UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended November 30, 2006 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: 1-9610 Commission file number: 1-15136
Carnival Corporation Carnival plc
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(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
Republic of Panama England and Wales
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(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
59-1562976 98-0357772
----------------- ------------------
(I.R.S. Employer (I.R.S. Employer
Identification No.) Identification No.)
3655 N.W. 87th Avenue Carnival House, 5 Gainsford Street,
Miami, Florida 33178-2428 London SE1 2NE, United Kingdom
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(Address of principal (Address of principal
executive offices) executive offices)
(Zip code) (Zip code)
(305) 599-2600 011 44 20 7940 5381
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(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
Securities registered pursuant Securities registered pursuant
to Section 12(b) of the Act: to Section 12(b) of the Act:
Title of each class Title of each class
------------------- -------------------
Common Stock Ordinary Shares each represented
($.01 par value) 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
Name of each exchange on which Name of each exchange on which
registered registered
------------------------------ ------------------------------
New York Stock Exchange, Inc. New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrants are well-known seasoned issuers,
as defined in Rule 405 of the Securities Act. Yes [x] No [ ]
Indicate by check mark if the registrants are not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [x]
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 [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
Indicate by check mark whether the registrants are large accelerated
filers, accelerated filers, or non-accelerated filers. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Act). Large
Accelerated Filers [x] Accelerated Filers [ ] Non-Accelerated Filers [ ]
Indicate by check mark whether the registrants are shell companies (as
defined in Rule 12b-2 of the Act). Yes [ ] No [x]
The aggregate market value of the The aggregate market value of the
voting and non-voting common equity voting and non-voting common equity
held by non-affiliates computed by held by non-affiliates computed by
reference to the price at which the reference to the price at which the
common equity was last sold was $15.98 common equity was last sold was $6.94
billion as of the last business day of billion as of the last business day of
the registrant's most recently the registrant's most recently
completed second fiscal quarter. completed second fiscal quarter.
At February 5, 2007, Carnival At February 5, 2007, Carnival plc had
Corporation had outstanding 623,106,732 outstanding 213,115,941 Ordinary
shares of its Common Stock, $.01 par Shares $1.66 par value, one Special
value. Voting Share, GBP 1.00 par value and
623,106,732 Trust Shares of beneficial
interest in the P&O Princess Special
Voting Trust.
DOCUMENTS INCORPORATED BY REFERENCE
The information described below and contained in the Registrants' 2006
annual report to shareholders to be furnished to the Commission pursuant to Rule
14a-3(b) of the Exchange Act is shown in Exhibit 13 and is incorporated by
reference into this joint Annual Report on Form 10-K.
Part and Item of the Form 10-K
Part II
Item 5(a) and (c). Market for Registrants' Common Equity, Related Stockholder
Matters, Securities Authorized for Issuance under Equity
Compensation Plans and Issuer Purchases of Equity
Securities - Market Information and Holders.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Portions of the Registrants' 2007 definitive proxy statement, to be filed
with the Commission, are incorporated by reference into this joint Annual Report
on Form 10-K under the items described below.
Part and Item of the Form 10-K
Part III
Item 10. Directors and Executive Officers of the Registrants.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions.
Item 14. Principal Accounting Fees and Services.
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PART I
Item 1. Business.
A. General
Carnival Corporation is incorporated in Panama, and Carnival plc is
incorporated in England and Wales. Carnival Corporation and Carnival plc operate
as a dual listed company ("DLC"), whereby the businesses of Carnival Corporation
and Carnival plc are combined through a number of contracts and through
provisions in Carnival Corporation's articles of incorporation and by-laws and
Carnival plc's memorandum of association and articles of association. Carnival
Corporation and Carnival plc are both public companies, with separate stock
exchange listings and their own shareholders. Although the two companies have
retained their separate legal identities; they operate as if they were a single
economic enterprise with a single executive management team, and have identical
Boards of Directors. See Note 3, "DLC Structure" to our Consolidated Financial
Statements in Exhibit 13 to this joint Annual Report on Form 10-K. Together with
their consolidated subsidiaries Carnival Corporation and Carnival plc are
referred to collectively in this joint Annual Report on Form 10-K as "Carnival
Corporation & plc," "our," "us," and "we."
We are the largest cruise company and one of the largest vacation
companies in the world. We have a portfolio of widely recognized cruise brands
and are a leading provider of cruises to all major vacation destinations. See
Part I, Item 1. Business B. - "Cruise Operations" for further information.
As of February 12, 2007, a summary of the number of cruise ships we
operate, by brand, their passenger capacity and the primary areas in which they
are marketed, is as follows:
Cruise Number Passenger Primary
Brands of Cruise Ships Capacity(a) Market
------ --------------- ----------- -------
Carnival Cruise Lines 21 47,818 North America
Princess Cruises ("Princess") 15 32,232 North America
Costa Cruises ("Costa") 11 20,218 Europe
Holland America Line 13 18,848 North America
P&O Cruises 5 8,840 United Kingdom
AIDA Cruises ("AIDA") 4 5,378 Germany
Cunard Line ("Cunard") 2 4,380 North America and United Kingdom
P&O Cruises Australia 2 2,474 Australia and New Zealand
Ocean Village 1 1,578 United Kingdom
Swan Hellenic 1 678 United Kingdom
Seabourn Cruise Line
("Seabourn") 3 624 North America
Windstar Cruises ("Windstar") 3 608 North America
-- -------
81 143,676
== =======
(a) In accordance with cruise industry practice, passenger capacity is
calculated based on two passengers per cabin even though some cabins can
accommodate three or more passengers.
As of February 12, 2007, we had signed agreements with three shipyards
providing for the construction of 20 additional cruise ships scheduled to enter
service between March 2007 and June 2011. These additions are expected to result
in an increase in our passenger capacity of 49,308 lower berths, or 34.3%,
compared to February 12, 2007. It is possible that some of our older ships may
be sold or retired during the next few years, thus reducing the size of our
fleet over this period. Alternatively, it is also possible that we could order
more ships, which could enter service in 2010 and 2011, or acquire more ships,
thus increasing the size of our fleet over this period. See Note 6,
"Commitments" to our Consolidated Financial Statements in Exhibit 13 to this
joint Annual Report on Form 10-K for additional information regarding our ship
commitments.
In addition to our cruise operations, we own Holland America Tours and
Princess Tours, the leading cruise/tour operators in the State of Alaska and the
Canadian Yukon, which primarily complement their respective cruise operations
and own substantially all the assets noted below. These tour companies currently
market and operate:
- - 16 hotels or lodges in Alaska and the Canadian Yukon, with over 3,500 guest
rooms;
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- - over 560 motorcoaches used for sightseeing and charters in Washington State,
Alaska, British Columbia, Canada and the Canadian Yukon;
- - 29 domed rail cars, which are run on the Alaska Railroad between Anchorage
and Fairbanks, Whittier and Denali, and Whittier and Talkeetna;
- - two luxury dayboats offering tours to a glacier in Alaska and on the Yukon
River; and
- - sightseeing packages, or individual components of such packages, sold either
separately or as part of our cruise/tour packages to our Alaskan cruise
passengers and to other vacationers.
B. Cruise Operations
I. Industry Background
The multi-night cruise industry has grown significantly in recent years,
but still remains a relatively small part of the wider global vacation market in
which cruise companies compete for the discretionary income spent by
vacationers. We estimate that the global cruise industry carried approximately
15.7 million passengers in 2006. The principal regions cruise passengers are
sourced from are North America, which has increased by an estimated compound
annual growth rate of 7.8% between 2000 and 2005, and Western Europe where
cruise passengers have increased by a compound annual growth rate of
approximately 10.0% between 2000 and 2005. In Europe cruising represents a
smaller proportion of the overall vacation market than it does in North America
and, accordingly, we believe the European market has considerable growth
potential. Other areas such as Asia, the South Pacific, including Australia and
New Zealand, and South America are a source of much lower numbers of cruise
passengers and we also believe have significant growth potential. See Note 11,
"Segment Information" to our Consolidated Financial Statements in Exhibit 13 to
this joint Annual Report on Form 10-K for information regarding our cruise
revenues.
Cruising offers a broad range of products to suit vacationing customers of
many ages, backgrounds and interests. Cruise brands can be broadly characterized
as offering contemporary, premium and luxury cruise experiences. The
contemporary experience typically includes cruises that last seven days or less,
have a more casual ambiance and are less expensive than premium or luxury
cruises. The premium experience typically includes cruises that last from seven
to 14 days. Premium cruises emphasize quality, comfort, style and more
destination-focused itineraries and the average pricing on these cruises is
typically higher than contemporary cruises. The luxury experience is typically
characterized by smaller vessel size, very high standards of accommodation and
service, and higher prices than premium cruises. Notwithstanding these
classifications, there generally is significant overlap and competition among
all cruise products.
We are a provider of cruise vacations in most of the largest vacation
markets in the world, including North America, the UK, Germany, Southern Europe,
South America and Asia/Pacific, with significant product offerings in each of
the three classifications noted above. Our mission is "to deliver exceptional
vacation experiences through the world's best-known cruise brands that cater to
a variety of different lifestyles and budgets, all at an outstanding value
unrivalled on land or at sea." A brief description of the principal vacation
areas where we source substantially all of our passengers and our brands that
market primarily to these vacationers is as follows:
II. North America
Most cruise passengers in the world are sourced from North America, where
cruising has developed into a mainstream alternative to land-based resort and
sightseeing vacations. Approximately 10.0 million North American-sourced cruise
passengers took cruise vacations for two consecutive nights or more in 2005, and
we estimate this amount increased to about 10.8 million passengers in 2006. This
sector has continued to grow in recent years as new capacity has been
introduced.
The principal itineraries visited by North American-sourced cruise
passengers in 2006 were the Caribbean, the Bahamas, Mexico and Alaska. In
addition, North American cruise passengers visited Europe, the Mediterranean,
New England and Canada, Bermuda, Hawaii, the Panama Canal and other exotic
locations, including South and Central America, Africa, the South Pacific, the
Far East and India.
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At the end of 2006, 127 ships with an aggregate passenger capacity of
approximately 202,000 lower berths were based primarily in North America. Based
on the number of ships that are currently on order worldwide and scheduled for
delivery between 2007 and 2010, we expect that the net capacity serving North
America will continue to increase. Our projections indicate that by the end of
2007, 2008, 2009 and 2010, North America will be served by 129, 135, 140 and 142
ships, respectively, having an aggregate passenger capacity of approximately
210,000, 225,000, 240,000 and 246,000 lower berths, respectively. These figures
include some ships that were, or are expected to be, marketed in both North
America and elsewhere during different times of the year. Our estimates of
capacity do not include assumptions related to unannounced ship withdrawals due
to factors such as the age of ships or changes in the location from where ships'
passengers are predominantly sourced and, accordingly, could indicate a higher
percentage growth in North American capacity than will actually occur.
Alternatively, our growth estimates for 2010 may increase because of future
shipbuilding orders, which have not yet been announced. Net capacity serving
North American-sourced cruise passengers has increased at a compound annual
growth rate of 5.3% for the past three years. The future growth rate is
currently expected to be 5.8% for the next three years before reductions for
withdrawals or transfers to other parts of the world.
Carnival Cruise Lines, Princess, Holland America Line, Seabourn and
Windstar source their passengers primarily from North America. Cunard sources
most of its passengers from Europe and North America.
Carnival Cruise Lines operates 21 contemporary ships, with one additional
ship expected to begin service in each of fiscal 2007, 2008, 2009 and 2011.
Carnival Cruise Lines is the largest cruise line in the world, offers quality
cruise vacations at affordable prices and is well-known as the "Fun Ships,"
which we believe captures the essence of the brand. Carnival is continually
introducing ways to keep its cruise experience fresh and exciting, including
expanded dining choices, Carnival Comfort Bed sleep systems, spectacular
production shows, innovative childrens' programming, revitalizing spa services
and action-packed casinos.
All of Carnival Cruise Lines' ships were designed by and built for it,
including seven that are among the world's largest. During all or a portion of
the year, three of the Carnival Cruise Lines ships call on ports on the Mexican
Riviera, and substantially all of the rest of the fleet operate for most of the
year to destinations in the Bahamas or the Caribbean. In addition, Carnival
Cruise Lines ships also offer seasonal cruises to Alaska, Canada/New England,
Europe, the Hawaiian Islands, the Panama Canal and Bermuda. Most cruises range
from three to seven days.
Princess, whose brand name was made famous by the "Love Boat" television
show, recently celebrated its 40th anniversary, and is the world's third largest
cruise line with a fleet of 15 modern ships. Princess offers over 90 unique
itineraries to more than 270 destinations and is a leading cruise line in exotic
regions all over the world (Europe, Alaska, Asia, Australia, the South Pacific
and South America). As part of some of Princess' Caribbean cruise offerings,
Princess leases and operates a private island destination, known as Princess
Cays, which is located on the island of Eleuthra in the Bahamas. Substantially
all of Princess' ships reflect an innovative design philosophy called "Big Ship
Choice, Small Ship Feel," emphasizing a broad variety of amenities combined with
the more intimate ambience found on smaller vessels. All Princess ships feature
the Personal Choice Dining program, offering guests flexibility, convenience and
quality in an array of traditional, anytime, specialty and casual dining
options. A quality service program entitled C.R.U.I.S.E. (Courtesy, Respect,
Unfailing In Service Excellence) helps ensure extremely high standards of
service throughout the fleet.
Princess is widely recognized among travel agents as an innovative,
premium cruise line. The introduction of the Caribbean Princess and Crown
Princess are the latest in the evolving Grand Class series of vessels, with
their "Movies Under the Stars" outdoor theaters, showing first-run Hollywood
hits on a 300 square foot outdoor poolside LED screen. Further Grand Class Ships
that will be introduced include the Emerald Princess in 2007 and an additional
ship in 2008. More than 57% of each of these Grand Class ship's staterooms will
have balconies; another hallmark of Princess' ships. Princess attracts consumers
with a compelling, highly integrated brand marketing campaign, utilizing the
slogan "Escape Completely" which appears in magazines, newspapers, direct mail,
online, DVD and point-of-sale materials.
Holland America Line operates a premium fleet of 13 ships, with an
additional ship expected to begin service in 2008. Holland America Line will
offer nearly 500 sailings to all major cruising areas on all seven continents.
Major homeports include New York, Boston,
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Ft. Lauderdale, Tampa, San Diego, Seattle, Vancouver, Copenhagen, Amsterdam,
Rotterdam, Rome, Rio de Janeiro, Valparaiso, Auckland, Sydney and Hong Kong.
Holland America's ships, which tend to be smaller and more intimate, were
designed with airy viewing lounges, wraparound teak decks and private, roomy
verandahs that offer guests the chance to experience wildlife and scenery.
Cruise lengths vary from two to 114 days with most being seven days or longer.
The majority of Holland America Line's sailings in the Caribbean visit a private
island destination known as Half Moon Cay, which is owned by Holland America
Line.
In 2006, Holland America Line completed its fleet-wide product and service
enhancement program. These comprehensive enhancements, known as the "Signature
of Excellence," focus on five areas vital to Holland America Line's guest
experience as follows: (1) spacious, elegant ships and accommodations, (2)
sophisticated dining, (3) gracious, unobtrusive service, (4) extensive
enrichment programs and activities and (5) compelling worldwide itineraries.
Windstar operates three motor-sail yachts known for their casually elegant
atmosphere. In 2007, Windstar will offer sailings in the Caribbean, Europe, the
Americas and the Greek Isles. Renowned for offering a luxury cruise experience
that is "180 Degrees from Ordinary," a high-percentage of return guests attests
to the appeal of Windstar's casual ambiance of resort-style attire, exquisite
cuisine and an extensive wine selection, open restaurant-style seating,
attentive service, exotic destinations and complimentary water sports. A major
fleet wide enhancement program, known as the "Degrees of Difference," began in
fall 2006 and is expected to be completed in 2007.
The three Seabourn ships (the "Yachts of Seabourn") deliver personalized
service and superb cuisine aboard each of their 208 passenger capacity all-suite
ships. The Yachts of Seabourn offer an ultra-luxury experience and are
considered the ultimate in cruise travel. These ships offer destinations
throughout the world, including Europe, Asia, the South Pacific and the
Americas, with cruises generally in the seven to 14 day range. The Yachts of
Seabourn itineraries include many smaller, off-the-beaten-track ports that are
inaccessible to larger ships. Seabourn recently ordered two new 450 passenger
capacity ships, which are expected to begin service in 2009 and 2010.
III. Europe
We believe that Europe is the largest single leisure travel vacation
market, but cruising in Europe has achieved a much lower penetration rate than
in North America and is a relatively small percentage of the European vacation
market. Approximately 3.2 million European-sourced passengers took cruise
vacations in 2005 compared to approximately 10.0 million North American-sourced
passengers. Additionally, we estimate that about 3.5 million European-sourced
passengers took a cruise in 2006. The number of European cruise passengers
increased by a compound annual growth rate of approximately 10.0% between 2000
and 2005. We believe that the European market represents a significant growth
opportunity for us, and we plan to introduce a number of new or existing ships
into Europe over the next several years. Approximately 55%, or 26,886 berths, of
our ships under construction have been designated for our European brands.
At the end of 2006, 104 ships with an aggregate passenger capacity of
approximately 104,000 lower berths were based primarily in Europe. Our
projections indicate that by the end of 2007, 2008, 2009 and 2010, Europe will
be served by 108, 113, 117 and 120 ships, respectively, having an aggregate
passenger capacity of approximately 114,000, 126,000, 136,000 and 144,000 lower
berths, respectively. These figures include some ships that were, or are
expected to be, marketed in both Europe and elsewhere during different times of
the year. Net capacity serving European-sourced cruise passengers has increased
at a compound annual growth rate of 6.5% for the past three years. The future
growth rate is currently expected to be 9.5% for the next three years. Our
estimates of European capacity are based on similar assumptions as discussed
previously for our North American estimates.
A. United Kingdom
The UK is the single largest country from which cruise passengers are
sourced in Europe. Approximately 1.1 million UK passengers took cruises in 2005.
Cruising was relatively underdeveloped as a vacation option for the UK consumers
until the mid-1990s, but since then cruising in the UK has grown significantly.
The number of UK cruise passengers increased by a compound annual growth rate of
approximately 7.0% between 2000 and 2005. The main destination for UK cruise
passengers is the Mediterranean. Other popular destinations for UK cruise
passengers include the Caribbean, the Atlantic Islands, including the Canary
Islands and the Azores, and Scandinavia.
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P&O Cruises, Ocean Village and Swan Hellenic source substantially all of
their passengers from the UK. In addition, our North American brands and Costa
also source passengers from the UK. For example, Princess Cruises' Sea Princess
which is homeported in Southampton during the summer months and Fort Lauderdale
during the winter season has been primarily marketed to UK vacationers since
2005. Cunard sources customers from the UK, North America, Germany, Australia
and the rest of the world.
P&O Cruises is the largest cruise operator and best known cruise brand in
the UK, with five premium ships, and one additional ship expected to begin
service in each of fiscal 2008 and 2010. These ships cruise to over 200
destinations in more than 90 countries, with most cruises ranging from seven to
14 days, but with some cruises lasting longer, including three world cruises in
each of 2007 and 2008. These ships, which are relatively new compared to the
ships that are more typically marketed in the UK, have enabled P&O Cruises to
offer a more modern style of cruising to UK cruise passengers and increase their
appeal to younger passengers and families, while retaining older and more
traditional British customers. The Artemis and Arcadia are child-free ships,
which generally appeal to an older guest demographic, while the rest of the
fleet is well-equipped for children's activities. The ships have a wide choice
of dining and entertainment options and offer a welcoming atmosphere, with an
emphasis on the attributes of "Britishness," "professionalism," and "style."
Both Arcadia and Oceana offer a more contemporary and innovative
experience with an informal atmosphere and range of alternative dining venues,
from restaurants and buffets to grills and bistros and the elegant superliners
Aurora and Oriana offer a stylish and classic cruise experience with their broad
decks, traditional artwork and blend of formal and informal onboard experiences.
The Artemis, the smallest ship in the P&O Cruises fleet, offers a more
traditional and intimate experience, her size enabling her to visit ports not
charted by larger vessels as well as fostering a real sense of camaraderie, of
particular appeal to those who enjoy a more formal onboard experience, including
P&O Cruises traditions such as afternoon tea and her program of Music Festivals
at Sea. Each of these different ambiences appeal to a different type of British
passenger. P&O Cruises offers cruises from Southampton, England to the
Mediterranean, the Atlantic Islands, the Baltic, Scandinavia and the Norwegian
Fjords during the summer, and primarily operates Caribbean cruises and a choice
of three world voyages during the winter.
Under the Cunard brand, which is one of the most widely recognized brands
in the UK, we operate two premium/luxury ships. Cunard's flagship, the Queen
Mary 2, is the largest ocean liner in the world and operates the northern
transatlantic crossing route as well as other itineraries around the world. The
Queen Elizabeth 2, Cunard's former flagship, primarily serves UK-based
passengers from Southampton, England and has offered a world cruise since 1975.
Cunard expects its next ship, the Queen Victoria, to begin service in December
2007. Cunard's ships offer voyages to worldwide destinations, with many of the
voyages ranging generally between six and 31 days, but with some three day
voyages to give passengers a chance to get a taste of the Cunard experience and
the 122-day world cruise, which gives passengers a chance to indulge themselves
during a longer vacation.
The Ocean Village brand was launched in spring 2003, and consists of one
contemporary ship serving the UK. This brand targets a young and active customer
base and its cruise product emphasizes informality, health and well-being. The
brand attracts a high proportion of passengers new to cruising. The Ocean
Village ship offers one or two week cruises, together with cruise and stay
holidays, and operates out of Heraklion, Crete in the Mediterranean during the
summer season and from Barbados in the Caribbean during the winter season.
In spring 2007, the 1,666 passenger capacity AIDAblu, which is currently
operated by AIDA, will transfer to Ocean Village as the Ocean Village Two. The
Ocean Village Two will have Palma, Majorca as a homeport during the summer
season and will have Barbados as a homeport during the winter season, replacing
the Ocean Village which will move its winter homeport to Jamaica.
Swan Hellenic's 678 passenger capacity Minerva II operates a program of
premium discovery cruises, principally for UK sourced passengers, however, in
April 2007 Swan Hellenic will sail its last cruise and the Minerva II will be
transferred to Princess and renamed the Royal Princess.
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B. Southern Europe
The main countries in southern Europe for sourcing cruise passengers are
Italy, France and Spain. Together, these countries generated approximately 1.1
million cruise passengers in 2005. Cruising by passengers from Italy, France and
Spain had a compound annual growth rate in the number of passengers carried of
approximately 12.8% between 2000 and 2005. We believe that Southern Europe is
also relatively underdeveloped for the cruise industry. We intend to increase
our penetration in southern Europe through Costa, one of the most recognized
cruise brands marketed in Europe.
Costa operates 11 contemporary ships, with an additional ship expected to
begin service in fiscal 2007, two ships in fiscal 2009 and one ship in 2010.
Costa's ships operate in Europe from spring to fall. From fall to spring Costa
repositions five of its ships to the Caribbean and South America, while also
maintaining a year-round presence with three of its ships in the Mediterranean
region. Costa is the number one cruise line in continental Europe based on
passengers carried and capacity of its ships, principally serving customers in
Italy, France, Germany and Spain. Headquartered in Italy, Costa offers guests an
international and multi-lingual ambiance with an Italian touch. The Costa ships
call on 114 European and Middle Eastern ports, with 83 different itineraries,
and sail to various other ports in the Caribbean and South America, with most
cruises ranging from seven to 11 days.
In February 2007, we entered into a letter of intent with Orizonia
Corporation, Spain's largest travel company, which operates its own cruise fleet
under its Iberojet division, to form a joint venture to operate and expand the
existing Iberojet Cruceros brand in Spain. Iberojet Cruceros currently operates
two cruise ships, the 834-passenger Grand Voyager, built in 2000, and the
1,196-passenger Grand Mistral, constructed in 1999, which represent the newest
ships in the contemporary Spanish cruise segment. Under the proposed agreement,
the two existing vessels would be transferred by Iberojet to the joint venture.
The intention is to grow that fleet over the next several years through the
acquisition of existing tonnage from our current fleet. The Iberojet cruise
business being contributed will be valued at E320 million, with E180 million in
debt, representing a net equity value of E140 million. We will pay Iberojet E105
million for our 75% ownership interest in the joint venture and Iberojet will
own the remaining 25%. We cannot be certain that this transaction will
ultimately be completed on these or any other terms.
C. Germany
Germany is the largest source for cruise passengers in continental Europe,
with approximately 0.6 million cruise passengers in 2005. Germany had a compound
annual growth rate in the number of cruise passengers carried of approximately
11.0% between 2000 and 2005. We believe that Germany is also a relatively
underdeveloped region for the cruise industry. The main destinations visited by
German cruise passengers are the Mediterranean and the Caribbean. Other popular
destinations for German cruise passengers include Scandinavia, the Atlantic
Islands and the Arabian Gulf.
AIDA, which sources substantially all of its passengers from German
speaking countries, is the clear leader in the German cruise segment. AIDA
operates four contemporary ships, with one additional ship expected to begin
service in each of fiscal 2007, 2008, 2009 and 2010. Each of these new ships has
a passenger capacity 22% larger than the largest ship in AIDA's current fleet.
The new vessels are innovative and high quality, introducing for example the
'Theatrium' as a central meeting place; with a market character that provides a
completely new space concept and new entertainment ideas. Partially offsetting
this capacity increase, the AIDAblu will be transferred to the Ocean Village
brand in spring 2007.
AIDA's product is especially tailored for the German-speaking market and
offers an exceptionally relaxed, yet active cruising experience with an emphasis
on lifestyle, informality, friendliness and activity. Spa and fitness areas and
high quality but informal dining options characterize the experience onboard the
vessels.
AIDA's ships primarily offer seven day trips that allow guests to easily
book back-to-back cruise vacations. AIDA allows for an easy selling and booking
experience by offering relatively few cabin categories and two seasons. During
the summer, the AIDA ships sail in the Mediterranean and the North and Baltic
Seas, calling on approximately 50 ports, while itineraries for the winter
include the Caribbean, Central America, the Western Mediterranean, the Atlantic
Islands, the Arabian Gulf and Trans-Suez Canal passages.
In December 2006, we entered into a letter of intent with TUI AG, Europe's
biggest tour operator, to form a joint venture to develop, market and operate
two cruise brands for
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the German-speaking holiday market. Under the proposed agreement, AIDA Cruises
will be contributed by us to the joint venture in which TUI will buy an
interest. In addition, a new TUI Cruises brand will be created that will target
a different segment of the German cruise market from AIDA Cruises. AIDA's
business was valued at 1.9 billion euros ($2.51 billion based on the November
30, 2006 exchange rate) for inclusion in the joint venture, which will be formed
with 600 million euros ($792 million based on the November 30, 2006 exchange
rate) of indebtedness. The letter of intent provides for TUI to initially
purchase 5% of the joint venture in 2007, and it is expected that they will
purchase another 20% in 2010. The purchase price will be paid to us in cash at
the closing of each transaction based on a net equity value of 1.3 billion euros
($1.72 billion based on the November 30, 2006 exchange rate). If the initial 5%
purchase closes in 2007, Carnival would expect to record a pretax gain of
approximately $80 million. Another gain would be recorded at the time of closing
of the subsequent 20% purchase in 2010. Apart from those gains, we believe that
the transaction will be neutral to earnings for the 12-month period following
the transaction closing, which is expected in the first half of 2007, pending
approval of both companies and regulators. We cannot be certain that this
transaction will ultimately be completed on these or any other terms.
IV. Australia, New Zealand and China
Cruising in Australia continues to develop. Approximately 195,000
Australians took cruise vacations in 2005. We serve this region primarily
through P&O Cruises Australia, which is the leading cruise line in Australia and
New Zealand.
P&O Cruises Australia is a cruise brand that caters specifically to
Australians and New Zealanders. Its contemporary ships, the Pacific Sun and the
Pacific Star, offer seven to 14 day cruises from Sydney, Brisbane and Auckland
to Fiji, New Caledonia, Queensland and Vanuatu. In late 2007, the Regal Princess
will be transferred from Princess to P&O Cruises Australia and will sail as the
Pacific Dawn. In addition, Princess homeports the Pacific Princess in Sydney,
Australia for a part of the year where it offers cruises to New Zealand.
In July 2006 Costa began homeporting the Costa Allegra out of Shanghai,
China to cater primarily to the Chinese market. China is a new and untested
market and Costa is the first international cruise line to homeport a ship there
and source its passengers primarily from China. The ship operates five-day
cruises from Shanghai, China to Nagasaki, Japan and Cheju, South Korea in the
summer and it began operating five-day cruises from Hong Kong, China to Hainan
Island, China and Halong Bay, Vietnam for its 2006 winter season. We cannot be
certain that China or other markets will develop as expected.
V. South America
Cruise vacations have been marketed in South America for many years,
although cruising as a vacation alternative remains in an early stage of
development in the region. Cruises from South America typically occur during the
Southern Hemisphere summer months of November through March, and are primarily
seven to nine days in duration. Our presence is primarily represented through
the Costa brand, which will operate two vessels in 2007 in this region, Costa
Fortuna and Costa Romantica, collectively offering 4,046 lower berths.
9
VI. Ship Information
Summary information of our ships as of February 12, 2007 is as follows:
CALENDAR
YEAR PASSENGER
BRAND AND SHIP REGISTRY DELIVERED CAPACITY
-------------- -------- --------- ---------
Carnival Cruise Lines
Carnival Liberty Panama 2005 2,966
Carnival Valor Panama 2004 2,966
Carnival Miracle Panama 2004 2,120
Carnival Glory Panama 2003 2,968
Carnival Conquest Panama 2002 2,966
Carnival Legend Panama 2002 2,120
Carnival Pride Panama 2001 2,120
Carnival Spirit Panama 2001 2,122
Carnival Victory Panama 2000 2,750
Carnival Triumph Bahamas 1999 2,750
Paradise Panama 1998 2,048
Elation Panama 1998 2,050
Carnival Destiny Bahamas 1996 2,634
Inspiration Bahamas 1996 2,050
Imagination Bahamas 1995 2,050
Fascination Bahamas 1994 2,050
Sensation Bahamas 1993 2,050
Ecstasy Panama 1991 2,050
Fantasy Panama 1990 2,054
Celebration Panama 1987 1,484
Holiday Bahamas 1985 1,450
------
Total Carnival Cruise Lines 47,818
------
Princess
Crown Princess Bermuda 2006 3,080
Sapphire Princess Bermuda 2004 2,674
Caribbean Princess Bermuda 2004 3,100
Diamond Princess Bermuda 2004 2,674
Island Princess Bermuda 2003 1,974
Coral Princess Bermuda 2002 1,974
Star Princess Bermuda 2002 2,598
Golden Princess Bermuda 2001 2,598
Tahitian Princess Bermuda 2000 668
Pacific Princess Bermuda 1999 668
Sea Princess Bermuda 1998 2,016
Grand Princess Bermuda 1998 2,592
Dawn Princess Bermuda 1997 1,998
Sun Princess Bermuda 1995 2,022
Regal Princess(a) Bermuda 1991 1,596
------
Total Princess 32,232
------
Costa
Costa Concordia Italy 2006 2,978
Costa Magica Italy 2004 2,702
Costa Fortuna Italy 2003 2,702
Costa Mediterranea Italy 2003 2,114
Costa Atlantica Italy 2000 2,114
Costa Victoria Italy 1996 1,928
Costa Romantica Italy 1993 1,344
Costa Allegra(b) Italy 1992 784
Costa Classica Italy 1991 1,302
Costa Marina Italy 1990 762
Costa Europa Italy 1986 1,488
------
Total Costa 20,218
------
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CALENDAR
YEAR PASSENGER
BRAND AND SHIP REGISTRY DELIVERED CAPACITY
-------------- -------- --------- ---------
Holland America Line(c)
Noordam Netherlands 2006 1,918
Westerdam Netherlands 2004 1,848
Oosterdam Netherlands 2003 1,848
Zuiderdam Netherlands 2002 1,848
Zaandam Netherlands 2000 1,432
Amsterdam Netherlands 2000 1,380
Volendam Netherlands 1999 1,432
Rotterdam Netherlands 1997 1,316
Veendam Netherlands 1996 1,258
Ryndam Netherlands 1994 1,258
Maasdam Netherlands 1993 1,258
Statendam Netherlands 1993 1,258
Prinsendam Netherlands 1988 794
------
Total Holland America Line 18,848
------
P&O Cruises
Arcadia Bermuda 2005 1,948
Oceana Bermuda 2000 2,016
Aurora UK 2000 1,870
Oriana Bermuda 1995 1,818
Artemis Bermuda 1984 1,188
------
Total P&O Cruises 8,840
------
AIDA
AIDAaura Italy 2003 1,266
AIDAvita Italy 2002 1,266
AIDAcara Italy 1996 1,180
AIDAblu(d) Italy 1990 1,666
------
Total AIDA 5,378
------
Cunard
Queen Mary 2 UK 2003 2,592
QE2 UK 1969 1,788
------
Total Cunard 4,380
------
P&O Cruises Australia
Pacific Sun UK 1986 1,480
Pacific Star UK 1982 994
------
Total P&O Cruises Australia 2,474
------
Ocean Village
Ocean Village UK 1989 1,578
Swan Hellenic
Minerva II(e) Marshall Islands 2001 678
Seabourn
Seabourn Legend Bahamas 1992 208
Seabourn Spirit Bahamas 1989 208
Seabourn Pride Bahamas 1988 208
------
Total Seabourn 624
------
Windstar
Wind Surf Netherlands 1990 312
Wind Spirit Bahamas 1988 148
Wind Star Bahamas 1986 148
-------
Total Windstar 608
-------
Total 143,676
=======
(a) The Regal Princess will be transferred to P&O Cruises Australia in October
2007 and renamed the Pacific Dawn.
11
(b) The Costa Allegra has been marketed primarily to Chinese-sourced
passengers since the summer of 2006.
(c) Since November 2004, the 1,214 passenger former Noordam is being operated
by an unrelated entity under a long-term bareboat charter agreement and,
accordingly, is excluded from Holland America Lines' capacity.
(d) The AIDAblu will be transferred to Ocean Village in the spring of 2007 and
renamed the Ocean Village Two.
(e) The Minerva II will be transferred to Princess in April 2007 and renamed
the Royal Princess.
VII. Characteristics of the Cruise Vacation Industry
A. Strong Growth
Cruise vacations have experienced significant growth in recent years. The
number of new cruise ships currently on order from shipyards indicates that the
growth in cruise capacity is set to continue for a number of years. In order to
fill this new capacity, continued growth in demand across the industry will be
required. Given the historical growth rate of cruising and the relative low
penetration levels in major vacation regions, we believe that there are
significant opportunities for growth.
In the few years prior to 2004, the cruise industry experienced
significant pressure on cruise pricing, which we believe was ultimately the
result of, among other things, various adverse international geopolitical and
economic conditions and events, such as terrorism, the war in Iraq, and the risk
of other armed conflicts, adverse publicity, increases in new cruise ship
capacity, ship incidents, and competition from cruise ship and other vacation
alternatives. During 2004 and 2005 the cruise industry had very robust years,
which saw significant increases in both capacity and net revenue yields. During
2006, the cruise industry continued to experience solid growth for its
non-Caribbean product offerings, however, there were a number of factors, such
as a weaker U.S. economy, including the impact of higher fuel costs and higher
U.S. interest rates, and the after effects of the devastating 2005 hurricane
season, which we believe had adverse effects on vacationers' discretionary
income and this group's confidence in the U.S. economy. These factors
contributed to a reduction in North American demand for Caribbean cruises and,
accordingly, resulted in lower pricing for most of our Caribbean cruise
itineraries, especially our shorter duration cruises. Factors such as these or
others could adversely impact future cruise industry growth if they were to
occur or continue to exist in the future.
