Carnival Cruises 2004 Annual Report Download - page 14

further analysis or goodwill write-down is required. If
the fair value of the reporting unit is less than the carry-
ing value of the net assets, the implied fair value of the
reporting unit is allocated to all the underlying assets
and liabilities, including both recognized and unrecog-
nized tangible and intangible assets, based on their fair
value. If necessary, goodwill is then written-down to its
implied fair value.
Trademarks
The cost of developing and maintaining our trademarks
have been expensed as incurred. However, pursuant to
Statement of Financial Accounting Standards (“SFAS”)
No. 141, “Business Combinations,” commencing for
acquisitions made after June 2001, we have allocated a
portion of the purchase price to the acquiree’s identified
trademarks. The trademarks that Carnival Corporation
recorded as part of the DLC transaction, which are
estimated to have an indefinite useful life and, there-
fore, are not amortizable, are reviewed for impairment
annually, or more frequently when events or circum-
stances indicate that the trademark may be impaired.
Our trademarks would be considered impaired if their
carrying value exceeds their fair value. See Note 3.
Derivative Instruments and Hedging Activities
We utilize derivative and nonderivative financial instru-
ments, such as foreign currency swaps and foreign
currency obligations to limit our exposure to fluctuations
in foreign currency exchange rates and interest rate
swaps to manage our interest rate exposure and to
achieve a desired proportion of variable and fixed rate
debt (see Notes 6 and 11).
All derivatives are recorded at fair value, and the
changes in fair value must be immediately included in
earnings if the derivatives do not qualify as effective
hedges. If a derivative is a fair value hedge, then changes
in the fair value of the derivative are offset against the
changes in the fair value of the underlying hedged firm
commitment. If a derivative is a cash flow hedge, then
changes in the fair value of the derivative are recognized
as a component of accumulated other comprehensive
income (“AOCI”) until the underlying hedged item is
recognized in earnings. If a derivative or a nonderivative
financial instrument is designated as a hedge of a net
investment in a foreign operation, then changes in the
fair value of the financial instrument are recognized as
a component of AOCI to offset the change in the trans-
lated value of the net investment being hedged, until
the investment is liquidated. We formally document all
relationships between hedging instruments and hedged
items, as well as our risk management objectives and
strategies for undertaking our hedge transactions.
We classify the fair value of our derivative contracts
and the fair value of our offsetting hedged firm commit-
ments as either current or long-term assets and liabilities
depending on whether the maturity date of the deriva-
tive contract is within or beyond one year from our
balance sheet dates. The cash flows from derivatives
treated as hedges are classified in our statements of cash
flows in the same category as the item being hedged.
During fiscal 2004, 2003 and 2002, all net changes in
the fair value of both our fair value hedges and the off-
setting hedged firm commitments and our cash flow
hedges were immaterial, as were any ineffective portions
of these hedges. No fair value hedges or cash flow
hedges were derecognized or discontinued in fiscal
2004, 2003 or 2002, and the amount of estimated cash
flow hedges unrealized net losses which are expected
to be reclassified to earnings in the next twelve months
is approximately $24 million.
Finally, if any shipyard with which we have contracts
to build our ships is unable to perform, we would be
required to perform under our foreign currency swaps
related to these shipbuilding contracts. Accordingly, based
upon the circumstances, we may have to discontinue
the accounting for those currency swaps as hedges, if
the shipyard cannot perform. However, we believe that
the risk of shipyard nonperformance is remote.
Revenue and Expense Recognition
Guest cruise deposits represent unearned revenues
and are initially recorded as customer deposit liabilities
when received. Customer deposits are subsequently
recognized as cruise revenues, together with revenues
from onboard and other activities and all associated
direct costs of a voyage, generally upon completion of
voyages with durations of ten nights or less and on a
pro rata basis for voyages in excess of ten nights. Future
travel discount vouchers issued to guests are typically
recorded as a reduction of revenues when such vouchers
are utilized. Revenues and expenses from our tour and
travel services are recognized at the time the services
are performed or expenses are incurred.
Insurance/Self-Insurance
We use a combination of insurance and self-insurance
for a number of risks including claims related to crew
and passengers, hull and machinery, workers’ compen-
sation and general liability. Liabilities associated with
these risks, including estimates for crew and passenger
claims, are estimated based on, among other things,
historical claims experience, severity factors and other
actuarial assumptions. Our expected loss accruals are
based on estimates, and while we believe the amounts
accrued are adequate, the ultimate loss may differ from
the amounts provided.
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