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RNS Number : 2855E Carnival PLC 28 June 2023
June 28, 2023
RELEASE OF CARNIVAL CORPORATION & PLC JOINT QUARTERLY REPORT ON FORM 10-Q
FOR THE SECOND QUARTER OF 2023 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 26, 2023. 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, 2023.
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, 2023. 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.
Schedule B contains the Carnival Corporation & plc Form 10-Q which
includes unaudited consolidated financial statements as of and for the three
and six months ended May 31, 2023, management's discussion and analysis
("MD&A") of financial conditions and results of operations, and
information on Carnival Corporation and Carnival plc's sales and purchases of
their equity securities and use of proceeds from such sales. The 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").
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
Jody
Venturoni
Beth Roberts
001 469 797
6380
001 305 406 4832
The Form 10-Q is available for viewing on the SEC website at www.sec.gov under
Carnival Corporation or Carnival plc or the Carnival Corporation & plc
website at www.carnivalcorp.com or www.carnivalplc.com. A copy of the Form
10-Q and the 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 the largest global cruise company, and among
the largest leisure travel companies, with a portfolio of world-class cruise
lines - AIDA Cruises, Carnival Cruise Line, Costa Cruises, Cunard, Holland
America Line, P&O Cruises (Australia), P&O Cruises (UK), Princess
Cruises, and Seabourn.
Additional information can be found on www.carnivalcorp.com, www.aida.de,
www.carnival.com, www.costacruise.com, www.cunard.com, www.hollandamerica.com,
www.pocruises.com.au, www.pocruises.com, www.princess.com and
www.seabourn.com. For more information on Carnival Corporation's
industry-leading sustainability initiatives, visit
www.carnivalsustainability.com.
SCHEDULE A
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in millions, except per share data)
Six Months Ended May 31,
Notes 2023 2022
Revenues
Passenger ticket $2,495 $835
Onboard and other 896 337
8 3,391 1,172
Operating Costs and Expenses
Commissions, transportation and other 604 233
Onboard and other 213 93
Payroll and related 503 435
Fuel 446 316
Food 228 86
Other operating 863 490
Cruise and tour operating expenses 2,856 1,653
Selling and administrative 8 495 398
Depreciation and amortisation 8 367 396
3,718 2,447
Operating Income (Loss) (327) (1,276)
Nonoperating Income (Expense)
Interest income 6 -
Income (loss) from investments in associates (25) 5
Interest expense, net of capitalised interest (178) (65)
Other income (expense), net (26) 62
(224) 1
Income (Loss) Before Income Taxes (550) (1,275)
Income Tax Benefit (Expense), Net (12) (6)
Net Income (Loss) $(563) $(1,280)
Earnings (Loss) Per Share
Basic $(3.02) $(6.90)
Diluted $(3.02) $(6.90)
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.
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in millions)
Six Months Ended May 31,
2023 2022
Net Income (Loss) $(563) $(1,280)
Other Comprehensive Income (Loss)
Items that will not be reclassified through the Statements of Income (Loss)
Remeasurements of post-employment benefit obligations (11) 6
Items that may be reclassified through the Statements of Income (Loss)
Changes in foreign currency translation adjustment 127 (358)
Net gains on hedges of net investments in foreign operations and other - 89
127 (269)
Other Comprehensive Income (Loss) 116 (263)
Total Comprehensive Income (Loss) $(447) $(1,543)
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.
CARNIVAL PLC
INTERIM CONDENSED GROUP BALANCE SHEETS
(UNAUDITED)
(in millions)
Notes May 31, November 30, 2022
2023
ASSETS
Current Assets
Cash and cash equivalents $582 $251
Trade and other receivables, net 230 202
Inventories 175 193
Prepaid expenses and other 187 215
Total current assets 1,174 862
Property and Equipment, Net 3 12,386 13,469
Right-of-Use Assets 562 283
Investments in Associates 121 144
Other Assets 4 712 775
$14,955 $15,532
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt 5 $1,078 $1,329
Current portion of lease liabilities 80 33
Accounts payable 411 471
Accrued liabilities and other 550 526
Customer deposits 2 1,866 1,589
Amount owed to the Carnival Corporation group 3,876 5,624
Total current liabilities 7,861 9,571
Long-Term Debt 5 6,661 6,361
Long-Term Lease Liabilities 492 256
Contingencies 7 82 84
Other Long-Term Liabilities 239 200
Shareholders' Equity
Share capital 361 361
Share premium 9 1,143 143
Retained earnings 560 1,175
Other reserves (2,444) (2,619)
Total shareholders' (deficit) equity (380) (940)
$14,955 $15,532
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.
CARNIVAL PLC
INTERIM CONDENSED GROUP STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Six Months Ended May 31,
2023 2022
OPERATING ACTIVITIES
Income (Loss) before income taxes $(550) $(1,275)
Adjustments to reconcile income (loss) before income taxes to net cash
provided by (used in) operating activities
Depreciation and amortisation 367 396
Share-based compensation 6 10
Interest expense, net 180 74
(Income) loss from investments in associates 25 (5)
Other, net 6 5
34 (794)
Changes in operating assets and liabilities
Receivables (29) (34)
Inventories 23 (39)
Prepaid expenses and other 79 (109)
Accounts payable (67) 57
Accrued liabilities, other and contingencies (29) 52
Customer deposits 251 377
Cash provided by (used in) operations before interest and income taxes 262 (490)
Interest received 6 -
Interest paid (105) (58)
Income tax benefit received (paid), net 1 7
Net cash provided by (used in) operating activities 164 (541)
INVESTING ACTIVITIES
Purchases of property and equipment (997) (1,985)
Proceeds from sales of ships 32 40
Other, net - (5)
Net cash provided by (used in) investing activities (965) (1,949)
FINANCING ACTIVITIES
Changes in amounts owed to the Carnival Corporation group, net 1,406 614
Principal repayments of long-term debt (1,027) (250)
Proceeds from issuance of long-term debt 830 2,347
Finance lease principal payments (40) (18)
Debt issuance cost and other, net (34) (101)
Net cash provided by (used in) financing activities 1,135 2,591
Effect of exchange rate changes on cash and cash equivalents (4) (33)
Net increase (decrease) in cash and cash equivalents 330 68
Cash and cash equivalents at beginning of period 251 434
Cash and cash equivalents at end of period $582 $502
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.
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 (deficit)' equity
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 - - (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
At November 30, 2022 $361 $143 $1,175 $(2,526) $22 $(1,734) $116 $1,503 $(2,619) $(940)
Comprehensive income (loss)
Net income (loss) - - (563) - - - - - - (563)
Changes in foreign currency translation adjustment - - - 127 - - - - 127 127
Remeasurements of post-employment benefit obligations - - (11) - - - - - - (11)
Total comprehensive income (loss) - - (574) 127 - - - - 127 (447)
Issuance of ordinary share capital - 1,000 - - - - - - - 1,000
Issuance of treasury shares for vested share-based awards - - (41) - - 41 - - 41 -
Other, net - - - - - (1) 8 - 7 7
At May 31, 2023 $361 $1,143 $560 $(2,399) $22 $(1,694) $124 $1,503 $(2,444) $(380)
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.
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). Carnival
plc and its subsidiaries and associates are referred to collectively in these
Interim Financial Statements as the "Group," "our," "us" and "we".
Carnival Corporation & plc is the largest global cruise company, and among
the largest leisure travel companies, with a portfolio of world-class cruise
lines - AIDA Cruises, Carnival Cruise Line, Costa Cruises, Cunard, Holland
America Line, P&O Cruises (Australia), P&O Cruises (UK), Princess
Cruises, and Seabourn.
DLC Arrangement
Carnival Corporation and Carnival plc operate a dual listed company ("DLC")
arrangement, whereby the businesses of Carnival Corporation and Carnival plc
are combined through a number of contracts and provisions in Carnival
Corporation's Articles of Incorporation and By-Laws and Carnival plc's
Articles of Association. The two companies operate as a single economic
enterprise with a single senior management team and identical Boards of
Directors, but each has retained its separate legal identity. Each company's
shares are publicly traded on the New York Stock Exchange ("NYSE") for
Carnival Corporation and the London Stock Exchange for Carnival plc. The
Carnival plc American Depositary Shares are traded on the NYSE.
The constitutional documents of each company provide that, on most matters,
the holders of the common equity of both companies effectively vote as a
single body. The Equalization and Governance Agreement between Carnival
Corporation and Carnival plc provides for the equalization of dividends and
liquidation distributions based on an equalization ratio and contains
provisions relating to the governance of the DLC arrangement. Because the
equalization ratio is 1 to 1, one share of Carnival Corporation common stock
and one Carnival plc ordinary share are generally entitled to the same
distributions.
Under deeds of guarantee executed in connection with the DLC arrangement, as
well as stand-alone guarantees executed since that time, each of Carnival
Corporation and Carnival plc have effectively cross guaranteed all
indebtedness and certain other monetary obligations of each other. Once the
written demand is made, the holders of indebtedness or other obligations may
immediately commence an action against the relevant guarantor.
Under the terms of the DLC arrangement, Carnival Corporation and Carnival plc
are permitted to transfer assets between the companies, make loans to or
investments in each other and otherwise enter into intercompany transactions.
In addition, the cash flows and assets of one company are required to be used
to pay the obligations of the other company, if necessary.
The Boards of Directors consider that, within the DLC arrangement, the most
appropriate presentation of Carnival plc's 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, 2023 are provided to shareholders as supplementary information, which
are included in Schedule B, but do not form part of these Carnival plc interim
financial statements.
Basis of Preparation
The Carnival plc Interim financial statements are presented in U.S. dollars
unless otherwise noted. They are prepared on the historical cost basis, except
for certain financial assets and liabilities (including derivative
instruments) that are stated at fair value. 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,
2022, which were prepared in accordance with UK-adopted International
Financial Reporting Standards ("IFRS").
Status of Financial Statements
Our Interim Financial Statements for the six months ended May 31, 2023 have
not been audited or reviewed by the auditors.
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, 2022 were approved by the Board of Directors on
January 26, 2023 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 March 2020 and began resuming guest
cruise operations in 2021. As of May 31, 2023, our return to guest cruise
operations was complete.
As part of Carnival Corporation & plc's liquidity management, we rely on
estimates of Carnival Corporation & plc's future liquidity, which includes
numerous assumptions that are subject to various risks and uncertainties. The
principal assumptions used to estimate Carnival Corporation & plc's future
liquidity consist of:
• Carnival Corporation & plc's continued cruise operations and
expected timing of cash collections for cruise bookings
• Expected increases in revenue in 2023 on a per passenger basis
compared to 2019
• Expected improvement in occupancy on a year-over-year basis
• Stabilization of fuel prices around or below November 2022
year-end prices
• Continued stabilization of inflationary pressures on costs
compared to 2022, moderated by a larger-more efficient fleet as compared to
2019
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 has a substantial debt balance as a result of
the pause in guest cruise operations and requires a significant amount of
liquidity or cash provided by operating activities to service its debt. In
addition, the continued effects of the pandemic, inflation, higher fuel
prices, higher interest rates and fluctuations in foreign currency rates are
collectively having a material negative impact on Carnival Corporation &
plc's financial results. The full extent of the collective impact of these
items is uncertain and may be amplified by our substantial debt balance.
Carnival Corporation & plc believes it 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.
For the past three years Carnival Corporation & plc has taken appropriate
actions to manage its liquidity, including completing various capital market
transactions, obtaining relevant financial covenant amendments or waivers (see
Note 5 - "Debt"), accelerating the removal of certain ships from the fleet,
and during the pause, reducing capital expenditures and operating expenses.
Based on these actions and Carnival Corporation & plc's assumptions, and
considering its $7.3 billion of liquidity including cash and cash equivalents
and borrowings available under Carnival Corporation & plc's $1.6 billion,
€1.0 billion and £0.2 billion multi-currency revolving credit facility
(the "Revolving Facility") at May 31, 2023, we believe that we have sufficient
liquidity to fund Carnival Corporation & plc's obligations and expect to
remain in compliance with its financial covenants for at least the next twelve
months from the issuance of these financial statements. 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.
Carnival Corporation & plc will continue to pursue various opportunities
to refinance future debt maturities and/or to extend the maturity dates
associated with its existing indebtedness and obtain relevant financial
covenant amendments or waivers, if needed.
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.
Significant accounting estimates, assumptions and judgements 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
significant accounting estimates, assumptions and judgements refer to Note 2 -
Significant Accounting Policies included in our 2022 Carnival plc Annual
Report.
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). We adopted this new guidance
during 2022 and applied it prospectively to contract modifications related to
a change in reference rate. The adoption of this guidance did not have a
material impact on our consolidated financial statements. During the six
months ended May 31, 2023, we repaid all floating rate borrowings referenced
to U.S. Dollar LIBOR. As of May 31, 2023, we did not have any outstanding debt
referenced to interest rate benchmarks being replaced as a result of the
reform.
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. These amendments are required to be adopted by us for the financial year
commencing on December 1, 2024 and must be applied retrospectively. We do not
expect the adoption of this guidance to have a material impact on our
consolidated financial statements.
The IASB issued amendments to IFRS 16, Leases - Lease Liability in a Sale and
Leaseback. The amendments require a seller-lessee to subsequently measure
lease liabilities arising from a sale and leaseback transaction in a way that
does not result in recognition of a gain or loss that relates to the right of
use that it retains, including situations where the lease payments are
variable payments that do not depend on an index or rate. On December 1, 2022,
we adopted this guidance to measure and recognize right-of-use assets and
lease liabilities as a result of qualified sale and leaseback transactions and
the adoption of the standard had no impact on our consolidated financial
statements.
