Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations .
Cautionary Note Concerning Factors That May Affect Future Results
Some of the statements, estimates or projections contained in this document are “forward-looking statements” that involve risks, uncertainties and assumptions with respect to us, including some statements concerning future results, operations, outlooks, plans, goals, reputation, cash flows, liquidity and other events which have not yet occurred. These statements are intended to qualify for the safe harbors from liability provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts are statements that could be deemed forward-looking. These statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and the beliefs and assumptions of our management. We have tried, whenever possible, to identify these statements by using words like “will,” “may,” “could,” “should,” “would,” “believe,” “depends,” “expect,” “goal,” “anticipate,” “forecast,” “project,” “future,” “intend,” “plan,” “estimate,” “target,” “indicate,” “outlook,” and similar expressions of future intent or the negative of such terms.
Forward-looking statements include those statements that relate to our outlook and financial position including, but not limited to, statements regarding:
• Net revenue yields
• Estimates of ship depreciable lives and residual values
• Booking levels
• Goodwill, ship and trademark fair values
• Pricing and occupancy
• Liquidity
• Interest, tax and fuel expenses
• Adjusted earnings per share
• Currency exchange rates
• Impact of the COVID-19 coronavirus global pandemic on our financial condition and results of operations
• Net cruise costs, excluding fuel per available 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:
• COVID-19 has had, and is expected to continue to have, a significant impact on our financial condition and operations, which impacts our ability to obtain acceptable financing to fund resulting reductions in cash from operations. The current, and uncertain future, impact of the COVID-19 outbreak, including its effect on the ability or desire of people to travel (including on cruises), is expected to continue to impact our results, operations, outlooks, plans, goals, growth, reputation, litigation, cash flows, liquidity, and stock price
• As a result of the COVID-19 outbreak, we have paused our guest 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 as of May 31, 2021
• World events impacting the ability or desire of people to travel may lead to a decline in demand for cruises
• Incidents concerning our ships, guests or the cruise vacation industry as well as adverse weather conditions and other natural disasters may impact the satisfaction of our guests and crew and lead to reputational damage
• Changes in and non-compliance with laws and regulations under which we operate, such as those relating to health, environment, safety and security, data privacy and protection, anti-corruption, economic sanctions, trade protection and tax may lead to litigation, enforcement actions, fines, penalties, and reputational damage
• Breaches in data security and lapses in data privacy as well as disruptions and other damages to our principal offices, information technology operations and system networks 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
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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
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
PREPARATION FOR THE RESUMPTION OF GUEST OPERATIONS
We expect to resume guest operations, with ongoing collaboration from both government and health authorities, in a phased manner. Specific brands and ships are expected to return to service over time to provide their guests with unmatched joyful vacations in a manner consistent with our highest priorities, which are compliance, environmental protection and the health, safety and well-being of our guests, crew and the communities our ships visit. We anticipate that initial sailings will be from a select number of easily accessible homeports. We expect future capacity to be moderated by the phased re-entry of our ships, the removal of capacity from our fleet and delays in new ship deliveries.
In connection with our capacity optimization strategy, we intend to accelerate the removal of ships in fiscal 2020 which were previously expected to be sold over the ensuing years. We have sold one ship during June 2020 and have agreements for the disposal of five ships and preliminary agreements for an additional three ships, all of which are expected to leave the fleet in the next 90 days. These agreements are in addition to the sale of four ships, which were announced prior to fiscal 2020. In total, the 13 ships expected to leave the fleet represent a nearly nine percent reduction in current capacity. We currently expect only five of the nine ships originally scheduled for delivery in fiscal 2020 and fiscal 2021 will be delivered prior to the end of fiscal year 2021.
Health and Safety Protocols
In preparation for the resumption of our cruises, and consistent with our commitment to provide our guests with a safe and healthy environment, we are proactively consulting and working in close cooperation with various medical policy experts and public health authorities to develop enhanced procedures and protocols for health and safety onboard our ships. A comprehensive restart protocol may include areas such as medical care, screening, testing, mitigation and sanitization addressing arrival and departure at cruise terminals, the boarding and disembarkation process, onboard experiences and shore excursions.
