Filing under Rule 425 under
the Securities Act of 1933
and deemed filed under Rule 14d-2
of the Securities Exchange Act of 1934
Filing by: Carnival Corporation
Subject Company: P&O Princess Cruises plc.
SEC File No. of Princess: 001-15136
[LOGO]
CARNIVAL
CORPORATION
Revised Offer for P&O Princess
A superior proposal for
P&O Princess Shareholders
Take action now to participate in the
Carnival success story
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in
any doubt about the Revised Offer or the action you should take, you are
recommended to seek immediately your own financial advice from your stockbroker,
bank manager, solicitor, accountant or other independent financial adviser duly
authorised under the Financial Services and Markets Act 2000.
If you have sold or otherwise transferred all your P&O Princess Shares, please
send this document and the accompanying Blue Form of Proxy, as soon as possible,
to the purchaser or transferee or to the stockbroker, bank or other agent
through whom the sale or transfer was effected for delivery to the purchaser or
transferee. However such documents should not be distributed, forwarded or
transmitted in or into Australia, Canada, or Japan.
Merrill Lynch International and UBS Warburg Ltd., a subsidiary of UBS AG, are
acting as joint financial advisors and joint corporate brokers exclusively to
Carnival and no-one else in connection with the Revised Offer and will not be
responsible to anyone other than Carnival for providing the protections afforded
to clients respectively of Merrill Lynch International and UBS Warburg Ltd. as
the case may be or for providing advice in relation to the Revised Offer.
- --------------------------------------------------------------------------------
Offer
to be made by
Merrill Lynch International and UBS Warburg Ltd.
on behalf of
Carnival Corporation
to acquire
P&O Princess Cruises plc
- --------------------------------------------------------------------------------
Unless otherwise determined by Carnival and permitted by applicable law and
regulation, the Revised Offer will not be made, directly or indirectly, in or
into, or by use of the mails of, or by any means or instrumentality (including,
without limitation, telephonically or electronically) of interstate or foreign
commerce of, or of any facility of a national securities exchange of, nor will
it be made in or into Australia, Canada or Japan and the Revised Offer will not
be capable of acceptance by any such use, means, instrumentality or facilities.
Accordingly, unless otherwise determined by Carnival and permitted by applicable
law and regulation, copies of this document and any other documents related to
the Revised Offer are not being, and must not be, mailed or otherwise forwarded,
distributed or sent in or into Australia, Canada or Japan and persons receiving
such documents (including custodians, nominees and trustees) must not distribute
or send them in, into or from such jurisdictions. The availability of the
Revised Offer to persons not resident in the United Kingdom may be affected by
the laws of the relevant jurisdictions in which they are located. Persons who
are not resident in the United Kingdom should inform themselves of, and observe,
any applicable requirements. The Revised Offer will be made in the United States
by Carnival. References in this document to the Revised Offer being made by
Merrill Lynch or UBS Warburg should be read accordingly.
1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this announcement constitute "forward-looking statements"
within the meaning of the US Private Securities Litigation Reform Act of 1995.
Carnival has tried, wherever possible, to identify such statements by using
words such as "anticipate," "assume," "believe," "expect," "intend," "plan" 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 Carnival's net revenue yields, booking
levels, price, occupancy or business prospects, involve known and unknown risks,
uncertainties and other factors, which may cause Carnival's 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 Carnival's 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; Carnival's ability to implement its shipbuilding program and to
continue to expand its business outside the North American market; Carnival's
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; unscheduled ship repairs and dry-docking; incidents involving cruise
ships; impact of pending or threatened litigation; and changes in laws and
regulations applicable to Carnival.
Carnival cautions the reader that these risks may not be exhaustive. Carnival
operates in a continually changing business environment, and new risks emerge
from time to time. Carnival cannot predict such risks nor can it assess the
impact, if any, of such risks on its 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. Carnival undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
CARNIVAL PLANS TO FILE A REGISTRATION STATEMENT ON FORM S-4 AND A STATEMENT ON
SCHEDULE TO WITH THE SEC IN CONNECTION WITH COMMENCEMENT OF THE REVISED OFFER.
THE FORM S-4 WILL CONTAIN A PROSPECTUS AND OTHER DOCUMENTS RELATING TO THE
REVISED OFFER. CARNIVAL PLANS TO MAIL THE PROSPECTUS CONTAINED IN THE FORM S-4
TO SHAREHOLDERS OF P&O PRINCESS WHEN THE FORM S-4 IS FILED WITH THE SEC. THE
FORM S-4, THE PROSPECTUS AND THE SCHEDULE TO WILL CONTAIN IMPORTANT INFORMATION
ABOUT CARNIVAL, P&O PRINCESS, THE REVISED OFFER AND RELATED MATTERS. INVESTORS
AND STOCKHOLDERS SHOULD READ THE FORM S-4, THE PROSPECTUS, THE SCHEDULE TO AND
THE OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE REVISED OFFER
CAREFULLY BEFORE THEY MAKE ANY DECISION WITH RESPECT TO THE REVISED OFFER. THE
FORM S-4, THE PROSPECTUS, THE SCHEDULE TO AND ALL OTHER DOCUMENTS FILED WITH THE
SEC IN CONNECTION WITH THE REVISED OFFER WILL BE AVAILABLE WHEN FILED FREE OF
CHARGE AT THE SEC'S WEB SITE, AT WWW.SEC.GOV. IN ADDITION, THE PROSPECTUS AND
ALL OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE REVISED OFFER WILL
BE MADE AVAILABLE TO INVESTORS FREE OF CHARGE BY WRITING TO TIM GALLAGHER AT
CARNIVAL CORPORATION, CARNIVAL PLACE, 3655 N.W. 87 AVENUE, MIAMI, FLORIDA,
33178-2428, US.
IN ADDITION TO THE FORM S-4, THE PROSPECTUS, THE SCHEDULE TO AND THE OTHER
DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE REVISED OFFER, CARNIVAL IS
OBLIGATED TO FILE ANNUAL, QUARTERLY AND CURRENT REPORTS, PROXY STATEMENTS AND
OTHER INFORMATION WITH THE SEC. PERSONS MAY READ AND COPY ANY REPORTS,
STATEMENTS AND OTHER INFORMATION FILED WITH THE SEC AT THE SEC'S PUBLIC
REFERENCE ROOM AT 450 FIFTH STREET, N.W., WASHINGTON, D.C. 20549. PLEASE CALL
THE SEC AT 1-800-SEC-0330 FOR FURTHER INFORMATION ON THE PUBLIC REFERENCE ROOM.
FILINGS WITH THE SEC ALSO ARE AVAILABLE TO THE PUBLIC FROM COMMERCIAL DOCUMENT-
RETRIEVAL SERVICES AND AT THE WEB SITE MAINTAINED BY THE SEC AT WWW.SEC.GOV.
2
IF P&O PRINCESS SHAREHOLDERS APPROVE THE ROYAL CARIBBEAN PROPOSAL, CARNIVAL'S
SUPERIOR OFFER WILL NOT PROCEED
- --------------------------------------------------------------------------------
CARNIVAL URGES ALL P&O PRINCESS SHAREHOLDERS TO:
1 VOTE TO ADJOURN THE EGM
OR 2 IF THE EGM IS NOT ADJOURNED,
TO VOTE AGAINST THE ROYAL CARIBBEAN PROPOSAL
- --------------------------------------------------------------------------------
MAKE YOUR VOTE COUNT - COMPLETE THE ENCLOSED BLUE FORM OF PROXY
- --------------------------------------------------------------------------------
IF YOU WANT TO:
1 VOTE TO ADJOURN THE EGM
TICK THE BOX MARKED "FOR" ADJACENT TO "RESOLUTION (1)"
2 VOTE AGAINST THE ROYAL CARIBBEAN PROPOSAL
TICK THE BOXES MARKED "AGAINST" ADJACENT TO
"RESOLUTION (2)" AND "RESOLUTION (3)"
FOR GUIDANCE ON HOW TO COMPLETE THE BLUE FORM OF PROXY TO REFLECT 1 AND 2 ABOVE,
REFER TO THE SECTION AT THE BOTTOM OF THE FORM
- --------------------------------------------------------------------------------
DON'T MISS THE OPPORTUNITY TO CAST YOUR VOTE RETURN THE COMPLETED FORM WITHOUT
DELAY
For further information on how to complete and return the Blue Form of Proxy,
please refer to page 16.
- --------------------------------------------------------------------------------
HELPLINE
If you have any queries in relation to the proposals described in this document
you may call the freephone helpline from within the United Kingdom on 0800 035
2766 between 9.00 a.m. and 5.00 p.m. (London time) on any business day until 14
February 2002. If you are calling from outside the United Kingdom, the helpline
number is +44 207 864 9150 (calls will be charged at the applicable rate). For
legal reasons, the helpline will only be able to assist you with information
contained in this document and the helpline cannot provide advice on the merits
of the proposals or give any financial advice. Calls may be monitored for
quality control purposes.
- --------------------------------------------------------------------------------
3
[This page left intentionally blank]
4
Contents
Page
Letter from the Chairman and Chief Executive of Carnival 6
A Superior Proposal for P&O Princess Shareholders 7
Form of Proxy Instructions 16
The Revised Offer 17
Appendices
I. Pre-Conditions, Conditions and Further Terms of the Revised Offer 27
II. Financial Information on the Carnival Group 44
III. Financial Information on the P&O Princess Group 78
IV. Rights Attaching to the New Carnival Shares 115
V. Statement of Estimated Cost Savings 118
VI. Financial Effects of Acceptance 122
VII. Bases and Sources of Information 123
VIII. Additional Information 125
IX. Definitions 147
5
Letter from the Chairman and Chief Executive of Carnival
[LOGO]
CARNIVAL CORPORATION
P&O Princess Shareholders
31 January 2002
To P&O Princess Shareholders and, for information only, to holders of options
under the P&O Princess Employee Share Incentive Plans.
Dear Shareholders,
As you will be aware, on 20 November 2001, the P&O Princess Board announced the
Royal Caribbean Proposal - a "nil premium" transaction. Carnival announced its
superior Offer on 16 December 2001, but your board has repeatedly turned down
our requests to discuss our strong interest in your company.
We are firmly of the view that you, the shareholders and owners of P&O Princess,
are entitled to judge our offer for yourselves and should not be denied this
opportunity due to the total lack of co-operation shown by the P&O Princess
Board.
I am therefore writing to you directly, to give you details of Carnival's
Revised Offer and explain why we believe that it is far more favourable to you
than the "nil premium" merger with Royal Caribbean. In considering the two
alternative proposals, I believe there are three key points you should consider:
. Value: Our Revised Offer gives you a significant premium for your shares.
We also intend to give you the opportunity to receive a substantial amount
of the consideration in cash;
. Deliverability: Our Revised Offer is as deliverable as the Royal Caribbean
Proposal. Both transactions are subject to regulatory clearance, both in
Europe and in the United States; and
. Shareholder returns: Our Revised Offer enables you to participate in the
Carnival success story. We believe we have delivered superior shareholder
returns because we have the best management team and the most successful
brand strategy in the cruise industry. We therefore strongly believe that
Carnival is a better partner for P&O Princess than Royal Caribbean.
You have two proposals to consider. We believe that you should not be forced to
decide between them until the outcome of the regulatory reviews for both
transactions is known.
Your board is asking you to approve the Royal Caribbean Proposal at the EGM on
14 February 2002. If P&O Princess Shareholders approve the Royal Caribbean
Proposal, Carnival's Revised Offer cannot proceed and you will lose the
opportunity to benefit from our superior value proposition. Carnival has been
advised that an adjournment, if proposed and approved by P&O Princess
Shareholders, does not entitle Royal Caribbean to walk away.
We therefore strongly urge you to vote to adjourn the EGM until the regulatory
outcome is known, or, in the event that the EGM is not adjourned, to vote
against the Royal Caribbean Proposal.
Enclosed with this document you will find a Blue Form of Proxy that allows you
to make your vote count at the EGM. I strongly recommend that all shareholders
take this opportunity to complete this form and return it to Capita IRG using
the enclosed reply-paid envelope so as to be received by them no later than
11.00 am on Monday 11 February 2002.
Time is short. Your vote is important. Please use it wisely.
Yours faithfully
/s/ Micky Arison
Micky Arison
Chairman & Chief Executive
Carnival Place, 3655 N.W. 87 Avenue, Miami, Florida 33178-2482
Tel: (305) 599-2600 Fax: (305) 406-4700
6
A SUPERIOR PROPOSAL FOR P&O PRINCESS SHAREHOLDERS
Value
. Your P&O Princess Shares are worth much more than you will get under the
"nil premium" Royal Caribbean Proposal
. The Carnival Revised Offer of 515 pence per P&O Princess Share represents a
34% premium to the current "look through" price of the Royal Caribbean
Proposal
Deliverability
. Our Revised Offer has only one pre-condition - regulatory clearance. We
have been advised that we have the same likelihood of receiving regulatory
clearance as the Royal Caribbean Proposal
. Satisfaction of the Joint Venture Condition to remove the "poison pill" is
within the determination of the P&O Princess Board
Shareholder returns
. Carnival has created shareholder value whilst Royal Caribbean has destroyed
it
. The structure of our Revised Offer gives you the opportunity to participate
in the future of the most successful cruise company in the world
Take action now to adjourn the EGM and/or to vote against the Royal Caribbean
Proposal
7
CARNIVAL'S REVISED OFFER -- SUPERIOR VALUE
Carnival's Revised Offer provides P&O Princess Shareholders with both value and
flexibility
. Carnival's Revised Offer of 515 pence per P&O Princess Share gives you
-- 0.2684 Carnival Shares for each P&O Princess Share
-- A Partial Cash Alternative giving you the choice of receiving 250
pence per P&O Princess Share in cash (subject to financing)
-- The right to elect for extra cash as part of the Partial Cash
Alternative to the extent that other P&O Princess Shareholders elect
for extra Carnival Shares
. The structure of our Revised Offer means that you can participate in any
upturn in the sector whilst retaining the option to receive a portion in
cash
. Carnival's superior Revised Offer values your shares at:
-- A premium of 29% to the current P&O Princess Share price
-- A premium of 34% to the "look through" price under the Royal Caribbean
Proposal
-- A premium of 62% to the P&O Princess Share price before the Royal
Caribbean Proposal
An attractive premium offer ...
8
CARNIVAL'S REVISED OFFER -- SUPERIOR VALUE
Carnival's Revised Offer provides you with a premium valuation
EV/EBITDA - last twelve months (LTM)
[CHART]
P&O Princess at 515p 13.0x
Carnival 11.7x
Royal Caribbean 9.3x
P&O Princess 9.1x 43% premium
P/E - last twelve months (LTM)
[CHART]
P&O Princess at 515p 18.9x
Carnival 15.2x
P&O Princess 11.7x
Royal Caribbean 8.9x 62% premium
... which gives you greater value than the Royal Caribbean Proposal
9
CARNIVAL'S REVISED OFFER -- A DELIVERABLE ALTERNATIVE
Carnival's Revised Offer is as deliverable as the Royal Caribbean Proposal
. Both the Royal Caribbean Proposal and Carnival's Revised Offer are subject
to regulatory clearance
-- We have been advised that there is no material difference between the
regulatory positions of the two proposals
-- Carnival, P&O Princess and Royal Caribbean have all stated that they
believe that the wider vacation market (of which cruising is less than
5% in the US and Europe) is the appropriate market to evaluate
competitive effects
-- Both Carnival and Royal Caribbean are similarly situated in the US and
European cruising sub-sector
-- Both Carnival's Revised Offer and the Royal Caribbean Proposal are
awaiting clearance by regulatory authorities in Europe and the US, on
broadly the same schedule
. Regulatory clearance is the only Pre-condition to Carnival's Revised Offer
Shareholders should only make a decision when the regulatory outcome is known...
10
CARNIVAL'S REVISED OFFER -- A DELIVERABLE ALTERNATIVE
Satisfaction of the Joint Venture Condition to remove the "poison pill" is
within the determination of the P&O Princess Board
. Immediately prior to announcing the Royal Caribbean Proposal, P&O Princess
signed up to the Joint Venture "poison pill" deliberately to discourage
Carnival from making an offer for P&O Princess
. This "poison pill" could result in P&O Princess paying in excess of $400
million should it be acquired by Carnival - this is clearly not in P&O
Princess Shareholders' best interests
. However, whilst not providing full details, your board has stated that it
can unilaterally terminate the Joint Venture at no cost and therefore
remove the threat of "poison pill" liabilities
. Carnival's Revised Offer takes your board at its word - it is up to your
board to deliver
... and rely on your board's statements that they can exit from the Joint
Venture
11
CARNIVAL'S REVISED OFFER - THE BEST PARTNERSHIP
The strategic rationale for a Carnival and P&O Princess combination is
compelling
. A combination of Carnival and P&O Princess will create a global vacation
and leisure company with:
-- A wide portfolio of complementary brands
-- A significant presence in the key cruise vacation markets worldwide
-- An enhanced ability to attract customers from other vacation options
to the cruise sector
-- A strong balance sheet from which to drive future capacity and growth
-- The leading management and operating practices in the cruise sub-
sector
Carnival and P&O Princess - better together ...
12
CARNIVAL'S REVISED OFFER - THE BEST PARTNERSHIP
Carnival's Revised Offer will allow P&O Princess Shareholders to share in the
future of the most successful cruise company in the world
. Carnival has the best performing management team in the sector, in contrast
to Royal Caribbean's team, which has a history of underperformance
. Carnival has a record of outperformance versus Royal Caribbean - Carnival's
net income margin of 22.7%/(1)/ is double Royal Caribbean's margin of
10.3%/(1)/
. Carnival has created shareholder value while Royal Caribbean has destroyed
it - Carnival has delivered shareholder returns of positive 30% versus
--------
negative 34% for Royal Caribbean, relative to the S&P 500/(2)/
--------
. Carnival has a strong and flexible balance sheet, and strong interest cover
at 10.4 times/(1)/ whereas Royal Caribbean is in a far weaker financial
condition with interest cover of only 2.8 times/(1)/
. Partnering with Royal Caribbean would expose P&O Princess Shareholders to
considerable financial risk which could negatively impact the value of your
shares
(1) Last 12 months.
(2) Since April 1993, when Royal Caribbean was floated.
... and an opportunity for you to participate in the Carnival success story
13
CARNIVAL'S REVISED OFFER - A BETTER DEAL FOR P&O PRINCESS SHAREHOLDERS
P&O Princess Shareholders do not receive a fair deal under the Royal Caribbean
Proposal
. Under the Royal Caribbean Proposal, P&O Princess will receive only 50.7% of
the combined entity
. Based on selected analysts' forecasts for 2002, P&O Princess is expected to
contribute between 53% and 65% to the combined entity's net income before
synergies. This is significantly more than the 50.7% it receives under the
Royal Caribbean Proposal
. No wonder 44.5% of Royal Caribbean Shareholders, but only 1.8% of P&O
Princess Shareholders have already signed up for this transaction
. Under their proposal, Royal Caribbean's Shareholders will receive a
----
disproportionately large share of the combined group. Why should you
subsidise them in this way?
Don't vote for a deal that benefits Royal Caribbean Shareholders and
disadvantages you
14
CARNIVAL'S REVISED OFFER -A BETTER DEAL FOR P&O PRINCESS SHAREHOLDERS
P&O Princess Shareholders have a choice
Choose Carnival Not Royal Caribbean
- ------------------------------------------------------------------------
[X] A premium offer X A "nil premium" transaction
[X] Track record of superior X Track record of poor
operating performance operating performance
[X] Proven management X Questionable management
and operating practice and operating practice
[X] Simple offer structure X Complex, poorly understood DLC
structure
[X] Option to receive part cash X No cash
[X] A strong and flexible X A financially constrained
balance sheet - "A" rated balance sheet - "junk" status
[X] Value today X Promises for tomorrow?
- ------------------------------------------------------------------------
Vote for value - vote to adjourn the EGM and/or vote against the Royal Caribbean
Proposal
15
Form of Proxy - Instructions
Carnival is seeking an adjournment of the EGM. To achieve this, it is intended
that a resolution calling for an adjournment will be proposed at the EGM by a
P&O Princess Shareholder. Carnival urges P&O Princess Shareholders to vote in
favour of this resolution.
To vote in favour of adjourning the EGM, you should tick the box marked "For"
adjacent to Resolution 1 set out on the enclosed Blue Form of Proxy and
complete, sign, detach and return the form to Capita IRG Plc, by using the
enclosed reply-paid envelope, or at the address specified on the form so as to
arrive no later than 11.00 a.m. on Monday 11 February 2002.
If you submit the Blue Form of Proxy you do not need to and should not submit
the white form of proxy sent to you by P&O Princess. If you have already
submitted the white form of proxy (whether submitted by post, personal delivery
or via the internet) and now wish to vote in favour of adjourning the EGM or to
vote against the resolution to approve the Royal Caribbean Proposal, you simply
need to duly complete and lodge the Blue Form of Proxy as this will
automatically revoke any earlier proxy. You do not need to take any further
action to revoke any earlier proxy.
The instructions for completing the Blue Form of Proxy are set out on the form
itself.
The Blue Form of Proxy enables you to appoint the director of Serjeants' Inn
Nominees Limited/1/ named on the Blue Form of Proxy with alternative provision
being made in case such director is unable to attend the EGM for any reason.
Alternatively you may appoint any other person or persons of your choice, to be
your proxy at the EGM.
In the event that the EGM is not adjourned, it is anticipated that the
resolutions to approve the Royal Caribbean Proposal set out in the P&O Princess
Circular sent to you in December 2001 will be put to a shareholder vote. In this
case, you are urged to vote against these resolutions by ticking the boxes
marked "Against" adjacent to Resolutions 2 and 3 set out on the Blue Form of
Proxy.
The authority conferred by the appointment of a proxy made under the Blue Form
of Proxy will also be valid at any adjournment of the EGM.
If you sign and return the Blue Form of Proxy and do not indicate in the spaces
provided on the form how you would like your proxy to vote, you will be
conferring discretion on your proxy to vote as he or she sees fit or abstain in
relation to any resolution at the meeting. If you do so confer discretion on the
directors of Serjeants' Inn Nominees Limited named on the Blue Form of Proxy,
they will each exercise such discretion to vote in favour of adjourning the EGM
---------
and against the resolutions to approve the Royal Caribbean Proposal.
-------
Please return the Blue Form of Proxy (together with any power of attorney or
authority under which it is signed or a certified copy of such power or
authority) as soon as possible to Capita IRG Plc, by using the enclosed reply
paid envelope, or to New Issues Department, P.O. Box 166, Bourne House,
Beckenham Road, Beckenham, Kent BR3 4TH and in any event so as to arrive by no
later than 11.00 a.m. on Monday 11 February 2002.
Capita IRG Plc will collate the Blue Forms of Proxy and then lodge them with
Computershare Investor Services plc by no later than 11.00 a.m. on Tuesday 12
February 2002.
If, for any reason, you have not returned the Blue Form of Proxy to Capita IRG
Plc by 11.00 a.m. on Monday 11 February 2002 you may still lodge the Blue Form
of Proxy with Computershare Investor Services plc at The Pavillions, Bridgwater
Road, Bristol BS13 8FB, by sending it so as to arrive no later than 11.00 a.m.
on Tuesday 12 February 2002.
Completing and returning the Blue Form of Proxy will not prevent you from
subsequently attending and voting at the EGM in person. However, we should be
grateful if you would indicate if you are intending to attend the EGM by ticking
the relevant box on the form.
1. The three persons named on the Blue Form of Proxy are each directors of
Serjeants' Inn Nominees Limited. Serjeants' Inn Nominees Limited is a
nominee company ultimately owned by partners of Lovells, solicitors. Lovells
are advising Merrill Lynch and UBS Warburg, the financial advisors to
Carnival, in relation to the Revised Offer.
16
THE REVISED OFFER
1. Introduction
Further to its proposal to the P&O Princess Board of 17 January 2002, the
Carnival Board announced on 30 January 2002 the terms of a Revised Offer to
acquire the whole of the issued and to be issued share capital of P&O Princess.
2. The Revised Offer
The Revised Offer, the terms and conditions of which will be set out in the
Offer Document, will be made on the following basis:
0.2684 Carnival Shares for each P&O Princess Share
and so in proportion for any other number of P&O Princess Shares held.
Upon making the formal Revised Offer, Carnival will make available a Partial
Cash Alternative of 250 pence for each P&O Princess Share, pre-conditional on
financing being arranged on terms satisfactory to Carnival by no later than the
date of posting the Offer Document as set out in Part B of Appendix I. A P&O
Princess Shareholder electing to receive the Partial Cash Alternative will also
receive such number of Carnival Shares so that the total value of the
consideration for each P&O Princess Share, on the date the terms of the Partial
Cash Alternative are fixed, equals the value of 0.2684 Carnival Shares. The
terms of the Partial Cash Alternative may be fixed at the time the formal
Revised Offer is made or such earlier date as Carnival may determine as
described in paragraph 14 below. There will also be an Additional Cash Election
enabling P&O Princess Shareholders to elect for extra cash to the extent that
the Partial Cash Alternative is not taken up in full by P&O Princess
Shareholders. Accordingly, P&O Princess Shareholders who accept the Revised
Offer will be able to elect to receive a combination of shares and cash. This
structure allows P&O Princess Shareholders to benefit fully from any upturn in
the sector, whilst retaining the option to receive the certainty of a cash
element when the formal offer is made.
To satisfy the Partial Cash Alternative, Carnival requires cash of approximately
$2.4 billion. Carnival currently has cash and existing undrawn debt facilities
of over $2.4 billion.
Based on the New York Stock Exchange closing price of a Carnival Share of $27.05
on 29 January 2002, the latest practicable date prior to the date of the
announcement of the Revised Offer, and an exchange rate of $1:(Pounds)0.709, the
Revised Offer values each P&O Princess Share at 515 pence and the entire
existing share capital of P&O Princess at approximately (Pounds)3.6 billion.
The Revised Offer is equivalent in value to Carnival's proposal, dated 17
January 2002, which consisted of 250 pence in cash and 0.1380 Carnival Shares
per P&O Princess Share. The proposal was worth 500 pence on 17 January 2002 and
has increased to 515 pence mainly as a result of the rise in the Carnival Share
price since that date.
The Revised Offer represents:
. a premium of 62.4 per cent. to the closing middle market price of 317 pence
per P&O Princess Share on 19 November 2001, the last business day prior to
the announcement of the Royal Caribbean Proposal;
. a premium of 29.0 per cent. to the closing middle market price of 399 pence
per P&O Princess Share on 29 January 2002, latest practicable date prior to
the date of the announcement of the Revised Offer; and
. a premium of 34.5 per cent. to the current "look through" value of P&O
Princess under the Royal Caribbean Proposal of 383 pence per P&O Princess
Share on 29 January 2002, the latest practicable date prior to the date of
the announcement of the Revised Offer.
Carnival has restructured its original Offer to provide significantly increased
certainty to P&O Princess Shareholders (as explained further in paragraph 4
below). The making of the Revised Offer is now subject only to the Pre-condition
set out in Part A of Appendix I, which relates only to regulatory
17
clearance being obtained. Carnival is entitled to waive this Pre-condition. If
this Pre-condition is satisfied, Carnival will be obliged to post the Offer
Document as explained in paragraph 9.
Carnival has also restructured its original Offer in order to avoid triggering
the Joint Venture change of control "poison pills". The P&O Princess Board has
stated that it is entitled to exit the Joint Venture through the commercial
benchmark mechanism in January 2003. With the consent of the Panel, Carnival
will be permitted to delay posting its Offer Document until such date that
Carnival estimates will ensure that the last date on which the Revised Offer can
become both unconditional as to acceptances and wholly unconditional will be as
soon as possible after the satisfaction of Condition 7 set out in Part C of
Appendix I (the termination of the Joint Venture Agreement). Carnival currently
estimates that it will post its Offer Document in early December 2002. If the
exit through the commercial benchmark mechanism is delayed, the last date for
declaring the Revised Offer unconditional will only be extended with the consent
of the Panel. SEC rules on the right to withdraw acceptances of an offer have
the effect that, in accordance with normal Panel practice, the Revised Offer
must become wholly unconditional at the same time as it becomes unconditional as
to acceptances, otherwise it will lapse. Notwithstanding the level of
acceptances received, Condition 1 (relating to acceptances) is subject to the
satisfaction of Condition 7.
The making of the Partial Cash Alternative is pre-conditional on financing being
arranged by no later than the posting of the Offer Document as set out in Part B
of Appendix I. The conditions of the Revised Offer are set out in Part C of
Appendix I.
P&O Princess Shares will be acquired by Carnival fully paid, or credited as
fully paid, and free from all liens, charges, equitable interests, encumbrances
and other interests and together with all rights attaching thereto on or after
30 January 2002, including the right to receive and retain all distributions
declared, made or paid after 30 January 2002 subject to the exception described
below.
P&O Princess Shareholders will be entitled to retain all P&O Princess dividends
paid or payable in respect of the period from 30 January 2002 until the Revised
Offer becomes wholly unconditional. If, after 30 January 2002, any dividends in
excess of 3 cents in each quarter per P&O Princess Share are paid or become
payable Carnival shall have the right, as an alternative to lapsing the Revised
Offer for non-fulfilment of the Conditions, to reduce the consideration for each
P&O Princess Share under the Revised Offer by an amount equal to the excess.
The Revised Offer will extend to all existing issued P&O Princess Shares and to
any P&O Princess Shares which are unconditionally allotted or issued prior to
the date on which the Revised Offer closes (or such earlier date as Carnival
may, subject to the City Code, decide) including P&O Princess Shares issued
pursuant to the exercise of options under the P&O Princess Employee Share
Incentive Plans or otherwise. In conjunction with the Revised Offer for the P&O
Princess Shares, subject to obtaining exemptive relief from the SEC, an offer
will be made to holders of P&O Princess ADRs to tender the ADSs underlying such
P&O Princess ADRs.
Under New York Stock Exchange rules, the issue of the New Carnival Shares
requires Carnival shareholder approval. Such approval is a condition of the
Revised Offer. Approval by shareholders with a majority of voting rights in
Carnival is required for the resolution to be passed. The Arison family and
certain related trusts have given proxies to vote shares representing 47.1 per
cent. of the voting rights in Carnival in favour of the resolution.
Carnival intends to offer to acquire the P&O Princess Preference Shares and the
P&O Princess Subscriber Shares for cash for the amounts paid up on those shares,
conditional on the Revised Offer becoming wholly unconditional.
Application will be made for the New Carnival Shares to be admitted to listing
on the New York Stock Exchange. Should Carnival perceive there to be sufficient
demand for such a facility, Carnival intends to seek a listing of the existing
Carnival Shares and the New Carnival Shares on the London Stock Exchange.
Carnival will confirm whether it will seek such listing at the time of posting
the Offer Document.
The New Carnival Shares will rank pari passu with the Carnival Shares in issue
at the date the Revised Offer becomes wholly unconditional, save that they shall
rank for dividends with effect from and including the first complete financial
quarter of Carnival following such date.
18
Carnival reaffirms that it is prepared to discuss alternative transaction
structures with P&O Princess including, inter alia, a DLC or similar structure.
Carnival has been advised however, that the DLC structure under the Royal
Caribbean Proposal could be defective and, unless remedied, could result in a
material US federal income tax liability. Carnival is not able to offer an
alternative structure equivalent to the Royal Caribbean Proposal on a unilateral
basis, but is prepared to work with P&O Princess in order to implement a tax
efficient structure. Carnival envisages that the economic interest of P&O
Princess under a DLC structure with Carnival would reflect the valuation of P&O
Princess as set out in the Revised Offer.
Further details on settlement, listing and dealings will be included in the
Offer Document and Form of Acceptance which will be sent to the P&O Princess
Shareholders in the period following the satisfaction of the regulatory Pre-
condition as described in this paragraph 2 and in paragraph 9 below.
3. Background to the announcement of the Revised Offer
On 24 September 2001, only eight weeks prior to the announcement of the Royal
Caribbean Proposal, Carnival contacted P&O Princess proposing a combination but
received no response. On 20 November 2001, the Royal Caribbean Proposal was
announced. Carnival was astonished not to have had an opportunity to discuss its
approach with P&O Princess and still cannot understand why, if the Royal
Caribbean Proposal is so attractive, the P&O Princess Board needed the
protection of such unprecedented "poison pills".
Having considered its options following the announcement of the Royal Caribbean
Proposal, Carnival submitted a detailed proposal regarding an offer for P&O
Princess to the P&O Princess Board on 13 December 2001. The P&O Princess Board
rejected Carnival's proposal on 16 December 2001, stating its belief that the
offer was not as favourable financially to the P&O Princess Shareholders and
would face greater execution risk than the Royal Caribbean Proposal. Carnival
therefore immediately announced its original Offer in order to alert P&O
Princess Shareholders to Carnival's strong interest in P&O Princess.
Carnival has repeatedly requested clarification from the P&O Princess Board of
certain key matters relating to the Joint Venture "poison pill" arrangements
which Carnival believes are prejudicial to the interests of P&O Princess
Shareholders. These matters are of great importance to both Carnival and P&O
Princess Shareholders, yet the P&O Princess Board has merely obfuscated and
tried to confuse the issue, without publicly providing satisfactory responses on
these matters. Neither P&O Princess nor its advisors have been prepared to enter
into any discussion with Carnival or its advisors.
P&O Princess should clarify the considerable uncertainty regarding the exit and
termination provisions of the Joint Venture Agreement. The P&O Princess Board
has stated publicly that P&O Princess has the unilateral right to terminate the
Joint Venture Agreement at no cost, on or after 1 January 2003, if certain
commercial benchmarks are not met. The P&O Princess Board, however, has not
clarified publicly how this could be achieved in practice.
Carnival has consistently tried to ensure that P&O Princess Shareholders are
given the opportunity to judge both the Carnival Offer and the Royal Caribbean
Proposal on a level playing field. Carnival met the artificial 18 January 2002
deadline set by P&O Princess to put forward a revised proposal. By submitting
such a clearly superior proposal, Carnival had hoped to enter into discussions
with the P&O Princess Board and its advisors. Once again, Carnival was rebuffed
by the P&O Princess Board.
Nevertheless, Carnival has decided not to withdraw its proposal to acquire P&O
Princess, but to proceed despite P&O Princess' refusal to clarify the basis on
which it is unilaterally able to terminate the Joint Venture and absent
confirmation of Royal Caribbean's position on the issue. Carnival is therefore
taking its Revised Offer direct to P&O Princess Shareholders. In taking this
action, Carnival believes that P&O Princess Shareholders will have the
opportunity to consider a real, attractive and deliverable alternative to the
"nil premium" Royal Caribbean Proposal.
4. Reduced pre-conditionality
The only Pre-condition to the Revised Offer which remains relates to regulatory
clearance. Carnival has waived pre-conditions to the original Offer relating to
the supply of information by P&O Princess and the convening of the P&O Princess
EGM. The financing pre-condition is now a pre-condition to the
19
Partial Cash Alternative. The pre-condition of the original Offer relating to
P&O Princess Shareholders not having passed the resolution required to approve
the Royal Caribbean Proposal is now solely a Condition of the Revised Offer. If
P&O Princess Shareholders approve the Royal Caribbean Proposal, Carnival will
not proceed with its formal Revised Offer.
At the time of the announcement of the original Offer of 16 December 2001, the
Joint Venture Agreement had not been made publicly available. Carnival therefore
had to formulate its original Joint Venture pre-condition on the basis of very
limited information. The Joint Venture Agreement has now been published. In
addition, P&O Princess has stated that it has the unilateral right to terminate
the Joint Venture Agreement at no cost, on or after 1 January 2003, if certain
commercial benchmarks are not met. The pre-condition relating to the cost to P&O
Princess of terminating the Joint Venture has now, therefore, been reformulated
as a Condition that the Joint Venture has been terminated in accordance with
Section 9.01(c) (the January or April 2003 commercial benchmarks).
5. Action at the EGM
Both the Royal Caribbean Proposal and Carnival's Revised Offer are awaiting
regulatory approval on the same overall timetable. Neither the Royal Caribbean
Proposal nor Carnival's Revised Offer can complete until the appropriate
approvals have been obtained. Carnival believes that P&O Princess Shareholders
should not be forced to make a decision between the Royal Caribbean Proposal and
Carnival's Revised Offer until the outcome of the regulatory reviews of both
proposals is known.
By voting for the Royal Caribbean Proposal, P&O Princess Shareholders will lose
the superior value provided by Carnival's Revised Offer. By voting to adjourn
the EGM, P&O Princess Shareholders retain the option to decide between the Royal
Caribbean Proposal and Carnival's Revised Offer, on their strategic and economic
merits, once the regulatory outcome of both proposals is known.
P&O Princess Shareholders have not received information from their board as to
their right as shareholders to adjourn the EGM. Carnival has been advised that
an adjournment, if proposed and approved by P&O Princess Shareholders, does not
entitle Royal Caribbean to abandon its proposal unless it is prepared to breach
its agreement with P&O Princess. Such a breach would expose Royal Caribbean to
paying damages for breach of contract, likely to be at least $62.5 million. If
there is any doubt about the ability of P&O Princess Shareholders to adjourn the
EGM without prejudicing the Royal Caribbean Proposal, P&O Princess should
clarify this issue for its shareholders.
Carnival believes that the Revised Offer is highly attractive to P&O Princess
Shareholders, and therefore strongly urges them to vote to adjourn the EGM,
until after the results of the antitrust reviews are known, or, in the event
that the EGM is not adjourned, to vote against the Royal Caribbean Proposal.
6. Some facts about Royal Caribbean and its proposal
There is speculation that Royal Caribbean might walk away from the Royal
Caribbean Proposal if it is not approved by P&O Princess Shareholders at the
EGM. Carnival believes this is highly unlikely. In addition to incurring damages
as outlined above and other costs, Royal Caribbean could lose a highly
attractive transaction for its shareholders. The facts are:
. the Royal Caribbean Proposal gives Royal Caribbean Shareholders a
disproportionately favourable share of ownership under the DLC;
. Royal Caribbean's Chairman and Chief Executive has secured the same position
in the enlarged group;
. Royal Caribbean is a highly leveraged company and has a major programme of
capital spending over the next few years, which could exacerbate its already
weak financial condition; and
. Royal Caribbean's credit ratings before the announcement of the Royal
Caribbean Proposal were BB+ (negative outlook) and Ba2 - i.e. "junk" status.
Carnival believes that Royal Caribbean needs the Royal Caribbean Proposal,
because it can then take advantage of P&O Princess' relative financial strength.
In these circumstances, Carnival believes it is highly unlikely that Royal
Caribbean will walk away from the Royal Caribbean Proposal if the EGM is
adjourned.
20
7. Benefits of the proposed combination of Carnival and P&O Princess
A combination of Carnival and P&O Princess creates a global vacation and leisure
company with a broader, more diverse and more complementary portfolio of brands,
creating a wider range of vacation choices for its customers. Operating in the
US, Europe and Australia, the combined group will have an enhanced ability to
attract customers away from land-based vacations to cruise vacations.
Carnival expects that the proposed combination will generate cost savings of at
least $100 million on an annualised basis, in the first full year following
completion of the transaction, to the benefit of both shareholders and
customers. These savings are expected to come by sharing the best practices to
achieve efficiencies from, inter alia, purchasing and information systems, and
also from rationalising support operations in locations served by both
companies.
The Enlarged Carnival Group will benefit from the financial flexibility of the
combined group's strong balance sheet and cash flow. Carnival believes that the
terms of the Revised Offer will ensure that the proposed combination of Carnival
and P&O Princess will retain a strong financial position with an investment
grade credit rating.
Carnival strongly believes that it can deliver greater value to P&O Princess
Shareholders through its Revised Offer than can be delivered through the Royal
Caribbean Proposal, because Carnival has:
. proven operating practices and a better management track record, resulting
in higher shareholder returns;
. a more effective brand strategy;
. a proven record of delivering greater profitability and superior
performance; and
. a significantly stronger balance sheet.
In Carnival's experience, as previously stated, it is principally operating
practices and management, rather than scale, which drive margins and market
rating.
P&O Princess Shareholders should consider which management team has the superior
track record and is therefore best placed to deliver on a combination with P&O
Princess - that of Carnival or Royal Caribbean?
8. Value
Carnival believes that its Revised Offer is clearly a superior proposal and
represents full and fair value for P&O Princess:
. on a LTM (last twelve months) EV/EBITDA multiple basis, at the Revised Offer
value of 515 pence, P&O Princess Shareholders would receive a 43 per cent.
and a 39 per cent. premium respectively to the P&O Princess and Royal
Caribbean EV/EBITDA multiples on 19 November 2001, the last business day
prior to the announcement of the Royal Caribbean Proposal;
. on a LTM P/E multiple basis, at the Revised Offer value of 515 pence, P&O
Princess Shareholders would receive a 62 per cent. and a 112 per cent.
premium respectively to the P&O Princess and Royal Caribbean P/E multiples
on 19 November 2001, the last business day prior to the announcement of the
Royal Caribbean Proposal; and
. the Revised Offer value of 515 pence is at a 34.5 per cent. premium to the
"look through" value of the Royal Caribbean Proposal.
Carnival does not believe that the Royal Caribbean management has the
credibility to deliver even these synergies. Carnival's superior record on
delivering value speaks for itself:
Carnival Royal Caribbean
Total shareholder returns since Royal Caribbean IPO 268% 136%
Total shareholder returns since P&O Princess demerger 25% (9)%
21
Carnival does not believe that the Royal Caribbean Proposal will be able to
generate synergies significantly above the $100 million figure announced by P&O
Princess and Royal Caribbean.
Carnival also believes that the DLC with Royal Caribbean does not offer certain
value to P&O Princess Shareholders:
. the value that the market could place on the DLC is heavily dependent on the
ratings the companies in the DLC are likely to attract and the synergies
generated. The table below sets out the average current and forward P/Es of
Royal Caribbean since its flotation:
Royal Caribbean
Current P/E 14.5x
Forward P/E 13.0x
. the table below sets out the implied value of P&O Princess based on 2003
earnings forecasts for P&O Princess and Royal Caribbean of Schroder Salomon
Smith Barney, P&O Princess' house broker, at a range of forward multiples,
and including $100 million of synergies:
Forward P/E
11.0x 340p
12.0x 371p
13.0x 402p
14.0x 433p
15.0x 463p
P&O Princess would need to trade on a forward multiple of 16.7x to justify a
value of 515 pence. Carnival does not believe that such a multiple is
realistic given the average multiple at which Royal Caribbean has traded
historically.
. P&O Princess' own brokers, Schroder Salomon Smith Barney, forecast that over
the next three years the Royal Caribbean Proposal will fail to generate a
return on invested capital in excess of its current weighted average cost of
capital:
2002 2003 2004
Invested capital ($bn) 13.7 14.8 15.5
Average ROIC 5.2% 7.2% 9.5%
Current WACC/(1)/ 11.5% 11.5% 11.5%
Negative spread (6.3)% (4.3)% (2.0)%
Negative spread per
P&O Princess Share (pence) 45p 33p 16p
/(1)/ Royal Caribbean's and P&O Princess' long term bonds are currently
yielding in excess of 10.3 per cent. and 8.8 per cent. respectively.
According to the analysis above, the DLC is expected to destroy value for
shareholders over the next three years. Assuming that P&O Princess can
return its weighted average cost of capital in 2005 and beyond, Carnival
believes that its shares should trade at a substantial discount to its book
value of 341 pence per P&O Princess Share. The forecast negative spreads
between 2002 and 2005 support a value of 261 pence per P&O Princess Share.
9. Timetable
Due to the timing of the regulatory process, this Revised Offer remains
structured as a pre-conditional offer in order to comply with the Code. The fact
that the Revised Offer is structured as a pre-conditional offer does not reduce
the level of commitment with which Carnival is obliged to pursue it. If this
Pre-condition is satisfied, Carnival will be obliged to post the Offer Document
as explained in this document. The P&O Princess Board has stated that it is
entitled to exit the Joint Venture through the commercial benchmark mechanism on
or after 1 January 2003. Carnival has therefore undertaken to the Panel that,
subject to the satisfaction of the regulatory Pre-condition, it will post the
Offer Document at such time that the Joint Venture Agreement can terminate
through the January commercial benchmark mechanism within the normal 60 day Code
timetable. In certain circumstances, this timetable may be extended, as
described in paragraph 2 above, with the consent of the Panel.
22
Set out below is an indicative timetable to completion:
14 February 2002 P&O Princess EGM. P&O Princess Shareholders vote to
adjourn, or, in the event that the EGM is not adjourned,
vote against Royal Caribbean Proposal
Q2/Q3 2002 Regulatory process complete for both Carnival's Revised
Offer and the Royal Caribbean Proposal. Pre-condition to
Revised Offer satisfied
Q2/Q3 2002 Reconvened EGM, if applicable
December 2002 Posting of Offer Document including Partial Cash
Alternative
January 2003/April 2003 The Joint Venture Agreement terminates through the
benchmark mechanism. Revised Offer wholly unconditional.
Shareholders receive consideration
10. Regulatory approvals
Carnival continues to believe firmly, and has been so advised, that there is no
material difference between the regulatory positions of a Carnival/P&O Princess
combination and a Royal Caribbean/P&O Princess combination. Carnival believes
that P&O Princess' claim that the Royal Caribbean Proposal faces less risk is
therefore both unsupportable and disingenuous.
P&O Princess, Royal Caribbean and Carnival have all publicly stated that the
appropriate market in which to evaluate the competitive effects of both
transactions is the wider vacation market. There is no doubt that cruise
companies undertake substantial efforts to attract consumers from other vacation
options. On that basis it follows that both Carnival's Revised Offer and the
Royal Caribbean Proposal face the same antitrust issues.
Europe
The cruise business in Europe is in its infancy, accounting for less than 1 per
cent. of the outbound vacation market. In 2000, outbound European holiday volume
totalled approximately 370 million persons, whilst the total number of European
cruise holidays totalled only 2.1 million. As such, Carnival believes that
antitrust issues should not represent a major hurdle.
Even if regulators look at the cruise sub-sector, Carnival believes that the
proposed Carnival/P&O Princess combination would not lead to the creation or
strengthening of a dominant position in the EEA.
In the cruise sub-sector, Carnival and P&O Princess hold a combined share of
only 32 per cent. in the EEA as a whole, which is well below the level at which
there is a risk of the combined entity being dominant. Moreover, at national
level within the EEA, there is very little overlap between Carnival and P&O
Princess. P&O Princess has significant cruise sales only in Germany and the UK,
where Carnival is relatively weak. In contrast, Carnival's main strength in
Europe is in the southern countries of Italy, Spain and France, where P&O
Princess' cruise sales are virtually non-existent.
