UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended August 31, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number: | Commission file number: | |||||||||||||||||||
 | ||||||||||||||||||||
| (Exact name of registrant as specified in its charter) | (Exact name of registrant as specified in its charter) | |||||||||||||||||||
Republic of | ||||||||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (State or other jurisdiction of incorporation or organization) | |||||||||||||||||||
| (I.R.S. Employer Identification No.) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
| (Address of principal executive offices) (Zip Code) | (Address of principal executive offices) (Zip Code) | |||||||||||||||||||
| (Registrant’s telephone number, including area code) | (Registrant’s telephone number, including area code) | |||||||||||||
| None | None | |||||||||||||
| (Former name, former address and former fiscal year, if changed since last report) | (Former name, former address and former fiscal year, if changed since last report) | |||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Ordinary Shares each represented by American Depository 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 | ||||||||
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, smaller reporting companies, or emerging growth companies. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filers | ☐ | Non-accelerated filers | ☐ | Smaller reporting companies | Emerging growth companies | |||||||||||||||||||||||
1
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. ☐
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
At September 22, 2022, Carnival Corporation had outstanding | At September 22, 2022, Carnival plc had outstanding | |||||||
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CARNIVAL CORPORATION & PLC
TABLE OF CONTENTS
| Page | ||||||||||||||
| Item 1. | ||||||||||||||
| Item 2. | ||||||||||||||
| Item 3. | ||||||||||||||
| Item 4. | ||||||||||||||
| Item 1. | ||||||||||||||
| Item 1A. | ||||||||||||||
| Item 2. | ||||||||||||||
| Item 6. | ||||||||||||||
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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 August 31, | Nine Months Ended August 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Passenger ticket | $ | $ | $ | $ | |||||||||||||||||||
| Onboard and other | |||||||||||||||||||||||
| Operating Costs and Expenses | |||||||||||||||||||||||
| Commissions, transportation and other | |||||||||||||||||||||||
| Onboard and other | |||||||||||||||||||||||
| Payroll and related | |||||||||||||||||||||||
| Fuel | |||||||||||||||||||||||
| Food | |||||||||||||||||||||||
| Ship and other impairments | |||||||||||||||||||||||
| Other operating | |||||||||||||||||||||||
| Selling and administrative | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Operating Income (Loss) | ( | ( | ( | ( | |||||||||||||||||||
| Nonoperating Income (Expense) | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense, net of capitalized interest | ( | ( | ( | ( | |||||||||||||||||||
| Gain (loss) on debt extinguishment, net | ( | ( | |||||||||||||||||||||
| Other income (expense), net | ( | ( | ( | ( | |||||||||||||||||||
| ( | ( | ( | ( | ||||||||||||||||||||
| Income (Loss) Before Income Taxes | ( | ( | ( | ( | |||||||||||||||||||
| Income Tax Benefit (Expense), Net | ( | ( | |||||||||||||||||||||
| Net Income (Loss) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Earnings Per Share | |||||||||||||||||||||||
| Basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in millions)
| Three Months Ended August 31, | Nine Months Ended August 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net Income (Loss) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Items Included in Other Comprehensive Income (Loss) | |||||||||||||||||||||||
| Change in foreign currency translation adjustment | ( | ( | ( | ||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Other Comprehensive Income (Loss) | ( | ( | ( | ||||||||||||||||||||
| Total Comprehensive Income (Loss) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except par values)
| August 31, 2022 | November 30, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
| Trade and other receivables, net | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other | |||||||||||
| Total current assets | |||||||||||
| Property and Equipment, Net | |||||||||||
| Operating Lease Right-of-Use Assets | |||||||||||
| Goodwill | |||||||||||
| Other Intangibles | |||||||||||
| Other Assets | |||||||||||
| $ | $ | ||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Short-term borrowings | $ | $ | |||||||||
| Current portion of long-term debt | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Accounts payable | |||||||||||
| Accrued liabilities and other | |||||||||||
| Customer deposits | |||||||||||
| Total current liabilities | |||||||||||
| Long-Term Debt | |||||||||||
Long-Term Operating Lease Liabilities | |||||||||||
| Other Long-Term Liabilities | |||||||||||
| Contingencies and Commitments | |||||||||||
| Shareholders’ Equity | |||||||||||
Common stock of Carnival Corporation, $ | |||||||||||
Ordinary shares of Carnival plc, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive income (loss) (“AOCI”) | ( | ( | |||||||||
Treasury stock, | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| $ | $ | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
| Nine Months Ended August 31, 2022 | |||||||||||
| 2022 | 2021 | ||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income (loss) | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | |||||||||||
| Depreciation and amortization | |||||||||||
| Impairments | |||||||||||
| (Gain) loss on debt extinguishment | |||||||||||
| (Income) loss from equity-method investments | |||||||||||
| Share-based compensation | |||||||||||
| Amortization of discounts and debt issue costs | |||||||||||
