Each of our cruise brands publishes brochures with prices for the upcoming seasons. Brochure prices vary by cruise line, by category of cabin, by ship, by season and by itinerary. Brochure prices are regularly discounted through our early booking discount programs and other promotions. The cruise ticket price typically includes accommodations, meals, some beverages, and most onboard entertainment, such as the use of, or admission to, a wide variety of activities and facilities, including a fully equipped casino, nightclubs, theatrical shows, movies, parties, a disco, a jogging track, a health club, swimming pools, sun decks, whirlpools and saunas. Our brands’ payment terms generally require that a 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 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 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 the premium in other revenues, at the same time that the voyage revenue is recognized.
Historically, our advance bookings have generally been taken from several months in advance of the departure date for some contemporary brand sailings, to more than a year in advance for some of our luxury and European brand sailings. This lead-time provides us with more time to manage our prices in relation to demand for available cabins, with the goal of achieving higher overall net revenue yields - - see “Key Performance Indicators” in our Management Discussion and Analysis of Financial Condition and Results of Operations in Exhibit 13 to this Form 10-K. In addition, some of our fares such as Carnival Cruise Lines’ Supersaver fares, Costa’s Pronto Price Savings fares, Holland America Line’s Early Savings and Mariner Savings fares and Princess’s 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, but the exact cruise ship and specific itinerary are not determined by AIDA until two weeks prior to sailing in order to help AIDA maximize their net revenue yields.
When a guest elects to purchase air transportation from us, both our revenues and expenses generally increase by approximately the same amount. Air transportation prices can vary by gateway and destination. Over the last several years, we have generally experienced a lower number of guests purchasing air transportation from us, which we believe is partially a result of having opened additional embarkation points closer to our guests’ homes, as well as the availability of competitively-priced air tickets sold by third parties and frequent flyer programs.
In 2007 we introduced a new fuel supplement across substantially all of our cruise brands, which results in an additional fee being charged to all our guests, commencing for the most part with cruises departing in early 2008. This temporary fuel supplement, which is included in ticket revenues, was introduced to try to counteract a portion of the very high fuel costs we have been experiencing, and is usually charged on a daily basis, with established total maximums.
We earn onboard and other revenues from onboard activities and services not included in the cruise ticket price consisting of, but not limited to, casino gaming, bar and some beverage sales, gift shop sales, entertainment arcades, shore excursions, art auctions, photo sales, spa services, bingo games and lottery tickets, enhanced dining experiences in alternative restaurants, video diaries, golf lessons, snorkel equipment rentals, internet, cellular phone and telephone usage and onboard promotional advertising for merchants located at our ports of call.
Our casinos, which contain slot machines and gaming tables including blackjack, and in most cases craps and roulette, are open only when our ships are at sea in international waters or when otherwise specifically permitted by law. Onboard and other activities are provided either directly by us or by independent concessionaires, from which we collect a percentage of their revenues or a fee.
Sales to our 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.
For the Holland America Line and Princess ships and our other brands operating to destinations in Alaska, shore excursions are operated by Holland America Tours and Princess Tours, as well as locally-owned operations. For shore excursions in other locations, we typically utilize locally-owned operations.
In conjunction with our cruise vacations, all of our cruise brands also sell pre- and post-cruise land packages. Packages offered in conjunction with ports of call in the U.S. would generally include one to four-night vacations at nearby attractions or other vacation destinations, such as Universal Studios and Walt Disney World in Orlando, Florida, Busch Gardens in Tampa, Florida, or individual/multiple city tours of Boston, Massachusetts, New York City, New York, Seattle, Washington, San Diego, California and/or Vancouver, British Columbia. Packages offered in Europe generally include up to four-night vacations, including stays in well-known European cities such as Athens, Greece, Barcelona, Spain, Copenhagen, Denmark, London, England, Paris, France and Rome, Italy.
In conjunction with our Alaska cruise vacations, principally on our Holland America Line, Princess and Carnival Cruise Lines ships, we sell pre- and post-cruise land packages, utilizing, to a large extent, our transportation and hotel assets.
XII.Sales Relationships and Marketing Activities
We are a customer service-driven company and continue to invest in our service organization to assist travel agents and guests. We believe that our support systems and infrastructure are among the strongest in the vacation industry.
We sell our cruises mainly through travel agents, including wholesalers and tour operators. Our individual cruise brands’ relationships with their travel agents are generally independent of each of our other brands, except for certain brands sourcing UK and Australian 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 towards travel agents is to train and motivate them to support our products with competitive sales and pricing policies and joint marketing programs. We also use a wide variety of marketing techniques, including websites, seminars and videos, to familiarize the agents with our cruise brands and products. As with our brands’ travel agent relationships, each of our brands’ marketing programs are generally independent of each of our other brands. In each of our principal markets, we have familiarized the travel agency community with our cruise brands and products.
Travel agents generally receive standard commissions of 10%, plus the potential of additional commissions based on sales volume. During fiscal 2007, no controlled group of travel agencies accounted for more than 10% of our revenues.
Our investment in customer service has been focused on the development of systems and employees. We have improved our systems within the reservations and customer relationship management functions, emphasizing the continued support of the travel agency community, while simultaneously developing greater contact and interactivity with our guest base. Each brand has its own website, which provides access to information about our products to users throughout the world, and substantially all provide booking engines to our travel partners and to our customers. We also support booking capabilities through major airline computer reservation systems, including SABRE, Galileo, Amadeus and Worldspan. Although the vast majority of our cruises are distributed through travel agents, we also accept telephone and internet bookings direct from customers who choose not to utilize the services of a travel agent.
We have pursued comprehensive marketing campaigns to market our brands to vacationers, including direct response marketing. The principal media used are television, magazine, newspaper, radio and online advertisements, and promotional campaigns. To stimulate demand we offer closer-to-homeport locations, which enable certain guests to lower the price of their cruise vacation by substantially reducing or eliminating the cost of air travel to and from the port.
In the UK and Australia we have formed a sales alliance known as the “Complete Cruise Solution,” whereby our UK and Australian sales forces and back-office operations are able to provide their guests with one-stop cruise shopping for a number of our brands. We also offer Vacation Interchange Privileges, which is a loyalty program that provides special considerations to repeat guests aboard the “World’s Leading Cruise Lines” alliance for our family of North American cruise brands, as well as Costa and Cunard. Finally, most of our cruise brands offer their own loyalty programs, such as Carnival’s “Concierge Club”, Princess’ “Captain’s Circle”, Costa’s “CostaClub” or Holland America Line’s “Mariner
17
Society,” through which they reward repeat guests with special incentives such as discounted fares, expedited ship embarkation and disembarkation and onboard activities.
XIII.Seasonality
Our revenues from the sale of passenger tickets are seasonal. Historically, demand for cruises has been greatest during our third fiscal quarter, which includes the Northern Hemisphere summer months, and holidays. This higher demand during the third quarter results in higher net revenue yields and, accordingly, the largest share of our net income is earned during this period. The seasonality of our results is increased due to ships being taken out of service for maintenance, which we typically schedule during non-peak demand periods. Substantially all of Holland America Tours’ and Princess Tours’ revenues and net income are generated from May through September in conjunction with the Alaska cruise season.
XIV.Competition
We compete with land-based vacation alternatives throughout the world, including, among others, hotels, resorts (including all-inclusives), theme parks, land-based casino operations and vacation ownership properties located in Las Vegas, Nevada and Orlando, Florida, various Caribbean, Mexican, Bahamian and Hawaiian Island destinations, as well as numerous other vacation choices throughout Europe (including the Mediterranean) and the rest of the world.
Our primary cruise competitors for North American-sourced guests are Royal Caribbean Cruises Ltd. (“RCCL”), which owns Royal Caribbean International, Celebrity Cruises and Azamara Cruises, Norwegian Cruise Line and NCL America, Disney Cruise Line, MSC Cruises, Crystal Cruises, Oceania Cruises, Regent Seven Seas Cruises, Silversea Cruises and Windstar Cruises.
Our primary cruise competitors for European-sourced guests: in the UK they are Royal Caribbean International, Island Cruises, which is 50% owned by RCCL, Fred Olsen Cruise Lines, Discovery Cruises, Saga Cruises, and Thomson Cruises; in Germany they are MSC Cruises, Hapag-Lloyd, Peter Deilmann, Phoenix Reisen and Transocean Cruises; and in southern Europe they are MSC Cruises, Louis Cruise Line, Pullmantur, owned by RCCL and CDF Croisieres de France, also 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.
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, Celebrity Cruises, Star Cruises, Norwegian Cruise Line, CVC Cruise, MSC Cruises, Island Cruises and Pullmantur.
Our North American, European and Australian brands also compete among themselves for guests.
XV.Governmental Regulations
A.Maritime Regulations
Our ships are regulated by various international, national, state and local laws, regulations and treaties in force in the jurisdictions in which our ships operate. In addition, our ships are registered in the Bahamas, Bermuda, Italy, the Netherlands, Panama and the UK and, accordingly, are regulated by these jurisdictions and by the international conventions that govern the safety and environmental impact of our ships, guests and crew. 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”) and the many other international ports that our ships visit are applicable to some aspects of our ship operations.
Specifically, the International Maritime Organization, sometimes referred to as the “IMO,” which operates under the auspices of the United Nations, has adopted safety standards as part of the International Convention for Safety of Life at Sea, sometimes referred to as SOLAS, which is applicable to all of our ships. Among other things, SOLAS establishes requirements for vessel design, structural features, materials, construction, life saving equipment, safe management and operation and security in order to help ensure guest and crew safety and security. The SOLAS requirements are revised from time to time, with the most recent modifications being phased-in through 2010.
18
In 1993, SOLAS was amended to incorporate the International Safety Management Code, referred to as the “ISM Code.” The ISM Code provides an international standard for the safe management and operation of ships and for pollution prevention. The ISM Code is mandatory for passenger vessel operators. All of our operations and ships have obtained the required certificates demonstrating compliance with the ISM Code and are regularly inspected and controlled by the national authorities, as well as the international authorities acting under the provisions of the international agreements related to Port State Control, the process by which a nation exercises authority over foreign ships when the ships are in that nation’s waters.
In December 2004, the Maritime Safety Committee approved for adoption amendments to SOLAS chapter II-I Parts A & B that relate to the damage stability of new cruise passenger vessels. These regulations were adopted in May 2005, and are applicable to those vessels whose keels are laid after January 1, 2009. Although the new standards do not affect our existing fleet or our vessels currently under contract whose keels will have been laid prior to January 1, 2009, compliance with these standards for ships whose keels are subsequently laid will require the development of new designs, which will increase costs.
The most important convention regulating and preventing marine pollution by ships is the IMO International Convention for the Prevention of Pollution from Ships (“MARPOL”), as amended. This convention applies to all of our ships and covers accidental and operational oil pollution as well as pollution by various items including, but not limited to, sewage, garbage and air emissions.
Our ships are subject to a program of periodic inspection by ship classification societies who conduct annual, intermediate, dry-docking and class renewal surveys. Classification societies conduct these surveys not only to ensure that our ships are in compliance with international conventions adopted by their respective country of registry and domestic rules and regulations, but also to verify that our ships have been maintained in accordance with the rules of the society and that recommended repairs have been satisfactorily completed.
Our ships that call at U.S. ports are subject to inspection by the U.S. Coast Guard for compliance with SOLAS, by the U.S. Public Health Service for sanitary standards, and by other agencies such as U.S. Customs and Border Protection, with regard to customs and immigration. Our ships are also subject to similar inspections pursuant to the laws and regulations of various other countries our ships visit.
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 U.S. or have operations located in the U.S. the Maritime Transportation Security Act of 2002 (“MTSA”) is the governing regulation. The MTSA establishes Area Maritime Security requirements for geographic port areas that provide authority for the U.S. Coast Guard to implement operational and physical security measures on a port area basis that could affect our operation in those areas.
In 2006, the International Labour Organization (“ILO”) adopted a new Consolidated Maritime Labour Convention (the “Convention”). The ILO is also an agency of the United Nations that develops worldwide employment standards. There have been over 60 maritime labor conventions and recommendations developed since 1920 in areas such as minimum age of seafarers, medical certificates, recruitment practices, health and welfare, hours of work, and social security. The Convention is a comprehensive instrument that consolidates all of the existing standards and recommendations into one instrument to reflect modern conditions and language that will govern all aspects of crew management for all ships in international commerce. While many of the practices were widely adhered to by ships registered in different countries, this consolidated Convention will place additional requirements on shipowners not previously in effect. Thirty member countries representing 33% of the world’s merchant ship tonnage will be required to ratify the Convention before it goes into effect 12 months after such ratification. We currently expect the Convention to be effective for our ships by 2010 based on an expected EU ratification in 2008 or early 2009. Accordingly, if ratified, the Convention may increase our 2010 and subsequent crew costs.
19
Due to threatened EU infraction proceedings, there is the likelihood that Section 9 of the UK Race Relations Act, which permits different rates of pay for different European nationalities on UK flagged ships, will be repealed. If this act is repealed, it would increase our UK flagged ship’s personnel costs.
