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.”

We are the largest cruise company with a global market share of 46% and are among the most profitable and financially strong leisure travel companies in the world with a market capitalization of $32 billion at January 22, 2014. We operate 101 cruise ships within a portfolio of ten leading cruise brands that sell cruise products and services in all the world’s major vacation markets. We are also a leading provider of vacations to all major cruise destinations throughout the world (see Part I, Item I, Business. A. “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 Part I, Item1. Business. B. “Cruise Business – North America” and “Cruise Business – 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 ever increasing past guest customer base, while continuing to grow our business through the acquisition of new guests in established and emerging markets. Our success also depends on our ability to understand our guests’ needs and consistently exceed their expectations 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. Our uncompromising commitment to the safety of our guests and crew is paramount to the success of 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.

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

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

Our primary financial goals are to profitably grow our cruise business thus increasing our return on invested capital, while maintaining a strong balance sheet. Our ability to generate significant operating cash flows allows us to internally fund all of our capital investments. Over time, we expect to have higher levels of free cash flow, which we intend to return to shareholders in the form of additional dividends and opportune share buybacks. We are also committed to maintaining our strong investment grade credit ratings, which are among the highest in the leisure travel industry.

We are building new innovative ships and continue to invest in our existing ships to strengthen the leadership position of each of our brands and to achieve our mission and primary financial goals. Our newbuilding program is the primary platform for our capacity growth. In 2013, we continued to enhance our fleet with the debut of Princess Cruises’ 3,560-passenger Royal Princess and AIDA Cruises’ 2,194-passenger AIDAstella. We currently have eight cruise ships scheduled to enter service between May 2014 and June 2016, some of which will replace existing capacity from the possible sales of older, smaller or less efficient ships. We strategically time the introduction of additional ships into 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 innovative products and services for our guests to enjoy.

Based on our current ship orders and announced ship withdrawals, our capacity growth rate is expected to be 4%, compounded annually through 2016. Our rate of growth has slowed 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. In 2013, we more than doubled our presence in China and launched our first season of cruises originating from Japan. In 2013, we also opened ten sales offices throughout Asia to support our continued expansion plans in this important emerging cruise region.

Each of our major brands has its own 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 areas and lifestyles, which allows us to penetrate each geographic area more effectively. With over 100 ships and more than 10 million guests, we have a scale advantage in the cruise industry and we are aggressively seeking opportunities to use it to drive top-line improvements and obtain economies of scale and synergies by utilizing our purchasing power and implementing cross-brand initiatives aimed at cost containment, such as common reservation systems, shared data centers and shared port facilities.

We recently realigned our leadership team and changed our work processes and our incentive structures to enable our brands to more efficiently collaborate and coordinate among each other, which will help us to further optimize our operations. Our leadership team has identified and will continue to identify opportunities to use our scale to drive initiatives to increase our revenues and optimize our cost structure with the goal of improving our return on invested capital. In addition, we have heightened our focus on the guest experience and further exceeding guest expectations.

Some of our most important cross-brand initiatives have been aimed at further improving our safety training, continuing to enhance our fleet to further increase our guest and crew safety and comfort, further reducing our fuel consumption and limiting the financial impact of low sulfur fuel usage requirements while achieving regulatory environmental objectives. In addition, we have streamlined certain support functions to gain efficiencies and achieve cost savings. In 2013, we furthered our environmental efforts through the successful testing of a new exhaust gas cleaning “scrubber” technology and plan to install scrubbers on most of our ships. In addition to exceeding stricter air emission standards, this technology will help mitigate higher fuel costs on these ships. As 2014 progresses, we will continue to implement a number of strategic initiatives designed to fuel our earnings power, drive cash flow and improve return on invested capital over time.

In 2012 and 2013, we had voyage disruptions that drew public attention to the safety and reliability of our products and services. Although the frequency of our incidents relative to our size is below the cruise industry average, the negative publicity we received significantly impacted the reputation and, accordingly, the demand for two of our largest brands, Costa Cruises (“Costa”) and Carnival Cruise Lines. We have, and continue to, take steps to help ensure that our cruise products and services are safe and reliable and that in the rare event of a ship incident, our guests and crew are comfortably returned to port. Safety of our guests and crew is our utmost concern and key to our continuing success. These incidents, in combination with the uncertain global economic conditions significantly impacted our results in 2012 and 2013. However, we are confident that our business will continue to recover over the next few years.

In order to achieve our financial goals, we are also committed to rebuilding the image and reputation of Costa and Carnival Cruise Lines by regaining the confidence of their guests and travel agents. The reputation of Costa has significantly improved during 2013 and we expect this improvement to continue in the future. In 2013, Costa did return to profitability, excluding the impact of ship impairment charges related to two of its smaller vessels, and we expect to see an increase in Costa’s profitability in 2014 despite softer economies in Southern Europe.

After successfully up righting Costa Concordia in 2013, we are working with the insurers, local authorities and industry leading salvage experts to remove the ship from the coast of Italy in 2014 while minimizing any environmental impact from the 2012 ship incident. As of January 22, 2014, we have settled 94% and 75% of the crew and guest claims, respectively. Substantially all of the ship removal costs and the costs of these and future claims will be covered by insurance.

As of January 22, 2014 according to national market research data Carnival Cruise Lines, which is our largest cruise brand, has recovered more than 75% of the loss in its brand perception and more than 80% of the loss in its brand consideration among first-time cruisers, while its brand consideration among past cruisers has exceeded pre-incident levels. Having already implemented several strategies to enhance its operations and strengthen its public perception, we believe that over time the brand will continue to recover its reputation and increase its profitability. Earlier this year, Carnival Cruise Lines announced an estimated $300 million vessel enhancement program, which is part of a corporate-wide program that will take place over the next several years and is expected to cost as much as $700 million, to improve emergency power capabilities, to introduce new or enhanced fire safety technology and to increase the level of operating redundancies across its entire fleet.

In addition to the operational enhancements, Carnival Cruise Lines has launched a new travel agent outreach program designed to strengthen relationships by opening the lines of communication and implementing changes based on travel agent feedback. The most important goal of this program is to let travel agents know that Carnival Cruise Lines appreciates, needs and relies on them and values their insight and support. As part of the program, Carnival Cruise Lines has implemented a number of initiatives, including a simplified pricing structure, enhanced travel agent website capabilities and new group promotions. Further, they have launched a new nationwide advertising campaign to stimulate consumer interest by sharing memorable vacation moments from past guests. Carnival Cruise Lines has also introduced a new industry-leading vacation guarantee, whereby guests will receive a 110% refund of their cruise fare plus return travel arrangements if they are not satisfied with their cruise

for any reason and provide notification within the first 24 hours of the voyage. We believe that Carnival Cruise Lines will successfully implement these and other strategies and programs, along with a number of innovative product enhancement initiatives, which will lead to continuing improvement in its reputation, which in turn will drive additional guest demand and increase profitability.

	III.	Cruise Programs

Our 101 ships sail to all of the world’s major cruise destinations and the percentage of our passenger capacity deployed in each of these regions is as follows:


Region	2014			2013			2012

Caribbean		35	%		33	%		35	%
Europe		29			31			29
Asia/Australia		12			10			8
Alaska		5			6			6
Other		19			20			22

		100	%		100	%		100	%

B.	Cruise Business

	I.	Overview

	a.	Summary

The multi-night cruise industry 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 240,000 cabins in the global cruise industry at November 30, 2013, 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. A 2013 Nielsen Global Consumer Confidence Survey found that after providing for savings and living expenses, the number one global spending priority is for vacations. As a result of these and other favorable cruise industry characteristics, we believe that the cruise industry has the opportunity to capture a greater share of consumers’ spending.

	b.	Favorable Characteristics of the Cruise Industry

	1.	Exceptional Value Proposition

We believe that the cost of a cruise vacation represents an exceptional value in comparison to alternative land-based vacations. 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 homeports, 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 2013 annual penetration rates when computed based on the number of annual cruise guests as a percentage of the total population are as follows:

•		3.4% for North America (a),

•		2.9% for Australia,

•		2.8% for the United Kingdom (“UK”) and

•		1.4% for continental Europe (Germany, Italy, France, Spain and Portugal).

