Royal Caribbean Cruise Lines 2013 Annual Report Download - page 80
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fair value of the reporting unit is less than the carry-
ing value of its net assets, the implied fair value of the
reporting unit is allocated to all its underlying assets
and liabilities, including both recognized and unrec-
ognized tangible and intangible assets, based on their
fair value. If necessary, goodwill is then written down
to its implied fair value.
Intangible Assets
In connection with our acquisitions, we have acquired
certain intangible assets to which value has been
assigned based on our estimates. Intangible assets
that are deemed to have an indefinite life are not
amortized, but are subject to an annual impairment
test, or when events or circumstances dictate, more
frequently. The indefinite-life intangible asset impair-
ment test consists of a comparison of the fair value
of the indefinite-life intangible asset with its carrying
amount. If the carrying amount exceeds its fair value,
an impairment loss is recognized in an amount equal
to that excess. If the fair value exceeds its carrying
amount, the indefinite-life intangible asset is not con-
sidered impaired.
Other intangible assets assigned finite useful lives are
amortized on a straight-line basis over their estimated
useful lives.
Contingencies—Litigation
On an ongoing basis, we assess the potential liabilities
related to any lawsuits or claims brought against us.
While it is typically very difficult to determine the tim-
ing and ultimate outcome of such actions, we use our
best judgment to determine if it is probable that we
will incur an expense related to the settlement or final
adjudication of such matters and whether a reason-
able estimation of such probable loss, if any, can
be made. In assessing probable losses, we take into
consideration estimates of the amount of insurance
recoveries, if any, which are recorded as assets when
recoverability is probable. We accrue a liability when
we believe a loss is probable and the amount of loss
can be reasonably estimated. Due to the inherent
uncertainties related to the eventual outcome of liti-
gation and potential insurance recoveries, it is possi-
ble that certain matters may be resolved for amounts
materially different from any provisions or disclosures
that we have previously made.
Advertising Costs
Advertising costs are expensed as incurred except
those costs which result in tangible assets, such as
brochures, which are treated as prepaid expenses and
charged to expense as consumed. Advertising costs
consist of media advertising as well as brochure, pro-
duction and direct mail costs.
Media advertising was $205.8 million, $200.9 million
and $193.7 million, and brochure, production and
direct mail costs were $137.1 million, $130.4 million
and $124.3 million for the years 2013, 2012 and 2011,
respectively.
Derivative Instruments
We enter into various forward, swap and option con-
tracts to manage our interest rate exposure and to
limit our exposure to fluctuations in foreign currency
exchange rates and fuel prices. These instruments are
recorded on the balance sheet at their fair value and
the vast majority are designated as hedges. We also
have non-derivative financial instruments designated
as hedges of our net investment in our foreign oper-
ations and investments. Although certain of our deriv-
ative financial instruments do not qualify or are not
accounted for under hedge accounting, we do not
hold or issue derivative financial instruments for trad-
ing or speculative purposes.
At inception of the hedge relationship, a derivative
instrument that hedges the exposure to changes in
the fair value of a firm commitment or a recognized
asset or liability is designated as a fair value hedge.
A derivative instrument that hedges a forecasted
transaction or the variability of cash flows related to
a recognized asset or liability is designated as a cash
flow hedge.
Changes in the fair value of derivatives that are desig-
nated as fair value hedges are offset against changes
in the fair value of the underlying hedged assets,
liabilities or firm commitments. Gains and losses on
derivatives that are designated as cash flow hedges
are recorded as a component of Accumulated other
comprehensive income (loss) until the underlying
hedged transactions are recognized in earnings.
The foreign currency transaction gain or loss of our
non-derivative financial instruments designated as
hedges of our net investment in foreign operations
and investments are recognized as a component
of Accumulated other comprehensive income (loss)
along with the associated foreign currency translation
adjustment of the foreign operation.
On an ongoing basis, we assess whether derivatives
used in hedging transactions are “highly effective”
in offsetting changes in the fair value or cash flow of
hedged items. We use the long-haul method to assess
hedge effectiveness using regression analysis for each
hedge relationship under our interest rate, foreign
currency and fuel hedging programs. We apply the
same methodology on a consistent basis for assessing
hedge effectiveness to all hedges within each hedg-
ing program (i.e. interest rate, foreign currency and
fuel). We perform regression analyses over an obser-
vation period of up to three years, utilizing market
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS