Interim Results

JULY 7, 2005 RELEASE OF CARNIVAL CORPORATION & PLC QUARTERLY REPORT ON FORM 10-Q AND CARNIVAL PLC INTERIM FINANCIAL INFORMATION ------------------------------------------ Carnival Corporation & plc announced its second quarter results of operations in its earnings release issued on June 16, 2005. Carnival Corporation & plc is hereby announcing that it has filed with the U.S. Securities and Exchange Commission ("SEC") a joint Quarterly Report on Form 10-Q today containing the Carnival Corporation & plc 2005 second quarter and six month interim financial statements, which results remain unchanged from those previously announced on June 16, 2005. However, Carnival Corporation & plc has provided additional guidance for its fiscal 2005 outlook, which is included in Schedule A. The information included in the attached Schedules A and B is extracted from the Form 10-Q and has been prepared in accordance with SEC rules and regulations. Schedules A and B contain the unaudited interim consolidated financial statements for Carnival Corporation & plc as of and for the three and six months ended May 31, 2005, together with management's discussion and analysis of financial condition and results of operations. These Carnival Corporation & plc consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). The Directors consider that within the DLC arrangement, the most appropriate presentation of Carnival plc's results and financial position is by reference to the U.S. GAAP financial statements of Carnival Corporation & plc. In addition, in accordance with the requirements of the UK Listing Authority ("UKLA"), the Directors are today presenting in the attached Schedule C the unaudited interim group financial information for Carnival plc standalone as of and for the six months ended May 31, 2005. The Carnival plc group standalone financial information excludes the results of Carnival Corporation and is prepared under generally accepted accounting principles in the UK ("UK GAAP"). MEDIA CONTACTS INVESTOR RELATIONS CONTACT US US/UK Carnival Corporation & plc Carnival Corporation & plc Tim Gallagher Beth Roberts 001 305 599 2600, ext. 16000 001 305 406 4832 UK Brunswick Sophie Fitton/Sarah Tovey 020 7404 5959 The full joint Quarterly Report on Form 10-Q (including the portion extracted for this announcement) is available for viewing on the SEC website at www.sec.gov under Carnival Corporation or Carnival plc or the Carnival Corporation & plc website at www.carnivalcorp.com or www.carnivalplc.com. A copy of the joint Quarterly Report on Form 10-Q will be available shortly at the UKLA Document Viewing Facility of the Financial Services Authority at 25 The North Colonnade, London E14 5HS, United Kingdom. Carnival Corporation & plc is the largest cruise vacation group in the world, with a portfolio of 12 cruise brands in North America, Europe and Australia, comprised of Carnival Cruise Lines, Holland America Line, Princess Cruises, Seabourn Cruise Line, Windstar Cruises, AIDA Cruises, Costa Cruises, Cunard Line, Ocean Village, P&O Cruises, Swan Hellenic, and P&O Cruises Australia. Together, these brands operate 78 ships totaling more than 134,000 lower berths with 12 new ships scheduled for delivery between July 2005 and April 2009. Carnival Corporation & plc also operates the leading tour companies in Alaska and the Canadian Yukon, Holland America Tours and Princess Tours. Traded on both the New York and London Stock Exchanges, Carnival Corporation & plc is the only group in the world to be included in both the S&P 500 and the FTSE 100 indices. Additional information can be obtained via Carnival Corporation & plc's website at www.carnivalcorp.com or www.carnivalplc.com or by writing to Carnival plc at Carnival House, 5 Gainsford Street, London SE1 2NE, United Kingdom. SCHEDULE A CARNIVAL CORPORATION & PLC - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS UNDER U.S. GAAP Cautionary Note Concerning Factors That May Affect Future Results Some of the statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this joint Quarterly Report on Form 10-Q are "forward-looking statements" that involve risks, uncertainties and assumptions with respect to us, including some statements concerning future results, outlook, plans, goals and other events which have not yet occurred. These statements are intended to qualify for the safe harbors from liability provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can find many, but not all, of these statements by looking for words like "will," "may," "believes," "expects," "anticipates," "forecast," "future," "intends," "plans," and "estimates" and for similar expressions. Because forward-looking statements involve risks and uncertainties, there are many factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied in this joint Quarterly Report on Form 10-Q. Forward-looking statements include those statements which may impact the forecasting of our earnings per share, net revenue yields, booking levels, pricing, occupancy, operating, financing and/or tax costs, costs per available lower berth day ("ALBD"), estimates of ship depreciable lives and residual values, outlook or business prospects. These factors include, but are not limited to, the following: - risks associated with the DLC structure, including the uncertainty of its tax status; - general economic and business conditions, which may impact levels of disposable income of consumers and net revenue yields for our cruise brands; - conditions in the cruise and land-based vacation industries, including competition from other cruise ship operators and providers of other vacation alternatives and increases in capacity offered by cruise ship and land-based vacation alternatives; - risks associated with operating internationally; - the international political and economic climate, armed conflicts, terrorist attacks and threats thereof, availability of air service, other world events and adverse publicity, and their impact on the demand for cruises; - accidents and other incidents affecting the health, safety, security and vacation satisfaction of passengers, including machinery and equipment failures, which could cause the alteration of itineraries or cancellation of a cruise or series of cruises; - changing public and consumer tastes and preferences, which may, among other things, adversely impact the demand for cruises; - our ability to implement our shipbuilding programs and brand strategies and to continue to expand our business worldwide; - our ability to attract and retain qualified shipboard crew and maintain good relations with employee unions; - our ability to obtain financing on terms that are favorable or consistent with our expectations; - the impact of changes in operating and financing costs, including changes in foreign currency and interest rates and fuel, food, payroll, insurance and security costs; - changes in the tax, environmental, health, safety, security and other regulatory regimes under which we operate; - continued availability of attractive port destinations; - our ability to successfully implement cost improvement plans and to integrate business acquisitions; - continuing financial viability of our travel agent distribution system and air service providers; and - unusual weather patterns or natural disasters, such as hurricanes and earthquakes. In April 2005, the U.S. State Department announced details of the proposed "Western Hemisphere Travel Initiative." When the proposed rules are enacted, U.S. citizens will be required to carry a passport for travel to or from certain countries/areas that were previously exempt. The proposed implementation