Cautionary Note Regarding Factors That Could Affect Future Results
Some of the statements, estimates or projections contained in this document are
"forward-looking statements" that involve risks, uncertainties and assumptions
with respect to us, including some statements concerning future results,
operations, outlooks, plans, goals, reputation, cash flows, liquidity and other
events which have not yet occurred. These statements are intended to qualify for
the safe harbors from liability provided by Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts are statements that could
be deemed forward-looking. These statements are based on current expectations,
estimates, forecasts and projections about our business and the industry in
which we operate and the beliefs and assumptions of our management. We have
tried, whenever possible, to identify these statements by using words like
"will," "may," "could," "should," "would," "believe," "depends," "expect,"
"goal," "aspiration," "anticipate," "forecast," "project," "future," "intend,"
"plan," "estimate," "target," "indicate," "outlook," and similar expressions of
future intent or the negative of such terms.
Forward-looking statements include those statements that relate to our outlook
and financial position including, but not limited to, statements regarding:
•Pricing •Goodwill, ship and trademark fair values
•Booking levels •Liquidity and credit ratings
•Occupancy •Adjusted earnings per share
•Interest, tax and fuel expenses •Return to guest cruise operations
•Currency exchange rates •Impact of the COVID-19 coronavirus global
pandemic on our financialcondition and results • Estimates of the ship’s depreciable life and residual values of operations
Because forward-looking statements involve risks and uncertainties, there are many factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied by our forward-looking statements. This note contains important cautionary statements of the known factors that we consider could materially affect the accuracy of our forward-looking statements and adversely affect our business, results of operations and financial position. Additionally, many of these risks and uncertainties are currently, and in the future may continue to be, amplified by COVID-19. It is not possible to predict or identify all such risks. There may be additional risks that we consider immaterial or which are unknown. These factors include, but are not limited to, the following: •COVID-19 has had, and is expected to continue to have, a significant impact on our financial condition and operations. The current, and uncertain future, impact of COVID-19, including its effect on the ability or desire of people to travel (including on cruises), is expected to continue to impact our results, operations, outlooks, plans, goals, reputation, litigation, cash flows, liquidity, and stock price. •Events and conditions around the world, including war and other military actions, such as the current invasion ofUkraine , inflation, higher fuel prices, higher interest rates and other general concerns impacting the ability or desire of people to travel, have led, and may in the future lead, to a decline in demand for cruises, impacting our operating costs and profitability. •Incidents concerning our ships, guests or the cruise industry have in the past and may, in the future, impact the satisfaction of our guests and crew and lead to reputational damage. •Changes in and non-compliance with laws and regulations under which we operate, such as those relating to health, environment, safety and security, data privacy and protection, anti-corruption, economic sanctions, trade protection and tax have in the past and may, in the future, lead to litigation, enforcement actions, fines, penalties and reputational damage. •Factors associated with climate change, including evolving and increasing regulations, increasing global concern about climate change and the shift in climate conscious consumerism and stakeholder scrutiny, and increasing frequency and/or severity of adverse weather conditions could adversely affect our business. •Inability to meet or achieve our sustainability related goals, aspirations, initiatives, and our public statements and disclosures regarding them, may expose us to risks that may adversely impact our business. •Breaches in data security and lapses in data privacy as well as disruptions and other damages to our principal offices, information technology operations and system networks and failure to keep pace with developments in technology may adversely impact our business operations, the satisfaction of our guests and crew and may lead to reputational damage. •The loss of key employees, our inability to recruit or retain qualified shoreside and shipboard employees and increased labor costs could have an adverse effect on our business and results of operations. •Increases in fuel prices, changes in the types of fuel consumed and availability of fuel supply may adversely impact our scheduled itineraries and costs. 26 -------------------------------------------------------------------------------- Table of Contents •We rely on supply chain vendors who are integral to the operations of our businesses. These vendors and service providers are also affected by COVID-19 and may be unable to deliver on their commitments which could impact our business. •Fluctuations in foreign currency exchange rates may adversely impact our financial results. •Overcapacity and competition in the cruise and land-based vacation industry may lead to a decline in our cruise sales, pricing and destination options. •Inability to implement our shipbuilding programs and ship repairs, maintenance and refurbishments may adversely impact our business operations and the satisfaction of our guests.
The ranking of risk factors presented above is not intended to reflect our indication of priority or likelihood.
Forward-looking statements should not be relied upon as a prediction of actual results. Subject to any continuing obligations under applicable law or any relevant stock exchange rules, we expressly disclaim any obligation to disseminate, after the date of this document, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based. Forward-looking and other statements in this document may also address our sustainability progress, plans and goals (including climate change and environmental-related matters). In addition, historical, current and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.
