Company Quick10K Filing
Quick10K
Carnival
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$53.94 527 $28,420
10-Q 2019-05-31 Quarter: 2019-05-31
10-Q 2019-02-28 Quarter: 2019-02-28
10-Q 2018-05-31 Quarter: 2018-05-31
10-Q 2017-08-31 Quarter: 2017-08-31
10-Q 2017-02-28 Quarter: 2017-02-28
10-K 2016-11-30 Annual: 2016-11-30
10-Q 2016-08-31 Quarter: 2016-08-31
10-Q 2016-02-29 Quarter: 2016-02-29
10-Q 2015-05-31 Quarter: 2015-05-31
8-K 2019-06-20 Earnings, Exhibits
8-K 2019-04-16 Shareholder Vote
8-K 2019-03-26 Earnings, Exhibits
8-K 2019-01-14 Officers, Exhibits
8-K 2018-12-20 Earnings, Exhibits
8-K 2018-04-11 Shareholder Vote
S Sprint 24,390
AEM Agnico Eagle Mines 9,580
HTA Healthcare Trust of America 5,590
FLXN Flexion Therapeutics 439
BROG Black Ridge Oil & Gas 270
DTEA Davidstea 34
FCSC Fibrocell Science 22
ATLS Atlas Energy Group 0
CPA17 Corporate Property Associates 17 - Global 0
HICT Hiclasst 0
CCL 2019-05-31
Part I - Financial Information
Item 1. Financial Statements.
Note 1 - General
Note 2 - Revenue and Expense Recognition
Note 3 - Unsecured Debt
Note 4 - Contingencies
Note 5 - Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risks
Note 6 - Segment Information
Note 7 - Earnings per Share
Note 8 - Supplemental Cash Flow Information
Note 9 - Property and Equipment
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-10.1 ex_10x1xq22019.htm
EX-10.2 ex_10x2xq22019.htm
EX-10.3 ex_10x3xq22019.htm
EX-31.1 ex_31x1xq22019.htm
EX-31.2 ex_31x2xq22019.htm
EX-31.3 ex_31x3xq22019.htm
EX-31.4 ex_31x4xq22019.htm
EX-32.1 ex_32x1xq22019.htm
EX-32.2 ex_32x2xq22019.htm
EX-32.3 ex_32x3xq22019.htm
EX-32.4 ex_32x4xq22019.htm

Carnival Earnings 2019-05-31

CCL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2q201910-q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 001-9610
carnivalflaga01a01a05.jpg
Commission file number: 001-15136
 
 
Carnival Corporation
Carnival plc
(Exact name of registrant as
specified in its charter)
(Exact name of registrant as
specified in its charter)
 
 
 Republic of Panama
England and Wales
(State or other jurisdiction of
incorporation or organization)
(State or other jurisdiction of
incorporation or organization)
 
 
59-1562976
98-0357772
(I.R.S. Employer Identification No.)
(I.R.S. Employer Identification No.)
 
 
3655 N.W. 87th Avenue
Miami, Florida 33178-2428
Carnival House, 100 Harbour Parade,
Southampton SO15 1ST, United Kingdom
(Address of principal
executive offices)
(Zip Code)
(Address of principal
executive offices)
(Zip Code)
 
 
(305) 599-2600
011 44 23 8065 5000
(Registrant’s telephone number,
including area code)
(Registrant’s telephone number,
including area code)
 
 
None
None
(Former name, former address
and former fiscal year, if
changed since last report)
(Former name, former address
and former fiscal year, if
changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Common Stock
($0.01 par value)
 
Ordinary Shares each represented
by American Depositary Shares
($1.66 par value), Special Voting Share,
GBP 1.00 par value and Trust Shares
of beneficial interest in the
P&O Princess Special Voting Trust
(Title of each class)
(Title of each class)
 
 
CCL
CUK
(Trading Symbol)
(Trading Symbol)
 
 
New York Stock Exchange, Inc.
New York Stock Exchange, Inc.
(Name of each exchange on which registered)
(Name of each exchange on which registered)

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.  Yes   No  ☐    
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files).    Yes      No  ☐



Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, smaller reporting companies, or emerging growth companies. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filers
Accelerated filers
Non-accelerated filers
Smaller reporting companies
Emerging growth companies
If emerging growth companies, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ 
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  
At June 14, 2019, Carnival Corporation had outstanding 527,000,548 shares of Common Stock, $0.01 par value.
  
At June 14, 2019, Carnival plc had outstanding 189,386,190 Ordinary Shares $1.66 par value, one Special Voting Share, GBP 1.00 par value and 527,000,548 Trust Shares of beneficial interest in the P&O Princess Special Voting Trust.
 



CARNIVAL CORPORATION & PLC
TABLE OF CONTENTS

2


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in millions, except per share data)
 
 
Three Months Ended
May 31,
 
Six Months Ended
May 31,
 
2019

2018
 
2019
 
2018
Revenues
 
 
 
 
 
 
 
Cruise
 
 
 
 
 
 
 
  Passenger ticket
$
3,257

 
$
3,193

 
$
6,456

 
$
6,341

  Onboard and other
1,510

 
1,122

 
2,955

 
2,192

Tour and other
71

 
42

 
99

 
55

 
4,838

 
4,357

 
9,511

 
8,589

Operating Costs and Expenses
 
 
 
 
 
 
 
Cruise
 
 
 
 
 
 
 
  Commissions, transportation and other
613

 
577

 
1,322

 
1,240

  Onboard and other
485

 
138

 
952

 
278

  Payroll and related
566

 
543

 
1,123

 
1,101

  Fuel
423

 
373

 
804

 
731

  Food
269

 
265

 
538

 
530

  Other ship operating
742

 
749

 
1,472

 
1,460

Tour and other
61

 
36

 
90

 
50

 
3,159

 
2,681

 
6,301

 
5,390

Selling and administrative
621

 
605

 
1,250

 
1,221

Depreciation and amortization
542

 
512

 
1,059

 
1,000

 
4,323

 
3,798

 
8,609

 
7,611

Operating Income
515

 
559

 
902

 
978

Nonoperating Income (Expense)
 
 
 
 
 
 
 
Interest income
5

 
3

 
9

 
6

Interest expense, net of capitalized interest
(54
)
 
(49
)
 
(105
)
 
(98
)
Gains on fuel derivatives, net

 
41

 

 
57

Other income (expense), net
(7
)
 
10

 
(9
)
 
11

 
(56
)
 
5

 
(105
)
 
(24
)
Income Before Income Taxes
459

 
564

 
797

 
955

Income Tax Expense, Net
(8
)
 
(3
)
 
(10
)
 
(3
)
Net Income
$
451

 
$
561

 
$
787

 
$
951

Earnings Per Share
 
 
 
 
 
 
 
Basic
$
0.65

 
$
0.79

 
$
1.14

 
$
1.33

Diluted
$
0.65

 
$
0.78

 
$
1.13

 
$
1.33

The accompanying notes are an integral part of these consolidated financial statements.

