FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended November 30, 2001
OR
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ________________
Commission file number 1-9610
CARNIVAL CORPORATION
(Exact name of registrant as specified in its charter)
Republic of Panama 59-1562976
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3655 N.W. 87th Avenue, Miami, Florida 33178-2428
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 599-2600
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
Common Stock New York Stock
($.01 par value) Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant is approximately $7.7 billion based upon the closing
market price on February 19, 2002 of a share of common stock on the New
York Stock Exchange as reported by the Wall Street Journal.
At February 19, 2002, the Registrant had outstanding 586,364,115
shares of its common stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
The information described below and contained in the Registrant's 2001
annual report to shareholders to be furnished to the Commission pursuant to
Rule 14a-3(b) of the Exchange Act is shown in Exhibit 13 and is
incorporated by reference into this Annual Report on Form 10-K.
Part and Item of the Form 10-K
Part II
Item 5(a) and (b). Market for the Registrant's Common Equity and
Related
Stockholder Matters - Market Information and Holders
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
Item 8. Financial Statements and Supplementary Data
Portions of the Registrant's 2002 definitive Proxy Statement, to be
filed with the Commission, are incorporated by reference into this Annual
Report on Form 10-K under the items described below.
Part and Item of the Form 10-K
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART I
Item 1. Business
A. General
Carnival Corporation was incorporated under the laws of the Republic
of Panama in November 1974 and along with its consolidated subsidiaries is
referred to collectively in this Annual Report on Form 10-K as "we," "our"
and "us". We are a global vacation and leisure travel provider, which
offers a broad range of cruise products serving the contemporary cruise
sector through Carnival Cruise Lines ("Carnival") and Costa Cruises
("Costa"), the premium sector through Holland America Line ("Holland
America"), the premium/luxury sector through Cunard Line ("Cunard") and the
luxury sector through Seabourn Cruise Line ("Seabourn") and Windstar
Cruises ("Windstar") (collectively the "Cruise Operations").
Additional summary information about our cruise brands is as follows:
PRIMARY
LOCATION
CRUISE NUMBER PASSENGER OF
BRAND OF SHIPS CAPACITY(1) CUSTOMERS
Carnival 16 33,250 North America
Holland America 10 12,612 North America
Costa (2) 8 10,770 Europe
Cunard 2 2,458 North America/Europe
Seabourn 3 624 North America
Windstar 4 752 North America
43 60,466
(1)In accordance with cruise industry practice, all passenger capacities
indicated within this Annual Report on Form 10-K are calculated based on
two passengers per cabin even though some cabins can accommodate three or
four passengers.
(2)From June 1997 through September 28, 2000, we owned 50% of Costa. On
September 29, 2000, we acquired the remaining 50% interest in Costa. See
Note 2, "Basis of Presentation," and Note 17, "Costa Acquisition," to our
Consolidated Financial Statements in Exhibit 13 to this Annual Report on
Form 10-K.
We currently have signed agreements with three shipyards providing for
the construction of 14 additional cruise ships during the next four years.
This will increase our passenger capacity by 32,704, or 54%, assuming none
of our existing ships is sold or retired from service. However, it is more
likely that some of our older ships may be retired or sold during the next
four years, thus reducing the increase to our fleet over this period. See
Note 7, "Commitments," to our Consolidated Financial Statements in Exhibit
13 to this Annual Report on Form 10-K for additional information regarding
our ship commitments.
In addition to our Cruise Operations, we operate a tour business under
the brand name Holland America Tours ("Tours"), which is a leading
cruise/tour operator in the state of Alaska and the Canadian Yukon. Tours
currently operates 12 hotels in Alaska and the Canadian Yukon, two luxury
dayboats offering tours to the glaciers of Alaska and the Yukon River and
over 300 motor coaches used for sightseeing and charters in the states of
Washington and Alaska and in British Columbia, Canada and the Canadian
Yukon. In addition, Tours operates 13 private, domed rail cars which are
run on the Alaska Railroad between Anchorage and Fairbanks. Finally, Tours
also markets sightseeing packages both separately and as part of our
cruise/tour packages to our Alaska bound passengers and to the public.
Recent Development
Subsequent to November 30, 2001, we announced that we had made a pre-
conditional offer to acquire P&O Princess Cruises plc ("P&O"), the world's
third largest cruise company. The value of our offer as of February 15,
2002 was approximately $5.4 billion to be paid in shares of our common
stock. In addition, we will assume P&O's net debt, which was approximately
$1.4 billion at December 31, 2001. It is our intention, upon closing of
the transaction, to pay approximately $2.4 billion of the purchase price in
cash, subject to our obtaining satisfactory financing, which will reduce
the portion of our offer that will be paid in shares of our common stock.
As of the date we made our pre-conditional offer, P&O and Royal Caribbean
Cruises Ltd. ("RCL") were parties to a series of agreements that would
result in a combination of P&O and RCL in a dual listed structure. P&O has
rejected our pre-conditional offer and has recommended the combination with
RCL to its shareholders. However, P&O shareholders did not follow their
Board of Directors' recommendation and voted to adjourn their scheduled
meeting to vote on the RCL merger. Both the combination with RCL and our
offer are subject to certain conditions, including regulatory clearances.
We are currently providing information to both the U.S. and the European
Union regulators. The regulatory review process is expected to take until
the mid-summer of 2002. No assurance can be given that we will be
successful in acquiring P&O.
B. Risk Factors
You should carefully consider the following specific risk factors as
well as the other information contained or incorporated by reference in
this Annual Report on Form 10-K as these are important factors, among
others, that could cause our actual results to differ from our expected or
historical results. It is not possible to predict or identify all such
factors. Consequently, you should not consider any such list to be a
complete statement of all our potential risks or uncertainties. Some
statements in this section and elsewhere in this Annual Report on Form 10-K
are "forward-looking statements". For a discussion of those statements and
of other factors to consider see the "Special Note Regarding Forward-
Looking Statements" below.
Risks Related To Our Business
(1)Demand for cruises and other vacation options can be and has been
affected by many factors that are outside our control, and our net
income and revenues depend in large part on consumer demand for our
cruises.
Demand for cruises and other vacation options may be affected by a
number of factors. For example, our sales are dependent on the underlying
economic strength of the countries in which we operate. Adverse economic
conditions can reduce the level of consumers' disposable income that is
available for their vacation choices. In addition, armed conflicts or
political instability in areas where our ships cruise can adversely affect
demand for our cruises to those areas. Also, acts of terrorism can have an
adverse effect on the public's attitude toward the safety and security of
travel and the availability of air service and other forms of
transportation, which are used to get some of our guests to and from our
ships. As an example, the September 11, 2001 terrorist attacks and their
aftermath negatively impacted our revenues, operating results and cash
flows and which had similar effects throughout the vacation industry.
Furthermore, consumer confidence can be weakened by all of the above
conditions, which can adversely affect our customers desire to take a
vacation.
Finally, adverse incidents involving cruise ships and adverse media
publicity concerning the cruise industry in general can both impact demand.
The operation of cruise ships involves the risk of accidents and other
incidents, which may bring into question passenger safety and security and
adversely affect future industry performance. While we make passenger
safety and security a high priority in the design and operation of our
ships, accidents and other incidents involving cruise ships could adversely
affect our future sales and profitability. In addition, adverse media
publicity concerning the cruise industry in general could impact customer
demand and, therefore, have an adverse impact on our net income. Any
reduction in demand may have a negative impact on our net revenue yields
(net revenue per available berth day), which would also have a negative
impact on our net income.
(2)Overcapacity within the cruise and competing land-based vacation
industry could have a negative impact on our net revenue yields,
increase our operating costs and could also result in ship asset
impairments.
Cruising capacity has grown in recent years, and we expect it to
continue to increase over the next four years as a number of cruise
companies, including us, are expected to introduce new ships into service.
In order to utilize this new capacity, the cruise industry must increase
its share of the overall vacation market. The overall vacation market is
also facing increases in land-based vacation capacity, including new
properties in Las Vegas, Nevada, Orlando, Florida and other popular
destination resorts, which also will impact our ability to increase our
market share as the overall vacation market increases competing capacity.
Any future imbalances between supply and demand could have a negative
impact on our net revenue yields, which would also have a negative impact
on our net income and could also result in ship asset impairments.
In addition, increasing cruise capacity could impact our ability to
retain and attract qualified crew at competitive costs and, therefore,
increase our shipboard employee costs.
(3)Environmental, health, safety and security legislation and
regulation could increase our operating costs.
Some environmental groups have lobbied for more stringent regulation
of cruise ships. Some groups also have generated negative publicity about
the cruise industry and its environmental impact. As a result of these and
other actions, governmental and regulatory authorities around the world may
enact new environmental, health, safety and security legislation and
regulations. In addition, the International Maritime Organization is
presently considering requiring that vessel operators adopt enhanced
security procedures and approved ship security plans. Stricter
environmental, health, safety and security legislation and regulations
could increase the cost of compliance and adversely affect the cruise
industry. In addition, we cannot be assured that our costs of complying
with current and future laws and regulations, or liabilities arising from
past or future releases of, or exposure to, hazardous substances, or to
ship discharges, will not have a material adverse affect on our financial
results.
(4)We face significant competition from both cruise lines and other
vacation operators, which may adversely impact our net revenue
yields.
We operate in the global vacation market. We compete for consumer
disposable leisure-time dollars with both other cruise lines and a wide
array of other vacation operators, including numerous land-based
destinations and package holiday, tour and timeshare vacation operators,
located throughout the world. Many of these operators attempt to obtain a
competitive advantage by lowering prices and/or by improving their
products, such as by offering different vacation experiences and locations.
In the event that we do not compete effectively with other cruise
companies and other vacation operators our net revenue yields could be
adversely affected.
In addition, since September 11, 2001, other cruise brands, including
some of our own, have announced the movement of some of their ships from
European to North American ports. The redeployment of such vessels may
result in increased competition, including pricing promotions to stimulate
demand, among the cruise lines with respect to cruises to the Bahamas, the
Caribbean, the Mexican Riviera and to Alaska. In addition, other vacation
industry firms reduced prices to attract consumers following September 11.
(5)Our operating and financing costs are subject to many economic and
political factors that are beyond our control, which may result in
increases in our operating and financing costs.
Some of our operating costs, including fuel, insurance and security
costs, are subject to increases because of economic or political
instability. Since September 11, 2001, our insurance costs have increased,
and we have also incurred additional expenses due to heightened security
for our operations. Additional political instability or terrorist
incidents could result in further increases to our operating costs and
could also result in us not being able to obtain adequate insurance
coverage due to the lack of viable insurance and reinsurance markets,
particularly for war risk insurance. Although the cost of fuel has
decreased from the higher price levels incurred in late 1999 and 2000, fuel
prices could be seriously affected in the future by market forces beyond
our control.
In addition, interest rates and our ability to secure debt or equity
financing, if necessary, are dependent on many economic and political
factors, which can be significantly affected by current events.
Furthermore, actions by U.S. and foreign taxing jurisdictions could cause
an increase in our costs. For example, the governor of the State of Alaska
recently proposed increases in the taxation of cruise lines visiting
Alaska.
Increases in operating and financing costs could adversely affect our
operating results because we may not be able to increase the prices of our
cruise vacations to recover these increased costs.
(6)Conducting business internationally may result in increased costs.
We operate our business internationally, and we plan to continue to
develop our international presence, especially in Europe. Operating
internationally exposes us to a number of risks. Examples include currency
fluctuations, interest rate movements, increases in duties, taxes and
governmental royalties, imposition of trade barriers and restrictions on
the repatriation of earnings, political uncertainty, and changes in laws
and policies affecting cruising, vacation or maritime businesses or the
governing of foreign-based companies' operations. If we are unable to
address these risks adequately, our financial results could be adversely
affected.
(7)Delays or faults in ship construction or our inability to continue
our shipbuilding program could reduce our profitability.
Cruise ships are large and complicated vessels, and building them
involves risks similar to those encountered in other sophisticated
construction projects, including delays in delivery and faulty
construction. Delays or faults in ship construction may result in delays
or cancellations of scheduled cruises, necessitate unscheduled repairs and
drydocking of the ship and increase our shipbuilding costs and/or expenses.
Industrial action, insolvency of shipyards or other events could also
delay or indefinitely postpone the delivery of new ships. These events, in
turn, could, to the extent they are not covered by contractual provisions
or insurance, adversely affect our financial results.
In addition, we have entered into forward foreign currency contracts
to fix the cost in U.S.dollars of ten of our foreign currency denominated
shipbuilding contracts. If any of the shipyards with which we have
contracted are unable to perform, we would still be required to perform
under our foreign currency forward contracts related to that shipyard's
shipbuilding contracts. This might require us to realize a loss on an
existing contract without having the ability to have an offsetting gain on
our foreign currency denominated shipbuilding contract, thus resulting in
an adverse affect on our financial results.
Finally, we believe that we are able to more effectively compete with
our newer ships due to a number of factors, including the increased number
of outside cabins and cabins with balconies and additional amenities. In
order to continue to compete effectively we may have to continue to enter
into new shipbuilding contracts, which will require significant capital
expenditures. If we were to discontinue or decelerate our new shipbuilding
program, our cash flow and net income could be adversely affected.
(8)The inability of qualified shipyards to build our ships could
reduce our future profitability.
We believe that there are a limited number of shipyards in the world
capable of the quality construction of large passenger cruise ships. We
currently have contracts with three of these shipyards for the construction
of 14 ships to enter service over the next four years. Other cruise
operators also have contracts to construct new cruise ships. If we elect
to build additional ships in the future, which we expect to do, these
shipyards may not have the available capacity to build additional new ships
for us at the times desired by us, and the shipyards may not agree to build
additional ships at a cost acceptable to us. Additionally, ships under
contract for construction may not be delivered. These events, in turn could
adversely affect our financial results.
(9)Future business acquisitions could reduce our net income, earnings
per share and cash flows.
We often evaluate acquisitions of other leisure and travel providers
in a disciplined manner to determine if there is an opportunity to improve
our potential for long-term internal growth and our net income, such as our
current offer to acquire P&O. Any acquisition includes numerous risks,
including, among others, those related to integrating the operations of the
acquired entity and achieving the cost reduction synergies that were
anticipated to be derived from the combined entity. In addition, we may
finance our acquisitions by issuing debt and/or equity securities and,
accordingly, additional interest expense related to this acquisition debt
and/or additional shares of our common stock issued in connection with any
acquisitions could have a negative effect on our net income and earnings
per share.
(10)The lack of attractive port destinations for our cruise ships
could reduce our net revenue yields and net income.
We believe that attractive port destinations are major reasons why our
customers choose a cruise versus an alternative vacation option. The
availability of ports, including the specific port facility at which our
guests will embark and disembark, is affected by a number of factors,
including, but not limited to, existing capacity constraints, security
concerns, adverse weather conditions and natural disasters, financial
limitations on port development, local governmental regulations and local
community concerns about both port development and other adverse impacts on
their communities from additional tourists. The inability to continue to
maintain and increase our ports of call could adversely affect our net
revenue yields and net income.
(11)We may not be able to obtain financing at all or on terms that
meet our expectations, which could adversely affect our financial
results.
A key to our access to financing is the maintenance of our strong
long-term credit ratings. The proposed acquisition of P&O, if consummated,
may result in a ratings downgrade and, thereby, increase our cost-of-
borrowing.
We believe that our current liquidity, together with our forecasted
cash flow from operations, will be sufficient to fund most or all of our
capital projects, debt service requirements, dividend payments, working
capital and other firm commitments, excluding any cash portion of our offer
to acquire P&O. Our forecasted cash flow from operations, as well as our
credit ratings, may be adversely affected by various factors, including,
but not limited to, declines in customer demand, increased competition, the
deterioration in general economic and business conditions, terrorist
attacks, ship incidents, adverse media publicity and changes in fuel
prices, as well as other factors noted under these "Risk Factors" and the
"Special Note Regarding Forward-Looking Statements" section below. To the
extent that we are required, or choose, to fund future cash requirements,
including our future shipbuilding commitments, from sources other than as
discussed above, we will have to secure such financing from banks or
through the offering of debt and/or equity securities in the public or
private markets. Specifically, if our P&O acquisition is consummated, we
intend to finance any cash portion of the purchase price up to
approximately $2.4 billion through the issuance of long-term debt or equity
securities or a combination of debt and equity. We also may need to
refinance a portion of P&O's existing debt. Our future operating cash flow
may not be sufficient to fund future obligations, and we may not be able to
obtain additional financing, including financing for any cash portion of
our proposed acquisition of P&O and refinancing of existing P&O debt, if
necessary, at a cost that meets our expectations. Accordingly, our
financial results could be adversely affected.
Risks Related To Our Corporate Structure and Common Stock
(1)A change of our tax status under the U.S. Internal Revenue Code of
1986, as amended (the "Code"), could have an adverse effect on our
net income and shareholders.
We are a foreign corporation engaged in a trade or business in the
U.S., and our ship-owning subsidiaries are foreign corporations that, in
many cases, depending upon the itineraries of their ships, receive income
from sources within the U.S. To the best of our knowledge, we believe
that, under Section 883 of the Code and applicable income tax treaties,
income and the income of our ship-owning subsidiaries, in each case derived
from or incidental to the international operation of a ship or ships, is
currently exempt from U.S. federal income tax. We believe that
substantially all of our income, and the income of our ship-owning
subsidiaries, with the exception of the U.S. source income from the
transportation, hotel and tour business of Tours, is derived from or
incidental to the international operation of a ship or ships within the
meaning of Section 883 and applicable income tax treaties.
We believe that we and many of our ship-owning subsidiaries currently
qualify for the Section 883 exemption since each is incorporated in a
qualifying jurisdiction and our common stock is primarily and regularly
traded on an established securities market in the U.S. To date, however,
no final U.S. Treasury regulations or other definitive interpretations of
the relevant portions of Section 883 have been promulgated, although
regulations have been proposed. See the risk factor immediately below for
a discussion of the proposed regulations under Section 883. Those
regulations or official interpretations could differ materially from our
interpretation of this Code provision and, even in the absence of differing
regulations or official interpretations, the Internal Revenue Service might
successfully challenge our interpretation. 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 identity, residence,
or holdings of our direct or indirect shareholders that could affect us and
our subsidiaries' eligibility for the Section 883 exemption. Accordingly,
it is possible that we and our subsidiaries will not be exempt from U.S.
federal income tax on U.S.-source shipping income. If we and our ship-
owning subsidiaries were not entitled to the benefit of Section 883, we
would be subject to U.S. federal income taxation on a portion of our
income, which would reduce our net income.
We believe that the income of some of our ship-owning subsidiaries
currently qualifies for exemption from U.S. federal and certain foreign
countries' income tax under bilateral income tax treaties. These treaties
may be cancelled by either country or replaced with a new agreement that
treats shipping income differently than under the agreement currently in
force. If these subsidiaries do not qualify for benefits under the
existing treaties or the existing treaties are cancelled or materially
modified in a manner adverse to our interests and, with respect to U.S.
federal income tax only, the subsidiaries do not qualify for Section 883
exemption; the ship-owning subsidiaries would be subject to U.S. federal
and/or foreign income taxation on a portion of their income, which would
reduce our net income.
(2)Failure to comply with the proposed Treasury regulations could have
a negative impact on our net income and stock price. Also, in
order to comply with proposed Treasury regulations, our
shareholders' ability to acquire or transfer our common stock and
convertible notes is restricted.
On February 8, 2000, the U.S. Treasury Department issued proposed
Treasury regulations to Section 883 of the Code relating to income derived
by foreign corporations from the international operation of ships and
aircraft which would apply to us. The proposed regulations provide, in
general, that a corporation organized in a qualified foreign country and
engaged in the international operation of ships or aircraft shall exclude
qualified income from gross income for purposes of U.S. federal income
taxation provided that the corporation can satisfy certain ownership
requirements, including, among other things, that its stock is publicly
traded. To be considered publicly traded, a corporation's shares must be
"primarily and regularly traded on an established securities market".
Under the proposed Section 883 regulations stock will be considered
"primarily traded" on an established securities market if the number of
shares that are traded during a taxable year on that market exceeds that
number of shares traded during that year on any other established
securities market. Stock will be considered "regularly traded" on an
established securities market under the proposed Section 883 regulations if
(i) stock representing 80% or more of the issuer's outstanding shares, by
voting power and value, is listed on the market and is traded on the
market, other than in de minimis quantities, on at least 60 days during the
taxable year and (ii) the aggregate number of shares of the stock traded
during the taxable year is at least 10% of the average number of shares of
the stock outstanding during the year. Even if a company can satisfy the
above tests it will not be considered publicly traded in any taxable year
in which 50% or more of the value of the outstanding shares of the stock
are owned actually or constructively at any time during the taxable year by
persons who each own 5% or more of the value of the outstanding shares of
stock. We believe that we currently qualify as a publicly traded
corporation under the proposed regulations and substantially all of our
income, with the exception of the U.S. source income from the
transportation, hotel and tour business of Tours, would continue to be
exempt from U.S. federal income taxes. However, because various members of
the Arison family and certain trusts established for their benefit
currently own approximately 47% of our common stock, there is the potential
that another shareholder could acquire 5% or more of our common stock,
which could jeopardize our qualification as a publicly traded corporation.
If, in the future, we were to fail to qualify as a publicly traded
corporation, we would be subject to U.S. federal income tax on our income
associated with our cruise operations in the U.S. In such event, our net
income and stock price would be negatively impacted.
As a precautionary matter, we amended our second amended and restated
articles of incorporation to ensure that we will continue to qualify as a
publicly traded corporation under the proposed regulations. This amendment
provides that no one person or group of related persons, other than certain
members of the Arison family and certain trusts established for their
benefit, may own or be deemed to own by virtue of the attribution
provisions of the Code more than 4.9% of our common stock, whether measured
by vote, value or number of shares. Any shares of our common stock
acquired in violation of this provision will be transferred to a trust and,
at the direction of our board of directors, sold to a person whose
shareholding does not violate that provision. No profit for the purported
transferee may be realized from any such sale. In addition, under
specified circumstances, the trust may transfer the common stock at a loss
to the purported transferee. Because certain of our notes are convertible
into common stock, the transfer of these notes are subject to similar
restrictions. These transfer restrictions may also have the effect of
delaying or preventing a change in our control or other transactions in
which the shareholders might receive a premium for their shares of our
common stock over the then prevailing market price or which the
shareholders might believe to be otherwise in their best interest.
(3)A group of principal shareholders effectively controls us and has
the power to cause or prevent a change of control.
A group of shareholders, comprising certain members of the Arison
family, including Micky Arison, our chairman and chief executive officer,
and trusts established for their benefit, beneficially own a total of
approximately 47% of our outstanding common stock. As a result, this group
of shareholders has the power to substantially influence the election of
directors and our affairs and policies, without the consent of our other
shareholders. In addition, this group has the power to prevent or cause a
change in control.
(4)We are not a U.S. corporation, and our shareholders may be subject
to the uncertainties of a foreign legal system in protecting their
interests.
Our corporate affairs are governed by our second amended and restated
articles of incorporation and by-laws and by the corporate laws of the
Republic of Panama. Thus, our public shareholders may have more difficulty
in protecting their interests in the face of actions by the management,
directors or controlling shareholders than would shareholders of a
corporation incorporated in a U.S. or other jurisdiction.
(5)The holders of our common stock may experience dilution in the value
of their equity interest as a result of the issuance and sale of
additional shares of our common stock.
A substantial amount of shares of our common stock were issued by us
in private transactions not involving a public offering and are therefore
treated as "restricted securities" for purposes of Rule 144 under the
Securities Act or are held by our affiliates and, therefore, treated as
"restricted securities" or "control securities". Some of the members of
the Arison family and related entities beneficially own approximately 47%
of our outstanding common stock. No predictions can be made as to the
effect, if any, that the issuance and availability for future market sales
of our common stock will have on the market price of our common stock
prevailing from time to time. Sales of substantial amounts of our common
stock (including shares issued upon the exercise of stock options), or the
perception that such sales could occur, could materially impair our future
ability to raise capital through an offering of equity securities.
Special Note Regarding Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. We have tried, wherever possible, to
identify such statements by using words such as "anticipate," "assume,"
"believe," "expect," "forecast," "future," "intend," and words and terms of
similar substance in connection with any discussion of future operating or
financial performance. These forward-looking statements, including those
which may impact the forecasting of our net revenue yields, booking levels,
pricing, occupancy or business prospects, involve known and unknown risks,
uncertainties and other factors, which may cause our actual results,
performances or achievements to be materially different from any future
results, performances or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, the following:
- general economic and business conditions which may impact levels of
disposable income of consumers and the net revenue yields for our
cruise products;
- consumer demand for cruises and other vacation options;
- other vacation industry competition;
- effects on consumer demand of armed conflicts, political instability,
terrorism, the availability of air service and adverse media
publicity;
- increases in cruise industry and vacation industry capacity;
- continued availability of attractive port destinations;
- changes in tax laws and regulations;
- changes in financial and equity markets;
- our ability to implement our brand strategy;
- our ability to implement our shipbuilding program and to continue to
expand our business outside the North American market;
- our ability to attract and retain shipboard crew;
- changes in foreign currency rates, security expenses, food, fuel,
insurance and commodity prices and interest rates;
- delivery of new ships on schedule and at the contracted prices;
- weather patterns or natural disasters;
- unscheduled ship repairs and drydocking;
- incidents involving cruise ships;
- impact of pending or threatened litigation;
- ability to successfully implement cost improvement plans;
- continuing financial viability of our travel agent distribution
system; and
- changes in laws and regulations applicable to us.
We caution the reader that these risks may not be exhaustive. We
operate in a continually changing business environment, and new risks
emerge from time to time. We cannot predict such risks nor can we assess
the impact, if any, of such risks on our business or the extent to which
any risk, or combination of risks may cause actual results to differ from
those projected in any forward-looking statement. Accordingly, forward-
looking statements should not be relied upon as a prediction of actual
results. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
C. Cruise Segment
The multiple-night cruise industry is a small part of the overall
global vacation market. We estimate that the global cruise industry
carried approximately ten million passengers in 2001. The principal cruise
sectors in the world, categorized by source of passengers, are North
America, Europe, Asia/Pacific and South America. We source our passengers
principally from North America, the largest cruise sector in the world and,
to a lesser extent, from Europe. A small percentage of our passengers are
sourced from South America and Asia/Pacific. See Note 12, "Segment
Information," to our Consolidated Financial Statements in Exhibit 13 to
this Annual Report on Form 10-K for additional information regarding our
U.S. and foreign assets and revenues.
North American Cruise Industry
The passenger cruise industry as it exists today began in
approximately 1970. Over time, the industry has evolved from a trans-ocean
carrier service into a competitive vacation alternative to land-based
resorts and hotels and sightseeing destinations. According to Cruise Lines
International Association ("CLIA"), a leading industry trade group, in 1970
approximately 500,000 North American sourced passengers took cruises of two
consecutive nights or more. CLIA estimates that this number reached
approximately seven million passengers in 2001, an average compound annual
growth rate of 8.9% since 1970. These strong growth rates were driven by
new demand, as approximately 40% of North American sourced passengers in
2001 were new cruisers. Also, according to CLIA, by the end of 2001, the
number of ships in North American service totaled 146 with an aggregate
passenger capacity of approximately 176,000.
CLIA projections indicate that by the end of 2002, 2003, 2004 and
2005, North America will be served by 153, 166, 173 and 175 ships,
respectively, having an aggregate passenger capacity of approximately
196,000, 224,000, 240,000 and 244,000, respectively. CLIA's estimates of
new ship introductions are based on scheduled ship deliveries and could
change. The lead-time for design, construction and delivery of a typical
large cruise ship is approximately two to three years. Additionally,
CLIA's estimates of capacity do not include assumptions related to
unannounced ship withdrawals due to factors such as age or changes in
itineraries and, accordingly, could indicate a higher percentage growth in
capacity than will actually occur. Nonetheless, we believe net capacity
serving North American sourced cruise passengers will increase over the
next several years.
CLIA's estimate of North American sourced cruise passengers, which is
only preliminary for 2001, and North American passenger capacity is as
follows:
NORTH AMERICAN NORTH AMERICAN
CALENDAR CRUISE PASSENGER
YEAR PASSENGERS(1) CAPACITY(2)
2001 6,954,000 176,000
2000 6,883,000 166,000
1999 5,890,000 149,000
1998 5,432,000 138,000
1997 5,051,000 118,000
(1)Source: CLIA estimates based on passengers carried for at least two
consecutive nights for the calendar year.
(2)Information presented is as of the end of the calendar year.
In spite of the cruise industry's growth since 1970, we believe
cruises only represent approximately 2% of the relevant North American
vacation market, defined as persons who travel for leisure purposes on
trips of three nights or longer involving an overnight stay in a hotel.
CLIA estimates that only 12% of the North American population has ever
taken a cruise for at least two consecutive nights.
European Cruise Industry
Europe is one of the largest vacation markets, but the cruise industry
in Europe is much smaller than the North American cruise industry.
European sourced cruise passengers carried in 2001 are estimated to be
approximately two million as compared to approximately seven million
passengers sourced from North America. From 1990 to 2001, the number of
cruise passengers sourced from Europe has been growing faster than its
North American counterpart and, based on our estimates, less than 1% of
European travelers took a cruise in 2001. The compounded annual growth
rate from 1996 to 2000 by major European cruise sector countries was 16% in
the United Kingdom ("U.K."), 15% in France, 13% in Germany and 12% in
Italy. The number of cruise ships being marketed to European customers has
increased in 2001 compared to 2000 and, we believe that several additional
new or existing ships will be introduced into Europe over the next several
years.
In addition, we also believe that Europe represents a significant area
for our growth because, among other things, the European cruise sector
demographics appear favorable, Europe has a population larger than that of
North America, there is a low level of customer penetration by the cruise
industry, and European consumers tend to take longer vacations then their
North American counterparts. The rate at which European and North American
vacationers take a cruise has been growing at a compounded annual growth
rate of 14% and 10%, respectively, from 1996 through 2000.
Passengers and Capacity
Our Cruise Operations had worldwide cruise passengers and passenger
capacity as follows (1):
FISCAL CRUISE PASSENGER
YEAR PASSENGERS CAPACITY
2001 3,385,000 58,346
2000 2,669,000 48,196
1999 2,366,000 43,810
1998 2,045,000 39,466
1997 1,945,000 31,078
(1) Information presented is as of the end of our fiscal year for passenger
capacity. Costa's passengers and capacity are included in 2001, but not
included in prior years. In December 2001, Carnival took delivery of the
2,124 passenger Carnival Pride, which increased our available passenger
capacity to 60,466.
Our passenger capacity has grown from 31,078 at November 30, 1997 to
58,346 at November 30, 2001. During 1998, capacity increased 8,388 berths
due to the delivery of Carnival's Elation and Paradise, the purchase of the
Wind Surf, the acquisition of Cunard and the consolidation of Seabourn. In
1999 capacity increased by 4,344 berths, primarily due to the delivery of
the Carnival Triumph and Holland America's Volendam. During 2000 capacity
increased by 4,386 berths, primarily due to the delivery of the Carnival
Victory and Holland America's Zaandam and Amsterdam, partially offset by
the 1,214 berth decrease due to the sale of Holland America's Nieuw
Amsterdam. During 2001 capacity increased by 10,150 berths, primarily due
to the acquisition and consolidation of Costa's 9,200 berths and the
delivery of the Carnival Spirit, partially offset by the removal from
service of the 946 berth Costa Riviera and the 232 berth decrease due to
the sale of the Seabourn Goddess I and II.
Cruise Ships and Itineraries
Carnival's 16 ships operate in the contemporary sector and are
primarily marketed to the North American vacation market. All of the
Carnival ships were designed by and built for Carnival, including three
that are among the world's largest, the Carnival Victory, the Carnival
Triumph and the Carnival Destiny. In addition, Carnival introduced the
first two of its new "Spirit" class ships, the Carnival Spirit and Carnival
Pride, which have 80% outside cabins, with 80% of those outside cabins
having balconies. Thirteen of the Carnival ships operate to destinations
in the Bahamas or the Caribbean during all or a portion of the year and two
Carnival ships call on ports on the Mexican Riviera year round. Carnival
ships also offer cruises to Alaska, Canada, New England, the Hawaiian
Islands and the Panama Canal.
