UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended November 30, 20082010

ORor

For the transition period from                                to                                

Commission file number: 1-9610				Commission file number: 1-15136
Carnival Corporation			Carnival plc
(Exact name of registrant as specified in its charter)				Carnival plc (Exact name of registrant as
specified in its charter)			specified in its charter)
Republic of Panama (State or other jurisdiction of incorporation or organization)			England and Wales
(State or other jurisdiction of			(State or other jurisdiction of
incorporation or organization)
			incorporation or organization)
59-1562976 (I.R.S. Employer Identification No.)59-1562976			98-0357772
(I.R.S. Employer		98-0357772	(I.R.S. Employer
Identification No.)			Identification No.)
3655 N.W. 87th Avenue Miami, Florida 33178-2428 (Address of principal executive offices) (Zip Code)				Carnival House, 5 Gainsford Street,
Miami, Florida 33178-2428			London SE1 2NE, United Kingdom
(Address of principal executive offices)			(Zip Code) Address of principal
executive offices and			executive offices and
zip code)			zip code)
(305) 599-2600 (Registrant’s telephone number, including area code)				011 44 20 7940 5381
(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:				Securities registered pursuant to Section 12(b) of the Act:
Title of each class Common Stock ($.01 par value)				Title of each class
Common Stock			Ordinary Shares each represented
($0.01 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 registered New York Stock Exchange, Inc.				Name of each exchange on which registered 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  þ    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  þ

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  þ    No  ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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.    ¨

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or non-accelerated filers.small reporting companies. See definitionthe definitions of “large accelerated filer,” “accelerated filerfiler” and large accelerated filer”“smaller reporting company” in
Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  þ

DOCUMENTS INCORPORATED BY REFERENCE

The information described below and contained in the Registrants’ 20082010 annual report to shareholders to be furnished to the U.S. Securities and Exchange Commission pursuant to Rule 14a-3(b) of the Securities Exchange Act of 1934 is shown in Exhibit 13 and is incorporated by reference into this joint Annual Report on Form 10-K (“Form 10-K”).

Part and Item of the Form 10-K

Part II

Portions of the Registrants’ 20092011 joint definitive proxy statement,Proxy Statement, to be filed with the U.S. Securities and Exchange Commission, are incorporated by reference into this Form 10-K under the items described below.

Part and Item of the Form 10-K

Part III

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PART I

Carnival Corporation iswas incorporated in Panama in 1972, and Carnival plc iswas incorporated in England and Wales.Wales in 2000. 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 articlesArticles of incorporationIncorporation and by-lawsBy-Laws and Carnival plc’s memorandumArticles of association and articles of association.Association.

Carnival Corporation and Carnival plc are both public companies with separate stock exchange listings and their own shareholders. The two companies operate as if they are a single economic enterprise with a single executive management team and identical Boards of Directors, but each has retained its separate legal identity. See Note 3, “DLC Structure” to our Consolidated Financial Statements in Exhibit 13 to this Form 10-K. Together with their consolidated subsidiaries Carnival Corporation and Carnival plc are referred to collectively in this Form 10-K as “Carnival Corporation & plc,” “our,” “us,”“us” and “we.”

We are the largest and financially strongest cruise company and one ofamong the largest and most profitable vacation companies in the world. We have a portfolio of widely recognized cruise brands that are sold in all the major vacation markets of the world and are a leading provider of cruises to all major vacation destinations. We believe our multi-brand strategy is essential to our cruise industry leadership position. See Part I, Item 1. Business. B. – “Cruise Operations” for additional information.

Each of our cruise brands is an operating segment that we aggregate into either the (1) North America or (2) Europe, Australia & Asia (“EAA”) reportable cruise segments based on the similarity of their economic and other characteristics. Our North America segment cruise brands include Carnival Cruise Lines, Holland America Line, Princess Cruises (“Princess”) and Seabourn. Our EAA segment cruise brands include AIDA Cruises (“AIDA”), Costa Cruises (“Costa”), Cunard, Ibero Cruises (“Ibero”), P&O Cruises (UK) and P&O Cruises (Australia). See Note 11, “Segment Information” to our Consolidated Financial Statements in Exhibit 13 to this Form 10-K.

As of January 28, 2009,31, 2011, the summary by cruise brand of our passenger capacity, the number of cruise ships we operate and the primary areas or countries in which they are marketed isare as follows:

In 2007, Carnival Cruise Lines announced its $250 million product enhancement initiative to its eight Fantasy Class ships under the “Evolutions of Fun” program, which is expected to be completed over a period of several years. This ship refurbishment and product enhancement initiative includes upgrades to all guest accommodations and a variety of public areas, introducing new water parks with a four deck-high waterslide, an 82-foot long racing waterslide and a fun-filled spray park, redesigning the mid-ship pool area and the creation of “Serenity,” an adults-only deck area. Carnival Splendor is the newest ship in the fleet and it includes many of the features of Evolutions of Fun. Carnival Cruise Lines is continually seeking to introduce ways to keep its cruise experience fresh and exciting, including expandedoffers award-winning dining, choices,spectacular entertainment, spacious staterooms, featuring the Carnival Comfort Bed sleep system, spectacular entertainment, innovative children’s programming, revitalizing spa services and action-packedaction packed casinos. Carnival Cruise Lines continues to add new features that fit its fun, memorable positioning. For example, in 2010 it launched Punchliner Comedy Club, offering a diverse array of comedians on multiple nights and SuperStar Live Karaoke, giving guests the center stage to sing with a live band further enhancing the onboard entertainment experience. This spirit, when combined with a culture that prides itself on innovation, positions the brand well to continue to retain and grow its standing as a cruise market leader.

In May 2011, Carnival Cruise Lines’ nextDream-class ship, the 3,690-passenger capacityCarnival Magic will enter service. This new ship will offer a host of guest amenities including, among others, the RedFrog Pub, a Caribbean-inspired pub at sea; Cucina del Capitano, a family-style Italian restaurant inspired by its Italian ship captains; Carnival WaterWorks aqua park featuring a gigantic, 500-gallon water “dump bucket.”Carnival Magic will also offer SportsSquare with the cruise industry’s first ropes course, where thrill-seeking guests can traverse across ropes suspended above the ship offering spectacular views to the sea nearly 150 feet below. The line has one additionalDream-class ship,Carnival Breeze, scheduled to enter service in June 2012. With these two new ships additions, Carnival Cruise Lines’ existing capacity will grow by 13.5%. Carnival Cruise Lines also continues to invest in its current fleet, which includes upgrades to guest accommodations, new water parks, resort-style pools and the addition of Serenity, an adults-only retreat area.

Princess, whose brand name was made famous by theLove Boat television show, recently celebrated its 43^rd anniversary.has been providing cruises since 1965. Princess, the world’s third largest cruise line, operates a fleet of 17 modern ships.ships, with two additional ships scheduled to enter service, one in June 2013 and one in June 2014. The new ships will each have a 3,560-passenger capacity and will continue the evolution of the Princess product. With these two new ship additions, net ofRoyal Princess transfer to P&O Cruises (UK), Princess’ existing capacity will grow by 17.0%. Princess offers over 115113 unique itineraries to more than 350319 destinations, with cruises generally offrom seven to 14 days, and threetwo world cruises in 2009 that exceed 1002011 of 104 and 107 days. Princess is a leading cruise line in international and exotic regions all over the world, including Europe, Alaska, Australia, Asia, Europe, the South Pacific, including Australia,Panama Canal, Hawaii and South America. Some of Princess’ Caribbean cruise offerings feature a private island destination known as Princess Cays whichthat Princess leases and operates, thatknown as Princess Cays^® which is located on the island of EleuthraEleuthera in theThe Bahamas.

Princess is widely recognized among travel agents as an innovative, premium cruise line. Substantially all ofline committed to helping its guests Escape Completely^® from their daily routine and responsibilities. Designed with a warm, welcoming “comfortable elegance,” Princess’ ships reflect an innovative design philosophy called “Big Ship Choice, Small Ship Feel,” emphasizingprovide a broadrelaxed, rejuvenating retreat at sea, with signature amenities offered consistently across most of its fleet befitting its mission to be The Consummate Host^® to its guests. Its “Piazza” main atrium serves as the heart of the ship, featuring its International Café and specialty coffee bar, its Vines wine and seafood bar and a variety of amenities combined with the more intimate ambience found on smaller vessels. Virtually all of Princess’ ships feature the Personal Choice Dining program, offering guests flexibility, convenience and quality in an array of anytime, traditional, 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 serviceentertainment throughout the fleet.

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The introduction ofRuby Princessrepresents the ninth ship in the evolving Grand Class series of vessels, featuring signatures such asday and evening. Its “Movies Under theThe Stars” outdoor theaters showingrecreate the drive-in movie experience out on deck, with first-run Hollywood hits and major sporting events shown on a 330 square foot outdoorsquare-foot poolside

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LED screen, complete with fresh-made popcorn. Its adults-only Sanctuary retreat space and the adults’ only sanctuary retreat deck. At least 57% of each ofunique “Ultimate Balcony Dining” course-by-course dining option were industry firsts. Princess is now introducing these Grand Class ship’s staterooms have balconies; another hallmarkamenities to other ships in its fleet. See Part I, Item 1. Business. B. “Cruise Operations – Australia” for additional discussion of Princess’ ships. Princess attracts consumers through a highly integrated brand campaign, encouraging them to “escape completely^®” with a direct marketing effort supported by a range of advertising and point-of-sale materials.operations in Australia.

Holland America Line, with 135137 years of cruising experience, operates a premium fleet of 14 ships, with an additional15 ships. In July 2010, Holland America Line launched its second Signature-class ship,Nieuw Amsterdamcontracted for delivery. The 2,106-passenger capacityNieuw Amsterdam is a sister ship toEurodam, which was delivered in 2010.July 2008. Holland America Line cruises call at more than 320calls on 354 destinations in more than 10098 countries and territories on all seven continents. Homeports include New York, Boston, Fort Lauderdale, Tampa, San Diego, Seattle, Vancouver, Copenhagen, Amsterdam, Rotterdam, Rome, Rio de Janeiro, Valparaiso, Auckland, Sydney and Hong Kong. Thecontinents, including Antarctica. While the majority of Holland America Line’s cruise lengthscruises are from seven to 21 days, however there areHolland America Line also offers longer, and more exotic cruises, such as the world cruise which lasts over 118Grand Voyages up to 70 days, plus an annual Grand World Voyage of 110 days. Most sailings inIn the Caribbean, most ships visit Holland America Line’s private island in The Bahamas, Half Moon Cay. Holland America’s ships, which tend to be smaller and more intimate than the bigger contemporary cruise ships, were designed with airy viewing lounges, wraparound teak decks and private, roomy verandahs that offer guests the chance to experience wildlife and scenery, which is especially important during its Alaska cruises.

As Holland America Line introduces newLine’s mission is to create once-in-a-lifetime experiences for its guests to its premium brand, theevery time they cruise. The brand continues to enjoy one of the highest rates of repeat cruisers in the cruise industry. Holland America Line’s $550 million Signature of Excellence product enhancement initiative emphasizes its dedication to all aspects of the guest experience, including elegant accommodations, sophisticated five-star dining and award-winning service. Its onboard experiencefleet of mid-sized ships is distinguished by warm, welcoming personalized service, a timeless approach to interior designdesigned for more intimate cruising and feature classically-designed interiors, wraparound teak decks and private verandas. In addition, Holland America Line ships have one of the most extensive collections of art and antiques at sea. The five areas identified as pillars

All of the Holland America guest experience are (1)spacious, elegantLines’ ships and accommodations, (2)sophisticated five-star dining, (3)gracious, unobtrusive service, (4)extensive enrichment programs and activities and (5)compelling worldwide itineraries.

The brand’s $525 million product enhancement initiative “Signature of Excellence,” continues with ongoing refinements to service and enrichment activities onboard and ashore. Signature of Excellence includes thehave Culinary Arts Center, a state-of-the-art onboard show kitchenCenters presented byFood & Wine magazine, where visiting chefs and culinary experts provideguests enjoy cooking demonstrations, private cooking lessons, wine tastings and lifestyle seminars. The Digital Workshop in collaboration with Windows^® offers complimentary photo technology classes to ourand guests threewill find specialty theme bars that feature a multitude of martiniscoffees, an extensive library, music listening stations and champagnes, as well as an international selection of beersinternet access in the Explorations Café^® in partnership with The New York Times^®. The Greenhouse Spa and premium whiskeysSalon has extensive wellness and brandies,beauty treatments, fitness classes and many other enhancements.exercise equipment.