The only EEA countries in which Carnival and P&O Princess have any material
overlap are the UK and Germany. In the UK, P&O Princess is estimated to carry 23
per cent. of all cruise passengers whilst Carnival accounts for only 9 per
cent., giving a combined share of 32 per cent. in cruises. Royal Caribbean's
share of UK cruise passengers is estimated to be 7 per cent. so its combined
share with P&O Princess would be 30 per cent.
In Germany, P&O Princess is estimated to have 18 per cent. of cruise passengers,
while Carnival's share is only around 10 per cent., giving a combined share of
28 per cent. Royal Caribbean's share in Germany is estimated to be 6 per cent.,
so its combined share with P&O Princess would be 24 per cent.
Consequently, there are only very minor differences in the combined cruise
shares in the UK and Germany that would result from either deal. Carnival
believes, and has been advised, that these minor differences should make no
difference to the antitrust assessment of the two transactions.
23
Carnival has had a number of discussions with the European Commission in
relation to a Carnival/P&O Princess combination and expects to file its
submission shortly.
The UK Secretary of State for Trade and Industry announced on 29 January 2002
that the Royal Caribbean Proposal has been referred to the UK Competition
Commission. The Secretary of State's decision does not affect the advice that
Carnival has received about the prospects for clearance of its offer by the
European Commission.
US
Both the Carnival Offer and the Royal Caribbean Proposal are now under review at
the FTC at the same time, on the same schedule and by the same lawyers and
economists, who will apply the same legal standards and analysis to both
proposals based on the same information. Indeed, on 22 January 2002, Carnival
announced that it had received a compulsory information request from the FTC
with respect to a Carnival/P&O Princess combination. On 24 January 2002, P&O
Princess acknowledged that it had received a similar request from the FTC with
respect to both the Carnival Offer and the Royal Caribbean Proposal. On 25
January 2002, Royal Caribbean announced that it had received a similar request
from the FTC in respect of the Royal Caribbean Proposal. Carnival has been
advised that there will be no adverse impact on the regulatory outcome of either
proposal as a result of the two proposals being reviewed simultaneously.
Carnival believes that P&O Princess' statement that a combination of the number
one and the number three cruise operator must bear more risk than a combination
of the number two and number three cruise operator is irrelevant and incorrect.
Carnival has been advised that on this issue, Heinz/Beechnut is the most
relevant recent case. There, both the FTC and the US Court of Appeals rejected
the same arguments as those being advanced by P&O Princess and Royal Caribbean.
Timing
Carnival believes the FTC is likely to be the last significant regulatory body
to conclude its review. The fact that both the Royal Caribbean Proposal and
Carnival's Revised Offer are now under review at the FTC on the same timetable
means that the antitrust conditionality of both transactions should be
determined at the same time.
11. Information on Carnival
Carnival is the world's largest multiple-night cruise company based on the
number of consumers served. The Carnival Group offers a broad range of cruise
brands serving the vacation market through Carnival Cruise Lines, Holland
America Line, Costa Cruises, Cunard Line, Seabourn Cruise Line and Windstar
Cruises. Carnival's various brands operate 43 ships, offering a total of 60,472
berths, in the Caribbean, Alaska, Europe, Mexican Riviera, South America and
other worldwide destinations. Carnival has 14 new ships on order, which will
offer a further 32,704 berths. These ships are expected to enter service over
the period from the third quarter of 2002 through to late 2005. In addition to
its cruise operations, Carnival operates a tour business, through Holland
America Tours which markets sightseeing tours both separately and as a part of
its cruise/tour packages. Carnival's business strategy is to use this wide,
diverse range of options to attract consumers from other land-based vacation
choices.
Carnival was incorporated under the laws of the Republic of Panama in November
1974 and the Carnival Shares are listed on the New York Stock Exchange.
In the year ended 30 November 2000, Carnival reported turnover of $3,778.5
million (1999: $3,497.5 million) and operating profit of $983.0 million (1999:
$1,019.7 million). Reported earnings per share (basic) were $1.61 (1999: $1.68).
Net assets at 30 November 2000 were $5,870.6 million (1999: $5,931.2 million).
In the three-month period ended 31 August 2001, Carnival reported turnover of
$1,489.9 million (2000: $1,228.2 million) and operating profit of $425.3 million
(2000: $420.5 million). Reported earnings per share (basic) were $0.84 (2000:
$0.67). Net assets at 31 August 2001, the date of the most recently published
balance sheet, were $6,546.4 million.
24
Carnival's preliminary unaudited results for the year ended 30 November 2001
included reported turnover of $4,535.8 million and operating profit of $891.7
million. Reported earnings per share (basic) were $1.58.
12. Information on P&O Princess
P&O Princess is a global cruise vacation company operating under the following
brand names: Princess Cruises in North America; P&O Cruises in the United
Kingdom and in Australia; AIDA, A'ROSA and Seetours in Germany and Swan Hellenic
also in the United Kingdom. It provides cruises to Alaska, the Caribbean,
Europe, the Panama Canal and other exotic destinations. The P&O Princess Group
currently has a fleet of 18 ships offering a total of 27,370 berths, with 8 new
ships on order, offering a further 17,520 berths. The new ships are expected to
be delivered over the period from the first quarter of 2002 through to the
second quarter of 2004. P&O Princess' tour division, Princess Tours, is a tour
operator in Alaska with four riverside lodges (with a fifth being built), a
fleet of deluxe motorcoaches and luxury Midnight Sun Express rail cars.
P&O Princess was incorporated and registered in England and Wales in July 2000
and was listed in London and New York in October 2000 on its demerger from P&O.
In the year ended 31 December 2000, P&O Princess reported turnover of $2,423.9
million (1999: $2,111.6 million) and operating profit of $373.6 million (1999:
$388.3 million). Reported earnings per share (basic) were $0.401 cents (1999:
$0.455 cents). Net assets at 31 December 2000 were $2,463.8 million (1999:
$2,196.5 million).
In the three month period ended 30 September 2001, P&O Princess reported a
turnover of $776.0 million (2000: $778.1 million) and operating profit of $186.5
million (2000: $189.3 million). Reported earnings per share (basic) were $0.235
(2000: $0.221). Net assets at 30 September 2001 were $2,632.8 million.
13. Management and employees
The combination of Carnival and P&O Princess will offer P&O Princess employees
exciting career prospects for the future. P&O Princess' management and employees
will benefit under the Revised Offer from a larger operating platform and a
business of greater international size and scope. Carnival operates its various
cruise businesses as separate decentralised units and envisages extending this
approach to the businesses of P&O Princess.
Carnival confirms that the existing employment rights, including pension rights,
of employees of P&O Princess will be fully safeguarded. Carnival does not
anticipate that there will be significant redundancies arising from its
combination with P&O Princess.
14. Partial Cash Alternative
Upon making the formal Revised Offer, Carnival will make available a Partial
Cash Alternative of 250 pence for each P&O Princess Share. The Partial Cash
Alternative is pre-conditional on financing being arranged on terms satisfactory
to Carnival by no later than the date of posting of the Offer Document, as set
out in Part B of Appendix I. There will also be an Additional Cash Election
enabling P&O Princess Shareholders to elect for extra cash to the extent that
the Partial Cash Alternative is not taken up in full by P&O Princess
Shareholders.
P&O Princess Shareholders electing to receive cash will also receive such number
of Carnival Shares so that the total value of the consideration, on the date the
terms of the Partial Cash Alternative are fixed, equals the value of 0.2684
Carnival Shares. The terms of the Partial Cash Alternative may be fixed at the
time the formal Revised Offer is made or such earlier date as Carnival may
determine. The value of 0.2684 Carnival Shares will be calculated by reference
to the average closing price of a Carnival Share on the New York Stock Exchange
over the 10 business days prior to the date on which the terms of the Partial
Cash Alternative are fixed, translated into pounds sterling at the average US
dollar/pounds sterling exchange rate over this period. The difference between
this value and such P&O Princess Shareholder's cash entitlement for each P&O
Princess Share will be divided by the average closing price of a Carnival Share
referred to above to give the number of New Carnival Shares to which that P&O
Princess Shareholder is entitled for each P&O Princess Share. This structure
allows P&O Princess Shareholders to benefit fully from any upturn in the sector,
whilst retaining the option to receive the certainty of a cash element when the
Revised Offer is made.
25
To satisfy the Partial Cash Alternative, Carnival requires cash of approximately
$2.4 billion. Carnival currently has cash and existing undrawn debt facilities
of over $2.4 billion.
15. Fractional entitlements
Fractional entitlements to New Carnival Shares arising under the Revised Offer
will be aggregated and sold in the market and the proceeds (converted into
pounds sterling at the prevailing exchange rate) remitted to the persons
entitled thereto, except that amounts of less than (Pounds)3 will be retained
for the benefit of the Enlarged Carnival Group.
16. P&O Princess Employee Share Incentive Plans
The Revised Offer will extend to any P&O Princess Shares which are
unconditionally allotted or issued before the date on which the Revised Offer
closes (or such earlier date as Carnival may, subject to the City Code, decide),
as a result of the exercise of options granted under the P&O Princess Employee
Share Incentive Plans or otherwise. If the Revised Offer is declared
unconditional in all respects, appropriate proposals will be made to
participants in the P&O Princess Employee Share Incentive Plans.
17. Compulsory acquisition and application for delisting of P&O Princess Shares
If the Revised Offer becomes, or is declared, unconditional in all respects, and
sufficient acceptances are received, Carnival intends to implement the
procedures under sections 428 to 430F of the Companies Act to acquire
compulsorily any outstanding P&O Princess Shares not acquired or agreed to be
acquired pursuant to the Revised Offer.
When the Revised Offer becomes, or is declared, unconditional in all respects,
Carnival intends to procure the making of an application by P&O Princess for the
removal of P&O Princess Shares from the Official List and for the cancellation
of trading of P&O Princess Shares on the London Stock Exchange's market for
listed securities. It is anticipated that such cancellation of listing and
trading will take effect no earlier than 20 business days after the Revised
Offer becomes, or is declared, unconditional in all respects. Such cancellation
of listing and trading would significantly reduce the liquidity and
marketability of P&O Princess Shares that have not assented to the Revised
Offer.
26
APPENDIX I
Pre-Conditions, Conditions and Further Terms of the Revised Offer
PART A: Pre-condition to the Revised Offer
The Revised Offer is subject to the satisfaction, or to the extent permitted,
waiver by Carnival, of the following Pre-condition:
1. (a) insofar as the proposed acquisition of P&O Princess by Carnival
constitutes a concentration with a Community dimension within the
scope of Council Regulation (EEC) 4064/89 (as amended) (the "Merger
Regulation"):
(i) the European Commission shall have made (or be deemed to have
made) a decision, in terms satisfactory to Carnival, not to
initiate proceedings under Article 6(1)(c) of the Merger
Regulation; or
(ii) if such proceedings are initiated, the European Commission shall
have made (or be deemed to have made) a declaration or issued a
decision, in terms satisfactory to Carnival, that the
concentration (or such part of the concentration as has not
been referred to a competent authority as described in sub
paragraph (b) below) is compatible with the common market, any
conditions attached to the Commission's declaration or decision
being in form and substance satisfactory to Carnival;
(b) if the European Commission has made a referral to a competent
authority under Article 9(1) of the Merger Regulation in connection
with the proposed acquisition of P&O Princess by Carnival, such
competent authority shall have issued such decision, finding or
declaration, in terms satisfactory to Carnival, as is necessary to
approve the proposed acquisition and permit the closing of the
proposed acquisition to occur without any breach of applicable law;
(c) the expiration or early termination of all waiting periods, if any,
applicable to the contemplated transaction under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, 15 U.S.C. (S) 18a;
(d) at the time that each part of the Pre-condition in paragraphs (a), (b)
and (c) above is satisfied or waived, there being in existence no
pending or threatened action or other proceeding by any governmental
or supranational agency seeking to restrain, enjoin, prohibit or
otherwise prevent the consummation of the Revised Offer.
Carnival shall be entitled to waive the above Pre-condition in whole or in part.
The Revised Offer will not be made unless the Pre-condition has been satisfied
or waived by no later than 15 November 2002, or such later date as Carnival may,
with the approval of the Panel, determine.
27
PART B: Pre-condition to the Partial Cash Alternative
The Partial Cash Alternative is subject to financing being arranged on terms
satisfactory to Carnival by no later than the date of the posting of the Offer
Document.
PART C: Conditions of the Revised Offer
The Revised Offer, which will, subject to the satisfaction or waiver of the Pre-
condition referred to in Part A of this Appendix I and in the case of the
Partial Cash Alternative subject to the satisfaction of the Pre-condition in
Part B of this Appendix I, be made by Merrill Lynch and UBS Warburg on behalf of
Carnival and will comply with the Code and will be governed by English law and
be subject to the jurisdiction of the courts of England. The Revised Offer will
be made on the terms and conditions set out in the Offer Document and related
Form of Acceptance.
The Revised Offer will be conditional on:
1. valid acceptances being received (and not, where permitted, withdrawn) by
3.00 p.m. on the first closing date of the Revised Offer (or such later
time(s) and/or date(s) as Carnival may, subject to the rules of the Code,
decide) in respect of not less than 90 per cent. (or such lesser percentage
as Carnival may decide) of the P&O Princess Shares to which the Revised
Offer relates, provided that this condition will not be satisfied unless
Carnival and/or any of its wholly-owned subsidiaries shall have acquired or
agreed to acquire, whether pursuant to the Revised Offer or otherwise, P&O
Princess Shares (including the P&O Princess Shares represented by P&O
Princess ADSs) carrying, in aggregate, more than 50 per cent. of the voting
rights attaining to the P&O Princess Shares and more than 50 per cent. of
the voting rights then exercisable at a general meeting of P&O Princess,
including for this purpose to the extent (if any) required by the Panel,
any such voting rights attaching to any P&O Princess Shares (including the
P&O Princess Shares represented by P&O Princess ADSs) that may be
unconditionally allotted or issued before the Revised Offer becomes or is
declared unconditional as to acceptances whether pursuant to the exercise
of any outstanding conversion or subscription rights or otherwise, and for
this purpose:
(i) the expression "P&O Princess Shares to which the Revised Offer
relates" shall be construed in accordance with sections 428 to 430F
of the Act; and
(ii) shares which have been unconditionally allotted but not issued shall
be deemed to carry the voting rights which they will carry on being
entered into the register of members of P&O Princess;
provided always that this Condition 1 will not be satisfied unless and
until Condition 7 (termination of the Joint Venture Agreement) is
satisfied;
2. the P&O Princess Shareholders not passing the resolutions required to
approve the Royal Caribbean Proposal;
3. if Carnival decides to seek a listing on the Official List, admission to
the Official List and admission to trading on the London Stock Exchange of
the issued share capital of Carnival including the New Carnival Shares
becoming effective by the decision of the United Kingdom Listing Authority
to admit such shares to listing being announced in accordance with
paragraph 7.1 of the Listing Rules and by the decision of the London Stock
Exchange to admit such shares to trading being announced in accordance with
the London Stock Exchange Admission Standards;
4. the Form S-4 Registration Statement registering the issuance of the New
Carnival Shares being declared effective by the SEC, remaining effective
and not being the subject of a stop order or other proceeding by the SEC to
suspend its effectiveness;
5. the New York Stock Exchange agreeing to list the New Carnival Shares,
subject only to official notice of issuance;
6. Carnival shareholders having passed all resolutions necessary for the
issuance of New Carnival Shares pursuant to the Revised Offer;
28
7. the Joint Venture Agreement having been terminated in accordance with
Section 9.01(c) (the January or April 2003 benchmarks) and the P&O Princess
Board having notified Carnival accordingly;
8. insofar as the proposed acquisition of P&O Princess by Carnival constitutes
a concentration with a Community dimension within the scope of Council
Regulation (EEC) 4064/89 (as amended) (the "Merger Regulation"):
(i) the European Commission shall have made (or be deemed to have made) a
decision, in terms satisfactory to Carnival, not to initiate
proceedings under Article 6(1)(c) of the Merger Regulation;
(ii) if such proceedings are initiated, the European Commission shall have
made (or be deemed to have made) a declaration or issued a decision,
in terms satisfactory to Carnival, that the concentration (or such
part of the concentration as has not been referred to a competent
authority as described in paragraph (iii) below) is compatible with
the common market, any conditions attached to the Commission's
declaration or decision being in form and substance satisfactory to
Carnival; or
(iii) if the European Commission has made a referral to a competent
authority under Article 9(1) of the Merger Regulation in connection
with the proposed acquisition of P&O Princess by Carnival, such
competent authority shall have issued such decision, finding or
declaration, in terms satisfactory to Carnival, as is necessary to
approve the proposed acquisition and permit the closing of the
proposed acquisition to occur without any breach of applicable law;
9. the expiration or early termination of all waiting periods, if any,
applicable to the contemplated transaction under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, 15 U.S.C. (S) 18a;
10. no government or governmental, quasi-governmental, supranational,
statutory, administrative or regulatory body, authority, court, trade
agency, association, institution, environmental body or any other person or
body in any jurisdiction (each a "Relevant Authority") having decided to
take, instituted, implemented or threatened any action, proceedings, suit,
investigation, enquiry or reference, or made, proposed or enacted any
statute, regulation, order or decision or taken any other steps and there
not continuing to be outstanding any statute, regulation, order or
decision, which would or might:
(i) make the Revised Offer or the acquisition of any P&O Princess Shares,
or control of P&O Princess by Carnival void, illegal or unenforceable
or otherwise materially restrict, restrain, prohibit, delay or
interfere with the implementation thereof, or impose material
additional conditions or obligations with respect thereto, or require
material amendment thereof or otherwise challenge or interfere
therewith;
(ii) require or prevent the divestiture by P&O Princess or any member of
the wider P&O Princess Group or by Carnival or any member of the
wider Carnival Group of all or a material portion of their respective
businesses, assets or property or impose any material limitation on
the ability of any of them to conduct their respective businesses or
own any of their material assets or property;
(iii) impose any limitation on or result in a delay in the ability of any
member of the wider P&O Princess Group or the wider Carnival Group to
acquire or to hold or to exercise effectively any rights of ownership
of shares or loans or securities convertible into shares in any
member of the wider P&O Princess Group or of the wider Carnival Group
held or owned by it or to exercise management control over any member
of the wider P&O Princess Group or of the wider Carnival Group to an
extent which is material in the context of the P&O Princess Group
taken as a whole or, as the case may be, the Carnival Group taken as
a whole;
(iv) require any member of the wider Carnival Group or the wider P&O
Princess Group to acquire or offer to acquire any shares or other
securities in any member of the wider P&O Princess Group where such
acquisition would be material in the context of the P&O Princess
Group taken as a whole; or
29
(v) otherwise materially and adversely affect the assets, business,
profits or prospects of any member of the wider Carnival Group or of
any member of the wider P&O Princess Group;
and all applicable waiting and other time periods during which any such
Relevant Authority could decide to take, institute, implement or threaten
any such action, proceeding, suit, investigation, enquiry or reference
having expired, lapsed or been terminated;
11. all necessary filings having been made, all applicable waiting periods
(including any extensions thereof) under any applicable legislation or
regulations of any jurisdiction having expired, lapsed or been terminated,
in each case in respect of the Revised Offer and the acquisition of any P&O
Princess Shares, or of control of P&O Princess, by Carnival, and all
authorisations, orders, recognitions, grants, consents, licences,
confirmations, clearances, permissions and approvals ("Authorisations")
necessary or appropriate in any jurisdiction for, or in respect of, the
Revised Offer and the proposed acquisition of any P&O Princess Shares, or
of control of P&O Princess, by Carnival and to carry on the business of any
member of the wider Carnival Group or of the wider P&O Princess Group
having been obtained, in terms and in a form satisfactory to Carnival, from
all appropriate Relevant Authorities and from any persons or bodies with
whom any member of the wider Carnival Group or the wider P&O Princess Group
has entered into contractual arrangements and all such Authorisations
remaining in full force and effect at the time at which the Revised Offer
becomes unconditional in all respects and Carnival having no knowledge of
an intention or proposal to revoke, suspend or modify or not to renew any
of the same and all necessary statutory or regulatory obligations in any
jurisdiction having been complied with;
12. there being no provision of any arrangement, agreement, licence, permit or
other instrument to which any member of the wider P&O Princess Group is a
party or by or to which any such member or any of their assets is or may be
bound, entitled or be subject to and which, in consequence of the Revised
Offer or the acquisition of any P&O Princess Shares, or control of P&O
Princess, by Carnival or otherwise, would or might, to an extent which is
material in the context of the P&O Princess Group taken as a whole, result
in:
(i) any monies borrowed by, or other indebtedness actual or contingent
of, any such member of the wider P&O Princess Group being or
becoming repayable or being capable of being declared immediately or
prior to its or their stated maturity or the ability of any such
member to borrow monies or incur any indebtedness being inhibited;
(ii) the creation of any mortgage, charge or other security interest over
the whole or any part of the business, property or assets of any
such member or any such security (whenever arising or having arisen)
being enforced or becoming enforceable ;
(iii) any such arrangement, agreement, licence or instrument being
terminated or adversely modified or any action being taken of an
adverse nature or any obligation arising thereunder;
(iv) any assets of any such member being disposed of or charged, or right
arising under which any such asset could be required to be disposed
of or charged, other than in the ordinary course of business;
(v) the interest or business of any such member of the wider P&O
Princess Group in or with any firm or body or person, or any
agreements or arrangements relating to such interest or business,
being terminated or adversely modified or affected;
(vi) any such member ceasing to be able to carry on business under any
name under which it presently does so;
(vii) the creation of liabilities (actual or contingent) by any such
member; or
(viii) the financial or trading position of any such member being
prejudiced or adversely affected;
13. except as publicly announced by P&O Princess prior to 30 January 2002, no
member of the wider P&O Princess Group having, since 31 December 2000:
30
(i) issued, agreed to issue or proposed the issue of additional shares
or securities of any class, or securities convertible into, or
exchangeable for or rights, warrants or options to subscribe for or
acquire, any such shares, securities or convertible securities (save
as between P&O Princess and wholly-owned subsidiaries of P&O
Princess and save for options granted, and for any P&O Princess
Shares allotted upon exercise of options granted under the P&O
Princess Employee Share Incentive Plans) or redeemed, purchased or
reduced any part of its share capital;
(ii) recommended, declared, paid or made or proposed to recommend,
declare, pay or make any bonus, dividend or other distribution other
than to P&O Princess or a wholly-owned subsidiary of P&O Princess,
other than any dividends paid or payable in respect of the period
from 30 January 2002 until the Revised Offer becomes wholly
unconditional at times and in a manner consistent with P&O Princess'
normal practice prior to 30 January 2002 and which do not in any
event exceed 3 cents in each quarter in respect of each P&O Princess
Share;
(iii) agreed, authorised, proposed or announced its intention to propose
any merger or demerger or acquisition or disposal of assets or
shares which are material in the context of the P&O Princess Group
taken as a whole (other than in the ordinary course of trading) or
to any material change in its share or loan capital;
(iv) issued, authorised or proposed the issue of any debentures or
incurred any indebtedness or contingent liability which is material
in the context of the P&O Princess Group taken as a whole;
(v) acquired or disposed of or transferred, mortgaged or encumbered any
asset or any right, title or interest in any asset (other than in
the ordinary course of trading) in a manner which is material in the
context of the P&O Princess Group taken as a whole;
(vi) entered into or varied or announced its intention to enter into or
vary any contract, arrangement or commitment (whether in respect of
capital expenditure or otherwise) which is of a long-term or unusual
nature or involves or could involve an obligation of a nature or
magnitude, and in either case which is material in the context of
the P&O Princess Group taken as a whole;
(vii) entered into or proposed or announced its intention to enter into
any reconstruction, amalgamation, transaction or arrangement
(otherwise than in the ordinary course of business) which is
material in the context of the P&O Princess Group taken as a whole;
(viii) taken or proposed any corporate action or had any legal proceedings
instigated or threatened against it for its winding-up, dissolution
or reorganisation or for the appointment of a receiver,
administrator, administrative receiver, trustee or similar officer
of all or any of its assets and revenues (or any analogous
proceedings or appointment in any overseas jurisdiction);
(ix) been unable, or admitted in writing that it is unable, to pay its
debts or having stopped or suspended (or threatened to stop or
suspend) payment of its debts generally or ceased or threatened to
cease carrying on all or a substantial part of its business;
(x) entered into or varied or made any offer to enter into or vary the
terms of any service agreement or arrangement with any of the
directors of P&O Princess;
(xi) waived, compromised or settled any claim which is material in the
context of the wider P&O Princess Group; or
(xii) entered into any agreement, arrangement or commitment or passed any
resolution with respect to any of the transactions or events
referred to in this paragraph;
14. since 31 December 2000, except as publicly announced by P&O Princess prior
to 30 January 2002:
(i) there having been no adverse change in the business, assets,
financial or trading position
31
or profits or prospects of any member of the wider P&O Princess
Group which in any such case is material in the context of the P&O
Princess Group taken as a whole;
(ii) no litigation, arbitration proceedings, prosecution or other legal
proceedings having been instituted, announced or threatened by or
against or remaining outstanding against any member of the wider P&O
Princess Group and no enquiry or investigation by or complaint or
reference to any Relevant Authority against or in respect of any
member of the wider P&O Princess Group having been threatened,
announced or instituted or remaining outstanding which in any such
case could have a material affect on that member of the P&O Princess
Group;
15. Carnival not having discovered that:
(i) the financial, business or other information concerning the wider
P&O Princess Group as contained in the information publicly
announced or disclosed at any time by or on behalf of any member of
the wider P&O Princess Group either contains a material
misrepresentation of fact or omits to state a fact necessary to make
the information contained therein not materially misleading; or
(ii) any member of the wider P&O Princess Group is subject to any
liability, contingent or otherwise, which is not disclosed in the
P&O Princess Listing Particulars dated 26 September 2000 or in the
Report and Accounts dated 31 December 2000 or in the interim report
for the six months to 30 June 2001 or otherwise publicly announced
by P&O Princess prior to 30 January 2002 and which is material in
the context of the P&O Princess Group taken as a whole;
16. Carnival not having discovered that, save as publicly announced prior to 30
January 2002:
(i) any past or present member of the wider P&O Princess Group has not
complied with all applicable legislation or regulations of any
jurisdiction or any notice or requirement of any Relevant Authority
with regard to the storage, disposal, discharge, spillage, leak or
emission of any waste or hazardous substance or any substance likely
to impair the environment or harm human health which non-compliance
would be likely to give rise to any liability (whether actual or
contingent) on the part of any member of the wider P&O Princess
Group;
(ii) there has been a disposal, spillage, emission, discharge or leak of
waste or hazardous substance or any substance likely to impair the
environment or harm human health on, or from, any land or other
asset now or previously owned, occupied or made use of by any past
or present member of the wider P&O Princess Group, or which any such
member may now or previously have had an interest, would be likely
to give rise to any liability (whether actual or contingent) on the
part of any member of the wider P&O Princess Group;
(iii) there is or is likely to be any obligation or liability (whether
actual or contingent) to make good, repair, reinstate or clean up
any property now or previously owned, occupied or made use of by any
past or present member of the wider P&O Princess Group or in which
any such member may now or previously have had an interest under any
environmental legislation or regulation or notice, circular or order
of any Relevant Authority in any jurisdiction; or
(iv) circumstances exist whereby a person or class of persons would be
likely to have any claim or claims in respect of any product or
process of manufacture, or materials used therein, now or previously
manufactured, sold or carried out by any past or present member of
the wider P&O Princess Group which claim or claims would be likely
to affect adversely any member of the wider P&O Princess Group.
Carnival reserves the right to waive, in whole or in part, all or any of
Conditions 7 to 16 inclusive. Carnival also reserves the right, subject to the
consent of the Panel, to extend the time allowed under the Code for satisfaction
of Condition 1. If Carnival is required by the Panel to make an offer for P&O
Princess Shares under the provisions of Rule 9 of the Code, Carnival may make
such alterations to the above conditions, including Condition 1 above, as are
necessary to comply with the provisions of that Rule.
32
The Preference Offer and the Subscriber Share Offer are conditional on the
Revised Offer becoming wholly unconditional.
Certain Further Terms of the Revised Offer
The Revised Offer will lapse unless otherwise agreed with the Panel if the
European Commission either initiates proceedings under Article 6(1)(c) of the
Merger Regulation or makes referral to a competent authority of the United
Kingdom under Article 9(1) of the Merger Regulation and there is a subsequent
reference to the Competition Commission, before in each case the later of the
first closing date of the Revised Offer and the time and date at which the
Revised Offer becomes or is declared unconditional as to acceptances. If the
Revised Offer so lapses, the Revised Offer will cease to be capable of further
acceptance and accepting P&O Princess Shareholders and Carnival will cease to be
bound by acceptances submitted before the time when the Revised Offer lapses.
Unless Carnival determines otherwise, the Revised Offer will not be made,
directly or indirectly, in or into, Australia, Canada or Japan and the Revised
Offer will not be capable of being accepted from within Australia, Canada or
Japan. Accordingly, copies of this document are not being, and must not be,
mailed or otherwise forwarded, distributed or sent in, into or from Australia,
Canada or Japan.
33
PART D: Further terms of the Revised Offer
The conditions in Part C of this Appendix I and the following further terms will
apply, unless the context otherwise requires, to the Revised Offer.
Except where the context requires otherwise, any reference in this document:
(i) to the "Revised Offer" will mean the Revised Offer and will include
any revision, variation or renewal thereof or extension thereto and
any election in connection therewith;
(ii) to the Revised Offer "becoming unconditional" will include the Offer
being or becoming or being declared unconditional;
(iii) to the Revised Offer being or becoming or being declared
"unconditional" or "unconditional as to acceptances" will be
construed as the Revised Offer being or becoming or being declared
unconditional as to acceptances, whether or not any other condition
of the Revised Offer remains to be fulfilled;
(iv) to the "acceptance condition" means the condition as to acceptances
of the Revised Offer set out in paragraph 1 of Part B of this
Appendix I and references to the Revised Offer becoming
unconditional as to acceptances will be construed accordingly;
(v) to the "Offer Document" will mean the document to be sent on behalf
of Carnival to P&O Princess Shareholders after the Pre-condition has
been satisfied or waived, containing and setting out the full terms
of the Revised Offer and any other document containing details of
the Revised Offer; and
(vi) to a time is to the time in London.
1. Acceptance Period and Acceptance Condition
(a) The Revised Offer will initially be open for acceptance until 3.00 p.m. on
the date falling 20 US Business Days after the date of posting of the Offer
Document. Although no revision is envisaged, if the Revised Offer is
revised it will remain open for acceptance for a period of at least 14 days
(or such other period as may be permitted by the Panel) following the date
on which the revised Revised Offer is posted to P&O Princess Shareholders.
Except with the consent of the Panel, no revision of the Revised Offer may
be made or posted to P&O Princess Shareholders after the date falling 46
days after the date of posting of the Offer Document or, if later, the date
which is 14 days before the last date on which the Revised Offer can become
unconditional.
(b) The Revised Offer, whether revised or not, shall not (without the consent
of the Panel) be capable of becoming unconditional as to acceptances after
midnight on the date falling 60 days after the posting of the Offer
Document (or any other earlier time and/or date beyond which Carnival has
stated (and not withdrawn such statement) that the Revised Offer will not
be extended), nor of being kept open for acceptance after that time and/or
date, unless it has previously become unconditional as to acceptances,
provided that Carnival reserves the right, with the permission of the
Panel, to extend the time for the Revised Offer to become unconditional as
to acceptances to any later time(s) and/or date(s).
Except with the consent of the Panel, Carnival may not, for the purpose of
determining whether the acceptance condition has been satisfied, take into
account acceptances received or purchases of P&O Princess Shares made after
1.00 p.m. on the date falling 60 days after the posting of the Offer
Document (or any other earlier time(s) and/or date(s) beyond which Carnival
has stated (and not withdrawn such statement) that the Revised Offer will
not be extended) or such later time(s) and/or date(s) as Carnival, with the
permission of the Panel, may determine. If the latest time at which the
Revised Offer may become unconditional as to acceptances is extended beyond
midnight on the date falling 60 days after the posting of the Offer
Document, acceptances received and purchases made in respect of which the
relevant documents are received by the UK Receiving Agent after 1.00 p.m.
on the relevant date may (except where the Code permits) only be taken into
account with the agreement of the Panel.
34
(c) If the Revised Offer becomes unconditional as to acceptances, it will
remain open for acceptance for not less than 14 days from the date on which
it would otherwise have expired. If the Revised Offer has become
unconditional as to acceptances and it is stated that the Revised Offer
will remain open until further notice, then not less than 14 days' notice
in writing will be given to those P&O Princess Shareholders who have not
accepted the Revised Offer prior to the closing of the Revised Offer.
(d) If a competitive situation arises (as determined by the Panel) after a "no
increase" and/or a "no extension" statement has been made by or on behalf
of Carnival in relation to the Revised Offer, Carnival may, if it has
specifically reserved the right to do so at the time such statement is
made, or otherwise with the consent of the Panel, choose not to be bound by
or withdraw such statement and be free to revise or extend the Revised
Offer provided it complies with the requirements of the Code and in
particular that (i) it makes an announcement to such effect as soon as
possible and in any event within four business days after the firm
announcement of the competing offer or other competitive situation and
notifies P&O Princess Shareholders to that effect in writing at the
earliest opportunity or, in the case of P&O Princess Shareholders with
registered addresses outside the United Kingdom or the United States or
whom Carnival reasonably believes to be nominees, custodians or trustees
holding P&O Princess Shares for such persons, by announcement in the United
Kingdom and the United States at the earliest opportunity; and (ii) any P&O
Princess Shareholders who accepted the Revised Offer after the date of the
"no increase" or "no extension" statement are given a right of withdrawal
as described in paragraph 3(c) below.
Carnival may choose not to be bound by a "no increase" or "no extension"
statement if, having reserved the right to do so, it would otherwise
prevent the posting of an increased or improved Revised Offer (either as to
the value or the nature of the consideration offered or otherwise) which is
recommended for acceptance by the board of directors of P&O Princess, or in
any other circumstances permitted by the Panel.
(e) For the purpose of determining at any particular time whether the
acceptance condition has been fulfilled, Carnival shall not be bound
(unless otherwise required by the Panel) to take into account any P&O
Princess Shares normally carrying voting rights which have been issued or
unconditionally allotted or which arise as the result of the exercise of
conversion rights before such time, unless P&O Princess (or its agent) has
notified the UK Receiving Agent on behalf of Carnival, before that time in
writing, of the relevant details of such issue, allotment or conversion
prior thereto.
(f) Carnival reserves the right to treat as valid in whole or in part
acceptances of the Revised Offer which are not entirely in order or which
are not accompanied by the relevant share certificate(s) and/or other
relevant document(s) of title or not accompanied by the relevant CREST
instruction (subject to paragraphs 6(c)(i) and (ii) below).
2. Announcements
(a) Without prejudice to paragraph 3(a) below, by 8.00 a.m. on the next
business day (the "relevant day") following the day on which the Revised
Offer is due to expire or becomes or is declared unconditional as to
acceptances or is revised or extended (or such later time or date as the
Panel may agree), Carnival will make an appropriate announcement to the
London Stock Exchange (through a Regulatory Information Service) of the
position. Such announcement will also state (unless otherwise permitted by
the Panel) the total number of P&O Princess Shares and rights over P&O
Princess Shares (as nearly as practicable):
(i) for which acceptances of the Revised Offer have been received
(showing the extent, if any, to which such acceptances have been
received from any person acting in concert or deemed to be acting in
concert with Carnival for the purposes of the Revised Offer);
(ii) acquired or agreed to be acquired by or on behalf of Carnival or any
person acting in concert or deemed to be acting in concert with
Carnival for the purposes of the Revised Offer during the course of
the Offer Period; and
35
(iii) held by or on behalf of Carnival or any person acting in concert or
deemed to be acting in concert with Carnival for the purposes of
the Revised Offer prior to the Offer Period,
and will specify the percentage of the P&O Princess Shares
represented by each of these figures.
Any decision to extend the time and/or date by which the acceptance
condition has to be fulfilled may be made at any time up to, and will be
announced not later than, 8.00 a.m. on the relevant day (or such later time
and/or date as the Panel may agree) and the announcement will state the
next expiry date (unless the Revised Offer is unconditional as to
acceptances in which case the announcement may state that the Revised Offer
will remain open until further notice). In computing the number of P&O
Princess Shares represented by acceptances and/or purchases, there may be
included or excluded for announcement purposes, subject to paragraph 6(c)
below, acceptances and purchases not in all respects in order or not
accompanied by the relevant share certificate(s) and/or other document(s)
of title or not accompanied by the relevant CREST instruction or which are
subject to verification.
(b) In this Appendix I, references to the making of an announcement or the
giving of notice by or on behalf of Carnival includes the release of an
announcement by public relations consultants or by Merrill Lynch and UBS
Warburg, in each case on behalf of Carnival, and the delivery by hand or
telephone, telex or facsimile or other electronic transmission of an
announcement to the London Stock Exchange (through a Regulatory Information
Service). An announcement made otherwise than to the London Stock Exchange
shall be notified simultaneously (unless the Panel agrees otherwise) to the
London Stock Exchange (through a Regulatory Information Service).
3. Rights of Withdrawal
(a) If Carnival, having announced the Revised Offer to be unconditional as to
acceptances, fails to comply by 3.30 p.m. on the relevant day (or such
later time(s) and/or date(s) as the Panel may agree) with any of the other
requirements specified in paragraph 2(a) above, an accepting P&O Princess
Shareholder may (unless the Panel otherwise agrees) immediately thereafter
withdraw his acceptance of the Revised Offer by written notice signed by
such shareholder (or his agent duly appointed in writing and evidence of
whose appointment satisfactory to Carnival is produced with the notice)
given by post (or, if permitted, by hand) to the UK Receiving Agent, at the
address or addresses to be specified in the Offer Document, receiving such
notice on behalf of Carnival. Subject to paragraph 1(b) above, this right
of withdrawal may be terminated not less than eight days after the relevant
day by Carnival confirming, if such be the case, that the Revised Offer is
still unconditional and complying with the other relevant requirements
specified in paragraph 2(a) above. If any such confirmation is given, the
first period of 14 days referred to in paragraph 1(c) will run from the
date of that confirmation and compliance.
(b) If by 3.00 p.m. on the date which falls 21 days after the first closing
date (or such later time and/or date as the Panel may agree) the Revised
Offer has not become unconditional as to acceptances, an accepting P&O
Princess Shareholder may withdraw his acceptance of the Revised Offer at
any time thereafter in the manner referred to in paragraph 3(a) above
before the earlier of (i) the time that the Revised Offer becomes
unconditional as to acceptances; and (ii) the final time for lodgement of
acceptances of the Revised Offer which can be taken into account in
accordance with paragraph 1(b) above.
(c) If a "no increase" and/or "no extension" statement has been withdrawn in
accordance with paragraph 1(d) above, any acceptance of the Revised Offer
after such statement is made may be withdrawn thereafter in the manner
referred to in paragraph 3(a) above not later than the eighth day after the
date on which notice of the withdrawal of such statement is posted to P&O
Princess Shareholders.
(e) Keeping the Revised Offer open to the US holders of P&O Princess Shares and
P&O Princess ADSs beyond 20 days after the termination of withdrawal rights
is subject to Carnival receiving all required relief from the SEC that is
necessary to keep such Revised Offer open.
(f) Except as provided by this paragraph 3 (and subject to paragraph 6 below),
acceptances and elections shall be irrevocable.
36
(g) In this paragraph 3, "written notice" (including any letter of appointment,
direction or authority) means notice in writing bearing the original
signature(s) of the relevant accepting P&O Princess Shareholder(s) or
his/their agent(s) duly appointed in writing (satisfactory evidence of
whose appointment must be produced with the notice). Notification by telex
or facsimile or other electronic transmission or copies will not be
sufficient to constitute written notice. No notice which is postmarked in,
or otherwise appears to Carnival or its agents to have been sent from,
Australia, Canada or Japan will be treated as valid.
(h) All questions as to the validity (including time of receipt) of any notice
of withdrawal will be determined by Carnival, whose determination (except
as required by the Panel) will be final and binding. None of Carnival,
Merrill Lynch, UBS Warburg, the UK Receiving Agent, or any other person
will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for
failure to give such notification or for any determination under this
paragraph.
4. Partial Cash Alternative
(a) The Partial Cash Alternative (which is subject to the Revised Offer
becoming unconditional in all respect(s)) will remain open for acceptance
until 3.00 p.m. on the first closing date of the Revised Offer (or such
later time(s) and/or date(s) as may be notified in the event of a revision
of extension therefore). If the Revised Offer is not then unconditional,
Carnival reserves the right to lapse or to close or to extend the Partial
Cash Alternative at that time and reserves the right to reintroduce a cash
alternative at any time. If the Revised Offer has become or has become
capable of being declared unconditional by 3.00 p.m. on the first closing
date of the Revised Offer (or such later time(s) and/or date(s) as may be
notified in the event of a revision or extension thereof), the Partial Cash
Alternative will remain open for not less than 14 days from the date when
it would otherwise have expired.
(b) The Additional Cash Election (which is subject to the Revised Offer
becoming unconditional in all respect(s) will remain open for acceptance
until 3.00 p.m. on the first closing date of the Revised Offer. The
availability of the Additional Cash Election to holders of P&OPrincess
Shares and P&OPrincess ADSs in the US is subject to Carnival receiving all
required relief from the SEC necessary to implement the Additional Cash
Election.
(c) If any Form of Acceptance electing for Partial Cash Alternative or for both
it and the Additional Cash Election is either received after 3.00 p.m. on
the first closing date of the Revised Offer (or, such later time(s) and/or
date(s) as may be notified in the event of a revision or extension thereof)
or is received before such time and date but is not valid or complete in
all respects at such time and date, the relevant election(s) shall for all
purposes be void and the P&O Princess Shareholder(s) purporting to make
such elections shall not, for any purpose, be entitled to receive any
consideration pursuant to the Partial Cash Alternative and, where
applicable, the Additional Cash Election and the relevant P&O Princess
Shareholder(s) shall, if his (their) acceptance is otherwise valid, be
entitled to receive the consideration due under the Revised Offer in
respect thereof but on the basis that no election for the Partial Cash
Alternative or for both it and the Additional Cash Election has been made.
(d) Elections for the Partial Cash Alternative will only be accepted in respect
of whole numbers of P&O Princess Shares.
(e) In the event that not all P&O Princess Shareholders who validly accept the
Revised Offer prior to the closing of the Additional Cash Election elect to
receive their full entitlement to cash pursuant to the Partial Cash
Alternative, thereby resulting in cash being available for issue after
satisfaction in full of elections for the Partial Cash Alternative made
prior to such closing, such additional cash shall (after taking into
account such amount of cash that Carnival reasonably determine to retain in
order to facilitate the operation by Carnival of the provisions of Part
XIIIA of the Act and subject to the maximum amount of cash payable under
the Revised Offer not exceeding an amount equal to the number of
P&OPrincess Shares in issue at the time the Revised Offer is made
multiplied by 250p) be applied in satisfaction of elections made under the
Additional Cash Election. If the amount of cash made available following
satisfaction of elections under the Partial Cash Alternative made prior to
the closing of the Additional Cash Election is insufficient to satisfy in
full elections under the Additional Cash Election, then each election
37
under the Additional Cash Election will be scaled down, as nearly as
practicable (at the sole discretion of Carnival) by the same proportion
which the aggregate shortfall bears to the total amount of cash in respect
of which elections are so made under the Additional Cash Election and the
balance of the consideration will be satisfied in New Carnival Shares.
A P&O Princess Shareholder who receives cash under these arrangements will
receive the balance of the consideration in New Carnival Shares so that the
total value of the cash and Carnival Shares received is equal to the value
of 0.2684 Carnival Shares for each P&O Princess Share. For these purposes,
the value of 0.2684 Carnival Shares will be calculated by reference to the
average closing price of a Carnival Share on the New York Stock Exchange
over the 10 business days prior to the date on which the terms of the
Partial Cash Alternative are fixed, translated into pounds sterling at the
average US dollar/pounds sterling exchange rate over this period. The
difference between this value and such P&O Princess Shareholder's cash
entitlement for each P&O Princess Share will be divided by the average
closing price of a Carnival Share referred to above to give the number of
New Carnival Shares to which that P&O Princess Shareholder is entitled for
each P&O Princess Share. The terms of the Partial Cash Alternative may be
fixed at the time the Revised Offer is made or such earlier date as
Carnival may determine.
5. Revised Offer
(a) Although no such revision is envisaged, if the Revised Offer (in its
original or any previously revised form(s)) is revised (either in its terms
or conditions or in the value or form of the consideration offered or
otherwise), and whether or not the Partial Cash Alternative and/or the
Additional Cash Election (in its original or any previously revised
form(s)) is revised, and any such revised Revised Offer(s) represent(s) on
the date on which such revision is announced (on such basis as Merrill
Lynch and UBS Warburg may consider appropriate) an improvement (or no
diminution) in the value of the consideration compared with that previously
offered, the benefit of the revised Revised Offer will, subject as provided
in paragraphs 5(b), 5(c) and 6 below be made available to any P&O Princess
Shareholder who has validly accepted the Revised Offer in its original or
previously revised form(s), and not validly withdrawn such acceptance (each
a "Previous Acceptor"). The acceptance by or on behalf of a Previous
Acceptor of the Revised Offer in its original or any previously revised
form(s) shall be deemed to be an acceptance of the Revised Offer as so
revised and shall also constitute a separate appointment of each of
Carnival, Merrill Lynch and UBS Warburg and their respective directors as
his attorney and/or agent with authority (whether or not he has elected for
the Partial Cash Alternative and Additional Cash Election) to accept any
such revised Revised Offer on behalf of such Previous Acceptor and, if such
revised Revised Offer includes alternative forms of consideration, to make
on his behalf elections for and/or to accept such alternative forms of
consideration on his behalf in such proportion as such attorney and/or
agent in his absolute discretion thinks fit and to execute on behalf of and
in the name of such Previous Acceptor all such further documents (if any)
and take such further actions (if any) as may be required to give effect to
such acceptances and/or elections. In making any such acceptances or making
any such election, the attorney and/or agent shall take into account the
nature of any previous acceptances and/or elections made by or on behalf of
the Previous Acceptor and such other facts or matters as he may reasonably
consider relevant.
