Fair Value Measurements and Derivative Instruments (Tables)

12 Months Ended

Dec. 31, 2013

Estimated Fair Value of Financial Instruments that are not Measured at Fair Value on Recurring Basis

The estimated fair value of our financial instruments that are not measured at fair value, categorized based upon the fair value hierarchy, are as follows (in thousands):



			Fair Value Measurements at December 31, 2013 Using										Fair Value Measurements at December 31, 2012 Using
Description	Total Carrying Amount		Total Fair Value		Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾		Total Carrying Amount		Total Fair Value		Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾
Assets:
Cash and cash equivalents⁽⁴⁾	$	204,687	$	204,687	$	204,367	$	—	$	—	$	194,855	$	194,855	$	194,855	$	—	$	—
Total Assets	$	204,687	$	204,687	$	204,367	$	—	$	—	$	194,855	$	194,855	$	194,855	$	—	$	—
Liabilities:
Long-term debt (including current portion of long-term debt)⁽⁵⁾	$	8,074,804	$	8,431,220	$	2,888,255	$	5,542,965	$	—	$	8,489,947	$	8,859,310	$	3,917,398	$	4,941,912	$	—
Total Liabilities	$	8,074,804	$	8,431,220	$	2,888,255	$	5,542,965	$	—	$	8,489,947	$	8,859,310	$	3,917,398	$	4,941,912	$	—

___________________________________


(1)	Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.

(2)

Inputs other than quoted prices included within Level 1 that are observable for the liability, either directly or indirectly. For unsecured revolving credit facilities and unsecured term loans, fair value is determined utilizing the income valuation approach. This valuation model takes into account the contract terms of our debt such as the debt maturity and the interest rate on the debt. The valuation model also takes into account our creditworthiness based on publicly available credit default swap rates.


(3)	Inputs that are unobservable. The Company did not use any Level 3 inputs as of December 31, 2013 and December 31, 2012.


(4)	Consists of cash and marketable securities with original maturities of less than 90 days.


(5)	Consists of unsecured revolving credit facilities, unsecured senior notes, senior debentures and unsecured term loans. Does not include our capital lease obligations.

Company's Financial Instruments Recorded at Fair Value on Recurring Basis

The following table presents information about the Company's financial instruments recorded at fair value on a recurring basis (in thousands):



	Fair Value Measurements at December 31, 2013 Using								Fair Value Measurements at December 31, 2012 Using
Description	Total Fair Value		Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾		Total Fair Value		Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾
Assets:
Derivative financial instruments⁽⁴⁾	$	188,576	—		188,576		—		$	96,489	—		96,489		—
Investments⁽⁵⁾	$	6,044	6,044		—		—		$	6,231	6,231		—		—
Total Assets	$	194,620	$	6,044	$	188,576	$	—	$	102,720	$	6,231	$	96,489	$	—
Liabilities:
Derivative financial instruments⁽⁶⁾	$	100,260	—		100,260		—		$	85,119	—		85,119		—
Total Liabilities	$	100,260	$	—	$	100,260	$	—	$	85,119	$	—	$	85,119	$	—

___________________________________


(1)	Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.

(2)

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. For foreign currency forward contracts, interest rate swaps, cross currency swaps and fuel swaps, fair value is derived using valuation models that utilize the income valuation approach. These valuation models take into account the contract terms, such as maturity as well as other inputs, such as foreign exchange rates and curves, fuel types, fuel curves and interest rate yield curves. For fuel call options, fair value is determined by using the prevailing market price for the instruments consisting of published price quotes for similar assets based on recent transactions in an active market. Fair value for foreign currency collar options is determined by using standard option pricing models with inputs based on the options' contract terms, such as exercise price and maturity, and readily available public market data, such as foreign exchange curves, foreign exchange volatility levels and discount rates. All derivative instrument fair values take into account the creditworthiness of the counterparty and the Company.


(3)	Inputs that are unobservable. The Company did not use any Level 3 inputs as of December 31, 2013 and December 31, 2012.


(4)	Consists of foreign currency forward contracts, foreign currency collar options, interest rate swaps, fuel swaps and purchased fuel call options. Please refer to the "Fair Value of Derivative Instruments" table for breakdown by instrument type.


(5)	Consists of exchange-traded equity securities and mutual funds.


(6)	Consists of interest rate swaps, fuel swaps, foreign currency forward contracts, foreign currency collar options and sold fuel call options. Please refer to the "Fair Value of Derivative Instruments" table for breakdown by instrument type.

