Fair Value Measurements and Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 2015

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

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 September 30, 2015		As of December 31, 2014		Balance Sheet Location	As of September 30, 2015		As of December 31, 2014
	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	$	1,691	$	—	Other long-term liabilities	$	93,807	$	65,768
Foreign currency forward contracts	Derivative financial instruments	107,668		—		Derivative financial instruments	292,372		17,619
Foreign currency forward contracts	Other assets	—		63,981		Other long-term liabilities	—		164,627
Foreign currency collar options	Derivative financial instruments	—		—		Derivative financial instruments	—		21,855
Fuel swaps	Derivative financial instruments	—		—		Derivative financial instruments	239,715		227,512
Fuel swaps	Other assets	—		—		Other long-term liabilities	277,158		270,254
Total derivatives designated as hedging instruments under 815-20		109,359		63,981			903,052		767,635
Derivatives not designated as hedging instruments under ASC 815-20
Fuel swaps	Derivative financial instruments	3,079		—		Derivative financial instruments	17,437		—
Fuel swaps	Other Assets	841		—		Other long-term liabilities	4,713		—
Total derivatives not designated as hedging instruments under 815-20		3,920		—			22,150		—
Total derivatives		$	113,279	$	63,981		$	925,202	$	767,635

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

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 September 30, 2015		As of December 31, 2014
(In thousands)
Foreign currency debt	Long-term debt	$	207,585	$	168,718
		$	207,585	$	168,718

Schedule of Price Risk Derivatives

As of September 30, 2015 and December 31, 2014, we had the following outstanding fuel swap agreements:



	Fuel Swap Agreements
	As of September 30, 2015	As of December 31, 2014
	(metric tons)
2015	197,000	806,000
2016	930,000	802,000
2017	854,000	525,000
2018	583,000	226,000
2019	153,000	—



	Fuel Swap Agreements
	As of September 30, 2015		As of December 31, 2014
	(% hedged)
Projected fuel purchases:
2015	57	%	58	%
2016	65	%	55	%
2017	59	%	35	%
2018	40	%	15	%
2019	10	%	—

Fair Value Measurements, Nonrecurring

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 September 30, 2015 Using										Fair Value Measurements at December 31, 2014 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⁾	$	147,419	$	147,419	$	147,419	$	—	$	—	$	189,241	$	189,241	$	189,241	$	—	$	—
Total Assets	$	147,419	$	147,419	$	147,419	$	—	$	—	$	189,241	$	189,241	$	189,241	$	—	$	—
Liabilities:
Long-term debt (including current portion of long-term debt)⁽⁵⁾	$	8,438,804	$	8,732,461	$	1,556,756	$	7,175,705	$	—	$	8,391,301	$	8,761,414	$	1,859,361	$	6,902,053	$	—
Total Liabilities	$	8,438,804	$	8,732,461	$	1,556,756	$	7,175,705	$	—	$	8,391,301	$	8,761,414	$	1,859,361	$	6,902,053	$	—

(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 the creditworthiness of the Company.

(3) Inputs that are unobservable. The Company did not use any Level 3 inputs as of September 30, 2015 and December 31, 2014.

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

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

Non Derivative Instruments Qualifying and Designated as Hedging Instruments in Net Investment Hedges

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 Other Comprehensive Income (Loss) (Effective Portion)
Non-derivative instruments under ASC 815-20 Net Investment Hedging Relationships	Quarter Ended September 30, 2015			Quarter Ended September 30, 2014		Nine Months Ended September 30, 2015		Nine Months Ended September 30, 2014
(In thousands)
Foreign Currency Debt	$	(436	)	$	13,408	$	8,955	$	18,038
	$	(436	)	$	13,408	$	8,955	$	18,038

