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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission file number 1-9610
CARNIVAL CORPORATION
(Exact name of registrant as specified in its charter)
Republic of Panama 59-1562976
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3655 N.W. 87th Avenue, Miami, Florida 33178-2428
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 599-2600
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
Common Stock New York Stock
($.01 par value) Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes X No___
The aggregate market value of the voting stock held by non-affiliates
of the Registrant is approximately $7.1 billion based upon the closing
market price on February 10, 2003 of a share of common stock on the New
York Stock Exchange as reported by the Wall Street Journal.
At February 10, 2003 the Registrant had outstanding 586,969,154
shares of its common stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
The information described below and contained in the Registrant's
2002 annual report to shareholders to be furnished to the Commission
pursuant to Rule 14a-3(b) of the Exchange Act is shown in Exhibit 13 and
is incorporated by reference into this Annual Report on Form 10-K.
Part and Item of the Form 10-K
Part II
Item 5(a) and (b). Market for Registrant's Common Equity and Related
Stockholder Matters - Market Information and
Holders
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
Item 8. Financial Statements and Supplementary Data
Portions of the Registrant's 2003 definitive proxy statement, to be
filed with the Commission, are incorporated by reference into this Annual
Report on Form 10-K under the items described below.
Part and Item of the Form 10-K
Part II
Item 5(d). Market for Registrant's Common Equity and Related
Stockholders Matters - Securities Authorized for
Issuance Under Equity Compensation Plans
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
PART I
Item 1. Business
A. General
Carnival Corporation was incorporated under the laws of the Republic
of Panama in November 1974 and, together with its consolidated
subsidiaries is referred to collectively in this Annual Report on Form 10-
K as "our," "us" and "we." We are a global cruise vacation and leisure
travel company that offers a broad range of cruise brands serving the
contemporary cruise sector through Carnival Cruise Lines ("CCL") and Costa
Cruises ("Costa"), the premium cruise sector through Holland America Line
("Holland America"), the premium/luxury cruise sectors through Cunard Line
("Cunard"), and the luxury cruise sector through Seabourn Cruise Line
("Seabourn") and Windstar Cruises ("Windstar"). We have a multi-brand
strategy which provides products and services appealing to the widest
possible target audience across all major segments of the vacation
industry.
Additional summary information about our cruise brands is as follows:
PRIMARY
LOCATION
CRUISE NUMBER PASSENGER OF
BRAND OF SHIPS CAPACITY(1) CUSTOMERS
CCL 18 38,348 North America
Holland America 11 14,494 North America
Costa 8 10,754 Europe
Cunard 2 2,458 North America/Europe
Seabourn 3 624 North America
Windstar 3 604 North America
45 67,282
(1)In accordance with cruise industry practice, all passenger capacities
indicated in this Annual Report on Form 10-K are measured in lower
berths calculated based on two passengers per cabin even though some
cabins can accommodate three or more passengers.
We currently have signed agreements with three shipyards providing
for the construction of 13 additional cruise ships during the next three
and a half years. This will increase our passenger capacity by 30,580
lower berths, or 46%, assuming none of our existing ships are sold or
retired from service. However, it is possible that some of our older ships
may be retired or sold during the next three to four years, thus reducing
the increase to our fleet over this period. See Note 7, "Commitments" to
our Consolidated Financial Statements in Exhibit 13 to this Annual Report
on Form 10-K for additional information regarding our ship commitments.
In addition to our cruise operations, we operate a tour business
under the brand name Holland America Tours. Holland America Tours is a
leading cruise/tour operator in the state of Alaska and the Canadian Yukon
and currently markets and/or operates:
- - 13 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 British Columbia, Canada and
the Canadian Yukon;
- - 13 private, domed rail cars which are run on the Alaska Railroad
between Anchorage and Fairbanks; and
- - sightseeing packages both separately and as part of our cruise/tour
packages to our Alaska bound cruise passengers and to the public.
Recent Development
After a series of preconditional offers made to the shareholders of
P&O Princess Cruises plc ("P&O Princess") by us, commencing in December
2001, on January 8, 2003 we entered into an agreement with P&O Princess,
the world's third largest cruise company, providing for a combination of
both companies (the "Combined Group") under a dual-listed company ("DLC")
structure.
If the DLC transaction is completed, it would create a combination of
the two companies through a number of contracts and certain amendments to
our Articles of Incorporation and By-Laws and to P&O Princess' Memorandum
and Articles of Association. The two companies would retain their separate
legal identities and each company's shares would continue to be publicly
traded on the New York Stock Exchange ("NYSE") for us and the London Stock
Exchange for P&O Princess. However, both companies would operate as if
they were a single economic enterprise. The contracts governing the DLC
transaction would provide that the boards of directors of the two
companies would be identical, the companies would be managed by a unified
senior management team and that, as far as possible, P&O Princess' and our
shareholders would be placed in substantially the same economic position
as if they held shares in a single enterprise which owned all of the
assets of both companies. The net effect of the DLC transaction would be
that our existing shareholders would own an economic interest equal to 74%
of the Combined Group and the existing shareholders of P&O Princess would
own an economic interest equal to 26% of the Combined Group. Also in
connection with the DLC transaction, we will be making a Partial Share
Offer ("PSO") for 20% of P&O Princess' shares, which will enable P&O
Princess shareholders to exchange P&O Princess shares for our shares on
the basis of 0.3004 of our shares for each P&O Princess share up to, in
aggregate, a maximum of 20% of P&O Princess issued share capital. If the
maximum number of P&O Princess' shares are exchanged under the PSO,
holders of our shares, including our new shareholders who exchanged their
P&O Princess shares for our shares under the PSO, would own an economic
interest equal to 79% of the Combined Group and holders of P&O Princess
shares would own an economic interest equal to 21% of the Combined Group.
The PSO is conditional on, among other things, the closing of the DLC
transaction. Upon completion of the DLC transaction, P&O Princess will
reorganize and consolidate its share capital so that one share of P&O
Princess will have the same economic and voting interest as one of our
shares.
The completion of the DLC transaction between P&O Princess and us is
subject to approval by P&O Princess' shareholders and our shareholders.
No assurance can be given that the DLC transaction will be completed and,
if it is completed, when completion will take place.
If the DLC transaction is completed, the Combined Group will be the
largest cruise vacation group in the world, based on revenues, passengers
carried and available capacity. It will have a wide range of complementary
brands and a significant presence in key cruise vacation regions
worldwide. The Combined Group will also have a strong balance sheet from
which to drive future capacity and growth and will have significant
opportunities to benefit from disseminating best operating practices
throughout the Combined Group.
As at January 31, 2003, the Combined Group would have had a fleet of
65 cruise ships offering 99,982 lower berths, with 18 additional cruise
ships having 42,260 lower berths scheduled to be added over the next three
and a half years. In addition, the Combined Group would be the leading
provider of cruises to all major destinations outside the Far East.
Finally, the Combined Group would also operate two private destination
ports of call in the Caribbean for the exclusive use of its passengers,
two river boats in Germany, and would offer land-based tour packages as
part of its vacation product alternatives.
In connection with the DLC transaction, we have filed two
registration statements (the "Registration Statements") with the SEC,
which have yet to be declared effective. One Registration Statement is a
joint proxy statement/prospectus for the planned special meeting of our
shareholders to approve the DLC transaction, and one Registration
Statement covers the shares issuable under the PSO. In addition, if the
DLC transaction is to proceed, we will be distributing to our
shareholders, concurrently with the closing of the DLC transaction, trust
shares of beneficial interest that will represent an interest in a special
voting trust. This trust will hold a special voting share, which is the
mechanism by which the votes of our shareholders at our shareholder
meetings will be given effect at the parallel shareholder meetings of P&O
Princess on issues for which the shareholders of both companies will be
deemed to be voting as a single group. Each share of our common stock
will be paired with one trust share of beneficial interest, and both will
trade together as a unit on the NYSE. The DLC transaction and related
matters are described in greater detail in the Registration Statements.
See Note 7, "Commitments" to our Consolidated Financial Statements in
Exhibit 13 to this Annual Report on Form 10-K for additional information
regarding the DLC transaction.
B. Risk Factors
You should carefully consider the following specific risk factors as
well as the other information contained or incorporated by reference in
this Annual Report on Form 10-K as these are important factors, among
others, that could cause our actual results to differ from our expected or
historical results. It is not possible to predict or identify all such
factors. Consequently, you should not consider any such list to be a
complete statement of all our potential risks or uncertainties. Some
statements in this section and elsewhere in this Annual Report on Form
10-K are "forward-looking statements." For a discussion of those statements
and of other factors to consider see the "Cautionary Note Concerning
Factors That May Affect Future Results" below. In addition, the
completion of the DLC transaction may expose us, and the combined
operations that will result from the implementation of the DLC
transaction, to additional risks. These risks are described under the
caption "Risk Factors" in the proxy statement that forms a part of one of
the Registration Statements that we have filed with the SEC. Copies of
the definitive proxy statement will be sent to our shareholders in
connection with the special meeting that we will call to approve the DLC
transaction.
Risks Related To Our Business
(1) We may lose business to competitors throughout the vacation
market.
We operate in the vacation market and cruising is one of many
alternatives for people choosing a vacation. We therefore risk losing
business not only to other cruise lines, but also to other vacation
operators that provide other leisure options including hotels, resorts and
package holidays and tours.
We face significant competition from other cruise lines, both on the
basis of cruise pricing and also in terms of the nature of ships and
services we offer to cruise passengers. Our principal competitors include
the companies listed in this Annual Report on Form 10-K under the caption,
"Cruise Operations - Competition."
We also compete with land-based vacation alternatives throughout the
world, including, among others, resorts and hotels located in Las Vegas,
Nevada, Orlando, Florida, various Caribbean, Mexican, Bahamian and
Hawaiian Island destination resorts and numerous vacation destinations
throughout Europe and the rest of the world.
In the event that we do not compete effectively with other vacation
alternatives and cruise companies, our market share could decrease and our
results of operations and financial condition could be adversely affected.
(2) Overcapacity within the cruise and competing land-based vacation
industry could have a negative impact on our net revenue yields,
increase our operating costs, result in ship asset impairments
and could adversely affect profitability.
Cruising capacity has grown in recent years and we expect it to
continue to increase over the next three and a half years as all of the
major cruise vacation companies are expected to introduce new ships. In
order to utilize new capacity, the cruise vacation industry will need to
increase its share of the overall vacation market. The overall vacation
market is also facing increases in land-based vacation capacity, which
also will impact us. Failure of the cruise vacation industry to increase
its share of the overall vacation market could have a negative impact on
our net revenue yields. Should our net revenue yields be negatively
impacted, our results of operations and financial condition could be
adversely affected, including the impairment of our ship assets. In
addition, increased cruise capacity could impact our ability to retain and
attract qualified crew at competitive costs and, therefore, increase our
shipboard employee costs.
(3) The international political and economic climate and other world
events affecting safety and security could adversely affect the
demand for cruises and could harm our future sales and
profitability.
Demand for cruises and other vacation options has been, and is
expected to continue to be, affected by the public's attitude towards the
safety of travel, the international political climate and the political
climate of destination countries. The possibility of military action
against Iraq, events such as the terrorist attacks in the U.S. on
September 11, 2001 and the threat of additional attacks, and the resulting
political instability and concerns over safety and security aspects of
traveling, have had a significant adverse impact on demand and pricing in
the travel and vacation industry and may continue to do so in the future.
Demand for cruises is also likely to be increasingly dependent on the
underlying economic strength of the countries from which cruise companies
source their passengers. Economic or political changes that reduce
disposable income or consumer confidence in the countries from which we
source our passengers may affect demand for vacations, including cruise
vacations, which are a discretionary purchase. Decreases in demand could
lead to price discounting which, in turn, could reduce the profitability
of our business.
(4) We may not be able to obtain financing on terms that are
favorable or consistent with our expectations.
Our access to financing will depend on, among other things, the
maintenance of our strong long-term credit ratings. Our debt is currently
rated A by Standard & Poor's, A2 by Moody's and A by FitchRatings.
We believe our current external sources of liquidity and cash on
hand, together with our forecasted cash flow from future operations, will
be sufficient to fund most of our capital projects, debt service
requirements, dividend payments and working capital needs.
Our forecasted cash flow from future operations, as well as our
credit ratings, may be adversely affected by various factors, including,
but not limited to, declines in customer demand, increased competition and
overcapacity, the deterioration in general economic and business
conditions, terrorist attacks, ship incidents, adverse publicity and
increases in fuel prices, as well as other factors noted under these "Risk
Factors" and the "Cautionary Note Concerning Factors That May Affect
Future Results" section below. To the extent that we are required, or
choose, to fund future cash requirements, including future shipbuilding
commitments, from sources other than cash flow from operations, cash on
hand and current external sources of liquidity, we will have to secure
such financing from banks or through the offering of debt and/or equity
securities in the public or private markets.
Our future operating cash flow may not be sufficient to fund future
obligations, and we may not be able to obtain additional financing, if
necessary, at a cost that meets our expectations. Accordingly, our
financial results could be adversely affected.
(5) Conducting business internationally can result in increased
costs.
We operate our business internationally and we plan to continue to
develop our international presence. Operating internationally exposes us
to a number of risks, including, but not limited to, the following:
- currency fluctuations;
- interest rate movements;
- the imposition of trade barriers and restrictions on repatriation
of earnings;
- political risks;
- risk of increases in duties, taxes and governmental royalties; and
- changes in laws and policies affecting cruising, vacation or
maritime businesses or the governing operations of foreign-based
companies.
If we are unable to address these and other risks adequately, our
results of operations and financial condition could be adversely affected.
(6) Accidents and other incidents at sea or adverse publicity
concerning the cruise industry or us could affect our reputation
and harm our future sales and profitability.
The operation of cruise ships involves the risk of accidents,
illnesses, mechanical failures and other incidents at sea, which may bring
into question passenger safety, health, security and vacation satisfaction
and thereby adversely affect future industry performance. Incidents
involving passenger cruise ships could occur and could adversely affect
future sales and profitability. In addition, adverse publicity concerning
the vacation industry in general or the cruise industry or us in
particular could impact demand and, consequently, have an adverse impact
on our profitability.
(7) Our operating, financing and tax costs are subject to many
economic and political factors that are beyond our control, which
could result in increases in our operating, financing and tax
costs.
Some of our operating costs, including fuel, food, insurance and
security costs, are subject to increases because of market forces and
economic or political instability beyond our control. In addition,
interest rates and our ability to secure debt or equity financing,
including in order to finance the purchase of new ships, are dependent on
many economic and political factors. Actions by U.S. and non-U.S. taxing
jurisdictions could also cause an increase in our costs. Increases in
operating, financing and tax costs could adversely affect our results
because we may not be able to recover these increased costs through price
increases of our cruise vacations.
(8) Environmental legislation and regulations could affect operations
and increase our operating costs.
Some environmental groups have lobbied for more stringent regulation
of cruise ships. Some groups also have generated negative publicity about
the cruise industry and its environmental impact. The U.S. Environmental
Protection Agency is considering new laws and rules to manage cruise ship
waste. Alaska authorities are currently investigating an incident that
occurred in August 2002 onboard Holland America's Ryndam involving a
wastewater discharge from the ship. As a result of this incident, various
Ryndam ship officers have received grand jury subpoenas from the U.S.
Attorney's office in Alaska. If the investigation results in charges being
brought, sanctions could include a prohibition of operations in Alaska's
Glacier Bay National Park and Preserve for a period of time. See Part 1,
Item 3. Legal Proceedings.
In addition, pursuant to a settlement with the U.S. government in
April 2002, we pled guilty to certain environmental violations. We were
sentenced under a plea agreement pursuant to which we paid fines in fiscal
2002 totaling $18 million to the U.S. government and other parties. We had
accrued for these fines in fiscal 2001. We were also placed on probation
for a term of five years. Under the terms of the probation, any future
violation of environmental laws by us may be deemed a violation of
probation. In addition, we were required as a special term of probation to
develop, implement and enforce a worldwide environmental compliance
program. We are in the process of implementing the environmental
compliance program and expect to incur approximately $10 million in
additional annual environmental compliance costs commencing in 2003 as a
result of the program.
Our costs of complying with current and future environmental laws and
regulations, or liabilities arising from past or future releases of, or
exposure to, hazardous substances or to vessel discharges, could
materially adversely affect our business, results of operations or
financial condition.
(9) Delays in ship construction and problems encountered at shipyards
could reduce our profitability.
The construction of cruise ships is a complex process and involves
risks similar to those encountered in other sophisticated construction
projects, including delays in completion and delivery. In addition,
industrial actions and insolvency or financial problems of the shipyards
building our ships could also delay or prevent the delivery of our ships
under construction. These events could adversely affect our profitability.
However, the impact from a delay in delivery could be mitigated by
contractual provisions and refund guarantees obtained by us.
In addition, we have entered into forward foreign currency contracts
to fix the cost in U.S. dollars of seven of our foreign currency
denominated shipbuilding contracts. If any of the shipyards with which we
have contracted are unable to perform, we would still be required to
perform under our foreign currency forward contracts related to that
shipyard's shipbuilding contracts. This might require us to realize a
loss on an existing contract without having the ability to have an
offsetting gain on our foreign currency denominated shipbuilding contract,
thus resulting in an adverse effect on our financial results.
(10) The inability of qualified shipyards to build our ships at a
reasonable cost could reduce our future profitability.
We believe that there are a limited number of shipyards in the world
capable of constructing large passenger cruise ships in accordance with
our standards. We currently have contracts with three of these shipyards
for the construction of 13 ships to enter service over the next three and
a half years. If we elect to build additional ships in the future, which
we expect to do, these shipyards may not agree to build them at a cost
acceptable to us, which in turn could adversely affect our financial
results.
(11) Business acquisitions could reduce our net income, earnings per
share and cash flows.
We evaluate acquisitions of other leisure and travel providers in a
disciplined manner to determine if there is an opportunity to improve our
potential for long-term internal growth and our net income, such as our
current proposal to combine with P&O Princess under a DLC structure. Any
acquisition includes numerous risks, including, among others, those
related to integrating the operations of the acquired entity and achieving
the cost reduction synergies that were anticipated to be derived from the
combined entity. In addition, we may refinance the acquired entity's
existing debt or finance the acquisition by issuing debt and/or equity
securities and, accordingly, additional interest expense related to our
debt and/or additional shares of our common stock issued in connection
with any acquisitions could have a negative effect on our net income and
earnings per share. See the introductory paragraph to Part 1, Item 1. B.
Risk Factors for additional information related to the proposed DLC
transaction.
(12) The lack of attractive port destinations for our cruise ships
could reduce our net revenue yields and net income.
We believe that attractive port destinations, including ports that
are not overly congested with tourists, are major reasons why our
customers choose a cruise versus an alternative vacation option. The
availability of ports, including the specific port facility at which our
guests will embark and disembark, is affected by a number of factors,
including, but not limited to, existing capacity constraints, security
concerns, adverse weather conditions and natural disasters, financial
limitations on port development, local governmental regulations and local
community concerns about both port development and other adverse impacts
on their communities from additional tourists. The inability to continue
to maintain and increase our ports of call could adversely affect our net
revenue yields and net income.
(13) New legislation or regulations concerning health, safety and
security issues could increase our operating costs and adversely
affect net income.
Our ships are subject to various international, national, state and
local health, safety and security laws, regulations and treaties. The
International Maritime Organization (the "IMO"), which operates under the
United Nations, has adopted safety standards as part of the Safety of Life
at Sea ("SOLAS") Convention, which is applicable to all of our ships.
Generally SOLAS establishes vessel design, structural features, materials,
construction and life saving equipment requirements to improve passenger
safety and security.
In addition, our ships that call on U.S. ports are subject to
inspection by the U.S. Coast Guard for compliance with the SOLAS
Convention and by the U.S. Public Health Service for sanitary standards.
Our ships are also subject to similar inspections pursuant to the laws and
regulations of various other countries our ships visit. Finally, the U.S.
Congress recently enacted the Maritime Transportation Security Act of 2002
which implements a number of security measures at U.S. ports, including
measures that relate to foreign flagged vessels calling at U.S. ports.
We believe that health, safety and security issues will continue to
be areas of focus by relevant government authorities both in the U.S., and
abroad. Resulting legislation or regulations, or changes in existing
legislation or regulations, could impact our operations and would likely
subject us to increasing compliance costs in the future.
Risks Related To Our Corporate Structure and Common Stock
(14) Changes under the Internal Revenue Code and applicable U.S.
income tax treaties may adversely affect the U.S. federal income
taxation of our U.S. source shipping income.
We believe that substantially all of our U.S. source shipping income
qualifies for exemption from U.S. federal income tax, either under:
- Section 883 of the Internal Revenue Code of 1986, as amended; or
- applicable U.S. income tax treaties.
To date no final U.S. treasury regulations or other definitive
interpretations of the relevant portions of Section 883 have been
promulgated, although regulations have been proposed. Any such final
regulations or official interpretations could differ materially from our
interpretation of this Internal Revenue Code provision and, even in the
absence of differing regulations or official interpretations, the Internal
Revenue Service might successfully challenge our interpretation. In
addition, the provisions of Section 883 are subject to change at any time
by legislation. Moreover, changes could occur in the future with respect
to the trading volume or trading frequency of our shares or with respect
to the identity, residence, or holdings of our direct or indirect
shareholders that could affect us and our subsidiaries eligibility for the
Section 883 exemption. Accordingly, although we believe it is unlikely, it
is possible that we and our ship-owning or operating subsidiaries whose
tax exemption is based on Section 883 could lose this exemption. If we
and/or our ship-owning or operating subsidiaries were not entitled to the
benefit of Section 883, we and/or our ship-owning or operating
subsidiaries would be subject to U.S. federal income taxation on a portion
of our income, which would reduce our net income.
In addition, some of our subsidiaries may rely on certain U.S. income
tax treaties for similar exemptions from U.S. taxation on their U.S.
source shipping income. These treaties may be abrogated by either
applicable country, replaced or modified with new agreements that treat
shipping income differently than under the agreements currently in force.