| Noncash lease expense | |||||||||||
| Other, net | |||||||||||
| ( | ( | ||||||||||
| Changes in operating assets and liabilities | |||||||||||
| Receivables | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Accrued liabilities and other | |||||||||||
| Customer deposits | |||||||||||
| Net cash provided by (used in) operating activities | ( | ( | |||||||||
| INVESTING ACTIVITIES | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from sales of ships and other | |||||||||||
| Purchase of minority interest | ( | ( | |||||||||
| Purchase of short-term investments | ( | ( | |||||||||
| Proceeds from maturity of short-term investments | |||||||||||
| Derivative settlements and other, net | ( | ||||||||||
| Net cash provided by (used in) investing activities | ( | ( | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Proceeds from (repayments of) short-term borrowings, net | ( | ||||||||||
| Principal repayments of long-term debt | ( | ( | |||||||||
| Premium paid on extinguishment of debt | ( | ||||||||||
| Proceeds from issuance of long-term debt | |||||||||||
| Issuance of common stock, net | |||||||||||
| Issuance of common stock under the Stock Swap Program | |||||||||||
| Purchase of treasury stock under the Stock Swap Program | ( | ( | |||||||||
| Debt issue costs and other, net | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | |||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in millions)
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||
| Common stock | Ordinary shares | Additional paid-in capital | Retained earnings | AOCI | Treasury stock | Total shareholders’ equity | |||||||||||||||||||||||||||||||||||
| At May 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Issuance of common stock, net | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Conversion of Convertible Notes | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Purchases and issuances under the Stock Swap Program | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Share-based compensation and other | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| At August 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| At May 31, 2022 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Issuances of common stock, net | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of treasury shares for vested share-based awards | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||
| Share-based compensation and other | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| At August 31, 2022 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||
| Common stock | Ordinary shares | Additional paid-in capital | Retained earnings | AOCI | Treasury stock | Total shareholders’ equity | |||||||||||||||||||||||||||||||||||
| At November 30, 2020 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Conversion of Convertible Notes | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Purchases and issuances under the Stock Swap Program | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Share-based compensation and other | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| At August 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| At November 30, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Issuances of common stock, net | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Purchases and issuances under the Stock Swap program, net | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Issuance of treasury shares for vested share-based awards | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||
| Share-based compensation and other | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||
| At August 31, 2022 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
CARNIVAL CORPORATION & PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – General
The consolidated financial statements include the accounts of Carnival Corporation and Carnival plc and their respective subsidiaries. Together with their consolidated subsidiaries, they are referred to collectively in these consolidated financial statements and elsewhere in this joint Quarterly Report on Form 10-Q as “Carnival Corporation & plc,” “our,” “us” and “we.”
Liquidity and Management’s Plans
In the face of the global impact of COVID-19, we paused our guest cruise operations in mid-March 2020 and began resuming guest cruise operations in 2021. As of August 31, 2022, 93 % of our capacity was serving guests.
COVID-19 and its ongoing effects, inflation, higher fuel prices and higher interest rates are collectively having a material impact on our business, including our results of operations, liquidity and financial position. The extent of the collective impact of such items is uncertain and will depend on future developments, including the length of time it takes to return the company to profitability.
The estimation of our future liquidity requirements includes numerous assumptions that are subject to various risks and uncertainties. The principal assumptions used to estimate our future liquidity requirements consist of:
•Continued resumption of guest cruise operations
•Expected increases in revenue in 2023 on a per passenger basis compared to 2019, particularly with the relaxation of COVID-19 related protocols aligning towards land-based vacation alternatives
•Expected improvement in occupancy on a year-over-year basis returning to historical levels during 2023
•Expected moderation of fuel prices continuing into the fourth quarter of 2022 and 2023
•Expected inflation and supply chain challenges to continue to weigh on costs, though moderated by a larger, more efficient fleet as compared to 2019
•Maintaining collateral and reserves at reasonable levels
In addition, we make certain assumptions about new ship deliveries, improvements and removals, and consider the future export credit financings that are associated with the new ship deliveries.