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

Assets and liabilities that are recorded at fair value have been categorized based upon the fair value hierarchy. 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 September 30, 2015 Using								Fair Value Measurements at December 31, 2014 Using
Description	Total		Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾		Total		Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾
Assets:
Derivative financial instruments⁽⁴⁾	$	113,279	$	—	$	113,279	$	—	$	63,981	$	—	$	63,981	$	—
Investments⁽⁵⁾	$	3,884	3,884		—		—		$	5,531	5,531		—		—
Total Assets	$	117,163	$	3,884	$	113,279	$	—	$	69,512	$	5,531	$	63,981	$	—
Liabilities:
Derivative financial instruments⁽⁶⁾	$	925,202	$	—	$	925,202	$	—	$	767,635	$	—	$	767,635	$	—
Total Liabilities	$	925,202	$	—	$	925,202	$	—	$	767,635	$	—	$	767,635	$	—

(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. 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 September 30, 2015 and December 31, 2014.

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

Offsetting Assets

The following table presents information about the Company’s offsetting of financial assets under master netting agreements with derivative counterparties:



	Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
	As of September 30, 2015									As of December 31, 2014
	Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet		Gross Amount of Eligible Offsetting Recognized Derivative Liabilities			Cash Collateral Received		Net Amount of Derivative Assets		Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet		Gross Amount of Eligible Offsetting Recognized Derivative Assets			Cash Collateral Received		Net Amount of Derivative Assets
(In thousands)
Derivatives subject to master netting agreements	$	113,279	$	(112,567	)	$	—	$	712	$	63,981	$	(63,981	)	$	—	$	—
Total	$	113,279	$	(112,567	)	$	—	$	712	$	63,981	$	(63,981	)	$	—	$	—

Offsetting Liabilities

The following table presents information about the Company’s offsetting of financial liabilities under master netting agreements with derivative counterparties:



	Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
	As of September 30, 2015										As of December 31, 2014
	Gross Amount of Derivative Liabilities Presented in the Consolidated Balance Sheet			Gross Amount of Eligible Offsetting Recognized Derivative Assets		Cash Collateral Pledged		Net Amount of Derivative Liabilities			Gross Amount of Derivative Liabilities Presented in the Consolidated Balance Sheet			Gross Amount of Eligible Offsetting Recognized Derivative Liabilities		Cash Collateral Pledged		Net Amount of Derivative Liabilities
(In thousands)
Derivatives subject to master netting agreements	$	(925,202	)	$	112,567	$	—	$	(812,635	)	$	(767,635	)	$	63,981	$	—	$	(703,654	)
Total	$	(925,202	)	$	112,567	$	—	$	(812,635	)	$	(767,635	)	$	63,981	$	—	$	(703,654	)

Fair Value Measurements, Recurring and Nonrecurring

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



	Fair Value Measurements at September 30, 2015 Using
Description	Total Carrying Amount	Total Fair Value	Level 3	Total Impairment
Pullmantur Goodwill ⁽¹⁾	—	—	—	123,814
Indefinite-life intangible asset—Pullmantur trademarks and trade names ⁽²⁾	—	—	—	174,285
Long-lived assets—Pullmantur aircraft and vessels ⁽³⁾	147,900	147,900	147,900	113,168
Total	147,900	147,900	147,900	411,267

(1) 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 was the decision to reduce the size of Pullmantur's fleet. The discounted cash flow model used our 2016 projected operating results as a base. To that base we added future years’ cash flows through 2020 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 11%.

(2) We estimated the fair value of our indefinite-life intangible asset using a discounted cash flow model and the relief-from-royalty method. These trademarks and trade names relate to Pullmantur and we have used a discount rate of 11.5%, comparable to the rate used in valuing the Pullmantur reporting unit.

(3) We estimated the fair value of our long-lived assets using the market approach for the aircraft and a blended indication from the cost and market approaches for the vessels. A significant input in performing the fair value assessments for these assets was comparable market transactions.