(a)	For the purpose of the penetration rate calculation, North America is only comprised of the United States of America (“U.S.”) and Canada.

Based on industry data or our internal estimates, approximately 20% 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 transportation to a variety of destinations and 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. Our brands have multiple pricing levels that vary by cruise line, by category of cabin, by ship, by season, by duration and by itinerary.

	4.	Positive Demographics

The average age of populations in established cruise regions is increasing. Between 2013 and 2023, the number of people in the cruise business’ primary age group of 45 years and older is expected to grow by 17 million, or 12%, in the U.S. and Canada and 15 million, or 10%, in the major Western European countries. We believe the cruise industry is well-positioned to take advantage of these favorable age demographics in its major markets.

Many emerging international markets are experiencing growing economies and a rapid growth in middle-class consumers. As their earnings power and disposable income increase, these middle-class consumers are becoming more eager to purchase entertainment, travel and discretionary products and services. This demand growth provides the cruise business the opportunity to expand its reach in these markets.

	5.	Ship Mobility

The mobility of cruise ships enables them to move between regions in order to maximize their profitability. Accordingly, cruise companies can redeploy their ships to other more profitable regions as guests’ tastes change and if economic or other conditions warrant.

	6.	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 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.

	7.	Favorable Supply Versus Demand Balance

Over the last several years cruise operators have slowed their passenger capacity growth compared to historical levels. Furthermore, smaller, older or less efficient cruise ships will continue to be retired from service as they near the end of their economic lives or no longer provide sufficient cash flows. Over time we expect demand to accelerate as we rebuild our Carnival Cruise Lines and Costa brands, global economic conditions improve 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 Industry

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 passenger capacities that have been or are expected to be marketed are as follows:


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

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		470,000		205,000
2014 (a)		482,000		210,000
2015 (a)		503,000		220,000
2016 (a)		525,000		228,000

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

•		The global cruise industry and our passenger capacity have increased at compound annual growth rates of 4.9% and 5.9%, respectively, from 2007 to 2012.

•		The global cruise industry and our compound annual passenger capacity growth rates are currently expected to be 3.6% and 3.3%, respectively, from 2012 to 2016.

The number of cruise guests carried are as follows:


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

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		11,440,000		9,050,000		20,490,000		9,559,000
2012 2013 (b)		11,640,000 11,790,000		9,180,000 9,750,000		20,820,000 21,540,000		9,829,000 10,061,000

(a)	The estimates of the total guests carried for 2007 through 2012 were obtained from G.P. Wild (International) Limited, an independent cruise research company, and are based upon where the guests were sourced and not the cruise brands on which they sailed.

(b)	The estimates of the total guests carried for 2013 are based on internally developed global guests’ growth rates.

•		The number of cruise guests carried in the global cruise industry and by us have increased at compound annual growth rates of 5.5% and 5.1% from 2007 to 2012, respectively, and 3.5% and 2.4% from 2012 to 2013, respectively.

•		The North America regions’ cruise guests have increased at a compound annual growth rate of 2.2% from 2007 to 2012 and 1.3% from 2012 to 2013.

•		The Europe, Australia, Asia and Other regions’ cruise guests have increased at a compound annual growth rate of 10.8% from 2007 to 2012 and 6.2% from 2012 to 2013.

As we continue to expand our global presence, our revenues generated from guests sourced from outside the U.S. have grown to 56% in 2013, up from 46% in 2007.

	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, 2014, our cruise brands’ summary information is as follows:


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

North America
Carnival Cruise Lines		62,356		30	%		24	North America
Princess Cruises (“Princess”)		40,502		20			17	North America
Holland America Line		23,540		11			15	North America
Seabourn		1,988		1			6	North America

North America Cruise Brands		128,386		62			62


EAA
Costa		32,136		16			14	Italy, France and Germany
AIDA Cruises (“AIDA”)		18,636		9			10	Germany
P&O Cruises (UK)		14,736		7			7	UK
Cunard		6,672		3			3	UK and North America
P&O Cruises (Australia)		4,804		2			3	Australia
Ibero Cruises (“Ibero”)		2,932		1			2	Spain and Argentina

EAA Cruise Brands		79,916		38			39

		208,302		100	%		101

(a)	In accordance with cruise industry 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, 2014, we had signed agreements with two shipyards providing for the construction of eight cruise ships, with two to be delivered in 2014, two in 2015 and four in 2016. These additions are expected to increase our passenger capacity by more than 24,700 lower berths. Our North America cruise brands have four ships with almost 10,800 lower berths scheduled to enter service by June 2016 and our EAA cruise brands have four ships with more than 13,900 lower berths scheduled to enter service by March 2016. It is possible that some of our smaller, older or less efficient ships may be sold, chartered or retired during the next few years. See Part I, Item 1. Business. B. “Cruise Business – Ships Under Contract for Construction” and Note 6, “Commitments” and Note 10, “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; Roatán, Honduras; and Puerto Plata, Dominican Republic (currently under development), which are or will be, 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 11 hotels or lodges, over 300 motorcoaches and 20 glass-domed railcars. This tour company and one cruise ship, which we own and charter-out under a long-term lease, comprise our Tour and Other segment.

See Note 11, “Segment Information” to our Consolidated Financial Statements in Exhibit 13 to this Form 10-K for additional segment and geographic information.

	III.	North America

LOGO

Almost 55% of the cruise guests in the world are sourced from the North American region, where cruising is a mainstream alternative to land-based vacations. Approximately 11.6 million North American-sourced guests took multi-night cruise vacations in 2012, and we estimate that 11.8 million guests cruised in 2013. According to an internally developed survey, nearly 75% of Americans listed travel as their top lifetime goal. As a result of this and other favorable characteristics of the cruise industry, we expect increased demand in the cruise segment of the North America vacation market.

The most popular location visited by North America-sourced cruise guests in 2013 was the Caribbean (including The Bahamas), followed by other locations, such as the Mediterranean Sea, Alaska, Northern Europe, Mexican Riviera, New England and 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 primarily from North America. Cunard also sources a large portion of its guests from North America.

CARNIVAL CRUISE LINES

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. Founded in 1972, Carnival Cruise Lines is one of the most recognizable brands in the cruise industry and carried 4.3 million guests in 2013, the most of any individual cruise brand. Carnival Cruise Lines identifies their target customers as “The Spirited” or those who like to live life to the fullest, look at the glass as half full, feel comfortable in their own skin, make their own fun and are open to considering a cruise. Their cruises have a broad appeal to families, couples, singles and seniors and have carried more than 700,000 children in 2013. Carnival Cruise Lines’ 25th ship, the 3,972-passenger Carnival Vista, is scheduled to enter service in April 2016, which will grow the brand’s existing passenger capacity by 6%.

Carnival Cruise Lines offers cruises generally from three to eight days in length with almost all of its ships departing from 12 convenient U.S. home ports located along the Eastern seaboard and the Gulf and West Coasts. Carnival Cruise Lines is the leading provider of year-round cruises in The Bahamas, Caribbean and Mexico and also operates seasonal cruises in New England and Canada, Alaska, Hawaii, and the Panama Canal.

