# Carnival Corp Ltd. (CCL) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Carnival Corp Ltd.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/815097/000081509722000009/ccl-20211130.htm
Accession: 0000815097-22-000009
Filing date: 2022-01-27
Report date: 2021-11-30
Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference. Source document followed from filing index: ccl-20211130_d2.htm.
Confidence: high

Company profile: /company/CCL/
All MD&A years: /company/CCL/mda/
Next year: /company/CCL/mda/fy2022/ (FY 2022)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 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:

[[GREPCENT_TABLE]]
[["\u2022Pricing","\u2022Goodwill, ship and trademark fair values"],["\u2022Booking levels","\u2022Liquidity and credit ratings"],["\u2022Occupancy","\u2022Adjusted earnings per share"],["\u2022Interest, tax and fuel expenses","\u2022Return to guest cruise operations"],["\u2022Currency exchange rates","\u2022Impact of the COVID-19 coronavirus global pandemic on our financial condition and results of operations"],["\u2022Estimates of ship depreciable lives and residual values"]]
[[/GREPCENT_TABLE]]

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, 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.

•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 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.

•We rely on supply chain vendors who are integral to the operations of our businesses. These vendors and service providers

F-40

Table of Contents

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 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. 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.

2021 Executive Overview

During 2021, the Company focused on resuming operations as quickly as practical in a way that served the best interests of public health, while at the same time demonstrating prudent stewardship of capital. In addition, we believe that we have positioned the Company well on the path to profitability and established effective protocols for COVID-19. We achieved all of this while reinforcing our commitment to compliance, environmental protection and the health, safety and well-being of our guests, the people in the communities we touch and serve, and our shipboard and shoreside employees.

In 2021, we achieved key milestones related to our return to service including:

•Ending the year with 50 ships in guest cruise operations compared to one ship in 2020

•Returning over 65,000 crew members to our ships

•Carrying over 1.2 million guests indicating fundamental strength in demand for cruise vacations

•Delivering an exceptional guest experience with historically high net promoter scores

We ended the year with $9.4 billion of liquidity including cash, short-term investments and borrowings available under our revolving credit facility, and $3.5 billion of customer deposits, an increase of $1.3 billion from 2020. To date, through our debt management efforts, we refinanced over $9 billion, reducing our future annual interest by approximately $400 million per year and extending maturities, optimizing our debt maturity profile.

As of January 13, 2022, eight of our nine cruise brands, or 67% of capacity, had resumed guest cruise operations. We expect to have our full fleet back in operation for our summer season where we historically generate the largest share of our operating income.

The Company achieved important milestones during our return to service and broadened our commitment to Environmental, Social and Governance (“ESG”) goals with the introduction of our 2030 sustainability goals and 2050 aspirations. We also achieved many operational milestones:

•Reopened our eight owned and operated private destinations and port facilities which have been visited by over half of our guests since the restart:

[[GREPCENT_TABLE]]
[["\u2022Princess Cay","\u2022Amber Cove"],["\u2022Half Moon Cay","\u2022Cozumel"],["\u2022Grand Turk","\u2022Santa Cruz De Tenerife"],["\u2022Mahogany Bay","\u2022Barcelona"]]
[[/GREPCENT_TABLE]]

•Welcomed seven new more efficient ships across our brands:

[[GREPCENT_TABLE]]
[["\u2022Carnival Cruise Line\u2019s Mardi Gras, powered by LNG","\u2022Holland America Line\u2019s Rotterdam"],["\u2022P&O UK\u2019s Iona, powered by LNG","\u2022Costa Firenze"],["\u2022Costa Toscana, powered by LNG","\u2022Enchanted Princess"],["\u2022AIDAcosma, powered by LNG"]]
[[/GREPCENT_TABLE]]

Our decision to accelerate the exit of 19 ships as part of our fleet optimization strategy resulted in a more efficient fleet overall and lowered our planned capacity growth to approximately 2.5% compounded annually from 2019 through 2025, down from 4.5%

F-41

Table of Contents

annually pre-COVID-19. We achieved a unit cost benefit from the removal of these less efficient ships from our fleet which will grow from the delivery of the larger and more efficient ships.

Upon returning to full operations, nearly 15% of our capacity will consist of these recently delivered, larger and more efficient ships which we believe will expedite our return to profitability and improve our return on invested capital. In addition, this roster of new ships is expected to drive additional enthusiasm around our restart plans.

As of January 13, 2022, we are operating the only six cruise ships in the world currently powered by LNG, which are 20% more carbon efficient. Upon returning to full cruise operations, our LNG efforts, our fleet optimization strategy and other innovative efforts to drive energy efficiency, are forecasted to deliver a 10% reduction in unit fuel consumption on an annualized basis compared to 2019, a significant achievement on our path to decarbonization.

Furthermore, the Company is focused on advancing its six critical sustainability focus areas – climate action; circular economy; good health and well-being; sustainable tourism; biodiversity and conservation; and diversity, equity and inclusion. Among these priorities, the Company is committed to continuing its reduction of carbon emissions and aspires to achieve net carbon-neutral ship operations by 2050, while minimizing the use of carbon offsets. While there is currently no clear path to zero carbon emissions in our industry, we are working to be part of the solution. To achieve the aspiration of net zero carbon emissions, the Company is partnering with key organizations to help identify and scale new technologies. We have and expect to continue to demonstrate leadership in executing carbon reduction strategies. The Company believes its scale will support its effort to lead the industry in climate action. The Company’s carbon emissions reduction efforts include improvements in energy efficiency, integrating alternative fuels and investing in new technologies such as batteries and fuel cells.