B. Wide Appeal of Cruising
Cruising appeals to a broad demographic range. Industry surveys estimate
that there are approximately 127 million potential passengers for cruising in
North America (defined as members of households with a minimum income of
$40,000, that are headed by a person who is at least 25 years old). According to
these surveys, about half of these individuals have expressed an interest in
taking a cruise as a vacation alternative, and over 60% of worldwide cruise
passengers are over the age of 40. The size of the North American population
between ages 45 and 74 is expected to increase 17% between 2007 and 2017. We
believe the cruise industry is well-positioned to take advantage of these
favorable demographic trends, which are impacting its markets.
C. Relatively Low Penetration Levels
North America has higher cruising penetration rates than do cruise markets
in Europe and Asia. Nevertheless, based upon information obtained from the
Cruise Lines International Association, or CLIA, a leading trade group in the
U.S., only approximately 17% of the U.S. population has ever taken a cruise and
only 10% has done so in the past three years. In the UK, where there has been
significant expansion in the number of cruise passengers carried over the last
five years, cruising penetration levels per capita are only approximately
three-fifths of those of North America. In the principal vacation regions in
continental Europe, cruising penetration levels per capita are estimated to be
less than one-fifth of those in North America. Elsewhere in the world cruising
is at an early stage of development and has far lower penetration rates.
D. Satisfaction Rates
Cruise passengers tend to rate their overall satisfaction with a
cruise-based vacation higher than comparable land-based hotel and resort
vacations. We believe that a substantial number of cruise passengers think the
value of their cruise vacation experience is as good as, or better than, the
value of other comparable vacation alternatives.
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VIII. Passengers, Capacity and Occupancy
Our cruise operations had worldwide cruise passengers, passenger capacity
and occupancy as follows (a):
FISCAL CRUISE PASSENGER
YEAR PASSENGERS CAPACITY OCCUPANCY(b)
------ ---------- --------- ------------
2002 3,549,000 67,282 105.2%
2003 5,038,000 113,296 103.4%
2004 6,306,000 129,108 104.5%
2005 6,848,000 136,960 105.6%
2006 7,008,000 143,676 106.0%
(a) Information presented is as of the end of our fiscal year for passenger
capacity. Carnival plc's information is only included since April 17,
2003, the period subsequent to the completion of the DLC transaction.
(b) In accordance with cruise industry practice, occupancy is calculated using
a denominator of two passengers per cabin even though some cabins can
accommodate three or more passengers. The percentages in excess of 100%
indicate that on average more than two passengers occupied some cabins.
Our passenger capacity has grown from 67,282 berths at November 30, 2002
to 143,676 berths at November 30, 2006, primarily because of the deliveries of
18 new cruise ships during this four-year period and the 34,428 berths added as
a result of the DLC transaction with P&O Princess during 2003. See Part I, Item
l. Business, B. - "Cruise Operations-Ship Information" for additional
information.
The occupancy level on our ships during each quarter indicated below was
as follows:
Quarters Ended Occupancy
----------------- ---------
February 28, 2005 103.8%
May 31, 2005 104.8%
August 31, 2005 110.9%
November 30, 2005 102.7%
February 28, 2006 104.2%
May 31, 2006 105.4%
August 31, 2006 111.0%
November 30, 2006 103.4%
IX. Cruise Ship Construction and Cruise Port Facility Development and
Operations
As of February 12, 2007, we had signed agreements with three shipyards
providing for the construction of 20 additional cruise ships scheduled to enter
service between March 2007 and June 2011. See Note 6, "Commitments" to our
Consolidated Financial Statements in Exhibit 13 to this joint Annual Report on
Form 10-K.
Primarily in cooperation with private or public entities, we are engaged
in the development of new or enhanced cruise port facilities. These facilities
are expected to provide our passengers with an improved vacation experience. Our
involvement typically includes providing cruise port facility development and
management expertise. We sometimes assist by providing direct financial support
for port development projects. However, most of the time, our financial
commitment is provided by long-term port usage agreements. During 2006, we were
involved in the development and enhancement of cruise port facilities in
Barcelona, Spain, New York City, New York, Miami, Florida and Naples, Italy. In
addition, we are in the process of, or have recently completed negotiations for,
the development of several other port facilities to service our North American
and European guests, including, but not limited to, facilities in Civitavecchia,
Italy, Roatan, Honduras and San Diego, California. In October 2005, our pier
facility in Cozumel, Mexico was destroyed by Hurricane Wilma. This was one of
our busiest transit ports in the world and served over 1.2 million passengers in
2005. We have begun rebuilding this pier and expect to complete construction in
late-2008.
Finally, we currently operate other port facilities in Long Beach,
California, Grand Turk, Turk and Caicos Islands, Juneau, Alaska and Savona,
Italy pursuant to concession agreements with governmental authorities and other
third parties. Our Long Beach terminal is one of the home ports for Carnival
Cruise Lines' U.S. West Coast sailings to Mexico, as well as a transit port for
some of our other brands. Finally, the Savona terminal is the home port for a
number of Costa's ships, which sail in the Mediterranean Sea.
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X. Cruise Pricing and Payment Terms
Each of our cruise brands publishes brochures with prices for the upcoming
seasons. Brochure prices vary by cruise line, by category of cabin, by ship, by
season and by itinerary. Brochure prices are regularly discounted through our
early booking discount programs and other promotions. The cruise ticket price
typically includes accommodations, meals, some beverages, and most onboard
entertainment, such as the use of, or admission to, a wide variety of activities
and facilities, including a fully equipped casino, nightclubs, theatrical shows,
movies, parties, a disco, a jogging track, a health club, swimming pools, sun
decks, whirlpools and saunas. Our brands' payment terms generally require that a
passenger pay a deposit to confirm their reservations with the balance due
before the departure date, although some of our European brands provide certain
of their travel agents and tour operators with credit terms, even though these
parties typically require the passenger to pay for the entire cruise before
sailing.
Historically, our advance bookings have generally been taken from several
months in advance of the sailing date for contemporary brands, to more than a
year in advance of sailing for our luxury brands. This lead-time provides us
with more time to manage our prices in relation to demand for available cabins,
with the goal of achieving higher overall net revenue yields - see "Key
Performance Indicators" in our Management Discussion and Analysis of Financial
Condition and Results of Operations in Exhibit 13 to this joint Annual Report on
Form 10-K. In addition, some of our fares such as Carnival Cruise Lines'
Supersaver fares, Costa's Pronto Price Savings fares, Holland America Line's
Early Savings and Mariner Savings fares and Princess's Loveboat Savers plan, are
designed to encourage potential passengers to book cruise reservations earlier.
In addition, AIDA has a "JustAIDA" booking program that allows guests to make a
reservation two to three months before sailing, but the exact cruise ship and
specific itinerary are not determined by AIDA until two weeks prior to sailing
in order to help AIDA maximize their net revenue yields.
When a passenger elects to purchase air transportation from us, both our
cruise revenues and cruise operating expenses generally increase by
approximately the same amount. Air transportation prices can vary by gateway and
destination. Over the last several years, we have generally experienced a lower
number of guests purchasing air transportation from us, which we believe is
partially a result of having opened additional embarkation points closer to our
guests' homes, as well as the availability of frequent flyer programs and
competitively-priced air tickets sold by third parties.
XI. Onboard and Other Revenues
We earn onboard and other revenues from onboard activities and services
not included in the cruise ticket price consisting of, but not limited to,
casino gaming, bar and some beverage sales, gift shop sales, entertainment
arcades, shore excursions, art auctions, photo sales, spa services, bingo games
and lottery tickets, enhanced dining experiences in alternative restaurants,
video diaries, golf lessons, snorkel equipment rentals, internet and telephone
usage and onboard promotional advertising for merchants located at our ports of
call.
Our casinos, which contain slot machines and gaming tables including
blackjack, and in most cases craps and roulette, are open only when our ships
are at sea in international waters or when otherwise specifically permitted by
law. Onboard and other activities are provided either directly by us or by
independent concessionaires, from which we collect a percentage of their
revenues or a fee.
Sales to our passengers of shore excursions at each ship's ports of call
include, among other things, general sightseeing and adventure outings and local
boat and beach parties. For the Holland America Line and Princess ships and our
other brands operating to destinations in Alaska, shore excursions are operated
by Holland America Tours and Princess Tours, as well as locally-owned
operations. For shore excursions in other locations, we typically utilize
locally-owned operations.
In conjunction with our cruise vacations, all of our cruise brands also
sell pre- and post-cruise land packages. Packages offered in conjunction with
ports of call in the U.S. would generally include one to four-night vacations at
nearby attractions or other vacation destinations, such as Universal Studios and
Walt Disney World in Orlando, Florida, Busch Gardens in Tampa, Florida, or
individual/multiple city tours of Boston, Massachusetts, New York City, New
York, and/or San Diego, California. Packages offered in Europe generally include
up to four-night vacations, including stays in well-known European cities such
as Athens, Greece, Barcelona, Spain, Copenhagen, Denmark, London, England,
Paris, France and Rome, Italy.
14
In conjunction with our Alaska cruise vacations, principally on our
Holland America Line, Princess and Carnival Cruise Lines ships, we sell pre- and
post-cruise land packages, utilizing, to a large extent, our transportation and
hotel assets.
XII. Sales Relationships and Marketing Activities
We are a customer service-driven company and continue to invest in our
service organization to assist travel agents and guests. We believe that our
support systems and infrastructure are among the strongest in the vacation
industry.
We sell our cruises mainly through travel agents, including wholesalers
and tour operators. Our individual cruise brands' relationships with their
travel agents are generally independent of each of our other brands, except for
certain brands sourcing UK and Australian passengers as discussed below. These
travel agent relationships are not exclusive and most travel agents also sell
cruises and other vacations provided by our competitors. Our policy towards
travel agents is to train and motivate them to support our products with
competitive sales and pricing policies and joint marketing programs. We also use
a wide variety of marketing techniques, including websites, seminars and videos,
to familiarize the agents with our cruise brands and products. As with our
brands' travel agent relationships, each of our brands' marketing programs are
generally independent of each of our other brands. In each of our principal
markets, we have familiarized the travel agency community with our cruise brands
and products.
Travel agents generally receive standard commissions of 10%, plus the
potential of additional commissions based on sales volume. During fiscal 2006,
no controlled group of travel agencies accounted for more than 10% of our
revenues.
Our investment in customer service has been focused on the development of
systems and employees. We have improved our systems within the reservations and
customer relationship management functions, emphasizing the continued support of
the travel agency community, while simultaneously developing greater contact and
interactivity with our customer base. Each brand has its own website, which
provides access to information about our products to users throughout the world,
and substantially all provide booking engines to our travel partners and to our
customers. We also support booking capabilities through major airline computer
reservation systems, including SABRE, Galileo, Amadeus and Worldspan. Although
the vast majority of our cruises are distributed through travel agents, we also
take telephone and internet bookings direct from customers who choose not to
utilize the services of a travel agent.
We have pursued comprehensive marketing campaigns to market our brands to
vacationers, including direct response marketing. The principal media used are
television, magazine, newspaper and radio advertisements and promotional
campaigns. To stimulate demand we have also been offering more home port
locations, which enable certain guests to lower the price of their cruise
vacation by substantially reducing or eliminating the cost of air travel to and
from the port.
In addition, in both the UK and Australia we have formed a sales alliance
known as the "Complete Cruise Solution," whereby our UK and Australian sales
forces and back-office operations are able to provide their customers with
one-stop cruise shopping for a number of our brands. Finally, we have
established the World's Leading Cruise Lines ("WLCL") alliance for our family of
North American cruise brands and Costa in order both to educate the consumer
about the overall breadth of our cruise brands, as well as to increase the
effectiveness and efficiency of marketing our brands. As part of this alliance,
we offer Vacation Interchange Privileges, which is a loyalty program that
provides special considerations to repeat guests aboard the WLCL brands.
XIII. Seasonality
Our revenues from the sale of passenger tickets are seasonal.
Historically, demand for cruises has been greatest during our third fiscal
quarter, which includes the Northern Hemisphere summer months. This higher
demand during the third quarter results in higher net revenue yields and,
accordingly, the largest share of our net income is earned during this period.
The seasonality of our results is also increased due to ships being taken out of
service for maintenance, which we typically schedule during non-peak demand
periods. In addition, substantially all of Holland America Tours' and Princess
Tours' revenues and net income are generated from May through September in
conjunction with the Alaska cruise season.
15
XIV. Competition
We compete with land-based vacation alternatives throughout the world,
including, among others, hotels, resorts, theme parks, land-based casino
operations, vacation ownership properties located in Las Vegas, Nevada and
Orlando, Florida, various Caribbean, Mexican, Bahamian and Hawaiian Island
destinations and numerous other vacation choices throughout Europe and the rest
of the world.
Our primary cruise competitors for contemporary and premium North
American-sourced passengers are Royal Caribbean Cruises Ltd., which owns Royal
Caribbean International and Celebrity Cruises, Star Cruises Limited, which owns
NCL Corporation Ltd., which is comprised of Norwegian Cruise Line, NCL America
and Orient Lines, Disney Cruise Line, Mediterranean Shipping Company, which owns
MSC Cruises, and Crystal Cruises.
Our primary cruise competitors for European-sourced passengers in the UK
are Royal Caribbean International, Island Cruises, Fred Olsen Cruise Lines,
Discovery Cruises, Saga Cruises, and Thomson Cruises, which is owned by TUI; in
Germany they are MSC Cruises, Hapag-Lloyd, which is owned by TUI, Peter
Deilmann, Phoenix Reisen and Transocean Cruises; and in Southern Europe they are
MSC Cruises, Louis Cruise Line, Pullmantur, which is owned by Royal Caribbean
Cruises Ltd., and Iberojet. We also compete for passengers throughout Europe
with Celebrity Cruises, Norwegian Cruise Line and Orient Lines.
Our primary cruise competitors for our Seabourn and Windstar luxury brands
include Regent Seven Seas Cruises, Seadream Yacht Club and Silversea Cruises.
Our North American, European and Australian brands also compete among
themselves for passengers.
XV. Governmental Regulations
A. Maritime Regulations
Our ships are regulated by various international, national, state and
local laws, regulations and treaties in force in the jurisdictions in which our
ships operate. In addition, our ships are registered in the Bahamas, Bermuda,
Italy, the Marshall Islands, the Netherlands, Panama and the UK and,
accordingly, are regulated by these jurisdictions and by the international
conventions that govern the safety and environmental impact of our ships, guests
and crew members. Each country of registry conducts periodic inspections to
verify compliance with these regulations as discussed more fully below. In
addition, the directives and regulations of the European Union and the many
other international ports that our ships visit are applicable to some aspects of
our ship operations.
Specifically, the International Maritime Organization, sometimes referred
to as the "IMO", which operates under the auspices of the United Nations, has
adopted safety standards as part of the International Convention for Safety of
Life at Sea, sometimes referred to as SOLAS, which is applicable to all of our
ships. Among other things, SOLAS establishes requirements for vessel design,
structural features, materials, construction, life saving equipment, safe
management and operation and security in order to help ensure passenger and crew
safety and security. The SOLAS requirements are revised from time to time, with
the most recent modifications being phased-in through 2010.
In 1993, SOLAS was amended to incorporate the International Safety
Management Code, referred to as the "ISM Code." The ISM Code provides an
international standard for the safe management and operation of ships and for
pollution prevention. The ISM Code is mandatory for passenger vessel operators.
All of our operations and ships have obtained the required certificates
demonstrating compliance with the ISM Code and are regularly inspected and
controlled by the national authorities, as well as the international authorities
acting under the provisions of the international agreements related to Port
State Control, the process by which a nation exercises authority over foreign
ships when the ships are in that nation's waters.
In December 2004, the Maritime Safety Committee approved for adoption
amendments to SOLAS chapter II-I Parts A & B that relate to the damage stability
of new cruise passenger vessels. These regulations were adopted in May 2005, and
are applicable to those vessels whose keels are laid after January 1, 2009.
Although the new standards do not affect our existing fleet or our vessels
currently under contract whose keels will have been laid prior to January 1,
2009, compliance with these standards for ships whose keels are subsequently
laid will require the development of new designs, which will increase costs.
16
The most important convention regulating and preventing marine pollution
by ships is the IMO International Convention for the Prevention of Pollution
from Ships ("MARPOL"), as amended. This convention applies to all of our ships
and covers accidental and operational oil pollution as well as pollution by
various items including, but not limited to, sewage, garbage and air emissions.
Our ships are subject to a program of periodic inspection by ship
classification societies who conduct annual, intermediate, dry-docking and class
renewal surveys. Classification societies conduct these surveys not only to
ensure that our ships are in compliance with international conventions adopted
by their respective country of registry and domestic rules and regulations, but
also to verify that our ships have been maintained in accordance with the rules
of the society and that recommended repairs have been satisfactorily completed.
Our ships that call at U.S. ports are subject to inspection by the U.S.
Coast Guard for compliance with SOLAS, by the U.S. Public Health Service for
sanitary standards, and by other agencies such as U.S. Customs and Border
Protection, with regard to customs and immigration. Our ships are also subject
to similar inspections pursuant to the laws and regulations of various other
countries our ships visit.
Finally, our ships are also subject to various security requirements,
primarily including the International Ship and Port Facility Security Code
("ISPS Code"), which is part of SOLAS. Among other things, the ISPS Code
requires vessel owners to implement security measures, conduct vessel security
assessments, and develop security plans. Under these requirements, we have
prepared and submitted security plans for all our ships to their respective
country of registry, and International Ship Security Certificates have been
issued demonstrating compliance with the ISPS Code. For ships that are
registered in the U.S. or have operations located in the U.S. the Maritime
Transportation Security Act of 2002 ("MTSA") is the governing regulation. The
MTSA establishes Area Maritime Security requirements for geographic port areas
that provide authority for the U.S. Coast Guard to implement operational and
physical security measures on a port area basis that could affect our operation
in those areas.
In 2006, the International Labour Organization ("ILO"), adopted a new
Consolidated Maritime Labour Convention (the "Convention"). The ILO is also an
agency of the United Nations that develops worldwide employment standards. There
have been over 60 maritime labor conventions and recommendations developed since
1920 in areas such as minimum age of seafarers, medical certificates,
recruitment practices, health and welfare, hours of work, and social security.
The Convention is a comprehensive instrument that consolidates all of the
existing standards and recommendations into one instrument to reflect modern
conditions and language that will govern all aspects of crew management for all
ships in international commerce. While many of the practices, were widely
adhered to by ships registered in different countries, this consolidated
Convention will place additional requirements on shipowners not previously in
effect. Thirty member countries representing 33% of the world's merchant ship
tonnage will be required to ratify the Convention before it goes into effect 12
months after such ratification. We currently expect the Convention to be
effective for our ships in 2010 based on an expected European Unions ("EU")
ratification in 2008 or early 2009. Accordingly, if ratified, the Convention may
increase our 2010 and subsequent crew costs.
We believe that health, environmental, safety and security issues will
continue to be an area of focus by relevant government authorities in the U.S.,
the European Union and elsewhere. Resulting legislation or regulations, or
changes in existing legislation or regulations, could impact our operations and
would likely subject us to increasing compliance costs in the future.
B. Permits for Glacier Bay, Alaska
In connection with certain of our Alaska cruise operations, Holland
America Line, Princess Cruises and Carnival Cruise Lines rely on concession
permits from the U.S. National Park Service to operate their cruise ships in
Glacier Bay National Park and Preserve. Such permits must be periodically
renewed and we cannot be certain that they will continue to be renewed or that
regulations relating to the renewal of such permits, including preference or
historical rights, will remain unchanged in the future.
17
C. Alaska Environmental Regulations
The State of Alaska enacted legislation which prohibits certain discharges
in designated Alaska waters, ports or near shorelines and requires that certain
discharges be monitored to verify compliance with the standards established by
the legislation. Both the state and federal environmental regime in Alaska is
more stringent than the federal regime under the Federal Water Pollution Control
Act with regard to discharge from vessels. The legislation also provides that
repeat violators of the regulations could be prohibited from operating in
Alaskan waters.
D. Other Environmental, Health and Safety Matters
We are subject to various international, national, state and local
environmental protection and health and safety laws, regulations and treaties
that govern, among other things, air emissions, employee health and safety,
waste discharge, water management and disposal, and storage, handling, use and
disposal of hazardous substances, such as chemicals, solvents, paints and
asbestos. We are committed to helping to conserve the natural environment, not
only because of the existing regulations, but because a pristine environment is
one of the key elements that bring our guests on board our ships.
In particular, in the U.S., the Act to Prevent Pollution from Ships,
implementing the MARPOL convention, provides for severe civil and criminal
penalties related to ship-generated pollution for incidents in U.S. waters
within three nautical miles and in some cases in the 200-mile exclusive economic
zone.
Furthermore, in the U.S., the Oil Pollution Act of 1990 (the "OPA")
provides for strict liability for water pollution, such as oil pollution or
threatened oil pollution incidents in the 200-mile exclusive economic zone of
the U.S., subject to monetary limits. These monetary limits do not apply,
however, where the discharge is proximately caused by the gross negligence or
willful misconduct or the violation of an applicable safety, construction, or
operating regulation by a responsible party; or the responsible party fails or
refuses to: report the incident as required by law, provide all reasonable
cooperation and assistance in connection with removal operations, or without
sufficient cause, comply with an order issued by the federal on-scene
coordinator. Pursuant to the OPA, in order for us to operate in U.S. waters, we
are also required to obtain Certificates of Financial Responsibility from the
U.S. Coast Guard for each of our ships operating therein. These certificates
demonstrate our ability to meet removal costs and damages related to water
pollution, such as for an oil spill or a release of a hazardous substance, up to
our ship's statutory liability limit.
In addition, most U.S. states that border a navigable waterways or
seacoasts have enacted environmental pollution laws that impose strict liability
on a person for removal costs and damages resulting from a discharge of oil or a
release of a hazardous substance. These laws may be more stringent than U.S.
federal law and in some cases have no statutory limits of liability.
Furthermore, many countries have ratified and adopted IMO Conventions
which, among other things, impose liability for pollution damage, subject to
defenses and to monetary limits, which monetary limits do not apply where the
spill is caused by the owner's actual fault or by the owner's intentional or
reckless conduct. In jurisdictions that have not adopted the IMO Conventions,
various national, regional or local laws and regulations have been established
to address oil pollution.
Limitations on the sulphur content of fuel are part of new regulations
approved by the International Convention for the Prevention of Pollution from
Ships Annex VI ("MARPOL Annex VI"). Ships must carry an International Air
Pollution Prevention Certificate issued by its flag state indicating that it is
operating in compliance with MARPOL Annex VI. These certificates are required to
be issued during the three-year period ending in May 2008. Among other things,
MARPOL Annex VI establishes a limit on the sulphur content of fuel oil and calls
on the IMO to monitor the worldwide average sulphur content of fuel oil supplied
for use aboard vessels. In addition, MARPOL Annex VI provides for special "Sox
Emission Control Areas" to be established with more stringent limitations on
sulphur emissions. Compliance with MARPOL and other European Union ("EU")
regulations may increase our operating costs, including the cost of fuel,
beginning in November 2007 for ships operating in the North Sea and the English
Channel. Further EU regulations regarding the use of low sulphur fuel on
passenger ships on regular service to or from EU ports has recently been
introduced. Our current understanding is that these EU regulations do not apply
to cruise ships, however, we cannot be certain that our understanding is
correct.
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If we violate or fail to comply with environmental laws, regulations or
treaties, we could be fined or otherwise sanctioned by regulators. We have made,
and will continue to make, capital and other expenditures to comply with
environmental laws and regulations.
The International Organization for Standardization ("ISO") is an
international standard-setting body, which produces worldwide industrial and
commercial standards. ISO 14001 is one of the series of ISO 14000 environmental
management standards that were developed to help organizations manage their
processes, products and services to minimize environmental impacts. ISO 14001
presents a structured approach to setting environmental objectives and targets,
and provides a framework for any organization to apply these broad conceptual
tools to their own processes. During 2006, we completed our corporate-wide
implementation and received certification of our ISO 14001 Environmental
Management System at all our ship operating companies.
In December 2006 the Maritime Safety Committee, which is the safety body
at the IMO, approved the adoption of amendments to SOLAS Ch II-2 that relate to
passenger ship balconies. These regulations will enter into force on July 1,
2008 and impose stricter limits on combustible materials and apply to both new
and existing ships. As of February 12, 2007, we anticipate that all our ships
including recent newbuild contracts, those currently under construction and our
existing ships will meet these requirements.
In addition, there are a number of safety related amendments that will
enter into force in July 2010 many of which are already being incorporated into
our current newbuilds. These include requirements for safety centers, emergency
cabin lighting, local sounding audible alarms, and amendments to fire detection
systems. Finally, the enhanced safe return to port requirements also enter into
force for keels laid after July 2010. Our current newbuilds meet existing
requirements, and do not need to comply with these new standards, but future new
designs are being developed that will meet these new requirements.
From time to time, environmental, health and safety regulators consider
more stringent regulations which may affect our operations and increase our
compliance costs. As evidenced from certain of the preceding paragraphs, the
cruise industry is affected by a substantial amount of environmental rules and
regulations. We believe that the impact of cruise ships on the global
environment will continue to be an area of focus by the relevant authorities
throughout the world and, accordingly, this will likely subject us to increasing
compliance costs in the future.
See Part 1, Item 1A. "Risk Factors" for additional discussion of our
environmental risks.
E. Consumer Regulations
Our ships that call on U.S. ports are regulated by the Federal Maritime
Commission referred to as the "FMC". Public Law 89-777, which is administered by
the FMC, requires most cruise line operators to establish financial
responsibility for their liability to passengers for non-performance of
transportation, as well as casualty and personal injury. The FMC's regulations
require that a cruise line demonstrate its financial responsibility for
non-performance of transportation through a guarantee, escrow arrangement,
surety bond or insurance. Currently, the amount required must equal 110% of the
cruise line's highest amount of customer deposits over a two-year period, up to
a maximum coverage level of $15 million. See Part 1, Item 1. Business, E. -
"Insurance - Other Insurance" for additional discussion.
In the UK, we are required to bond and obtain licenses from various
organizations in connection with the conduct of our business and our ability to
meet liability in the event of non-performance of obligations to consumers.
These organizations include the Passenger Shipping Association and the Civil
Aviation Authority. See Part 1, Item 1. Business, E. - "Insurance-Other
Insurance" for additional discussion.
We are also required by German and French law to obtain a guarantee from a
reputable insurance company to ensure that, in case of insolvency, our customers
will be refunded any monies they have paid on account of a booking and, in
addition, that they will be repatriated without additional cost if insolvency
occurs after a cruise starts. In addition, in Australia, we are a member of the
Travel Compensation Fund which provides compensation, as a last resort, to
consumers who suffer losses in their dealings with travel agents. Finally, other
jurisdictions, including Argentina and Brazil, require the establishment of
financial responsibility for passengers from their jurisdictions.
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We believe we have all material licenses to conduct our business. From
time to time, various other regulatory and legislative changes may be proposed
or adopted that could have an effect on the cruise industry, in general, and our
business, in particular. See Part I, Item 1A. "Risk Factors" for a discussion of
other regulations which impact us.
XVI. Financial Information
For financial information about our cruise reporting segment and
geographic information with respect to each of the three years in the period
ended November 30, 2006, see Note 11, "Segment Information" to our Consolidated
Financial Statements in Exhibit 13 to this joint Annual Report on Form 10-K.
C. Employees
Our shoreside operations have approximately 10,100 full-time and 4,600
part-time/seasonal employees. We also employ approximately 60,000 officers, crew
and staff onboard our 81 ships at any one time. Due to the highly seasonal
nature of our Alaskan and Canadian operations, Holland America Tours and
Princess Tours increase their work force during the late spring and summer
months in connection with the Alaskan cruise season, employing additional
seasonal personnel, which have been included above. We have entered into
agreements with unions covering certain employees in our hotel, transportation
and ship operations. We consider our employee and union relations generally to
be good.
We source our shipboard officers primarily from Italy, the UK, Holland,
Germany and Norway. The remaining crew positions are manned by persons from
around the world. We utilize various manning agencies in many countries and
regions to help secure our shipboard employees.
D. Suppliers
Our largest purchases are for travel agency services, fuel, advertising,
food and beverages, hotel and restaurant supplies and products, airfare, repairs
and maintenance, including dry-docking, port facility utilization, communication
services and for the construction of our ships. Although we utilize a select
number of suppliers for most of our food and beverages and hotel and restaurant
supplies and products, most of these items are available from numerous sources
at competitive prices. The use of a select number of suppliers enables us to,
among other things, obtain volume discounts. We purchase fuel and port facility
services at some of our ports of call from a limited number of suppliers. In
addition, we perform our major dry-dock and ship improvement work at dry-dock
facilities in Australia, the Bahamas, British Columbia, Canada, the Caribbean,
Europe and the U.S. Finally, as of February 12, 2007, we have agreements in
place for the construction of 20 cruise ships by three shipyards. We believe
there are sufficient dry-dock and shipbuilding facilities to meet our
anticipated repair, maintenance, refurbishment and newbuild requirements.
E. Insurance
General
We maintain insurance to cover a number of risks associated with owning
and operating vessels in international trade. All such insurance policies are
subject to coverage limits, exclusions and deductible levels. Insurance premium
increases are dependent on our own loss experience and the general premium
requirements of our underwriters. We cannot be certain that affordable and
viable direct and reinsurance markets will be available to us in the future. We
maintain certain levels of self-insurance for the below-mentioned risks, some of
which have increased in recent years, and we may increase our self insurance
levels further in the future to mitigate premium increases. We do not carry
coverage related to loss of earnings or revenues for our ships.
Protection and Indemnity ("P&I") Coverage
Third-party liabilities in connection with our cruise activities are
covered by entry in P&I clubs, which are mutual indemnity associations owned by
ship owners. Our vessels are entered in three P&I clubs as follows: The West of
England Ship Owners Mutual Insurance Association (Luxembourg), The Steamship
Mutual Underwriting Association (Bermuda) Limited and the United Kingdom Mutual
Steam Ship Assurance Association (Bermuda) Limited. The P&I clubs in which we
participate are part of a worldwide group of P&I clubs, known as the
International Group of P&I Clubs (the "IG"). The IG insures directly, and
through
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reinsurance markets, a large portion of the world's shipping fleets. Coverage is
subject to the P&I clubs' rules and the limit of coverage is determined by the
IG. P&I coverage includes legal, statutory or pre-approved contract liabilities
and other expenses related to crew, passengers and other third parties. This
coverage also includes shipwreck removal, pollution and damage to third party
property.
Hull and Machinery Insurance
We maintain insurance on the hull and machinery of each of our ships in
amounts equal to the estimated market value of each ship. The coverage for hull
and machinery is provided by international marine insurance carriers. Most
insurance underwriters make it a condition for insurance coverage that a ship be
certified as "in class" by a classification society that is a member of the
International Association of Classification Societies ("IACS"). All of our ships
are currently certified as in class with an IACS member. These certifications
have either been issued or endorsed within the last twelve months.
War Risk Insurance
We maintain war risk insurance coverage for liability and physical damage,
subject to coverage limits and exclusions for claims such as those arising from
chemical, nuclear and biological attacks, on all of our ships covering our legal
liability to crew, passengers and other third parties as well as loss or damage
to our vessels arising from war or war-like actions, including terrorist risks.
This coverage is provided by international marine insurance carriers. Under the
terms of our war risk insurance coverage, which is typical for war risk policies
in the marine industry, underwriters can give seven days notice to the insured
that the liability and physical damage policies can be cancelled. In addition,
the policy can be reinstated at different premium rates. This gives underwriters
the ability to increase our premiums following events that they determine have
increased their risk.
Other Insurance
As required by the FMC, we maintain performance bonds or bank guarantees
in the aggregate amount of $105 million for ships operated by our brands which
embark passengers in U.S. ports to cover passenger ticket liabilities in the
event of a cancelled or interrupted cruise. We also maintain other performance
bonds or guarantees as required by various U.S. and foreign authorities that
regulate certain of our operations in their jurisdictions; the most significant
of which are required by the UK Passenger Shipping Association and the UK Civil
Aviation Authority and total approximately L104 million ($203 million U.S.
dollars at November 30, 2006 exchange rate) and L52 million ($103 million U.S.
dollars at the November 30, 2006 exchange rate), respectively, to cover our
brands' UK passenger and air ticket deposit liabilities.
We maintain standard property and casualty insurance policies to cover
shoreside assets and liabilities to third parties, including our tour business
and certain port facility assets, as well as appropriate workers' compensation
policies.
The Athens Convention
Current conventions generally in force applying to passenger ships are the
Athens Convention relating to the Carriage of Passengers and their Luggage by
Sea (1974), the 1976 Protocol to the Athens Convention and the Convention on
Limitation of Liability for Maritime Claims (1976). The U.S. has not ratified
any Athens Convention Protocol. However, a vessel's flag state or the port state
that has ratified it may enforce the 1976 Athens Convention Protocol with regard
to vessels registered under its flag or visiting a port located in its
jurisdiction.
The IMO Diplomatic Conference agreed to a new protocol to the Athens
Convention on November 1, 2002. The new protocol, which has not yet been
ratified by the U.S. or any of our flag states, requires substantial levels of
compulsory insurance which must be maintained by passenger ship operators and
provides a direct action provision, which will allow claimants to proceed
directly against insurers. This new protocol requires passenger ship operators
to maintain insurance or some other form of financial security, such as a
guarantee from a bank, to cover the limits of liability under the Athens
Convention with regards to the death or personal injury of passengers. The
timing of the ratification of this new protocol, if obtained at all, is
uncertain. We cannot be certain that affordable and viable direct and
reinsurance markets will be available to provide the level of coverage required
under the new protocol. If the new protocol is ratified, we expect insurance
costs would increase.
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F. Trademarks and Other Intellectual Property
We own and have registered, or licensed, numerous trademarks and have also
registered various domain names, which we believe are widely recognized
throughout the world and have considerable value. These trademarks include the
names of our cruise lines, each of which we believe is a widely-recognized brand
name in the cruise vacation industry, as well as "World's Leading Cruise Lines."
We have a license to use the P&O name, the P&O flag and other relevant
trademarks and domain names in relation to cruises and related activities.
Finally, we also have a license to use the "Love Boat" name and related marks.
See Note 2, "Trademarks" to our Consolidated Financial Statements in Exhibit 13
to this joint Annual Report on Form 10-K.
G. Taxation
U.S. Federal Income Tax
We are a foreign corporation engaged in a trade or business in the U.S.,
and our ship-owning subsidiaries are foreign corporations that, in many cases,
depending upon the itineraries of their ships, receive income from sources
within the U.S. for U.S. federal income tax purposes. To the best of our
knowledge, we believe that, under Section 883 of the Internal Revenue Code and
applicable income tax treaties, our income and the income of our ship-owning
subsidiaries, to the extent derived from or incidental to the international
operation of a ship or ships, is currently exempt from U.S. federal income tax.
This exempt income does not include our U.S. source income, principally from the
transportation, hotel and tour businesses of Holland America Tours and Princess
Tours, and, beginning with the year ended November 30, 2005, the items listed in
the regulations under Section 883 that the Internal Revenue Service does not
consider to be incidental to ship operations. Among the items that are
identified in the regulations as not incidental to ship operations are income
from the sale of air transportation, shore excursions and pre- and post cruise
land packages deemed to be from sources within the United States. In addition,
during the last quarter of 2005 and the first quarter of 2006, we chartered
three vessels to the Military Sealift Command in connection with the Hurricane
Katrina relief effort. Income from these charters is not considered to be income
from the international operation of our ships and, accordingly, income taxes
have been provided on the net earnings of these charters.
The following summary of the application of the principal U.S. federal
income tax laws to us is based upon existing U.S. federal income tax law,
including the Internal Revenue Code, proposed, temporary and final U.S. Treasury
regulations, certain current income tax treaties, administrative pronouncements
and judicial decisions, as currently in effect, all of which are subject to
change, possibly with retroactive effect.
Application of Section 883 of the Internal Revenue Code
In general, under Section 883, certain non-U.S. corporations are not
subject to U.S. federal income tax or branch profits tax on U.S. source income
derived from, or incidental to, the international operation of a ship or ships.
