Carnival Cruises 2012 Annual Report Download - page 79

Table of Contents
Foreign Currency Translations and Transactions
Each business determines its functional currency by reference to its primary economic environment. We translate the assets and liabilities of our foreign
operations that have functional currencies other than the U.S. dollar at exchange rates in effect at the balance sheet date.
Revenues and expenses of these foreign operations are translated at weighted-average exchange rates for the period. Their equity is translated at historical rates
and the resulting foreign currency translation adjustments are included as a component of accumulated other comprehensive income (“AOCI”), which is a
separate component of shareholders’ equity. Therefore, the U.S. dollar value of these non-equity translated items in our consolidated financial statements will
fluctuate from period to period, depending on the changing value of the U.S. dollar versus these currencies.
Our underlying businesses execute transactions in a number of different currencies, principally the U.S. dollar, euro, sterling and Australian and Canadian
dollars. Exchange gains and losses arising from the remeasurement of monetary assets and liabilities and foreign currency transactions denominated in a
currency other than the functional currency of the entity involved are immediately included in nonoperating earnings, unless such monetary liabilities have
been designated to act as hedges of net investments in our foreign operations. These net gains or losses included in nonoperating earnings were insignificant in
2012, 2011 and 2010. In addition, the unrealized gains or losses on our long-term intercompany receivables denominated in a non-functional currency, which
are not expected to be repaid in the foreseeable future and are therefore considered to form part of our net investments, are recorded as foreign currency
translation adjustments, which are included as a component of AOCI.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during each period. Diluted earnings per
share is computed by dividing adjusted net income by the weighted-average number of shares, common stock equivalents and other potentially dilutive
securities outstanding during each period. For earnings per share purposes, Carnival Corporation common stock and Carnival plc ordinary shares are
considered a single class of shares since they have equivalent rights (see Note 3). All shares that were issuable under our previously outstanding convertible
notes that had contingent share conversion features were considered outstanding for our 2010 diluted earnings per share computations, if dilutive, using the “if
converted” method of accounting from the date of issuance.
Share-Based Compensation
We recognize compensation expense for all share-based compensation awards using the fair value method. Share-based compensation cost 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. For performance-based share awards, we recognize compensation cost over the vesting period based on the
probability of the performance condition being achieved over the vesting period. If the performance condition is not met, compensation expense will not be
recognized and any previously recognized compensation expense will be reversed. In addition, we estimate the amount of expected forfeitures, based on
historical forfeiture experience, when calculating compensation cost. If the actual forfeitures that occur are significantly different from the estimate, then we
revise our estimates.
Other Recently Adopted Accounting Pronouncement
In June 2011, authoritative guidance was issued on the presentation of comprehensive income. The guidance allows an entity to present components of net
income and other comprehensive income in one continuous statement or in two separate but consecutive statements. The guidance eliminates the option to report
other comprehensive income and its components in the consolidated statements of shareholders’ equity and requires retrospective application. We have elected
to early adopt and, accordingly, have included Consolidated Statements of Comprehensive Income in these financial statements.
NOTE 3 – DLC Arrangement
In 2003, Carnival Corporation and Carnival plc completed a DLC transaction, which implemented Carnival Corporation & plc’s DLC arrangement. The
contracts governing the DLC arrangement 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 constitutional 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” such as transactions primarily designed to
amend or unwind the DLC arrangement), each shareholder body will vote separately as a class. Generally, no class rights action will be implemented unless
approved by both shareholder bodies.
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