Throughout the pause and the gradual resumption of guest cruise operations, we have been proactively managing to resume guest cruise operations as an even stronger and more efficient operating company to maximize cash generation and to deliver strong returns on invested capital. Once we return to full guest operations, our cash flow will be the primary driver to our return to an investment grade credit rating over time, creating greater shareholder value.

New Accounting Pronouncements

Refer to our consolidated financial statements for further information on Accounting Pronouncements.

Critical Accounting Estimates

Our critical accounting estimates are those we believe require our most significant judgments about the effect of matters that are inherently uncertain. A discussion of our critical accounting estimates, the underlying judgments and uncertainties used to make them and the likelihood that materially different estimates would be reported under different conditions or using different assumptions is as follows:

Liquidity and COVID-19

We make several critical accounting estimates with respect to our liquidity.

The effects of COVID-19 have had a significant impact on our operations and liquidity. Significant events affecting travel, including COVID-19 and our gradual resumption of guest cruise operations, have had and continue to have an impact on booking patterns. The extent of the effects of COVID-19 on our business are uncertain and will depend on future developments, including, but not limited to, the duration and continued severity of COVID-19 and the length of time it takes to return the company to profitability. The ongoing effects of COVID-19 have had, and will continue to have, a material negative impact on our financial results and liquidity.

The estimation of our future liquidity requirements includes numerous assumptions that are subject to various risks and uncertainties. The principal assumptions used to estimate our future liquidity requirements consist of:

•Expected continued gradual resumption of guest cruise operations, with the full fleet expected to be back in operation for our summer season, where we historically generate the largest share of our operating income

•Expected sustained increase in revenue per passenger cruise day through a combination of both passenger ticket and onboard revenue as compared to 2019

•Expected gradual increase in occupancy levels during the resumption of guest cruise operations, with the return to historical occupancy levels in 2023

•Expected continued spend to maintain enhanced health and safety protocols and to support the resumption of guest cruise operations, including completing the return of crew members to our ships

•Maintaining collateral and reserves at reasonable levels

F-42

Table of Contents

We cannot make assurances that our assumptions used to estimate liquidity requirements may not change because we have never previously experienced a complete cessation and subsequent gradual resumption of guest cruise operations, and as a consequence, our ability to be predictive is uncertain. In addition, the magnitude and duration of the global pandemic are uncertain. We have made reasonable estimates and judgments of the impact of COVID-19 within our consolidated financial statements and there may be changes to those estimates in future periods. We expect a net loss on both a U.S. GAAP and adjusted basis for the first half of 2022 and a profit for the second half of 2022. We have taken actions to improve our liquidity, including completing various capital market transactions, capital expenditure and operating expense reductions and accelerating the removal of certain ships from our fleet. In addition, we expect to continue to pursue refinancing opportunities to reduce interest expense and extend maturities.

Ship Accounting

We make several critical accounting estimates with respect to our ship accounting.

We account for ship improvement costs, including replacements of certain significant components and parts, by capitalizing those costs we believe add value to our ships and have a useful life greater than one year and depreciating those improvements over their estimated remaining useful life. The costs of repairs and maintenance, including minor improvement costs and expenses related to dry-docks, are charged to expense as incurred. If we change our assumptions in making our determinations as to whether improvements to a ship add value, the amounts we expense each year as repair and maintenance expense could increase, which would be partially offset by a decrease in depreciation expense, resulting from a reduction in capitalized costs.

In order to compute our ships’ depreciation expense, we apply judgment to determine their useful lives as well as their residual values. We estimate the useful life of our ships and ship improvements based on the expected period over which the assets will be of economic benefit to us, including the impact of marketing and technical obsolescence, competition, physical deterioration, historical useful lives of similarly-built ships, regulatory constraints and maintenance requirements. In addition, we consider estimates of the weighted-average useful lives of the ships’ major component systems, such as the hull, cabins, main electric, superstructure and engines. Taking all of this into consideration, we have estimated our new ships’ useful lives at 30 years.

We determine the residual value of our ships based on our long-term estimates of their resale value at the end of their useful life to us but before the end of their physical and economic lives to others, historical resale values of our and other cruise ships and viability of the secondary cruise ship market. We have estimated our residual values at 15% of our original ship cost.

Given the large size and complexity of our ships, ship accounting estimates require considerable judgment and are inherently uncertain. We do not have cost segregation studies performed to specifically componentize our ships. In addition, since we do not separately componentize our ships, we do not identify and track depreciation of original ship components. Therefore, we typically have to estimate the net book value of components that are retired, based primarily upon their replacement cost, their age and their original estimated useful lives.

