REG - Carnival PLC - Half-year Report
29/06/2022 18:15
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RNS Number : 7122Q Carnival PLC 29 June 2022
June 29, 2022
RELEASE OF CARNIVAL CORPORATION & PLC JOINT QUARTERLY REPORT ON FORM 10-Q
FOR THE SECOND QUARTER OF 2022 AND CARNIVAL PLC GROUP HALF-YEARLY FINANCIAL
REPORT
Carnival Corporation & plc announced its second quarter results of
operations in its earnings release issued on June 24, 2022. Carnival
Corporation & plc is hereby announcing that today it has filed its joint
Quarterly Report on Form 10-Q ("Form 10-Q") with the U.S. Securities and
Exchange Commission ("SEC") containing the Carnival Corporation & plc
unaudited consolidated financial statements as of and for the three and six
months ended May 31, 2022.
In addition, the Directors are today presenting in the attached Schedule A,
the unaudited interim condensed financial statements for the Carnival plc
Group ("Interim Financial Statements") as of and for the six months ended May
31, 2022. The Interim Financial Statements exclude the consolidated results of
Carnival Corporation and are prepared under International Financial Reporting
Standards as adopted by the United Kingdom.
The information included in the Form 10-Q (Schedule B) has been prepared in
accordance with SEC rules and regulations. The Carnival Corporation & plc
unaudited consolidated financial statements contained in the Form 10-Q have
been prepared in accordance with generally accepted accounting principles in
the United States of America ("U.S. GAAP").
Schedule B also contains the Carnival Corporation & plc unaudited
consolidated financial statements as of and for the three and six months ended
May 31, 2022, management's discussion and analysis ("MD&A") of financial
conditions and results of operations, and information on Carnival Corporation
and Carnival plc's sales and purchases of their equity securities and use of
proceeds from such sales
The Directors consider that within the Carnival Corporation and Carnival plc
dual listed company ("DLC") 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
("DLC Financial Statements").
These schedules (A & B) are presented together as Carnival plc's Group
half-yearly financial report ("Interim Financial Report") in accordance with
the requirements of the UK Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority.
MEDIA
CONTACT
INVESTOR RELATIONS CONTACT
Roger
Frizzell
Beth Roberts
001 305 406
7862
001 305 406 4832
The Form 10-Q is available for viewing on the SEC website at www.sec.gov under
Carnival Corporation or Carnival plc or the Carnival Corporation & plc
website at www.carnivalcorp.com or www.carnivalplc.com. A copy of the Form
10-Q and the Carnival plc Group Interim Financial Statements have been
submitted to the National Storage Mechanism and will shortly be available for
inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism. Additional
information can be obtained via Carnival Corporation & plc's website
listed above or by writing to Carnival plc at Carnival House, 100 Harbour
Parade, Southampton, SO15 1ST, United Kingdom.
Carnival Corporation & plc is one of the world's largest leisure travel
companies with a portfolio of nine of the world's leading cruise lines. With
operations in North America, Australia, Europe and Asia, its portfolio
features - Carnival Cruise Line, Princess Cruises, Holland America
Line, P&O Cruises (Australia), Seabourn, Costa Cruises, AIDA Cruises,
P&O Cruises (UK) and Cunard.
Additional information can be found on www.carnivalcorp.com,
www.carnivalsustainability.com, www.carnival.com, www.princess.com,
www.hollandamerica.com, www.pocruises.com.au, www.seabourn.com,
www.costacruise.com, www.aida.de, www.pocruises.com and www.cunard.com.
SCHEDULE A
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in millions, except per share data)
Six Months Ended May 31,
2022 2021
Revenues
Passenger ticket $835 $22
Onboard and other 337 33
1,172 55
Operating Costs and Expenses
Commissions, transportation and other 233 12
Onboard and other 93 9
Payroll and related 435 193
Fuel 316 84
Food 86 16
Ship and other impairments - 1
Other operating 490 185
1,653 500
Selling and administrative 398 306
Depreciation and amortisation 396 395
2,447 1,202
Operating Income (Loss) (1,276) (1,147)
Nonoperating Income (Expense)
Interest expense, net of capitalised interest (65) (18)
Other income (expense), net 67 (239)
1 (257)
Income (Loss) Before Income Taxes (1,275) (1,404)
Income Tax Benefit (Expense), Net (6) (4)
Net Income (Loss) $(1,280) $(1,408)
Earnings Per Share
Basic $(6.90) $(8.91)
Diluted $(6.90) $(8.91)
The accompanying notes are an integral part of these Interim Financial
Statements.
These Interim Financial Statements only present the Carnival plc consolidated
IFRS Interim Financial Statements and, accordingly, do not include the
consolidated IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival plc's
results and financial position is considered to be by reference to the DLC
Financial Statements.
1
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in millions)
Six Months Ended May 31,
2022 2021
Net Income (Loss) $(1,280) $(1,408)
Other Comprehensive Income (Loss)
Items that will not be reclassified through the Statements of Income (Loss)
Remeasurements of post-employment benefit obligations 6 (3)
Items that may be reclassified through the Statements of Income (Loss)
Changes in foreign currency translation adjustment (358) 276
Gains (losses) on hedges of net investments in foreign operations and 89 29
other
(269) 306
Other Comprehensive Income (Loss) (263) 303
Total Comprehensive Income (Loss) $(1,543) $(1,105)
The accompanying notes are an integral part of these Interim Financial
Statements.
These Interim Financial Statements only present the Carnival plc consolidated
IFRS Interim Financial Statements and, accordingly, do not include the
consolidated IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival plc's
results and financial position is considered to be by reference to the DLC
Financial Statements.
2
CARNIVAL PLC
INTERIM CONDENSED GROUP BALANCE SHEETS
(UNAUDITED)
(in millions)
May 31, November 30, 2021
2022
ASSETS
Current Assets
Cash and cash equivalents $502 $434
Trade and other receivables, net 159 140
Inventories 174 146
Prepaid expenses and other 132 109
Total current assets 968 829
Property and Equipment, Net 15,667 14,953
Right-of-Use Assets 308 333
Other Assets 767 737
$17,710 $16,851
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt 1,280 486
Current portion of lease liabilities 34 35
Amount owed to the Carnival Corporation group 6,651 6,204
Accounts payable 428 376
Accrued liabilities and other 487 487
Customer deposits 1,168 831
Total current liabilities 10,048 8,419
Long-Term Debt 6,294 5,484
Long-Term Lease Liabilities 277 298
Other Long-Term Liabilities 281 304
Shareholders' Equity
Share capital 361 361
Share premium 143 143
Retained earnings 2,745 4,092
Other reserves (2,439) (2,249)
Total shareholders' equity 810 2,347
$17,710 $16,851
The accompanying notes are an integral part of these Interim Financial
Statements.
These Interim Financial Statements only present the Carnival plc consolidated
IFRS Interim Financial Statements and, accordingly, do not include the
consolidated IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival plc's
results and financial position is considered to be by reference to the DLC
Financial Statements.
3
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Six Months Ended May 31,
2022 2021
OPERATING ACTIVITIES
Income (Loss) before income taxes $(1,275) $(1,404)
Adjustments to reconcile income (loss) before income taxes to net cash
provided by (used in) operating activities
Depreciation and amortisation 396 395
Impairments - 18
Share-based compensation 10 16
Interest expense, net 66 55
Debt modifications (13) (33)
(Income) loss from equity-method investments (5) 16
Other, net 26 48
(794) 516
Changes in operating assets and liabilities
Receivables (34) 30
Inventories (39) (2)
Prepaid expenses and other (109) (59)
Accounts payable 57 (87)
Accrued liabilities and other 52 50
Customer deposits 377 (32)
Cash provided by (used in) operations before interest and income taxes (490) (989)
Interest paid (58) (42)
Income tax benefit received, net 7 1
Net cash provided by (used in) operating activities (541) (1,030)
INVESTING ACTIVITIES
Purchases of property and equipment (1,985) (1,108)
Proceeds from sales of ships 40 228
Purchase of minority interest - (90)
Other, net (5) (31)
Net cash provided by (used in) investing activities (1,949) (1,001)
FINANCING ACTIVITIES
Changes in amounts owed to the Carnival Corporation group 614 290
Principal repayments of long-term debt (250) (337)
Proceeds from issuance of long-term debt 2,347 1,534
Finance lease principal payments (18) (29)
Debt issuance cost and other, net (101) (80)
Net cash provided by (used in) financing activities 2,591 1,378
Effect of exchange rate changes on cash and cash equivalents (33) 14
Net increase (decrease) in cash and cash equivalents 68 (640)
Cash and cash equivalents at beginning of period 434 918
Cash and cash equivalents at end of period $502 $278
The accompanying notes are an integral part of these Interim Financial
Statements.
4
These Interim Financial Statements only present the Carnival plc consolidated
IFRS Interim Financial Statements and, accordingly, do not include the
consolidated IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival plc's
results and financial position is considered to be by reference to the DLC
Financial Statements.
5
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(in millions)
Reserves
Share capital Share premium Retained earnings Translation reserve Cash flow hedges Treasury shares Other reserves Merger reserve Total Total shareholders' equity
At November 30, 2020 $361 $185 $7,568 $(1,930) $8 $(1,945) $41 $1,503 $(2,323) $5,791
Comprehensive income (loss)
Net income (loss) - - (1,408) - - - - - - (1,408)
Changes in foreign currency translation adjustment - - - 276 - - - - 276 276
Net gains on cash flow derivative hedges - - - - 1 - - - 1 1
Net gains on hedges of net investments in foreign operations - - - 28 - - - - 28 28
Remeasurements of post-employment benefit obligations - - (3) - - - - - - (3)
Total comprehensive income - - (1,411) 304 1 - - - 306 (1,105)
Other, net - (42) - - - - 51 - 51 9
At May 31, 2021 $361 $143 $6,157 $(1,626) $9 $(1,945) $92 $1,503 $(1,966) $4,695
At November 30, 2021 $361 $143 $4,092 $(2,049) $11 $(1,818) $105 $1,503 $(2,249) $2,347
Comprehensive income (loss)
Net income (loss) - - (1,280) - - - - - - (1,280)
Changes in foreign currency translation adjustment - - - (358) - - - - (358) (358)
Net gains on cash flow derivative hedges - - - - 7 - - - 7 7
Net gains on hedges of net investments in foreign operations - - - 82 - - - - 82 82
Remeasurements of post-employment benefit obligations - - 6 - - - - - - 6
Total comprehensive income (loss) - - (1,274) (276) 7 - - - (269) (1,543)
Issuance of treasury shares for vested share-based awards - - (72) - - 72 - - 72 -
Other, net - - (1) (3) 3 - 7 - 7 7
At May 31, 2022 $361 $143 $2,745 $(2,328) $20 $(1,746) $112 $1,503 $(2,439) $810
The accompanying notes are an integral part of these Interim Financial
Statements.
These Interim Financial Statements only present the Carnival plc consolidated
IFRS Interim Financial Statements and, accordingly, do not include the
consolidated IFRS results of Carnival Corporation.
Within the DLC arrangement the most appropriate presentation of Carnival plc's
results and financial position is considered to be by reference to the DLC
Financial Statements.
6
CARNIVAL PLC
NOTES TO INTERIM CONDENSED GROUP FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - General
Description of Business
Carnival plc was incorporated in England and Wales in 2000 and is domiciled in
the UK with its headquarters located at Carnival House, 100 Harbour Parade,
Southampton, Hampshire, SO15 1ST, UK (registration number 04039524). The
Interim Financial Statements have been prepared on the basis of the accounting
policies and methods of computation, including estimates and assumptions,
adopted and disclosed in Carnival plc and its subsidiaries and associates
(referred to collectively in these Interim Financial Statements as the
"Group," "our," "us" and "we") consolidated statutory financial statements for
the year ended November 30, 2021. These Interim Financial Statements were
approved by the Audit Committee of the Board of Directors on June 23, 2022.
DLC Arrangement
Carnival Corporation and Carnival plc operate a dual listed company ("DLC")
arrangement, whereby the businesses of Carnival Corporation and Carnival plc
are combined through a number of contracts and provisions in Carnival
Corporation's Articles of Incorporation and By-Laws and Carnival plc's
Articles of Association. The two companies operate as a single economic
enterprise with a single senior executive management team and identical Boards
of Directors, but each has retained its separate legal identity. Each
company's shares are publicly traded on the New York Stock Exchange ("NYSE")
for Carnival Corporation and the London Stock Exchange for Carnival plc. The
Carnival plc American Depositary Shares are traded on the NYSE.
The constitutional documents of each company provide that, on most matters,
the holders of the common equity of both companies effectively vote as a
single body. The Equalization and Governance Agreement between Carnival
Corporation and Carnival plc provides for the equalization of dividends and
liquidation distributions based on an equalization ratio and contains
provisions relating to the governance of the DLC arrangement. Because the
equalization ratio is 1 to 1, one share of Carnival Corporation common stock
and one Carnival plc ordinary share are generally entitled to the same
distributions.
Under deeds of guarantee executed in connection with the DLC arrangement, as
well as stand-alone guarantees executed since that time, each of Carnival
Corporation and Carnival plc have effectively cross guaranteed all
indebtedness and certain other monetary obligations of each other. Once the
written demand is made, the holders of indebtedness or other obligations may
immediately commence an action against the relevant guarantor.
Under the terms of the DLC arrangement, Carnival Corporation and Carnival plc
are permitted to transfer assets between the companies, make loans to or
investments in each other and otherwise enter into intercompany transactions.
In addition, the cash flows and assets of one company are required to be used
to pay the obligations of the other company, if necessary.
The Boards of Directors consider that, within the DLC arrangement, the most
appropriate presentation of our results and financial position is by reference
to the U.S. generally accepted accounting principles ("U.S. GAAP") DLC
Financial Statements because all significant financial and operating decisions
affecting the DLC companies are made on a joint basis to optimize the
consolidated performance as a single economic entity. Accordingly, the DLC
Financial Statements for the three and six months ended May 31, 2022 are
provided to shareholders in Schedule B.
These Interim Financial Statements are required to satisfy reporting
requirements of the United Kingdom's Financial Conduct Authority ("FCA") and
do not include the consolidated results and financial position of Carnival
Corporation and its subsidiaries. These Interim Financial Statements have been
prepared in accordance with the Disclosure Guidance and Transparency Rules of
the FCA and with International Accounting Standard 34 "Interim Financial
Reporting" as adopted by the UK ("IAS 34"). The Interim Financial Statements
should be read in conjunction with the audited annual financial statements for
the year ended November 30, 2021, which were prepared in accordance with
UK-adopted International Financial Reporting Standards ("IFRS"). Our Interim
Financial Statements are presented in U.S. dollars as this is our presentation
currency.
Status of Financial Statements
Our Interim Financial Statements for the six months ended May 31, 2022 have
not been audited or reviewed by the auditors.
7
Our Interim Financial Statements do not comprise statutory accounts within the
meaning of section 434 of the Companies Act 2006 Act. Statutory accounts for
the year ended November 30, 2021 were approved by the Audit Committee of the
Board of Directors on January 26, 2022 and delivered to the Registrar of
Companies. The report of the auditors on those accounts was (i)
unqualified, (ii) did not contain a material uncertainty related to going
concern and (iii) did not contain any statement under section 498 of the 2006
Act.
Liquidity and Management's Plans
In the face of the global impact of COVID-19, Carnival Corporation & plc
paused its guest cruise operations in mid-March 2020. As of May 31, 2022, 86%
of Carnival Corporation & plc's capacity is in guest cruise operation as
part of its ongoing return to service. The extent of the effects of COVID-19
on Carnival Corporation & plc's business are uncertain and will depend on
future developments, including, but not limited to, the duration and continued
severity of COVID-19 and the length of time it takes to return the company to
profitability. COVID-19 and its ongoing effects, inflation and higher fuel
prices are collectively having a material impact on its business, including
its results of operations, liquidity and financial position.
The estimation of Carnival Corporation & plc's future liquidity
requirements includes numerous assumptions that are subject to various risks
and uncertainties. The principal assumptions used to estimate Carnival
Corporation & plc's future liquidity requirements consist of:
• Continued ongoing resumption of guest cruise operations, with
86% of the fleet back in guest cruise operations as of May 31, 2022
• Expected increases in revenue in 2023 on a per passenger basis
compared to 2019, particularly as the friction from restrictive protocols
wanes
• Expected improvement in occupancy throughout 2022 and 2023
• Expected continued spend to maintain enhanced health and safety
protocols and to support the ongoing resumption of guest cruise operations,
including completing the return of crew members to its ships
• Expected moderation of fuel prices beginning in the second half
of 2022 and continuing into 2023
• Expected inflation and supply chain challenges to continue to
weigh on costs, though moderated by a larger, more efficient fleet as compared
to 2019
• Maintaining collateral and reserves at reasonable levels
In addition, Carnival Corporation & plc makes certain assumptions about
new ship deliveries, improvements and removals, and considers the future
export credit financings that are associated with the new ship deliveries.
