TIDMCCL
RNS Number : 7363U
Carnival PLC
07 April 2021
April 7, 2021
RELEASE OF CARNIVAL CORPORATION & PLC QUARTERLY REPORT ON
FORM 10-Q FOR THE FIRST QUARTER OF 2021
Carnival Corporation & plc is hereby announcing that today
it has released its first quarter results of operations in its
earnings release and filed its joint Quarterly Report on Form 10-Q
("Form 10-Q") with the U.S. Securities and Exchange Commission
("SEC") containing the Carnival Corporation & plc 2021 first
quarter unaudited consolidated financial statements.
The information included in the attached Schedules A and B is
extracted from the Form 10-Q and has been prepared in accordance
with SEC rules and regulations. The Carnival Corporation & plc
unaudited consolidated financial statements contained in the Form
10-Q have been prepared in accordance with generally accepted
accounting principles in the United States of America ("U.S.
GAAP").
-- Schedule A contains the Carnival Corporation & plc
unaudited consolidated financial statements as of and for the three
months ended February 28, 2021
-- Schedule B contains management's discussion and analysis
("MD&A") of financial conditions and results of operations
The Directors consider that within the Carnival Corporation and
Carnival plc dual listed company arrangement, the most appropriate
presentation of Carnival plc's results and financial position is by
reference to the Carnival Corporation & plc U.S. GAAP unaudited
consolidated financial statements.
MEDIA CONTACT INVESTOR RELATIONS CONTACT
Roger Frizzell Beth Roberts
001 305 406 7862 001 305 406 4832
The Form 10-Q, including the portions extracted for this
announcement, is available for viewing on the SEC website at
www.sec.gov under Carnival Corporation or Carnival plc or the
Carnival Corporation & plc website at www.carnivalcorp.com or
www.carnivalplc.com. A copy of the Form 10-Q has been submitted to
the National Storage Mechanism and will shortly be available for
inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism. Additional
information can be obtained via Carnival Corporation & plc's
website listed above or by writing to Carnival plc at Carnival
House, 100 Harbour Parade, Southampton, SO15 1ST, United
Kingdom.
Carnival Corporation & plc is one of the world's largest
leisure travel companies with a portfolio of nine of the world's
leading cruise lines. With operations in North America, Australia,
Europe and Asia, its portfolio features - Carnival Cruise Line,
Princess Cruises, Holland America Line, P&O Cruises
(Australia), Seabourn, Costa Cruises, AIDA Cruises, P&O Cruises
(UK) and Cunard.
Additional information can be found on www.carnivalcorp.com,
www.carnivalsustainability.com, www.carnival.com, www.princess.com,
www.hollandamerica.com, www.pocruises.com.au, www.seabourn.com,
www.costacruise.com, www.aida.de, www.pocruises.com and
www.cunard.com.
SCHEDULE A
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
February 28/29,
------------------------
2021 2020
------------ ----------
Revenues
Passenger ticket $ 3 $ 3,234
Onboard and other 23 1,556
------------ --------
26 4,789
------------ --------
Operating Costs and Expenses
Commissions, transportation and other 15 766
Onboard and other 7 471
Payroll and related 218 610
Fuel 103 396
Food 11 277
Ship and other impairments - 330
Other operating 181 671
------------ --------
535 3,523
Selling and administrative 462 678
Depreciation and amortization 552 570
Goodwill impairments - 731
------------ --------
1,549 5,502
------------ --------
Operating Income (Loss) (1,524) (713)
------------ --------
Nonoperating Income (Expense)
Interest income 3 5
Interest expense, net of capitalized interest (398) (55)
Other income (expense), net (61) (7)
------------ --------
(455) (57)
------------ --------
Income (Loss) Before Income Taxes (1,979) (770)
Income Tax Benefit (Expense), Net 6 (11)
------------ --------
Net Income (Loss) $ (1,973) $ (781)
======== =======
Earnings Per Share
Basic $ (1.80) $ (1.14)
======== =======
Diluted $ (1.80) $ (1.14)
======== =======
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 February
28/29,
---------------------
2021 2020
----------- --------
Net Income (Loss) $ (1,973) $(781)
------- -----
Items Included in Other Comprehensive Income (Loss)
Change in foreign currency translation adjustment 199 25
Other 4 13
----------- ------
Other Comprehensive Income (Loss) 203 38
----------- ------
Total Comprehensive Income (Loss) $ (1,770) $(743)
======= =====
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except par values)
February November
28, 30, 2020
2021
----------- -------------
ASSETS
Current Assets
Cash and cash equivalents $ 9,674 $ 9,513
Short-term investments 1,840 -
Trade and other receivables, net 250 273
Inventories 312 335
Prepaid expenses and other 382 443
----------- -----------
Total current assets 12,459 10,563
----------- -----------
Property and Equipment, Net 39,583 38,073
Operating Lease Right-of-Use Assets 1,354 1,370
Goodwill 814 807
Other Intangibles 1,195 1,186
Other Assets 1,821 1,594
----------- -----------
$ 57,226 $ 53,593
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 3,083 $ 3,084
Current portion of long-term debt 1,726 1,742
Current portion of operating lease liabilities 142 151
Accounts payable 505 624
Accrued liabilities and other 1,336 1,144
Customer deposits 1,826 1,940
----------- -----------
Total current liabilities 8,619 8,686
----------- -----------
Long-Term Debt 26,522 22,130
Long-Term Operating Lease Liabilities 1,256 1,273
Other Long-Term Liabilities 1,017 949
Contingencies and Commitments
Shareholders' Equity
Common stock of Carnival Corporation, $0.01 par value;
1,960 shares authorized; 1,104 shares at 2021 and
1,060 shares at 2020 issued 11 11
Ordinary shares of Carnival plc, $1.66 par value;
217 shares at 2021 and 2020 issued 361 361
Additional paid-in capital 14,977 13,948
Retained earnings 14,102 16,075
Accumulated other comprehensive income (loss) ("AOCI") (1,233) (1,436)
Treasury stock, 130 shares at 2021 and 2020 of Carnival
Corporation and 59 shares at 2021 and 60 shares at
2020 of Carnival plc, at cost (8,404) (8,404)
----------- -----------
Total shareholders' equity 19,813 20,555
----------- -----------
$ 57,226 $ 53,593
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Three Months
Ended February
28/29,
------------------------
2021 2020
----------- -----------
OPERATING ACTIVITIES
Net income (loss) $ (1,973) $ (781)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 552 570
Impairments 17 1,062
Share-based compensation 40 20
Amortization of discounts and debt issue costs 42 6
Noncash lease expense 36 42
(Gain) loss on ship sales and other, net 50 (121)
----------- ---------
(1,236) 798
Changes in operating assets and liabilities
Receivables 6 21
Inventories (1) (15)
Prepaid expenses and other (263) (120)
Accounts payable (128) 148
Accrued liabilities and other 167 120
Customer deposits (49) (36)
----------- ---------
Net cash provided by (used in) operating activities (1,503) 916
----------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (1,774) (1,326)
Proceeds from sales of ships 9 226
Purchase of minority interest - (81)
Purchase of short-term investments (1,840) -
Derivative settlements and other, net 17 20
----------- ---------
Net cash provided by (used in) investing activities (3,589) (1,161)
----------- ---------
FINANCING ACTIVITIES
Proceeds from (repayments of) short-term borrowings, net - 779
Principal repayments of long-term debt (668) (132)
Proceeds from issuance of long-term debt 4,980 823
Dividends paid - (344)
Purchases of treasury stock - (12)
Issuance of common stock, net 997 2
Debt issue costs and other, net (93) (26)
----------- ---------
Net cash provided by (used in) financing activities 5,216 1,089
----------- ---------
Effect of exchange rate changes on cash, cash equivalents
and restricted cash 14 (7)
----------- ---------
Net increase (decrease) in cash, cash equivalents and
restricted cash 138 838
Cash, cash equivalents and restricted cash at beginning
of period 9,692 530
----------- ---------
Cash, cash equivalents and restricted cash at end of period $ 9,829 $ 1,368
======= =====
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(in millions)
Additional Total
Common Ordinary paid-in Retained Treasury shareholders'
stock shares capital earnings AOCI stock equity
-------- ---------- ------------ ---------- -------- -------- -----------------
At November 30, 2019 $ 7 $ 358 $ 8,807 $ 26,653 $(2,066) $(8,394) $ 25,365
Net income (loss) - - - (781) - - (781)
Other
comprehensive
income
(loss) - - - - 38 - 38
Cash dividends
declared
($0.50 per share) - - - (344) - - (344)
Purchases of
treasury
stock under the
Repurchase
Program and other - - 22 - - (10) 12
-------- ---------- ------------ ---------- -------- -------- ---------------
At February 29, 2020 $ 7 $ 359 $ 8,829 $ 25,527 $(2,028) $(8,404) $ 24,290
==== === ===== ======== ====== ======= ======= ==== =========
At November 30, 2020 $ 11 $ 361 $ 13,948 $ 16,075 $(1,436) $(8,404) $ 20,555
Net income (loss) - - - (1,973) - - (1,973)
Other
comprehensive
income
(loss) - - - - 203 - 203
Issuance of common
stock,
net - - 996 - - - 997
Other - - 32 - - - 32
-------- ---------- ------------ ---------- -------- -------- ---------------
At February 28, 2021 $ 11 $ 361 $ 14,977 $ 14,102 $(1,233) $(8,404) $ 19,813
==== === ===== ======== ====== ======= ======= ==== =========
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - General
The consolidated financial statements include the accounts of
Carnival Corporation and Carnival plc and their respective
subsidiaries. Together with their consolidated subsidiaries, they
are referred to collectively in these consolidated financial
statements and elsewhere in this joint Quarterly Report on Form
10-Q as "Carnival Corporation & plc," "our," "us" and "we."
Liquidity and Management's Plans
In the face of the global impact of COVID-19, we paused our
guest cruise operations in mid-March 2020. In September 2020 we
began the resumption of limited guest cruise operations as part of
our phased-in return to service. As of February 28, 2021, none of
our ships were operating with guests onboard. Significant events
affecting travel, including COVID-19 and our pause in guest cruise
operations, have had and continue to have an impact on booking
patterns. The full extent of the impact will be determined by our
gradual return to service and the length of time COVID-19
influences travel decisions. We believe that the ongoing effects of
COVID-19 on our operations and global bookings have had, and will
continue to have, a material negative impact on our financial
results and liquidity.
