Carnival Cruises 2009 Annual Report Download - page 28

$319 million of cumulative foreign currency transaction gains in the cumulative translation adjustment
component of AOCI at November 30, 2009 and 2008, respectively, which offsets a portion of the gains and
losses recorded in AOCI upon translating our foreign operations’ net assets into U.S. dollars.
Newbuild Currency Risk
More than 60% of our newbuild capacity on order at November 30, 2009 is for those of our European or
North American brands for which we do not have significant currency risk because all of these ships are
contracted for in euros or U.S. dollars, which are the functional currencies of these brands. However, our U.S.
dollar and sterling functional currency brands have foreign currency exchange rate risks related to our
outstanding or possible future commitments under ship construction contracts denominated in euros. These
foreign currency commitments are affected by fluctuations in the value of the functional currency as compared to
the currency in which the shipbuilding contract is denominated. We use foreign currency contracts and have used
nonderivative financial instruments to manage foreign currency exchange rate risk for some of our ship
construction contracts. Accordingly, changes in the fair value of these foreign currency contracts offset changes
in the fair value of the foreign currency denominated ship construction commitments, thus resulting in the
elimination of such risk.
Our decisions regarding whether or not to hedge a given ship commitment for our North American and UK
brands are made on a case-by-case basis, taking into consideration the amount and duration of the exposure,
market volatility, exchange rate correlation, economic trends and other offsetting risks.
The cost of shipbuilding orders that we may place in the future for our cruise lines that generate their cash
flows in a currency that is different than the shipyard’s operating currency, which is generally the euro, is
expected to be affected by foreign currency exchange rate fluctuations. Given the movement in the U.S. dollar
and sterling relative to the euro over the past several years, the U.S. dollar and sterling cost to order new cruise
ships has been volatile. If the U.S. dollar or sterling declines against the euro, this may affect our desire to order
future new cruise ships for U.S. dollar or sterling functional currency brands.
Interest Rate Risks
We manage our exposure to fluctuations in interest rates through our investment and debt portfolio
management strategies. These strategies include purchasing high quality short-term investments with floating
interest rates, and evaluating our debt portfolio to make periodic adjustments to the mix of floating and fixed rate
debt through the use of interest rate swaps and the issuance of new debt. At November 30, 2009, 71% and 29%
(74% and 26% at November 30, 2008) of our debt bore fixed and floating interest rates, respectively, including
the effect of interest rate swaps.
Fuel Price Risks
We do not use financial instruments to hedge our exposure to fuel price risks.
Concentrations of Credit Risk
As part of our ongoing control procedures, we monitor concentrations of credit risk associated with financial
and other institutions with which we conduct significant business. Our maximum exposure under foreign
currency contracts and interest rate swap agreements that are in-the-money is the replacement cost, which
includes the value of the contracts, in the event of nonperformance by the counterparties to the contracts, all of
which are currently our lending banks. We seek to minimize credit risk exposure, including counterparty
nonperformance primarily associated with our cash equivalents, investments, committed financing facilities,
contingent obligations, derivative instruments, insurance contracts and new ship progress payment guarantees, by
normally conducting business with large, well-established financial institutions and insurance companies that
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