Carnival Cruises 2003 Annual Report Download - page 25

22 Carnival Corporation & plc
Code or if the income tax treaties or Internal Revenue
Code were to be changed in a manner adverse to us, a
portion of our income would become subject to taxation
by the U.S. at higher than normal corporate tax rates.
On August 26, 2003, final regulations under Section
883 of the Internal Revenue Code were published in
the Federal Register. Section 883 is the primary provi-
sion upon which we rely to exempt certain of our inter-
national ship operation earnings from U.S. income taxes.
The final regulations list elements of income that are
not considered to be incidental to ship operations and,
to the extent earned within the U.S., are subject to U.S.
income tax. Among the items identified in the final reg-
ulations are income from the sale of air and other trans-
portation, shore excursions and pre-and post cruise
land packages. These rules will first be effective for
us in fiscal 2004.
AIDA, A’ROSA, Ocean Village, P&O Cruises, P&O
Cruises Australia and Swan Hellenic are all strategically
and commercially managed in the UK and have elected
to enter the UK tonnage tax regime. Accordingly, these
operations pay UK corporation tax on shipping profits
calculated by reference to the net tonnage of qualifying
vessels. Income not considered to be shipping profits
is taxable under the normal UK tax rules. We believe
that substantially all of the income attributable to these
brands constitutes shipping profits and, accordingly,
income tax expense from these operations has been
and is expected to be minimal.
Some of our subsidiaries, including Costa, Holland
America Tours, Princess Tours and other of our non-
shipping activities, are subject to foreign and/or U.S.
federal and state income taxes. In fiscal 2003, we rec-
ognized a net $29 million income tax expense, primarily
related to these operations. In 2002, we recognized a
net $57 million income tax benefit primarily due to an
Italian investment incentive law, which allowed Costa
to receive a $51 million income tax benefit based on
contractual expenditures during 2002 on the construc-
tion of a new ship. At November 30, 2003, Costa had a
remaining net deferred tax asset of approximately $61
million relating primarily to the tax benefit of the net
operating loss carryforwards arising from this incentive
law, which expire in 2007. In fiscal 2001, we recog-
nized a $9 million income tax benefit from Costa prima-
rily due to changes in Italian tax law.
We do not expect to incur income taxes on future
distributions of undistributed earnings of foreign sub-
sidiaries and, accordingly, no deferred income taxes have
been provided for the distribution of these earnings.
In addition to or in place of income taxes, virtually
all jurisdictions where our ships call, impose taxes
based on passenger counts, ship tonnage or some
other measure. These taxes, other than those directly
charged to and/or collected from passengers by us, are
recorded as operating expenses in the accompanying
statements of operations.
Note 11—Shareholders’ Equity
Carnival Corporation’s articles of incorporation author-
ize its Board of Directors, at its discretion, to issue up to
40 million shares of its preferred stock and Carnival plc
has 100,000 authorized preference shares. At November
30, 2003 and 2002, no Carnival Corporation preferred
stock had been issued and only a nominal amount of
Carnival plc preferred shares had been issued.
At November 30, 2003, there were 91.7 million
shares of Carnival Corporation common stock reserved
for issuance pursuant to its convertible notes and its
employee benefit and dividend reinvestment plans. In
addition, Carnival plc shareholders have authorized 4.8
million ordinary shares for future issuance under its
employee benefit plans.
At November 30, 2003 and 2002, AOCI included
cumulative foreign currency translation adjustments
which increased shareholders’ equity by $191 million
and $29 million, respectively.
Note 12—Financial Instruments
We estimated the fair value of our financial instru-
ments through the use of public market prices, quotes
from financial institutions and other available informa-
tion. Considerable judgment is required in interpreting
data to develop estimates of fair value and, accordingly,
amounts are not necessarily indicative of the amounts
that we could realize in a current market exchange. Our
financial instruments are not held for trading or other
speculative purposes.
Cash and Cash Equivalents
The carrying amounts of our cash and cash equivalents
approximate their fair values due to their short maturities.
Other Assets
At November 30, 2003 and 2002, long-term other
assets included marketable securities held in rabbi
trusts for certain of our nonqualified benefit plans and
notes and other receivables. These assets had carrying
and fair values of $225 million at November 30, 2003
and $173 million at November 30, 2002. Fair values were
based on public market prices, estimated discounted
future cash flows or estimated fair value of collateral.
Notes to Consolidated Financial Statements (continued)