Royal Caribbean Cruise Lines 2008 Annual Report Download - page 65

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Royal Caribbean Cruises Ltd. F-10
acquirer to disclose all information needed to evaluate and understand
the nature and financial effect of the business combination. SFAS 141R
applies to all transactions or other events in which an entity obtains con-
trol of one or more businesses, including combinations achieved without
transfer of consideration, for example, by contract alone or through the
lapse of minority veto rights. SFAS 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning
of the first fiscal year beginning after December 15, 2008. Currently, the
adoption of SFAS 141R is not expected to have a significant impact on
our financial position, results of operations or cash flows. The impact
on future acquisitions by the Company will depend largely on the
nature and terms of such future acquisitions, if any.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling
Interests in Consolidated Financial Statements – An Amendment of
ARB No. 51,” (“SFAS 160”). SFAS 160 requires reporting entities to
present noncontrolling (minority) interests as equity instead of as a
liability or mezzanine equity and provides guidance on the account-
ing for transactions between an entity and noncontrolling interests.
SFAS 160 is effective the first fiscal year beginning after December 15,
2008, and interim periods within that fiscal year. SFAS 160 applies pro-
spectively as of the beginning of the fiscal year SFAS 160 is initially
applied, except for the presentation and disclosure requirements which
are applied retrospectively for all periods presented subsequent to
adoption. The adoption of SFAS 160 will not have a material impact
on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities – An Amendment of
FASB Statement No. 133 (SFAS 133),” (“SFAS 161”). SFAS 161 requires
enhanced disclosures about an entity’s derivative and hedging activities
and thereby improves the transparency of financial reporting. Entities are
required to provide enhanced disclosures about (a) how and why an entity
uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under SFAS 133 and its related inter-
pretations, and (c) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance, and
cash flows. SFAS 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008.
SFAS 161 will be effective for our fiscal year 2009 interim and annual
consolidated financial statements and the relevant disclosures will be
added at such time.
Reclassifications
Reclassifications have been made to prior year amounts to conform to
the current year presentation.
NOTE 3.
BUSINESS COMBINATION
In November 2006, we completed our acquisition of Pullmantur, a
Madrid-based cruise and tour operator. The Pullmantur brand increases
our presence in Spain and provides us with an opportunity to further
grow our business in Europe and Latin America and to increase our
product offerings. Pullmantur also provides us an opportunity for incre-
mental guest, revenue and earnings growth. We purchased all of the
capital stock of Pullmantur for approximately `436.3 million, or approxi-
mately $558.9 million. We include Pullmantur’s results of operations
on a two-month lag to allow for more timely preparation of our
consolidated financial statements.
The acquisition was accounted for as a business purchase combination
using the purchase method of accounting under the provisions of State-
ment of Financial Accounting Standards No. 141, “Business Combi
nations.” The purchase price was allocated to tangible and identifi
able intangible assets acquired and liabilities assumed based on their
estimated fair values at the acquisition date, with the excess allocated
to goodwill. Approximately `352.3 million or $451.4 million was
allocated to goodwill and approximately `189.4 million or $242.6 mil-
lion was allocated to acquired intangible assets.
(in thousands) United States $
Total current assets $ 58,931
Property and equipment (mostly ships) 366,800
Other non-current assets 5,488
Goodwill 451,355
Other intangible assets 242,600
Current portion of long-term debt (14,897)
Other current liabilities (110,520)
Long-term debt (338,700)
Other long-term liabilities (102,109)
Net assets acquired $ 558,948
Of the $242.6 million of acquired intangible assets, approximately
`168.6 million or $216.0 million was assigned to the value associated
with the awareness and reputation of the Pullmantur brand among
its passengers and is considered an indefinite-life intangible asset.
Finite-life intangible assets identified of approximately `20.8 million
or $26.6 million have a weighted-average useful life of approximately
4.8 years. The amount allocated to goodwill was adjusted in 2007
by `20.2 million or approximately $25.9 million as a result of the
finalization of the purchase price allocation to the net assets acquired,
primarily driven by our completion of the fleet valuation.
NOTE 4.
GOODWILL
In 2008, 2007 and 2006, we completed our annual goodwill impair-
ment test and determined there was no impairment. The carrying
amount of goodwill attributable to our Royal Caribbean International
and the Pullmantur reporting units was as follows (in thousands):
Royal
Caribbean
International Pullmantur Total
Balance at December 31, 2006 $283,723 $437,791 $721,514
Foreign currency
translation adjustment – 50,377 50,377
Purchase price adjustments – 25,900 25,900
Balance at December 31, 2007 283,723 514,068 797,791
Foreign currency
translation adjustment – (18,545) (18,545)
Balance at December 31, 2008 $283,723 $495,523 $779,246
We performed the annual impairment review for goodwill during the
fourth quarter of 2008. We determined the fair value of our two reporting
units which include goodwill, Royal Caribbean International and Pullmantur,
using a probability-weighted discounted cash flow model. The principal
assumptions used in the discounted cash flow model are projected
operating results, weighted average cost of capital, and terminal value.
Cash flows were calculated using our 2009 projected operating results
as a base. To that base we added future years’ cash flows assuming
multiple revenue and expense scenarios that reflect the impact on each
reporting unit of different global economic environments beyond 2009.