We cannot make assurances that our assumptions used to estimate our liquidity requirements may not change because we have never previously experienced a complete cessation and subsequent resumption of our guest cruise operations, and as a consequence, our ability to be predictive is uncertain. In addition, the effects of the COVID-19 global pandemic, inflation, higher fuel prices and higher interest rates are uncertain. We have made reasonable estimates and judgments of the impact of these events within our consolidated financial statements and there may be changes to those estimates in future periods. We took, and may continue as appropriate to take, actions to improve our liquidity, including completing various capital market transactions, capital expenditure and operating expense reductions and accelerating the removal of certain ships from our fleet. We expect to continue to address maturities well in advance and obtain relevant financial covenant amendments or waivers, as needed.
Based on these actions and our assumptions, considering our $7.4 billion of liquidity including cash and borrowings available under our $1.7 billion, €1.0 billion and £0.2 billion multi-currency revolving credit facility (the “Revolving Facility”) at August 31, 2022, as well as our continued return to service, we have concluded that we have sufficient liquidity to satisfy our obligations for at least the next twelve months.
9
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”), which provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. ASU 2020-04 is effective upon issuance and can be applied through December 31, 2022. The use of LIBOR was phased out at the end of 2021, although the phase-out of U.S. dollar LIBOR for existing agreements has been delayed until June 2023. We continue to monitor developments related to the LIBOR transition and identification of an alternative, market-accepted rate.
In December 2021, we amended our £350 million long-term debt agreement which referenced the British Pound sterling (“GBP”) LIBOR to the Sterling Overnight Index Average (“SONIA”) and applied the practical expedient. This amendment did not have a material impact on our consolidated financial statements. As of August 31, 2022, approximately $8.4 billion of our outstanding indebtedness bears interest at floating rates referenced to U.S. dollar LIBOR with maturity dates extending beyond June 30, 2023. We are currently evaluating our contracts referenced to U.S. dollar LIBOR and working with our creditors on updating credit agreements as necessary to include language regarding the successor or alternate rate to LIBOR. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements during the LIBOR transition period.
NOTE 2 – Revenue and Expense Recognition
Guest cruise deposits and advance onboard purchases are initially included in customer deposit liabilities when received. Customer deposits are subsequently recognized as cruise revenues, together with revenues from onboard and other activities, and all associated direct costs and expenses of a voyage are recognized as cruise costs and expenses, upon completion of voyages with durations of ten nights or less and on a pro rata basis for voyages in excess of ten nights. The impact of recognizing these shorter duration cruise revenues and costs and expenses on a completed voyage basis versus on a pro rata basis is not material. Certain of our product offerings are bundled and we allocate the value of the bundled services and goods between passenger ticket revenues and onboard and other revenues based upon the estimated standalone selling prices of those goods and services. Guest cancellation fees, when applicable, are recognized in passenger ticket revenues at the time of cancellation.
Our sales to guests of air and other transportation to and from airports near the home ports of our ships are included in passenger ticket revenues, and the related costs of purchasing these services are included in transportation costs. The proceeds that we collect from the sales of third-party shore excursions are included in onboard and other revenues and the related costs are included in onboard and other costs. The amounts collected on behalf of our onboard concessionaires, net of the amounts remitted to them, are included in onboard and other revenues as concession revenues. All of these amounts are recognized on a completed voyage or pro rata basis as discussed above.
