Financial Statement Analysis Part 1

As described in the project overview, Appendix A of your textbook describes several ratios, as well as vertical analysis and horizontal analysis of financial statements. Using the annual report and excel file of financial statements forCarnival Corporation, prepare the following items. You can use the spreadsheets provided and modify them with your calculations.

Common Size Balance Sheet

Prepare a spreadsheet with common size balance sheets for the years ended November 30, 2014 and 2015. For 2014, each line item should be shown as a percentage of total assets on November 30, 2014. Likewise, for 2015, each item should be shown as a percentage of total assets on November 30, 2015. In your calculations, round each percentage to four digits. For example if cash as a percentage of total assets is .054029834, your answer should be shown as 5.40% or .0540. Remember, these numbers on the financial statements are rounded to the nearest million, so it is a bit silly to show calculations with more precision than the underlying data.

Common Size Income Statement

Prepare a spreadsheet with common size income statements for the 2014 and 2015 fiscal years. In this case, your denominator will be total revenue (in 2015, for example, that?s $15,714). Again, use the exact line items that are found in the statements, and remember to round.

Horizontal Analysis

Prepare a horizontal analysis of the balance sheet and income statement, showing the percentage change from 2014 to 2015 (the dollar amounts, not the percentages you calculated in the common size statements). This is calculated as follows:

2015 amount ? 2014 amount

2014amount

Thus, each line item on the balance sheet and income statement should show a percentage increase or decrease. A negative number, or decrease, can be formatted to show in parentheses, which is the preferable notation in accounting circles.

Solvency Ratios

Calculate the solvency ratios listed in exhibit A.3 on page 467 for Carnival in 2015.

For the Cost of Goods Sold in any ratio, instead of Cost of Goods Sold, you have to look at the costs to provide the cruise and related experiences. Although it is not obvious in the spreadsheet, if you find the income statement in the annual report, you should be able to identify the right number. In any place where the formula calls for an average, use the 2014 number plus the 2015 number divided by 2.

Performance Ratios

Calculate the following ratios from exhibit A.3 for Carnival in 2015:

• Asset turnover
• Return on Sales
• Gross Margin ratio
• Return on Assets
• Return on Equity
• Average interest rate

Also provide the EPS, or Earnings per Share as reported. Don?t worry about calculating it yourself.

For the tax rate used in the ROA, assume Carnival pays an average of 2% tax (they manage their international taxation regimes well!).

The listed items should be submitted in an Excel file, with separate tabs for the income statement (common size 2014 and 2015, as well as the horizontal analysis), balance sheet (common size 2014 and 2015 plus horizontal analysis), and ratios (clearlylabelled!).