The brand’s focus continues to be on improving their product and services with innovations that appeal to new consumers, as well as past guests. In 2013, Carnival Cruise Lines continued the rollout of its fleet wide Fun Ship® 2.0 product enhancement initiative, which represents an initial investment of $500 million. Fun Ship 2.0 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 helped create the first-ever EA SPORTS Bars at sea; and through a partnership with toy and game leader Hasbro, Inc. the line has created Hasbro, The Game Show, with larger-than-life adaptations of Hasbro’s iconic games. The many groundbreaking features of Fun Ship 2.0 are best reflected in Carnival Breeze and Carnival Sunshine. As of January 22, 2014, eight of Carnival Cruise Lines’ ships have some Fun Ship 2.0 features, with additional vessels scheduled to receive upgrades over the next few years.

Fun Ship 2.0 played a central role in the refurbishment of the Carnival Destiny, which was renamed Carnival Sunshine following a groundbreaking 75 day makeover that was completed in May 2013 and was the line’s largest ship transformation project. The refurbishment added all of the Fun Ship 2.0 innovations, as well as one-of-a-kind amenities such as a three-level Serenity adults-only retreat, the brand’s first full-service Asian restaurant called Ji Ji Asian Kitchen and new food and beverage concepts such as Havana Bar, ShakeSpot and JavaBlue Cafe.

Furthermore, Carnival Cruise Lines recently entered into an exclusive partnership with Dr. Seuss Enterprises to create the new Carnival Seuss at Sea program, which will bring the beloved children’s brand and favorite characters to the line’s entire fleet. Seuss at Sea will begin rolling out aboard Carnival Splendor in February 2014 with implementation across the full fleet by 2015, as well as the new Carnival Vista. The brand has also recently introduced American Table and American Feast, which are new dining concepts in the main dining rooms designed to evoke a more contemporary restaurant experience with an emphasis on exceptional American cuisine, with updated menus, place settings, and serving and presentation styles, as well as expanded cocktail and wine lists.

On January 22, 2014, Carnival Cruise Lines announced Carnival LIVETM – a new onboard offering that brings the best live music entertainment to the seas. The Carnival LIVETM Concert Series features a diverse roster of popular, well known music artists who will play a series of onboard concerts for its guests at select ports-of-call. The Carnival LIVETM initiative also includes enhancements to Carnival Cruise Lines’ onboard lounge band experience, which is designed to provide guests with a very high caliber of music entertainment.

Carnival Cruise Lines sources a majority of its guests from North America but also sources some of its guests from Australia. See Part 1, Item 1. Business. B. “Cruise Business – Australia” for additional discussion of Carnival Cruise Lines’ operations in Australia.

PRINCESS

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 17 ships. Princess offers 125 unique itineraries to more than 310 destinations, with cruises generally from seven to 14 days and two world cruises over 100 days. In 2013, Princess introduced a new range of three and four day cruises in order to provide customers an opportunity to experience the Princess products and services on shorter voyages.

In June 2013, her Royal Highness The Duchess of Cambridge named Royal Princess, the newest addition to the fleet. In addition, Royal Princess’ sister ship, Regal Princess, is scheduled to enter service in May 2014. These new ships each have a 3,560-passenger capacity, the largest in its fleet, and continue the evolution of the Princess products and services. These two newbuilds offer a variety of new features, including a unique over-the-water SeaWalk, which is a top-deck, glass-bottom walkway extending more than 28 feet beyond the ship’s side. With the addition of Regal Princess in 2014, Princess’ existing passenger capacity will grow by 9%.

Voted “Best Itinerary Design” in the 2013 Travel Weekly Readers Choice Award, Princess is a leading cruise line in international and exotic destinations, including Europe, Australia, Asia, the Panama Canal, Hawaii and South America. Princess will have five ships sailing in 2014 throughout Europe between the months of April and December, including the inaugural season of Regal Princess. Princess is also a leading cruise line in Alaska and in 2014 will continue to 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.

In January 2014, Princess introduced a new multi-media marketing campaign designed to redefine its brand and differentiate it from other cruise line competitors. The campaign positions Princess as being uniquely qualified to provide its guests with meaningful travel and life experiences, both in destinations and onboard, so that they will “Come Back New” from their Princess vacation. In addition, we continue to enhance our travel agent support with the Princess Academy educational program, voted Best Travel Agent Educational Program by Travel Weekly. More than 50,000 travel agents around the world have learned about Princess’ product and service offerings and destinations through this program, making it one of the largest and most comprehensive travel industry training programs in the world.

Princess sources primarily all of its guests from North America but also sources more than a quarter of its guests from Australia and the UK. In addition, in recent years Princess has been growing its 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 these regions.

HOLLAND AMERICA LINE

Holland America Line, which celebrated its 140th year anniversary in 2013, operates a fleet of 15 premium mid-sized ships. Holland America Line offers more than 500 cruises to over 400 ports in almost 100 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 four longer, exotic Grand Voyages up to 113 days, including a Grand World Voyage. Holland America Line is also a leading cruise line in Alaska and in 2014 will continue to dedicate seven ships to sailing in this area between the months of May and September. Europe also continues to be a key destination in 2014 with seven ships sailing there between the months of March 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 February 2016, which will grow 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 Signature of Excellence products and services emphasize 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, as well as cuisine from the recipes of an esteemed Culinary Council including David Burke, Jacques Torres, Elizabeth Falkner, Jonnie Boer and Master Chef Rudi Sodamin. In addition, the Digital Workshop in collaboration with Microsoft® offers complimentary photo and video editing classes. 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. Other marquee partnerships bring guests unique onboard experiences such as B.B. King’s Blues Club and Dancing with the Stars at Sea, featuring theme cruises, dance lessons and guest dance competitions.

SEABOURN

Seabourn provides ultra-luxury cruising vacations on smaller ships that focus on personalized service and guest recognition, spacious all-suite accommodations, award-winning gourmet dining and unique experiences. It was voted the “Best-Small Ship Cruise Line” by readers of Travel + Leisure for the past five years and Condé Nast Traveler for the last four years. Seabourn offers travelers a compelling value proposition that includes complimentary open bars throughout the ship, fine wines during lunch and dinner and gratuities that 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, South Africa, Asia, the South Pacific Islands, Australia, the Americas and Antarctica, with cruises generally from seven to 14 days, with some of longer length. In addition, Seabourn has introduced Extended Explorations, which is a novel way for travelers to enjoy longer cruises, with the added luxury of a wide range of choices regarding where and when they sail. The new, linked itineraries allow guests to deeply explore more extensive regions of the world on voyages ranging from 28 to 116 days.

Seabourn currently operates one 458-passenger capacity ship, two 450-passenger capacity ships and three 210-passenger capacity ships. The three larger ships offer more categories of luxury suites, more dining alternatives and 11,400 square-foot spa facilities that are among 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. Seabourn has one new 604-passenger capacity ship scheduled to enter service in June 2016, which will replace the capacity of its three original smaller ships that were sold in 2013 and will be leaving its fleet by May 2015.

	IV.	Europe, Australia & Asia

	a.	Europe

We believe that Europe is the largest leisure travel vacation region in the world. However, 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 guests took multi-night cruise vacations in 2012 compared to 11.6 million North American-sourced guests. Additionally, we estimate that 6.5 million European-sourced guests cruised in 2013. Because of the relatively low penetration rates and other favorable characteristics of the cruise industry, we expect increased demand in the cruise segments of the European vacation markets.

The most popular location visited by European-sourced cruise guests in 2013 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

LOGO

The UK provides the largest number of cruise guests sourced in Europe. Approximately 1.7 million UK-sourced guests took a multi-night cruise vacation in 2012, and we estimate that 1.8 million guests cruised in 2013. 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 more than half of its guests from the UK but also sources principally all of its other guests from North America, Germany and Australia.

