Royal Caribbean Cruise Lines 2009 Annual Report Download - page 85

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Reclassifications
Reclassifications have been made to prior year cash flow amounts to conform to the current year presentation.
Note 3. Goodwill
In 2009, 2008 and 2007, we completed our annual goodwill impairment 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):
We performed our annual impairment review for goodwill during the fourth quarter of 2009. 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 2010 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 2010. We assigned a probability to each revenue and expense
scenario.
We discounted the projected cash flows using rates specific to each reporting unit based on their respective weighted-average
cost of capital. Based on the probability-weighted discounted cash flows of each reporting unit we determined the fair values of Royal
Caribbean International and Pullmantur exceeded their carrying values. Therefore, we did not proceed to step two of the impairment
analysis and we do not consider goodwill to be impaired.
In performing our asset impairment analysis, we considered the fact that at December 31, 2009, the book value of our
shareholders’ equity exceeded our market capitalization. We did not consider this to be determinative given that our market
capitalization increased approximately 85% during 2009 and given the still highly uncertain economic outlook of the United States
and other countries in which we operate.
The estimation of fair value utilizing discounted expected future cash flows includes numerous uncertainties which require our
significant judgment when making assumptions of expected revenues, operating costs, marketing, selling and administrative
expenses, interest rates, ship additions and retirements as well as assumptions regarding the cruise vacation industry competition and
general economic and business conditions, among other factors. If there is a material change in the assumptions used in our
determination of fair values or if there is a material change in the conditions or circumstances influencing fair value, we could be
required to recognize a material impairment charge. For example, the Spanish economy has been harder impacted than most other
economies around the world where we trade and there is significant uncertainty as to whether or when it will recover. If that economy
weakens more than contemplated in our discounted cash flow model, that could trigger an impairment charge.
F-12
Royal
Caribbean
International Pullmantur Total
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
Foreign currency translation adjustment
—
13,127 13,127
Balance at December 31, 2009 $283,723 $508,650 $792,373