Seabourn provides ultra luxuryultra-luxury cruising vacations in a unique, small-ship styleon smaller ships that focusesfocus on personalized services, all-suite accommodations, superb cuisine and unique experiences. Consistently rated amongexperiences and in 2010 was awarded the top vacation choices,“Best-Small Ship Cruise Line” by bothTravel & Leisure andCondé Nast magazines. Seabourn pampers its’its guests with complimentary open bars open-seating dining and value-added extras such as Massage Moments^SM on deck and Caviar in the Surf^SM beach parties and water sports from the yachts’ fold-down marina.parties. Seabourn’s ships offer destinations throughout the world, including Europe, Asia, the South Pacific Islands, Australia and the Americas, with cruises generally from seven to 14 days, with some of longer length. length, including a 111-day world cruise.

Seabourn currently operates three 208-guest yachts208-passenger capacity ships and two 450-passenger capacity ships and will begin acontinue its fleet expansion that is contracted to add three 450-guest sisters, one in each of 2009, 2010 and 2011.2011 withSeabourn Quest,another 450-passenger capacity ship. With this new ship addition, Seabourn’s existing ship capacity will grow by 29.5%. The new vessels willlarger 450-passenger capacity ships offer more categories of luxury suites, more dining alternatives and an 11,400-square foot spa facility that will beis the largest on any ultra-luxury vessel. They will maintainAll the Seabourn ships have a service ratio of nearly one staff member per guest and the intimate, sociable atmosphere that ishas been the hallmark of the Seabourn yachting lifestyle for over 2022 years. During 2009 and 2010, the original three 208-passenger capacity ships each completed an interior refurbishment of public areas to more closely match the ambiance of its recently delivered ships.

We believe that Europe is one of the largest single leisure travel vacation markets,market in the world, but to date cruising in Europe has achieved a much lower level of market penetration rate than in North America and represents a relatively small percentage of the European vacation market.

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Approximately 4.04.9 million European-sourced passengers took cruise vacations for two or more consecutive nights in 20072009 compared to approximately 10.510.4 million North American-sourced passengers. Additionally, we estimate that about 4.65.5 million European-sourced passengers took a cruise in 2008.2010, which was approximately the same size as the North American market in 1998. The number of European cruise passengers increased byat a compound annual growth rate of approximately 11.4% between 2002 and 2007.11.7% from 2005 to 2010, as passenger capacity has been added. We believe that the European cruise vacation market represents a significant growth opportunity for us, and we plan to introduce a number ofcontinue introducing new or existing ships into Europe over the next several years. This should enable us to achieve increasing economies

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As of scale. Approximately 72%,January 31, 2011, five ships or 27,296over 12,500 berths of our passenger capacity under construction hashave been designated for our European brands.brands through 2013. Our European brands represent 32%39% of our total capacity at November 30, 2008, and we expect them to increase to 39% of our total capacity by 2012, assuming no additional ships are ordered for 2012 delivery.

At the end of 2008, 117 ships with an aggregate passenger capacity of approximately 130,000 lower berths were marketed primarily in Europe. Our projections indicate that by the end of 2009, 2010, 2011 and 2012, Europe will be served by 122, 127, 130 and 133 ships, respectively, having an aggregate passenger capacity of approximately 144,000, 156,000, 164,000 and 172,000 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 guests has increased at a compound annual growth rate of 9.8% for the past three years. The future growth rate is currently expected to be 8.1% for the next three years. Our estimates of European capacity are based on similar assumptions as discussed previously for our North American estimates and do not consider any older ship withdrawals as a result of their noncompliance with mandated maritime regulations that become effective in 2010. See Part I, Item l. Business. B. – “Cruise Operations – Governmental Regulations – Maritime Regulations”.

The principal itinerariesmost popular location visited by European-sourced cruise guests in 2008 were2010 was the Mediterranean Sea, followed by other locations, such as the Caribbean, (including the Bahamas), Bermuda, northernNorthern Europe (including Scandinavia and the Baltic) andBaltic Sea), the Atlantic Isles (including the Canary Islands and Madeira). In addition, European cruise guests visited, the Arabian Gulf theand Indian Ocean, the Far East, South America, New England, CanadaNew York and other exotic locations around the world.Canada.

The United Kingdom (“UK”) is one ofUK provides the largest regions from whichnumber of cruise passengers are sourced in Europe. Approximately 1.3Over 1.5 million UK passengers took cruises in 2007.2009, and we estimate that 1.6 million cruised in 2010. Cruising in the UK has becomeis an established alternative to land-based resort and sightseeing vacations. The number of UK cruise passengers increased byat a compound annual growth rate of approximately 10.2% between 2002 and 2007.8.3% from 2005 to 2010. We believe that the UK has additional growth potential for the cruise industry as the levelbecause of low market penetration is estimated at approximately 70%levels and other favorable characteristics of North America.the cruise industry.

P&O Cruises and Ocean Village source(UK) sources substantially all of theirits guests from the UK. Cunard sources most of its guests from the UK, North America, Germany and Australia. Our North American brands and Costa also source guests from the UK. For example, Princess Cruises’Sea Princesshas been homeported in Southampton during the summer months and has Fort Lauderdale as its homeport during the winter season, has been primarily marketed to UK vacationers who desire an American style of cruising.

P&O Cruises with over 170 years of cruising experience,(UK) is the largest cruise operator and best knownmost recognized cruise brand in the UK with sixand takes more British cruisers on holiday than any other cruise brand in the world. With seven premium ships of differing sizes, it offers a broad range of British guests the opportunity to “Discover a Different World...” while still feeling very much at home, because the world of P&O Cruises (UK) is one which is tailored to those who enjoy today’s British tastes. Also as the trusted UK cruise experts, having established cruising over 170 years ago, P&O Cruises (UK) celebrates maritime traditions and an additional ship contracted for delivery in 2010. Theseoffers genuine service, a sense of occasion and attention to detail to ensure guests enjoy the holiday of a lifetime, every time they travel.

P&O Cruises (UK)’s ships cruise to over 235visit 270 destinations in more than 8290 countries, with most cruises ranging from twotwo-day cruise breaks to 16 days, but with some cruises lasting longer, including three world cruises of 87 to 109 days. The majority of cruise vacations in 2009the summer are seven to 14 days in duration and two in 2010. Thedepart from Southampton, England cruising to the Mediterranean Sea, the Baltic Sea, the Norwegian fjords or the Atlantic Isles. In the fall and winter, P&O Cruises fleet is(UK) offers cruises embarking in the youngest multi-ship UK brand,Caribbean and their latest additions have enabled P&O Cruises to offer a more modern style of cruising to its UK cruise guestsMediterranean Sea, world cruises and broaden their appeal, reaching younger guests with and without families, while retaining older and more traditional British guests. Artemis andArcadia are child-free ships, which generally appeal to an older demographic, while the rest of the fleet is well-equipped for families. P&O Cruises offerslonger cruises departing from Southampton, England to the Mediterranean Sea, the Atlantic Isles the Baltic, Scandinavia and the Norwegian FjordsCaribbean.

Each ship offers a range of entertainment and restaurants, including classic silver service, designed to please our British guests. Two of its ships offer vacations exclusively for adults, while the majority of the year, and primarily operates Caribbean cruises and a choice of world cruises during the winter.

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P&O Cruises’ ships deliver a world of extraordinary experiences for guests by ensuring that they offer high quality, a distinctly British experience and a variety of choices. Their fleet ofother ships are distinctly different from one anotherwell-suited for families. With the addition of its largest ship,Azura in both personality and facilities. This allows the British guest to tailor their holiday by selecting the ship that best reflects their own personality and matches their holiday requirements. It also means that repeat customers can enjoy a new and exciting experience each time they sail.

VenturaandOceana offer a more contemporary and innovative experience with an informal atmosphere and range of alternative dining venues, from restaurants and food courts to grills and bistros. The elegant superlinersArcadia, Aurora andOriana offer a stylish and classic cruise experience with their broad decks, traditional artwork and blend of formal and informal onboard experiences. As the smallest ship in the2010, P&O Cruises fleet,Artemisoffers(UK) introduced the first fine dining Indian restaurant at sea, from an Indian born British chef awarded a more traditionalMichelin star, a new wine bar concept, and intimate experience, her size enabling herthe first large screen outdoor cinema on a P&O Cruises (UK) ship.

Adonia, which is currently sailing as Princess Cruises’Royal Princess, will be joining this fleet in May 2011 to visit ports not charted by larger vessels as well as fostering a real sense of camaraderie.replaceArtemis.

Cunard, which was launched in 1839, and has the Most Famous Ocean Liners In The World^SM, operates twothree premium/luxury ships that evoke a golden era of luxurious cruising with an additional ship,cruising. In October 2010, Cunard took delivery of the 2,068-passenger capacityQueen Elizabeth, contracted for delivery in 2010. Cunard’s flagship,which combined withQueen VictoriaandQueen Mary 2, is represents the largest and grandest ocean lineryoungest fleet in the worldworld. During 2011, Cunard ships will primarily sail a variety of seasonal itineraries in Northern Europe, the Mediterranean and operates the northern transatlantic crossing routeCaribbean as well as a 90 day world cruise. Cunard’s newest ship,Queen Victoria is a marriage of heritage and innovation with a three tier grand lobby that offers a sense of the lavish lifestyle that its guests will experience onboard. In 2009,Queen Victoria,will embark on a 107 day world cruise prior to sailing out of Southampton throughout the summer of 2009 on a series of Northern Europe and Mediterraneantraditional transatlantic voyages. Most of Cunard’s non-world cruise voyages are six orrange from seven to 14 days with two world cruises of 96 and 103 days.

The Ocean Village brand will be phased-outCunard ships provide guests with the transferopportunity to relive the glory days of both itsocean travel featuring sophisticated five-star dining, luxurious accommodations and award-winning white-glove service. In addition, Cunard ships to P&O Cruises Australia.spotlight unique British-styled shipboard amenities, such as libraries, traditional British pubs and art galleries. Cunard ships also feature exquisite dining in grills or exclusive restaurants, lounges with 270 degree views of the ocean and cabins that are named after Cunard commodores who were knighted. Together, these features further distinguish this historic brand apart from all others and have made Cunard ships the Most Famous Ocean Liners In The first ship will be transferred in November 2009.The second ship will be transferred in November 2010. We have recognized the growth potential in the Australian cruise market, and this decision is consistent with our strategy of redeploying ships to growth markets to invest in brands which show the greatest potential.World^SM.

Prior to the transfer, the two ships will offer one or two week cruises, together with cruise and stay holidays, and operate out of Palma Majorca, Spain and Heraklion, Crete in the Mediterranean for the 2009 summer season. The remaining ship will operate from Barbados in the Caribbean during the winter 2009-2010 season and return to the Mediterranean for the 2010 summer season.

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The main countries in southerncontinental Europe for sourcing cruise passengers are Germany, Italy, FranceSpain and Spain.France. Together, these main countries generated approximately 1.52.8 million cruise passengers in 2007.2009 and we estimate that approximately 3.1 million passengers took a cruise in 2010. The German cruise market reached more than 1.2 million passengers in 2010 and is the second largest market in Europe, after the UK. Italy is the third largest cruise market in Europe with almost 880,000 passengers in 2010. Spain and France are the fourth and fifth largest cruise markets in Europe with almost 640,000 passengers and 380,000 passengers in 2010, respectively. Cruising by passengers sourced from Germany, Italy, FranceSpain and SpainFrance combined increased byat a compound annual growth rate of approximately 12.6% between 2002 and 2007.11.9% from 2005 to 2010. We believe that southerncontinental Europe has significant growth potential for the cruise industry asbecause the level of market penetration level is estimated at approximately 26%one-third of North America.America’s market penetration level and other favorable characteristics of the cruise industry. We intend to increase our penetration in southerncontinental Europe primarily through Costa, AIDA and Ibero. The principal sources of our guests for Costa are from Italy, France and Germany, while AIDA and Ibero source their guests principally from Germany and Spain, respectively. The operating results of our newest brand, Ibero, are being adversely impacted by the weakness of the Spanish economy, however, we believe Ibero has good long-term growth prospects. See Note 10, “Fair Value Measurements, Derivatives Instruments and Hedging Activities” to our Consolidated Financial Statements in Exhibit 13 to this Form 10-K for additional discussion. Finally, as discussed below our Costa and Ibero cruise brands also market to, and provide cruise vacations in, South America, principally during the Northern Hemisphere’s winter months.