If any of our subsidiaries that currently claim exemption from U.S. income
taxation on their U.S. source shipping income under an applicable treaty
do not qualify for benefits under the existing treaties or if the existing
treaties are abrogated, replaced or materially modified in a manner
adverse to our interests and, with respect to U.S. federal income tax
only, if any such subsidiary does not qualify for Section 883 exemption,
such ship-owning and/or operating subsidiary may be subject to U.S.
federal income taxation on a portion of its income, which would reduce our
net income.
See Part I, Item 1. Business, I. Taxation for additional
information.
(15) A small group of shareholders effectively controls the outcome
of shareholder voting.
A group of shareholders, comprising certain members of the Arison
family, including Micky Arison, our chairman and chief executive officer,
and trusts established for their benefit, currently beneficially owns
approximately 47% of our voting power. As a result, this group of
shareholders has the power to effectively control, or at least to
influence substantially, the outcome of shareholder votes and, therefore,
the corporate actions requiring such votes.
(16) We are not a U.S. corporation, and our shareholders may be
subject to the uncertainties of a foreign legal system in
protecting their interests.
Our corporate affairs are governed by our Second Amended and Restated
Articles of Incorporation and By-Laws and by the corporate laws of the
Republic of Panama. The corporate laws of the Republic of Panama may
differ in some respects from the corporate laws in the U.S.
(17) Provisions in our constitutional documents may prevent or
discourage takeovers and business combinations that our
shareholders might consider in their best interests.
Our Articles of Incorporation and By-Laws contain provisions that may
delay, defer, prevent or render more difficult a takeover attempt that our
shareholders consider to be in their best interests. For instance, these
provisions may prevent our shareholders from receiving a premium to the
market price of our shares offered by a bidder in a takeover context.
Even in the absence of a takeover attempt, the existence of these
provisions may adversely affect the prevailing market price of our shares
if they are viewed as discouraging takeover attempts in the future.
Specifically, our Articles of Incorporation contain provisions that
prevent third parties, other than the Arison family and trusts established
for their benefit, from acquiring beneficial ownership of more than 4.9
percent of our outstanding shares without the consent of our board of
directors and provide for the lapse of rights, and sale, of any shares
acquired in excess of that limit. The effect of these provisions may
preclude third parties from seeking to acquire a controlling interest in
us in transactions that shareholders might consider to be in their best
interests and may prevent them from receiving a premium above market price
for their shares. For a description of the reasons for the provisions see
Part I, Item 1. Business, I. - Taxation- Application of Section 883 of the
Internal Revenue Code.
(18) The holders of our common stock may experience dilution in the
value of their equity interest as a result of the issuance and
sale of additional shares of our common stock.
A substantial amount of shares of our common stock were issued by us
in private transactions not involving a public offering and are therefore
treated as "restricted securities" for purposes of Rule 144 under the
Securities Act or are held by our affiliates and, therefore, treated as
"restricted securities" or "control securities". Some of the members of
the Arison family and trusts established for their benefit, currently
beneficially own approximately 47% of our outstanding common stock. No
predictions can be made as to the effect, if any, that the issuance and
availability for future market sales of our common stock will have on the
market price of our common stock prevailing from time to time. Sales of
substantial amounts of our common stock (including shares issued upon the
exercise of stock options), or the perception that such sales could occur,
could materially impair our future ability to raise capital through an
offering of equity securities.
Cautionary Note Concerning Factors That May Affect Future Results
Certain statements contained in this Annual Report on Form 10-K are
"forward-looking statements" that involve risks, uncertainties and
assumptions with respect to us, including certain statements concerning
future results, plans and goals and other events which have not yet
occurred. These statements are intended to qualify for the safe harbors
from liability provided by Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Exchange Act. You can find many (but not
all) of these statements by looking for words like "will," "may,"
"believes," "expects," "anticipates," "forecast," "future," "intends,"
"plans," and "estimates" and for similar expressions.
Because forward-looking statements, including those which may impact
the forecasting of our net revenue yields, booking levels, pricing,
occupancy, operating, financing and tax costs, estimates of ship
depreciable lives and residual values or business prospects, involve risks
and uncertainties, there are many factors that could cause our actual
results, performance or achievements to differ materially from those
expressed or implied in this Annual Report on Form 10-K. These factors
include, but are not limited to, the following:
- - general economic and business conditions, which may impact levels of
disposable income of consumers and the net revenue yields for our
cruise brands;
- - conditions in the cruise and land-based vacation industries,
including competition from other cruise ship operators and providers
of other vacation alternatives and increases in capacity offered by
cruise ship and land-based vacation alternatives;
- - the impact of operating internationally;
- - the international political and economic climate, armed conflict,
terrorist attacks, availability of air service and other world
events and adverse publicity and their impact on the demand for
cruises;
- - accidents and other incidents at sea affecting the health, safety,
security and vacation satisfaction of passengers;
- - our ability to implement our shipbuilding programs and brand
strategies and to continue to expand our businesses worldwide;
- - our ability to attract and retain shipboard crew and maintain good
relations with employee unions;
- - our ability to obtain financing on terms that are favorable or
consistent with our expectations;
- - the impact of changes in operating and financing costs, including
changes in foreign currency and interest rates and, fuel, food,
insurance and security costs;
- - changes in the tax, environmental, health, safety, security and other
regulatory regimes under which we operate;
- - continued availability of attractive port destinations;
- - our ability to successfully implement cost improvement plans and to
integrate business acquisitions;
- - continuing financial viability of our travel agent distribution
system;
- - weather patterns or natural disasters; and
- - the ability of a small group of shareholders effectively to control
the outcome of shareholder voting.
These risks and other risks are detailed in the section above
entitled "Risk Factors." That section contains important cautionary
statements and a discussion of many of the factors that could materially
affect the accuracy of our forward-looking statements and/or adversely
affect our business, results of operations and financial position.
Forward-looking statements should not be relied upon as a prediction
of actual results. Subject to any continuing obligations under applicable
law, we expressly disclaim any obligation to disseminate, after the date
of this document, any updates or revisions to any such forward-looking
statements to reflect any change in expectations or events, conditions or
circumstances on which any such statements are based.
C. Cruise Operations
The multi-night cruise industry is a small part of the overall global
vacation market. We estimate that the global cruise industry carried more
than 10 million passengers in 2002. The principal sources for cruise
passengers are North America, Europe, Asia/South Pacific including
Australia, and South America. We source our passengers principally from
North America, the largest cruise sector in the world and, to a lesser
extent, from Europe. A small percentage of our passengers are sourced from
South America and Asia/South Pacific. See Note 12, "Segment Information"
to our Consolidated Financial Statements in Exhibit 13 to this Annual
Report on Form 10-K for additional information regarding our U.S. and
foreign assets and revenues.
Industry Background
Since 1970, cruising has been one of the fastest growing segments of
the vacation market. According to Cruise Lines International Association,
or CLIA, a leading industry trade group, in 1970 approximately 0.5 million
North American-sourced passengers took cruises of two consecutive nights
or more. CLIA estimates that this number reached approximately 7.4 million
passengers in 2002, a compound annual growth rate of approximately 9%
since 1970. Despite this growth, we believe that cruising still represents
only approximately 3% of the North American vacation market.
Outside North America, the principal sources of passengers for the
industry are the UK, Germany, Italy, France, Spain, South America and
Australia. In all of these areas, cruising represents a smaller proportion
of the overall vacation market than it does in North America but, based on
industry data, is generally experiencing higher growth rates.
Cruising offers a broad range of products to suit vacationing
customers of many ages, backgrounds and interests. Cruise brands can be
broadly divided into the contemporary, premium and luxury segments. We
have significant product offerings in each of these segments. The
contemporary segment is the largest segment and typically includes cruises
that last seven days or less, have a more casual ambience and are less
expensive than premium or luxury cruises. The premium segment is smaller
than the contemporary segment and typically includes cruises that last
from seven to 14 days. Premium cruises emphasize quality, comfort, style
and more destination-focused itineraries and the average pricing on these
cruises is typically higher than those in the contemporary segment. The
luxury segment is the smallest segment and is typically characterized by
smaller vessel size, very high standards of accommodation and service,
generally with higher prices than the premium segment. Notwithstanding
these marketing segment classifications, there is overlap and competition
among cruise segments.
We provide cruise vacations in most of the largest vacation markets
in the world: North America, the UK, Germany and southern Europe. A brief
description of the principal vacation regions in which we operate is as
follows:
North America
The largest vacation market in the world is North America. According
to CLIA, approximately 7.4 million North American passengers took cruises
for two consecutive nights or more in 2002.
Estimates of North American-sourced cruise passengers and the number
of lower berths marketed in North America compiled by CLIA from 1997 to
2002 are as follows:
CRUISE
PASSENGERS LOWER BERTHS
CALENDAR SOURCED MARKETED IN
YEAR IN NORTH AMERICA(1) NORTH AMERICA(2)
1997 5,051,000 118,000
1998 5,428,000 138,000
1999 5,894,000 149,000
2000 6,882,000 166,000
2001 6,906,000 176,000
2002 7,400,000 193,000
(1)Based on passengers carried for at least two consecutive nights for the
calendar year (2002 estimates are preliminary).
(2)As of the end of the calendar year. These figures include some ships
which are marketed in North America and elsewhere.
The principal itineraries visited by North American cruise passengers
in 2002 were the Caribbean, Bahamas and Mexico. In addition, North
American cruise passengers visited Alaska, Europe, the Mediterranean,
Bermuda, the Panama Canal and other exotic locations, including South
America, Africa, the South Pacific, the Orient and India.
Based on the number of ships that are currently on order worldwide
and scheduled for delivery between 2003 and 2006, we expect that the net
capacity serving North American consumers will increase significantly over
the next several years. Projections compiled by CLIA indicate that by the
end of 2003, 2004 and 2005, North America will be served by 187, 197 and
199 ships, respectively, having an aggregate passenger capacity of
approximately 213,000, 236,000 and 240,000 lower berths, respectively.
These figures include some ships that are expected to be marketed in North
America and elsewhere. CLIA's estimates of capacity do not include
assumptions related to unannounced ship withdrawals due to factors such as
the age of ships or changes in the location from where ships' passengers
are predominantly sourced and, accordingly, could indicate a higher
percentage growth in North American capacity than will actually occur.
Nonetheless, we expect that net capacity serving North American-sourced
cruise passengers will increase over the next several years.
Europe
We estimate that Europe is one of the largest vacation markets, but
cruising in Europe has achieved a much lower penetration rate than in
North America. We estimate that approximately 2.3 million European-sourced
passengers took cruise vacations in 2002 compared to approximately 7.4
million North American-sourced passengers. However, from 1990 to 2002, the
number of cruise passengers sourced from Europe has been growing faster
than the number of cruise passengers sourced from North America. From 1997
through 2001, the rate at which Europeans took a cruise grew at a compound
annual growth rate of 12% compared to an 8% growth rate with respect to
North Americans. Cruise vacation companies are continuing to expand their
product offerings in Europe. For example, more cruise vacations were
marketed to European passengers in 2002 than in 2001. We expect that a
number of new or existing ships will be introduced into Europe over the
next several years.
We also believe that Europe will represent a significant area for
growth for us because, among other things, the vacation markets in Europe
are large but the level of penetration of cruising is low.
UK
The UK is one of the largest sources for cruise passengers in the
world. According to G.P. Wild (International) Limited, approximately 0.8
million UK passengers took cruises in 2001. Cruising was relatively
underdeveloped as a vacation option for the UK consumers until the mid-
1990s, but since then the UK has been one of the fastest growing regions
in the world. The number of UK cruise passengers increased by a compound
annual growth rate of approximately 10% between 1997 and 2001. The main
destination for UK cruise passengers is the Mediterranean. Other popular
destinations for UK cruise passengers include the Caribbean, the Atlantic
Islands, including the Canary Islands and the Azores, and Scandinavia. In
Cunard we have one of the most widely recognized brands in the UK.
Germany
Germany is one of the largest sources for cruise passengers in
continental Europe with approximately 0.4 million cruise passengers in
2001. Germany exhibited a compound annual growth rate in the number of
cruise passengers carried of approximately 8% between 1997 and 2001. We
believe that Germany is an underdeveloped region for the cruise industry.
The main destinations visited by German cruise passengers are the
Mediterranean and the Caribbean. Other popular destinations for German
cruise passengers include Scandinavia and the Atlantic Islands. We have
two brands, Costa and Cunard, which market their cruises in Germany.
Southern Europe
The main regions in southern Europe for sourcing cruise passengers
are Italy, France and Spain. Together, these countries generated
approximately 0.7 million cruise passengers in 2001. Cruising in Italy,
France and Spain exhibited a compound annual growth rate in the number of
passengers carried of approximately 15% between 1997 and 2001. We believe
that these regions are also relatively underdeveloped for the cruise
industry. We intend to increase our penetration in southern Europe through
Costa, the largest and one of the most recognized cruise brands marketed
in Europe.
South America
Cruising has been marketed in South America for many years, although
the region remains in an early stage of development. Cruises from South
America typically occur during the southern hemisphere summer months of
November through March, and are primarily seven to nine days in duration.
Our presence is primarily represented through the Costa brand, which
currently operates two vessels in this region, Costa Classica and Costa
Tropicale, offering approximately 2,324 lower berths.
Australia
Cruising in Australia is relatively small but well established. We
estimate that approximately 0.1 million Australians took cruise vacations
in 2001. We expect to continue to serve this region primarily through
Cunard and Holland America, which market their world and other cruises in
Australia.
Characteristics of the Cruise Vacation Industry
Strong Growth
Cruise vacations have experienced significant growth in recent years.
The number of new cruise ships currently on order from shipyards indicates
that the growth in supply of cruise capacity is set to continue for a
number of years. As a result of this continuing growth in supply,
continued growth in demand across the industry, particularly in North
America, will be required in order to take up this increase in supply.
Given the historical growth rate of cruising and the relative low
penetration levels in major vacation markets, we believe that there are
significant areas for growth. However, for the past few years there has
been pressure on cruise pricing, which we believe is ultimately the result
of, among other things, competition from other vacation alternatives,
increases in new cruise ship capacity and competition, ship incidents,
adverse publicity and various international political and economic
conditions and events, such as terrorism, higher unemployment and the risk
of armed conflicts.
Wide Appeal of Cruising
Cruising appeals to a broad demographic range. Industry surveys
estimate that the principal passengers for cruising in North America
(defined as households with income of $40,000 or more headed by a person
who is at least 25 years old) now comprise approximately 128 million
people. About half of these individuals have expressed an interest in
taking a cruise as a vacation alternative.
Relatively Low Penetration Levels
North America has the highest cruising penetration rates per capita.
Nevertheless, CLIA estimates that only 15% of the U.S. population has ever
taken a cruise. In the UK, where there has been significant expansion in
the number of cruise passengers carried over the last five years, cruising
penetration levels per capita are only approximately three-fifths of those
of North America. In the principal vacation regions in continental Europe,
cruising penetration levels per capita are approximately one-fifth of
those in North America. Elsewhere in the world cruising is at an early
stage of development and has far lower penetration rates.
Satisfaction Rates
Cruise passengers tend to rate their overall satisfaction with a
cruise-based vacation higher than comparable land-based hotel and resort
vacations. In North America, industry studies indicate that cruise
passengers experience a high level of satisfaction with their cruise
product, with 69% of cruisers finding the value of the cruise vacation
experience to be as good as, or better than, the value of other vacations.
Passengers, Capacity and Occupancy
Our cruise operations had worldwide cruise passengers, passenger
capacity and occupancy as follows (1):
FISCAL CRUISE PASSENGER
YEAR PASSENGERS CAPACITY OCCUPANCY(3)
1998 2,045,000 39,466 106.3%
1999 2,366,000 43,810 104.3%
2000 2,669,000 48,196 105.4%
2001 3,385,000 58,346 104.7%
2002 3,549,000 67,282(2) 105.2%
(1) Information presented is as of the end of our fiscal year for
passenger capacity. Costa's passengers, capacity and occupancy are only
included in 2001 and 2002.
(2) Excludes Windstar Cruises' 148 passenger capacity ship, Wind Song,
which was removed from service in December 2002.
(3) In accordance with cruise industry practice, occupancy is determined
based on double occupancy per cabin even though some cabins can
accommodate three or more passengers. Accordingly, the percentages
in excess of 100% indicate that more than two passengers occupied
some cabins.
The actual occupancy percentage for all cruises on our ships during
each quarter indicated below was as follows:
Quarters Ended Occupancy
November 30, 2000 103.4%
February 28, 2001 105.2%
May 31, 2001 102.5%
August 31, 2001 113.0%
November 30, 2001 97.9%(1)
February 28, 2002 102.8%
May 31, 2002 101.9%
August 31, 2002 113.7%
November 30, 2002 102.1%
(1) Our fourth quarter 2001 occupancy decreased compared to the fourth
quarter of 2000 due primarily to the impact of the events of
September 11, 2001 and their aftermath.
Our passenger capacity has grown from 39,466 berths at November 30,
1998 to 67,282 berths at January 31, 2003. In 1999 capacity increased by
4,344 berths, primarily due to the deliveries of the Carnival Triumph and
Holland America's Volendam. During 2000 capacity increased by 4,386
berths, primarily due to the deliveries of the Carnival Victory and
Holland America's Zaandam and Amsterdam, partially offset by the 1,214
berth decrease due to the sale of Holland America's Nieuw Amsterdam.
During 2001 capacity increased by 10,150 berths, primarily due to the
acquisition and consolidation of Costa's 9,200 berths and the delivery of
the Carnival Spirit, partially offset by the removal from service of the
946 berth Costa Riviera and the 232 berth decrease due to the sale of the
Seabourn Goddess I and II. During 2002, capacity increased by 8,936 berths
primarily due to the deliveries of the Carnival Pride, Carnival Legend,
Carnival Conquest and Holland America's Zuiderdam, partially offset by the
removal from service of the 148 berth Wind Song.
Cruise Ships and Itineraries
CCL's 18 ships operate in the contemporary sector and are primarily
marketed in North America. All of the CCL ships were designed by and built
for CCL, including four that are among the world's largest, the Carnival
Conquest, the Carnival Victory, the Carnival Triumph and the Carnival
Destiny. In addition, CCL introduced the first three of its new "Spirit"
class ships, the Carnival Spirit, the Carnival Pride and the Carnival
Legend, which have 80% outside cabins, with 80% of those outside cabins
having balconies. Sixteen of the CCL ships operate to destinations in the
Bahamas or the Caribbean during all or a portion of the year and two CCL
ships call on ports on the Mexican Riviera year round. CCL ships also
offer cruises to Alaska, Bermuda, Canada, New England, the Hawaiian
Islands and the Panama Canal.
Through our wholly-owned subsidiary, HAL Antillen, N.V. ("HAL
Antillen"), we operate 11 ships in the premium sector, which are primarily
marketed in North America under the Holland America brand. HAL Antillen
also operates three sailing ships in the luxury cruise sector under the
Windstar brand.
The Holland America ships offer premium cruises of various lengths to
destinations in Alaska, the Caribbean, the Panama Canal, Europe, the
Mediterranean, the Bahamas, the Hawaiian Islands, South America and other
worldwide locations. Cruise lengths vary from three to 100 days, with a
large proportion of cruises being seven or ten days. Periodically, the
Holland America ships make longer cruises or operate on special
itineraries in order to increase travel opportunities for their customers
and diversify their cruise offerings. For example, in 2002, Holland
America offered a 100-day world cruise. The majority of the Holland
America ships operate to destinations in the Bahamas and the Caribbean
during fall to spring and in Alaska and Europe during spring to fall. In
order to offer a unique destination and, to compete more effectively while
operating in the Bahamas and the Caribbean, Holland America includes in
certain of its Bahamas and Caribbean itineraries, a private island
destination known as Half Moon Cay. Half Moon Cay is a 2,400-acre island
owned by Holland America. Facilities were constructed on the island on 45
acres along a crescent-shaped white sand beach. The remainder of the
island remains undeveloped. The facilities on Half Moon Cay include bars,
shops, restrooms, a post office, a chapel and an ice cream shop, as well
as a food pavilion with open-air dining shelters.
Windstar currently markets cruises to destinations in the Caribbean,
Europe, Central America and Tahiti and offers a casual, yet luxurious,
cruise experience onboard its modern sail ships. The Windstar ships are
primarily marketed in North America.
Costa's eight ships operate in Europe during the spring to fall.
During the fall to spring, Costa repositions most of its ships to the
Caribbean and South America. The Costa ships serve the contemporary sector
and are primarily marketed in Europe. Costa is the number one cruise line
in continental Europe based on passengers carried and capacity of its
ships, principally serving customers in Italy, France, Germany and Spain.
The Costa ships call on 105 European ports with 44 different itineraries
and to various other ports in the Caribbean and South America. Costa has
also expanded its presence in Germany by launching a new cruise product
aimed exclusively at Germans, with European and Caribbean sailings aboard
the 762 berth Costa Marina, which began in the spring 2002.
Under the Cunard brand, we operate two ships in the premium/luxury
sectors, which are primarily marketed in North America, the UK, Germany
and Australia. Cunard's flagship, the Queen Elizabeth 2, offers the only
regularly scheduled transatlantic crossings between New York and
Southampton, England. In addition, Cunard repositioned the Caronia to
service the growing UK region, with round-trip cruises from Southampton,
which commenced in May 2002. Both of Cunard's ships offer cruises to other
worldwide destinations, with many of the cruises ranging generally between
six and 26 days. The Cunard ships also offer extended cruises, such as the
QE2's world cruise.
The three Seabourn ships (the "Yachts of Seabourn") offer an intense
focus on personalized service and quality cuisine aboard its intimately
sized all-suite ships. The Yachts of Seabourn serve the luxury sector and
are primarily marketed in North America. These ships concentrate their
operations in Europe, Asia and the Americas with cruises generally in the
seven to 14 day range.