Through our wholly-owned subsidiary, HAL Antillen, N.V. ("HAL"), we
operate ten ships in the premium sector, which are primarily marketed to
the North American vacation market under the Holland America brand. HAL
also operates four sailing ships in a niche of the luxury cruise sector
under the Windstar brand.
The Holland America ships offer premium cruises of various lengths to
destinations in Alaska, the Caribbean, Panama Canal, Europe, the Bahamas,
the Hawaiian Islands, South America and other worldwide locations. Cruise
lengths vary from seven to 99 days, with a large proportion of cruises
being seven or ten days. Periodically, the Holland America ships make
longer cruises or operate on special itineraries in order to increase
travel opportunities for its customers and diversify its cruise offerings.
For example, in 2001, Holland America offered a 99-day world cruise. The
majority of the Holland America ships operate to destinations in the
Bahamas and the Caribbean during fall to spring and in Alaska and Europe
during spring to fall. In order to offer a unique destination and, to
compete more effectively while operating in the Bahamas and the Caribbean,
Holland America includes in certain of its Bahamas and Caribbean
itineraries, a private island destination known as Half Moon Cay. Half Moon
Cay is a 2,400-acre island owned by Holland America. Facilities were
constructed on the island on 45 acres along a crescent-shaped white sand
beach. The remainder of the island remains undeveloped. The facilities on
Half Moon Cay include bars, shops, restrooms, a post office, a chapel and
an ice cream shop, as well as a food pavilion with open-air dining
shelters.
Windstar currently markets cruises to destinations in the Caribbean,
Europe, Central America and Tahiti and offers a casual, yet luxurious,
cruise experience on board its modern sail ships. The Windstar ships are
primarily marketed to the North American vacation market.
Passengers can enjoy multi-ethnic, multi-cultural and multi-lingual
ambiance on board any of the eight Costa ships, all of which operate in
Europe during the spring to fall. During the fall to spring, Costa
repositions a few of its ships to operate in the Caribbean and South
America. The Costa ships serve the contemporary sector and are primarily
marketed to the European vacation market. Costa is the number one cruise
line in Europe, principally serving customers in Italy, France, Germany and
Spain, based on passengers carried and capacity of its ships. The Costa
ships call on 94 European ports with 32 different itineraries and to
various other ports in the Caribbean and South America. Costa is also
expanding its presence in Germany by launching a new cruise product aimed
exclusively at the German vacation market, with European and Caribbean
sailings aboard the 760 berth Costa Marina, beginning in the Spring of
2002. Finally, Costa and Attica Enterprises have signed a letter of intent
to create two joint ventures. Costa Attica Cruises is expected to be 75%
owned by Costa and would start operating one of Costa's ships on cruises
from Greek ports commencing in March 2003 and Costa Superfast is expected
to be owned 25% by Costa and would start operating two of Attica's high
quality ferries in the Western Mediterranean commencing in March 2003. No
assurances can be given when or if either of these joint ventures will
become operational.
Under the Cunard brand, we operate two ships in the premium/luxury
sector, which are primarily marketed to the U.K., North American, German
and Australian vacation markets. Cunard's flagship, the Queen Elizabeth 2,
offers the only regularly scheduled transatlantic crossings between New
York and Southampton, England. In addition, Cunard will reposition the
Caronia to service the growing U.K. market, with round-trip cruises from
Southhampton commencing in May 2002. Both of Cunard's ships offer cruises
to other worldwide destinations, with many of the cruises ranging between
six and 18 days. The Cunard ships also offer extended cruises, such as the
QE2's world cruise.
The three Seabourn ships (the "Yachts of Seabourn") offer an intense
focus on personalized service and quality cuisine aboard its intimately
sized all suite ships. The Yachts of Seabourn serve the luxury sector and
are primarily marketed to the North American vacation market. These ships
concentrate their operations in Europe, Asia and the Americas with cruises
in the seven to 14 day range.
Summary information of our current ship offerings for fiscal 2002 is as
follows:
APPROXIMATE
CALENDAR GROSS
YEAR PASSENGER REGISTERED
SHIP REGISTRY BUILT CAPACITY TONS
Carnival:
Carnival Pride (a) Panama 2001 2,124 88,500
Carnival Spirit Panama 2001 2,124 88,500
Carnival Victory Panama 2000 2,758 102,000
Carnival Triumph Bahamas 1999 2,758 102,000
Paradise Panama 1998 2,052 70,000
Elation Panama 1998 2,052 70,000
Carnival Destiny Bahamas 1996 2,642 101,000
Inspiration Bahamas 1996 2,052 70,000
Imagination Bahamas 1995 2,052 70,000
Fascination Bahamas 1994 2,052 70,000
Sensation Bahamas 1993 2,052 70,000
Ecstasy Panama 1991 2,052 70,000
Fantasy Panama 1990 2,056 70,000
Celebration Panama 1987 1,486 47,000
Jubilee Bahamas 1986 1,486 47,000
Holiday Bahamas 1985 1,452 46,000
Total Carnival 33,250
Holland America(b):
Zaandam Netherlands 2000 1,440 63,000
Amsterdam Netherlands 2000 1,380 62,000
Volendam Netherlands 1999 1,440 63,000
Rotterdam Netherlands 1997 1,316 62,000
Veendam Bahamas 1996 1,266 55,000
Ryndam Netherlands 1994 1,266 55,000
Maasdam Netherlands 1993 1,266 55,000
Statendam Netherlands 1993 1,266 55,000
Prinsendam (c) Bahamas 1988 758 38,000
Noordam Netherlands 1984 1,214 34,000
Total Holland America 12,612
Costa:
Costa Atlantica Italy 2000 2,112 86,000
Costa Victoria Italy 1996 1,928 76,000
Costa Romantica Italy 1993 1,344 53,000
Costa Allegra Italy 1992 806 30,000
Costa Classica Italy 1991 1,302 53,000
Costa Marina Italy 1990 762 25,500
Costa Europa (d) Netherlands 1986 1,494 54,000
Costa Tropicale Italy 1982 1,022 37,000
Total Costa 10,770
Cunard:
Caronia England 1973 668 24,500
QE2 England 1969 1,790 70,000
Total Cunard 2,458
APPROXIMATE
CALENDAR GROSS
YEAR PASSENGER REGISTERED
SHIP REGISTRY BUILT CAPACITY TONS
Seabourn:
Seabourn Legend Bahamas 1992 208 10,000
Seabourn Spirit Bahamas 1989 208 10,000
Seabourn Pride Bahamas 1988 208 10,000
Total Seabourn 624
Windstar Cruises:
Wind Surf Bahamas 1990 308 14,750
Wind Spirit Bahamas 1988 148 5,700
Wind Song Bahamas 1987 148 5,700
Wind Star Bahamas 1986 148 5,700
Total Windstar 752
Total Passenger Capacity 60,466
(a)Carnival took delivery of the Carnival Pride in December 2001.
(b)In February 2002, Holland America took possession of the 1,214
passenger Patriot, formerly the Nieuw Amsterdam, pursuant to the
bankruptcy proceedings surrounding the parent company of its former
owner, who had purchased the Nieuw Amsterdam in fiscal 2000 from
Holland America. We are currently evaluating the future plans for
this ship.
(c)The Prinsendam, formerly the Seabourn Sun, will be transferred to
Holland America in April 2002 and, after refurbishments, will commence
sailing under the Holland America brand in June 2002.
(d)The Costa Europa, formerly Holland America's Westerdam, will be
transferred to Costa in March 2002 and, after refurbishments, will
commence cruising under the Costa brand in April 2002.
Cruise Ship Construction
We have signed agreements with three shipyards providing for the
construction of 14 new cruise ships. In addition, we have entered into one
shipbuilding option. See Note 7, "Commitments," to our Consolidated
Financial Statements in Exhibit 13 to this Annual Report on Form 10-K.
Cruise Pricing
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 includes accommodations, meals 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 health club and
swimming pools, on each ship.
Onboard and Other Revenues
We derive revenues from other onboard activities and services
including casino gaming, bar sales, gift shop sales, entertainment arcades,
shore excursions, art auctions, photo sales, spa services, bingo games and
lottery tickets, video diaries, snorkel equipment rentals, internet and
telephone usage, and promotional advertising by merchants located in our
ports of call.
The casinos, which contain slot machines and gaming tables including
blackjack, and in most cases craps, roulette and stud poker, are generally
open only when our ships are at sea in international waters. We also earn
revenue from the sale of alcoholic and other beverages. Onboard activities
are either performed directly by us or by independent concessionaires, from
which we collect a percentage of their revenues.
We receive additional revenues from the sale to our passengers of
shore excursions at each ship's ports of call. The excursions include,
among other things, bus and taxi sightseeing and adventure outings, local
boat and beach parties and nightclub and casino visits. For the Carnival,
Costa, Windstar, Cunard and Yachts of Seabourn ships, the shore excursions
are primarily operated by independent tour operators. For the Holland
America ships and other of our brands operating to destinations in Alaska,
shore excursions are operated by Tours and independent parties.
Also, when a passenger elects to purchase air transportation from us,
both our cruise revenues and operating expenses generally increase by
approximately the same amount.
In conjunction with cruise vacations on our ships, all of our cruise
brands sell pre- and post-cruise land packages. Carnival land packages
generally include one, two or three-night vacations at nearby attractions,
such as Universal Studios and Walt Disney World in Orlando, Florida, Busch
Gardens in Tampa, Florida, or in proximity to other vacation destinations
in Central and South Florida, Galveston, Texas, New Orleans, Louisiana, Los
Angeles, California and San Juan, Puerto Rico. Holland America land
packages outside of Alaska generally include one, two or three-night
vacations, including stays in unique European port cities or near
attractions in Central and South Florida. Costa's land packages generally
include one or two-night vacations in well-known European cities or at
vacation destinations in Central or South Florida. Cunard, Seabourn and
Windstar packages include numerous luxury and/or exotic pre- and post-
cruise land programs, such as world class golf programs and London and
Paris luxury holidays.
In conjunction with our Alaskan cruise vacations on our Holland
America, Carnival and the Yachts of Seabourn ships, we sell pre- and post-
cruise land packages which are more fully described in Part I, Item 1.
Business, D. Tour Segment.
Passengers and Occupancy
The aggregate number of passengers carried and occupancy percentage
for our ships is as follows (1):
YEARS ENDED NOVEMBER 30,
2001 2000 1999
Passengers carried 3,385,000 2,669,000 2,366,000
Occupancy percentage (2) 104.7% 105.4% 104.3%
(1)Costa is included in 2001 but not in 2000 and 1999.
(2)In accordance with cruise industry practice, occupancy percentage is
calculated based on two passengers per cabin even though some cabins can
accommodate three or four passengers. The percentages in excess of 100%
indicate that more than two passengers occupied some cabins.
The actual occupancy percentage for all cruises on our ships,
excluding Costa in 2000, during each quarter of fiscal 2000 and 2001 was as
follows:
OCCUPANCY
QUARTERS ENDED PERCENTAGE
February 29, 2000 103.4
May 31, 2000 102.3
August 31, 2000 112.4
November 30, 2000 103.4
February 28, 2001 105.2
May 31, 2001 102.5
August 31, 2001 113.0
November 30, 2001 97.9 (a)
(a)Our 2001 occupancy decreased compared to the fourth quarter of 2000
due primarily to the impact of the events of September 11 and their
aftermath. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Exhibit 13 to this Annual
Report on Form 10-K.
Sales and Marketing
Our cruise vacations appeal to a broad range of customers, who are of
all ages and interests, and who generate high-levels of repeat business for
our different brands. Our target market in North America, comprised of
households with an income of $40,000 or more and headed by a person who is
at least 25 years old, includes approximately 145 million people. Industry
studies show that approximately half of these people have expressed an
interest in taking a cruise as a vacation alternative.
In addition, cruising has traditionally appealed to the middle and
older segments of the population. These are the fastest growing segments
of the population and are forecast to expand over the next 10 years, which
we expect will provide a major source of new business for us. Furthermore,
cruising is attracting interest from younger people. Approximately 28% of
the cruise passengers sourced from North America between 1996 and 2000 were
in the 25-39 age bracket.
Finally, cruising has very high satisfaction ratings, which generate
strong levels of repeat business. In North America, industry studies
indicate that cruise passengers experience a high level of satisfaction
from their cruises, with 90% of cruisers finding it to be as good or better
than other vacations; 65% of cruisers over the period 1996 to 2000 rated a
cruise as "good value for the money" compared with other vacation
alternatives; and half of the people that have taken a cruise have
expressed that it is probable or definite that they would take another
cruise within the next five years.
We believe that both our ability to attract land-based vacationers and
our customers satisfaction levels are enhanced by the levels of choice and
innovative new facilities onboard our cruise ships, such as balconies,
multiple and 24-hour restaurants offering flexible dining, and amenities
such as modern gymnasiums and health spas, internet cafes, theaters, discos
and wedding chapels. Cruise ships are now floating resorts and our brands
are positioned to appeal to each of the three major sectors of the cruise
industry- contemporary, premium and luxury. Each of our brands offers a
particular style of cruise vacationing: the excitement and variety of a
Carnival "Fun Shipr," the five-star sophistication of Holland America, the
classic British tradition of Cunard, indulgent intimacy and luxury onboard
the Yachts of Seabourn, the casual elegance of Windstar and the Italian
charm of Costa - individual brands with individual styles.
The contemporary sector is typically served by cruises that are seven
days or less, are priced at per diems of $200 or less and feature a casual
ambiance. The contemporary sector is targeted to the mass-market and is
usually served by large ships, which offer excellent service at an
affordable price, with a wide range of amenities. Passengers on
contemporary cruises span all age groups, including families with children
to senior citizens. The average contemporary passenger age tends to be
younger than the average passenger age in the premium and luxury sectors.
We believe that the success and growth of the Carnival brand is
attributable in large part to our early recognition of these sectors of the
cruise industry and our efforts to specifically reach and promote the
expansion of the contemporary sector. The Costa brand is our primary
vehicle for expansion into the European contemporary sector.
The premium sector is served typically by cruises that are seven to 14
days or longer, at per diems of $250 or higher and appeal principally to
more affluent customers. The premium sector is usually served by smaller
ships than the contemporary sector. Premium ships typically offer larger
cabins and a higher level of individual service. We believe the success
and growth of the Holland America brand is attributable to our efforts to
promote the expansion of the premium sector.
The luxury sector, which is not as large as the other sectors, is
typically served by cruises with per diems of $300 or higher. The luxury
sector refers to the highest priced brands that enjoy a prestigious
reputation, which may be attributable to the history and image of a
particular ship, such as Cunard's QE2, or because the ships are smaller,
more intimate, more aesthetically appealing and offering award-winning
service, such as the Windstar ships or the Yachts of Seabourn.
During 1998, we created a marketing association called the "World's
Leading Cruise LinesSM" for our family of six cruise brands in order to both
educate the consumer about the overall breadth of our cruise brands, as
well as to increase the effectiveness and efficiency of marketing our
brands. During 2000, we launched "VIP", or Vacation Interchange
Privileges, a loyalty program that provides special considerations to
repeat guests aboard any of our six brands. In addition, we entered into a
marketing alliance with Starwood Preferred guests, the world's leading
hotel loyalty program, adding cruising from any of our six brands to the
list of award options available to their customers.
Our various cruise lines employ over 600 personnel, excluding
reservation agents, in the sales and sales support area who, among other
things, focus on motivating, training and supporting the retail travel
agent community which sells substantially all of our cruises. Travel agents
generally receive a standard commission of 10% plus the potential of
additional commissions based on sales volume. Commission rates on cruise
vacations are usually higher than commission rates earned by travel agents
on sales of airline tickets and hotel rooms. Moreover, since cruise
vacations are substantially all-inclusive, sales of our cruise vacations
generally yield higher commissions to travel agents than commissions earned
on selling airline tickets and hotel rooms. During fiscal 2001, no
controlled group of travel agencies accounted for more than 10% of our
revenues.
A significant portion of our brands' cruises are generally booked from
several months in advance of the sailing date for contemporary brands to up
to a year in advance of sailing for our luxury brands. This lead-time
allows us to adjust our prices, if necessary, in relation to demand for
available cabins, as indicated by the level of advance bookings. Our
fares, such as Carnival's Supersaver fares and Holland America's Early
Savings and Alumni Savings fares, are designed to encourage potential
passengers to book cruise reservations earlier, which helps to more
effectively manage our overall net revenue yields. Our brands' payment
terms require that a passenger pay a deposit to confirm their reservation
with the balance due well before the departure date. As a result of
September 11 and its aftermath, our brands generally experienced a closer-
to-sailing date booking pattern than was historically experienced. This
change in pattern caused a reduction in the cash flows we received from
bookings and, as would be expected, adversely affected our early booking
programs.
Historically, our cruise brands have been marketed primarily in North
America. We began to globalize our cruise business by expanding into Europe
through the acquisition of a 50% interest in Costa in June 1997 and Cunard
in May 1998. In September 2000, we positioned ourselves to better take
advantage of this expanding market sector by acquiring the balance of
Costa. This acquisition solidified our ownership of a cruise line that we
believe is as recognizable in Southern Europe and South America as Carnival
is in North America. We have leveraged Costa's European leadership
position by increasing our new ship development commitment to the Costa
brand, as well as by transferring Carnival's Tropicale in 2001 and Holland
America's Westerdam in 2002 to the Costa fleet. As previously mentioned,
we also are specifically tailoring the Costa Marina to German passengers,
and will market her exclusively for German speaking customers. In this way
we are expanding Europe's largest multiple-night cruise ship fleet, which
should continue to position us to gain a greater foothold in the growing
European cruise business. Additionally, Cunard will be playing a more
significant role in our strategy to target the U.K. cruise sector. We will
be repositioning the Caronia for round-trip cruises from Southampton as of
May 2002, and have also committed to the construction of a new 1,968
passenger ship to serve the U.K. vacation market upon its expected delivery
in January 2005.
Carnival
We believe that Carnival's success is due in large part to its unique
brand positioning within the vacation industry. Carnival markets its
cruises not only as alternatives to competitors' cruises, but as vacation
alternatives to competitive land-based resorts and sightseeing
destinations. Carnival seeks to attract passengers from the broad vacation
market, including those who have never been on a cruise ship before and who
might not otherwise consider a cruise as a vacation alternative. Carnival's
strategy has been to emphasize the cruise experience itself rather than
particular destinations, as well as the advantages of a prepaid, all-
inclusive vacation package. Carnival regularly engages in comparative
pricing advertisements in which it compares the cost of a cruise with land-
based vacations. Carnival markets its cruises as the "Fun Shipsr"
experience, which includes a wide variety of onboard activities and
entertainment, such as full-scale casinos and nightclubs, an atmosphere of
pampered service and high quality food.
Carnival uses, among others, the themes "Carnival's Got the Funr" and
"The Most Popular Cruise Line in the World!r". Carnival advertises
nationally directly to consumers primarily on network and cable television
and through extensive print media. Carnival believes its advertising
generates interest in cruise vacations generally and results in a higher
degree of consumer awareness of the "Fun Shipsr" concept and the
"Carnivalr" name in particular. During 2000, Carnival re-launched
www.carnival.com, Carnival's consumer web site, which primarily serves as a
marketing and research tool for its current and potential customers.
During 2001, Carnival and Capital One launched an affordable cruise
financing program bundled with a co-branded credit card featuring a
comprehensive rewards program. The Fun Finance PlanSM enables cruise
vacationers to pay for a Carnival cruise through fixed monthly credit card
payments.
In addition, Carnival has expanded its ship embarkation locations in
the U.S. and Canada over the past several years to help generate additional
drive-in business, which reduces the cost of a Carnival vacation compared
to cruise or land-based alternatives that require air or other more
expensive travel arrangements. Specifically, Carnival now has cruises
originating from Charleston, Galveston, Honolulu, Mobile, New Orleans, New
York, Norfolk, San Diego, Seward, Tampa and Vancouver, in addition to its
traditional home ports of Miami, Los Angeles, Port Canaveral and San Juan.
Most of Carnival's cruise bookings are made through travel agents. In
fiscal 2001, Carnival took reservations from about 27,000 of approximately
49,000 travel agency locations known to us in the U.S. and Canada. In
addition, Carnival markets and sells its cruises to tour operators and
through travel agents located in numerous other countries, including the
U.K., Bermuda, the Bahamas, Argentina, Venezuela, Mexico and Italy.
Carnival engages in substantial promotional efforts designed to
motivate and educate retail travel agents about its "Fun Shipsr" cruise
vacations. Carnival employs approximately 130 business development
managers and 50 in-house service representatives to motivate independent
travel agents and to promote its cruises as an alternative to competitive
land-based vacations or other cruise lines. Carnival believes it has one
of the largest sales forces in the cruise industry.
To facilitate access and to simplify the reservation process, Carnival
employs approximately 1,200 reservation agents primarily to take bookings
from independent travel agents. Carnival's fully automated reservation
system allows its reservation agents to respond quickly to book cabins on
its ships. Additionally, through various third-party computer reservation
systems or Carnival's internet booking engine, travel agents and consumers
have the ability to make reservations directly into Carnival's computerized
reservations system.
Holland America and Windstar
The Holland America and Windstar ships cater to the premium and luxury
sectors, respectively. We believe that the hallmarks of the Holland
America experience are beautiful ships and gracious, attentive service.
Holland America communicates this difference as "A Tradition of
Excellencer", a reference to its long-standing reputation for "world class"
service and cruise itineraries. Holland America seeks to attract consumers
who want an enhanced vacation in terms of service, smaller ships and a
higher staff-to-guest ratio.
Substantially all of Holland America's bookings are made through
travel agents. In fiscal 2001, Holland America took reservations from
about 18,000 of approximately 49,000 travel agency locations known to us in
the U.S. and Canada. In addition, Holland America and Windstar markets and
sells its cruises to tour operators and through travel agents located in
numerous other countries, including the U.K., Australia and the
Netherlands.
Holland America has focused much of its sales efforts at creating an
excellent relationship with the travel agency community. This is due
principally to its marketing philosophy that travel agents have a large
impact on the consumer vacation selection process and will recommend
Holland America more often because of its excellent reputation for service
to both its guests and their independent travel agents. Holland America
solicits continuous feedback from customers and the independent travel
agents making bookings with Holland America to ensure they are receiving
excellent service. Holland America and Windstar believe that their web
sites at www.hollandamerica.com and www.windstarcruises.com help to enrich
the consumers web-based research experience.
Holland America's marketing communication strategy is primarily
composed of newspaper and magazine advertising, large-scale brochure
distribution, direct mail solicitations to past passengers and others and
network and cable television and radio spots. Holland America engages in
substantial promotional efforts designed to motivate and educate retail
travel agents about its products. Holland America employs approximately 50
field sales representatives, 30 inside sales representatives and 15 sales
and service representatives to support the field sales force. To
facilitate access and to simplify the reservation process, Holland America
employs approximately 280 reservation agents primarily to take bookings
from travel agents. Additionally, through various third-party computer
reservation systems or Holland America's internet booking engine, travel
agents and consumers have the ability to make reservations directly into
Holland America's computerized reservations system.
Windstar has its own marketing and reservations staff. Field sales
representatives for both Holland America and Carnival also act as field
sales representatives for Windstar. Marketing efforts are devoted primarily
to travel agent support and awareness, direct mail solicitation of past
passengers and distribution of brochures. The marketing features the
distinctive nature of the graceful, modern sail ships and the distinctive
"casually elegant" experience on "intimate itineraries," apart from the
normal cruise experience. Windstar's luxury cruise sector positioning is
embodied in its marketing phrase "180 degrees from ordinaryr".
Costa
From June 1997 through September 28, 2000, we owned 50% of Costa. On
September 29, 2000, we completed the acquisition of the remaining 50%
interest in Costa. See Note 17, "Costa Acquisition," to our Consolidated
Financial Statements in Exhibit 13 to this Annual Report on Form 10-K.
Costa is headquartered in Genoa, Italy and is Europe's largest cruise
line based on number of passengers carried and available capacity. Costa is
targeted to the contemporary sector with most of its cruises sold to
European passengers, primarily from Italy, France, Germany, Spain and
Switzerland. Approximately 85% of Costa's revenues are generated by non-
U.S. tour operators and travel agents. Costa has sales offices in
Argentina, Brazil, England, France, Germany, Italy, Spain, Switzerland and
the U.S., and employs over 300 personnel in the sales and sales support
area, excluding reservation agents. Costa sales offices focus much of
their effort at motivating and educating travel agents. These efforts
include, among other things, newspaper, television, radio and magazine
advertising, direct mail solicitation and brochure distribution. In
addition, through the use of the internet, at web sites specifically
designed for the country and guest that Costa is targeting, the consumers
are educated about cruising and Costa (ie: www.costacruises.com and
www.costa.it). To facilitate access and to simplify the reservation
process, Costa employs approximately 110 reservation agents primarily to
take bookings from travel agents. Additionally, through either Costa's
internet booking engine and/or through third party computer reservation
systems, Costa's European and South American travel agents generally have
the ability to make reservations directly into Costa's reservations system.
We believe that one of the principal ways that Costa distinguishes
itself from other brands is by immersing its guests in the Italian ambiance
on its ships. The moment a guest boards a ship, they are greeted to
Italian decor and art; the decks and restaurants are sometimes named after
well-known Italian places, the cuisine is all prepared with an Italian
flair and the officers and key personnel are all Italian. A voyage on
board Costa is meant to capture the charm and flavor of a visit to Italy,
except for the ship dedicated to the German market. Costa believes its
advertising generates interest in cruise vacations generally and results in
a higher degree of awareness to "Cruising Italian StyleSM". In addition,
Costa is very experienced at providing cruises to guests with different
nationalities and languages besides Italian, thereby enabling it to
effectively market and sell its cruises throughout Europe and South and
North America.
Cunard and Seabourn
We own 100% of Cunard Line Limited, which owns Cunard and Seabourn.
Currently five ships are being offered under these two brands, which are
marketed separately.
The Cunard brand operates two ships in the premium/luxury cruise
sector. Cunard's most visible ship is the QE2. The QE2 is the only active
passenger ship of its size built specifically for navigating ocean waters
and offering regularly scheduled transatlantic cruises, and thus enjoys a
unique standing among modern passenger ships. Over the past year, Cunard
has repositioned itself as the brand with the most famous ocean liners in
the world. The fame of the QE2, as well as the worldwide anticipation of
the arrival of the Queen Mary 2, which is expected in December 2003,
reinforces this brand identity. The line's cruise ship, Caronia, will be
based in Southhampton and dedicated to the U.K. market beginning May 2002.
The Seabourn brand currently operates three ships, offering ultra-
luxury cruising with an intense focus on service and cuisine. It is the
exceptionally high level of service which we believe enables the Yachts of
Seabourn to be one of the most celebrated cruise lines in the world.
Cunard and Seabourn currently market and sell their products through
their sales offices in Miami, Florida, the U.K., Germany and Australia.
Approximately 60% and 31% of Cunard and Seabourn's revenues, respectively,
are generated by non-U.S. tour operators and travel agents. Marketing
efforts are devoted primarily to travel agent support and awareness, direct
mail solicitation, loyalty marketing to past passengers, targeted print
media campaigns and brochure distribution and the education of consumers at
the Cunard and Seabourn web sites located at www.cunard.com and
www.seabourn.com, respectively.
Substantially all of Seabourn's and Cunard's bookings are made through
travel agents. In fiscal 2001, Seabourn and Cunard took reservations from
about 10,200 of approximately 49,000 travel agency locations known to us in
the U.S. and Canada. Cunard and Seabourn employ approximately 21 field
sales representatives, 13 inside sales representatives and 20 sales and
service representatives to support its field sales force. They also employ
approximately 48 reservation agents primarily to take bookings,
substantially all of which come from travel agents.
Seasonality
Our revenue from the sale of passenger tickets is moderately seasonal.
Historically, demand for cruises has been greatest during the summer
months. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - General," in Exhibit 13 to this Annual Report
on Form 10-K.
Competition
We compete both with a wide array of other land-based vacation
alternatives and with other cruise lines for the consumers' disposable
leisure time dollars. Our cruise lines also compete, in some cases,
against each other.
We compete with land-based vacation alternatives throughout the world,
including, among others, resorts and hotels located in Las Vegas, Nevada,
Orlando, Florida, various Caribbean, Bahamian and Hawaiian Island
destination resorts and numerous vacation destinations throughout Europe
and the rest of the world. Land-based competition in Las Vegas and Orlando
together attract annually almost ten times the number of vacationers than
the North America cruise industry. Specifically, our land-based
competitors, include, among others, Airtours, Club Mediterranee, Disney
theme parks, GoGo Tours, Fairfield Communities Vacation Ownership Club,
First Choice, Harrah's Entertainment, Hilton Hotels, Kuoni Travel, Mandalay
Resort Group, Marriott International Resorts and the Marriott Vacation
Ownership Club, MGM Grand, Nouvelle Frontieres, Perillo Tours, Preussag,
Ritz-Carlton Hotels, Saga Tours, Six Flags, Starwood Hotels and Resorts,
Sandals Resorts, SeaWorld theme parks, Sun City Resorts, Thomson Travel
Group, Trafalgar and Universal theme parks.
Our primary cruise competitors in the contemporary and/or premium
cruise sectors for North American sourced passengers are RCL, which owns
Royal Caribbean International and Celebrity Cruises, Princess Cruises,
owned by P&O, Norwegian Cruise Line ("NCL") and Orient Lines, both owned by
Star Cruises plc, and Disney Cruise Line.
Our primary cruise competitors for European sourced passengers are
Airtours' Sun Cruises, Fred Olsen, P&O Cruises, owned by P&O, Star Cruises
and Thomson in the U.K.; Aida Cruises, A'Rosa and Seetours, all three owned
by P&O, Hapag-Lloyd, Peter Deilmann and Phoenix in Germany and
Mediterranean Shipping Cruises and Royal Olympic Cruise Line and its
parent, Louis Cruise Line and Festival Cruises in Southern Europe. We also
compete for passengers with NCL, Princess Cruises and RCL throughout
Europe.
The Cunard, Seabourn and Windstar ships' compete for passengers
sourced primarily from North America and/or Europe and the primary
unaffiliated competitors within the luxury cruise sector include Crystal
Cruises, Radisson Seven Seas Cruise Line, and Silversea Cruises, as well as
the higher priced cabins on certain of the cruise lines which serve the
premium sector.
On November 20, 2001, RCL and P&O announced their intention to combine
their businesses, subject to shareholder approvals and regulatory
clearances. We also have made an offer to acquire P&O (see Part I, Item 1.
Business, A. General - Recent Development).
See Part I, Item 1. Business, B. Risk Factors for additional
information regarding our competition.
Governmental Regulation
Our ships are registered in the Bahamas, England, Italy, the
Netherlands and Panama, as more fully described under Part I, Item 1.
Business, C. Cruise Segment - Cruise Ships and Itineraries and,
accordingly, are regulated by these jurisdictions and by the international
conventions governing the safety of our ships and guests that these
jurisdictions have ratified or adhere to. 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 are applicable to some aspects of our ship
operations.
Furthermore, the International Maritime Organization (the "IMO"),
which operates under the United Nations, has adopted safety standards as
part of the Safety of Life at Sea ("SOLAS") Convention, which is applicable
to all of our ships. Generally, SOLAS establishes vessel design,
structural features, materials, construction and life saving equipment
requirements to improve passenger safety and security. The SOLAS
requirements are revised from time to time, with the most recent
modifications being phased in through 2010.
In 1993, SOLAS was amended to adopt the International Safety
Management Code (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 became mandatory for passenger vessel operators,
such as ourselves, on July 1, 1998. 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
(i.e. the process by which a nation exercises authority over foreign ships
when the ships are in the waters subject to its jurisdiction).
