Carnival Cruises 2015 Annual Report Download - page 34

At July 31, 2015, our cruise brands that have significant trademarks recorded include AIDA, P&O Cruises
(Australia), P&O Cruises (UK) and Princess. As of that date, we performed our annual trademark impairment
reviews for these cruise brands, which included performing a qualitative assessment for P&O Cruises (UK).
Qualitative factors such as industry and market conditions, macroeconomic conditions, changes to the WACC,
changes in royalty rates and overall financial performance were considered in the qualitative assessment to
determine how changes in these factors would affect the estimated fair value for P&O Cruises (UK)’s recorded
trademarks. Based on our qualitative assessment, we determined it was more likely-than-not that the estimated
fair value for P&O Cruises (UK)’s recorded trademarks exceeded their carrying value and, therefore, none of
these trademarks were impaired.
As of July 31, 2015, we did not perform a qualitative assessment for AIDA’s, P&O Cruises (Australia)’s and
Princess’ trademarks but instead proceeded directly to the quantitative trademark impairment reviews. Our
quantitative assessment included estimating AIDA’s, P&O Cruises (Australia)’s and Princess’ trademarks fair
value 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 and a
market participant’s royalty rate. The royalty rate was estimated primarily using comparable royalty agreements
for similar industries. Based on our quantitative assessments, we determined that the estimated fair values for
AIDA’s, P&O Cruises (Australia)’s and Princess’ trademarks significantly exceeded their carrying values and,
therefore, none of these trademarks were impaired.
The determination of our cruise brand, cruise ship and trademark fair values includes numerous assumptions that
are subject to various risks and uncertainties. We believe that we have made reasonable estimates and judgments
in determining whether our goodwill, cruise ships 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.
At November 30, 2015 and 2014, our intangible assets subject to amortization are not significant to our
consolidated financial statements.
Derivative Instruments and Hedging Activities
We utilize derivative and non-derivative 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 certain foreign currency exchange rates, and interest rate swaps to manage our interest rate
exposure in order to achieve a desired proportion of fixed and floating rate debt. In addition, we utilize our fuel
derivatives program to mitigate a portion of the risk to our future cash flows attributable to potential fuel price
increases, which we define as our “economic risk.” Our policy is to not use any financial instruments for trading
or other speculative purposes.
All derivatives are recorded at fair value. The changes in fair value are recognized currently in earnings if the
derivatives do not qualify as effective hedges, or if we do not seek to qualify for hedge accounting treatment,
such as for our fuel derivatives. 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 is
recognized as a component of AOCI until the underlying hedged item is recognized in earnings or the forecasted
transaction is no longer probable. If a derivative or a non-derivative 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 substantially liquidated. We formally document hedging
relationships for all derivative and non-derivative hedges and the underlying hedged items, as well as our risk
management objectives and strategies for undertaking the hedge transactions.
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