CARNIVAL CORPORATION Item 2.02 Results of Operations and Financial Condition.
OnJanuary 11, 2021 ,Carnival Corporation & plc (the "company") disclosed summary preliminary financial information for the fourth quarter endedNovember 30, 2020 . The information set forth in Item 7.01 below concerning the fourth quarter endedNovember 30, 2020 is incorporated herein.
Item 7.01 Regulation FD Disclosure.
The company is furnishing this Form 8-K to provide a business update.
FOURTH QUARTER 2020 SUMMARY PRELIMINARY FINANCIAL INFORMATION
•U.S. GAAP net loss of$2.2 billion and adjusted net loss of$1.9 billion for the fourth quarter of 2020. •Fourth quarter 2020 ended with$9.5 billion of cash and cash equivalents. •Cash burn rate in the fourth quarter 2020 was slightly better than expected due to the timing of capital expenditures. •The company has accelerated the removal of 19 less efficient ships, 15 of which have already left the fleet. •Cumulative advanced bookings for the first half of 2022 are ahead of 2019, despite minimal advertising or marketing.Carnival Corporation & plc President and Chief Executive OfficerArnold Donald noted, "2020 has proven to be a true testament to the resilience of our company. We took aggressive actions to implement and optimize a complete pause in our guest cruise operations across all brands globally, and developed protocols to begin our staggered resumption, first inItaly for our Costa brand, then followed byGermany for our AIDA brand. We are now working diligently towards resuming operations inAsia ,Australia , theUK and theU.S. over the course of 2021." Donald added, "With the aggressive actions we have taken, managing the balance sheet and reducing capacity, we are well positioned to capitalize on pent up demand and to emerge a leaner, more efficient company, reinforcing our industry leading position."
Resumption of Guest Operations
Costa Cruises ("Costa") andAIDA Cruises ("AIDA") have resumed limited guest cruise operations and other brands and ships are expected to return to service over time to provide guests with unmatched joyful vacations in a manner consistent with the company's highest priorities, which are compliance, environmental protection and the health, safety and well-being of its guests, crew, shoreside employees and the people in the communities its ships visit. The initial cruises will continue to take place with adjusted passenger capacity and enhanced health protocols developed with government and health authorities, and guidance from our roster of medical and scientific experts. Many of the company's brands source the majority of their guests from the geographical region in which they operate. In the current environment, the company believes this will benefit it in resuming guest cruise operations. Health and Safety Protocols The company has been working with a number of world-leading public health, epidemiological and policy experts to support its ongoing efforts with enhanced protocols and procedures to help protect against and mitigate the impact of COVID-19 during cruise vacations. These advisors will continue to provide guidance based on the latest scientific evidence and best practices for protection and mitigation. Working with governments, national health authorities and medical experts, Costa and AIDA have a comprehensive set of health and hygiene protocols that has helped facilitate a safe and healthy return to cruise vacations. These enhanced protocols are modeled after shoreside health and mitigation guidelines as provided by each brand's respective country, and approved by all relevant regulatory authorities of the flag state,Italy . Protocols will be updated based on evolving scientific and medical knowledge related to mitigation strategies. Costa is the first cruise company to earn the Biosafety Trust Certification fromRegistro Italiano Navale ("RINA"). The certification process examined all aspects of life onboard and ashore and assessed the compliance of the system with procedures aimed at the prevention and control of infections. -------------------------------------------------------------------------------- The company is also working directly with theCenters for Disease Control and Prevention ("CDC") on the development of protocols necessary to resume cruising fromthe United States . The company, in conjunction with its advisors, is currently evaluating the requirements set forth in theCDC 's Framework for Conditional Sailing Order effective as ofOctober 30, 2020 . The framework consists of several initial requirements that cruise ship operators will need to follow prior to resuming guest operations. Further, the framework is subject to additional technical instructions and orders from theCDC and may change based on public health considerations. While the framework represents an important step in our return to service, many uncertainties remain as to the specifics, timing, and cost of implementing the requirements. The company continues to work closely with governments and health authorities in other parts of the world to ensure that its health and safety protocols will also comply with the requirements of each location.
Optimizing the Future Fleet
The company expects future capacity to be moderated by the phased re-entry of
its ships, the removal of capacity from its fleet and delays in new ship
deliveries. Since the pause in guest operations, the company has accelerated the
removal of ships in fiscal 2020 which were previously expected to be sold over
the ensuing years. The company now expects to dispose of 19 ships, 15 of which
have already left the fleet. In total, the 19 ships represent approximately 13
percent of pre-pause capacity and only three percent of operating income in
2019. The sale of less efficient ships will result in future operating expense
efficiencies of approximately two percent per available lower berth day ("ALBD")
and a reduction in fuel consumption of approximately one percent per ALBD. The
company recently took delivery of two ships and expects only one more ship to be
delivered in fiscal 2021 compared to five ships that were originally scheduled
for delivery in fiscal 2021.
