Royal Caribbean Cruise Lines 2013 Annual Report Download - page 93
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The reported fair values are based on a variety of factors and assumptions. Accordingly, the fair values may not
represent actual values of the financial instruments that could have been realized as of December 31, 2013 or
December 31, 2012, or that will be realized in the future, and do not include expenses that could be incurred in an
actual sale or settlement.
The following table presents information about the Company’s goodwill, indefinite-life intangible assets, long-
lived assets for our Pullmantur reporting unit and assets held for sale recorded at fair value on a nonrecurring
basis (in thousands):
FairValueMeasurementsat
DecemberUsing
FairValueMeasurementsat
DecemberUsing
Description
Total
Carrying
Amount
Total
FairValue Level
Total
Impairment
Total
Carrying
Amount
Total
FairValue Level
Total
Impairment
Pullmantur Goodwill(1) — — —
Indefinite-life intangible
asset—Pullmantur
trademarks and
trade names(2) — — —
Long-lived assets—
Pullmantur aircraft(3)
Assets held for sale(4) — — — — — —
() For 2012, we estimated the fair value of the Pullmantur reporting unit 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. Sig-
nificantly impacting these assumptions were the anticipated future transfer of vessels from our other cruise brands to Pullmantur. The discounted
cash flow model used our 2013 projected operating results as a base. To that base we added future years’ cash flows through 2017 assuming multi-
ple revenue and expense scenarios that reflect the impact of different global economic environments for this period on Pullmantur’s reporting
unit. We assigned a probability to each revenue and expense scenario. We discounted the projected cash flows using rates specific to Pullmantur’s
reporting unit based on its weighted-average cost of capital, which was determined to be 10%.
() For 2012, we estimated the fair value of our indefinite-life intangible asset using a discounted cash flow model and the relief-from-royalty method.
We used a royalty rate of 3% based on comparable royalty agreements in the tourism and hospitality industry. These trademarks and trade names
relate to Pullmantur and we have used a discount rate of 11%, comparable to the rate used in valuing the Pullmantur reporting unit.
() We estimated the fair value of our long-lived assets using an undiscounted cash flow model. A significant assumption in performing the undis-
counted cash flow test was the number of years during which we expect to use these aircraft. Additionally, as of December 31, 2013, the expected
operating use of the aircraft has modified the expected cash flows.
() For 2013, we estimated the fair value of assets held for sale related to the sale of Pullmantur’s non-core businesses. This resulted in an impairment
of $20.0 million mostly consisting of $18.2 million for property and equipment. See Note 16. Restructuring and Related Impairment Charges for
further discussion.
The assets related to Pullmantur’s non-core businesses
that met the criteria for held for sale classification as
of December 31, 2013 were adjusted to the lower of
their carrying amount or fair value less cost to sell.
At December 31, 2013, the fair value of certain assets
held for sale was lower than the carrying amount,
resulting in a loss of $20.0 million which was rec-
ognized during the fourth quarter of 2013 and is
reported within Restructuring and related impairment
charges in our consolidated statements of compre-
hensive income (loss). See Note 16. Restructuring and
Related Impairment Charges for further discussion.
In 2013 and 2012, long-lived assets with carrying
amounts of $63.0 million and $116.3 million were
written down to their fair values of $49.5 million and
$62.3 million, respectively, resulting in losses of $13.5
million and $48.9 million, which were recognized dur-
ing the fourth quarter of 2013 and 2012, respectively,
and are reported within Restructuring and related
impairment charges and Impairment of Pullmantur
related assets, respectively, in our consolidated state-
ments of comprehensive income (loss). Long-lived
assets are reported within Property and equipment,
net in our consolidated balance sheets.
In 2012, goodwill and indefinite-life intangible assets
related to Pullmantur with a carrying amount of
$459.1 million and $218.9 million, respectively, were
written down to its implied fair value of $145.5 million
and its fair value of $204.9 million, respectively. The
impairment charges, totaling approximately $336.6
million, were recognized during the fourth quarter of
2012 and are reported within Impairment of Pullmantur
related assets in our consolidated statements of com-
prehensive income (loss). Pullmantur’s goodwill and
indefinite-life intangible assets are reported within
Goodwill and Other assets, respectively, in our consol-
idated balance sheets.