We believe that health, environmental, safety and security issues will continue to be an area of focus by relevant government authorities in the U.S., the EU and elsewhere. Resulting legislation, regulations or treaties, or changes thereto, could impact our operations and would likely subject us to increasing compliance costs in the future.
B.Permits for Glacier Bay, Alaska
In connection with certain of our Alaska cruise operations, Holland America Line, Princess and Carnival Cruise Lines rely on concession permits from the U.S. National Park Service to operate their cruise ships in Glacier Bay National Park and Preserve. Such permits must be periodically renewed and we cannot be certain that they will continue to be renewed or that regulations relating to the renewal of such permits, including preference or historical rights, will remain unchanged in the future.
C.Alaska Environmental Regulations
The State 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 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.
D.Other Environmental, Health, Safety and Security Matters
We are subject to various international, national, state and local environmental protection and health and safety laws, regulations and treaties that govern, among other things, air emissions, employee health and safety, waste discharge, water management and disposal, and 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, in the U.S., the Act to Prevent Pollution from Ships, implementing the MARPOL convention, provides for severe civil and criminal penalties related to ship-generated pollution for incidents in U.S. waters within three nautical miles and in some cases in the 200-mile exclusive economic zone.
Furthermore, in the U.S., the Oil Pollution Act of 1990 (the “OPA”) provides for strict liability for water pollution, such as oil pollution or threatened oil pollution incidents in the 200-mile exclusive economic zone of the U.S., subject to monetary limits. These monetary limits do not apply 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 Financial 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 ship’s 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 our ship’s statutory liability limit. Our financial responsibility under these certificates is supported by certain of our insurers who provide guarantees aggregating $653 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.
20
Furthermore, many countries have ratified and adopted IMO Conventions which, among other things, impose liability for pollution damage, subject to defenses and to monetary limits, which monetary limits do not apply where the spill is caused by the owner’s actual fault or by the owner’s intentional or reckless conduct. In jurisdictions that have not adopted the IMO Conventions, various national, regional or local laws and regulations have been established to address oil pollution.
Limitations on the sulphur content of fuel are part of new regulations approved by the International Convention for the Prevention of Pollution from Ships Annex VI (“MARPOL Annex VI”). Ships must carry an International Air Pollution Prevention Certificate issued by its flag state indicating that it is operating in compliance with MARPOL Annex VI. These certificates are required to be issued during the three-year period ending in May 2008. Among other things, MARPOL Annex VI establishes a limit on the sulphur content of fuel oil and calls on the IMO to monitor the worldwide average sulphur content of fuel oil supplied for use aboard vessels.
In addition, MARPOL Annex VI and EU rules also provide for special SOx, or Sulphur Oxide, Emission Control Areas (“SECAS”) to be established with more stringent limitations on sulphur emissions. There are currently two SECAS in operation, one in the Baltic and the other in the North Sea/English Channel. Compliance with these regulations increases our operating costs, due to the higher cost of purchasing low sulphur fuel.
A further EU directive regarding the use of low sulphur fuel for passenger ships on regular service to or from EU ports was introduced in 2006, but the necessary national legislation enforcing the directives has yet to be introduced in all EU member states. 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% sulphur limit on all marine fuels used in EU ports enters into force. This will require distillate fuels to be used, further increasing fuel costs.
A major review of MARPOL Annex VI, currently underway at IMO, is scheduled to be completed in mid-2008. As a result of this review, the IMO goal is to adopt amendments to Annex VI by the end of 2008 and these amendments are expected to further limit NOx, or nitrogen oxide, emissions for both existing and new diesel engines and sulphur emissions by reducing the sulphur content requirements for fuel oil. Compliance with new standards resulting from amendments to Annex VI will increase operating costs.
Norway required that, effective January 1, 2007, ships with propulsion machinery above 750 kW that travel between two Norwegian ports, pay a tax based upon the amount of NOx generated, calculated from fuel consumption and NOx emission factors for the engines and boilers. This has increased our operational costs for ships cruising in Norwegian waters.
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 and regulations.
The International Organization for Standardization (“ISO”) is an international standard-setting body which produces worldwide industrial and commercial standards. ISO 14001 is one of the series of ISO 14000 environmental management standards that were developed to help organizations manage their processes, products and services to minimize environmental impacts. ISO 14001 presents a structured approach to setting environmental objectives and targets, and provides a framework for any organization to apply these broad conceptual tools to their own processes. During 2006, we completed our corporate-wide implementation and received certification of our ISO 14001 Environmental Management System at all our then existing brands.
In December 2006, the Maritime Safety Committee, which is the safety body at the IMO, approved the adoption of amendments to SOLAS Ch II-2 that relate to passenger ship balconies. These regulations will enter into force on July 1, 2008 and impose stricter limits on combustible materials and apply to both new and existing ships. As of January 29, 2008 all our ships, including those under contract to be built, meet these requirements.
Several safety related amendments to SOLAS will enter into force in July 2010 including requirements for safety centers, emergency cabin lighting, local sounding audible alarm 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
21
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.
E.Consumer Regulations
Our ships that call on U.S. ports are regulated by the Federal Maritime Commission referred to as the “FMC”. Public Law 89-777, which is administered by the FMC, requires most cruise line operators to establish financial responsibility for their liability to passengers for non-performance of transportation, as well as casualty and personal injury. The FMC’s regulations require that a cruise line demonstrate its financial responsibility for non-performance of transportation through a guarantee, escrow arrangement, surety bond or insurance. Currently, the amount required must equal 110% of the cruise line’s highest amount of customer deposits over a two-year period, up to a maximum coverage level of $15 million. See Part 1, Item 1. Business. E. - “Insurance – Other Insurance” for additional information.
In the UK, we are currently required to bond and obtain licenses from various organizations in connection with the conduct of our business and our ability to meet liability in the event of non-performance of obligations to consumers. These organizations include Abta (formerly the Association of British Travel Agents) and the Civil Aviation Authority. See Part 1, Item 1. Business. E. - “Insurance-Other Insurance” for additional information.
We are also required by German and French law to obtain a guarantee from a reputable insurance company to ensure that, in case of insolvency, our customers will be refunded any monies they have paid on account of a booking and, in addition, that they will be repatriated without additional cost if insolvency occurs after a cruise starts. In addition, in Australia, we are a member of the Travel Compensation Fund which provides compensation, as a last resort, to consumers who suffer losses in their dealings with travel agents. Finally, other jurisdictions, including Argentina and Brazil, require the establishment of financial responsibility for passengers from their jurisdictions.
We believe we have all material licenses to conduct our business. From time to time, various other regulatory and legislative changes may be proposed or adopted that could have an effect on the cruise industry, in general, and our business, in particular. See Part I, Item 1A. “Risk Factors.” for a discussion of other regulations which impact us.
XVI.Financial Information
For financial information about our cruise reporting segment and geographic information with respect to each of the three years in the period ended November 30, 2007, see Note 11, “Segment Information” to our Consolidated Financial Statements in Exhibit 13 to this Form 10-K.
C.Employees
Our shoreside operations have approximately 10,900 full-time and 4,700 part-time/seasonal employees. We also employ approximately 65,600 crew, including officers, and staff onboard our 85 ships at any one time. Due to the highly seasonal nature of our Alaskan and Canadian operations, Holland America Tours and Princess Tours increase their work force during the late spring and summer months in connection with the Alaskan cruise season, employing additional seasonal personnel, which have been included above. We have entered into agreements with unions covering certain employees in our hotel, transportation and ship operations. We consider our employee and union relations generally to be good.
We source our shipboard officers primarily from Italy, the UK, Holland, Germany and Norway. The remaining crew positions are manned by persons from around the world. We utilize various manning agencies in many countries and regions to help secure our shipboard employees.
22
D.Suppliers
Our largest purchases are for travel agency services, fuel, advertising, food and beverages, hotel and restaurant products and supplies, airfare, repairs and maintenance, including dry-docking, port facility utilization, communication services and for the construction of our ships. Although we utilize a select number of suppliers for most of our food and beverages and hotel and restaurant products and supplies, most of these items are available from numerous sources at competitive prices. The use of a select number of suppliers enables us to, among other things, obtain volume discounts. We purchase fuel and port facility services at some of our ports of call from a limited number of suppliers. In addition, we perform our major dry-dock and ship improvement work at dry-dock facilities in Australia, the Bahamas, British Columbia, Canada, the Caribbean, Europe, Singapore, and the U.S. Finally, as of January 29, 2008, we have agreements in place for the construction of 22 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.
E.Insurance
General
We maintain insurance to cover a number of risks associated with owning and operating vessels in international trade. All such insurance policies are subject to coverage limits, exclusions and deductible levels. Insurance premium increases are dependent on our own loss experience and the general premium requirements of our underwriters. We cannot be certain that affordable and viable direct and reinsurance markets will be available to us in the future. We maintain certain levels of self-insurance for some of the below-mentioned risks, some of which have increased in recent years, and we may increase our self insurance levels further in the future to mitigate premium increases. We do not carry coverage related to loss of earnings or revenues from our ships.
Protection and Indemnity (“P&I”) Coverage
Third-party liabilities in connection with our cruise activities are covered by entry in P&I clubs, which are mutual indemnity associations owned by ship owners. Our vessels are entered in three P&I clubs as follows: The West of England Ship Owners Mutual Insurance Association (Luxembourg), The Steamship Mutual Underwriting Association (Bermuda) Limited and the United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited. The P&I clubs in which we participate are part of a worldwide group of P&I clubs, known as the International Group of P&I Clubs (the “IG”). The IG insures directly, and through reinsurance markets, a large portion of the world��s shipping fleets. Coverage is subject to the P&I clubs’ rules and the limit of coverage is determined by the IG. P&I coverage includes legal, statutory or pre-approved contract liabilities and other expenses related to crew, 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 in amounts equal to the estimated market value of each ship. The coverage for hull and machinery is provided by international marine insurance carriers. Most insurance underwriters make it a condition for insurance coverage that a ship be certified as “in class” by a classification society that is a member of the International Association of Classification Societies (“IACS”). All of our ships are currently certified as in class 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. This coverage is provided by international marine insurance carriers and Mutual War Risk Clubs. In addition, excess war risk insurance is provided by our three P&I clubs for all our ships. Under the terms of our war risk insurance coverage, which is typical for war risk policies in the marine industry, underwriters can give seven days notice to the insured that the liability and physical
23
damage policies can be cancelled. However, the policy can be reinstated at different premium rates. This gives underwriters the ability to increase our premiums following events that they determine have increased their risk.
Other Insurance
As required by the FMC, we maintain performance bonds or 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 and the UK Civil Aviation Authority and total approximately £81 million ($168 million U.S. dollars at November 30, 2007 exchange rate) and £52 million ($109 million U.S. dollars at the November 30, 2007 exchange rate), respectively, to cover our brands’ UK passenger and air ticket deposit liabilities.
We maintain standard property and casualty insurance policies to cover certain shoreside assets and liabilities to third parties, including our tour business and certain port facility assets, as well as appropriate workers’ compensation and certain health 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. The timing of the ratification of this new protocol is expected in 2009. 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.
F.Trademarks and Other Intellectual Property
We own and have registered, or licensed, numerous trademarks and have also registered various domain names, which we believe are widely recognized throughout the world and have considerable value, which enables us to distinguish our cruise product from that of our competitors. These trademarks include the names of our cruise lines, each of which we believe is a widely-recognized brand name in the cruise vacation industry, as well as “World’s Leading Cruise Lines.” We have a license to use the P&O name, the P&O flag and other relevant trademarks and domain names in relation to cruises and related activities. Finally, we also have a license to use the “Love Boat” name and related marks. See Note 2, “Trademarks” to our Consolidated Financial Statements in Exhibit 13 to this Form 10-K.
G.Taxation
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, transportation and tour businesses of Holland America Tours and Princess Tours through U.S. corporations.
Our passenger vessel business and the ship-owning subsidiaries are engaged in a trade or business within the U.S. Depending on the itinerary for any particular vessel, that vessel may generate income from sources within the U.S. We believe that under Section 883
24
of the Internal Revenue Code and applicable income tax treaties, our income and the income of our ship-owning subsidiaries, to the extent derived from or incidental to the international operation of a ship or ships, is currently exempt from U.S. federal income tax. 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, 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, transportation and tour businesses of Holland America Tours and Princess Tours, are 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. Effective for our year ended November 30, 2005 and thereafter, regulations provide, in general, that a foreign corporation will qualify for the benefits of Section 883 if, in relevant part, (i) the foreign country in which the foreign corporation is organized grants an equivalent exemption to corporations organized in the U.S. and (ii) the foreign corporation meets the publicly-traded test. In addition, to the extent a foreign corporation’s shares are owned by a direct or indirect parent corporation which itself meets the publicly-traded test, then 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 traded corporation under the regulations and substantially all of its income, with the exceptions noted above under “U.S. Federal Income Tax,” 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 traded corporation, it and all of its ship-owning or operating subsidiaries that rely on Section 883 for exempting cruise operations income would be subject to U.S. federal income tax on their U.S. source cruise operation income. In such event, the net income of Carnival Corporation’s ship-owning or operating subsidiaries would be materially reduced.
