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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) March 31, 2020


Carnival Corporation
https://cdn.kscope.io/96fec499fdde271dc287672d4636726c-carnivalflag.jpg
Carnival plc
(Exact name of registrant as
specified in its charter)
(Exact name of registrant as
specified in its charter)
 
 
 
 
 
 
 Republic of Panama
England and Wales
(State or other jurisdiction of
incorporation)
(State or other jurisdiction of
incorporation)
 
 
 
 
 
 
001-9610
001-15136
(Commission File Number)
(Commission File Number)
 
 
 
 
 
 
59-1562976
98-0357772
(IRS Employer Identification No.)
(IRS Employer Identification No.)
 
 
 
 
 
 
3655 N.W. 87th Avenue
Carnival House, 100 Harbour Parade,
Miami,
Florida
33178-2428
Southampton
SO15 1ST,
United Kingdom
(Address of principal
executive offices)
(Zip Code)
(Address of principal
executive offices)
(Zip Code)
(305)
599-2600
 
011
44 23 8065 5000
(Registrant’s telephone number,
including area code)
(Registrant’s telephone number,
including area code)
 
 
 
 
None
None
(Former name or former address,
 if changed since last report.)
(Former name, former address,
if changed since last report.)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrants under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))









Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock ($0.01 par value)
CCL
New York Stock Exchange, Inc.
Ordinary Shares each represented by American Depositary Shares ($1.66 par value), Special Voting Share, GBP 1.00 par value and Trust Shares of beneficial interest in the P&O Princess Special Voting Trust
CUK
New York Stock Exchange, Inc.
1.625% Senior Notes due 2021
CCL21
New York Stock Exchange LLC
1.875% Senior Notes due 2022
CUK22
New York Stock Exchange LLC
1.000% Senior Notes due 2029
CUK29
New York Stock Exchange LLC

Indicate by check mark whether the registrants are emerging growth companies as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2) of this chapter).

Emerging growth companies     

If emerging growth companies, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.





Section 8 - Other Events

Item 8.01 Other Events.

On March 31, 2020, Carnival Corporation & plc provided an update regarding its liquidity and management’s plans in anticipation of additional financing transactions. In light of this update, Carnival Corporation & plc updated its risk factors by providing an additional risk factor set forth below.

Additionally, in Exhibit 99.1 to this Current Report on Form 8-K (i) Carnival Corporation & plc updated Note 2 of its consolidated financial statements (“Financial Statements”) in its Annual Report on Form 10-K for the year ended November 30, 2019 (the “2019 Form 10-K”) to add a “Liquidity and Management’s Plans” discussion and (ii) Carnival Corporation & plc’s independent registered public accounting firm, reissued its report to include an emphasis-of-matter paragraph. Other than as described in the preceding sentence, Exhibit 99.1 does not revise, modify, update or otherwise affect the 2019 Form 10-K, including the Financial Statements.

Together with their consolidated subsidiaries, Carnival Corporation and plc are referred to collectively in report as the “Company,” “our,” “us” and “we.”

Update on Liquidity and Management's Plans

Due to the spread of COVID-19 and the effects of growing port restrictions around the world, the Company previously announced a voluntary pause of our global fleet cruise operations. 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 the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a material negative impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of such outbreak. We have never previously experienced a complete cessation of our cruising 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 addition, the magnitude, duration and speed of the global pandemic is 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 expect a net loss on both a U.S. GAAP and adjusted basis for the fiscal year ending November 30, 2020.

In March 2020, Moody’s and S&P Global downgraded our long-term issuer and senior unsecured debt ratings. In addition, our long-term ratings were placed on review for further downgrade by both rating agencies. Our short-term commercial paper credit ratings were also placed on review for downgrade. If our credit ratings were to be further downgraded, our access to, and cost of, debt financing may be negatively impacted.

On March 13, 2020, we fully drew down our $3 billion Facility.

At November 30, 2019, we were in compliance with all of our debt covenants. After considering the effect of COVID-19 on our consolidated EBITDA, we can remain in compliance with our current minimum debt service coverage ratio that requires a minimum of 3:1 ratio of EBITDA to Consolidated Net Interest Charges. If we secure additional financing that would cause us not to be in compliance with the covenant, we would have to seek to amend these or other covenants. However, no assurances can be made that such amendments will be approved by our lenders. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated, which could have a material adverse impact to our operations and liquidity.

We are taking further actions to improve our liquidity, including capital expenditure and operating expense reductions, suspending dividend payments on, and the repurchase of, the common stock of Carnival Corporation and the ordinary shares of Carnival plc and pursuing additional financing. 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 and remain in compliance with our existing debt covenants for the next twelve months prior to giving effect to any additional financing, which may occur.

Update to Risk Factors

The following risk factor is provided to update the risk factors of the Company previously disclosed in periodic reports filed with the SEC, including its 2019 Form 10-K.






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, 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 have implemented a voluntary pause of our global fleet cruise operations across all brands and such pause may be prolonged. As of March 31, 2020, substantially all our ships are at port and all are expected to dock by the end of April. In addition, we have been, and will continue to be further, negatively impacted by related developments, including heightened governmental regulations and travel advisories, including recommendations by the U.S. Department of State and the Centers for Disease Control and Prevention, 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, and expect to continue to incur, significant costs as we bring currently ongoing cruises to a conclusion, provide air transportation to return our passengers to their home destinations and assist some of our crew that is, or will be upon docking, 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 protocol to our ships. 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 recent 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 expect to continue to receive, lawsuits from passengers aboard the Grand Princess voyage in February 2020. We may receive additional lawsuits stemming from COVID-19. We cannot predict the quantum or outcome of any such proceedings 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. However, 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.