is as follows: - On December 31, 2005, a passport would be required for all air and sea travel to or from the Caribbean, Bermuda, Central and South America. - On December 31, 2006, a passport would be required for all air and sea travel to or from Mexico and Canada, including Alaska cruises, which stop in Canada. - On December 31, 2007, a passport would be required for all air, sea and land border crossings. Since many cruise customers visiting these destinations may not currently have passports, it is likely that this will have some negative effect on our bookings and net revenue yields when the regulations take effect. There are a number of factors that could influence the ultimate impact of these regulations, such as customer travel patterns, customer price sensitivity and the cost and effectiveness of mitigating programs we and others might establish. However, although no assurance can be given, we do not believe that these regulations will ultimately have a material adverse effect on our operating results, as a significant portion of our revenues are derived from cruises to destinations other than those mentioned above, a substantial portion of our U.S. citizen customers already have passports and we expect a large number of U.S. citizen travelers who do not have passports will obtain them. Forward-looking statements should not be relied upon as a prediction of actual results. Subject to any continuing obligations under applicable law or any relevant listing rules, we expressly disclaim any obligation to disseminate, after the date of this joint Quarterly Report on Form 10-Q, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based. Key Performance Indicators and Critical Accounting Estimates We use net cruise revenues per ALBD ("net revenue yields") and net cruise costs per ALBD as significant non-GAAP financial measures of our cruise segment financial performance. We believe that net revenue yields are commonly used in the cruise industry to measure a company's cruise segment revenue performance. This measure is also used for revenue management purposes. In calculating net revenue yields, we use "net cruise revenues" rather than "gross cruise revenues." We believe that net cruise revenues is a more meaningful measure in determining revenue yield than gross cruise revenues because it reflects the cruise revenues earned by us net of our most significant variable costs, which are travel agent commissions, cost of air transportation and certain other variable direct costs associated with onboard revenues. Substantially all of our remaining cruise costs are largely fixed once our ship capacity levels have been determined. Net cruise costs per ALBD is the most significant measure we use to monitor our ability to control our cruise segment costs rather than gross cruise costs per ALBD. In calculating net cruise costs, we exclude the same variable costs as described above, which are included in the calculation of net cruise revenues. This is done to avoid duplicating these variable costs in these two non-GAAP financial measures. In addition, because a significant portion of our operations utilize the euro or sterling to measure their results and financial condition, the translation of those operations to our U.S. dollar reporting currency results in increases in reported U.S. dollar revenues and expenses if the U.S. dollar weakens against these foreign currencies, and decreases in reported U.S. dollar revenues and expenses if the U.S. dollar strengthens against these foreign currencies. Accordingly, we also monitor our two non-GAAP financial measures assuming the 2005 exchange rates have remained constant with the 2004 comparable period rates, or on a "constant dollar basis," in order to remove the impact of changes in exchange rates on our non-U.S. cruise operations. We believe that this is a useful measure indicating the actual growth of our operations in a fluctuating exchange rate environment. On a constant dollar basis, net cruise revenues and net cruise costs would be $1.96 billion and $1.25 billion for the three month period ended May 31, 2005, and $3.80 billion and $2.44 billion for the six month period ended May 31, 2005, respectively. For a discussion of our critical accounting estimates, see "Management's Discussion and Analysis of Financial Condition and Results of Operations," which is included in Carnival Corporation & plc's 2004 joint Annual Report on Form 10-K. Outlook for Remainder of Fiscal 2005 On June 16, 2005, we indicated that we expected diluted earnings per share for the third quarter of 2005 would be in the range of $1.33 to $1.35 and $2.70 for the full year 2005. We have not changed our June 16 third quarter and full year guidance, as we have not yet updated our internal operating forecast. However, in our June 16 release, we noted that we based our guidance for the last half of 2005 on assumed average fuel prices of $270 per ton (derived from the forward fuel curve) and currency exchange rates of $1.23 to the euro and $1.83 to sterling. The current forward curve for fuel, as of July 5, 2005, indicates average prices of approximately $280 per ton for the last half of 2005, which is 35% higher than average prices for last year's comparable period. In addition, the current currency exchange rates are approximately $1.19 to the euro and $1.76 to sterling. If actual fuel prices for the last half of 2005 ultimately turn out to average $280 per ton and actual currency exchange rates for the last half of 2005 ultimately turn out to be $1.19 to the euro and $1.76 to sterling, then our diluted earnings per share would be reduced by $0.02 and $0.03 for the third quarter and full year 2005, respectively. The year-over-year percentage increase in our ALBD capacity, resulting from new ships entering service, is 5.5% and 8.9% in the third and fourth quarters of 2005, respectively, as compared to the same quarters in 2004. Seasonality Our revenue from the sale of passenger tickets is seasonal. Historically, demand for cruises has been greatest during our third fiscal quarter, which includes the Northern Hemisphere summer months. This higher demand during the third quarter results in higher net revenue yields and, accordingly, the largest share of our net income is earned during this period. Substantially all of Holland America Tours' and Princess Tours' revenues and net income are generated from May through September in conjunction with the Alaska cruise season. Selected Information and Non-GAAP Financial Measures Selected information was as follows: Six Months Three Months Ended May 31, Ended May 31, 2005 2004 2005 2004 Passengers carried (in thousands) 3,306 2,913 1,687 1,566 ----- ----- ----- ----- Occupancy percentage 104.3% 102.4% 104.8% 102.8% ----- ----- ----- ----- Gross and net revenue yields were computed by dividing the gross or net revenues, without rounding, by ALBDs as follows: Six Months Three Months Ended May 31, Ended May 31, 2005 2004 2005 2004 (in millions, except ALBDs and yields) Cruise revenues Passenger tickets $3,740 $3,218 $1,899 $1,691 Onboard and other 1,116 973 570 526 ------ ------ ------ ------ Gross cruise revenues 4,856 4,191 2,469 2,217 Less cruise costs Commissions, transportation and other (814) (760) (383) (376) Onboard and other (191) (178) (95) (97) ------ ------ ------ ------ Net cruise revenues $3,851 $3,253 $1,991 $1,744 ------ ------ ------ ------ ALBDs 23,298,274 21,183,100 11,711,830 11,120,445 ---------- ---------- ---------- ---------- Gross revenue yields $208.45 $197.88 $210.82 $199.37 ------- ------- ------- ------- Net revenue yields $165.32 $153.60 $170.01 $156.81 ------- ------- ------- ------- Gross and net cruise costs per ALBD were computed by dividing the gross or net cruise costs, without rounding, by ALBDs as follows: Six Months Three Months Ended May 31, Ended May 31, 2005 2004 2005 2004 (in millions, except ALBDs and costs per ALBD) Cruise operating expenses $2,840 $2,502 $1,428 $1,293 Cruise selling and administrative expenses 647 610 325 308 ------ ------ ------ ------ Gross cruise costs 3,487 3,112 1,753 1,601 Less cruise costs included in net cruise revenues Commissions, transportation and other (814) (760) (383) (376) Onboard and other (191) (178) (95) (97) ------ ------ ------ ------ Net cruise costs $2,482 $2,174 $1,275 $1,128 ------ ------ ------ ------ ALBDs 23,298,274 21,183,100 11,711,830 11,120,445 ---------- ---------- ---------- ---------- Gross cruise costs per ALBD $149.67 $146.92 $149.73 $144.03 ------- ------- ------- ------- Net cruise costs per ALBD $106.54 $102.64 $108.92 $101.47 ------- ------- ------- ------- Six Months Ended May 31, 2005 ("2005") Compared to the Six Months Ended May 31, 2004 ("2004") Revenues Net cruise revenues increased $598 million, or 18.4%, to $3.85 billion in 2005 from $3.25 billion in 2004. The 10.0% increase in ALBDs between 2004 and 2005 accounted for $325 million of the increase, and the remaining $273 million was from increased net revenue yields, which increased 7.6% in 2005 compared to 2004 (gross revenue yields increased by 5.3%). Net revenue yields increased in 2005 primarily from higher cruise ticket prices, a 1.9% increase in occupancy, higher onboard revenues and the weaker U.S. dollar relative to the euro and sterling. Net revenue yields as measured on a constant dollar basis, increased 6.2% in 2005. Gross cruise revenues increased $665 million, or 15.9%, in 2005 to $4.86 billion from $4.19 billion in 2004 primarily for the same reasons net cruise revenues increased. Both ALBD and revenue yields were reduced by the combined impact of the cancellation of P&O Cruises Aurora's 2005 world cruise and P&O Cruises Australia's Pacific Sky cruises, both caused by mechanical difficulties. Onboard and other revenues included concession revenues of $139 million in 2005 and $120 million in 2004. Onboard and other revenues increased in 2005 compared to 2004 primarily because of the 10.0% increase in ALBDs and increased passenger spending on our ships. Costs and Expenses Net cruise costs increased $308 million, or 14.2%, to $2.48 billion in 2005 from $2.17 billion in 2004. The 10.0% increase in ALBDs between 2004 and 2005 accounted for $217 million of the increase, and the remaining $91 million was from increased net cruise costs per ALBD, which increased 3.8% in 2005 compared to 2004 (gross cruise costs per ALBD increased 1.9%). Net cruise costs per ALBD increased primarily due to a 23% increase in 2005 fuel prices, higher dry-dock amortization expense and a weaker U.S. dollar relative to the euro and the sterling in 2005. This increase was partially offset by the non-recurrence in 2005 of promotional costs related to the introduction of Cunard's Queen Mary 2 in 2004, reduced costs in 2005 from the relocation of Cunard's shoreside operations and economies of scale in 2005 associated with the 10.0% ALBD increase. Net cruise costs per ALBD as measured on a constant dollar basis compared to 2004 increased 2.2% in 2005, and were flat, excluding fuel costs. Gross cruise costs increased $375 million, or 12.1%, in 2005 to $3.49 billion from $3.11 billion in 2004, which was a lower percentage increase than net cruise costs primarily because of the lower proportion of passengers who purchased air transportation from us in 2005. Depreciation and amortization expense increased by $58 million, or 14.9%, to $446 million in 2005 from $388 million in 2004 largely due to the 10.0% increase in ALBDs through the addition of new ships, ship improvement expenditures and the impact of a weaker U.S. dollar. Nonoperating (Expense) Income Net interest expense, excluding capitalized interest, increased $25 million to $169 million in 2005 from $144 million in 2004. This increase was primarily due to higher average borrowing rates. Other income in 2005 included $7 million from the settlement of litigation associated with the DLC transaction. Three Months Ended May 31, 2005 ("2005") Compared to the Three Months Ended May 31, 2004 ("2004") Revenues Net cruise revenues increased $247 million, or 14.2%, to $1.99 billion in 2005 from $1.74 billion in 2004. The 5.3% increase in ALBDs between 2004 and 2005 accounted for $93 million of the increase, and the remaining $154 million was from increased net revenue yields, which increased 8.4% in 2005 compared to 2004 (gross revenue yields increased by 5.7%). Net revenue yields increased in 2005 primarily from higher cruise ticket prices, a 1.9% increase in occupancy and the weaker U.S. dollar relative to the euro and sterling. Net revenue yields as measured on a constant dollar basis increased 6.8% in 2005. Gross cruise revenues increased $252 million, or 11.4%, in 2005 to $2.47 billion from $2.22 billion in 2004 primarily for the same reasons net cruise revenues increased. Both ALBD and revenue yields were reduced by the combined impact of the cancellation of P&O Cruises Aurora's 2005 world cruise and P&O Cruises Australia's Pacific Sky cruises, both caused by mechanical difficulties. Onboard and other revenues included concession revenues of $70 million in 2005 and $64 million in 2004. Onboard and other revenues increased in 2005 compared to 2004 primarily because of the 5.3% increase in ALBDs and increased passenger spending on our ships. Costs and Expenses Net cruise costs increased $147 million, or 13.0%, to $1.28 billion in 2005 from $1.13 billion in 2004. The 5.3% increase in ALBDs between 2004 and 2005 accounted for $60 million of the increase, and the remaining $87 million was from increased net cruise costs per ALBD, which increased 7.3% in 2005 compared to 2004 (gross cruise costs per ALBD increased 4.0%). Net cruise costs per ALBD increased primarily due to a 35% increase in 2005 fuel prices, higher dry-dock amortization expense and a weaker U.S. dollar relative to the euro and the sterling in 2005. This increase was partially offset by the reduced costs in 2005 from the relocation of Cunard's shoreside operations and economies of scale in 2005 associated with the 5.3% ALBD increase. Net cruise costs per ALBD as measured on a constant dollar basis compared to 2004 increased 5.4% in 2005, but only increased 2.2%, excluding fuel costs. Gross cruise costs increased $152 million, or 9.5%, in 2005 to $1.75 billion from $1.60 billion in 2004, which was a lower percentage increase than net cruise costs primarily because of the lower proportion of passengers who purchased air transportation from us in 2005. Depreciation and amortization expense increased by $25 million, or 12.5%, to $225 million in 2005 from $200 million in 2004 largely due to the 5.3% increase in ALBDs through the addition of new ships, ship improvement expenditures and the impact of a weaker U.S. dollar. Nonoperating (Expense) Income Net interest expense, excluding capitalized interest, increased $8 million to $81 million in 2005 from $73 million in 2004. The increase was primarily due to a $12 million increase in interest expense from higher average borrowing rates and was partially offset by a $4 million decrease in interest expense due to lower average borrowings that resulted from our debt repayments. Liquidity and Capital Resources Sources and Uses of Cash Our business provided $1.76 billion of net cash from operations during the six months ended May 31, 2005, an increase of $54 million