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 Section 883 are subject to change at any time by legislation. Moreover, changes could occur in the future with respect to the trading volume or trading frequency of Carnival Corporation shares or with respect to the identity, residence, or holdings of Carnival Corporation’s direct or indirect shareholders that could affect Carnival Corporation’s and its subsidiaries eligibility for the Section 883 exemption. Accordingly, although we believe it is unlikely, it is possible that Carnival Corporation and its ship-owning or operating subsidiaries’ whose tax exemption is based on Section 883 could lose this exemption. If Carnival Corporation and/or its ship-owning or operating subsidiaries were not entitled to the benefit of Section 883, Carnival Corporation and/or its ship-owning or operating subsidiaries would be subject to U.S. federal income taxation on a portion of its income at higher than normal tax rates.
Exemption Under Applicable Income Tax Treaties
We believe that the U.S. source shipping income from Carnival plc and its UK and Italian resident subsidiaries currently qualify for exemption from U.S. federal income tax under applicable bilateral U.S. income tax treaties. There is, however, no authority that directly addresses the effect, if any, of DLC arrangements on the availability of benefits under the treaties and, consequently, the matter is not free from doubt. These treaties may be abrogated by either applicable country, replaced or modified with new agreements that treat shipping income differently than under the agreements currently in force. If any of our subsidiaries that currently claim exemption from U.S. income taxation on their U.S. source shipping income under an applicable treaty do not qualify for benefits under the existing treaties, or if the existing treaties are abrogated, replaced or materially modified in a manner adverse to our interests and, with respect to U.S. federal income tax only, if any such subsidiary does not qualify for exemption under Section 883, such ship-owning or operating subsidiary may be subject to U.S. federal income taxation on a portion of its income.
25
| |
| Taxation in the Absence of an Exemption under Section 883 or any Applicable U.S. Income Tax Treaty |
Shipping income that is attributable to transportation of passengers which begins or ends in the U.S. is considered to be 50% derived from U.S. sources. Shipping income that is attributable to transportation of passengers which begins and ends in foreign countries is considered 100% derived from foreign sources. Shipping income that is attributable to the transportation of passengers which begins and ends in the U.S. without stopping at an intermediate foreign port is considered to be 100% derived from U.S. sources.
The legislative history of the transportation income source rules suggests that a cruise that begins and ends in a U.S. port, but that calls on more than one foreign port, will derive U.S. source income only from the first and last legs of the cruise. Because there are no regulations or other IRS interpretations of these rules, the applicability of the transportation income source rules in the aforesaid manner is not free from doubt.
In the absence of an exemption under Section 883 or any applicable U.S. income tax treaty, as appropriate, we and/or our subsidiaries would be subject to either the net income and branch profits tax regimes of Section 882 and Section 884 of the Internal Revenue Code (the “net tax regime”) or the four percent of gross income tax regime of Section 887 of the Internal Revenue Code (the “four percent tax regime”).
Where the relevant foreign corporation has, or is considered to have, a fixed place of business in the U.S. that is involved in the earning of U.S. source shipping income and substantially all of this shipping income is attributable to regularly scheduled transportation, the net tax regime is applicable. If the foreign corporation does not have a fixed place of business in the U.S. or substantially all of its income is not derived from regularly scheduled transportation, the four percent tax regime will apply.
The net tax regime should be the tax regime applied to Carnival Corporation in the absence of an exemption under Section 883. Under the net tax regime, U.S. source shipping income, net of applicable deductions, would be subject to a federal corporate income tax of up to 35% and the net after-tax income would be potentially subject to a further branch tax of 30%. In addition, interest paid by the corporations, if any, would generally be subject to a branch interest tax.
The four percent tax regime should be the tax regime applicable to our vessel owning subsidiaries based outside the 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 and P&O Cruises 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.
Our UK non-shipping activities that do not qualify under the UK tonnage tax regime, which are not currently forecast to be significant, remain subject to normal UK corporation tax.
Italian and German Income Tax
AIDA, the German brand of Carnival plc, is a subsidiary of Costa. AIDA’s income is 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.
26
During the 2005 third quarter, Costa elected to enter into the Italian Tonnage Tax regime, effective for its 2005 fiscal year and for the following nine years. This regime taxes Costa’s and AIDA’s shipping profits, as defined, which is most of Costa’s and AIDA’s income, calculated by reference to the net tonnage of its qualifying vessels. Most of the income not considered to be shipping profits for Italian Tonnage Tax purposes will be taxed under the favorable Italian tax regime for Costa and AIDA’s Italian-registered ships.
Australian Income Tax
P&O Cruises Australia is a division of Carnival plc, and the income from this operation, is subject to UK tonnage tax as discussed above. The majority of this operation’s profits are exempt from Australian corporation taxes by virtue of the UK/Australian tax treaty.
U.S. State Income Taxes
In addition to the U.S. federal income and branch level taxes discussed above, Carnival Corporation & plc and certain of its affiliates are subject to various U.S. state income taxes generally imposed on each states portion of the U.S. source income subject to U.S. federal income taxes.
H.Website Access to Carnival Corporation & plc SEC Reports
Our Form 10-K, joint Quarterly Reports on Form 10-Q, joint Current Reports on Form 8-K, joint proxy 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,www.carnivalplc.com andwww.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.
Item 1A.Risk Factors.
You should consider carefully the specific risk factors set forth below and other information contained or incorporated by reference in this Form 10-K, as these are important factors, among others, that could cause our actual results to differ from our expected or historical results. You should note that the risks described below are not the only risks we face. The risks listed below are only those risks relating to our operations that we consider material. There may be additional risks, that we currently consider not to be material, or which we are not currently aware of, that could have an adverse effect on our future results. Some of the statements in this section and elsewhere in this 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.
| |
• | General economic and business conditions may adversely impact the levels of our potential vacationers’ discretionary income and this group’s confidence in the U.S. and other economies and, consequently, reduce our cruise brands’ net revenue yields and profitability. |
Demand for cruises is 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, higher interest rates, more restrictive credit markets and changes in governmental policies could reduce the discretionary income or consumer confidence in the countries from which we source our guests. Consequently this may negatively affect demand for vacations, including cruise vacations, which are a discretionary purchase. Decreases in demand could lead to price discounting which, in turn, could reduce the profitability of our business. Decreases in discretionary income or consumer confidence could also result in lower onboard revenues, which could also have a negative effect on our profitability.
| |
• | The international political climate and other world events affecting the safety and security of travel could adversely affect the demand for cruises and could harm our future sales and profitability. |
Demand for cruises and other vacation options has been, and is expected to continue to be, affected by the public’s attitude towards the safety and security of travel. Events such as the terrorist attacks in the U.S. on September 11, 2001 and the threats of additional attacks in the U.S. and elsewhere, concerns of an outbreak of additional
27
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 may lose business to competitors throughout the vacation market. |
We face significant competition from other cruise lines, both on the basis of cruise pricing and also in terms of the types of ships, services and destinations being offered to cruise guests. We try to differentiate ourselves from our cruise competitors by offering new 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 need to enhance our older ships with current innovative amenities in order for those ships to be more competitive with other cruise ships. Our principal competitors include the companies listed in this Form 10-K under Part 1, Item 1. Business. B. - “Cruise Operations – Competition.”
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 and land-based casino operators.
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.
| |
• | Overcapacity in the cruise and land-based vacation industries could have a negative impact on our net revenue yields and increase operating costs, thus resulting in ship, goodwill and/or trademark asset impairments, all of which could adversely affect profitability. |
Cruising capacity has grown in recent years and we expect it to continue to increase over the next five years as all of the major cruise vacation companies are expected to introduce new ships. In order to fill new capacity, the cruise vacation industry will probably need to increase its share of the overall vacation market. The overall vacation market is also facing increases in land-based vacation capacity, which also will impact us. Failure to increase our share of the overall vacation market is one of a number of factors that could have a negative impact on our net revenue yields. In some prior years, our net revenue yields were negatively impacted as a result of a variety of factors, including capacity increases. Should net revenue yields be negatively impacted, our results of operations and financial condition could be adversely affected, including the impairment of the value of our ships, goodwill and/or trademark assets. In addition, increased cruise capacity could impact our ability to retain and attract qualified crew, including officers, at competitive costs and, therefore, increase our shipboard employee 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.
| |
• | Accidents, adverse weather conditions or natural disasters and other incidents affecting the health, safety, security and/or vacation satisfaction of guests could have an adverse affect on our sales and profitability. |
The operation of cruise ships, hotels, land tours 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 the spread of contagious diseases, mechanical failures, fires, collisions, and other incidents at sea or while in port or on land, which may bring into question guest safety, health, security and vacation satisfaction, and thereby adversely affect future industry performance, sales and profitability.
In addition, our cruises, hotels, port facilities, shore excursions and other service providers may be impacted by adverse weather patterns or natural disasters, such as hurricanes and earthquakes. These events could result in, among other things, increased port related and other costs as these third-party operators seek to charge us additional amounts in order to recover expenses caused by adverse events. For example, in 2005 Hurricane Wilma caused the temporary closing of cruise ports in South Florida and also destroyed our pier facility in Cozumel, Mexico, which is not expected to re-open until late-2008. As a result of the closure of this port certain of our costs have increased. It
28
is possible that we could be forced to alter itineraries or cancel a cruise or a series of cruises due to these or other factors, which would have an adverse affect on sales and profitability.
| |
• | Adverse publicity concerning the cruise industry in general, or us in particular, could impact the demand for cruises and affect our reputation and harm our future sales and profitability. |
Maintaining a good reputation is critical to our business. Reports, whether true or not, of ship accidents and other incidents at sea or while in port, including missing guests, inappropriate crew or guest behavior, onboard crimes, guest or crew illnesses such as incidents of stomach flu or other contagious diseases, security breaches, terrorist threats and attacks and other adverse events can result in negative publicity, and the perception that cruising is more dangerous than other vacation alternatives. Anything that damages our reputation (whether or not justified), including adverse publicity about the safety and guest satisfaction of cruising, or the vacation industry in general, could have an adverse affect impact on demand, which could lead to price discounting and a reduction in our net income.
| |
• | Environmental legislation and regulations could affect operations and increase our operating costs. |
Some environmental groups have lobbied for more stringent regulation of cruise ships. Some groups have also generated negative publicity about the cruise industry and its environmental impact. The U.S. Congress, the IMO and the U.S. Environmental Protection Agency (“EPA”) periodically consider new laws and regulations to manage cruise ship discharges. In addition, various other regulatory agencies in the States of Alaska, California, Florida, Hawaii, Maine, Washington and elsewhere, including European regulatory organizations, have enacted or are considering new regulations or policies, such as stricter emission limits to reduce greenhouse gas effects and requirements to use low sulfur fuels, which could adversely impact the cruise industry. See Part I, Item 1. Business. B. - “Cruise Operations – Governmental Regulations” for additional information.
Initiatives to limit greenhouse gas emissions have been introduced or are being considered in several European countries. Similarly, as of January 2008, a number of climate change bills have been introduced in the U.S. Congress, which impact all industries. While not all are likely to become law, this is a strong indication that additional climate change related mandates will be forthcoming in the future. In addition, the EPA has been ordered by the U.S. District Court of Northern California to rescind its long standing National Pollutant Discharge Elimination System permit exemption for ship discharges that are incidental to the normal operation of a ship. As a result, the EPA has begun an administrative process to prepare regulations of such discharges as of September 30, 2008. These and other unforeseen regulatory developments have the potential to affect our operations and increase our environmental compliance costs.
Current and future environmental laws and regulations, or liabilities arising from past or future releases of, or exposure to, hazardous substances or to vessel discharges, could increase our cost of compliance or otherwise materially adversely affect our business, results of operations and/or financial condition.
| |
• | New regulations relating to health, safety, security and other regulatory issues could increase our operating costs or negatively affect our bookings and future net revenue yields and adversely affect net income. |
We are subject to various international, national, state and local health, safety and security laws, regulations and treaties. Due to increasing regulatory requirements applicable to our operations, appropriate training of crewmembers has become more time-consuming and increased our operating costs. See Part I, Item 1. Business. B. - “Cruise Operations-Governmental Regulations” for a detailed discussion of some of these regulatory issues.
We believe that health, safety, security and other regulatory issues will continue to be areas of focus by relevant government authorities in the U.S., Europe and elsewhere. Resulting legislation, regulations or treaties, or changes thereto, could impact our operations and would likely subject us to increased compliance costs in the future.
Pursuant to the Western Hemisphere Travel Initiative, by the earlier of June 1, 2009 or 90 days after the sanctioning of a People Access Security Service (“PASS”) card, U.S. citizens will be required to carry a passport or, if available, a PASS card, for travel by
29
land or sea to or from certain countries/areas that are currently exempt from passport requirements, such as the Caribbean, Canada and Mexico. The State Department and the Department of Homeland Security are collaborating on the development of a PASS card system. The PASS card is a secure credential that verifies the citizenship and identity of U.S. nationals who re-enter the U.S. and is seen as a less expensive alternative to a passport.
