Carnival Cruises 2006 Annual Report Download - page 16

page฀12 | Carnival Corporation & plc
investment฀in฀a฀foreign฀subsidiary,฀then฀changes฀in฀the฀fair฀
value฀of฀the฀financial฀instrument฀are฀recognized฀as฀a฀compo-
nent฀of฀AOCI฀to฀offset฀a฀portion฀of฀the฀change฀in฀the฀translated฀
value฀of฀the฀net฀investment฀being฀hedged,฀until฀the฀investment฀
is฀liquidated.฀We฀formally฀document฀all฀hedging฀relationships฀
for฀all฀derivative฀and฀nonderivative฀hedges฀and฀the฀underlying฀
hedged฀items,฀as฀well฀as฀our฀risk฀management฀objectives฀and฀
strategies฀for฀undertaking฀the฀hedge฀transactions.
We฀classify฀the฀fair฀value฀of฀our฀derivative฀contracts฀and฀
the฀fair฀value฀of฀our฀offsetting฀hedged฀firm฀commitments฀as฀
either฀current฀or฀long-term,฀which฀are฀included฀in฀prepaid฀and฀
other฀assets฀and฀accrued฀and฀other฀liabilities,฀depending฀on฀
whether฀the฀maturity฀date฀of฀the฀derivative฀contract฀is฀within฀
or฀beyond฀one฀year฀from฀our฀balance฀sheet฀dates.฀The฀cash฀
flows฀from฀derivatives฀treated฀as฀hedges฀are฀classified฀in฀our฀
Consolidated฀Statements฀of฀Cash฀Flows฀in฀the฀same฀category฀
as฀the฀item฀being฀hedged.
During฀fiscal฀2006,฀2005฀and฀2004,฀all฀net฀changes฀in฀the฀
fair฀value฀of฀both฀our฀fair฀value฀hedges฀and฀the฀offsetting฀
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฀2006,฀2005฀or฀2004.฀In฀addition,฀the฀
amount฀of฀realized฀net฀losses฀or฀gains฀from฀cash฀flow฀hedges฀
that฀were฀reclassified฀into฀earnings฀during฀fiscal฀2006,฀2005฀
and฀2004฀were฀not฀significant.฀The฀amount฀of฀estimated฀cash฀
flow฀hedges฀unrealized฀net฀losses฀which฀are฀expected฀to฀฀
be฀reclassified฀to฀earnings฀in฀the฀next฀twelve฀months฀is฀not฀
significant.
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฀circum-
stances,฀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,฀which฀include฀transportation฀and฀shore฀excur-
sion฀revenues฀and฀all฀associated฀direct฀costs฀of฀a฀voyage,฀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.฀Cancellation฀fees฀are฀recognized฀in฀revenues฀at฀the฀
time฀of฀the฀cancellation.฀Revenues฀and฀expenses฀from฀our฀
tour฀and฀travel฀services฀are฀recognized฀at฀the฀time฀the฀services฀
are฀performed฀or฀expenses฀are฀incurred.
Our฀sale฀to฀passengers฀of฀air฀and฀other฀transportation฀to฀
and฀from฀our฀ships฀and฀the฀related฀cost฀of฀purchasing฀this฀
service฀is฀recorded฀as฀cruise฀passenger฀ticket฀revenues฀and฀
cruise฀transportation฀costs,฀respectively,฀in฀the฀accompanying฀
Consolidated฀Statements฀of฀Operations.฀The฀proceeds฀that฀
we฀collect฀from฀the฀sale฀of฀third฀party฀shore฀excursions฀and฀
on฀behalf฀of฀onboard฀concessionaires,฀net฀of฀the฀amounts฀
remitted฀to฀them,฀are฀recorded฀as฀concession฀revenues,฀on฀฀
a฀net฀basis,฀in฀onboard฀and฀other฀cruise฀revenues.
Insurance/Self-Insurance
We฀use฀a฀combination฀of฀insurance฀and฀self-insurance฀for฀฀
a฀number฀of฀risks฀including฀claims฀related฀to฀crew฀and฀passen-
gers,฀hull฀and฀machinery,฀war฀risk,฀workers’฀compensation,฀
property฀damage฀and฀general฀liability.฀Liabilities฀associated฀
with฀certain฀of฀these฀risks,฀including฀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.
Selling฀and฀Administrative฀Expenses
Selling฀expenses฀include฀items฀such฀as฀advertising,฀market-
ing,฀promotional฀and฀related฀costs.฀Advertising฀costs฀are฀
charged฀to฀expense฀as฀incurred฀except฀for฀brochures฀and฀
media฀production฀costs.฀The฀brochures฀and฀media฀production฀
costs฀are฀recorded฀as฀prepaid฀expenses฀and฀charged฀to฀expense฀
as฀consumed฀or฀upon฀the฀first฀airing฀of฀the฀advertisement,฀
respectively.฀Advertising฀expenses฀totaled฀$464฀million,฀$455฀
million฀and฀$464฀million฀in฀fiscal฀2006,฀2005฀and฀2004,฀respec-
tively.฀At฀November฀30,฀2006฀and฀2005,฀the฀amount฀of฀adver-
tising฀costs฀included฀in฀prepaid฀expenses฀was฀not฀significant.฀
Administrative฀expenses฀represent฀the฀costs฀of฀our฀shoreside฀
ship฀support,฀reservation฀and฀other฀administrative฀functions฀
and฀include฀items฀such฀as฀salaries฀and฀related฀benefits,฀
professional฀fees฀and฀occupancy฀costs,฀which฀are฀typically฀
expensed฀as฀incurred.
NOTES฀TO฀CONSOLIDATED฀FINANCIAL฀STATEMENTS฀(continued)