Costa is Italy’s and Europe’s # 1 Cruise Line based on guests carried and ship capacity and boasts over 62 years of cruising history. Costa is one of the most recognized cruise brands marketed in Europe, which currently has the mostEurope. In 2010, Costa took delivery of one new cruise ships on order of any cruise brand,ship,Costa Deliziosa, and Ibero.

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Costa is Italy and Europe’s #1 Cruise Line based on guests carried and capacity of its ships, and boasts over 60 years of cruising history. Costanow operates 1214 contemporary ships, with two additional ships, contracted for deliveryCosta FavolosaandCosta Fascinosa,scheduled to enter service, one in 2009July 2011 and one ship in each of 2010, 2011 andMay 2012. With these fivetwo new ship additions, Costa’s existing capacity will grow by 58%20.4%.

Costa offers guests an international and multi-lingual ambiance with an Italian touch. Costa principally serves customersCosta’s 1.4 million guests in Italy, France, Spain and Germany, but its 1.2 million 2008 guests came2010 were sourced from over 160 different179 countries. The Costa brand offers a more traditional product catering to an older demographic in Germany and a higher-end contemporary product in Germany and Spain and thus segments these markets where we also own and operate the more mid-contemporary AIDA and Ibero brands.

The Costa ships callcalls on 250 ports around the world, with 100 different itineraries, most from seven to 11 days. Costa’s ships operate in Europe from spring to fall. From fall to springIn the summer months, Costa repositions two of its ships to the Caribbean, three of its ships to South America, two of its ships to the Arabian Gulf to homeport in Dubai, one of its ships to the Indian Ocean to homeport from the Island of Mauritius and maintains a year-round presence with three ofdeploys its ships in the Mediterranean.Mediterranean and Northern Europe areas. In the winter months, Costa deploys its ships in the Mediterranean Sea, South America, the Arabian Gulf, the Caribbean, the Red Sea and the Indian Ocean. See Part I, Item 1. Business. B.-B. “Cruise Operations – Australia, New Zealand and Asia” for additional discussion of Costa’s expanding operations in Asia.

We have a joint venture agreement with Orizonia Corporation, Spain’s largest travel company, underAIDA, which we operate Ibero, a Spanish cruise line that began operationsoperating in 2003. Ibero currently operates three contemporary cruise ships. Substantially1996, sources substantially all of Ibero’sits guests from Germany, Austria and German-speaking Switzerland, and is the leader and most recognized cruise brand in the German cruise market. AIDA operates seven contemporary ships, with three additional ships scheduled to enter service, one in each of 2011, 2012 and 2013. With these three new ship additions, AIDA’s existing capacity will grow by 54.6%. AIDA’s current generation of vessels, which it started taking delivery of in 2007, are sourced from Spain, Brazilinnovative. For example, AIDA introduced the “Theatrium,” a completely new space concept that provides guests a central meeting space and Portugal. Their ships arean enhanced entertainment venue. OnAIDAblu, which was delivered in February 2010 and for the next three newbuilds, the spa concept has been further developed to include 30 spa suites and veranda cabins. Additional product innovations on these new vessels will include the Brauhaus, a micro-brewery, which was introduced onAIDAblu, and new restaurants with fresh culinary concepts.

AIDA’s product is especially tailored tofor the SpanishGerman-speaking market, including Spanish speaking officers andGerman-speaking crew as well as Mediterranean and Spanish styleGerman-style food and entertainment. From MarchAIDA offers an exceptionally relaxed, yet active, cruising experience with an emphasis on a healthy and youthful lifestyle, choice, informality, friendliness and activity. In addition, AIDA’s ships include a variety of informal and formal dining options, including buffets, grills and exclusive restaurants.

AIDA offers its guests cruises generally from five to October, Ibero’s14 days, while calling on approximately 170 ports. During the summer, the AIDA ships sail in the North Sea, the Baltic Sea, the Mediterranean Sea and New England and Canada. During the winter, AIDA ships sail in

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the Caribbean, Central America, the Atlantic Isles, the Western Mediterranean Sea, the Far East, the Arabian Gulf and Trans-Suez Canal passages. In the fall of 2010, AIDA began offering cruises to South America and up the Amazon River, and from summer 2011 AIDA will offer seven-day Mediterranean and Northern European sailings homeportedcruises for the first time in Barcelona, Spain, Venice, Italy, Athens, Greece, Istanbul, Turkey, Copenhagen, Denmark and Helsinki, Finland. From November 2008 to February 2009 two of itsthe Black Sea.

Ibero, which began operations in 2003 but was acquired by us in 2007, operates four contemporary cruise ships, are time-chartered to an unaffiliated Brazilian tour operator. In November 2009, we expect to transfer Carnival Cruise Lines’ 1,450-passenger capacityHoliday to Ibero.Holiday will undergo a multi-million dollar refurbishment before being renamed theincludingGrand Holiday (formally Carnival Cruise Lines’Holiday), which entered Ibero service in May 2010. Substantially all of Ibero’s guests are sourced from Spain, Brazil and Argentina. Ibero’s ships are especially tailored to the Spanish market, including Spanish-speaking crew as well as Mediterranean and Spanish-style food and entertainment. From spring until fall, all of Ibero’s ships offer seven-day Mediterranean and Northern European sailings. As discussed below, three of Ibero’s ships were repositioned to South America for her first Ibero sailing expected in spring 2010.the Northern Hemisphere’s fall and winter to offer cruises along the Brazilian and Argentine coasts.

Germany is the largest source market forFor many years cruise vacations have been marketed in South America, principally to Brazilian and Argentinean-sourced passengers, although cruising as a vacation alternative remains in continental Europe, witha relatively early stage of development. Brazil and Argentina have populations of approximately 0.8200 million cruise passengers in 2007. Germany had a compound annual growth rateand 40 million, respectively, and we believe that their discretionary incomes will grow significantly in the numberfuture. More than five million Brazilian tourists traveled abroad in 2010 and we expect this to increase to approximately six million in 2011. Approximately one million Argentine tourists traveled abroad in 2010 and we expect this amount to increase slightly in 2011. Based on industry data and our internal estimates, approximately one million Brazilians and Argentineans took a cruise vacation in 2010, of cruise passengers carried of approximately 12.2% between 2002which almost 25% sailed on a Carnival Corporation & plc branded vessel primarily through our Costa and 2007.Ibero brands. We believe that Germanythe South American vacation market has significant growth potential for the cruise industry asbecause the level ofcombined Brazilian and Argentine estimated market penetration is estimated at approximately 29%levels are less than 15% of North America. We intend to increase our penetration in Germany through AIDA, the most recognized cruise brand marketed in Germany.

AIDA, which began operating in 1996, sources substantially all of its guests from Germany and German speaking Austria and Switzerland, and is the leader in the German cruise market. AIDA operates five contemporary ships, with one additional ship contracted for delivery in each of fiscal 2009, 2010, 2011 and 2012. With these four new ship additions, AIDA’s existing capacity will grow by 110%. AIDA’s new vessels, including theAIDAdiva andAIDAbella,which AIDA took delivery of in 2007 and 2008, respectively, are innovative. For example, they introduced the “Theatrium,” a completely new space concept that provides guests a central meeting space and an enhanced entertainment venue.

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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, choice, informality, friendliness and activity. Spa and fitness areas and a variety of dining options, ranging from informal but excellent quality buffets to grills and exclusive restaurants characterize the experience onboard the vessels.

AIDA offers its guests cruises varying in length from three to 14 days, while calling on approximately 140 ports. During the summer, the AIDA ships sail in the Mediterranean, the North SeaAmerican cruise vacation market’s penetration level and other favorable characteristics of the Baltic Sea, while itineraries forcruise industry.

Cruises from South America typically occur during the winter include the Caribbean, Central America, the Western Mediterranean, the Atlantic Isles, the Arabian GulfSouthern Hemisphere summer months of November through March. Costa and Trans-Suez Canal passages. In the fall of 2008, AIDA began offering New EnglandIbero are each operating three ships in this region from November through March. These ships depart from home ports in Brazil and Canada cruises, to guests substantially all sourced from German speaking countries.Argentina.

Cruising in Australia continues to develop. Approximately 280,000We estimate that approximately 370,000 Australians and New Zealanders took cruise vacations in 2007.2009 and estimate that this number grew to approximately 470,000 in 2010. Cruising by passengers from these countries increased at a compound annual growth rate of approximately 19.2% from 2005 to 2010. We serve this region primarily through the contemporary P&O Cruises Australia(Australia) brand, which is athe leading cruise line in Australia and New Zealand. In addition, our premium brand Princess has a very significant presence in the Australian vacation market.

From Asia, we began sourcing passengers in 2006. Tourism We believe that the Australian market has significant growth potential for the cruise industry because the market penetration level is oneestimated at approximately half of North America’s market penetration level and other favorable characteristics of the most rapidly growing sectors in the Chinese economy. More than 35 million Chinese tourists traveled abroad in 2007. This figure is forecast to increase to over 50 million by 2010. We believe this market has growth potential given its large population and expanding international tourist travel.cruise industry.

P&O Cruises Australia,(Australia), with over 75 years of cruising experience, caters specifically to Australians and New Zealanders. Its ships,P&O Cruises (Australia) has more than doubled its fleet capacity with the transfer of two Ocean Village ships. The second ship was transferred in November 2010 and was renamedPacific DawnPearl and has just completed a multi-million dollar refurbishment. The previous Ocean Village transfer was renamedPacific Sun,Jewel typically, which was transferred in November 2009.

Its four contemporary ships offer cruises generally ranging from seven to 14 days homeported from Sydney and Brisbane,12 days. The ships are home ported in a number of cities in Australia and Auckland, New Zealand. These cruises enable its guests to discover the islands of the South Pacific from New Caledonia to Tahiti, as well as exploring Australia’s magnificent coast line, New Zealand and Asia.

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Princess deploys two ships on a year-round basis on cruises departing from home ports in Australia. In late 2011, a third ship will reposition to Australia for seasonal deployment. These ships visit the South Pacific Islands, Australia, New Zealand’s Fjords. In responseZealand and Asia; and the cruises generally range from 13 to growing demand,17 days, with one world cruise of 104 days. Princess is primarily marketed in October 2008, P&O Cruises Australia announcedNorth America, so we consider it a North America cruise brand. Therefore, the more than doubling of their fleet with the transferoperating results of the two Ocean Village ships. The first ship will be transferred in November 2009 and it will be renamedPacific Jewel.The second ship will be transferred in November 2010.

In November 2008, Princessships deployedDawn Princess, the second Princess ship to be based in the Australian market onare included in our North America cruise brand segment, even though these ships are primarily marketed to Australians.

We began sourcing passengers from China in 2006. We source most of our Chinese guests from the cities of Beijing and Shanghai and the province of Guangdong, which have a year-round basis.Dawn Princess’ arrival has confirmed Princess as a substantial cruise linecombined population of over 130 million. Tourism is one of the most rapidly growing sectors in the growing AustralianChinese economy as Chinese discretionary income has increased at a compound average growth rate of 10.4% over the last five years. More than 57 million Chinese tourists traveled abroad in 2010. We believe this market has outstanding long-term growth potential for the cruise marketindustry given its early stage of development, large population, easing of travel restrictions and allowed us to enhance our market segmentation there. Both theSun Princess andDawn Princess are time chartered from Princess to P&O Cruises Australia for cruises departing from the homeports of Fremantle, Melbourne and Sydney, Australia. The doubling of this fleet allowed the expansion of homeporting out of Melbourne, Australia’s second largest city. Princess’ cruises visit the South Pacific islands, Australia, New Zealand and Asia and average 18 days in length with one world cruise lasting 104 days.expanding international tourist travel.

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Costa Asia, which began its operations in July 2006, with thecurrently operates one contemporary cruise ship. Costa Allegra being homeported out of China to caterAsia caters primarily to the Chinese and surrounding markets. Costamarkets and was the first international cruise line to homeporthome port a ship in China. TheCosta Asia’s ship is specifically tailored to the Chinese market, serving Chinese style cuisine, offering mah-jongg tables and providing well-known luxury brands in its retail shops. During the non-peak Chinese vacation market is highly seasonal. In the peak Chinese vacation seasons during part of February and May, and from July through mid-October, themonths, Costa Allegra sails from Hong Kong, Shanghai and Beijing, China, for 5-day cruises, with guests primarily sourced from China and surrounding markets. During the remaining non-peak vacation months, theCosta Allegra sails 14-dayAsia offers longer Far East cruises sourcing guests principally from Europe. In April 2009, Costa Cruises will deploy a second ship, the 1,302-passenger capacityCosta Classica, to Asia for 4-day and 5-day cruises sailing from Tianjin and Shanghai during the peak Chinese vacation seasons and 14-day and 15-day cruises sailing out of Hong Kong, Singapore and Shanghai during the remaining non-peak vacation months. The addition ofCosta Classicawill more than double Costa’s capacity in this market.

