Carnival Cruises 2009 Annual Report Download - page 25

(a) Cash equivalents are comprised of money market funds.
(b) Marketable securities held in rabbi trusts are comprised primarily of mutual funds invested in common
stocks, bonds and other investments.
(c) At November 30, 2009 and 2008, we have foreign currency forwards and options totaling $887 million and
$1.0 billion, respectively, that are designated as foreign currency cash flow hedges for two of our euro-
denominated shipbuilding contracts. These foreign currency forwards and options mature in 2010 and, at
November 30, 2009, they hedge 35.1% of our newbuild capacity on order that is exposed to currency risk.
(d) At November 30, 2009 and 2008, we have foreign currency swaps and forwards totaling $526 million and
$284 million, respectively, that are designated as hedges of our net investments in foreign operations, which
have a euro-denominated functional currency. These foreign currency swaps mature in 2010 and the
forwards mature through 2017 and were all entered into to effectively convert U.S. dollar-denominated debt
into euro debt.
(e) At November 30, 2008, we had designated foreign currency cash flow swaps that effectively converted $398
million of U.S. dollar fixed interest rate debt into sterling fixed interest rate debt. The changes in fair value
are included as a component of AOCI. In December 2008, we settled these foreign currency swaps and thus
re-aligned the debt with the parent company’s U.S. dollar functional currency.
(f) We have both U.S. dollar and sterling interest rate swaps designated as fair value hedges whereby we
receive fixed interest rate payments in exchange for making floating interest rate payments. At
November 30, 2009 and 2008, these interest rate swap agreements effectively changed $625 million and $96
million, respectively, of fixed rate debt to U.S. dollar LIBOR or GBP LIBOR-based floating rate debt.
These interest rate swaps mature through 2012.
We measure our derivatives using valuations that are calibrated to the initial trade prices. Subsequent
valuations are based on observable inputs and other variables included in the valuation model such as interest
rate yield curves, forward currency exchange rates, credit spreads, maturity dates, volatilities and netting
arrangements. We use the income approach to value the derivatives, using observable market data for all
significant inputs and standard valuation techniques to convert future amounts to a single present value amount,
assuming that participants are motivated, but not compelled to transact. The fair value measurement of a financial
asset or financial liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the
impact of our counterparty’s creditworthiness was considered when in an asset position and our creditworthiness
was considered when in a liability position in the fair value measurement of our derivative instruments.
Creditworthiness did not have a material impact on the fair value of our derivative instruments at either
November 30, 2009 or 2008. Both the counterparties and we are expected to continue to perform under the
contractual terms of the instruments.
Nonfinancial Instruments that ARE measured at Fair Value on a Nonrecurring Basis
We performed our annual goodwill impairment reviews as of July 31, 2009, by comparing the estimated fair
value of each cruise line reporting unit to the carrying value of the net assets allocated to that reporting unit. All
of our cruise line reporting units carry goodwill, except for Ocean Village and Seabourn. No goodwill was
considered to be impaired because the estimated fair values of each cruise line reporting unit exceeded their
respective carrying values and, accordingly, we did not proceed to step two of the impairment analysis.
We estimated cruise line reporting unit fair values based upon a combined weighting of the fair values
determined using (a) discounted future cash flow analysis and (b) market multiples of comparable publicly-
traded companies. The principal assumptions used in our cash flow analysis related to forecasting future
operating results, including net revenue yields, net cruise costs including fuel prices, capacity increases,
weighted-average cost of capital for comparable publicly-traded companies and terminal values, which are all
considered level 3 inputs. We compared the resulting estimated enterprise fair value to our observable capital
market enterprise value.
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