Based on the actions taken to date and the scheduled newbuild deliveries through
2022, the company's fleet will be more efficient with a roughly 14 percent
larger average berth size per ship and an average age of 12 years in 2022 versus
13 years, in each case as compared to 2019.
Update on Bookings
Carnival Corporation & plc President and Chief Executive Officer Arnold Donald
noted, "The booking trends that we have consistently experienced throughout this
period affirm the strong fundamental demand for our brands which will facilitate
our staggered resumption and support the long-term growth of our company."
At December 20, 2020 , cumulative advanced bookings for the second half of 2021
are within the historical range. Additionally, the cumulative advanced bookings
for the first half of 2022 are ahead of 2019. (Due to the pause in guest cruise
operations in 2020, the company's future booking trends will be compared to
2019.) The company believes the continued build in cumulative advanced bookings
for this twelve month period ending May 2022 demonstrates the long-term demand
for cruising. The company highlights this level of bookings was achieved with
minimal advertising and marketing.
The company is providing flexibility to guests with bookings on sailings
cancelled by allowing guests to receive enhanced future cruise credits ("FCCs")
or elect to receive refunds in cash. Enhanced FCCs increase the value of the
guest's original booking or provide incremental onboard credits. As of November
30, 2020 , approximately 45 percent of guests affected by the company's schedule
changes have received enhanced FCCs and approximately 55 percent have requested
refunds.
Total customer deposits balance at November 30, 2020 , was $2.2 billion , the
majority of which are FCCs, compared to the total customer deposits balance of
$2.4 billion at August 31, 2020 . The decline in customer deposits is less than
previous expectations. As of November 30, 2020 , the current portion of customer
deposits was $1.9 billion with minimal bookings relating to first quarter of
2021 sailings. Approximately 60 percent of bookings taken during the quarter
ended November 30, 2020 for fiscal year 2021 were new bookings as opposed to
FCCs re-bookings, despite minimal advertising or marketing.
Increasing Liquidity
Carnival Corporation & plc Chief Financial OfficerDavid Bernstein noted, "We ended the year with$9.5 billion in cash and have the liquidity in place to sustain ourselves throughout 2021, even in a zero-revenue environment. While we raised capital mainly through debt this year, in the last few months we opportunistically strengthened our capital structure by raising$2.5 billion through at-the-market equity offering programs and by the early conversion of$1.5 billion of convertible debt. As we return to full operations, our cash flow will be the primary driver to return to investment grade credit over time, creating greater shareholder value."
Due to the pause in guest operations, the company has taken significant actions
to preserve cash and secure additional financing to increase its liquidity.
Since March, the company has raised
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•Borrowed$3.0 billion under export credit facilities in September, October andDecember 2020 . •Completed$1.0 billion "at-the-market" equity offering program ("ATM") that was announced inSeptember 2020 . •Completed$1.5 billion ATM that was announced inNovember 2020 . •Retired$590 million of its convertible notes through the issuance of common stock inNovember 2020 . •Issued$2.0 billion of senior unsecured notes inNovember 2020 .
As of
Currently, the company is unable to predict when the entire fleet will return to normal operations, and as a result, unable to provide an earnings forecast. The pause in guest operations continues to have a material negative impact on all aspects of the company's business, including the company's liquidity, financial position and results of operations. The company expects a net loss on both aU.S. GAAP and adjusted basis for the first quarter and full year endingNovember 30, 2021 . The company's monthly average cash burn rate for the fourth quarter 2020 was$500 million , which was slightly better than expected due to the timing of capital expenditures. The company expects the monthly average cash burn rate for the first quarter 2021 to be approximately$600 million . This rate includes ongoing ship operating and administrative expenses, working capital changes (excluding changes in customer deposits), interest expense and capital expenditures (net of unfunded export credit facilities) and also excludes scheduled debt maturities as well as other cash collateral to be provided (which may increase in the future). The company continues to explore opportunities to reduce its monthly cash burn rate.
