CARNIVAL CORP - Quarter Report: 2009 August (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended August 31, 2009

OR

For the transition period from                                  to                                 

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrants have submitted electronically and posted on its corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No   ¨

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or smaller reporting companies. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

PART I – FINANCIAL INFORMATION

CARNIVAL CORPORATION & PLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in millions, except per share data)

The accompanying notes are an integral part of these consolidated financial statements.

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CARNIVAL CORPORATION & PLC

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in millions, except par values)

The accompanying notes are an integral part of these consolidated financial statements.

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CARNIVAL CORPORATION & PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in millions)

The accompanying notes are an integral part of these consolidated financial statements.

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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. 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 memorandum of association and articles of association. The two companies operate as if they are a single economic enterprise, but each has retained its separate legal identity.

The accompanying 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 joint Quarterly Report on Form 10-Q (“Form 10-Q”) as “Carnival Corporation & plc,” “our,” “us,” and “we.”

The accompanying consolidated balance sheets at August 31, 2009 and 2008, the consolidated statements of operations for the three and nine months ended August 31, 2009 and 2008 and the consolidated statements of cash flows for the nine months ended August 31, 2009 and 2008 are unaudited and, in the opinion of our management, contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation. In our statement of cash flows we have revised our presentation of proceeds from and principal repayments of our revolving credit facility to reflect the cash flows in connection with the underlying borrowings and repayments under the facility. This revision had no impact on the net proceeds from and principal repayments of our revolving credit facility, or on our net cash flows from financing activities. We have evaluated subsequent events through the filing date of this Form 10-Q, October 1, 2009, and determined that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes thereto other than as disclosed in the accompanying notes. 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 2008 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.

NOTE 2 – Debt

At August 31, 2009, unsecured short-term borrowings consisted of euro and U.S. dollar-denominated bank loans of $189 million and $10 million, respectively, with an aggregate weighted-average interest rate of 0.7%.

In February 2009, we borrowed $200 million under an unsecured term loan, which bears interest at 4.5% and matures in February 2012.

In March 2009, we borrowed $301 million under an unsecured export credit facility, the proceeds of which were used to pay for a portion of AIDAluna’s purchase price. This facility bears interest at EURIBOR plus 18 basis points (“bps”) and is repayable in semi-annual installments through 2021.

In May 2009, we borrowed $486 million under an unsecured export credit facility, the proceeds of which were used to pay for a portion of Costa Pacifica’s purchase price. This facility bears interest at EURIBOR plus 160 bps and is repayable in semi-annual installments through 2019.

In May 2009, we entered into an unsecured two-year $150 million multi-currency bilateral revolver, which has an undrawn commitment fee of 31 bps and serves as back-up liquidity to our principal revolver.

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In June 2009, Costa Crociere S.p.A. (“Costa”), one of our Italian subsidiaries, entered into an unsecured euro-denominated term loan agreement with the European Investment Bank for $785 million. The proceeds are to be used to fund a portion of their ships’ purchase prices. Costa borrowed $285 million in July 2009, which bears interest at 4.5%, and anticipates drawing an additional $286 million in 2010 and the remaining $214 million in 2011. Each borrowing will be repayable in semi-annual installments over 15 years from the date of funding.

In June 2009, we borrowed $83 million under an unsecured export credit facility, the proceeds of which were used to pay for a portion of Seabourn Odyssey’s purchase price. This facility bears interest at LIBOR plus 160 bps and is repayable in semi-annual installments through 2017.

In June and July 2009, we borrowed an aggregate of $200 million under two unsecured term loans, each of which bear interest at LIBOR plus 250 bps and mature in May 2012.

In July 2009, we obtained an unsecured export credit facility, bearing interest at LIBOR plus 150 bps, which provides us with the ability to borrow up to a sterling-equivalent of $553 million for a portion of the March 2010 P&O Cruises’ Azura final purchase price. This borrowing will be repayable in semi-annual installments over 10 years from the date of funding.

In July and August 2009, we restructured an existing unsecured euro-denominated $581 million export credit facility for Carnival Dream. Under the terms of the restructuring, the existing export credit facility, which was to be repayable semi-annually over 12 years and bear interest at 4.2%, was replaced with two unsecured term loan facilities. The first facility is a euro-denominated $435 million term loan facility, bearing interest at 3.9% and is repayable semi-annually over 12 years. On September 18, 2009, we borrowed under this facility, the proceeds of which were used to pay for a portion of Carnival Dream’s purchase price. The second facility is a euro-denominated $283 million term loan facility that has two tranches. The first tranche is for $145 million. On September 18, 2009, we borrowed under this tranche, the proceeds of which were also used to pay for a portion of Carnival Dream’s purchase price. This tranche bears interest at EURIBOR plus 55 bps and matures in September 2014. The second tranche is for $138 million, and we anticipate drawing this in February 2010 for general corporate purposes. This second tranche will bear interest at EURIBOR plus 300 bps and it will mature four years from the date of funding.