Summary information of our ships as of January 31, 2003 is as follows:
APPROXIMATE
CALENDAR GROSS
YEAR PASSENGER REGISTERED
SHIP REGISTRY BUILT CAPACITY TONS
CCL
Carnival Conquest Panama 2002 2,974 110,000
Carnival Legend Panama 2002 2,124 88,500
Carnival Pride Panama 2001 2,124 88,500
Carnival Spirit Panama 2001 2,124 88,500
Carnival Victory Panama 2000 2,758 102,000
Carnival Triumph Bahamas 1999 2,758 102,000
Paradise Panama 1998 2,052 70,000
Elation Panama 1998 2,052 70,000
Carnival Destiny Bahamas 1996 2,642 101,000
Inspiration Bahamas 1996 2,052 70,000
Imagination Bahamas 1995 2,052 70,000
Fascination Bahamas 1994 2,052 70,000
Sensation Bahamas 1993 2,052 70,000
Ecstasy Panama 1991 2,052 70,000
Fantasy Panama 1990 2,056 70,000
Celebration Panama 1987 1,486 47,000
Jubilee Bahamas 1986 1,486 47,000
Holiday Bahamas 1985 1,452 46,000
Total CCL 38,348
Holland America
Zuiderdam Netherlands 2002 1,848 81,800
Zaandam Netherlands 2000 1,440 63,000
Amsterdam Netherlands 2000 1,380 62,000
Volendam Netherlands 1999 1,440 63,000
Rotterdam Netherlands 1997 1,316 62,000
Veendam Bahamas 1996 1,266 55,000
Ryndam Netherlands 1994 1,266 55,000
Maasdam Netherlands 1993 1,266 55,000
Statendam Netherlands 1993 1,266 55,000
Prinsendam Netherlands 1988 792 38,000
Noordam Netherlands 1984 1,214 34,000
Total Holland America 14,494
Costa
Costa Atlantica Italy 2000 2,114 86,000
Costa Victoria Italy 1996 1,928 76,000
Costa Romantica Italy 1993 1,344 53,000
Costa Allegra Italy 1992 806 30,000
Costa Classica Italy 1991 1,302 53,000
Costa Marina Italy 1990 762 25,500
Costa Europa Italy 1986 1,476 54,000
Costa Tropicale Italy 1982 1,022 37,000
Total Costa 10,754
APPROXIMATE
CALENDAR GROSS
YEAR PASSENGER REGISTERED
SHIP REGISTRY BUILT CAPACITY TONS
Cunard
Caronia UK 1973 668 24,500
QE2 UK 1969 1,790 70,000
Total Cunard 2,458
Seabourn
Seabourn Legend Bahamas 1992 208 10,000
Seabourn Spirit Bahamas 1989 208 10,000
Seabourn Pride Bahamas 1988 208 10,000
Total Seabourn 624
Windstar Cruises
Wind Surf Bahamas 1990 308 14,750
Wind Spirit Bahamas 1988 148 5,700
Wind Star Bahamas 1986 148 5,700
Total Windstar 604
Total Passenger Capacity 67,282
Cruise Ship Construction and Cruise Port Facility Development
We have signed agreements with three shipyards providing for the
construction of 13 new cruise ships, which have 30,580 berths. See Note 7,
"Commitments" to our Consolidated Financial Statements in Exhibit 13 to
this Annual Report on Form 10-K. Primarily in cooperation with private or
public entities, we are engaged in the development of new or enhanced
cruise port facilities. These facilities are expected to provide our
passengers with an improved holiday experience. Our involvement typically
includes providing cruise port facility development and management
expertise and assistance with financing. During 2002, we were primarily
involved in the development of cruise port facilities in Long Beach,
California, Galveston, Texas, La Romana, Dominican Republic, which opened
in December 2002, San Juan, Puerto Rico, Savona, Italy, and Cozumel,
Mexico. No assurance can be given that any of these cruise port
facilities that are still being developed will be completed.
Cruise pricing
Each of our cruise brands publishes brochures with prices for the
upcoming seasons. In many regions, brochure prices vary by cruise line, by
category of cabin, by ship, by season and by itinerary. Brochure prices
are regularly discounted through our early booking discount programs and
other promotions. The cruise ticket price includes accommodations, meals
and most onboard entertainment, such as the use of, or admission to, a
wide variety of activities and facilities, including on substantially all
our ships a fully equipped casino, nightclubs, theatrical shows, movies,
parties, a disco, a jogging track, a health club, swimming pools,
whirlpools and saunas.
When a passenger elects to purchase air transportation from us, both
our cruise revenues and operating expenses generally increase by
approximately the same amount.
Onboard and Other Revenues
We derive revenues from other onboard activities and services
including casino gaming, bar sales, gift shop sales, entertainment
arcades, shore excursions, art auctions, photo sales, spa services, bingo
games and lottery tickets, video diaries, snorkel equipment rentals,
internet and telephone usage, vacation protection insurance and
promotional advertising by merchants located in our ports of call.
Our casinos, which contain slot machines and gaming tables including
blackjack, and in most cases craps and roulette, are generally open only
when our ships are at sea in international waters. We also earn revenue
from the sale of alcoholic and other beverages. Onboard activities are
either performed directly by us or by independent concessionaires, from
which we collect a percentage of their revenues.
We receive additional revenues from the sale to our passengers of
shore excursions at each ship's ports of call. These excursions include,
among other things, bus and taxi sightseeing and adventure outings, local
boat and beach parties and nightclub and casino visits. For the CCL,
Costa, Windstar, Cunard and Seabourn ships, the shore excursions are
primarily operated by independent tour operators. For the Holland America
ships and other of our brands operating to destinations in Alaska, shore
excursions are operated by Holland America Tours and independent parties.
In conjunction with cruise vacations on our ships, all of our cruise
brands sell pre- and post-cruise land packages. CCL land packages
generally include from one to four-night vacations at nearby attractions,
such as Universal Studios and Walt Disney World in Orlando, Florida, Busch
Gardens in Tampa, Florida, or in proximity to other vacation destinations
in Central and South Florida, Galveston, Texas, New Orleans, Louisiana,
Los Angeles, California and San Juan, Puerto Rico. Holland America land
packages outside of Alaska generally include up to four-night vacations,
including stays in unique European port cities or near attractions in
Central and South Florida. Costa's land packages generally include one or
two-night vacations in well-known European cities or at vacation
destinations in Central or South Florida. Cunard, Seabourn and Windstar
packages include numerous luxury and/or exotic pre- and post-cruise land
programs, such as world class golf programs and London and Paris luxury
holidays.
In conjunction with our Alaska cruise vacations on our Holland
America, CCL and Seabourn ships, we sell pre- and post-cruise land
packages, which are more fully described in Part I, Item 1. Business, D.
Tour Segment.
Sales and Marketing
Our cruise vacations appeal to a broad range of customers of all ages
and interests, generating high-levels of repeat business for our different
brands. Our target audience in North America, comprised of households with
an income of $40,000 or more and headed by a person who is at least 25
years old, includes approximately 128 million people. Industry surveys
show that approximately half of these people have expressed an interest in
taking a cruise as a vacation alternative. In addition, CLIA forecasts
that 27 million North Americans will take a cruise over the next three
years versus an estimated 7.4 million North American cruisers in 2002.
In addition, cruising has traditionally appealed to the middle and
older segments of the population. These are the fastest growing segments
of the population and are forecast to expand over the next 10 years, which
we expect will provide a major source of new business for us. Furthermore,
cruising is also attracting interest from younger people.
Cruise passengers tend to rate their overall satisfaction with a
cruise-based vacation higher than comparable land-based hotel and resort
vacations. In North America, industry studies indicate that cruise
passengers experience a high level of satisfaction with their cruise
product, with 69% of cruisers finding the value of the cruise vacation
experience to be as good as, or better than, the value of other vacations.
We believe that both our ability to attract passengers and our
customers' satisfaction levels are enhanced by the levels of choice and
innovative new facilities onboard our cruise ships, such as balconies,
multiple restaurants, including some open 24-hours a day, offering
flexible dining, and amenities such as modern gymnasiums and health spas,
internet cafes, theaters, discos and wedding chapels. Cruise ships are now
floating resorts and our brands are positioned to appeal to each of the
three major sectors of the cruise industry - contemporary, premium and
luxury. Each of our brands offers a particular style of cruise vacationing
from the excitement and variety of a CCL "Fun Ship", the five-star
sophistication of Holland America, the classic British tradition of
Cunard, the indulgent intimacy and luxury onboard the Yachts of Seabourn,
the casual elegance of Windstar and the Italian charm of Costa -
individual brands with individual styles.
During 1998, we created the "World's Leading Cruise Lines" marketing
alliance for our family of six cruise brands in order both to educate the
consumer about the overall breadth of our cruise brands, as well as to
increase the effectiveness and efficiency of marketing our brands. During
2000, we launched "VIP", or Vacation Interchange Privileges, a loyalty
program that provides special considerations to repeat guests aboard any
of our six brands.
Our various cruise lines employ over 530 personnel, excluding
reservation agents, in the sales and sales support area who, among other
things, focus on motivating, training and supporting the retail travel
agent community which sells substantially all of our cruises, typically on
a non-exclusive basis to individuals, fraternal, religious and other
groups, corporations and others. Travel agents generally receive a
standard commission of 10% plus the potential of additional commissions
based on sales volume. Commission rates on cruise vacations are usually
higher than commission rates earned by travel agents on sales of airline
tickets and hotel rooms. Moreover, since cruise vacations are
substantially all-inclusive, sales of our cruise vacations generally yield
higher commissions to travel agents than commissions earned on selling
airline tickets and hotel rooms. During fiscal 2002, no controlled group
of travel agencies accounted for more than 10% of our revenues.
Historically, a significant portion of our brands' cruises were
booked from several months in advance of the sailing date for contemporary
brands to up to a year in advance of sailing for our luxury brands. This
lead-time allowed us to adjust our prices, if necessary, in relation to
demand for available cabins, as indicated by the level of advance
bookings. Our fares, such as CCL's Supersaver fares and Holland America's
Early Savings and Alumni Savings fares, are designed to encourage
potential passengers to book cruise reservations earlier, which helps to
manage more effectively our overall net revenue yields. Our brands'
payment terms generally require that a passenger pay a deposit to confirm
their reservation with the balance due well before the departure date. As
a result of September 11, 2001 and its aftermath, our brands have
generally experienced a closer-to-sailing booking pattern than was
historically experienced. This change in pattern has caused a reduction in
the cash flows that we receive from early advance bookings and, as would
be expected, has adversely affected our early booking programs. Generally,
this trend has continued into 2003. However, our revenue management
personnel have adjusted our cabin inventories and pricing programs to deal
with these changing booking patterns in order to optimize our revenue
yields.
Initially, our cruise brands were marketed primarily in North
America. We began to globalize our cruise business by expanding into
Europe through the acquisition of a 50% interest in Costa in June 1997 and
Cunard in May 1998. In September 2000, we positioned ourselves to better
take advantage of this expanding presence by acquiring the balance of
Costa. This acquisition solidified our ownership of a cruise line that we
believe is as recognizable in southern Europe and South America as CCL is
in North America. We have leveraged Costa's European leadership position
by increasing our new ship development commitment to the Costa brand, as
well as by transferring CCL's Tropicale in 2001 and Holland America's
Westerdam in 2002 to the Costa fleet. We have specifically tailored the
Costa Marina to German passengers, and began marketing her exclusively for
German-speaking passengers in spring 2002. Additionally, we repositioned
Cunard's Caronia to target UK passengers with round-trip cruises from
Southampton in May 2002, and have also committed to the construction of a
new 1,968 passenger ship to serve Cunard's UK customers upon its expected
in-service date of February 2005.
CCL
We believe that CCL's success is due partly to its unique brand
positioning within the vacation industry. CCL markets its cruises not only
as alternatives to competitors' cruises, but as vacation alternatives to
competitive land-based resorts and sightseeing destinations. CCL seeks to
attract passengers from the broad vacation market, including those who
have never been on a cruise ship before and who might not otherwise
consider a cruise as a vacation alternative. CCL's strategy has been to
emphasize the cruise experience itself rather than particular
destinations, as well as the advantages of a prepaid, all-inclusive
vacation package. CCL regularly engages in comparative pricing
advertisements in which it compares the cost of a cruise with land-based
vacations. CCL markets its cruises as the "Fun Ships" experience, which
includes a wide variety of onboard activities and entertainment, such as
full-scale casinos and nightclubs, an atmosphere of pampered service and
high quality food.
CCL uses, among others, the themes "So Much Fun, So Many Places" and
"The Most Popular Cruise Line in the World!". CCL advertises nationally
directly to consumers primarily on network and cable television and
through extensive print media. CCL believes its advertising generates
interest in cruise vacations generally and results in a higher degree of
consumer awareness of the "Fun Ships" concept and the "Carnival" name in
particular. CCL's consumer web site, www.carnival.com, serves as a
marketing and research tool for its current and potential customers.
During 2001, CCL and Capital One launched an affordable cruise financing
program bundled with a co-branded credit card featuring a comprehensive
rewards program. The Fun Finance Plan enables cruise passengers to pay for
a CCL cruise through fixed monthly credit card payments.
CCL has expanded its ship embarkation locations in the U.S. and
Canada over the past several years to help generate additional drive-in
business, which reduces the cost and increases the convenience of a CCL
vacation compared to cruise or land-based alternatives that require air or
other more expensive travel arrangements. Specifically, CCL now has
cruises originating from Baltimore, Charleston, Ensenada, Fort Lauderdale,
Galveston, Honolulu, New Orleans, New York, Norfolk, Philadelphia, San
Diego, Seward, Tampa and Vancouver, in addition to its traditional home
ports of Miami, Los Angeles, Port Canaveral and San Juan. In addition, CCL
is offering shorter cruises, which also reduces the cost of a cruise
vacation to CCL's passengers.
Most of CCL's cruise bookings are made through travel agents. In
fiscal 2002, CCL took reservations from about 25,000 of approximately
33,000 travel agency locations known to us in the U.S. and Canada. In
addition, CCL markets and sells its cruises to tour operators and through
travel agents located in numerous other countries, including the UK,
Mexico, Bermuda, Bahamas, Italy, and Venezuela.
CCL engages in substantial promotional efforts designed to motivate
and educate retail travel agents about its "Fun Ships" cruise vacations.
CCL employs approximately 95 business development managers and 75 in-house
service representatives and administrative support personnel to motivate
independent travel agents and to promote its cruises as an alternative to
competitive land-based vacations or other cruise lines. CCL believes it
has one of the largest sales forces in the cruise industry.
To facilitate access and to simplify the reservation process, CCL
employs approximately 1,250 reservation agents. CCL's fully automated
reservation system allows its reservation agents to respond quickly to
book cabins on its ships. Additionally, through various third-party
computer reservation systems or CCL's internet booking engine, travel
agents and consumers have the ability to make reservations directly into
CCL's computerized reservations system.
Holland America and Windstar
The Holland America and Windstar ships cater to the premium and
luxury sector, respectively. We believe that the hallmarks of the Holland
America experience are beautiful ships and gracious, attentive service.
Holland America communicates this difference as "A Tradition of
Excellence", a reference to its long-standing reputation for "world class"
service and cruise itineraries. Holland America seeks to attract consumers
who want an enhanced vacation in terms of service, style, space and
comfort and a higher staff-to-guest ratio.
Substantially all of Holland America's bookings are made through
travel agents. In fiscal 2002, Holland America took reservations from
about 17,000 of approximately 33,000 travel agency locations known to us
in the U.S. and Canada. In addition, Holland America and Windstar market
and sell their cruises to tour operators and through travel agents located
in numerous other countries, including the UK, Australia and the
Netherlands.
Holland America has focused much of its sales efforts at creating an
excellent relationship with the travel agency community. This is due
principally to its marketing philosophy that travel agents have a large
impact on the consumer vacation selection process and will recommend
Holland America more often because of its excellent reputation for service
to both its guests and their independent travel agents. Holland America
solicits continuous feedback from customers and the independent travel
agents making bookings with Holland America to ensure they are receiving
excellent service. Holland America and Windstar believe that their web
sites at www.hollandamerica.com and www.windstarcruises.com help to enrich
the consumers' web-based research experience.
Holland America's marketing communication strategy is primarily
composed of newspaper and magazine advertising, large-scale brochure
distribution, direct mail solicitations to past passengers and others and
network and cable television and radio spots. Holland America engages in
substantial promotional efforts designed to motivate and educate retail
travel agents about its products. Holland America employs approximately 50
field sales representatives, 30 inside sales representatives and 15 sales
and service representatives to support this field sales force. To
facilitate access and to simplify the reservation process, Holland America
employs approximately 305 reservation agents primarily to take bookings
from travel agents. Additionally, through various third-party computer
reservation systems or Holland America's internet booking engine, travel
agents and consumers have the ability to make reservations directly into
Holland America's computerized reservations system.
Windstar has its own marketing and reservations staff. Field sales
representatives for both Holland America and CCL also act as field sales
representatives for Windstar. Marketing efforts are devoted primarily to
travel agent support and awareness, direct mail solicitation of past
passengers and distribution of brochures. The marketing features the
distinctive nature of the graceful, modern sail ships and the distinctive
"casually elegant" experience on "intimate itineraries," apart from the
normal cruise experience. Windstar's luxury cruise sector positioning is
embodied in its marketing phrase "180 degrees from ordinary."
Costa
From June 1997 to September 28, 2000, we owned 50% of Costa. On
September 29, 2000, we completed the acquisition of the remaining 50%
interest in Costa.
Costa is headquartered in Genoa, Italy and is Europe's largest cruise
line based on number of passengers carried and available capacity. Costa
is targeted to the contemporary sector with most of its cruises sold to
European passengers, primarily from Italy, France, Germany, Spain, England
and Switzerland. Approximately 91% of Costa's revenues in fiscal 2002 were
generated by non-U.S. tour operators and travel agents. Costa has sales
offices in Argentina, Brazil, the UK, France, Germany, Italy, Mexico,
Spain, Switzerland and the U.S., and employs over 215 personnel in the
sales and sales support area, excluding reservation agents. Costa sales
offices focus much of their effort at motivating and educating travel
agents. These efforts include, among other things, newspaper, television,
radio and magazine advertising, direct mail solicitation and brochure
distribution. In addition, through the use of the internet, at web sites
specifically designed for the country and guest that Costa is targeting,
the consumers are educated about cruising and Costa (i.e.:
www.costacruises.com and www.costa.it). To facilitate access and to
simplify the reservation process, Costa employs approximately 150
reservation agents primarily to take bookings from travel agents.
Additionally, through either Costa's internet booking engine or through
third party computer reservation systems, Costa's European and South
American travel agents generally have the ability to make reservations
directly into Costa's reservations system.
We believe that one of the principal ways that Costa distinguishes
itself from other brands is by immersing its guests in the Italian
ambiance on its ships. The moment guests board a ship, they are greeted by
Italian decor and art, the decks and restaurants are sometimes named after
well-known Italian places, the cuisine is prepared with an Italian flair
and the officers and key personnel are all Italian. A voyage on board
Costa is meant to capture the charm and flavor of a visit to Italy.
Cunard and Seabourn
We own 100% of Cunard Line Limited, which owns Cunard and Seabourn.
Currently five ships are being offered under these two brands, which are
marketed separately.
The Cunard brand operates two ships in the premium/luxury cruise
sectors. Cunard's most visible ship is the QE2. The QE2 is the only active
passenger ship of its size built specifically for navigating ocean waters
and offering regularly scheduled transatlantic cruises, and thus enjoys a
unique standing among modern passenger ships. Over the past year, Cunard
has repositioned itself as the brand with the most famous ocean liners in
the world. The fame of the QE2, as well as the worldwide anticipation of
the arrival of the Queen Mary 2, which is expected to enter service in
January 2004, reinforces this brand identity. The line's other cruise
ship, the Caronia, is based in Southampton and has been dedicated to
attracting UK consumers since May 2002.
The Seabourn brand operates three ships under the trade name "The
Yachts of Seabourn," offering ultra-luxury cruising with an intense focus
on service and cuisine. It is the exceptionally high level of service
which we believe enables the Yachts of Seabourn to be one of the most
celebrated cruise lines in the world.
Cunard and Seabourn market and sell their products through their
sales offices in Miami, Florida, the UK, Germany and our office in
Australia. Approximately 61% and 31% of Cunard and Seabourn's revenues,
respectively, are generated by non-U.S. tour operators and travel agents.
Marketing efforts are devoted primarily to travel agent support and
awareness, direct mail solicitation, loyalty marketing to past passengers,
targeted print media campaigns and brochure distribution and the education
of consumers at the Cunard and Seabourn web sites located at
www.cunard.com and www.seabourn.com, respectively.
Substantially all of Cunard's and Seabourn's bookings are made
through travel agents. In fiscal 2002,Cunard and Seabourn took
reservations from about 6,100 of approximately 33,000 travel agency
locations known to us in the U.S. and Canada. Cunard and Seabourn employ
approximately 15 field sales representatives, 10 inside sales
representatives and 20 sales and service representatives to support its
worldwide field sales force. They also employ approximately 45 reservation
agents worldwide primarily to take bookings, substantially all of which
come from travel agents.
Seasonality
Our revenue from the sale of passenger tickets is moderately
seasonal. Historically, demand for cruises has been greatest during the
summer months. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - General" in Exhibit 13 to this
Annual Report on Form 10-K.
Competition
We compete both with a wide array of other land-based vacation
alternatives and with other cruise lines for the consumers' disposable
leisure time dollars.
We compete with land-based vacation alternatives throughout the
world, including, among others, resorts and hotels located in Las Vegas,
Nevada, Orlando, Florida, various Caribbean, Mexican, Bahamian and
Hawaiian Island destination resorts and numerous vacation destinations
throughout Europe and the rest of the world. Specifically, our land-based
competitors, include, among many others, MyTravel, Club Mediterranee, GoGo
Tours, Fairfield Communities Vacation Ownership Club, First Choice,
Harrah's Entertainment, Hilton Hotels, Hyatt Hotels, Kuoni Travel,
Mandalay Resort Group, Disney, Universal Studios, Marriott International
Resorts and the Marriott Vacation Ownership Club, MGM Grand, Nouvelle
Frontieres, Perillo Tours, Ritz-Carlton Hotels, Saga Tours, Six Flags,
Starwood Hotels and Resorts, Sandals Resorts, Sun City Resorts, Thomas
Cook, Trafalgar and TUI, as well as various other theme parks.