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Customer Deposits
Our payment terms generally require an initial deposit to confirm a reservation, with the balance due prior to the voyage. Cash received from guests in advance of the cruise is recorded in customer deposits and in other long-term liabilities on our Consolidated Balance Sheets. These amounts include refundable deposits. In certain situations, we have provided flexibility to guests by allowing guests to rebook at a future date, receive future cruise credits (“FCCs”) or elect to receive refunds in cash. We have at times issued enhanced FCCs. Enhanced FCCs provide the guest with an additional credit value above the original cash deposit received, and the enhanced value is recognized as a discount applied to the future cruise in the period used. We record a liability for unexpired FCCs to the extent we have received and not refunded cash from guests for cancelled bookings. We had total customer deposits of $4.8 billion as of August 31, 2022 and $3.5 billion as of November 30, 2021. Refunds payable to guests who have elected cash refunds are recorded in accounts payable. During the nine months ended August 31, 2022 and 2021, we recognized revenues of $1.7
Trade and Other Receivables
Although we generally require full payment from our customers prior to or concurrently with their cruise, we grant credit terms to a relatively small portion of our revenue source. We have receivables from credit card merchants and travel agents for cruise ticket purchases and onboard revenue. These receivables are included within trade and other receivables, net. We have agreements with a number of credit card processors that transact customer deposits related to our cruise vacations. Certain of these agreements allow the credit card processors to request, under certain circumstances, that we provide a reserve fund in cash. These reserve funds are included in other assets.
Contract Assets
Contract assets are amounts paid prior to the start of a voyage as a result of obtaining the ticket contract and include prepaid travel agent commissions and prepaid credit and debit card fees. We record these amounts within prepaid expenses and other and subsequently recognize these amounts as commissions, transportation and other at the time of revenue recognition or at the time of voyage cancellation. We had contract assets of $191 million as of August 31, 2022 and $55 million as of November 30, 2021.
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NOTE 3 – Debt
| August 31, | November 30, | ||||||||||||||||||||||
| (in millions) | Maturity | Rate (a) (b) | 2022 | 2021 | |||||||||||||||||||
| Secured Debt | |||||||||||||||||||||||
| Notes | |||||||||||||||||||||||
| Notes | Feb 2026 | $ | $ | ||||||||||||||||||||
| EUR Notes | Feb 2026 | ||||||||||||||||||||||
| Notes | Jun 2027 | ||||||||||||||||||||||
| Notes | Aug 2027 | ||||||||||||||||||||||
| Notes | Aug 2028 | ||||||||||||||||||||||
| Loans | |||||||||||||||||||||||
| EUR fixed rate | Nov 2022 | ||||||||||||||||||||||
| EUR floating rate | Nov 2022 - Jun 2025 | EURIBOR + | |||||||||||||||||||||
| Floating rate | Jun 2025 - Oct 2028 | LIBOR + | |||||||||||||||||||||
| Total Secured Debt | |||||||||||||||||||||||
| Unsecured Debt | |||||||||||||||||||||||
| Revolver | |||||||||||||||||||||||
| Facility | (c) | LIBOR + | |||||||||||||||||||||
| Notes | |||||||||||||||||||||||
| EUR Notes | Nov 2022 | ||||||||||||||||||||||
| Convertible Notes | Apr 2023 | ||||||||||||||||||||||
| Notes | Oct 2023 | ||||||||||||||||||||||
| Convertible Notes | Oct 2024 | ||||||||||||||||||||||
| Notes | Mar 2026 | ||||||||||||||||||||||
| EUR Notes | Mar 2026 | ||||||||||||||||||||||
| Notes | Mar 2027 | ||||||||||||||||||||||
| Notes | Jan 2028 | ||||||||||||||||||||||
| Notes | May 2029 | ||||||||||||||||||||||
| EUR Notes | Oct 2029 | ||||||||||||||||||||||
| Notes | Jun 2030 | ||||||||||||||||||||||
| Loans | |||||||||||||||||||||||
| Floating rate | Feb 2023 - Sep 2024 | LIBOR + | |||||||||||||||||||||
| GBP floating rate | Feb 2025 | SONIA + | |||||||||||||||||||||
| EUR floating rate | Dec 2021 - Mar 2026 | EURIBOR + | |||||||||||||||||||||
| Export Credit Facilities | |||||||||||||||||||||||
| Floating rate | Feb 2022 - Dec 2031 | LIBOR + | |||||||||||||||||||||
| Fixed rate | Aug 2027 - Dec 2032 | ||||||||||||||||||||||
| EUR floating rate | Feb 2022 - Dec 2033 | EURIBOR + | |||||||||||||||||||||
| EUR fixed rate | Feb 2031 - Jan 2034 | ||||||||||||||||||||||
| Total Unsecured Debt | |||||||||||||||||||||||
| Total Debt | |||||||||||||||||||||||
| Less: unamortized debt issuance costs and discounts | ( | ( | |||||||||||||||||||||
| Total Debt, net of unamortized debt issuance costs and discounts | |||||||||||||||||||||||
| Less: short-term borrowings | ( | ( | |||||||||||||||||||||
12
| Less: current portion of long-term debt | ( | ( | |||||||||||||||||||||
| Long-Term Debt | $ | $ | |||||||||||||||||||||
(a)Substantially all of our variable debt has a 0.0 % to 0.75 % floor.