In August 2009, we entered into an unsecured three-year $100 million multi-currency bilateral revolver, which has an undrawn commitment fee of 40 bps and serves as back-up liquidity to our principal revolver.

In September 2009, we repaid $526 million of euro-denominated debt prior to its March 31, 2010 maturity date.

NOTE 3 – Contingencies

Litigation

The Office of the Attorney General of Florida (“Attorney General”) is conducting an investigation to determine whether there is or has been a violation of Florida antitrust laws in connection with the setting by us and other unaffiliated cruise lines of our respective fuel supplements. We are providing our full cooperation to the Attorney General’s office.

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 which are not covered by insurance cannot be determined at this time.

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Contingent Obligations – Lease Out and Lease Back Type (“LILO”) Transactions

At August 31, 2009, Carnival Corporation had estimated contingent obligations totaling $579 million, excluding termination payments as discussed below, to participants in LILO transactions for two of its ships. At the inception of these leases, the aggregate of the net present value of these obligations was paid by Carnival Corporation to a group of major financial institutions, one of which includes American International Group Inc. (“AIG”), who agreed to act as payment undertakers and directly pay these obligations. Accordingly, these contingent obligations are considered extinguished, and neither the funds nor the contingent obligations have been included on our balance sheets.

In the event that Carnival Corporation were to default on its obligations and assuming performance by all other participants, we estimate that we would, as of August 31, 2009, be responsible for a termination payment of approximately $94 million. In 2017 we have the right to exercise options that would terminate these two LILO transactions at no cost to us.

In certain cases, if the credit ratings of the financial institutions who are directly paying the contingent obligations fall below AA-, then Carnival Corporation will be required to replace these financial institutions with other financial institutions whose credit ratings are at least AA or meet other specified credit requirements. In such circumstances we will incur additional costs, although we estimate that they will be immaterial to our financial statements. All of the financial institution payment undertakers subject to this AA- credit rating threshold have credit ratings of AAA. If Carnival Corporation’s credit rating, which is BBB+, falls below BBB, it will be required to provide a standby letter of credit for $66 million, or alternatively provide mortgages for this aggregate amount on these two ships.

In September 2008, the credit ratings of AIG and its subsidiaries involved in one of the above LILO transactions were downgraded from AA- to A-. As a result of this downgrade, AIG pledged collateral to support its obligations as a payment undertaker under the terms of this LILO transaction and, accordingly, AIG is no longer subject to the AA- credit rating threshold discussed above.

Carnival Corporation and AIG were also parties to a third LILO transaction. In September 2008, we replaced AIG as the payment undertaker under this third LILO transaction by purchasing $80 million of U.S. Treasury strip securities with funds substantially all of which were provided by AIG. In February 2009, Carnival and the remaining participants voluntarily unwound this LILO transaction. Accordingly, the $80 million of long-term U.S. Treasury strip securities that we held as collateral for our recorded LILO obligation were released to extinguish this obligation. As a result of the unwinding of this third LILO transaction, we recorded a $15 million nonoperating gain in February 2009, which had originally been deferred at the inception of the LILO transaction and was being amortized over its term.

Contingent Obligations – Indemnifications

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 and 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.

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NOTE 4 – Comprehensive Income

Comprehensive income was as follows (in millions):

NOTE 5 – Segment Information

Our cruise segment includes all our cruise brands, which have been aggregated as a single reportable segment based on the similarity of their economic and other characteristics, including the products and services they provide. Substantially all of our other segment represents the hotel, tour and transportation operations of Holland America Tours and Princess Tours.

Selected segment information for our cruise and other segments was as follows (in millions):

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NOTE 6 – Earnings Per Share

Our basic and diluted earnings per share were computed as follows (in millions, except per share data):

NOTE 7 – Fair Value Measurements, Derivative Instruments and Hedging Activities

Fair Value Measurements

U.S. accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, our own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date.