The IASB has issued amendments to the standards, IAS 7 Statement of Cash Flows
and IFRS 7 Financial Instruments: Disclosures titled Supplier Finance
Arrangements. These amendments require that an entity disclose information
about its supplier finance arrangements that enables users of financial
statements to assess the effects of those arrangements on the entity's
liabilities and cash flows and the entity's exposure to liquidity risk. These
amendments are required to be adopted by us for the financial year commencing
on December 1, 2024. We are currently evaluating the impact of these
amendments on the disclosures to our consolidated financial statements.
NOTE 2 - Revenue and Expense Recognition
Guest cruise deposits and advance onboard purchases are initially included in
customer deposits when received. Customer deposits are subsequently recognized
as cruise revenues, together with revenues from onboard and other activities,
and all associated direct costs and expenses of a voyage are recognized as
cruise costs and expenses, upon completion of voyages with durations of ten
nights or less and on a pro rata basis for voyages in excess of ten nights.
The impact of recognizing these shorter duration cruise revenues and costs and
expenses on a completed voyage basis versus on a pro rata basis is not
material. Certain of our product offerings are bundled and we allocate the
value of the bundled services and goods between passenger ticket revenues and
onboard and other revenues based upon the estimated standalone selling prices
of those goods and services. Guest cancellation fees, when applicable, are
recognized in passenger ticket revenues at the time of cancellation.
Our sales to guests of air and other transportation to and from airports near
the home ports of our ships are included in passenger ticket revenues, and the
related costs of purchasing these services are included in transportation
costs. The proceeds that we collect from the sales of third-party shore
excursions are included in onboard and other revenues and the related costs
are included in onboard and other costs. The amounts collected on behalf of
our onboard concessionaires, net of the amounts remitted to them, are included
in onboard and other revenues as concession revenues. All of these amounts are
recognized on a completed voyage or pro rata basis as discussed above.
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. In certain
situations, we have provided flexibility to guests by allowing guests to
rebook at a future date, receive future cruise credits ("FCCs") or elect to
receive refunds in cash. We have at times issued enhanced FCCs. Enhanced FCCs
provide the guest with an additional credit value above the original cash
deposit received, and the enhanced value is recognized as a discount applied
to the future cruise in the period used. We record a liability for unexpired
FCCs to the extent we have received and not refunded cash from guests for
cancelled bookings. These amounts include refundable deposits. We had total
customer deposits of $2.0 billion as of May 31, 2023 and $1.7 billion as of
November 30, 2022, which includes approximately $26 million of unredeemed
FCCs as of May 31, 2023. During the six months ended May 31, 2023 and 2022, we
recognized revenues of $1.3 billion and $0.4 billion related to our customer
deposits as of November 30, 2022 and 2021. Our customer deposits balance
changes due to the seasonal nature of cash collections, the recognition of
revenue, refunds of customer deposits and foreign currency changes.
Trade and Other Receivables
Although we generally require full payment from our customers prior to or
concurrently with their cruise, we grant credit terms to a relatively small
portion of our revenue source. We have receivables from credit card merchants
and travel agents for cruise ticket purchases and onboard revenue. These
receivables are included within trade and other receivables, net. We have
agreements with a number of credit card processors that transact customer
deposits related to our cruise vacations. Certain of these agreements allow
the credit card processors to request, under certain circumstances, that we
provide a reserve fund in cash. These reserve funds are included in other
assets.
Contract Costs
We recognize incremental travel agent commissions and credit and debit card
fees incurred as a result of obtaining the ticket contract as assets when paid
prior to the start of a voyage. We record these amounts within prepaid
expenses and other and subsequently recognize these amounts as commissions,
transportation and other at the time of revenue recognition or at the time of
voyage cancellation. We had incremental costs of obtaining contracts with
customers recognized as assets of $59 million as of May 31, 2023 and November
30, 2022.
NOTE 3 - Property and Equipment
(in millions)
At November 30, 2022 $13,469
Additions 1,003
Disposals (2,207)
Depreciation (316)
Exchange movements 437
At May 31, 2023 $12,386
We review our long-lived assets for impairment whenever events or
circumstances indicate potential impairment. During the six months ended May
31, 2023, we did not identify any triggers indicating possible impairment and
therefore, did not record any impairments.
Refer to Note 1 - "General, Use of Estimates and Risks and Uncertainty" for
additional discussion.
Ship Sales
During the six months ended May 31, 2023, we completed the sales of two Europe
segment ships which collectively represent a passenger-capacity reduction of
3,970 berths for our Europe segment.
Refer to Note 9 - "Related Party Transactions" for additional details on ship
sales to Carnival Corporation group.
NOTE 4 - Other Assets
(in millions) May 31, 2023 November 30, 2022
Credit card reserves $250 $296
Long-term deposits 237 229
VAT receivables 93 98
Debt issuance costs 28 38
Pension assets 9 19
Other long-term assets and other receivables 95 95
$712 $775
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, 2023 and November 30, 2022, we had $250 million and
$296 million in reserve funds related to our customer deposits provided to
satisfy these requirements which are included within other assets.
Additionally, as of May 31, 2023 and November 30, 2022, we had $237 million
and $229 million in compensating deposits we are required to maintain.
Subsequent to May 31, 2023, we provided $380 million in restricted cash
deposits which will be included within other assets. We continue to expect to
provide reserve funds and restricted cash deposits under these agreements.
NOTE 5 - Debt
Export Credit Facility Borrowings
During the six months ended May 31, 2023, we borrowed $0.8 billion under an
export credit facility due in semi-annual installments through 2035 and paid
down $0.3 billion of floating rate unsecured borrowings mostly with 2023 and
2024 maturities. As of May 31, 2023, the net book value of the Carnival plc
vessels subject to negative pledges was $4.2 billion.
Revolving Credit Facilities
As of May 31, 2023 Carnival Corporation did not have short-term borrowings. As
of November 30, 2022, Carnival Corporation's short-term borrowings consisted
of $0.2 billion. Carnival plc had no short-term borrowings under Carnival
Corporation & plc's Revolving Facility as of May 31, 2023 and November 30,
2022. Carnival Corporation & plc 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. As of May 31, 2023
and November 30, 2022, Carnival Corporation and Carnival plc had a total of
$2.9 billion and $2.6 billion available for borrowing under the Revolving
Facility. 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. Carnival Corporation & plc
is required to pay a commitment fee on any unutilized portion.
New Revolving Facility
In February 2023, Carnival Holdings (Bermuda) II Limited ("Carnival Holdings
II"), a subsidiary of Carnival Corporation, entered into a $2.1 billion
multi-currency revolving facility ("New Revolving Facility"). The New
Revolving Facility may be utilized beginning on August 6, 2024, and will
replace the existing Revolving Facility upon its maturity in August 2024. The
termination date of the New Revolving Facility is August 6, 2025, subject to
two, mutual one-year extension options. The new facility also contains an
accordion feature, allowing for additional commitments, up to an aggregate of
$2.9 billion, which are the aggregate commitments under our Revolving
Facility.
In connection with the New Revolving Facility, Carnival plc will contribute
one unencumbered vessel (which must be completed no later than February 28,
2024) to Carnival Holdings II. The vessel will continue to be operated under
one of the Carnival plc brands. Carnival Holdings II does not guarantee our
other outstanding debt.
Covenant Compliance
As of May 31, 2023, Carnival Corporation & plc's Revolving Facility, New
Revolving Facility, unsecured loans and export credit facilities contain
certain covenants listed below:
• Maintain minimum interest coverage (adjusted EBITDA to
consolidated net interest charges, as defined in the agreements) (the
"Interest Coverage Covenant") as follows:
◦ For certain unsecured loans and the New Revolving Facility, from
the end of each fiscal quarter from August 31, 2024, at a ratio of not less
than 2.0 to 1.0 for each testing date occurring from August 31, 2024 until May
31, 2025, at a ratio of not less than 2.5 to 1.0 for the August 31, 2025 and
November 30, 2025 testing dates, and at a ratio of not less than 3.0 to 1.0
for the February 28, 2026 testing date onwards and as applicable through their
respective maturity dates. In addition, for the remaining unsecured loans that
contain this covenant, Carnival Corporation & plc entered into letter
agreements to waive compliance with the covenant through the May 31, 2024
testing date.
◦ For substantially all of the export credit facilities, from the
end of each fiscal quarter from May 31, 2024, at a ratio of not less than 2.0
to 1.0 for each testing date occurring from May 31, 2024 until May 31, 2025,
at a ratio of not less than 2.5 to 1.0 for the August 31, 2025 and November
30, 2025 testing dates, and at a ratio of not less than 3.0 to 1.0 for the
February 28, 2026 testing date onwards
• For certain unsecured loans and export credit facilities,
maintain minimum issued capital and consolidated reserves (as defined in the
agreements) of $5.0 billion
• Limit its debt to capital (as defined in the agreements)
percentage to a percentage not to exceed 75% until the May 31, 2023 testing
date, following which it will be tested at levels which decline ratably to 65%
from the May 31, 2024 testing date onwards
• Maintain minimum liquidity as follows:
◦ For the New Revolving Facility, minimum liquidity of
$1.5 billion; provided, that if any commitments maturing on June 30, 2025
under the existing first-lien term loan facility are outstanding on the March
31, 2025 testing date, the minimum liquidity on such testing date cannot be
less than the greater of (i) the aggregate outstanding amount of such
first-lien term loan facility commitments and (ii) $1.5 billion
◦ For other unsecured loans and export credit facilities that
contain this covenant, $1.5 billion through November 30, 2026
• Adhere to certain restrictive covenants through August 2025
• Limit the amounts of our secured assets as well as secured and
other indebtedness
At May 31, 2023, 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
and/or cross-acceleration clauses therein, substantially all of its
outstanding debt and derivative contract payables could become due, and its
debt and derivative contracts could be terminated. Any financial covenant
amendment may lead to increased costs, increased interest rates, additional
restrictive covenants and other available lender protections that would be
applicable.
Carnival Corporation or Carnival plc and certain of our subsidiaries have
guaranteed substantially all of our indebtedness.
NOTE 6 - Ship Commitments
At May 31, 2023, we had one ship 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, 2023
Year
Remainder of 2023 $35
2024 611
Thereafter -
$646
NOTE 7 - Contingencies
Provisions
The Group's contingencies include estimated liabilities for crew, guest and
other third-party claims. The liabilities associated with crew illnesses and
crew and guest injury claims, including all legal costs, are estimated based
on the specific merits of the individual claims or actuarially estimated based
on historical claims experience, loss development factors and other
assumptions.
The changes in our contingencies were as follows:
(in millions) Claims Reserves
November 30, 2022 $113
Additional provisions 15
Paid losses (10)
Reversals (12)
Exchange movements 3
May 31, 2023 $109
(in millions) May 31, 2023
Provisions
Current $27
Non-current 82
$109
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
We have been named in a number of individual actions related to COVID-19.
These actions include tort claims based on a variety of theories, including
negligence and failure to warn. The plaintiffs in these actions allege a
variety of injuries: some plaintiffs confined their claim to emotional
distress, while others allege injuries arising from testing positive for
COVID-19. A smaller number of actions include wrongful death claims.
Substantially all of these individual actions have now been dismissed or
settled for immaterial amounts.
As of May 31, 2023, nine purported class actions have been brought by former
guests in several U.S. federal courts, the Federal Court in Australia, and in
Italy. These actions include tort claims based on a variety of theories,
including negligence, gross negligence and failure to warn, physical injuries
and severe emotional distress associated with being exposed to and/or
contracting COVID-19 onboard. As of May 31, 2023, seven of these class actions
have either been settled individually for immaterial amounts or had their
class allegations dismissed by the courts and only the Australian and Italian
matters remain. We believe the ultimate outcome of these matters will not have
a material impact on our consolidated financial statements.
All COVID-19 matters seek monetary damages and most seek additional punitive
damages in unspecified amounts.
We continue to take actions to defend against the above claims.
Regulatory or Governmental Inquiries and Investigations
We have been, and may continue to be, impacted by breaches in data security
and lapses in data privacy, which occur from time to time. These can vary in
scope and intent from inadvertent events to malicious motivated attacks.
We have incurred legal and other costs in connection with cyber incidents that
have impacted us. The penalties and settlements paid in connection with cyber
incidents over the last three years were not material. While these incidents
did not have a material adverse effect on our business, results of operations,
financial position or liquidity, no assurances can be given about the future
and we may be subject to future litigation, attacks or incidents that could
have such a material adverse effect.
On March 14, 2022, the U.S. Department of Justice and the U.S. Environmental
Protection Agency notified 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. Carnival Corporation & plc believes the ultimate outcome will
not have a material impact on its consolidated financial statements.
On June 20, 2022, Princess Cruise Lines, Ltd, a subsidiary of Carnival
Corporation, notified the Australian Maritime Safety Authorization ("AMSA")
and the flag state, Bermuda, regarding approximately six cubic meters of
comminuted food waste (liquid biodigester effluent) inadvertently discharged
by Coral Princess inside the Great Barrier Reef Marine Park. On June 23, 2022,
the UK P&I Club N.V. provided a letter of undertaking for approximately
$1.9 million (being the estimated maximum combined penalty). On May 31, 2023,
we received a summons from the Australia Federal Prosecution Service
indicating that formal charges are being pursued against Princess Cruise
Lines, Ltd and the Captain of the vessel. We believe the ultimate outcome will
not have a material impact on our consolidated financial statements.
Other Contingent Obligations
Some of the debt contracts we enter into include indemnification provisions
obligating us to make payments to the counterparty if certain events occur.