(b)The above debt table does not include the impact of our interest rate swaps and as of November 30, 2021, it also excludes the impact of our foreign currency swaps. As of August 31, 2022, we had no foreign currency swaps. The interest rates on some of our debt, including our Revolving Facility, fluctuate based on the applicable rating of senior unsecured long-term securities of Carnival Corporation or Carnival plc.
(c)Amounts outstanding under our Revolving Facility were drawn in 2020 for an initial six-month term. We may continue to re-borrow or otherwise utilize available amounts under the Revolving Facility through August 2024, subject to satisfaction of the conditions in the facility. We had $0.3 billion available for borrowing under our Revolving Facility as of August 31, 2022. The Revolving Facility also includes an emissions linked margin adjustment whereby, after the initial applicable margin is set per the margin pricing grid, the margin may be adjusted based on performance in achieving certain agreed annual carbon emissions goals. We are required to pay a commitment fee on any unutilized portion.
(d)As of August 31, 2022 the interest rate for the GBP unsecured loan was linked to SONIA and subject to a credit adjustment spread ranging from 0.03 % to 0.28 %. As of November 30, 2021, this loan was referenced to GBP LIBOR.
Carnival Corporation and/or Carnival plc is the primary obligor of all of our debt, with the exception of $0.6 billion of debt for which our subsidiary Costa Crociere S.p.A. is the primary obligor, and which is guaranteed by Carnival Corporation and Carnival plc.
Short-Term Borrowings
As of August 31, 2022 and November 30, 2021, our short-term borrowings consisted of $2.7 billion and $2.8 billion under our Revolving Facility.
Export Credit Facility Borrowings
During the nine months ended August 31, 2022, we borrowed $2.3 billion under export credit facilities due in semi-annual installments through 2034. As of August 31, 2022, the net book value of the vessels subject to negative pledges was $13.0 billion.
Secured Debt
Our secured debt is secured on either a first or second-priority basis, depending on the instrument, by certain collateral, which includes vessels and certain assets related to those vessels and material intellectual property (combined net book value of approximately $24.0 billion, including $22.4 billion related to vessels and certain assets related to those vessels) as of August 31, 2022 and certain other assets.
2030 Senior Unsecured Notes
In May 2022, we issued an aggregate principal amount of $1.0 billion senior unsecured notes that mature on June 1, 2030 (the “2030 Senior Unsecured Notes”). The 2030 Senior Unsecured Notes bear interest at a rate of 10.5 % per year.
Convertible Notes
In 2020, we issued $2.0 billion aggregate principal amount of 5.75 % convertible senior notes due 2023 (the “2023 Convertible Notes”). The 2023 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. Since April 2020, we repurchased, exchanged and converted a portion of the 2023 Convertible Notes which resulted in a decrease of the principal amount of the 2023 Convertible Notes to $0.2 billion.
In August 2022, we issued $339 million aggregate principal amount of 5.75 % convertible senior notes due 2024 (the “2024 Convertible Notes” and, together with the 2023 Convertible Notes, the “Convertible Notes”) pursuant to privately-negotiated non-cash exchange agreements with certain holders of the 2023 Convertible Notes, pursuant to which such holders agreed to exchange their 2023 Convertible Notes for an equal amount of 2024 Convertible Notes. The 2024 Convertible Notes mature on
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October 1, 2024, unless earlier repurchased or redeemed by us or earlier converted in accordance with their terms prior to the maturity date.