Update on Bookings
Our brands have announced various incentives and flexibility for certain booking payments on select sailings to support guest confidence in making new bookings. These incentives vary by brand and sailing and include onboard credits and reduced or refundable deposits. In addition, we are providing flexibility to guests with bookings on sailings cancelled due to the pause by offering guests the flexibility of enhanced future cruise credits ("FCC") or an election for a refund in cash. Enhanced FCCs increase the value of the guest's original booking or provide incremental onboard credits. As of June 21, 2020, approximately half of guests affected have requested cash refunds. Despite substantially reduced marketing and selling spend, we continue to see demand from new bookings for 2021. F or the six weeks end ed May 31, 2020, approximately two-thirds of 2021 bookings were new bookings. For the most recent booking period, the first three weeks in June 2020, almost 60 percent of 2021 bookings were new bookings. The remaining 2021 booking volumes resulted from guests applying their FCCs to specific future cruises.
As of May 31, 2020, cumulative advanced bookings for the full year of 2021 capacity currently available for sale are within historical ranges at prices that are down in the low to mid-single digits range, on a comparable basis, including the negative yield impact of FCCs and onboard credits applied. However, we saw an improvement in booking volumes for the six weeks ending May 31, 2020 compared to the prior six weeks.
As of June 21, 2020, cumulative advanced bookings for the full year of 2021 capacity currently available for sale remain within historical ranges at prices that are down in the low to mid-single digits range, on a comparable basis, including the negative yield impact of FCCs and onboard credits applied. For the full year of 2021, booking volumes for the nine weeks ending June 21, 2020, were running meaningfully behind the prior year.
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As of May 31, 2020, the current portion of customer deposits was $2.6 billion, the majority of which are FCCs. $121 million of our customer deposit balance relates to third quarter sailings and $353 million relates to fourth quarter sailings. We continue to expect any decline in the customer deposits balance in the second half of 2020, all of which is expected to occur in the third quarter, to be significantly less than the decline in the second quarter of 2020.
COVID-19 RESPONSE
In the face of the impact of the COVID-19 global pandemic, we paused our guest cruise operations in mid-March. In response to this unprecedented situation, we acted to protect the health and safety of guests and shipboard team members, optimize the pause in guest operations and maximize our liquidity position.
Protecting the Health and Safety of Guests and Team Members
During this period we have returned over 260,000 guests to their homes, coordinating with a large number of countries around the globe. We chartered aircraft, utilized commercial flights and even used our ships to sail home guests who could not fly. In addition, we worked around the clock with various local governmental authorities, utilized our ships and chartered hundreds of planes to repatriate shipboard team members as quickly as possible. We have successfully repatriated approximately 77,000 of our shipboard team members to more than 130 countries around the globe, which is substantially all of our onboard workforce other than the safe manning team members who will remain on the ships.
Optimizing the Pause in Guest Operations
We estimate that our ongoing ship operating and administrative expenses will be approximately $250 million per month once all ships are in paused status. We continue to seek ways to further reduce this monthly requirement.
Reduced Operating Expenses
We have taken significant actions to reduce operating expenses during the pause in guest operations:
• W hile maintaining compliance, environmental protection and safety, we significantly reduced ship operating expenses, including food, fuel, insurance and port charges by transitioning ships into paused status, either at anchor or in port and staffed at a safe manning level
• As of July 7, 2020, 53 of our ships are in their full pause status. We expect substantially all of our ships to reach their full pause status during the third quarter of 2020
• Significantly reduced marketing and selling expenses
• Implemented a combination of layoffs, furloughs, reduced work weeks and salary and benefit reductions across the company, including senior management
• Instituted a hiring freeze across the organization, significantly reduced consultant and contractor roles
Reduced Capital Expenditures
We have reduced capital expenditures and estimate $300 million of non-newbuild capital expenditures during the second half of 2020, which largely consists of previously committed expenditures.
We curren tly expect only five of the nine ships originally scheduled for delivery in fiscal 2020 and fiscal 2021 will be delivered prior to the end of fiscal year 2021. We have committed future financing, comprised of ship export credit facilities, associated with these newbuilds.