Carnival Corporation & plc cannot make assurances that its assumptions
used to estimate its liquidity requirements may not change because they have
never previously experienced a complete cessation and subsequent ongoing
resumption of its guest cruise operations, and as a consequence, their ability
to be predictive is uncertain. In addition, the magnitude and duration of the
COVID-19 global pandemic and its ongoing effects, inflation and higher fuel
prices are uncertain. Carnival Corporation & plc has made reasonable
estimates and judgments of the impact of these events within its consolidated
financial statements and there may be changes to those estimates in future
periods. Carnival Corporation & plc took actions to improve its liquidity,
including completing various capital market transactions, capital expenditure
and operating expense reductions and accelerating the removal of certain ships
from its fleet. In addition, they expect to continue to pursue various capital
market opportunities to extend maturities and if appropriate, obtain relevant
financial covenant amendments.
Based on these actions and Carnival Corporation & plc's assumptions
regarding the impact of COVID-19, and considering Carnival Corporation &
plc's $7.5 billion of liquidity including cash, short-term investments and
borrowings available under its revolving facility at May 31, 2022, as well as
its continued ongoing return to service, it has concluded that it has
sufficient liquidity to satisfy its obligations for at least the next twelve
months. In light of these circumstances, the Boards of Directors of the Group
have a reasonable expectation that Carnival Corporation & plc has adequate
resources to continue its operational existence and continue to adopt the
going concern basis of preparing the Carnival plc Interim Financial
Statements. Refer to Schedule B of this release for additional discussion.
Use of Estimates and Risks and Uncertainty
The preparation of our Interim Financial Statements in conformity with IFRS as
adopted in the UK requires management to make judgements, estimates and
assumptions that affect the application of policies and reported and disclosed
amounts in these financial statements. The estimates and underlying
assumptions are based on historical experience and various other factors that
we believe to be reasonable under the circumstances and form the basis of
making judgments about carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from the
estimates used in preparing these Interim Financial Statements.
8
Key judgements, estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised if the revision affects only that period or
in the period of the revision and future periods if the revision affects both
current and future periods. For a detailed discussion of our key
judgements and estimates, see "Significant Accounting Judgements" and "Key
areas of judgements and sources of estimation uncertainty" included in our
2021 Carnival plc Annual Report.
COVID-19
The full extent to which the effects of COVID-19 will directly or indirectly
impact our business, operations, results of operations and financial
condition, impairment of ships, collectability of trade and notes receivables
as well as provisions for pending litigation, will depend on future
developments that are highly uncertain. We have made reasonable estimates and
judgments of the impact of COVID-19 within our financial statements and there
may be changes to those estimates in future periods.
Climate Change
In preparing these financial statements, management has considered the
expected impacts of climate change and expected impacts of achieving the
Carnival Corporation & plc 2030 sustainability goals. Management has
considered the expected impacts of climate change on a number of key estimates
within the financial statements, including:
• Estimates related to our future liquidity requirements and
viability
• Estimates of future cash flows used in the valuation of
investment in subsidiaries and ships, when applicable
• Estimates related to the useful life and residual value of ships
Accounting Pronouncements
The International Accounting Standards Board ("IASB") issued amendments to the
standards, IFRS 9 Financial Instruments, IAS 39 Financial Instruments:
Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4
Insurance Contracts and IFRS 16 Leases, that address issues that might affect
financial reporting when an existing interest rate benchmark is replaced with
an alternative interest rate. The changes relate to the modification of
financial assets, financial liabilities and lease liabilities, specific hedge
accounting requirements, and disclosure requirements applying IFRS 7 Financial
Instruments: Disclosures to accompany the amendments regarding modifications
and hedge accounting.
The amendments require that, for financial instruments measured using
amortised cost measurement (that is, financial instruments classified as
amortised cost), changes to the basis for determining the contractual cash
flows required by interest rate benchmark reform are reflected by adjusting
their effective interest rate. No immediate gain or loss is recognised. These
expedients are only applicable to changes that are required by interest rate
benchmark reform, which is the case if, and only if, the change is necessary
as a direct consequence of interest rate benchmark reform and the new basis
for determining the contractual cash flows is economically equivalent to the
previous basis (that is, the basis immediately preceding the change).
Where some or all of a change in the basis for determining the contractual
cash flows of a financial liability does not meet the above criteria, the
above practical expedient is first applied to the changes required by interest
rate benchmark reform, including updating the instrument's effective interest
rate. Any additional changes are accounted for in the normal way (that is,
assessed for modification or derecognition, with the resulting modification
gain / loss recognised immediately in profit or loss where the instrument is
not derecognised).
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 May 31, 2022, we have $51 million in
long-term debt which references U.S. dollar LIBOR and matures after the
transition date and have not yet transitioned to SOFR or an alternative
interest rate benchmark. We are currently evaluating this contract and working
with our creditors on updating credit agreements as necessary to include
language regarding a 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 IASB has issued amendments to the standard, IAS 1, Presentation of
Financial Statements - Classification of Liabilities as Current or
Non-current, providing a more general approach to the classification of
liabilities based on the contractual agreements in place at the reporting
date. On December 1, 2021, we adopted this guidance retrospectively. This
guidance did not have an impact on our financial statements and as such, prior
period information was not revised.
NOTE 2 - Revenue and Expense Recognition
Guest cruise deposits and advance onboard purchases are initially included in
customer deposit liabilities when received. Customer deposits are subsequently
recognized as cruise revenues, together with revenues from onboard and other
activities,
9
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.
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 have paid refunds of customer deposits with respect to a portion of
cancelled cruises. The amount of any future cash refunds may depend on future
cruise cancellations and guest rebookings. We 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 $1.2 billion as of May
31, 2022 and $929 million as of November 30, 2021. Refunds payable to guests
who have elected cash refunds are recorded in accounts payable. During the six
months ended May 31, 2022 and 2021 we recognized revenues of $0.4 billion and
an immaterial amount related to our customer deposits as of November 30, 2021
and 2020. Historically, our customer deposits balance changes due to the
seasonal nature of cash collections, the recognition of revenue, refunds of
customer deposits and foreign currency translation.
Contract Receivables
Although we generally require full payment from our customers prior to or
concurrently with their cruise, we grant credit terms to a relatively small
portion of our revenue source. We also have receivables from credit card
merchants for cruise ticket purchases and onboard revenue. These receivables
are included within trade and other receivables, net. We have agreements with
a number of credit card processors that transact customer deposits related to
our cruise vacations. Certain of these agreements allow the credit card
processors to request, under certain circumstances, that we provide a reserve
fund in cash. These reserve funds are included in other assets.
Contract Assets
Contract assets are amounts paid prior to the start of a voyage as a result of
obtaining the ticket contract and include prepaid travel agent commissions and
prepaid credit and debit card fees. We record these amounts within prepaid
expenses and other and subsequently recognize these amounts as commissions,
transportation and other at the time of revenue recognition or at the time of
voyage cancellation. We had contract assets of $30 million as of May 31, 2022
and $13 million as of November 30, 2021.
10
NOTE 3 - Property and Equipment
(in millions)
At November 30, 2021 $14,953
Additions 1,967
Disposals (37)
Depreciation (376)
Exchange movements (840)
At May 31, 2022 $15,667
We review our long-lived assets for impairment whenever events or
circumstances indicate potential impairment. During the six months ended May
31, 2022, we did not record any impairments.
Refer to Note 1 - "General, Use of Estimates and Risks and Uncertainty" for
additional discussion.
Ship Sales
During 2022, we completed the sale of one EA segment ship, which represents a
passenger-capacity reduction of 1,410.
NOTE 4 - Debt
Export Credit Facility Borrowings
During the six months ended May 31, 2022, we borrowed $2.3 billion under
export credit facilities due in semi-annual installments through 2034.
Carnival Corporation or Carnival plc and certain of our subsidiaries have
guaranteed substantially all of our indebtedness.
Short-Term Borrowings
As of May 31, 2022 and November 30, 2021, Carnival Corporation's short-term
borrowings consisted of $2.7 billion and $2.8 billion and Carnival plc had
no short-term borrowings under the Carnival Corporation & plc's
$1.7 billion, €1.0 billion and £0.2 billion revolving credit facility
(the "Revolving Facility"). As of May 31, 2022 and November 30, 2021, Carnival
Corporation and Carnival plc had a total availability of $0.3 billion and
$0.2 billion under the Revolving Facility.
Covenant Compliance
As of May 31, 2022, Carnival Corporation & plc's Revolving Facility and
substantially all of their unsecured loans and export credit facilities
contain certain covenants, the most restrictive of which require Carnival
Corporation & plc to:
• Maintain minimum interest coverage (adjusted EBITDA to
consolidated net interest charges) at the end of each fiscal quarter from
August 31, 2023, at a ratio of not less than 2.0 to 1.0 for the August 31,
2023 testing date, 2.5 to 1.0 for the November 30, 2023 testing date, and 3.0
to 1.0 for the February 29, 2024 testing date onwards, or through their
respective maturity dates
• Maintain minimum shareholders' equity of $5.0 billion
• Limit our debt to capital (as defined) percentage from the
November 30, 2021 testing date until the May 31, 2023 testing date, to a
percentage not to exceed 75%, following which it will be tested at levels
which decline ratably to 65% from the May 31, 2024 testing date onwards
• Maintain minimum liquidity of $1.5 billion through November 30,
2026
• Adhere to certain restrictive covenants through November 30,
2024
• Limit the amounts of our secured assets as well as secured and
other indebtedness
At May 31, 2022, Carnival Corporation & plc was in compliance with the
applicable covenants under its debt agreements. Generally, if an event of
default under any debt agreement occurs, then, pursuant to cross default
acceleration clauses, substantially all of its outstanding debt and derivative
contract payables could become due, and all debt and derivative contracts
could be terminated. Any financial covenant amendment may lead to increased
costs, increased interest rates, additional restrictive covenants and other
available lender protections that would be applicable.
11
NOTE 5 - Ship Commitments
At May 31, 2022, we had two ships under contract for construction. The
estimated total future commitments, including the contract prices with the
shipyards, design and engineering fees, capitalised interest, construction
oversight costs and various owner supplied items are as follows:
(in millions) May 31, 2022
Fiscal
Remainder of 2022 $118
2023 977
2024 583
2025 -
Total $1,678
NOTE 6 - Contingencies and Commitments
Litigation
We are routinely involved in legal proceedings, claims, disputes, regulatory
matters and governmental inspections or investigations arising in the ordinary
course of or incidental to our business, including those noted below.
Additionally, as a result of the impact of COVID-19, litigation claims,
enforcement actions, regulatory actions and investigations, including, but not
limited to, those arising from personal injury and loss of life, have been and
may, in the future, be asserted against us. We expect many of these claims and
actions, or any settlement of these claims and actions, to be covered by
insurance and historically the maximum amount of our liability, net of any
insurance recoverables, has been limited to our self-insurance retention
levels.
We record provisions in the 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.
COVID-19 Actions
Private Actions
We have been named in a number of individual actions related to COVID-19.
Private parties have brought approximately seven individual lawsuits as of May
31, 2022 in several U.S. federal and state courts. These actions include tort
claims based on a variety of theories, including negligence and failure to
warn. The plaintiffs in these actions allege a variety of injuries: some
plaintiffs confined their claim to emotional distress, while others allege
injuries arising from testing positive for COVID-19. A smaller number of
actions include wrongful death claims. As of May 31, 2022, six of these
individual actions have now been dismissed or settled for immaterial amounts
and one remains.
Additionally, as of May 31, 2022, eight purported class actions have been
brought by former guests in several U.S. federal courts and in the Federal
Court in Australia. These actions include tort claims based on a variety of
theories, including negligence, gross negligence and failure to warn, physical
injuries and severe emotional distress associated with being exposed to and/or
contracting COVID-19 onboard. As of May 31, 2022, six of these class actions
have either been settled individually for immaterial amounts or had their
class allegations dismissed by the courts and two remain.
All COVID-19 matters seek monetary damages and most seek additional punitive
damages in unspecified amounts.
As previously disclosed, on December 15, 2020, a consolidated class action
with lead plaintiffs, the New England Carpenters Pension and Guaranteed
Annuity Fund and the Massachusetts Laborers' Pension and Annuity Fund was
filed in the U.S. District Court for the Southern District of Florida,
alleging violations of Sections 10(b) and 20(a) of the U.S. Securities and
12
Exchange Act of 1934 by making misrepresentations and omissions related to
Carnival Corporation's COVID-19 knowledge and response. Plaintiffs seek to
recover unspecified damages and equitable relief for the alleged misstatements
and omissions. On March 30, 2022, the court granted our motion to dismiss with
prejudice and no appeal was filed prior to the deadline.
We continue to take actions to defend against the above claims.
Governmental Inquiries and Investigations
Federal and non-U.S. governmental agencies and officials are investigating or
otherwise seeking information, testimony and/or documents, regarding COVID-19
incidents and related matters. We are investigating these matters internally
and are cooperating with all requests. The investigations could result in the
imposition of civil and criminal penalties in the future.
Other Regulatory or Governmental Inquiries and Investigations
We have been, and may continue to be, impacted by breaches in data security
and lapses in data privacy, which occur from time to time. These can vary in
scope and intent from inadvertent events to malicious motivated attacks.
We detected ransomware attacks in December 2020 in which an unauthorized third
party gained access to certain of our information security systems, deployed
ransomware, and obtained personal information related to guests, employees and
crew for some of our operations. We engaged a major cybersecurity firm to
investigate the matter and notified relevant law enforcement and regulators of
the incident. The investigation, communication and reporting phases are
complete.
We have been contacted by various regulatory agencies regarding this and other
cyber incidents. The New York Department of Financial Services ("NY DFS") has
notified us of their intent to commence proceedings seeking penalties if
settlement cannot be reached in advance of litigation. On June 24, 2022, we
finalized a settlement with NY DFS, pursuant to which we will pay an amount
that will not have a material impact on our financial statements.
We continue to work with regulators regarding cyber incidents we have
experienced. We have incurred legal and other costs in connection with cyber
incidents that have impacted us. While these incidents are not expected to
have a material adverse effect on our business, results of operations,
financial position or liquidity, no assurances can be given about the future
and we may be subject to future litigation, attacks or incidents that could
have such a material adverse effect.
On March 14, 2022, the United States Department of Justice and the United
States Environmental Protection Agency notified Carnival Corporation & plc
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. Carnival Corporation & plc is working with these agencies to reach
a resolution of this matter. We do not expect this matter to have a material
impact on our 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 May 31, 2022 and November 30, 2021, we had $164 million and
$110 million, respectively, 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 May 31, 2022 and November 30, 2021, we had no outstanding
cash collateral in escrow.
13
NOTE 7 - Claims Reserve
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 judgement 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 and the
estimated timing of settlement 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.
The changes in our guest, crew and other claims were as follows:
(in millions) Claims Reserves
At November 30, 2021 $94
Additional provisions 5
Paid losses (5)
Reversals (11)
Exchange rates 2
At May 31, 2022 $85
NOTE 8 - Segment Information
As previously discussed, within the DLC arrangement the most appropriate
presentation of Carnival plc's results and financial position is by reference
to the DLC Financial Statements. The operating segments are reported on the
same basis as the internally reported information that is provided to the
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
the segments. Carnival Corporation & plc has four reportable segments
comprised of (1) North America and Australia cruise operations ("NAA"),
(2) Europe and Asia cruise operations ("EA"), (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.
14
Six Months Ended May 31,
(in millions) Revenues Operating costs and Selling and Depreciation Operating
expenses administrative and income
amortisation (loss)
2022
NAA $2,792 $3,055 $710 $687 $(1,661)
EA 1,123 1,546 352 359 (1,134)
Cruise Support 73 54 75 68 (126)
Tour and Other 37 57 12 11 (44)
Carnival Corporation & plc 4,024 4,713 1,149 1,126 (2,964)
- U.S. GAAP
Carnival Corporation - U.S. GAAP (a) (2,852) (3,045) (744) (728) 1,665
Carnival plc - U.S. GAAP vs IFRS differences (b) - (15) (7) (2) 23
Carnival plc - IFRS $1,172 $1,653 $398 $396 $(1,276)
2021
NAA $19 $680 $453 $676 $(1,790)
EA 41 496 239 370 (1,064)
Cruise Support - 15 171 61 (247)
Tour and Other 14 25 17 12 (39)
Carnival Corporation & plc 75 1,216 879 1,119 (3,139)
- U.S. GAAP
Carnival Corporation - U.S. GAAP (a) (20) (660) (566) (717) 1,922
Carnival plc - U.S. GAAP vs IFRS differences (b) - (56) (7) (6) 70
Carnival plc - IFRS $55 $500 $306 $395 $(1,147)
(a) Carnival Corporation consists primarily of cruise brands that do not
form part of the Group; however, these brands are included in Carnival
Corporation & plc and thus represent substantially all of the reconciling
items.