Our ships are subject to a program of periodic inspection by ship
classification societies who conduct annual, intermediate, drydocking and
class renewal surveys. Classification societies conduct these surveys not
only to ensure that our ships are in compliance with international
conventions adopted by the flag state and domestic rules and regulations,
but also to verify that our ships have been maintained in accordance with
the rules of the society and recommended repairs have been satisfactorily
completed.
We are subject to various international, national, state and local
environmental protection and health and safety laws, regulations and
treaties that govern, among other things, air emissions, employee health
and safety, waste discharge, water management and disposal and storage,
handling, use and disposal of hazardous substances, such as chemicals,
solvents, paints and asbestos.
In particular, in the U.S., the Oil Pollution Act of 1990 ("OPA")
provides for strict liability for water pollution, such as oil pollution or
threatened oil pollution incidents in the 200-mile exclusive economic zone
of the U.S., subject to monetary limits. These monetary limits do not
apply, however, where the discharge is caused by gross negligence or
willful misconduct of, or the violation of, an applicable regulation by a
responsible party. 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. These
certificates demonstrate our ability to meet removal costs and damages
related to water pollution, such as for an oil spill or a release of a
hazardous substance up to our ship's statutory liability limit.
In addition, most U.S. states that border a navigable waterway or
seacoast 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.
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.
If we violate or fail to comply with environmental laws, regulations
or treaties, we could be fined or otherwise sanctioned by regulators.
Although we have made, and will continue to make, capital and other
expenditures to comply with environmental laws and regulations, we do not
expect these expenditures to have a material impact on our financial
statements in 2002. See Note 8, "Contingencies," to our Consolidated
Financial Statement in Exhibit 13 to this Annual Report in Form 10-K for
additional discussion of ongoing governmental investigations into certain
of our environmental compliance matters.
From time to time, environmental regulators consider more stringent
regulations which may affect our operations and increase our compliance
costs. As evidenced from 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 and,
accordingly, this will subject us to increasing compliance costs in the
future.
Our ships that call on U.S. ports are subject to inspection by the
United States Coast Guard for compliance with the SOLAS Convention and by
the United States Public Health Service for sanitary standards. Our ships
are also subject to similar inspections pursuant to the laws and
regulations of various other countries our ships call on.
In addition, our ships that call on U.S. ports are regulated by the
Federal Maritime Commission ("FMC"). Public Law 89-777 which is
administered by the FMC requires most cruise line operators to establish
financial responsibility for nonperformance of transportation. The FMC's
regulations require that a cruise line demonstrate its financial
responsibility through a guarantee, escrow arrangement, surety bond,
insurance or self-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. The FMC has
recently decided to consider various changes to the financial
responsibility regulations which could increase our compliance costs. In
addition, other jurisdictions, including Argentina, Brazil, the U.K. and
Germany require the establishment of financial responsibility for
passengers from their jurisdictions.
In connection with a significant portion of our Alaska cruise
operations, Holland America and Carnival rely on concession permits from
the U.S. National Park Service, which are periodically renewed, to operate
their cruise ships in Glacier Bay National Park. There can be no assurance
that these permits 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.
We believe we have all the necessary licenses to conduct our business.
From time to time, various other regulatory and legislative changes have
been or may be proposed that could have an affect on the cruise industry in
general. See "Risk Factors" for a discussion of other regulations which
impact us.
Financial Information
For financial information about our cruise and affiliated operations
segment with respect to each of the three years in the period ended
November 30, 2001, see Note 10, "Segment Information," to our Consolidated
Financial Statements in Exhibit 13 to this Annual Report on Form 10-K.
D. Tour Segment
In addition to our cruise business we operate Tours, which is a
leading cruise/tour operator in the state of Alaska and the Canadian Yukon.
Tours also markets sightseeing packages both separately and as part of our
cruise/tour packages. Since a substantial portion of Tours' business is
derived from the sale of tour packages in Alaska during the summer season,
Tour' operations are highly seasonal.
Holland America Tours
Tours is comprised of a group of companies which together comprise the
tour operations and perform three independent yet interrelated functions.
During 2001, as part of an integrated travel program to destinations in
Alaska, the Canadian Yukon and Washington, the tour service group offered
32 different tour programs varying in length from 8 to 18 days. The
transportation group and hotel group supports the tour service group by
supplying facilities needed to conduct tours. Facilities include dayboats,
motor coaches, rail cars and hotels.
Two luxury dayboats perform an important role in the integrated travel
program offering tours to the glaciers of Alaska and the Yukon River. The
Yukon Queen II cruises the Yukon River between Dawson City, Yukon Territory
and Eagle, Alaska and the Ptarmigan operates on Portage Lake in Alaska.
The two dayboats have a combined capacity of 360 passengers.
A fleet of over 300 motor coaches operate in Alaska, Washington,
British Columbia, Canada and the Canadian Yukon. These motor coaches are
used for extended trips, city sightseeing tours and charter hire.
Additionally, Tours operates express motor coach service between downtown
Seattle, Washington and the Seattle-Tacoma International Airport and also
provides transit service for some of our cruise passengers between Seattle
and Vancouver.
Thirteen private, domed rail cars, which are called "McKinley
Explorers", run on the Alaska Railroad between Anchorage and Fairbanks,
stopping at Denali National Park.
In connection with its tour operations, Tours owns or leases motor
coach maintenance shops in Seattle, Washington, and in Juneau, Fairbanks,
Anchorage, Skagway and Ketchikan, Alaska. Tours also owns or leases
service offices at Anchorage, Denali Park, Fairbanks, Juneau, and Skagway
in Alaska, at Whitehorse in the Yukon Territory, in Seattle, Washington and
Vancouver and Victoria, British Columbia.
Westmark Hotels
Tours operates 12 hotels in Alaska and the Canadian Yukon under the
name Westmark Hotels. Four of the hotels are located in Canada's Yukon
Territory and offer a combined total of 585 rooms. The remaining eight
hotels, located throughout Alaska, provide a total of 1,348 rooms, bringing
the total number of hotel rooms to 1,933. Eleven of the hotels are wholly
owned by Tours subsidiaries and Westmark operates one under a management
agreement.
The hotels play an important role in Tours tour programs during the
summer months when they provide accommodations to the tour passengers. The
hotels located in the larger metropolitan areas remain open during the
entire year, acting during the winter season as centers for local community
activities while continuing to accommodate the traveling public. Most of
the Westmark hotels include dining, lounge and conference or meeting room
facilities. Certain hotels have gift shops and other tourist services on
the premises.
For the seven hotels that operate year-round, the occupancy percentage
for fiscal 2001 was 55.2%, and for the five hotels that operate only during
the summer months, the occupancy percentage for fiscal 2001 was 65.5%.
Sales and Marketing
Tours has its own marketing staff devoted to travel agent support and
awareness, direct mail solicitation of past customers, use of consumer
magazine and newspaper advertising to develop prospects and enhance
awareness and distribution of brochures. Additionally, television and radio
spots are used to market its tour and cruise packages. The Tours marketing
message leverages its 55 years of Alaska tourism leadership and its
extensive array of hotel and transportation assets to create a brand
preference for Tours. To the prospective vacationer Tours endeavors to
convince them that "Holland America Tours is Alaska".
Holland America tours are marketed both separately and as part of
cruise/tour packages. Although most of Tours cruise/tours include a Holland
America cruise as the cruise segment, other cruise lines also market
Holland America tours as a part of their cruise/tour packages and
sightseeing excursions. Holland America tours sold separately are marketed
through independent travel agents and also directly by Tours, utilizing
sales desks in major hotels. General marketing for the hotels is done
through various media in Alaska, Canada and the contiguous U.S. Travel
agents, particularly in Alaska, are solicited, and displays are used in
airports in Seattle, Washington, Portland, Oregon and various Alaskan
cities. Room rates at Westmark Hotels are on the upper end of the scale
for hotels in Alaska and the Canadian Yukon.
Seasonality
Tours' tour revenues are highly seasonal with a large majority
generated during the late spring and summer months in connection with the
Alaska cruise season. Tours' tours are conducted in Alaska, the Canadian
Yukon and Washington. The Alaska and Canadian Yukon tours coincide to a
great extent with the Alaska cruise season, May through September.
Washington tours are conducted year-round although demand is greatest
during the summer months. During periods in which tour demand is low Tours
seeks to maximize its motor coach charter activity, such as operating
charter tours to ski resorts in Washington.
Competition
Tours competes with independent tour operators and motor coach charter
operators in Alaska, British Columbia, the Canadian Yukon and Washington.
The primary competitors in these areas are Princess Tours,with
approximately 215 motor coaches and five hotels, Alaska
Sightseeing/Trav-Alaska, with approximately 12 motor coaches, and
commencing in 2001, Royal Celebrity Tours, with approximately 20 motor
coaches. The primary competitor in Washington is Hesselgrave
International, with approximately 35 motor coaches.
Westmark Hotels compete with various hotels throughout Alaska, many of
which charge prices below those charged by Westmark Hotels. Dining
facilities in the hotels also compete with the many restaurants in the same
geographic areas.
Government Regulations
Tours motor coach operations are subject to regulation both at the
federal and state levels, including primarily the U.S. Department of
Transportation, the Washington Utilities and Transportation Commission, the
British Columbia Motor Carrier Commission, the Yukon Motor Transport Board
and the Alaska Department of Transportation. Certain activities of Tours
involve federal or state properties and may require concession permits and
are subject to regulation by various federal or state agencies, such as the
U.S. National Park Service, the U.S. Forest Service and the State of Alaska
Department of Natural Resources.
In connection with the operation of its beverage facilities in the
Westmark Hotels, Tours is required to comply with state, county and/or city
ordinances regulating the sale and consumption of alcoholic beverages.
Violations of these ordinances could result in fines, suspensions or
revocation of licenses and preclude the sale of any alcoholic beverages by
the hotel involved.
In the operation of its hotels, Tours is required to comply with
applicable building and fire codes. Changes in these codes have in the
past and may in the future require expenditures to ensure continuing
compliance.
From time to time, various other regulatory and legislative changes
have been or may be proposed that could have an effect on the tour industry
in general.
Financial Information
For financial information about our tour segment with respect to each
of the three years in the period ended November 30, 2001, see Note 10,
"Segment Information," to our Consolidated Financial Statements in Exhibit
13 to this Annual Report on Form 10-K.
E. Employees
Our operations have approximately 5,200 full-time and 2,300 part-
time/seasonal employees engaged in shoreside operations. We also employ
approximately 1,700 officers and 24,000 crew and staff on our 43 ships.
Due to the seasonality of its Alaska and Canadian operations, HAL and its
subsidiaries increase their work force during the summer months, employing
additional seasonal personnel which have been included above. We have
entered into agreements with unions covering certain employees in our
hotel, motor coach and ship operations. We consider our employee and union
relations generally to be good.
F. Suppliers
Our largest purchases are for airfare, advertising, fuel, food and
beverages and hotel and restaurant supplies and products and for the
construction of our ships. Although we choose to use a limited number of
suppliers for most of our food and beverages, and hotel and restaurant
supplies and products, most of these purchases are available from numerous
sources at competitive prices. The use of a limited number of suppliers
enables us to, among other things, obtain volume discounts. We purchase
fuel from a limited number of sources located at certain of our ports of
call. See Part I, Item 1., Business, B. Risk Factors - for a discussion of
the limited number of qualified shipyards available to build our new ships.
G. Insurance
We maintain insurance covering legal liabilities related to crew,
passengers and other third parties on our ships in operation through The
West of England Shipowners Mutual Insurance Association (Luxembourg)
("WOE"), Steamship Mutual Underwriting Association Ltd. (the "SMUAL") and
the United Kingdom Mutual Steamship Assurance Association (Bermuda) Limited
(the "UKMSAA"). The amount and terms of this insurance is governed by the
rules of the foregoing protection and indemnity associations.
We maintain insurance on the hull and machinery of each ship in
amounts equal to the approximate market value of each ship. We maintain
war risk insurance on each ship which includes legal liability to crew and
passengers, including terrorist risks for which coverage would be excluded
under WOE, SMUAL and UKMSAA, subject to certain limitations. The coverage
for hull and machinery and war risks is provided by international marine
insurance carriers. We, as currently required by the FMC, maintain at all
times four $15 million performance bonds for all of our ships which embark
passengers in U.S. ports, to cover passenger ticket liabilities in the
event of a canceled or interrupted cruise. We also maintain other
performance bonds as required by various foreign authorities who regulate
certain of our operations in their jurisdictions. As a result of the
September 11, 2001 attacks, our war risk insurance premiums have increased,
and we expect most of our other insurance premiums to increase at the time
of their renewals. No assurance can be given that affordable and viable
insurance and reinsurance markets will be available to us in the future,
particularly for war risk insurance.
We maintain certain levels of self-insurance for the above mentioned
risks through the use of substantial deductibles. We do not typically carry
coverage related to loss of earnings or revenues for our cruise or tour
operations.
We also maintain various other insurance policies to protect the
assets of Tours and other activities.
H. Trademarks
We own numerous trademarks, which we believe are widely recognized
throughout the world and have considerable value.
Item 2. Properties
Our cruise ships, which are all owned by us, and our private island,
Half Moon Cay, are described in Part I, Item 1. Business, C. Cruise Segment
- - Cruise Ships and Itineraries and our cruise ships under construction are
described in Note 7, "Commitments," to the Consolidated Financial
Statements in Exhibit 13 to this Annual Report on Form 10-K. The properties
associated with Tours operations are described in Part I, Item 1. Business,
D. Tour Segment.
Carnival's principal shoreside operations and its headquarters and our
corporate headquarters are located at 3655 N.W. 87th Avenue, Miami,
Florida. These facilities are owned by us and have approximately 456,000
square feet of office space. HAL's principal shoreside operations and its
headquarters are located at 300 Elliott Avenue West in Seattle, Washington
in approximately 154,000 square feet of leased office space. Costa's
principal shoreside operations and its headquarters are located in Genoa,
Italy in approximately 125,000 square feet of owned and leased space.
Cunard Line Limited's principal shoreside operations and its headquarters
are located at 6100 Blue Lagoon Drive in Miami, Florida in approximately
51,000 square feet of leased office space. We also lease space in Colorado
Springs, Colorado for use as an additional reservation center and have
leases for additional office space in Southampton and London, England and
Hollywood, Florida for Cunard's U.K. operations and our U.K. sales and
shipbuilding technical service offices and for Costa's South Florida sales
office.
Our cruise ships, tour properties, shoreside operations and
headquarter facilities are well maintained and in good condition. We
evaluate our needs periodically and obtain additional facilities when
deemed necessary and we believe that these facilities are adequate for our
current needs.
Item 3. Legal Proceedings
One action has been filed against Tours and one action has been filed
against Costa on behalf of purported classes of persons who paid port
charges to Tours or Costa, alleging that statements made in advertising and
promotional materials concerning port charges were false and misleading
(collectively, the "Passenger Complaints"). The Passenger Complaints
allege violations of the various state consumer protection acts and claims
of fraud, conversion, breach of fiduciary duties and unjust enrichment.
Plaintiffs seek compensatory damages, or alternatively, refunds of portions
of port charges paid, attorneys' fees, costs, prejudgment interest,
punitive damages and injunctive and declaratory relief. The status of each
pending Passenger Complaint is as follows:
In April 1996, a Passenger Complaint was filed against Tours in the
Superior Court in King County, Washington, by Francine Pickett and
others on behalf of a purported nationwide class. In April 1998 Tours
entered into a settlement agreement, which was approved by the court.
However, one member of the settlement class appealed the agreement.
In August, 2000, the Washington Court of Appeals refused to approve
the settlement that had been reached by Tours in its Passenger
Complaint and instead remanded the case to the trial court. In
December 2001, the Washington Supreme Court reversed the decision of
the Court of Appeals. This reversal, which had been sought by Tours,
reinstates that settlement that had been agreed to with the class
representatives providing for the issuance of vouchers to certain
passengers. The one member of the settlement class who originally
appealed the agreement had requested that the Washington Supreme Court
reconsider its decision reversing the decision of the Court of Appeals
in this matter. In February 2002, this request was denied.
In September 1996, a Passenger Complaint was filed against Costa in
the Circuit Court for the Eleventh Judicial Circuit in Miami-Dade
County, Florida by Mr. & Mrs. Latman on behalf of a purported
nationwide class. These proceedings, including Costa's appeal to the
Florida Supreme Court of the Third District Court of Appeals' order to
the trial court to certify the class, have been stayed pending the
outcome of ongoing settlement negotiations.
Several actions (collectively the "ADA Complaints") have been filed
against Carnival, Costa, Cunard and Tours alleging that they violated the
Americans with Disabilities Act of 1990 by failing to make certain cruise
ships accessible to individuals with disabilities. The plaintiffs seek
injunctive relief to require modifications to certain vessels to increase
accessibility to disabled passengers and fees and costs. The status of
each pending ADA Complaint is as follows:
On December 17, 1998, an ADA Complaint was filed against Carnival by Access
Now, Inc. and Edward S. Resnick in the U.S. District Court for the
Southern District of Florida. Carnival and the plaintiffs agreed to
settle this action pursuant to an agreement that Carnival will make
certain modifications to its then existing 15 ships with an option to
include future ships into the settlement agreement. The court approved
the settlement on October 31, 2001 and closed the case. No appeal has
been filed and the time for appeal has expired.
On August 29, 2000, an ADA Complaint was filed against Cunard by
Access Now, Inc. and Edward S. Resnick in the U.S. District Court for
the Southern District of Florida. Cunard filed an answer to the
complaint on November 10, 2000. Given the settlement reached in the
case against Carnival, the plaintiff has agreed to dismiss the ADA
Complaint against Cunard without prejudice pending settlement
negotiations which are ongoing.
On August 28, 2000, Access Now, Inc. and Edward S. Resnick also filed
complaints in the U.S. District Court for the Southern District of
Florida against Costa and Tours. These complaints seek modifications
to vessels to increase accessibility to disabled passengers. These
cases have been transferred before the same judge. Costa's and Tours'
motions to dismiss these actions were denied.
Several actions were filed against us and four of our executive
officers by a purported class of persons who purchased our common stock
between February 25, 1999 and February 16, 2000 alleging that statements
made in our public filings relating to compliance with applicable safety
regulations were in violation of Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 thereunder. The complaints also allege
violations by the individual defendants as controlling persons under
Section 20(a) of the Securities Exchange Act of 1934. In November 2000,
the plaintiffs filed a consolidated amended complaint in the U.S. District
Court for the Southern District of Florida (the "Stock Purchaser
Complaint"). The Stock Purchaser Complaint seeks certification of a class
action, an award or unspecified compensatory damages, attorneys' and expert
fees and costs. On February 5, 2001, we filed a motion to dismiss the Stock
Purchaser Complaint. The motion to dismiss has been fully briefed, and we
are awaiting the judge's ruling.
In August 2000, we received a grand jury subpoena signed by an
Assistant U.S. Attorney in the Southern District of Florida. The subpoena
demanded the production of documents concerning environmental practices of
ships operated by us and compliance with environmental laws and
regulations. We have produced documents in response to the subpoena, have
cooperated with the government's investigation and our employees have
provided information regarding environmental compliance to the Office of
the U.S. Attorney for the State of Florida. We continue to engage in
settlement discussions with the Office of the U.S. Attorney for the
Southern District of Florida. No charges have been lodged against us as of
this date, however, such charges may be lodged in the future.
On November 22, 2000, Costa instituted arbitration proceedings in
Italy to confirm the validity of its decision not to deliver its ship, the
Costa Classica, to the shipyard of Cammell Laird Holdings PLC ("Cammell
Laird") under a $70 million contract for the conversion and lengthening of
the ship. Cammell Laird joined the arbitration proceeding on January 9,
2001 to present its counter demands. On January 9, 2001, Costa gave
Cammell Laird notice of termination of the contract and Cammell Laird
replied with its notice of termination of the contract on February 2, 2001.
It is expected that the arbitration tribunal's decision will be made in
mid-2003 at the earliest.
On February 23, 2001, Holland America Line-USA, Inc. ("HAL, Inc."),
one of our subsidiaries, received a subpoena from a grand jury sitting in
the U.S. District Court for the District of Alaska. The subpoena requests
that HAL, Inc. produce documents and records relating to the air emissions
from Holland America ships in Alaska. HAL, Inc. is responding to the
subpoena.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
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 Annual Report on Form 10-K.
The following table sets forth the name, age and title of each of our
executive officers. Titles listed relate to positions within Carnival
Corporation unless otherwise noted.
NAME AGE POSITION
Richard D. Ames 54 Vice President - Audit Services
Micky Arison 52 Chairman of the Board of Directors
and Chief Executive Officer
Gerald R. Cahill 50 Senior Vice President-Finance and Chief
Financial Officer
Pamela C. Conover 46 President and Chief Operating Officer of
Cunard Line Limited
Robert H. Dickinson 59 President and Chief Operating Officer
of Carnival and Director
Kenneth D. Dubbin 48 Vice President-Corporate Development
Pier Luigi Foschi 54 Chairman and Chief Executive Officer of
Costa Cruises, S.p.A.
Howard S. Frank 60 Vice Chairman of the Board of Directors
and Chief Operating Officer
Ian J. Gaunt 50 Senior Vice President - International
A. Kirk Lanterman 70 Chairman of the Board of Directors,
President, and Chief Executive Officer
of Holland America Line-Westours Inc.
and Director
Arnaldo Perez 42 Vice President, General Counsel and
Secretary
Lowell Zemnick 58 Vice President and Treasurer
Business Experience of Officers
Richard D. Ames has been Vice President - Audit Services since January
1992. From October 1989 to January 1992 he was the Director of Internal
Audit. From February 1983 until October 1989 he was Director of Internal
Audit for Resorts International, Inc. He was a management consultant with
International Intelligence, Inc., a subsidiary of Resorts International,
Inc.from January 1979 to February 1983.
Micky Arison has been Chief Executive Officer since 1979 and Chairman
of the Board of Directors since 1990. He was President from 1979 to May
1993 and has also been a director since June 1987. Prior to 1979, he
served Carnival for successive two-year periods as a sales agent, a
reservations manager and as Vice President in charge of passenger traffic.
Gerald R. Cahill has been Senior Vice President-Finance, Chief
Financial Officer and Chief Accounting Officer since January 1998. From
September 1994 to January 1998 he was Vice President-Finance. He was Chief
Financial Officer from 1988 to 1992 and Chief Operating Officer from 1992
to 1994 of Safecard Services, Inc. From 1979 to 1988 he held financial
positions at Resorts International Inc. and, prior to that, spent six years
with Price Waterhouse.
Pamela C. Conover has been President and Chief Operating Officer of
Cunard Line Limited since February 2001. She was Chief Operating Officer
of Cunard Line Limited from June 1998 to January 2001. From May 1995 to
May 1998, she was Vice President of Strategic Planning for Carnival
Corporation. From May 1994 to April 1995, she was President and Chief
Operating Officer of Epirotiki Cruise Line, which was a Carnival
Corporation joint venture. From September 1985 until April 1994, she
worked for Citicorp, New York, specializing in financing and advisory
services for shipping companies.
Robert H. Dickinson has been President and Chief Operating Officer of
Carnival since May 1993. From 1979 to May 1993, he was Senior Vice
President-Sales and Marketing of Carnival. He has also been a director
since June 1987.
Kenneth D. Dubbin has been Vice President-Corporate Development since
May 1999. From 1988 to April 1999 he was Vice President and Treasurer of
RCL.
Pier Luigi Foschi has been Chief Executive Officer of Costa Cruises,
S.p.A. since October 1997 and Chairman of its Board since January 2000.
From 1974 to 1997, he held senior positions with OTIS, a world leader in
the field of elevators, which is a subsidiary of United Technologies
Corporation, and from 1990 to 1997 was Executive Vice President of Otis's
Asia-Pacific operations.
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. From July 1989 to January 1998, he was Chief Financial
Officer and Chief Accounting Officer and from July 1989 to October 1993 he
was Senior Vice President-Finance. From July 1975 through June 1989 he was
a partner with Price Waterhouse.
Ian J. Gaunt is an English Solicitor and has been Senior Vice
President-International since May 1999. He was a partner of the London-
based international law firm of Sinclair, Roche and Temperley from 1982
through April 1999 where he represented us as special external legal
counsel since 1981.
A. Kirk Lanterman is a Certified Public Accountant and has been a
director since April 1992. He has been Chairman of the Board of Directors,
President and Chief Executive Officer of Holland America Line-Westours Inc.
("HALW") since August 1999. From March 1997 to August 1999, he was
Chairman of the Board of Directors and Chief Executive Officer of HALW.
From December 1989 to March 1997, he was President and Chief Executive
Officer of HALW. From 1983 to 1989 he was President and Chief Operating
Officer of HALW. From 1979 to 1983, he was President of Westours, Inc.
which merged with Holland America Line in 1983.
Arnaldo Perez has been Vice President, General Counsel and Secretary
since August 1995. He was Assistant General Counsel from July 1992 to July
1995. Prior to joining Carnival Corporation, he was a partner at the law
firm of Weil, Lucio, Mandler, Croland & Steele in Miami, Florida.
Lowell Zemnick is a Certified Public Accountant and has been a Vice
President since 1980 and Treasurer since September 1990 and from May 1987
to June 1989 was Chief Financial Officer. He was Chief Financial Officer
of Carnival from 1980 to September 1990.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
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 Annual Report on Form 10-K.
B. Holders
The information required by Item 201(b) of Regulation S-K, Holders of
Common Stock, is shown in Exhibit 13 and is incorporated by reference into
this Annual Report on Form 10-K.
C. Dividends
We declared cash dividends on all of our common stock in the amount of
$.105 per share in each of the quarters of fiscal 2001 and 2000 and in the
first quarter of fiscal 2002. Payment of future dividends on our common
stock will depend upon, among other factors, our earnings, financial
condition and capital requirements. We may also declare special dividends
to all stockholders in the event that members of the Arison family and
certain related entities are required to pay additional income taxes by
reason of their ownership of our common stock because of an income tax
audit of ourselves.
The Republic of Panama does not currently have tax treaties with any
other country. Under current law we believe that distributions to our
shareholders, other than residents of Panama or other business entities
conducting business in Panama, are not subject to taxation under the laws
of the Republic of Panama. Dividends that we pay to U.S. citizens,
residents, corporations and to foreign corporations doing business in the
U.S., to the extent treated as "effectively connected" income, will be
taxable as ordinary income for U.S. federal income tax purposes to the
extent of our current or accumulated earnings and profits, but generally
will not qualify for any dividends-received deduction.
The payment and amount of any dividend is within the discretion of the
Board of Directors, and it is possible that the amount of any dividend may
vary from the levels discussed above.
D. Recent Sales of Unregistered Securities
On April 25, 2001, we sold $600 million aggregate principal amount of
2% convertible notes and on October 24 and 26, of 2001, we sold an
aggregate of $1,051,175,000 of zero-coupon convertible notes, for which we
received gross cash proceeds of $500 million, in private offerings to
Merrill Lynch & Co., as the initial purchasers. These notes were
simultaneously resold by the initial purchaser in transactions exempt from
registration requirements of The Securities Act to persons reasonably
believed by the initial purchaser to be "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act.) The aggregate gross
underwriting discounts for these transactions was approximately $22
million. The proceeds from the issuance of our 2% convertible notes were
used to repay some of our outstanding commercial paper due in 2001 and for
general corporate purposes. The proceeds from the issuance of our zero-
coupon notes were used primarily to repay existing bank indebtedness and to
make in full the approximately $300 million final payment for Carnival's
new ship, the Carnival Pride, in December 2001. See Note 6, "Long-Term
Debt," to our Consolidated Financial Statements in Exhibit 13 to this
Annual Report on Form 10-K for more information on these notes.
The above described sales were made without general solicitation or
advertising. We have filed registration statements on Form S-3 covering
the resale of the notes and underlying common stock issued in those sales.
All net proceeds from the sale of such securities will go to the selling
shareholders who offer and sell their securities. We have not received and
will not receive any proceeds from the sale of these notes or underlying
common stock other than the proceeds from the initial sale of such notes.
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 Annual Report on
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 Annual Report on Form
10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, is shown in Exhibit 13 and is incorporated
by reference into this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data
The financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated January 29, 2002,except as to Note 18
which is dated February 15, 2002, and the Selected Quarterly Financial Data
(Unaudited), are shown in Exhibit 13 and is incorporated by reference into
this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Items 10, 11, 12 and 13. Directors and Executive Officers of the
Registrant, Executive Compensation, Security Ownership of Certain
Beneficial Owners and Management, and Certain Relationships and
Related Transactions
The information required by Items 10, 11, 12 and 13 is incorporated
herein by reference to our definitive Proxy Statement to be filed with the
Commission not later than 120 days after the close of the fiscal year,
except that the information concerning our executive officers called for by
Item 401(b) of Regulation S-K is included in Part I of this Annual Report
on Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1)(2) Financial Statements and Schedules:
The financial statements shown in Exhibit 13 are hereby incorporated
herein by reference.
(3) Exhibits:
The exhibits listed on the accompanying Exhibit Index are filed or
incorporated by reference as part of this Annual Report on Form 10-K and
such Exhibit Index is hereby incorporated herein by reference.
(b) Reports on Form 8-K
We filed current reports on Form 8-K on September 20, 2001 (Items 5
and 7), October 19, 2001 (Items 5 and 7), October 23, 2001 (Item 5),
October 25, 2001 (Items 5 and 7), October 29, 2001 (Item 5) and November 7,
2001 (Item 9).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Miami, and the State of Florida on this 26 day of February 2002.
CARNIVAL CORPORATION
By /s/ Micky Arison
Micky Arison
Chairman of the Board of
Directors and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Micky Arison Chairman of the Board of February 26, 2002
Micky Arison Directors and Chief Executive
Officer
/s/ Howard S. Frank Vice Chairman of the Board of February 26, 2002
Howard S. Frank Directors and Chief Operating
Officer
/s/ Gerald R. Cahill Senior Vice President-Finance February 26, 2002
Gerald R. Cahill and Chief Financial and
Accounting Officer
/s/ Shari Arison Director February 26, 2002
Shari Arison
/s/ Maks L. Birnbach Director February 26, 2002
Maks L. Birnbach
/s/ Richard G. Capen, Jr.Director February 26, 2002
Richard G. Capen, Jr.
/s/ Robert H. Dickinson Director February 26, 2002
Robert H. Dickinson
/s/ Arnold W. Donald Director February 26, 2002
Arnold W. Donald
/s/ James M. Dubin Director February 26, 2002
James M. Dubin
/s/ A. Kirk Lanterman Director February 26, 2002
A. Kirk Lanterman
/s/ Modesto A. Maidique Director February 26, 2002
Modesto A. Maidique
/s/ Stuart Subotnick Director February 26, 2002
Stuart Subotnick
/s/ Sherwood M. Weiser Director February 26, 2001
Sherwood M. Weiser
Director
Meshulam Zonis
/s/ Uzi Zucker Director February 26, 2002
Uzi Zucker
INDEX TO EXHIBITS
Page No. in
Sequential
Numbering
System
Exhibits
3.1-Second Amended and Restated Articles of Incorporation of the Company.
(1)
3.2-Amendment to Second Amended and Restated Articles of Incorporation of
the Company. (2)
3.3-Certificate of Amendment of Articles of Incorporation of the Company.
(3)
3.4-Form of By-laws of the Company. (4)
4.1-Agreement of the Company dated February 26, 2002 to furnish certain
debt instruments to the Securities and Exchange Commission.
10.1-Retirement and Consulting Agreement dated November 20, 2001 between
Alton Kirk Lanterman, Carnival Corporation and Holland America Line-
Westours Inc.
10.2-Executive Long-term Compensation Agreement dated January 16, 1998
between Robert H. Dickinson and Carnival Corporation. (5)
10.3-1994 Carnival Cruise Lines Key Management Incentive Plan as amended on
July 17, 2000. (6)
10.4-Amended and Restated Carnival Corporation 1992 Stock Option Plan. (7)
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. (8)
10.6-Carnival Corporation "Fun Ship" Nonqualified Savings Plan. (9)
10.7 -Amendments to The Carnival Corporation Nonqualified Retirement Plan
for Highly Compensated Employees. (10)
10.8-Carnival Cruise Lines, Inc. Non-Qualified Retirement Plan. (11)
10.9-2001 Outside Director Stock Option Plan
10.10- Revolving Credit Agreement dated June 26, 2201, by and among
Carnival Corporation, The Chase Manhattan Bank and various other lenders.
