Royal Caribbean Cruise Lines 2008 Annual Report Download - page 70

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-15 Royal Caribbean Cruises Ltd.
Hedge of Net Investment in a Foreign Operation
In 2006, in conjunction with our acquisition of Pullmantur, we obtained
a bridge loan with a notional amount of `750.0 million, or approxi-
mately $960.5 million, of which we drew `701.0 million, or approximately
$925.1 million, to finance the acquisition. We designated a portion
of this bridge loan, approximately `478.8 million, or approximately
$631.8 million, as a nonderivative hedge of our net investment in
Pullmantur and, accordingly, included approximately $18.7 million of
foreign-currency transaction losses in the foreign currency translation
adjustment component of accumulated other comprehensive loss at
December 31, 2006.
In 2007, prior to repaying the bridge loan, we included approximately
$12.7 million of foreign-currency transaction gains in the foreign
currency translation adjustment component of accumulated other
comprehensive (loss) income.
Prior to the repayment of the bridge loan, we issued `1.0 billion
unsecured senior notes to refinance the acquisition of Pullmantur and
to repay amounts under our $1.2 billion revolving credit facility. During
2008 and 2007, we designated a portion of the `1.0 billion unsecured
senior notes as a nonderivative hedge of our net investment in Pull-
mantur. The designated portion was approximately `393.0 million and
`466.0 million, or approximately $549.1 million and $679.9 million at
December 31, 2008 and 2007, respectively. During 2008 and 2007,
we included approximately $23.2 million and $76.7 million of foreign-
currency transaction losses, respectively, related to the `1.0 billion
unsecured senior notes in the foreign currency translation adjust-
ment component of accumulated other comprehensive loss.
NOTE 15.
FAIR VALUE MEASUREMENTS
The Company uses quoted prices in active markets when available to
determine the fair value of its financial instruments and does not hold
them for trading or other speculative purposes. The estimated fair value
of our financial instruments that are not measured at fair value on a
recurring basis are as follows (in thousands):
2008 2007
Long-term debt (including current portion
of long-term debt) $5,132,547 $5,558,984
In addition as discussed in Note 2, Summary of Significant Accounting
Policies, we adopted the provisions of SFAS 157, “Fair Value Measure-
ments” effective January 1, 2008. SFAS 157 defines fair value, establishes
a formal framework for measuring fair value and expands disclosures
about fair value measurements.
The following table presents information about the Company’s financial instruments recorded at fair value on a recurring basis as of December 31, 2008,
segregated among the appropriate levels within the fair value hierarchy:
Fair Value Measurements
at December 31, 2008 Using
Description Total Level 1 Level 2 Level 3
Assets:
Derivative financial instruments
1
$284,175 $ – $284,175 $ –
Investments
2
14,238 14,238 – –
Total Assets $298,413 $14,238 $284,175 $ –
Liabilities:
Derivative financial instruments
3
$360,941 $ – $360,941 $ –
Total Liabilities $360,941 $ – $360,941 $ –
1 Consists of foreign currency forward contracts and interest rate, cross currency and fuel swaps.
2 Consists of exchange-traded equity securities and mutual funds.
3 Consists of fuel swaps and foreign currency forward contracts.
The reported fair values are based on a variety of factors and assump-
tions. Accordingly, the fair values may not represent actual values of the
financial instruments that could have been realized as of December 31,
2008 or 2007, or that will be realized in the future and do not include
expenses that could be incurred in an actual sale or settlement.
Our exposure under foreign currency contracts, interest rate and fuel
swap agreements is limited to the cost of replacing the contracts in the
event of non-performance by the counterparties to the contracts, all
of which are currently our lending banks. To minimize this risk, we select
counterparties with credit risks acceptable to us and we limit our
exposure to an individual counterparty. Furthermore, all foreign cur-
rency forward contracts are denominated in relatively stable currencies.
Long-Term Debt
The fair values of our senior notes and senior debentures were estimated
by obtaining quoted market prices. The fair values of all other debt were
estimated using the present value of expected future cash flows.
Other Financial Instruments
The carrying amounts of all other financial instruments approximate fair
value at December 31, 2008 and 2007.