Effective for our year ended November 30, 2005 and thereafter, regulations
provide, in general, that a foreign corporation will qualify for the benefits of
Section 883 if, in relevant part, (i) the foreign country in which the foreign
corporation is organized grants an equivalent exemption to corporations
organized in the U.S. and (ii) the foreign corporation meets the publicly-traded
test described below. In addition, to the extent a foreign corporation's shares
are owned by a direct or indirect parent corporation which itself meets the
publicly-traded test, then in analyzing the stock ownership test with respect to
such subsidiary, stock owned directly or indirectly by such parent corporation
will be deemed owned by individuals resident in the country of incorporation of
such parent corporation.
A company whose shares are considered to be "primarily and regularly
traded on an established securities market" in the U.S. or another qualifying
jurisdiction will meet the publicly-traded test (the "publicly-traded test").
Stock will be considered "primarily traded" on one or more established
securities markets if, with respect to each class of stock of the particular
corporation, the number of shares in each such class that are traded during a
taxable year on any such market exceeds the number of shares in each such class
traded during that year on any other established securities market. Stock of a
corporation will generally be considered "regularly traded" on one or more
established securities markets under the regulations if (i) one or more classes
of stock of the corporation that, in the aggregate, represent more than 50% of
the total combined voting power of all classes of stock of such corporation
entitled to vote and of the total value
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of the stock of such corporation are listed on such market; and (ii) with
respect to each class relied on to meet the more than 50% requirement in (i)
above, (x) trades in each such class are effected, other than in de minimis
quantities, on such market on at least 60 days during the taxable year, and (y)
the aggregate number of shares in each such class of the stock that are traded
on such market during the taxable year is at least 10% of the average number of
shares of the stock outstanding in that class during the taxable year. A class
of stock that otherwise meets the requirements outlined in the preceding
sentence is not treated as meeting such requirements for a taxable year if, at
any time during the taxable year, one or more persons who own, actually or
constructively, at least 5% of the vote and value of the outstanding shares of
the class of stock, own, in the aggregate, 50% or more of the vote and value of
the outstanding shares of the class of stock (the "5% Override Rule"). However,
the 5% Override Rule does not apply (a) where the foreign corporation
establishes that qualified shareholders own sufficient shares of the
closely-held block of stock to preclude non-qualified shareholders of the
closely-held block of stock from owning 50% or more of the total value of the
class of stock for more than half of the taxable year; or (b) to shares of stock
owned by an investment company registered under the Investment Company Act of
1940.
We believe that Carnival Corporation currently qualifies as a publicly
traded corporation under the regulations and substantially all of its income,
with the exceptions noted above, will continue to be exempt from U.S. federal
income taxes. However, because various members of the Arison family and trusts
established for their benefit currently own approximately 37% of Carnival
Corporation shares, there is the potential that additional shareholders could
acquire 5% or more of its shares, which could result in Carnival Corporation
being considered closely held, and thus jeopardize its qualification as a
publicly traded corporation. If, in the future, Carnival Corporation were to
fail to qualify as a publicly traded corporation, it and all of its ship-owning
or operating subsidiaries that rely on Section 883 for exempting cruise
operations income would be subject to U.S. federal income tax on their U.S.
source cruise operation income. In such event, the net income of Carnival
Corporation's ship-owning or operating subsidiaries would be materially reduced.
As a precautionary matter, Carnival Corporation amended its articles of
incorporation in fiscal 2000 to ensure that it would continue to qualify as a
publicly traded corporation under these regulations when they were originally
proposed. As applied to Carnival Corporation, the final regulations are
substantially the same as the proposed regulations. This amendment provides that
no one person or group of related persons, other than certain members of the
Arison family and trusts established for their benefit, may own or be deemed to
own by virtue of the attribution provisions of the Internal Revenue Code more
than 4.9% of Carnival Corporation shares, whether measured by vote, value or
number of shares, without the consent of Carnival Corporation's Board of
Directors. Unless Board consent is provided, any Carnival Corporation shares
acquired in violation of this provision will be transferred to a trust and, at
the direction of its board of directors, sold to a person whose shareholding
does not violate that provision. No profit for the purported transferee may be
realized from any such sale. In addition, under specified circumstances, the
trust may transfer the common stock at a loss to the purported transferee.
Because certain of Carnival Corporation notes are convertible into its shares,
the transfer of these notes are subject to similar restrictions. These transfer
restrictions may also have the effect of delaying or preventing a change in
control or other transactions in which the shareholders might receive a premium
for Carnival Corporation shares over the then prevailing market price or which
the shareholders might believe to be otherwise in their best interest.
Although the above represents our interpretation of this Internal Revenue
Code provision and the U.S. Treasury regulations, the Internal Revenue Service's
interpretation of these provisions could differ materially. In addition, the
provisions of Section 883 are subject to change at any time by legislation.
Moreover, changes could occur in the future with respect to the trading volume
or trading frequency of Carnival Corporation shares or with respect to the
identity, residence, or holdings of Carnival Corporation's direct or indirect
shareholders that could affect Carnival Corporation's and its subsidiaries
eligibility for the Section 883 exemption. Accordingly, although we believe it
is unlikely, it is possible that Carnival Corporation and its ship-owning or
operating subsidiaries' whose tax exemption is based on Section 883 could lose
this exemption. If Carnival Corporation and/or its ship-owning or operating
subsidiaries were not entitled to the benefit of Section 883, Carnival
Corporation and/or its ship-owning or operating subsidiaries would be subject to
U.S. federal income taxation on a portion of our income.
Exemption Under Applicable Income Tax Treaties
We believe that the U.S. source shipping income from Carnival plc and its
UK and Italian resident subsidiaries currently qualify for exemption from U.S.
federal income tax
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under applicable bilateral U.S. income tax treaties. There is, however, no
authority that directly addresses the effect, if any, of DLC arrangements on the
availability of benefits under the treaties and, consequently, the matter is not
free from doubt. These treaties may be abrogated by either applicable country,
replaced or modified with new agreements that treat shipping income differently
than under the agreements currently in force. If any of our subsidiaries that
currently claim exemption from U.S. income taxation on their U.S. source
shipping income under an applicable treaty do not qualify for benefits under the
existing treaties, or if the existing treaties are abrogated, replaced or
materially modified in a manner adverse to our interests and, with respect to
U.S. federal income tax only, if any such subsidiary does not qualify for
exemption under Section 883, such ship-owning or operating subsidiary may be
subject to U.S. federal income taxation on a portion of its income, which would
reduce our net income.
Taxation in the Absence of an Exemption under Section 883 or any
Applicable U.S. Income Tax Treaty
Shipping income that is attributable to transportation of passengers which
begins or ends in the U.S. is considered to be 50% derived from U.S. sources.
Shipping income that is attributable to transportation of passengers which
begins and ends in foreign countries is considered 100% derived from foreign
sources. Shipping income that is attributable to the transportation of
passengers which begins and ends in the U.S. without stopping at an intermediate
foreign port is considered to be 100% derived from U.S. sources.
The legislative history of the transportation income source rules suggests
that a cruise that begins and ends in a U.S. port, but that calls on more than
one foreign port, will derive U.S. source income only from the first and last
legs of the cruise. Because there are no regulations or other Internal Revenue
Service interpretations of these rules, the applicability of the transportation
income source rules in the aforesaid manner is not free from doubt.
In the absence of an exemption under Section 883 or any applicable U.S.
income tax treaty, as appropriate, we and/or our subsidiaries would be subject
to either the net income and branch profits tax regimes of Section 882 and
Section 884 of the Internal Revenue Code (the "net tax regime") or the four
percent of gross income tax regime of Section 887 of the Internal Revenue Code
(the "four percent tax regime").
Where the relevant foreign corporation has, or is considered to have, a
fixed place of business in the U.S. that is involved in the earning of U.S.
source shipping income and substantially all of this shipping income is
attributable to regularly scheduled transportation, the net tax regime is
applicable. If the foreign corporation does not have a fixed place of business
in the U.S. or substantially all of its income is not derived from regularly
scheduled transportation, the four percent tax regime will apply.
The net tax regime should be the tax regime applied to Carnival
Corporation in the absence of an exemption under Section 883. Under the net tax
regime, U.S. source shipping income, net of applicable deductions, would be
subject to a federal corporate tax of up to 35% and the net after-tax income
would be potentially subject to a further branch tax of 30%. In addition,
interest paid by the corporations, if any, would generally be subject to a
branch interest tax.
The four percent tax regime should be the tax regime applicable to our
vessel owning subsidiaries based outside the United States, in the absence of an
exemption under Section 883 or any applicable U.S. income tax treaty. Under the
four percent tax regime, gross U.S. source shipping income would be subject to a
four percent tax, without the benefit of deductions.
UK Income Tax
Cunard, Ocean Village, P&O Cruises, P&O Cruises Australia and Swan
Hellenic have all elected to enter the UK tonnage tax regime. Companies to which
the tonnage tax regime applies pay corporation tax on profit calculated by
reference to the net tonnage of qualifying vessels. UK corporation tax is not
chargeable under the normal UK tax rules on these brands' operating relevant
shipping income. Relevant shipping income includes income from the operation of
qualifying ships and from shipping related activities. It also includes
dividends from foreign companies, which are subject to a tax on profits in their
country of residence or elsewhere and the activities of which broadly would
qualify in full for the UK tonnage tax regime if they were UK resident.
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For a company to be eligible for the regime, it must be subject to UK
corporation tax and, among other matters, operate qualifying ships that are
strategically and commercially managed in the UK. There is also a seafarer
training requirement to which the tonnage tax companies are subject.
Our UK non-shipping activities that do not qualify under the UK tonnage
tax regime, which are not currently forecast to be significant, remain subject
to normal UK corporation tax.
Italian and German Income Tax
In November 2004, the German brand of Carnival plc, AIDA, became a
division of Costa. From the date of this change, AIDA's income is subject to
Italian income tax. The majority of the profits earned by our German brands are
exempt from German corporation taxes by virtue of the Italy/Germany double tax
treaty.
During the 2005 third quarter, Costa elected to enter into the Italian
Tonnage Tax regime, effective for its 2005 fiscal year and for the following
nine years. This regime taxes Costa's and AIDA's shipping profits, as defined,
which is most of Costa's and AIDA's income, calculated by reference to the net
tonnage of its qualifying vessels. However, most of the income not considered to
be shipping profits for Italian Tonnage Tax purposes will be taxed under the
Italian tax regime for Costa and AIDA's Italian-registered ships.
Australian Income Tax
P&O Cruises Australia is a division of Carnival plc, and the income from
this operation, is subject to UK tonnage tax as discussed above. The majority of
this operation's profits are exempt from Australian corporation taxes by virtue
of the UK/Australian tax treaty.
State Taxes
In addition to the U.S. federal income and branch level taxes discussed
above, Carnival Corporation & plc and certain of its affiliates are subject to
various U.S. state income taxes generally imposed on each states portion of the
U.S. source income subject to federal income taxes.
In addition, in August, 2006 the State of Alaska passed Ballot Initiative
2 (the "Initiative") which, among other things, imposes a tax on cruise
passengers sailing in Alaskan waters. The Initiative took effect at the
beginning of 2007 and imposes a $46 per passenger tax on cruise passengers
aboard vessels with at least 250 berths, an additional fee of $4 per passenger
for an Ocean Ranger program, expands the amount of commercial passenger vessel
income that is subject to Alaska corporate state income taxes and assesses a 33%
tax on income from onboard gambling. The Initiative also imposes a number of
other regulations, reporting and operational requirements on cruise vessel
operators.
H. Website Access to Carnival Corporation & plc SEC Reports
We make available, free of charge, access to our joint Annual Report on
Form 10-K, joint Quarterly Reports on Form 10-Q, joint Current Reports on Form
8-K, Section 16 filings and all amendments to those reports as soon as
reasonably practicable after such reports are electronically filed with or
furnished to the SEC through our home pages at www.carnivalcorp.com and
www.carnivalplc.com.
Item 1A. Risk Factors.
You should consider carefully the specific risk factors set forth below
and other information contained or incorporated by reference in this joint
Annual Report on Form 10-K, as these are important factors, among others, that
could cause our actual results to differ from our expected or historical
results. You should note that the risks described below are not the only risks
we face. The risks listed below are only those risks relating to our operations
that we consider material. There may be additional risks, that we currently
consider not to be material, or which we are not currently aware of, that could
have an adverse effect on our future results. Some of the statements in this
section and elsewhere in this joint Annual Report on Form 10-K are
"forward-looking statements." For a discussion of those statements and of other
factors to consider see the "Cautionary Note Concerning Factors That May Affect
Future Results" section below.
25
o General economic and business conditions may adversely impact the
levels of our potential vacationers' discretionary income and this
group's confidence in the U.S. economy and, consequently, reduce our
brands' net revenue yields and profitability.
Demand for cruises is dependent on the underlying economic strength of the
countries from which cruise companies source their passengers. Adverse changes
in the economic climate, such as higher fuel prices, higher interest rates and
changes in governmental policies could reduce the discretionary income or
consumer confidence in the countries from which we source our guests.
Consequently this may negatively affect demand for vacations, including cruise
vacations, which are a discretionary purchase. Decreases in demand could lead to
price discounting which, in turn, could reduce the profitability of our
business.
o International political and other world events affecting safety and
security could adversely affect the demand for cruises and could
harm our future sales and profitability.
Demand for cruises and other vacation options has been, and is expected to
continue to be, affected by the public's attitude towards the safety and
security of travel. Events such as the terrorist attacks in the U.S. on
September 11, 2001 and the threats of additional attacks in the U.S. and
elsewhere, concerns of an outbreak of additional hostilities and national
government travel advisories, together with the resulting political instability
and concerns over safety and security aspects of traveling, have had a
significant adverse impact on demand and pricing in the travel and vacation
industry and may continue to do so in the future. Decreases in demand could lead
to price discounting which, in turn, could reduce the profitability of our
business.
o We may lose business to competitors throughout the vacation market.
We face significant competition from other cruise lines, both on the basis
of cruise pricing and also in terms of the types of ships, services and
destinations we offer to cruise passengers. In addition, we may need to enhance
our older ships with current amenities in order for those ships to be more
competitive with other cruise ships. Our principal competitors include the
companies listed in this joint Annual Report on Form 10-K under Part 1, Item 1.
Business, B. - "Cruise Operations - Competition."
However, we operate in the vacation market, and cruising is only one of
many alternatives for people choosing a vacation. We therefore risk losing
business not only to other cruise lines, but also to other vacation operators
that provide other travel and leisure options, including hotels, resorts and
package holidays and tours.
In the event that we do not compete effectively with other cruise
companies and other vacation alternatives, our results of operations and
financial condition could be adversely affected.
o Overcapacity within the cruise and land-based vacation industry
could have a negative impact on net revenue yields and increase
operating costs, thus resulting in ship, goodwill and/or trademark
asset impairments, all of which could adversely affect
profitability.
Cruising capacity has grown in recent years and we expect it to continue
to increase over the next five years as all of the major cruise vacation
companies are expected to introduce new ships. In order to utilize new capacity,
the cruise vacation industry will probably need to increase its share of the
overall vacation market. The overall vacation market is also facing increases in
land-based vacation capacity, which also will impact us. Failure to increase our
share of the overall vacation market is one of a number of factors that could
have a negative impact on our net revenue yields. In some prior years, our net
revenue yields were negatively impacted as a result of a variety of factors,
including capacity increases. Should net revenue yields be negatively impacted,
our results of operations and financial condition could be adversely affected,
including the impairment of the value of our ships, goodwill and/or trademark
assets. In addition, increased cruise capacity could impact our ability to
retain and attract qualified crew at competitive costs and, therefore, increase
our shipboard employee costs.
o Accidents, unusual weather conditions or natural disasters and other
incidents affecting the health, safety, security and vacation
satisfaction of passengers could have an adverse affect on our sales
and profitability.
26
The operation of cruise ships involves the risk of accidents, including
those caused by the improper operation of our ships, passenger and crew
illnesses such as the spread of contagious diseases, mechanical failures, fires,
collisions and other incidents at sea or while in port, which may bring into
question passenger safety, health, security and vacation satisfaction, and
thereby adversely effect future industry performance, sales and profitability.
In addition, our cruises and port facilities may be impacted by unusual weather
patterns or natural disasters, such as hurricanes and earthquakes. For example,
in 2005 Hurricane Wilma caused the temporary closing of cruise ports in South
Florida and also destroyed our pier facility in Cozumel, Mexico, which is not
expected to re-open until late-2008. It is possible that we could be forced to
alter itineraries or cancel a cruise or a series of cruises due to these or
other factors, which would have an adverse affect on sales and profitability.
o Adverse publicity concerning the cruise industry in general, or us
in particular, could affect our reputation and harm our future sales
and profitability.
Maintaining a good reputation is critical to our business. Reports,
whether true or not, of ship accidents and other incidents at sea or while in
port, missing passengers, inappropriate crew or passenger behavior, passenger or
crew illnesses such as incidents of stomach flu or other contagious diseases,
security breaches, terrorist threats and attacks and other adverse events can
result in negative publicity. Anything that damages our reputation (whether or
not justified), including adverse publicity about the safety and passenger
satisfaction of cruising, or the vacation industry in general, could have an
adverse affect impact on demand, which could lead to price discounting and a
reduction in our net income.
o We are subject to many economic and political factors, including
changes in and compliance with numerous rules and regulations that
are beyond our control, which could result in increases in our
operating, financing and tax costs and could harm future sales and
profitability.
Some of our operating costs, including fuel, food, insurance, payroll and
security costs, are subject to increases because of market forces, economic or
political instability or decisions beyond our control. In addition, interest
rates, currency fluctuations and our ability to obtain debt or equity financing
are dependent on many economic and political factors. Actions by U.S. and
non-U.S. taxing jurisdictions could also cause an increase in our costs.
For example, in 2006, 2005 and 2004 fuel costs accounted for 14.4%, 11.9%
and 9.3%, respectively, of our total cruise operating expenses. Economic and
political conditions in certain parts of the world make it difficult to predict
the price of fuel in the future. Future increases in the cost of fuel globally
would increase the cost of our cruise ship operations.
In addition, the State of Alaska recently instituted new state taxes which
will impact the cruise industry operating in Alaska, and could result in a
reduction in demand for Alaska cruises. It is possible that other states,
countries or ports of call that we regularly visit may decide to also assess new
taxes specifically targeted to the cruise industry, which could increase our
operating costs and/or could decrease the demand for cruises and ultimately
decrease our net revenue yields.
Increases in operating, financing and tax costs could adversely affect our
results because we may not be able to recover these increased costs through
price increases charged to our passengers.
o Environmental legislation and regulations could affect operations
and increase our operating costs.
Some environmental groups have lobbied for more stringent regulation of
cruise ships. Some groups have also generated negative publicity about the
cruise industry and its environmental impact. The U.S. Congress, the IMO and the
U.S. Environmental Protection Agency periodically consider new laws and
regulations to manage cruise ship pollution. In addition, various other
regulatory agencies in the States of Alaska, California, Florida, Hawaii, Maine,
Washington and elsewhere, including European regulatory organizations, have
enacted or are considering new regulations or policies, which could adversely
impact the cruise industry. See Part I, Item 1. Business, B. - "Cruise
Operations - Governmental Regulations" for additional information.
27
Current and future environmental laws and regulations, or liabilities
arising from past or future releases of, or exposure to, hazardous substances or
to vessel discharges, could increase our cost of compliance or otherwise
materially adversely affect our business, results of operations and/or financial
condition.
o New regulations of health, safety, security and other regulatory
issues could increase our operating costs or negatively effect our
bookings and future net revenue yields and adversely affect net
income.
We are subject to various international, national, state and local health,
safety and security laws, regulations and treaties. See Part I, Item 1.
Business, B. - "Cruise Operations-Governmental Regulations" for a detailed
discussion of these regulatory issues.
We believe that health, safety, security and other regulatory issues will
continue to be areas of focus by relevant government authorities in the U.S.,
Europe and elsewhere. Resulting legislation or regulations, or changes in
existing legislation or regulations, could impact our operations and would
likely subject us to increasing compliance costs in the future.
Pursuant to the Western Hemisphere Travel Initiative, by the earlier of
June 1, 2009 or 90 days after the sanctioning of a People Access Security
Service ("PASS") card, U.S. citizens will be required to carry a passport or, if
available, a PASS card, for travel by land or sea to or from certain
countries/areas that are currently exempt from passport requirements, such as
the Caribbean, Canada and Mexico. The State Department and the Department of
Homeland Security are collaborating on the development of a PASS card system.
The PASS card is a secure credential that verifies the citizenship and identity
of U.S. nationals who re-enter the United States and is seen as a less expensive
alternative to a passport.
Since many cruise customers visiting these destinations may not currently
have passports or may not obtain a PASS card if and when available, it is likely
that this will have some negative effect on our bookings and future net revenue
yields when the regulations take effect. There are a number of factors that
could influence the ultimate impact of these regulations, such as customer
travel patterns, the cost and ease of obtaining PASS cards, customer price
sensitivity and the cost and effectiveness of mitigating programs we and others
have established or will establish.
o Delays in ship construction and problems encountered at shipyards
could reduce our profitability.
The construction of cruise ships is a complex process and involves risks
similar to those encountered in other sophisticated construction projects,
including delays in completion and delivery. In addition, industrial actions,
insolvency or financial problems of the shipyards building our ships could also
delay or prevent the delivery of our ships under construction. These events
could adversely affect our profitability. However, the impact from a delay in
delivery could be partially mitigated by contractual provisions and refund
guarantees obtained by us. In addition, the consolidation of the European cruise
shipyards in recent years could result in higher prices for future new ship
orders, which could reduce our profitability.
Finally, as of November 30, 2006, we had entered into foreign currency
swaps to fix the cost in sterling of two of our euro denominated shipbuilding
contracts. If the shipyard with which we have contracted is unable to perform
under the related contracts, the foreign currency swaps related to the
shipyard's shipbuilding contracts would still have to be honored. This might
require us to realize a loss on existing foreign currency swaps without having
the ability to have an offsetting gain on our foreign currency denominated
shipbuilding contracts, thus resulting in an adverse effect on our financial
results.
o Our future operating cash flow may not be sufficient to fund future
obligations, and we may not be able to obtain additional financing,
if necessary, on terms that are favorable or consistent with our
expectations.
Our forecasted cash flow from future operations may be adversely affected
by various factors including, but not limited to, declines in customer demand,
increased competition, overcapacity, the deterioration in general economic and
business conditions, terrorist attacks, ship accidents and other incidents,
adverse publicity and increases in fuel prices, as well as other factors noted
under these "Risk Factors" and under the "Cautionary Note Concerning Factors
That May Affect Future Results" section below. To the extent that
28
we are required, or choose, to fund future cash requirements, including future
shipbuilding commitments, from sources other than cash flow from operations,
cash on hand and current external sources of liquidity, including committed
financings, we will have to secure such financing from banks or through the
offering of debt and/or equity securities in the public or private markets.
Our access to, and the cost of, financing will depend on, among other
things, the maintenance of strong long-term credit ratings. Carnival Corporation
and Carnival plc's senior, unsecured long-term debt ratings are "A3" by Moody's,
"A-" by Standard & Poor's and "A-" by Fitch Ratings. Carnival Corporation's
short-term corporate credit ratings are "Prime-2" by Moody's, "A-2" by Standard
& Poor's and "F2" by Fitch Ratings.
o Geographic regions in which we try to expand our business may be
slow to develop, and ultimately not develop how we expect, thus
resulting in the slower growth of our business.
As we expand our global presence, we enter into new developing markets,
which require, among other things, certain start-up costs that we may not be
able to recover through future revenues that these new markets will generate. In
addition, we cannot be certain that these markets will ultimately develop as we
expect. Accordingly, our business expansion plans may not produce the returns
that we had expected. For instance, we recently entered the Chinese market, and
it is currently too early to determine if it will develop as expected.
o We rely to a large extent on scheduled commercial airline services
for guest connections and, therefore, increases in the price of, or
major changes or reduction in commercial airline services, could
undermine our ability to provide reasonably priced vacation packages
to our guests.
Some of our guests depend on scheduled commercial airline services to
transport them to or from the ports where our cruises embark or disembark.
Increases in the price of airfare would increase the overall vacation price to
our guests and may adversely affect demand for our cruises. In addition, changes
in commercial airline services as a result of strikes, weather or other events,
or the lack of availability due to schedule changes or a high level of airline
bookings could adversely affect our ability to deliver guests to or from our
cruise ships and increase our cost of sales which would, in turn, have an
adverse effect on our results of operations.
o We rely on external sales distribution channels for most of our
guests bookings and, therefore, major changes in the costs or
availability of external distribution channels could result in a
reduction in our sales revenues and net income.
In 2006, the vast majority of our guests booked their cruises through
independent travel agents, wholesalers and tour operators. These parties
generally sell and market our cruises on a nonexclusive basis. Although we offer
commission and other incentives to them for booking our cruises that are
comparable to those offered by others in the cruise industry, there can be no
guarantee that our competitors will not offer higher commissions and incentives
in the future. In addition, significant disruptions or contractions to these
businesses could have an adverse effect on our sales and related commission
costs.
o The decision to self-insure against various risks or the inability
to obtain insurance for certain risks at reasonable rates could
result in higher expenses.
We seek to maintain comprehensive insurance coverage at commercially
reasonable rates. We believe that our current coverage is adequate to protect us
against most of the significant risks involved in the conduct of our business,
although we do elect to self-insure or use higher deductibles for various risks
to minimize the cost of our insurance coverage. Accordingly, we are not
protected against all risks, which could result in unexpected increases in our
expenses in the event of an incident.
In addition, a new protocol to the Athens Convention is in the process of
being ratified, which would require some passenger ship operations to maintain
insurance or some other form of financial security, to cover the limits of
liability under the Athens Convention. If the protocol is ratified, we cannot be
certain that affordable and viable insurance markets will be available to
provide the required coverages. If the new protocol is ratified we expect our
insurance costs to increase.
29
Finally, we may also be subject to additional premium costs, in amounts
based not only on our own claim records, but also on the claim records of all
other members of the protection and indemnity associations through which we
receive indemnity coverage for tort liability. If we, or other members of our
P&I associations, were to sustain significant losses in the future, our ability
to obtain insurance coverage or coverage at commercially reasonable rates could
be materially adversely affected.
o Disruptions to our information technology networks could result in
decreases in our net income.
Our ability to increase revenues and decrease costs, as well as our
ability to serve passengers most effectively, depends in part on the reliability
of our information technology ("IT") networks. We use software and other IT
systems to, among other things, manage our inventory of cabins held for sale and
set their pricing in order to maximize our revenues, and to optimize the
effectiveness and efficiency of our shoreside and shipboard operations. Any
disruption to these computer systems could adversely impact our customer
service, decrease the volume of our business and result in increased costs.
While we have invested and continue to invest in IT security initiatives and
disaster recovery plans, these measures cannot insulate us from IT disruptions
that could result in adverse effects on our operations and net income.
o The continued availability of attractive port destinations for our
cruise ships could reduce our net revenue yields and net income.
We believe that attractive port destinations, including ports that are not
overly congested with tourists, are major reasons why our guests choose a cruise
versus an alternative vacation option. The availability of ports, including the
specific port facility at which our guests will embark and disembark, is
affected by a number of factors including, but not limited to, existing capacity
constraints, security concerns, unusual weather patterns and natural disasters,
financial limitations on port development, political instability, exclusivity
arrangements that ports may have with our competitors, local governmental
regulations and charges and local community concerns about both port development
and other adverse impacts on their communities from additional tourists. The
inability to continue to maintain, rebuild and increase our ports of call could
adversely affect our net revenue yields and net income.
o The DLC structure involves risks not associated with the more common
ways of combining the operations of two companies, and these risks
may have an adverse effect on the economic performance of the
companies and/or their respective share prices.
The DLC structure is a relatively uncommon way of combining the management
and operations of two companies and it involves different issues and risks from
those associated with the other more common ways of effecting a business
combination, such as a merger or exchange offer to create a wholly owned
subsidiary. In our DLC structure, the combination is effected primarily by means
of contracts between Carnival Corporation and Carnival plc and not by operation
of a statute or court order. The legal effect of these contractual rights may be
different from the legal effect of a merger or amalgamation under statute or
court order, and there may be difficulties in enforcing these contractual
rights. Shareholders and creditors of either company might challenge the
validity of the contracts or their lack of standing to enforce rights under
these contracts, and courts may interpret or enforce these contracts in a manner
inconsistent with the express provisions and intentions we included in such
contracts. In addition, shareholders and creditors of other companies might
successfully challenge other DLC structures and establish legal precedents that
could increase the risk of a successful challenge to our DLC structure. We are
maintaining two separate public companies and comply with both Panamanian
corporate law and English company laws and different securities and other
regulatory and stock exchange requirements in the UK and the U.S. This structure
requires more administrative time and cost than was the case for each company
individually, which has an adverse effect on our operating efficiency.
o Changes under the Internal Revenue Code, applicable U.S. income tax
treaties, and the uncertainty of the DLC structure under the
Internal Revenue Code may adversely affect the U.S. federal income
taxation of our U.S. source shipping income. In addition, changes in
the UK, Italian, German, Australian and other countries' or states'
income tax laws, regulations or treaties could also adversely affect
our net income.
30
We believe that substantially all of the U.S. source shipping income of
each of Carnival Corporation and Carnival plc qualifies for exemption from U.S.
federal income tax, either under (1) Section 883 of the Internal Revenue Code;
(2) U.S.-Italian income tax treaty; or (3) other applicable U.S. income tax
treaties, and should continue to so qualify under the DLC structure. There is,
however, no existing U.S. federal income tax authority that directly addresses
the tax consequences of implementation of a dual listed company structure for
purposes of Section 883 or any other provision of the Internal Revenue Code or
any income tax treaty and, consequently, these matters are not free from doubt.
As discussed above, if we did not qualify for exemption from U.S. federal
income taxes we would have higher income taxes and lower net income. Finally,
changes in the income tax laws affecting our cruise businesses in the UK, Italy,
Germany, Australia and elsewhere could result in higher income taxes being
levied on our cruise operations, thus resulting in lower net income.
See Part I, Item 1. Business, G. - "Taxation" for additional information.
o A small group of shareholders collectively owned, as of January 31,
2007, approximately 29% of the total combined voting power of our
outstanding shares and may be able to effectively control the
outcome of shareholder voting.
A group of shareholders, consisting of some members of the Arison family,
including Micky Arison, and trusts established for their benefit, beneficially
owned approximately 37% of the outstanding common stock of Carnival Corporation,
which shares represent sufficient shares entitled to constitute a quorum at
shareholder meetings and to cast approximately 29% of the total combined voting
power of Carnival Corporation & plc. Depending upon the nature and extent of the
shareholder vote, this group of shareholders may have the power to effectively
control, or at least to influence substantially, the outcome of certain
shareholder votes and, therefore, the corporate actions requiring such votes.
o Carnival Corporation and Carnival plc are not U.S. corporations, and
our shareholders may be subject to the uncertainties of a foreign
legal system in protecting their interests.
Carnival Corporation's corporate affairs are governed by its third amended
and restated articles of incorporation and amended and restated by-laws and by
the corporate laws of Panama. Carnival plc is governed by its articles of
association and memorandum of association and by the corporate laws of England
and Wales. The corporate laws of Panama and England and Wales may differ in some
respects from the corporate laws in the U.S.
o Provisions in Carnival Corporation's and Carnival plc's
constitutional documents may prevent or discourage takeovers and
business combinations that our shareholders might consider to be in
their best interests.
Carnival Corporation's amended articles of incorporation and by-laws and
Carnival plc's articles of association contain provisions that may delay, defer,
prevent or render more difficult a takeover attempt that our shareholders
consider to be in their best interests. As a result, these provisions may
prevent our shareholders from receiving a premium to the market price of our
shares offered by a bidder in a takeover context. Even in the absence of a
takeover attempt, the existence of these provisions may adversely affect the
prevailing market price of our shares if they are viewed as discouraging
takeover attempts in the future.
Specifically, Carnival Corporation's articles of incorporation contain
provisions that prevent third parties, other than the Arison family and trusts
established for their benefit, from acquiring beneficial ownership of more than
4.9% of its outstanding shares without the consent of Carnival Corporation's
board of directors and provide for the lapse of rights, and sale, of any shares
acquired in excess of that limit. The effect of these provisions may preclude
third parties from seeking to acquire a controlling interest in us in
transactions that shareholders might consider to be in their best interests and
may prevent them from receiving a premium above market price for their shares.
For a description of the reasons for the provisions see Part I, Item 1.
Business, G. - "Taxation- Application of Section 883 of the Internal Revenue
Code."
31
Cautionary Note Concerning Factors That May Affect Future Results
Some of the statements contained in this joint Annual Report on Form 10-K
are "forward-looking statements" that involve risks, uncertainties and
assumptions with respect to us, including some statements concerning future
results, outlook, 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. We have tried, wherever possible, to identify
these statements by using words like "will," "may," "believes," "expects,"
"anticipates," "forecast," "future," "intends," "plans," and "estimates" and for
similar expressions.
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 in this joint
Annual Report on Form 10-K. Forward-looking statements include those statements
which may impact the forecasting of our earnings per share, net revenue yields,
booking levels, pricing, occupancy, operating, financing and/or tax costs, fuel
costs, cost per available lower berth day, estimates of ship depreciable lives
and/or residual values, outlook or business prospects.
Certain of the risks we are exposed to are identified in "Management's
Discussion and Analysis of Financial Condition and Results of Operations-
Cautionary Note Concerning Factors That May Affect Future Results" in Exhibit 13
to this joint Annual Report on Form 10-K and in this Item 1A. "Risk Factors."
These sections contain important cautionary statements and a discussion of many
of the factors that could materially affect the accuracy of our forward-looking
statements and/or adversely affect our business, results of operations and
financial position.
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 listing rules, we expressly disclaim any obligation to disseminate,
after the date of this joint Annual Report on Form 10-K, 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.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The Carnival Corporation and Carnival plc corporate headquarters and our
operating units' principal shoreside operations and headquarters are as follows:
Entity/Brand Location Square Footage Own/Lease
------------ -------- -------------- ---------
Carnival Corporation and
Carnival Cruise Lines Miami, FL U.S.A. 456,000/20,000 Own/Lease
Princess and Cunard Santa Clarita, CA U.S.A. 283,000 Lease
Holland America Line, Holland
America Tours, Princess Tours
and Windstar Seattle, WA U.S.A. 233,000/38,000 Lease/Own
Costa Genoa, Italy 155,000/8,000 Own/Lease
Art framing and warehouse and
Princess warehouse facilities Dania Beach and
Ft. Lauderdale,
Florida U.S.A. 152,000 Lease
P&O Cruises, Ocean Village,
Swan Hellenic, Cunard,
Carnival Corporation & plc's
Technical Services and UK
sales office Southampton, England (a) 112,000 Lease
AIDA Rostock, Germany 110,000 Lease
Carnival Cruise Lines
sales office Miramar, Florida U.S.A. 63,000 Lease
P&O Cruises Australia Sydney, Australia 35,000 Lease
Costa U.S. sales office Hollywood, Florida U.S.A. 29,000 Lease
Carnival plc and UK sales
offices London, England 8,000 Lease
32
(a) P&O Cruises recently entered into a new Southampton office lease agreement
for 150,000 square feet to eventually replace their existing Southampton
lease facility, which they expect to move into during fiscal 2009.
In addition, we also lease 27,000 square feet of office space in Colorado
Springs, Colorado and 10,000 square feet in Fort Pierce, Florida for additional
Carnival Cruise Lines reservation centers and 20,000 square feet in Los Angeles,
California for Princess' entertainment department. In Williston, North Dakota,
Holland America Line owns 22,000 square feet of office space that is also a
reservation center. Finally, we own or lease port facilities in Cozumel, Mexico,
Juneau, Alaska, Long Beach, California, Savona, Italy and Grand Turk, the Turks
& Caicos Islands.
Our cruise ships, shoreside operations, headquarter facilities and Holland
America Tours' and Princess Tours' properties, are all well maintained and in
good condition. We evaluate our needs periodically and obtain additional
facilities when deemed necessary. We believe that our facilities are adequate
for our current needs.
