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Carnival฀Corporation฀&฀plc฀|฀page฀13
Foreign฀Currency฀Translations฀and฀Transactions
Our฀foreign฀subsidiaries฀and฀affiliates฀that฀have฀functional฀
currencies฀other฀than฀the฀U.S.฀dollar฀translate฀their฀assets฀฀
and฀liabilities฀at฀exchange฀rates฀in฀effect฀at฀the฀balance฀sheet฀
dates.฀Revenues฀and฀expenses฀of฀these฀foreign฀subsidiaries฀
and฀affiliates฀are฀translated฀at฀weighted-average฀exchange฀
rates฀for฀the฀period.฀Equity฀is฀translated฀at฀historical฀rates,฀and฀
the฀resulting฀cumulative฀foreign฀currency฀translation฀adjust-
ments฀are฀included฀as฀a฀component฀of฀AOCI.฀Therefore,฀the฀
U.S.฀dollar฀value฀of฀these฀non-equity฀translated฀items฀in฀our฀
financial฀statements฀will฀fluctuate฀from฀period฀to฀period,฀
depending฀on฀the฀changing฀value฀of฀the฀dollar฀against฀these฀
local฀functional฀currencies.
Exchange฀gains฀and฀losses฀arising฀from฀the฀remeasurement฀
of฀monetary฀assets฀and฀liabilities,฀and฀foreign฀currency฀trans-
actions฀denominated฀in฀a฀currency฀other฀than฀the฀functional฀
currency฀of฀the฀entity฀involved฀are฀immediately฀included฀in฀
nonoperating฀earnings,฀unless฀such฀net฀liabilities฀have฀been฀
designated฀to฀act฀as฀hedges฀of฀a฀net฀investment฀in฀our฀foreign฀
subsidiaries.฀In฀addition,฀the฀unrealized฀exchange฀gains฀or฀
losses฀on฀our฀long-term฀intercompany฀receivables฀denomi-
nated฀in฀a฀non-functional฀currency,฀which฀are฀not฀expected฀฀
to฀be฀repaid฀in฀the฀foreseeable฀future฀and฀are฀therefore฀con-
sidered฀to฀form฀part฀of฀our฀net฀investment,฀are฀recorded฀as฀a฀
foreign฀currency฀translation฀adjustment,฀which฀is฀included฀as฀฀
a฀component฀of฀AOCI.฀Finally,฀net฀foreign฀currency฀transaction฀
gains฀or฀losses฀recorded฀in฀our฀earnings฀were฀not฀significant฀
in฀fiscal฀2006,฀2005฀and฀2004.
Earnings฀Per฀Share
Basic฀earnings฀per฀share฀is฀computed฀by฀dividing฀net฀income฀
by฀the฀weighted-average฀number฀of฀shares฀of฀common฀stock฀
and฀ordinary฀shares฀outstanding฀during฀each฀period.฀Diluted฀
earnings฀per฀share฀is฀computed฀by฀dividing฀adjusted฀net฀
income฀by฀the฀weighted-average฀number฀of฀shares฀of฀com-
mon฀stock฀and฀ordinary฀shares,฀common฀stock฀equivalents฀
and฀other฀potentially฀dilutive฀securities฀outstanding฀during฀
each฀period.฀All฀shares฀that฀are฀issuable฀under฀our฀outstanding฀
convertible฀notes฀that฀have฀contingent฀share฀conversion฀fea-
tures฀have฀been฀considered฀outstanding฀for฀our฀diluted฀earnings฀
per฀share฀computations,฀if฀dilutive,฀using฀the฀“if฀converted”฀
method฀of฀accounting฀from฀the฀date฀of฀issuance.
Share-Based฀Compensation
Effective฀December฀1,฀2005,฀we฀adopted฀the฀provisions฀฀
of฀SFAS฀No.฀123฀(revised฀2004),฀“Share-Based฀Payment”฀
(“SFAS฀No.฀123(R)”),฀which฀requires฀us฀to฀measure฀and฀rec-
ognize฀compensation฀expense฀for฀all฀share-based฀compensa-
tion฀awards.฀We฀adopted฀SFAS฀No.฀123(R)฀using฀the฀modified฀
prospective฀application฀transition฀method.฀Under฀this฀method,฀
the฀share-based฀compensation฀cost฀recognized฀beginning฀
December฀1,฀2005฀includes฀compensation฀cost฀for฀(i)฀all฀
share-based฀payments฀granted฀prior฀to,฀but฀not฀vested฀as฀of,฀
December฀1,฀2005,฀based฀on฀the฀grant฀date฀fair฀value฀originally฀
estimated฀in฀accordance฀with฀the฀provisions฀of฀SFAS฀No.฀123,฀
“Accounting฀for฀Stock-Based฀Compensation”฀(“SFAS฀No.฀
123”),฀and฀(ii)฀all฀share-based฀payments฀granted฀subsequent฀
to฀November฀30,฀2005,฀based฀on฀the฀grant฀date฀fair฀value฀esti-
mated฀in฀accordance฀with฀the฀provisions฀of฀SFAS฀No.฀123(R).฀
Prior฀to฀December฀1,฀2005,฀as฀allowed฀under฀the฀then฀out-
standing฀accounting฀principles,฀we฀did฀not฀recognize฀compen-
sation฀expense฀for฀the฀issuance฀of฀stock฀options฀with฀an฀
exercise฀price฀equal฀to฀or฀greater฀than฀the฀market฀price฀of฀the฀
underlying฀shares฀at฀the฀date฀of฀grant.
Compensation฀cost฀under฀SFAS฀No.฀123(R)฀is฀recognized฀
ratably฀using฀the฀straight-line฀attribution฀method฀over฀the฀
expected฀vesting฀period฀or฀to฀the฀retirement฀eligibility฀date,฀if฀
less฀than฀the฀vesting฀period,฀when฀vesting฀is฀not฀contingent฀
upon฀any฀future฀performance.฀In฀addition,฀pursuant฀to฀SFAS฀
No.฀123(R)฀we฀are฀required฀to฀estimate฀the฀amount฀of฀expected฀
forfeitures,฀which฀we฀estimate฀based฀on฀historical฀forfeiture฀
experience,฀when฀calculating฀compensation฀cost.฀If฀the฀actual฀
forfeitures฀that฀occur฀are฀different฀than฀the฀estimate,฀then฀we฀
will฀revise฀our฀estimates.฀The฀effect฀of฀adopting฀SFAS฀No.฀
123(R)฀has฀been฀to฀reduce฀our฀net฀income฀by฀$57฀million฀and฀
our฀basic฀and฀diluted฀earnings฀per฀share฀by฀$0.07฀for฀the฀year฀
ended฀November฀30,฀2006.฀Prior฀periods฀are฀not฀restated฀
under฀this฀transition฀method.
Concentrations฀of฀Credit฀Risk
As฀part฀of฀our฀ongoing฀control฀procedures,฀we฀monitor฀
concentrations฀of฀credit฀risk฀associated฀with฀financial฀and฀
other฀institutions฀with฀which฀we฀conduct฀significant฀business.฀
Credit฀risk,฀including฀counterparty฀nonperformance฀under฀
derivative฀instruments,฀contingent฀obligations฀and฀new฀ship฀
progress฀payment฀guarantees,฀is฀considered฀minimal,฀as฀we฀