TIDMCCL
RNS Number : 5527B
Carnival PLC
08 October 2020
October 8, 2020
RELEASE OF CARNIVAL CORPORATION & PLC QUARTERLY REPORT ON
FORM 10-Q FOR THE THIRD QUARTER OF 2020
Carnival Corporation & plc is hereby announcing that today
it has released its three and nine months 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 2020 three
and nine months unaudited consolidated financial statements.
The information included in the attached Schedules A, B and C 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").
(a) Schedule A contains the Carnival Corporation & plc
unaudited consolidated financial statements as of and for the three
and nine months ended August 31, 2020
(b) Schedule B contains management's discussion and analysis
("MD&A") of financial conditions and results of operations
(c) Schedule C contains information on Carnival Corporation and
Carnival plc's sales and purchases of their equity securities and
use of proceeds from such sales
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 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 Nine Months Ended
August 31, August 31,
----------------------
2020 2019 2020 2019
------------- ------- ------------ ---------
Revenues
Passenger ticket $ - $ 4,477 $ 3,680 $10,934
Onboard and other 31 2,056 1,881 5,110
------------- ------- ------------ -------
31 6,533 5,561 16,043
------------- ------- ------------ -------
Operating Costs and Expenses
Commissions, transportation and other 34 803 1,098 2,125
Onboard and other 9 668 593 1,620
Payroll and related 248 548 1,563 1,671
Fuel 121 401 718 1,204
Food 19 284 404 821
Ship and other impairments 910 23 1,829 24
Other operating 208 805 1,349 2,367
------------- ------- ------------ -------
1,549 3,532 7,556 9,833
Selling and administrative 265 563 1,435 1,813
Depreciation and amortization 551 548 1,698 1,607
Goodwill impairment - - 2,096 -
------------- ------- ------------ -------
2,364 4,643 12,784 13,252
------------- ------- ------------ -------
Operating Income (Loss) (2,333) 1,890 (7,223) 2,791
------------- ------- ------------ -------
Nonoperating Income (Expense)
Interest income 3 8 15 16
Interest expense, net of capitalized
interest (310) (52) (547) (157)
Other income (expense), net (221) (19) (260) (27)
------------- ------- ------------ -------
(528) (63) (793) (168)
------------- ------- ------------ -------
Income (Loss) Before Income Taxes (2,861) 1,827 (8,016) 2,624
Income Tax Benefit (Expense), Net 2 (47) 2 (56)
------------- ------- ------------ -------
Net Income (Loss) $ (2,858) $ 1,780 $ (8,014) $ 2,567
========= ====== ======== ======
Earnings Per Share
Basic $ (3.69) $ 2.58 $ (11.03) $ 3.72
========= ====== ======== ======
Diluted $ (3.69) $ 2.58 $ (11.03) $ 3.71
========= ====== ======== ======
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 Nine Months
Ended August Ended
31, August 31,
----------------
2020 2019 2020 2019
-------- ------ -------- --------
Net Income (Loss) $(2,858) $1,780 $(8,014) $2,567
------- ----- ------- -----
Items Included in Other Comprehensive Income
(Loss)
Change in foreign currency translation
adjustment 519 (101) 567 (215)
Other 4 (6) 60 (19)
-------- ------ -------- ------
Other Comprehensive Income (Loss) 524 (107) 627 (234)
-------- ------ -------- ------
Total Comprehensive Income (Loss) $(2,335) $1,674 $(7,387) $2,333
======= ===== ======= =====
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except par values)
August November
31, 30, 2019
2020
------- -------------
ASSETS
Current Assets
Cash and cash equivalents $ 8,176 $ 518
Trade and other receivables, net 376 444
Inventories 349 427
Prepaid expenses and other 367 671
------- -----------
Total current assets 9,268 2,059
------- -----------
Property and Equipment, Net 36,926 38,131
Operating Lease Right-of-Use Assets (a) 1,379 -
Goodwill 807 2,912
Other Intangibles 1,186 1,174
Other Assets 1,252 783
------- -----------
$50,818 $ 45,058
====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 3,374 $ 231
Current portion of long-term debt 2,621 1,596
Current portion of operating lease liabilities (a) 150 -
Accounts payable 691 756
Accrued liabilities and other 1,199 1,809
Customer deposits 2,150 4,735
------- -----------
Total current liabilities 10,184 9,127
------- -----------
Long-Term Debt 18,916 9,675
Long-Term Operating Lease Liabilities (a) 1,281 -
Other Long-Term Liabilities 934 890
Contingencies and Commitments
Shareholders' Equity
Common stock of Carnival Corporation, $0.01 par value;
1,960 shares authorized; 830 shares at 2020 and 657
shares at 2019 issued 8 7
Ordinary shares of Carnival plc, $1.66 par value;
217 shares at 2020 and 2019 issued 361 358
Additional paid-in capital 10,680 8,807
Retained earnings 18,297 26,653
Accumulated other comprehensive income (loss) ("AOCI") (1,439) (2,066)
Treasury stock, 130 shares at 2020 and 2019 of Carnival
Corporation and 60 shares at 2020 and 2019 of Carnival
plc, at cost (8,404) (8,394)
------- -----------
Total shareholders' equity 19,503 25,365
------- -----------
$50,818 $ 45,058
====== =======
(a) We adopted the provisions of Leases on December 1, 2019.
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Nine Months
Ended
August 31,
---------------------
2020 2019
-------- -----------
OPERATING ACTIVITIES
Net income (loss) $(8,014) $ 2,567
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 1,698 1,607
Impairments 3,925 26
Loss on repurchase of Convertible Notes 224 -
Share-based compensation 52 38
(Gain) loss on ship sales and other, net 164 29
-------- ---------
(1,951) 4,266
Changes in operating assets and liabilities
Receivables 25 (101)
Inventories 71 22
Prepaid expenses and other 9 (220)
Accounts payable (97) (25)
Accrued liabilities and other (169) 63
Customer deposits (2,539) 409
-------- ---------
Net cash provided by (used in) operating activities (4,649) 4,414
-------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (1,899) (3,448)
Proceeds from sales of ships 271 15
Purchase of minority interest (81) -
Derivative settlements and other, net 257 116
-------- ---------
Net cash provided by (used in) investing activities (1,452) (3,317)
-------- ---------
FINANCING ACTIVITIES
Proceeds from (repayments of) short-term borrowings, net 3,141 (600)
Principal repayments of long-term debt (896) (472)
Proceeds from issuance of long-term debt 11,468 1,722
Dividends paid (689) (1,041)
Purchases of treasury stock (12) (472)
Issuance of common stock, net 778 4
Other, net (91) (53)
-------- ---------
Net cash provided by (used in) financing activities 13,699 (912)
-------- ---------
Effect of exchange rate changes on cash, cash equivalents
and restricted cash 63 (11)
-------- ---------
Net increase (decrease) in cash, cash equivalents and
restricted cash 7,661 174
Cash, cash equivalents and restricted cash at beginning
of period 530 996
-------- ---------
Cash, cash equivalents and restricted cash at end of period $ 8,191 $ 1,170
======= =====
The accompanying notes are an integral part of these
consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(in millions)
Three Months Ended
-------------------------------------------------------------------------------------
Additional Total
Common Ordinary paid-in Retained Treasury shareholders'
stock shares capital earnings AOCI stock equity
-------- ---------- ------------ ---------- -------- -------- -----------------
At May 31, 2019 $ 7 $ 358 $ 8,785 $ 25,138 $(2,076) $(8,104) $ 24,108
Net income (loss) - - - 1,780 - - 1,780
Other
comprehensive
income
(loss) - - - - (107) - (107)
Cash dividends
declared
($0.50 per share) - - - (342) - - (342)
Purchases of
treasury
stock under the
Repurchase
Program and other - - 13 - - (157) (144)
-------- ---------- ------------ ---------- -------- -------- ---------------
At August 31, 2019 $ 7 $ 358 $ 8,798 $ 26,576 $(2,183) $(8,261) $ 25,295
=== === === ===== ======== ====== ======= ======= ==== =========
At May 31, 2020 $ 7 $ 360 $ 9,683 $ 21,155 $(1,962) $(8,404) $ 20,840
Net income (loss) - - - (2,858) - - (2,858)
Other
comprehensive
income
(loss) - - - - 524 - 524
Issuance of common
stock
related to the
repurchase
of Convertible
Notes - - 222 - - - 222
Repurchase of
Convertible
Notes 1 - 765 - - - 766
Other - - 9 - - - 9
-------- ---------- ------------ ---------- -------- -------- ---------------
At August 31, 2020 $ 8 $ 361 $ 10,680 $ 18,297 $(1,439) $(8,404) $ 19,503
=== === === ===== ======== ====== ======= ======= ==== =========
Nine Months Ended
-------------------------------------------------------------------------------------
Additional Total
Common Ordinary paid-in Retained Treasury shareholders'
stock shares capital earnings AOCI stock equity
-------- ---------- ------------ ---------- -------- -------- -----------------
At November 30, 2018 $ 7 $ 358 $ 8,756 $ 25,066 $(1,949) $(7,795) $ 24,443
Changes in
accounting
principles (a) - - - (24) - - (24)
Net income (loss) - - - 2,567 - - 2,567
Other
comprehensive
income
(loss) - - - - (234) - (234)
Cash dividends
declared
($1.50 per share) - - - (1,034) - - (1,034)
Purchases of
treasury
stock under the
Repurchase
Program and other - - 42 - - (467) (424)
-------- ---------- ------------ ---------- -------- -------- ---------------
At August 31, 2019 $ 7 $ 358 $ 8,798 $ 26,576 $(2,183) $(8,261) $ 25,295
=== === === ===== ======== ====== ======= ======= ==== =========
At November 30, 2019 $ 7 $ 358 $ 8,807 $ 26,653 $(2,066) $(8,394) $ 25,365
Net income (loss) - - - (8,014) - - (8,014)
Other
comprehensive
income
(loss) - - - - 627 - 627
Cash dividends
declared
($0.50 per share) - - - (342) - - (342)
Issuance of common
stock 1 - 777 - - - 778
Issuance and
repurchase
of Convertible
Notes 1 - 1,051 - - - 1,052
Purchases of
treasury
stock under the
Repurchase
Program and other - 2 44 - - (10) 36
-------- ---------- ------------ ---------- -------- -------- ---------------
At August 31, 2020 $ 8 $ 361 $ 10,680 $ 18,297 $(1,439) $(8,404) $ 19,503
=== === === ===== ======== ====== ======= ======= ==== =========
(a) We adopted the provisions of Revenue from Contracts with
Customers and Derivatives and Hedging on December 1, 2018.
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
Due to the spread of COVID-19, we paused our global cruise
operations in mid-March 2020. In September 2020 we began the
resumption of limited guest operations as part of our anticipated
phased-in return to service. Significant events affecting travel,
including COVID-19, typically have an impact on booking patterns,
with the full extent of the impact generally determined by the
length of time the event influences travel decisions. We believe
that the ongoing effects of COVID-19 on our operations and global
bookings will continue to have a material negative impact on our
financial results and liquidity, and such negative impact may
continue well beyond the containment of such outbreak.
We cannot assure you that our assumptions used to estimate our
liquidity requirements will be correct 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, duration and speed of the
global pandemic are uncertain. As a consequence, we cannot estimate
the impact on our business, financial condition or near- or
longer-term financial or operational results with reasonable
certainty, but we continue to expect a net loss on both a U.S. GAAP
and adjusted basis for the quarter and year ending November 30,
2020. We have taken and continue to take actions to improve our
liquidity, including capital expenditure and operating expense
reductions, accelerating the removal of certain ships from our
fleet, suspending dividend payments on, and the repurchase of,
common stock of Carnival Corporation and ordinary shares of
Carnival plc and pursuing various capital market transactions.
Based on these actions and assumptions regarding the impact of
COVID-19, we have concluded that we will be able to generate
sufficient liquidity to satisfy our obligations for at least the
next twelve months.
Basis of Presentation
The Consolidated Statements of Income (Loss), the Consolidated
Statements of Comprehensive Income (Loss), and the Consolidated
Statements of Shareholders' Equity for the three and nine months
ended August 31, 2020 and 2019, Consolidated Statement of Cash
Flows for the nine months ended August 31, 2020 and 2019, and the
Consolidated Balance Sheet at August 31, 2020 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 2019 joint Annual Report on Form 10-K and
Form 10-K/A ("Form 10-K") filed with the U.S. Securities and
Exchange Commission on January 28, 2020 and March 31, 2020,
respectively.
For the three and nine months ended August 31, 2019, we
reclassified $200 million and $299 million from tour and other
revenues to onboard and other revenues as well as $109 million and
$198 million from tour and other costs and expenses to other
operating cost and expenses in order to conform to the current year
presentation.
COVID-19 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 believe that 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
On December 1, 2019, we adopted the FASB issued guidance,
Leases, using the modified retrospective approach, which allows
entities to either apply the new lease standard to the beginning of
the earliest period presented or only to the consolidated financial
statements in the period of adoption without restating prior
periods. We have elected to apply the new guidance at the date of
adoption without restating prior periods.
