What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-09-30 compared with 2021-06-28 · 97 added, 76 removed, 181 unchanged (49% of the section changed)

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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.

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Recent Developments

Resumption of Guest Operations

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.

Update on Liquidity and Refinancing

Resumption of Guest Cruise Operations

As of August 31, 2021, eight of our nine brands have resumed guest cruise operations as part of our gradual return to service, with 35% of our capacity operating with guests on board.

We have already announced plans to resume guest cruise operations with 50 ships, or 61% of our capacity, by November 30, 2021 and 71 ships, or 75% of our capacity, by June 2022, with more announcements forthcoming for the remaining ships.

Consistent with our planned gradual resumption of guest cruise operations, we continue to expect to have our full fleet back in operation in the spring of 2022.

Update on Refinancing

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.

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

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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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 and phased resumption of guest cruise operations.

This historical trend has been disrupted by the pause and gradual 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.

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

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

Statistical Information

Three Months Ended

May 31, Six Months Ended

August 31, Nine Months Ended

2021 2020 2021 2020

Available Lower Berth Days ("ALBDs") (in thousands) (a) 3,788 (c) 4,405 (c)

Occupancy percentage (b) 54.2 % (c) 50.4 % (c)

Fuel consumption in metric tons (in thousands) 344 325 852 1,639

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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 half of 2021.

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

(a) ALBD is a standard 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.

(c) As a result of pause in guest cruise operations in 2020, prior year data for these metrics was not meaningful and was not included in the table.

We paused our guest cruise operations in mid-March 2020 and were in a pause for a majority of 2020.

In 2021, we began the gradual resumption of guest cruise operations which is continuing to have a material impact on all aspects of our business.

Results of Operations

Three Months Ended

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

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

(in millions) 2021 2020 Change 2021 2020 Change

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Three Months Ended

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

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

(in millions) 2021 2020 Change 2021 2020 Change

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Three Months Ended

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

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

(in millions) 2021 2020 Change 2021 2020 Change

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

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 .

As of August 31, 2021, eight of our nine brands have resumed guest cruise operations as part of our gradual return to service.

The gradual 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 gradual return to service and the length of time COVID-19 influences travel decisions.

As of August 31, 2021, 35% of our capacity was operating with guests on board.

As a result of the gradual resumption of our guest cruise operations, revenues for the three months ended August 31, 2021 have increased compared to the three months ended August 31, 2020, which was a period of full pause in guest cruise operations.

Revenues for the nine months ended August 31, 2021 have decreased compared to the nine months ended August 31, 2020 as a result of the pause in guest operations beginning in the second quarter of 2020.

Occupancy in the third quarter of 2021 was 54%, which is considerably lower than our historical levels .

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

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.

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 enhanced health and safety protocols.

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.

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

As we continue our return to service, we expect to continue incurring incremental restart related spend including the cost of returning ships to guest cruise operations, returning crew members to our ships and maintaining enhanced health and safety protocols.

During 2020, 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.

There were no goodwill impairment charges for the three and nine months ended August 31, 2021 and for the three months ended August 31, 2020.

For the nine months ended August 31, 2020, we recognized goodwill impairment charges of $2.1 billion.

We recognized ship impairment charges of $0.5 billion and $0.8 billion for the three months ended August 31, 2021 and 2020, respectively and $0.5 billion and $1.7 billion for the nine months ended August 31, 2021 and 2020, respectively.

Nonoperating Income (Expense)

Interest expense, net of capitalized interest, increased by $256 million to $437 million in 2021 from $182 million in 2020.

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

Interest expense, net of capitalized interest, increased by $107 million to $418 million for the three months ended August 31, 2021 from $310 million for the three months ended August 31, 2020.

Interest expense, net of capitalized interest, increased by $0.7 billion to $1.3 billion for the nine months ended August 31, 2021 from $0.5 billion for the nine months ended August 31, 2020.

These increases were caused by additional debt borrowings with higher interest rates since the pause in guest cruise operations.

Loss on debt extinguishment increased by $156 million to $376 million for the three months ended August 31, 2021 from $220 million for the three months ended August 31, 2020.

Loss on debt extinguishment increased by $153 million to $372 million for the nine months ended August 31, 2021 from $220 million for the nine months ended August 31, 2020.

These increases were caused by the repurchase of $2.0 billion of the aggregate principal of the 2023 Senior Secured Notes.

Key Performance Non-GAAP Financial Indicators

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Three Months Ended

May 31, Six Months Ended

August 31, Nine Months Ended

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

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(Gains) losses on ship sales and impairments 472 937 510 3,819

(Gains) losses on debt extinguishment, net 376 220 372 220

Restructuring expenses 2 3 5 42

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(Gains) losses on ship sales and impairments 0.42 1.21 0.46 5.26

(Gains) losses on debt extinguishment, net 0.33 0.28 0.33 0.30

Restructuring expenses — — — 0.06

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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.

We believe that gains and losses on ship sales, impairment charges, gains and losses on debt extinguishments, 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 (loss) and adjusted earnings per share excluding these items.

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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 (loss) as calculated in accordance with U.S.

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.

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.