3


CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in millions)
 
 
Three Months Ended
May 31,
 
Six Months Ended
May 31,
 
2019
 
2018
 
2019
 
2018
Net Income
$
451

 
$
561

 
$
787

 
$
951

Items Included in Other Comprehensive Income (Loss)
 
 

 
 
 
 
Change in foreign currency translation adjustment
(194
)
 
(357
)
 
(114
)
 
(56
)
Other
(13
)
 
(11
)
 
(13
)
 
(17
)
Other Comprehensive Income (Loss)
(207
)
 
(368
)
 
(127
)
 
(73
)
Total Comprehensive Income
$
244

 
$
193

 
$
660

 
$
878

The accompanying notes are an integral part of these consolidated financial statements.


4


CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except par values)
 
 
May 31,
2019
 
November 30,
2018
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
1,202

 
$
982

Trade and other receivables, net
405

 
358

Inventories
501

 
450

Prepaid expenses and other
727

 
436

  Total current assets
2,835

 
2,225

Property and Equipment, Net
36,814

 
35,336

Goodwill
2,907

 
2,925

Other Intangibles
1,172

 
1,176

Other Assets
785

 
738

 
$
44,512

 
$
42,401

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities
 
 
 
Short-term borrowings
$
480

 
$
848

Current portion of long-term debt
1,614

 
1,578

Accounts payable
792

 
730

Accrued liabilities and other
1,675

 
1,654

Customer deposits
5,815

 
4,395

  Total current liabilities
10,377

 
9,204

Long-Term Debt
9,080

 
7,897

Other Long-Term Liabilities
948

 
856

Contingencies

 

Shareholders’ Equity
 
 
 
Common stock of Carnival Corporation, $0.01 par value; 1,960 shares authorized; 657 shares at 2019 and 656 shares at 2018 issued
7

 
7

Ordinary shares of Carnival plc, $1.66 par value; 217 shares at 2019 and 2018 issued
358

 
358

Additional paid-in capital
8,785

 
8,756

Retained earnings
25,138

 
25,066

Accumulated other comprehensive income (loss) (“AOCI”)
(2,076
)
 
(1,949
)
Treasury stock, 130 shares at 2019 and 129 shares at 2018 of Carnival Corporation and 54 shares at 2019 and 48 shares at 2018 of Carnival plc, at cost
(8,104
)
 
(7,795
)
  Total shareholders’ equity
24,108

 
24,443

 
$
44,512

 
$
42,401

The accompanying notes are an integral part of these consolidated financial statements.

5


CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
 
 
Six Months Ended
May 31,
 
2019
 
2018
OPERATING ACTIVITIES
 
 
 
Net income
$
787

 
$
951

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
Depreciation and amortization
1,059

 
1,000

Gains on fuel derivatives, net

 
(57
)
Share-based compensation
27

 
32

Other, net
10

 
4

 
1,883

 
1,930

Changes in operating assets and liabilities
 
 
 
Receivables
(50
)
 
(35
)
Inventories
5

 
(16
)
Prepaid expenses and other
(302
)
 
59

Accounts payable
68

 
(14
)
Accrued liabilities and other
48

 
(249
)
Customer deposits
1,516

 
1,413

Net cash provided by (used in) operating activities
3,169

 
3,087

INVESTING ACTIVITIES
 
 
 
Purchases of property and equipment
(3,021
)
 
(2,201
)
Proceeds from sales of ships
6

 
102

Payments of fuel derivative settlements
(6
)
 
(34
)
Other, net
103

 
30

Net cash provided by (used in) investing activities
(2,918
)
 
(2,103
)
FINANCING ACTIVITIES
 
 
 
Proceeds from (repayments of) short-term borrowings, net
(357
)
 
398

Principal repayments of long-term debt
(338
)
 
(1,181
)
Proceeds from issuance of long-term debt
1,722

 
1,618

Dividends paid
(694
)
 
(646
)
Purchases of treasury stock
(316
)
 
(513
)
Other, net
(43
)
 
(16
)
Net cash provided by (used in) financing activities
(26
)
 
(339
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(5
)
 
2

Net increase (decrease) in cash, cash equivalents and restricted cash
220

 
646

Cash, cash equivalents and restricted cash at beginning of period
996

 
422

Cash, cash equivalents and restricted cash at end of period
$
1,215

 
$
1,068

The accompanying notes are an integral part of these consolidated financial statements.



6


CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in millions)

 
Three Months Ended
 
Common
stock
 
Ordinary
shares
 
Additional
paid-in
capital
 
Retained
earnings
 
AOCI
 
Treasury
stock
 
Total
shareholders’
equity
At February 28, 2018
$
7

 
$
358

 
$
8,708

 
$
23,360

 
$
(1,486
)
 
$
(6,565
)
 
$
24,382

Net income

 

 

 
561

 

 

 
561

Other comprehensive income

 

 

 

 
(368
)
 

 
(368
)
Cash dividends declared ($0.50 per share)

 

 

 
(357
)
 

 

 
(357
)
Purchases of treasury stock under the Repurchase Program and other

 

 
13

 

 

 
(298
)
 
(284
)
At May 31, 2018
$
7

 
$
358

 
$
8,721

 
$
23,564

 
$
(1,855
)
 
$
(6,862
)
 
$
23,933

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At February 28, 2019
$
7

 
$
358

 
$
8,776

 
$
25,033

 
$
(1,869
)
 
$
(8,063
)
 
$
24,241

Net income

 

 

 
451

 

 

 
451

Other comprehensive income

 

 

 

 
(207
)
 

 
(207
)
Cash dividends declared ($0.50 per share)

 

 

 
(346
)
 

 

 
(346
)
Purchases of treasury stock under the Repurchase Program and other

 

 
9

 

 

 
(41
)
 
(32
)
At May 31, 2019
$
7

 
$
358

 
$
8,785

 
$
25,138

 
$
(2,076
)
 
$
(8,104
)
 
$
24,108

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
Common
stock
 
Ordinary
shares
 
Additional
paid-in
capital
 
Retained
earnings
 
AOCI
 
Treasury
stock
 
Total
shareholders’
equity
At November 30, 2017
$
7

 
$
358

 
$
8,690

 
$
23,292

 
$
(1,782
)
 
$
(6,349
)
 
$
24,216

Net income

 

 

 
951

 

 

 
951

Other comprehensive income

 

