UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 31, 2019February 29, 2020
OR
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☐ | 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: 001-9610
Commission file number: 001-15136
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Carnival Corporation | | | | Carnival plc | | |
(Exact name of registrant as specified in its charter) | | | | (Exact name of registrant as specified in its charter) | | |
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Carnival Corporation | | Carnival plc |
(Exact name of registrant as
specified in its charter)
| (Exact name of registrant as
specified in its charter)
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Republic of Panama | | | | England and Wales | | |
(State or other jurisdiction of incorporation or organization)
| | | | (State or other jurisdiction of incorporation or organization)
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59-1562976 | | | | 98-0357772 | | |
(I.R.S. Employer Identification No.) | | | | (I.R.S. Employer Identification No.) | | |
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3655 N.W. 87th Avenue | | | | Carnival House, 100 Harbour Parade | | |
Miami, | Florida | 33178-2428 | Southampton | Southampton | SO15 1ST | United Kingdom |
(Address of principal executive offices)
(Zip Code)
| | | | (Address of principal executive offices)
(Zip Code)
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(305) | 599-2600 | | 011 | 44 23 8065 5000 |
(Registrant’s telephone number, including area code) | | | (Registrant’s telephone number, including area code) | |
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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:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock ($ ($0.01 par value) | | 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 |
(Title of each class) | (Title of each class) |
| |
CCL | CUK |
(Trading Symbol) | (Trading Symbol) |
| |
New York Stock Exchange, Inc. | New York Stock Exchange, Inc. |
(NameOrdinary Shares each represented by American Depository Shares ($1.66 par value), Special Voting Share, GBP 1.00 par value and Trust Shares of each exchange on which registered)beneficial interest in the P&O Princess Special Voting Trust | (Name of each exchange on which registered)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 (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.
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Large accelerated filers | ☑ | Accelerated filers | ☐ | Non-accelerated filers | ☐ | Smaller reporting companies | ☐ | 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. ☐
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
At September 18, 2019, Carnival Corporation had outstanding 527,055,158 shares of Common Stock, $0.01 par value.
At September 18, 2019, Carnival plc had outstanding 185,488,171 Ordinary Shares $1.66 par value, one Special Voting Share, GBP 1.00 par value and 527,055,158 Trust Shares of beneficial interest in the P&O Princess Special Voting Trust.
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At March 25, 2020, Carnival Corporation had outstanding 527,817,680 shares of Common Stock, $0.01 par value. | | At March 25, 2020, Carnival plc had outstanding 182,536,832 Ordinary Shares $1.66 par value, one Special Voting Share, GBP 1.00 par value and 527,817,680 Trust Shares of beneficial interest in the P&O Princess Special Voting Trust. |
CARNIVAL CORPORATION & PLC
TABLE OF CONTENTS
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Item 1. | | | | |
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Item 1. | | | | |
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Item 2. | | | | |
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Item 3. | | | | |
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Item 4. | | | | |
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Item 1. | | | | |
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Item 1A. | | | | |
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Item 2. | | | | |
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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 February 29/28, | | | | | | |
| 2020 | | 2019 | | | | |
Revenues | | | | | | | |
Passenger ticket | $ | 3,234 | | | $ | 3,199 | | | | | |
Onboard and other | 1,556 | | | 1,474 | | | | | |
| 4,789 | | | 4,673 | | | | | |
Operating Costs and Expenses | | | | | | | |
Commissions, transportation and other | 766 | | | 709 | | | | | |
Onboard and other | 471 | | | 467 | | | | | |
Payroll and related | 610 | | | 557 | | | | | |
Fuel | 396 | | | 381 | | | | | |
Food | 277 | | | 268 | | | | | |
Other operating | 1,001 | | | 759 | | | | | |
| 3,523 | | | 3,142 | | | | | |
Selling and administrative | 678 | | | 629 | | | | | |
Depreciation and amortization | 570 | | | 516 | | | | | |
Goodwill impairment | 731 | | | — | | | | | |
| 5,502 | | | 4,287 | | | | | |
Operating Income (Loss) | (713) | | | 386 | | | | | |
Nonoperating Income (Expense) | | | | | | | |
Interest income | 5 | | | 4 | | | | | |
Interest expense, net of capitalized interest | (55) | | | (51) | | | | | |
| | | | | | | |
Other income (expense), net | (7) | | | (2) | | | | | |
| (57) | | | (49) | | | | | |
Income (Loss) Before Income Taxes | (770) | | | 338 | | | | | |
Income Tax Expense, Net | (11) | | | (2) | | | | | |
Net Income (Loss) | $ | (781) | | | $ | 336 | | | | | |
Earnings Per Share | | | | | | | |
Basic | $ | (1.14) | | | $ | 0.48 | | | | | |
Diluted | $ | (1.14) | | | $ | 0.48 | | | | | |
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| Three Months Ended August 31, | | Nine Months Ended August 31, |
| 2019 |
| 2018 | | 2019 | | 2018 |
Revenues | | | | | | | |
Cruise | | | | | | | |
Passenger ticket | $ | 4,477 |
| | $ | 4,353 |
| | $ | 10,934 |
| | $ | 10,694 |
|
Onboard and other | 1,855 |
| | 1,316 |
| | 4,811 |
| | 3,509 |
|
Tour and other | 200 |
| | 167 |
| | 299 |
| | 222 |
|
| 6,533 |
| | 5,836 |
| | 16,043 |
| | 14,425 |
|
Operating Costs and Expenses | | | | | | | |
Cruise | | | | | | | |
Commissions, transportation and other | 803 |
| | 760 |
| | 2,125 |
| | 2,000 |
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Onboard and other | 668 |
| | 207 |
| | 1,620 |
| | 485 |
|
Payroll and related | 548 |
| | 537 |
| | 1,671 |
| | 1,638 |
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Fuel | 401 |
| | 434 |
| | 1,204 |
| | 1,166 |
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Food | 284 |
| | 275 |
| | 821 |
| | 804 |
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Other ship operating | 719 |
| | 655 |
| | 2,192 |
| | 2,115 |
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Tour and other | 109 |
| | 90 |
| | 198 |
| | 140 |
|
| 3,532 |
| | 2,958 |
| | 9,833 |
| | 8,348 |
|
Selling and administrative | 563 |
| | 573 |
| | 1,813 |
| | 1,794 |
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Depreciation and amortization | 548 |
| | 511 |
| | 1,607 |
| | 1,510 |
|
| 4,643 |
| | 4,042 |
| | 13,252 |
| | 11,653 |
|
Operating Income | 1,890 |
| | 1,794 |
| | 2,791 |
| | 2,772 |
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Nonoperating Income (Expense) | | | | | | | |
Interest income | 8 |
| | 5 |
| | 16 |
| | 10 |
|
Interest expense, net of capitalized interest | (52 | ) | | (49 | ) | | (157 | ) | | (147 | ) |
Gains on fuel derivatives, net | — |
| | 4 |
| | — |
| | 61 |
|
Other income (expense), net | (19 | ) | | (9 | ) | | (27 | ) | | 2 |
|
| (63 | ) | | (50 | ) | | (168 | ) | | (74 | ) |
Income Before Income Taxes | 1,827 |
| | 1,744 |
| | 2,624 |
| | 2,699 |
|
Income Tax Expense, Net | (47 | ) | | (37 | ) | | (56 | ) | | (40 | ) |
Net Income | $ | 1,780 |
| | $ | 1,707 |
| | $ | 2,567 |
| | $ | 2,659 |
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Earnings Per Share | | | | | | | |
Basic | $ | 2.58 |
| | $ | 2.42 |
| | $ | 3.72 |
| | $ | 3.73 |
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Diluted | $ | 2.58 |
| | $ | 2.41 |
| | $ | 3.71 |
| | $ | 3.72 |
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The accompanying notes are an integral part of these consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in millions)
| | | | | | | | | | | | Three Months Ended February 29/28, | |
| Three Months Ended August 31, | | Nine Months Ended August 31, | | 2020 | | 2019 | |
| 2019 | | 2018 | | 2019 | | 2018 | |
Net Income | $ | 1,780 |
| | $ | 1,707 |
| | $ | 2,567 |
| | $ | 2,659 |
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Net Income (Loss) | | Net Income (Loss) | $ | (781) | | | $ | 336 | | |
Items Included in Other Comprehensive Income (Loss) | | |
| | | | | Items Included in Other Comprehensive Income (Loss) | | | | | |
Change in foreign currency translation adjustment | (101 | ) | | 15 |
| | (215 | ) | | (50 | ) | Change in foreign currency translation adjustment | 25 | | | 79 | | |
Other | (6 | ) | | — |
| | (19 | ) | | (9 | ) | Other | 13 | | | — | | |
Other Comprehensive Income (Loss) | (107 | ) | | 14 |
| | (234 | ) | | (59 | ) | Other Comprehensive Income (Loss) | 38 | | | 79 | | |
Total Comprehensive Income | $ | 1,674 |
| | $ | 1,722 |
| | $ | 2,333 |
| | $ | 2,600 |
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Total Comprehensive Income (Loss) | | Total Comprehensive Income (Loss) | $ | (743) | | | $ | 415 | | |
The accompanying notes are an integral part of these consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except par values)
| | | | | | | | | | | |
| February 29, 2020 | | November 30, 2019 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 1,354 | | | $ | 518 | |
Trade and other receivables, net | 405 | | | 444 | |
Inventories | 440 | | | 427 | |
Prepaid expenses and other | 687 | | | 671 | |
Total current assets | 2,885 | | | 2,059 | |
Property and Equipment, Net | 38,023 | | | 38,131 | |
Operating Lease Right-of-Use Assets (a) | 1,469 | | | — | |
Goodwill | 2,176 | | | 2,912 | |
Other Intangibles | 1,173 | | | 1,174 | |
Other Assets | 1,216 | | | 783 | |
| $ | 46,943 | | | $ | 45,058 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities | | | |
Short-term borrowings | $ | 1,004 | | | $ | 231 | |
Current portion of long-term debt | 2,196 | | | 1,596 | |
Current portion of operating lease liabilities (a) | 168 | | | — | |
Accounts payable | 904 | | | 756 | |
Accrued liabilities and other | 1,754 | | | 1,809 | |
Customer deposits | 4,690 | | | 4,735 | |
Total current liabilities | 10,716 | | | 9,127 | |
Long-Term Debt | 9,738 | | | 9,675 | |
Long-Term Operating Lease Liabilities (a) | 1,312 | | | — | |
Other Long-Term Liabilities | 887 | | | 890 | |
Contingencies | | | |
Shareholders’ Equity | | | |
Common stock of Carnival Corporation, $0.01 par value; 1,960 shares authorized; 658 shares at 2020 and 657 shares at 2019 issued | 7 | | | 7 | |
Ordinary shares of Carnival plc, $1.66 par value; 217 shares at 2020 and 2019 issued | 359 | | | 358 | |
Additional paid-in capital | 8,829 | | | 8,807 | |
Retained earnings | 25,527 | | | 26,653 | |
Accumulated other comprehensive income (loss) (“AOCI”) | (2,028) | | | (2,066) | |
Treasury stock, 130 shares at 2020 and 2019 of Carnival Corporation and 60 shares at 2020 and 2019 of Carnival plc, at cost | (8,404) | | | (8,394) | |
Total shareholders’ equity | 24,290 | | | 25,365 | |
| $ | 46,943 | | | $ | 45,058 | |
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| August 31, 2019 | | November 30, 2018 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 1,153 |
| | $ | 982 |
|
Trade and other receivables, net | 441 |
| | 358 |
|
Inventories | 482 |
| | 450 |
|
Prepaid expenses and other | 635 |
| | 436 |
|
Total current assets | 2,712 |
| | 2,225 |
|
Property and Equipment, Net | 36,466 |
| | 35,336 |
|
Goodwill | 2,886 |
| | 2,925 |
|
Other Intangibles | 1,166 |
| | 1,176 |
|
Other Assets | 771 |
| | 738 |
|
| $ | 44,001 |
| | $ | 42,401 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities | | | |
Short-term borrowings | $ | 238 |
| | $ | 848 |
|
Current portion of long-term debt | 1,607 |
| | 1,578 |
|
Accounts payable | 695 |
| | 730 |
|
Accrued liabilities and other | 1,718 |
| | 1,654 |
|
Customer deposits | 4,674 |
| | 4,395 |
|
Total current liabilities | 8,932 |
| | 9,204 |
|
Long-Term Debt | 8,893 |
| | 7,897 |
|
Other Long-Term Liabilities | 882 |
| | 856 |
|
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 | 8,798 |
| | 8,756 |
|
Retained earnings | 26,576 |
| | 25,066 |
|
Accumulated other comprehensive income (loss) (“AOCI”) | (2,183 | ) | | (1,949 | ) |
Treasury stock, 130 shares at 2019 and 129 shares at 2018 of Carnival Corporation and 57 shares at 2019 and 48 shares at 2018 of Carnival plc, at cost | (8,261 | ) | | (7,795 | ) |
Total shareholders’ equity | 25,295 |
| | 24,443 |
|
| $ | 44,001 |
| | $ | 42,401 |
|
(a)We adopted the provisions of Leases on December 1, 2019.
The accompanying notes are an integral part of these consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
| | | | | | | | | | | |
| Three Months Ended February 29/28, | | |
| 2020 | | 2019 |
OPERATING ACTIVITIES | | | |
Net income (loss) | $ | (781) | | | $ | 336 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities | | | |
Depreciation and amortization | 570 | | | 516 | |
Impairments | 1,062 | | | — | |
Share-based compensation | 20 | | | 20 | |
Other, net | (73) | | | 12 | |
| 798 | | | 884 | |
Changes in operating assets and liabilities | | | |
Receivables | 21 | | | (50) | |
Inventories | (15) | | | 7 | |
Prepaid expenses and other | (120) | | | (154) | |
Accounts payable | 148 | | | 65 | |
Accrued liabilities and other | 120 | | | 5 | |
Customer deposits | (36) | | | 358 | |
Net cash provided by operating activities | 916 | | | 1,116 | |
INVESTING ACTIVITIES | | | |
Purchases of property and equipment | (1,326) | | | (2,129) | |
Proceeds from sales of ships | 226 | | | — | |
Payments of fuel derivative settlements | — | | | (6) | |
Other, net | (61) | | | 76 | |
Net cash provided by (used in) investing activities | (1,161) | | | (2,059) | |
FINANCING ACTIVITIES | | | |
Proceeds from (repayments of) short-term borrowings, net | 779 | | | (81) | |
Principal repayments of long-term debt | (132) | | | (95) | |
Proceeds from issuance of long-term debt | 823 | | | 1,439 | |
Dividends paid | (344) | | | (348) | |
Purchases of treasury stock | (12) | | | (274) | |
| | | |
Other, net | (24) | | | (29) | |
Net cash provided by (used in) financing activities | 1,089 | | | 612 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (7) | | | 1 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 838 | | | (331) | |
Cash, cash equivalents and restricted cash at beginning of period | 530 | | | 996 | |
Cash, cash equivalents and restricted cash at end of period | $ | 1,368 | | | $ | 665 | |
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| | | | | | | |
| Nine Months Ended August 31, |
| 2019 | | 2018 |
OPERATING ACTIVITIES | | | |
Net income | $ | 2,567 |
| | $ | 2,659 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities | | | |
Depreciation and amortization | 1,607 |
| | 1,510 |
|
Impairments | 26 |
| | 16 |
|
Gains on fuel derivatives, net | — |
| | (61 | ) |
Share-based compensation | 38 |
| | 49 |
|
Other, net | 29 |
| | (22 | ) |
| 4,266 |
| | 4,151 |
|
Changes in operating assets and liabilities | | | |
Receivables | (101 | ) | | (61 | ) |
Inventories | 22 |
| | (19 | ) |
Prepaid expenses and other | (220 | ) | | 76 |
|
Accounts payable | (25 | ) | | (94 | ) |
Accrued liabilities and other | 63 |
| | (166 | ) |
Customer deposits | 409 |
| | 549 |
|
Net cash provided by (used in) operating activities | 4,414 |
| | 4,436 |
|
INVESTING ACTIVITIES | | | |
Purchases of property and equipment | (3,448 | ) | | (2,784 | ) |
Proceeds from sales of ships | 15 |
| | 282 |
|
Payments of fuel derivative settlements | (6 | ) | | (37 | ) |
Other, net | 122 |
| | (79 | ) |
Net cash provided by (used in) investing activities | (3,317 | ) | | (2,617 | ) |
FINANCING ACTIVITIES | | | |
Proceeds from (repayments of) short-term borrowings, net | (600 | ) | | 182 |
|
Principal repayments of long-term debt | (472 | ) | | (1,271 | ) |
Proceeds from issuance of long-term debt | 1,722 |
| | 1,618 |
|
Dividends paid | (1,041 | ) | | (1,003 | ) |
Purchases of treasury stock | (472 | ) | | (1,205 | ) |
Other, net | (49 | ) | | (28 | ) |
Net cash provided by (used in) financing activities | (912 | ) | | (1,707 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (11 | ) | | 7 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash | 174 |
| | 120 |
|
Cash, cash equivalents and restricted cash at beginning of period | 996 |
| | 422 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 1,170 |
| | $ | 541 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in millions)
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| Common stock | | Ordinary shares | | Additional paid-in capital | | Retained earnings | | AOCI | | Treasury stock | | Total shareholders’ equity |
At November 30, 2018 | $ | 7 | | | $ | 358 | | | $ | 8,756 | | | $ | 25,066 | | | $ | (1,949) | | | $ | (7,795) | | | $ | 24,443 | |
Changes in accounting principles (a) | — | | | — | | | — | | | (24) | | | — | | | — | | | (24) | |
Net income (loss) | — | | | — | | | — | | | 336 | | | — | | | — | | | 336 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 79 | | | — | | | 79 | |
Cash dividends declared ($0.50 per share) | — | | | — | | | — | | | (345) | | | — | | | — | | | (345) | |
Purchases of treasury stock under the Repurchase Program and other | — | | | — | | | 20 | | | — | | | — | | | (268) | | | (248) | |
At February 28, 2019 | $ | 7 | | | $ | 358 | | | $ | 8,776 | | | $ | 25,033 | | | $ | (1,869) | | | $ | (8,063) | | | $ | 24,241 | |
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At November 30, 2019 | $ | 7 | | | $ | 358 | | | $ | 8,807 | | | $ | 26,653 | | | $ | (2,066) | | | $ | (8,394) | | | $ | 25,365 | |
Net income (loss) | — | | | — | | | — | | | (781) | | | — | | | — | | | (781) | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 38 | | | — | | | 38 | |
Cash dividends declared ($0.50 per share) | — | | | — | | | — | | | (344) | | | — | | | — | | | (344) | |
Purchases of treasury stock under the Repurchase Program and other | — | | | — | | | 22 | | | — | | | — | | | (10) | | | 12 | |
At February 29, 2020 | $ | 7 | | | $ | 359 | | | $ | 8,829 | | | $ | 25,527 | | | $ | (2,028) | | | $ | (8,404) | | | $ | 24,290 | |
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| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| Common stock | | Ordinary shares | | Additional paid-in capital | | Retained earnings | | AOCI | | Treasury stock | | Total shareholders’ equity |
At May 31, 2018 | $ | 7 |
| | $ | 358 |
| | $ | 8,721 |
| | $ | 23,564 |
| | $ | (1,855 | ) | | $ | (6,862 | ) | | $ | 23,933 |
|
Net income | — |
| | — |
| | — |
| | 1,707 |
| | — |
| | — |
| | 1,707 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | 14 |
| | — |
| | 14 |
|
Cash dividends declared ($0.50 per share) | — |
| | — |
| | — |
| | (350 | ) | | — |
| | — |
| | (350 | ) |
Purchases of treasury stock under the Repurchase Program and other | — |
| | — |
| | 19 |
| | — |
| | — |
| | (670 | ) | | (651 | ) |
At August 31, 2018 | $ | 7 |
| | $ | 358 |
| | $ | 8,741 |
| | $ | 24,921 |
| | $ | (1,840 | ) | | $ | (7,533 | ) | | $ | 24,654 |
|
| | | | | | | | | | | | | |
At May 31, 2019 | $ | 7 |
| | $ | 358 |
| | $ | 8,785 |
| | $ | 25,138 |
| | $ | (2,076 | ) | | $ | (8,104 | ) | | $ | 24,108 |
|
Net income | — |
| | — |
| | — |
| | 1,780 |
| | — |
| | — |
| | 1,780 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | (107 | ) | | — |
| | (107 | ) |
Cash dividends declared ($0.50 per share) | — |
| | — |
| | — |
| | (342 | ) | | — |
| | — |
| | (342 | ) |
Purchases of treasury stock under the Repurchase Program and other | — |
| | — |
| | 13 |
| | — |
| | — |
| | (157 | ) | | (144 | ) |
At August 31, 2019 | $ | 7 |
| | $ | 358 |
| | $ | 8,798 |
| | $ | 26,576 |
| | $ | (2,183 | ) | | $ | (8,261 | ) | | $ | 25,295 |
|
| | | | | | | | | | | | | |
| Nine Months Ended |
| Common stock | | Ordinary shares | | Additional paid-in capital | | Retained earnings | | AOCI | | Treasury stock | | Total shareholders’ equity |
At November 30, 2017 | $ | 7 |
| | $ | 358 |
| | $ | 8,690 |
| | $ | 23,292 |
| | $ | (1,782 | ) | | $ | (6,349 | ) | | $ | 24,216 |
|
Net income | — |
| | — |
| | — |
| | 2,659 |
| | — |
| | — |
| | 2,659 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | (59 | ) | | — |
| | (59 | ) |
Cash dividends declared ($1.45 per share) | — |
| | — |
| | — |
| | (1,029 | ) | | — |
| | — |
| | (1,029 | ) |
Purchases of treasury stock under the Repurchase Program and other | — |
| | — |
| | 51 |
| | — |
| | — |
| | (1,184 | ) | | (1,133 | ) |
At August 31, 2018 | $ | 7 |
| | $ | 358 |
| | $ | 8,741 |
| | $ | 24,921 |
| | $ | (1,840 | ) | | $ | (7,533 | ) | | $ | 24,654 |
|
| | | | | | | | | | | | | |
At November 30, 2018 | $ | 7 |
| | $ | 358 |
| | $ | 8,756 |
| | $ | 25,066 |
| | $ | (1,949 | ) | | $ | (7,795 | ) | | $ | 24,443 |
|
Changes in accounting principles (a) | — |
| | — |
| | — |
| | (24 | ) | | — |
| | — |
| | (24 | ) |
Net income | — |
| | — |
| | — |
| | 2,567 |
| | — |
| | — |
| | 2,567 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | (234 | ) | | — |
| | (234 | ) |
Cash dividends declared ($1.50 per share) | — |
| | — |
| | — |
| | (1,034 | ) | | — |
| | — |
| | (1,034 | ) |
Purchases of treasury stock under the Repurchase Program and other | — |
| | — |
| | 42 |
| | — |
| | — |
| | (467 | ) | | (424 | ) |
At August 31, 2019 | $ | 7 |
| | $ | 358 |
| | $ | 8,798 |
| | $ | 26,576 |
| | $ | (2,183 | ) | | $ | (8,261 | ) | | $ | 25,295 |
|
| |
(a) | (a)We adopted the provisions of Revenue from Contracts with Customers and Derivatives and Hedging on December 1, 2018. |
The accompanying notes are an integral part of these consolidated financial statements.
