What changed in this filing

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Item 1A. Risk Factors

2022-11-03 compared with 2022-07-29 · 51 added, 50 removed, 356 unchanged (22% of the section changed)

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Macroeconomic, Business, Market and Operational Risks

The COVID-19 pandemic has had, and continues to have, a material adverse impact on our business, results of operations and liquidity.

We have been, and may continue to be, negatively impacted by the COVID-19 pandemic.

The global spread of COVID-19, the unprecedented responses by governments and other authorities to control and contain the disease, including related variants, and challenges to global vaccination efforts, have caused significant disruptions, created new risks, and exacerbated existing risks to our business.

We have been, and continue to be, negatively impacted by the COVID-19 pandemic, including impacts that resulted or may result from actions taken in response to the outbreak and the occurrence and spread of related variants.

We have been, and may continue to be, negatively impacted by the COVID-19 pandemic, including impacts that resulted or may result from actions taken in response to the outbreak and the occurrence and spread of related variants.

Examples of these include, but are not limited to, cruising advisories and required or voluntary travel restrictions.

In addition, the extent, duration, and magnitude of the COVID-19 pandemic’s effect on the economy and consumer demand for cruising and travel is evolving and difficult to predict.

As such, the effects of COVID-19 may persist for an extended period of time or become more pronounced on our cruise operations.

While we have resumed our global cruise operations, following the March 2020 suspension of our global cruise operations, there is no assurance that our cruise operations will continue uninterrupted.

It is possible that future COVID-19 cases could occur onboard and, even if controlled and contained, it is uncertain whether we will need to suspend additional sailings and to what extent in such event.

Onboard cases have resulted in illness among our guests and crew, incremental costs, guest refunds and negative publicity and media attention.

In addition, we may face challenges related to possible new and evolving operating protocols, including protocols in the countries in which we operate and plan to operate.

In addition, we have and may continue to face challenges and increased operating costs related to possible new and evolving operating protocols, including protocols in the countries in which we operate and plan to operate.

Uncertainties remain as to the specifics, timing, duration and costs of administering and implementing our health and safety measures, some of which may be significant.

These measures also may negatively impact guest satisfaction.

Based on our assessment of these requirements and recommendations, the status of COVID-19 infection and/or vaccination rates in the U.S.

or globally or for other reasons, we may determine it necessary to cancel or modify certain of our Global Brands’ cruise sailings.

The impact to our global bookings resulting from COVID-19 may continue to have a material negative impact on our results of operations and liquidity, which may be prolonged beyond containment of the disease and its variants.

Based on our assessment of these requirements and recommendations, the status of COVID-19 infection, including new variants, and/or vaccination rates in the U.S.

or globally or for other reasons, we may determine it necessary to cancel or modify certain of our

Global Brands’ cruise sailings.

The impact to our global bookings resulting from COVID-19 may continue to have a negative impact on our results of operations and liquidity, which may be prolonged beyond containment of the disease and its variants.

Adverse worldwide economic or other conditions could reduce the demand for cruises and passenger spending, adversely impacting our operating results, cash flows and financial condition including impairing the value of our goodwill, ships, trademarks and other assets and potentially affecting other critical accounting estimates where the change may be material to our operating results.

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Our operating costs, including fuel, food, payroll and benefits, airfare, taxes, insurance, and security costs, can be and have been subject to increases due to market forces and economic or geopolitical conditions or other factors beyond our control, including global inflationary pressures, which have increased our operating costs.

In connection with the COVID-19 pandemic, we have incurred increased operating costs and could continue to incur additional costs.

Increases in these operating costs could adversely affect our future profitability.

Increases in these operating costs have affected, and may continue to adversely affect, our future profitability.

Any further impairment of our goodwill, long-lived assets, equity investments and notes receivable could adversely affect our financial condition and operating results.

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In addition, we may be subject to increased concerns that cruises are more susceptible than other vacation alternatives to the spread of infectious diseases, such as COVID-19.