 

 

 
(73
)
 

 
(73
)
Cash dividends declared ($0.95 per share)

 

 

 
(679
)
 

 

 
(679
)
Purchases of treasury stock under the Repurchase Program and other

 

 
32

 

 

 
(514
)
 
(482
)
At May 31, 2018
$
7

 
$
358

 
$
8,721

 
$
23,564

 
$
(1,855
)
 
$
(6,862
)
 
$
23,933

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At November 30, 2018
$
7

 
$
358

 
$
8,756

 
$
25,066

 
$
(1,949
)
 
$
(7,795
)
 
$
24,443

Changes in accounting principles (a)

 

 

 
(24
)
 

 

 
(24
)
Net income

 

 

 
787

 

 

 
787

Other comprehensive income

 

 

 

 
(127
)
 

 
(127
)
Cash dividends declared ($1.00 per share)

 

 

 
(691
)
 

 

 
(691
)
Purchases of treasury stock under the Repurchase Program and other

 

 
29

 

 

 
(310
)
 
(280
)
At May 31, 2019
$
7

 
$
358

 
$
8,785

 
$
25,138

 
$
(2,076
)
 
$
(8,104
)
 
$
24,108


(a)
We adopted the provisions of Revenue from Contracts with Customers and Derivatives and Hedging on December 1, 2018.
The accompanying notes are an integral part of these consolidated financial statements.

7



CARNIVAL CORPORATION & PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – General

The consolidated financial statements include the accounts of Carnival Corporation and Carnival plc and their respective subsidiaries. Together with their consolidated subsidiaries, they are referred to collectively in these consolidated financial statements and elsewhere in this joint Quarterly Report on Form 10-Q as “Carnival Corporation & plc,” “our,” “us” and “we.”

Basis of Presentation
The Consolidated Statements of Income, the Consolidated Statements of Comprehensive Income, the Consolidated Statements of Cash Flows and the Consolidated Statements of Shareholders’ Equity for the three and six months ended May 31, 2019 and 2018, and the Consolidated Balance Sheet at May 31, 2019 are unaudited and, in the opinion of our management, contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement. Our interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in the Carnival Corporation & plc 2018 joint Annual Report on Form 10-K (“Form 10-K”) filed with the U.S. Securities and Exchange Commission on January 28, 2019. Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire year.
 
Accounting Pronouncements

The Financial Accounting Standards Board (the “FASB”) issued guidance, Revenue from Contracts with Customers (“ASC 606”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. On December 1, 2018, we adopted this guidance using the modified retrospective method for all contracts as of the adoption date. Results for reporting periods beginning after December 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 605.

The impact of the adoption of ASC 606 on our consolidated financial statements primarily relates to the gross presentation of prepaid travel agent commissions (Consolidated Balance Sheet), shore excursions and other onboard revenues and costs (Consolidated Statement of Income) which were historically presented net. As of December 1, 2018, we recorded a cumulative effect adjustment of $24 million to retained earnings related to the accounting for our loyalty programs.


8


The following tables summarize the impacts of ASC 606 adoption on our consolidated financial statements:
 
Three months ended May 31, 2019
(in millions)
Prior to adoption of ASC 606
 
Adjustments
 
As Reported
Consolidated Statement of Income
 
 
 
 
 
Onboard and other (Revenues)
$
1,167

 
$
343

 
$
1,510

Revenues (Total)
$
4,495

 
$
343

 
$
4,838

Onboard and other (Operating Costs and Expenses)
$
142

 
$
343

 
$
485

Operating Costs and Expenses (Total)
$
3,980

 
$
343

 
$
4,323

Operating Income
$
515

 
$

 
$
515

Net Income
$
451

 
$

 
$
451

 
 
 
 
 
 
 
Six months ended May 31, 2019
(in millions)
Prior to adoption of ASC 606
 
Adjustments
 
As Reported
Consolidated Statement of Income
 
 
 
 
 
Onboard and other (Revenues)
$
2,289

 
$
666

 
$
2,955

Revenues (Total)
$
8,845

 
$
666

 
$
9,511

Onboard and other (Operating Costs and Expenses)
$
286

 
$
666

 
$
952

Operating Costs and Expenses (Total)
$
7,943

 
$
666

 
$
8,609

Operating Income
$
902

 
$

 
$
902

Net Income
$
787

 
$

 
$
787

 
 
 
 
 
 
 
At May 31, 2019
(in millions)
Prior to adoption of ASC 606
 
Adjustments
 
As Reported
Consolidated Balance Sheet
 
 
 
 
 
Prepaid expenses and other
$
517

 
$
210

 
$
727

Total current assets
$
2,625

 
$
210

 
$
2,835

Customer deposits
$
5,606

 
$
210

 
$
5,815

Total current liabilities
$
10,167

 
$
210

 
$
10,377

 
 
 
 
 
 
 
Six months ended May 31, 2019
(in millions)
Prior to adoption of ASC 606
 
Adjustments
 
As Reported
Consolidated Statement of Cash Flows
 
 
 
 
 
Prepaid expenses and other
$
(92
)
 
$
(210
)
 
$
(302
)
Customer deposits
$
1,306

 
$
210

 
$
1,516

Net cash provided by operating activities
$
3,169

 
$

 
$
3,169


The FASB issued amended guidance, Business Combinations - Clarifying the Definition of a Business, which assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. On December 1, 2018, we adopted this guidance using the prospective transition method. The adoption of this guidance had no impact on our consolidated financial statements.

The FASB issued amended guidance, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are aimed at reducing the existing diversity in practice. On December 1, 2018, we adopted this guidance using the retrospective method for each period presented. The adoption of this guidance had no impact on our consolidated financial statements.


9


The FASB issued amended guidance, Statement of Cash Flows - Restricted Cash. On December 1, 2018, we adopted this guidance using the retrospective method for each period presented. As a result, we now present restricted cash with cash and cash equivalents in the statement of cash flows. The reclassification of restricted cash balances from investing activities to changes in cash, cash equivalents and restricted cash was not material for the period presented.

The FASB issued amended guidance, Service Concession Arrangements, which clarifies that the grantor in a service arrangement should be considered the customer of the operating entity in all cases. On December 1, 2018, we adopted this guidance using the modified retrospective method. The adoption of this guidance had no impact on our consolidated financial statements.

