Carnival Cruises 2013 Annual Report Download - page 69

Table of Contents
Insurance
We maintain insurance to cover a number of risks including illness and injury to crew, guest injuries, pollution, other third-party claims in connection with
our cruise activities, damages to hull and machinery for each of our ships, war risks, workers’ compensation, employee health, directors and officers
liability, property damages and general liabilities for third-party claims. We recognize insurance recoverables from third-party insurers for incurred expenses at
the time the recovery is probable and upon realization for amounts in excess of incurred expenses. All of our insurance policies are subject to coverage limits,
exclusions and deductible levels. The liabilities associated with crew illnesses and crew and guest injury claims, including all legal costs, are estimated based
on the specific merits of the individual claims or actuarially estimated based on historical claims experience, loss development factors and other assumptions.
While we believe our estimated accrued claims reserves are adequate, the ultimate losses may differ.
At November 30, 2013 and 2012, substantially all of our aggregated short-term and long-term insurance recoverables relate to crew, guest and other third-party
claims for the Costa Concordia incident (“2012 Ship Incident”). At November 30, 2013 and 2012, primarily all of our aggregated short-term and long-term
claims reserves also relate to the 2012 Ship Incident. At November 30, 2013 and 2012, our long-term insurance recoverables and long-term claims reserve are
included in other assets and other long-term liabilities, respectively, and are not material.
Selling and Administrative Expenses
Selling expenses include a broad range of advertising, such as marketing and promotional expenses. Advertising is charged to expense as incurred, except for
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 $588 million in 2013 and $527 million in both 2012 and 2011. Administrative expenses
represent the costs of our shoreside ship support, reservations and other administrative functions, and include, among others, salaries and related benefits,
professional fees and occupancy costs, which are typically expensed as incurred.
Foreign Currency Translations and Transactions
Each business determines its functional currency by reference to its primary economic environment. We translate the assets and liabilities of our foreign
operations that have functional currencies other than the U.S. dollar at exchange rates in effect at the balance sheet date. Revenues and expenses of these foreign
operations are translated at weighted-average exchange rates for the period. Their equity is translated at historical rates and the resulting foreign currency
translation adjustments are included as a component of accumulated other comprehensive income (“AOCI”), which is a separate component of shareholders’
equity. Therefore, the U.S. dollar value of the non-equity translated items in our consolidated financial statements will fluctuate from period to period,
depending on the changing value of the U.S. dollar versus these currencies.
Our underlying businesses execute transactions in a number of different currencies, principally the U.S. dollar, euro, sterling and Australian and Canadian
dollars. Exchange rate gains and losses arising from the remeasurement of monetary assets and liabilities and foreign currency transactions denominated in a
currency other than the functional currency of the entity involved are recognized currently in nonoperating earnings, unless such monetary liabilities have been
designated to act as hedges of net investments in our foreign operations. These net gains or losses included in nonoperating earnings were insignificant in 2013,
2012 and 2011. In addition, the unrealized gains or losses on our long-term intercompany receivables denominated in a non-functional currency, which are not
expected to be repaid in the foreseeable future and are therefore considered to form part of our net investments, are recorded as foreign currency translation
adjustments, which are included as a component of AOCI.
Share-Based Compensation
We recognize compensation expense for all share-based compensation awards using the fair value method. For time-based share awards, we recognize
compensation cost ratably using the straight-line attribution method over the expected vesting period or to the retirement eligibility date, if less than the vesting
period, when vesting is not contingent upon any future performance. For performance-based share awards, we generally recognize compensation cost ratably
using the straight-line attribution method over the expected vesting period based on the probability of the performance condition being achieved. If all or a
portion of the performance condition is not expected to be met, the appropriate amount of previously recognized compensation expense will be reversed and
future compensation expense will be adjusted accordingly. For market-based share awards, we recognize compensation cost ratably using the straight-line
attribution method over the expected vesting period. If the target market and performance conditions are not expected to be met, compensation expense will still
be recognized. In addition, we estimate the amount of expected forfeitures, based on historical forfeiture experience, when calculating compensation cost. If the
actual forfeitures that occur are significantly different from the estimate, then we revise our estimates.
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