over $1.71 billion in 2004. We continue to generate substantial cash from operations and remain in a strong financial position. During the six months ended May 31, 2005, our net expenditures for capital projects were $1.11 billion, of which $850 million was spent for our ongoing new shipbuilding program, including the final delivery payments for the Carnival Valor and P&O Cruises Arcadia. The remaining capital expenditures consisted primarily of $189 million for ship improvements and refurbishments, and $68 million for Alaska tour assets, cruise port facility developments and information technology assets. During the six months ended May 31, 2004, our net expenditures for capital projects were $2.65 billion primarily because we took delivery of six new ships. During the six months ended May 31, 2005 we borrowed $823 million, of which a portion was used to pay a portion of Arcadia's purchase price. During the same six month period we made $786 million of debt repayments, which included the final payment on our capitalized lease obligations of $110 million and the $100 million repayment of our 7.05% fixed rate notes. In addition, we refinanced $487 million of euro debt to reduce our borrowing rate. We also paid cash dividends of $241 million in the first six months of fiscal 2005 and purchased $30 million of treasury stock. Finally, in the second quarter 2005 we increased our dividends by 33% from $0.15 per share to $0.20 per share. Future Commitments and Funding Sources Our contractual cash obligations remained generally unchanged at May 31, 2005 compared to November 30, 2004, except for changes to our debt as noted above, and changes to our ship construction commitments as follows: - We made the final payments of approximately $770 million related to the Carnival Valor and P&O Cruises' Arcadia, which were delivered in December 2004 and March 2005, respectively. - In January 2005, Costa Cruises entered into a new ship construction contract with Fincantieri for a 3,000 passenger ship, which has an estimated all-in cost of 475 million euros and is expected to enter service in June 2007. During 2004, the Boards of Directors authorized the repurchase of up to an aggregate of $1 billion of Carnival Corporation common stock and/or Carnival plc ordinary shares commencing in 2005 subject to certain repurchase restrictions on Carnival plc shares. Through July 5, 2005 $30 million of repurchases had been made. At May 31, 2005, we had liquidity of $3.50 billion, which consisted of $1.02 billion of cash, cash equivalents and short-term investments and $2.48 billion available for borrowing under our revolving credit facilities. Our revolving credit facilities mature in March 2006 through June 2006. A key to our access to liquidity is the maintenance of our strong credit ratings. Based primarily on our historical results, current financial condition and future forecasts, we believe that our existing liquidity and cash flow from future operations will be sufficient to fund most of our expected capital projects, debt service requirements, dividend payments, working capital and other firm commitments. However, our forecasted cash flow from future operations, as well as our credit ratings, may be adversely affected by various factors, including, but not limited to, those factors noted under "Cautionary Note Concerning Factors That May Affect Future Results." To the extent that we are required, or choose, to fund future cash requirements, including our future shipbuilding commitments, from sources other than as discussed above, we believe that we will be able to secure such financing from banks or through the offering of debt and/or equity securities in the public or private markets. No assurance can be given that our future operating cash flow will be sufficient to fund future obligations or that we will be able to obtain additional financing, if necessary. Off-Balance Sheet Arrangements We are not a party to any off-balance sheet arrangements, including guarantee contracts, retained or contingent interests, certain derivative instruments and variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on our financial statements. SCHEDULE B CARNIVAL CORPORATION & PLC - U.S. GAAP CONSOLIDATED FINANCIAL STATEMENTS CARNIVAL CORPORATION & PLC CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in millions, except per share data) Six Months Three Months Ended May 31, Ended May 31, 2005 2004 2005 2004 Revenues Cruise Passenger tickets $3,740 $3,218 $1,899 $1,691 Onboard and other 1,116 973 570 526 Other 59 45 50 36 ------ ------ ------ ------ 4,915 4,236 2,519 2,253 ------ ------ ------ ------ Costs and Expenses Operating Cruise Commissions, transportation and other 814 760 383 376 Onboard and other 191 178 95 97 Payroll and related 558 486 284 249 Food 305 264 151 137 Other ship operating 972 814 515 434 Other 54 43 42 33 ------ ------ ------ ------ Total 2,894 2,545 1,470 1,326 Selling and administrative 675 638 342 322 Depreciation and amortization 446 388 225 200 ------ ------ ------ ------ 4,015 3,571 2,037 1,848 ------ ------ ------ ------ Operating Income 900 665 482 405 ------ ------ ------ ------ Nonoperating (Expense) Income Interest income 9 9 6 4 Interest expense, net of capitalized interest (168) (136) (82) (70) Other income (expense), net 10 (7) 3 (7) ------ ------ ------ ------ (149) (134) (73) (73) ------ ------ ------ ------ Income Before Income Taxes 751 531 409 332 Income Tax Benefit, Net 2 4 ------ ------ ------ ------ Net Income $ 753 $ 535 $ 409 $ 332 ------ ------ ------ ------ Earnings Per Share Basic $ 0.94 $ 0.67 $ 0.51 $ 0.41 ------ ------ ------ ------ Diluted $ 0.91 $ 0.66 $ 0.49 $ 0.40 ------ ------ ------ ------ Dividends Per Share $ 0.35 $ 0.25 $ 0.20 $0.125 ------ ------ ------ ------ The accompanying notes are an integral part of these consolidated financial statements. CARNIVAL CORPORATION & PLC CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in millions, except par/stated values) May 31, November 30, ASSETS 2005 2004 Current Assets Cash and cash equivalents $ 721 $ 643 Short-term investments 303 17 Accounts receivable, net 418 409 Inventories 253 240 Prepaid expenses and other 404 419 ------- ------- Total current assets 2,099 1,728 ------- ------- Property and Equipment, Net 21,249 20,823 Goodwill 3,259 3,321 Trademarks 1,288 1,306 Other Assets 411 458 ------- ------- $28,306 $27,636 ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings $ 278 $ 381 Current portion of long-term debt 1,169 681 Convertible debt subject to current put option 600 Accounts payable 647 631 Accrued liabilities and other 719 868 Customer deposits 2,585 1,873 ------- ------- Total current liabilities 5,398 5,034 ------- ------- Long-Term Debt 6,305 6,291 Other Long-Term Liabilities and Deferred Income 543 551 Contingencies (Note 4) Shareholders' Equity Common stock of Carnival Corporation; $.01 par value; 1,960 shares authorized; 635 shares at 2005 and 634 shares at 2004 issued 6 6 Ordinary shares of Carnival plc; $1.66 stated value; 226 shares authorized; 212 shares at 2005 and 2004 issued 353 353 Additional paid-in capital 7,356 7,311 Retained earnings 9,092 8,623 Unearned stock compensation (17) (16) Accumulated other comprehensive income 358 541 Treasury stock; 1 share of Carnival Corporation at 2005 and 42 shares of Carnival plc at 2005 and 2004 at cost (1,088) (1,058) ------- ------- Total shareholders' equity 16,060 15,760 ------- ------- $28,306 $27,636 ------- ------- The accompanying notes are an integral part of these consolidated financial statements. CARNIVAL CORPORATION & PLC CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in