If materially different conditions existed, or if we materially changed our assumptions of ship useful lives and residual values, our depreciation expense, loss on retirement of ship components and net book value of our ships would be materially different. Our 2021 ship depreciation expense would have increased by approximately $45 million assuming we had reduced our estimated 30-year ship useful life estimate by one year at the time we took delivery or acquired each of our ships. In addition, our 2021 ship depreciation expense would have increased by approximately $228 million assuming we had estimated our ships to have no residual value.

We believe that the estimates we made for ship accounting purposes are reasonable and our methods are consistently applied in all material respects and result in depreciation expense that is based on a rational and systematic method to equitably allocate the costs of our ships to the periods during which we use them. 

Valuation of Ships

Impairment reviews of our ships require us to make significant estimates. 

We evaluate ship asset impairments at the individual ship level which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. We review our ships for impairment whenever events or circumstances indicate that the carrying value of a ship may not be recoverable. If estimated future cash flows are less than the carrying value of a ship, an impairment charge is recognized to the extent its carrying value exceeds fair value.

The estimation of a ship’s fair value includes numerous assumptions that are subject to various risks and uncertainties. The principal assumption used in our ship impairment reviews consist of the timing of the sale of ships and estimated proceeds.

F-43

Table of Contents

We determined the fair value of these ships based on their estimated selling value. Refer to our consolidated financial statements for additional discussion of our property and equipment policy, ship impairment reviews and ship impairment charges recognized during 2021.

We believe that we have made reasonable estimates.

Valuation of Goodwill

Impairment reviews of our goodwill require us to make significant estimates.

We review our goodwill for impairment at the reporting unit level as of July 31 every year, or more frequently if events or circumstances dictate. If the estimated fair value of any of our reporting units is less than the reporting unit’s carrying value, goodwill is written down based on the difference between the reporting unit’s carrying amount and its estimated fair value, limited to the amount of goodwill allocated to the reporting unit.

The estimation of our reporting unit fair value includes numerous assumptions that are subject to various risks and uncertainties. Our pause in guest cruise operations and the possibility of further extensions created some uncertainty in forecasting the operating results and future cash flows used in our impairment analyses. The principal assumptions used in our goodwill impairment reviews consist of:

•The timing and pace of our full return to guest cruise operations

•Weighted-average cost of capital of market participants, adjusted for the risk attributable to the geographic regions in which these cruise brands operate (“WACC”)

The estimated fair value of the reporting unit with remaining goodwill significantly exceeded its carrying value as of the date of its most recent quantitative test. Refer to our consolidated financial statements for additional discussion of our goodwill accounting policy and impairment reviews.

We believe that we have made reasonable estimates and judgments.

Contingencies

We periodically assess the potential liabilities related to any lawsuits or claims brought against us, as well as for other known unasserted claims, including environmental, legal, regulatory and guest and crew matters. While it is typically very difficult to determine the timing and ultimate outcome of these matters, we use our best judgment to determine the appropriate amounts to record in our consolidated financial statements.

We accrue a liability and establish a reserve when we believe a loss is probable and the amount of the loss can be reasonably estimated. In assessing probable losses, we make estimates of the amount of probable insurance recoveries, if any, which are recorded as assets where appropriate. Such accruals and reserves are typically based on developments to date, management’s estimates of the outcomes of these matters, our experience in contesting, litigating and settling other similar matters, historical claims experience, actuarially determined estimates of liabilities and any related insurance coverage. 

Given the inherent uncertainty related to the eventual outcome of these matters and potential insurance recoveries, it is possible that all or some of these matters may be resolved for amounts materially different from any provisions or disclosures that we may have made. In addition, as new information becomes available, we may need to reassess the amount of asset or liability that needs to be accrued related to our contingencies. All such changes in our estimates could materially impact our results of operations and financial position.

Refer to our consolidated financial statements for additional discussion of contingencies.

F-44

Table of Contents

Results of Operations

We have historically earned substantially all of our cruise revenues from the following:

•Sales of passenger cruise tickets and, in some cases, the sale of air and other transportation to and from airports near our ships’ home ports and cancellation fees. We also collect fees, taxes and other charges from our guests. The cruise ticket price typically includes the following:

Accommodations

Most meals, including snacks at numerous venues

Access to amenities such as swimming pools, water slides, water parks, whirlpools, a health club and sun decks

Supervised youth programs

Entertainment, such as theatrical and comedy shows, live music and nightclubs

Visits to multiple destinations

•Sales of onboard goods and services not included in the cruise ticket price. This generally includes the following:

[[GREPCENT_TABLE]]
[["\u2022 Beverage sales","\u2022 Internet and communication services"],["\u2022 Casino gaming","\u2022 Full service spas"],["\u2022 Shore excursions","\u2022 Specialty restaurants"],["\u2022 Retail sales","\u2022 Art sales"],["\u2022 Photo sales","\u2022 Laundry and dry cleaning services"]]
[[/GREPCENT_TABLE]]

These goods and services are provided either directly by us or by independent concessionaires, from which we receive either a percentage of their revenues or a fee. Concession revenues do not have direct expenses because the costs and services incurred for concession revenues are borne by our concessionaires. In 2021, we earned 45% of our cruise revenues from onboard and other revenue goods and services. In 2019, our most recent full year of guest cruise operations, we earned 30% of our cruise revenues from onboard and other revenues.

We earn our tour and other revenues from our hotel and transportation operations and other revenues.