The estimation of our future liquidity requirements includes
numerous assumptions that are subject to various risks and
uncertainties. The principal assumptions used to estimate our
future liquidity requirements consist of:
-- Expected continued gradual resumption of guest cruise operations
-- Expected lower than comparable historica l occupancy levels
during the resumption of guest cruise operations
-- Expected incremental spend for the resumption of guest cruise
operations, for bringing our ships out of pause status, returning
crew members to our ships and implementing the enhanced health and
safety protocols
In addition, we make certain assumptions about new ship
deliveries, improvements and disposals, and consider the future
export credit financings that are associated with the ship
deliveries.
We are complying with the current various heightened
governmental regulations required to return to guest cruise
operations. We are working with a number of world-leading public
health, epidemiological and policy experts to support our ongoing
efforts with enhanced health and safety protocols for the return of
cruise vacations. These advisors will continue to provide guidance
based on the latest scientific evidence and best practices for
protection and mitigation. We also believe that there have been
positive developments around the availability and widespread
distribution of effective COVID-19 vaccines, which we believe will
be important to achieving historical occupancy levels over
time.
We cannot make assurances that our assumptions used to estimate
our liquidity requirements may not change because we have never
previously experienced a complete cessation of our guest cruise
operations, and as a consequence, our ability to be predictive is
uncertain. In addition, the magnitude and duration of the global
pandemic are uncertain. We have made reasonable estimates and
judgments of the impact of COVID-19 within our consolidated
financial statements and there may be changes to those estimates in
future periods. We continue to expect a net loss on both a U.S.
GAAP and adjusted basis for the second quarter of 2021 and the full
year ending November 30, 2021. We have taken and continue to take
actions to improve our liquidity, including completing various
capital market transactions, capital expenditure and operating
expense reductions, accelerating the removal of certain ships from
our fleet and we will be pursuing refinancing opportunities to
reduce interest expense and extend maturities.
Based on these actions and assumptions regarding the impact of
COVID-19, and considering our $11.5 billion of cash and short-term
investments at February 28, 2021, we have concluded that we have
sufficient liquidity to satisfy our obligations for at least the
next twelve months.
Basis of Presentation
The Consolidated Statements of Income (Loss), the Consolidated
Statements of Comprehensive Income (Loss), the Consolidated
Statements of Cash Flows and the Consolidated Statements of
Shareholders' Equity for the three months ended February 28/29,
2021 and 2020, and the Consolidated Balance Sheet at February 28,
2021 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 2020 joint Annual Report on Form
10-K ("Form 10-K") filed with the U.S. Securities and Exchange
Commission on January 26, 2021.
COVID-19 and the Use of Estimates and Risks and Uncertainty
The preparation of our interim consolidated financial statements
in conformity with accounting principles generally accepted in the
United States of America ("U.S. GAAP") requires management to make
estimates and assumptions that affect the amounts reported and
disclosed. The full extent to which the effects of COVID-19 will
directly or indirectly impact our business, operations, results of
operations and financial condition, including our valuation of
goodwill and trademarks, impairment of ships, collectability of
trade and notes receivables as well as provisions for pending
litigation, will depend on future developments that are highly
uncertain. We have made reasonable estimates and judgments of the
impact of COVID-19 within our financial statements and there may be
changes to those estimates in future periods.
Accounting Pronouncements
The FASB issued guidance, Debt - Debt with Conversion and Other
Options and Derivative and Hedging - Contracts in Entity's Own
Equity, which simplifies the accounting for convertible
instruments. This guidance eliminates certain models that require
separate accounting for embedded conversion features, in certain
cases. Additionally, among other changes, the guidance eliminates
certain of the conditions for equity classification for contracts
in an entity's own equity. The guidance also requires entities to
use the if-converted method for all convertible instruments in the
diluted earnings per share calculation and include the effect of
share settlement for instruments that may be settled in cash or
shares, except for certain liability-classified share-based payment
awards. This guidance is required to be adopted by us in the first
quarter of 2023 and must be applied using either a modified or full
retrospective approach. We are currently evaluating the impact this
guidance will have on our consolidated financial statements.
NOTE 2 - Revenue and Expense Recognition
Guest cruise deposits are initially included in customer deposit
liabilities when received. Customer deposits are subsequently
recognized as cruise revenues, together with revenues from onboard
and other activities, and all associated direct costs and expenses
of a voyage are recognized as cruise costs and expenses, upon
completion of voyages with durations of ten nights or less and on a
pro rata basis for voyages in excess of ten nights. The impact of
recognizing these shorter duration cruise revenues and costs and
expenses on a completed voyage basis versus on a pro rata basis is
not material. Certain of our product offerings are bundled and we
allocate the value of the bundled services and goods between
passenger ticket revenues and onboard and other revenues based upon
the estimated standalone selling prices of those goods and
services. Guest cancellation fees, when applicable, are recognized
in passenger ticket revenues at the time of cancellation.
Our sales to guests of air and other transportation to and from
airports near the home ports of our ships are included in passenger
ticket revenues, and the related costs of purchasing these services
are included in transportation costs. The proceeds that we collect
from the sales of third-party shore excursions are included in
onboard and other revenues and the related costs are included in
onboard and other costs. The amounts collected on behalf of our
onboard concessionaires, net of the amounts remitted to them, are
included in onboard and other revenues as concession revenues. All
of these amounts are recognized on a completed voyage or pro rata
basis as discussed above.
Passenger ticket revenues include fees, taxes and charges
collected by us from our guests. A portion of these fees, taxes and
charges vary with guest head counts and are directly imposed on a
revenue-producing arrangement. This portion of the fees, taxes and
charges is expensed in commissions, transportation and other costs
when the corresponding revenues are recognized. For the three
months ended February 28/29, fees, taxes, and charges included in
commissions, transportation and other costs were not significant in
2021 and $174 million in 2020. The remaining portion of fees, taxes
and charges are expensed in other operating expenses when the
corresponding revenues are recognized.
Revenues and expenses from our hotel and transportation
operations, which are included in our Tour and Other segment, are
recognized at the time the services are performed. Revenues from
the long-term leasing of ships, which are also included in our Tour
and Other segment, are recognized ratably over the term of the
agreement.
Customer Deposits
Our payment terms generally require an initial deposit to
confirm a reservation, with the balance due prior to the voyage.
Cash received from guests in advance of the cruise is recorded in
customer deposits and in other long-term liabilities on our
Consolidated Balance Sheets. These amounts include refundable
deposits. We are providing flexibility to guests with bookings
on sailings cancelled due to the pause in cruise operations by
allowing guests to receive enhanced future cruise credits
("FCC")
or elect to receive refunds in cash. We have paid and expect to
continue to pay cash refunds of customer deposits with respect to a
portion of these cancelled cruises. The amount of cash refunds to
be paid may depend on the level of guest acceptance of FCCs and
future cruise cancellations. We record a liability for FCCs to the
extent we have received cash from guests with bookings on cancelled
sailings. Total customer deposits as of February 28, 2021 and
November 30, 2020 were $2.2 billion, the majority of which are
FCCs. As of February 28, 2021, the current portion of customer
deposits was $1.8 billion. This amount includes deposits related to
cancelled cruises prior to the election of a cash refund by guests.
Refunds payable to guests who have elected cash refunds are
recorded in accounts payable. Due to the uncertainty associated
with the duration and extent of COVID-19, we are unable to estimate
the amount of the February 28, 2021 customer deposits that will be
recognized in earnings compared to amounts that will be refunded to
customers or issued as a credit for future travel. During the three
months ended February 28/29, 2021 and 2020, we recognized revenues
of an immaterial amount and $3.0 billion, respectively, related to
our customer deposits as of November 30, 2020 and 2019.
Historically, our customer deposits balance changes due to the
seasonal nature of cash collections, the recognition of revenue,
refund of customer deposits and foreign currency translation.
Contract Receivables
Although we generally require full payment from our customers
prior to or concurrently with their cruise, we grant credit terms
to a relatively small portion of our revenue source. We also have
receivables from credit card merchants for cruise ticket purchases
and onboard revenue. These receivables are included within trade
and other receivables, net.
Contract Assets
Contract assets are amounts paid prior to the start of a voyage,
which we record as an asset within prepaid expenses and other and
which are subsequently recognized as commissions, transportation
and other at the time of revenue recognition or at the time of
voyage cancellation. We have contract assets of an immaterial
amount as of February 28, 2021 and November 30, 2020.
NOTE 3 - Debt
Export Credit Facility Borrowings
In December 2020, we borrowed $1.5 billion under export credit
facilities due in semi-annual installments through 2033.
2027 Senior Unsecured Notes
In February 2021, we issued an aggregate principal amount of
$3.5 billion senior unsecured notes that mature on March 1, 2027
(the "2027 Senior Unsecured Notes"). The 2027 Senior Unsecured
Notes bear interest at a rate of 5.8% per year. The 2027 Senior
Unsecured Notes are guaranteed by Carnival plc and the same
subsidiaries of Carnival Corporation & plc that guarantee the
2023 Secured Notes, 2026 Secured Notes, 2027 Senior Secured Notes
and 2026 Senior Unsecured Notes, and are unsecured. The indenture
governing the 2027 Senior Unsecured Notes contains covenants that
are substantially similar to the covenants in the indentures
governing the 2026 Senior Unsecured Notes and, except for the
unsecured nature of the 2027 Senior Unsecured Notes, the indentures
governing the 2023 Secured Notes, 2026 Secured Notes and 2027
Secured Notes and the credit agreement governing the 2025 Secured
Term Loan. These covenants are subject to a number of important
limitations and exceptions.
Covenant Compliance
Our export credit facilities contain one or more covenants that
require us to:
-- Maintain minimum interest coverage (EBITDA to consolidated
net interest charges for the most recently ended four fiscal
quarters) (the "Interest Coverage Covenant") of not less than 3.0
to 1.0 at the end of each fiscal quarter
-- Maintain minimum shareholders' equity of $5.0 billion
-- Limit our debt to capital percentage (the "Debt to Capital
Covenant") to 65% at the end of each fiscal quarter
-- Limit the amounts of our secured assets as well as secured and other indebtedness
As of February 28, 2021, we entered into supplemental agreements
to waive compliance with the Interest Coverage Covenant and the
Debt to Capital Covenant under our export credit facilities through
August 31, 2022 or November 30, 2022, as applicable. We will be
required to comply beginning with the next testing date of November
30, 2022 or February 28, 2023, as applicable.
During the first quarter of 2021 we entered into supplemental
agreements with respect to our $3.1 billion ($1.7 billion, EUR1.0
billion and GBP150 million) multi-currency revolving credit
facility (the "Revolving Credit Facility") and many of our bank
loans. These agreements now contain one or more covenants that
require us to:
-- Maintain the Interest Coverage Covenant at the end of each
fiscal quarter from February 28, 2023, at a ratio of not less than
2.0 to 1.0 for the February 28, 2023 and May 31, 2023 testing
dates, 2.5 to 1.0 for the August 31, 2023 and November 30, 2023
testing dates, and 3.0 to 1.0 for the February 28, 2024 testing
date onwards, or through their respective maturity dates.
