What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-07 compared with 2020-10-08 · 110 added, 200 removed, 146 unchanged (68% of the section changed)

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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

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• Goodwill, ship and trademark fair values

• Pricing and occupancy

• Liquidity and credit ratings

• Interest, tax and fuel expenses

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• 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.

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• COVID-19 has had, and is expected to continue to have, a significant impact on our financial condition and operations, which impacts our ability to obtain acceptable financing to fund resulting reductions in cash from operations.

The current, and uncertain future, impact of the COVID-19 outbreak, including its effect on the ability or desire of people to travel (including on cruises), is expected to continue to impact our results, operations, outlooks, plans, goals, growth, reputation, litigation, cash flows, liquidity, and stock price

• As a result of the COVID-19 outbreak, we may be out of compliance with a maintenance covenant in certain of our debt facilities, for which we have waivers for the period through March 31, 2021 with the next testing date of May 31, 2021

• World events impacting the ability or desire of people to travel may lead to a decline in demand for cruises

• Incidents concerning our ships, guests or the cruise vacation industry as well as adverse weather conditions and other natural disasters may impact the satisfaction of our guests and crew and lead to reputational damage

• Changes in and non-compliance with laws and regulations under which we operate, such as those relating to health, environment, safety and security, data privacy and protection, anti-corruption, economic sanctions, trade protection and tax may lead to litigation, enforcement actions, fines, penalties, and reputational damage

• Breaches in data security and lapses in data privacy as well as disruptions and other damages to our principal offices, information technology operations and system networks, including the recent ransomware incident, and failure to keep pace with developments in technology may adversely impact our business operations, the satisfaction of our guests and crew and lead to reputational damage

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, reputation, litigation, cash flows, liquidity, and stock price.

• As a result of the COVID-19 outbreak, we may be out of compliance with one or more maintenance covenants in certain of our debt facilities, with the next testing date of November 30, 2022.

• World events impacting the ability or desire of people to travel have and may continue to 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 have in the past and may, in the future, 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 have in the past and may, in the future, lead to litigation, enforcement actions, fines, penalties and reputational damage.

• Breaches in data security and lapses in data privacy as well as disruptions and other damages to our principal offices, information technology operations and system networks, including the recent ransomware incidents, and failure to keep pace with developments in technology may adversely impact our business operations, the satisfaction of our guests and crew and may 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.

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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, 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.

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Resumption of Guest Operations

In the face of the global impact of COVID-19, we paused our guest cruise operations in mid-March.

We resumed limited guest operations in September 2020, with Costa Cruises ("Costa") successful voyages on two of our ships, Costa Deliziosa and Costa Diadema.

We are continuing the limited resumption of our guest cruise operations with sailings on additional Costa ships shortly, as well as with sailings on AIDA Cruises ("AIDA") which are anticipated to begin in mid-October 2020.

These brands are beginning our anticipated gradual, phased-in resumption of guest cruise operations.

The initial cruises will continue to take place with adjusted passenger capacity and enhanced health protocols developed with government and health authorities, and guidance from our roster of medical and scientific experts.

Other brands and ships are expected to return to service over time to provide guests with unmatched joyful vacations in a manner consistent with our highest priorities, which are compliance, environmental protection and the health, safety and well-being of our guests, crew, shoreside employees and the people in the communities our ships visit.

Many of our brands source the majority of their guests from the geographical region in which they operate.

In the current environment, we believe this will benefit us in resuming guest cruise operations.

The company is uniquely positioned for a phased resumption in cruise travel given its multiple brands which can each be restarted independently and tailored to the environment of their respective source market.

AIDA Cruises (“AIDA”) resumed guest cruise operations in late March sailing in the Canary Islands.

Costa Cruises (“Costa”) expects to resume operations in May sailing to Italian ports.

P&O Cruises (UK), Cunard and Princess Cruises will each offer a series of cruises this summer sailing around UK coastal waters with P&O Cruises (UK) kicking off the season in June followed by Cunard and Princess Cruises in July.

Seabourn also expects to resume guest cruise operations this summer sailing from Greece.

In addition, this summer Holland America Line and Princess Cruises expect to offer land-based vacation options for travelers to experience Alaska through a combination of tours, lodging and sightseeing.

Health and Safety Protocols

Working with global and national health authorities and medical experts, Costa and AIDA have a comprehensive set of health and hygiene protocols to help facilitate a safe and healthy return to cruise vacations.