Cruise vacations have been marketed by Costa in South America, principally to Brazilian and Argentinean-sourced passengers, for many years, although cruising as a vacation alternative remains in a relatively early stage of development in the region. Approximately 380,000 Brazilians and Argentineans took cruise vacations in 2008. Cruises from South America typically occur during the Southern Hemisphere summer months of November through March. Our presence is primarily represented through the Costa brand, which will operate three vessels in 2009 in this region,Costa Magica,Costa MediterraneaandCosta Romantica, collectively offering 6,160 lower berths. These ships primarily offer seven to 14 day cruises visiting ports primarily in Brazil, Argentina, Uruguay and Chile. In addition, Ibero currently time charters two ships to an unaffiliated Brazilian tour operator and is directly offering three ships to this market for November 2009 through March 2010 cruises.Europeans.

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Summary information of our ships as of January 28, 2009 is as follows:

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Summary information of our ships under contract for construction as of January 28, 200931, 2011 is as follows:follows (a):

We believe that the cost of a cruise vacation represents an exceptional value in comparison to other comparable land-based vacation alternatives. This is especially true when one considers that a cruise provides its guests with transportation to various

destinations, while also providing hotel accommodations, food and some entertainment for one all-inclusive, competitive price. In order to make cruising even more cost effective and more easily accessible to our guests, we offer a number of drive-to-homeports, which reduces certain cruise guests’ overall vacation costs because the air transportation costs are eliminated.

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About 20% of the U.S. population has ever taken a cruise, and this compares to 9 to 10% in the UK and 4 to 5% in Europe. Based on industry data, the 2007 annual penetration rate, computed based on the number of annual cruise passengers as a percentage of the total population, is 3.1% for North America, 2.2% in the UK, 0.9% in Germany and 0.8% in southern Europe. In addition, Europeans have significantly more vacation days in a year than North Americans, which presents opportunities for increases in the European penetration levels to the level of North America.

Elsewhere in the world cruising is at an early stage of development and has far lower penetration rates. However, there have been an increasing number of countries in the world whose economies have benefited from globalization. This global economic growth has fueled an increasing demand for vacations, including cruising, in these relatively lower penetrated countries.

Cruising appeals to a broad demographic range. Industry surveys estimate that there are approximately 127 million potential cruise guests 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, more than half of these individuals have expressed an interest in taking a cruise as a vacation alternative.

Between 2005 and 2015, the number of people in the cruise industry’s primary age group of 45 years and older are expected to grow by 24 million, or 20%, in the U.S. and Canada, and 20 million, or 15%, in the major Western European countries of Germany, the UK, France, Italy, Spain and Portugal. As the age of the U.S., Canadian and European populations is increasing, which is primarily as a result of the aging of the Baby-Boom generation and the advancements in healthcare, we believe the cruise industry is well-positioned to take advantage of these favorable demographic trends impacting its major markets for years to come.

Cruise guests 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 guests think the value of their cruise vacation experience is as good as, or better than, the value of other comparable vacation alternatives. According to industry surveys, North American cruise guests have a total satisfaction rate of 95%, including nearly 45% of cruise guests stating that they are extremely satisfied with the experience, which is defined in the surveys as the highest satisfaction rating of any vacation alternative they have experienced. In addition, based on our internal surveys our European cruise guests are very satisfied with their cruise vacations, which we believe is a very positive response to our European cruise experience.

The cruise vacation industry has experienced significant growth over the last decade. The number of new cruise ships currently on order from shipyards indicates that cruise capacity is set to grow by 23% through 2012. In order to fill this new capacity, continued growth in demand across the industry will be required. It is possible that some older ships may be retired, thus reducing cruise industry capacity. Alternatively, it is also possible that we or our competitors could order more ships, thus increasing cruise industry capacity. Given the exceptional value proposition cruising offers in comparison to other competitive land-based vacation alternatives, as well as its relatively low market penetration levels in major vacation markets, its wide appeal and positive guest demographics and its high guest satisfaction rates, we believe that there continue to be significant opportunities for growth in the demand for cruising.

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VIII.    Passengers, Capacity and Occupancy

Our cruise operations had worldwide cruise passengers, passenger capacity and occupancy as follows:

Our passenger capacity has grown from 129,108 berths at November 30, 2004 to 169,040 berths at November 30, 2008, primarily because of the deliveries of 16 new cruise ships during this four-year period. 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:

As of January 28, 2009, we had signed agreementsOur cruise brands provide guests with three shipyards providing foran improved vacation experience and additional home ports through the construction of 17 additional cruise ships scheduled to enter service between March 2009development and June 2012. These agreements cannot be cancelled by either party without cause, and such cancellation will subject the canceling party to contractual liquidated damages. See Part I, Item 1. Business. B. “Cruise Operations – Ship Information” and Note 6, “Commitments” to our Consolidated Financial Statements in Exhibit 13 to this Form 10-K for additional information regarding our ship commitments.

We are involved in the developmentmanagement of new or enhanced cruise port facilities. These facilities are expected to provide our guests with an improved vacation experience. Our involvement is usually in cooperation with governmental entities and typically includes providing development and management expertise and/or providingand financial commitments that are limited to long-term port usage and preferential berthing agreements. However, sometimes we provide direct financial support or develop the port infrastructure ourselves.

During 2008,2010, we were in various stages of involvement with the development, enhancement and/or enhancementfinancing of government and privately-ownedgovernment-owned and operated cruise port facilities in Galveston, Texas,Texas; Miami, Florida,Florida; New York City, New York,York; Port Everglades, Florida; San Diego, California, Southampton, EnglandCalifornia; San Juan, Puerto Rico and St. Maarten, Netherlands Antilles.Kingdom of the Netherlands. In addition, we currentlyown and operate or have interests in joint ventures that own and operate port and related facilities in Barcelona, Spain, Cozumel, Mexico, Grand Turk, TurksSpain; the Caribbean; Civitavecchia, Naples, Savona and Caicos Islands,Trieste, Italy; Hamburg, Germany; Juneau, Alaska,Alaska; Marseilles, France and Long Beach, California and Savona, Italy. We are expandingfor the Savona, Italy facility. We are developing or co-developing port facilities in Marseilles, France, Civitavecchia, Italy, Naples, Italy and Roatan, Honduras pursuant to concession and other agreements.benefit of our cruise brands.

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We own a 40% interest in Grand BahamaBahamas Shipyard Ltd. (“GBSL”), which is the largest cruise ship dry-dock repair facility in the world. Royal Caribbean Cruises Ltd. (“RCCL”), one of our cruise competitors, also owns a 40% interest and the Grand BahamaBahamas Port Authority owns 20%. We account for our investment using the equity method, and our total net investment in and notes receivable from GBSL were $80 million at November 30, 2008. GBSL only had outstanding debt to RCCL and us at November 30, 2008. This repair facility, located in Freeport, Grand Bahama,Bahamas, has three dry-docks, which can handleaccommodate ships up to 137,000 tons. Our North American brand ships based in the Caribbean primarily use this facility. During 2008,2010, RCCL and our brands had an aggregate of 1319 ships serviced at this facility. In addition, unaffiliated cruise ships and other types of ships, such as cargo and oil and gas tankers, were worked onserviced at this facility. GBSL generated total revenues of $133$98 million in 2008.2010, a large portion of which were derived from work on RCCL and our cruise ships.

We account for our investment in GBSL using the equity method, with our share of income or loss recorded as other nonoperating income or expense. Our total net investment in, including notes receivable from, GBSL was $72 million at November 30, 2010. GBSL had an aggregate of $138 million of outstanding debt to RCCL and us and $2 million of outstanding debt under a revolving credit facility to a

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third party at November 30, 2010.

Each of our cruise brands publishes brochures with prices for the upcoming seasons. Brochure pricesseasons primarily through the internet. Some of our cruise brands still use printed brochures, although their use is diminishing. Prices vary by cruise line, by category of cabin, by ship, by season and by itinerary. BrochureCruise prices frequently change in a dynamic pricing environment. Some cruise prices are regularly discounted through ourspecial promotions, 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 guest 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 guest to pay for the entire cruise before sailing.

If our guests do not pay a vacation protection premium for the ability to obtain a refund if they cancel their cruise within a pre-defined period before sailing, then they are subject to a cancellation fee, which we recognize in passenger ticket revenues upon cancellation. For those guests who pay a vacation protection premium for the ability to obtain a refund, they will receive all or a portion of their deposit back in accordance with the terms of the program, while we will recognize this premium in other revenues.loyalty programs.

Historically, our advance bookings have generally been taken from several months in advance of the departure date for someall contemporary brand sailings, to more than a year in advance for some of our luxury and European brand sailings. Generally, the longer the cruise itinerary the further in advance the bookings are made. This lead-time provides us with more time to manage our prices in relation to demand for available cabins through the use of advanced revenue management capabilities and other initiatives, with the goalstrategy of filling our ships while achieving higherthe highest possible overall net revenue yields (seeyields. Some of our fares, such as Carnival Cruise Lines’ Early Saver, Costa’s Pronto Price Savings and Holland America Line’s Early Advantage and Mariner Savings fares are designed to encourage potential guests to book cruise reservations earlier. In addition, we have the ability to change ship itineraries over time to maximize our revenue yields. (See “Key Performance Non-GAAP Financial Indicators” in our Management Discussion and Analysis of Financial Condition and Results of Operations in Exhibit 13 to this Form 10-K). In addition,

If our guests do not pay a vacation protection premium for the ability to obtain a refund if they cancel their cruise within a pre-defined period before sailing, then they are subject to a cancellation fee if they subsequently cancel, which we recognize in cruise passenger ticket revenues upon cancellation. For those guests who pay a vacation protection premium for the ability to obtain a refund, they will receive all or a portion of their deposit value back in accordance with the terms of the program, while we will recognize this vacation protection premium in other revenues.

The cruise ticket price typically includes accommodations, most meals, some non-alcoholic beverages and most onboard entertainment, such as the use of, or admission to, a wide variety of activities and facilities, including nightclubs, theatrical shows, movies, parties, a jogging track, a health club, swimming pools, sun decks, whirlpools and saunas. Our brands’ payment terms generally require that a guest pay a deposit to confirm their reservation with the balance due before the departure date, although some of our fares such as Carnival Cruise Lines’ Supersaver fares, Costa’s Pronto Price Savings fares, Holland America Line’s Early SavingsEuropean brands provide certain of their travel agents and Mariner Savings farestour operators with credit terms even though these parties typically require the guest to pay for the entire cruise ticket price before sailing. Substantially all of our guests’ payments are received via credit cards or through other electronic banking transfers.

As a convenience to our guests, we offer to arrange air transportation to and Princess’ Early Booking Discounts, are designed to encourage potential guests 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, butfrom 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.

port. When a guest elects to purchase air transportation from us, both our revenues and expenses generally increase by approximately the same amount. Air transportation prices cantypically vary by gateway, destination and destination.other ticket restrictions. Over the last several years, about 15%approximately 14% of our guests purchased air transportation from us, whichus. We believe this relatively low amount we believepercentage is partially a result of having embarkation points close to our guests’ homes and partially due to the resultwide availability of competitively priced air tickets sold by third parties. In addition, for some of our European brands’ cruise itineraries we charter aircraft to facilitate our guests’ travel to distant locations. We also offer transfers from and to the airport as part of these programs, as well as to other guests who may need this transfer service.

In 2007, we introduced a fuel supplement across substantially all of our cruise brands, which resulted in an additional fee being charged to the guests on these brands, commencing for the most part with cruises departing in early 2008. This temporary fuel supplement, which is included in cruise passenger ticket revenues, was introduced to partially offset a portion of the very high fuel costs we had been experiencing, and was usually charged on a daily basis, with established total maximumsmaximum amounts per passenger. As a result ofCurrently, AIDA, Cunard and P&O Cruises (UK) are charging fuel supplements. We reserve the relatively recentright to reinstate our fuel supplements in our other brands and large decreases in fuel prices, most ofwill continue to monitor our brands no longer chargemarkets and review our position based upon the fuel supplement. However, if fuel prices increase to higher levels in the future, then we may decide to re-instate fuel supplements.appropriate facts and circumstances.

