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page฀10 | Carnival Corporation & plc
NOTE฀2—฀Summary฀of฀Significant฀
Accounting฀Policies
Basis฀of฀Presentation
We฀consolidate฀entities฀over฀which฀we฀have฀control฀(see฀
Note฀3),฀as฀typically฀evidenced฀by฀a฀direct฀ownership฀interest฀
of฀greater฀than฀50%.฀For฀affiliates฀where฀significant฀influence฀
over฀financial฀and฀operating฀policies฀exists,฀as฀typically฀evi-
denced฀by฀a฀direct฀ownership฀interest฀from฀20%฀to฀50%,฀the฀
investment฀is฀accounted฀for฀using฀the฀equity฀method.
Cash฀and฀Cash฀Equivalents฀and฀Short-Term฀Investments
Cash฀and฀cash฀equivalents฀include฀investments฀with฀matur-
ities฀of฀three฀months฀or฀less฀at฀acquisition,฀which฀are฀stated฀at฀
cost.฀At฀November฀30,฀2006฀and฀2005,฀cash฀and฀cash฀equiva-
lents฀included฀$936฀million฀and฀$980฀million฀of฀investments,฀
respectively,฀primarily฀comprised฀of฀money฀market฀funds,฀
time฀deposits฀and฀commercial฀paper.
As฀of฀November฀30,฀2006฀and฀2005,฀our฀short-term฀invest-
ments฀were฀not฀significant.฀Purchases฀and฀sales฀of฀short-term฀
investments฀included฀in฀our฀Consolidated฀Statements฀of฀Cash฀
Flows฀consisted฀of฀investments฀with฀original฀maturities฀greater฀
than฀three฀months฀with฀variable฀interest฀rates,฀which฀typically฀
reset฀every฀28฀days.฀Despite฀the฀long-term฀nature฀of฀their฀
stated฀contractual฀maturities,฀we฀have฀the฀ability฀to฀quickly฀
liquidate฀these฀securities.฀All฀income฀generated฀from฀these฀
investments฀was฀recorded฀as฀interest฀income.
Inventories
Inventories฀consist฀of฀provisions,฀gift฀shop฀and฀art฀merchan-
dise฀held฀for฀resale,฀fuel฀and฀supplies฀carried฀at฀the฀lower฀of฀
cost฀or฀market.฀Cost฀is฀determined฀using฀the฀weighted-average฀
or฀first-in,฀first-out฀methods.
Property฀and฀Equipment
Property฀and฀equipment฀are฀stated฀at฀cost.฀Depreciation฀
and฀amortization฀were฀computed฀using฀the฀straight-line฀method฀
over฀our฀estimates฀of฀average฀useful฀lives฀and฀residual฀values,฀
as฀a฀percentage฀of฀original฀cost,฀as฀follows:
Residual
Values Years
Ships฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀. 15% 30
Ship฀improvements฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀. 0%฀or฀15% 3฀to฀remaining
life฀of฀ship
Buildings฀and฀improvements ฀.฀.฀.฀.฀.฀.฀. 0–10% 5–35
Transportation฀equipment฀฀
฀ and฀other฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.฀. 0–15% 2–20
Leasehold฀improvements,฀฀
฀ including฀port฀facilities ฀.฀.฀.฀.฀.฀.฀.฀.฀.฀.
Shorter฀of฀
lease฀term฀฀
or฀related฀
asset฀life
Ship฀improvement฀costs฀that฀we฀believe฀add฀value฀to฀our฀
ships฀are฀capitalized฀to฀the฀ships,฀and฀depreciated฀over฀the฀
improvements’฀estimated฀useful฀lives,฀while฀costs฀of฀repairs฀
and฀maintenance฀and฀minor฀replacement฀costs฀are฀charged฀to฀
expense฀as฀incurred.฀Upon฀replacement฀or฀refurbishment฀of฀
previously฀capitalized฀ship฀components,฀these฀assets’฀esti-
mated฀cost฀and฀accumulated฀depreciation฀are฀written฀off.฀We฀
capitalize฀interest฀on฀ships฀and฀other฀capital฀projects฀during฀
their฀construction฀period.
We฀review฀our฀long-lived฀assets฀for฀impairment฀whenever฀
events฀or฀changes฀in฀circumstances฀indicate฀that฀the฀carrying฀
amount฀of฀these฀assets฀may฀not฀be฀fully฀recoverable.฀The฀
assessment฀of฀possible฀impairment฀is฀based฀on฀our฀ability฀to฀
recover฀the฀carrying฀value฀of฀our฀asset฀based฀on฀our฀estimate฀
of฀its฀undiscounted฀future฀cash฀flows.฀If฀these฀estimated฀
undiscounted฀future฀cash฀flows฀are฀less฀than฀the฀carrying฀
value฀of฀the฀asset,฀an฀impairment฀charge฀is฀recognized฀for฀the฀
excess,฀if฀any,฀of฀the฀asset’s฀carrying฀value฀over฀its฀estimated฀
fair฀value.
Dry-dock฀Costs
Dry-dock฀costs฀primarily฀represent฀planned฀major฀mainte-
nance฀activities฀that฀are฀incurred฀when฀a฀ship฀is฀taken฀out฀of฀
service฀for฀scheduled฀maintenance.฀During฀2006฀we฀elected฀
to฀change฀our฀method฀of฀accounting฀for฀dry-dock฀costs฀from฀
the฀deferral฀method,฀under฀which฀we฀amortized฀our฀deferred฀
dry-dock฀costs฀over฀the฀estimated฀period฀of฀benefit฀between฀
dry-docks,฀to฀the฀direct฀expense฀method,฀under฀which฀we฀
expense฀all฀dry-dock฀costs฀as฀incurred.฀We฀believe฀the฀direct฀
method฀is฀preferable฀as฀it฀eliminates฀the฀significant฀amount฀of฀
time฀and฀subjectivity฀that฀is฀needed฀to฀determine฀which฀costs฀
and฀activities฀related฀to฀dry-docking฀should฀be฀deferred.฀In฀
connection฀with฀adopting฀this฀change฀in฀accounting฀policy,฀฀
we฀elected฀to฀early฀adopt฀Statement฀of฀Financial฀Accounting฀
Standards฀(“SFAS”)฀No.฀154,฀“Accounting฀Changes฀and฀Error฀
Corrections,”฀which฀requires฀that฀we฀report฀changes฀in฀
accounting฀policy฀by฀retrospectively฀applying฀the฀new฀policies฀
to฀all฀prior฀periods฀presented,฀unless฀it฀is฀impractical฀to฀deter-
mine฀the฀prior฀period฀impacts.฀Accordingly,฀we฀have฀previously฀
adjusted฀our฀financial฀statements฀for฀all฀periods฀presented฀for฀
this฀change฀in฀dry-dock฀policy.฀The฀effects฀of฀this฀change฀in฀
accounting฀policy฀for฀the฀years฀ended฀and฀at฀November฀30฀
were฀as฀follows฀(in฀millions,฀except฀earnings฀per฀share):
NOTES฀TO฀CONSOLIDATED฀FINANCIAL฀STATEMENTS฀(continued)