P&O CRUISES (UK)

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. 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 3,647-passenger capacity ship, Britannia, scheduled to enter service in March 2015, which will grow its existing passenger capacity by 25%. Britannia 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 2014. In the summer, cruises generally depart from Southampton, England to the Mediterranean Sea, Scandinavia and the Baltic Sea, New England and Canada, the Atlantic Isles and the Caribbean. Beginning in the summer of 2014, Ventura will offer a new cruise program for its seven or 14 day voyages departing from Venice and Savona, Italy. In the winter of 2014, P&O Cruises (UK) offers cruises in 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. P&O Cruises (UK) provides an authentic, quality cruise experience and has an enviable reputation for trust and reliability, highlighted by high levels of customer loyalty.

CUNARD

Cunard, which was launched in 1840, operates three premium/luxury ships, Queen Elizabeth, Queen Mary 2 and Queen Victoria and has one of the youngest fleets in the cruise business. During 2014, Cunard ships will principally sail a variety of seasonal itineraries in Northern Europe, the Mediterranean Sea and New England and Canada, 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 experience that celebrates its British heritage. Cunard provides 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 categories, 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

LOGO

The main countries in continental Europe for sourcing cruise guests are Germany, Italy, France and Spain. Together, almost 3.5 million cruise guests were sourced from these countries for multi-night cruise vacations in 2012 and we estimate that approximately 3.6 million guests cruised in 2013. The German cruise industry reached more than 1.6 million guests in 2013 and is the second largest source market in Europe, after the UK. The Italian cruise industry is the third largest in Europe with 870,000 guests in 2013. The Spanish and French cruise industries are the fourth and fifth largest in Europe with 600,000 guests and 500,000 guests in 2013, respectively.

The primary sources for Costa’s guests are from Italy, France and Germany, although it also sources a significant number of guests from China, Brazil and Argentina. AIDA sources substantially all of its guests from Germany and Ibero currently sources principally all of its guests from Spain and Argentina.

COSTA

Costa is Europe’s largest cruise line based on guests carried and passenger capacity. It is also the number one cruise line in Italy and France and a leading cruise line in Germany. Costa has been providing cruises for 66 years and operates a fleet of 14 contemporary ships. Costa has one new 3,708-passenger capacity ship, Costa Diadema, scheduled to enter service in October 2014, which will grow 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.

Costa’s 1.6 million guests in 2013 were sourced from over 200 countries. Costa calls on 250 ports around the world, with 150 different itineraries, with cruises generally 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 Brazil and Argentina, the Mediterranean Sea, the Caribbean and the Arabian Gulf. See Part I, Item 1. Business. B. “Cruise Business – Asia” for additional discussion of Costa’s operations in Asia.

During 2013, Costa expanded its international advertising campaign to support its sales activities. The campaign expresses Costa’s brand position by perfectly combining “Sea, Ship, and Shore” in a new kind of holiday. Travelling on a Costa ship is seen as a personal journey, full of scents, taste sensations, scenery, places, cultures and the excitement of new destinations. The itinerary sets the cruise vacation apart not merely as a line connecting multiple destinations, but rather as a common theme linking the many new experiences awaiting discovery. Costa’s website has also been enhanced to facilitate access to Costa’s social media channels, such as “Costa Cruise Tips” where past guests can share their experiences and give recommendations and tips on its ships and destinations.

Costa’s ships represent 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 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.

In November 2013, Costa announced the beginning of a new style of cruising onboard two of its smaller ships with the advent of Costa’s neoCollection. The neoCollection cruises are an invitation to make the most of every minute and enjoy the holiday in a more leisurely way. This is a new type of Costa cruise experience that is tailored to suit individual tastes and allows each guest to go at their own pace, both onboard and ashore, making it an ideal vacation for couples and groups of friends. The cruise itineraries are exclusive with longer port calls and sailings to destinations inaccessible to larger cruise ships. The neoCollection cruises will offer a range of options, such as specially designed shore excursions for small groups and fine food and wine options based on the authentic cuisine of the regions visited. The neoCollection cruises will debut in February 2014 and offer 12 day itineraries to the most attractive destinations in the Mediterranean Sea during spring and summer, as well as 13 and 15 day cruises in Northern Europe during summer.

AIDA

AIDA, which began operating in 1996, is the leader and most recognized cruise brand in the German cruise industry. Germany is our fastest growing European market and AIDA is our fastest growing cruise brand. AIDA has taken delivery of seven ships in the past seven years including the 2013 delivery of AIDAstella and now operates ten contemporary ships. AIDA has one new ship scheduled to enter service in March 2015 and another one in March 2016, which together will grow its existing passenger capacity by 35%.

AIDA’s two newbuilds are a new design, larger than AIDA’s current generation of vessels and combine an advanced technological platform with innovative guest features. These 3,286-passenger capacity ships will also further develop AIDA’s hallmark “Theatrium” and “Brauhaus” micro-brewery features. In 2013, AIDA refreshed its brand image to underline its leadership in the German speaking vacation market and highlighted its product’s individuality, which is “Unique. Every time.”

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 Black Sea and 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 Sea and the Arabian Gulf.

AIDA’s product is especially tailored for German-speaking guests and includes a 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, family friendliness and activity. In addition, AIDA’s ships include a variety of informal and formal dining options, including buffets, grills and exclusive restaurants.

IBERO

Ibero began operations in Spain in 2003. Ibero’s two contemporary ships are especially tailored for Spanish-speaking guests, which includes a Spanish-speaking crew as well as Mediterranean and Spanish-style food and entertainment. One of Ibero’s ships offers year-round Mediterranean Sea sailings ranging from seven to 11 days. Its other ship sails in the Mediterranean Sea from spring until fall while in the winter season its areas of operations are Argentina and Brazil.

	b.	Australia

LOGO

Approximately 700,000 Australian and New Zealand guests took multi-night cruise vacations in 2012, and we estimate that 760,000 guests cruised in 2013. Of these 2013 guests, 72% sailed on Carnival Corporation & plc branded vessels. Cruising in Australia is an established alternative to land-based vacations. However, due to the favorable characteristics of the cruise industry, we expect increased demand in the cruise segment of the Australian vacation market. In 2014, we have dedicated six ships year round and three ships on a seasonal basis to serve this market through our P&O Cruises (Australia), Princess and Carnival Cruise Lines brands. Some of our other brands also source guests from Australia and New Zealand but to a lesser extent. Carnival Cruise Lines and Princess are primarily marketed in North America, so we consider them North America cruise brands for our cruise segment reporting, even though some of their ships are marketed principally to Australians and New Zealanders during certain deployments.

P&O CRUISES (AUSTRALIA)

P&O Cruises (Australia) is the leading Australian cruise line, recognized by nine out of ten Australians as the brand synonymous with cruising. With close to 260,000 guests annually, P&O Cruises (Australia) carried almost 35% of all Australia and New Zealand cruise guests on its three contemporary ships in 2013. Its ships offer cruises generally from three day themed seabreaks to ten day explorer trips for guests of all ages and have broad appeal to families, friends and couples.

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. In 2013, remote idyllic parts of Papua New Guinea were also added to their itineraries. 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. In 2013, P&O Cruises (Australia) launched P&OEdgeTM, one of the most comprehensive adventure programs on the high seas. The P&OEdgeTM program gives its guests the opportunity to climb, swing, race and jump their way to parts of the ship never seen before by guests. The activities, which include repelling, ziplining, tight-rope balancing, Segway obstacle courses, rock wall climbing and many more, have been specifically designed to make use of the ship’s existing architecture to create one of the largest adventure parks at sea.

