Carnival Cruises 2008 Annual Report Download - page 66

F-7
We review our long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of these assets may not be fully recoverable.
The assessment of possible impairment is based on our ability to recover the carrying value
of our asset based on our estimate of its undiscounted future cash flows. If these estimated
undiscounted future cash flows are less than the carrying value of the asset, an impairment
charge is recognized for the excess, if any, of the asset's carrying value over its estimated
fair value.
Goodwill and Trademarks
We review our goodwill for impairment annually, and, when events or circumstances
dictate, more frequently. All of our goodwill has been allocated to our cruise reporting
units. The significant changes to our goodwill carrying amounts since November 30, 2006 were
the changes resulting from using different foreign currency translation rates at each balance
sheet date, the addition of $161 million of Ibero goodwill in fiscal 2007 (see Note 15), and
the $20 million reduction to goodwill in fiscal 2006 resulting from the favorable resolution
of certain P&O Princess Cruises plc's ("P&O Princess") tax contingency liabilities that
existed at the time of the DLC transaction.
Our goodwill impairment reviews consist of a two-step process. The first step is to
determine the fair value of the reporting unit and compare it to the carrying value of the
net assets allocated to the reporting unit. Fair values of our reporting units were
determined based on our estimates of market values. If this fair value exceeds the carrying
value no further analysis or goodwill write-down is required. The second step is required if
the fair value of the reporting unit is less than the carrying value of the net assets. In
this step the implied fair value of the reporting unit is allocated to all the underlying
assets and liabilities, including both recognized and unrecognized tangible and intangible
assets, based on their fair values. If necessary, goodwill is then written-down to its
implied fair value.
The costs of developing and maintaining our trademarks are expensed as incurred. For
certain of our acquisitions we have allocated a portion of the purchase prices to the
acquiree's identified trademarks. Trademarks are estimated to have an indefinite useful life
and, therefore, are not amortizable, but are reviewed for impairment annually, and, when
events or circumstances dictate, more frequently. Our trademarks would be considered impaired
if their carrying value exceeds their estimated fair value.
Our annual goodwill and trademark impairment reviews are performed as of July 31st of
each year. We determined that we had no goodwill or trademark impairments as of July 31,
2008, 2007 and 2006. Subsequent to July 31, 2008, we do not believe there have been any
events or circumstances that would require us to perform interim goodwill or trademark
impairment reviews.
Derivative Instruments and Hedging Activities
We utilize derivative and nonderivative financial instruments, such as foreign currency
forwards, options and swaps, foreign currency debt obligations and foreign currency cash
balances, to manage our exposure to fluctuations in foreign currency exchange rates, and
interest rate swaps to manage our interest rate exposure to achieve a desired proportion of
variable and fixed rate debt (see Notes 5 and 10).
All derivatives are recorded at fair value, and the changes in fair value are
immediately included in earnings if the derivatives do not qualify as effective hedges. If a
derivative is a fair value hedge, then changes in the fair value of the derivative are offset
against the changes in the fair value of the underlying hedged item. If a derivative is a
cash flow hedge, then the effective portion of the changes in the fair value of the
derivative are recognized as a component of accumulated other comprehensive income ("AOCI")
until the underlying hedged item is recognized in earnings or the forecasted transaction is
no longer probable of occurring. If a derivative or a nonderivative financial instrument is
designated as a hedge of our net investment in a foreign subsidiary, then changes in the fair
value of the financial instrument are recognized as a component of AOCI to offset a portion
of the change in the translated value of the net investment being hedged, until the
investment is sold or liquidated. We formally document all hedging relationships for all