We have implemented changes to our internal controls to address
the collection, recording, and accounting for leases in accordance
with the new guidance. Upon adoption of the new guidance, the most
significant impact was the recognition of $1.4 billion of
right-of-use assets and lease liabilities relating to operating
leases, reported within operating lease right-of-use assets and
long-term operating lease liabilities, with the current portion of
the liability reported within current portion of operating lease
liabilities, in our Consolidated Balance Sheet as of December 1,
2019. There was no cumulative effect of applying the new standard
and accordingly there was no adjustment to our retained earnings
upon adoption. This guidance had an immaterial impact on our
Consolidated Statements of Income (Loss), Consolidated Statements
of Comprehensive Income (Loss), Consolidated Statements of Cash
Flows and the compliance with debt covenants under our current
agreements.
The FASB issued amended guidance, Intangibles - Goodwill and
Other - Internal-Use Software, which requires a customer in a cloud
computing arrangement that is a service contract to follow the
internal-use software guidance to determine which implementation
costs to capitalize as assets or expense as incurred. The expense
related to deferred implementation costs is required to be
presented in the same net income (loss) line item as the related
hosting fees. Additionally, the payments for deferred
implementation costs are required to be presented in the same line
item in the Consolidated Statements of Cash Flows as payments for
the related hosting fees. This guidance is required to be adopted
by us in the first quarter of 2021 and we have elected to apply the
guidance using a prospective approach. We do not expect the
adoption of this guidance to have a significant impact on our
consolidated financial statements.
The FASB issued amended guidance, Financial Instruments - Credit
Losses, which requires an entity to present the net amount expected
to be collected for certain financial assets, including trade
receivables. On initial recognition and at each reporting period,
this guidance will require an entity to recognize an allowance that
reflects the entity's current estimate of credit losses expected to
be incurred over the life of the financial instrument. This
guidance is required to be adopted by us in the first quarter of
2021 and will be applied prospectively with a cumulative-effect
adjustment to retained earnings. We are currently evaluating the
impact this guidance will have on our consolidated financial
statements.
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 significant. 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 and
nine months ended August 31, fees, taxes, and charges included in
commissions, transportation and other costs were not significant
and $213 million in 2020 and $186 million and $503 million in 2019.
The remaining portion of fees, taxes and charges are expensed in
other operating expenses when the corresponding revenues are
recognized.
Revenues and expenses from our hotel and transportation
operations, which are included in our Tour and Other segment, are
recognized at the time the services are performed. 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. We had customer deposits of $2.4 billion as of August 31,
2020 and $4.9 billion as of November 30, 2019. The current portion
of our customer deposits was $2.1 billion as of August 31, 2020,
the majority of which are FCCs. These amounts include 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 August 31, 2020 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 nine
months ended August 31, 2020 and 2019, we recognized revenues of
$3.3 billion and $4.1 billion related to our customer deposits as
of November 30, 2019 and December 1, 2018. 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 $17 million and
$154 million as of August 31, 2020 and November 30, 2019.
NOTE 3 - Debt
Short-Term Borrowings
At August 31, 2020, our short-term borrowings consisted
primarily of $3.0 billion borrowing under our multicurrency
revolving credit facility (the "Revolving Facility"), $314 million
of commercial paper, $20 million of euro-denominated commercial
paper and $33 million of sterling-denominated commercial paper. For
the nine months ended August 31, 2020, we had borrowings of $525
million and repayments of $192 million of commercial paper with
original maturities greater than three months. For the nine months
ended August 31, 2019, there were no borrowings or repayments of
commercial paper with original maturities greater than three
months.
Export Credit Facility Borrowings
In December 2019, we borrowed $823 million under an export
credit facility due in semi-annual installments through 2032.
In September 2020, we borrowed $610 million under an export
credit facility due in semi-annual installments through 2032.
2023 Secured Notes
In April 2020, we issued $4.0 billion aggregate principal amount
of 11.5% first-priority senior secured notes due in 2023 (the "2023
Secured Notes"). The 2023 Secured Notes mature on April 1, 2023
unless earlier redeemed or repurchased. They are guaranteed by
Carnival plc and certain of our subsidiaries that own or operate
our vessels and material intellectual property, and are secured by
collateral, which includes vessels and material intellectual
property with a net book value of $27.9 billion as of August 31,
2020 and certain other assets. Upon the occurrence of certain
change of control events, we are required to offer to repurchase
the 2023 Secured Notes at a price equal to 101% of the principal
amount, plus accrued and unpaid interest to the purchase date.
The indenture governing the 2023 Secured Notes contains
covenants that limit our ability to, among other things: (i) incur
additional indebtedness or issue certain preferred shares; (ii)
make dividend payments on or make other distributions in respect of
our capital stock or make other restricted payments; (iii) make
certain investments; (iv) sell certain assets; (v) create liens on
assets; (vi) consolidate, merge, sell or otherwise dispose of all
or substantially all of our assets; and (vii) enter into certain
transactions with our affiliates. These covenants are subject to a
number of important limitations and exceptions.
Convertible Notes
In April 2020, we issued $2.0 billion aggregate principal amount
of 5.75% convertible senior notes due 2023 (the "Convertible
Notes"). The Convertible Notes mature on April 1, 2023, unless
earlier repurchased or redeemed by us or earlier converted in
accordance with their terms prior to the maturity date. The
Convertible Notes are guaranteed on a senior unsecured basis by
Carnival plc, Carnival Finance, LLC and our subsidiaries that
guarantee the 2023 Secured Notes.
The Convertible Notes are convertible by holders, subject to the
conditions described below, into cash, shares of Carnival
Corporation common stock, or a combination thereof, at our
election. The Convertible Notes have an initial conversion rate of
100 shares of Carnival Corporation common stock per $1,000
principal amount of the Convertible Notes, equivalent to an initial
conversion price of $10 per share of common stock. The initial
conversion price is subject to certain anti-dilutive adjustments
and may also increase if the Convertible Notes are converted in
connection with a tax redemption or certain corporate events.
The Convertible Notes are convertible at any time prior to the
close of business on the business day immediately preceding January
1, 2023, only under the following circumstances:
-- during any fiscal quarter, (and only during such fiscal
quarter), if the last reported sale price of the common stock for
at least 20 trading days (whether or not consecutive) during a
period of 30 consecutive trading days ending on the last trading
day of the immediately preceding fiscal quarter is greater than or
equal to 130% of the conversion price on each applicable trading
day;
-- during the five business day period after any five
consecutive trading day period (the "measurement period") in which
the trading price per $1,000 principal amount of Convertible Notes
for each trading day of the measurement period was less than 98% of
the product of the last reported sale price per share of common
stock and the conversion rate on each such trading day;
-- prior to the close of business on the second scheduled
trading day immediately preceding any tax redemption date; or
-- upon the occurrence of specified corporate events.
On or after January 1, 2023, until the close of business on the
second scheduled trading day immediately preceding the maturity
date, holders may convert their Convertible Notes at any time.
If we undergo certain corporate events (each, a "fundamental
change"), subject to certain conditions, holders may require us
to
repurchase for cash all or any portion of their Convertible
Notes at a price equal to 100% of the principal amount of the
Convertible Notes to be repurchased, plus accrued and unpaid
interest to the fundamental change repurchase date.
We may redeem the Convertible Notes, in whole but not in part,
at any time on or prior to December 31, 2022 at a redemption price
equal to 100% of the principal amount thereof, plus accrued and
unpaid interest to the redemption date, if we or any guarantor
would have to pay any additional amounts on the Convertible Notes
due to a change in tax laws, regulations or rulings or a change in
the official application, administration or interpretation
thereof.
As of August 31, 2020, a condition allowing holders of the
Convertible Notes to convert has been met and therefore the notes
are convertible. The holders are entitled to convert all or any
portion of their Convertible Notes at any time during the three
months starting on September 1, 2020 and ending on November 30,
2020, at the conversion rate of 100 shares of Carnival Corporation
common stock per $1,000 principal amount of Convertible Notes.
In August 2020, we completed a registered direct offering of
99.2 million shares of Carnival Corporation common stock at a price
of $14.02 per share to a limited number of holders of the
Convertible Notes. We used the proceeds of the stock offering to
repurchase from such holders $886 million aggregate principal
amount of the Convertible Notes in privately negotiated
transactions, (such registered direct offering and the use of
proceeds to repurchase the Convertible Notes, the "Convertible
Notes Repurchase Transaction"). We recognized a $224 million
extinguishment loss as a result of these transactions in other
income (expense), net.
We account for the Convertible Notes as separate liability and
equity components. We determined the carrying amount of the
liability component as the present value of its cash flows.
The carrying amount of the equity component representing the
conversion option was $286 million on the date of issuance and was
calculated by deducting the carrying value of the liability
component from the initial proceeds from the Convertible Notes. The
excess of the principal amount of the Convertible Notes over the
carrying amount of the liability component represents a debt
discount that is amortized to interest expense over the term of the
Convertible Notes under the effective interest rate method using an
effective interest rate of 12.9%. The carrying amount of the equity
component was reduced to $0 in conjunction with the partial
repurchase of Convertible Notes in August 2020 because at the time
of repurchase, the fair value of the equity component for the
portion of the Convertible Notes that was repurchased, exceeded the
total amount of the equity component recorded at the time the
Convertible Notes were issued.
The net carrying value of the liability component of the
Convertible Notes was as follows:
(in millions) August 31, 2020
-------------------
Principal $ 1,127
Less: Unamortized debt discount and transaction costs (173)
-----------------
$ 954
=== ============
The interest expense recognized related to the Convertible Notes
was as follows:
Three Months Nine Months
Ended August Ended August
(in millions) 31, 2020 31, 2020
--------------- -----------------
Contractual interest expense $ 26 $ 43
Amortization of debt discount and transaction
costs 22 37
--------------- ---------------
$ 47 $ 80
===== ======== ===== ========
We had no Convertible Notes in 2019.
2025 Secured Term Loan
In June 2020, we borrowed an aggregate principal amount of $2.8
billion in two tranches ($1.9 billion and EUR800 million), under a
first-priority senior secured term loan facility that matures on
June 30, 2025 (the "2025 Secured Term Loan"). The U.S. dollar
tranche bears interest at a rate per annum equal to adjusted LIBOR
(with a 1% floor) plus 7.5%. The euro tranche bears interest at a
rate per annum equal to EURIBOR (with a 0% floor) plus 7.5%. The
2025 Secured Term Loan is guaranteed by Carnival plc and the same
subsidiaries that currently guarantee, and are secured on a
first-priority basis by substantially the same collateral that
currently secures, the 2023 Secured Notes, the 2026 Secured Notes
and the 2027 Secured Notes. The 2025 Secured Term Loan contains
covenants that are substantially similar to the covenants in the
indenture governing the 2023 Secured Notes. These covenants are
subject to a number of important limitations and exceptions.
2026 Secured Notes
In July 2020, we issued an aggregate principal amount of $1.3
billion in two tranches ($775 million and EUR425 million), under
second-priority senior secured notes that mature on February 1,
2026 (the "2026 Secured Notes"). The U.S. dollar tranche bears
interest at a rate of 10.5% per year. The euro tranche bears
interest at a rate of 10.1% per year. The 2026 Secured Notes are
guaranteed by Carnival plc and the same subsidiaries that currently
guarantee, and are secured on a second-priority basis by
substantially the same collateral that currently secures, the 2023
Secured Notes, the 2025 Secured Term Loan and the 2027 Secured
Notes. The indenture governing the 2026 Secured Notes contains
covenants that are substantially similar to the covenants in the
indenture governing the 2023 Secured Notes and the 2027 Secured
Notes. These covenants are subject to a number of important
limitations and exceptions.
2027 Secured Notes
In August 2020, we issued an aggregate principal amount of $900
million of second-priority senior secured notes that mature on
August 1, 2027 (the "2027 Secured Notes"). The 2027 Secured Notes
bear interest at a rate of 9.9% per year. The 2027 Secured Notes
are guaranteed by Carnival plc and the same subsidiaries that
currently guarantee, and are secured on a second-priority basis by
substantially the same collateral that currently secures, the 2023
Secured Notes, the 2025 Secured Term Loan and the 2026 Secured
Notes. The indenture governing the 2027 Secured Notes contains
covenants that are substantially similar to the covenants in the
indenture governing the 2023 Secured Notes and the 2026 Secured
Notes. These covenants are subject to a number of important
limitations and exceptions.
Modifications and Other
In February 2020, we extended a $452 million
sterling-denominated floating rate bank loan, originally maturing
in 2022, to 2025 with an option to extend to 2026.
In April 2020, we amended and extended a $166 million
euro-denominated fixed rate bank loan, originally maturing in
September 2020, to a floating rate loan maturing in March 2021.
In July 2020, we extended a $337 million euro-denominated
floating rate bank loan originally maturing in 2021 to 2022.
As of August 31, 2020, we repurchased in the open market $86
million aggregate principal amount of our $700 million 4.0% notes
due in 2020 and $123 million aggregate principal amount of our $555
million 1.6% euro notes due in 2021. We recognized a related gain
on early extinguishment of debt of $5 million. This gain is
included in other income (expense), net in the accompanying
Consolidated Statements of Income (Loss).
Certain export credit agencies have offered 12-month debt
amortization and a financial covenant holiday (the "Debt Holiday").
We have entered into supplemental agreements or side letters for
the Debt Holiday amendments to defer certain principal repayments
otherwise due through March 31, 2021 through the creation of
separate tranches of loans with repayments made over the following
four years.
