
Selling and administrative expenses increased by $0.6 billion to $2.5 billion
in 2022 from $1.9 billion in 2021. This increase was primarily driven by
increased advertising and promotional spend to continue to build demand while
the remainder was driven by higher administrative expenses incurred as part of
our resumption of guest cruise operations.
There were no goodwill impairment charges recognized in 2022 and $226 million
of goodwill impairment charges recognized in 2021.
The drivers in changes in costs and expenses for our NAA and EA segments are
the same as those described for our consolidated results.
Nonoperating Income (Expense)
Interest expense, net of capitalized interest, was $1.6 billion in 2022 and
2021.
Losses on debt extinguishment, net decreased to $1 million in 2022 from $670
million in 2021.
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 continued
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, 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.
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.
Liquidity, Financial Condition and Capital Resources
As of November 30, 2022, we had $8.6 billion of liquidity including cash,
restricted cash from the 2028 Senior Priority Notes which became unrestricted
in December 2022 and borrowings available under our Revolving Facility. We
will continue to pursue various opportunities to raise additional capital to
fund obligations associated with future debt maturities and/or to extend the
maturity dates associated with our existing indebtedness including our
Revolving Facility and obtain relevant financial covenant amendments or
waivers, if needed. Actions to raise capital may include issuances of debt,
convertible debt or equity in private or public transactions or entering into
new and extended credit facilities.
Since December 2021, we have completed the following:
• In December 2021, we borrowed $1.7 billion under export credit
facilities due in semi-annual installments through 2034.
• In January 2022, we borrowed $637 million under an export credit
facility due in semi-annual installments through 2034.
• In May 2022, we issued an aggregate principal amount of $1.0
billion senior unsecured notes that mature on June 1, 2030. The 2030 Senior
Unsecured Notes bear interest at a rate of 10.5% per year.
• In August 2022, we completed a public offering of 117.5 million
shares of Carnival Corporation common stock at a price per share of $9.95,
resulting in net proceeds of $1.2 billion.
• In August 2022, we issued $339 million aggregate principal
amount of the 2024 Convertible Notes in a privately negotiated non-cash
exchange for existing convertible notes.
• In October 2022, we issued an aggregate principal amount of
$2.0 billion senior priority notes that mature on May 1, 2028. The 2028
Senior Priority Notes bear interest at a rate of 10.4% per year.
• In November 2022, we issued an additional $87 million aggregate
principal amount of the 2024 Convertible Notes in a privately negotiated
non-cash exchange for existing convertible notes.
• In November 2022, we issued $1.1 billion aggregate principal
amount of the 2027 Convertible Notes.
• In November 2022, we borrowed $799 million under an export
credit facility due in semi-annual installments through 2034.
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 $3.1 billion as of November 30, 2022
compared to a working capital deficit of $0.3 billion as of November 30, 2021.
The increase in working capital deficit was caused by a decrease in cash and
cash equivalents, a decrease in short-term investments, an increase in
customer deposits and an increase in current portion of long-term debt, and
was partially offset by an increase in restricted cash and a decrease in
short-term borrowings. We operate with a substantial working capital deficit.
This deficit is mainly attributable to the fact that, under our business
model, substantially all of our passenger ticket receipts are collected in
advance of the applicable sailing date. These advance passenger receipts
generally remain a current liability until the sailing date. The cash
generated from these advance receipts is used interchangeably with cash on
hand from other sources, such as our borrowings and other cash from
operations. The cash received as advanced receipts can be used to fund
operating expenses, pay down our debt, make long-term investments or any other
use of cash. Included within our working capital are $4.9 billion and $3.1
billion of customer deposits as of November 30, 2022 and 2021, respectively.
We have agreements with a number of credit card processors that transact
customer deposits related to our cruise vacations. Certain of these agreements
allow the credit card processors to request, under certain circumstances, that
we provide a reserve fund in cash. In addition, we have a relatively low level
of accounts receivable and limited investment in inventories.
Sources and Uses of Cash
Operating Activities
Our business used $1.7 billion of net cash flows in operating activities
during 2022, a decrease of $2.4 billion, compared to $4.1 billion used in
2021. This was due to a decrease in the net loss compared to the same period
in 2021 and other working capital changes. During 2021, our business used $4.1
billion of net cash from operations, a decrease of $2.2 billion, compared to
$6.3 billion provided in 2020.
