What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-29 compared with 2022-05-05 · 291 added, 174 removed, 201 unchanged (70% of the section changed)

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The discussion under this caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements other than statements of historical fact, business and industry prospects or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking.

All statements other than statements of historical fact, including statements regarding our expectations for future periods, business and industry prospects or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking.

Words such as "anticipate," "believe," "considering," "could," "driving," "estimate," "expect," "goal," "intend," "may," "plan," "project," "seek," "should," "will," "would," and similar expressions are intended to further identify any of these forward-looking statements.

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• a review of our financial presentation, including discussion of certain operational and financial metrics we utilize to assist us in managing our business;

• a discussion of our results of operations for the quarter ended March 31, 2022, compared to the same period in 2021;

• a discussion of our results of operations for the quarter and six months ended June 30, 2022, compared to the same period in 2021;

• a discussion of our business outlook;

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This seasonal trend was disrupted with the voluntary suspension of our global cruise operations effective March 2020 in response to the COVID-19 outbreak and through the gradual resumption of global cruise operations commencing in the second half of 2021.

Financial Presentation

Description of Certain Line Items

Our revenues are comprised of the following:

• Passenger ticket revenues , which consist of revenue recognized from the sale of passenger tickets and the sale of air transportation to and from our ships;

• Onboard and other revenues , which consist primarily of revenues from the sale of goods and/or services onboard our ships not included in passenger ticket prices, cancellation fees, sales of vacation protection insurance, pre- and post-cruise tours and fees for operating certain port facilities.

Onboard and other revenues also include revenues we receive from independent third-party concessionaires that pay us a percentage of their revenues in exchange for the right to provide selected goods and/or services onboard our ships, as well as revenues received for procurement and management related services we perform on behalf of our unconsolidated affiliates.

Cruise Operating Expenses

Our cruise operating expenses are comprised of the following:

• Commissions, transportation and other expenses , which consist of those costs directly associated with passenger ticket revenues, including travel agent commissions, air and other transportation expenses, port costs that vary with passenger head counts and related credit card fees;

• Onboard and other expenses , which consist of the direct costs associated with onboard and other revenues, including the costs of products sold onboard our ships, vacation protection insurance premiums, costs associated with pre- and post-cruise tours and related credit card fees, as well as the minimal costs associated with concession revenues, as the costs are mostly incurred by third-party concessionaires, and costs incurred for the procurement and management related services we perform on behalf of our unconsolidated affiliates;

• Payroll and related expenses , which consist of costs for shipboard personnel (costs associated with our shoreside personnel are included in Marketing, selling and administrative expenses );

• Food expenses , which include food costs for both guests and crew;

• Fuel expenses , which include fuel and related delivery, storage and emission consumable costs and the financial impact of fuel swap agreements;

• Other operating expenses , which consist primarily of operating costs such as repairs and maintenance, port costs that do not vary with passenger head counts, vessel related insurance, entertainment and gains and/or losses related to the sale of our ships, if any.

We do not allocate payroll and related expenses, food expenses, fuel expenses or other operating expenses to the expense categories attributable to passenger ticket revenues or onboard and other revenues since they are incurred to provide the total cruise vacation experience.

Selected Operational and Financial Metrics

We utilize a variety of operational and financial metrics which are defined below to evaluate our performance and financial condition.

As discussed in more detail herein, certain of these metrics are non-GAAP financial measures.

These non-GAAP financial measures are provided along with the related GAAP financial measures as we believe they provide useful information to investors as a supplement to our consolidated financial statements, which are prepared and presented in accordance with GAAP.

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

Adjusted EBITDA represents EBITDA (as defined below) excluding (i) other income;

(ii) impairment and credit losses (recoveries);

(iii) restructuring charges and other initiative expenses;

(iv) equity investment asset impairments;

(v) net insurance recoveries related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas ;

and (vi) the net gain recognized in 2021 in relation to the sale of the Azamara brand.

We believe that this non-GAAP measure is meaningful when assessing our operating performance on a comparative basis.

Adjusted (Loss) Earnings per Share ("Adjusted EPS") represents Adjusted Net (Loss) Income (as defined below) divided by weighted average shares outstanding or by diluted weighted average shares outstanding, as applicable.

We believe that this non-GAAP measure is meaningful when assessing our performance on a comparative basis.

Adjusted Net (Loss) Income represents net (loss) income excluding certain items that we believe adjusting for is meaningful when assessing our performance on a comparative basis.

For the periods presented, these items included (i) impairment and credit losses (recoveries);

(ii) restructuring charges and other initiative expenses;

(iii) the amortization of the Silversea Cruises intangible assets resulting from the Silversea Cruises acquisition in 2018;

(iv) the amortization of non-cash debt discount on our convertible notes;

(v) the estimated cash refunds expected to be paid to Pullmantur guests as part of the Pullmantur S.A.

reorganization in 2020;

(vi) gain on the extinguishment of debt;

(vii) equity investment asset impairments;

(viii) net insurance recoveries related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas ;

and (ix) the net gain recognized in the first quarter of 2021 in relation to the sale of the Azamara brand.

Available Passenger Cruise Days ( “APCD” ) is our measurement of capacity and represents double occupancy per cabin multiplied by the number of cruise days for the period, which excludes canceled cruise days and cabins not available for sale.

We use this measure to perform capacity and rate analysis to identify our main non-capacity drivers that cause our cruise revenue and expenses to vary.

EBITDA represents net (loss) income excluding (i) interest income;

(ii) interest expense, net of interest capitalized;

(iii) depreciation and amortization expenses;

and (iv) income tax benefit or expense.

We believe that this non-GAAP measure is meaningful when assessing our operating performance on a comparative basis.

Gross Cruise Costs represent the sum of total cruise operating expenses plus marketing, selling and administrative expenses.

Net Cruise Costs and Net C ruise Costs Excluding Fuel represent Gross Cruise Costs excluding commissions, transportation and other expenses and onboard and other expenses and, in the case of Net Cruise Costs Excluding Fuel, fuel expenses (each of which is described above under the Description of Certain Line Items heading).

In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Costs and Net Cruise Costs Excluding Fuel to be the most relevant indicators of our performance.

A reconciliation of historical Gross Cruise Costs to Net Cruise Costs and Net Cruise Costs Excluding Fuel is provided below under Results of Operations.

For the 2022 period presented, Net Cruise Costs and Net Cruise Costs Excluding Fuel excludes restructuring and other initiative expenses.

Occupancy ("Load Factor") , in accordance with cruise vacation industry practice, occupancy is calculated by dividing Passenger Cruise Days (as defined below) by APCD.

A percentage in excess of 100% indicates that three or more passengers occupied some cabins.

Passenger Cruise Days represent the number of passengers carried for the period multiplied by the number of days of their respective cruises.

Although discussed in prior periods, we did not disclose or reconcile in this report our Gross Yields and Net Yields, as defined in our Annual Report on Form 10-K for the year ended December 31, 2019.

Historically, we have utilized these financial metrics to measure relevant rate comparisons to other periods.

However, our 2022 and 2021 reduction in capacity and revenues, due to the impact of the COVID-19 pandemic on our operations, do not allow for a meaningful analysis and comparison of these metrics and as such these metrics have been excluded from this report.