As of August 31, 2020, the scheduled annual maturities of our
outstanding debt were as follows:
(in millions) Principal Payments
Year (a)
Remainder of 2020 $ 1,048
2021 (b) 1,702
2022 2,539
2023 6,686
2024 1,174
Thereafter 9,382
--------------------
$ 22,532
=== ===============
(a) Excluding the Revolving Facility. As of August 31, 2020,
borrowings under the Revolving Facility were $3.0 billion, which
were drawn in March 2020 for an initial term of six months. The
maturities for these borrowings were extended in September 2020 for
an additional six months through March 2021. We may re-borrow such
amounts subject to satisfaction of the conditions in the Revolving
Facility Agreement.
(b) We have a principal balance of $0.5 billion and $0.8 billion
of debt outstanding as of August 31, 2020, otherwise due through
2032, for which covenant waivers expire during the second quarter
2021 and fourth quarter 2021, respectively. We are working on
extending these covenant waivers. If the covenant waiver extensions
are not received, we would be required to prepay the outstanding
principal balance.
Debt Covenant Compliance
Many of our debt agreements contain one or more financial
covenants that require us to:
-- Maintain minimum debt service coverage
-- Maintain minimum shareholders' equity
-- Limit our debt to capital ratio
-- Limit the amounts of our secured and other indebtedness
Under the terms of certain of our debt facilities, we are
required to maintain minimum debt service coverage (EBITDA to
consolidated net interest charges for the most recently ended four
fiscal quarters) of not less than 3.0 to 1.0 at the end of each
fiscal quarter (the "Financial Covenant"). As of August 31, 2020,
we have entered into supplemental agreements or side letters to
amend our agreements with respect to this Financial Covenant
to:
-- Waive compliance for all of our funded export credit
facilities through March 31, 2021, August 31, 2021 or December 31,
2021, as applicable.
-- Waive compliance through November 30, 2021 for certain of our
bank loans. We will be required to comply beginning with the next
testing date of February 28, 2022.
-- Waive compliance for the remaining applicable bank loans
through their respective maturity dates.
At August 31, 2020, we were in compliance with the applicable
debt covenants.
Subsequent to August 31, 2020, we extended the Financial
Covenant waivers for our funded export credit facilities through at
least November 30, 2021 (with the next testing date of February 28,
2022) except that for three of our funded export credit facilities
with Financial Covenant waivers through March 31, 2021 (with the
next testing date of May 31, 2021) or August 31, 2021 (with the
next testing date of November 30, 2021), with total aggregate
indebtedness of $1.3 billion as of August 31, 2020, we are
currently engaged in discussions to extend the waivers for these
facilities through November 30, 2021 (with the next testing date of
February 28, 2022).
Any covenant waiver may lead to increased costs, increased
interest rates, additional restrictive covenants and other
available lender protections that would be applicable. There can be
no assurance that we would be able to obtain additional waivers in
a timely manner, or on acceptable terms at all. If we were not able
to obtain additional waivers or repay the debt facilities, 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
additional waivers would have a material adverse effect on us.
Credit Ratings Update
Since March 2020, Moody's and S&P Global have downgraded our
credit ratings to be below investment grade. Our current short-term
commercial paper credit rating prevents us from issuing additional
commercial paper.
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. Many of
the existing assertions are in their initial stages. 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.
On July 9, 2020, the court granted our motion for judgment on the
pleadings in the action filed by Javier Garcia Bengochea, and
dismissed plaintiff's action with prejudice. On August 6, 2020,
Bengochea filed a notice of appeal. On September 14, 2020, the
court denied our motion to dismiss the amended action filed by
Havana Docks Corporation. 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
August 31, 2020, we have been requested to provide reserve funds of
$27 million and have had $200 million of customer deposits withheld
to satisfy these requirements. These reserve funds are included
within other assets. We expect the funds withheld under these
agreements will be approximately $65 million per month up to a
maximum of $600 million. In September 2020, we placed $136 million
of cash collateral to be held in escrow.
COVID-19 Actions
We have been named in a number of actions related to COVID-19.
The following purported class actions have been brought by former
guests from Ruby Princess, Diamond Princess, Grand Princess, Coral
Princess , Costa Luminosa, Carnival Ecstasy or Zaandam . Both the
previously disclosed and newly filed actions seek compensation
based on a variety of tort claims, including, but not limited to,
negligence and failure to warn, physical injuries and severe
emotional distress associated with being exposed and/or contracting
COVID-19 onboard. Below are material updates to the previously
disclosed class actions, individual actions and governmental
inquiries and investigations, and a description of newly filed
COVID-19 actions.
Previously Disclosed Class Actions
As previously disclosed, on April 7, 2020, Paul Turner, a former
guest from Costa Luminosa, filed a purported class action against
Costa Crociere, S.p.A. ("Costa") and Costa Cruise Line, Inc. in the
U.S. District Court of the Southern District of Florida. On
September 10, 2020, the court granted Costa 's motion to dismiss
based upon forum non conveniens, and directed that the action be
filed in Italy. The plaintiff has appealed the order.
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. ("Princess Cruises") and Fairline
Shipping International Corporation, Ltd. On September 22, 2020, the
court granted our motions to dismiss plaintiffs ' second amended
complaint in part. The court granted our motion to dismiss
plaintiffs' negligence-based claims without prejudice and with
leave to amend and granted our motion to dismiss plaintiffs'
request for injunctive relief without prejudice. The court denied
our motion to dismiss plaintiffs' claims for intentional infliction
of emotional distress. On October 2, 2020, plaintiffs filed a third
amended complaint.
As previously disclosed, on May 27, 2020, Service Lamp
Corporation Profit Sharing Plan filed a purported class action
against Carnival Corporation, Arnold W. Donald and David Bernstein
on behalf of all purchasers of Carnival Corporation securities
between January 28 and May 1, 2020. As previously disclosed, on
June 3, 2020, John P. Elmensdorp filed a purported class action
against the same defendants, and included Micky Arison as a
defendant. This action is on behalf of all purchasers of Carnival
Corporation securities between September 26, 2019 and April 30,
2020. These actions allege that the defendants 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, and seek to recover
unspecified damages and equitable relief for the alleged
misstatements and omissions. On July 21, 2020, Abraham Atachbarian
filed a purported class action against the same defendants as
Elmensdorp action. The Atachbarian action is on behalf of all
purchasers of Carnival Corporation options between January 27 and
May 1, 2020 and allege the same set of factual theories presented
in the class actions described above.
As previously disclosed, on June 4, 2020, Gregory Eicher, a
former guest from Grand Princess filed a purported class action
against Princess Cruises. On September 10, 2020, this action was
voluntarily dismissed.
As previously disclosed, on June 4, 2020, numerous former guests
from Ruby Princess filed a purported class action against Princess
Cruises. Princess Cruises filed a motion to dismiss, in response to
which the plaintiffs amended their action to remove their class
action allegations and seek recovery on behalf of two guests who
allege that they contracted COVID-19 while on Ruby Princess .
As previously disclosed, on June 24, 2020, Leonard C. Lindsay
and Carl E.W. Zehner, former guests from Zaandam, filed a purported
class action against Carnival Corporation, Carnival plc, Holland
America Line, Inc. and Holland America Line - U.S.A., Inc. On
September 11, 2020, the plaintiffs filed an amended class action on
behalf of all persons in the U.S. who were guests from Zaandam who
embarked on March 8, 2020.
Newly Filed Class Actions
As discussed above, these newly filed actions also seek
compensation based on economic losses, alleged personal injury and
emotional distress for guests who either contracted or feared
contracting COVID-19 and assert claims for negligence and
intentional infliction of emotional distress.
On July 13, 2020, Kathleen O'Neill, a former guest from Coral
Princess filed a purported class action in the U.S. District Court
for the Central District of California against Princess Cruises,
Carnival Corporation, and Carnival plc. We have filed a motion to
dismiss.
On July 13, 2020, another group of former guests from Grand
Princess filed a purported class action in the U.S. District Court
for the Central District of California against Princess Cruises,
Carnival Corporation and Carnival plc. We have filed a motion to
dismiss plaintiff's amended action.
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.
We believe that the claims asserted in these actions are without
merit and are taking proper actions to defend against them.
Individual Actions
Since March 9, 2020, more than 100 former U.S. guests who sailed
onboard various vessels, including, but not limited to, Diamond
Princess, Grand Princess, Ruby Princess, or Coral Princess, filed
individual actions against Princess Cruises and, in some actions,
also against Carnival Corporation and/or Carnival plc, including
actions previously disclosed. Both the previously disclosed and
newly filed 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.
Previously Disclosed Individual Actions
Motions to dismiss were filed on June 2, 2020 in the individual
actions brought against Princess Cruises prior to such date and
that allege only emotional distress associated with exposure to
COVID-19 while onboard. All courts that considered those motions to
date have granted them. Princess Cruises has filed motions to
dismiss in all other matters in which a responsive pleading has
been due. Several courts have granted the various motions to
dismiss, with leave for the plaintiffs to amend.
As previously disclosed, between April 7 and July 7, 2020,
former U.S. guests from Costa Luminosa filed individual actions
against Costa in the U.S. District Court for the Southern District
of Florida or the Circuit Court in and for the 11(th) Judicial
Circuit in and for Miami-Dade County. These actions have been
voluntarily dismissed with and without prejudice, respectively. The
action brought in the U.S. District Court for the Southern District
of Florida may be pursued in Italy.
As previously disclosed, on June 16, 2020, Patricia Vickers, on
behalf of the Estate of Jessie Vickers, a former guest from
Carnival Ecstasy, filed an action against Carnival Corporation. The
case was dismissed by the court without prejudice.
As previously disclosed, on June 30, 2020, Kenneth and Nora
Hook, former guests from Zaandam, filed an action against Holland
America Line N.V. A motion to dismiss is pending and on September
3, 2020, the court denied plaintiff's motion for an expedited trial
date.
Newly Filed Individual Actions
On July 16, 2020, Toyling Maa, individually and as personal
representative of the estate of Wilson Maa, a former guest from
Coral Princess, and the estate of Wilson Maa, filed an action in
the U.S. District Court for the Central District of California
against Carnival Corporation, Carnival plc and Princess Cruises
seeking compensation for damages for Ms. Maa allegedly contracting
COVID-19 and alleging wrongful death as a result of Mr. Maa
contracting COVID-19. The action asserts claims for negligence. On
September 21, 2020, the court denied plaintiffs' motion to remand
and granted defendants' motion to dismiss without prejudice and
with leave to amend.
On July 23, 2020, an action was filed on behalf of the estate of
Carl Weidner, a former guest from Grand Princess, in the U.S.
District Court for the Northern District of California against
Carnival Corporation, Carnival plc and Princess Cruises seeking
compensation based on a claim alleging wrongful death as a result
of contracting COVID-19. The action asserts claims for negligence.
The action also alleges that the forum selection clause in the
guest's ticket contract that specifies venue in the Central
District of California is unenforceable.
These individual actions seek monetary and punitive damages but
do not specify exact amounts. We are taking proper actions to
defend against them.
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,
including, but not limited to, those noted below. We are
investigating these matters internally and are cooperating with all
requests. The investigations could result in the imposition of
civil and criminal penalties in the future.
As previously disclosed, in March and April, 2020, there were
several inquiries or investigations initiated by foreign
governmental authorities related to Ruby Princess, including
authorities in Australia and New Zealand. The New South Wales
Commission of Inquiry Report dated August 14, 2020, concluded that
no recommendations were directed towards Princess Cruises or
Carnival Australia.
At this time, we continue to believe we have a meritorious
defense to the aforementioned claims and while we are unable to
estimate a potential range of damages, we do not believe that the
ultimate outcome of these proceedings will have any material impact
on our consolidated financial statements.
Ship Commitments
As of August 31, 2020, we expect the timing of our new ship
growth capital commitments to be as follows:
(in millions)
Year
Remainder of 2020 $ 1,776
2021 3,122
2022 4,609
2023 3,226
2024 780
Thereafter 1,061
-------
$14,574
======
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
August 31, 2020 November 30, 2019
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) $ 46 $ - $ 24 $ 14 $ 181 $ - $ 31 $ 149
------ --- ------ --- ------ --- ------ ---
Total $ 46 $ - $ 24 $ 14 $ 181 $ - $ 31 $ 149
====== === ====== === ====== === ====== ===
Liabilities
Fixed rate
debt (b) $ 14,250 $ - $13,789 $ - $ 7,438 $ - $ 7,782 $ -
Floating
rate debt
(b) 11,287 - 10,291 - 4,195 - 4,248 -
---------- ------- ------- ------- ---------- ------- ------- -------
Total $ 25,537 $ - $24,080 $ - $ 11,634 $ - $12,030 $ -
====== === ====== === ====== === ====== ===
(a) Long-term other assets are comprised of notes receivable,
which at November 30, 2019, included loans on ship sales. 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
August 31, 2020 November 30, 2019
Level Level Level Level Level Level
(in millions) 1 2 3 1 2 3
----------- ------- ------- ------------ ------- ---------
Assets
Cash and cash equivalents $ 8,176 $ - $ - $ 518 $ - $ -
Restricted cash 15 - - 13 - -
Derivative financial
instruments - 1 - - 58 -
----------- ------- ------- ------------ ------- -------
Total $ 8,191 $ 1 $ - $ 530 $ 58 $ -
======= === === ==== ====== === ===
Liabilities
Derivative financial
instruments $ - $ 11 $ - $ - $ 25 $ -
------- --- --- ---- ------ --- ---
Total $ - $ 11 $ - $ - $ 25 $ -
======= === === ==== ====== === ===
Nonfinancial Instruments that are Measured at Fair Value on a
Nonrecurring Basis
Valuation of Goodwill and Trademarks
As a result of the effect of COVID-19 on our expected future
operating cash flows, we performed interim discounted cash flow
analyses for certain reporting units with goodwill as of February
29, 2020 and for all reporting units with goodwill as of May 31,
2020. Consequently, prior to our annual test date of July 31, 2020,
we determined that the estimated fair values of two of our North
America & Australia ("NAA") segment reporting units and two of
our Europe & Asia ("EA") segment reporting units no longer
exceeded their carrying values. We recognized goodwill impairment
charges of $731 million and $1.3 billion for those reporting units
during the first and second quarters of 2020, respectively, and
have no remaining goodwill for those reporting units. As of July
31, 2020, we performed our annual goodwill and trademark impairment
reviews, which covered updates since the last test date of May 31,
2020, and we determined there was no impairment for goodwill or
trademarks at our annual test date.