Not Designated as Hedging Instrument

Derivative Instruments

Derivative Instruments, Gain (Loss)

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 Derivatives
Derivatives Not Designated as Hedging Instruments under ASC 815-20	Location of Gain (Loss) Recognized in Income on Derivatives	Quarter Ended September 30, 2015			Quarter Ended September 30, 2014			Nine Months Ended September 30, 2015			Nine Months Ended September 30, 2014
(In thousands)
Foreign currency forward contracts	Other income	$	(32,705	)	$	(35,175	)	$	(49,607	)	$	(24,405	)
Fuel swaps	Other income	(76		)	(220		)	(191		)	(1,157		)
		$	(32,781	)	$	(35,395	)	$	(49,798	)	$	(25,562	)

Fair Value Hedging

Derivative Instruments

Derivative Instruments, Gain (Loss)

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:



Derivatives and Related Hedged Items under ASC 815-20 Fair Value Hedging Relationships	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
		Quarter Ended September 30, 2015		Quarter Ended September 30, 2014			Nine Months Ended September 30, 2015		Nine Months Ended September 30, 2014		Quarter Ended September 30, 2015			Quarter Ended September 30, 2014		Nine Months Ended September 30, 2015			Nine Months Ended September 30, 2014
(In thousands)
Interest rate swaps	Interest expense, net of interest capitalized	$	2,793	$	3,063		$	8,640	$	9,199	$	3,968		$	3,968	$	11,775		$	13,435
Interest rate swaps	Other income	22,341		(3,010		)	21,780		24,431		(20,252		)	3,934		(18,245		)	(19,122		)
		$	25,134	$	53		$	30,420	$	33,630	$	(16,284	)	$	7,902	$	(6,470	)	$	(5,687	)

Cash flow hedge

Derivative Instruments

Derivative Instruments, Gain (Loss)



Derivatives under ASC 815- 20 Cash Flow Hedging Relationships	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)
		Quarter Ended September 30, 2015			Quarter Ended September 30, 2014			Nine Months Ended September 30, 2015			Nine Months Ended September 30, 2014
(In thousands)
Interest rate swaps	Other income	(617		)	17			(395		)	(78		)
Foreign currency forward contracts	Other income	—			15			—			(12		)
Fuel swaps	Other income	(2,353		)	(8,069		)	(2,771		)	(7,607		)
		$	(2,970	)	$	(8,037	)	$	(3,166	)	$	(7,697	)

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



Derivatives under ASC 815-20 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) on Derivative (Effective Portion)												Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Effective Portion)
	Quarter Ended September 30, 2015			Quarter Ended September 30, 2014			Nine Months Ended September 30, 2015			Nine Months Ended September 30, 2014				Quarter Ended September 30, 2015			Quarter Ended September 30, 2014			Nine Months Ended September 30, 2015			Nine Months Ended September 30, 2014
(In thousands)
Cross currency swaps	$	—		$	—		$	—		$	—		Interest expense, net of interest capitalized	$	—		$	—		$	—		$	(261	)
Interest rate swaps	(68,956		)	1,331			(75,104		)	(71,621		)	Interest expense, net of interest capitalized	(10,276		)	(3,106		)	(27,024		)	(9,312		)
Foreign currency forward contracts	(619		)	(163,387		)	(131,211		)	(172,629		)	Depreciation and amortization expenses	(752		)	(450		)	(2,153		)	(1,348		)
Foreign currency forward contracts	—			—			—			—			Other income	(239		)	(238		)	(715		)	(4,052		)
Foreign currency forward contracts	—			—			—			—			Interest expense, net of interest capitalized	—			—			—			(57		)
Foreign currency collar options	34			(21,904		)	(64,559		)	(30,638		)	Depreciation and amortization expenses	(568		)	—			(1,003		)	—
Fuel swaps	(230,761		)	(71,456		)	(213,072		)	(64,527		)	Fuel	(65,975		)	(1,996		)	(172,083		)	(1,206		)
	$	(300,302	)	$	(255,416	)	$	(483,946	)	$	(339,415	)		$	(77,810	)	$	(5,790	)	$	(202,978	)	$	(16,236	)