Our cruise ships and Holland America Line's and Princess' private islands,
Half Moon Cay and Princess Cays, respectively, are briefly described in Part I,
Item 1. Business, B. - "Cruise Operations." The hotel properties associated with
Holland America Tours and Princess Tours operations, substantially all of which
are owned, are briefly described in Part I, Item 1. Business, A. - "General."
Item 3. Legal Proceedings.
On September 21, 2006, a class action complaint was filed by J. B. Miller
on behalf of a purported class of past passengers against Holland America Line
("HAL") in the U.S. District Court for the Western District of Washington. The
complaint alleges that HAL (a) failed to disclose that shore excursion vendors
paid HAL to promote their services as required by an Alaska statute, and (b)
collected and retained payment from passengers for Passenger Vessel Service Act
("PSVA") violations in certain instances when HAL did not actually incur the
fines. The complaint seeks (i) certification as a class action, (ii) statutory
damages under Alaska's consumer protection statutes, (iii) damages for each PSVA
fine collected and additional damages for each PSVA fine collected where no fine
was imposed, (iv) injunctive relief and (v) attorneys' fees, costs and interest.
We believe that we have meritorious defenses to these claims and intend to
vigorously defend this matter.
In January 2006, a lawsuit was filed against Carnival Corporation and its
subsidiaries and affiliates, and other non-affiliated cruise lines in the U.S.
District Court for the Southern District of New York on behalf of James Jacobs
and a purported class of owners of intellectual property rights to musical plays
and other works performed in the U.S. The plaintiffs claim infringement of
copyrights to Broadway, off Broadway and other plays. The suit seeks payment of
(i) damages, (ii) disgorgement of alleged profits and (iii) an injunction
against future infringement. We intend to vigorously defend this matter.
As of February 2007, three separate actions had been filed against each of
Carnival Corporation and Princess Cruise Lines, Ltd. in either the U.S. District
Court for the Southern District of Florida ("Florida Court") or the U.S.
District Court for the Central District of California ("California Court") on
behalf of some current and former crew members alleging that Carnival Cruise
Lines and Princess Cruises failed to timely pay the plaintiffs for overtime and
other wages due (the "Wage Actions"). These six actions generally seek payment
of (i) damages for breach of contract or restitution for back wages, (ii)
damages under the Seaman's Wage Act and (iii) interest.
Carnival:
In November 2005 and in March 2005, two lawsuits were filed against
Carnival Corporation in the Florida Court. In May 2006, Carnival
Corporation entered into a settlement agreement for these combined
lawsuits. The settlement received final court approval in 2006 resulting
in the dismissal of the cases. The settlement agreement required Carnival
Corporation to establish a settlement fund, the ultimate net amount of
which was estimated and recorded as an expense in 2006. In February 2006 a
lawsuit was filed against Carnival Corporation in the California Court,
which was dismissed in November 2006 with prejudice.
33
Princess:
In November 2005, a lawsuit was filed against Princess in the Florida
Court. In September 2006, Princess entered into a settlement agreement,
which is subject to final court approval. The settlement agreement
required Princess to establish a settlement fund, the ultimate net amount
of which was estimated and recorded as an expense in 2006. We cannot be
certain that such approval will be obtained. However, the Florida Court
has granted preliminary approval of the settlement. A hearing is scheduled
for February 2007.
Also in September 2006, Princess settled the third class action filed
against it in the California Court. In December 2006, preliminary approval
of the settlement was issued by the California Court. As part of the
settlement, plaintiff's appeal of summary judgment granted to Princess in
the remaining Wage Action will be dismissed. We cannot be certain that
final approval of the settlement will be granted.
On November 22, 2000, Costa instituted arbitration proceedings in Italy to
confirm the validity of its decision not to deliver its ship, the Costa
Classica, to the shipyard of Cammell Laird Holdings PLC ("Cammell Laird") under
a 79 million euro denominated contract for the conversion and lengthening of the
ship in November 2000. Cammell Laird joined the arbitration proceeding on
January 9, 2001 to present its counter demands. On January 9, 2001, Costa gave
Cammell Laird notice of termination of the contract and Cammell Laird replied
with its notice of termination of the contract on February 2, 2001. In October
2006 the arbitrator ruled in Costa's favor and, accordingly, confirmed Costa's
decision not to deliver the Costa Classica to Cammell Laird. Unless the Cammell
Laird administrators appeal the Tribunal's decision by December 2007, this
matter is concluded.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Executive Officers of the Registrants
Pursuant to General Instruction G(3), the information regarding our
executive officers called for by Item 401(b) of Regulation S-K is hereby
included in Part I of this joint Annual Report on Form 10-K.
The following table sets forth the name, age and title of each of our
executive officers. Titles listed relate to positions within Carnival
Corporation and Carnival plc unless otherwise noted. All the Carnival plc
positions were effective as of April 17, 2003, except as noted below.
NAME AGE POSITION
---- --- --------
Micky Arison 57 Chairman of the Board of Directors and
Chief Executive Officer
Gerald R. Cahill 55 Executive Vice President and Chief Financial
and Accounting Officer
Robert H. Dickinson 64 President and Chief Executive Officer of
Carnival Cruise Lines and Director
Pier Luigi Foschi 60 Chairman and Chief Executive Officer of
Costa Crociere, S.p.A. and Director
Howard S. Frank 65 Vice Chairman of the Board of Directors and
Chief Operating Officer
Stein Kruse 48 President and Chief Executive Officer of
Holland America Line Inc. ("HAL")
Arnaldo Perez 46 Senior Vice President, General Counsel
and Secretary
Peter G. Ratcliffe 58 Chief Executive Officer of P&O Princess
Cruises International and Director
Business Experience of Executive Officers
Micky Arison has been Chairman of the Board of Directors since October
1990 and a director since June 1987. He has been Chief Executive Officer since
1979. Mr. Arison has been employed by us for 35 years.
34
Gerald R. Cahill has been Executive Vice President and Chief Financial and
Accounting Officer since December 2003. From January 1998 to November 2003 he
was Senior Vice President Finance, Chief Financial and Accounting Officer. Mr.
Cahill has been employed by us for 12 years.
Robert H. Dickinson has been a director since June 1987. Mr. Dickinson has
been President and Chief Executive Officer of Carnival Cruise Lines since May
2003. He was President and Chief Operating Officer of Carnival Cruise Lines from
May 1993 to May 2003. Mr. Dickinson has been employed by us for 35 years.
Pier Luigi Foschi has been a director since April 2003. He has been Chief
Executive Officer of Costa Crociere, S.p.A. since October 1997 and Chairman of
its Board since January 2000. Mr. Foschi has been employed by us for nine years.
Howard S. Frank has been Vice Chairman of the Board of Directors since
October 1993, Chief Operating Officer since January 1998 and a director since
April 1992. Mr. Frank has been employed by us for 17 years.
Stein Kruse has been the President and Chief Executive Officer of HAL
since December 2004. From November 2003 to November 2004, he was the President
and Chief Operating Officer of HAL. From September 1999 to October 2003, he was
Senior Vice President, Fleet Operations for HAL. From June 1997 to August 1999
he was Senior Vice President and Chief Financial Officer for "K" Line America,
Inc. Mr. Kruse has been employed by us for seven years.
Arnaldo Perez has been Senior Vice President, General Counsel and
Secretary since March 2002. From August 1995 to February 2002 he was Vice
President, General Counsel and Secretary. Mr. Perez has been employed by us for
14 years.
Peter G. Ratcliffe has been a director since April 2003 and a director of
Carnival plc since October 2000. He is Chief Executive Officer of P&O Princess
Cruises International, and is primarily responsible for the operations of
Cunard, Ocean Village, P&O Cruises, P&O Cruises Australia, Princess and Swan
Hellenic. He was Carnival plc's Chief Executive Officer until April 2003. He was
previously an executive director of The Peninsular and Oriental Steam Navigation
Company and head of its cruise division, having served as President of Princess
since 1993 and its Chief Operating Officer since 1989. Mr. Ratcliffe has been
employed by us or Carnival plc predecessor companies for 33 years.
PART II
Item 5. Market for Registrants' Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
A. Market Information
The information required by Item 201(a) of Regulation S-K, Market
Information, is shown in Exhibit 13 and is incorporated by reference into this
joint Annual Report on Form 10-K.
B. Holders
The information required by Item 201(b) of Regulation S-K, Holders of
Common Stock, is shown in Exhibit 13 and is incorporated by reference into this
joint Annual Report on Form 10-K.
C. Dividends
Carnival Corporation and Carnival plc declared cash dividends on all of
their common stock and ordinary shares, respectively, in the amount of:
Quarters Ended
-------------------------------------------------------
February 28 May 31 August 31 November 30
----------- ------ --------- -----------
2007 $0.275
2006 $ 0.25 $0.25 $0.25 $0.275
2005 $ 0.15 $0.20 $0.20 $ 0.25
35
All dividends for both Carnival Corporation and Carnival plc are declared
in U.S. dollars. Holders of Carnival Corporation common stock or Carnival plc
American Depository Shares receive a dividend payable in U.S. dollars. The
dividends payable for Carnival plc ordinary shares are payable in sterling,
unless the shareholders elect to receive the dividend in U.S. dollars. Dividends
payable in sterling will be converted from U.S. dollars into sterling at the
dollar/sterling exchange rate quoted by the Bank of England in London at the
12:00 p.m. foreign exchange rate on the next business day that follows the
quarter end.
Payment of future dividends on Carnival Corporation common stock and
Carnival plc ordinary shares will depend upon, among other factors, our
earnings, financial condition and capital requirements. The payment and amount
of any dividend is within the discretion of the Boards of Directors, and it is
possible that the timing and amount of any dividend may vary from the levels
discussed above. We cannot be certain that Carnival Corporation and Carnival plc
will continue to have per share dividend increases as were declared in 2006 and
2005 or maintain their current levels.
D. Securities Authorized for Issuance under Equity Compensation Plans
The information required by Item 201(d) of Regulation S-K is incorporated
by reference to Part III of this joint Annual Report on Form 10-K.
E. Issuer Purchases of Equity Securities
During the quarter ended November 30, 2006, purchases by Carnival
Corporation of Carnival Corporation's equity securities that are registered by
it pursuant to Section 12 of the Exchange Act were as follows:
Total Number of Average Maximum Dollar Value of Shares
Shares Purchased in Price Paid That May Yet Be Purchased
Period Fourth Quarter per Share Under the Plans or Programs(a)
------ ------------------- ---------- ------------------------------
(in millions)
September 1, 2006 through
September 30, 2006 1,143,200 $ 42.44 $ 773
October 1, 2006 through
October 31, 2006 $ 773
November 1, 2006 through
November 30, 2006 $ 773
---------
Total 1,143,200 $ 42.44
=========
(a) During 2004 the Boards of Directors authorized the repurchase of up to an
aggregate of $1 billion of Carnival Corporation common stock and/or
Carnival plc ordinary shares subject to certain repurchase restrictions on
the Carnival plc shares. We completed this $1 billion repurchase program
on June 29, 2006. A second $1 billion authorization was approved by the
Boards of Directors in June 2006 subject to certain restrictions ("2006
Purchase Program"). This 2006 Purchase Program may be discontinued by our
Boards of Directors at any time and does not have an expiration date.
The Carnival plc share repurchase authorization requires annual
shareholder approval. All shares in the above table were repurchased
pursuant to this 2006 Purchase Program. At February 9, 2007 the remaining
availability pursuant to our 2006 Purchase Program was $773 million.
During the year ended November 30, 2006, $69 million of our Zero-Coupon
Notes were converted at their accreted value into 2.1 million shares of Carnival
Corporation common stock, of which 1.9 million were issued from treasury stock.
The issuance was exempt from registration under Section 3(a)(9) of the
Securities Act of 1933, as amended.
Each share of Carnival Corporation common stock issued is paired with a
trust share of beneficial interest in the P&O Princess Special Voting Trust,
which holds a Special Voting Share issued by Carnival plc in connection with the
DLC transaction.
Item 6. Selected Financial Data.
The information required by Item 6. Selected Financial Data, is shown in
Exhibit 13 and is incorporated by reference into this joint Annual Report on
Form 10-K.
36
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information required by Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations, is shown in Exhibit 13 and is
incorporated by reference into this joint Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by Item 7A. Quantitative and Qualitative
Disclosures About Market Risk, is shown in Management's Discussion and Analysis
of Financial Condition and Results of Operations in Exhibit 13 and is
incorporated by reference into this joint Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated February 12, 2007, and the Selected Quarterly
Financial Data (Unaudited), are shown in Exhibit 13 and are incorporated by
reference into this joint Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable
assurance that information required to be disclosed by us in the reports that we
file or submit, is recorded, processed, summarized and reported, within the time
periods specified in the U.S. Securities and Exchange Commission's rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
us in our reports that we file or submit under the Act is accumulated and
communicated to our management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
Our Chief Executive Officer, Chief Operating Officer and Chief Financial
and Accounting Officer have evaluated our disclosure controls and procedures and
have concluded, as of November 30, 2006, that they are effective as described
above.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). Under the supervision and with the participation of our
management, including our Chief Executive Officer, Chief Operating Officer and
Chief Financial and Accounting Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control - Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO Framework"). Based on
our evaluation under the COSO Framework, our management concluded that our
internal control over financial reporting was effective as of November 30, 2006.
Our management's assessment of the effectiveness of our internal control
over financial reporting as of November 30, 2006 has been audited by
PricewaterhouseCoopers LLP, an independent registered certified public
accounting firm, as stated in their report which is shown in Exhibit 13 and is
incorporated by reference into this joint Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
During the three months ended November 30, 2006, we continued with our
implementation of a new worldwide accounting system.
37
As a result, there have been changes in our internal control over
financial reporting during the quarter ended November 30, 2006 that have
materially affected or are reasonably likely to materially affect our internal
control over financial reporting.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part upon certain assumptions about the likelihood of future
events. Because of these and other inherent limitations of control systems,
there is only reasonable assurance that our controls will succeed in achieving
their goals under all potential future conditions.
Item 9B. Other Information.
None.
PART III
Items 10, 11, 12, 13 and 14. Directors and Executive Officers of the
Registrants, Executive Compensation, Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters,
Certain Relationships and Related Transactions, and Principal
Accounting Fees and Services.
The information required by Items 10, 11, 12, 13 and 14 is
incorporated herein by reference to the Carnival Corporation and Carnival
plc joint definitive proxy statement to be filed with the U.S. Securities
and Exchange Commission not later than 120 days after the close of the
fiscal year, except that the information concerning the Carnival
Corporation and Carnival plc executive officers called for by Item 401(b)
of Regulation S-K is included in Part I of this joint Annual Report on
Form 10-K.
We have adopted a code of ethics that applies to our chief executive
officer, chief operating officer and senior financial officers, including
the principal financial and accounting officer, controller and other
persons performing similar functions. This code of ethics is posted on our
website, which is located at www.carnivalcorp.com and www.carnivalplc.com.
We intend to satisfy the disclosure requirement under Item 10 of Form 8-K
regarding an amendment to, or waiver from, a provision of this code of
ethics by posting such information on our website, at the addresses
specified above. Information contained in our website, whether currently
posted or posted in the future, is not part of this document or the
documents incorporated by reference in this document.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) (1) Financial Statements
The financial statements shown in Exhibit 13 are incorporated herein
by reference into this joint Annual Report on Form 10-K.
(2) Financial Statement Schedules
All schedules for which provision is made in the applicable
accounting regulations of the SEC are not required under the related
instruction or are inapplicable and, therefore, have been omitted.
(3) Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed
or incorporated by reference as part of this joint Annual Report on Form
10-K and such Index to Exhibits is hereby incorporated herein by
reference.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, each of the registrants has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CARNIVAL CORPORATION CARNIVAL PLC
/s/ Micky Arison /s/ Micky Arison
- ---------------- ----------------
Micky Arison Micky Arison
Chairman of the Board of Chairman of the Board of
Directors and Chief Executive Officer Directors and Chief Executive Officer
February 12, 2007 February 12, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
each of the registrants and in the capacities and on the dates indicated.
CARNIVAL CORPORATION CARNIVAL PLC
/s/ Micky Arison /s/ Micky Arison
- ---------------- ----------------
Micky Arison Micky Arison
Chairman of the Board of Chairman of the Board of
Directors and Chief Executive Officer Directors and Chief Executive Officer
February 12, 2007 February 12, 2007
/s/ Howard S. Frank /s/ Howard S. Frank
- ------------------- -------------------
Howard S. Frank Howard S. Frank
Vice Chairman of the Board of Vice Chairman of the Board of
Directors and Chief Operating Officer Directors and Chief Operating Officer
February 12, 2007 February 12, 2007
/s/ Gerald R. Cahill /s/ Gerald R. Cahill
- -------------------- --------------------
Gerald R. Cahill Gerald R. Cahill
Executive Vice President Executive Vice President
and Chief Financial and and Chief Financial and
Accounting Officer Accounting Officer
February 12, 2007 February 12, 2007
/s/ *Richard G. Capen, Jr. /s/ *Richard G. Capen, Jr.
- -------------------------- --------------------------
Richard G. Capen, Jr. Richard G. Capen, Jr.
Director Director
February 12, 2007 February 12, 2007
/s/ *Robert H. Dickinson /s/ *Robert H. Dickinson
- ------------------------ ------------------------
Robert H. Dickinson Robert H. Dickinson
Director Director
February 12, 2007 February 12, 2007
/s/ *Arnold W. Donald /s/ *Arnold W. Donald
- --------------------- ---------------------
Arnold W. Donald Arnold W. Donald
Director Director
February 12, 2007 February 12, 2007
/s/ *Pier Luigi Foschi /s/ *Pier Luigi Foschi
- ---------------------- ----------------------
Pier Luigi Foschi Pier Luigi Foschi
Director Director
February 12, 2007 February 12, 2007
/s/ *Richard J. Glasier /s/ *Richard J. Glasier
- ----------------------- -----------------------
Richard J. Glasier Richard J. Glasier
Director Director
February 12, 2007 February 12, 2007
39
/s/ *Baroness Sarah Hogg /s/ *Baroness Sarah Hogg
- ------------------------ ------------------------
Baroness Hogg Baroness Hogg
Director Director
February 12, 2007 February 12, 2007
/s/ *A. Kirk Lanterman /s/ *A. Kirk Lanterman
- ---------------------- ----------------------
A. Kirk Lanterman A. Kirk Lanterman
Director Director
February 12, 2007 February 12, 2007
/s/ *Modesto A. Maidique /s/ *Modesto A. Maidique
- ------------------------ ------------------------
Modesto A. Maidique Modesto A. Maidique
Director Director
February 12, 2007 February 12, 2007
/s/ *Sir John Parker /s/ *Sir John Parker
- -------------------- --------------------
Sir John Parker Sir John Parker
Director Director
February 12, 2007 February 12, 2007
/s/ *Peter G. Ratcliffe /s/ *Peter G. Ratcliffe
- ----------------------- -----------------------
Peter G. Ratcliffe Peter G. Ratcliffe
Director Director
February 12, 2007 February 12, 2007
/s/ *Stuart Subotnick /s/ *Stuart Subotnick
- --------------------- ---------------------
Stuart Subotnick Stuart Subotnick
Director Director
February 12, 2007 February 12, 2007
/s/ *Laura Weil /s/ *Laura Weil
- --------------- ---------------
Laura Weil Laura Weil
Director Director
February 12, 2007 February 12, 2007
/s/ *Uzi Zucker /s/ *Uzi Zucker
- --------------- ---------------
Uzi Zucker Uzi Zucker
Director Director
February 12, 2007 February 12, 2007
*By: /s/ Arnaldo Perez *By: /s/ Arnaldo Perez
- ---------------------- ----------------------
(Arnaldo Perez (Arnaldo Perez
Attorney-in-fact) Attorney-in-fact)
February 12, 2007 February 12, 2007
40
INDEX TO EXHIBITS
Page No. in
Sequential
Numbering
System
Exhibits
3.1-Third Amended and Restated Articles of Incorporation of Carnival
Corporation, incorporated by reference to Exhibit No. 3.1 to the joint Current
Report on Form 8-K of Carnival Corporation and Carnival plc filed on April 17,
2003.
3.2-Amended and Restated By-laws of Carnival Corporation, incorporated by
reference to Exhibit No. 3.2 to the joint Current Report on Form 8-K of
Carnival Corporation and Carnival plc filed on April 17, 2003.
3.3-Articles of Association of Carnival plc, incorporated by reference to
Exhibit No. 3.3 to the joint Current Report on Form 8-K of Carnival Corporation
and Carnival plc filed on April 17, 2003.
3.4-Memorandum of Association of Carnival plc, incorporated by reference to
Exhibit No. 3.4 to the joint Current Report on Form 8-K of Carnival Corporation
and Carnival plc filed on April 17, 2003.
4.1-Agreement of Carnival Corporation and Carnival plc, dated February 7, 2007
to furnish certain debt instruments to the Securities and Exchange Commission.
4.2-Carnival Corporation Deed, dated April 17, 2003, between Carnival
Corporation and P&O Princess Cruises plc for the benefit of the P&O Princess
Shareholders, incorporated by reference to Exhibit No. 4.1 to our joint
Quarterly Report on Form 10-Q for the quarter ended August 31, 2003.
4.3-Equalization and Governance Agreement, dated April 17, 2003, between
Carnival Corporation and P&O Princess Cruises plc, incorporated by reference to
Exhibit No. 4.2 to our joint Quarterly Report on Form 10-Q of Carnival
Corporation and Carnival plc for the quarter ended August 31, 2003.
4.4-Carnival Corporation Deed of Guarantee, dated as of April 17, 2003, between
Carnival Corporation and Carnival plc, incorporated by reference to Exhibit No.
4.3 to the joint registration statement on Form S-4 of Carnival Corporation and
Carnival plc.
4.5-Carnival plc (formerly P&O Princess Cruises plc) Deed of Guarantee, dated
as of April 17, 2003, between Carnival Corporation and Carnival plc,
incorporated by reference to Exhibit No. 4.10 to the joint registration
statement on Form S-3 and F-3 of Carnival Corporation, Carnival plc and P&O
Princess Cruises International Ltd. ("POPCIL").
4.6-Specimen Common Stock Certificate, incorporated by reference to Exhibit No.
4.16 to the joint registration statement on Form S-3 and F-3 of Carnival
Corporation, Carnival plc and POPCIL.
4.7-Pairing Agreement, dated as of April 17, 2003, between Carnival
Corporation, The Law Debenture Trust Corporation (Cayman) Limited, as trustee,
and Computershare Investor Services (formerly SunTrust Bank), as transfer
agent, incorporated by reference to the joint Current Report on Form 8-K of
Carnival Corporation and Carnival plc filed on April 17, 2003.
4.8-Voting Trust Deed, dated as of April 17, 2003, between Carnival Corporation
and The Law Debenture Trust Corporation (Cayman) Limited, as trustee,
incorporated by reference to the joint Current Report on Form 8-K of Carnival
Corporation and Carnival plc filed on April 17, 2003.
4.9-SVE Special Voting Deed, dated as of April 17, 2003, between Carnival
Corporation, DLS SVC Limited, P&O Princess Cruises plc, The Law Debenture Trust
Corporation (Cayman) Limited, as trustee, and The Law Debenture Trust
Corporation, P.L.C., incorporated by reference to the joint Current Report on
Form 8-K of Carnival Corporation and Carnival plc filed on April 17, 2003.
4.10-Form of deposit agreement among P&O Princess Cruises plc, Morgan Guaranty
Trust Company of New York, as depositary, and holders and beneficial owners
from time to time of ADRs issued thereunder, incorporated by reference to P&O
Princess' Cruises registration statement on Form 20-F.
41
4.11-Indenture, dated as of April 25, 2001, between Carnival Corporation and
U.S. Bank Trust National Association, as trustee, relating to unsecured and
unsubordinated debt securities, incorporated by reference to Exhibit No. 4.5 to
Carnival Corporation registration statement on Form S-3.
4.12-Form of Indenture, dated March 1, 1993, between Carnival Cruise Lines,
Inc. and First Trust National Association, as Trustee, relating to the Debt
Securities, including form of Debt Security, incorporated by reference to
Exhibit No. 4 to Carnival Corporation registration statement on Form S-3.
4.13-Second Supplemental Indenture, dated December 1, 2003, between Carnival
plc and Carnival Corporation to The Bank of New York, as Trustee, relating to
7.30% Notes due 2007 and 7.875% debentures due 2027 incorporated by reference
to Exhibit No. 4.14 to our joint Annual Report on Form 10-K for the year ended
November 30, 2003.
*10.1-Retirement and Consulting Agreement, dated November 28, 2003, between
Alton Kirk Lanterman, Carnival Corporation, Holland America Line Inc., and
others, incorporated by reference to Exhibit No. 10.1 to our joint Annual
Report on Form 10-K for the year ended November 30, 2003.
*10.2-Amendment to the Amended and Restated Carnival Corporation 1992 Stock
Option Plan, incorporated by reference to Exhibit No. 10.2 to our joint Annual
Report on Form 10-K for the year ended November 30, 2003.
10.3-Facilities Agreement dated October 21, 2005, between Carnival Corporation,
Carnival plc, and certain of Carnival Corporation and Carnival plc
subsidiaries, The Royal Bank of Scotland as facilities agent and a syndicate of
financial institutions incorporated by reference to Exhibit 10.3 to our joint
Annual Report on Form 10-K for the year ended November 30, 2005.
*10.4-Amended and Restated Carnival Corporation 1992 Stock Option Plan,
incorporated by reference to Exhibit No. 10.4 to our Annual Report on Form 10-K
for the year ended November 30, 1997.
*10.5-Carnival Cruise Lines, Inc. 1993 Restricted Stock Plan adopted on January
15, 1993 and as amended January 5, 1998 and December 21, 1998, incorporated by
reference to Exhibit No. 10.5 to our Annual Report on Form 10-K for the year
ended November 30, 1998.
*10.6-Carnival Corporation "Fun Ship" Nonqualified Savings Plan, incorporated by
reference to Exhibit No. 10.6 to our Annual Report on Form 10-K for the year
ended November 30, 1997.
*10.7-Amendments to the Carnival Corporation Nonqualified Retirement Plan for
Highly Compensated Employees, incorporated by reference to Exhibit No. 10.7 to
our Annual Report on Form 10-K for the year ended November 30, 1997.
*10.8-Carnival Cruise Lines, Inc. Non-Qualified Retirement Plan, incorporated by
reference to Exhibit No. 10.4 to our Annual Report on Form 10-K for the year
ended November 30, 1990.
*10.9-Executive Long-term Compensation Agreement, dated as of January 16, 1998,
between Robert H. Dickinson and Carnival Corporation, incorporated by reference
to Exhibit No. 10.2 to our Annual Report on Form 10-K for the year ended
November 30, 1997.
*10.10-Consulting Agreement/Registration Rights Agreement, dated June 14, 1991,
between Carnival Corporation and Ted Arison, incorporated by reference to
Exhibit No. 4.3 to post- effective amendment no. 1 on Form S-3 to Carnival
Corporation's registration statement on Form S-1.
*10.11-First Amendment to Consulting Agreement/Registration Rights Agreement
between Carnival Corporation and Ted Arison, incorporated by reference to
Exhibit No. 10.40 to Carnival Corporation's Annual Report on Form 10-K for the
year ended November 30, 1992.
*10.12-Director Appointment Letter between Peter G. Ratcliffe and Carnival plc,
incorporated by reference to Exhibit No. 10.23 to our joint Quarterly Report on
Form 10-Q for the quarter ended May 31, 2003.
42
*10.13-Director Appointment Letter, dated August 19, 2004, between Baroness
Sarah Hogg and each of Carnival Corporation and Carnival plc, incorporated by
reference to Exhibit No. 10.13 to our joint Annual Report on Form 10-K for the
year ended November 30, 2004.
*10.14-Director's Appointment Letter, dated August 19, 2004, between Richard J.
Glasier and each of Carnival Corporation and Carnival plc, incorporated by
reference to Exhibit No. 10.14 to our joint Annual Report on Form 10-K for the
year ended November 30, 2004.
*10.15-Director Appointment Letter, dated August 19, 2004, between Sir John
Parker and each of Carnival Corporation and Carnival plc, incorporated by
reference to Exhibit No. 10.15 to our joint Annual Report on Form 10-K for the
year ended November 30, 2004.
*10.16-Amended and Restated Carnival plc 2005 Employee Share Plan, incorporated
by reference to Exhibit No. 10.2 to our joint Quarterly Report on Form 10-Q for
the quarter ended August 31, 2005.
*10.17-Executive Long-term Compensation Agreement, dated January 11, 1999,
between Carnival Corporation and Micky Arison, incorporated by reference to
Exhibit No. 10.36 to Carnival Corporation's Annual Report on Form 10-K for the
year ended November 30, 1998.
*10.18-Executive Long-term Compensation Agreement, dated January 11, 1999,
between Carnival Corporation and Howard S. Frank, incorporated by reference to
Exhibit No. 10.37 to Carnival Corporation's Annual Report on Form 10-K for the
year ended November 30, 1998.
*10.19-Carnival Corporation Supplemental Executive Retirement Plan, incorporated
by reference to Exhibit No. 10.32 to Carnival Corporation's Annual Report on
Form 10-K for the year ended November 30, 1999.
*10.20-Amendment to the Carnival Corporation Supplemental Executive Retirement
Plan, incorporated by reference to Exhibit No. 10.31 to Carnival Corporation's
Annual Report on Form 10-K for the year ended November 30, 2000.
*10.21-Amendment to the Carnival Corporation "Fun Ship" Nonqualified Savings
Plan, incorporated by reference to Exhibit No. 10.33 to Carnival Corporation's
Annual Report on Form 10-K for the year ended November 30, 1999.
*10.22-Amendment to the Carnival Corporation Nonqualified Retirement Plan for
Highly Compensated Employees, incorporated by reference to Exhibit No. 10.33 to
Carnival Corporation's Annual Report on Form 10-K for the year ended November
30, 2000.
*10.23-Amendment to the Carnival Corporation "Fun Ship" Nonqualified Savings
Plan, incorporated by reference to Exhibit No. 10.34 to Carnival Corporation's
Annual Report on Form 10-K for the year ended November 30, 2000.
*10.24-Amendment to the Carnival Corporation "Fun Ship" Nonqualified Savings
Plan, incorporated by reference to Exhibit No. 10.37 to Carnival Corporation's
Annual Report on Form 10-K for the year ended November 30, 2001.
*10.25-Amendment to the Carnival Corporation Nonqualified Retirement Plan for
Highly Compensated Employees, incorporated by reference to Exhibit No. 10.38 to
Carnival Corporation's Annual Report on Form 10-K for the year ended November
30, 2001.
*10.26-Amended and Restated Carnival Corporation 2001 Outside Director Stock
Plan, incorporated by reference to Exhibit No. 10.1 to our joint Quarterly
Report on Form 10-Q for the quarter ended May 31, 2005.
*10.27-Amended and Restated Carnival Corporation 2002 Stock Plan, incorporated
by reference to Exhibit No. 10.1 to our joint Quarterly Report on Form 10-Q for
the quarter ended May 31, 2003.
*10.28-Agreement with Pier Luigi Foschi, incorporated by reference to Exhibit
No. 10.4 to our joint Quarterly Report on Form 10-Q for the quarter ended
August 31, 2005.
10.29-Succession Agreement, dated as of May 28, 2002, to Registration Rights
Agreement, dated June 14, 1991, between Carnival Corporation and Ted Arison,
incorporated by reference to Exhibit No. 10.3 to Carnival Corporation's
Quarterly Report on Form 10-Q for the quarter ended May 31, 2002.
43
*10.30-Employment Agreement, dated as of April 17, 2003, by and between POPCIL
and Peter Ratcliffe, incorporated by reference to Exhibit No. 10.2 to our joint
Quarterly Report on Form 10-Q for the quarter ended May 31, 2003.
*10.31-Carnival Corporation & plc Non-Executive Board of Director Cruise Benefit
Policy, incorporated by reference to Exhibit No. 10.1 to our joint Quarterly
Report on Form 10-Q for the quarter ended August 31, 2005.
*10.32-Indemnification Agreement, dated April 17, 2003, between Micky M. Arison
and Carnival Corporation, incorporated by reference to Exhibit No. 10.5 to our
joint Quarterly Report on Form 10-Q for the quarter ended May 31, 2003.
*10.33-Consulting Agreement, dated November 30, 2004, between A. Kirk Lanterman,
Holland America Line Inc. and others, incorporated by reference to our joint
Current Report on Form 8-K, dated December 6, 2004.
*10.34-Indemnification Agreement, dated April 17, 2003, between Robert H.
Dickinson and Carnival Corporation, incorporated by reference to Exhibit No.
10.9 to our joint Quarterly Report on Form 10-Q for the quarter ended May 31,
2003.
*10.35-Amendment to the Carnival Corporation Nonqualified Retirement Plan For
Highly Compensated Employees, incorporated by reference to Exhibit No. 10.1 to
our joint Quarterly Report on Form 10-Q for the quarter ended February 28,
2006.
*10.36-Indemnification Agreement, dated April 17, 2003, between Pier Luigi
Foschi and Carnival Corporation, incorporated by reference to Exhibit No. 10.13
to our joint Quarterly Report on Form 10-Q for the quarter ended May 31, 2003.
*10.37-Indemnification Agreement, dated April 17, 2003, between Howard S. Frank
and Carnival Corporation, incorporated by reference to Exhibit No. 10.15 to our
joint Quarterly Report on Form 10-Q for the quarter ended May 31, 2003.
*10.38-Director Appointment Letter, dated December 1, 2004, between A. Kirk
Lanterman and each of Carnival Corporation and Carnival plc, incorporated by
reference to Exhibit No. 10.38 to our joint Annual Report on Form 10-K for the
year ended November 30, 2004.
*10.39-Indemnification Agreement, dated April 17, 2003, between Peter G.
Ratcliffe and Carnival Corporation, incorporated by reference to Exhibit No.
10.24 to our joint Quarterly Report on Form 10-Q for the quarter ended May 31,
2003.
*10.40-Director Appointment Letter, dated April 14, 2003, between Micky M.
Arison and Carnival plc, incorporated by reference to Exhibit No. 10.4 to our
joint Quarterly Report on Form 10-Q for the quarter ended May 31, 2003.
*10.41-Director Appointment Letter, dated August 19, 2004, between Richard G.
Capen and each of Carnival Corporation and Carnival plc, incorporated by
reference to Exhibit No. 10.41 to our joint Annual Report on Form 10-K for the
year ended November 30, 2004.
*10.42-Director Appointment Letter, dated April 14, 2003, between Robert H.
Dickinson and Carnival plc, incorporated by reference to Exhibit No. 10.8 to
our joint Quarterly Report on Form 10-Q for the quarter ended May 31, 2003.
*10.43-Director Appointment Letter, dated August 19, 2004, between Arnold W.
Donald and each of Carnival Corporation and Carnival plc, incorporated by
reference to Exhibit No. 10.43 to our joint Annual Report on Form 10-K for the
year ended November 30, 2004.
*10.44-Director Appointment Letter between Pier Luigi Foschi and Carnival plc,
incorporated by reference to Exhibit No. 10.12 to our joint Quarterly Report on
Form 10-Q for the quarter ended May 31, 2003.
*10.45-Director Appointment Letter, dated April 14, 2003, between Howard S.
Frank and Carnival plc, incorporated by reference to Exhibit No. 10.14 to our
joint Quarterly Report on Form 10-Q for the quarter ended May 31, 2003.
*10.46-Director Appointment Letter, dated August 19, 2004, between Modesto A.
Maidique and each of Carnival Corporation and Carnival plc, incorporated by
reference to Exhibit No. 10.46 to our joint Annual Report on Form 10-K for the
year ended November 30, 2004.
44
*10.47-Amendment No. 1 to the Employment Agreement, dated as of July 19, 2004,
by and between P&O Princess International Ltd. and Peter Ratcliffe incorporated
by reference to Exhibit No. 10.1 to our joint Quarterly Report on Form 10-Q for
the quarter ended August 31, 2004.
*10.48-Director Appointment Letter, dated August 19, 2004, between Stuart
Subotnick and each of Carnival Corporation and Carnival plc, incorporated by
reference to Exhibit No. 10.48 to our joint Annual Report on Form 10-K for the
year ended November 30, 2004.