Since many of our cruise guests visiting these destinations may not currently have passports or may not obtain a PASS card if and when available, it is likely that this will have some negative effect on our bookings and future net revenue yields when the regulations take effect. There are a number of factors that could influence the ultimate impact of these regulations, such as customer travel patterns, the cost and ease of obtaining PASS cards or passports, customer price sensitivity and the cost and effectiveness of mitigating programs we and/or others have established or will establish.
| |
• | We are subject to many economic and political factors, including changes in and compliance with numerous rules and regulations that are beyond our control, which could result in increases in our operating, financing and tax costs and could harm future sales and profitability. |
Some of our operating costs, including fuel, food, insurance, payroll and security costs, are subject to increases because of market forces, economic or political instability or decisions beyond our control. In addition, interest rates, currency fluctuations and our ability to obtain debt or equity financing are dependent on many economic and political factors. Actions by taxing jurisdictions could also cause an increase in our costs.
For example, in 2007, 2006 and 2005 fuel costs accounted for 14.9%, 14.4% and 11.9%, respectively, of our total cruise operating expenses. Economic and political conditions in certain parts of the world make it difficult to predict the price of fuel in the future. We have taken actions to partially offset the effects of higher fuel costs through the addition of temporary fuel supplement fees by most of our brands and fuel conservation initiatives. However, the Office of the Attorney General for the State of Florida is conducting a review of the fuel supplement program implemented by our North American brands and other cruise operators. We believe that our fuel supplement complies with applicable laws and we are cooperating with the review. Success in trying to offset higher fuel costs with ticket price increases and fuel supplements is largely influenced by competitive factors and economic conditions and can vary significantly depending on the market served. Future increases in the cost of fuel globally would increase the cost of our cruise ship operations, and we may be unable to implement additional fuel conservation practices, or ticket price and/or fuel supplement increases, which would otherwise help offset these fuel cost increases.
In addition, the State of Alaska instituted new taxes in 2007, which has impacted the cruise industry operating in Alaska. Separately in January 2008, the UK published draft changes to its tonnage tax regime which would change effective April 1, 2008, the scope of income that is includable within the UK tonnage tax regime. If such changes were adopted in their present form our brands subject to the UK tonnage tax regime will incur a higher level of UK income taxes. It is possible that other states, countries or ports of call that we regularly visit may also decide to assess new taxes or fees or change existing taxes or fees specifically targeted to the cruise industry and its employees and/or guests, including VAT taxes on cruise tickets and onboard revenues, which could increase our operating costs and/or could decrease the demand for cruises and ultimately decrease our net revenue yields and net income.
The U.S. Customs and Border Protection (“CBP”) has proposed an interpretive rule to the Passenger Vessel Services Act (“PVSA”), which could require that all roundtrip U.S. cruises by foreign flag vessels spend at least 48 hours in each foreign port on the cruise and require that the time spent in foreign ports must be more than 50% of the time spent in all U.S. ports on the cruise. We believe the CBP issued the proposed rule to protect NCL America operations in Hawaii. However, if implemented as written, the proposed rule could also impact other non-Hawaii itineraries such as Seattle-based Alaska and some Caribbean cruises, which may no longer qualify under the PVSA. Accordingly this proposed rule could adversely affect our Hawaii and non-Hawaii cruises’ profitability.
Increases in operating, financing and tax costs could adversely affect our results because we may not be able to recover these increased costs through price increases charged to our guests.
| |
• | Delays in ship construction and repairs, problems encountered at shipyards and shipyard consolidation could reduce our profitability. |
The construction and repair of cruise ships is a complex process and involves risks similar to those encountered in other large and sophisticated construction and repair projects, which could cause delays in completion, delivery or repair. In addition, work
30
stoppages, insolvency or financial problems of the shipyards building or repairing our ships could also delay or prevent the delivery of our ships under construction or the repair and maintenance of existing ships in our fleet. These events could adversely affect our profitability. However, the impact from a delay in delivery of our newbuilds could be partially mitigated by contractual provisions and guarantees obtained by us. In addition, the consolidation of the control of certain European cruise shipyards could result in higher prices for future ships given the reduced number of competing shipyards, which could also reduce our profitability. Also, the lack of qualified shipyard repair facilities could result in the inability to repair and maintain our ships on a timely basis and also result in reduced profitability.
As of November 30, 2007, we had entered into foreign currency swaps to fix the cost in Sterling and U.S. dollars of one of our Euro-denominated shipbuilding contracts and a portion of another shipbuilding contract. If the shipyard with which we have contracted is unable to perform under the related contracts, the foreign currency swaps related to the shipyard’s shipbuilding contracts would still have to be honored. This might require us to realize a loss on existing foreign currency swaps without an offsetting gain on our foreign currency denominated shipbuilding contracts, thus resulting in an adverse effect on our financial results. As all of our newbuilds are being built by European shipyards and substantially all our newbuilds are priced in Euros, the ability to purchase ships for our North American brands at favorable U.S. dollar prices has been, and may continue to be, adversely impacted as a result of the weaker U.S. dollar compared to the Euro. This can result in higher newbuild costs and reduced profitability for our North American brands.
| |
• | Our success depends upon the continued strength of our cruise brands and our ability to implement our brand strategies. |
We believe that our cruise brands have contributed significantly to the success of our business and that maintaining and enhancing our brands is critical to expanding their customer base. In addition, the ability of our brands to successfully target different segments of the various vacation markets in which they operate enables them to continue to expand and strengthen their business. Failure to protect our brands from infringers or to grow the value of the brands could have a material adverse effect on our business and results of operations.
| |
• | Our international operations are subject to risks not generally applicable to our domestic operations. |
Our international operations are subject to numerous risks, including exposure to local economic conditions, potential adverse changes in the diplomatic relations between foreign countries, hostility from local populations, restrictions and taxes on the withdrawal of foreign investment and earnings, government policies against the cruise business, investment restrictions or requirements, diminished ability to legally enforce our contractual rights in foreign countries, foreign exchange restrictions and fluctuations in foreign currency exchange rates, withholding and other taxes on remittances and other payments by subsidiaries, and changes in and application of foreign taxation structures including value added taxes.
| |
• | Our future operating cash flow may not be sufficient to fund future obligations, and we may not be able to obtain financing, if necessary, on terms that are favorable or consistent with our expectations. |
Our forecasted cash flow from future operations may be adversely affected by various factors including, but not limited to, declines in guest demand, increased competition, overcapacity, the deterioration in general economic and business conditions, including the recent liquidity issues in the U.S. debt markets, terrorist attacks and the threats thereof, ship accidents and other incidents, adverse publicity and increases in fuel prices, as well as other factors noted under these “Risk Factors” and under the “Cautionary Note Concerning Factors That May Affect Future Results” section below. To the extent that we are required, or choose, to fund future cash requirements, including future shipbuilding commitments, from sources other than cash flow from operations, cash on hand and current external sources of liquidity, including committed financings, we will have to secure such financing from banks or through the offering of debt and/or equity securities in the public or private markets.
Our access to, and the cost of, financing will depend on, among other things, the maintenance of our strong long-term credit ratings. Carnival Corporation and Carnival plc’s senior, unsecured long-term debt ratings are “A-3” by Moody’s, “A-” by Standard & Poor’s and “A-” by Fitch Ratings. Carnival Corporation’s short-term corporate credit ratings are “P-2” by Moody’s, “A-2” by Standard & Poor’s and “F2” by Fitch Ratings.
31
| |
• | Geographic regions in which we try to expand our business may be slow to develop, and ultimately not develop how we expect, thus resulting in the slower growth of our business. |
As we expand our global presence into both existing lower-penetrated markets and new developing markets, which require, among other things, investments and start-up costs that we may not be able to recover through future revenues from these markets. In addition, we cannot be certain that these markets will ultimately develop as we expect. Accordingly, our business expansion plans may not produce the returns that we had expected. For instance, in 2006 we entered the Chinese market, and it is too early to determine if it will develop as expected over the long-term.
| |
• | We rely on external sales distribution channels for most of our guests’ bookings and, therefore, major changes in the costs or availability of external distribution channels could result in a reduction in our sales revenues and net income. |
In 2007, the vast majority of our guests booked their cruises through independent travel agents, wholesalers and tour operators. These parties generally sell and market our cruises on a nonexclusive basis. Although we offer commission and other incentives to them for booking our cruises that are comparable to those offered by others in the cruise industry, there can be no guarantee that our competitors will not offer higher commissions and incentives in the future. In addition, significant disruptions or contractions to these businesses could have an adverse effect on our sales and related commission costs.
| |
• | We rely to a large extent on scheduled commercial airline services for guest connections and, therefore, increases in the price of, or major changes or reduction in commercial airline services, could undermine our ability to provide reasonably priced vacation packages to our guests. |
Some of our guests depend on scheduled commercial airline services to transport them to or from the ports where our cruises embark or disembark. Increases in the price of airfare would increase the overall vacation price to our guests and may adversely affect demand for our cruises. In addition, changes in commercial airline services as a result of strikes, adverse weather conditions or other events, or the lack of availability due to schedule changes or a high level of airline bookings could adversely affect our ability to deliver guests to or from our cruise ships and increase our cost of sales which would, in turn, have an adverse effect on our results of operations.
| |
• | The impact of self-insuring against various risks or the inability to obtain insurance for certain risks at reasonable rates could result in higher expenses. |
We seek to maintain comprehensive insurance coverage at commercially reasonable rates. We believe that our current coverage is adequate to protect us against most of the significant risks involved in the conduct of our business, although we do elect to self-insure or use higher deductibles for various risks to minimize the cost of our insurance coverage. Accordingly, we are not protected against all risks, which could result in unexpected increases in our expenses in the event of an incident.
In addition, a new protocol to the Athens Convention is in the process of being ratified, which would require some passenger ship operations to maintain compulsory insurance or some other form of financial security, to cover the per capita limit of strict liability for losses suffered by passengers that has been set under the Athens Convention. If the protocol is ratified, we cannot be certain that affordable and viable insurance markets will be available to provide the required coverages. If the new protocol is ratified we would expect our insurance costs to increase.
We may also be subject to additional premium costs, in amounts based not only on our own claim records, but also on the claim records of all other members of the P&I associations through which we receive indemnity coverage for tort liability. If we, or other members of our P&I associations, were to sustain significant losses in the future, our ability to obtain insurance coverage or coverage at commercially reasonable rates could be materially adversely affected. Finally, if other marine insurers experience more claims, this could result in additional premium costs for us.
| |
• | Disruptions and other impairments to our information technology networks could result in decreases in our net income. |
32
Our ability to increase revenues and decrease costs, as well as our ability to serve guests most effectively, depends in part on the reliability of our sophisticated information technology (“IT”) networks. We use software and other IT systems to, among other things, manage our inventory of cabins held for sale and set their pricing in order to maximize our revenue yields, and to optimize the effectiveness and efficiency of our shoreside and shipboard operations. Any disruptions and other impairments to these computer systems or unauthorized access to confidential customer or employee personal information could adversely impact our customer service and satisfaction, employee relationships, decrease the volume of our business and result in increased costs. In addition, the operation, maintenance and updating of these networks is dependent on third-party technologies, systems and services for which there is no certainty of uninterrupted availability. While we have invested and continue to invest in IT security initiatives and disaster recovery plans, these measures cannot insulate us from IT disruptions that could result in adverse effects on our operations and net income.
| |
• | The lack of continued availability of attractive port destinations for our cruise ships could reduce our net revenue yields and net income. |
We believe that attractive and safe port destinations, including ports that are not overly congested with tourists, are major reasons why our guests choose a cruise versus an alternative vacation option. The availability of ports, including the specific port facility at which our guests will embark and disembark, is affected by a number of factors including, but not limited to, existing capacity constraints, security and safety concerns, adverse weather conditions and natural disasters, financial limitations on port development, political instability, exclusivity arrangements that ports may have with our competitors, local governmental regulations and charges and local community concerns about both port development and other adverse impacts on their communities from additional tourists. The inability to continue to maintain, rebuild, if necessary, and increase our ports of call could adversely affect our net revenue yields and net income.
| |
• | The DLC structure involves risks not associated with the more common ways of combining the operations of two companies, and these risks may have an adverse effect on the economic performance of the companies and/or their respective share prices. |
The DLC structure is a relatively uncommon way of combining the management and operations of two companies and it involves different issues and risks from those associated with the other more common ways of effecting a business combination, such as a merger or exchange offer to create a wholly owned subsidiary. In our DLC structure, the combination is effected primarily by means of contracts between Carnival Corporation and Carnival plc and not by operation of a statute or court order. The legal effect of these contractual rights may be different from the legal effect of a merger or amalgamation under statute or court order, and there may be difficulties in enforcing these contractual rights. Shareholders and creditors of either company might challenge the validity of the contracts or their lack of standing to enforce rights under these contracts, and courts may interpret or enforce these contracts in a manner inconsistent with the express provisions and intentions we included in such contracts. In addition, shareholders and creditors of other companies might successfully challenge other DLC structures and establish legal precedents that could increase the risk of a successful challenge to our DLC structure. We maintain two separate public companies and comply with both Panamanian corporate law and English company laws and different securities and other regulatory and stock exchange requirements in the UK and the U.S. This structure requires more administrative time and cost than was the case for each company individually, which has an adverse effect on our operating efficiency.
| |
• | Changes under the Internal Revenue Code, applicable U.S. income tax treaties, and the uncertainty of the DLC structure under the Internal Revenue Code may adversely affect the U.S. federal income taxation of our U.S. source shipping income. In addition, changes in the UK, Italian, German, Australian and other countries’ or states’ income or other tax laws, regulations or treaties could also adversely affect our net income. |
We believe that substantially all of the U.S. source shipping income of each of Carnival Corporation and Carnival plc qualifies for exemption from U.S. federal income tax, either under (1) Section 883 of the Internal Revenue Code; (2) U.S.-Italian income tax treaty; or (3) other applicable U.S. income tax treaties, and should continue to so qualify under the DLC structure. There is, however, no existing U.S. federal income tax authority that directly addresses the tax consequences of implementation of a DLC structure for purposes of Section 883 or any other provision of the Internal Revenue Code or any income tax treaty and, consequently, these matters are not free from doubt.