We have not provided a quantitative reconciliation of the projected non-GAAP financial measures to the most comparable GAAP financial measures because preparation of meaningful U.S.GAAP projections would require unreasonable effort.

significant uncertainty, we are unable to predict, without unreasonable effort, the future movement of foreign exchange rates, fuel prices and interest rates inclusive of our related hedging programs.

In addition, we are unable to determine the future impact of non-core business related gains and losses which may result from strategic initiatives.

These items are uncertain and could be material to our results of operations in accordance with U.S GAAP.

Due to this uncertainty, we do not believe that reconciling information for such projected figures would be meaningful.

Recent Developments

Return to Healthy Sailing

During 2021, we restarted our global cruise operations in a phased manner, following our voluntary suspension of global cruise operations that commenced in March of 2020 in response to the COVID-19 pandemic.

Since then, we have steadily increased the number of ships that have returned to service.

As of March 31, 2022, we operated 54 of our Global and Partner Brand ships, representing close to 90% of our worldwide capacity.

We expect that the rest of the fleet will return to operations before the summer season.

Our return to service efforts incorporate our enhanced health and safety protocols, and the requirements of regulatory agencies, which has resulted in reduced guest occupancy, modified itineraries and vaccination protocols.

Uncertainties remain as to the continuing effects COVID-19 will have on our operations, including potential increases in infection rates, new variants, and renewed governmental action to slow the spread of COVID-19, which may lead us to cancel or modify certain of our Global Brands’ cruise sailings.

Additionally, there is uncertainty surrounding consumer behavior and demand for cruising.

The continuing effects of COVID-19 on our resumption of guest cruise operations and the increased uncertainty given the current war in Ukraine, including its effect on the price of fuel and food, are collectively having a material negative impact on our business, including our liquidity, financial position and results of operations.

Continued Fleet Ramp-up

Wonder of the Seas and Celebrity Beyond were delivered and commenced operations in the first quarter and second quarter, respectively, which expanded our total fleet size, including our Partner Brands, to 63 ships.

We are currently offering cruise itineraries in the majority of our destinations.

Australia, one of the last remaining countries to re-open, has announced the resumption of cruising effective April 2022.

We expect to return to Australia for the local summer season during the fourth quarter of 2022.

Since then, we have steadily increased the number of ships that have returned to service, with our full fleet in service as of June 30, 2022.

Our operations incorporate our enhanced health and safety protocols, including vaccination protocols.

Wonder of the Seas and Celebrity Beyond were delivered and commenced operations in the first quarter and second quarter of 2022, respectively.

We are currently offering cruise itineraries in all of our key destinations with the exception of China.

China remains closed to cruising, resulting in the redeployment of ships planned for China to other markets.

Operating Costs

As we resume our return to service, we are experiencing inflationary and supply chain challenges, mainly related to fuel and food costs, as well as transitory costs related to our health and safety protocols.

We expect these challenges to have an adverse impact to our 2022 operating costs.

We are experiencing inflationary and supply chain challenges, mainly related to fuel and food costs, as well as transitory costs related to our health and safety protocols.

We expect these challenges to continue to have an adverse impact on our 2022 operating costs.

Update on Bookings

Booking volumes in the first quarter of 2022 have improved consistently week-over-week and reached typical, peak booking season ("Wave") levels at the end of the quarter.

Bookings have now been surpassing comparable 2019 levels for the last two months, with particularly strong trends for North America based itineraries.

Additionally, the elevated cancellations experienced earlier in the year attributable to the Omicron variant returned to pre-Omicron levels as COVID-19 cases subsided in February 2022.

While load factors for sailings in the second half of 2022 are currently slightly below historical levels, consumers are booking their cruises closer to sailing and we are capitalizing on the close-in demand to improve load factors.

Bookings for Europe sailings improved throughout the first quarter but softened due to the war in Ukraine, with a bigger impact on Baltic itineraries.

While bookings for Europe are now exceeding 2019 levels for the same period, the situation in Ukraine is expected to weigh on load factors in Europe this summer.

As of March 31, 2022 we had $3.6 billion in customer d eposits.

Approximately 27% of the customer deposit balance as of March 31, 2022 is related to FCCs compared to 32% of the customer deposit balance as of December 31, 2021, a positive trend indicating new demand.

Booking volumes received in the second quarter for 2022 sailings averaged 30% above 2019 booking volumes for 2019 sailings in the corresponding period.

Guests are booking their cruises closer-in compared to prior years, contributing to the better-than-expected load factors in the second quarter.

In addition, cancellation activity has now returned to pre-COVID levels.

As expected, load factors for sailings in the second half of 2022 remain below historical levels.

Second half 2022 sailings are booked at higher prices than 2019, both including and excluding FCCs.

While demand for the critical Europe season has been strong over the past three months, the combination of COVID-19 and the Russia-Ukraine war set back load factor recovery, particularly in the third quarter of 2022, when European itineraries typically account for about a third of overall capacity.

As of June 30, 2022 we had $4.2 billion in customer d eposits.

Approximately 20% of the customer deposit balance as of June 30, 2022 is related to FCCs compared to 32% of the customer deposit balance as of December 31, 2021, a positive trend indicating new demand.

Update on Recent Liquidity Actions and Ongoing Uses of Cash

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Debt Maturities, New Financings and Other Liquidity Actions

During the quarter ended March 31, 2022, we continued to take actions to further improve our liquidity position and manage cash flow.

During the six months ended June 30, 2022, we continued to take actions to further improve our liquidity position and manage cash flow.

In particular, we:

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• entered into certain agreements with Morgan Stanley & Co., LLC (“MS”) where MS agrees to provide backstop committed financing to refinance, repurchase and/or repay in whole or in part our existing and outstanding 10.875% Senior Secured Notes due 2023, 9.125% Senior Priority Guaranteed Notes due 2023 (the "Priority Guaranteed Notes"), and 4.25% Convertible Notes due 2023.

We may, at our sole option, issue and sell to MS (subject to the satisfaction of certain conditions) five-year senior unsecured notes with gross proceeds of up to $3.15 billion at any time between April 1, 2023 and June 29, 2023, to refinance the aforementioned notes.

We may, at our sole option, issue and sell to MS (subject to the satisfaction of

certain conditions) five-year senior unsecured notes with gross proceeds of up to $3.15 billion at any time between April 1, 2023 and June 29, 2023, to refinance the aforementioned notes.

Expected debt maturities for the remainder of 2022 are $1.6 billion and $5.7 billion for 2023.

We continue to identify and evaluate further actions to enhance our liquidity and support our recovery.

These include and are not limited to further reductions in capital expenditures, operating expenses and administrative costs and additional financings.

These include and are not limited to further reductions in capital expenditures, operating expenses and administrative costs, refinancing opportunities and additional financings.

Results of Operations

Net Loss and Adjusted Net Loss for the first quarter of 2022 were $(1.17) billion and $(1.16) billion, or $(4.58) and $(4.57) per share on a diluted basis, respectively, reflecting the ramp up of our return to operations, and increased sales and marketing expenses, compared to Net Loss and Adjusted Net Loss of $(1.13) billion and $(1.08) billion, or $(4.66) and $(4.44) per share on a diluted basis, respectively, for the first quarter of 2021.

Significant items for the quarter ended March 31, 2022 include:

• Total revenues, excluding the effect of changes in foreign currency exchange rates, increased $1.0 billion for the quarter ended March 31, 2022 as compared to the same period in 2021, The increase reflects the ramp up in our return to operations in 2022 compared to 2021 when the suspension of our global cruise operations was in effect.

APCDs for the first quarter ended March 31, 2022 were 7,692,906 compared to 384,224 in the same period in 2021.

• Total cruise operating expenses, excluding the effect of changes in foreign currency exchange rates, increased $0.9 billion for the quarter ended March 31, 2022 as compared to the same period in 2021.

The increase reflects the ramp up in our return to operations in 2022 compared to 2021 when the suspension of our global cruise operations was in effect.

• In January 2022, we took delivery of Wonder of the Seas.

• In January 2022, we issued the January 2022 Unsecured Notes.

Net Loss and Adjusted Net Loss for the second quarter of 2022 were $(521.6) million and $(530.0) million, or $(2.05) and $(2.08) per share on a diluted basis, respectively, reflecting our return to operations, and increased sales and marketing expenses, compared to Net Loss and Adjusted Net Loss of $(1.35) billion and $(1.29) billion, or $(5.29) and $(5.06) per share on a diluted basis, respectively, for the second quarter of 2021.

Net Loss and Adjusted Net Loss for the six months ended June 30, 2022 were both $(1.7) billion, or $(6.63) and $(6.65) per share on a diluted basis, respectively, compared to Net Loss and Adjusted Net Loss of $(2.48) billion and $(2.37) billion, or $(9.96) and $(9.51) per share on a diluted basis, respectively, for the six months ended June 30, 2021.

Significant items for the quarter and six months ended June 30, 2022 include:

• Total revenues, excluding the effect of changes in foreign currency exchange rates, increased $2.2 billion and $3.2 billion, respectively, for the quarter and six months ended June 30, 2022 as compared to the same period in 2021, The increase reflects our return to operations in 2022 compared to 2021 when the suspension of our global cruise operations was in effect.

APCDs for the second quarter and six months ended June 30, 2022 were 10,295,996 and 17,988,902, respectively, compared to 470,598 and 854,822, respectively, in the same period in 2021.

• Total cruise operating expenses, excluding the effect of changes in foreign currency exchange rates, increased $1.3 billion and $2.2 billion, respectively, for the quarter and six months ended June 30, 2022 as compared to the same period in 2021.

The increase reflects our return to operations in 2022 compared to 2021 when the suspension of our global cruise operations was in effect.

• In January 2022 and April 2022, we took delivery of Wonder of the Seas and Celebrity Beyond , respectively.

• During the first quarter of 2022, we issued the January 2022 Unsecured Notes.

Refer to Note 7 .

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Financial Statements for further information regarding this transaction.

Operating results for the quarter ended March 31, 2022 compared to the same period in 2021 are shown in the following table (in thousands, except per share data):

Quarter Ended March 31,

Operating results for the quarters and six months ended June 30, 2022 compared to the same period in 2021 are shown in the following table (in thousands, except per share data):

Quarter Ended June 30,

Revenues % of Total

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Depreciation and amortization expenses 351,542 16.1 % 323,439 635.3 %

Impairment and credit losses 173 — % (449) (1.1) %

Impairment and credit losses (recoveries) (10,943) (0.5) % 40,621 79.8 %

Operating Loss (218,644) (10.0) % (1,023,534) (2,010.3) %

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Equity investment loss (13,179) (0.6) % (48,088) (94.4) %

Other (expense) income (2,538) (0.2) % 5,033 12.0 %

Other income 6,457 0.3 % 24,508 48.1 %

(302,938) (13.9) % (323,721) (635.8) %

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Diluted Loss per Share $ (2.05) $ (5.29)

Six Months Ended June 30,

Revenues % of Total

Passenger ticket revenues $ 2,070,061 63.8 % $ 43,629 46.9 %

Onboard and other revenues 1,173,412 36.2 % 49,299 53.1 %

Total revenues 3,243,473 100.0 % 92,928 100.0 %

Cruise operating expenses:

Commissions, transportation and other 480,202 14.8 % 8,137 8.8 %

Onboard and other 230,009 7.1 % 13,079 14.1 %

Payroll and related 676,759 20.9 % 264,276 284.4 %

Food 255,410 7.9 % 25,668 27.6 %

Fuel 463,659 14.3 % 100,931 108.6 %

Other operating 769,592 23.7 % 296,226 318.8 %

Total cruise operating expenses 2,875,631 88.7 % 708,317 762.2 %

Marketing, selling and administrative expenses 765,455 23.6 % 543,599 585.0 %

Depreciation and amortization expenses 691,009 21.3 % 633,605 681.8 %

Impairment and credit losses (recoveries) (10,770) (0.3) % 40,172 43.2 %

Operating Loss (1,077,852) (33.2) % (1,832,765) (1,972.2) %

Other income (expense):

Interest income 9,812 0.3 % 9,531 10.3 %

Interest expense, net of interest capitalized (580,365) (17.9) % (577,325) (621.3) %

Equity investment loss (44,238) (1.4) % (107,959) (116.2) %

Other income 3,919 0.1 % 29,541 31.8 %

(610,872) (18.8) % (646,212) (695.4) %

Net Loss (1,688,724) (52.1) % (2,478,977) (2,667.6) %

Diluted Loss per Share $ (6.63) $ (9.96)

Adjusted Net Loss and Adjusted Loss per Share were calculated as follows (in thousands, except per share data):

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Net Loss $ (521,582) $ (1,347,255) $ (1,688,724) $ (2,478,977)

Adjusted Net Loss (1,164,373) (1,078,279)

Net Adjustments to Net Loss $ 2,769 $ 53,443

Adjustments to Net Loss:

Impairment and credit losses (recoveries) (1) $ (10,943) $ 40,621 $ (10,770) $ 40,172

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Pullmantur reorganization settlement (3) — — — 5,000

Loss on extinguishment of debt — 1,314

Gain on extinguishment of debt — (4,470) — (3,156)

Equity investment impairment (4) — — — 26,042

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Net gain related to the sale of the Azamara brand — 1,220 — (4,936)

Net Adjustments to Net Loss $ 2,769 $ 53,443

Adjusted Net Loss (530,000) (1,287,121) (1,694,373) (2,365,400)

Loss per Share $ (2.05) $ (5.29) $ (6.63) $ (9.96)

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Diluted 254,964 254,577 254,893 248,823

(1) Represents asset impairment and credit losses and recoveries.

For further information regarding these amounts, refer to Note 5 .

Property and Equipment and Note 6 .

Other Assets to our consolidated financial statements.

(2) Represents the amortization of non-cash debt discount on our convertible notes.

For further information regarding the adoption of ASU 2020-06 as of January 1, 2022, which impacts the accounting of the non-cash debt discount on convertible notes, refer to Note 2 .

S ummary of Significant Accounting Policies to our consolidated financial statements.

Summary of Significant Accounting Policies to our consolidated financial statements.

(3) Represents estimated cash refunds expected to be paid to Pullmantur guests as part of the Pullmantur S.A.

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(5) Represents net insurance recoveries related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas.