2015 ANNUAL REPORT CARNIVAL CORPORATION & PLC 2015 ANNUAL REPORT TABLE OF CONTENTS COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHIEF EXECUTIVE OFFICER'S LETTER TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SHAREHOLDER BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING . . . . . . . . . . REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM . . . . . . . . . . . . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MARKET PRICE FOR COMMON STOCK AND ORDINARY SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . STOCK PERFORMANCE GRAPHS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CORPORATE AND OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 2 6 7 8 9 10 11 12 44 45 46 75 78 79 81 84 COMPANY Carnival Corporation & plc is the largest leisure travel company in the world, and among the most profitable and financially strong. We are also the largest cruise company having carried 47% of global cruise guests and a leading provider of vacations to all major cruise destinations throughout the world. We operate our cruise ships within a portfolio of ten leading global, regional and national cruise brands that sell tailored cruise products, services and vacation experiences in all the world's most important vacation geographic areas. We believe having global and regional brands that are serving multiple countries and national brands that are tailored to serve individual countries provides us with a unique advantage to compete within the entire travel and leisure market for consumers' discretionary vacation spending. Our vision is to deliver unmatched joyful vacation experiences and breakthrough total shareholder returns by exceeding guest expectations and achieving the full benefits inherent in our scale. Our portfolio of cruise brands in North America, Europe, Australia and Asia are comprised of Carnival Cruise Line, Fathom, Holland America Line, Princess Cruises, Seabourn, AIDA Cruises, Costa Cruises, Cunard, P&O Cruises (Australia) and P&O Cruises (UK). Together, these brands operate 99 ships totaling 216,000 lower berths with 17 cruise ships scheduled to be delivered between 2016 and 2020. Carnival Corporation & plc also operates Holland America Princess Alaska Tours, the leading tour company in Alaska and the Canadian Yukon, which complements our Alaska cruise operations. 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. HIGHLIGHTS 2015 2014 2013 2012 2011 (in millions, except per share amounts and statistical data) Revenues $ 15,714 $ 15,884 $ 15,456 $ 15,382 $ 15,793 Net Income (a) $ 1,757 $ 1,216 $ 1,055 $ 1,285 $ 1,912 Adjusted Net Income (a) (b) $ 2,106 $ 1,504 $ 1,209 $ 1,501 $ 1,939 Earnings Per Share - Diluted (a) $ 2.26 $ 1.56 $ 1.36 $ 1.65 $ 2.42 Adjusted Earnings Per Share - Diluted (a)(b) $ 2.70 $ 1.93 $ 1.55 $ 1.92 $ 2.46 Statistical Data Passengers Carried (in thousands) Passenger Capacity (c)(d) Number of Ships (d) 10,800 10,600 10,100 9,800 9,600 216,000 212,000 208,000 203,000 196,000 99 100 101 100 99 (a) See \"Note 1 - General\" to the Consolidated Financial Statements. (b) For a reconciliation to U.S. GAAP, see \"Selected Financial Data.\" (c) Passenger capacity is calculated based on two passengers per cabin. (d) As of November 30, except for 2011 which are as of January 23, 2012. 1 CHIEF EXECUTIVE OFFICER'S LETTER TO SHAREHOLDERS Dear Shareholders, 2015 was a very strong year for our company. We accelerated progress toward our goal of delivering a doubledigit return on our investment with earnings that were over 40 percent higher than 2014 and that was on top of nearly 25 percent growth in 2013. We achieved over 4 percent higher revenue yields while our ongoing efforts to leverage our industry-leading scale helped to contain costs. Our adjusted earnings exceeded $2 billion (U.S. GAAP earnings of $1.8 billion). Record cash from operations topped $4 billion which was more than enough to fund our capital commitments and still return in excess of $1 billion to shareholders through a 20 percent increase in the annual dividend and the ongoing repurchase of Carnival stock. These strong results were a tribute to the outstanding efforts of our 120,000 shipboard and shoreside team members who create exceptional vacation experiences for nearly 11 million guests annually, along with the vital support of our travel agent partners around the globe. Their combined efforts enabled us to overcome a variety of obstacles in 2015 and to exceed the high-end of the full-year guidance we provided at the beginning of the year. These obstacles included macroeconomic and geopolitical challenges, and the usual weather and other one-off events as well as a $0.10 per share drag from fuel prices and currency fluctuations compared to our earlier guidance. We enjoyed strong performance on both sides of the Atlantic, particularly in North America. In fact, some of our brands have reached the double-digit return threshold already, including our flagship brand Carnival Cruise Line. We are very proud of the Carnival Cruise Line team, which has worked so hard and so effectively to accelerate the brand's return to double-digits. THE PATH TO DOUBLE-DIGIT RETURNS Looking ahead, we are working hard to deliver double-digit return on our investment across the entire corporation through our ongoing efforts to drive demand in excess of measured capacity growth and to capture the inherent value of our industry-leading scale. Measured Capacity Growth We remain focused on maintaining measured capacity growth by delivering innovative, more efficient ships, while at the same time removing less efficient vessels from our fleet. During the year, progress continued on our fleet-enhancement program as we finalized agreements for eight new cruise ships for delivery between 2018 and 2020 as part of our strategic partnership with Fincantieri in Italy and Meyer Werft in Germany and Finland. These new ships will be among the most efficient we have ever built and will significantly enhance the return profile of our entire fleet. Several of these next-generation ships will pioneer a new era in the use of sustainable fuels through our \"green cruising\" design represented by the first cruise ships to be powered at sea and in port by liquefied natural gas, considered the world's cleanest burning fossil fuel. These ships will also introduce a host of innovative guest experiences that we will announce in the coming months. We are especially excited about our new ship deliveries in 2016, including AIDAprima, Carnival Vista, Holland America Koningsdam and Seabourn Encore. Among the innovative features designed to further complement the guest experience unique to each brand, these new additions bring to the fleet an outdoor ice rink, a lazy river ride, the first ship-top open-air cycling skyride, the first IMAX theatre at sea and Blend, the first purpose-built personalized shipboard wine-blending venue. We expect each ship delivery to help drive demand well in excess of our planned capacity growth. 