These contingencies generally relate to changes in taxes or changes in laws
which increase the lender's costs. There are no stated or notional amounts
included in the indemnification clauses, and we are not able to estimate the
maximum potential amount of future payments, if any, under these
indemnification clauses.
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 cruise operations, (3) Cruise Support and (4) Tour and Other.
The operating segments within each of our NAA and Europe reportable segments
have been aggregated based on the similarity of their economic and other
characteristics, including geographic guest sourcing. The Cruise Support
segment includes Carnival Corporation & plc's portfolio of leading port
destinations and other services, all of which are operated for the benefit of
its cruise brands. The Tour and Other segment represents the hotel and
transportation operations of Holland America Princess Alaska Tours and other
operations.
Beginning in the first quarter of 2023, we renamed the EA segment given that
China has not reopened to international cruise travel. As a result, we have
significantly reduced operations in Asia and leveraged the mobility of our
cruise ships and our brand portfolio to build alternate deployments. In 2019,
our most recent full year of guest cruise operations, China accounted for 7%
of our guests.
Six Months Ended May 31,
(in millions) Revenues Operating costs and Selling and Depreciation Operating
expenses administrative and income
amortisation (loss)
2023
NAA $6,434 $4,471 $875 $738 $351
Europe 2,759 2,179 436 338 (193)
Cruise Support 106 55 124 90 (162)
Tour and Other 44 64 14 13 (47)
Carnival Corporation & plc 9,343 6,768 1,448 1,179 (52)
- U.S. GAAP
Carnival Corporation - U.S. GAAP (a) (5,952) (3,849) (948) (823) (332)
Carnival plc - U.S. GAAP vs IFRS differences (b) - (63) (5) 11 57
Carnival plc - IFRS $3,391 $2,856 $495 $367 $(327)
2022
NAA $2,792 $3,055 $710 $687 $(1,661)
Europe 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)
(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 primarily relate to
differences in the carrying value of ships, lease accounting, pension
accounting and differences in depreciation expense due to differences in the
carrying value of ships.
Revenue by geographic areas, which are based on where our guests are sourced,
were as follows:
Six Months Ended,
(in millions) May 31, 2023 May 31, 2022
Europe $2,358 $1,063
North America 167 53
Australia 542 18
Other 324 38
$3,391 $1,172
NOTE 9 - Related Party Transactions
During 2023, Carnival Corporation purchased one ordinary share of Carnival plc
for $1 billion, which is non-voting while it is owned by Carnival Corporation.
This is a non cash transaction where the amount owed from Carnival Corporation
was offset against the amount owed by Carnival plc to the Carnival Corporation
group. All amounts owed to the Carnival Corporation group are unsecured,
repayable on demand and considered short-term in nature.
During 2023, we sold two ships to Carnival Holdings (Bermuda) Limited, a
subsidiary of Carnival Corporation, for $1.5 billion. These two ships were
leased back to Carnival plc. Additionally in 2023, we completed the sale of
one ship to Carnival Corporation, which represents a passenger-capacity
reduction of 4,200 berths for $678 million and plan to sell another ship to
Carnival Corporation in 2024 both in connection with Carnival Fun Italian
Style™. The sales price for these transactions equaled book value. The
amounts owed from the Carnival Corporation group in connection with these non
cash transactions reduced the payable owed by Carnival plc to the Carnival
Corporation group.
During the six months ended May 31, 2023 and 2022, Holland America Line and
Princess Cruises purchased land tours from us totaling $15 million and
$10 million. In addition, during the six months ended May 31, 2023 and 2022
we sold pre- and post-cruise vacations, shore excursions and transportation
services to the Carnival Corporation group.
During 2023, the Group had ship charter agreements with Princess Cruises and
Carnival Cruise Line for ships operating in Australia and Asia. The total
charter and management expenses for the six months ended May 31, 2023 were
$243 million which was included in other operating expenses. There were no
ship charter agreements for the six months ended May 31, 2022.
During the six months ended May 31, 2023, 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
42.9 million, or 19.7% at May 31, 2023 and 40.6 million or 18.7% at November
30, 2022 of Carnival plc's ordinary shares, which are non-voting while they
are owned by Carnival Corporation and its subsidiary.
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 and also where Carnival Corporation provides
services to the Group.
NOTE 10 - Seasonality
Our passenger ticket revenues are seasonal. Demand for cruises has been
greatest during our third quarter, which includes the Northern Hemisphere
summer months. This higher demand during the third quarter results in higher
ticket prices and occupancy levels and, accordingly, the largest share of our
operating income is typically earned during this period. The seasonality of
our results also increases due to ships being taken out-of-service for
maintenance, which we schedule during non-peak demand periods. 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, 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.
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, 2023 or November 30, 2022, and are not expected to result in any
material loss.
Financial Instruments that are not Measured at Fair Value
May 31, 2023 November 30, 2022
Carrying Value Fair Value Carrying Value Fair Value
(in millions)
Liabilities
Fixed rate debt (a) $4,583 $2,712 $3,781 $2,020
Floating rate debt (a) 3,471 2,594 4,204 3,087
Total 8,054 5,306 7,985 5,107
Less: unamortized debt issuance costs and discounts (332) (310)
Plus: debt modification loss 17 15
Total Debt $7,739 $7,690
(a) The debt amounts above do not include the impact of
interest rate swaps. The fair values of our publicly-traded notes were based
on their unadjusted quoted market prices. 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
The Group has euro interest rate swaps whereby we receive EURIBOR-based
floating interest rate payments in exchange for making fixed interest rate
payments. These interest rate swap agreements effectively changed $69 million
at May 31, 2023 ($89 million at November 30, 2022) of EURIBOR-based floating
rate euro debt to fixed rate euro debt. As of May 31, 2023, these
EURIBOR-based interest rate swaps were not designated as cash flow hedges. As
of November 30, 2022, one of these swaps was designated as a cash flow hedge.
The fair values of these derivatives, as of May 31, 2023 and November 30, 2022
was $1 million and the associated gains and losses recognized in other
comprehensive income (loss) and in net income (loss) were not material. 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. These derivatives are considered Level 2 instruments. There are no
credit risk related contingent features in our derivative agreements.
NOTE 12 - 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 2022 Annual Report. There have been no changes to
our identified principal or emerging risks since the issuance of our 2022
Annual Report. Our principal risks and uncertainties are summarized below. The
ordering and lettering of our risks is not intended to reflect any Company
indication of priority or likelihood.
Operating Risk Factors
a. Events and conditions around the world, including war and other
military actions, such as the invasion of Ukraine, inflation, higher fuel
prices, higher interest rates and other general concerns impacting the ability
or desire of people to travel have led, and may in the future lead, to a
decline in demand for cruises, impacting our operating costs and
profitability.
b. Pandemics have in the past and may in the future have a significant
negative impact on our financial condition and operations.
c. Incidents concerning our ships, guests or the cruise industry have
in the past and may, in the future, negatively impact the satisfaction of our
guests and crew and lead to reputational damage.
d. Changes in and non-compliance with laws and regulations under which
we operate, such as those relating to health, environment, safety and
security, data privacy and protection, anti-corruption, economic sanctions,
trade protection, labor and employment, and tax have in the past and may, in
the future, lead to litigation, enforcement actions, fines, penalties and
reputational damage.
e. 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.
f. 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.
g. 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.
h. The loss of key team members, our inability to recruit or retain
qualified shoreside and shipboard team members and increased labor costs could
have an adverse effect on our business and results of operations.
i. Increases in fuel prices, changes in the types of fuel consumed
and availability of fuel supply may adversely impact our scheduled itineraries
and costs.
j. We rely on supply chain vendors who are integral to the operations of
our businesses. These vendors and service providers may be unable to deliver
on their commitments, which could negatively impact our business.
k. Fluctuations in foreign currency exchange rates may adversely impact
our financial results.
l. Overcapacity and competition in the cruise and land-based
vacation industry may negatively impact our cruise sales, pricing and
destination options.
m. Inability to implement our shipbuilding programs and ship repairs,
maintenance and refurbishments may adversely impact our business operations
and the satisfaction of our guests.
Debt Related Risk Factors
a. Failure to successfully implement our business strategy following
our resumption of guest cruise operations would negatively impact the
occupancy levels and pricing of our cruises and could have a material adverse
effect on our business. We require a significant amount of cash to service our
debt and sustain our operations. Our ability to generate cash depends on many
factors, including those beyond our control, and we may not be able to
generate cash required to service our debt and sustain our operations.
b. Our substantial debt could adversely affect our financial health
and operating flexibility.
c. Despite our leverage, we may incur more debt, subject to certain
restrictions, 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 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. Our variable rate indebtedness exposes us to interest rate
volatility, which could cause our debt service obligations to increase
significantly.
f. The covenants in certain of our export credit facilities may
require us to secure those facilities in the future.
NOTE 13 - 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, 2022. No new Directors have been appointed during
the six months ended May 31, 2023. 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/ Josh Weinstein
Micky Arison Josh Weinstein
Chair of the Board of Directors President, Chief Executive Officer, Chief Climate Officer and Director
June 28, 2023 June 28, 2023
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 Six Months Ended
May 31,
May 31,
2023 2022 2023 2022
Revenues
Passenger ticket $3,141 $1,285 $6,011 $2,158
Onboard and other 1,770 1,116 3,332 1,866
4,911 2,401 9,343 4,024
Operating Expenses
Commissions, transportation and other 619 325 1,274 576
Onboard and other 549 314 1,033 523
Payroll and related 601 533 1,183 1,038
Fuel 489 545 1,024 910
Food 325 191 636 327
Ship and other impairments - - - 8
Other operating 875 774 1,619 1,331
Cruise and tour operating expenses 3,457 2,683 6,768 4,713
Selling and administrative 736 619 1,448 1,149
Depreciation and amortization 597 572 1,179 1,126
4,791 3,874 9,394 6,988
Operating Income (Loss) 120 (1,473) (52) (2,964)
Nonoperating Income (Expense)
Interest income 69 6 124 9
Interest expense, net of capitalized interest (542) (370) (1,082) (738)
Gain (loss) on debt extinguishment, net (31) - (31) -
Other income (expense), net (17) 6 (47) (26)
(522) (358) (1,036) (755)
Income (Loss) Before Income Taxes (402) (1,831) (1,087) (3,719)
Income Tax Benefit (Expense), Net (5) (3) (13) (6)
Net Income (Loss) $(407) $(1,834) $(1,100) $(3,726)
Earnings Per Share
Basic $(0.32) $(1.61) $(0.87) $(3.27)
Diluted $(0.32) $(1.61) $(0.87) $(3.27)
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 Six Months Ended
May 31,
May 31,
2023 2022 2023 2022
Net Income (Loss) $(407) $(1,834) $(1,100) $(3,726)
Items Included in Other Comprehensive Income (Loss)
Change in foreign currency translation adjustment 102 (260) 99 (246)
Other (33) 3 (19) 5
Other Comprehensive Income (Loss) 69 (257) 79 (241)
Total Comprehensive Income (Loss) $(338) $(2,091) $(1,021) $(3,967)
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, 2022
2023
ASSETS
Current Assets
Cash and cash equivalents $4,468 $4,029
Restricted cash 18 1,988
Trade and other receivables, net 449 395
Inventories 438 428
Prepaid expenses and other 833 652
Total current assets 6,206 7,492
Property and Equipment, Net 39,584 38,687
Operating Lease Right-of-Use Assets 1,310 1,274
Goodwill 579 579
Other Intangibles 1,163 1,156
Other Assets 3,030 2,515
$51,873 $51,703
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $- $200
Current portion of long-term debt 1,789 2,393
Current portion of operating lease liabilities 161 146
Accounts payable 1,042 1,050
Accrued liabilities and other 1,951 1,942
Customer deposits 6,892 4,874
Total current liabilities 11,835 10,605
Long-Term Debt 31,921 31,953
Long-Term Operating Lease Liabilities 1,208 1,189
Other Long-Term Liabilities 1,044 891
Contingencies and Commitments
Shareholders' Equity
Carnival Corporation common stock, $0.01 par value; 1,960 shares authorized; 12 12
1,250 shares at 2023 and 1,244 shares at 2022 issued
Carnival plc ordinary shares, $1.66 par value; 217 shares at 2023 and 2022 361 361
issued
Additional paid-in capital 16,684 16,872
Retained earnings (accumulated deficit) (841) 269
Accumulated other comprehensive income (loss) ("AOCI") (1,903) (1,982)
Treasury stock, 130 shares at 2023 and 2022 of Carnival Corporation and 73 (8,449) (8,468)
shares at 2023 and 72 shares at 2022 of Carnival plc, at cost
Total shareholders' equity 5,865 7,065
$51,873 $51,703
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Six Months Ended
May 31,
2023 2022
OPERATING ACTIVITIES
Net income (loss) $(1,100) $(3,726)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities
Depreciation and amortization 1,179 1,126
Impairments - 8
(Gain) loss on debt extinguishment 31 -
(Income) loss from equity-method investments 27 (4)
Share-based compensation 31 54
Amortization of discounts and debt issue costs 85 87
Noncash lease expense 72 68
(Gain) loss on ship sales and other, net (9) 12
316 (2,376)
Changes in operating assets and liabilities
Receivables (55) (120)
Inventories (6) (79)
Prepaid expenses and other assets (805) (395)
Accounts payable (23) 139
Accrued liabilities and other 69 12
Customer deposits 2,029 1,611
Net cash provided by (used in) operating activities 1,525 (1,209)
INVESTING ACTIVITIES
Purchases of property and equipment (1,772) (3,221)
Proceeds from sales of ships 255 55
Purchase of short-term investments - (315)
Proceeds from maturity of short-term investments - 364
Other, net 8 10
Net cash provided by (used in) investing activities (1,509) (3,107)
FINANCING ACTIVITIES
Repayments of short-term borrowings (200) (114)
Principal repayments of long-term debt (2,294) (684)
Proceeds from issuance of long-term debt 1,016 3,334
Issuance of common stock, net 5 30
Issuance of common stock under the Stock Swap Program 22 89
Purchase of treasury stock under the Stock Swap Program (20) (82)
Debt issue costs and other, net (81) (111)
Net cash provided by (used in) financing activities (1,552) 2,463
Effect of exchange rate changes on cash, cash equivalents and restricted cash 6 (35)
Net increase (decrease) in cash, cash equivalents and restricted cash (1,530) (1,888)
Cash, cash equivalents and restricted cash at beginning of period 6,037 8,976
Cash, cash equivalents and restricted cash at end of period $4,507 $7,089
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(in millions)
Three Months Ended
Common Ordinary Additional Retained AOCI Treasury Total shareholders' equity
stock shares paid-in earnings (accumulated deficit) stock
capital
At 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
At February 28, 2023 $12 $361 $16,635 $(434) $(1,972) $(8,433) $6,170
Net income (loss) - - - (407) - - (407)
Other comprehensive income (loss) - - - - 69 - 69
Issuances of common stock, net - - 5 - - - 5
Conversion of Convertible Notes - - 3 - - - 3
Purchases and issuances under the Stock Swap program, net - - 22 - - (20) 2
Issuance of treasury shares for vested share-based awards - - (5) - - 5 -
Share-based compensation and other - - 24 - - (1) 23
At May 31, 2023 $12 $361 $16,684 $(841) $(1,903) $(8,449) $5,865
Six Months Ended
Common Ordinary Additional Retained AOCI Treasury Total shareholders' equity
stock shares paid-in earnings (accumulated deficit) stock
capital
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
At November 30, 2022 $12 $361 $16,872 $269 $(1,982) $(8,468) $7,065
Change in accounting principle (a) - - (229) (10) - - (239)
Net income (loss) - - - (1,100) - - (1,100)
Other comprehensive income (loss) - - - - 79 - 79
Issuances of common stock, net - - 5 - - - 5
Conversion of Convertible Notes - - 3 - - - 3
Purchases and issuances under the Stock Swap program, net - - 22 - - (20) 2
Issuance of treasury shares for vested share-based awards - - (41) - - 41 -
Share-based compensation and other - - 52 - - (2) 50
At May 31, 2023 $12 $361 $16,684 $(841) $(1,903) $(8,449) $5,865
The accompanying notes are an integral part of these consolidated financial
statements.
