Royal Caribbean Cruise Lines 2012 Annual Report Download - page 92

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
and were reported within other income (expense)
in our consolidated statements of comprehensive
income (loss). We deferred a loss of $10.8 million
within accumulated other comprehensive income
(loss) and a gain of $1.7 million within property and
equipment, net for the terminated contracts. During
the fourth quarter of 2012, we began recognition of
the net deferred loss of $9.1 million to depreciation
expense over the estimated useful life of the vessel.
During 2012, we entered into foreign currency collar
options to hedge a portion of our foreign currency
exposure on the construction contract price of
Anthem of the Seas. These foreign currency collar
options are accounted for as cash flow hedges and
mature in April 2015.
During 2012, we terminated our cross currency swap
agreements that effectively changed €150.0 million
of our €1.0 billion unsecured senior notes which bear
interest at a fixed rate of 5.625%, to $190.9 million
with a fixed rate of 6.68%. We received net cash pro-
ceeds of approximately $9.1 million and deferred a
loss of $2.6 million within accumulated other compre-
hensive income (loss) which we will recognize within
interest expense, net of capitalized interest over the
remaining life of the debt.
On a regular basis, we enter into foreign currency
forward contracts to minimize the volatility resulting
from the remeasurement of net monetary assets and
liabilities denominated in a currency other than our
functional currency or the functional currencies of our
foreign subsidiaries. During 2012, we maintained an
average of approximately $334.7 million of these for-
eign currency forward contracts. These instruments
are not designated as hedging instruments. Changes
in the fair value of the foreign currency forward con-
tracts, of approximately $7.7 million, are recognized in
earnings within other income (expense) in our consoli-
dated statements of comprehensive income (loss).
The notional amount of outstanding foreign exchange
contracts including our forward contracts, cross
currency swap agreements and collar options as of
December 31, 2012 and December 31, 2011 was $1.2
billion and $0.9 billion, respectively.
Non-Derivative Instruments
We consider our investments in our foreign operations
to be denominated in relatively stable currencies and
of a long-term nature. We partially address the expo-
sure of our investments in foreign operations by
denominating a portion of our debt in our subsidiaries’
and investments’ functional currencies and designating
it as a hedge of these subsidiaries and investments.
We had assigned debt as a hedge of our net invest-
ments in Pullmantur and TUI Cruises of approximately
€481.7 million and €665.0 million, or approximately
$635.1 million and $863.2 million, through December
31, 2012 and 2011, respectively.
Fuel Price Risk
Our exposure to market risk for changes in fuel prices
relates primarily to the consumption of fuel on our
ships. We use fuel swap agreements and fuel call
options to mitigate the financial impact of fluctuations
in fuel prices.
Our fuel swap agreements are accounted for as cash
flow hedges. At December 31, 2012, we have hedged
the variability in future cash flows for certain fore-
casted fuel transactions occurring through 2016. As
of December 31, 2012 and 2011, we had entered into
the following fuel swap agreements:
Fuel Swap Agreements
As of
December 31,
2012
As of
December 31,
2011
(metric tons)
 — 
  
  
  
  —
Fuel Swap Agreements
Projected fuel purchases
for year:
As of
December 31,
2012
As of
December 31,
2011
(% hedged)
  
  
  
  
  —
At December 31, 2012 and 2011, $47.2 million and
$78.5 million, respectively, of estimated unrealized net
gains associated with our cash flow hedges pertaining
to fuel swap agreements were expected to be reclas-
sified to earnings from other accumulated compre-
hensive (loss) income within the next twelve months.
Reclassification is expected to occur as the result of
fuel consumption associated with our hedged fore-
casted fuel purchases.
During 2012, we terminated our remaining fuel call
options by selling offsetting fuel call options. We
received net cash proceeds of approximately $10.7
million upon termination. Subsequent to the term-
ination, neither the original nor the offsetting fuel
call options are designated as hedging instruments
and changes in their fair value are recognized in earn-
ings immediately and are reported in other income
(expense) in our consolidated statements of compre-
hensive income (loss).