Carnival Cruises 2008 Annual Report Download - page 65

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F-6
NOTE 2 - Summary of Significant Accounting Policies
Basis of Presentation
We consolidate entities over which we have control (see Notes 3 and 15), 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 evidenced by
a direct ownership interest from 20% to 50%, the investment is accounted for using the equity
method.
Cash and Cash Equivalents
Cash and cash equivalents include investments with maturities of three months or less at
acquisition, which are stated at cost. At November 30, 2008 and 2007, cash and cash
equivalents are comprised of cash on hand, money market funds and time deposits.
Marketable Securities
We account for our marketable security investments as trading, available-for-sale or
held-to-maturity securities. As of November 30, 2008 and 2007, our marketable security
investments were not significant and we had $20 million and $5 million of unrealized holding
losses at such dates, respectively. All income generated from these investments is recorded
as interest income.
Purchases and sales of short-term investments included in our 2007 Consolidated
Statement 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, prior to November 30, 2007 we had the
ability to quickly liquidate these securities so they were considered short-term investments.
Inventories
Inventories consist primarily of food and beverage provisions, hotel supplies, fuel and
gift shop and art merchandise held for resale, which are all 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% 3-28
Buildings and improvements 0-10% 5-35
Computer hardware and software 0-10% 3-7
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, including minor improvement costs, are charged to expense as incurred. We
capitalize interest as part of acquiring ships and other capital projects during their
construction period. The specifically identified or estimated cost and accumulated
depreciation of previously capitalized ship components are written off upon replacement.
Dry-dock costs primarily represent planned major maintenance activities that are
incurred when a ship is taken out of service for scheduled maintenance. These costs are
expensed as incurred.