Our primary cruise competitors in the contemporary and/or premium
cruise segments for North American sourced passengers are Royal Caribbean
Cruises Ltd., which owns Royal Caribbean International and Celebrity
Cruises, P&O Princess, which owns Princess Cruises, Star Cruises plc,
which owns Norwegian Cruise Line and Orient Lines, and Disney Cruise Line.
Our primary cruise competitors for European sourced passengers are
MyTravel's Sun Cruises, Fred Olsen, P&O Cruises (UK), Saga and Thomson in
the UK; Aida Cruises, A'Rosa, Festival Cruises, Hapag-Lloyd, Peter
Deilmann and Phoenix Reisen in Germany; and Mediterranean Shipping
Cruises, Royal Olympia Cruises, Louis Cruise Line and Festival Cruises in
southern Europe. We will also compete for passengers throughout Europe
with Norwegian Cruise Line, Orient Lines, Princess Cruises, Royal
Caribbean International and Celebrity Cruises.
Our primary competitors in the luxury cruise segment for our Cunard,
Seabourn and Windstar brands include Crystal Cruises, Radisson Seven Seas
Cruise Line and Silversea Cruises.
Our brands also will compete with similar or overlapping product
offerings across all of our segments.
On January 8, 2003, P&O Princess announced that its board of
directors had recommended to P&O Princess shareholders our proposal to
combine with P&O Princess under a DLC structure (see Part I, Item 1.
Business, A. General - Recent Development).
See Part I, Item 1. Business, B. Risk Factors for additional
information regarding our competition.
Governmental Regulations
Maritime Regulations
Our ships are regulated by various international, national, state and
local laws, regulations and treaties in force in the jurisdictions in
which our ships operate. In addition, our ships are registered in the
Bahamas, the UK, Italy, the Netherlands and Panama, as more fully
described under Part I, Item 1. Business, C. Cruise Segment - Cruise Ships
and Itineraries and, accordingly, are regulated by these jurisdictions and
by the international conventions governing the safety of our ships and
guests that these jurisdictions have ratified or adhere to. Each country
of registry conducts periodic inspections to verify compliance with these
regulations as discussed more fully below. In addition, the directives and
regulations of the European Union are applicable to some aspects of our
ship operations. We cannot estimate the ultimate cost of complying with
these requirements or the impact of these requirements on the resale value
or useful lives of our ships.
Specifically, the IMO, which operates under the United Nations, has
adopted safety standards as part of the SOLAS Convention, which is
applicable to all of our ships. Generally SOLAS establishes vessel design,
structural features, materials, construction and life saving equipment
requirements to improve passenger safety and security. The SOLAS
requirements are revised from time to time, with the most recent
modifications being phased in through 2010.
In 1993, SOLAS was amended to adopt the International Safety
Management Code, referred to as the ISM Code. The ISM Code provides an
international standard for the safe management and operation of ships and
for pollution prevention. The ISM Code became mandatory for passenger
vessel operators, such as ourselves, on July 1, 1998. All of our
operations and ships have obtained the required certificates demonstrating
compliance with the ISM Code and are regularly inspected and controlled by
the national authorities, as well as the international authorities acting
under the provisions of the international agreements related to Port State
Control, the process by which a nation exercises authority over foreign
ships when the ships are in the waters subject to its jurisdiction.
Our ships are subject to a program of periodic inspection by ship
classification societies who conduct annual, intermediate, dry-docking and
class renewal surveys. Classification societies conduct these surveys not
only to ensure that our ships are in compliance with international
conventions adopted by the flag state and domestic rules and regulations,
but also to verify that our ships have been maintained in accordance with
the rules of the society and recommended repairs have been satisfactorily
completed.
Our ships that call on U.S. ports are subject to inspection by the
U.S. Coast Guard for compliance with the SOLAS Convention and by the U.S.
Public Health Service for sanitary standards. Our ships are also subject
to similar inspections pursuant to the laws and regulations of various
other countries our ships visit. In addition, the U.S. Congress recently
enacted the Maritime Transportation Security Act of 2002 which implements
a number of security measures at U.S. ports, including measures that
relate to foreign flagged vessels calling at U.S. ports.
We believe that health, safety and security issues will continue to
be an area of focus by relevant government authorities both in the U.S.,
and abroad. Resulting legislation or regulations, or changes in existing
legislation or regulations, could impact our operations and would likely
subject us to increasing compliance costs in the future.
Other Environmental, Health and Safety Matters
We are subject to various international, national, state and local
environmental protection and health and safety laws, regulations and
treaties that govern, among other things, air emissions, employee health
and safety, waste discharge, water management and disposal and storage,
handling, use and disposal of hazardous substances, such as chemicals,
solvents, paints and asbestos.
In particular, in the U.S., the Oil Pollution Act of 1990("OPA")
provides for strict liability for water pollution, such as oil pollution
or threatened oil pollution incidents in the 200-mile exclusive economic
zone of the U.S., subject to monetary limits. These monetary limits do not
apply, however, where the discharge is caused by gross negligence or
willful misconduct of, or the violation of, an applicable regulation by a
responsible party. Pursuant to the OPA, in order for us to operate in U.S.
waters, we are also required to obtain Certificates of Financial
Responsibility from the U.S. Coast Guard for each of our ships. These
certificates demonstrate our ability to meet removal costs and damages
related to water pollution, such as for an oil spill or a release of a
hazardous substance up to our ship's statutory liability limit.
In addition, most U.S. states that border a navigable waterway or
seacoast have enacted environmental pollution laws that impose strict
liability on a person for removal costs and damages resulting from a
discharge of oil or a release of a hazardous substance. These laws may be
more stringent than U.S. federal law.
Furthermore, many countries have ratified and adopted IMO Conventions
which, among other things, impose liability for pollution damage subject
to defenses and to monetary limits, which monetary limits do not apply
where the spill is caused by the owner's actual fault or by the owner's
intentional or reckless conduct. In jurisdictions that have not adopted
the IMO Conventions, various national, regional or local laws and
regulations have been established to address oil pollution.
If we violate or fail to comply with environmental laws, regulations
or treaties, we could be fined or otherwise sanctioned by regulators. We
have made, and will continue to make, capital and other expenditures to
comply with environmental laws and regulations. See Note 8,
"Contingencies - Litigation" for additional information related to Holland
America's environmental contingencies.
Pursuant to a settlement with the U.S. government in April 2002, we
pled guilty to certain environmental violations. We were sentenced under a
plea agreement pursuant to which we paid fines in fiscal 2002 totaling $18
million to the U.S. government and other parties. We had accrued for these
fines in fiscal 2001. We were also placed on probation for a term of five
years. Under the terms of the probation, any future violation of
environmental laws by us may be deemed a violation of probation. In
addition, we were required as a special term of probation to develop,
implement and enforce a worldwide environmental compliance program. We are
in the process of implementing the environmental compliance program and
expect to incur approximately $10 million in additional annual
environmental compliance costs commencing in 2003 as a result of the
program.
From time to time, environmental and other regulators consider more
stringent regulations which may affect our operations and increase our
compliance costs. As evidenced from the preceding paragraphs, the cruise
industry is affected by a substantial amount of environmental rules and
regulations. We believe that the impact of cruise ships on the global
environment will continue to be an area of focus by the relevant
authorities and, accordingly, this will likely subject us to increasing
compliance costs in the future.
Consumer Regulations
In addition, our ships that call on U.S. ports are regulated by the
Federal Maritime Commission, referred to as the FMC. Public Law 89-777
which is administered by the FMC requires most cruise line operators to
establish financial responsibility for their liability to passengers for
non-performance of transportation as well as casualty and personal injury.
The FMC's regulations require that a cruise line demonstrate its financial
responsibility through a guarantee, escrow arrangement, surety bond or
insurance. Currently, the amount required must equal 110% of the cruise
line's highest amount of customer deposits over a two year period up to a
maximum coverage level of $15 million. The FMC has recently proposed
various changes to the financial responsibility regulations for non-
performance of transportation, including a proposal to significantly
increase the amount of financial responsibility required to be maintained
by cruise lines which would increase our compliance costs. In addition,
other jurisdictions, including Argentina, Australia, Brazil, the UK and
Germany require the establishment of financial responsibility for
passengers from their jurisdictions.
Permits for Glacier Bay, Alaska
In connection with a significant portion of our Alaska cruise
operations, Holland America and CCL rely on concession permits from the
U.S. National Park Service, which are periodically renewed, to operate
their cruise ships in Glacier Bay National Park and Preserve. There can be
no assurance that these permits will continue to be renewed or that
regulations relating to the renewal of such permits, including preference
or historical rights, will remain unchanged in the future. See Part 1,
Item 3. Legal Proceedings and Note 8, "Contingencies-Litigation" to our
Consolidated Financial Statements in Exhibit 13 to this Annual Report on
Form 10-K.
We believe we have all the necessary licenses to conduct our
business. From time to time, various other regulatory and legislative
changes may be proposed or adopted that could have an effect on the cruise
industry in general and our business in particular. See Part I, Item 1.
Business, B. Risk Factors for a discussion of other regulations which
impact us.
Financial Information
For financial information about our cruise and affiliated operations
segment with respect to each of the three years in the period ended
November 30, 2002, see Note 12, "Segment Information" to our Consolidated
Financial Statements in Exhibit 13 to this Annual Report on Form 10-K.
D. Tour Segment
In addition to our cruise business we operate Holland America Tours,
which is a leading cruise/tour operator in the state of Alaska and the
Canadian Yukon. Holland America Tours also markets sightseeing packages
both separately and as part of our cruise/tour packages. Since a
substantial portion of its business is derived from the sale of tour
packages in Alaska during the summer season, Holland America Tours'
operations are highly seasonal.
Holland America Tours
Holland America Tours is comprised of a group of companies which,
together comprise our tour operations and perform three independent yet
interrelated functions. During 2002, as part of an integrated travel
program to destinations in Alaska, the Canadian Yukon and Washington, the
tour service group offered 31 different tour programs varying in length
from 8 to 21 days. The transportation group and hotel group supports the
tour service group by supplying facilities needed to conduct tours.
Facilities include dayboats, motor coaches, rail cars and hotels.
Two luxury dayboats perform an important role in the integrated
travel program offering tours to the glaciers of Alaska and the Yukon
River. The Yukon Queen II cruises the Yukon River between Dawson City,
Yukon Territory and Eagle, Alaska and the Ptarmigan operates on Portage
Lake in Alaska. The two dayboats have a combined capacity of 360
passengers.
A fleet of over 300 motor coaches operates in Alaska, Washington,
British Columbia, Canada and the Canadian Yukon. These motor coaches are
used for extended trips, city sightseeing tours and charter hire.
Additionally, Holland America Tours operates express motor coach service
between downtown Seattle, Washington and the Seattle-Tacoma International
Airport and also provides transit and meet and greet services for some of
CCL's and Costa's cruise passengers at certain of their Canadian and U.S.
ports of call.
Thirteen private, domed rail cars, which are called "McKinley
Explorers", run on the Alaska Railroad between Anchorage and Fairbanks,
stopping at Denali National Park.
In connection with its tour operations, Holland America Tours owns or
leases motor coach maintenance shops in Seattle, Washington, and in
Juneau, Fairbanks, Anchorage, Skagway and Ketchikan, Alaska. Holland
America Tours also owns or leases service offices at Anchorage, Denali
Park, Fairbanks, Juneau, and Skagway in Alaska, at Whitehorse in the Yukon
Territory, in Seattle, Washington and Vancouver and Victoria, British
Columbia.
Westmark Hotels
During 2002, Holland America Tours operated 14 hotels in Alaska and
the Canadian Yukon under the name Westmark Hotels (one hotel was sold in
August 2002). Four of the hotels are located in Canada's Yukon Territory
and offered a combined total of 587 rooms. The remaining ten hotels,
located throughout Alaska, provided a total of 1,393 rooms, bringing the
total number of hotel rooms to 1,980. Twelve of the hotels were wholly
owned by Holland America Tours' subsidiaries and Westmark operated two
under a management agreement.
The hotels play an important role in Holland America Tours' tour
programs during the summer months when they provide accommodation to the
tour passengers. The hotels located in the larger metropolitan areas
remain open during the entire year, acting during the winter season as
centers for local community activities while continuing to accommodate the
traveling public. Most of the Westmark hotels include dining, lounge and
conference or meeting room facilities. Some hotels have gift shops and
other tourist services on the premises.
For the five hotels that operated year-round in 2002, the occupancy
percentage for fiscal 2002 was 51.5%, and for the nine hotels that
operated only during the summer months, the occupancy percentage for
fiscal 2002 was 59.4%.
Sales and Marketing
Holland America Tours has its own marketing staff devoted to travel
agent support and awareness, direct mail solicitation of past customers,
use of consumer magazine and newspaper advertising to develop prospects
and enhance awareness and distribution of brochures. Additionally,
television and radio spots are used to market its tour and cruise
packages. The Holland America Tours marketing message builds on its 55
years of Alaska tourism leadership and its extensive array of hotel and
transportation assets to create a brand preference for Holland America
Tours. To the prospective vacationer the marketing endeavors to convince
them that "Holland America Tours is Alaska."
Holland America Tours' products are marketed both separately and as
part of cruise/tour packages. Although most of Holland America Tours'
cruise/tours include a Holland America cruise as the cruise segment, other
cruise lines also market Holland America Tours as a part of their
cruise/tour packages and sightseeing excursions. Tours that are sold
separately are marketed through independent travel agents and also
directly by Holland America Tours, utilizing sales desks in major hotels.
General marketing for the hotels is done through various media in Alaska,
Canada and the contiguous U.S. Travel agents, particularly in Alaska, are
solicited, and displays are used in airports in Seattle, Washington,
Portland, Oregon and various Alaska cities. Room rates at Westmark Hotels
are on the upper end of the scale for hotels in Alaska and the Canadian
Yukon.
Seasonality
Holland America Tours' revenues from tours are highly seasonal with a
large majority generated during the late spring and summer months in
connection with the Alaska cruise season. The tours are conducted in
Alaska, the Canadian Yukon and Washington. The Alaska and Canadian Yukon
tours coincide to a great extent with the Alaska cruise season, May
through September. Washington tours are conducted year-round although
demand is greatest during the summer months. During periods in which tour
demand is lower Holland America Tours seeks to maximize its motor coach
charter activity, such as operating charter tours to ski resorts in
Washington.
Competition
Holland America Tours competes with independent tour operators and
motor coach charter operators in Alaska, British Columbia, the Canadian
Yukon and Washington. The primary competitors in these areas are Princess
Tours with approximately 220 motor coaches, five hotels and ten ultra dome
rail cars; Alaska Sightseeing/Trav-Alaska with approximately 15 motor
coaches, and Royal Celebrity Tours with approximately 40 motor coaches and
four domed rail cars. The primary competitors in Washington are
Hesselgrave International, with approximately 40 motor coaches and Pacific
Northwest Coaches with approximately 20 motor coaches.
Westmark Hotels compete with various hotels throughout Alaska, many
of which charge prices below those charged by Westmark Hotels. Dining
facilities in the hotels also compete with the many restaurants in the
same geographic areas.
Government Regulations
Holland America Tours' motor coach operations are subject to
regulation both at the federal and state levels, including primarily the
U.S. Department of Transportation, the Washington Utilities and
Transportation Commission, the British Columbia Motor Carrier Commission,
the Yukon Motor Transport Board and the Alaska Department of
Transportation. Certain activities of Holland America Tours involve
federal or state properties and may require concession permits and are
subject to regulation by various federal or state agencies, such as the
U.S. National Park Service, the U.S. Forest Service and the State of
Alaska Department of Natural Resources. In addition, Holland America Tours
is also subject to federal, state and local environmental regulations.
In connection with the operation of its beverage facilities in the
Westmark Hotels, Holland America Tours is required to comply with state,
county and/or city ordinances regulating the sale and consumption of
alcoholic beverages. Violations of these ordinances could result in fines,
suspensions or revocation of licenses and preclude the sale of any
alcoholic beverages by the hotel involved.
In the operation of its hotels, Holland America Tours is required to
comply with applicable building and fire codes. Changes in these codes
have in the past and may in the future require expenditures to ensure
continuing compliance.
From time to time, various other regulatory and legislative changes
have been or may be proposed or adopted that could have an effect on the
tour industry in general and Holland America Tours in particular.
Financial Information
For financial information about our tour segment with respect to each
of the three years in the period ended November 30, 2002, see Note 12,
"Segment Information" to our Consolidated Financial Statements in Exhibit
13 to this Annual Report on Form 10-K.
E. Employees
Our operations have approximately 5,600 full-time and 2,100 part-
time/seasonal employees engaged in shoreside operations. We also employ
approximately 29,500 officers, crew and staff on our 45 ships. Due to the
seasonality of our Alaska and Canadian operations, HAL Antillen and its
subsidiaries increase their work force during the summer months, employing
additional seasonal personnel, which have been included above. We have
entered into agreements with unions covering certain employees in our
hotel, motor coach and ship operations. We consider our employee and union
relations generally to be good.
We source our shipboard officers primarily from Italy, Holland, the
UK and Norway. The remaining crew positions are manned by persons from
around the world. We utilize various manning agencies in many countries
and regions to help secure our shipboard employees.
F. Suppliers
Our largest purchases are for airfare, travel agency commissions,
advertising, fuel, food and beverages, hotel and restaurant supplies and
products, repairs and maintenance and dry-docking, port charges and for
the construction of our ships. Although we utilize a limited number of
suppliers for most of our food and beverages, and hotel and restaurant
supplies and products, most of these purchases are available from numerous
sources at competitive prices. The use of a limited number of suppliers
enables us to, among other things, obtain volume discounts. We purchase
fuel at some of our ports of call and port related services at all our
ports of call from a limited number of suppliers. In addition, we perform
our major dry-dock and ship improvement work at dry-dock facilities in the
Bahamas, British Columbia, Canada, the Caribbean, Europe and the U.S. We
believe there are sufficient dry-dock facilities to meet our anticipated
requirements. Finally, we have entered into agreements with three
shipyards for the construction of our 13 additional cruise ships.
G. Insurance
General
We maintain insurance to cover a number of risks associated with
owning and operating vessels in international trade. All such insurance
policies are subject to limitations, exclusions and deductible levels.
Premiums charged to us by both marine and non-marine insurers will likely
be adversely impacted by the losses incurred in the direct and reinsurance
markets, regardless of our own loss experience. Since September 11, 2001,
we have experienced premium increases and expect most of our insurance
premiums to increase significantly at the time of their renewals
commencing in late February 2003. No assurance can be given that
affordable and viable direct and reinsurance markets will be available to
us in the future. We maintain certain levels of self-insurance for the
below-mentioned risks through the use of substantial deductibles, which
may increase in the future in response to expected premium increases. We
do not typically carry coverage related to loss of earnings or revenues
for our cruise, tour and related operations.
Protection and Indemnity ("P&I") Coverage
Third-party liabilities in connection with our cruise activities are
covered by entry in a P&I club. P&I coverage is available through mutual
indemnity associations, known as clubs, that are owned by ship-owners. Our
vessels are entered into three clubs as follows: The West of England
Shipowners Mutual Insurance Association (Luxembourg), Steamship Mutual
Underwriting Association Ltd. and the United Kingdom Mutual Steamship
Assurance Association (Bermuda) Limited. The P&I clubs in which we
participate are part of a worldwide network of P&I clubs, known as the
International Group (the "IG"). The IG insures directly, and through
reinsurance markets, a large portion of the world's shipping fleets. The
terms of our P&I coverage are governed by the rules of our P&I clubs,
while the amount of insurance is governed by the rules of the IG. Our
vessel coverages include legal, statutory or pre-approved contract
liabilities and other related expenses related to crew, passengers and
other third parties on our ships in operation. This coverage also includes
shipwreck removal, pollution and damage to third party property.
Hull and Machinery Insurance
We maintain insurance on the hull and machinery of each of our ships
in amounts equal to the approximate estimated market value of each ship.
The coverage for hull and machinery is provided by international marine
insurance carriers. Most insurance underwriters make it a condition for
insurance coverage that a ship be certified as "in class" by a
classification society that is a member of the International Association
of Classification Societies ("IACS"). All of our ships are currently
certified as in class with an IACS member. These certifications have
either been issued or endorsed within the last twelve months.
War Risk Insurance
Subject to certain limitations, we maintain war risk insurance on
each of our ships, which includes legal liability to crew and passengers,
including terrorist risks for which coverage would be excluded under the
coverage provided by the P&I clubs mentioned above. The war risk coverage
is provided by international marine insurance carriers. We do not carry
war risk insurance coverage for physical damage to our ships, which
coverage is excluded from our hull policy. However, as required by certain
agreements, war risk insurance covering physical damage to the ship is
carried for five of our ships. As is typical for war risk policies in the
marine industry, under the terms of the policy, underwriters can give
seven days notice to the insured that the policy can be cancelled and
reinstated at different premium rates. This gives underwriters the ability
to increase our premiums following events that they deem increase their
risk. As a result of the September 11, 2001 attacks, our war risk
insurance premiums have increased substantially. No assurance can be given
that affordable and viable direct and reinsurance markets will be
available to us in the future for war risk insurance.
Other Insurance
We, as currently required by the FMC, maintain at all times three $15
million performance bonds for ships operated by CCL, Holland America and
Cunard Line Limited, which embark passengers in U.S. ports, to cover
passenger ticket liabilities in the event of a cancelled or interrupted
cruise. Costa maintains insurance as required by the FMC to cover their
ticket liabilities in the event of a cancelled or interrupted cruise. We
also maintain other performance bonds as required by various foreign
authorities that regulate certain of our operations in their
jurisdictions.
