Carnival Cruises 2010 Annual Report Download - page 25

(a) Cash equivalents are comprised of money market funds.
(b) Level 1 and 2 marketable securities are held in rabbi trusts and are primarily comprised of mutual funds
invested in common stocks and other investments, respectively. Their use is restricted to funding certain
deferred compensation and non-qualified U.S. pension plans.
(c) At November 30, 2010 and 2009, we have foreign currency forwards and options totaling $785 million and
$887 million, respectively, that are designated as foreign currency cash flow hedges for certain of our euro
and sterling-denominated shipbuilding contracts. These foreign currency forwards and options mature
through May 2011.
(d) At November 30, 2010 and 2009, we have foreign currency forwards and swaps totaling $352 million and
$526 million, respectively, that are designated as hedges of our net investments in foreign operations, which
have a euro-denominated functional currency and were principally entered into to convert U.S. dollar-
denominated debt into euro debt. These foreign currency forwards mature through July 2017, and the swaps
matured in March 2010.
(e) We have both U.S. dollar and sterling interest rate swaps designated as fair value hedges whereby we
receive fixed interest rate payments in exchange for making floating interest rate payments. At
November 30, 2010 and 2009, these interest rate swap agreements effectively changed $512 million and
$625 million, respectively, of fixed rate debt to U.S. dollar LIBOR or GBP LIBOR-based floating rate debt.
In addition, we have euro interest rate swaps designated as cash flow hedges whereby we receive floating
interest rate payments in exchange for making fixed interest rate payments. At November 30, 2010, these
interest rate swap agreements effectively changed $333 million of EURIBOR-based floating rate euro debt
to fixed rate debt. These interest rate swaps mature through February 2022.
(f) In December 2008, we settled certain foreign currency swaps for $113 million that were designated as cash
flow hedges that had effectively converted U.S. dollar fixed interest rate debt into sterling fixed interest rate
debt. The settlement re-aligned the debt with the parent company’s U.S. dollar functional currency.
We measure our derivatives using valuations that are calibrated to the initial trade prices. Subsequent valuations
are based on observable inputs and other variables included in the valuation model such as interest rate yield
curves, forward currency exchange rates, credit spreads, maturity dates, volatilities and netting arrangements. We
use the income approach to value the derivatives, using observable market data for all significant inputs and
standard valuation techniques to convert future amounts to a single present value amount, assuming that
participants are motivated, but not compelled to transact.
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
As of July 31, 2010, we performed our annual goodwill impairment reviews by comparing the estimated fair
value of the cruise brand to the carrying value of the net assets allocated to that cruise brand. All of our cruise
brands carry goodwill, except for Ocean Village and Seabourn. No goodwill was considered to be impaired
because the estimated fair value of each cruise brand exceeded its respective carrying value and, accordingly, we
did not proceed to step two of the impairment analysis.
In determining the estimated cruise brand fair values, we considered both their (a) discounted future cash flow
analysis and (b) market multiples of comparable publicly-traded companies. The principal assumptions used in
our cash flow analysis related to forecasting future operating results, including net revenue yields, net cruise
costs including fuel prices, capacity changes, including the expected deployment of vessels into, or out of, the
cruise brand, weighted-average cost of capital for comparable publicly-traded companies, adjusted for the risk
attributable to the cruise brand including the geographic region in which it operates, that ranged from 10% to
12%, and terminal values, which are all considered level 3 inputs.
We believe the estimated fair value for each of our cruise brands that carry goodwill significantly exceeds the
carrying value of their allocated net assets, except for Ibero. At July 31, 2010, Ibero’s estimated fair value only
exceeded its carrying value by 24%, or $141 million. We performed a sensitivity analysis to identify the
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