Item 1. Business.

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Item 1. Business.

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A.	Overview

	I.	Summary

Carnival Corporation was incorporated in Panama in 1972 and Carnival plc was incorporated in England and Wales in 2000. Carnival Corporation and Carnival plc operate a dual listed company (“DLC”), whereby the businesses of Carnival Corporation and Carnival plc are combined through a number of contracts and through provisions in Carnival Corporation’s Articles of Incorporation and By-Laws and Carnival plc’s Articles of Association. The two companies operate as if they are a single economic enterprise with a single senior executive management team and identical Boards of Directors, but each has retained its separate legal identity. Carnival Corporation and Carnival plc are both public companies with separate stock exchange listings and their own shareholders. See Note 3, “DLC Arrangement” to our Consolidated Financial Statements in Exhibit 13 to this Form 10-K. Together with their consolidated subsidiaries, Carnival Corporation and Carnival plc are referred to collectively in this Form 10-K as “Carnival Corporation & plc,” “our,” “us” and “we.”

With 100 cruise ships, we are the largest cruise company and among the most profitable and financially strong leisure travel companies in the world. We have a portfolio of many of the world’s best known cruise brands that are sold in all the world’s major vacation markets and are a leading provider of vacations to all major cruise destinations throughout the world (see Section III. “Cruise Programs”). A description of the principal vacation regions where we source substantially all of our guests and our brands that market primarily to these vacationers is discussed in detail in Sections III. “North America” and IV. “Europe, Australia & Asia.”

	II.	Mission and Related Strategies

Our mission is to take the world on vacation and deliver exceptional experiences that appeal to a large variety of consumers, all at an outstanding value. We believe our multi-brand strategy is essential to achieving our mission and maintaining our leadership positions. Our ten unique brands with worldwide sourcing of guests and diverse itinerary options allow us to expand our offerings to our past guests, while continuing to grow our business through the acquisition of new guests in established and emerging markets. Our success also depends on, among other things, our ability to exceed the expectations of our guests by providing them with a wide variety of exceptional vacation experiences. We strive to capture a greater share of consumers’ spending on vacations by providing extraordinary cruise products and services, all at an outstanding value.

In conjunction with our mission we are committed to:

•		Protecting the health, safety and security of our guests, employees and all others working on our behalf, thereby promoting an organization that is free of injuries, illness and loss. The safety of our guests and crew is paramount to our business. We continue to focus on improving existing, and implementing new, safety measures onboard all of our ships.

•		Protecting the environment, including the marine environment in which our vessels sail and the communities in which we operate, by minimizing adverse environmental consequences and using resources efficiently.

•		Fully complying with, or exceeding, all legal and statutory requirements related to health, environment, safety and security throughout our business activities.

•		Assigning health, environment, safety and security matters the same priority as other critical business matters.

Our primary financial goals are to profitably grow our cruise business, while maintaining a strong balance sheet. Our ability to generate significant operating cash flows allows us to internally fund all of our capital investment program and still have a substantial amount of free cash flow, which we intend to return to shareholders in the form of dividends and opportune share buybacks.

To achieve our mission and primary financial goals, we build new and innovative ships and continue to invest in our existing ships to strengthen the leadership position of each of our brands. We believe that adding newer, more efficient ships, as well as improving our existing fleet, will have a positive impact on our profitability. Our newbuilding program is the primary platform for our capacity growth. We currently have nine cruise ships scheduled to enter service between March 2013 and March 2016, two of which will enter service in 2013. Our current intention is to have an average of two to three new cruise ships enter service annually, some of which will replace existing capacity from the possible sales of older, less efficient ships. We are strategically timing the introductions of additional ships to our brands to allow ample time for those lines to further grow their guest base and absorb the new capacity. In addition, we will continue to focus on increasing our fleets’ onboard revenues by adding new products and services for our guests to enjoy.

Based on our current ship orders, our capacity growth rate is expected to be 4%, compounded annually through 2016. Our rate of growth is slowing in the more established regions of North America and Western Europe. We are committed to a measured pace of newbuilds to achieve an optimal balance of supply and demand to maximize our profitability in these established regions. In addition, we believe that we have significant opportunities to grow our presence in the emerging Asian cruise region and will continue to redeploy some of our existing ships to that region. The mobility of ships enables us to move them between regions to maximize our profitability.

Our operating structure is decentralized, with each of our major brands having its own headquarters and operating team, which helps create an ownership culture that is an important driver of our performance. We believe this approach results in delivering products and services that are tailored to specific geographic markets and lifestyles, which allows us to penetrate each market more effectively. Although we operate under this decentralized structure, we leverage our size to obtain economies of scale and synergies by consolidating our purchasing power and implementing cross-brand initiatives aimed at cost-containment, such as common reservation systems, cross-selling, shared data centers and shared port facilities. Currently, our most important cross-brand initiatives are aimed at improving our safety training and reducing our fuel consumption.

Following the Costa Concordia incident (“the ship incident”) in January 2012, we announced a comprehensive audit and review of all safety and emergency response procedures across our ten brands to identify lessons learned and best practices, which reinforces our commitment to the safety of our guests and crew. We engaged outside industry-leading experts to assist in these audits and reviews. As a result, we have and will continue to implement improvements to our already established procedures for bridge operations, quality assurance and auditing of ship operations, bridge officer training, safety and emergency response and crew training programs. We are also improving the structure and organization of our existing Health, Environmental, Safety and Security (“HESS”)-related audit functions and our HESS-related management systems. In addition, as members of Cruise Lines International Association (“CLIA”) and the European Cruise Council (“ECC”), we are also enhancing existing or implementing additional safety policies that are a result of the CLIA/ECC Cruise Industry Operational Safety Review that was initiated after the ship incident.

Costa Concordia is expected to be removed from the coast of Italy during 2013. We remain committed to minimizing any environmental impact from the ship incident. As of January 22, 2013, we have settled with 93% and 62% of the crew and guests, respectively. Substantially all of the ship removal costs and the costs of these and any future claims will be covered by our insurance.

We are committed to rebuilding Costa Cruises’ (“Costa”) reputation and strengthening its trust with guests and travel agents after the ship incident. Accordingly, Costa has launched a number of initiatives, including enhancements to existing safety and security procedures, training and related processes. In addition, Costa has initiated a major international advertising campaign called the “Real Costa” that targets consumers in its key markets. The primary goal of the campaign is to enhance Costa’s image and describe its exceptional vacation experiences through the perspective of its guests and crew. The Real Costa campaign focuses on Costa’s excellent products and services as reflected in Costa’s high guest satisfaction rates. Over the next few years, we expect to fully recover from the ship incident and continue to build on our leadership positions.

	III.	Cruise Programs

Our 100 ships sail to all of the world’s major cruise destinations and the percentage of our passenger capacity deployed in each of these areas is as follows:


Cruise Programs
Region	2013			2012

Caribbean		33	%		35	%
Europe		31	%		29	%
Asia/Australia		10	%		8	%
Alaska		6	%		6	%
Other		20	%		22	%

		100	%		100	%

B.	Cruise Business

	I.	Overview

	a.	Summary

The multi-night cruise business has grown significantly but still remains relatively small compared to the wider global vacation industry, which includes a large variety of land-based vacation alternatives around the world. For example, there were only about 230,000 cabins in the global cruise business at November 30, 2012, which is less than two percent of the number of worldwide hotel rooms. Within the global vacation industry, cruise companies compete for the discretionary income spent by vacationers, and a 2012 Nielsen Global Consumer Confidence Survey found that after providing for savings and living expenses, the number one global spending priority is for vacations. Cruise guests tend to rate their overall satisfaction with a cruise vacation higher than comparable land-based hotel and resort vacations. As a result of these and other favorable cruise business characteristics, we believe that the cruise business has the opportunity to capture a greater share of consumers’ spending on vacations compared to prior periods.

	b.	Favorable Characteristics of the Cruise Business

	1.	Exceptional Value Proposition

We believe that the cost of a cruise vacation represents an exceptional value in comparison to alternative land-based vacations. We believe that cruising provides many relatively unique benefits, such as transportation to various destinations while also providing accommodations, a generous diversity of food choices and a selection of daily entertainment options for one all-inclusive, competitive price. To make cruising even more cost effective and more easily accessible to our guests, we offer a number of drive-to-home ports, which enables many cruise guests to reduce their overall vacation costs by eliminating or reducing air and other transportation costs.

	2.	Relatively Low Penetration Levels

Based on industry data, the 2012 annual penetration rate, computed based on the number of annual cruise passengers as a percentage of the total population, is 3.4% for North America, 2.7% for the United Kingdom (“UK”), 2.7% for Australia and 1.4% for continental Europe (continental Europe represents Germany, Italy, Spain, France and Portugal). Based on industry data or our internal estimates, approximately 24% of the U.S. population and lower percentages of European and Australian populations, have ever taken a cruise. In addition, Europeans and Australians have significantly more vacation days a year than North Americans, which presents opportunities for increases in these regions’ penetration levels compared to North America.

Cruising is at an earlier stage of development and has lower penetration rates in emerging markets within Asia. There are an increasing number of relatively lower penetrated markets where economic growth has raised discretionary income levels and thus fueled an increasing demand for vacations, including cruising.

	3.	Wide Appeal

Cruising appeals to a broad range of ages and income levels. The average age of a cruise guest varies by brand and ranges from approximately 40 years to 60 years across the contemporary, premium and luxury cruise categories. Cruising provides something for every generation, from kids clubs to an array of onboard entertainment provided to teens and adults. Cruising also offers a diverse range of ship types and sizes, as well as price points, to attract guests with varying tastes and from most income levels. To attract more first time cruisers, the duration of some cruises has been shortened, which has lowered the purchase price and thus broadened the appeal for cruising. The range of pricing varies by a wide margin, from a three-day cruise in an inside cabin on a contemporary line embarking at a local home port to a world cruise in a balcony suite on a luxury brand requiring air transportation to and from the port.

	4.	Positive Demographics

The average age of populations in established cruise regions is increasing. Between 2012 and 2022, the number of people in the cruise business’ primary age group of 45 years and older is expected to grow by 19 million, or 13%, in the U.S. and Canada, and 16 million, or 11%, in the major Western European countries. We believe the cruise business is well-positioned to take advantage of these favorable age demographics in its major markets.

Many international markets are experiencing a rapid growth in middle-class consumers, especially in Brazil, Russia, India and China. As their earning power and disposable income increase, these middle-class consumers are becoming more eager to purchase entertainment, travel and luxury products and services. This demand growth provides the cruise business the opportunity to expand its reach in these markets.

	5.	High Guest Satisfaction Rates

Cruise guests tend to rate their overall satisfaction with a cruise vacation higher than comparable land-based hotel and resort vacations. According to industry surveys, the cruise experience consistently exceeds expectations of repeat and first-time cruisers on a wide range of important vacation attributes. Cruising continues to receive high guest satisfaction rates because of the unique vacation experiences it offers, including, but not limited to, visiting multiple destinations without having to pack and unpack, all-inclusive product offerings and state-of-the art cruise ships with entertainment, relaxation and fun, all at an outstanding value.