Both brands are providing guests with detailed information about enhanced protocols, which are modeled after shoreside health and mitigation guidelines as provided by each brand's respective country, and approved by the flag state, Italy.

Initial cruises are taking place with adjusted passenger capacity and enhanced health protocols developed with government and health authorities, and guidance from the company's roster of medical and scientific experts.

The company has been working with a number of world-leading public health, epidemiological and policy experts to support its ongoing efforts with enhanced health and safety protocols to help protect against and mitigate the impact of COVID-19 during cruise vacations.

The company's brands have a comprehensive set of health and hygiene protocols that facilitate a safe and healthy return to cruise vacations.

These enhanced protocols are modeled after shoreside health and mitigation guidelines as provided by each brand's respective country, and approved by all relevant regulatory authorities.

Protocols will be updated based on evolving scientific and medical knowledge related to mitigation strategies.

Costa is the first cruise company to earn the Biosafety Trust Certification from Registro Italiano Navale ("RINA").

The certification process examined all aspects of life onboard and ashore and assessed the compliance of the system with procedures aimed at the prevention and control of infections.

Costa's comprehensive set of measures and procedures implemented on the ships that resumed operations cover key areas such as crew health and safety, the booking process, guest activities, entertainment and dining, and medical care on board, as well as pre-boarding, embarkation and disembarkation operations, which includes testing for all guests prior to embarkation.

More broadly, as the understanding of COVID-19 continues to evolve, we have been working with a number of world-leading public health, epidemiological and policy experts to support our ongoing efforts with enhanced protocols and procedures for the return of cruise vacations.

These advisors will continue to provide guidance based on the latest scientific evidence and best practices for protection and mitigation.

Optimizing the Future Fleet

We expect future capacity to be moderated by the phased re-entry of our ships, the removal of capacity from our fleet and delays in new ship deliveries.

Since the pause in guest operations, we have accelerated the removal of ships in fiscal 2020 which were previously expected to be sold over the ensuing years.

We now expect to dispose of 18 ships, 10 of which have already left the fleet.

In total, the 18 ships represent approximately 12 percent of pre-pause capacity and only three percent of operating income in 2019.

The sale of less efficient ships will result in future operating expense efficiencies of approximately two percent per available lower berth day ("ALBD") and a reduction in fuel consumption of approximately one percent per ALBD.

We expect only two of the four ships originally scheduled for delivery in 2020, following the start of the pause, to be delivered prior to the end of fiscal 2020, including Enchanted Princess which was delivered in September 2020.

We currently expect only five of the nine ships originally scheduled for delivery in fiscal 2020 and 2021 to be delivered prior to the end of fiscal year 2021.

We currently expect nine cruise ships and two smaller expedition ships of the 13 ships originally scheduled for delivery prior to the end of fiscal year 2022 to be delivered by then.

Based on the actions taken to date and the scheduled newbuild deliveries through 2022, our fleet will be more efficient with a roughly 13 percent larger average berth size per ship and an average age of 12 years in 2022 versus 13 years, in each case as compared to 2019.

Ships expected to return to service

as of August 31, 2020 (a)

Passenger Capacity Percentage of Total Capacity Number of Cruise Ships

Carnival Cruise Line 66,440 30 % 23

Princess Cruises 38,950 18 13

Holland America Line 20,260 9 10

P&O Cruises (Australia) 7,230 3 3

Seabourn 2,570 1 5

135,450 61 54

Costa Cruises ("Costa") 34,980 16 11

AIDA Cruises ("AIDA") 31,930 14 14

P&O Cruises (UK) 13,810 6 5

Cunard 6,830 3 3

223,000 100 % 87

(a) Excludes 18 ships that we expect to dispose.

Ten ships have left the fleet and we expect six ships to leave the fleet by December 2020, one by February 2021 and one by May 2021.

Update on Bookings

While we believe bookings in the first half of 2021 reflect expectations of the phased resumption of our guest cruise operations and anticipated itinerary changes, as of September 20, 2020, cumulative advanced bookings for the second half of 2021 capacity currently available for sale are at the higher end of the historical range.

We believe this demonstrates the long-term potential demand for cruising.

Pricing on these bookings are lower by mid-single digits versus the second half of 2019, on a comparable basis, reflecting the effect of FCCs from previously cancelled cruises being applied.

We c ontinue to take bookings for both 2021 and 2022.

We are providing flexibility to guests with bookings on sailings cancelled by allowing guests to receive enhanced FCCs or elect to receive refunds in cash.

Enhanced FCCs increase the value of the guest's original booking or provide incremental onboard credits.