-- Maintain minimum shareholders' equity of $5.0 billion.
-- Maintain the Debt to Capital Covenant at the end of each
fiscal quarter before the November 30, 2021 testing date at a
percentage not to exceed 65%. From the November 30, 2021 testing
date until the May 31, 2023 testing date, the Debt to Capital
Covenant is not to exceed 75%, following which it will be tested at
levels which decline ratably to 65% from the May 31, 2024 testing
date onwards.
-- Maintain minimum liquidity of $1.0 billion through November 30, 2022.
-- Adhere to certain restrictive covenants through November 30, 2024.
-- Restrict the granting of guarantees and security interests
for certain of our outstanding debt through November 30, 2024.
At February 28, 2021, we were in compliance with the applicable
covenants under our debt agreements.
Generally, if an event of default under any debt agreement
occurs, then, pursuant to cross default acceleration clauses,
substantially all of our outstanding debt and derivative contract
payables could become due, and all debt and derivative contracts
could be terminated. Any financial covenant amendment may lead to
increased costs, increased interest rates, additional restrictive
covenants and other available lender protections that would be
applicable.
As of February 28, 2021, the scheduled maturities of our debt
are as follows:
(in millions)
Year Principal Payments
----------------------
2Q 2021 $ 352
3Q 2021 (a) 488
4Q 2021 327
2022 2,851
2023 6,393
2024 (b) 4,548
2025 3,974
Thereafter 13,133
--------------------
Total $ 32,065
=== ===============
(a) Includes $231 million of principal that was prepaid in March 2021.
(b) Includes the $3.1 billion Revolving Credit Facility. The
Revolving Credit Facility was fully drawn in 2020 for six month
terms. The maturities for these borrowings are currently extended
through September 2021. We may re-borrow such amounts through
August 2024 subject to satisfaction of the conditions in the
facility. The Revolving Credit 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 undrawn portion.
NOTE 4 - Contingencies and Commitments
Litigation
We are routinely involved in legal proceedings, claims,
disputes, regulatory matters and governmental inspections or
investigations arising in the ordinary course of or incidental to
our business, including those noted below. Additionally, as a
result of the impact of COVID-19, litigation claims, enforcement
actions, regulatory actions and investigations, including, but not
limited to, those arising from personal injury and loss of life,
have been and may, in the future, be asserted against us. We expect
many of these claims and actions, or any settlement of these claims
and actions, to be covered by insurance and historically the
maximum amount of our liability, net of any insurance recoverables,
has been limited to our self-insurance retention levels.
We record provisions in the consolidated financial statements
for pending litigation when we determine that an unfavorable
outcome is probable and the amount of the loss can be reasonably
estimated.
Legal proceedings and government investigations are subject to
inherent uncertainties, and unfavorable rulings or other events
could occur. Unfavorable resolutions could involve substantial
monetary damages. In addition, in matters for which conduct
remedies are sought, unfavorable resolutions could include an
injunction or other order prohibiting us from selling one or more
products at all or in particular ways, precluding particular
business practices or requiring other remedies. An unfavorable
outcome might result in a material adverse impact on our business,
results of operations, financial position or liquidity.
As previously disclosed, on May 2, 2019, two lawsuits were filed
against Carnival Corporation in the U.S. District Court for the
Southern District of Florida under Title III of the Cuban Liberty
and Democratic Solidarity Act, also known as the Helms-Burton Act,
alleging that Carnival "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. On
January 21, 2021, the court continued the trial date in the Havana
Docks matter to October 25, 2021. We continue to believe we have a
meritorious defense to these actions and we believe that any
liability which may arise as a result of these actions will not
have a material impact on our consolidated financial
statements.
Contingent Obligations - Indemnifications
Some of the debt contracts we enter into include indemnification
provisions obligating us to make payments to the counterparty if
certain events occur. These contingencies generally relate to
changes in taxes or changes in laws which increase the lender's
costs. There are no stated or notional amounts included in the
indemnification clauses, and we are not able to estimate the
maximum potential amount of future payments, if any, under these
indemnification clauses.
Other Contingencies
We have agreements with a number of credit card processors that
transact customer deposits related to our cruise vacations. Certain
of these agreements allow the credit card processors to request
under certain circumstances that we provide a reserve fund in cash.
Although the agreements vary, these requirements may generally be
satisfied either through a withheld percentage of customer payments
or providing cash funds directly to the card processor. As of
February 28, 2021, we had $629 million in reserve funds relating to
our customer deposits to satisfy these requirements which are
included within other assets. We expect a portion of new customer
deposits to be withheld under these agreements. Additionally, as of
February 28, 2021, we placed $172 million of cash collateral in
escrow, of which $142 million is included within prepaid expenses
and other.
We detected ransomware attacks in August 2020 and December 2020,
which resulted in unauthorized access to our information technology
systems. We engaged a major cybersecurity firm to investigate these
matters and notified law enforcement and applicable regulators of
these incidents. For the August 2020 event, the investigation phase
is complete, as are the communication and reporting phases. We
determined that the unauthorized third-party gained access to
certain personal information relating to some guests, employees and
crew for some of our operations. For the December 2020 event, the
investigation and remediation phases are in process and regulators
have been notified. There is currently no indication of any misuse
of information potentially accessed or acquired and we continue to
work with regulators to bring these matters and other reportable
incidents to conclusion. We have incurred legal and other costs in
connection with these and other cyber incidents, and while at this
time we do not believe that these incidents will have a material
adverse effect on our business, operations or financial results, no
assurances can be given and we may be subject to future attacks or
incidents that could have such a material adverse effect.
COVID-19 Actions
Private Actions
We have been named in a number of individual actions related to
COVID-19. Private parties have brought approximately 70 lawsuits as
of April 1, 2021 in several U.S. federal courts as well as in
France, Italy and Brazil. These actions include tort claims based
on a variety of theories, including negligence and failure to warn.
The plaintiffs in these actions allege a variety of injuries: some
plaintiffs allege only emotional distress, while others allege
injuries arising from testing positive for COVID-19. A smaller
number of actions include wrongful death claims. All individual
actions seek monetary and punitive damages but do not specify exact
amounts.
Additionally, as of April 1, 2021, ten purported class actions
have been brought by former guests from Ruby Princess, Diamond
Princess, Grand Princess, Coral Princess, Costa Luminosa or Zaandam
in several U.S. federal courts and in the Federal Court of
Australia. These actions seek compensation based on a variety of
tort claims, including, but not limited to, negligence, gross
negligence and failure to warn, physical injuries and severe
emotional distress associated with being exposed and/or contracting
COVID-19 onboard.
As previously disclosed, on April 8, 2020, numerous former
guests from Grand Princess filed a purported class action against
Carnival Corporation and Carnival plc and two of our subsidiaries,
Princess Cruise Lines, Ltd. and Fairline Shipping International
Corporation, Ltd. ("Fairline Shipping"). On May 5, 2020, this case
was transferred to the U.S. District Court for the Central District
of California and on June 2, 2020, the plaintiffs removed Fairline
Shipping from the case. On October 20, 2020, the court denied the
plaintiffs' motion for class certification, and the plaintiffs
filed a petition for leave to appeal this ruling to the U.S. Court
of Appeals for the Ninth Circuit on November 3, 2020. On February
17, 2021, the Ninth Circuit Court of Appeals denied that
petition.
As previously disclosed, on July 23, 2020, Susan Karpik, a
former guest from Ruby Princess filed a purported class action
against Carnival plc and Princess Cruises in the Federal Court of
Australia. On March 24, 2021 the plaintiffs filed a second amended
complaint.
As previously disclosed, two purported class actions were filed
on behalf of certain purchasers of Carnival Corporation securities
alleging violations of Sections 10(b) and 20(a) of the U.S.
Securities and Exchange Act of 1934. Following the filing of a
third purported class action on behalf of certain options
investors, alleging the same set of factual theories, the three
actions were consolidated with new lead plaintiffs, the New England
Carpenters Pension and Guaranteed Annuity Fund and the
Massachusetts Laborers' Pension and Annuity Fund. A consolidated
class action complaint was filed on December 15, 2020 on behalf of
all purchasers of Carnival Corporation common stock and/or Carnival
plc American Depositary Shares, and sellers of put options and
purchasers of call options on those securities, between September
16, 2019 and March 31, 2020. The consolidated complaint alleges
that defendants Carnival Corporation, Carnival plc, and Arnold W.
Donald violated Sections 10(b) and 20(a) of the U.S. Securities and
Exchange Act of 1934 by making misrepresentations and omissions
related to Carnival Corporation's COVID-19 knowledge and response.
Plaintiffs seek to recover unspecified damages and equitable relief
for the alleged misstatements and omissions. A motion to dismiss
was filed on January 18, 2021 and was fully briefed as of March 8,
2021.
We continue to take proper actions to defend against the above
claims.
Governmental Inquiries and Investigations
Federal and non-U.S. governmental agencies and officials are
investigating or otherwise seeking information, testimony and/or
documents, regarding COVID-19 incidents and related matters. We are
investigating these matters internally and are cooperating with all
requests. The investigations could result in the imposition of
civil and criminal penalties in the future.
Ship Commitments
As of February 28, 2021, we expect the timing of our new ship
growth capital commitments to be as follows:
(in millions)
Year
Remainder of 2021 $ 1,449
2022 4,734
2023 2,328
2024 1,874
2025 1,073
Thereafter -
-------
$11,459
======
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
February 28, 2021 November 30, 2020
Fair Value Fair Value
Carrying Level Level Level Carrying Level Level Level
(in millions) Value 1 2 3 Value 1 2 3
---------- ------- ------- ------- ---------- ------- ------- ---------
Assets
Long-term
other
assets
(a) $ 47 $ - $ 25 $ 19 $ 45 $ - $ 17 $ 18
------ --- ------ --- ------ --- ------ ---
Total $ 47 $ - $ 25 $ 19 $ 45 $ - $ 17 $ 18
====== === ====== === ====== === ====== ===
Liabilities
Fixed rate
debt (b) $ 19,198 $ - $20,313 $ - $ 15,547 $ - $16,258 $ -
Floating
rate debt
(b) 12,868 - 12,213 - 12,034 - 11,412 -
---------- ------- ------- ------- ---------- ------- ------- -------
Total $ 32,065 $ - $32,526 $ - $ 27,581 $ - $27,670 $ -
====== === ====== === ====== === ====== ===
(a) Long-term other assets are comprised of notes receivable.
