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Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2013
Summary of Significant Accounting Policies  
Basis for Preparation of Consolidated Financial Statements

Basis for Preparation of Consolidated Financial Statements

 

The unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  Estimates are required for the preparation of financial statements in accordance with these principles.  Actual results could differ from these estimates.  See Note 2. Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2012 for a discussion of our significant accounting policies.

 

All significant intercompany accounts and transactions are eliminated in consolidation. We consolidate entities over which we have control, usually evidenced by a direct ownership interest of greater than 50%, and variable interest entities where we are determined to be the primary beneficiary. See Note 6. Goodwill and Other Assets for further information regarding our variable interest entities. For affiliates we do not control but over which we have significant influence on financial and operating policies, usually evidenced by a direct ownership interest from 20% to 50%, the investment is accounted for using the equity method.  We consolidate the operating results of Pullmantur and CDF Croisières de France on a two-month lag to allow for more timely preparation of our consolidated financial statements. No material events or transactions affecting Pullmantur or CDF Croisières de France have occurred during the two-month lag period of August and September 2013 that would require disclosure or adjustment to our consolidated financial statements as of and for the quarter ended September 30, 2013.

 

We believe the accompanying unaudited consolidated financial statements contain all normal recurring accruals necessary for a fair statement.  Our revenues are seasonal and results for interim periods are not necessarily indicative of results for the entire year.

 

Property and Equipment

Property and Equipment

 

During the first quarter of 2013, we performed a review of the estimated useful lives and associated residual values of ships in our fleet approaching the last third of their estimated useful lives.  As a result, effective January 1, 2013, we revised the estimated useful lives of five ships from 30 years with a 15% associated residual value, to 35 years with a 10% associated residual value.  The change in the estimated useful lives and associated residual value was accounted for prospectively as a change in accounting estimate.  The 35-year useful life with a 10% associated residual value is based on revised estimates of the weighted-average useful life of all major ship components for these ships.  The change in estimate is consistent with our recent investments in and future plans to continue to invest in the revitalization of these ships and the use of certain ship components longer than originally estimated. The change allows us to better match depreciation expense with the periods these assets are expected to be in use.  For the third quarter of 2013, this change increased operating income and net income by $3.4 million and increased earnings per share by $0.02 per share on a basic and diluted basis.  For the nine months ended September 30, 2013, this change increased operating income and net income by $7.2 million and increased earnings per share by $0.03 per share on a basic and diluted basis.  For the full year 2013, this change is estimated to increase operating income and net income by approximately $11.0 million and earnings per share by $0.05 per share on a basic and diluted basis.  For further information on our significant accounting policies, refer to Note 2. Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

 

In January 2013, we adopted authoritative guidance regarding the periodic impairment testing of indefinite-lived intangible assets.  The new guidance allows an entity to assess qualitative factors to determine if it is more-likely-than-not that indefinite-lived intangible assets might be impaired and, based on this assessment, to determine whether it is necessary to perform the quantitative impairment tests.  The adoption of this guidance did not have an impact on our consolidated financial statements.

 

In March 2013, we adopted authoritative guidance regarding the presentation of amounts reclassified from accumulated other comprehensive income to net income.  The new guidance requires an entity to present, either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source (e.g., the release due to cash flow hedges from interest rate contracts) and the income statement line items affected by the reclassification (e.g., interest income or interest expense).  We elected to present this information in a single note. See Note 9. Changes in Accumulated Other Comprehensive Income (Loss) for our disclosures required under this guidance.

 

In July 2013, we adopted authoritative guidance regarding the inclusion of the Fed Funds Effective Swap Rate, or Overnight Index Swap rate (“OIS”), as a benchmark interest rate for hedge accounting purposes. The new guidance permits the use of the OIS to be included as an acceptable U.S. benchmark and removes the restriction on using different benchmark rates for similar hedges. The guidance is effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013.  The adoption of this guidance did not have an impact on our consolidated financial statements.

 

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In March 2013, amended guidance was issued regarding the release of cumulative translation adjustments into net income.  The new guidance provides clarification of when to release the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity.  This guidance will be effective for our interim and annual reporting periods beginning after December 15, 2013.  The adoption of this newly issued guidance is not expected to have a material impact on our consolidated financial statements, but will have an impact on the accounting for future sales of investments or changes in control of foreign entities.

 

Reclassifications

Reclassifications

 

For the nine months ended September 30, 2012, $8.7 million has been reclassified in the consolidated statements of cash flows from other, net to loss (gain) on derivative instruments not designated as hedges within net cash flows provided by operating activities in order to conform to the current year presentation.

 

Other

Other

 

Revenues and expenses include port costs that vary with guest head counts.  The amounts of such port costs included in passenger ticket revenues on a gross basis were $135.8 million and $128.8 million for the third quarters of 2013 and 2012, respectively, and $368.5 million and $345.7 million for the nine months ended September 30, 2013 and 2012, respectively.