(b) The U.S. GAAP vs IFRS accounting differences relate to lease
accounting, pension accounting and differences in depreciation expense due to
differences in the carrying value of ships. For the six months ended May 31,
2021, the U.S. GAAP vs IFRS accounting differences also related to differences
in valuation of ships.
Revenue by geographic areas, which are based on where our guests are sourced,
were as follows:
(in millions) Six Months Ended
May 31, 2022
Europe $1,063
North America 53
Australia and Asia 18
Others 38
$1,172
As a result of the pause in our guest cruise operations revenue data for the
six months ended May 31, 2021 is not meaningful and is not included in the
table.
NOTE 9 - Related Party Transactions
There have been no changes in the six months ended May 31, 2022 to the nature
of the related party transactions described in the Group IFRS financial
statements for the year ended November 30, 2021 that have a material effect on
the financial position or results of operations of the Group. All amounts owed
to the Carnival Corporation group are unsecured, repayable on demand and
considered short-term in nature.
15
During the six months ended May 31, 2022, Holland America Line and Princess
Cruises purchased land tours from us totaling $10 million. During the six
months ended May 31, 2021, Holland America Line and Princess Cruises did not
purchase land tours from us. In addition, during the six months ended May 31,
2022 we sold pre- and post-cruise vacations, shore excursions and
transportation services to the Carnival Corporation group. During the six
months ended May 31, 2021, we did not sell pre- and post-cruise vacations,
shore excursions or transportation services to the Carnival Corporation group.
During the six months ended May 31, 2022, Carnival plc continued to provide a
guarantee to the Merchant Navy Officers Pension Fund for certain employees who
have transferred from Carnival plc to a subsidiary of Carnival Corporation.
Carnival Corporation and its subsidiary, Carnival Investments Limited owned
39.8 million, or 18.3% at May 31, 2022 and 34.6 million or 15.9% at November
30, 2021 of Carnival plc's ordinary shares, which are non-voting.
Carnival Corporation & plc has a program that allows it to realize a net
cash benefit when Carnival Corporation common stock is trading at a premium to
the price of Carnival plc ordinary shares (the "Stock Swap Program"). Under
the Stock Swap Program, Carnival Corporation & plc 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.
Within the DLC arrangement, there are instances where the Group provides
services to Carnival Corporation group companies and also where Carnival
Corporation group companies provide services to the Group.
NOTE 10 - Seasonality
Our passenger ticket revenues are seasonal. Historically, demand for cruises
has been greatest during our third quarter, which includes the Northern
Hemisphere summer months. This higher demand during the third quarter results
in higher ticket prices and occupancy levels and, accordingly, the largest
share of our operating income is typically earned during this period. This
historical trend was disrupted in 2020 by the pause and in 2021 by the ongoing
resumption of guest cruise operations. In addition, substantially all of
Holland America Princess Alaska Tours' revenue and net income (loss) is
generated from May through September in conjunction with Alaska's cruise
season.
NOTE 11 - Fair Value Measurements and Derivative Instruments and Hedging
Activities
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.
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. The fair
value of cross guarantees within the DLC arrangement were not significant at
May 31, 2022 or November 30, 2021, and are not expected to result in any
material loss.
16
Financial Instruments that are not Measured at Fair Value on a
Recurring Basis
May 31, 2022 November 30, 2021
Fair Value Fair Value
(in millions) Carrying Value Level 1 Level 2 Level 3 Carrying Value Level 1 Level 2 Level 3
Liabilities
Fixed rate debt (a) $4,135 $- $2,602 $- $2,951 $- $2,271 $-
Floating rate debt (a) 3,704 - 2,889 - 3,171 - 2,763 -
Total $7,839 $- $5,491 $- $6,122 $- $5,034 $-
(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
May 31, 2022 November 30, 2021
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash and cash equivalents $502 $- $- $434 $- $-
Total $502 $- $- $434 $- $-
Liabilities
Derivative financial instruments $- $2 $- $- $5 $-
Total $- $2 $- $- $5 $-
Derivative Instruments and Hedging Activities
(in millions) Balance Sheet Location May 31, 2022 November 30, 2021
Derivative liabilities
Derivatives designated as hedging instruments
Interest rate swaps (a) Accrued liabilities and other $1 $3
Other long-term liabilities - 2
Total derivative liabilities $2 $5
(a) 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
$116 million at May 31, 2022 ($147 million at November 30, 2021) of
EURIBOR-based floating rate euro debt to fixed rate euro debt. At May 31,
2022, these interest rate swaps settle through 2025.
17
Our derivative contracts include rights of offset with our counterparties.
May 31, 2022
(in millions) Gross Amounts Gross Amounts Offset in the Balance Sheet Total Net Amounts Presented in the Balance Sheet Gross Amounts not Offset in the Balance Sheet Net Amounts
Assets $- $- $- $- $-
Liabilities $2 $- $2 $- $2
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 $- $- $- $- $-
Liabilities $5 $- $5 $- $5
The effect of our derivatives qualifying and designated as hedging instruments
recognized in other comprehensive income (loss) and in income (loss) was as
follows:
Six Months Ended May 31,
(in millions) 2022 2021
Gains (losses) recognized in reserves:
Interest rate swaps - cash flow hedges $7 $2
Gains (losses) reclassified from reserves - cash flow hedges:
Interest rate swaps - Interest expense, net of capitalized interest $(1) $(2)
There are no credit risk related contingent features in our derivative
agreements. 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.
NOTE 12 - Government Assistance
During the six months ended May 31, 2022, the Group received government
assistance under schemes provided by various governments. The total amounts
recognized by the Group during the six months ended May 31, 2022 and 2021 from
these schemes was $2 million and $14 million respectively and is offset in
payroll and related expense as well as selling and administrative expenses in
the accompanying Statements of Income (Loss).
NOTE 13 - Principal Risks and Uncertainties
The principal risks and uncertainties affecting our business activities are
included in Item 4. Risk Management and/or Mitigation of Principal and
Emerging Risks within our 2021 Strategic Report and are summarized below. For
any changes since the issuance of our 2021 Strategic Report, we have provided
the detailed risk description below. The ordering and lettering of the risk
factors set forth below is not intended to reflect any Company indication of
priority or likelihood.
COVID-19 and Liquidity/Debt Related Risk Factors
a. COVID-19 has had, and is expected to continue to have, a
significant impact on our financial condition and operations. The current, and
uncertain future, impact of COVID-19, including its effect on the ability or
desire of people to travel (including on cruises), is expected to continue to
impact our results, operations, outlooks, plans, goals, reputation,
litigation, cash flows, liquidity, and stock price.
b. Our substantial debt could adversely affect our financial health
and operating flexibility.
c. Despite our leverage, we may incur more debt, which could adversely
affect our business and prevent us from fulfilling our obligations with
respect to our debt.
d. We are subject to maintenance covenants, as well as restrictive
debt covenants, that may limit our ability to finance future operations and
capital needs and pursue business opportunities and activities. We are also
subject to financial
18
covenants that could lead to an acceleration of the indebtedness of our debt
facilities if we fail to comply. If we fail to comply with any of these
covenants, it could have a material adverse effect on our business.
e. We require a significant amount of cash to service our debt and
sustain our operations. Our ability to generate cash depends on many factors
beyond our control, and we may not be able to generate cash required to
service our debt.
f. Our variable rate indebtedness exposes us to interest rate
volatility, which could cause our debt service obligations to increase
significantly.
g. The covenants in certain of our debt facilities may require us to
secure those facilities in the future.
Operating Risk Factors
a. Events and conditions around the world, including war and other
military actions, such as the current invasion of Ukraine, heightened
inflation and other general concerns impacting the ability or desire of people
to travel have and may lead to a decline in demand for cruises, impact our
operating costs and profitability.
• We have been, and may continue to be, impacted by the public's
concerns regarding the health, safety and security of travel, including
government travel advisories and travel restrictions, political instability
and civil unrest, terrorist attacks, war and military action, most recently
the current invasion of Ukraine, and other general concerns. The current
invasion of Ukraine and its resulting impacts, including supply chain
disruptions, increased fuel prices and international sanctions and other
measures that have been imposed, have adversely affected, and may continue to
adversely affect, our business. These factors may also have the effect of
heightening many other risks to our business, any of which could materially
and adversely affect our business and results of operations. Additionally, we
have been, and may continue to be, impacted by heightened regulations around
customs and border control, travel bans to and from certain geographical
areas, voluntary changes to our itineraries in light of geopolitical events,
government policies increasing the difficulty of travel and limitations on
issuing international travel visas. We have been and may continue to be
impacted by inflation and supply chain disruptions and may also be impacted by
adverse changes in the perceived or actual economic climate, such as global or
regional recessions, higher unemployment and underemployment rates and
declines in income levels.
b. Incidents concerning our ships, guests or the cruise vacation
industry have in the past and may, in the future, impact the satisfaction of
our guests and crew and lead to reputational damage.
c. Changes in and non-compliance with laws and regulations under which
we operate, such as those relating to health, environment, safety and
security, data privacy and protection, anti-corruption, economic sanctions,
trade protection and tax have in the past and may, in the future, lead to
litigation, enforcement actions, fines, penalties and reputational damage.
d. 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.
e. 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.
f. 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.
g. The loss of key employees, our inability to recruit or retain
qualified shoreside and shipboard employees and increased labor costs could
have an adverse effect on our business and results of operations.
h. Increases in fuel prices, changes in the types of fuel consumed and
availability of fuel supply may adversely impact our scheduled itineraries and
costs.
i. We rely on supply chain vendors who are integral to the
operations of our businesses. These vendors and service providers are also
affected by COVID-19 and may be unable to deliver on their commitments which
could impact our business.
j. Fluctuations in foreign currency exchange rates may adversely
impact our financial results.
k. Overcapacity and competition in the cruise and land-based vacation
industry may lead to a decline in our cruise sales, pricing and destination
options.
l. Inability to implement our shipbuilding programs and ship
repairs, maintenance and refurbishments may adversely impact our business
operations and the satisfaction of our guests.
19
NOTE 14 - Task Force on Climate-Related Financial Disclosures ("TCFD")
Click on, or paste the following link into your web browser to view the
associated PDF document of Note 14.
http://www.rns-pdf.londonstockexchange.com/rns/7122Q_1-2022-6-29.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/7122Q_1-2022-6-29.pdf)
For the year ended November 30, 2022, we will include our climate-related
financial disclosures, consistent with the TCFD recommendations, within our
2022 Annual Report. This is in accordance with the Listing Rule LR 9.8.6R
requirements, which will be mandatory for us for the year ending November 30,
2022. We have voluntarily chosen to report our progress on climate related
financial disclosures below, ahead of this mandatory requirement.
TCFD Pillar Recommended disclosures Page reference(s)
Governance a) Describe the boards' oversight of climate-related risks and opportunities. 20-21
b) Describe management's role in assessing and managing climate-related risks 21
and opportunities.
Strategy a) Describe the climate-related risks and opportunities the organisation has 21-23
identified over the short, medium, and long term.
b) Describe the impact of climate-related risks and opportunities on the 23-24
organisation's businesses, strategy, and financial planning.
c) Describe the resilience of the organisation's strategy, taking into 24-25
consideration different climate-related scenarios, including a 2°C or lower
scenario.
Risk Management a) Describe the organisation's processes for identifying and assessing 25
climate-related risks.
b) Describe the organisation's processes for managing climate-related risks. 25
c) Describe how processes for identifying, assessing, and managing 25-26
climate-related risks are integrated into the organisation's overall risk
management.
Metrics and Targets a) Disclose the metrics used by the organisation to assess climate-related 26
risks and opportunities in line with its strategy and risk management process.
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas 26
(GHG) emissions, and the related risks.
c) Describe the targets used by the organisation to manage climate-related 26-27
risks and opportunities and performance against targets.
Governance
The Boards of Directors have ultimate oversight of climate-related risks and
opportunities and are directly supported by members of executive management.
The Boards of Directors have appointed our President and Chief Executive
Officer ("CEO") Arnold Donald to the role of Chief Climate Officer ("CCO") in
January 2022. Through this role, he leads the identification of
climate-related risks and opportunities and oversees how these are embedded in
our strategic decision-making and risk management processes. During 2022,
climate-related matters were a recurring Board discussion item.
To further support our climate-related efforts, we created a Strategic Risk
Evaluation ("SRE") Committee to identify, mitigate, and monitor
climate-related risks and opportunities. The SRE Committee consists of members
of executive management and advisors and reports to the CCO. The SRE Committee
members are David Bernstein (Chief Financial Officer), Josh Weinstein (Chief
Operations Officer), Bill Burke (Chief Maritime Officer), and Stein Kruse
(Advisor to the CCO & Chairman of the Boards). The primary
responsibilities and common recurring activities of the SRE Committee are to:
• Recommend climate strategy, goals, and metrics to the CCO, who
will make ultimate recommendations to the Boards
• Enable practical implementation of climate goals approved by the
Boards
An SRE Committee Charter was adopted and five SRE Committee meetings have
taken place between its creation in January 2022 and June 2022.
20
Governance Structure
Click on, or paste the following link into your web browser to view the
associated PDF document of Note 14.
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(http://www.rns-pdf.londonstockexchange.com/rns/7122Q_1-2022-6-29.pdf)
To enable the CCO and Boards of Directors to fulfil their responsibility to
oversee climate-related risks and opportunities, a Board Environmental Social
and Governance ("ESG") and TCFD Education Program has been established, with
core education components and optional self-study courses. This ESG and TCFD
Education Program has been developed with support from external advisors and
the Senior Independent Director. The core education components of the Program
are expected to be completed by January 2023.
Executive management is responsible for ensuring we have active plans and
adequate resources to manage and/or mitigate principal and emerging financial
and non-financial risks, including Health, Environmental, Safety &
Security ("HESS") and compliance risks, identified by the business from the
risk assessment processes that are integrated within our operations. As new
risks emerge, executive management seeks to ensure they are properly reviewed
and monitored. Climate-related risk management is considered part of
management's responsibility.
We are continuously refining and enhancing our existing processes. During
2022, management performed a qualitative scenario analysis as described below,
to further identify our climate related risks and opportunities over the
short, medium and long-term. Our process for continuously identifying,
assessing and managing climate-related risks and opportunities is being
developed. Climate-related risks and opportunities are reported up to the SRE
Committee. Please see pages 25-26 for details of our risk management process.
Strategy
Climate-related Risks and Opportunities
We have qualitatively applied two distinct plausible climate scenarios, which
were used to generate the climate-related risks and opportunities listed
below. We selected a "Steady Path to Sustainability" scenario, where an
average warming is limited to below 1.5°C above pre-industrial levels by
2100, and a "Regional Rivalry" scenario, where an average warming rate of 3°C
above pre-industrial levels is reached by 2100 (see further detail on pages
24-25).
21
As part of our qualitative scenario analysis, we conducted a series of
workshops with the members of the SRE committee and a cross-section of
management to identify material climate-related risks and opportunities over
the following time horizons:
• Present - 2025 (short-term)
• 2025 - 2035 (medium-term)
• 2035 - 2050 (long-term)
The short-term time horizon is consistent with the period we use for our
Viability Statement. The medium-term time horizon aligns with our existing
sustainability goals, while the long-term horizon is consistent with the
useful life of our ships.
Our risks are defined as transition and physical risks. Opportunities are
structured according to thematic areas of focus. Based on the outcomes of our
workshops, we have initially selected three risks and two opportunities for
further assessment and quantification through quantitative scenario analysis,
which we are in the process of performing. Our 2022 Annual Report will include
additional information on the output of our quantitative scenario analysis.
Our initial selected risks and opportunities for further development and
quantification are in bold in the table below:
Climate-related risks identified through qualitative
scenario analysis
TCFD risk categories Risk summary Time horizon
Markets and Products / Shifting Markets (1) Cruising no longer aligns to consumers climate values Medium Term
Reduced availability and access to fuel Long Term
Unable to meet climate-related requirements reduces access to capital / Medium Term
insurance
Policy and Legal (1) Increased costs driven by climate-related regulations Short-Medium Term
Risk is that cruising (as a carbon-intensive industry) is severely restricted Medium Term
or subject to bans
Reputation (1) Failure to attract and retain talent due to climate credentials Medium Term
Increased demand for reducing carbon-intensive practices Short Term
Technology (1) Lack of viable low carbon technology to replace fossil fuels Medium Term
Physical Chronic climate change impacting supply chain availability and price Medium term with expected increases in the long term
Itineraries are not viable due to extreme weather and/or sea level rise Medium term with expected increases in the long term
(1) Transition Risks
22
Climate-related opportunities identified through
qualitative scenario analysis
TCFD opportunity categories Opportunity summary Time horizon
Energy source Support the adaptation of sustainable technological advances for the cruise Medium term
industry
Market Access Access to new financing options available for organisations working on Short-Medium term
decarbonisation
Access to private destinations or islands with infrastructure built by us Short-Medium term
Attract and retain new customers and improve reputation through sustainable Short-Medium term
itineraries and activities for changing climate-induced preferences
Positioning as a sustainability leader Short-Medium term
Products & Services Opportunities for the ship to be the destination Long Term
Resilience Engage with more sustainable and economically favourable alternative suppliers Short Term
Improve resilience to physical climate risk through adaptation of itinerary Short Term
routes and investment in port infrastructure
Resource Efficiency Improved operational efficiencies arising from technological advancements Medium term
Increased fuel efficiency through alternative itinerary planning and reduced Short - Medium term
energy use
Increased resource efficiency through reduced on-board energy demand and Medium term
consumption
Impacts
The impacts of climate-related risks and opportunities on the business
presented in the tables above have been qualitatively assessed.