We incur cruise operating costs and expenses for the following:

•The costs of passenger cruise bookings, which include travel agent commissions, cost of air and other transportation, port fees, taxes, and charges that directly vary with guest head counts and credit and debit card fees

•Onboard and other cruise costs, which include the costs of beverage sales, costs of shore excursions, costs of retail sales, internet and communication costs, credit and debit card fees, other onboard costs, costs of cruise vacation protection programs and pre- and post-cruise land packages

•Payroll and related costs, which include the costs of officers and crew in bridge, engineering and hotel operations. Substantially all costs associated with our shoreside personnel are included in selling and administrative expenses

•Fuel costs, which include fuel delivery costs

•Food costs, which include both our guest and crew food costs

•Other ship operating expenses, which include port costs that do not vary with guest head counts; repairs and maintenance, including minor improvements and dry-dock expenses; hotel costs; entertainment; gains and losses on ship sales; ship impairments; freight and logistics; insurance premiums and all other ship operating expenses

We incur tour and other costs and expenses for our hotel and transportation operations and other expenses.

F-45

Table of Contents

Statistical Information

[[GREPCENT_TABLE]]
[["","Years Ended November 30,"],["","2021","","2020","","2019"],["Passenger Cruise Days (\u201cPCD\u201d) (a)","8,179","","","26,478","","","93,397"],["Available Lower Berth Days (\u201cALBDs\u201d) (in thousands) (b)","14,603","","","26,117","","","87,424"],["Occupancy percentage (c)","56.0","%","","101.0","%","","106.8","%"],["Passengers carried (in thousands)","1,223","","","3,499","","","12,866"],["Fuel consumption in metric tons (in thousands)","1,336","","","1,915","","","3,312"],["Fuel cost per metric ton consumed","$","515","","","$","430","","","$","472"],["Currencies (USD to 1)"],["AUD","$","0.75","","","$","0.68","","","$","0.70"],["CAD","$","0.80","","","$","0.74","","","$","0.75"],["EUR","$","1.19","","","$","1.13","","","$","1.12"],["GBP","$","1.38","","","$","1.28","","","$","1.27"],["RMB","$","0.15","","","$","0.14","","","$","0.14"]]
[[/GREPCENT_TABLE]]

We paused our guest cruise operations in mid-March 2020 and were in a pause for a majority of 2020. In 2021, we began the gradual resumption of guest cruise operations which is continuing to have a material impact on all aspects of our business, including the above statistical information.

Notes to Statistical Information

(a)    PCD represents the number of cruise passengers on a voyage multiplied by the number of revenue-producing ship 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 by using a numerator of PCDs and a 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.

2021 Compared to 2020

Results of Operations

F-46

Table of Contents

[[GREPCENT_TABLE]]
[["Consolidated"],["","Years Ended November 30,","","","","% increase (decrease)"],["(in millions)","2021","","2020","","Change"],["Revenues"],["Passenger ticket","$","1,000","","","$","3,684","","","$","(2,684)","","","(73)","%"],["Onboard and other","908","","","1,910","","","(1,003)","","","(52)","%"],["","1,908","","","5,595","","","(3,687)","","","(66)","%"],["Operating Costs and Expenses"],["Commissions, transportation and other","269","","","1,139","","","(870)","","","(76)","%"],["Onboard and other","272","","","605","","","(334)","","","(55)","%"],["Payroll and related","1,309","","","1,780","","","(471)","","","(26)","%"],["Fuel","680","","","823","","","(142)","","","(17)","%"],["Food","187","","","413","","","(226)","","","(55)","%"],["Ship and other impairments","591","","","1,967","","","(1,376)","","","(70)","%"],["Other operating","1,346","","","1,518","","","(172)","","","(11)","%"],["","4,655","","","8,245","","","(3,590)","","","(44)","%"],["Selling and administrative","1,885","","","1,878","","","6","","","\u2014","%"],["Depreciation and amortization","2,233","","","2,241","","","(8)","","","\u2014","%"],["Goodwill impairment","226","","","2,096","","","(1,870)","","","(89)","%"],["","8,997","","","14,460","","","(5,462)","","","(38)","%"],["Operating Income (Loss)","$","(7,089)","","","$","(8,865)","","","$","1,776","","","(20)","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["NAA"],["","Years Ended November 30,","","","","% increase (decrease)"],["(in millions)","2021","","2020","","Change"],["Revenues"],["Passenger ticket","$","555","","","$","2,334","","","$","(1,779)","","","(76)","%"],["Onboard and other","553","","","1,293","","","(740)","","","(57)","%"],["","1,108","","","3,627","","","(2,519)","","","(69)","%"],["Operating Costs and Expenses","2,730","","","5,623","","","(2,893)","","","(51)","%"],["Selling and administrative","953","","","1,066","","","(113)","","","(11)","%"],["Depreciation and amortization","1,352","","","1,413","","","(60)","","","(4)","%"],["Goodwill impairment","\u2014","","","1,319","","","(1,319)","","","100","%"],["","5,036","","","9,422","","","(4,386)","","","(47)","%"],["Operating Income (Loss)","$","(3,928)","","","$","(5,794)","","","$","1,867","","","(32)","%"]]
[[/GREPCENT_TABLE]]