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Financial Instruments that ARE NOT measured at Fair Value on a Recurring Basis

The estimated carrying and fair values of our financial instrument assets and (liabilities) that are not measured at fair value on a recurring basis were as follows (in millions):

Financial Instruments that ARE measured at Fair Value on a Recurring Basis

The estimated fair value and basis of valuation of our financial instrument assets and (liabilities) that are measured at fair value on a recurring basis were as follows (in millions):

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We measure our derivatives using valuations that are calibrated to the initial trade prices. Subsequent valuations are based on observable inputs and other variables included in the valuation model such as interest rate yield curves, currency exchange rates, credit spreads, maturity dates, volatilities and netting arrangements. We use the income approach to value the derivatives, using observable market data for all significant inputs and standard valuation techniques to convert future amounts to a single present value amount, assuming that participants are motivated, but not compelled to transact. The fair value measurement of a financial asset or financial liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of our counterparty’s creditworthiness was considered when in an asset position and our creditworthiness was considered when in a liability position in the fair value measurement of our derivative instruments. Creditworthiness did not have a material impact on the fair value of our derivative instruments at August 31, 2009 and November 30, 2008. Both the counterparties and we are expected to continue to perform under the contractual terms of the instruments.

Nonfinancial Instruments that ARE measured at Fair Value on a Nonrecurring Basis

As of July 31, 2009, we performed our annual goodwill impairment reviews by comparing the estimated fair value of each cruise line reporting unit to the carrying value of the net assets allocated to that reporting unit, including its goodwill. All of our cruise brands have recorded goodwill, except for Ocean Village and The Yachts of Seabourn. No goodwill was considered impaired because the estimated fair values exceeded the carrying values of these cruise line reporting units and, accordingly, we did not proceed to step two of the impairment analysis.

We estimated reporting unit fair values based upon a combined weighting of the fair values determined using the discounted future cash flow analysis and the market values of comparable publicly-traded companies. The principal assumptions used in our cash flow analysis related to forecasting future operating results, including net revenue yields, net cruise costs, including fuel prices, capacity increases, weighted-average cost of capital for comparable publicly-traded companies and terminal values, which are all considered level 3 inputs. In developing these assumptions, we compared the resulting estimated enterprise fair value to our observable capital market enterprise value.

We performed our annual trademark impairment reviews by comparing the estimated fair values of our trademarks to their carrying values. The cruise brands that have recorded trademarks are AIDA Cruises, Ibero Cruises, P&O Cruises, P&O Cruises Australia and Princess Cruises. The estimated fair values for all our trademarks exceeded their carrying values and, therefore, our

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trademarks were not impaired. We estimated fair values based upon a discounted future cash flow analysis, which estimated the amount of royalties that we are relieved from having to pay for use of the associated trademarks, based upon forecasted revenues. The royalty rates are primarily based upon comparable royalty agreements used in the tourism and hospitality industries.

The determination of our cruise line reporting unit fair values include numerous uncertainties. We believe that we have made reasonable estimates and judgments in determining whether our goodwill and trademarks have been impaired. However, if there is a material change in assumptions used in our determination of fair values or if there is a material change in the conditions or circumstances influencing fair values, we could be required to recognize a material impairment charge.

Changes to our goodwill carrying amounts since November 30, 2008 were substantially all due to changes resulting from using different foreign currency translation rates.

Derivative Instruments and Hedging Activities

In March 2008, the Financial Accounting Standards Board (“FASB”) issued a statement which requires entities to provide greater transparency in interim and annual financial statements about how and why the entity uses derivative instruments, how the instruments and related hedged items are accounted for, and how the instruments and related hedged items affect the financial position, results of operations, and cash flows of the entity. We adopted this new statement effective December 1, 2008.

We utilize derivative and nonderivative financial instruments, such as foreign currency forwards, options and swaps, foreign currency debt obligations and foreign currency cash balances, to manage our exposure to fluctuations in foreign currency exchange rates, and interest rate swaps to manage our interest rate exposure in order to achieve a desired proportion of variable and fixed rate debt. Our policy is to not use any financial instruments for trading or other speculative purposes.

All derivatives are recorded at fair value, and the changes in fair value are immediately included in earnings if the derivatives do not qualify as effective hedges. If a derivative is designated as a fair value hedge, then changes in the fair value of the derivative are offset against the changes in the fair value of the underlying hedged item. If a derivative is designated as a cash flow hedge, then the effective portion of the changes in the fair value of the derivative are recognized as a component of AOCI until the underlying hedged item is recognized in earnings or the forecasted transaction is no longer probable of occurring. If a derivative or a nonderivative financial instrument is designated as a hedge of our net investment in a foreign operation, then changes in the fair value of the financial instrument are recognized as a component of AOCI to offset a portion of the change in the translated value of the net investment being hedged, until the investment is sold or liquidated. We formally document hedging relationships for all derivative and nonderivative hedges and the underlying hedged items, as well as our risk management objectives and strategies for undertaking the hedge transactions.