CARNIVAL CORPORATION & PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – General
The consolidated financial statements include the accounts of Carnival Corporation and Carnival plc and their respective subsidiaries. Together with their consolidated subsidiaries, they are referred to collectively in these consolidated financial statements and elsewhere in this joint Quarterly Report on Form 10-Q as “Carnival Corporation & plc,” “our,” “us” and “we.”
Liquidity and Management’s Plans
Due to the spread of COVID-19 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.
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 $3.0 billion multi-currency revolving credit facility (the “Existing Multicurrency 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 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 that may occur.
At February 29, 2020, we were in compliance with all of our debt covenants. After considering the effect of COVID-19 on our consolidated EBITDA, the actions we have taken and the other options available to us, we expect to remain in compliance with our current minimum debt service coverage ratio in certain of our debt instruments that requires a minimum of 3:1 ratio of EBITDA to Consolidated Net Interest Charges. If we expected to be out of compliance, we would seek waivers from the lenders prior to any covenant violation. Any covenant waiver may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections that would be applicable. There can be no assurance that we would be able to obtain waivers in a timely manner, or on acceptable terms at all. If we were not able to obtain waivers or repay the debt facilities, this would lead to an event of default and potential acceleration of amounts due under all of our outstanding debt and derivative contract payables. As a result, the failure to obtain waivers would have a material adverse effect on us.
On April 1, 2020, we announced the pricing of the private offerings of $4.0 billion first-priority senior secured notes due 2023 (“Secured Notes”) and $1.75 billion senior convertible notes due 2023 ($2.0125 billion if the initial purchasers exercise their option to purchase additional notes) (“Convertible Notes”), and a public offering of $500 million of common stock ($575 million if the underwriters exercise their option to purchase additional shares in full) of Carnival Corporation (“Public Equity Offering”), collectively referred to within this document as the “April 1 financing transactions”. The closings of these offerings are subject to customary conditions and are expected to occur in early April. The net proceeds from the offering of Secured Notes will be deposited in to a segregated escrow account, pending the releases in accordance with certain collateral perfection thresholds.
Basis of Presentation
The Consolidated Statements of Income (Loss), the Consolidated Statements of Comprehensive Income (Loss), the Consolidated Statements of Cash Flows and the Consolidated Statements of Shareholders’ Equity for the three and nine months ended August 31,February 29/28, 2020 and 2019, and 2018, and the Consolidated Balance Sheet at August 31, 2019February 29, 2020 are unaudited and, in the opinion of our management, contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement. Our interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in the Carnival Corporation & plc 20182019 joint Annual Report on Form 10-K (“Form 10-K”) filed with the U.S. Securities and Exchange Commission on January 28, 2019.2020. Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire year.
For the three months ended February 28, 2019, we reclassified $29 million from tour and other revenues to onboard and other revenues as well as $29 million from tour and other costs and expenses to other operating cost and expenses in order to conform to the current year presentation.
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, 2018,2019, 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.
The following tables summarize the impacts of ASC 606 adoption on our consolidated financial statements:
|
| | | | | | | | | | | |
| Three Months Ended August 31, 2019 |
(in millions) | Prior to adoption of ASC 606 | | Adjustments | | As Reported |
Consolidated Statement of Income | | | | | |
Onboard and other (Revenues) | $ | 1,407 |
| | $ | 449 |
| | $ | 1,855 |
|
Revenues (Total) | $ | 6,084 |
| | $ | 449 |
| | $ | 6,533 |
|
Onboard and other (Operating Costs and Expenses) | $ | 219 |
| | $ | 449 |
| | $ | 668 |
|
Operating Costs and Expenses (Total) | $ | 4,194 |
| | $ | 449 |
| | $ | 4,643 |
|
Operating Income | $ | 1,890 |
| | $ | — |
| | $ | 1,890 |
|
Net Income | $ | 1,780 |
| | $ | — |
| | $ | 1,780 |
|
| | | | | |
| Nine Months Ended August 31, 2019 |
(in millions) | Prior to adoption of ASC 606 | | Adjustments | | As Reported |
Consolidated Statement of Income | | | | | |
Onboard and other (Revenues) | $ | 3,696 |
| | $ | 1,115 |
| | $ | 4,811 |
|
Revenues (Total) | $ | 14,929 |
| | $ | 1,115 |
| | $ | 16,043 |
|
Onboard and other (Operating Costs and Expenses) | $ | 506 |
| | $ | 1,115 |
| | $ | 1,620 |
|
Operating Costs and Expenses (Total) | $ | 12,137 |
| | $ | 1,115 |
| | $ | 13,252 |
|
Operating Income | $ | 2,791 |
| | $ | — |
| | $ | 2,791 |
|
Net Income | $ | 2,567 |
| | $ | — |
| | $ | 2,567 |
|
| | | | | |
| At August 31, 2019 |
(in millions) | Prior to adoption of ASC 606 | | Adjustments | | As Reported |
Consolidated Balance Sheet | | | | | |
Prepaid expenses and other | $ | 488 |
| | $ | 147 |
| | $ | 635 |
|
Total current assets | $ | 2,565 |
| | $ | 147 |
| | $ | 2,712 |
|
Customer deposits | $ | 4,527 |
| | $ | 147 |
| | $ | 4,674 |
|
Total current liabilities | $ | 8,784 |
| | $ | 147 |
| | $ | 8,932 |
|
| | | | | |
| Nine Months Ended August 31, 2019 |
(in millions) | Prior to adoption of ASC 606 | | Adjustments | | As Reported |
Consolidated Statement of Cash Flows | | | | | |
Prepaid expenses and other | $ | (73 | ) | | $ | (147 | ) | | $ | (220 | ) |
Customer deposits | $ | 262 |
| | $ | 147 |
| | $ | 409 |
|
Net cash provided by operating activities | $ | 4,414 |
| | $ | — |
| | $ | 4,414 |
|
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 period 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.
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. At the time of adoption, we changed the method by which we assess effectiveness for outstanding net investment hedges from the forward method to the spot method. Under the spot method, the change in fair value of the hedging instrument attributable to hedge effectiveness remains in AOCI until the net investment is sold or 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. Previous gains or losses incurred under the forward method related to net investment hedges will remain in AOCI within the foreign currency translation adjustments component and will be reclassified to earnings when the net investment is sold or liquidated. As required by this guidance, we have also added certain disclosures about hedging activities and their effect on our consolidated financial statements.
The FASB issued guidance, Leases, which requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. This guidance is required to be adopted by us inusing 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 current period consolidated financial statements. The initialstatements in the period of adoption without restating prior periods. We have elected to apply the new guidance at the date of this guidance is expectedadoption without restating prior periods.
We have implemented changes to increase both our total assetsinternal controls to address the collection, recording, and total liabilities, reflecting the lease rights and obligations arising from our lease arrangements, and will require additional disclosures. We are evaluating certain contractual arrangements to determine if they contain an implicit right to use an asset that would qualify as a leasing arrangement underaccounting for leases in accordance with the new guidance. Upon adoption of the new guidance, the most significant impact was the recognition of $1.4 billion of right-of-use assets and lease liabilities relating to operating leases, reported within operating lease right-of-use assets and long-term operating lease liabilities, with the current portion of the liability reported within current portion of operating lease liabilities, in our Consolidated Balance Sheet as of December 1, 2019. There was no cumulative effect of applying the new standard and accordingly there was no adjustment to our retained earnings upon adoption. This guidance had an immaterial impact on our Consolidated Statements of Income (Loss), Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Cash Flows and the compliance with debt-covenants under our current agreements.
The FASB issued amended guidance,Intangibles - Goodwill and Other - Internal-Use Software, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. The expense related to deferred implementation costs is required to be presented in the same net income statement(loss) line item as the related hosting fees. Additionally, the payments for deferred implementation costs are required to be presented in the same line item in the statementConsolidated Statements of cash flowsCash Flows as payments for the related hosting fees. This guidance is required to be adopted by us in the first quarter of 2021 and must be applied using either a prospective or a retrospective approach. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
The FASB issued amended guidance, Financial Instruments - Credit Losses, which requires an entity to present the net amount expected to be collected for certain financial assets, including trade receivables. On initial recognition and at each reporting period, this guidance will require an entity to recognize an allowance that reflects the entity's current estimate of credit losses expected to be incurred over the life of the financial instrument. This guidance is required to be adopted by us in the first quarter of 2021 and will be applied prospectively with a cumulative-effect adjustment to retained earnings. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
NOTE 2 – 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 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 passengerPassenger ticket revenues include fees, taxes and charges collected by us from our guests. A portion of these fees, taxes and charges vary with guest head counts and are directly imposed on a revenue-producing arrangement. This portion of the fees,
taxes and charges is expensed in commissions, transportation and other costs when the corresponding revenues are recognized. For the three and nine months ended August 31, theFebruary 29/28, fees, taxes and charges included in passenger ticket revenues and commissions, transportation and other costs were $186$174 million in 2020 and $163 million and $503 million in 2019 and $174 million and $465 million in 2018.2019. The remaining portion of fees, taxes and charges are also included in cruise passenger ticket revenues and 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 or expenses are incurred.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 and $4.7 billion as of August 31, 2019February 29, 2020 and December 1, 2018.November 30, 2019. During the ninethree months ended August 31,February 28/29, 2020 and 2019, we recognized revenues of $4.1$3.0 billion related to our customer deposits as of November 30, 2019 and December 1, 2018. Our customer deposits balance changes due to the seasonal nature of cash collections, the recognition of revenue, refund of customer deposits and foreign currency translation.
Contract Receivables
Although we generally require full payment from our customers prior to or concurrently with their cruise, we grant credit terms to a relatively small portion of our revenue source. We also have receivables from credit card merchants for cruise ticket purchases and onboard revenue. These receivables are included within trade and other receivables, net.
Contract Assets
Contract assets are amounts paid prior to the start of a voyage, which we record as an asset within prepaid expenses and otherand which are subsequently recognized as commissions, transportation and other at the time of revenue recognition. We have contract assets of $147$134 million and $151$154 million as of August 31, 2019February 29, 2020 and December 1, 2018.2019.
NOTE 3 – Unsecured Debt
At August 31, 2019,February 29, 2020, our short-term borrowings consisted of euro-denominated commercial paper of $238 million.$1.0 billion. For the ninethree months ended August 31,February 29/28, 2020 and 2019, there were 0 borrowings or repayments of commercial paper with original maturities greater than three months. For the nine months ended August 31, 2018, we had borrowings of $2 million and repayments of $2 million of commercial paper with original maturities greater than three months.
In December 2018,2019, we borrowed $852$823 million under an export credit facility due in semi-annual installments through 2031.fiscal year 2032.
In February 2019,2020, we borrowed $587extended a $452 million under a euro-denominated export credit facility due in semi-annual installments through 2031. We also entered into an $899 million export credit facility, which may be drawn in euro or U.S. dollars in 2023 and will be due in semi-annual installments through 2035. The interest rate on this export credit facility can be fixed or floating, at our discretion.
In March 2019, we borrowed $283 million under 2 euro-denominatedsterling-denominated floating rate bank loans dueloan, originally maturing in 2023.2022, to 2025 with an option to extend to 2026.
In August 2019, we amended and restated our existing multi-currency revolving credit facility which was scheduledRefer to expire in 2021. The amended and restated five-year multi-currency revolving credit facilityNote 11 - "Subsequent Events" for a discussion of $3.0 billion (comprisedevents that occurred subsequent to February 29, 2020.
NOTE 4 – Contingencies
Litigation
On May 2, 2019, 2 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. The complaint filed by Havana Docks Corporation alleges it holds an interest in the Havana Cruise Port Terminal and the complaint filed by Javier Garcia-Bengochea alleges that he holds an interest in the Port of Santiago, Cuba, both of which were expropriated by the Cuban Government. The complaints further allege that Carnival Cruise Line “trafficked” in those properties by embarking and disembarking passengers at these facilities. The plaintiffs seek all available statutory remedies, including the value of the expropriated property, plus interest, treble damages, attorneys’ fees and costs. The court denied our motion to dismiss the complaintscomplaint filed by Javier Garcia-Bengochea, on August 26, 2019. While on August 28, 2019, the court denied our motion to dismiss the complaint filed by Havana Docks Corporation, later on January 6, 2020, it dismissed virtually identical cases brought by Havana Docks Corporation against other cruise lines, on the grounds raised in our motion to dismiss. In doing so, the court explicitly reversed its position on the issue and Javier Garcia-Bengochea,acknowledged the conflict with our case. Therefore, on August 28, 2019 and August 26, 2019, respectively.January 6, 2020, we asked the court to formally dismiss the Havana Docks Corporation complaint.
We believe we have meritorious defenses to the claims and we intend to vigorously defend against them. We do not believe that it is likely that the outcome of these matters will be material, but litigation is inherently unpredictable and there can be no assurances that the final outcome of the case might not be material to our operating results or financial condition.
Additionally, in the normal course of our business, various claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits, or any settlement of claims and lawsuits, are covered by insurance and the maximum amount of our liability, net of any insurance recoverables, is typically limited to our self-insurance retention levels. We believe the ultimate outcome of these claims, lawsuits and settlements, as applicable, each and in the aggregate, will not have a material impact on our consolidated financial statements.
Contingent Obligations – Indemnifications
Some of the debt contracts we enter into include indemnification provisions obligating us to make payments to the counterparty if certain events occur. These contingencies generally relate to changes in taxes or changes in laws which increase our lender’s costs. There are no stated or notional amounts included in the indemnification clauses, and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses.
NOTE 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 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.
|
•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, 2019 | | November 30, 2018 | | February 29, 2020 | | | November 30, 2019 | |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | | Carrying Value | | Fair Value | |
(in millions) | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | (in millions) | | | Level 1 | | Level 2 | | Level 3 | | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | |
| | | | | | | |
| Assets | | | | | | | | | | | | | | | |
Long-term other assets (a) | $ | 186 |
| | $ | — |
| | $ | 31 |
| | $ | 154 |
| | $ | 127 |
| | $ | — |
| | $ | 30 |
| | $ | 95 |
| Long-term other assets (a) | $ | 177 | | | $ | — | | | $ | 30 | | | $ | 145 | | | $ | 181 | | | $ | — | | | $ | 31 | | | $ | 149 | |
Total | $ | 186 |
| | $ | — |
| | $ | 31 |
| | $ | 154 |
| | $ | 127 |
| | $ | — |
| | $ | 30 |
| | $ | 95 |
| Total | $ | 177 | | | $ | — | | | $ | 30 | | | $ | 145 | | | $ | 181 | | | $ | — | | | $ | 31 | | | $ | 149 | |
Liabilities | | | | | | |
| | | | | | | |
| Liabilities | | | | | | | | | | | | | | | |
Fixed rate debt (b) | $ | 6,560 |
| | $ | — |
| | $ | 6,947 |
| | $ | — |
| | $ | 5,699 |
| | $ | — |
| | $ | 5,799 |
| | $ | — |
| Fixed rate debt (b) | $ | 7,351 | | | $ | — | | | $ | 7,548 | | | $ | — | | | $ | 7,438 | | | $ | — | | | $ | 7,782 | | | $ | — | |
Floating rate debt (b) | 4,278 |
| | — |
| | 4,338 |
| | — |
| | 4,695 |
| | — |
| | 4,727 |
| | — |
| Floating rate debt (b) | 5,740 | | | — | | | 5,656 | | | — | | | 4,195 | | | — | | | 4,248 | | | — | |
Total | $ | 10,839 |
| | $ | — |
| | $ | 11,285 |
| | $ | — |
| | $ | 10,394 |
| | $ | — |
| | $ | 10,526 |
| | $ | — |
| Total | $ | 13,091 | | | $ | — | | | $ | 13,204 | | | $ | — | | | $ | 11,634 | | | $ | — | | | $ | 12,030 | | | $ | — | |
| |
(a) | Long-term other assets are comprised of notes receivables, which include loans on ship sales. The fair values of our Level 2 notes receivable were based on estimated future cash flows discounted at appropriate market interest rates. The fair values of our Level 3 notes receivable were estimated using risk-adjusted discount rates. |
| |
(b) | The debt amounts above do not include the impact of interest rate swaps or debt issuance costs. The fair values of our publicly-traded notes were based on their unadjusted quoted market prices in markets that are not sufficiently active to be Level 1 and, accordingly, are considered Level 2. The fair values of our other debt were estimated based on current market interest rates being applied to this debt. |
(a)Long-term other assets are comprised of notes receivables, which include loans on ship sales. The fair values of our Level 2 notes receivables were based on estimated future cash flows discounted at appropriate market interest rates. The fair values of our Level 3 notes receivable were estimated using risk-adjusted discount rates.
(b)The debt amounts above do not include the impact of interest rate swaps or debt issuance costs. The fair values of our publicly-traded notes were based on their unadjusted quoted market prices in markets that are not sufficiently active to be Level 1 and, accordingly, are considered Level 2. The fair values of our other debt were estimated based on current market interest rates being applied to this debt.
Financial Instruments that are Measured at Fair Value on a Recurring Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| February 29, 2020 | | | | | | November 30, 2019 | | | | |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | | |
Cash and cash equivalents | $ | 1,354 | | | $ | — | | | $ | — | | | $ | 518 | | | $ | — | | | $ | — | |
Restricted cash | 15 | | | — | | | — | | | 13 | | | — | | | — | |
| | | | | | | | | | | |
Derivative financial instruments | — | | | 102 | | | — | | | — | | | 58 | | | — | |
Total | $ | 1,368 | | | $ | 102 | | | $ | — | | | $ | 530 | | | $ | 58 | | | $ | — | |
Liabilities | | | | | | | | | | | |
Derivative financial instruments | $ | — | | | $ | 17 | | | $ | — | | | $ | — | | | $ | 25 | | | $ | — | |
Total | $ | — | | | $ | 17 | | | $ | — | | | $ | — | | | $ | 25 | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| August 31, 2019 | | November 30, 2018 |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | | |
Cash and cash equivalents | $ | 1,153 |
| | $ | — |
| | $ | — |
| | $ | 982 |
| | $ | ��� |
| | $ | — |
|
Restricted cash | 16 |
| | — |
| | — |
| | 14 |
| | — |
| | — |
|
Derivative financial instruments | — |
| | 37 |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 1,170 |
| | $ | 37 |
| | $ | — |
| | $ | 996 |
| | $ | — |
| | $ | — |
|
Liabilities | | | | | | | | | | | |
Derivative financial instruments | $ | — |
| | $ | 25 |
| | $ | — |
| | $ | — |
| | $ | 29 |
| | $ | — |
|
Total | $ | — |
| | $ | 25 |
| | $ | — |
| | $ | — |
| | $ | 29 |
| | $ | — |
|
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
Valuation of Goodwill and Trademarks
|
| | | | | | | | | | | |
| Goodwill |
(in millions) | NAA (a) Segment | | EA (b) Segment | | Total |
At November 30, 2018 | $ | 1,898 |
| | $ | 1,027 |
| | $ | 2,925 |
|
Foreign currency translation adjustment | — |
| | (39 | ) | | (39 | ) |
At August 31, 2019 | $ | 1,898 |
| | $ | 988 |
| | $ | 2,886 |
|
(a)As a result of the effect of COVID-19 on our expected future operating cash flows, we performed discounted cash flow analyses and determined that the estimated fair values of a North America & Australia (“NAA”)(b) segment reporting unit, and a Europe & Asia (“EA”) segment reporting unit, no longer exceeded their carrying values. We recognized goodwill impairment charges of $731 million for these reporting units during the first quarter of 2020.
|
| | | | | | | | | | | |
| Trademarks |
(in millions) | NAA Segment | | EA Segment | | Total |
At November 30, 2018 | $ | 927 |
| | $ | 242 |
| | $ | 1,169 |
|
Foreign currency translation adjustment | — |
| | (10 | ) | | (10 | ) |
At August 31, 2019 | $ | 927 |
| | $ | 232 |
| | $ | 1,159 |
|
The determination of our reporting unitunits' goodwill and trademark fair values includes numerous assumptions that are subject to various risks and uncertainties. The principal assumptions, all of which are considered Level 3 inputs, used in our cash flow analyses consisted of:
•Changes in market conditions, port restrictions or strategy, including decision about the allocation of new ships amongst brands and the transfer of ships between brands
•Forecasted future operating results, including net revenue yields and fuel expenses
•Weighted-average cost of capital of market participants, adjusted for the risk attributable to the geographic regions in
which these cruise brands operate
We believe that we have made reasonable estimates and judgments. A change in the conditions, circumstances or strategy including(including decisions about the allocation of new ships amongst brands and the transfer of ships between brands (influencingbrands), which influence determinations of fair values in the future),value, may result in a need to recognize an additional impairment charge. Refer to Note 11 - "Subsequent Events" for a discussion of events that occurred subsequent to February 29, 2020.
| | | | | | | | | | | | | | | | | |
| Goodwill | | | | |
(in millions) | NAA Segment | | EA Segment | | Total |
At November 30, 2019 | $ | 1,898 | | | $ | 1,014 | | | $ | 2,912 | |
Impairment charges | (300) | | | (431) | | | (731) | |
Foreign currency translation adjustment | — | | | (5) | | | (5) | |
At February 29, 2020 | $ | 1,598 | | | $ | 578 | | | $ | 2,176 | |
| | | | | | | | | | | | | | | | | |
| Trademarks | | | | |
(in millions) | NAA Segment | | EA Segment | | Total |
At November 30, 2019 | $ | 927 | | | $ | 240 | | | $ | 1,167 | |
Foreign currency translation adjustment | — | | | — | | | — | |
At February 29, 2020 | $ | 927 | | | $ | 240 | | | $ | 1,167 | |
Impairment of Ships
We review our long-lived assets for impairment whenever events or circumstances indicate potential impairment. As a result of the effect of COVID-19 on our expected future operating cash flows, we determined certain impairment triggers had occurred. Accordingly, we performed undiscounted cash flow analyses on certain ships as of February 29, 2020. Based on these undiscounted cash flow analyses, we determined that certain ships had net carrying values that exceeded their estimated undiscounted future cash flows. We estimated the February 29, 2020 fair values of these ships based on their discounted cash flows. We then compared these estimated fair values to the net carrying values and, as a result, we recognized $172 million and $158 million of ship impairment charges in the NAA and EA segments, respectively, included in other operating expenses of our Consolidated Statements of Income (Loss) for the first quarter of 2020.