millions) Six Months Ended May 31, 2005 2004 OPERATING ACTIVITIES Net income $ 753 $ 535 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 446 388 Accretion of original issue discount 11 11 Other 10 12 Changes in operating assets and liabilities Increase in Receivables (97) (18) Inventories (15) (42) Prepaid expenses and other (77) (49) Increase (decrease) in Accounts payable 33 64 Accrued and other liabilities (33) 64 Customer deposits 730 742 ------ ------ Net cash provided by operating activities 1,761 1,707 ------ ------ INVESTING ACTIVITIES Additions to property and equipment (1,109) (2,648) Sales of short-term investments 270 749 Purchases of short-term investments (556) (290) Proceeds from retirement of property and equipment 77 Other, net 2 (12) ------ ------ Net cash used in investing activities (1,393) (2,124) ------ ------ FINANCING ACTIVITIES Proceeds from issuance of long-term debt 823 842 Principal repayments of long-term debt (786) (624) (Payments) proceeds from short-term borrowings, net (89) 153 Dividends paid (241) (199) Proceeds from exercise of stock options 37 97 Purchase of treasury stock (30) Other (1) (4) ------ ------ Net cash (used in) provided by financing activities (287) 265 ------ ------ Effect of exchange rate changes on cash and cash equivalents (3) (15) ------ ------ Net increase (decrease) in cash and cash equivalents 78 (167) Cash and cash equivalents at beginning of period 643 610 ------ ------ Cash and cash equivalents at end of period $ 721 $ 443 ------ ------ The accompanying notes are an integral part of these consolidated financial statements. CARNIVAL CORPORATION & PLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - Basis of Presentation Carnival Corporation is incorporated in Panama, and Carnival plc is incorporated in England and Wales. Together with their consolidated subsidiaries they are referred to collectively in these consolidated financial statements and elsewhere in this joint Quarterly Report on Form 10-Q as "Carnival Corporation & plc," "our," "us," and "we." Carnival Corporation and Carnival plc (formerly known as P&O Princess Cruises plc or "P&O Princess") completed a dual listed company ("DLC") transaction (the "DLC transaction") in 2003. The DLC transaction combined the businesses of Carnival Corporation and Carnival plc through a number of contracts and through amendments to Carnival Corporation's articles of incorporation and by-laws and to Carnival plc's memorandum of association and articles of association. The two companies have retained their separate legal identities, however, they operate as if they were a single economic enterprise. The accompanying consolidated balance sheet at May 31, 2005, the consolidated statements of operations for the six and three months ended May 31, 2005 and 2004 and the consolidated statements of cash flows for the six months ended May 31, 2005 and 2004 are unaudited and, in the opinion of our management, contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation. Our interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in the Carnival Corporation & plc 2004 joint Annual Report on Form 10-K. Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire year. Reclassifications have been made to prior period amounts to conform to the current period presentation, including reflecting the gross purchases and sales of variable rate securities as investing activities in the Consolidated Statements of Cash Flows in fiscal 2004. NOTE 2 - Stock-Based Compensation Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock- Based Compensation," as amended, we elected to use the intrinsic value method of accounting for our employee and director stock-based compensation awards instead of the fair value method. Accordingly, we have not recognized compensation expense for our noncompensatory employee and director stock option awards. Our pro forma net income and pro forma earnings per share, had we elected to adopt the fair value approach of SFAS No. 123, which charges earnings for the estimated fair value of stock options, would have been as follows (in millions, except per share amounts): Six Months Three Months Ended May 31, Ended May 31, 2005 2004 2005 2004 Net income, as reported $ 753 $ 535 $ 409 $ 332 Stock-based compensation expense included in net income, as reported 6 6 3 4 Total stock-based compensation expense determined under the fair value-based method for all awards (35) (30) (18) (12) ------ ------ ----- ------ Pro forma net income for basic earnings per share 724 511 394 324 Interest on dilutive convertible notes 25 25 12 12 ------ ------ ----- ------ Pro forma net income for diluted earnings per share $ 749 $ 536 $ 406 $ 336 ------ ------ ----- ------ Earnings per share Basic As reported $ 0.94 $ 0.67 $ 0.51 $ 0.41 ------ ------ ----- ------ Pro forma $ 0.90 $ 0.64 $ 0.49 $ 0.40 ------ ------ ----- ------ Diluted As reported $ 0.91 $ 0.66 $ 0.49 $ 0.40 ------ ------ ----- ------ Pro forma $ 0.88 $ 0.63 $ 0.48 $ 0.40 ------ ------ ----- ------ In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (revised 2004), "Share-Based Payment Statement 123(R)," which will require us to recognize compensation costs in our financial statements in an amount equal to the fair value of share-based payments granted to employees and directors. This statement is effective for us in the first quarter of fiscal 2006. We have not yet determined which of the alternative transition methods we will use upon adoption of this new statement. However, based on preliminary estimates, if we were to elect to adopt this statement on December 1, 2005, our additional full year 2006 share-based compensation expense is estimated to be in the range of approximately $65 million to $70 million. NOTE 3 - Debt In January 2005, we paid the final installment of $110 million on our capitalized lease obligations and in May 2005, we paid $100 million on our 7.05% fixed rate notes. In February 2005, Carnival plc extended its 600 million euro ($751 million U.S. dollars at the May 31, 2005 exchange rate) unsecured multi-currency revolving credit facility for 364 days, and reduced this facility's commitment fee on the undrawn portion from nine basis points ("BPS") to 7.5 BPS. Accordingly, this facility now expires in March 2006. In March 2005, Carnival plc entered into a five-year unsecured multi-currency term loan facility, bearing interest at euribor/libor plus 32.5 BPS. Under this facility, we borrowed 368 million euro ($460 million U.S. dollars at the May 31, 2005 exchange rate) to repay a 368 million euro note, which bore interest at euribor plus 60 BPS, prior to its October 2008 maturity date. We also borrowed 165 million sterling under this facility ($300 million U.S. dollars at the May 31, 2005 exchange rate), which we used to pay a portion of P&O Cruises' Arcadia purchase price. Finally, we entered into interest rate swap agreements to fix the interest rates on these euro and sterling borrowings at 3.50% and 5.40%, respectively. At November 30, 2004, our 2% convertible notes were classified as a current liability, since the noteholders had the right to require us to repurchase them on April 15, 2005, however, substantially all of the noteholders did not exercise their rights. Accordingly, at May 31, 2005, we classified our 2% convertible notes as long-term debt, since the next date that the noteholders can require us to repurchase them is on April 15, 2008. NOTE 4 - Contingencies Litigation On March 7, 2005, a lawsuit was filed against Carnival Corporation in the U.S. District Court for the Southern District of Florida on behalf of some current and former crew members alleging that Carnival