Carnival Cruises 2003 Annual Report Download - page 36

33Carnival Corporation & plc
Property, Plant and Equipment Draft
Statement of Position
In late 2003, the Accounting Standards Executive
Committee issued a new Statement of Position draft,
entitled “Accounting for Certain Costs and Activities
Related to Property, Plant and Equipment” (“PP&E
SOP”), the adoption of which is subject to the final
clearance of the FASB. If issued in its new form, the
PP&E SOP would allow us the choice of selecting the
level at which we componetize our ships, as long as
the identified components are at or below the “func-
tional unit level,” which is the ship itself. If we elect
to identify and track ship components below the ship
level, the PP&E SOP will require us, among other things,
to maintain very detailed historical cost records for
these ship parts and determine separate depreciable
lives for each component, which may result in changes
in the amount and timing of depreciation and repair and
maintenance expenses and the amount of loss recog-
nized on the replacement or refurbishment of ship parts.
Alternatively, the PP&E SOP allows us to identify our
entire ship as one component; however, electing each
ship as one component will require us to expense as
incurred all otherwise capitalizable expenditures incurred
after the ship is placed into service, rather than capi-
talize and depreciate these expenditures over their
estimated useful lives. In addition, the PP&E SOP will
require us to expense our dry-dock costs as incurred,
instead of amortizing our dry-dock costs to expense
generally over one year.
We have not decided what level of componentization
we will choose nor have we completed an analysis of
the impact this PP&E SOP would have on our financial
statements, although it may be material, dependent
upon the alternatives we choose in relation to identifying
components. The PP&E SOP is expected to be effective
for fiscal years beginning after December 15, 2004 (fiscal
2006 for us), with earlier application encouraged.
Results of Operations
We earn our cruise revenues primarily from
the following:
• sales of passenger cruise tickets and, in some
cases, the sale of air and other transportation to
and from our ships. The cruise ticket price
includes accommodations, meals, entertainment
and many onboard activities, and
• the sale of goods and/or services primarily on
board our ships, which include bar and beverage
sales, casino gaming, shore excursions, gift shop
and spa sales, photo and art sales and pre-and
post cruise land packages. These activities are
either performed directly by us or by independent
concessionaires, from which we receive a percent-
age of their revenues.
We incur cruise operating costs and expenses for
the following:
• the costs of passenger cruise tickets which repre-
sent costs that vary directly with passenger cruise
ticket revenues, and include travel agent commis-
sions, air and other travel related costs and credit
card fees,
• onboard and other cruise costs which represent
costs that vary directly with onboard and other rev-
enues, and include the costs of liquor and bever-
ages, costs of tangible goods sold from our gift,
photo and art auction activities, pre-and post cruise
land packages and credit card fees. Concession
revenues do not have any significant amount of
costs associated with them, as the costs and serv-
ices incurred for these activities are provided by
our concessionaires,
• payroll and related costs which represent costs for
all our shipboard personnel, including deck and
engine officers and crew and hotel and administra-
tive employees,
• food costs which include both our passenger and
crew food costs, and
• other ship operating costs which include fuel,
repairs and maintenance, port charges, insurance,
entertainment and all other shipboard operating
costs and expenses.
We do not allocate payroll and related costs, food
costs or other ship operating costs to the passenger
cruise ticket costs or to onboard and other cruise costs
since they are incurred to support the total cruise experi-
ence and do not vary significantly with passenger levels.