Carnival Cruises 2008 Annual Report Download - page 92

F-33
Onboard and other revenues included concessionaire revenues of $924 million in 2008 and
$830 million in 2007. Onboard and other revenues increased in 2008 compared to 2007, because
of the 8.9% increase in ALBDs.
Costs and Expenses
Operating costs increased $1.4 billion, or 18.5%, from $7.6 billion in 2007 to $9.0
billion in 2008. Of this increase, $651 million was capacity driven by our 8.9% increase in
ALBDs and the balance of the increase of $760 million was primarily due to increased fuel
expenses, increased travel agent commissions on higher ticket revenues and the weaker U.S.
dollar against the euro compared to 2007.
Selling and administration expenses increased $50 million, or 3.2%. Of this increase,
$137 million was driven by our 8.9% increase in ALBDs, partially offset by a $26 million gain
from our hurricane insurance settlement for damages to our Cozumel, Mexico port facility in
2005 and by savings achieved through economies of scale and tight cost controls.
Depreciation and amortization expense increased $148 million, or 13.4%, from $1.1 billion
in 2007 to $1.2 billion in 2008, largely due to the 8.9% increase in ALBDs through the
addition of new ships, the weaker U.S. dollar compared to the euro and additional ship
improvement expenditures.
Our total costs and expenses as a percentage of total revenues rose from 79.1% in 2007 to
81.4% in 2008.
Operating Income
Our operating income increased $4 million primarily due to increased fleet capacity and
the effect of increased cruise ticket pricing, partially offset by increased fuel expenses.
Nonoperating (Expense) Income
Net interest expense, excluding capitalized interest, increased $86 million to $430
million in 2008 from $344 million in 2007. This increase was primarily due to a $53 million
increase in interest expense from a higher level of average borrowings, a $24 million decrease
in interest income due to a lower average level of invested cash and an $8 million decrease
from lower average interest rates on invested balances. Capitalized interest increased $8
million during 2008 compared to 2007 primarily due to higher average levels of investment in
ship construction projects.
Income Taxes
Income tax expense increased $31 million to $47 million in 2008 from $16 million in 2007
primarily because 2008 included a Mexican deferred income tax expense related to our hurricane
insurance settlement and 2007 included the reversal of previously recorded deferred tax
valuation allowances and uncertain income tax position liabilities, which were no longer
required.
Key Performance Non-GAAP Financial Indicators
ALBDs is a standard measure of passenger capacity for the period, which we use to perform
rate and capacity variance analyses to determine the main non-capacity driven factors that
cause our cruise revenues and expenses to vary. ALBDs assume that each cabin we offer for
sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-
producing ship operating days in the period.
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 performance. These
measures enable us to separate the impact of predictable capacity changes from the more
unpredictable rate changes that affect our business. We believe these non-GAAP measures
provide a better gauge to measure our revenue and cost performance instead of the standard
U.S. GAAP-based financial measures. There are no specific rules for determining our non-GAAP