Royal Caribbean Cruise Lines 2001 Annual Report Download - page 45

Notes to the Consolidated Financial Statements (continued)
Royal Caribbean Cruises Ltd. 43
Unrealized gains and losses on fair value hedges are recorded
on the balance sheet as offsets to the changes in fair value of
related hedged assets, liabilities and firm commitments.
Realized gains and losses on foreign currency forward
contracts that hedge foreign currency denominated firm
commitments related to vessels under construction are
included in the cost basis of the vessels. Realized gains and
losses on all other fair value hedges are recognized in earnings
as offsets to the related hedged items. For derivative instru-
ments that qualify as cash flow hedges, the effective portions of
changes in fair value of the derivatives are deferred and
recorded as a component of other comprehensive income
until the hedged transactions occur and are recognized in earn-
ings. All other portions of changes in the fair value of cash flow
hedges are recognized in earnings immediately.
Our risk-management policies and objectives for holding
hedging instruments have not changed with the adoption of
Statement of Financial Accounting Standards No. 133. The
implementation of Statement of Financial Accounting Standards
No. 133 did not have a material impact on our results of
operations or financial position at adoption or during the
twelve months ended December 31, 2001.
FOREIGN CURRENCY TRANSACTIONS
The majority of our transactions are settled in U.S. dollars.
Gains or losses resulting from transactions denominated in
other currencies and remeasurements of other currencies are
recognized in income currently.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income,
after deducting preferred stock dividends accumulated during
the period, by the weighted-average number of shares of
common stock outstanding during each period. Diluted earnings
per share is computed by dividing net income by the weighted-
average number of shares of common stock, common stock
equivalents and other potentially dilutive securities outstanding
during each period.
STOCK-BASED COMPENSATION
We account for stock-based compensation using the intrinsic
value method and disclose certain fair market value information
with respect to our stock-based compensation activity. (See
Note 7– Shareholders’ Equity.)
SEGMENT REPORTING
We operate two cruise brands, Royal Caribbean International and
Celebrity Cruises. The brands have been aggregated as a single
operating segment based on the similarity of their economic
characteristics as well as product and services provided.
Information by geographic area is shown in the table below.
Revenues are attributed to geographic areas based on the
source of the guest.
2001 2000 1999
Revenues:
United States 81% 82% 83%
All Other Countries 19% 18% 17%
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets,” which addresses how
goodwill should be accounted for after having been initially
recognized in the financial statements. Statement of Financial
Accounting Standards No. 142 is effective for fiscal years
beginning after December 15, 2001. Upon adoption of
Financial Accounting Standards No. 142, we will cease to
amortize goodwill; goodwill amortization was $10.4 million in
2001. In addition, we are required to perform an initial
impairment review of our goodwill upon adoption and an
annual impairment review thereafter. We currently do not
expect to record an impairment charge upon completion of
the impairment review.
In August 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets.” Statement of Financial Accounting Standards No. 144
supersedes Statement of Financial Accounting Standards
No. 121, “Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of,” and requires
(i) the recognition and measurement of the impairment of
long-lived assets to be held and used and (ii) the measurement
of long-lived assets to be held for sale. Statement of Financial
Accounting Standards No. 144 is effective for fiscal years
beginning after December 15, 2001. We do not expect the
adoption of Statement of Financial Accounting Standards
No. 144 to have a material effect on our results of operations
or financial position.
Note 3. Proposed Dual-Listed Company Merger
with P&O Princess
On November 19, 2001, we entered into an agreement with
P&O Princess Cruises plc (P&O Princess), providing for the
combination of Royal Caribbean and P&O Princess as a
merger of equals under a dual-listed company structure. If the
dual-listed company merger is completed, it would involve a
combination of the two companies through a number of
contracts and certain amendments to our Articles of
Incorporation and By-Laws and to P&O Princess’ Articles and
Memorandum of Association. The two companies would retain