In response to disease outbreaks, our industry, including our passengers and crew, may be subject to enhanced health and safety requirements in the future which may be costly and take a significant amount of time to

implement across our fleet.

In response to disease outbreaks, our industry, including our passengers and crew, may be subject

to enhanced health and safety requirements in the future which may be costly and take a significant amount of time to implement across our fleet.

For example, local governments may establish their own set of rules for self-quarantines and/or require proof of individuals health status or vaccination prior to or upon visiting.

The impact of any of these factors could have a material adverse effect on our business and results of operations.

In addition, our COVID-19 operating protocols and any other health protocols we may develop or that may be required by law in the future in response to infectious diseases may be costly to develop and implement and may be less effective than we expected in reducing the risk of infection and spread of such disease on our cruise ships, all of which will negatively impact our operations and expose us to reputational and legal risks.

In addition, any operating or health protocols that we may develop or that may be required by law in the future in response to infectious diseases may be costly to develop and implement and may be less effective than we expected in reducing the risk of infection and spread of such disease on our cruise ships, all of which will negatively impact our operations and expose us to reputational and legal risks.

Incidents on ships, at port facilities, land destinations and/or affecting the cruise vacation industry in general, and the associated negative media coverage and publicity, have affected and could continue to affect our reputation and impact our sales and results of operations.

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Customers, investors, lenders, regulators and other industry stakeholders have placed increasing importance on corporate ESG practices and on the implications and social cost of their investments, which could cause us to incur additional costs and changes to our operations.

If our ESG practices or disclosures do not meet investor or industry stakeholders' evolving expectations and standards, our customer, employee and supply chain vendor retention, and our brands and reputation, may be negatively impacted, which could affect our business operations and financial condition.

If our ESG practices or disclosures do not meet stakeholders' evolving expectations and standards, our customer and employee retention, our access to certain types of capital, including export credit financing, and our brands and reputation may be negatively impacted, which could affect our business operations and financial condition.

We could also incur additional costs and require additional resources to monitor, report and comply with various ESG practices, which could increase our operating costs and affect our results of operations and financial condition.

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Although our ships can be redeployed, cruise sales and/or pricing may be impacted by the introduction of new ships into the marketplace, reductions in cruise capacity, overall market growth and deployment decisions of ourselves and our competitors.

As of June 30, 2022, a total of 66 new ships with approximately 161,000 berths were on order for delivery through 2027 in the cruise industry, including 10 ships currently scheduled to be delivered to us.

As of September 30, 2022, a total of 70 new ships with approximately 165,000 berths were on order for delivery through 2028 in the cruise industry, including 10 ships currently scheduled to be delivered to our Global and Partner Brands.

The further net growth in capacity from these new ships and future orders, without an increase in the cruise industry’s demand and/or share of the vacation market, could depress cruise prices and impede our ability to achieve yield improvement.

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These attempts to expand our business increase the complexity of our business, require significant levels of investment and can strain our management, personnel, operations and systems.

In addition, we have been unable to execute our attempts to expand our business as a result of the impacts of the COVID-19 pandemic, as described elsewhere herein.

In addition, we may be unable to execute our attempts to expand our business.

There can be no assurance that these business expansion efforts will develop as anticipated or that we will succeed, and if we do not, we may be unable to recover our investment, which could adversely impact our business, financial condition and results of operations.

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Any event impacting a vendor’s ability to deliver goods of the expected quality at the location and time needed could negatively impact our ability to deliver our cruise experience.

Events impacting our supply chain could be caused by factors beyond the control of our suppliers or us, including inclement weather, natural disasters, new laws and regulations, labor actions, increased demand, problems in production or distribution and/or disruptions in third-party logistics or transportation systems, including those caused by the COVID-19 pandemic.

Events impacting our supply chain could be caused by factors beyond the control of our suppliers or us, including inclement weather, natural disasters, new laws and regulations, labor actions, increased demand, problems in production or distribution, cybersecurity events, and/or disruptions in third-party logistics or transportation systems, including those caused by the COVID-19 pandemic.