*10.49-Director Appointment Letter, dated August 19, 2004, between Uzi Zucker
and each of Carnival Corporation and Carnival plc, incorporated by reference to
Exhibit No. 10.49 to our joint Annual Report on Form 10-K for the year ended
November 30, 2004.
*10.50-Amendment of the Carnival Corporation "Fun Ship" Nonqualified Savings
Plan, incorporated by reference to Exhibit No. 10.1 to our Quarterly Report on
Form 10-Q for the quarter ended February 28, 2003.
*10.51-Amendment of the Carnival Corporation Nonqualified Retirement Plan For
Highly Compensated Employees, incorporated by reference to Exhibit No. 10.2 to
our Quarterly Report on Form 10-Q for the quarter ended February 28, 2003.
*10.52-The P&O Princess Cruises Executive Share Option Plan, incorporated by
reference to Exhibit No. 4.9 to P&O Princess' Annual Report on Form 20-F for
the year ended December 30, 2001.
*10.53-The P&O Princess Cruises Deferred Bonus and Co-Investment Matching Plan,
incorporated by reference to Exhibit No. 4.10 to P&O Princess' Annual Report on
Form 20-F for the year ended December 30, 2001.
*10.54-Carnival Cruise Lines Management Incentive Plan, incorporated by
reference to Exhibit No. 10.3 to our joint Quarterly Report on Form 10-Q for
the quarter ended August 31, 2005.
*10.55-Amendment to the Carnival Corporation Supplemental Executive Retirement
Plan, incorporated by reference to Exhibit No. 10.1 to our joint Quarterly
Report on Form 10-Q for the quarter ended February 29, 2004.
*10.56-Amendment to the Carnival Corporation Nonqualified Retirement Plan for
Highly Compensated Employees, incorporated by reference to Exhibit No. 10.1 to
our joint Quarterly Report on Form 10-Q for the quarter ended February 29,
2004.
*10.57-Amendment to the Carnival Corporation "Fun Ship" Nonqualified Savings
Plan, incorporated by reference to Exhibit No. 10.2 to our joint Quarterly
Report on Form 10-Q for the quarter ended February 29, 2004.
*10.58-Amendment to the Carnival Corporation "Fun Ship" Nonqualified Savings
Plan, incorporated by reference to Exhibit No. 10.1 to our joint Quarterly
Report on Form 10-Q for the quarter ended February 28, 2005.
*10.59-Form of Nonqualified Stock Option Agreement for the Amended and Restated
Carnival Corporation 2001 Outside Director Stock Plan, incorporated by
reference to Exhibit No. 10.5 to our joint Quarterly Report on Form 10-Q for
the quarter ended August 31, 2005.
*10.60-Form of Restricted Stock Award Agreement for the Amended and Restated
Carnival Corporation 2001 Outside Director Stock Plan, incorporated by
reference to Exhibit No. 10.6 to our joint Quarterly Report on Form 10-Q for
the quarter ended August 31, 2005.
*10.61-Form of Restricted Stock Unit Award Agreement for the Amended and
Restated Carnival Corporation 2001 Outside Director Stock Plan, incorporated by
reference to Exhibit No. 10.7 to our joint Quarterly Report on Form 10-Q for
the quarter ended August 31, 2005.
*10.62-Form of Share Option Certificate for the Amended and Restated Carnival
plc 2005 Employee Share Plan, incorporated by reference to Exhibit No. 10.8 to
our joint Quarterly Report on Form 10-Q for the quarter ended August 31, 2005.
10.63-Deed of Guarantee, dated October 21, 2005, between Carnival Corporation
as guarantor and the Royal Bank of Scotland plc as facilities agent,
incorporated by reference to Exhibit No. 10.63 to our joint Annual Report on
Form 10-K for the year ended November 30, 2005.
45
10.64-Deed of Guarantee, dated October 21, 2005, between Carnival plc as
guarantor and the Royal Bank of Scotland plc as facilities agent, incorporated
by reference to Exhibit No. 10.64 to our joint Annual Report on Form 10-K for
the year ended November 30, 2005.
*10.65-Corporate Aviation Administrative Policy Statement for the use of
Carnival Corporation & plc aircraft, incorporated by reference to Exhibit No.
10.2 to our joint Quarterly Report on Form 10-Q for the quarter ended February
28, 2006.
*10.66-Form of Restricted Share Unit Award Certificate for the Amended and
Restated Carnival plc 2005 Employee Share Plan, incorporated by reference to
Exhibit No. 10.3 to our joint Quarterly Report on Form 10-Q for the quarter
ended February 28, 2006.
*10.67-Form of Restricted Stock Unit Agreement for the Amended and Restated
Carnival Corporation 2002 Stock Plan, incorporated by reference to Exhibit No.
10.4 to our joint Quarterly Report on Form 10-Q for the quarter ended February
28, 2006.
*10.68-Princes Cruises Chief Executive Officer Supplemental Retirement Plan for
Peter Ratcliffe, incorporated by reference to the joint Current Report on Form
8-K filed on October 20, 2006.
12-Ratio of Earnings to Fixed Charges.
13-Portions of 2006 Annual Report incorporated by reference into 2006 joint
Annual Report on Form 10-K.
21-Significant Subsidiaries of Carnival Corporation and Carnival plc.
23-Consent of Independent Registered Certified Public Accounting Firm.
24.1-Powers of Attorney given by certain Directors of Carnival Corporation and
Carnival plc to Micky Arison, Howard S. Frank, Gerald R. Cahill and Arnaldo
Perez authorizing such persons to sign this 2006 joint Annual Report on Form
10-K and any future amendments on their behalf.
24.2-Power of Attorney given by Laura Weil, a Director of Carnival Corporation
and Carnival plc to Micky Arison, Howard S. Frank, Gerald R. Cahill and Arnaldo
Perez authorizing such persons to sign this 2006 joint Annual Report on Form
10-K and any future amendments on their behalf.
31.1-Certification of Chief Executive Officer of Carnival Corporation pursuant
to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2-Certification of Chief Operating Officer of Carnival Corporation pursuant
to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.3-Certification of Executive Vice President and Chief Financial and
Accounting Officer of Carnival Corporation pursuant to Rule 13a-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.4-Certification of Chief Executive Officer of Carnival plc pursuant to Rule
13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.5-Certification of Chief Operating Officer of Carnival plc pursuant to Rule
13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.6-Certification of Executive Vice President and Chief Financial and
Accounting Officer of Carnival plc pursuant to Rule 13a-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1-Certification of Chief Executive Officer of Carnival Corporation pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2-Certification of Chief Operating Officer of Carnival Corporation pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.3-Certification of Executive Vice President and Chief Financial and
Accounting Officer of Carnival Corporation pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
46
32.4-Certification of Chief Executive Officer of Carnival plc pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.5-Certification of Chief Operating Officer of Carnival plc pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.6-Certification of Executive Vice President and Chief Financial and
Accounting Officer of Carnival plc pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*Indicates a management contract or compensation plan or arrangement.
47
Exhibit 4.1
February 7, 2007
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, DC 20549
RE: Carnival Corporation,
Commission File No. 1-9610, and Carnival plc, Commission File No. 1-15136
Gentlemen:
Pursuant to Item 601(b)(4)(iii) of Regulation S-K promulgated under the
Securities Exchange Act of 1934, as amended, Carnival Corporation and Carnival
plc (the "Companies") hereby agree to furnish copies of certain long-term debt
instruments to the Securities and Exchange Commission upon the request of the
Commission, and, in accordance with such regulation, such instruments are not
being filed as part of the joint Annual Report on Form 10-K of the Companies for
their year ended November 30, 2006.
Very truly yours,
CARNIVAL CORPORATION AND CARNIVAL PLC
/s/ Arnaldo Perez
- ----------------------------------------
Senior Vice President, General Counsel
and Secretary
48
Exhibit 12
CARNIVAL CORPORATION & PLC
Ratio of Earnings to Fixed Charges
(in millions, except ratios)
Years Ended November 30,
------------------------------------------------
2006 2005 2004 2003 2002
------- ------- ------- ------- --------
Net income $ 2,279 $ 2,253 $ 1,809 $ 1,187 $ 1,011
Income tax expense (benefit),
net 39 72 47 29 (57)
------- ------- ------- ------- --------
Income before income taxes 2,318 2,325 1,856 1,216 954
------- ------- ------- ------- --------
Fixed charges
Interest expense, net 312 330 284 195 111
Interest portion of
rent expense (a) 16 17 17 16 5
Capitalized interest 37 21 26 49 39
------- ------- ------- ------- --------
Total fixed charges 365 368 327 260 155
------- ------- ------- ------- --------
Fixed charges not affecting
earnings:
Capitalized interest (37) (21) (26) (49) (39)
------- ------- ------- ------- --------
Earnings before fixed
charges $ 2,646 $ 2,672 $ 2,157 $ 1,427 $ 1,070
======= ======= ======= ======= ========
Ratio of earnings to
fixed charges 7.2x 7.3x 6.6x 5.5x 6.9x
======= ======= ======= ======= ========
(a) Represents one-third of rent expense, which we believe to be
representative of the interest portion of rent expense.
49
EXHIBIT 13
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Years Ended November 30,
-------------------------------
2006 2005 2004
-------- -------- -------
(Note 2)
Revenues
Cruise
Passenger tickets $ 8,903 $ 8,399 $ 7,357
Onboard and other 2,514 2,338 2,070
Other 422 357 300
-------- -------- -------
11,839 11,094 9,727
-------- -------- -------
Costs and Expenses
Operating
Cruise
Commissions, transportation and other 1,749 1,645 1,572
Onboard and other 453 412 359
Payroll and related 1,158 1,122 1,003
Fuel 935 707 493
Food 644 613 550
Other ship operating 1,538 1,465 1,315
Other 314 254 210
-------- -------- -------
Total 6,791 6,218 5,502
Selling and administrative 1,447 1,335 1,285
Depreciation and amortization 988 902 812
-------- -------- -------
9,226 8,455 7,599
-------- -------- -------
Operating Income 2,613 2,639 2,128
-------- -------- -------
Nonoperating (Expense) Income
Interest income 25 29 17
Interest expense, net of capitalized interest (312) (330) (284)
Other expense, net (8) (13) (5)
-------- -------- -------
(295) (314) (272)
-------- -------- -------
Income Before Income Taxes 2,318 2,325 1,856
Income Tax Expense, Net (39) (72) (47)
-------- -------- -------
Net Income $ 2,279 $ 2,253 $ 1,809
======== ======== =======
Earnings Per Share
Basic $ 2.85 $ 2.80 $ 2.25
======== ======== =======
Diluted $ 2.77 $ 2.70 $ 2.18
======== ======== =======
Dividends Per Share $ 1.025 $ 0.80 $ 0.525
======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-1
CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
November 30,
--------------------
2006 2005
-------- --------
(Note 2)
ASSETS
Current Assets
Cash and cash equivalents $ 1,163 $ 1,178
Trade and other receivables, net 280 430
Inventories 263 250
Prepaid expenses and other 289 263
-------- --------
Total current assets 1,995 2,121
-------- --------
Property and Equipment, Net 23,458 21,312
Goodwill 3,313 3,206
Trademarks 1,321 1,282
Other Assets 465 428
-------- --------
$ 30,552 $ 28,349
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 438 $ 300
Current portion of long-term debt 1,054 1,042
Convertible debt subject to current put option 283
Accounts payable 438 477
Accrued liabilities and other 1,149 1,032
Customer deposits 2,336 2,051
-------- --------
Total current liabilities 5,415 5,185
-------- --------
Long-Term Debt 6,355 5,727
Other Long-Term Liabilities and Deferred Income 572 554
Commitments and Contingencies (Notes 6 and 7)
Shareholders' Equity
Common stock of Carnival Corporation; $.01 par
value; 1,960 shares authorized; 641 shares at
2006 and 639 shares at 2005 issued 6 6
Ordinary shares of Carnival plc; $1.66 par value;
226 shares authorized; 213 shares at 2006 and
212 shares at 2005 issued 354 353
Additional paid-in capital 7,479 7,381
Retained earnings 11,600 10,141
Unearned stock compensation (13)
Accumulated other comprehensive income 661 159
Treasury stock; 18 at 2006 and 2 shares at 2005
of Carnival Corporation and 42 shares at 2006
and 2005 of Carnival plc, at cost (1,890) (1,144)
-------- --------
Total shareholders' equity 18,210 16,883
-------- --------
$ 30,552 $ 28,349
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Years Ended November 30,
-----------------------------
2006 2005 2004
------- ------- -------
(Note 2)
OPERATING ACTIVITIES
Net income $ 2,279 $ 2,253 $ 1,809
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 988 902 812
Share-based compensation 68 12 11
Non-cruise investment write-down 10 22
Accretion of original issue discount 9 20 21
Other 3 5
Changes in operating assets and liabilities
Receivables 118 (71) 11
Inventories (5) (15) (73)
Prepaid expenses and other 6 (136) (9)
Accounts payable (53) 53 (28)
Accrued and other liabilities (11) 155 178
Customer deposits 224 212 479
------- ------- -------
Net cash provided by operating activities 3,633 3,410 3,216
------- ------- -------
INVESTING ACTIVITIES
Additions to property and equipment (2,480) (1,977) (3,586)
Sales of short-term investments 6 943 1,216
Purchases of short-term investments (18) (935) (772)
Proceeds from sales of property and equipment 46 77
Other, net 3 (1) (24)
------- ------- -------
Net cash used in investing activities (2,443) (1,970) (3,089)
------- ------- -------
FINANCING ACTIVITIES
Principal repayments of long-term debt (2,537) (1,096) (932)
Proceeds from issuance of long-term debt 2,241 1,152 843
Purchase of treasury stock (841) (386)
Dividends paid (803) (566) (400)
Proceeds from (repayments of) short-term borrowings, net 661 (58) 272
Proceeds from exercise of stock options 66 63 142
Other 1 (1) (4)
------- ------- -------
Net cash used in financing activities (1,212) (892) (79)
------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents 7 (13) (15)
------- ------- -------
Net (decrease) increase in cash and cash
equivalents (15) 535 33
Cash and cash equivalents at beginning of year 1,178 643 610
------- ------- -------
Cash and cash equivalents at end of year $ 1,163 $ 1,178 $ 643
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions)
(Note 2)
Unearned Accumulated Total
Compre- Additional stock other share-
hensive Common Ordinary paid-in Retained compen- comprehensive Treasury holders'
income stock shares capital earnings sation income stock equity
------- ------ -------- ---------- -------- -------- ------------- -------- --------
Balances at November 30, 2003 $ 6 $ 349 $ 7,163 $ 7,148 $ (18) $ 162 $ (1,058) $ 13,752
Comprehensive income
Net income $ 1,809 1,809 1,809
Foreign currency
translation adjustment 396 396 396
Unrealized loss on
marketable securities (1) (1) (1)
Minimum pension liability
adjustments (3) (3) (3)
Changes related to cash flow
derivative hedges, net (13) (13) (13)
-------
Total comprehensive income $ 2,188
=======
Cash dividends declared (422) (422)
Issuance of stock under stock
plans 4 148 (7) 145
Amortization of unearned stock
compensation 9 9
------ -------- ---------- -------- -------- ------------- -------- --------
Balances at November 30, 2004 6 353 7,311 8,535 (16) 541 (1,058) 15,672
Comprehensive income
Net income $ 2,253 2,253 2,253
Foreign currency
translation adjustment (395) (395) (395)
Minimum pension liability
adjustments (2) (2) (2)
Changes related to cash flow
derivative hedges, net 15 15 15
-------
Total comprehensive income $ 1,871
=======
Cash dividends declared (647) (647)
Issuance of stock under stock
plans 73 (9) 64
Amortization of unearned stock
compensation 12 12
Purchase of treasury stock (386) (386)
Issuance of common stock upon
conversion of convertible debt (3) 300 297
------ -------- ---------- -------- -------- ------------- -------- --------
Balances at November 30, 2005 6 353 7,381 10,141 (13) 159 (1,144) 16,883
Adoption of SFAS No. 123(R) (13) 13
Comprehensive income
Net income $ 2,279 2,279 2,279
Foreign currency
translation adjustment 496 496 496
Minimum pension liability
adjustments 2 2 2
Changes related to cash flow
derivative hedges, net 4 4 4
-------
Total comprehensive income $ 2,781
=======
Cash dividends declared (820) (820)
Issuance of stock under stock
plans 1 133 134
Purchase of treasury stock (841) (841)
Issuance of common stock upon
conversion of convertible debt (22) 95 73
------ -------- ---------- -------- -------- ------------- -------- --------
Balances at November 30, 2006 $ 6 $ 354 $ 7,479 $ 11,600 $ $ 661 $ (1,890) $ 18,210
====== ======== ========== ======== ======== ============= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
CARNIVAL CORPORATION & PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - General
Description of Business
Carnival Corporation is incorporated in Panama, and Carnival plc is
incorporated in England and Wales. Carnival Corporation and Carnival plc operate
a dual listed company ("DLC"), whereby the businesses of Carnival Corporation
and Carnival plc are combined through a number of contracts and through
provisions in Carnival Corporation's articles of incorporation and by-laws and
Carnival plc's memorandum of association and articles of association. Although
the two companies have retained their separate legal identities they operate as
if they were a single economic enterprise. Each company's shares continue to be
publicly traded; on the New York Stock Exchange ("NYSE") for Carnival
Corporation and the London Stock Exchange for Carnival plc. In addition,
Carnival plc American Depository Shares ("ADSs") are traded on the NYSE. See
Note 3.
The accompanying 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 2006 Annual
Report as "Carnival Corporation & plc," "our," "us," and "we."
We are the largest cruise company and one of the largest vacation
companies in the world. As of November 30, 2006, a summary of the number of
cruise ships we operate, by brand, their passenger capacity and the primary
areas in which they are marketed is as follows:
Number of Passenger Primary
Cruise Brands Cruise Ships Capacity (a) Market
------------- ------------ ------------- -------
Carnival Cruise Lines 21 47,818 North America
Princess Cruises ("Princess") 15 32,232 North America
Costa Cruises ("Costa") 11 20,218 Europe
Holland America Line 13 18,848 North America
P&O Cruises 5 8,840 United Kingdom
AIDA Cruises ("AIDA") 4 5,378 Germany
Cunard Line ("Cunard") 2 4,380 North America and United Kingdom
P&O Cruises Australia 2 2,474 Australia and New Zealand
Ocean Village 1 1,578 United Kingdom
Swan Hellenic 1 678 United Kingdom
Seabourn Cruise Line ("Seabourn") 3 624 North America
Windstar Cruises 3 608 North America
------------ -------------
81 143,676
============ =============
(a) In accordance with cruise industry practice, passenger capacity is
calculated based on two passengers per cabin even though some cabins can
accommodate three or more passengers.
Preparation of Financial Statements
The preparation of our consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America
requires us to make estimates and assumptions that affect the amounts reported
and disclosed in our financial statements. Actual results could differ from
these estimates. All significant intercompany balances and transactions are
eliminated in consolidation.
F-5
NOTE 2 - Summary of Significant Accounting Policies
Basis of Presentation
We consolidate entities over which we have control (see Note 3), as
typically evidenced by a direct ownership interest of greater than 50%. For
affiliates where significant influence over financial and operating policies
exists, as typically evidenced by a direct ownership interest from 20% to 50%,
the investment is accounted for using the equity method.
Cash and Cash Equivalents and Short-Term Investments
Cash and cash equivalents include investments with maturities of three
months or less at acquisition, which are stated at cost. At November 30, 2006
and 2005, cash and cash equivalents included $936 million and $980 million of
investments, respectively, primarily comprised of money market funds, time
deposits and commercial paper.
As of November 30, 2006 and 2005, our short-term investments were not
significant. Purchases and sales of short-term investments included in our
Consolidated Statements of Cash Flows consisted of investments with original
maturities greater than three months with variable interest rates, which
typically reset every 28 days. Despite the long-term nature of their stated
contractual maturities, we have the ability to quickly liquidate these
securities. All income generated from these investments was recorded as interest
income.
Inventories
Inventories consist of provisions, gift shop and art merchandise held for
resale, fuel and supplies carried at the lower of cost or market. Cost is
determined using the weighted-average or first-in, first-out methods.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
were computed using the straight-line method over our estimates of average
useful lives and residual values, as a percentage of original cost, as follows:
Residual
Values Years
--------- -----
Ships 15% 30
Ship improvements 0% or 15% 3 to remaining
life of ship
Buildings and improvements 0-10% 5-35
Transportation equipment and other 0-15% 2-20
Leasehold improvements, including port facilities Shorter of lease term
or related asset life
Ship improvement costs that we believe add value to our ships are
capitalized to the ships, and depreciated over the improvements' estimated
useful lives, while costs of repairs and maintenance and minor replacement costs
are charged to expense as incurred. Upon replacement or refurbishment of
previously capitalized ship components, these assets' estimated cost and
accumulated depreciation are written off. We capitalize interest on ships and
other capital projects during their construction period.
We review our long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of these assets may not be
fully recoverable. The assessment of possible impairment is based on our ability
to recover the carrying value of our asset based on our estimate of its
undiscounted future cash flows. If these estimated undiscounted future cash
flows are less than the carrying value of the asset, an impairment charge is
recognized for the excess, if any, of the asset's carrying value over its
estimated fair value.
F-6
Dry-dock Costs
Dry-dock costs primarily represent planned major maintenance activities
that are incurred when a ship is taken out of service for scheduled maintenance.
During 2006 we elected to change our method of accounting for dry-dock costs
from the deferral method, under which we amortized our deferred dry-dock costs
over the estimated period of benefit between dry-docks, to the direct expense
method, under which we expense all dry-dock costs as incurred. We believe the
direct method is preferable as it eliminates the significant amount of time and
subjectivity that is needed to determine which costs and activities related to
dry-docking should be deferred. In connection with adopting this change in
accounting policy, we elected to early adopt Statement of Financial Accounting
Standards ("SFAS") No. 154, "Accounting Changes and Error Corrections", which
requires that we report changes in accounting policy by retrospectively applying
the new policies to all prior periods presented, unless it is impractical to
determine the prior period impacts. Accordingly, we have previously adjusted our
financial statements for all periods presented for this change in dry-dock
policy. The effects of this change in accounting policy for the years ended and
at November 30 were as follows (in millions, except earnings per share):
Consolidated Statements of Operations
2006 2005 2004
---------------------------------- --------------------------------- ---------------------------------
Deferral Direct Effect Deferral Direct Effect Deferral Direct Effect
Method(a) Method of Change Method Method of Change Method Method of Change
--------- -------- --------- -------- -------- --------- -------- -------- ---------
Other ship
operating
expenses $ 1,484 $ 1,538 $ 54 $ 1,461 $ 1,465 $ 4 $ 1,270 $ 1,315 $ 45
Net income $ 2,333 $ 2,279 $ (54) $ 2,257 $ 2,253 $ (4) $ 1,854 $ 1,809 $ (45)
Earnings
per share
Basic $ 2.92 $ 2.85 $ (0.07) $ 2.80 $ 2.80 $ 0.00 $ 2.31 $ 2.25 $ (0.06)
========= ======== ========= ======== ======== ========= ======== ======== =========
Diluted $ 2.83 $ 2.77 $ (0.06) $ 2.70 $ 2.70 $ 0.00 $ 2.24 $ 2.18 $ (0.06)
========= ======== ========= ======== ======== ========= ======== ======== =========
Consolidated Balance Sheets
2006 2005
---------------------------------- ---------------------------------
Deferral Direct Effect Deferral Direct Effect
Method(a) Method of Change Method Method of Change
--------- -------- --------- -------- -------- ---------
Prepaid expenses and other $ 434 $ 289 $ (145) $ 352 $ 263 $ (89)
Retained earnings $ 11,746 $ 11,600 $ (146) $ 10,233 $ 10,141 $ (92)
Accumulated other
comprehensive income $ 660 $ 661 $ 1 $ 156 $ 159 $ 3
(a) The amounts disclosed under the deferral method for the year ended and at
November 30, 2006 are based on the estimated effect of not changing our
dry-dock accounting method to the direct expense method for this current
period. Accordingly, these estimated current period amounts have not been
previously reported, but are being disclosed in accordance with the
requirements of SFAS No. 154.
In addition, as a result of this change in accounting method retained
earnings at November 30, 2003 decreased by $43 million to $7.15 billion from
$7.19 billion.
Goodwill
We review our goodwill for impairment annually, or, when events or
circumstances dictate, more frequently. All of our goodwill has been allocated
to our cruise reporting units. There were no significant changes to our goodwill
carrying amounts since November 30, 2004, other than the changes resulting from
using different foreign currency translation rates at each balance sheet date
and a $20 million reduction to goodwill in fiscal 2006 resulting from the
resolution of certain P&O Princess Cruises plc's ("P&O Princess") tax
contingency liabilities that existed at the time of the DLC transaction.
F-7
Our goodwill impairment reviews consist of a two-step process of first
determining the fair value of the reporting unit and comparing it to the
carrying value of the net assets allocated to the reporting unit. Fair values of
our reporting units were determined based on our estimates of comparable market
prices or discounted future cash flows. If this fair value exceeds the carrying
value, which was the case for our reporting units, no further analysis or
goodwill write-down is required. If the fair value of the reporting unit is less
than the carrying value of the net assets, the implied fair value of the
reporting unit is allocated to all the underlying assets and liabilities,
including both recognized and unrecognized tangible and intangible assets, based
on their fair value. If necessary, goodwill is then written-down to its implied
fair value.
Trademarks
The costs of developing and maintaining our trademarks are expensed as
incurred. However, for acquisitions made after June 2001 we have allocated a
portion of the purchase price to the acquiree's identified trademarks. The
trademarks that Carnival Corporation recorded as part of its acquisition of P&O
Princess, which are estimated to have an indefinite useful life and, therefore,
are not amortizable, are reviewed for impairment annually, or, when events or
circumstances dictate, more frequently. Our trademarks would be considered
impaired if their carrying value exceeds their estimated fair value.
Derivative Instruments and Hedging Activities
We utilize derivative and nonderivative financial instruments, such as
foreign currency swaps and foreign currency debt obligations to limit our
exposure to fluctuations in foreign currency exchange rates, and interest rate
swaps to manage our interest rate exposure and to achieve a desired proportion
of variable and fixed rate debt (see Notes 5 and 10).
All derivatives are recorded at fair value, and the changes in fair value
are immediately included in earnings if the derivatives do not qualify as being
effective hedges. If a derivative is a fair value hedge, then changes in the
fair value of the derivative are offset against the changes in the fair value of
the underlying hedged item. If a derivative is a cash flow hedge, then changes
in the fair value of the derivative are recognized as a component of accumulated
other comprehensive income ("AOCI") until the underlying hedged item is
recognized in earnings. If a derivative or a nonderivative financial instrument
is designated as a hedge of our net investment in a foreign subsidiary, then
changes in the fair value of the financial instrument are recognized as a
component of AOCI to offset a portion of the change in the translated value of
the net investment being hedged, until the investment is liquidated. We formally
document all hedging relationships for all derivative and nonderivative hedges
and the underlying hedged items, as well as our risk management objectives and
strategies for undertaking the hedge transactions.
We classify the fair value of our derivative contracts and the fair value
of our offsetting hedged firm commitments as either current or long-term, which
are included in prepaid and other assets and accrued and other liabilities,
depending on whether the maturity date of the derivative contract is within or
beyond one year from our balance sheet dates. The cash flows from derivatives
treated as hedges are classified in our Consolidated Statements of Cash Flows in
the same category as the item being hedged.
During fiscal 2006, 2005 and 2004, all net changes in the fair value of
both our fair value hedges and the offsetting hedged firm commitments and our
cash flow hedges were immaterial, as were any ineffective portions of these
hedges. No fair value hedges or cash flow hedges were derecognized or
discontinued in fiscal 2006, 2005 or 2004. In addition, the amount of realized
net losses or gains from cash flow hedges that were reclassified into earnings
during fiscal 2006, 2005 and 2004 were not significant. The amount of estimated
cash flow hedges unrealized net losses which are expected to be reclassified to
earnings in the next twelve months is not significant.
Finally, if any shipyard with which we have contracts to build our ships
is unable to perform, we would be required to perform under our foreign currency
swaps related to these shipbuilding contracts. Accordingly, based upon the
circumstances, we may have to discontinue the accounting for those currency
swaps as hedges, if the shipyard cannot perform. However, we believe that the
risk of shipyard nonperformance is remote.
F-8
Revenue and Expense Recognition
Guest cruise deposits represent unearned revenues and are initially
recorded as customer deposit liabilities when received. Customer deposits are
subsequently recognized as cruise revenues, together with revenues from onboard
and other activities, which include transportation and shore excursion revenues
and all associated direct costs of a voyage, upon completion of voyages with
durations of ten nights or less and on a pro rata basis for voyages in excess of
ten nights. Future travel discount vouchers issued to guests are typically
recorded as a reduction of revenues when such vouchers are utilized.
Cancellation fees are recognized in revenues at the time of the cancellation.
Revenues and expenses from our tour and travel services are recognized at the
time the services are performed or expenses are incurred.
Our sale to passengers of air and other transportation to and from our
ships and the related cost of purchasing this service is recorded as cruise
passenger ticket revenues and cruise transportation costs, respectively, in the
accompanying Consolidated Statements of Operations. The proceeds that we collect
from the sale of third party shore excursions and on behalf of onboard
concessionaires, net of the amounts remitted to them, are recorded as concession
revenues, on a net basis, in onboard and other cruise revenues.
Insurance/Self-Insurance
We use a combination of insurance and self-insurance for a number of risks
including claims related to crew and passengers, hull and machinery, war risk,
workers' compensation, property damage and general liability. Liabilities
associated with certain of these risks, including crew and passenger claims, are
estimated based on, among other things, historical claims experience, severity
factors and other actuarial assumptions. Our expected loss accruals are based on
estimates, and while we believe the amounts accrued are adequate the ultimate
loss may differ from the amounts provided.
Selling and Administrative Expenses
Selling expenses include items such as advertising, marketing, promotional
and related costs. Advertising costs are charged to expense as incurred except
for brochures and media production costs. The brochures and media production
costs are recorded as prepaid expenses and charged to expense as consumed or
upon the first airing of the advertisement, respectively. Advertising expenses
totaled $464 million, $455 million and $464 million in fiscal 2006, 2005 and
2004, respectively. At November 30, 2006 and 2005, the amount of advertising
costs included in prepaid expenses was not significant. Administrative expenses
represent the costs of our shoreside ship support, reservation and other
administrative functions and include items such as salaries and related
benefits, professional fees and occupancy costs, which are typically expensed as
incurred.
Foreign Currency Translations and Transactions
Our foreign subsidiaries and affiliates that have functional currencies
other than the U.S. dollar translate their assets and liabilities at exchange
rates in effect at the balance sheet dates. Revenues and expenses of these
foreign subsidiaries and affiliates are translated at weighted-average exchange
rates for the period. Equity is translated at historical rates, and the
resulting cumulative foreign currency translation adjustments are included as a
component of AOCI. Therefore, the U.S. dollar value of these non-equity
translated items in our financial statements will fluctuate from period to
period, depending on the changing value of the dollar against these local
functional currencies.
Exchange gains and losses arising from the remeasurement of monetary
assets and liabilities, and foreign currency transactions denominated in a
currency other than the functional currency of the entity involved are
immediately included in nonoperating earnings, unless such net liabilities have
been designated to act as hedges of a net investment in our foreign
subsidiaries. In addition, the unrealized exchange gains or losses on our
long-term intercompany receivables denominated in a non-functional currency,
which are not expected to be repaid in the foreseeable future and are therefore
considered to form part of our net investment, are recorded as a foreign
currency translation adjustment, which is included as a component of AOCI.
Finally, net foreign currency transaction gains or losses recorded in our
earnings were not significant in fiscal 2006, 2005 and 2004.
F-9
Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted-average number of shares of common stock and ordinary shares
outstanding during each period. Diluted earnings per share is computed by
dividing adjusted net income by the weighted-average number of shares of common
stock and ordinary shares, common stock equivalents and other potentially
dilutive securities outstanding during each period. All shares that are issuable
under our outstanding convertible notes that have contingent share conversion
features have been considered outstanding for our diluted earnings per share
computations, if dilutive, using the "if converted" method of accounting from
the date of issuance.
Share-Based Compensation
Effective December 1, 2005, we adopted the provisions of SFAS No.
123(revised 2004), "Share-Based Payment" ("SFAS No. 123(R)"), which requires us
to measure and recognize compensation expense for all share-based compensation
awards. We adopted SFAS No. 123(R) using the modified prospective application
transition method. Under this method, the share-based compensation cost
recognized beginning December 1, 2005 includes compensation cost for (i) all
share-based payments granted prior to, but not vested as of, December 1, 2005,
based on the grant date fair value originally estimated in accordance with the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"), and (ii) all share-based payments granted subsequent to November 30,
2005, based on the grant date fair value estimated in accordance with the
provisions of SFAS No. 123(R). Prior to December 1, 2005, as allowed under the
then outstanding accounting principles, we did not recognize compensation
expense for the issuance of stock options with an exercise price equal to or
greater than the market price of the underlying shares at the date of grant.
Compensation cost under SFAS No. 123(R) is recognized ratably using the
straight-line attribution method over the expected vesting period or to the
retirement eligibility date, if less than the vesting period, when vesting is
not contingent upon any future performance. In addition, pursuant to SFAS No.
123(R) we are required to estimate the amount of expected forfeitures, which we
estimate based on historical forfeiture experience, when calculating
compensation cost. If the actual forfeitures that occur are different than the
estimate, then we will revise our estimates. The effect of adopting SFAS No.
123(R) has been to reduce our net income by $57 million and our basic and
diluted earnings per share by $0.07 for the year ended November 30, 2006. Prior
periods are not restated under this transition method.
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. Credit risk, including counterparty nonperformance
under derivative instruments, contingent obligations and new ship progress
payment guarantees, is considered minimal, as we primarily conduct business with
large, well-established financial institutions who have long-term credit ratings
of A or above and we seek to diversify our counterparties. In addition, we have
established guidelines regarding credit ratings and investment maturities that
we follow to maintain safety and liquidity. We do not anticipate nonperformance
by any of our significant counterparties.
We also monitor the creditworthiness of foreign travel agencies and tour
operators to which we grant credit terms in the normal course of our business.
Concentrations of credit risk associated with these receivables are considered
minimal primarily due to their short maturities and the large number of accounts
within our customer base. We have experienced only minimal credit losses on our
trade receivables. We do not normally require collateral or other security to
support normal credit sales. However, we do normally require collateral and/or
guarantees to support notes receivable on significant asset sales and new ship
progress payments to shipyards.
Reclassifications
We have reclassified certain prior period amounts to conform them to the
current period presentation primarily as a result of our adopting a new chart of
accounts in conjunction with our initial implementation of a new worldwide
accounting system in the second quarter of
F-10
2006. During this implementation, we identified certain differences among our
operating subsidiaries and, accordingly, we have recorded the appropriate
reclassifications in the prior periods to improve comparability.
NOTE 3 - DLC Structure
On April 17, 2003, Carnival Corporation and Carnival plc (formerly known
as P&O Princess) completed a DLC transaction, which implemented Carnival
Corporation & plc's DLC structure. The contracts governing the DLC structure
provide that Carnival Corporation and Carnival plc each continue to have
separate boards of directors, but the boards and senior executive management of
both companies are identical. The amendments to the constituent documents of
each of the companies also provide that, on most matters, the holders of the
common equity of both companies effectively vote as a single body. On specified
matters where the interests of Carnival Corporation's shareholders may differ
from the interests of Carnival plc's shareholders (a "class rights action"),
each shareholder body will vote separately as a class, such as transactions
primarily designed to amend or unwind the DLC structure. Generally, no class
rights action will be implemented unless approved by both shareholder bodies.