The principal assumptions used in our analyses consisted of changes in strategy (including decisions about the sale of ships, estimated sale proceeds and timing, as well as the transfer of ships between brands), forecasted future operating results, including net revenue yields and fuel expenses. All principal assumptions are considered Level 3 inputs.
Derivative Instruments and Hedging Activities
| |
| (in millions) | Balance Sheet Location | | August 31, 2019 | | November 30, 2018 | (in millions) | Balance Sheet Location | | February 29, 2020 | | November 30, 2019 |
Derivative assets | | | | | Derivative assets | | | | | |
Derivatives designated as hedging instruments | | | | | Derivatives designated as hedging instruments | |
Cross currency swaps (a) | Prepaid expenses and other | | $ | 20 |
| | $ | — |
| Cross currency swaps (a) | Prepaid expenses and other | | $ | 39 | | | $ | 32 | |
| Other assets | | 18 |
| | — |
| | Other assets | | 49 | | | 25 | |
Foreign currency forwards (b) | | Foreign currency forwards (b) | Prepaid expenses and other | | 14 | | | — | |
Total derivative assets | | $ | 37 |
| | $ | — |
| Total derivative assets | | $ | 102 | | | $ | 58 | |
Derivative liabilities | | | | | Derivative liabilities | | | | |
Derivatives designated as hedging instruments | | | | | Derivatives designated as hedging instruments | |
| Cross currency swaps (a) | Accrued liabilities and other | | $ | — |
| | $ | 5 |
| Cross currency swaps (a) | Accrued liabilities and other | | $ | — | | | $ | 1 | |
| | | Other long-term liabilities | | — | | | 9 | |
Foreign currency zero cost collars (b) | Accrued liabilities and other | | 5 |
| | — |
| Foreign currency zero cost collars (b) | Accrued liabilities and other | | 2 | | | 1 | |
Interest rate swaps (c) | Accrued liabilities and other | | 7 |
| | 8 |
| Interest rate swaps (c) | Accrued liabilities and other | | 6 | | | 6 | |
| Other long-term liabilities | | 12 |
| | 11 |
| | Other long-term liabilities | | 9 | | | 9 | |
| | 25 |
| | 23 |
| |
Derivatives not designated as hedging instruments | | | | | |
Fuel | Accrued liabilities and other | | — |
| | 6 |
| |
Total derivative liabilities | | $ | 25 |
| | $ | 29 |
| Total derivative liabilities | | $ | 17 | | | $ | 25 | |
| |
(a) | At August 31, 2019 and November 30, 2018, we had cross currency swaps totaling $943 million and $156 million, respectively, that are designated as hedges of our net investment in foreign operations with a euro-denominated functional currency. At August 31, 2019, these cross currency swaps settle through December 2030. |
| |
(b) | At August 31, 2019, we had foreign currency derivatives consisting of foreign currency zero cost collars that are designated as foreign currency cash flow hedges for a portion of our euro-denominated shipbuilding payments. See “Newbuild Currency Risks” below for additional information regarding these derivatives. |
| |
(c) | We have interest rate swaps designated as cash flow hedges whereby we receive floating interest rate payments in exchange for making fixed interest rate payments. These interest rate swap agreements effectively changed $326 million at August 31, 2019 and $385 million at November 30, 2018 of EURIBOR-based floating rate euro debt to fixed rate euro debt. At August 31, 2019, these interest rate swaps settle through March 2025. |
(a)At February 29, 2020 and November 30, 2019, we had cross currency swaps totaling $1.9 billion, respectively, that are designated as hedges of our net investment in foreign operations with a euro-denominated functional currency. At February 29, 2020, these cross currency swaps settle through 2031.
(b)At February 29, 2020, we had foreign currency derivatives consisting of foreign currency zero cost collars and foreign currency forwards that are designated as foreign currency cash flow hedges for a portion of our euro-denominated shipbuilding payments. See “Newbuild Currency Risks” below for additional information regarding these derivatives.
(c)We have interest rate swaps designated as cash flow hedges whereby we receive floating interest rate payments in exchange for making fixed interest rate payments. These interest rate swap agreements effectively changed $288 million at February 29, 2020 and $300 million at November 30, 2019 of EURIBOR-based floating rate euro debt to fixed rate euro debt. At February 29, 2020, these interest rate swaps settle through 2025.
Our derivative contracts include rights of offset with our counterparties. We have elected to net certain of our derivative assets and liabilities within counterparties.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | February 29, 2020 | | | | | | | | |
(in millions) | | Gross Amounts | | Gross Amounts Offset in the Balance Sheet | | Total Net Amounts Presented in the Balance Sheet | | | Gross Amounts not Offset in the Balance Sheet | | Net Amounts | |
Assets | | $ | 102 | | | $ | — | | | $ | 102 | | | $ | (5) | | | $ | 97 | |
Liabilities | | $ | 18 | | | $ | — | | | $ | 17 | | | $ | (5) | | | $ | 12 | |
| | | | | | | | | | |
| | November 30, 2019 | | | | | | | | |
(in millions) | | Gross Amounts | | Gross Amounts Offset in the Balance Sheet | | Total Net Amounts Presented in the Balance Sheet | | | Gross Amounts not Offset in the Balance Sheet | | Net Amounts | |
Assets | | $ | 58 | | | $ | — | | | $ | 58 | | | $ | (4) | | | $ | 54 | |
Liabilities | | $ | 25 | | | $ | — | | | $ | 25 | | | $ | (4) | | | $ | 21 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | August 31, 2019 |
(in millions) | | Gross Amounts | | Gross Amounts Offset in the Balance Sheet | | Total Net Amounts Presented in the Balance Sheet | | Gross Amounts not Offset in the Balance Sheet | | Net Amounts |
Assets | | $ | 38 |
| | $ | (1 | ) | | $ | 37 |
| | $ | (1 | ) | | $ | 36 |
|
Liabilities | | $ | 26 |
| | $ | (1 | ) | | $ | 25 |
| | $ | (1 | ) | | $ | 24 |
|
| | | | | | | | | | |
| | November 30, 2018 |
(in millions) | | Gross Amounts | | Gross Amounts Offset in the Balance Sheet | | Total Net Amounts Presented in the Balance Sheet | | Gross Amounts not Offset in the Balance Sheet | | Net Amounts |
Assets | | $ | — |
| | $ | — |
| | $ | — |
| | $ |
|
| | $ | — |
|
Liabilities | | $ | 29 |
| | $ | — |
| | $ | 29 |
| | $ | — |
| | $ | 29 |
|
The effect of our derivatives qualifying and designated as hedging instruments recognized in other comprehensive income (loss) and in net income (loss) was as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended February 29/28, | | | | | | |
(in millions) | 2020 | | 2019 | | | | |
Gains (losses) recognized in AOCI: | | | | | | | |
Cross currency swaps - net investment hedges - included component | $ | (2) | | | $ | 2 | | | | | |
Cross currency swaps - net investment hedges - excluded component | $ | 42 | | | $ | (12) | | | | | |
Foreign currency zero cost collars - cash flow hedges | $ | (1) | | | $ | — | | | | | |
Foreign currency forwards - cash flow hedges | $ | 14 | | | $ | — | | | | | |
Interest rate swaps - cash flow hedges | $ | 1 | | | $ | 1 | | | | | |
Gains (losses) reclassified from AOCI - cash flow hedges: | | | | | | | |
Interest rate swaps - Interest expense, net of capitalized interest | $ | (2) | | | $ | (2) | | | | | |
Gains (losses) recognized on derivative instruments (amount excluded from effectiveness testing – net investment hedges) | | | | | | | |
Cross currency swaps - Interest expense, net of capitalized interest | $ | 10 | | | $ | 4 | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended August 31, | | Nine Months Ended August 31, |
(in millions) | 2019 | | 2018 | | 2019 | | 2018 |
Gains (losses) recognized in AOCI: | | | | | | | |
Cross currency swaps – net investment hedges | $ | 19 |
| | $ | 3 |
| | $ | 38 |
| | $ | 13 |
|
Foreign currency zero cost collars – cash flow hedges | $ | (4 | ) | | $ | (1 | ) | | $ | (5 | ) | | $ | (11 | ) |
Interest rate swaps – cash flow hedges | $ | (1 | ) | | $ | 1 |
| | $ | (1 | ) | | $ | 5 |
|
Gains (losses) reclassified from AOCI – cash flow hedges: | | | | | | | |
Interest rate swaps – Interest expense, net of capitalized interest | $ | (2 | ) | | $ | (2 | ) | | $ | (6 | ) | | $ | (8 | ) |
Foreign currency zero cost collars – Depreciation and amortization | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
|
Gains (losses) recognized on derivative instruments (amount excluded from effectiveness testing – net investment hedges) | | | | | | | |
Cross currency swaps – Interest expense, net of capitalized interest | $ | 6 |
| | $ | — |
| | $ | 16 |
| | $ | — |
|
The amount of estimated cash flow hedges’ unrealized gains and losses that are expected to be reclassified to earnings in the next twelve months is not significant.
Refer to Note 11 - "Subsequent Events" for a discussion of derivative transactions that occurred subsequent to February 29, 2020.
Financial Risks
Fuel Price Risks
We manage our exposure to fuel price risk by managing our consumption of fuel. Substantially all of our exposure to market risk for changes in fuel prices relates to the consumption of fuel on our ships. We manage fuel consumption through ship maintenance practices, modifying our itineraries and implementing innovative technologies. We are also adding new, more fuel efficient ships to our fleet and are strategically disposing of smaller, less fuel efficient ships.
Foreign Currency Exchange Rate Risks
Overall Strategy
We manage our exposure to fluctuations in foreign currency exchange rates through our normal operating and financing activities, including netting certain exposures to take advantage of any natural offsets and, when considered appropriate, through the use of derivative and non-derivative financial instruments. Our primary focus is to monitor our exposure to, and manage, the economic foreign currency exchange risks faced by our operations and realized if we exchange one currency for another. We currently only hedge certain of our ship commitments and net investments in foreign operations. The financial impacts of the hedging instruments we do employ generally offset the changes in the underlying exposures being hedged.
Operational Currency Risks
Our operations primarily utilize the U.S. dollar, Australian dollar, euro or sterling as their functional currencies. Our operations also have revenue and expenses denominated in non-functional currencies. Movements in foreign currency exchange rates will affect our financial statements.
Investment Currency Risks
We consider our investments in foreign operations to be denominated in stable currencies. Our investments in foreign operationscurrencies and are of a long-term nature. At August 31, 2019,We partially mitigate the currency exposure of our investments in foreign operations by designating a portion of our foreign currency debt and derivatives as hedges of these investments. As of February 29, 2020, we had $6.6 billion and $806have designated $852 million of euro- andour sterling-denominated debt respectively, as non-derivative hedges of our net investments in foreign operations and for the three months ended February 29, 2020, we recognized $2 million of gains on these non-derivative net investment hedges in the cumulative translation adjustment section of other comprehensive income (loss). We also have $8.2 billion of euro-denominated debt,
including the effect of cross currency swaps, which provideprovides an economic offset for our operations with euro and sterling functional currency. We also partially mitigate our net investment currency exposures by denominating a portion of our foreign currency intercompany payables in our foreign operations’ functional currencies.
Newbuild Currency Risks
Our shipbuilding contracts are typically denominated in euros. Our decision to hedge a non-functional currency ship commitment for our cruise brands is made on a case-by-case basis, considering the amount and duration of the exposure, market volatility, economic trends, our overall expected net cash flows by currency and other offsetting risks. We use foreign currency derivative contracts to manage foreign currency exchange rate risk for some of our ship construction payments. At August 31, 2019,February 29, 2020, for the following newbuilds, we had foreign currency zero cost collarscontracts for a portion of our euro-denominated shipyard payments. These collarscontracts are designated as cash flow hedges.
|
| | | | | | | | | | | |
| Entered Into | | Matures in | | Weighted-Average Floor Rate | | Weighted- Average Ceiling Rate |
Carnival Panorama | 2019 | | October 2019 | | $ | 1.05 |
| | $ | 1.28 |
|
Enchanted Princess | 2019 | | June 2020 | | $ | 1.04 |
| | $ | 1.28 |
|
Mardi Gras | 2019 | | August 2020 | | $ | 1.04 |
| | $ | 1.28 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entered Into | | Matures In | | Weighted-Average Floor Rate | | Weighted- Average Ceiling Rate | | Weighted-Average Forward Rate |
Foreign currency zero cost collars | | | | | | | | | |
Enchanted Princess | 2019 | | June 2020 | | $ | 1.04 | | | $ | 1.28 | | | |
Mardi Gras | 2019 | | October 2020 | | $ | 1.05 | | | $ | 1.28 | | | |
Foreign currency forwards | | | | | | | | | |
Iona | 2020 | | May 2020 | | | | | | £ | 0.85 | |
If the spot rate is between the ceiling and floor rates on the date of maturity, then we would not owe or receive any payments under thesethe zero cost collars.
At August 31, 2019,February 29, 2020, our remaining newbuild currency exchange rate risk primarily relates to euro-denominated newbuild contract payments to non-euro functional currency brands, which represent a total unhedged commitment of $7.5$6.4 billion for newbuilds scheduled to be delivered from 2020 through 2025.
The cost of shipbuilding orders that we may place in the future that is denominated in a different currency than our cruise brands’ will be affected by foreign currency exchange rate fluctuations. These foreign currency exchange rate fluctuations may affect our decision to order new cruise ships.
Interest Rate Risks
We manage our exposure to fluctuations in interest rates through our debt portfolio management and investment strategies. We evaluate our debt portfolio to determine whether to make periodic adjustments to the mix of fixed and floating rate debt through the use of interest rate swaps, issuance of new debt, amendment of existing debt or early retirement of existing debt.
Concentrations of Credit Risk
As part of our ongoing control procedures, we monitor concentrations of credit risk associated with financial and other institutions with which we conduct significant business. We seek to minimize these credit risk exposures, including counterparty nonperformance primarily associated with our cash equivalents, investments, notes receivables, committed financing facilities, contingent obligations, derivative instruments, insurance contracts, long-term ship charters and new ship progress payment guarantees, by:
•Conducting business with well-established financial institutions, insurance companies and export credit agencies
| |
•Diversifying our counterparties • | Conducting business with large, well-established financial institutions, insurance companies and export credit agencies
|
| |
• | Diversifying our counterparties
|
Having guidelines regarding credit ratings and investment maturities that we follow to help safeguard liquidity and minimize risk
| |
• | Generally requiring collateral and/or guarantees to support notes receivable on significant asset sales, long-term ship charters and new ship progress payments to shipyards
|
We believe the risk of nonperformance by any of our•Generally requiring collateral and/or guarantees to support notes receivable on significant counterparties is remote. asset sales, long-term ship charters and new ship progress payments to shipyards
At August 31, 2019,February 29, 2020, our exposures under foreign currency contracts, cross currency swaps and interest rate swap agreementsderivative instruments were not material. We also monitor the creditworthiness of travel agencies and tour operators in Asia, Australia and Europe, which includes charter-hire agreements in Asia and credit and debit card providers to which we extend credit in the normal course of our business. Our credit exposure also includes contingent obligations related to cash payments received directly by travel agents and tour operators for cash collected by them on cruise sales in Australia and most of Europe where we are obligated to honor our guests’ cruise payments made by them to
their travel agents and tour operators regardless of whether we have received these payments. Concentrations of credit risk associated with trade receivables and other receivables, charter-hire agreements and contingent obligations are not considered to be material, principally due to the large number of unrelated accounts, the nature of these contingent obligations and their short maturities. We have not historically experienced significant credit losses on our trade receivables, notes receivables, charter-hire agreements and contingent obligations. Because of the impact the COVID-19 outbreak is having on economies, we could experience an increase in future credit losses. We dohave not normally requirerequired collateral or other security to support normal credit sales.
NOTE 6 – Leases
Substantially all of our leases for which we are the lessee are operating leases of port facilities and real estate and are included within operating lease right-of-use assets, long-term operating lease liabilities and current portion of operating lease liabilities in our Consolidated Balance Sheet as of February 29, 2020.
We have port facilities and real estate lease agreements with lease and non-lease components, and in such cases, we account for the components as a single lease component.
We do not recognize lease assets and lease liabilities for any leases with an original term of less than one year. For some of our port facilities and real estate lease agreements, we have the option to extend our current lease term by 1 to 10 years. Generally, we do not include renewal options as a component of our present value calculation as we are not reasonably certain that we will exercise the options.
As most of our leases do not have a readily determinable implicit rate, we estimate the incremental borrowing rate ("IBR") to determine the present value of lease payments. We apply judgment in estimating the IBR including considering the term of the lease, the currency in which the lease is denominated, and the impact of collateral and our credit risk on the rate. For leases that were in place upon adoption, we used the remaining lease term as of December 1, 2019 in determining the IBR. For the initial measurement of the lease liabilities for leases commencing after December 1, 2019, the IBR at the lease commencement date was applied.
We amortize our lease assets on a straight-line basis over the lease term. During the quarter ended February 29, 2020, we recognized $17 million of operating lease costs, including lease amortization and imputed interest, related to all of our leases other than the port facilities, as operating lease expense. Variable and short-term lease costs related to operating leases, other than the port facilities, were not material to our consolidated financial statements.
We have multi-year preferential berthing agreements which are operating leases. During the quarter ended February 29, 2020, we had $30 million of lease asset amortization expense and imputed interest expense and $31 million of variable port costs, which vary based on the number of passengers, recorded within commission, transportation and other in our Consolidated Statements of Income (Loss).
We have multiple agreements, with a total undiscounted minimum commitment of approximately $454 million, that have been executed but the lease term has not commenced as of February 29, 2020. These are substantially all related to our rights to use certain port facilities. The leases are expected to commence between 2020 and 2022.
During the quarter ended February 29, 2020, we obtained $107 million of right-of-use assets in exchange for new operating lease liabilities.
Weighted average of the remaining lease terms and weighted average discount rates are as follows:
| | | | | | | | |
| | February 29, 2020 |
Weighted average remaining lease term - operating leases (in years) | | 13 |
Weighted average discount rate - operating leases | | 3.1 | % |
As of February 29, 2020, maturities of lease liabilities were as follows:
| | | | | | | | |
(in millions) Year | | Total Operating Leases |
Remainder of 2020 | | $ | 158 | |
2021 | | 188 | |
2022 | | 156 | |
2023 | | 148 | |
2024 | | 142 | |
Thereafter | | 1,039 | |
Total lease payments | | 1,832 | |
Less: Present value discount | | (352) | |
Present value of lease liabilities | | $ | 1,480 | |
Under ASC 840, Leases, future minimum lease payments under non-cancelable operating leases of port facilities and other assets as of November 30, 2019 were as follows:
| | | | | | | | |
(in millions) Year | | Total Operating Leases |
2020 | | $ | 219 | |
2021 | | 196 | |
2022 | | 161 | |
2023 | | 173 | |
2024 | | 167 | |
Thereafter | | 1,408 | |
| | $ | 2,324 | |
For time charter arrangements where we are the lessor and for transactions with cruise guests related to the use of cabins, we do not separate lease and non-lease components. As the non-lease components are the predominant components in the agreements, we account for these transactions under the Revenue Recognition guidance.
We have sales-type leases of ships for which we are the lessor. As of February 29, 2020, the net investment related to these leases was $127 million.
NOTE 67 – Segment Information
Our operating segments are reported on the same basis as the internally reported information that is provided to our chief operating decision maker (“CODM”), who is the President and Chief Executive Officer of Carnival Corporation and Carnival plc. The CODM assesses performance and makes decisions to allocate resources for Carnival Corporation & plc based upon review of the results across all of our segments. Our 4 reportable segments are comprised of (1) NAA cruise operations, (2) EA cruise operations, (3) Cruise Support and (4) Tour and Other.
The operating segments within each of our NAA and EA reportable segments have been aggregated based on the similarity of their economic and other characteristics, including geographic guest sourcing. Our Cruise Support segment includes our portfolio of leading port destinations and other services, all of which are operated for the benefit of our cruise brands. Our Tour and Other segment represents the hotel and transportation operations of Holland America Princess Alaska Tours and other operations.