New accounting statements
Refer to Note 1 – “General Statements, Accounting” to the consolidated financial statements for additional discussion regarding the accounting statements.
Critical Appraisals of Accounting
For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Form 10-K.
Seasonality
Our passenger ticket revenues are seasonal. Historically, demand for cruises has been greatest during our third quarter, which includes the Northern Hemisphere summer months. This higher demand during the third quarter results in higher ticket prices and occupancy levels and, accordingly, the largest share of our operating income is typically earned during this period. This historical trend was disrupted in 2020 by the pause and in 2021 by the ongoing resumption of guest cruise operations. In addition, substantially all ofHolland America Princess Alaska Tours' revenue and net income (loss) is generated from May through September in conjunction withAlaska's cruise season.
Known trends and uncertainties
•We believe the increased cost of fuel, liquefied natural gas and other related
costs are reasonably likely to continue to impact our profitability in both the
short and long-term.
•We expect inflation, higher interest rates and supply chain challenges to
continue to weigh on our costs, and they are reasonably likely to continue to
impact our profitability.
•We believe the increasing global focus on climate change, including the
reduction of carbon emissions and new and evolving regulatory requirements, is
reasonably likely to materially impact our future costs, capital expenditures
and revenues and/or the relationship between them. The full impact of climate
change to our business is not yet known.
•In addition, we are experiencing some challenges with onboard staffing which
have resulted in occupancy constraints on certain voyages and are reasonably
likely to impact our profitability in the short-term.
•We expect a net loss for the fourth quarter of 2022 and continue to expect a
net loss for the full year 2022.
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Statistical Information
Three Months Ended Nine Months Ended
August 31, August 31,
2022 2021 2022 2021
Passenger Cruise Days ("PCDs") (in
thousands) (a) 17,700 2,053 36,363 2,219
Available Lower Berth Days ("ALBDs") (in
thousands) (b) 21,015 3,788 51,004 4,405
Occupancy percentage (c) 84 % 54 % 71 % 50 %
Passengers carried (in thousands) 2,571 340 5,233 372
Fuel consumption in metric tons (in
thousands) 701 344 1,899 852
Fuel consumption in metric tons per
thousand ALBDs 33 (d) 37 (d)
Fuel cost per metric ton consumed $ 958 $ 537 $ 836 $ 472
Currencies (USD to 1)
AUD $ 0.70 $ 0.75 $ 0.71 $ 0.76
CAD $ 0.78 $ 0.80 $ 0.78 $ 0.80
EUR $ 1.03 $ 1.19 $ 1.08 $ 1.20
GBP $ 1.21 $ 1.39 $ 1.28 $ 1.38
The resumption of guest cruise operations has impacted the comparability of all aspects of our business.
Notes on statistical information
(a) PCD represents the number of cruise passengers on a voyage multiplied by the number of revenue-producing vessel operating days for that voyage.
(b)ALBD is a standard measure of passenger capacity for the period that we use to approximate rate and capacity variances, based on consistently applied formulas that we use to perform analyses to determine the main non-capacity driven factors that cause our cruise revenues and expenses to vary. ALBDs assume that each cabin we offer for sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-producing ship operating days in the period. (c)Occupancy, in accordance with cruise industry practice, is calculated using a numerator of PCDs and denominator of ALBDs, which assumes two passengers per cabin even though some cabins can accommodate three or more passengers. Percentages in excess of 100% indicate that on average more than two passengers occupied some cabins.
(d) Fuel consumption in metric tons per thousand ALBD for 2021 is not meaningful.