The determination of our reporting units' goodwill and trademark
fair values includes numerous assumptions that are subject to
various risks and uncertainties. The principal assumptions, all of
which are considered Level 3 inputs, used in our cash flow analyses
consisted of:
-- Changes in market conditions, port or other restrictions, or
strategy, including decisions about the allocation of new ships
amongst brands and the transfer of ships between brands
-- Forecasted future operating results, including net revenue yields and fuel expenses
-- Weighted-average cost of capital of market participants,
adjusted for the risk attributable to the geographic regions in
which these cruise brands operate
We believe that we have made reasonable estimates and judgments.
A change in the conditions, circumstances or strategy (including
decisions about the allocation of new ships amongst brands and the
transfer of ships between brands), which influence determinations
of fair value, may result in a need to recognize an additional
impairment charge. Refer to Note 1 - "General, COVID-19 Use of
Estimates and Risks and Uncertainty" for additional discussion.
Goodwill
NAA EA
(in millions) Segment Segment Total
---------- ---------- -----------
At November 30, 2019 $ 1,898 $ 1,014 $ 2,912
Impairment charges (1,319) (777) (2,096)
Foreign currency translation adjustment - (10) (10)
---------- ---------- ---------
At August 31, 2020 $ 579 $ 228 $ 807
=== ===== ====== =====
Trademarks
NAA EA
(in millions) Segment Segment Total
---------- ---------- --------
At November 30, 2019 $ 927 $ 240 $1,167
Foreign currency translation adjustment - 12 13
---------- ---------- ------
At August 31, 2020 $ 927 $ 253 $1,180
====== ====== =====
Impairment of Ships
We review our long-lived assets for impairment whenever events
or circumstances indicate potential impairment. 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 some ships in our fleet as of
February 29, 2020, May 31, 2020 and during the quarter ended and as
of August 31, 2020. Based on these undiscounted cash flow analyses,
we determined that certain ships had net carrying values that
exceeded their estimated undiscounted future cash flows. We
estimated the fair values of these ships based on their discounted
cash flows or estimated selling value. We then compared these
estimated fair values to the net carrying values and, as a result,
we recognized the following:
-- $836 million and $2 million of ship impairment charges in the
NAA and EA segments, respectively, for the three months ended
August 31, 2020.
-- $1.4 billion and $311 million of ship impairment charges in
the NAA and EA segments, respectively, for the nine months ended
August 31, 2020.
The principal assumptions used in our analyses consisted of
changes in strategy (including decisions about the sale of ships,
estimated sale proceeds and timing, as well as the transfer of
ships between brands), return to service, forecasted future
operating results, including net revenue yields and fuel expenses.
All principal assumptions are considered Level 3 inputs. Refer to
Note 1 - "General, COVID-19 Use of Estimates and Risks and
Uncertainty" for additional discussion.
Derivative Instruments and Hedging Activities
August 31, November
(in millions) Balance Sheet Location 2020 30, 2019
----------------------- ------------ -------------
Derivative assets
Derivatives designated as hedging
instruments
Prepaid expenses
Cross currency swaps (a) and other $ - $ 32
Other assets - 25
Foreign currency zero cost collars Prepaid expenses
(b) and other 1 -
------------ -----------
Total derivative assets $ 1 $ 58
==== ====== === ======
Derivative liabilities
Derivatives designated as hedging
instruments
Accrued liabilities
Cross currency swaps (a) and other $ - $ 1
Other long-term
liabilities - 9
Foreign currency zero cost collars Accrued liabilities
(b) and other - 1
Accrued liabilities
Interest rate swaps (c) and other 5 6
Other long-term
liabilities 6 9
------------ -----------
Total derivative liabilities $ 11 $ 25
==== ====== === ======
(a) At August 31, 2020, we had no cross currency swaps. At
November 30, 2019, we had cross currency swaps totaling $1.9
billion that were designated as hedges of our net investment in
foreign operations with a euro-denominated functional currency.
(b) At August 31, 2020 and November 30, 2019, we had foreign
currency derivatives consisting of foreign currency zero cost
collars designated as foreign currency cash flow hedges for a
portion of our euro-denominated shipbuilding payments. See
"Newbuild Currency Risks" below for additional information
regarding these derivatives.
(c) 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 $273 million at August 31, 2020 and
$300 million at November 30, 2019 of EURIBOR-based floating rate
euro debt to fixed rate euro debt. At August 31, 2020, 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.
August 31, 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 $ 2 $ (1) $ 1 $ - $ 1
Liabilities $ 12 $ (1) $ 11 $ - $ 11
November 30, 2019
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 $ 58 $ - $ 58 $ (4) $ 54
Liabilities $ 25 $ - $ 25 $ (4) $ 21
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 Nine Months
Ended August Ended
31, August 31,
-------------------
(in millions) 2020 2019 2020 2019
--------- -------- -------- -------
Gains (losses) recognized in AOCI:
Cross currency swaps - net investment
hedges - included component $ - $ 16 $ 131 $ 36
Cross currency swaps - net investment
hedges - excluded component $ - $ 3 $ (1) $ 2
Foreign currency zero cost collars - cash
flow hedges $ 3 $ (4) $ 2 $ (5)
Foreign currency forwards - cash flow
hedges $ - $ - $ 53 $ -
Interest rate swaps - cash flow hedges $ 1 $ (1) $ 5 $ (1)
Gains (losses) reclassified from AOCI
- cash flow hedges:
Interest rate swaps - Interest expense,
net of capitalized interest $ (1) $ (2) $ (4) $ (6)
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 $ - $ 6 $ 12 $ 16
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 significant.
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 August
31, 2020, we have designated $883 million of our
sterling-denominated debt as non-derivative hedges of our net
investments in foreign operations. For the three and nine months
ended August 31, 2020, we recognized $66 million and $29 million of
loss on these non-derivative net investment hedges in the
cumulative translation adjustment section of other comprehensive
income (loss). We also have $7.0 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 August 31, 2020, for the following
newbuild, we had foreign currency contracts for a portion of our
euro-denominated shipyard payments. These contracts are designated
as cash flow hedges.
Weighted-
Entered Weighted-Average Average Ceiling
Into Matures In Floor Rate Rate
-------- -------------- ------------------ --------------------
Foreign currency zero cost
collars
Mardi Gras 2020 December 2020 $ 1.12 $ 1.28
If the spot rate is between the ceiling and floor rates on the
date of maturity, then we would not owe or receive any payments
under the zero cost collars.
At August 31, 2020, 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 $8.4 billion for newbuilds scheduled
to be delivered from 2020 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, issuance of new debt, amendment of
existing debt or early retirement of existing 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 August 31, 2020, 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.
Because of the impact COVID-19 is having on economies, we have
experienced, and expect to 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 - Leases
Substantially all of our leases for which we are the lessee are
operating leases of port facilities and real estate and are
included within operating lease right-of-use assets, long-term
operating lease liabilities and current portion of operating lease
liabilities in our Consolidated Balance Sheet as of August 31,
2020.
We have port facilities and real estate lease agreements with
lease and non-lease components, and in such cases, we account for
the components as a single lease component.
We do not recognize lease assets and lease liabilities for any
leases with an original term of less than one year. For some of our
port facilities and real estate lease agreements, we have the
option to extend our current lease term by 1 to 10 years.
Generally, we do not include renewal options as a component of our
present value calculation as we are not reasonably certain that we
will exercise the options.
As most of our leases do not have a readily determinable
implicit rate, we estimate the incremental borrowing rate ("IBR")
to determine the present value of lease payments. We apply judgment
in estimating the IBR including considering the term of the lease,
the currency in which the lease is denominated, and the impact of
collateral and our credit risk on the rate. For leases that were in
place upon adoption of Leases, we used the remaining lease term as
of December 1, 2019 in determining the IBR. For the initial
measurement of the lease liabilities for leases commencing after
the adoption, the IBR at the lease commencement date was
applied.
We amortize our lease assets on a straight-line basis over the
lease term. The components of expense were as follows:
Three months Nine months
ended August ended August
(in millions) 31, 2020 31, 2020
--------------- -----------------
Operating lease expense $ 51 $ 153
Variable lease expense (a) (b) $ (36) $ (26)
(a) Variable lease expense represents costs associated with our
multi-year preferential berthing agreements, which vary based on
the number of passengers. These costs are recorded within
commission, transportation and other in our Consolidated Statements
of Income (Loss). Variable and short-term lease costs related to
operating leases, other than the port facilities, were not material
to our consolidated financial statements.
(b) Several of our preferential berthing agreements have force
majeure provisions. We have treated the concessions granted under
such provision as variable payment adjustments. If our
interpretation of the force majeure provisions is disputed, we
could be required to record and make additional guarantee
payments.
We have multiple agreements, with a total undiscounted minimum
commitment of approximately $440 million, that have been executed
but the lease term has not commenced as of August 31, 2020. These
are substantially all related to our rights to use certain port
facilities. The leases are expected to commence between 2020 and
2022.
During the nine months ended August 31, 2020, we obtained $126
million of right-of-use assets in exchange for new operating lease
liabilities. The cash outflow for leases was materially consistent
with the lease expense recognized during the three and nine months
ended August 31, 2020.
Weighted average of the remaining lease terms and weighted
average discount rates are as follows:
August 31, 2020
-----------------
Weighted average remaining lease term - operating leases
(in years) 13
Weighted average discount rate - operating leases 3.2%
As of August 31, 2020, maturities of operating lease liabilities
were as follows:
(in millions)
Year
Remainder of 2020 $ 36
2021 197
2022 162
2023 156
2024 147
Thereafter 1,074
------
Total lease payments 1,773
Less: Present value discount (342)
------
Present value of lease liabilities $1,431
=====
Under ASC 840, Leases, future minimum lease payments under
non-cancelable operating leases of port facilities and other assets
as of November 30, 2019 were as follows:
(in millions)
Year
2020 $ 219
2021 196
2022 161
2023 173
2024 167
Thereafter 1,408
------
$2,324
=====
For time charter arrangements where we are the lessor and for
transactions with cruise guests related to the use of cabins, we do
not separate lease and non-lease components. As the non-lease
components are the predominant components in the agreements, we
account for these transactions under the Revenue Recognition
guidance.
NOTE 7 - 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 August 31,
Operating Selling Depreciation Operating
costs and and and income
(in millions) Revenues expenses administrative amortization (loss)
---------- ------------ ----------------- --------------- -----------
2020
NAA $ 15 $ 1,292 $ 144 $ 348 $ (1,770)
EA (4) 225 71 165 (465)
Cruise Support 1 12 44 32 (86)
Tour and Other 20 20 5 6 (11)
---------- ------------ ----------------- --------------- -----------
$ 31 $ 1,549 $ 265 $ 551 $ (2,333)
====== ======== === ============ === ========== =======
2019
NAA $ 4,256 $ 2,327 $ 339 $ 345 $ 1,246
EA 2,035 1,058 150 165 662
Cruise Support 42 39 65 29 (92)
Tour and Other 200 109 9 9 74
---------- ------------ ----------------- --------------- -----------
$ 6,533 $ 3,532 $ 563 $ 548 $ 1,890
====== ======== === ============ === ========== =======
Nine Months Ended August 31,
Operating Selling Depreciation Operating
costs and and and income
(in millions) Revenues expenses administrative amortization (loss)
---------- ------------ ----------------- --------------- -----------
2020
NAA $ 3,612 $ 5,197 $ 841 $ 1,081 $ (4,827) (a)
EA 1,785 2,314 404 499 (2,208) (b)
Cruise Support 67 (22) 170 96 (177)
Tour and Other 96 67 19 22 (12)
---------- ------------ ----------------- --------------- -----------
$ 5,561 $ 7,556 $ 1,435 $ 1,698 $ (7,223)
====== ======== === ============ === ========== =======
2019
NAA $ 10,495 $ 6,370 $ 1,034 $ 1,012 $ 2,079
EA 5,122 3,166 540 483 933
Cruise Support 128 99 217 84 (272)
Tour and Other 299 198 21 28 52
---------- ------------ ----------------- --------------- -----------
$ 16,043 $ 9,833 $ 1,813 $ 1,607 $ 2,791
====== ======== === ============ === ========== =======
(a) Includes $1.3 billion of goodwill impairment charges.
(b) Includes $777 million of goodwill impairment charges.