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| Three Months Ended August 31, |
(in millions) | Revenues | | Operating costs and expenses | | Selling and administrative | | Depreciation and amortization | | Operating income (loss) |
2019 | | | | | | | | | |
NAA | $ | 4,256 |
| | $ | 2,327 |
| | $ | 339 |
| | $ | 345 |
| | $ | 1,246 |
|
EA | 2,035 |
| | 1,058 |
| | 150 |
| | 165 |
| | 662 |
|
Cruise Support | 42 |
| | 39 |
| | 65 |
| | 29 |
| | (92 | ) |
Tour and Other | 200 |
| | 109 |
| | 9 |
| | 9 |
| | 74 |
|
| $ | 6,533 |
| | $ | 3,532 |
| | $ | 563 |
| | $ | 548 |
| | $ | 1,890 |
|
2018 | | | | | | | | | |
NAA | $ | 3,805 |
| | $ | 1,981 |
| | $ | 333 |
| | $ | 323 |
| | $ | 1,168 |
|
EA | 1,832 |
| | 891 |
| | 172 |
| | 150 |
| | 621 |
|
Cruise Support | 31 |
| | (4 | ) | | 64 |
| | 28 |
| | (57 | ) |
Tour and Other | 167 |
| | 90 |
| | 4 |
| | 10 |
| | 62 |
|
| $ | 5,836 |
| | $ | 2,958 |
| | $ | 573 |
| | $ | 511 |
| | $ | 1,794 |
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| | | | | | | | | |
| Nine Months Ended August 31, |
(in millions) | Revenues | | Operating costs and expenses | | Selling and administrative | | Depreciation and amortization | | Operating income (loss) |
2019 | | | | | | | | | |
NAA | $ | 10,495 |
| | $ | 6,370 |
| | $ | 1,034 |
| | $ | 1,012 |
| | $ | 2,079 |
|
EA | 5,122 |
| | 3,166 |
| | 540 |
| | 483 |
| | 933 |
|
Cruise Support | 128 |
| | 99 |
| | 217 |
| | 84 |
| | (272 | ) |
Tour and Other | 299 |
| | 198 |
| | 21 |
| | 28 |
| | 52 |
|
| $ | 16,043 |
| | $ | 9,833 |
| | $ | 1,813 |
| | $ | 1,607 |
| | $ | 2,791 |
|
2018 | | | | | | | | | |
NAA | $ | 9,325 |
| | $ | 5,385 |
| | $ | 1,039 |
| | $ | 940 |
| | $ | 1,961 |
|
EA | 4,784 |
| | 2,783 |
| | 551 |
| | 466 |
| | 984 |
|
Cruise Support | 94 |
| | 40 |
| | 183 |
| | 76 |
| | (204 | ) |
Tour and Other | 222 |
| | 140 |
| | 22 |
| | 29 |
| | 31 |
|
| $ | 14,425 |
| | $ | 8,348 |
| | $ | 1,794 |
| | $ | 1,510 |
| | $ | 2,772 |
|
18
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended February 29/28, | | | | | | | | | | | |
(in millions) | Revenues | | Operating costs and expenses | | Selling and administrative | | Depreciation and amortization | | Operating income (loss) | | | |
2020 | | | | | | | | | | | | |
NAA | $ | 3,140 | | | $ | 2,274 | | | $ | 400 | | | $ | 364 | | | $ | (197) | | (a) | | | |
EA | 1,552 | | | 1,317 | | | 207 | | | 166 | | | (569) | | (b) | | | |
Cruise Support | 44 | | | (87) | | | 65 | | | 32 | | | 35 | | | | |
Tour and Other | 52 | | | 19 | | | 7 | | | 8 | | | 18 | | | | |
| $ | 4,789 | | | $ | 3,523 | | | $ | 678 | | | $ | 570 | | | $ | (713) | | | | |
2019 | | | | | | | | | | | | |
NAA | $ | 3,077 | | | $ | 2,010 | | | $ | 353 | | | $ | 328 | | | $ | 386 | | | | |
EA | 1,526 | | | 1,075 | | | 205 | | | 152 | | | 93 | | | | |
Cruise Support | 42 | | | 27 | | | 65 | | | 28 | | | (78) | | | | |
Tour and Other | 29 | | | 29 | | | 6 | | | 9 | | | (15) | | | | |
| $ | 4,673 | | | $ | 3,142 | | | $ | 629 | | | $ | 516 | | | $ | 386 | | | | |
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(a) Includes $300 million of goodwill impairment charges.
(b) Includes $431 million of goodwill impairment charges.
Revenue by geographic areas, which are based on where our guests are sourced, were as follows:
| | | | | | | | | | | |
| Three Months Ended February 29/28 | | |
(in millions) | 2020 | | 2019 |
North America | $ | 2,647 | | | $ | 2,520 | |
Europe | 1,367 | | | 1,399 | |
Australia and Asia | 615 | | | 584 | |
Other | 161 | | | 170 | |
| $ | 4,789 | | | $ | 4,673 | |
|
| | | | | | | |
(in millions) | Three Months Ended August 31, 2019 | | Nine Months Ended August 31, 2019 |
North America | $ | 3,751 |
| | $ | 8,910 |
|
Europe | 1,738 |
| | 4,486 |
|
Australia and Asia | 937 |
| | 2,261 |
|
Other | 107 |
| | 385 |
|
| $ | 6,533 |
| | $ | 16,043 |
|
NOTE 78 – Earnings Per Share
| | | | | | | | | | | | | | | |
| Three Months Ended February 29/28, | | | | | | |
(in millions, except per share data) | 2020 | | 2019 | | | | |
Net income (loss) for basic and diluted earnings per share | $ | (781) | | | $ | 336 | | | | | |
Weighted-average shares outstanding | 684 | | | 693 | | | | | |
Dilutive effect of equity plans | — | | | 2 | | | | | |
Diluted weighted-average shares outstanding | 684 | | | 695 | | | | | |
Basic earnings per share | $ | (1.14) | | | $ | 0.48 | | | | | |
Diluted earnings per share | $ | (1.14) | | | $ | 0.48 | | | | | |
Antidilutive equity awards excluded from diluted earnings per share computations | 1 | | | — | | | | | |
| | | | | | | |
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| | | | | | | | | | | | | | | |
| Three Months Ended August 31, | | Nine Months Ended August 31, |
(in millions, except per share data) | 2019 | | 2018 | | 2019 | | 2018 |
Net income for basic and diluted earnings per share | $ | 1,780 |
| | $ | 1,707 |
| | $ | 2,567 |
| | $ | 2,659 |
|
Weighted-average shares outstanding | 689 |
| | 706 |
| | 691 |
| | 712 |
|
Dilutive effect of equity plans | 2 |
| | 2 |
| | 2 |
| | 2 |
|
Diluted weighted-average shares outstanding | 691 |
| | 707 |
| | 693 |
| | 714 |
|
Basic earnings per share | $ | 2.58 |
| | $ | 2.42 |
| | $ | 3.72 |
| | $ | 3.73 |
|
Diluted earnings per share | $ | 2.58 |
| | $ | 2.41 |
| | $ | 3.71 |
| | $ | 3.72 |
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NOTE 89 – Supplemental Cash Flow Information
| | | | | | | | | | | |
(in millions) | February 29, 2020 | | November 30, 2019 |
Cash and cash equivalents (Consolidated Balance Sheets) | $ | 1,354 | | | $ | 518 | |
Restricted cash included in prepaid expenses and other and other assets | 15 | | | 13 | |
Total cash, cash equivalents and restricted cash (Consolidated Statements of Cash Flows) | $ | 1,368 | | | $ | 530 | |
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| | | | | | | |
(in millions) | August 31, 2019 | | November 30, 2018 |
Cash and cash equivalents (Consolidated Balance Sheets) | $ | 1,153 |
| | $ | 982 |
|
Restricted cash included in prepaid expenses and other and other assets | 16 |
| | 14 |
|
Total cash, cash equivalents and restricted cash (Consolidated Statements of Cash Flows) | $ | 1,170 |
| | $ | 996 |
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For the nine months ended August 31, 2019 and 2018, we issuedWe did not issue notes receivable upon sale of ships of $104 millionduring the three months ended February 29/28, 2020 and $35 million.2019.
NOTE 910 – PropertyOther Assets
We have a minority interest in CSSC Carnival Cruise Shipping Limited (“CSSC-Carnival”), a China-based cruise company which will operate its own fleet designed to serve the Chinese market. Our investment in CSSC-Carnival was $132 million as of February 29, 2020 and Equipment$48 million as of November 30, 2019. In December 2019, we sold to CSSC-Carnival a controlling interest in an entity with full ownership of 2 EA segment ships and recognized a related gain of $107 million, included in other operating expenses in our Consolidated Statements of Income (Loss). We will continue to operate both ships under bareboat charter agreements into 2021.
NOTE 11 – Subsequent Events
The spread of COVID-19 and the recent developments surrounding the global pandemic are having material negative impacts on all aspects of our business. On March 13, 2020, we announced voluntary pauses of our global fleet cruise operations across all brands. The duration of the pauses will be dependent in part on various travel restrictions and travel bans issued by countries around the world.
As of April 1, 2020, substantially all our ships have disembarked their passengers. There are approximately 6,000 passengers onboard ships still at sea that are expected to disembark their passengers by the end of April. Some of our crew is unable to return home, and we will be providing them with food and housing.
We have updated our cancellation policies, the terms of which vary widely by brand and sailing date, to permit cruisers to cancel certain upcoming cruises and elect to receive refunds in cash or future cruise credits. As an incentive to accept the future cruise credits, our brands have offerings which vary widely in terms but generally increase the value of the future cruise credits or onboard credits (credits that can be used as onboard spending money on a future sailing). The volume and pace of cash refunds could have a material adverse effect on our liquidity and capital resources.
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 certainty, but we expect a net loss on both a U.S. GAAP and adjusted basis for the fiscal year ending November 30, 2020.
The effects of further decreases in estimated future operating cash flows could result in the need to recognize additional impairment charges in future periods.
In March 2019, we sold and transferred an NAA segment 1,680-passenger capacity ship.
April 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 downgraded and also placed on review for further downgrade.
In April 2019, we sold and transferred an NAA segment 1,260-passenger capacity ship.
In July 2019,March 2020, we transferred an NAA segment 840-passenger capacity ship.fully drew down our $3.0 billion Existing Multicurrency Facility.
In August 2019,March 2020, we transferredearly settled all outstanding cross currency swaps designated as net investment hedges and received proceeds of $180 million, of which $167 million will remain in AOCI until either the sale or substantially complete liquidation of the related subsidiary. We also early settled our foreign currency forwards that were designated as cash flow hedges and
received proceeds of $53 million which will remain in AOCI until recognized in earnings proportionately to the related depreciation expense of the underlying vessel that was hedged.
On April 1, 2020, we announced the pricing terms of offerings of $4.0 billion of the Secured Notes, $1.75 billion Convertible Notes and a public offering of $500 million of common stock in the Public Equity Offering. In connection with the Convertible Notes offering, we granted the initial purchasers of the Convertible Notes an EA segment 1,880-passenger capacity ship.option to purchase on or before April 18, 2020, up to an additional $262.5 million aggregate principal amount of Convertible Notes. In connection with the Public Equity Offering, we granted the underwriters an option to purchase up to 9,375,000 of additional shares of common stock, which option must be exercised on or before May 1, 2020.
The Secured Notes will pay interest semi-annually on April 1 and October 1 of each year, beginning on October 1, 2020, at a rate of 11.5% per year. The Secured Notes will mature on April 1, 2023. The Convertible Notes will pay interest semi-annually on April 1 and October 1 of each year, beginning on October 1, 2020, at a rate of 5.75% per year. The Convertible Notes will mature on April 1, 2023, unless earlier converted, redeemed or repurchased. The initial conversion rate per $1,000 principal amount of Convertible Notes is equivalent to 100 shares of common stock of the Corporation, which is equivalent to a conversion price of approximately $10 per share, subject to adjustment in certain circumstances.
The Public Equity Offering consists of 62,500,000 shares of common stock, par value $0.01 per share, of Carnival Corporation, at a price of $8 per share.
The Public Equity Offering, the Convertible Notes offering and the Secured Notes offering are expected to be completed in early April, subject to customary closing conditions. The net proceeds from the offering of Secured Notes will be deposited in to a segregated escrow account, pending the releases in accordance with certain collateral perfection thresholds. None of the closings of the Public Equity Offering and the offerings of the Secured Notes or the Convertible Notes is conditioned upon the closing of any of the other offerings or vice versa.
One of our directors purchased 1.25 million shares of our common stock as part of the Public Equity Offering for a purchase price of approximately $10 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Note Concerning Factors That May Affect Future Results
Some of the statements, estimates or projections contained in this document are “forward-looking statements” that involve risks, uncertainties and assumptions with respect to us, including some statements concerning future results, operations, outlooks, plans, goals, reputation, cash flows, liquidity and other events which have not yet occurred. These statements are intended to qualify for the safe harbors from liability provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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:
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| | | | |
•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 occupancyBooking levels | •Goodwill, ship and trademark fair values |
•Pricing and occupancy | •Liquidity |
•Interest, tax and fuel expenses | • LiquidityAdjusted earnings per share |
•Currency exchange rates | • Adjusted earningsImpact of the COVID-19 coronavirus global pandemic on our financial condition and results of operations |
•Net cruise costs, excluding fuel per shareavailable lower berth day | |
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:
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• | Adverse world events impacting the ability or desire of people to travel may lead to a decline in demand for cruises
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• | 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
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• | 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
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• | 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
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• | 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
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• | Increases in fuel prices and availability of fuel supply may adversely impact our scheduled itineraries and costs
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• | Fluctuations in foreign currency exchange rates may adversely impact our financial results
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• | Overcapacity and competition in the cruise and land-based vacation industry may lead to a decline in our cruise sales and pricing
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• | Geographic regions in which we try to expand our business may be slow to develop or ultimately not develop how we expect
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• | Inability to implement our shipbuilding programs and ship repairs, maintenance and refurbishments may adversely impact our business operations and the satisfaction of our guests
|
•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
•As a result of the COVID-19 outbreak, we have paused our global fleet cruise operations, and if we are unable to re-commence normal operations in the near-term, we may be out of compliance with a maintenance covenant in certain of our debt facilities
•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.
Recent Developments
COVID-19
The spread of novel coronavirus (COVID-19) and the recent developments surrounding the global pandemic are having material negative impacts on all aspects of our business. In particular:
•Numerous passengers and crew on Diamond Princess were diagnosed with COVID-19 and the ship was quarantined at a port in Japan. As of the time of disembarkation, a substantial portion of the passengers and crew were diagnosed with COVID-19 and subsequently several passengers died due to the disease.Additionally, numerous passengers and crew on Grand Princess were diagnosed with COVID-19, some of whom subsequently died due to the disease.
•Numerous passengers and crew on other ships, including Zaandam, Costa Luminosa, Ruby Princess, Costa Magica and Costa Favolosa, have been diagnosed with COVID-19. Numerous passengers and crew on Zandaam are currently experiencing flu-like symptoms, and some have died. Costa Magica and Costa Favolosa are currently working with the U.S. Coast Guard to facilitate medical evacuations, and both vessels are anchored near the port of Miami.
•On March 13, 2020, we announced voluntary pauses of our global fleet cruise operations by our continental European and North American brands. Subsequently, we implemented a voluntary pause of our global fleet cruise operations across all brands. Each brand has separately announced the duration of its pause, but we expect such pauses to be extended (and some extensions have already been announced) and any such extensions may be prolonged. The pauses will be dependent in part on various travel restrictions and travel bans issued by various countries around the world.
•As of April 1, 2020:
◦Substantially all our ships have disembarked their passengers. There are approximately 6,000 passengers onboard ships still at sea that are expected to disembark their passengers by the end of April. Some of our crew is unable to return home, and we will be providing them with food and housing.
◦We have updated our cancellation policies, the terms of which vary widely by brand and sailing date, to permit cruisers to cancel certain upcoming cruises and elect to receive refunds in cash or future cruise credits. As an incentive to accept the future cruise credits, our brands have offerings which vary widely in terms but generally increase the value of the future cruise credits or onboard credits (credits that can be used as onboard spending money on a future sailing).The volume and pace of cash refunds could have a material adverse effect on our liquidity and capital resources.
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. In particular:
•For the seven week period beginning January 26, 2020 and ending March 15, 2020, booking volumes for the remainder of 2020 were significantly behind the prior year on a comparable basis as a result of the effects of COVID-19. As of March 15, 2020, cumulative advanced bookings for the remainder of 2020 were meaningfully lower
than the prior year and at prices that are considerably lower than the prior year on a comparable basis. As noted above, all of our global fleet operations are subject to voluntary pauses that we expect to be extended. Due to the unknown length of the pauses, booking volume data for 2020 may not be informative. In addition, because of our updated cancellation policies, booking volumes may not be representative of actual cruise revenues.
•For the first half of 2021, booking volumes since mid-December 2019 through March 1, 2020, were running slightly higher than the prior year. In contrast, for the first half of 2021 and during the two weeks ended March 15, 2020, we booked 546,000 Occupied Lower Berth Days, which was considerably behind the prior year pace. As of March 15, 2020, cumulative advanced bookings for the first half of 2021 were slightly lower than the prior year.
As of February 29, 2020, we had 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 delays in ship deliveries, which we cannot predict and may be prolonged.
In March and April 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 downgraded and also placed on review for further downgrade.
On March 13, 2020, we fully drew down our $3.0 billion Existing Multicurrency Facility. On March 24, 2020, we settled derivatives in a net gain position of approximately $200 million. Consequently, as of the date hereof, our principal source of immediate liquidity includes our available cash and cash equivalents.Given the impact of COVID-19 on bookings, which are meaningfully reduced from the prior year comparative pace, and the pause of our global fleet cruise operations, which we expect to be extended, we are pursuing additional financing, including, but not limited to, the April 1 financing transactions
described in the next paragraph.
On April 1, 2020, we announced the pricing of the private offerings of $4.0 billion first-priority senior secured notes due 2023 (“Secured Notes”) and $1.75 billion senior convertible notes due 2023 ($2.0125 billion if the initial purchasers exercise their option to purchase additional notes) (“Convertible Notes”), and a public offering of $500 million of common stock ($575 million if the underwriters exercise their option to purchase additional shares in full) of Carnival Corporation (“Public Equity Offering”), collectively referred to within this document as the “April 1 financing transactions”. The closings of these offerings are subject to customary conditions and are expected to occur in early April. The net proceeds from the offering of Secured Notes will be deposited in to a segregated escrow account, pending the releases in accordance with certain collateral perfection thresholds.
In addition, we had $2.8 billion from four committed export credit facilities that are available to fund the originally planned ship deliveries for the remainder of 2020 and $5.9 billion from committed export credit facilities that are available to fund ship deliveries originally planned in 2021 and beyond.
To enhance our liquidity, as well as comply with the dividend restrictions contained in the Secured Notes, we have suspended the payment of dividends on, and the repurchase of, the common stock of Carnival Corporation and the ordinary shares of Carnival plc.
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.However, based on our assumptions and estimates with respect to the pause in our global fleet cruise operations and our financial condition, we believe that the liquidity described in the preceding paragraphs will be sufficient to fund our liquidity requirements over at least the next twelve months. We estimate our liquidity requirements, which include our ongoing ship and administrative operating costs, cash refunds of customer deposits, debt maturities and interest, expected capital improvements, and new ship growth capital not addressed by committed export credit facilities, to be approximately, on average, $1.0 billion per month. In particular:
•Ongoing ship and administrative operating costs - During the pause in our global fleet cruise operations, certain of our ships will be in warm ship layup where the ship will be manned by a full crew and certain of our ships will be in a prolonged ship layup where the ship will be manned by a limited crew.We estimate the cost per warm ship layup is approximately $2 million to $3 million per month and the cost per prolonged ship layup is approximately $1 million per month. We will decide whether each vessel in our global fleet will be in a warm ship layup or a prolonged ship layup depending on the circumstances, including the length of pause, which we expect to be extended and may be prolonged. We currently estimate the substantial majority of our fleet will be in prolonged ship layup.In addition, we expect to incur ongoing selling and administrative expenses, and incremental COVID-related costs associated with sanitizing our ships and defending lawsuits, although we anticipate substantially reducing our advertising spend during
the pause in operations. After transitioning to a prolonged pause, we anticipate estimated ongoing ship and administrative operating costs to range from $200 million to $300 million per month.
•Cash refunds of customer deposits - During the pause in our global fleet cruise operations, we expect to be required to pay cash refunds of customer deposits with respect to a portion of our cancelled cruises. The current portion of our customer deposits was $4.7 billion as of February 29, 2020. Depending on the length of the pause and level of guest acceptance of future cruise credits, we may be required to provide cash refunds for a substantial portion of the balance. For the two weeks ended March 15, 2020, and on a weighted average basis based on available lower berth days (“ALBD”), approximately 45% of the guests who have contacted us have accepted future cruise credits in lieu of cash refunds for cancelled voyages. We continue to take future bookings for 2020 and 2021, receiving customer deposits on those bookings.
•Debt maturities and interest - As of February 29, 2020, the current portion of our long-term debt was $2.2 billion. The current portion of our long-term debt as of February 29, 2020 that was maturing on or prior to November 30, 2020 was $1.5 billion. In addition, on March 13, 2020 we fully drew down our $3.0 billion Existing Multicurrency Facility, which amounts are currently due in September 2020 and which we currently expect to repay and redraw, in whole or in part.Our approximately $200 million per year interest expense for the year ended November 30, 2019 will be increased by the additional interest accrued under the $4.0 billion of Secured Notes and $1.75 billion of Convertible Notes.
In addition to pursuing additional financing, we are taking additional actions to improve our liquidity, including capital expenditure and operating expense reductions. In particular, we have identified approximately $1.0 billion of reduction opportunities from our previously disclosed estimated fiscal 2020 capital expenditures (which reduction does not take into account the impact on timing of payments in connection with new ship build as a result of the delays in ship deliveries discussed above).We have also identified various projects and initiatives within our selling and administrative expenses for reduction or elimination, which we expect will result in reduced cash outflows and cost savings. While we cannot guarantee an outcome, we also intend to pursue deferrals of existing debt maturities, including through available government programs.
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 certainty, but we expect a net loss on both a U.S. GAAP and adjusted basis for the fiscal year ending November 30, 2020.
Refer to “Risk Factors” - "COVID-19 has had, and is expected to continue to have, a materially adverse impact on our financial condition and operations, which impacts our ability to obtain acceptable financing to fund any resulting shortfalls 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".
New Accounting Pronouncements
Refer to our consolidated financial statements for further information on New Accounting Pronouncements.
Critical Accounting Estimates
For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that is included in the Form 10-K. A discussion of our impairment charges recognized during the first quarter of 2020 for goodwill and ship impairment is included in the accompanying consolidated financial statements.
Refer to Note 11 - “Subsequent Events” in our consolidated financial statements.
Seasonality
Our revenues from the sale of passenger ticketsticket revenues are seasonal. Historically, demand for cruises has been greatest during our third quarter, which includes the Northern Hemisphere summer months. This higher demand during the third quarter results in higher ticket prices and occupancy levels and, accordingly, the largest share of our operating income is earned during this period. The seasonality of our results also increases due to ships being taken out-of-service for maintenance, which we schedule during non-peak demand periods. In addition, substantially all of Holland America Princess Alaska Tours’ revenue and net income (loss) is generated from May through September in conjunction with the AlaskaAlaska's cruise season.