The Convertible Notes are convertible by holders, subject to the conditions described within the respective indentures that govern the Convertible Notes, 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 of the Convertible Notes is subject to certain anti-dilutive adjustments and may also increase if such Convertible Notes are converted in connection with a tax redemption or certain corporate events. The 2024 Convertible Notes were convertible from the date of issuance of the 2024 Convertible Notes until August 31, 2022, and thereafter may become convertible if certain conditions are met. As of August 31, 2022, no condition allowing holders of the 2023 Convertible Notes or the 2024 Convertible Notes to convert had been met and therefore the Convertible Notes are not convertible.
We may redeem the 2023 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 2023 Convertible Notes due to a change in tax laws, regulations or rulings or a change in the official application, administration or interpretation thereof. We may redeem the 2024 Convertible Notes, in whole but not in part, at any time on or prior to June 30, 2024 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 2024 Convertible Notes due to a change in tax laws, regulations or rulings or a change in the official application, administration or interpretation thereof.
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 of the 2023 Convertible Notes and was calculated by deducting the carrying value of the liability component from the initial proceeds from the 2023 Convertible Notes. The carrying amount of the equity component was reduced to zero 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 fair value of the conversion option remained unchanged after the exchange of the portion of the 2023 Convertible Notes for the 2024 Convertible Notes and, as a result, there was no adjustment to the carrying amount of the equity component.
The debt discount, which represented the excess of the principal amount of the 2023 Convertible Notes over the carrying amount of the liability component on the date of issuance of the 2023 Convertible Notes, was capitalized and amortized to interest expense under the effective interest rate method over the term of the 2023 Convertible Notes. Following the exchange of the portion of the 2023 Convertible Notes for the 2024 Convertible Notes, the remaining unamortized discount was allocated between the 2023 Convertible Notes and the 2024 Convertible Notes and is amortized to interest expense over each respective term using the effective interest rate method.
The net carrying value of the liability component of the Convertible Notes was as follows:
| (in millions) | August 31, 2022 | November 30, 2021 | ||||||||||||
| Principal | $ | $ | ||||||||||||
| Less: Unamortized debt discount | ( | ( | ||||||||||||
| $ | $ | |||||||||||||
As of August 31, 2022, the if-converted value on available shares of 52 million for the Convertible Notes was below par.
Covenant Compliance
As of August 31, 2022, our Revolving Facility and substantially all of our unsecured loans and export credit facilities contain certain covenants, the most restrictive of which require us to:
•Maintain minimum interest coverage (adjusted EBITDA to consolidated net interest charges) (the “Interest Coverage Covenant”) at the end of each fiscal quarter from August 31, 2023, at a ratio of not less than 2.0 to 1.0 for the August
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31, 2023 testing date, 2.5 to 1.0 for the November 30, 2023 testing date, and 3.0 to 1.0 for the February 29, 2024 testing date onwards, or through their respective maturity dates
•Maintain minimum shareholders’ equity of $5.0 billion
•Limit our debt to capital (as defined) percentage from the November 30, 2021 testing date until the May 31, 2023 testing date, to a percentage not to exceed 75 %, following which it will be tested at levels which decline ratably to 65 % from the May 31, 2024 testing date onwards
•Maintain minimum liquidity of $1.5 billion through November 30, 2026
•Adhere to certain restrictive covenants through November 30, 2024
•Limit the amounts of our secured assets as well as secured and other indebtedness
During August and September 2022, we entered into letter agreements to waive compliance with the Interest Coverage Covenant under our Revolving Facility and $0.7 billion of $11.4 billion of our unsecured loans and export credit facilities, which contain the covenant through February 29, 2024. We will be required to comply beginning with the next testing date of May 31, 2024.
At August 31, 2022, we were in compliance with the applicable covenants under our debt agreements. Generally, if an event of default under any debt agreement occurs, then, pursuant to cross default acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated. Any financial covenant amendment may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections that would be applicable.
Carnival Corporation or Carnival plc and certain of our subsidiaries have guaranteed substantially all of our indebtedness.
As of August 31, 2022, the scheduled maturities of our debt are as follows:
| (in millions) | ||||||||
| Year | Principal Payments | |||||||
| 4Q 2022 | $ | |||||||
| 2023 | ||||||||
| 2024 (a) | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
(a)Includes borrowings of $2.7 billion under our Revolving Facility. Amounts outstanding under our Revolving Facility were drawn in 2020 for an initial six-month term. We may continue to re-borrow or otherwise utilize available amounts under the Revolving Facility through August 2024, subject to satisfaction of the conditions in the facility. We had $0.3 billion available for borrowing under our Revolving Facility as of August 31, 2022.
