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	$	283,723	$	473,383		$	2,222	$	759,328
Foreign currency translation adjustment		—		(14,254	)		1,463		(12,791	)

Balance at December 31, 2011	$	283,723	$	459,129		$	3,685	$	746,537
Impairment charge		—		(319,214	)		—		(319,214	)
Foreign currency translation adjustment		—		5,624			28		5,652

Balance at December 31, 2012	$	283,723	$	145,539		$	3,713	$	432,975

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 general 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 proceed 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 sufficient to support its carrying value.

In addition, during the fourth quarter of 2012, we performed 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 estimated the fair value of the Pullmantur reporting unit using a probability-weighted discounted cash flow model. The principal assumptions used in the discounted 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 uncertainties 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 competitive environment and general economic and business conditions, among other factors. Pullmantur is a brand targeted primarily at the Spanish, Portuguese and Latin American markets and although Pullmantur has diversified its passenger sourcing over the past few years, Spain still represents Pullmantur's largest market. As previously disclosed, during 2012 European economies continued to demonstrate instability in light of heightened concerns over sovereign debt issues as well as the impact of proposed austerity measures on certain markets. The Spanish economy was more severely impacted than many other economies and there is significant uncertainty as to when it will recover. In addition, the impact of the Costa Concordia incident has had a more lingering effect than expected and the impact in future years is uncertain. These factors were identified in the past as significant risks which could lead to the impairment of Pullmantur's goodwill.

More recently, the Spanish economy has progressively worsened and forecasts suggest the challenging operating environment will continue for an extended period of time. The unemployment rate in Spain reached 26% during the fourth quarter of 2012 and is expected to rise further in 2013. The International Monetary Fund, which had projected GDP growth of 1.8% a year ago, revised its 2013 GDP projections downward for Spain to a contraction of 1.3% during the fourth quarter of 2012 and further reduced it to a contraction of 1.5% in January of 2013. During the latter half of 2012 new austerity measures, such as increases to the Value Added Tax, cuts to benefits, the phasing out of exemptions and the suspension of government bonuses, were implemented by the Spanish government. We believe these austerity measures are having a larger impact on consumer confidence and discretionary spending than previously anticipated. As a result, there has been a significant deterioration in bookings from guests sourced from Spain during the 2013 WAVE season. The combination of all of these factors has caused us to negatively adjust our cash flow projections, especially our closer-in Net Yield assumptions and the expectations regarding future capacity growth for the brand.

Based on our updated cash flow projections, we determined the implied fair value of goodwill for the Pullmantur reporting unit was $145.5 million and recognized an impairment charge of $319.2 million. This impairment charge was recognized in earnings during the fourth quarter of 2012 and is reported within Impairment of Pullmantur related assets within our consolidated statements of comprehensive income (loss). There have been no goodwill impairment charges related to the Pullmantur reporting unit in prior periods. See Note 13. Fair Value Measurements and Derivative Instruments for further discussion.

If the Spanish economy weakens further or recovers more slowly than contemplated or if the economies of other markets (e.g. France, Brazil, Latin America) perform worse than contemplated in our discounted cash flow model, or if there are material changes to the projected future cash flows used in the impairment analyses, especially in Net Yields, an additional impairment charge of the Pullmantur reporting unit's goodwill may be required.