Statistical Information
|
| | | | | | | | | | | | | | | |
| Three Months Ended August 31, | | Nine Months Ended August 31, |
| 2019 | | 2018 | | 2019 | | 2018 |
Available Lower Berth Days (“ALBDs”) (in thousands) (a) (b) | 22,727 |
| | 21,475 |
| | 65,671 |
| | 62,626 |
|
Occupancy percentage (c) | 113.0 | % | | 112.6 | % | | 107.8 | % | | 107.8 | % |
Passengers carried (in thousands) | 3,752 |
| | 3,562 |
| | 9,790 |
| | 9,393 |
|
Fuel consumption in metric tons (in thousands) | 822 |
| | 818 |
| | 2,487 |
| | 2,458 |
|
Fuel consumption in metric tons per thousand ALBDs | 36.2 |
| | 38.1 |
| | 37.9 |
| | 39.3 |
|
Fuel cost per metric ton consumed | $ | 487 |
| | $ | 531 |
| | $ | 484 |
| | $ | 474 |
|
Currencies (USD to 1) | | | | | | | |
AUD | $ | 0.69 |
| | $ | 0.74 |
| | $ | 0.70 |
| | $ | 0.76 |
|
CAD | $ | 0.76 |
| | $ | 0.76 |
| | $ | 0.75 |
| | $ | 0.78 |
|
EUR | $ | 1.12 |
| | $ | 1.16 |
| | $ | 1.13 |
| | $ | 1.20 |
|
GBP | $ | 1.24 |
| | $ | 1.31 |
| | $ | 1.28 |
| | $ | 1.36 |
|
RMB | $ | 0.14 |
| | $ | 0.15 |
| | $ | 0.15 |
| | $ | 0.15 |
|
| |
(a) | ALBD is a standard measure of passenger capacity for the period that we use to approximate rate and capacity variances, based on consistently applied formulas that we use to perform analyses to determine the main non-capacity driven factors that cause our cruise revenues and expenses to vary. ALBDs assume that each cabin we offer for sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-producing ship operating days in the period.
|
| |
(b) | For the three months ended August 31, 2019 compared to the three months ended August 31,2018, we had a 5.8% capacity increase in ALBDs comprised of a 1.7% capacity increase in our NAA segment and a 13% capacity increase in our EA segment.
|
| | | | | | | | | | | | | | | |
| Three Months Ended February 29/28, | | | | | | |
| 2020 | | 2019 | | | | |
Available Lower Berth Days (“ALBDs”) (in thousands) (a) (b) | 21,977 | | | 21,299 | | | | | |
Occupancy percentage (c) | 104.3 | % | | 104.8 | % | | | | |
Passengers carried (in thousands) | 3,063 | | | 2,937 | | | | | |
| | | | | | | |
Fuel consumption in metric tons (in thousands) | 831 | | | 830 | | | | | |
Fuel consumption in metric tons per thousand ALBDs | 37.8 | | | 38.9 | | | | | |
Fuel cost per metric ton consumed | $ | 477 | | | $ | 459 | | | | | |
Currencies (USD to 1) | | | | | | | |
AUD | $ | 0.68 | | | $ | 0.72 | | | | | |
CAD | $ | 0.76 | | | $ | 0.75 | | | | | |
EUR | $ | 1.10 | | | $ | 1.14 | | | | | |
GBP | $ | 1.31 | | | $ | 1.28 | | | | | |
RMB | $ | 0.14 | | | $ | 0.15 | | | | | |
(a)ALBD is a standard measure of passenger capacity for the period that we use to approximate rate and capacity variances, based on consistently applied formulas that we use to perform analyses to determine the main non-capacity driven factors that cause our cruise revenues and expenses to vary. ALBDs assume that each cabin we offer for sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-producing ship operating days in the period.
(b)For the three months ended February 29, 2020 compared to the three months ended February 28, 2019, we had a 3.2% capacity increase in ALBDs comprised of a 1.4% capacity increase in our NAA segment and a 6.3% capacity increase in our EA segment.
Our NAA segment’s capacity increase was caused by the full period impact from oneimpacts of:
•One Holland America Line 2,670-passenger capacity ship that entered into service in December 2018.2018
•One Princess Cruises 3,660-passenger capacity ship that entered into service in October 2019
•One Carnival Cruise Line 4,010-passenger capacity ship that entered into service in December 2019
The increase in our NAA segment’s capacity was partially offset by:
| |
• | Full period impact from one P&O Cruises (Australia) 1,680-passenger capacity ship removed from service in March 2019
|
| |
• | Full period impact from one P&O Cruises (Australia) 1,260-passenger capacity ship removed from service in April 2019
|
| |
• | Partial period impact from one Holland America Line 835-passenger capacity ship removed from service in July 2019
|
by the impacts of:
•One P&O Cruises (Australia) 1,680-passenger capacity ship removed from service in March 2019
•One P&O Cruises (Australia) 1,260-passenger capacity ship removed from service in April 2019
•One Holland America Line 840-passenger capacity ship removed from service in July 2019
•Five ships out of service related to the ongoing COVID-19 outbreak in February 2020
Our EA segment’s capacity increase was caused by:
| |
• | Full period impact from one AIDA 5,230-passenger capacity ship that entered into service in December 2018
|
| |
• | Full period impact from one Costa Cruises 4,200-passenger capacity ship that entered into service in March 2019
|
by the impacts of:
•One AIDA 5,230-passenger capacity ship that entered into service in December 2018
•One Costa Cruises 4,200-passenger capacity ship that entered into service in March 2019
•One Costa Cruises 5,220-passenger capacity ship that entered into service in December 2019
The increase in our EA segment’s capacity was partially offset by the partial period impact from oneimpacts of:
•One P&O UK 1,880-passenger capacity ship removed from service in August 2019.2019
For the nine months ended August 31, 2019 compared•Six ships out of service related to the nine months ended August 31, 2018, we hadongoing COVID-19 outbreak in February 2020
(c) In accordance with cruise industry practice, occupancy is calculated using a 4.9% capacity increasedenominator of ALBDs, which assumes two passengers per cabin even though some cabins can accommodate three or more passengers. Percentages in ALBDs comprisedexcess of a 2.4% capacity increase in our NAA segment and a 9.2% capacity increase in our EA segment.100% indicate that on average more than two passengers occupied some cabins.
Our NAA segment’s capacity increase was caused by:
| |
• | Partial period impact from one Carnival Cruise Line 3,960-passenger capacity ship that entered into service in April 2018
|
| |
• | Partial period impact from one Seabourn 600-passenger capacity ship that entered into service in May 2018
|
| |
• | Partial period impact from one Holland America Line 2,670-passenger capacity ship that entered into service in December 2018
|
The increase in our NAA segment’s capacity was partially offset by:
| |
• |
Partial period impact from one P&O Cruises (Australia) 1,680-passenger capacity ship removed from service in March 2019Table of Contents |
| |
• | Partial period impact from one P&O Cruises (Australia) 1,260-passenger capacity ship removed from service in April 2019
|
| |
• | Partial period impact from one Holland America Line 835-passenger capacity ship removed from service in July 2019
|
Our EA segment’s capacity increase was caused by:
| |
• | Partial period impact from one AIDA 5,230-passenger capacity ship that entered into service in December 2018
|
| |
• | Partial period impact from one Costa Cruises 4,200-passenger capacity ship that entered into service in March 2019
|
The increase in our EA segment’s capacity was partially offset by:
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• | Partial period impact from one P&O Cruises (UK) 700-passenger capacity ship removed from service in March 2018
|
| |
• | Partial period impact from one Costa Cruises 1,300-passenger capacity ship removed from service in April 2018
|
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• | Partial period impact from one P&O UK 1,880-passenger capacity ship removed from service in August 2019
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(c) | In accordance with cruise industry practice, occupancy is calculated using a denominator of ALBDs, which assumes two passengers per cabin even though some cabins can accommodate three or more passengers. Percentages in excess of 100% indicate that on average more than two passengers occupied some cabins.
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Three Months Ended August 31, 2019February 29, 2020 (“2019”2020”) Compared to Three Months Ended August 31, 2018February 28, 2019 (“2018”2019”)
Revenues
Consolidated
Cruise passengerPassenger ticket revenues made up 69%68% of our 20192020 total revenues. Cruise passengerPassenger ticket revenues increased by $124$35 million, or 2.9%1.1%, to $4.5$3.2 billion in 20192020 from $4.4$3.2 billion in 2018.2019.
This increase was caused by:
•$254102 million - 5.8%3.2% capacity increase in ALBDs, net of $78 million as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
•$32 million - increase in other revenues
•$2715 million - increase in air transportation revenues
| |
• | $13 million -
increase in occupancy
|
These increases were partially offset by:
•$10391 million - decrease in cruise ticket revenues, primarily driven by sourcing in Continental Europe and net unfavorable foreign currency transactional impact partially offset by price improvements in the Caribbean program
•$7224 million - net unfavorable foreign currency translational impact
Onboard and other cruise revenues made up 28%32% of our 20192020 total revenues. Onboard and other cruise revenues increased by $539$82 million, or 41%5.5%, to $1.9$1.6 billion in 20192020 from $1.3$1.5 billion in 2018.2019.
This increase was caused by:
•$44946 million - related to the gross presentation3.2% capacity increase in ALBDs, net of shore excursions and other onboard revenues$41 million as a result of the adoption of new revenue accounting guidancecancelled voyages and other voyage disruptions directly related to COVID-19
•$77 million - 5.8% capacity increase in ALBDs
$2329 million - higher onboard spending by our guests
These increases were partially offset by net unfavorable foreign currency translational impact of $20 million.
Tour and other revenues made up 3.1% of our 2019 total revenues. Tour and other revenues increased by $33 million, or 20%, to $200 million in 2019 from $167 million in 2018.
Concession revenues, which are included in onboard and other revenues, increased by $11 million, or 3.1%, to $361 million in 2019 from $350 million in 2018.
NAA Segment
Cruise passenger ticket revenues made up 68% of our NAA segment’s 2019 total revenues. Cruise passenger ticket revenues increased by $60 million, or 2.1%, to $2.9 billion in 2019 from $2.8 billion in 2018.
This increase was caused by:
•$48 million - 1.7% capacity increase in ALBDs
| |
• | $24 million - increase in air transportation revenues
|
The remaining 32% of our NAA segment’s 2019 total revenues were comprised of onboard and other cruise revenues, which increased by $391 million, or 40%, to $1.4 billion in 2019 from $1.0 billion in 2018.
This increase was caused by:
$357 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance
$16 million - 1.7% capacity increase in ALBDs
$1326 million - increase in other revenuessales of Advanced Air Quality Systems to third parties
$10 million - higher onboard spending by our guests
Concession revenues, which are included in onboard and other revenues, increased by $2 million, or 0.9%0.7%, to $253$257 million in 20192020 from $251$255 million in 2018.2019.
EANAA Segment
Cruise passengerPassenger ticket revenues made up 79%65% of our EANAA segment’s 20192020 total revenues. Cruise passengerPassenger ticket revenues increased by $81$39 million, or 5.3%1.9%, to $1.6$2.1 billion in 2019 compared to $1.52020 from $2.0 billion in 2018.2019.
This increase was caused by:
•$20029 million - 13%1.4% capacity increase in ALBDs, net of $34 million as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
•$2324 million - increase in occupancyother revenues
These increases were partially offset by $14 million decrease in cruise ticket revenues, primarily driven by net unfavorable foreign currency transactional impact
The remaining 35% of our NAA segment’s 2020 total revenues were comprised of onboard and other revenues, which increased by $25 million, or 2.3%, to $1.1 billion in 2020 compared to $1.1 billion in 2019.
This increase was caused by:
•$15 million - 1.4% capacity increase in ALBDs, net of $19 million as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
•$13 million - higher onboard spending by our guests
Concession revenues, which are included in onboard and other revenues, increased by $1 million, or 0.8%, to $183 million in 2020 from $182 million in 2019.
EA Segment
Passenger ticket revenues made up 78% of our EA segment’s 2020 total revenues. Passenger ticket revenues increased by $16 million, or 1.3%, to $1.2 billion in 2020 compared to $1.2 billion in 2019.
This increase was caused by:
•$75 million - 6.3% capacity increase in ALBDs, net of $41 million, as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
•$9 million - increase in air transportation revenues
These increases were partially offset by:
•$7636 million - decrease in cruise ticket revenues, primarily driven by sourcing in Continental Europe
•$6822 million - net unfavorable foreign currency translational impact
•$17 million - decrease in occupancy primarily related to the effects of COVID-19
The remaining 21%22% of our EA segment’s 20192020 total revenues were comprised of onboard and other cruise revenues, which increased by $121$10 million, or 40%3%, to $426$339 million in 20192020 from $305$329 million in 2018.
2019. This increase was caused by:
$85by $21 million, - related to the gross presentationor 6.3% capacity increase in ALBDs, net of shore excursions and other onboard revenues$15 million as a result of the adoption of new revenue accounting guidancecancelled voyages and other voyage disruptions directly related to COVID-19.
$40 million - 13% capacity increase in ALBDs
$10 million - higher onboard spending by our guests
These increases were partially offset by net unfavorable foreign currency translational impact of $18 million.
Concession revenues, which are included in onboard and other revenues, increased by $8 million, or 8.4%, to $108was $73 million in 2019 from $100 million in 2018.2020 and 2019.
Costs and Expenses
Consolidated
Operating costs and expenses increased by $574$381 million, or 19%12%, to $3.5 billion in 20192020 from $3.0$3.1 billion in 2018.2019.
This increase was caused by:
•$449330 million - related toimpairment of ships, resulting from the gross presentationeffects of shore excursionsCOVID-19 on our expected future operating cash flows
•$99 million - 3.2% capacity increase in ALBDs
•$46 million - increase in commissions, transportation and other onboard revenuesexpenses which includes expenses incurred as a result of the adoption of new revenue accounting guidancecancelled voyages and other voyage disruptions directly related to COVID-19
•$16745 million - 5.8% capacity increasechanges in ALBDsfuel mix
•$2135 million - voyage related operating costs incurred in connection with disrupted voyages directly related to COVID-19
•$26 million - higher cruise payroll and related expenses
These increases were partially offset by:
•$132 million - gains on ship sales in 2018,2020, net of gains on ship sales in 2019
•$1830 million - increase in tour and other costslower fuel prices
•$17 million - increase in various other ship operating costs
These increases were partially offset by:
$4329 million - net favorable foreign currency translational impact
•$3616 million - lower fuel pricesdry-dock expenses and repair and maintenance expenses
•$2311 million - lower fuel consumption per ALBD
$10 million - lower cruise payroll and related expenses
Selling and administrative expenses decreasedincreased by $10$49 million, or 1.8%7.9%, to $563$678 million in 20192020 from $573$629 million in 2018.2019.
Depreciation and amortization expenses increased by $37$54 million, or 7.3%10%, to $548$570 million in 20192020 from $511$516 million in 2018.2019. This increase was caused by an increase in the net book value of ships in service.
Goodwill impairment charges of $731 million recognized during the first quarter of 2020, resulting from the effects of COVID-19 on our expected future operating cash flows.
NAA Segment
Operating costs and expenses increased by $346$264 million, or 17%13%, to $2.3 billion in 20192020 from $2.0 billion in 2018.2019.
This increase was caused by:
•$357172 million - impairment of ships, resulting from the effects of COVID-19 on our expected future operating cash flows
•$37 million - voyage related operating costs incurred in connection with disrupted voyages directly related to the gross presentation of shore excursionsCOVID-19
•$29 million - 1.4% capacity increase in ALBDs
•$22 million - increase in commissions, transportation and other onboard revenuesexpenses which includes expenses incurred as a result of the adoption of new revenue accounting guidancecancelled voyages and other voyage disruptions directly related to COVID-19
•$3321 million - 1.7% capacity increasechanges in ALBDsfuel mix
•$1911 million - higher commissions, transportationcruise payroll and otherrelated expenses
These increases were partially offset by:
$29by $18 million -of lower fuel pricesprices.
| |
• | $27 million -
lower cruise payroll and related expenses
|
Selling and administrative expenses increased by $5$47 million, or 1.6%13%, to $339$400 million in 20192020 from $333$353 million in 2018.2019.
This increase was driven by:
•$18 million - increase in administrative expenses
•$14 million - increase in advertising and promotional expenses
Depreciation and amortization expenses increased by $21$36 million, or 6.6%11%, to $345$364 million in 20192020 from $323$328 million in 2018.2019. This increase was caused by an increase in the net book value of ships in service.
Goodwill impairment charges of $300 million recognized during the first quarter of 2020, resulting from the effects of COVID-19 on our expected future operating cash flows.
EA Segment
Operating costs and expenses increased by $167$241 million, or 19%22%, to $1.3 billion in 2020 from $1.1 billion in 2019 from $0.9 billion in 2018.2019.
This increase was caused by:
•$117158 million - 13%impairment of ships, resulting from the effects of COVID-19 on our expected future operating cash flows
•$67 million - 6.3% capacity increase in ALBDs
•$8519 million - related to the gross presentation of shore excursionsincrease in commissions, transportation and other onboard revenuesexpenses which includes expenses incurred as a result of the adoption of new revenue accounting guidancecancelled voyages and other voyage disruptions directly related to COVID-19
•$1617 million - various other ship operating costschanges in fuel mix
•$15 million - higher cruise payroll and related expenses
These increases were partially offset by:
$39 million -by net favorable foreign currency translational impact
$14 million - lower fuel consumption per ALBD
of $25 million.
Selling and administrative expenses decreasedincreased by $21$1 million, or 12%0.7%, to $150$207 million in 20192020 from $172$205 million in 2018. This decrease was driven by the timing of advertising expenses between quarters.2019.
Depreciation and amortization expenses increased by $15$14 million, or 10%, to $165$166 million in 20192020 from $150$152 million in 2018.2019. This increase was caused by a 13% capacityan increase in ALBDs, which accounted for $20 million.the net book value of ships in service.
Goodwill impairment charges of $431 million recognized during the first quarter of 2020, resulting from the effects of COVID-19 on our expected future operating cash flows.
Operating Income (Loss)
Our consolidated operating income increased(loss) decreased by $96 million, or 5.3%,$1.1 billion to $1.9$(0.7) billion in 20192020 from $1.8$0.4 billion in 2018.2019. Our NAA segment’s operating income increased(loss) decreased by $78$583 million or 6.7%, to $1.2$(0.2) billion in 20192020 compared to $1.2$0.4 billion in 2018,2019, and our EA segment’s operating income increased(loss) decreased by $42 million, or 6.7%, to $662 million in 2019 from $621to $(569) million in 2018.2020 from $93 million in 2019. These changes were primarily due to the reasons discussed above.
Nonoperating Income (Expense)
|
| | | |
(in millions) | Three Months Ended August 31, 2018 |
Unrealized gains on fuel derivatives, net | $ | 8 |
|
Realized losses on fuel derivatives, net | (4 | ) |
Gains on fuel derivatives, net | $ | 4 |
|
There were no unrealized or realized gains or losses on fuel derivatives for the three months ended August 31, 2019.
Explanations of Non-GAAP Financial Measures
Non-GAAP Financial Measures
We use net cruise revenues per ALBD (“net revenue yields”), net cruise costs excluding fuel per ALBD, adjusted net income and adjusted earnings per share as non-GAAP financial measures of our cruise segments’ and the company’s financial performance. These non-GAAP financial measures are provided along with U.S. GAAP gross cruise revenues per ALBD (“gross revenue yields”), gross cruise costs per ALBD and U.S. GAAP net income (loss) and U.S. GAAP diluted earnings per share.
Net revenue yields and net cruise costs excluding fuel per ALBD enable us to separate the impact of predictable capacity or ALBD changes from price and other changes that affect our business. We believe these non-GAAP measures provide useful information to investors and expanded insight to measure our revenue and cost performance as a supplement to our U.S. GAAP consolidated financial statements.
Under U.S. GAAP, the realized and unrealized gains and losses on fuel derivatives not qualifying as fuel hedges are recognized currently in earnings. We believe that unrealized gains and losses on fuel derivatives are not an indication of our earnings performance since they relate to future periods and may not ultimately be realized in our future earnings. Therefore, we believe it is more meaningful for the unrealized gains and losses on fuel derivatives to be excluded from our net income and earnings per share and, accordingly, we present adjusted net income and adjusted earnings per share excluding these unrealized gains and losses.
We believe that gains and losses on ship sales, impairment charges, restructuring costs and other gains and expenses are not part of our core operating business and are not an indication of our future earnings performance. Therefore, we believe it is more meaningful for gains and losses on ship sales, impairment charges, and restructuring and other non-core gains and chargesthese items to be excluded from our net income (loss) and earnings per share and, accordingly, we present adjusted net income and adjusted earnings per share excluding these items.
The presentation of our non-GAAP financial information is not intended to be considered in isolation from, as substitute for, or superior to the financial information prepared in accordance with U.S. GAAP. It is possible that our non-GAAP financial measures may not be exactly comparable to the like-kind information presented by other companies, which is a potential risk associated with using these measures to compare us to other companies.
Net passenger ticket revenues reflect gross passenger ticket revenues, net of commissions, transportation and other costs.
Net onboard and other revenues reflect gross cruise onboard and other revenues, net of onboard and other costs.
Net revenue yields is a combination of net passenger ticket revenues and net onboard and other revenues divided by ALBDs. Net revenue yields are commonly used in the cruise industry to measure a company’s cruise segment revenue performance and for revenue management purposes. We use “net cruise revenues” rather than “gross cruise revenues” to calculate net revenue yields. We believe that net cruise revenues is a more meaningful measure in determining revenue yield than gross cruise revenues because it reflects the cruise revenues earned net of our most significant variable costs,cost, which are travel agent commissions, costcosts of air and other transportation, certain other costs that are directly associated with onboard and other revenues and credit and debit card fees.
Net passenger ticket revenues reflect gross passenger ticket revenues, net of commissions, transportation and other costs.
Net onboard and other revenues reflect gross onboard and other revenues, net of onboard and other cruise costs.
Net cruise costs excluding fuel per ALBD is the measure we use to monitor our ability to control our cruise segments’ costs rather than reflect gross cruise costs per ALBD. We excludeoperating expenses as well as cruise selling and administrative expenses, and excludes fuel expenses as well as the same variable costs that are included in the calculation of net cruisepassenger ticket revenues as well as fuel expense to calculateand net cruise costs without fuelonboard and other revenues to avoid duplicating these variable costs in our non-GAAP financial measures. Substantially all of our net cruise costs excluding fuel are largely fixed, except for the impact of changing prices, once the number of ALBDs has been determined.
Net cruise costs excluding fuel per ALBD is the measure we use to monitor our ability to control our cruise segments’ costs and is calculated as net cruise cost excluding fuel divided by ALBDs.
