Carnival Cruises 2010 Annual Report Download - page 27

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 net foreign currency derivative (losses) and gains on cash flow hedges recognized in
other comprehensive (loss) income in fiscal 2010 and 2009 totaled $(64) million and $101 million, respectively.
The effective portions of our net foreign currency derivative gains and (losses) on net investment hedges
recognized in other comprehensive (loss) income in fiscal 2010 and 2009 totaled $84 million and $(49) million,
respectively.
In fiscal 2010, we recognized a gain of $18 million on foreign currency forwards that are not designated as
hedges, which we entered into for treasury management purposes. The gain on these foreign currency forwards
included in nonoperating other income was offset by the loss incurred on the remeasurement of a non-functional
currency monetary liability, which was also included in nonoperating other income in the accompanying
Consolidated Statements of Income.
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. We have
not provided additional disclosures of the impact that derivative instruments and hedging activities have on our
financial statements as of November 30, 2010 and 2009 and for the years ended November 30, 2010, 2009 and
2008 where such impacts are not significant.
Foreign Currency Exchange Rate Risk
Overall Strategy
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 primary 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 derivative financial instruments. The
financial impacts of the hedging instruments we do employ generally offset the changes in the underlying
exposures being hedged.
Operational and Investment Currency Risk
The growth of our European and Australian cruise 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 and 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
Income. 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 euro, sterling
and Australian, Canadian and U.S. dollars. In addition, all of our brands have non-functional currency expenses
for a portion of their operating expenses. Accordingly, a strengthening of the U.S. dollar against these non-U.S.
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