The FASB issued amended guidance, Derivatives and Hedging, which targeted improvements to accounting for hedging activities such as hedging strategies, effectiveness assessments and recognition of derivative gains or losses. On December 1, 2018, we early adopted this guidance using the modified retrospective approach, which did not have a material impact on our financial statements. At the time of adoption, we changed the method by which we assess effectiveness for outstanding net investment hedges from the forward method to the spot method. Under the spot method, the change in fair value of the hedging instrument attributable to hedge effectiveness remains in AOCI until the net investment is sold or liquidated, while the impact attributable to components excluded from the assessment of hedge effectiveness is recorded in interest expense, net of capitalized interest, on a systematic and rational basis. Previous gains or losses incurred under the forward method related to net investment hedges will remain in AOCI within the foreign currency translation adjustments component and will be reclassified to earnings when the net investment is sold or liquidated. As required by this guidance, we have also added certain disclosures about hedging activities and their effect on our consolidated financial statements.

The FASB issued guidance, Leases, which requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. This guidance is required to be adopted by us in the first quarter of 2020 and must be applied using a modified retrospective approach which allows entities to either apply the new lease standard to the beginning of the earliest period presented or only to the current period consolidated financial statements. The initial adoption of this guidance is expected to increase both our total assets and total liabilities, reflecting the lease rights and obligations arising from our lease arrangements, and will require additional disclosures. We are evaluating certain contractual arrangements to determine if they contain an implicit right to use an asset that would qualify as a leasing arrangement under the new guidance.

The FASB issued amended guidance, Intangibles - Goodwill and Other - Internal-Use Software, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. The expense related to deferred implementation costs is required to be presented in the same income statement line item as the related hosting fees. Additionally, the payments for deferred implementation costs are required to be presented in the same line item in the statement of cash flows as payments for the related hosting fees. This guidance is required to be adopted by us in the first quarter of 2021 and must be applied using either a prospective or a retrospective approach. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

NOTE 2 – Revenue and Expense Recognition

Guest cruise deposits represent unearned revenues and are initially included in customer deposit liabilities when received. Customer deposits are subsequently recognized as cruise revenues, together with revenues from onboard and other activities, and all associated direct costs and expenses of a voyage are recognized as cruise costs and expenses, upon completion of voyages with durations of ten nights or less and on a pro rata basis for voyages in excess of ten nights. The impact of recognizing these shorter duration cruise revenues and costs and expenses on a completed voyage basis versus on a pro rata basis is not significant. Certain of our product offerings are bundled and we allocate the value of the bundled services and goods between passenger ticket revenues, onboard and other revenues and tour and other revenues based upon the estimated standalone selling prices of those goods and services.

Future travel discount vouchers are included as a reduction of cruise passenger ticket revenues when such vouchers are utilized. Guest cancellation fees are recognized in cruise passenger ticket revenues at the time of cancellation.

Our sale to guests of air and other transportation to and from airports near the home ports of our ships are included in cruise passenger ticket revenues, and the related cost of purchasing these services are included in cruise transportation costs. The proceeds that we collect from the sales of third-party shore excursions are included in onboard and other revenues and the related costs are included in onboard and other costs. The amounts collected on behalf of our onboard concessionaires, net of

10


the amounts remitted to them, are included in onboard and other cruise revenues as concession revenues. All of these amounts are recognized on a completed voyage or pro rata basis as discussed above.

Cruise passenger ticket revenues include fees, taxes and charges collected by us from our guests. A portion of these fees, taxes and charges vary with guest head counts and are directly imposed on a revenue-producing arrangement. This portion of the fees, taxes and charges is expensed in commissions, transportation and other costs when the corresponding revenues are recognized. For the three and six months ended May 31, the fees, taxes and charges included in passenger ticket revenues and commissions, transportation and other costs were $154 million and $317 million in 2019 and $143 million and $291 million in 2018. The remaining portion of fees, taxes and charges are also included in cruise passenger ticket revenues and are expensed in other ship operating expenses when the corresponding revenues are recognized.

Revenues and expenses from our hotel and transportation operations, which are included in our Tour and Other segment, are recognized at the time the services are performed or expenses are incurred. Revenues from the long-term leasing of ships, which are also included in our Tour and Other segment, are recognized ratably over the term of the agreement.
                
Customer Deposits

Our payment terms generally require an initial deposit to confirm a reservation, with the balance due prior to the voyage. Cash received from guests in advance of the cruise is recorded in customer deposits and in other long-term liabilities on our Consolidated Balance Sheets. These amounts include refundable deposits. We had customer deposits of $6.0 billion and $4.7 billion as of May 31, 2019 and December 1, 2018. During the six months ended May 31, 2019, we recognized revenues of $3.7 billion related to our customer deposits as of December 1, 2018. Our customer deposits balance changes due to the seasonal nature of cash collections, the recognition of revenue and foreign currency translation.

Contract Receivables

Although we generally require full payment from our customers prior to or concurrently with their cruise, we grant credit terms to a relatively small portion of our revenue source. We also have receivables from credit card merchants for cruise ticket purchases and onboard revenue. These receivables are included within trade and other receivables, net.

Contract Assets

Contract assets are amounts paid prior to the start of a voyage, which we record as an asset within prepaid expenses and other and which are subsequently recognized as commissions, transportation and other at the time of revenue recognition. We have contract assets of $210 million and $151 million as of May 31, 2019 and December 1, 2018.

NOTE 3 – Unsecured Debt

At May 31, 2019, our short-term borrowings consisted of euro-denominated commercial paper of $480 million. For the six months ended May 31, 2019, there were no borrowings or repayments of commercial paper with original maturities greater than three months. For the six months ended May 31, 2018, we had borrowings of $2 million and repayments of $2 million of commercial paper with original maturities greater than three months.

In December 2018, we borrowed $852 million under an export credit facility due in semi-annual installments through 2031.

In February 2019, we borrowed $587 million under a euro-denominated export credit facility due in semi-annual installments through 2031. We also entered into an $899 million export credit facility, which may be drawn in euro or U.S. dollars in 2023 and will be due in semi-annual installments through 2035. The interest rate on this export credit facility can be fixed or floating, at our discretion.

In March 2019, we borrowed $283 million under two euro-denominated floating rate bank loans due in 2023.