(b) The deemed acceptances and elections referred to in this paragraph 5 shall
not apply and the authorities conferred by paragraph 5(a) above shall not
be exercised if, as a result thereof, the Previous Acceptor would (on such
basis as Merrill Lynch and UBS Warburg may consider appropriate) thereby
receive and/or retain (as appropriate) less consideration in aggregate
under the Revised Offer or otherwise than would have been received and/or
retained (as appropriate) in aggregate consideration as a result of
acceptance of the Revised Offer in the form in which it was originally
accepted and/or elected by such Previous Acceptor or on his behalf (unless
such Previous Acceptor has previously agreed to receive and/or retain (as
appropriate) less in aggregate consideration).
(c) The deemed acceptances and elections referred to in this paragraph 5 shall
not apply and the authorities conferred by this paragraph 5 shall be
ineffective to the extent that a Previous Acceptor shall lodge with the UK
Receiving Agent at the address(es) to be set out in the Offer Document
within 14 days of the posting of the document pursuant to which the
revision of the Revised Offer (and/or any revised or other alternative or
election) is made available to P&O Princess Shareholders (or such later
date as Carnival may determine), a Form of Acceptance (or
38
some other form issued by or on behalf of Carnival) in which he validly
elects to receive the consideration receivable by him under such revised
Revised Offer in some other manner.
(d) The authorities conferred by this paragraph 5 and any acceptance of a
revised Revised Offer and/or any election pursuant thereto shall be
irrevocable unless and until the Previous Acceptor becomes entitled to
withdraw his acceptance under paragraph 3 above and duly does so.
(e) Carnival, Merrill Lynch and UBS Warburg reserve the right to treat an
executed Form of Acceptance relating to the Revised Offer (in its original
or any previously revised form(s)) which is received (or dated) on or after
the announcement or issue of the Revised Offer in any revised form as a
valid acceptance of the revised Revised Offer and, where applicable, a
valid election for any alternative form of consideration made available
pursuant thereto, and such acceptance shall constitute an authority in the
terms of paragraph 5(a) above on behalf of the relevant P&O Princess
Shareholder.
6. General
(a) Save with the consent of the Panel, the Revised Offer will lapse unless all
conditions relating to the Revised Offer have been satisfied or (if capable
of waiver) waived or, where appropriate, have been determined by Carnival
in its reasonable opinion to be or remain satisfied, by midnight on the
later of the date falling 21 days after the first closing date and the date
which is 21 days after the date on which the Revised Offer becomes
unconditional as to acceptances or such later date as Carnival may, with
the consent of the Panel, decide. If the Revised Offer lapses for any
reason, the Revised Offer will cease to be capable of further acceptance
and P&O Princess Shareholders and Carnival will cease to be bound by prior
acceptances.
(b) The procedures for acceptance of the Revised Offer will be set in full in
the Offer Document and the Forms of Acceptance which accompany it. The
procedures for acceptance in respect of the P&O Princess Shares will follow
those customary in offers made for certificated and uncertificated shares,
as appropriate. The procedures for acceptance in respect of P&O Princess
ADSs will follow those customary in offers made for American Depositary
Shares, on the New York Stock Exchange, representing shares in English
companies. Subject to the Revised Offer becoming or being declared
unconditional in all respects, settlement of the consideration to which any
P&O Princess Shareholder is entitled under the Revised Offer will be
effected (i) in the case of acceptances received, valid and complete in all
respects, by the date on which the Revised Offer becomes or is declared
unconditional in all respects, within 14 days of such date; or (ii) in the
case of acceptances received, valid and complete in all respects, after the
date on which the Revised Offer becomes or is declared unconditional in all
respects but while it remains open for acceptance, within 14 days of such
receipt. The procedures for settlement of the consideration due to
P&OPrincess Shareholders will be set out in full in the Offer Document. If
the Revised Offer does not become or is not declared unconditional in all
respects (i) completed Form(s) of Acceptance, share certificate(s) and/or
other document(s) of title will be returned by post (or such other method
as may be approved by the Panel) within 14 days of the Revised Offer
lapsing, to the person or agent whose name and address (outside Australia,
Canada and Japan) is set out in the Form of Acceptance or, if none is set
out, to the first named or sole holder at his registered address (outside
Canada, Australia and Japan) and (ii) the relevant escrow agent will,
immediately after the lapsing of the Revised Offer (or within such longer
period, not exceeding 14 days after the Revised Offer lapses, as the Panel
may approve), give the appropriate instruction to CRESTCo to transfer all
P&O Princess Shares held in escrow balances and in relation to which it is
the escrow agent for the purposes of the Revised Offer to the original
available balances of the P&O Princess Shareholders concerned.
Save with the consent of the Panel, settlement of the consideration to
which any P&O Princess Shareholder is entitled under the Revised Offer will
be implemented in full in accordance with the terms of the Revised Offer
without regard to any lien, right of set-off, counterclaim or other
analogous right to which Carnival may otherwise be, or claim to be,
entitled as against such P&O Princess Shareholder. Subject to paragraph 7
below, no consideration will be sent to an address in Canada, Australia or
Japan.
(c) Notwithstanding the right reserved by Carnival to treat a Form of
Acceptance as valid even
39
though not entirely in order or not accompanied by the relevant share
certificate(s) and/or other document(s) of title, or not accompanied by the
relevant transfer to escrow, except as otherwise agreed with the Panel:
(i) an acceptance of the Revised Offer will only be counted towards
fulfilling the acceptance condition if the requirements of Note 4
and, if applicable, Note 6 on Rule 10 of the Code are satisfied in
respect of it;
(ii) a purchase of P&O Princess Shares by Carnival or its nominee(s) or,
if Carnival is required to make a Rule 9 offer, a person acting in
concert with Carnival or its nominee(s), if any, will only be
counted towards fulfilling the acceptance condition if the
requirements of Note 5 and, if applicable, Note 6 of Rule 10 of the
Code are satisfied in respect of it; and
(iii) the Revised Offer will not become unconditional as to acceptances
unless the UK Receiving Agent has issued a certificate to Carnival
or Merrill Lynch and UBS Warburg which states the number of P&O
Princess Shares in respect of which acceptances have been received
which comply with paragraph (i) above, or which otherwise comply
with the requirements of the Panel, and the number of P&O Princess
Shares otherwise acquired, whether before or during the Offer
Period, which comply with the requirements of paragraph (ii) above,
or which otherwise comply with the requirements of the Panel.
Copies of such certificate will be sent to the Panel and to
Schroder Salomon Smith Barney as soon as possible after issue.
(d) The Revised Offer and the Form of Acceptance and all acceptances and
elections in respect of the Offer, or pursuant thereto, and all contracts
made pursuant thereto and any action taken or made or deemed to be taken or
made under any of the foregoing shall be governed by and construed in
accordance with English law. Execution by or on behalf of a P&O Princess
Shareholder of a Form of Acceptance constitutes his irrevocable submission
in relation to all matters arising out of or in connection with the Revised
Offer and the Form of Acceptance to the jurisdiction of the courts of
England and his agreement that nothing shall limit the right of Carnival or
Merrill Lynch and UBS Warburg to bring any action, suit or proceeding
arising out of or in connection with the Revised Offer or the Form of
Acceptance in any other manner permitted by law or in any court of
competent jurisdiction.
(e) All references in this document to the date which falls 20 US Business Days
after the date of posting of the Offer Document and/or the first closing
date shall (except in the definition of "Offer Period" and in paragraph
1(a) above and where the context otherwise requires) be deemed, if the
expiry date of the Revised Offer is extended, to refer to the expiry date
of the Revised Offer as so extended.
(f) Any omission or failure to dispatch this document, the Form of Acceptance
or any notice required to be dispatched under the terms of the Revised
Offer to, or any failure to receive the same by, any person to whom the
Revised Offer is made, or should be made, shall not invalidate the Revised
Offer in any way or create any implication that the Revised Offer has not
been made to any such person.
(g) Subject to the Code, notwithstanding any other provision in this Part D of
Appendix I, Carnival and Merrill Lynch and UBS Warburg reserve the right to
treat acceptances of the Revised Offer and/or elections pursuant thereto as
valid if received by the UK Receiving Agent or otherwise by or on behalf of
Carnival at any place or places or in any manner determined by either of
them otherwise than as set out in this document or in the Form of
Acceptance.
(h) All powers of attorney, appointments of agents and authorities in the terms
conferred by or referred to in this Appendix I or in the Form of Acceptance
are given by way of security for the performance of the obligations of the
P&O Princess Shareholder concerned and are irrevocable in accordance with
section 4 of the Powers of Attorney Act 1971 unless and until the donor of
such power of attorney or authority or appointment validly withdraws his
acceptance in accordance with paragraph 3 above.
(i) No acknowledgement of receipt of any Form of Acceptance, transfer by means
of CREST, share certificate(s), and/or other document(s) of title will be
given. All communications, notices, certificates, documents of title and
remittances to be delivered by or sent to or from P&O Princess Shareholders
(or their designated agent(s)) will be delivered by or sent to or from such
P&O Princess Shareholders (or their designated agent(s)) at their own risk.
40
(j) If the Revised Offer lapses, the Form of Acceptance, share certificate(s)
and/or other document(s) of title will be returned by post (or such other
method as may be approved by the Panel) within 14 days of the Revised Offer
lapsing, at the risk of the person entitled thereto, to the person or agent
whose name and address (outside Australia, Canada or Japan) is set out in
the relevant box in the Form of Acceptance or, if none is set out, to the
first-named or sole holder at his registered address (outside Australia,
Canada or Japan). No such document will be sent to an address in Australia,
Canada or Japan. The UK Receiving Agent will, immediately after the lapsing
of the Revised Offer (or within such longer period as the Panel may permit,
not exceeding 14 days after the lapsing of the Revised Offer), give
instructions to CRESTCo to transfer all P&O Princess Shares held in escrow
balances and in relation to which it is the relevant escrow agent for the
purposes of the Revised Offer to the original available balances of the P&O
Princess Shareholders concerned.
(k) In relation to any acceptance of the Revised Offer in respect of a holding
of P&O Princess Shares which is in uncertificated form, Carnival reserves
the right to make such alterations, additions or modifications as may be
necessary or desirable to give effect to any purported acceptance of the
Revised Offer, whether in order to comply with the facilities or
requirements of CREST or otherwise, provided such alterations, additions or
modifications are consistent with the requirements of the Code or are
otherwise made with the consent of the Panel.
(l) If sufficient P&O Princess Shares are acquired, whether pursuant to
acceptances of the Revised Offer or otherwise, Carnival intends to apply
the provisions of sections 428-430F of the Act to acquire compulsorily any
outstanding P&O Princess Shares to which the Revised Offer relates.
(m) All references in this Appendix I to any statute or statutory provision
shall include a statute or statutory provision which amends, consolidates
or replaces the same (whether before or after the date hereof).
(n) The Revised Offer will extend to all the P&O Princess Shares
unconditionally allotted or issued on the date of posting of the Offer
Document and any further P&O Princess Shares unconditionally allotted or
issued while the Revised Offer remains open for acceptance (or such earlier
date or dates as Carnival may decide).
(o) The P&O Princess Shares are to be acquired by Carnival fully paid and free
from all liens, charges and encumbrances, rights of pre-emption and any
other third party rights of any nature, whatsoever and together with all
rights attaching thereto, including the right to all dividends or other
distributions declared, paid or made after the date the Revised Offer
becomes wholly unconditional.
(p) The New Carnival Shares will be issued credited as fully paid and will rank
pari passu in all respect with the Carnival Shares in issue at the date the
Revised Offer becomes wholly unconditional, save that they shall rank for
dividends with effect from and including the first complete financial
quarter of Carnival following such date.
(q) Fractions of New Carnival Shares will not be issued to accepting P&O
Princess Shareholders. Fractional entitlements to New Carnival Shares will
be aggregated and sold in the market and the net proceeds of sale
distributed pro rata to the P&O Princess Shareholders entitled thereto,
save that individual entitlements of amounts less than (Pounds)3 will be
retained for the benefit of the Enlarged Carnival Group.
7. Overseas Shareholders
(a) The making of the Revised Offer in, or to P&O Princess Shareholders
resident in, or citizens or nationals of, jurisdictions outside the UK or
the United States, or to persons who are custodians, nominees of or
trustees for, citizens, residents or nationals of such jurisdictions, may
be prohibited or affected by the laws of the jurisdiction in which such
persons are resident. Such persons should inform themselves about and
observe any applicable legal requirements. It is the responsibility of any
such person wishing to accept the Revised Offer to satisfy himself as to
the full observance of the laws of the relevant jurisdiction in connection
therewith, including the obtaining of any governmental, exchange control or
other consents, which may be required and the compliance with other
necessary formalities and the payment of any issue, transfer
41
or other taxes due in such jurisdiction. Any such person will be
responsible for any such issue, transfer or other taxes or other requisite
payments by whomsoever payable and Carnival and Merrill Lynch and UBS
Warburg and any person acting on their behalf shall be fully indemnified
and held harmless by such person for any such issue, transfer or other
taxes as Carnival (or its agents) may be required to pay.
(b) In particular, the Revised Offer will not be made, directly or indirectly,
in or into Australia, Canada or Japan, or by use of the mails of, or by any
means or instrumentality (including, without limitation, telephonically or
electronically) of interstate or foreign commerce of, or of any facilities
of a national securities exchange of, Australia, Canada or Japan, and the
Revised Offer should not be accepted by any such use, means,
instrumentality or facility or otherwise from within Australia, Canada or
Japan.
Accordingly, copies of this document, the Offer Document, the Form of
Acceptance and any related offering documents are not being, and should not
be, mailed or otherwise forwarded, distributed or sent in, into or from
Australia, Canada or Japan. Persons receiving such documents (including,
without limitation, custodians, nominees and trustees) should not
distribute them in, into or from Australia, Canada or Japan or use such
mails or any such means, instrumentality or facility for any purpose
directly or indirectly in connection with the Revised Offer, and so doing
may render invalid any related purported acceptance of the Revised Offer.
Persons wishing to accept the Revised Offer should not use Australian,
Canadian or Japanese mails or any such means, instrumentality or facility
for any purpose directly or indirectly relating to acceptance of the
Revised Offer. Envelopes containing Forms of Acceptance, evidence of title
or other documents relating to the Revised Offer should not be postmarked
in Australia, Canada or Japan or otherwise dispatched from Australia,
Canada or Japan and all acceptors must provide addresses outside Australia,
Canada or Japan for the receipt of the consideration to which they are
entitled under the Revised Offer or for the return of Forms of Acceptance
and (in relation to P&O Princess Shares in certificated form) share
certificate(s), and/or other document(s) of title.
(c) In connection with the commencement of the Revised Offer to P&O Princess
Shareholders resident in the United States, Carnival plans to file a
registration statement with the SEC on Form S-4 and a statement on Schedule
TO. The Form S-4, when declared effective by the SEC, will register under
the Securities Act the New Carnival Shares to be offered in the United
States to holders of P&O Princess Shares and P&O Princess ADSs.
If the exemptive relief and confirmations that Carnival is planning to
request from the SEC are granted, the Revised Offer would be made in the
United States pursuant to the Offer Document and a US "wrap" series of
pages (the "US Wrap") that would meet the applicable requirements of the
Securities Act, Sections 14(d) and 14(e) of the Exchange Act and the rules
and regulations thereunder. The Offer Document and the US Wrap together
would constitute the prospectus forming a part of the Form S-4, and when
mailed to US Holders of P&O Princess Shares and P&O Princess ADSs would be
physically bound together as a single document. The Schedule TO would
incorporate by reference the requisite information set forth in the Offer
Document and the US Wrap.
The terms of the Revised Offer would be the same, save for minor procedural
differences to accommodate differing US and UK practice, for UK holders and
US Holders of P&O Princess Shares and P&O Princess ADSs. UBS Warburg LLC
and Merrill Lynch & Co. Incorporated will act as US dealer-managers for
purposes of making the Revised Offer in the United States. The Revised
Offer would be made in the United States by Carnival on its own behalf.
Carnival has undertaken not to declare the Revised Offer unconditional as
to acceptances unless a period of 20 US Business Days from the commencement
of the Revised Offer in the United States has expired.
Carnival will make an announcement at least five US Business Days prior to
the date on which any reduction in the percentage of P&O Princess Shares
(including P&O Princess Shares represented by P&O Princess ADSs) required
to satisfy the acceptance condition may be effected, stating that is has
reserved the right to reduce the acceptance condition and the exact
percentage to which the acceptance condition may be reduced. Any such
announcement will be made through a press release and by placing an
advertisement in a newspaper of national
42
circulation in the United States. Any such announcement will advise holders
of P&O Princess Shares and P&O Princess ADSs to withdraw their tenders
immediately if their willingness to tender into the offer would be affected
by a reduction of the acceptance condition. During the five US Business Day
period following the public announcement that such a reduction may be made,
holders of P&O Princess Shares and P&O Princess ADSs will have withdrawal
rights.
Under the Code, once unconditional as to acceptances, the Revised Offer
must remain open for acceptance for at least 14 calendar days and may
remain open for such longer period as Carnival deems appropriate
("Subsequent Offer Period"). Carnival plans to request exemptive relief
from the SEC from Section 14(d)(5) of, and Rule 14e-1 under, the Exchange
Act so as to permit Carnival to keep the Subsequent Offer Period open
beyond 20 US Business Days.
Carnival plans to request exemptive relief from the SEC from Rule 14d-10
and Rule 14d-11 under the Exchange Act in connection with the Additional
Cash Election, if made available, and also plans to request that the SEC
take no enforcement action if Carnival sets the proration factor of the
Additional Cash Election before the expiration of the Revised Offer.
Overseas shareholders should inform themselves about and observe any
applicable legal or regulatory requirements. If you are in any doubt about
your position you should consult your professional adviser in the relevant
territory.
43
APPENDIX II
Financial Information on the
Carnival Group
PARTA: Consolidated financial information for the fiscal years ended 30 November
1998, 1999 and 2000.
The consolidated financial information for the fiscal years ended 30 November
1998, 1999 and 2000 presented in this Part A to Appendix II has been derived
from Carnival's audited consolidated financial statements for the year ended 30
November 2000 and SEC filings.
Consolidated balance sheet
(in thousands, except par value)
November 30,
2000
ASSETS
Current Assets
Cash and cash equivalents $ 189,282
Accounts receivable, net 95,361
Consumable inventories 100,451
Prepaid expenses and other 164,388
-----------
Total current assets 549,482
Property and Equipment, Net 8,001,318
Investments in and Advances to Affiliates 437,391
Goodwill, less Accumulated Amortization of $99,670 701,385
Other Assets 141,744
-----------
$ 9,831,320
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 248,219
Accounts payable 332,694
Accrued liabilities 302,585
Customer deposits 770,425
Dividends payable 61,371
-----------
Total current liabilities 1,715,294
Long-Term Debt 2,099,077
Deferred Income and Other Long-Term Liabilities 146,332
Commitments and Contingencies (Notes 2 and 9)
Shareholders' Equity
Common Stock; $0.01 par value; 960,000 shares authorized; 617,568 shares issued 6,176
Additional paid-in capital 1,772,897
Retained earnings 4,884,023
Unearned stock compensation (12,283)
Accumulated other comprehensive loss (75,059)
Treasury Stock; 33,087 shares at cost (705,137)
-----------
Total shareholders' equity 5,870,617
$ 9,831,320
===========
The accompanying notes are an integral part of these consolidated financial
statements.
44
Consolidated statements of operations
(in thousands, except per share data)
Years ended November 30,
2000 1999 1998
Revenues $3,778,542 $3,497,470 $3,009,306
Costs and Expenses
Operating expenses 2,058,342 1,862,636 1,619,377
Selling and administrative 487,403 447,235 369,469
Depreciation and amortization 287,667 243,658 200,668
---------- ---------- ----------
2,833,412 2,553,529 2,189,514
Operating Income Before Income From Affiliated Operations 945,130 943,941 819,792
Income From Affiliated Operations, Net 37,828 75,758 76,732
---------- ---------- ----------
Operating Income 982,958 1,019,699 896,524
Non-operating Income (Expense)
Interest income 16,506 41,932 10,257
Interest expense, net of capitalized interest (41,372) (46,956) (57,772)
Other income, net 8,460 29,357 1,793
Income tax expense (1,094) (2,778) (3,815)
Minority interest (14,014) (11,102)
(17,500) 7,541 (60,639)
---------- ---------- ----------
Net Income $ 965,458 $1,027,240 $ 835,885
========== ========== ==========
Earnings Per Share:
Basic $ 1.61 $ 1.68 $ 1.40
Diluted $ 1.60 $ 1.66 $ 1.40
The accompanying notes are an integral part of these consolidated financial
statements.
45
Consolidated statement of cash flows
(in thousands)
Year ended November 30,
2000
OPERATING ACTIVITIES
Net income $ 965,458
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization 287,667
Income from affiliated operations in excess of dividends received (21,362)
Other (14,689)
Changes in operating assets and liabilities,
excluding businesses acquired and consolidated:
(Increase) decrease in:
Receivables (15,132)
Consumable inventories (8,205)
Prepaid expenses and other (21,972)
Increase (decrease) in:
Accounts payable 58,133
Accrued liabilities (5,977)
Customer deposits 55,614
-----------
Net cash provided from operating activities 1,279,535
INVESTING ACTIVITIES
Additions to property and equipment, net (1,003,348)
Proceeds from sale of assets 51,350
Acquisition of consolidated subsidiaries, net (383,640)
Other, net 43,611
-----------
Net cash used for investing activities (1,292,027)
FINANCING ACTIVITIES
Proceeds from long-term debt 1,020,091
Purchase of Treasury Stock (705,137)
Principal payments of long-term debt (388,429)
Dividends paid (254,333)
Proceeds from issuance of Common Stock, net 7,811
-----------
Net cash used for financing activities (319,997)
Net decrease in cash and cash equivalents (332,489)
Cash and cash equivalents at beginning of year 521,771
Cash and cash equivalents at end of year $ 189,282
===========
The accompanying notes are an integral part of these consolidated financial
statements.
46
Consolidated statements of shareholders' equity
(in thousands)
Compre Common Additional Retained Unearned Accumulated Treasury Total
-hensive Stock paid-in- earnings stock other Stock shareholders'
income capital compen- compre- equity
sation hensive
(loss) income
-------- ------ ---------- --------- --------- ------------- --------- -------------
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
Changes in securities
valuation allowance (2,232) (2,232) (2,232)
Foreign currency translation
adjustment (73,943) (73,943) (73,943)
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 fiscal year (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
====== ========== ========= ======== ============= ========= =============
47
Notes to consolidated financial statements
Note 1 - General
Description of business
Carnival Corporation, a Panamanian corporation, and its consolidated
subsidiaries (for the purposes of this Appendix II, referred to collectively as
the "Company") operate six cruise lines under the brand names Carnival Cruise
Lines, Costa, Cunard Line ("Cunard"), Holland America Line ("Holland America"),
Seabourn Cruise Line ("Seabourn") and Windstar Cruises ("Windstar") and a tour
business, Holland America Tours. Carnival operates fifteen cruise ships
primarily in the Caribbean and the Mexican Riviera. Holland America operates ten
cruise ships primarily in Alaska, the Caribbean and Europe. Costa operates seven
cruise ships primarily in Europe, the Caribbean and South America (see Note 3).
Cunard and Seabourn operates two and six luxury cruise ships, respectively, to
worldwide destinations and Windstar operates four luxury, sail-powered ships
primarily in the Caribbean, Europe and Central America. Holland America Tours
markets sightseeing tours both separately and as a part of its cruise/tour
packages. Holland America Tours operates 14 hotels in Alaska and the Canadian
Yukon, two luxury dayboats offering tours to the glaciers of Alaska and the
Yukon River, over 300 motor coaches used for sightseeing and charters in the
states of Washington and Alaska and in the Canadian Rockies and 13 private domed
rail cars which are run on the Alaska Railroad between Anchorage and Fairbanks.
The Company has a 25% interest in Airtours plc ("Airtours"), a publicly traded
air-inclusive integrated leisure travel company headquartered in England.
Airtours provided holidays for approximately 15 million people in 2000 primarily
from the United Kingdom, Germany, Ireland, North America and Scandinavia and
owns or operates 2,600 travel shops and 48 telesales centers, 52 aircraft, four
cruise ships and 93 hotel and resort properties.
Preparation of financial statements
The preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the Company's financial statements. Actual results could differ from
these estimates. All material intercompany transactions, accounts and unrealized
profits and losses on transactions within the consolidated group and with
affiliates have been eliminated in consolidation.
Note 2 - Summary of significant accounting policies
Basis of presentation
Carnival Corporation consolidates subsidiaries over which it has 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.
Cash and cash equivalents
Cash and cash equivalents include investments with original maturities of three
months or less and are stated at cost. At November 30, 2000, cash and cash
equivalents included $157 million of investments, primarily comprised of time
deposits.
Consumable inventories
Consumable inventories consist primarily of provisions, spare parts, supplies
and fuel carried at the lower of cost (weighted-average) or market.
48
Property and equipment
Property and equipment is stated at cost. Depreciation and amortization was
computed using the straight-line method over estimated average useful lives as
follows:
Years
Ships 11-30
Buildings and improvements 10-40
Transportation equipment and other 2-20
Leasehold improvements Shorter of lease term
or related asset life
The Company reviews its long-lived assets, identifiable intangibles and goodwill
and reserves for their impairment, based generally upon estimated future
undiscounted cash flows, whenever events or changes in circumstances indicate
the carrying amount of these assets may not be fully recoverable.
Costs associated with drydocking are capitalized as prepaid expenses and charged
to operating expenses generally over one year.
The Company capitalizes interest on ships and other capital projects during the
construction period.
Investments in affiliates
In the event of the issuance of stock by an affiliate, the Company generally
recognizes a gain or loss (see Note 5). At November 30, 2000, the costs in
excess of the net assets acquired of affiliates ("goodwill") was $195 million.
Goodwill is being amortized using the straight-line method, principally over 40
years and is recorded in "Income from Affiliated Operations, Net" in the
accompanying statements of operations.
Goodwill
Goodwill of $275 million resulting from the acquisition of HAL Antillen, N.V.,
the parent company of Holland America, Windstar and Holland America Tours, $272
million resulting from the acquisitions of Cunard and Seabourn and $254 million
resulting from the fiscal 2000 acquisition of Costa, is being amortized using
the straight-line method over 40 years.
Derivative instruments
The Company utilizes derivative instruments, principally forward contracts and
swaps, to enhance its ability to manage certain risks related to foreign
currency exchange rates and interest rates which exist as part of its ongoing
business operations.
The Company's most significant contracts to buy foreign currency are forward
contracts entered into to fix the cost in U.S. dollars of certain of its foreign
currency denominated shipbuilding commitments (see Note 9). Changes in the
market value and any discounts or premiums on these forward foreign currency
contracts are recorded at maturity, which coincides with the dates when the
related foreign currency payments are to be made, with any resulting gain or
loss included in the cost of the ship.
From time to time the Company uses interest rate swap agreements to manage
interest rate exposure and to achieve a desired proportion of variable and fixed
rate debt. The fair value of the swaps is not reflected in the financial
statements and any amounts paid or received on hedges related to debt will be
included in interest expense.
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Pursuant to SFAS No. 133, changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. SFAS No. 133,
as amended, is effective for the Company beginning December 1, 2000. Based on
existing operations, the adoption of SFAS No. 133 will not have a significant
impact on the Company's results of operations or cash flows, however, on
December 1, 2000, the Company's assets and liabilities will each increase by
approximately $540 million. This
49
increase in assets and liabilities primarily represents the recording of
offsetting unrealized gains and losses on the Company's shipbuilding commitments
and related forward foreign currency contracts, respectively.
Revenue and expense recognition
Guest cruise deposits represent unearned revenues and are initially recorded as
customer deposit liabilities on the balance sheet when received. Customer
deposits are subsequently recognized as cruise revenues, together with revenues
from shipboard 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 tour and
related services are recognized at the time the services are performed or
expenses are incurred.
Advertising costs
Substantially all of the Company's 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
expense totaled $181 million in fiscal 2000, $178 million in fiscal 1999 and
$142 million in fiscal 1998. At November 30, 2000, $23 million of advertising
related costs were included in prepaid expenses and other in the accompanying
balance sheet.
Foreign currency translations and transactions
For 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 accumulated other comprehensive income (loss) within
shareholders' equity. 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 included in income
currently.
Income taxes
Management believes that substantially all of the Company's income (with the
exception of its United States ("U.S.") source income from the transportation,
hotel and tour businesses of Holland America Tours) is exempt from U.S. federal
income taxes. If the Company was found not to meet certain tests of the Internal
Revenue Code, as amended, (the "Code") or if the Code were to be changed in a
manner adverse to the Company, a portion of the Company's income would become
subject to taxation by the U.S. at higher than normal corporate tax rates.
Additionally, certain of the Company's foreign subsidiaries are subject to
foreign income taxes, however, such amounts have not been significant.
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.
Stock-based compensation
The Company accounts for employee stock-based compensation using the intrinsic
value method and discloses certain fair value pro forma information with respect
to its employee stock-based compensation activities (see Note 11).
Concentrations of credit risk
As part of its ongoing control procedures, the Company monitors concentrations
of credit risk associated with financial institutions with which it conducts
business. Credit risk, including counterparty nonperformance under derivative
instruments, is considered minimal as the Company only deals with large well-
established financial institutions. The Company also monitors the
50
creditworthiness of its customers to which it grants credit terms in the normal
course of business. Concentrations of credit risk associated with these
receivables are considered minimal due to the Company's diverse customer base
and bad debts have been minimal. The Company does not normally require
collateral or other security to support normal credit sales.
Accounting changes
In fiscal 1998, Statement of Position 98-5 - "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") was issued. SOP 98-5 requires that all start-up or pre-
operating costs be expensed as incurred. In fiscal 1998, the Company adopted SOP
98-5 and, accordingly, expensed $8.7 million of previously deferred start-up
costs. The $8.7 million represented the cumulative effect from the Company
changing this policy, which amount was included in other non-operating expenses
in the fiscal 1998 statement of operations.
In fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income", which is presented in the accompanying statements of shareholders'
equity. Comprehensive income consists of net income and other comprehensive
income, the latter includes unrealized gains and losses on available for sale
securities and foreign currency translation adjustments.
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" which superceded SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise". The adoption of SFAS No. 131
did not affect the Company's results of operations or financial position but
does affect the disclosure of segment information (see Note 10).
Reclassifications
Certain reclassifications have been made to the prior year amounts to conform to
the current year presentation.
Note 3 - Acquisition
Since June 1997, the Company has owned 50% of Costa. On September 29, 2000, the
Company completed the acquisition of the remaining 50% interest in Costa from
Airtours at a cost of approximately $510 million. Substantially all of the
purchase price was funded by euro denominated borrowings of approximately $161
million under the Company's existing $200 million multi- currency revolver and
$342 million from a short-term bridge loan. The Company accounted for this
transaction using the purchase accounting method. Goodwill derived from this
transaction is being amortized using the straight-line method over 40 years.
Prior to the fiscal 2000 acquisition, the Company accounted for its 50% interest
in Costa using the equity method and recorded its portion of Costa's operating
results as earnings from affiliated operations on a two-month lag basis. For
September, October and November, 2000, the Company continued to record its 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,
the Company changed how it reports 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 adjustment to retained earnings in the Company's November 30, 2000
consolidated balance sheet and the Company's November 30, 2000 consolidated
balance sheet includes Costa's November 30, 2000 balance sheet (see Note 5). The
impact of conforming Costa's fiscal year on the Company's fiscal 2000 revenues,
operating income and net income was not material. Commencing in fiscal 2001,
Costa's results of operations will be consolidated on a current month basis in
the same manner as the Company's other wholly-owned subsidiaries.
Had the above transaction occurred on December 1, 1998, the Company's unaudited
consolidated revenues for fiscal 2000 and 1999 would have been approximately
$4.3 and $4.1 billion, respectively.
The impact on the Company's unaudited consolidated net income and earnings per
share for fiscal 2000 and 1999 would have been immaterial.
51
The impact on the Company's 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 the 2000 Statement of Cash Flows $ 380,285
Note 4 - Property and equipment
Property and equipment consisted of the following (in thousands):
November 30, 2000
Ships $ 8,420,552
Ships under construction 320,480
-----------
8,741,032
Land, buildings and improvements 279,095
Transportation equipment and other 465,536
-----------
Total property and equipment 9,485,663
Less accumulated depreciation and amortization (1,484,345)
-----------
$ 8,001,318
===========
Capitalized interest, primarily on ships under construction, amounted to $41.1
million in fiscal 2000, $40.9 million in fiscal 1999 and $35.1 million in fiscal
1998. 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,
2000, property and equipment with a net book value of $955 million was pledged
as collateral pursuant to certain notes and a contingent obligation (see Notes 6
and 9).
Note 5 - Investments in and advances to affiliates
At November 30, 2000, the market value of the Company's investment in Airtours,
based on the closing price of Airtours' common stock on the London Stock
Exchange, was $361 million as compared with the carrying value of the Company's
investment in Airtours of $415 million. The Company is recording its interest in
Airtours' consolidated results of operations on a two-month lag basis using the
equity method.
In fiscal 1998, Airtours issued, in connection with acquisitions, approximately
20.7 million shares of its common stock at per share amounts in excess of the
Company's carrying value per share. As a result of these transactions, in fiscal
1998, the Company recognized a net gain of $14.8 million, which was included in
other non-operating income.
Dividends received from affiliates were $16.5 million, $15.1 million and $13.7
million in fiscal 2000, 1999 and 1998, respectively.
52
Financial information for affiliated companies accounted for using the equity
method was as follows (in thousands):
Balance Sheet Data
As of End of Fiscal Year 2000(a)
Current assets $2,270,185
Long-term assets $1,985,707
Current liabilities $1,852,595
Long-term liabilities $1,532,981
Shareholders' equity $ 870,316
(a) Excludes Costa as it was included in the Company's consolidated balance
sheet at November 30, 2000.
Income Statement Data(b)
Fiscal Years Ended
2000 1999 1998
Revenues $6,669,052 $5,963,425 $5,282,230
Gross margin $1,345,593 $1,265,614 $1,128,305
Net income $ 19,770 $ 255,146 $ 264,936
(b) Includes Costa for all periods.
Segment information for the Company's affiliated operations was provided in
accordance with SFAS No. 131 as follows (in thousands)(b):
Fiscal Years Ended
2000 1999 1998
Operating income $ 5,114 $359,953 $374,560
Depreciation and amortization $152,123 $133,302 $100,532
Capital expenditures $650,098 $356,267 $184,395
(b) Includes Costa for all periods.
Note 6 - Long-term debt
Long-term debt consisted of the following (in thousands):
November 30, 2000
Commercial paper $ 342,846
$200 million multi-currency revolving credit facility
drawn in euros, bearing interest at 5.3% at
November 30, 2000 (a) 160,862
Unsecured Debentures and Notes, bearing interest at
rates ranging from 5.65% to 7.7%, due through 2028 848,657
Unsecured euro note, bearing interest at euribor plus
0.25% (5.2% at November 30, 2000), due
December 2000 (a) 338,676
Euro notes, secured by one ship, bearing interest at
euribor plus 0.5% (5.5% at November 30, 2000),
due through 2008 (a) 141,628(*)
Unsecured euro notes, bearing interest at rates ranging
from euribor plus 0.185% to euribor plus 1.0%
(5.4% to 6.1% at November 30, 2000), due 2001 and
2005 (a) 475,400(*)
Other 39,227
----------
2,347,296
Less portion due within one year (248,219)
----------
$2,099,077
==========
(*) An adjustment has been made from the annual report to 30 November 2000 to
reflect the reclassification of Euro notes amounting to (Pounds)188,366
from secured to unsecured debt.
53
(a) Euro denominated notes have been translated to U.S. dollars at the period
end exchange rate.
At November 30, 2000, the outstanding commercial paper bears interest at
approximately 6.6% and was due on 2001. Since the commercial paper is backed by
the long-term revolving credit facilities described below, balances outstanding
under the commercial paper programs were classified as long-term in the balance
sheet.
The Company's commercial paper programs are supported by a $1 billion unsecured
revolving credit facility due December 2001 and a $200 million unsecured multi-
currency revolving credit facility due January 2002. Both revolving credit
facilities bear interest at libor/euribor plus 14 basis points ("BPS"), based on
the Company's debt rating, and provide for a facility fee of six BPS on each
facility. Any funds outstanding under the commercial paper programs reduce the
aggregate amount available under these facilities. At November 30, 2000, the
Company had $696 million available for borrowing under these facilities. These
facilities and other debt agreements contain covenants that require the Company,
among other things, to maintain minimum debt service coverage and limit debt to
capital ratios. At November 30, 2000, the Company was in compliance with all of
its debt covenants.
The unsecured Debentures and Notes are not redeemable prior to maturity. During
fiscal 2000, the Company repaid its 5.65% unsecured Notes in the amount of $200
million.
On December 13, 2000, the Company repaid the $338.7 million unsecured euro note
from the proceeds of a five-year unsecured euro note of approximately $250
million and another borrowing.
At November 30, 2000, the scheduled annual maturities of the Company's long-term
debt was summarized as follows (in thousands):
Fiscal
2001 $ 248,219
2002 620,508
2003 145,403
2004 139,740
2005 280,891
Thereafter 912,535
----------
$2,347,296
==========
Note 7 - Shareholders' equity
The Company's Articles of Incorporation authorizes the CarnivalBoard, at its
discretion, to issue up to 40 million shares of Preferred Stock. The Preferred
Stock is issuable in series which may vary as to certain rights and preferences
at the discretion of the Carnival Board and has a $.01 par value. At November
30, 2000, no Preferred Stock had been issued.
In December 1998, the Company issued 17 million shares of its Common Stock in a
public offering and received net proceeds of approximately $725 million. The
Company issued the stock concurrent with the addition of the Company's Common
Stock to the S&P 500 Composite Index.
In February 2000, the Carnival Board authorized the repurchase of up to $1
billion of the Company's Common Stock. As of November 30, 2000, the Company had
repurchased 33.1 million shares of its Common Stock at a cost of $705.1 million.
At November 30, 2000, there were approximately 15.2 million shares of Common
Stock reserved for issuance pursuant to the Company's stock option, employee
stock purchase, management incentive, dividend reinvestment and restricted stock
plans. During fiscal 2000, the Company declared cash dividends aggregating $0.42
per share for the year.
The Company does not expect to incur income taxes on future distributions of
undistributed earnings of foreign subsidiaries or foreign affiliates and,
accordingly, no deferred income taxes have been provided for the distribution of
these earnings. At November 30, 2000, accumulated other comprehensive loss
within shareholders' equity included cumulative foreign currency translation
adjustments which decreased shareholders' equity by $67.9 million.
54
On February 8, 2000, the U. S. Treasury Department issued proposed Treasury
Regulations to Section 883 of the Code ("Section 883") relating to income
derived by foreign corporations from the international operation of ships or
aircraft. The proposed regulations provide, in general, that a foreign
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 federal income taxation provided that the
corporation can satisfy certain ownership requirements, including, among other
things, that its stock is publicly traded. A corporation's stock that is
publicly traded will satisfy this requirement if more than 50% of its stock is
owned by persons who each own less than 5% of the value of the outstanding
shares of the corporation's stock.
To the best of the Company's knowledge it currently qualifies as a publicly
traded corporation under these proposed rules and, if the proposed rules were in
force, substantially all of the Company's income (with the exception of the U.
S. source income from the transportation, hotel and tour business of Holland
America Tours) would continue to be exempt from U. S. federal income taxes.
In order to ensure that the Company continues to be publicly traded under the
proposed Section 883 regulations, the Company amended its Articles of
Incorporation in April 2000 to prohibit any person, other than an existing 5%
shareholder, from acquiring shares that would give such person in the aggregate
more than 4.9% of the value of the outstanding shares of the Company.
Note 8 - Financial instruments
The Company estimates the fair value of 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 the Company could realize in a current market exchange.
Financial instruments are not held for trading or other speculative purposes.
Cash and Cash Equivalents
The carrying amounts of cash and cash equivalents approximate their fair values
due to the short-term maturities of these instruments.
Other Assets
At November 30, 2000, long-term other assets included marketable securities held
in a "Rabbi Trust" for certain of the Company's non-qualified benefit plans and
long-term receivables. These assets had both carrying and fair values of
approximately $135.0 million at November 30, 2000. Fair value was estimated
based on quoted market prices or expected future discounted cash flows.
Long-term Debt
At November 30, 2000, the fair value of the Company's long-term debt, including
the current portion, was approximately $2.27 billion, which was approximately
$76 million less than the carrying value on that date. The difference between
the fair value of the long-term debt and the carrying value was due primarily to
the Company's issuance of fixed rate debt obligations at interest rates that are
below market rates in existence at the measurement dates. The fair value of the
Company's unsecured Debentures and Notes was estimated based on the quoted
market price for the same or similar issues. The fair value of the Company's
other long-term debt was estimated based on the market rates available to the
Company for similar debt.
Foreign Currency Contracts
The Company enters into forward foreign currency contracts to reduce its
exposures relating to exchange rate changes in foreign currency. These contracts
are subject to gain or loss from changes in foreign currency rates, however, any
realized gain or loss will generally be offset by gains or losses on the
underlying hedged foreign currency transactions. The fair value of the Company's
forward hedging instruments discussed below was estimated based on prices quoted
by financial institutions for these instruments.
Several of the Company's contracts for the construction of cruise ships are
denominated in either Italian lira, German marks or euros. The Company is a
party to forward foreign currency contracts with
55
a notional amount of $3.7 billion at November 30, 2000, to fix the price of
these ships into U.S. dollars (see Note 9). At November 30, 2000, these forward
contracts had an estimated fair value of approximately $3.2 billion.
Interest Rate Swaps
Costa has interest rate swap agreements in place to pay fixed interest rates in
exchange for floating interest rate payments on substantially all of its debt.
At November 30, 2000, these swaps had a notional amount and an estimated
unrealized loss of $766 million and $2.8 million, respectively, and a weighted
average remaining life of approximately 2.3 years. The fair value of interest
rate swap agreements was estimated based on quoted market rates for similar
financial instruments.
Note 9 - Commitments and contingencies
Ship Commitments
A description of ships under contract for construction at November 30, 2000 was
as follows (in millions, except passenger capacity data):
Expected Estimated
Service Passenger Total
Ship Date/(1)/ Shipyard Capacity/(2)/ Cost/(3)/
Carnival
Carnival Spirit 4/01 Masa-Yards 2,124 $ 375
Carnival Pride 1/02 Masa-Yards/(4)/ 2,124 375
Carnival Legend 9/02 Masa-Yards/(4)/ 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/(4)/ 2,124 375
Carnival Valor 11/04 Fincantieri/(4)/ 2,974 500
------ ------
Total Carnival 17,418 3,000
Holland America
Newbuild 11/02 Fincantieri/(4)/ 1,848 410
Newbuild 8/03 Fincantieri/(4)/ 1,848 410
Newbuild 2/04 Fincantieri/(4)/ 1,848 410
Newbuild 10/04 Fincantieri/(4)/ 1,848 410
Newbuild 6/05 Fincantieri/(4)/ 1,848 410
------ ------
Total Holland America 9,240 2,050
Costa
Newbuild 7/03 Masa-Yards/(5)/ 2,112 330
Newbuild 1/04 Fincantieri/(6)/ 2,720 380
Newbuild 12/04 Fincantieri/(6)/ 2,720 380
------ ------
Total Costa 7,552 1,090
Cunard
Queen Mary 2 12/03 Chantiers de
l'Atlantique/(4)/ 2,620 780
------ ------
Total Cunard 2,620 780
------ ------
Total 36,830 $6,920
====== ======
(1) The expected service date is the date the ship is expected to begin revenue
generating activities.
(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) These construction contracts are denominated in either German marks,
Italian lira or euros and have been fixed into U.S. dollars through the
utilization of forward foreign currency contracts.
(5) This construction contract is denominated in German marks which has a fixed
exchange rate with Costa's functional currency, which is the Italian lira.
The estimated total costs has been translated into U.S. dollars using the
November 30, 2000 exchange rate.
(6) These construction contracts are denominated in Italian lira. The estimated
total cost has been translated into U.S. dollars using the November 30,
2000 exchange rate.
56
In connection with the ships under contract for construction, the Company has
paid approximately $320 million through November 30, 2000 and anticipates paying
the remaining estimated total cost as follows (in millions):
Fiscal
2001 $ 643
2002 1,734
2003 1,488
2004 2,389
2005 346
------
$6,600
======
Litigation
Several actions (collectively the "Passenger Complaints") have been filed
against the Company on behalf of purported classes of persons who paid port
charges to Carnival Cruise Lines, Holland America and Costa, alleging that
statements made in advertising and promotional materials concerning port charges
were false and misleading. 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.
Certain of the Passenger Complaints filed against Carnival Cruise Lines have
been dismissed. The remaining actions have been consolidated into one action in
Florida. Carnival Cruise Lines recently entered into an agreement to settle this
remaining action. The settlement must be approved by the trial court. Under the
settlement agreement, Carnival Cruise Lines would issue travel vouchers with a
face value of $25-$55 depending on specified criteria, to certain of its
passengers who sailed between April 1992 and June 1997. The vouchers also
provide class members a cash redemption option of up to 20% of the face value
which must be exercised within 60 days. Pursuant to the settlement, Carnival
Cruise Lines will pay the plaintiffs' legal fees, as awarded by the court, up to
a specified amount. During the fourth quarter of fiscal 2000, the Company
recorded a charge for the amount of the estimated cash redemptions and
settlement costs in the amount of approximately $21 million.
Holland America Tours has entered into a settlement agreement for the one
Passenger Complaint filed against it. The settlement agreement was approved by
the trial court on September 28, 1998. Under the settlement agreement, Holland
America would issue travel vouchers with a face value of $10-$50 depending on
specified criteria, to certain of its passengers who are U.S. residents and who
sailed between April 1992 and April 1996, and would pay a portion of the
plaintiffs' legal fees.
One member of the settlement class appealed the trial court's approval of the
settlement. In August 2000, the court of appeals refused to approve the
settlement and remanded the case to the trial court. Holland America Tours has
filed a petition for discretionary review by the Washington Supreme Court, the
ultimate outcome of which cannot currently be determined.
If the Passenger Complaint settlements are implemented as described above, the
amount and timing of the travel vouchers to be redeemed for travel and the
effects of the travel voucher redemption on revenues are not reasonably
determinable. Accordingly, the Company will account for the non- cash redemption
of the vouchers as a reduction of future revenues.