F-47

Table of Contents

[[GREPCENT_TABLE]]
[["EA"],["","Years Ended November 30,","","","","% increase (decrease)"],["(in millions)","2021","","2020","","Change"],["Revenues"],["Passenger ticket","$","491","","","$","1,388","","","$","(897)","","","(65)","%"],["Onboard and other","221","","","402","","","(181)","","","(45)","%"],["","712","","","1,790","","","(1,078)","","","(60)","%"],["Operating Costs and Expenses","1,807","","","2,548","","","(741)","","","(29)","%"],["Selling and administrative","568","","","523","","","46","","","9","%"],["Depreciation and amortization","728","","","672","","","56","","","8","%"],["Goodwill impairment","226","","","777","","","(551)","","","(71)","%"],["","3,329","","","4,519","","","(1,190)","","","(26)","%"],["Operating Income (Loss)","$","(2,617)","","","$","(2,729)","","","$","112","","","(4)","%"]]
[[/GREPCENT_TABLE]]

We paused our guest cruise operations in March 2020 with minimal cruise related revenue recognized during the remainder of 2020. In addition, we incurred incremental COVID-19 related costs associated with repatriating guests and crew members, enhancing health protocols and sanitizing our ships, restructuring costs and defending lawsuits. As of November 30, 2021, eight of our nine brands had resumed guest cruise operations as part of our gradual return to service. The gradual resumption of guest cruise operations is continuing to have a material impact on all aspects of our business, including our liquidity, financial position and results of operations. The full extent of the impact will be determined by our gradual return to service and the length of time COVID-19 influences travel decisions.

As of November 30, 2021, 61% of our capacity was operating with guests on board, which is an increase from November 30, 2020 where we had one ship in service. Revenues for the year ended November 30, 2021 decreased $3.7 billion, or 66%, to $1.9 billion from $5.6 billion in 2020 as a result of the pause in guest cruise operations beginning March 2020 and the gradual resumption in guest cruise operations in 2021. Occupancy for 2021 was 56%, compared to 101% in 2020, due to the gradual resumption of guest cruise operations.

During 2021 we incurred, and we expect to continue incurring, incremental restart-related spend including the cost of returning ships to guest cruise operations and returning crew members to our ships as well as the incremental costs of maintaining enhanced health and safety protocols as we continue our gradual return to service. During 2020, while maintaining compliance, environmental protection and safety, we significantly reduced ship operating expenses, including cruise payroll and related expenses, food, fuel, insurance and port charges by transitioning ships into paused status, either at anchor or in port, and staffed at a safe manning level.

We recognized goodwill impairment charges of $0.2 billion and $2.1 billion for the years ended November 30, 2021 and 2020.

We recognized ship impairment charges of $0.6 billion and $1.8 billion as of November 30, 2021 and 2020.

We believe the increasing cost of fuel, LNG and other related costs, inclusive of costs related to any potential future carbon emission related regulations, are reasonably likely to impact our profitability in both the short and long-term.

In addition, the increasing global focus on climate change, including the reduction of carbon emissions and new and evolving regulatory requirements, is reasonably likely to impact our future costs, capital expenditures and revenues and/or the relationship between them. The full impact of the focus on climate change is not yet known.

Nonoperating Income (Expense)

Interest expense, net of capitalized interest, increased by $0.7 billion to $1.6 billion in 2021 from $0.9 billion in 2020. The increase was caused by our higher average debt balance in 2021 compared to 2020.

Loss on debt extinguishment increased by $212 million to $670 million in 2021 from $459 million in 2020. The increase was caused by the repurchase of $4.0 billion of the aggregate principal of the 2023 Senior Secured Notes.

F-48

Table of Contents

Key Performance Non-GAAP Financial Indicators

The table below reconciles Adjusted net income (loss) and Adjusted EBITDA to Net Income (loss) and Adjusted earnings per share to Earnings per share for the periods presented:

[[GREPCENT_TABLE]]
[["","Years Ended November 30,"],["(dollars in millions, except per share data)","2021","","2020","","2019"],["Net income (loss)"],["U.S. GAAP net income (loss)","$","(9,501)","","","$","(10,236)","","","$","2,990"],["(Gains) losses on ship sales and impairments","802","","","3,934","","","(6)"],["(Gains) losses on debt extinguishment, net","670","","","459","","","\u2014"],["Restructuring expenses","13","","","47","","","10"],["Other","86","","","3","","","47"],["Adjusted net income (loss)","$","(7,931)","","","$","(5,793)","","","$","3,041"],["Interest expense, net of capitalized interest","1,601","","","895","","","206"],["Interest income","(12)","","","(18)","","","(23)"],["Income tax expense, net","(21)","","","(17)","","","71"],["Depreciation and amortization","2,233","","","2,241","","","2,160"],["Adjusted EBITDA","$","(4,129)","","","$","(2,692)","","","$","5,455"],["Weighted-average shares outstanding","1,123","","","775","","","692"],["Earnings per share"],["U.S. GAAP earnings per share","$","(8.46)","","","$","(13.20)","","","$","4.32"],["(Gains) losses on ship sales and impairments","0.71","","","5.08","","","(0.01)"],["(Gains) losses on debt extinguishment, net","0.60","","","0.59","","","\u2014"],["Restructuring expenses","0.01","","","0.06","","","0.01"],["Other","0.08","","","\u2014","","","0.07"],["Adjusted earnings per share","$","(7.06)","","","$","(7.47)","","","$","4.40"]]
[[/GREPCENT_TABLE]]

Explanations of Non-GAAP Financial Measures

We use adjusted net income (loss) and adjusted earnings per share as non-GAAP financial measures of our cruise segments’ and the company’s financial performance. These non-GAAP financial measures are provided along with U.S. GAAP net income (loss) and U.S. GAAP diluted earnings per share. 

