Carnival Cruises 2013 Annual Report Download - page 111

Download and view the complete annual report

Please find page 111 of the 2013 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 131

  • 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
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131

Table of Contents
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 consolidated financial statements.
Quantitative and Qualitative Disclosures About Market Risk
For a discussion of our hedging strategies and market risks, see the discussion below and Note 10 – “Fair Value Measurements, Derivative Instruments and
Hedging Activities” in the accompanying consolidated financial statements.
Foreign Currency Exchange Rate Risks
Operational and Investment Currency Risks
We have $578 million of foreign currency forwards that are designated as hedges of our net investments in foreign operations, which have a euro-denominated
functional currency, thus partially offsetting this foreign currency exchange rate risk. Based on a 10% hypothetical change in the U.S. dollar to euro exchange
rate as of November 30, 2013, we estimate that these foreign currency forwards’ fair values would change by $51 million, which would be offset by a
corresponding change of $51 million in the U.S. dollar value of our net investments. In addition, based on a 10% hypothetical change in the U.S. dollar to
euro, sterling and Australian dollar exchange rates as of November 30, 2013, which are the functional currencies that we translate into our U.S. dollar
reporting currency, we estimate that our 2014 full year December 19, 2013 non-GAAP guidance would change by $0.19 per share.
Newbuild Currency Risks
In 2012, we entered into foreign currency zero cost collars that are designated as cash flow hedges for a portion of P&O Cruises (UK) Britannia’s euro-
denominated shipyard payments. These collars mature in February 2015 at a weighted-average ceiling rate of £0.83 to the euro, or $300 million, and a
weighted-average floor rate of £0.77 to the euro, or $278 million. If the spot rate is between these two rates on the date of maturity, then we would not owe or
receive any payments under these collars. At November 30, 2013, the estimated fair value of these outstanding foreign currency zero cost collars was an asset
of $8 million. Based on a 10% hypothetical increase or decrease in the November 30, 2013 sterling rates to euro exchange rates, we estimate the fair value of
these collars would increase $15 million or decrease $12 million, respectively.
At November 30, 2013, substantially all our remaining newbuild currency exchange rate risk relates to euro-denominated newbuild construction payments for
Regal Princess, the Seabourn newbuild and a portion of Britannia, which represent a total commitment of $1.3 billion. The functional currency cost of each
of these ships will increase or decrease based on changes in the exchange rates until the payments are made under the shipbuilding contract, or we enter into a
foreign currency hedge. Based on a 10% hypothetical change in the U.S. dollar and sterling to euro exchange rates as of November 30, 2013, the unpaid cost of
these ships would have a corresponding change of $134 million.
Interest Rate Risks
At November 30, 2013, we have interest rate swaps that have or will effectively changed $500 million of fixed rate debt to U.S. dollar LIBOR-based floating
rate debt and $909 million of EURIBOR-based floating rate euro debt to fixed rate euro debt. Based on a 10%
F-52