(12)
10.11-Consulting Agreement/Registration Rights Agreement dated June 14,
1991, between the Company and Ted Arison. (13)
10.12-First Amendment to Consulting Agreement/Registration Rights
Agreement. (14)
10.13-Arnold W. Donald Director's Agreement. (15)
10.14-Meshulam Zonis Director's Agreement. (16)
10.15-Maks L. Birnbach Director's Agreement. (17)
10.16-Stuart Subotnick Director's Agreement. (18)
10.17-Sherwood M. Weiser Director's Agreement. (19)
10.18-Uzi Zucker Director's Agreement. (20)
10.19-James M. Dubin Director's Agreement. (21)
10.20-Modesto M. Maidique Director's Agreement. (22)
10.21-Richard G. Capen Director's Agreement. (23)
10.22-Shari Arison Dorsman Director's Agreement. (24)
10.23-Executive Long-term Compensation Agreement dated January 11, 1999,
between the Company and Micky Arison. (25)
10.24-Executive Long-term Compensation Agreement dated January 11, 1999,
between the Company and Howard S. Frank. (26)
10.25- Registration Rights Agreement, dated as of October 24, 2001, between
Carnival Corporation and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated. (27)
10.26-Second Supplemental Indenture, dated as of October 24, 2001, between
Carnival Corporation and U.S. Bank Trust National Association, as trustee,
creating a series of securities designated Liquid Yield Option-TM-Notes due
2021 (Zero Coupon--Senior). (28)
10.27-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. (29)
10.28-First Supplemental Indenture, dated as of April 25, 2001, between
Carnival Corporation and U.S. Bank Trust National Association, as trustee,
creating a series of securities designated 2% Convertible Senior Debentures
due 2021. (30)
10.29-Registration Rights Agreement, dated as of April 25, 2001, among
Carnival Corporation and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated. (31)
10.30-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. (32)
10.31-Carnival Corporation Supplemental Executive Retirement Plan. (33)
10.32-Amendment to the Carnival Corporation Supplemental Executive
Retirement Plan. (34)
10.33-Amendment to the Carnival Corporation "Fun Ship" Nonqualified Savings
Plan. (35)
10.34-Amendment to the Carnival Corporation Nonqualified Retirement Plan
for Highly Compensated Employees. (36)
10.35-Amendment to the Carnival Corporation "Fun Ship" Nonqualified Savings
Plan. (37)
10.36-Retirement Agreement between the Company and Meshulam Zonis. (38)
10.37-Amendment to the Carnival Corporation "Fun Ship" Nonqualified Savings
Plan.
10.38-Amendment to the Carnival Corporation Nonqualified Retirement Plan
for Highly Compensated Employees.
10.39-Employment letter dated August 12, 1997, between Costa Crociere,
S.p.A. and Pier Luigi Foschi.
10.40-Amendment to employment letter, dated December 1, 2000, between Costa
Crociere, S.p.A. and Pier Luigi Foschi.
10.41-Costa Crociere, S.p.A. Regulation of the Management Long-term
Incentive Plan.
10.42-Amended and Restated Operating Agreement of Continental Hospitality
Holdings, LLC.
12.0-Ratio of Earnings to Fixed Charges.
13.0-Portions of 2001 Annual Report incorporated by reference into 2001
Annual Report on Form 10-K.
21-Significant Subsidiaries of the Company.
23.0-Consent of PricewaterhouseCoopers LLP.
Sequential
Numbering
System
Exhibits
(1)Incorporated by reference to Exhibit No. 3 to the registrant's
registration statement on Form S-3 (File No. 333-68999), filed with the
Securities and Exchange Commission.
(2)Incorporated by reference to Exhibit 3.1 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended May 31, 1999 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(3)Incorporated by reference to Exhibit 3.1 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended May 31, 2000 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(4)Incorporated by reference to Exhibit No. 3.2 to the registrant's
registration statement on Form S-1 (File No. 33-14844), filed with the
Securities and Exchange Commission.
(5)Incorporated by reference to Exhibit No. 10.2 to the registrant's Annual
Report on Form 10-K for the fiscal year ended November 30, 1997 (Commission
File No. 1-9610), filed with the Securities and Exchange Commission.
(6)Incorporated by reference to Exhibit 10.1 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended August 31, 2000 (Commission File
No. 1-9610), filed with the Securities and Exchange Commission.
(7)Incorporated by reference to Exhibit No. 10.4 to the registrant's Annual
Report on Form 10-K for the fiscal year ended November 30, 1997 (Commission
File No. 1-9610), filed with the Securities and Exchange Commission.
(8)Incorporated by reference to Exhibit No. 10.5 to the registrant's Annual
Report on Form 10-K for the fiscal year ended November 30, 1998 (Commission
File No. 1-9610), filed with the Securities and Exchange Commission.
(9)Incorporated by reference to Exhibit No. 10.6 to the registrant's Annual
Report on Form 10-K for the fiscal year ended November 30, 1997 (Commission
File No. 1-9610), filed with the Securities and Exchange Commission.
(10)Incorporated by reference to Exhibit No. 10.7 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1997
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(11)Incorporated by reference to Exhibit No. 10.4 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1990
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(12)Incorporated by reference to Exhibit 10.1 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended May 31, 2001 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(13)Incorporated by reference to Exhibit No. 4.3 to post-effective
amendment no. 1 on Form S-3 to the registrant's registration statement on
Form S-1 (File No. 33-24747), filed with the Securities and Exchange
Commission.
(14)Incorporated by reference to Exhibit No. 10.40 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1992
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(15)Incorporated by reference to Exhibit No. 10.13 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 2000
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(16)Incorporated by reference to Exhibit No. 10.14 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 2000
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(17)Incorporated by reference to Exhibit No. 28.1 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1990
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(18)Incorporated by reference to Exhibit No. 28.3 to the registrant's
registration statement on Form S-1 (File No. 33-14844), filed with the
Securities and Exchange Commission.
(19)Incorporated by reference to Exhibit No. 28.4 to the registrant's
registration statement on Form S-1 (File No. 33-14844), filed with the
Securities and Exchange Commission.
(20)Incorporated by reference to Exhibit No. 28.5 to the registrant's
registration statement on Form S-1 (File No. 33-14844), filed with the
Securities and Exchange Commission.
(21)Incorporated by reference to Exhibit No. 10.5 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1996
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(22)Incorporated by reference to Exhibit No. 10.6 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1996
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(23)Incorporated by reference to Exhibit No. 10.7 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1996
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(24)Incorporated by reference to Exhibit No. 10.8 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1996
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(25)Incorporated by reference to Exhibit No. 10.36 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1998
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(26)Incorporated by reference to Exhibit No. 10.37 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1998
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(27)Incorporated by reference to Exhibit 4.7 to the registrant's
registration statement on form S-3 (File No. 333-74190), filed with the
Securities and Exchange Commission.
(28)Incorporated by reference to Exhibit 4.6 to the registrant's
registration statement on form S-3 (File No. 333-74190), filed with the
Securities and Exchange Commission.
(29)Incorporated by reference to Exhibit 4.5 to the registrant's
registration statement on form S-3 (File No. 333-62950), filed with the
Securities and Exchange Commission.
(30)Incorporated by reference to Exhibit 4.6 to the registrant's
registration statement on form S-3 (File No. 333-62950), filed with the
Securities and Exchange Commission.
(31)Incorporated by reference to Exhibit 4.7 to the registrant's
registration statement on form S-3 (File No. 333-62950), filed with the
Securities and Exchange Commission.
(32)Incorporated by reference to Exhibit No. 4 to the registrant's
registration statement on Form S-3 (File No. 33-53136), filed with the
Securities and Exchange Commission.
(33)Incorporated by reference to Exhibit No. 10.32 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1999
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(34)Incorporated by reference to Exhibit No. 10.31 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 2000
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(35)Incorporated by reference to Exhibit No. 10.33 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1999
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(36)Incorporated by reference to Exhibit No. 10.33 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 2000
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(37)Incorporated by reference to Exhibit No. 10.34 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 2000
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
(38) Incorporated by reference to Exhibit No. 10.35 to the registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 2000
(Commission File No. 1-9610), filed with the Securities and Exchange
Commission.
Ex-4.1
Exhibit 4.1
EXHIBIT 4.1
February 26, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, DC 20549
RE: Carnival Corporation
Commission File No. 1-9610
Gentlemen:
Pursuant to Item 601 (b) (4) (iii) of Regulation S-K promulgated under the
Securities Exchange Act of 1934, as amended, Carnival Corporation (the
"Company") hereby agrees to furnish copies of certain long-term debt
instruments to the Securities and Exchange Commission upon the request of
the Commission, and, in accordance with such regulation, such instruments
are not being filed as part of the Annual Report on Form 10-K of the
Company for its fiscal year ended November 30, 2001.
Very truly yours,
CARNIVAL CORPORATION
/s/ Arnaldo Perez
Arnaldo Perez
Vice President, General Counsel
EXHIBIT 10.1
RETIREMENT AND CONSULTING AGREEMENT
AGREEMENT made this 20th day of November, 2001 between CARNIVAL CORPORATION,
having its principal place of business at 3655 Northwest 87th Avenue, Miami,
Florida 33178, and its wholly owned subsidiary, Holland America Line -
Westours, Inc., having its principal place of business at 300 Elliott Avenue
West, Seattle, Washington 98119 (collectively, the "Companies") and Alton
Kirk Lanterman, ("Lanterman"), residing at 714 West Galer Street, Seattle,
Washington, 98119.
RECITALS:
A. Lanterman has served as Chairman or President and Chief Executive
Officer of Holland America Line- Westours Inc. ("HAL") since January 1989
and has performed exemplary service during said years.
B. The Companies desire to compensate Lanterman for such exemplary service
by way of retirement pay.
C. The Companies desire to retain Lanterman's consulting services following
such retirement on the terms set forth in this Agreement.
IN CONSIDERATION of past services as related above and the consulting
services related below, it is agreed as follows:
1. Compensation For Past Services and Consulting Services
1.1 For a period of fifteen (15) years following the date of
retirement by Lanterman from active services with the Companies (the
"Retirement Date"), the Companies shall pay to Lanterman, in monthly
installments of $141,500, an annual compensation of $1,698,000.
1.2 In the event of Lanterman's death prior to the Retirement Date,
or prior to the fifteenth anniversary of the Retirement Date, the
unpaid balance of this total compensation ($25,470,000) shall be paid
in full to Lanterman's estate within 30 days of his death. The unpaid
balance shall be its then present value calculated by utilization of
an interest rate of 8.5% per year.
2. Consulting Services
Commencing on the Retirement Date and for a period of fifteen (15)
years, Lanterman agrees to perform consulting services for the
Companies in regard to the business operations of HAL upon the
specific written request of the Companies. Such services shall be
provided during normal business hours, on such dates, for such time
and at such locations as shall be agreeable to Lanterman. Such
services shall not require more than five (5) hours in any calendar
month, unless expressly consented to by Lanterman, whose consent may
be withheld for any reason whatsoever. The Companies will reimburse
Lanterman for any out-of-pocket expenses incurred by him in the
performance of said services.
3. Independent Contractor
Lanterman acknowledges that commencing on the Retirement Date, he
will be solely an independent contractor and consultant. He further
acknowledges that he will not consider himself to be an employee of
the Companies and will not be entitled to any employment rights or
benefits of the Companies.
4. Confidentiality
Lanterman will keep in strictest confidence, both during the term of
this Agreement and subsequent to termination of this Agreement, and will
not during the term of this Agreement or thereafter disclose or divulge
to any person, firm or corporation, or use directly or indirectly, for
his own benefit or the benefit of others, any confidential information
of the Companies, including, without limitation, any trade secrets
respecting the business or affairs of the Companies which he may acquire
or develop in connection with or as a result of the performance of his
services hereunder. In the event of an actual or threatened breach by
Lanterman of the provisions of this paragraph, the Companies shall be
entitled to injunctive relief restraining Lanterman from the breach or
threatened breach as its sole remedy. The Companies hereby waive their
rights for damages, whether consequential or otherwise.
5..Enforceable
The provisions of this Agreement shall be enforceable notwithstanding
the existence of any claim or cause of action of Lanterman against the
Companies, or the Companies against Lanterman, whether predicated on
this Agreement or otherwise.
6..Applicable Law
This Agreement shall be construed in accordance with the laws of the
State of Washington, and venue for any litigation concerning an
alleged breach of this Agreement shall be in King County, Washington,
and the prevailing party shall entitled to reasonable attorney's fees
and costs incurred.
7..Entire Agreement
This Agreement contains the entire agreement of the parties relating to
the subject matter hereof. A similar agreement of November 2000 shall
become null and void upon the execution of this Agreement. Any notice
to be given under this Agreement shall be sufficient if it is in writing
and is sent by certified or registered mail to Lanterman or to the
Companies to the attention of the President, or otherwise as directed by
the Companies, from time to time, at the addresses as they appear in the
opening paragraph of this Agreement.
8. Waiver
The waiver by either party of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach.
IN WITNESS WHEREOF, the Companies and Lanterman have duly executed this
agreement as of the day and year first above written.
CARNIVAL CORPORATION
By: /s/ Howard S. Frank
Howard S. Frank
Its: Vice Chairman
HOLLAND AMERICA LINE-WESTOURS INC.
By: /s/ Larry Calkins
Larry Calkins
Its: V.P. - Finance, CFO
/s/ Alton Kirk Lanterman
Signature
Alton Kirk Lanterman
Print Full Name
EXHIBIT 10.9
CARNIVAL CORPORATION
2001 OUTSIDE DIRECTOR STOCK OPTION PLAN
(adopted by the Board of Directors on February 16, 2001
approved by the shareholders on April 17, 2001, effective
as of January 1, 2001, amended by the Board of Directors on
October 8, 2001)
CARNIVAL CORPORATION, a Panamanian corporation (the "Company"),
hereby formulates and adopts the following 2001 Outside Director Stock
Option Plan (the "Plan") for Eligible Directors of the Company.
1. Purpose. The purpose of the Plan is to promote the interests
of the Company and its shareholders by strengthening the Company's
ability to attract and retain the services of experienced and
knowledgeable nonemployee directors and by encouraging such directors to
acquire an increased proprietary interest in the Company.
2. Administration. The Plan shall be administered by the Plan
Administration Committee of the Board of Directors (the "Committee").
Subject to the express provisions of the Plan, the Committee shall
have plenary authority to interpret the Plan, to prescribe, amend and
rescind the rules and regulations relating to it and to make all other
determinations deemed necessary and advisable for the administration of
the Plan. No member of the Committee shall be liable for anything done
or omitted to be done by him or by any other member of the Committee in
connection with the Plan, except for his own willful misconduct or gross
negligence. All decisions which are made by the Committee with respect
to interpretation of the terms of the Plan and with respect to any
questions or disputes arising under the Plan shall be final and binding
on the Company and the participants, their heirs or beneficiaries. The
Committee shall not be empowered to take any action, whether or not
otherwise authorized under the Plan, which would result in any Eligible
Director failing to qualify as a "disinterested person." A majority of
the Committee will constitute a quorum and the acts of a majority of the
members present at any meeting at which a quorum is present, or acts
approved in writing by all members of the Committee without a meeting,
will be acts of the Committee.
3. Common Stock Subject to Options. Subject to the adjustment
provisions of Paragraph 15 below, a maximum of 800,000 shares of Common
Stock, par value $.01 per share, of the Company (the "Common Stock") may
be made subject to options granted under the Plan. If, and to the
extent that, options granted under the Plan shall terminate, expire or
be canceled for any reason without having been exercised, new options
may be granted in respect of the shares covered by such terminated,
expired or canceled options. The granting and such terms of such new
options shall comply in all respects with the provisions of the Plan.
Shares sold upon the exercise of any option granted under the Plan
may be shares of authorized and unissued Common Stock, shares of issued
Common Stock held in the Company's treasury, or both.
There shall be reserved at all times for sale under the Plan a
number of shares, of either authorized and unissued shares of Common
Stock, shares of Common Stock held in the Company's treasury, or both,
equal to the maximum number of shares which may be purchased pursuant to
options granted or that may be granted under the Plan.
4. Participation in Plan. Each member of the Company's Board of
Directors (a "Director") who is not otherwise an employee of the Company
or any subsidiary of the Company within the meaning of the Employee
Retirement Income Security Act of 1974 (an "Eligible Director") shall be
eligible to participate in the Plan. A Director who is an employee and
who retires or resigns from employment with the Company and/or its
affiliates, but remains an Eligible Director of the Company, shall
become eligible to participate in the Plan in accordance with Paragraph
5, effective as of the first annual meeting of shareholders held after
his termination of employment.
5. Option Grants. Each Eligible Director shall receive upon
initial election to office by the shareholders and thereafter annually
on the date of the Company's annual meeting of shareholders at which
such Eligible Director is re-elected to office or on any other date
properly approved pursuant to this Paragraph (the "Grant Date") an
option to acquire 6,000 shares of Common Stock at a price as set forth
in Paragraph 6. The Board of Directors may authorize a Grant Date other
than the date of the Company's annual meeting of shareholders provided
that options to acquire no more than 6,000 shares of Common Stock are
authorized for or attributable to any given calendar year.
An Eligible Director receiving an option pursuant to the Plan is
hereinafter referred to as an "Optionee".
6. Price. The option price of each share of Common Stock
purchasable under any option granted pursuant to the Plan shall be the
Fair Market Value (as defined below) thereof at the time the option is
granted.
For purposes of the Plan, "Fair Market Value" of a share of Common
Stock means the average of the high and low sales prices of a share of
Common Stock on the New York Stock Exchange Composite Tape on the date
in question. If shares of Common Stock are not traded on the New York
Stock Exchange on such date, "Fair Market Value" of a share of Common
Stock shall be determined by the Committee in its sole discretion.
7. Vesting. Each grant of options shall vest and become
exercisable in five equal annual installments beginning one year from
the Grant Date.
8. Duration of Options. Any options granted prior to the approval
of the Plan by the shareholders of the Company shall not vest or be
exercisable or transferable in any manner until such shareholder
approval is obtained at the next Annual Meeting of the Shareholders
following adoption of the Plan by the Board of Directors. If such
shareholder approval is not obtained at such meeting, all options issued
pursuant to the Plan shall be canceled and deemed null and void. Each
option granted hereunder shall be exercisable for a period of ten years
from the date of grant.
9. Exercise of Options. An option granted under this Plan shall
be deemed exercised when the person entitled to exercise the option (a)
delivers written notice to the Company at its principal business office,
directed to the attention of its Secretary, of the decision to exercise,
specifying the number of shares with respect to which the option is
exercised and the price per share designated in the option agreement,
(b) concurrently tenders to the Company full payment for the shares of
Common Stock to be purchased pursuant to such exercise, and (c) complies
with such other reasonable requirements as the Committee establishes
pursuant to Paragraph 2 of the Plan.
Full payment for shares of Common Stock purchased by the Optionee
shall be made at the time of any exercise, in whole or in part, of an
option, and certificates for such shares shall be delivered to the
Optionee as soon thereafter as is reasonably possible. No shares of
Common Stock shall be transferred to the Optionee until full payment
therefor has been made and the Optionee shall have none of the rights of
a shareholder with respect to any shares of Common Stock subject to an
option until a certificate for such shares shall have been issued and
delivered to the Optionee. Such payment shall be made in cash or by
check or by money order payable to the Company, in each case payable in
U.S. currency. In the Committee's discretion, such payment may be made
by delivery of shares of Common Stock that have been held for at least
six (6) months or were purchased on the open market, having a fair
market value (determined as of the date of the option is so exercised in
whole or in part), that, when added to the value of any cash, check,
promissory note or money order satisfying the foregoing requirements,
will equal the aggregate purchase price.
10. Termination of Service.
(a) Death or Disability. Upon an Optionee's termination of
service due to death or Disability (as defined in the Company's long
term disability plan), all unvested options shall immediately vest and
become exercisable and all vested options shall continue to be
exercisable by the Optionee or his estate, as applicable, until the
earlier to occur of (i) the original expiration date of such option, and
(ii) one year from the date of termination of services; provided,
however, that if the Optionee dies during the one year period following
his Disability, the vested options shall remain exercisable until the
one year anniversary of his death (unless the options expire earlier by
their original terms).
(b) Other Termination. Except as provided in the last
sentence of this paragraph, upon an Optionee's termination of service
for any reason other than death or Disability, all unvested options
shall continue to vest in accordance with their initial terms, and all
vested options shall continue to be exercisable until the original
expiration date of such option; provided, however, that if the
Optionee's service as a Director terminates prior to serving in that
capacity for one year, all of such Optionee's options shall immediately
expire upon such termination.
11. Nontransferability of Options. Subject to Paragraph 8 of the
Plan, no option or any right evidenced thereby shall be transferable in
any manner other than by will or the laws of descent and distribution,
and, during the lifetime of an Optionee, only the Optionee (or the
Optionee's court-appointed legal representative) may exercise an option.
In the Committee's discretion, an option may be transferred pursuant to
a "qualified domestic relations order," as defined in section 414(p) of
the Code.
12. Rights of Optionee. Neither the Optionee nor the Optionee's
executor or administrator shall have any of the rights of a shareholder
of the Company with respect to the shares subject to an option until
certificates for such shares shall actually have been issued upon the
due exercise of such option. No adjustment shall be made for any
regular cash dividend for which the record date is prior to the date of
such due exercise and full payment for such shares has been made
therefor.
13. Right To Terminate Relationship. Nothing in the Plan or in
any option shall confer upon any Optionee the right to continue to serve
as a Director of the Company.
14. Nonalienation of Benefits. No right or benefit under the Plan
shall be subject to anticipation, alienation, sale, assignment,
hypothecation, pledge, exchange, transfer, encumbrance or charge, and
any attempt to anticipate, alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void. To the
extent permitted by applicable law, no right or benefit hereunder shall
in any manner be liable for or subject to the debts, contracts,
liabilities or torts of the person entitled to such benefits.
15. Adjustment Upon Changes in Capitalization, etc. In the event
of any stock split, stock dividend, stock change, reclassification,
recapitalization or combination of shares which changes the character or
amount of Common Stock prior to exercise of any portion of an option
theretofore granted under the Plan, such option, to the extent that it
shall not have been exercised, shall entitle the Optionee (or the
Optionee's executor or administrator) upon its exercise to receive in
substitution therefor such number and kind of shares as the Optionee
would have been entitled to receive if the Optionee had actually owned
the stock subject to such option at the time of the occurrence of such
change; provided, however, that if the change is of such a nature that
the Optionee, upon exercise of the option, would receive property other
than shares of stock the Committee shall make an appropriate adjustment
in the option to provide that the Optionee (or the Optionee's executor
or administrator) shall acquire upon exercise only shares of stock of
such number and kind as the Committee, in its sole judgment, shall deem
equitable; and, provided further, that any such adjustment shall be made
so as to conform to the requirements of section 424(a) of the Code.
In the event that any transaction (other than a change specified in
the preceding paragraph) described in section 424(a) of the Code affects
the Common Stock subject to any unexercised option, the Board of
Directors of the surviving or acquiring corporation shall make such
similar adjustment as is permissible and appropriate.
If any such change or transaction shall occur, the number and kind
of shares for which options may thereafter be granted under the Plan
shall be adjusted to give effect thereto.
16. Purchase for Investment. Whether or not the options and
shares covered by the Plan have been registered under the Securities Act
of 1933, as amended, each person exercising an option under the Plan may
be required by the Company to give a representation in writing that such
person is acquiring such shares for investment and not with a view to,
or for sale in connection with, the distribution of any part thereof.
The Company will endorse any necessary legend referring to the foregoing
restriction upon the certificate or certificates representing any shares
issued or transferred to the Optionee upon the exercise of any option
granted under the Plan.
17. Form of Agreements with Optionees. Each option granted
pursuant to the Plan shall be in writing and shall have such form, terms
and provisions, not inconsistent with the provisions of the Plan, as the
Committee shall provide for such option. The effective date of the
granting of an option shall be the date on which the Committee approves
such grant. Each Optionee shall be notified promptly of such grant, and
a written agreement shall be promptly executed and delivered by the
Company and the Optionee.
18. Termination and Amendment of Plan and Options. Unless the
Plan shall theretofore have been terminated as hereinafter provided,
options may be granted under the Plan at any time, and from time to
time, prior to the tenth anniversary of the Effective Date (as defined
below), on which date the Plan will expire, except as to options then
outstanding under the Plan. Such options shall remain in effect until
they have been exercised, have expired or have been canceled.
The Board, without further approval of the Company's shareholders,
may terminate, modify or amend this Plan at any time and from time to
time in such respects as the Board of Directors may deem advisable,
subject to any shareholder or regulatory approval required by law;
provided that any such amendment shall comply with the applicable
requirements for exemption (to the extent necessary) under Rule 16b-3
under the Securities Exchange Act of 1934, as amended.
No termination, modification or amendment of the Plan, without the
consent of the Optionee, may adversely affect the rights of such person
with respect to such option. With the consent of the Optionee and
subject to the terms and conditions of the Plan, the Committee may amend
outstanding option agreements with any Optionee.
19. Effective Date of Plan. The Plan shall become effective as of
January 1, 2001 upon its adoption by the Board of Directors (the
"Effective Date"), subject, however, to its approval by the Company's
shareholders within 12 months after the date of such adoption.
20. Government and Other Regulations. The obligation of the
Company with respect to options granted under the Plan shall be subject
to all applicable laws, rules and regulations and such approvals by any
governmental agency as may be required, including, without limitation,
the effectiveness of any registration statement required under the
Securities Act of 1933, as amended, the rules and regulations of any
securities exchange on which the Common Stock may be listed.
21. Withholding. The Company's obligation to deliver shares of
Common Stock in respect of any option granted under the Plan shall be
subject to all applicable federal, state and local tax withholding
requirements. Federal, state and local tax withholding tax due upon the
exercise of any option (or upon any disqualifying disposition of shares
of Common Stock subject to an Incentive Option) in the Committee's sole
discretion, may be paid in shares of Common Stock (including the
withholding of shares subject to an option) upon such terms and
conditions as the Committee may determine.
22. Separability. If any of the terms or provision of the Plan
conflict with the requirements of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements
of Rule 16b-3.
23. Exclusion from Pension and Profit-Sharing Computation. By
acceptance of an option, each Optionee shall be deemed to have agreed
that such grant is special incentive compensation that will not be taken
into account, in any manner, as salary, compensation or bonus in
determining the amount of any payment under any pension, retirement or
other employee benefit plan of the Company or any of its Subsidiaries.
In addition, such option will not affect the amount of any life
insurance coverage, if any, provided by the Company on the life of the
Optionee which is payable to such beneficiary under any life insurance
plan covering employees of the Company or any of its Subsidiaries.
24. Governing Law. The Plan shall be governed by, and construed
in accordance with, the laws of the State of Florida.
EXHIBIT 10.40
December 1, 2000
Mr. Pier Luigi Foschi
COSTA CROCIERE
Dear Pier:
This letter will serve to confirm the agreement we reached concerning the
changes to your August 12, 1997 Letter of Employment, as amended on January
11, 1999, and January 14, 2000.
Fixed Salary
Section 2.1 has been changed to reflect that your fixed gross salary in
Italian Lira will be equivalent to a net amount of US$350,000. This fixed
annual salary compensation will cover the fiscal year beginning October 1,
2000 through November 30, 2001. Based on a fixed annual salary of
US$350,000, your monthly fixed salary payment will be US$29,167. Such fixed
salary payments of US$29,167 will be paid for the 14-month period beginning
October 1, 2000 through November 30, 2001. The relative exchange rate shall
be calculated as of October 1, 1997 (i.e., 1724 Lira to USD$1), in order that
your Lira increase in compensation is equivalent to your US Dollar increase.
Variable Salary
Section 2.7. indicates that your variable salary will be 75% of your fixed
salary in section 2.1 (the "Bonus"). This Bonus compensation will cover the
period from October 1, 2000 through November 30, 2001 (14 months). The
obligation to pay this Bonus is contingent upon the Company achieving at
least 90% of the November 30 fiscal year 2001 budget, as presented to us. It
is understood that the November 30, 2001 financial results will be based on
US GAAP financial statements prepared using Italian Lira.
All other sections of your August 12, 1997 employment letter will stay in
effect through the fiscal year ended November 30, 2001.
Please sign below to indicate agreement with the above amendments.
Best regards,
/s/ Howard S. Frank
HSF/dab
P.S. For your records, this letter will also serve as our approval for you to
receive your bonus for the fiscal 2000 year, as previously communicated to
you by telephone.
/s/ Pier Luigi Foschi 12/5/2000
Pier Luigi Foschi Date
EXHIBIT 10.41
COSTA CROCIERE S.P.A.
Regulation of the Management Long Term Incentive Plan
(The LTIP 99 Regulation)
1. Purposes
The introduction of a Long Term Incentive Plan (the "Plan") of Costa Crociere
S.p.A. (the "Company") has different purposes: to line up the interests of the
Managers to those of the shareholders, aimed to increase the Company's value;
to attract, stimulate and retain the talented managers in order to maximize the
Company's results; to recognize the performances and the results, also in light
of the changes of the Company's ownership occurred during the past years; to
improve the tax efficiency of the total remuneration.
The Plan takes into account the possibility offered by the Legislative Decree
n. 314 dated 9. 2. 1997, providing the total tax and social security
contribution exemption for the assignment of shares, gratuitous or with
consideration, in the event the shares assigned and subscribed by the employees
are new shares pursuant to article 2349 and 2441 of the Italian Civil Code
("ICC"). However, it is anticipated that this tax regime will be amended.
On the basis of such considerations it would be appropriate for the Company
a structure based upon the gratuitous assignment of shares to the managers
according to article 2349 of ICC through allocation of retained earnings
(i.e. Performance Shares).
The implementation of the Plan shall be carried out through the issuance of
a tranche of shares to be gratuitously assigned to the General Manager, to
the Managers and Top-employees of the Company. Such shares result from the
capital increase resolved by the shareholders' meeting of the Company of
November 10, 1999. The Board of Directors of the controlling company Costa
Holding S.r.l. ("Costa Holding") on February 20, 2002 resolved to purchase
those shares that the Participants to the LTIP will sell according to the
terms and conditions of this Regulation.
In particular, the issuance and the assignment of such tranche of shares to the
beneficiaries is connected to the excellent performance level obtained by the
Company during the 1998 and 1999 financial years as a consequence of changes
occurred in the Company's ownership in the new management policy and the
effective contribution of the management team.
2. Implementation of the Plan
The Plan will be implemented through the issuance of ordinary shares of the
Company.
The Company by-laws provides the faculty to assign shares to the employees and
the faculty of the shareholders' meeting to partially allocate the profits to
a special reserve.
The ordinary shareholders' meeting of November 10, 1999 has allocated part of
the profits carried forward to a special reserve for the purposes to increase
the Company's capital in favor to the employees.
The capital increase pursuant to article 2349 c.c. has been carried out by
approval of the extraordinary shareholders' meeting of the Company, which
has increased the outstanding capital for the issuance of the shares and
the simultaneous assignment of the same to the beneficiaries.
3. Participants
The number of persons involved into the LTIP includes the General Manager,
and those among Managers and Top-employees who have mainly contributed to
reach the Company's results. The list of Managers and Top-employees eligible
for the Plan will be approved by the Committee entitled to manage the Plan
pursuant to par. 6 below, based on recommendation by the Managing Director.
4. Features
The Plan intends to recognize and reward the effort of the Company's management
as a consequence of the new ownership of the Company and the excellent results
of the 1998 and 1999 financial years.
The level of the incentive shall be determined as a percentage on the
remuneration for different classes of management of the Company.
The following chart identifies the levels of remuneration for each class:
Roles
Level of incentive (% of the
remuneration)
Top-employees
Max. 25%
Managers
Max. 30%
The Incentive Level of the General Manager, which requires a more specific
performance evaluation, will be determined by the Committee.
