Carnival Cruises 2012 Annual Report Download - page 90

Table of Contents
Derivative Instruments and Hedging Activities
We utilize derivative and nonderivative financial instruments, such as foreign currency forwards, options and swaps, foreign currency debt obligations and
foreign currency cash balances, to manage our exposure to fluctuations in certain foreign currency exchange rates, and interest rate swaps to manage our
interest rate exposure in order to achieve a desired proportion of fixed and floating rate debt. In November 2011, we implemented a fuel derivatives program to
mitigate a portion of the risk to our future cash flows attributable to potential fuel price increases, which we define as our “economic risk.” Our policy is to not
use any financial instruments for trading or other speculative purposes.
All derivatives are recorded at fair value. The changes in fair value are immediately included in earnings if the derivatives do not qualify as effective hedges, or
if we do not seek to qualify for hedge accounting treatment, such as for our fuel derivatives. If a derivative is designated as a fair value hedge, then changes in
the fair value of the derivative are offset against the changes in the fair value of the underlying hedged item. If a derivative is designated as a cash flow hedge,
then the effective portion of the changes in the fair value of the derivative is recognized as a component of AOCI until the underlying hedged item is recognized
in earnings or the forecasted transaction is no longer probable. If a derivative or a nonderivative financial instrument is designated as a hedge of our net
investment in a foreign operation, then changes in the fair value of the financial instrument are recognized as a component of AOCI to offset a portion of the
change in the translated value of the net investment being hedged, until the investment is sold or liquidated. We formally document hedging relationships for all
derivative and nonderivative hedges and the underlying hedged items, as well as our risk management objectives and strategies for undertaking the hedge
transactions.
We classify the fair values of all our derivative contracts as either current or long-term, depending on whether the maturity date of the derivative contract is
within or beyond one year from the balance sheet date. The cash flows from derivatives treated as hedges are classified in our Consolidated Statements of Cash
Flows in the same category as the item being hedged. Our cash flows related to fuel derivatives are classified within investing activities.
The estimated fair values of our derivative financial instruments and their location on the Consolidated Balance Sheets were as follows (in millions):
November 30,
Balance Sheet Location 2012 2011
Derivative assets
Derivatives designated as hedging instruments
Net investment hedges (a) Prepaid expenses and other $ 1 $-
Other assets – long-term 6 3
Foreign currency zero cost collars (b) Prepaid expenses and other 11 -
Other assets – long-term 5 -
Interest rate swaps (c) Prepaid expenses and other - 2
23 5
Derivatives not designated as hedging instruments
Fuel (d) Other assets – long-term 25 1
Total derivative assets $48 $ 6
Derivative liabilities
Derivatives designated as hedging instruments
Net investment hedges (a) Accrued liabilities and other $- $ 1
Interest rate swaps (c) Accrued liabilities and other 7 5
Other long-term liabilities 17 6
24 12
Derivatives not designated as hedging instruments
Fuel (d) Accrued liabilities and other 16 -
Other long-term liabilities 3 -
19 -
Total derivative liabilities $43 $ 12
(a) At November 30, 2012 and 2011, we had foreign currency forwards totaling $235 million and $183 million, respectively, that are designated as hedges
of our net investments in foreign operations, which have a euro-denominated functional currency. At November 30, 2012, $91 million of our foreign
currency forwards matured in January 2013 and $144 million mature through July 2017.
(b) At November 30, 2012, we had foreign currency derivatives consisting of foreign currency zero cost collars totaling $842 million that are designated as
foreign currency cash flow hedges for a portion of our euro-denominated shipbuilding payments. See “Newbuild Currency Risks” below for additional
information regarding these derivatives.
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