Cruise Lines failed to pay the plaintiffs for overtime. The suit seeks payment of (i) the overtime wages alleged to be owed, (ii) penalty wages under U.S. law and (iii) interest. We are not yet able to estimate the impact of this claim, and the ultimate outcome of this matter cannot be determined at this time. However, we believe that we have meritorious defenses and we intend to vigorously defend against this action. In 2002, two actions (collectively, the "Facsimile Complaints") were filed against Carnival Corporation on behalf of purported classes of persons who received unsolicited advertisements via facsimile, alleging that Carnival Corporation and other defendants distributed unsolicited advertisements via facsimile in contravention of the U.S. Telephone Consumer Protection Act. The plaintiffs seek to enjoin the sending of unsolicited facsimile advertisements and statutory damages. The advertisements referred to in the Facsimile Complaints that reference a Carnival Cruise Lines product were not sent by Carnival Corporation, but rather were distributed by a professional faxing company at the behest of third party travel agencies. We do not advertise directly to the traveling public through the use of facsimile transmission. The ultimate outcomes of the Facsimile Complaints cannot be determined at this time. However, we believe that we have meritorious defenses and we intend to vigorously defend against these actions. Costa Cruises has instituted arbitration proceedings in Italy to confirm the validity of its decision not to deliver its ship, the Costa Classica, to the shipyard of Cammell Laird Holdings PLC ("Cammell Laird") under a 79 million euro denominated contract for the conversion and lengthening of the ship in November 2000. Costa also gave notice of termination of the contract in January 2001. It is expected that the arbitration tribunal's decision will be made in late 2005 at the earliest. In the event that an award is given in favor of Cammell Laird, the amount of damages, which Costa would have to pay, if any, is not currently determinable. The ultimate outcome of this matter cannot be determined at this time. In April 2003, Festival Crociere S.p.A. ("Festival") commenced an action against the European Commission (the "Commission") in the Court of First Instance of the European Communities in Luxembourg seeking to annul the Commission's antitrust approval of the DLC transaction (the "Festival Action"). We have been granted leave to intervene in the Festival Action and filed a Statement in Intervention with the court. Festival was declared bankrupt in May 2004 and Festival did not submit observations on our Statement in Intervention. A date for an oral hearing will be set in due course, unless Festival withdraws its action. A successful third party challenge of an unconditional Commission clearance decision would be unprecedented, and based on a review of the law and the factual circumstances of the DLC transaction, as well as the Commission's approval decision in relation to the DLC transaction, we believe that the Festival Action will not have a material adverse effect on the companies or the DLC transaction. However, the ultimate outcome of this matter cannot be determined at this time. In the normal course of our business, various other claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits are covered by insurance and, accordingly, the maximum amount of our liability, net of any insurance recoverables, is typically limited to our self- insurance retention levels. However, the ultimate outcome of these claims and lawsuits cannot be determined at this time. Contingent Obligations At May 31, 2005, Carnival Corporation had contingent obligations totaling approximately $1.1 billion to participants in lease out and lease back type transactions for three of its ships. At the inception of the leases, the entire amount of the contingent obligations was paid by Carnival Corporation to major financial institutions to enable them to directly pay these obligations. Accordingly, these obligations were considered extinguished, and neither the funds nor the contingent obligations have been included on our balance sheets. Carnival Corporation would only be required to make any payments under these contingent obligations in the remote event of nonperformance by these financial institutions, all of which have long-term credit ratings of AAA, AA+ or AA. In addition, Carnival Corporation obtained a direct guarantee from another AA+ rated financial institution for $299 million of the above noted contingent obligations, thereby further reducing the already remote exposure to this portion of the contingent obligations. If the major financial institutions' credit ratings fall below AA-, Carnival Corporation would be required to move a majority of the funds from these financial institutions to other highly-rated financial institutions. If Carnival Corporation's credit rating falls below BBB, it would be required to provide a standby letter of credit for $85 million, or alternatively provide mortgages in the aggregate amount of $85 million on two of its ships. In the unlikely event that Carnival Corporation were to terminate the three lease agreements early or default on its obligations, it would, as of May 31, 2005, have to pay a total of $171 million in stipulated damages. As of May 31, 2005, $179 million of standby letters of credit have been issued by a major financial institution in order to provide further security for the payment of these contingent stipulated damages. Between 2017 and 2022, we have the right to exercise options that would terminate these transactions at no cost to us. Some of the debt agreements that we enter into include indemnification provisions that obligate us to make payments to the counterparty if certain events occur. These contingencies generally relate to changes in taxes, changes in laws that increase lender capital costs and other similar costs. The indemnification clauses are often standard contractual terms and were entered into in the normal course of business. There are no stated or notional amounts included in the indemnification clauses and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses. We have not been required to make any material payments under such indemnification clauses in the past and, under current circumstances, we do not believe a request for material future indemnification payments is probable. NOTE 5 - Comprehensive Income Comprehensive income was as follows (in millions): Six Months Three Months Ended May 31, Ended May 31, 2005 2004 2005 2004 Net income $753 $535 $409 $332 Items included in accumulated other comprehensive income Foreign currency translation adjustment (177) 175 (174) (33) Changes related to cash flow derivative hedges (6) (8) (17) 5 ---- ---- ---- ---- Total comprehensive income $570 $702 $218 $304 ---- ---- ---- ---- NOTE 6 - Segment Information Our cruise segment included all of our cruise brands, which have been aggregated as a single reportable segment based on the similarity of their economic and other characteristics, including products and services they provide. Our other segment primarily represents the transportation, hotel and tour operations of Holland America Tours and Princess Tours, and the business to business travel agency operations of P&O Travel Ltd. Selected segment information for our cruise and other segments was as follows (in millions): Six Months Ended May 31, Selling Depreciation Operating Operating and admin- and income 2005 Revenues expenses istrative amortization (loss) Cruise $4,856 $2,840 $647 $430 $939 Other 74 69 28 16 (39) Intersegment