PRINCESS

In 2014, Princess will deploy two premium ships on a year-round basis and another two on a seasonal basis from Australia. During 2014, 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.

CARNIVAL CRUISE LINES

In 2014, Carnival Cruise Lines will deploy one year-round ship and one seasonally-based ship from Australia. These ships offer cruises from eight to 12 days to the South Pacific Islands and New Zealand.

	c.	Asia

LOGO

Although in the early stages of development, we believe the cruise segment of the Asian vacation markets has significant long-term potential for growth. Accordingly, we view Asia as an important part of our global strategy and remain committed to capacity growth focused on the emerging vacation markets in this region. Over the past two years, we have increased our presence in the region by opening 12 sales and marketing offices in six Asian countries and establishing a corporate office in Singapore.

	1.	China

We began sourcing guests from China in 2006. We source most of our Chinese guests from major cities, such as Shanghai, Beijing and Guangdong, which have a combined population of approximately 150 million people. Over the past decade China has been, by far, the world’s fastest growing tourism source market. China’s consumer expenditures on travel abroad reached over $100 billion in 2012, making it the number one tourism source market in the world based on spending, according to the United Nations World Tourism Organization. Tourism is one of the most rapidly growing sectors in the Chinese economy as Chinese discretionary income has increased at a compound average annual growth rate of over 10% over the past five years. More than 94 million Chinese tourists are expected to have travelled abroad in 2013. We believe the cruise segment of the Chinese vacation market has significant long-term growth potential given its early stage of development, the large and growing middle-class population, the easing of travel restrictions and expansion of international tourist travel. We serve this market substantially through our Costa and Princess brands although some of our other brands also source guests from China.

COSTA

Costa began its China operations in 2006 and was the first international cruise line to home port a ship there. Costa operates two contemporary ships from China that are primarily marketed to the Chinese and surrounding vacation markets. The second ship was deployed to China in May 2013 and more than doubled Costa’s capacity. These ships offer a unique product by providing a blend of both Italian-style hospitality, design, shopping experience and cuisine, as well as catering to Chinese-speaking guests’desires for local cuisine and entertainment, gaming options and well-known luxury brands in their retail shops.

Costa offers its guests cruises generally from four to seven days. One of its ships will offer cruises to South Korea year round. Costa’s other ship will also sail from China to South Korea from the spring through the fall months. During the winter months, it will sail from Singapore calling on ports in Malaysia and Thailand and from Hong Kong calling on ports in mainland China, Vietnam and the Philippines.

PRINCESS

In 2014, Princess will enter the cruise segment of the Chinese vacation market with its four-month deployment of the 2,678-passenger capacity Sapphire Princess on cruises departing from Shanghai. Sapphire Princess will bring a new international premium cruise experience to the Chinese vacation market with an onboard product that is customized to meet the needs of its Chinese guests. The 2014 China season will feature itineraries ranging from three to seven days and includes calls at several South Korean ports.

From fall 2014 to spring 2015, Princess will bring Sapphire Princess to Singapore in the largest deployment ever by a premium cruise line in the Southeast Asia region. Sapphire Princess will feature 15 cruises from three to 11 days, visiting seven countries and 16 ports including some of this region’s major cities such as Bangkok, Ho Chi Minh City and Kuala Lumpur, along with smaller, off-the-beaten path resort destinations including Penang, Ko Samui and Langkawai. Guests will be sourced from Singapore and throughout Asia, in addition to other international markets including Australia, North America and the UK.

	2.	Japan

Japan has the world’s eleventh largest population with 127 million people and fifth largest economy at $4.6 trillion. In addition, Japan has numerous highly developed ports-of-call with sight-seeing attractions, shopping, shoreside transportation and infrastructure making them one of the more attractive destinations in the Asia region. We believe the cruise segment of the Japanese vacation market has significant long-term growth potential given its early stage of development, relatively large market, with 25% of its population over 65 years old, developed economy and a relatively large number of interesting ports-of-call. We serve this market substantially all through Princess although some of our other brands also source guests from Japan.

PRINCESS

In April 2013, Princess entered the cruise segment of the Japanese vacation market with its three-month deployment of the 2,022-passenger capacity Sun Princess on cruises that departed from home ports in Yokohama and Kobe, Japan. This ship offers Princess’ international products and services with Japanese touches to appeal to the tastes of its Japanese guests. In 2014, Princess will expand its Japanese deployments to two ships. One ship will offer cruises departing from Kobe and Otaru, Japan from April to August and the other ship will offer cruises departing from Yokohama, Japan from April to October. These 2014 cruises will range from seven to nine days. The two ships will visit Japan, South Korea, Taiwan and Russia.

	V.	Ships Under Contract for Construction

As of January 22, 2014, 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
Carnival Vista		4/16		3,972

Holland America Line
Newbuild		2/16		2,660

Princess
Regal Princess		5/14		3,560

Seabourn
Newbuild		6/16		604


North America Cruise Brands				10,796

EAA
AIDA
AIDAprima		3/15		3,286
Newbuild		3/16		3,286

Costa
Costa Diadema		10/14		3,708

P&O Cruises (UK)
Britannia		3/15		3,647


EAA Cruise Brands				13,927

				24,723

(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. All of our ship construction contracts except AIDA’s are with Fincantieri in Italy. Our AIDA ship construction contracts are with Mitsubishi Heavy Industries in Japan.

	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 and operation of mixed-use commercial properties.

During 2013, 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 leased or owned port facilities or have interests in joint ventures that operate leased or owned port facilities in 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 have developed as destinations in Cozumel, Mexico; Grand Turk, Turks and Caicos Islands and Roatán, Honduras, as well as private island destinations in The Bahamas primarily for the benefit of our North America cruise brands. We are also developing a port facility destination in Puerto Plata, Dominican Republic, known as Amber Cove, that is expected to be operational in 2015. 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 unique vacation 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 repair and maintenance programs. We utilize this facility, as well as other ship repair facilities, for our dry-dockings. This repair facility, located in Freeport, Grand Bahamas, has three dry-docks and can accommodate almost all of our ships. As a result, our North America brand ships based in the Caribbean primarily use this facility given its proximity to their home ports. During 2013, 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 over $60 million in 2013, 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 $71 million at November 30, 2013. GBSL had an aggregate of $102 million of outstanding debt to RCCL and us at November 30, 2013.

	VIII.	Cruise Pricing and Payment Terms

Each of our cruise brands publishes prices for the upcoming seasons primarily through the internet, although published materials such as brochures and direct mailings are also used. Our brands have multiple pricing levels that vary by cruise line, by category of cabin, by ship, by season, by duration and by itinerary. Cruise prices frequently change in a dynamic pricing environment. Some cruise prices are reduced through special promotions and early booking, past guest recognition and other programs. Conversely, some cruise prices are increased due to higher demand.

Our 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 and cruise durations 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 for a discussion of net revenue yields.

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 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, basketball, table tennis, sun decks, libraries, cooking demonstrations and a planetarium. Our brands’ payment terms generally require that a guest pay a deposit to confirm their reservation and pay 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.

Our guests are subject to a cancellation fee if they cancel their cruise within a pre-defined period before sailing, unless they purchase a vacation protection premium for the ability to obtain a refund. We include this cancellation fee income in cruise passenger ticket revenues upon cancellation. Guests who pay a vacation protection premium 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 ship’s 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 2013, 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 other 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 ground transfers from and to the airport near the ship’s home port as part of our transfer programs. When a guest elects to purchase these transfer services these revenues are included in cruise passenger ticket revenues.