We believe that gains and losses on ship sales, impairment charges, gains and losses on debt extinguishments, 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 earnings per share and, accordingly, we present adjusted net income (loss) and adjusted earnings per share excluding these items.

Adjusted EBITDA is a non-GAAP measure, and we believe that the presentation of Adjusted EBITDA provides additional information to investors about our operating profitability adjusted for certain non-cash items and other gains and expenses that we believe are not part of our core operating business and are not an indication of our future earnings performance. Further, we believe that the presentation of Adjusted EBITDA provides additional information to investors about our ability to operate our business in compliance with the restrictions set forth in our debt agreements. We define Adjusted EBITDA as adjusted net income (loss) adjusted for (i) interest, (ii) taxes and, (iii) depreciation and amortization. There are material limitations to using Adjusted EBITDA. Adjusted EBITDA does not take into account certain significant items that directly affect our net income (loss). These limitations are best addressed by considering the economic effects of the excluded items independently, and by considering Adjusted EBITDA in conjunction with net income (loss) as calculated in accordance with U.S. GAAP.

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 with U.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.

F-49

Table of Contents

2020 Compared to 2019

Results of Operations

[[GREPCENT_TABLE]]
[["Consolidated"],["","Years Ended November 30,","","","","% increase (decrease)"],["(in millions)","2020","","2019","","Change"],["Revenues"],["Passenger ticket","$","3,684","","","$","14,104","","","$","(10,420)","","","(74)","%"],["Onboard and other","1,910","","","6,721","","","(4,810)","","","(72)","%"],["","5,595","","","20,825","","","(15,230)","","","(73)","%"],["Operating Costs and Expenses"],["Commissions, transportation and other","1,139","","","2,720","","","(1,582)","","","(58)","%"],["Onboard and other","605","","","2,101","","","(1,496)","","","(71)","%"],["Payroll and related","1,780","","","2,249","","","(469)","","","(21)","%"],["Fuel","823","","","1,562","","","(739)","","","(47)","%"],["Food","413","","","1,083","","","(671)","","","(62)","%"],["Ship and other impairments","1,967","","","26","","","1,941","","","7542","%"],["Other operating","1,518","","","3,167","","","(1,649)","","","(52)","%"],["","8,245","","","12,909","","","(4,664)","","","(36)","%"],["Selling and administrative","1,878","","","2,480","","","(601)","","","(24)","%"],["Depreciation and amortization","2,241","","","2,160","","","81","","","4","%"],["Goodwill impairment","2,096","","","\u2014","","","2,096","","","100","%"],["","14,460","","","17,549","","","(3,089)","","","(18)","%"],["Operating Income (Loss)","$","(8,865)","","","$","3,276","","","$","(12,141)","","","(371)","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["NAA"],["","Years Ended November 30,","","","","% increase (decrease)"],["(in millions)","2020","","2019","","Change"],["Revenues"],["Passenger ticket","$","2,334","","","$","8,992","","","$","(6,658)","","","(74)","%"],["Onboard and other","1,293","","","4,620","","","(3,327)","","","(72)","%"],["","3,627","","","13,612","","","(9,985)","","","(73)","%"],["Operating Costs and Expenses","5,623","","","8,370","","","(2,747)","","","(33)","%"],["Selling and administrative","1,066","","","1,427","","","(361)","","","(25)","%"],["Depreciation and amortization","1,413","","","1,364","","","49","","","4","%"],["Goodwill impairment","1,319","","","\u2014","","","1,319","","","100","%"],["","9,422","","","11,161","","","(1,739)","","","(16)","%"],["Operating Income (Loss)","$","(5,794)","","","$","2,451","","","$","(8,246)","","","(336)","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["EA"],["","Years Ended November 30,","","","","% increase (decrease)"],["(in millions)","2020","","2019","","Change"],["Revenues"],["Passenger ticket","$","1,388","","","$","5,207","","","$","(3,820)","","","(73)","%"],["Onboard and other","402","","","1,442","","","(1,040)","","","(72)","%"],["","1,790","","","6,650","","","(4,860)","","","(73)","%"],["Operating Costs and Expenses","2,548","","","4,146","","","(1,599)","","","(39)","%"],["Selling and administrative","523","","","744","","","(221)","","","(30)","%"],["Depreciation and amortization","672","","","645","","","27","","","4","%"],["Goodwill impairment","777","","","\u2014","","","777","","","100","%"],["","4,519","","","5,534","","","(1,016)","","","(18)","%"],["Operating Income (Loss)","$","(2,729)","","","$","1,115","","","$","(3,845)","","","(345)","%"]]
[[/GREPCENT_TABLE]]

We paused our guest operations in mid-March 2020. We resumed guest cruise operations in September 2020 as part of our gradual return to service.

