Carnival Cruises 2013 Annual Report Download - page 67

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Table of Contents
Preparation of Financial Statements
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported and disclosed in our financial statements. Actual results may differ from the
estimates used in preparing our consolidated financial statements. All significant intercompany balances and transactions are eliminated in consolidation.
Certain prior period amounts have been reclassified in the Consolidated Statements of Cash Flows to conform to the current period presentation. The
reclassifications had no impact on net cash provided by operating activities and net cash used in investing and financing activities.
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, 2013 and
2012, cash and cash equivalents are comprised of cash on hand, money market funds and time deposits.
Inventories
Inventories consist substantially of food and beverage, hotel and restaurant products and supplies, fuel and gift shop 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:
Years
Residual
Values
Ships 30 15%
Ship improvements
Shorter of remaining ship
life or useful life (3-28)
0% or 15%
Buildings and improvements 10-35 0% or 10%
Computer hardware and software 2-10 0% or 10%
Transportation equipment and other 2-20 0% or 10%
Leasehold improvements, including port facilities
Shorter of lease term or
related asset life (3-30)
-
The cruise business is very capital intensive. Each year, a capital program is developed for the improvement of our ships, as well as asset replacements to
enhance efficiency of operations, gain strategic benefits or provide newer improved product offerings to our guests. Ship improvement costs that we believe add
value to our ships, such as those incurred for refurbishments, safety and operational efficiencies, are capitalized to the ships and depreciated over the shorter
of their or the ships’ estimated remaining useful life, while costs of repairs and maintenance, including minor improvement costs, are charged to expense as
incurred. We capitalize interest as part of the cost 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 retirement, which may result in a loss on disposal
that is included in other ship operating expenses.
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 and included in other ship operating expenses.
We review our long-lived assets, principally our ships, for impairment whenever events or changes in circumstances indicate that the carrying amounts of
these assets may not be fully recoverable. Upon the occurrence of a triggering event, the assessment of possible impairment is based on our ability to recover
the carrying value of our asset, which is determined by using the asset’s estimated 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. As it relates to our ships, the lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other
assets and liabilities is at the individual ship level.
A significant amount of judgment is required in estimating the future cash flows and fair values of our cruise ships.
F-8