Reconciliation of Forecasted Data
We have not provided a reconciliation of forecasted gross cruise revenues to forecasted net cruise revenues or forecasted gross cruise costs to forecasted net cruise costs without fuel or forecasted U.S. GAAP net income (loss) to forecasted adjusted net income (loss) or forecasted U.S. GAAP diluted earnings per share to forecasted adjusted earnings per share because preparation of meaningful U.S. GAAP forecasts of gross cruise revenues, gross cruise costs, net income (loss) and earnings per share would require unreasonable effort. We are unable to predict, without unreasonable effort, the future movement of foreign exchange rates and fuel prices. We are unable to determine the future impact of gains or losses on ships sales, restructuring expenses and other non-core gains and charges.
Constant Currency
Our operations primarily utilize the U.S. dollar, Australian dollar, euro and sterling as functional currencies to measure results and financial condition. Functional currencies other than the U.S. dollar subject us to foreign currency translational risk. Our operations also have revenues and expenses that are in currencies other than their functional currency, which subject us to foreign currency transactional risk.
•Translational Risk: The translation of our operations with functional currencies other than U.S. dollar to our U.S. dollar reporting currency results in decreases in reported U.S. dollar revenues and expenses if the U.S. dollar strengthens against these foreign currencies and increases in reported U.S. dollar revenues and expenses if the U.S. dollar weakens against these foreign currencies.
•Transactional Risk: Our operations have revenue and expense transactions in currencies other than their functional currency. If their functional currency strengthens against these other currencies, it reduces the functional currency revenues and expenses. If the functional currency weakens against these other currencies, it increases the functional currency revenues and expenses.
Constant currency reporting removes the impact of changes in exchange rates on the translation of our operations plus the transactional impact of changes in exchange rates from revenues and expenses that are denominated in a currency other than the functional currency.
We report net revenue yields, net passenger revenue yields, net onboard and other revenue yields and net cruise costs excluding fuel per ALBD on a “constant dollar” and “constant currency” basis assuming the 20192020 periods’ currency exchange rates have remained constant with the 20182019 periods’ rates. These metrics facilitateThis metric facilitates a comparative view for the changes in our business in an environment with fluctuating exchange rates.
Constant dollarreporting removes only the impact of changes in exchange rates on the translation of our operations.
Constant currencyreporting removes the impact of changes in exchange rates on the translation of our operations (as in constant dollar) plus the transactional impact of changes in exchange rates from revenues and expenses that are denominated in a currency other than the functional currency.
Examples:
| |
• | The translation of our operations with functional currencies other than U.S. dollar to our U.S. dollar reporting currency results in decreases in reported U.S. dollar revenues and expenses if the U.S. dollar strengthens against these foreign currencies and increases in reported U.S. dollar revenues and expenses if the U.S. dollar weakens against these foreign currencies.
|
| |
• | Our operations have revenue and expense transactions in currencies other than their functional currency. If their functional currency strengthens against these other currencies, it reduces the functional currency revenues and expenses. If the functional currency weakens against these other currencies, it increases the functional currency revenues and expenses.
|
Consolidated gross and net revenue yields were computed by dividing the gross and net cruise revenues by ALBDs as follows:
| | | Three Months Ended August 31, | | Three Months Ended February 29/28, | |
(dollars in millions, except yields) | 2019 | | 2019 Constant Dollar | | 2018 | (dollars in millions, except yields) | 2020 | | 2020 Constant Currency | | 2019 |
Passenger ticket revenues | $ | 4,477 |
| | $ | 4,549 |
| | $ | 4,353 |
| Passenger ticket revenues | $ | 3,234 | | | | | | $ | 3,199 | |
Onboard and other revenues | 1,855 |
| | 1,875 |
| | 1,316 |
| Onboard and other revenues | 1,556 | | | | | | 1,474 | |
Less: Tour and other revenues | | Less: Tour and other revenues | (52) | | | | | | (29) | |
Gross cruise revenues | 6,333 |
| | 6,424 |
| | 5,669 |
| Gross cruise revenues | 4,737 | | | | | | 4,645 | |
Less cruise costs | | | | | | Less cruise costs | | | | | | |
Commissions, transportation and other | (803 | ) | | (814 | ) | | (760 | ) | Commissions, transportation and other | (766) | | | | | | (709) | |
Onboard and other | (668 | ) | | (674 | ) | | (207 | ) | Onboard and other | (471) | | | | | | (467) | |
| (1,471 | ) | | (1,488 | ) | | (967 | ) | | (1,238) | | | | | | (1,177) | |
Net cruise revenues | | Net cruise revenues | $ | 3,499 | | | $ | 3,537 | | | $ | 3,468 | |
| Net passenger ticket revenues | 3,674 |
| | 3,734 |
| | 3,593 |
| Net passenger ticket revenues | $ | 2,467 | | | $ | 2,497 | | | $ | 2,490 | |
Net onboard and other revenues | 1,187 |
| | 1,201 |
| | 1,109 |
| Net onboard and other revenues | $ | 1,032 | | | $ | 1,039 | | | $ | 978 | |
Net cruise revenues | $ | 4,862 |
| | $ | 4,936 |
| | $ | 4,702 |
| |
| | | | | | | | | | |
ALBDs | 22,727,296 |
| | 22,727,296 |
| | 21,475,014 |
| ALBDs | 21,977,115 | | | 21,977,115 | | | 21,299,196 | |
| | | | | | |
Gross revenue yields | $ | 278.64 |
| | $ | 282.66 |
| | $ | 263.98 |
| Gross revenue yields | $ | 215.53 | | | | | | $ | 218.06 | |
% increase (decrease) | 5.6 | % | | 7.1 | % | |
| % increase (decrease) | (1.2) | % | | | | | | |
Net revenue yields | $ | 213.91 |
| | $ | 217.17 |
| | $ | 218.96 |
| Net revenue yields | $ | 159.22 | | | $ | 160.93 | | | $ | 162.82 | |
% increase (decrease) | (2.3 | )% | | (0.8 | )% | |
| % increase (decrease) | (2.2) | % | | (1.2) | % | | | |
Net passenger ticket revenue yields | $ | 161.66 |
| | $ | 164.32 |
| | $ | 167.31 |
| Net passenger ticket revenue yields | $ | 112.26 | | | $ | 113.64 | | | $ | 116.90 | |
% increase (decrease) | (3.4 | )% | | (1.8 | )% | |
| % increase (decrease) | (4.0) | % | | (2.8) | % | | | |
Net onboard and other revenue yields | $ | 52.25 |
| | $ | 52.85 |
| | $ | 51.65 |
| Net onboard and other revenue yields | $ | 46.96 | | | $ | 47.30 | | | $ | 45.92 | |
% increase (decrease) | 1.2 | % | | 2.3 | % | |
| % increase (decrease) | 2.3 | % | | 3.0 | % | | | |
|
| | | | | | | | | | | |
| Three Months Ended August 31, |
(dollars in millions, except yields) | 2019 | | 2019 Constant Currency | | 2018 |
Net passenger ticket revenues | $ | 3,674 |
| | $ | 3,754 |
| | $ | 3,593 |
|
Net onboard and other revenues | 1,187 |
| | 1,199 |
| | 1,109 |
|
Net cruise revenues | $ | 4,862 |
| | $ | 4,953 |
| | $ | 4,702 |
|
ALBDs | 22,727,296 |
| | 22,727,296 |
| | 21,475,014 |
|
| | | | | |
Net revenue yields | $ | 213.91 |
| | $ | 217.95 |
| | $ | 218.96 |
|
% increase (decrease) | (2.3 | )% | | (0.5 | )% | |
|
Net passenger ticket revenue yields | $ | 161.66 |
| | $ | 165.18 |
| | $ | 167.31 |
|
% increase (decrease) | (3.4 | )% | | (1.3 | )% | |
|
Net onboard and other revenue yields | $ | 52.25 |
| | $ | 52.77 |
| | $ | 51.65 |
|
% increase (decrease) | 1.2 | % | | 2.2 | % | |
|
Consolidated gross and net cruise costs and net cruise costs excluding fuel per ALBD were computed by dividing the gross and net cruise costs and net cruise costs excluding fuel by ALBDs as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended February 29/28, | | | | |
(dollars in millions, except costs per ALBD) | 2020 | | 2020 Constant Currency | | 2019 |
Operating expenses | $ | 3,523 | | | | | | $ | 3,142 | |
Selling and administrative expenses | 678 | | | | | | 629 | |
Less tour and other expenses | (26) | | | | | | (34) | |
Gross cruise costs | 4,175 | | | | | | 3,736 | |
Less cruise costs | | | | | |
Commissions, transportation and other | (766) | | | | | | (709) | |
Onboard and other | (471) | | | | | | (467) | |
Gains (losses) on ship sales and impairments | (221) | | | | | | (2) | |
Restructuring expenses | — | | | | | | — | |
Other | — | | | | | | — | |
Net cruise costs | 2,716 | | | | | | 2,558 | |
Less fuel | (396) | | | | | | (381) | |
Net cruise costs excluding fuel | $ | 2,320 | | | $ | 2,340 | | | $ | 2,177 | |
| | | | | |
ALBDs | 21,977,115 | | | 21,977,115 | | | 21,299,196 | |
| | | | | |
Gross cruise costs per ALBD | $ | 189.96 | | | | | | $ | 175.40 | |
% increase (decrease) | 8.3 | % | | | | | |
Net cruise costs excluding fuel per ALBD | $ | 105.57 | | | $ | 106.46 | | | $ | 102.21 | |
% increase (decrease) | 3.3 | % | | 4.2 | % | | |
|
| | | | | | | | | | | |
| Three Months Ended August 31, |
(dollars in millions, except costs per ALBD) | 2019 | | 2019 Constant Dollar | | 2018 |
Cruise operating expenses | $ | 3,423 |
| | $ | 3,466 |
| | $ | 2,867 |
|
Cruise selling and administrative expenses | 554 |
| | 562 |
| | 569 |
|
Gross cruise costs | 3,978 |
| | 4,028 |
| | 3,436 |
|
Less cruise costs included above | | | | | |
Commissions, transportation and other | (803 | ) | | (814 | ) | | (760 | ) |
Onboard and other | (668 | ) | | (674 | ) | | (207 | ) |
Gains (losses) on ship sales and impairments | (3 | ) | | (3 | ) | | 27 |
|
Restructuring expenses | — |
| | — |
| | — |
|
Other | (23 | ) | | (23 | ) | | — |
|
Net cruise costs | 2,480 |
| | 2,513 |
| | 2,496 |
|
Less fuel | (401 | ) | | (401 | ) | | (434 | ) |
Net cruise costs excluding fuel | $ | 2,079 |
| | $ | 2,112 |
| | $ | 2,062 |
|
ALBDs | 22,727,296 |
| | 22,727,296 |
| | 21,475,014 |
|
| | | | | |
Gross cruise costs per ALBD | $ | 175.01 |
| | $ | 177.23 |
| | $ | 160.02 |
|
% increase (decrease) | 9.4 | % | | 10.8 | % | |
|
Net cruise costs excluding fuel per ALBD | $ | 91.49 |
| | $ | 92.94 |
| | $ | 96.03 |
|
% increase (decrease) | (4.7 | )% | | (3.2 | )% | |
|
|
| | | | | | | | | | | |
| Three Months Ended August 31, |
(dollars in millions, except costs per ALBD) | 2019 | | 2019 Constant Currency | | 2018 |
Net cruise costs excluding fuel | $ | 2,079 |
| | $ | 2,113 |
| | $ | 2,062 |
|
ALBDs | 22,727,296 |
| | 22,727,296 |
| | 21,475,014 |
|
| | | | | |
Net cruise costs excluding fuel per ALBD | $ | 91.49 |
| | $ | 92.98 |
| | $ | 96.03 |
|
% increase (decrease) | (4.7 | )% | | (3.2 | )% | |
|
Adjusted fully diluted earnings per share was computed as follows:
| | | | | | | | | | | | |
| Three Months Ended | | | |
| February 29/28, | | | |
(in millions, except per share data) | 2020 | | 2019 | |
Net income (loss) | | | | |
U.S. GAAP net income (loss) | $ | (781) | | | $ | 336 | | |
(Gains) losses on ship sales and impairments | 928 | | | 2 | | |
Restructuring expenses | — | | | — | | |
Other | 3 | | | — | | |
Adjusted net income | $ | 150 | | | $ | 338 | | |
Weighted-average shares outstanding | 684 | | | 695 | | |
| | | | |
Earnings per share | | | | |
U.S. GAAP diluted earnings per share | $ | (1.14) | | | $ | 0.48 | | |
(Gains) losses on ship sales and impairments | 1.36 | | | — | | |
Restructuring expenses | — | | | — | | |
Other | 0.01 | | | — | | |
Adjusted earnings per share | $ | 0.22 | | | $ | 0.49 | | |
| | | | |
|
| | | | | | | |
| Three Months Ended |
| August 31, |
(in millions, except per share data) | 2019 | | 2018 |
Net income | | | |
U.S. GAAP net income | $ | 1,780 |
| | $ | 1,707 |
|
Unrealized (gains) losses on fuel derivatives, net | — |
| | (8 | ) |
(Gains) losses on ship sales and impairments | 14 |
| | (27 | ) |
Restructuring expenses | — |
| | — |
|
Other | 25 |
| | — |
|
Adjusted net income | $ | 1,819 |
| | $ | 1,673 |
|
Weighted-average shares outstanding | 691 |
| | 707 |
|
| | | |
Earnings per share | | | |
U.S. GAAP earnings per share | $ | 2.58 |
| | $ | 2.41 |
|
Unrealized (gains) losses on fuel derivatives, net | — |
| | (0.01 | ) |
(Gains) losses on ship sales and impairments | 0.02 |
| | (0.04 | ) |
Restructuring expenses | — |
| | — |
|
Other | 0.04 |
| | — |
|
Adjusted earnings per share | $ | 2.63 |
| | $ | 2.36 |
|
| | | |
Net cruise revenues increased by $159$31 million, or 3.4%0.9%, to $4.9$3.5 billion in 2019 from $4.72020 compared to $3.5 billion in 2018.2019.
The increase was caused by a 5.8%3.2% capacity increase in ALBDs of $274 million.$110 million, net of 2.8% of ALBDs as a result of cancelled voyages and other voyage disruptions directly related to COVD-19
This increase was partially offset by:
•$9241 million - 1.2% decrease in constant currency net revenue yields, including impacts of COVID-19 as a result of cancelled voyages and other voyage disruptions
•$38 million - net unfavorable foreign currency impacts (including both the foreign currency translational and transactional impacts)
$23 million - 0.5%The 1.2% decrease in constant currency net revenue yields
The 0.5% decrease in net revenue yields on a constant currency basis was due to a 1.3%2.8% decrease in constant currency net passenger ticket revenue yields, partially offset by a 2.2%3.0% increase in constant currency net onboard and other revenue yields.
This 1.3%2.8% decrease in net passenger ticket revenue yields was driven by sourcing in Continental Europe. This 2.8% decrease in net passenger ticket revenue was comprised of a 0.8% increase from our NAA segment, driven by price improvements in the Caribbean program, offset by a 3.5%5.8% decrease from our EA segment, primarily drivenoffset by sourcing in Continental Europe.a 0.3% increase from our NAA segment.
The 2.2%3.0% increase in net onboard and other revenue yields was comprised of a 2.0%1.5% increase from our NAA segment, and a 3.0%0.6% increase from our EA segment.segment and an increase to Cruise Support segment revenue.
Net cruise costs excluding fuel increased by $17$143 million, or 0.8%6.6%, to $2.1$2.3 billion in 2019 compared to $2.12020 from $2.2 billion in 2018.2019.
The increase was caused by a 5.8% capacity increase in ALBDs of $120 million.
This increase was partially offset by:
•$6993 million - 3.2% decrease4.2% increase in constant currency net cruise costs excluding fuel, including incremental impacts of COVID-19 as a result of cancelled voyages and other voyage disruptions
•$3469 million - 3.2% capacity increase in ALBDs, net of 2.8% of ALBDs as a result of cancelled voyages and other voyage disruptions directly related to COVID-19
These increases were partially offset by:
•$20 million - net favorable foreign currency impacts (including both the foreign currency translational and transactional impacts)
Fuel costs decreasedincreased by $34$16 million, or 7.7%4.2%, to $401$396 million in 20192020 from $434$381 million in 2018.
This decrease was caused by:
$36 million - lower fuel prices
$23 million - lower fuel consumption per ALBD
These decreases were partially offset by a 5.8% capacity increase in ALBDs of $25 million.
Nine Months Ended August 31, 2019 (“2019”) Compared to Nine Months Ended August 31, 2018 (“2018”)
Revenues
Consolidated
Cruise passenger ticket revenues made up 68% of our 2019 total revenues. Cruise passenger ticket revenues increased by $239 million, or 2.2%, to $10.9 billion in 2019 from $10.7 billion in 2018.
2019.
This increase was caused by:
•$53045 million - 4.9%changes in fuel mix
•$12 million - 3.2% capacity increase in ALBDs
$92 million - increase in air transportation revenues
These increases were partially offset by:
•$256 million - net unfavorable foreign currency translational impact
$127 million - decrease in cruise ticket revenues, primarily driven by sourcing in Continental Europe and net unfavorable foreign currency transactional impact, partially offset by price improvements in the Caribbean program
Onboard and other cruise revenues made up 30% of 2019 total revenues. Onboard and other cruise revenues increased by $1.3 billion, or 37%, to $4.8 billion in 2019 from $3.5 billion in 2018.
This increase was caused by:
$1.1 billion - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance
$172 million - 4.9% capacity increase in ALBDs
$82 million - higher onboard spending by our guests
These increases were partially offset by net unfavorable foreign currency translation impact of $74 million.
Tour and other revenues made up 1.9% of our 2019 total revenues. Tour and other revenues increased by $77 million, or 35%, to $299 million in 2019 from $222 million in 2018.
Concession revenues, which are included in onboard and other revenues, increased by $20 million, or 2.3%, to $888 million in 2019 from $868 million in 2018.
NAA Segment
Cruise passenger ticket revenues made up 66% of our NAA segment’s 2019 total revenues. Cruise passenger ticket revenues increased by $203 million, or 3.0%, to $7.0 billion in 2019 from $6.8 billion in 2018.
This increase was caused by:
$155 million - 2.4% capacity increase in ALBDs
| |
• | $50 million - increase in air transportation revenues
|
| |
• | $20 million - increase in cruise ticket revenues, driven primarily by price improvements in the Caribbean program, partially offset by net unfavorable foreign currency transactional impact
|
The remaining 34% of our NAA segment’s 2019 total revenues were comprised of onboard and other cruise revenues, which increased by $967 million, or 38%, to $3.5 billion in 2019 from $2.6 billion in 2018.
This increase was driven by:
$882 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance
$59 million - 2.4% capacity increase in ALBDs
Concession revenues, which are included in onboard and other revenues, increased by $13 million, or 2.1%, to $628 million in 2019 from $615 million in 2018.
EA Segment
Cruise passenger ticket revenues made up 79% of our EA segment’s 2019 total revenues. Cruise passenger ticket revenues increased by $69 million, or 1.7%, to $4.0 billion in 2019 compared to $4.0 billion in 2018.
This increase was caused by:
$371 million - 9.2% capacity increase in ALBDs
$39 million - increase in air transportation revenues
These increases were partially offset by:
$240 million - net unfavorable foreign currency translational impact
$107 million - decrease in cruise ticket revenues, primarily driven by sourcing in Continental Europe
The remaining 21% of our EA segment’s 2019 total revenues were comprised of onboard and other cruise revenues, which increased by $269 million, or 32%, to $1.1 billion in 2019 from $0.8 billion in 2018.
This increase was caused by:
$212 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance
$77 million - 9.2% capacity increase in ALBDs
| |
• | $44 million - higher onboard spending by our guests
|
These increases were partially offset by net unfavorable foreign currency translational impact of $66 million.
Concession revenues, which are included in onboard and other revenues, increased by $7 million, or 2.8%, to $259 million in 2019 from $252 million in 2018.
Costs and Expenses
Consolidated
Operating costs and expenses increased by $1.5 billion, or 18%, to $9.8 billion in 2019 from $8.3 billion in 2018.
This increase was caused by:
$1.1 billion - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance
$400 million - 4.9% capacity increase in ALBDs
$84 million - higher commissions, transportation and other expense
$58 million - increase in tour and other costs
$55 million - increase in various other ship operating costs
$35 million - gains on ship sales in 2018, net of gains on ship sales in 2019
$26 million - higher fuel prices
These increases were partially offset by:
$186 million - net favorable foreign currency translational impact
$6830 million - lower dry-dock expenses and repair and maintenance expensesfuel prices
•$4411 million - lower fuel consumption per ALBD
Selling and administrative expenses increased by $19 million, or 1.0%, to $1.8 billion in 2019 compared to $1.8 billion in 2018.
Depreciation and amortization expenses increased by $96 million, or 6.4%, to $1.6 billion in 2019 from $1.5 billion in 2018.
NAA Segment
Operating costs and expenses increased by $984 million, or 18%, to $6.4 billion in 2019 from $5.4 billion in 2018.
This increase was caused by:
$882 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance
$126 million - 2.4% capacity increase in ALBDs
$61 million - higher commissions, transportation and other expenses
These increases were partially offset by:
$42 million - lower dry-dock expenses and repair and maintenance expenses
$37 million - lower cruise payroll and related expenses
Selling and administrative expenses decreased by $4 million, or 0.4%, to $1.0 billion in 2019 compared to $1.0 billion in 2018.
Depreciation and amortization expenses increased by $72 million, or 7.6%, to $1.0 billion in 2019 from $0.9 billion in 2018.
EA Segment
Operating costs and expenses increased by $383 million, or 14%, to $3.2 billion in 2019 from $2.8 billion in 2018.
This increase was caused by:
$246 million - 9.2% capacity increase in ALBDs
$212 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance
$46 million - gains on ship sales in 2018, net of costs on ship sales in 2019
$31 million - higher commissions, transportation and other expenses
$32 million - various other ship operating costs
These increases were partially offset by:
$171 million - net favorable foreign currency translational impact
$29 million - lower fuel consumption per ALBD
$25 million - lower dry-dock expenses and repair and maintenance expenses
Selling and administrative expenses decreased by $10 million, or 1.9% to $540 million in 2019 from $551 million in 2018.
Depreciation and amortization expenses increased by $17 million, or 3.7%, to $483 million in 2019 from $466 million in 2018.
Operating Income
Our consolidated operating income increased by $19 million, or 0.7%, to $2.8 billion in 2019 compared to $2.8 billion in 2018. Our NAA segment’s operating income increased by $119 million, or 6.1%, to $2.1 billion in 2019 from $2.0 billion in 2018, and our EA segment’s operating income decreased by $50 million, or 5.1%, to $933 million in 2019 from $984 million in 2018. These changes were primarily due to the reasons discussed above.