Upon the closing of the DLC transaction, Carnival Corporation and Carnival
plc also executed the Equalization and Governance Agreement, which provides for
the equalization of dividends and liquidation distributions based on an
equalization ratio and contains provisions relating to the governance of the DLC
structure. Because the current equalization ratio is 1 to 1, one Carnival plc
ordinary share is entitled to the same distributions, subject to the terms of
the Equalization and Governance Agreement, as one share of Carnival Corporation
common stock. In a liquidation of either company or both companies, if the
hypothetical potential per share liquidation distributions to each company's
shareholders are not equivalent, taking into account the relative value of the
two companies' assets and the indebtedness of each company, to the extent that
one company has greater net assets so that any liquidation distribution to its
shareholders would not be equivalent on a per share basis, the company with the
ability to make a higher net distribution is required to make a payment to the
other company to equalize the possible net distribution to shareholders, subject
to certain exceptions.
At the closing of the DLC transaction, Carnival Corporation and Carnival
plc also executed deeds of guarantee. Under the terms of Carnival Corporation's
deed of guarantee, Carnival Corporation has agreed to guarantee all indebtedness
and certain other monetary obligations of Carnival plc that are incurred under
agreements entered into on or after the closing date of the DLC transaction. The
terms of Carnival plc's deed of guarantee are identical to those of Carnival
Corporation's. In addition, Carnival Corporation and Carnival plc have each
extended their respective deeds of guarantee to the other's pre-DLC indebtedness
and certain other monetary obligations, or alternatively have provided
standalone guarantees in lieu of utilization of these deeds of guarantee, thus
effectively cross guaranteeing all Carnival Corporation and Carnival plc
indebtedness and certain other monetary obligations. Each deed of guarantee
provides that the creditors to whom the obligations are owed are intended third
party beneficiaries of such deed of guarantee.
The deeds of guarantee are governed and construed in accordance with the
laws of the Isle of Man. Subject to the terms of the guarantees, the holders of
indebtedness and other obligations that are subject to the guarantees will have
recourse to both Carnival plc and Carnival Corporation though a Carnival plc
creditor must first make written demand on Carnival plc and a Carnival
Corporation creditor on Carnival Corporation. Once the written demand is made by
letter or other form of notice, the holders of indebtedness or other obligations
may immediately commence an action against the relevant guarantor. Accordingly,
there is no requirement under the deeds of guarantee to obtain a judgment, take
other enforcement actions or wait any period of time prior to taking steps
against the relevant guarantor. All actions or proceedings arising out of or in
connection with the deeds of guarantee must be exclusively brought in courts in
England.
Under the terms of the DLC transaction documents, Carnival Corporation and
Carnival plc are permitted to transfer assets between the companies, make loans
or investments in each other and otherwise enter into intercompany transactions.
The companies have entered into some of these types of transactions and expect
to enter into additional transactions in the
F-11
future to take advantage of the flexibility provided by the DLC structure and to
operate both companies as a single unified economic enterprise in the most
effective manner. In addition, under the terms of the Equalization and
Governance Agreement and the deeds of guarantee, the cash flow and assets of one
company are required to be used to pay the obligations of the other company, if
necessary.
Given the DLC structure as described above, we believe that providing
separate financial statements for each of Carnival Corporation and Carnival plc
would not present a true and fair view of the economic realities of their
operations. Accordingly, separate financial statements for both Carnival
Corporation and Carnival plc have not been presented.
Simultaneously with the completion of the DLC transaction, a partial share
offer ("PSO") for 20% of Carnival plc's shares was made and accepted, which
enabled 20% of Carnival plc shares to be exchanged for 41.7 million Carnival
Corporation shares. The 41.7 million shares of Carnival plc held by Carnival
Corporation as a result of the PSO, which cost $1.05 billion, are being
accounted for as treasury stock in the accompanying balance sheets.
NOTE 4 - Property and Equipment
Property and equipment consisted of the following (in millions):
November 30,
-------------------
2006 2005
-------- --------
Ships $ 26,054 $ 23,506
Ships under construction 922 540
-------- --------
26,976 24,046
Land, buildings and improvements,
and port facilities 675 593
Transportation equipment and other 762 692
-------- --------
Total property and equipment 28,413 25,331
Less accumulated depreciation and amortization (4,955) (4,019)
-------- --------
$ 23,458 $ 21,312
======== ========
Capitalized interest, primarily on our ships under construction, amounted
to $37 million, $21 million and $26 million in fiscal 2006, 2005 and 2004,
respectively. Amounts related to ships under construction include progress
payments for the construction of the ship, as well as design and engineering
fees, capitalized interest, construction oversight costs and various owner
supplied items. At November 30, 2006, seven ships with an aggregate net book
value of $2.62 billion were pledged as collateral pursuant to mortgages related
to $1.23 billion of debt and a $485 million contingent obligation (see Notes 5
and 6).
Repairs and maintenance and minor replacement expenses, including dry-dock
expenses were $518 million, $554 million and $419 million in fiscal 2006, 2005
and 2004, respectively.
NOTE 5 - Debt
Short-Term Borrowings
At November 30, 2006 and 2005, unsecured short-term borrowings consisted
of U.S. bank loans and U.S. commercial paper of $381 million and $113 million,
respectively, and Euro bank loans and Euro commercial paper of $57 million and
$187 million, respectively. These short-term borrowings had weighted-average
interest rates of 5.2% and 3.1% at November 30, 2006 and 2005, respectively.
F-12
Long-Term Debt
Long-term debt consisted of the following (in millions):
November 30,
-----------------
2006(a) 2005(a)
------- -------
Secured
Floating rate notes, collateralized by four ships,
bearing interest from libor plus 1.13% to libor
plus 1.29% (6.5% to 6.8% at 2006 and 4.9% to 5.7% at
2005), due through 2015(b) $ 672 $ 788
Fixed rate notes, collateralized by two ships, bearing
interest at 5.4% and 5.5%, due through 2016(b) 379 380
Euro floating rate note, collateralized by one ship,
bearing interest at euribor plus 0.5% (4.0% at 2006
and 2.75% at 2005), due through 2008 43 64
Euro fixed rate note, collateralized by one ship,
bearing interest at 4.74%, due through 2012 134 142
Other 1 2
------- -------
Total Secured 1,229 1,376
------- -------
Unsecured
Fixed rate notes, bearing interest at 3.75% to 7.2%, due
through 2028(c) 2,542 2,239
Euro fixed rate notes, bearing interest at 4.4% in 2006
and 5.57% in 2005, due in 2013(d)(e) 985 355
Euro floating rate notes, bearing interest at euribor plus
0.25% to euribor plus 0.47% (3.83% at 2006 and 2.4% to
2.6% at 2005), due through 2010(e) 486 933
Sterling fixed rate notes, bearing interest at 5.63%, due
in 2012 415 372
Sterling floating rate note, bearing interest at GBP libor
plus 0.33% (5.52% at 2006 and 4.91% at 2005), due in 2010 322 285
Other 34 34
Convertible notes, bearing interest at 2%, due in 2021,
with next put option in 2008 599 600
Convertible notes, bearing interest at 1.75%, net of
discount, with a face value of $889 million, due in 2033,
with first put option in 2008 575 575
Zero-coupon convertible notes, net of discount, with a face
value of $386 million at 2006 and $510 million at 2005,
due in 2021, with next put option in 2008 222 283
------- -------
Total Unsecured 6,180 5,676
------- -------
7,409 7,052
Less portion due within one year (1,054) (1,325)
------- -------
$ 6,355 $ 5,727
======= =======
(a) All interest rates are as of year ends. At November 30, 2006 and 2005,
56%, 30% and 14% of our long-term debt was U.S. dollar, euro and sterling
denominated, respectively, including the effect of foreign currency swaps.
(b) A portion of two Princess ships has been financed with borrowings having
both fixed and variable interest rate components.
(c) In May 2006, we borrowed $352 million under an unsecured term loan
facility to pay a portion of the Crown Princess purchase price. This
facility bears interest at 4.51% and is repayable in semi-annual
installments through May 2018.
(d) In November 2006, we issued E750 million of bonds ($985 million U.S.
dollars at the November 30, 2006 exchange rate), which have an effective
interest rate of 4.4% and are due in 2013. The net proceeds of the bonds
were primarily used to repay outstanding euro commercial paper and the
balance will be used to repay other current obligations subsequent to
November 30, 2006.
(e) During 2006, we repaid $361 million of Costa's fixed rate euro notes and
$527 million of their floating rate euro notes.
F-13
At November 30, 2006, the scheduled annual maturities of our long-term
debt was as follows (in millions): $1,054, $1,930, $202, $1,108, $202 and $2,913
in fiscal 2007 through 2011 and thereafter, respectively. The fiscal 2008
maturities include $1.40 billion of Carnival Corporation's Zero-Coupon Notes, 2%
Notes and 1.75% Notes based on the date of the noteholders' next put option.
Debt issuance costs are generally amortized to interest expense using the
straight-line method, which amount approximates the effective interest method,
over the term of the notes or the noteholders first put option date, whichever
is earlier. In addition, all loan issue discounts are amortized to interest
expense using the effective interest rate method over the term of the notes.
Convertible Notes
Carnival Corporation's 2% convertible notes ("2% Notes"), 1.75%
convertible notes ("1.75% Notes") and zero-coupon convertible notes
("Zero-Coupon Notes") are convertible into 15.3 million shares, a maximum of
20.9 million shares (10.8 million shares during fiscal 2006) and 6.4 million
shares, respectively, of Carnival Corporation common stock.
The 2% Notes are convertible at a conversion price of $39.14 per share,
subject to adjustment, during any fiscal quarter for which the closing price of
the Carnival Corporation common stock is greater than $43.05 per share for a
defined duration of time in the preceding fiscal quarter. The conditions for
conversion of the 2% Notes were satisfied throughout 2005 and during the first
and last quarters of fiscal 2006. A nominal amount of 2% Notes were converted in
fiscal 2006, 2005 and 2004.
The 1.75% Notes are convertible at a conversion price of $53.11 per share,
subject to adjustment, during any fiscal quarter for which the closing price of
the Carnival Corporation common stock is greater than a specified trigger price
for a defined duration of time in the preceding fiscal quarter. During the
fiscal quarters ending from August 31, 2003 through April 29, 2008, the trigger
price is $63.73 per share. Thereafter, this conversion trigger price increases
each quarter based on an annual rate of 1.75%, until maturity. In addition,
holders may also surrender the 1.75% Notes for conversion if they have been
called for redemption or for other specified occurrences, including the credit
rating assigned to the 1.75% Notes being Baa3 or lower by Moody's Investors
Service and BBB- or lower by Standard & Poor's Rating Services, as well as
certain corporate transactions. The 1.75% Notes interest is payable in cash
semi-annually in arrears through April 29, 2008. Effective April 30, 2008, the
1.75% Notes no longer require a cash interest payment, but interest will accrete
at a 1.75% yield to maturity.
The Zero-Coupon Notes have a 3.75% yield to maturity and are convertible
during any fiscal quarter for which the closing price of the Carnival
Corporation common stock is greater than a specified trigger price for a defined
duration of time in the preceding fiscal quarter. The trigger price increases at
an annual rate of 3.75% until maturity. The trigger price was $38.11 for the
2006 fourth quarter, and the conversion price was $34.64. During fiscal 2006 and
2005, $69 million and $297 million of our Zero-Coupon Notes were converted at
their accreted value into 2.1 million and 9.0 million shares of Carnival
Corporation common stock, of which 1.9 million and 6.2 million shares were
issued from treasury stock, respectively. No Zero-Coupon Notes were converted
prior to fiscal 2005.
At November 30, 2005, the Zero-Coupon Notes were classified as a current
liability, since the noteholders had the right to require us to repurchase them
on October 24, 2006. At November 30, 2006, we have again classified our
Zero-Coupon Notes as long-term debt, since the next date that the noteholders
can require us to repurchase them is on October 24, 2008.
Subsequent to April 28, 2008 and October 23, 2008, we may redeem all or a
portion of the 1.75% Notes and Zero-Coupon Notes, respectively, at their
accreted values and subsequent to April 14, 2008, we may redeem all or a portion
of our 2% Notes at their face value plus any unpaid accrued interest, subject to
the noteholders' right to convert.
In addition, on April 29 of 2008, 2013, 2018, 2023 and 2028 the 1.75%
noteholders, on April 15 of 2008 and 2011 the 2% noteholders and on October 24
of 2008, 2011 and 2016 the Zero-Coupon noteholders may require us to repurchase
all or a portion of the outstanding
F-14
1.75% Notes and Zero-Coupon Notes at their accreted values and the 2% Notes at
their face value plus any unpaid accrued interest.
Upon conversion, redemption or repurchase of the 1.75% Notes, the 2% Notes
and the Zero-Coupon Notes, we may choose to deliver Carnival Corporation common
stock, cash or a combination of cash and common stock with a total value equal
to the value of the consideration otherwise deliverable.
Revolving Credit and Committed Financing Facilities
Carnival Corporation, Carnival plc and certain of Carnival plc's
subsidiaries are parties to an unsecured multi-currency revolving credit
facility for $1.2 billion, E400 million and L200 million (aggregating
$2.12 billion U.S. dollars at the November 30, 2006 exchange rates) (the
"Facility"). The Facility currently bears interest at libor/euribor plus a
margin of 17.5 basis points ("BPS"). In addition, we are required to pay a
commitment fee of 30% of the margin per annum. Both the margin and the
commitment fee will vary based on changes to Carnival Corporation's senior
unsecured credit ratings. In September 2006, this Facility's expiration date was
extended from October 2010 to October 2011.
Our multi-currency commercial paper programs are supported by this
Facility and, accordingly, any amounts outstanding under our commercial paper
programs effectively reduce the aggregate amount available under this Facility.
At November 30, 2006, we had borrowed $160 million under our commercial paper
program, which is classified as a short-term borrowing since we do not expect to
refinance it using proceeds from our long-term Facility. This Facility also
supports L46 million ($91 million U.S. dollars at the November 30, 2006 exchange
rate) of bonds issued by the Facility lenders on behalf of Carnival Corporation
& plc. At November 30, 2006, $1.87 billion was available under the Facility,
based on the November 30, 2006 exchange rates.
At November 30, 2006, we had a total of seven separate unsecured long-term
ship loan financing facilities under which we have the option to borrow up to an
aggregate of $2.55 billion to finance a portion of the purchase price of seven
new ships currently under contract. These ships are expected to be delivered
through 2009. These facilities are repayable semi-annually over a 12 year
period. However, we have the option to terminate each facility up until 60 days
prior to the underlying ship's delivery date.
The Facility and our other loan and derivative agreements contain
covenants that require us, among other things, to maintain minimum debt service
coverage and minimum shareholders' equity, and to limit our debt to capital and
debt to equity ratios, and the amounts of our secured assets and secured
indebtedness. Generally, if an event of default under any loan agreement is
triggered, then pursuant to cross default acceleration clauses, substantially
all of our outstanding debt and derivative contract payables could become due
and the underlying facilities could be terminated. At November 30, 2006, we were
in compliance with all of our debt covenants.
F-15
NOTE 6 - Commitments
Ship Commitments
A description of our ships under contract for construction at November 30,
2006, as adjusted for our new ship orders through January 2007, was as follows:
Expected
Service Passenger Estimated Total Cost(b)
Brand and Ship Date(a) Capacity Euros Sterling USD
- -------------- -------- --------- ---------------------------------
(in millions)
Carnival Cruise Lines
Carnival Freedom 3/07 2,974 $ 505
Carnival Splendor 7/08 3,000 (euro) 485
Carnival Dream 10/09 3,652 565
Carnival Magic(c) 6/11 3,652 565
--------- ------------ --------
Total Carnival Cruise Lines 13,278 1,615 505
--------- ------------ --------
Princess
Emerald Princess 4/07 3,100 540
Newbuild 11/08 3,100 580
--------- --------
Total Princess 6,200 1,120
--------- --------
Holland America Line
Eurodam 7/08 2,044 465
Costa(d)
Costa Serena 6/07 3,000 475
Newbuild 5/09 2,260 420
Newbuild 6/09 3,000 485
Newbuild(c) 4/10 2,260 420
--------- ------------
Total Costa 10,520 1,800
--------- ------------
AIDA(d)
AIDAdiva 4/07 2,050 315
Newbuild 4/08 2,050 315
Newbuild 4/09 2,050 315
Newbuild 4/10 2,050 335
--------- ------------
Total AIDA 8,200 1,280
--------- ------------
Seabourn
Newbuild 6/09 450 200
Newbuild 6/10 450 200
--------- ------------
Total Seabourn 900 400
--------- ------------
P&O Cruises
Ventura(e) 4/08 3,076 (pound) 360
Newbuild(c) 6/10 3,076 535
--------- ------------
Total P&O Cruises 6,152
---------
Cunard
Queen Victoria(e) 12/07 2,014 305
--------- --------
Total Euro Commitments (euro) 5,630
------------
Total Euro Commitments converted to USD(f) 7,430
--------
Total Sterling Commitments (pound) 665
-----------
Total Sterling Commitments converted to USD(f) 1,300
--------
Grand Total 49,308
=========
Grand Total in USD $ 10,820
========
(a) The expected service date is the month in which the ship is currently
expected to begin its first revenue generating cruise.
F-16
(b) Estimated total cost of the completed ship includes the contract price
with the shipyard, design and engineering fees, capitalized interest,
construction oversight costs and various owner supplied items. All of our
ship construction contracts are with the Fincantieri shipyards in Italy,
except for AIDA's and Seabourn's which are with the Meyer Werft shipyard
in Germany and T. Mariotti shipyard in Italy, respectively. In addition,
the estimated total cost reflects the currency denomination that we are
committed to expend, including the effect of foreign currency swaps.
(c) These construction contracts aggregating E1.52 billion were entered into
after November 30, 2006.
(d) These construction contracts are denominated in euros, which is the
functional currency of the cruise brand which will operate the ship.
(e) These construction contracts are denominated in euros, except for $45
million of the Queen Victoria costs, which are denominated in USD. The
euro and USD denominated contract amounts have been fixed into sterling,
which is the cruise ship's functional currency, by utilizing foreign
currency swaps.
(f) The estimated total costs of these contracts denominated in euros and
sterling have been translated into U.S. dollars using the November 30,
2006 exchange rates.
In connection with our cruise ships under contract for construction listed
above, we have paid $922 million through November 30, 2006 and anticipate paying
the remaining estimated total costs as follows: $2.65 billion, $2.51 billion,
$2.43 billion, $1.69 billion and $617 million in fiscal 2007, 2008, 2009, 2010
and 2011, respectively.
Operating Leases
Rent expense under our operating leases, primarily for office and
warehouse space, was $47 million in fiscal 2006 and $50 million in each of
fiscal 2005 and 2004. At November 30, 2006, minimum annual rentals for our
operating leases, with initial or remaining terms in excess of one year, were as
follows (in millions): $40, $36, $34, $31 and $29 and $180 in fiscal 2007
through 2011 and thereafter, respectively.
Port Facilities and Other
At November 30, 2006, we had commitments through 2052, with initial or
remaining terms in excess of one year, to pay minimum amounts for our annual
usage of port facilities and other contractual commitments as follows (in
millions): $107, $97, $83, $74, $61, and $217 in fiscal 2007 through 2011 and
thereafter, respectively.
NOTE 7 - Contingencies
Litigation
On September 21, 2006, a class action complaint was filed on behalf of a
purported class of past passengers against Holland America Line ("HAL") in the
U.S. The complaint alleges that HAL (a) failed to disclose that shore excursion
vendors paid HAL to promote their services as required by an Alaska statute, and
(b) collected and retained payment from passengers for Passenger Vessel Service
Act ("PSVA") violations in certain instances when HAL did not actually incur the
fines. The complaint seeks (i) certification as a class action, (ii) statutory
damages under Alaska's consumer protection statutes, (iii) damages for each PSVA
fine collected and additional damages for each PSVA fine collected where no fine
was imposed, (iv) injunctive relief and (v) attorneys' fees, costs and interest.
The ultimate outcome of this action cannot be determined at this time. However,
we believe that we have meritorious defenses to these claims and intend to
vigorously defend this matter.
In January 2006, a lawsuit was filed against Carnival Corporation and its
subsidiaries and affiliates, and other non-affiliated cruise lines in New York
on behalf of a purported class of owners of intellectual property rights to
musical plays and other works performed in the U.S. The plaintiffs claim
infringement of copyrights to Broadway, off Broadway and other plays. The suit
seeks payment of (i) damages, (ii) disgorgement of alleged profits and (iii) an
injunction against future infringement. In the event that an award is given in
favor of the plaintiffs, the amount of damages, if any, which Carnival
Corporation and its subsidiaries and affiliates would have to pay is not
currently determinable. The ultimate outcome of this matter cannot be determined
at this time. However, we intend to vigorously defend this matter.
F-17
In the normal course of our business, various other claims and lawsuits
have been filed or are pending against us. Most of these claims and lawsuits are
covered by insurance and, accordingly, the maximum amount of our liability, net
of any insurance recoverables, is typically limited to our self-insurance
retention levels. However, the ultimate outcome of these claims and lawsuits
which are not covered by insurance cannot be determined at this time.
Contingent Obligations
At November 30, 2006, Carnival Corporation had contingent obligations
totaling approximately $1.07 billion to participants in lease out and lease back
type transactions for three of its ships. At the inception of the leases, the
entire amount of the contingent obligations was paid by Carnival Corporation to
major financial institutions to enable them to directly pay these obligations.
Accordingly, these obligations were considered extinguished, and neither the
funds nor the contingent obligations have been included on our balance sheets.
Carnival Corporation would only be required to make any payments under these
contingent obligations in the remote event of nonperformance by these financial
institutions, all of which have long-term credit ratings of AA or higher. In
addition, Carnival Corporation obtained a direct guarantee from AA or higher
rated financial institutions for $284 million of the above noted contingent
obligations, thereby further reducing the already remote exposure to this
portion of the contingent obligations. In certain cases, if the credit ratings
of the major financial institutions who are directly paying the contingent
obligations fall below AA-, then Carnival Corporation will be required to move
those funds being held by those institutions to other financial institutions
whose credit ratings are AA- or above. If Carnival Corporation's credit rating,
which is A-, falls below BBB, it would be required to provide a standby letter
of credit for $80 million, or alternatively provide mortgages in the aggregate
amount of $80 million on two of its ships.
In the unlikely event that Carnival Corporation was to terminate the three
lease agreements early or default on its obligations, it would, as of November
30, 2006, have to pay a total of $176 million in stipulated damages. As of
November 30, 2006, $180 million of standby letters of credit have been issued by
a major financial institution in order to provide further security for the
payment of these contingent stipulated damages. In addition, in 2004 a $170
million back-up letter of credit was issued in support of these standby letters
of credit. Between 2017 and 2022, we have the right to exercise options that
would terminate these three lease transactions at no cost to us. As a result of
these three transactions, we have $37 million and $40 million of deferred income
recorded on our balance sheets as of November 30, 2006 and 2005, respectively,
which is being amortized to nonoperating other income through 2022.
Some of the debt agreements that we enter into include indemnification
provisions that obligate us to make payments to the counterparty if certain
events occur. These contingencies generally relate to changes in taxes, changes
in laws that increase lender capital costs and other similar costs. The
indemnification clauses are often standard contractual terms and were entered
into in the normal course of business. 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. We have not been required to make any material payments under such
indemnification clauses in the past and, under current circumstances, we do not
believe a request for material future indemnification payments is probable.
War Risk Insurance
We maintain war risk insurance, subject to coverage limits, deductibles
and exclusions for claims such as those arising from chemical, nuclear and
biological attacks, on all of our ships covering our legal liability to crew,
passengers and other third parties as well as loss or damage to our vessels
arising from war or war-like actions, including terrorist risks. Under the terms
of our war risk insurance coverage, which is typical for war risk policies in
the marine industry, underwriters can give seven days notice to the insured that
the policies will be cancelled.
F-18
NOTE 8 - Income and Other Taxes
We are foreign corporations primarily engaged in the international
operation of vessels. Generally, income from the international operation of
vessels is subject to preferential tax regimes in the countries where the vessel
owning companies are incorporated and exempt from income tax in other countries
where the vessels call due to the application of income tax treaties or, in the
case of the U.S., Section 883 of the Internal Revenue Code. Income we earn that
is not associated with the international operation of ships, primarily the
transportation, hotel and tour businesses of Holland America Tours and Princess
Tours, is subject to income tax in the countries where such income is earned.
For fiscal 2004, we believe that substantially all of our income, with the
exception of our U.S. source income principally from the transportation, hotel
and tour businesses of Holland America Tours and Princess Tours, was derived
from, or incidental to, the international operation of ships, and is therefore
exempt from U.S. federal income taxes. For fiscal 2005, regulations under
Section 883 of the Internal Revenue Code limiting the types of income considered
to be derived from the international operation of a ship first became effective.
Section 883 is the primary provision upon which we rely to exempt most of our
international ship operation earnings from U.S. income taxes. Accordingly, the
2006 and 2005 provisions for U.S. federal income taxes include taxes on a
portion of our ship operating income that is in addition to the U.S. source
transportation, hotel and tour income on which U.S. taxes have historically been
provided. In addition, during the fourth quarter of 2005 and first quarter of
2006 we chartered three ships to the Military Sealift Command in connection with
the Hurricane Katrina relief effort. Income from these charters is not
considered to be income from the international operation of our ships and,
accordingly, approximately $11 million and $18 million of income taxes were
provided on the net earnings of these charters in fiscal 2006 and 2005,
respectively, at an effective tax rate of approximately 57%.
If we were found not to qualify for exemption pursuant to applicable
income tax treaties or under the Internal Revenue Code or if the income tax
treaties or Internal Revenue Code were to be changed in a manner adverse to us,
a portion of our income would become subject to taxation by the U.S. at higher
than normal corporate tax rates.
P&O Cruises, Cunard, Ocean Village, P&O Cruises Australia, Swan Hellenic,
AIDA and Costa, since the beginning of fiscal 2005, are subject to income tax
under the tonnage tax regimes of either the United Kingdom or Italy. Under both
tonnage tax regimes, shipping profits, as defined under the applicable law, are
subject to corporation tax by reference to the net tonnage of qualifying
vessels. Income not considered to be shipping profits under tonnage tax rules is
taxable under either the normal UK income tax rules or the Italian tax regime
applicable to Italian-registered ships. We believe that substantially all of the
ordinary income attributable to these brands constitutes shipping profits and,
accordingly, Italian and UK income tax expenses for these operations have been
and are expected to be minimal under the current tax regimes.
We do not expect to incur income taxes on future distributions of
undistributed earnings of foreign subsidiaries and, accordingly, no deferred
income taxes have been provided for the distribution of these earnings.
In addition to or in place of income taxes, virtually all jurisdictions
where our ships call impose taxes based on passenger counts, ship tonnage or
some other measure. These taxes, other than those directly charged to and/or
collected from passengers by us on a per passenger headcount basis, are recorded
as operating expenses in the accompanying Consolidated Statements of Operations.
NOTE 9 - Shareholders' Equity
Carnival Corporation's articles of incorporation authorize its Board of
Directors, at its discretion, to issue up to 40 million shares of preferred
stock, and Carnival plc has 100,000 authorized preference shares. At November
30, 2006 and 2005, no Carnival Corporation preferred stock had been issued and
only a nominal amount of Carnival plc preference shares had been issued.
F-19
During 2004 the Boards of Directors authorized the repurchase of up to an
aggregate of $1 billion of Carnival Corporation common stock and/or Carnival plc
ordinary shares. We completed this $1 billion repurchase program on June 29,
2006. An additional $1 billion repurchase authorization was approved by the
Boards of Directors in June 2006 subject to certain restrictions. During fiscal
2006 and 2005, we purchased 18.7 million and 8.0 million shares of Carnival
Corporation common stock, respectively, and 0.6 million shares of Carnival plc
ordinary shares in fiscal 2006. At February 9, 2007, the remaining availability
pursuant to our 2006 share repurchase program was $773 million. No expiration
date has been specified for this authorization.
At November 30, 2006, there were 71.7 million shares of Carnival
Corporation common stock reserved for issuance pursuant to its convertible notes
and its employee benefit and dividend reinvestment plans. In addition, Carnival
plc shareholders have authorized 12.9 million ordinary shares for future
issuance under its employee benefit plans.
At November 30, 2006 and 2005 accumulated other comprehensive income was
as follows (in millions):
2006 2005
------ ------
Cumulative foreign currency translation adjustments,
net $ 689 $ 193
Minimum pension liability adjustments (17) (19)
Unrealized losses on cash flow derivative
hedges, net (11) (15)
------ ------
$ 661 $ 159
====== ======
NOTE 10 - Financial Instruments
Whenever possible, quoted prices in active markets are used to determine
the fair value of financial instruments. However, considerable judgment is
required in interpreting data to develop estimates for fair values for which
there is no active market and, accordingly, amounts are not necessarily
indicative of the amounts that we could realize in an active market exchange.
Our financial instruments are not held for trading or other speculative
purposes.
Cash and Cash Equivalents and Short-Term Investments
The carrying amounts of our cash and cash equivalents and short-term
investments approximate their fair values due to their short maturities or
variable interest rates.
Other Assets
At November 30, 2006 and 2005, long-term other assets included notes and
other receivables and marketable securities held in rabbi trusts for certain of
our nonqualified benefit plans. These assets had carrying and fair values of
$440 million and $445 million at November 30, 2006, respectively, and carrying
and fair values of $406 million and $405 million at November 30, 2005. Fair
values were based on public market prices, estimated discounted future cash
flows or estimated fair value of collateral.
Debt
The fair values of our non-convertible debt and convertible notes were
$6.06 billion and $1.73 billion, respectively, at November 30, 2006 and $5.98
billion and $2.03 billion at November 30, 2005. These fair values were greater
than the related carrying values by $50 million and $338 million, respectively,
at November 30, 2006 and by $86 million and $572 million at November 30, 2005.
The net difference between the fair value of our non-convertible debt and its
carrying value was due primarily to our issuance of debt obligations at fixed
interest rates that are above market interest rates in existence at the
measurement dates. The net difference between the fair value of our convertible
notes and their carrying value is largely due to the impact of changes in the
Carnival Corporation common stock price on the value of our convertible notes on
those measurement dates. The fair values of our unsecured fixed rate public
notes, convertible notes, sterling bonds and unsecured 5.57% euro notes were
based on their public market prices. The fair values of our other debt were
estimated based on appropriate market interest rates being applied to this debt.
F-20
Foreign Currency Swaps and Other Hedging Instruments
At November 30, 2006, we have foreign currency swaps that are designated
as foreign currency fair value hedges for two of our euro denominated
shipbuilding contracts (see Note 6). At November 30, 2006 and 2005, the fair
value of the foreign currency swaps related to our shipbuilding commitments was
an unrealized loss of $26 million and a net unrealized gain of $29 million,
respectively. These foreign currency swaps mature through 2008.
At November 30, 2006, we have foreign currency swaps totaling $1.25
billion that are designated as hedges of our net investments in foreign
subsidiaries, which have euro and sterling denominated functional currencies.
These foreign currency swaps were entered into to effectively convert $267
million and $842 million of U.S. dollar denominated debt into sterling debt and
euro debt ($237 million and $736 million at November 30, 2005), respectively. In
addition, $143 million and $138 million of euro denominated debt was effectively
converted into sterling debt at November 30, 2006 and 2005, respectively. At
November 30, 2006 and 2005, the fair value of these foreign currency swaps was
an unrealized loss of $169 million and $58 million, respectively, which is
included in the cumulative translation adjustment component of AOCI. These
currency swaps mature through 2017.
The fair values of these foreign currency swaps were estimated based on
prices quoted by financial institutions for these instruments based on active
market prices for these instruments.
Finally, as of November 30, 2006 we have designated $1.02 billion and $431
million of our outstanding euro and sterling debt and other obligations, which
mature through 2013, as nonderivative hedges of our net investments in foreign
subsidiaries and, accordingly, we have included $209 million and $68 million
of foreign currency transaction losses in the cumulative translation adjustment
component of AOCI at November 30, 2006 and 2005, respectively.
Interest Rate Swaps
We have interest rate swap agreements designated as fair value hedges
whereby we receive fixed interest rate payments in exchange for making variable
interest rate payments. At November 30, 2006 and 2005, these interest rate swap
agreements effectively changed $932 million and $926 million, respectively, of
fixed rate debt to libor-based floating rate debt. These interest rate swap
agreements mature through 2010. At November 30, 2006 and 2005, the fair value of
our interest rate swaps designated as fair value hedges was a net unrealized
loss of $4 million and $7 million, respectively.
We also have interest rate swap agreements designated as cash flow hedges
whereby we receive variable interest rate payments in exchange for making fixed
interest rate payments. At November 30, 2006 and 2005, these interest rate swap
agreements effectively changed $365 million and $1.25 billion, respectively, of
libor-based floating rate debt to fixed rate debt. These interest rate swap
agreements mature through 2010. At November 30, 2006 and 2005, the fair value of
our interest rate swaps designated as cash flow hedges was an unrealized gain of
$2 million and an unrealized loss of $6 million, respectively.
The estimated fair values of our interest rate swap agreements were
obtained from valuations performed by financial institutions based on active
market prices for these instruments.
NOTE 11 - Segment Information
Our cruise segment includes all of our cruise brands, which have been
aggregated as a single reportable segment based on the similarity of their
economic and other characteristics, including products and services they
provide. Substantially all of our other segment represents the hotel, tour and
transportation operations of Holland America Tours and Princess Tours. The
significant accounting policies of our segments are the same as those described
in Note 2 - "Summary of Significant Accounting Policies." Information for our
cruise and other segments as of and for the years ended November 30 was as
follows (in millions):
F-21
Selling
and Depreciation Capital
Operating adminis- and Operating expend- Total
Revenues(a) expenses trative amortization income itures assets
----------- --------- -------- ------------ --------- ------- --------
2006
Cruise $ 11,417 $ 6,477 $ 1,405 $ 954 $ 2,581 $ 2,395 $ 29,968
Other 533 425 42 34 32 85 584(b)
Intersegment
elimination (111) (111)
----------- --------- -------- ------------ --------- ------- --------
$ 11,839 $ 6,791 $ 1,447 $ 988 $ 2,613 $ 2,480 $ 30,552
=========== ========= ======== ============ ========= ======= ========
2005
Cruise $ 10,737 $ 5,964 $ 1,289 $ 873 $ 2,611 $ 1,892 $ 27,782
Other 461 358 46 29 28 85 567(b)
Intersegment
elimination (104) (104)
----------- --------- -------- ------------ --------- ------- --------
$ 11,094 $ 6,218 $ 1,335 $ 902 $ 2,639 $ 1,977 $ 28,349
=========== ========= ======== ============ ========= ======= ========
2004
Cruise $ 9,427 $ 5,292 $ 1,231 $ 791 $ 2,113 $ 3,512 $ 27,048
Other 398 308 54 21 15 74 500(b)
Intersegment
elimination (98) (98)
----------- --------- -------- ------------ --------- ------- --------
$ 9,727 $ 5,502 $ 1,285 $ 812 $ 2,128 $ 3,586 $ 27,548
=========== ========= ======== ============ ========= ======= ========
(a) A portion of other segment revenues include revenues for the cruise
portion of a tour, when a cruise is sold along with a land tour package by
Holland America Tours or Princess Tours, and shore excursion and port
hospitality services provided to cruise passengers by these tour
companies. These intersegment revenues, which are included in full in the
cruise segment, are eliminated from the other segment revenues in the line
"Intersegment elimination."
(b) Other segment assets primarily included hotels and lodges in Alaska and
the Canadian Yukon, motorcoaches used for sightseeing and charters and
private, domed rail cars, which run on the Alaska Railroad.
Foreign revenues for our cruise brands represent sales generated from
outside the U.S. primarily by foreign tour operators and foreign travel
agencies. Substantially all of our long-lived assets are located outside of the
U.S. and consist principally of our ships and ships under construction and
exclude goodwill and trademarks.
