Carnival Cruises 2014 Annual Report Download - page 51

assuming we had reduced our estimated 30-year ship useful life estimate by one year at the time we took delivery
or acquired each of our ships. In addition, our 2014 ship depreciation expense would have increased by
approximately $205 million assuming we had estimated our ships to have no residual value at the time of their
delivery or acquisition.
We believe that the estimates we made for ship accounting purposes are reasonable and our methods are
consistently applied in all material respects and, accordingly, result in depreciation expense that is based on a
rational and systematic method to equitably allocate the costs of our ships to the periods during which we use
them. In addition, we believe that the estimates we made are reasonable and our methods consistently applied in
all material respects in determining (1) the useful life and residual values of our ships, including ship
improvements; (2) which improvement costs add value to our ships and (3) the net book value of ship component
assets being retired. Finally, we believe our critical ship accounting estimates are generally comparable with
those of other major cruise companies.
Asset Impairments
Impairment reviews of our cruise ships, goodwill and trademarks require us to make significant estimates to
determine the fair values of these assets and cruise brands.
For our cruise ships, we perform our impairment reviews, if required, at the individual cruise ship level, which is
the lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other
assets and liabilities. See Note 10 – “Fair Value Measurements, Derivative Instruments and Hedging Activities”
in the consolidated financial statements for a discussion of ship impairment charges recorded in 2014, 2013 and
2012.
We believe it is more-likely-than-not (“MLTN”) that each of our cruise brands’ estimated fair value that carry
goodwill at November 30, 2014 exceeded their carrying value. We also believe that it is MLTN that the
estimated fair value of each of our cruise brands’ trademarks recorded at November 30, 2014 exceeded their
carrying values. See Note 10 – “Fair Value Measurements, Derivative Instruments and Hedging Activities” in the
consolidated financial statements for additional discussion of our goodwill and trademark impairment reviews.
The determination of fair value includes numerous assumptions that are subject to various risks and uncertainties,
unless a comparable, viable actively-traded market exists, which is usually not the case for cruise ships, cruise
brands and trademarks. Our ships’ fair values are typically estimated based either on ship sales price negotiations
or discounted future cash flows. The principal assumptions used to calculate our discounted future cash flows
include forecasted future operating results over the expected period we believe the ships will have economic
benefit to us and their estimated residual values.
In performing qualitative assessments of our cruise brands that carry goodwill, qualitative factors that we
consider to determine their effect on each of the cruise brand’s estimated fair values include industry and market
conditions, macroeconomic conditions, changes to WACC, overall financial performance, changes in fuel prices
and capital expenditures. In determining the estimated fair values of cruise brands utilizing discounted future
cash flow analysis for our quantitative goodwill impairment tests, significant judgments are made related to
forecasting future operating results, including net revenue yields and net cruise costs including fuel prices;
capacity changes, including the expected rotation of vessels into, or out of, the cruise brand; capital expenditures;
WACC of market participants, adjusted for the risk attributable to the geographic region in which the cruise
brand operates and terminal values. In addition, third-party appraisers are sometimes used to help determine fair
values of cruise brands and trademarks, and their valuation methodologies are also typically subject to
uncertainties similar to those discussed above.
In addition, in performing our qualitative assessments of our cruise brands’ significant trademarks, qualitative
factors that we consider to determine their effect on each of the cruise brand’s recorded trademarks’ estimated
fair values include industry and market conditions, macroeconomic conditions, changes to the WACC, changes
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