Schedule of the Company's goodwill, indefinite-life intangible assets and long-lived assets for Pullmantur reporting unit recorded at fair value on a nonrecurring basis

The following table presents information about the Company's goodwill, indefinite-life intangible assets, long-lived assets for our Pullmantur reporting unit and assets held for sale recorded at fair value on a nonrecurring basis (in thousands):



			Fair Value Measurements at December 31, 2013 Using							Fair Value Measurements at December 31, 2012 Using
Description	Total Carrying Amount		Total Fair Value		Level 3	Total Impairment		Total Carrying Amount		Total Fair Value		Level 3	Total Impairment
Pullmantur Goodwill⁽¹⁾	$	152,107	$	—	—	$	—	$	145,539	$	145,539	145,539	$	319,214
Indefinite-life intangible asset-Pullmantur trademarks and trade names⁽²⁾	$	214,112	$	—	—	$	—	$	204,866	$	204,866	204,866	$	17,356
Long-lived assets-Pullmantur aircraft⁽³⁾	$	49,507	$	49,507	49,507	$	13,529	$	62,288	$	62,288	62,288	$	48,874
Assets held for sale⁽⁴⁾	$	—	$	—	—	$	19,985	$	19,168	$	—	—	$	—

___________________________________

(1)

For 2012, we estimated the fair value of the Pullmantur reporting unit using a probability-weighted discounted cash flow model. The principal assumptions used in the discounted cash flow model are projected operating results, weighted-average cost of capital, and terminal value. Significantly impacting these assumptions were the anticipated future transfer of vessels from our other cruise brands to Pullmantur. The discounted cash flow model used our 2013 projected operating results as a base. To that base we added future years' cash flows through 2017 assuming multiple revenue and expense scenarios that reflect the impact of different global economic environments for this period on Pullmantur's reporting unit. We assigned a probability to each revenue and expense scenario. We discounted the projected cash flows using rates specific to Pullmantur's reporting unit based on its weighted-average cost of capital, which was determined to be 10%.

(2)

For 2012, we estimated the fair value of our indefinite-life intangible asset using a discounted cash flow model and the relief-from-royalty method. We used a royalty rate of 3% based on comparable royalty agreements in the tourism and hospitality industry. These trademarks and trade names relate to Pullmantur and we have used a discount rate of 11%, comparable to the rate used in valuing the Pullmantur reporting unit.


(3)	We estimated the fair value of our long-lived assets using an undiscounted cash flow model. A significant assumption in performing the undiscounted cash flow test was the number of years during which we expect to use these aircraft. Additionally, as of December 31, 2013, the expected operating use of the aircraft has modified the expected cash flows.


(4)	For 2013, we estimated the fair value of assets held for sale related to the sale of Pullmantur's non-core businesses. This resulted in an impairment of $20.0 million mostly consisting of $18.2 million for property and equipment. See Note 16. Restructuring and Related Impairment Charges for further discussion.

Fuel Swap Agreements

As of December 31, 2013 and 2012, we had the following outstanding fuel swap agreements:



	Fuel Swap Agreements
	As of December 31, 2013	As of December 31, 2012
	(metric tons)
2013	—	755,000
2014	762,000	635,000
2015	665,000	363,000
2016	372,000	104,000
2017	74,000	—



	Fuel Swap Agreements
	As of December 31, 2013		As of December 31, 2012
	(% hedged)
Projected fuel purchases for year:
2013	—		55	%
2014	57	%	45	%
2015	45	%	25	%
2016	25	%	7	%
2017	5	%	—

Fair Value And Line item Caption of Derivative Instruments

The fair value and line item caption of derivative instruments recorded within our consolidated balance sheets were as follows:



	Fair Value of Derivative Instruments
	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	As of December 31, 2013		As of December 31, 2012		Balance Sheet Location	As of December 31, 2013		As of December 31, 2012
	Balance Sheet Location	Fair Value		Fair Value		Balance Sheet Location	Fair Value		Fair Value
In thousands
Derivatives designated as hedging instruments under ASC 815-20⁽¹⁾
Interest rate swaps	Other assets	$	56,571	$	5,099	Other long-term liabilities	$	66,920	$	55,471
Foreign currency forward contracts	Derivative financial instruments	61,596		951		Accrued expenses and other liabilities	—		338
Foreign currency forward contracts	Other assets	13,783		11,564		Other long-term liabilities	—		1,000
Foreign currency collar options	Other assets	22,172		8,974		Other long-term liabilities	—		—
Fuel swaps	Derivative financial instruments	10,902		48,624		Accrued expenses and other liabilities	1,657		1,761
Fuel swaps	Other assets	8,205		8,585		Other long-term liabilities	9,052		6,369
Total derivatives designated as hedging instruments under ASC 815-20		$	173,229	$	83,797		$	77,629	$	64,939
Derivatives not designated as hedging instruments under ASC 815-20
Foreign currency forward contracts	Derivative Financial Instruments	$	15,347	$	—	Accrued expenses and other liabilities	$	22,631	$	—
Foreign currency forward contracts	Other assets	—		4,440		Other long-term liabilities	—		11,475
Fuel swaps	Derivative financial instruments	—		—		Accrued expenses and other liabilities	—		475
Fuel call options	Derivative financial instruments	—		8,252		Accrued expenses and other liabilities	—		8,230
Total derivatives not designated as hedging instruments under ASC 815-20		15,347		12,692			22,631		20,180
Total derivatives		$	188,576	$	96,489		$	100,260	$	85,119

___________________________________


(1)	Accounting Standard Codification 815-20 "Derivatives and Hedging".