We presently consider transition risks to be the most significant in terms of
likelihood and impact. The risks with the highest impact and likelihood of
occurrence are associated with the transition to a low-carbon emission future,
in a scenario where we have not been able to access low-carbon technology, or
where these technologies do not exist and where we have reduced availability
and access to fuel.
The climate-related opportunities with the highest impact are a mix of
mitigation and adaptation opportunities. These include the positive impacts of
supporting the (adaptation) of sustainable technological advances for our
business, improved operational efficiencies from technological advancements,
and more energy efficient itineraries from investing in port and destination
projects.
Our short and medium-term decarbonization goals focus on reducing carbon
emissions per Available Lower Berth Day ("ALBD") and carbon emissions per
Available Lower Berth Kilometer ("ALB-km") and we are committed to long-term
absolute carbon emissions reduction goals as part of our aspiration to be net
carbon-neutral by 2050. Our ongoing efforts to achieve our 2030 goals include
the delivery of larger more efficient ships as part of our ongoing newbuild
program, some of which will replace existing ships in our fleet, as well as
investing in energy efficiency projects for our existing fleet, designing more
energy efficient itineraries and investing in port and destination projects to
support these efforts. We continue to evaluate and implement changes to our
various annual planning processes to further expand our focus on
decarbonization.
23
The actions we are taking via our strategy and financial planning processes to
manage the impacts of climate-related risks and opportunities are listed
below.
Newbuild Program and Supporting Innovation
As part of our plan for carbon footprint reduction, we lead the cruise
industry's use of Liquid Natural Gas ("LNG") powered cruise ships with a total
of 11 next-generation cruise ships that are expected to join the fleet through
2025, including six ships already in operation as of May 31, 2022. In total,
these 11 ships are expected to represent 20% of our total future capacity.
Whilst LNG is a fossil fuel and generates carbon emissions, LNG vessels
generate up to 20% less carbon emissions than traditionally powered ships,
while almost eliminating sulfur oxides, reducing nitrogen oxides by 85% and
particulate matter by 95%-100%. The types of engines that we use are subject
to small amounts of methane slip (the passage of un-combusted methane through
the engine). There are different views relating to the measurement of the
environmental impact of LNG, including the methane slip. Our disclosures
report our emissions, including methane slip, as part of our total carbon
emissions (reported as CO2e) using the 100-year global warming potential time
frame and measured on a "tank to wake" basis. We are working closely with our
engine manufacturers and other technology providers to mitigate methane slip.
While fossil fuels are currently the only viable option for our industry, we
are closely monitoring technology developments and partnering with key
organizations on research and development to support our carbon emission
reduction goals. For example, we are partnering to evaluate and pilot maritime
scale battery technology and methanol powered fuel cells and working with
classification societies and other stakeholders to assess lower carbon fuel
options for cruise ships including hydrogen, methanol, eLNG, and biofuels. We
are promoting the use of shore power, enabling ships to use shoreside electric
power where available while in port.
The Mærsk McKinney Møller Center for Zero Carbon Shipping is a
not-for-profit, independent research and development center working with
industry players across the energy and shipping sectors to mature viable
decarbonization pathways for shipping globally. Together with its partners,
the Center facilitates the development and implementation of new energy and
maritime technologies and accelerates the transition by defining strategic
ways to drive the required systemic and regulatory change. In January 2021, we
became a mission ambassador to the Center's work through a formalized network
and information flow. Joining the Mærsk McKinney Møller Center for Zero
Carbon Shipping is another important step in establishing a path to zero
emission cruising over time.
Investing in projects that improve energy
efficiency
Energy efficiency projects are specifically identified, reviewed, and approved
as part of capital planning. An Internal Decarbonization Premium is being
added to the cost of fuel during the planning process and is used to evaluate
the payback period and return on investment for projects. The non-newbuild
capital plan process is being enhanced by closer monitoring of spend related
to energy efficiency projects. Additionally, approved capital spend for energy
efficiency projects cannot be reallocated to projects that are not energy
efficiency related without CCO approval.
Designing more energy efficient itineraries
We continue to evaluate and implement changes to our various annual planning
processes to further support our focus on decarbonization. Itinerary planning
is a key lever in our low carbon transition and consideration of climate risk
is already integrated into the ongoing process of itinerary planning. This
process is being enhanced through the recently adopted Corporate Itinerary
Decarbonization Reviews which evaluate the itinerary planning process of each
brand, focused on topics and metrics related to decarbonization to ensure the
processes are robust and adequately focus on carbon reduction.
Investing in port and destination projects
Other strategic decisions, including how and where to invest in new
infrastructure, are informed by climate-related risks and opportunities and
will be further informed by the outputs of our quantitative scenario analysis.
A climate study was undertaken for two of our port investments at Grand Port
(Grand Bahama Island) and Half Moon Cay Pier Project (Bahamas), to enhance
climate resilience. Furthermore, our investments in these ports and
destinations will support our efforts to design more energy efficient
itineraries based on their strategic locations.
Scenario Analysis
We have qualitatively applied two distinct plausible climate scenarios, which
were used to generate the risks and opportunities assessed.
Steady path to sustainability (1.5°C by 2100)
24
Climate: Average temperature increase limited to below 1.5°C above
pre-industrial levels by 2100.
Narrative overview: Under the 1.5°C Steady Path to Sustainability scenario,
the world takes the rapid and strong policy measures required to meet the
ambition of the 2015 Paris Agreement. Low carbon technologies take over from
fossil-fuels, but under this scenario significantly reduced economic growth is
just as important for reaching net zero emissions by
2050.
Under this scenario, transition risks are most material and our resilience is
therefore dependent on our ability to effectively adopt low carbon
technologies. This will help us to adhere to increasing decarbonization
requirements set out by key drivers identified in a low-carbon transition
scenario, including existing and emerging regulation, consumer preferences,
and talent markets. Ultimately, the availability and effective adoption of low
carbon technologies, most notably in the alternative fuels and resource
efficiency spaces, could impact our organization. As a result, our most
impactful opportunity is the enhancement of our reputation and
competitiveness, by supporting the adaptation of sustainable technological
advances for the cruise industry. This will also further help us to mitigate
the risks associated with access to jurisdictions, access to capital and
adherence to regulation.
Regional Rivalry (3°C by 2100)
Climate: Average temperature increase of 3°C above pre-industrial levels by
2100.
Narrative overview: The 3°C scenario explores a possible route in which the
world is seeing an emergence of tribalism and nationalism. Low international
priority for addressing environmental concerns leads to strong environmental
degradation in some regions. The combination of impeded development and
limited environmental concern results in poor progress toward climate
sustainability. Growing resource intensity and fossil fuel dependency along
with difficulty in achieving international cooperation and slow technological
change imply high challenges to mitigation.
This scenario presents a higher emissions future where physical risks are most
material. Business resilience under this scenario is dependent on our ability
to adapt to extreme weather events and chronic physical risks, which have the
potential to limit access to jurisdictions and impact supply chain resilience
due to economic and physical damage. Under this scenario we can remain
resilient by taking advantage of opportunities to adapt the business model to
support business continuity. These adaptions may include ship or private
locations becoming the destination, as well as adapting itineraries and
investing in port and destination projects.
Risk Management
The qualitative scenario analysis is the foundation of our climate-risk
identification and assessment process and began with the evaluation of all
possible climate-related risks we may face, to generate an initial list of
possible risks. Input from key stakeholders in the business was obtained
through workshops to identify additional climate risks and opportunities and
refine the list before prioritizing the list of risks and opportunities
identified. Assessment of these risks was performed by the SRE committee and a
cross section of management, who qualitatively evaluated the impact and
likelihood of these risks and opportunities. Certain financial, regulatory and
reputational risks and opportunities, as described on pages 22-23, were then
selected for more detailed quantitative scenario analysis.
Executive management is responsible for ensuring we have active plans and
adequate resources to manage and/or mitigate principal and emerging financial
and non-financial risks, including HESS and compliance risks, identified by
the business from the risk assessment processes that are integrated within our
operations. As new risks emerge, executive management seeks to ensure they are
properly reviewed and monitored.
We are continuously refining and enhancing our existing processes. The SRE
Committee was established to oversee the identification, assessment,
management, and monitoring of climate-related risks and opportunities. They
provide recommendations to the CCO, who ultimately provides recommendations to
the Boards of Directors. Our process for continuously identifying, assessing
and managing climate-related risks and opportunities is being further
developed, and we will include a description of this process in our 2022
Annual Report.
Overall, the Boards of Directors are responsible for determining the strategic
direction of the company and the nature and extent of the risk assumed by it.
The Boards of Directors carry out a robust risk assessment to ensure that
principal and emerging risks, including those that would threaten its business
model, future performance, solvency or liquidity are effectively managed
and/or
25
mitigated to help ensure the company is viable. Within our risk management
framework, the Boards of Directors have ultimate oversight of climate-related
risks, which has been identified as a principal risk, please see the
Governance pillar for description of how climate related risks are overseen.
Metrics and Targets
Metrics
The metrics which are currently used in addressing our climate-related risks
and opportunities are disclosed below. Please see the Strategy pillar for a
list of our most likely and most impactful risks and opportunities, which have
been raised through our risk identification and assessment process. The SRE
committee recommends metrics to the CCO, who will make ultimate
recommendations to the Boards, as described on page 20.
Our Scope 1 and 2 emissions are reported within our 2021 Annual Report. We
quantify, report, and obtain third-party verification (under ISO-14064-3:2006)
over our annual greenhouse gas ("GHG") emissions, including our direct (Scope
1) and indirect (Scope 2) emissions, which comprise our total GHG inventory.
Our 2022 GHG emissions will be included in our 2022 Annual Report as part of
our reporting requirements. We are also assessing and baselining our scope 3
emissions in 2022 and expect to begin disclosing scope 3 emissions data in the
future.
Targets
We have made progress over the past 15 years reducing our carbon emission
intensity and achieving our 2020 goal three years early (in 2017). We have
also made progress towards our 2030 carbon intensity reduction goals of 40%
from a 2008 baseline, measured in both grams of CO2e per ALB-km and kilograms
of CO2e per ALBD. Through 2019, we reduced our carbon emission intensity on a
lower berth distance basis by 25% relative to 2008 all while growing our
capacity by 47%. Furthermore, because of our efforts, we peaked our absolute
Scope 1 and 2 emissions in 2011.
We decided to update the baseline year for both goals to 2019 from 2008. This
new baseline year will help us better communicate recent progress against our
climate goals to our investors and stakeholders, and modernizes our
disclosures in alignment with developing best practice and reporting
standards. Both 2030 goals require a 20% decrease from 2019. With the updated
baseline year, we have strengthened our goal measured in kilograms of CO2e per
ALBD since the initial 2030 goal would only have required a further 15%
reduction from 2019 levels. Our goal measured in grams of CO2e per ALB-km
remains the same.
Carbon Intensity
(g CO2e/ALB-km)
Click on, or paste the following link into your web browser to view the
associated PDF document of Note 14.
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(http://www.rns-pdf.londonstockexchange.com/rns/7122Q_1-2022-6-29.pdf)
26
Carbon Intensity
(kg CO2e/ALBD)
Click on, or paste the following link into your web browser to view the
associated PDF document of Note 14.
http://www.rns-pdf.londonstockexchange.com/rns/7122Q_1-2022-6-29.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/7122Q_1-2022-6-29.pdf)
To support the mitigation of the climate-related risks identified relating to
the restriction of carbon-intensive industries and fossil fuels, we have set
the following 2030 Climate Action goals and will report on our progress in our
2022 Annual Report:
2030 Climate Action Goals Goal Baseline Time Horizon
Achieve 20% carbon intensity reduction relative to our 2019 baseline measured 20% 2019 2030
(grams of CO2e per ALB-km)
Achieve 20% carbon intensity reduction relative to our 2019 baseline measured 20% 2019 2030
(kilograms of CO2e per ALBD)
Having peaked our Scope 1 and 2 carbon emissions in 2011, we will continue to N/A 2019 2030
reduce emissions over time, and identify a pathway to decarbonization.
Reduce absolute particulate matter air emissions by 50% relative to our 2015 50% 2015 2030
baseline.
Increase fleet shore power connection capability to 60% of the fleet. 60% Ongoing 2030
Expand liquefied natural gas (LNG) program. Ongoing Ongoing 2030
Optimize the reach and performance of our Advanced Air Quality System program. Ongoing Ongoing 2030
Expand battery, fuel cell, and biofuel capabilities. Ongoing Ongoing 2030
Reduce scope 3 supply chain emissions associated with food procurement and Ongoing Ongoing 2030
waste management.
Identify carbon offset options only when energy efficiency options have been Ongoing Ongoing 2030
exhausted.
27
NOTE 15 - Responsibility Statement
The Directors confirm that to the best of their knowledge the Interim
Financial Statements included as Schedule A to this release have been prepared
in accordance with IAS 34 as adopted by the UK, and that the half-yearly
financial report includes a fair review of the information required by DTR
4.2.7R and DTR 4.2.8R of the Disclosure Guidance and Transparency Rules of the
FCA.
The Directors of Carnival plc are listed in the Carnival plc Annual Report for
the year ended November 30, 2021. No new Directors have been appointed during
the six months ended May 31, 2022. A list of current Directors is maintained
and is available for inspection on the Group's website at www.carnivalplc.com
(http://www.carnivalplc.com/) .
By order of the Board
/s/ Micky Arison
/s/ Arnold W.
