Carnival Cruises 2007 Annual Report Download - page 38

CARNIVAL CORPORATION & PLC | 35
Contingencies
We periodically assess the potential liabilities related to
any lawsuits or claims brought against us, as well as for other
known unasserted claims, including environmental, legal,
guest and crew, and tax matters. While it is typically very
difficult to determine the timing and ultimate outcome of
these matters, we use our best judgment to determine if it
is probable that we will incur an expense related to the settle-
ment or final adjudication of such matters and whether a
reasonable estimation of such probable loss, if any, can be
made. In assessing probable losses, we make estimates of
the amount of probable insurance recoveries, if any, which are
recorded as assets. We accrue a liability when we believe a
loss is probable and the amount of the loss can be reasonably
estimated, in accordance with the provisions of SFAS No. 5,
“Accounting for Contingencies,” as amended. Such accruals
are typically based on developments to date, management’s
estimates of the outcomes of these matters, our experience
in contesting, litigating and settling other similar matters,
historical claims experience and actuarially determined
assumptions of liabilities, and any related insurance coverage.
See Note 7 in the accompanying financial statements for
additional information concerning our contingencies.
Given the inherent uncertainty related to the eventual out-
come of these matters and potential insurance recoveries, it is
possible that all or some of these matters may be resolved for
amounts materially different from any provisions or disclosures
that we may have made with respect to their resolution. In
addition, as new information becomes available, we may need
to reassess the amount of probable liability that needs to be
accrued related to our contingencies. All such revisions in our
estimates could materially impact our results of operations
and financial position.
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, most
meals, some non-alcoholic beverages, entertainment and
many onboard activities, and
฀ •฀฀the฀sale฀of฀goods฀and/or฀services฀primarily฀onboard฀our฀
ships (which include bar and some beverage sales, casino
gaming, shore excursions, gift shop and spa sales and
photo and art sales) and pre and post-cruise land packages.
These goods and services are either provided directly by
us or by independent concessionaires, from which we
receive a percentage of their revenues or a fee.
We incur cruise operating costs and expenses for the
following:
฀ •฀฀the฀costs฀of฀passenger฀cruise฀bookings,฀which฀represent฀
costs that vary directly with passenger cruise ticket reve-
nues, and include travel agent commissions, air and other
travel related costs,
฀ •฀฀onboard฀and฀other฀cruise฀costs,฀which฀represent฀costs฀
that vary directly with onboard and other revenues, and
include the costs of liquor and some beverages, costs of
tangible goods sold by us 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 services incurred for these activities are pro-
vided 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 administrative employees,
฀ •฀฀fuel฀costs,฀which฀include฀fuel฀delivery฀costs,
฀ •฀฀food฀costs,฀which฀include฀both฀our฀guest฀and฀crew฀food฀
costs, and
฀ •฀฀other฀ship฀operating฀costs,฀which฀include฀repairs฀and฀
maintenance, including minor improvements and dry-
dock expenses, port costs, entertainment, insurance, and
all other shipboard operating costs and expenses.
For segment information related to our revenues, expenses,
operating income and other financial information see Note 11
in the accompanying financial statements.