Royal Caribbean Cruise Lines 2012 Annual Report Download - page 79

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Recent Accounting Pronouncements
In July 2012, amended guidance was issued regarding
the periodic impairment testing of indefinite-lived
intangible assets. The new guidance allows an entity
to assess qualitative factors to determine if it is more-
likely-than-not that indefinite-lived intangible assets
might be impaired and, based on this assessment,
whether it is necessary to perform the quantitative
impairment tests. This guidance will be effective for
our annual and interim impairment tests for fiscal
years beginning after September 15, 2012. The adop-
tion of this newly issued guidance will not have an
impact on our consolidated financial statements.
In February 2013, amended guidance was issued over
the presentation of amounts reclassified from accu-
mulated other comprehensive income to net income.
The new guidance requires an entity to present, either
in a single note or parenthetically on the face of the
financial statements, the effect of significant amounts
reclassified from each component of accumulated
other comprehensive income based on its source
(e.g., the release due to cash flow hedges from inter-
est rate contracts) and the income statement line
items affected by the reclassification (e.g., interest
income or interest expense). This guidance must be
applied prospectively and will be effective for our
interim and annual reporting periods beginning after
December 15, 2012. The disclosures will be added to
our future filings when applicable.
NOTE 3. GOODWILL
The carrying amount of goodwill attributable to our Royal Caribbean International and the Pullmantur reporting
units was as follows (in thousands):
Royal
Caribbean
International Pullmantur Other Total
Balance at December 31, 2010    
Foreign currency translation adjustment — ()  ()
Balance at December 31, 2011    
Impairment charge — () — ()
Foreign currency translation adjustment —   
Balance at December 31, 2012    
During the fourth quarter of 2012, we performed a
qualitative assessment of whether it was more-likely-
than-not that our Royal Caribbean International
reporting unit’s fair value was less than its carrying
amount before applying the two-step goodwill
impairment test. The qualitative analysis included
assessing the impact of certain factors such as gen-
eral economic conditions, limitations on accessing
capital, changes in forecasted operating results,
changes in fuel prices and fluctuations in foreign
exchange rates. Based on our qualitative assessment,
we concluded that it was more-likely-than-not that
the estimated fair value of the Royal Caribbean
International reporting unit exceeded its carrying
value as of December 31, 2012 and thus, did not pro-
ceed to the two-step goodwill impairment test. No
indicators of impairment exist primarily because the
reporting unit’s fair value has consistently exceeded
its carrying value by a significant margin, its financial
performance has been solid in the face of mixed
economic environments and forecasts of operating
results generated by the reporting unit appear suffi-
cient to support its carrying value.
In addition, during the fourth quarter of 2012, we per-
formed our annual impairment review of goodwill for
Pullmantur’s reporting unit. We did not perform a
qualitative assessment but instead proceeded directly
to the two-step goodwill impairment test. We esti-
mated the fair value of the Pullmantur reporting unit
using a probability-weighted discounted cash flow
model. The principal assumptions used in the dis-
counted cash flow model are projected operating
results, weighted-average cost of capital, and terminal
value. The discounted cash flow model used our 2013
projected operating results as a base. To that base
we added future years’ cash flows assuming multiple
revenue and expense scenarios that reflect the impact
on Pullmantur’s reporting unit of different global
economic environments beyond 2013. We assigned
a probability to each revenue and expense scenario.
We discounted the projected cash flows using rates
specific to Pullmantur’s reporting unit based on its
weighted-average cost of capital.
The estimation of fair value utilizing discounted
expected future cash flows includes numerous uncer-
tainties which require our significant judgment when
making assumptions of expected revenues, operating
costs, marketing, selling and administrative expenses,
interest rates, ship additions and retirements as well as
assumptions regarding the cruise vacation industry’s
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS