Carnival Cruises 2009 Annual Report Download - page 27

We classify the fair value of all our derivative contracts and the fair value of our hedged firm commitments
as either current or long-term, which are included in prepaid expenses and other assets and accrued and other
liabilities, depending on whether the maturity date of the derivative contract is within or beyond one year from
the balance sheet date. The cash flows from derivatives treated as hedges are classified in our accompanying
Consolidated Statements of Cash Flows in the same category as the item being hedged.
The effective portions of our foreign currency derivative gains on cash flow hedges and losses on net
investment hedges recognized in other comprehensive income in fiscal 2009 were $101 million and $49 million,
respectively. We have not provided disclosures of the impact that derivative instruments and hedging activities
have on our financial statements as of and for the year ended November 30, 2009 where such impact is not
significant. There are no amounts excluded from the assessment of hedge effectiveness and there are no credit
risk related contingent features in our derivative agreements. The amount of estimated cash flow hedges’
unrealized gains and losses which are expected to be reclassified to earnings in the next twelve months is not
significant.
Foreign Currency Exchange Rate Risk
Operational and Investment Currency Risk
We manage our exposure to 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. Our focus is to
manage the economic risks faced by our operations, which are the ultimate foreign currency exchange risks that
would be realized by us if we exchanged one currency for another, and not the accounting risks. Accordingly, we
do not currently hedge these accounting risks with financial instruments. The financial impacts of the hedging
instruments we do employ are generally offset by corresponding changes in the underlying exposures being
hedged.
The growth of our European and Australian brands subjects us to an increasing level of foreign currency
translation risk related to the euro, sterling and Australian dollar because these brands generate significant
revenues and incur significant expenses in euro, sterling or the Australian dollar. 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. Any strengthening
of the U.S. dollar against these foreign currencies has the financial statement effect of decreasing the U.S. dollar
values reported for cruise revenues and cruise expenses in our accompanying Consolidated Statements of
Operations. Weakening of the U.S. dollar has the opposite effect.
Most of our brands have non-functional currency risk related to their international sales operations, which
has become an increasingly larger part of most of their businesses over time, and primarily includes the same
currencies noted above, as well as the U.S. and Canadian dollars. In addition, all of our brands have
non-functional currency expenses for a portion of their operating expenses. Accordingly, a weakening of the U.S.
dollar against these currencies results in both increased revenues and increased expenses, and the strengthening
of the U.S. dollar against these currencies has the opposite effect, resulting in some degree of natural offset due
to currency exchange movements within our accompanying Consolidated Statements of Operations for these
transactional currency gains and losses.
We consider our investments in foreign operations to be denominated in relatively stable currencies and of a
long-term nature. We partially address our net investment currency exposures by denominating a portion of our
debt, including the effect of foreign currency forwards and swaps, in our foreign operations’ functional
currencies (generally the euro or sterling). As of November 30, 2009 and 2008, we have designated $2.0 billion
and $1.6 billion of our euro debt and $362 million and $343 million of our sterling debt and other obligations,
respectively, which mature through 2019, as nonderivative hedges of our net investments in foreign
operations. Accordingly, we have included $88 million of cumulative foreign currency transaction losses and
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