Refer to “Risk Factors” - "COVID-19 has had, and is expected to continue to have, a significant impact on our financial condition and operations, which impacts our ability to obtain acceptable financing to fund resulting reductions in cash from operations. The current, and uncertain future, impact of the COVID-19 outbreak, including its effect on the ability or desire of people to travel (including on cruises), is expected to continue to impact our results, operations, outlooks, plans, goals, growth, reputation, litigation, cash flows, liquidity, and stock price".
New Accounting Pronouncements
Refer to Note 1 - "General, Accounting Pronouncements" of the consolidated financial statements for additional discussion regarding accounting pronouncements.
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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 and second quarters of 2020 for goodwill and ship impairment is included in the accompanying consolidated financial statements.
Seasonality
Our passenger ticket revenues are seasonal. Historically, demand for cruises has been greatest during our third quarter, which includes the Northern Hemisphere summer months, although 2020 will continue to be adversely impacted by COVID-19. This higher demand during the third quarter results in higher ticket prices and occupancy levels and, accordingly, the largest share of our operating income is earned during this period. This historical trend has been disrupted by the pause in global cruise operations. In addition, substantially all of Holland America Princess Alaska Tours’ revenue and net income (loss) is generated from May through September in conjunction with Alaska's cruise season. During 2020, the Alaska cruise season will be adversely impacted by the effects of COVID-19.
Statistical Information
Three Months Ended
May 31, Six Months Ended
May 31,
2020 2019 2020 2019
ALBDs (in thousands) (a) 3,621 21,645 25,598 42,944
Occupancy percentage (b) 96.1 % 105.3 % 103.1 % 105.0 %
Passengers carried (in thousands) 426 3,101 3,489 6,038
Fuel consumption in metric tons (in thousands) 482 835 1,314 1,664
Fuel cost per metric ton consumed $ 418 $ 507 $ 455 $ 483
Currencies (USD to 1)
AUD $ 0.63 $ 0.70 $ 0.66 $ 0.71
CAD $ 0.72 $ 0.75 $ 0.74 $ 0.75
EUR $ 1.09 $ 1.12 $ 1.10 $ 1.13
GBP $ 1.24 $ 1.30 $ 1.27 $ 1.29
RMB $ 0.14 $ 0.15 $ 0.14 $ 0.15
We paused our guest operations in mid-March 2020 and have been in a pause for a majority of the second quarter. The pause in guest operations is continuing to have material negative impacts on all aspects of our business, including the above statistical information.
Notes to Statistical Information
(a) ALBD is a standard measure of passenger capacity for the period that we use to approximate rate and capacity variances, based on consistently applied formulas that we use to perform analyses to determine the main non-capacity driven factors that cause our cruise revenues and expenses to vary. ALBDs assume that each cabin we offer for sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-producing ship operating days in the period.
(b) In accordance with cruise industry practice, occupancy is calculated using a denominator of ALBDs, which assumes two passengers per cabin even though some cabins can accommodate three or more passengers. Percentages in excess of 100% indicate that on average more than two passengers occupied some cabins.
