Carnival Cruises 2006 Annual Report Download - page 30

page฀26 | Carnival Corporation & plc
NOTES฀TO฀CONSOLIDATED฀FINANCIAL฀STATEMENTS฀(continued)
NOTE฀12—Benefit฀Plans
Stock฀Incentive฀Plans
We฀issue฀our฀share-based฀compensation฀awards฀under฀the฀
Carnival฀Corporation฀and฀Carnival฀plc฀stock฀plans,฀which฀have฀
an฀aggregate฀of฀39.1฀million฀shares฀available฀for฀future฀grant฀฀
at฀November฀30,฀2006.฀These฀plans฀allow฀us฀to฀issue฀stock฀
options,฀restricted฀stock฀awards฀and฀restricted฀stock฀units฀
(collectively฀“incentive฀awards”).฀Incentive฀awards฀are฀primarily฀
granted฀to฀management฀level฀employees฀and฀members฀of฀our฀
Board฀of฀Directors.฀The฀plans฀are฀administered฀by฀a฀commit-
tee฀of฀our฀independent฀directors฀(the฀“Committee”),฀that฀
determines฀who฀is฀eligible฀to฀participate,฀the฀number฀of฀shares฀
for฀which฀incentive฀awards฀are฀to฀be฀granted฀and฀the฀amounts฀
that฀may฀be฀exercised฀within฀a฀specified฀term.฀These฀plans฀
allow฀us฀to฀fulfill฀our฀incentive฀award฀obligations฀using฀shares฀
purchased฀in฀the฀open฀market,฀or฀with฀unissued฀or฀treasury฀
shares.฀Certain฀incentive฀awards฀provide฀for฀accelerated฀vest-
ing฀if฀we฀have฀a฀change฀in฀control,฀as฀defined.
Effective฀December฀1,฀2005,฀we฀adopted฀the฀provisions฀of฀
SFAS฀No.฀123(R),฀which฀required฀us฀to฀measure฀and฀recog-
nize฀compensation฀expense฀for฀all฀share-based฀compensation฀
awards.฀The฀total฀share-based฀compensation฀expense฀was฀
$68฀million฀for฀fiscal฀2006,฀of฀which฀$60฀million฀has฀been฀
included฀in฀the฀Consolidated฀Statements฀of฀Operations฀as฀
selling,฀general฀and฀administrative฀expenses฀and฀$8฀million฀as฀
cruise฀payroll฀expenses.
Prior฀to฀December฀1,฀2005,฀we฀did฀not฀recognize฀com-
pensation฀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.฀Had฀we฀elected฀to฀฀
charge฀earnings฀for฀the฀estimated฀fair฀value฀of฀stock฀options฀in฀฀
prior฀years,฀our฀pro฀forma฀net฀income฀and฀pro฀forma฀earnings฀฀
per฀share฀would฀have฀been฀as฀follows฀(in฀millions,฀except฀per฀
share฀amounts):
Years฀Ended฀
November฀30,
2005 2004
Net฀income,฀as฀reported฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ $฀2,253 $฀1,809
Share-based฀compensation฀expense฀included฀
฀ in฀net฀income,฀as฀reported ฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ 12 11
Total฀share-based฀compensation฀expense฀
฀ determined฀under฀the฀fair฀value-based
฀ method฀for฀all฀awards(a)฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ (86) (66)
Pro฀forma฀net฀income฀for฀basic฀earnings฀฀
฀ per฀share฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ 2,179 1,754
Interest฀on฀dilutive฀convertible฀notes฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ 47 49
Pro฀forma฀net฀income฀for฀diluted฀earnings฀฀
฀ per฀share฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ $฀2,226 $฀1,803
Earnings฀per฀share
฀ Basic
฀ ฀ As฀reported ฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ $฀ 2.80 $฀ 2.25
฀ ฀ Pro฀forma฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ $฀ 2.70 $฀ 2.19
฀ Diluted
฀ ฀ As฀reported ฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ $฀ 2.70 $฀ 2.18
฀ ฀ Pro฀forma฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ $฀ 2.62 $฀ 2.13
(a)฀฀These฀amounts฀include฀the฀expensing฀of฀stock฀options฀made฀to฀retirement-
eligible฀employees฀over฀the฀expected฀vesting฀period฀of฀the฀option฀and฀
accounting฀for฀the฀impact฀of฀forfeitures฀as฀they฀occur.
As฀permitted฀by฀SFAS฀No.฀123฀and฀SFAS฀No.฀123(R),฀the฀
fair฀values฀of฀options฀were฀estimated฀using฀the฀Black-Scholes฀
option-pricing฀model.฀The฀Black-Scholes฀weighted-average฀
values฀and฀assumptions฀were฀as฀follows:
Years฀Ended฀November฀30,
2006 2005 2004
Fair฀value฀of฀options฀at฀the
฀ dates฀of฀grant ฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ $12.25 $12.99 $15.87
Risk-free฀interest฀rate(a)฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ 4.5% 4.1% 3.4%
Expected฀dividend฀yield฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ 2.6% 1.9% 1.36%
Expected฀volatility(b) ฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀ 29.2% 27.0% 35.0%
Expected฀option฀life฀(in฀years)(c)฀.฀.฀.฀.฀ 4.75 4.74 5.75
(a)฀฀The฀risk-free฀interest฀rate฀is฀based฀on฀U.S.฀Treasury฀zero-coupon฀issues฀฀
with฀a฀remaining฀term฀equal฀to฀the฀expected฀option฀life฀assumed฀at฀the฀฀
date฀of฀grant.
(b)฀฀The฀expected฀volatility฀is฀based฀on฀a฀weighting฀of฀the฀implied฀volatilities฀
derived฀from฀our฀exchange฀traded฀options฀and฀convertible฀notes฀and฀the฀
historical฀volatility฀of฀our฀common฀stock.
(c)฀฀฀The฀average฀expected฀life฀was฀based฀on฀the฀contractual฀term฀of฀the฀option฀
and฀expected฀employee฀exercise฀behavior.฀Based฀on฀our฀assessment฀of฀
employee฀groupings฀and฀observable฀behaviors,฀we฀determined฀that฀a฀single฀
grouping฀is฀appropriate.