Donald
Micky
Arison
Arnold W. Donald
Chair of the Board of Directors
President, Chief Executive Officer, Chief Climate Officer and Director
June 29, 2022
June 29,
2022
28
SCHEDULE B
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in millions, except per share data)
Three Months Ended May 31, Six Months Ended
May 31,
2022 2021 2022 2021
Revenues
Passenger ticket $1,285 $20 $2,158 $23
Onboard and other 1,116 29 1,866 52
2,401 50 4,024 75
Operating Costs and Expenses
Commissions, transportation and other 325 22 576 37
Onboard and other 314 15 523 22
Payroll and related 533 241 1,038 460
Fuel 545 113 910 216
Food 191 17 327 28
Ship and other impairments - 49 8 49
Other operating 774 224 1,331 404
2,683 681 4,713 1,216
Selling and administrative 619 417 1,149 879
Depreciation and amortization 572 567 1,126 1,119
3,874 1,665 6,988 3,214
Operating Income (Loss) (1,473) (1,616) (2,964) (3,139)
Nonoperating Income (Expense)
Interest income 6 4 9 7
Interest expense, net of capitalized interest (370) (437) (738) (835)
Gain (loss) on debt extinguishment, net - 2 - 4
Other income (expense), net 6 (13) (26) (75)
(358) (444) (755) (900)
Income (Loss) Before Income Taxes (1,831) (2,060) (3,719) (4,039)
Income Tax Benefit (Expense), Net (3) (12) (6) (6)
Net Income (Loss) $(1,834) $(2,072) $(3,726) $(4,045)
Earnings Per Share
Basic $(1.61) $(1.83) $(3.27) $(3.63)
Diluted $(1.61) $(1.83) $(3.27) $(3.63)
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in millions)
Three Months Ended May 31, Six Months Ended
May 31,
2022 2021 2022 2021
Net Income (Loss) $(1,834) $(2,072) $(3,726) $(4,045)
Items Included in Other Comprehensive Income (Loss)
Change in foreign currency translation adjustment (260) 104 (246) 303
Other 3 3 5 7
Other Comprehensive Income (Loss) (257) 107 (241) 310
Total Comprehensive Income (Loss) $(2,091) $(1,965) $(3,967) $(3,735)
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except par values)
May 31, November 30, 2021
2022
ASSETS
Current Assets
Cash and cash equivalents $7,054 $8,939
Short-term investments 151 200
Trade and other receivables, net 359 246
Inventories 425 356
Prepaid expenses and other 566 392
Total current assets 8,554 10,133
Property and Equipment, Net 39,262 38,107
Operating Lease Right-of-Use Assets 1,205 1,333
Goodwill 579 579
Other Intangibles 1,167 1,181
Other Assets 2,221 2,011
$52,988 $53,344
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $2,675 $2,790
Current portion of long-term debt 3,196 1,927
Current portion of operating lease liabilities 140 142
Accounts payable 912 797
Accrued liabilities and other 1,690 1,641
Customer deposits 4,767 3,112
Total current liabilities 13,380 10,408
Long-Term Debt 29,263 28,509
Long-Term Operating Lease Liabilities 1,120 1,239
Other Long-Term Liabilities 965 1,043
Contingencies and Commitments
Shareholders' Equity
Common stock of Carnival Corporation, $0.01 par value; 1,960 shares 11 11
authorized; 1,125 shares at 2022 and 1,116 shares at 2021 issued
Ordinary shares of Carnival plc, $1.66 par value; 217 shares at 2022 and 2021 361 361
issued
Additional paid-in capital 15,457 15,292
Retained earnings 2,649 6,448
Accumulated other comprehensive income (loss) ("AOCI") (1,742) (1,501)
Treasury stock, 130 shares at 2022 and 2021 of Carnival Corporation and 71 (8,476) (8,466)
shares at 2022 and 67 shares at 2021 of Carnival plc, at cost
Total shareholders' equity 8,260 12,144
$52,988 $53,344
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Six Months Ended May 31, 2022
2022 2021
OPERATING ACTIVITIES
Net income (loss) $(3,726) $(4,045)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities
Depreciation and amortization 1,126 1,119
Impairments 8 66
(Gain) loss on debt extinguishment - (4)
(Income) loss from equity-method investments (4) 14
Share-based compensation 54 66
Amortization of discounts and debt issue costs 87 83
Noncash lease expense 68 71
Other, net 12 70
(2,376) (2,559)
Changes in operating assets and liabilities
Receivables (120) 31
Inventories (79) -
Prepaid expenses and other (395) (696)
Accounts payable 139 (119)
Accrued liabilities and other 12 236
Customer deposits 1,611 245
Net cash provided by (used in) operating activities (1,209) (2,862)
INVESTING ACTIVITIES
Purchases of property and equipment (3,221) (2,157)
Proceeds from sales of ships and other 55 324
Purchase of minority interest - (90)
Purchase of short-term investments (315) (2,671)
Proceeds from maturity of short-term investments 364 467
Derivative settlements and other, net 10 (27)
Net cash provided by (used in) investing activities (3,107) (4,155)
FINANCING ACTIVITIES
Proceeds from (repayments of) short-term borrowings, net (114) 17
Principal repayments of long-term debt (684) (1,365)
Proceeds from issuance of long-term debt 3,334 4,980
Issuance of common stock, net 30 996
Issuance of common stock under the Stock Swap Program 89 -
Purchase of treasury stock under the Stock Swap Program (82) -
Debt issue costs and other, net (111) (104)
Net cash provided by (used in) financing activities 2,463 4,523
Effect of exchange rate changes on cash, cash equivalents and restricted cash (35) 19
Net increase (decrease) in cash, cash equivalents and restricted cash (1,888) (2,474)
Cash, cash equivalents and restricted cash at beginning of period 8,976 9,692
Cash, cash equivalents and restricted cash at end of period $7,089 $7,218
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(in millions)
Three Months Ended
Common Ordinary Additional Retained AOCI Treasury Total shareholders' equity
stock shares paid-in earnings stock
capital
At February 28, 2021 $11 $361 $14,977 $14,102 $(1,233) $(8,404) $19,813
Net income (loss) - - - (2,072) - - (2,072)
Other comprehensive income (loss) - - - - 107 - 107
Other - - 28 - - - 28
At May 31, 2021 $11 $361 $15,005 $12,030 $(1,126) $(8,404) $17,876
At February 28, 2022 $11 $361 $15,360 $4,493 $(1,486) $(8,428) $10,311
Net income (loss) - - - (1,834) - - (1,834)
Other comprehensive income (loss) - - - - (257) - (257)
Issuances of common stock, net - - 15 - - - 15
Purchases and issuances under the Stock Swap program, net - - 62 - - (57) 6
Issuance of treasury shares for vested share-based awards - - - (9) - 9 -
Share-based compensation and other - - 19 (1) - - 19
At May 31, 2022 $11 $361 $15,457 $2,649 $(1,742) $(8,476) $8,260
Six Months Ended
Common Ordinary Additional Retained AOCI Treasury Total shareholders' equity
stock shares paid-in earnings stock
capital
At November 30, 2020 $11 $361 $13,948 $16,075 $(1,436) $(8,404) $20,555
Net income (loss) - - - (4,045) - - (4,045)
Other comprehensive income (loss) - - - - 310 - 310
Issuance of common stock, net - - 996 - - - 997
Other - - 60 - - - 60
At May 31, 2021 $11 $361 $15,005 $12,030 $(1,126) $(8,404) $17,876
At November 30, 2021 $11 $361 $15,292 $6,448 $(1,501) $(8,466) $12,144
Net income (loss) - - - (3,726) - - (3,726)
Other comprehensive income (loss) - - - - (241) - (241)
Issuances of common stock, net - - 30 - - - 30
Purchases and issuances under the Stock Swap program, net - - 89 - - (82) 8
Issuance of treasury shares for vested share-based awards - - - (72) - 72 -
Share-based compensation and other - - 45 (1) - - 45
At May 31, 2022 $11 $361 $15,457 $2,649 $(1,742) $(8,476) $8,260
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION & PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - General
The consolidated financial statements include the accounts of Carnival
Corporation and Carnival plc and their respective subsidiaries. Together with
their consolidated subsidiaries, they are referred to collectively in these
consolidated financial statements and elsewhere in this joint Quarterly Report
on Form 10-Q as "Carnival Corporation & plc," "our," "us" and "we."
Liquidity and Management's Plans
In the face of the global impact of COVID-19, we paused our guest cruise
operations in mid-March 2020. As of May 31, 2022, 86% of our capacity was in
guest cruise operation as part of our ongoing return to service. The extent of
the effects of COVID-19 on our business are uncertain and will depend on
future developments, including, but not limited to, the duration and continued
severity of COVID-19 and the length of time it takes to return the company to
profitability. COVID-19 and its ongoing effects, inflation and higher fuel
prices are collectively having a material impact on our business, including
our results of operations, liquidity and financial position.
The estimation of our future liquidity requirements includes numerous
assumptions that are subject to various risks and uncertainties. The principal
assumptions used to estimate our future liquidity requirements consist of:
• Continued ongoing resumption of guest cruise operations, with
86% of the fleet back in guest cruise operations as of May 31, 2022
• Expected increases in revenue in 2023 on a per passenger basis
compared to 2019, particularly as the friction from restrictive protocols
wanes
• Expected improvement in occupancy throughout 2022 and 2023
• Expected continued spend to maintain enhanced health and safety
protocols and to support the ongoing resumption of guest cruise operations,
including completing the return of crew members to our ships
• Expected moderation of fuel prices beginning in the second half
of 2022 and continuing into 2023
• Expected inflation and supply chain challenges to continue to
weigh on costs, though moderated by a larger, more efficient fleet as compared
to 2019
• Maintaining collateral and reserves at reasonable levels
In addition, we make certain assumptions about new ship deliveries,
improvements and removals, and consider the future export credit financings
that are associated with the new ship deliveries.
We cannot make assurances that our assumptions used to estimate our liquidity
requirements may not change because we have never previously experienced a
complete cessation and subsequent ongoing resumption of our guest cruise
operations, and as a consequence, our ability to be predictive is uncertain.
In addition, the magnitude and duration of the COVID-19 global pandemic and
its ongoing effects, inflation and higher fuel prices are uncertain. We have
made reasonable estimates and judgments of the impact of these events within
our consolidated financial statements and there may be changes to those
estimates in future periods. We took actions to improve our liquidity,
including completing various capital market transactions, capital expenditure
and operating expense reductions and accelerating the removal of certain ships
from our fleet. In addition, we expect to continue to pursue various capital
market opportunities to extend maturities and if appropriate, obtain relevant
financial covenant amendments.
Based on these actions and our assumptions regarding the impact of COVID-19,
considering our $7.5 billion of liquidity including cash, short-term
investments and borrowings available under our revolving facility at May 31,
2022, as well as our continued ongoing return to service, we have concluded
that we have sufficient liquidity to satisfy our obligations for at least the
next twelve months.
Basis of Presentation
The Consolidated Statements of Income (Loss), the Consolidated Statements of
Comprehensive Income (Loss) and the Consolidated Statements of Shareholders'
Equity for the three and six months ended May 31, 2022 and 2021, the
Consolidated Statements of Cash Flows for the six months ended May 31, 2022
and 2021 and the Consolidated Balance Sheet at May 31, 2022 are unaudited and,
in the opinion of our management, contain all adjustments, consisting of only
normal recurring adjustments, necessary for a fair statement. Our interim
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and the related notes included in
the Carnival Corporation & plc 2021 joint Annual Report on Form 10-K
("Form 10-K") filed with the U.S. Securities and Exchange Commission on
January 27, 2022.
COVID-19 and the Use of Estimates and Risks and Uncertainty
The preparation of our interim consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that
affect the amounts reported and disclosed. The full extent to which the
effects of COVID-19 will directly or indirectly impact our business,
operations, results of operations and financial condition, including our
valuation of goodwill and trademarks, impairment of ships, collectability of
trade and notes receivables as well as provisions for pending litigation, will
depend on future developments that are highly uncertain. We have made
reasonable estimates and judgments of the impact of COVID-19 within our
financial statements and there may be changes to those estimates in future
periods.
Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standard Update ("ASU") No. 2020-04, Reference Rate Reform (Topic
848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting ("ASU No. 2020-04"), which provides temporary optional expedients
and exceptions to accounting guidance on contract modifications and hedge
accounting to ease entities' financial reporting burdens as the market
transitions from the London Interbank Offered Rate ("LIBOR") and other
interbank offered rates to alternative reference rates. ASU 2020-04 is
effective upon issuance and can be applied through December 31, 2022. The use
of LIBOR was phased out at the end of 2021, although the phase-out of U.S.
dollar LIBOR for existing agreements has been delayed until June 2023. We
continue to monitor developments related to the LIBOR transition and
identification of an alternative, market-accepted rate.
In December 2021, we amended our £350 million long-term debt agreement which
referenced the British Pound sterling ("GBP") LIBOR to the Sterling Overnight
Index Average ("SONIA") and applied the practical expedient. This amendment
did not have a material impact on our consolidated financial statements. As of
May 31, 2022, approximately $8.5 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. This guidance is required to
be adopted by us in the first quarter of 2023 and must be applied using either
a modified or full retrospective approach. We are currently evaluating the
impact this guidance will have on our consolidated financial statements.
NOTE 2 - Revenue and Expense Recognition
Guest cruise deposits and advance onboard purchases are initially included in
customer deposit liabilities when received. Customer deposits are subsequently
recognized as cruise revenues, together with revenues from onboard and other
activities, and all associated direct costs and expenses of a voyage are
recognized as cruise costs and expenses, upon completion of voyages with
durations of ten nights or less and on a pro rata basis for voyages in excess
of ten nights. The impact of recognizing these shorter duration cruise
revenues and costs and expenses on a completed voyage basis versus on a pro
rata basis is not material. Certain of our product offerings are bundled and
we allocate the value of the bundled services and goods between passenger
ticket revenues and onboard and other revenues based upon the estimated
standalone selling prices of those goods and services. Guest cancellation
fees, when applicable, are recognized in passenger ticket revenues at the time
of cancellation.
Our sales to guests of air and other transportation to and from airports near
the home ports of our ships are included in passenger ticket revenues, and the
related costs of purchasing these services are included in transportation
costs. The proceeds that we collect from the sales of third-party shore
excursions are included in onboard and other revenues and the related costs
are included in onboard and other costs. The amounts collected on behalf of
our onboard concessionaires, net of the amounts remitted to them, are included
in onboard and other revenues as concession revenues. All of these amounts are
recognized on a completed voyage or pro rata basis as discussed above.
Passenger ticket revenues include fees, taxes and charges collected by us from
our guests. The fees, taxes and charges that vary with guest head counts and
are directly imposed on a revenue-producing arrangement are expensed in
commissions, transportation and other costs when the corresponding revenues
are recognized. For the three and six months ended May 31, fees, taxes, and
charges included in commissions, transportation and other costs were $96
million and $164 million in 2022 and were $5 million and $12 million in 2021.
The remaining portion of fees, taxes and charges are expensed in other
operating expenses when the corresponding revenues are recognized.
Revenues and expenses from our hotel and transportation operations, which are
included in our Tour and Other segment, are recognized at the time the
services are performed.
Customer Deposits
Our payment terms generally require an initial deposit to confirm a
reservation, with the balance due prior to the voyage. Cash received from
guests in advance of the cruise is recorded in customer deposits and in other
long-term liabilities on our Consolidated Balance Sheets. These amounts
include refundable deposits. In certain situations, we have provided
flexibility to guests by allowing guests to rebook at a future date, receive
future cruise credits ("FCCs") or elect to receive refunds in cash. We have at
times issued enhanced FCCs. Enhanced FCCs provide the guest with an additional
credit value above the original cash deposit received, and the enhanced value
is recognized as a discount applied to the future cruise in the period used.
We have paid refunds of customer deposits with respect to a portion of
cancelled cruises. The amount of any future cash refunds may depend on future
cruise cancellations and guest rebookings. We 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 as of May
31, 2022 and $3.5 billion as of November 30, 2021. Refunds payable to guests
who have elected cash refunds are recorded in accounts payable. During the six
months ended May 31, 2022 and 2021, we recognized revenues of $1.4 billion and
an immaterial amount related to our customer deposits as of November 30, 2021
and 2020. Historically, our customer deposits balance changes due to the
seasonal nature of cash collections, the recognition of revenue, refunds of
customer deposits and foreign currency translation.
Contract Receivables
Although we generally require full payment from our customers prior to or
concurrently with their cruise, we grant credit terms to a relatively small
portion of our revenue source. We also have receivables from credit card
merchants for cruise ticket purchases and onboard revenue. These receivables
are included within trade and other receivables, net. We have agreements with
a number of credit card processors that transact customer deposits related to
our cruise vacations. Certain of these agreements allow the credit card
processors to request, under certain circumstances, that we provide a reserve
fund in cash. These reserve funds are included in other assets.
Contract Assets
Contract assets are amounts paid prior to the start of a voyage as a result of
obtaining the ticket contract and include prepaid travel agent commissions and
prepaid credit and debit card fees. We record these amounts within prepaid
expenses and other and subsequently recognize these amounts as commissions,
transportation and other at the time of revenue recognition or at the time of
voyage cancellation. We had contract assets of $208 million as of May 31,
2022 and $55 million as of November 30, 2021.
NOTE 3 - Debt
Short-Term Borrowings
As of May 31, 2022 and November 30, 2021, our short-term borrowings consisted
of $2.7 billion and $2.8 billion under our $1.7 billion, €1.0 billion
and £0.2 billion revolving credit facility (the "Revolving Facility").
Export Credit Facility Borrowings
During the six months ended May 31, 2022, we borrowed $2.3 billion under
export credit facilities due in semi-annual installments through 2034.
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.
Covenant Compliance
As of May 31, 2022, our Revolving Facility and substantially all of our
unsecured loans and export credit facilities contain certain covenants, the
most restrictive of which require us to:
• Maintain minimum interest coverage (adjusted EBITDA to
consolidated net interest charges) at the end of each fiscal quarter from
August 31, 2023, at a ratio of not less than 2.0 to 1.0 for the August 31,
2023 testing date, 2.5 to 1.0 for the November 30, 2023 testing date, and 3.0
to 1.0 for the February 29, 2024 testing date onwards, or through their
respective maturity dates
• Maintain minimum shareholders' equity of $5.0 billion
• Limit our debt to capital (as defined) percentage from the
November 30, 2021 testing date until the May 31, 2023 testing date, to a
percentage not to exceed 75%, following which it will be tested at levels
which decline ratably to 65% from the May 31, 2024 testing date onwards
• Maintain minimum liquidity of $1.5 billion through November 30,
2026
• Adhere to certain restrictive covenants through November 30, 2024
• Limit the amounts of our secured assets as well as secured and
other indebtedness
At May 31, 2022, we were in compliance with the applicable covenants under our
debt agreements. Generally, if an event of default under any debt agreement
occurs, then, pursuant to cross default acceleration clauses, substantially
all of our outstanding debt and derivative contract payables could become due,
and all debt and derivative contracts could be terminated. Any financial
covenant amendment may lead to increased costs, increased interest rates,
additional restrictive covenants and other available lender protections that
would be applicable.
Carnival Corporation or Carnival plc and certain of our subsidiaries have
guaranteed substantially all of our indebtedness.
As of May 31, 2022, the scheduled maturities of our debt are as follows:
(in millions)
Year Principal Payments
3Q 2022 $397
4Q 2022 943
2023 2,837
2024 (a) 4,705
2025 4,415
2026 4,512
Thereafter 18,116
Total $35,925
(a) Includes borrowings of $2.7 billion under our Revolving Facility.
