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Item 2. Management’s Discussion and Analysis

2022-06-29 compared with 2022-03-28 · 93 added, 46 removed, 155 unchanged (47% of the section changed)

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The current, and uncertain future, impact of COVID-19, 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.

• Events and conditions around the world, including war and other military actions, such as the current invasion of Ukraine, and other general concerns impacting the ability or desire of people to travel have and may lead to a decline in demand for cruises.

• Events and conditions around the world, including war and other military actions, such as the current invasion of Ukraine, heightened inflation and other general concerns impacting the ability or desire of people to travel have and may lead to a decline in demand for cruises, impact our operating costs and profitability.

• Incidents concerning our ships, guests or the cruise vacation industry have in the past and may, in the future, impact the satisfaction of our guests and crew and lead to reputational damage.

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Known Trends and Uncertainties

We believe the increasing cost of fuel, liquefied natural gas (LNG) and other related costs are reasonably likely to impact our profitability in both the short and long-ter m.

This effect is increased in the shorter term by the current invasion of Ukraine, including its effect on the price of fuel.

In addition, the increasing global focus on climate change, including the reduction of carbon emissions and new and evolving regulatory requirements, is reasonably likely to materially impact our future costs, capital expenditures and revenues and/or the relationship between them, if enacted.

• We believe the increased cost of fuel, liquefied natural gas (“LNG”) and other related costs are reasonably likely to continue to impact our profitability in both the short and long-ter m.

• We expect inflation and supply chain challenges to continue to weigh on our operating costs, and they are reasonably likely to continue to impact our profitability.

• We believe the increasing global focus on climate change, including the reduction of carbon emissions and new and evolving regulatory requirements, is reasonably likely to materially impact our future costs, capital expenditures and revenues and/or the relationship between them.

The full impact of climate change to our business is not yet known.

• In addition, as is the case with the travel and leisure sector generally, we are experiencing some challenges with onboard staffing which have resulted in occupancy constraints on certain voyages and are reasonably likely to impact our profitability in the short-term.

• We expect a net loss for the third quarter of 2022.

For the full year 2022, we continue to expect a net loss.

Statistical Information

Three Months Ended

May 31, Six Months Ended

2022 2021 2022 2021

Passenger Cruise Days (“PCDs”) (in thousands) (a) 11,434 138 18,663 166

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Fuel consumption in metric tons (in thousands) 632 246 1,198 508

Fuel consumption in metric tons per thousand ALBDs 37.9 (d) 40.0 (d)

Fuel cost per metric ton consumed $ 869 $ 467 $ 765 $ 428

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

(d) Fuel consumption in metric tons per thousand ALBDs for 2021 is not meaningful.

Results of Operations

Three Months Ended

February 28, % increase (decrease)

(in millions) 2022 2021 Change

Three Months Ended May 31, Six Months Ended

(in millions) 2022 2021 Change 2022 2021 Change

Passenger ticket $ 1,285 $ 20 $ 1,265 $ 2,158 $ 23 $ 2,135

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Income (Loss) Before Income Taxes $ (1,831) $ (2,060) $ 228 $ (3,719) $ (4,039) $ 319

Three Months Ended

February 28, % increase (decrease)

(in millions) 2022 2021 Change

Three Months Ended May 31, Six Months Ended

(in millions) 2022 2021 Change 2022 2021 Change

Passenger ticket $ 862 $ 2 $ 860 $ 1,447 $ 1 $ 1,446

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Operating Income (Loss) $ (821) $ (930) $ 109 $ (1,661) $ (1,790) $ 129

Three Months Ended

February 28, % increase (decrease)

(in millions) 2022 2021 Change

Three Months Ended May 31, Six Months Ended

(in millions) 2022 2021 Change 2022 2021 Change

Passenger ticket $ 490 $ 19 $ 472 $ 832 $ 22 $ 810

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We paused our guest cruise operations in March 2020.

As of February 28, 2022 , eight of our nine brands had resumed guest cruise operations as part of our ongoing return to service.

The ongoing resumption of guest cruise operations and the increased uncertainty given the current invasion of Ukraine, including its effect on the price of fuel, are collectively having a material negative 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 ongoing return to service and the length of time COVID-19 influences travel decisions.