We classify the fair value of all our derivative contracts and the fair value of our hedged firm commitments as either current or long-term, which are included in prepaid expenses and other assets and accrued and other liabilities, depending on whether the maturity date of the derivative contract is within or beyond one year from the balance sheet date. The cash flows from derivatives treated as hedges are classified in our Consolidated Statements of Cash Flows in the same category as the item being hedged.

The new FASB statement requires tabular disclosures of the impact that derivatives instruments and hedging activities have on our financial statements. We have not provided these disclosures because the amounts as of and for the three and nine months ended August 31, 2009 are not significant. In addition, there are no amounts excluded from the assessment of hedge effectiveness and there are no credit risk related contingent features in our derivative agreements. Finally, the amount of estimated cash flow hedges’ unrealized net gains or losses which are expected to be reclassified to earnings in the next twelve months is not significant.

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Foreign Currency Exchange Rate Risk

Operational and Investment Currency Risk

We manage our exposure to fluctuations in foreign currency exchange rates through our normal operating and financing activities, including netting certain exposures to take advantage of any natural offsets and, when considered appropriate, through the use of derivative and nonderivative financial instruments. Our focus is to manage the economic risks faced by our operations, which are the real foreign currency exchange risks that would ultimately be realized by us if we exchanged one currency for another, and not the accounting risks. The financial impacts of these hedging instruments are generally offset by corresponding changes in the underlying exposures being hedged.

We consider our investments in foreign operations to be denominated in relatively stable currencies and of a long-term nature. We partially address our net investment currency exposures by denominating a portion of our debt, including the effect of foreign currency forwards and swaps, in our foreign operations’ functional currencies (generally the euro or sterling). As of August 31, 2009 and November 30, 2008, we have designated $1.6 billion of our euro debt and $359 million and $343 million of our sterling debt and other obligations, respectively, which mature through 2019, as nonderivative hedges of our net investments in foreign operations. Accordingly, we have included $27 million and $319 million of cumulative foreign currency transaction gains in the cumulative translation adjustment component of AOCI at August 31, 2009 and November 30, 2008, respectively.

Newbuild Currency Risk

The majority of our newbuild capacity on order is for our European brands for which we do not have significant currency risk because all our ships are contracted for in euros, which is the functional currency of these brands. However, our U.S. dollar and sterling functional currency brands have foreign currency exchange rate risks related to our outstanding or possible future commitments under ship construction contracts denominated in euros. These foreign currency commitments are affected by fluctuations in the value of the functional currency as compared to the currency in which the shipbuilding contract is denominated. We use foreign currency contracts and have used nonderivative financial instruments to manage foreign currency exchange rate risk for some of our ship construction contracts.

Our decisions regarding whether or not to hedge a given ship commitment for our North American and UK brands are made on a case-by-case basis, taking into consideration the amount and duration of the exposure, market volatility, exchange rate correlation, economic trends and other offsetting risks.

Interest Rate Risks

We manage our exposure to fluctuations in interest rates through our investment and debt portfolio management strategies. These strategies include purchasing high quality short-term investments with variable interest rates, and evaluating our debt portfolio to make periodic adjustments to the mix of variable and fixed rate debt through the use of interest rate swaps and the issuance of new debt. At August 31, 2009, 73% and 27% (74% and 26% at November 30, 2008) of our debt bore fixed and variable interest rates, including the effect of interest rate swaps, respectively.

Fuel Price Risks

We do not use financial instruments to hedge our exposure to the fuel price market risks.

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Concentrations of Credit Risk

As part of our ongoing control procedures, we monitor concentrations of credit risk associated with financial and other institutions with which we conduct significant business. Our exposure under foreign currency contracts and interest rate swap agreements is limited to the cost of replacing the contracts in the event of nonperformance by the counterparties to the contracts, all of which are currently our lending banks. We seek to minimize credit risk, including counterparty nonperformance primarily associated with our cash equivalents, committed financing facilities, contingent obligations, derivative instruments, insurance contracts and new ship progress payment guarantees by normally conducting business with large, well-established financial institutions and insurance companies that have long-term credit ratings of A or above, and by diversifying our counterparties. In addition, we have established guidelines regarding credit ratings and investment maturities that we follow to help maintain safety and liquidity. We do not currently anticipate nonperformance by any of our significant counterparties.