Revenue by geographic areas, which are based on where our guests
are sourced, were as follows:
Three Months Ended August Nine Months Ended August
31, 31,
------------------------------- ------------------------------
(in millions) 2020 2019 2020 2019
------------- ---------------- -------------- --------------
North America $ 14 $ 3,751 $ 3,065 $ 8,910
Europe 5 1,738 1,622 4,486
Australia and Asia 1 937 681 2,261
Other 10 107 192 385
------------- ---------------- -------------- ------------
$ 31 $ 6,533 $ 5,561 $ 16,043
====== ===== ============ ========== ===========
NOTE 8 - Earnings Per Share
Three Months Ended Nine Months Ended
August 31, August 31,
---------------------- -----------------------
(in millions, except per share data) 2020 2019 2020 2019
------------- ------- ------------ ---------
Net income (loss) for basic and diluted
earnings per share $ (2,858) $ 1,780 $ (8,014) $ 2,567
========= ====== ======== ======
Weighted-average shares outstanding 775 689 727 691
Dilutive effect of equity plans - 2 - 2
------------- ------- ------------ -------
Diluted weighted-average shares outstanding 775 691 727 693
============= ======= ============ =======
Basic earnings per share $ (3.69) $ 2.58 $ (11.03) $ 3.72
========= ====== ======== ======
Diluted earnings per share $ (3.69) $ 2.58 $ (11.03) $ 3.71
========= ====== ======== ======
Antidilutive shares excluded from diluted earnings per share
computations were as follows:
Three Months Nine Months
Ended Ended
August 31, August 31,
(in millions) 2020 2020
------------ -------------
Equity awards - 1
Convertible Notes 186 102
------------ -----------
Total antidilutive securities 186 103
============ ===========
There were no antidilutive shares excluded from our 2019 diluted
earnings per share computations.
NOTE 9 - Supplemental Cash Flow Information
November 30,
(in millions) August 31, 2020 2019
----------------- ----------------
Cash and cash equivalents (Consolidated
Balance Sheets) $ 8,176 $ 518
Restricted cash included in prepaid expenses
and other and other assets 15 13
----------------- --------------
Total cash, cash equivalents and restricted
cash (Consolidated Statements of Cash Flows) $ 8,191 $ 530
=== ============ === =========
In connection with the Convertible Notes Repurchase Transaction,
as an administrative convenience, we permitted the purchasers of
83.3 million of Carnival Corporation common stock to offset the
purchase price payable to us against our obligation to pay the
purchase price for $744 million aggregate principal amount of the
Convertible Notes held by them, which is reflected as a non-cash
transaction for the nine months ended August 31, 2020.
NOTE 10 - Other Assets
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 $135 million as of August 31, 2020
and $48 million as of November 30, 2019. 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). We will continue to
operate each of these ships under bareboat charter agreements
through December 2020 and May 2021, respectively.
NOTE 11 - Defined Benefit Pension Plans and Restructuring
Costs
We have several single-employer defined benefit pension plans,
which cover some of our shipboard and shoreside employees. The U.S.
and UK shoreside employee plans are closed to new membership and
are funded at or above the level required by U.S. or UK
regulations. As required by UK regulations, the UK employee plan is
undergoing its triennial valuation. Due to the COVID-19 pandemic
and its impact on the economic environment and our operations, the
finalization of the valuation may result in a plan deficit, which
would then trigger a funding obligation under UK regulations. The
remaining defined benefit plans are primarily unfunded. In
determining all of our plans' benefit obligations at November 30,
2019 and 2018, we assumed a weighted-average discount rate of 2.4%
for 2019 and 3.4% for 2018.
In May 2020, we announced a combination of layoffs, furloughs
and salary reductions across the company in response to the
extended pause in our global cruise operations. For the three and
nine months ended August 31, 2020, we incurred restructuring costs
of $3 million and $42 million, principally consisting of severance
and our continued payment of health benefits to affected employees.
These costs are included in the selling and administrative line
item within our Consolidated Statements of Income (Loss).
NOTE 12 - Property and Equipment
Ship Sales
During 2020, we sold seven NAA segment ships and three EA
segment ships, which represents a passenger-capacity reduction of
11,560 for our NAA segment and 5,510 for our EA segment. In
addition, we have either entered into agreements to sell or expect
to sell six NAA segment ships and two EA segment ships, which
represents a passenger-capacity reduction of 9,620 for our NAA
segment and 4,320 for our EA segment.
NOTE 13 - Subsequent Events
Public Equity Offering
On September 15, 2020, we entered into an equity distribution
agreement with sales agents pursuant to which we may, from time to
time, offer and sell shares of Carnival Corporation's common stock
having an aggregate offering price of up to $1.0 billion through
the sales agents (the "ATM Offering"). We have filed a prospectus
supplement with the Securities and Exchange Commission in
connection with the ATM Offering on September 15, 2020. As of
October 2, 2020, we sold 23 million shares for net proceeds of $352
million and paid $4 million in compensation with respect of such
sales of shares under the ATM Offering.
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:
* Net revenue yields * Estimates of ship depreciable lives and residual
values
* Booking levels * Goodwill, ship and trademark fair values
* Liquidity
* Pricing and occupancy
* Adjusted earnings per share
* Interest, tax and fuel expenses
* Currency exchange rates
* Net cruise costs, excluding fuel per av
ailable lower * Impact of the COVID-19 coronavirus global pandemic on
berth day 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, growth, reputation, litigation,
cash flows, liquidity, and stock price
-- As a result of the COVID-19 outbreak, we may be out of
compliance with a maintenance covenant in certain of our debt
facilities, for which we have waivers for the period through March
31, 2021 with the next testing date of May 31, 2021
-- World events impacting the ability or desire of people to
travel may 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 may 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 may 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 incident, and failure to keep pace with
developments in technology may adversely impact our business
operations, the satisfaction of our guests and crew and 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
-- Geographic regions in which we try to expand our business may
be slow to develop or ultimately not develop how we expect
-- 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
In the face of the global impact of COVID-19, we paused our
guest cruise operations in mid-March. We resumed limited guest
operations in September 2020, with Costa Cruises ("Costa")
successful voyages on two of our ships, Costa Deliziosa and Costa
Diadema. We are continuing the limited resumption of our guest
cruise operations with sailings on additional Costa ships shortly,
as well as with sailings on AIDA Cruises ("AIDA") which are
anticipated to begin in mid-October 2020. These brands are
beginning our anticipated gradual, phased-in resumption of guest
cruise operations. The initial cruises will continue to take place
with adjusted passenger capacity and enhanced health protocols
developed with government and health authorities, and guidance from
our roster of medical and scientific experts.
Other brands and ships are expected to return to service over
time to provide guests with unmatched joyful vacations in a manner
consistent with our highest priorities, which are compliance,
environmental protection and the health, safety and well-being of
our guests, crew, shoreside employees and the people in the
communities our ships visit. Many of our brands source the majority
of their guests from the geographical region in which they operate.
In the current environment, we believe this will benefit us in
resuming guest cruise operations.
Health and Safety Protocols
Working with global and national health authorities and medical
experts, Costa and AIDA have a comprehensive set of health and
hygiene protocols to help facilitate a safe and healthy return to
cruise vacations. Both brands are providing guests with detailed
information about enhanced protocols, which are modeled after
shoreside health and mitigation guidelines as provided by each
brand's respective country, and approved by the flag state, Italy.
Protocols will be updated based on evolving scientific and medical
knowledge related to mitigation strategies.
Costa is the first cruise company to earn the Biosafety Trust
Certification from Registro Italiano Navale ("RINA"). The
certification process examined all aspects of life onboard and
ashore and assessed the compliance of the system with procedures
aimed at the prevention and control of infections. Costa's
comprehensive set of measures and procedures implemented on the
ships that resumed operations cover key areas such as crew health
and safety, the booking process, guest activities, entertainment
and dining, and medical care on board, as well as pre-boarding,
embarkation and disembarkation operations, which includes testing
for all guests prior to embarkation.
More broadly, as the understanding of COVID-19 continues to
evolve, we have been working with a number of world-leading public
health, epidemiological and policy experts to support our ongoing
efforts with enhanced protocols and procedures 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.
Optimizing the Future Fleet
We expect future capacity to be moderated by the phased re-entry
of our ships, the removal of capacity from our fleet and delays in
new ship deliveries. Since the pause in guest operations, we have
accelerated the removal of ships in fiscal 2020 which were
previously expected to be sold over the ensuing years. We now
expect to dispose of 18 ships, 10 of which have already left the
fleet. In total, the 18 ships represent approximately 12 percent of
pre-pause capacity and only three percent of operating income in
2019. The sale of less efficient ships will result in future
operating expense efficiencies of approximately two percent per
available lower berth day ("ALBD") and a reduction in fuel
consumption of approximately one percent per ALBD. We expect only
two of the four ships originally scheduled for delivery in 2020,
following the start of the pause, to be delivered prior to the end
of fiscal 2020, including Enchanted Princess which was delivered in
September 2020. We currently expect only five of the nine ships
originally scheduled for delivery in fiscal 2020 and 2021 to be
delivered prior to the end of fiscal year 2021. We currently expect
nine cruise ships and two smaller expedition ships of the 13 ships
originally scheduled for delivery prior to the end of fiscal year
2022 to be delivered by then.
Based on the actions taken to date and the scheduled newbuild
deliveries through 2022, our fleet will be more efficient with a
roughly 13 percent larger average berth size per ship and an
average age of 12 years in 2022 versus 13 years, in each case as
compared to 2019.
Ships expected to return to service
as of August 31, 2020 (a)
--------------------------------------------
Percentage
Passenger of Total Number of
Capacity Capacity Cruise Ships
------------ ------------ ----------------
NAA Segment
Carnival Cruise Line 66,440 30% 23
Princess Cruises 38,950 18 13
Holland America Line 20,260 9 10
P&O Cruises (Australia) 7,230 3 3
Seabourn 2,570 1 5
------------ ------ ---- ----------------
135,450 61 54
------------ ------ ---- ----------------
EA Segment
Costa Cruises ("Costa") 34,980 16 11
AIDA Cruises ("AIDA") 31,930 14 14
P&O Cruises (UK) 13,810 6 5
Cunard 6,830 3 3
------------ ------ ---- ----------------
87,550 39 33
------------ ------ ---- ----------------
223,000 100% 87
============ ====== === ================
(a) Excludes 18 ships that we expect to dispose. Ten ships have
left the fleet and we expect six ships to leave the fleet by
December 2020, one by February 2021 and one by May 2021.
Update on Bookings
While we believe bookings in the first half of 2021 reflect
expectations of the phased resumption of our guest cruise
operations and anticipated itinerary changes, as of September 20,
2020, cumulative advanced bookings for the second half of 2021
capacity currently available for sale are at the higher end of the
historical range. We believe this demonstrates the long-term
potential demand for cruising. Pricing on these bookings are lower
by mid-single digits versus the second half of 2019, on a
comparable basis, reflecting the effect of FCCs from previously
cancelled cruises being applied. We continue to take bookings for
both 2021 and 2022.
We are providing flexibility to guests with bookings on sailings
cancelled by allowing guests to receive enhanced FCCs or elect to
receive refunds in cash. Enhanced FCCs increase the value of the
guest's original booking or provide incremental onboard credits. As
of September 20, 2020, approximately 45 percent of guests affected
by our schedule changes have received enhanced FCCs and
approximately 55 percent have requested refunds.
Total customer deposits balance at August 31, 2020, was $2.4
billion, the majority of which are FCCs, compared to total customer
deposits balance of $2.9 billion at May 31, 2020. The decline in
customer deposits is consistent with previous expectations. As of
August 31, 2020, the current portion of customer deposits was $2.1
billion with $0.1 billion relating to fourth quarter sailings.
Approximately 60 percent of bookings taken during the three weeks
ended September 20, 2020 were new bookings, as opposed to FCC
re-bookings, despite minimal advertising or marketing.
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, growth, reputation,
litigation, cash flows, liquidity, and stock price. "
Update on Cyber Incident
On August 15, 2020, we detected a ransomware attack and
unauthorized access to our information technology systems. We
engaged a major cybersecurity firm to investigate the matter and
notified law enforcement and regulators of the incident. While the
investigation is ongoing, early indications are that the
unauthorized third-party gained access to certain personal
information relating to some guests, employees and crew for some of
our operations. There is currently no indication of any misuse of
this information. While at this time we do not believe that this
information will be misused going forward or that this incident
will have a material adverse effect on our business, operations or
financial results, no assurances can be given and further we may be
subject to future attacks or incidents that could have such a
material adverse effect.
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. A
discussion of our goodwill impairment charges recognized during the
first and second quarters of 2020, and ship impairment charges
recognized during 2020 is included in the accompanying consolidated
financial statements.
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 2020 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 2020,
the Alaska cruise season was adversely impacted by the effects of
COVID-19.
Statistical Information
Three Months Ended Nine Months Ended
August 31, August 31,
--------------------------
2020 2019 2020 2019
-------------- ---------- -------------- ------------
ALBDs (in thousands) (a) - 22,727 25,598 65,671
Occupancy percentage (b) -% 113.0% 103.1% 107.8%
Passengers carried (in thousands) - 3,752 3,489 9,790
Fuel consumption in metric tons (in
thousands) 325 822 1,639 2,487
Fuel cost per metric ton consumed $ 371 $ 487 $ 438 $ 484
Currencies (USD to 1)
AUD $ 0.70 $ 0.69 $ 0.67 $ 0.70
CAD $ 0.74 $ 0.76 $ 0.74 $ 0.75
EUR $ 1.15 $ 1.12 $ 1.12 $ 1.13
GBP $ 1.28 $ 1.24 $ 1.27 $ 1.28
RMB $ 0.14 $ 0.14 $ 0.14 $ 0.15
We paused our guest operations in mid-March 2020 and have been
in a pause for a majority of the second quarter and all of the
third quarter. The pause in guest operations is continuing to have
material negative impacts on all aspects of our business, including
the above statistical information.