As of February 28, 2022 , 71% of our capacity had resumed guest cruise operations and ALBDs increased to 13 million compared to February 28, 2021 when we had no ships operating with guests onboard.

Revenues for the three months ended February 28, 2022 increased by $1.6 billion from the three months ended February 28, 2021, due to the resumption of guest cruise operations and the significant increase of ships returning to service.

Occupancy for the three months ended February 28, 2022 was 54%.

Operating costs and expenses increased by $1.5 billion to $2.0 billion in 2022 from $0.5 billion in 2021.

This was driven by our ongoing resumption of cruise operations and restart related expenses, including the cost of returning ships to guest cruise operations and returning crew members to our ships, higher number of dry-dock days, the cost of maintaining enhanced health and safety protocols and inflation.

We anticipate that many of these costs and expenses will end in 2022 and will not reoccur in 2023.

Fuel costs increased by $262 million to $365 million in 2022 from $103 million in 2021.

The increase was caused by higher fuel consumption of 304 thousand metric tons, due to the resumption of guest cruise operations, and an increase in fuel prices of $256 per metric ton consumed in 2022 compared to 2021.

We recognized ship impairment charges of $8 million for the three months ended February 28, 2022.

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

We continue to expect a net loss for the second quarter of 2022.

However, we expect a profit for the third quarter of 2022.

For the full year 2022, we expect a net loss.

As of May 31, 2022, 86% of our capacity was in guest cruise operation, compared to 6% as of May 31, 2021.

Our NAA segment had 90% of its capacity in guest cruise operations as of May 31, 2022 and no ships operating with guests onboard as of May 31, 2021.

Our EA segment had 81% of its capacity in guest cruise operations as of May 31, 2022, compared to 16% as of May 31, 2021 when it had five ships operating with guests onboard.

The COVID-19 global pandemic and its ongoing effects, inflation and higher fuel prices are collectively having a material negative impact on all aspects of our business, including our results of operations, liquidity and financial position.

The full extent of these impacts are uncertain.

Three Months Ended May 31, 2022 Compared to Three Months Ended May 31, 2021

Cruise passenger ticket revenues made up 54% of our total revenues for the three months ended May 31, 2022 while onboard and other revenues made up 46%.

Revenues for the three months ended May 31, 2022 increased by $2.4 billion as compared to the three months ended May 31, 2021 due to the ongoing resumption of guest cruise operations and the significant increase of ships in service.

ALBDs increased to 16.7 million for the three months ended May 31, 2022 as compared to 0.4 million for the three months ended May 31, 2021.

Occupancy for the three months ended May 31, 2022 was 69% compared to 31% for the three months ended May 31, 2021.

Cruise passenger ticket revenues made up 52% of our NAA segment’s total revenues for the three months ended May 31, 2022 while onboard and other cruise revenues made up 48%.

NAA segment revenues for the three months ended May 31, 2022 increased by $1.7 billion as compared to the three months ended May 31, 2021 due to the ongoing resumption of guest cruise operations and the significant increase of ships in service.

ALBDs increased to 10.1 million for the three months ended May 31, 2022 as compared to 0.0 million for the three months ended May 31, 2021.

Occupancy for the three months ended May 31, 2022 was 79%.

Cruise passenger ticket revenues made up 74% of our EA segment’s total revenues for the three months ended May 31, 2022 while onboard and other cruise revenues made up 26%.

EA segment revenues for the three months ended May 31, 2022 increased by $0.6 billion as compared to the three months ended May 31, 2021 due to the ongoing resumption of guest cruise operations and the significant increase of ships in service.

ALBDs increased to 6.6 million for the three months ended May 31, 2022 as compared to 0.4 million for the three months ended May 31, 2021.

Occupancy for the three months ended May 31, 2022 was 53% compared to 31% for the three months ended May 31, 2021.

Operating Costs and Expenses

Operating costs and expenses increased by $2.0 billion to $2.7 billion for the three months ended May 31, 2022 from $0.7 billion for the three months ended May 31, 2021.