We also monitor the creditworthiness of foreign travel agencies and tour operators to which we grant credit terms in the normal course of our business. Concentrations of credit risk associated with these receivables are considered minimal, primarily due to their short maturities and the large number of accounts within our customer base. We have experienced only minimal credit losses on our trade receivables. We do not normally require collateral or other security to support normal credit sales. However, we normally do require collateral and/or guarantees to support notes receivable on significant asset sales and new ship progress payments to shipyards.

NOTE 8 – Shareholders’ Equity

In February 2009, we issued 450,000 shares of Carnival Corporation common stock for $10 million of net proceeds, substantially all of which was used to fund the repurchase of 450,000 shares of Carnival plc ordinary shares. In this offering, we issued Carnival Corporation common stock in the U.S., only to the extent we were able to purchase shares of Carnival plc in the UK on at least an equivalent basis.

In July and August 2009, we sold an aggregate of 1.5 million shares of Carnival plc ordinary shares for $43 million of net proceeds, substantially all of which was used to fund the repurchase of 1.5 million of Carnival Corporation common stock. In this offering, we issued Carnival plc ordinary shares in the UK, only to the extent we were able to purchase shares of Carnival Corporation in the U.S. on at least an equivalent basis.

NOTE 9 – Acquisition of Minority Interest

In July 2009, we purchased the remaining 25% minority interest in Ibero Cruises for $33 million. Ibero Cruises is now our 100%-owned Spanish cruise line.

NOTE 10 – Recent Accounting Pronouncement

In May 2008, the FASB issued a staff position that requires the issuer of certain convertible debt instruments that may be settled in cash, or other assets, on conversion to separately account for the debt and equity components in a manner that reflects the issuer’s non-convertible debt borrowing rate. This statement will be adopted by us in the first quarter of fiscal 2010 on a retrospective basis. The impact of adopting this statement will not have any effect on previously reported diluted earnings per share. However, our net income for the nine months ended August 31, 2008 will be reduced by approximately $5 million. In addition, as of November 30, 2007 our additional paid-in capital will be increased by approximately $210 million, which will be almost fully offset by a $205 million reduction in our retained earnings.

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Cautionary Note Concerning Factors That May Affect Future Results

Some of the statements, estimates or projections 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, outlooks, 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. We have tried, whenever possible, to identify these statements by using words like “will,” “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “forecast,” “future,” “intend,” “plan,” “estimate” and similar expressions of future intent or the negative of such terms.

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, among other things, the forecasting of our earnings per share, net revenue yields, booking levels, pricing, occupancy, operating, financing and/or tax costs, fuel expenses, costs per available lower berth day (“ALBD”), estimates of ship depreciable lives and residual values, liquidity, goodwill and trademark fair values, outlook or business prospects. These factors include, but are not limited to, the following:

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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.

Outlook for the Fourth Quarter of 2009

As of September 22, 2009, we said that we expected our diluted earnings per share for the fourth quarter of 2009 would be in the range of $0.16 to $0.20. Our guidance was based on fuel prices per metric ton of $465 for the 2009 fourth quarter. In addition, this guidance was also based on currency exchange rates of $1.46 to the euro and $1.67 to sterling.

The above forward-looking statements involve risks and uncertainties. Various factors could cause our actual results to differ materially from those expressed above including, but not limited to, economic and business conditions, foreign currency exchange rates, fuel prices, adverse weather conditions, spread of contagious diseases, regulatory changes, geopolitical and other factors that could impact consumer demand, revenues or costs and expenses. You should read the above forward-looking statement together with the discussion of these and other risks under “Cautionary Note Concerning Factors That May Affect Future Results.”

Critical Accounting Estimates

Impairment reviews of our goodwill and trademarks, which have been allocated to various of our cruise line reporting units, require us to make significant estimates to determine the fair values of these reporting units and their trademarks. The determination of these fair values includes numerous uncertainties.

We performed our annual goodwill and trademark impairment reviews as of July 31, 2009. We determined that the estimated fair value of each of our cruise line reporting units, which include goodwill, exceeded their carrying value. In addition, we reviewed our trademarks for impairment using the relief-from-royalty method and the fair values of these intangible assets exceeded their carrying values. Accordingly, at July 31, 2009, neither our goodwill nor trademarks were impaired. However, due to the ongoing uncertainty in market conditions, which may negatively impact the performance of our reporting units, we will continue to monitor and evaluate the carrying values of our goodwill and trademarks. If market and economic conditions or our units’ business performance deteriorates

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significantly then we would perform interim impairment reviews. Any such impairment reviews could result in recognition of a goodwill and/or trademark impairment charge in 2009 or thereafter.