Amounts outstanding under our Revolving Facility were drawn in 2020 for an
initial six-month term. We may continue to re-borrow or otherwise utilize
available amounts under the Revolving Facility through August 2024, subject to
satisfaction of the conditions in the facility. We had $0.3 billion available
for borrowing under our Revolving Facility as of May 31, 2022. The Revolving
Facility also includes an emissions linked margin adjustment whereby, after
the initial applicable margin is set per the margin pricing grid, the margin
may be adjusted based on performance in achieving certain agreed annual carbon
emissions goals. We are required to pay a commitment fee on any unutilized
portion.
NOTE 4 - Contingencies and Commitments
Litigation
We are routinely involved in legal proceedings, claims, disputes, regulatory
matters and governmental inspections or investigations arising in the ordinary
course of or incidental to our business, including those noted below.
Additionally, as a result of the impact of COVID-19, litigation claims,
enforcement actions, regulatory actions and investigations, including, but not
limited to, those arising from personal injury and loss of life, have been and
may, in the future, be asserted against us. We expect many of these claims and
actions, or any settlement of these claims and actions, to be covered by
insurance and historically the maximum amount of our liability, net of any
insurance recoverables, has been limited to our self-insurance retention
levels.
We record provisions in the consolidated financial statements for pending
litigation when we determine that an unfavorable outcome is probable and the
amount of the loss can be reasonably estimated.
Legal proceedings and government investigations are subject to inherent
uncertainties, and unfavorable rulings or other events could occur.
Unfavorable resolutions could involve substantial monetary damages. In
addition, in matters for which conduct remedies are sought, unfavorable
resolutions could include an injunction or other order prohibiting us from
selling one or more products at all or in particular ways, precluding
particular business practices or requiring other remedies. An unfavorable
outcome might result in a material adverse impact on our business, results of
operations, financial position or liquidity.
As previously disclosed, on May 2, 2019, two lawsuits were filed against
Carnival Corporation in the U.S. District Court for the Southern District of
Florida under Title III of the Cuban Liberty and Democratic Solidarity Act,
also known as the Helms-Burton Act, alleging that Carnival Corporation
"trafficked" in confiscated Cuban property when certain ships docked at
certain ports in Cuba, and that this alleged "trafficking" entitles the
plaintiffs to treble damages. In the matter filed by Havana Docks Corporation,
the hearings on motions for summary judgment were concluded on January 18,
2022. On March 21, 2022, the court granted summary judgment in favor of Havana
Docks Corporation as to liability. The amount of damages will be determined at
trial. On March 30, 2022, we filed a motion seeking clarification on a portion
of the court's order granting summary judgment as to liability. On May 9,
2022, the court granted the motion for clarification, vacating the portion of
the March 21, 2022 order that had granted summary judgment in favor of
plaintiff upon our Fifth Amendment affirmative defense. On March 30, 2022, we
also filed a motion for interlocutory appeal and to stay. On May 13, 2022, the
court denied this motion. The court has moved the trial date to September 19,
2022. In the matter filed by Javier Bengochea on December 20, 2021, the court
issued an order inviting an amicus brief from the U.S. government on several
issues involved in the appeal. The U.S. government filed its brief and the
court ordered the parties to respond. On May 6, 2022 we filed our response
brief. We continue to believe we have a meritorious defense to these actions
and we believe that any final liability which may arise as a result of these
actions is unlikely to have a material impact on our consolidated financial
statements.
As previously disclosed, on April 8, 2020, DeCurtis LLC ("DeCurtis"), a former
vendor, filed an action against Carnival Corporation in the U.S. District
Court for the Middle District of Florida seeking declaratory relief that
DeCurtis is not infringing on several of Carnival Corporation's patents in
relation to its OCEAN Medallion systems and technology. The action also raises
certain monopolization claims under The Sherman Antitrust Act of 1890, unfair
competition and tortious interference, and seeks declaratory judgment that
certain Carnival Corporation patents are unenforceable. DeCurtis seeks
damages, including its fees and costs, and seeks declarations that it is not
infringing and/or that Carnival Corporation's patents are unenforceable. On
April 10, 2020, Carnival Corporation filed an action against DeCurtis in the
U.S. District Court for the Southern District of Florida for breach of
contract, trade secrets violations and patent infringement. Carnival
Corporation seeks damages, including its fees and costs, as well as an order
permanently enjoining DeCurtis from engaging in such activities. These two
cases have now been consolidated in the Southern District of Florida. On April
25, 2022, we moved for summary judgment on our breach of contract claims and
on all of DeCurtis's claims. DeCurtis also filed a motion for summary judgment
on certain portions of our claims. Both motions for summary judgment are fully
briefed. We believe the ultimate outcome will not have a material impact on
our consolidated financial statements.
COVID-19 Actions
Private Actions
We have been named in a number of individual actions related to COVID-19.
Private parties have brought approximately 73 individual lawsuits as of May
31, 2022 in several U.S. federal and state courts as well as in France, Italy
and Brazil. These actions include tort claims based on a variety of theories,
including negligence and failure to warn. The plaintiffs in these actions
allege a variety of injuries: some plaintiffs confined their claim to
emotional distress, while others allege injuries arising from testing positive
for COVID-19. A smaller number of actions include wrongful death claims. As of
May 31, 2022, 63 of these individual actions have now been dismissed or
settled for immaterial amounts and 10 remain.
Additionally, as of May 31, 2022, 10 purported class actions have been brought
by former guests from Ruby Princess, Diamond Princess, Grand Princess, Coral
Princess and Zaandam in several U.S. federal courts and in the Federal Court
of Australia. These actions include tort claims based on a variety of
theories, including negligence, gross negligence and failure to warn, physical
injuries and severe emotional distress associated with being exposed to and/or
contracting COVID-19 onboard. As of May 31, 2022, eight of these class actions
have either been settled individually for immaterial amounts or had their
class allegations dismissed by the courts and two remain.
All COVID-19 matters seek monetary damages and most seek additional punitive
damages in unspecified amounts.
As previously disclosed, on December 15, 2020, a consolidated class action
with lead plaintiffs, the New England Carpenters Pension and Guaranteed
Annuity Fund and the Massachusetts Laborers' Pension and Annuity Fund was
filed in the U.S. District Court for the Southern District of Florida,
alleging violations of Sections 10(b) and 20(a) of the U.S. Securities and
Exchange Act of 1934 by making misrepresentations and omissions related to
Carnival Corporation's COVID-19 knowledge and response. Plaintiffs seek to
recover unspecified damages and equitable relief for the alleged misstatements
and omissions. On March 30, 2022, the court granted our motion to dismiss with
prejudice and no appeal was filed prior to the deadline.
We continue to take actions to defend against the above claims.
Governmental Inquiries and Investigations
Federal and non-U.S. governmental agencies and officials are investigating or
otherwise seeking information, testimony and/or documents, regarding COVID-19
incidents and related matters. We are investigating these matters internally
and are cooperating with all requests. The investigations could result in the
imposition of civil and criminal penalties in the future.
Other Regulatory or Governmental Inquiries and Investigations
We have been, and may continue to be, impacted by breaches in data security
and lapses in data privacy, which occur from time to time. These can vary in
scope and intent from inadvertent events to malicious motivated attacks.
We responded to a cybersecurity event in May 2019 related to our email
accounts, and detected ransomware attacks in August 2020 and December 2020,
each of which resulted in unauthorized access to our information technology
systems. We engaged a major cybersecurity firm to investigate these matters
and notified relevant law enforcement and regulators of these incidents.
• For the May 2019 event, the investigation, communication and
reporting phases are complete. An unauthorized third-party gained access to
certain email accounts, which contained personal information relating to some
guests, employees and crew for some of our operations.
• For the August 2020 and December 2020 events, the investigation,
communication and reporting phases are complete. An unauthorized third-party
gained access to certain of our information security systems, deployed
ransomware and obtained personal information related to guests, employees and
crew for some of our operations.
We have been contacted by various regulatory agencies regarding these and
other cyber incidents. The New York Department of Financial Services ("NY
DFS") has notified us of their intent to commence proceedings seeking
penalties if settlement cannot be reached in advance of litigation. On June
24, 2022, we finalized a settlement with NY DFS, pursuant to which we will pay
an amount that will not have a material impact on our consolidated financial
statements. In addition, State Attorneys General from 46 states have completed
their investigation of the May 2019 event. On June 22, 2022, we finalized a
settlement with the State Attorneys General from these 46 states, pursuant to
which we will pay an amount that will not have a material impact on our
consolidated financial statements.
We continue to work with regulators regarding cyber incidents we have
experienced. We have incurred legal and other costs in connection with cyber
incidents that have impacted us. While these incidents are not expected to
have a material adverse effect on our business, results of operations,
financial position or liquidity, no assurances can be given about the future
and we may be subject to future litigation, attacks or incidents that could
have such a material adverse effect.
On March 14, 2022, the United States Department of Justice and the United
States Environmental Protection Agency notified Carnival Corporation & plc
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. Carnival Corporation & plc is working with these agencies to reach
a resolution of this matter. We do not expect this matter to 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 May 31, 2022 and November 30, 2021, we had $1.4 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
May 31, 2022 and November 30, 2021, we had $30 million of cash collateral in
escrow which is included within other assets.
Ship Commitments
As of May 31, 2022, we expect the timing of our new ship growth capital
commitments to be as follows:
(in millions)
Year
Remainder of 2022 $1,535
2023 2,422
2024 1,608 (a)
2025 927 (a)
2026 -
Thereafter -
$6,492
(a) Includes a ship subject to financing
NOTE 5 - Fair Value Measurements, Derivative Instruments and Hedging
Activities and Financial Risks
Fair Value Measurements
Fair value is defined as the amount that would be received for selling an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date and is measured using inputs in one of
the following three categories:
• Level 1 measurements are based on unadjusted quoted prices in
active markets for identical assets or liabilities that we have the ability to
access. Valuation of these items does not entail a significant amount of
judgment.
• Level 2 measurements are based on quoted prices for similar
assets or liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active or market data
other than quoted prices that are observable for the assets or liabilities.
• Level 3 measurements are based on unobservable data that are
supported by little or no market activity and are significant to the fair
value of the assets or liabilities.
Considerable judgment may be required in interpreting market data used to
develop the estimates of fair value. Accordingly, certain estimates of fair
value presented herein are not necessarily indicative of the amounts that
could be realized in a current or future market exchange.
Financial Instruments that are not Measured at Fair Value on a Recurring
Basis
May 31, 2022 November 30, 2021
Carrying Fair Value Carrying Fair Value
Value Value
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Liabilities
Fixed rate debt (a) $21,510 $- $18,515 $- $19,555 $- $19,013 $-
Floating rate debt (a) 14,415 - 12,703 - 14,415 - 13,451 -
Total $35,925 $- $31,219 $- $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
May 31, 2022 November 30, 2021
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash and cash equivalents $7,054 $- $- $8,939 $- $-
Short-term investments (a) 151 - - 200 - -
Derivative financial instruments - 10 - - 1 -
Total $7,205 $10 $- $9,139 $1 $-
Liabilities
Derivative financial instruments $- $18 $- $- $13 $-
Total $- $18 $- $- $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
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. At May 31, 2022 and November 30,
2021, goodwill for our North America and Australia ("NAA") segment was $579
million. We had no goodwill for our Europe and Asia ("EA") segment at May 31,
2022 and November 30, 2021.
Trademarks
(in millions) NAA EA Total
Segment Segment
November 30, 2021 $927 $248 $1,175
Exchange movements - (13) (13)
May 31, 2022 $927 $234 $1,161
Impairment of Ships
We review our long-lived assets for impairment whenever events or
circumstances indicate potential impairment. As a result of the continued
effect of COVID-19 on our business, and our updated expectations of the
estimated selling values for certain of our ships, we determined that a ship
had a net carrying value that exceeded its estimated discounted future cash
flows as of February 28, 2022. We compared the estimated selling value to the
net carrying value and, as a result, recognized ship impairment charges as
summarized in the table below during the first quarter of 2022. The principal
assumption used in our cash flow analyses was the timing of the sale and its
proceeds, which is considered a Level 3 input. We believe that we have made
reasonable estimates and judgments as part of our assessment. A change in the
principal assumptions, which influences the determination of fair value, may
result in a need to perform additional impairment reviews.
The impairment charges summarized in the table below are included in ship and
other impairments in our Consolidated Statements of Income (Loss).
Three Months Ended May 31, Six Months Ended
May 31,
(in millions) 2022 2021 2022 2021
NAA Segment $- $- $8 $-
EA Segment - 49 - 49
Total ship impairments $- $49 $8 $49
Refer to Note 1 - "General, COVID-19 and the Use of Estimates and Risks and
Uncertainty" for additional discussion.
Derivative Instruments and Hedging Activities
(in millions) Balance Sheet Location May 31, 2022 November 30, 2021
Derivative assets
Derivatives designated as hedging instruments
Cross currency swaps (a) Prepaid expenses and other $10 $1
Total derivative assets $10 $1
Derivative liabilities
Derivatives designated as hedging instruments
Cross currency swaps (a) Other long-term liabilities $17 $8
Interest rate swaps (b) Accrued liabilities and other 1 3
Other long-term liabilities - 2
Total derivative liabilities $18 $13
(a) At May 31, 2022, we had cross currency swaps totaling $665 million
that are designated as hedges of our net investment in foreign operations with
euro-denominated functional currencies. At May 31, 2022, these cross currency
swaps settle through 2027.
(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
$116 million at May 31, 2022 and $160 million at November 30, 2021 of
EURIBOR-based floating rate euro debt to fixed rate euro debt. At May 31,
2022, these interest rate swaps settle through 2025.
Our derivative contracts include rights of offset with our counterparties. We
have elected to net certain of our derivative assets and liabilities within
counterparties, when applicable.
May 31, 2022
(in millions) Gross Amounts Gross Amounts Offset in the Balance Sheet Total Net Amounts Presented in the Balance Sheet Gross Amounts not Offset in the Balance Sheet Net Amounts
Assets $10 $- $10 $- $10
Liabilities $18 $- $18 $- $18
November 30, 2021
(in millions) Gross Amounts Gross Amounts Offset in the Balance Sheet Total Net Amounts Presented in the Balance Sheet Gross Amounts not Offset in the Balance Sheet Net Amounts
Assets $1 $- $1 $- $1
Liabilities $13 $- $13 $- $13
The effect of our derivatives qualifying and designated as hedging instruments
recognized in other comprehensive income (loss) and in net income (loss) was
as follows:
Three Months Ended May 31, Six Months Ended
May 31,
(in millions) 2022 2021 2022 2021
Gains (losses) recognized in AOCI:
Cross currency swaps - net investment hedges - included component $27 $- $33 $-
Cross currency swaps - net investment hedges - excluded component $(11) $- $(20) $-
Interest rate swaps - cash flow hedges $6 $1 $9 $2
Gains (losses) reclassified from AOCI - cash flow hedges:
Interest rate swaps - Interest expense, net of capitalized interest $(1) $(1) $(1) $(3)
Foreign currency zero cost collars - Depreciation and amortization $1 $- $1 $1
Gains (losses) recognized on derivative instruments (amount excluded from
effectiveness testing - net investment hedges)
Cross currency swaps - Interest expense, net of capitalized interest $3 $- $4 $-
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 May 31, 2022, we have designated $442 million of our sterling-denominated
debt as non-derivative hedges of our net investments in foreign operations.
For the three and six months ended May 31, 2022, we recognized $28 million
and $25 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, including the effect of cross
currency swaps, which provides an economic offset for our operations with euro
functional currency.
Newbuild Currency Risks
Our shipbuilding contracts are typically denominated in euros. Our decision to
hedge a non-functional currency ship commitment for our cruise brands is made
on a case-by-case basis, considering the amount and duration of the exposure,
market volatility, economic trends, our overall expected net cash flows by
currency and other offsetting risks.
At May 31, 2022, our remaining newbuild currency exchange rate risk primarily
relates to euro-denominated newbuild contract payments to non-euro functional
currency brands, which represent a total unhedged commitment of $5.6 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 May 31, 2022, our exposures under derivative instruments were not material.
We also monitor the creditworthiness of travel agencies and tour operators in
Asia, Australia and Europe, which includes charter-hire agreements in Asia and
credit and debit card providers to which we extend credit in the normal course
of our business. Concentrations of credit risk associated with trade
receivables and other receivables, charter-hire agreements and contingent
obligations are not considered to be material, principally due to the large
number of unrelated accounts, the nature of these contingent obligations and
their short maturities. Normally, we have not required collateral or other
security to support normal credit sales. Historically, we have not experienced
significant credit losses, including counterparty nonperformance; however,
because of the impact COVID-19 is having on economies, we have experienced,
and may continue to experience, an increase in credit losses.
Our credit exposure also includes contingent obligations related to cash
payments received directly by travel agents and tour operators for cash
collected by them on cruise sales in Australia and most of Europe where we are
obligated to honor our guests' cruise payments made by them to their travel
agents and tour operators regardless of whether we have received these
payments.
