What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-06-28 compared with 2021-04-07 · 79 added, 78 removed, 178 unchanged (47% of the section changed)

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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.

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, as amended.

All statements other than statements of historical facts are statements that could be deemed forward-looking.

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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:

• Estimates of ship depreciable lives and residual values

• Booking levels

• Goodwill, ship and trademark fair values

• Booking levels

• Liquidity and credit ratings

• Interest, tax and fuel expenses

• Adjusted earnings per share

• Interest, tax and fuel expenses

• Return to guest cruise operations

• Currency exchange rates

• Impact of the COVID-19 coronavirus global pandemic on our financial condition and results of operations

• Estimates of ship depreciable lives and residual values

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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• 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.

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Resumption of Guest 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

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.

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

Eight of the company’s nine brands either have resumed or have announced they plan to resume guest cruise operations by the company's fiscal year end, November 30, 2021.

27 ships, or approximately 35% of capacity, have resumed or are announced to resume by the end of the third quarter of 2021 and an additional 15 ships, or nearly 20% of capacity, are announced to resume by the end of the fourth quarter of 2021.

Together these 42 ships represent over 50% of capacity.

More announcements are expected in the coming weeks which are expected to include additional ship restarts for fiscal year 2021.

Consistent with the company's planned phased resumption of guest cruise operations, it expects to have its full fleet back in operation in the spring of 2022.

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

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

Consequently, 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.

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

Update on Liquidity and Refinancing

Refer to "Liquidity, Financial Condition and Capital Resources."

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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.

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Our passenger ticket revenues are seasonal.

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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.

This historical trend has been disrupted by the pause and phased resumption of guest 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.

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Statistical Information

Three Months Ended February 28/29,

Three Months Ended

May 31, Six Months Ended

2021 2020 2021 2020

Fuel consumption in metric tons (in thousands) 246 482 508 1,314

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RMB $ 0.15 $ 0.14 $ 0.15 $ 0.14

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

The phased resumption of guest cruise operations is continuing to have a material impact on all aspects of our business.

Results of Operations

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

(in millions) 2021 2020 Change

Three Months Ended

May 31, % increase (decrease) Six Months Ended May 31, % increase (decrease)

(in millions) 2021 2020 Change 2021 2020 Change

Passenger ticket $ 20 $ 446 $ (426) (95) % $ 23 $ 3,680 $ (3,657) (99) %

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Operating Income (Loss) $ (1,616) $ (4,177) $ 2,562 (61) % $ (3,139) $ (4,891) $ 1,751 (36) %

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

(in millions) 2021 2020 Change

Three Months Ended

May 31, % increase (decrease) Six Months Ended May 31, % increase (decrease)

(in millions) 2021 2020 Change 2021 2020 Change

Passenger ticket $ 2 $ 271 $ (269) (99) % $ 1 $ 2,324 $ (2,322) (100) %

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Operating Income (Loss) $ (930) $ (2,860) $ 1,929 (67) % $ (1,790) $ (3,056) $ 1,266 (41) %

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

(in millions) 2021 2020 Change

Three Months Ended

May 31, % increase (decrease) Six Months Ended May 31, % increase (decrease)

(in millions) 2021 2020 Change 2021 2020 Change

Passenger ticket $ 19 $ 184 $ (166) (90) % $ 22 $ 1,397 $ (1,375) (98) %

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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.

As of May 31, 2021, five of our ships were operating with guests onboard.

Eight of our nine brands either have resumed or are announced to resume guest operations by November 30, 2021, as part of our phased return to service.

The phased resumption of guest cruise operations is continuing to have a material impact on all aspects of our business, including our liquidity, financial position and results of operations .

The full extent of the impact will be determined by our phased return to service and the length of time COVID-19 influences travel decisions.

As a result of the phased resumption of our guest cruise operations, we have experienced essentially no revenue for the three and six months ended May 31, 2021.

This has resulted in operating losses for the current periods .

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 .

GAAP and adjusted basis for the third 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.

There were no goodwill impairment charges for the six months ended May 31, 2021.

For the three and six months ended May 31, 2020, we recognized goodwill impairment charges of $1.4 billion and $2.1 billion.

We recognized a ship impairment charge of $49 million for the three and six months ended May 31, 2021 and ship impairment charges of $498 million and $828 million for the three and six months ended May 31, 2020.

Nonoperating Income (Expense)

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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 February 28/29,

Three Months Ended

May 31, Six Months Ended

(in millions, except per share data) 2021 2020 2021 2020

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Restructuring expenses 3 39 3 39

Other (2) — 13 3

Adjusted net income (loss) $ (2,036) $ (2,382) $ (3,990) $ (2,231)

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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 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:

As of May 31, 2021, we had $9.3 billion of cash and short-term investments.

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

We continue to focus on pursuing additional refinancing opportunities to reduce interest expense and extend maturities.

S ince December 2020, we have completed the following:

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

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• 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 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 $8.8 billion as of May 31, 2021 and unfunded export credit facilities with an aggregate principal amount of $6.5 billion as of May 31, 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.

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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.

• The relevant export credit agencies have provided approval in principle to defer approximately $1.0 billion of principal payments that would otherwise have been due over a one year period with repayments to be made over the following five years.

In connection with these deferrals, we are negotiating modifications of certain financial covenant thresholds for certain future periods.

We expect to enter into supplemental agreements during the third quarter of 2021 to complete these transactions.

In connection with such supplemental agreements, additional subsidiary guarantees will be granted.

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 half of 2021 was $500 million, which was better than forecasted primarily due to the timing of proceeds from ship sales and working capital changes.

This monthly average cash burn rate includes revenues earned on voyages, ongoing ship operating and administrative expenses, 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 ongoing monthly cash burn rate and we will continue to do so.

We had working capital of $1.4 billion as of May 31, 2021 compared to working capital of $1.9 billion as of November 30, 2020.

The decrease in working capital was driven by a decrease in cash and short-term investments.

Historically, during our normal operations, we operate with a substantial working capital deficit.

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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 are $1.8 billion and $1.9 billion of customer deposits as of February 28, 2021 and November 30, 2020, respectively.

Included within our working capital are $2.0 billion and $1.9 billion of customer deposits as of May 31, 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.

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

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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 $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.

Our business used $2.9 billion of net cash flows in operating activities during the six months ended May 31, 2021, a decrease of $1.1 billion, compared to $1.8 billion of net cash used for the same period in 2020.

Investing Activities

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

During the six months ended May 31, 2021, net cash used in investing activities was $4.2 billion.

This was driven by the following:

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• Capital expenditures of $168 million for ship improvements and replacements, information technology and buildings and improvements

• Proceeds from sale of ships and other of $324 million

• Purchases of short-term investments of $2.7 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:

• Proceeds from maturity of short-term investments of $467 million

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 sales of ships of $226 million

• Purchase of minority interest of $81 million

• Proceeds from sale of ships of $236 million

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

Financing Activities

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

During the six months ended May 31, 2021, net cash provided by financing activities of $4.5 billion was caused by the following:

• Repayments of $1.4 billion 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

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

• Issuances of $823 million of long-term debt

• 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

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

Funding Sources

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

As of May 31, 2021, we had $9.3 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 February 28, 2021 (a) $ 0.5 $ 3.4 $ 1.9 $ 0.6

Future export credit facilities at May 31, 2021 (a)

$ 0.5 $ 3.5 $ 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.

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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.

At May 31, 2021, we were in compliance with the applicable covenants under our debt agreements.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis