Carnival Cruises 2011 Annual Report Download - page 57

two Princess and one P&O Cruises (UK) euro-denominated newbuild contracts with remaining commitments
totaling $2.0 billion. The functional currency cost of each of these ships will increase or decrease based upon
changes in the exchange rate until the payments are made under the shipbuilding contract, or we enter into a
foreign currency hedge. Based upon a 10% hypothetical change in the U.S. dollar and sterling compared to the
euro as of November 30, 2011, assuming no changes in comparative interest rates, the unpaid cost of these ships
would have a corresponding change of approximately $200 million.
Interest Rate Risks
At November 30, 2011, we have interest rate swaps that effectively changed (1) $510 million of fixed rate debt to
U.S. dollar LIBOR or GBP LIBOR-based floating rate debt and (2) $320 million of EURIBOR-based floating
rate euro debt to fixed rate euro debt. Based upon a 10% hypothetical change in the November 30, 2011 market
interest rates, assuming no change in currency exchange rates, the fair value of all our debt and related interest
rate swaps would change by approximately $125 million. In addition, based upon a 10% hypothetical change in
the November 30, 2011 market interest rates, our annual interest expense on floating rate debt, including the
effect of our interest rate swaps, would change by an insignificant amount.
These amounts are determined by considering the impact of the hypothetical market interest rates on our existing
debt and interest rate swaps. This analysis does not consider the effects of the changes in the level of overall
economic activity that could exist in such environments. Currently, substantially all of our fixed rate debt can
only be called or prepaid by incurring significant break fees, therefore it is unlikely we will be able to take any
significant steps in the short-term to mitigate our exposure in the event of a significant decrease in market
interest rates.
Fuel Price Risks
Our exposure to market risk for changes in fuel prices substantially all relate to the consumption of fuel on our
ships. As previously discussed, in fiscal 2011 we implemented a fuel derivatives program to mitigate a portion of
our economic risk attributable to potentially significant fuel price increases. We designed our fuel derivatives
program to maximize operational flexibility by utilizing derivative markets with significant trading liquidity. As
part of our fuel derivatives program, we will evaluate various derivative products and strategies. During 2011, we
entered into zero cost collars that established ceiling and floor Brent prices. These derivatives are based on Brent
prices whereas the actual fuel used on our ships is marine fuel. Changes in the Brent prices may not show a high
degree of correlation with changes in our underlying marine fuel prices. We will not realize any economic gain
or loss upon the maturity of our zero cost collars unless the price of Brent is above the ceiling price or below the
floor price. We believe that these derivatives will act as economic hedges, however hedge accounting is not
applied.
At November 30, 2011, we have fuel derivatives for approximately 10% of our estimated fuel consumption for
the second half of fiscal 2012 through fiscal 2015. The volume and derivative products used in our fuel
derivatives program may change based on our expectation of future market prices. Based on a 10% hypothetical
change in Brent spot prices as of November 30, 2011, assuming no changes in comparative interest rates, there
would be no impact to our cash flows resulting from fuel derivatives, as the resulting Brent price would remain
within the ceiling and floor Brent prices established by these collars. We estimate that our fiscal 2012 fuel
expenses would change by approximately $3.5 million for each $1 per metric ton change in our average fuel
price. See “Note 10 – Fair Value Measurements, Derivative Instruments and Hedging Activities” in the
accompanying consolidated financial statements for additional discussion of our fuel derivatives program.
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