NOTE 4 – Contingencies
Litigation
On May 2, 2019, two lawsuits were filed against Carnival Corporation in the U.S. District Court for the Southern District of Florida under Title III of the Cuban Liberty and Democratic Solidarity Act, also known as the Helms-Burton Act. The complaint filed by Havana Docks Corporation alleges it holds an interest in the Havana Cruise Port Terminal and the complaint

11


filed by Javier Garcia-Bengochea alleges that he holds an interest in the Port of Santiago, Cuba, both of which were expropriated by the Cuban Government. The complaints further allege that Carnival Cruise Line “trafficked” in those properties by embarking and disembarking passengers at these facilities. The plaintiffs seek all available statutory remedies, including the value of the expropriated property, plus interest, treble damages, attorneys’ fees and costs. We believe we have meritorious defenses to the claims and we intend to vigorously defend against them. We do not believe that it is likely that the outcome of these matters will be material, but litigation is inherently unpredictable and there can be no assurances that the final outcome of the case might not be material to our operating results or financial condition.
Additionally, in the normal course of our business, various claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits, or any settlement of claims and lawsuits, are covered by insurance and the maximum amount of our liability, net of any insurance recoverables, is typically limited to our self-insurance retention levels. We believe the ultimate outcome of these claims, lawsuits and settlements, as applicable, each and in the aggregate, will not have a material impact on our consolidated financial statements.
Contingent Obligations – Indemnifications
Some of the debt contracts we enter into include indemnification provisions obligating us to make payments to the counterparty if certain events occur. These contingencies generally relate to changes in taxes or changes in laws which increase our lender’s costs. There are no stated or notional amounts included in the indemnification clauses, and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses.

NOTE 5 – Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risks
Fair Value Measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured using inputs in one of the following three categories:
Level 1 measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.
Level 2 measurements are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or market data other than quoted prices that are observable for the assets or liabilities.
Level 3 measurements are based on unobservable data that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, certain estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange.

Financial Instruments that are not Measured at Fair Value on a Recurring Basis 
 
May 31, 2019
 
November 30, 2018
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 

 
 
 
 
 
 
 

Long-term other assets (a)
$
182

 
$

 
$
29

 
$
151

 
$
127

 
$

 
$
30

 
$
95

Total
$
182

 
$

 
$
29

 
$
151

 
$
127

 
$

 
$
30

 
$
95

Liabilities
 
 
 
 
 
 

 
 
 
 
 
 
 

Fixed rate debt (b)
$
6,665

 
$

 
$
6,915

 
$

 
$
5,699

 
$

 
$
5,799

 
$

Floating rate debt (b)
4,615

 

 
4,659

 

 
4,695

 

 
4,727

 

Total
$
11,280

 
$

 
$
11,574

 
$

 
$
10,394

 
$

 
$
10,526

 
$

 
(a)
Long-term other assets are comprised of notes receivable. The fair values of our Level 2 notes receivable were based on estimated future cash flows discounted at appropriate market interest rates. The fair values of our Level 3 notes receivable were estimated using risk-adjusted discount rates.

12


(b)
The debt amounts above do not include the impact of interest rate swaps or debt issuance costs. The fair values of our publicly-traded notes were based on their unadjusted quoted market prices in markets that are not sufficiently active to be Level 1 and, accordingly, are considered Level 2. The fair values of our other debt were estimated based on current market interest rates being applied to this debt.

Financial Instruments that are Measured at Fair Value on a Recurring Basis
 
May 31, 2019
 
November 30, 2018
(in millions)
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,202

 
$

 
$

 
$
982

 
$

 
$

Restricted cash
14

 

 

 
14

 

 

Derivative financial instruments

 
25

 

 

 

 

Total
$
1,215

 
$
25

 
$

 
$
996

 
$

 
$

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments
$

 
$
22

 
$

 
$

 
$
29

 
$

Total
$

 
$
22

 
$

 
$

 
$
29

 
$


Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
Valuation of Goodwill and Trademarks 
 
Goodwill
(in millions)
NAA (a)
Segment
 
EA (b)
Segment
 
Total
At November 30, 2018
$
1,898

 
$
1,027

 
$
2,925

Foreign currency translation adjustment

 
(19
)
 
(19
)
At May 31, 2019
$
1,898

 
$
1,008

 
$
2,906

(a)    North America & Australia (“NAA”)
(b)    Europe & Asia (“EA”)
 
Trademarks
(in millions)
NAA
Segment
 
EA
Segment
 
Total
At November 30, 2018
$
927

 
$
242

 
$
1,169

Foreign currency translation adjustment

 
(4
)
 
(4
)
At May 31, 2019
$
927

 
$
238

 
$
1,165


The determination of our reporting unit goodwill and trademark fair values includes numerous assumptions that are subject to various risks and uncertainties. We believe that we have made reasonable estimates and judgments. A change in the conditions, circumstances or strategy, including decisions about the allocation of new ships amongst brands and the transfer of ships between brands (influencing fair values in the future), may result in a need to recognize an impairment charge.


13


Derivative Instruments and Hedging Activities  

(in millions)
Balance Sheet Location
 
May 31, 2019
 
November 30, 2018
Derivative assets
 
 
 
 
 
Derivatives designated as hedging instruments
 
 
 
 
 
Cross currency swaps (a)
Prepaid expenses and other
 
$
19

 
$


Other assets
 
6

 

Total derivative assets
 
 
$
25

 
$

Derivative liabilities
 
 
 
 
 
Derivatives designated as hedging instruments
 
 
 
 
 
Cross currency swaps (a)
Accrued liabilities and other
 
$
3

 
$
5

Foreign currency zero cost collars (b)
Other long-term liabilities
 
1

 

Interest rate swaps (c)
Accrued liabilities and other
 
7

 
8


Other long-term liabilities
 
11

 
11

 
 
 
22

 
23

Derivatives not designated as hedging instruments
 
 
 
 
 
Fuel
Accrued liabilities and other
 

 
6

Total derivative liabilities
 
 
$
22

 
$
29

 
(a)
At May 31, 2019 and November 30, 2018, we had cross currency swaps totaling $984 million and $156 million, respectively, that are designated as hedges of our net investment in foreign operations with a euro-denominated functional currency. At May 31, 2019, these cross currency swaps settle through December 2030.
(b)
At May 31, 2019, we had foreign currency derivatives consisting of foreign currency zero cost collars that are designated as foreign currency cash flow hedges for a portion of our euro-denominated shipbuilding payments. See “Newbuild Currency Risks” below for additional information regarding these derivatives.
(c)
We have interest rate swaps designated as cash flow hedges whereby we receive floating interest rate payments in exchange for making fixed interest rate payments. These interest rate swap agreements effectively changed $340 million at May 31, 2019 and $385 million at November 30, 2018 of EURIBOR-based floating rate euro debt to fixed rate euro debt. At May 31, 2019, these interest rate swaps settle through March 2025.


Our derivative contracts include rights of offset with our counterparties. We have elected to net certain of our derivative assets and liabilities within counterparties.
 