As of
(in billions) 1Q 2021 2Q 2021 3Q 2021 4Q 2021 Principal payments on outstanding debt (a)$ 0.5 $ 0.4 $ 0.6 $ 0.3 Principal payments on expected export credits $ - $ -$ 0.1 $ -$ 0.5 $ 0.4 $ 0.7 $ 0.3 (a)Excluding the revolving facility. As ofNovember 30, 2020 , borrowings under the revolving facility were$3.0 billion and mature throughMarch 2021 . We may re-borrow such amounts subject to satisfaction of the conditions in the revolving facility agreement.
Other Information
The company is actively addressing an IT security incident affecting two of its brands. Based on preliminary assessment and on the information currently known, the company does not believe the incident will have a material impact on its business, operations or financial results. -------------------------------------------------------------------------------- Conference Call The company has scheduled a conference call with analysts at10:00 a.m. EDT (3:00 p.m. GMT ) today to provide a business update. This call can be listened to live, and additional information can be obtained, via Carnival Corporation & plc's website at www.carnivalcorp.com and www.carnivalplc.com.Carnival Corporation & plc is one of the world's largest leisure travel companies with a portfolio of nine of the world's leading cruise lines. With operations inNorth America ,Australia ,Europe andAsia , its portfolio features -Carnival Cruise Line ,Princess Cruises ,Holland America Line ,P&O Cruises (Australia ), Seabourn,Costa Cruises ,AIDA Cruises ,P&O Cruises (UK ) and Cunard. Additional information can be found on www.carnivalcorp.com, www.carnivalsustainability.com, www.carnival.com, www.princess.com, www.hollandamerica.com, www.pocruises.com.au, www.seabourn.com, www.costacruise.com, www.aida.de, www.pocruises.com and www.cunard.com. MEDIA CONTACT INVESTOR RELATIONS CONTACTRoger Frizzell Beth Roberts +1 305 406 7862 +1 305 406 4832
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Cautionary Note Concerning Factors That May 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. 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," "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
•Estimates of ship depreciable lives and residual
values
•Booking levels •Goodwill, ship and trademark fair values
•Occupancy •Liquidity and credit ratings
•Interest, tax and fuel expenses •Adjusted earnings per share
•Currency exchange rates •Impact of the COVID-19 coronavirus global pandemic
on our financial condition and results 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 amplified by and will continue to be amplified by,
or in the future may be amplified by, the COVID-19 outbreak. 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, which impacts our ability to obtain
acceptable financing to fund resulting reductions in cash from operations. The
current, and uncertain future, impact of the COVID-19 outbreak, 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.
•As a result of the COVID-19 outbreak, we may be out of compliance with a
maintenance covenant in certain of our debt facilities, for which we have
amendments for the period through November 30, 2021 with the next testing date
of February 28, 2022 .
•World events impacting the ability or desire of people to travel have and may
continue to lead to a decline in demand for cruises.
•Incidents concerning our ships, guests or the cruise vacation industry as well
as adverse weather conditions and other natural disasters 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.
•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, including the recent ransomware incidents, 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.
•Ability to recruit, develop and retain qualified shipboard personnel who live
away from home for extended periods of time may adversely impact our business
operations, guest services and satisfaction.
•Increases in fuel prices, changes in the types of fuel consumed and
availability of fuel supply may adversely impact our scheduled itineraries and
costs.
•Fluctuations in foreign currency exchange rates may adversely impact our
financial results.
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•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 ordering of the risk factors set forth 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.
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CARNIVAL CORPORATION & PLC
NON-GAAP FINANCIAL MEASURES
Three Months Ended
November 30,
(in millions) 2020 2019
Net income (loss)
U.S. GAAP net income (loss) $ (2,222) $ 423
(Gains) losses on ship sales and impairments 115 (5)
Restructuring expenses 5 10
Other 239 -
Adjusted net income (loss) $ (1,862) $ 427 Explanations of Non-GAAP Financial Measures
Non-GAAP Financial Measures
We use adjusted net income (loss) as a non-GAAP financial measure of our cruise
segments' and the company's financial performance. This non-GAAP financial
measure is provided along with
We believe that gains and losses on ship sales, impairment charges, restructuring costs and other gains and losses are not part of our core operating business and are not an indication of our future earnings performance. Therefore, we believe it is more meaningful for these items to be excluded from our net income (loss), and accordingly, we present adjusted net income (loss) excluding these items. The presentation of our non-GAAP financial information is not intended to be considered in isolation from, as substitute for, or superior to the financial information prepared in accordance withU.S. GAAP. It is possible that our non-GAAP financial measures may not be exactly comparable to the like-kind information presented by other companies, which is a potential risk associated with using these measures to compare us to other companies.
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