2 Even with these four new ships, our capacity growth in North America and Europe will be less than 2 percent in 2016. As anticipated, our overall 3.5 percent capacity growth will again be weighted toward Asia Pacific as we transfer capacity to meet increasing demand in that region. Accelerating Demand I am very proud of our teams' many accomplishments last year. Those efforts included our multi-faceted campaign built around the 2015 Super Bowl, which generated more than 10 billion positive media impressions during the height of wave season; P&O Cruises' delivery of Britannia, the largest ship ever built specifically for British guests and named by Her Majesty the Queen; Princess Cruises' 50th anniversary celebration, which reunited the original cast of \"The Love Boat\" television series, and featured an award-winning float in the Rose Parade; Cunard's 175th anniversary salute to Liverpool where the three Queens Elizabeth, Victoria and Queen Mary 2 captivated 1.3 million onlookers in what may have been the largest attendance at a single day maritime event in history; and, most recently, our historic five-ship event in Sydney Harbor for P&O Cruises (Australia). These well-crafted opportunities showcase our brands, increase consumer awareness and bolster consideration for a cruise vacation. In fact, our positive media impressions are up three-fold in just two years. In 2015, we made significant progress on many other initiatives designed to achieve consistent revenue yield improvement by creating demand that surpasses supply. Of course, the best way to increase demand is to continue to exceed guest expectations. One way to accomplish that is to bring the best specialty restaurants and celebrity chef-designed menus to sea. Our growing list of renowned chefs includes Thomas Keller, Australian chef Curtis Stone and chocolatier Norman Love, joining Marco Pierre White, Guy Fieri and David Burke, among others. We continue to enhance our entertainment offerings across our brands with the addition of B.B. King's Blues Club, the live interactive music experience Billboard Onboard, The Voice of the Ocean, Lincoln Center Stage and new productions by Stephen Schwartz, award-winning composer of \"Wicked,\" along with a host of technological and programming innovations. The diversity of great entertainers aboard our ships keeps growing with headliners like country music superstar Carrie Underwood, folk legends Crosby, Stills and Nash; jazz star Herbie Hancock; and even the Grinch, through Carnival Cruise Line's Seuss at Sea program. And, to give consumers yet another reason to take a cruise, we will host our first Fashion Week at sea in 2016. These, along with fresh retail and gaming options, are all designed to offer guests even more of what they want and in turn drive higher onboard revenue. Our focus is on consistently exceeding guest expectations and creating lifelong advocates. Customer feedback indicates that we are continuing to deliver on our guest experience, and the intent to repeat is very strong across our brands. New Market Opportunities We reinforced our leadership position in the burgeoning China cruise region with the successful introduction of a fourth ship in 2015. We are well positioned in 2016 with two more year-round ships one each for the Costa Cruises and Princess Cruises brands. We expect to bolster our growth in China for years to come. Beyond 2016, Princess Cruises'Majestic Princess, the first ship built specifically for Chinese guests and designed to stimulate consumer demand, will enter China 3 along with both our Carnival Cruise Line and AIDA brands. Entering China with multiple brands enables us to grow our presence faster and achieve deeper penetration by providing cruise experiences aimed at differentiated segments. In addition, we recently signed a joint venture with the China State Shipbuilding Corporation and the China Investment Corporation to further our growth in this region. We are well positioned to capitalize on the growing demand for international travel among Chinese consumers following the recent easing of travel restrictions coupled with a growing upper middle class. Chinese outbound travelers, already estimated at 135 million strong, are expected to grow to 200 million by 2020. Over time we are confident that China will rank among the largest source regions for cruises. While today China represents just 5 percent of our global capacity, we expect it to continue to be an expansive growth region for us. By shifting capacity growth from North America and Europe to the fast growing China region, we are further fostering combined revenue yield growth. Working Together to Unlock our Potential Our team is totally engaged in capturing the full benefit of the latent opportunity inherent in our industry-leading scale in both driving revenues and containing costs. The more than 5 percent onboard revenue growth achieved in 2015 is an affirmation of the inherent power of harnessing our collective efforts as we embrace a fundamental behavioral change through communicating, collaborating and coordinating across our 10 world-leading brands. Improved coordination among our brands has also contributed to revenue yield improvements, and we have completed the design phase of a common revenue management system across a number of our brands. Significant progress was also made delivering cost savings in 2015 in a variety of procurement areas including air travel, food and hotel supplies. We have identified additional opportunities to leverage our scale to reduce costs while enhancing the guest experience in 2016 and beyond. These efforts will deliver a cumulative total cost savings of $170 million since we began the conversation just over two years ago and will continue to be rolled out over time and help to offset inflation. Sustainable Operations Our reputation and success depend on having sustainable and transparent operations. We continually strive to ensure cruising is the most enjoyable vacation experience for our guests. We fulfill this commitment by keeping guests and crew members safe, protecting the environment, developing our workforce, strengthening our stakeholder relations, enhancing the port communities our ships visit and maintaining our financial strength. We also strive to be a responsible global corporate citizen and to be a company that people want to work for. We continue to make progress on many fronts in our sustainability journey and we have expanded our corporate goals beyond our carbon emissions reduction goal to develop 10 new sustainability goals. These goals are focused on further reducing our environmental footprint by 2020, enhancing the health, safety and security of our guests and crew members, and ensuring sustainable business practices across our brands and business partners. Developing and implementing advancements in technology is also an important component of our sustainability strategy. We continue to drive innovation and technological breakthroughs within the cruise and maritime industries. We have taken the lead on developing solutions to meet the operational parameters of new fuelemission regulations and have embarked on a process of installing new exhaust gas cleaning systems on our ships. 