33
If we did not qualify for exemption from substantially all U.S. federal income taxes or if such exemptions or laws were changed, we would have significantly higher U.S. income tax expenses. In addition, changes in the income or other tax laws affecting our cruise businesses in the UK, Italy, Germany, Australia and elsewhere could result in higher income and/or other taxes, such as value added taxes, being levied on our cruise operations, thus resulting in lower net income.
See Part I, Item 1. Business. G. - “Taxation” for additional information.
| |
• | A small group of shareholders collectively owned, as of January 22, 2008, approximately 29% of the total combined voting power of our outstanding shares and may be able to effectively control the outcome of shareholder voting. |
A group of shareholders, consisting of some members of the Arison family, including Micky Arison, and trusts established for their benefit, beneficially owned approximately 36% of the outstanding common stock of Carnival Corporation, which shares represent sufficient shares entitled to constitute a quorum at shareholder meetings and to cast approximately 29% of the total combined voting power of Carnival Corporation & plc. Depending upon the nature and extent of the shareholder vote, this group of shareholders may have the power to effectively control, or at least to influence substantially, the outcome of certain shareholder votes and, therefore, the corporate actions requiring such votes.
| |
• | Carnival Corporation and Carnival plc are not U.S. corporations, and our shareholders may be subject to the uncertainties of a foreign legal system in protecting their interests. |
Carnival Corporation’s corporate affairs are governed by its third amended and restated articles of incorporation (“Articles”) and second amended and restated by-laws (“by-laws”) and by the corporate laws of Panama. Carnival plc is governed by its articles of association and memorandum of association and by the corporate laws of England and Wales. The contracts that control the relationship between Carnival Corporation and Carnival plc under the DLC are governed by the laws of Panama, the Isle of Man and the Cayman Islands. The corporate laws of Panama, England and Wales, the Isle of Man and the Cayman Islands may differ in some respects from the corporate laws in the U.S.
| |
• | Provisions in Carnival Corporation’s and Carnival plc’s constitutional documents may prevent or discourage takeovers and business combinations that our shareholders might consider to be in their best interests. |
Carnival Corporation’s Articles and by-laws and Carnival plc’s articles of association contain provisions that may delay, defer, prevent or render more difficult a takeover attempt that our shareholders consider to be in their best interests. As a result, these provisions may prevent our shareholders from receiving a premium to the market price of our shares offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our shares if they are viewed as discouraging takeover attempts in the future.
Specifically, Carnival Corporation’s Articles contain provisions that prevent third parties, other than the Arison family and trusts established for their benefit, from acquiring beneficial ownership of more than 4.9% of its outstanding shares without the consent of Carnival Corporation’s board of directors and provide for the lapse of rights, and sale, of any shares acquired in excess of that limit. The effect of these provisions may preclude third parties from seeking to acquire a controlling interest in us in transactions that shareholders might consider to be in their best interests and may prevent them from receiving a premium above market price for their shares.
Cautionary Note Concerning Factors That May Affect Future Results
Some of the statements contained in this Form 10-K are “forward-looking statements” that involve risks, uncertainties and assumptions with respect to us, including some statements concerning future results, outlook, plans, goals and other events which have not yet occurred. These statements are intended to qualify for the safe harbors from liability provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We have tried, whenever possible, to identify these statements by using words like “will,” “may,” “believes,” “expect,” “anticipate,” “forecast,” “future,” “intends,” “plan,” and “estimate” and similar expressions.
34
Because forward-looking statements involve risks and uncertainties, there are many factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied in this Form 10-K. Forward-looking statements include those statements which may impact the forecasting of our earnings per share, net revenue yields, booking levels, pricing, occupancy, operating, financing and/or tax costs, fuel costs, costs per available lower berth day, estimates of ship depreciable lives and residual values, outlook or business prospects.
Certain of the risks we are exposed to are identified in “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Cautionary Note Concerning Factors That May Affect Future Results” in Exhibit 13 to this Form 10-K and in this Item 1A. “Risk Factors.” These sections contain important cautionary statements and a discussion of many of the factors that could materially affect the accuracy of our forward-looking statements and/or adversely affect our business, results of operations and financial position.
Forward-looking statements should not be relied upon as a prediction of actual results. Subject to any continuing obligations under applicable law or any relevant listing rules, we expressly disclaim any obligation to disseminate, after the date of this Form 10-K, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.
Item 1B.Unresolved Staff Comments.
None.
Item 2.Properties.
The Carnival Corporation and Carnival plc corporate headquarters and our larger shoreside locations are as follows:
| | | | | | |
Entity/Brand | | Location | | Square Footage | | Own/Lease |
| |
| |
| |
|
| | | | | | |
Carnival Corporation headquarters and Carnival Cruise Lines | | Miami, FL U.S.A. | | 456,000/26,000 | | Own/Lease |
Princess | | Santa Clarita, CA U.S.A. | | 367,000 | | Lease |
Holland America Line, Holland America Tours and Princess Tours | | Seattle, WA U.S.A. | | 38,000/233,000 | | Own/Lease |
Costa | | Genoa, Italy | | 155,000/14,000 | | Own/Lease |
P&O Cruises, Ocean Village, Cunard, Carnival Corporation & plc’s Technical Services and UK sales office | | Southampton, England (a) | | 112,000 | | Lease |
AIDA | | Rostock, Germany | | 103,000 | | Lease |
Carnival plc headquarters and UK sales office | | London, England | | 8,000 | | Lease |
| |
(a) | Carnival plc entered into a new Southampton office lease agreement for 150,000 square feet to replace the existing Southampton lease facility, which we expect to occupy during fiscal 2009. |
In addition, we own and/or lease port facilities that we operate in Barcelona, Spain, Cozumel, Mexico, Grand Turk, the Turks & Caicos Islands, Juneau, Alaska, Long Beach, California and Savona, Italy.
Our cruise ships, headquarters, port and shoreside facilities and Holland America Tours’ and Princess Tours’ properties, are all well maintained and in good condition. We evaluate our needs periodically and obtain additional facilities when deemed necessary. We believe that our facilities are adequate for our current needs.
Our cruise ships and Holland America Line’s and Princess’ private islands, Half Moon Cay and Princess Cays, respectively, are briefly described in Part I, Item 1. Business. B. - “Cruise Operations.” The hotel properties associated with Holland America Tours and Princess Tours operations, substantially all of which are owned, are briefly described in Part I, Item 1. Business. A. - “General.”
35
Item 3.Legal Proceedings.
On September 21, 2006, a class action complaint was filed by J. B. Miller on behalf of a purported class of past passengers against Holland America Line in the U.S. District Court for the Western District of Washington. The complaint alleges that Holland America Line (a) failed to disclose that shore excursion vendors paid Holland America Line to promote their services as required by an Alaska statute, and (b) collected and retained payment from passengers for PVSA violations in certain instances when Holland America Line did not actually incur the fines. The complaint seeks (i) certification as a class action, (ii) statutory damages under Alaska’s consumer protection statutes, (iii) damages for each PVSA fine collected and additional damages for each PVSA fine collected where no fine was imposed, (iv) injunctive relief and (v) attorneys’ fees, costs and interest. The plaintiff voluntarily withdrew the shore excursion disclosure claim, and the court has approved a settlement of the PVSA claim that will result in the refund of fines collected but not paid, plus interest and attorneys’ fees.
In January 2006, a lawsuit was filed against Carnival Corporation and its subsidiaries and affiliates, and other non-affiliated cruise lines in the U.S. District Court for the Southern District of New York on behalf of James Jacobs and a purported class of owners of intellectual property rights to musical plays and other works performed in the U.S. The plaintiffs claim infringement of copyrights to Broadway, off Broadway and other plays. The suit seeks payment of (i) damages, (ii) disgorgement of alleged profits and (iii) an injunction against future infringement.
Item 4.Submission of Matters to a Vote of Security Holders.
None.
Executive Officers of the Registrants
Pursuant to General Instruction G(3), the information regarding our executive officers called for by Item 401(b) of Regulation S-K is hereby included in Part I of this Form 10-K.
The table below sets forth the name, age and title of each of our executive officers. Titles listed relate to positions within Carnival Corporation and Carnival plc unless otherwise noted. All the Carnival plc positions were effective as of April 17, 2003 except as noted below.
| | | | | |
| NAME | | AGE | | POSITION |
|
| |
| |
|
| | | | | |
| Micky Arison | | 58 | | Chairman of the Board of Directors and Chief Executive Officer |
| David Bernstein | | 50 | | Senior Vice President and Chief Financial Officer |
| Alan B. Buckelew | | 59 | | President and Chief Executive Officer of Princess Cruises |
| Gerald R. Cahill | | 56 | | President and Chief Executive Officer of Carnival Cruise Lines |
| David K. Dingle | | 50 | | Chief Executive Officer of Carnival UK |
| Pier Luigi Foschi | | 61 | | Chairman and Chief Executive Officer of Costa Crociere, S.p.A. and Director |
| Howard S. Frank | | 66 | | Vice Chairman of the Board of Directors and Chief Operating Officer |
| Larry Freedman | | 56 | | Chief Accounting Officer and Vice President-Controller |
| Stein Kruse | | 49 | | President and Chief Executive Officer of Holland America Line Inc. |
| Arnaldo Perez | | 47 | | Senior Vice President, General Counsel and Secretary |
| Peter G. Ratcliffe | | 59 | | Chief Executive Officer of P&O Princess Cruises International and Director |
Business Experience of Executive Officers
Micky Arison has been Chairman of the Board of Directors since October 1990 and a director since June 1987. He has been Chief Executive Officer since 1979. Mr. Arison has been employed by us for 36 years.
David Bernstein has been Senior Vice President and Chief Financial Officer since July 2007. From July 2003 to July 2007, he was Vice President and Treasurer. From June 1998 to
36
July 2003, he was Chief Financial Officer of Cunard and Seabourn. Mr. Bernstein has been employed by us for nine years.
Alan B. Buckelew has been Chief Executive Officer of Princess Cruises since June 2007. He has been President from February 2004. From October 2004 to June 2007, he was Chief Operating Officer of Cunard. From October 2000 to January 2004, he was Executive Vice President and Chief Financial Officer of Princess. Mr. Buckelew has been employed by us or Carnival plc predecessor companies for 30 years.
Gerald R. Cahill has been President and Chief Executive Officer of Carnival Cruise Lines since July 2007. From December 2003 to June 2007, he was Executive Vice President and Chief Financial and Accounting Officer of Carnival Corporation & plc. From January 1998 to November 2003 he was Senior Vice President Finance, Chief Financial and Accounting Officer. Mr. Cahill has been employed by us for 13 years.
David K. Dingle has been Chief Executive Officer of Carnival UK, whose brands include P&O Cruises, Ocean Village and Cunard, since June 2007. In addition, he has also been Chairman of the Carnival plc Management Committee with responsibility for Carnival Australia since June 2007. From April 2003 to June 2007, he was Managing Director of Carnival UK and P&O Cruises. From June 2000 to April 2003, he was Managing Director of P&O Cruises UK. Mr. Dingle has been employed by us or Carnival plc predecessor companies for 29 years.
Pier Luigi Foschi has been a director since April 2003. He has been Chief Executive Officer of Costa Crociere, S.p.A. since October 1997 and Chairman of its Board since January 2000. Mr. Foschi has been employed by us for 10 years.
Howard S. Frank has been Vice Chairman of the Board of Directors since October 1993, Chief Operating Officer since January 1998 and a director since April 1992. Mr. Frank has been employed by us for 18 years.
Larry Freedman has been Chief Accounting Officer since July 2007 and Vice President-Controller since April 1998. From April 1998 to June 2007, Mr. Freedman was also Vice President – Finance. Mr. Freedman has been employed by us for nine years.
