Royal Caribbean Cruise Lines 2002 Annual Report Download - page 39

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ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11. FINANCIAL INSTRUMENTS
The estimated fair values of our financial instruments are as follows:
(in thousands) 2002 2001
Cash and Cash Equivalents $ 242,584 $ 727,178
Long-Term Debt (including current portion of long-term debt) (5,039,646) (5,031,858)
Foreign Currency Forward Contracts gains (losses) 37,376 (99,110)
Interest Rate Swap Agreements in a net receivable position 62,835 35,668
Fuel Swap and Zero Cost Collar Agreements in a net
receivable (payable) position 7,491 (7,799)
The reported fair values are based on a variety of factors and assumptions. Accordingly, the fair
values may not represent actual values of the financial instruments that could have been real-
ized as of December 31, 2002 or 2001 or that will be realized in the future and do not include
expenses that could be incurred in an actual sale or settlement. The following methods were
used to estimate the fair values of our financial instruments, none of which are held for trading
or speculative purposes:
CASH AND CASH EQUIVALENTS
The carrying amounts of cash and cash equivalents approximate their fair values due to the
short maturity of these instruments.
LONG-TERM DEBT
The fair values of our Senior Notes, Senior Debentures, Liquid Yield Option™ Notes and Zero
Coupon Convertible Notes were estimated by obtaining quoted market prices. The fair values
of all other debt were estimated using discounted cash flow analyses based on market rates
available to us for similar debt with the same remaining maturities.
FOREIGN CURRENCY CONTRACTS
The fair values of our foreign currency forward contracts were estimated using current market
prices for similar instruments. Our exposure to market risk for fluctuations in foreign currency
exchange rates relates to our firm commitments on ship construction contracts and forecasted
transactions. We use foreign currency forward contracts to mitigate the impact of fluctuations
in foreign currency exchange rates. As of December 31, 2002, we had foreign currency forward
contracts in a notional amount of $488.0 million maturing through 2003. Our foreign currency
forward contracts related to firm commitments on ships under construction had aggregate unre-
alized gains of approximately $31.0 million and unrealized losses of approximately $99.3 million
at December 31, 2002 and 2001, respectively. Approximately $6.4 million of unrealized gains
on our foreign currency forward contracts related to forecasted transactions were deferred at
December 31, 2002 and, if realized, will be recorded in earnings when the transactions being
hedged are recognized in 2003. Deferred gains from hedging forecasted transactions were not
material at December 31, 2001.
INTEREST RATE SWAP AGREEMENTS
The fair values of our interest rate swap agreements were estimated based on quoted market
prices for similar or identical financial instruments to those we hold. Our exposure to market risk
for changes in interest rates relates to our long-term debt obligations and our operating lease
for
Brilliance of the Seas . We enter into interest rate swap agreements to modify our exposure
to interest rate movements and to manage our interest expense and rent expense.