We have a total of 16 cruise ships scheduled to be delivered through 2025, including four during the remainder of fiscal 2020. We believe the effects of COVID-19 on the 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 when any of our ships will begin to sail again and ports will reopen to our ships. Moreover, even once 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. We may be adversely impacted as a result of the adverse impact our partners suffer.
We have never previously experienced a complete cessation of our cruising 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 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 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 fiscal 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 may be required to raise additional capital and our access to and cost of financing will 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, in March 2020, Moody's and S&P Global downgraded our long-term issuer and senior unsecured debt ratings. In addition, our long-term ratings were placed on review for further downgrade by both rating agencies. Our short-term commercial paper credit ratings were also placed on review for downgrade. 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 social 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 once our operations resume, 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 this “Risk Factors” section (including those described in the Annual Report, which is incorporated by reference in this offering memorandum), such as those relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

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, growth, 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
    Net cruise costs, excluding fuel per available lower berth day
    Booking levels
    Estimates of ship depreciable lives and residual values
    Pricing and occupancy
    Goodwill, ship and trademark fair values
    Interest, tax and fuel expenses
    Liquidity
    Currency exchange rates
    Adjusted earnings per share

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, cash flows, liquidity, and stock price
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 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.

Section 9 - Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.






Exhibit 23 Consent of Independent Registered Public Accounting Firm.

Exhibit 99.1 Item 8. Financial Statements and Supplementary Data.

Exhibit 101.INS Inline XBRL Instance Document.

Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.

Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.

Exhibit 104 Cover page from this Current Report on Form 8-K, formatted in Inline XBRL (included as Exhibit 101).








SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

CARNIVAL CORPORATION
 
CARNIVAL PLC
 
 
 
 
 
By:
/s/ David Bernstein
 
By:
/s/ David Bernstein
Name:
David Bernstein
 
Name:
David Bernstein
Title:
Chief Financial Officer and Chief Accounting Officer
 
Title:
Chief Financial Officer and Chief Accounting Officer
 
 
 
 
 
Date:
March 31, 2020
 
Date:
March 31, 2020




















Exhibit


Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the joint Registration Statements on Form S-3 (File Nos. 333-106553, 333-106553-01, 333-223555 and 333-223555-01) of Carnival Corporation and Carnival plc, the joint Registration Statements on Form S-8 (File Nos. 333-173465 and 333-173465-01) of Carnival Corporation and Carnival plc, the Registration Statement on Form S-3 (File No. 033-63563) of Carnival Corporation, the Registration Statements on Form S-8 (File Nos. 333-105672, 333-43885 and 33-51195) of Carnival Corporation and the Registration Statements on Form S-8 (File Nos. 333-124640 and 333-104609) of Carnival plc, of our report dated January 28, 2020, except with respect to our opinion on the consolidated financial statements insofar as it relates to effects of COVID-19, which have impacted the Company’s financial results and liquidity as discussed in Note 2, as to which the date is March 31, 2020 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Current Report on Form 8-K.


/s/PricewaterhouseCoopers LLP
Miami, Florida
March 31, 2020



Exhibit
Exhibit 99.1

Explanatory Note

Due to the spread of COVID-19 and the effects of growing port restrictions around the world, the Company previously announced a voluntary pause of its global fleet cruise operations. These recent developments have had a significant impact on our operations and liquidity subsequent to the issuance of our Form 10-K on January 28, 2020. As a result of these effects, Note 2 to the financial statements as well as the report of our Independent Registered Public Accounting Firm set forth in this Exhibit 99.1 have been updated from the footnotes and the report of our Independent Registered Public Accounting Firm to the financial statements included in Exhibit 13 to our Annual Report on Form 10-K for the year ended November 30, 2019. No other changes, modifications or updates have been made to the 2019 financial statements. The 2019 financial statements do not reflect events that may have occurred after the original filing date except as noted above. Revisions are highlighted in blue font. 


CARNIVAL CORPORATION & PLC
EXHIBIT 99.1 TO FORM 8-K
FOR THE YEAR ENDED NOVEMBER 30, 2019
TABLE OF CONTENTS
 



CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)

 
Years Ended November 30,
 
2019
 
2018
 
2017
Revenues
 
 
 
 
 
Cruise
 
 
 
 
 
Passenger ticket
$
14,104

 
$
13,930

 
$
12,944

Onboard and other
6,331

 
4,679

 
4,330

Tour and other
390

 
272

 
236

 
20,825

 
18,881

 
17,510

Operating Costs and Expenses
 
 
 
 
 
Cruise
 
 
 
 
 
Commissions, transportation and other
2,720

 
2,590

 
2,359

Onboard and other
2,101

 
638

 
587

Payroll and related
2,249

 
2,190

 
2,107

Fuel
1,562

 
1,619

 
1,244

Food
1,083

 
1,066

 
1,031

Other ship operating
2,925

 
2,807

 
3,010

Tour and other
268

 
180

 
163

 
12,909

 
11,089

 
10,501

Selling and administrative
2,480

 
2,450

 
2,265

Depreciation and amortization
2,160

 
2,017

 
1,846

Goodwill and trademark impairment

 

 
89

 
17,549

 
15,556

 
14,701

Operating Income
3,276

 
3,325

 
2,809

Nonoperating Income (Expense)
 
 
 
 
 
Interest income
23

 
14

 
9

Interest expense, net of capitalized interest
(206
)
 
(194
)
 
(198
)
Gains on fuel derivatives, net

 
59

 
35

Other income (expense), net
(32
)
 
3

 
11

 
(215
)
 
(118
)
 
(143
)
Income Before Income Taxes
3,060

 
3,207

 
2,666

Income Tax Expense, Net
(71
)
 
(54
)
 
(60
)
Net Income
$
2,990

 
$
3,152

 
$
2,606

Earnings Per Share
 
 
 
 
 
Basic
$
4.34

 
$
4.45

 
$
3.61

Diluted
$
4.32

 
$
4.44

 
$
3.59

The accompanying notes are an integral part of these consolidated financial statements.

