Carnival Cruises 2009 Annual Report Download - page 26

We also performed our annual trademark impairment reviews as of July 31, 2009, by comparing the
estimated fair values of our trademarks to their carrying values. The cruise brands that have trademark amounts
recorded are AIDA, Ibero, P&O Cruises, P&O Cruises Australia and Princess. The estimated fair values for each
of our trademarks exceeded their respective carrying values and, therefore, none of our trademarks were
impaired. We estimated fair values based upon a discounted future cash flow analysis, which estimated the
amount of royalties that we are relieved from having to pay for use of the associated trademarks, based upon
forecasted cruise revenues. The royalty rates are primarily based upon comparable royalty agreements used in
similar industries.
We do not believe there have been any events or circumstances subsequent to July 31, 2009, which would
require us to perform interim goodwill or trademark impairment reviews, except for the interim goodwill review
we performed at Ibero as of September 30, 2009 because of a one-year acceleration of a ship transfer into
Ibero. Based on this interim review, none of Ibero’s $173 million of goodwill was considered impaired. We will
continue to monitor the status of our Ibero operation since the Spanish economy and Spanish consumers’ demand
for vacations are among the most challenging in Europe.
The determination of our cruise line reporting unit fair values include numerous uncertainties. We believe
that we have made reasonable estimates and judgments in determining whether our goodwill and trademarks
have been impaired. However, if there is a material change in assumptions used in our determination of fair
values or if there is a material change in the conditions or circumstances influencing fair values, we could be
required to recognize a material impairment charge.
Changes to our goodwill carrying amounts since November 30, 2007 were substantially all due to changes
resulting from using different foreign currency translation rates at each balance sheet date.
Derivative Instruments and Hedging Activities
In March 2008, the Financial Accounting Standards Board (“FASB”) issued a statement which requires
entities to provide greater transparency in interim and annual financial statements about how and why the entity
uses derivative instruments, how the instruments and related hedged items are accounted for, and how the
instruments and related hedged items affect the financial position, results of operations, and cash flows of the
entity. We adopted this new statement effective December 1, 2008.
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 in
order to achieve a desired proportion of floating and fixed rate debt. Our policy is to not use any financial
instruments for trading or other speculative purposes.
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 designated as 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 designated as a cash flow hedge, then the effective portion of the changes in the fair value
of the derivative are recognized as a component of 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 operation, 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 hedging relationships for all derivative and nonderivative hedges and the underlying hedged items, as
well as our risk management objectives and strategies for undertaking the hedge transactions.
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