We also maintain various other insurance policies to protect the
assets of Holland America Tours and for other activities.
The Athens Convention
Current conventions generally in force applying to passenger ships
are the Athens Convention relating to the Carriage of Passengers and their
Luggage by Sea (1974), the 1976 Protocol to the Athens Convention and the
Convention on Limitation of Liability for Maritime Claims (1976). The U.S.
has not ratified any Athens Convention Protocol. However, vessels flying
the flag of a country that has ratified it may contractually enforce the
1976 Athens Convention Protocol for cruises that do not call at a U.S.
port.
The IMO Diplomatic Conference agreed a new protocol to the Athens
Convention on November 1, 2002. The new protocol, which has not yet been
ratified, substantially increases the level of compulsory insurance which
must be maintained by passenger ship operators and provides a direct
action provision, which will allow claimants to proceed directly against
insurers. Most of the countries in the European Union, where many of our
vessels operate, supported the new protocol and are likely to ratify it in
the future however, the timing of such ratification, if obtained, is
unknown. No assurance can be given that affordable and viable direct and
reinsurance markets will be available to provide the level of coverage
required under the new protocol. We also expect insurance costs may
increase once the new protocol is ratified.
H. Trademarks
We own numerous trademarks, which we believe are widely recognized
throughout the world and have considerable value. These trademarks include
the names of our cruise lines, each of which we believe is a widely-
recognized brand name in the cruise vacation industry.
I. Taxation
The following summary of the application of the principal U.S.
federal income tax laws to us is based upon existing U.S. federal income
tax law, including the Internal Revenue Code, proposed, temporary and
final U.S. treasury regulations, certain current income tax treaties,
administrative pronouncements, and judicial decisions, as currently in
effect, all of which are subject to change, possibly with retroactive
effect.
We are a foreign corporation engaged in a trade or business in the
U.S., and our ship-owning subsidiaries are foreign corporations that, in
many cases, depending upon the itineraries of their ships, receive income
from sources within the U.S. for U.S. federal income tax purposes. To the
best of our knowledge, we believe that, under Section 883 of the Internal
Revenue Code and applicable income tax treaties, our income and the income
of our ship-owning subsidiaries, in each case derived from or incidental
to the international operation of a ship or ships, is currently exempt
from U.S. federal income tax. We believe that substantially all of our
income, and the income of our ship-owning subsidiaries, with the exception
of our U.S. source income from the transportation, hotel and tour
businesses of Holland America Tours, is derived from or incidental to the
international operation of a ship or ships within the meaning of Section
883 and applicable income tax treaties.
Application of Section 883 of the Internal Revenue Code
In general, under Section 883, certain non-U.S. corporations are not
subject to U.S. federal income tax or branch profits tax on certain U.S.
source income derived from the international operation of a ship or ships.
We believe that we and many of our ship-owning subsidiaries currently
qualify for the Section 883 exemption since each is organized in a
qualifying jurisdiction and our common stock is primarily and regularly
traded on an established securities market in the U.S. To date, however,
no final U.S. treasury regulations or other definitive interpretations of
the relevant portions of Section 883 have been promulgated, although, as
discussed below, regulations have been proposed. Any such final
regulations or official interpretations could differ materially from our
interpretation of this Internal Revenue Code provision and, even in the
absence of differing regulations or official interpretations, the Internal
Revenue Service might successfully challenge our interpretation. In
addition, the provisions of Section 883 are subject to change at any time
by legislation. Moreover, changes could occur in the future with respect
to the trading volume or trading frequency of our shares or with respect
to the identity, residence, or holdings of our direct or indirect
shareholders that could affect us and our subsidiaries eligibility for the
Section 883 exemption. Accordingly, although we believe it is unlikely, it
is possible that we and our ship-owning or operating subsidiaries whose
tax exemption is based on Section 883 could lose this exemption. If we
and/or our ship-owning or operating subsidiaries were not entitled to the
benefit of Section 883, we and/or our ship-owning or operating
subsidiaries would be subject to U.S. federal income taxation on a portion
of our income, which would reduce our net income.
On August 2, 2002, the U.S. Treasury Department issued revised
proposed treasury regulations under Section 883 relating to income derived
by foreign corporations from the international operation of ships and
aircraft. The proposed regulations provide, in general, that a foreign
corporation will qualify for the benefits of Section 883 if, in relevant
part, (i) the foreign country in which the foreign corporation is
organized grants an equivalent exemption to corporations organized in the
U.S. and (ii) either (a) more than 50% of the value of the corporation's
stock is owned, directly or indirectly, by individuals who are residents
of that country or of another foreign country that grants an equivalent
exemption to corporations organized in the U.S., referred to as the "stock
ownership test" (such individuals are referred to as "Qualified
Shareholders") or (b) the foreign corporation meets the publicly-traded
test described below. In addition, to the extent a foreign corporation's
shares are owned by a direct or indirect parent corporation which itself
meets the publicly-traded test, then in analyzing the stock ownership test
with respect to such subsidiary, stock owned directly or indirectly by
such parent corporation will be deemed owned by individuals resident in
the country of incorporation of such parent corporation.
A company whose shares are considered to be "primarily and regularly
traded on an established securities market" in the U.S. or another
qualifying jurisdiction will meet the publicly-traded test (the "publicly-
traded test"). Pursuant to the recently revised proposed treasury
regulations issued under Section 883, stock will be considered "primarily
traded" on one or more established securities markets if, with respect to
each class of stock of the particular corporation, the number of shares in
each such class that are traded during a taxable year on any such market
exceeds the number of shares in each such class traded during that year on
any other established securities market. Stock of a corporation will
generally be considered "regularly traded" on one or more established
securities markets under the proposed regulations if (i) one or more
classes of stock of the corporation that, in the aggregate, represent more
than 50% of the total combined voting power of all classes of stock of
such corporation entitled to vote and of the total value of the stock of
such corporation are listed on such market; and (ii) with respect to each
class relied on to meet the more than 50% requirement in (i) above, (x)
trades in each such class are effected, other than in de minimis
quantities, on such market on at least 60 days during the taxable year,
and (y) the aggregate number of shares in each such class of the stock
that are traded on such market during the taxable year is at least 10% of
the average number of shares of the stock outstanding in that class during
the taxable year. A class of stock that otherwise meets the requirements
outlined in the preceding sentence is not treated as meeting such
requirements for a taxable year if, at any time during the taxable year,
one or more persons who own, actually or constructively, at least 5% of
the vote and value of the outstanding shares of the class of stock, own,
in the aggregate, 50% or more of the vote and value of the outstanding
shares of the class of stock (the "5% Override Rule"). However, the 5%
Override Rule does not apply (a) where the foreign corporation establishes
that Qualified Shareholders own sufficient shares of the closely-held
block of stock to preclude non-Qualified Shareholders of the closely-held
block of stock from owning 50% or more of the total value of the class of
stock for more than half of the taxable year; or (b) to certain investment
companies provided that no person owns, directly or through attribution,
both 5% or more of the value of the outstanding interests in such
investment company and 5% or more of the value of the shares of the class
of stock of the foreign corporation.
We believe that we currently qualify as a publicly traded corporation
under the proposed regulations and substantially all of our income, with
the exception of our U.S. source income from the transportation, hotel and
tour businesses of Holland America Tours, would continue to be exempt from
U.S. federal income taxes. However, because various members of the Arison
family and trusts established for their benefit currently own
approximately 47% of our shares, there is the potential that another
shareholder could acquire 5% or more of our shares, which could jeopardize
our qualification as a publicly traded corporation. If, in the future, we
were to fail to qualify as a publicly traded corporation, we and all of
our ship-owning or operating subsidiaries would be subject to U.S. federal
income tax on our income associated with our cruise operations in the U.S.
In such event, our net income and that of our ship-owning or operating
subsidiaries would be materially reduced, which would likely have a
significant negative impact on our stock price.
As a precautionary matter, we amended our Second Amended and Restated
Articles of Incorporation to ensure that we will continue to qualify as a
publicly traded corporation under the proposed regulations. This amendment
provides that no one person or group of related persons, other than
certain members of the Arison family and 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 our shares,
whether measured by vote, value or number of shares. Any of our shares
acquired in violation of this provision will be transferred to a trust
and, at the direction of our board of directors, sold to a person whose
shareholding does not violate that provision. No profit for the purported
transferee may be realized from any such sale. In addition, under
specified circumstances, the trust may transfer the common stock at a loss
to the purported transferee. Because certain of our notes are convertible
into our shares, the transfer of these notes are subject to similar
restrictions. These transfer restrictions may also have the effect of
delaying or preventing a change in our control or other transactions in
which the shareholders might receive a premium for our shares over the
then prevailing market price or which the shareholders might believe to be
otherwise in their best interest.
Exemption Under Applicable Income Tax Treaties
We believe that the income of some of our ship-owning subsidiaries
currently qualifies for exemption from U.S. federal income tax under
applicable bilateral U.S. income tax treaties. These treaties may be
abrogated by either applicable country, replaced or modified with new
agreements that treat shipping income differently than under the
agreements currently in force. If any of our subsidiaries that currently
claim exemption from U.S. income taxation on their U.S. source shipping
income under an applicable treaty do not qualify for benefits under the
existing treaties or if the existing treaties are abrogated, replaced or
materially modified in a manner adverse to our interests and, with respect
to U.S. federal income tax only, if any such subsidiary does not qualify
for Section 883 exemption, such ship-owning or operating subsidiary may be
subject to U.S. federal income taxation on a portion of its income, which
would reduce our net income.
Taxation in the Absence of an Exemption under Section 883 or any
Applicable U.S. Income Tax Treaty
Shipping income that is attributable to transportation of passengers
which begins or ends in the U.S. is considered to be 50% derived from U.S.
sources. Shipping income that is attributable to transportation of
passengers which begins and ends in foreign countries is considered 100%
derived from foreign sources and not subject to U.S. federal income tax.
Shipping income that is attributable to the transportation of passengers
which begins and ends in the U.S. without stopping at an intermediate
foreign port is considered to be 100% derived from U.S. sources.
The legislative history of the transportation income source rules
suggests that a cruise that begins and ends in a U.S. port, but that calls
on more than one foreign port, will derive U.S. source income only from
the first and last legs of the cruise. Because there are no regulations or
other Internal Revenue Service interpretations of these rules, the
applicability of the transportation income source rules in the aforesaid
manner is not free from doubt.
In the absence of an exemption under Section 883 or any applicable
U.S. income tax treaty, as appropriate, we and/or our subsidiaries would
be subject to either the net income and branch profits tax regimes of
Section 882 and Section 884 of the Internal Revenue Code (the "net tax
regime") or the 4 percent of gross income tax regime of Section 887 of the
Internal Revenue Code (the "4% tax regime").
The net tax regime is only applicable where the relevant foreign
corporation has, or is considered to have, a fixed place of business in
the U.S. that is involved in the earning of U.S. source shipping income
and substantially all of this shipping income is attributable to regularly
scheduled transportation. Under the net tax regime, U.S. source shipping
income, net of applicable deductions, would be subject to a corporate tax
of up to 35% and the net after-tax income would be potentially subject to
a further branch tax of 30%. In addition, interest paid by the
corporations, if any, would generally be subject to a 30% branch interest
tax.
Under the 4% tax regime, which should be the tax regime applicable to
vessel owning subsidiaries, the U.S. source shipping income of each of the
vessel owning subsidiaries would be subject to a 4% tax imposed on a gross
basis, without benefit of deductions. Under the 4% tax regime, the maximum
rate of tax on the gross shipping income of these subsidiaries
attributable to transportation that either begins or ends in the U.S.
would not exceed 2%.
J. Website Access to Reports
We will make available, free of charge, access to our Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and all amendments to those reports as soon as reasonably practicable
after such reports are electronically filed with or furnished to the SEC
through our home page at www.carnivalcorp.com.
Item 2. Properties
CCL's principal shoreside operations and our corporate headquarters
are located at 3655 N.W. 87th Avenue, Miami, Florida. These facilities are
owned by us and have approximately 456,000 square feet of office space.
HAL's principal shoreside operations and its headquarters are located at
300 Elliott Avenue West in Seattle, Washington in approximately 154,000
square feet of leased office space. Costa's principal shoreside operations
and its headquarters are located in Genoa, Italy in approximately 125,000
square feet of owned and leased space. Cunard Line Limited's principal
shoreside operations and its headquarters are located at 6100 Blue Lagoon
Drive in Miami, Florida in approximately 51,000 square feet of leased
office space. We also lease office space in Colorado Springs, Colorado for
use as an additional CCL reservation center and in Southampton and London,
England for Cunard's UK operations and our UK sales and shipbuilding
technical service offices, respectively. Finally, we lease office space
in Miramar and Hollywood, Florida for additional CCL sales personnel and
for Costa's South Florida sales office, respectively.
Our cruise ships, Holland America Tours' properties, shoreside
operations and headquarter facilities are well maintained and in good
condition. We evaluate our needs periodically and obtain additional
facilities when deemed necessary. We believe that our facilities are
adequate for our current needs.
Our cruise ships and Holland America's private island, Half Moon Cay,
are described in Part I, Item. 1 Business, C. Cruise Segment - Cruise
Ships and Itineraries and our cruise ships under construction are
described in Note 7, "Commitments" to the Consolidated Financial
Statements in Exhibit 13 to this Annual Report on Form 10-K. The
properties associated with Holland America Tours operations are described
in Part I, Item 1. Business, D. Tour Segment.
Item 3. Legal Proceedings
Several actions (collectively, the "ADA Complaints") have been filed
against Costa, Cunard and Holland America Tours alleging that they
violated the Americans with Disabilities Act by failing to make certain
cruise ships accessible to individuals with disabilities. The plaintiffs
seek injunctive relief to require modifications to certain vessels to
increase accessibility to disabled passengers and fees and costs. The
status of each pending ADA Complaint is as follows:
On August 28, 2000, Access Now, Inc. and Edward S. Resnick filed
ADA Complaints in the U.S. District Court for the Southern District
of Florida against Costa and Holland America Tours. These complaints
seek modifications to their vessels to increase accessibility to
disabled passengers. These cases have been transferred before the
same judge. Costa and the plaintiffs agreed to settle this action
pursuant to an agreement that Costa will make certain modifications
to four of its ships with an option to include other ships into the
settlement agreement. The agreement must be submitted to the court
for approval. Settlement negotiations between Holland America Tours
and the plaintiffs is ongoing.
On August 29, 2000, an ADA Complaint also was filed against
Cunard by Access Now, Inc. and Edward S. Resnick in the U.S. District
Court for the Southern District of Florida. Cunard filed an answer to
the complaint on November 10, 2000. Given the settlement reached in
the case against CCL, the plaintiff has agreed to dismiss the ADA
Complaint against Cunard without prejudice pending settlement
negotiations which are ongoing.
Several actions were filed against us and four of our executive
officers on behalf of a purported class of persons who purchased our
common stock between February 25, 1999 and February 16, 2000 alleging that
statements made in our public filings relating to compliance with
applicable safety regulations were in violation of Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder. The complaints also allege
violations by the individual defendants as controlling persons under
Section 20(a) of the Exchange Act. In November 2000, the plaintiffs filed
a consolidated amended complaint in the U.S. District Court for the
Southern District of Florida (the "Stock Purchaser Complaint"). The Stock
Purchaser Complaint seeks certification of a class action, an award of
unspecified compensatory damages, attorney and expert fees and costs. On
September 12, 2002, a magistrate judge recommended that our motion to
dismiss the Stock Purchaser Complaint be granted and that the plaintiffs'
amended complaint be dismissed without prejudice. The magistrate judge
found that the amended complaint failed properly to allege a cause of
action under the securities laws. However, because it was dismissed
without prejudice, the plaintiffs may file a new amended complaint.
On January 16, 2003, the parties executed a memorandum of
understanding, which is an agreement in principle to settle the Stock
Purchaser Complaint. The settlement is subject to the parties preparing a
formal stipulation of settlement, performing confirmatory discovery and
obtaining judicial approval. The memorandum of understanding requires
certification of a temporary settlement class consisting of all persons
who purchased our common stock between July 28, 1998 and February 28,
2000. The settlement amount agreed to is $3.4 million of which a
substantial portion will be covered by insurance and which includes
plaintiffs' attorneys fees. Allocation of the settlement monies amongst
the class members is to be determined by the plaintiffs' counsel.
Currently, no date has been set for the hearing confirming the settlement
and the parties are finalizing the stipulation of settlement and discovery
schedule.
On November 22, 2000, Costa instituted arbitration proceedings in
Italy to confirm the validity of its decision not to deliver its ship, the
Costa Classica, to the shipyard of Cammell Laird Holdings PLC ("Cammell
Laird") under a 79 million euro denominated contract for the conversion
and lengthening of the ship. Cammell Laird joined the arbitration
proceeding on January 9, 2001 to present its counter demands. On January
9, 2001, Costa gave Cammell Laird notice of termination of the contract
and Cammell Laird replied with its notice of termination of the contract
on February 2, 2001. It is expected that the award of the arbitration
tribunal's decision will be made in mid-2004 at the earliest.
Three actions (collectively, the "Facsimile Complaints") were filed
against us on behalf of purported classes of persons who received
unsolicited advertisements via facsimile, alleging that we and other
defendants distributed unsolicited advertisements via facsimile in
contravention of the U.S. Telephone Consumer Protection Act. The
plaintiffs seek to enjoin the sending of unsolicited facsimile
advertisements and statutory damages in the amount of five hundred dollars
($500.00) per facsimile, or in the alternative, fifteen hundred dollars
($1,500.00) per facsimile if the conduct was willful or knowing. The
advertisements referred to in the Facsimile Complaints were not sent by
us, but rather were distributed by a professional faxing company at the
behest of travel agencies that referenced a CCL product. We do not
advertise directly to the traveling public through the use of facsimile
transmission. The status of each Facsimile Complaint is as follows:
On March 4, 2002, a Facsimile Complaint was filed against us and
other unrelated defendants (including Allstate Insurance Company and
Wal-Mart Stores, Inc.) in the South Carolina Court of Common Pleas,
Lexington County by Andrew Syrett. On May 15, 2002, we filed an
answer to this Facsimile Complaint.
On April 15, 2002, a Facsimile Complaint was filed against us in
the Circuit Court of Greene County, Alabama by Mary Pelt. We filed
an answer on June 3, 2002 and a Motion to Stay on July 26, 2002 on
the basis that the claims in the Jefferson County Facsimile Complaint
described below significantly overlaps the claims in this Greene
County Facsimile Complaint. The court denied our motion to stay in
November 2002. Wal-Mart Stores, a co-defendant, has filed a variety
of dispositive motions that will affect the future of this case. We
are awaiting the court's rulings.
On May 14, 2002, a Facsimile Complaint was filed against us and
other defendants (including Club Resort International d/b/a Vacation
Getaway Travel, Inc., Dollar Thrifty Automotive Group, Inc., Thrifty,
Inc. and Thrifty Rent-A-Car Systems, Inc., Choicepoint, Inc., First
Western Bank, and Bankcard USA Merchant Services, Inc.) in the
Circuit Court of Jefferson County, Alabama, Bessemer Division by Clem
& Kornis, L.L.C., The Firm of Compassion, P.C., Collins Chiropractic
Center, Forstmann & Cutchen, L.L.P. and others. On July 26, 2002, we
filed a motion to dismiss or, in the alternative, to separate us as a
defendant. This action has been stayed pending a resolution of the
Greene County action referred to above.
On August 17, 2002, an incident occurred in Juneau, Alaska onboard
Holland America's Ryndam involving a wastewater discharge from the ship.
As a result of this incident, various Ryndam ship officers have received
grand jury subpoenas from the Office of the U.S. Attorney in Anchorage,
Alaska requesting that they appear before a grand jury. One of these
subpoenas also requests the production of Holland America documents, which
Holland America is producing. If the investigation results in charges
being filed, a judgement could include, among other forms of relief, fines
and debarment from federal contracting, which would prohibit operations in
Glacier Bay National Park and Preserve during the period of debarment.
The State of Alaska is separately investigating this incident.
During 2002, six of Holland America's ten ships offered Alaska
cruises during May through September, and five of those, or 65% of Holland
America's available berth days in Alaska, included Glacier Bay National
Park and Preserve on their itinerary. If Holland America were to lose its
Glacier Bay permits we would not expect the impact on our financial
statements to be material to us since we believe there are additional
attractive alternative destinations in Alaska that can be substituted for
Glacier Bay.
On February 23, 2001, Holland America Line-USA, Inc. ("HAL-USA"),
one of our subsidiaries, received a subpoena from a grand jury sitting in
the U.S. District Court for the District of Alaska. The subpoena requests
that HAL-USA produce documents and records relating to the air emissions
from Holland America ships in Alaska. HAL-USA responded to the subpoena.
We are also involved from time to time in routine legal matters and
other claims incidental to our business. Most of these matters are
covered by insurance. We are not able to estimate the impact or the
ultimate outcome of any such actions, which are not covered by insurance.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
Pursuant to General Instruction G(3), the information regarding our
executive officers called for by Item 401(b) of Regulation S-K is hereby
included in Part I of this Annual Report on Form 10-K.
The following table sets forth the name, age and title of each of our
executive officers. Titles listed relate to positions within Carnival
Corporation unless otherwise noted.
NAME AGE POSITION
Richard D. Ames 55 Senior Vice President -
Management Advisory Services
Micky Arison 53 Chairman of the Board of Directors
and Chief Executive Officer
Gerald R. Cahill 51 Senior Vice President-Finance and Chief
Financial and Accounting Officer
Pamela C. Conover 47 President and Chief Operating Officer of
Cunard Line Limited
Robert H. Dickinson 60 President and Chief Operating Officer
of CCL and Director
Kenneth D. Dubbin 49 Vice President-Corporate Development
Pier Luigi Foschi 56 Chairman and Chief Executive Officer of
Costa Crociere, S.p.A.