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Results of Operations
Consolidated
Nine Months Ended
Three Months Ended August 31, August 31,
(in millions) 2022 2021 Change 2022 2021 Change
Revenues
Passenger ticket $ 2,595 $ 303 $ 2,292 $ 4,753 $ 326 $ 4,426
Onboard and other 1,711 243 1,468 3,577 295 3,282
4,305 546 3,760 8,329 621 7,708Costs and Operating Expenses
Commissions, transportation and other 565 79 486 1,141 116 1,025
Onboard and other 537 72 465 1,060 94 966
Payroll and related 563 375 188 1,601 834 767
Fuel 668 182 486 1,577 398 1,179
Food 259 52 208 586 80 506
Ship and other impairments - 475 (475) 8 524 (517)
Other operating 787 381 406 2,118 786 1,332
3,379 1,616 1,763 8,092 2,832 5,260
Selling and administrative 625 425 199 1,774 1,305 469
Depreciation and amortization 581 562 19 1,707 1,681 26
4,585 2,603 1,982 11,573 5,817 5,756
Operating Income (Loss) (279) (2,057) 1,778 (3,244) (5,196) 1,952
Nonoperating Income (Expense)
Interest income 24 3 22 34 10 24
Interest expense, net of capitalized
interest (422) (418) (5) (1,161) (1,253) 92
Gains (losses) on debt extinguishment,
net - (376) 376 - (372) 372
Other income (expense), net (81) (11) (70) (108) (87) (21)
(479) (802) 323 (1,235) (1,702) 467
Income (loss) before income tax
$ 2,101 $ (4,478) $ (6,898) $ 2,420 NAA Nine Months Ended Three Months Ended August 31, August 31, (in millions) 2022 2021 Change 2022 2021 Change Revenues Passenger ticket$ 1,716 $ 151 $ 1,565 $ 3,163 $ 152 $ 3,011 Onboard and other 1,164 121 1,044 2,509 139 2,370 2,880 271 2,609 5,672 291 5,382 Operating Costs and Expenses 2,280 966 1,314 5,335 1,647 3,689 Selling and administrative 368 219 149 1,078 672 406 Depreciation and amortization 358 343 16 1,046 1,018 28 3,007 1,528 1,479 7,460 3,337 4,123 Operating Income (Loss)$ (126) $ (1,257) $ 1,130 $ (1,787) $ (3,046) $ 1,259 29
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EA
Three Months Ended August Nine Months Ended
31, August 31,
(in millions) 2022 2021 Change 2022 2021 Change
Revenues
Passenger ticket $ 972 $ 164 $ 808 $ 1,804 $ 186 $ 1,619
Onboard and other 294 69 225 585 88 497
1,266 232 1,034 2,389 274 2,115
Operating Costs and Expenses 983 610 374 2,529 1,106 1,423
Selling and administrative 173 139 34 524 378 146
Depreciation and amortization 172 180 (8) 531 550 (19)
1,328 929 399 3,585 2,034 1,551
Operating Income (Loss) $ (62) $ (696) $ 634 $ (1,196) $ (1,760) $ 564
We paused our guest cruise operations in March 2020 . We began our resumption of
guest cruise operations in 2021 and continued into 2022. As of August 31, 2022 ,
93% of our capacity was serving guests, compared to 35% as of August 31, 2021 .
Our NAA segment had 95% of its capacity serving guests as of August 31, 2022 ,
compared to 31% as of August 31, 2021 . Our EA segment had 92% of its capacity
serving guests as of August 31, 2022 , compared to 43% as of August 31, 2021 . We
expect eight of our nine brands will have their entire fleet serving guests by
the end of the fourth quarter of 2022. Given Costa Cruises' significant presence
in Asia , particularly China , which remains closed to cruising, the brand
continues to evaluate deployment options and fleet optimization alternatives
beyond the previously announced transfers of Costa Luminosa to Carnival Cruise
Line as well as Costa Venezia and Costa Firenze to the COSTA® by CARNIVAL®
concept.
The effects of the COVID-19 global pandemic, inflation, higher fuel prices and
higher interest rates are collectively having a material negative impact on all
aspects of our business, including our results of operations, liquidity and
financial position. The full extent of these impacts are uncertain.
Three months passed
Revenues Consolidated Cruise passenger ticket revenues made up 60% of our total revenues in 2022 while onboard and other revenues made up 40%. Revenues in 2022 increased by$3.8 billion as compared to 2021 due to the resumption of guest cruise operations and the significant increase of ships in service. ALBDs increased to 21.0 million in 2022 as compared to 3.8 million in 2021. Occupancy in 2022 was 84% compared to 54% in 2021. NAA Segment Cruise passenger ticket revenues made up 60% of our NAA segment's total revenues in 2022 while onboard and other cruise revenues made up 40%. NAA segment revenues in 2022 increased by$2.6 billion as compared to 2021 due to the resumption of guest cruise operations and the significant increase of ships in service. ALBDs increased to 12.6 million in 2022 as compared to 1.4 million in 2021. Occupancy in 2022 was 92% compared to 68% in 2021.