Stein Kruse has been the President and Chief Executive Officer of Holland America Line since December 2004. From November 2003 to November 2004, he was the President and Chief Operating Officer of Holland America Line. From September 1999 to October 2003, he was Senior Vice President, Fleet Operations for Holland America Line. Mr. Kruse has been employed by us for eight years.
Arnaldo Perez has been Senior Vice President, General Counsel and Secretary since March 2002. From August 1995 to February 2002 he was Vice President, General Counsel and Secretary. Mr. Perez has been employed by us for 15 years.
Peter G. Ratcliffe has been a director since April 2003 and a director of Carnival plc since October 2000. He is Chief Executive Officer of P&O Princess Cruises International, which had primary responsibility for the operations of Cunard, Ocean Village, P&O Cruises, P&O Cruises Australia and Princess through June 2007. We announced in June 2007 that Mr. Ratcliffe will be retiring as an executive officer of Carnival Corporation and Carnival plc on March 6, 2008. He was Carnival plc’s Chief Executive Officer until April 2003. He was previously an executive director of The Peninsular and Oriental Steam Navigation Company and head of its cruise division, having served as President of Princess since 1993 and its Chief Operating Officer since 1989. Mr. Ratcliffe has been employed by us or Carnival plc’s predecessor companies for 34 years.
PART II
Item 5.Market for Registrants’ Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.
A.Market Information
The information required by Item 201(a) of Regulation S-K, Market Information, is shown in Exhibit 13 and is incorporated by reference into this Form 10-K.
B.Holders
The information required by Item 201(b) of Regulation S-K, Holders, is shown in Exhibit 13 and is incorporated by reference into this Form 10-K.
37
C.Dividends
Carnival Corporation and Carnival plc declared cash dividends on all of their common stock and ordinary shares, respectively, in the amount of:
| | | | | | | | | | | | | | | | | | | | | |
| | Quarters Ended | |
| |
| |
| | February 28/29 | | May 31 | | August 31 | | November 30 | |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | | | |
2008 | | | $ | 0.40 | | | | | | | | | | | | | | | | | |
2007 | | | $ | 0.275 | | | | $ | 0.35 | | | | $ | 0.35 | | | | $ | 0.40 | | |
2006 | | | $ | 0.25 | | | | $ | 0.25 | | | | $ | 0.25 | | | | $ | 0.275 | | |
All dividends for both Carnival Corporation and Carnival plc are declared in U.S. dollars. Holders of Carnival Corporation common stock and Carnival plc American Depository Shares receive a dividend payable in U.S. dollars. The dividends payable for Carnival plc ordinary shares are payable in Sterling, unless the shareholders elect to receive the dividend in U.S. dollars. Dividends payable in Sterling will be converted from U.S. dollars into Sterling at the dollar/Sterling exchange rate quoted by the Bank of England in London at 12:00 p.m. on the next combined U.S. and UK business day that follows the quarter end.
Payment of future dividends on Carnival Corporation common stock and Carnival plc ordinary shares will depend upon, among other factors, our earnings, financial condition and capital requirements. The payment and amount of any dividend is within the discretion of the Boards of Directors, and it is possible that the timing and amount of any dividend may vary from the levels discussed above. We cannot be certain that Carnival Corporation and Carnival plc will continue to have per share dividend increases, as were declared in recent years, or maintain their current levels.
D.Performance Graph
The information required by Item 201(e) of Regulation S-K, Performance Graph, is shown in Exhibit 13 and is incorporated by reference into this Form 10-K.
E.Recent Sales of Unregistered Securities
During the three months ended November 30, 2007, $16,000 and $5,000 of our 2% notes and zero coupon notes were converted at their accreted value into 407 shares and 82 shares of Carnival Corporation common stock, respectively, all of which were issued from newly issued common stock from registration under Section 3(a)(9) of the Securities Act of 1933.
Each share of Carnival Corporation common stock issued is paired with a trust share of beneficial interest in the P&O Princess Special Voting Trust, which holds a Special Voting Share issued by Carnival plc in connection with the DLC transaction.
F.Issuer Purchases of Equity Securities
During the quarter ended November 30, 2007, purchases by Carnival Corporation of Carnival Corporation’s equity securities that are registered by it pursuant to Section 12 of the Securities Exchange Act of 1934 were as follows:
| | | | | | | | | | | | | | | | |
Period | | Total Number of
Shares Purchased in
Fourth Quarter | | Average
Price Paid
per Share | | Maximum Dollar Value of Shares
That May Yet Be Purchased
Under the Plans or Programs (a) | |
|
| |
| |
| |
| |
| | | | | | (in millions) | |
| | | | | | | |
| | | | | | | |
September 1, 2007 through September 30, 2007 | | | | | | | | | | | | | $ | 996 | | |
October 1, 2007 through October 31, 2007 | | | | | | | | | | | | | $ | 996 | | |
November 1, 2007 through November 30, 2007 | | | | 200,000 | | | | $ | 44.58 | | | | $ | 871 | | |
| | |
|
| | | | | | | | | | | | |
Total | | | | 200,000 | | | | $ | 44.58 | | | | | | | |
| | |
|
| | | | | | | | | | | | |
| |
(a) | In June 2006, the Boards of Directors authorized the repurchase of up to an aggregate of $1 billion of Carnival Corporation common stock and/or Carnival plc ordinary shares subject to certain restrictions. On September 19, 2007, the Boards of Directors increased the remaining $578 million authorization back to $1 billion. The repurchase program does not have an expiration date and may be discontinued by our Boards of |
38
| |
| Directors at any time. All shares in the above table were repurchased pursuant to this program. From December 1, 2007 through January 28, 2008, we purchased 0.6 million shares of Carnival Corporation common stock at an average share price of $44.63. The Carnival plc share repurchase authorization requires annual shareholder approval and is subject to a maximum of 10.7 million ordinary shares until April 2008, of which 8.6 million have been purchased through January 28, 2008. During the 2007 fourth quarter and from December 1, 2007 through January 28, 2008 we purchased 4.8 million and 1.3 million ordinary shares of Carnival plc, which are not registered under Section 12 of the Securities Exchange Act of 1934 at an average price of $43.28 and $43.77, respectively. Carnival plc ordinary shares are listed on the London Stock Exchange. At January 28, 2008 the remaining availability pursuant to our repurchase program was $788 million. |
Item 6.Selected Financial Data.
The information required by Item 6. Selected Financial Data, is shown in Exhibit 13 and is incorporated by reference into this Form 10-K.
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The information required by Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, is shown in Exhibit 13 and is incorporated by reference into this Form 10-K.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk.
The information required by Item 7A. Quantitative and Qualitative Disclosures About Market Risk, is shown in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Exhibit 13 and is incorporated by reference into this Form 10-K.
Item 8.Financial Statements and Supplementary Data.
The financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated January 28, 2008, and the Selected Quarterly Financial Data (Unaudited), are shown in Exhibit 13 and are incorporated by reference into this Form 10-K.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit, is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer have evaluated our disclosure controls and procedures and have concluded, as of November 30, 2007, that they are effective as described above.
Changes in Internal Control over Financial Reporting
During the three months ended November 30, 2007, we have substantially completed our implementation of a new worldwide accounting system. As a result, there have been changes in our internal control over financial reporting during the quarter ended November 30, 2007 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. As part of the system implementation, we have reviewed the controls affected by the new accounting system and have made the necessary internal control changes.
39
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO Framework”). Based on our evaluation under the COSO Framework, our management concluded that our internal control over financial reporting was effective as of November 30, 2007.
PricewaterhouseCoopers LLP, the independent registered certified public accounting firm that audited our consolidated financial statements incorporated in this Form 10-K, has also audited the effectiveness of our internal control over financial reporting as of November 30, 2007 as stated in their report which is shown in Exhibit 13 and is incorporated by reference into this Form 10-K.
Inherent Limitations of Disclosure Controls and Procedures and Internal Control Over Financial Reporting
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.
Item 9B.Other Information.
None.
PART III
Item 10.Directors, Executive Officers and Corporate Governance.
We have adopted a code of ethics that applies to our chief executive officer, chief operating officer and senior financial officers, including the chief financial officer, chief accounting officer and controller and other persons performing similar functions. This code of ethics is posted on our website, which is located atwww.carnivalcorp.com andwww.carnivalplc.com. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, at the addresses specified above. Information contained in our website, whether currently posted or posted in the future, is not part of this document or the documents incorporated by reference in this document.
The additional information required by Item 10 is incorporated herein by reference to the Carnival Corporation and Carnival plc joint definitive proxy statement to be filed with the U.S. Securities and Exchange Commission not later than 120 days after the close of the fiscal year, except that the information concerning the Carnival Corporation and Carnival plc executive officers called for by Item 401(b) of Regulation S-K is included in Part I of this Form 10-K.
Item 11.Executive Compensation.
The information required by Item 11 is incorporated herein by reference to the Carnival Corporation and Carnival plc joint definitive proxy statement to be filed with the U.S. Securities and Exchange Commission not later than 120 days after the close of the fiscal year.
40
Item 12.Security Ownership of Certain Beneficial Owners and Management.
Securities Authorized for Issuance under Equity Compensation Plans
Carnival Corporation
Set forth below is a table that summarizes compensation plans (including individual compensation arrangements) under which Carnival Corporation equity securities are authorized for issuance as of November 30, 2007.
| | | | | | | | | | | | | | | | |
Plan category | | Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a) | | Weighted-average
exercise price of
outstanding
options, warrants
and rights | | Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected
in column (a)) | |
| | | | | | | | | | | | | | | | |
Equity compensation plans approved by security holders | | | | 14,868,481 | (1) | | | $ | 42.40 | | | | | 28,442,001 | (2)(3) | |
| | | | | | | | | | | | | | | | |
Equity compensation plans not approved by security holders | | | | | | | | | | | | | | | | |
| | |
|
| | | |
|
| | | |
|
| | |
Total | | | | 14,868,481 | | | | $ | 42.40 | | | | | 28,442,001 | | |
| | |
|
| | | |
|
| | | |
|
| | |
| |
(1) | Includes outstanding options to purchase Carnival Corporation common stock under the Carnival Cruise Lines, Inc. 1987 Stock Option Plan, Carnival Corporation 1992 Stock Option Plan, Carnival Corporation 2002 Stock Plan, Carnival Corporation 1993 Outside Directors’ Stock Option Plan and Carnival Corporation 2001 Outside Director Stock Plan. Also includes 371,039 restricted share units outstanding under the Carnival Corporation 2002 Stock Plan and 13,500 restricted share units outstanding under the Carnival Corporation 2001 Outside Director Stock Plan. |
| |
(2) | Includes Carnival Corporation common stock available for issuance as of November 30, 2007 as follows: 2,624,757 under the Carnival Corporation Employee Stock Purchase Plan, 25,010,211 under the Carnival Corporation 2002 Stock Plan and 422,494 under The Carnival Corporation 2001 Outside Director Stock Plan. |
| |
(3) | In addition to options, the Carnival Corporation 2002 Stock Plan and the Carnival Corporation 2001 Outside Director Stock Plan provide for the award of restricted shares and restricted share units without limitation on the number of shares than can be awarded in either form. |
Carnival plc
Set forth below is a table that summarizes compensation plans (including individual compensation arrangements) under which Carnival plc equity securities are authorized for issuance as of November 30, 2007.
| | | | | | | | | | | | | | | | |
Plan category | | Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a) | | Weighted-average
exercise price of
outstanding
options, warrants
and rights (1) | | Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected
in column (a)) | |
| | | | | | | | | | | | | | | | |
Equity compensation plans approved by security holders | | | | 3,445,606 | (2) | | | $ | 52.37 | | | | | 12,766,979 | (3) | |
| | | | | | | | | | | | | | | | |
Equity compensation plans not approved by security holders | | | | | | | | | | | | | | | | |
| | |
|
| | | |
|
| | | |
|
| | |
Total | | | | 3,445,606 | | | | $ | 52.37 | | | | | 12,766,979 | | |
| | |
|
| | | |
|
| | | |
|
| | |
41
| |
(1) | Converted from Sterling, if applicable, using the November 30, 2007 exchange rate of $2.08:£1. |
| |
(2) | Includes outstanding options to purchase Carnival plc ordinary shares under the Carnival plc Executive Share Option Plan and Carnival plc 2005 Employee Share Plan. Also includes 212,656 restricted share units outstanding under the Carnival plc 2005 Employee Share Plan. |
| |
(3) | In addition to options, the Carnival plc 2005 Employee Share Plan provides for the award of restricted shares and restricted share units without limitation on the number of shares that can be awarded in either form. |
The additional information required by Item 12 is incorporated herein by reference to the Carnival Corporation and Carnival plc joint definitive proxy statement to be filed with the U.S. Securities and Exchange Commission not later than 120 days after the close of the fiscal year.
Items 13 and 14.Certain Relationships and Related Transactions, and Director Independence and Principal Accountant Fees and Services.
The information required by Items 13 and 14 is incorporated herein by reference to the Carnival Corporation and Carnival plc joint definitive proxy statement to be filed with the U.S. Securities and Exchange Commission not later than 120 days after the close of the fiscal year.
