Note 1. General
DESCRIPTION OF BUSINESS
Royal Caribbean Cruises Ltd., a Liberian corporation, and its subsidiaries (the "Company"), is a global cruise company. In July 1997, the Company acquired 100% of the outstanding stock of Celebrity Cruise Lines Inc. ("Celebrity") (See
Note 3-Acquisition). The Company operates two cruise brands, Royal Caribbean International ("Royal Caribbean"), which operates eleven cruise ships, and Celebrity Cruises ("Celebrity Cruises"), which operates five cruise ships. The Company's ships call on destinations in the Caribbean, Bahamas, Mexico, Alaska, Europe, Bermuda, the Panama Canal, Hawaii, and Canada/New England.
BASIS FOR PREPERATION OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles and are presented in U.S. dollars. Management estimates are required for the preparation of financial statements in accordance with generally accepted accounting principles. Actual results could differ from these estimates. All significant intercompany accounts and transactions are eliminated in consolidation.
Note 2. Summary of Significant Accounting Policies
CRUISE REVENUES AND EXPENSES
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
Cash and cash equivalents include cash and marketable securities with original maturities of less than 90 days.
INVENTORIES
Inventories consist of provisions, supplies, fuel and gift shop merchandise carried at the lower of cost (weighted-average) or market.
PROPERTY AND EQUIPMENT
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
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.