	6.	Favorable Supply Versus Demand Balance

Our current intention is to have an average of two to three new cruise ships enter service annually. Other cruise operators have also slowed their passenger capacity growth compared to historical levels. Furthermore, older cruise ships will continue to be retired from service as they near the end of their economic lives. As a result of these factors and other reasons, the cruise business supply growth has recently slowed, and we expect demand to accelerate as the global economy recovers and emerging markets continue to develop. We believe this favorable supply versus demand balance will have a positive impact on our ability to profitably grow our cruise business.

	c.	Global Cruise Business

Cruising offers a broad range of products and services to suit vacationing guests of many ages, backgrounds and interests. Cruise brands can be broadly classified as offering contemporary, premium and luxury cruise experiences. The contemporary experience typically includes cruises that last seven days or less, have a more casual ambiance and are less expensive than premium or luxury cruises. The premium experience typically includes cruises that last from seven to 14 days and appeal to the more experienced cruise guest who is usually more affluent and older. Premium cruises emphasize quality, comfort, style, more destination-focused itineraries and the average pricing is normally higher than contemporary cruises. The luxury experience is usually characterized by smaller vessel size, very high standards of accommodation and service, higher prices and exotic itineraries to ports that are inaccessible to larger ships. We have product and service offerings in each of these three broad classifications. Notwithstanding these classifications, there generally is overlap and competition among all cruise products and services.

The global cruise business and our passenger capacity have increased at a compound annual growth rate of 5.6% and 6.9%, respectively, from 2006 to 2011. The global cruise business and our compound annual passenger capacity growth rate is currently expected to be 3.2% and 3.2%, respectively, from 2011 to 2015 based on the assumption discussed below. The passenger capacities that have been or are expected to be marketed are as follows:


	Passenger Capacity (weighted-average)
Fiscal Year	Global Cruise Business		Carnival Corporation & plc

2006		337,000		140,000
2007		359,000		150,000
2008		377,000		162,000
2009		397,000		174,000
2010		423,000		186,000
2011		443,000		195,000
2012		455,000		200,000
2013 (a)		470,000		206,000
2014 (a)		483,000		211,000
2015 (a)		502,000		221,000

(a)	Our estimates of future passenger capacity do not include any assumption related to unannounced ship withdrawals and, accordingly, our estimates could indicate a higher growth in passenger capacity than will actually occur.

The number of cruise passengers carried in the global cruise business and by us have increased at a compound annual growth rate of 5.4% and 6.4% from 2006 to 2011, respectively, and 2.8% and 2.8% from 2011 to 2012, respectively. The North America regions’ cruise passengers have increased at a compound annual growth rate of 2.2% from 2006 to 2011 and 2.3% from 2011 to 2012. The Europe, Australia, Asia and Other regions’ cruise passengers have increased at a compound annual growth rate of 11% from 2006 to 2011 and 3.5% from 2011 to 2012. As we continue to expand our global presence, our revenues generated from passengers sourced from outside the U.S. have grown to 54% in 2012, up from 40% in 2006. The number of cruise passengers carried are as follows:


	Cruise Passengers
	Global Cruise Business						Carnival Corporation & plc
Year (a)	North America		Europe, Australia, Asia and Other		Total		Total

2006		10,380,000		4,800,000		15,180,000		7,008,000
2007		10,450,000		5,500,000		15,950,000		7,672,000
2008		10,290,000		6,000,000		16,290,000		8,183,000
2009		10,400,000		7,190,000		17,590,000		8,519,000
2010		11,000,000		8,070,000		19,070,000		9,147,000
2011		11,520,000		9,090,000		20,610,000		9,559,000
2012(b)		11,790,000		9,400,000		21,190,000		9,829,000

(a)	The estimates of the total passengers carried for 2006 through 2011 were obtained from G.P. Wild (International) Limited, an independent cruise research company, and are based upon where the passengers were sourced and not the cruise brands on which they sailed.

(b)	The estimates of the total passengers carried for 2012 were based on internally developed global passenger growth rates.

	II.	Segment Information

Each of our ten cruise brands is an operating segment that we aggregate into either the (1) North America or (2) Europe, Australia & Asia (“EAA”) reportable cruise segments based on the similarity of their economic and other characteristics. As of January 22, 2013, our cruise brands’ summary information is as follows:


Cruise Brands	Passenger Capacity (a)		Number of Cruise Ships		Primary Markets (b)

North America
Carnival Cruise Lines		61,968		24	North America
Princess Cruises (“Princess”)		36,912		16	North America
Holland America Line		23,492		15	North America
Seabourn		1,986		6	North America

North America Cruise Brands		124,358		61


EAA
Costa		31,720		14	Italy, France and Germany
AIDA Cruises (“AIDA”)		16,442		9	Germany
P&O Cruises (UK)		14,636		7	UK
Cunard		6,672		3	UK and North America
P&O Cruises (Australia)		4,780		3	Australia
Ibero Cruises (“Ibero”)		4,176		3	Spain and South America

EAA Cruise Brands		78,426		39

		202,784		100

(a)	In accordance with cruise business practice, passenger capacity is calculated based on the assumption of two passengers per cabin even though some cabins can accommodate three or more passengers.

(b)	Represents the primary regions or countries from where guests are sourced.

As of January 22, 2013, we had signed agreements with three shipyards providing for the construction of nine cruise ships, with two to be delivered in 2013, two in 2014, three in 2015 and two in 2016. These additions are expected to increase our passenger capacity by over 29,800 lower berths. Our North America cruise brands have four ships with almost 13,800 lower berths scheduled to enter service by February 2016 and our EAA cruise brands have five ships with over 16,000 lower berths scheduled to enter service by March 2016. It is possible that some of our older ships may be sold, chartered or retired during the next few years. Alternatively, it is also possible that we could acquire more ships. See Part I, Item 1. Business. B. “Cruise Business – Ships Under Contract for Construction” and Note 6, “Commitments” and Note 11, “Fair Value Measurements, Derivative Instruments and Hedging Activities” to our Consolidated Financial Statements in Exhibit 13 to this Form 10-K for additional ship commitment information.

We also have a Cruise Support segment that includes our cruise port and related facilities located in Cozumel, Mexico; Grand Turk, Turks and Caicos Islands and Roatán, Honduras, which are operated for the benefit of our cruise brands. Cruise Support also includes other corporate-wide services that are provided for the benefit of our cruise brands.

In addition to our cruise operations, we own Holland America Princess Alaska Tours, the leading tour company in Alaska and the Canadian Yukon, which complements our Alaska cruise operations. Our tour company owns and operates, among other things, 12 hotels or lodges, over 300 motorcoaches and 20 domed rail cars. This tour company and two cruise ships that we own and charter-out comprise our Tour and Other segment.

See Note 12, “Segment Information” to our Consolidated Financial Statements in Exhibit 13 to this Form 10-K for additional segment and geographic information.

	III.	North America

Almost 60% of the cruise passengers in the world are sourced from the North American region, where cruising is a mainstream alternative to land-based vacations. Approximately 11.5 million North American-sourced passengers took cruise vacations for two or more consecutive days in 2011, and we estimate that 11.8 million passengers cruised in 2012. According to an internally developed survey conducted in 2011, nearly 75% of Americans listed travel as their top lifetime goal. As a result of this and the favorable characteristics of the cruise business, we believe the cruise segment of the North America vacation region continues to have growth potential.

At January 22, 2013, our North America brands represented 61% of our total passenger capacity. As of January 22, 2013, four ships under construction, with almost 13,800 lower berths, have been designated for our North America brands.

The most popular location visited by North America-sourced cruise guests in 2012 was the Caribbean (including The Bahamas), followed by other locations, such as the Mediterranean Sea, Alaska, Northern Europe, Mexican Riviera, New England, Canada, Bermuda, Hawaii, the Panama Canal and other exotic locations, such as South and Central America, the South Pacific Islands, Australia, the Far East and India.

Carnival Cruise Lines, Princess, Holland America Line and Seabourn source their guests principally from North America. Cunard also sources a large portion of its guests from North America.

LOGO

Carnival Cruise Lines is a leader in contemporary cruising and operates 24 ships designed to provide fun and memorable vacation experiences at an outstanding value. Carnival Cruise Lines, which celebrated its 40th anniversary in 2012, is one of the most recognizable brands in the cruise business and carried over four million passengers in 2012, the most of any individual cruise brand. Carnival Cruise Lines has a broad appeal to families, couples, singles and seniors and carried more than 710,000 children in 2012. One common denominator among its guests is their desire for a truly fun and memorable vacation experience. Carnival Cruise Lines has one new 4,000 passenger-capacity ship scheduled to enter service in February 2016, which will grow the brand’s existing passenger capacity by 6%.

Carnival Cruise Lines offers cruises generally from three to eight days with most of its ships home ported in North America. Carnival Cruise Lines is the leading provider of year-round Caribbean cruises and also operates seasonal cruises in Mexico, Europe, New England, Canada, Alaska, the Baltics, Hawaii, South America, the British Isles and Panama. Some of Carnival Cruise Lines’ cruise offerings feature a private island destination in The Bahamas, known as Half Moon Cay, which is owned and operated by Holland America Line.

In October 2011, Carnival Cruise Lines unveiled Fun Ship 2.0, a program that is transforming the line’s guest experience through innovative dining, bar and entertainment concepts, as well as partnerships with popular celebrities and brands. Entertainer George Lopez is the brand’s creative director for comedy and is enhancing the line’s fleet wide comedy clubs; Food Network star Guy Fieri has developed an onboard burger restaurant called Guy’s Burger Joint; leading video game manufacturer EA SPORTS has partnered with the line to create the first-ever EA SPORTS Bars at sea; and through a partnership with toy and game leader Hasbro, Inc. the line has introduced new larger-than-life adaptations of Hasbro’s iconic games. Representing an initial investment of $500 million, various Fun Ship 2.0 innovations will be introduced throughout the Carnival Cruise Lines fleet over the next few years. Fun Ship 2.0 will play a central role in the refurbishment of the Carnival Destiny, which will be renamed Carnival Sunshine after this work is completed in Spring 2013. The refurbishment will add a variety of Fun Ship 2.0 innovations, as well as one-of-a-kind amenities such as a three-level Serenity adults-only retreat. The many groundbreaking features of Fun Ship 2.0 are best reflected in the 3,690-passenger capacity Carnival Breeze, which debuted in Europe in 2012 before launching year-round Caribbean service from Miami in November 2012.

In October 2012, the 2,124-passenger capacity Carnival Spirit began operating year-round cruises from Sydney, Australia, marking the line’s first cruises in this vacation region. See Part 1, Item 1. Business. B. “Cruise Business – Australia” for additional discussion of Carnival Cruise Lines’ operations in Australia. In Spring 2013, Carnival Cruise Lines will launch its most diverse European schedule ever. Carnival Sunshine will operate a series of Mediterranean voyages from April through October, while Carnival Legend will feature itineraries in the Baltics, the Mediterranean, Northern Europe and the British Isles, including the line’s first Norwegian fjords itinerary.