Fair Value and Line Item Caption of Non-derivative Instruments

The carrying value and line item caption of non-derivative instruments designated as hedging instruments recorded within our consolidated balance sheets were as follows:



		Carrying Value
Non-derivative instrument designated as hedging instrument under ASC 815-20	Balance Sheet Location	As of December 31, 2013		As of December 31, 2012
In thousands
Foreign currency debt	Current portion of long-term debt	$	477,442	$	17,516
Foreign currency debt	Long-term debt	273,354		617,593
		$	750,796	$	635,109

Effect of Non-derivative Instruments Qualifying and Designated as Hedging Instruments in Net Investment Hedges on Consolidated Financial Statements

The effect of non-derivative instruments qualifying and designated as net investment hedging instruments on the consolidated financial statements was as follows:



	Amount of Gain (Loss) Recognized in OCI (Effective Portion)						Location of Gain (Loss) in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Non-derivative instruments under ASC 815-20 Net Investment Hedging Relationships	Year Ended December 31, 2013			Year Ended December 31, 2012				Year Ended December 31, 2013		Year Ended December 31, 2012
In thousands
Foreign Currency Debt	$	(34,295	)	$	(11,065	)	Other (expense) income	$	—	$	—
	$	(34,295	)	$	(11,065	)		$	—	$	—

Not Designated as Hedging Instrument

Derivative Instruments

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance

The effect of derivatives not designated as hedging instruments on the consolidated financial statements was as follows:



		Amount of Gain (Loss) Recognized in Income on Derivative
Derivatives Not Designated as Hedging Instruments under ASC 815-20	Location of Gain (Loss) Recognized in Income on Derivative	Year Ended December 31, 2013			Year Ended December 31, 2012
In thousands
Foreign currency forward contracts	Other (expense) income	$	(21,244	)	$	7,152
Fuel swaps	Other (expense) income	243			(3,058		)
Fuel call options	Other (expense) income	(23		)	(5,613		)
		$	(21,024	)	$	(1,519	)

Fair Value Hedging

Derivative Instruments

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance

The effect of derivative instruments qualifying and designated as hedging instruments and the related hedged items in fair value hedges on the consolidated statements of comprehensive income (loss) was as follows:



	Location of Gain (Loss) Recognized in Income on Derivative and Hedged Item	Amount of Gain (Loss) Recognized in Income on Derivative						Amount of Gain (Loss) Recognized in Income on Hedged Item
Derivatives and related Hedged Items under ASC 815-20 Fair Value Hedging Relationships		Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2013		Year Ended December 31, 2012
In thousands
Interest rate swaps	Interest expense, net of interest capitalized	$	9,354		$	13,682		$	37,745	$	32,389
Interest rate swaps	Other (expense) income	(71,630		)	(1,763		)	68,743		2,070
Interest rate swaps	Extinguishment of unsecured senior notes	—			—			—		9,698
		$	(62,276	)	$	11,919		$	106,488	$	44,157

Cash flow hedge

Derivative Instruments

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance

The effect of derivative instruments qualifying and designated as cash flow hedging instruments on the consolidated financial statements was as follows:



	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)					Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness testing)
Derivatives under ASC 815-20 Cash Flow Hedging Relationships	Year Ended December 31, 2013		Year Ended December 31, 2012				Year Ended December 31, 2013			Year Ended December 31, 2012				Year Ended December 31, 2013			Year Ended December 31, 2012
In thousands
Cross currency swaps	$	—	$	851		Other (expense) income	$	—		$	2,505		Other (expense) income	$	—		$	—
Cross currency swaps	—		—			Interest Expense	(3,531		)	(2,209		)	Other (expense) income	—			—
Interest rate swaps	111,223		(44,971		)	Other (expense) income	—			—			Other (expense) income	431			(348		)
Foreign currency forward contracts	68,364		11,928			Depreciation and amortization expenses	(1,797		)	(953		)	Other (expense) income	9			—
Foreign currency forward contracts	—		—			Other (expense) income	27,423			(953		)	Other (expense) income	—			—
Foreign currency forward contracts	—		—			Interest expense	(440		)	—			Other (expense) income	—			—
Foreign currency collar options	13,199		3,316			Depreciation and amortization expenses	—			—			Other (expense) income	—			—
Fuel swaps	4,642		87,014			Fuel	47,944			110,995			Other (expense) income	(3,413		)	(1,041		)
	$	197,428	$	58,138			$	69,599		$	109,385			$	(2,973	)	$	(1,389	)