Royal Caribbean Cruise Lines 2013 Annual Report Download - page 64
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PART II
foreign currency denominated monetary assets and
liabilities, we denominate a portion of our debt in our
subsidiaries’ and investments’ functional currencies,
enter into foreign currency forward contracts and
we have historically utilized cross-currency swap
agreements.
During 2012, we entered into foreign currency collar
options to hedge a portion of our foreign currency
exposure on the construction contract price for
Anthem of the Seas. These options mature in April
2015 and have an estimated fair value of $22.2 million
at December 31, 2013. In addition, during 2013, we
entered into foreign currency forward contracts to
hedge €365.0 million of our €745.0 million 5.625%
unsecured senior notes due January 2014. These for-
eign currency forward contracts are accounted for
as cash flow hedges and mature January 2014.
We consider our investments in our foreign operations
to be denominated in relatively stable currencies
and of a long-term nature. We partially mitigate the
exposure 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 designated debt as a hedge of our net invest-
ments in Pullmantur and TUI Cruises of approximately
€544.9 million and €481.7 million, or approximately
$750.8 million and $635.1 million, through December
31, 2013 and 2012, respectively. Accordingly, we have
included approximately $44.4 million and $10.1 million
of foreign-currency transaction losses in the foreign
currency translation adjustment component of Accumu-
lated other comprehensive income (loss) at December
31, 2013 and December 31, 2012, respectively. A hypo-
thetical 10% increase or decrease in the December 31,
2013 Euro exchange rate would increase or decrease
the fair value of our assigned debt by $167.8 million,
which would be offset by a corresponding decrease
or increase in the United States dollar value of our
net investment.
Lastly, on a regular basis, we enter into foreign cur-
rency forward contracts to minimize volatility result-
ing 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 2013, we maintained
an average of approximately $406.7 million of these
foreign currency forward contracts. These instruments
are not designated as hedging instruments. Changes
in the fair value of the foreign currency forward con-
tracts were losses of approximately $19.3 million,
which offset gains arising from the remeasurement
of monetary assets and liabilities denominated in for-
eign currencies of $13.4 million for the year ended
December 31, 2013. Changes in the fair value of the
foreign currency forward contracts were gains of
approximately $7.7 million, which offset losses arising
from the remeasurement of monetary assets and lia-
bilities denominated in foreign currencies of $11.8 mil-
lion for the year ended December 31, 2012. Changes
in the fair value of the foreign currency forward con-
tracts were losses of approximately $1.1 million and
losses arising from the remeasurement of monetary
assets and liabilities denominated in foreign curren-
cies of $1.6 million, which resulted in a total loss of
$2.7 million for the year ended December 31, 2011.
These changes were recognized in earnings within
Other (expense) income in our consolidated state-
ments of comprehensive income (loss).
Fuel Price Risk
Our exposure to market risk for changes in fuel prices
relates primarily 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 reve-
nues, was approximately 11.6% in 2013, 11.8% in 2012
and 10.1% in 2011. We use a range of instruments
including fuel swap agreements and fuel call options
to mitigate the financial impact of fluctuations in
fuel prices.
As of December 31, 2013, we had fuel swap agreements
to pay fixed prices for fuel with an aggregate notional
amount of approximately $1.2 billion, maturing through
2017. The fuel swap agreements represent 57% of our
projected 2014 fuel requirements, 45% of our pro-
jected 2015 fuel requirements, 25% of our projected
2016 fuel requirements and 5% of our projected 2017
fuel requirements. These fuel swap agreements are
accounted for as cash flow hedges. The estimated
fair value of these contracts at December 31, 2013 was
estimated to be an asset of $8.5 million. We estimate
that a hypothetical 10% increase in our weighted-
average fuel price from that experienced during the
year ended December 31, 2013 would increase our
forecasted 2014 fuel cost by approximately $40.9
million, net of the impact of fuel swap agreements.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Our Consolidated Financial Statements and Quarterly
Selected Financial Data are included beginning on
page 70 of this report.