(a) We adopted the provisions of Debt - Debt with Conversion and Other Options and Derivative and Hedging - Contracts in Entity's Own Equity on December 1, 2022.
CARNIVAL CORPORATION & PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - General
The consolidated financial statements include the accounts of Carnival
Corporation and Carnival plc and their respective subsidiaries. Together with
their consolidated subsidiaries, they are referred to collectively in these
consolidated financial statements and elsewhere in this joint Quarterly Report
on Form 10-Q as "Carnival Corporation & plc," "our," "us" and "we."
Liquidity and Management's Plans
In the face of the global impact of COVID-19, we paused our guest cruise
operations in March 2020 and began resuming guest cruise operations in 2021.
As of May 31, 2023, our return to guest cruise operations was complete.
As part of our liquidity management, we rely on estimates of our future
liquidity, which includes numerous assumptions that are subject to various
risks and uncertainties. The principal assumptions used to estimate our future
liquidity consist of:
• Our continued cruise operations and expected timing of cash
collections for cruise bookings
• Expected increases in revenue in 2023 on a per passenger basis
compared to 2019
• Expected improvement in occupancy on a year-over-year basis
• Stabilization of fuel prices around or below November 2022
year-end prices
• Continued stabilization of inflationary pressures on costs
compared to 2022, moderated by a larger-more efficient fleet as compared to
2019
In addition, we make certain assumptions about new ship deliveries,
improvements and removals, and consider the future export credit financings
that are associated with the new ship deliveries.
We have a substantial debt balance as a result of the pause in guest cruise
operations and require a significant amount of liquidity or cash provided by
operating activities to service our debt. In addition, the continued effects
of the pandemic, inflation, higher fuel prices, higher interest rates and
fluctuations in foreign currency rates are collectively having a material
negative impact on our financial results. The full extent of the collective
impact of these items is uncertain and may be amplified by our substantial
debt balance. We believe we have made reasonable estimates and judgments of
the impact of these events within our consolidated financial statements and
there may be changes to those estimates in future periods.
For the past three years we have taken appropriate actions to manage our
liquidity, including completing various capital market transactions, obtaining
relevant financial covenant amendments or waivers (see Note 3 - "Debt"),
accelerating the removal of certain ships from the fleet, and during the
pause, reducing capital expenditures and operating expenses.
Based on these actions and our assumptions, and considering our $7.3 billion
of liquidity including cash and cash equivalents and borrowings available
under our $1.6 billion, €1.0 billion and £0.2 billion multi-currency
revolving credit facility (the "Revolving Facility") at May 31, 2023, we
believe that we have sufficient liquidity to fund our obligations and expect
to remain in compliance with our financial covenants for at least the next
twelve months from the issuance of these financial statements.
We will continue to pursue various opportunities to refinance future debt
maturities and/or to extend the maturity dates associated with our existing
indebtedness and obtain relevant financial covenant amendments or waivers, if
needed.
Basis of Presentation
The Consolidated Statements of Income (Loss), the Consolidated Statements of
Comprehensive Income (Loss), the Consolidated Statements of Cash Flows and the
Consolidated Statements of Shareholders' Equity for the three and six months
ended May 31, 2023 and 2022, and the Consolidated Balance Sheet at May 31,
2023 are unaudited and, in the opinion of our management, contain all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair statement. Our interim consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and the
related notes included in the Carnival Corporation & plc 2022 joint Annual
Report on Form 10-K ("Form 10-K") filed with the U.S. Securities and Exchange
Commission on January 27, 2023. Our operations are seasonal and results for
interim periods are not necessarily indicative of the results for the entire
year.
Use of Estimates and Risks and Uncertainty
The preparation of our interim consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that
affect the amounts reported and disclosed. The full extent to which the
effects of the pandemic, inflation, higher fuel prices, higher interest rates
and fluctuations in foreign currency rates will directly or indirectly impact
our business, operations, results of operations and financial condition,
including our valuation of goodwill and trademarks, impairment of ships and
collectability of trade and notes receivables, will depend on future
developments that are uncertain. We have made reasonable estimates and
judgments of such items within our financial statements and there may be
changes to those estimates in future periods.
Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board ("FASB") issued
guidance, Reference Rate Reform: Facilitation of the Effects of Reference Rate
Reform on Financial Reporting, which provides temporary optional expedients
and exceptions to accounting guidance on contract modifications and hedge
accounting to ease entities' financial reporting burdens as the market
transitions from the London Interbank Offered Rate ("LIBOR") and other
interbank offered rates to alternative reference rates. In December 2022, the
FASB deferred the date through which this guidance can be applied from
December 31, 2022 to December 31, 2024. We adopted this new guidance during
2022 and applied it prospectively to contract modifications related to a
change in reference rate. The adoption of this guidance did not have a
material impact on our consolidated financial statements. We expect that all
of our outstanding debt and derivative instruments referenced to U.S. dollar
LIBOR will be transitioned to Term Secured Overnight Financing Rate ("SOFR")
by June 30, 2023.
The FASB issued guidance, Debt - Debt with Conversion and Other Options and
Derivative and Hedging - Contracts in Entity's Own Equity, which simplifies
the accounting for convertible instruments. This guidance eliminates certain
models that require separate accounting for embedded conversion features, in
certain cases. Additionally, among other changes, the guidance eliminates
certain of the conditions for equity classification for contracts in an
entity's own equity. The guidance also requires entities to use the
if-converted method for all convertible instruments in the diluted earnings
per share calculation and include the effect of share settlement for
instruments that may be settled in cash or shares, except for certain
liability-classified share-based payment awards. On December 1, 2022, we
adopted this guidance using the modified retrospective approach to recognize
our convertible notes as single unit liability instruments, as they do not
qualify as derivatives under ASC 815, Derivatives and Hedging, and were not
issued at a substantial premium. Accordingly, upon adoption we recorded a
$239 million increase to debt, primarily as a result of the reversal of the
remaining non-cash convertible debt discount, as well as a reduction of
$229 million to additional paid in capital. The cumulative effect of the
adoption of this guidance resulted in a $10 million decrease to retained
earnings.
In September 2022, the FASB issued guidance, Liabilities-Supplier Finance
Programs - Disclosure of Supplier Finance Program Obligations. This guidance
requires that a buyer in a supplier finance program disclose sufficient
information about the program to allow a user of financial statements to
understand the program's nature, activity during the period, changes from
period to period, and potential magnitude. This guidance is expected to
improve financial reporting by requiring new disclosures about the programs,
thereby allowing financial statement users to better consider the effect of
the programs on an entity's working capital, liquidity, and cash flows. This
guidance is required to be adopted by us in the first quarter of 2024, except
for the amendment on roll forward information which is required to be adopted
by us for the financial year commencing on December 1, 2024. We are currently
evaluating the impact of the new guidance on the disclosures to our
consolidated financial statements.
NOTE 2 - Revenue and Expense Recognition
Guest cruise deposits and advance onboard purchases are initially included in
customer deposits when received. Customer deposits are subsequently recognized
as cruise revenues, together with revenues from onboard and other activities,
and all associated direct costs and expenses of a voyage are recognized as
cruise costs and expenses, upon completion of voyages with durations of ten
nights or less and on a pro rata basis for voyages in excess of ten nights.
The impact of recognizing these shorter duration cruise revenues and costs and
expenses on a completed voyage basis versus on a pro rata basis is not
material. Certain of our product offerings are bundled and we allocate the
value of the bundled services and goods between passenger ticket revenues and
onboard and other revenues based upon the estimated standalone selling prices
of those goods and services. Guest cancellation fees, when applicable, are
recognized in passenger ticket revenues at the time of cancellation.
Our sales to guests of air and other transportation to and from airports near
the home ports of our ships are included in passenger ticket revenues, and the
related costs of purchasing these services are included in transportation
costs. The proceeds that we collect from the sales of third-party shore
excursions are included in onboard and other revenues and the related costs
are included in onboard and other costs. The amounts collected on behalf of
our onboard concessionaires, net of the amounts remitted to them, are included
in onboard and other revenues as concession revenues. All of these amounts are
recognized on a completed voyage or pro rata basis as discussed above.
Passenger ticket revenues include fees, taxes and charges collected by us from
our guests. The fees, taxes and charges that vary with guest head counts and
are directly imposed on a revenue-producing arrangement are expensed in
commissions, transportation and other costs when the corresponding revenues
are recognized. For the three and six months ended May 31, fees, taxes, and
charges included in commissions, transportation and other costs were $173
million and $344 million in 2023 and $96 million and $164 million in 2022. The
remaining portion of fees, taxes and charges are expensed in other operating
expenses when the corresponding revenues are recognized.
Revenues and expenses from our hotel and transportation operations, which are
included in our Tour and Other segment, are recognized at the time the
services are performed.
Customer Deposits
Our payment terms generally require an initial deposit to confirm a
reservation, with the balance due prior to the voyage. Cash received from
guests in advance of the cruise is recorded in customer deposits and in other
long-term liabilities on our Consolidated Balance Sheets. These amounts
include refundable deposits. In certain situations, we have provided
flexibility to guests by allowing guests to rebook at a future date, receive
future cruise credits ("FCCs") or elect to receive refunds in cash. We have at
times issued enhanced FCCs. Enhanced FCCs provide the guest with an additional
credit value above the original cash deposit received, and the enhanced value
is recognized as a discount applied to the future cruise in the period used.
We record a liability for unexpired FCCs to the extent we have received and
not refunded cash from guests for cancelled bookings. We had total customer
deposits of $7.2 billion as of May 31, 2023 and $5.1 billion as of November
30, 2022, which includes approximately $162 million of unredeemed FCCs as of
May 31, 2023, of which approximately $119 million are refundable. Given the
uncertainty of travel demand caused by COVID-19 and lack of comparable
historical experience of FCC redemptions, we are unable to estimate the amount
of FCCs that will be used in future periods or that may be refunded. Refunds
payable to guests who have elected cash refunds are recorded in accounts
payable. During the six months ended May 31, 2023 and 2022, we recognized
revenues of $3.6 billion and $1.4 billion related to our customer deposits as
of November 30, 2022 and 2021. Our customer deposits balance changes due to
the seasonal nature of cash collections, the recognition of revenue, refunds
of customer deposits and foreign currency changes.
Trade and Other Receivables
Although we generally require full payment from our customers prior to or
concurrently with their cruise, we grant credit terms to a relatively small
portion of our revenue source. We have receivables from credit card merchants
and travel agents for cruise ticket purchases and onboard revenue. These
receivables are included within trade and other receivables, net. We have
agreements with a number of credit card processors that transact customer
deposits related to our cruise vacations. Certain of these agreements allow
the credit card processors to request, under certain circumstances, that we
provide a reserve fund in cash. These reserve funds are included in other
assets.
