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Notes to the Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies
Deposits received on sales of passenger cruises are recorded as customer deposits and are recognized, together with revenues from shipboard activities and all associated direct costs of a voyage, upon completion of voyages with durations of 10 days or less and on a pro rata basis for voyages in excess of 10 days. Certain revenues and expenses for pro rata voyages are estimated.
Cash and cash equivalents include cash and marketable securities with original maturities of less than 90 days.
Inventories consist of provisions, supplies, fuel and gift shop merchandise carried at the lower of cost (weighted-average) or market.
Property and equipment are stated at cost. Significant vessel refurbishing costs are capitalized as additions to the vessel, while costs of repairs and maintenance are charged to expense as incurred. The Company capitalizes interest as part of the cost of construction. The Company reviews long-lived assets, identifiable intangibles and goodwill and reserves for impairment whenever events or changes in circumstances indicate, based on estimated future cash flows, the carrying amount of the assets will not be fully recoverable. Depreciation of property and equipment, which includes amortization of vessels under capital lease, is computed using the straight-line method over useful lives of primarily 30 years for vessels and three to ten years for other property and equipment.
Goodwill represents the excess of cost over the fair value of net assets acquired and is being amortized over 40 years using the straight-line method.
Advertising costs are expensed as incurred except that costs which result in tangible assets, such as brochures, are treated as prepaid supplies and charged to operations as consumed. Advertising expense consists of media advertising as well as brochure, production and direct mail costs. Media advertising was $46.6, $45.7 and $45.2 million and brochure, production and direct mail costs were $29.2, $25.6 and $34.3 million for the years 1996, 1995 and 1994, respectively.
Drydocking costs are accrued evenly over the period to the next scheduled drydocking and are included in accrued liabilities.
The Company enters into various forward, option and swap contracts to limit its exposure to fluctuations in foreign currency exchange rates and oil prices and to manage its interest costs. The differential in interest rates and oil prices to be paid or received under these agreements is recognized in income over the life of the contracts as part of interest expense and fuel expense, respectively. Foreign exchange forward and/or option contracts are revalued as of the balance sheet date based on forward and/or option contracts with comparable characteristics and resulting gains and losses are recognized in income currently.
The majority of the Company's transactions are settled in U.S. dollars. Gains or losses resulting from transactions denominated in other currencies and remeasurements of other currencies are recognized in income currently.
Earnings per share data is computed using the weighted-average number of shares of common stock outstanding during each period. |