Onboard and other activities are provided either directly by us or by independent concessionaires, from which we collectreceive either a percentage of their revenues or a fee. We earn onboard and other revenues from onboard activities and services not included in the cruise ticket price consisting of, but not limited to, bar and some beverage sales, shore excursions, casino gaming, gift shop sales, photo sales, spa services, art auctions, cellularfull service spas and internet and phone services. To maximize onboard revenues, we use various cross marketing and telephone usage, bingo gamespromotional tools and lottery tickets, enhanced dining experiences in alternative restaurants,are supported by point-of-sale systems permitting “cashless” transactions for the sale of these onboard promotional advertising for merchants located atproducts and services. Substantially all of our ports of call, internet cafes,

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entertainment arcades, laundry services, libraries, golf lessons, snorkel and bike equipment rentals, training conference facilities and video diaries.onboard revenues are paid with credit cards.

Our casinos, which are operated directly by us, contain a variety of slot machines and gaming tables including blackjack, and in most cases craps and roulette.tables. The casinos are only open when our ships are at sea in international waters or when otherwise specifically permitted by law.

Sales to our guests 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,parties. We typically utilizingutilize locally-owned operators.operators who provide shore excursions based on the local price points and with guides who speak the same languages as most of our shore excursion guests. For the Holland America Line, Princess and Carnival Cruise Lines ships operatingsailing to destinations in Alaska, shore excursions are operated by Holland America Tours and Princess Alaska Tours, as

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well as locally-owned operators. We also offer revenue-producing activities on the private islands and the Caribbean ports we operate.

In conjunction with our cruise vacations, substantially all of our cruise brands also sell pre- andpre-and post-cruise land packages of one to four nights. Vacation packages offered in conjunction with homeportsships based in North America include 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,Massachusetts; New York City, New York,York; Seattle, Washington,Washington; San Diego, California and/orand Vancouver, British Columbia. Vacation packages offered in conjunction with homeportsships based in Europe include stays in well-known European cities such as Athens, Greece,Greece; Barcelona, Spain,Spain; Copenhagen, Denmark,Denmark; London, England,England; Paris, France and Rome and Venice, Italy.

In conjunction with our Alaska cruise vacations, principally on our Holland America Line Princess and Carnival Cruise LinesPrincess ships, we sell pre- andpre-and post-cruise land packages, utilizing, to a large extent, our hotel and transportation and hotel assets.

XII.    Sales Relationships and Marketing Activities

Weassets, which revenues are a customer service-driven company and continue to investincluded in our service organization to assist travel agentsTour and guests. We believe that our support systems and infrastructure are among the strongest in the vacation industry.Other segment.

We sell our cruises mainly through travel agents, including wholesalers and tour operators.operators that serve our guests in their local markets. We believe our travel agent partners are an integral part of our long-term cruise distribution network. 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 guests 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 towardsWe motivate travel agents is to train and motivate them to support our products with competitive sales and pricing policies and joint marketing and advertising programs. We also useemploy a wide variety of trade marketing techniques, including websites, seminars and videos, to familiarize the agents with our cruise brands and products. Substantially all of our cruise brands offer interactive online and other continuing education courses for travel professionals who want to continue learning about the cruise industry and how to effectively sell our cruise products and services. As with our brands’ travel agent relationships, each of our brands’ trade marketing programs are generally independent of each of our other brands.other. 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 2008,2010, no controlled group of travel agencies accounted for 10% or more than 10% of our revenues.

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. Our investment in customer service has been focused onincludes the development of systemsemployees, processes and employees.systems. We have improvedcontinually improve our systems within the reservations and customer relationship management functions, emphasizing the continued support and training of the travel agency community, while simultaneously developing greater contact and interactivityinteraction with our high-value guest base. Each brand has its own consumer website, which provides access to information about our products to users throughout the world, and substantially all provide self-service internet booking engines to our travel partnersdistribution network and to our customers.customers to enable them to more efficiently book our cruises, air transportation, land transfers, shore excursions, pre-and post-cruise tours and, in some cases, other onboard activities. We also support trade booking capabilities through global distribution systems, including Amadeus, Travelport and SABRE. Although the vast majorityWe estimate that almost 60% of our cruises are distributed throughbookings from travel agents we also accept telephoneare made electronically. Finally, as part of our efforts to increase efficiency and internet bookings direct from customers who choose not to utilizeimprove the servicesembarkation process for our guests, most of a travel agent.

We have pursued comprehensive marketing and advertising campaigns to promote our brands offer their guests the ability to vacationers. The principal medias used for marketing and advertising are television, magazine, radio, online, outdoor, direct mail, e-mail, and blogging. Our “Best Blogs at Sea” website links our growing array of blogs, online communities and newbuild delivery sites, which features over a dozen sites, including AIDA, Carnival Cruise Lines, Costa, Cunard, Holland America Line, Ocean Village, P&O Cruises, and Seabourn. Crew blogs are written by ship captains, cruise and entertainment directors, executive pursers and special guests. Newbuild sites are devoted to key milestones for ships, such asSeabourn OdysseyandCarnival Dream. Cruise line communities, such as AIDA’s Web Lounge and The World of Costa, are a way for guests to connect through a shared interest in a particular brand. The

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blog of Carnival Cruise Lines Senior Cruise Director, John Heald, has attracted over 3.6 million visits since being launched two years ago and was named “Best Cruise Line Blog” in Porthole Magazine’s 2009 Editor-In-Chief Awards. This popular blog provides readers with a unique behind-the-scenes look at the Carnival Cruise Lines experience while sharing John’s humorous and insightful observations on a wide range of topics.generate their own electronic ticket documents via their websites.

To further stimulate demand, we offer a number of homeportshome ports that are closer to guests’ homes as this enables certain gueststhem to lower the price of their cruise vacation by substantially reducing or eliminating the cost of air travel to and from the port.

In 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 ablecombine to provide their gueststravel agents with one-stop cruise shopping for a number of our brands. WeIn North America, Italy and the UK, we also raise consumer and travel agent awareness through the “World’s Leading Cruise Lines” alliancealliances for our family of North American cruise brands as well as Costa and Cunard. Finally, mostthat source guests from these markets. Most of our cruise brands offer their own past guest recognition programs, such as Carnival’s “Concierge Club”, Princess’ “Captain’s Circle”,Circle,” Costa’s “CostaClub” orand Holland America Line’s “Mariner Society,” through which they reward repeat guests with special incentives such as discounted fares, expedited ship embarkation and disembarkation and onboard activities.

XIII.    Seasonality

Each of our brands have comprehensive marketing and advertising campaigns to promote their brands to vacationers and their travel agent partners. They typically market and promote their brands, not their ships, as each brand strives to have a relatively consistent product, although their ships may differ. Each brand’s marketing activities are designed to reach a local market in the local language while maintaining consistency within each brand’s overall strategy and web presence. The principal media used for marketing and advertising are television, magazine, radio, outdoor, direct mail, e-mail, online websites, and other forms of social media.

We have recently expanded our use of online and social media (for example, Facebook, Twitter, YouTube, etc.) to help us cultivate guests as fans of our brands, ships, itineraries and onboard services. In January 2011, one of our North American cruise brands started accepting cruise bookings via Facebook, which has over 500 million users, and we believe Facebook will provide another source to attract cruise guests. We also have blogs that are hosted by ship captains, cruise and entertainment directors, executive pursers and special guests. We use Twitter to enhance our customer service and as part of our public relations strategies

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to inform the press, popular bloggers, fans and brand advocates of new developments and breaking news stories.

Customer feedback and research is also a critically important element in the development of our overall marketing and business strategies. Accordingly, we have electronic and manual processes for measuring and understanding key drivers of customer loyalty and satisfaction from our guests that provide valuable insight about their cruise experience. We regularly initiate customer research studies among both guests and travel partners to assess the impact of various programs and to solicit feedback that we use to help make our future decisions.

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, and holidays.months. This higher demand during the third quarter and holidays results in higher net revenue yields and, accordingly, the largest share of our netoperating income is earned during these periods.this period. The seasonality of our results is increasedalso increases 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 Princess Alaska Tours’ and Princess Tours’ revenuesrevenue and net income areis generated from May through September in conjunction with the Alaska cruise season. The seasonality of our results will continue to increase as we expand our EAA brands which tend to be more seasonal than our North America brands. Finally, our North America brands have recently been trending towards an increasing level of seasonality.

XIV.    Competition

We compete with land-based vacation alternatives throughout the world, including among others, hotels, resorts (including all-inclusives), theme parks, organized tours, land-based casino operations and vacation ownership properties located in Las Vegas, Nevada,Nevada; Orlando, Florida,Florida; the Bahamas, France,Caribbean (including The Bahamas); Dubai, Canary Islands and various Caribbean,European, Mediterranean, Mexican, and Hawaiian and Canary Island destinations, as well as numerous other vacation choices throughout the world.

Our primary cruise competitors for North American-sourced guests are RCCL, which owns Royal Caribbean International (“RCI”), Celebrity Cruises (“Celebrity”) and Azamara Club Cruises; Norwegian Cruise Line Disney Cruise Line, MSC(“NCL”), Oceania Cruises Crystal Cruises, Oceania Cruises,and Regent Seven Seas Cruises, Silverseaall three of which are controlled by affiliates of Apollo Management LP; Disney Cruise Line (“Disney”), MSC Cruises (“MSC”), Crystal Cruises and WindstarSilversea Cruises.

Our primary cruise competitors for European-sourced guests in the UK are Royal Caribbean International,RCI, Celebrity, Cruises, Norwegian Cruise Line,NCL, MSC, Cruises, Thomson Cruises, which is owned by TUI AG (“TUI”); Fred Olsen Cruise Lines Discovery Cruises and Saga Cruises; and in Germanycontinental Europe they are Celebrity, Disney, NCL, MSC, Cruises,Louis Cruise Line, and CDF Croisieres de France, Pullmantur and RCI, all three owned by RCCL; TUI Cruises, which is jointly owned by TUIRCCL and RCCL,TUI; Hapag-Lloyd, which is also owned by TUI,TUI; and Phoenix Reisen and Transocean Cruises; and in southern Europe they are MSC Cruises, Louis Cruise Line, and Pullmantur and CDF Croisieres de France, both owned by RCCL. We also compete for guests throughout Europe with other North American cruise competitors, including Celebrity Cruises, Disney Cruise Line and Norwegian Cruise Line.Reisen.

Our primary cruise competitors for guests sourced from other parts of the world, such as Australia, New Zealand, Asia and South America, are Royal Caribbean International,RCI, Celebrity, Cruises,Pullmantur, Star Cruises, Norwegian Cruise Line,NCL, CVC Cruise MSC Cruises and Pullmantur.MSC.

Our North American, European and AustralianAll of our brands also compete to a certain extent among themselves for guests.

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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, ourOur ships, which are registered in theThe Bahamas, Bermuda, Italy, Portugal,Malta, the Netherlands, Panama, Portugal and the UK, and are regulated by these jurisdictions. Theyjurisdictions and are required to comply with the international conventions that govern the safety of our ships, guests and crew and the protection of the environment. 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 (“EU”), which apply to all our European brands, the U.S. and the many other international ports that our ships visit are applicableapply to some aspects of our ship operations.

Specifically,Our ships are subject to periodic dry-docking requirements and class renewal surveys by ship classification societies, which verify that our ships have been maintained in accordance with the rules of the classification societies and that recommended repairs have been satisfactorily completed. They also ensure that our ships comply with international conventions adopted by the countries of registry and domestic rules and regulations. Dry-dock duration is a statutory requirement controlled under the International Convention for Safety of Life at Sea (“SOLAS”) and to some extent the International Load Lines Convention. Under these regulations, it is required that a passenger ship dry-dock twice in five years and the maximum duration between each dry-dock cannot exceed three years. The time in dry-dock can be for a period of one or more weeks depending on the amount of work performed. However, some of our ships qualify under special exemptions to dry-dock once in every three or five years.

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Our ships are subject to inspection by the port regulatory authorities in the various countries that they visit. Such inspections include verification of compliance with the maritime safety, security, environmental, customs, immigration, health and labor regulations applicable to each port. For example, in U.S. ports these authorities include the U.S. Coast Guard and U.S. Customs and Border Protection. In EU ports, the Paris Memorandum of Understanding enforces internationally accepted conventions through Port State Control Inspections by 27 Marine Administrations. In UK ports, these authorities include the Maritime and Coastguard Agency, the Department for Transport’s Transport Security team, otherwise known as TRANSEC, and the Port Health Authority.

We believe maritime safety, security, environmental, health and labor issues will continue to be areas of focus by relevant government authorities in the U.S., the EU and elsewhere where our cruise ships operate. Legislation, regulations or treaties, or changes thereto, in these areas could impact our operations and have and will likely subject us to increasing compliance costs in the future.