Contract Costs
We recognize incremental travel agent commissions and credit and debit card
fees incurred as a result of obtaining the ticket contract as assets when paid
prior to the start of a voyage. We record these amounts within prepaid
expenses and other and subsequently recognize these amounts as commissions,
transportation and other at the time of revenue recognition or at the time of
voyage cancellation. We had incremental costs of obtaining contracts with
customers recognized as assets of $322 million as of May 31, 2023 and
$218 million as of November 30, 2022.
NOTE 3 - Debt
May 31, November 30,
(in millions) Maturity Rate (a) (b) 2023 2022
Secured Subsidiary Guaranteed
Notes
Notes Feb 2026 10.5% $775 $775
EUR Notes Feb 2026 10.1% 455 439
Notes Jun 2027 7.9% 192 192
Notes Aug 2027 9.9% 900 900
Notes Aug 2028 4.0% 2,406 2,406
Loans
EUR floating rate Jun 2025 EURIBOR + 3.8% 833 808
Floating rate Jun 2025 - Oct 2028 LIBOR + 3.0 - 3.3% 4,080 4,101
Total Secured Subsidiary Guaranteed 9,640 9,621
Senior Priority Subsidiary Guaranteed
Notes May 2028 10.4% 2,030 2,030
Unsecured Subsidiary Guaranteed
Revolver
Facility (c) LIBOR + 0.7% - 200
Notes
Convertible Notes Apr 2023 5.8% - 96
Convertible Notes Oct 2024 5.8% 426 426
Notes Mar 2026 7.6% 1,450 1,450
EUR Notes Mar 2026 7.6% 535 517
Notes Mar 2027 5.8% 3,500 3,500
Convertible Notes Dec 2027 5.8% 1,131 1,131
Notes May 2029 6.0% 2,000 2,000
Notes Jun 2030 10.5% 1,000 1,000
Loans
Floating rate Jul 2024 - Sep 2024 LIBOR + 3.8% 300 590
GBP floating rate Feb 2025 SONIA + 0.9% (d) 432 419
EUR floating rate (e) Apr 2024 - Mar 2026 EURIBOR + 2.4 - 4.0% 749 827
Export Credit Facilities
Floating rate Dec 2031 LIBOR + 0.8 617 1,246
Fixed rate Aug 2027 - Dec 2032 2.4 - 3.4% 2,950 3,143
EUR floating rate May 2024 - Nov 2034 EURIBOR + 0.2 - 0.8% 3,201 3,882
EUR fixed rate Feb 2031 - Jan 2036 1.1 - 3.4% 3,582 2,592
Total Unsecured Subsidiary Guaranteed 21,874 23,019
Unsecured Notes (No Subsidiary Guarantee)
Notes Oct 2023 7.2% 125 125
Notes Jan 2028 6.7% 200 200
EUR Notes Oct 2029 1.0% 642 620
Total Unsecured Notes (No Subsidiary Guarantee) 967 945
Total Debt 34,511 35,615
Less: unamortized debt issuance costs and discounts (802) (1,069)
Total Debt, net of unamortized debt issuance costs and discounts 33,710 34,546
Less: short-term borrowings - (200)
Less: current portion of long-term debt (1,789) (2,393)
Long-Term Debt $31,921 $31,953
• The reference rates for substantially all of our LIBOR and
EURIBOR based variable debt have 0.0% to 0.75% floors.
• The above debt table excludes the impact of any outstanding
derivative contracts. The interest rates on some of our debt fluctuate based
on the applicable rating of senior unsecured long-term securities of Carnival
Corporation or Carnival plc.
• See "Short-Term Borrowings" below.
• The interest rate for the GBP unsecured loan is subject to a
credit adjustment spread ranging from 0.03% to 0.28%. The referenced Sterling
Overnight Index Average ("SONIA") rate with the credit adjustment spread is
subject to a 0% floor.
• In March 2023, we entered into an amendment of a EUR floating
rate loan to extend maturity through April 2024.
Carnival Corporation and/or Carnival plc is the primary obligor of all our
outstanding debt excluding $0.5 billion under a term loan facility of Costa
Crociere S.p.A. ("Costa"), a subsidiary of Carnival plc, $2.0 billion of
senior priority notes (the "2028 Senior Priority Notes") issued by Carnival
Holdings (Bermuda) Limited ("Carnival Holdings"), a subsidiary of Carnival
Corporation, and $0.2 billion under an export credit facility of Sun Princess
Limited, a subsidiary of Carnival Corporation.
All our outstanding debt is issued or guaranteed by substantially the same
entities with the exception of the following:
• Up to $250 million of the Costa term loan facility, which is
guaranteed by certain subsidiaries of Carnival plc and Costa that do not
guarantee our other outstanding debt
• Our 2028 Senior Priority Notes, issued by Carnival Holdings,
which does not guarantee our other outstanding debt
• The export credit facility of Sun Princess Limited, which does
not guarantee our other outstanding debt
As of May 31, 2023, the scheduled maturities of our debt are as follows:
(in millions)
Year Principal Payments
3Q 2023 $394
4Q 2023 431
2024 (a) 2,420
2025 4,297
2026 4,466
2027 5,700
Thereafter 16,803
Total $34,511
Subsequent to May 31, 2023, we pre-paid $300 million of 2024 debt
maturities.
Short-Term Borrowings
As of May 31, 2023 we did not have short-term borrowings. As of November 30,
2022, our short-term borrowings consisted of $0.2 billion under our Revolving
Facility. We may continue to re-borrow or otherwise utilize available amounts
under the Revolving Facility through August 2024, subject to satisfaction of
the conditions in the facility. We had $2.9 billion available for borrowing
under our Revolving Facility as of May 31, 2023. 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.
New Revolving Facility
In February 2023, Carnival Holdings (Bermuda) II Limited ("Carnival Holdings
II") entered into a $2.1 billion multi-currency revolving facility ("New
Revolving Facility"). The New Revolving Facility may be utilized beginning on
August 6, 2024, and will replace our Revolving Facility upon its maturity in
August 2024. The termination date of the New Revolving Facility is August 6,
2025, subject to two, mutual one-year extension options. The new facility also
contains an accordion feature, allowing for additional commitments, up to an
aggregate of $2.9 billion, which are the aggregate commitments under our
Revolving Facility.
Borrowings under the New Revolving Facility will bear interest at a rate of
term SOFR, in relation to any loan in U.S. dollars, EURIBOR, in relation to
any loan in euros or daily compounding SONIA, in relation to any loan in
sterling, plus a margin based on the long-term credit ratings of Carnival
Corporation. The New Revolving Facility also includes an emissions linked
margin adjustment whereby, after the initial applicable margin is set per the
margin pricing grid, the margin may be adjusted based on performance in
achieving certain agreed annual carbon emissions goals. In addition, we are
required to pay certain fees on the aggregate unused commitments under the New
Revolving Facility and the Revolving Facility.
In connection with the New Revolving Facility, Carnival Corporation, Carnival
plc and its subsidiaries will contribute three unencumbered vessels (net book
value of $3.0 billion as of May 31, 2023) to Carnival Holdings II (which must
be completed no later than February 28, 2024). Each of the vessels will
continue to be operated under one of the Carnival Corporation & plc
brands. Carnival Holdings II does not guarantee our other outstanding debt.
Export Credit Facility Borrowings
During the six months ended May 31, 2023, we borrowed $0.8 billion under an
export credit facility due in semi-annual installments through 2035 and
$0.2 billion under an export credit facility due in semi-annual installments
starting in July 2024 through 2036. In addition, we paid down $1.0 billion of
floating rate unsecured borrowings mostly with 2023 and 2024 maturities. As of
May 31, 2023, the net book value of the vessels subject to negative pledges
was $15.4 billion.
Collateral and Priority Pool
As of May 31, 2023, the net book value of our ships and ship improvements,
excluding ships under construction, is $37.1 billion. Our secured debt is
secured on either a first or second-priority basis, depending on the
instrument, by certain collateral, which includes vessels and certain assets
related to those vessels and material intellectual property (combined net book
value of approximately $23.3 billion, including $21.7 billion related to
vessels and certain assets related to those vessels) as of May 31, 2023 and
certain other assets.
As of May 31, 2023, $8.3 billion in net book value of our ships and ship
improvements have been contributed to Carnival Holdings and included in the
vessel priority pool of 12 unencumbered vessels (the "Senior Priority Notes
Subject Vessels") for our 2028 Senior Priority Notes. As of May 31, 2023,
there was no change in the identity of the Senior Priority Notes Subject
Vessels.
Covenant Compliance
As of May 31, 2023, our Revolving Facility, New Revolving Facility, unsecured
loans and export credit facilities contain certain covenants listed below:
• Maintain minimum interest coverage (adjusted EBITDA to
consolidated net interest charges, as defined in the agreements) (the
"Interest Coverage Covenant") as follows:
o For certain of our unsecured loans and our New Revolving Facility, from
the end of each fiscal quarter from August 31, 2024, at a ratio of not less
than 2.0 to 1.0 for each testing date occurring from August 31, 2024 until May
31, 2025, at a ratio of not less than 2.5 to 1.0 for the August 31, 2025 and
November 30, 2025 testing dates, and at a ratio of not less than 3.0 to 1.0
for the February 28, 2026 testing date onwards and as applicable through their
respective maturity dates. In addition, for our remaining unsecured loans that
contain this covenant, we entered into letter agreements to waive compliance
with the covenant through the May 31, 2024 testing date.
o For substantially all of our export credit facilities, from the end of
each fiscal quarter from May 31, 2024, at a ratio of not less than 2.0 to 1.0
for each testing date occurring from May 31, 2024 until May 31, 2025, at a
ratio of not less than 2.5 to 1.0 for the August 31, 2025 and November 30,
2025 testing dates, and at a ratio of not less than 3.0 to 1.0 for the
February 28, 2026 testing date onwards
• For certain of our unsecured loans and export credit facilities,
maintain minimum issued capital and consolidated reserves (as defined in the
agreements) of $5.0 billion
• Limit our debt to capital (as defined in the agreements)
percentage to a percentage not to exceed 75% until the May 31, 2023 testing
date, following which it will be tested at levels which decline ratably to 65%
from the May 31, 2024 testing date onwards
• Maintain minimum liquidity as follows:
o For our New Revolving Facility, minimum liquidity of $1.5 billion;
provided, that if any commitments maturing on June 30, 2025 under our existing
first-lien term loan facility are outstanding on the March 31, 2025 testing
date, our minimum liquidity on such testing date cannot be less than the
greater of (i) the aggregate outstanding amount of such first-lien term loan
facility commitments and (ii) $1.5 billion
o For our other unsecured loans and export credit facilities that contain
this covenant, $1.5 billion through November 30, 2026
• Adhere to certain restrictive covenants through August 2025
• Limit the amounts of our secured assets as well as secured and
other indebtedness
At May 31, 2023, we were in compliance with the applicable covenants under our
debt agreements. Generally, if an event of default under any debt agreement
occurs, then, pursuant to cross default and/or cross-acceleration clauses
therein, substantially all of our outstanding debt and derivative contract
payables could become due, and our debt and derivative contracts could be
terminated. Any financial covenant amendment may lead to increased costs,
increased interest rates, additional restrictive covenants and other available
lender protections that would be applicable.
NOTE 4 - Contingencies and Commitments
Litigation
We are routinely involved in legal proceedings, claims, disputes, regulatory
matters and governmental inspections or investigations arising in the ordinary
course of or incidental to our business, including those noted below.
Additionally, as a result of the impact of COVID-19, litigation claims,
enforcement actions, regulatory actions and investigations, including, but not
limited to, those arising from personal injury and loss of life, have been and
may, in the future, be asserted against us. We expect many of these claims and
actions, or any settlement of these claims and actions, to be covered by
insurance and historically the maximum amount of our liability, net of any
insurance recoverables, has been limited to our self-insurance retention
levels.
We record provisions in the consolidated financial statements for pending
litigation when we determine that an unfavorable outcome is probable and the
amount of the loss can be reasonably estimated.
Legal proceedings and government investigations are subject to inherent
uncertainties, and unfavorable rulings or other events could occur.
Unfavorable resolutions could involve substantial monetary damages. In
addition, in matters for which conduct remedies are sought, unfavorable
resolutions could include an injunction or other order prohibiting us from
selling one or more products at all or in particular ways, precluding
particular business practices or requiring other remedies. An unfavorable
outcome might result in a material adverse impact on our business, results of
operations, financial position or liquidity.
As previously disclosed, on May 2, 2019, the Havana Docks Corporation filed a
lawsuit against Carnival Corporation in the U.S. District Court for the
Southern District of Florida under Title III of the Cuban Liberty and
Democratic Solidarity Act, also known as the Helms-Burton Act, alleging that
Carnival Corporation "trafficked" in confiscated Cuban property when certain
ships docked at certain ports in Cuba, and that this alleged "trafficking"
entitles the plaintiffs to treble damages. The hearings on motions for summary
judgment were concluded on January 18, 2022. On March 21, 2022, the court
granted summary judgment in favor of Havana Docks Corporation as to liability.
On August 31, 2022, the court determined that the trebling provision of the
Helms-Burton statute applies to damages and interest and accordingly, we
adjusted our estimated liability for this matter. On December 30, 2022, the
court entered judgment against Carnival in the amount of $110 million plus
$4 million in fees and costs. We have filed a notice of appeal.
