Carnival Cruises 2014 Annual Report Download - page 52

in royalty rates and overall financial performance. In determining our trademark estimated fair values for our
quantitative impairment tests, we also use discounted future cash flow analysis, which requires some of the same
significant judgments discussed above. Specifically, determining the estimated amount of royalties that we are
relieved from having to pay for the use of the associated trademarks is based upon forecasted cruise revenues and
a market participant’s royalty rate. The royalty rates are estimated primarily using comparable royalty
agreements for similar industries.
We believe that we have made reasonable estimates and judgments in determining whether our cruise ships,
goodwill and trademarks have been impaired. However, if there is a change in assumptions used or if there is a
change in the conditions or circumstances influencing fair values in the future, then we may need to recognize an
impairment charge.
Contingencies
We periodically assess the potential liabilities related to any lawsuits or claims brought against us, as well as for
other known unasserted claims, including environmental, legal, regulatory, guest and crew and tax matters. In
addition, we periodically assess the recoverability of our trade and other receivables, charter-hire agreements and
other counterparty credit exposures, such as contractual nonperformance by financial and other institutions with
which we conduct significant business. Our credit exposure includes contingent obligations related to cash
payments received directly by travel agents and tour operators for cash collected by them on cruise sales in
Australia and most of Europe where we are obligated to honor our guests’ cruise payments made by them to their
travel agents and tour operators regardless of whether we have received these payments. While it is typically very
difficult to determine the timing and ultimate outcome of these matters, we use our best judgment to determine if
it is probable, or MLTN for income tax matters, that we will incur an expense related to the settlement or final
adjudication of such matters and whether a reasonable estimation of such probable or MLTN loss, if any, can be
made. In assessing probable losses, we make estimates of the amount of probable insurance recoveries, if any,
which are recorded as assets. We accrue a liability and establish a reserve when we believe a loss is probable or
MLTN for income tax matters, and the amount of the loss can be reasonably estimated in accordance with U.S.
generally accepted accounting principles (“U.S. GAAP”). Such accruals and reserves are typically based on
developments to date, management’s estimates of the outcomes of these matters, our experience in contesting,
litigating and settling other similar non-income tax matters, historical claims experience, actuarially determined
estimates of liabilities and any related insurance coverages. See Note 7 – “Contingencies,” Note 8 – “Taxation”
and Note 10 – “Fair Value Measurements, Derivative Instruments and Hedging Activities” in the consolidated
financial statements for additional information concerning our contingencies.
Given the inherent uncertainty related to the eventual outcome of these matters and potential insurance
recoveries, it is possible that all or some of these matters may be resolved for amounts materially different from
any provisions or disclosures that we may have made with respect to their resolution. In addition, as new
information becomes available, we may need to reassess the amount of asset or liability that needs to be accrued
related to our contingencies. All such revisions in our estimates could materially impact our results of operations
and financial position.
Results of Operations
We earn substantially all of our cruise revenues from the following:
– sales of passenger cruise tickets and, in some cases, the sale of air and other transportation to and from
airports near our ships’ home ports and cancellation fees. The cruise ticket price typically includes
accommodations, most meals, some non-alcoholic beverages and most onboard entertainment. We also
collect fees, taxes and other charges from our guests, and
– sales of goods and services primarily onboard our ships not included in the cruise ticket price including
substantially all liquor and some non-alcoholic beverage sales, casino gaming, shore excursions, gift shop
sales, photo sales, communication services, full service spas, specialty themed restaurants, cruise vacation
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