elimination (15) (15) ------ ------ ---- ---- ---- $4,915 $2,894 $675 $446 $900 ------ ------ ---- ---- ---- 2004 Cruise $4,191 $2,502 $610 $377 $702 Other 54 52 28 11 (37) Intersegment elimination (9) (9) ------ ------ ---- ---- ---- $4,236 $2,545 $638 $388 $665 ------ ------ ---- ---- ---- Three Months Ended May 31, Selling Depreciation Operating Operating and admin- and income 2005 Revenues expenses istrative amortization (loss) Cruise $2,469 $1,428 $325 $217 $499 Other 61 53 17 8 (17) Intersegment elimination (11) (11) ------ ------ ---- ---- ---- $2,519 $1,470 $342 $225 $482 ------ ------ ---- ---- ---- 2004 Cruise $2,217 $1,293 $308 $195 $421 Other 43 40 14 5 (16) Intersegment elimination (7) (7) ------ ------ ---- ---- ---- $2,253 $1,326 $322 $200 $405 ------ ------ ---- ---- ---- Note 7 - Merchant Navy Officers Pension Fund ("MNOPF") P&O Cruises, Princess Cruises and Cunard Line participate in an industry-wide British MNOPF, which is a defined benefit multiemployer pension plan that is available to certain of their shipboard British officers. The MNOPF is divided into two sections, the "New Section" and the "Old Section," each of which covers a different group of participants, with the Old Section closed to further benefit accrual and the New Section only closed to new membership. As of March 31, 2003, the date of the most recent formal actuarial valuation prepared by the MNOPF's actuary, the New Section of the MNOPF was estimated to have a fund deficit of approximately 200 million sterling, or $380 million, assuming a 7.7% discount rate. At November 30, 2004, our external actuary informally updated the March 31, 2003 valuation and estimated that the New Section deficit was approximately 760 million sterling, or $1.44 billion, assuming a 5.2% discount rate. The amount of the fund deficit could vary considerably if different assumptions and/or estimates were used in its calculation. Substantially all of any MNOPF fund deficit liability which we may have relates to P&O Cruises and Princess obligations, which existed prior to the DLC transaction. Despite a recent court ruling regarding the allocation of the deficit to participating employers, there are still a number of uncertainties remaining as to our portion of the fund's ultimate deficit. Therefore, we will record as expense our portion of any deficit as amounts are invoiced by the fund's trustee. We expect to receive the first invoice during the quarter ended August 31, 2005. In accordance with the court ruling and other factors, and assuming all of the other participating employers are able to pay their share of the MNOPF deficit, we believe our share of the ultimate deficit could be in the range of $25 million to $90 million. NOTE 8 - Earnings Per Share Our basic and diluted earnings per share were computed as follows (in millions, except per share data): Six Months Three Months Ended May 31, Ended May 31, 2005 2004 2005 2004 Net income $ 753 $ 535 $ 409 $ 332 Interest on dilutive convertible notes 25 25 12 12 ----- ----- ----- ----- Net income for diluted earnings per share $ 778 $ 560 $ 421 $ 344 ----- ----- ----- ----- Weighted-average common and ordinary shares outstanding 805 801 805 803 Dilutive effect of convertible notes 44 43 44 43 Dilutive effect of stock plans 6 5 5 4 ----- ----- ----- ----- Diluted weighted-average shares outstanding 855 849 854 850 ----- ----- ----- ----- Basic earnings per share $0.94 $0.67 $0.51 $0.41 ----- ----- ----- ----- Diluted earnings per share $0.91 $0.66 $0.49 $0.40 ----- ----- ----- ----- Options to purchase 2.2 million (5.1 million in 2004) and 2.2 million (5.1 million in 2004) shares for the six and three months ended May 31, 2005 and 2004, respectively, were excluded from our diluted earnings per share computation since the effect of including them was anti-dilutive. SCHEDULE C CARNIVAL PLC - UK GAAP INTERIM FINANCIAL INFORMATION SUMMARISED GROUP PROFIT AND LOSS ACCOUNT Six Months Six Months to May 31, 2005 to May 31, 2004 (Unaudited) (Unaudited) Restated (note 1) US$ millions, except per share data Turnover 1,794.7 1,612.6 Direct operating costs (1,059.5) (940.0) Selling and administrative expenses (438.1) (422.9) Depreciation and amortisation (168.4) (144.5) ------- ------- (1,666.0) (1,507.4) ------- ------- Group operating profit 128.7 105.2 Loss on disposal of ship (note 2) (12.6) - ------- ------- Profit on ordinary activities before interest 116.1 105.2 Net interest payable and similar items (60.8) (60.4) ------- ------- Profit on ordinary activities before taxation 55.3 44.8 Taxation 11.7 12.0 ------- ------- Profit on ordinary activities after taxation 67.0 56.8 Dividends (note 3) (42.7) (26.4) ------- ------- Retained profit for the financial period 24.3 30.4 ------- ------- Carnival plc standalone earnings per share Basic earnings per share (in U.S. dollars) 0.32 0.27 Diluted earnings per share (in U.S. dollars) 0.31 0.27 Dividends per share (note 3) First quarter interim dividend per share (in U.S. dollars) 0.20 0.125 Weighted average number of shares in issue (in millions) -Basic 212.1 211.2 -Diluted 213.0 212.5 See accompanying notes to the interim financial information. This interim financial information only presents the UK GAAP results of Carnival plc, and does not include the consolidated results of Carnival Corporation. Within the DLC structure the most appropriate presentation of Carnival plc's results and financial position is considered to be by reference to the U.S. GAAP consolidated financial statements of Carnival Corporation & plc, which are included in the attached Schedule B (see note 1). For information, we set out below the U.S. GAAP consolidated earnings per share included within the Carnival Corporation & plc consolidated financial statements for the six month periods ended May 31, 2005 and 2004: DLC Basic earnings per share (in U.S. dollars) 2005: 0.94 2004: 0.67 DLC Diluted earnings per share (in U.S. dollars) 2005: 0.91 2004: 0.66 CARNIVAL PLC - UK GAAP INTERIM FINANCIAL INFORMATION SUMMARISED GROUP BALANCE SHEET As at As at May 31, 2005 May 31, 2004 (Unaudited) (Unaudited) Restated (note 1) US$ millions Goodwill 718.3 708.8 Ships 6,734.5 6,199.8 Ships under construction 118.0 154.0 Properties and other fixed assets 549.4 514.8 Investments 8.1 18.7 ------- ------- Total fixed assets 8,128.3 7,596.1 ------- ------- Current assets Stocks 100.2 85.9 Debtors 485.7 500.2 Cash at bank and in hand 279.1 195.7 ------- ------- 865.0 781.8 Creditors: amounts falling due within one year (2,126.9) (1,909.6) ------- ------- Net current liabilities (1,261.9) (1,127.8) ------- ------- Total assets less current liabilities 6,866.4 6,468.3 Creditors: amounts falling due after more than one year and provisions for liabilities and charges (2,509.2) (2,579.4) ------- ------- Net assets 4,357.2 3,888.9 ------- ------- Equity shareholders' funds 4,355.3 3,888.2 Equity minority interests 1.9 0.7 ------- ------- 4,357.2 3,888.9 ------- ------- See accompanying notes to the interim financial information. This interim financial information only presents the UK GAAP results of Carnival plc, and does not include the consolidated results of Carnival Corporation. Within the DLC structure the most appropriate presentation of Carnival plc's results and financial position is considered to be by reference to the U.S. GAAP consolidated financial statements of Carnival Corporation & plc, which are included in the attached Schedule B (see note 1). CARNIVAL PLC - UK GAAP INTERIM FINANCIAL INFORMATION SUMMARISED GROUP CASH FLOW STATEMENT Six Months Six Months to May 31, 2005 to May 31, 2004 (Unaudited) (Unaudited) Restated US$ millions Net