 
May 31, 2019
(in millions)
 
Gross Amounts
 
Gross Amounts Offset in the Balance Sheet
 
Total Net Amounts Presented in the Balance Sheet
 
Gross Amounts not Offset in the Balance Sheet
 
Net Amounts
Assets
 
$
29

 
$
(4
)
 
$
25

 
$
(3
)
 
$
22

Liabilities
 
$
26

 
$
(4
)
 
$
22

 
$
(3
)
 
$
18

 
 
 
 
 
 
 
 
 
 
 
 
 
November 30, 2018
(in millions)
 
Gross Amounts
 
Gross Amounts Offset in the Balance Sheet
 
Total Net Amounts Presented in the Balance Sheet
 
Gross Amounts not Offset in the Balance Sheet
 
Net Amounts
Assets
 
$

 
$

 
$

 
$


 
$

Liabilities
 
$
29

 
$

 
$
29

 
$

 
$
29


14


The effect of our derivatives qualifying and designated as hedging instruments recognized in other comprehensive income (loss) and in income was as follows:
 
Three Months Ended
May 31,
 
Six Months Ended
May 31,
(in millions)
2019
 
2018
 
2019
 
2018
Gains (losses) recognized in AOCI:
 
 
 
 
 
 
 
Cross currency swaps – net investment hedges
$
29

 
$
16

 
$
18

 
$
10

Foreign currency zero cost collars – cash flow hedges
$
(1
)
 
$
(11
)
 
$
(1
)
 
$
(10
)
Interest rate swaps – cash flow hedges
$

 
$

 
$
1

 
$
4

Gains (losses) reclassified from AOCI – cash flow hedges:
 
 
 
 
 
 
 
Interest rate swaps – Interest expense, net of capitalized interest
$
(2
)
 
$
(2
)
 
$
(4
)
 
$
(5
)
Gains (losses) recognized on derivative instruments (amount excluded from effectiveness testing – net investment hedges)
 
 
 
 
 
 
 
Cross currency swaps – Interest expense, net of capitalized interest
$
6

 
$

 
$
11

 
$


The amount of estimated cash flow hedges’ unrealized gains and losses that are expected to be reclassified to earnings in the next twelve months is not significant.
Financial Risks
Fuel Price Risks
We manage our exposure to fuel price risk by managing our consumption of fuel. Substantially all of our exposure to market risk for changes in fuel prices relates to the consumption of fuel on our ships. We manage fuel consumption through ship maintenance practices, modifying our itineraries and implementing innovative technologies. We are also adding new, more fuel efficient ships to our fleet and are strategically disposing of smaller, less fuel efficient ships.
Foreign Currency Exchange Rate Risks
Overall Strategy
We manage our exposure to fluctuations in foreign currency exchange rates through our normal operating and financing activities, including netting certain exposures to take advantage of any natural offsets and, when considered appropriate, through the use of derivative and non-derivative financial instruments. Our primary focus is to monitor our exposure to, and manage, the economic foreign currency exchange risks faced by our operations and realized if we exchange one currency for another. We currently only hedge certain of our ship commitments and net investments in foreign operations. The financial impacts of the hedging instruments we do employ generally offset the changes in the underlying exposures being hedged.
Operational Currency Risks
Our operations primarily utilize the U.S. dollar, Australian dollar, euro or sterling as their functional currencies. Our operations also have revenue and expenses denominated in non-functional currencies. Movements in foreign currency exchange rates will affect our financial statements.
Investment Currency Risks
We consider our investments in foreign operations to be denominated in stable currencies. Our investments in foreign operations are of a long-term nature. At May 31, 2019, we had $7.0 billion and $835 million of euro- and sterling-denominated debt, respectively, including the effect of cross currency swaps, which provide an economic offset for our operations with euro and sterling functional currency. We also partially mitigate our net investment currency exposures by denominating a portion of our foreign currency intercompany payables in our foreign operations’ functional currencies. 
Newbuild Currency Risks

Our shipbuilding contracts are typically denominated in euros. Our decision to hedge a non-functional currency ship commitment for our cruise brands is made on a case-by-case basis, considering the amount and duration of the exposure, market volatility, economic trends, our overall expected net cash flows by currency and other offsetting risks. We use foreign currency derivative contracts to manage foreign currency exchange rate risk for some of our ship construction payments. At May 31,

15


2019, for the following newbuilds, we had foreign currency zero cost collars for a portion of our euro-denominated shipyard payments. These collars are designated as cash flow hedges.
 
Entered Into
 
Matures in
 
Weighted-Average Floor Rate
 
Weighted- Average Ceiling Rate
Carnival Panorama
2019
 
October 2019
 
$
1.05

 
$
1.28

Enchanted Princess
2019
 
June 2020
 
$
1.04

 
$
1.28

Mardi Gras
2019
 
August 2020
 
$
1.04

 
$
1.28

If the spot rate is between the ceiling and floor rates on the date of maturity, then we would not owe or receive any payments under these collars.
At May 31, 2019, our remaining newbuild currency exchange rate risk primarily relates to euro-denominated newbuild contract payments to non-euro functional currency brands, which represent a total unhedged commitment of $7.5 billion for newbuilds scheduled to be delivered from 2020 through 2025.
The cost of shipbuilding orders that we may place in the future that is denominated in a different currency than our cruise brands’ will be affected by foreign currency exchange rate fluctuations. These foreign currency exchange rate fluctuations may affect our decision to order new cruise ships.
Interest Rate Risks
We manage our exposure to fluctuations in interest rates through our debt portfolio management and investment strategies. We evaluate our debt portfolio to determine whether to make periodic adjustments to the mix of fixed and floating rate debt through the use of interest rate swaps, issuance of new debt, amendment of existing debt or early retirement of existing debt.

Concentrations of Credit Risk

As part of our ongoing control procedures, we monitor concentrations of credit risk associated with financial and other institutions with which we conduct significant business. We seek to minimize these credit risk exposures, including counterparty nonperformance primarily associated with our cash equivalents, investments, committed financing facilities, contingent obligations, derivative instruments, insurance contracts and new ship progress payment guarantees, by:

Conducting business with large, well-established financial institutions, insurance companies and export credit agencies
Diversifying our counterparties 
Having guidelines regarding credit ratings and investment maturities that we follow to help safeguard liquidity and minimize risk
Generally requiring collateral and/or guarantees to support notes receivable on significant asset sales, long-term ship charters and new ship progress payments to shipyards 

We believe the risk of nonperformance by any of our significant counterparties is remote. At May 31, 2019, our exposures under foreign currency contracts, cross currency swaps and interest rate swap agreements were not material. We also monitor the creditworthiness of travel agencies and tour operators in Asia, Australia and Europe, which includes charter-hire agreements in Asia and credit and debit card providers to which we extend credit in the normal course of our business. Our credit exposure also includes contingent obligations related to cash payments received directly by travel agents and tour operators for cash collected by them on cruise sales in Australia and most of Europe where we are obligated to honor our guests’ cruise payments made by them to their travel agents and tour operators regardless of whether we have received these payments. Concentrations of credit risk associated with these trade receivables, charter-hire agreements and contingent obligations are not considered to be material, principally due to the large number of unrelated accounts, the nature of these contingent obligations and their short maturities. We have not experienced significant credit losses on our trade receivables, charter-hire agreements and contingent obligations. We do not normally require collateral or other security to support normal credit sales.