Several actions have been filed against Carnival Cruise Lines, Holland America
Tours, Cunard and Costa alleging that they violated the Americans with
Disabilities Act ("ADA") by failing to make certain of their cruise ships
accessible to individuals with disabilities (collectively the "ADA Complaints").
Plaintiffs seek injunctive relief and fees and costs. Certain of the plaintiffs
also seek statutory damages, including punitive damages. On January 19, 2001,
Carnival Cruise Lines reached an agreement in principle with the plaintiffs to
settle its major ADA Complaint. Pursuant to the agreement, Carnival Cruise Lines
will make certain modifications to its existing 15 ships. Management believes
that the estimated total cost of the modifications will not be material to the
Company's financial statements. The remaining actions are in progress and are
proceeding.
57
Several actions filed against the Company and four of its officers on behalf of
a purported class of purchasers of Common Stock of the Company were consolidated
into one action in Florida (the "Stock Purchase Complaint"). The plaintiffs are
claiming that statements made by the Company in public filings violate federal
securities laws and seek unspecified compensatory damages, attorneys' fees and
costs and expert fees. This action is in progress and is proceeding.
It is not now possible to determine the ultimate outcome of the pending
Passenger, ADA and Stock Purchase Complaints, if such claims should proceed to
trial. Management believes that the Company and these officers, as applicable,
have meritorious defenses to these claims and, accordingly, the parties intend
to vigorously defend against all such claims.
In August 2000, the Company received a grand jury subpoena requesting that the
Company produce documents and records concerning environmental matters. The
Company continues to respond to the subpoena.
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 an approximate $75 million
contract for the conversion and lengthening of the ship. Consequently, Costa has
given notice of termination of the contract. It is expected that the arbitration
tribunal's decision will be made within two years. 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. In addition, it is not currently
possible to determine the ultimate outcome of this matter, however, management
believes that the arbitration proceeding will result in a favorable outcome for
the Company.
In the normal course of business, various other claims and lawsuits have been
filed or are pending against the Company. The majority of these claims and
lawsuits are covered by insurance. Management believes the outcome of any such
suits, which are not covered by insurance, would not have a material adverse
effect on the Company's financial statements.
Contingent Obligations
The Company has certain contingent obligations, including letters of credit, to
participants in lease out and lease back type transactions for three ships
which, at November 30, 2000, totaled approximately $775 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 the Company be required
to make any payments under these contingent obligations. After 18-21 years, as
applicable, the Company has the right to exercise purchase options that would
terminate these transactions. As a result of these three transactions, the
Company has received a total of approximately $67 million (net) which was
recorded as deferred income on the balance sheets and is being amortized to non-
operating income over approximately 18-21 years.
Operating Leases
Rent expense for all operating leases, primarily for office and warehouse space,
for fiscal 2000, 1999 and 1998 was approximately $10 million each year. At
November 30, 2000, minimum annual rentals for all operating leases, with initial
or remaining terms in excess of one year, were as follows (in thousands):
Fiscal
2001 $ 8,500
2002 7,300
2003 6,000
2004 5,700
2005 5,700
Thereafter 26,800
--------
$60,000
========
58
Other
At November 30, 2000, the Company had a commitment through 2013, cancellable
under certain remote circumstances, to pay a minimum amount for its annual usage
of certain port facilities as follows (in thousands):
Fiscal
2001 $ 9,400
2002 9,300
2003 11,500
2004 11,500
2005 12,500
Thereafter 113,500
--------
$167,700
========
Note 10 - Segment information
The Company's cruise segment included five cruise brands (six, including Costa,
as of November 30, 2000) 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 related services. The tour segment
represents the operations of Holland America Tours.
The significant accounting policies of the segments are the same as those
described in Note 1 - "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 expenses.
Information for the cruise and tour segments for fiscal 2000, 1999 and 1998 was
as follows (in thousands):
Operating Depreciation
income and Capital Segment
2000 Revenues (loss) amortization expenditures assets
Cruise $3,578,372 $ 961,806 $276,483 $ 972,270 $9,093,646/(a)/
Tour 259,662 7,664 10,825 30,129 199,722
Affiliated Operations 37,828/(a)/ 437,391
Reconciling items /(b)/ (59,492) (24,340) 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
Affiliated operations 75,758/(a)/ 586,922
Reconciling items /(b)/ (61,059) (13,914) 11,442 575,431
---------- ---------- -------- ---------- ----------
$3,497,470 $1,019,699 $243,658 $ 872,984 $8,286,355
1998
Cruise $2,797,856 $ 822,242 $189,345 $1,113,191 $6,327,599
Tour 274,491 9,248 9,491 28,480 174,140
Affiliated operations 76,732/(a)/ 546,693
Reconciling items /(b)/ (63,041) (11,698) 1,832 8,742 130,891
---------- ---------- -------- ---------- ----------
$3,009,306 $ 896,524 $200,668 $1,150,413 $7,179,323
========== ========== ======== ========== ==========
/(a)/ The November 30, 2000 cruise segment assets included Costa, while Costa's
results of operations were presented in the affiliated operations segment
for all periods (see Notes 3 and 5).
/(b)/ Revenues consisted of intersegment revenues. Operating loss represented
corporate expenses not allocated to segments. Capital expenditures
represented corporate capital expenditures. Segment assets included cash,
cash equivalents, short-term investments and other corporate assets.
59
See Note 5 for affiliated operations segment information which were not included
in the Company's consolidated operations.
Foreign revenues for the Company's cruise brands, excluding Costa, 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 Canada,
United Kingdom, Germany and Australia. Foreign assets represent assets which are
located outside of the U.S. and include, among other things, all of the
Company's ships. Revenues and year-end asset information by geographic area was
as follows (in thousands):
2000 1999 1998
Revenues
United States $3,180,667 $2,934,492 $2,545,709
Foreign 597,875 562,978 463,597
---------- ---------- ----------
$3,778,542 $3,497,470 $3,009,306
========== ========== ==--------
Assets
United States $ 680,897 $1,063,963 $ 643,509
Foreign 9,150,423 7,222,392 6,535,814
---------- ---------- ----------
$9,831,320 $8,286,355 $7,179,323
========== ========== ==--------
Note 11 - Benefit plans
Stock Option Plans
The Company has stock option plans for certain employees and members of the
Carnival Board. The plans are administered by a committee of three directors of
the Company (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
established 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 2000, 1999 and 1998 were granted at an exercise price per share
equal to the fair market value of the Company's 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 have vested immediately and have a five or
ten year term. At November 30, 2000, options for 1,338,781 shares were available
for future grants. A summary of the status of options in the stock option plans
was as follows:
Weighted
Average Exercise Price Number of Options
Per Share Years Ended November 30,
2000 1999 1998 2000 1999 1998
Outstanding options -
beginning of year $22.70 $14.95 $11.88 6,517,168 5,987,574 5,502,580
Options granted $35.92 $44.54 $27.34 2,910,575 1,641,400 1,157,344
Options exercised $13.43 $11.01 $10.53 (244,850) (956,706) (652,350)
Options cancelled $35.91 $26.55 $22.86 (342,100) (155,100) (20,000)
--------- --------- ---------
Outstanding options -
end of year $26.80 $22.70 $14.95 8,840,793 6,517,168 5,987,574
Options exercisable -
end of year $15.82 $12.64 $10.91 4,042,452 3,601,993 3,405,630
60
Information with respect to stock options outstanding and stock options
exercisable at November 30, 2000 was as follows:
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Exercise Price Range Shares Life (years) Price Shares Price
$ 1.94-$ 2.25 37,480 (1) $ 2.06 37,480 $ 2.06
$ 6.94-$10.31 244,900 1.9 $ 7.51 244,900 $ 7.51
$10.59-$15.00 2,767,700 4.4 $11.30 2,743,700 $11.28
$16.28-$21.91 1,457,469 8.2 $19.54 337,938 $19.37
$24.63-$26.41 840,694 7.1 $26.39 305,854 $26.41
$34.03-$41.34 234,000 8.1 $36.49 61,600 $37.32
$43.56-$48.56 3,258,550 8.7 $44.35 310,980 $45.56
--------- ---------
Total 8,840,793 6.9 $26.80 4,042,452 $15.82
========= =========
/(1)/ These stock options do not have an expiration date.
Pursuant to SFAS No. 123, the Company has elected to use the intrinsic value
method of accounting for employee stock-based compensation awards. Accordingly,
the Company has not recognized compensation expense for its noncompensatory
employee stock option awards. The Company's pro forma net income and earnings
per share for fiscal 2000, 1999 and 1998 had the Company elected to adopt the
fair value approach (which charges earnings for the estimated fair value of
stock options) of SFAS No. 123 would not be materially different from reported
net income and earnings per share.
The weighted average fair values of the Company's options granted during fiscal
2000, 1999 and 1998 were $13.31, $15.15 and $7.61 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 2000, 1999 and 1998, respectively; expected dividend yields of 1.17%,
0.80%, and 1.62%; expected volatility of 28.9%, 26.3%, and 20.5%; risk free
interest rates of 6.4%, 4.8% and 5.3%; and expected option life of six years for
all periods.
Restricted Stock Plans
The Company has restricted stock plans under which three key employees are
granted restricted shares of the Company's Common Stock. Shares are awarded in
the name of each of the participants, who have all the rights of other Common
Stock shareholders, subject to certain restriction and forfeiture provisions.
During fiscal 2000, 1999 and 1998, 150,000 shares of Common Stock were issued
each year which were valued at $5.5 million, $6.8 million and $4.4 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 over the vesting period. As of November 30,
2000 and 1999 there were 313,094 shares and 263,765 shares, respectively, issued
under the plans which remain to be vested.
Management Incentive Plans
Most shoreside managerial employees of the Company participate in management
incentive plans. Certain of the participating employees receive a portion of
their incentive compensation award in Common Stock of the Company, instead of
the entire amount being paid in cash. During fiscal 2000, 1999 and 1998, 35,820,
49,734 and 61,214 shares of Common Stock with a quoted market value of $1.7
million, $1.7 million and $1.6 million, respectively, were issued under these
plans.
Defined Benefit Pension Plans
The Company has two defined benefit pension plans (qualified and non- qualified)
that are available to certain full-time Carnival Cruise Lines and corporate
shoreside employees who were employed with the Company prior to January 1, 1998.
These plans were closed to new participants on January 1, 1998. In addition, the
Company has two non-qualified defined benefit plans. One of these plans was
established in fiscal 1999 and is available to Carnival Cruise Lines' shipboard
employees and the other was established in fiscal 2000 and is available to two
executive officers of the Company. The Company's funding policy for the
qualified defined benefit plan is to annually contribute at least the minimum
amount required under the applicable labor regulations. The non-qualified plans
are unfunded. Pension expense for the defined benefit pension plans was $5.2
million, $3.6 million and $1.9 million for fiscal 2000, 1999 and 1998,
respectively.
61
Defined Contribution Plans
The Company has various defined contribution plans, available to substantially
all U.S. and Canadian employees, and certain United Kingdom and Carnival Cruise
Lines' shipboard employees. The Company contributes to these plans based on
employee contributions, salary levels and length of service. Total expense
relating to these plans in fiscal 2000, 1999 and 1998 was $6.8 million, $6.1
million and $5.3 million, respectively.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan which is authorized to issue up
to 4,000,000 shares of Common Stock to substantially all employees of the
Company. The purchase price is derived from a formula based on 85% of the fair
market value of the Common Stock during the six-month purchase period, as
defined. During fiscal 2000, 1999 and 1998, the Company issued 171,886, 144,911
and 175,971 shares, respectively, at a weighted average share price of $26.36,
$36.67 and $24.45, respectively, under this plan.
Note 12 - Earnings per share
Earnings per share were computed as follows (in thousands, except per share
data):
Years Ended November 30,
2000 1999 1998
Basic:
Net income $965,458 $1,027,240 $835,885
Average common shares outstanding 599,665 612,484 595,037
Earnings per share $ 1.61 $ 1.68 $ 1.40
Diluted:
Net income $965,458 $1,027,240 $835,885
Effect on net income of assumed
issuance of affiliate securities (3,299)
Net income available assuming dilution $965,458 $1,023,941 $835,885
Average common shares outstanding 599,665 612,484 595,037
Effect of dilutive securities-
shares issuable under various stock option plans 2,247 3,516 3,411
Average shares outstanding assuming dilution 601,912 616,000 598,448
Earnings per share $ 1.60 $ 1.66 $ 1.40
Note 13 - Supplemental cash flow information
Year ended November 30,
2000
(in thousands)
Cash paid (received) for:
Interest (net of amount capitalized) $ 40,431
Income taxes $ (800)
Noncash investing and financing activities:
Common Stock issued under various stock plans $ 7,250
Note received upon the sale of the Nieuw Amsterdam $ 84,500
Note 14 - Recent accounting pronouncements
In December 1999, the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements to
provide guidance on the recognition, presentation and disclosure of revenues in
financial statements. In June 2000, the SEC issued SAB 101B, which delays the
Company's implementation date of SAB 101 until not later than September 1, 2001.
The Company has completed its review and believes that its current revenue
recognition policies are in conformity, in all material respects, with this SAB
and does not expect that its adoption will have a material impact on its
financial statements.
62
PARTB: Consolidated Financial Information for the fiscal period ended 31 August
2001
The consolidated financial information for the nine months ended 31 August 2001
has been derived from Carnival's unaudited consolidated financial statements for
the quarter ended 31 August 2001 and SEC filings.
Consolidated balance sheet (unaudited)
(in thousands, except par value)
August 31, November 30,
2001 2000
ASSETS
Current Assets
Cash and cash equivalents $ 1,155,236 $ 189,282
Accounts receivable, net 113,455 95,361
Consumable inventories 96,337 100,451
Prepaid expenses and other 142,220 164,388
Fair value of hedged firm commitments 118,486
----------- ----------
Total current assets 1,625,734 549,482
Property and Equipment, Net 8,427,846 8,001,318
Investments in and Advances to Affiliates 437,391
Goodwill, less Accumulated Amortization of $113,031 and $99,670 662,339 701,385
Other Assets 180,288 141,744
Fair Value of Hedged Firm Commitments 379,599
----------- ----------
$11,275,806 $9,831,320
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 181,848 $ 248,219
Accounts payable 299,534 332,694
Accrued liabilities 307,940 302,585
Customer deposits 750,393 770,425
Dividends payable 61,547 61,371
Fair value of derivative contracts 120,007
----------- ----------
Total current liabilities 1,721,269 1,715,294
Long-Term Debt 2,478,482 2,099,077
Deferred Income and Other Long-Term Liabilities 145,984 146,332
Fair Value of Derivative Contracts 383,655
Commitments and Contingencies (Note 5)
Shareholders' Equity
Common stock; $.01 par value; 960,000 shares authorized;
620,006 and 617,568 shares issued 6,200 6,176
Additional paid-in capital 1,805,050 1,772,897
Retained earnings 5,501,532 4,884,023
Unearned stock compensation (13,590) (12,283)
Accumulated other comprehensive loss (25,139) (75,059)
Treasury stock; 33,848 and 33,087 shares at cost (727,637) (705,137)
Total shareholders' equity 6,546,416 5,870,617
----------- ----------
$11,275,806 $9,831,320
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
63
Consolidated statements of operations (unaudited)
(in thousands, except per share data)
Nine Months Three Months
Ended August 31, Ended August 31,
2001 2000 2001 2000
Revenues $ 3,576,649 $2,928,216 $1,489,918 $1,228,211
Costs and Expenses
Operating expenses 1,920,832 1,577,28 719,378 614,724
Selling and administrative 457,252 361,035 146,797 119,329
Depreciation and amortization 280,958 211,140 97,008 75,248
Impairment loss 101,389 101,389
----------- ---------- ---------- ----------
2,760,431 2,149,460 1,064,572 809,301
Operating Income Before
(Loss) Income From Affiliated
Operations 816,218 778,756 425,346 418,910
(Loss) Income From Affiliated
Operations, Net (44,024) (4,361) 1,548
----------- ---------- ---------- ----------
Operating Income 772,194 774,395 425,346 420,458
Nonoperating Income (Expense)
Interest income 22,750 14,051 12,972 2,592
Interest expense, net of
capitalized interest (92,210) (25,198) (30,100) (9,738)
Other income (expense), net 105,459 12,241 93,133 (6,005)
Income tax benefit (expense) 1,695 (3,826) (6,376) (11,117)
37,694 (2,732) 69,629 (24,268)
----------- ---------- ---------- ----------
Net Income $ 809,888 $ 771,663 $ 494,975 $ 396,190
=========== ========== ========== ==========
Earnings Per Share:
Basic $ 1.39 $ 1.28 $ .84 $ .67
Diluted $ 1.38 $ 1.27 $ .84 $ .67
The accompanying notes are an integral part of these consolidated financial
statements.
64
Consolidated statements of cash flows (unaudited)
(in thousands)
Nine Months Ended August 31,
2001 2000
OPERATING ACTIVITIES
Net income $ 809,888 $ 771,663
Adjustments to reconcile net income to net cash provided from operations:
Depreciation and amortization 280,958 211,140
Dividends received and loss from affiliated operations, net 56,910 20,827
Other, net (2,009) 3,819
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables (18,275) (26,916)
Consumable inventories 4,114 (8,334)
Prepaid expenses and other 23,018 (21,851)
(Decrease) increase in:
Accounts payable (33,160) 32,744
Accrued liabilities 4,137 (7,288)
Customer deposits (20,032) 25,866
------------ -----------
Net cash provided from operating activities 1,105,549 1,001,670
============ ===========
INVESTING ACTIVITIES
Additions to property and equipment (713,328) (882,460)
Proceeds from sale of investments in affiliates, net 531,471 303
Other, net (23,931) 4,827
------------ -----------
Net cash used for investing activities (205,788) (877,330)
============ ===========
FINANCING ACTIVITIES
Proceeds from long-term debt 1,972,566 395,930
Principal payments of long-term debt (1,708,746) (10,476)
Dividends paid (184,297) (192,964)
Proceeds from issuance of common stock, net 5,076 7,677
Purchase of treasury stock (705,137)
Debt issuance costs (16,351)
------------ -----------
Net cash provided from (used for) financing activities 68,248 (504,970)
Effect of exchange rate changes on cash and cash equivalents (2,055) -
Net increase (decrease) in cash and cash equivalents 965,954 (380,630)
Cash and cash equivalents at beginning of period 189,282 521,771
Cash and cash equivalents at end of period $ 1,155,236 $ 141,141
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
65
Notes to consolidated financial statements (unaudited)
Note 1 - Basis of presentation
The accompanying financial statements have been prepared, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
As used in Appendix II, the terms "we," "our," and "us" refers to Carnival
Corporation and its consolidated subsidiaries.
The accompanying consolidated balance sheet at August 31, 2001 and the
consolidated statements of operations for the nine and three months ended August
31, 2001 and 2000 and the consolidated statements of cash flows for the nine
months ended August 31, 2001 and 2000 are unaudited and, in the opinion of our
management, contain all adjustments necessary for a fair presentation. All the
adjustments are of a normal recurring nature, except for our impairment loss
adjustment (see Note 8). During fiscal 2000, we accounted for our 50% interest
in Costa's operating results using the equity method and recorded our portion of
Costa's operating results as earnings from affiliated operations. Since we
acquired the remaining 50% interest in Costa in late 2000, commencing in fiscal
2001, Costa's results of operations were consolidated in the same manner as our
other subsidiaries.
Our operations are seasonal and results for interim periods are not necessarily
indicative of the results for the entire year. Certain amounts in prior periods
have been reclassified to conform with the current period's presentation.
Note 2 - Property and equipment
Property and equipment consisted of the following (in thousands)
(See Note 8):
August 31, November 30,
2001 2000
Ships $ 8,907,117 $ 8,575,563
Ships under construction 546,516 320,480
----------- -----------
9,453,633 8,896,043
Land, buildings and improvements 273,893 278,338
Transportation equipment and other 346,559 311,282
----------- -----------
Total property and equipment 10,074,085 9,485,663
Less accumulated depreciation and
amortization (1,646,239) (1,484,345)
----------- -----------
$ 8,427,846 $ 8,001,318
=========== ===========
Capitalized interest, primarily on ships under construction, amounted to $21.3
million and $32.9 million for the nine months ended August 31, 2001 and 2000,
respectively, and $6.8 million and $11.4 million for the three months ended
August 31, 2001 and 2000, respectively.
66
Note 3 - Long-term debt
Long-term debt consisted of the following (in thousands):
August 31, November 30,
2001/(a)/ 2000/(a)/
Euro note, secured by one ship, bearing
interest at euribor plus 0.5% (4.8% at
August 31, 2001), due through 2008 $ 128,554 $ 141,628
Unsecured debentures and notes, bearing
interest at rates ranging from 6.15% to
7.7%, due through 2028 848,749 848,657
Unsecured euro notes, bearing interest at
rates ranging from euribor plus 0.19% to
euribor plus 1.0% (4.7% to 5.4% at
August 31, 2001), due 2001, 2005 and 2006/(b)/ 780,743 475,400
Unsecured euro notes, bearing interest at 5.57%,
due in 2006 272,074
Commercial paper 342,846
Unsecured euro note, bearing interest at
euribor plus 0.25% 338,676
$200 million multi-currency revolving credit
facility drawn in euros 160,862
Unsecured 2% convertible debentures,
due in 2021 600,000
Other 30,210 39,227
---------- ----------
2,660,330 2,347,296
Less portion due within one year (181,848) (248,219)
---------- ----------
$2,478,482 $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.
(b) In May 2001, we entered into a five-year, $235 million unsecured euro
denominated revolving credit facility, of which $207 million was available
at August 31, 2001. We intend to refinance a $70 million unsecured euro
note, due in 2001, with proceeds from this revolver and, accordingly, have
classified this $70 million of outstanding debt as long-term in the August
31, 2001 balance sheet.
In April 2001 we issued $600 million of unsecured 2% debentures which are
convertible into our common stock at a conversion price of $39.14 per share,
subject to adjustment, during any fiscal quarter for which the closing price of
our common stock is greater than $43.05 for 20 out of the last 30 trading days
of the preceding fiscal quarter. This condition was not met during the periods
ended August 31, 2001 and, accordingly, the 15.3 million shares issuable upon
conversion are not included in our earnings per share computation (see Note 10).
Upon conversion of the debentures we may choose to deliver, in lieu of our
common stock, cash or a combination of cash and common stock with a total value
equal to the value of the common stock otherwise deliverable. Subsequent to
April 15, 2008, we may redeem the debentures for cash at their face value plus
any unpaid accrued interest. In addition, at the option of the debenture
holders, on any April 15 of 2005, 2008, and 2011, we may be required to
repurchase any outstanding debentures at their face value plus any unpaid
accrued interest. If such option is exercised by the holders, we may choose to
pay the purchase price in cash, shares of common stock or a combination of cash
and common stock.
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 debt rating, if
any, and provides for a facility fee of eight BPS. Similar to our prior
facility, our commercial paper program is supported by this new facility and,
accordingly, any funds outstanding under our commercial paper program reduces
the aggregate amount available under this facility.
67
Note 4 - Shareholders' equity
Our Articles of Incorporation authorize our Carnival Board, at its discretion,
to issue up to 40 million shares of preferred stock. The preferred stock is
issuable in series which may vary as to certain rights and preferences at the
discretion of our Carnival Board and has a $.01 par value. At August 31, 2001
and November 30, 2000, no preferred stock had been issued.
During the nine months ended August 31, 2001 and 2000, we declared cash
dividends of $.315 per share each period, or an aggregate of $184.5 million and
$189.7 million, respectively.
Note 5 - Commitments and contingencies
Ship Commitments
A description of ships under contract for construction at August 31, 2001 was as
follows (dollars in millions):
Expected Estimated
Service Passenger Total
Ship Date/(1)/ Shipyard Capacity/(2)/ Cost/(3)/
Carnival Cruise Lines
Carnival Pride 1/02 Masa-Yards/(4)/ 2,124 $ 375
Carnival Legend 8/02 Masa-Yards/(4)/ 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/(4)/ 2,124 375
Carnival Valor 11/04 Fincantieri/(4)/ 2,974 500
------ ------
Total Carnival Cruise Lines 15,294 2,625
Holland America Line
Zuiderdam 11/02 Fincantieri/(4)/ 1,848 410
Oosterdam 7/03 Fincantieri/(4)/ 1,848 410
Newbuild 2/04 Fincantieri/(4)/ 1,848 410
Newbuild 10/04 Fincantieri/(4)/ 1,848 410
Newbuild 6/05 Fincantieri/(4)/ 1,848 410
------ ------
Total Holland America Line 9,240 2,050
Costa Cruises
Costa Mediterranea 7/03 Masa-Yards/(5)/ 2,114 340
Costa Fortuna 1/04 Fincantieri/(6)/ 2,720 395
Costa Magica 12/04 Fincantieri/(6)/ 2,720 395
------ ------
Total Costa Cruises 7,554 1,130
Cunard Line
Queen Mary 2 12/03 Chantiers de
l'Atlantique/(4)/ 2,620 780
------ ------
Total Cunard Line 2,620 780
------ ------
Total 34,708 $6,585
====== ======
(1) The expected service date is the date the ship is currently expected to
begin revenue generating activities.
(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) These construction contracts are denominated in German marks, Italian lira
or euros and have been fixed into U.S. dollars through the utilization of
forward foreign currency contracts.
(5) This construction contract is denominated in German marks which has a fixed
exchange rate with Costa's functional currency, which is the Italian lira.
The estimated total cost has been translated into U.S. dollars using the
August 31, 2001 exchange rate.
(6) These construction contracts are denominated in Italian lira, and the
estimated total costs have been translated into U.S. dollars using the
August 31, 2001 exchange rate.
In connection with the ships under contract for construction, we have paid
approximately $547 million through August 31, 2001 and we anticipate paying
approximately $940 million during the twelve months ending August 31, 2002 and
approximately $5.1 billion thereafter.
68
Litigation
Several actions (collectively the "Passenger Complaints") have been filed
against us on behalf of purported classes of persons who paid port charges to
Carnival Cruise Lines, Holland America Line ("Holland America") and Costa
Cruises ("Costa"), alleging that statements made in advertising and promotional
materials concerning port charges were false and misleading. 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.
Carnival Cruise Lines recently entered into an agreement to settle the Passenger
Complaint filed against it. A final order and judgment approving the settlement
was signed by the trial court. Under the settlement agreement, Carnival Cruise
Lines will issue travel vouchers with a face value of $25-$55 depending on
specified criteria, to certain of its passengers who sailed between April 1992
and June 1997. The vouchers also provide class members with a cash redemption
option of up to 20% of the face value. The aggregate face value of travel
vouchers that Carnival Cruise Lines will issue, assuming no cash redemptions, is
approximately $125 million. Alternatively, if all passengers elect the cash
redemption feature, the vouchers could be redeemed for approximately $25 million
in cash. Pursuant to the settlement, Carnival Cruise Lines has paid the
plaintiffs' legal fees awarded by the court.
Holland America Tours has entered into a settlement agreement for the one
Passenger Complaint filed against it. The settlement agreement was approved by
the trial court on September 28, 1998. Under the settlement agreement, Holland
America would issue a total of approximately $14 million in travel vouchers with
a face value of $10-$50 depending on specified criteria, to certain of its
passengers who are U.S. residents and who sailed between April 1992 and April
1996, and would pay a portion of the plaintiffs' legal fees.
One member of the Holland America Tours settlement class appealed the trial
court's approval of the settlement. In August 2000, the court of appeals refused
to approve the settlement and remanded the case to the trial court. At the
request of Holland America Tours, the Washington Supreme Court has agreed to
review the court of appeals ruling. A decision by the Washington Supreme Court
is expected by the end of 2001.
At August 31, 2001 and November 30, 2000, an estimated accrued liability of
approximately $19 million and $24 million, respectively, has been included in
the accompanying balance sheets for the estimated cash redemptions and
settlement costs of the Passenger Complaints.
If the Passenger Complaint settlements are implemented as described above, the
amount and timing of the travel vouchers to be redeemed for travel and the
effects of the travel voucher redemption on revenues are not reasonably
determinable. Accordingly, we will account for the non-cash redemption of the
vouchers as a reduction of future revenues.
Several actions have been filed against Carnival Cruise Lines, Holland America
Tours and Costa alleging that they violated the Americans with Disabilities Act
("ADA") by failing to make certain of their cruise ships accessible to
individuals with disabilities (collectively the "ADA Complaints"). Plaintiffs
seek injunctive relief and fees and costs. Carnival Cruise Lines has reached an
agreement with the plaintiffs to settle its ADA Complaint. Pursuant to the
agreement, Carnival Cruise Lines would make certain modifications to its
existing 15 ships. A hearing was held in September where certain procedural
objections were raised. We anticipate the court issuing a final decision on
whether to grant final approval of the settlement in late October. We believe
that the estimated total cost of the modifications will not have a material
effect on our financial position. The actions against Holland America Tours and
Costa are proceeding.
Several actions filed in the U.S. District Court for the Southern District of
Florida against us and four of our officers on behalf of a purported class of
purchasers of common stock of the Company were consolidated into one action in
Florida (the "Stock Purchase Complaint"). The plaintiffs are claiming that
statements we made in public filings violate federal securities laws and seek
unspecified compensatory damages, attorneys' fees and costs and expert fees.
This action is proceeding.
It is not now possible to determine the ultimate outcome of the pending
Passenger, ADA and Stock Purchase Complaints, if such claims should proceed to
trial. We believe that we and our officers, as applicable, have meritorious
defenses to these claims and, accordingly, we all intend to vigorously defend
against all such claims.
69
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 discussions with the Office of the
United States 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. The ultimate outcome
of this matter cannot be determined at this time.
In February 2001, Holland America Line, 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.
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 an approximate $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. In addition, it is not
currently possible to determine the ultimate outcome of this matter, however, we
believe that the arbitration proceeding will result in a favorable outcome for
us.
In the normal course of 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 outcome of any such suits, which are not
covered by insurance, would not have a material adverse effect on our financial
statements.
Contingent Obligations
We have certain contingent obligations, including letters of credit, to
participants in lease out and lease back type transactions for three ships
which, at August 31, 2001, totalled approximately $780 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, as
applicable, we have the right to exercise purchase options that would terminate
these transactions.
Note 6 - Derivative instruments and hedging activities
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 the balance sheet at their fair value. Derivatives that are not
hedges must be recorded at fair value and the changes in fair value must be
included in earnings. If a derivative is a fair value hedge, changes in the fair
value of the derivative are offset against the changes in the fair value of the
underlying hedged firm commitments. If a derivative is a cash flow hedge,
changes in the fair value of the derivative are recognized in comprehensive
income 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. For the periods ended August 31, 2001, all net changes
in the fair value of both the fair value hedges and the related hedged firm
commitments and the cash flow hedges were immaterial, as were any ineffective
portions of these hedges.
We have not made any changes to our hedge-related risk management policies as a
result of adopting SFAS No. 133. The fair value of hedged firm commitment assets
on our balance sheet principally represents the unrealized gains on our
shipbuilding commitments denominated in foreign currencies because of the
strengthening of the dollar versus these currencies. The fair value of
derivative contract liabilities principally represents the 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.
70
Note 7 - Comprehensive income
Comprehensive income was as follows (in thousands):
Nine Months Three Months
Ended August 31, Ended August 31,
2001 2000 2001 2000
Net income $809,888 $771,663 $494,975 $396,190
SFAS No. 133 transition adjustment (4,214)
Changes in securities valuation allowance 7,782 (1,286) (351) 404
Foreign currency translation adjustment 48,031 (49,635) 64,995 (14,402)
Changes related to cash flow derivative hedges (1,679) (848)
-------- -------- -------- --------
Total comprehensive income $859,808 $720,742 $558,771 $382,192
======== ======== ======== ========
Note 8 - Impairment loss
During the third quarter of fiscal 2001 we reviewed our long-term assets 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 luxury brands and had recently restructured their operations
and made changes to their senior management. In addition, in the third quarter
we sold two Seabourn ships to an unaffiliated third party and announced the
transfers of a third Seabourn ship to our Holland America brand. As a result of
this review, we recorded an impairment loss of approximately $101 million which
consisted principally of a $36 million write-off of Seabourn goodwill, a $53
million reduction in the carrying value of ships, primarily from the Seabourn
and Cunard brands, and an $11 million loss related to the sale of the Seabourn
Goddess I and II. The impaired ships' fair values were based primarily on third
party appraisals and the fair value of the goodwill was based on discounted cash
flows.
Note 9 - Segment information
Our cruise segment included six cruise brands in fiscal 2001 and five cruise
brands in fiscal 2000 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 related services. The tour segment
represents the operations of Holland America Tours.
Selected segment information was as follows (in thousands):
Nine Months Ended Nine Months Ended
August 31, 2001 August 31, 2000
Operating Operating
income income
Revenues (loss) Revenues (loss)
Cruise 3,412,197 $818,801/(a)/ 2,746,515 $774,598
Tour 212,358 6,686 237,019 14,631
Affiliated operations /(b)/ (44,024) (4,361)
Intersegment elimination (47,906) (55,318)
Corporate (9,269) (10,473)
---------- -------- ---------- --------
$3,576,649 $772,194 $2,928,216 $774,395
========== ======== ========== ========
71
Three Months Ended Three Months Ended
August 31, 2001 August 31, 2000
Operating Operating
income income
Revenues (loss) Revenues (loss)
Cruise $1,357,606 $403,209/(a)/ 1,083,380 $389,767
Tour 173,600 24,847 192,251 32,577
Affiliated operations /(b)/ 1,548
Intersegment elimination (41,288) (47,420)
Corporate (2,710) (3,434)
---------- -------- ---------- --------
$1,489,918 $425,346 $1,228,211 $420,458
========== ======== ========== ========
(a) Includes a $101 million impairment loss (see Note 8).
(b) On June 1, 2001 we sold our investment in Airtours plc which resulted in a
nonoperating net gain of approximately $100 million and net cash proceeds of
approximately $492 million. 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. However, we did record a direct charge of $7.9
million to our retained earnings in the third quarter of fiscal 2001 which
represented our share of Airtours' losses for April and May 2001, since we
had been on a two-month reporting lag.
Selected segment information which is not included in our consolidated
operations for our affiliated operations segment was as follows (in thousands):
Nine Months Three Months
Ended August 31, Ended August 31,
2001 2000 2000
Revenues $3,131,848 $4,337,039 $1,829,956
Net loss $ (160,258) $ (48,807) $ (355)
The table above represents 100% of our affiliated companies' results of
operations, and excludes Airtours after May 31, 2001 and includes Costa in 2000
but not in 2001.
Note 10 - Earnings per share
Basic and diluted earnings per share were computed as follows (in thousands,
except per share data):
Nine Months Three Months
Ended August 31, Ended August 31,
2001 2000 2001 2000
Net income $809,888 $771,663 $494,975 $396,190
Weighted average common shares outstanding 584,698 604,692 586,078 591,032
Dilutive effect of employee stock plans 2,046 2,346 1,432 1,521
Dilutive weighted average shares outstanding 586,744 607,038 587,510 592,553
Basic earnings per share $ 1.39 $ 1.28 $ .84 $ .67
Diluted earnings per share $ 1.38 $ 1.27 $ .84 $ .67
Note 11 - Recent accounting pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements"
to provide guidance on the recognition, presentation and disclosure of revenues
in financial statements. Our adoption of this SAB on September 1, 2001 did not
have a material impact on our financial statements.
In July 2001, SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill
and Other Intangible Assets" were issued. SFAS No. 141 applies to all business
combinations with a closing date after June 30, 2001. SFAS No. 141 eliminates
the pooling-of interests method of accounting and further clarifies the criteria
for recognition of intangible assets separately from goodwill. The adoption of
this standard is not expected to have a material effect on our financial
statements.
SFAS No. 142 eliminates the amortization of goodwill and indefinite-lived
intangible assets and requires an annual impairment review of these intangible
assets. Identifiable intangible assets with a determinable useful life will
continue to be amortized. The amortization provisions will immediately
72
apply 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. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001, although early adoption is permitted at the beginning
of our fiscal 2002. We have not yet determined if we will early adopt SFAS No.
142, which will require us to both cease amortization of our remaining net
unamortized goodwill and to perform an initial impairment test of our existing
goodwill as of the adoption date. We are currently evaluating the impact of such
adoption on our financial statements.
73
PART C: Consolidated financial information for the fiscal period ended 30
November 2001
The consolidated financial information for the three months and fiscal year
ended 30 November 2001 has been derived from and the commentary on this period
substantially extracted from Carnival's unaudited preliminary results for the
fiscal quarter and year ended 30 November 2001 and SEC filings.
Carnival reported net income of $116.3 million ($0.20 Diluted EPS) on revenues
of $959.1 million for its fourth quarter ended 30 November, 2001, compared to
net income of $193.8 million ($0.33 Diluted EPS) on revenues of $850.3 million
for the same quarter in 2000.
Net income for the year ended 30 November, 2001, was $926.2 million ($1.58
Diluted EPS) on revenues of $4.54 billion, compared to net income of $965.5
million ($1.60 Diluted EPS) on revenues of $3.78 billion for the same period in
2000.
Fourth quarter 2001 net income was reduced by $33 million, comprised of an
impairment charge of $39 million, primarily related to a write-down in the
carrying value of two ships, net of a Costa tax benefit of $6 million. Fourth
quarter 2000 included a Costa tax benefit of $27 million.
The company's fourth quarter comparable cruise results were also adversely
affected by the 11 September 2001 terrorist attacks, which impacted all leisure
travel. The significant reduction in demand for travel following the tragic
events of 11 September 2001 resulted in the company reporting lower occupancies
and prices during the 2001 fourth quarter. Comparable net revenue yields (net
revenue per available berth day) for the quarter were down by approximately 7
percent compared to the fourth quarter of 2000.
Commenting on fourth quarter 2001 results, Carnival Corporation Chairman and CEO
Micky Arison said that "in light of the significant impact of the September 11
events on the vacation market, the achievement of quarterly net income of more
than $116 million with occupancies of 98 percent is a testament to the strength
of our vacation products."
Looking to 2002, Mr. Arison indicated that booking levels have started to
recover from the significant slowdown in bookings experienced in the two months
following 11 September 2001. During the last five weeks, net booking levels have
been 45 percent above prior year levels, although cumulative advance bookings
for 2002 still remain well behind last year's levels at this time. Mr. Arison
also noted that 2002 pricing has improved but is still below last year's levels.
2001 Fourth Quarter Earnings
At the present time the company's advance booking occupancy levels for the first
quarter of fiscal 2002, are approximately 92 percent, which is approximately
seven percentage points behind the levels existing at the same time last year.
Based on current pricing and booking trends, management presently expects that
net revenue yields for the first quarter of 2002 will be down between 10 to 15
percent compared to last year.
Bookings for the second and third quarters of fiscal 2002 are also behind last
year's levels at this time with occupancy down by approximately 11 percentage
points each quarter. Pricing on these bookings is also down from the prior year.
Mr. Arison indicated that, given the current booking trends, he is optimistic
that net revenue yield comparisons for the remainder of 2002 will improve
compared to the first quarter.
The company also recently changed the delivery schedule for Holland America's
Vista-class newbuilds, assigning one slot to Cunard Line and signing an option
on a fifth newbuild. The new delivery schedule for Holland America is as
follows: Zuiderdam, November 2002; Oosterdam, June 2003; Vista #3, April 2004;
Vista #4, October 2005; and option ship, May 2006. The new 85,000-ton Cunard
ship is scheduled for delivery in January 2005, and will target the U.K.
vacation market.
Based on these new delivery dates, the company's shipbuilding commitments for
the fiscal years 2002 through 2005 are now estimated to be approximately $1.75
billion, $1.5 billion, $2.0 billion and $700 million, respectively. In addition,
the year over year percentage increase in the company's average passenger
capacity resulting from the delivery of ships currently under contract for
fiscal 2002 through 2006 is expected to approximate 4.5 percent, 16.5 percent,
17.3 percent, 10.6 percent and 2.5 percent, respectively. Carnival does not
expect to reschedule any further deliveries.
Mr. Arison pointed out that the company continues to be confident that the
fundamental long-term
74
drivers of its growth remain intact. "To enable us to overcome challenges in
these times of increased uncertainty, as well as to take advantage of
opportunities as they present themselves, it is important for us to maintain our
solid operating margins and strong balance sheet." Carnival currently has more
than $2.4 billion of cash, short-term investments and undrawn credit lines, and
also relatively low debt levels. As a result of its financial strength and
operating results, the company believes that it maintains the highest credit
ratings in the leisure industry.
On December 16, 2001, the company announced its pre-conditional offer to acquire
P&O Princess Cruises plc for approximately $4.6 billion in cash and Carnival
common stock.
75
Consolidated statements of operations
Three months ended Twelve months ended
November 30, November 30,
2001 2000 2001 2000
(in thousands, except) (in thousands, except
earnings per share) earnings per share)
Revenues $959,102 $850,326 $4,535,751 $3,778,542
Costs and expenses:
Operating expenses 547,898 481,057 2,468,730 2,058,342
Selling and administrative 161,412 126,368 618,664 487,403
Depreciation and amortization 91,266 76,527 372,224 287,667
Impairment charge 38,989 140,378
-------- -------- ---------- ----------
839,565 683,952 3,599,996 2,833,412
======== ======== ========== ==========
Operating income before income (loss) from
affiliated operations 119,537 166,374 935,755 945,130
Income (loss) from affiliated operations, net 42,189 (44,024) 37,828
-------- -------- ---------- ----------
Operating income 119,537/(1)/ 208,563 891,731/(1)/ 982,958
Nonoperating (expense) income:
Interest income 11,505 2,455 34,255 16,506
Interest expense, net (28,482) (16,174) (120,692) (41,372)
Other income (expense), net 3,190 (3,781) 108,649 (2) 8,460
Income tax benefit (expense) 10,562 2,732 12,257 (1,094)
-------- -------- ---------- ----------
(3,225) (14,768) 34,469 (17,500)
-------- -------- ---------- ----------
Net income $116,312 $193,795 $ 926,200 $ 965,458
======== ======== ========== ==========
Earnings per share:
Basic $ 0.20 $ 0.33 $ 1.58 $ 1.61
======== ======== ========== ==========
Diluted $ 0.20 $ 0.33 $ 1.58 $ 1.60
======== ======== ========== ==========
Weighted average shares outstanding - basic 586,165 584,474 585,064 599,665
Weighted average shares outstanding - diluted 587,080 586,350 586,862 601,912
(1) Excluding the $39 million and $140 million impairment charge, operating
income would be $159 million and $1.03 billion for the three and twelve
months ended November 30, 2001, respectively.
(2) Includes a gain of approximately $100 million from the sale of the
company's minority interest in Airtours PLC.
NOTE: Commencing in fiscal 2001, the company's statements of operations included
the consolidation of costa's results of operations. In fiscal 2000, the
company's 50 percent interest in costa was included in affiliated operations.
76
Selected statistical and segment information
Three months ended Twelve months ended
November 30, November 30,
2001 2000 2001 2000
(in thousands) (in thousands)
STATISTICAL INFORMATION:
Passengers carried 790 674 3,385 2,669
Available lower berth days 5,185 4,080 20,685 15,888
Occupancy percentage 97.9% 103.4% 104.7% 105.4%
SEGMENT INFORMATION:
Revenues:
Cruise $945,745 $831,857 $4,357,942 $3,578,372
Tour 17,125 22,643 229,483 259,662
Intersegment (3,768) (4,174) (51,674) (59,492)
-------- -------- ---------- ----------
$959,102 $850,326 $4,535,751 $3,778,542
======== ======== ========== ==========
Operating expenses:
Cruise $536,011 $465,495 $2,333,502 $1,910,371
Tour 15,655 19,736 186,902 207,463
Intersegment (3,768) (4,174) (51,674) (59,492)
-------- -------- ---------- ----------
$547,898 $481,057 $2,468,730 $2,058,342
======== ======== ========== ==========
Operating income (loss):
Cruise, excluding impairment charge $172,530 $182,628 $1,092,720 $ 957,226
Tour, excluding impairment charge (11,112) (6,967) (4,426) 7,664
Impairment charge (38,989) (140,378)
Affiliated Operations 42,189 (44,024) 37,828
Corporate (2,892) (9,287) (12,161) (19,760)
-------- -------- ---------- ----------
$119,537 $208,563 $ 891,731 $ 982,958
======== ======== ========== ==========
NOTE: Commencing in fiscal 2001, the company's statements of operations and
selected statistical information included the consolidation of costa's results
of operations. In fiscal 2000, costa's results of operations were included in
affiliated operations and were not included in the 2000 statistical information.
77
APPENDIX III
Financial Information on the
P&O Princess Group
The financial information set out in this Appendix III has been extracted from
the circular and notice of Extraordinary General Meeting to P&O Princess
Shareholders dated 27 December 2001.
The financial information set out below does not constitute P&O Princess'
statutory accounts within the meaning of Section 246 of the Companies Act. The
consolidated financial information below for the three years ended 31 December
1998, 199 and 2000 and as at 31 December 1998, 1999 and 2000 has been extracted
from P&O Princess' audited financial statements for the year ended 31 December
2000 and KPMG Audit Plc's accountants' report on P&O Princess for the three
years ended 31 December 1999 contained in P&O Princess' listing particulars
dated 26 September 2000 without material adjustment.
KPMG Audit Plc, Chartered Accountants and Registered Auditor of 8 Salisbury
Square, London, EC4Y 8BB, United Kingdom was for the year ended 31 December 2000
and is currently, the auditor of P&O Princess. KPMG Audit Plc made a report
under Section 235 of the Companies Act on the financial statements for the year
ended 31 December 2000 which was unqualified and did not contain a statement
under Section 237(2) and (3) of the Companies Act. These financial statements
have been delivered to the Registrar of Companies. KPMG Audit Plc's opinion in
the accountants' report for the three years ended 31 December 1999 was also
unqualified.
A summary of differences between UK and US GAAP for the three years ended 31
December 2000 is presented in note 29 to the consolidated financial information.
