REG - Carnival PLC - Half-year Report <Origin Href="QuoteRef">CCL.L</Origin> - Part 5

CarnivalAnnouncement

18/07/2017 16:01

- Part 5: For the preceding part double click  ID:nRSR4213Ld 

                            Balance Sheet Location           May 31, 2017      November 30, 2016  
 Derivative assets                                                                                                    
 Derivatives designated as hedging instruments                                                                        
 Net investment hedges (a)                      Prepaid expenses and other       $             3                          $  7     
 Total derivative assets                                                         $             3                          $  7     
 Derivative liabilities                                                                                               
 Derivatives designated as hedging instruments                                                                        
 Interest rate swaps (b)                        Accrued liabilities and other    $             7                          $  7     
                                                Other long-term liabilities      14                                   16     
 Total derivative liabilities                                                    $             21                         $  23    
 
 
(a)         We had foreign currency forwards totaling $11 million at May 31, 2017 and $21 million at November 30, 2016 that
are designated as hedges of our net investments in foreign operations, which have a euro-denominated functional currency.
At May 31, 2017, these foreign currency forwards settle through July 2017. 
 
(b)         We have euro interest rate swaps designated as cash flow hedges whereby we receive floating interest rate
payments in exchange for making fixed interest rate payments. These interest rate swap agreements effectively changed $367
million at May 31, 2017 and $372 million at November 30, 2016 of EURIBOR-based floating rate euro debt to fixed rate euro
debt. At May 31, 2017, these interest rate swaps settle through March 2025. 
 
Our derivative contracts include rights of offset with our counterparties. The amounts recognised within assets and
liabilities were as follows (in millions): 
 
              May 31, 2017       
              Gross Amounts          Gross Amounts Offset in the Balance Sheet    Total Net Amounts Presented in the Balance Sheet     Gross Amounts not Offset in the Balance Sheet    Net Amounts  
 Assets       $                  3                                                $                                                 -                                                   $            3       $  -      $  3     
 Liabilities  $                  21                                               $                                                 -                                                   $            21      $  -      $  21    
                                                                                                                                                                                                     
              November 30, 2016  
              Gross Amounts          Gross Amounts Offset in the Balance Sheet    Total Net Amounts Presented in the Balance Sheet     Gross Amounts not Offset in the Balance Sheet    Net Amounts  
 Assets       $                  7                                                $                                                 -                                                   $            7       $  -      $  7     
 Liabilities  $                  23                                               $                                                 -                                                   $            23      $  -      $  23    
 
 
There are no credit risk related contingent features in our derivative agreements. The amount of estimated cash flow
hedges' unrealised 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 in our Interim Financial Statements of the impact that derivative
instruments and hedging activities have as of May 31, 2017 and November 30, 2016 and for the six months ended May 31, 2017
and 2016, as such impacts were not significant. 
 
Fuel Price Risks 
 
Substantially all of our exposure to market risk for changes in fuel prices relates to the consumption of fuel on our
ships. The Group manages its fuel price risks on a consolidated Carnival Corporation & plc basis. For additional
information see the "Fuel Price Risk" section of Note 4 of the DLC Financial Statements within the attached Schedule A of
this Interim Financial Report, which does not form part of these Interim Financial Statements. 
 
Foreign Currency Exchange Rate Risks 
 
Overall Strategy 
 
Within the DLC arrangement, Carnival Corporation & plc manages its 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.
Carnival Corporation & plc's primary focus is to monitor its exposure to, and manage, the economic foreign currency
exchange risks faced by its operations and realised if we exchange one currency for another. Carnival Corporation & plc
currently only hedges certain of its ship commitments and net investments in foreign operations. The financial impacts of
the hedging instruments we do employ generally offset the changes in the underlying exposures being hedged. 
 
Operational Currency Risks 
 
Our EAA segment operations generate significant revenues and incur significant expenses in their functional currencies,
which subjects us to "foreign currency translational" risk related to these currencies. Accordingly, exchange rate
fluctuations in their functional currencies against the U.S. dollar will affect our reported financial results since the
reporting currency for our Interim 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 this
segment's revenues and expenses. Any weakening of the U.S. dollar has the opposite effect. 
 
Substantially all of our operations also have non-functional currency risk related to their international sales. In
addition, we have a portion of our operating expenses denominated in non-functional currencies. Accordingly, we also have
"foreign currency transactional" risks related to changes in the exchange rates for our revenues and expenses that are in a
currency other than the functional currency. The revenues and expenses, which occur in the same non-functional currencies
create some degree of natural offset. 
 
Investment Currency Risks 
 
Within the DLC arrangement, Carnival Corporation & plc considers its investments in foreign operations to be denominated in
stable currencies. Carnival Corporation & plc's investments in foreign operations are of a long-term nature. At May 31,
2017, Carnival Corporation & plc had $5.8 billion and $251 million of euro- and sterling-denominated debt, respectively,
including the effect of foreign currency swaps, which provides an economic offset for its operations with euro and sterling
functional currency. Carnival Corporation & plc also partially mitigates its net investment currency exposure by
denominating a portion of its foreign currency intercompany payables in its foreign operations' functional currencies. 
 