EA segment
Cruise passenger ticket revenues made up 77% of our EA segment's total revenues in 2022 while onboard and other cruise revenues made up 23%. EA segment revenues in 2022 increased by$1.0 billion as compared to 2021 due to the resumption of guest cruise operations and the significant increase of ships in service. ALBDs increased to 8.5 million in 2022 as compared to 2.4 million in 2021. Occupancy in 2022 was 73% compared to 47% in 2021. Operating Costs and Expenses Consolidated 30
-------------------------------------------------------------------------------- Table of Contents Operating costs and expenses increased by$1.8 billion to$3.4 billion in 2022 from$1.6 billion in 2021. These increases were driven by our resumption of guest cruise operations and restart related expenses, including the cost of returning ships to guest cruise operations and returning crew members to our ships, the cost of maintaining enhanced health and safety protocols, inflation and supply chain disruptions. We anticipate that many of these costs and expenses will end in 2022. Fuel costs increased by$486 million to$668 million in 2022 from$182 million in 2021. This increase was caused by higher fuel consumption of 357 thousand metric tons, due to the resumption of guest cruise operations, and an increase in fuel prices of$421 per metric ton consumed in 2022 compared to 2021.
No ship damage charges were recognized in 2022 and
Selling and administrative expenses increased by$199 million to$625 million in 2022 from$425 million in 2021. This increase was caused by higher administrative expenses and increased advertising and promotional spend incurred as part of our resumption of guest cruise operations.
The drivers of changes in costs and expenses for our NAA and EA segments are the same as those described for our consolidated results.
Non-operating income (expenses).
Gains (losses) from debt settlement, net decreased to
Nine months ended
Revenues Consolidated Cruise passenger ticket revenues made up 57% of our total revenues in 2022 while onboard and other revenues made up 43%. Revenues in 2022 increased by$7.7 billion as compared to 2021 due to the resumption of guest cruise operations and the significant increase of ships in service. ALBDs increased to 51.0 million in 2022 as compared to 4.4 million in 2021. Occupancy in 2022 was 71% compared to 50% in 2021. NAA Segment Cruise passenger ticket revenues made up 56% of our NAA segment's total revenues in 2022 while onboard and other cruise revenues made up 44%. NAA segment revenues in 2022 increased by$5.4 billion as compared to 2021 due to the resumption of guest cruise operations and the significant increase of ships in service. ALBDs increased to 31.4 million in 2022 as compared to 1.4 million in 2021. Occupancy in 2022 was 78% compared to 68% in 2021.
EA segment
Cruise passenger ticket revenues made up 76% of our EA segment's total revenues in 2022 while onboard and other cruise revenues made up 24%. EA segment revenues in 2022 increased by$2.1 billion as compared to 2021 due to the resumption of guest cruise operations and the significant increase of ships in service. ALBDs increased to 19.6 million in 2022 as compared to 3.0 million in 2021. Occupancy in 2022 was 60% compared to 43% in 2021.
Costs and Operating Expenses
Consolidated
Operating costs and expenses increased by$5.3 billion to$8.1 billion in 2022 from$2.8 billion in 2021. These increases were driven by our resumption of guest cruise operations and restart related expenses, including the cost of returning ships to guest cruise operations and returning crew members to our ships, higher number of dry-dock days, the cost of maintaining enhanced health and safety protocols, inflation and supply chain disruptions. We anticipate that many of these costs and expenses will end in 2022. Fuel costs increased by$1.2 billion to$1.6 billion in 2022 from$0.4 billion in 2021. The increase was caused by higher fuel consumption of 1.0 million metric tons, due to the resumption of guest cruise operations, and an increase in fuel prices of$364 per metric ton consumed in 2022 compared to 2021. 31 -------------------------------------------------------------------------------- Table of Contents We recognized a ship impairment charge of$8 million in 2022 and ship impairment charges of$524 million in 2021. Selling and administrative expenses increased by$0.5 billion to$1.8 billion for 2022 from$1.3 billion in 2021. The increase was caused by higher administrative expenses and increased advertising and promotional spend incurred as part of our resumption of guest cruise operations.
The drivers of changes in costs and expenses for our NAA and EA segments are the same as those described for our consolidated results.
Non-operating income (expenses).
Interest expense, net of capitalized interest, decreased by$0.1 billion to$1.2 billion in 2022 from$1.3 billion in 2021. The decrease was caused by a lower average interest rate as a result of completed refinancing efforts and was partially offset by a higher average debt balance in 2022 compared to 2021.