The fair values of our Level 2 notes receivable were based on
estimated future cash flows discounted at appropriate market
interest rates. The fair values of our Level 3 notes receivable
were estimated using risk-adjusted discount rates.
(b) The debt amounts above do not include the impact of interest
rate swaps or debt issuance costs. The fair values of our
publicly-traded notes were based on their unadjusted quoted market
prices in markets that are not sufficiently active to be Level 1
and, accordingly, are considered Level 2. The fair values of our
other debt were estimated based on current market interest rates
being applied to this debt.
Financial Instruments that are Measured at Fair Value on a
Recurring Basis
February 28, 2021 November 30, 2020
Level Level Level Level Level Level
(in millions) 1 2 3 1 2 3
-------------- ----- ------- ------------ ------- ---------
Assets
Cash and cash equivalents $ 9,674 $ -$ - $ 9,513 $ - $ -
Restricted cash 155 - - 179 - -
Short-term investments (a) 1,840 - - - - -
Total $ 11,670 $ -$ - $ 9,692 $ - $ -
========== ==== === ======== === ===
Liabilities
Derivative financial
instruments $ - $ 9$ - $ - $ 10 $ -
---------- ---- --- -------- --- ---
Total $ - $ 9$ - $ - $ 10 $ -
========== ==== === ======== === ===
(a) Short term investments consist of marketable securities with
original maturities of between three and twelve months.
Nonfinancial Instruments that are Measured at Fair Value on a
Nonrecurring Basis
Valuation of Goodwill and Trademarks
Goodwill
NAA EA
(in millions) Segment Segment Total
---------- ---------- ---------
November 30, 2020 $ 579 $ 228 $ 807
Foreign currency translation adjustment - 8 7
---------- ---------- -------
February 28, 2021 $ 579 $ 235 $ 814
====== ====== ===
Trademarks
NAA EA
(in millions) Segment Segment Total
---------- ---------- --------
November 30, 2020 $ 927 $ 253 $1,180
Foreign currency translation adjustment - 8 8
---------- ---------- ------
February 28, 2021 $ 927 $ 261 $1,188
====== ====== =====
The determination of the fair value of our reporting units' and
trademarks includes numerous assumptions that are subject to
various risks and uncertainties. The effect of COVID-19, the pause
in guest cruise operations and the possibility of further
extensions have created some uncertainty in forecasting the
operating results and future cash flows used in our impairment
analyses. For the three months ended February 29, 2020, we
recognized goodwill impairment charges of $731 million. We believe
that we have made reasonable estimates and judgments. A change in
the principal assumptions, which influences the determination of
fair value, may result in a need to recognize an additional
impairment charge. The principal assumptions, all of which are
considered Level 3 inputs, used in our cash flow analyses for the
three months ended February 29, 2020 consisted of:
-- The timing of our return to service, changes in market
conditions and port or other restrictions
-- Forecasted revenues net of our most significant variable
costs, which are travel agent commissions, costs of air and other
transportation, and certain other costs that are directly
associated with onboard and other revenues including credit and
debit card fees
-- The allocation of new ships and the timing of the transfer or
sale of ships amongst brands, as well as the estimated proceeds
from ship sales
-- Weighted-average cost of capital of market participants,
adjusted for the risk attributable to the geographic regions in
which these cruise brands operate
Refer to Note 1 - "General, COVID-19 and the Use of Estimates
and Risks and Uncertainty" for additional discussion.
Impairments of Ships
We review our long-lived assets for impairment whenever events
or circumstances indicate potential impairment. In 2020, as a
result of the effect of COVID-19 on our expected future operating
cash flows and our decisions to dispose of certain ships, we
determined certain impairment triggers had occurred. Accordingly,
we performed undiscounted cash flow analyses on certain ships in
our fleet throughout 2020. Based on these undiscounted cash flow
analyses, we determined that certain ships, specifically those
being disposed of, had net carrying values that exceeded their
estimated undiscounted future cash flows. We determined the fair
values of these ships based on their estimated selling value. We
believe that we have made reasonable estimates and judgments. A
change in the principal assumptions, which influences the
determination of fair value, may result in a need to perform
additional impairment reviews. The principal assumptions, all of
which are considered Level 3 inputs, used in our cash flow analyses
consisted of:
-- Timing of the respective ship's return to service, changes in
market conditions and port or other restrictions
-- Forecasted ship revenues net of our most significant variable
costs, which are travel agent commissions, costs of air and other
transportation and certain other costs that are directly associated
with onboard and other revenues, including credit and debit card
fees
-- Timing of the sale of ships and estimated proceeds
For the three months ended February 29, 2020, we recognized $172
million and $158 million of ship impairment charges in the North
America & Australia ("NAA") and Europe & Asia ("EA")
segments, respectively, included in other operating expenses of our
Consolidated Statements of Income (Loss).
Refer to Note 1 - "General, COVID-19 and the Use of Estimates
and Risks and Uncertainty" for additional discussion.
Derivative Instruments and Hedging Activities
February November
(in millions) Balance Sheet Location 28, 2021 30, 2020
Derivative liabilities
Derivatives designated as hedging
instruments
Accrued liabilities
Interest rate swaps (a) and other $ 5 $ 5
Other long-term
liabilities 5 5
----------- -----------
Total derivative liabilities $ 9 $ 10
===== ==== === ======
(a) We have interest rate swaps designated as cash flow hedges
whereby we receive floating interest rate payments in exchange for
making fixed interest rate payments. These interest rate swap
agreements effectively changed $237 million at February 28, 2021
and $248 million at November 30, 2020 of EURIBOR-based floating
rate euro debt to fixed rate euro debt. At February 28, 2021, these
interest rate swaps settle through 2025.
Our derivative contracts include rights of offset with our
counterparties. We have elected to net certain of our derivative
assets and liabilities within counterparties.
February 28, 2021
Total Net
Gross Amounts Amounts Gross Amounts
Offset in Presented in not Offset
the Balance the Balance in the Balance
(in millions) Gross Amounts Sheet Sheet Sheet Net Amounts
-------------- --------------- --------------- ---------------- ---------------
Assets $ - $ - $ - $ - $ -
Liabilities $ 9 $ - $ 9 $ - $ 9
November 30, 2020
Total Net
Gross Amounts Amounts Gross Amounts
Offset in Presented in not Offset
the Balance the Balance in the Balance
(in millions) Gross Amounts Sheet Sheet Sheet Net Amounts
-------------- --------------- --------------- ---------------- ---------------
Assets $ - $ - $ - $ - $ -
Liabilities $ 10 $ - $ 10 $ - $ 10
The effect of our derivatives qualifying and designated as
hedging instruments recognized in other comprehensive income (loss)
and in net income (loss) was as follows:
Three Months
Ended February
28/29,
-----------------------
(in millions) 2021 2020
---------- -----------
Gains (losses) recognized in AOCI:
Cross currency swaps - net investment hedges - included
component $ - $ (2)
Cross currency swaps - net investment hedges - excluded
component $ - $ 42
Foreign currency zero cost collars - cash flow hedges $ - $ (1)
Foreign currency forwards - cash flow hedges $ - $ 14
Interest rate swaps - cash flow hedges $ 1 $ 1
Gains (losses) reclassified from AOCI - cash flow hedges:
Interest rate swaps - Interest expense, net of capitalized
interest $ (1) $ (2)
Foreign currency zero cost collars - Depreciation and
amortization $ 1 $ -
Gains (losses) recognized on derivative instruments (amount
excluded from effectiveness testing - net investment
hedges)
Cross currency swaps - Interest expense, net of capitalized
interest $ - $ 10
The amount of estimated cash flow hedges' unrealized gains and
losses that are expected to be reclassified to earnings in the next
twelve months is not material.
Financial Risks
Fuel Price Risks
We manage our exposure to fuel price risk by managing our
consumption of fuel. Substantially all of our exposure to market
risk for changes in fuel prices relates to the consumption of fuel
on our ships. We manage fuel consumption through ship maintenance
practices, modifying our itineraries and implementing innovative
technologies.
Foreign Currency Exchange Rate Risks
Overall Strategy
We manage our exposure to fluctuations in foreign currency
exchange rates through our normal operating and financing
activities, including netting certain exposures to take advantage
of any natural offsets and, when considered appropriate, through
the use of derivative and non-derivative financial instruments. Our
primary focus is to monitor our exposure to, and manage, the
economic foreign currency exchange risks faced by our operations
and realized if we exchange one currency for another. We currently
only hedge certain of our ship commitments and net investments in
foreign operations. The financial impacts of the hedging
instruments we do employ generally offset the changes in the
underlying exposures being hedged.
Operational Currency Risks
Our operations primarily utilize the U.S. dollar, Australian
dollar, euro or sterling 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 February
28, 2021, we have designated $718 million of our
sterling-denominated debt as non-derivative hedges of our net
investments in foreign operations. For the three months ended
February 28, 2021, we recognized $42 million of losses on these
non-derivative net investment hedges in the cumulative translation
adjustment section of other comprehensive income (loss). We also
have $9.6 billion of 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. We use foreign currency derivative contracts to
manage foreign currency exchange rate risk for some of our ship
construction payments.
At February 28, 2021, our remaining newbuild currency exchange
rate risk primarily relates to euro-denominated newbuild contract
payments to non-euro functional currency brands, which represent a
total unhedged commitment of $7.0 billion for newbuilds scheduled
to be delivered through 2025.
The cost of shipbuilding orders that we may place in the future
that is denominated in a different currency than our cruise brands'
will be affected by foreign currency exchange rate fluctuations.
These foreign currency exchange rate fluctuations may affect our
decision to order new cruise ships.
Interest Rate Risks
We manage our exposure to fluctuations in interest rates through
our debt portfolio management and investment strategies. We
evaluate our debt portfolio to determine whether to make periodic
adjustments to the mix of fixed and floating rate debt through the
use of interest rate swaps and the issuance of new debt.
