Royal Caribbean Cruise Lines 2013 Annual Report Download - page 78
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
Description of Business
We are a global cruise company. We own Royal
Caribbean International, Celebrity Cruises, Pullmantur,
Azamara Club Cruises, CDF Croisières de France and
a 50% joint venture interest in TUI Cruises. Together,
these six brands operate a combined 41 ships as of
December 31, 2013. Our ships operate on a selection
of worldwide itineraries that call on approximately
490 destinations on all seven continents.
Basis for Preparation of Consolidated
Financial Statements
The consolidated financial statements are prepared
in accordance with accounting principles generally
accepted in the United States of America (“GAAP”).
Estimates are required for the preparation of financial
statements in accordance with these principles. Actual
results could differ from these estimates. See Note 2.
Summary of Significant Accounting Policies for a dis-
cussion of our significant accounting policies.
All significant intercompany accounts and transac-
tions are eliminated in consolidation. We consolidate
entities over which we have control, usually evidenced
by a direct ownership interest of greater than 50%,
and variable interest entities where we are deter-
mined to be the primary beneficiary. See Note 6.
Other Assets for further information regarding our
variable interest entities. For affiliates we do not con-
trol but over which we have significant influence on
financial and operating policies, usually evidenced
by a direct ownership interest from 20% to 50%, the
investment is accounted for using the equity method.
We consolidate the operating results of Pullmantur
and CDF Croisières de France on a two-month lag to
allow for more timely preparation of our consolidated
financial statements. No material events or trans-
actions affecting Pullmantur or CDF Croisières de
France have occurred during the two-month lag
period of November and December 2013 that would
require disclosure or adjustment to our consolidated
financial statements as of December 31, 2013. For
the anticipated sale of the Pullmantur non-core busi-
nesses, see Note 16. Restructuring and Related Impair-
ment Charges.
NOTE 2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Revenues and Expenses
Deposits received on sales of passenger cruises are
initially recorded as customer deposit liabilities on our
balance sheet. Customer deposits are subsequently
recognized as passenger ticket revenues, together
with revenues from onboard and other goods and
services and all associated direct costs of a voyage,
upon completion of voyages with durations of ten
days or less, and on a pro-rata basis for voyages in
excess of ten days. Revenues and expenses include
port costs that vary with guest head counts. The
amounts of such port costs included in Passenger
ticket revenues on a gross basis were $494.2 million,
$459.8 million and $442.9 million for the years 2013,
2012 and 2011, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include cash and market-
able securities with original maturities of less than
90 days.
Inventories
Inventories consist of provisions, supplies and fuel
carried at the lower of cost (weighted-average)
or market.
Property and Equipment
Property and equipment are stated at cost less accu-
mulated depreciation and amortization. We capitalize
interest as part of the cost of acquiring certain assets.
Improvement costs that we believe add value to our
ships are capitalized as additions to the ship and
depreciated over the shorter of the improvements’
estimated useful lives or that of the associated ship.
The estimated cost and accumulated depreciation of
replaced or refurbished ship components are written
off and any resulting losses are recognized in cruise
operating expenses. Liquidated damages received
from shipyards as a result of the late delivery of a
new ship are recorded as reductions to the cost basis
of the ship.
Depreciation of property and equipment is computed
using the straight-line method over the estimated
useful life of the asset. The useful lives of our ships
are generally 30 years, net of a 15% projected residual
value. 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 vaca-
tion market conditions and historical useful lives of
similarly-built ships. In addition, we take into consid-
eration our estimates of the weighted-average useful
lives of the ships’ major component systems, such as
hull, superstructure, main electric, engines and cabins.
Depreciation for assets under capital leases is com-
puted using the shorter of the lease term or related
asset life. (See Note 5. Property and Equipment.)