Nonoperating Income (Expense)
|
| | | |
| Nine Months Ended August 31, |
(in millions) | 2018 |
Unrealized gains on fuel derivatives, net | $ | 90 |
|
Realized losses on fuel derivatives, net | (29 | ) |
Gains on fuel derivatives, net | $ | 61 |
|
There were no unrealized or realized gains or losses on fuel derivatives for the nine months ended August 31, 2019.
Key Performance Non-GAAP Financial Indicators
Consolidated gross and net revenue yields were computed by dividing the gross and net cruise revenues by ALBDs as follows: |
| | | | | | | | | | | |
| Nine Months Ended August 31, |
(dollars in millions, except yields) | 2019 | | 2019 Constant Dollar | | 2018 |
Passenger ticket revenues | $ | 10,934 |
| | $ | 11,190 |
| | $ | 10,694 |
|
Onboard and other revenues | 4,811 |
| | 4,885 |
| | 3,509 |
|
Gross cruise revenues | 15,744 |
| | 16,075 |
| | 14,203 |
|
Less cruise costs | | | | | |
Commissions, transportation and other | (2,125 | ) | | (2,182 | ) | | (2,000 | ) |
Onboard and other | (1,620 | ) | | (1,642 | ) | | (485 | ) |
| (3,746 | ) | | (3,825 | ) | | (2,485 | ) |
Net passenger ticket revenues | 8,808 |
| | 9,008 |
| | 8,694 |
|
Net onboard and other revenues | 3,190 |
| | 3,243 |
| | 3,024 |
|
Net cruise revenues | $ | 11,999 |
| | $ | 12,250 |
| | $ | 11,718 |
|
ALBDs | 65,671,215 |
| | 65,671,215 |
| | 62,626,499 |
|
| | | | | |
Gross revenue yields | $ | 239.74 |
| | $ | 244.78 |
| | $ | 226.78 |
|
% increase (decrease) | 5.7 | % | | 7.9 | % | |
|
Net revenue yields | $ | 182.71 |
| | $ | 186.54 |
| | $ | 187.10 |
|
% increase (decrease) | (2.3 | )% | | (0.3 | )% | |
|
Net passenger ticket revenue yields | $ | 134.13 |
| | $ | 137.16 |
| | $ | 138.82 |
|
% increase (decrease) | (3.4 | )% | | (1.2 | )% | |
|
Net onboard and other revenue yields | $ | 48.58 |
| | $ | 49.38 |
| | $ | 48.28 |
|
% increase (decrease) | 0.6 | % | | 2.3 | % | |
|
|
| | | | | | | | | | | |
| Nine Months Ended August 31, |
(dollars in millions, except yields) | 2019 | | 2019 Constant Currency | | 2018 |
Net passenger ticket revenues | $ | 8,808 |
| | $ | 9,071 |
| | $ | 8,694 |
|
Net onboard and other revenues | 3,190 |
| | 3,244 |
| | 3,024 |
|
Net cruise revenues | $ | 11,999 |
| | $ | 12,315 |
| | $ | 11,718 |
|
ALBDs | 65,671,215 |
| | 65,671,215 |
| | 62,626,499 |
|
| | | | | |
Net revenue yields | $ | 182.71 |
| | $ | 187.52 |
| | $ | 187.10 |
|
% increase (decrease) | (2.3 | )% | | 0.2 | % | | |
Net passenger ticket revenue yields | $ | 134.13 |
| | $ | 138.13 |
| | $ | 138.82 |
|
% increase (decrease) | (3.4 | )% | | (0.5 | )% | | |
Net onboard and other revenue yields | $ | 48.58 |
| | $ | 49.39 |
| | $ | 48.28 |
|
% increase (decrease) | 0.6 | % | | 2.3 | % | | |
Consolidated gross and net cruise costs and net cruise costs excluding fuel per ALBD were computed by dividing the gross and net cruise costs and net cruise costs excluding fuel by ALBDs as follows: |
| | | | | | | | | | | |
| Nine Months Ended August 31, |
(dollars in millions, except costs per ALBD) | 2019 | | 2019 Constant Dollar | | 2018 |
Cruise operating expenses | $ | 9,634 |
| | $ | 9,820 |
| | $ | 8,208 |
|
Cruise selling and administrative expenses | 1,792 |
| | 1,828 |
| | 1,772 |
|
Gross cruise costs | 11,426 |
| | 11,649 |
| | 9,980 |
|
Less cruise costs included above | | | | | |
Commissions, transportation and other | (2,125 | ) | | (2,182 | ) | | (2,000 | ) |
Onboard and other | (1,620 | ) | | (1,642 | ) | | (485 | ) |
Gains (losses) on ship sales and impairments | 11 |
| | 12 |
| | 39 |
|
Restructuring expenses | — |
| | — |
| | — |
|
Other | (43 | ) | | (43 | ) | | (1 | ) |
Net cruise costs | 7,648 |
| | 7,793 |
| | 7,532 |
|
Less fuel | (1,204 | ) | | (1,204 | ) | | (1,166 | ) |
Net cruise costs excluding fuel | $ | 6,444 |
| | $ | 6,588 |
| | $ | 6,367 |
|
ALBDs | 65,671,215 |
| | 65,671,215 |
| | 62,626,499 |
|
| | | | | |
Gross cruise costs per ALBD | $ | 173.98 |
| | $ | 177.38 |
| | $ | 159.36 |
|
% increase (decrease) | 9.2 | % | | 11.3 | % | |
|
Net cruise costs excluding fuel per ALBD | $ | 98.12 |
| | $ | 100.32 |
| | $ | 101.66 |
|
% increase (decrease) | (3.5 | )% | | (1.3 | )% | |
|
|
| | | | | | | | | | | |
| Nine Months Ended August 31, |
(dollars in millions, except costs per ALBD) | 2019 | | 2019 Constant Currency | | 2018 |
Net cruise costs excluding fuel | $ | 6,444 |
| | $ | 6,596 |
| | $ | 6,367 |
|
ALBDs | 65,671,215 |
| | 65,671,215 |
| | 62,626,499 |
|
| | | | | |
Net cruise costs excluding fuel per ALBD | $ | 98.12 |
| | $ | 100.44 |
| | $ | 101.66 |
|
% increase (decrease) | (3.5 | )% | | (1.2 | )% | |
|
Adjusted fully diluted earnings per share was computed as follows:
|
| | | | | | | |
| Nine Months Ended |
| August 31, |
(in millions, except per share data) | 2019 | | 2018 |
Net income | | | |
U.S. GAAP net income | $ | 2,567 |
| | $ | 2,659 |
|
Unrealized (gains) losses on fuel derivatives, net | — |
| | (90 | ) |
(Gains) losses on ship sales and impairments | — |
| | (39 | ) |
Restructuring expenses | — |
| | — |
|
Other | 47 |
| | 7 |
|
Adjusted net income | $ | 2,614 |
| | $ | 2,537 |
|
Weighted-average shares outstanding | 693 |
| | 714 |
|
| | | |
Earnings per share |
| |
|
U.S. GAAP earnings per share | $ | 3.71 |
| | $ | 3.72 |
|
Unrealized (gains) losses on fuel derivatives, net | — |
| | (0.13 | ) |
(Gains) losses on ship sales and impairments | — |
| | (0.05 | ) |
Restructuring expenses | — |
| | — |
|
Other | 0.07 |
| | 0.01 |
|
Adjusted earnings per share | $ | 3.77 |
| | $ | 3.55 |
|
| | | |
Net cruise revenues increased by $281 million, or 2.4%, to $12.0 billion in 2019 from $11.7 billion in 2018.
The increase was caused by a 4.9% capacity increase in ALBDs of $580 million.
This increase was partially offset by net unfavorable foreign currency impacts (including both the foreign currency translational and transactional impacts) of $316 million.
The 0.2% increase in net revenue yields on a constant currency basis was due to a 2.3% increase in net onboard and other revenue yields partially offset by a 0.5% decrease in net passenger ticket revenue yields.
The 0.5% decrease in net passenger ticket revenue yields was primarily driven by sourcing in Continental Europe and net unfavorable foreign currency impact (including both the foreign currency translational and transactional impacts) partially offset by price improvements in the Caribbean program. This 0.5% decrease in net passenger ticket revenue yields was comprised of a 1.1% increase from our NAA segment and a 2.3% decrease from our EA segment.
The 2.3% increase in net onboard and other revenue yields was comprised of a 1.7% increase from our NAA segment and a 3.2% increase from our EA segment.
Net cruise costs excluding fuel increased by $77 million, or 1.2%, to $6.4 billion in 2019 from $6.4 billion in 2018. This increase was caused by a 4.9% capacity increase in ALBDs, which accounted for $308 million.
This increase was partially offset by net favorable foreign currency impacts (including both the foreign currency translational and transactional impacts) of $152 million.
Fuel costs increased by $39 million, or 3.3%, to $1.2 billion in 2019 compared to $1.2 billion in 2018.
This increase was caused by:
$57 million - 4.9% capacity increase in ALBDs
$26 million - higher fuel prices
These increases were partially offset by lower fuel consumption by ALBD by $44 million.
Liquidity, Financial Condition and Capital Resources
Our primary financial goals areDue to profitably growthe 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 business and grow ROIC over time, while maintaining a strong balance sheet and strong investment grade credit ratings. (We define ROIC asoperations. Significant events affecting travel, including COVID-19, typically have an impact on booking patterns, with the twelve-month adjusted earnings before interest dividedfull extent of the impact generally determined by the monthly averagelength of debt plus equity minus construction-in-progress.) Our abilitytime 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 generate significant operating cash flow allows us to internally fundhave a material negative impact on our capital improvements, debt maturitiesfinancial results and dividend payments. We have $10.7liquidity, and such negative impact may continue well beyond the containment of such outbreak.
As of February 29, 2020, we had $3.0 billion of committed export credit facilities available to fund the vast majorityimmediate liquidity, which consisted of our new ship growth capital. Other objectives of our capital structure policy are to maintain a sufficient level of liquidity through our available cash and cash equivalents and available borrowings under our Existing Multicurrency Facility. In addition, we had $2.8 billion from four committed financingsexport credit facilities that are available to fund the originally planned ship deliveries for immediatethe remainder of this year and future liquidity needs$5.9 billion from committed export credit facilities that are available to fund ship deliveries originally planned in 2021 and beyond. On March 13, 2020, we fully drew down our $3.0 billion Existing Multicurrency Facility, which amounts are currently due in September 2020. We borrowed under the Existing Multicurrency Facility in order to maintain a reasonable debt maturity profile.increase our cash position and preserve financial flexibility in light of the impact of the COVID-19 outbreak on our results of operations and liquidity.
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 certainty, but we expect a net loss on both a U.S. GAAP and adjusted basis for the fiscal year ending November 30, 2020.
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 our historical results, projectionsthese actions and financial condition,assumptions regarding the impact of COVID-19, we believehave concluded that our future operating cash flows and liquiditywe will be able to generate sufficient liquidity to fundsatisfy our obligations and remain in compliance with our existing debt covenants for the next twelve months prior to giving effect to any additional financing that may occur.
At February 29, 2020, we were in compliance with all of our debt covenants. After considering the effect of COVID-19 on our consolidated EBITDA, the actions we have taken and the other options available to us, we expect to remain in compliance with our current minimum debt service coverage ratio in certain of our debt instruments that requires a minimum of 3:1 ratio of EBITDA to Consolidated Net Interest Charges. If we expected capital improvements, new ship growth capital,to be out of compliance, we would seek waivers from the lenders prior to any covenant violation. Any covenant waiver may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections that would be applicable. There can be no assurance that we would be able to obtain waivers in a timely manner, or on acceptable terms at all. If we were not able to obtain waivers or repay the debt maturitiesfacilities, this would lead to an event of default and dividend payments. We believe thatpotential acceleration of amounts due under all of our abilityoutstanding debt and derivative contract payables. As a result, the failure to generate significant operating cash flowsobtain waivers would have a material adverse effect on us. Refer to "Risk Factors - As a result of the COVID-19 outbreak, we have paused our global fleet cruise operations, and if we unable to re-commence normal operations in the near-term, we may be out compliance with a maintenance covenant in certain of our strong balance sheet, as evidenceddebt facilities.”
In March and April 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 our strong investment gradeboth rating agencies. Our short-term commercial paper credit ratings provide uswere downgraded and also placed on review for further downgrade.
On April 1, 2020, we announced the pricing terms of offerings of $4.0 billion of the Secured Notes, $1.75 billion of Convertible Notes and a public offering of $500 million of common stock in the Public Equity Offering. In connection with the ability,Convertible Notes offering, we granted the initial purchasers of the Convertible Notes an option to purchase on or before April 18, 2020, up to an additional $262.5 million aggregate principal amount of Convertible Notes. In connection with the Public Equity Offering, we granted the underwriters an option to purchase up to 9,375,000 of additional shares of common stock, which option must be exercised on or before May 1, 2020.
The Secured Notes will pay interest semi-annually on April 1 and October 1 of each year, beginning on October 1, 2020, at a rate of 11.5% per year. The Secured Notes will mature on April 1, 2023. The Convertible Notes will pay interest semi-annually on April 1 and October 1 of each year, beginning on October 1, 2020, at a rate of 5.75% per year. The Convertible Notes will mature on April 1, 2023, unless earlier converted, redeemed or repurchased. The initial conversion rate per $1,000 principal
amount of Convertible Notes is equivalent to 100 shares of common stock of the Corporation, which is equivalent to a conversion price of approximately $10 per share, subject to adjustment in most financial credit market environments,certain circumstances.
The Public Equity Offering consists of 62,500,000 shares of common stock, par value $0.01 per share, of Carnival Corporation, at a price of $8 per share.
The Public Equity Offering, the Convertible Notes offering and the Secured Notes offering are expected to obtain debt financing.be completed
in early April, subject to customary closing conditions. The net proceeds from the offering of Secured Notes will be deposited
in to a segregated escrow account, pending the releases in accordance with certain collateral perfection thresholds. None of the closings of the Public Equity Offering and the offerings of the Secured Notes or the Convertible Notes is conditioned upon the closing of any of the other offerings or vice versa.
We had a working capital deficit of $6.2$7.8 billion as of August 31, 2019February 29, 2020 compared to a working capital deficit of $7.0$7.1 billion as of November 30, 2018.2019. The decreaseincrease in working capital deficit was caused by an increase in cashshort-term debt and cash equivalents and a decreasean increase in short-termthe current portion of long-term debt partially offset by an increase in customer deposits.cash and cash equivalents. We operate with a substantial working capital deficit. This deficit is mainly attributable to the fact that, under our business model, substantially all of our passenger ticket receipts are collected in advance of the applicable sailing date. These advance passenger receipts remain a current liability until the sailing date. The cash generated from these advance receipts is used interchangeably with cash on hand from other sources, such as our borrowings and other cash from operations. The cash received as advanced receipts can be used to fund operating expenses, pay down our debt, make long-term investments or any other use of cash. Included within our working capital deficit are $4.7 billion and $4.4 billion of customer deposits as of August 31, 2019February 29, 2020 and November 30, 2018, respectively.2019. In addition, we have a relatively low-level of accounts receivable and limited investment in inventories. We generate substantial cash flows from operations and our business model has historically allowed us to maintain this working capital deficit and still meet our operating, investing and financing needs. We expect that we will continue to have working capital deficits in the future.
Sources and Uses of Cash
Operating Activities
Our business provided $4.4 billion$916 million of net cash from operations during the ninethree months ended August 31, 2019,February 29, 2020, a decrease of $22$199 million, or 0.5%18%, compared to $4.4$1.1 billion for the same period in 2018.2019.
Investing Activities
During the ninethree months ended August 31, 2019,February 29, 2020, net cash used in investing activities was $3.3$1.2 billion. This was caused bysubstantially due to the following:
•Capital expenditures of $2.2 billion$861 million for our ongoing new shipbuilding program
•Capital expenditures of $1.2 billion$399 million for ship improvements and replacements, information technology and buildings and improvements
•Proceeds from salesales of ships of $15$226 million
•Purchase of minority interest of $83 million
During the ninethree months ended August 31, 2018,February 28, 2019, net cash used in investing activities was $2.6$2.1 billion. This was substantially due tocaused by the following:
•Capital expenditures of $1.4$1.7 billion for our ongoing new shipbuilding program
•Capital expenditures of $1.3 billion$428 million for ship improvements and replacements, information technology and buildings and improvements
Proceeds from sale of ships of $282 million
Payments of $37 million for fuel derivative settlements
Financing Activities
During the ninethree months ended August 31, 2019,February 29, 2020, net cash used inprovided by financing activities of $912 million$1.1 billion was caused by the following:
•Net repayments ofproceeds from short-term borrowings of $600$779 million in connection with our availability of, and needs for, cash at various times throughout the period
•Repayments of $472$132 million of long-term debt
•Issuances of $1.7 billion$823 million of long-term debt
•Payments of cash dividends of $1.0 billion$344 million
•Purchases of $472$12 million of Carnival plc ordinary shares in open market transactions under our Repurchase Program
During the three months ended February 28, 2019, net cash provided by financing activities of $612 million was caused by the following:
•Net repayments of short-term borrowings of $81 million in connection with our availability of, and needs for, cash at various times throughout the period
•Repayments of $95 million of long-term debt
•Issuances of $1.4 billion of long-term debt
•Payments of cash dividends of $348 million
•Purchases of $274 million of Carnival Corporation common stock and Carnival plc ordinary shares in open market transactions under our Repurchase Program
During the nine months ended August 31, 2018, net cash used in financing activities of $1.7 billion was substantially due to the following:
Net proceeds of short-term borrowings of $182 million in connection with our availability of, and needs for, cash at various times throughout the period
| |
• | Repayments of $1.3 billion of long-term debt
|
Issuances of $1.6 billion of long-term debt
Payments of cash dividends of $1.0 billion
Purchases of $1.2 billion of Carnival Corporation common stock and Carnival plc ordinary shares in open market transactions under our Repurchase Program
Capital Expenditure and Capacity Forecast
Our annual capital expenditure forecast consists of contracted new ship growth capital, estimated payments for planned new ship growth capital and capital improvements.
| | | | | | | | | | | | | | | | | | | | |
(in billions) | | 2020 | | 2021 | | 2022 |
Annual capital expenditure forecast (a) | | | $ | 7.0 | | | $ | 5.8 | | | $ | 5.2 | |
|
| | | | | | | | | | | | | | | | |
(in billions) | | 2019 | | 2020 | | 2021 | | 2022 |
Annual capital expenditure forecast | | $ | 6.6 |
| | $ | 5.8 |
| | $ | 5.9 |
| | $ | 5.4 |
|
(a)As of February 29, 2020.The annual capital expenditure forecast does not reflect any changes as a result of capital expenditures reductions discussed in Note 1 - “General - Liquidity and Management's Plans.”
Our annual capacity forecast consists of contracted new ships and announced dispositions.
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | 2022 |
Annual capacity increase (a) | | | 4.3 | % | | 7.3 | % | | 5.1 | % |
|
| | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 | | 2022 |
Annual capacity increase | | 4.2 | % | | 7.0 | % | | 5.3 | % | | 5.3 | % |
(a)As of February 29, 2020.The capacity forecast does not reflect any changes in capacity resulting from our voluntary pause in operations.
Funding Sources
At August 31, 2019,As of February 29, 2020, we had $3.0 billion of immediate liquidity, of $14.5 billion. Our liquiditywhich consisted of $750 million ofavailable cash and cash equivalents which excludes $403 million of cash used for current operations, $3.1 billionand available for borrowingborrowings under our revolvingExisting Multicurrency Facility, which is scheduled to mature in 2024. In addition, we had $2.8 billion from four committed export credit facilities netthat are available to fund the originally planned ship deliveries for the remainder of our outstanding commercial paper borrowings,this year and $10.7$5.9 billion under ourfrom committed future financings, which are comprised of ship export credit facilities.facilities that are available to fund ship deliveries originally planned in 2021 and beyond. These commitments are from numerous large and well-established banks and export credit agencies, which we believe will honor their contractual agreements with us.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in billions) | | 2020 | | 2021 | | 2022 | | 2023 |
Availability of committed future financing at February 29, 2020 | | | $ | 2.8 | | | $ | 2.7 | | | $ | 2.3 | | | $ | 0.9 | |
|
| | | | | | | | | | | | | | | | | | | | |
(in billions) | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Availability of committed future financing at August 31, 2019 | | $ | 2.0 |
| | $ | 2.8 |
| | $ | 2.8 |
| | $ | 2.3 |
| | $ | 0.9 |
|
At August 31, 2019, all of our revolving credit facilities are scheduled to mature in 2024, except for $300 million that matures in September 2020.
Substantially all of our debt agreements contain financial covenants as described in Note 5 - “Unsecured Debt” in the annual consolidated financial statements, which are included within our Form 10-K. At August 31, 2019,February 29, 2020, we were in compliance with our debt covenants. In addition, based on, among other things, our forecasted operating results, financial condition and cash flows, we expect to be in compliance with our debt covenants for the foreseeable future. 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.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interests, certain derivative instruments and variable interest entities that either have, or are reasonably likely to have, a current or future material effect on our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of our hedging strategies and market risks, see the discussion below and Note 10 - “Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risks” in our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations within our Form 10-K.
Fuel Price Risks
As of February 29, 2020, based on a 10% change in each of the fuel prices versus the spot price we estimate that our adjusted earnings per share would change by the following:
Heavy Fuel Oil (“HFO”) impact:
•$0.04 per share for the remaining three quarters of 2020
•$0.01 per share for the second quarter of 2020
Marine Gasoil (“MGO”) impact:
•$0.06 per share for the remaining three quarters of 2020
•$0.03 per share for the second quarter of 2020
Operational Currency Risks
Our operations primarily utilize the U.S. dollar, Australian dollar, euro or sterling as their functional currencies. Our operations also have revenue and expenses denominated in non-functional currencies. Movements in foreign currency exchange rates will affect our financial statements.