F-2


CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
 
 
Years Ended November 30,
 
2019
 
2018
 
2017
Net Income
$
2,990

 
$
3,152

 
$
2,606

Items Included in Other Comprehensive Income (Loss)
 
 
 
 
 
Change in foreign currency translation adjustment
(86
)
 
(199
)
 
590

Other
(31
)
 
32

 
82

Other Comprehensive Income (Loss)
(117
)
 
(167
)
 
672

Total Comprehensive Income
$
2,873

 
$
2,986

 
$
3,278

The accompanying notes are an integral part of these consolidated financial statements.


F-3


CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(in millions, except par values)
 
 
November 30,
 
2019
 
2018
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
518

 
$
982

Trade and other receivables, net
444

 
358

Inventories
427

 
450

Prepaid expenses and other
671

 
436

  Total current assets
2,059

 
2,225

Property and Equipment, Net
38,131

 
35,336

Goodwill
2,912

 
2,925

Other Intangibles
1,174

 
1,176

Other Assets
783

 
738

 
$
45,058

 
$
42,401

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current Liabilities
 
 
 
Short-term borrowings
$
231

 
$
848

Current portion of long-term debt
1,596

 
1,578

Accounts payable
756

 
730

Accrued liabilities and other
1,809

 
1,654

Customer deposits
4,735

 
4,395

  Total current liabilities
9,127

 
9,204

Long-Term Debt
9,675

 
7,897

Other Long-Term Liabilities
890

 
856

Commitments and Contingencies

 

Shareholders' Equity
 
 
 
Common stock of Carnival Corporation, $0.01 par value; 1,960 shares authorized; 657 shares at 2019 and 656 shares at 2018 issued
7

 
7

Ordinary shares of Carnival plc, $1.66 par value; 217 shares at 2019 and 2018 issued
358

 
358

Additional paid-in capital
8,807

 
8,756

Retained earnings
26,653

 
25,066

Accumulated other comprehensive income (loss) (“AOCI”)
(2,066
)
 
(1,949
)
Treasury stock, 130 shares at 2019 and 129 shares at 2018 of Carnival Corporation and 60 shares at 2019 and 48 shares at 2018 of Carnival plc, at cost
(8,394
)
 
(7,795
)
  Total shareholders' equity
25,365

 
24,443

 
$
45,058

 
$
42,401

The accompanying notes are an integral part of these consolidated financial statements.


F-4


CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
 
 
Years Ended November 30,
 
2019
 
2018
 
2017
OPERATING ACTIVITIES
 
 
 
 
 
Net income
$
2,990

 
$
3,152

 
$
2,606

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
 
 
Depreciation and amortization
2,160

 
2,017

 
1,846

Impairments
26

 
16

 
392

Gains on fuel derivatives, net

 
(59
)
 
(35
)
Share-based compensation
46

 
65

 
63

Other, net
43

 
(6
)
 
51

 
5,265

 
5,186

 
4,923

Changes in operating assets and liabilities
 
 
 
 
 
Receivables
(114
)
 
(58
)
 
6

Inventories
79

 
(67
)
 
(49
)
Prepaid expenses and other
(254
)
 
74

 
(13
)
Accounts payable
34

 
(24
)
 
21

Accrued and other liabilities
80

 
(100
)
 
73

Customer deposits
387

 
539

 
361

Net cash provided by (used in) operating activities
5,475

 
5,549

 
5,322

INVESTING ACTIVITIES
 
 
 
 
 
Purchases of property and equipment
(5,429
)
 
(3,749
)
 
(2,944
)
Proceeds from sales of ships
26

 
389

 

Payments of fuel derivative settlements
(6
)
 
(39
)
 
(203
)
Other, net
132

 
(114
)
 
25

Net cash provided by (used in) investing activities
(5,277
)
 
(3,514
)
 
(3,122
)
FINANCING ACTIVITIES
 
 
 
 
 
Proceeds from (repayments of) short-term borrowings, net
(605
)
 
417

 
(29
)
Principal repayments of long-term debt
(1,651
)
 
(1,556
)
 
(1,227
)
Proceeds from issuance of long-term debt
3,674

 
2,542

 
467

Dividends paid
(1,387
)
 
(1,355
)
 
(1,087
)
Purchases of treasury stock
(603
)
 
(1,468
)
 
(552
)
Other, net
(82
)
 
(39
)
 
(24
)
Net cash provided by (used in) financing activities
(655
)
 
(1,460
)
 
(2,452
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(9
)
 
(1
)
 
11

Net increase (decrease) in cash, cash equivalents and restricted cash
(465
)
 
574

 
(241
)
Cash, cash equivalents and restricted cash at beginning of year
996

 
422

 
662

Cash, cash equivalents and restricted cash at end of year
$
530

 
$
996

 
$
422

The accompanying notes are an integral part of these consolidated financial statements.