LOGO

Princess, whose brand name was originally made famous by the Love Boat television show, has been providing cruises since 1965. Princess is the world’s largest premium cruise line based on passenger capacity and operates a fleet of 16 ships. Princess offers 125 unique itineraries to more than 310 destinations, with cruises generally from three to 14 days, and two world cruises over 100 days. In 2013, Princess will increase the number of its three and four day cruises in order to provide customers an opportunity to experience the Princess products and services on shorter voyages for a lower price compared to longer cruises. Princess has two additional ships scheduled to enter service, Royal Princess in June 2013 and Regal Princess in June 2014. The new ships will each have a 3,560-passenger capacity, the largest in the Princess fleet, and will continue the evolution of the Princess product and services. The two newbuilds will offer a variety of new features, including an exciting Sports Court and the SeaWalk, which is a top-deck, glass-bottom walkway extending more than 28 feet beyond the ship’s side. With these two new ship additions, Princess’ existing passenger capacity will grow by 19%.

Princess is a leading cruise line in international and exotic destinations, including Europe, Australia, Asia, Panama Canal, Hawaii and South America. Princess will have seven ships sailing in 2013 throughout Europe between the months of April and December, including the inaugural season of Royal Princess. Princess is also a leading cruise line in Alaska and in 2013 will dedicate seven ships to sailing in this area between the months of May and September. Some of Princess’ Caribbean cruise offerings feature a private island destination that Princess leases and operates, known as Princess Cays®, which is located on the island of Eleuthera in The Bahamas.

Princess is widely recognized as an innovative, premium cruise line committed to helping its guests Escape Completely® from their daily routine and responsibilities. Designed with a warm, welcoming “comfortable elegance,” Princess’ ships provide a relaxed, rejuvenating retreat at sea, with signature amenities offered consistently across most of its fleet befitting its mission to be The Consummate Host® to its guests. Its “Piazza” main atrium serves as the heart of the ship, featuring its International Café and specialty coffee bar, its Vines wine and seafood bar and a variety of entertainment throughout the day and evening. Its “Movies Under The Stars” outdoor theaters recreate the drive-in movie experience out on deck, with first-run Hollywood hits and major sporting events shown on a 330 square-foot poolside LED screen, complete with fresh-made popcorn. Its adults-only Sanctuary retreat space and unique “Ultimate Balcony Dining” course-by-course dining option were industry firsts.

Princess sources a majority of its passengers from North America but also sources a large number of passengers from Australia and the UK. In addition, Princess recently began growing the passenger sourcing from Asia. See Part I, Item 1. Business. B. “Cruise Business – Australia” and “Cruise Business – Asia” for additional discussion of Princess’ operations in Australia and Asia.

LOGO

Holland America Line, which is celebrating its 140th year anniversary in 2013, operates a premium fleet of 15 mid-sized ships. Holland America Line calls on 371 destinations in 99 countries and territories on all seven continents, including Antarctica. While the majority of cruises are from seven to 21 days, Holland America Line also offers longer, exotic Grand Voyages up to 75 days, plus an annual Grand World Voyage of over 100 days. Holland America Line is also a leading cruise line in Alaska and in 2013 will dedicate seven of its ships to sailing in this area between the months of May and September. Europe is also a key destination in 2013 with seven ships sailing between the months of April and November, including Rotterdam, which is home ported year-round in Amsterdam, the Netherlands. In the Caribbean, most of Holland America Line’s ships visit its private island in The Bahamas, Half Moon Cay. Holland America Line has one new 2,660-passenger capacity ship scheduled to enter service in November 2015, which will increase its existing passenger capacity by 11%.

Holland America Line’s mission is to create once-in-a-lifetime experiences for its guests every time they cruise. The brand continues to enjoy one of the highest rates of repeat cruisers. Holland America Line’s more than $500 million Signature of Excellence product enhancement initiative emphasizes its dedication to all aspects of the guest experience, including elegant accommodations, sophisticated five-star dining and award-winning service. Its mid-sized ships are designed for more intimate cruising and feature classically-designed interiors, wraparound teak decks and private verandas. In addition, Holland America Line ships have one of the most extensive collections of art and antiques at sea.

All of Holland America Line’s ships have Culinary Arts Centers presented by Food & Wine magazine, where guests enjoy cooking demonstrations, private cooking lessons, wine tastings and lifestyle seminars. In addition, the Digital Workshop in collaboration with Microsoft® offers complimentary photo and video editing classes, and guests will find specialty coffees, an extensive library, music listening stations and internet access in the Explorations Café® in partnership with The New York Times®. The Greenhouse Spa and Salon has extensive wellness and beauty treatments, fitness classes and exercise equipment.

LOGO

Seabourn provides ultra-luxury cruising vacations on smaller ships that focus on personalized services, all-suite accommodations, superb cuisine and unique experiences. It was voted the “Best-Small Ship Cruise Line” by readers of Travel + Leisure for the last four years and Condé Nast Traveler for the last three years. Seabourn offers travelers a compelling value proposition that includes complimentary open bars throughout the ship, fine wines poured at lunch and dinner and gratuities are neither required nor expected. Seabourn pampers its guests with value-added extras such as Massage Moments_SM_ on deck and Caviar in the Surf_SM_ beach parties. Seabourn’s ships cruise to destinations throughout the world, including Europe, Asia, the South Pacific Islands, Australia, the Americas and Antarctica, with cruises generally from seven to 14 days, with some of longer length, including a world cruise over 100 days.

Seabourn currently operates three 450-passenger capacity and three 212-passenger capacity ships. The larger ships offer more categories of luxury suites, more dining alternatives and 11,400-square foot spa facilities that are the largest on any ultra-luxury vessel. All of the Seabourn ships have a service ratio of nearly one staff member per guest and an intimate, sociable atmosphere that has been the hallmark of the Seabourn lifestyle since it began its operations in 1988.

	IV.	Europe, Australia & Asia

	a.	Europe

We believe that Europe is the largest leisure travel vacation region in the world, but to date cruising in Europe has achieved a much lower level of penetration than in North America and represents a relatively small percentage of the European vacation markets. Approximately 6.2 million European-sourced passengers took cruise vacations for two or more consecutive nights in 2011 compared to 11.5 million North American-sourced passengers. Additionally, we estimate that about 6.4 million European-sourced passengers took a cruise in 2012. Because of the relatively low penetration rates and other favorable characteristics of the cruise business, we believe the cruise segment of the European vacation markets continues to have growth potential.

At January 22, 2013, our Europe brands represented 39% of our total passenger capacity. As of January 22, 2013, five ships under construction, with over 16,000 lower berths, have been designated for our Europe brands, with three for AIDA and one each for Costa and P&O Cruises (UK).

The most popular location visited by European-sourced cruise guests in 2012 was the Mediterranean Sea, followed by other locations such as the Atlantic Isles (including the Canary Islands and Madeira), Northern Europe (including Scandinavia and the Baltic Sea), the Caribbean, Bermuda, the Arabian Gulf and Indian Ocean, the Far East, South America, New York, the Black Sea, New England and Canada.

	1.	United Kingdom

The UK provides the largest number of cruise passengers sourced in Europe. Approximately 1.7 million UK passengers cruised in 2011, and we estimate that 1.8 million passengers cruised in 2012. Cruising in the UK is an established alternative to land-based vacations. P&O Cruises (UK) sources substantially all its guests from the UK. Cunard sources a majority of its guests from the UK but also sources a large number of passengers from North America and Germany.

LOGO

P&O Cruises (UK) is the leading and most recognized cruise brand in the UK and can trace its roots back 175 years to the formation of the Peninsular Steam Navigation Company in 1837. Today, P&O Cruises (UK) is dedicated to providing the vacation of a lifetime to its largely British guests and operates a fleet of seven premium ships that vary in size from 700 to 3,100 lower berths. Three of its ships offer vacations exclusively for adults, while the other ships are well-suited for families. P&O Cruises (UK) has one new 3,611-passenger capacity ship scheduled to enter service in March 2015, which will increase its existing passenger capacity by 25%, and will be the largest cruise ship built exclusively for the British market.

P&O Cruises (UK)’s ships visit over 200 destinations worldwide, with cruises generally from seven to 15 days, with a number of longer voyages, including three world cruises of over 80 days. In the summer, cruises depart from Southampton, England to the Mediterranean, Scandinavia and the Baltic Sea, New England and Canada, the Atlantic Isles and the Caribbean. In the winter, P&O Cruises (UK) offers cruises from the Caribbean, cruises departing from Southampton, England primarily to the Mediterranean Sea and the Canary Islands and world cruises.

P&O Cruises (UK)’s fleet reflects the tastes and trends of contemporary Britain in dining, entertainment, service and ambiance. This is enhanced through partnerships with British celebrity chefs Marco Pierre White, Atul Kochhar and Olly Smith, together with popular television programs, such as the British Broadcasting Corporation’s Strictly Come Dancing. Based on British heritage and traditions, P&O Cruises (UK) provides an authentic, high-quality cruise experience and has an enviable reputation for trust and reliability, highlighted by the high levels of customer loyalty.

LOGO

Cunard, which was launched in 1839, operates three premium/luxury ships, Queen Elizabeth, Queen Mary 2 and Queen Victoria, that evoke a golden era of luxurious cruising on one of the youngest fleets in the cruise business. During 2013, Cunard ships will principally sail a variety of seasonal itineraries in Northern Europe, the Mediterranean and the New England and Canadian areas, as well as their iconic transatlantic voyages on Queen Mary 2. Most of Cunard’s cruises are from seven to 14 days with three world cruises of over 105 days.

Cunard is an international cruise line that offers guests a unique British experience. Cunard ships provide guests with the opportunity to relive the golden age of ocean travel featuring sophisticated five-star dining, luxurious accommodations and award-winning White Star Service. In addition, Cunard ships spotlight uniquely British shipboard amenities, such as libraries, traditional British pubs and theaters. Cunard ships also feature the Queen’s Grill and Princess Grill, which are renowned for their extensive suites and intimate dining rooms. Cunard enjoys an enviable association with the British Royal Family. Her Majesty the Queen is Godmother to both Queen Elizabeth and Queen Mary 2. Together, these features further distinguish this historic brand from all others and have made Cunard ships the Most Famous Ocean Liners In The WorldSM.

	2.	Continental Europe

The main countries in continental Europe for sourcing cruise passengers are Germany, Italy, Spain and France. Together, almost 3.5 million cruise passengers were sourced from these countries in 2011 and we estimate that approximately 3.6 million passengers took a cruise in 2012. The German cruise business reached more than 1.4 million passengers in 2012 and is the second largest source market in Europe, after the UK. The Italian cruise business is the third largest in Europe with 950,000 passengers in 2012. The Spanish and French cruise businesses are the fourth and fifth largest in Europe with 700,000 passengers and 450,000 passengers in 2012, respectively.

The primary sources of our guests for Costa are from Italy, France and Germany, while AIDA sources substantially all its guests from Germany and Ibero sources substantially all of its guests from Spain, Brazil and Argentina.

LOGO

Costa is Italy’s and France’s number one cruise line and a leading cruise line in Germany, and overall is Europe’s largest cruise line based on guests carried and passenger capacity. Costa has operated for 65 years and in 2012, it took delivery of one new 2,984-passenger-capacity cruise ship, Costa Fascinosa, and now operates 14 contemporary ships. Costa has one additional ship, Costa Diadema, scheduled to enter service in October 2014, which will increase its existing passenger capacity by 12%. In Germany, where we also own and operate AIDA, Costa offers a more traditional cruise product and services catering to an older age demographic, which differentiates its product offerings from AIDA’s.