EBITDA and Adjusted EBITDA were calculated as follows (in thousands):

Quarter Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Net Loss $ (521,582) $ (1,347,255) (1,688,724) (2,478,977)

Interest income (6,490) (4,670) (9,812) (9,531)

Interest expense, net of interest capitalized 302,706 304,811 580,365 577,325

Depreciation and amortization expenses 351,542 323,439 691,009 633,605

Income tax (benefit) expense (1) (2,025) (6,162) 4,553 (10,005)

EBITDA 124,151 (729,837) (422,609) (1,287,583)

Other income (2) (4,432) (18,346) (8,472) (19,536)

Impairment and credit losses (recoveries) (3) $ (10,943) $ 40,621 $ (10,770) $ 40,172

Restructuring charges and other initiatives expense 902 330 1,875 1,647

Equity investment impairment (4) — — — 26,042

Oasis of the Seas incident (5) — (5,263) — (6,584)

Net gain related to the sale of the Azamara brand — 1,220 — (4,936)

Adjusted EBITDA $ 109,678 $ (711,275) $ (439,976) $ (1,250,778)

(1) Included within Other income in our consolidated statements of comprehensive loss.

(2) Represents net non-operating income or expense.

For the periods reported, primarily relates to gains or losses arising from the remeasurement of monetary assets and liabilities denominated in foreign currencies and changes in the fair value of fuel swaps for which cash flow hedge accounting was discontinued.

The amount excludes income tax (benefit) expense, included in the EBITDA calculation above.

(3) Represents asset impairment and credit losses and recoveries.

For further information regarding these amounts, refer to Note 5 .

Property and Equipment and Note 6 .

Other Assets to our consolidated financial statements.

(4) Represents equity investment asset impairments primarily for TUI Cruises GmbH in 2021 as a result of the impact of COVID-19.

(5) Represents net insurance recoveries related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas .

Selected statistical information is shown in the following table:

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

2022 (1) 2021 (2) 2022 (1) 2021 (2)

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Occupancy 82.0 % 27.5 % 71.5 32.1 %

(1) Due to the elimination of the Silversea Cruises three-month reporting lag in October 2021, we included Silversea Cruises' metrics from January 1, 2022 through March 31, 2022 in the quarter ended March 31, 2022.

(2) Due to the three-month reporting lag, we included Silversea Cruises' metrics from October 1, 2020 through December 31, 2020 in the quarter ended March 31, 2021.

The Company’s operations are still impacted by COVID-19 and its related variants.

(1) Due to the elimination of the Silversea Cruises three-month reporting lag in October 2021, we included Silversea Cruises' metrics from April 1, 2022 through June 30, 2022 in the quarter ended June 30, 2022 and from January 1, 2022 through June 30, 2022 in the six months ended June 30, 2022.

(2) Due to the three-month reporting lag, we included Silversea Cruises' metrics from January 1, 2021 through March 31, 2021 in the quarter ended June 30, 2021 and from October 1, 2020 through March 31, 2021 in the six months ended June 30, 2021.

Gross Cruise Costs, Net Cruise Costs and Net Cruise Costs Excluding Fuel were calculated as follows (in thousands, except APCD and costs per APCD):

Quarter Ended June 30, Six Months Ended June 30,

Total cruise operating expenses $ 1,690,862 $ 2,875,631

Marketing, selling and administrative expenses 371,425 765,455

Gross Cruise Costs 2,062,287 3,641,086

Commissions, transportation and other 329,859 480,202

Onboard and other 155,570 230,009

Net Cruise Costs Including Other Costs 1,576,858 2,930,875

Restructuring charges and other initiatives expense included within marketing, selling and administrative expenses 902 1,875

Net Cruise Costs $ 1,575,956 $ 2,929,000

Fuel 275,179 463,659

Net Cruise Costs Excluding Fuel $ 1,300,777 $ 2,465,341

APCD 10,295,996 17,988,902

Gross Cruise Costs per APCD $ 200.30 $ 202.41

Net Cruise Costs per APCD $ 153.06 $ 162.82

Net Cruise Costs Excluding Fuel per APCD $ 126.34 $ 137.05

The Company’s operations are still impacted by COVID-19.

The adverse impact of the COVID-19 pandemic on our revenues, consolidated results of operations, cash flows and financial condition has been and will continue to be material in 2022.

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

GAAP and adjusted basis for our second quarter of 2022 and a return to profitability for the second half of 2022.

We expect to incur a net loss in the second half of 2022 due to increases in fuel rates, interest rates and foreign exchange rates.

Based on current currency exchange rates, fuel rates and interest rates, the Group expects Adjusted Earnings Per Share for the third quarter of $0.05 - $0.25.

See Recent Developments– Continued Fleet Ramp-Up and Update on Bookings for further indication on our resumption of operations and the booking environment.

Financial Presentation

Description of Certain Line Items

Our revenues are comprised of the following:

• Passenger ticket revenues , which consist of revenue recognized from the sale of passenger tickets and the sale of air transportation to and from our ships;

Cruise Operating Expenses

Our cruise operating expenses are comprised of the following:

• Payroll and related expenses , which consist of costs for shipboard personnel (costs associated with our shoreside personnel are included in Marketing, selling and administrative expenses );

• Food expenses , which include food costs for both guests and crew;

• Fuel expenses , which include fuel and related delivery, storage and emission consumable costs and the financial impact of fuel swap agreements;

Selected Operational and Financial Metrics

We utilize a variety of operational and financial metrics which are defined below to evaluate our performance and financial condition.

As discussed in more detail herein, certain of these metrics are non-GAAP financial measures.

Adjusted Loss per Share ("Adjusted EPS") represents Adjusted Net Loss (as defined below) divided by weighted average shares outstanding or by diluted weighted average shares outstanding, as applicable.

We believe that this non-GAAP measure is meaningful when assessing our performance on a comparative basis.

Adjusted Net Loss represents net loss excluding certain items that we believe adjusting for is meaningful when assessing our performance on a comparative basis.

For the periods presented, these items included (i) impairment and credit losses (recoveries);

(ii) restructuring charges and other initiative expenses;

(iii) the amortization of the Silversea Cruises intangible assets resulting from the Silversea Cruises acquisition in 2018;

(iv) the amortization of non-cash debt discount on our convertible notes;

(v) the estimated cash refunds expected to be paid to Pullmantur guests as part of the Pullmantur S.A.

reorganization in 2020;

(vi) loss on the extinguishment of debt;

(vii) equity investment asset impairments;

(viii) net insurance recoveries related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas ;

and (ix) the net gain recognized in the first quarter of 2021 in relation to the sale of the Azamara brand.

We use this measure to perform capacity and rate analysis to identify our main non-capacity drivers that cause our cruise revenue and expenses to vary.

Occupancy ("Load Factor") , in accordance with cruise vacation industry practice, occupancy is calculated by dividing Passenger Cruise Days (as defined below) by APCD.

A percentage in excess of 100% indicates that three or more passengers occupied some cabins.

Passenger Cruise Days represent the number of passengers carried for the period multiplied by the number of days of their respective cruises.

Although discussed in previous periods, we did not disclose or reconcile in this report our Gross Yields, Net Yields, Gross Cruise Costs, Net Cruise Costs and Net Cruise Costs Excluding Fuel, as defined in our Annual Report on Form 10-K for the year ended December 31, 2019.

Historically, we have utilized these financial metrics to measure relevant rate comparisons to other periods.

However, our 2022 and 2021 reduction in capacity and revenues and the shift in the nature of our running costs, due to the impact of the COVID-19 pandemic on our operations, do not allow for a meaningful analysis and comparison of these metrics and as such these metrics have been excluded from this report.

Quarter Ended March 31, 2022 Compared to Quarter Ended March 31, 2021

In this section, references to 2022 refer to the quarter ended March 31, 2022 and references to 2021 refer to the quarter ended March 31, 2021.