Any such interruptions to our supply chain could increase our costs and could limit the availability of products critical to our operations.

In addition, increased regulation or stakeholder expectations regarding sourcing practices, or supplier conduct that does not meet such standards, could cause our operating costs to increase or result in publicity that negatively affects our reputation.

In order to achieve cost and operational efficiencies, we outsource to third-party vendors certain services that are integral to the operations of our global businesses, such as our onboard concessionaires, certain of our call center operations, guest port services, logistics distribution and operation of a large part of our information technology systems.

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We cannot be certain that insurance and reinsurance coverage will be available to us and at commercially reasonable rates in the future or at all or, if available, that it will be sufficient to cover potential claims.

Additionally, if we or other insureds sustain significant losses, the result may be higher insurance premiums, cancellation of coverage, or the inability to obtain coverage.

Additionally, if we or other insureds

sustain significant losses, the result may be higher insurance premiums, cancellation of coverage, or the inability to obtain coverage.

Such events could adversely affect our financial condition or results of operations.

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Wilhelmsen AS and Cruise Associates and their permitted transferees, from acquiring beneficial ownership of more than 4.9% of our outstanding shares without the consent of our board of directors.

We may not be able to achieve our fiscal 2025 financial and climate-related performance goals.

In November 2022, we announced that we are targeting certain financial and climate-related performance goals for fiscal 2025.

Our ability to achieve these goals is dependent on a number of factors, including the other risk factors described in this section.

If we are not able to achieve these goals, the price of our common stock and reputation may be negatively affected.

Financial Risks

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Additionally, our ability to raise additional financing, whether or not secured, could be limited if our credit rating is further downgraded, and/or if we fail to comply with applicable covenants governing our outstanding indebtedness, and/or if overall financial market conditions worsen.

Our ability to access additional funding as and when needed, our ability to timely refinance and/or replace our outstanding debt securities and credit facilities on acceptable terms and our cost of funding will depend upon numerous factors including, but not limited to, the strength of the financial markets, global inflationary pressures, interest rate fluctuations, our recovery and financial performance, the recovery and performance of our industry in general and the size, scope and timing of our financial needs.

Our ability to access additional funding as and when needed, our ability to timely refinance and/or replace our outstanding debt securities and credit facilities on acceptable terms and our cost of funding will depend upon numerous factors including, but not limited to, the strength of the financial markets, global market conditions, including inflationary pressures, interest rate fluctuations, our recovery and financial performance, the recovery and performance of our industry in general and the size, scope and timing of our financial needs.

In addition, even where financing commitments have been secured, significant disruptions in the capital and credit markets could cause our banking and other counterparties to breach their contractual obligations to us or could cause the conditions to the availability of such funding not to be satisfied.

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We have a substantial amount of debt and significant debt service obligations.

As of June 30, 2022, we had total debt of $23.2 billion.

Our substantial debt has required us to dedicate a large portion of our cash flow from operations to service debt and fund repayments on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate expenses.

As of September 30, 2022, we had total debt of $23.3 billion.

Our substantial debt has required us to dedicate a large portion of our cash flow from operations to service

debt and fund repayments on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate expenses.

Our ability to make future scheduled payments on our debt service obligations or refinance our debt depends on our future operating and financial performance and ability to generate cash.

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If we cannot generate sufficient cash to meet our debt service obligations or fund our other business needs, we may, among other things, need to refinance all or a portion of our debt, obtain additional financing, delay planned capital expenditures or sell assets.

We cannot assure that we will be able to generate sufficient cash

through any of the foregoing.

We cannot assure that we will be able to generate sufficient cash through any of the foregoing.

If we are not able to refinance any of our debt, obtain additional financing or sell assets on commercially reasonable terms or at all, we may not be able to satisfy our obligations with respect to our debt.

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Although the indentures governing the Secured Notes, the Priority Guaranteed Notes, and certain of our other debt instruments, including our unsecured bank and export credit facilities, contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances the amount of debt that could be incurred in compliance with these restrictions could be substantial.

