Royal Caribbean Cruise Lines 2013 Annual Report Download - page 96
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On a regular basis, we enter into foreign currency for-
ward 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 2013, we maintained an
average of approximately $406.7 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 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).
The notional amount of outstanding foreign exchange
contracts including our forward contracts and collar
options as of December 31, 2013 and 2012 was $2.5
billion and $1.2 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
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.
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, 2013, we have hedged
the variability in future cash flows for certain fore-
casted fuel transactions occurring through 2017. As
of December 31, 2013 and 2012, we had the following
outstanding fuel swap agreements:
FuelSwapAgreements
Asof
December
Asof
December
(metric tons)
—
—
FuelSwapAgreements
Projected fuel purchases
for year:
Asof
December
Asof
December
(% hedged)
—
—
At December 31, 2013 and 2012, $9.5 million and $47.2
million, respectively, of estimated unrealized net gains
associated with our cash flow hedges pertaining to
fuel swap agreements were expected to be reclassi-
fied to earnings from Accumulated other comprehen-
sive income (loss) within the next twelve months.
Reclassification is expected to occur as the result of
fuel consumption associated with our hedged fore-
casted fuel purchases.