Carnival Cruises 2013 Annual Report Download - page 84

Table of Contents
The effective portions of our derivatives qualifying and designated as hedging instruments recognized in other comprehensive income were as follows (in
millions):
November 30,
2013 2012 2011
Net investment hedges $(11) $48 $(13)
Foreign currency zero cost collars – cash flow hedges $(1) $16 $76
Interest rate swaps – cash flow hedges $ 2 $(11) $(4)
There are no credit risk related contingent features in our derivative agreements, except for bilateral credit provisions within our fuel derivative counterparty
agreements. These provisions require interest-bearing, non-restricted cash to be posted or received as collateral to the extent the fuel derivative fair value payable
to or receivable from an individual counterparty, respectively, exceeds $100 million. At November 30, 2013 and 2012, no collateral was required to be posted
to or received from our fuel derivative counterparties.
The amount of estimated cash flow hedges’ unrealized gains and losses that are expected to be reclassified to earnings in the next twelve months is not
significant. We have not provided additional disclosures of the impact that derivative instruments and hedging activities have on our consolidated financial
statements as of November 30, 2013 and 2012 and for the years ended November 30, 2013, 2012 and 2011 where such impacts were not significant.
Foreign Currency Exchange Rate Risks
Overall Strategy
We manage our exposure to fluctuations in foreign currency exchange rates through our normal operating and financing activities, including netting certain
exposures to take advantage of any natural offsets and, when considered appropriate, through the use of derivative and nonderivative financial
instruments. Our primary focus is to manage the economic foreign currency exchange risks faced by our operations, which are the ultimate foreign currency
exchange risks that would be realized by us if we exchanged one currency for another, and not accounting risks. Accordingly, we do not currently hedge
foreign currency exchange accounting risks with derivative financial instruments. The financial impacts of the hedging instruments we do employ generally
offset the changes in the underlying exposures being hedged.
Operational and Investment Currency Risks
Our European and Australian cruise brands subject us to foreign currency translation risk related to the euro, sterling and Australian dollar because these
brands generate significant revenues and incur significant expenses in euro, sterling or the Australian dollar. Accordingly, exchange rate fluctuations of the
euro, sterling and Australian dollar against the U.S. dollar will affect our reported financial results since the reporting currency for our consolidated financial
statements is the U.S. dollar. Any strengthening of the U.S. dollar against these foreign currencies has the financial statement effect of decreasing the U.S.
dollar values reported for cruise revenues and expenses. Any weakening of the U.S. dollar has the opposite effect.
Most of our brands also have non-functional currency risk related to their international sales operations, which has become an increasingly larger part of most
of their businesses over time, and primarily includes the euro, sterling and Australian, Canadian and U.S. dollars. In addition, all of our brands have non-
functional currency expenses for a portion of their operating expenses. Accordingly, these brands’ revenues and expenses in non-functional currencies create
some degree of natural offset for recognized transactional currency gains and losses due to currency exchange movements.
We consider our investments in foreign operations to be denominated in relatively stable currencies and of a long-term nature. We partially mitigate our net
investment currency exposures by denominating a portion of our foreign currency intercompany payables in our foreign operations’ functional currencies,
principally sterling. As of November 30, 2013 and 2012, we have designated $2.2 billion and $1.8 billion, respectively, of our foreign currency intercompany
payables as nonderivative hedges of our net investments in foreign operations. Accordingly, we have included $234 million and $243 million of cumulative
foreign currency transaction nonderivative gains in the cumulative translation adjustment component of AOCI at November 30, 2013 and 2012, respectively,
which offsets a portion of the losses recorded in AOCI upon translating our foreign operations’ net assets into U.S. dollars. During 2013, 2012 and 2011, we
recognized foreign currency nonderivative transaction (losses) gains of $(9) million, $39 million and $21 million, respectively, in the cumulative translation
adjustment component of AOCI.
Newbuild Currency Risks
Our shipbuilding contracts are typically denominated in euros. Our decisions regarding whether or not to hedge a non-functional currency ship commitment
for our cruise brands are made on a case-by-case basis, taking into consideration the amount and duration of the exposure, market volatility, currency
exchange rate correlation, economic trends, our overall expected net cash flows by currency and other offsetting risks. We use foreign currency derivative
contracts and have used nonderivative financial instruments to manage foreign currency exchange rate risk for some of our ship construction payments.
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