	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. In 2013, we earned 23% of our revenues from onboard and other revenue activities and services not included in the cruise ticket price including substantially all liquor and some non-alcoholic beverage sales, casino gaming, shore excursions, gift shop sales, photo sales, full service spas, communication services, a wide variety of dining options, art sales and laundry services. Our brands are always working on innovative ways to enhance our guests’ onboard experience and increasing 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.

We offer a variety of shore excursions at each ship’s ports-of-call that include general sightseeing, cultural tours, adventure outings and local boat rides and beach experiences. 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 or provided by local operators. We also offer revenue-producing activities on the private islands and port destinations that we operate that include 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 designed to meet the needs of our guests. 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 guided tours, hotel accommodations and related transportation services. In Alaska and the Canadian Yukon, we utilize, to a large extent, our own hotel and transportation assets. The land portion of these Alaska and Yukon vacations vary in length from three to 13 days.

	X.	Sales Relationships

We sell our cruises mainly through travel agents, including retail, online, and home-based agents, as well as 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 and are critical to our success. Our individual cruise brands’ relationships with their travel agents are generally independent of each of our other brands. Our travel agent relationships are generally 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 utilize local sales teams to 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 industry and how to effectively sell our cruise products and services. During fiscal 2013, 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 almost 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 and enable their guests to quickly and easily book cruises and other products and services online. These sites interface with their social networks, blogs and other social media sites. We also employ vacation planners who support our direct sales initiatives by offering our guests cruise planning expertise and other services.

	XI.	Marketing Activities

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

Each of our brands has comprehensive marketing and advertising programs to promote their products and services to vacationers and travel agents in their source markets. 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, online, social media, direct mail, e-mail, brand websites, radio and outdoor billboards.

We continue to expand our marketing efforts to attract new guests online by leveraging the reach and impact of digital marketing and social media, such as Facebook, Twitter, YouTube, Blog, Google**+**, Flickr, Instagram and Pinterest. This helps us cultivate guests as fans of our brands, ships, itineraries and onboard products and services. In 2013, we had almost 7.5 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, onboard activity discounts, expedited ship embarkation and disembarkation and special onboard activities. In addition, some of our brands offer private-label credit cards to their guests, which accumulate award points for them to redeem for our products and services, and also provide other loyalty benefits. We earn revenue from the credit card providers based principally on new card issuances and the volume of purchases through these credit cards that is included in our other revenues. Our cruise brands continue to offer new enhancements and benefits to their past guest recognition programs.

	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, such as hotels, resorts (including all-inclusive resorts), theme parks, organized tours, casinos and vacation ownership properties. Our principal cruise competitors are RCCL, Norwegian Cruise Line and MSC Cruises. RCCL owns Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, CDF Croisieres de France and Pullmantur. RCCL and TUI AG, the leading German tour operator, jointly own TUI Cruises, a German cruise competitor. Over 80% of all 2013 global cruise guests sailed with these competitors and us.

	XIV.	Governmental Regulations

	a.	Maritime Regulations

	1.	General

Our ships are regulated by various international, national, state and local laws, regulations, treaties and other legal requirements that govern health, environmental, safety and security matters in relation to our guests, crew and ships. These requirements change regularly, sometimes on a daily basis, depending on the itineraries of our ships and the ports and countries visited. If we violate or fail to comply with any of these laws, regulations, treaties and other requirements, we could be fined or otherwise sanctioned by regulators. We are committed to complying with, or exceeding, all relevant maritime requirements.

Our ships are registered, or flagged, in The Bahamas, Bermuda, Italy, Malta, the Netherlands, Panama, Portugal and the UK, which are also referred to as Flag States. They are regulated by these Flag States through international conventions that govern health, environmental, safety and security matters in relation to our guests, crew and ships. Representatives of each Flag State conduct periodic inspections, surveys and audits to verify compliance with these requirements. In addition, we are subject to the decrees, directives, regulations and requirements of the European Union (“EU”), the U.S. and more than 500 other international ports that our ships visit every year.

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 mandated by the International Convention for the Safety of Life at Sea (“SOLAS”). Our ships 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 hull inspection and related activities, such as scraping, pressure cleaning and bottom painting and maintenance of steering equipment, propulsion engines, 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 work. To the extent practical, each ship’s crew including the hotel staff remain with the ship during the dry-dock period and assist in performing repair and maintenance work or participate in occupation, safety or other training.

As noted above, our ships are subject to inspection by the port regulatory authorities, which are also referred to as Port State Control, in the various countries that they visit. Such inspections include verification of compliance with the maritime safety, security, environmental, customs, immigration, health and labor requirements applicable to each port, as well as with international requirements. Many countries have joined together to form regional port regulatory authorities. Agreements have been signed covering Europe and the North Atlantic, Asia and the Pacific, Caribbean, West and Central Africa, the Black Sea region, the Mediterranean Sea, the Indian Ocean and other areas. 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 Italian ports these authorities include the Italian Coast Guard, Maritime Health and the State Police. In UK ports, these authorities include the UK Maritime & Coastguard Agency, the Department for Transport’s Transport Security team, otherwise known as TRANSEC, and the Port Health Authority.

Although not required by regulations, we voluntarily publish 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.

In 2006, our Boards of Directors established board-level Health, Environment, Safety & Security Committees (“HESS Committees”), which are currently each comprised of three independent directors. The principal function of the HESS Committees is to assist the boards in fulfilling their responsibility to supervise and monitor our health, safety, security and sustainability-related policies, programs and initiatives at sea and ashore and compliance with related legal and regulatory requirements. The HESS Committees and our management team reviews all significant risks or exposures and associated mitigating actions. We continue to be committed to implementing practical measures to manage identified risks effectively. To ensure that we are compliant with these requirements and that these areas of our business operate in an efficient manner we continue to, among other things:

•		Provide regular health, environmental, safety and security support, training, guidance and information to guests, employees and others working on our behalf,

•		Develop and implement effective and verifiable management systems to realize our health, environmental, safety and security commitments,

•		Perform regular shoreside and shipboard audits and take prompt action when deficiencies are identified,

•		Report and investigate all health, environmental, safety and security incidents and take appropriate action to prevent recurrence,

•		Identify those employees responsible for managing health, safety, environment, security and sustainability programs and ensure that there are clear lines of accountability and

•		Identify the aspects of our business that impact the environment and continue to take appropriate action to minimize that impact.

We believe maritime safety, security, environmental, sustainability, 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 and materials, refurbishment standards, life-saving and other 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 that meets or exceeds all international maritime regulations. SOLAS requirements are periodically revised and apply to ships under construction as well as to 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. Under the ISM Code, vessel operators are required to develop a Safety Management System (“SMS”) that includes, among other things, the adoption of a safety and environmental protection policies setting forth instructions and procedures for operating vessels safely and describing procedures for responding to emergencies and protecting the environment. The ISM Code also requires that vessel operators obtain a Document of Compliance (“DOC”) as well as a Safety Management Certificate (“SMC”) for each vessel they operate. These documents are issued by the vessel’s Flag State and evidence our compliance with the SMS. Such DOCs and SMCs must be verified or renewed periodically in accordance with the ISM Code. All of our shoreside and shipboard operations and ships are regularly audited by the national authorities and maintain the required certificates of compliance in accordance with the ISM Code.

In December 2012, we completed a comprehensive audit and review of our safety and emergency response policies and procedures in consultation with third-party safety experts. This wide-ranging review reinforced our commitment to the safety of our guests and crew and recommended the:

•		Expansion and acceleration of training of our bridge and engine room officers in maritime related best practices at our training facilities in Almere, the Netherlands and Rostock, Germany, which opened in 2009 and 2011, respectively,

•		Expansion of our existing oversight function to monitor bridge operations, modified policies across all the health, environment, safety and security disciplines and created a process for continuous improvement in the safety of our operations,

•		Restructuring of our existing health, environment, safety and security audit function and

•		Further standardization of our detailed bridge and engine resource management procedures on all of our ships.

