01—Abstract
Summary
Summary of the 10-Q filed July 10, 2020. Cited figures are marked; the original filing is the authoritative source.
Carnival Corporation & plc reported significant financial distress for the three and six months ended May 31, 2020, primarily due to the global COVID-19 pandemic which led to a complete pause in guest operations starting in mid-March 2020.
Revenues plummeted by 85% and 42% respectively for the quarter and six-month period compared to the prior year, resulting in substantial net losses of $4.37 billiona and $5.16 billion. The company recognized significant impairment charges related to goodwill ($1.4 billion and $2.1 billion) and ships ($498 million and $828 million) due to the pandemic's impact on future cash flows. Despite the dire financial situation, Carnival Corp. has taken aggressive steps to bolster liquidity, including drawing down its revolving credit facility, issuing new debt ($4.0 billion in secured notes and $2.0 billion in convertible notes), and securing additional financing.
The company had $7.6 billionb in available liquidity as of May 31, 2020, and estimates a monthly cash burn rate of approximately $650 million for the remainder of 2020. Management believes it will have sufficient liquidity for at least the next twelve months, supported by these actions and ongoing cost-reduction efforts, including fleet optimization and workforce adjustments.
02—Key points
Key Highlights
- Net loss of $4.37 billion for Q2 FY2020 and $5.16 billion for the first six months of FY2020, a stark contrast to profits in the prior year.
- Revenues significantly declined, down 85% for the quarter and 42% for the six-month period due to the cessation of cruise operations.
- Substantial goodwill impairment charges of $1.4 billion (Q2) and $2.1 billion (YTD) and ship impairment charges of $498 million (Q2) and $828 million (YTD) were recognized.
- Aggressive capital raising activities: secured $4.0 billion in notes and $2.0 billion in convertible notes in April 2020, and a $2.8 billion term loan in June 2020.
- Available liquidity stood at $7.6 billion as of May 31, 2020, with management asserting sufficiency for at least the next twelve months.
- Ongoing cost reduction measures include a pause in operations, fleet optimization (selling 9 ships), workforce adjustments, and reduced capital expenditures.
- Customer deposits decreased significantly to $2.6 billion from $4.7 billion, reflecting refunds and future cruise credits amid cancellations.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2020filed July 10, 2020Financial Statements
Q2 FY2020 against Q2 FY2019
| Line item | Q2 FY2020Q2 FY2019 | Change |
|---|---|---|
| Revenue | $740.00M$4.84B | −84.7% |
| Cost of Revenue | $2.48B$3.16B | −21.4% |
| Gross Profit | -$1.74B$1.68B | −203.9% |
| SG&A Expenses | $492.00M$621.00M | −20.8% |
| Operating Expenses | $4.92B$4.32B | +13.8% |
| Operating Income | -$4.18B$515.00M | −911.1% |
| Interest Expense | $182.00M$54.00M | +237.0% |
| Net Income | -$4.37B$451.00M | −1069.8% |
| EPS (Basic) | $-6.07$0.65 | −1033.8% |
| EPS (Diluted) | $-6.07$0.65 | −1033.8% |
| Shares Outstanding (Basic) | 721.00M691.00M | +4.3% |
| Shares Outstanding (Diluted) | 721.00M693.00M | +4.0% |
05—Questions
Frequently Asked Questions
What is the primary reason for Carnival Corporation's substantial net loss in this reporting period?
The primary reason for the substantial net loss is the global COVID-19 pandemic, which forced Carnival Corporation to pause all guest cruise operations starting in mid-March 2020. This led to a dramatic decrease in revenues and necessitated significant impairment charges.
How is Carnival Corporation managing its liquidity given the operational pause?
Carnival Corporation has implemented several measures to manage liquidity. These include drawing down its revolving credit facility, issuing substantial amounts of new debt ($4.0 billion in secured notes and $2.0 billion in convertible notes), securing a new $2.8 billion term loan, and suspending dividends and share repurchases. The company also benefits from available committed export credit facilities and believes it has sufficient liquidity for at least the next twelve months.
What are the significant impairment charges Carnival Corporation has recognized and why?
Carnival Corporation recognized goodwill impairment charges of $2.1 billion and ship impairment charges of $828 million for the six months ended May 31, 2020. These impairments were driven by the impact of COVID-19 on expected future operating cash flows, which indicated that the carrying values of these assets no longer exceeded their estimated fair values.
What is the company's outlook for resuming operations and financial performance?
The company anticipates resuming guest operations in a phased manner, with enhanced health and safety protocols. However, the exact timing is uncertain. Management expects a net loss for the second half of 2020 and acknowledges that the full impact of COVID-19 on its business, financial condition, and operational results remains highly uncertain and depends on future developments.
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