Howard S. Frank 61 Vice Chairman of the Board of Directors
and Chief Operating Officer
Ian J. Gaunt 51 Senior Vice President - International
A. Kirk Lanterman 71 Chairman of the Board of Directors,
President, and Chief Executive Officer
of Holland America Line Inc.
and Director
Arnaldo Perez 43 Senior Vice President, General Counsel
and Secretary
Lowell Zemnick 59 Vice President and Treasurer
Business Experience of Executive Officers
Richard D. Ames has been Senior Vice President-Management Advisory
Services ("MAS") since March 2002. From January 1992 to February 2002 he
was Vice President-Audit Services, now known as MAS. From October 1989 to
January 1992 he was the Director of Internal Audit. From February 1983
until October 1989 he was Director of Internal Audit for Resorts
International, Inc. He was a management consultant with International
Intelligence, Inc., a subsidiary of Resorts International, Inc. from
January 1979 to February 1983.
Micky Arison has been Chief Executive Officer since 1979 and Chairman
of the Board of Directors since 1990. He was President from 1979 to May
1993 and has also been a director since June 1987. Prior to 1979, he
served CCL for successive two-year periods as a sales agent, a
reservations manager and as Vice President in charge of passenger traffic.
Gerald R. Cahill has been Senior Vice President-Finance, Chief
Financial Officer and Chief Accounting Officer since January 1998. From
September 1994 to December 1997 he was Vice President-Finance. He was
Chief Financial Officer from 1988 to 1992 and Chief Operating Officer from
1992 to 1994 of Safecard Services, Inc. From 1979 to 1988 he held
financial positions at Resorts International Inc. and, prior to that,
spent six years with Price Waterhouse.
Pamela C. Conover has been President and Chief Operating Officer of
Cunard Line Limited since February 2001. She was Chief Operating Officer
of Cunard Line Limited from June 1998 to January 2001. From May 1995 to
May 1998, she was Vice President of Strategic Planning. From May 1994 to
April 1995, she was President and Chief Operating Officer of Epirotiki
Cruise Line, which was a joint venture of ours. From September 1985 until
April 1994, she worked for Citicorp, New York, specializing in financing
and advisory services for shipping companies.
Robert H. Dickinson has been President and Chief Operating Officer of
CCL since May 1993. From 1979 to May 1993, he was Senior Vice President-
Sales and Marketing of CCL. He has also been a director since June 1987.
Kenneth D. Dubbin has been Vice President-Corporate Development since
May 1999. From 1990 to 1999, he was Vice President and Treasurer of Royal
Caribbean. From 1988 to April 1990, he was Treasurer and from 1986 to 1988
he was Director, Planning and Treasury of Royal Caribbean.
Pier Luigi Foschi has been Chief Executive Officer of Costa Crociere,
S.p.A. since October 1997 and Chairman of its Board since January 2000.
From 1974 to 1997, he held senior positions with OTIS, a world leader in
the field of elevators, which is a subsidiary of United Technologies
Corporation, and from 1990 to 1997 was Executive Vice President of Otis's
Asia-Pacific operations.
Howard S. Frank has been Vice Chairman of the Board of Directors
since October 1993, Chief Operating Officer since January 1998 and a
director since April 1992. From July 1989 to January 1998, he was Chief
Financial Officer and Chief Accounting Officer and from July 1989 to
October 1990 he was Senior Vice President-Finance. From July 1975 through
June 1989 he was a partner with Price Waterhouse.
Ian J. Gaunt is an English Solicitor and has been Senior Vice
President-International since May 1999. He was a partner of the London-
based international law firm of Sinclair, Roche and Temperley from 1982
through April 1999 where he represented us as special external legal
counsel since 1981.
A. Kirk Lanterman has been a director since April 1992. He has been
Chairman of the Board of Directors, President and Chief Executive Officer
of Holland America Line Inc., formerly known as Holland America Line-
Westours Inc., ("HAL") since August 1999. From March 1997 to August 1999,
he was Chairman of the Board of Directors and Chief Executive Officer of
HAL. From December 1989 to March 1997, he was President and Chief
Executive Officer of HAL. From 1983 to 1989 he was President and Chief
Operating Officer of HAL. From 1979 to 1983, he was President of
Westours, Inc. which merged with Holland America Line in 1983.
Arnaldo Perez has been Senior Vice President, General Counsel and
Secretary since March 2002. From August 1995 to February 2002 he was Vice
President, General Counsel and Secretary. He was Assistant General
Counsel from July 1992 to July 1995. Prior to joining us, he was a
partner at the law firm of Weil, Lucio, Mandler, Croland & Steele in
Miami, Florida.
Lowell Zemnick is a certified public accountant and has been a Vice
President since 1980 and Treasurer since September 1990 and from May 1987
to June 1989 was Chief Financial Officer. He was Chief Financial Officer
of CCL from 1980 to September 1990.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
A. Market Information
The information required by Item 201(a) of Regulation S-K, Market
Information, is shown in Exhibit 13 and is incorporated by reference into
this Annual Report on Form 10-K.
B. Holders
The information required by Item 201(b) of Regulation S-K, Holders of
Common Stock, is shown in Exhibit 13 and is incorporated by reference into
this Annual Report on Form 10-K.
C. Dividends
We declared cash dividends on all of our common stock in the amount
of $.105 per share in each of the quarters of fiscal 2002 and 2001 and in
the first quarter of fiscal 2003. Payment of future dividends on our
common stock will depend upon, among other factors, our earnings,
financial condition and capital requirements. We may also declare special
dividends to all stockholders in the event that members of the Arison
family and trusts established for their benefit are required to pay
additional income taxes by reason of their ownership of our common stock
because of an income tax audit of ourselves.
The Republic of Panama does not currently have tax treaties with any
other country. Under current law we believe that distributions to our
shareholders, other than residents of Panama or other business entities
conducting business in Panama, are not subject to taxation under the laws
of the Republic of Panama. Dividends that we pay to U.S. citizens,
residents, corporations and to foreign corporations doing business in the
U.S., to the extent treated as "effectively connected" income, will be
taxable as ordinary income for U.S. federal income tax purposes to the
extent of our current or accumulated earnings and profits, but generally
will not qualify for any dividends-received deduction.
The payment and amount of any dividend is within the discretion of
the Board of Directors, and it is possible that the timing and amount of
any dividend may vary from the levels discussed above. If the DLC
transaction is completed, dividends on both P&O Princess shares and our
shares declared after completion will be paid at about the same time and
in equalized amounts.
Item 6. Selected Financial Data
The information required by Item 6, Selected Financial Data, is shown
in Exhibit 13 and is incorporated by reference into this Annual Report on
Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, is shown in
Exhibit 13 and is incorporated by reference into this Annual Report on
Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, is shown in Exhibit 13 and is incorporated
by reference into this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data
The financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated January 29, 2003, and the Selected
Quarterly Financial Data (Unaudited), are shown in Exhibit 13 and are
incorporated by reference into this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Items 10, 11, 12 and 13. Directors and Executive Officers of the
Registrant, Executive Compensation, Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters,
and Certain Relationships and Related Transactions
The information required by Items 10, 11, 12 and 13 is incorporated
herein by reference to our definitive proxy statement to be filed with the
Commission not later than 120 days after the close of the fiscal year,
except that the information concerning our executive officers called for
by Item 401(b) of Regulation S-K is included in Part I of this Annual
Report on Form 10-K.
Item 14. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that
information required to be disclosed by us in the reports that we file or
submit, is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and
forms.
Our Chief Executive Officer, Chief Operating Officer and Chief
Financial and Accounting Officer have evaluated our disclosure controls
and procedures as of February 5, 2003 and believe that they are effective.
Changes in Internal Controls
There were no significant changes in our internal controls or other
factors that could significantly affect these controls subsequent to the
date of their evaluation and there were no corrective actions with regard
to significant deficiencies and material weaknesses.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1)(2) Financial Statements and Schedules
The financial statements shown in Exhibit 13 are incorporated herein
by reference.
(3) Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed
or incorporated by reference as part of this Annual Report on Form 10-K
and such Index to Exhibits is hereby incorporated herein by reference.
(b) Reports on Form 8-K
We filed Current Reports on Form 8-K on September 20, 2002 (Items 5
and 7) and October 25, 2002 (Items 5 and 7).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CARNIVAL CORPORATION
/s/ Micky Arison Chairman of the Board of February 14, 2003
Micky Arison Directors and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
/s/ Micky Arison Chairman of the Board of February 14, 2003
Micky Arison Directors and Chief Executive
Officer
/s/ Howard S. Frank Vice Chairman of the Board of February 14, 2003
Howard S. Frank Directors and Chief Operating
Officer
/s/ Gerald R. Cahill Senior Vice President-Finance February 14, 2003
Gerald R. Cahill and Chief Financial and
Accounting Officer
/s/ Shari Arison Director February 14, 2003
Shari Arison
/s/ Maks L. Birnbach Director February 14, 2003
Maks L. Birnbach
/s/ Richard G. Capen, Jr. Director February 14, 2003
Richard G. Capen, Jr.
/s/ Robert H. Dickinson Director February 14, 2003
Robert H. Dickinson
/s/ Arnold W. Donald Director February 14, 2003
Arnold W. Donald
/s/ James M. Dubin Director February 14, 2003
James M. Dubin
/s/ A. Kirk Lanterman Director February 14, 2003
A. Kirk Lanterman
/s/ Modesto A. Maidique Director February 14, 2003
Modesto A. Maidique
/s/ Stuart Subotnick Director February 14, 2003
Stuart Subotnick
/s/ Sherwood M. Weiser Director February 14, 2003
Sherwood M. Weiser
/s/ Meshulam Zonis Director February 14, 2003
Meshulam Zonis
/s/ Uzi Zucker Director February 14, 2003
Uzi Zucker
CERTIFICATIONS
I, Micky Arison, certify that:
1. I have reviewed this annual report on Form 10-K of Carnival
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003
/s/ Micky Arison
Micky Arison
Chairman of the Board of
Directors and
Chief Executive Officer
I, Howard S. Frank, certify that:
1. I have reviewed this annual report on Form 10-K of Carnival
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003
/s/ Howard S. Frank
Howard S. Frank
Vice Chairman of the Board of
Directors and Chief
Operating Officer
I, Gerald R. Cahill, certify that:
1. I have reviewed this annual report on Form 10-K of Carnival
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003
/s/ Gerald R. Cahill
Gerald R. Cahill
Senior Vice President-Finance
and Chief Financial and
Accounting Officer
INDEX TO EXHIBITS
Page No. in
Sequential
Numbering
System
Exhibits
3.1-Second Amended and Restated Articles of Incorporation of Carnival
Corporation. (1)
3.2-Amendment to Second Amended and Restated Articles of Incorporation of
Carnival Corporation. (2)
3.3-Certificate of Amendment of Articles of Incorporation of Carnival
Corporation. (3)
3.4-Form of By-laws of Carnival Corporation. (4)
4.1-Agreement of Carnival Corporation dated February 13, 2003 to furnish
certain debt instruments to the Securities and Exchange Commission.
10.1-Retirement and Consulting Agreement dated November 5, 2002 between
Alton Kirk Lanterman, Carnival Corporation, Holland America Line Inc., and
others.
10.2-Executive Long-term Compensation Agreement dated January 16, 1998
between Robert H. Dickinson and Carnival Corporation. (5)
10.3-1994 Carnival Cruise Lines Key Management Incentive Plan as amended
on July 17, 2000. (6)
10.4-Amended and Restated Carnival Corporation 1992 Stock Option Plan. (7)
10.5-Carnival Cruise Lines, Inc. 1993 Restricted Stock Plan adopted on
January 15, 1993 and as amended January 5, 1998 and December 21, 1998. (8)
10.6-Carnival Corporation "Fun Ship" Nonqualified Savings Plan. (9)
10.7-Amendments to The Carnival Corporation Nonqualified Retirement Plan
for Highly Compensated Employees. (10)
10.8-Carnival Cruise Lines, Inc. Non-Qualified Retirement Plan. (11)
10.9-Revolving Credit Agreement dated June 26, 2001, by and among Carnival
Corporation, The Chase Manhattan Bank and various other lenders. (12)
10.10-Consulting Agreement/Registration Rights Agreement dated June 14,
1991, between Carnival Corporation and Ted Arison. (13)
10.11-First Amendment to Consulting Agreement/Registration Rights
Agreement. (14)
10.12-Arnold W. Donald Director's Agreement. (15)
10.13-Meshulam Zonis Director's Agreement. (16)
10.14-Maks L. Birnbach Director's Agreement. (17)
10.15-Stuart Subotnick Director's Agreement. (18)
10.16-Sherwood M. Weiser Director's Agreement. (19)
10.17-Uzi Zucker Director's Agreement. (20)
10.18-James M. Dubin Director's Agreement. (21)
10.19-Modesto A. Maidique Director's Agreement. (22)
10.20-Richard G. Capen Director's Agreement. (23)
10.21-Shari Arison Dorsman Director's Agreement. (24)
10.22-Executive Long-term Compensation Agreement dated January 11, 1999,
between Carnival Corporation and Micky Arison. (25)
10.23-Executive Long-term Compensation Agreement dated January 11, 1999,
between Carnival Corporation and Howard S. Frank. (26)
10.24- Registration Rights Agreement, dated as of October 24, 2001,
between Carnival Corporation and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated. (27)
10.25-Second Supplemental Indenture, dated as of October 24, 2001, between
Carnival Corporation and U.S. Bank Trust National Association, as trustee,
creating a series of securities designated Liquid Yield Option-TM-Notes
due 2021 (Zero Coupon--Senior). (28)
10.26-Indenture, dated as of April 25, 2001, between Carnival Corporation
and U.S. Bank Trust National Association, as trustee, relating to
unsecured and unsubordinated debt securities. (29)
10.27-First Supplemental Indenture, dated as of April 25, 2001, between
Carnival Corporation and U.S. Bank Trust National Association, as trustee,
creating a series of securities designated 2% Convertible Senior
Debentures due 2021. (30)
10.28-Registration Rights Agreement, dated as of April 25, 2001, among
Carnival Corporation and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated. (31)
10.29-Form of Indenture, dated March 1, 1993, between Carnival Cruise
Lines, Inc. and First Trust National Association, as Trustee, relating to
the Debt Securities, including form of Debt Security. (32)
10.30-Carnival Corporation Supplemental Executive Retirement Plan. (33)
10.31-Amendment to the Carnival Corporation Supplemental Executive
Retirement Plan. (34)
10.32-Amendment to the Carnival Corporation "Fun Ship" Nonqualified
Savings Plan. (35)
10.33-Amendment to the Carnival Corporation Nonqualified Retirement Plan
for Highly Compensated Employees. (36)
10.34-Amendment to the Carnival Corporation "Fun Ship" Nonqualified
Savings Plan. (37)
10.35-Retirement Agreement between Carnival Corporation and Meshulam
Zonis. (38)
10.36-Amendment to the Carnival Corporation "Fun Ship" Nonqualified
Savings Plan.(39)
10.37-Amendment to the Carnival Corporation Nonqualified Retirement Plan
for Highly Compensated Employees. (40)
10.38-2001 Outside Director Stock Option Plan (41).
10.39-Redemption Agreement, dated June 13, 2002, between CC U.S. Ventures,
Inc. and Continental Hospitality Holdings, LLC. (42)
10.40-Promissory Note, dated June 13, 2002, from Continental Hospitality
Holdings, LLC to CC U.S. Ventures, Inc. (43)
10.41-Guaranty Agreement, dated June 13, 2002, by Sherwood M. Weiser. (44)
10.42-Security and Pledge Agreement, dated June 13, 2002, between Sherwood
M. Weiser and CC U.S. Ventures, Inc. (45)
10.43-Carnival Corporation 2002 Stock Option Plan, as amended as of
September 25, 2002.
10.44-Service Agreement Letter dated May 28, 2002 between Costa Crociere,
S.p.A. and Pier Luigi Foschi. (46)
10.45-Succession Agreement to Registration Rights Agreement dated June 14,
1991, between Carnival Corporation and Ted Arison. (47)
10.46-Offer and Implementation Agreement between Carnival Corporation and
P&O Princess Cruises plc, dated January 8, 2003. (48)
12-Ratio of Earnings to Fixed Charges.
13-Portions of 2002 Annual Report incorporated by reference into 2002
Annual Report on Form 10-K.
21-Significant Subsidiaries of Carnival Corporation.
23-Consent of PricewaterhouseCoopers LLP.
99.1-Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.2-Certification of Chief Operating Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.3-Certification of Chief Financial and Accounting Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Sequential
Numbering
System
Exhibits
(1)Incorporated by reference to Exhibit No. 3 to our registration
statement on Form S-3 (File No. 333-68999), filed with the Securities and
Exchange Commission.
(2)Incorporated by reference to Exhibit 3.1 to our Quarterly Report on
Form 10-Q for the quarter ended May 31, 1999 (Commission File No. 1-9610),
filed with the Securities and Exchange Commission.
(3)Incorporated by reference to Exhibit 3.1 to our Quarterly Report on
Form 10-Q for the quarter ended May 31, 2000 (Commission File No. 1-9610),
filed with the Securities and Exchange Commission.
(4)Incorporated by reference to Exhibit No. 3.2 to our registration
statement on Form S-1 (File No. 33-14844), filed with the Securities and
Exchange Commission.
(5)Incorporated by reference to Exhibit No. 10.2 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1997 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(6)Incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q for the quarter ended August 31, 2000 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(7)Incorporated by reference to Exhibit No. 10.4 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1997 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(8)Incorporated by reference to Exhibit No. 10.5 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1998 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(9)Incorporated by reference to Exhibit No. 10.6 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1997 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(10)Incorporated by reference to Exhibit No. 10.7 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1997 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(11)Incorporated by reference to Exhibit No. 10.4 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1990 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(12)Incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q for the quarter ended May 31, 2001 (Commission File No. 1-9610),
filed with the Securities and Exchange Commission.
(13)Incorporated by reference to Exhibit No. 4.3 to post-effective
amendment no. 1 on Form S-3 to our registration statement on Form S-1
(File No. 33-24747), filed with the Securities and Exchange Commission.
(14)Incorporated by reference to Exhibit No. 10.40 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1992 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(15)Incorporated by reference to Exhibit No. 10.13 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 2000 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(16)Incorporated by reference to Exhibit No. 10.14 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 2000 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(17)Incorporated by reference to Exhibit No. 28.1 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1990 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(18)Incorporated by reference to Exhibit No. 28.3 to our registration
statement on Form S-1 (File No. 33-14844), filed with the Securities and
Exchange Commission.
(19)Incorporated by reference to Exhibit No. 28.4 to our registration
statement on Form S-1 (File No. 33-14844), filed with the Securities and
Exchange Commission.
(20)Incorporated by reference to Exhibit No. 28.5 to our registration
statement on Form S-1 (File No. 33-14844), filed with the Securities and
Exchange Commission.
(21)Incorporated by reference to Exhibit No. 10.5 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1996 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(22)Incorporated by reference to Exhibit No. 10.6 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1996 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(23)Incorporated by reference to Exhibit No. 10.7 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1996 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(24)Incorporated by reference to Exhibit No. 10.8 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1996 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(25)Incorporated by reference to Exhibit No. 10.36 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1998 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(26)Incorporated by reference to Exhibit No. 10.37 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1998 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(27)Incorporated by reference to Exhibit 4.7 to our registration statement
on form S-3 (File No. 333-74190), filed with the Securities and Exchange
Commission.
(28)Incorporated by reference to Exhibit 4.6 to our registration statement
on form S-3 (File No. 333-74190), filed with the Securities and Exchange
Commission.
(29)Incorporated by reference to Exhibit 4.5 to our registration statement
on form S-3 (File No. 333-62950), filed with the Securities and Exchange
Commission.
(30)Incorporated by reference to Exhibit 4.6 to our registration statement
on form S-3 (File No. 333-62950), filed with the Securities and Exchange
Commission.
(31)Incorporated by reference to Exhibit 4.7 to our registration statement
on form S-3 (File No. 333-62950), filed with the Securities and Exchange
Commission.
(32)Incorporated by reference to Exhibit No. 4 to our registration
statement on Form S-3 (File No. 33-53136), filed with the Securities and
Exchange Commission.
(33)Incorporated by reference to Exhibit No. 10.32 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1999 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(34)Incorporated by reference to Exhibit No. 10.31 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 2000 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(35)Incorporated by reference to Exhibit No. 10.33 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 1999 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(36)Incorporated by reference to Exhibit No. 10.33 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 2000 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(37)Incorporated by reference to Exhibit No. 10.34 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 2000 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(38) Incorporated by reference to Exhibit No. 10.35 to our Annual Report
on Form 10-K for the fiscal year ended November 30, 2000 (Commission File
No. 1-9610), filed with the Securities and Exchange Commission.
(39) Incorporated by reference to Exhibit No. 10.37 to our Annual Report
on Form 10-K for the fiscal year ended November 30, 2001 (Commission file
No, 1-9610), filed with the Securities and Exchange Commission.
(40) Incorporated by reference to Exhibit No. 10.38 to our Annual Report
on Form 10-K for the fiscal year ended November 30, 2001 (Commission File
No. 1-9610), filed with the Securities and Exchange Commission.
(41) Incorporated by reference to Exhibit No. 10.9 to our Annual Report on
Form 10-K for the fiscal year ended November 30, 2001 (Commission File No.
1-9610), filed with the Securities and Exchange Commission.
(42) Incorporated by reference to Exhibit No. 10.1 to our Quarterly
Report on Form 10-Q for the quarter ended August 31, 2002 (Commission File
No. 1-9610), filed with the Securities and Exchange Commission.
(43) Incorporated by reference to Exhibit No. 10.2 to our Quarterly Report
on Form 10-Q for the quarter ended August 31, 2002 (Commission File No. 1-
9610), filed with the Securities and Exchange Commission.
(44) Incorporated by reference to Exhibit No. 10.3 to our Quarterly Report
on Form 10-Q for the quarter ended August 31, 2002 (Commission File No. 1-
9610), filed with the Securities and Exchange Commission.
(45) Incorporated by reference to Exhibit No. 10.4 to our Quarterly Report
on Form 10-Q for the quarter ended August 31, 2002 (Commission File No. 1-
9610), filed with the Securities and Exchange Commission.