In 2012, Costa launched a number of initiatives to rebuild its brand’s reputation and strengthen its trust with guests and travel agents. One of these initiatives is Costa’s new international advertising campaign, called the “Real Costa,” which was launched in November 2012 and targets consumers in its key markets of Italy, France and Germany. The “Real Costa” campaign aims to portray an authentic Costa cruise, where guests experience a unique emotional journey, including romantic walks on the ships’ decks, excellent dining experiences and interactions between themselves and Costa’s staff. The campaign invites consumers to go to the Costa website where they can view the new Real Time section with daily updated content from all of Costa’s ships. Costa’s website has also been enhanced to include a new section, “Here for you,” to give even more transparency to onboard safety procedures, and a new area called “Millions of Memories” where guests can share their pictures and emotions. Past guests can share their experiences and give recommendations and tips on Costa cruises in a new section of Costa’s website called “Costa Cruise Tips.” Finally, the new campaign includes interviews of senior management, articles highlighting the professionalism of Costa’s crew, including officers, and behind the scenes onboard tours.

Costa’s 1.4 million guests in 2012 were sourced from over 180 countries. Costa calls on 250 ports around the world, with 150 different itineraries, with cruises from seven to 11 days. In the summer, Costa deploys its ships in the Mediterranean and Northern Europe areas. In the winter, Costa deploys its ships in South America, the Mediterranean, the Caribbean, the Arabian Gulf and the Red Sea. See Part I, Item 1. Business. B. “Cruise Business – Asia” for additional discussion of Costa’s operations in Asia.

Costa’s ships represent some of the best of Italy by offering beautiful Italian art, unique interior decorations with superb Italian mosaics, precious Murano chandeliers, fine Italian wines, excellent Mediterranean food selections and unique shops that carry well-known Italian fashion brands. Costa attracts international guests due to its multi-lingual service and is considered in Europe and South America to be a top vacation provider. Costa is also known for offering innovative itineraries that combine the excitement of new destinations with pampering onboard service and ambiance. The spectacular Samsara spa wellness center includes a dedicated restaurant and cabins with direct access to the spa.

LOGO

AIDA, which began operating in 1996, is the leader and most recognized cruise brand in the German cruise business. Germany is our fastest growing European market and AIDA is our fastest growing cruise brand. AIDA has taken delivery of six ships in the past six years including the 2012 delivery of AIDAmar and now operates nine contemporary ships. AIDA has three additional ships scheduled to enter service between March 2013 and March 2016, which will increase its existing passenger capacity by 53%.

The new ship, AIDAstella to be delivered in 2013 is a sister ship to AIDAmar. The remaining two ships scheduled for delivery in March 2015 and March 2016 are a new design, larger than AIDA’s current generation of vessels and combine an advanced technological platform with innovative guest features. The larger 3,286-passenger capacity ships will also further develop AIDA’s hallmark “Theatrium” and “Brauhaus” micro-brewery features.

AIDA offers its guests cruises generally from five to 14 days, while calling on approximately 185 ports. In the summer, AIDA ships sail in the North Sea, the Baltic Sea, the Mediterranean Sea, the Adriatic Sea, the Black Sea, New England and Canada. In the winter, AIDA ships sail in the Caribbean, Central America, South America, Southeast Asia, the Atlantic Isles, the Western Mediterranean, the Arabian Gulf and the Red Sea.

AIDA’s product is especially tailored for German-speaking guests, including German-speaking crew as well as German-style food and entertainment. AIDA offers an exceptionally relaxed, yet active, cruising experience with an emphasis on a healthy and youthful lifestyle, choice, informality, friendliness and activity. In addition, AIDA’s ships include a variety of informal and formal dining options, including buffets, grills and exclusive restaurants.

LOGO

Ibero began operations in 2003 and is a leading cruise line in Spain. Ibero’s three contemporary ships are especially tailored for Spanish-speaking guests, including Spanish-speaking crew as well as Mediterranean and Spanish-style food and entertainment. From spring until fall, Ibero’s ships offer seven-day Mediterranean and Northern European sailings. For the Northern Hemisphere’s 2013 fall and 2014 winter, two of Ibero’s ships will be repositioned to South America and offer cruises along the Brazilian and Argentine coasts, and its third ship will continue to sail in the Mediterranean Sea.

	3.	South America

Cruise vacations have been marketed to South Americans for many years, mainly to Brazilian- and Argentinean-sourced guests. Brazil and Argentina have a combined population of approximately 235 million, and we believe that their discretionary incomes will continue to grow in the future. Almost eight million Brazilian and Argentine tourists traveled abroad in 2012. Based on industry data and our internal estimates, approximately 800,000 Brazilians and Argentineans took a cruise vacation in 2012, of which almost 35% sailed on a Carnival Corporation & plc branded vessel primarily through our Costa and Ibero brands. Because of the low penetration rate of less than half of one percent and other favorable characteristics of the cruise business, we believe the cruise segment of the South American vacation markets continues to have growth potential.

Cruises from South America typically occur during the Southern Hemisphere summer months of November through March. Costa and Ibero operate an aggregate of seven ships from home ports in Brazil and Argentina from November 2012 through March 2013.

	b.	Australia

Approximately 640,000 Australian and New Zealand passengers took cruise vacations in 2011, and we estimate that approximately 700,000 passengers cruised in 2012. Cruising in Australia is an established alternative to land-based vacations. However, due to the favorable characteristics of the cruise business, we believe the cruise segment of the Australian vacation market continues to have growth potential. We serve this market substantially through our P&O Cruises (Australia), Princess and Carnival Cruise Lines brands. In addition, some of our other brands also source guests from Australia and New Zealand.

LOGO

P&O Cruises (Australia) is the leading Australian cruise line, recognized by nine out of ten Australians as the brand synonymous with cruising. With 300,000 passengers annually, P&O Cruises (Australia) carried almost half of all Australia and New Zealand cruise passengers in 2012.

Its three contemporary ships are home ported in a number of cities in Australia and New Zealand. P&O Cruises (Australia) sails to more South Pacific Island destinations than any other cruise line, which enables guests to discover the islands of the South Pacific from New Caledonia to Fiji. P&O Cruises (Australia) also offers year round itineraries to Australia’s magnificent coast line and New Zealand.

With almost 80 years of cruising experience, P&O Cruises (Australia) provides a quintessential holiday experience for Australians and New Zealanders. The onboard atmosphere is laid back with a focus on great food, friendly service and exciting entertainment. Its ships offer cruises generally from three to ten days for guests of all ages and have broad appeal to families, friends and couples.

LOGO

In 2013, Princess will deploy two premium ships on a year-round basis and two premium ships on a seasonal basis on cruises departing from home ports in Australia. During 2013, Princess will have the largest Australian and New Zealand passenger capacity deployment of any cruise brand. Princess’ ships visit the South Pacific Islands, Australia, New Zealand and Asia and the cruises generally are from 11 to 17 days, with one world cruise of over 100 days. Princess is primarily marketed in North America, so we consider it a North America cruise brand for our cruise segment reporting, even though these ships are marketed principally to Australians during these deployments.

LOGO

In October 2012, Carnival Cruise Lines deployed Carnival Spirit in the cruise segment of the Australian vacation market on a year-round basis for cruises departing from the home port of Sydney, Australia. Carnival Spirit offers cruises from eight to 12 days to the South Pacific Islands and New Zealand. Carnival Cruise Lines is primarily marketed in North America, so we consider it a North America cruise brand for our cruise segment reporting, even though this ship is marketed to Australians and New Zealanders.

	c.	Asia

Although in the early stages of development, we believe the cruise segment of the Asian vacation markets, such as China, Japan, South Korea, Singapore, Indonesia, Thailand, Malaysia and India, have significant long-term potential for expansion. Accordingly, we view the Asian region as an important part of our global strategy and remain committed to capacity growth focused on the emerging cruise markets in this region. We are increasing our presence in Asia by, among other things, establishing a new corporate office in Singapore and appointing experienced executives to coordinate and assist our brands’ current operations and future expansion efforts. We expect to make further announcements on expanding our fleet in Asia in 2013.

	1.	China

We began sourcing passengers from China in 2006. We source most of our Chinese guests from the cities of Shanghai, Beijing and Guangzhou, which have a combined regional population of approximately 300 million people. Tourism is one of the most rapidly growing sectors in the Chinese economy as Chinese discretionary income has increased at a compound average growth rate of over 15% over the last five years. More than 78 million Chinese tourists are expected to have traveled abroad in 2012. We believe the cruise segment of the Chinese vacation market has significant long-term growth potential for the cruise business given its early stage of development, large and growing middle-class population, easing of travel restrictions and expanding international tourist travel.

LOGO

Costa began its China operations in 2006 and was the first international cruise line to home port a ship in China. Currently, Costa operates one contemporary ship, the 1,928-passenger capacity Costa Victoria, that is primarily marketed to the Chinese and surrounding vacation markets. Costa Victoria was introduced in China in May 2012 to replace the 1,302-passenger capacity Costa Classica, increasing our capacity in the region by 48%. Commencing in May 2013, a second ship, the 2,114-passenger capacity Costa Atlantica, will join Costa Victoria. These ships are especially tailored for Chinese-speaking guests, serving Asian style cuisine, offering local entertainment and gaming options and providing well-known luxury brands in their retail shops.

Costa offers its guests cruises generally from four to seven days. With both Costa Victoria and Costa Atlantica operating in the region, they will more than double their capacity. These two ships will offer cruises departing from Shanghai and Tianjin, China calling on ports in South Korea and Japan during the summer months. During the winter, these ships will sail from Singapore calling on ports in Malaysia and Thailand and from Hong Kong calling on ports in Taiwan and Vietnam.

	2.	Japan

Japan has the world’s tenth largest population and third largest economy. In addition, Japan has more developed ports-of-call than other countries in the Asian region. We believe the cruise segment of the Japanese vacation market has long-term growth potential for the cruise business given its early stage of development, large population, developed economy and other favorable cruise business characteristics. Accordingly, we have recently established a Carnival Japan sales and reservation office in Tokyo, Japan.

LOGO

Princess will deploy the 2,022-passenger capacity Sun Princess on cruises departing from home ports in Yokohama and Kobe, Japan commencing April 2013 for three months. Sun Princess will visit Japan, Korea, Taiwan and Russia with cruises ranging from nine to 12 days. This ship will offer the Princess products and services, with Japanese touches to appeal to the local market. In 2014, Princess will offer cruises on Sun Princess departing from Kobe and Otaru, Japan from April to August, while serving Yokohama, Japan with the 2,678-passenger capacity Diamond Princess from April to October. Princess is primarily marketed in North America, so we consider it a North America cruise brand for our cruise segment reporting, even though these ships will be marketed principally to Japanese guests during these deployments.

	V.	Ships Under Contract for Construction

As of January 22, 2013, summary information of our ships under contract for construction is as follows (a):


Cruise Brands and Ships	Expected Service Date (b)		Passenger Capacity

North America
Carnival Cruise Lines
Newbuild (c)		2/16		4,000

Holland America Line
Newbuild (c)		11/15		2,660

Princess
Royal Princess		6/13		3,560
Regal Princess		6/14		3,560


North America Cruise Brands				13,780

EAA
AIDA
AIDAstella		3/13		2,194
Newbuild		3/15		3,286
Newbuild		3/16		3,286

P&O Cruises (UK)
Newbuild		3/15		3,611

Costa
Costa Diadema		10/14		3,677


EAA Cruise Brands				16,054

				29,834

(a)	Our ship construction agreements cannot be cancelled by either party without cause, and such cancellation will subject the defaulting party to contractual liquidated damages.