Notes to Statistical Information
(a) ALBD is a standard measure of passenger capacity for the
period that we use to approximate rate and capacity variances,
based on consistently applied formulas that we use to perform
analyses to determine the main non-capacity driven factors that
cause our cruise revenues and expenses to vary. ALBDs assume that
each cabin we offer for sale accommodates two passengers and is
computed by multiplying passenger capacity by revenue-producing
ship operating days in the period.
(b) In accordance with cruise industry practice, occupancy is
calculated using a denominator of ALBDs, which assumes two
passengers per cabin even though some cabins can accommodate three
or more passengers. Percentages in excess of 100% indicate that on
average more than two passengers occupied some cabins.
Results of Operations
Consolidated
Three Months Nine Months
Ended August Ended August
31, 31,
---------------- ------- ----------------- -------
% increase % increase
(in millions) 2020 2019 Change (decrease) 2020 2019 Change (decrease)
-------- ------ -------- ------------ -------- ------- --------- ------------
Revenues
Passenger
ticket $ - $4,477 $(4,477) (100)% $ 3,680 $10,934 $ (7,254) (66)%
Onboard and
other 31 2,056 (2,024) (98)% 1,881 5,110 (3,229) (63)%
-------- ------ -------- ------- -------- ------- --------- -------
31 6,533 (6,501) (100)% 5,561 16,043 (10,483) (65)%
-------- ------ -------- ------- -------- ------- --------- -------
Operating Costs
and
Expenses
Commissions,
transportation
and other 34 803 (769) (96)% 1,098 2,125 (1,027) (48)%
Onboard and
other 9 668 (659) (99)% 593 1,620 (1,027) (63)%
Payroll and
related 248 548 (300) (55)% 1,563 1,671 (108) (6)%
Fuel 121 401 (280) (70)% 718 1,204 (486) (40)%
Food 19 284 (265) (93)% 404 821 (417) (51)%
Ship and other
impairments 910 23 887 3838% 1,829 24 1,806 7682%
Other operating 208 805 (597) (74)% 1,349 2,367 (1,018) (43)%
-------- ------ -------- ------- -------- ------- --------- -------
1,549 3,532 (1,983) (56)% 7,556 9,833 (2,277) (23)%
Selling and
administrative 265 563 (298) (53)% 1,435 1,813 (378) (21)%
Depreciation
and
amortization 551 548 3 -% 1,698 1,607 91 6%
Goodwill
impairment - - - -% 2,096 - 2,096 100%
-------- ------ -------- ------- -------- ------- --------- -------
2,364 4,643 (2,279) (49)% 12,784 13,252 (468) (4)%
-------- ------ -------- ------- -------- ------- --------- -------
Operating Income
(Loss) $(2,333) $1,890 $(4,223) (223)% $(7,223) $ 2,791 $(10,015) (359)%
======= ===== ======= ======= ======= ====== ======== =======
NAA
Three Months Nine Months
Ended August Ended August
31, 31,
---------------- ------- ---------------- -------
% increase % increase
(in millions) 2020 2019 Change (decrease) 2020 2019 Change (decrease)
-------- ------ -------- ------------ -------- ------ -------- ------------
Revenues
Passenger
ticket $ 5 $2,896 $(2,891) (100)% $ 2,329 $6,976 $(4,647) (67)%
Onboard and
other 9 1,361 (1,351) (99)% 1,283 3,519 (2,236) (64)%
-------- ------ -------- ------- -------- ------ -------- -------
15 4,256 (4,242) (100)% 3,612 10,495 (6,883) (66)%
-------- ------ -------- ------- -------- ------ -------- -------
Operating Costs
and
Expenses 1,292 2,327 (1,034) (44)% 5,197 6,370 (1,172) (18)%
Selling and
administrative 144 339 (194) (57)% 841 1,034 (193) (19)%
Depreciation
and
amortization 348 345 3 1% 1,081 1,012 69 7%
Goodwill
impairment - - - -% 1,319 - 1,319 100%
-------- ------ -------- ------- -------- ------ -------- -------
1,785 3,010 (1,225) (41)% 8,439 8,416 23 -%
-------- ------ -------- ------- -------- ------ -------- -------
Operating
Income (Loss) $(1,770) $1,246 $(3,016) (242)% $(4,827) $2,079 $(6,906) (332)%
======= ===== ======= ======= ======= ===== ======= =======
EA
Three Months Nine Months
Ended August Ended August
31, 31,
-------------- ------- ---------------- -------
% increase % increase
(in millions) 2020 2019 Change (decrease) 2020 2019 Change (decrease)
------ ------ -------- ------------ -------- ------ -------- ------------
Revenues
Passenger
ticket $ (4) $1,609 $(1,613) (100)% $ 1,393 $4,021 $(2,628) (65)%
Onboard and
other - 426 (426) (100)% 393 1,101 (708) (64)%
------ ------ -------- ------- -------- ------ -------- -------
(4) 2,035 (2,039) (100)% 1,785 5,122 (3,336) (65)%
------ ------ -------- ------- -------- ------ -------- -------
Operating Costs
and
Expenses 225 1,058 (833) (79)% 2,314 3,166 (852) (27)%
Selling and
administrative 71 150 (79) (53)% 404 540 (136) (25)%
Depreciation
and
amortization 165 165 - -% 499 483 16 3%
Goodwill
impairment - - - -% 777 - 777 100%
------ ------ -------- ------- -------- ------ -------- -------
461 1,373 (912) (66)% 3,994 4,189 (195) (5)%
------ ------ -------- ------- -------- ------ -------- -------
Operating
Income (Loss) $(465) $ 662 $(1,127) (170)% $(2,208) $ 933 $(3,141) (337)%
===== ===== ======= ======= ======= ===== ======= =======
We paused our guest operations in mid-March 2020 and as a result
have been in a pause for a majority of the second quarter and all
of the third quarter. We resumed limited guest cruise operations in
September 2020 as part of our phased-in return to service. The
partial pause in guest operations is continuing to have material
negative impacts on all aspects of our business. The longer the
partial 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 and
meaningfully lower revenues for the nine months ended August 31,
2020 compared to the prior year periods resulting in operating
losses for the current periods. We are unable to definitively
predict the timing of our complete return to service. As a result,
we are currently unable to provide an earnings forecast. We expect
a net loss on both a U.S. GAAP and adjusted basis for the quarter
and year ending November 30, 2020 .
While maintaining compliance, environmental protection and
safety, we significantly reduced ship operating expenses, including
cruise payroll and related expenses, food, fuel, insurance and port
charges by transitioning ships into paused status, either at anchor
or in port and staffed at a safe manning level. We continue to seek
ways to further reduce our ongoing ship operating expenses.
In addition, during the nine months ended August 31, 2020, we
incurred incremental COVID-19 related costs associated with
repatriating guests and crew members, enhancing health protocols
and sanitizing our ships, restructuring costs and defending
lawsuits.
As a result of the effects of COVID-19 on our expected future
operating cash flows, we recognized goodwill impairment charges of
$2.1 billion during the nine months ended August 31, 2020. In
addition, we recognized ship impairment charges of $0.8 billion and
$1.7 billion during the three and nine months ended August 31,
2020, respectively.
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 Nine Months Ended
August 31, August 31,
---------------------- -----------------------
(in millions, except per share data) 2020 2019 2020 2019
------------- ------- ------------ ---------
Net income (loss)
U.S. GAAP net income (loss) $ (2,858) $ 1,780 $ (8,014) $ 2,567
(Gains) losses on ship sales and impairments 937 14 3,819 -
Restructuring expenses 3 - 42 -
Other 220 25 223 47
------------- ------- ------------ -------
Adjusted net income (loss) $ (1,699) $ 1,819 $ (3,930) $ 2,614
--------- ------ -------- ------
Interest expense, net of capitalized
interest 310 52 547 157
Interest income (3) (8) (15) (16)
Income tax expense, net (2) 47 (2) 56
Depreciation and amortization 551 548 1,698 1,607
------------- ------- ------------ -------
Adjusted EBITDA $ (844) $ 2,458 $ (1,702) $ 4,418
========= ====== ======== ======
Weighted-average shares outstanding 775 691 727 693
============= ======= ============ =======
Earnings per share
U.S. GAAP diluted earnings per share $ (3.69) $ 2.58 $ (11.03) $ 3.71
(Gains) losses on ship sales and impairments 1.21 0.02 5.26 -
Restructuring expenses - - 0.06 -
Other 0.28 0.04 0.31 0.07
------------- ------- ------------ -------
Adjusted earnings per share $ (2.19) $ 2.63 $ (5.41) $ 3.77
========= ====== ======== ======
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 secure additional financing to increase our
liquidity. Since March 2020, we have raised $12.5 billion through a
series of financing transactions through October 2, 2020. We have
completed the following transactions:
-- In March 2020, we fully drew down our $3.0 billion Revolving Facility.
-- In March 2020, we settled outstanding derivatives resulting in proceeds of $220 million.
-- In April 2020, we completed (i) a public offering of
71,875,000 shares of Carnival Corporation's common stock at a price
per share of $8.00, resulting in net proceeds of $556 million and
(ii) a private offering of $2.0 billion aggregate principal amount
of 5.75% Convertible Notes.
-- In April 2020, we completed a private offering of $4.0
billion aggregate principal amount of 11.5% 2023 Secured Notes that
mature on April 1, 2023.
-- In April 2020, we extended a $166 million euro-denominated
bank loan, originally maturing in 2020, to March 2021.
-- Certain of the counterparties to our export credit facilities
have offered the Debt Holiday. We have entered into supplemental
agreements or side letters for the Debt Holiday amendments to defer
certain principal repayments otherwise due through March 31, 2021
through the creation of separate tranches of loans with repayments
made over the following four years. We have also entered into
supplemental agreements or side letters to waive the Financial
Covenant for our funded export credit facilities through March 31,
2021, August 31, 2021, November 30, 2021 or December 31, 2021, as
applicable. We will be required to comply with the Financial
Covenant beginning with the next testing date of May 31, 2021,
November 30, 2021, February 28, 2022 or February 28, 2022,
respectively.
-- Subsequent to August 31, 2020, we extended the Financial
Covenant waivers for our funded export credit facilities through at
least November 30, 2021 (with the next testing date of February 28,
2022) except that for three of our funded export credit facilities
with Financial Covenant waivers through March 31, 2021 (with the
next testing date of May 31, 2021) or August 31, 2021 (with the
next testing date of November 30, 2021), with total aggregate
indebtedness of $1.3 billion as of August 31, 2020, we are
currently engaged in discussions to extend the waivers for these
facilities through November 30, 2021 (with the next testing date of
February 28, 2022).
-- We obtained waivers of the Financial Covenant for certain of
our bank loans through November 2021. We will be required to comply
with the covenant beginning with the next testing date of February
28, 2022. We have also obtained waivers of the covenant for the
remaining applicable bank loans through their respective maturity
dates.
-- To further enhance our liquidity, as well as comply with the
dividend restrictions contained in our recent debt agreements, we
have suspended the payment of dividends on, and the repurchase of,
the common stock of Carnival Corporation and the ordinary shares of
Carnival plc.
-- In June 2020, we borrowed an aggregate principal amount of
$2.8 billion in two tranches ($1.9 billion and EUR800 million),
under the 2025 Secured Term Loan that matures on June 30, 2025. The
U.S. dollar tranche bears interest at a rate per annum equal to
adjusted LIBOR (with a 1% floor) plus 7.5%. The euro tranche bears
interest at a rate per annum equal to EURIBOR (with a 0% floor)
plus 7.5%.
-- In July 2020, we extended a $337 million euro-denominated
floating rate bank loan originally maturing in 2021 to 2022.
-- In July 2020, we issued an aggregate principal amount of $1.3
billion in two tranches ($775 million and EUR425 million), under
2026 Secured Notes, that mature on February 1, 2026. The U.S.
dollar tranche bears interest at a rate of 10.5% per year. The euro
tranche bears interest at a rate of 10.1% per year.
-- In August 2020, we completed a registered direct offering of
99.2 million shares of Carnival Corporation's common stock at a
price per share of $14.02 to a limited number of holders of the
Convertible Notes (the "Registered Direct Offering"). We used the
proceeds from the Registered Direct Offering to repurchase $886
million aggregate principal amount of the Convertible Notes and pay
accrued interest thereon in privately negotiated transactions.
-- In August 2020, we issued an aggregate principal amount of
$900 million of second-priority senior secured notes that mature on
August 1, 2027. The 2027 Secured Notes bear interest at a rate of
9.9% per year.
-- On September 15, 2020, we entered into an equity distribution
agreement with sales agents pursuant to which we may, from time to
time, offer and sell shares of Carnival Corporation's common stock
having an aggregate offering price of up to $1.0 billion through
the sales agents. We have filed a prospectus supplement with the
Securities and Exchange Commission in connection with the ATM
Offering on September 15, 2020. As of October 2, 2020, we sold 23
million shares for net proceeds of $352 million and paid $4 million
in compensation with respect of such sales of shares under the ATM
Offering.
