Royal Caribbean Cruise Lines 2011 Annual Report Download - page 61

PART II
ROYAL CARIBBEAN CRUISES LTD. 57
We partially address the exposure of our investments
in foreign operations by denominating a portion of
our debt in our subsidiaries’ and investments’ func-
tional currencies. Specifically, we have assigned debt
of €665.0 million, or approximately $863.2 million as
a hedge of our net investment in foreign operations.
Accordingly, we have included approximately $13.2
million of foreign-currency transaction gains in the
foreign-currency translation adjustment component
of accumulated other comprehensive income (loss)
at December 31, 2011. A hypothetical 10% increase or
decrease in the December 31, 2011 foreign currency
exchange rate would increase or decrease the fair
value of our assigned debt by $92.1 million, which
would be offset by a corresponding decrease or
increase in the United States dollar value of our net
investment.
Lastly, during 2011, we entered into foreign currency
forward contracts to minimize volatility in earnings
resulting from the remeasurement of net monetary
assets and payables denominated in a currency other
than the United States dollar. On a weekly basis, we
enter into an average of approximately $262.0 million
of these foreign currency forward contracts. These
instruments generally settle on a weekly basis and are
not designated as hedging instruments. Changes in
the fair value of the foreign currency forward con-
tracts are recognized in earnings within other income
(expense) in our consolidated statements of operations.
Fuel Price Risk
Our exposure to market risk for changes in fuel
prices primarily relates to the consumption of fuel
on our ships. Fuel cost (net of the financial impact of
fuel swap agreements), as a percentage of our total
revenues, was approximately 10.1% in 2011, 9.6% in
2010 and 10.2% in 2009. We use a range of instru-
ments including fuel swap agreements and fuel call
options to mitigate the financial impact of fluctuations
in fuel prices. During 2011, we terminated 100% of our
fuel call options maturing in 2011 and 2012 in order to
monetize previously recorded gains pertaining to the
fuel call options’ fair value prior to their expiration.
Upon termination of these options, we recognized a
gain of approximately $7.3 million and received net
cash proceeds of approximately $34.3 million.
As of December 31, 2011, we had fuel swap agreements
to pay fixed prices for fuel with an aggregate notional
amount of approximately $1.1 billion, maturing through
2015. The fuel swap agreements represent 55% of our
projected 2012 fuel requirements, 47% of our projected
2013 fuel requirements, 30% of our projected 2014
fuel requirements and 20% of our projected 2015 fuel
requirements. The estimated fair value of these con-
tracts at December 31, 2011 was estimated to be an
asset of $79.8 million. As of December 31, 2011, we
had fuel call options on a total of 1.0 million barrels
which mature in 2013. The fuel call options represent
9% of our projected 2013 fuel requirements. The esti-
mated fair value of these contracts at December 31,
2011 was an asset of approximately $16.4 million.
We estimate that a hypothetical 10% increase in our
weighted-average fuel price from that experienced
during the year ended December 31, 2011 would
increase our 2012 fuel cost by approximately $42.0
million, net of the impact of fuel swap agreements.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEME NTARY DATA
Our Consolidated Financial Statements and Quarterly
Selected Financial Data are included beginning on
page 65 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS
AND PROCEDURES
Our management, with the participation of our
Chairman and Chief Executive Officer and Executive
Vice President and Chief Financial Officer, conducted
an evaluation of the effectiveness of our disclosure
controls and procedures, as such term is defined in
Exchange Act Rule 13a-15(e), as of the end of the
period covered by this report. Based upon such evalu-
ation, our Chairman and Chief Executive Officer and
Executive Vice President and Chief Financial Officer
concluded that those controls and procedures are
effective to provide reasonable assurance that informa-
tion required to be disclosed by us in the reports that
we file or submit under the Exchange Act is accumu-
lated and communicated to management, including
our Chairman and Chief Executive Officer and our
Executive Vice President and Chief Financial Officer,
as appropriate, to allow timely decisions regarding
required disclosure and are effective to provide rea-
sonable assurance that such information is recorded,
processed, summarized and reported within the time
periods specified by the SEC’s rules and forms.