What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-09-30 compared with 2022-06-29 · 88 added, 84 removed, 164 unchanged (51% of the section changed)

18 unchanged sentences

This note contains important cautionary statements of the known factors that we consider could materially affect the accuracy of our forward-looking statements and adversely affect our business, results of operations and financial position.

Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, COVID-19.

Additionally, many of these risks and uncertainties are currently, and in the future may continue to be, amplified by COVID-19.

It is not possible to predict or identify all such risks.

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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, 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.

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

• Incidents concerning our ships, guests or the cruise industry 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.

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Known Trends and Uncertainties

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

• We expect inflation, higher interest rates and supply chain challenges to continue to weigh on our 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.

• In addition, 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 fourth quarter of 2022 and continue to expect a net loss for the full year 2022.

Statistical Information

Three Months Ended

May 31, Six Months Ended

August 31, Nine Months Ended

2022 2021 2022 2021

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GBP $ 1.21 $ 1.39 $ 1.28 $ 1.38

The ongoing resumption of guest cruise operations is continuing to have a material impact on all aspects of our business, including the above statistical information.

The resumption of guest cruise operations has impacted the comparability of all aspects of our business.

Notes to Statistical Information

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Results of Operations

Three Months Ended May 31, Six Months Ended

Three Months Ended August 31, Nine Months Ended

(in millions) 2022 2021 Change 2022 2021 Change

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Income (Loss) Before Income Taxes $ (759) $ (2,859) $ 2,101 $ (4,478) $ (6,898) $ 2,420

Three Months Ended May 31, Six Months Ended

Three Months Ended August 31, Nine Months Ended

(in millions) 2022 2021 Change 2022 2021 Change

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Operating Income (Loss) $ (126) $ (1,257) $ 1,130 $ (1,787) $ (3,046) $ 1,259

Three Months Ended May 31, Six Months Ended

Three Months Ended August 31, Nine Months Ended

(in millions) 2022 2021 Change 2022 2021 Change

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We paused our guest cruise operations in March 2020.

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.

We began our resumption of guest cruise operations in 2021 and continued into 2022.

As of August 31, 2022, 93% of our capacity was serving guests, compared to 35% as of August 31, 2021.

Our NAA segment had 95% of its capacity serving guests as of August 31, 2022, compared to 31% as of August 31, 2021.

Our EA segment had 92% of its capacity serving guests as of August 31, 2022 , compared to 43% as of August 31, 2021.

We expect eight of our nine brands will have their entire fleet serving guests by the end of the fourth quarter of 2022.

Given Costa Cruises’ significant presence in Asia, particularly China, which remains closed to cruising, the brand continues to evaluate deployment options and fleet optimization alternatives beyond the previously announced transfers of Costa Luminosa to Carnival Cruise Line as well as Costa Venezia and Costa Firenze to the COSTA ® by CARNIVAL ® concept.

The effects of the COVID-19 global pandemic, inflation, higher fuel prices and higher interest rates 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.

Three Months Ended August 31, 2022 (“2022”) Compared to Three Months Ended August 31, 2021 (“2021”)

Cruise passenger ticket revenues made up 60% of our total revenues in 2022 while onboard and other revenues made up 40%.

Revenues in 2022 increased by $3.8 billion as compared to 2021 due to the resumption of guest cruise operations and the significant increase of ships in service.

ALBDs increased to 21.0 million in 2022 as compared to 3.8 million in 2021.

Occupancy in 2022 was 84% compared to 54% in 2021.

Cruise passenger ticket revenues made up 60% of our NAA segment’s total revenues in 2022 while onboard and other cruise revenues made up 40%.

NAA segment revenues in 2022 increased by $2.6 billion as compared to 2021 due to the resumption of guest cruise operations and the significant increase of ships in service.

ALBDs increased to 12.6 million in 2022 as compared to 1.4 million in 2021.

Occupancy in 2022 was 92% compared to 68% in 2021.

Cruise passenger ticket revenues made up 77% of our EA segment’s total revenues in 2022 while onboard and other cruise revenues made up 23%.

EA segment revenues in 2022 increased by $1.0 billion as compared to 2021 due to the resumption of guest cruise operations and the significant increase of ships in service.

ALBDs increased to 8.5 million in 2022 as compared to 2.4 million in 2021.

Occupancy in 2022 was 73% compared to 47% in 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.

Operating costs and expenses increased by $1.8 billion to $3.4 billion in 2022 from $1.6 billion in 2021.

These increases were driven by our 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, the cost of maintaining enhanced health and safety protocols, inflation and supply chain disruptions.

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

Fuel costs increased by $486 million to $668 million in 2022 from $182 million in 2021.

This increase was caused by higher fuel consumption of 357 thousand metric tons, due to the resumption of guest cruise operations, and an increase in fuel prices of $421 per metric ton consumed in 2022 compared to 2021.

