Carnival Cruises 2007 Annual Report Download - page 36

CARNIVAL CORPORATION & PLC | 33
Our 2008 first quarter forward fuel price estimate has
increased to $505 per metric ton compared to our December
guidance, which reduced our earnings per share guidance by
$0.02. In addition, our first quarter 2008 results were adversely
impacted by $0.01 per share from AIDAaura’s unexpected
cruise disruptions. There has also been some softness in
onboard revenues at certain of our contemporary brands,
which is expected to be offset by other cruise operating items.
Accordingly, our earnings per share for the first quarter of
2008 is now expected to be in the range of $0.26 to $0.28.
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, fuel costs, economic conditions, weather,
regulatory changes, geopolitical factors and other factors that
could impact consumer demand or costs. You should read the
above forward-looking statements together with the discus-
sion of these and other risks under “Cautionary Note
Concerning Factors That May Affect Future Results.”
KEY PERFORMANCE INDICATORS
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 per-
formance. We believe that net revenue yields are commonly
used in the cruise industry to measure a company’s cruise
segment revenue performance. This measure is also used for
revenue management purposes. In calculating net revenue
yields, we use “net cruise revenues” rather than “gross cruise
revenues.” We believe that net cruise revenues is a more
meaningful measure in determining revenue yield than gross
cruise revenues because it reflects the cruise revenues earned
by us net of our most significant variable costs, which are
travel agent commissions, cost of air transportation and cer-
tain other variable direct costs associated with onboard and
other revenues. Substantially all of our remaining cruise costs
are largely fixed once our ship capacity levels have been
determined, except for the impact of changing prices.
Net cruise costs per ALBD is the most significant measure
we use to monitor our ability to control our cruise segment
costs rather than gross cruise costs per ALBD. In calculating
net cruise costs, we exclude the same variable costs that are
included in the calculation of net cruise revenues. This is done
to avoid duplicating these variable costs in these two non-
GAAP financial measures.
In addition, because a significant portion of our operations
utilize the Euro or Sterling to measure their results and finan-
cial condition, the translation of those operations to our U.S.
dollar reporting currency results in increases in reported
U.S. dollar revenues and expenses if the U.S. dollar weakens
against these foreign currencies, and decreases in reported
U.S. dollar revenues and expenses if the U.S. dollar strength-
ens 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 as
it facilitates a comparative view of the growth of our business
in a fluctuating currency exchange rate environment.
On a constant dollar basis, net cruise revenues and net
cruise costs would be $9.92 billion and $6.26 billion for fiscal
2007, respectively. On a constant dollar basis, gross cruise
revenues and gross cruise costs would be $12.27 billion and
$8.62 billion for fiscal 2007, respectively. In addition, our non-
U.S. dollar cruise operations’ depreciation and net interest
expense were impacted by the changes in exchange rates for
fiscal 2007 compared to 2006.
CRITICAL ACCOUNTING ESTIMATES
Our critical accounting estimates are those which we believe
require our most significant judgments about the effect of
matters that are inherently uncertain. A discussion of our
critical accounting estimates, the underlying judgments and
uncertainties used to make them and the likelihood that mate-
rially different estimates would be reported under different
conditions or using different assumptions is as follows:
Ship Accounting
Our most significant assets are our ships and ships under
construction, which represent 75% of our total assets. We
make several critical accounting estimates dealing with our
ship accounting. First, we compute our ships’ depreciation
expense, which represented approximately 10% of our cruise
costs and expenses in fiscal 2007, which requires us to esti-
mate the average useful life of each of our ships, as well as
their residual values. Secondly, we account for ship improve-
ment costs by capitalizing those costs which we believe will
add value to our ships and depreciate those improvements
over their estimated useful lives, while expensing repairs and