As of September 20, 2020, approximately 45 percent of guests affected by our schedule changes have received enhanced FCCs and approximately 55 percent have requested refunds.

Total customer deposits balance at August 31, 2020, was $2.4 billion, the majority of which are FCCs, compared to total customer deposits balance of $2.9 billion at May 31, 2020.

The decline in customer deposits is consistent with previous

expectations.

As of August 31, 2020, the current portion of customer deposits was $2.1 billion with $0.1 billion relating to fourth quarter sailings.

Approximately 60 percent of bookings taken during the three weeks ended September 20, 2020 were new bookings, as opposed to FCC re-bookings, despite minimal advertising or marketing.

In addition to the jurisdictions associated with the restart plans noted above, the company continues to work closely with governments and health authorities in other parts of the world to ensure that its health and safety protocols will also comply with the requirements of each location.

Update on Liquidity

Refer t o “Liq uidity, Financial Condition and Capital Resour ces.

Refer to “Liquidity, Financial Condition and Capital Resources.”

Refer to “Risk Factors” - “ COVID-19 has had, and is expected to continue to have, a significant impact on our financial condition and operations, which impacts our ability to obtain acceptable financing to fund resulting reductions in cash from operations.

Update on Cyber Incident

On August 15, 2020, we detected a ransomware attack and unauthorized access to our information technology systems.

We engaged a major cybersecurity firm to investigate the matter and notified law enforcement and regulators of the incident.

While the investigation is ongoing, early indications are that the unauthorized third-party gained access to certain personal information relating to some guests, employees and crew for some of our operations.

There is currently no indication of any misuse of this information.

While at this time we do not believe that this information will be misused going forward or that this incident will have a material adverse effect on our business, operations or financial results, no assurances can be given and further we may be subject to future attacks or incidents that could have such a material adverse effect.

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, reputation, litigation, cash flows, liquidity, and stock price.

New Accounting Pronouncements

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For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that is included in the Form 10-K.

A discussion of our goodwill impairment charges recognized during the first and second quarters of 2020, and ship impairment charges recognized during 2020 is included in the accompanying consolidated financial statements.

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Our passenger ticket revenues are seasonal.

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In addition, substantially all of Holland America Princess Alaska Tours’ revenue and net income (loss) is generated from May through September in conjunction with Alaska's cruise season.

During 2020, the Alaska cruise season was adversely impacted by the effects of COVID-19.

During 2021, the Alaska cruise season will continue to be adversely impacted by the effects of COVID-19.

Statistical Information

Three Months Ended

August 31, Nine Months Ended

2020 2019 2020 2019

ALBDs (in thousands) (a) — 22,727 25,598 65,671

Occupancy percentage (b) — % 113.0 % 103.1 % 107.8 %

Passengers carried (in thousands) — 3,752 3,489 9,790

Three Months Ended February 28/29,

Fuel consumption in metric tons (in thousands) 262 831

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RMB $ 0.15 $ 0.14

We paused our guest operations in mid-March 2020 and have been in a pause for a majority of the second quarter and all of the third quarter.

The pause in guest operations is continuing to have material negative impacts on all aspects of our business, including the above statistical information.

Notes to Statistical Information

(a) ALBD is a standard measure of passenger capacity for the period that we use to approximate rate and capacity variances, based on consistently applied formulas that we use to perform analyses to determine the main non-capacity driven factors that cause our cruise revenues and expenses to vary.

ALBDs assume that each cabin we offer for sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-producing ship operating days in the period.

(b) In accordance with cruise industry practice, occupancy is calculated using a denominator of ALBDs, which assumes two passengers per cabin even though some cabins can accommodate three or more passengers.

Percentages in excess of 100% indicate that on average more than two passengers occupied some cabins.

We paused our guest cruise operations in mid-March 2020 and have been in a pause for a majority of 2020 and the first quarter of 2021.

The pause in guest cruise operations is continuing to have material negative impacts on all aspects of our business, including the above statistical information.