4 In a further effort to have a positive impact, we have introduced our newest brand Fathom, which is pioneering a new travel category we call impact travel. The Fathom approach incorporates mindful, purpose-driven activities and programs that enable guests to have a real, sustainable impact on the communities we visit, and a uniquely rewarding experience. DELIVERING ALONG THE PATH Growth is the result of a combination of well-executed business plans and innovation that makes a difference. Our efforts in China, our new ship platforms, our ongoing brand innovations and our investments in the travel experience of the future are all building blocks. We have much more to do to keep the momentum going in 2016 and beyond. While we briefly celebrate 2015 an overall very good year for our corporation and our shareholders we remain focused on our primary objective. We have a clear strategy to deliver double-digit return on investment in the next two to three years. Thank you for your confidence and your shared vision of building upon the great legacy that is Carnival Corporation & plc as we continue to deliver the world's greatest holiday experiences. Arnold W. Donald President and Chief Executive Officer February 19, 2016 5 SHAREHOLDER BENEFIT Carnival Corporation & plc is pleased to extend the following benefit to our shareholders: NORTH AMERICA BRANDS CONTINENTAL EUROPE BRANDS UNITED KINGDOM BRANDS AUSTRALIA BRANDS US $250 US $100 US $ 50 200 75 40 150 60 30 A$250 A$100 A$ 50 Onboard credit per stateroom on sailings of 14 days or longer Onboard credit per stateroom on sailings of 7 to 13 days Onboard credit per stateroom on sailings of 6 days or less The benefit is applicable on sailings through July 31, 2017 aboard the brands listed below. Certain restrictions apply. Applications to receive these benefits should be made at least two weeks prior to cruise departure date. This benefit is available to shareholders holding a minimum of 100 shares of Carnival Corporation or Carnival plc. Employees, travel agents cruising at travel agent rates, tour conductors or anyone cruising on a reduced-rate or complimentary basis are excluded from this offer. This benefit is not transferable, cannot be exchanged for cash and, cannot be used for casino credits/charges and gratuities charged to your onboard account. Only one onboard credit per shareholder-occupied stateroom. Reservations must be made by February 28, 2017. Please provide by fax or by mail your name, reservation number, ship and sailing date, along with proof of ownership of Carnival Corporation or Carnival plc shares (for example, photocopy of shareholder proxy card, shares certificate, a dividend tax voucher or a current brokerage or nominee statement with your brokerage account number blacked out) to your travel agent or to the cruise line you have selected below. NORTH AMERICA BRANDS CONTINENTAL EUROPE BRANDS UNITED KINGDOM BRANDS CARNIVAL CRUISE LINE* COSTA CRUISES* P & O CRUISES (UK) Guest Administration CUNARD* Manager of Reservation 3655 N.W. 87th Avenue Piazza Piccapietra, 48 Miami, FL 33178 16121 Genoa, Italy Senior Shareholder Executive Tel 800 438 6744 ext. 70450 Tel 39 0 10 548 3800 Carnival UK Fax 305 406 6102 Fax 39 0 10 999 7019 Carnival House 100 Harbour Parade PRINCESS CRUISES* AIDA CRUISES Southampton SO15 1ST Booking Support United Kingdom Manager of Reservations 24303 Town Center Drive, Suite 200 Am Strande 3d Santa Clarita, CA 91355 18055 Rostock, Germany P & O CRUISES (UK) Tel 800 872 6779 ext. 30317 Tel 49 0 381 2027 0805 Tel 44 0 843 374 0111 Fax 661 753 0180 Fax 49 0 381 2027 0804 Fax 44 0 238 065 7360 HOLLAND AMERICA LINE World Cruise Reservations CUNARD 300 Elliott Avenue West Tel 44 0 843 374 0000 Seattle, WA 98119 Fax 44 0 238 065 7360 Tel 800 522 3399 Fax 206 281 0627 PRINCESS CRUISES (UK)* SEABOURN Princess Reservations Seabourn Reservations Carnival UK 300 Elliott Avenue West Carnival House Seattle, WA 98119 100 Harbour Parade Tel 800 929 9391 Southampton SO15 1ST Fax 206 501 2900 United Kingdom CUNARD* Tel 44 0 843 373 0333 Fax 44 0 238 065 7509 Booking Support 24303 Town Center Drive, Suite 200 Santa Clarita, CA 91355 AUSTRALIA BRANDS Tel 800 872 6779 ext. 30317 P & O CRUISES (AUSTRALIA), Fax 661 753 0180 PRINCESS CRUISES* COSTA CRUISES* CARNIVAL CRUISE LINE* Guest Services Administration 200 S. Park Road, Suite 200 Customer Service Manager Hollywood, FL 33021 PO Box 2006 North Sydney NSW 2059 Tel 800 462 6782 Tel 61 2 8 424 8800 Fax 954 266 5868 Fax 61 2 8 424 9161 FATHOM Fathom Reservations *The onboard credit for Carnival Cruise Line, 300 Elliott Avenue West Costa Cruises, Cunard and Princess Cruises is Seattle, WA 98119 determined based on the operational currency Tel 855-932-8466 onboard the vessel. Please visit our corporation Fax 206 905 8881 website at www.carnivalcorp.com for updates. 6 CARNIVAL CORPORATION & PLC CONSOLIDATED STATEMENTS OF INCOME (in millions, except per share data) Years Ended November 30, 2015 2014 2013 Revenues Cruise Passenger tickets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,601 $11,889 $11,648 Onboard and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,887 3,780 3,598 Tour and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 215 210 15,714 15,884 15,456 Operating Costs and Expenses Cruise Commissions, transportation and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Onboard and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payroll and related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other ship operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tour and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,161 526 1,859 1,249 981 2,516 155 2,299 519 1,942 2,033 1,005 2,463 160 2,303 539 1,859 2,208 983 2,610 143 Selling and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ibero trademark impairment charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,447 2,067 1,626 - 10,421 2,054 1,637 - 10,645 1,879 1,590 13 13,140 14,112 14,127 2,574 1,772 1,329 Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nonoperating (Expense) Income Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense, net of capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Losses) gains on fuel derivatives, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income Tax (Expense) Benefit, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (217) (576) 10 8 (288) (271) 4 11 (319) 36 (8) (775) (547) (280) 1,799 (42) 1,225 (9) 1,049 6 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,757 $ 1,216 $ 1,055 Earnings Per Share Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.26 $ 1.57 $ 1.36 Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.26 $ 1.56 $ 1.36 Dividends Declared Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.10 $ 1.00 $ 1.00 The accompanying notes are an integral part of these consolidated financial statements. 