NOTE 4 – Contingencies and Commitments
Litigation
We are routinely involved in legal proceedings, claims, disputes, regulatory matters and governmental inspections or investigations arising in the ordinary course of or incidental to our business, including those noted below. Additionally, as a result of the impact of COVID-19, litigation claims, enforcement actions, regulatory actions and investigations, including, but not limited to, those arising from personal injury and loss of life, have been and may, in the future, be asserted against us. We expect many of these claims and actions, or any settlement of these claims and actions, to be covered by insurance and historically the maximum amount of our liability, net of any insurance recoverables, has been limited to our self-insurance retention levels.
We record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated.
Legal proceedings and government investigations are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could involve substantial monetary damages. In addition, in matters for which conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more
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products at all or in particular ways, precluding particular business practices or requiring other remedies. An unfavorable outcome might result in a material adverse impact on our business, results of operations, financial position or liquidity.
As previously disclosed, on May 2, 2019, two lawsuits were filed against Carnival Corporation in the U.S. District Court for the Southern District of Florida under Title III of the Cuban Liberty and Democratic Solidarity Act, also known as the Helms-Burton Act, alleging that Carnival Corporation “trafficked” in confiscated Cuban property when certain ships docked at certain ports in Cuba, and that this alleged “trafficking” entitles the plaintiffs to treble damages. In the matter filed by Havana Docks Corporation, the hearings on motions for summary judgment were concluded on January 18, 2022. On March 21, 2022, the court granted summary judgment in favor of Havana Docks Corporation as to liability. On August 31, 2022, the court determined that the trebling provision of the Helms-Burton statute applies to damages and interest. Accordingly, we have adjusted our estimated liability for this matter as of August 31, 2022. The court held a status conference on September 22, 2022, at which time it was determined that a jury trial is no longer necessary. All remaining issues, including calculation of damages and certain pending constitutional matters, will be addressed via briefing to the court. The briefing schedule is set to have all briefing completed on December 2, 2022. In the matter filed by Javier Bengochea on December 20, 2021, the court issued an order inviting an amicus brief from the U.S. government on several issues involved in the appeal. The U.S. government filed its brief and the court ordered the parties to respond. On May 6, 2022 we filed our response brief. We continue to believe we have a meritorious defense to these actions and we believe that any final liability which may arise as a result of these actions is unlikely to have a material impact on our consolidated financial statements.
As previously disclosed, on April 8, 2020, DeCurtis LLC (“DeCurtis”), a former vendor, filed an action against Carnival Corporation in the U.S. District Court for the Middle District of Florida seeking declaratory relief that DeCurtis is not infringing on several of Carnival Corporation’s patents in relation to its OCEAN Medallion systems and technology. The action also raises certain monopolization claims under The Sherman Antitrust Act of 1890, unfair competition and tortious interference, and seeks declaratory judgment that certain Carnival Corporation patents are unenforceable. DeCurtis seeks damages, including its fees and costs, and seeks declarations that it is not infringing and/or that Carnival Corporation’s patents are unenforceable. On April 10, 2020, Carnival Corporation filed an action against DeCurtis in the U.S. District Court for the Southern District of Florida for breach of contract, trade secrets violations and patent infringement. Carnival Corporation seeks damages, including its fees and costs, as well as an order permanently enjoining DeCurtis from engaging in such activities. These two cases have now been consolidated in the Southern District of Florida. On April 25, 2022, we moved for summary judgment on our breach of contract claims and on all of DeCurtis’s claims. DeCurtis also filed a motion for summary judgment on certain portions of our claims. Both motions for summary judgment are fully briefed. On July 28, 2022, the court adopted the Magistrate Judge’s report and recommendation granting our opening claim construction brief and denying DeCurtis’s motion for summary judgment regarding the invalidity of various patent claims. The court has set the trial date for February 27, 2023. We believe the ultimate outcome will not have a material impact on our consolidated financial statements.