Quarter Ended June 30, 2022 Compared to Quarter Ended June 30, 2021

In this section, references to 2022 refer to the quarter ended June 30, 2022 and references to 2021 refer to the quarter ended June 30, 2021.

Total revenues for 2022 increased $2.1 billion to $2.2 billion from $50.9 million in 2021.

Passenger ticket revenues comprised 64.9% of our 2022 total revenues.

Passenger ticket revenues for 2022 increased by $0.6 billion to $0.7 billion from $20.8 million in 2021, and were partially offset by unfavorable movements in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $1.9 million.

The remaining 38.5% of 2022 total revenues was comprised of Onboard and other revenues , which increased $386.2 million to $407.4 million in 2022 from $21.2 million in 2021, and was partially offset by unfavorable movements in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $0.7 million.

Passenger ticket revenues for 2022 increased by $1.4 billion from $22.8 million in 2021, and was partially offset by unfavorable movements in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $26.3 million.

The remaining 35.1% of 2022 total revenues was comprised of Onboard and other revenues , which increased $0.7 billion to $0.8 billion in 2022 from $28.1 million in 2021, and was partially offset by unfavorable movements in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $3.7 million.

The increase in revenues was due to the return of operations in 2022, in which the majority of our fleet was in service, compared to 2021, when the suspension of our global cruise operations was in effect.

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The increase was primarily due to:

• a $324.7 million increase in Commissions, transportation and other expenses;

• a $280.8 million increase in Other operating expenses;

• a $216.1 million increase in Fuel expense ;

• a $159.5 million increase in Payroll and related ;

• a $147.0 million increase in Onboard and other expenses;

• a $138.0 million increase in Food expense

The increase in operating expenses noted above was driven by the return to operations in 2022, with the majority of our fleet in service compared to 2021, when the suspension of our global cruise operations was in effect.

The 2022 operating expenses include the overhead costs associated with bringing our ships back to service and our crew back on board our ships.

Additionally, as discussed above in Recent Developments , high inflation has impacted our operating costs, especially in fuel and food expense.

Our cost of fuel (net of the financial impact of fuel swap agreements) for 2022 increased 66% per metric ton compared to 2021 mainly due to the increase in fuel price.

The increase in Cruise operating expenses was partially offset by the favorable effect of changes in foreign currency exchange rates related to our cruise operating expenses denominated in currencies other than the United States dollar of $19.4 million.

Marketing, Sellin g and Administrative Expenses

Marketing, selling and administrative expenses for 2022 increased $85.9 million, or 30.1%, to $371.4 million from $285.6 million in 2021.

The increase was primarily due to the ramp up of our global sales and marketing efforts starting in the second half of 2021 as we commenced our resum ption of operations, partially offset by a decrease in payroll and benefits expense driven by lower stock price year over year related to our performance share awards.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2022 increased $28.1 million, or 8.7%, to $351.5 million from $323.4 million in 2021.

The increase was primarily due to the addition of Wonder of the Seas to our fleet in January 2022, Celebrity Beyond in April 2022 and Silver Dawn in November 2021.

Impairment and Credit Losses (Recoveries)

Credit loss recoveries for 2022 was $10.9 million compared to Impairment and credit losses of $40.6 million in 2021.

The credit loss recovery in 2022 primarily resulted from cash collections received on a notes receivable, in which credit losses were previously recorded.

T he loss in 2021 was primarily due to impairment charges of ce rtain construction in progress projects that were reduced in scope or terminated as a result of COVID-19.

Other Income (Expense)

Interest expense, net of interest capitalized for 2022 decreased $2.1 million, or 0.7%, to $302.7 million from $304.8 million in 2021.

The decrease was primarily due to the lower cost of debt in 2022 attributable to the partial repayment of the 11.50% Senior Secured Notes due 2025 during the third quarter of 2021 and the decrease in interest expense associated with the adoption of ASU 2020-06 , mostly offset by the interest associated with the new debt issuances after the first quarter of 2021 and through the first quarter of 2022.

Refer to Note 2 .

Summary of Significant Accounting Policies to our consolidated financial statements for further information on ASU 2020-06.

Equity investment loss decreased by $34.9 million, or 72.6%, to $13.2 million from $48.1 million primarily due to a reduction in losses for TUI Cruises, one of our equity investments, in 2022 compared to 2021.

Other income decreased $18.1 million, or 73.7%, to $6.5 million from $24.5 million in 2021.

The decrease in income was primarily due to the 2021 recognition of $15.1 million in net gains related to the change in fair value of our fuel swap derivative instruments with no hedge accounting, which did not recur in 2022.

Other Comprehensive (Loss) Income

Other comprehensive loss for 2022 was $56.6 million compared to Other comprehensive income of $44.9 million in 2021.

The decrease in income of $101.5 million was primarily due to the Loss on cash flow derivative hedges in 2022 of $84.5 million compared to the Gain on cash flow derivative hedges in 2021 of $51.5 million, which was mostly due to the greater decrease in the fair value of our foreign currency forwards in 2022 compared to 2021.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

In this section, references to 2022 refer to the six months ended June 30, 2022 and references to 2021 refer to the six months ended June 30, 2021

Total revenues for 2022 increased $3.2 billion to $3.2 billion from $92.9 million in 2021.

Passenger ticket revenues comprised 63.8% of our 2022 total revenues.

Passenger ticket revenues for 2022 increased by $2.0 billion to $2.1 billion from $43.6 million in 2021, and was partially offset by unfavorable movements in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $28.3 million.

The remaini ng 36.2% of 2022 total revenues was comprised of Onboard and other revenues , which increased $1.1 billion to $1.2 billion in 2022 from $49.3 million in 2021, and was partially offset by unfavorable movements in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $4.5 million.

Occupancy in 2022 was 71.5% compared to 32.1% in 2021.

Onboard and other revenues included concession revenues of $128.9 million in 2022 and $2.4 million in 2021.

Cruise Operating Expenses

Total Cruise operating expenses for 2022 increased $2.2 billion to $2.9 billion from $708.3 million in 2021.

The increase was primarily due to:

• a $472.1 million increase in Commissions, transportation and other expenses;

• a $473.4 million increase in Other operating expenses;

• a $412.5 million increase in Payroll and related ;

• a $362.7 million increase in Fuel expense ;

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Additionally, as discussed above in Recent Developments , high inflation has impacted our operating costs, especially in fuel and food expense.

Our cost of fuel (net of the financial impact of fuel swap agreements) for 2022 increased 55% per metric ton compared to 2021 mainly due to fuel price increase.

Our cost of fuel (net of the financial impact of fuel swap agreements) for 2022 increased 61% per metric ton compared to 2021 mainly due to the increase in fuel price.

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Marketing, selling and administrative expenses for 2022 increased $221.9 million, or 40.8%, to $765.5 million from $543.6 million in 2021.

The increase was primarily due to the ramp up of our global sales and marketing efforts starting in the second half of 2021 as we commenced our resumption of operations.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2022 increased $57.4 million, or 9.1%, to $691.0 million from $633.6 million in 2021.

The increase was primarily due to the addition of Wonder of the Seas to our fleet in January 2022 and a full quarter of depreciation for Odyssey of the Seas and Silver Dawn , which were delivered in March 2021 and November 2021, respectively.

The increase was primarily due to the addition of Wonder of the Seas to our fleet in January 2022, Celebrity Beyond in April 2022 and depreciation for Odyssey of the Seas and Silver Dawn , which were delivered in March 2021 and November 2021, respectively.

