ADVERTISING COSTS
Advertising costs are expensed as incurred except those 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 $62.5, $46.6 and $45.7 million, and brochure, production and direct mail costs were $33.7, $29.2 and $25.6 million for the years 1997, 1996 and 1995, respectively.
DRYDOCKING
Drydocking costs are accrued evenly over the period to
the next scheduled drydocking and are included in accrued liabilities.
FINANCIAL INSTRUMENTS
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.
FOREIGN CURRENCY TRANSACTIONS
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
The Company has adopted Statement of Financial Accounting Standards No. 128-Earnings Per Share
("FAS 128") which requires the dual presentation of basic and diluted earnings per share for the periods ending after December 15, 1997. Basic earnings per share is computed by dividing net income, after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during each period. In accordance with the provisions of FAS 128, the Company has retroactively restated earnings per share. (See Note 7-Earnings Per Share.)
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value method and discloses certain fair market value information with respect to its stock option activity in the notes to the financial statements. (See Note 6-Shareholders' Equity.)
Note 3. Acquisition
In July 1997, the Company acquired all of the outstanding stock of Celebrity, a provider of cruises to the North American market. The purchase price was $515.0 million, payable in cash of $245.0 million and 7,448,276 shares of the Company's common stock. This acquisition has been accounted for under the purchase method and the results of the operations of Celebrity have been included in the consolidated financial statements since July 1, 1997. The total cost of the acquisition was allocated to the tangible assets acquired and liabilities assumed based on their respective fair values.