BasedAs of February 29, 2020, based on a 10% change in all currency exchange rates, that were used in our September 26, 2019 guidance, we estimate a less than $0.01 change tothat our adjusted diluted earnings per share guidancewould change by the following:
•$0.02 per share for the fourth quarter.remaining three quarters of 2020
•$(0.07) per share for the second quarter of 2020
Interest Rate Risks
The composition of our debt, including the effect of foreign currency swaps and interest rate swaps, was as follows:
|
| | | | |
| August 31, 2019February 29, 2020 |
Fixed rate | 2621 | % |
EUR fixed rate | 37 | % |
Floating rate | 510 | % |
EUR floating rate | 2425 | % |
GBP floating rate | 7 | % |
Fuel Price Risks
Based on a 10% change in fuel prices versus the current spot price that was used to calculate fuel expense in our September 26, 2019 guidance, we estimate that our adjusted diluted earnings per share guidance would change by the following:
$0.05 per share for the fourth quarter of 2019
Item 4. Controls and Procedures.
A. Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Our President and Chief Executive Officer and our Chief Financial Officer and Chief Accounting Officer have evaluated our disclosure controls and procedures and have concluded, as of August 31, 2019,February 29, 2020, that they are effective at a reasonable level of assurance, as described above.
B. Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended August 31, 2019February 29, 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As previously disclosed, on October 23, 2019, a complaint was filed by a purported shareholder of Carnival plc in the New York Supreme Court, New York County, purporting to allege derivative claims on Carnival plc’s behalf for breach of fiduciary duty and corporate waste against the members of the Carnival plc Board of Directors (the “Board”). On February 10, 2020, Carnival plc and the Board filed a joint motion to dismiss this complaint.
As previously disclosed, on May 19, 2017, Holland America Line and Princess Cruises notified the National Oceanic and Atmospheric Administration (“NOAA”) regarding discharges made by certain vessels in the recently expanded area of the National Marine Sanctuary in the Farallones Island. On February 7, 2020, Carnival Corporation received an assessment for a civil penalty of $1.4 million for discharges. We believe the ultimate outcome of any penalty will not have a material impact on our consolidated financial statements.
In June and August of 2018, Holland America Line received four Notices of Violation from the Alaska Department of Environmental Conservation, alleging that four ships violated the Alaska state visible emissions standards while docked in Skagway, Haines and Ketchikan. On October 17, 2018, Holland America Line received an offer to settle the Notices of Violation and on February 13, 2020 it received a revised offer to settle. We deny the allegations under all four Notices of Violation and we believe we have meritorious defenses to the claims, and that any liability which may arise as a result of this action will not have a material impact on our consolidated financial statements.
Refer to our consolidated financial statements for further information on Legal Proceedings.
Item 1A. Risk Factors.
•COVID-19 has had, and is expected to continue to have, a significant impact on our financial condition and operations, which impacts our ability to obtain acceptable financing to fund resulting reductions in cash from operations. The current, and uncertain future, impact of the COVID-19 outbreak, including its effect on the ability or desire of people to travel (including on cruises), is expected to continue to impact our results, operations, outlooks, plans, goals, growth, reputation, 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, 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 and April 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 downgraded and also placed on review for further 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 Item 1A. “Risk Factors” included in our Form 10-K.
•Any potential government disaster relief assistance could impose significant limitations on our corporate activities and may not be on terms favorable to us.
If any government agrees to provide disaster relief assistance, it may impose certain requirements on the recipients of the aid including restrictions on executive officer compensation, share buybacks, dividends, prepayment of debt and other similar restrictions until the aid is repaid or redeemed in full. We cannot assure you that any such government disaster relief assistance, if passed, will not significantly limit our corporate activities or be on terms that are favorable to us or at all. Such restrictions and terms could adversely impact our business and operations.
•Any failure to protect our intellectual property rights could impair our brands, negatively impact our business or both.
Our success and ability to compete depend in part on protecting our brands and other intellectual property, including our ability to use trademarks in order to capitalize on name-recognition and increase awareness of our brands. We rely on a combination of trademark, patent, copyright, trade secrets and other rights, as well as confidentiality procedures and contractual provisions to protect our intellectual property and proprietary technology. The steps we take to protect our intellectual property rights, however, may not be adequate. For example, not all of the trademarks that are used in our business have been registered in all countries in which we do business or may do business in the future, and some of the trademarks may never be registered in all of these countries. Rights in trademarks are generally national in character, and are obtained on a country-by-country basis by the first person to obtain protection through use or registration in that country in connection with specified products and services. Some countries’ laws do not protect unregistered trademarks at all, or make them more difficult to enforce, and third parties may have filed for trademarks that are the same or similar to our brands in countries where we have not registered our brands as trademarks. Accordingly, we may not be able to adequately protect our brands everywhere we do business and use of our brands may result in liability for trademark infringement, trademark dilution or unfair competition. In addition, the laws of some foreign countries do not protect intellectual property to the same extent as the laws of the United States, and we may not receive registrations for all of our pending trademark, patent or copyright applications, and existing or future registrations may not provide sufficient protection or competitive advantages for our products and services. In the event that we are not able to obtain grants or registrations in respect of such intellectual property applications, we may not be able to obtain statutory protections available under the relevant intellectual property laws, which could limit our ability to protect our intellectual property and impede our marketing efforts. In addition, we cannot be certain that our products and technology do not and will not infringe the intellectual property rights of others, and third parties may seek to challenge, invalidate or circumvent our trademark, patent, copyright, trade secrets and other rights or applications for any of the foregoing. Furthermore, it is difficult for us to monitor unauthorized uses of our intellectual property, and if we become aware of a third party’s unauthorized use or misappropriation of our intellectual property, it may not be practicable, effective or cost-efficient for us to enforce our intellectual property and contractual rights fully. In order to protect or enforce our intellectual property rights, we may be required to spend significant resources. Regardless of the merits of any such claim as a plaintiff or defendant, litigation could be costly, time consuming, distracting and we may not prevail, which could result in the impairment or loss of intellectual property rights. To the extent claims against us are successful, we may have to pay substantial monetary damages (including treble damages), or discontinue or modify certain products or services that are found to be in violation of another party’s rights. We may have to seek a license to continue offering our products or technology, which may not be available on reasonable terms, or at all. Our failure to secure, protect and enforce our intellectual property rights could materially adversely affect our business.
•We are subject to casualty risks that could materially adversely affect our business.
We use a combination of insurance and self-insurance to cover a number of risks associated with owning and operating our vessels and other non-ship related risks. There are, however, certain losses, including losses resulting from terrorist acts and certain environmental disasters, that may be either uninsurable or not economically insurable, in whole or in part. As a result, we cannot assure you that the insurance proceeds will compensate us fully for our losses. If we suffer a total or partial loss, we cannot assure you that any insurance proceeds received by us will be sufficient to satisfy all of our obligations. Moreover, we do not carry coverage related to loss of earnings or revenues from our ships or other operations. In the event of a total or partial loss to any of our vessels, such vessels and certain items of equipment inventory may not be easily replaced. Accordingly, even though there may be insurance coverage, the extended period needed to replace such vessels or items could cause significant losses.
•Our substantial debt could adversely affect our financial health and operating flexibility.
We have a substantial amount of debt and significant debt service obligations. As of February 29, 2020, on an as-adjusted basis after giving effect to the draw on our Existing Multicurrency Facility and the Secured Notes and Convertible Notes offerings, we would have had total gross debt of $21,841 million.
Our substantial debt could:
◦require us to dedicate a large portion of our cash flow from operations to service debt and fund repayments
on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures
and other general corporate purposes;
◦increase our vulnerability to adverse general economic or industry conditions;
◦limit our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate;
◦place us at a competitive disadvantage compared to our competitors that have less debt;
◦make us more vulnerable to downturns in our business, the economy or the industry in which we operate;
◦limit our ability to raise additional debt or equity capital in the future to satisfy our requirements relating to
working capital, capital expenditures, development projects, strategic initiatives or other purposes;
◦restrict us from making strategic acquisitions, introducing new technologies or exploiting business
opportunities;
◦make it difficult for us to satisfy our obligations with respect to our debt; and
◦expose us to the risk of increased interest rates as certain of our borrowings are (and may be in the future) at
a variable rate of interest.
•Despite our leverage, we may incur more debt, which could adversely affect our business and prevent us from
fulfilling our obligations with respect to our debt.
We may be able to incur substantial additional debt in the future. Although the instruments governing our existing indebtedness contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of debt that could be incurred in compliance with these restrictions could be substantial and a portion of such debt could be secured. If new debt is added to our existing debt levels, our business could be adversely affected which may prevent us from fulfilling our obligations with respect to our debt.
•We are subject to restrictive debt covenants that may limit our ability to finance future operations and capital needs and to pursue business opportunities and activities. In addition, if we fail to comply with any of these restrictions, it could have a material adverse effect on the Company.
Our Existing Multicurrency Facility, the indenture governing the Secured Notes and certain of our other debt instruments limit our flexibility in operating our business. For example, the indenture governing the Secured Notes will restrict or limit the ability of Carnival Corporation, Carnival plc and certain of their respective subsidiaries to, among other things:
◦incur or guarantee additional indebtedness;
◦pay dividends or distributions on, or redeem or repurchase capital stock and make other restricted payments;
◦make investments;
◦consummate certain asset sales;
◦engage in certain transactions with affiliates;
◦grant or assume certain liens; and
◦consolidate, merge or transfer all or substantially all of our assets.
All of these limitations will be subject to significant exceptions and qualifications. Despite these exceptions and qualifications, we cannot assure you that the operating and financial restrictions and covenants in our Existing Multicurrency Facility, the indenture governing the Secured Notes and certain of our other debt instruments will not adversely affect our ability to finance our future operations or capital needs or engage in other business activities that may be in our interest. Any future indebtedness may include similar or other restrictive terms. In addition, our ability to comply with these covenants, including financial covenants relating to our consolidated net interest, and restrictions may be affected by events beyond our control. These include prevailing economic, financial and industry conditions. If we breach any of these covenants or restrictions, we could be in default under the terms of our Existing Multicurrency Facility and certain of our other debt facilities and the relevant lenders could elect to declare the debt, together with accrued and unpaid interest and other fees, if any, immediately due and payable and proceed against any collateral securing that debt. Such a breach could also result in an event of default under the indenture governing the Secured Notes. If the debt under the Existing Multicurrency Facility, the guarantees or certain of our other debt instruments that we enter into were to be accelerated, our assets may be insufficient to repay in full our debt. Borrowings under other debt instruments that contain cross-default provisions also may be accelerated or become payable on demand. In these circumstances, our assets may not be sufficient to repay in full our indebtedness then outstanding.
•We will require a significant amount of cash to service our debt and sustain our operations. Our ability to generate cash depends on many factors beyond our control, and we may not be able to generate cash required to service our debt.
Our ability to meet our other debt service obligations or refinance our debt depends on our future operating and financial performance and ability to generate cash. This will be affected by our ability to successfully implement our business strategy, as well as general economic, financial, competitive, regulatory and other factors beyond our control, such as the disruption caused by the COVID-19 pandemic. If we cannot generate sufficient cash to meet our debt service obligations or fund our other business needs, we may, among other things, need to refinance all or a portion of our debt, obtain additional financing, delay planned capital expenditures or sell assets. We cannot assure you that we will be able to generate sufficient cash through any of
the foregoing. If we are not able to refinance any of our debt, obtain additional financing or sell assets on commercially reasonable terms or at all, we may not be able to satisfy our obligations with respect to our debt. See “Recent Developments”, “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources” in our Annual Report and “Update on Liquidity and Management’s Plans” in our current report on Form 8-K as filed on March 31, 2020.
•Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under the Existing Multicurrency Facility and certain of our other facilities are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on certain of our variable rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. In addition, in July 2017, the U.K. Financial Conduct Authority announced that it intends to stop collecting LIBOR rates from banks after 2021. The announcement indicates that LIBOR will not continue to exist on the current basis. We are unable to predict the effect of any changes to LIBOR, the establishment and success of any alternative reference rates, or any other reforms to LIBOR or any replacement of LIBOR that may be enacted in the United Kingdom or elsewhere. Such changes, reforms or replacements relating to LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives or other financial instruments or extensions of credit held by us. As such, LIBOR-related changes could affect our overall results of operations and financial condition.
We have entered into, and in the future we will continue to enter into, interest rate swaps that involve the exchange of floating for fixed-rate interest payments to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any such swaps may not fully mitigate our interest rate risk, may prove disadvantageous, or may create additional risks. Each 0.125% change in interest rates would result in approximately $9 million change in annual interest expense on our variable interest debt instruments that were outstanding as of November 30, 2019, including the impact of our interest rate swaps, and the Existing Multicurrency Facility.
•As a result of the COVID-19 outbreak, we have paused our global fleet cruise operations, and if we are unable to re-commence normal operations in the near-term, we may be out of compliance with a maintenance covenant in certain of our debt facilities
Under the terms of certain of our debt facilities with an aggregate outstanding principal amount of $8.4 billion of indebtedness as of February 29, 2020, we are required to maintain an interest coverage ratio (EBITDA to consolidated net interest charges for the most recently ended four fiscal quarters) of not less than 3.0 to 1.0 at the end of each fiscal quarter. As a result of the COVID-19 outbreak, we have paused our global fleet cruise operations and if we are unable to re-commence normal operations in the near-term, we may be out of compliance with our interest coverage ratio covenant as of the end of our third fiscal quarter or in future periods. If we expected to be out of compliance, we expect to seek waivers from the lenders under these numerous facilities prior to any covenant violation.
Any covenant waiver may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections that would be applicable to us under these debt facilities, and such increased costs, restrictions and modifications may vary among debt facilities. Our ability to provide additional lender protections under these facilities, including the granting of security interests in collateral, will be limited by the restrictions in our indebtedness. There can be no assurance that we would be able to obtain waivers in a timely manner, on acceptable terms or at all. If we were not able to obtain a covenant waiver under any one or more of these debt facilities, we would be in default of such agreements, which could result in cross defaults to our other debt agreements. As a consequence, we would need to refinance or repay the applicable debt facility or facilities, and would be required to raise additional debt or equity capital, or divest assets, to refinance or repay such facility or facilities. If we were to be unable to obtain a covenant waiver under any one or more of these debt
facilities, there can be no assurance that we would be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay such facility or facilities.
With respect to each of these debt facilities, if we were not to obtain a waiver or refinance or repay such debt facilities, it would lead to an event of default under such facilities, which could lead to an acceleration of the indebtedness under such debt facilities. In turn, this would lead to an event of default and potential acceleration of amounts due under all of our outstanding debt and derivative contract payables. As a result, the failure to obtain the covenant waivers described above would have a material adverse effect.
Additional risk factors that affect our business and financial results are discussed in “Item 1A. Risk Factors,” included in the Form 10-K, and there has been no material change to these risk factors since the Form 10-K filing.10-K. We wish to caution the reader that the risk factors discussed in “Item 1A. Risk Factors,” included in the Form 10-K, and those described elsewhere in this report or other Securities and Exchange Commission filings, could cause future results to differ materially from those stated in any forward-looking statements. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
A. Repurchase Program
Under a share repurchase program effective 2004, we are authorized to repurchase Carnival Corporation common stock and Carnival plc ordinary shares (the “Repurchase Program”). Effective August 2018, the company approved a modification of the general authorization under the Repurchase Program, which replenished the remaining authorized repurchases at the time of the approval to $1.0 billion. The Repurchase Program does not have an expiration date and may be discontinued by our Boards of Directors at any time. Subsequent to quarter end, to enhance our liquidity as well as comply with restrictions anticipated in future financing transactions, we have suspended share repurchases.
During the three months ended August 31, 2019,February 29, 2020, no shares of Carnival Corporation common stock were repurchased pursuant to the Repurchase Program.
During the three months ended August 31, 2019,February 29, 2020, repurchases of Carnival plc ordinary shares pursuant to the Repurchase Program were as follows:
|
| | | | | | | | | | | |
Period | | Total Number of Shares of Carnival plc Purchased (in millions) | | Average Price Paid per Share of Carnival plc | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Repurchase Program (in millions) |
June 1, 2019 through June 30, 2019 | | 0.4 |
| | $ | 43.70 |
| | $ | 401 |
|
July 1, 2019 through July 31, 2019 | | 1.4 |
| | $ | 44.21 |
| | $ | 341 |
|
August 1, 2019 through August 31, 2019 | | 1.9 |
| | $ | 43.08 |
| | $ | 260 |
|
Total | | 3.7 |
| | $ | 43.57 |
| | |
| | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares of Carnival plc Purchased (in millions) | | Average Price Paid per Share of Carnival plc | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Repurchase Program (in millions) |
December 1, 2019 through December 31, 2019 | | 0.2 | | | $ | 41.29 | | | $ | 122 | |
January 1, 2020 through January 31, 2020 | | — | | | $ | — | | | $ | 122 | |
February 1, 2020 through February 29, 2020 | | — | | | $ | — | | | $ | 122 | |
Total | | 0.2 | | | $ | 41.29 | | | |
No shares of Carnival Corporation common stock and Carnival plc ordinary shares were purchased outside of publicly announced plans or programs.
B. Carnival plc Shareholder Approvals
Carnival plc ordinary share repurchases under the Repurchase Program require annual shareholder approval. The existing shareholder approval is limited to a maximum of 19.2 million ordinary shares and is valid until the earlier of the conclusion of the Carnival plc 2020 annual general meeting or July 15, 2020. Subsequent to quarter end, to enhance our liquidity as well as comply with restrictions anticipated in future financing transactions, we have suspended share repurchases.
Item 6. Exhibits.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INDEX TO EXHIBITS | | | | | | | | | | |
| | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | Filed/ Furnished Herewith |
Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date | | |
| | | | | | | | | | |
Articles of incorporation and by-laws | | | | | | | | | | |
| | | | | | | | | | |
3.1 | | | | | 8-K | | 3.1 | | | 4/17/2003 | | |
3.2 | | | | | 8-K | | 3.1 | | | 4/20/2009 | | |
3.3 | | | | | 8-K | | 3.3 | | | 4/20/2009 | | |
| | | | | | | | | | |
Material Contracts | | | | | | | | | | |
| | | | | | | | | | |
10.1 | | | | | | | | | | X |
10.2 | | | | | | | | | | X |
10.3 | | | | | | | | | | X |
| | | | | | | | | | |
Rule 13a-14(a)/15d-14(a) certifications | | | | | | | | | | |
| | | | | | | | | | |
31.1 | | | | | | | | | | X |
31.2 | | | | | | | | | | X |
31.3 | | | | | | | | | | X |
31.4 | | | | | | | | | | X |
| | | | | | | | | | |
Section 1350 certifications | | | | | | | | | | |
| | | | | | | | | | |
32.1* | | | | | | | | | | X |
32.2* | | | | | | | | | | X |
32.3* | | | | | | | | | | X |
32.4* | | | | | | | | | | X |
| | | | | | | | | | |
|
| | | | | | | | | | |
INDEX TO EXHIBITS | | | | | | | | |
| | | | | | | | | | |
| | | | Incorporated by Reference | | Filed/ Furnished Herewith |
Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date | |
| | | | | | | | | | |
Articles of incorporation and by-laws | | | | | | | | |
| | | | | | | | | | |
3.1 | | | | 8-K | | 3.1 | | 4/17/2003 | | |
3.2 | | | | 8-K | | 3.1 | | 4/20/2009 | | |
3.3 | | | | 8-K | | 3.3 | | 4/20/2009 | | |
| | | | | | | | | | |
Material contracts | | | | | | | | |
10.1 | | | | | | | | | | X |
| | | | | | | | | | |
Rule 13a-14(a)/15d-14(a) certifications | | | | | | | | |
| | | | | | | | | | |
31.1 | | | | | | | | | | X |
31.2 | | | | | | | | | | X |
31.3 | | | | | | | | | | X |
31.4 | | | | | | | | | | X |
| | | | | | | | | | |
Section 1350 certifications | | | | | | | | |
| | | | | | | | | | |
32.1* | | | | | | | | | | X |
32.2* | | | | | | | | | | X |
32.3* | | | | | | | | | | X |
32.4* | | | | | | | | | | X |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INDEX TO EXHIBITS | | | | | | | | | | |
| | | | | | | | | | |
| | | | Incorporated by Reference | | | | | | Filed/ Furnished
Herewith
|
Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date
| | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Interactive Data File | | | | | | | | | | |
| | | | | | | | | | |
101 | | | The consolidated financial statements from Carnival Corporation & plc’s joint Quarterly Report on Form 10-Q for the quarter ended August 31, 2019,February 29, 2020, as filed with the Securities and Exchange Commission on September 26, 2019,April 3, 2020, formatted in Inline XBRL, are as follows: | | | | | | | | |
| | (i) the Consolidated Statements of Income (Loss) for the three and nine months ended August 31, 2019February 29/28, 2020 and 2018;2019; | | | | | | | | X |
| | (ii) the Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended August 31, 2019February 29/28, 2020 and 2018;2019; | | | | | | | | X |
| | (iii) the Consolidated Balance Sheets at August 31, 2019February 29, 2020 and November 30, 2018;2019; | | | | | | | | X |
| | (iv) the Consolidated Statements of Cash Flows for the three and nine months ended August 31, 2019February 29/28, 2020 and 2018;2019; | | | | | | | | X |
| | (v) the Consolidated Statements of Shareholders’ Equity for the three and nine months ended August 31, 2019February 29/28, 2020 and 2018;2019; | | | | | | | | X |
| | (vi) the notes to the consolidated financial statements, tagged in summary and detail. | | | | | | | | X |
| | | | | | | | | | |
104 | | | The cover page from Carnival Corporation & plc’s joint Quarterly Report on Form 10-Q for the quarter ended August 31, 2019,February 29, 2020, as filed with the Securities and Exchange Commission on September 26, 2019,April 3, 2020, formatted in Inline XBRL (included as Exhibit 101) | | | | | | | | |
| | | | | |
| |
* | |
* | These items are furnished and not filed. |
** | Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. |
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 thereunto duly authorized.
| | | | | | | | | | | | | | |
| CARNIVAL CORPORATION | | | CARNIVAL PLC |
| | | | |
By: | CARNIVAL CORPORATION | | | CARNIVAL PLC |
| | | | |
By: | /s/ Arnold W. Donald | | By: | /s/ Arnold W. Donald |
| Arnold W. Donald | | | Arnold W. Donald |
| President and Chief Executive Officer | | | President and Chief Executive Officer |
| | | | |
By: | /s/ David Bernstein | | By: | /s/ David Bernstein |
| David Bernstein | | | David Bernstein |
| Chief Financial Officer and Chief Accounting Officer | | | Chief Financial Officer and Chief Accounting Officer |
| | | | |
| Date: September 26, 2019April 3, 2020 | | | Date: September 26, 2019April 3, 2020 |
| | | | |