Carnival Cruises 2010 Annual Report Download - page 29

Download and view the complete annual report

Please find page 29 of the 2010 Carnival Cruises annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 63

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63

the use of interest rate swaps and the issuance of new debt or the early retirement of existing debt. At
November 30, 2010, 69% and 31% (71% and 29% at November 30, 2009) of our debt bore fixed and floating
interest rates, respectively, including the effect of interest rate swaps.
Fuel Price Risks
We do not use financial instruments to hedge our exposure to fuel price risks.
Concentrations of Credit Risk
As part of our ongoing control procedures, we monitor concentrations of credit risk associated with financial and
other institutions with which we conduct significant business. Our maximum exposure under foreign currency
derivative contracts and interest rate swap agreements that are in-the-money is the replacement cost, which
includes the value of the contracts, in the event of nonperformance by the counterparties to the contracts, all of
which are currently our lending banks. We seek to minimize credit risk exposure, including counterparty
nonperformance primarily associated with our cash equivalents, investments, committed financing facilities,
contingent obligations, derivative instruments, insurance contracts and new ship progress payment guarantees, by
normally conducting business with large, well-established financial institutions and insurance companies, and by
diversifying our counterparties. In addition, we have guidelines regarding credit ratings and investment
maturities that we follow to help safeguard liquidity and minimize risk. We normally do require collateral and/or
guarantees to support notes receivable on significant asset sales, long-term ship charters and new ship progress
payments to shipyards. We currently believe the risk of nonperformance by any of our significant counterparties
is remote.
We also monitor the creditworthiness of travel agencies and tour operators in Europe and credit card providers to
which we extend credit in the normal course of our business. Concentrations of credit risk associated with these
receivables are considered minimal, primarily due to their short maturities and the large number of unrelated
accounts within our customer base. We have experienced only minimal credit losses on our trade receivables. We
do not normally require collateral or other security to support normal credit sales.
Finally, if the shipyard with which we have contracts to build our ships is unable to perform, we would be
required to perform under our foreign currency forwards and options related to these shipbuilding contracts.
Accordingly, if the shipyard is unable to perform, we may have to discontinue accounting for these currency
forwards and options as hedges. However, we believe that the risk of shipyard nonperformance is remote.
NOTE 11 – Segment Information
In order to provide a better understanding of our business’ performance, we now separate our cruise brand
operating segments into three reportable cruise segments. These three reportable cruise segments are comprised
of our (1) North America cruise brands, (2) Europe, Australia & Asia (“EAA”) cruise brands and (3) Cruise
Support. We believe that the economic characteristics of our North America and EAA cruise brands are no
longer similar enough to enable us to aggregate all of our cruise brands’ operations into one reportable cruise
segment. All prior period information has been restated to conform to this new cruise segment presentation.
There were no changes made to our Tour and Other segment.
Our North America cruise segment includes Carnival Cruise Lines, Holland America Line, Princess and
Seabourn. Our EAA cruise segment includes AIDA, Costa, Cunard, Ibero, P&O Cruises (UK) and P&O Cruises
(Australia). These individual cruise brand operating segments have been aggregated as two reportable segments
based on the similarity of their economic and other characteristics, including the products and services they
provide. Our Cruise Support segment represents certain of our port and related facilities and other corporate-wide
services that are provided for the benefit of our cruise brands. Our Tour and Other segment represents the hotel,
28