Royal Caribbean Cruise Lines 2014 Annual Report Download - page 94

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Royal Caribbean Cruises Ltd. 93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
We enter into foreign currency forward contracts, col-
lar options and cross currency swap agreements to
manage portions of the exposure to movements in
foreign currency exchange rates. As of December 31,
2014, the aggregate cost of our ships on order was
approximately $5.0 billion, of which we had deposited
$394.4 million as of such date. Approximately 28.8%
and 36.3% of the aggregate cost of the ships under
construction was exposed to fluctuations in the Euro
exchange rate at December 31, 2014 and 2013, respec-
tively. The majority of our foreign currency forward
contracts, collar options and cross currency swap
agreements are accounted for as cash flow, fair value
or net investment hedges depending on the designa-
tion of the related hedge.
During 2013, we entered into foreign currency for-
ward contracts to hedge €365.0 million of our €745.0
million 5.625% unsecured senior notes due January
2014. These foreign currency forward contracts were
accounted for as cash flow hedges and matured
January 2014.
On a regular basis, we enter into foreign currency
forward contracts and, from time to time, we utilize
cross-currency swap agreements to minimize the vol-
atility resulting from the remeasurement of net mone-
tary assets and liabilities denominated in a currency
other than our functional currency or the functional
currencies of our foreign subsidiaries. During 2014,
we maintained an average of approximately $474.0
million of these foreign currency forward contracts.
These instruments are not designated as hedging
instruments. In 2014, 2013 and 2012 changes in the
fair value of the foreign currency forward contracts
were (losses) gains of approximately $(48.6) million,
$(19.3) million and $7.7 million, respectively, which
offset gains (losses) arising from the remeasurement
of monetary assets and liabilities denominated in for-
eign currencies in those same years of $49.5 million,
$13.4 million and $(11.8) million, respectively. These
changes were recognized in earnings within Other
income (expense) in our consolidated statements
of comprehensive income (loss).
We consider our investments in our foreign operations
to be denominated in relatively stable currencies and
of a long-term nature. In January 2014, we entered into
foreign currency forward contracts and designated
them as hedges of a portion of our net investments
in Pullmantur and TUI Cruises of €415.6 million, or
approximately $502.9 million, based on the exchange
rate at December 31, 2014. These forward currency
contracts mature in April 2016.
The notional amount of outstanding foreign exchange
contracts, including our forward contracts and collar
options, as of December 31, 2014 and 2013 was $3.0
billion and $2.5 billion, respectively.
Non-Derivative Instruments
We also 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 designated debt
as a hedge of our net investments in Pullmantur and
TUI Cruises of approximately €139.4 million and
€544.9 million, or approximately $168.7 million and
$750.8 million, through December 31, 2014 and 2013,
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, 2014, we have hedged
the variability in future cash flows for certain fore-
casted fuel transactions occurring through 2018. As
of December 31, 2014 and 2013, we had the following
outstanding fuel swap agreements:
Fuel Swap Agreements
Asof
December

Asof
December

(metric tons)
 — 
  
  
  
  —
Fuel Swap Agreements
Projected fuel purchases
for year:
Asof
December

Asof
December

(% hedged)
 — 
  
  
  
  —
At December 31, 2014 and 2013, $(223.1) million and
$9.5 million, respectively, of estimated unrealized
net (loss) gain associated with our cash flow hedges
pertaining to fuel swap agreements were expected to
be reclassified to earnings from Accumulated other
comprehensive (loss) income within the next twelve
months. Reclassification is expected to occur as the
result of fuel consumption associated with our hedged
forecasted fuel purchases.