Newbuild Currency Risks 
 
Our shipbuilding contracts are typically denominated in euros. Our decision to hedge a non-functional currency ship
commitment for our cruise brands is made on a case-by-case basis, considering the amount and duration of the exposure,
market volatility, economic trends, our overall expected net cash flows by currency and other offsetting risks. The Group
uses foreign currency derivative contracts to manage foreign currency exchange rate risk for some of its ship construction
payments. 
 
At May 31, 2017, the Group's remaining newbuild currency exchange rate risk primarily relates to unhedged euro-denominated
newbuild contract payments, which represents a total unhedged commitment of $1.0 billion and relates to a newbuild
scheduled to be delivered in 2020. 
 
The functional currency cost of this ship will increase or decrease based on changes in the exchange rates until the
unhedged payment is made under the shipbuilding contract. We may enter into additional foreign currency euro cost collars
to mitigate some of this foreign currency exchange rate risk. Based on a 10% change in euro to U.S. dollar exchange rates
at May 31, 2017, the remaining unhedged cost of this ship would have a corresponding change of $100 million. 
 
Interest Rate Risks 
 
Within the DLC arrangement, Carnival Corporation & plc manages its exposure to fluctuations in interest rates through its
debt portfolio management and investment strategies. Carnival Corporation & plc evaluates its 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. The composition of Carnival Corporation & plc's debt,
including the effect of foreign currency swaps and interest rate swaps, was as follows: 
 
                     May 31, 2017     November 30, 2016  
 Fixed rate          29            %                     28  %  
 Euro fixed rate     35            %                     35  %  
 Floating rate       7             %                     14  %  
 Euro floating rate  26            %                     23  %  
 GBP floating rate   3             %                     -      
 
 
Concentrations of Credit Risk 
 
As part of ongoing control procedures, Carnival Corporation & plc monitors concentrations of credit risk associated with
financial and other institutions with which it conducts significant business. Carnival Corporation & plc seeks to minimise
these credit risk exposures, including counterparty nonperformance primarily associated with cash equivalents, investments,
committed financing facilities, contingent obligations, derivative instruments, insurance contracts and new ship progress
payment guarantees, by: 
 
•       Conducting business with large, well-established financial institutions, insurance companies and export credit
agencies 
 
•       Diversifying our counterparties 
 
•       Having guidelines regarding credit ratings and investment maturities that we follow to help safeguard liquidity and
minimise risk 
 
•       Generally requiring collateral and/or guarantees to support notes receivable on significant asset sales, long-term
ship charters and new ship progress payments to shipyards 
 
Carnival Corporation & plc currently believes the risk of nonperformance by any of its significant counterparties is
remote. At May 31, 2017, Carnival Corporation & plc's exposures under foreign currency derivative contracts and interest
rate swap agreements were not material. 
 
Carnival Corporation & plc also monitors the creditworthiness of travel agencies and tour operators in Asia, Australia and
Europe, which includes charter-hire agreements in Asia, and credit and debit card providers to which it extends credit in
the normal course of business prior to sailing. Carnival Corporation & plc's 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 it is obligated to honour its guests' cruise payments made by them to
their travel agents and tour operators regardless of whether Carnival Corporation & plc has 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, the nature of these
contingent obligations and their short maturities. Carnival Corporation & plc has not experienced significant credit losses
on its trade receivables, charter-hire agreements and contingent obligations. Carnival Corporation & plc does not normally
require collateral or other security to support normal credit sales. 
 
NOTE 13 - Reserves and Other Equity Activity 
 
On April 6, 2017, the Boards of Directors approved a modification of the general authorization to repurchase Carnival
Corporation common stock and/or Carnival plc ordinary shares (the "Repurchase Program"), which replenished the remaining
authorized repurchases at the time of the approval to $1.0 billion. During the six months ended May 31, 2017, we
repurchased 2.8 million shares of Carnival plc ordinary shares for $156 million under the Repurchase Program. At May 31,
2017, the remaining availability under the Repurchase Program was $989 million. 
 
In May 2017, the Group entered into an agreement to purchase a maximum of $85 million of its own shares during the closed
period as part of the Repurchase Program. The accrual of $85 million for this agreement is classified as other reserves
with the payment obligation recognized in accrued liabilities and other. 
 
NOTE 14 - Responsibility Statement 
 
The Directors confirm that to the best of their knowledge the interim condensed consolidated financial statements included
as Schedule D to this release have been prepared in accordance with IAS 34 as adopted by the European Union, and that the
half-yearly financial report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the
Disclosure and Transparency Rules of the United Kingdom's FCA. 
 
The Directors of Carnival plc are listed in the Carnival plc Annual Report for the year ended November 30, 2016. No new
Directors have been appointed during the six months ended May 31, 2017. A list of current Directors is maintained and is
available for inspection on the Group's website at www.carnivalplc.com. 
 
By order of the Board 
 
Micky Arison                                             Arnold W. Donald 
 
Chairman of the Board of Directors          President and Chief Executive Officer and Director 
 
July 18, 2017                                             July 18, 2017 
 
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