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Results of Operations
Consolidated
Three Months Ended May 31, % increase (decrease) Six Months
Ended May 31, % increase (decrease)
(in millions) 2020 2019 Change 2020 2019 Change
Revenues
Passenger ticket $ 446 $ 3,257 $ (2,811) (86) % $ 3,680 $ 6,456 $ (2,776) (43) %
Onboard and other 294 1,580 (1,287) (81) % 1,849 3,054 (1,205) (39) %
740 4,838 (4,098) (85) % 5,529 9,511 (3,981) (42) %
Operating Costs and Expenses
Commissions, transportation and other 297 613 (316) (51) % 1,064 1,322 (258) (20) %
Onboard and other 114 485 (371) (77) % 585 952 (367) (39) %
Payroll and related 705 566 139 24 % 1,315 1,123 192 17 %
Fuel 201 423 (222) (52) % 598 804 (206) (26) %
Food 108 269 (161) (60) % 385 538 (152) (28) %
Ship and other impairments 589 — 589 100 % 919 — 918 100 %
Other operating 471 803 (332) (41) % 1,142 1,562 (420) (27) %
2,484 3,159 (675) (21) % 6,007 6,301 (294) (5) %
Selling and administrative 492 621 (129) (21) % 1,170 1,250 (80) (6) %
Depreciation and amortization 577 542 35 6 % 1,147 1,059 89 8 %
Goodwill impairment 1,364 — 1,364 100 % 2,096 — 2,096 100 %
4,918 4,323 595 14 % 10,420 8,609 1,811 21 %
Operating Income (Loss) $ (4,177) $ 515 $ (4,693) (911) % $ (4,891) $ 902 $ (5,792) (642) %
NAA
Three Months Ended May 31, % increase (decrease) Six Months Ended May 31, % increase (decrease)
(in millions) 2020 2019 Change 2020 2019 Change
Revenues
Passenger ticket $ 271 $ 2,066 $ (1,795) (87) % $ 2,324 $ 4,080 $ (1,756) (43) %
Onboard and other 185 1,095 (910) (83) % 1,274 2,159 (885) (41) %
457 3,162 (2,705) (86) % 3,597 6,239 (2,641) (42) %
Operating Costs and Expenses 1,631 2,033 (402) (20) % 3,904 4,043 (139) (3) %
Selling and administrative 297 342 (45) (13) % 697 695 2 — %
Depreciation and amortization 369 339 30 9 % 733 667 66 10 %
Goodwill impairment 1,019 — 1,019 100 % 1,319 — 1,319 100 %
3,316 2,715 601 22 % 6,653 5,406 1,248 23 %
Operating Income (Loss) $ (2,860) $ 447 $ (3,306) (740) % $ (3,056) $ 833 $ (3,889) (467) %
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EA
Three Months Ended May 31, % increase (decrease) Six Months Ended May 31, % increase (decrease)
(in millions) 2020 2019 Change 2020 2019 Change
Revenues
Passenger ticket $ 184 $ 1,215 $ (1,031) (85) % $ 1,397 $ 2,412 $ (1,015) (42) %
Onboard and other 54 346 (292) (85) % 393 675 (282) (42) %
238 1,561 (1,323) (85) % 1,790 3,087 (1,297) (42) %
Operating Costs and Expenses 773 1,033 (260) (25) % 2,090 2,108 (19) (1) %
Selling and administrative 126 185 (59) (32) % 333 390 (57) (15) %
Depreciation and amortization 168 166 2 1 % 334 318 16 5 %
Goodwill impairment 345 — 345 100 % 777 — 777 100 %
1,412 1,384 28 2 % 3,533 2,817 716 25 %
Operating Income (Loss) $ (1,174) $ 177 $ (1,351) (763) % $ (1,743) $ 270 $ (2,014) (745) %
We paused our guest operations in mid-March 2020 and as a result have been in a pause for a majority of the second quarter. The pause in guest operations is continuing to have material negative impacts on all aspects of our business. The longer the pause in guest operations continues the greater the impact on our liquidity and financial position.
For the three and six months ended May 31, 2020, as a result of the pause in our guest cruise operations, we have experienced meaningfully lower revenues compared to the prior year periods resulting in operating losses for the current periods. We are unable to definitively predict when we will return to normal operations. As a result, we are currently unable to provide an earnings forecast. We expect a net loss on both a U.S. GAAP and adjusted basis for the second half of 2020 .
W hile maintaining compliance, environmental protection and safety, we significantly reduced ship operating expenses, including food, fuel, insurance and port charges by transitioning ships into paused status, either at anchor or in port and staffed at a safe manning level. As of July 7, 2020, 53 of our ships are in their full pause status. We expect substantially all of our ships to reach their full pause status during the third quarter. We estimate that our ongoing ship operating and administrative expenses will be approximately $250 million per month once all ships are in paused status. We continue to seek ways to further reduce this monthly requirement.
In addition, during the quarter we incurred incremental COVID-19 related costs associated with repatriating guests and crew members, enhancing health protocols and sanitizing our ships, restructuring costs and defending lawsuits.
As a result of the effects of COVID-19 on our expected future operating cash flows, we recognized goodwill impairment charges of $1.4 billion and $2.1 billion during the three and six months ended May 31, 2020, respectively. In addition, we recognized ship impairment charges of $498 million and $828 million during the three and six months ended May 31, 2020, respectively.