78
PART A: Financial information for the three years ended 31 December 2000
Group profit and loss account
Years ended December 31
2000 1999 1998
Note US$m US$m US$m
Turnover 2 2,423.9 2,111.6 1,852.4
Cost of sales (1,842.0) (1,536.0) (1,349.4)
Administrative expenses (208.8) (187.3) (159.8)
--------- --------- ---------
Operating costs 3 (2,050.8) (1,723.3) (1,509.2)
--------- --------- ---------
Operating profit 373.1 388.3 343.2
Share of operating results of joint ventures 0.5 - 0.3
--------- --------- ---------
Total operating profit 2 373.6 388.3 343.5
Loss on disposal of ships 2 (6.7) (4.8) -
Profit on sale of business 2 0.2 - -
--------- --------- ---------
Profit on ordinary activities before interest 2 367.1 383.5 343.5
Net interest and similar items 4 (49.1) (25.7) (31.4)
--------- --------- ---------
Profit on ordinary activities before taxation 318.0 357.8 312.1
Taxation 5 (41.3) (47.0) (56.7)
--------- --------- ---------
Profit on ordinary activities after taxation 276.7 310.8 255.4
Equity minority interests (2.6) (0.5) -
--------- --------- ---------
Profit for the financial year attributable to Shareholders 274.1 310.3 255.4
Dividends 6 (83.1) - -
--------- --------- ---------
Retained profit for the financial year 191.0 310.3 255.4
--------- --------- ---------
Earnings per share
Basic earnings per share (in cents) 7 40.1 45.5 37.5
Basic earnings per ADS 7 $ 1.60 $ 1.82 $ 1.50
In all three years all profits and losses arise from continuing activities.
79
Group balance sheet
As at December 31
2000 1999 1998
Note US$m US$m US$m
Fixed assets
Intangible assets
Goodwill 8 121.0 14.2 7.8
Tangible assets
Ships 9 3,608.0 3,036.0 2,762.9
Properties and other fixed assets 10 219.6 199.7 170.9
------- ------- -------
3,827.6 3,235.7 2,933.8
Investments 11 10.9 8.4 8.1
------- ------- -------
3,959.5 3,258.3 2,949.7
------- ------- -------
Current assets
Stocks 12 79.8 78.9 83.3
Debtors 13 322.3 264.6 238.3
Cash at bank and in hand 247.2 63.2 60.8
------- ------- -------
649.3 406.7 382.4
Creditors: amounts falling due within one year 14 (975.7) (1,143.4) (1,335.5)
------- ------- -------
Net current liabilities (326.4) (736.7) (953.1)
------- ------- -------
Total assets less current liabilities 3,633.1 2,521.6 1,996.6
Creditors: amounts falling due after one year 14 (1,062.7) (216.7) (139.7)
Provisions for liabilities and charges 15 (106.6) (108.4) (93.5)
------- ------- -------
2,463.8 2,196.5 1,763.4
------- ------- -------
Capital and reserves
Called up share capital 16 346.3 340.6 -
Other reserves 17 82.4 - -
Merger reserve 17 910.3 909.1 -
Profit and loss account 17 1,124.6 939.1 -
------- ------- -------
Equity Shareholders' funds 2,463.6 2,188.8 1,763.4
Equity minority interests 18 0.2 7.7 -
------- ------- -------
2,463.8 2,196.5 1,763.4
------- ------- -------
80
Group cash flow statement
Years ended December 31
2000 1999 1998
Note US$m US$m US$m
Net cash inflow from operating activities 19 532.3 483.9 494.8
Returns on investments and servicing of finance
Interest received 2.6 3.1 0.9
Interest paid (78.5) (42.2) (37.8)
------ ------ ------
Net cash outflow for returns on investments
and servicing of finance (75.9) (39.1) (36.9)
------ ------ ------
Taxation (34.3) (13.7) (16.4)
Capital expenditure
Purchase of ships (749.8) (233.6) (797.0)
Purchase of other fixed assets (45.9) (58.6) (43.4)
Disposal of ships 14.7 (2.0) -
Disposal of other fixed assets 0.2 - -
------ ------ ------
Net cash outflow for capital expenditure (780.8) (294.2) (840.4)
------ ------ ------
Acquisitions and disposals
(Purchase)/disposal of subsidiaries 20 (14.7) 1.5 (0.3)
------ ------ ------
Net cash (outflow)/inflow before financing (373.4) 138.4 (399.2)
------ ------ ------
Financing
Movement on loans from P&O 356.2 (145.8) 321.2
Loan drawdowns 247.7 - -
Loan repayments (39.3) (85.1) (36.4)
Net investment by P&O 1.2 117.7 127.2
------ ------ ------
Net cash inflow/(outflow) from financing 565.8 (113.2) 412.0
------ ------ ------
Increase in cash in the year 19 192.4 25.2 12.8
------ ------ ------
81
Group statement of total recognised gains and losses
Years ended December 31
2000 1999 1998
US$m US$m US$m
Profit for the year 274.1 310.3 255.4
Exchange movements on foreign currency net investments (5.5) (2.6) (1.3)
------ ------ ------
Total recognised gains and losses for the year 268.6 307.7 254.1
====== ====== ======
Reconciliation of movements in Shareholders' funds
Periods ended December 31
2000 1999
US$m US$m
Total recognised gains and losses for the year 268.6 307.7
Dividends (83.1) -
New shares issued 41.3 -
Shares to be issued 46.8 -
Investment in P&O Princess by P&O 1.2 117.7
------- -------
274.8 425.4
Shareholders' funds at beginning of the year 2,188.8 1,763.4
------- -------
Shareholders' funds at end of the year 2,463.6 2,188.8
------- -------
82
Notes to the financial statements
1 Accounting policies
The following accounting policies have been applied consistently in dealing with
items which are considered material in relation to the P&O Princess Group (for
the purposes of this Appendix III, the "Group").
Basis of preparation of financial statements
The Group accounts comprise the consolidation of the accounts of the Company
(which for the purposes of Appendix III "Company" means P&O Princess) and all
its subsidiaries and incorporate the Group's interest in its joint ventures and
associates. The accounts of its subsidiaries and joint ventures and associates
are made up to December 31.
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United Kingdom ('UK GAAP') under
the historical cost convention, and in accordance with applicable UK accounting
standards. These principles differ in certain respects from accounting
principles generally accepted in the United States ('US GAAP'). Application of
US GAAP would have affected Shareholders' funds at December 31, 2000 and 1999
and profit attributable to shareholders for the years ended December 31, 2000,
1999 and 1998, to the extent summarised in Note 29.
Basis of consolidation
P&O Princess plc acquired the cruise business of The Peninsular and Oriental
Steam Navigation Company ('P&O') on October 23, 2000. The acquisition was
affected by way of a share exchange between that company and its Shareholders.
The consolidated financial statements have been prepared using merger accounting
principles as if the businesses comprising P&O Princess had been part of P&O
Princess for all periods presented, since they have been under common control
throughout this period. Businesses acquired from or disposed of to third parties
during the periods presented have been accounted for using acquisition
accounting, from or to the date control passed.
Use of estimates
Preparation of financial statements in conformity with UK GAAP and US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
turnover and expenses for an accounting period. Actual results could differ from
these estimates.
Goodwill arising on acquisitions
Goodwill arising on business acquisitions represents the residual purchase price
after allocation to all identifiable net assets. Goodwill is included within
intangible fixed assets and is stated at cost less accumulated amortisation.
Amortisation is calculated to write off goodwill on a straight line basis over
its expected useful life, which can be up to 40 years. A life of more than 20
years is adopted when the directors consider the period for which the value of
the underlying business acquired exceeds the value of the identifiable net
assets is demonstrably longer than 20 years. Goodwill with an expected useful
life of more than 20 years is reviewed annually for any impairment.
Joint ventures
Joint ventures are stated at P&O Princess' share of underlying net assets. P&O
Princess' share of the profits or losses of joint ventures is included in the
consolidated profit and loss account on an equity accounting basis.
Tangible fixed assets
Ships are stated at cost less accumulated depreciation. Subsequent ship
improvement costs are capitalised as additions to the ship, while costs of
repairs and maintenance are charged to the profit and loss account.
83
Properties and other fixed assets, including computer hardware and software, are
stated at cost less accumulated depreciation.
Interest incurred in respect of payments on account of assets under construction
is capitalised to the cost of the assets concerned.
Depreciation is calculated to write off the cost to estimated residual value on
a straight line basis over the expected useful life of the asset concerned as
follows:
Years
Cruise ships 30 years
Freehold buildings 40 years
Other fixed assets 3-16 years
Freehold land and ships under construction (and freehold buildings prior to
December 31, 1999) are not depreciated. In accordance with FRS 15 freehold
buildings are depreciated over the remaining useful economic life of the asset.
Impairment
P&O Princess reviews all fixed assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
fully recoverable based on estimated future cash flows. Provision for impairment
in value of fixed assets is made in the profit and loss account.
Stocks
Stocks consist of provisions, supplies, fuel and gift shop merchandise and are
stated at the lower of cost or net realisable value.
Turnover
Turnover comprises sales to third parties (excluding VAT and similar sales
taxes). Turnover includes air and land supplements and on board sales and is
taken before deducting travel agents' commission.
Deposits received on sales of cruises are initially recorded as deferred income
and are recognised, together with revenues from shipboard activities and all
associated direct costs of a voyage, on a pro rata basis at the time of the
cruise.
Marketing and promotion costs
Marketing and promotion costs are expensed over the period of benefit, not
exceeding one year from the end of the year the cost is incurred.
Dry-docking costs
Dry-docking costs are capitalised and expensed on a straight line basis to the
date of the next scheduled drydock.
Operating leases
Rentals under operating leases are charged to the profit and loss account on a
straight line basis over the life of the lease.
Pension costs
Contributions in respect of defined contribution pension plans are charged to
the profit and loss account when they are payable.
Contributions in respect of defined benefit pension plans are calculated as a
percentage, agreed on actuarial advice, of the pensionable salaries of
employees. The cost of providing defined benefit pensions is charged to the
profit and loss account on a systematic basis over the periods benefiting from
the services of employees.
84
Deferred taxation
Deferred taxation is provided on items dealt with for taxation purposes in
periods different from those for accounting purposes, to the extent that the
reduction or increase in the tax charge due to timing differences cannot be
expected with reasonable probability to continue for the foreseeable future.
Derivatives and other financial instruments
P&O Princess uses currency swaps, interest rate swaps and forward currency
contracts to manage its exposure to certain foreign currency and interest rate
risks and to hedge its major capital expenditure. Gains and losses on
instruments used for hedging are not recognised until the exposure that is being
hedged is itself recognised.
Foreign currencies
The reporting currency of the Group is the US dollar as the majority of its
trade and assets are denominated in that currency. Transactions in currencies
other than a business's functional currency are recorded at the rate of exchange
ruling at the date of the transaction. Profits and losses of subsidiaries,
branches, and joint ventures which have functional currencies other than US
dollars are translated into US dollars at average rates of exchange except for
material exceptional items which are translated at the rate ruling on the date
of transaction. Assets and liabilities denominated in foreign currencies are
translated at the year end exchange rates.
Exchange differences arising from the retranslation of the opening net assets of
subsidiaries, branches, and joint ventures which have currencies of operation
other than US dollars and any related loans are taken to reserves, together with
the differences arising when the profit and loss accounts are translated at
average rates and compared with rates ruling at the year end. Other exchange
differences are taken to the profit and loss account.
2 Segmental analysis
P&O Princess has a single business of operating cruise ships and related
landside assets under various brand names including; Princess Cruises, P&O
Cruises, Swan Hellenic, AIDA and Seetours. These brand names are marketed by
operations in North America, Europe and Australia.
2000 1999 1998
US$m US$m US$m
Turnover (by origin)
North America 1,796.7 1,680.9 1,422.2
Europe and Australia 627.2 430.7 430.2
------- ------- -------
2,423.9 2,111.6 1,852.4
======= ======= =======
Turnover in Europe and Australia includes turnover in relation to the United
Kingdom of US$454.0m (1999 US$366.2m, 1998 US$388.8m).
2000 1999 1998
US$m US$m US$m
Total operating profit
North America 279.6 300.2 255.2
Europe and Australia 94.0 88.1 88.3
------- ------- -------
373.6 388.3 343.5
======= ======= =======
Which is stated after charging:
Depreciation and amortisation
North America 100.4 83.4 64.0
Europe and Australia 44.2 33.5 30.7
------- ------- -------
144.6 116.9 94.7
======= ======= =======
85
2000 1999 1998
US$m US$m US$m
Profit on ordinary activities before interest
North America 279.8 295.4 255.2
Europe and Australia 87.3 88.1 88.3
------- ------- -------
367.1 383.5 343.5
======= ======= =======
Which is stated after charging:
Non-operating items
North America 0.2 (4.8) -
Europe and Australia (6.7) - -
------- ------- -------
(6.5) (4.8) -
======= ======= =======
Non-operating items for Europe and Australia include a US$6.0m provision against
the carrying value of Victoria following the finalisation of arrangements for
her disposal, agreed on February 12, 2001.
Capital expenditure
North America 500.1 215.4 841.2
Europe and Australia 321.2 73.5 50.6
------- ------- -------
821.3 288.9 891.8
======= ======= =======
2000 1999
US$m US$m
Net operating assets excluding goodwill and
ships under construction
North America 2,200.0 1,969.2
Europe and Australia 977.1 660.9
------- -------
3,177.1 2,630.1
======= =======
2000 1999
US$m US$m
The net operating assets are reconciled to
net assets as follows:
Net operating assets 3,177.1 2,630.1
Goodwill 121.0 14.2
Ships under construction 401.5 376.3
Group share of joint ventures' non operating assets 3.3 2.6
Net borrowings (967.0) (632.1)
Corporation tax and deferred tax (189.0) (194.6)
Dividends payable (83.1) -
------- -------
Net assets 2,463.8 2,196.5
------- -------
Total assets
North America 3,114.0 2,641.6
Europe and Australia 1,494.8 1,023.4
------- -------
4,608.8 3,665.0
======= =======
86
3 Operating costs
2000 1999 1998
US$m US$m US$m
Direct operating costs 1,558.0 1,301.9 1,142.4
Selling and administration expenses 348.2 304.5 272.1
Depreciation and amortisation 144.6 116.9 94.7
------- ------- -------
2,050.8 1,723.3 1,509.2
======= ======= =======
2000 1999 1998
US$m US$m US$m
Operating costs include:
Advertising and promotion costs 139.4 117.2 112.3
Auditors' remuneration:
Audit 0.8 0.7 0.7
Other fees paid to the auditors and their
associates 5.3 2.0 1.8
Hire of ships 13.3 12.5 12.4
Of the US$5.3m (1999 US$2.0m) charged for non-audit services provided by the
Company's auditors US$0.1m (1999 nil) was for services in the UK. Included
within the non-audit services is US$5.1m (1999 US$1.3m) which was in respect of
tax advice. The audit fee of the Company was US$0.2m.
4 Net interest and similar items
2000 1999 1998
US$m US$m US$m
Interest payable on:
Bank loans and overdrafts (35.6) (12.5) (14.6)
Loans from P&O (39.7) (30.0) (34.3)
------- ------- -------
(75.3) (42.5) (48.9)
Interest capitalised 23.5 13.7 15.8
Interest receivable on other deposits 2.5 3.0 1.5
------- ------- -------
(49.3) (25.8) (31.6)
Joint ventures 0.2 0.1 0.2
------- ------- -------
(49.1) (25.7) (31.4)
======= ======= =======
Interest capitalised relates to tangible fixed assets under construction. The
aggregate interest capitalised at each period end was:
2000 1999 1998
US$m US$m US$m
Ships 140.8 121.8 109.4
Properties 3.5 3.1 2.8
------- ------- -------
144.3 124.9 112.2
======= ======= =======
87
5 Taxation
2000 1999 1998
US$m US$m US$m
The taxation charge on profit on ordinary activities is as follows:
Corporation tax
Current 40.2 30.3 32.8
Deferred 1.1 16.7 23.8
------ ---- ----
41.3 47.0 56.6
Joint ventures - - 0.1
------ ---- ----
41.3 47.0 56.7
====== ==== ====
The following table sets out the reconciliation of the theoretical tax charge at
the UK standard rate to the actual tax charge.
2000 1999 1998
US$m US$m US$m
Profit on ordinary activities before tax 318.0 357.8 312.1
----- ----- -----
Notional tax charge at UK standard rate
(2000: 30.0%; 1999: 30.25%; 1998: 31.0%) 95.4 108.2 96.8
Effect of overseas taxes at different rates (41.0) (36.3) (13.0)
Permanent differences - disallowable expenditure 2.7 1.3 4.6
Unprovided deferred tax (16.1) (26.6) (32.1)
Other 0.3 0.4 0.4
----- ----- -----
41.3 47.0 56.7
===== ===== =====
The taxation charge includes a credit of US$1.4m for the year ended December 31,
1999 in respect of profits and losses on sale of ships and other fixed assets.
There was no charge or credit in respect of such items in 2000 and 1998.
The US Federal and State income tax returns of P&O Princess for the tax years
1992 to 1996 have been under examination. In connection with this examination,
P&O Princess has concluded an Advanced Pricing Agreement with the US Internal
Revenue Service for years 1998 - 2000, covering the principal issues arising
from the examination and with the agreed upon methodology being rolled back to
all open years. Provision for the outcome of this issue had previously been made
and settlement has not had a material impact on the overall tax charge for the
year.
6 Dividends
2000 1999 1998
US$m US$m US$m
Dividends paid, declared, proposed and accrued are as follows:
Equity share capital
Final proposed at 12 cents (1999 nil, 1998 nil) 83.1 - -
----- ----- -----
7 Earnings per ordinary share
2000 1999 1998
Profit for the period (US$m) 274.1 310.3 255.4
----- ----- -----
Weighted average shares outstanding (million)
Basic 684.2 681.2 681.2
----- ----- -----
Earnings per ordinary share (in cents)
Basic 40.1 45.5 37.5
----- ----- -----
The weighted average number of shares for all periods up to October 23, 2000
represents the number of shares issued on Demerger.
Each ADS represents an interest in four ordinary shares.
88
There is no difference between basic earnings per share and diluted earnings per
share. In 2000 options over US$5.1m nominal of ordinary shares and the possible
effect of shares to be issued as contingent consideration in connection with the
AIDA Cruises Ltd minority interest acquisition are not dilutive. There were also
no dilutive ordinary shares in issue in 1999 and 1998.
8 Goodwill
US$m
Cost
Cost at December 31, 1999 24.5
Exchange movements 1.3
Additions 107.2
------
Cost at December 31, 2000 133.0
------
Amortisation
Amortisation at December 31, 1999 (10.3)
Exchange movements 0.6
Amortisation charge for period (2.3)
------
Amortisation at December 31, 2000 (12.0)
------
Net book value
At December 31, 2000 121.0
------
At December 31, 1999 14.2
------
The principal movements in goodwill during the year relate to the acquisitions
of Seetours International Ltd in April 2000 and the minority interest in AIDA
Cruises Ltd in September 2000. The goodwill arising on the AIDA Cruises Ltd
minority interest acquisition is estimated, as part of the consideration is
dependent on the future results of the combined AIDA and Seetours businesses.
The useful economic life of goodwill arising on the acquisition of Seetours
International Ltd is estimated at 20 years and for AIDA Cruises Ltd at 40 years.
9 Ships
Owned Leased Total
US$m US$m US$m
Cost
Cost at December 31, 1999 3,610.2 68.4 3,678.6
Exchange (87.8) (1.6) (89.4)
Additions 772.8 - 772.8
Disposals (50.0) - (50.0)
------- ------ -------
Cost at December 31, 2000 4,245.2 66.8 4,312.0
======= ====== =======
Depreciation
Depreciation at December 31, 1999 (586.8) (55.8) (642.6)
Exchange 19.3 1.3 20.6
Charge for period (122.9) (0.8) (123.7)
Disposals 41.7 - 41.7
------- ------ -------
Depreciation at December 31, 2000 (648.7) (55.3) (704.0)
======= ====== =======
Net book value
At December 31, 2000 3,596.5 11.5 3,608.0
======= ====== =======
At December 31, 1999 3,023.4 12.6 3,036.0
======= ====== =======
Ships under construction included in the above totalled US$401.5m (1999
US$376.3m).
The depreciation charge for the year includes US$6.0m relating to the disposal
of Victoria, which was agreed on February 12, 2001.
89
10 Properties and other fixed assets
Office
equipment,
plant and
Freehold motor
properties vehicles Total
US$m US$m US$m
Cost
Cost at December 31, 1999 99.2 180.3 279.5
Exchange movements - (3.1) (3.1)
Additions 12.5 36.0 48.5
On acquisition of subsidiaries - 0.3 0.3
Disposals - (8.4) (8.4)
------ ------ -----
Cost at December 31, 2000 111.7 205.1 316.8
====== ====== =====
Depreciation
Depreciation at December 31, 1999 - (79.8) (79.8)
Exchange movements - 1.5 1.5
Charge for the period (2.9) (21.7) (24.6)
Disposals - 5.7 5.7
------ ------ -----
Depreciation at December 31, 2000 (2.9) (94.3) (97.2)
====== ====== =====
Net book value
At December 31, 2000 108.8 110.8 219.6
------ ------ -----
At December 31, 1999 99.2 100.5 199.7
------ ------ -----
The book value of freehold land is US$3.4m (1999 US$2.4m), which is not
depreciated.
11 Investments - Group
Joint Other
Ventures investments Total
US$m US$m US$m
Cost or valuation at December 31, 1999 3.0 5.4 8.4
Exchange movements (0.3) 0.2 (0.1)
On acquisition of subsidiaries - 1.9 1.9
Share of retained profits for period 0.9 - 0.9
Disposals - (0.2) (0.2)
------ ------ -----
Cost or valuation at December 31, 2000 3.6 7.3 10.9
====== ====== =====
The principal joint venture is P&O Travel Limited, a travel agency incorporated
in Hong Kong, in which P&O Princess had a 50% interest at December 31, 2000.
P&O Princess' share of turnover for the year ended December 31, 2000 and share
of gross assets and gross liabilities as at December 31, 2000 of P&O Travel
Limited, Hong Kong are as follows:
2000 1999
US$m US$m
Turnover 4.8 4.2
------- -----
Gross assets 7.4 5.8
Gross liabilities (3.8) (2.8)
------- -----
3.6 3.0
====== =====
90
12 Stocks
2000 1999
US$m US$m
Raw materials and consumables 52.8 47.8
Goods for resale 27.0 31.1
------ ------
79.8 78.9
====== ======
13 Debtors
2000 1999
US$m US$m
Amounts recoverable within one year
Trade debtors 38.6 52.1
Amounts owed by P&O 3.7 -
Amounts owed by joint ventures - 3.6
Other debtors 74.5 51.8
Prepayments and accrued income 176.7 123.0
------ ------
Total amounts recoverable within one year 293.5 230.5
------ ------
Amounts recoverable after more than one year
Other debtors 21.7 19.6
Prepayments and accrued income 7.1 14.5
------ ------
Total amounts recoverable after more than one year 28.8 34.1
------ ------
Total debtors 322.3 264.6
====== ======
14 Creditors
2000 1999
US$m US$m
Amounts falling due within one year
Overdrafts (0.3) (2.0)
Bank loans (163.6) (37.1)
Amounts owed to P&O - (445.6)
Trade Creditors (152.6) (122.5)
Corporation Tax (93.3) (88.1)
Other creditors (23.9) (9.4)
Accruals (90.5) (80.4)
Deferred income (368.4) (358.3)
Dividends payable (83.1) -
------ --------
(975.7) (1,143.4)
====== ========
91
2000 1999
US$m US$m
Amounts falling due after more than one year
Bank loans, loan notes and bonds:
Between one and five years
Bank loans (139.2) (120.8)
Over five years
6.54% US dollar notes 2008 (107.7) -
7.35% US dollar notes 2010 (90.4) -
7.72% US dollar notes 2015 (69.1) -
7.09% US dollar notes 2016 (41.9) -
7.3% US dollar bonds 2007 (282.4) -
7.785% US dollar bonds 2027 (189.3) -
Bank loans (134.0) (89.8)
Accruals and deferred income (8.7) (6.1)
-------- -------
(1,062.7) (216.7)
======== =======
Bank loans and overdrafts include amounts of US$432.5m (1999 US$247.7m) secured
on ships and other assets. Further details of interest rates on bank borrowings
are given in note 26.
The maturity of bank loans, loan notes, bonds and overdrafts is as follows:
2000 1999
US$m US$m
Within one year (163.9) (39.1)
Between one and two years (49.3) (37.4)
Between two and five years (89.9) (83.4)
Between five and ten years (584.7) (44.2)
Over ten years (330.1) (45.6)
-------- ------
(1,217.9) (249.7)
======== ======
15 Provisions for liabilities and charges
Deferred
taxation Other Total
US$m US$m US$m
At December 31, 1999 (106.5) (1.9) (108.4)
Exchange differences 11.9 0.7 12.6
(Charge)/credit to profit and loss account (1.1) 0.2 (0.9)
Applied during the year - 0.3 0.3
On acquisition of subsidiaries - (10.2) (10.2)
------- ------ -------
At December 31, 2000 (95.7) (10.9) (106.6)
======= ====== =======
Other provisions principally relate to contingent consideration
payable on the acquisition of subsidiaries.
Deferred taxation comprises:
2000 1999
US$m US$m
Accelerated capital allowances 95.7 106.5
Accelerated capital allowances not provided 108.1 92.0
------ ------
203.8 198.5
====== ======
Distributable reserves of overseas subsidiaries and joint ventures comprise
approximately US$958.0m (1999 US$696.9m). No deferred taxation is provided in
respect of these as it is expected that no material liability will arise in the
foreseeable future.
92
16 Share capital
The authorised share capital is 750,000,000 50 cent ordinary shares, 49,998
(Pounds)1 preference shares and 2 (Pounds)1 subscriber shares.
The allotted, called up and fully paid ordinary share capital is as follows:
No of Shares US$m
Issued on Demerger 681,221,588 340.6
Other shares issued 11,366,415 5.7
============ ------
At December 31, 2000 692,588,003 346.3
============ ======
On July 19, 2000 2 subscriber shares of (Pounds)1 each were allotted and fully
paid up. On September 22, 2000 49,998 preference shares of (Pounds)1 each were
allotted and paid up as to (Pounds)12,500, approximately US$19,000.
On October 23, 2000 the Company issued 681,221,588 ordinary shares to deferred
stockholders of P&O on the basis of one ordinary share for each (Pounds)1
nominal of deferred stock.
On November 28, 2000 the Company issued 11,366,415 shares as partial
consideration for the acquisition of the remaining 49% of Aida Cruises Ltd.
The preference shares are entitled to a cumulative fixed dividend of 8% per
annum and are entitled to one vote per share. The preference shares rank behind
other classes of shares in relation to the payment of capital on certain types
of distribution of the Company. The subscriber shares have no dividend rights
nor voting rights nor any rights to payment of capital upon a distribution of
assets by the Company. The preference shares and subscriber shares are unlisted.
Details of options over ordinary shares granted to employees are given in note
21. Details of contingent rights to shares in relation to the acquisition of
subsidiaries are given in note 17.
17 Reserves
Other Merger Profit and
reserves reserve loss account Total
US$m US$m US$m US$m
Group
At December 31, 1999 - 909.1 939.1 1,848.2
Exchange movements - - (5.5) (5.5)
Investment in P&O Princess by P&O - 1.2 - 1.2
Issue of shares 35.6 - - 35.6
Shares to be issued 46.8 - - 46.8
Retained profit for the financial year - - 191.0 191.0
------ ------ ======== ========
At December 31, 2000 82.4 910.3 1,124.6 2,117.3
====== ====== ======== ========
Other reserves represent the difference between market and nominal value of
shares issued as initial consideration together with the estimated value of
outstanding consideration in respect of the purchase of 49% of AIDA Cruises Ltd.
The shares issued in respect of the initial consideration have been accounted
for in accordance with the merger relief provisions of the Companies Act 1985.
The outstanding consideration is mainly dependent on the future results of the
combined AIDA and Seetours businesses and may be payable between 2003 and 2006.
The Company has the option to settle the outstanding consideration in either
cash or new P&O Princess ordinary shares.
93
18 Equity minority interests
2000
US$m
At December 31,1999 7.7
Exchange movements (0.8)
Purchase of minority interest (9.3)
Proportion of profit on ordinary activities after taxation 2.6
------
At December 31, 2000 0.2
======
19 Notes to the consolidated cash flow statement
(a) Reconciliation of operating profit to net cash inflow from operating
activities
2000 1999 1998
US$m US$m US$m
Group operating profit 373.1 388.3 343.2
Depreciation and amortisation 144.6 116.9 94.7
(Increase)/decrease in stocks (1.6) 4.2 (25.4)
(Increase)/decrease in debtors (40.8) (11.5) 6.9
Increase/(decrease) in creditors and provisions 57.0 (14.0) 75.4
------- ------- -------
Net cash inflow from operating activities 532.3 483.9 494.8
======= ======= =======
(b) Reconciliation of net cash flow to movement in net debt
2000 1999 1998
US$m US$m US$m
Increase in net cash in the year 192.4 25.2 12.8
Cash (inflow)/outflow from loans to and from P&O (356.2) 145.8 (321.2)
Cash (inflow)/outflow from changes in short term borrowings (20.6) 53.1 3.3
Cash (inflow)/outflow from third party debt and lease financing (187.8) 32.0 33.1
------- ------- -------
Change in net debt resulting from cash flows (372.2) 256.1 (272.0)
Borrowings of subsidiaries acquired - (173.7) -
Amortisation of bond issue costs (0.2) - -
Exchange movements in net debt 37.5 16.4 0.9
------- ------- -------
Movement in net debt in the year (334.9) 98.8 (271.1)
Net debt at the beginning of the year (632.1) (730.9) (459.8)
------- ------- -------
Net debt at the end of the year (967.0) (632.1) (730.9)
======= ======= =======
(c) Analysis of net debt
At Other At
1 January non cash Exchange 31 December
2000 Cash flow movements movements 2000
US$m US$m US$m US$m US$m
Cash available on demand 63.2 191.4 (7.4) 247.2
Less: bank over drafts (2.0) 1.0 0.7 (0.3)
------
192.4
Loans from P&O (445.6) (356.2) 780.6 24.9 3.7
Short term debt (37.1) (20.6) (102.7) (3.2) (163.6)
Medium and long term debt (210.6) (187.8) (678.1) 22.5 (1,054.0)
------- ------- ------- ------- ---------
Net debt (632.1) (372.2) (0.2) 37.5 (967.0)
======= ======= ======= ======= =========
On October 23, 2000 P&O Princess issued US$796.7m of bonds to replace an
equivalent amount of substantially identical bonds previously issued by P&O. The
value of these bonds was applied to settle loans previously made by P&O to P&O
Princess.
94
20 Acquisitions
The principal businesses acquired during 2000 were Seetours International Ltd
and the outstanding 49% minority interest in AIDA Cruises Ltd. The acquisitions
have been accounted for using the acquisition method and the results of the
businesses are reflected from the dates of acquisition. The book and fair value
of net assets acquired for each acquisition were as follows:
Seetours International AIDA Cruises Ltd minority
As at April 7, 2000 As at September 25, 2000
US$m US$m
Net assets acquired:
Fixed assets 2.2 -
Net current liabilities (5.5) -
Loans - -
Cash and overdrafts 0.5 -
Minority interests acquired - 9.3
------ ------
(2.8) 9.3
Goodwill 18.2 89.0
------ ------
15.4 98.3
------ ------
Satisfied by:
Cash 15.4 -
Shares issued - 41.3
Contingent cash consideration - 10.2
Contingent share consideration - 46.8
------ ------
15.4 98.3
====== ======
The effect on the Group's operating results and cash flows of the acquisition of
Seetours International was not material.
The cash outflow of US$14.9m on the purchase of Seetours International comprises
the above cash consideration of US$15.4m less net cash of US$0.5m at the date of
acquisition. There was a cash inflow of US$0.2m from the Group's unlisted
investment in Princess Cays Ltd.
21 Employees
2000 1999 1998
The average number of employees was as follows:
Shore staff 3,567 3,287 2,574
Sea staff 15,461 13,397 11,556
------- ------ -------
19,028 16,684 14,130
======= ======= =======
2000 1999 1998
US$m US$m US$m
The aggregate payroll costs were:
Wages and salaries 258.0 243.6 200.8
Social security costs 12.2 10.4 12.4
Pension costs 9.7 7.8 4.1
------ ----- -----
279.9 261.8 217.3
====== ====== ======
Employee Option Schemes
When employed by P&O, certain employees of P&O Princess were granted options
over P&O deferred stock under P&O executive option schemes. Generally these
options were either exercised prior to Demerger or lapsed. These options were
subsequently replaced by new share options granted under the P&O Princess
Executive Share Option Plan ('the Option Plan').
Options under the Option Plan are exercisable in a period beginning not normally
earlier than three
95
years and ending no later than ten years from the date of the grant. Options
granted immediately after Demerger as replacements of options over P&O deferred
stock previously held by P&O Princess employees are exercisable over the same
period as the options replaced. The exercise price is set at the closing market
price on the day the option was granted.
The amounts set out below represent options granted to P&O Princess employees
under the Option Plan:
Weighted average Number
exercise price per share of options
Shares ADRs Shares ADRs
Options granted 292p $16.97 6,542,636 897,692
Options outstanding at year end 292p $16.97 6,542,636 897,692
Options exercisable at year end 292p $16.97 1,000,012 59,308
22 Pensions
During the year, employees of P&O Princess have participated in P&O pension
plans up to Demerger and P&O Princess plans since the Demerger or separate
industry-wide schemes. These plans are principally in the United Kingdom and the
United States.
The pension charge for the P&O Princess employees participating in pension plans
was:
2000 1999 2000
US$m US$m US$m
The P&O Pension Scheme 3.1 2.2 2.0
The P&O Princess Pension Scheme 0.9 - -
Merchant navy pension plans 2.7 2.7 0.9
Overseas plans 3.0 2.9 1.2
----- ----- -----
9.7 7.8 4.1
===== ===== =====
Prior to Demerger, eligible UK employees participated in a defined benefit plan
operated by P&O ('P&O Pension Scheme'). Following Demerger, P&O Princess
established its own defined benefit plan ('P&O Princess Pension Scheme') and for
those employees wishing to do so, their benefit obligations in the P&O Pension
Scheme in relation to service prior to the Demerger were transferred to the P&O
Princess Pension Scheme. Under the terms of the Demerger agreement a share of
the P&O Pension Scheme's assets relating to these benefit obligations is also to
be transferred. This is awaiting finalisation by Watson Wyatt, actuaries to the
P&O Pension Scheme. The latest triennial valuation of the P&O Pension Scheme was
performed as at April 1, 2000 with results due to be reported by March 31, 2001.
The last reported valuation on April 1, 1997 showed that the actuarial value of
the Scheme assets represented 98% of the benefits accrued to members allowing
for future increases in earnings. This valuation took into account the removal
of the ability of pension funds to reclaim tax credits on dividend income.
The assets of the P&O Princess Pension Scheme are managed on behalf of the
trustee by independent fund managers. A formal valuation of the P&O Princess
Pension Scheme has not yet taken place. Differences between the amounts charged
and the amounts paid by P&O Princess are included in prepayments; these amounted
to US$7.5m (1999 US$0.7m).
The merchant navy industry wide pension plans are defined benefit plans with
assets managed on behalf of the respective trustees by independent fund
managers. The latest formal valuations were at March 31, 1999 in respect of both
plans. The officers' plan's actuary advised that the market value of the plan's
assets for the old section of the plan represents approximately 102% of the
value of the benefits accrued to members, and for the new section of the plan
96% of the value of the benefits accrued to members allowing for future
increases in earnings. For the ratings' plan, its actuary presented a range of
results that showed the market value of the assets was between 68% and 82% of
the value of the benefits accrued to members allowing for future increases in
earnings. The trustee of the ratings' plan has agreed with participating
employers and the RMT union a proposal to close the fund for future benefit
accrual and replace it with a defined contribution plan. Contributions are
expected to be made to the ratings' plan by participating employers over a six
year period from May 2001 to bring the plan to 100% funding on the minimum
funding requirement basis. During the year
96
the Group has provided US$1.7m (1999 US$1.8m) in respect of its share of
contributions to be made.
Outside the UK P&O Princess operates one principal defined contribution plan in
the United States (`the Princess Cruises Plan') in which only eligible P&O
Princess employees participate. This has assets held in a separately
administered fund.
23 Related party transactions
Prior to the Demerger from P&O in October 2000 P&O Princess did not operate as a
separate Group and consequently there were a number of related party
transactions between P&O Princess and P&O. These included the provision by P&O
of a number of administrative services such as payroll, legal, treasury and tax
assistance. The related charges together with a proportion of the administrative
costs relating to the P&O Group's centrally incurred costs are included in the
profit and loss account and totalled US$10.4m (1999 US$10.0m). P&O Princess
leased and continues to lease certain properties from P&O.
Balances owed by and to P&O are set out in notes 13 and 14. Interest charged to
P&O Princess by P&O is set out in note 4. Forward foreign exchange contracts
transacted through P&O but novated to P&O Princess in connection with the
Demerger are set out in note 26.
As set out in note 22, employees of P&O Princess were members of the P&O Scheme
for pension purposes prior to Demerger.
No material trading transactions have taken place between P&O Princess and P&O
during the three years ended December 31, 2000.
P&O Princess International Ltd has agreed with P&O a licence to use the P&O
name, motif, and flag logo. These arrangements are perpetual, royalty free,
worldwide and are exclusive in so far as they relate to cruising.
On the Demerger becoming effective, P&O Princess agreed with P&O:
i) arrangements for the provision of certain administrative services and
facilities to P&O Princess by P&O; and
ii) cross indemnities whereby each indemnifies the other, with certain
limitations, against certain actual and contingent liabilities associated
with the respective businesses owned by each of them.
24 Commitments
Capital
2000 1999
US$m US$m
Contracted
Ships 3,172.2 3,101.5
Other 8.9 18.5
------- -------
3,181.1 3,120.0
======= =======
P&O Princess had nine cruise ships on order as at December 31, 2000, which are
scheduled for delivery from 2001 to 2004. Capital commitments include contract
stage payments, design and engineering fees and various owner supplied items but
exclude the effect of future capitalised interest, estimated to be $100m during
2001 to 2004. The nine cruise ships on order will increase the fleet's capacity
by 19,620 berths at an approximate cost of $187,000 per berth. The estimated
cost per berth includes $401.5m ships under construction at December 31, 2000,
the contracted future capital commitments and estimated future capitalised
interest. Of the cruise ship commitments at December 31, 2000 it is expected
that P&O Princess will pay US$522.5m in 2001, US$992.9m in 2002, US$906.7m in
2003 and US$750.1m beyond 2003 (see note 26 regarding financing facilities).
97
Revenue
The minimum annual lease payments to which P&O Princess was committed under non-
cancellable operating leases were as follows:
Ships
2000 1999
US$m US$m
Within one year 13.1 18.6
Between one and two years 11.8 6.2
Between two and three years 3.1 0.4
Between three and four years 0.3 -
Between four and five years 0.2 -
------ -----
28.5 25.2
====== =====
Property
2000 1999
US$m US$m
Within one year 8.5 10.5
Between one and two years 8.3 6.8
Between two and three years 8.1 5.6
Between three and four years 8.0 4.9
Between four and five years 8.1 4.8
In more than five years 70.2 26.4
------ -----
111.2 59.0
====== =====
Future minimum annual lease payments due within one year are analysed as
follows:
Ships
2000 1999
US$m US$m
On leases expiring:
Within one year 0.8 0.5
Between one and five years 12.3 18.1
------ -----
13.1 18.6
====== =====
Property
2000 1999
US$m US$m
On leases expiring:
Within one year 1.2 0.2
Between one and five years 0.5 5.6
After five years 6.8 4.7
------ -----
8.5 10.5
====== =====
25 Contingent liabilities
P&O Princess has provided counter indemnities of US$215.4m (1999 US$172.4m)
relating to bonds provided by third parties in support of P&O Princess'
obligations arising in the normal course of business. Generally these
indemnities are required by travel industry regulators in the various
jurisdictions in which P&O Princess operates.
26 Financial instruments
P&O Princess uses financial instruments to finance its operations. The financial
instruments held by P&O Princess include cash, overdrafts and loans. Derivative
financial instruments are used to manage the currency and interest rate risks
arising from its operations and its sources of finance. The derivatives used for
this purpose are principally currency swaps, interest rate swaps and forward
currency contracts.
98
The main financial risks to which P&O Princess is exposed are summarised below.
No transactions of a speculative nature are undertaken.
The accounting policies for financial instruments are described in note 1.
For the purpose of this note, other than currency disclosures, the only debtors
and creditors included are deferred consideration receivable or payable after
more than one year, amounts due from/(to) P&O, all other loans, bank overdrafts
and short term borrowings, in accordance with FRS13.
Foreign currency risk
P&O Princess has international business operations. Its principal operating
currency is the US dollar, but it also operates in a number of other currencies,
the most important of which are sterling and the euro. In general, P&O Princess'
profits and Shareholders' funds benefit if sterling or the euro are strong
against the US dollar. The US dollar/sterling and the US dollar/euro exchange
rates at the respective period ends were:
Average exchange rates Period end
for periods ended exchange rates
December 31, 2000
US$: (Pounds) 1.516 1.494
US$: (Euro) 0.924 0.939
December 31, 1999
US$: (Pounds) 1.618 1.612
US$: (Euro) 1.065 1.002
Approximately 30% of P&O Princess' assets are denominated in non US dollar
currencies with the result that P&O Princess' US dollar consolidated balance
sheet, and in particular Shareholders' funds, can be affected by currency
movements. P&O Princess partially mitigates the effect of such movements by
borrowing in the same currencies as those in which the assets are denominated.
An analysis of financial liabilities by currency is shown below.
In addition, approximately 25% of P&O Princess' operating profit is currently
generated by businesses with functional currencies other than US dollars. The
results of these businesses are translated into US dollars at average exchange
rates for the purposes of consolidation. The impact of currency movements on
operating profit is mitigated partially by some interest costs being incurred in
non US dollar currencies.
P&O Princess' businesses generally generate their turnover and incur costs in
their main functional currency.
The following table shows P&O Princess' currency exposures that give rise to the
net currency gains and losses recognised in the profit and loss account. Such
exposures comprise the monetary assets and liabilities of P&O Princess that are
not denominated in the functional currency of the operating unit concerned,
excluding certain non US dollar borrowings treated as hedges of net investments
in non US dollar functional currency operations.
Net foreign currency monetary assets/(liabilities)
US Dollar Sterling Euro Other Total
US$m US$m US$m US$m US$m
Functional currency of Group operation:
US dollars - (0.8) (0.3) (30.0) (31.1)
Sterling (4.5) - - - (4.5)
--------- --------- --------- --------- ---------
Total at December 31, 2000 (4.5) (0.8) (0.3) (30.0) (35.6)
========= ========= ========= ========= =========
Functional currency of Group operation:
US dollars - 3.4 6.3 14.3 24.0
Sterling 0.6 - 0.3 4.2 5.1
Euro 0.3 - - - 0.3
--------- --------- --------- --------- ---------
Total at December 31, 1999 0.9 3.4 6.6 18.5 29.4
========= ========= ========= ========= =========
99
Interest rate risk
To protect the financial results against movements in interest rates, P&O
Princess maintains a significant proportion of its borrowings at a fixed rate of
interest.
The interest rate profile of the financial liabilities of P&O Princess is set
out in the table below:
Weighted
average Average
Variable interest rate time
rate Fixed rate for fixed rate over which
financial financial financial interest
Total liabilities liabilities liabilities rate is fixed
US$m US$m US$m % months
Currency:
US dollars 613.5 32.7 580.8 7.4 182.0
Sterling 520.1 228.8 291.3 7.4 63.9
Euro 84.0 84.0 - - -
Other 0.3 0.3 - - -
------- ------ ------ ------ ------
Total at December 31, 2000 1,217.9 345.8 872.1 7.4 142.6
======= ====== ====== ====== ======
Currency:
US dollars 215.6 215.6 - - -
Sterling 390.0 264.8 125.2 8.0 45.1
Euro 89.7 89.7 - - -
------- ------ ------ ------ ------
Total at December 31, 1999 695.3 570.1 125.2 8.0 45.1
======= ====== ====== ====== ======
The variable rate financial liabilities comprise loans from P&O, bank borrowings
and overdrafts bearing interest at rates fixed in advance for periods ranging
from one to six months by reference to the applicable reference rate, primarily
LIBOR for US dollar, sterling and euro borrowings.
The interest rate profile of the financial assets of P&O Princess is set out in
the table below:
Weighted
Financial average Average
Variable assets on interest rate time
rate on which Fixed rate for fixed rate over which
financial no interest financial financial interest
Total assets is paid assets assets rate is fixed
US$m US$m US$m US$m % months
Currency:
US dollars 224.5 196.6 13.9 14.0 8.8 7.5
Sterling 20.3 9.5 10.8 - - -
Euro 13.8 11.7 - 2.1 6.0 60.0
Other 13.6 13.6 - - - -
------ ------ ------ ------ ------ ------
Total at December 2000 272.2 231.4 24.7 16.1 8.4 14.2
====== ====== ====== ====== ====== ======
Currency:
US dollars 48.5 7.6 21.3 19.6 8.8 19.5
Sterling 25.1 19.2 5.9 - - -
Euro 11.8 11.8 - - - -
Other 2.8 1.8 1.0 - - -
------ ------ ------ ------ ------ ------
Total at December 1999 88.2 40.4 28.2 19.6 8.8 19.5
====== ====== ====== ====== ====== ======
The majority of variable rate financial assets comprise loans to P&O and bank
accounts bearing interest at the applicable money market deposit rates. Fixed
rate financial assets include deferred consideration relating to the sale of
fixed assets.
100
Liquidity risk
In June 2000 P&O Princess arranged approximately US$650m in committed financing
in connection with two ships scheduled for delivery in 2002 and 2003. In
September 2000 it arranged new committed bank facilities of approximately
US$750m for general corporate purposes, including funding ship purchases, of
which US$ nil was drawn down at December 31, 2000.
In August 2000, P&O obtained conditional agreement from the holders of US$791.8m
principal value of notes and bonds to exchange them for substantially identical
P&O Princess notes and bonds. These new notes and bonds were issued by P&O
Princess when the Demerger became effective and are unconditionally guaranteed
by P&O Princess International Limited. At the year end P&O Princess had no
independent operations and P&O Princess International Limited was the sole
direct subsidiary of P&O Princess.
Credit risk
Management does not consider there to be any significant concentration of credit
risk. Potential concentrations comprise principally cash and cash equivalents
and trade debtors. P&O Princess enters into derivative transactions and
maintains cash deposits with several major banks. Management periodically
reviews the credit rating of the institutions and believes that any credit risk
is minimal. Concentration of credit risk with respect to trade debtors is
limited due to the large number of debtors comprising P&O Princess' customer
base.
