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Earnings Per ShareBasic earnings per share is computed by dividing net income by the weighted-average number of sharesoutstanding during each period. Diluted earnings per share is computed by dividing adjusted net income by theweighted-average number of shares, common stock equivalents and other potentially dilutive securitiesoutstanding during each period. For earnings per share purposes, Carnival Corporation common stock andCarnival plc ordinary shares are considered a single class of shares since they have equivalent rights (see Note 3).All shares that were issuable under our outstanding convertible notes that had contingent share conversionfeatures were considered outstanding for our diluted earnings per share computations, if dilutive, using the “ifconverted” method of accounting from the date of issuance.Share-Based CompensationWe recognize compensation expense for all share-based compensation awards using the fair value method.Share-based compensation cost is recognized ratably using the straight-line attribution method over the expectedvesting period or to the retirement eligibility date, if less than the vesting period, when vesting is not contingentupon any future performance. For performance-based share awards, we recognize compensation cost over thevesting period based on the probability of the performance condition being achieved over the vesting period. Ifthe performance condition is not met, compensation expense will not be recognized and any previouslyrecognized compensation expense will be reversed. In addition, we estimate the amount of expected forfeitures,based on historical forfeiture experience, when calculating compensation cost. If the actual forfeitures that occurare significantly different from the estimate, then we revise our estimates.NOTE 3 – DLC ArrangementIn 2003, Carnival Corporation and Carnival plc (formerly known as P&O Princess Cruises plc) completed a DLCtransaction, which implemented Carnival Corporation & plc’s DLC arrangement. The contracts governing theDLC arrangement provide that Carnival Corporation and Carnival plc each continue to have separate boards ofdirectors, but the boards and senior executive management of both companies are identical. The constitutionaldocuments of each of the companies also provide that, on most matters, the holders of the common equity of bothcompanies effectively vote as a single body. On specified matters where the interests of Carnival Corporation’sshareholders may differ from the interests of Carnival plc’s shareholders (a “class rights action” such astransactions primarily designed to amend or unwind the DLC arrangement), each shareholder body will voteseparately as a class. Generally, no class rights action will be implemented unless approved by both shareholderbodies.