7 CARNIVAL CORPORATION & PLC CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) Years Ended November 30, 2015 2014 2013 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,757 $1,216 $1,055 Items Included in Other Comprehensive (Loss) Income Change in foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,078) (47) (746) (31) 332 36 Other Comprehensive (Loss) Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,125) (777) 368 Total Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The accompanying notes are an integral part of these consolidated financial statements. 8 $ 632 $ 439 $1,423 CARNIVAL CORPORATION & PLC CONSOLIDATED BALANCE SHEETS (in millions, except par values) November 30, 2015 2014 ASSETS Current Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade and other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance recoverables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,395 303 109 330 314 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,451 1,488 Property and Equipment, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,888 3,010 1,238 650 32,819 3,127 1,270 744 $39,237 $39,448 $ $ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1,344 627 1,683 3,272 $ 331 332 154 349 322 666 1,059 626 1,538 3,032 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,956 6,921 Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commitments and Contingencies Shareholders' Equity Common stock of Carnival Corporation, $0.01 par value; 1,960 shares authorized; 653 shares at 2015 and 652 shares at 2014 issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ordinary shares of Carnival plc, $1.66 par value; 216 shares at 2015 and 2014 issued . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock, 70 shares at 2015 and 59 shares at 2014 of Carnival Corporation and 27 shares at 2015 and 32 shares at 2014 of Carnival plc, at cost . . . . . . . . . . . . . . . . . . . . . . 7,413 1,097 7,363 960 7 358 8,562 20,060 (1,741) 7 358 8,384 19,158 (616) (3,475) (3,087) 23,771 24,204 $39,237 $39,448 Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The accompanying notes are an integral part of these consolidated financial statements. 9 CARNIVAL CORPORATION & PLC CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Years Ended November 30, 2015 2014 2013 OPERATING ACTIVITIES Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,757 $ 1,216 $ 1,055 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,626 1,637 1,590 (Gains) losses on ship sales and ship impairments, net . . . . . . . . . . . . . . . . . . . . . (8) 2 163 Losses (gains) on fuel derivatives, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576 271 (36) Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 52 42 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 35 62 Changes in operating assets and liabilities Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 75 (128) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1 21 Insurance recoverables, prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . 131 422 424 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 9 79 Accrued and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31) (382) (333) Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354 92 (105) Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,545 3,430 2,834 INVESTING ACTIVITIES Additions to property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of ships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments of fuel derivative settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,294) 25 (219) 10 (2,583) 42 (2) 36 (2,149) 70 23 Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,478) (2,507) (2,056) FINANCING ACTIVITIES (Repayments of) proceeds from short-term borrowings, net . . . . . . . . . . . . . . . . . . . Principal repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (633) (1,238) 2,041 (816) (533) 264 (27) 617 (2,466) 1,626 (776) (29) 4 (2,212) 2,687 (1,164) (138) 35 8 Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (942) (1,028) (780) Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . (61) (26) (1) (131) 462 (3) 465 Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,064 331 Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,395 The accompanying notes are an integral part of these consolidated financial statements. 10 $ 331 $ 462 CARNIVAL CORPORATION & PLC CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in millions) Retained earnings Accumulated other comprehensive (loss) income Treasury stock Total shareholders' equity $18,438 1,055 (775) $ (207) 368 - $(2,958) - $23,888 1,055 368 (775) Common stock Ordinary shares Additional paid-in capital Balances at November 30, 2012 . . . . Net income . . . . . . . . . . . . . . . . . . . . Other comprehensive income . . . . . Cash dividends declared . . . . . . . . . Purchases and sales under the Stock Swap program, net . . . . . . . . . . . . Purchases of treasury stock under the Repurchase Program and other . . . . . . . . . . . . . . . . . . . . . . . $6 - $357 - $8,252 - - - 10 1 1 63 (110) (45) Balances at November 30, 2013 . . . . Net income . . . . . . . . . . . . . . . . . . . . Other comprehensive loss . . . . . . . . Cash dividends declared . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . 7 - 358 - 8,325 59 18,718 1,216 (777) 1 161 (777) - (3,077) (10) 24,492 1,216 (777) (777) 50 Balances at November 30, 2014 . . . . Net income . . . . . . . . . . . . . . . . . . . . Other comprehensive loss . . . . . . . . Cash dividends declared . . . . . . . . . Purchases and sales under the Stock Swap program, net . . . . . . . . . . . . Purchases of treasury stock under the Repurchase Program and other . . . . . . . . . . . . . . . . . . . . . . . 7 - 358 - 8,384 - 19,158 1,757 (855) (616) (1,125) - (3,087) - 24,204 1,757 (1,125) (855) - - 119 - - 59 - Balances at November 30, 2015 . . . . $7 $358 $8,562 $20,060 - - - - - - $(1,741) The accompanying notes are an integral part of these consolidated financial statements. 