It should be underlined that the long-term incentive levels are approximate
because the final value which will be paid depends on the Company's trend, the
real value of the share and the personal performance.
Based on the criteria for determination of the incentive, it is expected
that incentive at the maximum level will be awarded in very few instances.
5. Terms of Implementation of the Plan and reasons for the assignment of
shares.
The implementation of the Plan, as regulated by the present Regulation,
provides the issuance by the Company of an overall number of 642,000
ordinary shares within the end of 1999 and the simultaneous assignment of
the same to the beneficiaries of the Plan. The issuance of the shares shall
be carried out on the basis of the Extraordinary Shareholders meeting
resolution of November 10, 1999 which approved the capital increase pursuant
to article 2349 of ICC up to ITL 802,500,000 for an overall number of
642,000 ordinary shares to be gratuitously assigned to the General Manager,
and some selected Managers and Top-employees according to the terms
indicated in par. 6 of the present Regulation. The number of shares to be
assigned to each participant shall be determined by the Committee set up for
the purposes to manage the Plan as set forth in par. 6 of the present
Regulation and shall be calculated according to the net worth resulting from
the 1998-1999 financial statements of the Company.
Subject to par. 7, such shares cannot be transferred for a period of three
years from issuance (cannot be transferred before December 2002) at the end of
which, pursuant to the terms and conditions of this Regulation, the shares
shall be sold by the Participants of the Plan to Costa Holding at the price
determined by the Committee under paragraph 6 below, based on the following
formula. The final price of the shares will be adjusted by subtracting the
cumulative amount of dividends received per share owned.
SHARE PRICE CALCULATION FORMULA
The share price will be computed every year at the end of March after the
Financial Statements are approved by the Shareholders.
a) For the share price to be calculated until the fiscal year ending on
November 30, 2001, the following formula shall apply (the "Old Formula"):
Share price calculation formula = A + (B% * C * A) = D
A =
Share price at the time of initial shares assignment
(based on net worth shown in September 30, 1999
financial statements) or share price of prior
financial year computed by applying this formula.
B =
Year over year profit after tax percentage difference.
C =
Adjustment factor
If B is positive C = 1
If B is negative C = 2
D =
Current share price
b) For the share price to be calculated with regard to the fiscal year ending
on November 30, 2002 and the subsequent fiscal years, the following formula
shall apply (the "New Formula") :
Share price calculation formula = AX + (BX% * CX * AX) = DX
AX =
Share price as of November 30, 2001 (pursuant to the
Old formula) or share price of prior financial year
determined by applying the New Formula.
BX =
Year over year operating income, adjusted with the
interest expenses, percentage difference determined
according to US GAAP.
CX =
Adjustment factor
If BX is positive CX = 1
If BX is negative CX = 2
DX =
Current share price
For the purposes of the above mentioned calculation formula the short
financial year October - November 2000 and the related financial statements
approved by the Company upon the change of the date of close of the
financial year from September 30 to November 30, 2000 shall not be taken
into account. Therefore, said financial year October-November 2000 will be
excluded for the purposes of calculation of the factors A, B and C of the
aforesaid formula.
The above mentioned three years restriction provided for the other classes
of beneficiaries would not apply with reference to the shares assigned to
the General Manager.
The same extraordinary shareholders' meeting of November 10, 1999 resolved
to delegate to the Board of Directors of the Company or the Committee
provided under par. 6 the power to prepare and approve the present
Regulation concerning the Plan.
6. Management of the Plan
A Committee for the LTIP has been set up in order to implement the same plan
according to the general guidelines of the Board of Directors to which the
Committee shall periodically report.
In particular, the Committee approves the list of participants to be included
in the Plan prepared by the Managing Director, manages the Plan and is
responsible for the approval of the number of shares to be assigned to each
participant.
The Committee as designated by the Board of Directors, is composed by Mess.rs
Howard Frank and Gerald Raymond Cahill, directors, supported by the Managing
Director and, other appropriate Company's functions.
The Committee is also entitled, to apply this Regulation, to adjust - according
to the applicable provisions of law - the terms of assignment of each tranche
of shares as well as to regulate the exercise of the rights arising from
extraordinary transactions on the Company's capital (i.e. mergers, paid or
unpaid increase of capital, splitting or grouping of shares, conversion in
other currency, etc.), according to the principles contained in the present
Regulation.
The Committee shall formulate management guidelines for the valuation of
participants also for the purpose of voting.
For the purpose of paragraph 7 below, the Committee, based on the above share
price calculation formula shall also determine the share price at which Costa
Holding shall purchase the shares from the Participants to the LTIP.
In addition the Committee shall discretionary decide the contentious cases of
mutual termination of the employment relationship, with the purposes to reward
the managers and top-employees required to leave the Company even though they
have positively cooperated to the Company's results.
7. Management of the withdrawal of the participants from the plan
The shares may be sold by the Participants to the LTIP only to Costa Holding
in the framework of a plan of Costa Holding to consolidate its participation
into the Company.
With respect to the withdrawal occurring after the assignment of the shares but
within the three years period (before December 2002) during which the shares
may not be assigned as provided by paragraph 5:
- - In the event of death: immediate assignment of the shares to the heirs who
are obliged to assign them to Costa Holding within 120 days from the date of
the assignment
- - in the event of normal retirement: immediate assignment of the shares to
Costa Holding
- - in the event of resignation and firing: obligation to assign the shares to
Costa Holding
- - in the event of agreed termination: discretional decision of the Committee
to maintain, reduce, remove or postpone the restricted period
In any event, the shares shall be assigned by the participants to Costa
Holding after ten years following the granting.
8. Management of the admissions and terms of assignment of the shares
During the sixty days following the shareholders resolution of increase of
capital of the Company, the shares will be assigned to the beneficiaries by
written communication sent by letter.
The beneficiaries shall communicate by letter to the Company the acceptance or
the refusal of the assignment within five days from the date of the above-
mentioned communication.
9. Custody and management of the shares
The assigned shares shall be deposited with the Company which will sub-deposit
them with an entity entitled to custody and manage the same on behalf of the
Company and for the benefit of each Participant.
EXHIBIT 10.42
AMENDED AND RESTATED OPERATING AGREEMENT
OF CONTINENTAL HOSPITALITY HOLDINGS, LLC
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF CONTINENTAL HOSPITALITY HOLDINGS, LLC (the "Agreement") is made by the
persons and entities listed on Schedule A attached hereto (hereinafter the
"Members"), effective as of May 3, 2001 (the "Effective Date").
The Members hereby agree:
ARTICLE
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
set forth below.
1.1 Act. The Delaware Limited Liability Company Act as
amended, Chapter 18-101, et seq., (or the corresponding provision(s) of
any succeeding law).
1.2 Bankruptcy. Entry of an order for relief under the federal
bankruptcy law; filing a voluntary petition under the federal bankruptcy
law; an adjudication as insolvent or bankrupt; an assignment of property
for the benefit of creditors; filing a petition or answer seeking a
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any federal or state law for relief
of debtors, or the failure to obtain within 120 days the stay or dismissal
of such a proceeding brought by a third party; filing an answer or other
pleading admitting or failing to deny the material allegations of a
petition filed to obtain relief of the above nature; seeking, consenting
to, or acquiescing in the appointment of a trustee, receiver, or
liquidator of any substantial portion of assets; or the failure to have
the appointment of a conservator, receiver, or trustee vacated or stayed
within 60 days after the occurrence of such event, or the failure to have
the appointment vacated within 60 days after the expiration of any such
stay.
1.3 Capital Transaction. The following events shall be
defined as Capital Transactions for purposes of this Agreement: (i) any
sale of all or part of the Property other than in the ordinary course of
the Company's business; (ii) any insurance payments or damage recoveries
paid to the Company in respect of the Property to the extent not
required to repair or restore the Property; (iii) any condemnation
proceeds paid to the Company for the taking of all or part of the
Property to the extent not required to repair or restore the Property;
and (iv) any refinancing of any of the Company's loans, to the extent
proceeds are derived in excess of expenses and amounts set aside for the
reduction of any Company liabilities.
1.4 Cash Flow. For any period during which the Company is in
existence, Cash Flow means the gross receipts of the Company from sources
other than capital contributions made by the Members and less the current
expenditures of the Company for the same period. Current expenditures of
the Company shall be deemed to include (i) operational expenses; (ii)
payments of principal and interest upon any indebtedness (including any
indebtedness owed to the Members or any of their affiliates); (iii)
expenses incurred by the Company for capital improvements; and (iv) any
expenditures for taxes, insurance, or assessments.
1.5 Certificate of Formation. The Certificate of Formation of
the Company, as amended, filed with the Secretary of State of the State of
Delaware.
1.6 Code. The Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder (or the corresponding
provision(s) of any succeeding law).
1.7 Company. Continental Hospitality Holdings, LLC, a limited
liability company organized under the Act.
1.8 Distributions. Cash or property distributed to the Members
other than payments to the Members for services or as repayment of loans.
1.9 Liquidation. Liquidation means the earlier of (a) the date
upon which the Company is terminated under Section 708(b)(1) of the Code,
or any similar provision enacted in lieu thereof, or (b) the date upon
which the Company ceases to be a going concern.
1.10 Managing Members. As set forth in Section 6.1.
1.11 Percentage Interests. As set forth on Schedule A.
1.12 Property. All the real, personal and intangible property
owned by or on behalf of the Company.
ARTICLE
FORMATION
2.1 Organization. The Members hereby organize the Company as a
Delaware limited liability company pursuant to the provisions of the Act.
2.2 Agreement. The Members, by executing this Agreement, hereby agree
to the terms and conditions of the Agreement, as it may from time to time be
amended. To the extent any provision of the Agreement is prohibited or
ineffective under the Act, the Agreement shall be deemed to be amended to the
least extent necessary in order to make the Agreement effective under the
Act. In the event the Act is subsequently amended or interpreted in such a
way to make any provision of the Agreement that was formerly invalid, valid,
such provision shall be considered to be valid from the effective date of
such interpretation or amendment.
2.3 Name. The name of the Company is Continental Hospitality Holdings,
LLC, and all business of the Company shall be conducted under that name or,
if an assumed or fictitious name certificate is properly filed, under any
other name selected by the Managing Members.
2.4 Term. The duration of the Company shall be perpetual, unless the
Company shall be sooner dissolved and its affairs wound up in accordance with
the Act or this Agreement.
2.5 Registered Agent and Office. The name and address of the
registered agent for the service of process shall be as set forth in the
Certificate of Formation, as amended from time to time. In the event the
registered agent ceases to act as such for any reason or the registered
office shall change, the Managing Members shall promptly designate a
replacement registered agent or file a notice of change of address, as the
case may be.
2.6 Principal Office. The principal mailing address of the Company
shall be at such location or address as the Managing Members may determine
from time to time.
ARTICLE 3
PURPOSE; NATURE OF BUSINESS
3.1 Purpose; Nature of Business. The business purpose of the Company
is to engage in any and all business activities permitted under the laws of
the State of Delaware. The Company shall have the authority to do all things
necessary or convenient to accomplish its purpose and operate its business as
described in this Article III.
ARTICLE 4
MEMBERS AND CAPITAL
4.1 Members and Membership Interests. The names and Percentage
Interests of the Members shall be set forth on Schedule A attached hereto.
4.2 Withdrawal of Capital. Except as otherwise provided herein, the
Members shall have no right to withdraw their capital contribution or any
part thereof. The Members shall not be entitled to interest on their capital
contributions.
4.3 Power of Members. Except as otherwise expressly provided herein,
the Members shall not take part in the day-to-day management, operation or
control of the business and affairs of the Company or have any right, power
or authority to transact any business in the name of the Company or to act
for, or on the behalf of, or to bind the Company. The Members shall have no
interest in the specific property of the Company.
ARTICLE 5
DISTRIBUTIONS AND ALLOCATIONS OF PROFITS AND LOSSES
5.1 Distributions. To the extent available, the Company may distribute
Cash Flow and net proceeds from Capital Transactions to the Members in
accordance with their respective Percentage Interests. The Company shall
apply a Member's distribution first in satisfaction of any outstanding
obligation of such Member to the Company.
5.2 Limitation on Distributions. The Company shall not make a
Distribution to the Members if such Distribution would violate Section 18-607
of the Act or other applicable law.
5.3 Profits and Losses. Profits and losses of the Company, as
determined for federal and state income tax purposes, shall generally be
allocated among the Members in accordance with their respective Percentage
Interests, except that (a) losses shall first be allocated in proportion to,
and to the extent of, the Members' respective positive capital account
balances, determined in accordance with Section 704 of the Code, and (b)
profits shall be allocated in a manner which, to the extent possible,
maintain the Members' respective positive capital account balances in
proportion to the amounts which would be distributed if the assets of the
Company were sold at their respective fair market values and the net proceeds
distributed to the Members in liquidation of the Company.
ARTICLE 6
MANAGEMENT
6.1 Managing Members. Sherwood Weiser, Donald Lefton and a designated
representative of Carnival Corporation (the "Carnival Representative") are
hereby appointed as the Managing Members of the Company. Carnival
Corporation hereby initially designates Howard Frank as its initial Managing
Member.
6.2 Function. All powers of the Company shall be exercised by, or
under the authority of, and the business and affairs of the Company shall be
managed under the direction and control of the Managing Members. Subject to
the provisions of Section 6.4 hereof, any one of the Managing Members shall
have full authority to act for and on behalf of the Company. The Managing
Members may utilize the services of any of the Members as consultants with
regard to the business of the Company.
6.3 Duties.
(a) The Managing Members shall perform their duties in good
faith, in a manner they reasonably believe to be in the best interests of
the Company and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
(b) In performing their duties, the Managing Members shall
be entitled to rely on information, opinions, reports or statements,
including financial statements and other financial data, in each case
prepared by and presented by one or more agents or employees of the
Company whom such Managing Members reasonably believe to be reliable and
competent in the matters presented or counsel, public accountants or other
persons as to matters which such Managing Members reasonably believe to
be within such person's professional or expert competence. A person who
performs his or her duties in compliance with this Section shall have no
liability by reason of being or having been a Managing Member.
6.4 Major Acts. Notwithstanding anything in this Agreement to the
contrary, no Managing Member shall take any of the actions with respect to
the matters described below (all such actions being referred to collectively
herein as "Major Acts" and each individually as a "Major Act") without the
consent of both (i) the Carnival Representative and (ii) either of Sherwood
Weiser or Donald Lefton.
"Major Acts" shall mean any decision of the Company (or any entity owned or
controlled by the Company) to: (a) incur any indebtedness; (b) enter into,
amend, or terminate any agreement or collection of related agreements in
excess of $20,000, whether oral or written, including, but not limited to,
all agreements relating to acquisitions, employment of employees with the
Company and/or executive compensation, or alter the compensation arrangements
of the Company's executives or any Member; (c) approve the Company's annual
budget and capital budget or cause the Company to deviate from the Company's
annual budget; (d) make any capital expenditures in excess of those reflected
in the Company's capital budget previously approved by the Managing Members;
(e) enter into any agreement or amend any existing agreement which restricts
or adversely affects the Company's ability to perform its obligations under
operating agreements or other similar corporate agreements; (f) enter into
any sale and leaseback transactions with respect to any of its property; (g)
enter into any agreement with any affiliate of any Member; (h) engage in any
business other than that set forth in Article III hereof; (i) sell all or any
material part of its assets in a single transaction or in a series of
transactions; (j) merge or consolidate, with any other entity; (k) make or
permit to remain outstanding any loan or advance to, or extend credit to, or
own, purchase or acquire any stock, obligations or securities of, or any
other interest in, or make any capital contribution to or other investment
in, any other person or entity; (l) issue, sell or otherwise transfer any
membership interests or other securities of the Company, including rights,
options or other convertible or exchangeable securities (except as permitted
hereby); (m) engage in any transaction with any Member or officer or director
of the Company, or any affiliate of any such person or entity; (n) grant
registration rights to any Member; (o) approve the pledge, hypothecation or
similar credit transaction involving any membership interests; (p) make any
distribution to the Members; (q) approve the transfer of any membership
interests; (r) appoint a person as an officer of the Company; or (s) modify
or amend this Agreement.
ARTICLE 7
TRANSFER OF COMPANY INTERESTS
7.1 No Transfer.
(a)No Member may sell, assign, transfer, give, hypothecate or otherwise
encumber (any such sale, assignment, transfer, gift, hypothecation or
encumbrance being hereinafter referred to as a "Transfer"), directly or
indirectly, or by operation of law or otherwise, any interest in the Company
(including a Transfer or Merger involving shares, membership interests or
partnership interests of any Member not an individual), except (i) as
hereinafter set forth in this Article VII, or (ii) upon prior written consent
of the Managing Members in their sole discretion. Any Transfer of any
interest in the Company in contravention of this Article VII shall be null
and void and shall be deemed a material breach of and default under this
Agreement and the other Members shall have all of the rights and remedies
available under this Agreement, in law or in equity.
(b)Notwithstanding the provisions of Section 7.1(a), each Member shall be
permitted to Transfer all or any portion of his or its Interest to (i) his
spouse, any lineal descendent, parent, grandparent, sibling or other blood
relative, (ii) any custodian, guardian or other representative for a spouse,
lineal descendent, parent, grandparent or sibling, and/or (iii) the trustee
of any trust created for the benefit of the Member, his or her spouse, lineal
descendent, parent, grandparent or sibling; and/or (iv) in the case of an
entity Member, to its partners, members, shareholders, subsidiaries or
beneficial owners in connection with the distribution of its Interest to such
persons; (collectively, the "Permitted Family Transferees"); provided,
however, that each and every such Permitted Family Transferee executes a
written acknowledgment that (x) all interests in the Company held by the
Permitted Family Transferee will, notwithstanding the Transfer to such
Permitted Family Transferee, be deemed for all purposes of this Agreement to
be owned by the transferring Member (including all voting rights with respect
to such Interest) and (y) he, she or it agrees to be bound by all the terms
of this Agreement.
7.2 Succession by Operation of Law. Notwithstanding Section 7.1
hereof, in the event of the death or incapacity of an individual Member or in
the event of the merger, consolidation, dissolution or liquidation of any
Member not an individual, all of such Member's rights to distributions and
allocations by the Company, shall pass to such Member's personal
representative, heir or distributee, in the case of an individual Member, or
to such Member's legal successor, in the case of any Member not an
individual, but such personal representative, heir, distributee or legal
successor shall not become a Member of the Company without the prior written
consent of the Managing Members, which consent may not be unreasonably
withheld, conditioned or delayed.
7.3 New Members. Notwithstanding Section 7.2 hereof, no person or
entity, not then a Member, shall become a Member hereunder under any of the
provisions hereof unless such person or entity shall expressly assume and
agree to be bound by all of the terms and conditions of this Agreement. If
requested by the other Member each such person or entity shall also cause to
be delivered to the Company, at his or its sole cost and expense, a favorable
opinion of legal counsel reasonably acceptable to each of the other Members,
to the effect that (i) the contemplated Transfer of such interests in the
Company ("Company Interest)" to such person or entity does not require
registration under the Securities Act of 1933 or applicable State securities
or Blue Sky laws, (ii) such person or entity has the legal right, power and
capacity to own the Company Interest, and (iii) the contemplated Transfer of
such Company Interest to such person or entity will not cause the Company to
be treated as a corporation for federal income tax purposes. All reasonable
costs and expenses incurred by the Company in connection with any Transfer of
a Company Interest and, if applicable, the admission of a person or entity as
a Member hereunder, shall be paid by the transferee. Upon compliance with
all provisions hereof applicable to such person or entity becoming a Member,
all Members hereby agree to execute and deliver such amendments hereto as are
necessary to constitute such person or entity as a Member of the Company.
ARTICLE 8
DISSOLUTION AND WINDING UP
8.1 Events of Dissolution. Each of the following shall be an Event of
Dissolution causing the Company to dissolve:
(a)the unanimous written consent by the Members to dissolve the Company; and
(b)the entry of a decree of judicial dissolution under Section 18-802 of the
Act.
8.2 Winding Up and Filing Certificate of Cancellation. Upon
dissolution, the Managing Members shall wind up the affairs of the Company
and liquidate its assets. The Managing Members shall determine the time,
manner, and terms of any sales of Company assets, the amount of any reserves,
and the time when reserves will be distributed to the Members in final
liquidation. Upon the commencement of the winding up of the Company, a
certificate of cancellation shall be filed by the Company with the Secretary
of State of the State of Delaware. The certificate of cancellation shall set
forth the information required by the Act. The winding up of the Company
shall be completed when all debts, liabilities, and obligations of the
Company have been paid and discharged or reasonably adequate provision
therefor has been made, and all of the remaining Property has been
distributed to the Members.
ARTICLE 9
BOOKS, RECORDS AND TAX MATTERS
9.1 Records. At all times during the existence of the Company, the
Managing Members shall maintain books of account which shall reflect all
Company transactions. In addition, the Managing Members shall keep at the
Company's principal place of business a copy of the Certificate of Formation,
this Agreement and all amendments thereto, together with executed copies of
any powers of attorney pursuant to which any document was executed and such
other records as the Managing Members shall determine. Records kept under
this Section are subject to inspection and copying during ordinary business
hours at the reasonable request, and at the expense, of the Members.
9.2 Taxable and Fiscal Year. The Company's taxable and fiscal years
shall be the calendar year.
9.3 Tax and Financial Reports. As soon as practicable after the close
of each fiscal year, the Managing Members shall deliver to the Members such
information as may be reasonably requested by the Members for the preparation
of their income tax returns.
9.4 Accounting Decisions. All decisions as to accounting matters,
except as specifically provided to the contrary herein, shall be made by the
Managing Members. The Managing Members may rely upon the advice of the
Company's accountants or professional advisors in making such decisions.
9.5 Tax Elections. The Managing Members shall have the authority to
make any tax election under the Code that they determine to be necessary or
appropriate.
ARTICLE 10
LIMITATION OF LIABILITY
10.1 Limited Liability.
(a)Except as otherwise provided by the Act, the debts, obligations and
liabilities of the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Company, and
the Members shall not be obligated personally for any such debt, obligation
or liability of the Company solely by reason of being a Member or a Managing
Member.
b)Except as otherwise expressly required by law, the Members, in their
capacity as such, shall have no liability in excess of (i) the amount of
their net capital contributions, (ii) their share of any assets and
undistributed profits of the Company, and (iii) the amount of any
Distributions wrongfully distributed to them.
ARTICLE 11
CONFLICT OF INTEREST
11.1 Company Interests. The Members shall be entitled to enter into
transactions that may be considered to be competitive with the Company, it
being expressly understood that any Member may enter into transactions that
are similar to the transactions into which the Company may enter.
11.2 Interested Transaction. A Member does not violate a duty or
obligation to the Company merely because such Member's conduct furthers such
Member's own interest. A Member may lend money to and transact other
business with the Company. The rights and obligations of a Member who lends
money to or transacts business with the Company are the same as those of a
person who is not a Member, subject to other applicable law. No transaction
with the Company shall be voidable solely because a Member has a direct or
indirect interest in the transaction.
ARTICLE 12
INDEMNIFICATION
12.1 Indemnification. To the maximum extent permitted by applicable
law, the Company shall indemnify any officer, employee, Managing Member,
representative or agent of the Company (each a "Covered Person") from and
against any claim, loss, expense, liability, action or damage (including,
without limitation, any action by a Member against a Covered Person) due to
or arising from any liability or damage incurred by reason of any action,
inaction or decision performed, taken, not taken or made by it or any of them
in connection with the activities and operations of the Company, provided
such Covered Person acted in good faith and in a manner such Covered Person
reasonably believed to be in, or not opposed to, the best interests of the
Company and, with respect to any criminal proceeding, had no reasonable cause
to believe the conduct of such Covered Person was unlawful. The termination
of a proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere, or its equivalent, shall not, by itself, create a
presumption that the Covered Person did not act in good faith and in a manner
which the Covered Person reasonably believed to be in, or not opposed to, the
best interest of the Company, or that the Covered Person had reasonable cause
to believe that his conduct was unlawful (unless there has been a final
adjudication in the proceeding that the Covered Person did not act in good
faith and in a manner which he reasonably believed to be in, or not opposed
to, the best interests of the Company, or that the Covered Person did have
reasonable cause to believe that his conduct was unlawful). Any Covered
Person may consult with counsel selected by it and any opinion of an
independent counsel (which may be counsel for the Company or any affiliate)
shall be full and complete authorization and protection in respect of any
action taken or suffered or omitted by such Covered Person hereunder in good
faith and in accordance with the opinion of such counsel. Any
indemnification under this Section shall include reasonable attorneys' fees
incurred by Covered Persons in connection with the defense of any action
based on any such action, inaction or decision, and including to the extent
permitted by law, all such liabilities under United States federal and state
securities acts. The reasonable expenses incurred by Covered Persons in
connection with the defense of any such action shall be paid or reimbursed by
the Company as incurred upon an undertaking by such Covered Person to repay
such expenses if it shall ultimately be determined that such Covered Person
is not entitled to be indemnified hereunder.
12.2 Limitations. Notwithstanding the provisions of Section 12.1, a
Covered Person shall not be entitled to be indemnified or held harmless from
and against any claim, loss, expense, liability, action or damage due to or
arising from its or their gross negligence or willful misconduct.
12.3 Non-Exclusive Right. The provisions of this Section shall be in
addition to and not in limitation of any other rights of indemnification and
reimbursement or limitations of liability to which a Covered Person may be
entitled under the Act, common law, or otherwise. The provisions of this
Section shall apply whether or not at the time of reimbursement the Covered
Person is then a Covered Person. Notwithstanding any repeal of this Section
or other amendment hereof, its provisions shall be binding upon the Company
(subject only to the exceptions above set forth) as to any claim, loss,
expense, liability, action or damage due to or arising out of matters which
occur during or relate to the period prior to any such repeal or amendment of
this Section 12.3.
ARTICLE 13
AMENDMENT
13.1 Amendment. Except as otherwise provided herein, this Agreement
may not be altered or modified except by a writing signed by a majority in
interest of the Members.
ARTICLE 14
CERTIFICATE OF FORMATION
14.1 Certificate of Formation. The affairs of the Company and its
relationship to the Members shall be further governed by the terms and
conditions of the Certificate of Formation, as amended from time to time. In
case of a conflict between the provisions of this Agreement and those of the
Certificate of Formation, the latter shall govern.
ARTICLE 15
MISCELLANEOUS
15.1 Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware and all rights and remedies
that may exist hereunder shall be governed by such laws, in each case,
without regard to its principles of conflicts of laws.
15.2 Interpretation. Throughout this Agreement, nouns, pronouns and
verbs shall be construed as masculine, feminine, neuter, singular or plural,
whichever shall be applicable. All references herein to "Articles,"
"Sections" and paragraphs shall refer to corresponding provisions of this
Agreement.
15.3 Previous Operating Agreements. The Agreement supercedes and
replaces in its entirety the Operating Agreement dated February 27, 2001 and
executed by the then sole member of the Company and the Operating Agreement
dated April 27, 2001 and executed by the then Members (the "Previous
Agreements") and the Previous Agreements shall be of no further force and
effect.
15.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original but all of which will
constitute one and the same instrument.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, this Agreement has been made and executed effective as of
this 3rd day of May, 2001.
/s/Sherwood Weiser__________
SHERWOOD WEISER
/s/Donald Lefton____________
DONALD LEFTON
/s/Thomas Hewitt____________
THOMAS HEWITT
/s/Peter Sibley_____________
PETER SIBLEY
CHC INVESTOR PARTNERS, L.P.
By:/s/Karim Alibhai__________
General Partner
By:__________________________
Name:Karim Alibhai
Title:President______________
/s/Robert Sturges____________
ROBERT STURGES
/s/Peter Temling_____________
PETER TEMLING
[SIGNATURE PAGE TO OPERATING AGREEMENT]
/s/Irving Zeldman____________
IRVING ZELDMAN
/s/Douglas Weiser____________
DOUGLAS WEISER
/s/Warren Weiser_____________
WARREN WEISER
/s/Bradley Weiser_____________
BRADLEY WEISER
/s/Robyn Fisher_______________
ROBYN FISHER
/s/Lisa Tabatchnick___________
LISA TABATCHNICK
[SIGNATURE PAGE TO OPERATING AGREEMENT]
CARNIVAL CORPORATION
By:/s/Gerry Cahill___________
Title: Chief Financial Officer
SCHEDULE A
Name of Members Percentage Interest
Sherwood Weiser 11.36%
Donald Lefton 11.36%
Thomas Hewitt 4.22%
Peter Sibley 4.22%
CHC Investor Partners, L.P. 4.94%
Robert Sturges 1.77%
Peter Temling 2.28%
Irving Zeldman 3.73%
Douglas Weiser 0.18%
Warren Weiser 0.18%
Bradley Weiser 0.18%
Robyn Fisher 0.29%
Lisa Tabatchnick 0.29%
Carnival Corporation 55.00%
Total 100.00%
EXHIBIT 12
CARNIVAL CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratios)
YEARS ENDED NOVEMBER 30,
2001 2000 1999 1998 1997
Net Income $926,200 $ 965,458 $1,027,240 $835,885 $666,050
Income tax (benefit)
Expense (12,257) 1,094 2,778 3,815 6,233
Income before
income taxes 913,943 966,552 1,030,018 839,700 672,283
Adjustment to Earnings:
Minority interest 14,014 11,102
Loss (income) from
affiliated operations
and dividends received 56,910 (21,362) (60,671) (63,059) (46,569)
Earnings as adjusted 970,853 945,190 983,361 787,743 625,714
Fixed Charges:
Interest expense, net 120,692 41,372 46,956 57,772 55,898
Interest portion of
rent expense (1) 4,409 3,509 3,405 3,480 3,528
Capitalized interest 29,357 41,110 40,908 35,130 16,846
Total fixed charges 154,458 85,991 91,269 96,382 76,272
Fixed charges not affecting
earnings:
Capitalized interest (29,357) (41,110) (40,908) (35,130) (16,846)
Earnings before fixed
Charges $1,095,954 $ 990,071 $1,033,722 $848,995 $685,140
Ratio of earnings to
fixed charges 7.1 x 11.5 x 11.3 x 8.8 x 9.0 x
___________________
(1) Represents one-third of rent expense, which management believes to be
representative of the interest portion of rent expense.