(b)

The expected service date is the month that the ship is currently expected to begin its first revenue generating cruise. Our Carnival Cruise Lines, Costa, Holland America Line, Princess and P&O Cruises (UK) ship construction contracts are with the Fincantieri shipyards in Italy. Our AIDA ship construction contracts are with Meyer Werft shipyard in Germany for AIDAstella and Mitsubishi Heavy Industries in Japan for its following two ships.

(c)	Our Carnival Cruise Lines and Holland America Line binding Memorandum of Agreement for newbuilds is subject to the completion of definitive construction contracts and financing commitments, which are expected to be finalized in 2013.

	VI.	Cruise Ports and Destination Developments

Our cruise brands provide guests with unique vacation experiences and additional home and transit ports through the development and management of new or enhanced cruise port facilities. Our involvement is usually in cooperation with governmental entities and typically includes providing development and management expertise and financial commitments that are connected to long-term port usage and preferential berthing agreements. However, sometimes we provide direct financial support or develop the port infrastructure ourselves, including the development of mixed-use commercial properties.

During 2012, we were in various stages of involvement with the development, enhancement and/or financing of government-owned and operated cruise port facilities in Galveston, Texas; Miami, Florida; New York City, New York; Port Everglades, Florida; San Juan, Puerto Rico and St. Maarten, Kingdom of the Netherlands. We also operate, or plan on operating, leased or owned port facilities or have interests in joint ventures that operate leased or owned port facilities in Amber Cove, Dominican Republic; Barcelona, Spain; Civitavecchia, Naples, Savona and Trieste, Italy; Hamburg, Germany; Juneau, Alaska; Long Beach, California and Marseilles, France for the benefit of our cruise brands.

We also operate leased or owned port facilities that we developed as destinations in Cozumel, Mexico; Grand Turk, Turks and Caicos Islands and Roatán, Honduras, which are all included in our Cruise Support segment, as well as private island destinations in The Bahamas primarily for the benefit of our North America cruise brands. These destinations offer a variety of features, including shore excursions, cultural and historic exhibits, water sports, beaches, duty-free shopping and a variety of themed-dining options. These features come together to make each of these ports-of-call an all-encompassing experience.

	VII.	Cruise Ship Repair Facility

We own a 40% interest in Grand Bahamas Shipyard Ltd. (“GBSL”), which is the largest cruise ship dry-dock repair facility in the world, to support our ship maintenance programs. We utilize this facility, among other ship repair facilities, for our dry-dockings. This repair facility, located in Freeport, Grand Bahamas, has three dry-docks and can accommodate ships of up to 137,000 tons. As a result, our North America brand ships based in the Caribbean primarily use this facility given its proximity to their home ports. During 2012, we had 13 ships serviced at this facility. In addition, unaffiliated cruise ships and other types of ships, such as cargo and oil and gas tankers, were serviced at this facility. GBSL generated total revenues of $111 million in 2012, with a large portion being derived from work on our cruise ships.

Royal Caribbean Cruises Ltd. (“RCCL”), our largest cruise competitor, also owns a 40% interest in GBSL and an unaffiliated entity owned by Grand Bahamas Port Authority owns the remaining 20%. We account for our investment in GBSL using the equity method, with our share of income or loss recorded in other nonoperating income or expense. Our total net investment in, including notes receivable from, GBSL was $70 million at November 30, 2012. GBSL had an aggregate of $112 million of outstanding debt to RCCL and us and $3 million of outstanding debt under a revolving credit facility to a third party at November 30, 2012.

	VIII.	Cruise Pricing and Payment Terms

Each of our cruise brands publishes prices for the upcoming seasons primarily through the internet. Prices vary by cruise line, by category of cabin, by ship, by season and by itinerary. Cruise prices frequently change in a dynamic pricing environment. Some cruise prices are reduced through special promotions, early booking or past guest recognition programs. Conversely, some cruise prices are increased due to higher demand.

Our advance bookings are generally taken several months in advance of the cruise departure date. Typically, the longer the cruise itinerary the further in advance the bookings are made. This lead time allows us to manage our prices in relation to demand for available cabins through the use of advanced revenue management capabilities and other initiatives, with the strategy of filling our ships while achieving the highest possible overall net revenue yields. In addition, we have the ability to change ship itineraries over time to maximize our net revenue yields. (See “Key Performance Non-GAAP Financial Indicators” in our Management Discussion and Analysis of Financial Condition and Results of Operations in Exhibit 13 to this Form 10-K).

The cruise ticket price typically includes accommodations, most meals, some non-alcoholic beverages and most onboard entertainment such as the use of, or admission to, a wide variety of activities and facilities including, among others, nightclubs, lounges, bars, theatrical shows, movies, comedy and music acts, parties, supervised youth programs, swimming pools, water slides, water parks, whirlpools, saunas, a health club, a jogging track, sun decks, libraries, cooking demonstrations and a planetarium. Our brands’ payment terms generally require that a guest pay a deposit to confirm their reservation with the balance due before the departure date. In addition, some of our European brands extend certain of their travel agents and tour operators with credit that allow them to pay us a certain period of time after they collect cruise ticket payments from our guests but typically prior to sailing. Currently, AIDA, Cunard and P&O Cruises (UK) are charging fuel supplements, which are included in cruise passenger ticket revenues.

Our guests are subject to a cancellation fee if they do not pay a vacation protection premium for the ability to obtain a refund if they cancel their cruise within a pre-defined period before sailing. We include this cancellation fee income in cruise passenger ticket revenues upon cancellation. Guests who pay a vacation protection premium for the ability to obtain a refund will receive all or a portion of their deposit value back in cash or in the form of a future cruise credit, in accordance with the terms of the programs. We include this vacation protection premium in other cruise revenues.

As a convenience to our guests, we offer to arrange air transportation to and from airports near the home port. When a guest elects to purchase air transportation from us, both our revenues and expenses generally increase by approximately the same amount. Air transportation prices typically vary by gateway, ticket class, destination and other ticket restrictions. In 2012, approximately 10% of our guests purchased air transportation from us. In order to increase the level of our air transportation services, certain of our brands offer an air program that includes competitive air prices (for both restricted/non-refundable and flexible fares) and provides our guests with next port protection, which enables them to get to the next appropriate cruise port at no additional air cost if they miss their original port embarkation due to airline delays or airline service disruptions. In addition, for some of our European brands’ cruise itineraries we charter aircraft to facilitate our guests’ travel to distant locations. We also offer transfers from and to the airport as part of our air programs, as well as to other guests who may need this transfer service.

	IX.	Onboard and Other Revenues

Onboard and other activities are provided either directly by us or by independent concessionaires, from which we receive either a percentage of their revenues or a fee. We earn onboard and other revenues from activities and services not included in the cruise ticket price consisting of, but not limited to, liquor and some non-alcoholic beverage sales, shore excursions, casino gaming, gift shop sales, photo sales, full service spas, communication services, art sales, a wide variety of dining options and laundry services. Our brands are always working on innovative ways to enhance our guests’ onboard experience and increase our onboard revenues, such as offering all-inclusive beverage packages and prepaid gift cards. We use various marketing and promotional tools and are supported by point-of-sale systems permitting “cashless” transactions for the sale of these onboard and other products and services. As a convenience to our guests, all our brands allow their guests to pre-book, and in some cases pre-pay, certain of their onboard and other revenue-producing activities in advance of the cruise.

Sales to our guests of shore excursions at each ship’s ports-of-call include, among other things, general sightseeing, cultural tours, adventure outings and local boat and beach parties. We typically utilize local operators who provide shore excursions with guides who speak the same languages as most of our shore excursion guests. For our sailings to destinations in Alaska, shore excursions are operated by Holland America Princess Alaska Tours, as well as local operators. We also offer revenue-producing activities on the private islands and port destinations that we operate that include, among other things, beach bars and restaurants, water sports, sky lifts, cabana rentals and a surf rider attraction.

Our casinos are all owned and operated directly by us and are equipped according to the needs of the individual brands, ships and itineraries. We offer a wide variety of slot and gaming machines and a diverse mix of both traditional and specialty table games. The casinos are only open when our ships are at sea in international waters or when otherwise permitted by law.

In conjunction with our cruise vacations, many of our cruise brands sell pre-and post-cruise land packages of one to four days that include, among other things, guided tours, hotels and related transportation services. In Alaska and the Canadian Yukon, we utilize, to a large extent, our hotel and transportation assets.

	X.	Sales Relationships

We sell our cruises mainly through travel agents, including wholesalers, general sales agents and tour operators that serve our guests in their local markets. Travel agents are an integral part of our long-term cruise distribution network. Our individual cruise brands’ relationships with their travel agents are generally independent of each of our other brands. Our travel agent relationships are not exclusive and travel agents generally receive a base commission, plus the potential of additional commissions based on the achievement of pre-defined sales volumes. Most travel agents also sell cruises and other vacations provided by our competitors. We motivate travel agents to support our products and services with competitive sales and pricing policies and joint marketing and advertising programs. We also employ a wide variety of trade marketing techniques, including websites, training seminars and videos, to familiarize agents with our cruise brands and their products and services. Substantially all of our cruise brands offer interactive online and other education courses for travel professionals who want to continue learning about the cruise business and how to effectively sell our cruise products and services. During fiscal 2012, no controlled group of travel agencies accounted for 10% or more of our revenues.

We are a customer service driven company and continue to invest in our service organization to assist travel agents and guests. We believe that our support systems and infrastructure are among the strongest in the vacation industry. Our investment in customer service includes the development of employees, processes and systems. We continually improve our systems within the reservations and customer relationship management functions, emphasizing the continuing support and training of the travel agency community, while simultaneously developing greater contact and interaction with our guest base.

All of our brands have developed internet booking engines to allow travel agents to book our cruises. We also support travel agent booking capabilities through global distribution systems. We estimate that over 75% of our bookings from travel agents are made electronically.

All of our cruise brands have their own consumer websites that provide access to information about their products and services to users in key source markets and enable their guests to quickly and easily book vacations. We also employ vacation planners who support our direct sales initiatives by offering our guests cruise planning expertise and other services.

	XI.	Marketing Activities

Each of our brands has comprehensive marketing and advertising programs to promote their products and services to vacationers and travel agents. Each brand’s marketing activities are designed to reach a local market in the local language. The principal mediums used for marketing and advertising are television, magazine, radio, outdoor billboards, direct mail, e-mail, online websites, online advertising and social media.

We continue to expand our use of digital marketing and social media, such as Facebook, Twitter, YouTube and Pinterest, to help us cultivate guests as fans of our brands, ships, itineraries and onboard products and services. In 2012, we had over five million “Likes” on Facebook for all our brands. We also have blogs hosted by ship captains, cruise and entertainment directors, executive pursers and special guests. We use Twitter to enhance our customer service and as part of our public relations strategies to inform the press, popular bloggers, fans and brand advocates of new developments and breaking news stories.