The immediate credit exposure of financial instruments is represented by those
financial instruments that have a positive fair value at December 31, 2000.
Fair values of financial assets and liabilities
A comparison by category of book value and fair value of P&O Princess' financial
assets and liabilities is as follows:
At 31 December
2000 1999
Book value Fair value Book value Fair value
US$m US$m US$m US$m
Primary financial instruments held or issued to finance
P&O Princess Cruise operations:
Notes and bonds (780.8) (729.6) - -
Other loans (436.8) (436.8) (247.7) (247.7)
Loans to/(from) P&O 3.7 3.7 (445.6) (445.6)
Cash 247.2 247.2 63.2 63.2
Bank overdrafts (0.3) (0.3) (2.0) (2.0)
Other investments and deferred consideration 21.3 21.3 25.0 25.0
Derivative financial instruments held or issued to hedge
currency exposure on expected future transactions:
Forward foreign currency contracts - (175.7) - (107.4)
Currency swaps - 6.0 - 16.9
-------- -------- -------- --------
(945.7) (1,064.2) (607.1) (697.6)
======== ======== ======== ========
The notional principal amount of derivative financial instruments held as hedges
against currency exposures on ship capital expenditure is US$997.3m (1999
US$1,259.5m) in respect of forward foreign currency contracts and US$384.0m
(1999 US$205.0m) in respect of currency swaps.
The fair value of notes and bonds is based on quoted market price or if these
are not available the quoted market price of comparable debt.
Other loans, which include short term borrowings and bank term loans, and loans
to/(from) P&O are largely at variable interest rates and therefore the book
value normally equates to the fair value.
The fair value of cash and bank overdrafts approximates to the book value due to
the short term maturity of the instruments.
101
The fair value of other investments and deferred consideration is based on the
estimated recoverable amount.
The fair values of derivative financial instruments are discounted to the net
present value using prevailing market rates and foreign currency rates at the
balance sheet date.
Hedging
When P&O Princess' businesses enter into capital expenditure or lease
commitments in currencies other than their main functional currency, these
commitments are normally hedged using forward contracts and currency swaps in
order to fix the cost when converted to the functional currency. The most
significant of P&O Princess' foreign currency commitments of this nature are in
respect of certain newbuild cruise ships. The periods of the forward contracts
match the expected cash flows of the capital commitments, usually between three
and five years. Other cruise ship newbuilds have been ordered in currencies
matching the main functional currencies in which these ships will generate their
revenue.
Gains and losses on instruments used for hedging are not recognised until the
exposure that is being hedged is itself recognised. Unrecognised gains and
losses on currency swaps, interest rate swaps and forward currency contracts are
as follows:
Net gains/
Gains (Losses) (losses)
US$m US$m US$m
At January 1, 2000 16.9 (107.4) (90.5)
(Gains)/losses arising before January 1, 2000 that were
recognised during the year ended December 31, 2000 - 51.7 51.7
------ ------ ------
Gains/(losses) arising before January 1, 2000 that were not
recognised during the year ended December 31, 2000 16.9 (55.7) (38.8)
Gains/(losses) arising in the period that were not recognised
during the year ended December 31, 2000 (9.1) (121.8) (130.9)
------ ------ ------
Gains/(losses) at December 31, 2000 7.8 (177.5) (169.7)
====== ====== ======
Of which:
Gains/(losses) expected to be recognised in less than one year - - -
Gains/(losses) expected to be recognised after more than one year 7.8 (177.5) (169.7)
------ ------ ------
Gains/(losses) at December 31, 2000 7.8 (177.5) (169.7)
====== ====== ======
Of the above unrecognised net gains/(losses) at December 31, 2000, a net loss of
US$175.7m is a result of forward contracts taken out to fix the contracted
capital expenditure on ships into their functional currency as follows:
Net gains/
Gains (Losses) (losses)
US$m US$m US$m
Gains/(losses) at December 31, 2000 7.8 (177.5) (169.7)
Less: (gains)/losses on contracted foreign currency capital
expenditure and operating lease commitments (1.8) 177.5 175.7
------ ------ ------
Gains/(losses) on other hedges 6.0 - 6.0
====== ====== ======
The underlying commitments, after taking these contracts into account, are
reflected within note 24.
102
27 Investment in subsidiaries
The principal subsidiaries are:
Percentage of
Country of equity share
Incorporation/ capital owned at
Registration December 31, 2000 Business Description
Description
P&O Princess International Ltd
(formerly P&O Cruises Ltd) England 100%+ Passenger cruising
AIDA Cruises Ltd England 100% Passenger cruising
Alaska Hotel Properties LLC USA. 100% Hotel operations
Brittany Shipping Corporation Ltd Bermuda 100% Shipowner
Corot Shipping Corporation
(Sociedade Univessoal) Lda Portugal 100% Shipowner
CP Shipping Corporation Ltd Bermuda 100% Shipowner
Fairline Shipping Corporation Ltd Bermuda 100% Shipowner
Fairline Shipping International Corporation Ltd Bermuda 100% Shipowner
P&O Cruises Fleet Management Ltd England 100% Shipowner
P&O Holidays Ltd England 100% Passenger cruising
P&O Lines (Shipowners) Ltd England 100% Passenger cruising
P&O Travel Ltd England 100% Travel agent
Princess Cruises Inc USA. 100% Cruise services
Princess Cruises Lines Ltd Bermuda 100% Passenger cruising
Princess Cruises Ltd England 100% Cruise services
Princess Tours Ltd England 100% Shipowner
Royal Hyway Tours Inc USA. 100% Landtours
Seetours International Ltd England 100% Passenger cruising
Sitmar International Inc Panama 100% Holding company
Tour Alaska LLC USA. 100% Railtours
+ Held directly by the Company.
28 Post balance sheet event
On February 12, 2001 the Group completed arrangements for the sale of the
Victoria for US$16.5m. The net disposal proceeds including costs are expected to
be below the previous carrying value of the vessel. Provision for the shortfall
has been made in the accounts.
29 Summary differences between UK and US GAAP
Accounting principles
These financial statements have been prepared in accordance with UK GAAP, which
differs in certain respects from US GAAP. A description of the relevant
accounting principles which differ materially is given below.
Depreciation
Under UK GAAP until December 31, 1999 certain freehold properties were not
depreciated. Under US GAAP useful economic lives have been applied to these
properties and a depreciation expense recorded based on these lives.
Marketing and promotion costs
Under UK GAAP marketing and promotion costs have been expensed over the period
of benefit, not exceeding one year from the end of the year the cost is
incurred. US GAAP requires that these costs are expensed in the financial year
incurred.
103
Employee share incentives
The executive schemes
Under UK GAAP the fair value (market value) of shares or rights to acquire
shares when the rights are granted, less contributions by employees, is charged
in arriving at operating profit. If this forms part of a long term incentive
scheme the charge in the profit and loss account is spread over the period to
which the schemes' performance criteria relate, otherwise recognition occurs
when shares or rights are granted. Under US GAAP, compensation expense is
recognised for the difference between the market price of the shares and the
exercise price for performance plans (such as the executive schemes). The amount
of compensation expense is adjusted each accounting period based upon the
estimated achievement of the performance criteria and the share value of the
stock, until the date at which the number of shares and the purchase price are
both known.
SAYE scheme
When employed by P&O, certain employees of P&O Princess were eligible to
participate in the P&O save as you earn share option scheme. UK GAAP does not
recognise the cost of SAYE discounts in financial statements. US GAAP requires
the full discount given to employees on the market price of shares provided as
part of a 'non-compensatory plan' (such as the SAYE scheme) to be charged to the
profit and loss account when it is greater than that which would be reasonable
in an offer of shares to Shareholders or others.
Pensions
Under UK GAAP pension costs include the regular cost of providing the benefits
as a level percentage of current and expected future earnings of the employees
covered. Variations from the regular pension cost are spread on a systematic
basis over the estimated average remaining service lives of current employees in
the plans.
US GAAP requires that the projected benefit obligation (pension liability) be
compared with the market value of the underlying plan assets, and the difference
may be adjusted to reflect any unrecognised obligations or assets in determining
the pension cost or credit for the period. The actuarial method and assumptions
used in determining the pension expense can be significantly different from that
computed under UK GAAP. US GAAP also requires the actuarial valuation to be
prepared as at a more recent date than UK GAAP.
Taxes on income
Under UK GAAP, deferred taxes are accounted for to the extent that a reduction
or increase in the tax charge due to timing differences cannot be expected with
reasonable probability to continue for the foreseeable future. Under US GAAP,
deferred taxes are accounted for on all temporary differences and a valuation
allowance is established in respect of those deferred tax assets where it is
more likely than not that some portion will remain unrealised. Deferred tax also
arises in relation to the tax effect of the other US GAAP adjustments.
Contingent consideration
Under UK GAAP, if an acquirer can satisfy future consideration by the issue of
shares at its option this element of the consideration is not a liability as
there is no obligation to transfer future economic benefits. Consequently this
element of the purchase price is accounted for within Shareholders' funds. Under
US GAAP this consideration is not recognised until the consideration is settled.
Dividends
Under UK GAAP dividends are accounted for in the period to which they pertain,
which may be earlier than the date of declaration. Under US GAAP dividends are
accounted for in the period in which they are declared.
104
Current assets and liabilities
Current assets under UK GAAP of US$28.8m (1999 US$34.1m) would be reclassified
as non current assets under US GAAP.
Provisions for liabilities and charges under UK GAAP of US$0.2m (1999 US$0.1m)
would be reclassified as creditors - amounts falling due within one year under
US GAAP.
The effects of these differing accounting principles are shown below:
Summary Group income statement
2000 2000 2000 1999 1998
UK GAAP Adjustments US GAAP US GAAP US GAAP
US$m US$m US$m US$m US$m
Revenues 2,423.9 - 2,423.9 2,111.6 1,852.4
Expenses
Operating (1,558.0) - (1,558.0) (1,301.9) (1,142.4)
Marketing, selling and administrative (348.2) (5.5) (353.7) (318.9) (270.6)
Depreciation and amortisation (144.6) 0.7 (143.9) (119.2) (96.8)
-------- -------- -------- -------- --------
(2,050.8) (4.8) (2,055.6) (1,740.0) (1,509.8)
-------- -------- -------- -------- --------
Operating income before income
from affiliated operations 373.1 (4.8) 368.3 371.6 342.6
Income from affiliated operations 0.5 0.2 0.7 0.1 0.5
======== ======== ======== ======== ========
Operating income 373.6 (4.6) 369.0 371.7 343.1
Non-operating income(expense)
Interest income 2.5 - 2.5 3.0 1.5
Interest expense, net of capitalised interest (51.6) (0.2) (51.8) (28.8) (33.1)
Other (expense) (6.5) - (6.5) (4.8) -
Income tax expense (41.3) (15.6) (56.9) (72.9) (89.1)
Minority interest (2.6) - (2.6) (0.5) -
======== ======== ======== ======== ========
(99.5) (15.8) (115.3) (104.0) (120.7)
-------- -------- -------- -------- --------
Net income 274.1 (20.4) 253.7 267.7 222.4
======== ======== ======== ======== ========
Basic earnings per share (in cents) 40.1 - 37.1 39.3 32.6
======== ======== ======== ======== ========
Adjustments to profit attributable to ordinary Shareholders
2000 1999 1998
US$m US$m US$m
Profit attributable to ordinary Shareholders in
accordance with UK GAAP 274.1 310.3 255.4
US GAAP adjustments
Depreciation 0.4 (2.3) (2.1)
Goodwill amortisation 0.3 - -
Marketing and promotion costs (8.3) (11.4) 1.6
Employee share incentives (i) 1.9 (2.2) (0.3)
Pensions (ii) 0.9 (0.8) 0.2
Tax effect of US GAAP adjustments 0.5 0.7 (0.3)
Deferred taxes (iii) (16.1) (26.6) (32.1)
-------- -------- --------
Profit attributable to ordinary Shareholders in accordance with US GAAP 253.7 267.7 222.4
-------- -------- --------
Earnings
Basic earnings per share in accordance with US GAAP (in cents) 37.1 39.3 32.6
-------- -------- --------
Weighted average number of shares used in basic
earnings per share calculation (millions) 684.2 681.2 681.2
======== ======== ========
105
There is no difference between basic earnings per share and diluted earnings per
share. Options over US$5.1 million nominal of ordinary shares and the possible
effect of shares to be issued as contingent consideration in connection with the
AIDA Cruises Ltd minority interest acquisition are not dilutive. There were also
no dilutive ordinary shares in issue in 1999 and 1998.
Adjustments to Shareholders' funds
2000 1999 1998
US$m US$m US$m
Shareholders' funds in accordance with UK GAAP 2,463.6 2,188.8 1,763.4
US GAAP adjustments
Depreciation (11.7) (12.1) (9.8)
Contingent consideration (46.5) - -
Marketing and promotion costs (89.9) (81.6) (70.2)
Employee share incentives (i) - (0.7) (0.5)
Pensions (ii) 1.9 1.0 1.8
Tax effect of US GAAP adjustments 3.9 3.4 2.7
Deferred taxes (iii) (108.1) (92.0) (65.4)
Dividends 83.1 - -
-------- -------- --------
Shareholders' funds in accordance with US GAAP 2,296.3 2,006.8 1,622.0
======== ======== ========
(i) Employee share incentives
The profit and loss account charge/(credit) in respect of employee stock
compensation schemes was US$ nil in each of the three years ended December 31,
2000 under UK GAAP, and US$(1.9)m (1999 US$2.2m, 1998 US$0.3m) under US GAAP.
P&O Princess has adopted the disclosures of SFAS 123, Accounting for Stock-Based
Compensation, but continues to measure its stock-based compensation expense
under US GAAP in accordance with APB 25 and its related interpretations. If P&O
Princess had measured compensation costs for the P&O and P&O Princess stock
options that were granted to its employees in 2000, 1999 and 1998 under the fair
value based method prescribed by SFAS 123, the net profit would have been the
illustrative amounts shown below.
2000 1999 1998
US$m US$m US$m
Profit attributable to ordinary Shareholders
As reported under US GAAP 253.7 267.7 222.4
Pro forma under US GAAP 250.2 267.0 221.9
The weighted average fair value of options granted to P&O Princess employees as
replacement options for previous P&O deferred stock granted prior to the
Demerger and new options granted on Demerger was US$1.91. Equivalent fair values
in 1999 and 1998 in respect of options over P&O deferred shares were US$3.77 and
US$5.42 respectively.
These pro forma amounts may not be representative of the effect on pro forma net
income in future years, since the estimated fair value of share options is
amortised over the vesting period, pro forma compensation expense related to
grants made prior to 1996 is not considered and additional options may be
granted in future years.
The fair value of grants during the year have been estimated using the Black-
Scholes option pricing model with the following weighted average assumptions;
expected dividend yields of 2.5% (1999 3.2%, 1998 4.4%); expected volatility of
42.0% (1999 30.5%, 1998 51.9%); risk free interest rates of 5.8%,(1999 5.8%,
1998 7.3%) and expected option lives of 9 years for P&O Princess options and 5
years for previous P&O deferred share options.
(ii) Pensions
For the purposes of US GAAP, the pension costs of The P&O Pension Scheme and of
its successor, The P&O Princess Pension Scheme have been restated in the
following tables in accordance with the requirements of SFAS 87. This plan
comprises substantially all of the actuarial liabilities of P&O
106
Princess' pension plans. The changes in projected benefit obligations, plan
assets and details of the funded status of the plan, under SFAS 87 and SFAS 132
are as follows:
2000 1999 1998
US$m US$m US$m
Change in projected benefit obligation:
Benefit obligation at beginning of period 49.0 42.5 30.2
Service cost 4.8 4.3 3.3
Interest cost 2.7 2.4 2.2
Exchange (3.7) (1.3) 0.3
Actuarial loss (1.9) 1.1 6.5
-------- -------- --------
Benefit obligation at end of period 50.9 49.0 42.5
======== ======== ========
Change in plan assets:
Fair value at beginning of period 49.4 39.7 31.9
Actual return on plan assets 0.7 7.5 4.3
Group contribution 11.0 2.5 2.3
Participant contributions 1.0 0.9 0.8
Exchange (3.7) (1.2) 0.4
-------- -------- --------
Fair value of plan assets at end of period 58.4 49.4 39.7
======== ======== ========
2000 1999 1998
US$m US$m US$m
Reconciliation of funded status:
Funded status of the plan 7.5 0.4 (2.8)
Unamortised transition asset (0.3) (0.3) (0.4)
Unamortised actuarial net loss 1.8 1.2 5.1
-------- -------- --------
Prepaid pension cost 9.0 1.3 1.9
======== ======== ========
2000 1999 1998
US$m US$m US$m
Components of net periodic benefit cost:
Service cost 4.8 4.3 3.3
Interest cost 2.7 2.4 2.2
Expected return on assets (3.4) (2.8) (2.8)
Members' contribution (0.9) (0.9) (0.8)
Net amortisations
Transition asset (0.1) (0.1) (0.1)
Actuarial loss - 0.1 -
-------- -------- --------
Net periodic benefit cost 3.1 3.0 1.8
======== ======== ========
Assumed discount rates and rates of increase in remuneration used in calculating
the projected benefit obligations together with long-term rates of return on
plan assets vary according to the economic conditions of the United Kingdom, in
which the plan is situated. The rates used for calculation of period end benefit
obligations and forecast benefit cost in the plan for SFAS 132 purposes were as
follows:
2000 1999 1998
% % %
Discount rate 5.8 5.8 7.3
Long-term rate of increase in remuneration 4.0 4.0 4.8
Expected long-term return on assets 6.8 6.8 8.3
P&O Princess has no material liabilities for post-retirement benefits other than
pensions.
107
(iii) Deferred taxes
The following table sets out the significant components of P&O Princess'
deferred tax liability determined on a US GAAP basis:
2000 1999 1998
US$m US$m US$m
Deferred tax liabilities:
Accelerated capital allowances on fixed assets 203.8 198.5 157.7
------- ------- -------
Net deferred liability under US GAAP 203.8 198.5 157.7
------- ------- -------
Net deferred tax liability under UK GAAP 95.7 106.5 92.3
------- ------- -------
Deferred tax has not been provided on the retained earnings of overseas
subsidiaries, as these companies will continue to reinvest such earnings in the
Group's ship building programme.
Cash flow statements
The cash flow statements have been prepared in conformity with UK Financial
Reporting Standard 1 (Revised) 'Cash Flow Statements'. The principal differences
between these statements and cash flow statements presented in accordance with
SFAS 95 are as follows:
(a) Under UK GAAP net cash flow from operating activities is determined before
considering cash flows from (a) returns on investments and servicing of
finance (b) taxes paid and (c) dividends received from joint ventures.
Under US GAAP, net cash flow from operating activities is determined after
these items;
(b) Under UK GAAP, capital expenditure is classified separately while under US
GAAP, it is classified as an investing activity; and
(c) Under UK GAAP movements in bank overdrafts are classified as movements in
cash while under US GAAP they are classified as a financing activity.
Set out below is a summary cash flow statement under US GAAP:
2000 1999 1998
US$m US$m US$m
Net cash inflow from operating activities 422.1 431.1 441.5
Net cash outflow from investing activities (795.5) (292.7) (840.7)
Net cash inflow/(outflow) from financing activities 564.8 (139.5) 444.2
Exchange translation effect on cash (7.4) 3.5 (17.1)
-------- --------- --------
Net increase in cash and cash equivalents under US GAAP 184.0 2.4 27.9
Cash and cash equivalents at beginning of period 63.2 60.8 32.9
-------- --------- --------
Cash and cash equivalents at end of period 247.2 63.2 60.8
======== ========= ========
New US accounting standards
The Financial Accounting Standards Board issued SFAS 133 'Accounting for
Derivative Instruments and Hedging Activities' in June 1998. This standard,
which is effective for financial years beginning after June 15, 2000, requires
all derivatives to be recognised in the balance sheet as either assets or
liabilities and measured at fair value. To implement the standard, all hedging
relationships must be reassessed.
New UK accounting standards
The Accounting Standards Board ('ASB') issued FRS17 'Retirement Benefits' in
November 2000. This standard is fully effective for periods ending on or after
June 22, 2003, with certain disclosures being phased in for accounting periods
ending on or after June 22, 2001. Under the standard, pension scheme assets are
measured using market values, pension scheme liabilities are measured using a
projected unit method and discounted at an AA corporate bond rate and the
pension scheme surplus
108
(to the extent it can be recovered) or deficit is recognised in full on the
balance sheet. The movement in the scheme surplus/deficit is analysed into
service costs in operating profit, interest cost and expected return on assets
in finance costs, and actuarial gains and losses in the statement of recognised
gains and losses. P&O Princess has not yet evaluated the likely impact of FRS17
on its financial statements.
The ASB issued FRS18 'Accounting Policies' in December 2000. The standard is
effective for accounting periods ending on or after June 22, 2001. It sets out
the principles to be followed in selecting accounting policies and the
disclosures needed to help users of the financial statements to understand the
accounting policies adopted and how they have been applied. P&O Princess does
not expect FRS18 to have a material impact on its financial statements.
The ASB issued FRS19 'Deferred Tax' in December 2000. The standard is effective
for accounting periods ending on or after January 23, 2002. The standard
requires full provision to be made for deferred tax assets and liabilities
arising from most types of timing difference between the recognition of gains
and losses in the financial statements and their recognition in a tax
computation. Deferred tax assets are, however, only to be recognised to the
extent that it is regarded as more likely than not that they will be recovered.
The likely impact of FRS19 on P&O Princess' financial statements will depend
upon any election the Group makes to enter the UK tonnage tax regime.
109
PART B: Unaudited financial information for the nine months ended 30 September
2001.
The interim financial information below has been extracted from P&O Princess'
unaudited interim report for the nine months ended 30 September 2001, which was
published on 24 October 2001, without material adjustment.
In addition, a summary of differences between UK and US GAAP for the nine months
ended 30 September 2001 is presented below.
Summarised group profit and loss account for the nine months ended 30 September
2001
Nine months to 30 September
2001 2000
US$m US$m
Turnover (gross revenue) 1,965.7 1,939.1
Direct operating costs (1,252.3) (1,214.2)
Selling and administrative expenses (271.8) (259.7)
Depreciation and amortization (111.5) (107.9)
(1,635.6) (1,581.8)
---------- ----------
Operating profit 330.1 357.3
Share of operating results of joint ventures 0.3 0.4
---------- ----------
Total operating profit 330.4 357.7
Loss on disposal of ships (1.9) (0.7)
Profit on sale of businesses - 0.2
---------- ----------
Profit before interest 328.5 357.2
Net interest and similar items (44.3) (35.2)
---------- ----------
Profit before taxation 284.2 322.0
Taxation (14.2) (41.9)
---------- ----------
Profit after taxation 270.0 280.1
Equity minority interests - (2.4)
---------- ----------
Profit for the period 270.0 277.7
---------- ----------
Basic earnings per share 39.0c 40.8c
Basic earnings per ADS $ 1.56 $ 1.63
Dividend per share 9.0c -
Dividend per ADS $ 0.36 -
---------- ----------
Weighted average number of shares in issue (in millions) 692.6 681.2
---------- ----------
110
Summarised group balance sheet
As at As at
30 September 30 December
2001 2000
US$m US$m
Fixed assets
Intangible assets
Goodwill 116.1 121.0
Tangible assets
Ships 4,023.3 3,608.0
Properties and other fixed assets 248.8 219.6
---------- ----------
4,272.1 3,827.6
Investments 11.0 10.9
---------- ----------
4,399.2 3,959.5
========== ==========
Current assets
Stocks 70.9 79.8
Debtors 242.1 322.3
Cash at bank and in hand 140.5 247.2
---------- ----------
435.5 649.3
Creditors: amounts falling due within one year (744.5) (975.7)
---------- ----------
Net current liabilities (291.0) (326.4)
---------- ----------
Total assets less current liabilities 4,108.2 3,633.1
Creditors: amounts falling due after one year (1,475.1) (1,062.7)
Provisions for liabilities and charges - (106.6)
---------- ----------
2,633.1 2,463.8
========== ==========
Equity Shareholders' funds 2,632.8 2,463.6
Equity minority interests 0.3 0.2
---------- ----------
2,633.1 2,463.8
========== ==========
Summarised group cash flow statement
Nine months to 30 September
2001 2000
US$m US$m
Net cash inflow from operating activities 459.7 466.2
Returns on investments and servicing of finance (51.9) (35.4)
Taxation (138.9) (13.4)
Capital expenditure and financial investment
Purchase of ships (550.9) (677.8)
Purchase of other fixed assets (44.7) (32.7)
Disposal of ships 46.6 13.5
---------- ----------
Net cash outflow for capital expenditure and financial investment (549.0) (697.0)
---------- ----------
Purchase of subsidiaries - (14.8)
Equity dividends paid (124.4) -
---------- ----------
Net cash outflow before financing (404.5) (294.4)
Net cash (outflow)/inflow from financing 267.0 325.3
---------- ----------
(137.5) 30.9
========== ==========
Movement in net borrowings:
Net cash outflow before financing (404.5) (294.4)
Issues of stock 0.2 -
Net investment by P&O - 26.5
Amortisation of bond issue costs (1.2) -
Exchange movements in borrowings (7.4) (3.4)
---------- ----------
(412.9) (271.3)
========== ==========
111
Reconciliation of movements in shareholders' funds
Nine months to
30 September 2001
US$m
Profit for the period 270.0
Exchange movements (37.9)
--------
Total recognized gains and losses 232.1
Dividends (63.2)
New shares issued 0.3
--------
Net increase to shareholders' funds 169.2
Shareholders' funds at beginning of period 2,463.6
--------
Shareholders' funds at end of period 2,632.8
========
Unaudited summary of differences between UK and US GAAP for the nine months
ended 30 September, 2001
The financial information set out below has been extracted from the Circular and
notice of Extraordinary General Meeting to P&O Princess shareholders dated 27
December, 2001.
The P&O Princess interim financial information has been prepared in accordance
with UK GAAP, which differs in certain material respects from US GAAP.
The following is a summary of the material adjustments to attributable profit
(net income) and Shareholders' funds which would have been required to adjust
for significant differences between UK and US GAAP.
Reconciliation of consolidated profit and loss account for the nine months ended
30 September, 2001
Nine months ended
30 September 2001
Notes US $m
Attributable profit as reported under UK GAAP 270.0
US GAAP adjustments
Depreciation (ii) 0.3
Goodwill and contingent consideration (iii) 0.9
Marketing and promotion costs (iv) 18.0
Relocation costs (v) 2.0
Pensions (vi) 1.4
Derivative instruments and hedging activities (vii) 1.8
Tax effect of US GAAP instruments (3.9)
Taxes (viii) 177.0
--------
Profit attributable to common Shareholders in accordance with US GAAP
before cumulative effect of accounting policy change 467.5
--------
Cumulative effect of US GAAP accounting policy change in respect of
derivative instruments and hedging activities (9.0)
--------
Profit attributable to common Shareholders in accordance with US GAAP 458.5
--------
Earnings per share
Basic and diluted earnings per share before cumulative effect of accounting
policy change (in cents) 67.5
Basic and diluted earnings per share after cumulative effect of accounting
policy change (in cents) 66.2
--------
Weighted average number of shares used in basic earnings per share
calculation (millions) 692.6
--------
112
Reconciliation of consolidated Shareholders' funds at 30 September 2001
30 September 2001
Notes US $m
Shareholders' funds in accordance with UK GAAP 2,633.1
Treasury stock (i) (3.3)
--------
2,629.8
US GAAP adjustments
Depreciation (ii) (11.4)
Goodwill and contingent consideration (iii) (45.6)
Marketing and promotion costs (iv) (71.9)
Relocation costs (v) 2.0
Pensions (vi) 3.3
Derivative instruments and hedging activities (vii) (7.2)
Tax effect of US GAAP instruments -
Taxes (viii) 68.9
Dividends (ix) 20.8
--------
Shareholders' funds in accordance with US GAAP 2,588.7
========
The differences in accounting treatment as a result of differences between UK
GAAP and US GAAP are noted below.
(i) Treasury stock
Under UK GAAP, the Company's shares held by employee share trusts are included
at cost in fixed asset investments and are written down to the amount payable by
employees over the vesting period of the options. Under US GAAP, such shares are
treated as treasury shares and are included in shareholders' equity.
(ii) Depreciation
Under UK GAAP, until December 31, 1999 certain freehold properties were not
depreciated. Under US GAAP useful economic lives have been applied to these
properties and a depreciation expense recorded based on these lives.
(iii) Goodwill and contingent consideration
Under UK GAAP, if an acquirer can satisfy contingent consideration by the issue
of shares at its option this element of the consideration is not a liability as
there is no obligation to transfer future economic benefits. Consequently this
element of the purchase price is accounted for within Shareholders' funds. Under
US GAAP contingent consideration is not recognised until the consideration is
settled.
(iv) Marketing and promotion costs
Under UK GAAP, marketing and promotion costs have been expensed over the period
of benefit, not exceeding one year from the end of the year the cost is
incurred. US GAAP requires that these costs are expenses in the financial year
incurred.
(v) Relocation costs
The Group has accrued expenses relating to the relocation of employees which
under UK GAAP are recognisable as liabilities. Under US GAAP these costs may not
be recognised until incurred, and the charge has been reversed for US GAAP
purposes.
(vi) Pensions
Under UK GAAP, pension costs include the regular cost of providing the benefits
as a level percentage of current and expected future earnings of the employees
covered. Variations from the regular pension cost are spread on a systematic
basis over the estimated average remaining service lives of current employees in
the plans.
113
US GAAP requires that the projected benefit obligation (pension liability) be
compared with the market value of the underlying plan assets, and the difference
may be adjusted to reflect any unrecognised obligations or assets in determining
the pension cost or credit for the period. The actuarial method and assumptions
used in determining the pension expense can be significantly different from that
computed under UK GAAP. US GAAP also requires the actuarial valuation to be
prepared as at a more recent date than UK GAAP.
(vii) Derivative instruments and hedging activities
Under UK GAAP, gains and losses on instruments used for hedging are not
recognised until the exposure that is being hedged as itself recognised. Under
US GAAP, Statement of Financial Accounting Standards NO. 133 (SFAS No. 133),
"Accounting for Derivative Instruments and Hedging Activities," as amended,
requires that all derivative instruments be recorded on the balance sheet at
their fair value. This statement became effective for P&O Princess on January 1,
2001.
(viii) Taxes
Deferred Tax
Under UK GAAP, deferred taxes are accounted for to the extent that a reduction
or increase in the tax charge due to timing differences cannot be expected with
reasonable probability to continue for the foreseeable future. Under US GAAP,
deferred taxes are accounted for on all temporary differences and a valuation
allowance is established in respect of those deferred tax assets where it is
more likely than not that some portion will remain unrealised. Deferred tax also
arises in relation to the tax effect of the other US GAAP adjustments. The Group
has elected to enter the UK tonnage tax regime, as a result of which temporary
timing differences in respect of fixed assets within the scheme become permanent
differences. The deferred tax liabilities in respect of these assets have
therefore been released.
Other taxes
The Group incurred income tax in the nine month period ended September 30, 2001
as a result of a taxable gain on an intercompany transaction that was undertaken
to maximise its tax efficiency. Under US GAAP, income taxes paid on intercompany
profits on assets remaining within the Group must be deferred. This deferred
charge is being amortised over 25 years.
(ix) Dividends
Under UK GAAP, dividends are accounted for in the period to which they pertain,
which may be earlier than the date of declaration. Under US GAAP, dividends are
accounted for in the period in which they are declared.
114
APPENDIX IV
Rights Attaching to the New Carnival Shares
The New Carnival Shares shall have the rights attached to Carnival's shares of
common stock, par value $0.01, as described in this Appendix.
1. General
Carnival's authorized capital stock consists of 960,000,000 shares of common
stock and 40,000,000 shares of preferred stock. On 28 January 2002, there were
586,219,515 shares of common stock and no shares of preferred stock outstanding.
The following description is qualified in all respects by reference to
Carnival's second amended and restated articles of incorporation.
2. Common Stock
2.1 Voting Holders of common stock vote as a single class on all matters
submitted to a vote of the shareholders, with each share of common stock
entitled to one vote. In the annual election of directors, the holders of
common stock are not entitled to vote cumulatively.
2.2 Dividends The holders of the common stock are entitled to receive such
dividends, if any, as may be declared by Carnival's board of directors in
its discretion out of funds legally available to be paid as dividends.
Panamanian law permits the payment of dividends to the extent of Carnival's
retained earnings.
2.3 Transfer Restrictions On 8 February 2000, the United States Treasury
Department issued proposed Treasury Regulations to Section 883 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code")
relating to income derived by foreign corporations from the international
operation of a ship or ships (which includes certain cruise ship and
aircraft income). The proposed regulations provide, in general, that a
foreign corporation organized in a qualified foreign country and engaged in
the international operation of ships and aircraft shall exclude such income
from gross income for purposes of federal income taxation provided that the
corporation can satisfy certain ownership requirements, including, among
other things, that its stock be publicly traded. A corporation's stock that
is otherwise publicly traded will fail to satisfy this requirement if it is
closely held, i.e., that 50% or more of its stock is owned by persons who
each own 5% or more of the value of the outstanding shares of the
corporation's stock.
To the best of Carnival's knowledge, after due investigation, Carnival
currently qualifies as a publicly traded corporation under the proposed
regulations. However, because certain members of the Arison family and
certain trusts established for their benefit own approximately 46.9% of
Carnival Shares, there is the potential that another shareholder could
acquire 5% or more of Carnival Shares which could jeopardize our
qualification as a publicly traded corporation. If Carnival in the future
were to fail to qualify as a publicly traded corporation, Carnival would be
subject to United States income tax on income associated with Carnival's
cruise operations in the United States. As a precautionary matter, in 2000,
Carnival amended its articles of incorporation to ensure that Carnival will
continue to qualify as a publicly traded corporation under the proposed
regulations.
Carnival's articles have been amended to provide 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 Internal Revenue Code,
more than 4.9% of Carnival Shares, whether measured by vote, value or
number. In addition, the articles generally restrict the transfer of any
Carnival Shares if such transfer would cause Carnival to be subject to
United States shipping income tax. In general, the attribution rules under
the Internal Revenue Code applicable in determining whether a person is a
5% shareholder under the proposed regulations attribute stock:
. among specified members of the same family,
. to shareholders owning 50% or more of a corporation from that
corporation,
115
. among corporations that are members of the same controlled group,
. among grantors, beneficiaries and fiduciaries of trusts, and
. to partners of a partnership from that partnership.
For purposes of this 4.9% limit, a "transfer" will include any sale,
transfer, gift, assignment, devise or other disposition, whether voluntary
or involuntary, whether of record, constructively or beneficially, and
whether by operation of law or otherwise. The 4.9% limit will not apply to
certain members of the Arison family and certain trusts established for
their benefit. These shareholders will be permitted to transfer their
Carnival Shares without complying with the limit so long as transfer does
not cause Carnival to be subject to United States income tax on shipping
operations.
Carnival's second amended and restated articles of incorporation provide
that the board of directors may waive the 4.9% limit or transfer
restrictions (in any specific instance) if evidence satisfactory to
Carnival's board of directors and Carnival's tax counsel is presented that
such ownership will not jeopardize Carnival's status as exempt from United
States income taxation on gross income from the international operation of
a ship or ships, within the meaning of Section 883 of the Internal Revenue
Code. The board of directors may also terminate the limit and transfer
restrictions generally at any time for any reason.
If a purported transfer or other event (including owning shares of common
stock in excess of the 4.9% limit on the effective date of the proposed
amendment) results in the ownership of common stock by any shareholder in
violation of the 4.9% limit (or causes Carnival to be subject to United
States income tax on shipping operations), such shares of common stock in
excess of the 4.9% limit or which would cause Carnival to be subject to
United States shipping income tax will automatically be designated as
"excess shares" to the extent necessary to ensure that the purported
transfer or other event does not result in ownership of common stock in
violation of the 4.9% limit (or causes Carnival to become subject to United
States income tax on shipping operations) and any proposed transfer that
would result in such an event would be void. Any purported transferee or
other purported holder of excess shares will be required to give Carnival
written notice of a purported transfer or other event that would result in
excess shares. The purported transferee or holders of such excess shares
shall have no rights in such excess shares, other than a right to the
payments described below.
Excess shares will not be treasury stock but rather will continue to be
issued and outstanding Carnival Shares. While outstanding, excess shares
will be transferred to a trust. The trustee of such trust will be appointed
by Carnival and will be independent of Carnival and the purported holder of
the excess shares. The beneficiary of such trust will be one or more
charitable organizations selected by the trustee. The trustee will be
entitled to vote the excess shares on behalf of the beneficiary. If, after
the purported transfer or other event resulting in excess shares and prior
to the discovery by Carnival of such transfer or other event, dividends or
distributions are paid with respect to such excess shares, such dividends
or distributions will be repaid to the trustee upon demand for payment to
the charitable beneficiary. All dividends received or other income declared
by the trust will be paid to the charitable beneficiary. Upon Carnival's
liquidation, dissolution or winding up, the purported transferee or other
purported holder will receive a payment that reflects a price per share for
such excess shares generally equal to the lesser of (i) in the case of
excess shares resulting from a purported transfer, the price per share paid
in the transaction that created such excess shares (or, in the case of
certain other events, the market price per share for the excess shares on
the date of such event), or (ii) in the case of excess shares resulting
from an event other than a purported transfer, the market price for the
excess shares on the date of such event.
At the direction of the board of the directors, the trustee will transfer
the excess shares held in trust to a person or persons (including us) whose
ownership of such excess shares will not violate the 4.9% limit or
otherwise cause Carnival to become subject to United States shipping income
tax within 180 days after the later of the transfer or other event that
resulted in such excess shares or Carnival becomes aware of such transfer
or event. If such a transfer is made, the interest of the charitable
beneficiary will terminate, the designation of such shares as excess shares
will cease and the purported holder of the excess shares will receive the
payment
116
described below. The purported transferee or holder of the excess shares
will receive a payment that reflects a price per share for such excess
shares equal to the lesser of (i) the price per share received by the
trustee and (ii) the price per share such purported transferee or holder
paid in the purported transfer that resulted in the excess shares (or, if
the purported transferee or holder did not give value for such excess
shares (through a gift, devise or other event) a price per share equal to
the market price on the date of the purported transfer or other event that
resulted in the excess shares). A purported transferee or holder of the
excess shares will not be permitted to receive an amount that reflects any
appreciation in the excess shares during the period that such excess shares
were outstanding. Any amount received in excess of the amount permitted to
be received by the purported transferee or holder of the excess shares must
be turned over to the charitable beneficiary of the trust.
If the foregoing restrictions are determined to be void or invalid by
virtue of any legal decision, statute, rule or regulation, then the
intended transferee or holder of any excess shares may be deemed, at our
option, to have acted as an agent on our behalf in acquiring or holding
such excess shares and to hold such excess shares on Carnival's behalf.
Carnival will have the right to purchase any excess shares held by the
trust for a period of 90 days from the later of (i) the date the transfer
or other event resulting in excess shares has occurred and (ii) the date
the board of directors determines in good faith that a transfer or other
event resulting in excess shares has occurred. The price per excess share
to be paid by Carnival will be equal to the lesser of (i) the price per
share paid in the transaction that created such excess shares (or, in the
case of certain other events, the market price per share for the excess
shares on the date of such event), or (ii) the lowest market price for the
excess shares at any time after their designation as excess shares and
prior to the date Carnival accepts such offer.
These provisions in Carnival's second amended and restated articles of
incorporation of Carnival could have the effect of delaying, deferring or
preventing a change of control of Carnival or other transaction in which
Carnival's shareholders might receive a premium for their shares of common
stock over the then-prevailing market price or which such holders might
believe to be otherwise in their best interests. To the extent that the
proposed regulations are either not adopted or are adopted in form which,
in the opinion of Carnival's board of directors, does not require the
proposed amendment to ensure that Carnival will maintain its income tax
exemption for its shipping income, Carnival's board of directors may
determine, in its sole discretion, to terminate the 4.9% limit and the
transfer restrictions in the amendment.
3 Transfer Agent And Registrar
The transfer agent and registrar for Carnival Shares is First Union National
Bank.
4. Other Provisions
Upon liquidation or dissolution, the holders of shares of common stock are
entitled to receive on a proportionate basis all of Carnival's assets remaining
for distribution to common stockholders. The common stock has no preemptive or
other subscription rights and there are no other conversion rights or redemption
or sinking fund provisions with respect to the shares. All shares of common
stock that are currently outstanding are fully paid for and may not be assessed.
Neither Panamanian law nor Carnival's by-laws limit the right of non-resident or
foreign owners to hold or vote shares of the common stock. While no tax treaty
currently exists between the Republic of Panama and the United States, under
current law Carnival believes that distributions to Carnival's shareholders are
not subject to taxation under the laws of the Republic of Panama.
Under Panamanian law, Carnival's directors may vote by proxy.
117
APPENDIX V
Statement of Estimated Cost Savings
Carnival expects its combination with P&O Princess will deliver cost savings of
at least $100 million on an annualised basis, in the first full financial year
following completion of the transaction.
Carnival expects that these cost savings will be generated principally through
the application of Carnival's proven best practices to P&O Princess and does not
anticipate that significant revenue synergies will be available. One time cash
costs of achieving these synergies are expected to be approximately $45 million.
Carnival anticipates that the majority of these cost savings will come from the
following areas:
. cost of sales and procurement - the application of Carnival's procurement
practices to enhance the Enlarged Carnival Group's purchasing rates,
particularly in respect of food and beverage, hotel supplies, concessions,
excursions and port calls;
. rationalisation of Alaskan land based assets - a reduction in duplicated
costs from the combined support infrastructure of P&O Princess' and
Carnival's Alaskan land based operations; and
. selling, general and administrative costs - includes savings available from
the rationalisation of information systems, particularly reservation
systems, insurance, advertising, payroll and other administrative costs.
These savings will be generated for the benefit of both shareholders and
customers. Carnival believes that the opportunities for employees will be
enhanced within the combined group and does not anticipate that there will be
significant redundancies as a result of this rationalisation.
In arriving at this estimate, the Carnival Board has assumed that there are
comparable operations, processes and procedures within P&O Princess as within
Carnival, except where publicly available information clearly indicates
otherwise. In addition to Carnival management information, Carnival has used the
following sources of information in arriving at this statement:
. P&O Princess' annual report and accounts and the annual report and accounts
of its former parent, P&O;
. P&O Princess' quarterly results;
. P&O Princess' presentations to analysts and investors;
. documents and statements issued by P&O Princess in connection with its
proposed merger with Royal Caribbean and in connection with its defence
against the Revised Offer;
. brokers' research;
. other public information; and
. Carnival's knowledge of the industry and of P&O Princess.
In arriving at this estimate set out above, the Carnival Board has assumed that
there will be no significant impact on the business of the Enlarged Carnival
Group arising from any decisions made by competition authorities.
The Carnival Board has not had access to the information provided to Royal
Caribbean by P&O Princess, nor has it been able to discuss the reasonableness of
the assumptions supporting this estimate of cost savings with P&O Princess's
management. Therefore there remain inherent risks in this forward-looking
estimate.
Due to this inequality of information and the scale of the combined Carnival and
P&O Princess operations, there may be additional changes to the operating
procedures of the Enlarged Carnival Group. As a result, and the fact that the
changes relate to the future, the resulting cost savings may be materially
greater or less than those estimated.
The estimated cost savings in this document should not be interpreted to mean
that the earnings per share of the Enlarged Carnival Group for the current or
future financial years will necessarily match or exceed the historical published
earnings per share of Carnival;
118
Letter from Ernst & Young
Set out below is the text of a letter from Ernst & Young relating to the
Carnival statement of estimated cost savings above:
Ernst & Young
Becket House
1 Lambeth Palace Road
London
SE1 7EU
The Directors
Carnival Corporation
Carnival Place
3655 Northwest 87th Avenue
Miami FL 33178-2428
UBS Warburg Ltd.
1 Finsbury Avenue
London EC2M 2PP
Merrill Lynch International
2 King Edward Street
London EC1A 1HQ
31 January 2002
Dear Sirs
Revised Offer for P&O Princess Cruises plc ("P&O Princess")
We refer to the statement regarding the estimate of cost savings ("the
Statement") made by Carnival Corporation ("Carnival") set out in this document.
Responsibility
The Statement is the responsibility of the Directors of Carnival ("the
Directors"). It is our responsibility and that of UBS Warburg Ltd. ("UBSW") and
Merrill Lynch International ("Merrill Lynch") to form respective opinions, as
required by Note 8(b) to Rule 19.1 of the City Code on Takeovers and Mergers
("the Code"), as to whether the Statement has been made by Carnival with due
care and consideration.
Basis of opinion
We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards issued by the Auditing Practices Board.
We have reviewed the relevant bases of belief (including sources of information)
and calculations underlying the Statement. We have discussed the Statement
together with the relevant bases of belief (including sources of information)
with the Directors and those officers and employees of Carnival who developed
the underlying plans and with UBSW and Merrill Lynch. Our work did not involve
any independent examinations of any of the financial or other information
underlying the Statement.
We do not express any opinion as to the achievability of the cost savings
identified by the Directors.
119
Opinion
In our opinion, based on the foregoing, the Statement by Carnival has been made
with due care and consideration, in the context in which it was made.
Our work in connection with the Statement has been undertaken solely for the
purposes of reporting under Note 8(b) to Rule 19.1 of the Code to the Directors,
to UBSW and to Merrill Lynch. We accept no responsibility to P&O Princess or its
shareholders or any other person (other than the Directors, UBSW and Merrill
Lynch) in respect of, arising out of or in connection with that work.
Yours faithfully
Ernst & Young LLP
120
Letter from Merrill Lynch and UBS Warburg
Set out below is the text of a letter from Merrill Lynch and UBS Warburg
relating to the Carnival statement of estimated cost savings above:
Merrill Lynch International UBS Warburg Ltd.
2 King Edward Street 1 Finsbury Avenue
London London
EC1A 1HQ EC2M 2PP
Registered in England Registered in England
No. 2312079 No. 2035362
The Directors
Carnival Corporation
Carnival Place
3655 Northwest 87th Avenue
Miami
FL 33178-2428
31 January 2002
Dear Sirs,
Revised Offer for P&O Princess Cruises plc ("P&O Princess")
We refer to the statement of estimated cost savings (the "Statement") made by
Carnival Corporation ("Carnival") set out in this document for which the
Directors of Carnival are solely responsible.