Impairment and Credit Losses (Recoveries)

There were no significant Impairment and credit losses (recoveries) for 2022 and 2021.

Credit loss recoveries for 2022 was $10.8 million compared to Impairment and credit losses of $40.2 million in 2021.

The credit loss recovery in 2022 primarily resulted from cash collections received on a notes receivable, in which credit losses were previously recorded.

T he loss in 2021 was primarily due to impairment charges of ce rtain construction in progress projects that were reduced in scope or terminated as a result of COVID-19.

Other Income (Expense)

Interest expense, net of interest capitalized for 2022 increased $5.1 million, or 1.9%, to $277.7 million from $272.5 million in 2021.

The increase was primarily due to new debt issuances after the first quarter of 2021 and through the first quarter of 2022, partially offset by the lower cost of debt in 2022 attributable to the partial repayment of the 11.50% Senior Secured Notes due 2025 during the third quarter of 2021 and the decrease in interest expense associated with the adoption of ASU 2020-06.

Interest expense, net of interest capitalized for 2022 remained consistent compared to 2021.

Increases in 2022 were primarily due to new debt issuances after the first quarter of 2021 and through the first quarter of 2022, mostly offset by the lower cost of debt in 2022 attributable to the partial repayment of the 11.50% Senior Secured Notes due 2025 during the third quarter of 2021 and the decrease in interest expense associated with the adoption of ASU 2020-06.

Refer to Note 2 .

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Equity investment loss decreased by $63.7 million, or 59.0%, to $44.2 million from $108.0 million primarily due to a reduction in losses for TUI Cruises, one of our equity investments, in 2022 compared to 2021.

Other (expense) income.

We recognized Other (expense) of $2.5 million in 2022, compared to Other incom e of $5.0 million in 2021.

The $7.6 million increase in expense was primarily due to the 2021 recognition of a $13.4 million gain related to the change in fair value of our fuel swap derivative instruments with no hedge accounting, which did not recur in 2022, which was partially offset by an increase of $9.3 million in foreign exchange gain on remeasurement of our monetary assets, net of hedging.

Other income decreased $25.6 million, or 86.7%, to $3.9 million from $29.5 million in 2021.

The decrease in income was primarily due to the 2021 recognition of $28.5 million in net gains related to the change in fair value of our fuel swap derivative instruments with no hedge accounting, which did not recur in 2022.

Other Comprehensive Income (Loss)

Other comprehensive income for 2022 increased $84.2 million or 111.8%, to $159.6 million from $75.4 million in 2021.

The increase was primarily due to a Gain on cash flow derivative hedges in 2022 of $195.9 million compared to $10.3 million in 2021, mostly as a result of a significant increase in the fair value of our fuel swaps in 2022 compared to 2021.

The increase was primarily due to a Gain on cash flow derivative hedges in 2022 of $111.4 million compared to $61.8 million in 2021, mostly resulting from the greater increase in the fair value of our fuel swaps in 2022 compared to 2021.

Future Application of Accounting Standards

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Sources and Uses of Cash

Net cash used by operating activities decreased $280.3 million to cash used of $0.5 billion for the first quarter of 2022 compared to cash used of $0.8 billion for the same period in 2021.

Our continued resumption of cruise operations in 2022 has generated an increase in guest ticket collections, resulting in an increase in customer deposits of $406.5 million during the first three months in 2022, compared to an increase of $95.9 million during the same period in 2021, when our global operations were suspended.

The increase in customer deposits was partially offset by an increase in cruise operating expenses during the three months ended March 31, 2022, reflecting the associated costs of returning our fleet to service.

Net cash used in investing activities increased $475.6 million to cash used of $1.4 billion for the first three months in 2022, compared to cash used of $1.0 billion for the same period in 2021.

The increase was primarily attributable to an increase in capital expenditures of $301.4 million during the first quarter of 2022, compared to the same period in 2021, and a decrease in proceeds from the sale of property and equipment and other assets of $175.4 million during the first quarter of 2021, which did not recur in 2022.

Net cash provided by financing activities was $1.2 billion for the first quarter of 2022, compared to cash provided of $3.2 billion for the same period in 2021.

The decrease of $1.9 billion was primarily attributable to $1.6 billion of proceeds from common stock issuances during the three months ended March 31, 2021, which did not recur during the three months ended March 31, 2022, and higher repayments of debt of $0.6 billion during the first quarter of 2022, compared to the same period in 2021.

These decreases were partially offset by repayments of commercial paper notes of $414.6 million during the first quarter of 2021, which did not recur in 2022.

Net cash used by operating activities decreased $1.2 billion to cash used of $50.2 million for the first six months of 2022 compared to cash used of $1.3 billion for the same period in 2021.

Our full resumption of cruise operations in 2022 has generated an increase in guest ticket and onboard collections, resulting in an increase in customer deposits of $1.0 billion during the first six months of 2022, compared to a smaller increase of $0.6 billion during the same period in 2021, when our global operations were suspended.

The increase in customer deposits was partially offset by an increase in cruise operating expenses during the six months ended June 30, 2022, reflecting the associated costs of returning our fleet to service.

Net cash used in investing activities increased $1.3 billion to cash used of $2.5 billion for the first six months of 2022, compared to cash used of $1.2 billion for the same period in 2021.

The increase was primarily attributable to an increase in capital expenditures of $1.0 billion during the first six months of 2022, compared to the same period in 2021, an increase in cash paid on derivative financial instruments of $230.9 million and a decrease in proceeds from the sale of property and equipment and other assets of $175.4 million during the first six months of 2022.

Net cash provided by financing activities was $2.0 billion for the first six months of 2022, compared to cash provided of $3.0 billion for the same period in 2021.

The decrease of $1.0 billion was primarily attributable to $1.6 billion of proceeds from common stock issuances during the first six months of 2021, which did not recur during the same period in 2022, and higher repayments of debt of $0.5 billion during the first six month of 2022, compared to the same period in 2021.

These decreases were partially offset by higher debt proceeds of $0.7 billion during the first six month of 2022, compared to the same period in 2021 and repayments of commercial paper notes of $414.6 million during the first six month of 2021, which did not recur in 2022.

Future Capital Commitments

Capital Expenditures

COVID-19 has impacted shipyard operations which have and may continue to result in delays of our previously contracted ship deliveries.

As of March 31, 2022, the dates that the ships on order by our Global and Partner Brands are expected to be delivered, subject to change in the event of construction delays, and their approximate berths are as follows:

COVID-19 has impacted shipyard operations which resulted in delays of our previously contracted ship deliveries.

As of June 30, 2022, the dates that the ships on order by our Global and Partner Brands are expected to be delivered, subject to change in the event of construction delays, and their approximate berths are as follows:

Ship Shipyard Expected Delivery Date Approximate

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Celebrity Cruises —

Celebrity Beyond Chantiers de l'Atlantique 2nd Quarter 2022 3,250

Celebrity Ascent Chantiers de l'Atlantique 4th Quarter 2023 3,250

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Total Berths 38,310

We took delivery of Celebrity Beyond in April of 2022.

In addition, as of March 31, 2022, we have an agreement in place with Chantiers de l’Atlantique to build an additional fifth Edge-class ship with capacity of approximately 3,250, estimated for delivery in 2025, which is contingent upon completion of conditions precedent and financing.