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Results of Operations

Three Months Ended August 31, % increase (decrease) Nine Months Ended August 31, % increase (decrease)

(in millions) 2020 2019 Change 2020 2019 Change

Three Months Ended February 28/29, % increase (decrease)

(in millions) 2021 2020 Change

Passenger ticket $ 3 $ 3,234 $ (3,231) (100) %

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Operating Income (Loss) $ (1,524) $ (713) $ (810) 114 %

Three Months Ended August 31, % increase (decrease) Nine Months Ended August 31, % increase (decrease)

(in millions) 2020 2019 Change 2020 2019 Change

Three Months Ended February 28/29, % increase (decrease)

(in millions) 2021 2020 Change

Passenger ticket $ — $ 2,052 $ (2,053) (100) %

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Operating Income (Loss) $ (859) $ (197) $ (663) 337 %

Three Months Ended August 31, % increase (decrease) Nine Months Ended August 31, % increase (decrease)

(in millions) 2020 2019 Change 2020 2019 Change

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Three Months Ended February 28/29, % increase (decrease)

(in millions) 2021 2020 Change

Passenger ticket $ 3 $ 1,213 $ (1,210) (100) %

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Operating Income (Loss) $ (482) $ (569) $ 87 (15) %

We paused our guest operations in mid-March 2020 and as a result have been in a pause for a majority of the second quarter and all of the third quarter.

We resumed limited guest cruise operations in September 2020 as part of our phased-in return to service.

The partial pause in guest operations is continuing to have material negative impacts on all aspects of our business.

The longer the partial pause in guest operations continues, the greater the impact on our liquidity and financial position.

As a result of the pause in our guest cruise operations, we have experienced essentially no revenue for the three months ended and meaningfully lower revenues for the nine months ended August 31, 2020 compared to the prior year periods resulting in operating losses for the current periods.

We are unable to definitively predict the timing of our complete return to service.

As a result, we are currently unable to provide an earnings forecast.

We expect a net loss on both a U.S.

GAAP and adjusted basis for the quarter and year ending November 30, 20 20 .

W hile maintaining compliance, environmental protection and safety, we significantly reduced ship operating expenses, including cruise payroll and related expenses, food, fuel, insurance and port charges by transitioning ships into paused status, either at anchor or in port and staffed at a safe manning level.

We continue to seek ways to further reduce our ongoing ship operating expenses.

In addition, during the nine months ended August 31, 2020, we incurred incremental COVID-19 related costs associated with repatriating guests and crew members, enhancing health protocols and sanitizing our ships, restructuring costs and defending lawsuits.

As a result of the effects of COVID-19 on our expected future operating cash flows, we recognized goodwill impairment charges of $2.1 billion during the nine months ended August 31, 2020.

In addition, we recognized ship impairment charges of $0.8 billion and $1.7 billion during the three and nine months ended August 31, 2020, respectively.

We paused our guest cruise operations in mid-March 2020.

We resumed limited guest cruise operations in September 2020 as part of our phased return to service.

As of February 28, 2021, none of our ships were operating with guests onboard.

The pause in guest cruise 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.

As a result of the pause in our guest cruise operations, we have experienced essentially no revenue for the three months ended February 28, 2021.

This has resulted in an operating loss for the current period .

The pause in guest cruise operations continues to have a material negative impact on all aspects of our business, including our liquidity, financial position and results of operations.

We continue to expect a net loss on both a U.S.

GAAP and adjusted basis for the second quarter of 2021 and the full year ending November 30, 2021 .

While maintaining compliance, environmental protection and safety, we significantly reduced ship operating expenses, including cruise payroll and related expenses, food, fuel, insurance and port charges by transitioning ships into paused status, either at anchor or in port and staffed at a safe manning level.

We continue to identify and implement actions to optimize our ongoing ship operating expenses.

As we continue to resume guest cruise operations, we expect to incur incremental spend relating to bringing our ships out of pause status, returning crew members to our ships and implementing the enhanced health and safety protocols.

There were no goodwill or ship impairment charges for the three months ended February 28, 2021.

As a result of the effects of COVID-19 on our expected future operating cash flows, we recognized goodwill impairment charges of $731 million and ship impairment charges of $330 million for the three months ended February 29, 2020.

Nonoperating Income (Expense)

Interest expense, net of capitalized interest, increased by $343 million to $398 million in 2021 from $55 million in 2020.

The increase was caused by additional debt borrowings with higher interest rates since the pause in guest cruise operations.

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Key Performance Non-GAAP Financial Indicators

The table below reconciles Adjusted net income (loss) and Adjusted EBITDA to Net income (loss) and Adjusted earnings per share to Earnings per share for the periods presented:

Three Months Ended Nine Months Ended

August 31, August 31,

Three Months Ended February 28/29,

(in millions, except per share data) 2021 2020

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Restructuring expenses — —

Other 220 25 223 47

Adjusted net income (loss) $ (1,954) $ 150

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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.

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Liquidity, Financial Condition and Capital Resources

We have taken, and continue to take, significant actions to preserve cash and secure additional financing to increase our liquidity.

