Carnival Cruises 2015 Annual Report Download - page 39

Download and view the complete annual report

Please find page 39 of the 2015 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 88

  • 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

In February 2015, we settled our foreign currency zero cost collars that were designated as cash flow hedges for
the final euro-denominated shipyard payments of P&O Cruises (UK)’s Britannia, which resulted in $33 million
being recognized in other comprehensive loss during 2015.
At January 22, 2016, our remaining newbuild currency exchange rate risk relates to euro-denominated newbuild
contract payments, which represent a total unhedged commitment of $2.0 billion and substantially relates to
Carnival Cruise Line, Holland America Line, P&O Cruises (Australia) and Seabourn newbuilds scheduled to be
delivered through 2019.
The cost of shipbuilding orders that we may place in the future that is denominated in a different currency than
our cruise brands’ or the shipyards’ functional currency is expected to be affected by foreign currency exchange
rate fluctuations. These foreign currency exchange rate fluctuations may affect our desire to order new cruise
ships.
Interest Rate Risks
We manage our exposure to fluctuations in interest rates through our debt portfolio management and investment
strategies. We evaluate our debt portfolio to determine whether to make periodic adjustments to the mix of fixed
and floating rate debt through the use of interest rate swaps and the issuance of new debt or the early retirement
of existing debt. At November 30, 2015, 60% and 40% (52% and 48% at November 30, 2014) of our debt bore
fixed and floating interest rates, respectively, including the effect of interest rate swaps. In addition, to the extent
that we have excess cash available for investment, we purchase high quality short-term investments with floating
interest rates, which offset a portion of the impact of interest rate fluctuations arising from our floating interest
rate debt portfolio.
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
and fuel derivative contracts and interest rate swap agreements that are in-the-money, which were not material at
November 30, 2015, is the replacement cost, net of any collateral received or contractually allowed offset, in the
event of nonperformance by the counterparties to the contracts, all of which are currently our lending banks. We
seek to minimize these credit risk exposures, 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, insurance companies and export credit agencies, 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 these significant counterparties is remote.
We also monitor the creditworthiness of travel agencies and tour operators in Asia, Australia and Europe and
credit and debit card providers to which we extend credit in the normal course of our business, which includes
charter-hire agreements in Asia prior to sailing. Our credit exposure also includes contingent obligations related
to cash payments received directly by travel agents and tour operators for cash collected by them on cruise sales
in Australia and most of Europe where we are obligated to honor our guests’ cruise payments made by them to
their travel agents and tour operators regardless of whether we have received these payments. Concentrations of
credit risk associated with these trade receivables, charter-hire agreements and contingent obligations are not
considered to be material, principally due to the large number of unrelated accounts within our customer base,
the nature of these contingent obligations and their short maturities. We have experienced only minimal credit
losses on our trade receivables, charter-hire agreements and contingent obligations. We do not normally require
collateral or other security to support normal credit sales.
37