In addition, as of June 30, 2022, we have an agreement in place with Chantiers de l’Atlantique to build an additional fifth Edge-class ship with capacity of approximately 3,250, estimated for delivery in 2025, which is contingent upon completion of conditions precedent and financing.

Our future capital commitments consist primarily of new ship orders.

As of March 31, 2022, the aggregate expected cost of our ships on order presented in the table above, excluding any ships on order by our Partner Brands, was $10.7 billion, of which we had deposited $0.6 billion.

Approximately 61.8% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at March 31, 2022.

As of June 30, 2022, the aggregate expected cost of our ships on order presented in the table above, excluding any ships on order by our Partner Brands, was $9.4 billion, of which we had deposited $0.6 billion.

Approximately 61.7% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at June 30, 2022.

The continuing effects of COVID-19, including uncertainties related to demand for cruising, has had, and is expected to continue to have, a material impact on our cash flows, liquidity and financial position.

In order to preserve liquidity throughout the suspension of our global cruise operations and gradual resumption of operations, we deferred a significant portion of our planned 2020, 2021 and 2022 capital expenditures.

As of March 31, 2022, we anticipate overall full year capital expenditures, based on our existing ships on order, will be approximately $3.0 billion for 2022.

In order to preserve liquidity, we deferred a significant portion of our planned 2020, 2021 and 2022 capital expenditures.

As of June 30, 2022, we anticipate overall full year capital expenditures, based on our existing ships on order, will be approximately $3.2 billion for 2022.

This amount does not include any ships on order by our Partner Brands.

Material Cash Requirements

As of March 31, 2022, our material cash requirements were as follows (in thousands):

As of June 30, 2022, our material cash requirements were as follows (in thousands):

Payments due by period

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Operating Activities:

Operating lease obligations(1) $ 1,259,460 $ 106,539 $ 190,653 $ 150,551 $ 811,716

Interest on debt(1) 6,392,817 1,645,165 2,291,773 1,435,082 1,020,797

Other(3) 693,702 206,408 180,781 130,679 175,834

Investing Activities:

Ship purchase obligations(2) 7,112,097 768,521 5,149,769 1,193,807 —

Financing Activities:

Debt obligations(5) 22,073,589 2,507,929 8,711,141 4,974,445 5,880,074

Finance lease obligations(6) 428,387 50,534 49,968 43,755 284,130

Other(7) 14,611 7,388 7,223 — —

Total $ 13,504,914 $ 2,413,686 $ 7,441,542 $ 2,628,889 $ 1,020,797

(1) We are obligated under noncancelable operating leases primarily for preferred berthing arrangements, real estate and shipboard equipment.

Amounts represent contractual obligations with initial terms in excess of one year.

(1) Long-term debt obligations mature at various dates through fiscal year 2036 and bear interest at fixed and variable rates.

Interest on variable-rate debt is calculated based on forecasted debt balances, including the impact of interest rate swap agreements using the applicable rate at March 31, 2022.

Debt denominated in other currencies is calculated based on the applicable exchange rate at March 31, 2022.

(3) Amounts primarily represent future commitments with remaining terms in excess of one year to pay for our usage of certain port facilities, marine consumables, services and maintenance contracts.

Interest on variable-rate debt is calculated based on forecasted debt balances, including the impact of interest rate swap agreements using the applicable rate at June 30, 2022.

Debt denominated in other currencies is calculated based on the applicable exchange rate at June 30, 2022.

(2) Amounts are based on contractual installment and delivery dates for our ships on order.

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Amounts do not include potential obligations which remain subject to cancellation at our sole discretion or any agreements entered for ships on order that remain contingent upon completion of conditions precedent.

(5) Debt denominated in other currencies is calculated based on the applicable exchange rate at March 31, 2022.

In addition, debt obligations presented above are net of debt issuance costs of $416.9 million as of March 31, 2022.

(6) Amounts represent finance lease obligations with initial terms in excess of one year.

(7) Amounts represent fees payable to sovereign guarantors in connection with certain of our export credit debt facilities and facility fees on our revolving credit facilities.

Please refer to Funding Needs and Sources for discussion on the planned funding of the above material cash requirements.

Refer to Note 7 .

Debt for maturities related to debt.

Refer to Note 8 .

Leases for maturities related to lease liabilities.

Refer to Funding Needs and Sources for discussion on the planned funding of the above material cash requirements.

As a normal part of our business, depending on market conditions, pricing and our overall growth strategy, we continuously consider opportunities to enter into contracts for the building of additional ships.

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Off-Balance Sheet Arrangements

TUI Cruises has entered into various ship construction and credit agreements that include certain restrictions on each of our and TUI AG’s ability to reduce our current ownership interest in TUI Cruises below 37.55% through May 2033.

Some of the contracts that we enter into include indemnification provisions that obligate us to make payments to the counterparty if certain events occur.

These contingencies generally relate to changes in taxes, increased lender capital costs and other similar costs.

The indemnification clauses are often standard contractual terms and are entered into in the normal course

There are no stated or notional amounts included in the indemnification clauses and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses.

We have not been required to make any payments under such indemnification clauses in the past and, under current circumstances, we do not believe an indemnification obligation is probable.

Certain of our surety agreements with third party providers for the benefit of certain agencies and associations that provide travel related bonds, allow the sureties to request collateral.

We also have agreements with our credit card processors relating to customer deposits received by us for future voyages.

These agreements allow the credit card processors to require us, under certain circumstances, including breach of the financial covenants, the existence of other material adverse changes, excessive chargebacks, and other triggering events, to maintain a reserve that can be satisfied by posting collateral.

As of March 31, 2022, we have posted letters of credit as collateral with our sureties and credit card processors under our revolving credit facilities in the amount of $117.2 million.

Executed amendments are in place for the majority of our credit card processors, waiving reserve requirements tied to breach of our financial covenants through at least September 30, 2022, with modified covenants thereafter, and as such, we do not anticipate any incremental collateral requirements for the processors covered by these waivers in the next 12 months.

We have a reserve with a processor where the agreement was amended in the first quarter of 2021, such that proceeds are held in reserve until the sailing takes place or the funds are refunded to the customer.

The maximum projected exposure with the processor, including amounts currently withheld and reported in Trade and other receivables , is approximately $293.9 million.

The amount and timing are dependent on future factors that are uncertain, such as pace of resumption of our cruise operations, the volume of future deposits and whether we transfer our business to other processors.

If we require additional waivers on the credit card processing agreements and are not able to obtain them, this could lead to the termination of these agreements or the trigger of reserve requirements.

As of March 31, 2022, other than the items described above, we are not party to any other off-balance sheet arrangements, including guarantee contracts, retained or contingent interest, certain derivative instruments and variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on our financial position.

Refer to Note 6 .

Other Assets for ownership restrictions related to TUI Cruises.

Refer to Note 7 .

Debt for surety and credit card processor agreements.

Refer to Note 9 .

Commitments and Contingencies for other agreements.

As of June 30, 2022, other than the items referenced above, we are not party to any other off-balance sheet arrangements, including guarantee contracts, retained or contingent interest, certain derivative instruments and variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on our financial position.

Funding Needs and Sources

Historically, we relied on a combination of cash flows provided by operations, draw-downs under our available credit facilities, the incurrence of additional debt and/or the refinancing of our existing debt and the issuance of additional shares of equity securities to fund our obligations.