Investing Activities
During 2022, net cash used in investing activities was $4.8 billion. This was
driven by:
• Capital expenditures of $3.9 billion for our ongoing new
shipbuilding program
• Capital expenditures of $1.1 billion for ship improvements and
replacements, information technology and buildings and improvements
• Proceeds from sales of ships and other of $70 million
• Purchases of short-term investments of $315 million
• Proceeds from maturity of short-term investments of $515 million
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
Financing Activities
During 2022, net cash provided by financing activities of $3.6 billion was
caused by:
• Issuances of $7.2 billion of long-term debt
• Repayments of $2.1 billion of long-term debt
• Payments of $153 million related to debt issuance costs
• Net repayments of short-term borrowings of $2.6 billion
• Net proceeds of $1.2 billion from the public offering of Carnival
Corporation common stock
• Purchases of $87 million of Carnival plc ordinary shares and
issuances of $95 million of Carnival Corporation common stock under our Stock
Swap Program
During 2021, net cash provided by financing activities of $6.9 billion was
caused by:
• 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 in financing activities of $18.6 billion was
caused by:
• Net proceeds of 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 2023
Convertible Notes
Material Cash Requirements
Payments Due by
(in millions) 2023 2024 2025 2026 2027 Total
Debt (a) $4,344 $4,564 (c) $6,082 $5,875 $6,755 $27,620
Newbuild capital expenditures (b) 1,755 2,400 895 - - 5,050
Total $6,099 $6,964 $6,977 $5,875 $6,755 $32,670
(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, 2022, we have committed undrawn export
credit facilities of $2.2 billion which fund a portion of our Newbuild
contractual commitments. Subsequent to November 30, 2022, we obtained
additional committed undrawn export credit facilities related to ship
deliveries scheduled in 2024 and 2025.
(c) Includes $0.2 billion of borrowings under the Revolving
Facility as of November 30, 2022 which mature in 2024.
Funding Sources
As of November 30, 2022, we had $8.6 billion of liquidity including cash,
restricted cash from the 2028 Senior Priority Notes which became unrestricted
in December 2022 and borrowings available under our Revolving Facility. In
addition, we had $2.2 billion of undrawn export credit facilities to fund
ship deliveries planned through 2024. Refer to Note 1 - "General" for further
details on our liquidity risk and how we plan to fund our cash requirements.
(in billions) 2023 2024
Future export credit facilities at November 30, 2022 $0.8 $1.4
Subsequent to November 30, 2022, we obtained additional undrawn export credit
facilities related to ship deliveries scheduled in 2024 and 2025.
Our export credit facilities contain various financial covenants as described
in Note 5 - "Debt". At November 30, 2022, 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. 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 2022, under the Stock Swap Program, we sold 6.0 million shares
of Carnival Corporation common stock and repurchased the same amount of
Carnival plc ordinary shares, resulting in net proceeds of $8 million which
were used for general corporate purposes. During 2021, 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.
During 2020, 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. The
blended spot price included in our selected forecast information within our
Business Update from December 2022 was $673 per metric ton, and we expect our
total fuel consumption for 2023 to be 2.9 million metric tons. If fuel prices
changed by 10%, our 2023 total expected fuel cost would change by $185
million.
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: 2022 2021
AUD $0.66 $0.71
CAD $0.74 $0.78
EUR $1.03 $1.13
GBP $1.20 $1.33
If the November 30, 2021 currency exchange rates had been used to translate
our November 30, 2022 non-U.S. dollar functional currency operations' assets
and liabilities (instead of the November 30, 2022 U.S. dollar exchange rates),
our total assets would have been higher by $1.6 billion and our total
liabilities would have been higher by $1.1 billion.
Newbuild Currency Risks
At November 30, 2022, our remaining newbuild currency exchange rate risk
primarily relates to euro-denominated newbuild contract payments, which
represent a total unhedged commitment of $4.4 billion and relate to newbuilds
scheduled to be delivered 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,
2022, the remaining unhedged cost of these ships would have a corresponding
change of $445 million.
Interest Rate Risks
The composition of our debt and interest rate swaps was as follows:
November 30, 2022
Fixed rate 54%
EUR fixed rate 12%
Floating rate 17%
EUR floating rate 15%
GBP floating rate 1%
At November 30, 2022, we had interest rate swaps that have effectively changed
$89 million of EURIBOR-based floating rate euro debt to fixed rate euro debt.
Based on a 10% change in the November 30, 2022 market interest rates, our 2022
interest expense on floating rate debt, including the effect of our interest
rate swaps, would have changed by $48 million.
COMMON STOCK AND ORDINARY SHARES
Carnival Corporation 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 ordinary shares trade on the London Stock Exchange under
the symbol "CCL." Carnival plc 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 12, 2023, there were 2,956 holders of record of Carnival
Corporation common stock and 29,362 holders of record of Carnival plc ordinary
shares and 46,628,217 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 Carnival
Corporation common stock and Carnival plc ordinary shares.
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. END FR QDLFLXFLEBBBRecent news on Carnival
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