-- In September 2020, we borrowed $610 million under an export
credit facility due in semi-annual installments through 2032.
As of August 31, 2020, we had a total of $8.2 billion of cash
and cash equivalents.
Our monthly average cash burn rate for the third quarter 2020
was $770 million, which was in line with the anticipated monthly
cash burn rate. We expect the monthly average cash burn rate for
the fourth quarter of 2020 to be approximately $530 million. This
results in an average monthly burn rate for the second half of the
year of $650 million, as previously disclosed. This rate includes
approximately $250 million of ongoing ship operating and
administrative expenses, working capital changes (excluding changes
in customer deposits), interest expense and committed capital
expenditures (net of unfunded export credit facilities) and also
excludes scheduled debt maturities as well as other cash collateral
to be provided. We continue to explore opportunities to further
reduce our monthly cash burn rate.
We estimate non-newbuild capital expenditures during the fourth
quarter of 2020 to be approximately $130 million. Our scheduled
debt maturities, for debt outstanding as of August 31, 2020, are as
follows:
(in billions) 4Q 2020 1Q 2021 2Q 2021 3Q 2021 4Q 2021
--------- --------- --------- --------- ---------
Principal Payments
(a) $ 1.0 $ 0.5 $ 0.3 (b) $ 0.6 $ 0.2 (b)
(a) Excluding the Revolving Facility. As of August 31, 2020,
borrowings under the Revolving Facility were $3.0 billion, which
were drawn in March 2020 for an initial term of six months. The
maturities for these borrowings were extended in September 2020 for
an additional six months through March 2021. We may re-borrow such
amounts subject to satisfaction of the conditions in the Revolving
Facility Agreement.
(b) We have a principal balance of $0.5 billion and $0.8 billion
of debt outstanding as of August 31, 2020, otherwise due through
2032, for which covenant waivers expire during the second quarter
2021 and fourth quarter 2021, respectively. We are working on
extending these covenant waivers. If the covenant waiver extensions
are not received, we would be required to prepay the outstanding
principal balance.
Since March 2020, Moody's and S&P Global have downgraded our
credit ratings to be below investment grade. Our current short-term
commercial paper credit rating prevents us from issuing additional
commercial paper.
We had a working capital deficit of $916 million as of August
31, 2020 compared to a working capital deficit of $7.1 billion as
of November 30, 2019. The decrease in working capital deficit was
caused by an increase in cash and cash equivalents and a decrease
in customer deposits, partially offset by increases in short-term
borrowings and the current portion of long-term debt. Historically,
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 deficit were $2.1 billion and
$4.7 billion of customer deposits as of August 31, 2020 and
November 30, 2019, respectively. We are providing flexibility to
guests with bookings on sailings cancelled due to the pause by
allowing guests to receive enhanced FCCs 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. As
of August 31, 2020, approximately 55% of guests affected have
requested cash refunds. In addition, we have a relatively low-level
of accounts receivable and limited investment in inventories. We
expect that we will continue to have working capital deficits in
the future.
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 $4.6 billion of net cash flows in operating
activities during the nine months ended August 31, 2020, a decrease
of $9.1 billion, or 205%, compared to $4.4 billion of net cash
provided for the same period in 2019.
Investing Activities
During the nine months ended August 31, 2020, net cash used in
investing activities was $1.5 billion. This was caused by the
following:
-- Capital expenditures of $1.0 billion for our ongoing new shipbuilding program
-- Capital expenditures of $855 million for ship improvements
and replacements, information technology and buildings and
improvements
-- Proceeds from sale of ships of $271 million
-- Proceeds of $220 million from the settlement of outstanding derivatives
During the nine months ended August 31, 2019, net cash used in
investing activities was $3.3 billion. This was caused by the
following:
-- Capital expenditures of $2.2 billion for our ongoing new shipbuilding program
-- Capital expenditures of $1.2 billion for ship improvements
and replacements, information technology and buildings and
improvements
-- Proceeds from sale of ships of $15 million
Financing Activities
During the nine months ended August 31, 2020, net cash provided
by financing activities of $13.7 billion was caused by the
following:
-- Net proceeds from short-term borrowings of $3.1 billion in
connection with our availability of, and needs for, cash at various
times throughout the period, including proceeds of $3.0 billion
from the Revolving Facility
-- Repayments of $896 million of long-term debt, including the
$222 million that was cash settled to repurchase a portion of the
Convertible Notes
-- Issuances of $11.5 billion of long-term debt, including net
proceeds of $3.9 billion from the issuance of the 2023 Secured
Notes, net proceeds of $2.6 billion from the issuance of the 2025
Secured Term Loan, net proceeds of $2.0 billion from the issuance
of Convertible Notes, net proceeds of $1.2 billion from the
issuance of the 2026 Secured Notes and net proceeds of $0.9 billion
from the issuance of the 2027 Secured Notes.
-- Payments of cash dividends of $689 million
-- Purchases of $12 million of Carnival plc ordinary shares in
open market transactions under our Repurchase Program
-- Net proceeds of $556 million from our public offering of Carnival Corporation common stock
-- Net proceeds of $222 million from a registered direct
offering of Carnival Corporation common stock used to repurchase a
portion of the Convertible Notes
During the nine months ended August 31, 2019, net cash used in
financing activities of $912 million was caused by the
following:
-- Net repayments of short-term borrowings of $600 million in
connection with our availability of, and needs for, cash at various
times throughout the period
-- Repayments of $472 million of long-term debt
-- Issuances of $1.7 billion of long-term debt
-- Payments of cash dividends of $1.0 billion
-- Purchases of $472 million of Carnival Corporation common
stock and Carnival plc ordinary shares in open market transactions
under our Repurchase Program
Funding Sources
As of August 31, 2020, we had $8.2 billion of cash and cash
equivalents. In addition, we had $9.4 billion of export credit
facilities to fund ship deliveries planned through 2024.
(in billions) 2020 2021 2022 2023 2024
---- ---- ---- ---- ------
Future export credit facilities at
August 31, 2020 (a) $1.5 $2.0 $3.4 $1.9 $0.6
(a) Under the terms of these export credit facilities, we are
required to comply with the Financial Covenant. We have entered
into supplemental agreements or side letters to amend our
agreements with respect to the Financial Covenant for our unfunded
export credit facilities to waive compliance through August 31,
2021 (with the next testing date of November 30, 2021) for
aggregate principal of $2.7 billion, through November 30, 2021
(with the next testing date of February 28, 2022) for aggregate
principal of $1.2 billion (of which we borrowed $610 million to
fund delivery of a ship in September 2020), and through December
31, 2021 (with the next testing date of February 28, 2022) for
aggregate principal of $3.7 billion. For the remaining three
unfunded export credit facilities with an aggregate principal of
$1.8 billion, we are engaged in discussions with the counterparties
to waive the Financial Covenant through March 31, 2021 (with the
next testing date of May 31, 2021). Simultaneously with obtaining
the initial waivers for these three unfunded export credit
facilities, we have also requested extension of waivers for these
facilities through November 30, 2021 (with the next testing date of
February 28, 2022).
Many of our debt agreements contain various other financial
covenants, including those described in Note 3 - "Debt" and in Note
5 - "Deb" in the annual consolidated financial statements, which
are included within our Form 10-K. At August 31, 2020, we were in
compliance with the applicable debt covenants.
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:
August 31, 2020
-----------------
Fixed rate 44%
EUR fixed rate 13%
Floating rate 25%
EUR floating rate 14%
GBP floating rate 4%
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 August
31, 2020, 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 August 31, 2020 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.
As previously disclosed, on May 19, 2017, Holland America Line
and Princess Cruises notified the National Oceanic and Atmospheric
Administration ("NOAA") regarding discharges made by certain
vessels in the recently expanded area of the National Marine
Sanctuary in the Farallones Island. On February 7, 2020, Carnival
Corporation received an assessment for a civil penalty of $1.4
million for these discharges. The parties are negotiating a final
settlement.
As previously disclosed, in June and August of 2018, Holland
America Line received four Notices of Violation from the Alaska
Department of Environmental Conservation ("ADEC") alleging that
four ships violated the Alaska state visible emissions standards
while docked in Skagway, Haines and Ketchikan. On July 8, 2020,
ADEC waived opacity penalties for two vessels and proposed a
settlement of $112,500 to resolve all outstanding penalties, which
Holland America Line accepted on July 31, 2020.
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, our Form 10-Q for the
quarters ended February 29, 2020 and May 31, 2020 and other filings
with the SEC since the date of the 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 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, growth, reputation, litigation,
cash flows, liquidity, and stock price.
The spread of COVID-19 and the recent developments surrounding
the global pandemic are 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 have
begun the resumption of limited guest operations in September 2020,
such partial pause may be prolonged. In addition, we have been, and
will continue to be further, negatively impacted by related
developments, including heightened governmental regulations and
travel advisories, recommendations by the U.S. Department of State,
the Centers for Disease Control and Prevention and other regulatory
authorities, and travel bans and restrictions, each of which has
impacted, and is expected to continue to significantly impact,
global guest sourcing and our access to various ports of call.
To date we have 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 sanitize our ships and implement additional
hygiene-related protocols to our ships, as well as prepare for the
continued resumption of guest operations. In addition, the industry
may be subject to enhanced health and hygiene requirements in
attempts to counteract future outbreaks, which requirements may be
costly and take a significant amount of time to implement across
our global fleet 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. COVID-19 presents enormous challenges
for the company, which could result in material adverse
impacts.
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 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 in 2020 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 or preliminary 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, which we cannot predict and may be prolonged.
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 future pause
in the resumption of limited guest operations, it could negatively
impact our liquidity. 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 our cash flows required
for cash refunds of deposits as a result of the current partial
pause in our global fleet 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. As a result, we
expect a net loss on both a U.S. GAAP and adjusted basis for the
quarter and year ending November 30, 2020, and our ability to
forecast our cash inflows and additional capital needs is
hampered.
As a result of all of the foregoing, we have raised, and expect
to be required to further raise, significant additional capital,
including additional equity capital. 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. As a result of COVID-19's effects on our
liquidity, since March 2020, Moody's and S&P Global have
downgraded our credit ratings to be below investment grade. Our
current short-term commercial paper credit rating prevents us from
issuing additional commercial paper.
If 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
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 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 is expected to adversely impact our ability to
raise funds through equity financings.
In addition, the COVID-19 outbreak has significantly increased
economic and demand uncertainty. The current outbreak and continued
spread of COVID-19 could cause a global recession, which would 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. Current
economic forecasts for 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 is likely to
have a negative impact on booking demand for our global fleet
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
of the other risks described in Item 1A. "Risk Factors" included in
our Form 10-K.
-- Any potential government disaster relief assistance could
impose significant limitations on our corporate activities and may
not be available to us on terms that are favorable or at all .
If any government provides or agrees to provide disaster relief
assistance, it may impose certain requirements on the recipients of
the aid including restrictions on executive officer compensation,
share buybacks, dividends, prepayment of debt, incurrence of
additional indebtedness and other similar restrictions until the
aid is repaid or redeemed in full. In addition, the government may
change the terms of the assistance or the eligibility requirements.
We cannot assure you that any such government disaster relief
assistance will not significantly limit our corporate activities
or, even if we qualify for a program, will be available to us on
terms that are favorable or at all. For example, we initially
qualified for a government commercial paper program providing over
$700 million of available liquidity, and in September 2020, the
relevant government agency paused our access to further drawings,
and the ability to roll over existing drawings, under the
government commercial paper program. Any restrictions, terms and
inability to access government disaster relief assistance could
adversely impact our business, operations, liquidity and financial
condition.
-- Our substantial debt could adversely affect our financial
health and operating flexibility .
We have a substantial amount of debt and significant debt
service obligations.
Our substantial debt could have important negative consequences
for us. Our substantial debt could:
require us to dedicate a large portion of our cash flow from
operations to service debt and fund repayments
on our debt, thereby reducing the availability of our cash flow
to fund working capital, capital expenditures
and other general corporate purposes;
increase our vulnerability to adverse general economic or
industry conditions;
limit our flexibility in planning for, or reacting to, changes
in our business or the industry in which we operate;
place us at a competitive disadvantage compared to our
competitors that have less debt;
make us more vulnerable to downturns in our business, the
economy or the industry in which we operate;
limit our ability to raise additional debt or equity capital in
the future to satisfy our requirements relating to
working capital, capital expenditures, development projects,
strategic initiatives or other purposes;
restrict us from making strategic acquisitions, introducing new
technologies or exploiting business
opportunities;
make it difficult for us to satisfy our obligations with respect
to our debt; and
expose us to the risk of increased interest rates as certain of
our borrowings are (and may be in the future) at
a variable rate of interest.
-- Despite our leverage, we may incur more debt, which could
adversely affect our business and prevent us from fulfilling our
obligations with respect to our debt.
We may be able to incur substantial additional debt in the
future. Although the instruments governing our existing
indebtedness contain restrictions on the incurrence of additional
debt, these restrictions are subject to a number of significant
qualifications and exceptions, and under certain circumstances, the
amount of debt that could be incurred in compliance with these
restrictions could be substantial and a portion of such debt could
be secured. The instruments governing our existing indebtedness do
not prevent us from incurring liabilities that do not constitute
"Indebtedness" as defined therein. If new debt is added to our
existing debt levels, our business could be adversely affected,
which may prevent us from fulfilling our obligations with respect
to our debt.