In the event that we execute and borrow under the $0.7 billion commitment available to draw on at any time prior to August 12, 2022 for a 364-day term loan facility, the credit agreement that would govern such term loan facility would impose substantially similar restrictions (including the related qualifications and exceptions) as are set forth in the indenture governing the Priority Guaranteed Notes.

In the event that we execute and borrow under the $0.7 billion commitment available to draw on at any time on or prior to August 11, 2023 for a 364-day term loan facility, the credit agreement that would govern such term loan facility would impose substantially similar restrictions (including the related qualifications and exceptions) as are set forth in the indenture governing the Priority Guaranteed Notes.

If new debt is added to our existing debt levels, the related risks that we now face would increase.

Additionally, there is no guarantee that financing will be available in the future or that such financing will be available with similar terms or terms that are commercially acceptable to us.

As of June 30, 2022, we have commitments for approximately $7.5 billion of debt to finance the purchase of 7 ships on order by our Royal Caribbean International, Celebrity Cruises and Silversea Cruises brands, all of which are guaranteed by the export credit agencies in the countries in which the ships are being built.

As of September 30, 2022, we have commitments for approximately $7.0 billion of debt to finance the purchase of 7 ships on order by our Royal Caribbean International, Celebrity Cruises and Silversea Cruises brands, all of which are guaranteed by the export credit agencies in the countries in which the ships are being built.

The ultimate size of each facility will depend on the final contract price (including change orders and owner’s supply) as well as fluctuations in the EUR/USD exchange rate.

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All of these limitations are subject to significant exceptions and qualifications.

Despite these exceptions and qualifications, we cannot assure you that the operating and financial restrictions and covenants in certain of our debt instruments will not adversely affect our ability to finance our future operations or capital needs or engage in other business activities that may be in our interest.

Despite these exceptions and qualifications, we cannot assure you that the operating and financial restrictions and covenants in certain of our debt

instruments will not adversely affect our ability to finance our future operations or capital needs or engage in other business activities that may be in our interest.

Any future indebtedness may include similar or other restrictive terms and we may be required to further encumber our assets.

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If the debt under certain of our debt instruments that we enter into were to be accelerated, our liquid assets may be insufficient to repay in full such indebtedness.

Borrowings under other debt instruments that contain cross-default provisions also may be accelerated or become payable on

Borrowings under other debt instruments that contain cross-default provisions also may be accelerated or become payable on demand.

In these circumstances, our assets may not be sufficient to repay in full that indebtedness and our other indebtedness then outstanding.

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If note holders elect to convert, the notes will be converted into our shares of common stock, cash, or a combination of common stock and cash, at our discretion.

Prior to March 15 and August 15, 2023, our convertible notes issued in June 2020 and October 2020, respectively, will be convertible at the option of holders during certain periods only upon satisfaction of certain conditions.

Prior to March 15, 2023, August 15, 2023, and May 15, 2025, our convertible notes issued in June 2020, October 2020, and August 2022, respectively, will be convertible at the option of holders during certain periods only upon satisfaction of certain conditions.

Beyond those dates, the convertible notes will be convertible at any time until the close of business on the second scheduled trading day immediately preceding their maturity date.

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Additionally, if we raise additional funds through equity or convertible debt issuances, our shareholders could experience dilution of their ownership interest, and these equity or convertible debt securities could have rights, preferences, and privileges that are superior to that of holders of our common stock.

We did not declare quarterly dividends on our common stock in the quarter ended June 30, 2022 and do not expect to pay dividends on our common stock for the foreseeable future.

No cash dividends were declared on our common stock during the nine consecutive quarters ended June 30, 2022.

We did not declare quarterly dividends on our common stock in the quarter ended September 30, 2022 and do not expect to pay dividends on our common stock for the foreseeable future.

No cash dividends were declared on our common stock during the ten consecutive quarters ended September 30, 2022.

We expect that any income received from operations will be devoted to our future operations and recovery.