Explanations of Non-GAAP Financial Measures
We use 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 net income (loss) and U.S. GAAP diluted earnings per share.
We believe that gains and losses on ship sales, impairment charges, restructuring costs and other gains and losses are not part of our core operating business and are not an indication of our future earnings performance. Therefore, we believe it is more meaningful for these items to be excluded from our net income (loss) and earnings per share and, accordingly, we present adjusted net income and adjusted earnings per share excluding these items.
Adjusted EBITDA is a non-GAAP measure, and we believe that the presentation of Adjusted EBITDA provides additional information to investors about our operating profitability adjusted for certain non-cash items and other gains and expenses that we believe are not part of our core operating business and are not an indication of our future earnings performance. Further, we believe that the presentation of Adjusted EBITDA provides additional information to investors about our ability to operate our
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business in compliance with the restrictions set forth in our debt agreements. We define Adjusted EBITDA as adjusted net income or loss adjusted for (i) interest, (ii) taxes, (iii) depreciation and amortization and (iv) other exceptional items. There are material limitations to using Adjusted EBITDA. Adjusted EBITDA does not take into account certain significant items that directly affect our net income or loss. These limitations are best addressed by considering the economic effects of the excluded items independently, and by considering Adjusted EBITDA in conjunction with net income as calculated in accordance with GAAP.
The presentation of our non-GAAP financial information is not intended to be considered in isolation from, as substitute for, or superior to the financial information prepared in accordance with U.S. GAAP. It is possible that our non-GAAP financial measures may not be exactly comparable to the like-kind information presented by other companies, which is a potential risk associated with using these measures to compare us to other companies.
Key Performance Non-GAAP Financial Indicators
The table below reconciles Adjusted net income (loss) and Adjusted EBITDA to net income (loss) for the periods presented:
Three Months Ended Six Months Ended
May 31, May 31,
(in millions, except per share data) 2020 2019 2020 2019
Net income (loss)
U.S. GAAP net income (loss) $ (4,374) $ 451 $ (5,155) $ 787
(Gains) losses on ship sales and impairments 1,953 (16) 2,882 (14)
Restructuring expenses 39 — 39 —
Other — 22 3 22
Adjusted net income (loss) $ (2,382) $ 457 $ (2,231) $ 795
Interest expense, net of capitalized interest 182 54 237 105
Interest income (6) (5) (11) (9)
Income tax expense, net (11) 8 — 10
Depreciation and amortization 577 542 1,147 1,059
Adjusted EBITDA $ (1,640) $ 1,056 $ (859) $ 1,959
Weighted-average shares outstanding 721 693 702 694
Earnings per share
U.S. GAAP diluted earnings per share $ (6.07) $ 0.65 $ (7.34) $ 1.13
(Gains) losses on ship sales and impairments 2.71 (0.02) 4.10 (0.02)
Restructuring expenses 0.05 — 0.06 —
Other — 0.03 — 0.03
Adjusted earnings per share $ (3.30) $ 0.66 $ (3.18) $ 1.15
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Liquidity, Financial Condition and Capital Resources
We have taken and continue to take actions to improve our liquidity, including the following.
• On March 13, 2020, we fully drew down our $3.0 billion Revolving Facility.
• On March 24, 2020, we settled outstanding derivatives resulting in proceeds of $220 million.
• In April 2020, we completed (i) a public offering of 71,875,000 shares of Carnival Corporation’s common stock at a price per share of $8.00, resulting in net proceeds of $556 million and (ii) a private offering of $2.0 billion aggregate principal amount of the Convertible Notes. The Convertible Notes mature on April 1, 2023, and our obligations thereunder are guaranteed (on an unsecured basis) by the same entities that guarantee our obligations under the 2023 Secured Notes and the Secured Term Loan Facility.
• In April 2020, we completed a private offering of $4.0 billion aggregate principal amount of 11.5% 2023 Secured Notes that mature on April 1, 2023. Our obligations under the 2023 Secured Notes are guaranteed by Carnival plc and certain of our subsidiaries, and are secured on a first-priority basis by collateral, which includes vessels, intellectual property and certain other assets.
• We qualified for a government commercial paper program providing over $700 million of available liquidity.