We have discussed the Statement, together with the relevant bases of belief
(including sources of information), with the Directors of Carnival and those
officers and employees of Carnival who developed the underlying plans. We have
also reviewed the work carried out by Ernst & Young and have discussed with them
the conclusions stated in their letter of 31 January 2002 addressed to
yourselves and ourselves on this matter.
We have relied upon the accuracy and completeness of all the financial and other
information reviewed by us and have assumed such accuracy and completeness for
the purposes of rendering this letter.
We do not express any opinion as to the achievability of the estimated cost
savings identified by Carnival.
This letter is provided solely to the Directors of Carnival in connection with
Note 8(b) of Rule 19.1 of the City Code on Takeovers and Mergers and for no
other purpose. We accept no responsibility to P&O Princess or its shareholders
or any other person other than the Directors of Carnival in respect of this
letter.
On the basis of the foregoing, we consider that the Statement, for which the
Directors of Carnival are solely responsible, has been made with due care and
consideration in the context in which it was made.
Yours faithfully,
For and on behalf of For and on behalf of
Merrill Lynch International UBS Warburg Ltd.
Philip Yates Tom Cooper
Managing Director Managing Director
Stuart Faulkner Mihiri Jayaweera
Vice President Executive Director
121
APPENDIX VI
Financial Effects of Acceptance
Based on the New York Stock Exchange closing price of a Carnival Share of $27.05
on 29 January 2002, the latest practicable date prior to announcement of the
Revised Offer, and an exchange rate of $1:(Pounds)0.709, the Revised Offer
values each P&O Princess Share at 515 pence and the entire existing share
capital of P&O Princess at approximately (Pounds)3.6 billion.
The Revised Offer represents:
. a premium of 62.4 per cent. to the closing middle market price of 317 pence
per P&O Princess Share on 19 November 2001, the last business day prior to
the announcement of the Royal Caribbean Proposal;
. a premium of 29.0 per cent. to the closing middle market price of 399 pence
per P&O Princess Share on 29 January 2002, the last business day prior to
the date of the announcement of the Revised Offer; and
. a premium of 34.5 per cent. to the current "look through" price of
P&O Princess under the Royal Caribbean Proposal.
The following tables set out, for illustrative purposes only and on the bases
and assumptions set out in the notes below, the financial effects on capital
value and gross income for a holder of 100 P&O Princess Shares accepting the
Revised Offer if the Revised Offer becomes or is declared unconditional in all
respects:
A. Increase/(decrease) in capital value under the terms of the Revised Offer
Notes (Pounds)
Market value of 26.84 New Carnival Shares (i) 514.65
------
Less market value of 100 P&O Princess Shares (ii) 399.00
------
Increase/(decrease) in capital value 115.65
------
This represents and increase/(decrease) of 29%
B. Increase/(decrease) in gross income under the terms of the Revised Offer
Notes $
Gross dividend income on 26.84 New Carnival Shares (iii) 11.27
------
Less gross dividend income on 100 P&O Princess Shares (iv) 12.00
------
Increase/(decrease) in gross income (0.73)
------
This represents and increase/(decrease) of (6%)
Notes:
(i) The market value of the New Carnival Shares is based on the New York
Stock Exchange closing price of $27.05 per Carnival Share on 29 January
2002, being the latest practicable date before the publication of this
document.
(ii) The market value of the P&O Princess Shares is based on the closing price
of 399 pence per P&O Princess Share on 29 January 2002, being the latest
practicable date before the publication of this document.
(iii) The dividend income from the New Carnival Shares is based on a dividend
of 42 cents per Carnival Share for the financial year ended 30 November
2001.
(iv) The dividend income from P&O Princess Shares is based on aggregate
dividends of 12 cents per P&O Princess Share for the last twelve months
ended 30 September 2001.
(v) In assessing the financial effects of acceptance of the Revised Offer, no
account has been taken of the treatment of any fractions or of any
potential liability to taxation of a P&O Princess Shareholder.
122
APPENDIX VII
Bases and Sources of Information
Unless otherwise stated: (i) information relating to Carnival has been extracted
from the relevant published audited financial statements and SEC filings of
Carnival; (ii) information relating to Royal Caribbean has been extracted from
the relevant published audited financial statements and SEC filings of Royal
Caribbean; (iii) information relating to P&O Princess has been extracted from
the relevant published annual reports and accounts, interim reports and SEC
filings of P&O Princess; and (iv) information relating to the Royal Caribbean
Proposal is based upon the information contained in the P&O Princess Circular
and related documents.
Share prices for Carnival, P&O Princess and Royal Caribbean are taken from
Bloomberg.
The $1:(Pounds)0.709 exchange rate is the World Market rate as published in the
Financial Times on 29 January 2002.
The Royal Caribbean Proposal "look through" value is based upon the Royal
Caribbean closing price on 29 January 2002 of $18.70 and an exchange ratio of
3.46386 P&O Princess Shares per Royal Caribbean Share as per the Implementation
Agreement dated 19 November 2001 between P&O Princess and Royal Caribbean.
References to the value of the Revised Offer for the entire existing share
capital of P&O Princess are based upon the Carnival closing price on 29 January
2002 of $27.05 and the 692,632,324 50 cent ordinary shares in issue (by
reference to the Royal Caribbean/P&O Princess Implementation Agreement).
References to the amount of cash of approximately $2.4 billion required to
satisfy the Partial Cash Alternative are based upon the entire existing share
capital of P&O Princess of 692,632,324 50 cent ordinary shares in issue (by
reference to the Royal Caribbean/P&O Princess Implementation Agreement).
References to Royal Caribbean's credit ratings are based on Bloomberg and
Standard & Poors Ratings Direct 20 November 2001.
EBITDA is unadjusted operating income plus depreciation and amortisation.
Enterprise value is the market value of equity plus net debt, minorities and
preferred stock. The market capitalisations for P&OPrincess and Royal Caribbean
are based on 692,632,324 and 192,300,104 shares outstanding respectively as
stated in the P&O Princess Circular. All market capitalisations are based on
share prices as at 19 November 2001. The EV/EBITDA multiple is the enterprise
value divided by the EBITDA for that financial period.
EBITDA/cash interest expense, or interest cover, is calculated by dividing
EBITDA by the sum of net interest expense and capitalised interest.
Net margin is calculated as net income divided by revenues.
The P/E multiple is the share price on the last day of the financial period
divided by the earnings per share for that financial period.
The relevant financial period for the last twelve months multiples is the twelve
months ended 30 September 2001 for Royal Caribbean and P&O Princess and the
twelve months ended 31 August 2001 for Carnival.
The average current and forward P/Es for Royal Caribbean since flotation are
sourced from Factset. This data is only available for the period from 1 July
1993.
The implied value of P&O Princess is calculated using earnings per share
forecasts based on Salomon Smith Barney research dated 29 November 2001 derived
from the equalisation ratio as stated in the P&O Princess Circular and assuming
$100 million of synergies taxed at the 2000 effective rate.
Total shareholder returns are sourced from Datastream as at 29 January 2002, the
last practicable date prior to the date of the announcement of the Revised
Offer. Datastream calculates the total shareholder
123
return, assuming gross dividend income is reinvested in additional shares.
References to the return on invested capital likely to be generated by the Royal
Caribbean Proposal are calculated based on Salomon Smith Barney research dated
29 November 2001, using forecasts disclosed therein. Return on invested capital
is defined as return on average invested capital and is calculated by dividing
EBIT, taxed at the effective tax rate, by the average opening and closing total
debt plus shareholder equity plus minority interests plus preferred stock
balances, adjusted for the cumulative post-tax effect of synergies. Total debt
is the sum of long term debt and current portion of long term debt.
The calculations underlying the estimate of financial penalties incurred if
Carnival were to acquire P&O Princess before the Joint Venture is terminated are
set out in Carnival's announcement of 8 January 2002.
The P&O Princess earnings contribution pre-synergies is calculated as P&O
Princess' net income divided by the sum of P&O Princess's net income and Royal
Caribbean's net income for the particular year.
P&O Princess earnings
contribution pre synergies
Date 2002 2003
SSSB 29 November 2001 64.4% 57.7%
Bear Stearns 9 / 21 November 2001 53.0% 57.7%
MSDW 21 November 2001 59.5% 45.7%
UBSW 5 December 2001 65.5% 59.6%
In the case of the Bear Stearns projections, net income has been calculated by
multiplying the stated earnings per share by the stated number of shares
outstanding. The source of each set of projections is a research note published
on the date shown in the table.
Book value per share is calculated by multiplying the forecast shareholder
equity for the DLC by the P&O Princess share of the DLC economics, and then
dividing this number by the number of P&O Princess Shares outstanding. The
forecast for shareholder equity is sourced from Salomon Smith Barney research
dated 29 November 2001.
Weighted average cost of capital is calculated by adding the weighted cost of
debt and equity. The weighting of the cost of debt is calculated by dividing
total debt by the sum of total debt plus market value of equity for the period
in question. The weighting of the cost of equity is calculated by subtracting
the weighting of the cost of debt from 100 per cent. The cost of debt is
calculated by taking the average of the yield-to-maturity of outstanding public
bonds as at 29 January 2002. For Royal Caribbean, the source used is Advantage
Data and for P&O Princess the source is Bloomberg. The cost of equity is
calculated by multiplying the appropriate market risk premium by the beta of the
company in question and adding this to the risk-free rate. The source for the
betas used in the analysis above is Barra. The market risk premium is assumed to
be 5 per cent. for both Royal Caribbean and P&O Princess.
The figure for outbound European holiday volume and the number of European
cruise holidays in 2000 are sourced from the "Cruise Industry Statistical Review
2001", published by G.P. Wild (International) Limited in November 2001. The
figure for US leisure travellers in 2000 (260 million) is sourced from Travel
Industry Association. The number of cruise passengers in 2000 (7 million), is
sourced from Cruise Line Industry Association.
The percentage of the vacation market accounted for by the cruise industry is
calculated by dividing the outbound European holiday volume by the number of
European cruise holidays in 2000.
The combined market share of Carnival and P&O Princess in the EEA is based on
information about the total market obtained from the "Cruise Industry
Statistical Review 2001", published by G.P. Wild (International) Limited in
November 2001 and the Passenger Shipping Association (PSA) "Annual Cruise Market
Digest UK Europe 2000"; the market share of Carnival is derived from internal
management sources and that of P&O Princess is based on Carnival estimates.
The market shares of the cruise segment in the UK and Germany for Royal
Caribbean and P&O Princess are extracted from an equity research report
published by Deutsche Bank on 11 December 2001. The market share of Carnival is
derived from internal management sources.
124
APPENDIX VIII
ADDITIONAL INFORMATION
1. RESPONSIBILITY
The directors of Carnival, whose names are set out in paragraph 2(b) below,
accept responsibility for the information contained in this document, save that
the only responsibility accepted by them for the information contained in this
document relating to P&O Princess and Royal Caribbean and its directors, which
has been compiled from published sources, is to ensure that such information has
been correctly and fairly reproduced and presented. To the best of the knowledge
and belief of the directors of Carnival (who have taken all reasonable care to
ensure that such is the case), the information contained in this document for
which they take responsibility is in accordance with the facts and does not omit
anything likely to affect the import of such information.
2. DIRECTORS AND REGISTERED OFFICES
(a) Offices
The principal executive office of Carnival is at 3655 N.W. 87th Avenue, Miami,
Florida 33178-2428, USA. The registered office of Carnival is c/o Marcela de
Perez, 10 Elvira Mendez Street, Interseco Building, 8th Floor, Post Office Box
7440, Panama 5, Republic of Panama.
(b) Directors of Carnival
The directors of Carnival are:
Micky Arison Mr. Arison has been Chairman of the Board of Directors since
October 1990 and a director since June 1987. He has been Chief Executive Officer
of the Company since 1979.
Shari Arison Ms. Arison was a director from June 1987 until July 1993. Ms.
Arison was reappointed to the Carnival Board in June 1995. Ms. Arison is
Chairman of Arison Holdings (1998) Ltd., a holding company which invests in
banking, real estate, communications and technology companies, and a member of
the Board of Directors of Bank Hapoalim, the largest bank in Israel. She is also
the Chairman of the Board of Trustees of the Arison Foundation, Inc. and the Ted
Arison Charitable Foundation. She is also part owner of Shargad Orchanim Ltd.,
which together with its affiliates, owns and manages highway service centers in
Israel.
Maks L. Birnbach Mr. Birnbach has been a director since July 1990. Mr. Birnbach
has been the owner and Chairman of the Board of Fullcut Manufacturers Inc., a
New York wholesale importer and exporter of diamonds. Mr. Birnbach is also a
director of the Diamond Manufacturers and Importer Association located in New
York.
Ambassador Richard G. Capen, Jr. Ambassador Capen has been a director since
April 1994. He is currently a corporate director, author and business
consultant. Ambassador Capen was the Chairman and Publisher of the Miami Herald
from 1983 to 1989. Ambassador Capen is a member of the Board of Directors of the
Economy Fund, Smallcap Fund and Fixed Income Fund of The Capital Group.
Robert H. Dickinson Mr. Dickinson has been a director since June 1987. Mr.
Dickinson was Senior Vice President-Sales and Marketing of the Carnival Cruise
Lines division of Carnival from 1979 through May 1993. Since May 1993, Mr.
Dickinson has served as President and Chief Operating Officer of Carnival Cruise
Lines.
Arnold W. Donald Mr. Donald has been a director since January 2001. Since March
2000, Mr. Donald has been the Chairman and Chief Executive Officer of Merisant
Company, a manufacturer and marketer of tabletop sweetener products, including
the Equal-Registered Trademark and Canderel-Registered Trademark brands. He is a
member of the Board of Directors of Crown Cork & Seal Company, Inc., Belden,
Inc. and The Scotts Company.
James M. Dubin Mr. Dubin has been a director since July 1995. Mr. Dubin is a
Partner with the law firm of Paul, Weiss, Rifkind, Wharton & Garrison. Mr. Dubin
is also a member of the Board of Directors of Conair Corporation and Change
Technology Partners, Inc.
125
Howard S. Frank Mr. Frank has been Vice Chairman of the Board of Directors since
October 1993 and a director since April 1992. He was appointed Chief Operating
Officer in January 1998. From 1989 to January 1998, he was Chief Financial
Officer and Chief Accounting Officer of Carnival.
A. Kirk Lanterman Mr. Lanterman is a Certified Public Accountant and has been a
director since April 1992. He has been Chairman of the Board, President and
Chief Executive Officer of Holland America Line-Westours Inc. since August 1999.
Modesto A. Maidique Mr. Maidique has been a director since April 1994. He has
been President of Florida International University since 1986. Dr. Maidique has
also served as Vice President and General Manager of the Semiconductor Division
of Analog Devices, Inc. which he co-founded in 1969, as President and Chief
Executive Officer of Gerome Therapeutics Collaborative Research, Inc., a
genetics engineering firm, and as General Partner of Hambrecht & Quist, a
venture capital firm. Dr. Maidique is a director of National Semiconductor, Inc.
Stuart Subotnick Mr. Subotnick has been a director since July 1987. Mr.
Subotnick has been a general partner and the Executive Vice President of
Metromedia Company since July 1986. He is a director of Metromedia International
Group, Inc., Metromedia Fiber Networks Inc. and Big City Radio Inc.
Sherwood M. Weiser Mr. Weiser has been a director since July 1987. Mr. Weiser
has been, since its formation in 1998, Chairman of the Board and Chief Executive
Officer of CRC Holdings, Inc. (d/b/a Carnival Resorts & Casinos). Mr. Weiser is
a member of the Board of Directors of Mellon United National Bank, Wyndham
International, Inc. and Interstate Hotels Corporation and a trustee of the
University of Miami.
Meshulam Zonis Mr. Zonis has been a director since June 1987. Mr. Zonis served
as Senior Vice President-Operations of Carnival Cruise Lines from 1979 until his
retirement in December 2000.
Uzi Zucker Mr. Zucker has been a director since July 1987. Mr. Zucker joined
Bear, Stearns & Co. in 1967 and was a Limited Partner until 1982 and has been a
General Partner thereafter. Mr. Zucker has been a Senior Managing Director of
Bear, Stearns & Co. Inc. since 1985. He is a director of Conair Corporation,
Jerusalem Economic Corporation Ltd., Alliance Tire Company Ltd. and Industrial
Buildings Corporation Ltd.
c) Directors of P&O Princess
The Directors of P&OPrincess and their respective functions are:
Director Function
The Lord Sterling of Plaistow, CBE Chairman
Peter Foy Deputy Chairman
Peter Gervis Ratcliffe Chief Executive Officer
Nicholas Lawrence Luff Chief Financial Officer
Baroness Hogg Non-Executive Director
Sir John Parker Non-Executive Director
Horst Rahe Non-Executive Director
3. STOCK EXCHANGE QUOTATIONS
The following table sets out the closing middle market quotations for a P&O
Princess Share as derived from the London Stock Exchange Daily Official List and
for a Carnival Share as derived from the New York Stock Exchange, and the
closing sale price on the New York Stock Exchange for P&O Princess ADSs and
Carnival Shares for the first dealing day in each of the six months immediately
prior to the date of this document, for 14 December 2001 (being the last dealing
day prior to the commencement of the Offer Period) and for 29 January 2002
(being the latest practicable date prior to the publication of this document):
Date P&O Princess P&O Princess Carnival Shares
Share price (p) ADSs price (US) $price (US$)
1 August 2001 374.0 21.83 32.82
3 September 2001 371.5 21.97 30.85
1 October 2001 222.0 13.30 21.55
1 November 2001 238.0 14.74 22.65
3 December 2001 358.0 20.63 26.24
126
Date P&O Princess P&O Princess Carnival Shares
Share price (p) ADSs price (US) $price (US$)
14 December 2001 360.0 21.04 27.30
2 January 2002 399.8 23.21 27.65
29 January 2002 399.0 22.60 27.05
4. SHAREHOLDINGS AND DEALINGS
(a) Definitions and references
For the purposes of this Appendix VII:
(i) "disclosure period" means the period commencing on 16 December 2000
(being the date twelve months prior to the commencement of the
offer period) and ending on 29 January 2002 (being the latest
practicable date prior to the publication of this document);
(ii) "relevant securities" means Carnival Shares or, as the case may be,
P&O Princess Shares and P&O Princess ADSs or any other securities
of Carnival or P&O Princess convertible or exchangeable into, or
rights to subscribe for, or options (including traded options) in
respect of, or derivatives referenced to, such shares.
(b) Interests and dealings in P&O Princess Shares
(i) At the close of business on 29 January 2002 (being the latest
practicable date prior to the publication of this document),
Carnival had no interest in P&O Princess Shares or P&O Princess
ADSs.
(ii) At the close of business on 29 January 2002 (being the latest
practicable date prior to the publication of this document), A.
Kirk Lanterman a director of Carnival had beneficial interest in
10,000 P&O Princess ADSs.
(iii) The following dealings for value in relevant securities of P&O
Princess by Merrill Lynch Pierce, Fenner & Smith Incorporated
presumed to be acting in concert with Carnival have taken place
during the disclosure period:
Merrill Lynch Pierce, Fenner & Smith Incorporated
P&O Princess Shares
Date Transaction Number Price ($)
22 December 2000 Purchase 500 3.800
27 December 2000 Purchase 500 3.800
27 December 2000 Sale 500 3.819
28 December 2000 Sale 500 4.006
13 February 2001 Purchase 900 5.125
14 February 2001 Sale 900 5.125
13 March 2001 Purchase 887 4.625
14 March 2001 Sale 887 4.753
29 March 2001 Sale 1,000 4
30 March 2001 Purchase 1,000 3.947
17 April 2001 Purchase 1,218 3.9
17 April 2001 Sale 20,000 4.158
18 April 2001 Sale 1,218 4.068
2 May 2001 Sale 158 4.738
14 May 2001 Purchase 100 4.35
15 May 2001 Sale 100 4.615
16 May 2001 Purchase 500 4.5
17 May 2001 Sale 500 4.733
16 August 2001 Sale 1,063 5.397
14 November 2001 Purchase 34 4
14 December 2001 Sale 37 5.301
127
P&O Princess ADRs
Date Transaction Number Price ($)
15 October 2001 Purchase 31,500 13.34
15 October 2001 Purchase 7,500 13.35
15 October 2001 Purchase 25,000 13.7
15 October 2001 Purchase 25,000 14.06
16 October 2001 Purchase 5,000 13.6
22 October 2001 Purchase 200 11.6
22 October 2001 Purchase 7,300 11.6
22 October 2001 Sale 50,000 11.6
23 October 2001 Sale 100 12.05
24 October 2001 Sale 2,400 13.05
24 October 2001 Sale 1,000 13.1
24 October 2001 Sale 3,500 13.1
24 October 2001 Sale 500 13.2
17 January 2002 Purchase 21,000 24.45
17 January 2002 Sale 1,000 24.40
17 January 2002 Sale 200 24.20
17 January 2002 Sale 200 24.20
17 January 2002 Sale 5,000 24.12
18 January 2002 Sale 3,000 23.25
18 January 2002 Sale 700 22.92
18 January 2002 Sale 1,100 23.05
18 January 2002 Sale 200 23.18
18 January 2002 Sale 200 23.00
18 January 2002 Sale 200 23.10
22 January 2002 Sale 2,500 22.65
22 January 2002 Sale 200 22.71
22 January 2002 Sale 200 22.65
22 January 2002 Sale 800 22.75
22 January 2002 Sale 400 22.66
22 January 2002 Sale 900 22.70
22 January 2002 Sale 2,200 22.67
22 January 2002 Sale 600 22.73
22 January 2002 Sale 1,200 22.65
22 January 2002 Sale 200 22.66
128
(c) Interests and dealings in Carnival Shares
(i) As at the close of business on 29 January 2002 (being the latest
practicable date prior to the publication of this document), the
interests, all of which were beneficial, of the directors of
Carnival, their immediate families and related trusts in Carnival
Shares and options to subscribe for Carnival Shares were as follows:
Carnival Shares
Owner Number
Birnbach Maks 21,700
Birnbach Maks, as trustee for the estate under the will
of Norman Salit 8,500
Birnbach Maks, as trustee for the Fullcut Manufacturers, Inc.
Employee Pension Fund 1,000
Capen Mrs. 802
Capen Trust 17,000
Dickinson Enterprises Limited Partnership 279,486.3869
Dickinson Robert H. 1,410.7289
Dubin James 1,000
Dubin James (disclaimed)* 145,695,533
The Arnold and Hazel Donald Charitable Trust 1,800
Frank Howard S. 282,904
Mrs. Frank 9,600
Jackson S. Woolworth Irrevocable Trust 1,302
Lanterman A. Kirk 161,918.6535
Helen K. Lanterman Trust 8,000
Subotnick Stuart 60,000
Weiser Sherwood 8,000
Mrs. Weiser 4,000
Zonis Meshulam 533,042.0236
Zucker Uzi 60,000
*By virtue of being the sole shareholder of JMD Delaware Inc., JMD
Protector and Bellute Limited, Mr Dubin may be deemed to own the
aggregate of 145,695,533 shares of common stock beneficially owned
by such entities, as to which he disclaims beneficial ownership.
Micky Arison, the Chairman of the Board and Chief Executive Officer
of the Company, certain other members of the Arison family and
trusts for their benefit (collectively, the "Principal
Shareholders"), beneficially own shares representing approximately
47% of the voting power of the common stock. The table sets out the
ownership of the Principal Shareholders. See footnote (2) below for
a description of the group comprised of members of the Arison family
and other persons and entities affiliated with them.
The number of shares beneficially owned by each entity, person,
director or executive officer is determined under rules of the
Securities and Exchange Commission, and the information is not
necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares
as to which the individual has the sole or shares voting power or
investment power and also any shares which the individual has the
right to acquire as of April 20, 2002 (60 days after the record date
of February 19, 2002) through the exercise of any stock option or
other right.
129
Owner Number Percentage of
Share Capital
Micky Arison 227,459,671(2)(3) 38.9%
Marilyn Arison 3,653,168(2) *
Shari Arison 4,001,200(2)(4) *
MA 1994 B Shares, L.P. 106,114,284(2)(5) 18.1%
MA 1994 B Shares, Inc. 106,114,284(2)(5) 18.1%
JMD Delaware, Inc. as Trustee for the
Micky Arison 1994 "B" Trust 106,114,284(2)(5) 18.1%
MA 1997 Holdings, L.P. 6,042,187(2)(6) *
MA 1997 Holdings, Inc. 6,042,187(2)(6) *
JMD Delaware, Inc. as Trustee for the
Micky Arison 1997 Holdings Trust 6,042,187(2)(6) *
The Royal Bank of Scotland Trust Company (Jersey)
Limited as Trustee of the Ted Arison 1992
Irrevocable Trust for Lin No. 2 46,145,830(2)(7) 7.9%
Balluta Limited as Trustee for the Shari Arison
Irrevocable Guernsey Trust 5,102,708(2) *
Cititrust (Jersey) Limited as Trustee for the
Ted Arison 1994 Irrevocable Trust For Shari No. 1 76,787,525(2)(7) 13.1%
JMD Protector, Inc. 122,683,355(2)(7) 21.0%
JMD Delaware, Inc. as Trustee for the
Continued Trust for Micky Arison 1,959,010(2) *
JMD Delaware, Inc. as Trustee for the
Continued Trust for Shari Arison Dorsman 4,759,010(2) *
JMD Delaware, Inc. as Trustee for the
Continued Trust for Michael Arison 4,759,010(2) *
JMD Delaware, Inc. as Trustee for the
Marilyn B. Arison Irrevocable Delaware Trust 1,432,440(2)(8) *
JMD Delaware, Inc. as Trustee for the Michael
Arison 1999 Irrevocable Delaware Trust 1,000,000(2) *
MBA I, L.L.C. 1,432,440(2)(8) *
TAMMS Investment Company
Limited Partnership 3,653,168(2) *
TAMMS Management Corporation 3,653,168(2) *
The Ted Arison Family Foundation USA, Inc. 2,250,000(2) *
James M. Dubin 145,696,533(9) 24.9%
* Less than one percent.
(1) In accordance with the rules promulgated by the SEC, such
ownership includes shares currently owned as well as shares which
the named person has the right to acquire beneficial ownership of
within 60 days, including through the exercise of options,
warrants or other rights, or through the conversion of a
security, but such shares are not deemed outstanding for
computing the percentage of any other person. Beneficial
ownership of shares is determined under the rules of the SEC and
generally includes any shares over which a person exercises sole
or shared voting or investment power. Accordingly, more than one
person may be deemed to be a beneficial owner of the same
securities.
(2) Micky Arison, Shari Arison and the other Arison family entities
named that own shares of common stock have filed a joint
statement on Schedule 13D with respect to the shares of common
stock held by such persons. TAMMS Investment Company Limited
Partnership ("TAMMS") owns 3,653,168 shares of common stock.
TAMMS' general partner is TAMMS Management Corporation ("TAMMS
Corp."), which is wholly-owned by Marilyn Arison. TAMMS' limited
partners are various trusts established for the benefit of
certain members of Micky Arison's family, including Shari Arison
and Marilyn Arison (the "Family Trusts"). By virtue of the
limited partnership agreement of TAMMS, TAMMS Corp. may also be
deemed to beneficially own such 3,653,168 shares of common stock.
By virtue of their interests in TAMMS, JMD Delaware, Inc. and
Balluta Limited, as trustees of certain
130
of the Family Trusts, may be deemed to beneficially own the
portion of the 3,653,168 shares of common stock held by TAMMS
which corresponds to their respective partnership interest in
TAMMS. Such amounts are included in the number of shares set
forth next to their names in the table above. Because Marilyn
Arison beneficially owns all of the capital stock of TAMMS Corp.,
she may be deemed to beneficially own all of the 3,653,168 shares
of common stock owned by TAMMS; however, she disclaims beneficial
ownership of 2,620,728 of such shares of common stock (those
owned by partners of TAMMS other than TAMMS Corp. and MBA I,
L.L.C. ("MBA I")). Because of his position as President of TAMMS
Corp., Micky Arison may be deemed to beneficially own the
3,653,168 shares of common stock owned by TAMMS; however, Micky
Arison disclaims beneficial ownership of all such shares which
are beneficially owned by TAMMS.
(3) Includes (i) 264,000 shares of common stock issuable to Micky
Arison upon his exercise of stock options granted to him in May
1995 and January 1998, 1999, 2000 and 2001, (ii) 3,653,168 shares
of common stock held by TAMMS (see Note 2 above), (iii) 6,042,708
shares of common stock held by the MA 1997 Holdings, L.P., (iv)
106,114,284 shares of common stock held by the MA 1994 B Shares,
L.P., (v) 93,847,639 shares of common stock held by the Ted
Arison 1992 Irrevocable Trust for Lin No. 2, Ted Arison 1994
Irrevocable Trust For Shari No. 1 and the Continued Trust for
Michael Arison by virtue of the authority granted to Micky Arison
under the last will of Ted Arison, and (vi) 17,538,393 shares of
common stock held by The 1997 Irrevocable Trust for Micky Arison,
all of which may be deemed to be beneficially owned by Micky
Arison. However, Micky Arison disclaims beneficial ownership of
all such shares owned by TAMMS.
(4) Under the terms governing the Shari Arison Irrevocable Guernsey
Trust, Shari Arison has the sole right to vote and direct the
sale of the 4,000,000 shares of common stock held directly by
such trust. Includes 1,200 shares of common stock owned by Shari
Arison's minor children as to which she disclaims beneficial
ownership.
(5) MA 1994 B Shares, L.P. ("MA 1994, L.P.") owns 106,114,284 shares
of common stock. The general partner of MA 1994, L.P. is MA 1994
B Shares, Inc. ("MA 1994, Inc."), which is wholly-owned by the
Micky Arison 1994 "B" Trust, a trust established for the benefit
of Micky Arison and his heirs (the "B Trust"). The sole limited
partner of MA 1994, L.P. is the B Trust. By virtue of the limited
partnership agreement of MA 1994, L.P., MA 1994, Inc. may be
deemed to beneficially own all such 106,114,284 shares of common
stock. By virtue of the B Trust's interest in MA 1994, L.P., the
B Trust may be deemed to beneficially own all such 106,114,284
shares of common stock. Under the terms of the instrument
governing the B Trust, Micky Arison has the sole right to vote
and direct the sale of the common stock indirectly held by the B
Trust. The trustee of the B Trust is JMD Delaware, Inc., a
corporation wholly-owned by James M. Dubin.
(6) MA 1997 Holdings, L.P. ("MA 1997, L.P.") owns 6,042,708 shares of
common stock. The general partner of MA 1997, L.P. is MA 1997
Holdings, Inc. ("MA 1997, Inc."), which is wholly-owned by the
Micky Arison 1997 Holdings Trust, a trust established for the
benefit of Micky Arison and his heirs (the "MA 1997 Trust"). The
sole limited partner of MA 1997, L.P. is the MA 1997 Trust. By
virtue of the limited partnership agreement of MA 1997, L.P., MA
1997, Inc. may be deemed to beneficially own all of such
6,042,708 shares of common stock. By virtue of the MA 1997
Trust's interest in MA 1997, L.P., the MA 1997 Trust may be
deemed to beneficially own all such 6,042,708 shares of common
stock. Under the terms of the instrument governing the MA 1997
Trust, Micky Arison has the sole right to vote the common stock
indirectly held by the MA 1997 Trust. The trustee of the MA 1997
Trust is JMD Delaware, Inc., a corporation wholly owned by James
M. Dubin. Each of JMD Delaware, Inc. and Mr. Dubin may be deemed
to beneficially own the common stock indirectly held by the MA
1997 Trust. Each of JMD Delaware, Inc. and Mr. Dubin disclaims
beneficial ownership of all such shares which are beneficially
131
owned by the MA 1997 Trust.
(7) JMD Protector, a Delaware corporation, is the protector of the Ted Arison
1994 Irrevocable Trust for Shari No. 1, Ted Arison 1992 Irrevocable Trust
for Lin No. 2 and Ted Arison Charitable Trust and has certain voting and
dispositive rights with respect to the common stock held by such trusts.
(8) MBA I owns 400,000 shares of common stock and a limited partnership
interest in TAMMS (See Note 2 above). MBA I may be deemed to own 1,000,000
shares of common stock held by TAMMS which corresponds to its respective
partnership interest in TAMMS. The Marilyn B. Arison Irrevocable Delaware
Trust (the "Irrevocable Trust") owns a controlling interest in MBA I;
therefore, the Irrevocable Trust may be deemed to beneficially own all such
1,400,000 shares of common stock.
(9) By virtue of being the sole shareholder of JMD Delaware, Inc., JMD
Protector and Balluta Limited, Mr. Dubin may be deemed to own the aggregate
of 145,695,533 shares of common stock beneficially owned by such entities,
as to which he disclaims beneficial ownership.
Options
Options Options Options Options Expiry Option
granted outstanding vested exercisable date price
Owner (US$)
Micky
Arison 2,000,000 0 2,000,000 0 30/05/2005 11.250000
Micky
Arison 120,000 120,000 72,000 72,000 12/01/2008 26.406250
Micky
Arison 120,000 120,000 48,000 48,000 11/01/2009 45.375000
Micky
Arison 120,000 120,000 24,000 24,000 26/01/2010 43.562500
Micky
Arison 240,000 240,000 0 0 08/01/2011 29.812500
Micky
Arison 120,000 120,000 0 0 08/10/2011 22.570000
Total
M Arison 2,720,000 720,000 2,144,000 144,000
Birnbach
Maks 20,000 20,000 20,000 20,000 13/07/2010 20.375000
Birnbach
Maks 6,000 6,000 0 0 17/04/2011 25.915000
Birnbach
Maks 6,000 6,000 0 0 8/10/2011 22.570000
Total
M. Birnbach 32,000 32,000 20,000 20,000
132
Options Options Options Options Expiry Option
granted outstanding vested exercisable date price
Owner (US$)
Capen
Richard 20,000 20,000 20,000 20,000 19/04/2009 46.875000
Capen
Richard 6,000 6,000 0 0 17/04/2011 25.915000
Capen
Richard 6,000 6,000 0 0 08/10/2011 22.570000
Total
R. Capen 32,000 32,000 20,000 20,000
Dickinson
Robert H. 80,000 80,000 64,000 64,000 01/08/2007 21.187500
Dickinson
Robert H. 80,000 80,000 48,000 48,000 01/08/2008 37.937500
Dickinson
Robert H. 64,000 64,000 25,600 25,600 01/08/2009 45.875000
Dickinson
Robert H. 80,000 80,000 16,000 16,000 01/08/2010 18.906250
Dickinson
Robert H. 80,000 80,000 16,000 16,000 08/01/2011 29.812500
Dickinson
Robert H. 80,000 80,000 0 0 01/08/2011 33.035000
Dickinson
Robert H. 80,000 80,000 0 0 08/10/2011 22.570000
Total
R. Dickinson 544,000 544,000 169,600 169,600
Donald
Arnold W. 6,000 6,000 0 0 17/04/2011 25.915000
Donald
Arnold W. 6,000 6,000 0 0 08/10/2011 22.570000
Total
A. Donald 12,000 12,000 0 0
Frank
Howard S. 800,000 400,000 800,000 400,000 30/05/2005 11.250000
Frank
Howard S. 100,000 100,000 80,000 80,000 12/01/2008 26.406250
Frank
Howard S. 100,000 100,000 60,000 60,000 11/01/2009 45.375000
Frank
Howard S. 100,000 100,000 40,000 40,000 26/01/2010 43.562500
Frank
Howard S. 200,000 200,000 40,000 40,000 08/01/2011 29.812500
Frank
Howard S. 100,000 100,000 0 0 08/10/2011 22.570000
Total
H. Frank 1,400,000 1,000,000 1,020,000 620,000
Maidique
Modesto A. 20,000 20,000 20,000 20,000 19/04/2009 46.875000
133
Options Options Options Options Expiry Option
granted outstanding vested exercisable date price
Owner (US$)
Maidique
Modesto A. 6,000 6,000 0 0 17/04/2011 25.915000
Maidique
Modesto A. 6,000 6,000 0 0 08/10/2011 22.570000
Total
M. Maidique 32,000 32,000 20,000 20,000
Subotnick
Stuart 20,000 0 20,000 0 12/7/2002 21.906250
Subotnick
Stuart 6,000 6,000 0 0 17/04/2011 25.915000
Subotnick
Stuart 6,000 6,000 0 0 08/10/2011 22.570000
Total
S. Subotnick 32,000 12,000 20,000 0
Weiser
Sherwood 20,000 0 20,000 0 12/07/2002 21.906250
Weiser
Sherwood 6,000 6,000 0 0 17/04/2011 25.915000
Weiser
Sherwood 6,000 6,000 0 0 08/10/2011 22.570000
Total
S. Weiser 32,000 12,000 20,000 0
Zonis
Meshulam 40,000 40,000 32,000 32,000 12/01/2008 26.406250
Zonis
Meshulam 40,000 40,000 24,000 24,000 11/01/2009 45.375000
Zonis
Meshulam 40,000 40,000 16,000 16,000 26/01/2010 43.562500
Zonis
Meshulam 6,000 6,000 0 0 17/04/2011 25.915000
Zonis
Meshulam 6,000 6,000 0 0 08/10/2011 22.570000
Total
M. Zonis 132,000 132,000 72,000 72,000
Zucker
Uzi 20,000 0 20,000 0 12/07/2002 21.906250
Zucker
Uzi 6,000 6,000 0 0 17/04/2011 25.915000
Zucker
Uzi 6,000 6,000 0 0 08/10/2011 22.570000
Total
U. Zucker 32,000 12,000 20,000 0
134
(ii) The following dealings for value in relevant securities of Carnival by the
directors of Carnival, their immediate families and related trusts have
taken place during the disclosure period:
Date Party Transaction Number of Price per Share
Carnival Shares (US$)
21/12/00 MA 1994 B Shares L.P. Sale 2,000,000
08/01/01 Micky Arison Grant under the
1993 Restricted
Stock Plan 60,000 N/A
09/01/01 Micky Arison Transfer (gift) 60,000 N/A
09/01/01 MA 1997 Holdings, LP Acquisition (gift) 60,000 N/A
24/05/01 MA 1997 Holdings, LP Purchase 2,000,000 11.25
24/05/01 MA 1997 Holdings, LP Sale 760,521 29.5850
17/09/01 Birnbach Maks, as
trustee for the estate under
the will of Norman Salit Purchase 500 19.50
25/01/01 Dickinson Enterprises
Limited Partnership
("DELP") Gift 11,650 N/A
16/02/01 DELP Sale 10,000 32.2500
16/02/01 DELP Sale 11,600 32.3500
16/02/01 DELP Sale 8,400 32.4000
03/04/01 DELP Receipt of gift 997 N/A
01/08/01 DELP Grant under the
1993 Stock Plan 40,000 N/A
24/01/01 DELP Sale 8,875
29/12/00 Dickinson Robert H. employee stock
purchase plan
("ESPP") 768.1593 19.5270
15/03/01 Dickinson Robert H. ESPP /(1)/ 6.6725 27.7870
03/04/01 Dickinson Robert H. Sale 997.0000
14/06/01 Dickinson Robert H. ESPP /(1)/ 3.0792 26.4450
14/09/01 Dickinson Robert H. ESPP /(1)/ 4.5616 17.9210
135
Date Party Transaction Number of Price per Share
Carnival Share (US$)
17/12/01 Dickinson Robert H. ESPP (1) 3.0844 26.6600
28/12/01 Dickinson Robert H. ESPP 623.9601 24.0400
07/05/01 Donald Arnold W. Purchase 1,800 27.81
08/01/01 Frank Howard Grant under the 1993
Stock Plan 50,000 N/A
15/01/01 Frank Howard S. Gift 100 N/A
15/03/01 Frank Howard S. ESPP (1) 11.9353 27.787
14/06/01 Frank Howard S. ESPP (1) 12.5884 26.445
29/06/01 Frank Howard S. ESPP 603.8939 24.8388
14/09/01 Frank Howard S. ESPP (1) 22.1874 17.9210
17/12/01 Frank Howard S. ESPP (1) 15.0023 26.660
15/03/01 Lanterman A. Kirk ESPP (1) 8.3124 27.787
14/06/01 Lanterman A. Kirk ESPP (1) 8.7673 26.445
14/09/01 Lanterman A. Kirk ESPP (1) 12.9884 17.921
17/12/01 Lanterman A. Kirk ESPP (1) 8.7824 26.660
16/04/01 Maidique Modesto A. Sale 1,000 27.60
15/03/01 Zonis Meshulam ESPP (1) 6.8952 27.7870
14/06/01 Zonis Meshulam ESPP (1) 7.2728 26.4450
14/09/01 Zonis Meshulam ESPP (1) 20.7743 17.9210
17/12/01 Zonis Meshulam ESPP (1) 7.2851 26.6600
(1) Acquired pursuant to a dividend reinvestment, feature of the ESPP.
(iii) The following dealings for value in Carnival Shares of persons presumed
to be acting in concert with Carnival have taken place during the
disclosure period:
Merrill Lynch Pierce, Fenner & Smith Incorporated
Aggregation of share dealings between 16 December 2000 and 15 November
2001
Date Period Transaction Total Number Minimum Price ($) Maximum Price ($)
16 December 2000
to 15 March 2001 Sales 4,224 24.15 34.56
16 December 2000
to 15 March 2001 Purchases 3,000 24.06 34.34
16 March 2001
to 15 June 2001 Sales 4,625 24.33 29.52
16 March 2001
to 15 June 2001 Purchases 6,461 24.53 29.85
16 June 2001
to 15 September 2001 Sales 2,747 26.31 33.70
16 June 2001
to 15 September 2001 Purchases 2,781 26.29 33.50
16 September 2001
to 15 November 2001 Sales 3,310 18.00 25.25
16 September 2001
to 15 November 2001 Purchases 2,986 17.50 25.41
Share dealings between 16 November 2001 and 30 January 2002
Date Transaction Number Price ($)
16 November 2001 Sale 1,100 25.410
16 November 2001 Sale 600 25.410
16 November 2001 Sale 1,600 25.410
16 November 2001 Sale 1,400 25.410
16 November 2001 Sale 81,700 25.500
136
Date Transaction Number Price ($)
16 November 2001 Sale 49,700 25.340
16 November 2001 Sale 1,800 25.250
16 November 2001 Purchase 14,100 25.622
16 November 2001 Purchase 3,600 25.600
19 November 2001 Purchase 2,400 26.080
19 November 2001 Purchase 270 25.7222
19 November 2001 Purchase 100 25.920
19 November 2001 Sale 200 25.920
20 November 2001 Sale 6,475 26.0763
20 November 2001 Sale 1,800 26.0633
20 November 2001 Sale 600 25.8117
20 November 2001 Sale 3,400 25.8847
26 November 2001 Purchase 120 25.990
26 November 2001 Sale 5,100 25.8686
27 November 2001 Sale 7,800 25.8365
28 November 2001 Purchase 60 25.550
28 November 2001 Sale 6,600 25.5761
29 November 2001 Sale 103,700 25.070
29 November 2001 Sale 6,600 25.1182
30 November 2001 Sale 600 26.120
30 November 2001 Sale 900 26.120
30 November 2001 Sale 500 26.120
30 November 2001 Purchase 26,100 26.1385
30 November 2001 Purchase 7,975 26.110
3 December 2001 Purchase 1,500 26.260
3 December 2001 Purchase 1,500 26.260
3 December 2001 Purchase 1,100 25.7973
3 December 2001 Sale 3,300 25.9476
3 December 2001 Sale 2,750 26.240
3 December 2001 Sale 200 26.120
3 December 2001 Sale 4,000 26.200
4 December 2001 Sale 25,000 26.020
4 December 2001 Purchase 7,100 26.060
4 December 2001 Purchase 2,000 26.070
4 December 2001 Purchase 2,000 26.100
4 December 2001 Purchase 2,200 26.060
4 December 2001 Purchase 1,900 26.150
4 December 2001 Purchase 8,700 26.120
4 December 2001 Purchase 1,100 26.140
4 December 2001 Purchase 3,000 26.210
4 December 2001 Sale 1,200 26.0867
4 December 2001 Sale 2,575 26.330
5 December 2001 Sale 3,300 27.190
5 December 2001 Sale 100 27.190
5 December 2001 Sale 100 27.190
5 December 2001 Sale 300 27.190
5 December 2001 Sale 300 27.190
5 December 2001 Sale 300 27.190
5 December 2001 Sale 100 27.190
5 December 2001 Sale 500 27.190
5 December 2001 Purchase 60 26.370
5 December 2001 Purchase 1,200 26.600
5 December 2001 Sale 2,400 26.610
5 December 2001 Purchase 2,898 27.190
6 December 2001 Sale 1,500 27.260
6 December 2001 Purchase 500 27.160
6 December 2001 Sale 700 27.170
10 December 2001 Sale 148 27.740
10 December 2001 Sale 1,500 27.774
11 December 2001 Purchase 600 27.040
11 December 2001 Sale 3,600 26.8678
137
Date Transaction Number Price ($)
11 December 2001 Purchase 2,898 26.590
11 December 2001 Sale 500 26.850
12 December 2001 Purchase 600 26.2883
12 December 2001 Sale 1,200 26.4292
14 December 2001 Sale 4,100 27.2244
17 December 2001 Purchase 150 26.910
17 December 2001 Purchase 150 26.910
20 December 2001 Sale 642 27.640
20 December 2001 Purchase 1,312 27.640
21 December 2001 Purchase 12,800 27.650
21 December 2001 Sale 12,800 27.650
3 January 2002 Sale 16,100 27.630
14 January 2002 Sale 69,100 26.1334
UBS Warburg has agreed to provide information regarding its holdings and
dealings for value in relevant securities of Carnival in due course to the
Panel. If so required by the Panel such information will be then publicly
disclosed or be the subject of an appropriate announcement.
(d) General
(i) Save as disclosed in this paragraph 4 of this Appendix neither
Carnival nor any director of Carnival, nor the immediate families or
related trusts, nor any person acting in concert with Carnival owned,
controlled, (or in the case of directors and their immediate
families) was interested, directly or indirectly, in any relevant
securities on 29 January 2002 (being the latest practicable date
prior to the publication of this document), nor has any such person
dealt for value in relevant securities during the disclosure period.
