Carnival Cruises 2003 Annual Report Download - page 17

14 Carnival Corporation & plc
against the relevant guarantor. There is no requirement
under the deeds of guarantee to obtain a judgment, take
other enforcement actions or wait any period of time
prior to taking steps against the relevant guarantor. All
actions or proceedings arising out of or in connection
with the deeds of guarantee must be exclusively brought
in courts in England.
Under the terms of the DLC transaction documents,
Carnival Corporation and Carnival plc are permitted to
transfer assets between the companies, make loans or
investments in each other and otherwise enter into inter-
company transactions. The companies have entered into
some of these types of transactions and expect to enter
into additional transactions in the future to take advan-
tage of the flexibility provided by the DLC structure and
to operate both companies as a single unified economic
enterprise in the most effective manner. In addition,
under the terms of the Equalization and Governance
Agreement and the deeds of guarantee, the cash flow
and assets of one company are required to be used to
pay the obligations of the other company, if necessary.
Given the DLC structure as described above, we
believe that providing separate financial statements
for each of Carnival Corporation and Carnival plc would
not present a true and fair view of the economic reali-
ties of their operations. Accordingly, separate financial
statements for both Carnival Corporation and Carnival
plc have not been presented.
Simultaneously with the completion of the DLC
transaction, a partial share offer (“PSO”) for 20% of
Carnival plc’s shares was made and accepted, which
enabled 20% of Carnival plc shares to be exchanged for
41.7 million Carnival Corporation shares. The 41.7 mil-
lion shares of Carnival plc held by Carnival Corporation
as a result of the PSO, which cost $1.05 billion, are
being accounted for as treasury stock in the accompany-
ing balance sheet. The holders of Carnival Corporation
shares, including the new shareholders who exchanged
their Carnival plc shares for Carnival Corporation shares
under the PSO, now own an economic interest equal to
approximately 79%, and holders of Carnival plc shares
now own an economic interest equal to approximately
21%, of Carnival Corporation & plc.
The management of Carnival Corporation and
Carnival plc ultimately agreed to enter into the DLC
transaction because, among other things, the creation
of Carnival Corporation & plc would result in a company
with complementary well-known brands operating glob-
ally with enhanced growth opportunities, benefits of
sharing best practices and generating cost savings,
increased financial flexibility and access to capital mar-
kets and a DLC structure, which allows for continued
participation in an investment in the global cruise indus-
try by Carnival plc’s shareholders who wish to continue
to hold shares in a UK-listed company.
Carnival plc was the third largest cruise company in
the world and operated many well-known global brands
with leading positions in the U.S., UK, Germany and
Australia. The combination of Carnival Corporation with
Carnival plc under the DLC structure has been accounted
for under U.S. generally accepted accounting principles
(“GAAP”) as an acquisition of Carnival plc by Carnival
Corporation pursuant to SFAS No. 141. The purchase
price of $25.31 per share was based upon the average of
the quoted closing market price of Carnival Corporation’s
shares beginning two days before and ending two days
after January 8, 2003, the date the Carnival plc board
agreed to enter into the DLC transaction. The number
of additional shares effectively issued in the combined
entity for purchase accounting purposes was 209.6 mil-
lion. In addition, Carnival Corporation incurred approxi-
mately $60 million of direct acquisition costs, which
have been included in the purchase price. The aggre-
gate purchase price of $5.36 billion, computed as
described above, has been allocated to the assets and
liabilities of Carnival plc as follows (in millions):
Ships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,669
Ships under construction . . . . . . . . . . . . . . . . . . . . 233
Other tangible assets . . . . . . . . . . . . . . . . . . . . . . . 868
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,248
Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,291
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,879)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,072)
$ 5,358
During the fourth quarter of fiscal 2003 an appraisal
firm who we engaged completed its valuation work in
connection with establishing the estimated fair values
of Carnival plc’s cruise ships and non-amortizable and
amortizable intangible assets as of the April 17, 2003
acquisition date. Accordingly, we reduced the carrying
values of 15 Carnival plc ships, including three ships
which were under construction at the acquisition date,
by $689 million. Trademarks are non-amortizable and
represent the Princess, P&O Cruises, P&O Cruises
Australia, AIDA, and A’ROSA trademarks’ estimated fair
values. There were no significant amortizable intangible
assets identified in this appraisal firm’s valuation study.
The information presented below gives pro forma
effect to the DLC transaction between Carnival
Corporation and Carnival plc. Management has pre-
pared the pro forma information based upon the com-
panies’ reported financial information and, accordingly,
the pro forma information should be read in conjunction
with the companies’ financial statements.
As noted above, the DLC transaction has been
accounted for as an acquisition of Carnival plc by Carnival
Corporation, using the purchase method of accounting.
Carnival plc’s accounting policies have been conformed
Notes to Consolidated Financial Statements (continued)