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 raised
certain monopolization claims under The Sherman Antitrust Act of 1890, unfair
competition and tortious interference, and sought declaratory judgment that
certain Carnival Corporation patents are unenforceable. DeCurtis sought
damages, including its fees and costs, and 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 sought damages, including its fees and costs, as well as an order
permanently enjoining DeCurtis from engaging in such activities. These two
cases were consolidated in the Southern District of Florida. On February 8,
2023, the Court granted summary judgment in Carnival Corporation's favor on
DeCurtis' antitrust, unfair competition, and tortious interference claims. The
trial began on February 27, 2023, with the patent issues narrowed to certain
claims of one Carnival Corporation patent. On March 10, 2023, the jury
returned a verdict finding that DeCurtis had breached its contract with
Carnival Corporation and infringed on the Carnival Corporation patent. The
jury awarded Carnival Corporation a total of $21 million in damages. On April
30, 2023, DeCurtis filed for Chapter 11 in the United States Bankruptcy Court
for the District of Delaware. Carnival Corporation is defending its interests
in the bankruptcy matter.
COVID-19 Actions
We have been named in a number of individual actions related to COVID-19.
These actions include tort claims based on a variety of theories, including
negligence and failure to warn. The plaintiffs in these actions allege a
variety of injuries: some plaintiffs confined their claim to emotional
distress, while others allege injuries arising from testing positive for
COVID-19. A smaller number of actions include wrongful death claims.
Substantially all of these individual actions have now been dismissed or
settled for immaterial amounts.
As of May 31, 2023, 11 purported class actions have been brought by former
guests in several U.S. federal courts, the Federal Court in Australia, and in
Italy. These actions include tort claims based on a variety of theories,
including negligence, gross negligence and failure to warn, physical injuries
and severe emotional distress associated with being exposed to and/or
contracting COVID-19 onboard. As of May 31, 2023, nine of these class actions
have either been settled individually for immaterial amounts or had their
class allegations dismissed by the courts and only the Australian and Italian
matters remain. We believe the ultimate outcome of these matters will not have
a material impact on our consolidated financial statements.
All COVID-19 matters seek monetary damages and most seek additional punitive
damages in unspecified amounts.
We continue to take actions to defend against the above claims.
Regulatory or Governmental Inquiries and Investigations
We have been, and may continue to be, impacted by breaches in data security
and lapses in data privacy, which occur from time to time. These can vary in
scope and intent from inadvertent events to malicious motivated attacks.
We have incurred legal and other costs in connection with cyber incidents that
have impacted us. The penalties and settlements paid in connection with cyber
incidents over the last three years were not material. While these incidents
did not have a material adverse effect on our business, results of operations,
financial position or liquidity, no assurances can be given about the future
and we may be subject to future litigation, attacks or incidents that could
have such a material adverse effect.
On March 14, 2022, the U.S. Department of Justice and the U.S. Environmental
Protection Agency notified us of potential civil penalties and injunctive
relief for alleged Clean Water Act violations by owned and operated vessels
covered by the 2013 Vessel General Permit. We are working with these agencies
to reach a resolution of this matter. We believe the ultimate outcome will not
have a material impact on our consolidated financial statements.
Other Contingent Obligations
Some of the debt contracts we enter into include indemnification provisions
obligating us to make payments to the counterparty if certain events occur.
These contingencies generally relate to changes in taxes or changes in laws
which increase the lender's costs. There are no stated or notional amounts
included in the indemnification clauses, and we are not able to estimate the
maximum potential amount of future payments, if any, under these
indemnification clauses.
We have agreements with a number of credit card processors that transact
customer deposits related to our cruise vacations. Certain of these agreements
allow the credit card processors to request, under certain circumstances, that
we provide a reserve fund in cash. Although the agreements vary, these
requirements may generally be satisfied either through a withheld percentage
of customer payments or providing cash funds directly to the credit card
processor. As of May 31, 2023 and November 30, 2022, we had $2.2 billion and
$1.7 billion in reserve funds related to our customer deposits provided to
satisfy these requirements which are included within other assets.
Additionally, as of May 31, 2023 and November 30, 2022, we had $237 million
and $229 million in compensating deposits we are required to maintain and
$30 million of cash collateral in escrow which is included within other
assets. Subsequent to May 31, 2023, we provided $380 million in restricted
cash deposits which will be included within other assets. We continue to
expect to provide reserve funds and restricted cash deposits under these
agreements.
Ship Commitments
As of May 31, 2023, we expect the timing of our new ship growth capital
commitments to be as follows:
(in millions)
Year
Remainder of 2023 $691
2024 2,416
2025 944
Thereafter -
$4,051
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, 2023 November 30, 2022
Carrying Fair Value Carrying Fair Value
Value Value
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Liabilities
Fixed rate debt (a) $24,298 $- $21,005 $- $23,542 $- $18,620 $-
Floating rate debt (a) 10,213 - 8,812 - 12,074 - 10,036 -
Total $34,511 $- $29,817 $- $35,615 $- $28,656 $-
(a) The debt amounts above do not include the impact of interest
rate swaps or debt issuance costs and discounts. The fair values of our
publicly-traded notes were based on their unadjusted quoted market prices in
markets that are not sufficiently active to be Level 1 and, accordingly, are
considered Level 2. The fair values of our other debt were estimated based on
current market interest rates being applied to this debt.
Financial Instruments that are Measured at Fair Value on a Recurring Basis
May 31, 2023 November 30, 2022
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash and cash equivalents $4,468 $- $- $4,029 $- $-
Restricted cash 38 - - 1,988 - -
Derivative financial instruments - 21 - - 1 -
Total $4,507 $21 $- $6,016 $1 $-
Liabilities
Derivative financial instruments $- $41 $- $- $- $-
Total $- $41 $- $- $- $-
The restricted cash amount at May 31, 2023 includes $20 million, which is
included in other assets.
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring
Basis
Valuation of Goodwill and Trademarks
As of May 31, 2023 and November 30, 2022, goodwill for our North America and
Australia ("NAA") segment was $579 million.
Trademarks
(in millions) NAA Europe Total
Segment Segment
November 30, 2022 $927 $224 $1,151
Exchange movements - 8 8
May 31, 2023 $927 $231 $1,158
Derivative Instruments and Hedging Activities
(in millions) Balance Sheet Location May 31, 2023 November 30, 2022
Derivative assets
Derivatives designated as hedging instruments
Cross currency swaps (a) Prepaid expenses and other $- $-
Interest rate swaps (b) Prepaid expenses and other 19 1
Other assets - 1
Derivatives not designated as hedging instruments
Interest rate swaps (b) Prepaid expenses and other 1 -
Total derivative assets $21 $1
Derivative liabilities
Derivatives designated as hedging instruments
Interest rate swaps (b) Other long-term liabilities 41 -
Total derivative liabilities $41 $-
(a) At May 31, 2023, we had a cross currency swap totaling $653 million
that is designated as a hedge of our net investment in foreign operations with
euro-denominated functional currencies. At May 31, 2023, this cross currency
swap settles through 2024.
(b) We have interest rate swaps whereby we receive EURIBOR-based floating
interest rate payments in exchange for making fixed interest rate payments.
These interest rate swap agreements effectively changed $69 million at May
31, 2023 and $89 million at November 30, 2022 of EURIBOR-based floating rate
euro debt to fixed rate euro debt. As of May 31, 2023, these EURIBOR-based
interest rate swaps were not designated as cash flow hedges. As of November
30, 2022, one of these swaps was designated as a cash flow hedge. During the
six months ended May 31, 2023 we entered into interest rate swap agreements
which effectively changed $2.5 billion at May 31, 2023 of LIBOR-based
floating rate USD debt to fixed rate USD debt. At May 31, 2023, these interest
rate swaps settle through 2027 and are designated as cash flow hedges.
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, 2023
(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 $21 $- $21 $- $21
Liabilities $41 $- $41 $- $41
November 30, 2022
(in millions) Gross Amounts Gross Amounts Offset in the Balance Sheet Total Net Amounts Presented in the Balance Sheet Gross Amounts not Offset in the Balance Sheet Net Amounts
Assets $1 $- $1 $- $1
Liabilities $- $- $- $- $-
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 Six Months Ended
May 31, May 31,
(in millions) 2023 2022 2023 2022
Gains (losses) recognized in AOCI:
Cross currency swaps - net investment hedges - included component $(5) $27 $9 $33
Cross currency swaps - net investment hedges - excluded component $- $(11) $(4) $(20)
Interest rate swaps - cash flow hedges $(33) $6 $(19) $9
Gains (losses) reclassified from AOCI - cash flow hedges:
Interest rate swaps - Interest expense, net of capitalized interest $9 $(1) $10 $(1)
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 $3 $4 $4
The amount of gains and losses on derivatives not designated as hedging
instruments recognized in earnings during the three and six months ended May
31, 2023 and estimated cash flow hedges' unrealized gains and losses that are
expected to be reclassified to earnings in the next twelve months are not
material.
Financial Risks
Fuel Price Risks
We manage our exposure to fuel price risk by managing our consumption of fuel.
Substantially all of our exposure to market risk for changes in fuel prices
relates to the consumption of fuel on our ships. We manage fuel consumption
through 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, 2023, we have designated $432 million of our sterling-denominated
debt as non-derivative hedges of our net investments in foreign operations and
also had a cross currency swap with a notional amount of $653 million, which
is designated as a hedge of our net investments in foreign operations. For the
three and six months ended May 31, 2023, we recognized $20 million and
$9 million of losses on these net investment hedges in the cumulative
translation adjustment section of other comprehensive income (loss). We also
have euro-denominated debt which provides an economic offset for our
operations with euro functional currency.
Newbuild Currency Risks
Our shipbuilding contracts are typically denominated in euros. Our decision to
hedge a non-functional currency ship commitment for our cruise brands is made
on a case-by-case basis, considering the amount and duration of the exposure,
market volatility, economic trends, our overall expected net cash flows by
currency and other offsetting risks.
At May 31, 2023, our remaining newbuild currency exchange rate risk relates to
euro-denominated newbuild contract payments for non-euro functional currency
brands, which represent a total unhedged commitment of $3.5 billion for
newbuilds scheduled to be delivered through 2025.
The cost of shipbuilding orders that we may place in the future that are
denominated in a different currency than our cruise brands' functional
currency will be affected by foreign currency exchange rate
fluctuations. These foreign currency exchange rate fluctuations may affect
our decision to order new cruise ships.
Interest Rate Risks
We manage our exposure to fluctuations in interest rates through our debt
portfolio management and investment strategies. We evaluate our debt
portfolio to determine whether to make periodic adjustments to the mix of
fixed and floating rate debt through the use of interest rate swaps and the
issuance of new debt.
Concentrations of Credit Risk
As part of our ongoing control procedures, we monitor concentrations of credit
risk associated with financial and other institutions with which we conduct
significant business. We seek to manage these credit risk exposures,
including counterparty nonperformance primarily associated with our cash and
cash equivalents, investments, notes receivables, reserve funds related to
customer deposits, future financing facilities, contingent obligations,
derivative instruments, insurance contracts and new ship progress payment
guarantees, by:
• Conducting business with well-established financial
institutions, insurance companies and export credit agencies
• Diversifying our counterparties
• Having guidelines regarding credit ratings and investment
maturities that we follow to help safeguard liquidity and minimize risk
• Generally requiring collateral and/or guarantees to support
notes receivable on significant asset sales and new ship progress payments to
shipyards
We also monitor the creditworthiness of travel agencies and tour operators in
Australia and Europe and credit and debit card providers to which we extend
credit in the normal course of our business. Our credit exposure also
includes contingent obligations related to cash payments received directly by
travel agents and tour operators for cash collected by them on cruise sales in
Australia and most of Europe where we are obligated to honor our guests'
cruise payments made by them to their travel agents and tour operators
regardless of whether we have received these payments.
Concentrations of credit risk associated with trade receivables and other
receivables, charter-hire agreements and contingent obligations are not
considered to be material, principally due to the large number of unrelated
accounts, the nature of these contingent obligations and their short
maturities. Normally, we have not required collateral or other security to
support normal credit sales. We have not experienced significant credit
losses, including counterparty nonperformance on our trade receivables and
contingent obligations.
NOTE 6 - Segment Information
Our operating segments are reported on the same basis as the internally
reported information that is provided to our chief operating decision maker
("CODM"), who is the President, Chief Executive Officer and Chief Climate
Officer of Carnival Corporation and Carnival plc. The CODM assesses
performance and makes decisions to allocate resources for Carnival
Corporation & plc based upon review of the results across all of our
segments. Our four reportable segments are comprised of (1) NAA cruise
operations, (2) Europe cruise operations, (3) Cruise Support and (4) Tour and
Other.
The operating segments within each of our NAA and Europe reportable segments
have been aggregated based on the similarity of their economic and other
characteristics, including geographic guest sourcing. Our Cruise Support
segment includes our portfolio of leading port destinations and other
services, all of which are operated for the benefit of our cruise brands. Our
Tour and Other segment represents the hotel and transportation operations of
Holland America Princess Alaska Tours and other operations.
Beginning in the first quarter of 2023, we renamed the EA segment given that
China has not reopened to international cruise travel. As a result, we have
significantly reduced operations in Asia and leveraged the mobility of our
cruise ships and our brand portfolio to build alternate deployments. In 2019,
our most recent full year of guest cruise operations, China accounted for 7%
of our guests.
