Carnival Cruises 2003 Annual Report Download - page 26

23Carnival Corporation & plc
Debt
The fair values of our non-convertible debt and con-
vertible notes were $5.8 billion and $1.92 billion, respec-
tively, at November 30, 2003 and $2.04 billion and
$1.28 billion at November 30, 2002. These fair values
were greater than the related carrying values by $140
million and $205 million, respectively, at November 30,
2003 and $4 million and $162 million at November 30,
2002. The net difference between the fair value of our
debt and its carrying value was due primarily to our
issuance of debt obligations at fixed interest rates that
are above market interest rates in existence at the
measurement dates, as well as the impact of changes
in the Carnival Corporation common stock value on our
convertible notes on those dates. The fair values of our
unsecured fixed rate public notes, convertible notes,
sterling bonds and unsecured 5.57% euro notes were
based on their public market prices. The fair values of
our other debt were estimated based on appropriate
market interest rates being applied to this debt.
Foreign Currency Contracts
We have forward foreign currency contracts, desig-
nated as foreign currency fair value hedges, for seven
of our euro denominated shipbuilding contracts (see
Note 8). At November 30, 2003 and 2002, the fair value
of these forward contracts was an unrealized gain of
$363 million and an unrealized loss of $178 million,
respectively. These forward contracts mature through
2006. The fair values of our forward contracts were
estimated based on prices quoted by financial institu-
tions for these instruments.
We have cross currency swaps totaling $644 million
that are designated as hedges of our net investments
in foreign subsidiaries, which have euro and sterling
denominated functional currencies. These cross cur-
rency swaps were entered into to effectively convert
U.S. dollar denominated debt into euro or sterling debt,
which acts as a hedge of our net investments in cruise
lines whose functional currencies are the euro and ster-
ling. At November 30, 2003, the fair value of these cross
currency swaps was an unrealized loss of $49 million,
of which $39 million is included in the cumulative trans-
lation adjustment component of AOCI. These currency
swaps mature through 2007. We also have $171 million
of cross currency swaps, which effectively converts
euro denominated debt into sterling debt, which is the
functional currency of our subsidiary which was the
borrower. At November 30, 2003, the fair value of
these cross euro/sterling currency swaps was a loss
of $21 million. These currency swaps mature through
2012. The fair value of our cross currency swaps were
estimated based on prices quoted by financial institu-
tions for these instruments. Finally, we have desig-
nated $355 million of outstanding sterling debt, which
is a nonderivative and matures in 2012, as a hedge of
our net investments in foreign operations and, accord-
ingly, have included $24 million of foreign currency
transaction losses in the cumulative translation adjust-
ment component of AOCI at November 30, 2003.
Interest Rate Swaps
We have interest rate swap agreements designated
as fair value hedges whereby we receive fixed interest
rate payments in exchange for making variable interest
rate payments. At November 30, 2003 and 2002, these
interest rate swap agreements effectively changed $1.19
billion and $225 million of fixed rate debt to Libor-based
floating rate debt.
In addition, we also have interest rate swap agree-
ments designated as cash flow hedges whereby we
receive variable interest rate payments in exchange for
making fixed interest rate payments. At November 30,
2003 and 2002, these interest rate swap agreements
effectively changed $760 million and $468 million, respec-
tively, of euribor floating rate debt to fixed rate debt.
These interest rate swap agreements mature through
2012. At November 30, 2003 and 2002, the fair value
of our interest rate swaps was a loss of $6 million and
$0.1 million, respectively. The fair values of our interest
rate swap agreements were estimated based on prices
quoted by financial institutions for these instruments.
Note 13—Segment Information
Our cruise segment included thirteen cruise brands
since April 17, 2003, and six Carnival Corporation cruise
brands from December 1, 2001 to April 16, 2003,
which have been aggregated as a single reportable
segment based on the similarity of their economic and
other characteristics.