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Fair Value Measurements and Derivative Instruments (Tables)

12 Months Ended

Dec. 31, 2016

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, 2016 Using										Fair Value Measurements at December 31, 2015 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⁾	$	132,603	$	132,603	$	132,603	$	—	$	—	$	121,565	$	121,565	$	121,565	$	—	$	—
Total Assets	$	132,603	$	132,603	$	132,603	$	—	$	—	$	121,565	$	121,565	$	121,565	$	—	$	—
Liabilities:
Long-term debt (including current portion of long-term debt)⁽⁵⁾	$	9,347,051	$	9,859,266	$	—	$	9,859,266	$	—	$	8,478,473	$	8,895,009	$	—	$	8,895,009	$	—
Total Liabilities	$	9,347,051	$	9,859,266	$	—	$	9,859,266	$	—	$	8,478,473	$	8,895,009	$	—	$	8,895,009	$	—

___________________________________


(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 December 31, 2016 and December 31, 2015.


(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.

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, 2016 Using								Fair Value Measurements at December 31, 2015 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⁾	$	19,397	$	—	$	19,397	$	—	$	134,574	$	—	$	134,574	$	—
Investments⁽⁵⁾	$	3,576	3,576		—		—		$	3,965	3,965		—		—
Total Assets	$	22,973	$	3,576	$	19,397	$	—	$	138,539	$	3,965	$	134,574	$	—
Liabilities:
Derivative financial instruments⁽⁶⁾	$	373,497	$	—	$	373,497	$	—	$	1,044,292	$	—	$	1,044,292	$	—
Total Liabilities	$	373,497	$	—	$	373,497	$	—	$	1,044,292	$	—	$	1,044,292	$	—

___________________________________


(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. 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, 2016 and December 31, 2015.


(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 reported within Other assets in our consolidated balance sheets.


(6)	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.

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 and long-lived assets for our Pullmantur reporting unit, further discussed in Note 3. Goodwill and Note 4. Intangible Assets, recorded at fair value on a nonrecurring basis (in thousands):



	Fair Value Measurements at December 31, 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⁾	$	140,846	$	140,846	$	140,846	$	113,168
Total	$	140,846	$	140,846	$	140,846	$	411,267

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(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%. The fair value of Pullmantur's goodwill was estimated as of August 31, 2015, the date of the last impairment test, at which point it was fully impaired.

(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. The fair value of these assets were estimated as of August 31, 2015, the date of the last impairment test, at which point they were fully impaired.

(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 as of August 31, 2015, the date of the last impairment test, including depreciation through December 31, 2015. We believe this amount estimates fair value as of December 31, 2015. A significant input in performing the fair value assessments for these assets was comparable market transactions.

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 December 31, 2016									As of December 31, 2015
	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	$	19,397	$	(19,397	)	$	—	$	—	$	134,574	$	(129,815	)	$	—	$	4,759
Total	$	19,397	$	(19,397	)	$	—	$	—	$	134,574	$	(129,815	)	$	—	$	4,759

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 December 31, 2016										As of December 31, 2015
	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	$	(373,497	)	$	19,397	$	7,213	$	(346,887	)	$	(1,044,292	)	$	129,815	$	—	$	(914,477	)
Total	$	(373,497	)	$	19,397	$	7,213	$	(346,887	)	$	(1,044,292	)	$	129,815	$	—	$	(914,477	)

Fuel Swap Agreements

As of December 31, 2016 and 2015, we had the following outstanding fuel swap agreements:



	Fuel Swap Agreements
	As of December 31, 2016	As of December 31, 2015
	(metric tons)
2016	—	930,000
2017	799,065	854,000
2018	616,300	583,000
2019	521,000	231,000
2020	306,500	—



	Fuel Swap Agreements
	As of December 31, 2016		As of December 31, 2015
	(% hedged)
Projected fuel purchases for year:
2016	—		65	%
2017	60	%	59	%
2018	44	%	40	%
2019	35	%	15	%
2020	20	%	—	%

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, 2016		As of December 31, 2015		Balance Sheet Location	As of December 31, 2016		As of December 31, 2015
	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	$	5,246	$	—	Other long-term liabilities	$	57,679	$	67,371
Foreign currency forward contracts	Derivative financial instruments	—		93,996		Derivative financial instruments	5,574		320,873
Foreign currency forward contracts	Other assets	—		—		Other long-term liabilities	68,165		—
Fuel swaps	Derivative financial instruments	—		—		Derivative financial instruments	129,486		307,475
Fuel swaps	Other assets	13,608		—		Other long-term liabilities	95,125		325,055
Total derivatives designated as hedging instruments under ASC 815-20		18,854		93,996			356,029		1,020,774
Derivatives not designated as hedging instruments under ASC 815-20
Foreign currency forward contracts	Derivative Financial Instruments	—		32,339		Derivative financial instruments	—		—
Fuel swaps	Derivative financial instruments	—		8,239		Derivative financial instruments	11,532		23,518
Fuel swaps	Other assets	543		—		Other long-term liabilities	5,936		—
Total derivatives not designated as hedging instruments under ASC 815-20		543		40,578			17,468		23,518
Total derivatives		$	19,397	$	134,574		$	373,497	$	1,044,292