Three Months Ended May 31,
(in millions) Revenues Operating costs and Selling Depreciation Operating
expenses and and income (loss)
administrative amortization
2023
NAA $3,355 $2,282 $435 $374 $265
Europe 1,465 1,101 222 169 (27)
Cruise Support 55 29 71 48 (93)
Tour and Other 35 45 8 7 (25)
$4,911 $3,457 $736 $597 $120
2022
NAA $1,666 $1,768 $366 $353 $(821)
Europe 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)
Six Months Ended May 31,
(in millions) Revenues Operating costs and Selling Depreciation Operating
expenses and and income (loss)
administrative amortization
2023
NAA $6,434 $4,471 $875 $738 $351
Europe 2,759 2,179 436 338 (193)
Cruise Support 106 55 124 90 (162)
Tour and Other 44 64 14 13 (47)
$9,343 $6,768 $1,448 $1,179 $(52)
2022
NAA $2,792 $3,055 $710 $687 $(1,661)
Europe 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)
Revenue by geographic areas, which are based on where our guests are sourced,
were as follows:
Three Months Ended Six Months Ended
May 31, May 31,
(in millions) 2023 2022 2023 2022
North America $2,988 $1,620 $5,684 $2,738
Europe 1,446 741 2,633 1,220
Australia 307 4 645 4
Other 169 35 380 61
$4,911 $2,401 $9,343 $4,024
NOTE 7 - Earnings Per Share
Three Months Ended Six Months Ended
May 31, May 31,
(in millions, except per share data) 2023 2022 2023 2022
Net income (loss) for basic and diluted earnings per share $(407) $(1,834) $(1,100) $(3,726)
Weighted-average shares outstanding 1,263 1,140 1,261 1,139
Dilutive effect of equity plans - - - -
Diluted weighted-average shares outstanding 1,263 1,140 1,261 1,139
Basic earnings per share $(0.32) $(1.61) $(0.87) $(3.27)
Diluted earnings per share $(0.32) $(1.61) $(0.87) $(3.27)
Antidilutive shares excluded from diluted earnings per share computations were
as follows:
Three Months Ended Six Months Ended
May 31, May 31,
(in millions) 2023 2022 2023 2022
Equity awards 1 1 1 2
Convertible Notes 130 52 134 52
Total antidilutive securities 131 53 134 54
NOTE 8 - Supplemental Cash Flow Information
(in millions) May 31, 2023 November 30, 2022
Cash and cash equivalents (Consolidated Balance Sheets) $4,468 $4,029
Restricted cash (Consolidated Balance Sheets) 18 1,988
Restricted cash (included in other assets) 20 20
Total cash, cash equivalents and restricted cash (Consolidated Statements of $4,507 $6,037
Cash Flows)
NOTE 9 - Property and Equipment
Ship Sales
During 2023 we completed the sale of two Europe segment ships and one NAA
segment ship, which represents a passenger-capacity reduction of 3,970 berths
for our Europe segment and 460 berths for our NAA segment. We will continue to
operate the NAA segment ship under a bareboat charter agreement through
September 2024.
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, 2023 under the Stock Swap
Program, we sold 2.3 million shares of Carnival Corporation common stock and
repurchased the same amount of Carnival plc ordinary shares resulting in net
proceeds of $2 million, which were used for general corporate purposes.
During the three and six months ended May 31, 2022 under the Stock Swap
Program, we sold 3.9 million and 5.2 million shares of Carnival Corporation
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.
In addition, during the three and six months ended May 31, 2023, we sold
0.5 million shares of Carnival Corporation common stock at an average price
per share of $9.83, resulting in net proceeds of $5 million. 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 • Adjusted net income (loss)
• Booking levels • Adjusted EBITDA
• Occupancy • Adjusted earnings per share
• Interest, tax and fuel expenses • Adjusted free cash flow
• Currency exchange rates • Net per diems
• Goodwill, ship and trademark fair values • Net yields
• Liquidity and credit ratings • Adjusted cruise costs per ALBD
• Investment grade leverage metrics • Adjusted cruise costs excluding fuel per ALBD
• Estimates of ship depreciable lives and residual values • Adjusted return on invested capital
Because forward-looking statements involve risks and uncertainties, there are
many factors that could cause our actual results, performance or achievements
to differ materially from those expressed or implied by our forward-looking
statements. This note contains important cautionary statements of the known
factors that we consider could materially affect the accuracy of our
forward-looking statements and adversely affect our business, results of
operations and financial position. Additionally, many of these risks and
uncertainties are currently, and in the future may continue to be, amplified
by our substantial debt balance as a result of the pause of our guest cruise
operations. There may be additional risks that we consider immaterial or which
are unknown. These factors include, but are not limited to, the following:
• Events and conditions around the world, including war and other
military actions, such as the invasion of Ukraine, inflation, higher fuel
prices, higher interest rates and other general concerns impacting the ability
or desire of people to travel have led, and may in the future lead, to a
decline in demand for cruises, impacting our operating costs and
profitability.
• Pandemics have in the past and may in the future have a
significant negative impact on our financial condition and operations.
• Incidents concerning our ships, guests or the cruise industry
have in the past and may, in the future, negatively impact the satisfaction of
our guests and crew and lead to reputational damage.
• Changes in and non-compliance with laws and regulations under
which we operate, such as those relating to health, environment, safety and
security, data privacy and protection, anti-corruption, economic sanctions,
trade protection, labor and employment, and tax have in the past and may, in
the future, lead to litigation, enforcement actions, fines, penalties and
reputational damage.
• Factors associated with climate change, including evolving and
increasing regulations, increasing global concern about climate change and the
shift in climate conscious consumerism and stakeholder scrutiny, and
increasing frequency and/or severity of adverse weather conditions could
adversely affect our business.
• Inability to meet or achieve our sustainability related goals,
aspirations, initiatives, and our public statements and disclosures regarding
them, may expose us to risks that may adversely impact our business.
• Breaches in data security and lapses in data privacy as well as
disruptions and other damages to our principal offices, information technology
operations and system networks and failure to keep pace with developments in
technology may adversely impact our business operations, the satisfaction of
our guests and crew and may lead to reputational damage.
• The loss of key team members, our inability to recruit or retain
qualified shoreside and shipboard team members and increased labor costs could
have an adverse effect on our business and results of operations.
• Increases in fuel prices, changes in the types of fuel consumed
and availability of fuel supply may adversely impact our scheduled itineraries
and costs.
• We rely on supply chain vendors who are integral to the
operations of our businesses. These vendors and service providers may be
unable to deliver on their commitments, which could negatively impact our
business.
• Fluctuations in foreign currency exchange rates may adversely
impact our financial results.
• Overcapacity and competition in the cruise and land-based
vacation industry may negatively impact our cruise sales, pricing and
destination options.
• Inability to implement our shipbuilding programs and ship
repairs, maintenance and refurbishments may adversely impact our business
operations and the satisfaction of our guests.
• Failure to successfully implement our business strategy
following our resumption of guest cruise operations would negatively impact
the occupancy levels and pricing of our cruises and could have a material
adverse effect on our business. We require a significant amount of cash to
service our debt and sustain our operations. Our ability to generate cash
depends on many factors, including those beyond our control, and we may not be
able to generate cash required to service our debt and sustain our operations.
The ordering of the risk factors set forth above is not intended to reflect
our indication of priority or likelihood.
Forward-looking statements should not be relied upon as a prediction of actual
results. Subject to any continuing obligations under applicable law or any
relevant stock exchange rules, we expressly disclaim any obligation to
disseminate, after the date of this document, any updates or revisions to any
such forward-looking statements to reflect any change in expectations or
events, conditions or circumstances on which any such statements are based.
Forward-looking and other statements in this document may also address our
sustainability progress, plans and goals (including climate change and
environmental-related matters). In addition, historical, current and
forward-looking sustainability- and climate-related statements may be based on
standards and tools for measuring progress that are still developing, internal
controls and processes that continue to evolve, and assumptions and
predictions that are subject to change in the future and may not be generally
shared.
New Accounting Pronouncements
Refer to Note 1 - "General, Accounting Pronouncements" of the consolidated
financial statements for additional discussion regarding Accounting
Pronouncements.
Critical Accounting Estimates
For a discussion of our critical accounting estimates, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
is included in the Form 10-K.
Seasonality
Our passenger ticket revenues are seasonal. Demand for cruises has been
greatest during our third quarter, which includes the Northern Hemisphere
summer months. This higher demand during the third quarter results in higher
ticket prices and occupancy levels and, accordingly, the largest share of our
operating income is typically earned during this period. The seasonality of
our results also increases due to ships being taken out-of-service for
maintenance, which we schedule during non-peak demand periods. 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 and other related costs
are reasonably likely to continue to impact our profitability in both the
short and long-term.
• We believe inflation and higher interest rates are reasonably
likely to continue to impact our profitability.
• We believe the increasing global focus on climate change,
including the reduction of carbon emissions and new and evolving regulatory
requirements, is reasonably likely to have a material negative impact on our
future financial results. The full impact of climate change to our business is
not yet known.
Statistical Information
Three Months Ended Six Months Ended
May 31,
May 31,
2023 2022 2023 2022
Passenger Cruise Days ("PCDs") (in millions) (a) 21.8 11.4 42.0 18.7
Available Lower Berth Days ("ALBDs") (in millions) (b) 22.3 16.7 44.3 30.0
Occupancy percentage (c) 98% 69% 95% 62%
Passengers carried (in millions) 3.0 1.7 5.7 2.7
Fuel consumption in metric tons (in millions) 0.7 0.6 1.5 1.2
Fuel consumption in metric tons per thousand ALBDs 32.5 37.9 33.0 40.0
Fuel cost per metric ton consumed $677 $869 $704 $765
Currencies (USD to 1)
AUD $0.67 $0.73 $0.68 $0.72
CAD $0.74 $0.79 $0.74 $0.79
EUR $1.08 $1.08 $1.08 $1.11
GBP $1.23 $1.29 $1.23 $1.32
Notes to Statistical Information
(a) PCD represents the number of cruise passengers on a voyage multiplied
by the number of revenue-producing ship operating days for that voyage.
(b) ALBD is a standard measure of passenger capacity for the period that
we use to approximate rate and capacity variances, based on consistently
applied formulas that we use to perform analyses to determine the main
non-capacity driven factors that cause our cruise revenues and expenses to
vary. ALBDs assume that each cabin we offer for sale accommodates two
passengers and is computed by multiplying passenger capacity by
revenue-producing ship operating days in the period.
(c) Occupancy, in accordance with cruise industry practice, is calculated
using a numerator of PCDs and a denominator of ALBDs, which assumes two
passengers per cabin even though some cabins can accommodate three or more
passengers. Percentages in excess of 100% indicate that on average more than
two passengers occupied some cabins.
Results of Operations
Consolidated
Three Months Ended Six Months Ended
May 31,
May 31,
(in millions) 2023 2022 Change 2023 2022 Change
Revenues
Passenger ticket $3,141 $1,285 $1,856 $6,011 $2,158 $3,853
Onboard and other 1,770 1,116 654 3,332 1,866 1,466
4,911 2,401 2,510 9,343 4,024 5,319
Operating Costs and Expenses
Commissions, transportation and other 619 325 294 1,274 576 698
Onboard and other 549 314 235 1,033 523 510
Payroll and related 601 533 68 1,183 1,038 145
Fuel 489 545 (56) 1,024 910 114
Food 325 191 134 636 327 309
Ship and other impairments - - - - 8 (8)
Other operating 875 774 101 1,619 1,331 287
Cruise and tour operating expenses 3,457 2,683 774 6,768 4,713 2,055
Selling and administrative 736 619 118 1,448 1,149 299
Depreciation and amortization 597 572 25 1,179 1,126 52
4,791 3,874 917 9,394 6,988 2,406
Operating Income (Loss) 120 (1,473) 1,593 (52) (2,964) 2,913
Nonoperating Income (Expense)
Interest income 69 6 62 124 9 115
Interest expense, net of capitalized interest (542) (370) (172) (1,082) (738) (343)
Gain (loss) on debt extinguishment, net (31) - (31) (31) - (31)
Other income (expense), net (17) 6 (23) (47) (26) (21)
(522) (358) (164) (1,036) (755) (281)
Income (Loss) Before Income Taxes $(402) $(1,831) $1,430 $(1,087) $(3,719) $2,632
NAA
Three Months Ended Six Months Ended
May 31,
May 31,
(in millions) 2023 2022 Change 2023 2022 Change
Revenues
Passenger ticket $2,041 $862 $1,180 $3,933 $1,447 $2,486
Onboard and other 1,314 804 510 2,501 1,345 1,156
3,355 1,666 1,689 6,434 2,792 3,642
Operating Costs and Expenses 2,282 1,768 514 4,471 3,055 1,415
Selling and administrative 435 366 68 875 710 165
Depreciation and amortization 374 353 21 738 687 50
3,091 2,487 603 6,083 4,453 1,630
Operating Income (Loss) $265 $(821) $1,086 $351 $(1,661) $2,012
Europe
Three Months Ended Six Months Ended
May 31,
May 31,
(in millions) 2023 2022 Change 2023 2022 Change
Revenues
Passenger ticket $1,112 $490 $622 $2,104 $832 $1,273
Onboard and other 353 175 178 655 291 364
1,465 666 800 2,759 1,123 1,637
Operating Costs and Expenses 1,101 848 252 2,179 1,546 633
Selling and administrative 222 175 47 436 352 84
Depreciation and amortization 169 179 (10) 338 359 (21)
1,492 1,202 290 2,952 2,257 696
Operating Income (Loss) $(27) $(536) $510 $(193) $(1,134) $941
The effects of the pause in guest cruise operations in March 2020 and
subsequent resumption of our guest cruise operations, inflation, higher fuel
prices, higher interest rates and fluctuations in foreign currency rates are
collectively having a material negative impact on all aspects of our business,
including our results of operations, liquidity and financial position. We have
a substantial debt balance and require a significant amount of cash to service
our debt and sustain our operations. Our ability to generate cash will be
affected by our ability to successfully implement our business strategy, which
includes increasing our occupancy levels and pricing of our cruises, as well
as general macroeconomic, financial, geopolitical, competitive, regulatory and
other factors beyond our control. The full extent of these impacts is
uncertain and may be amplified by our substantial debt balance.