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foreign policy have in the past and could in the future result in the imposition of travel restrictions or travel bans on U.S.

persons to certain countries or result in the imposition of travel advisories, warnings, rules, regulations or legislation exposing us to penalties or claims of monetary damages.

persons to certain countries or result in the imposition of travel advisories, warnings, rules, regulations or

legislation exposing us to penalties or claims of monetary damages.

In addition, some countries have adopted restrictions against U.S.

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Environmental, labor, health and safety, financial responsibility and other maritime regulations and measures could affect operations and increase operating costs.

and various state and foreign government or regulatory agencies have enacted or may enact environmental regulations or policies, such as requiring the use of low sulfur fuels (e.g., IMO 2020), that could increase our direct cost to operate in certain markets, increase our cost of fuel, limit the supply of compliant fuel, cause us to incur significant expenses to purchase and/or develop new equipment and adversely impact the cruise vacation industry.

and various state and foreign government or regulatory agencies have enacted or may enact environmental regulations or policies, such as requiring the use of low sulfur fuels (e.g., IMO Sulfur Limit) or the incoming carbon intensity indicator regulation, that have or could increase our direct cost to operate in certain markets, increase our cost of fuel, limit the supply of compliant fuel, cause us to incur significant expenses to purchase and/or develop new equipment and adversely impact the cruise vacation industry.

While we have taken and expect to continue to take a number of actions to mitigate the potential impact of certain of these regulations, there can be no assurances that these efforts will be successful over the long term.

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These regulatory efforts,both internationally and in the U.S., are still developing, and we cannot yet determine what the final regulatory programs or their impact will be.

However, such climate change-related regulatory activity in the future may adversely affect our business and financial results by requiring us to reduce our emissions, purchase allowances or otherwise pay for our emissions and may increase our exposure, if any, to climate change-related litigation.

However, such climate change-related regulatory activity in the future may adversely affect our business and financial results by requiring us to reduce our emissions, pay for our emissions, modify our itineraries and may increase our exposure, if any, to climate change-related litigation.

Such activity may also impact us by increasing our operating costs, including fuel costs.

For example, the European Union has proposed a series of significant carbon reforms under its Fit for 55 package designed to meet its 2030 emission goals, which would require us, among other things, to increase the use of low carbon fuel onboard our vessels as well as connectivity to shore power, The proposed legislation also includes updates to the European Union Emission Trading System which would impose requirements to purchase carbon emission allowances beginning in 2023.

If enacted, the Fit for 55 regulations may individually and collectively have a material adverse effect on our business and results of operations due to increased costs associated with compliance and modified itineraries in the affected regions.

In addition, we are subject to various international, national, state and local laws, regulations and treaties that govern, among other things, discharge from our ships, safety standards applicable to our ships, treatment of disabled persons, health and sanitary standards applicable to our guests, security standards on board our ships and at the ship/port interface areas, and financial responsibilities to our guests.

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However, there are very few judicial cases in Liberia interpreting the Business Corporation Act of Liberia.

While the Business Corporation Act of Liberia provides that it is to be applied and construed to make the laws of Liberia, with

respect of the subject matter of the Business Corporation Act of Liberia, uniform with the laws of the State of Delaware and other states with substantially similar legislative provisions (and adopts their case law to the extent it is non-conflicting), there have been few Liberian court cases interpreting the Business Corporation Act of Liberia, and we cannot predict whether Liberian courts would reach the same conclusions as United States courts.

While the Business Corporation Act of Liberia provides that it is to be applied and construed to make the laws of Liberia, with respect of the subject matter of the Business Corporation Act of Liberia, uniform with the laws of the State of Delaware and other states with substantially similar legislative provisions (and adopts their case law to the extent it is non-conflicting), there have been few Liberian court cases interpreting the Business Corporation Act of Liberia, and we cannot predict whether Liberian courts would reach the same conclusions as United States courts.