Finally, we do not believe there have been any events or circumstances subsequent to July 31, 2009 that would require us to perform interim goodwill or trademark impairment reviews. Since April 2009, our stock market capitalization has generally been greater than our shareholders’ equity, which was typically not the case since early November 2008.

For a further 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 2008 joint Annual Report on Form 10-K.

Seasonality and Expected Capacity Growth

Our revenues from the sale of passenger tickets are 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. The seasonality of our results is increased due to ships being taken out of service for maintenance, which we typically schedule during non-peak demand periods. In addition, 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.

The year-over-year percentage increase in our ALBD capacity for the fourth quarter of 2009 is currently expected to be 7.7%. Our annual ALBD capacity increase for fiscal 2009, 2010, 2011 and 2012 is currently expected to be 5.4%, 7.7%, 5.1% and 3.5%, respectively. The above percentage increases result primarily from contracted new ships entering service and exclude any future ship orders, acquisitions, retirements or sales, however the scheduled withdrawal from service of Costa Europa in April 2010 and P&O Cruises’ Artemis in May 2011 have been taken into account.

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Selected Cruise and Other Information

Selected cruise and other information was as follows:

Three Months Ended August 31, 2009 (“2009”) Compared to the Three Months Ended August 31, 2008 (“2008”)

Revenues

Our total revenues decreased $675 million, or 14.0%, from $4.8 billion in 2008 to $4.1 billion in 2009. This was caused by an $842 million revenue decrease that was primarily due to the adverse impact of the economic downturn on our cruise ticket pricing and onboard and other revenues, as well as a stronger U.S. dollar against the euro and sterling compared to 2008. In addition, the U.S. Centers for Disease Control and Prevention’s (“CDC”) recommendations against non-essential travel to Mexico as a result of the H1N1 flu virus also adversely impacted our revenues because we had to alter several of our cruise ships’ itineraries. This revenue decrease was partially offset by our 5.5% capacity increase in ALBDs (see “Key Performance Non-GAAP Financial Indicators”). Our capacity increased 3.6% for our North American cruise brands and 7.5% for our European cruise brands in 2009 compared to 2008, as we continue to implement our strategy of expanding in the European cruise marketplace.

Onboard and other revenues included concessionaire revenues of $277 million in 2009 and $292 million in 2008. Onboard and other revenues decreased $39 million in 2009 compared to 2008, primarily because of lower onboard spending for all of the major onboard revenue-producing activities, as well as the impact of the stronger U.S. dollar against the euro and sterling compared to 2008, partially offset by our 5.5% increase in ALBDs.

Other non-cruise revenues decreased $83 million, or 28.4%, to $209 million in 2009 from $292 million in 2008 due to lower cruise/tour prices and fewer cruise/tours sold.

Costs and Expenses

Operating costs decreased $408 million, or 15.5%, from $2.6 billion in 2008 to $2.2 billion in 2009. This decrease was primarily due to $211 million of lower fuel prices, the impact of the stronger U.S. dollar against the euro and sterling and decreased commissions primarily as a result of our lower ticket revenues compared to 2008. This decrease was partially offset as a result of increased capacity driven by our 5.5% increase in ALBDs.

Other non-cruise operating expenses decreased $49 million, or 25.3%, to $145 million from $194 million in 2008 primarily due to the impact of cost containment initiatives and fewer cruise/tours sold.

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Selling and administration expenses increased $9 million, or 2.4%, from $372 million in 2008 to $381 million in 2009. This increase was caused by the nonrecurrence in 2009 of the 2008 $26 million gain that was recognized from the hurricane insurance settlement for damages to our Cozumel, Mexico port facilities, that were damaged in 2005, as well as our 5.5% increase in ALBDs, partially offset by the stronger U.S. dollar against the euro and sterling and the impact of cost containment initiatives.

Depreciation and amortization expense increased $13 million, or 4.0%, from $323 million in 2008 to $336 million in 2009, caused by the 5.5% increase in ALBDs through the addition of new ships and additional ship improvement expenditures, partially offset by the impact of the stronger U.S. dollar against the euro and sterling.

Our total costs and expenses as a percentage of revenues increased from 69.2% in 2008 to 71.1% in 2009.

Operating Income

Our operating income decreased $289 million from $1.5 billion in 2008 to $1.2 billion in 2009 primarily because of the reasons discussed above.

