Royal Caribbean Cruise Lines 2011 Annual Report Download - page 43

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PART II
ROYAL CARIBBEAN CRUISES LTD. 39
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actual or threatened natural disasters, information
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involve our co-investment with third parties;
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agents or changes and/or disruptions to the travel
agency industry;
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and/or our inability to retain or recruit qualified
personnel;
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incorporated in the United States;
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The above examples are not exhaustive and new risks
emerge from time to time. Given these risks and
uncertainties, readers are cautioned not to place
undue reliance on such forward-looking statements.
We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
For a further discussion of risk factors related to our
business, see Part I, Item 1A. Risk Factors in this Annual
Report on Form 10-K.
OVERVIEW
The discussion and analysis of our financial condition
and results of operations has been organized to present
the following:
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of our financial presentation, including discussion of
certain operational and financial metrics we utilize
to assist us in managing our business;
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ended December 31, 2011 compared to the same
period in 2010 and the year ended December 31,
2010 compared to the same period in 2009;
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expectations for selected financial items for the first
quarter and full year of 2012; and
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including our future capital and contractual commit-
ments and potential funding sources.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared
in accordance with accounting principles generally
accepted in the United States of America (“GAAP”).
(See Note 1. General and Note 2. Summary of Signifi-
cant Accounting Policies to our consolidated financial
statements under Item 8. Financial Statements and
Supplementary Data.) Certain of our accounting poli-
cies are deemed “critical,” as they require manage-
ment’s highest degree of judgment, estimates and
assumptions. We have discussed these accounting
policies and estimates with the audit committee of
our Board of Directors. We believe our most critical
accounting policies are as follows:
Ship Accounting
Our ships represent our most significant assets and
are stated at cost less accumulated depreciation and
amortization. Depreciation of ships is generally com-
puted net of a 15% projected residual value using the
straight-line method over the estimated useful life
of the asset, which is generally 30 years. The 30-year
useful life of our newly constructed ships and 15%
associated residual value are both based on the
weighted-average of all major components of a ship.
Our useful life and residual value estimates take into
consideration the impact of anticipated technological
changes, long-term cruise and vacation market condi-
tions and historical useful lives of similarly-built ships.
In addition, we take into consideration our estimates
of the weighted-average useful lives of the ships’
major component systems, such as hull, superstruc-
ture, main electric, engines and cabins. Given the very
large and complex nature of our ships, our accounting
estimates related to ships and determinations of ship
improvement costs to be capitalized require consider-
able judgment and are inherently uncertain. We do
not have cost segregation studies performed to spe-
cifically componentize our ship systems. Therefore,
we estimate the costs of component systems based
principally on general and technical information known
about major ship component systems and their lives
and our knowledge of the cruise vacation industry.
We do not identify and track depreciation by ship
component systems, but instead utilize these estimates
to determine the net cost basis of assets replaced or
refurbished. Improvement costs that we believe add
value to our ships are capitalized as additions to the
ship and depreciated over the shorter of the improve-
ments’ estimated useful lives or that of the associated
ship. The estimated cost and accumulated deprecia-
tion of replaced or refurbished ship components are
written-off and any resulting losses are recognized in
cruise operating expenses.