These increases were driven by our ongoing resumption of guest cruise operations and restart related expenses, including the cost of returning ships to guest cruise operations and returning crew members to our ships, higher number of dry-dock days, the cost of maintaining enhanced health and safety protocols, inflation and supply chain disruptions.

We anticipate that some of these costs and expenses will end in 2022.

Fuel costs increased by $432 million to $545 million for the three months ended May 31, 2022 from $113 million for the three months ended May 31, 2021.

This increase was caused by higher fuel consumption of 386 thousand metric tons, due to the resumption of guest cruise operations, and an increase in fuel prices of $402 per metric ton consumed for the three months ended May 31, 2022 compared to the three months ended May 31, 2021.

Selling and administrative expenses increased by $201 million to $619 million for the three months ended May 31, 2022 from $417 million for the three months ended May 31, 2021.

This increase was caused by increased advertising and promotional spend incurred as part of our ongoing resumption of guest cruise operations and higher administrative expenses.

There were no ship impairment charges for the three months ended May 31, 2022.

We recognized a ship impairment charge of $49 million for the three months ended May 31, 2021.

The drivers in changes in costs and expenses for our NAA and EA segments are the same as those described for our consolidated results.

Nonoperating Income (Expense)

Interest expense, net of capitalized interest, decreased by $30 million to $368 million in 2022 from $398 million in 2021.

The decrease was caused by a lower average interest rate for the three months ended February 28, 2022 compared to the three months ended February 28, 2021 as a result of completed refinancing efforts.

Interest expense, net of capitalized interest decreased by $67 million to $370 million for the three months ended May 31, 2022 from $437 million for the three months ended May 31, 2021.

The decrease was caused by a lower average interest rate as a result of completed refinancing efforts and was partially offset by a higher average debt balance for the three months ended May 31, 2022 compared to the three months ended May 31, 2021 .

Six Months Ended May 31, 2022 Compared to Six Months Ended May 31, 2021

Cruise passenger ticket revenues made up 54% of our total revenues for the six months ended May 31, 2022 while onboard and other revenues made up 46%.

Revenues for the six months ended May 31, 2022 increased by $3.9 billion as compared to the six months ended May 31, 2021 due to the ongoing resumption of guest cruise operations and the significant increase of ships in service.

ALBDs increased to 30.0 million for the six months ended May 31, 2022 as compared to 0.6 million for the six months ended May 31, 2021.

Occupancy for the six months ended May 31, 2022 was 62% compared to 27% for the six months ended May 31, 2021.

Cruise passenger ticket revenues made up 52% of our NAA segment’s total revenues for the six months ended May 31, 2022 while onboard and other cruise revenues made up 48%.

NAA segment revenues for the six months ended May 31, 2022 increased by $2.8 billion as compared to the six months ended May 31, 2021 due to the ongoing resumption of guest cruise operations and the significant increase of ships in service.

ALBDs increased to 18.8 million for the six months ended May 31, 2022 as compared to 0.0 million for the six months ended May 31, 2021.

Occupancy for the six months ended May 31, 2022 was 70%.

Cruise passenger ticket revenues made up 74% of our EA segment’s total revenues for the six months ended May 31, 2022 while onboard and other cruise revenues made up 26%.

EA segment revenues for the six months ended May 31, 2022 increased by $1.1 billion as compared to the six months ended May 31, 2021 due to the ongoing resumption of guest cruise operations and the significant increase of ships in service.

ALBDs increased to 11.2 million for the six months ended May 31, 2022 as

compared to 0.6 million for the six months ended May 31, 2021.

Occupancy for the six months ended May 31, 2022 was 50% compared to 27% for the six months ended May 31, 2021.

Operating Costs and Expenses

Operating costs and expenses increased by $3.5 billion to $4.7 billion for the six months ended May 31, 2022 from $1.2 billion for the six months ended May 31, 2021.

We anticipate that some of these costs and expenses will end in 2022.

Fuel costs increased by $694 million to $910 million for the six months ended May 31, 2022 from $216 million for the six months ended May 31, 2021.

The increase was caused by higher fuel consumption of 690 thousand metric tons, due to the resumption of guest cruise operations, and an increase in fuel prices of $336 per metric ton consumed for the six months ended May 31, 2022 compared to the six months ended May 31, 2021.

Selling and administrative expenses increased by $0.3 billion to $1.1 billion for the six months ended May 31, 2022 from $0.9 billion for the six months ended May 31, 2021.

The increase was principally driven by higher advertising and promotional spend incurred as part of our ongoing resumption of guest cruise operations.

We recognized a ship impairment charge of $8 million for the six months ended May 31, 2022 and a ship impairment charge of $49 million for the six months ended May 31, 2021.

The drivers in changes in costs and expenses for our NAA and EA segments are the same as those described for our consolidated results.

Nonoperating Income (Expense)

Interest expense, net of capitalized interest, decreased by $97 million to $738 million for the six months ended May 31, 2022 from $835 million for the six months ended May 31, 2021.

The decrease was caused by a lower average interest rate as a result of completed refinancing efforts and was partially offset by a higher average debt balance for the six months ended May 31, 2022 compared to the six months ended May 31, 2021 .

Liquidity, Financial Condition and Capital Resources

As of February 28, 2022, we had $7.2 billion of liquidity including cash, short-term investments and borrowings available under our Revolving Facility.

During 2022, we will continue to be focused on pursuing refinancing opportunities to reduce interest rates and extend maturities as well as entering into supplemental agreements to align our covenant compliance requirements.

We had a working capital deficit of $2.9 billion as of February 28, 2022 compared to working capital deficit of $0.3 billion as of November 30, 2021.

The increase in working capital deficit was substantially all due to a decrease in cash.

As of May 31, 2022, we had $7.5 billion of liquidity including cash, short-term investments and borrowings available under our Revolving Facility.

During 2022, we will continue to be focused on pursuing various capital market opportunities to extend maturities and if appropriate, obtain relevant financial covenant amendments.

We had a working capital deficit of $4.8 billion as of May 31, 2022 compared to working capital deficit of $0.3 billion as of November 30, 2021.

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

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 $3.4 billion and $3.1 billion of customer deposits as of February 28, 2022 and November 30, 2021, respectively.

Included within our working capital are $4.8 billion and $3.1 billion of customer deposits as of May 31, 2022 and November 30, 2021, respectively.

We have paid refunds of customer deposits with respect to a portion of cancelled cruises.

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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.

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 $1.2 billion of net cash flows in operating activities during the three months ended February 28, 2022, a decrease of $0.3 billion, compared to $1.5 billion of net cash flows used for the same period in 2021.

Our business used $1.2 billion of net cash flows in operating activities during the six months ended May 31, 2022, a decrease of $1.7 billion, compared to $2.9 billion of net cash flows used for the same period in 2021.

This decrease was due to an increase in cash inflows from customer deposits during the six months ended May 31, 2022 compared to the same period in 2021.

Investing Activities

During the three months ended February 28, 2022, net cash used in investing activities was $3.0 billion.

During the six months ended May 31, 2022, net cash used in investing activities was $3.1 billion.

This was driven by the following:

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• Purchases of short-term investments of $315 million

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

• Proceeds from maturity of short-term investments of $364 million

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

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

Financing Activities

During the three months ended February 28, 2022, net cash provided by financing activities of $1.7 billion was caused by the following:

During the six months ended May 31, 2022, net cash provided by financing activities of $2.5 billion was caused by the following:

• Issuances of $3.3 billion of long-term debt

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• Purchases of $82 million of Carnival plc ordinary shares and issuances of $89 million of Carnival Corporation common stock under our Stock Swap Program

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

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Funding Sources

As of February 28, 2022, we had $7.2 billion of liquidity including cash, short-term investments and borrowings available under our revolving facility.

As of May 31, 2022, we had $7.5 billion of liquidity including cash, short-term investments and borrowings available under our revolving facility.

In addition, we had $3.1 billion of undrawn export credit facilities to fund ship deliveries planned through 2024.

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(in billions) 2022 2023 2024

Future export credit facilities at February 28, 2022

Future export credit facilities at May 31, 2022

$ 0.8 $ 1.7 $ 0.6

Our export credit facilities contain various financial covenants as described in Note 3 - “Debt”.

At February 28, 2022 , we were in compliance with the applicable covenants under our debt agreements.

At May 31, 2022 , 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