Since March 2020, we have raised $12.5 billion through a series of financing transactions through October 2, 2020.

We have completed the following transactions:

• In March 2020, we fully drew down our $3.0 billion Revolving Facility.

• In March 2020, we settled outstanding derivatives resulting in proceeds of $220 million.

• In April 2020, we completed (i) a public offering of 71,875,000 shares of Carnival Corporation’s common stock at a price per share of $8.00, resulting in net proceeds of $556 million and (ii) a private offering of $2.0 billion aggregate principal amount of 5.75% Convertible Notes.

• In April 2020, we completed a private offering of $4.0 billion aggregate principal amount of 11.5% 2023 Secured Notes that mature on April 1, 2023.

• In April 2020, we extended a $166 million euro-denominated bank loan, originally maturing in 2020, to March 2021.

• Certain of the counterparties to our export credit facilities have offered the Debt Holiday.

We have entered into supplemental agreements or side letters for the Debt Holiday amendments to defer certain principal repayments otherwise due through March 31, 2021 through the creation of separate tranches of loans with repayments made over the following four years.

We have also entered into supplemental agreements or side letters to waive the Financial Covenant for our funded export credit facilities through March 31, 2021, August 31, 2021, November 30, 2021 or December 31, 2021, as applicable.

We will be required to comply with the Financial Covenant beginning with the next testing date of May 31, 2021, November 30, 2021, February 28, 2022 or February 28, 2022, respectively.

• Subsequent to August 31, 2020, we extended the Financial Covenant waivers for our funded export credit facilities through at least November 30, 2021 (with the next testing date of February 28, 2022) except that for three of our funded export credit facilities with Financial Covenant waivers through March 31, 2021 (with the next testing date of May 31, 2021) or August 31, 2021 (with the next testing date of November 30, 2021), with total aggregate indebtedness of $1.3 billion as of August 31, 2020, we are currently engaged in discussions to extend the waivers for these facilities through November 30, 2021 (with the next testing date of February 28, 2022).

• We obtained waivers of the Financial Covenant for certain of our bank loans through November 2021.

We will be required to comply with the covenant beginning with the next testing date of February 28, 2022.

We have also obtained waivers of the covenant for the remaining applicable bank loans through their respective maturity dates.

• To further enhance our liquidity, as well as comply with the dividend restrictions contained in our recent debt agreements, we have suspended the payment of dividends on, and the repurchase of, the common stock of Carnival Corporation and the ordinary shares of Carnival plc.

• In June 2020, we borrowed an aggregate principal amount of $2.8 billion in two tranches ($1.9 billion and €800 million), under the 2025 Secured Term Loan that matures on June 30, 2025.

dollar tranche bears interest at a rate per annum equal to adjusted LIBOR (with a 1% floor) plus 7.5%.

The euro tranche bears interest at a rate per annum equal to EURIBOR (with a 0% floor) plus 7.5%.

• In July 2020, we extended a $337 million euro-denominated floating rate bank loan originally maturing in 2021 to 2022.

• In July 2020, we issued an aggregate principal amount of $1.3 billion in two tranches ($775 million and €425 million), under 2026 Secured Notes, that mature on February 1, 2026.

dollar tranche bears interest at a rate of 10.5% per year.

The euro tranche bears interest at a rate of 10.1% per year.

• In August 2020, we completed a registered direct offering of 99.2 million shares of Carnival Corporation's common stock at a price per share of $14.02 to a limited number of holders of the Convertible Notes (the "Registered Direct Offering").

We used the proceeds from the Registered Direct Offering to repurchase $886 million aggregate principal amount of the Convertible Notes and pay accrued interest thereon in privately negotiated transactions.

• In August 2020, we issued an aggregate principal amount of $900 million of second-priority senior secured notes that mature on August 1, 2027.

The 2027 Secured Notes bear interest at a rate of 9.9% per year.

• On September 15, 2020, we entered into an equity distribution agreement with sales agents pursuant to which we may, from time to time, offer and sell shares of Carnival Corporation's common stock having an aggregate offering price of up to $1.0 billion through the sales agents.

We have filed a prospectus supplement with the Securities and Exchange Commission in connection with the ATM Offering on September 15, 2020.

As of October 2, 2020, we sold 23 million shares for net proceeds of $352 million and paid $4 million in compensation with respect of such sales of shares under the ATM Offering.

• In September 2020, we borrowed $610 million under an export credit facility due in semi-annual installments through 2032.