COVID-19 resulted in our voluntary suspension of global cruise operations from March 2020 up to our gradual resumption of operations commencing in 2021.

COVID-19 resulted in our voluntary suspension of global cruise operations from March 2020 up to our full fleet returning to service during the second quarter of 2022.

The suspension of operations strained our sources of cash flow and liquidity, causing us to take actions resulting in reductions in our operating expenses, reductions in our capital expenses and new financings and other liquidity actions.

See further discussion on these liquidity actions at Recent Developments.

The Company continues to identify and evaluate further actions to improve its liquidity.

These include and are not limited to:

further reductions in capital expenditures, operating expenses and administrative costs and additional financings.

See further discussion on these liquidity actions at Recent Developments - COVID-19.

These include and are not limited to, further reductions in capital expenditures, operating expenses and administrative costs and additional financings.

Additionally, we will continue to pursue various opportunities to raise additional capital to fund obligations associated with future debt maturities and/or to extend the maturity dates associated with our existing indebtedness or facilities.

Actions to raise

capital may include issuances of debt, convertible debt or equity in private or public transactions or entering into new or extended credit facilities.

We have significant contractual obligations of which our debt service obligations and the capital expenditures associated with our ship purchases represent our largest funding needs.

As of March 31, 2022, we had $8.4 billion of committed financing for our ships on order.

As of March 31, 2022, we had $5.6 billion in contractual obligations due through March 31, 2023, of which approximately $2.5 billion relates to debt maturities, $1.5 billion relates to interest on debt and $1.2 billion relates to progress payments on our ship orders and the final installment payable due upon the delivery of Celebrity Beyond.

As of March 31, 2022, we had liquidity of $3.8 billion, in the form of cash and cash equivalents of $2.0 billion, $1.1 billion of undrawn revolving credit facility capacity, and a $0.7 billion commitment for a 364-day term loan facility available to draw on at any time prior to August 12, 2022.

Our revolving credit facilities were partially utilized through a combination of amounts drawn and letters of credit issued under the facilities as of March 31, 2022.

Beyond the next 12 months, in June of 2023, approximately $3.2 billion of long- term debt will become due.

Accordingly, in addition to our $3.8 billion liquidity as of March 31, 2022, in February 2022 we entered into certain agreements with MS where MS agrees to provide backstop committed financing to refinance, repurchase and/or repay in whole or in part our existing and outstanding 10.875% Senior Secured Notes due 2023, the Priority Guaranteed Notes, and 4.25% Convertible Notes due 2023.

As of June 30, 2022, we had $7.5 billion of committed financing for our ships on order.

As of June 30, 2022, our obligations due through June 30, 2023 primarily consisted of $5.5 billion related to debt maturities, $1.6 billion related to interest on debt and $0.8 billion related to progress payments on our ship orders and, based on the expected delivery date, the final installment payable due upon the delivery of Silver Nova.

As of June 30, 2022, we had liquidity of $3.3 billion, including cash and cash equivalents of $2.1 billion, $0.5 billion of undrawn revolving credit facility capacity, and a $0.7 billion commitment for a 364-day term loan facility available to draw on at any time prior to August 12, 2022.

Our revolving credit facilities were partially utilized through a combination of amounts drawn and letters of credit issued under the facilities as of June 30, 2022.

We have agreed with certain of our lenders not to pay dividends or engage in stock repurchases.

Refer to Note 10 .

Shareholders' Equity to our consolidated financial statements for further information.

During the next 12 months, in June of 2023, approximately $3.2 billion of long - term debt will become due.

Accordingly, in addition to our $3.3 billion liquidity as of June 30, 2022, in February 2022 we entered into certain agreements with MS where MS agrees to provide backstop committed financing to refinance, repurchase and/or repay in whole or in part our existing and outstanding 10.875% Senior Secured Notes due 2023, the Priority Guaranteed Notes, and 4.25% Convertible Notes due 2023.

Pursuant to the agreements, we may, at our sole option, issue and sell to MS (subject to the satisfaction of certain conditions) five-year senior unsecured notes with gross proceeds of up to $3.15 billion at any time between April 1, 2023 and June 29, 2023, to refinance the aforementioned notes.

If any person acquires ownership of more than 50% of our common stock or, subject to certain exceptions, during any 24-month period, a majority of our board of directors is no longer comprised of individuals who were members of our board of directors on the first day of such period, we may be obligated to prepay indebtedness outstanding under our credit facilities, which we may be unable to replace on similar terms.

Our debt securities also contain change of control provisions that would be triggered by a third-party acquisition of greater than 50% of our common stock coupled with a ratings downgrade.

Our public debt securities also contain change of control provisions that would be triggered by a third-party acquisition of greater than 50% of our common stock coupled with a ratings downgrade.

If this were to occur, it would have an adverse impact on our liquidity and operations.

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Debt Covenants

Both our export credit facilities and our non-export credit facilities contain covenants that require us, among other things, to maintain a fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital ratio to no more than 62.5%, and under certain facilities, to maintain a minimum level of shareholders' equity.

Both our export credit facilities and our non-export credit facilities contain covenants that require us, among other things, to maintain a fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital ratio, and under certain facilities, to maintain a minimum level of shareholders' equity.

The fixed charge coverage ratio is calculated by dividing net cash from operations for the past four quarters by the sum of dividend payments plus scheduled principal debt payments in excess of any new financings for the past four quarters.

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In addition, pursuant to the amendments for the non-export credit facilities, we have modified the manner in which such covenants are calculated, temporarily in certain cases and permanently in others, as well as the levels at which our net debt to capitalization covenant will be tested during the period commencing immediately following the end of the waiver period and continuing through the end of 2023.

The amendments impose a monthly-tested minimum liquidity covenant of $350 million, which in the case of the non-export credit facilities terminates at the end of the waiver period and in the case of the export credit facilities terminates either in July 2025, or when we pay off all deferred amounts, whichever is earlier.

In July 2022, we further amended the financial covenant levels for 2023 and 2024 for our non-export credit facilities and export credit facilities plus committed export credit facilities, and certain credit card processing agreements, following the respective aforementioned waiver periods.

The combined amendments, including the July 2022 amendments, impose a monthly-tested minimum liquidity covenant of $350 million, which in the case of the non-export credit facilities terminates at the end of the waiver period and in the case of the export credit facilities terminates either in July 2025, or when we pay off all deferred amounts, whichever is earlier.

In addition, the amendments to the non-export credit facilities place restrictions on paying cash dividends and effectuating share repurchases through the end of the third quarter of 2022, while the export credit facility amendments require us to prepay any deferred amounts if we elect to issue dividends or complete share repurchases.

As of March 31, 2022, we were in compliance with our financial covenants and we estimate that we will be in compliance for at least the next twelve months.

As of June 30, 2022, we were in compliance with our financial covenants and we estimate that we will be in compliance for at least the next twelve months.

Any further covenant waivers may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections as may be agreed with our lenders.

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In addition, in the event we declare a dividend or engage in share repurchases, we will need to repay the amounts deferred under our export credit facilities.

Accordingly, we did not declare a dividend during the eight consecutive quarters ended March 31, 2022.

Pursuant to amendments made to these agreements during the first quarter of 2021, the restrictions on paying cash dividends and effectuating share repurchases were extended through and including the third quarter of 2022.

Accordingly, we did not declare a dividend during the nine consecutive quarters ended June 30, 2022.

Quantitative and Qualitative Disclosures About Market Risk

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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