Carnival Cruises 2008 Annual Report Download - page 69

F-10
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 from the estimate,
then we revise our estimates.
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.
We seek to minimize credit risk, including counterparty nonperformance primarily associated
with our cash equivalents, committed financing facilities, contingent obligations, derivative
instruments, insurance contracts and new ship progress payment guarantees by primarily
conducting business with large, well-established financial institutions who have long-term
credit ratings of A or above, and by diversifying our counterparties. In addition, we have
established guidelines regarding credit ratings and investment maturities that we follow to
help maintain safety and liquidity. We do not currently anticipate nonperformance by any of
our significant counterparties.
We also monitor the creditworthiness of foreign travel agencies and tour operators to
which we grant credit terms in the normal course of our business. Concentrations of credit
risk associated with these receivables are considered minimal primarily due to their short
maturities and the large number of accounts within our customer base. We have experienced
only minimal credit losses on our trade receivables. We do not normally require collateral
or other security to support normal credit sales. However, we normally do require collateral
and/or guarantees to support notes receivable on significant asset sales and new ship
progress payments to shipyards.
NOTE 3 – DLC Structure
In 2003, Carnival Corporation and Carnival plc (formerly known as P&O Princess)
completed a DLC transaction, which implemented Carnival Corporation & plc's DLC structure.
The contracts governing the DLC structure provide that Carnival Corporation and Carnival plc
each continue to have separate boards of directors, but the boards and senior executive
management of both companies are identical. The amendments to the constituent documents of
each of the companies also provide that, on most matters, the holders of the common equity of
both companies effectively vote as a single body. On specified matters where the interests
of Carnival Corporation's shareholders may differ from the interests of Carnival plc's
shareholders (a "class rights action"), each shareholder body will vote separately as a
class, such as transactions primarily designed to amend or unwind the DLC structure.
Generally, no class rights action will be implemented unless approved by both shareholder
bodies.
Upon the closing of the DLC transaction, Carnival Corporation and Carnival plc also
executed the Equalization and Governance Agreement, which provides for the equalization of
dividends and liquidation distributions based on an equalization ratio and contains
provisions relating to the governance of the DLC structure. Because the current equalization
ratio is 1 to 1, one Carnival plc ordinary share is entitled to the same distributions,
subject to the terms of the Equalization and Governance Agreement, as one share of Carnival
Corporation common stock. In a liquidation of either company or both companies, if the
hypothetical potential per share liquidation distributions to each company's shareholders are
not equivalent, taking into account the relative value of the two companies' assets and the
indebtedness of each company, to the extent that one company has greater net assets so that
any liquidation distribution to its shareholders would not be equivalent on a per share
basis, the company with the ability to make a higher net distribution is required to make a
payment to the other company to equalize the possible net distribution to shareholders,
subject to certain exceptions.
At the closing of the DLC transaction, Carnival Corporation and Carnival plc also
executed deeds of guarantee. Under the terms of Carnival Corporation's deed of guarantee,
Carnival Corporation has agreed to guarantee all indebtedness and certain other monetary
obligations of Carnival plc that are incurred under agreements entered into on or after the