F-5


CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)
 
 
Common
stock
 
Ordinary
shares
 
Additional
paid-in
capital
 
Retained
earnings
 
AOCI
 
Treasury
stock
 
Total
shareholders’
equity
At November 30, 2016
$
7

 
$
358

 
$
8,632

 
$
21,843

 
$
(2,454
)
 
$
(5,789
)
 
$
22,597

Change in accounting principle (a)

 

 
2

 
(2
)
 

 

 

Net income

 

 

 
2,606

 

 

 
2,606

Other comprehensive income (loss)

 

 

 

 
672

 

 
672

Cash dividends declared

 

 

 
(1,155
)
 

 

 
(1,155
)
Purchases of treasury stock under the Repurchase Program and other

 

 
56

 

 

 
(560
)
 
(504
)
At November 30, 2017
7

 
358

 
8,690

 
23,292

 
(1,782
)
 
(6,349
)
 
24,216

Net income

 

 

 
3,152

 

 

 
3,152

Other comprehensive income (loss)

 

 

 

 
(167
)
 

 
(167
)
Cash dividends declared

 

 

 
(1,378
)
 

 

 
(1,378
)
Purchases of treasury stock under the Repurchase Program and other

 

 
66

 

 

 
(1,446
)
 
(1,380
)
At November 30, 2018
7

 
358

 
8,756

 
25,066

 
(1,949
)
 
(7,795
)
 
24,443

Change in accounting principle (b)

 

 

 
(24
)
 

 

 
(24
)
Net income

 

 

 
2,990

 

 

 
2,990

Other comprehensive income (loss)

 

 

 

 
(117
)
 

 
(117
)
Cash dividends declared

 

 

 
(1,379
)
 

 

 
(1,379
)
Purchases of treasury stock under the Repurchase Program and other

 

 
51

 

 

 
(599
)
 
(548
)
At November 30, 2019
$
7

 
$
358

 
$
8,807

 
$
26,653

 
$
(2,066
)
 
$
(8,394
)
 
$
25,365

The accompanying notes are an integral part of these consolidated financial statements.

(a)    We elected to early adopt the provisions of Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting on December 1, 2016.
(b)    We adopted the provisions of Revenue from Contracts with Customers and Derivatives and Hedging on December 1, 2018.




F-6


CARNIVAL CORPORATION & PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – General

Description of Business

Carnival Corporation was incorporated in Panama in 1972 and Carnival plc was incorporated in England and Wales in 2000. Together with their consolidated subsidiaries, they are referred to collectively in these consolidated financial statements and elsewhere in this 2019 Annual Report as “Carnival Corporation & plc,” “our,” “us” and “we.” The consolidated financial statements include the accounts of Carnival Corporation and Carnival plc and their respective subsidiaries. 

We are the world’s largest leisure travel company and among the most profitable and financially strong in the cruise and vacation industries. We are also the largest cruise company, carrying nearly 45 percent of global cruise guests, and a leading provider of vacations to all major cruise destinations throughout the world. With operations in North America, Australia, Europe and Asia, we operate a portfolio of leading global, regional and national cruise brands that sell tailored cruise products, services and vacation experiences on 104 cruise ships to the world’s most desirable destinations.

DLC Arrangement

Carnival Corporation and Carnival plc operate a dual listed company (“DLC”) arrangement, whereby the businesses of Carnival Corporation and Carnival plc are combined through a number of contracts and provisions in Carnival Corporation’s Articles of Incorporation and By-Laws and Carnival plc’s Articles of Association. The two companies operate as a single economic enterprise with a single senior executive management team and identical Boards of Directors, but each has retained its separate legal identity. Each company’s shares are publicly traded; on the New York Stock Exchange (“NYSE”) for Carnival Corporation and the London Stock Exchange (“LSE”) for Carnival plc. The Carnival plc American Depository Shares are traded on the NYSE.

The constitutional documents of each company provide that, on most matters, the holders of the common equity of both companies effectively vote as a single body. The Equalization and Governance Agreement between Carnival Corporation and Carnival plc provides for the equalization of dividends and liquidation distributions based on an equalization ratio and contains provisions relating to the governance of the DLC arrangement. Because the equalization ratio is 1 to 1, one share of Carnival Corporation common stock and one Carnival plc ordinary share are generally entitled to the same distributions.

Under deeds of guarantee executed in connection with the DLC arrangement, as well as stand-alone guarantees executed since that time, each of Carnival Corporation and Carnival plc have effectively cross guaranteed all indebtedness and certain other monetary obligations of each other. Once the written demand is made, the holders of indebtedness or other obligations may immediately commence an action against the relevant guarantor.

Under the terms of the DLC arrangement, Carnival Corporation and Carnival plc are permitted to transfer assets between the companies, make loans to or investments in each other and otherwise enter into intercompany transactions. In addition, the cash flows and assets of one company are required to be used to pay the obligations of the other company, if necessary.

Given the DLC arrangement, we believe that providing separate financial statements for each of Carnival Corporation and Carnival plc would not present a true and fair view of the economic realities of their operations. Accordingly, separate financial statements for Carnival Corporation and Carnival plc have not been presented.

NOTE 2 – Summary of Significant Accounting Policies

Liquidity and Management’s Plans
Due to the spread of COVID-19 and the effects of growing port restrictions around the world, we previously announced a voluntary pause of our global fleet cruise operations. 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 the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a material negative impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of such outbreak.

F-7


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 cruising operations, and as a consequence, our ability to be predictive is uncertain. In addition, the magnitude, duration and speed of the global pandemic is 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 expect a net loss on both a U.S. GAAP and adjusted basis for the fiscal year ending November 30, 2020. On March 13, 2020, we fully drew down our $3 billion Facility. We are taking further actions to improve our liquidity, including capital expenditure and operating expense reductions, suspending dividend payments on, and the repurchase of, the common stock of Carnival Corporation and the ordinary shares of Carnival plc and pursuing additional financing. Based on these actions and assumptions regarding the impact of COVID-19, we believe that our current financial resources will be sufficient to fund our liquidity requirements and remain in compliance with our existing debt covenants for the next twelve months, prior to giving effect to any additional financing, which may or may not occur.

