Carnival plc(CUK) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The company reported significant net losses for the three and nine months ended August 31, 2021, with increased revenues from resumed operations, but also higher debt and negative cash flow Consolidated Statements of Income (Loss) Q3 2021 revenues increased to $546 million with resumed operations, but net loss remained $2.84 billion due to high costs Consolidated Income Statement Highlights (in millions) | Metric | Three Months Ended Aug 31, 2021 | Three Months Ended Aug 31, 2020 | Nine Months Ended Aug 31, 2021 | Nine Months Ended Aug 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $546 | $31 | $621 | $5,561 | | Passenger ticket | $303 | $— | $326 | $3,680 | | Onboard and other | $243 | $31 | $295 | $1,881 | | Operating Loss | ($2,057) | ($2,333) | ($5,196) | ($7,223) | | Net Loss | ($2,836) | ($2,858) | ($6,881) | ($8,014) | | Diluted EPS | ($2.50) | ($3.69) | ($6.14) | ($11.03) | Consolidated Balance Sheets Total assets slightly decreased to $53.51 billion, while long-term debt rose to $26.83 billion and equity declined to $14.86 billion Consolidated Balance Sheet Summary (in millions) | Metric | August 31, 2021 | November 30, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $7,151 | $9,513 | | Total current assets | $8,909 | $10,563 | | Total Assets | $53,514 | $53,593 | | Customer deposits | $2,707 | $1,940 | | Long-Term Debt | $26,831 | $22,130 | | Total Liabilities | $38,651 | $33,038 | | Total Shareholders' Equity | $14,863 | $20,555 | Consolidated Statements of Cash Flows Nine-month cash flow showed $3.74 billion operating outflow and $3.54 billion investing outflow, offset by $4.90 billion financing inflow Cash Flow Summary (Nine Months Ended Aug 31, in millions) | Category | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($3,741) | ($4,649) | | Net cash used in investing activities | ($3,535) | ($1,452) | | Net cash provided by financing activities | $4,899 | $13,699 | | Net (decrease) in cash | ($2,363) | $7,661 | Notes to Consolidated Financial Statements Notes detail COVID-19 impact, liquidity plans, debt financing, $3.1 billion customer deposits, and $10.15 billion ship commitments - As of August 31, 2021, eight of the company's nine brands had resumed guest cruise operations, with 35% of total capacity operating. Management concluded it has sufficient liquidity ($7.8 billion) to satisfy obligations for at least the next twelve months[30][33] - Customer deposits increased to $3.1 billion as of August 31, 2021, up from $2.2 billion as of November 30, 2020, reflecting new bookings for future cruises[43] - The company recognized ship impairment charges of $475 million for the three months and $524 million for the nine months ended August 31, 2021, as the carrying values of certain ships exceeded their estimated future cash flows[87][88] Future New Ship Capital Commitments (as of Aug 31, 2021, in millions) | Year | Amount | | :--- | :--- | | Remainder of 2021 | $337 | | 2022 | $4,468 | | 2023 | $2,675 | | 2024 | $1,681 | | 2025 | $984 | | Total | $10,146 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses ongoing cruise resumption, increased Q3 2021 revenues, continued losses, $7.8 billion liquidity, and expected higher Q4 cash burn - As of August 31, 2021, 35% of the company's capacity was operating. The company plans to have 61% of capacity operating by November 30, 2021, and 75% by June 2022, with the full fleet expected to be back in operation in the spring of 2022[127] - The company's monthly average cash burn rate is expected to be higher in the fourth quarter of 2021 compared to prior quarters due to the timing of incremental restart expenditures[154] - The company had $7.8 billion of liquidity as of August 31, 2021, including cash and short-term investments. It has also secured $5.8 billion in export credit facilities to fund ship deliveries through 2024[151][161] Results of Operations Q3 2021 revenues rose to $546 million with resumed service, but operating loss was $2.06 billion due to higher expenses and impairments Operating Loss by Segment (Three Months Ended Aug 31, in millions) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | NAA | ($1,257) | ($1,770) | | EA | ($696) | ($465) | | Total Operating Loss | ($2,057) | ($2,333) | - Interest expense, net of capitalized interest, increased by $107 million to $418 million for Q3 2021 compared to Q3 2020, driven by additional debt borrowings at higher interest rates[142] - The company recognized ship impairment charges of $0.5 billion in Q3 2021, compared to $0.8 billion in Q3 2020[141] Liquidity, Financial Condition and Capital Resources The company maintained $7.8 billion liquidity, raising significant capital through debt and equity, while reporting a $0.6 billion working capital deficit - Key liquidity actions since December 2020 include a $3.5 billion senior unsecured notes issuance (Feb 2021), a $996 million equity offering (Feb 2021), and a $2.4 billion senior secured notes issuance (July 2021) used to refinance 2023 notes[151] - The company reported a working capital deficit of $0.6 billion as of August 31, 2021, compared to working capital of $1.9 billion as of November 30, 2020, driven by a decrease in cash and an increase in customer deposits[155] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's debt portfolio is 63% fixed-rate (49% USD, 14% EUR) and 38% floating-rate, indicating managed interest rate exposure Debt Portfolio by Interest Rate Type | Rate Type | Percentage | | :--- | :--- | | Fixed rate | 49% | | EUR fixed rate | 14% | | Floating rate | 20% | | EUR floating rate | 16% | | GBP floating rate | 2% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of August 31, 2021, with no material changes - Management concluded that as of August 31, 2021, the company's disclosure controls and procedures were effective[168] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[169] PART II - OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings, including COVID-19 actions, are incorporated by reference from Note 4, with no new environmental issues - Details regarding legal proceedings, including those related to COVID-19 actions, are incorporated by reference from Note 4 – "Contingencies and Commitments" in the financial statements[172] Item 1A. Risk Factors The ongoing COVID-19 pandemic remains the primary risk, impacting operations, financing, and reputation, with credit ratings downgraded - The COVID-19 pandemic continues to be the most significant risk, impacting operations, financing, demand, reputation, and stock price. The full extent of the impact remains uncertain[174][189] - The company's credit ratings have been downgraded to non-investment grade by Moody's and S&P Global, which could negatively impact future access to capital and increase financing costs[187] - The company faces numerous lawsuits and governmental investigations stemming from COVID-19, which could result in civil and criminal penalties[179] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Stock Swap Program generated $10 million net proceeds in Q3 2021 by selling 4.6 million shares and repurchasing equivalent shares Carnival plc Ordinary Shares Purchased (Q3 2021) | Period | Total Shares Purchased (in millions) | Average Price Paid per Share | | :--- | :--- | :--- | | June 2021 | 0.4 | $22.88 | | July 2021 | 2.4 | $20.58 | | August 2021 | 1.9 | $20.58 | | Total | 4.6 | $20.76 | - Under the Stock Swap Program, the company generated net proceeds of $10 million during the three months ended August 31, 2021[193] Item 6. Exhibits This section indexes all exhibits filed with Form 10-Q, including debt indentures and Sarbanes-Oxley certifications - Exhibits filed include the indenture for the 4.00% First-Priority Senior Secured Notes due 2028 and various officer certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906[197][198][207]