Although not required by regulations, we voluntarily publish Annual Sustainability reports that address environmental, labor, human rights, society, product responsibility, economic and other sustainability-related issues and performance indicators. These reports, which can be viewed atwww.carnival.com andwww.carnivalplc.com, were developed in accordance with Sustainability Reporting Guidelines established by the Global Reporting Initiative framework, which is a global reporting standard for economic, environmental and social performance.

The International Maritime Organization (“IMO”), which operates under the auspicesa specialized agency 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 applicableapply to all of our ships. Among other things, SOLAS establishes requirements for vessel design, structural features, materials, construction, life savinglife-saving equipment, safe management and operation and security in order to help ensure guest and crew safety and security. The SOLAS requirements are periodically revised from time to time, with the most recent modifications being phased-in through 2010. Ourfor both new and existing fleet is compliant with these 2010 requirements.ships.

In 1993, SOLAS was amended to incorporateincorporates the International Safety Management Code (“ISM Code”). The ISM Code, which 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 obtainedare regularly audited by national authorities and maintain the required certificates demonstratingof compliance with the ISM Code and are regularly inspected and controlled by the national authorities, as well as the internationalCode. National authorities, acting under the provisions of the international agreements related to Port State Control, the process by which a nation exercises authority over foreignregularly inspect our ships when the shipsthey are in that nation’s waters.

In December 2004, theIMO’s Maritime Safety Committee approved for adoption amendments toamended SOLAS chapter II-I Parts A & B that relaterequirements related to the damage stability of new passenger cruise passenger vessels. These regulations, which were adopted in May 2005, and are applicableapply to thosevessels whose keels were laid after January 1, 2009. For vessels with keels laid after January 1, 2009, compliance with these standards require different designs. The Maritime Safety Committee also amended SOLAS to require new passenger cruise vessels whose keels are laid after JanuaryJuly 1, 2009.2010, to comply with the “safe return to port” requirements, which relate to vessel survivability standards and require the development of new ship designs. These two new standardsrequirements do not affect our existing fleet or our vessels currently under contract whose keels were laid priorexcept for the two Princess newbuilds. Compliance with both these regulations has not resulted in significant cost increases.

In 2010, a significant set of SOLAS modifications required all existing passenger ships to January 1, 2009. For keels laid after January 1, 2009, compliancecomply with current standards regarding fire safety. Our existing fleet is compliant with these standards will require the development of new designs, which may significantly increase the costs for these ships.SOLAS modifications.

The most important convention regulating and preventing marine and air 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 comply with international conventions adopted by their respective countries 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 are also subject to various security requirements, 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 countries of registry and International Ship Security Certificates have been issued demonstrating compliance with the ISPS Code. For ships that are registered in the

The U.S. or have operations located in the U.S. the Maritime Transportation Security Act of 2002 (“MTSA”) is the governing regulation. Theregulation for ships that operate in U.S. ports. 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.

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OurThe U.S. Cruise Vessel Security and Safety Act (“CVSSA”) will phase in through 2013 and is applicable to all our ships that call atembark or disembark passengers in the U.S. portsThe law is designed to bring consistency and clarity to security laws and regulations for the cruise industry and establishes a framework for security equipment and systems. Compliance with CVSSA will not result in significant costs.

We are subject to inspectionnumerous international, national, state and local environmental laws, regulations and treaties that govern, among other things, air emissions, waste discharge, water management and disposal, and the storage, handling, use and disposal of hazardous substances, such as chemicals, solvents and paints. We are committed to helping to preserve the environment, not only because of the

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existing legal requirements, but because a pristine environment is one of the key elements that bring our guests onboard our ships. Our environmental efforts are focused on, among other things, reducing greenhouse gases (“GHGs”, such as carbon dioxide) and other emissions (such as sulfur oxide (“SOx”) and nitrogen oxide (“NOx”)) from the combustion of marine fuel oil consumed by our ships, which accounts for substantially all of our GHG and other emissions. Therefore, improving fuel consumption is a key business strategy. In addition to reducing fuel consumption, we actively monitor and investigate new abatement technologies for use onboard our ships or shoreside in order to reduce operating costs and GHG emissions.

If we violate or fail to comply with environmental legislation, 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 legislation, regulations and treaties.

The most important environmental convention governing ships is the IMO International Convention for the Prevention of Pollution from Ships (“MARPOL”). This convention includes requirements designed to prevent and minimize both accidental and operational pollution by oil, sewage, garbage and air emissions. 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. All of our ships must carry an International Oil Pollution Prevention Certificate, an International Sewage Pollution Prevention Certificate and an International Air Pollution Prevention Certificate. These certificates are issued by the ship’s state of registry indicating that our ships are operating in compliance with the MARPOL regulations regarding oil, sewage and air pollution prevention.

In jurisdictions that have not adopted the IMO Conventions, various national, regional or local laws and regulations have been established to address oil and waste pollution.

The International Organization for Standardization (“ISO”) is an international standard-setting body which produces worldwide industrial and commercial standards. ISO 14001, an environmental management standard that was developed to help organizations manage their processes, products and services to minimize environmental impacts, presents a structured approach to setting environmental objectives and targets. It provides a framework for any organization to apply these broad conceptual tools to their own processes. During 2006, we completed a corporate-wide implementation of ISO 14001. The environmental management systems of all of our cruise brands are certified in accordance with ISO 14001, with the exception of Ibero, which is expected to be implemented by early 2012.

The U.S. 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.

The U.S. Oil Pollution Act of 1990 (“OPA 90”) provides for strict liability for water pollution, such as oil pollution or possible oil pollution incidents in the 200-mile exclusive economic zone of the U.S., subject to defined monetary limits. OPA 90 requires that in order for us to operate in U.S. waters, we must obtain Certificates of Financial Responsibility from the U.S. Coast Guard for compliance with SOLAS, byeach of our ships. These certificates demonstrate our ability to meet the U.S. Public Health Servicemaximum amount of liability that our ships could be subject to for sanitary standards,removal costs and by other agenciesdamages related to water pollution, such as U.S. Customsfrom an oil spill or a release of a hazardous substance, up to each ship’s statutory liability limit. Our financial responsibility under these certificates is covered by our insurance.

The Clean Water Act of 1972 and Border Protection, with regard to customs and immigration. Our ships are also subject to similar inspections pursuant to theother laws and regulations of various other countries our ships visit.

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 ratified in 2010, and to enter into force and require our implementation in 2011. Accordingly, if ratified, the Convention may increase our crew costs from 2011 and beyond.

We believe that maritime health, environmental, safety and security issues will continue to be an area of focus by relevant government authorities inprovides the U.S., Environmental Protection Agency (“EPA”) with the EUauthority to regulate commercial vessels’ incidental discharges of ballast water, bilge water, gray water, anti-foulant paints and elsewhere. Resulting legislation,others during normal operations into the U.S three mile territorial sea and inland waters. The EPA requires vessels to obtain permits and comply with inspection, monitoring, recordkeeping and reporting requirements.

Most U.S. states that border navigable waterways or sea coasts have also enacted environmental regulations that impose strict liability for removal costs and damages resulting from a discharge of oil or treaties, or changes thereto, could impact our operationsa release of a hazardous substance. These laws may be more stringent than U.S. federal law and would likely subject us to increasing compliance costs in the future.some cases have no statutory limits of liability.

In connection with certain of our Alaska cruise operations, Holland America Line, Princess and Carnival Cruise Lines rely on concession permits from the U.S. National Park Service (“NPS”) to operate their cruise ships in Glacier Bay National Park and Preserve. Such permits must be periodically renewed, and werenewed. 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. In January 2009, the NPSThe U.S. National Park Service renewed our permits through the 2019 Alaska cruise season.

The Statestate of Alaska enacted legislation which prohibits certain discharges in designated Alaskan 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

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federal environmental regimes in Alaska are 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.

We are subjectIn the past 30 years the EU has adopted a substantial and diverse range of environmental measures aimed at improving the quality of the environment for European citizens and providing them with a high quality of life. To support the implementation and enforcement of European environmental legislation, the EU has adopted directives on environmental liability and enforcement and a recommendation providing for minimum criteria for environmental inspections.

In November 2002, the European Commission (“EC”) adopted a strategy to various international, national, statereduce atmospheric emissions from seagoing ships. The strategy reports on the magnitude and localimpact of ship emissions in the EU and sets out a number of actions to reduce ship emissions. The EU strategy seeks to implement SOx Emission Control Areas set out in MARPOL Annex VI and in addition goes beyond the IMO in that in January 2010 it introduced requirements to burn low sulfur (less than 0.1%) marine gas oil in EU ports and other areas. The EC also seeks to press for tighter NOx standards.

The EU continues to pursue an aggressive policy towards environmental protection and health and safety laws, regulations and treaties that govern,we can expect to see legislation being implemented in the near future related to, among other things, air emissions, employee health and safety,limiting waste discharge, water management and disposal, and the storage, handling, use and disposal of hazardous substances, such as chemicals, solvents, paints and asbestos. We are committed to helping to preserve the environment, not only because of the existing legal requirements, but because a pristine environment is one of the key elements that bring our guests on board our ships.

In particular,discharges in the U.S., the Act to Prevent Pollution from Ships, implementing the MARPOL convention, provides for severe civilBaltic Sea 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 where the discharge is caused by the gross negligence or willful misconduct, or the violation of an applicable safety, construction, or operating regulation by a responsible party. These monetary limits also do not apply where 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 Financialreducing GHG emissions.

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Responsibility from the U.S. Coast Guard for each of our ships operating therein. These certificates demonstrate our ability to meet the maximum amount of liability that our ships could be subject to for removal costs and damages related to water pollution, such as from an oil spill or a release of a hazardous substance, up to each ships’ statutory liability limit. Our financial responsibility under these certificates is supported by certain of our insurers who provide guarantees aggregating $957 million.

In addition, most U.S. states that border 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 sulfur 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 withEU Directives and MARPOL Annex VI. Among other things, On January 1, 2010, the EU directive became effective that requires the use of 0.1% sulfur content in all marine fuels used while ships are at berth or anchored in EU ports. This requires the use of distillate fuels, such as marine gas oil, which has not significantly increased our fuel costs because we use a relatively small quantity of marine gas oil while in EU ports.

MARPOL Annex VI establishescurrently limits global sulfur fuel content to 4.5%. On January 1, 2012, the limit will be reduced to 3.5%, which will not have a limitsignificant impact on our fuel costs, as we already comply with this requirement.

As part of the sulfur content of fuel oil and calls on the IMO to monitor the worldwide average sulfur content of fuel oil supplied for use aboard vessels.

In addition,2008 MARPOL Annex VI and EU rules also provide for special SOx, or Sulfurrequirements, the concept of Emission Control Areas (“ECAs”) to bewas established with more stringentstricter limitations on sulfur emissions. Thereemissions in these areas. Currently there are currently two ECAs in operation, oneoperation. The first ECA is in the Baltic Sea and the other is in the North Sea/English Channel. Specifically, ships that operate in these ECAs are required to use fuel with a sulfur content of no more than 1%. Compliance with these regulationsrequirements in the existing ECAs did not significantly increase our fuel costs because we do not have a significant number of itineraries in these areas.

In 2010, the U.S. Maritime Pollution Prevent Act was passed, which established a North American ECA that will become effective around the U.S. and Canada out to 200 nautical miles on their east, west and gulf coasts, as well as the Hawaiian Islands, beginning on August 1, 2012. The U.S. has increased our operating costs, duealso submitted a proposal to the higher costIMO to designate certain waters adjacent to the coasts of purchasing low sulfur fuel.

In 2008, MARPOL Annex VI was amended to require additional reductions in sulfur emissions by reducingPuerto Rico and the sulfur content requirements for fuel oil. Global sulfur fuel content limits are currently 4.5% and are requiredU.S. Virgin Islands (“USVI”) as an ECA. This proposal is expected to be reducedadopted by the IMO in 2011 and would become effective at the end of 2013. Based on current itineraries, fuel prices and technologies and our 2011 capacities and projected fuel consumption, we estimate that the implementation of the North American, Puerto Rican and USVI ECAs will increase our annual fuel costs by approximately $25 million to 3.5% by$35 million. Other additional ECAs may also be established in the future, such as for areas around Australia, the Mediterranean Sea and Mexico.