• In April 2020, we extended a $166 million euro -denominated bank loan, originally maturing in 2020, to March 2021.
• Certain of our export credit agency counterparties have offered Debt Holidays. We have entered into supplemental agreements or side letters for Debt Holiday amendments to defer certain principal repayments otherwise due through March 2021 through the creation of separate tranches of loans with repayments made over the following four years. In connection with Debt Holidays, we have also entered into supplemental agreements or side letters to waive the minimum debt service coverage financial covenant for our export credit facilities through March 31, 2021, August 31, 2021 or December 31, 2021, as applicable. We will be required to comply beginning with the next testing date of May 31, 2021, November 30, 2021 or February 28, 2022, respectively.
• We obtained waivers of the minimum debt service coverage financial covenant for certain of our bank loans through November 2021. We also obtained waivers of the covenant for the remaining applicable bank loans through their respective maturity dates.
• To further enhance our liquidity, as well as comply with the dividend restrictions contained in our recent debt agreements, we have suspended the payment of dividends on, and the repurchase of, the common stock of Carnival Corporation and the ordinary shares of Carnival plc.
• On June 30, 2020, we borrowed an aggregate principal amount of $2.8 billion in two tranches ($1.9 billion and €800 million), under the Secured Term Loan Facility that matures on June 30, 2025. The U.S. dollar tranche bears interest at a rate per annum equal to adjusted LIBOR (with a 1% floor) plus 7.5%. The euro tranche bears interest at a rate per annum equal to EURIBOR (with a 0% floor) plus 7.5% . Both tranches of the Secured Term Loan Facility are prepayable, in whole or in part, at our option at a price equal to the face value plus a customary make-whole amount for the first year after closing, 102% of the face value for the second year after closing and par thereafter. The Secured Term Loan Facility is guaranteed by Carnival plc and the same subsidiaries that currently guarantee, and is secured on a first-priority basis by the same collateral that currently secures, the 2023 Secured Notes. The Secured Term Loan Facility contains covenants that are substantially similar to the covenants in the indenture governing the 2023 Secured Notes. These covenants are subject to a number of important limitations and exceptions.
• We are also currently working towards obtaining COVID-19 related financing with certain government entities in Europe that could provide additional available liquidity.
• We have sold one ship during June 2020 and have agreements for the disposal of five ships and preliminary agreements for an additional three ships, all of which are expected to leave the fleet in the next 90 days. These agreements are in addition to the sale of four ships, which were announced prior to fiscal 2020. In total, the 13 ships expected to leave the fleet represent a nearly nine percent reduction in current capacity. We currently expect only five of the nine ships originally scheduled for delivery in fiscal 2020 and fiscal 2021 will be delivered prior to the end of fiscal year 2021.
As of May 31, 2020, we have a total of $7.6 billion of available liquidity. In addition, we have $8.8 billion of committed export credit facilities that are available to fund ship deliveries originally planned through 2023.
During the pause in guest operations, the monthly average cash burn rate for the second half of 2020 is estimated to be approximately $650 million. This rate includes approximately $250 million of ongoing ship operating and administrative expenses, working capital changes (excluding changes in customer deposits and reserves for credit card processors), interest
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expense and committed capital expenditures (net of committed export credit facilities) and also excludes scheduled debt maturities. We continue to explore opportunities to further reduce our monthly cash burn rate.
In March and April 2020, Moody’s and S&P Global downgraded our long-term issuer, senior secured and senior unsecured debt ratings. Our short-term commercial paper credit ratings were also downgraded. In May and June 2020, Moody's and S&P Global further downgraded our long-term issuer rating and our short-term rating, which prevents us from issuing additional commercial paper except for government-backed programs. In addition, our long-term ratings were placed on review for further downgrade by both rating agencies.