PART IV
Item 15.Exhibits, Financial Statement Schedules.
(a) (1)Financial Statements
The financial statements shown in Exhibit 13 are incorporated herein by reference into this Form 10-K.
(2)Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instruction or are inapplicable and, therefore, have been omitted.
(3)Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed or incorporated by reference as part of this Form 10-K and such Index to Exhibits is hereby incorporated herein by reference.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
CARNIVAL CORPORATION | CARNIVAL PLC |
| |
/s/ Micky Arison | /s/ Micky Arison |
| |
| |
Micky Arison | Micky Arison |
Chairman of the Board of | Chairman of the Board of |
Directors and Chief Executive Officer | Directors and Chief Executive Officer |
January 29, 2008 | January 29, 2008 |
| |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each of the registrants and in the capacities and on the dates indicated.
| | | |
CARNIVAL CORPORATION | CARNIVAL PLC |
| |
/s/ Micky Arison | /s/ Micky Arison |
| |
| |
Micky Arison | Micky Arison |
Chairman of the Board of | Chairman of the Board of |
Directors and Chief Executive Officer | Directors and Chief Executive Officer |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ Howard S. Frank | /s/ Howard S. Frank |
| |
| |
Howard S. Frank | Howard S. Frank |
Vice Chairman of the Board of | Vice Chairman of the Board of |
Directors and Chief Operating Officer | Directors and Chief Operating Officer |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ David Bernstein | /s/ David Bernstein |
| |
| |
David Bernstein | David Bernstein |
Chief Financial Officer | Chief Financial Officer |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ Larry Freedman | /s/ Larry Freedman |
| |
| |
Larry Freedman | Larry Freedman |
Chief Accounting Officer | Chief Accounting Officer |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ *Richard G. Capen, Jr. | /s/ *Richard G. Capen, Jr. |
| |
| |
Richard G. Capen, Jr. | Richard G. Capen, Jr. |
Director | Director |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ *Robert H. Dickinson | /s/ *Robert H. Dickinson |
| |
| |
Robert H. Dickinson | Robert H. Dickinson |
Director | Director |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ *Arnold W. Donald | /s/ *Arnold W. Donald |
| |
| |
Arnold W. Donald | Arnold W. Donald |
Director | Director |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ *Pier Luigi Foschi | /s/ *Pier Luigi Foschi |
| |
| |
Pier Luigi Foschi | Pier Luigi Foschi |
Director | Director |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ *Richard J. Glasier | /s/ *Richard J. Glasier |
| |
| |
Richard J. Glasier | Richard J. Glasier |
Director | Director |
January 29, 2008 | January 29, 2008 |
43
| | | |
/s/ *Baroness Sarah Hogg | /s/ *Baroness Sarah Hogg |
| |
| |
Baroness Sarah Hogg | Baroness Sarah Hogg |
Director | Director |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ *Modesto A. Maidique | /s/ *Modesto A. Maidique |
| |
| |
Modesto A. Maidique | Modesto A. Maidique |
Director | Director |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ *Sir John Parker | /s/ *Sir John Parker |
| |
| |
Sir John Parker | Sir John Parker |
Director | Director |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ *Peter G. Ratcliffe | /s/ *Peter G. Ratcliffe |
| |
| |
Peter G. Ratcliffe | Peter G. Ratcliffe |
Director | Director |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ *Stuart Subotnick | /s/ *Stuart Subotnick |
| |
| |
Stuart Subotnick | Stuart Subotnick |
Director | Director |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ *Laura Weil | /s/ *Laura Weil |
| |
| |
Laura Weil | Laura Weil |
Director | Director |
January 29, 2008 | January 29, 2008 |
| | | |
/s/ *Uzi Zucker | /s/ *Uzi Zucker |
| |
| |
Uzi Zucker | Uzi Zucker |
Director | Director |
January 29, 2008 | January 29, 2008 |
| | | |
*By: /s/ Arnaldo Perez | *By: /s/ Arnaldo Perez |
| |
| |
(Arnaldo Perez | (Arnaldo Perez |
Attorney-in-fact) | Attorney-in-fact) |
January 29, 2008 | January 29, 2008 |
44
| | | | | | | | | | | | | | |
INDEX TO EXHIBITS | | | | | | | | | |
|
| | | | Incorporated by Reference | | | |
| | | |
| | | |
Exhibit
Number | | Exhibit Description | | Form | | Exhibit | | Filing
Date | | Filed
Herewith | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | |
Articles of incorporation and by-laws | | | | | | | | | |
| | | | | | | | | | | | |
3.1 | | | Third Amended and Restated Articles of Incorporation of Carnival Corporation. | | 8-K | | 3.1 | | | 4/17/03 | | | |
| | | | | | | | | | | | | |
3.2 | | | Second Amended and Restated By-Laws of Carnival Corporation. | | 8-K | | 3.1 | | | 10/19/07 | | | |
| | | | | | | | | | | | | |
3.3 | | | Articles of Association of Carnival plc. | | 8-K | | 3.3 | | | 4/17/03 | | | |
| | | | | | | | | | | | | |
3.4 | | | Memorandum of Association of Carnival plc. | | 8-K | | 3.4 | | | 4/17/03 | | | |
| | | | | | | | | | | | |
Instruments defining the rights of security holders, including indentures | | | | |
| | | | | | | | | | | | | |
4.1 | | | Agreement of Carnival Corporation and Carnival plc, dated January 11, 2008 to furnish certain debt instruments to the Securities and Exchange Commission. | | | | | | | | | X | |
| | | | | | | | | | | | | |
4.2 | | | Carnival Corporation Deed, dated April 17, 2003, between Carnival Corporation and P&O Princess Cruises plc for the benefit of the P&O Princess Shareholders. | | 10-Q | | 4.1 | | | 08/31/03 | | | |
| | | | | | | | | | | | | |
4.3 | | | Equalization and Governance Agreement, dated April 17, 2003, between Carnival Corporation and P&O Princess Cruises plc. | | 10-Q | | 4.2 | | | 08/31/03 | | | |
| | | | | | | | | | | | | |
4.4 | | | Carnival Corporation Deed of Guarantee, dated as of April 17, 2003, between Carnival Corporation and Carnival plc. | | S-4 | | 4.3 | | | 5/30/03 | | | |
| | | | | | | | | | | | | |
4.5 | | | Carnival plc (formerly P&O Princess Cruises plc) Deed of Guarantee, dated as of April 17, 2003, between Carnival Corporation and Carnival plc. | | S-3 & F-3 | | 4.10 | | | 6/19/03 | | | |
| | | | | | | | | | | | |
4.6 | | | Specimen Common Stock Certificate. | | S-3 & F-3 | | 4.16 | | | 6/19/03 | | | |
| | | | | | | | | | | | | |
4.7 | | | Pairing Agreement, dated as of April 17, 2003, between Carnival Corporation, The Law Debenture Trust Corporation (Cayman) Limited, as trustee, and Computershare Investor Services (formerly SunTrust Bank), as transfer agent. | | 8-K | | 4.1 | | | 4/17/03 | | | |
| | | | | | | | | | | | | |
4.8 | | | Voting Trust Deed, dated as of April 17, 2003, between Carnival Corporation and The Law Debenture Trust Corporation (Cayman) Limited, as trustee. | | 8-K | | 4.2 | | | 4/17/03 | | | |
45
| | | | | | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Form | | Exhibit | | Filing
Date | | Filed
Herewith | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | |
4.9 | | | SVE Special Voting Deed, dated as of April 17, 2003, between Carnival Corporation, DLS SVC Limited, P&O Princess Cruises plc, The Law Debenture Trust Corporation (Cayman) Limited, as trustee, and The Law Debenture Trust Corporation, P.L.C. | | 8-K | | 4.3 | | | 4/17/03 | | | |
| | | | | | | | | | | | | |
4.10 | | | Form of Amended and Restated Deposit Agreement and holders from time to time of receipts issued thereunder. | | Post Amendment
to Form
F-6 | | 99-a | | | 4/15/03 | | | |
| | | | | | | | | | | | | |
4.11 | | | Indenture, dated as of April 25, 2001, between Carnival Corporation and U.S. Bank Trust National Association, as trustee, relating to unsecured and unsubordinated debt securities. | | S-3 | | 4.5 | | | 6/13/01 | | | |
| | | | | | | | | | | | | |
4.12 | | | Form of Indenture, dated March 1, 1993, between Carnival Cruise Lines, Inc. and First Trust National Association, as Trustee, relating to the Debt Securities, including form of Debt Security. | | S-3 | | 4 | | | 3/2/93 | | | |
| | | | | | | | | | | | | |
4.13 | | | Second Supplemental Indenture, dated December 1, 2003, between Carnival plc and Carnival Corporation to The Bank of New York, as Trustee, relating to 7.875% debentures due 2027. | | 10-K | | 4.14 | | | 11/30/03 | | | |
| | | | | | | | | | | | |
Material Contracts | | | | | | | | | | |
| | | | | | | | | | | | |
10.1 | * | | Carnival Corporation Nonqualified Retirement Plan for Highly Compensated Employees. | | 10-Q | | 10.1 | | | 8/31/07 | | | |
| | | | | | | | | | | | | |
10.2 | * | | Amendment to the Amended and Restated Carnival Corporation 1992 Stock Option Plan. | | 10-K | | 10.2 | | | 11/30/03 | | | |
| | | | | | | | | | | | | |
10.3 | | | Facilities Agreement dated October 21, 2005, between Carnival Corporation, Carnival plc, and certain of Carnival Corporation and Carnival plc subsidiaries, The Royal Bank of Scotland as facilities agent and a syndicate of financial institutions. | | 10-K | | 10.3 | | | 11/30/05 | | | |
| | | | | | | | | | | | | |
10.4 | * | | Amended and Restated Carnival Corporation 1992 Stock Option Plan. | | 10-K | | 10.4 | | | 11/30/97 | | | |
| | | | | | | | | | | | | |
10.5 | * | | Carnival Cruise Lines, Inc. 1993 Restricted Stock Plan adopted on January 15, 1993 and as amended January 5, 1998 and December 21, 1998. | | 10-K | | 10.5 | | | 11/30/98 | | | |
46
| | | | | | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Form | | Exhibit | | Filing
Date | | Filed
Herewith | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | |
10.6 | * | | Carnival Corporation “Fun Ship” Nonqualified Savings Plan. | | 10-K | | 10.6 | | | 11/30/97 | | | |
| | | | | | | | | | | | | |
10.7 | * | | Amendment to the Carnival Corporation Nonqualified Retirement Plan for Highly Compensated Employees. | | 10-Q | | 10.1 | | | 2/28/07 | | | |
| | | | | | | | | | | | | |
10.8 | * | | Carnival Cruise Lines, Inc. Non-Qualified Retirement Plan. | | 10-K | | 10.4 | | | 11/30/90 | | | |
| | | | | | | | | | | | | |
10.9 | * | | Executive Long-term Compensation Agreement, dated as of January 16, 1998, between Robert H. Dickinson and Carnival Corporation. | | 10-K | | 10.2 | | | 11/30/97 | | | |
| | | | | | | | | | | | | |
10.10 | * | | Consulting Agreement/Registration Rights Agreement, dated June 14, 1991, between Carnival Corporation and Ted Arison. | | S-3A | | 4.3 | | | 7/16/91 | | | |
| | | | | | | | | | | | | |
10.11 | * | | First Amendment to Consulting Agreement/Registration Rights Agreement between Carnival Corporation and Ted Arison. | | 10-K | | 10.40 | | | 11/30/92 | | | |
| | | | | | | | | | | | | |
10.12 | * | | Director Appointment Letter between Peter G. Ratcliffe and Carnival plc. | | 10-Q | | 10.23 | | | 5/31/03 | | | |
| | | | | | | | | | | | | |
10.13 | * | | Director Appointment Letter, dated August 19, 2004, between Baroness Sarah Hogg and each of Carnival Corporation and Carnival plc. | | 10-K | | 10.13 | | | 11/30/04 | | | |
| | | | | | | | | | | | | |
10.14 | * | | Director’s Appointment Letter, dated August 19, 2004, between Richard J. Glasier and each of Carnival Corporation and Carnival plc. | | 10-K | | 10.14 | | | 11/30/04 | | | |
| | | | | | | | | | | | | |
10.15 | * | | Director Appointment Letter, dated August 19, 2004, between Sir John Parker and each of Carnival Corporation and Carnival plc. | | 10-K | | 10.15 | | | 11/30/04 | | | |
| | | | | | | | | | | | | |