Concentrations of Credit Risk
As part of our ongoing control procedures, we monitor
concentrations of credit risk associated with financial and other
institutions with which we conduct significant business. We seek to
manage these credit risk exposures, including counterparty
nonperformance primarily associated with our cash equivalents,
investments, notes receivables, future financing facilities,
contingent obligations, derivative instruments, insurance
contracts, long-term ship charters and new ship progress payment
guarantees, by:
-- Conducting business with well-established financial
institutions, insurance companies and export credit agencies
-- Diversifying our counterparties
-- Having guidelines regarding credit ratings and investment
maturities that we follow to help safeguard liquidity and minimize
risk
-- Generally requiring collateral and/or guarantees to support
notes receivable on significant asset sales, long-term ship
charters and new ship progress payments to shipyards
At February 28, 2021, our exposures under derivative instruments
were not material. We also monitor the creditworthiness of travel
agencies and tour operators in Asia, Australia and Europe, which
includes charter-hire agreements in Asia and credit and debit card
providers to which we extend credit in the normal course of our
business. Concentrations of credit risk associated with trade
receivables and other receivables, charter-hire agreements and
contingent obligations are not considered to be material,
principally due to the large number of unrelated accounts, the
nature of these contingent obligations and their short maturities.
Normally, we have not required collateral or other security to
support normal credit sales. Historically, we have not experienced
significant credit losses, including counterparty nonperformance,
however, because of the impact COVID-19 is having on economies, we
have experienced, and may continue to experience, an increase in
credit losses.
Our credit exposure also includes contingent obligations related
to cash payments received directly by travel agents and tour
operators for cash collected by them on cruise sales in Australia
and most of Europe where we are obligated to honor our guests'
cruise payments made by them to their travel agents and tour
operators regardless of whether we have received these
payments.
NOTE 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 and Chief
Executive Officer of Carnival Corporation and Carnival plc. The
CODM assesses performance and makes decisions to allocate resources
for Carnival Corporation & plc based upon review of the results
across all of our segments. Our four reportable segments are
comprised of (1) NAA cruise operations, (2) EA cruise operations,
(3) Cruise Support and (4) Tour and Other.
The operating segments within each of our NAA and EA reportable
segments have been aggregated based on the similarity of their
economic and other characteristics, including geographic guest
sourcing. Our Cruise Support segment includes our portfolio of
leading port destinations and other services, all of which are
operated for the benefit of our cruise brands. Our Tour and Other
segment represents the hotel and transportation operations of
Holland America Princess Alaska Tours and other operations.
Three Months Ended February 28/29,
Operating Selling Depreciation
costs and and and Operating
(in millions) Revenues expenses administrative amortization income (loss)
------------ ------------ ----------------- --------------- ---------------
2021
NAA $ 10 $ 316 $ 220 $ 334 $ (859)
EA 8 198 108 184 (482)
Cruise Support - 8 129 28 (164)
Tour and Other 7 13 6 6 (18)
------------ ------------ ----------------- --------------- ---------------
$ 26 $ 535 $ 462 $ 552 $ (1,524)
=== ======= === ======= ==== =========== ==== ========= ===========
2020
NAA $ 3,140 $ 2,274 $ 400 $ 364 $ (197) (a)
EA 1,552 1,317 207 166 (569) (b)
Cruise Support 44 (87) 65 32 35
Tour and Other 52 19 7 8 18
------------ ------------ ----------------- --------------- ---------------
$ 4,789 $ 3,523 $ 678 $ 570 $ (713)
=== ======= === ======= ==== =========== ==== ========= ===========
(a) Includes $300 million of goodwill impairment charges.
(b) Includes $431 million of goodwill impairment charges.
Revenue by geographic areas, which are based on where our guests
are sourced, were as follows:
Three Months
Ended
February 29,
(in millions) 2020
-----------------
North America $ 2,647
Europe 1,367
Australia and Asia 615
Other 161
---------------
$ 4,789
=== ==========
As a result of the pause in our guest cruise operations, we have
experienced essentially no revenue for the three months ended
February 28, 2021 and as a result current year data is not
meaningful and is not included in the table.
NOTE 7 - Earnings Per Share
Three Months Ended
February 28/29,
------------------------
(in millions, except per share data) 2021 2020
------------ ----------
Net income (loss) for basic and diluted earnings per
share $ (1,973) $ (781)
======== =======
Weighted-average shares outstanding 1,095 684
Dilutive effect of equity plans - -
------------ --------
Diluted weighted-average shares outstanding 1,095 684
============ ========
Basic earnings per share $ (1.80) $ (1.14)
======== =======
Diluted earnings per share $ (1.80) $ (1.14)
======== =======
Antidilutive shares excluded from diluted earnings per share
computations were as follows:
Three Months Ended
February 28/29,
(in millions) 2021 2020
--------------- ------
Equity awards 3 1
Convertible Notes 54 -
--------------- ----
Total antidilutive securities 56 1
=============== ====
Equity Offering
In February 2021, we completed a public offering of 40.5 million
shares of Carnival Corporation's common stock at a price per share
of $25.10, resulting in net proceeds of $996 million.
NOTE 8 - Supplemental Cash Flow Information
February 28, November 30,
(in millions) 2021 2020
-------------- ----------------
Cash and cash equivalents (Consolidated
Balance Sheets) $ 9,674 $ 9,513
Restricted cash included in prepaid expenses
and other and other assets 155 179
-------------- --------------
Total cash, cash equivalents and restricted
cash (Consolidated Statements of Cash Flows) $ 9,829 $ 9,692
========== ==========
NOTE 9 - Other Assets
We have a minority interest in the White Pass & Yukon Route
("White Pass") that includes port, railroad and retail
operations
in Skagway, Alaska. As a result of the effects of COVID-19 on
the 2021 Alaska season, we evaluated whether our investment in
White Pass was other than temporarily impaired and performed an
impairment assessment during the quarter ended February 28, 2021.
As a result of our assessment, we recognized an impairment charge
of $17 million for our investment in White Pass in other income
(expense), net. As of February 28, 2021, our investment in White
Pass was $76 million, consisting of $57 million in equity and a
loan of $19 million. As of November 30, 2020, our investment in
White Pass was $94 million, consisting of $75 million in equity and
a loan of $19 million.
We have a minority interest in CSSC Carnival Cruise Shipping
Limited ("CSSC-Carnival"), a China-based cruise company which will
operate its own fleet designed to serve the Chinese market. Our
investment in CSSC-Carnival was $139 million as of February 28,
2021 and $140 million as of November 30, 2020. In December 2019, we
sold to CSSC-Carnival a controlling interest in an entity with full
ownership of two EA segment ships and recognized a related gain of
$107 million, included in other operating expenses in our
Consolidated Statements of Income (Loss). As of February 28, 2021
and November 30, 2020, our investment in the minority interest of
this entity was $283 million.
NOTE 10 - Property and Equipment
Ship Sales
Since the pause in guest cruise operations, we have accelerated
the removal of ships which were previously expected to be sold over
the ensuing years. During the first quarter of 2021, we completed
the sale of one NAA segment ship, which represents a
passenger-capacity reduction of 670 for our NAA segment.
SCHEDULE B
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. 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," "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 * Estimates of ship depreciable lives and residual
values
* Booking levels * Goodwill, ship and trademark fair values
* Liquidity and credit ratings
* Occupancy
* Adjusted earnings per share
* Interest, tax and fuel expenses
* Currency exchange rates
* Impact of the COVID-19 coronavirus global pandemic on
our financial condition and results of operations
Because forward-looking statements involve risks and
uncertainties, there are many factors that could cause our actual
results, performance or achievements to differ materially from
those expressed or implied by our forward-looking statements. This
note contains important cautionary statements of the known factors
that we consider could materially affect the accuracy of our
forward-looking statements and adversely affect our business,
results of operations and financial position. Additionally, many of
these risks and uncertainties are currently amplified by and will
continue to be amplified by, or in the future may be amplified by,
the COVID-19 outbreak. It is not possible to predict or identify
all such risks. There may be additional risks that we consider
immaterial or which are unknown. These factors include, but are not
limited to, the following:
-- COVID-19 has had, and is expected to continue to have, a
significant impact on our financial condition and operations, which
impacts our ability to obtain acceptable financing to fund
resulting reductions in cash from operations. The current, and
uncertain future, impact of the COVID-19 outbreak, including its
effect on the ability or desire of people to travel (including on
cruises), is expected to continue to impact our results,
operations, outlooks, plans, goals, reputation, litigation, cash
flows, liquidity, and stock price.
-- As a result of the COVID-19 outbreak, we may be out of
compliance with one or more maintenance covenants in certain of our
debt facilities, with the next testing date of November 30,
2022.
-- World events impacting the ability or desire of people to
travel have and may continue to lead to a decline in demand for
cruises.
-- Incidents concerning our ships, guests or the cruise vacation
industry as well as adverse weather conditions and other natural
disasters have in the past and may, in the future, impact the
satisfaction of our guests and crew and lead to reputational
damage.
-- Changes in and non-compliance with laws and regulations under
which we operate, such as those relating to health, environment,
safety and security, data privacy and protection, anti-corruption,
economic sanctions, trade protection and tax have in the past and
may, in the future, lead to litigation, enforcement actions, fines,
penalties and reputational damage.
-- 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, including
the recent ransomware incidents, 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.
-- Ability to recruit, develop and retain qualified shipboard
personnel who live away from home for extended periods of time may
adversely impact our business operations, guest services and
satisfaction.
-- Increases in fuel prices, changes in the types of fuel
consumed and availability of fuel supply may adversely impact our
scheduled itineraries and costs.
-- Fluctuations in foreign currency exchange rates may adversely impact our financial results.
-- Overcapacity and competition in the cruise and land-based
vacation industry may lead to a decline in our cruise sales,
pricing and destination options.
-- Inability to implement our shipbuilding programs and ship
repairs, maintenance and refurbishments may adversely impact our
business operations and the satisfaction of our guests.
The ordering of the risk factors set forth above is not intended
to reflect our indication of priority or likelihood.
Forward-looking statements should not be relied upon as a
prediction of actual results. Subject to any continuing obligations
under applicable law or any relevant stock exchange rules, we
expressly disclaim any obligation to disseminate, after the date of
this document, any updates or revisions to any such forward-looking
statements to reflect any change in expectations or events,
conditions or circumstances on which any such statements are
based.
Recent Developments
Resumption of Guest Operations
The company is uniquely positioned for a phased resumption in
cruise travel given its multiple brands which can each be restarted
independently and tailored to the environment of their respective
source market. AIDA Cruises ("AIDA") resumed guest cruise
operations in late March sailing in the Canary Islands. Costa
Cruises ("Costa") expects to resume operations in May sailing to
Italian ports. P&O Cruises (UK), Cunard and Princess Cruises
will each offer a series of cruises this summer sailing around UK
coastal waters with P&O Cruises (UK) kicking off the season in
June followed by Cunard and Princess Cruises in July. Seabourn also
expects to resume guest cruise operations this summer sailing from
Greece. In addition, this summer Holland America Line and Princess
Cruises expect to offer land-based vacation options for travelers
to experience Alaska through a combination of tours, lodging and
sightseeing.