COVID-19 Actions
Private Actions
We have been named in a number of individual actions related to COVID-19. Private parties have brought approximately 73 individual lawsuits as of August 31, 2022 in several U.S. federal and state courts as well as others in France, Belgium, Italy and Brazil. These actions include tort claims based on a variety of theories, including negligence and failure to warn. The plaintiffs in these actions allege a variety of injuries: some plaintiffs confined their claim to emotional distress, while others allege injuries arising from testing positive for COVID-19. A smaller number of actions include wrongful death claims. As of August 31, 2022, 71 of these individual actions in the U.S. have now been dismissed or settled for immaterial amounts and two remain. We believe the ultimate outcome of the remaining individual actions will not have a material impact on our consolidated financial statements.
Additionally, as of August 31, 2022, 10 purported class actions have been brought by former guests from Ruby Princess, Diamond Princess, Grand Princess, Coral Princess and Zaandam in several U.S. federal courts and in the Federal Court of Australia. These actions include tort claims based on a variety of theories, including negligence, gross negligence and failure to warn, physical injuries and severe emotional distress associated with being exposed to and/or contracting COVID-19 onboard. As of August 31, 2022, nine of these class actions have either been settled individually for immaterial amounts or had their class allegations dismissed by the courts and only the Australian matter remains.
All COVID-19 matters seek monetary damages and most seek additional punitive damages in unspecified amounts.
We continue to take actions to defend against the above claims.
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Governmental Inquiries and Investigations
Federal and non-U.S. governmental agencies and officials are investigating or otherwise seeking information, testimony and/or documents, regarding COVID-19 incidents and related matters. We are investigating these matters internally and are cooperating with all requests. The investigations could result in the imposition of civil and criminal penalties in the future.
Other Regulatory or Governmental Inquiries and Investigations
We have been, and may continue to be, impacted by breaches in data security and lapses in data privacy, which occur from time to time. These can vary in scope and intent from inadvertent events to malicious motivated attacks.
As previously disclosed, on June 24, 2022, we finalized a settlement with the New York Department of Financial Services (“NY DFS”) in connection with previously disclosed cybersecurity events, pursuant to which we have paid an amount that did not have a material impact on our consolidated financial statements. In addition, as previously disclosed, we finalized a settlement with the State Attorneys General from 46 states in connection with the same cybersecurity events, pursuant to which we have paid an amount that did not have a material impact on our consolidated financial statements.
We continue to work with regulators regarding cyber incidents we have experienced. We have incurred legal and other costs in connection with cyber incidents that have impacted us. While these incidents are not expected to have a material adverse effect on our business, results of operations, financial position or liquidity, no assurances can be given about the future and we may be subject to future litigation, attacks or incidents that could have such a material adverse effect.
On March 14, 2022, the U.S. Department of Justice and the U.S. Environmental Protection Agency notified us of potential civil penalties and injunctive relief for alleged Clean Water Act violations by owned and operated vessels covered by the 2013 Vessel General Permit. We are working with these agencies to reach a resolution of this matter. We believe the ultimate outcome will not have a material impact on our consolidated financial statements.
Other Contingent Obligations
Some of the debt contracts we enter into include indemnification provisions obligating us to make payments to the counterparty if certain events occur. These contingencies generally relate to changes in taxes or changes in laws which increase the lender’s costs. There are no stated or notional amounts included in the indemnification clauses, and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses.
We have agreements with a number of credit card processors that transact customer deposits related to our cruise vacations. Certain of these agreements allow the credit card processors to request, under certain circumstances, that we provide a reserve fund in cash. Although the agreements vary, these requirements may generally be satisfied either through a withheld percentage of customer payments or providing cash funds directly to the credit card processor. As of August 31, 2022 and November 30, 2021, we had $1.6 billion and $1.1 billion in reserve funds related to our customer deposits provided to satisfy these requirements which are included within other assets. We continue to expect to provide reserve funds under these agreements. Additionally, as of August 31, 2022 and November 30, 2021, we had $30
Ship Commitments
As of August 31, 2022, we expect the timing of our new ship growth capital commitments to be as follows:
(in millions) Year | |||||||||||
| Remainder of 2022 | $ | ||||||||||
| 2023 | |||||||||||
| 2024 | (a) | ||||||||||
| 2025 | (a) | ||||||||||
| Thereafter | |||||||||||
| $ | |||||||||||
(a) Includes a ship subject to financing
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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, 2022 | November 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed rate debt (a) | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Floating rate debt (a) | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||