As members of the Cruise Lines International Association (“CLIA”), the global cruise business trade association, we have agreed to and are implementing policies that were identified as part of CLIA’s Cruise Industry Operational Safety Review. These policies include passenger muster, passage planning, personnel access to the bridge, excess life jackets, recording the nationality of passengers, common elements of musters and emergency instructions, lifeboat loading for training purposes, harmonization of bridge procedures, location of lifejacket storage and securing heavy objects. 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. These requirements include the International Ship and Port Facility Security Code, which is 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 applies to all of our ships that embark or disembark passengers in the U.S. These regulations require that, among other things, we implement specific security measures, including onboard installation of a ship security alert system, conduct vessel security assessments, identify and deter security threats, conduct training, drills and exercises 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 discharges, 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 and, in particular, the health of the world’s oceans as the success of our business is dependent on them. 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 total GHG and other emissions. Further, reducing fuel consumption continues to be one of our most important cross-brand initiatives, which has and will continue to help reduce emissions and mitigate the impact of high fuel prices. We have and will continue to implement our energy-saving strategy through our environmental management systems. This strategy includes installing some of the best available energy reduction technologies on our ships, such as propulsion and cooling systems, and evaluating alternative fuels 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. We have achieved a 21% cumulative reduction in unit fuel consumption since 2007 and look to further manage and reduce our fuel consumption costs in the future. We control our GHG and other emissions by managing our energy consumption. Our ship fuel consumption and emission rates and our total ship fuel GHG emissions are as follows:


					Percentage Change Since
Measure	Units	2013	2012	2008	2012	2008

Ship Fuel Consumption Rate	Grams Fuel/ALB-KM (a)	89	92	104	(3.3%)	(14.4%)
Ship Fuel GHG Emission Rate	Grams CO2e/ALB-KM (b)	280	289	327	(3.1%)	(14.4%)
SOx Emission Rate	Kg SOx/NM (c)	(e)	13.6	16.1	(e)	(15.5%) (e)
NOx Emission Rate	Kg NOx/NM (c)	(e)	22.8	24.8	(e)	(8.1%) (e)
Total Ship Fuel GHG Emissions (in millions)	Tonnes CO2e (d)	10,285	10,562	10,002	(2.6%)	2.8%

(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 travelled allows us to compare our pollutant reduction efforts over the reporting periods.

(d)	GHG emission data collection and calculations were performed in accordance with our GHG Inventory Management Plan, the Greenhouse Gas Protocol and ISO 14064-3:2006.

(e)	Information for 2013 is not available as of January 29, 2014. Percentage reduction presented is from 2008 to 2012.

	i.	International Regulations

The principal international convention governing marine pollution prevention and response is the IMO’s International Convention for the Prevention of Pollution from Ships (“MARPOL”). MARPOL includes requirements designed to prevent and minimize both accidental and operational pollution by oil, sewage, garbage and air emissions. To further these objectives, MARPOL sets forth specific requirements related to vessel operations, equipment, recordkeeping and reporting that are designed to prevent and minimize pollution. 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. The ship’s Flag State issues these certificates, which evidence their compliance with the MARPOL regulations regarding prevention of pollution by oil, sewage, garbage and air emissions. Certain jurisdictions have not adopted MARPOL but have established various national, regional or local laws and regulations to address these issues.

As noted above, MARPOL governs the prevention of pollution by oil from operational measures, as well as from accidental discharges. MARPOL requires that discharges of machinery space bilge water pass through pollution prevention equipment that separates oil from the water and monitors the discharge to ensure that the effluent does not exceed 15 parts per million of oil. Our ships must have oily water separators with oil content monitors installed and must maintain a record of certain engine room operations in an Oil Record Book. MARPOL also requires that our ships have Shipboard Oil Pollution Emergency Plans.

MARPOL also governs the discharge of sewage from ships and contains regulations regarding the ships’ equipment and systems for the control of sewage discharge, the provision of facilities at ports and terminals for the reception of sewage and requirements for survey and certification. The MARPOL amendment making the Baltic Sea a “Special Area” where sewage discharges from passenger ships are restricted entered into force on January 1, 2013. However, this amendment will only take effect upon notification of the existence of adequate reception facilities from countries whose coastlines border the Baltic Sea Special Area. The date these amendments will take effect is uncertain as the underlying requirements have not yet been finalized. These new requirements may affect our operations unless suitable port waste facilities are available or new technologies for onboard waste treatment are developed. The cost of complying with these new requirements is not determinable at this time.

MARPOL also governs the discharge of garbage from ships and requires a Garbage Management Plan and a Garbage Record Book. New regulations addressing garbage management went into effect on January 1, 2013. The most significant change in the new regulations is the prohibition on the discharge of all garbage unless the discharge is expressly provided for under the regulations. The cost of offloading garbage increased in 2013 as a result of these new requirements.

Furthermore, MARPOL addresses air emissions from vessels, establishes requirements for the prevention of air pollution from ships to reduce emissions of SOx, NOx and particulate matter. It also contains restrictions on the use of ozone depleting substances (“ODS”) and requires the recording of ODS use, equipment containing ODS, the emission of ODS and the disposal of equipment containing ODS from ships. Finally, additional MARPOL requirements are discussed below in Section iv. “Low Sulfur Fuel Regulations.”

As a means of managing our environmental compliance, we adhere to standards set by the International Organization for Standardization (“ISO”), an international standard-setting body, which produces worldwide industrial and commercial standards. Our environmental management systems and ships are certified in accordance with ISO 14001, the 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 Act to Prevent Pollution from Ships, authorizes the implementation of MARPOL in the U.S. and imposes numerous requirements on our ships, as discussed above. Administrative, civil and criminal penalties may be assessed for violations.

The Oil Pollution Act of 1990 (“OPA 90”) established a comprehensive federal liability regime, as well as prevention and response requirements, relating to discharges of oil in U.S. waters. The major requirements include demonstrating financial responsibility up to the liability limits and having oil spill response plans in place. We have Certificates of Financial Responsibility 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. Under OPA 90, owners or operators of vessels operating in U.S. waters must file vessel response plans with the U.S. Coast Guard and must operate in compliance with these plans. Our vessel response plans have been submitted to the U.S. Coast Guard and we operate in accordance with our plans. As OPA 90 expressly allows coastal states to impose liabilities and requirements beyond those imposed under federal law, many U.S. states have enacted laws more stringent than OPA 90. Some of these state laws impose unlimited liability for oil spills and contain more stringent financial responsibility and contingency planning requirements, of which we are in compliance.

The Clean Water Act (“CWA”) 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.

Pursuant to the CWA authority, 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 is 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.

Our operations generate and require the transportation and disposal of both hazardous and non-hazardous solid wastes that are subject to the requirements of the U.S. Resource Conservation and Recovery Act. In general, vessel owners are required to determine if their wastes are hazardous, comply with certain standards for the proper management of hazardous wastes and use hazardous waste manifests for shipments to disposal facilities.

In 1996, the U.S. National Invasive Species Act (“NISA”) was enacted in response to growing reports of harmful organisms being released into U.S. waters through ballast water taken on by vessels in foreign waters. The U.S. Coast Guard adopted regulations under NISA in July 2004 that impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering U.S. waters. These requirements can be met by performing mid-ocean ballast exchange, by retaining ballast water onboard the vessel or by using environmentally sound ballast water treatment methods approved by the U.S. Coast Guard.

