Carnival Cruises 2008 Annual Report Download - page 79

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F-20
(g) At November 30, 2008 and 2007, we have foreign currency forwards totaling $284 million
and $378 million that are designated as hedges of our net investments in foreign
subsidiaries, which have a euro-denominated functional currency. These foreign currency
forwards were entered into to effectively convert U.S. dollar-denominated debt into euro
debt and mature through 2017. In addition to these derivative hedges, as of November 30,
2008 and 2007 we have designated $1.6 billion and $1.9 billion of our euro debt and $343
million and $457 million of our sterling debt and other obligations, respectively, which
mature through 2019, as nonderivative hedges of our net investments in foreign
subsidiaries. Accordingly, we have included $319 million and $372 million of cumulative
foreign currency transaction gains and losses, respectively, in the cumulative
translation adjustment component of AOCI at November 30, 2008 and 2007, respectively.
(h) At November 30, 2008 and 2007, we also have designated foreign currency cash flow swaps
that effectively converted $398 million and $438 million, respectively, of U.S. dollar
fixed interest rate debt into sterling fixed interest rate debt. The fair value of these
foreign currency swaps is included in the cumulative translation adjustment component of
AOCI. These currency swaps mature through 2019.
(i) We have interest rate swaps designated as fair value hedges whereby we receive fixed
interest rate payments in exchange for making variable interest rate payments. At
November 30, 2008 and 2007, these interest rate swap agreements effectively changed $96
million and $204 million, respectively, of fixed rate debt to EURIBOR or LIBOR-based
floating rate debt. These interest rate swaps mature through 2010.
The implementation of SFAS No. 157 did not result in material changes to the models or
processes used to value our financial assets and financial liabilities that are recorded at
fair value on a recurring basis. We value our derivatives using valuations that are
calibrated to the initial trade prices. Subsequent valuations are based on observable inputs
to the valuation model including interest rates, currency exchange rates, credit spreads,
volatilities and netting arrangements. We have elected to use the income approach to value
the derivatives, using observable market data for all significant inputs and standard
valuation techniques to convert future amounts to a single present value amount, assuming
that participants are motivated, but not compelled to transact. SFAS No. 157 states that the
fair value measurement of a financial asset or financial liability must reflect the
nonperformance risk of the entity and the counterparty. Therefore, the impact of our
counterparty's creditworthiness was considered when in an asset position and our
creditworthiness was considered when we are in a liability position in the fair value
measurement of our derivative instruments. Creditworthiness did not have a material impact
on the fair value of our derivative instruments. Both the counterparty and we are expected
to continue to perform under the contractual terms of the instruments.
In February 2008, the FASB issued FASB Staff Position FAS 157-2, "Effective date of FASB
Statement No. 157." This statement provides a one year deferral of SFAS No. 157's effective
date for nonfinancial assets and liabilities. Accordingly, for nonfinancial assets and
liabilities SFAS No. 157 will become effective for us as of December 1, 2008, and may impact
the determination of our goodwill, trademarks and other long-lived assets' fair values, when
or if we have to perform impairment reviews.
At November 30, 2007, we had foreign currency forwards that were designated as foreign
currency fair value hedges for one of our euro-denominated shipbuilding contracts and a
portion of another shipbuilding contract. In addition, at November 30, 2007 we had $439
million of euro cash equivalents that were designated as a fair value hedge for a portion of
a shipbuilding contract.
NOTE 11 - Segment Information
Our cruise segment includes all of our cruise brands, which have been aggregated as a
single reportable segment based on the similarity of their economic and other
characteristics, including the products and services they provide. Substantially all of our
other segment represents the hotel, tour and transportation operations of Holland America
Tours and Princess Tours. The significant accounting policies of our segments are the same as
those described in Note 2 – "Summary of Significant Accounting Policies." Information for our
cruise and other segments as of and for the years ended November 30 was as follows (in
millions):