All of our cruise brands offer past guest recognition programs that reward repeat guests with special incentives such as reduced fares, gifts, expedited ship embarkation and disembarkation and onboard activities. Our cruise brands continue to offer new enhancements and benefits to their past guest recognition programs.

Customer feedback and research is also a critically important element in the development of our overall marketing and business strategies. We measure and evaluate key drivers of customer loyalty and satisfaction that provide valuable insights about the cruise experience. We regularly initiate customer research studies among both guests and travel agents to assess the impact of various programs and to solicit feedback to help make business decisions.

	XII.	Seasonality

Our revenues from the sale of passenger tickets are seasonal. Historically, demand for cruises has been greatest during our third fiscal quarter, which includes the Northern Hemisphere summer months. This higher demand during the third quarter results in higher ticket prices and occupancy levels and, accordingly, the largest share of our operating income is earned during this period. The seasonality of our results also increases due to ships being taken out-of-service for maintenance, which we schedule during non-peak demand periods. In addition, substantially all of Holland America Princess Alaska Tours’ revenue and net income is generated from May through September in conjunction with the Alaska cruise season.

	XIII.	Competition

We compete with land-based vacation alternatives throughout the world, including hotels, resorts (including all-inclusive resorts), theme parks, organized tours, casinos and vacation ownership properties. Our principal cruise competitors are RCCL, which owns Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, CDF Croisieres de France and Pullmantur. RCCL and TUI AG jointly own TUI Cruises, a German cruise competitor. Other principal cruise competitors include Norwegian Cruise Line and MSC. Almost 83% of all 2011 global cruise passengers in the cruise segment of the global vacation industry sailed with these competitors and us.

	XIV.	Governmental Regulations

	a.	Maritime Regulations

	1.	General

The international, national, state and local laws, regulations, treaties and other legal requirements applicable to our operations change regularly, sometimes on a daily basis, depending on the itineraries of our ships and the ports and countries visited. Our ships, which are registered in The Bahamas, Bermuda, Italy, Malta, the Netherlands, Panama, Portugal and the UK, are regulated by these jurisdictions and are required to comply with the international conventions that govern health, environmental, safety and security matters in relation to our guests, crew and ships. Each country of registry conducts periodic inspections, or appoints ship classification societies to conduct periodic inspections on their behalf, to verify compliance with these regulations. In addition, the requirements of the European Union (“EU”), the U.S. and the other international ports that our ships visit apply to some aspects of our ship operations.

Our ships are also subject to periodic class surveys, including dry-docking inspections, by ship classification societies to verify that our ships have been maintained in accordance with the rules of the classification societies and that recommended repairs have been satisfactorily completed. Class certification is one of the necessary documents required for our cruise ships to be flagged in a specific country, obtain liability insurance and legally operate as passenger cruise ships. Dry-dock frequency is a statutory requirement controlled under the International Convention for Safety of Life at Sea (“SOLAS”). Our ships qualify to dry-dock once or twice every five years, depending on the age of the ship. Dry-docking, which requires that the ship be temporarily taken out-of-service, typically lasts for one or more weeks depending on the amount of work performed. Significant dry-dock work includes, among other things, hull inspection and related activities (such as scraping, pressure cleaning and bottom painting, maintenance of steering propulsion, stabilizers, thruster equipment and ballast tanks). While the ship is out of the water in dry-dock, we also perform other repairs and maintenance and ship improvement projects.

As noted above, our ships are subject to inspection by the port regulatory authorities in the various countries that they visit. Such inspections include verification of compliance with the maritime safety, security, environmental, customs, immigration, health and labor regulations applicable to each port as well as with international requirements. For example, in U.S. ports these authorities include the U.S. Coast Guard and U.S. Customs and Border Protection and in Canada, the Canadian Coast Guard. In EU ports, the Paris Memorandum of Understanding authorizes the enforcement of internationally accepted conventions through Port State Control inspections by the relevant authorities. For example, in Italian ports these authorities include the Italian Coast Guard, Maritime Health and the State Police. In UK ports, these authorities include the Maritime and Coastguard Agency, the Department for Transport’s Transport Security team, otherwise known as TRANSEC, and the Port Health Authority. Similar Memoranda of Understanding govern Port State Control inspections of our ships in most other areas of the world where we operate.

Although not required by regulations, we voluntarily publish annual Sustainability Reports that address governance, commitments, stakeholder engagement, environmental, labor, human rights, society, product responsibility, economic and other sustainability-related issues and performance indicators. These reports, which can be viewed at www.carnivalcorp.com and www.carnivalplc.com, were developed in accordance with the Sustainability Reporting Guidelines established by the Global Reporting Initiative, the global standard for reporting on environmental, social and governance policies, practices and performance.

We believe maritime safety, security, environmental, health and labor issues will continue to be areas of focus by relevant government authorities where our cruise ships operate and, accordingly, we will likely be subject to increasing compliance costs in the future.

	2.	Maritime Safety Regulations

The International Maritime Organization (“IMO”), a specialized agency of the United Nations, has adopted safety standards as part of SOLAS, which apply to all of our ships. Among other things, SOLAS establishes requirements for vessel design, structural features, construction methods and materials, refurbishment standards, life-saving equipment, fire protection and detection, safe management and operation and security in order to help ensure guest and crew safety and security. All of our crew undergo regular safety training exercises that meet all international maritime regulations. SOLAS requirements are periodically revised for both new and existing ships.

SOLAS requires implementation of the International Safety Management Code (“ISM Code”), which provides an international standard for the safe management and operation of ships and for pollution prevention. The ISM Code is mandatory for passenger vessel operators. All of our shoreside and shipboard operations and ships are regularly audited by national authorities and maintain the required certificates of compliance with the ISM Code.

As previously discussed, following the ship incident we announced a comprehensive audit and review of all safety and emergency response procedures across our ten brands. This review was completed in December 2012. As a result, we have and will continue to implement improvements to our procedures for bridge operations, quality assurance and auditing of ship operations, bridge officer training, safety and emergency response and crew training programs.

In addition, as members of CLIA and the ECC, we have agreed to and are implementing policies that are part of the CLIA/ECC Cruise Industry Operational Safety Review that was initiated after the ship incident as follows: bridge access, emergency instructions and training for lifeboat loading, excess lifejackets, harmonization of bridge procedures, location of lifejacket storage, passage planning, passenger muster procedures, recording the nationality of passengers, securing heavy objects and standardization of muster. Further details on the above policies can be found on the CLIA website at www.cruising.org/regulatory/cruise-industry-policies/cruise-industry-operational-safety-review.

	3.	Maritime Security Regulations

Our ships are subject to various security requirements, including the International Ship and Port Facility Security Code (“ISPS Code”, a part of SOLAS); the U.S. Maritime Transportation Security Act of 2002, which addresses port and waterway security and the U.S. Cruise Vessel Security and Safety Act, which will phase in through 2013 and applies to all of our ships that embark or disembark passengers in the U.S. These maritime security regulations require that, among other things, we implement specific security measures; conduct vessel security assessments; identify and deter security threats; and develop security plans that may include guest, vehicle and baggage screening procedures, security patrols, establishment of restricted areas, personnel identification procedures, access control measures and installation of surveillance equipment. We are in compliance with these maritime security regulations.

	4.	Maritime Environmental Regulations

We are subject to numerous international, national, state and local environmental laws, regulations and treaties that govern, among other things, air emissions, waste discharge, water management and disposal and the storage, handling, use and disposal of hazardous substances such as chemicals, solvents and paints. In addition to the existing legal requirements, we are committed to helping to preserve the environment because a clean, unspoiled environment is a key element that attracts guests to our ships. 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, regulations and treaties.

Our environmental efforts are focused on, among other things, reducing emissions such as greenhouse gases (“GHGs”) (for example, carbon dioxide (“CO2”) or carbon dioxide equivalents (“CO2e”)), sulfur oxide (“SOx”) and nitrogen oxide (“NOx”). These emissions result from the combustion of the marine fuels consumed by our ships, which accounts for substantially all of our GHGs and other emissions. Further, reducing fuel consumption is one of our most important cross-brand initiatives, which will reduce emissions and mitigate the impact of high fuel prices. Our strategy for saving energy is addressed through the environmental management systems of our brands. Our strategy includes installing some of the best available energy reduction technologies on our ships, such as propulsion and cooling systems, and evaluating alternative fuel and emission reduction technologies. In addition, we are designing more energy efficient ships that will enter our fleet in the future, while continuing to reduce the fuel consumption of our existing fleet.

We measure our ability to use direct energy efficiently by calculating the amount of primary source energy we consume. One of our key objectives is to reduce fuel consumption by our ships, the primary energy source. We control our GHG and other emissions by managing our energy consumption. Our ship fuel consumption and emission rates are as follows:


Measure	Units	2011	2008	Percentage Reduction Since 2008

Ship Fuel Consumption Rate	Grams Fuel/ALB-KM (a)	95	104	(8.7%)
Ship Fuel GHG Emission Rate	Grams CO2e/ALB-KM (b)	298	327	(8.9%)
SOx Emissions Rate	Kg SOx/NM (c)	15.3	16.1	(5.0%)
NOx Emissions Rate	Kg NOx/NM (c)	23.2	24.8	(6.5%)

(a)	We measure and report the fuel consumption rate in terms of grams of fuel per available lower berth kilometer (“ALB-KM”). This indicator enables us to make meaningful fuel consumption comparisons that take into account changes in fleet size, itineraries and passenger capacity.

(b)	We measure and report the fuel GHG emission rate in terms of grams of CO2e per ALB-KM. This indicator enables us to make meaningful GHG emission reduction comparisons that take into account changes in fleet size, itineraries and passenger capacity.

(c)	We measure emission rates in terms of total kilograms (“Kg”) of emissions per nautical mile (“NM”). Using an emission rate normalized by distance traveled allows us to compare our pollutant reduction efforts over the reporting periods.

	i.	International Regulations

The most important environmental convention governing ships is the IMO International Convention for the Prevention of Pollution from Ships (“MARPOL”). This convention includes requirements designed to prevent and minimize both accidental and operational pollution by oil, sewage, garbage and air emissions. Many countries have ratified and adopted IMO Conventions that, among other things, impose liability for pollution damage, subject to defenses and to monetary limits. Monetary limits do not apply where the spill is caused by the owner’s actual fault or by the owner’s intentional or reckless conduct. All of our ships must carry an International Oil Pollution Prevention Certificate, an International Sewage Pollution Prevention Certificate, an International Air Pollution Prevention Certificate and a Garbage Management Plan. These certificates and plan are issued by the ship’s state of registry and evidence their compliance with the MARPOL regulations regarding oil, sewage and air pollution prevention. In jurisdictions that have not adopted the IMO Conventions, various national, regional or local laws and regulations have been established to address these issues and we comply with them.

Recently adopted amendments to MARPOL will make the Baltic Sea a “Special Area” where sewage discharges from passenger ships will be restricted. We are not certain as to when these amendments are expected to enter into effect. The underlying requirements may impact our operations unless suitable port waste facilities are available, or new technologies for onboard waste treatment are developed. Accordingly, the cost of complying with these requirements is not determinable at this time, however, we do not expect it to be material.

