Fair Value Measurements and Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 2017

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, 2017 Using										Fair Value Measurements at December 31, 2016 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⁾	$	139,950	$	139,950	$	139,950	$	—	$	—	$	132,603	$	132,603	$	132,603	$	—	$	—
Total Assets	$	139,950	$	139,950	$	139,950	$	—	$	—	$	132,603	$	132,603	$	132,603	$	—	$	—
Liabilities:
Long-term debt (including current portion of long-term debt)⁽⁵⁾	$	7,557,801	$	8,111,168	$	—	$	8,111,168	$	—	$	9,347,051	$	9,859,266	$	—	$	9,859,266	$	—
Total Liabilities	$	7,557,801	$	8,111,168	$	—	$	8,111,168	$	—	$	9,347,051	$	9,859,266	$	—	$	9,859,266	$	—


(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, 2017 and December 31, 2016.


(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. This does not include our capital lease obligations.

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, 2017 Using								Fair Value Measurements at December 31, 2016 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⁾	$	221,258	$	—	$	221,258	$	—	$	19,397	$	—	$	19,397	$	—
Investments⁽⁵⁾	$	3,237	3,237		—		—		$	3,576	3,576		—		—
Total Assets	$	224,495	$	3,237	$	221,258	$	—	$	22,973	$	3,576	$	19,397	$	—
Liabilities:
Derivative financial instruments⁽⁶⁾	$	189,163	$	—	$	189,163	$	—	$	373,497	$	—	$	373,497	$	—
Total Liabilities	$	189,163	$	—	$	189,163	$	—	$	373,497	$	—	$	373,497	$	—


(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 September 30, 2017 and December 31, 2016.


(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.

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, 2017									As of December 31, 2016
	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	$	221,258	$	(117,065	)	$	—	$	104,193	$	19,397	$	(19,397	)	$	—	$	—
Total	$	221,258	$	(117,065	)	$	—	$	104,193	$	19,397	$	(19,397	)	$	—	$	—

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, 2017										As of December 31, 2016
	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	$	(189,163	)	$	117,065	$	—	$	(72,098	)	$	(373,497	)	$	19,397	$	7,213	$	(346,887	)
Total	$	(189,163	)	$	117,065	$	—	$	(72,098	)	$	(373,497	)	$	19,397	$	7,213	$	(346,887	)

Schedule of Price Risk Derivatives

As of September 30, 2017 and December 31, 2016, we had the following outstanding fuel swap agreements:



	Fuel Swap Agreements
	As of September 30, 2017	As of December 31, 2016
	(metric tons)
2017	218,600	799,065
2018	756,700	616,300
2019	668,500	521,000
2020	531,200	306,500
2021	224,900	—



	Fuel Swap Agreements
	As of September 30, 2017		As of December 31, 2016
	(% hedged)
Projected fuel purchases:
2017	65	%	60	%
2018	56	%	44	%
2019	47	%	35	%
2020	36	%	20	%
2021	14	%	—

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, 2017		As of December 31, 2016		Balance Sheet Location	As of September 30, 2017		As of December 31, 2016
	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	$	1,760	$	5,246	Other long-term liabilities	$	52,611	$	57,679
Foreign currency forward contracts	Derivative financial instruments	45,583		—		Derivative financial instruments	—		5,574
Foreign currency forward contracts	Other assets	136,534		—		Other long-term liabilities	4,479		68,165
Fuel swaps	Derivative financial instruments	7,213		—		Derivative financial instruments	81,981		129,486
Fuel swaps	Other assets	29,721		13,608		Other long-term liabilities	40,517		95,125
Total derivatives designated as hedging instruments under 815-20		220,811		18,854			179,588		356,029
Derivatives not designated as hedging instruments under ASC 815-20
Fuel swaps	Derivative financial instruments	—		—		Derivative financial instruments	7,352		11,532
Fuel swaps	Other Assets	447		543		Other long-term liabilities	2,223		5,936
Total derivatives not designated as hedging instruments under 815-20		447		543			9,575		17,468
Total derivatives		$	221,258	$	19,397		$	189,163	$	373,497