From January 1, 2012. Thereafter, they are to be progressively reduced to 0.5% by January 1, 2020, subject to feasibility review to be completed no later than 2018. In addition, from July 1, 2010, ships operating in ECAs will have to reduce their2015 and thereafter the fuel sulfur content from the current 1.5% to 1.0%; and from January 1, 2015 this content requirementlimit in ECAs will be further reduced to 0.1%. Additional ECAs may also be established in the future. Compliance with these new standardsrequirements will further increase our fuel costs. Commencing in 2015, based on current itineraries, fuel prices and operatingtechnologies and our 2011 capacities and projected fuel consumption, we estimate that the implementation of the 0.1% low sulfur content requirement in the three existing ECAs and the proposed Puerto Rico and USVI ECAs would additionally increase our annual fuel costs by approximately $185 million to $205 million.

Based on current laws, the global limit on fuel sulfur content, excluding the ECA limits that will remain at 0.1%, will be further reduced to 0.5% from 3.5% on and after January 1, 2020. The 0.5% standard will be subject to an IMO review by 2018 to determine the availability of fuel oil to comply with this standard, taking into account the global fuel oil market supply and demand, an analysis of trends in fuel oil markets, and any other relevant issues. If the IMO determines that it is not possible to comply with the 0.5% standard on and after January 1, 2020, then this requirement will become effective on January 1, 2025. We believe that compliance with the 0.5% standard in 2020, or 2025 at the latest, could significantly increase our fuel costs. However, the magnitude is not determinable at this time due to the length of time until the standard becomes effective, and the other mitigating factors discussed below.

The cost impacts from implementing progressively lower sulfur content requirements globally may resultbe mitigated by, among other things, the favorable impact of future changes in the supply and demand balance for marine and other fuels, future developments of and investments in sulfur emission abatement and propulsion technologies, including more advanced engines, enhanced exhaust gas treatment

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systems and propeller design, the use of new sulfur abatement technologies, which may also increase costs. The MARPOL Annex VI amendments also introduce further progressive reductions in NOx, or nitrogen oxide, emissions from both existingalternative fuels and new marine diesel engines,fuel conservation initiatives, such as new itinerary options to reduce fuel consumption.

As part of our emission abatement program, we have partnered with local port authorities and the most stringent requirements for those engines installed on ships contracted on or after January 1, 2016 operatingEPA to assist in ECAs. These 2016 requirements will necessitate the development of new engine designs or exhaust gas treatment systems, which may result in significant additional costs.

A further EU directive regarding the use of low sulfur fuel for passenger ships on regular service between EU ports was introduced in 2005. The application of this legislation to cruise ships is unclear and varies among EU member states, leading to potentially higher fuel costs where it is applicable. In January 2010, a 0.1% sulfur limit on all marine fuels used in EU ports enters into force. This will require distillate fuels such as marine gas oil, to be used, further increasing fuel costs.

The California Air Resources Board (“CARB”) has adopted regulations for ocean-going ship auxiliary engines,construction of shore power requirements for commercial marine vessels,connections in Juneau, Alaska; Long Beach, California; San Francisco, California; Seattle, Washington and ship onboard incineration. CARB is also developing regulations for ocean-going ship main engines. These requirements will require use of lower sulfur fuelsVancouver, British Columbia and eventually distillate fuels, and limit in-port operations, further increasing fuel and operational costs.

If we violate or failhave equipped 14 ships with shore power technology. We expect to complypartner with environmental legislation, regulations or treaties, we could be fined or otherwise sanctioned by regulators. We have made, and will continueother port authorities in the future to make, capital and other expenditures to comply with environmental legislation and regulations.

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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 then existing brands. With the exception of two Ibero ships, which we acquired in September 2007, allimplement additional shore power connections. This technology enables our ships are currently ISO 14001 certified.

Several safety related amendments to SOLAS will enter into forceuse power from the local electrical grid rather than running their engines while in July 2010 including requirements for safety centers, emergency cabin lighting, local sounding audible alarmport to power their onboard services, and amendments to fire detection and firefighting systems. Many of these requirements have already been incorporated into our current newbuilds. In addition, the enhanced safe return to port requirements related to the development of survivability standards for a vessel also enter into force for keels laid after July 1, 2010, and will require development of new designs to meet these new requirements for future ship orders. All of our ships under contract to be built are expected to have the keels laid before July 1, 2010.

From time to time, health, environmental, safety and security 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.thus reduce air emissions.

Our cruise brands have established objectives, targets and plans within their respective ISO 14001 environmental management systems to reduce fuel consumption, which is the most significant contributor to our carbon footprint. Our annual reduction targets for CO₂ emissions intensity ranges from 0.25% to 2.5%. We have targeted a 20% reduction in the intensity of CO₂ emissions (based on kilograms per available lower berth/kilometer) from our shipboard operations by 2015 compared to our 2005 baseline. The impact of any future legislation regulating the level of CO₂ emissions is not determinable at this time.

We are committed to providing a healthy environment for all of our guests and crew. We voluntarily work with public health agencies throughout the world to monitor health and sanitary conditions on all of our ships. As an example, for ships visiting U.S. ports we collaborate with the Centers for Disease Control and Prevention - Vessel Sanitation Program of the Department of Health and Human Services. The Centers for Disease Control established the Vessel Sanitation Program in the early 1970s as a cooperative activity with the cruise industry.

We maintain frequent communication with the appropriate public health authorities and, as required, proactively report any communicable illnesses that are of public health concern. Through our collaborative efforts we work with the authorities to develop and revise guidelines, review plans and conduct on-site inspections for all newbuilds and significant existing ship renovations. In addition, we continue to maintain our ships by meeting, and often exceeding, applicable public health guidelines and requirements, complying with inspections, and conducting regular crew training and guest education programs.

See “Maritime Labor Regulations” below for additional discussion of health regulations.

In 2006, the International Labor Organization (“ILO”), an agency of the United Nations that develops and oversees international labor standards, adopted a new Consolidated Maritime Labor Convention (“MLC 2006”). MLC 2006 contains a comprehensive set of global standards based on those that are already found in 68 maritime labor Conventions and Recommendations adopted by the ILO since 1920. It brings almost all of these Conventions and Recommendations together in a single new Convention. MLC 2006 includes a broad range of requirements in areas; such as a broader definition of a seafarer, minimum age of seafarers, medical certificates, recruitment practices, training, repatriation, recreational facilities, health and welfare, hours of work and rest, accommodations and wages and entitlements. While many of the practices were widely adhered to by ships registered in different countries, MLC 2006 will add requirements not previously in effect, particularly in the area of occupational safety and health. The detailed requirements of MLC 2006 directly address many seafarers’ issues and, therefore, if effectively implemented will provide worldwide standards to improve the health, safety and status of seafarers.

Thirty member countries representing 33% of the world’s merchant ship tonnage are required to ratify MLC 2006 before it goes into effect 12 months after such ratification. We currently expect ratification in May 2011, and entry into force, requiring our implementation in May 2012. We estimate that compliance with MLC 2006 will not significantly increase our annual operating expenses.

Our ships that call on U.S. ports are regulated by the Federal Maritime Commission (“FMC”). Public Law 89-777, which is administered by the FMC, requires mostall our cruise line operatorsbrands that call on U.S. ports and embark or disembark guests in U.S. ports to establish financial responsibility for their liability to passengers for non-performance of transportation, as well as for casualtypersonal injury and personal injury.for loss of life. 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. WeIn order to comply with this requirement, we have an aggregate of $65$90 million of guarantees provided by some of our insurers. See Part 1, Item 1. Business. B. “Cruise Operations – E. – Insurance – Other Insurance”Our Protection and Indemnity (“P&I”) coverages are used to establish our financial responsibility for additional information.personal injury and loss of life.

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In the UK, in some cases we are currently required to obtain licenses and/orfrom and post bonds in some cases, fromwith various organizations in connection with the conduct of our business and our ability to meet liabilityour liabilities in the event of non-performance of obligations to consumers. These organizations include Abta (formerlyThe most significant requirement relates to ABTA, formally known as the Association of British Travel Agents) and the Civil Aviation Authority. See Part 1, Item 1. Business. B. “Cruise Operations – E. – Insurance – Other Insurance” for additional information.Agents, which requires us to maintain approximately $130 million of sterling-denominated bonds to cover our brands’ UK passenger deposit liabilities.

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 bookingtheir deposits and in addition, that they will be repatriated without additional cost if insolvency occurs after a cruise starts. Additionally, 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,may require the establishment of financial responsibility for passengers from their jurisdictions.

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.

XVI.    Financial Information

For financial information about our cruise reporting segmentsegments and geographic information with respect to each of the three years in the period ended November 30, 2008,2010, see Note 11, “Segment Information” to our Consolidated Financial Statements in Exhibit 13 to this Form 10-K.

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Our shoreside operations have approximately 10,70010,200 full-time and 4,7004,000 part-time/seasonal employees. We also employ approximately 70,50075,000 crew including officers, and staff onboard our 88 shipsmembers at any one time.time, including officers, onboard the 98 ships we currently operate. Due to the highly seasonal nature of our Alaskan and Canadian operations, Holland America Princess Alaska Tours and Princess Tours increase theirincreases its 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 shipshipboard 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.

Our cruise brands are committed to providing appropriate marine-related training to ensure that our shipboard crew, including officers, has the knowledge and skills to perform their jobs properly. In July 2009, we built a maritime training facility near Amsterdam, Netherlands that employs state-of-the-art simulation equipment and instructional tools to provide our crew with training in fixed propeller and azipod maneuvering, bridge resource management, ship stability, emergency preparedness and other maritime skills. We are also in the process of integrating engine control room operations, education and training into the facility. In addition, we established the European Cruise Academy in Rostock, Germany in cooperation with the Wismar University of Technology and offer certified bachelor and master degree programs, as well as advanced training certificates, in the maritime sciences primarily related to the cruise industry.

Our largest purchases are for fuel, travel agency services, fuel, advertising, food and beverages, air transportation services, port facility utilization, repairs and maintenance, including dry-docking, advertising and marketing, hotel and restaurant products and supplies, airfare, repairs and maintenance, including dry-docking, port facility utilization, communication services and for the construction and refurbishment of our ships. Although we utilize a select number of suppliers for most of our food and beverages, communication services, air transportation services and hotel and restaurant products and supplies, most of these products and services are available from multiple sources at competitive prices. The use of a select number of suppliers enables us to, among other things, obtain volume discounts. WeHowever, we purchase fuel and port facility services at some of our ports of call from a limited number of suppliers. In addition, weWe also perform our major dry-dock and ship improvement work at a limited number of dry-dock facilities in Australia, the Bahamas, British Columbia, Canada, the Caribbean (including The Bahamas), Europe, Singapore, and the U.S. Finally, as of January 28, 2009,31, 2011, we have agreements in place for the construction of 17ten cruise ships with three shipyards. We believe there are sufficient dry-dock and shipbuilding facilities to meet our anticipated repair, maintenance, refurbishment and newbuild requirements.

General

We maintain insurance to cover a number of risks associated with owning and operating our vessels in international trade.and other non-ship related risks. All such insurance policies are subject to coverage limits, exclusions and deductible levels. Insurance premium increasespremiums are dependent on our own loss experience and the general premium requirements of our underwriters.insurers. 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 some ofall the below-mentioned risks,coverages, 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 from our ships.ships or other operations.

Protection and Indemnity (“P&I”) Coverage

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Third-party liabilities, principally for crew medical and crew and guest injury claims, in connection with our cruise activities are covered by entry inour P&I clubs, which are mutual indemnity associations owned by ship owners. Our vesselsWe are entered in three P&I clubs as follows: The Westmembers of England Ship Owners Mutual Insurancethe Standard Steamship Owners’ Protection and Indemnity Association (Luxembourg),(Europe) Ltd. and The Steamship Mutual Underwriting Association (Bermuda) Limited and the United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited.P&I clubs. 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 reinsurance markets, a large portion of the world’s shipping fleets. Coverage isCoverages are subject to the P&I clubs’ rules and the limitlimits of coverage isare determined by the IG. P&I coverage includes legal, statutory or pre-approved contract liabilities and other expenses related to crew, guests 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 infor reasonable amounts equal to the estimated market value of each ship.as determined by management. The coverage for hull and machinery is provided by international marine insurance carriers.insurers. Most insurance underwritersinsurers 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

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Association of Classification Societies (“IACS”). All of our ships are currentlyhave been certified aswithin the last twelve months to be in class by 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, 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, guests and other third parties as well as loss or damage to our vessels arising from war or war-like actions, including terrorist incidents. ThisItems excluded from this coverage are claims arising from chemical, nuclear and biological attacks. Our primary war risk insurance coverage is provided by international marine insurance carriers and Mutual War Risk Clubs. In addition,insurers, with excess war risk insurance is provided by our threetwo P&I clubs for all our ships.clubs. Under the terms of our war risk insurance coverage, which is typical for war risk policies in the marine industry, underwritersinsurers can give seven days notice to the insured that the liability and physical damage policies can be cancelled. However, the policy can be reinstated at different premium rates. This gives underwritersinsurers 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 insurance in the aggregate amount of $105 million for ships operated by our brands which embark guests in U.S. ports to cover guest 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 Abta, which total $123 million of sterling-denominated bonds to cover our brands’ UK passenger deposit liabilities.

