Carnival plc(CUK) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements Unaudited Q1 2021 financial statements show a $2.0 billion net loss due to COVID-19, with increased cash and long-term debt Consolidated Statements of Income (Loss) Q1 2021 revenues plummeted to $26 million from $4.8 billion, resulting in a $1.5 billion operating loss and a $2.0 billion net loss due to suspended operations Consolidated Income (Loss) Statement Summary | Indicator | Three Months Ended Feb 28/29, 2021 | Three Months Ended Feb 28/29, 2020 | | :--- | :--- | :--- | | Total Revenues | $26 million | $4,789 million | | Operating Loss | ($1,524) million | ($713) million | | Net Loss | ($1,973) million | ($781) million | | Diluted EPS | ($1.80) | ($1.14) | Consolidated Balance Sheets As of February 28, 2021, the balance sheet shows total assets of $57.2 billion, with cash at $11.5 billion and long-term debt at $26.5 billion Key Balance Sheet Items (in millions) | Account | Feb 28, 2021 | Nov 30, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $9,674 | $9,513 | | Short-term investments | $1,840 | $0 | | Total Assets | $57,226 | $53,593 | | Customer deposits | $1,826 | $1,940 | | Long-Term Debt | $26,522 | $22,130 | | Total Shareholders' Equity | $19,813 | $20,555 | Consolidated Statements of Cash Flows Q1 2021 saw $1.5 billion net cash used in operations, $3.6 billion in investing, and $5.2 billion provided by financing Consolidated Cash Flow Summary (in millions) | Activity | Three Months Ended Feb 28/29, 2021 | Three Months Ended Feb 28/29, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,503) | $916 | | Net cash used in investing activities | ($3,589) | ($1,161) | | Net cash provided by financing activities | $5,216 | $1,089 | Notes to Consolidated Financial Statements The notes detail COVID-19's significant impact on liquidity and operations, covering debt issuances, covenant waivers, and future ship commitments - The company concluded it has sufficient liquidity ($11.5 billion in cash and short-term investments) to satisfy obligations for at least the next twelve months, based on assumptions of a gradual resumption of service and continued access to financing[34] - Total customer deposits were $2.2 billion as of February 28, 2021, the majority of which are future cruise credits (FCCs), with the portion to be recognized as revenue versus refunded being unestimable[45] - In February 2021, the company issued $3.5 billion of 5.8% senior unsecured notes due 2027[49] - The company obtained waivers for key debt covenants (Interest Coverage and Debt to Capital) through at least August 2022, providing financial flexibility during the operational pause[50] - As of April 1, 2021, the company faces approximately 70 individual lawsuits and 10 purported class actions related to COVID-19 incidents on its ships[65][66] New Ship Growth Capital Commitments (in millions) | Year | Amount | | :--- | :--- | | Remainder of 2021 | $1,449 | | 2022 | $4,734 | | 2023 | $2,328 | | 2024 | $1,874 | | 2025 | $1,073 | | Total | $11,459 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19's severe impact, detailing phased service resumption, $23.6 billion in liquidity raised, and a $500 million monthly cash burn Recent Developments The company is executing a phased resumption of guest operations, with several brands planning restarts in Europe and the UK from March to summer 2021 - Several brands are planning a phased return to service, including AIDA Cruises resuming in the Canary Islands in late March, Costa Cruises expecting to resume in May with Italian sailings, and P&O Cruises (UK), Cunard, and Princess Cruises offering UK coastal cruises starting in June/July, with Seabourn planning to resume in summer sailing from Greece[121] Results of Operations Q1 2021 revenues fell 99% to $26 million, resulting in a $1.5 billion operating loss due to the operational pause, despite significant cost reductions Consolidated Results of Operations (in millions) | Category | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $26 | $4,789 | (99)% | | Operating Costs & Expenses | $535 | $3,523 | (85)% | | Operating Loss | ($1,524) | ($713) | 114% | - The company continues to expect a net loss on both a U.S. GAAP and adjusted basis for the second quarter of 2021 and the full year ending November 30, 2021[133] Liquidity, Financial Condition and Capital Resources The company aggressively managed liquidity, raising $23.6 billion since March 2020, ending Q1 2021 with $11.5 billion in liquidity and a $500 million monthly cash burn - Since March 2020, the company has raised $23.6 billion through a series of financing transactions, including $6.0 billion since December 2020[145] - The average monthly cash burn rate for Q1 2021 was $500 million and is expected to be approximately $550 million for the first half of 2021, including operating expenses, restart costs, interest, and capital expenditures[147] - Working capital increased to $3.8 billion from $1.9 billion, primarily due to the increase in cash from financing activities, with an expected return to a working capital deficit once normal operations resume[148] - The company has $6.5 billion of available export credit facilities to fund ship deliveries planned through 2024[154] Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's market risk exposure, primarily interest rate risk, managed by maintaining a 61% fixed-rate and 39% floating-rate debt portfolio Debt Composition by Interest Rate Type | Rate Type | Percentage | | :--- | :--- | | Fixed rate | 48% | | EUR fixed rate | 13% | | Total Fixed | 61% | | Floating rate | 20% | | EUR floating rate | 17% | | GBP floating rate | 2% | | Total Floating | 39% | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of February 28, 2021, with no material changes to internal control over financial reporting - The President and Chief Executive Officer and the Chief Financial Officer and Chief Accounting Officer concluded that the company's disclosure controls and procedures were effective as of February 28, 2021[159] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[161] PART II - OTHER INFORMATION Legal Proceedings This section incorporates legal proceedings from Note 4, including COVID-19 lawsuits and a $0.8 million settlement by Holland America Line and Princess Cruises - The company references ongoing legal matters related to COVID-19 as detailed in Note 4 of the financial statements[164] - Holland America Line and Princess Cruises reached a settlement to pay $0.8 million regarding vessel discharges in the Farallones Island National Marine Sanctuary[165] Risk Factors The COVID-19 pandemic is the most significant risk, impacting operations, liquidity, and reputation, with concerns over service resumption, debt covenant compliance, and credit rating downgrades COVID-19 and Liquidity/Debt Related Risk Factors This section details primary COVID-19 risks, including material negative impacts on finances and liquidity, uncertain service resumption, and potential debt covenant non-compliance post-waiver - The COVID-19 pandemic is expected to continue to have a significant negative impact on financial condition, operations, liquidity, and stock price due to its effect on the ability and desire of people to travel[167] - The company may be out of compliance with debt covenants after the waiver period ends (next testing date November 30, 2022), which could lead to default and acceleration of debt if further amendments are not secured[183][186] - Credit ratings have been downgraded to non-investment grade by Moody's and S&P Global, which may negatively impact access to capital and increase the cost of future financing[179] - The company faces significant litigation and governmental investigations stemming from COVID-19, the outcomes of which are uncertain but could be material[171] Exhibits This section lists all exhibits filed with the Form 10-Q, including the indenture for the 5.75% Senior Unsecured Notes due 2027 and CEO/CFO certifications - Key exhibits filed include the Indenture for the $3.5 billion 5.75% Senior Unsecured Notes due 2027[198] - Certifications from the President and Chief Executive Officer and the Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits[192][193][200][201] Signatures The report is formally concluded with the signatures of authorized officers from Carnival Corporation and Carnival plc, affirming the filing's contents - The report was duly signed on April 7, 2021, by Arnold W. Donald (President and Chief Executive Officer) and David Bernstein (Chief Financial Officer and Chief Accounting Officer) on behalf of both Carnival Corporation and Carnival plc[206]