Nonoperating (Expense) Income

Net interest expense, excluding capitalized interest, decreased $12 million to $100 million in 2009 from $112 million in 2008. On a constant dollar basis, this decrease was due to a $22 million decrease in interest expense from lower average interest rates on average borrowings, partially offset by a $10 million increase from a higher level of average borrowings and a $4 million decrease in interest income due to lower average interest rates on lower invested balances. In addition, net interest expense decreased by $4 million as a result of the stronger U.S. dollar against the euro and sterling compared to 2008.

Income Taxes

Income tax expense decreased $28 million to $24 million in 2009 from $52 million in 2008, primarily because of a $10 million income tax benefit in 2009 and a $6 million income tax expense in 2008 related to changes in uncertain income tax position liabilities and the nonrecurrence in 2009 of the $7 million Mexican deferred income tax expense related to our hurricane insurance settlement that was recognized in 2008. During 2009 and 2008 we have recorded income tax expenses resulting from the seasonal income of our Alaska tour operation.

Key Performance Non-GAAP Financial Indicators

ALBDs is a standard measure of passenger capacity for the period, which we use to perform rate and capacity variance analyses to determine the main non-capacity driven factors that cause our cruise revenues and expenses to vary. ALBDs assume that each cabin we offer for sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-producing ship operating days in the period.

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. These measures enable us to separate the impact of predictable capacity changes from the more unpredictable rate changes that affect our business. We believe these non-GAAP measures provide a better gauge to measure our revenue and cost performance instead of the standard U.S. GAAP-based financial measures. There are no specific rules for determining our non-GAAP financial measures and, accordingly, it is possible that they may not be exactly comparable to the like-kind information presented by other cruise companies, which is a potential risk associated with using them to compare us to other cruise companies.

Net revenue yields are commonly used in the cruise industry to measure a company’s cruise segment revenue performance and for revenue management purposes. We use “net cruise revenues” rather than “gross cruise revenues” to calculate net revenue yields. We believe that net cruise revenues is a more meaningful measure in determining revenue yield than gross cruise revenues because it

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reflects the cruise revenues earned 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 and other revenues. Substantially all of our remaining cruise costs are largely fixed, except for the impact of changing prices, 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. We exclude the same variable costs that are included in the calculation of net cruise revenues to calculate net cruise costs 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 decreases in reported U.S. dollar revenues and expenses if the U.S. dollar strengthens against these foreign currencies, and increases in reported U.S. dollar revenues and expenses if the U.S. dollar weakens against these foreign currencies. Accordingly, we also monitor and report our two non-GAAP financial measures assuming the current period currency exchange rates have remained constant with the prior year’s 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. dollar cruise operations. We believe that this is a useful measure since it facilitates a comparative view of the growth of our business in a fluctuating currency exchange rate environment.

Gross and net revenue yields were computed by dividing the gross or net revenues, without rounding, by ALBDs as follows:

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Gross and net cruise costs per ALBD were computed by dividing the gross or net cruise costs, without rounding, by ALBDs as follows:

Net cruise revenues decreased $444 million, or 11.9%, to $3.3 billion in 2009 from $3.7 billion in 2008. This was caused by a $650 million, or 16.5%, decrease in net revenue yields in 2009 compared to 2008 (gross revenue yields decreased by 17.6%). This decrease was partially offset by a 5.5% increase in ALBDs between 2009 and 2008 that accounted for $206 million. The net revenue yield decrease in 2009 was primarily due to the adverse impact of the economic downturn on our cruise ticket pricing and onboard and other revenues, as well as the impact of a stronger U.S. dollar against the euro and sterling compared to 2008. In addition, the CDC’s recommendations against non-essential travel to Mexico as a result of the H1N1 flu virus also adversely impacted our net revenue yields as previously discussed. Net revenue yields as measured on a constant dollar basis decreased 12.3% in 2009 compared to 2008, which was comprised of a 13.7% decrease in passenger ticket yields and a 6.5% decrease in onboard and other revenue yields. Gross cruise revenues decreased $592 million, or 13.1%, to $3.9 billion in 2009 from $4.5 billion in 2008 for largely the same reasons as discussed above for net cruise revenues, as well as the reduction in travel agent commissions as a result of lower cruise ticket prices.