At November 30, 2019, we were in compliance with all of our debt covenants. After considering the effect of COVID-19 on our consolidated EBITDA, we expect to remain in compliance with our current minimum debt service coverage ratio that requires a minimum of 3:1 ratio of EBITDA to Consolidated Net Interest Charges. If we secure additional financing that would cause us not to be in compliance with the covenant, we would have to seek to amend these or other covenants. However, no assurances can be made that such amendments will be approved by our lenders. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated, which could have a material adverse impact to our operations and liquidity.
Basis of Presentation

We consolidate entities over which we have control, as typically evidenced by a voting control of greater than 50% or for which we are the primary beneficiary, whereby we have the power to direct the most significant activities and the obligation to absorb significant losses or receive significant benefits from the entity. We do not separately present our noncontrolling interests in the consolidated financial statements since the amounts are immaterial. For affiliates we do not control but where significant influence over financial and operating policies exists, as typically evidenced by a voting control of 20% to 50%, the investment is accounted for using the equity method.

Preparation of Financial Statements

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported and disclosed in our consolidated financial statements. Actual results may differ from the estimates used in preparing our consolidated financial statements. All significant intercompany balances and transactions are eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents include investments with maturities of three months or less at acquisition, which are stated at cost and present insignificant risk of changes in value. 

Inventories

Inventories consist substantially of food, beverages, hotel supplies, fuel and retail merchandise, which are all carried at the lower of cost or net realizable value. Cost is determined using the weighted-average or first-in, first-out methods.


F-8


Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and any impairment charges. Depreciation is computed using the straight-line method over our estimates of useful lives and residual values, as a percentage of original cost, as follows:

Years
 
Residual
Values
Ships
30
 
15%
Ship improvements
3-30
 
  0%
Buildings and improvements
10-40
 
0% or 10%
Computer hardware and software
2-12
 
0% or 10%
Transportation equipment and other
3-20
 
0% or 10%
Leasehold improvements, including port facilities
Shorter of the remaining lease term or related asset life (3-30)
 
0%


The cost of ships under construction include progress payments for the construction of new ships, as well as design and engineering fees, capitalized interest, construction oversight costs and various owner supplied items. We account for ship improvement costs, including replacements of certain significant components and parts, by capitalizing those costs we believe add value to our ships and have a useful life greater than one year and depreciating those improvements over their estimated remaining useful life. We have a capital program for the improvement of our ships and for asset replacements in order to enhance the effectiveness and efficiency of our operations; to comply with, or exceed all relevant legal and statutory requirements related to health, environment, safety, security and sustainability; and to gain strategic benefits or provide improved product innovations to our guests.

We capitalize interest as part of the cost of capital projects during their construction period. The specifically identified or estimated cost and accumulated depreciation of previously capitalized ship components are written-off upon retirement, which may result in a loss on disposal that is also included in other ship operating expenses. Liquidated damages received from shipyards as a result of late ship delivery are recorded as reductions to the cost basis of the ship.

The costs of repairs and maintenance, including minor improvement costs and expenses related to dry-docks, are charged to expense as incurred and included in other ship operating expenses. Dry-dock expenses primarily represent planned major maintenance activities that are incurred when a ship is taken out-of-service for scheduled maintenance.

We review our long-lived assets for impairment whenever events or circumstances indicate that the carrying amounts of these assets may not be recoverable. Upon the occurrence of a triggering event, the assessment of possible impairment is based on our ability to recover the carrying value of our asset from the asset’s estimated undiscounted future cash flows. If these estimated undiscounted future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the excess, if any, of the asset’s carrying value over its estimated fair value. The lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the individual ship level. A significant amount of judgment is required in estimating the future cash flows and fair values of our cruise ships.

Goodwill and Other Intangibles

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business acquisition. We review our goodwill for impairment as of July 31 every year, or more frequently if events or circumstances dictate. All of our goodwill has been allocated to our reporting units. The impairment review for goodwill allows us to first assess qualitative factors to determine whether it is necessary to perform the more detailed quantitative goodwill impairment test. We would perform the quantitative test if our qualitative assessment determined it is more-likely-than-not that a reporting unit’s estimated fair value is less than its carrying amount. We may also elect to bypass the qualitative assessment and proceed directly to the quantitative test for any reporting unit. When performing the quantitative test, if the estimated fair value of the reporting unit exceeds its carrying value, no further analysis is required. However, if the estimated fair value of the reporting unit is less than the carrying value, goodwill is written down based on the difference between the reporting unit’s carrying amount and its fair value, limited to the amount of goodwill allocated to the reporting unit.

Trademarks represent substantially all of our other intangibles. Trademarks are estimated to have an indefinite useful life and are not amortizable but are reviewed for impairment at least annually and as events or circumstances dictate. The impairment review for trademarks also allows us to first assess qualitative factors to determine whether it is necessary to perform a more detailed quantitative trademark impairment test. We would perform the quantitative test if our qualitative assessment

F-9


determined it was more-likely-than-not that the trademarks are impaired. We may also elect to bypass the qualitative assessment and proceed directly to the quantitative test. Our trademarks would be considered impaired if their carrying value exceeds their estimated fair value.

A significant amount of judgment is required in estimating the fair values of our reporting units.

Derivatives and Other Financial Instruments

We utilize derivative and non-derivative financial instruments, such as foreign currency forwards, options and swaps, foreign currency debt obligations and foreign currency cash balances, to manage our exposure to fluctuations in certain foreign currency exchange rates. We use interest rate swaps primarily to manage our interest rate exposure to achieve a desired proportion of fixed and floating rate debt. Our policy is to not use financial instruments for trading or other speculative purposes.