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(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, 2016		As of December 31, 2015
(In thousands)
Foreign currency debt	Current portion of long-term debt	$	61,601	$	—
Foreign currency debt	Long-term debt	249,624		—
		$	311,225	$	—

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 Other Comprehensive Income (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, 2016		Year Ended December 31, 2015			Year Ended December 31, 2016		Year Ended December 31, 2015
(In thousands)
Foreign Currency Debt	$	20,295	$	8,955	Other income (expense)	$	—	$	—
	$	20,295	$	8,955		$	—	$	—

Not Designated as Hedging Instrument

Derivative instruments disclosure

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 Derivatives
Derivatives Not Designated as Hedging Instruments under ASC 815-20	Location of Gain (Loss) Recognized in Income on Derivatives	Year Ended December 31, 2016			Year Ended December 31, 2015
(In thousands)
Foreign currency forward contracts	Other income (expense)	$	(51,029	)	$	(55,489	)
Fuel swaps	Other income (expense)	(1,000		)	(175		)
		$	(52,029	)	$	(55,664	)

Fair value hedging

Derivative instruments disclosure

Schedule of Interest Rate Derivatives

At December 31, 2016 and December 31, 2015, we maintained interest rate swap agreements on the following fixed-rate debt instruments:



Debt Instrument	Swap Notional as of December 31, 2016 (In thousands)		Maturity	Debt Fixed Rate	Swap Floating Rate: LIBOR plus	All-in Swap Floating Rate as of December 31, 2016
Oasis of the Seas term loan	$	175,000	October 2021	5.41%	3.87%	5.13%
Unsecured senior notes	650,000		November 2022	5.25%	3.63%	4.54%
	$	825,000

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, 2016			Year Ended December 31, 2015		Year Ended December 31, 2016		Year Ended December 31, 2015
(In thousands)
Interest rate swaps	Interest expense, net of interest capitalized	$	7,448		$	11,276	$	7,203	$	15,743
Interest rate swaps	Other income (expense)	(3,625		)	10,779		5,072		(7,533		)
		$	3,823		$	22,055	$	12,275	$	8,210

Cash flow hedge

Derivative instruments disclosure

Schedule of Interest Rate Derivatives

At December 31, 2016 and December 31, 2015, we maintained interest rate swap agreements on the following floating-rate debt instruments:



Debt Instrument	Swap Notional as of December 31, 2016 (In thousands)		Maturity	Debt Floating Rate		All-in Swap Fixed Rate
Celebrity Reflection term loan		$436,333	October 2024	LIBOR plus	0.40%	2.85%
Quantum of the Seas term loan	612,500		October 2026	LIBOR plus	1.30%	3.74%
Anthem of the Seas term loan	634,375		April 2027	LIBOR plus	1.30%	3.86%
Ovation of the Seas term loan	795,417		April 2028	LIBOR plus	1.00%	3.16%
Harmony of the Seas term loan ⁽¹⁾	701,056		May 2028	EURIBOR plus	1.15%	2.26%
	$	3,179,681

⁽¹⁾Interest rate swap agreements hedging the Euro-denominated term loan for Harmony of the Seas include EURIBOR zero-floors matching the hedged debt EURIBOR zero-floor. Amount presented is based on the exchange rate as of December 31, 2016.

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 Other Comprehensive Income on Derivatives (Effective Portion)						Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income 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, 2016			Year Ended December 31, 2015				Year Ended December 31, 2016			Year Ended December 31, 2015				Year Ended December 31, 2016			Year Ended December 31, 2015
(In thousands)
Interest rate swaps	(31,049		)	(52,602		)	Interest expense	(41,480		)	(36,401		)	Other income (expense)	—			38
Foreign currency forward contracts	(51,092		)	(141,470		)	Depreciation and amortization expenses	(8,114		)	(2,871		)	Other income (expense)	—			—
Foreign currency forward contracts	—			—			Other income (expense)	(14,342		)	7,580			Other income (expense)	(59		)	—
Foreign currency forward contracts	—			—			Other indirect operating expenses	(207		)	—			Other income (expense)	—			—
Foreign currency collar options	—			(64,559		)	Depreciation and amortization expenses	(2,408		)	(1,605		)	Other income (expense)	—			—
Fuel swaps	—			—			Other income (expense)	13,685			(9,583		)	Other income (expense)	—			—
Fuel swaps	156,139			(439,040		)	Fuel	(284,384		)	(248,744		)	Other income (expense)	(751		)	(487		)
	$	73,998		$	(697,671	)		$	(337,250	)	$	(291,624	)		$	(810	)	$	(449	)