Carnival Cruises 2010 Annual Report Download - page 26

magnitude of the changes to Ibero’s principal discounted cash flow assumptions that would eliminate this excess.
Based on this analysis, relatively minor changes to these assumptions would lead to an Ibero impairment.
Given the weakness of the Spanish economy and its impact on the vacation industry, it is possible that Ibero’s
goodwill, which was $152 million at July 31, 2010, could become impaired in the future if the Spanish vacation
industry does not recover enough to enable Ibero to increase its cruise pricing. The recoverability of Ibero’s
goodwill is not without doubt because it is difficult to predict the timing of the resurgence of the Spanish
economy and its vacation industry.
As of July 31, 2010, we also performed our annual trademark impairment reviews by comparing the estimated
fair values of our trademarks to their carrying values. The cruise brands that have trademark amounts recorded
are AIDA, Ibero, P&O Cruises (UK), P&O Cruises (Australia) and Princess. The estimated fair value for each of
our trademarks significantly exceeded its respective carrying value and, therefore, none of our trademarks were
impaired. We estimated fair values based upon a discounted future cash flow analysis, which estimated the
amount of royalties that we are relieved from having to pay for use of the associated trademarks, based upon
forecasted cruise revenues and royalty rates that a market participant would forecast. The royalty rates are
estimated primarily using comparable royalty agreements for similar industries.
There have not been any events or circumstances subsequent to July 31, 2010, which we believe would require us
to perform interim goodwill or trademark impairment reviews.
The determination of our cruise brand fair values include numerous assumptions, which are subject to various
risks and uncertainties. We believe that we have made reasonable estimates and judgments in determining
whether our goodwill and trademarks have been impaired. However, if there is a material change in assumptions
used in our determination of fair values or if there is a material change in the conditions or circumstances
influencing fair values, then we may need to recognize a material impairment.
Changes to our goodwill carrying amounts since November 30, 2008 were all due to changes resulting from
using the different foreign currency translation rates in effect at each balance sheet date.
Derivative Instruments and Hedging Activities
We utilize derivative and nonderivative financial instruments, such as foreign currency forwards, options and
swaps, foreign currency debt obligations and foreign currency cash balances, to manage our exposure to
fluctuations in certain foreign currency exchange rates, and interest rate swaps to manage our interest rate
exposure in order to achieve a desired proportion of fixed and floating rate debt. Our policy is to not use any
financial instruments for trading or other speculative purposes.
All derivatives are recorded at fair value, and the changes in fair value are immediately included in earnings if
the derivatives do not qualify as effective hedges. If a derivative is designated as a fair value hedge, then changes
in the fair value of the derivative are offset against the changes in the fair value of the underlying hedged item. If
a derivative is designated as a cash flow hedge, then the effective portion of the changes in the fair value of the
derivative is recognized as a component of AOCI until the underlying hedged item is recognized in earnings or
the forecasted transaction is no longer probable. If a derivative or a nonderivative financial instrument is
designated as a hedge of our net investment in a foreign operation, then changes in the fair value of the financial
instrument are recognized as a component of AOCI to offset a portion of the change in the translated value of the
net investment being hedged, until the investment is sold or liquidated. We formally document hedging
relationships for all derivative and nonderivative hedges and the underlying hedged items, as well as our risk
management objectives and strategies for undertaking the hedge transactions.
We classify the fair values of all our derivative contracts and the fair values of our hedged firm commitments as
either current or long-term, which are included in prepaid expenses and other assets and accrued and other
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