All derivatives are recorded at fair value. If a derivative is designated as a cash flow hedge, then the change in the fair value of the derivative is recognized as a component of AOCI until the underlying hedged item is recognized in earnings or the forecasted transaction is no longer probable. If a derivative or a non-derivative financial instrument is designated as a hedge of our net investment in a foreign operation, then changes in the effective portion of the fair value of the financial instrument are recognized as a component of AOCI to offset the change in the translated value of the designated portion of net investment being hedged until the investment is sold or substantially liquidated, while the impact attributable to components excluded from the assessment of hedge effectiveness is recorded in interest expense, net of capitalized interest, on a systematic and rational basis. For derivatives that do not qualify for hedge accounting treatment, the change in fair value is recognized in earnings.

We classify the fair value of all our derivative contracts as either current or long-term, depending on the maturity date of the derivative contract. The cash flows from derivatives treated as cash flow hedges are classified in our Consolidated Statements of Cash Flows in the same category as the item being hedged. Our cash flows related to fuel derivatives are classified within investing activities.

Derivative valuations are based on observable inputs such as interest rates and commodity price curves, forward currency exchange rates, credit spreads, maturity dates, volatilities, and cross currency basis spreads. We use the income approach to value derivatives for foreign currency options and forwards, interest rate swaps and cross currency swaps using observable market data for all significant inputs and standard valuation techniques to convert future amounts to a single present value amount, assuming that participants are motivated but not compelled to transact.

Foreign Currency Translation and Transactions

Each foreign entity determines its functional currency by reference to its primary economic environment. We translate the assets and liabilities of our foreign entities that have functional currencies other than the U.S. dollar at exchange rates in effect at the balance sheet date. Revenues and expenses of these foreign entities are translated at weighted-average exchange rates for the period. Equity is translated at historical rates and the resulting foreign currency translation adjustments are included as a component of AOCI, which is a separate component of shareholders’ equity. Therefore, the U.S. dollar value of the non-equity translated items in our consolidated financial statements will fluctuate from period to period, depending on the changing value of the U.S. dollar versus these currencies.

We execute transactions in a number of different currencies. At the date that the transaction is recognized, each asset, liability, revenue, expense, gain or loss arising from the transaction is measured and recorded in the functional currency of the recording entity using the exchange rate in effect at that date. At each balance sheet date, recorded monetary balances denominated in a currency other than the functional currency are adjusted using the exchange rate at the balance sheet date, with gains or losses recorded in other income or other expense, unless such monetary balances have been designated as hedges of net investments in our foreign entities. The net gains or losses resulting from foreign currency transactions were insignificant in 2019, 2018 and 2017. In addition, the unrealized gains or losses on our long-term intercompany receivables and payables which are denominated in a non-functional currency and which are not expected to be repaid in the foreseeable future are recorded as foreign currency translation adjustments included as a component of AOCI.

Revenue and Expense Recognition

Guest cruise deposits represent unearned revenues and 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

F-10


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, onboard and other revenues and tour and other revenues based upon the estimated standalone selling prices of those goods and services.

Future travel discount vouchers are included as a reduction of cruise passenger ticket revenues when such vouchers are utilized. Guest cancellation fees are recognized in cruise passenger ticket revenues at the time of cancellation.

Our sale to guests of air and other transportation to and from airports near the home ports of our ships are included in cruise passenger ticket revenues, and the related cost of purchasing these services are included in cruise 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 cruise revenues as concession revenues. All of these amounts are recognized on a completed voyage or pro rata basis as discussed above.

Cruise 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. These fees, taxes and charges included in commissions, transportation and other costs were $659 million in 2019, $615 million in 2018 and $579 million in 2017. The remaining portion of fees, taxes and charges are expensed in other ship 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 had customer deposits of $4.9 billion in 2019 and $4.7 billion in 2018. During 2019, we recognized in revenues substantially all of our customer deposits as of December 1, 2018. Our customer deposits balance changes due to the seasonal nature of cash collections, the recognition of revenue 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. We have contract assets of $154 million and $151 million as of November 30, 2019 and December 1, 2018.

Insurance

We use a combination of insurance and self-insurance to cover a number of risks including illness and injury to crew, guest injuries, pollution, other third-party claims in connection with our cruise activities, damage to hull and machinery for each of our ships, war risks, workers’ compensation, directors’ and officers’ liability, property damage and general liability for shoreside third-party claims. We recognize insurance recoverables from third-party insurers up to the amount of recorded losses at the time the recovery is probable and upon settlement for amounts in excess of the recorded losses. All of our insurance policies are subject to coverage limits, exclusions and deductible levels. The liabilities associated with crew illnesses and crew and guest injury claims, including all legal costs, are estimated based on the specific merits of the individual claims or actuarially estimated based on historical claims experience, loss development factors and other assumptions.


F-11


Selling and Administrative Expenses

Selling expenses include a broad range of advertising, marketing and promotional expenses. Advertising is charged to expense as incurred, except for media production costs, which are expensed upon the first airing of the advertisement. Selling expenses totaled $728 million in 2019, $673 million in 2018 and $645 million in 2017. Administrative expenses represent the costs of our shoreside ship support, reservations and other administrative functions, and include salaries and related benefits, professional fees and building occupancy costs, which are typically expensed as incurred.

Share-Based Compensation

We recognize compensation expense for all share-based compensation awards using the fair value method. For time-based share awards, we recognize compensation cost ratably using the straight-line attribution method over the expected vesting period or to the retirement eligibility date, if earlier than the vesting period. For performance-based share awards, we estimate compensation cost based on the probability of the performance condition being achieved and recognize expense ratably using the straight-line attribution method over the expected vesting period. If all or a portion of the performance condition is not expected to be met, the appropriate amount of previously recognized compensation expense is reversed and future compensation expense is adjusted accordingly. For market-based share awards, we recognize compensation cost ratably using the straight-line attribution method over the expected vesting period. If the target market conditions are not expected to be met, compensation expense will still be recognized. We account for forfeitures as they occur.

Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares and common stock equivalents outstanding during each period. For earnings per share purposes, Carnival Corporation common stock and Carnival plc ordinary shares are considered a single class of shares since they have equivalent rights.

Accounting Pronouncements

The Financial Accounting Standards Board (the “FASB”) issued guidance, Revenue from Contracts with Customers (“ASC 606”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. On December 1, 2018, we adopted this guidance using the modified retrospective method for all contracts as of the adoption date. Results for reporting periods beginning after December 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 605.

The impact of the adoption of ASC 606 on our consolidated financial statements primarily relates to the gross presentation of prepaid travel agent commissions (Consolidated Balance Sheet), shore excursions and other onboard revenues and costs (Consolidated Statement of Income) which were historically presented net. As of December 1, 2018, we recorded a cumulative effect adjustment of $24 million to retained earnings related to the accounting for our loyalty programs.


F-12


The following tables summarize the impacts of ASC 606 adoption on our consolidated financial statements:

 
Year ended November 30, 2019
(in millions)
Prior to adoption of ASC 606
 
Adjustments
 
As Reported
Consolidated Statement of Income
 
 
 
 
 
Onboard and other (Revenues)
$
4,899

 
$
1,432

 
$
6,331

Revenues (Total)
$
19,393

 
$
1,432

 
$
20,825

Onboard and other (Operating Costs and Expenses)
$
669

 
$
1,432

 
$
2,101

Operating Costs and Expenses (Total)
$
16,117

 
$
1,432

 
$
17,549

Operating Income
$
3,276

 
$

 
$
3,276

Net Income
$
2,990

 
$

 
$
2,990

 
 
 
 
 
 
 
At November 30, 2019
(in millions)
Prior to adoption of ASC 606
 
Adjustments
 
As Reported
Consolidated Balance Sheet
 
 
 
 
 
Prepaid expenses and other
$
517

 
$
154

 
$
671

Total current assets
$
1,905

 
$
154

 
$
2,059

Customer deposits
$
4,581

 
$
154

 
$
4,735

Total current liabilities
$
8,973

 
$
154

 
$
9,127

 
 
 
 
 
 
 
Year ended November 30, 2019
(in millions)
Prior to adoption of ASC 606
 
Adjustments
 
As Reported
Consolidated Statement of Cash Flows
 
 
 
 
 
Prepaid expenses and other
$
(100
)
 
$
(154
)
 
$
(254
)
Customer deposits
$
233

 
$
154

 
$
387

Net cash provided by operating activities
$
5,475

 
$

 
$
5,475




The FASB issued amended guidance, Business Combinations - Clarifying the Definition of a Business, which assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. On December 1, 2018, we adopted this guidance using the prospective transition method. The adoption of this guidance had no impact on our consolidated financial statements.

The FASB issued amended guidance, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are aimed at reducing the existing diversity in practice. On December 1, 2018, we adopted this guidance using the retrospective method for each period presented. The adoption of this guidance had no impact on our consolidated financial statements.

The FASB issued amended guidance, Statement of Cash Flows - Restricted Cash. On December 1, 2018, we adopted this guidance using the retrospective method for each period presented. As a result, we now present restricted cash with cash and cash equivalents in the statement of cash flows. The reclassification of restricted cash balances from investing activities to changes in cash, cash equivalents and restricted cash was not material for the periods presented.

The FASB issued amended guidance, Service Concession Arrangements, which clarifies that the grantor in a service arrangement should be considered the customer of the operating entity in all cases. On December 1, 2018, we adopted this guidance using the modified retrospective method. The adoption of this guidance had no impact on our consolidated financial statements.


F-13


The FASB issued amended guidance, Derivatives and Hedging, which targeted improvements to accounting for hedging activities such as hedging strategies, effectiveness assessments and recognition of derivative gains or losses. On December 1, 2018, we early adopted this guidance using the modified retrospective approach, which did not have a material impact on our financial statements.

The FASB issued guidance, Leases, which requires an entity to recognize both assets and liabilities arising from financing and operating leases, with the exception of short-term leases, along with additional qualitative and quantitative disclosures. This guidance is required to be adopted by us in the first quarter of 2020 and must be applied using a 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 a new lease accounting system and are executing changes to our internal controls to address the collection, recording, and accounting for leases in accordance with the new guidance. While we are substantially complete with the process of quantifying the impacts that will result from applying the new guidance, our assessment will be finalized during the first quarter of 2020. Based on our currently contracted commitments and our assessment to date, the initial adoption of this guidance is expected to increase both our total assets and total liabilities by approximately $1.4 billion to $1.6 billion, reflecting the lease rights and obligations arising from our lease arrangements. We do not expect this guidance to have a significant impact to our consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of cash flows or 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 income statement 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 statement 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, early adoption is permitted. We have elected the prospective adoption method. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

NOTE 3 – Property and Equipment
 
November 30,
 (in millions)
2019
 
2018
Ships and ship improvements
$
50,446

  
$
46,957

Ships under construction
2,492

  
2,004

Other property and equipment
3,843

  
3,661

Total property and equipment
56,781

  
52,622

Less accumulated depreciation
(18,650
)
 
(17,286
)
 
$
38,131

 
$
35,336



Capitalized interest amounted to $39 million in 2019, $36 million in 2018 and $28 million in 2017.

Sales of Ships

In March 2019, we sold and transferred an NAA segment 1,680-passenger capacity ship.

In April 2019, we sold and transferred an NAA segment 1,260-passenger capacity ship.