The presentation of our non-GAAP financial information is not intended to be considered in isolation from, as a substitute for, or superior to the financial information prepared in accordance with U.S.

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.

Liquidity, Financial Condition and Capital Resources

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

As of August 31, 2021, we had $7.8 billion of liquidity including 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.

In addition, we expect to continue to pursue additional refinancing opportunities to reduce interest expense and extend maturities.

S ince December 2020, we have completed the following:

Liquidity Actions:

• 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.

• In February 2021, we issued an aggregate principal amount of $3.5 billion 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 $8.8 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.

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.

• 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.

• In June 2021, we entered into an amendment to reprice our $2.8 billion 2025 Secured Term Loan (the “2025 Secured Term Loan”).

The amended U.S.

dollar tranche bears interest at a rate per annum equal to LIBOR (with a 0.75% floor) plus 3%.

The amended euro tranche bears interest at a rate per annum equal to EURIBOR (with a 0% floor) plus 3.75%.

• In July 2021, we issued $2.4 billion aggregate principal amount of 4% first-priority senior secured notes due in 2028 (the “2028 Senior Secured Notes”).

We used the net proceeds from the issuance to purchase $2.0 billion aggregate principal amount of the 2023 Senior Secured Notes.

The 2028 Senior Secured Notes mature on August 1, 2028.

• In July 2021, we borrowed $544 million under an export credit facility due in semi-annual installments through 2033.

• We amended substantially all of our drawn export credit facilities to defer approximately $1.0 billion of principal payments that would otherwise have been due over a one year period commencing April 1, 2021 until March 31, 2022, with repayments to be made over the following five years.

Of these amendments, the deferral of an aggregate principal amount of $0.7 billion became effective as of August 31, 2021, and an aggregate principal amount of $0.3 billion became effective after August 31, 2021.

Covenant Updates:

• As of September 14, 2021, we have entered into amendments aligning the financial covenants of substantially all our drawn export credit facilities, with the exception of $0.4 billion, with our other facilities.

Refer to Note 3 - "Debt" of the consolidated financial statements for additional details.

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.

We expect our monthly average cash burn rate for the fourth quarter to be higher than the prior quarters of 2021, due to the timing of incremental restart expenditures.

Our 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.

We had a working capital deficit of $0.6 billion as of August 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.

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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 $2.0 billion and $1.9 billion of customer deposits as of May 31, 2021 and November 30, 2020, respectively.

Included within our working capital are $2.7 billion and $1.9 billion of customer deposits as of August 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 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 have agreements with a number of credit card processors that transact customer deposits related to our cruise vacations.

Certain of these agreements allow the credit card processors to request, under certain circumstances, that we provide a reserve fund in cash.

In addition, we have a relatively low-

level of accounts receivable and limited investment in inventories.

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

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Operating Activities

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.

Our business used $3.7 billion of net cash flows in operating activities during the nine months ended August 31, 2021, a decrease of $0.9 billion, compared to $4.6 billion of net cash used for the same period in 2020.

Investing Activities

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

During the nine months ended August 31, 2021, net cash used in investing activities was $3.5 billion.

This was driven by the following:

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• Purchases of short-term investments of $2.7 billion

• 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.

• Proceeds from maturity of short-term investments of $2.0 billion

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

This was driven by the following:

• Capital expenditures of $915 million for our ongoing new shipbuilding program

• Capital expenditures of $1.0 billion for our ongoing new shipbuilding program

• Capital expenditures of $855 million for ship improvements and replacements, information technology and buildings and improvements

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Financing Activities

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 six months ended May 31, 2020, net cash provided by financing activities of $9.4 billion was caused by the following:

During the nine months ended August 31, 2021, net cash provided by financing activities of $4.9 billion was caused by the following:

• Issuances of $7.9 billion of long-term debt, including net proceeds of $3.4 billion from the issuance of the 2027 Senior Unsecured Notes, net proceeds of $2.4 billion from the issuance of the 2028 Senior Secured Notes, and net proceeds of $2.1 billion borrowed under export credit facilities to fund ship deliveries

• Repayments of $3.5 billion of long-term debt, including $2.0 billion repurchase of the 2023 Senior Secured Notes

• Premium payments of $286 million related to the repurchase of the 2023 Senior Secured Notes

• Net proceeds of $1.0 billion from Carnival Corporation common stock

• Purchases of $94 million of Carnival plc ordinary shares and issuances of $105 million of Carnival Corporation common stock under our Stock Swap Program

• Payments of $233 million related to debt issuance costs

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 $383 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

• 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 Senior 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 Senior Secured Notes and net proceeds of $0.9 billion from the issuance of the 2027 Senior Secured Notes.

• Payments of cash dividends of $689 million

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• 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

Funding Sources

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

As of August 31, 2021, we had $7.8 billion of liquidity including cash and short-term investments.

In addition, we had $5.8 billion of export credit facilities to fund ship deliveries planned through 2024.

(in billions) 2021 2022 2023 2024

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

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

$ — $ 3.3 $ 1.9 $ 0.6

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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.

We will be required to comply with such covenants 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 May 31, 2021, we were in compliance with the applicable covenants under our debt agreements.

At August 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