The U.S. Coast Guard issued a final rule, which went into effect in June 2012, establishing standards for the allowable concentration of living organisms in ballast water discharged in U.S. waters and requiring the phase-in of U.S. Coast Guard approved ballast water management systems. The standards are equivalent to those in the IMO convention. In most cases, affected vessels will be required to install and operate a ballast water management system that has been approved by the U.S. Coast Guard. A vessel’s compliance date varies based upon the date of construction and ballast water capacity. New ships constructed on or after December 1, 2013 must comply with these standards on delivery. Existing ships must comply by their first dry-dock after January 1, 2014 or 2016, depending on the ships’ ballast water capacity. However, as of January 22, 2014, no ballast water management systems have been approved by the U.S. Coast Guard and, accordingly, they are granting exemptions from this rule.

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 sets effluent limits on others. Further, the state requires that certain discharges be reported and 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 U.S. federal requirements 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 broad range of substantial 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 requiring the use of low sulfur (less than 0.1%) marine gas oil while in EU ports.

	iv.	Low Sulfur Fuel Regulations

MARPOL Annex VI, which addresses air emissions from vessels, requires the use of low sulfur fuel worldwide in both auxiliary and main propulsion diesel engines on ships. Annex VI also 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 rather than the current 3.5% global limit. Beginning in January 2014, the area that extends approximately 50 miles off the coasts of Puerto Rico and the U.S. Virgin Islands has also become an ECA (“U.S. Caribbean ECA”), but we do not believe this will result in a significant impact on our fuel costs. From January 2015 and thereafter, the fuel sulfur content limit in ECAs will be further reduced to 0.1% (“2015 ECA”).

The MARPOL global limit on fuel sulfur content outside of ECAs will be reduced to 0.5% 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.

In conjunction with an affiliate we have and will continue to develop and test scrubber designs that we believe will reduce the sulfur emission levels of our higher sulfur bunker fuel to or below the levels required under the current and 2015 ECAs. Furthermore, we have received an exemption for 32 ships that regularly sail within the North American and U.S. Caribbean ECA that will delay the requirements to comply with the 2015 ECA limits through agreed upon dates ending in 2016. We expect to install scrubbers on most of our ships between 2014 and 2016. As a result of installing these scrubbers, we believe the cost of complying with the 2015 ECA sulfur emission requirement will not be significant to our results of operations.

In regards to the 2020 MARPOL global requirements outside of ECAs, we currently plan on installing additional scrubbers on our ships between 2017 and 2019 in order to comply with these requirements. We expect that as a result of installing these scrubbers, the cost of complying with the 2020 MARPOL global requirements will also not be significant to our results of operations.

Beyond scrubber technology, as part of our emission abatement program, we have continued our work with local port authorities and/or the EPA to help promote the development 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 21 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 electricity provider rather than running their engines while in port to power their onboard services, and thus reducing our air emissions. Similarly, in an effort to continue our commitment to sustainability and to playing a leading role in matters of environmental protection in the cruise ship industry, AIDA launched a pilot project using a liquefied natural gas (“LNG”) hybrid barge for ecologically friendly and flexible power supply as an alternative to shore power, while its ships are moored in the port of Hamburg, Germany.

In the long-term, the cost impacts of achieving progressively lower sulfur emission requirements may be further mitigated by the favorable impact of future changes in the supply and demand balance for marine and other fuels, future developments of and investments in improved sulfur emission abatement technologies, the use of alternative lower cost and lower emission fuels, such as LNG at sea and in port, and our continued efforts to improve the overall fuel efficiency across our fleet. Since 2007, we have achieved a 21% cumulative reduction in unit fuel consumption by focusing on the following:


• efficiency improvements in the areas of hull coatings • improved engine performance • more efficient air conditioning • more efficient LED lighting • more advanced engine designs		• more efficient propeller designs • more efficient pumps and ventilation • new itineraries • reduction in ship speeds • increased energy use awareness and training

	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 almost 19%. We have 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.

In January 2013, the IMO approved measures to reduce emissions of GHGs from international shipping by adopting technical and operational measures for all ships. The technical measures apply to the design of new vessels, and the operational reduction measures apply to all vessels. We are in compliance with these measures.

	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, an agency of the United Nations that develops and oversees international labor standards, adopted a Consolidated Maritime Labor Convention (“MLC 2006”). MLC 2006 contains a comprehensive set of global standards and includes a broad range of requirements, such as the 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. In August 2013, MLC 2006 became effective in certain countries in which we operate and we are in compliance.

The International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW”), as amended, establishes minimum standards relating to training, including security 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 and will be increasing to $30 million by April 2015.

In order to comply with this requirement, we have an aggregate of $75 million of guarantees provided by some of our insurers. Based on the increase mentioned above, our guarantee will increase to $150 million by April 2015. 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, Europe and Australia, we are 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 U.S. in the 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 9,700 full-time and 4,500 part-time/seasonal employees. We also employ an average of 78,500 crew members, including officers, onboard the 101 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, which seasonal employees 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 12%, 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 a limited number of manning agencies to help locate and hire most of our shipboard employees. The sourcing diversity of our crew, the majority of which are employed on a gratuity-based wage structure, is also a significant contributing factor to the attractiveness of our cruise business model.

Our cruise brands are committed to providing appropriate hotel and 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 for shipboard officers that includes two maritime training facilities with one located in Almere, the Netherlands, known as the Center for Simulator Maritime Training (“CSMART”), and the other in Rostock, Germany, known as CSMART Rostock. Our mission is to be a leader in delivering high quality professional maritime training. Participants receive a superior maritime training experience that fosters critical thinking, problem solving, ethical decision making and confidence. CSMART offers two full mission bridge simulators, six part-task bridge simulators and the ability to simulate fixed propeller and azipod simulation. CSMART Rostock offers one full mission bridge simulator and one part-task bridge simulator. On the engineering side, CSMART offers two full mission engine control rooms with four machinery outstations and 16 part-task engine room simulators. CSMART Rostock offers one part-task engine room simulator. The CSMART facility also features large instructional classrooms, meeting rooms and a catering facility. We have enhanced our Health, Environment, Safety and Security Management System risk assessment and management capabilities by implementing shipboard quality assurance initiatives that will further strengthen bridge and engine control room resource management training and operational 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 non-payroll operating expenditures are for fuel, food and beverages, travel agency services, port facility utilization, repairs and maintenance including dry-docking, air transportation services, advertising and marketing, hotel and restaurant products and supplies and communication services. Our largest capital investments are for the construction of new ships and improvements to existing ships, including our vessel enhancement program and scrubber installations.

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 maritime suppliers. Almost 50% of our fuel purchases are provided by five suppliers.

We perform our major dry-dock and ship improvement work at dry-dock facilities in The Bahamas, Europe, the U.S., Canada, Singapore and Australia. At January 22, 2014, we have agreements in place for the construction of eight cruise ships with two shipyards. We also purchase repair, maintenance and refurbishment items from a limited number of maritime suppliers. We believe there are sufficient dry-dock and shipbuilding facilities and related suppliers 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.

	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 are 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.	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 and related commercial facilities. We also maintain workers compensation, directors and officer’s 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 industry, 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 its itinerary, any particular 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 profit taxes.

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

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 2023. 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 can 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 International shipping tax regime since all of their ships are Italian registered.

	IV.	Portuguese, Spanish and German Income Tax

Both 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% 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, Chinese and Japanese Income and Other Taxes

From November through March, Costa and Ibero operate directly and 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 passengers and 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 international operations in China is exempt from Chinese corporation tax by virtue of the Italy/China Maritime tax treaty.

The Princess cruise ships operated internationally by Carnival plc for the Asian markets are exempt from Chinese and Japanese income taxes by virtue of tax treaties between these countries and the United Kingdom.

	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 shareholders 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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