In July 2019, we transferred an NAA segment 840-passenger capacity ship.

In August 2019, we transferred an EA segment 1,880-passenger capacity ship.

In November 2019, we entered into an agreement to sell an NAA segment 1,600-passenger capacity ship. The ship will be transferred to the buyer in 2021.


F-14


In November 2019, we entered into an agreement to sell an NAA segment 1,260-passenger capacity ship. The ship will be transferred to the buyer in 2021.

NOTE 4 – Other Assets

We have a minority interest in Grand Bahama Shipyard Ltd. (“Grand Bahama”), a ship repair and maintenance facility. Grand Bahama provided services to us of $62 million in 2019, $89 million in 2018 and $97 million in 2017. As of November 30, 2019, our investment in Grand Bahama was $54 million, consisting of $15 million in equity and a loan of $39 million. As of November 30, 2018, our investment in Grand Bahama was $64 million, consisting of $24 million in equity and a loan of $40 million.

We have a minority interest in the White Pass & Yukon Route (“White Pass”) that includes port, railroad and retail operations in Skagway, Alaska. White Pass has provided services to us of $22 million in 2019, and $8 million in 2018. As of November 30, 2019, our investment in White Pass was $102 million, consisting of $84 million in equity and a loan of $18 million. As of November 30, 2018, our investment in White Pass was $131 million, consisting of $81 million in equity and a loan of $50 million.

We have a minority interest in CSSC Carnival Cruise Shipping Limited (“CSSC-Carnival”), a China-based cruise company which will operate its own fleet designed to serve the Chinese market. As of November 30, 2019 and 2018, our investment in CSSC-Carnival was $48 million and $49 million. In December 2019, we sold a controlling interest in an entity with full ownership of two EA segment ships to CSSC-Carnival for $251 million. We will continue to operate both EA segment ships under bareboat charter agreements into 2021.

Following a relocation of one of our Executive Officers, we over withheld taxes for the years 2015 to 2017. While the Executive Officer has filed for a refund of the overage from the tax authorities, we cannot be certain as to the timing nor likelihood of a full refund. We have reimbursed the Executive Officer for the amount over withheld by us in the amount of €4 million. In return, we are entitled to any refund received in relation to the over withheld taxes from the tax authorities. We have also paid a portion of the Executive Officer’s professional services fees incurred related to this matter.
 

F-15


NOTE 5 – Unsecured Debt
 
 
November 30, 2019
 
November 30,
 (in millions)
Interest Rates
 
Maturities Through
 
2019
 
2018
Long-Term Debt
 
 
 
 
 
 
 
Export Credit Facilities
 
 
 
 
 
 
 
Fixed rate
2.4% to 4.4%
 
2031
 
$
3,485

 
$
1,819

EUR fixed rate
1.1% to 4.5%
 
2031
 
699

 
189

Floating rate
2.4% to 2.7%
 
2022
 
174

 
240

EUR floating rate
0.0% to 0.6%
 
2027
 
1,040

 
1,297

Bank Loans
 
 
 
 
 
 
 
EUR fixed rate
0.5% to 3.9%
 
2021
 
221

 
257

Floating rate
3.1%
 
2025
 
300

 
495

EUR floating rate
0.0% to 0.7%
 
2023
 
1,596

 
1,193

GBP floating rate
1.3% to 1.7%
 
2023
 
854


848

Publicly-Traded Notes
 
 
 
 
 
 
 
Fixed rate
4.0% to 7.2%
 
2028
 
1,217

 
1,217

EUR fixed rate
1.0% to 1.9%
 
2029
 
1,816

 
1,989

Short-Term Borrowings
 
 
 
 
 
 
 
EUR floating rate commercial paper
(0.3)%
 
2020
 
231

 
621

EUR fixed rate bank loans
—%
 
 

 
227

Total Debt
 
 
 
 
11,634

 
10,394

Less: Unamortized debt issuance costs
 
 
 
 
(131
)
 
(71
)
Total Debt, net of unamortized debt issuance costs
 
 
 
 
11,503

 
10,323

Less: Short-term borrowings
 
 
 
 
(231
)
 
(848
)
Less: Current portion of long-term debt
 
 
 
 
(1,596
)
 
(1,578
)
Long-Term Debt
 
 
 
 
$
9,675

 
$
7,897



The debt table does not include the impact of our foreign currency and interest rate swaps. The interest rates on some of our debt, and in the case of our revolving credit facility, fluctuate based on the applicable rating of senior unsecured long-term securities of Carnival Corporation or Carnival plc. For the twelve months ended November 30, 2019 we did not have borrowings or repayments of commercial paper with original maturities greater than three months. For the twelve months ended November 30, 2018 and 2017, we had borrowings of $2 million and $111 million and repayments of $2 million and $364 million of commercial paper with original maturities greater than three months.

Interest-bearing debt is recorded at initial fair value, which normally reflects the proceeds received by us, net of debt issuance costs, and is subsequently stated at amortized cost. Debt issuance costs are generally amortized to interest expense using the straight-line method, which approximates the effective interest method, over the term of the debt. In addition, all debt issue discounts and premiums are amortized to interest expense using the effective interest rate method over the term of the notes.

Substantially all of our fixed rate debt can be called or prepaid by incurring additional costs. In addition, substantially all 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 assets as well as secured and other indebtedness

Generally, if an event of default under any debt agreement occurs, then pursuant to cross default acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated. At November 30, 2019, we were in compliance with all of our debt covenants.


F-16


The scheduled annual maturities of our debt were as follows:
(in millions)
 
 
Fiscal
 
November 30, 2019
2020
 
$
1,827

2021
 
1,915

2022
 
1,352

2023
 
2,234