During 2020, as a result of the pause in our guest cruise operations, we experienced meaningfully lower revenues compared to the prior year. This has resulted in an operating loss for the current period.

While maintaining compliance, environmental protection and safety, we significantly reduced ship operating expenses, including cruise payroll and related expenses, food, fuel, insurance and port charges by transitioning ships into paused status, either at anchor or in port and staffed at a safe manning level.

In addition, during the year we incurred incremental COVID-19 related costs associated with repatriating guests and crew members, enhancing health protocols and sanitizing our ships, restructuring costs and defending lawsuits.

As a result of the effects of COVID-19 on our expected future operating cash flows, we recognized goodwill impairment charges of $2.1 billion and ship impairment charges of $1.8 billion during 2020.

F-50

Table of Contents

Liquidity, Financial Condition and Capital Resources

As of November 30, 2021, we had $9.4 billion of liquidity including cash, short-term investments and borrowings available under our revolving facility. Through our debt management efforts, we have refinanced over $9 billion to date, reducing our future annual interest expense by approximately $400 million per year and extending maturities, optimizing our debt maturity profile. During 2022, we will continue to be focused on pursuing refinancing opportunities to reduce interest rates and extend maturities. Since December 2020, we have completed the following:

•In December 2020, we borrowed $1.5 billion under export credit facilities due in semi-annual installments through 2033.

•In February 2021, we issued an aggregate principal amount of $3.5 billion senior unsecured notes that mature on March 1, 2027. The 2027 Senior Unsecured Notes bear interest at a rate of 5.75% per year.

•In February 2021, we completed a public offering of 40.5 million shares of Carnival Corporation’s common stock at a price per share of $25.10, resulting in net proceeds of $996 million.

•In June 2021, we entered into an amendment to reprice our $2.8 billion 2025 Secured Term Loan (the “2025 Secured Term Loan”). The amended U.S. dollar tranche bears interest at a rate per annum equal to LIBOR (with a 0.75% floor) plus 3%. The amended euro tranche bears interest at a rate per annum equal to EURIBOR (with a 0% floor) plus 3.75%.

•In July 2021, we issued $2.4 billion aggregate principal amount of 4% first-priority senior secured notes due in 2028 (the “2028 Senior Secured Notes”). We used the net proceeds from the issuance to purchase $2.0 billion aggregate principal amount of the 2023 Senior Secured Notes and to pay accrued interest on such notes and related fees and expenses. The 2028 Senior Secured Notes mature on August 1, 2028.

•In July 2021, we borrowed $544 million under an export credit facility due in semi-annual installments through 2033.

•We amended our export credit facilities to defer approximately $1.0 billion of principal payments that would otherwise have been due over a one year period commencing April 1, 2021 until March 31, 2022, with repayments to be made over the following five years.

•In October 2021, we borrowed an aggregate principal amount of $2.3 billion under a new term loan. We used the net proceeds from this borrowing to redeem $2.0 billion outstanding aggregate principal amount of the 2023 Senior Secured Notes and to pay accrued interest on such notes and related fees and expenses. Borrowings under the new term loan bear interest at a rate per annum equal to LIBOR (with a 0.75% floor) plus 3.25% and will mature on October 18, 2028.

•In November 2021, we issued an aggregate principal amount of $2.0 billion senior unsecured notes that mature on May 1, 2029 (the “2029 Senior Unsecured Notes”), intended to refinance various 2022 maturities. The 2029 Senior Unsecured Notes bear interest at a rate of 6% per year and are callable beginning November 1, 2024.

•We extended loan maturities totaling approximately $650 million originally due in 2022 and 2023, to various dates in 2023 through 2026.

We have entered into amendments aligning the financial covenants of all our export credit facilities with our other facilities. Refer to Note 5 - “Debt” of the consolidated financial statements and “Funding Sources” below for additional details.

Certain of our debt instruments contain provisions that may limit our ability to incur or guarantee additional indebtedness.

We had a working capital deficit of $0.3 billion as of November 30, 2021 compared to a working capital surplus of $1.9 billion as of November 30, 2020. The decrease in working capital was driven by an increase in customer deposits and a decrease in cash. Historically we have operated 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 $3.1 billion and $1.9 billion of customer deposits as of November 30, 2021 and 2020, respectively. We have paid and expect to continue to pay cash refunds of customer deposits with respect to a portion of cancelled cruises. The amount of cash refunds to be paid may depend on the level of guest acceptance of FCCs and future cruise cancellations. We record a liability for FCCs only to the extent we have received cash from guests with bookings on cancelled sailings. 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. We expect that we will have greater working capital deficits in the future once we return to full guest cruise operations.

F-51

Table of Contents

Sources and Uses of Cash

Operating Activities

Our business used $4.1 billion of net cash flows in operating activities during 2021, a decrease of $2.2 billion, compared to $6.3 billion used in 2020. This decrease was due to the reduction in cash outflows for refunds of customer deposits and credit card processor reserve funds provided. During 2020, our business used $6.3 billion of net cash from operations, a decrease of $11.8 billion, compared to $5.5 billion provided in 2019.