Health and Safety Protocols
Initial cruises are taking place with adjusted passenger
capacity and enhanced health protocols developed with government
and health authorities, and guidance from the company's roster of
medical and scientific experts. The company has been working with a
number of world-leading public health, epidemiological and policy
experts to support its ongoing efforts with enhanced health and
safety protocols to help protect against and mitigate the impact of
COVID-19 during cruise vacations. The company's brands have a
comprehensive set of health and hygiene protocols that facilitate a
safe and healthy return to cruise vacations. These enhanced
protocols are modeled after shoreside health and mitigation
guidelines as provided by each brand's respective country, and
approved by all relevant regulatory authorities. Protocols will be
updated based on evolving scientific and medical knowledge related
to mitigation strategies. In addition to the jurisdictions
associated with the restart plans noted above, the company
continues to work closely with governments and health authorities
in other parts of the world to ensure that its health and safety
protocols will also comply with the requirements of each
location.
Update on Liquidity
Refer to "Liquidity, Financial Condition and Capital
Resources."
Refer to "Risk Factors" - "COVID-19 has had, and is expected to
continue to have, a significant impact on our financial condition
and operations, which impacts our ability to obtain acceptable
financing to fund resulting reductions in cash from operations. The
current, and uncertain future, impact of the COVID-19 outbreak,
including its effect on the ability or desire of people to travel
(including on cruises), is expected to continue to impact our
results, operations, outlooks, plans, goals, reputation,
litigation, cash flows, liquidity, and stock price."
New Accounting Pronouncements
Refer to Note 1 - "General, Accounting Pronouncements" of the
consolidated financial statements for additional discussion
regarding accounting pronouncements.
Critical Accounting Estimates
For a discussion of our critical accounting estimates, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" that is included in the Form 10-K.
Seasonality
Our passenger ticket revenues are seasonal. Historically, demand
for cruises has been greatest during our third quarter, which
includes the Northern Hemisphere summer months, although 2021 will
continue to be adversely impacted by COVID-19. 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 earned during this period. This historical
trend has been disrupted by the pause in global cruise operations.
In addition, substantially all of Holland America Princess Alaska
Tours' revenue and net income (loss) is generated from May through
September in conjunction with Alaska's cruise season. During 2021,
the Alaska cruise season will continue to be adversely impacted by
the effects of COVID-19.
Statistical Information
Three Months Ended
February 28/29,
------------------------
2021 2020
------------ ----------
Fuel consumption in metric tons (in thousands) 262 831
Fuel cost per metric ton consumed $ 392 $ 477
Currencies (USD to 1)
AUD $ 0.77 $ 0.68
CAD $ 0.78 $ 0.76
EUR $ 1.21 $ 1.10
GBP $ 1.36 $ 1.31
RMB $ 0.15 $ 0.14
We paused our guest cruise operations in mid-March 2020 and have
been in a pause for a majority of 2020 and the first quarter of
2021. The pause in guest cruise operations is continuing to have
material negative impacts on all aspects of our business, including
the above statistical information.
Results of Operations
Consolidated
Three Months
Ended February
28/29,
------------------- --------
% increase
(in millions) 2021 2020 Change (decrease)
----------- ------ -------- -------------
Revenues
Passenger ticket $ 3 $3,234 $(3,231) (100)%
Onboard and other 23 1,556 (1,533) (99)%
----------- ------ -------- --------
26 4,789 (4,764) (99)%
----------- ------ -------- --------
Operating Costs and Expenses
Commissions, transportation and other 15 766 (752) (98)%
Onboard and other 7 471 (464) (99)%
Payroll and related 218 610 (392) (64)%
Fuel 103 396 (294) (74)%
Food 11 277 (266) (96)%
Ship and other impairments - 330 (330) (100)%
Other operating 181 671 (490) (73)%
----------- ------ -------- --------
535 3,523 (2,988) (85)%
Selling and administrative 462 678 (216) (32)%
Depreciation and amortization 552 570 (18) (3)%
Goodwill impairment - 731 (731) (100)%
----------- ------ -------- --------
1,549 5,502 (3,953) (72)%
----------- ------ -------- --------
Operating Income (Loss) $ (1,524) $(713) $ (810) 114%
======= ===== ======= ========
NAA
Three Months
Ended February
28/29,
------------------- --------
% increase
(in millions) 2021 2020 Change (decrease)
---------- ------- -------- -------------
Revenues
Passenger ticket $ - $ 2,052 $(2,053) (100)%
Onboard and other 11 1,088 (1,078) (99)%
---------- ------- -------- --------
10 3,140 (3,130) (100)%
---------- ------- -------- --------
Operating Costs and Expenses 316 2,274 (1,958) (86)%
Selling and administrative 220 400 (180) (45)%
Depreciation and amortization 334 364 (30) (8)%
Goodwill impairment - 300 (300) (100)%
---------- ------- -------- --------
870 3,337 (2,468) (74)%
---------- ------- -------- --------
Operating Income (Loss) $ (859) $ (197) $ (663) 337%
====== ====== ======= ========
EA
Three Months
Ended February
28/29,
------------------- --------
% increase
(in millions) 2021 2020 Change (decrease)
---------- ------- -------- -------------
Revenues
Passenger ticket $ 3 $ 1,213 $(1,210) (100)%
Onboard and other 5 339 (334) (99)%
---------- ------- -------- --------
8 1,552 (1,544) (99)%
---------- ------- -------- --------
Operating Costs and Expenses 198 1,317 (1,119) (85)%
Selling and administrative 108 207 (99) (48)%
Depreciation and amortization 184 166 18 11%
Goodwill impairment - 431 (431) (100)%
---------- ------- -------- --------
490 2,121 (1,631) (77)%
---------- ------- -------- --------
Operating Income (Loss) $ (482) $ (569) $ 87 (15)%
====== ====== ======= ========
We paused our guest cruise operations in mid-March 2020. We
resumed limited guest cruise operations in September 2020 as part
of our phased return to service. As of February 28, 2021, none of
our ships were operating with guests onboard. The pause in guest
cruise operations is continuing to have material negative impacts
on all aspects of our business. The longer the pause in guest
operations continues, the greater the impact on our liquidity and
financial position.
As a result of the pause in our guest cruise operations, we have
experienced essentially no revenue for the three months ended
February 28, 2021. This has resulted in an operating loss for the
current period. The pause in guest cruise operations continues to
have a material negative impact on all aspects of our business,
including our liquidity, financial position and results of
operations. We continue to expect a net loss on both a U.S. GAAP
and adjusted basis for the second quarter of 2021 and the full year
ending November 30, 2021.
While maintaining compliance, environmental protection and
safety, we significantly reduced ship operating expenses, including
cruise payroll and related expenses, food, fuel, insurance and port
charges by transitioning ships into paused status, either at anchor
or in port and staffed at a safe manning level. We continue to
identify and implement actions to optimize our ongoing ship
operating expenses.
As we continue to resume guest cruise operations, we expect to
incur incremental spend relating to bringing our ships out of pause
status, returning crew members to our ships and implementing the
enhanced health and safety protocols.
There were no goodwill or ship impairment charges for the three
months ended February 28, 2021. As a result of the effects of
COVID-19 on our expected future operating cash flows, we recognized
goodwill impairment charges of $731 million and ship impairment
charges of $330 million for the three months ended February 29,
2020.
Nonoperating Income (Expense)
Interest expense, net of capitalized interest, increased by $343
million to $398 million in 2021 from $55 million in 2020. The
increase was caused by additional debt borrowings with higher
interest rates since the pause in guest cruise operations.
Key Performance Non-GAAP Financial Indicators
The table below reconciles Adjusted net income (loss) and
Adjusted EBITDA to Net income (loss) and Adjusted earnings per
share to Earnings per share for the periods presented:
Three Months Ended
February 28/29,
------------------------
(in millions, except per share data) 2021 2020
------------ ----------
Net income (loss)
U.S. GAAP net income (loss) $ (1,973) $ (781)
(Gains) losses on ship sales and impairments 3 928
Restructuring expenses - -
Other 15 3
------------ --------
Adjusted net income (loss) $ (1,954) $ 150
-------- -------
Interest expense, net of capitalized interest 398 55
Interest income (3) (5)
Income tax expense, net (6) 11
Depreciation and amortization 552 570
------------ --------
Adjusted EBITDA $ (1,014) $ 782
======== =======
Weighted-average shares outstanding 1,095 684
============ ========
Earnings per share
U.S. GAAP diluted earnings per share $ (1.80) $ (1.14)
(Gains) losses on ship sales and impairments - 1.36
Restructuring expenses - -
Other 0.01 0.01
------------ --------
Adjusted earnings per share $ (1.79) $ 0.22
======== =======
Explanations of Non-GAAP Financial Measures
We use adjusted net income (loss) and adjusted earnings per
share as non-GAAP financial measures of our cruise segments' and
the company's financial performance. These non-GAAP financial
measures are provided along with U.S. GAAP net income (loss) and
U.S. GAAP diluted earnings per share.
We believe that gains and losses on ship sales, impairment
charges, restructuring costs and other gains and losses are not
part of our core operating business and are not an indication of
our future earnings performance. Therefore, we believe it is more
meaningful for these items to be excluded from our net income
(loss) and earnings per share and, accordingly, we present adjusted
net income (loss) and adjusted earnings per share excluding these
items.
Adjusted EBITDA is a non-GAAP measure, and we believe that the
presentation of Adjusted EBITDA provides additional information to
investors about our operating profitability adjusted for certain
non-cash items and other gains and expenses that we believe are not
part of our core operating business and are not an indication of
our future earnings performance. Further, we believe that the
presentation of Adjusted EBITDA provides additional information to
investors about our ability to operate our business in compliance
with the restrictions set forth in our debt agreements. We define
Adjusted EBITDA as adjusted net income (loss) adjusted for (i)
interest, (ii) taxes and (iii) depreciation and amortization. There
are material limitations to using Adjusted EBITDA. Adjusted EBITDA
does not take into account certain significant items that directly
affect our net income (loss). These limitations are best addressed
by considering the economic effects of the excluded items
independently, and by considering Adjusted EBITDA in conjunction
with net income (loss) as calculated in accordance with U.S.
GAAP.
The presentation of our non-GAAP financial information is not
intended to be considered in isolation from, as substitute for, or
superior to the financial information prepared in accordance with
U.S. GAAP. It is possible that our non-GAAP financial measures may
not be exactly comparable to the like-kind information presented by
other companies, which is a potential risk associated with using
these measures to compare us to other companies.