EXHIBIT 13
CARNIVAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
NOVEMBER 30,
ASSETS 2001 2000
Current Assets
Cash and cash equivalents $ 1,421,300 $ 189,282
Short-term investments 36,784 5,470
Accounts receivable, net 90,763 95,361
Inventories 91,996 100,451
Prepaid expenses and other 113,798 158,918
Fair value of hedged firm commitments 204,347
Total current assets 1,958,988 549,482
Property and Equipment, Net 8,390,230 8,001,318
Investments in and Advances to Affiliates 437,391
Goodwill, less Accumulated Amortization of
$117,791 and $99,670 651,814 701,385
Other Assets 188,915 141,744
Fair Value of Hedged Firm Commitments 373,605
$11,563,552 $9,831,320
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 21,764 $ 248,219
Accounts payable 269,467 332,694
Accrued liabilities 298,032 302,585
Customer deposits 627,698 770,425
Dividends payable 61,548 61,371
Fair value of derivative contracts 201,731
Total current liabilities 1,480,240 1,715,294
Long-Term Debt 2,954,854 2,099,077
Deferred Income and Other Long-Term Liabilities 157,998 146,332
Fair Value of Derivative Contracts 379,683
Commitments and Contingencies (Notes 7 and 8)
Shareholders' Equity
Common stock; $.01 par value; 960,000 shares
authorized; 620,019 and 617,568 shares issued 6,200 6,176
Additional paid-in capital 1,805,248 1,772,897
Retained earnings 5,556,296 4,884,023
Unearned stock compensation (12,398) (12,283)
Accumulated other comprehensive loss (36,932) (75,059)
Treasury stock; 33,848 and 33,087 shares at cost (727,637) (705,137)
Total shareholders' equity 6,590,777 5,870,617
$11,563,552 $9,831,320
The accompanying notes are an integral part of these consolidated financial
statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share)
YEARS ENDED NOVEMBER 30,
2001 2000 1999
Revenues $4,535,751 $3,778,542 3,497,470
Costs and Expenses
Operating 2,468,730 2,058,342 1,862,636
Selling and administrative 618,664 487,403 447,235
Depreciation and amortization 372,224 287,667 243,658
Impairment charge 140,378
3,599,996 2,833,412 2,553,529
Operating Income Before (Loss) Income From
Affiliated Operations 935,755 945,130 943,941
(Loss) Income From Affiliated Operations, Net (44,024) 37,828 75,758
Operating Income 891,731 982,958 1,019,699
Nonoperating Income (Expense)
Interest income 34,255 16,506 41,932
Interest expense, net of
capitalized interest (120,692) (41,372) (46,956)
Other income, net 108,649 8,460 29,357
Income tax benefit (expense) 12,257 (1,094) (2,778)
Minority interest (14,014)
34,469 (17,500) 7,541
Net Income $ 926,200 $ 965,458 $1,027,240
Earnings Per Share:
Basic $1.58 $1.61 $1.68
Diluted $1.58 $1.60 $1.66
The accompanying notes are an integral part of these consolidated financial statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED NOVEMBER 30,
2001 2000 1999
OPERATING ACTIVITIES
Net income $ 926,200 $ 965,458 $1,027,240
Operating items not requiring cash:
Depreciation and amortization 372,224 287,667 243,658
Impairment charge 140,378
Gain on sale of investments in affiliates, net (116,698)
Loss (income) from affiliated operations
and dividends received 56,910 (21,362) (60,671)
Minority interest 14,014
Other 21,199 (14,689) 4,007
Changes in operating assets and liabilities,
excluding businesses acquired and consolidated:
(Increase) decrease in:
Receivables (7,134) (15,132) (3,271)
Inventories 8,455 (8,205) (8,570)
Prepaid expenses and other 43,691 (21,972) (9,465)
(Decrease) increase in:
Accounts payable (63,227) 58,133 27,333
Accrued and other liabilities (335) (5,977) 58,016
Customer deposits (142,727) 55,614 37,433
Net cash provided by operating activities 1,238,936 1,279,535 1,329,724
INVESTING ACTIVITIES
Additions to property and equipment, net (826,568) (1,003,348) (872,984)
Proceeds from sale of investments
in affiliates 531,225
Proceeds from sale of ships 15,000 51,350
Acquisition of consolidated subsidiaries, net (383,640) (54,715)
(Purchase of) proceeds from sale of
short-term investments, net (33,395) 22,170 (11,890)
Other, net (28,178) 21,441 29,209
Net cash used in investing activities (341,916) (1,292,027) (910,380)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 2,574,281 1,020,091 7,772
Purchase of treasury stock (705,137)
Principal repayments of long-term debt (1,971,026) (388,429) (564,838)
Dividends paid (245,844) (254,333) (219,179)
Proceeds from issuance of common stock, net 5,274 7,811 741,575
Debt issuance costs (25,531) (176)
Net cash provided by (used in)
financing activities 337,154 (319,997) (34,846)
Effect of exchange rate changes on cash and
cash equivalents (2,156)
Net increase (decrease) in cash and
cash equivalents 1,232,018 (332,489) 384,498
Cash and cash equivalents at beginning
of year 189,282 521,771 137,273
Cash and cash equivalents at end of year $1,421,300 $ 189,282 $ 521,771
The accompanying notes are an integral part of these consolidated financial statements.
CARNIVAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Unearned Accumulated Total
Compre- Additional stock other share-
hensive Common paid-in Retained compen- comprehensive Treasury holders'
income stock capital earnings sation income (loss) stock equity
Balances at
November 30, 1998 $5,955 $ 880,488 $3,379,628 $(5,294) $ 24,699 $ $4,285,476
Comprehensive income:
Net income $1,027,240 1,027,240 1,027,240
Foreign currency
Translation
adjustment (19,209) (19,209) (19,209)
Changes in securities
valuation allowance (4,374) (4,374) (4,374)
Total comprehensive
income $1,003,657
Cash dividends (230,370) (230,370)
Issuance of stock in
public offering, net 170 725,062 725,232
Issuance of stock to acquire
minority interest in
Cunard Line Limited 32 127,037 127,069
Issuance of stock under
stock plans 13 24,821 (7,326) 17,508
Amortization of unearned stock
compensation 2,675 2,675
Balances at
November 30, 1999 6,170 1,757,408 4,176,498 (9,945) 1,116 5,931,247
Comprehensive income:
Net income $ 965,458 965,458 965,458
Foreign currency
translation
adjustment (73,943) (73,943) (73,943)
Changes in securities
valuation allowance,
net (2,232) (2,232) (2,232)
Total comprehensive
income $ 889,283
Cash dividends (250,923) (250,923)
Issuance of stock under
stock plans 6 15,489 (5,977) 9,518
Amortization of unearned stock
compensation 3,639 3,639
Effect of conforming Costa's
reporting period (7,010) (7,010)
Purchase of treasury stock (705,137) (705,137)
Balances at
November 30, 2000 6,176 1,772,897 4,884,023 (12,283) (75,059) (705,137) 5,870,617
Comprehensive income:
Net income $ 926,200 926,200 926,200
Foreign currency
translation
adjustment, net 45,781 45,781 45,781
Changes in securities
valuation allowance,
net 6,411 6,411 6,411
Minimum pension liability
adjustment (5,521) (5,521) (5,521)
Changes related to cash
flow derivative
hedges, net (4,330) (4,330) (4,330)
Transition adjustment
for cash flow
derivative hedges (4,214) (4,214) (4,214)
Total comprehensive
income $ 964,327
Cash dividends (246,021) (246,021)
Issuance of stock under
stock plans 24 32,351 (4,601) (22,500) 5,274
Amortization of unearned stock
compensation 4,486 4,486
Effect of conforming Airtours'
reporting period (7,906) (7,906)
Balances at November
30, 2001 $6,200 $1,805,248 $5,556,296 $(12,398) $(36,932) $(727,637) $6,590,777
The accompanying notes are an integral part of these consolidated financial statements.
CARNIVAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
Description of Business
Carnival Corporation is a Panamanian corporation and along with its
consolidated subsidiaries is referred to collectively in these consolidated
financial statements and elsewhere in this 2001 Annual Report as "we,"
"our" and "us." We are a global vacation and leisure travel provider that
operates six cruise lines under the brand names Carnival Cruise Lines
("Carnival"), Costa Cruises ("Costa"), Cunard Line ("Cunard"), Holland
America Line ("Holland America"), Seabourn Cruise Line ("Seabourn") and
Windstar Cruises ("Windstar") and a tour business, Holland America Tours
("Tours"). Carnival operates fifteen cruise ships with destinations
primarily to the Caribbean, the Bahamas and the Mexican Riviera. Holland
America operates ten cruise ships with destinations primarily to Alaska,
the Caribbean and Europe. Costa operates seven cruise ships with
destinations primarily to Europe, the Caribbean and South America. Cunard
operates two premium/luxury cruise ships and Seabourn and Windstar each
operate four luxury ships with destinations to the Caribbean, Europe,
Central America and other worldwide locations. Tours is the largest
cruise/tour operator in Alaska and the Canadian Yukon. Tours also markets
sightseeing packages, both separately and as a part of its cruise/tour
packages.
Preparation of Financial Statements
The preparation of our consolidated financial statements in accordance
with accounting principles generally accepted in the United States of
America requires us to make estimates and assumptions that affect the
amounts reported and disclosed in our financial statements. Actual results
could differ from these estimates. All material intercompany accounts,
transactions and unrealized profits and losses on transactions within our
consolidated group and with affiliates are eliminated in consolidation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
We consolidate subsidiaries over which we have control, as typically
evidenced by a direct ownership interest of greater than 50%. For
affiliates where significant influence over financial and operating
policies exists, as typically evidenced by a direct ownership interest from
20% to 50%, the investment is accounted for using the equity method. See
Note 5.
Prior to our acquisition of Costa in late fiscal 2000, we accounted
for our 50% interest in Costa using the equity method and recorded our
portion of Costa's operating results as earnings from affiliated operations
on a two-month lag basis. For September, October and November, 2000, we
continued to record our 50% interest in Costa's operating results for the
months of July, August and September, 2000, respectively, using the equity
method. As of November 30, 2000, we changed how we report Costa's
operating results from a two-month lag basis to reporting on Costa's
current month's results. At that time, Costa's operating results for the
months of October and November 2000 were recorded as a direct charge to
retained earnings in our November 30, 2000 consolidated balance sheet and
our November 30, 2000 consolidated balance sheet included Costa's November
30, 2000 balance sheet. The impact of conforming Costa's reporting period
on our fiscal 2000 revenues, operating income and net income was not
material. Commencing in fiscal 2001, Costa's results of operations were
consolidated on a current month basis in the same manner as our other
wholly-owned subsidiaries. See Note 17.
Cash and Cash Equivalents and Short-Term Investments
Cash and cash equivalents include investments with original maturities
of three months or less and are stated at cost. At November 30, 2001 and
2000, cash and cash equivalents included $1.38 billion and $157 million of
investments, respectively, primarily comprised of strong investment grade
asset-backed debt obligations and money market funds in 2001 and time
deposits in 2000.
Short-term investments are comprised of marketable debt and equity
securities which are categorized as available for sale and, accordingly,
are stated at their fair values. Unrealized gains and losses are included
as a component of accumulated other comprehensive income (loss) within
shareholders' equity ("AOCI") until realized. The specific identification
method is used to determine realized gains or losses.
Inventories
Inventories consist primarily of provisions, spare parts, supplies and
fuel carried at the lower of our weighted-average cost or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization was computed using the straight-line method over our estimate
of average useful lives as follows:
Years
Ships 30
Buildings and improvements 10-40
Transportation equipment and other 2-20
Leasehold improvements Shorter of lease term
or related asset life
We review our long-lived assets and goodwill for impairment whenever
events or changes in circumstances indicate that the carrying amount of
these assets may not be fully recoverable. The assessment of possible
impairment is based on our ability to recover the carrying value of our
asset based on our estimate of its undiscounted future cash flows. If
these estimated future cash flows are less than the carrying value of the
asset, an impairment charge is recognized for the difference between the
asset's estimated fair value and its carrying value (see Notes 4 and 16).
Drydock costs are included in prepaid expenses and are amortized to
operating expenses using the straight-line method generally over one or two
years.
Ship improvement costs that we believe add value to our ships are
capitalized to the ships, and depreciated over the improvements' estimated
useful lives, while costs of repairs and maintenance are charged to expense
as incurred. We capitalize interest on ships and other capital projects
during the construction period. Upon the replacement or refurbishment of
previously capitalized ship components, these assets' estimated cost and
accumulated depreciation are written-off and any resulting gain or loss is
recognized in operations. No material gains or losses were recognized in
fiscal 2001, 2000 or 1999. See Note 3.
Investments in Affiliates
At November 30, 2000, the costs in excess of the net assets acquired
("goodwill") of our affiliate, Airtours plc ("Airtours"), was $195 million.
Goodwill was amortized using the straight-line method, principally over 40
years and was recorded as "(Loss) Income from Affiliated Operations, Net"
in the accompanying statements of operations (see Notes 5 and 16).
Goodwill
Goodwill was amortized using the straight-line method over 40 years.
At November 30, 2001, goodwill consisted of $275 million from our
acquisition of HAL Antillen, N.V., the parent company of Holland America,
Windstar and Tours, $235 million from our acquisition of Cunard and $260
million from our fiscal 2000 acquisition of Costa (see Notes 4 and 16).
Derivative Instruments and Hedging Activities
We utilize derivative instruments, currently forward and swap
contracts, to limit our exposure to fluctuations in foreign currency
exchange rates, to manage our interest rate exposure, and to achieve a
desired proportion of variable and fixed rate debt (see Note 11).
Our most significant contracts to buy foreign currency are forward
contracts entered into to fix the cost in United States ("U.S.") dollars of
ten of our foreign currency denominated shipbuilding commitments (see Note
7). If our shipbuilding contract is denominated in the functional currency
of the cruise line that is expected to be operating the ship, we do not
enter into a forward contract to hedge that commitment.
Effective December 1, 2000, we adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, as amended, "Accounting for
Derivative Instruments and Hedging Activities", which requires that all
derivative instruments be recorded on our balance sheet at their fair
values. Derivatives that are not hedges must be recorded at fair value and
the changes in fair value must be immediately included in earnings. If a
derivative is a fair value hedge, then changes in the fair value of the
derivative are offset against the changes in the fair value of the
underlying hedged firm commitment. If a derivative is a cash flow hedge,
then changes in the fair value of the derivative are recognized as a
component of AOCI until the underlying hedged item is recognized in
earnings. The ineffective portion of a hedge derivative's change in fair
value is immediately recognized in earnings. We formally document all
relationships between hedging instruments and hedged items, as well as our
risk management objectives and strategies for undertaking our hedge
transactions.
The total $578 million of current and long-term fair value of hedged
firm commitment assets on our November 30, 2001 balance sheet, principally
includes $567 million of unrealized gains on our shipbuilding commitments
denominated in foreign currencies because of the strengthening of the
dollar compared to the euro. In addition, the total $581 million of fair
value of derivative contract liabilities on our November 30, 2001 balance
sheet, principally includes $567 million of unrealized losses on our
forward foreign currency contracts relating to those same shipbuilding
commitments, which are used to fix the cost of our shipbuilding commitments
in U.S. dollars, and effectively offsets the related hedged firm commitment
assets.
We classify the fair value of our derivative contracts and the
offsetting fair value of our hedged firm commitments as either current or
long-term liabilities and assets depending on whether the maturity date of
the derivative contract is within or beyond one year from our balance sheet
date, respectively. The cash flows from derivatives treated as hedges are
classified in our statements of cash flows in the same category as the item
being hedged.
Upon adoption of SFAS No. 133 on December 1, 2000, our recorded assets
and liabilities each increased by approximately $540 million. This
increase in assets and liabilities primarily represented the recording of
offsetting unrealized gains and losses on our shipbuilding contracts and
related foreign currency forward contracts, respectively. In accordance
with the transition provisions of SFAS No. 133, we recorded an adjustment
of $4.2 million in AOCI to record the unrealized net losses from our cash
flow hedges that existed on December 1, 2000.
Derivative gains and losses included in AOCI are reclassified into
earnings at the same time the underlying hedged transaction is recorded in
earnings. During fiscal 2001, all net changes in the fair value of both
our fair value hedges and the offsetting hedged firm commitments and our
cash flow hedges were immaterial, as were any ineffective portions of these
hedges. No fair value hedges or cash flow hedges were derecognized or
discontinued in fiscal 2001, and the amount of estimated unrealized net
losses which are expected to be reclassified to earnings in the next twelve
months is not material. At November 30, 2001, AOCI included $8.5 million
of unrealized net losses from cash flow hedge derivatives, which were
substantially all variable to fixed interest rate swap agreements.
Finally, if any of the three shipyards with which we have contracted
to build our ships is unable to perform, we would still be required to
perform under our foreign currency forward contracts related to that
shipyard's shipbuilding contracts. Accordingly, based upon the
circumstances, we may have to discontinue the accounting for those forward
contracts as hedges, if the shipyard can not perform.
Prior to fiscal 2001, changes in the fair values of and any discounts
or premiums on, our shipbuilding forward foreign currency contract hedges
were recorded at maturity, which coincided with the dates when the related
foreign currency payments were to be made, with any resulting gains or
losses recorded as a decrease or increase, respectively, to the cost paid
for our ships.
Prior to fiscal 2001, the fair values of our interest rate swap
agreements were not recorded in our financial statements. Any differences
paid or received on interest rate swap hedges were recognized as
adjustments to interest expense over the life of the swap, thereby
adjusting the effective interest rate on our underlying debt.
Revenue and Expense Recognition
Guest cruise deposits represent unearned revenues and are initially
recorded as customer deposit liabilities on our balance sheet when
received. Customer deposits are subsequently recognized as cruise revenues,
together with revenues from onboard activities and all associated direct
costs of a voyage, generally upon completion of voyages with durations of
ten days or less and on a pro rata basis for voyages in excess of ten days.
Revenues and expenses from our tour and related services are recognized at
the time the services are performed or expenses are incurred.
In fiscal 2001, we adopted Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition in Financial Statements" which provides guidance on
the recognition, presentation and disclosure of revenues in financial
statements. Our adoption of this SAB did not have a material impact on our
financial statements.
Advertising Costs
Substantially all of our advertising costs are charged to expense as
incurred, except costs which result in tangible assets, such as brochures,
which are recorded as prepaid expenses and charged to expense as consumed.
Advertising expenses totaled $214 million in fiscal 2001, $181 million in
fiscal 2000 and $178 million in fiscal 1999. At November 30, 2001 and
2000, the amount of advertising related costs included in prepaid expenses
was not material.
Foreign Currency Translations and Transactions
For our foreign subsidiaries and affiliates using the local currency
as their functional currency, assets and liabilities are translated at
exchange rates in effect at the balance sheet dates. Translation
adjustments resulting from this process are reported in AOCI. Revenues and
expenses of these foreign subsidiaries and affiliates are translated at
weighted-average exchange rates for the period. Exchange gains and losses
arising from transactions denominated in a currency other than the
functional currency of the entity involved are immediately included in our
earnings.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during each
period. Diluted earnings per share is computed by dividing net income, as
adjusted, by the weighted-average number of shares of common stock, common
stock equivalents and other potentially dilutive securities outstanding
during each period. See Note 14.
Stock-Based Compensation
We account for our employee and director stock-based compensation
using the intrinsic value method and disclose fair value pro forma
information (see Note 13).
Concentrations of Credit Risk
As part of our ongoing control procedures, we monitor concentrations
of credit risk associated with financial and other institutions with which
we conduct significant business. Credit risk, including counterparty
nonperformance under derivative instruments, contingent obligations and new
ship progress payment guarantees, is considered minimal, as we primarily
conduct business with large, well-established financial institutions who
have long-term credit ratings of A or above. In addition, we have
established guidelines regarding credit ratings and investment maturities
that seek to maintain safety and liquidity.
We also monitor the creditworthiness of our customers to which we
grant credit terms in the normal course of our business. Concentrations of
credit risk associated with these receivables are considered minimal
primarily due to their short maturities. We have experienced only minimal
credit losses on our trade receivables. We do not normally require
collateral or other security to support normal credit sales. However, we
do normally require collateral and/or guarantees to support notes
receivable on significant asset sales and new ship progress payments to
shipyards.
Reclassifications
Reclassifications have been made to prior year amounts to conform to
the current year presentation.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
November 30,
2001 2000
Ships $ 8,892,412 $8,575,563
Ships under construction 592,781 320,480
9,485,193 8,896,043
Land, buildings and improvements 264,294 275,203
Transportation equipment and other 349,188 314,417
Total property and equipment 10,098,675 9,485,663
Less accumulated depreciation and amortization (1,708,445) (1,484,345)
$ 8,390,230 $8,001,318
Capitalized interest, primarily on our ships under construction,
amounted to $29 million in fiscal 2001 and $41 million in both fiscal 2000
and fiscal 1999. Ships under construction include progress payments for
the construction of the ship, as well as design and engineering fees,
capitalized interest, construction oversight costs and various owner
supplied items. At November 30, 2001, two ships with an aggregate net book
value of $617 million were pledged as collateral pursuant to a $126 million
note and a $430 million contingent obligation (see Notes 6 and 8).
Maintenance and repair expenses and drydock amortization were $160
million, $132 million and $113 million in fiscal 2001, 2000 and 1999,
respectively.
NOTE 4 - IMPAIRMENT CHARGE
During fiscal 2001, we reviewed our long-lived assets and goodwill for
which there were indications of possible impairment. The assets we
reviewed were primarily from our Cunard and Seabourn brands, since we had
experienced continued losses from these brands and had recently
restructured their operations and made changes to their senior management.
In addition, we reviewed a Holland America note receivable collateralized
by a ship, the former Nieuw Amsterdam, which we sold to a company whose
parent declared bankruptcy in the fourth quarter of fiscal 2001. Based on
these reviews, we recorded an impairment charge, including a loss on the
sale of two Seabourn ships, of approximately $140 million in fiscal 2001,
including $39 million in the fourth quarter of 2001. This charge included
a $36 million write-off of Seabourn's goodwill balance; a $71 million
reduction in the carrying value of ships, primarily those operated by
Cunard and Seabourn; a $15 million write-down of the Holland America note
receivable; an $11 million loss from the sale of the Seabourn Goddess I and
II; and a $6 million write-down of the carrying value of two of Tours'
hotel properties. The note receivable and ship fair values were based on
third party appraisals or negotiations with unrelated third parties, and
the fair values of the goodwill and hotels were based on our estimates of
discounted future cash flows.
NOTE 5 - INVESTMENTS IN AND ADVANCES TO AFFILIATES
On June 1, 2001, we sold our investment in Airtours, which resulted in
a nonoperating net gain of $101 million and net cash proceeds of $492
million. Cumulative foreign currency translation losses of $59 million
were reclassified from AOCI and included in determining this 2001 net gain.
We also recorded a direct charge of $8 million to our retained earnings in
fiscal 2001, which represented our share of Airtours' losses for April and
May 2001, since Airtours' results were reported on a two-month lag.
In fiscal 2001, we sold our interest in CRC Holdings, Inc. ("CRC") to
an unrelated third party, which resulted in a nonoperating net gain of $16
million and net cash proceeds of $39 million. One of the members of our
Board of Directors was a principal shareholder in CRC.
Dividends received from affiliates were $13 million, $16 million and
$15 million in fiscal 2001, 2000 and 1999, respectively, which reduced the
carrying value of our investments in affiliates in accordance with the
equity method of accounting.
At November 30, 2000, affiliated companies that we accounted for using
the equity method, excluding Costa, had current assets, long-term assets,
current liabilities, long-term liabilities and shareholders' equity of
$2.27 billion, $1.98 billion, $1.85 billion, $1.53 billion and $870
million, respectively.
Income statement and segment information for our affiliated companies
accounted for using the equity method, including Airtours and Costa, was as
follows (in thousands):
Fiscal Years Ended
2000 1999
Revenues $6,669,052 $5,963,425
Gross margin $1,345,593 $1,265,614
Operating income $ 5,114 $ 359,953
Depreciation and amortization $ 152,123 $ 133,302
Net income $ 19,770 $ 255,146
Capital expenditures $ 650,098 $ 356,267
Since we sold our interest in Airtours and CRC during fiscal 2001, no
data has been presented for fiscal 2001.
NOTE 6 - LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
November 30,
2001 (a) 2000 (a)
Euro note, secured by one ship, bearing
interest at euribor plus 0.5% (4.8% and 5.7%
at November 30, 2001 and 2000, respectively),
due through 2008 $ 125,770 $ 141,628
Unsecured notes, bearing interest
at rates ranging from 6.15% to
7.7%, due through 2028(b) 848,779 848,657
Unsecured euro notes, bearing interest at
rates ranging from euribor plus 0.19% to
euribor plus 1.0% (3.9% to 4.9%
and 5.2% to 6.1% at November 30, 2001 and
2000, respectively), due 2005 and 2006 604,068 814,076
Unsecured euro notes, bearing interest at 5.57%,
due in 2006 266,223
Unsecured 2% convertible notes, due in 2021 600,000
Unsecured zero-coupon convertible notes, net of
discount, with a face value of $1.05 billion,
due in 2021 501,945
Commercial paper, bearing interest at 6.6% 342,846
$200 million multi-currency revolving credit
facility drawn in euros, bearing interest at
5.3% at November 30, 2000 160,862
Other 29,833 39,227
2,976,618 2,347,296
Less portion due within one year (21,764) (248,219)
$2,954,854 $2,099,077
(a) All borrowings are in U.S. dollars unless otherwise noted. Euro
denominated notes have been translated to U.S. dollars at the period end
exchange rate. At November 30, 2001 and 2000, approximately 66% and 52% of
our debt was U.S. dollar denominated and 34% and 48% was euro denominated,
respectively.
(b) These notes are not redeemable prior to maturity.
In April 2001, we issued $600 million of unsecured 2% notes that are
convertible into 15.3 million shares of our common stock at a conversion
price of $39.14 per share, subject to adjustment, contingent upon the price
of our common stock being greater than 110% of the conversion price. This
condition was not met during fiscal 2001. Subsequent to April 14, 2008, we
may redeem all or a portion of the notes at their face value plus any
unpaid accrued interest. In addition, on April 15 of 2005, 2008 and 2011
the noteholders may require us to repurchase all or a portion of the
outstanding notes at their face value plus any unpaid accrued interest.
Upon conversion, redemption or repurchase of the notes we may choose to
deliver common stock, cash or a combination of cash and common stock with a
total value equal to the value of the consideration otherwise deliverable.
See Note 14.
In October 2001, we received net proceeds of $489 million from the
issuance of zero-coupon convertible notes. These notes have a yield to
maturity of 3.75% and are convertible commencing on March 1, 2002 into 17.4
million shares of our common stock, based on a conversion rate, subject to
adjustment, of 16.5964 shares for each $1,000 principal amount at maturity
of notes. The conversion feature is contingent upon the price of our
common stock reaching certain targeted levels, also subject to adjustment.
These levels commence at a low of $31.94 per share in fiscal 2002 and
increase quarterly to $65.92 per share in fiscal 2021. Subsequent to
October 23, 2008, we may redeem all or a portion of the notes at their
accreted values. In addition, on October 24 of 2006, 2008, 2011 and 2016
the noteholders may require us to repurchase all or a portion of the
outstanding notes at their accreted values. Upon conversion, redemption or
repurchase of the notes we may choose to deliver common stock, cash or a
combination of cash and common stock with a total value equal to the value
of the consideration otherwise deliverable. See Note 14.
In May 2001, Costa entered into a five-year $231 million unsecured
euro denominated revolving credit facility of which $137 million was
available at November 30, 2001.
Effective July 2001, we replaced our $1 billion unsecured revolving
credit facility and our $200 million unsecured multi-currency revolving
credit facility with a $1.4 billion unsecured multi-currency revolving
credit facility, due June 2006. The new revolving credit facility bears
interest at libor/euribor plus 17 basis points ("BPS"), which will vary
based on changes to our senior unsecured long-term debt ratings, and
provides for an undrawn facility fee of eight BPS. Our commercial paper
program is supported by this revolving credit facility and, accordingly,
any amounts outstanding under our commercial paper program reduce the
aggregate amount available under this facility. Since our commercial paper
was backed by our long-term revolving credit facilities, balances
outstanding under our commercial paper programs were classified as long-
term in our November 30, 2000 balance sheet. At November 30, 2001, our
entire $1.4 billion facility was available. This facility and other of our
loan agreements contain covenants that require us, among other things, to
maintain a minimum debt service coverage and limit our debt to tangible
capital ratio. In addition, our ability to draw upon the then available
portion of our $1.4 billion credit facility could be terminated if our
business suffers a material adverse change. At November 30, 2001, we were
in compliance with all of our debt covenants.
At November 30, 2001, the scheduled annual maturities of our long-term
debt was as follows (in thousands):
Fiscal
2002 $ 21,764
2003 145,897
2004 140,209
2005 885,365(a)
2006 1,226,860(a)
Thereafter 556,523
$2,976,618
(a) Includes our 2% convertible notes in 2005 and our zero-coupon
convertible notes in 2006 based on the date of the noteholders first put
option.
Debt issuance costs are generally amortized to interest expense using
the straight-line method over the term of the notes or to the noteholders
first put option date, whichever is earlier. In addition, all loan issue
discounts are amortized to interest expense using the effective interest
method over the term of the notes.
NOTE 7 - COMMITMENTS
Ship Commitments
A description of our ships under contract for construction at November
30, 2001 was as follows (in millions, except passenger capacity data):
Expected Estimated
Service Passenger Total
Ship Date(1) Shipyard Capacity(2) Cost(3)
Carnival:
Carnival Pride(4) 12/01 Masa-Yards(5) 2,124 $ 375
Carnival Legend 8/02 Masa-Yards(5) 2,124 375
Carnival Conquest 12/02 Fincantieri 2,974 500
Carnival Glory 8/03 Fincantieri 2,974 500
Carnival Miracle 4/04 Masa-Yards(5) 2,124 375
Carnival Valor 11/04 Fincantieri(5) 2,974 500
Total Carnival 15,294 2,625
Holland America:
Zuiderdam 12/02 Fincantieri(5) 1,848 410
Oosterdam 7/03 Fincantieri(5) 1,848 410
Newbuild 5/04 Fincantieri(5) 1,848 410
Newbuild 11/05 Fincantieri(5) 1,848 410
Total Holland America 7,392 1,640
Costa:
Costa Mediterranea 7/03 Masa-Yards (6) 2,114 335
Costa Fortuna 1/04 Fincantieri(6) 2,720 390
Costa Magica 12/04 Fincantieri(6) 2,720 390
Total Costa 7,554 1,115
Cunard:
Queen Mary 2 12/03 Chantiers de
l'Atlantique(5) 2,620 780
Newbuild(7) 2/05 Fincantieri(5) 1,968 410
Total Cunard 4,588 1,190
Total 34,828 $6,570
(1) The expected service date is the date the ship is currently expected to
begin its first revenue generating cruise.
(2) In accordance with cruise industry practice, passenger capacity is
calculated based on two passengers per cabin even though some cabins can
accommodate three or four passengers.
(3) Estimated total cost of the completed ship includes the contract price
with the shipyard, design and engineering fees, capitalized interest,
various owner supplied items and construction oversight costs.
(4) On December 14, 2001, we accepted delivery of the Carnival Pride.
(5) These construction contracts are denominated in euros and have been
fixed into U.S. dollars through the utilization of forward foreign currency
contracts. At November 30, 2001, the $567 million of unrealized losses
from these forward contracts has been recorded as fair value of derivative
contract liabilities on our November 30, 2001 balance sheet and are also
included in the above estimated total cost of these construction contracts.
(6) These construction contracts are denominated in euros, which is Costa's
functional currency. The estimated total costs have been translated into
U.S. dollars using the November 30, 2001 exchange rate.
(7) This construction contract and related forward contracts were
transferred from Holland America to Cunard in December 2001.
In addition to these ship construction contracts, in December 2001, we
entered into one shipbuilding option with Fincantieri for a May 2006
delivery date. No assurance can be given as to whether we will exercise
this option.
In connection with our ships under contract for construction, we have
paid approximately $593 million through November 30, 2001 and anticipate
paying the remaining estimated total cost as follows (in millions):
Fiscal
2002 $1,751
2003 1,501
2004 2,037
2005 688
$5,977
Port Facilities
At November 30, 2001, we had commitments through 2023, with initial or
remaining terms in excess of one year, to pay minimum amounts for our
annual usage of port facilities as follows (in thousands):
Fiscal
2002 $ 21,831
2003 18,947
2004 19,318
2005 20,667
2006 19,211
Thereafter 178,405
$278,379
Operating Leases
Rent expense under our operating leases, primarily for office and
warehouse space, was $13 million in fiscal 2001 and $10 million in both
fiscal 2000 and fiscal 1999. At November 30, 2001, minimum annual rentals
for our operating leases, with initial or remaining terms in excess of one
year, were as follows (in thousands):
Fiscal
2002 $10,100
2003 8,600
2004 7,700
2005 7,600
2006 7,500
Thereafter 22,300
$63,800
NOTE 8 - CONTINGENCIES
Litigation
Several actions have been filed against Costa, Cunard and Tours
alleging that they violated the Americans with Disabilities Act ("ADA") by
failing to make certain cruise ships accessible to individuals with
disabilities (collectively the "ADA Complaints"). Plaintiffs seek
injunctive relief and fees and costs. These actions are proceeding.
Several actions filed in the U.S. District Court for the Southern
District of Florida against us and four of our executive officers on behalf
of a purported class of purchasers of our common stock were consolidated
into one action in Florida (the "Stock Purchase Complaint"). The
plaintiffs have claimed that statements we made in public filings violated
federal securities laws and seek unspecified compensatory damages and
attorney and expert fees and costs. This action is proceeding.