Investing Activities

During 2021, net cash used in investing activities was $3.5 billion. This was caused by:

•Capital expenditures of $3.0 billion for our ongoing new shipbuilding program

•Capital expenditures of $602 million for ship improvements and replacements, information technology and buildings and improvements

•Proceeds from sales of ships and other of $351 million

•Purchases of short-term investments of $2.9 billion

•Proceeds from maturity of short-term investments of $2.7 billion

During 2020, net cash used in investing activities was $3.2 billion. This was caused by:

•Capital expenditures of $2.8 billion for our ongoing new shipbuilding program

•Capital expenditures of $868 million for ship improvements and replacements, information technology and buildings and improvements

•Proceeds from sales of ships of $334 million

•Proceeds of $220 million from the settlement of outstanding derivatives

During 2019, net cash used in investing activities was $5.3 billion. This was caused by:

•Capital expenditures of $3.8 billion for our ongoing new shipbuilding program

•Capital expenditures of $1.7 billion for ship improvements and replacements, information technology and buildings and improvements

•Proceeds from sales of ships of $26 million

Financing Activities

During 2021, net cash provided by financing activities of $6.9 billion was caused by the following:

•Issuances of $13.0 billion of long-term debt

•Repayments of $6.0 billion of long-term debt

•Premium payments of $545 million related to the extinguishment of debt

•Net proceeds of $1.0 billion from Carnival Corporation common stock

•Purchases of $188 million of Carnival plc ordinary shares and issuances of $206 million of Carnival Corporation common stock under our Stock Swap Program

•Payments of $319 million related to debt issuance costs

During 2020, net cash provided by financing activities of $18.6 billion was caused by the following:

•Net proceeds from short-term borrowings of $2.9 billion in connection with our availability of, and needs for, cash at various times throughout the period, including proceeds of $3.1 billion from the Revolving Facility

•Repayments of $1.6 billion of long-term debt

•Issuances of $15.0 billion of long-term debt

•Payments of cash dividends of $689 million

•Net proceeds of $3.0 billion from our public offerings of Carnival Corporation common stock

•Net proceeds of $222 million from a registered direct offering of Carnival Corporation common stock used to repurchase a portion of the Convertible Notes

During 2019, net cash used in financing activities of $655 million was substantially all due to the following:

•Net proceeds of short-term borrowings of $605 million in connection with our availability of, and needs for, cash at various times throughout the period

•Repayments of $1.7 billion of long-term debt

•Issuances of $3.7 billion of long-term debt

•Payments of cash dividends of $1.4 billion

F-52

Table of Contents

•Purchases of $603 million of Carnival Corporation common stock and Carnival plc ordinary shares in open market transactions under our Repurchase Program

Material Cash Requirements

[[GREPCENT_TABLE]]
[["","Payments Due by"],["(in millions)","2022","","2023","","2024","","2025","","2026","","Total"],["Debt (a)","$","3,251","","","$","4,035","","","$","5,922","","(c)","$","5,472","","","$","5,293","","","$","23,973"],["Newbuild capital expenditures (b)","4,355","","","2,576","","","1,641","","","987","","","\u2014","","","9,560"],["Total","$","7,606","","","$","6,611","","","$","7,564","","","$","6,459","","","$","5,293","","","$","33,533"]]
[[/GREPCENT_TABLE]]

(a)    Includes principal as well as estimated interest payments and does not include the impact of any future possible refinancings. Excludes undrawn export credits.

(b)    As of November 30, 2021, we have committed undrawn export credit facilities of $5.6 billion which fund a portion of our Newbuild contractual commitments.

(c)    Includes borrowings under the Revolving Facility. As of November 30, 2021, borrowings under the Revolving Facility were $2.8 billion, which mature in 2024.

Funding Sources

As of November 30, 2021, we had $9.4 billion of liquidity including cash, short-term investments and borrowings available under our revolving facility. In addition, we had $5.6 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.

[[GREPCENT_TABLE]]
[["(in billions)","","2022","","2023","","2024"],["Future export credit facilities at November 30, 2021","","$","3.2","","","$","1.8","","","$","0.6"]]
[[/GREPCENT_TABLE]]

Our export credit facilities contain various financial covenants as described in Note 5 - “Debt”. At November 30, 2021, we were in compliance with the applicable covenants under our debt agreements.

Stock Swap Program

We have a program that allows us to realize a net cash benefit when Carnival Corporation common stock is trading at a premium to the price of Carnival plc ordinary shares (the “Stock Swap Program”). Under the Stock Swap Program, we may elect to offer and sell shares of Carnival Corporation common stock at prevailing market prices in ordinary brokers’ transactions and repurchase an equivalent number of Carnival plc ordinary shares in the UK market.

Any sales of Carnival Corporation common stock and Carnival plc ordinary shares have been or will be registered under the Securities Act of 1933, as amended. During 2021, under the Stock Swap Program, we sold 8.9 million shares of Carnival Corporation’s common stock and repurchased the same amount of Carnival plc ordinary shares, resulting in net proceeds of $19 million which were used for general corporate purposes. During 2020 and 2019, there were no sales or repurchases under the Stock Swap Program.