11 (9) (112) (276) $(3,475) 1 7 (217) $23,771 CARNIVAL CORPORATION & PLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - General Description of Business Carnival Corporation is incorporated in Panama and Carnival plc is incorporated in England and Wales. Carnival Corporation and Carnival plc operate a dual listed company (\"DLC\"), whereby the businesses of Carnival Corporation and Carnival plc are combined through a number of contracts and through provisions in Carnival Corporation's Articles of Incorporation and By-Laws and Carnival plc's Articles of Association. The two companies operate as if they are a single economic enterprise, but each has retained its separate legal identity. Each company's shares are 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 (see Note 3). We are the largest leisure travel company in the world, and also the largest cruise company. We operate 99 cruise ships within a portfolio of ten leading global, regional and national cruise brands that sell tailored cruise products, services and vacation experiences in all the world's most important vacation geographic areas. The consolidated financial statements include the accounts of Carnival Corporation and Carnival plc and their respective subsidiaries. Together with their consolidated subsidiaries, they are referred to collectively in these consolidated financial statements and elsewhere in this 2015 Annual Report as \"Carnival Corporation & plc,\" \"our,\" \"us\" and \"we.\" Revision of Prior Period Financial Statements In the first quarter of 2015, we revised and corrected the accounting for one of our brands' marine and technical spare parts in order to consistently expense and classify them fleetwide. We evaluated the materiality of this revision and concluded that it was not material to any of our previously issued financial statements. However, had we not revised, this accounting may have resulted in material inconsistencies to our financial statements in the future. Accordingly, we revised all previously reported periods included herein. The effects of this revision on our Consolidated Statements of Income were as follows (in millions, except per share data): Year Ended November 30, 2014 As Previously As Reported Adjustment Revised Other ship operating . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings per share Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended November 30, 2013 As Previously As Reported Adjustment Revised $2,445 $1,635 $1,792 $1,245 $1,236 $ 18 $ 2 $ (20) $ (20) $ (20) $2,463 $1,637 $1,772 $1,225 $1,216 $2,589 $1,588 $1,352 $1,072 $1,078 $ 21 $ 2 $ (23) $ (23) $ (23) $2,610 $1,590 $1,329 $1,049 $1,055 $ 1.59 $ 1.59 $(0.02) $(0.03) $ 1.57 $ 1.56 $ 1.39 $ 1.39 $(0.03) $(0.03) $ 1.36 $ 1.36 The effects of this revision on our Consolidated Statements of Comprehensive Income were as follows (in millions): Year Ended November 30, 2014 As Previously As Reported Adjustment Revised Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total comprehensive income . . . . . . . . . . . . . . $1,236 $ 459 12 $(20) $(20) $1,216 $ 439 Year Ended November 30, 2013 As Previously As Reported Adjustment Revised $1,078 $1,446 $(23) $(23) $1,055 $1,423 The effects of this revision on our Consolidated Balance Sheet were as follows (in millions): November 30, 2014 As Previously As Reported Adjustment Revised Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 364 $ 1,503 $32,773 $ 859 $39,532 $19,242 $24,288 $39,532 $ (15) $ 349 $ (15) $ 1,488 $ 46 $32,819 $(115) $ 744 $ (84) $39,448 $ (84) (a) $19,158 $ (84) $24,204 $ (84) $39,448 (a) As of November 30, 2014, the cumulative impact of this revision was an $84 million reduction in retained earnings. The diluted earnings per share decreases were $0.03 for each of 2014 and 2013, $0.02 for 2012, $0.03 for pre-2010 and $0.11 in the aggregate. There was no annual diluted earnings per share impact for 2011 and 2010. This non-cash revision did not impact our operating cash flows for any period. The effects of this revision on the individual line items within operating cash flows on our Consolidated Statement of Cash Flows were as follows (in millions): Year Ended November 30, 2014 As Previously As Reported Adjustment Revised Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance recoverables, prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued and other liabilities . . . . . . . . . . . . . . Year Ended November 30, 2013 As Previously As Reported Adjustment Revised $1,236 $1,635 $ 1 $(20) $ 2 $ - $1,216 $1,637 $ 1 $1,078 $1,588 $ 19 $(23) $ 2 $ 2 $1,055 $1,590 $ 21 $ 401 $ (379) $ 21 $ (3) $ 422 $ (382) $ 402 $ (330) $ 22 $ (3) $ 424 $ (333) The effects of this revision on our Consolidated Statements of Shareholders' Equity were as follows (in millions): November 30, 2014 November 30, 2013 November 30, 2012 As As As Previously As Previously As Previously As Reported Adjustment Revised Reported Adjustment Revised Reported Adjustment Revised Retained earnings . . . . $19,242 $(84) $19,158 $18,782 $(64) $18,718 $18,479 $(41) $18,438 NOTE 2 - Summary of Significant Accounting Policies Basis of Presentation We consolidate entities over which we have control, as typically evidenced by a voting control of greater than 50% or for which we are the primary beneficiary, whereby we have the power to direct the most significant activities and the obligation to absorb significant losses or receive significant benefits from the entity (see Note 3). We do not separately present our noncontrolling interests in the consolidated financial statements since the amounts are insignificant. For affiliates we do not control but where significant influence over financial and operating policies exists, as typically evidenced by a voting control of 20% to 50%, the investment is accounted for using the equity method (see Note 5). 13 Preparation of Financial Statements The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported and disclosed in our financial statements. Actual results may differ from the estimates used in preparing our consolidated financial statements. All significant intercompany balances and transactions are eliminated in consolidation. Certain prior period amounts have been reclassified in the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows to conform to the current period presentation. The reclassifications in the Consolidated Statements of Cash Flows had no impact on net cash provided by operating activities and net cash used in investing and financing activities. Cash and Cash Equivalents Cash and cash equivalents include investments with maturities of three months or less at acquisition, which are stated at cost. Inventories Inventories consist substantially of food and beverages, hotel and restaurant products and supplies, fuel and gift shop merchandise held for resale, which are all carried at the lower of cost or market. Cost is determined using the weighted-average or first-in, first-out methods. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization were computed using the straight-line method over our estimates of useful lives and residual values, as a percentage of original cost, as follows: Years Ships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ship improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Computer hardware and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transportation equipment and other . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements, including port facilities . . . . . . . . . . . . . . . 30 Shorter of remaining ship life or useful life (3-28) 10-35 3-10 3-20 Shorter of lease term or related asset life (3-30) Residual Values 15% 0% 0% or 10% 0% or 10% 0% or 10% - The cruise industry is very capital intensive, and at January 22, 2016, we operated 99 cruise ships. Therefore, we have a capital program that we develop for the improvement of our ships and for asset replacements in order to enhance the effectiveness and efficiency of our operations; comply with, or exceed all relevant legal and statutory requirements related to health, environment, safety, security and sustainability; and gain strategic benefits or provide newer improved product innovations to our guests. Ship improvement costs that we believe add value to our ships, such as those discussed above, are capitalized to the ships and depreciated over the shorter of their or the ships' estimated remaining useful life, while costs of repairs and maintenance, including minor improvement costs and dry-dock expenses, are charged to expense as incurred and included in other ship operating expenses. Dry-dock costs primarily represent planned major maintenance activities that are incurred when a ship is taken out-of-service for scheduled maintenance. We capitalize interest as part of the cost of acquiring ships and other capital projects during their construction period. The specifically identified or estimated cost and accumulated depreciation of previously capitalized ship components are written-off upon retirement, which may result in a loss on disposal that is also included in other 14 ship operating expenses. Liquidated damages received from shipyards as a result of their late ship delivery are recorded as reductions to the cost basis of the ship. We review our long-lived assets, principally our ships, for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. Upon the occurrence of a triggering event, the assessment of possible impairment is based on our ability to recover the carrying value of our asset, which is determined by using the asset's estimated undiscounted future cash flows. If these estimated undiscounted future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the excess, if any, of the asset's carrying value over its estimated fair value. As it relates to our ships, the lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the individual ship level. A significant amount of judgment is required in estimating the future cash flows and fair values of our cruise ships. Intangibles Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business acquisition. We review our goodwill for impairment at least annually and, when events or circumstances dictate, more frequently. All of our goodwill has been allocated to our reporting units, also referred to as \"cruise brands.\" The impairment review for goodwill allows us to first assess qualitative factors to determine whether it is necessary to perform the more detailed two-step quantitative goodwill impairment test. We would perform the quantitative test if our qualitative assessment determined it is more-likely-than-not that a cruise brand's estimated fair value is less than its carrying amount. We may also elect to bypass the qualitative assessment and proceed directly to the quantitative test for any cruise brand. When performing the quantitative test, if the estimated fair value of the cruise brand exceeds its carrying value, no further analysis or write-down of goodwill is required. However, if the estimated fair value of the cruise brand is less than the carrying value of its net assets, the estimated fair value of the cruise brand is assigned to all its underlying assets and liabilities, including both recognized and unrecognized tangible and intangible assets, based on their fair values. If necessary, goodwill is then written down to its implied fair value. Trademarks represent substantially all of our other intangibles. For certain acquisitions, we have allocated a portion of the purchase prices to the acquiree's identified trademarks. Trademarks are estimated to have an indefinite useful life and, therefore, are not amortizable, but are reviewed for impairment at least annually and, when events or circumstances dictate, more frequently. The impairment review for trademarks also allows us to first assess qualitative factors to determine whether it is necessary to perform a more detailed quantitative trademark impairment test. We would perform the quantitative test if our qualitative assessment determined it was more-likely-than-not that the trademarks are impaired. We may also elect to bypass the qualitative assessment and proceed directly to the quantitative test. Our trademarks would be considered impaired if their carrying value exceeds their estimated fair value. The costs of developing and maintaining our trademarks are expensed as incurred. A significant amount of judgment is also required in estimating the fair values of our cruise brands and trademarks. Revenue and Expense Recognition Guest cruise deposits represent unearned revenues and are initially included in customer deposit liabilities when received. Customer deposits are subsequently recognized as cruise revenues, together with revenues from onboard and other activities, and all associated direct costs and expenses of a voyage are recognized as cruise costs and expenses, upon completion of voyages with durations of ten nights or less and on a pro rata basis for voyages in excess of ten nights. The impact of recognizing these shorter duration cruise revenues and costs and expenses on a completed voyage basis versus on a pro rata basis is not significant. Future travel discount vouchers issued to guests and ship charterers are included as a reduction of cruise passenger ticket revenues when 15 such vouchers are utilized or upon issuance to certain ship charterers. Guest cancellation fees are recognized in cruise passenger ticket revenues at the time of the cancellation. Our sale to guests of air and other transportation to and from airports near the home ports of our ships are included in cruise passenger ticket revenues, and the related cost of purchasing these services are included in cruise transportation costs. The proceeds that we collect from the sales of third-party shore excursions and on behalf of our onboard concessionaires, net of the amounts remitted to them, are included in onboard and other cruise revenues as concession revenues. All of these amounts are recognized on a completed voyage or pro rata basis as discussed above. Cruise passenger ticket revenues include fees, taxes and charges collected by us from our guests. A portion of these fees, taxes and charges vary with guest head counts and are directly imposed