There were no ship impairment charges recognized in 2022 and $475 million of ship impairment charges recognized in 2021.

Selling and administrative expenses increased by $199 million to $625 million in 2022 from $425 million in 2021.

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

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 $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.

Gains (losses) on debt extinguishment, net decreased to $0 million in 2022 from $376 million in 2021.

Nine Months Ended August 31, 2022 (“2022”) Compared to Nine Months Ended August 31, 2021 (“2021”)

Cruise passenger ticket revenues made up 57% of our total revenues in 2022 while onboard and other revenues made up 43%.

Revenues in 2022 increased by $7.7 billion as compared to 2021 due to the resumption of guest cruise operations and the significant increase of ships in service.

ALBDs increased to 51.0 million in 2022 as compared to 4.4 million in 2021.

Occupancy in 2022 was 71% compared to 50% in 2021.

Cruise passenger ticket revenues made up 56% of our NAA segment’s total revenues in 2022 while onboard and other cruise revenues made up 44%.

NAA segment revenues in 2022 increased by $5.4 billion as compared to 2021 due to the resumption of guest cruise operations and the significant increase of ships in service.

ALBDs increased to 31.4 million in 2022 as compared to 1.4 million in 2021.

Occupancy in 2022 was 78% compared to 68% in 2021.

Cruise passenger ticket revenues made up 76% of our EA segment’s total revenues in 2022 while onboard and other cruise revenues made up 24%.

EA segment revenues in 2022 increased by $2.1 billion as compared to 2021 due to the resumption of guest cruise operations and the significant increase of ships in service.

ALBDs increased to 19.6 million in 2022 as compared to 3.0 million in 2021.

Occupancy in 2022 was 60% compared to 43% in 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.

Operating costs and expenses increased by $5.3 billion to $8.1 billion in 2022 from $2.8 billion in 2021.

These increases were driven by our 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 many of these costs and expenses will end in 2022.

Fuel costs increased by $1.2 billion to $1.6 billion in 2022 from $0.4 billion in 2021.

The increase was caused by higher fuel consumption of 1.0 million metric tons, due to the resumption of guest cruise operations, and an increase in fuel prices of $364 per metric ton consumed in 2022 compared to 2021.

We recognized a ship impairment charge of $8 million in 2022 and ship impairment charges of $524 million in 2021.

Selling and administrative expenses increased by $0.5 billion to $1.8 billion for 2022 from $1.3 billion in 2021.

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

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 .

Interest expense, net of capitalized interest, decreased by $0.1 billion to $1.2 billion in 2022 from $1.3 billion in 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 in 2022 compared to 2021.

Gains (losses) on debt extinguishment, net decreased to $0 million in 2022 from $372 million in 2021.

Liquidity, Financial Condition and Capital Resources

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.

As of August 31, 2022, we had $7.4 billion of liquidity including cash and borrowings available under our Revolving Facility.

During the remainder of 2022 and 2023 we expect to continue to address maturities well in advance and obtain relevant financial covenant amendments or waivers, as needed.

We had a working capital deficit of $4.5 billion as of August 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, a decrease in short-term investments, an increase in customer deposits and an increase in current portion of long-term debt.

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 are $4.8 billion and $3.1 billion of customer deposits as of May 31, 2022 and November 30, 2021, respectively.

Included within our working capital are $4.5 billion and $3.1 billion of customer deposits as of August 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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Operating Activities

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.

Our business used $1.6 billion of net cash flows in operating activities during the nine months ended August 31, 2022, a decrease of $2.2 billion, compared to $3.7 billion of net cash flows used for the same period in 2021.

This was due to a decrease in the net loss and an increase in cash inflows from customer deposits during the nine months ended August 31, 2022 compared to the same period in 2021 and other working capital changes.

Investing Activities

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

During the nine months ended August 31, 2022, net cash used in investing activities was $3.5 billion.

This was driven by the following:

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• Proceeds from maturity of short-term investments of $515 million

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

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

Financing Activities

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

During the nine months ended August 31, 2022, net cash provided by financing activities of $3.2 billion was caused by the following:

• Issuances of $3.3 billion of long-term debt

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• Net repayments of short-term borrowings of $114 million

• Net proceeds of $1.2 billion from the public offering of Carnival Corporation common stock

• 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 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 offering of Carnival Corporation common stock

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

Funding Sources

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

As of August 31, 2022, we had $7.4 billion of liquidity including cash and borrowings available under our Revolving Facility.

In addition, we had $2.9 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 May 31, 2022

Future export credit facilities at August 31, 2022

$ 0.8 $ 1.6 $ 0.5

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

At May 31, 2022 , we were in compliance with the applicable covenants under our debt agreements.

At August 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