We understand that legislation has been proposed but not yet adopted by the Liberian legislature which amends the provisions regarding the adoption of non-Liberian law to, among other things, provide for the adoption of the statutory and case law of Delaware and not also states with substantially similar legislative provisions, and potentially provide the courts of Liberia discretion in application of non-statutory corporation law of Delaware in cases when the laws of Liberia are silent.

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As a result, an increase in market interest rates would increase our interest expense and our debt service obligations.

As of June 30, 2022, we had approximately $6.8 billion of indebtedness that bears interest at variable rates.

As of September 30, 2022, we had approximately $5.9 billion of indebtedness that bears interest at variable rates.

This amount represented approximately 25.0% of our total indebtedness.

As of June 30, 2022, a hypothetical 1% increase in prevailing interest rates would increase our forecasted 2022 interest expense by approximately $28.4 million.

As of September 30, 2022, a hypothetical 1% increase in prevailing interest rates would increase our forecasted 2022 interest expense by approximately $9.8 million.

Additionally, the value of our earnings in foreign currencies is adversely impacted by a strong U.S.

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The shortage and competitive labor market may result in increased costs if we need to hire temporary personnel, and/or increased wages and/or benefits in order to attract and retain employees, all of which may negatively impact our results of operations.

As of June 30, 2022, approximately 88% of our shipboard employees were covered by collective bargaining agreements.

As of September 30, 2022, approximately 87% of our shipboard employees were covered by collective bargaining agreements.

A dispute under our collective bargaining agreements could result in a work stoppage of those employees covered by the agreements.

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Any such work stoppages or potential work stoppages could have a material adverse effect on our financial results, as could a loss of key employees, our inability to recruit or retain qualified personnel or disruptions among our personnel.

If we are unable to keep pace with developments in technology, including technology in response to the COVID-19 pandemic, our operations or competitive position could become impaired.

If we are unable to keep pace with developments, design, and implementation in technology , our operations or competitive position could become impaired.

Our business continues to demand the use of sophisticated technology and systems.

These technologies and systems require significant investment and must be proven, refined, updated, upgraded and/or replaced with more advanced systems in order to continue to meet our customers’ demands and expectations.

If we are unable to do so in a timely manner or within reasonable cost parameters or if we are unable to appropriately and timely train our employees to operate any of these new systems, our business could suffer.

We also may not achieve the benefits that we anticipate from any new technology or system, which could result in higher than anticipated costs or impair our operating results.

In response to COVID-19, we have relied on technology to assist with mitigating the risk of COVID-19 for our passengers and crew.

For example, we have deployed our patented eMuster technology across our fleet in an effort to minimize congregate settings onboard.

Additionally, on certain vessels we have deployed our patented contact tracing technology in an effort to quickly identify close contacts of cases onboard.

As this technology continues to develop we may be faced with technical constraints or development decisions.

We may be unable to obtain appropriate technology in a timely manner or at all or we may incur significant costs in doing so.

A failure to adopt the appropriate technology, or a failure or obsolescence in the technology that we do adopt, could adversely affect our results of operations.

If we are unable to do so in a timely manner or within reasonable cost parameters, if there are any disruptions, delays or deficiencies in design or if we are unable to appropriately and timely train our employees to operate any of these new systems, our business could suffer.

We also may not achieve the benefits that we anticipate from any new technology or system, which could impair our operating results.

We may be unable to procure appropriate technology in a timely manner or at all or we may incur significant costs in doing so.

A failure to adopt the appropriate technology, or a failure or obsolescence in the technology that we have adopted, could adversely affect our results of operations.

We are exposed to cyber security attacks and data breaches and the risks and costs associated with protecting our systems and maintaining data integrity and security.

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Such events could lead to an adverse impact on our financial condition or results of operations.

In addition, we have experienced, and may continue to experience, increases in litigation pertaining to the COVID-19 crisis, including potential claims for non-refundable cash deposits.

We cannot predict the quantum or outcome of any such proceedings and the impact that they will have on our financial results, but any such impact may be material.

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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 1A. Risk Factors