Revenue information by geographic area for fiscal 2006, 2005 and 2004 was
as follows (in millions):
2006 2005 2004
-------- -------- --------
North America $ 7,679 $ 7,283 $ 6,421
Europe 3,473 3,231 2,902
Others 687 580 404
-------- -------- --------
$ 11,839 $ 11,094 $ 9,727
======== ======== ========
NOTE 12 - Benefit Plans
Stock Incentive Plans
We issue our share-based compensation awards under the Carnival
Corporation and Carnival plc stock plans, which have an aggregate of 39.1
million shares available for future grant at November 30, 2006. These plans
allow us to issue stock options, restricted stock awards and restricted stock
units (collectively "incentive awards"). Incentive awards are primarily granted
to management level employees and members of our Board of Directors. The plans
are administered by a committee of our independent directors (the "Committee"),
that determines
F-22
who is eligible to participate, the number of shares for which incentive awards
are to be granted and the amounts that may be exercised within a specified term.
These plans allow us to fulfill our incentive award obligations using shares
purchased in the open market, or with unissued or treasury shares. Certain
incentive awards provide for accelerated vesting if we have a change in control,
as defined.
Effective December 1, 2005 we adopted the provisions of SFAS No. 123(R),
which required us to measure and recognize compensation expense for all
share-based compensation awards. The total share-based compensation expense was
$68 million for fiscal 2006, of which $60 million has been included in the
Consolidated Statements of Operations as selling, general and administrative
expenses and $8 million as cruise payroll expenses.
Prior to December 1, 2005, we did not recognize compensation expense for
the issuance of stock options with an exercise price equal to or greater than
the market price of the underlying shares at the date of grant. Had we elected
to charge earnings for the estimated fair value of stock options in prior years,
our pro forma net income and pro forma earnings per share would have been as
follows (in millions, except per share amounts):
Years ended November 30,
------------------------
2005 2004
-------- --------
Net income, as reported $ 2,253 $ 1,809
Share-based compensation expense included in
net income, as reported 12 11
Total share-based compensation expense determined
under the fair value-based method for all awards(a) (86) (66)
-------- --------
Pro forma net income for basic earnings per share 2,179 1,754
Interest on dilutive convertible notes 47 49
-------- --------
Pro forma net income for diluted earnings per share $ 2,226 $ 1,803
======== ========
Earnings per share
Basic
As reported $ 2.80 $ 2.25
======== ========
Pro forma $ 2.70 $ 2.19
======== ========
Diluted
As reported $ 2.70 $ 2.18
======== ========
Pro forma $ 2.62 $ 2.13
======== ========
(a) These amounts include the expensing of stock options made to
retirement-eligible employees over the expected vesting period of the
option and accounting for the impact of forfeitures as they occur.
As permitted by SFAS No. 123 and SFAS No. 123(R), the fair values of
options were estimated using the Black-Scholes option-pricing model. The
Black-Scholes weighted-average values and assumptions were as follows:
Years ended November 30,
-------------------------------
2006 2005 2004
------- ------- -------
Fair value of options at the
dates of grant $ 12.25 $ 12.99 $ 15.87
======= ======= =======
Risk free interest rate(a) 4.5% 4.1% 3.4%
======= ======= =======
Expected dividend yield 2.6% 1.90% 1.36%
======= ======= =======
Expected volatility(b) 29.2% 27.0% 35.0%
======= ======= =======
Expected option life (in years)(c) 4.75 4.74 5.75
======= ======= =======
(a) The risk-free interest rate is based on U.S. Treasury zero-coupon issues
with a remaining term equal to the expected option life assumed at the
date of grant.
(b) The expected volatility is based on a weighting of the implied
volatilities derived from our exchange traded options and convertible
notes and the historical volatility of our common stock.
(c) The average expected life was based on the contractual term of the option
and expected employee exercise behavior. Based on our assessment of
employee groupings and observable behaviors, we determined that a single
grouping is appropriate.
F-23
Stock Option Plans
The Committee generally sets stock option exercise prices at 100% or more
of the fair market value of the underlying common stock/ordinary shares on the
date the option is granted. All stock options granted during the years ended
November 30, 2006 and 2005 were granted at an exercise price per share equal to
or greater than the fair market value of the Carnival Corporation common stock
and Carnival plc ordinary shares on the date of grant. Generally employee
options either vest evenly over five years or at the end of three years. Our
employee options granted prior to October 2005 have a ten-year term and those
options granted thereafter have a seven-year term. Since fiscal 2001, Carnival
Corporation director options vest evenly over five years and have a ten-year
term.
A combined summary of Carnival Corporation and Carnival plc stock option
activity during the year ended November 30, 2006 was as follows:
Weighted- Weighted-Average Aggregate
Average Remaining Intrinsic
Shares Exercise Price Contractual Term Value(a)
---------- -------------- ---------------- -------------
(in years) (in millions)
Outstanding at
November 30, 2005 20,058,252 $ 39.15
Granted 2,401,712 $ 50.51
Exercised (2,309,850) $ 28.78
Forfeited or expired (628,115) $ 41.29
----------
Outstanding at
November 30, 2006 19,521,999 $ 42.55 6.0 $ 156
========== ================ =============
Exercisable at
November 30, 2006 9,999,345 $ 38.18 5.1 $ 117
========== ================ =============
(a) The aggregate intrinsic value represents the amount by which the fair
value of underlying stock exceeds the option exercise price at November
30, 2006.
As of the dates of exercise, the total intrinsic value of options
exercised in fiscal 2006, 2005 and 2004 was $48 million, $37 million and $77
million, respectively. As of November 30, 2006, there was $86 million of total
unrecognized compensation cost related to unvested stock options. This cost is
expected to be recognized over a weighted-average period of 1.9 years.
Restricted Stock Awards and Restricted Stock Units
Restricted stock awards ("RSAs") generally have the same rights as
Carnival Corporation common stock, except for transfer restrictions and
forfeiture provisions. In prior periods, unearned stock compensation was
recorded within shareholders' equity at the date of award based on the quoted
market price of the Carnival Corporation common stock on the date of grant. In
fiscal 2006 upon adoption of SFAS No. 123(R), the $13 million of unearned stock
compensation as of November 30, 2005 was required to be charged against
additional paid-in capital. RSAs have been granted to certain officers and
non-executive board members and either have three or five-year cliff vesting or
vest evenly over five years after the grant date. In addition, Carnival
Corporation and Carnival plc grant restricted stock units ("RSUs"), which do not
have an exercise price, and either vest evenly over five years or at the end of
three or five years after the grant date and accrue dividend equivalents on each
outstanding RSU, in the form of additional RSUs, based on dividends declared.
The share-based compensation expense associated with RSAs and RSUs is based on
the quoted market price of the Carnival Corporation or Carnival plc shares on
the date of grant, and is amortized to expense using the straight-line method
from the grant date through the earlier of the vesting date or the estimated
retirement eligibility date.
F-24
During the year ended November 30, 2006 RSA and RSU activity was as
follows:
Restricted Stock Awards Restricted Stock Units
----------------------- ----------------------
Weighted- Weighted-
Average Average
Grant Date Grant Date
Shares Fair Value Shares Fair Value
-------- ---------- ------- ----------
Outstanding at
November 30, 2005 966,417 $36.28 159,117 $44.56
Granted 169,711 $49.69 275,272 $52.37
Vested (245,417) $31.32 (47,319) $30.07
Forfeited (8,222) $51.87
-------- -------
Outstanding at
November 30, 2006 890,711 $40.20 378,848 $51.88
======== =======
The total grant date fair value of RSAs and RSUs vested during fiscal
2006, 2005 and 2004 was $9 million, $8 million and $10 million, respectively. As
of November 30, 2006, there was $19 million of total unrecognized compensation
cost related to RSAs and RSUs. This cost is expected to be recognized over a
weighted-average period of 1.7 years.
Defined Benefit Pension Plans
We have several defined benefit pension plans, which cover some of our
shipboard and shoreside employees. The U.S. and UK shoreside employee plans are
closed to new membership and are funded at or above the level required by U.S.
or UK regulations. The remaining defined benefit plans are primarily unfunded.
In determining our plans' benefit obligations at November 30, 2006, we assumed
weighted-average discount rates of 5.5% and 4.9% for our U.S. and foreign plans,
respectively. The net liabilities related to the obligations under these single
employer defined benefit pension plans are not material.
In addition, P&O Cruises, Princess and Cunard participate in an
industry-wide British Merchant Navy Officers Pension Fund ("MNOPF"), which is a
defined benefit multiemployer pension plan that is available to certain of their
British shipboard officers. The MNOPF is divided into two sections, the "New
Section" and the "Old Section," each of which covers a different group of
participants, with the Old Section closed to further benefit accrual and the New
Section only closed to new membership. At November 30, 2006, the New Section was
estimated to have a funding deficit and the Old Section was estimated to have a
funding surplus.
Substantially all of any MNOPF New Section deficit liability which we may
have relates to P&O Cruises and Princess obligations, which existed prior to the
DLC transaction. However, since the MNOPF is a multiemployer plan and it was not
probable that we would withdraw from the plan nor was our share of the liability
certain, we could not record our estimated share of the ultimate deficit as a
Carnival plc acquisition liability that existed at the DLC transaction date. The
amount of our share of the fund's ultimate deficit could vary considerably if
different pension assumptions and/or estimates were used. Therefore, we expense
our portion of any deficit as amounts are invoiced by, and became due and
payable to, the fund's trustee. In August 2005, we received an invoice from the
fund for what the trustee calculated to be our share of the entire MNOPF
liability based on their March 31, 2003 actuarial study. Accordingly, we
recorded the full invoiced liability of $23 million in payroll and related
expense in 2005. However, based on the MNOPF's March 31, 2006 preliminary
valuation of the deficit liability as at that date, we expect to receive a
second MNOPF invoice in mid-2007 of between approximately $15 million and $35
million, which represents our estimate of our additional share of the entire
MNOPF liability. It is still possible that the fund's trustee may invoice us for
additional amounts after this second invoice for various reasons, including if
they believe the fund requires further funding.
Total expense for all defined benefit pension plans, including
multiemployer plans, was $28 million, $45 million and $18 million in fiscal
2006, 2005 and 2004, respectively.
F-25
Defined Contribution Plans
We have several defined contribution plans available to most of our
employees. We contribute to these plans based on employee contributions, salary
levels and length of service. Total expense relating to these plans was $17
million, $14 million and $13 million in fiscal 2006, 2005 and 2004,
respectively.
NOTE 13 - Earnings Per Share
Our basic and diluted earnings per share were computed as follows (in
millions, except per share data):
Years Ended November 30,
------------------------
2006 2005 2004
------ ------ ------
Net income $2,279 $2,253 $1,809
Interest on dilutive convertible notes 36 47 49
------ ------ ------
Net income for diluted earnings per share $2,315 $2,300 $1,858
====== ====== ======
Weighted-average common and ordinary
shares outstanding 801 806 802
Dilutive effect of convertible notes 33 42 44
Dilutive effect of stock plans 2 5 5
------ ------ ------
Diluted weighted-average shares outstanding 836 853 851
====== ====== ======
Basic earnings per share $ 2.85 $ 2.80 $ 2.25
====== ====== ======
Diluted earnings per share $ 2.77 $ 2.70 $ 2.18
====== ====== ======
Options to purchase 8.5 million, 2.1 million and 6.0 million shares for
fiscal 2006, 2005 and 2004, respectively, were excluded from our diluted
earnings per share computation since the effect of including them was
anti-dilutive.
NOTE 14 - Supplemental Cash Flow Information
Total cash paid for interest was $363 million, $314 million and $250
million in fiscal 2006, 2005 and 2004, respectively. In addition, cash paid for
income taxes was $47 million, $15 million and $8 million in fiscal 2006, 2005
and 2004, respectively. Finally, in 2006 and 2005, $69 million and $297 million
of our Zero-Coupon Notes were converted through a combination of the issuance of
Carnival Corporation treasury stock and newly issued Carnival Corporation common
stock, which represented a noncash financing activity.
NOTE 15 - Recent Accounting Pronouncements
In June, 2006 the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 clarifies, among other things, the accounting for uncertain income
tax positions by prescribing a minimum probability threshold that a tax position
must meet before a financial statement income tax benefit is recognized. The
minimum threshold is defined as a tax position, that based solely on its
technical merits is more likely than not to be sustained upon examination by the
relevant taxing authority. The tax benefit to be recognized is measured as the
largest amount of benefit that is greater than fifty percent likely of being
realized upon ultimate settlement. FIN 48 must be applied to all existing tax
positions upon adoption. The cumulative effect of applying FIN 48 at adoption is
required to be reported separately as an adjustment to the opening balance of
retained earnings in the year of adoption. FIN 48 is required to be implemented
at the beginning of a fiscal year and is effective for Carnival Corporation &
plc for fiscal 2008. We have not yet determined the impact of adopting FIN 48 on
our financial statements.
In September, 2006 the FASB issued SFAS No.158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans--an amendment of FASB
Statements No. 87, 88, 106, and 132(R)," ("SFAS No. 158"), which requires an
employer to recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
on its balance sheet and to recognize changes in that funded status
F-26
in the year in which the changes occur through comprehensive income. SFAS No.
158 requires an employer to measure the funded status of a plan as of its
year-end date and is first effective for Carnival Corporation & plc on November
30, 2007 with certain requirements allowing for later implementation. We have
not yet determined the impact of adopting SFAS No. 158 on our financial
statements, although based on the underfunded status of our plans at November
30, 2006, we do not believe the November 30, 2007 adoption will have a material
impact on our financial position.
F-27
Report of Independent Registered Certified Public Accounting Firm
To the Boards of Directors and Shareholders of Carnival Corporation and Carnival
plc:
We have completed integrated audits of Carnival Corporation & plc's consolidated
financial statements and of its internal control over financial reporting as of
November 30, 2006 in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits,
are presented below.
Consolidated financial statements
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows and shareholders' equity
present fairly, in all material respects, the financial position of Carnival
Corporation & plc (comprising Carnival Corporation and Carnival plc and their
respective subsidiaries, the "Company") at November 30, 2006 and November 30,
2005, and the results of their operations and their cash flows for each of the
three years in the period ended November 30, 2006 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, effective
December 1, 2005 the Company adopted Statement of Financial Accounting Standards
No. 123(revised 2004), "Share-Based Payment".
In addition, as discussed in Note 2 to the consolidated financial statements,
effective March 1, 2006 the Company elected to change its method of accounting
for costs incurred in connection with its dry-dock activities.
Internal control over financial reporting
Also, in our opinion, management's assessment, included in Management's Report
on Internal Control Over Financial Reporting appearing under Item 9A of the 2006
Annual Report on Form 10-K, that the Company maintained effective internal
control over financial reporting as of November 30, 2006 based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission ("COSO"), is fairly
stated, in all material respects, based on those criteria. Furthermore, in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of November 30, 2006, based on criteria
established in Internal Control - Integrated Framework issued by the COSO. The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express opinions on
management's assessment and on the effectiveness of the Company's internal
control over financial reporting based on our audit. We conducted our audit of
internal control over financial reporting in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. An audit of internal control over financial reporting
includes obtaining an understanding of internal control over financial
reporting, evaluating management's assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of
F-28
financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
February 12, 2007
F-29
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 contained in this 2006 Annual Report are
"forward-looking statements" that involve risks, uncertainties and assumptions
with respect to us, including some statements concerning future results,
outlook, 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. We have tried, wherever possible, to identify these
statements by using words like "will," "may," "believes," "expects,"
"anticipates," "forecast," "future," "intends," "plans," and "estimates" and
similar expressions.
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 in this 2006
Annual Report. Forward-looking statements include those statements which may
impact the forecasting of our earnings per share, net revenue yields, booking
levels, pricing, occupancy, operating, financing and/or tax costs, fuel costs,
costs per available lower berth day ("ALBD"), estimates of ship depreciable
lives and residual values, outlook or business prospects. These factors include,
but are not limited to, the following:
- general economic and business conditions, which may adversely impact the
levels of our potential vacationers' discretionary income and this group's
consumer confidence in the U.S. economy, and thereby reduce the net
revenue yields for our cruise brands;
- the international political and economic climate, armed conflicts,
terrorist attacks and threats thereof, availability of air service and
other world events, and their impact on the demand for cruises;
- accidents, unusual weather conditions or natural disasters, such as
hurricanes and earthquakes and other incidents (including machinery and
equipment failures or improper operation thereof) which could cause the
alteration of itineraries or cancellation of a cruise or series of
cruises, and the impact of the spread of contagious diseases, affecting
the health, safety, security and vacation satisfaction of passengers;
- adverse publicity concerning the cruise industry in general, or us in
particular, could impact the demand for our cruises;
- conditions in the cruise and land-based vacation industries, including
competition from other cruise ship operators and providers of other
vacation alternatives and increases in capacity offered by cruise ship and
land-based vacation alternatives;
- changing consumer preferences, which may, among other things, adversely
impact the demand for cruises;
- changes in and compliance with the environmental, health, safety,
security, tax and other regulatory regimes under which we operate,
including the implementation of U.S. regulations requiring U.S. citizens
to obtain passports for sea travel to or from additional foreign
destinations;
- the impact of changes in operating and financing costs, including changes
in foreign currency exchange rates and interest rates and fuel, food,
insurance, payroll and security costs;
- our ability to implement our shipbuilding programs and brand strategies
and to continue to expand our business worldwide;
- our future operating cash flow may not be sufficient to fund future
obligations and we may not be able to obtain financing, if necessary, on
terms that are favorable or consistent with our expectations;
- lack of acceptance of new itineraries, products and services by our
guests;
- our ability to attract and retain qualified shipboard crew and maintain
good relations with employee unions;
- continuing financial viability of our travel agent distribution system and
air service providers;
- our decisions to self-insure against various risks or inability to obtain
insurance for certain risks;
- disruptions to our software and other information technology systems;
- continued availability of attractive port destinations;
- risks associated with the DLC structure, including the uncertainty of its
tax status;
- risks associated with operating internationally;
F-30
- the impact of pending or threatened litigation; and
- our ability to successfully implement cost reduction plans.
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 listing rules, we expressly disclaim any obligation to disseminate,
after the date of this 2006 Annual Report, 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.
Executive Overview
Since the beginning of 2004 and continuing through 2005, we experienced a
substantial improvement in our net cruise revenue yields per ALBD ("net revenue
yields"). The improvement in net revenue yields was primarily the result of
higher passenger ticket prices, onboard revenues and occupancy and, to a lesser
extent, a weaker U.S. dollar relative to the euro and sterling. Towards the
spring of 2006, the impact of the severe 2005 hurricane season and higher fuel
costs and interest rates on vacationers' discretionary income, we believe caused
a softening in demand, principally for cruises in the Caribbean. The weaker
Caribbean demand was offset by strong demand and pricing for our European brands
and for our North American brands when sailing outside of the Caribbean.
Consequently, in 2006, we continued to increase our net revenue yields, however,
by a much smaller percentage than 2005 and 2004.
From 2003 through 2006, the cruise industry was adversely impacted by
substantial increases in fuel prices, which reduced earnings per share for the
2006 fiscal year by $0.25 compared to fiscal 2005. Towards the end of 2006, fuel
prices decreased slightly and were below the prior year comparable amount. It is
possible that fuel prices may once again begin to increase in 2007 and
thereafter.
Throughout this period we generated significant cash flows and remained in
a strong financial position, which is a high priority for us and we believe
provides us with a competitive advantage in the capital intensive cruise
industry. We continue to distribute excess cash to shareholders in an
opportunistic manner either through dividends or through our share buy-back
programs. However, our operations are subject to many risks, as briefly noted
under the caption "Cautionary Note Concerning Factors That May Affect Future
Results," which could adversely impact our future results.
Since June 2006, we ordered seven additional ships, which are expected to
be delivered between 2009 and 2011. As of February 12, 2007, we had signed
agreements with three shipyards providing for the construction of 20 additional
cruise ships, the majority of which have been designated for our European brands
(see Note 6 in the accompanying financial statements). These new ships are
expected to continue to help us maintain our leadership position within the
cruise industry. Excluding any future ship orders, acquisitions or retirements,
the year-over-year percentage increase in our ALBD capacity for fiscal 2007,
2008, 2009, 2010 and 2011, resulting substantially all from new ships entering
service, is currently expected to be 8.4%, 7.9%, 7.5%, 6.7% and 3.9%,
respectively.
Outlook For Fiscal 2007 ("2007")
As of December 21, 2006 we said that we expected our 2007 full year
earnings per share will be in the range of $2.90 to $3.10. We also said that we
expected our first quarter 2007 earnings per share to be in the range of $0.33
to $0.35. Our guidance was based on the then current forward fuel price for all
of 2007 of $339 per metric ton for the full year. In addition, this guidance was
also based on currency exchange rates of $1.33 to the euro and $1.98 to
sterling.
Since the date of our December earnings release, the cruise industry has
begun a period of heavy bookings generally referred to as "wave season", which
begins in early January. Bookings since the beginning of January are up compared
to the same period in 2006, however, the increase is less than our 2007 capacity
increase. Pricing on bookings taken in 2007 was less than in the comparable
period last year, primarily because of the continuing price pressure on
Caribbean sailings. As of February 4, 2007, occupancy on cumulative advance
bookings taken for the full year 2007 is approximately the same as the
comparable date last year. Pricing on those advance bookings is also
approximately equal to last year (down 1% in constant dollars).
Based on bookings taken to date, we now expect our net revenue yields to
be flat to up slightly for the full year 2007 (down 1% to 2% in constant
dollars), which is a little less than our previous guidance. Largely offsetting
this, our estimate of forward prices for fuel for the year 2007 has decreased to
$315 per metric ton compared to the $339 per metric ton we used in our December
guidance. Our earnings per share for the first quarter of 2007 is not expected
to come in at the high end of the range of our December guidance of $0.33 to
$0.35 per share because of lower fuel costs. Our earnings guidance for the full
year 2007 remains $2.90 to $3.10 per share.
F-31
Key Performance Indicators
We use net cruise revenues per ALBD and net cruise costs per ALBD as
significant non-GAAP financial measures of our cruise segment financial
performance. We believe that net revenue yields are commonly used in the cruise
industry to measure a company's cruise segment revenue performance. This measure
is also used for revenue management purposes. In calculating net revenue yields,
we use "net cruise revenues" rather than "gross cruise revenues." We believe
that net cruise revenues is a more meaningful measure in determining revenue
yield than gross cruise revenues because it reflects the cruise revenues earned
by us net of our most significant variable costs, which are travel agent
commissions, cost of air transportation and certain other variable direct costs
associated with onboard and other revenues. Substantially all of our remaining
cruise costs are largely fixed once our ship capacity levels have been
determined, except for the impact of changing prices.
Net cruise costs per ALBD is the most significant measure we use to
monitor our cruise segment costs rather than gross cruise costs per ALBD. In
calculating net cruise costs, we exclude the same variable costs that are
included in the calculation of net cruise revenues. This is done to avoid
duplicating these variable costs in these two non-GAAP financial measures.
We have not provided estimates of future gross revenue yields because the
reconciliations of forecasted net cruise revenues to forecasted gross cruise
revenues would require us to forecast, with reasonable accuracy, the amount of
air and other transportation costs that our forecasted cruise passengers would
elect to purchase from us (the "air/sea mix"). Since the forecasting of future
air/sea mix involves several significant variables that are relatively difficult
to forecast and the revenues from the sale of air and other transportation
approximate the costs of providing that transportation, management focuses
primarily on forecasts of net cruise revenues rather than gross cruise revenues.
This does not impact, in any material respect, our ability to forecast our
future results, as any variation in the air/sea mix has no material impact on
our forecasted net cruise revenues or forecasted net cruise costs. As such,
management does not believe that this reconciling information would be
meaningful.
In addition, because a significant portion of our operations utilize the
euro or sterling to measure their results and financial condition, the
translation of those operations to our U.S. dollar reporting currency results in
increases in reported U.S. dollar revenues and expenses if the U.S. dollar
weakens against these foreign currencies, and decreases in reported U.S. dollar
revenues and expenses if the U.S. dollar strengthens against these foreign
currencies. Accordingly, we also monitor our two non-GAAP financial measures
assuming the current period currency exchange rates have remained constant with
the prior year's rates, or on a "constant dollar basis," in order to remove the
impact of changes in exchange rates on our non-U.S. cruise operations. We
believe that this is a useful measure indicating the actual growth of our
operations in a fluctuating currency exchange rate environment.
On a constant dollar basis, net cruise revenues and net cruise costs would
be $9.21 billion and $5.69 billion for fiscal 2006, respectively. On a constant
dollar basis, gross cruise revenues and gross cruise costs would be $11.42
billion and $7.91 billion for fiscal 2006, respectively. In addition, our
non-U.S. cruise operations' depreciation and net interest expense were impacted
by the changes in exchange rates for fiscal 2006 compared to 2005.
F-32
All the prior periods financial information presented herein have been
adjusted to reflect the retrospective application of the change in our method of
accounting for dry-dock costs, as more fully discussed in Note 2 in the
accompanying financial statements.
Critical Accounting Estimates
Our critical accounting estimates are those which 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:
Ship Accounting
Our most significant assets are our ships and ships under construction,
which represent 88% of our total assets. We make several critical accounting
estimates dealing with our ship accounting. First, we compute our ships'
depreciation expense, which represented approximately 10% of our cruise costs
and expenses in fiscal 2006, which requires us to estimate the average useful
life of each of our ships, as well as their residual values. Secondly, we
account for ship improvement costs by capitalizing those costs which we believe
will add value to our ships and depreciate those improvements over their
estimated useful lives, while expensing repairs and maintenance and minor
replacement costs as they are incurred. Finally, when we record the retirement
of a ship component that is included within the ship's cost basis, we estimate
its net book value to determine the amount of ship component retired.
We determine the average useful life of our ships and their residual
values based primarily on our estimates of the weighted-average useful lives and
residual values of the ships' major component systems, such as cabins, main
diesels, main electric, superstructure and hull. In addition, we consider, among
other things, long-term vacation market conditions and competition and
historical useful lives of similarly-built ships. We have estimated our new
ships' average useful lives at 30 years and their average residual values at 15%
of our original ship cost.
Given the very large and complex nature 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 ship
systems. In addition, since we do not separately componentize our ships, we do
not identify and track depreciation of specific component systems. Therefore, we
have to estimate the net book value of components that are replaced or
refurbished, based primarily upon their replacement or refurbishment cost and
their age.
If materially different conditions existed, or if we materially changed
our assumptions of ship lives and residual values, our depreciation expense or
loss on replacement or refurbishment of ship assets and net book value of our
ships would be materially different. In addition, 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 costs could increase,
partially offset by a decrease in depreciation expense, as less costs would have
been initially capitalized to our ships. Our fiscal 2006 ship depreciation
expense would have increased by approximately $25 million for every year we
reduced our estimated average 30 year ship useful life. In addition, if our
ships were estimated to have no residual value, our fiscal 2006 depreciation
expense would have increased by approximately $125 million.
We believe that the estimates we made for ship accounting purposes are
reasonable and our methods are consistently applied and, accordingly, 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 services
are obtained from their use. In addition, we believe that the estimates we made
are reasonable and our methods consistently applied (1) in determining the
average useful life and average residual values of our ships; (2) in determining
which ship improvement costs add value to our ships; and (3) in determining the
net book value of ship component assets being replaced or refurbished. Finally,
we believe our critical ship accounting estimates are generally comparable with
those of other major cruise companies.
F-33
Asset Impairment
The impairment reviews of our ships, trademarks and goodwill, which has
been allocated to our cruise line reporting units, require us to make
significant estimates to determine the fair values of these assets or reporting
units.
The determination of fair value includes numerous uncertainties, unless a
viable actively traded market exists for the asset or for a comparable reporting
unit, which is usually not the case for cruise ships, cruise lines and
trademarks. For example, in determining fair values of ships and cruise lines
utilizing discounted forecasted cash flows, significant judgments are made
concerning, among other things, future net revenue yields, net cruise costs per
ALBD, interest and discount rates, cruise itineraries, ship additions and
retirements, technological changes, consumer demand, governmental regulations
and the effects of competition. In addition, third party appraisers are
sometimes used to determine fair values and some of their valuation
methodologies are also subject to similar types of uncertainties. Also, the
determination of fair values of reporting units using a price earnings multiple
approach also requires significant judgments, such as determining reasonably
comparable multiples. Finally, determining trademark fair values also requires
significant judgments in determining both the estimated trademark cash flows,
and the appropriate royalty rates to be applied to those cash flows to determine
their fair value. We believe that we have made reasonable estimates and
judgments in determining whether our ships, goodwill and trademarks have been
impaired. However, if there is a material change in the assumptions used in our
determination of fair value or if there is a material change in the conditions
or circumstances influencing fair value, we could be required to recognize a
material impairment charge.
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, passenger and crew, and tax matters. While it is
typically very difficult to determine the timing and ultimate outcome of these
matters, we use our best judgment to determine if it is probable that we will
incur an expense related to the settlement or final adjudication of such matters
and whether a reasonable estimation of such probable loss, if any, can be made.
In assessing probable losses, we make estimates of the amount of probable
insurance recoveries, if any, which are recorded as assets. We accrue a
liability when we believe a loss is probable and the amount of the loss can be
reasonably estimated, in accordance with the provisions of SFAS No. 5,
"Accounting for Contingencies," as amended. Such accruals 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 and actuarially determined assumptions of
liabilities, and any related insurance coverage. See Note 7 in the accompanying
financial statements for additional information concerning our contingencies.
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 with respect to their
resolution. In addition, as new information becomes available, we may need to
reassess the amount of probable liability that needs to be accrued related to
our contingencies. All such revisions in our estimates could materially impact
our results of operations and financial position.
Results of Operations
We earn our cruise revenues primarily from the following:
- sales of passenger cruise tickets and, in some cases, the sale of
air and other transportation to and from our ships. The cruise
ticket price includes accommodations, most meals, some non-alcoholic
beverages, entertainment and many onboard activities, and
- the sale of goods and/or services primarily on board our ships,
which include bar and some beverage sales, casino gaming, shore
excursions, gift shop and spa sales,
F-34
photo and art sales, and pre- and post cruise land packages. These
goods and services are either provided directly by us or by
independent concessionaires, from which we receive a percentage of
their revenues or a fee.
We incur cruise operating costs and expenses for the following:
- the costs of passenger cruise tickets, which represent costs that
vary directly with passenger cruise ticket revenues, and include
travel agent commissions, air and other travel related costs,
- onboard and other cruise costs, which represent costs that vary
directly with onboard and other revenues, and include the costs of
liquor and some beverages, costs of tangible goods sold by us from
our gift, photo and art auction activities, pre- and post cruise
land packages and credit card fees. Concession revenues do not have
any significant amount of costs associated with them, as the costs
and services incurred for these activities are provided by our
concessionaires,
- payroll and related costs, which represent costs for all our
shipboard personnel, including deck and engine officers and crew and
hotel and administrative employees,
- food costs, which include both our passenger and crew food costs,
- fuel costs, which include fuel delivery costs, and
- other ship operating costs, which include repairs and maintenance,
including minor replacements and dry-dock expenses, port charges,
insurance, entertainment and all other shipboard operating costs and
expenses.
For segment information related to our revenues, expenses, operating
income and other financial information see Note 11 in the accompanying financial
statements.
F-35
Selected Information and Non-GAAP Financial Measures
Selected information was as follows:
Years Ended November 30,
----------------------------------------------
2006 2005 2004
------------ ------------ ------------
Passengers carried (in thousands) 7,008 6,848 6,306
============ ============ ============
Occupancy percentage 106.0%(a) 105.6%(a) 104.5%
============ ============ ============
Fuel cost per metric ton (b) $ 334 $ 259 $ 194
============ ============ ============
(a) Occupancy percentage includes the three ships chartered to the Military
Sealift Command ("MSC") in connection with our Hurricane Katrina relief
efforts in the first quarter of 2006 and the fourth quarter of 2005 at
100%.
(b) Fuel cost per metric ton is calculated by dividing the cost of our fuel by
the number of metric tons consumed.
Gross and net revenue yields were computed by dividing the gross or net
revenues, without rounding, by ALBDs as follows:
Years Ended November 30,
----------------------------------------------
2006 2005 2004
------------ ------------ ------------
(in millions, except ALBDs and yields)
Cruise revenues
Passenger tickets $ 8,903 $ 8,399 $ 7,357
Onboard and other 2,514 2,338 2,070
------------ ------------ ------------
Gross cruise revenues 11,417 10,737 9,427
Less cruise costs
Commissions, transportation and other (1,749) (1,645) (1,572)
Onboard and other (453) (412) (359)
------------ ------------ ------------
Net cruise revenues $ 9,215 $ 8,680 $ 7,496
============ ============ ============
ALBDs(a) 49,945,184 47,754,627 44,009,061
============ ============ ============
Gross revenue yields $ 228.58 $ 224.84 $ 214.21
============ ============ ============
Net revenue yields $ 184.50 $ 181.77 $ 170.32
============ ============ ============
Gross and net cruise costs per ALBD were computed by dividing the gross or
net cruise costs, without rounding, by ALBDs as follows:
Years Ended November 30,
----------------------------------------------
2006 2005 2004
------------ ------------ ------------
(in millions, except ALBDs and costs per ALBD)
Cruise operating expenses $ 6,477 $ 5,964 $ 5,292
Cruise selling and administrative expenses 1,405 1,289 1,231
------------ ------------ ------------
Gross cruise costs 7,882 7,253 6,523
Less cruise costs included in net cruise
revenues
Commissions, transportation and other (1,749) (1,645) (1,572)
Onboard and other (453) (412) (359)
------------ ------------ ------------
Net cruise costs $ 5,680 $ 5,196 $ 4,592
============ ============ ============
ALBDs(a) 49,945,184 47,754,627 44,009,061
============ ============ ============
Gross cruise costs per ALBD $ 157.81 $ 151.89 $ 148.24
============ ============ ============
Net cruise costs per ALBD $ 113.73 $ 108.81 $ 104.34
============ ============ ============
(a) Available lower berth days is a standard measure of passenger capacity for
the period. It assumes that each cabin we offer for sale accommodates two
passengers. ALBDs are computed by multiplying passenger capacity by
revenue producing ship operating days in the period.
F-36
Fiscal 2006 ("2006") Compared to Fiscal 2005 ("2005")
Revenues
Net cruise revenues increased $535 million, or 6.2%, to $9.22 billion in
2006 from $8.68 billion in 2005. The 4.6% increase in ALBDs between 2006 and
2005 accounted for $398 million of the increase, and the remaining $137 million
was from increased net revenue yields, which increased 1.5% on both a current
and constant dollar basis in 2006 compared to 2005 (gross revenue yields
increased by 1.7% in current dollars). Net revenue yields increased in 2006
primarily from higher cruise ticket prices, higher onboard revenues and, to a
lesser extent, a 0.4% increase in occupancy. Gross cruise revenues increased
$680 million, or 6.3%, in 2006 to $11.42 billion from $10.74 billion in 2005 for
largely the same reasons as net cruise revenues.
Our 2006 cruise ticket prices for Caribbean itineraries were less than
2005, which was offset by price increases we achieved primarily from our Alaska
and European cruises. We believe that this reduction in Caribbean pricing was
the result of weaker consumer demand caused primarily from the lingering effects
of the unusually strong 2005 hurricane season and higher fuel and other costs'
adverse impacts on our customers' discretionary income.
Onboard and other revenues included concession revenues of $694 million in
2006 and $638 million in 2005. Onboard and other revenues increased in 2006
compared to 2005, primarily because of the 4.6% increased ALBDs and increased
passenger spending on our ships.
Other non-cruise revenues increased $72 million, or 15.6%, to $533 million
in 2006 from $461 million in 2005 primarily due to the increase in the number of
cruise/tours sold in Alaska.
Costs and Expenses
Net cruise costs increased $484 million, or 9.3%, to $5.68 billion in 2006
from $5.20 billion in 2005. The 4.6% increase in ALBDs between 2005 and 2006
accounted for $238 million of the increase whereas $246 million was from
increased net cruise costs per ALBD, which increased 4.5% in 2006 compared to
2005 (gross cruise costs per ALBD increased 3.9%). Net cruise costs per ALBD
increased primarily due to a $75 increase in fuel cost per metric ton, or 29.0%,
to $334 per metric ton in 2006, which resulted in an additional $209 million of
expense, and a $57 million increase in share-based compensation expense, which
was as the result of our adoption of SFAS No. 123(R) (see Notes 2 and 12 in the
accompanying financial statements). This increase was partially offset by the
non-recurrence in 2006 of a $23 million MNOPF contribution. Net cruise costs per
ALBD as measured on a constant dollar basis increased 4.8% in 2006 compared to
2005. On a constant dollar basis, net cruise costs per ALBD, excluding increased
fuel prices and incremental share-based compensation expenses were flat,
compared to 2005. Gross cruise costs increased $629 million, or 8.7%, in 2006 to
$7.88 billion from $7.25 billion in 2005 for largely the same reasons as net
cruise costs.