NOTE 6 – Segment Information
Our operating segments are reported on the same basis as the internally reported information that is provided to our chief operating decision maker (“CODM”), who is the President and Chief Executive Officer of Carnival Corporation and Carnival plc. The CODM assesses performance and makes decisions to allocate resources for Carnival Corporation & plc based upon

16


review of the results across all of our segments. Our four reportable segments are comprised of (1) NAA cruise operations, (2) EA cruise operations, (3) Cruise Support and (4) Tour and Other.

The operating segments within each of our NAA and EA reportable segments have been aggregated based on the similarity of their economic and other characteristics, including geographic guest sourcing. Our Cruise Support segment includes our portfolio of leading port destinations and other services, all of which are operated for the benefit of our cruise brands. Our Tour and Other segment represents the hotel and transportation operations of Holland America Princess Alaska Tours and other operations.
 
Three Months Ended May 31,
(in millions)
Revenues
 
Operating costs and
expenses
 
Selling
and
administrative
 
Depreciation
and
amortization
 
Operating
income (loss)
2019
 
 
 
 
 
 
 
 
 
NAA
$
3,162

 
$
2,033

 
$
342

 
$
339

 
$
447

EA
1,561

 
1,033

 
185

 
166

 
177

Cruise Support
44

 
32

 
87

 
27

 
(102
)
Tour and Other
71

 
61

 
7

 
9

 
(7
)
 
$
4,838

 
$
3,159

 
$
621

 
$
542

 
$
515

2018
 
 
 
 
 
 
 
 
 
NAA
$
2,836

 
$
1,747

 
$
338

 
$
317

 
$
433

EA
1,449

 
888

 
191

 
160

 
210

Cruise Support
31

 
11

 
64

 
25

 
(69
)
Tour and Other
42

 
36

 
11

 
10

 
(14
)
 
$
4,357

 
$
2,681

 
$
605

 
$
512

 
$
559

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended May 31,
(in millions)
Revenues
 
Operating costs and
expenses
 
Selling
and
administrative
 
Depreciation
and
amortization
 
Operating
income (loss)
2019
 
 
 
 
 
 
 
 
 
NAA
$
6,239

 
$
4,043

 
$
695

 
$
667

 
$
833

EA
3,087

 
2,108

 
390

 
318

 
270

Cruise Support
86

 
60

 
152

 
55

 
(180
)
Tour and Other
99

 
90

 
13

 
19

 
(22
)
 
$
9,511

 
$
6,301

 
$
1,250

 
$
1,059

 
$
902

2018
 
 
 
 
 
 
 
 
 
NAA
$
5,519

 
$
3,405

 
$
705

 
$
617

 
$
793

EA
2,952

 
1,892

 
379

 
316

 
364

Cruise Support
63

 
43

 
119

 
48

 
(147
)
Tour and Other
55

 
50

 
17

 
19

 
(31
)
 
$
8,589

 
$
5,390

 
$
1,221

 
$
1,000

 
$
978


Revenue by geographic areas, which are based on where our guests are sourced, were as follows:

17


(in millions)
Three Months Ended May 31, 2019
 
Six Months Ended May 31, 2019
North America
$
2,639

 
$
5,159

Europe
1,350

 
2,749

Australia and Asia
741

 
1,324

Other
108

 
279

 
$
4,838

 
$
9,511

    

NOTE 7 – Earnings Per Share 
 
Three Months Ended
May 31,
 
Six Months Ended
May 31,
(in millions, except per share data)
2019
 
2018
 
2019
 
2018
Net income for basic and diluted earnings per share
$
451

 
$
561

 
$
787

 
$
951

Weighted-average shares outstanding
691

 
714

 
692

 
715

Dilutive effect of equity plans
2

 
1

 
2

 
2

Diluted weighted-average shares outstanding
693

 
715

 
694

 
717

Basic earnings per share
$
0.65

 
$
0.79

 
$
1.14

 
$
1.33

Diluted earnings per share
$
0.65

 
$
0.78

 
$
1.13

 
$
1.33



NOTE 8 – Supplemental Cash Flow Information
(in millions)
May 31, 2019
 
November 30, 2018
Cash and cash equivalents (Consolidated Balance Sheets)
$
1,202

 
$
982

Restricted cash included in prepaid expenses and other and other assets
14

 
14

Total cash, cash equivalents and restricted cash (Consolidated Statements of Cash Flows)
$
1,215

 
$
996


For the six months ended May 31, 2019 and 2018, we issued notes receivable upon sale of ships of $104 million and $35 million.


NOTE 9 – Property and Equipment

In March 2019, we sold and transferred an NAA segment 1,680-passenger capacity ship.

In April 2019, we sold and transferred an NAA segment 1,260-passenger capacity ship.



18


Item 2. 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, outlooks, plans, goals 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:
    Net revenue yields
    Net cruise costs, excluding fuel per available lower berth day
    Booking levels
    Estimates of ship depreciable lives and residual values
    Pricing and occupancy
    Goodwill, ship and trademark fair values
    Interest, tax and fuel expenses
    Liquidity
    Currency exchange rates
    Adjusted earnings per share
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. 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:
Adverse world events impacting the ability or desire of people to travel may 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 may 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 may 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 and failure to keep pace with developments in technology may adversely impact our business operations, the satisfaction of our guests and crew and 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 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
Overcapacity and competition in the cruise and land-based vacation industry may lead to a decline in our cruise sales and pricing
Geographic regions in which we try to expand our business may be slow to develop or ultimately not develop how we expect
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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New Accounting Pronouncements

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

Critical Accounting Estimates

For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that is included in the Form 10-K.

Seasonality

Our revenues from the sale of passenger tickets are seasonal. Historically, demand for cruises has been greatest during our third quarter, which includes the Northern Hemisphere summer months. This higher demand during the third quarter results in higher ticket prices and occupancy levels and, accordingly, the largest share of our operating income is earned during this period. The seasonality of our results also increases due to ships being taken out-of-service for maintenance, which we schedule during non-peak demand periods. In addition, substantially all of Holland America Princess Alaska Tours’ revenue and net income is generated from May through September in conjunction with the Alaska cruise season.

Third and Fourth Quarter 2019

As previously disclosed, we expect results for the third and fourth quarter to be unfavorably impacted by voyage disruptions related to Carnival Vista, the U.S. government’s policy change on travel to Cuba, and lower net revenue yields in the second half of the year compared to guidance released on March 26, 2019.

