Royal Caribbean Cruise Lines 2001 Annual Report Download - page 39

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Royal Caribbean Cruises Ltd. 37
FOREIGN CURRENCY EXCHANGE RATE RISK
Our primary exposure to foreign currency exchange rate risk
relates to our firm commitments under two vessel construction
contracts denominated in euros. We enter into foreign
currency forward contracts to manage this risk and were
substantially hedged as of December 31, 2001. The fair value
of our contracts at December 31, 2001, was an unrealized
loss of $99.3 million which is recorded, along with an offsetting
$99.3 million fair value asset related to our vessel construction
contracts, on our accompanying 2001 balance sheet. A hypo-
thetical 10% strengthening of the U.S. dollar as of December 31,
2001, assuming no changes in comparative interest rates,
would result in an $89.5 million decrease in the fair value of
these contracts. This decrease in fair value would be fully offset
by a decrease in the U.S. dollar value of the related foreign
currency denominated vessel construction contracts.
We are also exposed to foreign currency exchange rate
fluctuations on the U.S. dollar value of our foreign currency
denominated forecasted transactions. To manage this expo-
sure, we take advantage of any natural offsets of our foreign
currency revenues and expenses and enter into foreign currency
forward contracts and/or option contracts for a portion of the
remaining exposure related to these forecasted transactions.
Our principal net foreign currency exposure relates to the
Norwegian kroner and the euro. At December 31, 2001, the
estimated fair value of such contracts was an unrealized gain of
approximately $0.2 million based on quoted market prices for
equivalent instruments with the same remaining maturities. A
hypothetical 10% strengthening of the U.S. dollar as of
December 31, 2001, assuming no changes in comparative
interest rates, would decrease the fair value of these contracts
by approximately $6.2 million. This decrease in fair value would
be fully offset by a decrease in the U.S. dollar value of the
forecasted transactions being hedged.
BUNKER FUEL PRICE RISK
Our exposure to market risk for changes in bunker fuel prices
relates to the consumption of fuel on our vessels. Bunker fuel
cost, as a percentage of our revenues, was approximately
3.7% in 2001, 3.3% in 2000 and 2.1% in 1999. We use fuel swap
agreements to mitigate the financial impact of fluctuations in
bunker fuel prices. As of December 31, 2001, we had fuel swap
agreements to pay fixed prices for bunker fuel with an aggre-
gate notional amount of $85.2 million, maturing through 2003.
The fair value of these contracts at December 31, 2001 was an
unrealized loss of $7.8 million. We estimate that a hypothetical
10% increase in our weighted-average bunker fuel price as of
December 31, 2001 would increase our 2002 projected bunker
fuel cost by approximately $16.3 million. This increase would
be partially offset by a $7.5 million increase in the fair value of
our fuel swap agreements.