Liquidity, Financial Condition and Capital Resources
We have taken, and continue to take, significant actions to
preserve cash and obtain additional financing to increase our
liquidity. Since the start of the pause in guest cruise operations
in March 2020, we have raised $23.6 billion through a series of
transactions. S ince December 2020, we have raised $6.0 billion
including completing the following:
-- In December 2020, we borrowed $1.5 billion under export
credit facilities due in semi-annual installments through 2033.
-- In February 2021, we issued an aggregate principal amount of
$3.5 billion under the 2027 Senior Unsecured Notes that mature on
March 1, 2027. The 2027 Senior Unsecured Notes bear interest at a
rate of 5.8% per year.
-- In February 2021, we completed a public offering of 40.5
million shares of Carnival Corporation's common stock at a price
per share of $25.10, resulting in net proceeds of $996 million.
-- During the first quarter of 2021, we obtained waivers of
compliance with the Interest Coverage Covenant and Debt to Capital
Covenant in our export credit facilities through August 31, 2022
(with the next testing date of November 30, 2022) or November 30,
2022 (with the next testing date of February 28, 2023) for our
funded export credit facilities with aggregate indebtedness of $8.9
billion as of February 28, 2021 and unfunded export credit
facilities with an aggregate principal amount of $6.5 billion as of
February 28, 2021.
-- During the first quarter of 2021 we entered into supplemental
agreements with respect to our Revolving Credit Facility and many
of our bank loans. Under our Revolving Credit Facility and many of
our bank loans, we are now required to maintain the Interest
Coverage Covenant from February 28, 2023, at a ratio of not less
than 2.0 to 1.0 for the February 28, 2023 and May 31, 2023 testing
dates, 2.5 to 1.0 for the August 31, 2023 and November 30, 2023
testing dates, and 3.0 to 1.0 from the February 28, 2024 testing
date onwards, or through their respective maturity dates, and the
Debt to Capital Covenant at the end of each fiscal quarter before
the November 30, 2021 testing date at a percentage not to exceed
65%. From the November 30, 2021 testing date until the May 31, 2023
testing date the Debt to Capital Covenant is not to exceed 75%,
following which it will be tested at levels which decline ratably
to 65% from the May 31, 2024 testing date onwards.
As of February 28, 2021, we had $11.5 billion of cash and
short-term investments. During the remainder of fiscal 2021, the
company expects to refinance debt at lower interest rates and
extend maturities. Our access to and cost of financing depend on,
among other things, global economic conditions, conditions in the
global financing markets, the availability of sufficient amounts of
financing, our prospects and our credit ratings. In addition,
certain of our debt instruments contain provisions that may limit
our ability to incur or guarantee additional indebtedness.
Our monthly average cash burn rate for the first quarter of 2021
was $500 million, which was better than expected primarily due to
the timing of capital expenditures. We expect our monthly average
cash burn rate for the first half of 2021 to be approximately $550
million, which is better than previously expected. This is a result
of our efforts to optimize our monthly spend despite higher restart
related spend. This monthly average cash burn rate includes ongoing
ship operating and administrative expenses, estimated restart
spend, working capital changes (excluding changes in customer
deposits), interest expense and capital expenditures (net of export
credit facilities), and excludes scheduled debt maturities as well
as other cash collateral to be provided (which may increase in the
future). As we continue to resume guest cruise operations, we
expect to incur incremental spend relating to bringing our ships
out of pause status, returning crew members to our ships and
implementing the enhanced health and safety protocols. We have
identified and implemented actions to optimize our monthly cash
burn rate and we will continue to do so.
We had working capital of $3.8 billion as of February 28, 2021
compared to working capital of $1.9 billion as of November 30,
2020. The increase in working capital was caused by an increase in
cash and short-term investments. Historically, during our normal
operations, we operate with a substantial working capital deficit.
This deficit is mainly attributable to the fact that, under our
business model, substantially all of our passenger ticket receipts
are collected in advance of the applicable sailing date. These
advance passenger receipts generally remain a current liability
until the sailing date. The cash generated from these advance
receipts is used interchangeably with cash on hand from other
sources, such as our borrowings and other cash from operations. The
cash received as advanced receipts can be used to fund operating
expenses, pay down our debt, make long-term investments or any
other use of cash. Included within our working capital are $1.8
billion and $1.9 billion of customer deposits as of February 28,
2021 and November 30, 2020, respectively. We have paid and expect
to continue to pay cash refunds of customer deposits with respect
to a portion of cancelled cruises. The amount of cash refunds to be
paid may depend on the level of guest acceptance of FCCs and future
cruise cancellations. We record a liability for FCCs only to the
extent we have received cash from guests with bookings on cancelled
sailings. In addition, we have a relatively low-level of accounts
receivable and limited investment in inventories. We expect that we
will have working capital deficits in the future once we return to
normal guest cruise operations.
Refer to Note 1 - "General, Liquidity and Management's Plans" of
the consolidated financial statements for additional discussion
regarding our liquidity.
Sources and Uses of Cash
Operating Activities
Our business used $1.5 billion of net cash flows in operating
activities during the three months ended February 28, 2021, a
decrease of $2.4 billion, compared to $916 million of net cash
provided for the same period in 2020.
Investing Activities
During the three months ended February 28, 2021, net cash used
in investing activities was $3.6 billion. This was driven by the
following:
-- Capital expenditures of $1.7 billion for our ongoing new shipbuilding program
-- Capital expenditures of $81 million for ship improvements and
replacements, information technology and buildings and
improvements
-- Purchases of short-term investments of $1.8 billion
During the three months ended February 29, 2020, net cash used
in investing activities was $1.2 billion. This was substantially
due to the following:
-- Capital expenditures of $861 million for our ongoing new shipbuilding program
-- Capital expenditures of $399 million for ship improvements
and replacements, information technology and buildings and
improvements
-- Proceeds from sales of ships of $226 million
-- Purchase of minority interest of $81 million
Financing Activities
During the three months ended February 28, 2021, net cash
provided by financing activities of $5.2 billion was caused by the
following:
-- Repayments of $668 million of long-term debt
-- Issuances of $5.0 billion of long-term debt, including net
proceeds of $3.4 billion from the issuance of the 2027 Senior
Unsecured Notes
-- Net proceeds of $996 million from our public equity offering
of Carnival Corporation common stock
During the three months ended February 29, 2020, net cash
provided by financing activities of $1.1 billion was caused by the
following:
-- Net proceeds from short-term borrowings of $779 million in
connection with our availability of, and needs for, cash at various
times throughout the period
-- Repayments of $132 million of long-term debt
-- Issuances of $823 million of long-term debt
-- Payments of cash dividends of $344 million
-- Purchases of $12 million of Carnival plc ordinary shares in
open market transactions under our Repurchase Program
Funding Sources
As of February 28, 2021, we had $11.5 billion of cash and
short-term investments. In addition, we had $6.5 billion of export
credit facilities to fund ship deliveries planned through 2024.
(in billions) 2021 2022 2023 2024
---- ---- ---- ------
Future export credit facilities at February
28, 2021 (a) $0.5 $3.4 $1.9 $0.6
(a) Under the terms of these export credit facilities, we are
required to comply with the Interest Coverage Covenant and the Debt
to Capital Covenant, among others. We entered into supplemental
agreements to waive compliance with the Interest Coverage Covenant
and the Debt to Capital Covenant for our unfunded export credit
facilities through August 31, 2022 or November 30, 2022, as
applicable. We will be required to comply beginning with the next
testing date of November 30, 2022 or February 28, 2023, as
applicable.
Many of our debt agreements contain various other financial
covenants, including those described in Note 3 - "Debt" and in Note
5 - "Debt" in the annual consolidated financial statements, which
are included within our Form 10-K. At February 28, 2021, 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, including the effect of interest
rate swaps, was as follows:
February 28,
2021
--------------
Fixed rate 48%
EUR fixed rate 13%
Floating rate 20%
EUR floating rate 17%
GBP floating rate 2%
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 and Chief Executive Officer and our Chief
Financial Officer and Chief Accounting Officer have evaluated our
disclosure controls and procedures and have concluded, as of
February 28, 2021, 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 February 28, 2021 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.
In addition to the proceeding described below, the legal
proceedings described in Note 4 - "Contingencies and Commitments"
of our consolidated financial statements, including those described
under "COVID-19 Actions," are incorporated in this "Legal
Proceedings" section by reference. Additionally, SEC rules require
disclosure of certain environmental matters when a governmental
authority is a party to the proceedings and such proceedings
involve potential monetary sanctions that we believe will exceed $1
million for such proceedings.
As previously disclosed, on May 19, 2017, Holland America Line
and Princess Cruises notified the National Oceanic and Atmospheric
Administration regarding discharges made by certain vessels in the
recently expanded area of the National Marine Sanctuary in the
Farallones Island. On February 7, 2021, the parties reached a
global settlement under which Holland America Line and Princess
Cruises will pay $0.8 million on an incremental payment plan
through January 2023.
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.
COVID-19 and Liquidity/Debt Related Risk Factors
-- COVID-19 has had, and is expected to continue to have, a
significant impact on our financial condition and operations, which
impacts our ability to obtain acceptable financing to fund
resulting reductions in cash from operations. The current, and
uncertain future, impact of the COVID-19 outbreak, including its
effect on the ability or desire of people to travel (including on
cruises), is expected to continue to impact our results,
operations, outlooks, plans, goals, reputation, litigation, cash
flows, liquidity, and stock price.
The COVID-19 global pandemic is having material negative impacts
on all aspects of our business. We implemented a pause of our guest
cruise operations in mid-March 2020 across all brands. Although we
began the resumption of limited guest cruise operations in
September 2020 with cruises by Costa and in October 2020 with
cruises by AIDA, as of February 28, 2021, none of our ships were
operating with guests onboard. The pause with respect to these and
other brands and ships may be prolonged. In addition, we have been,
and will continue to be negatively impacted by related
developments, including heightened governmental regulations, travel
bans and travel advisories and restrictions and recommendations by
the U.S. Department of State, the Centers for Disease Control and
Prevention ("CDC") and other governmental authorities.
We incurred significant costs as we paused our guest cruise
operations, provided air transportation to return our passengers to
their home destinations, repatriated shipboard team members and
assisted some of our crew that were unable to return home with food
and housing. We will continue to incur COVID-19 related costs as we
implement additional hygiene-related protocols to our ships, as
well as prepare for the continued resumption of guest cruise
operations. In addition, the industry is subject to and may be
further subject to enhanced health and hygiene requirements in
attempts to counteract future outbreaks, and these requirements may
be costly and take a significant amount of time to implement across
our global cruise operations. In October 2020, the CDC announced a
framework for a phased resumption of cruise ship passenger
operations in U.S. waters that is currently uncertain and will
require further evaluation as we seek to resume operations.