cash inflow from operating activities 411.4 383.1 Returns on investments and servicing of finance (54.4) (68.1) Taxation (9.4) (4.2) Capital expenditure Purchase of ships (484.6) (1,039.7) Purchase of other fixed assets (43.4) (40.1) Disposal of ships - 150.1 Disposal of other fixed assets 1.3 2.7 ------- ------- Net cash outflow for capital expenditure (526.7) (927.0) Acquisitions and disposals Cash disposed on group reorganisation - (29.3) Equity dividends paid (63.9) (52.5) ------- ------- Net cash outflow before financing (243.0) (698.0) ------- ------- Net cash inflow from financing 366.1 663.5 ------- ------- Increase/(decrease) in net cash in the period 123.1 (34.5) ------- ------- Reconciliation to net debt including Carnival Corporation funding Net debt at beginning of period (3,183.4) (7,109.1) Increase/(decrease) in net cash 123.1 (34.5) Cash inflow from loans with Carnival Corporation (127.7) (1,068.6) Movements in borrowings (233.9) 435.5 Non-cash movements in borrowings Carnival Corporation loan note on corporate restructuring - 3,864.6 Debt disposed on corporate restructuring - 748.8 Carnival Corporation loan note on ship transfers 436.1 431.3 Amortisation of bond issue costs (1.1) (0.8) Exchange adjustments 155.0 (147.2) ------- ------- Net debt at end of period (2,831.9) (2,880.0) ------- ------- See accompanying notes to the interim financial information. This interim financial information only presents the UK GAAP results of Carnival plc, and does not include the consolidated results of Carnival Corporation. Within the DLC structure the most appropriate presentation of Carnival plc's results and financial position is considered to be by reference to the U.S. GAAP consolidated financial statements of Carnival Corporation & plc, which are included in the attached Schedule B (see note 1). CARNIVAL PLC - UK GAAP INTERIM FINANCIAL INFORMATION NOTES TO UK GAAP INTERIM FINANCIAL INFORMATION Note 1. Basis of preparation On April 17, 2003, Carnival Corporation and Carnival plc (formerly known as P&O Princess Cruises plc) completed a dual listed company ("DLC") transaction (the "DLC transaction"), which implemented the Carnival Corporation & plc DLC structure. The DLC transaction combined the businesses of Carnival Corporation and Carnival plc (collectively known as "Carnival Corporation & plc") through a number of contracts and through amendments to Carnival Corporation's articles of incorporation and by-laws and to Carnival plc's memorandum of association and articles of association. The two companies have retained their separate legal identities, however, they operate as if they were a single economic enterprise. Each company's shares continue to be publicly traded on the New York Stock Exchange ("NYSE") for Carnival Corporation and the London Stock Exchange for Carnival plc. In addition, Carnival plc American Depository Shares are traded on the NYSE. 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. In order to provide the Carnival Corporation and Carnival plc shareholders with the most meaningful picture of their economic interest in the DLC formed by Carnival Corporation and Carnival plc, consolidated financial statements and management commentary of Carnival Corporation & plc have been included in Schedules A and B to this announcement. The consolidated Carnival Corporation & plc financial statements have been prepared under purchase accounting principles whereby the DLC transaction has been accounted for as an acquisition of Carnival plc by Carnival Corporation. Therefore, the consolidated Carnival Corporation & plc financial statements include Carnival plc from April 17, 2003, being the effective date of its acquisition by Carnival Corporation. These consolidated Carnival Corporation & plc financial statements have been prepared under U.S. GAAP on the basis that all significant financial and operating decisions affecting the DLC companies are taken on the basis of U.S. GAAP information and consequences. The standalone Carnival plc UK GAAP interim financial information is required to satisfy reporting requirements of the UKLA and does not include the results of Carnival Corporation. However, the Directors consider that within the DLC arrangement the most appropriate presentation of Carnival plc's results and financial position is by reference to the U.S. GAAP financial statements of Carnival Corporation & plc, which are included in the attached Schedule B. The standalone Carnival plc UK GAAP interim financial information has been prepared on the basis of the accounting policies set out in the Carnival plc UK GAAP financial statements for the year ended November 30, 2004 and does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The statutory accounts for the period ended November 30, 2004 have been delivered to the Registrar of Companies. The auditors' report on those statutory accounts was unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. Certain reclassifications in the May 31, 2004 balance sheet have been made to conform to the current presentation comprising: On the adoption of UITF 38 Accounting for ESOP Trusts in 2004 $3.9m of own shares held by the Carnival plc Employee Benefit Trust have been transferred from fixed asset investments to treasury stock, resulting in a reduction in shareholders' funds; ship purchase capital grants of $201.1m, previously deducted from fixed assets, are now included as deferred income within creditors falling due after more than one year; and an amount of $125.5m previously included in other creditors is now disclosed as short-term borrowings. In addition the first half 2004 dividend expense has been adjusted to exclude the proposed but not formally declared second quarter interim dividend of $26.5m; further details of this are provided in note 3. Note 2. Loss on disposal of ship As part of a redeployment of vessels between the UK and North America, Carnival plc sold the Adonia to Princess Cruises. The sale resulted in a UK GAAP loss of $12.6m for Carnival plc. In the Carnival Corporation & plc consolidated financial statements the loss on this disposal is eliminated, as the transfer was between companies within the DLC. Note 3. Dividends Six Months Six Months to May 31, 2005 to May 31, 2004 (Unaudited) (Unaudited) Restated U.S.$m U.S.$m First quarter interim $0.20 per share (2004 $0.125) 42.7 26.4 ------- ------- The 2004 dividend expense has been restated to exclude last year's proposed second quarter interim dividend of $0.125 per share. This treatment is consistent with that adopted in the current year, under which the expected second quarter dividend will be formally declared subsequent to publication of this interim statement. This change in the timing of dividend recognition does not signal a change to the previously stated dividend policy. Note 4. Merchant Navy Officers Pension Fund ("MNOPF") A number of the Carnival plc's operating companies are participating employers in the MNOPF, an industry-wide multiemployer defined benefit pension scheme. The scheme, which is closed to new membership, has an actuarial deficit, however the extent of each employers' liability for any deficit is uncertain. Despite a recent court ruling regarding the allocation of the deficit to participating employers, there are still a number of uncertainties remaining as to our portion of the fund's ultimate deficit. Accordingly, the Group continues to account for the scheme on a contributions payable basis, as if it were a defined contribution scheme. Further details of the circumstances of this pension scheme are included in note 7 in Schedule B.

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