Carnival Cruises 2014 Annual Report Download - page 29

Financial Instruments that are Measured at Fair Value on a Recurring Basis
The estimated fair value and basis of valuation of our financial instrument assets and liabilities that are measured
at fair value on a recurring basis were as follows (in millions):
November 30, 2014 November 30, 2013
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Cash equivalents (a) ......................... $ 91 $ - $ - $113 $ - $ -
Restricted cash (b) .......................... 19 - - 28 - -
Marketable securities held in rabbi trusts (c) ...... 113 9 - 113 10 -
Derivative financial instruments (d) ............ - 14 - - 60 -
Long-term other asset (e) ..................... - - 20 - - 17
Total ................................... $223 $ 23 $20 $254 $70 $17
Liabilities
Derivative financial instruments (d) ............ $ - $278 $ - $ - $31 $ -
Total ................................... $ - $278 $ - $ - $31 $ -
(a) Cash equivalents are comprised of money market funds.
(b) The majority of restricted cash is comprised of money market funds.
(c) At November 30, 2014 and 2013, marketable securities held in rabbi trusts were comprised of Level 1
bonds, frequently-priced mutual funds invested in common stocks, money market funds and Level 2 other
investments. Their use is restricted to funding certain deferred compensation and non-qualified U.S. pension
plans.
(d) See “Derivative Instruments and Hedging Activities” section below for detailed information regarding our
derivative financial instruments.
(e) Long-term other asset is comprised of an auction-rate security. The fair value was based on a broker quote
in an inactive market, which is considered a Level 3 input. During 2014, there were no purchases or sales
pertaining to this auction-rate security and, accordingly, the change in its fair value was based solely on the
strengthening of the underlying credit.
We measure our derivatives using valuations that are calibrated to the initial trade prices. Subsequent valuations
are based on observable inputs and other variables included in the valuation models such as interest rate, yield
and commodity price curves, forward currency exchange rates, credit spreads, maturity dates, volatilities and
netting arrangements. We use the income approach to value derivatives for foreign currency options and
forwards, interest rate swaps and fuel derivatives using observable market data for all significant inputs and
standard valuation techniques to convert future amounts to a single present value amount, assuming that
participants are motivated, but not compelled to transact. We also corroborate our fair value estimates using
valuations provided by our counterparties.
Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis
Sales and Impairments of Ships
In November 2014, we sold the 672-passenger capacity Ocean Princess for a total gain of $24 million, of which
$14 million was recognized in the fourth quarter of 2014 as a reduction in other ship operating expenses. We
provided $66 million of financing to the buyer, which is due in semi-annual installments through November
2019. Prior to the ship’s delivery in March 2016, we will continue to operate it under a bareboat charter
agreement. As a result of the sale-leaseback accounting for this transaction, the remaining gain of $10 million
will be recognized as a reduction in other ship operating expenses over the term of the bareboat charter
agreement through March 2016.
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