Carnival Cruises 2012 Annual Report Download - page 88

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Table of Contents
(c) The net difference between the fair value of our fixed rate debt and its carrying value was due to the market interest rates in existence at November 30,
2012 and 2011 being lower than the fixed interest rates on these debt obligations, including the impact of changes in our credit ratings, if any. The net
difference between the fair value of our floating rate debt and its carrying value was due to the market interest rates in existence at November 30, 2012
and 2011 being slightly higher than the floating interest rates on these debt obligations, including the impact of changes in our credit ratings, if any. The
fair values of our publicly-traded notes were based on their unadjusted quoted market prices in active markets. The fair values of our other debt were
estimated based on appropriate market interest rates being applied to this debt.
Financial Instruments that are Measured at Fair Value on a Recurring Basis
The estimated fair value and basis of valuation of our financial instrument assets and liabilities that are measured at fair value on a recurring basis were as
follows (in millions):
November 30, 2012 November 30, 2011
Level 1 Level 2 Level 1 Level 2
Assets
Cash equivalents (a) $196 $- $92 $-
Restricted cash (b) 28 - 11 -
Marketable securities held in rabbi trusts (c) 104 16 98 18
Derivative financial instruments (d) - 48 - 6
Total $328 $ 64 $201 $24
Liabilities
Derivative financial instruments (d) $- $43 $- $ 12
Total $- $43 $- $ 12
(a) Cash equivalents are comprised of money market funds.
(b) Restricted cash is comprised of money market funds.
(c) Level 1 and 2 marketable securities are held in rabbi trusts and are primarily comprised of frequently-priced mutual funds invested in common stocks
and other investments, respectively. Their use is restricted to funding certain deferred compensation and non-qualified U.S. pension plans.
(d) See “Derivative Instruments and Hedging Activities” section below for detailed information regarding our derivative financial instruments.
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 models such as interest rate, yield and commodity price curves, forward currency exchange rates, credit spreads, maturity
dates, volatilities and netting arrangements. We use the income approach to value derivatives for foreign currency options and forwards, interest rate swaps
and fuel 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. We also corroborate our fair value estimates using valuations provided
by our counterparties.
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
The reconciliation of the changes in the carrying amounts of our goodwill, which goodwill has been allocated to our North America and EAA cruise brands,
was as follows (in millions):
North America
Cruise Brands
EAA
Cruise Brands Total
Balance at November 30, 2010 $1,898 $ 1,422 $3,320
Foreign currency translation adjustment - 2 2
Balance at November 30, 2011 1,898 1,424 3,322
Ibero goodwill impairment charge (a) - (153) (153)
Foreign currency translation adjustment - 5 5
Balance at November 30, 2012 $1,898 $1,276 $3,174
(a) At February 29, 2012, given the current state of the Spanish economy and considering the low level of Ibero estimated fair value in excess of its carrying
value, we performed an interim impairment review of Ibero’s goodwill. The interim discounted future cash flow analysis that was used to estimate
Ibero’s fair value was primarily impacted by slower than anticipated Ibero capacity growth. As a result, Ibero’s estimated fair value no longer exceeded
its carrying value. Accordingly, we proceeded to step two of the impairment test and recognized a goodwill impairment charge of $153 million during the
first quarter of 2012, which represented Ibero’s entire goodwill balance. At November 30, 2012, accumulated goodwill impairment charges were $153
million.
F-18