Carnival Cruises 2007 Annual Report Download - page 25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
22 | CARNIVAL CORPORATION & PLC
Foreign Currency Swaps and Other Hedging
Instruments
At November 30, 2007, we have foreign currency swaps that
are designated as foreign currency fair value hedges for one
of our Euro-denominated shipbuilding contracts and a portion
of another shipbuilding contract (see Note 6). At November 30,
2007 and 2006, the fair value of the foreign currency swaps
related to our shipbuilding commitments was an unrealized
gain of $13 million and an unrealized loss of $26 million,
respectively. These foreign currency swaps mature in 2008.
At November 30, 2007, we have foreign currency swaps
totaling $378 million that are designated as hedges of our
net investments in foreign subsidiaries, which have a Euro-
denominated functional currency. These foreign currency
swaps were entered into to effectively convert U.S. dollar-
denominated debt into Euro debt. At November 30, 2007, we
also have designated foreign currency cash flow swaps that
effectively convert $438 million of fixed interest rate debt into
Sterling fixed interest rate debt. At November 30, 2006, we
have foreign currency swaps totaling $1.25 billion that are
designated as hedges of our net investments in foreign sub-
sidiaries, which have Euro and Sterling-denominated func-
tional currencies. Those foreign currency swaps were entered
into to effectively convert $267 million and $842 million of
U.S. dollar-denominated debt into Sterling debt and Euro debt,
respectively, at November 30, 2006. In addition, $143 million
of Euro-denominated debt was effectively converted into
Sterling debt at November 30, 2006. At November 30, 2007
and 2006, the fair value of these foreign currency swaps was
a net unrealized loss of $26 million and an unrealized loss of
$169 million, respectively, which is included in the cumulative
translation adjustment component of AOCI. These currency
swaps mature through 2019. Finally, at November 30, 2007
we have €296 million of cash equivalents that are designated
as a fair value hedge for a portion of a shipbuilding contract,
which resulted in a $44 million shipbuilding commitment gain
as of that date.
The fair values of these foreign currency swaps were esti-
mated based on prices quoted by financial institutions for
these instruments based on active market prices for these
instruments.
As of November 30, 2007 and 2006 we have designated
$1.89 billion and $1.02 billion of our Euro and $457 million and
$431 million of our Sterling debt and other obligations, respec-
tively, which mature through 2019, as nonderivative hedges of
our net investments in foreign subsidiaries. Accordingly, we
have included $372 million and $209 million of cumulative for-
eign currency transaction losses in the cumulative translation
adjustment component of AOCI at November 30, 2007 and
2006, respectively.
Interest Rate Swaps
We have interest rate swap agreements designated as fair
value hedges whereby we receive fixed interest rate payments
in exchange for making variable interest rate payments. At
November 30, 2007 and 2006, these interest rate swap agree-
ments effectively changed $204 million and $932 million,
respectively, of fixed rate debt to EURIBOR or LIBOR-based
floating rate debt. These interest rate swap agreements mature
through 2010. At November 30, 2007 and 2006, the fair value
of our interest rate swaps designated as fair value hedges
was a net unrealized gain of $3 million and a net unrealized
loss of $4 million, respectively.
We also had interest rate swap agreements designated as
cash flow hedges whereby we received variable interest rate
payments in exchange for making fixed interest rate payments.
At November 30, 2007 and 2006, these interest rate swap
agreements effectively changed $16 million and $365 million,
respectively, of EURIBOR or LIBOR-based floating rate debt
to fixed rate debt. The outstanding interest rate swap agree-
ment matures in 2008. At November 30, 2007 and 2006, the
fair value of our interest rate swaps designated as cash flow
hedges was an unrealized gain of $0.2 million and $2 million,
respectively.
The estimated fair values of our interest rate swap agree-
ments were obtained from valuations performed by financial
institutions based on active market prices for these instruments.