Royal Caribbean Cruise Lines 2002 Annual Report Download - page 19

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17
ROYAL CARIBBEAN CRUISES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
CONTINGENCIES – LITIGATION
On an ongoing basis, we assess the potential liabilities related to any lawsuits or claims brought
against us. While it is typically very difficult to determine the timing and ultimate outcome of
such actions, we use our best judgment to determine if it is probable that we will incur an
expense related to the settlement or final adjudication of such matters and whether a reason-
able estimation of such probable loss, if any, can be made. In assessing probable losses, we
take into consideration estimates of the amount of insurance recoveries, if any. We accrue a
liability when we believe a loss is probable and the amount of loss can be reasonably estimat-
ed. Due to the inherent uncertainties related to the eventual outcome of litigation and potential
insurance recoveries, it is possible that certain matters may be resolved for amounts material-
ly different from any provisions or disclosures that we have previously made.
PROPOSED STATEMENT OF POSITION
On June 29, 2001, the Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants issued a proposed Statement of Position (“ SOP” ),
“ Accounting for Certain Costs and Activities Related to Property, Plant and Equipment.” Under
the proposed SOP, we would be required to adopt a component method of accounting for our
ships. Using this method, each component of a ship would be identified as an asset and depre-
ciated over its own separate expected useful life. In addition, we would have to expense dry-
docking costs as incurred which differs from our current policy of accruing future drydocking
costs evenly over the period to the next scheduled drydocking. Lastly, liquidated damages
received from shipyards as mitigation of consequential economic costs incurred as a result of
the late delivery of a new ship would have to be recorded as a reduction of the ship's cost basis
versus our current treatment of recording liquidated damages as nonoperating income. We
have not yet analyzed the impact that this proposed SOP would have on our results of opera-
tion or financial position, as we are uncertain whether, or in what form, it will be adopted.
RESULTS OF OPERATIONS
The following table presents operating data as a percentage of revenues:
Year Ended December 31,
2002 2001 2000
Revenues 100.0% 100.0% 100.0%
Expenses:
Operating 61.5 61.5 57.7
Marketing, selling and administrative 12.6 14.4 14.4
Depreciation and amortization 9.9 9.6 8.0
Operating Income 16.0 14.5 19.9
Other Income (Expense) (5.8) (6.4) (4.4)
Net Income 10.2% 8.1% 15.5%