Three Months Ended May 31, 2023 ("2023") Compared to Three Months Ended May
31, 2022 ("2022")
Revenues
Consolidated
Cruise passenger ticket revenues made up 64% of our total revenues in 2023
while onboard and other revenues made up 36%. Revenues in 2023 increased by
$2.5 billion to $4.9 billion from $2.4 billion in 2022 due to the significant
increase of ships in service and considerably higher occupancy levels in 2023
as compared to 2022. Our full fleet was serving guests as of May 31, 2023,
compared to 86% as of May 31, 2022. ALBDs increased to 22.3 million in 2023 as
compared to 16.7 million in 2022. Occupancy for 2023 was 98% compared to 69%
in 2022.
NAA Segment
Cruise passenger ticket revenues made up 61% of our NAA segment's total
revenues in 2023 while onboard and other cruise revenues made up 39%. NAA
segment revenues in 2023 increased by $1.7 billion to $3.4 billion from $1.7
billion in 2022 due to the significant increase of ships in service and
considerably higher occupancy levels in 2023 as compared to 2022. Our NAA
segment's full fleet was serving guests as of May 31, 2023, compared to 90% as
of May 31, 2022. ALBDs increased to 13.7 million in 2023 as compared to
10.1 million in 2022. Occupancy for 2023 was 102% compared to 79% in 2022.
Europe Segment
Cruise passenger ticket revenues made up 76% of our Europe segment's total
revenues in 2023 while onboard and other cruise revenues made up 24%. Europe
segment revenues in 2023 increased by $0.8 billion to $1.5 billion from $0.7
billion in 2022 due to the significant increase of ships in service and
considerably higher occupancy levels in 2023 as compared to 2022. Our Europe
segment's full fleet was serving guests as of May 31, 2023, compared to 81% as
of May 31, 2022. ALBDs increased to 8.5 million in 2023 as compared to
6.6 million in 2022. Occupancy for 2023 was 91% compared to 53% in 2022.
Operating Cost and Expenses
Consolidated
Operating costs and expenses increased by $0.8 billion to $3.5 billion in 2023
from $2.7 billion in 2022. These increases were driven by our resumption of
guest cruise operations, an increase in ships in service and considerably
higher occupancy.
Fuel costs decreased by $56 million to $489 million in 2023 from $545 million
in 2022. $137 million of this decrease was caused by a decrease in fuel
prices and changes in fuel mix of $189 per metric ton consumed in 2023
compared to 2022, partially offset by $80 million from higher fuel
consumption of 0.1 million metric tons, due to the resumption of guest cruise
operations.
Selling and administrative expenses increased by $118 million to $736 million
in 2023 from $619 million in 2022. The increase was caused by higher
administrative expenses and advertising costs incurred as part of our
resumption of guest cruise operations.
The drivers in changes in costs and expenses for our NAA and Europe segments
are the same as those described for our consolidated results.
Nonoperating Income (Expense)
Interest expense, net of capitalized interest, increased by $172 million to
$542 million in 2023 from $370 million in 2022. The increase was caused by a
higher average interest rate in 2023 compared to 2022.
Six Months Ended May 31, 2023 ("2023") Compared to Six Months Ended May 31,
2022 ("2022")
Revenues
Consolidated
Cruise passenger ticket revenues made up 64% of our total revenues in 2023
while onboard and other revenues made up 36%. Revenues in 2023 increased by
$5.3 billion to $9.3 billion from $4.0 billion in 2022 due to the significant
increase of ships in service and considerably higher occupancy levels in 2023
as compared to 2022. Our full fleet was serving guests as of May 31, 2023,
compared to 86% as of May 31, 2022. ALBDs increased to 44.3 million in 2023 as
compared to 30.0 million in 2022. Occupancy for 2023 was 95% compared to 62%
in 2022.
NAA Segment
Cruise passenger ticket revenues made up 61% of our NAA segment's total
revenues in 2023 while onboard and other cruise revenues made up 39%. NAA
segment revenues in 2023 increased by $3.6 billion to $6.4 billion from $2.8
billion in 2022 due to the significant increase of ships in service and
considerably higher occupancy levels in 2023 as compared to 2022. Our NAA
segment's full fleet was serving guests as of May 31, 2023, compared to 90% as
of May 31, 2022. ALBDs increased to 27.6 million in 2023 as compared to 18.8
million in 2022. Occupancy for 2023 was 100% compared to 70% in 2022.
Europe Segment
Cruise passenger ticket revenues made up 76% of our Europe segment's total
revenues in 2023 while onboard and other cruise revenues made up 24%. Europe
segment revenues in 2023 increased by $1.6 billion to $2.8 billion from
$1.1 billion in 2022 due to the significant increase of ships in service and
considerably higher occupancy levels in 2023 as compared to 2022. Our Europe
segment's full fleet was serving guests as of May 31, 2023, compared to 81% as
of May 31, 2022. ALBDs increased to 16.7 million in 2023 as compared to 11.2
million in 2022. Occupancy for 2023 was 85% compared to 50% in 2022.
Operating Cost and Expenses
Consolidated
Operating costs and expenses increased by $2.1 billion to $6.8 billion in 2023
from $4.7 billion in 2022. These increases were driven by our resumption of
guest cruise operations, an increase in ships in service and considerably
higher occupancy.
Fuel costs increased by $0.1 billion to $1.0 billion in 2023 from $0.9 billion
in 2022. $0.2 billion of this increase was caused by higher fuel consumption
of 0.3 million metric tons, due to the resumption of guest cruise operations,
partially offset by $0.1 billion from a decrease in fuel prices and changes
in fuel mix of $60 per metric ton consumed in 2023 compared to 2022.
Selling and administrative expenses increased by $0.3 billion to $1.4 billion
in 2023 from $1.1 billion in 2022. The increase was caused by higher
administrative expenses and advertising costs incurred as part of our
resumption of guest cruise operations.
The drivers in changes in costs and expenses for our NAA and Europe segments
are the same as those described for our consolidated results.
Nonoperating Income (Expense)
Interest expense, net of capitalized interest, increased by $0.3 billion to
$1.1 billion in 2023 from $0.7 billion in 2022. The increase was caused by a
higher average interest rate in 2023 compared to 2022.
Liquidity, Financial Condition and Capital Resources
As of May 31, 2023, we had $7.3 billion of liquidity including cash and cash
equivalents and borrowings available under our Revolving Facility. We will
continue to pursue various opportunities to refinance future debt maturities
and/or to extend the maturity dates associated with our existing indebtedness
and obtain relevant financial covenant amendments or waivers, if needed.
We had a working capital deficit of $5.6 billion as of May 31, 2023 compared
to a working capital deficit of $3.1 billion as of November 30, 2022. The
increase in working capital deficit was caused by an increase in customer
deposits and an overall decrease in cash and cash equivalents and restricted
cash. 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 $6.9 billion and $4.9 billion of customer deposits as of
May 31, 2023 and November 30, 2022, respectively. We have agreements with a
number of credit card processors that transact customer deposits related to
our cruise vacations. Certain of these agreements allow the credit card
processors to request, under certain circumstances, that we provide a reserve
fund in cash. In addition, we have a relatively low level of accounts
receivable and limited investment in inventories.
Refer to Note 1 - "General, 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 provided $1.5 billion of net cash flows from operating activities
during the six months ended May 31, 2023, an increase of $2.7 billion,
compared to $1.2 billion used for the same period in 2022. This was driven by
a decrease in the net loss compared to the same period in 2022 and other
working capital changes.
Investing Activities
During the six months ended May 31, 2023, net cash used in investing
activities was $1.5 billion. This was driven by:
• Capital expenditures of $1.1 billion for our ongoing new
shipbuilding program
• Capital expenditures of $649 million for ship improvements and
replacements, information technology and buildings and improvements
• Proceeds from sales of ships of $255 million
During the six months ended May 31, 2022, net cash used in investing
activities was $3.1 billion. This was driven by:
• 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
Financing Activities
During the six months ended May 31, 2023, net cash used in financing
activities of $1.6 billion was driven by:
• Repayments of $0.2 billion of short term-borrowings
• Repayments of $2.3 billion of long-term debt
• Issuances of $1.0 billion of long-term debt
• Payments of $94 million related to debt issuance costs
• Purchases of $20 million of Carnival plc ordinary shares and
issuances of $22 million of Carnival Corporation common stock under our Stock
Swap Program
During the six months ended May 31, 2022, net cash provided by financing
activities of $2.5 billion was caused by:
• 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
Funding Sources
As of May 31, 2023, we had $7.3 billion of liquidity including $4.5 billion
of cash and cash equivalents and $2.9 billion of borrowings available under
our Revolving Facility, which matures in 2024. In February 2023, Carnival
Holdings II entered into the New Revolving Facility, which may be utilized
beginning in August 2024, at which date it will replace our Revolving
Facility. Refer to Note 3 - "Debt" of the consolidated financial statements
for additional discussion. In addition, we had $3.1 billion of undrawn export
credit facilities to fund ship deliveries planned through 2025. We plan to use
existing liquidity and future cash flows from operations to fund our cash
requirements including capital expenditures not funded by our export credit
facilities. We seek to manage our credit risk exposures, including
counterparty nonperformance associated with our cash and cash equivalents, and
future financing facilities by conducting business with well-established
financial institutions, and export credit agencies and diversifying our
counterparties.
(in billions) 2023 2024 2025
Future export credit facilities at May 31, 2023 $0.1 $2.2 $0.7
Our export credit facilities contain various financial covenants as described
in Note 3 - "Debt". At May 31, 2023, we were in compliance with the
applicable covenants under our debt agreements.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, including guarantee
contracts, retained or contingent interests, certain derivative instruments
and variable interest entities that either have, or are reasonably likely to
have, a current or future material effect on our consolidated financial
statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of our hedging strategies and market risks, see the
discussion below and Note 10 - "Fair Value Measurements, Derivative
Instruments and Hedging Activities and Financial Risks" in our consolidated
financial statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations within our Form 10-K.
Interest Rate Risks
The composition of our debt, interest rate swaps and cross currency swaps, was
as follows:
May 31, 2023
Fixed rate 61%
EUR fixed rate 17%
Floating rate 7%
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, 2023, 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, 2023 that have materially affected or are
reasonably likely to materially affect our internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The legal proceedings described in Note 4 - "Contingencies and Commitments" of
our consolidated financial statements, including those described under
"COVID-19 Actions" and "Regulatory or Governmental Inquiries and
Investigations," are incorporated in this "Legal Proceedings" section by
reference. Additionally, SEC rules require disclosure of certain environmental
matters when a governmental authority is a party to the proceedings and such
proceedings involve potential monetary sanctions that we believe may exceed $1
million.
On June 20, 2022, Princess Cruises notified the Australian Maritime Safety
Authorization ("AMSA") and the flag state, Bermuda, regarding approximately
six cubic meters of comminuted food waste (liquid biodigester effluent)
inadvertently discharged by Coral Princess inside the Great Barrier Reef
Marine Park. On June 23, 2022, the UK P&I Club N.V. provided a letter of
undertaking for approximately $1.9 million (being the estimated maximum
combined penalty). On May 31, 2023, we received a summons from the Australia
Federal Prosecution Service indicating that formal charges are being pursued
against Princess Cruises and the Captain of the vessel. We believe the
ultimate outcome will not have a material impact on our consolidated financial
statements.
Item 1A. Risk Factors.
The risk factors in this Form 10-Q 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
A. Stock Swap Program
We have a program that allows us to realize a net cash benefit when Carnival
Corporation common stock is trading at a premium to the price of Carnival plc
ordinary shares. Under the Stock Swap Program, we may elect to offer and sell
shares of Carnival Corporation common stock at prevailing market prices in
ordinary brokers' transactions and repurchase an equivalent number of Carnival
plc ordinary shares in the UK market.
Under the Stock Swap Program effective as of June 2021, the Board of Directors
authorized the sale of up to $500 million shares of Carnival Corporation
common stock in the U.S. market and the purchase of Carnival plc ordinary
shares on at least an equivalent basis.
We may in the future implement a program to allow us to obtain a net cash
benefit when Carnival plc ordinary shares are trading at a premium to the
price of Carnival Corporation common stock.
Any sales of Carnival Corporation common stock and Carnival plc ordinary
shares have been or will be registered under the Securities Act of 1933, as
amended. During the three months ended May 31, 2023 under the Stock Swap
Program, we sold 2.3 million shares of Carnival Corporation common stock and
repurchased the same amount of Carnival plc ordinary shares resulting in net
proceeds of $2 million, which were used for general corporate purposes. In
addition, during the three months ended May 31, 2023, we sold 0.5 million
shares of Carnival Corporation common stock at an average price per share of
$9.83, resulting in net proceeds of $5 million. Since the beginning of the
Stock Swap Program, first authorized in June 2021, we have sold 17.2 million
shares of Carnival Corporation common stock and repurchased the same amount of
Carnival plc ordinary shares, resulting in net proceeds of $29 million. No
shares of Carnival Corporation common stock or Carnival plc ordinary shares
were repurchased during the three months ended May 31, 2023 outside of the
Stock Swap Program.
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, 2023 through March 31, 2023 - $- 3.7
April 1, 2023 through April 30, 2023 1.6 $8.60 2.2
May 1, 2023 through May 31, 2023 0.8 $8.92 1.4
Total 2.3 $8.70
(a) No ordinary shares of Carnival plc were purchased outside of publicly
announced plans or programs.
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