The ultimate outcome of the pending ADA and Stock Purchase Complaints
cannot be determined at this time. We believe that we and our executive
officers have meritorious defenses to these claims and, accordingly, we
intend to vigorously defend against these actions.
In August 2000, we received a grand jury subpoena requesting that we
produce documents and records concerning environmental matters. We
produced documents in response to the subpoena and are engaged in
settlement discussions with the Office of the U.S. Attorney for the
Southern District of Florida. No charges have been lodged against us. In
the event that the investigation results in adverse findings with regard to
our compliance with U.S. laws pertaining to the environment, a judgment
could include fines and mandatory provisions relating to future compliance
practices, among other forms of relief. However, the ultimate outcome of
this matter cannot be determined at this time.
In February 2001, Holland America Line-USA, Inc. ("HAL, Inc."), our
wholly-owned subsidiary, received a grand jury subpoena requesting that it
produce documents and records relating to the air emissions from Holland
America ships in Alaska. HAL, Inc. is responding to the subpoena. The
ultimate outcome of this matter cannot be determined at this time.
Costa has instituted arbitration proceedings in Italy to confirm the
validity of its decision not to deliver its ship, the Costa Classica, to
the shipyard of Cammell Laird Holdings PLC ("Cammell Laird") under a $70
million contract for the conversion and lengthening of the ship. Costa has
also given notice of termination of the contract. It is expected that the
arbitration tribunal's decision will be made at the earliest by mid-2003.
In the event that an award is given in favor of Cammell Laird the amount of
damages which Costa will have to pay, if any, is not currently
determinable. The ultimate outcome of this matter cannot be determined at
this time.
In the normal course of our business, various other claims and
lawsuits have been filed or are pending against us. The majority of these
claims and lawsuits are covered by insurance. We believe the ultimate
outcome of any such actions, which are not covered by insurance, will not
have a material adverse effect on our financial statements.
Contingent Obligations
At November 30, 2001, we had contingent obligations totaling $787
million to participants in lease out and lease back type transactions for
three of our ships, which had an aggregate net book value of $980 million.
Only in the remote event of nonperformance by certain major financial
institutions, all of which have long-term credit ratings of AAA or AA,
would we be required to make any payments under these contingent
obligations. Between 2017 and 2022 we have the right to exercise options
that would terminate these transactions at no cost to us. As a result of
these three transactions we have received $67 million, which was recorded
as deferred income on our balance sheets and is being amortized to
nonoperating income through 2022. These transactions require that in the
event our long-term debt ratings are reduced to A-, we must provide a
letter of credit for $22 million, and if reduced below BBB, we must provide
a letter of credit for an additional $94 million, or alternatively provide
mortgages in the amount of $94 million on two of our ships.
Travel Vouchers
Pursuant to Carnival's and Holland America's settlement of port
litigation, travel vouchers with face values of $10 to $55 were required to
be issued to qualified past passengers. Approximately $125 million of
these travel vouchers are available to be used for future travel prior to
their expiration, principally in fiscal 2005. The amount and timing of the
travel vouchers which may be redeemed is not reasonably determinable.
Accordingly, we will account for the redemption of these travel vouchers as
a reduction to our future revenues as they are used.
NOTE 9 - INCOME AND OTHER TAXES
We believe that substantially all of our income, with the exception of
our U.S. source income from the transportation, hotel and tour businesses
of Tours, is exempt from U.S. federal income taxes. If we were found not to
qualify for exemption pursuant to applicable income tax treaties or under
the Internal Revenue Code, as amended, (the "Code") or if the Code were to
be changed in a manner adverse to us, a portion of our income would become
subject to taxation by the U.S. at higher than normal corporate tax rates.
Some of our subsidiaries, including Costa and Tours, are subject to
foreign and/or U.S. income taxes. In fiscal 2001, we recognized a $9
million income tax benefit from Costa primarily due to changes in Italian
tax laws. Finally, we do not expect to incur income taxes on future
distributions of undistributed earnings of foreign subsidiaries and,
accordingly, no deferred income taxes have been provided for the
distribution of these earnings.
In addition to or in place of income taxes, virtually all
jurisdictions where our ships call, impose taxes based on passenger counts,
ship tonnage or some other measure. These taxes are recorded as operating
expenses in the accompanying statements of operations.
NOTE 10 - SHAREHOLDERS' EQUITY
Our Articles of Incorporation authorize our Board of Directors, at
their discretion, to issue up to 40 million shares of our preferred stock.
At November 30, 2001 and 2000, no preferred stock had been issued.
In December 1998, we issued 17 million shares of our common stock in a
public offering and received net proceeds of approximately $725 million.
We issued the stock concurrent with the addition of our common stock to the
S&P 500 Composite Index.
In February 2000, our Board of Directors authorized the repurchase of
up to $1 billion of our common stock. As of November 30, 2001, we had
repurchased 33.1 million shares of our common stock at a cost of $705
million pursuant to this authorization. In addition, we received 761,000
shares of our common stock from our chief executive officer valued at its
quoted market price of $23 million, which we recorded as treasury stock, in
payment of the exercise price for two million shares of our common stock
issued to him pursuant to a stock option plan (see Note 13).
At November 30, 2001, there were 53 million shares of our common stock
reserved for issuance pursuant to our convertible notes and our stock
option, employee stock purchase, restricted stock and dividend reinvestment
plans. During fiscal 2001, we declared cash dividends aggregating $0.42
per share for the year.
At November 30, 2001 and 2000, AOCI included cumulative foreign
currency translation adjustments which decreased shareholders' equity by
$22 million and $68 million, respectively.
NOTE 11 - FINANCIAL INSTRUMENTS
We estimated the fair value of our financial instruments through the
use of public market prices, quotes from financial institutions and other
available information. Considerable judgment is required in interpreting
data to develop estimates of fair value and, accordingly, amounts are not
necessarily indicative of the amounts that we could realize in a current
market exchange. Our financial instruments are not held for trading or
other speculative purposes.
Cash and Cash Equivalents
The carrying amounts of our cash and cash equivalents approximate
their fair values due to their short maturities.
Other Assets
At November 30, 2001 and 2000, long-term other assets included
marketable securities, held in Rabbi Trusts for certain of our nonqualified
benefit plans, and notes and other receivables, principally collaterized by
a ship, the former Nieuw Amsterdam. These assets had carrying and fair
values of $143 million at November 30, 2001 and $135 million at November
30, 2000. Fair values were based on public market prices, estimated
discounted future cash flows or estimated fair values of collateral.
Long-Term Debt
At November 30, 2001 and 2000, the fair value of our long-term debt,
including the current portion, was $2.95 billion and $2.27 billion,
respectively, which was $26 million and $75 million less than its carrying
value on those respective dates. The net difference between the fair value
of our long-term debt and its carrying value was due primarily to our
issuance of debt obligations at fixed interest rates that are below market
interest rates in existence at the measurement dates. The fair values of
our unsecured notes, convertible notes and unsecured 5.57% euro notes were
based on their public market prices. The fair values of our other long-
term debt were estimated based on appropriate market interest rates being
applied to this debt.
Foreign Currency Contracts
We have forward foreign currency contracts, designated as foreign
currency fair value hedges, for ten of our euro denominated shipbuilding
contracts (see Note 7). At November 30, 2001 and 2000, the fair value of
these forward contracts was an unrealized loss of $567 million and $538
million, respectively. These forward contracts mature through 2005. The
fair values of our forward contracts were estimated based on prices quoted
by financial institutions for these instruments.
Interest Rate Swaps
We have interest rate swap agreements designated as fair value hedges
whereby we receive fixed interest rate payments in exchange for making
variable interest rate payments. At November 30, 2001, these interest rate
swap agreements effectively changed $225 million of fixed rate debt with a
weighted-average fixed interest rate of 6.8% to Libor-based floating rate
debt.
In addition, we also have interest rate swap agreements designated as
cash flow hedges whereby we receive variable interest rate payments in
exchange for making fixed interest rate payments. At November 30, 2001 and
2000, these interest rate swap agreements effectively changed $637 million
and $762 million, respectively, of euribor floating rate debt to fixed rate
debt with a weighted-average fixed interest rate of 5.3% and 5.2%,
respectively.
These interest rate swap agreements mature through 2006. At November
30, 2001 and 2000, the fair value of our interest rate swaps was a net
unrealized loss of $3.3 million and $2.8 million, respectively. The fair
values of our interest rate swap agreements were estimated based on
appropriate market interest rates being applied to these instruments.
NOTE 12 - SEGMENT INFORMATION
Our cruise segment included six cruise brands (five, excluding Costa,
prior to fiscal 2001), which have been aggregated as a single operating
segment based on the similarity of their economic and other
characteristics. Cruise revenues are comprised of sales of passenger
cruise tickets, including, in some cases, air transportation to and from
the cruise ships, and revenues from certain onboard activities and other
services. The tour segment represents the transportation, hotel and tour
operations of Tours.
The significant accounting policies of the segments are the same as
those described in Note 2 - "Summary of Significant Accounting Policies".
Cruise revenues included intersegment revenues which primarily represent
billings to the tour segment for the cruise portion of a tour when a cruise
is sold as a part of a tour package. In addition, cruise and tour
operating expenses included a cost allocation of certain corporate and
other expenses. Information for the cruise and tour segments for fiscal
2001, 2000 and 1999 was as follows (in thousands):
Operating Depreciation
income and Capital Total
Revenues (loss) amortization expenditures assets
2001
Cruise $4,357,942 $ 958,273 (a) $ 359,314 $ 801,453 $ 9,905,353(b)
Tour 229,483 (10,357)(a) 11,474 25,108 188,296(c)
Affiliated
operations(d) (44,024)
Intersegment
elimination (51,674)
Corporate(e) (12,161) 1,436 7 1,469,903
$4,535,751 $ 891,731 $ 372,224 $ 826,568 $11,563,552
2000
Cruise $3,578,372 $ 957,226 $ 276,483 $ 972,270 $ 9,093,646(b)
Tour 259,662 7,664 10,825 30,129 199,722(c)
Affiliated
operations 37,828(b) 437,391
Intersegment
elimination (59,492)
Corporate(e) (19,760) 359 949 100,561
$3,778,542 $ 982,958 $ 287,667 $1,003,348 $ 9,831,320
1999
Cruise $3,286,701 $ 947,452 $ 232,942 $ 837,126 $ 6,938,411
Tour 271,828 10,403 10,716 24,416 185,591(c)
Affiliated
operations 75,758(b) 586,922
Intersegment
elimination (61,059)
Corporate(e) (13,914) 11,442 575,431
$3,497,470 $1,019,699 $ 243,658 $ 872,984 $ 8,286,355
(a) Cruise and tour operating income (loss) included $134 million and $6
million of impairment charges, respectively (see Note 4).
(b) The November 30, 2001 and 2000 cruise assets included Costa, while
Costa's results of operations were presented in the affiliated operations
segment for 2000 and 1999(see Notes 2 and 17).
(c) Tour assets primarily included hotels in Alaska and the Canadian Yukon,
luxury dayboats offering tours to the glaciers of Alaska, motor coaches used
for sightseeing and charters in the states of Washington and Alaska and
private, domed rail cars which are run on the Alaska Railroad between
Anchorage and Fairbanks.
(d) On June 1, 2001 we sold our investment in Airtours. Accordingly, we did
not record any equity in the earnings or losses from the affiliated
operations of Airtours after our quarter ended May 31, 2001.
(e) Operating loss represented corporate expenses not allocated to segments.
Corporate assets primarily included cash, cash equivalents, short-term
investments, debt issuance costs and transportation assets.
See Note 5 for affiliated operations segment information which were not
included in our consolidated operations.
Foreign revenues for our cruise brands, including Costa in 2001,
represent sales generated from outside the U.S. primarily by foreign tour
operators and foreign travel agencies. The majority of these foreign
revenues are from Italy, Canada, United Kingdom, France, Germany and Spain.
Foreign assets represent assets which are located outside of the U.S. and
included all of our ships. Revenues and year-end asset information by
geographic area was as follows (in thousands):
2001 2000 1999
Revenues:
United States $3,489,913 $3,180,667 $2,934,492
Foreign 1,045,838 597,875 562,978
$4,535,751 $3,778,542 $3,497,470
Assets:
United States $ 2,040,145 $ 680,897 $1,063,963
Foreign 9,523,407 9,150,423 7,222,392
$11,563,552 $9,831,320 $8,286,355
NOTE 13 - BENEFIT PLANS
Stock Option Plans
We have stock option plans primarily for supervisory and management
level employees and members of our Board of Directors. The plans are
administered by a committee of three of our directors (the "Committee") which
determines who is eligible to participate, the number of shares for which
options are to be granted and the amounts that may be exercised within a
specified term. The option exercise price is generally set by the Committee
at 100% of the fair market value of the common stock on the date the option
is granted. Substantially all options granted during fiscal 2001, 2000 and
1999 were granted at an exercise price per share equal to the fair market
value of our common stock on the date of grant. Employee options generally
have vested evenly over five years and have a ten year term and director
options granted prior to fiscal 2001 have vested immediately and have a five
or ten year term. Director options granted subsequent to fiscal 2000 will
vest evenly over five years and have a ten year term. At November 30, 2001,
options for 704,000 shares were available for future grants under our 2001
Outside Director Stock Option Plan. In addition, on January 14, 2002, our
Board of Directors authorized the adoption of our 2002 Stock Option Plan,
subject to shareholder approval, under which 40 million shares will be
available for future option grants. A summary of the activity and status of
our stock option plans was as follows:
Weighted
Average Exercise Price Number of Options
Per Share Years Ended November 30,
2001 2000 1999 2001 2000 1999
Outstanding options-
beginning of year $26.80 $22.70 $14.95 8,840,793 6,517,168 5,987,574
Options granted $26.44 $35.92 $44.54 6,580,250 2,910,575 1,641,400
Options exercised $11.70 $13.43 $11.01 (2,218,075) (244,850) (956,706)
Options canceled $35.15 $35.91 $26.55 (428,675) (342,100) (155,100)
Outstanding options-
end of year $28.95 $26.80 $22.70 12,774,293 8,840,793 6,517,168
Options exercisable-
end of year $25.96 $15.82 $12.64 2,972,498 4,042,452 3,601,993
Information with respect to outstanding and exercisable stock options at November 30,
2001 was as follows:
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Exercise Remaining Exercise Exercise
Price Range Shares Life (Years) Price Shares Price
$ 1.94-$ 2.25 35,980 (1) $ 2.05 35,980 $ 2.05
$ 6.94-$10.31 195,800 0.7 $ 7.31 195,800 $ 7.31
$10.59-$15.00 707,000 3.3 $11.37 707,000 $11.37
$16.28-$22.57 4,160,269 9.1 $21.59 545,551 $19.31
$24.63-$29.81 4,307,144 8.6 $28.75 460,894 $26.40
$33.04-$41.34 294,000 7.8 $35.22 117,733 $36.04
$43.56-$48.56 3,074,100 7.7 $44.36 909,540 $44.73
Total 12,774,293 8.1 $28.95 2,972,497 $25.96
(1) These stock options do not have an expiration date.
Pursuant to SFAS No. 123, we elected to use the intrinsic value method of
accounting for employee and director stock-based compensation awards.
Accordingly, we have not recognized compensation expense for our
noncompensatory employee and director stock option awards. Our pro forma net
income and earnings per share for fiscal 2001, had we elected to adopt the
fair value approach (which charges earnings for the estimated fair value of
stock options) of SFAS No. 123, would have been $904 million and $1.54 per
share, and would not have been materially different from reported net income
and earnings per share for fiscal 2000 and 1999.
The weighted-average fair values of options we granted during fiscal
2001, 2000 and 1999 were $12.67, $13.31 and $15.15 per share, respectively,
at the dates of grant. The fair values of options were estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions for fiscal 2001, 2000 and 1999, respectively; expected dividend
yields of 1.16%, 1.17% and 0.80%; expected volatility of 50.0%, 28.9% and
26.3%; risk free interest rates of 4.5%, 6.4% and 4.8%; and expected option
life of six years for all periods.
Restricted Stock Plan
We have a restricted stock plan under which three executive officers
have been issued restricted shares of our common stock. These shares have
the same rights as our common stock, except for restriction and forfeiture
provisions. During fiscal 2001, 2000 and 1999, 150,000 shares of common
stock were issued each year which were valued at $5 million, $6 million and
$7 million, respectively. Unearned stock compensation was recorded in
stockholders' equity at the date of award based on the quoted market price of
the shares on the date of grant and is amortized to expense using the
straight-line method from the grant date through the vesting date. These
shares vest five years after the grant date. As of November 30, 2001 and
2000 there were 647,000 shares and 497,000 shares, respectively, issued under
the plan which remain to be vested.
Defined Benefit Pension Plans
We have one qualified and one nonqualified defined benefit pension plan
that is available to full-time Carnival and corporate shoreside employees who
were employed by Carnival before January 1, 1998. Our funding policy for
this qualified plan is to annually contribute at least the amount required
under the applicable labor regulations. The nonqualified plan is unfunded.
In addition, we have two nonqualified plans, one for the Carnival shipboard
employees, except for deck and engine officers, and one supplemental
executive retirement plan ("SERP") in which two executive officers currently
participate. The Carnival shipboard nonqualified plan is funded by
contributions into a Rabbi Trust and the SERP is unfunded. At November 30,
2001, the Carnival shipboard plan had a minimum pension liability adjustment
of $5.5 million included in AOCI. Total expense for these defined benefit
pension plans was $8 million, $6 million and $4 million in fiscal 2001, 2000
and 1999, respectively.
Defined Contribution Plans
We have several defined contribution plans available to substantially
all U.S. and Canadian employees, to Cunard's United Kingdom employees and to
Carnival's shipboard deck and engine officers. We contribute to these plans
based on employee contributions, salary levels and length of service. Total
expense relating to these plans was $8 million, $7 million and $6 million in
fiscal 2001, 2000 and 1999, respectively.
Employee Stock Purchase Plan
We have an Employee Stock Purchase Plan which is authorized to issue up
to 4,000,000 shares of our common stock to substantially all of our
employees. The purchase price is derived from a formula based on 85% of the
fair market value of our common stock during the six-month purchase period,
as defined. During fiscal 2001, 2000 and 1999, we issued 82,733, 171,886 and
144,911 shares, respectively, at a weighted-average share price of $21.94,
$26.36 and $36.67, respectively, under this plan.
NOTE 14 - EARNINGS PER SHARE
Our basic and diluted earnings per share were computed as follows (in
thousands, except per share data):
Years Ended November 30,
2001 2000 1999
Net income $926,200 $965,458 $1,027,240
Effect on net income of assumed
issuance of affiliate securities (3,299)
Net income, as adjusted $926,200 $965,458 $1,023,941
Weighted average common shares
outstanding 585,064 599,665 612,484
Dilutive effect of stock plans 1,798 2,247 3,516
Diluted weighted average
shares outstanding 586,862 601,912 616,000
Basic earnings per share $1.58 $1.61 $1.68
Diluted earnings per share $1.58 $1.60 $1.66
During fiscal 2001, 2000 and 1999, the exercise prices for 5.4 million,
4.4 million and 1.1 million options, respectively, were greater than the
average fair market prices of our common stock for those periods and,
consequently, were excluded from our diluted earnings per share computations
since they were anti-dilutive.
In addition, our 2001 diluted earnings per share computation did not
include 32.7 million shares of our common stock issuable upon conversion of
our 2% and zero-coupon convertible notes, as this common stock was not
issuable under the contingent issuance provisions of these debt instruments.
NOTE 15 - SUPPLEMENTAL CASH FLOW INFORMATION
YEARS ENDED NOVEMBER 30,
2001 2000 1999
(in thousands)
Cash paid (received) for:
Interest, net of amount capitalized $109,321 $40,431 $ 49,836
Income taxes $ 3,931 $ (800) $ 3,841
Noncash investing and financing activities:
Common stock received as payment of
stock option exercise price $ 22,500
Note received upon the
sale of the Nieuw Amsterdam $84,500
Common stock issued for acquisition of
Cunard Line Limited minority interest $127,069
NOTE 16 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets" were issued. SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. SFAS No. 141 also further clarifies the criteria for
recognition of intangible assets separately from goodwill. Our adoption of
this standard is not expected to have a material effect on our accounting for
prior business combinations.
SFAS No. 142 eliminates the amortization of goodwill and indefinite-
lived intangible assets and requires an annual, or when events or
circumstances dictate, a more frequent impairment review of both these non-
amortizable intangible assets. Identifiable intangible assets with a
determinable useful life will continue to be amortized. The amortization
provisions apply immediately to goodwill and other intangible assets acquired
after June 30, 2001. Goodwill and other intangible assets acquired prior to
June 30, 2001 will be affected upon adoption. We intend to early adopt SFAS
No. 142 as of the beginning of fiscal 2002. Accordingly, we no longer intend
to amortize goodwill as of December 1, 2001, and will perform a transitional
impairment test of our existing goodwill as of December 1, 2001 and annually
thereafter. Our cessation of goodwill amortization will result in a
reduction of $20 million in annual goodwill amortization, assuming no future
impairment of goodwill. Goodwill amortization was $25 million, $23 million
and $21 million in fiscal 2001, 2000 and 1999, respectively.
The SFAS No. 142 goodwill impairment review consists of a two-step
process of first determining the fair value of the reporting unit and
comparing it to the carrying value of the net assets allocated to the
reporting unit. If this fair value exceeds the carrying value, no further
analysis is required. If the fair value of the reporting unit is less than
the carrying value of the net assets, the implied fair value of the reporting
unit is allocated to all underlying assets and liabilities, including both
recognized and unrecognized tangible and intangible assets, based on their
fair value. If necessary, goodwill is then written-down to its implied fair
value. We must complete the first step of the transitional impairment review
by May 31, 2002 and, if necessary, the second step by November 30, 2002. We
do not expect that there will be any impairment of our goodwill upon
adoption.
In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" was issued. SFAS No. 144 requires (i) the recognition
and measurement of the impairment of long-lived assets to be held and used
and (ii) the measurement of long-lived assets to be held for sale. SFAS No.
144 is effective for us in fiscal 2003. We have not completed our review of
SFAS No. 144, however, we expect that the adoption of this standard will not
have a material effect on our financial statements since the impairment
assessment under SFAS No. 144 is largely unchanged from existing literature.
NOTE 17 - COSTA ACQUISITION
From June 1997 through September 28, 2000, we owned 50% of Costa. On
September 29, 2000, we acquired the remaining 50% interest in Costa from
Airtours at a cost of $511 million. Substantially all of the purchase price
was funded by euro denominated borrowings. We accounted for this transaction
using the purchase accounting method.
Had the above transaction occurred on December 1, 1998, our unaudited
consolidated revenues for fiscal 2000 and 1999 would have been approximately
$4.3 billion and $4.1 billion, respectively. The impact on our unaudited
consolidated net income and earnings per share for fiscal 2000 and 1999 would
not have been material.
The impact on our assets and liabilities related to this acquisition was
as follows (in thousands):
Fair value of acquired assets $ 915,437
Debt assumed (310,259)
Other liabilities assumed (94,354)
Cash paid for acquisition 510,824
Cash acquired and consolidated (130,539)
Net cash paid as reflected in our
2000 Statement of cash flows $ 380,285
NOTE 18 - SUBSEQUENT EVENT
Subsequent to November 30, 2001, we announced that we had made a pre-
conditional offer to acquire P&O Princess Cruises plc ("P&O"), the world's
third largest cruise company. The value of our offer as of February 15, 2002
was approximately $5.4 billion to be paid in shares of our common stock. In
addition, we will assume P&O's net debt, which was approximately $1.4 billion
as of December 31, 2001. It is our intention, upon closing of the
transaction, to pay approximately $2.4 billion of the purchase price in cash,
subject to our obtaining satisfactory financing, which will reduce the
portion of our offer that will be paid in shares of our common stock. As of
the date we made our pre-conditional offer, P&O and Royal Caribbean Cruises
Ltd. ("RCL") were parties to a series of agreements that would result in a
combination of P&O and RCL in a dual listed structure. P&O has rejected our
pre-conditional offer and has recommended the combination with RCL to its
shareholders. Both the combination with RCL and our offer are subject to
certain conditions, including regulatory clearances. No assurance can be
given that we will be successful in acquiring P&O.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Carnival Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows and shareholders' equity
present fairly, in all material respects, the financial position of Carnival
Corporation and its subsidiaries at November 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years
in the period ended November 30, 2001 in conformity with accounting
principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As described in Note 2, the Company changed its method of accounting for
derivative instruments and hedging activities in 2001.
/s/PricewaterhouseCoopers LLP
Miami, Florida
January 29, 2002,except as to Note 18 which is dated as of February 15, 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations," in our letter to shareholders
and elsewhere in this 2001 Annual Report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. We have tried, wherever possible, to identify such statements
by using words such as "anticipate," "assume," "believe," "expect,"
"forecast," "future," "intend," and words and terms of similar substance in
connection with any discussion of future operating or financial performance.
These forward-looking statements, including those which may impact the
forecasting of our net revenue yields, booking levels, pricing, occupancy or
business prospects, involve known and unknown risks, uncertainties and other
factors, which may cause our actual results, performances or achievements to
be materially different from any future results, performances or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following:
- general economic and business conditions which may impact levels of
disposable income of consumers and the net revenue yields for our
cruise products;
- consumer demand for cruises and other vacation options;
- other vacation industry competition;
- effects on consumer demand of armed conflicts, political instability,
terrorism, the availability of air service and adverse media
publicity;
- increases in cruise industry and vacation industry capacity;
- continued availability of attractive port destinations;
- changes in tax laws and regulations;
- changes in financial and equity markets;
- our ability to implement our brand strategy;
- our ability to implement our shipbuilding program and to continue to
expand our business outside the North American market;
- our ability to attract and retain shipboard crew;
- changes in foreign currency rates, security expenses, food, fuel,
insurance and commodity prices and interest rates;
- delivery of new ships on schedule and at the contracted prices;
- weather patterns or natural disasters;
- unscheduled ship repairs and drydocking;
- incidents involving cruise ships;
- impact of pending or threatened litigation;
- ability to successfully implement cost improvement plans;
- continuing financial viability of our travel agent distribution system;
and
- changes in laws and regulations applicable to us.
We caution the reader that these risks may not be exhaustive. We
operate in a continually changing business environment, and new risks emerge
from time to time. We cannot predict such risks nor can we assess the
impact, if any, of such risks on our business or the extent to which any
risk, or combination of risks may cause actual results to differ from those
projected in any forward-looking statements. Accordingly, forward-looking
statements should not be relied upon as a prediction of actual results. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are those which we believe require our
most subjective or complex judgments; often as a result of the need to make
estimates about the effect of matters that are inherently uncertain. A
discussion of our critical accounting policies, the underlying judgments and
uncertainties affecting their application and the likelihood that materially
different amounts would be reported under different conditions or using
different assumptions, is as follows:
Ship Accounting
Our most significant assets are our ships, which represent 69% of our
total assets. We utilize several critical accounting policies dealing with
our ship accounting. First, we compute our ships' depreciation expense,
which requires us to estimate the average useful lives of each of our ships,
as well as their salvage values. Secondly, we account for ship improvement
costs by capitalizing those costs which we believe will add value to our
ships and depreciate those improvements over their estimated useful lives.
Finally, we account for the replacement or refurbishment of our ship
components and recognize the resulting gain or loss in operations.
We determine the average useful lives of our ships based primarily on
our estimates of the average useful lives of the ships' major component
systems, such as cabins, main diesels, main electric, superstructure and
hull. In addition, we consider, among other things, the impact of
anticipated technological changes, long-term vacation market conditions and
competition and historical useful lives of similarly-built ships. We have
estimated our new ships' average useful lives at 30 years and their salvage
values at 15% of our original ship cost.
Given the very large and complex nature of our ships, all the above ship
accounting estimates require considerable judgment and are inherently
uncertain. We do not have cost segregation studies performed to specifically
componentize our ship systems; therefore, our overall estimates of the
relative costs of these component systems are based principally on general
and technical information known about major ship component system lives and
our knowledge of the cruise industry. In addition, we do not identify and
track the depreciation of specific component systems, but instead utilize
estimates when determining the net cost basis of assets being replaced or
refurbished. If materially different conditions existed, or if we materially
changed our assumptions of ship lives and salvage values, our depreciation
expense, gain or loss on replacement or refurbishment of ship assets and net
book value of our ships would be materially different. In addition, if we
change our assumptions in making our determinations as to whether
improvements to a ship add value, the amounts we expense each year as repair
and maintenance costs could increase, partially offset by a decrease in
depreciation expense, as less costs would have been initially capitalized to
our ships.
We believe that the estimates we made for ship accounting purposes are
reasonable and our methods are consistently applied and, accordingly, result
in depreciation expense that is based on a rational and systematic method to
equitably allocate the costs of our ships to the periods during which
services are obtained from their use. In addition, we believe that the
estimates we made are reasonable and our methods consistently applied (1) in
determining the overall relative costs of our ships' component systems; (2)
in determining which ship improvement costs add value to our ships; and (3)
in determining the net cost basis of ship component assets being replaced or
refurbished. Finally, we believe our critical ship accounting policies are
generally comparable with those of other major cruise companies.
Asset Impairment
Our review of our long-lived assets, principally ships, and goodwill
requires us to initially estimate the undiscounted future cash flow of these
assets, whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be fully recoverable. If such
analysis indicates that a possible impairment may exist, as described in Note
2 in the accompanying financial statements, we are required to then estimate
the fair value of the asset, principally determined either by third party
appraisals, sales price negotiations or estimated discounted future cash
flows, which includes making estimates of the timing of the future cash
flows, discount rates and reflecting varying degrees of perceived risk.
The determination of fair value includes numerous uncertainties, unless
a viable actively traded market exists for the asset, which is sometimes not
the case for used cruise ships. For example, in determining fair values of
ships utilizing discounted forecasted cash flows, significant judgments are
made concerning future net revenue yields, operating, selling and
administrative costs per available berth day, interest and discount rates,
cruise itineraries, ship additions and retirements, technological changes,
consumer demand, governmental regulations and the effects of competition. In
addition, third party appraisers are sometimes used to determine fair values
and some of their valuation methodologies are also subject to similar types
of uncertainties. We believe that we have made reasonable estimates and
judgments in determining whether our long-lived assets and goodwill have been
impaired, however, if there is a material change in the assumptions used in
our determination of fair values or if there is a material change in the
conditions or circumstances influencing fair value, we could be required to
recognize a material impairment charge.
Contingencies - Litigation
We are a party to two grand jury investigations related to environmental
issues, as well as other legal actions. See Note 8 in the accompanying
financial statements for additional information concerning our litigation
contingencies. We periodically assess the potential liabilities related to
any lawsuits or claims brought against us. While it is typically very
difficult to determine the timing and ultimate outcome of these actions, we
use our best judgment to determine if it is probable that we will incur an
expense related to the settlement or final adjudication of such matters and
whether a reasonable estimation of such probable loss, if any, can be made.
Given the inherent uncertainty related to the eventual outcome of
litigation, it is possible that all or some of these matters may be resolved
for amounts materially different from any provisions that we may have made
with respect to their resolution.
Proposed Exposure Draft
In June 2001, the Accounting Standards Executive Committee issued a
Statement of Position exposed draft, entitled "Accounting for Certain Costs
and Activities Related to Property, Plant and Equipment" ("Proposed SOP").
If issued in its current form, the Proposed SOP would require, among other
things, significant changes to our ship accounting. Specifically, we would be
required to adopt the component method of accounting for our ships, which
would require us, among other things, to maintain very detailed historical
cost records for the components of our ships and may result in changes in the
amount and timing of depreciation and repair and maintenance expenses and the
amount of gain or loss recognized on the replacement or refurbishment of ship
component parts. In addition, we would have to expense drydock costs as
incurred instead of amortizing our costs to expense generally over one or two
years. Finally, we would have to treat liquidated damages received from
shipyards for delay delivery damages as a reduction to our ships' cost basis
instead of our current treatment of recording liquidated damages as
nonoperating income, since they are a reimbursement for expenses incurred and
lost profits. If adopted, the Proposed SOP would be effective for us in
fiscal 2003. We have not completed an analysis of the impact this Proposed
SOP would have on our financial statements, as we are uncertain whether, or
in what form, this Proposed SOP will be adopted.
RESULTS OF OPERATIONS
We earn our cruise revenues primarily from the following:
- the sale of passenger cruise tickets, which includes accommodations,
meals, and most onboard activities,
- the sale of air transportation to and from our cruise ships, and
- the sale of goods and services on board our cruise ships, such as
casino gaming, bar sales, gift shop and photo sales, shore
excursions and spa services.
We also derive revenues from the tour and related operations of Tours.
For segment information related to our revenues, operating income and
other financial information see Note 12 in the accompanying financial
statements. Operations data expressed as a percentage of total revenues and
selected statistical information was as follows:
YEARS ENDED NOVEMBER 30,
2001 2000 1999
Revenues 100% 100% 100%
Costs and Expenses
Operating 54 54 53
Selling and administrative 14 13 13
Depreciation and amortization 8 8 7
Impairment charge 3
Operating Income Before (Loss) Income
From Affiliated Operations 21 25 27
(Loss) Income From Affiliated
Operations, Net (1) 1 2
Net Income 20% 26% 29%
Selected Statistical Information
(in thousands):
Passengers carried 3,385 2,669 2,366
Available lower berth days 20,685 15,888 14,336
Occupancy percentage 104.7% 105.4% 104.3%
Commencing in fiscal 2001, our statements of operations and selected
statistical information included the consolidation of Costa's results of
operations. In fiscal 2000 and 1999, our 50% interest in Costa's results of
operations were recorded in affiliated operations and were not included in
the 2000 or 1999 statistical information.
General
Our cruise and tour operations experience varying degrees of
seasonality. Our revenue from the sale of passenger tickets for our cruise
operations is moderately seasonal. Historically, demand for cruises has been
greatest during the summer months. Our tour revenues are highly seasonal,
with a vast majority of tour revenues generated during the late spring and
summer months in conjunction with the Alaska cruise season.
Through fiscal 2000, we recorded our share of Airtours' and Costa's
operating results as earnings from affiliated operations on a two-month lag
basis. Beginning in fiscal 2001, all of Costa's results of operations were
consolidated into our financial statements on a current month basis, thus
eliminating the two-month lag in reporting Costa's results of operations.
This change in the timing of reporting periods, as well as Costa's greater
seasonality, has increased the seasonality of our quarterly results of
operations, most significantly between our third and fourth fiscal quarters.
Costa's seasonally strong summer results of operations have been recorded in
our third quarter in fiscal 2001 versus in the fourth quarter in fiscal 2000.
In addition, on June 1, 2001 we sold our investment in Airtours and,
accordingly, we ceased recording Airtours' results in our affiliated
operations as of the end of our second quarter of fiscal 2001. Historically,
Airtours' results were very seasonal, with losses recorded in the first half
of our fiscal year and substantially all of Airtours' profits being
recognized in our fourth quarter.
The year over year percentage increase in our average passenger capacity
resulting primarily from the 2002 and subsequent delivery of ships under
contract for construction for fiscal 2002, 2003 and 2004 is expected to
approximate 4.2%, 17.0% and 17.2%, respectively. Substantially all of our
fiscal 2002 capacity increase will be in our Carnival and Costa brands.
OUTLOOK FOR FISCAL 2002 ("2002")
The events of September 11 and their aftermath coupled with the already
soft global economy, both of which adversely affected leisure travel and
lowered consumer confidence, will negatively impact our 2002 operating
results. We believe the impact of September 11 should be greatest in the
first quarter of 2002, because of the tremendous reduction in booking volumes
during the two months following September 11 and the resultant reduction in
cruise prices needed to stimulate booking volumes. Since mid-November 2001,
we have continued to see an improvement in our booking volumes and prices.
On February 12, 2002, we announced that our net bookings during the
first five weeks of "Wave Season", traditionally the time of the cruise
industry's highest booking levels, had increased 8% over the same period last
year, compared to an expected 3% capacity increase for the first nine months
of 2002. In addition, pricing had also recovered from the significantly
discounted prices experienced after the events of September 11, with pricing
during recent weeks almost equal to last year's levels. Because of the
improved booking levels and pricing, we estimated that net revenue yields for
the first quarter of 2002 will be down approximately 8%. Finally, while
cumulative advance booking levels and prices for the second through fourth
quarters of 2002 were still below last year's levels, we expected that net
revenue yields for the remainder of 2002 should continue to improve compared
to the 8% decrease expected in the first quarter of 2002.
FISCAL 2001 ("2001") COMPARED TO FISCAL 2000 ("2000")
Revenues
Revenues increased $757 million, or 20%, in 2001 compared to 2000.
Cruise revenues increased by $780 million or 21.8%, to $4.36 billion in 2001
from $3.58 billion in 2000. Approximately $598 million of our cruise revenue
increase was due to the consolidation of Costa, and $182 million was due to
increased revenues from our other brands. Our other brands' cruise revenues
change resulted from an increase of 9.6% in our passenger capacity, partially
offset by a 4.1% decrease in our gross revenue per passenger cruise day and a
slight decrease in our occupancy rate of 0.4%. Our post-September 11 cruise
results were adversely affected by the September 11 terrorist attacks, which
impacted all leisure travel and caused significant price competition among
alternative vacation options in order to stimulate demand. Due to this
significant reduction in demand for post-September 11 travel, we had lower
occupancies and prices during our 2001 fourth quarter. In addition, the
slowdown in the general economic and business conditions throughout fiscal
2001 also adversely impacted our customers and, accordingly, had an overall
negative effect on our 2001 gross revenues compared to 2000. Our luxury
cruise brands, which comprised approximately 8% of our average capacity
during 2001, were particularly affected by this slowdown, and realized
significantly lower pricing during most of 2001 compared to 2000.
Costs and Expenses
Operating expenses increased $410 million, or 19.9%, in 2001 compared to
2000. Cruise operating costs increased by $423 million, or 22.1%, to $2.33
billion in 2001 from $1.91 billion in 2000. Approximately $340 million of
our cruise operating cost increase was due to the consolidation of Costa, and
the remaining $83 million of the increase was from our other brands. Cruise
operating costs, excluding Costa, increased in 2001 primarily from additional
costs associated with our 9.6% increase in passenger capacity, partially
offset by a 4.4% decrease in our operating expenses per available berth day.
Excluding Costa, cruise operating costs as a percentage of cruise revenues
were 53% and 53.4% in 2001 and 2000, respectively.
Selling and administrative expenses increased $131 million, or 26.9%, to
$619 million in 2001 from $487 million in 2000. Approximately $98 million of
our increase was due to the consolidation of Costa, and the remaining $33
million of the increase was from our other brands. Selling and
administrative expenses, excluding Costa, increased in 2001 primarily from
additional expenses associated with our 9.6% increase in passenger capacity
and the 0.6% increase in our cruise selling and administrative expenses per
available berth day. Excluding Costa, selling and administrative expenses as
a percentage of revenues were 13.2% and 12.9% in 2001 and 2000, respectively.
Depreciation and amortization increased by $85 million, or 29.4%, to
$372 million in 2001 from $288 million in 2000. This increase was primarily
from our consolidation of Costa, which accounted for approximately $50
million of the increase, and the majority of the remaining $35 million
increase was due to our expansion of the fleet and ship improvement
expenditures.
See Note 4 in the accompanying financial statements for additional
information regarding our $140 million impairment charge in 2001.
Affiliated Operations
During 2001, we recorded $44 million of losses from affiliated
operations as compared with $38 million of income in 2000. Our portion of
Airtours' losses in 2001 was $43 million as compared to $41 million of losses
in 2000. In fiscal 2001 Costa's results of operations have been consolidated
and are not included in our 2001 affiliated operations. We recorded income
of $77 million during 2000 from our interest in Costa. See the "Nonoperating
Income (Expense)" and "Affiliated Operations" sections below for a discussion
of certain nonrecurring events. See Notes 5 and 17 in the accompanying
financial statements for additional information regarding our affiliated
operations and the acquisition of Costa.
Nonoperating Income (Expense)
Interest expense, net of interest income and excluding capitalized
interest, increased to $116 million in 2001 from $66 million in 2000. An
approximate $99 million increase in interest expense was caused by our higher
average outstanding debt balances, partially offset by $30 million of
additional interest income from our higher average invested cash balances and
a $19 million reduction in net interest expense due to lower interest rates.
The higher average debt balances were primarily from our acquisition and
consolidation of Costa and our issuance of $600 million of 2% convertible
notes in April 2001. Capitalized interest decreased $12 million during 2001
as compared to 2000 due primarily to our lower average levels of investment
in ship construction projects.
Other income in 2001 of $109 million consisted primarily of a gain of
$101 million from the sale of our investment in Airtours, a $13 million gain
from a settlement agreement with the manufacturers of some of our ship
propulsion systems to reimburse us for lost revenues and expenses incurred
due to disruption in service during 2000, a $16 million gain from the sale of
our interest in CRC, partially offset by $9 million of short-term investment
write-downs and $9 million of estimated net litigation expenses.
Income tax benefit of $12 million was recognized in 2001 compared to a
$1 million expense in 2000. Approximately $9 million of the net increase in
the income tax benefit was from Costa, primarily due to changes in Italian
tax laws.
FISCAL 2000 ("2000") COMPARED TO FISCAL 1999 ("1999")
Revenues
Revenues increased $281 million, or 8%, in 2000 compared to 1999.
Cruise revenues increased $292 million, or 8.9%, to $3.58 billion in 2000
from $3.29 billion in 1999. The cruise revenue change resulted from an
increase of 10.8% in our passenger capacity and a 1.2% increase in our
occupancy rate, partially offset by a 3.2% decrease in our gross revenue per
passenger cruise day. The decrease in gross revenue per passenger cruise day
was primarily due to pressure on our cruise ticket prices throughout the
year, with the exception of the Millennium cruises. This pressure on cruise
ticket pricing was caused by a number of factors including, but not limited
to, relatively softer demand and a fall-off in pre- and post Millennium
bookings. Also, when a passenger elects to provide his or her own
transportation, rather than purchasing air transportation from us, both our
cruise revenues and operating expenses decrease by approximately the same
amount. During 2000, there was a reduction in the percentage of our
passengers electing to use our air program and, accordingly, this caused a
reduction in gross revenue per passenger cruise day, as well as a reduction
in operating expenses.
Costs and Expenses
Operating expenses increased $196 million, or 10.5%, in 2000 compared to
1999. Cruise operating costs increased by $201 million, or 11.8%, to $1.91
billion in 2000 from $1.71 billion in 1999. Cruise operating costs increased
in 2000 primarily from additional costs associated with our 10.8% increase in
passenger capacity and a .9% increase in our operating expense per available
berth day. The increase in operating expense per available berth day was
primarily due to increases in our fuel costs. Commencing in the fourth
quarter of 1999, we began to incur significantly higher fuel costs due to a
very large increase in the price of bunker fuel which continued to increase
as the year progressed. The increases in the price of fuel increased our
consolidated operating expenses by approximately $51 million for 2000
compared to 1999. Cruise operating costs as a percentage of cruise revenues
were 53.4% and 52% in 2000 and 1999, respectively.
Selling and administrative expenses increased $40 million, or 9.0%, to
$487 million in 2000 from $447 million in 1999. Selling and administrative
expenses increased in 2000 primarily from additional expenses associated with
our 10.8% increase in passenger capacity, partially offset by a 2.3% decrease
in our cruise selling and administrative expenses per available berth day.
Selling and administrative expenses as a percentage of revenues were 12.9%
and 12.8% in 2000 and 1999, respectively.
Depreciation and amortization increased by $44 million, or 18.1%, to
$288 million in 2000 from $244 million in 1999. This increase was primarily
from the additional depreciation associated with our expansion of the fleet
and ship improvement expenditures.
Affiliated Operations
During 2000, we recorded $38 million of income from affiliated
operations as compared with $76 million of income in 1999. Our portion of
Airtours' losses in 2000 was $41 million as compared to income of $36 million
in 1999. We recorded income of $77 million and $40 million during 2000 and
1999, respectively, related to our interest in Costa. Our results from
affiliated operations included net nonrecurring charges totaling $5 million,
consisting of a $43 million charge for our equity interest in restructuring
and other nonrecurring net charges recorded by Airtours, partially offset by
our $38 million income tax benefit from Costa's change in tax status upon
registration of its ships within the Italian International Ship Registry and
the reversal of certain Costa tax liabilities.
Nonoperating Income (Expense)
Interest expense, net of interest income and excluding capitalized
interest, increased to $66 million in 2000 from $46 million in 1999. An
approximate $28 million increase in interest income was caused by our lower
average invested cash balances, partially offset by a $9 million reduction in
interest expense from our lower average outstanding debt balances.
Other income in 2000 of $8 million consisted primarily of $21 million of
net compensation received from a shipyard, an $11 million gain on our forward
foreign currency contract purchased to fix our 2000 acquisition price of
Costa, partially offset by a $21 million port litigation charge. The
payments from the shipyard represent reimbursements for expenses incurred and
lost profits due to ship construction or design issues which caused either
delays in ship delivery or drydocks to correct the problems.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Our business provided approximately $1.24 billion and $1.28 billion of
net cash from operations during fiscal 2001 and fiscal 2000, respectively.
Our fiscal 2001 cash flow from operations was reduced as a result of the
events of September 11 and their aftermath.
During fiscal 2001, our net expenditures for capital projects were
approximately $827 million, of which $643 million was spent for our ongoing
shipbuilding program. The $184 million of nonshipbuilding capital
expenditures consisted primarily of ship improvements, information technology
assets, tour assets, and other. In addition, during fiscal 2001 we received
$531 million of net proceeds from the sale of our interests in Airtours and
CRC.
During fiscal 2001, we received proceeds of $710 million and we made
payments of $1.05 billion under our commercial paper programs. We also made
principal payments on other debt totaling $919 million. In addition, we
raised net proceeds of $589 million from the issuance of our 2% convertible
notes in April 2001, $765 million primarily for the refinancing of our Costa
acquisition and other Costa indebtedness and $489 million from the issuance
of our zero-coupon convertible notes in October 2001. We also paid cash
dividends of $246 million in fiscal 2001.
Future Commitments and Funding Sources
At November 30,2001, our contractual cash obligations, with initial or remaining terms in excess
of one year, were as follows (in thousands)(a):
Contractual Cash Payments Due by Fiscal
Obligations Total 2002 2003 2004 2005 2006 Thereafter
Shipbuilding $5,977,000 $1,751,000 $1,501,000 $2,037,000 $ 688,000 $ $
Long-term debt 2,976,618 21,764 145,897 140,209 885,365 1,226,860 556,523
Port facilities 278,379 21,831 18,947 19,318 20,667 19,211 178,405
Operating leases 63,800 10,100 8,600 7,700 7,600 7,500 22,300
Total contractual
cash obligations $9,295,797 $1,804,695 $1,674,444 $2,204,227 $1,601,632 $1,253,571 $ 757,228
(a) See Notes 6 and 7 in the accompanying financial statements for additional information
regarding our debt and commitments.
At November 30, 2001, we had liquidity which consisted of $1.46 billion
of cash, cash equivalents and short-term investments and $1.54 billion
available for borrowing under our revolving credit facilities obtained
through a group of banks, which have strong long-term credit ratings. Our
revolving credit facilities mature in 2006. A key to our access to
liquidity is the maintenance of our strong long-term credit ratings. The
proposed acquisition of P&O, if consummated, may result in a ratings
downgrade and, thereby, increase our cost-of-borrowing, although we believe
our senior unsecured long-term debt will retain its long-term investment
grade debt ratings.
We believe that our liquidity of approximately $2.69 billion as of
January 31, 2002, as well as our forecasted cash flow from future
operations, will be sufficient to fund most or all of our capital projects,
debt service requirements, dividend payments, working capital and other firm
commitments, excluding the cash portion of our P&O acquisition price. Our
forecasted cash flow from future operations may be adversely affected by
various factors including, but not limited to, declines in customer demand,
increased competition, the deterioration in general economic and business
conditions, terrorist attacks, ship incidents, adverse media publicity and
changes in fuel prices, as well as other factors noted under "Special Note
Regarding Forward-Looking Statements." To the extent that we are required,
or choose, to fund future cash requirements from sources other than as
discussed above, we believe that we will be able to secure financing from
banks or through the offering of debt and/or equity securities in the public
or private markets. Specifically, if our P&O acquisition is consummated we
intend to finance approximately $2.4 billion in cash through the issuance of
long-term debt or equity securities or a combination of debt and equity. No
assurance can be given that our future operating cash flow will be
sufficient to fund future obligations or that we will be able to obtain
additional financing for the cash portion of our proposed acquisition of
P&O.
OTHER MATTER
Market Risks
We are principally exposed to market risks from fluctuations in foreign
currency exchange rates, bunker fuel prices, interest rates and food
commodity prices. We seek to minimize these risks through our normal
operating and financing activities, including netting certain exposures to
take advantage of any natural offsets, through our long-term investment and
debt portfolio strategies and, when considered appropriate, through the use
of derivative financial instruments. The financial impacts of these hedging
instruments are offset by corresponding changes in the underlying exposures
being hedged. Our policy is to not use financial instruments for trading or
other speculative purposes.
Exposure to Foreign Currency Exchange Rates
Our primary foreign currency exchange risk was related to our
outstanding commitments under ship construction contracts denominated in a
currency other than the functional currency of the cruise brand that is
expected to be operating the ship. These non-functional currency
commitments are affected by fluctuations in the value of the U.S. dollar as
compared to the euro. Foreign currency forward contracts are generally used
to manage this risk (see Notes 2 and 11 in the accompanying financial
statements). Accordingly, increases and decreases in the fair value of these
foreign currency forward contracts offset changes in the U.S. dollar fair
value of the hedged foreign currency denominated ship construction
commitments, thus resulting in the elimination of such risk.
At November 30, 2001, the fair value of these contracts was an
unrealized loss of $567 million which is recorded, along with an offsetting
$567 million fair value asset related to our shipbuilding firm commitments,
on our accompanying 2001 balance sheet. These foreign currency forward
contracts mature through 2005. Based upon a 10% strengthening or weakening
of the U.S. dollar compared to the euro as of November 30, 2001, assuming no
changes in comparative interest rates, the estimated fair value of these
contracts would decrease or increase by $57 million, which would be offset
by a decrease or increase of $57 million in the U.S. dollar value of the
related foreign currency ship construction commitments resulting in no net
dollar impact to us.
The cost of shipbuilding orders which we may place in the future may be
affected by foreign currency exchange rate fluctuations. Should the U.S.
dollar weaken relative to the euro, future orders for new ship construction
in European shipyards may be at higher prices relative to the U.S. dollar.
Additionally, our investments in foreign subsidiaries subjects us to
foreign currency exchange rate risk. We consider our investments in foreign
subsidiaries to be denominated in relatively stable currencies and/or of a
long-term nature and, accordingly, do not typically manage our related
foreign currency exchange rate risk through the use of derivative financial
instruments. However, in paying the Costa acquisition price, we utilized
debt denominated in euros, the functional currency of Costa, to reduce a
portion of this risk.
Finally, we sell cruises and incur cruise expenses in foreign
currencies which subjects us to foreign currency exchange risk. The primary
currencies for which we have exchange rate exposure are the U.S. dollar
versus both the euro and the U.K. Pound Sterling. We do not expect that the
impact of fluctuations in the foreign currency exchange rate on our foreign
currency denominated cruise revenues and expenses to materially affect our
results of operations due primarily to the natural hedges which are expected
to exist within our operations, including interest expense on euro
denominated borrowings, and the relative stability of the foreign
currencies. However, we will continue to monitor such items to determine if
any actions, such as the issuance of additional foreign currency denominated
debt or use of other financial instruments, would be warranted to reduce
such risk.
Exposure to Bunker Fuel Prices
Cruise ship operating expenses are impacted by changes in bunker fuel
prices. Bunker fuel consumed over the past three fiscal years ranged from
approximately 2.5 % in fiscal 1999 to 4.0 % in fiscal 2001 and 2000 of our
gross cruise revenues. We have typically not used financial instruments to
hedge our exposure to the bunker fuel price market risk. However, in fiscal
2001 and 2000, we entered into fuel swap agreements intended to hedge this
price risk for a very minor portion of our upcoming year's consumption. We
are continuing to monitor this market risk, and may, in the future, decide
to increase our use of financial instruments to reduce this risk.
Based upon a 10% hypothetical increase or decrease in the November 30,
2001 bunker fuel price, we estimate that our fiscal 2002 bunker fuel cost
would increase or decrease by approximately $15 million compared to fiscal
2001.
Exposure to Interest Rates
In order to limit our exposure to interest rate fluctuations, we have
entered into a substantial amount of fixed rate debt instruments. Also,
Costa has entered into variable to fixed interest rate swap agreements to
fix substantially all of its interest costs over the short-term. We
continuously evaluate our debt portfolio, including interest rate swap
agreements, and make periodic adjustments to the mix of floating rate and
fixed rate debt based on our view of interest rate movements. Accordingly,
in 2001 we entered into fixed to variable interest rate swap agreements,
which has lowered our fiscal 2001 interest costs and is also expected to
lower our fiscal 2002 interest costs. At November 30, 2001, 89% of our debt
was effectively fixed and 11% was variable.
At November 30, 2001, our long-term debt had a carrying value of $2.98
billion. At November 30, 2001, our swap agreements effectively changed $225
million of fixed rate debt with a weighted-average fixed interest rate of
6.8% to Libor-based floating rate debt. In addition, interest rate swaps at
November 30, 2001, effectively changed $637 million of euribor floating rate
debt to fixed rate debt with a weighted-average fixed interest rate of 5.3%.
These interest rate swaps mature through 2006. The fair value of our debt
and swaps at November 30, 2001 was $2.95 billion. Based upon a hypothetical
10% decrease or increase in the November 30, 2001 market interest rates, the
fair value of our debt and swaps would increase or decrease by $64 million.
In addition, based upon a hypothetical 10% decrease or increase in our
November 30, 2001 common stock price, the fair value of our convertible
notes would increase or decrease by approximately $45 million.
These hypothetical amounts are determined by considering the impact of
the hypothetical interest rates and common stock price on our existing debt
and interest rate swaps. This analysis does not consider the effects of the
changes in the level of overall economic activity that could exist in such
environments or any relationships which may exist between interest rate and
stock price movements. Furthermore, since substantially all of our fixed
rate debt cannot be prepaid and a large portion of our variable rate debt is
subject to interest rate swaps which effectively fix the interest rate in
the short-term, it is most likely we would be unable to take any significant
steps in the short-term to mitigate our exposure in the event of a
significant decrease in market interest rates.
Exposure to Food Commodity Prices
We have commodity price risk related to our food purchases. We do not
typically manage these risks through the use of derivative financial
instruments since we do not expect changes in food commodity prices to be
material. However, we will continue to monitor these risks to determine if
any actions would be necessary to reduce such risks.
SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for fiscal
1997 through 2001 and as of the end of each such fiscal year, are derived
from our audited financial statements and should be read in conjunction with
those financial statements and the related notes.
Years Ended November 30,
2001 2000 1999 1998 1997
(in thousands, except per share data)
Income Statement and Other Data (a):
Revenues $4,535,751 $3,778,542 $3,497,470 $3,009,306 $2,447,468
Operating income
before (loss) income from
affiliated operations $ 935,755 $ 945,130 $ 943,941 $ 819,792 $ 660,979
Operating income $ 891,731 $ 982,958 $1,019,699 $ 896,524 $ 714,070
Net income $ 926,200 (b)$ 965,458 $1,027,240 $ 835,885 $ 666,050
Earnings per share (c):
Basic $ 1.58 $ 1.61 $ 1.68 $ 1.40 $ 1.12
Diluted $ 1.58 $ 1.60 $ 1.66 $ 1.40 $ 1.12
Dividends declared
per share (c) $ .420 $ .420 $ .375 $ .315 $ .240
Cash from operations $1,238,936 $1,279,535 $1,329,724 $1,091,840 $ 877,580
Capital expenditures $ 826,568 $1,003,348 $ 872,984 $1,150,413 $ 497,657
Available lower berth days 20,685 15,888 14,336 12,237 10,992
Passengers carried 3,385 2,669 2,366 2,045 1,945
Occupancy percentage (d) 104.7% 105.4% 104.3% 106.3% 108.3%
As of November 30,
2001 (a) 2000 (a) 1999 1998 1997
(in thousands)
Balance Sheet and Other Data:
Total assets $11,563,552 (e) $9,831,320 $8,286,355 $7,179,323 $5,426,775
Long-term debt, excluding
current portion $ 2,954,854 $2,099,077 $ 867,515 $1,563,014 $1,015,294
Total shareholders'
equity $ 6,590,777 $5,870,617 $5,931,247 $4,285,476 $3,605,098
Debt to capital 31.1% 28.6% 15.3% 27.6% 23.0%
(a) From June 1997 through September 28, 2000, we owned 50% of Costa. On
September 29, 2000, we completed the acquisition of the remaining 50%
interest in Costa. We accounted for this transaction using the purchase
accounting method. Prior to the fiscal 2000 acquisition, we accounted for
our 50% interest in Costa using the equity method. Commencing in fiscal
2001, Costa's results of operations have been consolidated in the same
manner as our other wholly-owned subsidiaries. Our November 30, 2001 and
2000 consolidated balance sheets include Costa's balance sheet. All
statistical information prior to 2001 does not include Costa. See Notes 2,
5 and 17 in the accompanying financial statements.
(b) Our net income for fiscal 2001 includes an impairment charge of $140
million and a nonoperating net gain of $101 million from the sale of our
investment in Airtours. See Notes 4 and 5 in the accompanying financial
statements.
(c) All 1998 and 1997 per share amounts have been adjusted to reflect a two-
for-one stock split effective June 12, 1998.
(d) In accordance with cruise industry practice, occupancy percentage is
calculated based upon two passengers per cabin even though some cabins can
accommodate three or four passengers. The percentages in excess of 100%
indicate that more than two passengers occupied some cabins.
(e) Effective December 1, 2000, we adopted SFAS No. 133 which requires that
all derivative instruments be recorded on our balance sheet. Total 2001
assets include $578 million which represents the fair value of hedged firm
commitments. See Note 2 in the accompanying financial statements
MARKET PRICE FOR COMMON STOCK
Our common stock is traded on the New York Stock Exchange under the
symbol CCL. Our intra-day high and low common stock sales prices for the
periods indicated were as follows:
High Low
Fiscal 2001:
First Quarter $34.94 $21.94
Second Quarter $33.40 $23.60
Third Quarter $33.74 $25.89
Fourth Quarter $31.47 $16.95
Fiscal 2000:
First Quarter $51.25 $27.25
Second Quarter $29.06 $21.19
Third Quarter $27.50 $18.31
Fourth Quarter $25.88 $19.56
As of January 29, 2002, there were approximately 4,632 holders of
record of our common stock. The Republic of Panama does not currently have
tax treaties with any other country. Under current law, we believe that
distributions to our shareholders, other than residents of Panama or other
business entities conducting business in Panama, are not subject to taxation
under the laws of the Republic of Panama. Dividends that we pay to U.S.
citizens, residents, corporations and to foreign corporations doing business
in the U.S., to the extent treated as "effectively connected" income, will
be taxable as ordinary income for U.S. federal income tax purposes to the
extent of our current or accumulated earnings and profits, but generally
will not qualify for any dividends-received deduction.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial results for fiscal 2001 were as follows:
Quarters Ended
February 28 May 31 August 31 November 30
(in thousands, except per share data)
Revenues $1,007,606 $1,079,125 $1,489,918 $959,102
Gross profit $ 407,486 $ 477,791 $ 770,540 $411,204
Operating income before
loss from affiliated
operations $ 160,004 $ 230,868 $ 425,346 $119,537
Operating income $ 138,941 $ 207,907 $ 425,346 $119,537
Net income $ 127,950(a) $ 186,963(b) $ 494,975(c) $116,312(d)
Earnings per share:
Basic $ .22 $ .32 $ .84 $ .20
Diluted $ .22 $ .32 $ .84 $ .20
Dividends declared
per share $ .105 $ .105 $ .105 $ .105
(a) Includes a $13 million gain from a settlement agreement with the manufacturers of some of our ship
propulsion systems to reimburse us for lost revenues and expenses incurred due to disruption in service
during 2000.
(b) Includes a $16 million gain from the sale of our interest in CRC, partially offset by $9 million of
short-term investment write-downs and $6 million of estimated litigation expenses.
(c) Includes a $101 million impairment charge and $7 million of estimated litigation expenses,
partially offset by a gain of $101 million from the sale of our investment in Airtours.
(d) Includes a $39 million impairment charge, partially offset by $4 million of net nonoperating income
related to port and other litigation.
Quarterly financial results for fiscal 2000 were as follows:
Quarters Ended
February 29 May 31 August 31 November 30
(in thousands, except per share data)
Revenues $824,878 $875,127 $1,228,211 $850,326
Gross profit $359,438 $378,006 $ 613,487 $369,269
Operating income before
(loss) income from
affiliated operations $170,955 $188,891 $ 418,910 $166,374
Operating income $159,518 $194,419 $ 420,458 $208,563
Net income $171,517(a) $203,956(a)(b)$ 396,190 $193,795(c)
Earnings per share:
Basic $ .28 $ .34 $ .67 $ .33
Diluted $ .28 $ .34 $ .67 $ .33
Dividends declared
per share $ .105 $ .105 $ .105 $ .105
(a) Includes $9 million and $7 million in the February 29 and May 31 quarters, respectively, of net
compensation received from a shipyard relating to the delayed delivery of Holland America Line's
Zaandam.
(b) Includes $13 million of gains from the reversal of certain of Costa's tax
liabilities.
(c) Includes charges totaling $24 million consisting of (1) a $42 million charge for our equity
interest in restructuring and other nonrecurring net charges recorded by Airtours and (2) a $21 million
port litigation charge, partially offset by (3) a $12 million gain on our forward foreign currency
contract purchased to fix our 2000 acquisition price of Costa and (4) a $27 million deferred income tax
benefit from Costa's change in tax status upon registration of its ships within the Italian
International Ship Registry. In addition, includes approximately $7 million of net compensation
received from a shipyard for reimbursements related to Holland America Line's Rotterdam VI.
EXHIBIT 21
LIST OF SIGNIFICANT SUBSIDIARIES AND AFFILIATES OF CARNIVAL CORPORATION
Jurisdiction of Incorporation
Name of Subsidiary or Organization
Carnival (UK) plc United Kingdom
(1) Costa Crociere S.p.A. Italy
(2) Costa Finance, S.A. Luxembourg
(3) Costa Holdings Srl Italy
Cunard Line Limited Bermuda
HAL Antillen N.V. Netherlands Antilles
(4) HAL Buitenland B.V. Netherlands
(4) HAL Nederland N.V. Netherlands Antilles
(4) Holland America Line N.V. Netherlands Antilles
(4) Wind Surf Limited Bahamas
(1) Subsidiary of Costa Holdings, Srl
(2) Subsidiary of HAL Buitenland B.V. and Carnival Corporation
(3) Subsidiary of Costa Finance, S.A.
(4) Subsidiary of HAL Antillen N.V.
EXHIBIT 23
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-3 (No. 33-63563, No. 333-43269, No. 333-68999, No.
333-72729, No. 333-62950 and No. 333-74190) and Registration Statements on
Forms S-8 (No. 33-45287, No. 33-51195, No. 33-53099, No. 333-43885, No. 333-
60558 and No. 333-67394) and Registration Statement on Form S-1 (No. 33-
14844) of Carnival Corporation of our report dated January 29, 2002, except
as to Note 18 which is dated as of February 15, 2002, relating to the
financial statements, which appears in the Annual Report to Shareholders,
which is incorporated in this Annual Report on Form 10-K.
/s/PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Miami, Florida
February 26, 2002