(ii) Neither Carnival nor any person acting in concert with Carnival, nor
so far as the directors of Carnival are aware any associate (as
defined in the Code) of Carnival has any arrangement (including
indemnity or option arrangements), agreement or understanding, formal
or informal, of whatever nature, with any person relating to relevant
securities of P&O Princess which may be an inducement to deal or
refrain from dealing.
(iii) As at the close of business on 29 January 2002 (being the latest
practicable date prior to the publication of this document), other
than as disclosed in paragraph 4 of this Appendix, no persons owned
or controlled Carnival Shares such that they have a potential
indirect interest of 5 per cent. or more of the equity capital of P&O
Princess.
5. UNITED KINGDOM TAXATION
The following paragraphs are intended as a general guide only and are based on
current legislation and current Inland Revenue practice. They summarise the
position of P&O Princess Shareholders who (unless the position of non-United
Kingdom resident P&O Princess Shareholders is expressly referred to) are
resident or ordinarily resident in the United Kingdom for tax purposes and who
hold their P&O Princess Shares, P&O Princess Prefence Shares or P&O Princess
Subscriber Shares as an investment.
(a) Taxation of chargeable gains
Liability to United Kingdom taxation of chargeable gains will depend on a P&O
Princess Shareholder's circumstances and on the form of consideration received.
(i) Cash
Subject to what is said below under "Cash Plus New Carnival Shares" and
"Shares", to the extent that a P&O Princess Shareholder (including for the
purposes of this paragraph(i) a holder of P&O Princess Preference Shares or P&O
Princess Subscriber Shares) receives cash under the Offer, this will constitute
a disposal or part disposal of his shares in P&O Princess for the purposes of
United Kingdom taxation of chargeable gains. Such a disposal may give rise to a
liability to United Kingdom tax on chargeable gains depending on the
Shareholder's circumstances (including the availability of exemptions or
allowable losses).
138
For corporate P&O Princess Shareholders, indexation allowance on the acquisition
cost of the shares in P&O Princess should be available until the date of
disposal of the shares in P&O Princess. Broadly, indexation allowance increases
the acquisition cost of an asset for tax purposes in line with the rise in the
retail prices index. Indexation allowance cannot be used to create or increase a
loss for tax purposes.
Where an individual P&O Princess Shareholder acquired his shares in his P&O
Princess prior to 1st April 1998 indexation allowance on the acquisition cost of
the shares in P&O Princess will be available up to and including April 1998. No
indexation allowance will be available where an individual P&O Princess
Shareholder acquired his shares in P&O Princess after 31 March 1998. For periods
after April 1998 the rate of capital gains tax paid by an individual is
effectively reduced the longer he has owned shares in P&O Princess after 5 April
1998, up to a maximum of, generally, 10 years. This is known as taper relief.
Shares held on 17 March 1998 will generally be treated as having been held for
one extra year for the purposes of taper relief. Where an individual acquired
his shares after 31 March 1998 taper relief runs from the date of acquisition.
In general no taper relief is given until shares have been held for at least
three years.
(ii) Cash plus New Carnival Shares
Where a P&O Princess Shareholder opts for a mixture of cash plus New Carnival
Shares or receives any payment of cash in respect of fractional entitlements and
the amount of cash received is "small" as compared with the value of his P&O
Princess Shares the receipt of the cash will not generally trigger a disposal at
that time. Instead a disposal will be triggered only when the New Carnival
Shares are disposed of and the amount of the cash received will be deducted from
the P&O Princess Shareholder's chargeable gains acquisition cost in the New
Carnival Shares. Current Inland Revenue practice is to regard a sum as "small"
for these purposes if either (i) it is 5% or less of the value of the P&O
Princess Shares held by the particular P&O Princess Shareholder; or (ii) it is
(Pounds)3,000 or less, regardless of whether it satisfies the 5% test.
(iii) Shares
To the extent that a P&O Princess Shareholder receives New Carnival Shares under
the Revised Offer, he should not be treated as having made a disposal of his P&O
Princess Shares. Instead any gain or loss which would otherwise have arisen on a
disposal of the P&O Princess Shares should be "rolled-over" into the New
Carnival Shares so that the New Carnival Shares will be treated as the same
asset as the P&O Princess Shares, acquired at the same time as the P&O Princess
Shares and for the same acquisition cost. A subsequent disposal of New Carnival
Shares may give rise to a liability to United Kingdom taxation of chargeable
gains.
For corporate P&O Princess Shareholders indexation allowance will continue to be
available in respect of the acquisition cost in the P&O Princess Shares until
the New Carnival Shares are disposed of.
For individual P&O Princess Shareholders who acquired their P&O Princess Shares
prior to 1 April 1998 indexation allowance will be available in respect of the
acquisition cost in the P&O Princess Shares until April 1998. Indexation
allowance cannot be used to create or increase a loss for tax purposes. No
indexation allowance will be available where an individual P&O Princess
Shareholder acquired his P&O Princess Shares after 31 March 1998. For all
individual P&O Princess Shareholders taper relief will apply in relation to
periods after 5 April 1998 so that the effective rate of capital gains tax on
any gain on a disposal by an individual P&O Princess Shareholder of the New
Carnival Shares will be reduced the longer the P&O Princess Shares and then the
New Carnival Shares are held after 5 April 1998, up to a maximum of, generally,
10 years. Where an individual P&O Princess Shareholder held his P&O Princess
Shares at 17 March 1998 he will generally be treated as having held the New
Carnival Shares for one extra year for the purposes of taper relief.
In certain circumstances the above rules regarding the "roll-over" of any gain
or loss will not apply to a P&O Princess Shareholder who, together with persons
connected with him, holds more than 5% of any class of shares or debentures of
the P&O Princess Shares. Such persons are advised that an application for
clearance has not been made to the Inland Revenue under Section 138 of the
Taxation of Chargeable Gains Act 1992 in respect of the Revised Offer. It is not
a condition of the Revised Offer that such clearance is obtained.
139
(b) Dividends payable in respect of the New Carnival Shares
An individual holder of New Carnival Shares will, in general, be liable to
United Kingdom income tax on dividends received from Carnival. For the purposes
of computing his or her United Kingdom tax liability, the amount included as
income is the gross amount of the dividend (including any withholding tax) and
this is taxed at the appropriate marginal rate (10 per cent. in the case of a
basic rate or lower rate taxpayer and 32.5 per cent. in the case of a higher
rate taxpayer). Credit is generally given against United Kingdom Tax, the gross
dividend for foreign tax withheld.
United Kingdom resident P&O Princess Shareholders who are individuals not
domiciled in the United Kingdom will only be liable to income tax on a dividend
from Carnival to the extent that it is remitted to the United Kingdom. The
taxation of dividends remitted to the United Kingdom is not considered in this
summary and non-domiciled P&O Princess Shareholders should refer to their
professional advisers for an explanation.
United Kingdom resident P&O Princess Shareholders who are companies will, in
general, be liable to United Kingdom corporation tax on dividends received from
Carnival. For the purposes of computing its United Kingdom tax liability, the
amount included as income is the gross amount of the dividend.
(c) P&O Princess Employee Share Incentive Plans
Special tax provisions may apply to P&O Princess Shareholders who have acquired
or acquire their P&O Princess Shares by exercising options under the P&O
Princess Employee Share Incentive Plans, including provisions imposing charge to
income tax.
(d) Stamp duty and stamp duty reserve tax (SDRT)
No stamp duty or SDRT will be payable by P&O Princess Shareholders who accept
the Revised Offer.
(e) Non-Residents
The tax treatment of non-United Kingdom resident P&O Princess Shareholders may
differ from that described in the preceding paragraphs. Persons who are not
resident in the United Kingdom should consult their own tax advisers concerning
their tax liabilities (in the United Kingdom and any other country).
The above paragraphs are general in character and not exhaustive. If you are in
any doubt as to your taxation position you should consult an appropriate
professional adviser without delay.
6. U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal U.S. federal income tax consequences
generally applicable to a U.S. Holder (as defined below) of P&O Princess Shares
with respect to the disposition of such holder's shares pursuant to the Revised
Offer or any compulsory acquisition or subsequent acquisition transaction
(collectively, the "Acquisition"). As used herein, a "U.S. Holder" of P&O
Princess Shares means a holder of P&O Princess Shares who or that is for U.S.
federal income tax purposes (i) a citizen or individual resident of the United
States, (ii) a corporation or other entity taxable as a corporation organized
under the laws of the United States or any political subdivision thereof
(including the States and the District of Columbia), (iii) an estate or trust
defined in Section 7701(a)(30) of the United States Internal Revenue Code of
1986, as amended (the "Code") or (iv) any other person that is subject to U.S.
federal income tax on its worldwide income. This summary is based upon existing
U.S. federal income tax law, including the Code, administrative pronouncements,
judicial decisions and Treasury Regulations, as in effect as of the date hereof,
all of which are subject to change, possibly with retroactive effect. This
summary assumes that each of the P&O Princess Shares has been held as a capital
asset as defined in Section 1221 of the Code in the hands of the U.S. Holder at
all relevant times and that the New Carnival Shares to be received by such U.S.
Holder as a result of the Acquisition will be held as a capital asset. This
summary assumes that neither Carnival nor P&O Princess is a "controlled foreign
corporation," "foreign personal holding company" or "passive foreign investment
company" ("PFIC") for U.S. federal income tax purposes. This summary does not
address state, local or foreign tax consequences to U.S. Holders, nor does this
summary discuss all the tax consequences that may be relevant to a U.S. Holder
in light of such holder's particular circumstances or to U.S. Holders subject to
special rules, including certain financial institutions, regulated investment
140
companies, insurance companies, dealers in securities, tax-exempt organizations,
persons who hold P&O Princess Shares as part of a position in a "straddle" or
"appreciated financial position" or as part of a "hedging" or "conversion"
transaction, persons that own or have owned, actually or constructively, 10% or
more of the P&O Princess Shares, persons who acquired their P&O Princess Shares
through the exercise or cancellation of employee stock options or otherwise as
compensation for services, and U.S. Holders whose functional currency is not the
U.S. dollar. This summary assumes that no holder of P&O Princess Shares will
hold (including existing holdings, and after applying certain attribution rules)
more than 5% of Carnival Shares, by vote or value, after the Acquisition.
Carnival has not and will not seek a ruling from the United States Internal
Revenue Service ("IRS") with respect to the U.S. federal income tax consequences
described below and, as a result, there can be no assurance that the IRS will
agree with, or that a court will uphold, any of the conclusions set forth
herein.
U.S. Holders should consult their own tax advisors regarding the application of
the U.S. federal income tax laws to their particular circumstances, as well as
any state, local, foreign and other consequences relevant to such U.S. Holder's
particular circumstances.
(a) The Acquisition
Unless the Acquisition constitutes a reorganization, the receipt of New Carnival
Shares (and any other consideration received, including pounds sterling) by a
P&O Princess Shareholder in exchange for P&O Princess Shares pursuant to the
Acquisition will be a taxable transaction for U.S. federal income tax purposes.
In general, a U.S. Holder will recognize gain or loss equal to the difference
between (i) the amount realized (i.e., the fair market value of the New Carnival
Shares and any pounds sterling received), and (ii) such holder's adjusted tax
basis in its P&O Princess Shares. Generally, such gain or loss will be capital
gain or loss and will be long-term capital gain or loss if on the date of the
consummation of the Acquisition the P&O Princess Shares were held for more than
one year. Gain or loss, if any, realized by a U.S. Holder in connection with the
Acquisition generally will be treated as having a U.S. source. For U.S. federal
income tax purposes, a U.S. Holder's basis in the New Carnival Shares received
pursuant to the Acquisition will be equal to the fair market value of such
shares on the date of the Acquisition and a U.S. Holder's holding period with
respect to such shares will begin on the next day.
The fair market value of any pounds sterling received will generally be based on
the spot rate of exchange on the date of receipt. Subject to certain de minimis
rules for individuals, any subsequent gain or loss recognized with respect to
the pounds sterling will constitute ordinary income or loss.
(b) Requirements for Reorganizations
Depending on certain facts and circumstances, the Acquisition may constitute a
tax-free reorganization within the meaning of Section 368(a) of the Code (a
"Reorganization") for U.S. federal income tax purposes. However, the treatment
of the Acquisition as a Reorganization is subject to certain factual conditions
which may or may not be satisfied. In particular, the qualification of the
Acquisition as a Reorganization will depend upon satisfaction of the "control
test" and the "no boot rule" of Section 368(a)(1)(B) of the Code. If the
Acquisition does not constitute a Reorganization, it will constitute a fully
taxable transaction for U.S. federal income tax purposes.
(c) Boot
In general, boot will be deemed received by Shareholders - in which case the
Acquisition will not qualify as a Reorganization - if Carnival uses (or is
treated as using) any consideration other than its voting stock to acquire P&O
Princess Shares, such as pounds sterling (and including the use of such
consideration in connection with any subsequent acquisition transaction), except
with respect to fractional New Carnival Shares as described below.
(d) Control Test
In general, the control test will not be satisfied - in which case the
Acquisition will not qualify as a Reorganization - if Carnival does not own P&O
Princess stock possessing at least 80% of P&O Princess's voting power and at
least 80% of the total number of shares of all other classes of P&O
141
Princess's stock immediately after the Acquisition. Although Carnival currently
intends to acquire all the outstanding P&O Princess Shares, it is not obligated
to do so. In the event that Carnival does not meet the 80% thresholds described
above, the acquisition of P&O Princess Shares pursuant to the Acquisition will
not qualify as a Reorganization (but will instead constitute a fully taxable
transaction).
(e) If the Acquisition Qualifies as a Reorganization
If the Acquisition constitutes a Reorganization, the material U.S. federal
income tax consequences are as follows:
(i) Except as provided in (iv) below, no gain or loss will be recognized
by U.S. Holders with respect to the Acquisition;
(ii) The basis of New Carnival Shares received in the Acquisition by a
U.S. Holder (including any fractional New Carnival Shares deemed
received) will be the same as the basis of the P&O Princess Shares
surrendered therefor.
(iii) The holding period of New Carnival Shares received in the Acquisition
by a U.S. Holder will include the holding period of the P&O Princess
Shares surrendered therefor, and
(iv) The receipt of cash in lieu of fractional New Carnival Shares
received in the Acquisition by a U.S. Holder will be treated as if
fractional shares were received in the Acquisition and then were
redeemed by Carnival in a separate transaction.
The receipt of cash in lieu of a fractional New Carnival Share by a U.S. Holder
pursuant to the Acquisition will result in taxable gain or loss to such holder
for U.S. federal income tax purposes based on the difference between the amount
of cash received by such holder and such holder's adjusted tax basis in such
fractional shares. Such gain or loss, if any, will constitute capital gain or
loss and will constitute long-term capital gain or loss if the U.S. Holder's
holding period is more than one year as of the date of the Acquisition. Gain or
loss, if any, realized by a U.S. Holder in connection with the receipt of such
fractional New Carnival Shares generally will be treated as having a U.S. source
for U.S. foreign tax credit limitation purposes.
(f) Application of Section 367
If the Acquisition qualifies as a Reorganization, then because Carnival and P&O
Princess are foreign corporations, under Section 367 of the Code certain
informational reporting requirements will apply.
(g) Ownership of New Carnival Shares
Dividends
The gross amount of any distribution (other than in liquidation) made to a U.S.
Holder with respect to New Carnival Shares (inclusive of any withholding tax
with respect thereto) generally will be taxed to a U.S. Holder as a dividend
(i.e., as ordinary income) to the extent such distributions do not exceed the
current or accumulated earnings and profits of Carnival as calculated for U.S.
federal income tax purposes ("E&P"). To the extent any distribution exceeds
Carnival's E&P, the distribution will first be treated as a tax-free return of
capital to the extent of the U.S. Holder's adjusted tax basis in the New
Carnival Shares and will be applied against and reduce such basis on a dollar-
for-dollar basis (thereby increasing the amount of gain and decreasing the
amount of loss recognized on a subsequent disposition of New Carnival Shares).
To the extent that such distribution exceeds the U.S. Holder's adjusted tax
basis, the distribution will be taxed as gain recognized on a sale or exchange
of the New Carnival Shares. See "Sale, Exchange or Other Taxable Disposition of
New Carnival Shares" below. Because Carnival is not a U.S. corporation,
dividends will not be eligible for the dividends received deduction allowed to
U.S. corporations under the Code.
Sale, Exchange or Other Taxable Disposition of New Carnival Shares
A U.S. Holder will generally recognize gain or loss upon the sale, exchange or
other taxable disposition of New Carnival Shares equal to the difference between
(i) the amount realized by such holder on the sale, exchange or other taxable
disposition and (ii) such holder's adjusted tax basis in its New Carnival
Shares. Generally, such gain or loss will be capital gain or loss and will be
long-term capital gain or
142
loss if on the date of the sale, exchange or other taxable disposition the New
Carnival Shares were held for more than one year. Gain or loss, if any, realized
by a U.S. Holder upon a sale, exchange or other taxable disposition of New
Carnival Shares generally will be treated as having a U.S. source for U.S.
foreign tax credit limitation purposes.
(h) U.S. Federal Income Tax Backup Withholding
A U.S. Holder may, under certain circumstances, be subject to "backup
withholding" with respect to "reportable payments" made to such holders, such as
dividends or the proceeds on a sale of New Carnival Shares, unless such holder
provides a taxpayer identification number or otherwise establishes an exemption.
Backup withholding is not an additional U.S. federal income tax. Rather, any
amount withheld under these rules will be creditable against the U.S. Holder's
U.S. federal income tax liability, provided the required information is
furnished to the IRS.
7. MATERIAL CONTRACTS
The following contracts have been entered into by Carnival or its subsidiaries
otherwise than in the ordinary course of business since 16 December 1999 (the
date two years prior to the commencement of the Offer Period) which are or may
be material:
(a) Carnival - Acquisition of Costa Crociere S.p.A.
A sale and purchase agreement dated 28 August 2000 entered into by and among
Carnival, Carnival Investments (UK) Ltd, HAL Buitenland BV ("HAL"), Airtours plc
("Airtours") and White Horse Holdings BV ("White Horse"). Pursuant to this
agreement, HAL (a wholly owned subsidiary of Carnival) purchased from White
Horse (a wholly owned subsidiary of Airtours) 50% of the issued shares in Il
Ponte S.r.l., now known as Costa Holdings S.r.l. ("Costa Holdings") for a
consideration equal to (Pounds)350,000,000. The sale was completed on 29
September 2000. Costa Holdings holds 99% of the issued shares in Costa Crociere
S.p.A. ("Costa"). As a result of this agreement, Carnival currently indirectly
owns 99% of the issued share capital of Costa.
(b) Costa Finance S.A. - (Euro)300 million guaranteed notes issue
On March 2001 Costa Finance S.A. (the "Issuer") issued (Euro)300,000,000 5.50
per cent. guaranteed notes due 2006 (the "Notes"). The Notes are in bearer form
and serially numbered in denominations of (Euro)1,000, (Euro)10,000 and
(Euro)100,000 each with coupons attached. The Notes and coupons rank pari passu
with all other outstanding unsecured and unsubordinated obligations of the
Issuer. The Notes bear interest from (and including) 22 March 2001 at a rate of
5.50 per cent. per annum. Interest is payable annually in arrear on 22 March of
each year. Payments of interest due on an interest payment date are paid against
presentation and surrender of the relevant coupon. Payments of principal will be
made against presentation and surrender of the Note. The Notes will be redeemed
at their principal amount on 22 March 2006. However, the Issuer may, at its
option redeem all (but not some only) of the Notes at any time at their
principal amount plus accrued interest, in the event of certain tax changes.
Upon the occurrence of certain events of defaults, customary for a transaction
of its nature, the holder of a Note is entitled to give notice to the Issuer
that the Note is immediately repayable at its principal amount together with
interest accrued to the date of payment. The Notes are guaranteed by Carnival
under a guarantee dated 22 March 2001 (the "Guarantee"). In particular, Carnival
has unconditionally and irrevocably guaranteed payment of principal and interest
in respect of the Notes. Obligations under the Guarantee will rank pari passu
with all other outstanding unsecured and unsubordinated obligations of Carnival.
The Agency Agreement entered into on 22 March 2001 by and among the Issuer and
BNP Paribas Luxembourg S.A. contains provisions for convening meetings of the
holders of the Notes to consider matters affecting their interests. Under the
Agency Agreement BNP Paribas as fiscal agent may agree, without the consent of
the holders of the Notes or couponholders, to any modification of the conditions
of the Notes or the Agency Agreement in a manner which is not materially
prejudicial to their interests.
(c) Carnival - $600 million 2% convertible senior debentures
In April 2001 Carnival issued $600 million of unsecured 2% debentures due 2021.
The terms of the notes are set out in an indenture dated as of 25 April 2001.
The notes are convertible into 15.3 million Carnival Shares at a conversion
price of $39.14 per Carnival Share, subject to adjustment, during any
143
fiscal quarter for which the closing price of a Carnival Share is greater than
$43.05 for 20 out of the last 30 trading days of the preceding fiscal quarter.
This condition was not met during the periods ended on 30 November 2001. Upon
conversion of the debentures Carnival may choose to deliver, in lieu of Carnival
Shares, cash or a combination of cash and Carnival Shares with a total value
equal to the value of the Carnival Shares otherwise deliverable. Subsequent to
15 April 2008, Carnival may redeem the debentures for cash at their face value
plus any unpaid accrued interest. In addition, at the option of the debenture
holders, on any 15 April of 2005, 2008, and 2011, Carnival may be required to
repurchase any outstanding debentures at their face value plus any unpaid
accrued interest. If such option is exercised by the holders, Carnival may
choose to pay the purchase price in cash, Carnival Shares or a combination of
cash and Carnival Shares.
(d) Carnival - Sale of Airtours Shares
A placing agreement dated 22 May 2001 entered into by and among Carnival
Investment (UK) Ltd ("Carnival Investments"), UBS Warburg and Deutsche Bank AG
London. Pursuant to this agreement UBS Warburg and Deutsche Bank AG London
(together the "Placing Agents") agreed to effect a placing of the ordinary
shares held by Carnival Investments in Airtours Plc (which were equal to
approximately 25% of the share capital of the latter). The transaction was
executed through an accelerated book building by the Placing Agents and
completed on 1 June 2001. The shares were priced at (Pounds)2.84 each and
resulted in gross proceeds to Carnival of approximately (Pounds)350,000,000. The
agreement contains customary representations and warranties for a transaction of
its nature. The agreement also contains a general indemnity under which Carnival
Investments agreed to defend, indemnify and hold harmless the Placing Agents
from and against all losses and costs directly or indirectly arising as a result
of or in relation to any misrepresentation in or breach of any of the warranties
given by it in or pursuant to the agreement.
(e) Costa Crociere S.p.A. - (Euro)257,500,000 revolving credit facility
An agreement dated 3 May 2001 between (1) San Paolo IMI S.p.A. as a lender and
representative of a syndicate of banks, and (2) Costa Crociere S.p.A. as the
borrower, whereby the lenders have made available to the borrower a revolving
credit facility of (Euro)257,500,500 for general corporate purposes (the "RCF").
The RCF is available for five years from the date of entering into the
agreement. The floating rate of interest is payable on advances under the RCF
equal to the aggregate of the specified margin and the EURIBOR rate. The RCF
contains representations and financial covenants in the form of net debt to
equity ratio and debt service cover ration. The RFC is governed by Italian law
and certain articles of the Italian Civil Codes apply, including provisions
relating to events of default.
(f) Carnival - $1.4 billion revolving credit facility
An agreement dated 26 June 2001 among (1) Carnival Corporation as the borrower
and guarantor, (2) the Chase Manhattan Bank as agent, (3) Bank of America N.A.
as syndication agent, (4) JP Morgan Securities Inc as joint lead arranger, (5)
Banc of America Securities LLC as joint lead arranger, (6) BNP Paribas, Citibank
N.A. and UBM-Unicredit Banca Mobiliare as co-documentation agents, and (7) the
banks listed as lenders ("Banks"), whereby the Banks made available to Carnival
and any additional borrowers designated by the Borrower a multicurrency
revolving credit agreement of up to US$1,400,000,000 due June 2006 (the "RCA").
Carnival may select the rates of interest payable on revolving loans as follows
(i) a specified margin plus British Bankers' Association Interest Settlement
Rates for deposits with comparable maturity ("LIBO"), or (ii) various benchmark
rates. The RCA contains representations, warranties and undertakings and events
of default which are customary for a loan agreement of this size and nature.
Undertakings include a restriction on the creation of security and a restriction
of disposals. The RCA also contains financial covenants in the form of total
debt to total capital ratio and a consolidated cash flow threshold. At 30
November 2001, Carnival was in compliance with all of its financial covenants
and the entire $1.4 billion facility was available. Carnival's commercial paper
program is supported by this facility. Accordingly, any funds outstanding under
Carnival's commercial paper program reduces the aggregate amount available under
this facility.
(g) Carnival - $1,051,175,000 Liquid Yield Option Notes
In October 2001, Carnival received net proceeds of approximately $490 million
from the issuance of zero-coupon unsecured convertible notes. The terms of the
notes are set out in an indenture dated as of 24 October 2001. The notes have a
yield to maturity of 3.75 percent and are convertible commencing on March 1 2001
into approximately 8.3 million shares Carnival Shares, based on
144
16.5964 shares for each $1,000 of outstanding notes and accreted interest. The
conversion feature is contingent upon the market price of the Carnival Shares
reaching certain targeted levels, subject to adjustment. These targeted levels
commence at a low of $31.94 per share in fiscal 2002 and increase to $65.92 per
share in fiscal 2021. Subsequent to October 23, 2008, Carnival may redeem the
notes, or any portion thereof, at their accreted values. In addition, on 24
October of 2006, 2008, 2011 or 2016 the note holders may exercise their put
options which would require Carnival to repurchase all, or a portion of, the
outstanding notes at their accreted value. If such put option is exercised by
the holders, Carnival may choose to settle the put option in cash, Carnival
Shares or a combination of cash and Carnival Shares. Upon a change in control of
Carnival occurring at any time on or after 24 October 2008, Noteholders may
require Carnival to purchase all or a portion of such Noteholder's notes for
cash at a price equal to 100% of the issue price of the notes to be purchased
plus accrued original issue discount to, but excluding, the date of purchase.
Save as disclosed above no contracts have been entered into by Carnival or its
subsidiaries otherwise than in the ordinary course of business since 16 December
1999 (the date two years prior to the commencement of the offer period) which
are or may be material.
8. OTHER INFORMATION
(a) No agreement, arrangement or understanding (including any compensation
arrangement) exists between Carnival or any party acting in concert with
Carnival and any of the directors, recent directors, shareholders or recent
shareholders of P&O Princess which has any connection with, or dependence
on, or which is conditional upon the outcome of the Revised Offer.
(b) There is no agreement, arrangement or understanding whereby the beneficial
ownership of any of the P&O Princess Shares or ADSs to be acquired pursuant
to the Revised Offer will be transferred to any person, but Carnival
reserves the right to transfer any such shares or ADSs to any member of the
Carnival Group.
(c) Save as disclosed in Parts 2 and 3 of Appendix III and in section 7 of this
Appendix, there have been no material changes in the financial or trading
position of Carnival since 30 November 2000.
(d) Save as publicly announced, so far as the directors of Carnival were aware
as at 29 January 2002 (being the latest practicable date prior to the
publication of this document) there had been no material change in the
financial or trading position of P&O Princess since 31 December 2000, the
date to which the last published audited consolidated accounts of P&O
Princess were drawn up.
(e) Each of Merrill Lynch and UBS Warburg has given and has not withdrawn its
written consent to the issue of this document with the inclusion of and the
references to its name in the form and context in which they appear.
(f) Ernst & Young LLP has given and not withdrawn its written consent to the
issue of this document with the inclusion of its report in Appendix V and
the references to its name in the form and context in which they appear.
(g) The total emoluments receivable by the directors of Carnival will not be
varied as a direct result of the Revised Offer.
(h) Neither the payment of interest on, nor the repayment of, nor the security
for, any liability (contingent or otherwise) of Carnival will depend on any
significant extent on the business of P&O Princess.
(i) Carnival has entered into a deed of indemnity dated 30 January 2002 in
favour of the partners and employees from time to time of Lovells,
solicitors, and Serjeants' Inn Nominees Limited and its directors and
employees in relation to liabilities which might arise as a result of the
appointment of any such indemnified person as a proxy for P&O Princess
Shareholders at the EGM. Serjeants' Inn Nominees Limited is ultimately
owned by the partners of Lovells. Lovells are advising Merrill Lynch and
UBS Warburg, the financial advisers to Carnival in relation to the Revised
Offer.
(j) This document despatched 1 February 2002.
145
9. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the
offices of Herbert Smith, Exchange House, Primrose Street, London EC2A 2HS,
during usual business hours on any weekday (Saturdays and public holiday
excepted) during the offer period:
(a) the Articles and By-laws of Carnival;
(b) the audited consolidated accounts of Carnival for the two financial years
ended 30 November 1999 and 30 November 2000;
(c) the unaudited consolidated financial information of Carnival for the
quarter ended 30 August 2001 and the unaudited preliminary results for the
year ended 30 November 2001;
(d) the material contracts referred to in paragraph 7 of this Appendix VIII;
(e) the written consents referred to in paragraph 8 of this Appendix VIII;
(f) letter from Merrill Lynch and UBS Warburg relating to Carnival statement of
cost savings referred to in Appendix V of this document;
(g) letter from Ernst & Young LLP relating to Carnival statement of cost
savings referred to in Appendix V of this document;
(h) the proxies given by the Arison family and certain related trust to vote
Carnival Shares representing 47.1% of the voting rights in Carnival in
favour of the resolution to issue the New Carnival Shares; and
(i) a full list of dealings by Merrill Lynch in Carnival Shares during the
disclosure period, disclosure of which has been aggregated in paragraph 4
of this Appendix VIII.
31 January 2002
146
APPENDIX IX
Definitions
The following definitions apply throughout this document unless the context
requires otherwise:
"Additional Cash Election" the proposed entitlement of P&O Princess Shareholders to elect to
receive additional cash to the extent that other P&O Princess
Shareholders do not elect to receive the Partial Cash Alternative
"Australia" the Commonwealth of Australia, its states, territories and
possessions
"Break Fee" the Break Fee between P&O Princess and Royal Caribbean described
in the P&O Princess Circular
"Blue Form of Proxy" the form of proxy for use in connection with the EGM enclosed
with this document
"Canada" Canada, its provinces and territories and all areas subject to
its jurisdiction or any political sub-division thereof
"Carnival" Carnival Corporation
"Carnival Board" the board of directors of Carnival
"Carnival Group" Carnival, its subsidiaries and its subsidiary undertakings
"Carnival Shares" shares of common stock of Carnival of $0.01 each
"certificated" or "in certificated form" a share or other security which is not in uncertificated form
(that is, not in CREST)
"Code" or "City Code" or "Takeover Code" the City Code on Takeovers and Mergers
the "Companies Act" or "the Act" the Companies Act 1985 (as amended)
"CREST" the relevant system (as defined in the Regulations) in respect of
which CRESTCo is the Operator (as defined in the Regulations)
"CRESTCo" CRESTCo Limited
"day" or "days" a calendar day or days, save where the context otherwise requires
"Demerger" the demerger of the P&O Princess Group from The Peninsular and
Oriental Steam Navigation Company on 23 October 2000
"DLC" dual listed company
"DLC Announcement" the announcement by P&O Princess and Royal Caribbean of the Royal
Caribbean Proposal on 20 November 2001
"EBITDA" earnings before deductions for interest, taxation, depreciation
and amortisation
"EEA" European Economic Area
"Enlarged Carnival Group" the Carnival Group as enlarged on successful completion of the
Revised Offer
147
"Exchange Act" the US Securities Exchange Act of 1934, as amended
"first closing date" the first closing date of the Revised Offer will be the date
which falls 20 US Business Days after the date of posting of the
Offer Document
"Form of Acceptance" the form of acceptance and authority for use in connection with
the Revised Offer which will accompany the Offer Document
"FTC" the US Federal Trade Commission
Implementation Agreement the implementation agreement entered into between P&O Princess
and Royal Caribbean on 19 November 2001
"Japan" Japan, its cities, prefectures, territories and possessions
"Joint Venture" the Joint Venture between P&O Princess and Royal Caribbean
described in the P&O Princess Circular
"Joint Venture Agreement" the joint venture agreement entered into among P&O Princess,
Royal Caribbean, and JOEX Limited on 19 November 2001
"Listing Rules" the Listing Rules issued by the UK Listing Authority
"London Stock Exchange" London Stock Exchange plc
"London Stock Exchange Admission the rules issued by the London Stock Exchange in relation to the
Standards" admission to trading of, and continuing requirements for,
securities admitted to the Official List
"Merrill Lynch" Merrill Lynch International
"New Carnival Shares" Carnival Shares to be issued in connection with the Revised Offer
"New York Stock Exchange" the New York Stock Exchange, Inc.
"Offer" the pre-conditional offer announced by Carnival on 16 December
2001
"Offer Document" the document to be sent on behalf of Carnival to P&O Princess
Shareholders after the Pre-condition has been satisfied or
waived, containing and setting out the full terms and conditions
of the Revised Offer
"Offer Period" the period commencing on (and including) 16 December 2001 until
whichever of the following times and dates shall be the latest:
(i) 3.00 p.m. on the date which falls 20 US Business Days after
the date of posting of the Offer Document; and
(ii) the earlier of:
(a) the time and date at which the Revised Offer lapses;
and
(b) the time and date at which the Revised Offer becomes
unconditional as to acceptances
148
"Official List" the list maintained by the United Kingdom Listing Authority
pursuant to Part VI of the Financial Services and Markets Act
2000
"P&O" the Peninsular & Oriental Steam Navigation Company
"P&O Princess" P&O Princess Cruises plc
"P&O Princess ADRs" American Depositary Receipts evidencing title to one or more
ADSs
"P&O Princess ADSs" American Depositary Shares representing four underlying P&O
Princess Shares
"P&O Princess Board" the board of directors of P&O Princess
"P&O Princess Circular" the circular to P&O Princess Shareholders published by
P&O Princess on 27 December 2001
"P&O Princess EGM" or "EGM" the extraordinary general meeting of the P&O Princess
Shareholders to be held on 14 February 2002
"P&O Princess Employee Share the P&O Princess Deferred Bonus and Co-investment Matching
Incentive Plans Plan, and the P&O Princess Executive Share Option Plan
"P&O Princess Group" P&O Princess, its subsidiaries and its subsidiary undertakings
"P&O Princess Preference Shares" the 49,998 (Pounds)1 redeemable preference shares in issue in
P&O Princess
"P&O Princess Shareholders" or holders of the P&O Princess Shares
"Shareholders"
"P&O Princess Shares" the existing unconditionally allotted or issued and fully paid
ordinary shares of US$0.50 each in the capital of P&O Princess
(including those represented by P&O Princess ADSs but not, for
the avoidance of doubt, such ADSs) and any further such shares
which are unconditionally allotted or issued and fully paid
before the date on which the Revised Offer closes (or such
earlier date(s) as Carnival may, subject to the Code,
determine), including any such shares so unconditionally
allotted or issued pursuant to the exercise of options granted
under the P&O Princess Employee Share Incentive Plans
"P&O Princess Subscriber Shares" the two issued subscriber shares of (Pounds)1 each in P&O
Princess
"Panel" the Panel on Takeovers and Mergers
"Partial Cash Alternative" the partial cash alternative of 250 pence for each P&O Princess
Share proposed to be made available to P&O Princess Shareholders
"Pre-condition" the pre-condition to the posting of the Offer Document and
related Form of Acceptance set out in Part A of Appendix I
"Preference Offer" the offer for the P&O Princess Preference Shares to be made by
UBS Warburg and Merrill Lynch on behalf of Carnival conditional
on the Revised Offer becoming wholly unconditional
"Regulatory Information Service" the Company Announcements Office and/or RNS and/or any other
channel recognised, from time to time, as a channel for the
dissemination of regulatory information by listed companies
under the Listing Rules of the UK Listing Authority
149
"Regulations" the Uncertificated Securities Regulations 2001 (SI 2001/No.
3755)
"Revised Offer" the Revised Offer to acquire the P&O Princess Shares to be made
by UBS Warburg and Merrill Lynch on behalf of Carnival after the
Pre-condition has been satisfied or waived, including, as
appropriate, the offer to be made by Carnival to the holders of
the P&O Princess ADRs in respect of the P&O Princess Shares
underlying the P&O Princess ADSs title to which is evidenced by
such P&O Princess ADRs, on the terms and conditions set out in
this document and to be set out in the Offer Document including,
where the context so requires, any subsequent revision,
variation, extension or renewal of the Revised Offer
"Royal Caribbean" Royal Caribbean Ltd
"Royal Caribbean Proposal" the proposed transaction between P&O Princess and Royal
Caribbean described in the DLC Announcement and the P&O Princess
Circular
"Royal Caribbean Shareholders" holders of shares in Royal Caribbean
"SEC" the United States Securities and Exchange Commission
"Section 9.01(c)" Section 9.01(c) of the Joint Venture Agreement
"Securities Act" the United States Securities Act of 1933, as amended
"Subscriber Share Offer" the offer for the P&O Princess Subscriber Shares to be made by
UBS Warburg and Merrill Lynch on behalf of Carnival conditional
on the Revised Offer becoming wholly unconditional
"subsidiary", "subsidiary undertaking", shall be construed in accordance with the Act (but for this
"associated undertaking" and purpose ignoring paragraph 20(i)(b) of Schedule 4A of the
"undertaking" Act)
"UBS Warburg" UBS AG, acting through its business group UBS Warburg or, where
appropriate, its subsidiary, UBS Warburg Ltd.
"UK" or "United Kingdom" the United Kingdom of Great Britain and Northern Ireland
"UK Listing Authority" the Financial Services Authority as the competent authority for
listing in the United Kingdom under Part VI of the Financial
Services and Markets Act 2000
"UK Receiving Agent" the agent to be appointed by Carnival to receive Forms of
Acceptance, expected to be Capita IRG Plc
"uncertificated" or "in uncertificated form" a share or other security title to which is recorded on the
relevant register of the share or security concerned as being
held in uncertificated form in CREST and title to which, by
virtue of the Regulations, may be transferred by means of CREST
"United States of America", "US" the United States of America, its territories and possessions,
or "United States" any state of the United States of America, the District of
Columbia, and all other areas subject to its jurisdiction
150
"US Business Day" any day, other than a Saturday, Sunday or a US federal holiday
and shall consist of the time period from 12.01 a.m. until, and
including, 12.00 midnight (New York City time)
"US Holder" a holder of P&O Princess Shares that is (1) a citizen or
resident of the United States; (2) a partnership or corporation
created or organized in or under the laws of the United States
or any State thereof (including the District of Columbia); (3)
an estate the income of which is subject to US federal income
taxation regardless of its source; or (4) a trust if such trust
validly elects to be treated as a United States person for US
federal income tax purposes or if (x) a court within the United
States is able to exercise primary supervision over its
administration and (y) one or more United States persons have
the authority to control all of the substantial decisions of
such trust. A "Non-US holder" is a beneficial owner of P&O
Princess Shares, P&O Princess ADSs and New Carnival Shares, as
the case may be, that is not a US holder
"US Offer Document" The prospectus containing this Offer Document and filed with the
SEC in a registration statement on Form S-4
"US person" a US person as defined in Regulation S under the Securities Act
"wider Carnival Group" Carnival and any of its subsidiary undertakings or any
associated undertaking or company of which 20 per cent. or more
of the voting capital is held by the Carnival Group or any
partnership, joint venture, firm or company in which any member
of the Carnival Group may be interested
"wider P&O Princess Group" P&O Princess and any of its subsidiary undertakings or any
associated undertaking or company of which 20 per cent. or more
of the voting capital is held by the P&O Princess Group or any
partnership, joint venture, firm or company in which any member
of the P&O Princess Group may be interested
"(Pounds)" or "pounds sterling" or "pence" the lawful currency of the United Kingdom
or "p"
"$" or "US dollars" or "cents" the lawful currency of the United States of America
151
www.carnivalcorp.comx
P&O Princess Cruises plc (the Company) PROXY CARD ------
issued by POC1
Extraordinary General Meeting ------
BEFORE COMPLETING THIS FORM, PLEASE SEE THE [LOGO]
EXPLANATORY NOTES OVERLEAF. CARNIVAL
CORPORATION
Proxies may be withdrawn by giving notice to the Company
at any time up until 3 hours before the start of the meeting
or adjourned meeting (or, in the case of a poll held on a later
date, before the time appointed for taking the poll).
I/We want the following person (called a "proxy") to vote on Resolutions For Against
my/our behalf (the proxy need not be a member of the
Company). Vote to adjourn the EGM
Hugh Nineham or, failing whom, Please leave this box blank if (1) To approve any resolution or
John Davidson or, failing whom, you are selecting someone motion as may be put to the
Nigel Read, each being other than the aforementioned meeting for the adjournment of [_] [_]
a director of Serjeants' directors of Serjeants' Inn the meeting and to call for, or join
Inn Nominees Limited [_] Nominees Limited in a call for, a poll on any such
OR resolution.
The following --------------------------------------------------
persons: -------------------------------------------------- The Royal Caribbean Proposal
Please leave this box blank if you have selected
the aforementioned directors of Serjeants' Inn
Nominees Limited
Do not Insert your own name(s) (2) To approve the combination with
To attend and vote on my/our behalf at the Extraordinary General Royal Caribbean and related acts,
Meeting of the Company to be held at 11.00 a.m. on 14 February including the share consolidation,
2002 and at any adjournment of the meeting. I/We would like my/our the issue of a new special voting [_] [_]
proxy to vote on the resolutions proposed at the meeting as share and equalisation share and
indicated on the form. Unless otherwise instructed, the proxy may changes to the Company's
vote as he or she sees fit or abstain in relation to any business memorandum and articles of
of the meeting. association.
This form of proxy supersedes and revokes in its entirety any (3) To approve changes to the
previous form of proxy duly lodged with the Company in respect Company's articles of association
of the meeting or any adjournment thereof. regarding how the Company [_] [_]
establishes the exchange rate
- ------------------------------------------- --------------------- dividend calculation.
- ------------------------------------------- ---------------------
Signature or common seal Date
Any one joint holder may sign
Once completed this Proxy Card should be detached and returned to
Capita IRG Plc, using the enclosed reply-paid envelope or to New
Issues Department, P.O. Box 166 Bourne House, 34 Beckenham Road, Please indicate by ticking this box
Beckenham, Kent, BR3 4TH so as to be received by them no later if you intend to attend the [_]
than 11.00 a.m. on 11 February 2002. Extraordinary General Meeting.
- ------------------------------------------------------------------------------------------------------------------------------------
Please detach and discard this section before returning the above Form of Proxy.
THIS SECTION IS NOT PART OF THE FORM OF PROXY FOR INDICATIVE PURPOSES ONLY
. CARNIVAL URGES P&O PRINCESS SHAREHOLDERS TO VOTE, AS SET OUT ON THE RIGHT OF Resolutions(a) For Against
THIS SECTION, TO ADJOURN THE EGM, OR, IN THE EVENT THE EGM IS NOT ADJOURNED, TO
VOTE AGAINST THE ROYAL CARIBBEAN PROPOSAL (1) [X] [_]
. TO DO THIS, TICK THE BOX MARKED "FOR" ADJACENT TO RESOLUTION (1) SET OUT ON
THE ABOVE FORM OF PROXY AND COMPLETE, SIGN, DETACH AND RETURN THE FORM OF
PROXY IN ACCORDANCE WITH THE INSTRUCTIONS PRINTED ON THE FORM AND THE (2) [_] [X]
NOTES OVERLEAF.
. IN THE EVENT THAT THE EGM IS NOT ADJOURNED, CARNIVAL URGES P&O PRINCESS (3) [_] [X]
SHAREHOLDERS TO VOTE AGAINST THE ROYAL CARIBBEAN PROPOSAL BY TICKING THE
BOXES MARKED "AGAINST" ADJACENT TO RESOLUTIONS (2) AND (3) SET OUT ON THE (a) Details of each resolution
ABOVE FORM OF PROXY. are set out on the above
Form of Proxy
. SERJEANTS' INN NOMINEES LIMITED IS A NOMINEE COMPANY ULTIMATELY OWNED BY
PARTNERS OF LOVELLS, SOLICITORS, LOVELLS ARE ADVISING MERRILL LYNCH AND UBS
WARBURG, THE FINANCIAL ADVISORS TO CARNIVAL, IN RELATION TO THE REVISED OFFER.
Notes to the Form of Proxy:
1. Only persons entered on the register of members of the Company at 11:00
p.m. on the day which is two days prior to the date of the meeting or any
adjournment of it shall (if otherwise entitled to do so) be entitled to
attend and vote at the meeting or any such adjournment. This is in
accordance with Regulation 41 of the Uncertificated Securities Regulations
2001.
2. A member entitled to attend and vote at the meeting may appoint one or more
proxies to attend and, on a poll, vote instead of him/her. A proxy need not
be a member of the Company. The appointment of a proxy will not prevent a
shareholder of the Company from subsequently attending and voting at the
meeting in person.
3. Please complete, sign and send this Form of Proxy to Capita IRG Plc, using
the enclosed reply-paid envelope or to New Issue Department, P.O. Box 166,
Bourne House, 34 Beckenham Road, Beckenham, Kent, BR3 4TH, so as to arrive
not less than 72 hours before the time for the holding of the meeting or
adjourned meeting (together with any power of attorney or authority under
which it is signed or a certified copy of such power or authority). Capita
IRG Plc will then deliver the Form of Proxy to the Company's Registrar,
Computershare Investor Services Plc, so as to arrive not less than 48 hours
before the time for which the meeting is convened so that it constitutes a
valid appointment.
4. In the event that you are unable to ensure that this Form of Proxy reaches
Capita IRG Plc at least 72 hours before the time for holding the meeting or
adjourned meeting, to be certain that this Form of Proxy will be valid for
the meeting, you should ensure that this Form of Proxy reaches
Computershare Investor Services Plc, The Pavillions, Bridgwater Road,
Bristol, BS13 8FB not less than 48 hours before the time for which the
meeting or the adjourned meeting is convened (or, in the case of a poll
taken more than 48 hours after the meeting, after the poll has been
demanded and not less than 24 hours before the time for taking the poll or,
in the case of a poll not taken forthwith but taken not more than 48 hours
after the meeting, by delivery to the chairman, secretary or any director
at the meeting at which the poll was demanded).
Please return this Form of Proxy in the reply-paid envelope provided
- --------------------------------------------------------------------------------
Please detach and discard this section before returning the above Form of Proxy