Gains (losses) from debt settlement, net decreased to
Liquidity, financial condition and capital resources
As ofAugust 31, 2022 , we had$7.4 billion of liquidity including cash and borrowings available under our Revolving Facility. During the remainder of 2022 and 2023 we expect to continue to address maturities well in advance and obtain relevant financial covenant amendments or waivers, as needed. We had a working capital deficit of$4.5 billion as ofAugust 31, 2022 compared to working capital deficit of$0.3 billion as ofNovember 30, 2021 . The increase in working capital deficit was caused by a decrease in cash and cash equivalents, a decrease in short-term investments, an increase in customer deposits and an increase in current portion of long-term debt. We operate with a substantial working capital deficit. This deficit is mainly attributable to the fact that, under our business model, substantially all of our passenger ticket receipts are collected in advance of the applicable sailing date. These advance passenger receipts generally remain a current liability until the sailing date. The cash generated from these advance receipts is used interchangeably with cash on hand from other sources, such as our borrowings and other cash from operations. The cash received as advanced receipts can be used to fund operating expenses, pay down our debt, make long-term investments or any other use of cash. Included within our working capital are$4.5 billion and$3.1 billion of customer deposits as ofAugust 31, 2022 andNovember 30, 2021 , respectively. We have paid refunds of customer deposits with respect to a portion of cancelled cruises. The amount of any future cash refunds may depend on future cruise cancellations and guest rebookings. We have agreements with a number of credit card processors that transact customer deposits related to our cruise vacations. Certain of these agreements allow the credit card processors to request, under certain circumstances, that we provide a reserve fund in cash. In addition, we have a relatively low-level of accounts receivable and limited investment in inventories.
Refer to Note 1 – “General Plans, Liquidity and Management” of the consolidated financial statements for additional discussion regarding our liquidity.
Sources and Uses of Cash Operating Activities Our business used$1.6 billion of net cash flows in operating activities during the nine months endedAugust 31, 2022 , a decrease of$2.2 billion , compared to$3.7 billion of net cash flows used for the same period in 2021. This was due to a decrease in the net loss and an increase in cash inflows from customer deposits during the nine months endedAugust 31, 2022 compared to the same period in 2021 and other working capital changes.
Investment Activities
During the completed nine months
•Capital expenditures of$3.0 billion for our ongoing new shipbuilding program •Capital expenditures of$776 million for ship improvements and replacements, information technology and buildings and improvements •Proceeds from sale of ships and other of$55 million •Purchases of short-term investments of$315 million •Proceeds from maturity of short-term investments of$515 million 32
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During the completed nine months
•Capital expenditures of$2.8 billion for our ongoing new shipbuilding program •Capital expenditures of$332 million for ship improvements and replacements, information technology and buildings and improvements •Proceeds from sale of ships and other of$351 million •Purchases of short-term investments of$2.7 billion •Proceeds from maturity of short-term investments of$2.0 billion
Financing activities
During the nine months endedAugust 31, 2022 , net cash provided by financing activities of$3.2 billion was caused by the following: •Issuances of$3.3 billion of long-term debt •Repayments of$1.1 billion of long-term debt •Payments of$116 million related to debt issuance costs •Net repayments of short-term borrowings of$114 million •Net proceeds of$1.2 billion from the public offering ofCarnival Corporation common stock •Purchases of$82 million of Carnival plc ordinary shares and issuances of$89 million ofCarnival Corporation common stock under our Stock Swap Program During the nine months endedAugust 31, 2021 , net cash provided by financing activities of$4.9 billion was caused by the following: •Issuances of$7.9 billion of long-term debt, including net proceeds of$3.4 billion from the issuance of the 2027 Senior Unsecured Notes, net proceeds of$2.4 billion from the issuance of the 2028 Senior Secured Notes, and net proceeds of$2.1 billion borrowed under export credit facilities to fund ship deliveries •Repayments of$3.5 billion of long-term debt, including$2.0 billion repurchase of the 2023 Senior Secured Notes •Premium payments of$286 million related to the repurchase of the 2023 Senior Secured Notes •Net proceeds of$1.0 billion fromCarnival Corporation common stock •Purchases of$94 million of Carnival plc ordinary shares and issuances of$105 million ofCarnival Corporation common stock under our Stock Swap Program •Payments of$233 million related to debt issuance costs
Funding sources
As ofAugust 31, 2022 , we had$7.4 billion of liquidity including cash and borrowings available under our Revolving Facility. In addition, we had$2.9 billion of undrawn export credit facilities to fund ship deliveries planned through 2024. We plan to use future cash flows from operations to fund our cash requirements including capital expenditures not funded by our export credit facilities. (in billions) 2022 2023
2024
Future export credit facilities in
Our export credit facilities contain various financial covenants as described in Note 3 - "Debt". AtAugust 31, 2022 , we were in compliance with the applicable covenants under our debt agreements.
Off-balance sheet arrangements
We are not a party to any off-balance sheet arrangements, including guarantee
contracts, retained or contingent interests, certain derivative instruments and
variable interest entities that either have, or are reasonably likely to have, a
current or future material effect on our consolidated financial statements.
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