Carnival Cruises 2010 Annual Report Download - page 54

Foreign Currency Exchange Rate Risks
Operational and Investment Currency Risks
We have $352 million of foreign currency forwards that are designated as hedges of our net investments in
foreign operations, which have a euro-denominated functional currency, thus partially offsetting this foreign
currency exchange rate risk. Based upon a 10% hypothetical change in the U.S. dollar compared to the euro as of
November 30, 2010, assuming no changes in comparative interest rates, we estimate that these foreign currency
forwards’ fair values would change by $35 million, which would be offset by a corresponding change of $35
million in the U.S. dollar value of our net investments. In addition, based upon a 10% hypothetical change in the
U.S. dollar compared to the euro, sterling and Australian dollar, which are the functional currencies that we
translate into our U.S. dollar reporting currency, assuming no changes in comparable interest rates, we estimate
that our 2011 full year December 21, 2010 guidance would change by approximately $195 million.
Newbuild Currency Risk
During May 2010, we entered into foreign currency options that are designated as cash flow hedges of the
remaining Carnival Magic euro-denominated shipyard payments. The options mature in April 2011, at a
weighted-average ceiling rate of $1.36 to the euro, or $593 million, and a floor of $1.26 to the euro, or $548
million. If the spot rate is in between these two amounts on the date of delivery, then we would not owe or
receive any payments under any of these options.
During June 2010, we entered into foreign currency options that are designated as a cash flow hedge of the final
Seabourn Quest euro-denominated shipyard payment that matures in May 2011 at a ceiling of $1.23 to the euro,
or $192 million, and a floor of $1.18 to the euro, or $185 million. If the spot rate is in between these two amounts
on the date of delivery, then we would not owe or receive any payments under these options.
Based upon a 10% hypothetical change in the U.S. dollar compared to the euro as of November 30, 2010,
assuming no changes in comparative interest rates, the estimated fair value of all these foreign currency options
would change by approximately $59 million, which would be offset by a corresponding change of approximately
$59 million in the U.S. dollar value of the related foreign currency ship construction contracts and result in no net
impact to us.
At November 30, 2010, we have two 3,560-passenger capacity ships with a total euro-denominated aggregate
remaining cost of approximately $1.3 billion and contracted for delivery in May 2013 and May 2014. We have
not entered into any foreign currency contracts to hedge these ships’ currency risk. Therefore, the cost of each of
these ships will increase or decrease based upon changes in the exchange rate until the payments are made under
the shipbuilding contract or we enter into a foreign currency hedge. Based on a 10% hypothetical change in the
U.S. dollar compared to the euro as of November 30, 2010, assuming no changes in comparative interest rates,
the unpaid cost of these ships would have a corresponding change of approximately $130 million.
Interest Rate Risks
At November 30, 2010, we have interest rate swaps that effectively changed (1) $512 million of fixed rate debt to
U.S. dollar LIBOR and GBP LIBOR-based floating rate debt and (2) $333 million of EURIBOR-based floating
rate euro debt to fixed rate euro debt. Based upon a hypothetical 10% change in the November 30, 2010 market
interest rates, assuming no change in currency exchange rates, the fair value of all our debt and related interest
rate swaps would change by approximately $140 million. In addition, based upon a hypothetical 10% change in
the November 30, 2010 interest rates, our annual interest expense on floating rate debt, including the effect of our
interest rate swaps, would change by an insignificant amount.
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