NOTE 6 - Segment Information
Our operating segments are reported on the same basis as the internally
reported information that is provided to our chief operating decision maker
("CODM"), who is the President, Chief Executive Officer and Chief Climate
Officer of Carnival Corporation and Carnival plc. The CODM assesses
performance and makes decisions to allocate resources for Carnival
Corporation & plc based upon review of the results across all of our
segments. Our four reportable segments are comprised of (1) NAA cruise
operations, (2) EA cruise operations, (3) Cruise Support and (4) Tour and
Other.
The operating segments within each of our NAA and EA reportable segments have
been aggregated based on the similarity of their economic and other
characteristics, including geographic guest sourcing. Our Cruise Support
segment includes our portfolio of leading port destinations and other
services, all of which are operated for the benefit of our cruise brands. Our
Tour and Other segment represents the hotel and transportation operations of
Holland America Princess Alaska Tours and other operations.
Three Months Ended May 31,
(in millions) Revenues Operating costs and Selling Depreciation Operating
expenses and and income (loss)
administrative amortization
2022
NAA $1,666 $1,768 $366 $353 $(821)
EA 666 848 175 179 (536)
Cruise Support 40 26 71 35 (92)
Tour and Other 29 41 6 6 (24)
$2,401 $2,683 $619 $572 $(1,473)
2021
NAA $9 $365 $233 $341 $(930)
EA 33 298 131 186 (582)
Cruise Support - 7 43 33 (82)
Tour and Other 7 12 11 6 (21)
$50 $681 $417 $567 $(1,616)
Six Months Ended May 31,
(in millions) Revenues Operating costs and Selling Depreciation Operating
expenses and and income (loss)
administrative amortization
2022
NAA $2,792 $3,055 $710 $687 $(1,661)
EA 1,123 1,546 352 359 (1,134)
Cruise Support 73 54 75 68 (126)
Tour and Other 37 57 12 11 (44)
$4,024 $4,713 $1,149 $1,126 $(2,964)
2021
NAA $19 $680 $453 $676 $(1,790)
EA 41 496 239 370 (1,064)
Cruise Support - 15 171 61 (247)
Tour and Other 14 25 17 12 (39)
$75 $1,216 $879 $1,119 $(3,139)
Revenue by geographic areas, which are based on where our guests are sourced,
were as follows:
(in millions) Three Months Ended May 31, 2022 Six Months Ended May 31, 2022
North America $1,620 $2,738
Europe 741 1,220
Australia and Asia 15 23
Other 24 42
$2,401 $4,024
As a result of the pause in our guest cruise operations, revenue data for the
three and six months ended May 31, 2021 is not included in the table.
NOTE 7 - Earnings Per Share
Three Months Ended Six Months Ended
May 31, May 31,
(in millions, except per share data) 2022 2021 2022 2021
Net income (loss) for basic and diluted earnings per share $(1,834) $(2,072) $(3,726) $(4,045)
Weighted-average shares outstanding 1,140 1,132 1,139 1,113
Dilutive effect of equity plans - - - -
Diluted weighted-average shares outstanding 1,140 1,132 1,139 1,113
Basic earnings per share $(1.61) $(1.83) $(3.27) $(3.63)
Diluted earnings per share $(1.61) $(1.83) $(3.27) $(3.63)
Antidilutive shares excluded from diluted earnings per share computations were
as follows:
Three Months Ended Six Months Ended
May 31, May 31,
(in millions) 2022 2021 2022 2021
Equity awards 1 3 2 3
Convertible Notes 52 54 52 54
Total antidilutive securities 53 57 54 57
NOTE 8 - Supplemental Cash Flow Information
(in millions) May 31, 2022 November 30, 2021
Cash and cash equivalents (Consolidated Balance Sheets) $7,054 $8,939
Restricted cash included in prepaid expenses and other and other assets 35 38
Total cash, cash equivalents and restricted cash (Consolidated Statements of $7,089 $8,976
Cash Flows)
For the six months ended May 31, 2022 and 2021, we did not have borrowings or
repayments of commercial paper with original maturities greater than three
months.
NOTE 9 - Property and Equipment
Ship Sales
During 2022, we entered into an agreement to sell one NAA segment ship and
completed the sales of one NAA segment ship and one EA segment ship, which
collectively represent a passenger-capacity reduction of 4,110 for our NAA
segment and 1,410 for our EA segment.
Refer to Note 5 - "Fair Value Measurements, Derivative Instruments and Hedging
Activities and Financial Risks, Nonfinancial Instruments that are Measured at
Fair Value on a Nonrecurring Basis, Impairment of Ships" for additional
discussion.
NOTE 10 - Shareholders' Equity
We have a program that allows us to realize a net cash benefit when Carnival
Corporation common stock is trading at a premium to the price of Carnival plc
ordinary shares (the "Stock Swap Program").
During the three and six months ended May 31, 2022, under the Stock Swap
Program, we sold 3.9 million and 5.2 million of Carnival Corporation's
common stock and repurchased the same amount of Carnival plc ordinary shares,
resulting in net proceeds of $6 million and $8 million, which were used for
general corporate purposes. During the three and six months ended May 31,
2021, there were no sales or repurchases under the Stock Swap Program.
Additionally, during the three and six months ended May 31, 2022, we sold
0.8 million and 1.6 million shares of Carnival Corporation common stock at
an average price per share of $18.54 and $19.27, resulting in net proceeds of
$15 million and $30 million.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Cautionary Note Concerning Factors That May Affect Future Results
Some of the statements, estimates or projections contained in this document
are "forward-looking statements" that involve risks, uncertainties and
assumptions with respect to us, including some statements concerning future
results, operations, outlooks, plans, goals, reputation, cash flows, liquidity
and other events which have not yet occurred. These statements are intended to
qualify for the safe harbors from liability provided by Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements other than statements of historical facts are
statements that could be deemed forward-looking. These statements are based on
current expectations, estimates, forecasts and projections about our business
and the industry in which we operate and the beliefs and assumptions of our
management. We have tried, whenever possible, to identify these statements by
using words like "will," "may," "could," "should," "would," "believe,"
"depends," "expect," "goal," "aspiration," "anticipate," "forecast,"
"project," "future," "intend," "plan," "estimate," "target," "indicate,"
"outlook," and similar expressions of future intent or the negative of such
terms.
Forward-looking statements include those statements that relate to our outlook
and financial position including, but not limited to, statements regarding:
• Pricing • Goodwill, ship and trademark fair values
• Booking levels • Liquidity and credit ratings
• Occupancy • Adjusted earnings per share
• Interest, tax and fuel expenses • Return to guest cruise operations
• Currency exchange rates • Impact of the COVID-19 coronavirus global pandemic on our
financial condition and results of operations
• Estimates of ship depreciable lives and residual values
Because forward-looking statements involve risks and uncertainties, there are
many factors that could cause our actual results, performance or achievements
to differ materially from those expressed or implied by our forward-looking
statements. This note contains important cautionary statements of the known
factors that we consider could materially affect the accuracy of our
forward-looking statements and adversely affect our business, results of
operations and financial position. Additionally, many of these risks and
uncertainties are currently amplified by and will continue to be amplified by,
or in the future may be amplified by, COVID-19. It is not possible to predict
or identify all such risks. There may be additional risks that we consider
immaterial or which are unknown. These factors include, but are not limited
to, the following:
• COVID-19 has had, and is expected to continue to have, a
significant impact on our financial condition and operations. The current, and
uncertain future, impact of COVID-19, including its effect on the ability or
desire of people to travel (including on cruises), is expected to continue to
impact our results, operations, outlooks, plans, goals, reputation,
litigation, cash flows, liquidity, and stock price.
• Events and conditions around the world, including war and other
military actions, such as the current invasion of Ukraine, heightened
inflation and other general concerns impacting the ability or desire of people
to travel have and may lead to a decline in demand for cruises, impact our
operating costs and profitability.
• Incidents concerning our ships, guests or the cruise vacation
industry have in the past and may, in the future, impact the satisfaction of
our guests and crew and lead to reputational damage.
• Changes in and non-compliance with laws and regulations under
which we operate, such as those relating to health, environment, safety and
security, data privacy and protection, anti-corruption, economic sanctions,
trade protection and tax have in the past and may, in the future, lead to
litigation, enforcement actions, fines, penalties and reputational damage.
• Factors associated with climate change, including evolving and
increasing regulations, increasing global concern about climate change and the
shift in climate conscious consumerism and stakeholder scrutiny, and
increasing frequency and/or severity of adverse weather conditions could
adversely affect our business.
• Inability to meet or achieve our sustainability related goals,
aspirations, initiatives, and our public statements and disclosures regarding
them, may expose us to risks that may adversely impact our business.
• Breaches in data security and lapses in data privacy as well as
disruptions and other damages to our principal offices, information technology
operations and system networks and failure to keep pace with developments in
technology may adversely impact our business operations, the satisfaction of
our guests and crew and may lead to reputational damage.
• The loss of key employees, our inability to recruit or retain
qualified shoreside and shipboard employees and increased labor costs could
have an adverse effect on our business and results of operations.
• Increases in fuel prices, changes in the types of fuel consumed
and availability of fuel supply may adversely impact our scheduled itineraries
and costs.
• We rely on supply chain vendors who are integral to the
operations of our businesses. These vendors and service providers are also
affected by COVID-19 and may be unable to deliver on their commitments which
could impact our business.
• Fluctuations in foreign currency exchange rates may adversely
impact our financial results.
• Overcapacity and competition in the cruise and land-based
vacation industry may lead to a decline in our cruise sales, pricing and
destination options.
• Inability to implement our shipbuilding programs and ship
repairs, maintenance and refurbishments may adversely impact our business
operations and the satisfaction of our guests.
The ordering of the risk factors set forth above is not intended to reflect
our indication of priority or likelihood.
Forward-looking statements should not be relied upon as a prediction of actual
results. Subject to any continuing obligations under applicable law or any
relevant stock exchange rules, we expressly disclaim any obligation to
disseminate, after the date of this document, any updates or revisions to any
such forward-looking statements to reflect any change in expectations or
events, conditions or circumstances on which any such statements are based.
Forward-looking and other statements in this document may also address our
sustainability progress, plans and goals (including climate change and
environmental-related matters). In addition, historical, current and
forward-looking sustainability-related statements may be based on standards
for measuring progress that are still developing, internal controls and
processes that continue to evolve, and assumptions that are subject to change
in the future.
New Accounting Pronouncements
Refer to Note 1 - "General, Accounting Pronouncements" of the consolidated
financial statements for additional discussion regarding accounting
pronouncements.
Critical Accounting Estimates
For a discussion of our critical accounting estimates, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
is included in the Form 10-K.
Seasonality
Our passenger ticket revenues are seasonal. Historically, demand for cruises
has been greatest during our third quarter, which includes the Northern
Hemisphere summer months. This higher demand during the third quarter results
in higher ticket prices and occupancy levels and, accordingly, the largest
share of our operating income is typically earned during this period. This
historical trend was disrupted in 2020 by the pause and in 2021 by the ongoing
resumption of guest cruise operations. In addition, substantially all of
Holland America Princess Alaska Tours' revenue and net income (loss) is
generated from May through September in conjunction with Alaska's cruise
season.
Known Trends and Uncertainties
• We believe the increased cost of fuel, liquefied natural gas
("LNG") and other related costs are reasonably likely to continue to impact
our profitability in both the short and long-term.
• We expect inflation and supply chain challenges to continue to
weigh on our operating costs, and they are reasonably likely to continue to
impact our profitability.
• We believe the increasing global focus on climate change,
including the reduction of carbon emissions and new and evolving regulatory
requirements, is reasonably likely to materially impact our future costs,
capital expenditures and revenues and/or the relationship between them. The
full impact of climate change to our business is not yet known.
• In addition, as is the case with the travel and leisure sector
generally, we are experiencing some challenges with onboard staffing which
have resulted in occupancy constraints on certain voyages and are reasonably
likely to impact our profitability in the short-term.
• We expect a net loss for the third quarter of 2022. For the full
year 2022, we continue to expect a net loss.
Statistical Information
Three Months Ended Six Months Ended
May 31,
May 31,
2022 2021 2022 2021
Passenger Cruise Days ("PCDs") (in thousands) (a) 11,434 138 18,663 166
Available Lower Berth Days ("ALBDs") (in thousands) (b) 16,666 444 29,989 617
Occupancy percentage (c) 69% 31% 62% 27%
Passengers carried (in thousands) 1,652 27 2,663 32
Fuel consumption in metric tons (in thousands) 632 246 1,198 508
Fuel consumption in metric tons per thousand ALBDs 37.9 (d) 40.0 (d)
Fuel cost per metric ton consumed $869 $467 $765 $428
Currencies (USD to 1)
AUD $0.73 $0.77 $0.72 $0.77
CAD $0.79 $0.81 $0.79 $0.80
EUR $1.08 $1.20 $1.11 $1.21
GBP $1.29 $1.39 $1.32 $1.38
The ongoing resumption of guest cruise operations is continuing to have a
material impact on all aspects of our business, including the above
statistical information.
Notes to Statistical Information
(a) PCD represents the number of cruise passengers on a voyage multiplied
by the number of revenue-producing ship operating days for that voyage.
(b) ALBD is a standard measure of passenger capacity for the period that
we use to approximate rate and capacity variances, based on consistently
applied formulas that we use to perform analyses to determine the main
non-capacity driven factors that cause our cruise revenues and expenses to
vary. ALBDs assume that each cabin we offer for sale accommodates two
passengers and is computed by multiplying passenger capacity by
revenue-producing ship operating days in the period.
(c) Occupancy, in accordance with cruise industry practice, is calculated
using a numerator of PCDs and denominator of ALBDs, which assumes two
passengers per cabin even though some cabins can accommodate three or more
passengers. Percentages in excess of 100% indicate that on average more than
two passengers occupied some cabins.
(d) Fuel consumption in metric tons per thousand ALBDs for 2021 is not
meaningful.
Results of Operations
Consolidated
Three Months Ended May 31, Six Months Ended
May 31,
(in millions) 2022 2021 Change 2022 2021 Change
Revenues
Passenger ticket $1,285 $20 $1,265 $2,158 $23 $2,135
Onboard and other 1,116 29 1,086 1,866 52 1,814
2,401 50 2,351 4,024 75 3,949
Operating Costs and Expenses
Commissions, transportation and other 325 22 303 576 37 539
Onboard and other 314 15 300 523 22 501
Payroll and related 533 241 291 1,038 460 579
Fuel 545 113 432 910 216 694
Food 191 17 175 327 28 299
Ship and other impairments - 49 (49) 8 49 (42)
Other operating 774 224 551 1,331 404 927
2,683 681 2,002 4,713 1,216 3,497
Selling and administrative 619 417 201 1,149 879 269
Depreciation and amortization 572 567 5 1,126 1,119 7
3,874 1,665 2,209 6,988 3,214 3,774
Operating Income (Loss) (1,473) (1,616) 142 (2,964) (3,139) 175
Nonoperating Income (Expense)
Interest income 6 4 2 9 7 2
Interest expense, net of capitalized interest (370) (437) 67 (738) (835) 97
Gains (losses) on debt extinguishment, net - 2 (2) - 4 (4)
Other income (expense), net 6 (13) 19 (26) (75) 49
(358) (444) 86 (755) (900) 144
Income (Loss) Before Income Taxes $(1,831) $(2,060) $228 $(3,719) $(4,039) $319
NAA
Three Months Ended May 31, Six Months Ended
May 31,
(in millions) 2022 2021 Change 2022 2021 Change
Revenues
Passenger ticket $862 $2 $860 $1,447 $1 $1,446
Onboard and other 804 7 798 1,345 18 1,327
1,666 9 1,657 2,792 19 2,773
Operating Costs and Expenses 1,768 365 1,403 3,055 680 2,375
Selling and administrative 366 233 133 710 453 257
Depreciation and amortization 353 341 12 687 676 12
2,487 939 1,548 4,453 1,809 2,644
Operating Income (Loss) $(821) $(930) $109 $(1,661) $(1,790) $129
EA
Three Months Ended May 31, Six Months Ended
May 31,
(in millions) 2022 2021 Change 2022 2021 Change
Revenues
Passenger ticket $490 $19 $472 $832 $22 $810
Onboard and other 175 15 161 291 19 271
666 33 633 1,123 41 1,082
Operating Costs and Expenses 848 298 550 1,546 496 1,050
Selling and administrative 175 131 45 352 239 113
Depreciation and amortization 179 186 (8) 359 370 (11)
1,202 615 587 2,257 1,105 1,152
Operating Income (Loss) $(536) $(582) $46 $(1,134) $(1,064) $(70)
We paused our guest cruise operations in March 2020. As of May 31, 2022, 86%
of our capacity was in guest cruise operation, compared to 6% as of May 31,
2021. Our NAA segment had 90% of its capacity in guest cruise operations as of
May 31, 2022 and no ships operating with guests onboard as of May 31, 2021.
Our EA segment had 81% of its capacity in guest cruise operations as of May
31, 2022, compared to 16% as of May 31, 2021 when it had five ships operating
with guests onboard.