on a revenue-producing arrangement. This portion of the fees, taxes and charges is expensed in commissions, transportation and other costs when the corresponding revenues are recognized. These fees, taxes and charges included in passenger ticket revenues and commissions, transportation and other costs were $524 million in 2015, $532 million in 2014 and $517 million in 2013. The remaining portion of fees, taxes and charges are also included in cruise passenger ticket revenues but are expensed in other ship operating expenses when the corresponding revenues are recognized. Revenues and expenses from our hotel and transportation operations, which are included in our Tour and Other segment, are recognized at the time the services are performed or expenses are incurred. Revenues from the longterm leasing of ships, which are also included in our Tour and Other segment, are recognized ratably over the term of the charter agreement using the straight-line method (see Note 12). Insurance We maintain insurance to cover a number of risks including illness and injury to crew, guest injuries, pollution, other third-party claims in connection with our cruise activities, damages to hull and machinery for each of our ships, war risks, workers compensation, employee health, directors and officers liability, property damages and general liabilities for third-party claims. We recognize insurance recoverables from third-party insurers for incurred expenses at the time the recovery is probable and upon realization for amounts in excess of incurred expenses. All of our insurance policies are subject to coverage limits, exclusions and deductible levels. The liabilities associated with crew illnesses and crew and guest injury claims, including all legal costs, are estimated based on the specific merits of the individual claims or actuarially estimated based on historical claims experience, loss development factors and other assumptions. Selling and Administrative Expenses Selling expenses include a broad range of advertising, such as marketing and promotional expenses. Advertising is charged to expense as incurred, except for media production costs, which are expensed upon the first airing of the advertisement. Advertising expenses totaled $627 million in 2015, $623 million in 2014 and $588 million in 2013. Administrative expenses represent the costs of our shoreside ship support, reservations and other administrative functions, and includes salaries and related benefits, professional fees and building occupancy costs, which are typically expensed as incurred. 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 16 comprehensive income (\"AOCI\"), which is a separate component of shareholders' equity. Therefore, the U.S. dollar value of the 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. We execute transactions in a number of different currencies, principally the euro, sterling and Australian, Canadian and U.S. dollars. Exchange rate gains and losses arising from changes in foreign currency exchange rates between the time an expense is recorded and when it is settled as well as the remeasurement of monetary assets and liabilities, all denominated in a currency other than the functional currency of the entity involved, are recognized currently in nonoperating earnings, unless such monetary liabilities have been designated to act as hedges of net investments in our foreign operations. The net gains or losses resulting from these \"nonoperating foreign currency transactions\" were insignificant in 2015, 2014 and 2013. 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. Share-Based Compensation We recognize compensation expense for all share-based compensation awards using the fair value method. For time-based share awards, we recognize compensation cost 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 generally recognize compensation cost ratably using the straight-line attribution method over the expected vesting period based on the probability of the performance condition being achieved. If all or a portion of the performance condition is not expected to be met, the appropriate amount of previously recognized compensation expense will be reversed and future compensation expense will be adjusted accordingly. For market-based share awards, we recognize compensation cost ratably using the straight-line attribution method over the expected vesting period. If the target market conditions are not expected to be met, compensation expense will still be recognized. In addition, we estimate the amount of expected forfeitures based on historical forfeiture experience when calculating compensation cost. We revise our forfeiture estimates, if the actual forfeitures that occur are significantly different from our estimates. 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 net income by the weightedaverage number of shares and common stock equivalents 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). Accounting Pronouncements In 2014, amended guidance was issued by the Financial Accounting Standards Board (\"FASB\") regarding the accounting for Service Concession Arrangements. The new guidance defines a service concession as an arrangement between a public-sector grantor, such as a port authority, and a company that will operate and maintain the grantor's infrastructure for a specified period of time. In exchange, the company may be given a right to charge the public, such as our cruise guests, for the use of the infrastructure. This guidance will require us to record the infrastructure we have constructed to be used by us pursuant to a service concession arrangement outside of property and equipment. As required, we will adopt this guidance in our first quarter of 2016. Such adoption will not have a material impact to our consolidated financial statements. In 2014, the FASB issued Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. 17 When effective, this standard will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles (\"U.S. GAAP\"). The standard also requires more detailed disclosures and provides additional guidance for transactions that were not comprehensively addressed in U.S. GAAP. This guidance is required to be adopted by us in the first quarter of fiscal 2019 by either recasting all years presented in our financial statements or by recording the impact of adoption as an adjustment to retained earnings at the beginning of the year of adoption. We are currently evaluating the impact that this guidance will have on our consolidated financial statements. NOTE 3 - DLC Arrangement In 2003, Carnival Corporation and Carnival plc completed a DLC transaction, which implemented Carnival Corporation and Carnival 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. 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 arrangement. Because the 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 re