Implementing these requirements may result in an increase in costs
and take time before the resumption of our guest cruise
operations.
Due to the outbreak of COVID-19 on some of our ships, and the
resulting illness and loss of life in certain instances, we have
been the subject of negative publicity, which could have a long
term impact on the appeal of our brands, which would diminish
demand for vacations on our vessels. We cannot predict how long the
negative impact of media attention on our brands will last, or the
level of investment that will be required to address the concerns
of potential travelers through marketing and pricing actions.
We have received, and may continue to receive, lawsuits, other
governmental investigations and other actions stemming from
COVID-19. We cannot predict the quantum or outcome of any such
proceedings, some of which could result in the imposition of civil
and criminal penalties in the future, and the impact that they will
have on our financial results, but any such impact may be material.
We also remain subject to extensive, complex, and closely monitored
obligations under the court-ordered environmental compliance plan
supervised by the U.S. District Court for the Southern District of
Florida, as a result of the previously disclosed settlement
agreement relating to the violation of probation conditions for a
plea agreement entered into by Princess Cruises and the U.S.
Department of Justice in 2016. We remain fully committed to
satisfying those obligations.
We have insurance coverage for certain liabilities, costs and
expenses related to COVID-19 through our participation in
Protection and Indemnity ("P&I") clubs, including coverage for
direct and incremental costs including, but not limited to, certain
quarantine expenses and for certain liabilities to passengers and
crew. P&I clubs are mutual indemnity associations owned by
members. There is a $10 million deductible per occurrence (meaning
per outbreak on a particular ship). We cannot assure you that we
will receive insurance proceeds that will compensate us fully for
our liabilities, costs and expenses that exceed the $10 million
deductible under these policies. We have no insurance coverage for
loss of revenues or earnings from our ships or other
operations.
In connection with our capacity optimization strategy, we have
accelerated the removal of ships from our fleet which were
previously expected to be sold over the ensuing years. We have
sold, expect to sell or have agreements for the disposal of various
vessels. Some of these agreements for the disposal of vessels are
for recycling. When we choose to dispose of a ship, there can be no
assurance that there will be a viable buyer to purchase it at a
price that exceeds our net book value, which could result in ship
impairment charges and losses on ship disposals.
The effects of COVID-19 on the operations of shipyards where our
ships are under construction will result in a delay in ship
deliveries.
We cannot predict the timing of our complete return to service
and when various ports will reopen to our ships. If we are delayed
in recommencing guest cruise operations or there is a further pause
in the resumption of limited guest cruise operations, it could
further negatively impact our liquidity. As our business is
seasonal, the impact of a delay or further pause in the resumption
of guest cruise operations will be heightened if such delay or
pause occurs during the Northern Hemisphere summer months.
Moreover, even as travel advisories and restrictions are lifted,
demand for cruises may remain weak for a significant length of time
and we cannot predict if and when each brand will return to
pre-outbreak demand or fare pricing. In particular, our bookings
may be negatively impacted by the adverse changes in the perceived
or actual economic climate, including higher unemployment rates,
declines in income levels and loss of personal wealth resulting
from the impact of COVID-19. In addition, we cannot predict the
impact COVID-19 will have on our partners, such as travel agencies,
suppliers and other vendors, counterparties and joint ventures. We
may be adversely impacted as a result of the adverse impact our
partners, counterparties and joint ventures suffer.
We have never previously experienced a complete cessation of our
guest cruise operations, and as a consequence, our ability to be
predictive regarding the impact of such a cessation on our brands
and future prospects is uncertain. In particular, we cannot predict
the impact on our financial performance and cash flows (including
as required for cash refunds of deposits) as a result of the
current pause in our guest cruise operations, which may be
prolonged, and the public's concern regarding the health and safety
of travel, especially by cruise ship, and related decreases in
demand for travel and cruising. Moreover, our ability to attract
and retain guests and our ability to hire and the amounts we must
pay our crew depends, in part, upon the perception and reputation
of our company and our brands and the public's concerns regarding
the health and safety of travel generally, as well as regarding the
cruising industry and our ships specifically.
Our access to and cost of financing depends on, among other
things, global economic conditions, conditions in the global
financing markets, the availability of sufficient amounts of
financing, our prospects and our credit ratings. As a result of
COVID-19's effects on our operations, Moody's and S&P Global
have downgraded our credit ratings to be non-investment grade. If
we are delayed in recommencing guest cruise operations or there is
a further pause in the resumption of limited guest cruise
operations, our credit ratings were to be further downgraded, or
general market conditions were to ascribe higher risk to our rating
levels, our industry, or us, our access to capital and the cost of
any debt or equity financing will be further negatively impacted.
In addition, the terms of future debt agreements could include more
restrictive covenants, or require incremental collateral, which may
further restrict our business operations or be unavailable due to
our covenant restrictions then in effect. There is no guarantee
that debt or equity financings will be available in the future to
fund our obligations, or that they will be available on terms
consistent with our expectations. Additionally, the impact of
COVID-19 on the financial markets may adversely impact our ability
to raise funds.
In addition, the COVID-19 outbreak has significantly increased
economic and demand uncertainty. The current outbreak and continued
spread of COVID-19 has caused a global recession, which could have
a further adverse impact on our financial condition and operations.
In past recessions, demand for our cruise vacations has been
significantly negatively impacted which has resulted in lower
occupancy rates and adverse pricing, with a corresponding increase
in the use of credits and other means to attract travelers.
Significant increases in unemployment in the U.S. and other regions
due to the adoption of physical distancing and other policies to
slow the spread of the virus have had, and are likely to continue
to have, a negative impact on booking demand for our guest cruise
operations, and these impacts could exist for an extensive period
of time.
The extent of the effects of the outbreak on our business and
the cruising industry at large is highly uncertain and will
ultimately depend on future developments, including, but not
limited to, the duration and severity of the outbreak, the length
of time it takes for demand and pricing to return and normal
economic and operating conditions to resume. To the extent COVID-19
adversely affects our business, operations, financial condition and
operating results, it may also have the effect of heightening many
other risks.
-- As a result of the COVID-19 outbreak, we may be out of
compliance with one or more maintenance covenants in certain of our
debt facilities, with the next testing date of November 30,
2022.
Under the terms of certain of our export credit facilities, we
are required to comply with the Interest Coverage Covenant of not
less than 3.0 to 1.0, and ensure that our Debt to Capital Covenant
does not exceed 65% at the end of each fiscal quarter. As of
February 28, 2021 (and while being in compliance with the Debt to
Capital Covenant as of such date), we obtained waivers of
compliance with the Interest Coverage Covenant and Debt to Capital
Covenant in our export credit facilities through August 31, 2022
(with the next testing date of November 30, 2022) or November 30,
2022 (with the next testing date of February 28, 2023) for our
funded export credit facilities with aggregate indebtedness of $8.9
billion as of February 28, 2021 and unfunded export credit
facilities with an aggregate principal amount of $6.5 billion as of
February 28, 2021.
During the first quarter of 2021 we entered into supplemental
agreements with respect to our Revolving Credit Facility and many
of our bank loans. Under our Revolving Credit Facility and many of
our bank loans, we are now required to maintain the Interest
Coverage Covenant from February 28, 2023, at a ratio of not less
than 2.0 to 1.0 for the February 28, 2023 and May 31, 2023 testing
dates, 2.5 to 1.0 for the August 31, 2023 and November 30, 2023
testing dates, and 3.0 to 1.0 from the February 28, 2024 testing
date onwards, or through their respective maturity dates, and the
Debt to Capital Covenant at the end of each fiscal quarter before
the November 30, 2021 testing date at a percentage not to exceed
65%. From the November 30, 2021 testing date until the May 31, 2023
testing date the Debt to Capital Covenant is not to exceed 75%,
following which it will be tested at levels which decline ratably
to 65% from the May 31, 2024 testing date onwards.
Even though we expect to obtain further amendments under our
debt facilities with respect to the Interest Coverage Covenant or
the Debt to Capital Covenant, if such amendments are not obtained
we may be required to take certain actions, which in the case of
the Debt to Capital Covenant could include issuing additional
equity and/or reducing our indebtedness, failing which we may not
be in compliance with the Interest Coverage Covenant or the Debt to
Capital Covenant following August 31, 2022 with the next testing
date of November 30, 2022 for such debt facilities, or as of future
testing dates for certain agreements, because of the pause and
limited resumptions of our guest cruise operations.
Amendments and waivers of the Interest Coverage Covenant and
Debt to Capital Covenant have led and may continue to lead to
increased costs, increased interest rates, additional restrictive
covenants and other lender protections that are, or may become,
applicable to us under these debt facilities, and such increased
costs, restrictions and modifications may vary among debt
facilities. For example, in connection with the amendments to the
Revolving Credit Facility and certain agreements governing our bank
loans described above, we have made certain changes to more closely
align the financial covenants among the various facilities and
agreements. In addition, we have agreed to additional restrictive
covenants in such facilities and agreements with respect to debt
incurrence, lien incurrence, restricted payments and investments
that are substantially consistent with those contained in the
indentures governing our recent unsecured notes issuances. Our
ability to provide additional lender protections under these
facilities, including the granting of security interests in certain
collateral and the granting of guarantees with respect to certain
outstanding debt, will be limited by the terms of such agreements
as amended, and our other debt facilities.
There can be no assurance that we will be able to obtain
amendments in a timely manner, on acceptable terms or at all. If we
were not able to obtain the financial covenant amendments described
above under any one or more of these debt facilities, we would be
in default of any such agreement. As a consequence, we would need
to refinance or repay the applicable debt facility or facilities,
and would be required to raise additional debt or equity capital,
or divest assets, to refinance or repay such facility or
facilities. If we were to be unable to obtain financial covenant
amendments as may be required under any one or more of these debt
facilities, there can be no assurance that we would be able to
raise sufficient debt or equity capital, or divest assets, to
refinance or repay such facility or facilities. With respect to
each of the unfunded debt facilities, if we were unable to obtain
amendments under such debt facilities, the relevant lender under
such facility could terminate that facility. With respect to each
of our funded debt facilities, if we were unable to obtain
amendments or refinance or repay such debt facilities, it would
lead to an event of default under such facilities, which could lead
to an acceleration of the indebtedness under such debt facilities.
In turn, this would lead to an event of default and potential
acceleration of amounts due under all of our outstanding debt and
derivative contract payables. As a result, the failure to obtain
the financial covenant amendments described above would have a
material adverse effect.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
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END
QRFUBRNRARUSRAR
(END) Dow Jones Newswires
April 07, 2021 12:03 ET (16:03 GMT)
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