(46) Incorporated by reference to Exhibit No. 10.2 to our Quarterly Report
on Form 10-Q for the quarter ended May 31, 2002 (Commission file No. 1-
9610), filed with the Securities and Exchange Commission.
(47) Incorporated by reference to Exhibit No. 10.3 to our Quarterly Report
on Form 10-Q for the quarter ended May 31, 2002 (Commission file No. 1-
9610), filed with the Securities and Exchange Commission.
(48) Incorporated by reference to Exhibit No. 99.2 to our Form 8-K dated
January 8, 2003 (Commission file No. 1-9610), filed with the Securities
and Exchange Commission.
EXHIBIT 4.1
February 13, 2003
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, DC 20549
RE: Carnival Corporation
Commission File No. 1-9610
Gentlemen:
Pursuant to Item 601(b)(4)(iii) of Regulation S-K promulgated under the
Securities Exchange Act of 1934, as amended, Carnival Corporation (the
"Company") hereby agrees to furnish copies of certain long-term debt
instruments to the Securities and Exchange Commission upon the request of
the Commission, and, in accordance with such regulation, such instruments
are not being filed as part of the Annual Report on Form 10-K of the
Company for its fiscal year ended November 30, 2002.
Very truly yours,
CARNIVAL CORPORATION
/s/ Arnaldo Perez
Senior Vice President, General Counsel
and Secretary
Exhibit 10.1
RETIREMENT AND CONSULTING AGREEMENT
AGREEMENT made this 5th day of November, 2002 between CARNIVAL
CORPORATION, having its principal place of business at 3655 Northwest 87th
Avenue, Miami, Florida 33178, and its wholly owned subsidiaries, Holland
America Line Inc., Holland America Line N.V., HAL Cruises Limited,
Windstar Sail Cruises Limited, Wind Star Limited, Wind Spirit Limited,
Westmark Hotels, Inc., Westmark Hotels of Canada, Ltd., Westours
Motorcoaches, Inc., Evergreen Trails, Inc., Trailway Tours, Inc.,
Worldwide Shore Services, Inc., and HAL Properties Limited., having their
principal places of business at 300 Elliott Avenue West, Seattle,
Washington 98119 (collectively, the "Companies") and Alton Kirk Lanterman
("Lanterman"), residing at 714 West Galer Street, Seattle, Washington
98119.
RECITALS:
A. Lanterman has served as Chairman or President and Chief Executive
Officer of Holland America Line Inc., ("HAL", formerly Holland America
Line-Westours, Inc.) since January 1989 and has performed exemplary
service during said years.
B. The Companies desire to compensate Lanterman for such exemplary
service by way of retirement pay.
C. The Companies desire to retain Lanterman's consulting services
following such retirement on the terms set forth in this Agreement.
IN CONSIDERATION of past services as related above and the consulting
services related below, it is agreed as follows:
1. Compensation for Past Services and Consulting Services
1.1 For a period of fifteen (15) years following the date of retirement
by Lanterman from active services with the Companies (the "Retirement
Date"), the Companies shall pay to Lanterman, in monthly
installments of $153,527, an annual compensation of $1,842,324.
1.2 In the event of Lanterman's death prior to the Retirement Date, or
prior to the fifteenth anniversary of the Retirement Date, the
unpaid balance of this total compensation ($27,634,860) shall be paid
in full to Lanterman's estate within 30 days of his death. The
unpaid balance shall be its then present value calculated by
utilization of an interest rate of 8.5% per year.
2. Consulting Services
Commencing on the Retirement Date and for a period of fifteen (15) years,
Lanterman agrees to perform consulting services for the Companies in
regard to the business operations of HAL upon the specific written request
of the Companies. Such services shall be provided during normal business
hours, on such dates, for such time and at such locations as shall be
agreeable to Lanterman. Such services shall not require more than five
(5) hours in any calendar month, unless expressly consented to by
Lanterman, whose consent may be withheld for any reason whatsoever. The
Companies will reimburse Lanterman for any out-of-pocket expenses incurred
by him in the performance of said services.
3.Independent Contractor
Lanterman acknowledges that commencing on the Retirement Date, he will be
solely an independent contractor and consultant. He further acknowledges
that he will not consider himself to be an employee of the Companies and
will not be entitled to any employment rights or benefits of the
Companies.
4. Confidentiality
Lanterman will keep in strictest confidence, both during the term of this
Agreement and subsequent to termination of this Agreement, and will not
during the term of this Agreement or thereafter disclose or divulge to any
person, firm or corporation, or use directly or indirectly, for his own
benefit or the benefit of others, any confidential information of the
Companies, including, without limitation, any trade secrets respecting the
business or affairs of the Companies which he may acquire or develop in
connection with or as a result of the performance of his services
hereunder. In the event of an actual or threatened breach by Lanterman of
the provisions of this paragraph, the Companies shall be entitled to
injunctive relief restraining Lanterman from the breach or threatened
breach as its sole remedy. The Companies hereby waive their rights for
damages, whether consequential or otherwise.
5. Enforceable
The provisions of this Agreement shall be enforceable notwithstanding the
existence of any claim or cause of action of Lanterman against the
Companies, or the Companies against Lanterman, whether predicated on this
Agreement or otherwise.
6. Applicable Law
This Agreement shall be construed in accordance with the laws of the State
of Washington, and venue for any litigation concerning an alleged breach
of this Agreement shall be in King County, Washington, and the prevailing
party shall be entitled to reasonable attorney's fees and costs incurred.
7. Entire Agreement
This Agreement contains the entire agreement of the parties relating to
the subject matter hereof. A similar agreement of November 2001 shall
become null and void upon the execution of this Agreement. Any notice to
be given under this Agreement shall be sufficient if it is in writing and
is sent by certified or registered mail to Lanterman or to the Companies
to the attention of the President, or otherwise as directed by the
Companies, from time to time, at the addresses as they appear in the
opening paragraph of this Agreement.
8. Waiver
The waiver by either party of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach.
IN WITNESS WHEREOF, the Companies and Lanterman have duly executed this
agreement as of the day and year first above written.
CARNIVAL CORPORATION
By:/s/Howard S. Frank
Its:Vice Chairman of the Board of
Directors and Chief Operating
Officer
/s/ Alton Kirk Lanterman
Signature
Alton Kirk Lanterman
Print Full Name
HOLLAND AMERICA LINE INC. HOLLAND AMERICA LINE N.V.
By: /s/Larry D. Calkins By: /s/Larry D. Calkins
Its: Vice President-Finance and CFO Its:Authorized Signatory
HAL PROPERTIES LIMITED HAL CRUISES LIMITED
By: /s/Larry D. Calkins By: /s/Larry D. Calkins
Its:Authorized Signatory Its: Authorized Signatory
WINDSTAR SAIL CRUISES LIMITED WIND STAR LIMITED
By: /s/Larry D. Calkins By: /s/Larry D. Calkins
Its:Authorized Signatory Its:Authorized Signatory
WIND SPIRIT LIMITED WESTMARK HOTELS, INC.
By: /s/Larry D. Calkins By: /s/Larry D. Calkins
Its:Authorized Signatory Its:Authorized Signatory
WESTMARK HOTELS OF CANADA LTD. WESTOURS MOTOR COACHES INC.
By: /s/Larry D. Calkins By: /s/Larry D. Calkins
Its:Authorized Signatory Its:Authorized Signatory
EVERGREEN TRAILS, INC. TRAILWAYS TOURS INC.
By: /s/Larry D. Calkins By: /s/Larry D. Calkins
Its:Authorized Signatory Its:Authorized Signatory
WORLDWIDE SHORE SERVICES INC.
By: /s/Larry D. Calkins
Its:Authorized Signatory
Exhibit 10.43
CARNIVAL CORPORATION
2002 STOCK OPTION PLAN
(Effective as of January 14, 2002
and amended as of September 25, 2002)
1.Purpose
The purpose of the Plan is to provide a means through which the
Company and its Affiliates may attract able persons to enter and remain in
the employ of the Company and its Affiliates and to provide a means
whereby employees, directors and consultants of the Company and its
Affiliates can acquire and maintain Common Stock ownership, thereby
strengthening their commitment to the welfare of the Company and its
Affiliates and promoting an identity of interest between stockholders and
these persons.
The Plan provides for granting Incentive Stock Options and
Nonqualified Stock Options.
2.Definitions
The following definitions shall be applicable throughout the Plan.
(a)"Affiliate" means (i) any entity that directly or
indirectly is controlled by, controls or is under common control with the
Company, and (ii) any entity in which the Company has a significant equity
interest, in either case as determined by the Committee.
(b"Board" means the Board of Directors of the Company.
(c) "Cause" means the Company or an Affiliate having
"cause" to terminate a Participant's employment or service, as defined in
any existing employment, consulting or any other agreement between the
Participant and the Company or an Affiliate or, in the absence of such an
employment, consulting or other agreement, upon (i) the determination by
the Committee that the Participant has ceased to perform his duties to the
Company or an Affiliate (other than as a result of his incapacity due to
physical or mental illness or injury), which failure amounts to an
intentional and extended neglect of his duties to such party, (ii) the
Committee's determination that the Participant has engaged or is about to
engage in willful misconduct or conduct which causes or may reasonably be
expected to cause substantial damage to the Company or an Affiliate,
(iii) the Participant having been convicted of, or pleaded guilty or no
contest to, a felony or a crime involving moral turpitude or (iv) the
failure of the Participant to follow the lawful instructions of the Board
or any of his superiors.
(d)"Change of Control means, unless in the case of a
particular Option the applicable Stock Option Agreement states otherwise
or contains a different definition of "Change of Control," the occurrence
of any of the following:
(i) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% or more (on a fully diluted basis) of either
(A) the then outstanding shares of common stock of the Company, taking
into account as outstanding for this purpose such common stock issuable
upon the exercise of options or warrants, the conversion of convertible
stock or debt, and the exercise of any similar right to acquire such
common stock (the "Outstanding Company Common Stock") or (B) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
Agreement, the following acquisitions shall not constitute a Change of
Control: (I) any acquisition by the Company or any Affiliate, (II) any
acquisition by any employee benefit plan sponsored or maintained by the
Company or any Affiliate, (III) any acquisition by Marilyn B. Arison,
Micky Arison, Shari Arison, Michael Arison or their spouses or lineal
descendents, any trust established for the benefit of any of the
aforementioned Arison family members, or any Person directly or indirectly
controlling, controlled by or under common control with any of the
aforementioned Arison family members or any trust established for the
benefit of any of the aforementioned Arison family members or any
charitable trust or non-profit entity established by any person or entity
described in this clause (III), (IV) any acquisition by any Person which
complies with clauses (A), (B) and (C) of subsection (v) of this Section
2(d), or (V) in respect of an Option held by a particular Participant, any
acquisition by the Participant or any "affiliate" (within the meaning of
17 C.F.R. 230.405) of the Participant (persons described in clauses (I),
(II), (III) (IV) and (V) being referred to hereafter as "Excluded
Persons");
(ii) Individuals who, on the date hereof, constitute
the Board (the "Incumbent Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a
director subsequent to the date hereof, whose election or nomination for
election was approved by a vote of at least two-thirds of the Incumbent
Directors then on the Board (either by a specific vote or by approval of
the proxy statement of the Company in which such person is named as a
nominee for director, without written objection to such nomination) shall
be an Incumbent Director; provided, however, that no individual initially
elected or nominated as a director of the Company as a result of an actual
or threatened election contest with respect to directors or as a result of
any other actual or threatened solicitation of proxies or consents by or
on behalf of any person other than the Board shall be deemed to be an
Incumbent Director;
(iii)the dissolution or liquidation of the Company;
(iv)the sale of all or substantially all of the
business or assets of the Company; or
(v)the consummation of a merger, consolidation,
statutory share exchange or similar form of corporate transaction
involving the Company that requires the approval of the Company's
stockholders, whether for such transaction or the issuance of
securities in the transaction (a "Business Combination"), unless
immediately following such Business Combination: (A) more than 50%
of the total voting power of (x) the corporation resulting from such
Business Combination (the "Surviving Company"), or (y) if applicable,
the ultimate parent corporation that directly or indirectly has
beneficial ownership of sufficient voting securities eligible to
elect a majority of the directors of the Surviving Company (the
"Parent Company"), is represented by the Outstanding Company Voting
Securities that were outstanding immediately prior to such Business
Combination (or, if applicable, is represented by shares into which
the Outstanding Company Voting Securities were converted pursuant to
such Business Combination), and such voting power among the holders
thereof is in substantially the same proportion as the voting power
of the Company's Voting Securities among the holders thereof
immediately prior to the Business Combination, (B) no Person (other
than any Excluded Person), is or becomes the beneficial owner,
directly or indirectly, of 50% or more of the total voting power of
the outstanding voting securities eligible to elect directors of the
Parent Company (or, if there is no Parent Company, the Surviving
Company) and (C) at least a majority of the members of the board of
directors of the Parent Company (or, if there is no Parent Company,
the Surviving Company) following the consummation of the Business
Combination were Board members at the time of the Board's approval of
the execution of the initial agreement providing for such Business
Combination.
(e)"Code" means the Internal Revenue Code of 1986, as
amended. Reference in the Plan to any section of the Code shall be deemed
to include any amendments or successor provisions to such section and any
regulations under such section.
(f)"Committee" means a committee of at least two people as
the Board may appoint to administer the Plan or, if no such committee has
been appointed by the Board, the Board. Unless the Board is acting as the
Committee or the Board determines otherwise, each member of the Committee
shall, at the time he takes any action with respect to a Option under the
Plan, be an Eligible Director. However, the mere fact that a Committee
member shall fail to qualify as an Eligible Director shall not invalidate
any Option granted by the Committee which Option is otherwise validly
granted under the Plan.
(g)"Common Stock" means the common stock, par value
$0.01 per share, of the Company.
(h)"Company" means Carnival Corporation.
(i)"Date of Grant" means the date on which the granting of
an Option is authorized, or such other date as may be specified in such
authorization or, if there is no such date, the date indicated on the
applicable Stock Option Agreement.
(j)"Disability" means, unless in the case of a particular
Option, the applicable Option Agreement states otherwise, entitled to
receive benefits under the long-term disability plan of the Company or an
Affiliate, as may be applicable to the Participant in question, or, in the
absence of such a plan, the complete and permanent inability by reason of
illness or accident to perform the duties of the occupation at which a
Participant was employed or served when such disability commenced, as
determined by the Committee based upon medical evidence acceptable to it.
(k) "Effective Date" means January 14, 2002.
(l)"Eligible Director" means a person who is (i) a "non-
employee director" within the meaning of Rule 16b-3 under the Exchange
Act, or a person meeting any similar requirement under any successor rule
or regulation and (ii) an "outside director" within the meaning of Section
162(m) of the Code, and the Treasury Regulations promulgated thereunder.
(m)"Eligible Person" means any (i) individual regularly
employed by the Company or an Affiliate who satisfies all of the
requirements of Section 6; provided, however, that no such employee
covered by a collective bargaining agreement shall be an Eligible Person
unless and to the extent that such eligibility is set forth in such
collective bargaining agreement or in an agreement or instrument relating
thereto; (ii) director of the Company or an Affiliate or (iii) consultant
or advisor to the Company or an Affiliate who may be offered securities
pursuant to Form S-8 (which, as of the Effective Date, includes only those
who (A) are natural persons and (B) provide bona fide services to the
Company other than in connection with the offer or sale of securities in a
capital-raising transaction, and do not directly or indirectly promote or
maintain a market for the Company's securities).
(n)"Exchange Act" means the Securities Exchange Act of
1934, as amended.
(o)"Fair Market Value", on a given date means (i) if the
Stock is listed on a national securities exchange, the average of the
highest and lowest sale prices reported as having occurred on the primary
exchange with which the Stock is listed and traded on such date, or, if
there is no such sale on that date, then on the last preceding date on
which such a sale was reported; (ii) if the Stock is not listed on any
national securities exchange but is quoted in the National Market System
of the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") on a last sale basis, the average between the high bid
price and low ask price reported on the date prior to such date, or, if
there is no such sale on that date, then on the last preceding date on
which a sale was reported; or (iii) if the Stock is not listed on a
national securities exchange nor quoted in the NASDAQ on a last sale
basis, the amount determined by the Committee to be the fair market value
based upon a good faith attempt to value the Stock accurately and computed
in accordance with applicable regulations of the Internal Revenue Service.
(p)"Incentive Stock Option" means an Option granted by the
Committee to a Participant under the Plan which is designated by the
Committee as an incentive stock option as described in Section 422 of the
Code and which otherwise meets the requirements set forth herein.
(q)"Mature Shares" means shares of Stock owned by a
Participant which are not subject to any pledge or other security interest
and have either been held by the Participant for six months, previously
acquired by the Participant on the open market or meet such other
requirements as the Committee may determine necessary in order to avoid an
accounting earnings charge on account of the use of such shares to pay the
Option Price or satisfy a withholding obligation in respect of an Option.
(r)"Nonqualified Stock Option" means an Option granted by
the Committee to a Participant under the Plan, which is not designated by
the Committee as an Incentive Stock Option.
(s) "Option" means an award granted under Section 7.
(t)"Option Period" means the period described in Section
7(c).
(u)"Option Price" means the exercise price for an Option as
described in Section 7(a).
(v)"Participant" means an Eligible Person who has been
selected by the Committee to participate in the Plan and to receive an
Option pursuant to Section 6.
(w)"Plan" means this Carnival Company 2002 Stock Option
Plan.
(x)"Securities Act" means the Securities Act of 1933, as
amended.
(y)"Retirement" means a termination of employment with the
Company and all Affiliates by a Participant on or after the earlier of (i)
age 65 with at least five years of employment with the Company and/or its
Affiliates or (ii) age 55 with at least 15 years of employment with the
Company and/or its Affiliates.
(z)"Stock" means the Common Stock or such other authorized
shares of stock of the Company as the Committee may from time to time
authorize for use under the Plan.
(aa)"Stock Option Agreement" means any agreement between
the Company and a Participant who has been granted an Option pursuant to
Section 7 which defines the rights and obligations of the parties thereto.
(bb)"Subsidiary" means any subsidiary of the Company as
defined in Section 424(f) of the Code.
3. Effective Date, Duration and Shareholder Approval
The Plan is effective as of the Effective Date; provided that the
validity and exercisability of any and all Options is contingent upon
approval of the Plan by the shareholders of the Company in a manner
intended to comply with the shareholder approval requirements of Section
162(m) of the Code, and the validity and exercisability of any and all
Options intended to be Incentive Stock Options granted pursuant to the
Plan is contingent upon approval of the Plan by the shareholders of the
Company in a manner intended to comply with the shareholder approval
requirements of Section 422(b)(i) of the Code.
The expiration date of the Plan, on and after which no Options may be
granted hereunder, shall be the tenth anniversary of the Effective Date;
provided, however, that the administration of the Plan shall continue in
effect until all matters relating to Options previously granted have been
settled.
4.Administration
The Committee shall administer the Plan. The majority of the members
of the Committee shall constitute a quorum. The acts of a majority of the
members present at any meeting at which a quorum is present or acts
approved in writing by a majority of the Committee shall be deemed the
acts of the Committee.
Subject to the provisions of the Plan and applicable law, the
Committee shall have the power, in addition to other express powers and
authorizations conferred on the Committee by the Plan, to: (i) designate
Participants; (ii) determine the type or types of Options to be granted to
a Participant; (iii) determine the number of shares of Stock to be covered
by, or with respect to which payments, rights, or other matters are to be
calculated in connection with, Options; (iv) determine the terms and
conditions of any Options; (v) determine whether, to what extent, and
under what circumstances Options may be settled or exercised in cash,
Stock, other securities, other Options or other property, or canceled,
forfeited or suspended and the method or methods by which Options may be
settled, exercised, canceled, forfeited or suspended; (vi) determine
whether, to what extent, and under what circumstances the delivery of
cash, Stock, other securities, other Options, other property and other
amounts payable with respect to an Option shall be deferred either
automatically or at the election of the holder thereof or of the
Committee; (vii) interpret, administer reconcile any inconsistency,
correct any default and/or supply any omission in the Plan and any
instrument or agreement relating to, or Option granted under, the Plan;
(viii) establish, amend, suspend, or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take
any other action specified under the Plan or that the Committee deems
necessary or desirable for the administration of the Plan.
(b) Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect
to the Plan or any Option or any documents evidencing Options shall be
within the sole discretion of the Committee, may be made at any time and
shall be final, conclusive and binding upon all parties, including,
without limitation, the Company, any Affiliate, any Participant, any
holder or beneficiary of any Option, and any shareholder.
5.Grant of Options; Shares Subject to the Plan
The Committee may, from time to time, grant Options to one or more
Eligible Persons; provided, however, that:
(a)Subject to Section 9, the aggregate number of shares of
Stock in respect of which Options may be granted under the Plan shall not
exceed 40,000,000.
(b)Shares of Stock shall be deemed to have been used in
settlement of Options whether they are actually delivered. In the event
any Option shall be surrendered, terminate, expire, or be forfeited, the
number of shares of Stock no longer subject thereto shall thereupon be
released and shall thereafter be available for new grants under the Plan;
(c)Stock delivered by the Company in settlement of Options
may be authorized and unissued Stock or Stock held in the treasury of the
Company or purchased on the open market or by private purchase; and
(d)Subject to Section 9, no person may be granted Options
under the Plan during any calendar year with respect to more than
2,000,000 shares of Stock; provided that such number shall be adjusted
pursuant to Section 9, and shares otherwise counted against such number,
only in a manner which will not cause the Options granted under the Plan
to fail to qualify as "performance-based compensation" under Section
162(m) of the Code.
(e)Without limiting the generality of the preceding
provisions of this Section 5, the Committee may, but solely with the
Participant's consent, agree to cancel any Option under the Plan and issue
a new Option in substitution therefor upon such terms as the Committee may
in its sole discretion determine, provided that the substituted Option
satisfies all applicable Plan requirements as of the date such new Option
is made.
