Carnival Cruises 2007 Annual Report Download - page 43

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
40 | CARNIVAL CORPORATION & PLC
In June 2006, the Boards of Directors authorized the repur-
chase of up to an aggregate of $1 billion of Carnival Corporation
common stock and/or Carnival plc ordinary shares subject to
certain restrictions. On September 19, 2007, the Boards of
Directors increased the remaining $578 million authorization
back to $1 billion. The repurchase program does not have
an expiration date and may be discontinued by our Boards
of Directors at any time. The Carnival plc share repurchase
authorization requires annual shareholder approval. During
the 2007 fourth quarter and from December 1, 2007 through
January 28, 2008 we purchased 4.8 million and 1.3 million
ordinary shares of Carnival plc, which are not registered under
Section 12 of the Securities Exchange Act at an average price
of $43.28 and $43.77, respectively, and 0.2 million and 0.6
million shares, respectively of Carnival Corporation common
stock at an average share price of $44.58 and $44.63, respec-
tively. Carnival plc ordinary shares are listed on the London
Stock Exchange. At January 28, 2008 the remaining availabil-
ity pursuant to our repurchase program was $788 million.
At November 30, 2007, as adjusted for the $1.50 billion
short-term revolving credit facilities we entered into in January
2008, we had liquidity of $5.31 billion, which consisted of
$943 million of cash and cash equivalents, $1.08 billion avail-
able for borrowing under our Facility, $1.50 billion under our
short-term revolving credit facilities and $1.78 billion under
committed ship financing facilities. Substantially all of our
Facility matures in 2012. In addition, in June 2007 we entered
into an agreement to sell Cunard Line’s QE2 for delivery to the
buyer in November 2008 for $100 million. A key to our access
to liquidity is the maintenance of our strong credit ratings.
Based primarily on our historical results, current financial
condition and future forecasts, we believe that our existing
liquidity and cash flow from future operations will be sufficient
to fund most of our expected capital projects, debt service
requirements, convertible debt redemptions, dividend pay-
ments, working capital and other firm commitments over the
next several years. In addition, based on our future forecasted
operating results and cash flows for fiscal 2008, we expect
to be in compliance with our debt covenants during 2008.
However, our forecasted cash flow from future operations,
as well as our credit ratings, may be adversely affected by
various factors including, but not limited to, those factors
noted under “Cautionary Note Concerning Factors That May
Affect Future Results.” To the extent that we are required, or
choose, to fund future cash requirements, including our future
shipbuilding commitments, from sources other than as dis-
cussed above, we believe that we will be able to secure such
financing from banks or through the issuance of debt and/or
offering of equity securities in the public or private markets.
However, we cannot be certain that our future operating cash
flow will be sufficient to fund future obligations or that we will
be able to obtain additional financing, if necessary.
OFF-BALANCE SHEET ARRANGEMENTS
We are not a party to any off-balance sheet arrangements,
including guarantee contracts, retained or contingent interests,
certain derivative instruments and variable interest entities,
that either have, or are reasonably likely to have, a current or
future material effect on our financial statements.
FOREIGN CURRENCY EXCHANGE RATE RISKS
Our growing international business operations are con-
ducted primarily through AIDA in Germany, Costa in Southern
Europe and China, Ibero Cruises in Spain, P&O Cruises, Ocean
Village and Cunard in the UK and P&O Cruises Australia in
Australia, which subject us to an increasing level of foreign
currency exchange risk related to the Euro, Sterling and
Australian dollar because these operations have either the
Euro, Sterling or Australian dollar as their functional currency.
Accordingly, exchange rate fluctuations of the Euro, Sterling
or Australian dollar against the U.S. dollar will affect our
reported financial results since the reporting currency for our
consolidated financial statements is the U.S. dollar and the
functional currency for our international operations is generally
the local currency. Any weakening of the U.S. dollar against
these local functional currencies has the financial statement
effect of increasing the U.S. dollar values reported for cruise
revenues and cruise expenses in our Consolidated State-
ments of Operations. Strengthening of the U.S. dollar has
the opposite effect.
We seek to minimize the impact of fluctuations in foreign
currency exchange rates through our normal operating and
financing activities, including netting certain exposures to
take advantage of any natural offsets and, when considered
appropriate, through the use of derivative and nonderivative
financial instruments. The financial impacts of these hedging
instruments are generally offset by corresponding changes
in the underlying exposures being hedged. Our policy is to
not use any financial instruments for trading or other specu-
lative purposes.
One of our primary foreign currency exchange rate risks
is related to our outstanding commitments under ship con-
struction contracts denominated in a currency other than the