Carnival Cruises 2011 Annual Report Download - page 26

(d) At November 30, 2010, we had foreign currency options totaling $785 million that were designated as
foreign currency cash flow hedges for certain of our euro-denominated shipbuilding contracts. These foreign
currency options matured in 2011.
(e) At November 30, 2011 and 2010, we had foreign currency forwards totaling $183 million and $352 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.
(f) 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, 2011 and 2010, these interest rate swap agreements effectively changed $510 million and
$512 million, respectively, of fixed rate debt to U.S. dollar LIBOR or GBP LIBOR-based floating rate debt.
These interest rate swaps mature through June 2012. 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, 2011 and 2010, these interest rate swap agreements
effectively changed $320 million and $333 million, respectively, of EURIBOR-based floating rate euro debt
to fixed rate debt. These interest rate swaps mature through February 2022.
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 models such as interest rate, yield
and commodity price curves, forward currency exchange rates, credit spreads, maturity dates, volatilities and
netting arrangements. We use the income approach to value derivatives for foreign currency options and
forwards, interest rate swaps and fuel 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. We also corroborate our fair value estimates using
valuations provided by our counterparties.
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
The reconciliation of the changes in the carrying amounts of our goodwill, which goodwill has been allocated to
our North America and EAA cruise brands, was as follows (in millions):
North America
Cruise Brands
EAA
Cruise Brands Total
Balance at November 30, 2009 .................................. $1,898 $1,553 $3,451
Foreign currency translation adjustment ........................... - (131) (131)
Balance at November 30, 2010 .................................. 1,898 1,422 3,320
Foreign currency translation adjustment ........................... - 2 2
Balance at November 30, 2011 .................................. $1,898 $1,424 $3,322
As of July 31, 2011, 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 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, include 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
13%, and terminal values, which are all considered level 3 inputs.
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