As of August 31, 2020, we had a total of $8.2 billion of cash and cash equivalents.

Our monthly average cash burn rate for the third quarter 2020 was $770 million, which was in line with the anticipated monthly cash burn rate.

We expect the monthly average cash burn rate for the fourth quarter of 2020 to be approximately $530 million.

This results in an average monthly burn rate for the second half of the year of $650 million, as previously disclosed.

This rate includes approximately $250 million of ongoing ship operating and administrative expenses, working capital changes (excluding changes in customer deposits), interest expense and committed capital expenditures (net of unfunded export credit facilities) and also excludes scheduled debt maturities as well as other cash collateral to be provided.

We continue to explore opportunities to further reduce our monthly cash burn rate.

We estimate non-newbuild capital expenditures during the fourth quarter of 2020 to be approximately $130 million.

Our scheduled debt maturities, for debt outstanding as of August 31, 2020, are as follows:

(in billions) 4Q 2020 1Q 2021 2Q 2021 3Q 2021 4Q 2021

Principal Payments (a) $ 1.0 $ 0.5 $ 0.3 (b) $ 0.6 $ 0.2 (b)

(a) Excluding the Revolving Facility.

As of August 31, 2020, borrowings under the Revolving Facility were $3.0 billion, which were drawn in March 2020 for an initial term of six months.

The maturities for these borrowings were extended in September 2020 for an additional six months through March 2021.

We may re-borrow such amounts subject to satisfaction of the conditions in the Revolving Facility Agreement.

(b) We have a principal balance of $0.5 billion and $0.8 billion of debt outstanding as of August 31, 2020, otherwise due through 2032, for which covenant waivers expire during the second quarter 2021 and fourth quarter 2021, respectively.

We are working on extending these covenant waivers.

If the covenant waiver extensions are not received, we would be required to prepay the outstanding principal balance.

Since March 2020, Moody’s and S&P Global have downgraded our credit ratings to be below investment grade.

Our current short-term commercial paper credit rating prevents us from issuing additional commercial paper.

We had a working capital deficit of $916 million as of August 31, 2020 compared to a working capital deficit of $7.1 billion as of November 30, 2019.

The decrease in working capital deficit was caused by an increase in cash and cash equivalents and a decrease in customer deposits, partially offset by increases in short-term borrowings and the current portion of long-term debt.

Historically, we operate with a substantial working capital deficit.

We have taken, and continue to take, significant actions to preserve cash and obtain additional financing to increase our liquidity.

S ince the start of the pause in guest cruise operations in March 2020, we have raised $23.6 billion through a series of transactions .

S ince December 2020, we have raised $6.0 billion including completing the following:

• In December 2020, we borrowed $1.5 billion under export credit facilities due in semi-annual installments through 2033.

• In February 2021, we issued an aggregate principal amount of $3.5 billion under the 2027 Senior Unsecured Notes that mature on March 1, 2027.

The 2027 Senior Unsecured Notes bear interest at a rate of 5.8% per year.

• In February 2021, we completed a public offering of 40.5 million shares of Carnival Corporation’s common stock at a price per share of $25.10, resulting in net proceeds of $996 million.

• During the first quarter of 2021, we obtained waivers of compliance with the Interest Coverage Covenant and Debt to Capital Covenant in our export credit facilities through August 31, 2022 (with the next testing date of November 30, 2022) or November 30, 2022 (with the next testing date of February 28, 2023) for our funded export credit facilities with aggregate indebtedness of $8.9 billion as of February 28, 2021 and unfunded export credit facilities with an aggregate principal amount of $6.5 billion as of February 28, 2021.

• During the first quarter of 2021 we entered into supplemental agreements with respect to our Revolving Credit Facility and many of our bank loans.

Under our Revolving Credit Facility and many of our bank loans, we are now required to maintain the Interest Coverage Covenant from February 28, 2023, at a ratio of not less than 2.0 to 1.0 for the February 28, 2023 and May 31, 2023 testing dates, 2.5 to 1.0 for the August 31, 2023 and November 30, 2023 testing dates, and 3.0 to 1.0 from the February 28, 2024 testing date onwards, or through their respective maturity dates, and the Debt to Capital Covenant at the end of each fiscal quarter before the November 30, 2021 testing date at a percentage not to exceed 65%.

From the November 30, 2021 testing date until the May 31, 2023 testing date the Debt to Capital Covenant is not to exceed 75%, following which it will be tested at levels which decline ratably to 65% from the May 31, 2024 testing date onwards.