Statistical Information
 
Three Months Ended
May 31,
 
Six Months Ended
May 31,
 
2019
 
2018
 
2019
 
2018
Available Lower Berth Days (“ALBDs”) (in thousands) (a) (b)
21,645

 
20,690

 
42,944

 
41,151

Occupancy percentage (c)
105.3
%
 
105.7
%
 
105.0
%
 
105.2
%
Passengers carried (in thousands)
3,101

 
2,971

 
6,038

 
5,831

Fuel consumption in metric tons (in thousands)
835

 
819

 
1,664

 
1,640

Fuel consumption in metric tons per thousand ALBDs
38.6

 
39.6

 
38.8

 
39.9

Fuel cost per metric ton consumed
$
507

 
$
455

 
$
483

 
$
446

Currencies (USD to 1)
 
 
 
 
 
 
 
AUD
$
0.70

 
$
0.77

 
$
0.71

 
$
0.77

CAD
$
0.75

 
$
0.78

 
$
0.75

 
$
0.79

EUR
$
1.12

 
$
1.21

 
$
1.13

 
$
1.21

GBP
$
1.30

 
$
1.38

 
$
1.29

 
$
1.38

RMB
$
0.15

 
$
0.16

 
$
0.15

 
$
0.16


(a)
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.

(b)
For the three months ended May 31, 2019 compared to the three months ended May 31, 2018, we had a 4.6% capacity increase in ALBDs comprised of a 0.5% capacity increase in our NAA segment and a 12% capacity increase in our EA segment.


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Our NAA segment’s capacity increase was caused by:
Partial period impact from one Carnival Cruise Line 3,960-passenger capacity ship that entered into service in April 2018
Partial period impact from one Seabourn 600-passenger capacity ship that entered into service in May 2018
Full period impact from one Holland America Line 2,670-passenger capacity ship that entered into service in December 2018

The increase in our NAA segment’s capacity was partially offset by:
Partial period impact from one P&O Cruises (Australia) 1,680-passenger capacity ship removed from service in March 2019
Partial period impact from one P&O Cruises (Australia) 1,260-passenger capacity ship removed from service in April 2019

Our EA segment’s capacity increase was caused by:
Full period impact from one AIDA 5,230-passenger capacity ship that entered into service in December 2018
Partial period impact from one Costa Cruises 4,200-passenger capacity ship that entered into service in March 2019

The increase in our EA segment’s capacity was partially offset by:
Partial period impact from one P&O Cruises (UK) 700-passenger capacity ship removed from service in March 2018
Partial period impact from one Costa Cruises 1,300-passenger capacity ship removed from service in April 2018

For the six months ended May 31, 2019 compared to the six months ended May 31, 2018, we had a 4.4% capacity increase in ALBDs comprised of a 2.8% capacity increase in our NAA segment and a 7.1% capacity increase in our EA segment.

Our NAA segment’s capacity increase was caused by:
Partial period impact from one Carnival Cruise Line 3,960-passenger capacity ship that entered into service in April 2018
Partial period impact from one Seabourn 600-passenger capacity ship that entered into service in May 2018
Partial period impact from one Holland America Line 2,670-passenger capacity ship that entered into service in December 2018

The increase in our NAA segment’s capacity was partially offset by:
Partial period impact from one P&O Cruises (Australia) 1,680-passenger capacity ship removed from service in March 2019
Partial period impact from one P&O Cruises (Australia) 1,260-passenger capacity ship removed from service in April 2019

Our EA segment’s capacity increase was caused by:
Partial period impact from one AIDA 5,230-passenger capacity ship that entered into service in December 2018
Partial period impact from one Costa Cruises 4,200-passenger capacity ship that entered into service in March 2019

The increase in our EA segment’s capacity was partially offset by:
Partial period impact from one P&O Cruises (UK) 700-passenger capacity ship removed from service in March 2018
Partial period impact from one Costa Cruises 1,300-passenger capacity ship removed from service in April 2018

(c)
In accordance with cruise industry practice, occupancy is calculated using 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.

Three Months Ended May 31, 2019 (“2019”) Compared to Three Months Ended May 31, 2018 (“2018”)

Revenues

Consolidated

Cruise passenger ticket revenues made up 67% of our 2019 total revenues. Cruise passenger ticket revenues increased by $64 million, or 2.0%, to $3.3 billion in 2019 from $3.2 billion in 2018.

This increase was caused by:

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$147 million - 4.6% capacity increase in ALBDs
$30 million - increase in air transportation revenues

These increases were partially offset by:
$95 million - net unfavorable foreign currency translational impact
$14 million - decrease in occupancy

Onboard and other cruise revenues made up 31% of our 2019 total revenues. Onboard and other cruise revenues increased by $388 million, or 35%, to $1.5 billion in 2019 from $1.1 billion in 2018.

This increase was caused by:
$343 million - related to the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue accounting guidance
$52 million - 4.6% capacity increase in ALBDs
$26 million - higher onboard spending by our guests

These increases were partially offset by net unfavorable foreign currency translational impact of $29 million.

Tour and other revenues made up 1.5% of our 2019 total revenues. Tour and other revenues increased by $28 million, or 67%, to $71 million in 2019 from $42 million in 2018.

Concession revenues, which are included in onboard and other revenues, increased by $1 million, or 0.5%, to $272 million in 2019 from $270 million in 2018.

NAA Segment

Cruise passenger ticket revenues made up 65% of our NAA segment’s 2019 total revenues. Cruise passenger ticket revenues increased by $46 million, or 2.3%, to $2.1 billion in 2019 compared to $2.0 billion in 2018

This increase was driven by:
$26 million - increase in cruise ticket revenues, driven primarily by price improvements in the Caribbean program, partially offset by net unfavorable foreign currency transactional impact
$10 million - 0.5% capacity increase in ALBDs

The remaining 35% of our NAA segment’s 2019 total revenues were comprised of onboard and other cruise revenues, which increased by $280 million, or 34%, to $1.1 billion in 2019 from $0.8 billion in 2018. This increase was driven by the gross presentation of shore excursions and other onboard revenues as a result of the adoption of new revenue guidance of $272 million.

Concession revenues, which are included in onboard and other revenues, remained at $193 million in both 2019 and 2018.

EA Segment

Cruise passenger ticket revenues made up 78% of our EA segment’s 2019 total revenues. Cruise passenger ticket revenues increased by $29 million, or 2.5%, to $1.2 billion in 2019 compared to $1.2 billion in 2018.

This increase was caused by:
$140 million - 12% capacity increase in ALBDs
$17 million - increase in air transportation revenue