Carnival Cruises 2010 Annual Report Download - page 22

Curacao exempt earnings derived from international ship operations and Bermuda does not have an income tax.
With respect to the U.S. domestic law exemption, Section 883 regulations limit the types of income derived from
the international operation of a ship that are exempt from income tax. Accordingly, our provision for U.S. federal
and state income taxes includes taxes on a portion of our ship operations, in addition to the hotel, tour and
transportation business of Holland America Princess Alaska Tours.
We do not expect to incur income taxes on future distributions of undistributed earnings of foreign subsidiaries
and, accordingly, no deferred income taxes have been provided for the distribution of these earnings. All interest
expense related to income tax liabilities is classified as income tax expense. In addition to or in place of income
taxes, virtually all jurisdictions where our ships call impose taxes and/or fees based on guest counts, ship
tonnage, ship capacity or some other measure.
On December 1, 2007, we changed the method for which we account for uncertain income tax positions. This
method clarified, among other things, the accounting for uncertain income tax positions by prescribing a
minimum probability threshold that a tax position must meet before a financial statement income tax benefit is
recognized. The minimum threshold is defined as a tax position that, based solely on its technical merits, is more
likely than not to be sustained upon examination by the relevant taxing authority. The tax benefit to be
recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon
ultimate resolution. This accounting method was applied to all existing tax positions upon adoption. The change
resulted in an $11 million reduction to our opening fiscal 2008 retained earnings. In addition, based on all known
facts and circumstances and current tax law, we believe that the total amount of our uncertain income tax
position liabilities and related accrued interest are not material to our financial position.
NOTE 9 – Shareholders’ Equity
Carnival Corporation’s Articles of Incorporation authorize its Board of Directors, at its discretion, to issue up to
40 million shares of preferred stock. At November 30, 2010 and 2009, no Carnival Corporation preferred stock
had been issued and only a nominal amount of Carnival plc preference shares had been issued.
In June 2006, the Boards of Directors authorized the repurchase of up to an aggregate of $1 billion of Carnival
Corporation common stock and Carnival plc ordinary shares subject to certain restrictions. On September 19,
2007, the Boards of Directors increased the remaining $578 million general repurchase authorization back to $1
billion (the “Repurchase Program”). During fiscal 2008, we purchased 0.6 million shares of Carnival Corporation
common stock and 1.3 million ordinary shares of Carnival plc under the Repurchase Program. During 2010 and
2009, there were no repurchases of Carnival Corporation common stock or Carnival plc ordinary shares under the
Repurchase Program. At January 28, 2011, the remaining availability under the Repurchase Program was
$787 million. The Repurchase Program does not have an expiration date and may be discontinued by our Boards
of Directors at any time.
In addition to the Repurchase Program, the Boards of Directors have authorized the repurchase of up to
19.2 million Carnival plc ordinary shares and up to 31.5 million shares of Carnival Corporation common stock
under the “Stock Swap” programs described below. We use the “Stock Swap” programs in situations where we
can obtain an economic benefit because either Carnival Corporation common stock or Carnival plc ordinary
shares are trading at a price that is at a premium or discount to the price of Carnival plc ordinary shares or
Carnival Corporation common stock, as the case may be. This economic benefit is used for general corporate
purposes, which could include repurchasing additional treasury stock under the Repurchase Program. All
Carnival plc share repurchases under both the Repurchase Program and the “Stock Swap” authorization require
annual shareholder approval.
In fiscal 2009 and 2008, we sold 450,000 shares and 633,000 shares of Carnival Corporation common stock for
$9 million and $15 million of net proceeds, respectively. In fiscal 2009 and 2008, substantially all of these net
proceeds were used to fund the repurchase of 450,000 shares and 633,000 shares of Carnival plc ordinary shares,
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