-- We are subject to restrictive debt covenants that may limit
our ability to finance future operations and capital needs and to
pursue business opportunities and activities. In addition, if we
fail to comply with any of these restrictions, it could have a
material adverse effect on the company .
Certain of our debt instruments limit our flexibility in
operating our business. For example, some of our debt instruments
limit the ability of Carnival Corporation, Carnival plc and certain
of their respective subsidiaries to, among other things:
incur or guarantee additional indebtedness;
pay dividends or distributions on, or redeem or repurchase
capital stock and make other restricted payments;
make certain investments;
consummate certain asset sales;
engage in certain transactions with affiliates;
grant or assume certain liens; and
consolidate, merge or transfer all or substantially all of our
assets.
All of these limitations are subject to significant exceptions
and qualifications. Despite these exceptions and qualifications, we
cannot assure you that the operating and financial restrictions and
covenants in certain of our debt instruments will not adversely
affect our ability to finance our future operations or capital
needs or engage in other business activities that may be in our
interest. Any future indebtedness may include similar or other
restrictive terms. In addition, many of our debt agreements contain
one or more financial covenants that require us to maintain minimum
debt service coverage, maintain minimum shareholders equity and/or
limit our debt to capital ratio. Our ability to comply with our
debt covenants, including the financial maintenance covenants
described above, and restrictions may be affected by events beyond
our control. These include prevailing economic, financial and
industry conditions. If we breach any of these covenants or
restrictions, we could be in default under the terms of certain of
our debt facilities and the relevant lenders could elect to declare
the debt, together with accrued and unpaid interest and other fees,
if any, immediately due and payable and proceed against any
collateral, if any, securing that debt. If the debt under certain
of our debt instruments that we enter into were to be accelerated,
our assets may be insufficient to repay in full our debt.
Borrowings under other debt instruments that contain cross-default
provisions also may be accelerated or become payable on demand. In
these circumstances, our assets may not be sufficient to repay in
full our indebtedness then outstanding.
-- We require a significant amount of cash to service our debt
and sustain our operations. Our ability to generate cash depends on
many factors beyond our control, and we may not be able to generate
cash required to service our debt .
Our ability to meet our debt service obligations or refinance
our debt depends on our future operating and financial performance
and ability to generate cash. This will be affected by our ability
to successfully implement our business strategy, as well as general
economic, financial, competitive, regulatory and other factors
beyond our control, such as the disruption caused by the COVID-19
pandemic. If we cannot generate sufficient cash to meet our debt
service obligations or fund our other business needs, we may, among
other things, need to refinance all or a portion of our debt,
obtain additional financing, delay planned capital expenditures or
sell assets. We cannot assure you that we will be able to generate
sufficient cash through any of the foregoing. If we are not able to
refinance any of our debt, obtain additional financing or sell
assets on commercially reasonable terms or at all, we may not be
able to satisfy our obligations with respect to our debt. Refer to
"Liquidity, Financial Condition and Capital Resources."
-- Our variable rate indebtedness subjects us to interest rate
risk, which could cause our debt service obligations to increase
significantly .
Borrowings under certain of our facilities are at variable rates
of interest and expose us to interest rate risk. If interest rates
increase, our debt service obligations on certain of our variable
rate indebtedness will increase even though the amount borrowed
remains the same, and our net income and cash flows, including cash
available for servicing our indebtedness, will correspondingly
decrease.
In addition, in July 2017, the United Kingdom's Financial
Conduct Authority, which regulates the London Interbank Offered
Rate ("LIBOR"), announced that it will no longer persuade or compel
banks to submit LIBOR rates after 2021. It is unclear whether or
not, at that time, LIBOR will cease to exist and a satisfactory
replacement rate developed or if new methods of calculating LIBOR
will be established such that it continues to exist after 2021. The
U.S. Federal Reserve, in conjunction with the Alternative Reference
Rates Committee, a steering committee comprised of, among other
entities, large U.S. financial institutions, is considering
replacing U.S. dollar LIBOR with a new index that measures the cost
of borrowing cash overnight, backed by U.S. Treasury securities
("SOFR"). SOFR is observed and backward-looking, which stands in
contrast with LIBOR under the current methodology, which is an
estimated forward-looking rate and relies, to some degree, on the
expert judgment of submitting panel members. Whether or not SOFR
attains market traction as a LIBOR replacement rate remains in
question. As such, the future of LIBOR at this time is uncertain.
If LIBOR ceases to exist, the level of interest payments on the
portion of our indebtedness that bears interest at variable rates
would be affected, which may adversely impact the amount of our
interest payments under such debt.
We have entered into, and in the future we will continue to
enter into, interest rate swaps that involve the exchange of
floating for fixed-rate interest payments to reduce interest rate
volatility. However, we may not maintain interest rate swaps with
respect to all of our variable rate indebtedness, and any such
swaps may not fully mitigate our interest rate risk, may prove
disadvantageous, or may create additional risks.
-- As a result of the COVID-19 outbreak, we may be out of
compliance with a maintenance covenant in certain of our debt
facilities, for which we have waivers for the period through March
31, 2021 with the next testing date of May 31, 2021.
Under the terms of certain of our debt facilities, we are
required to maintain minimum debt service coverage (EBITDA to
consolidated net interest charges for the most recently ended four
fiscal quarters) of not less than 3.0 to 1.0 at the end of each
fiscal quarter. As of August 31, 2020, we have entered into
supplemental agreements or side letters to amend our agreements
with respect to this Financial Covenant to:
-- Waive compliance for all of our funded export credit
facilities through March 31, 2021, August 31, 2021 or December 31,
2021, as applicable.
-- Waive compliance through November 30, 2021 for certain of our
bank loans. We will be required to comply beginning with the next
testing date of February 28, 2022.
-- Waive compliance for the remaining applicable bank loans
through their respective maturity dates.
At August 31, 2020, we were in compliance with the applicable
debt covenants.
Subsequent to August 31, 2020, we extended the Financial
Covenant waivers for our funded export credit facilities through at
least November 30, 2021 (with the next testing date of February 28,
2022) except that for three of our funded export credit facilities
with Financial Covenant waivers through March 31, 2021 (with the
next testing date of May 31, 2021) or August 31, 2021 (with the
next testing date of November 30, 2021), with total aggregate
indebtedness of $1.3 billion as of August 31, 2020, we are
currently engaged in discussions to extend the waivers for these
facilities through November 30, 2021 (with the next testing date of
February 28, 2022).
In addition, we have entered into supplemental agreements or
side letters to amend our agreements with respect to the Financial
Covenant for our unfunded export credit facilities to waive
compliance through August 31, 2021 (with the next testing date of
November 30, 2021) for aggregate principal of $2.7 billion, through
November 30, 2021 (with the next testing date of February 28, 2022)
for aggregate principal of $1.2 billion (of which we borrowed $610
million to fund delivery of a ship in September 2020), and through
December 31, 2021 (with the next testing date of February 28, 2022)
for aggregate principal of $3.7 billion. For the remaining three
unfunded export credit facilities with an aggregate principal of
$1.8 billion, we are engaged in discussions with the counterparties
to waive the Financial Covenant through March 31, 2021 (with the
next testing date of May 31, 2021). Simultaneously with obtaining
the initial waivers for these three unfunded export credit
facilities, we have also requested extension of waivers for these
facilities through November 30, 2021 (with the next testing date of
February 28, 2022).
Although highly unlikely, if the covenant waiver for any
unfunded facility for which we have not yet obtained a waiver is
not obtained, the lender under that facility could terminate it if
we did not comply with the Financial Covenant for any fiscal
quarter ending on or after August 31, 2020.
Even though we have or expect to have waivers in place with
respect to this covenant, we may be out of compliance with the
Financial Covenant following March 31, 2021 with the next testing
date of May 31, 2021 or in future periods for certain agreements
because of the pause in our guest operations. If we expected to be
out of compliance, we would again seek waivers from the lenders
under the applicable facilities prior to any covenant
violation.
Covenant waivers have led and may continue to lead to increased
costs, increased interest rates, additional restrictive covenants
and other available lender protections that would be applicable to
us under these debt facilities, and such increased costs,
restrictions and modifications may vary among debt facilities. Our
ability to provide additional lender protections under these
facilities, including the granting of security interests in
collateral, will be limited by the restrictions in our
indebtedness. There can be no assurance that we would be able to
obtain waivers in a timely manner, on acceptable terms or at all.
If we were not able to obtain a covenant waiver under any one or
more of these debt facilities, we would be in default of such
agreements, which could result in cross defaults to our other debt
agreements. 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 a covenant waiver 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 these debt facilities, if we were not to
obtain a waiver 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 covenant waivers described above would have a material
adverse effect.
-- The covenants in certain of our debt facilities may require
us to secure those facilities in the future.
Certain of our debt facilities contain provisions which may
require that we provide a security interest in certain assets. In
certain of our debt facilities, there is a requirement that if the
credit rating of our senior indebtedness should fall below
investment grade (which occurred on June 24, 2020) and at such time
we have granted liens or security interests in respect of
indebtedness in an amount exceeding 25% of our total assets
(excluding for these purposes the value of any intangible assets)
as shown in our most recent Consolidated Balance Sheet, then we
will be required to provide a first-priority security interest in
certain designated assets. In addition, under our export credit
facilities, there is a requirement that if a security interest or
lien is granted in respect of a vessel to secure borrowed money
under certain other debt facilities, then a first-priority security
interest will be required to be provided over certain designated
vessels.
If the events described above were to occur, we may be unable to
comply with this requirement and expect to seek waivers from the
lenders under the relevant facilities. Any such waiver may lead to
increased costs, increased interest rates, additional restrictive
covenants and other available lender protections that would be
applicable to us under these debt facilities, and such increased
costs, restrictions and modifications may vary among debt
facilities. Our ability to give additional lender protections under
these facilities, including the granting of security interests in
collateral, will be limited by the restrictions in our indebtedness
and security interest we have already granted. If we were not able
to obtain a waiver, the occurrence of such events may result in an
event of default under these facilities and other debt facilities
that contain cross default provisions that would be triggered.
-- 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 incident, and failure to keep pace with
developments in technology may adversely impact our business
operations, the satisfaction of our guests and crew and lead to
reputational damage
We have been and may continue to be impacted by breaches in data
security and lapses in data privacy, which occur from time to time.
These can vary in scope and intent from economically motivated
attacks to malicious attacks intended to disrupt or compromise our
shoreside and shipboard operations by targeting our key operating
systems. Breach or circumvention of our systems or the systems of
third parties, including by ransomware or other attacks, results in
disruptions to our business operations; unauthorized access to (or
the loss of company access to) competitively sensitive,
confidential or other critical data (including sensitive financial,
medical or other personal or business information) or systems; loss
of customers; financial losses; regulatory enforcement actions and
fines; litigation and misuse or corruption of critical data and
proprietary information, any of which could be material.
On August 15, 2020, we detected a ransomware attack and
unauthorized access to our information technology systems. We
engaged a major cybersecurity firm to investigate the matter and
notified law enforcement and regulators of the incident. While the
investigation is ongoing, early indications are that the
unauthorized third-party gained access to certain personal
information relating to some guests, employees and crew for some of
our operations. There is currently no indication of any misuse of
this information. While at this time we do not believe that this
information will be misused going forward or that this incident
will have a material adverse effect on our business, operations or
financial results, no assurances can be given and further we may be
subject to future attacks or incidents that could have such a
material adverse effect.
Our principal offices, information technology operations and
system networks may be impacted by actual or threatened natural
disasters (for example, hurricanes, earthquakes, floods, fires,
tornadoes, tsunamis, typhoons and volcanic eruptions) or other
disruptive events. Our maritime and/or shoreside operations,
including our ability to manage our inventory of cabins held
for
sale and set pricing, control costs, and serve our guests,
depends on the reliability of our information technology operations
and
system networks as well as our ability to refine and update to
more advanced systems and technologies.
SCHEDULE C
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
A. Repurchase Program
Under a share repurchase program effective 2004, we had been
authorized to repurchase Carnival Corporation common stock and
Carnival plc ordinary shares (the "Repurchase Program"). Effective
August 2018, the company approved a modification of the general
authorization under the Repurchase Program, which replenished the
remaining authorized repurchases at the time of the approval to
$1.0 billion. To enhance our liquidity and comply with restrictions
in our recent financing transactions, on June 15, 2020, the Boards
of Directors terminated the Repurchase Program. During the three
months ended August 31, 2020, no shares of Carnival Corporation
common stock or Carnival plc ordinary shares were repurchased
pursuant to the Repurchase Program.
No shares of Carnival Corporation common stock and Carnival plc
ordinary shares were purchased outside of publicly announced plans
or programs.
B. Carnival plc Shareholder Approvals
Carnival plc ordinary share repurchases under the Repurchase
Program require annual shareholder approval. The existing
shareholder approval is limited to a maximum of 18.2 million
ordinary shares and is valid until the earlier of the conclusion of
the Carnival plc 2021 annual general meeting or October 5, 2021. To
enhance our liquidity and comply with restrictions in our recent
financing transactions, we have terminated the Repurchase
Program.
This information is provided by RNS, the news service of the
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END
QRTUWVORRKURRAA
(END) Dow Jones Newswires
October 08, 2020 10:04 ET (14:04 GMT)
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