Other non-cruise operating expenses increased $67 million, or 18.7%, to
$425 million in 2006 from $358 million in 2005 primarily due to the increase in
the number of cruise/tours sold in Alaska.
Depreciation and amortization expense increased by $86 million, or 9.5%,
to $988 million in 2006 from $902 million in 2005 largely due to the 4.6%
increase in ALBDs through the addition of new ships, and additional ship
improvement expenditures.
Nonoperating (Expense) Income
Net interest expense, excluding capitalized interest, was $323 million in
both 2006 and 2005. This flat interest expense was primarily due to lower
average borrowings offsetting the impact of higher average interest rates on
borrowings. Capitalized interest increased $16 million during 2006 compared to
2005 primarily due to higher average levels of investment in ship construction
projects and higher average interest rates on borrowings.
Other expense in 2006 included a $10 million expense for the write-down of
a non-cruise investment.
F-37
Income Taxes
Income tax expense decreased by $33 million to $39 million in 2006 from
$72 million in 2005 primarily as a result of lower U.S. income taxes related to
the MSC charter in 2006 compared to 2005, and the reversal in 2006 of previously
recorded tax liabilities and deferred tax valuation allowances, which were no
longer required based upon the results of tax authority audits and other
factors.
Fiscal 2005 ("2005") Compared to Fiscal 2004 ("2004")
Revenues
Net cruise revenues increased $1.18 billion, or 15.8%, to $8.68 billion in
2005 from $7.50 billion in 2004. The 8.5% increase in ALBDs between 2005 and
2004 accounted for $638 million of the increase, and the remaining $546 million
was from increased net revenue yields, which increased 6.7% in 2005 compared to
2004 (gross revenue yields increased by 5.0%). Net revenue yields increased in
2005 primarily from higher cruise ticket prices, a 1.1% increase in occupancy
and higher onboard revenues. Net revenue yields as measured on a constant dollar
basis increased 6.4% in 2005. Gross cruise revenues increased $1.31 billion, or
13.9%, in 2005 to $10.74 billion from $9.43 billion in 2004 for largely the same
reasons as net cruise revenues.
Onboard and other revenues included concession revenues of $638 million in
2005 and $561 million in 2004. Onboard and other revenues increased in 2005
compared to 2004, primarily because of the 8.5% increase in ALBDs and increased
passenger spending on our ships.
Other non-cruise revenues increased $63 million, or 15.8%, to $461 million
in 2005 from $398 million in 2004 primarily due to the increase in the number of
cruise/tours sold in Alaska.
Costs and Expenses
Net cruise costs increased $604 million, or 13.2%, to $5.20 billion in
2005 from $4.59 billion in 2004. The 8.5% increase in ALBDs between 2004 and
2005 accounted for $391 million of the increase, and the remaining $213 million
was from increased net cruise costs per ALBD, which increased 4.3% in 2005
compared to 2004 (gross cruise costs per ALBD increased 2.5%). Net cruise costs
per ALBD increased primarily due to a $65 increase in fuel cost per metric ton,
or 33.5%, to $259 per metric ton in 2005 and a $23 million MNOPF contribution
(see Note 12 in the accompanying financial statements). Net cruise costs per
ALBD as measured on a constant dollar basis compared to 2004 increased 3.9% in
2005 and were flat excluding increased fuel prices and the MNOPF contribution,
compared to 2004. Gross cruise costs increased $730 million, or 11.2%, in 2005
to $7.25 billion from $6.52 billion in 2004, which was a lower percentage
increase than net cruise costs primarily because of the lower proportion of
passengers who purchased air transportation from us in 2005.
Other non-cruise operating expense increased $50 million, or 16.2%, to
$358 million in 2005 from $308 million in 2004 primarily due to the increase in
the number of cruise/tours sold in Alaska.
Depreciation and amortization expense increased by $90 million, or 11.1%,
to $902 million in 2005 from $812 million in 2004 largely due to the 8.5%
increase in ALBDs through the addition of new ships, and additional ship
improvement expenditures.
Nonoperating (Expense) Income
Net interest expense, excluding capitalized interest, increased $31
million in 2005 to $323 million in 2005 from $292 million in 2004. This increase
was primarily due to a $36 million increase in interest expense from higher
average interest rates on borrowings and a weaker U.S. dollar, partially offset
by a $5 million increase in interest income due to higher average invested fund
balances.
Other expense in 2005 included a $22 million expense for the write-down of
a non-cruise investment, partially offset by $7 million income from the
settlement of litigation associated with the DLC transaction.
F-38
Income Taxes
Income tax expense increased by $25 million from 2004 to $72 million in
2005 from $47 million in 2004 primarily because we recorded approximately $18
million for U.S. income taxes related to the MSC charter. Commencing in
September 2005, these three ships were chartered for six months, and pursuant to
our agreement with the MSC, the net earnings from the charter will be equal to
the amount of net earnings we would have earned on these ships if we had not
entered into this charter.
Liquidity and Capital Resources
Sources and Uses of Cash
Our business provided $3.63 billion of net cash from operations during
fiscal 2006, an increase of $223 million, or 6.5%, compared to fiscal 2005. We
continue to generate substantial cash from operations and remain in a strong
financial position, thus providing us with substantial financial flexibility in
meeting operating, investing and financing needs.
During fiscal 2006, our net expenditures for capital projects were $2.48
billion, of which $1.97 billion was spent for our ongoing new shipbuilding
program, including $1.23 billion for the final delivery payments for Holland
America Line's Noordam, Princess Cruises' Crown Princess and the Costa
Concordia. In addition to our new shipbuilding program, we had capital
expenditures of $335 million for ship improvements and refurbishments, and $176
million for Alaska tour assets, cruise port facility developments and
information technology assets.
Our fiscal 2006 long-term debt borrowings were $2.24 billion, consisting
of $904 million of euro denominated long-term commercial paper, the issuance of
a E750 million bond ($985 million U.S. dollars at the November 30, 2006 exchange
rate) and $352 million under the Crown Princess debt financing facility. Our
fiscal 2006 long-term debt repayments were $2.54 billion, consisting of $1.46
billion of long-term euro commercial paper, $888 million of Costa's indebtedness
and $190 million of other long-term debt amounts. We also received proceeds from
short-term borrowings of $661 million under our short-term commercial paper
programs and short-term bank loans during fiscal 2006. Finally, during 2006, we
purchased $841 million of Carnival Corporation common stock and Carnival plc
ordinary shares in open market transactions and paid cash dividends of $803
million.
Future Commitments and Funding Sources
At November 30, 2006, our contractual cash obligations, including ship
construction contracts entered into through January 2007, and the effects such
obligations are expected to have on our liquidity and cash flow in future
periods were as follows (in millions):
F-39
Payments Due by Fiscal Year
------------------------------------------------------
Contractual Cash
Obligations Total 2007 2008 2009 2010 2011 Thereafter
- ---------------- ----- ---- ---- ---- ---- ---- ----------
Recorded Contractual
Obligations
Long-term debt(a) $ 7,409 $1,054 $1,930 $ 202 $1,108 $ 202 $ 2,913
Short-term borrowings(a) 438 438
Other long-term
liabilities reflected
on the balance sheet(b) 495 29 79 62 47 40 238
Unrecorded Contractual
Obligations
Shipbuilding(a) 9,898 2,653 2,514 2,426 1,688 617
Port facilities and
other(a) 639 107 97 83 74 61 217
Purchase obligations(c) 643 571 43 24 3 1 1
Operating leases(a) 350 40 36 34 31 29 180
Fixed-rate interest
payments(d) 1,700 217 192 169 165 158 799
Variable rate interest
payments(d) 330 123 73 65 33 13 23
------- ------ ------ ------ ------ ------ ----------
Total contractual
cash obligations(e) $21,902 $5,232 $4,964 $3,065 $3,149 $1,121 $ 4,371
======= ====== ====== ====== ====== ====== ==========
(a) See Notes 5 and 6 in the accompanying financial statements for additional
information regarding these contractual cash obligations.
(b) Represents cash outflows for certain of our long-term liabilities that
could be reasonably estimated. The primary outflows are for estimates of
our employee benefit plan obligations, crew and passenger claims, certain
deferred income taxes, derivative contracts payable, and other long-term
liabilities. Other long-term liabilities, such as deferred income, fair
value of hedged commitments and certain deferred income taxes, have been
excluded from the table as they do not require cash settlement in the
future or the timing of the cash outflow cannot be reasonably estimated.
(c) Represents legally-binding commitments to purchase inventory and other
goods and services made in the normal course of business to meet
operational requirements. Many of our contracts contain clauses that allow
us to terminate the contract with notice, and with or without a
termination penalty. Termination penalties are generally an amount less
than the original obligation. Historically, we have not had any
significant defaults of our contractual obligations or incurred
significant penalties for termination of our contractual obligations.
(d) Fixed-rate interest payments represent cash outflows for fixed interest
payments, including interest swapped from a variable-rate to a fixed-rate.
Variable-rate interest payments represent forecasted cash outflows for
interest payments on variable-rate debt, including interest swapped from a
fixed-rate to a variable-rate, using the November 30, 2006 forward
interest rate curve for the terms of the loans.
(e) Foreign currency payments are based on the November 30, 2006 exchange
rates.
In June 2006, a $1 billion stock repurchase authorization was approved by
the Boards of Directors in June 2006 subject to certain restrictions ("2006
Purchase Program"). This 2006 Purchase Program does not have an expiration date
and may be discontinued by our Boards of Directors at any time. At February 9,
2007 the remaining availability pursuant to our 2006 Purchase Program was $773
million.
At November 30, 2006, we had liquidity of $5.60 billion, which consisted
of $1.18 billion of cash, cash equivalents and short-term investments, $1.87
billion available for borrowing under our revolving credit facility and $2.55
billion under committed ship financing facilities. Our revolving credit facility
matures in 2011. A key to our access to liquidity is the maintenance of our
strong credit ratings.
Based primarily on our historical results, current financial condition and
future forecasts, we believe that our existing liquidity and cash flow from
future operations will be sufficient to fund most of our expected capital
projects, debt service requirements,
F-40
dividend payments, working capital and other firm commitments. In addition,
based on our future forecasted operating results and cash flows for fiscal 2007,
we expect to be in compliance with our debt covenants during 2007. However, our
forecasted cash flow from future operations, as well as our credit ratings, may
be adversely affected by various factors including, but not limited to, those
factors noted under "Cautionary Note Concerning Factors That May Affect Future
Results." To the extent that we are required, or choose, to fund future cash
requirements, including our future shipbuilding commitments, from sources other
than as discussed above, we believe that we will be able to secure such
financing from banks or through the offering of debt and/or equity securities in
the public or private markets. However, we cannot be certain that our future
operating cash flow will be sufficient to fund future obligations or that we
will be able to obtain additional financing, if necessary.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, including
guarantee contracts, retained or contingent interests, certain derivative
instruments and variable interest entities, that either have, or are reasonably
likely to have, a current or future material effect on our financial statements.
Foreign Currency Exchange Rate Risks
Our growing international business operations are conducted primarily
through AIDA in Germany, Costa in Southern Europe and China, P&O Cruises and
Ocean Village in the UK and P&O Cruises Australia in Australia, which subject us
to an increasing level of foreign currency exchange risk related to the euro,
sterling and Australian dollar because these operations have either the euro,
sterling or Australian dollar as their functional currency. Accordingly,
exchange rate fluctuations of the euro, sterling or Australian dollar against
the U.S. dollar will affect our reported financial results since the reporting
currency for our consolidated financial statements is the U.S. dollar and the
functional currency for our international operations is generally the local
currency. Any weakening of the U.S. dollar against these local functional
currencies has the financial statement effect of increasing the U.S. dollar
values reported for cruise revenues and cruise expenses in our Consolidated
Statements of Operations. Strengthening of the U.S. dollar has the opposite
effect.
We seek to minimize the impact of 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 financial instruments. The
financial impacts of these hedging instruments are generally offset by
corresponding changes in the underlying exposures being hedged. Our policy is to
not use any financial instruments for trading or other speculative purposes.
One of our primary foreign currency exchange rate risks is related to our
outstanding commitments under ship construction contracts denominated in a
currency other than the functional currency of the cruise brand that is expected
to be operating the ship. These currency commitments are affected by
fluctuations in the value of the functional currency as compared to the currency
in which the shipbuilding contract is denominated. We use foreign currency swaps
to manage foreign currency exchange rate risk from some of our ship construction
contracts (see Notes 2, 6 and 10 in the accompanying financial statements).
Accordingly, increases and decreases in the fair value of these foreign currency
swaps offset changes in the fair value of the foreign currency denominated ship
construction commitments, thus resulting in the elimination of such risk.
Specifically, we have foreign currency swaps for two of our euro
denominated shipbuilding contracts. At November 30, 2006, the fair value of
these foreign currency swaps was an unrealized loss of $26 million which is
recorded, along with an offsetting $26 million fair value asset related to our
shipbuilding firm commitments, on our accompanying 2006 balance sheet. Based
upon a 10% strengthening or weakening of the sterling compared to the euro as of
November 30, 2006, assuming no changes in comparative interest rates, the
estimated fair value of these foreign currency swaps would decrease or increase
by $96 million, which would be offset by a decrease or increase of $96 million
in the U.S. dollar value of the related foreign currency ship construction
commitments resulting in no net dollar impact to us.
F-41
However, at November 30, 2006, as adjusted for our ship orders through
January 2007, we have six euro denominated shipbuilding commitments aggregating
E2.55 billion assigned to certain of our U.S. dollar or sterling functional
currency operations, for which we have not entered into any foreign currency
swaps. Therefore, the U.S. dollar cost of these ships will increase or decrease
based upon changes in the exchange rates until the payments are made under the
shipbuilding contracts or we enter into foreign currency swaps. These euro
commitments effectively act as an economic hedge against a portion of our net
investment in euro and sterling-denominated cruise operations. Accordingly, any
increase or decrease in our ship costs resulting from changes in the exchange
rates will be offset by a corresponding change in the net assets of our euro and
sterling-denominated cruise operations. Based upon a 10% hypothetical increase
or decrease in the November 30, 2006 U.S. dollar and sterling to the euro
foreign currency exchange rates, the cost of these ships would increase or
decrease by $336 million. Decisions regarding whether or not to hedge a given
ship commitment are made on a case-by-case basis, taking into consideration the
amount and duration of the exposure, market volatility, and economic trends.
The cost of shipbuilding orders that we may place in the future for our
cruise lines who generate their cash flows in a currency that is different than
the shipyard's operating currency, generally the euro, is expected to be
affected by foreign currency exchange rate fluctuations. Given the decline in
the U.S. dollar relative to the euro over the past several years, the U.S.
dollar cost to order new cruise ships at current exchange rates has increased
significantly. If the U.S. dollar remains at current levels or declines further,
this may affect our ability to order future new cruise ships for U.S. dollar
functional currency brands.
Finally, we consider our investments in foreign subsidiaries to be
denominated in relatively stable currencies and of a long-term nature. In
addition to the strategy discussed above, we also partially address these
exposures by denominating a portion of our debt, or entering into foreign
currency swaps, in our subsidiaries' functional currencies (generally euros or
sterling). Specifically, we have debt of $1.02 billion in euros and $419 million
in sterling and have $1.25 billion of foreign currency swaps, whereby we have
converted $267 million of U.S. dollar debt into sterling debt, $842 million of
U.S. dollar debt into euro debt and $143 million of euro debt into sterling
debt, thus partially offsetting this foreign currency exchange rate risk. At
November 30, 2006, the fair value of these foreign currency swaps was an
unrealized loss of $169 million, which is recorded in AOCI and offsets a portion
of the gains recorded in AOCI upon translating these foreign subsidiaries net
assets into U.S. dollars. Based upon a 10% hypothetical increase or decrease in
the November 30, 2006 foreign currency exchange rates, we estimate that these
derivative contracts' fair values would increase or decrease by $125 million,
which would be offset by a decrease or increase of $125 million in the U.S.
dollar value of our net investments.
Interest Rate Risks
We seek to minimize the impact of fluctuations in interest rates through
our long-term investment and debt portfolio strategies, which include entering
into a substantial amount of fixed rate debt instruments. We continuously
evaluate our debt portfolio, and make periodic adjustments to the mix of
floating rate and fixed rate debt based on our view of interest rate movements
through the use of interest rate swaps. At both November 30, 2006 and 2005, 72%
of the interest cost on our long-term debt was effectively fixed and 28% was
variable, including the effect of our interest rate swaps.
Specifically, we have interest rate swaps at November 30, 2006, which
effectively changed $932 million of fixed rate debt to libor-based floating rate
debt. In addition, we have interest rate swaps at November 30, 2006 which
effectively changed $365 million of libor-based floating rate debt to fixed rate
debt. The fair value of our long-term debt and interest rate swaps at November
30, 2006 was $7.79 billion. Based upon a hypothetical 10% decrease or increase
in the November 30, 2006 market interest rates, the fair value of our long-term
debt and interest rate swaps would increase or decrease by approximately $120
million and annual interest expense on our variable rate debt, including the
effect of our interest rate swaps, would increase or decrease by approximately
$12 million.
In addition, based upon a hypothetical 10% decrease or increase in
Carnival Corporation's November 30, 2006 common stock price, the fair value of
our convertible notes would increase or decrease by approximately $145 million.
F-42
These hypothetical amounts are determined by considering the impact of the
hypothetical interest rates and common stock price on our existing long-term
debt and interest rate swaps. This analysis does not consider the effects of the
changes in the level of overall economic activity that could exist in such
environments or any relationships which may exist between interest rate and
stock price movements. Furthermore, since substantially all of our fixed rate
long-term debt cannot currently be called or prepaid and $365 million of our
variable rate long-term debt is subject to interest rate swaps which effectively
fix the interest rate, it is unlikely we would be able to take any significant
steps in the short-term to mitigate our exposure in the event of a significant
decrease in market interest rates.
Bunker Fuel Price Risks
We have typically not used financial instruments to hedge our exposure to
the bunker fuel price market risk. We estimate that our fiscal 2007 fuel cost
would increase or decrease by approximately $3 million for each $1 per metric
ton increase or decrease in our average bunker fuel price.
Selected Financial Data
The selected consolidated financial data presented below for fiscal 2002
through 2006 and as of the end of each such year, are derived from our audited
financial statements and should be read in conjunction with those financial
statements and the related notes.
Years Ended November 30,
-----------------------------------------------------------------------
2006 2005 2004 2003 2002
----------- ----------- ----------- ----------- -----------
(in millions, except per share and other operating data)
Statement of Operations
and Cash Flow Data(a)
Revenues $ 11,839 $ 11,094 $ 9,727 $ 6,718 $ 4,383
Operating income $ 2,613 $ 2,639 $ 2,128 $ 1,376 $ 1,037
Net income $ 2,279 $ 2,253 $ 1,809 $ 1,187 $ 1,011
Earnings per share
Basic $ 2.85 $ 2.80 $ 2.25 $ 1.65 $ 1.72
Diluted $ 2.77 $ 2.70 $ 2.18 $ 1.62 $ 1.68
Dividends declared
per share $ 1.025 $ 0.800 $ 0.525 $ 0.440 $ 0.420
Cash from operations $ 3,633 $ 3,410 $ 3,216 $ 1,933 $ 1,469
Capital expenditures $ 2,480 $ 1,977 $ 3,586 $ 2,516 $ 1,986
Other Operating Data(a)
Available lower berth days 49,945,184 47,754,627 44,009,061 33,309,785 21,435,828
Passengers carried (in thousands) 7,008 6,848 6,306 5,038 3,549
Occupancy percentages(b) 106.0% 105.6% 104.5% 103.4% 105.2%
As of November 30,
-----------------------------------------------------------------------
2006 2005 2004 2003 2002
----------- ----------- ----------- ----------- -----------
(in millions, except percentages)
Balance Sheet and Other
Data(a)
Total assets $ 30,552 $ 28,349 $ 27,548 $ 24,450 $ 12,302
Long-term debt, excluding
current portion $ 6,355 $ 5,727 $ 6,291 $ 6,918 $ 3,014
Total shareholders' equity $ 18,210 $ 16,883 $ 15,672 $ 13,752 $ 7,385
Debt to capital(c) 30.1% 30.3% 33.7% 35.0% 30.0%
(a) Includes the results of Carnival plc since April 17, 2003. Accordingly,
the information from 2003 and thereafter is not comparable to the prior
period. Certain of these amounts have been retroactively adjusted to
reflect the impact of changing our method of accounting for dry-dock costs
from the deferral method to the direct expense method. In addition, the
2006 net income was reduced by $57 million of share-based compensation
expense related to our adoption of SFAS No. 123(R) in 2006. (See Note 2).
F-43
(b) In accordance with cruise industry practice, occupancy percentage is
calculated using a denominator of two passengers per cabin even though
some cabins can accommodate three or more passengers. The percentages in
excess of 100% indicate that more than two passengers occupied some
cabins.
(c) Percentage of total debt to the sum of total debt and shareholders'
equity.
Market Price for Common Stock and Ordinary Shares
Carnival Corporation's common stock, together with paired trust shares
of beneficial interest in the P&O Princess Special Voting Trust (which holds a
Special Voting Share of Carnival plc) is traded on the NYSE under the symbol
"CCL." Carnival plc's ordinary shares trade on the London Stock Exchange under
the symbol "CCL." Carnival plc's ADSs, each one of which represents one
Carnival plc ordinary share, are traded on the NYSE under the symbol "CUK."
The depository for the ADSs is JPMorgan Chase Bank. The high and low stock
sales price for the periods indicated was as follows:
Carnival Corporation Carnival plc
-------------------- ----------------------------------------------------
Price per Ordinary
Share (GBP) Price per ADS (USD)
------------------------------ -------------------
High Low High Low High Low
------ ------ ------------ ------------ ------ ------
Fiscal 2006
Fourth Quarter $50.99 $41.63 (pound)26.68 (pound)22.21 $50.78 $42.65
Third Quarter $42.14 $36.40 (pound)23.34 (pound)19.62 $43.49 $37.00
Second Quarter $52.16 $39.36 (pound)31.57 (pound)21.02 $55.64 $40.01
First Quarter $56.14 $50.81 (pound)34.16 (pound)30.85 $59.47 $54.40
Fiscal 2005
Fourth Quarter $54.98 $45.78 (pound)33.19 (pound)26.60 $56.48 $47.32
Third Quarter $55.75 $48.76 (pound)33.40 (pound)28.31 $58.10 $51.46
Second Quarter $55.96 $46.76 (pound)31.45 (pound)25.90 $59.21 $50.02
First Quarter $58.98 $48.90 (pound)32.69 (pound)29.13 $62.17 $56.50
As of February 5, 2007, there were 3,769 holders of record of Carnival
Corporation common stock and 43,702 holders of record of Carnival plc ordinary
shares and 90 holders of record of Carnival plc ADSs. The past performance of
our stock prices cannot be relied on as a guide to their future performance.
All dividends for both Carnival Corporation and Carnival plc are
declared in U.S. dollars. Holders of Carnival Corporation common stock or
Carnival plc ADS's receive a dividend payable in U.S. dollars. The dividends
payable for Carnival plc ordinary shares are payable in sterling, unless the
shareholders elect to receive the dividends in U.S. dollars. Dividends payable
in sterling will be converted from U.S. dollars into sterling based upon a
current U.S. dollar to sterling exchange rate announced prior to the dividend
payment date.
Selected Quarterly Financial Data (Unaudited)
Our revenues from the sale of passenger tickets are seasonal.
Historically, demand for cruises has been the greatest during our third
quarter, which includes the Northern Hemisphere summer months. This higher
demand during the third quarter results in higher net revenue yields and,
accordingly, the largest share of our net income is earned during this period.
The seasonality of our results is increased due to ships being taken out of
service for maintenance, which we typically schedule during non-peak demand
periods. Substantially all of Holland America Tours' and Princess Tours'
revenues and net income are generated from May through September in
conjunction with the Alaska cruise season.
F-44
Quarterly financial results for fiscal 2006 were as follows:
Quarters Ended
---------------------------------------------------
February 28 May 31 August 31 November 30
----------- ------ --------- -----------
(in millions, except per share data)
Revenues $2,463 $2,662 $3,905 $ 2,809
Operating income $ 349 $ 448 $1,340 $ 476
Net income(a) $ 251 $ 380 $1,232 $ 416
Earnings per share
Basic $ 0.31 $ 0.47 $ 1.55 $ 0.53
Diluted $ 0.31 $ 0.46 $ 1.49 $ 0.51
Dividends declared
per share $ 0.25 $ 0.25 $ 0.25 $ 0.275
(a) Net income includes incremental share-based compensation expense as a
result of our adoption of SFAS No. 123(R) of $17 million, $11 million,
$13 million and $16 million for the quarters ended February 28, May 31,
August 31 and November 30, 2006, respectively.
Quarterly financial results for fiscal 2005 were as follows:
Quarters Ended
---------------------------------------------------
February 28 May 31 August 31 November 30
----------- ------ --------- -----------
(in millions, except per share data)
Revenues $2,398 $2,516 $3,607 $ 2,573
Operating income $ 422 $ 462 $1,321 $ 434
Net income(a) $ 348 $ 388 $1,181(b) $ 336
Earnings per share
Basic $ 0.43 $ 0.48 $ 1.46 $ 0.42
Diluted $ 0.42 $ 0.47 $ 1.40 $ 0.41
Dividends declared
per share $ 0.15 $ 0.20 $ 0.20 $ 0.25
(a) Net income was increased (decreased) by $3 million, $(20) million, $30
million and $(17) million for the quarters ended February 28, May 31,
August 31 and November 30, 2006, respectively, as a result of our change
in our method of accounting for dry-dock costs from the deferral method
to the direct expense method.
(b) Includes a $23 million expense related to the MNOPF contribution and a
$22 million expense for a non-cruise investment write-down.
F-45
Exhibit 21
Significant Subsidiaries of Carnival Corporation and Carnival plc(1)
Jurisdiction of Incorporation
Name of Subsidiary or Organization
------------------ -----------------------------
Costa Crociere, S.p.A.(2) Italy
HAL Antillen N.V. Netherlands Antilles
Holland America Line N.V.(3) Netherlands Antilles
Princess Bermuda Holdings Ltd.(4) Bermuda
Princess Cruise Lines Ltd.(4) Bermuda
Sunshine Shipping Corporation Ltd. ("Sunshine")(5) Bermuda
(1) Carnival Corporation, incorporated in the Republic of Panama, and Carnival
plc, incorporated in England and Wales, are separate legal entities, which
have entered into a DLC structure as discussed in Notes 1 and 3 to the
Consolidated Financial Statements in Exhibit 13 to the joint Annual Report
on Form 10-K. We have accounted for the DLC transaction under U.S. GAAP as
an acquisition by Carnival Corporation of Carnival plc. Accordingly, we
have determined the significant subsidiaries based upon the consolidated
results of operations and financial position of Carnival Corporation &
plc.
(2) Majority owned subsidiary of Carnival plc.
(3) Subsidiary of HAL Antillen N.V.
(4) Subsidiary of Sunshine.
(5) Subsidiary of Princess Bermuda Holdings Ltd.
Exhibit 23
Consent of Independent Registered Certified Public Accounting Firm
We hereby consent to the incorporation by reference in the joint
Registration Statements on Form S-3 of Carnival Corporation and Carnival plc
(File Nos. 333-113310, 333-106850, 333-106553, 333-72729, 333-68999, 333-43269
and 333-13230601), the Registration Statements on Form S-8 of Carnival
Corporation (File Nos. 333-125418, 333-105672, 333-87036, 333-67394, 333-60558,
333-43885, 33-53099, 33-51195, 33-45287 and 33-26898) and the Registration
Statements on Form S-8 of Carnival plc (File Nos. 333-125418, 333-124640,
333-104609, 333-84968, 333-13794 and 333-12742), of our report, dated February
12, 2007, relating to the financial statements, management's assessment of the
effectiveness of internal control over financial reporting and the effectiveness
of internal control over financial reporting, which appears in this joint Annual
Report on Form 10-K.
/s/PricewaterhouseCoopers LLP
Miami, Florida
February 12, 2007
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors of Carnival
Corporation, a company incorporated under the laws of the Republic of Panama,
and Carnival plc, a company organized and existing under the laws of England and
Wales, do and each of them does, hereby constitute and appoint Micky Arison,
Howard S. Frank, Gerald R. Cahill and Arnaldo Perez, his or her true and lawful
attorneys-in-fact and agents, and each of them with full power to act without
the others, for him or her and in his or her name, place and stead, to sign the
Carnival Corporation and Carnival plc joint Annual Report on Form 10-K ("Form
10-K") for the year ended November 30, 2006 and any and all future amendments
thereto; and to file said Form 10-K and any such amendments with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals as of the 22nd day of December 2006.
CARNIVAL CORPORATION CARNIVAL PLC
/s/ Richard G. Capen, Jr. /s/ Richard G. Capen, Jr.
- --------------------------- --------------------------
Richard G. Capen, Jr. Richard G. Capen, Jr.
Director Director
/s/ Robert H. Dickinson /s/ Robert H. Dickinson
- --------------------------- --------------------------
Robert H. Dickinson Robert H. Dickinson
Director Director
/s/ Arnold W. Donald /s/ Arnold W. Donald
- --------------------------- --------------------------
Arnold W. Donald Arnold W. Donald
Director Director
/s/ Pier Luigi Foschi /s/ Pier Luigi Foschi
- --------------------------- ---------------------------
Pier Luigi Foschi Pier Luigi Foschi
Director Director
/s/ Richard J. Glasier /s/ Richard J. Glasier
- --------------------------- --------------------------
Richard J. Glasier Richard J. Glasier
Director Director
/s/ Baroness Sarah Hogg /s/ Baroness Sarah Hogg
- --------------------------- ---------------------------
Baroness Sarah Hogg Baroness Sarah Hogg
Director Director
/s/ A. Kirk Lanterman /s/ A. Kirk Lanterman
- --------------------------- --------------------------
A. Kirk Lanterman A. Kirk Lanterman
Director Director
/s/ Dr. Modesto A. Maidique /s/ Dr. Modesto A. Maidique
- --------------------------- ---------------------------
Dr. Modesto A. Maidique Dr. Modesto A. Maidique
Director Director
/s/ Sir John Parker /s/ Sir John Parker
- --------------------------- ---------------------------
Sir John Parker Sir John Parker
Director Director
/s/ Peter G. Ratcliffe /s/ Peter G. Ratcliffe
- --------------------------- ---------------------------
Peter G. Ratcliffe Peter G. Ratcliffe
Director Director
/s/ Stuart Subotnick /s/ Stuart Subotnick
- --------------------------- ---------------------------
Stuart Subotnick Stuart Subotnick
Director Director
/s/ Uzi Zucker /s/ Uzi Zucker
- --------------------------- ---------------------------
Uzi Zucker Uzi Zucker
Director Director
Exhibit 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Carnival
Corporation, a company incorporated under the laws of the Republic of Panama,
and Carnival plc, a company organized and existing under the laws of England and
Wales, do and each of them does, hereby constitute and appoint Micky Arison,
Howard S. Frank, Gerald R. Cahill and Arnaldo Perez, his or her true and lawful
attorneys-in-fact and agents, and each of them with full power to act without
the others, for him or her and in his or her name, place and stead, to sign the
Carnival Corporation and Carnival plc joint Annual Report on Form 10-K ("Form
10-K") for the year ended November 30, 2006 and any and all future amendments
thereto; and to file said Form 10-K and any such amendments with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set to her hand and seal
as of the 26th day of January 2007.
CARNIVAL CORPORATION CARNIVAL PLC
/s/ Laura Weil /s/ Laura Weil
- -------------- --------------
Laura Weil Laura Weil
Director Director
Exhibit 31.1
I, Micky Arison, certify that:
1. I have reviewed this annual report on Form 10-K of Carnival Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: February 12, 2007
By: /s/ Micky Arison
- -----------------------------------
Micky Arison
Chairman of the Board of Directors
and Chief Executive Officer
Exhibit 31.2
I, Howard S. Frank, certify that:
1. I have reviewed this annual report on Form 10-K of Carnival Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: February 12, 2007
By: /s/ Howard S. Frank
- ---------------------------------
Howard S. Frank
Vice Chairman of the Board of
Directors and Chief
Operating Officer
Exhibit 31.3
I, Gerald R. Cahill, certify that:
1. I have reviewed this annual report on Form 10-K of Carnival Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: February 12, 2007
By: /s/ Gerald R. Cahill
- --------------------------------
Gerald R. Cahill
Executive Vice President
and Chief Financial and
Accounting Officer
Exhibit 31.4 I, Micky Arison, certify that: 1. I have reviewed this annual report on Form 10-K of Carnival plc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 12, 2007 By: /s/ Micky Arison - ------------------------------------ Micky Arison Chairman of the Board of Directors and Chief Executive Officer
Exhibit 31.5 I, Howard S. Frank, certify that: 1. I have reviewed this annual report on Form 10-K of Carnival plc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 12, 2007 By: /s/ Howard S. Frank - -------------------------------- Howard S. Frank Vice Chairman of the Board of Directors and Chief Operating Officer
Exhibit 31.6 I, Gerald R. Cahill, certify that: 1. I have reviewed this annual report on Form 10-K of Carnival plc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 12, 2007 By: /s/ Gerald R. Cahill - ---------------------------- Gerald R. Cahill Executive Vice President and Chief Financial and Accounting Officer
Exhibit 32.1
In connection with the Annual Report on Form 10-K for the year ended
November 30, 2006 as filed by Carnival Corporation with the Securities and
Exchange Commission on the date hereof (the "Report"), I certify pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Carnival
Corporation.
Date: February 12, 2007
By: /s/ Micky Arison
----------------
Micky Arison
Chairman of the Board of Directors
and Chief Executive Officer
Exhibit 32.2
In connection with the Annual Report on Form 10-K for the year ended
November 30, 2006 as filed by Carnival Corporation with the Securities and
Exchange Commission on the date hereof (the "Report"), I certify pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Carnival
Corporation.
Date: February 12, 2007
By: /s/ Howard S. Frank
-------------------
Howard S. Frank
Vice Chairman of the Board of Directors
and Chief Operating Officer
Exhibit 32.3
In connection with the Annual Report on Form 10-K for the year ended
November 30, 2006 as filed by Carnival Corporation with the Securities and
Exchange Commission on the date hereof (the "Report"), I certify pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Carnival
Corporation.
Date: February 12, 2007
By: /s/ Gerald R. Cahill
--------------------
Gerald R. Cahill
Executive Vice President
and Chief Financial and
Accounting Officer
Exhibit 32.4
In connection with the Annual Report on Form 10-K for the year ended
November 30, 2006 as filed by Carnival plc with the Securities and Exchange
Commission on the date hereof (the "Report"), I certify pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Carnival
plc.
Date: February 12, 2007
By: /s/ Micky Arison
----------------
Micky Arison
Chairman of the Board of Directors
and Chief Executive Officer
Exhibit 32.5
In connection with the Annual Report on Form 10-K for the year ended
November 30, 2006 as filed by Carnival plc with the Securities and Exchange
Commission on the date hereof (the "Report"), I certify pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Carnival
plc.
Date: February 12, 2007
By: /s/ Howard S. Frank
-------------------
Howard S. Frank
Vice Chairman of the Board of Directors
and Chief Operating Officer
Exhibit 32.6
In connection with the Annual Report on Form 10-K for the year ended
November 30, 2006 as filed by Carnival plc with the Securities and Exchange
Commission on the date hereof (the "Report"), I certify pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Carnival
plc.
Date: February 12, 2007
By: /s/ Gerald R. Cahill
--------------------
Gerald R. Cahill
Executive Vice President
and Chief Financial and
Accounting Officer