6. Eligibility
Participation shall be limited to Eligible Persons who have received
written notification from the Committee, or from a person designated by
the Committee, that they have been selected to participate in the Plan.
7. Terms of Options
The Committee is authorized to grant one or more Incentive Stock
Options or Nonqualified Stock Options to any Eligible Person; provided,
however, that no Incentive Stock Options shall be granted to any Eligible
Person who is not an employee of the Company or a Subsidiary. Each Option
so granted shall be subject to the following conditions, or to such other
conditions as may be reflected in the applicable Stock Option Agreement.
(a)Option Price. The Option Price per share of Stock for
each Option shall be set by the Committee at the time of grant but shall
not be less than (i) in the case of an Incentive Stock Option, and subject
to Section 7(f), the Fair Market Value of a share of Stock at the Date of
Grant, and (ii) in the case of a Non-Qualified Stock Option, 85% of the
Fair Market Value of a share of Stock on the Date of Grant.
(b)Manner of Exercise and Form of Payment. No shares of
Stock shall be delivered pursuant to any exercise of an Option until
payment in full of the Option Price therefor is received by the Company.
Options which have become exercisable may be exercised by delivery of
written notice of exercise to the Company accompanied by payment of the
Option Price. The Option Price shall be payable in cash and/or shares of
Stock valued at the Fair Market Value at the time the Option is exercised
(including by means of attestation of ownership of a sufficient number of
shares of Stock in lieu of actual delivery of such shares to the Company),
provided that such shares of Stock are Mature Shares, or, in the
discretion of the Committee, either (i) in other property having a fair
market value on the date of exercise equal to the Option Price, (ii) by
delivering to the Committee a copy of irrevocable instructions to a
stockbroker to deliver promptly to the Company an amount of loan proceeds,
or proceeds of the sale of the Stock subject to the Option, sufficient to
pay the Option Price or (iii) by such other method as the Committee may
allow.
(c)Vesting, Option Period and Expiration. Options shall
vest and become exercisable in such manner and on such date or dates
determined by the Committee and shall expire after such period, not to
exceed ten years, as may be determined by the Committee (the "Option
Period"); provided, however, that notwithstanding any vesting dates set by
the Committee, the Committee may, in its sole discretion, accelerate the
exercisability of any Option, which acceleration shall not affect the
terms and conditions of such Option other than with respect to
exercisability. If an Option is exercisable in installments, such
installments or portions thereof which become exercisable shall remain
exercisable until the Option expires.
Unless otherwise stated in the applicable Stock Option Agreement, an
Option shall expire earlier than the end of the Option Period in the
following circumstances:
(i)If prior to the end of the Option Period, the
Participant's employment or service with the Company and all
Affiliates is terminated by the Company without Cause or by the
Participant for any reason other than Retirement, the Option shall
expire on the earlier of the last day of the Option Period or the
date that is three months after the date of such termination;
provided, however, that any Participant whose employment or service
with the Company or any Affiliate is terminated and who is
subsequently rehired or reengaged by the Company or any Affiliate
prior to the expiration of the Option shall not be considered to have
undergone a termination. In the event of a termination described in
this clause (i), the Option shall remain exercisable by the
Participant until its expiration only to the extent the Option was
exercisable at the time of such termination.
(ii)If the Participant dies or is terminated on
account of Disability prior to the end of the Option Period and while
still in the employ or service of the Company or an Affiliate, or
dies following a termination described in clause (i) above but prior
to the expiration of an Option, the Option shall expire on the
earlier of the last day of the Option Period or the date that is one
year after the date of death or termination on account of Disability
of the Participant, as applicable. In such event, the Option shall
remain exercisable by the Participant or his or her beneficiary
determined in accordance with Section 8(p), as applicable, until its
expiration only to the extent the Option was exercisable by the
Participant at the time of such event.
(iii)If the Participant ceases employment or service
with the Company and Affiliates due to a termination by the Company
or an Affiliate for Cause, the Option shall expire immediately upon
such cessation of employment or service.
Unless stated otherwise in an applicable Stock Option Agreement, if
the Participant terminates by reason of Retirement prior to the end of the
Option Period, the Option shall (i) expire at the end of the Option Period
and (ii) continue vesting in accordance with the vesting schedule set
forth in the Stock Option Agreement, without regard to any requirement in
such vesting schedule that the Participant remain employed with the
Company or an Affiliate as a condition to vesting.
(d)Other Terms and Conditions. Except as specifically
provided otherwise in a Stock Option Agreement, each Option granted under
the Plan shall be subject to the following terms and conditions:
(i)Each Option or portion thereof that is exercisable
shall be exercisable for the full amount or for any part thereof.
(ii)Each share of Stock purchased through the exercise
of an Option shall be paid for in full at the time of the exercise.
Each Option shall cease to be exercisable, as to any share of Stock,
when the Participant purchases the share or when the Option expires.
(iii)Subject to Section 8(h), Options shall not be
transferable by the Participant except by will or the laws of descent
and distribution and shall be exercisable during the Participant's
lifetime only by him.
(iv)Each Option shall vest and become exercisable by
the Participant in accordance with the vesting schedule established
by the Committee and set forth in the Stock Option Agreement.
(v)At the time of any exercise of an Option, the
Committee may, in its sole discretion, require a Participant to
deliver to the Committee a written representation that the shares to
be acquired upon such exercise are to be acquired for investment and
not for resale or with a view to the distribution thereof. Upon such
a request by the Committee, delivery of such representation prior to
the delivery of any shares issued upon exercise of an Option shall be
a condition precedent to the right of the Participant or such other
person to purchase any shares. In the event certificates for Stock
are delivered under the Plan with respect to which such investment
representation has been obtained, the Committee may cause a legend or
legends to be placed on such certificates to make appropriate
reference to such representation and to restrict transfer in the
absence of compliance with applicable federal or state securities
laws.
(vi)Each Participant awarded an Incentive Stock Option
under the Plan shall notify the Company in writing immediately after
the date he makes a disqualifying disposition of any Stock acquired
pursuant to the exercise of such Incentive Stock Option. A
disqualifying disposition is any disposition (including any sale) of
such Stock before the later of (a) two years after the Date of Grant
of the Incentive Stock Option or (b) one year after the date the
Participant acquired the Stock by exercising the Incentive Stock
Option.
(vii)Except as specifically provided otherwise in a
Stock Option Agreement, any Participant who is classified as a
"shipboard employee," and who has not otherwise evidenced a specific
intent to permanently terminate his employment with the Company and
all Affiliates (as reasonably determined by the Committee) shall not
be considered to have terminated employment with the Company and all
Affiliates until a six-month period has expired from his signing off
of a ship without physically signing on to another ship.
(e)Incentive Stock Option Grants to 10% Stockholders.
Notwithstanding anything to the contrary in this Section 7, if an
Incentive Stock Option is granted to a Participant who owns stock
representing more than ten percent of the voting power of all classes of
stock of the Company or of a Subsidiary, the Option Period shall not
exceed five years from the Date of Grant of such Option and the Option
Price shall be at least 110 percent of the Fair Market Value (on the Date
of Grant) of the Stock subject to the Option.
(f)$100,000 Per Year Limitation for Incentive Stock
Options. To the extent the aggregate Fair Market Value (determined as of
the Date of Grant) of Stock for which Incentive Stock Options are
exercisable for the first time by any Participant during any calendar year
(under all plans of the Company) exceeds $100,000, such excess Incentive
Stock Options shall be treated as Nonqualified Stock Options.
(g)Voluntary Surrender. The Committee may permit the
voluntary surrender of all or any portion of any Nonqualified Stock Option
granted under the Plan to be conditioned upon the granting to the
Participant of a new option for the same or a different number of shares
as the option surrendered or require such voluntary surrender as a
condition precedent to a grant of a new Option to such Participant. Such
new Option shall be exercisable at an Option Price, during an Option
Period, and in accordance with any other terms or conditions specified by
the Committee at the time the new Option is granted, all determined in
accordance with the provisions of the Plan without regard to the Option
Price, Option Period, or any other terms and conditions of the
Nonqualified Stock Option surrendered.
8.General
(a)Additional Provisions of an Option. Options granted to
a Participant under the Plan also may be subject to such other provisions
(whether or not applicable to the benefit awarded to any other
Participant) as the Committee determines appropriate including, without
limitation, provisions to assist the Participant in financing the purchase
of Stock upon the exercise of options, provisions for the forfeiture of or
restrictions on resale or other disposition of shares of Stock acquired
under any Option, provisions giving the Company the right to repurchase
shares of Stock acquired under any Option in the event the Participant
elects to dispose of such shares, provisions allowing the Participant to
elect to defer the receipt of shares of Stock upon the exercise of Options
for a specified time or until a specified event, and provisions to comply
with Federal and state securities laws and Federal and state tax
withholding requirements. Any such provisions shall be reflected in the
applicable Stock Option Agreement.
(b)Privileges of Stock Ownership. Except as otherwise
specifically provided in the Plan, no person shall be entitled to the
privileges of ownership in respect of shares of Stock which are subject to
Options hereunder until such shares have been issued to that person.
(c)Government and Other Regulations. The obligation of the
Company to issue shares of Stock upon the exercise of Options shall be
subject to all applicable laws, rules, and regulations, and to such
approvals by governmental agencies as may be required. Notwithstanding
any terms or conditions of any Option to the contrary, the Company shall
be under no obligation to offer to sell or to sell and shall be prohibited
from offering to sell or selling any shares of Stock pursuant to an Option
unless such shares have been properly registered for sale pursuant to the
Securities Act with the Securities and Exchange Commission or unless the
Company has received an opinion of counsel, satisfactory to the Company,
that such shares may be offered or sold without such registration pursuant
to an available exemption therefrom and the terms and conditions of such
exemption have been fully complied with. The Company shall be under no
obligation to register for sale under the Securities Act any of the shares
of Stock to be offered or sold under the Plan. If the shares of Stock
offered for sale or sold under the Plan are offered or sold pursuant to an
exemption from registration under the Securities Act, the Company may
restrict the transfer of such shares and may legend the Stock certificates
representing such shares in such manner as it deems advisable to ensure
the availability of any such exemption.
(d)Tax Withholding.
(i) Under the Code the Company or any Affiliate may be
required and, if withholding is required, is authorized to withhold from
any Stock or other property deliverable under any Option or from any
compensation or other amounts owing to a Participant the amount (in cash,
Stock or other property) of any required tax withholding and payroll taxes
in respect of an Option, its exercise, or any payment or transfer under an
Option or under the Plan and to take such other action as may be necessary
in the opinion of the Company to satisfy all obligations for the payment
of such taxes.
(ii) Without limiting the generality of clause (i)
above, the Committee may, in its sole discretion, permit a Participant to
satisfy, in whole or in part, the foregoing withholding liability (but no
more than the minimum required withholding liability if using method B or
C of this subsection) by (A) payment in cash; (B) delivery of shares of
Stock owned by the Participant (which shares must be Mature Shares) with a
Fair Market Value equal to such withholding liability or (C) having the
Company withhold from the number of shares of Stock otherwise issuable
pursuant to the exercise of the Option a number of shares with a Fair
Market Value equal to such withholding liability.
(e)Claim to Options and Employment Rights. No employee of
the Company or an Affiliate, or other person, shall have any claim or
right to be granted an Option under the Plan or, having been selected for
the grant of an Option, to be selected for a grant of any other Option.
Neither the Plan nor any action taken hereunder shall be construed as
giving any Participant any right to be retained in the employ or service
of the Company or an Affiliate.
(f)No Liability of Committee Members. No member of the
Committee shall be personally liable by reason of any contract or other
instrument executed by such member or on his behalf in his capacity as a
member of the Committee nor for any mistake of judgment made in good
faith, and the Company shall indemnify and hold harmless each member of
the Committee and each other employee, officer or director of the Company
to whom any duty or power relating to the administration or interpretation
of the Plan may be allocated or delegated, against any cost or expense
(including counsel fees) or liability (including any sum paid in
settlement of a claim) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own fraud or
willful bad faith; provided, however, that approval of the Board shall be
required for the payment of any amount in settlement of a claim against
any such person. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may
be entitled under the Company's Articles of Incorporation or By-Laws, as a
matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
(g)Governing Law. The Plan shall be governed by and
construed in accordance with the internal laws of the State of Florida
without regard to the principles of conflicts of law thereof, or
principals of conflicts of laws of any other jurisdiction which could
cause the application of the laws of any jurisdiction other than the State
of Florida.
(h)Nontransferability.
(i) Each Option shall be exercisable only by a
Participant during the Participant's lifetime, or, if permissible under
applicable law, by the Participant's legal guardian or representative. No
Option may be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by a Participant otherwise than by will or by
the laws of descent and distribution and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be
void and unenforceable against the Company or an Affiliate; provided that
the designation of a beneficiary shall not constitute an assignment,
alienation, pledge, attachment, sale, transfer or encumbrance.
(ii) Notwithstanding the foregoing, the Committee
may, in its sole discretion, permit Nonqualified Stock Options to be
transferred by a Participant, without consideration, subject to such rules
as the Committee may adopt consistent with any applicable Stock Option
Agreement to preserve the purposes of the Plan, to:
(A) any person who is a "family member" of the
Participant, as such term is used in the instructions
to Form S-8 (collectively, the "Immediate Family
Members");
(B) a trust solely for the benefit of the Participant and
his Immediate Family Members;
(C) a partnership or limited liability company whose only
partners or shareholders are the Participant and his
Immediate Family Members; or
(D) any other transferee as may be approved either (a) by
the Board or the Committee in its sole discretion, or
(b) as provided in the applicable Stock Option
Agreement;
(each transferee described in clauses (A), (B), (C) and (D) above is
hereinafter referred to as a "Permitted Transferee"); provided that the
Participant gives the Committee advance written notice describing the
terms and conditions of the proposed transfer and the Committee notifies
the Participant in writing that such a transfer would comply with the
requirements of the Plan.
(iii) The terms of any Option transferred in
accordance with the immediately preceding sentence shall apply to the
Permitted Transferee and any reference in the Plan, or in any applicable
Stock Option Agreement, to a Participant shall be deemed to refer to the
Permitted Transferee, except that (A) Permitted Transferees shall not be
entitled to transfer any Options, other than by will or the laws of
descent and distribution; (B) Permitted Transferees shall not be entitled
to exercise any transferred Options unless there shall be in effect a
registration statement on an appropriate form covering the shares to be
acquired pursuant to the exercise of such Option if the Committee
determines, consistent with any applicable Stock Option Agreement, that
such a registration statement is necessary or appropriate, (C) the
Committee or the Company shall not be required to provide any notice to a
Permitted Transferee, whether or not such notice is or would otherwise
have been required to be given to the Participant under the Plan or
otherwise, and (D) the consequences of termination of the Participant's
employment by, or services to, the Company or an Affiliate under the terms
of the Plan and the applicable Stock Option Agreement shall continue to be
applied with respect to the Participant, following which the Options shall
be exercisable by the Permitted Transferee only to the extent, and for the
periods, specified in the Plan and the applicable Stock Option Agreement.
(i)Reliance on Reports. Each member of the Committee and
each member of the Board shall be fully justified in relying, acting or
failing to act, and shall not be liable for having so relied, acted or
failed to act in good faith, upon any report made by the independent
public accountant of the Company and Affiliates and upon any other
information furnished in connection with the Plan by any person or persons
other than himself.
(j)Relationship to Other Benefits. No payment under the
Plan shall be taken into account in determining any benefits under any
pension, retirement, profit sharing, group insurance or other benefit plan
of the Company or any Affiliate except as otherwise specifically provided
in such other plan.
(k)Expenses. The expenses of administering the Plan shall
be borne by the Company and Affiliates.
(l)Pronouns. Masculine pronouns and other words of
masculine gender shall refer to both men and women.
(m)Titles and Headings. The titles and headings of the
sections in the Plan are for convenience of reference only, and in the
event of any conflict, the text of the Plan, rather than such titles or
headings shall control.
(n)Termination of Employment. For all purposes herein, a
person who transfers from employment or service with the Company to
employment or service with an Affiliate or vice versa shall not be deemed
to have terminated employment or service with the Company or such
Affiliate.
(o)Severability. If any provision of the Plan or any Stock
Option Agreement is or becomes or is deemed to be invalid, illegal, or
unenforceable in any jurisdiction or as to any person or Option, or would
disqualify the Plan or any Option under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform
to the applicable laws, or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering the
intent of the Plan or the Option, such provision shall be stricken as to
such jurisdiction, person or Option and the remainder of the Plan and any
such Option shall remain in full force and effect.
(p)Beneficiary Designation. Each Participant may designate
one or more beneficiaries by delivering a signed written designation
thereof to the Committee. Upon the death of a Participant, his
beneficiaries shall be entitled to the Options granted to such Participant
under the terms of this Plan. A Participant may change his beneficiary
designation at any time by delivering a new designation in accordance with
the first sentence of this paragraph. Any designation shall become
effective only upon its receipt by the Committee. In the absence of an
effective beneficiary designation in accordance with this Section 8(p), a
Participant's beneficiary shall be his estate. After receipt of Options
as described in this paragraph, beneficiaries will only be able to
exercise such Options in accordance with Section 7(c)(ii) of this Plan.
9.Changes in Capital Structure
Options granted under the Plan and any Stock Option Agreements, the
maximum number of shares of Stock subject to all Options and Incentive
Stock Options stated in Section 5(a) and the maximum number of shares of
Stock with respect to which any one person may be granted Options during
any period stated in Section 5(d) shall be subject to adjustment or
substitution, as determined by the Committee in its sole discretion, as to
the number, price or kind of a share of Stock or other consideration
subject to such Options or as otherwise determined by the Committee to be
equitable (i) in the event of changes in the outstanding Stock or in the
capital structure of the Company by reason of stock or extraordinary cash
dividends, stock splits, reverse stock splits, recapitalization,
reorganizations, mergers, consolidations, combinations, exchanges, or
other relevant changes in capitalization occurring after the Date of Grant
of any such Option or (ii) in the event of any change in applicable laws
or any change in circumstances which results in or would result in any
substantial dilution or enlargement of the rights granted to, or available
for, Participants, or which otherwise warrants equitable adjustment
because it interferes with the intended operation of the Plan. Any
adjustment in Incentive Stock Options under this Section 9 shall be made
only to the extent not constituting a "modification" within the meaning of
Section 424(h)(3) of the Code, and any adjustments under this Section 9
shall be made in a manner which does not adversely affect the exemption
provided pursuant to Rule 16b-3 under the Exchange Act. Further, with
respect to Options intended to qualify as "performance-based compensation"
under Section 162(m) of the Code, such adjustments or substitutions shall
be made only to the extent that the Committee determines that such
adjustments or substitutions may be made without causing the Company to be
denied a tax deduction on account of Section 162(m) of the Code. The
Company shall give each Participant notice of an adjustment hereunder and,
upon notice, such adjustment shall be conclusive and binding for all
purposes.
Notwithstanding the above, in the event of any of the following:
A. The Company is merged or consolidated with another corporation or
entity and, in connection therewith, consideration is received by
shareholders of the Company in a form other than stock or other equity
interests of the surviving entity;
B. All or substantially all of the assets of the Company are acquired by
another person;
C. The reorganization or liquidation of the Company; or
D. The Company shall enter into a written agreement to undergo an event
described in clauses A, B or C above,then the Committee may, in its
discretion and upon at least 10 days advance notice to the affected
persons, cancel any outstanding Options and pay to the holders thereof, in
cash or stock, or any combination thereof, the value of such Options based
upon the price per share of Stock received or to be received by other
shareholders of the Company in the event. The terms of this Section 9 may
be varied by the Committee in any particular Stock Option Agreement.
10. Effect of Change of Control
Except to the extent reflected in a particular Stock Option
Agreement:
(a)In the event of a Change of Control, notwithstanding any
provision of the Plan to the contrary, all Options shall become
immediately exercisable with respect to 100 percent of the shares subject
to such Option.
(b)In addition, in the event of a Change of Control, the
Committee may in its discretion and upon at least 10 days' advance notice
to the affected persons, cancel any outstanding Options and pay to the
holders thereof, in cash or stock, or any combination thereof, the value
of such Options based upon the price per share of Stock received or to be
received by other shareholders of the Company in the event.
(c)The obligations of the Company under the Plan shall be
binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the Company, or upon any
successor corporation or organization succeeding to substantially all of
the assets and business of the Company. The Company agrees that it will
make appropriate provisions for the preservation of Participants' rights
under the Plan in any agreement or plan which it may enter into or adopt
to effect any such merger, consolidation, reorganization or transfer of
assets.
11. Nonexclusivity of the Plan
Neither the adoption of this Plan by the Board nor the submission of
this Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board to adopt
such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under
this Plan, and such arrangements may be either applicable generally or
only in specific cases.
12. Amendments and Termination
(a) Amendment and Termination of the Plan. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or any portion thereof at any
time; provided that no such amendment, alteration, suspension,
discontinuation or termination shall be made without shareholder approval
if such approval is necessary to comply with any tax or regulatory
requirement applicable to the Plan (including as necessary to prevent the
Company from being denied a tax deduction on account of Section 162(m) of
the Code); and provided further that any such amendment, alteration,
suspension, discontinuance or termination that would impair the rights of
any Participant or any holder or beneficiary of any Option theretofore
granted shall not to that extent be effective without the consent of the
affected Participant, holder or beneficiary.
(b) Amendment of Stock Option Agreements. The Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend,
discontinue, cancel or terminate, any Option theretofore granted or the
associated Stock Option Agreement, prospectively or retroactively;
provided that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation or termination that would impair the rights
of any Participant in respect of any Option theretofore granted shall not
to that extent be effective without the consent of the affected
Participant.
* * *
As adopted by the Board of Directors of Carnival Company as of
January 14, 2002 and amended as of September 25, 2002.
Ratio of Earnings to Fixed Charges
EXHIBIT 12
CARNIVAL CORPORATION
Ratio of Earnings to Fixed Charges
(In thousands, except ratios)