Carnival Cruises 2012 Annual Report Download - page 102

Table of Contents
level, which is the lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities. See “Note 4 –
Property and Equipment” in the accompanying consolidated financial statements for a discussion of impairment charges recorded in 2012 and 2011. We
believe it is more-likely-than-not (“MLTN”) that each of our cruise brands’ estimated fair values that carry goodwill at November 30, 2012 exceeded their
carrying values. We also believe that it is MLTN that the estimated fair values of each of our cruise brands’ trademarks recorded at November 30, 2012
exceeded their carrying values. See “Note 11 – Fair Value Measurements, Derivative Instruments and Hedging Activities” in the accompanying consolidated
financial statements for additional discussion of our goodwill and trademark impairment tests.
The determination of fair value includes numerous uncertainties, unless a comparable, viable actively-traded market exists, which is usually not the case for
cruise ships, cruise brands and trademarks. Our ship fair values are typically estimated based on individual or comparable ship sale prices and other
comparable ship values in inactive markets.
In performing qualitative assessments of our cruise brands that carry goodwill, qualitative factors that we consider to determine their effect on each of the
cruise brands’ estimated fair values include industry and market conditions, macroeconomic conditions, changes to WACC, overall financial performance
and changes in fuel. In determining the estimated fair values of cruise brands utilizing discounted future cash flow analysis for our quantitative goodwill
impairment tests, if any, significant judgments are made related to forecasting future operating results, including net revenue yields, net cruise costs including
fuel prices, capacity changes, including the expected deployment of vessels into, or out of, the cruise brand, WACC for comparable publicly-traded
companies, adjusted for the risk attributable to the geographic region in which the cruise brand operates and terminal values. In addition, third party
appraisers are sometimes used to help determine fair values of cruise brands and trademarks, and their valuation methodologies are also typically subject to
uncertainties similar to those discussed above.
In addition, in performing our qualitative assessments of our cruise brands’ significant trademarks, qualitative factors that we consider to determine their
effect on each of the cruise brands recorded trademarks’ estimated fair values include industry and market conditions, macroeconomic conditions, changes to
the WACC, changes to the royalty rates and overall financial performance. In determining our trademark estimated fair values for our quantitative impairment
tests, if any, we also use discounted future cash flow analysis, which requires some of the same significant judgments discussed above. Specifically,
determining the estimated amount of royalties avoided by our ownership of the trademark is based upon forecasted cruise revenues and royalty rates that a
market participant would use. The royalty rates are estimated primarily using comparable royalty agreements for similar industries.
We believe that we have made reasonable estimates and judgments in determining whether our cruise ships, goodwill and trademarks have been
impaired. However, if there is a material change in the conditions or circumstances affecting fair values, or if there is a material change in assumptions used in
our determination of fair values, then we may need to recognize a material impairment charge.
Contingencies
We periodically assess the potential liabilities related to any lawsuits or claims brought against us, as well as for other known unasserted claims, including
environmental, legal, regulatory, guest and crew, and tax matters. In addition, we periodically assess the recoverability of our trade and other receivables and
other counterparty credit exposures, such as contractual nonperformance by financial and other institutions with which we conduct significant business. Our
credit exposure includes contingent obligations related to cash payments received directly by travel agents and tour operators for cash collected by them on
cruise sales in most of Europe where we are obligated to extend credit in a like amount to these guests even if we do not receive payment from the travel agents
or tour operators. While it is typically very difficult to determine the timing and ultimate outcome of these matters, we use our best judgment to determine if it
is probable, or MLTN for income tax matters, that we will incur an expense related to the settlement or final adjudication of such matters and whether a
reasonable estimation of such probable or MLTN loss, if any, can be made. In assessing probable losses, we make estimates of the amount of probable
insurance recoveries, if any, which are recorded as assets. We accrue a liability and establish a reserve when we believe a loss is probable or MLTN for
income tax matters, and the amount of the loss can be reasonably estimated in accordance with U.S. generally accepted accounting principles (“U.S.
GAAP”). Such accruals and reserves are typically based on developments to date, management’s estimates of the outcomes of these matters, our experience in
contesting, litigating and settling other similar non-income tax matters, historical claims experience, actuarially determined estimates of liabilities and any
related insurance coverages. See “Note 7 – Costa Concordia,” “Note 8 – Contingencies,” “Note 9 – Income and Other Taxes” and “Note 11 – Fair Value
Measurements, Derivative Instruments and Hedging Activities” in the accompanying consolidated financial statements for additional information concerning
our contingencies.
Given the inherent uncertainty related to the eventual outcome of these matters and potential insurance recoveries, it is possible that all or some of these matters
may be resolved for amounts materially different from any provisions or disclosures that we may have made with respect to their resolution. In addition, as
new information becomes available, we may need to reassess the amount of asset or liability that needs to be accrued related to our contingencies. All such
revisions in our estimates could materially impact our results of operations and financial position.
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