We had a working capital deficit of $3.6 billion as of May 31, 2020 compared to a working capital deficit of $7.1 billion as of November 30, 2019. The decrease in working capital deficit was caused by an increase in cash and cash equivalents and a decrease in customer deposits, partially offset by increases in short-term debt, accounts payable and the current portion of long-term debt. Historically, we operate with a substantial working capital deficit. This deficit is mainly attributable to the fact that, under our business model, substantially all of our passenger ticket receipts are collected in advance of the applicable sailing date. These advance passenger receipts generally remain a current liability until the sailing date. The cash generated from these advance receipts is used interchangeably with cash on hand from other sources, such as our borrowings and other cash from operations. The cash received as advanced receipts can be used to fund operating expenses, pay down our debt, make long-term investments or any other use of cash. Included within our working capital deficit were $2.6 billion and $4.7 billion of customer deposits as of May 31, 2020 and November 30, 2019, respectively. We are providing flexibility to guests with bookings on sailings cancelled due to the pause by allowing guests to receive enhanced future cruise credits ("FCC") or elect to receive refunds in cash. We expect to be required to pay cash refunds of customer deposits with respect to a portion of these cancelled cruises. The amount of cash refunds to be paid may depend on the length of the pause and level of guest acceptance of FCCs. We record a liability for FCCs to the extent we have received cash from guests with bookings on cancelled sailings. As of June 21, 2020, approximately half of guests affected have requested cash refunds. In addition, we have a relatively low-level of accounts receivable and limited investment in inventories. We expect that we will continue to have working capital deficits in the future.
Refer to Note 1 - "General, Liquidity and Management's Plans" of the consolidated financial statements for additional discussion regarding our liquidity.
Sources and Uses of Cash
Operating Activities
Our business used $(1.8) billion of net cash flows in operating activities during the six months ended May 31, 2020, a decrease of $5.0 billion, or (157)%, compared to $3.2 billion provided for the same period in 2019.
Investing Activities
During the six months ended May 31, 2020, net cash used in investing activities was $1.3 billion. This was driven by the following:
• Capital expenditures of $915 million for our ongoing new shipbuilding program
• Capital expenditures of $753 million for ship improvements and replacements, information technology and buildings and improvements
• Proceeds from sale of ships of $236 million
• Proceeds of $220 million from the settlement of outstanding derivatives
During the six months ended May 31, 2019, net cash used in investing activities was $2.9 billion. This was caused by the following:
• Capital expenditures of $2.1 billion for our ongoing new shipbuilding program
• Capital expenditures of $876 million for ship improvements and replacements, information technology and buildings and improvements
Financing Activities
During the six months ended May 31, 2020, net cash provided by financing activities of $9.4 billion was caused by the following:
• Net proceeds from short-term borrowings of $3.3 billion in connection with our availability of, and needs for, cash at various times throughout the period, including proceeds of $3.0 billion from the Revolving Facility
• Repayments of $383 million of long-term debt
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• Issuances of $6.7 billion of long-term debt, including net proceeds of $3.9 billion from the issuance of the 2023 Secured Notes and net proceeds of $2.0 billion from the issuance of the Convertible Notes
• Payments of cash dividends of $689 million
• Purchases of $12 million of Carnival plc ordinary shares in open market transactions under our Repurchase Program
• Net proceeds of $556 million from our public offering of Carnival Corporation common stock
During the six months ended May 31, 2019, net cash used in financing activities of $26 million was caused by the following:
• Net repayments of short-term borrowings of $357 million in connection with our availability of, and needs for, cash at various times throughout the period
• Repayments of $338 million of long-term debt
• Issuances of $1.7 billion of long-term debt
• Payments of cash dividends of $694 million
• Purchases of $316 million of Carnival Corporation common stock and Carnival plc ordinary shares in open market transactions under our Repurchase Program
Funding Sources
As of May 31, 2020, we had $7.6 billion of available liquidity, which consisted of cash and cash equivalents and borrowings available under a government commercial paper program . In addition, we have $8.8 billion of committed export credit facilities that are available to fund ship deliveries originally planned through 2023. Th ese 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 May 31, 2020 $ 2.8 $ 2.8 $ 2.3 $ 0.9
Many of our debt agreements contain various financial covenants, including those described in Note 3 - “Debt” and in Note 5 - "Debt" in the annual consolidated financial statements, which are included within our Form 10-K. At May 31, 2020, we were in compliance with our debt covenants.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interests, certain derivative instruments and variable interest entities that either have, or are reasonably likely to have, a current or future material effect on our consolidated financial statements.