The International Organization for Standardization (“ISO”) is an international standard-setting body, which produces worldwide industrial and commercial standards. The environmental management systems of all of our cruise brands and ships are certified in accordance with ISO 14001, which is an environmental management standard that was developed to help organizations manage the environmental impacts of their processes, products and services. By presenting a structured approach to setting environmental objectives and targets, ISO 14001 provides a framework for any organization to apply these broad conceptual tools to their own processes.

	ii.	U.S. Federal and State Regulations

The U.S. Act to Prevent Pollution from Ships, which implements the MARPOL convention, provides for severe civil and criminal penalties related to ship-generated pollution for incidents in U.S. waters within three nautical miles and in some cases within the 200-mile exclusive economic zone.

The U.S. Oil Pollution Act of 1990 (“OPA 90”) provides for strict liability for water pollution caused by oil pollution or possible oil pollution incidents in the 200-mile exclusive economic zone of the U.S., subject to defined monetary limits. OPA 90 requires that in order for us to operate in U.S. waters, we must have Certificates of Financial Responsibility from the U.S. Coast Guard for each of our ships that operate in these waters. We have these certificates that demonstrate our ability to meet the maximum amount of OPA 90 related liability that our ships could be subject to for removal costs and damages, such as from an oil spill or a release of a hazardous substance.

The Clean Water Act of 1972 and other laws and regulations provide the U.S. Environmental Protection Agency (“EPA”) with the authority to regulate commercial vessels’ incidental discharges of ballast water, bilge water, gray water, anti-fouling paints and other substances during normal operations within the U.S. three mile territorial sea and inland waters.

The U.S. National Pollutant Discharge Elimination System was designed to minimize pollution within U.S. territorial waters. For our affected ships, all of the requirements are laid out in the Vessel General Permit (“VGP”), which are an EPA requirement. The VGP establishes effluent limits for 26 specific discharges incidental to the normal operation of a vessel. In addition to these discharge and vessel specific requirements, the VGP includes requirements for inspections, monitoring, reporting and record-keeping.

Most U.S. states that border navigable waterways or sea coasts have also enacted environmental regulations that impose strict liability for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law and in some cases have no statutory limits of liability.

The state of Alaska enacted legislation that prohibits certain discharges in designated Alaskan waters and requires that certain discharges be monitored to verify compliance with the standards established by the legislation. Both the state and federal environmental regimes in Alaska are more stringent than the federal regime under the Federal Water Pollution Control Act with regard to discharge from vessels. The legislation also provides that repeat violators of the regulations could be prohibited from operating in Alaskan waters.

	iii.	EU Regulations

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

The European Commission’s (“EC”) strategy is to reduce atmospheric emissions from seagoing ships. The EC strategy seeks to implement SOx Emission Control Areas set out in MARPOL as discussed below. In addition, the EC goes beyond the IMO by introducing requirements to use low sulfur (less than 0.1%) marine gas oil in EU ports.

	iv.	Low Sulfur Fuel Regulations

MARPOL specifies requirements for Emission Control Areas (“ECAs”) with stricter limitations on sulfur emissions in these areas. Ships operating in the Baltic Sea ECA, the North Sea/English Channel ECA and the North American ECA are required to use fuel with a sulfur content of no more than 1% or use alternative emission reduction methods, provided the alternatives are at least as effective in terms of emissions reductions.

Beginning in January 2014, the area which extends approximately 50 miles off the coasts of Puerto Rico and the U.S. Virgin Islands will also become an ECA, but we do not believe this will result in a significant impact on our fuel costs. Other additional ECAs may also be established in the future, such as for areas around Australia, Hong Kong, Japan, the Mediterranean Sea and Mexico.

From January 2015 and thereafter, the fuel sulfur content limit in ECAs will be further reduced to 0.1%. Compliance with these requirements will further increase our fuel costs. Based on 2013 itineraries and projected fuel consumption as well as current fuel prices and technologies, we estimate that the implementation of the 0.1% low sulfur content requirement in all four currently designated ECAs will increase our annual fuel costs by approximately $255 million to $275 million. The increase from our prior year estimate is substantially all due to an increase in the spread between 0.1% and 1% low sulfur fuel prices, which change daily. These costs may be reduced by potential mitigating factors.

The MARPOL global limit on fuel sulfur content outside of ECAs will be reduced to 0.5% from the current 3.5% global limit on and after January 2020. The 0.5% global standard will be subject to an IMO review by 2018 to determine the availability of fuel oil to comply with this standard, taking into account the global fuel oil market supply and demand, an analysis of trends in fuel oil markets and any other relevant issues. If the IMO determines that there is insufficient fuel to comply with the 0.5% standard in January 2020, then this requirement will be delayed to January 2025, at the latest. However, the European Union Parliament and Council have set 2020 as the final date for the 0.5% fuel sulfur limit to enter force, regardless of the 2018 IMO review results. This European Union Sulfur Directive will cover European Union Member State territorial waters that are within 12 nautical miles of their coastline. We believe that compliance with the 0.5% global standard could significantly increase our fuel costs. However, the magnitude of this increase is not reasonably determinable at this time due to the length of time until the global standard becomes effective and the other potential mitigating factors discussed below.

The cost impacts from implementing progressively lower sulfur content requirements may be mitigated by, among other things, the favorable impact of future changes in the supply and demand balance for marine and other fuels, future developments of and investments in sulfur emission abatement and propulsion technologies, including more advanced engines, more effective hull coatings and paints, exhaust gas cleaning systems and propeller design, more efficient shipboard systems, the use of alternative lower cost and lower emission fuels, such as liquefied natural gas (“LNG”) at sea and in port. We are also further mitigating the cost impacts from these lower sulfur content requirements through fuel conservation initiatives, including engine performance improvements, air conditioning efficiency improvements, new itinerary options, decreasing ship speeds, new air lubrication systems, increased energy use awareness and training, more efficient lighting, voyage optimization tools and improved evaporator management. Implementing a combination of fuel saving initiatives has allowed us to reduce our rate of fuel consumption by 18% over the past seven years.

As part of our emission abatement program, we have worked with local port authorities and the EPA to assist in the development and construction of shore power connections in Juneau, Alaska; Long Beach, Los Angeles, San Francisco and San Diego, California; Seattle, Washington and Vancouver, British Columbia and have equipped 16 ships with shore power technology. We expect to work with other port authorities in the future to implement additional shore power connections. This technology enables our ships to use power from the local electric grid rather than running their engines while in port to power their onboard services, and thus reducing our air emissions. We have also worked on a project that utilizes LNG as a power source for certain of our ships while they are at the Port of Hamburg, Germany.

	v.	Greenhouse Gas Emissions

We have voluntarily set a reduction target of 20% from our 2005 baseline of CO2 emission rate from shipboard operations by 2015. We have already reached a reduction of over 14%. Each of our cruise brands has established objectives, targets and plans within their respective ISO 14001 environmental management systems to reduce fuel consumption rates and resulting CO2 emission rates.

We voluntarily participated in the Carbon Disclosure Project (“CDP”), which provides visibility of companies’ carbon footprints and activities regarding carbon emissions. The CDP rates companies on the depth and scope of their disclosures and the quality of their reporting. Our submission included details of our most recently compiled emissions data and reduction efforts, along with our completion of an independent, third-party verification of our GHG emissions inventory. We have been named to the Carbon Disclosure Leadership Index since 2008.

In July 2011, MARPOL was amended to include mandatory measures to reduce emissions of GHGs from international shipping. These measures require a Ship Energy Efficiency Management Plan (“SEEMP”) for all ships. All of our ships have established a SEEMP.

	5.	Maritime Health Regulations

We are committed to providing a healthy environment for all of our guests and crew. We collaborate with public health inspection programs throughout the world, such as the Centers for Disease Control and Prevention in the U.S., the SHIPSAN Project in the EU and the National Health Surveillance Agency in Brazil to ensure that development of these programs leads to enhanced health and hygiene onboard our ships.

Through our collaborative efforts, we work with the authorities to develop and revise guidelines, review plans and conduct on-site inspections for all newbuilds and significant existing ship renovations. In addition, we continue to maintain our ships by meeting, and often exceeding, applicable public health guidelines and requirements, complying with inspections, reporting communicable illnesses and conducting regular crew training and guest education programs.

	6.	Maritime Labor Regulations

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

MLC 2006 will become effective in certain countries commencing August 2013. We already comply with many of the provisions of this new Convention and will be fully compliant when it becomes mandatory. We expect that compliance with MLC 2006 will further increase our annual ship operating costs by an estimated $15 million to $25 million.

The International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW”), as amended, establishes minimum standards relating to training, certification and watchkeeping for our seafarers. We are compliant with the requirements of STCW.

	b.	Consumer Regulations

Our ships that call on U.S. ports are regulated by the Federal Maritime Commission (“FMC”). Public Law 89-777, which is administered by the FMC, requires all our cruise brands that call on U.S. ports and embark or disembark guests in U.S. ports to establish financial responsibility for their liability to passengers for nonperformance of transportation, for personal injury and for loss of life. The FMC’s regulations require that a cruise line demonstrate its financial responsibility for nonperformance of transportation through a guarantee, escrow arrangement, surety bond or insurance. Currently, the amount required must equal 110% of the cruise line’s highest amount of customer deposits over a two-year period, up to a maximum coverage level of $15 million. In order to comply with this requirement, we have an aggregate of $75 million of guarantees provided by some of our insurers. Our Protection and Indemnity coverages are used to establish our financial responsibility for personal injury and loss of life.

In some cases in the UK and Australia, we are currently required to obtain licenses from and post bonds with various organizations in connection with the conduct of our business and/or our ability to meet our liabilities in the event of nonperformance of obligations to consumers. The most significant requirement relates to ABTA, formally known as the Association of British Travel Agents, which requires us to maintain approximately $140 million of sterling-denominated bonds to cover certain of our brands’ UK customer deposits. We are also required to pay to the UK Civil Aviation Authority a non-refundable £2.50 fee per guest when we arrange a flight as part of a cruise vacation.

In the other major countries where we source our guests, we are also required to establish financial responsibility, such as obtaining a guarantee from a reputable insurance company to ensure that, in case of insolvency, our guests will be refunded their deposits and repatriated without additional cost if insolvency occurs after a cruise starts.

	c.	Regulations for Guests with Disabilities

Regulations regarding ship accessibility standards are expected to be issued in the United States in the near future. While we believe our vessels have been designed and outfitted to accommodate our disabled guests, we cannot at this time accurately predict whether we will be required to make material modifications or incur significant additional expenses in response to these expected regulations.

C.	Employees

Our shoreside operations have an average of 9,400 full-time and 4,300 part-time/seasonal employees. We also employ an average of approximately 76,000 crew members, including officers, onboard the 100 ships we currently operate. Holland America Princess Alaska Tours increases its work force during the late spring and summer months in connection with the Alaskan cruise season, employing additional seasonal personnel, which are included above. We have entered into agreements with unions covering certain employees on our ships and in our hotel and transportation operations. We consider our employee and union relations to be strong. The percentages of our shipboard and shoreside employees that are represented by collective bargaining agreements are 30% and 14%, respectively.

We source our shipboard officers primarily from Italy, the UK, Holland, Germany and Norway. The remaining crew positions are sourced from around the world, with the largest contingent from the Philippines, Indonesia and India. We utilize manning agencies to help locate and hire many of our shipboard employees.