We maintain standard property insurance covering our shoreside assets and casualty insurance policies to cover certain shoreside assets andcovering liabilities to third parties includingarising from our tour business, shoreside operations and certain port facility assets, as well as appropriate workers’facilities. We also maintain workers compensation, employee health, directors and certain healthofficers liability and other insurance 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. It is not certain when or if this new protocol will come into force. 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 will increase.coverages.

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, which enablesvalue. These intangible assets enable us to distinguish our cruise productproducts, ships and programs from thatthose of our competitors. TheseOur trademarks include the trade names of our cruise lines,brands, each of which we believe is a widely-recognized brand name in the cruise vacation industry, as well as “World’s Leading Cruise Lines.”our ship names and a wide variety of cruise services and products. We have entered into licenses, including a license to use the P&O name, the P&O flag and other relevant trademarks and domain names in relation to cruisescruising and related activities. Finally, weWe also have a license to use the “Love BoatBoat”” name and related marks. See Note 2, “Goodwill10, “Fair Value Measurements, Derivatives Instruments and Trademarks”Hedging Activities” to our Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates – Asset Impairment”Impairments” in Exhibit 13 to this Form 10-K.10-K for additional discussion of our trademarks.

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U.S. Federal Income Tax

We are primarily foreign corporations engaged in the business of operating passenger vessels in international transportation. We also own and operate, among other businesses, the hotel, tour and transportation and tour businessesbusiness of Holland America Tours and Princess Alaska Tours through U.S. corporations.

Our North AmericanU.S. passenger vessel business and certain ship-owning subsidiaries are engaged in a trade or business within the U.S. Depending on the itinerary of any particular vessel, that vessel may generate income from sources within the U.S. We believe that under Section 883 of the Internal Revenue Code and applicable income tax treaties, our U.S. source 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.tax for purposes of this section. Regulations under Section 883 list items that the Internal Revenue Service (“IRS”) does not consider to be incidental to ship operations. Among the items identified as not incidental are income from the sale of air transportation, transfers, shore excursions and pre-and post-cruise land packages to the extent earned from sources within the U.S.

Our domestic U.S. operations, principally the hotel, tour and transportation and tour businessesbusiness of Holland America Tours and Princess Alaska Tours, are

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subject to normal state and federal income taxation in the U.S.

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. Applicable U.S. Treasury 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 a defined publicly-traded test. In addition, to the extent a foreign corporation’s shares arestock is owned by a direct or indirect parent corporation which itself meets the publicly-traded test, then such subsidiary will be deemed owned by individuals resident in the country of incorporation of such parent corporation and the subsidiary will satisfy the applicable stock ownership requirements in lieu of the publicly-traded test.

We believe that Panama is an equivalent exemption jurisdiction and Carnival Corporation currently qualifies as a publicly tradedpublicly-traded corporation under the regulations and substantially all of its income, with the exceptions noted above under “U.S. Federal Income Tax,” is and will continue to be exempt from U.S. federal income taxes. If, in the future, Panama no longer qualified as an equivalent exemption jurisdiction or Carnival Corporation were to fail to qualify as a publicly tradedpublicly-traded corporation, it and all of its ship-owning or operating subsidiaries that rely on Section 883 for exemptingto exempt 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.

Although the above represents our interpretation of this Internal Revenue Code provision and the U.S. Treasury regulations, the IRS’s interpretation of these provisions could differ materially. In addition, the provisions of the Internal Revenue Code, including 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 subsidiariessubsidiaries’ 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’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 and branch taxation on a portion of its income resulting in higher than normal tax rates.

Exemption Under Applicable Income Tax Treaties

We believe that the U.S. source transportation income earned by Carnival plc and its UK and Italian resident subsidiaries

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currently qualifyqualifies for exemption from U.S. federal income tax 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 abrogatedrevoked by either applicable country, replaced or modified with new agreements that treat income from international operation of ships 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,revoked, 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.

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 without stopping in the U.S. is considered to be 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.

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. 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 50% of the first and last legs of the cruise. Because there are no regulations or other IRS interpretations of these rules, the applicability of the transportation income source rules in the aforesaid mannerto these cruises 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(collectively 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

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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 and its vessel owning subsidiaries based in the U.S. in the absence of an exemption under Section 883. Under the net tax regime, U.S. source shipping income, net of applicable deductions, would currently be subject to a federal corporate income tax of up to 35% and state income taxes at varying rates; 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 U.S., 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 (UK) and P&O Cruises Australia(Australia) 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’ 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.

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 UK tonnage tax companies are subject.

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Our UK non-shipping activities that do not qualify under the UK tonnage tax regime, which are not currently forecastor forecasted to be significant, remain subject to normal UK corporation tax. Dividends from subsidiaries doing business outside the UK, when distributed to Carnival plc, are generally exempt from UK corporation tax.

Italian, GermanP&O Cruises (Australia) is a division of Carnival plc, and Spanish Income Taxthe shipping profit income from this operation is subject to UK tonnage tax as discussed above. Substantially all of this operation’s income is exempt from Australian corporation taxes by virtue of the UK/Australian income tax treaty.

Carnival plc’s German and Spanish brands, AIDA and Ibero, are both subsidiariesdivisions of Costa. AIDA’s income is principally subject to Italian income tax and the majority of its profits are exempt from German corporation taxes by virtue of the Italy/Germany double tax treaty. Ibero’s operations are largely subject to Italian tonnage tax and its Spanish operations are minimal.

Effective through fiscal 2014, Costa has elected to enteris entered into the Italian Tonnage Tax regime.regime, which was initially granted for ten years in 2004. Upon its expiration, Costa intends to reapply for another ten year period. This regime taxes Costa’s, AIDA’s and Ibero’s shipping profits, as defined, and which is mostare substantially all of their income,incomes, calculated by reference to the net tonnage of their qualifying vessels.

Most of theCosta’s and AIDA’s income not considered to be shipping profits for Italian Tonnage Tax purposes, will be taxed under the favorable Italian tax regime for Costa’s AIDA’s and Ibero’sAIDA’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’sAIDA’s profits are exempt from AustralianGerman corporation taxes by virtue of the UK/AustralianItaly/Germany income tax treaty.

U.S. State Income TaxesAll of Ibero’s vessels are registered in Portugal. Provided certain local employment requirements are satisfied, most of Ibero’s income not considered to be shipping profits for Italian Tonnage Tax purposes will be exempt from Portuguese income tax through 2011, and thereafter will be subject to a favorable Portuguese income tax regime at a lower than normal tax rate through 2020. Ibero’s Spanish operations are minimal and, therefore, its Spanish income taxes are minimal.

In addition to the U.S. federal income and branch level taxes discussed above, Carnival Corporation &and Carnival plc and certain of its affiliates are subject to various U.S. state income taxes generally imposed on each state’s portion of the U.S. source income subject to U.S. federal income taxes. However, the state of Alaska imposes an income tax on its allocated portion of the total income of our companies doing business in Alaska and certain of their affiliated companies.affiliates.

Our Form 10-K, joint Quarterly Reports on Form 10-Q, joint Current Reports on Form 8-K, joint proxy statementProxy Statement related to our annual stockholders meeting, Section 16 filings and all amendments to those reports are available, free of charge on our home pages atwww.carnivalcorp.com andwww.carnivalplc.com and on the SEC’s home page atwww.sec.gov as soon as reasonably practicable after we have electronically filed or furnished these reports with the SEC. The content of any website referred to in this Form 10-K is not incorporated by reference into this Form 10-K unless expressly noted.

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You should consider carefully the specific risk factors set forth below and the other information contained or incorporated by reference in this 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 listed below are not the only risks we face. The risks described below are only those risks relating to our operations and financial condition 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, and any of these risks could have the effects set forth above. Some of the statements in this section and elsewhere in this 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.

Demand for cruises is in part dependent on the underlying perceived or actual economic strength of the countries from which cruise companies source their guests. Adverse changes in the perceived or actual economic climate, such as higher fuel prices and healthcare costs, higher

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unemployment and underemployment rates, higher interest rates, increasing taxation, stock, and real estate and other market declines and/orand volatility, declines in income levels, more restrictive credit markets, higher taxes, and changes in governmental policies, could reduce theour potential vacationers’ discretionary incomeincomes, net worth or their 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. Decreases in discretionary income or consumer confidence could also result in lower onboard revenues, which could also have a negative effect on our profitability. In addition, these conditions can also impact our suppliers, which can result in disruptions in service and financial losses.

We earn revenues, pay expenses, purchase and own assets, and incur liabilities in countries using currencies other than the U.S. dollar, includingmost importantly the euro, sterling, the Australian dollar and the Canadian dollar. In 2008, weWe derived approximately 50 percent54%, 52% and 50% of our revenues from passengers sourced from countries outside of the U. S.U.S. in fiscal 2010, 2009 and 2008, respectively. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. In addition, we mustWe also report currency transactions in the functional currencies of our reporting units. Therefore, fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against our other major currencies, will adversely affect our U.S. dollar reported financial results.

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, drug-related violence in Mexico, pirate attacks and vessel seizures off the coast of Africa, 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 in the past, and may have an adverse impact in the future. Decreases in demand could lead to price discounting which, in turn, could reduce the profitability of our business.

We face significant competition from other cruise lines, bothbrands, on the basis of cruise pricing, and also in terms of the types and size of ships, services and destinations being offered to cruise guests. We try to differentiate ourselves from our cruise competitors by offering newa wide variety of itineraries, products and services to our guests, but the acceptance of each offering is not certain and consumers’ preferences are always subject to change. In addition, we may needchoose to enhance our older ships with current innovative amenities and improvements in order for those ships to be more competitive with other cruise ships. Our principalDuring the winter season ships that operate in the Caribbean face increased competition as our brands, as well as our competitors, includeredeploy vessels to the companies listedCaribbean, which results in this Form 10-K under Part I, Item 1. Business. B. – “Cruise Operations – Competition.”a seasonal increase in capacity that may adversely impact our profitability.

In addition, 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, but not limited to, hotels, resorts, theme parks, andorganized tours, land-based casino operators.operators and vacation ownership properties. We believe that our land-based vacation competitors’ operating costs are less affected by fuel price increases than cruise companies. Accordingly, fuel price increases may adversely impact cruise companies more than their land-based competitors.

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.

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Cruising capacity has grown in recent years and we expect it to continue to increase over the next fourthree years as allmost of the major cruise vacation companies are expected to introduce new ships. In order to fill new capacity, the cruise vacation industry will

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probably need to increase its share of the overall vacation market. Also, the increasingly large size of ships may adversely impact the industry’s ability to fill their ships at prices that meet their expectations. The overall vacation market ismay also facingface increases in land-based vacation capacity, which will alsomay impact us.us as well. 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/orand trademark assets. In addition, increased cruise capacity could impact our ability to retain and attract qualified crew, including officers, at competitive costs and, therefore, increase our shipboard employeeoperating costs. Furthermore, some of the same factors that impact our guests’ decisions to cruise with us may also impact our ability to employ qualified crew.

The operation of cruise ships, hotels, land tours, port facilities and shore excursions involve the risk of accidents, including those caused by the improper operation of our ships, motorcoaches and trains, guest and crew illnesses such as from the spread of contagious diseases, mechanical failures, fires, collisions, groundings, navigational errors, oil spills and other environmental mishaps, and other incidents at sea or while in port or on land, which may cause injury and death, or the alteration of itineraries or cancellation of a cruise or series of cruises or tours. Our ships have been involved in accidents and other incidents in the past. We may experience similar incidents in the future. These types of incidents may bring into question guest and crew health, safety, security and/or vacationand satisfaction, and thereby adversely affect our sales and profitability.profitability and may also result in litigation against us and increased governmental or other regulatory oversight.

In addition,particular, our ability to effectively and efficiently operate shipboard and shoreside activities may be impacted by widespread public health issues/illnesses or health scares resulting in, among other things, reduced demand for cruises and cruise cancellations and employee absenteeism that could have an adverse affect on our sales and profitability. For example, a severe outbreak of the flu virus or some other pandemic could, among other things, disrupt our ability to embark/disembark passengers and crew, disrupt air travel to and from ports, increase costs for prevention and treatment and adversely affect our supply chain. This could also adversely impact cruise demand in areas unaffected by such an outbreak.