Carnival Cruises 2012 Annual Report Download - page 77

Table of Contents
Cash and Cash Equivalents
Cash and cash equivalents include investments with maturities of three months or less at acquisition, which are stated at cost. At November 30, 2012 and
2011, cash and cash equivalents are comprised of cash on hand, money market funds and time deposits.
Inventories
Inventories consist principally of food and beverage provisions, hotel and restaurant products and supplies, fuel and gift shop and art merchandise held for
resale, which are all carried at the lower of cost or market. Cost is determined using the weighted-average or first-in, first-out methods.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization were computed using the straight-line method over our estimates of average useful
lives and residual values, as a percentage of original cost, as follows:
Years
Residual
Values
Ships 30 15%
Ship improvements Shorter of remaining ship
life or useful life (3-28)
0% or 15%
Buildings and improvements 5-40 0-10%
Computer hardware and software 3-10 0-10%
Transportation equipment and other 2-20 0-10%
Leasehold improvements, including port facilities Shorter of lease term or
related asset life (3-30)
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The cruise business is very capital intensive. Each year, a capital program is developed for the improvement of our ships, as well as asset replacements to
enhance efficiency of operations, gain strategic benefits or provide newer improved product offerings to our guests. Ship improvement costs that we believe add
value to our ships, such as those incurred for refurbishments, safety and operational efficiencies, are capitalized to the ships and depreciated over their or the
ships’ estimated remaining useful life, whichever is shorter, while costs of repairs and maintenance, including minor improvement costs, are charged to
expense as incurred. We capitalize interest as part of the cost of acquiring ships and other capital projects during their construction period. The specifically
identified or estimated cost and accumulated depreciation of previously capitalized ship components are written-off upon retirement, which may result in a loss
on disposal that is included in other ship operating expenses.
Dry-dock costs primarily represent planned major maintenance activities that are incurred when a ship is taken out-of-service for scheduled maintenance.
These costs are expensed as incurred and included in other ship operating expenses.
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be
fully recoverable. Upon the occurrence of a triggering event, the assessment of possible impairment is based on our ability to recover the carrying value of our
asset, which is determined by using the asset’s estimated undiscounted future cash flows. If these estimated undiscounted future cash flows are less than the
carrying value of the asset, an impairment charge is recognized for the excess, if any, of the asset’s carrying value over its estimated fair value. As it relates to
our ships, the lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the
individual ship level.
Intangibles
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business acquisitions. We review our goodwill for
impairment at least annually and, when events or circumstances dictate, more frequently. All of our goodwill has been allocated to our reporting units, also
referred to as “cruise brands.”
In 2012, we adopted new authoritative accounting guidance that allows us to first assess qualitative factors to determine whether it is necessary to perform the
more detailed two-step quantitative goodwill impairment test. We would perform the quantitative test if our qualitative assessment determined it is more-likely-
than-not that a cruise brand’s fair value is less than its carrying amount. We may also elect to bypass the qualitative assessment and proceed directly to the
quantitative test for any cruise brand. When performing the quantitative test, if the fair value of the cruise brand exceeds its carrying value, no further
analysis or write-down of goodwill is required. However, if the fair value of the cruise brand is less than the carrying value of its net assets, the estimated fair
value of the cruise brand is assigned to all its underlying assets and liabilities, including both recognized and unrecognized tangible and intangible assets,
based on their fair values. If necessary, goodwill is then written down to its implied fair value.
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