The COVID-19 global pandemic and its ongoing effects, inflation and higher
fuel prices are collectively having a material negative impact on all aspects
of our business, including our results of operations, liquidity and financial
position. The full extent of these impacts are uncertain.
Three Months Ended May 31, 2022 Compared to Three Months Ended May 31, 2021
Revenues
Consolidated
Cruise passenger ticket revenues made up 54% of our total revenues for the
three months ended May 31, 2022 while onboard and other revenues made up 46%.
Revenues for the three months ended May 31, 2022 increased by $2.4 billion as
compared to the three months ended May 31, 2021 due to the ongoing resumption
of guest cruise operations and the significant increase of ships in service.
ALBDs increased to 16.7 million for the three months ended May 31, 2022 as
compared to 0.4 million for the three months ended May 31, 2021. Occupancy for
the three months ended May 31, 2022 was 69% compared to 31% for the three
months ended May 31, 2021.
NAA Segment
Cruise passenger ticket revenues made up 52% of our NAA segment's total
revenues for the three months ended May 31, 2022 while onboard and other
cruise revenues made up 48%. NAA segment revenues for the three months ended
May 31, 2022 increased by $1.7 billion as compared to the three months ended
May 31, 2021 due to the ongoing resumption of guest cruise operations and the
significant increase of ships in service. ALBDs increased to 10.1 million for
the three months ended May 31, 2022 as compared to 0.0 million for the three
months ended May 31, 2021. Occupancy for the three months ended May 31, 2022
was 79%.
EA Segment
Cruise passenger ticket revenues made up 74% of our EA segment's total
revenues for the three months ended May 31, 2022 while onboard and other
cruise revenues made up 26%. EA segment revenues for the three months ended
May 31, 2022 increased by $0.6 billion as compared to the three months ended
May 31, 2021 due to the ongoing resumption of guest cruise operations and the
significant increase of ships in service. ALBDs increased to 6.6 million for
the three months ended May 31, 2022 as compared to 0.4 million for the three
months ended May 31, 2021. Occupancy for the three months ended May 31, 2022
was 53% compared to 31% for the three months ended May 31, 2021.
Operating Costs and Expenses
Consolidated
Operating costs and expenses increased by $2.0 billion to $2.7 billion for the
three months ended May 31, 2022 from $0.7 billion for the three months ended
May 31, 2021. These increases were driven by our ongoing resumption of guest
cruise operations and restart related expenses, including the cost of
returning ships to guest cruise operations and returning crew members to our
ships, higher number of dry-dock days, the cost of maintaining enhanced health
and safety protocols, inflation and supply chain disruptions. We anticipate
that some of these costs and expenses will end in 2022.
Fuel costs increased by $432 million to $545 million for the three months
ended May 31, 2022 from $113 million for the three months ended May 31, 2021.
This increase was caused by higher fuel consumption of 386 thousand metric
tons, due to the resumption of guest cruise operations, and an increase in
fuel prices of $402 per metric ton consumed for the three months ended May 31,
2022 compared to the three months ended May 31, 2021.
Selling and administrative expenses increased by $201 million to $619 million
for the three months ended May 31, 2022 from $417 million for the three months
ended May 31, 2021. This increase was caused by increased advertising and
promotional spend incurred as part of our ongoing resumption of guest cruise
operations and higher administrative expenses.
There were no ship impairment charges for the three months ended May 31, 2022.
We recognized a ship impairment charge of $49 million for the three months
ended May 31, 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 decreased by $67 million to $370
million for the three months ended May 31, 2022 from $437 million for the
three months ended May 31, 2021. The decrease was caused by a lower average
interest rate as a result of completed refinancing efforts and was partially
offset by a higher average debt balance for the three months ended May 31,
2022 compared to the three months ended May 31, 2021.
Six Months Ended May 31, 2022 Compared to Six Months Ended May 31, 2021
Revenues
Consolidated
Cruise passenger ticket revenues made up 54% of our total revenues for the six
months ended May 31, 2022 while onboard and other revenues made up 46%.
Revenues for the six months ended May 31, 2022 increased by $3.9 billion as
compared to the six months ended May 31, 2021 due to the ongoing resumption of
guest cruise operations and the significant increase of ships in service.
ALBDs increased to 30.0 million for the six months ended May 31, 2022 as
compared to 0.6 million for the six months ended May 31, 2021. Occupancy for
the six months ended May 31, 2022 was 62% compared to 27% for the six months
ended May 31, 2021.
NAA Segment
Cruise passenger ticket revenues made up 52% of our NAA segment's total
revenues for the six months ended May 31, 2022 while onboard and other cruise
revenues made up 48%. NAA segment revenues for the six months ended May 31,
2022 increased by $2.8 billion as compared to the six months ended May 31,
2021 due to the ongoing resumption of guest cruise operations and the
significant increase of ships in service. ALBDs increased to 18.8 million for
the six months ended May 31, 2022 as compared to 0.0 million for the six
months ended May 31, 2021. Occupancy for the six months ended May 31, 2022 was
70%.
EA Segment
Cruise passenger ticket revenues made up 74% of our EA segment's total
revenues for the six months ended May 31, 2022 while onboard and other cruise
revenues made up 26%. EA segment revenues for the six months ended May 31,
2022 increased by $1.1 billion as compared to the six months ended May 31,
2021 due to the ongoing resumption of guest cruise operations and the
significant increase of ships in service. ALBDs increased to 11.2 million for
the six months ended May 31, 2022 as compared to 0.6 million for the six
months ended May 31, 2021. Occupancy for the six months ended May 31, 2022 was
50% compared to 27% for the six months ended May 31, 2021.
Operating Costs and Expenses
Consolidated
Operating costs and expenses increased by $3.5 billion to $4.7 billion for
the six months ended May 31, 2022 from $1.2 billion for the six months ended
May 31, 2021. These increases were driven by our ongoing resumption of guest
cruise operations and restart related expenses, including the cost of
returning ships to guest cruise operations and returning crew members to our
ships, higher number of dry-dock days, the cost of maintaining enhanced health
and safety protocols, inflation and supply chain disruptions. We anticipate
that some of these costs and expenses will end in 2022.
Fuel costs increased by $694 million to $910 million for the six months ended
May 31, 2022 from $216 million for the six months ended May 31, 2021. The
increase was caused by higher fuel consumption of 690 thousand metric tons,
due to the resumption of guest cruise operations, and an increase in fuel
prices of $336 per metric ton consumed for the six months ended May 31, 2022
compared to the six months ended May 31, 2021.
Selling and administrative expenses increased by $0.3 billion to $1.1 billion
for the six months ended May 31, 2022 from $0.9 billion for the six months
ended May 31, 2021. The increase was principally driven by higher advertising
and promotional spend incurred as part of our ongoing resumption of guest
cruise operations.
We recognized a ship impairment charge of $8 million for the six months ended
May 31, 2022 and a ship impairment charge of $49 million for the six months
ended May 31, 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, decreased by $97 million to
$738 million for the six months ended May 31, 2022 from $835 million for the
six months ended May 31, 2021. The decrease was caused by a lower average
interest rate as a result of completed refinancing efforts and was partially
offset by a higher average debt balance for the six months ended May 31, 2022
compared to the six months ended May 31, 2021.
Liquidity, Financial Condition and Capital Resources
As of May 31, 2022, we had $7.5 billion of liquidity including cash,
short-term investments and borrowings available under our Revolving Facility.
During 2022, we will continue to be focused on pursuing various capital market
opportunities to extend maturities and if appropriate, obtain relevant
financial covenant amendments.
We had a working capital deficit of $4.8 billion as of May 31, 2022 compared
to working capital deficit of $0.3 billion as of November 30, 2021. The
increase in working capital deficit was caused by a decrease in cash and cash
equivalents, an increase in customer deposits and an increase in current
portion of long-term debt. Historically, during our normal operations, 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 $4.8 billion and $3.1 billion of customer deposits as of May 31,
2022 and November 30, 2021, respectively. We have paid refunds of customer
deposits with respect to a portion of cancelled cruises. The amount of any
future cash refunds may depend on future cruise cancellations and guest
rebookings. We have agreements with a number of credit card processors that
transact customer deposits related to our cruise vacations. Certain of these
agreements allow the credit card processors to request, under certain
circumstances, that we provide a reserve fund in cash. In addition, we have a
relatively low-level of accounts receivable and limited investment in
inventories.
Refer to Note 1 - "General, Liquidity and Management's Plans" of the
consolidated financial statements for additional discussion regarding our
liquidity.
Sources and Uses of Cash
Operating Activities
Our business used $1.2 billion of net cash flows in operating activities
during the six months ended May 31, 2022, a decrease of $1.7 billion, compared
to $2.9 billion of net cash flows used for the same period in 2021. This
decrease was due to an increase in cash inflows from customer deposits during
the six months ended May 31, 2022 compared to the same period in 2021.
Investing Activities
During the six months ended May 31, 2022, net cash used in investing
activities was $3.1 billion. This was driven by the following:
• Capital expenditures of $2.6 billion for our ongoing new
shipbuilding program
• Capital expenditures of $581 million for ship improvements and
replacements, information technology and buildings and improvements
• Proceeds from sale of ships and other of $55 million
• Purchases of short-term investments of $315 million
• Proceeds from maturity of short-term investments of $364 million
During the six months ended May 31, 2021, net cash used in investing
activities was $4.2 billion. This was driven by the following:
• Capital expenditures of $2.0 billion for our ongoing new
shipbuilding program
• Capital expenditures of $168 million for ship improvements and
replacements, information technology and buildings and improvements
• Proceeds from sale of ships and other of $324 million
• Purchases of short-term investments of $2.7 billion
• Proceeds from maturity of short-term investments of $467 million
Financing Activities
During the six months ended May 31, 2022, net cash provided by financing
activities of $2.5 billion was caused by the following:
• Issuances of $3.3 billion of long-term debt
• Repayments of $0.7 billion of long-term debt
• Payments of $110 million related to debt issuance costs
• Net repayments of short-term borrowings of $114 million
• Purchases of $82 million of Carnival plc ordinary shares and
issuances of $89 million of Carnival Corporation common stock under our Stock
Swap Program
During the six months ended May 31, 2021, net cash provided by financing
activities of $4.5 billion was caused by the following:
• Repayments of $1.4 billion of long-term debt
• Issuances of $5.0 billion of long-term debt, including net
proceeds of $3.4 billion from the issuance of the 2027 Senior Unsecured Notes
• Net proceeds of $996 million from our public offering of
Carnival Corporation common stock
Funding Sources
As of May 31, 2022, we had $7.5 billion of liquidity including cash,
short-term investments and borrowings available under our revolving facility.
In addition, we had $3.1 billion of undrawn export credit facilities to fund
ship deliveries planned through 2024. We plan to use future cash flows from
operations to fund our cash requirements including capital expenditures not
funded by our export credit facilities.
(in billions) 2022 2023 2024
Future export credit facilities at May 31, 2022 $0.8 $1.7 $0.6
Our export credit facilities contain various financial covenants as described
in Note 3 - "Debt". At May 31, 2022, we were in compliance with the
applicable covenants under our debt agreements.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, including guarantee
contracts, retained or contingent interests, certain derivative instruments
and variable interest entities that either have, or are reasonably likely to
have, a current or future material effect on our consolidated financial
statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of our hedging strategies and market risks, see the
discussion below and Note 10 - "Fair Value Measurements, Derivative
Instruments and Hedging Activities and Financial Risks" in our consolidated
financial statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations within our Form 10-K.
Interest Rate Risks
The composition of our debt, after the effect of cross currency swaps
(designated as hedges of net investments) and interest rate swaps, was as
follows:
May 31, 2022
Fixed rate 44%
EUR fixed rate 16%
Floating rate 24%
EUR floating rate 14%
GBP floating rate 1%
Item 4. Controls and Procedures.
A. Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable
assurance that information required to be disclosed by us in the reports that
we file or submit under the Securities Exchange Act of 1934, is recorded,
processed, summarized and reported, within the time periods specified in the
U.S. Securities and Exchange Commission's rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us in our
reports that we file or submit under the Securities Exchange Act of 1934 is
accumulated and communicated to our management, including our principal
executive and principal financial officers, or persons performing similar
functions, as appropriate, to allow timely decisions regarding required
disclosure.
Our President, Chief Executive Officer and Chief Climate Officer and our Chief
Financial Officer and Chief Accounting Officer have evaluated our disclosure
controls and procedures and have concluded, as of May 31, 2022, that they are
effective at a reasonable level of assurance, as described above.
B. Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting
during the quarter ended May 31, 2022 that have materially affected or are
reasonably likely to materially affect our internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The legal proceedings described in Note 4 - "Contingencies and Commitments" of
our consolidated financial statements, including those described under
"COVID-19 Actions" and "Other Regulatory or Governmental Inquiries and
Investigations," are incorporated in this "Legal Proceedings" section by
reference. Additionally, SEC rules require disclosure of certain environmental
matters when a governmental authority is a party to the proceedings and such
proceedings involve potential monetary sanctions that we believe will exceed
$1 million.
As previously disclosed, Princess Cruises entered into a plea agreement in
December 2016 with the U.S. Department of Justice, which resulted in a
five-year term of probation that started in 2017 and the adoption of a
court-supervised environmental compliance plan. On April 18, 2022, the
probation period ended and the court-supervised environmental compliance plan
terminated.
Item 1A. Risk Factors.
The risk factors in this Form 10-Q below should be carefully considered,
including the risk factors discussed in "Risk Factors" and other risks
discussed in our Form 10-K. These risks could materially and adversely affect
our results, operations, outlooks, plans, goals, growth, reputation, cash
flows, liquidity, and stock price. Our business also could be affected by
risks that we are not presently aware of or that we currently consider
immaterial to our operations.
Operating Risk Factors
• Events and conditions around the world, including war and other
military actions, such as the current invasion of Ukraine, heightened
inflation and other general concerns impacting the ability or desire of people
to travel have and may lead to a decline in demand for cruises, impact our
operating costs and profitability.
We have been, and may continue to be, impacted by the public's concerns
regarding the health, safety and security of travel, including government
travel advisories and travel restrictions, political instability and civil
unrest, terrorist attacks, war and military action, most recently the current
invasion of Ukraine, and other general concerns. The current invasion of
Ukraine and its resulting impacts, including supply chain disruptions,
increased fuel prices and international sanctions and other measures that have
been imposed, have adversely affected, and may continue to adversely affect,
our business. These factors may also have the effect of heightening many other
risks to our business, any of which could materially and adversely affect our
business and results of operations. Additionally, we have been, and may
continue to be, impacted by heightened regulations around customs and border
control, travel bans to and from certain geographical areas, voluntary changes
to our itineraries in light of geopolitical events, government policies
increasing the difficulty of travel and limitations on issuing international
travel visas. We have been and may continue to be impacted by inflation and
supply chain disruptions and may also be impacted by adverse changes in the
perceived or actual economic climate, such as global or regional recessions,
higher unemployment and underemployment rates and declines in income levels.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
I. Stock Swap Program
We have a program that allows us to realize a net cash benefit when Carnival
Corporation common stock is trading at a premium to the price of Carnival plc
ordinary shares. Under the Stock Swap Program, we may elect to offer and sell
shares of Carnival Corporation common stock at prevailing market prices in
ordinary brokers' transactions and repurchase an equivalent number of Carnival
plc ordinary shares in the UK market.
Under the Stock Swap Program effective June 2021, the Board of Directors
authorized the sale of up to $500 million shares of Carnival Corporation
common stock in the U.S. market and the purchase of Carnival plc ordinary
shares on at least an equivalent basis.
We may in the future implement a program to allow us to obtain a net cash
benefit when Carnival plc ordinary shares are trading at a premium to the
price of Carnival Corporation common stock.
Any sales of Carnival Corporation common stock and Carnival plc ordinary
shares have been or will be registered under the Securities Act of 1933, as
amended. During the three months ended May 31, 2022, under the Stock Swap
Program, we sold 3.9 million shares of Carnival Corporation's common stock
and repurchased the same amount of Carnival plc ordinary shares, resulting in
net proceeds of $6 million, which were used for general corporate purposes.
Since the beginning of the Stock Swap Program, first authorized in June 2021,
we have sold 14.1 million shares of Carnival Corporation's common stock and
repurchased the same amount of Carnival plc ordinary shares, resulting in net
proceeds of $27 million.
Period Total Number of Shares of Carnival plc Ordinary Shares Purchased (a) Average Price Paid per Share of Carnival plc Ordinary Share Maximum Number of Carnival plc Ordinary Shares That May Yet Be Purchased Under
the Carnival Corporation Stock Swap Program
(in millions)
(in millions)
March 1, 2022 through March 31, 2022 - $- 8.2
April 1, 2022 through April 30, 2022 1.1 $17.52 7.1
May 1, 2022 through May 31, 2022 2.8 $13.20 4.2
Total 3.9 $14.40
(a) No ordinary shares of Carnival plc were purchased outside of publicly
announced plans or programs.
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