10.16 | * | | Amended and Restated Carnival plc 2005 Employee Share Plan. | | 10-Q | | 10.2 | | | 8/31/05 | | | |
| | | | | | | | | | | | | |
10.17 | * | | Executive Long-term Compensation Agreement, dated January 11, 1999, between Carnival Corporation and Micky Arison. | | 10-K | | 10.36 | | | 11/30/98 | | | |
| | | | | | | | | | | | | |
10.18 | * | | Executive Long-term Compensation Agreement, dated January 11, 1999, between Carnival Corporation and Howard S. Frank. | | 10-K | | 10.37 | | | 11/30/98 | | | |
| | | | | | | | | | | | | |
10.19 | * | | Carnival Corporation Supplemental Executive Retirement Plan. | | 10-K | | 10.32 | | | 11/30/99 | | | |
| | | | | | | | | | | | | |
10.20 | * | | Amendment to the Carnival Corporation Supplemental Executive Retirement Plan. | | 10-K | | 10.31 | | | 11/30/00 | | | |
47
| | | | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Form | | Exhibit | | Filing
Date | | Filed
Herewith | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | |
10.21* | | Amendment to the Carnival Corporation “Fun Ship” Nonqualified Savings Plan. | | 10-K | | 10.33 | | 11/30/99 | | | |
| | | | | | | | | | | |
10.22* | | Amendment to the Carnival Corporation “Fun Ship” Nonqualified Savings Plan. | | 10-Q | | 10.2 | | 2/28/07 | | | |
| | | | | | | | | | | |
10.23* | | Amendment to the Carnival Corporation “Fun Ship” Nonqualified Savings Plan. | | 10-K | | 10.34 | | 11/30/00 | | | |
| | | | | | | | | | | |
10.24* | | Amendment to the Carnival Corporation “Fun Ship” Nonqualified Savings Plan. | | 10-K | | 10.37 | | 11/30/01 | | | |
| | | | | | | | | | | |
10.25* | | Amendment to the Carnival Corporation Supplemental Executive Retirement Plan. | | 10-Q | | 10.3 | | 2/28/07 | | | |
| | | | | | | | | | | |
10.26* | | Amended and Restated Carnival Corporation 2001 Outside Director Stock Plan. | | 10-Q | | 10.1 | | 5/31/05 | | | |
| | | | | | | | | | | |
10.27* | | Amended and Restated Carnival Corporation 2002 Stock Plan. | | 10-Q | | 10.1 | | 5/31/03 | | | |
| | | | | | | | | | | |
10.28* | | Agreement with Pier Luigi Foschi. | | 10-Q | | 10.4 | | 8/31/05 | | | |
| | | | | | | | | | | |
10.29 | | Succession Agreement, dated as of May 28, 2002, to Registration Rights Agreement, dated June 14, 1991, between Carnival Corporation and Ted Arison. | | 10-Q | | 10.2 | | 5/31/02 | | | |
| | | | | | | | | | | |
10.30* | | Employment Agreement, dated as of April 17, 2003, by and between POPCIL and Peter Ratcliffe. | | 10-Q | | 10.2 | | 5/31/03 | | | |
| | | | | | | | | | | |
10.31* | | Carnival Corporation & plc Non-Executive Board of Director Cruise Benefit Policy. | | 10-Q | | 10.1 | | 8/31/05 | | | |
| | | | | | | | | | | |
10.32* | | Indemnification Agreement, dated April 17, 2003, between Micky M. Arison and Carnival Corporation. | | 10-Q | | 10.5 | | 5/31/03 | | | |
| | | | | | | | | | | |
10.33* | | Consulting Agreement, dated November 30, 2004, between A. Kirk Lanterman, Holland America Line Inc. and others. | | 10-K | | 10.33 | | 2/14/05 | | | |
| | | | | | | | | | | |
10.34* | | Indemnification Agreement, dated April 17, 2003, between Robert H. Dickinson and Carnival Corporation. | | 10-Q | | 10.9 | | 5/31/03 | | | |
| | | | | | | | | | | |
10.35* | | Amendment to the Carnival Corporation Nonqualified Retirement Plan For Highly Compensated Employees. | | 10-Q | | 10.1 | | 2/28/06 | | | |
48
| | | | | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Form | | Exhibit | | Filing
Date | | Filed
Herewith | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | |
10.36* | | Indemnification Agreement, dated April 17, 2003, between Pier Luigi Foschi and Carnival Corporation. | | 10-Q | | 10.13 | | | 5/31/03 | | | |
| | | | | | | | | | | | |
10.37* | | Indemnification Agreement, dated April 17, 2003, between Howard S. Frank and Carnival Corporation. | | 10-Q | | 10.15 | | | 5/31/03 | | | |
| | | | | | | | | | | | |
10.38* | | Director Appointment Letter, dated December 1, 2004, between A. Kirk Lanterman and each of Carnival Corporation and Carnival plc. | | 10-K | | 10.38 | | | 11/30/04 | | | |
| | | | | | | | | | | | |
10.39* | | Indemnification Agreement, dated April 17, 2003, between Peter G. Ratcliffe and Carnival Corporation. | | 10-Q | | 10.24 | | | 5/31/03 | | | |
| | | | | | | | | | | | |
10.40* | | Director Appointment Letter, dated April 14, 2003, between Micky M. Arison and Carnival plc. | | 10-Q | | 10.4 | | | 5/31/03 | | | |
| | | | | | | | | | | | |
10.41* | | Director Appointment Letter, dated August 19, 2004, between Richard G. Capen and each of Carnival Corporation and Carnival plc. | | 10-K | | 10.41 | | | 11/30/04 | | | |
| | | | | | | | | | | | |
10.42* | | Director Appointment Letter, dated April 14, 2003, between Robert H. Dickinson and Carnival plc. | | 10-Q | | 10.8 | | | 5/31/03 | | | |
| | | | | | | | | | | | |
10.43* | | Director Appointment Letter, dated August 19, 2004, between Arnold W. Donald and each of Carnival Corporation and Carnival plc. | | 10-K | | 10.43 | | | 11/30/04 | | | |
| | | | | | | | | | | | |
10.44* | | Director Appointment Letter between Pier Luigi Foschi and Carnival plc. | | 10-Q | | 10.12 | | | 5/31/03 | | | |
| | | | | | | | | | | | |
10.45* | | Director Appointment Letter, dated April 14, 2003, between Howard S. Frank and Carnival plc. | | 10-Q | | 10.14 | | | 5/31/03 | | | |
| | | | | | | | | | | | |
10.46* | | Director Appointment Letter, dated August 19, 2004, between Modesto A. Maidique and each of Carnival Corporation and Carnival plc. | | 10-K | | 10.46 | | | 11/30/04 | | | |
| | | | | | | | | | | | |
10.47* | | Amendment No. 1 to the Employment Agreement, dated as of July 19, 2004, by and between P&O Princess International Ltd. and Peter Ratcliffe. | | 10-Q | | 10.1 | | | 8/31/04 | | | |
| | | | | | | | | | | | |
10.48* | | Director Appointment Letter, dated August 19, 2004, between Stuart Subotnick and each of Carnival Corporation and Carnival plc. | | 10-K | | 10.48 | | | 11/30/04 | | | |
| | | | | | | | | | | | |
10.49* | | Director Appointment Letter, dated August 19, 2004, between Uzi Zucker and each of Carnival Corporation and Carnival plc. | | 10-K | | 10.49 | | | 11/30/04 | | | |
49
| | | | | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Form | | Exhibit | | Filing
Date | | Filed
Herewith | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | |
10.50* | | Amendment of the Carnival Corporation “Fun Ship” Nonqualified Savings Plan. | | 10-Q | | 10.1 | | | 2/28/03 | | | |
| | | | | | | | | | | | |
10.51* | | Amendment of the Carnival Corporation Nonqualified Retirement Plan For Highly Compensated Employees. | | 10-Q | | 10.2 | | | 2/28/03 | | | |
| | | | | | | | | | | | |
10.52* | | The P&O Princess Cruises Executive Share Option Plan. | | 20-F | | 4.9 | | | 12/30/01 | | | |
| | | | | | | | | | | | |
10.53* | | The P&O Princess Cruises Deferred Bonus and Co-Investment Matching Plan. | | 20-F | | 4.10 | | | 12/30/01 | | | |
| | | | | | | | | | | | |
10.54* | | Amended and Restated Carnival Cruise Lines Management Incentive Plan. | | 10-Q | | 10.4 | | | 2/28/07 | | | |
| | | | | | | | | | | | |
10.55* | | Amendment to the Carnival Corporation Supplemental Executive Retirement Plan. | | 10-Q | | 10.1 | | | 2/29/04 | | | |
| | | | | | | | | | | | |
10.56* | | Amendment to the Carnival Corporation Nonqualified Retirement Plan for Highly Compensated Employees. | | 10-Q | | 10.2 | | | 2/29/04 | | | |
| | | | | | | | | | | | |
10.57* | | Amendment to the Carnival Corporation “Fun Ship” Nonqualified Savings Plan. | | 10-Q | | 10.3 | | | 2/29/04 | | | |
| | | | | | | | | | | | |
10.58* | | Amendment to the Carnival Corporation “Fun Ship” Nonqualified Savings Plan. | | 10-Q | | 10.1 | | | 2/28/05 | | | |
| | | | | | | | | | | | |
10.59* | | Form of Nonqualified Stock Option Agreement for the Amended and Restated Carnival Corporation 2001 Outside Director Stock Plan. | | 10-Q | | 10.5 | | | 8/31/05 | | | |
| | | | | | | | | | | | |
10.60* | | Form of Restricted Stock Award Agreement for the Amended and Restated Carnival Corporation 2001 Outside Director Stock Plan. | | | | | | | | | X | |
| | | | | | | | | | | | |
10.61* | | Form of Restricted Stock Unit Award Agreement for the Amended and Restated Carnival Corporation 2001 Outside Director Stock Plan. | | | | | | | | | X | |
| | | | | | | | | | | | |
10.62* | | Form of Share Option Certificate for the Amended and Restated Carnival plc 2005 Employee Share Plan. | | 10-Q | | 10.8 | | | 8/31/05 | | | |
| | | | | | | | | | | | |
10.63 | | Deed of Guarantee, dated October21, 2005, between Carnival Corporation as guarantor and the Royal Bank of Scotland plc as facilities agent. | | 10-K | | 10.63 | | | 11/30/05 | | | |
50
| | | | | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Form | | Exhibit | | Filing
Date | | Filed
Herewith | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | |
10.64 | | Deed of Guarantee, dated October 21, 2005, between Carnival plc as guarantor and the Royal Bank of Scotland plc as facilities agent. | | 10-K | | 10.64 | | | 11/30/05 | | | |
| | | | | | | | | | | | |
10.65* | | Corporate Aviation Administrative Policy Statement for the use of Carnival Corporation & plc aircraft. | | 10-Q | | 10.2 | | | 2/28/06 | | | |
| | | | | | | | | | | | |
10.66* | | Form of Restricted Share Unit Award Certificate for the Amended and Restated Carnival plc 2005 Employee Share Plan. | | 10-Q | | 10.3 | | | 2/28/06 | | | |
| | | | | | | | | | | | |
10.67* | | Form of Restricted Stock Unit Agreement for the Amended and Restated Carnival Corporation 2002 Stock Plan. | | | | | | | | | X | |
| | | | | | | | | | | | |
10.68* | | Princes Cruises Chief Executive Officer Supplemental Retirement Plan for Peter Ratcliffe. | | 8-K | | 10.1 | | | 10/20/06 | | | |
| | | | | | | | | | | | |
10.69* | | Amendment to the P&O Princess Cruises Executive Share Option Plan. | | 10-Q | | 10.5 | | | 2/28/07 | | | |
| | | | | | | | | | | | |
10.70* | | Amendment to the P&O Princess Cruises Deferred Bonus and Co- Investment Matching Plan. | | 10-Q | | 10.6 | | | 2/28/07 | | | |
| | | | | | | | | | | | |
10.71* | | Amendment to the Carnival plc 2005 Employee Share Plan. | | 10-Q | | 10.7 | | | 2/28/07 | | | |
| | | | | | | | | | | | |
10.72* | | Form of Executive Restricted Stock Agreement for the Amended and Restated Carnival Corporation 2002 Stock Plan. | | | | | | | | | X | |
| | | | | | | | | | | | |
10.73 | | Amendment Agreement, dated July 21, 2007, to the Facilities Agreement dated October 21, 2005, by and among Carnival Corporation, Carnival plc, and certain of Carnival Corporation and Carnival plc subsidiaries, The Royal Bank of Scotland, as Facilities Agent, and a syndicate of financial institutions. | | 10-Q | | 10.2 | | | 8/31/07 | | | |
| | | | | | | | | | | | |
10.74* | | Amendment to the Carnival Corporation Supplemental Executive Retirement Plan. | | 8-K | | 10.1 | | | 10/19/07 | | | |
| | | | | | | | | | | | |
10.75* | | Amendment to the Carnival Corporation 2001 Outside Director Stock Plan. | | | | | | | | | X | |
| | | | | | | | | | | | |
10.76* | | Retirement Agreement between Robert H. Dickinson and Carnival Corporation. | | | | | | | | | X | |
| | | | | | | | | | | | |
10.77* | | Form of Executive Restricted Stock Award Agreement with Executive Long-Term Compensation Agreements. | | | | | | | | | X | |
51
52
* Indicates a management contract or compensation plan or arrangement.
** These items are furnished and not filed.
53