Net cruise costs decreased $203 million, or 10.1%, to $1.8 billion in 2009 from $2.0 billion in 2008. This was caused by a $314 million decrease in net cruise costs per ALBD, which decreased 14.8% in 2009 compared to 2008 (gross cruise costs per ALBD decreased 17.1%). This decrease was partially offset by the 5.5% increase in ALBDs between 2009 and 2008 that accounted for $111 million. The 14.8% decrease in net cruise costs per ALBD was primarily the result of a 39.2% decrease in fuel price to $405 per metric ton in 2009, which resulted in a decrease in fuel expense of $211 million, the stronger U.S. dollar against the euro and sterling and $21 million of fuel consumption savings compared to 2008. This decrease was partially offset by the nonrecurrence in 2009 of the 2008 $26 million gain that was recognized from the hurricane insurance settlement for damages to our Cozumel, Mexico port facilities. Net cruise costs per ALBD as measured on a constant dollar basis decreased 11.4% in 2009 compared to 2008. On a constant dollar basis, net cruise costs per ALBD excluding fuel decreased 0.7% compared to 2008 primarily due to the impact of cost containment initiatives. Gross cruise costs decreased $351 million, or 12.5%, in 2009 to $2.5 billion from $2.8 billion in 2008 for largely the same reasons as discussed above for net cruise costs, as well as the reduction in travel agent commissions as discussed above.

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Nine Months Ended August 31, 2009 (“2009”) Compared to the Nine Months Ended August 31, 2008 (“2008”)

Revenues

Our total revenues decreased $1.4 billion, or 12.3%, from $11.3 billion in 2008 to $10.0 billion in 2009. This was caused by a $1.8 billion revenue decrease that was primarily due to the adverse impact of the economic downturn on our cruise ticket pricing and onboard and other revenues, as well as the impact of a stronger U.S. dollar against the euro and sterling compared to 2008. This revenue decrease was partially offset by our 4.6% capacity increase in ALBDs (see “Key Performance Non-GAAP Financial Indicators”). Our capacity increased 3.2% for our North American cruise brands and 7.2% for our European cruise brands in 2009 compared to 2008, as we continue to implement our strategy of expanding in the European cruise marketplace.

Onboard and other revenues included concessionaire revenues of $651 million in 2009 and $698 million in 2008. Onboard and other revenues decreased $177 million in 2009 compared to 2008, primarily because of lower onboard spending for all of the major onboard revenue-producing activities, as well as the impact of the stronger U.S. dollar against the euro and sterling compared to 2008, partially offset by our 4.6% increase in ALBDs.

Costs and Expenses

Operating costs decreased $946 million, or 13.7%, from $6.9 billion in 2008 to $6.0 billion in 2009. This decrease was primarily due to $555 million of lower fuel prices, the impact of the stronger U.S. dollar against the euro and sterling and decreased commissions primarily as a result of our lower ticket revenues and lower fuel consumption as a result of fuel saving initiatives compared to 2008. This decrease was partially offset as a result of increased capacity driven by our 4.6% increase in ALBDs and a $51 million increase in dry-dock expenses.

Selling and administration expenses decreased $56 million, or 4.6% in 2009 compared to 2008. The decrease was caused by the stronger U.S. dollar against the euro and sterling and was partially offset by our 4.6% increase in ALBDs.

Depreciation and amortization expense increased $28 million, or 3.0%, from $936 million in 2008 to $964 million in 2009, caused by the 4.6% increase in ALBDs through the addition of new ships and additional ship improvement expenditures, partially offset by the currency impact.

Our total costs and expenses as a percentage of revenues increased from 79.9% in 2008 to 81.3% in 2009.

Operating Income

Our operating income decreased $419 million from $2.3 billion in 2008 to $1.9 billion in 2009 primarily because of the reasons discussed above.

Nonoperating (Expense) Income

Net interest expense, excluding capitalized interest, decreased $18 million to $299 million in 2009 from $317 million in 2008. On a constant dollar basis, this decrease was due to an $84 million decrease in interest expense from lower average interest rates on average borrowings, partially offset by a $61 million increase from a higher level of average borrowings and a $19 million decrease in interest income due to lower average interest rates on lower invested balances. In addition, net interest expense decreased by $14 million as a result of the stronger U.S. dollar against the euro and sterling compared to 2008. Capitalized interest decreased $12 million during 2009 compared to 2008 primarily due to lower average levels of investment in ship construction projects.

Other income, net increased $10 million to $16 million in 2009 from $6 million in 2008, primarily because of the $15 million gain recognized upon the unwinding of one of our LILO transactions.

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Income Taxes

Income tax expense decreased $40 million to $8 million in 2009 from $48 million in 2008, primarily because of a $17 million income tax benefit in 2009 and a $16 million income tax expense in 2008 related to changes in uncertain income tax position liabilities and the nonrecurrence in 2009 of the $7 million Mexican deferred income tax expense related to our hurricane insurance settlement that was recognized in 2008.

Key Performance Non-GAAP Financial Indicators

Gross and net revenue yields were computed by dividing the gross or net revenues, without rounding, by ALBDs as follows: