Carnival Cruises 2011 Annual Report Download - page 13

revenue-producing arrangement. This portion of the fees and taxes is expensed in commissions, transportation
and other costs when the corresponding revenues are recognized. These fees and taxes included in passenger
ticket revenues and commissions, transportation and other costs were $405 million, $346 million and $303
million in fiscal 2011, 2010 and 2009, respectively. The remaining portion of governmental fees and taxes are
also included in passenger ticket revenues but are expensed in other ship operating expenses.
Revenues and expenses from our hotel, tour and transportation operations are recognized at the time the services
are performed or expenses are incurred. Revenues from the leasing of our owned ships to an unaffiliated entity
are recognized ratably over the term of the charter agreement using the straight-line method. See Note 11.
Insurance and Self-Insurance
We use a combination of insurance and self-insurance to address a number of risks including, among others,
illness and injury to crew, guest injuries, pollution, damages to hull and machinery for each of our ships, war
risks, workers’ compensation, employee health, directors and officers liability, property damages and general
liabilities for third party claims. Substantially all the liabilities associated with crew illnesses and crew and guest
injury claims are estimated actuarially based on historical claims experience, loss development factors and other
assumptions. While we believe the estimated loss amounts accrued are adequate, the ultimate loss may differ
from the amounts provided.
Selling and Administrative Expenses
Selling expenses include a broad range of advertising, such as marketing and promotional expenses. Advertising
is charged to expense as incurred, except for media production costs. Media production costs are recorded as
prepaid expenses and charged to expense upon the first airing of the advertisement. Advertising expenses totaled
$527 million, $507 million and $508 million in fiscal 2011, 2010 and 2009, respectively. Administrative
expenses represent the costs of our shoreside ship support, reservations and other administrative functions, and
include, among others, salaries and related benefits, professional fees and occupancy costs, which are typically
expensed as incurred.
Foreign Currency Translations and Transactions
Our underlying businesses generate earnings in a number of different currencies, principally the U.S. dollar,
euros, sterling and Australian dollar. Each business determines its functional currency by reference to its relevant
economic environment. We translate the assets and liabilities of our foreign operations that have functional
currencies other than the U.S. dollar at exchange rates in effect at the balance sheet date. Revenues and expenses
of these foreign operations are translated at weighted-average exchange rates for the reporting period. Their
equity is translated at historical rates and the resulting cumulative foreign currency translation adjustments are
included as a component of accumulated other comprehensive income (“AOCI”). Therefore, the U.S. dollar
value of these non-equity translated items in our consolidated financial statements will fluctuate from period to
period, depending on the changing value of the U.S. dollar versus these currencies.
Gains and losses arising from the remeasurement of monetary assets and liabilities and foreign currency
transactions denominated in a currency other than the functional currency of the entity involved are immediately
included in nonoperating earnings, unless such monetary liabilities have been designated to act as hedges of net
investments in our foreign operations or such assets have been designated to act as hedges of ship commitments.
These net gains or losses included in nonoperating earnings were insignificant in fiscal 2011, 2010 and 2009. In
addition, the unrealized gains or losses on our long-term intercompany receivables denominated in a
non-functional currency, which are not expected to be repaid in the foreseeable future and are therefore
considered to form part of our net investments, are recorded as foreign currency translation adjustments, which
are included as a component of AOCI.
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