As of February 28, 2021, we had $11.5 billion of cash and short-term investments.

During the remainder of fiscal 2021, the company expects to refinance debt at lower interest rates and extend maturities.

Our access to and cost of financing depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings.

In addition, certain of our debt instruments contain provisions that may limit our ability to incur or guarantee additional indebtedness.

Our monthly average cash burn rate for the first quarter of 2021 was $500 million, which was better than expected primarily due to the timing of capital expenditures.

We expect our monthly average cash burn rate for the first half of 2021 to be approximately $550 million, which is better than previously expected.

This is a result of our efforts to optimize our monthly spend despite higher restart related spend.

This monthly average cash burn rate includes ongoing ship operating and administrative expenses, estimated restart spend, working capital changes (excluding changes in customer deposits), interest expense and capital expenditures (net of export credit facilities), and excludes scheduled debt maturities as well as other cash collateral to be provided (which may increase in the future).

We have identified and implemented actions to optimize our monthly cash burn rate and we will continue to do so.

We had working capital of $3.8 billion as of February 28, 2021 compared to working capital of $1.9 billion as of November 30, 2020.

The increase in working capital was caused by an increase in cash and short-term investments.

Historically, during our normal operations, 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.

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The cash received as advanced receipts can be used to fund operating expenses, pay down our debt, make long-term investments or any other use of cash.

Included within our working capital deficit were $2.1 billion and $4.7 billion of customer deposits as of August 31, 2020 and November 30, 2019, respectively.

We are providing flexibility to guests with bookings on sailings cancelled due to the pause by allowing guests to receive enhanced FCCs or elect to receive refunds in cash.

We have paid and expect to continue to pay cash refunds of customer deposits with respect to a portion of these cancelled cruises.

Included within our working capital are $1.8 billion and $1.9 billion of customer deposits as of February 28, 2021 and November 30, 2020, respectively.

We have paid and expect to continue to pay cash refunds of customer deposits with respect to a portion of cancelled cruises.

The amount of cash refunds to be paid may depend on the level of guest acceptance of FCCs and future cruise cancellations.

We record a liability for FCCs to the extent we have received cash from guests with bookings on cancelled sailings.

As of August 31, 2020, approximately 55% of guests affected have requested cash refunds.

We record a liability for FCCs only to the extent we have received cash from guests with bookings on cancelled sailings.

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.

We expect that we will have working capital deficits in the future once we return to normal guest cruise operations.

Table of C ontents

Refer to Note 1 - “General, Liquidity and Management's Plans ” of the consolidated financial statements for additional discussion regarding our liquidity.

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Operating Activities

Our business used $4.6 billion of net cash flows in operating activities during the nine months ended August 31, 2020, a decrease of $9.1 billion, or 205%, compared to $4.4 billion of net cash provided for the same period in 2019.

Our business used $1.5 billion of net cash flows in operating activities during the three months ended February 28, 2021, a decrease of $2.4 billion, compared to $916 million of net cash provided for the same period in 2020.

Investing Activities

During the nine months ended August 31, 2020, net cash used in investing activities was $1.5 billion.

This was caused by the following:

During the three months ended February 28, 2021, net cash used in investing activities was $3.6 billion.

This was driven by the following:

• Capital expenditures of $1.7 billion for our ongoing new shipbuilding program

• Capital expenditures of $81 million for ship improvements and replacements, information technology and buildings and improvements

• Proceeds from sale of ships of $271 million

• Proceeds of $220 million from the settlement of outstanding derivatives

During the nine months ended August 31, 2019, net cash used in investing activities was $3.3 billion.

This was caused by the following:

• Capital expenditures of $2.2 billion for our ongoing new shipbuilding program

• Capital expenditures of $1.2 billion for ship improvements and replacements, information technology and buildings and improvements

• Proceeds from sale of ships of $15 million

• Purchases of short-term investments of $1.8 billion

During the three months ended February 29, 2020, net cash used in investing activities was $1.2 billion.

This was substantially due to the following:

• Capital expenditures of $861 million for our ongoing new shipbuilding program

• Capital expenditures of $399 million for ship improvements and replacements, information technology and buildings and improvements

• Proceeds from sales of ships of $226 million

• Purchase of minority interest of $81 million

Financing Activities

During the nine months ended August 31, 2020, net cash provided by financing activities of $13.7 billion was caused by the following:

• Net proceeds from short-term borrowings of $3.1 billion in connection with our availability of, and needs for, cash at various times throughout the period, including proceeds of $3.0 billion from the Revolving Facility

• Repayments of $896 million of long-term debt, including the $222 million that was cash settled to repurchase a portion of the Convertible Notes

• Issuances of $11.5 billion of long-term debt, including net proceeds of $3.9 billion from the issuance of the 2023 Secured Notes, net proceeds of $2.6 billion from the issuance of the 2025 Secured Term Loan, net proceeds of $2.0 billion from the issuance of Convertible Notes, net proceeds of $1.2 billion from the issuance of the 2026 Secured Notes and net proceeds of $0.9 billion from the issuance of the 2027 Secured Notes.

During the three months ended February 28, 2021, net cash provided by financing activities of $5.2 billion was caused by the following:

• Repayments of $668 million of long-term debt

• Issuances of $5.0 billion of long-term debt, including net proceeds of $3.4 billion from the issuance of the 2027 Senior Unsecured Notes

• Net proceeds of $996 million from our public equity offering of Carnival Corporation common stock

During the three months ended February 29, 2020, net cash provided by financing activities of $1.1 billion was caused by the following:

• Net proceeds from short-term borrowings of $779 million in connection with our availability of, and needs for, cash at various times throughout the period

• Repayments of $132 million of long-term debt

• Issuances of $823 million of long-term debt

• Payments of cash dividends of $344 million

• Purchases of $12 million of Carnival plc ordinary shares in open market transactions under our Repurchase Program

• Net proceeds of $556 million from our public offering of Carnival Corporation common stock

• Net proceeds of $222 million from a registered direct offering of Carnival Corporation common stock used to repurchase a portion of the Convertible Notes

During the nine months ended August 31, 2019, net cash used in financing activities of $912 million was caused by the following:

• Net repayments of short-term borrowings of $600 million in connection with our availability of, and needs for, cash at various times throughout the period

• Repayments of $472 million of long-term debt

• Issuances of $1.7 billion of long-term debt

• Payments of cash dividends of $1.0 billion

• Purchases of $472 million of Carnival Corporation common stock and Carnival plc ordinary shares in open market transactions under our Repurchase Program

Table of C ontents

Funding Sources

As of August 31, 2020, we had $8.2 billion of cash and cash equivalents.

As of February 28, 2021, we had $11.5 billion of cash and short-term investments.

In addition, we had $6.5 billion of export credit facilities to fund ship deliveries planned through 2024.

(in billions) 2021 2022 2023 2024

Future export credit facilities at August 31, 2020 (a) $ 1.5 $ 2.0 $ 3.4 $ 1.9 $ 0.6

(a) Under the terms of these export credit facilities, we are required to comply with the Financial Covenant.

We have entered into supplemental agreements or side letters to amend our agreements with respect to the Financial Covenant for our unfunded export credit facilities to waive compliance through August 31, 2021 (with the next testing date of November 30, 2021) for aggregate principal of $2.7 billion, through November 30, 2021 (with the next testing date of February 28, 2022) for aggregate principal of $1.2 billion (of which we borrowed $610 million to fund delivery of a ship in September 2020), and through December 31, 2021 (with the next testing date of February 28, 2022) for aggregate principal of $3.7 billion.

For the remaining three unfunded export credit facilities with an aggregate principal of $1.8 billion, we are engaged in discussions with the counterparties to waive the Financial Covenant through March 31, 2021 (with the next testing date of May 31, 2021).

Simultaneously with obtaining the initial waivers for these three unfunded export credit facilities, we have also requested extension of waivers for these facilities through November 30, 2021 (with the next testing date of February 28, 2022).

Many of our debt agreements contain various other financial covenants, including those described in Note 3 - “Debt” and in Note 5 - “Deb” in the annual consolidated financial statements, which are included within our Form 10-K.

At August 31, 2020, we were in compliance with the applicable debt covenants.

Future export credit facilities at February 28, 2021 (a) $ 0.5 $ 3.4 $ 1.9 $ 0.6

(a) Under the terms of these export credit facilities, we are required to comply with the Interest Coverage Covenant and the Debt to Capital Covenant, among others.

We entered into supplemental agreements to waive compliance with the Interest Coverage Covenant and the Debt to Capital Covenant for our unfunded export credit facilities through August 31, 2022 or November 30, 2022, as applicable.

We will be required to comply beginning with the next testing date of November 30, 2022 or February 28, 2023, as applicable.

Many of our debt agreements contain various other 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 February 28, 2021, we were in compliance with the applicable covenants under our debt agreements.

Off-Balance Sheet Arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis