Carnival Cruises 2008 Annual Report Download - page 100

F-41
Based primarily on our historical results, current financial condition and forecasts, we
believe that our existing liquidity and cash flow from future operations will be sufficient
to fund the majority of our expected capital projects (including shipbuilding commitments),
debt service requirements, convertible debt redemptions, working capital and other firm
commitments over the next several years. In addition, we believe that in most financial
credit market environments we will be able to secure the necessary financings from banks or
through the offering of debt and/or equity securities in the public or private markets or
take other actions to fund these remaining future cash requirements.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, including guarantee contracts,
retained or contingent interests, certain derivative instruments and variable interest
entities, that either have, or are reasonably likely to have, a current or future material
effect on our financial statements.
Foreign Currency Exchange Rate Risks
Operational and Investment Currency Risk
We manage our exposure to fluctuations in foreign currency exchange rates through our
normal operating and financing activities, including netting certain exposures to take
advantage of any natural offsets and, when considered appropriate, through the use of
derivative and nonderivative financial instruments. Our focus is to manage the economic
risks faced by our operations, which are the real foreign currency exchange risks that will
ultimately be realized by us when we exchange one currency for another, and not the
accounting risks. The financial impacts of these hedging instruments are generally offset by
corresponding changes in the underlying exposures being hedged. Our policy is to not use any
financial instruments for trading or other speculative purposes.
Our growing international business operations, conducted primarily through AIDA in
Germany, Costa in southern Europe and China, Ibero in Spain, P&O Cruises, Cunard, and Ocean
Village in the UK and P&O Cruises Australia in Australia, subject us to an increasing level
of foreign currency exchange risk related to the euro, sterling and Australian dollar because
these operations have either the euro, sterling or Australian dollar as their functional
currency. Accordingly, exchange rate fluctuations of the euro, sterling or Australian dollar
against the U.S. dollar will affect our reported financial results since the reporting
currency for our consolidated financial statements is the U.S. dollar and the functional
currency for our international operations is generally the local currency. Any strengthening
of the U.S. dollar against these local functional currencies has the financial statement
effect of decreasing the U.S. dollar values reported for cruise revenues and cruise expenses
in our Consolidated Statements of Operations. Weakening of the U.S. dollar has the opposite
effect.
Most of our brands have non-functional currency risk related to their international
sales operations, which has become an increasingly larger part of most of their businesses
over time, and includes the same currencies noted above, as well as the U.S. and Canadian
dollars. In addition, all of our brands have non-functional currency expenses for a portion
of their operating expenses. Accordingly, a weakening of the U.S. dollar against these
currencies results in both increased revenues and increased expenses, resulting in some
degree of natural offset due to currency exchange movements within our Consolidated
Statements of Operations for these transactional currency gains and losses. Therefore, we do
not seek to hedge these risks with financial instruments but rather manage them as described
above. The strengthening of the U.S. dollar against these currencies has the opposite
effect.
We consider our investments in foreign subsidiaries to be denominated in relatively
stable currencies and of a long-term nature. In addition to the net investment hedging
strategy discussed below under "Newbuild Currency Risk", we also partially address these net
investment currency exposures by denominating a portion of our debt, including the effect of
foreign currency swaps, in our subsidiaries' functional currencies (generally the euro or
sterling). Specifically, we have debt of $1.6 billion in euros and $320 million in sterling
and have $284 million of foreign currency forwards, whereby we have converted $284 million of
U.S. dollar debt into euro debt, thus partially offsetting these foreign currency exchange