Our cruise brands are committed to providing appropriate marine-related training to ensure that our shipboard crew, including officers, have the knowledge and skills to properly perform their jobs. We have a maritime training program that includes, among other things, two maritime training facilities, known as the Centers for Simulator Maritime Training (“CSMART”), with one located in Almere, the Netherlands and the other in Rostock, Germany. These facilities employ state-of-the-art simulation equipment and instructional tools to provide our crew with training in fixed propeller and azipod maneuvering, engine control room operations, bridge resource management, ship stability, emergency preparedness and other maritime skills. We have recently initiated organizational enhancements designed to improve our HESS risk management capabilities. In addition, we will be implementing quality assurance initiatives that will further strengthen bridge resource management training and operational bridge performance. We have also established the European Cruise Academy in Rostock, Germany, which offers advanced training certificates in the maritime sciences primarily related to the cruise business.

D.	Suppliers

Our largest operating expenditures are for fuel, travel agency services, food and beverages, air transportation services, port facility utilization, repairs and maintenance including dry-docking, advertising and marketing, hotel and restaurant products and supplies and communication services. Our largest capital expenditures are for the construction of new ships and improvements to existing ships.

Although we utilize a select number of suppliers for most of our food and beverages, communication services, air transportation services and hotel and restaurant products and supplies, most of these products and services are available from multiple sources at competitive prices. The use of a select number of suppliers enables us to, among other things, obtain volume discounts. We purchase fuel and port facility services at some of our ports-of-call from a limited number of suppliers.

We perform our major dry-dock and ship improvement work at a number of dry-dock facilities in The Bahamas, Europe, the U.S., Canada, Singapore and Australia. As of January 22, 2013, we have agreements in place for the construction of nine cruise ships with three shipyards. We believe there are sufficient dry-dock and shipbuilding facilities to meet our anticipated repair, maintenance, ship improvement and newbuild requirements.

E.	Insurance

	I.	General

We maintain insurance to cover a number of risks associated with owning and operating our vessels and other non-ship related risks. All such insurance policies are subject to coverage limits, exclusions and deductible levels. Insurance premiums are dependent on our own loss experience and the general premium requirements of our insurers. We maintain certain levels of deductibles for substantially all the below-mentioned coverages, some of which have increased in recent years, and we may increase our deductibles further to mitigate future premium increases. We do not carry coverage related to loss of earnings or revenues from our ships or other operations. Certain of our insurance premiums have or will increase as a result of the ship incident. Substantially all of these insurance premium increases are already included in our December 20, 2012 guidance for 2013. However, since our annual P&I insurance coverage does not expire until February 2013 the remaining increase will not impact our results until 2014, but this portion is not expected to be significant.

	II.	Protection and Indemnity (“P&I”) Coverages

Liabilities, costs and expenses for illness and injury to crew, guest injury, pollution and other third party claims in connection with our cruise activities are covered by our P&I clubs, which are mutual indemnity associations owned by ship owners.

We are members of the Standard Steamship Owners’ Protection and Indemnity Association (Europe) Ltd. and The Steamship Mutual Underwriting Association (Bermuda) Limited P&I clubs. The P&I clubs that we participate in are part of a worldwide group of P&I clubs, known as the International Group of P&I Clubs (the “IG”). The IG insures directly, and through broad and established reinsurance markets, a large portion of the world’s shipping fleets. Coverage is subject to the P&I clubs’ rules and the limits of coverage are determined by the IG.

	III.	Hull and Machinery Insurance

We maintain insurance on the hull and machinery of each of our ships for reasonable amounts as determined by management. The coverage for hull and machinery is provided by large and well-established international marine insurers. Most insurers 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 have been certified within the last twelve months to be in class by an IACS member.

	IV.	War Risk Insurance

We maintain war risk insurance for legal liability to crew, guests and other third parties as well as loss or damage to our vessels arising from war or war-like actions, including terrorist incidents. Items excluded from this coverage are claims arising from chemical, nuclear and biological attacks. Our primary war risk insurance coverage is provided by international marine insurers and our excess war risk insurance is provided by our two P&I clubs. Under the terms of our war risk insurance coverage, which is typical for war risk policies in the marine industry, insurers can give us seven days notice that the insurance policies will be cancelled. However, the policies can be reinstated at different premium rates. This gives insurers the ability to increase our premiums following events that they determine have increased their risk.

	V.	Athens Convention

Effective January 1, 2013, the European Union Passenger Liability Regulation (“PLR”) incorporated the 2002 protocol to the Athens Convention, which requires us to maintain compulsory insurance for liability for passenger death or personal injury. The PLR applies to all EU registered vessels as well as non-EU registered vessels embarking or disembarking passengers in EU member states. We are required to have Certificates of Financial responsibility from an EU flag state on the applicable ships as evidence that we carry the compulsory insurance up to the limits prescribed under the 2002 Athens protocol. The cost of these new requirements is not significant.

	VI.	Other Insurance

We maintain property insurance covering our shoreside assets and casualty insurance covering liabilities to third parties arising from our hotel and transportation businesses, shore excursion operations and shoreside operations, including our port facilities. We also maintain workers compensation, directors and officers liability and other insurance coverages.

F.	Trademarks and Other Intellectual Property

We own and have registered or licensed numerous trademarks and domain names, which we believe are widely recognized and have considerable value. These intangible assets enable us to distinguish our cruise products and services, ships and programs from those of our competitors. Our trademarks include the trade names of our cruise brands, each of which we believe is a widely-recognized brand in the cruise business, as well as our ship names and a wide variety of cruise products and services. We have entered into licenses, including a license to use the P&O name, the P&O flag and other relevant trademarks and domain names in relation to cruising and related activities. We also have a license to use the “Love Boat” name and related marks. See Note 11, “Fair Value Measurements, Derivatives Instruments and Hedging Activities” to our Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates – Asset Impairments” in Exhibit 13 to this Form 10-K for additional discussion of our trademarks.

G.	Taxation

A summary of our principal taxes and exemptions in the jurisdictions where our primary businesses are located is as follows:

	I.	U.S. Income Tax

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

Our North American cruise ship businesses and certain ship-owning subsidiaries are engaged in a trade or business within the U.S. Depending on the itinerary of any particular ship, that ship may generate income from sources within the U.S. We believe that our U.S. source income and the income of our ship-owning subsidiaries, to the extent derived from, or incidental to, the international operation of a ship or ships, is currently exempt from U.S. federal income and branch profits tax.

Our domestic U.S. operations, principally the hotel and transportation business of Holland America Princess Alaska Tours, are subject to state and federal income taxation in the U.S.

	a.	Application of Section 883 of the Internal Revenue Code

In general, under Section 883 of the Internal Revenue Code, certain non-U.S. corporations (such as our North American cruise ship businesses) are not subject to U.S. federal income tax or branch profits tax on U.S. source income derived from, or incidental to, the international operation of a ship or ships. Applicable U.S. Treasury regulations provide in general that a foreign corporation will qualify for the benefits of Section 883 if, in relevant part, (i) the foreign country in which the foreign corporation is organized grants an equivalent exemption to corporations organized in the U.S. (an “equivalent exemption jurisdiction”) and (ii) the foreign corporation meets a defined publicly-traded test. Subsidiaries of foreign corporations that are organized in an equivalent exemption jurisdiction and meet the publicly-traded test also benefit from Section 883. We believe that Panama is an equivalent exemption jurisdiction and Carnival Corporation currently qualifies as a publicly-traded corporation under the regulations. Accordingly, substantially all of Carnival Corporation’s income is exempt from U.S. federal income and branch profits tax.

Regulations under Section 883 list items that the Internal Revenue Service (“IRS”) does not consider to be incidental to ship operations. Among the items identified as not incidental is income from the sale of air transportation, transfers, shore excursions and pre- and post-cruise land packages to the extent earned from sources within the U.S.

	b.	Exemption Under Applicable Income Tax Treaties

We believe that the U.S. source transportation income earned by Carnival plc and its Italian resident subsidiary currently qualifies for exemption from U.S. federal income tax under applicable bilateral U.S. income tax treaties.

	c.	U.S. State Income Tax

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

	II.	UK and Australian Income Tax

Cunard, P&O Cruises (UK) and P&O Cruises (Australia) are divisions of Carnival plc and have elected to enter the UK tonnage tax regime through 2021. Companies to which the tonnage tax regime applies pay corporation taxes on profits calculated by reference to the net tonnage of qualifying ships. UK corporation tax is not chargeable under the normal UK tax rules on these brands’ relevant shipping income. Relevant shipping income includes income from the operation of qualifying ships and from shipping related activities.

For a company to be eligible for the regime, it must be subject to UK corporation tax and, among other matters, operate qualifying ships that are strategically and commercially managed in the UK. Companies within UK tonnage tax are also subject to a seafarer training requirement.

Our UK non-shipping activities that do not qualify under the UK tonnage tax regime remain subject to normal UK corporation tax. Dividends received from subsidiaries of Carnival plc doing business outside the UK are generally exempt from UK corporation tax.

P&O Cruises (Australia) and all of the other cruise ships operated internationally by Carnival plc for the Australian market are exempt from Australian corporation tax by virtue of the UK/Australian income tax treaty.

	III.	Italian Income Tax

Costa, AIDA and Ibero have elected to enter the Italian tonnage tax regime through 2014 and intend to reapply for an additional ten-year period beginning 2015. Companies to which the tonnage tax regime applies pay corporation taxes on shipping profits calculated by reference to the net tonnage of qualifying ships.

Most of Costa’s and AIDA’s earnings not considered to be shipping profits for Italian tonnage tax purposes will be taxed at an effective tax rate of approximately 6% under the Italian tax regime since all of their ships are Italian registered.

	IV.	Portuguese, Spanish and German Income Tax

All of Ibero’s ships are registered in Portugal. Provided certain local employment requirements are satisfied, most of Ibero’s income that is not considered to be shipping profits for Italian tonnage tax purposes is subject to Portuguese income tax at effective rates of 5% or less through 2020. After 2020, such income will be subject to the normal Portuguese tax rate.

Ibero’s Spanish operations are minimal and, therefore, its Spanish income taxes are minimal.

Substantially all of AIDA’s earnings are exempt from German corporation tax by virtue of the Italy/Germany income tax treaty.

	V.	Brazilian and Chinese Income and Other Taxes

From November through March, Costa and Ibero charter certain of their ships for operation in Brazil to Brazilian subsidiaries. The subsidiaries’ earnings are subject to Brazilian resident income tax, and we believe that payments these subsidiaries make to Costa and Ibero are exempt from Brazilian income tax under Brazilian domestic law and the Italy/Brazil income tax treaty.

Substantially all of Costa’s income from its operations in China is exempt from Chinese corporation tax by virtue of the Italy/China Maritime tax treaty.

	VI.	Other

In addition to or in place of income taxes, virtually all jurisdictions where our ships call impose taxes and/or fees based on guest counts, ship tonnage, passenger capacity or some other measure.

H.	Website Access to Carnival Corporation & plc SEC Reports

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

Previous: Item 14. Principal Accountant Fees and Services. · Next: Item 1A. Risk Factors.

Item 1. Business.

Item 1. Business.

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