(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 September 30, 2017		As of December 31, 2016
(In thousands)
Foreign currency debt	Current portion of long-term debt	$	69,023	$	61,601
Foreign currency debt	Long-term debt	215,863		249,624
		$	284,886	$	311,225

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, 2017		Quarter Ended September 30, 2016			Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
(In thousands)
Foreign Currency Debt	$	7,949	$	(3,382	)	$	34,206	$	1,313
	$	7,949	$	(3,382	)	$	34,206	$	1,313

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, 2017			Quarter Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
(In thousands)
Foreign currency forward contracts	Other expense	$	21,951		$	(2,464	)	$	57,019		$	(11,712	)
Fuel swaps	Other expense	(175		)	(1,172		)	(255		)	(1,224		)
		$	21,776		$	(3,636	)	$	56,764		$	(12,936	)

Fair Value Hedging

Derivative Instruments

Schedule of Interest Rate Derivatives

At September 30, 2017 and December 31, 2016, we maintained interest rate swap agreements on the following fixed-rate debt instruments:



Debt Instrument	Swap Notional as of September 30, 2017 (In thousands)		Maturity	Debt Fixed Rate	Swap Floating Rate: LIBOR plus	All-in Swap Floating Rate as of September 30, 2017
Oasis of the Seas term loan	$	157,500	October 2021	5.41%	3.87%	5.29%
Unsecured senior notes	650,000		November 2022	5.25%	3.63%	4.95%
	$	807,500

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, 2017			Quarter Ended September 30, 2016			Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016		Quarter Ended September 30, 2017		Quarter Ended September 30, 2016		Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
(In thousands)
Interest rate swaps	Interest expense, net of interest capitalized	$	600		$	1,737		$	2,642	$	6,075	$	—	$	—	$	—		$	7,203
Interest rate swaps	Other expense	(545		)	(7,662		)	3,275		28,592		1,013		7,423		(841		)	(24,878		)
		$	55		$	(5,925	)	$	5,917	$	34,667	$	1,013	$	7,423	$	(841	)	$	(17,675	)

Cash flow hedge

Derivative Instruments

Schedule of Interest Rate Derivatives

At September 30, 2017 and December 31, 2016, we maintained interest rate swap agreements on the following floating-rate debt instruments:



Debt Instrument	Swap Notional as of September 30, 2017 (In thousands)		Maturity	Debt Floating Rate		All-in Swap Fixed Rate
Celebrity Reflection term loan	$	409,063	October 2024	LIBOR plus	0.40%	2.85%
Quantum of the Seas term loan	581,875		October 2026	LIBOR plus	1.30%	3.74%
Anthem of the Seas term loan	604,167		April 2027	LIBOR plus	1.30%	3.86%
Ovation of the Seas term loan	760,833		April 2028	LIBOR plus	1.00%	3.16%
Harmony of the Seas term loan ⁽¹⁾	751,362		May 2028	EURIBOR plus	1.15%	2.26%
	$	3,107,300

(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 September 30, 2017.

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, 2017		Quarter Ended September 30, 2016			Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
(In thousands)
Interest rate swaps	Other expense	—		90			—		(1,152		)
Foreign currency forward contracts	Other expense	75		—			100		(57		)
Fuel swaps	Other expense	3,351		(8		)	1,014		(3,949		)
		$	3,426	$	82		$	1,114	$	(5,158	)

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, 2017			Quarter Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016				Quarter Ended September 30, 2017			Quarter Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
(In thousands)
Interest rate swaps	$	(3,154	)	$	6,598		$	(24,703	)	$	(126,505	)	Interest expense, net of interest capitalized	$	(7,860	)	$	(11,953	)	$	(24,580	)	$	(32,019	)
Foreign currency forward contracts	122,211			11,405			221,861			22,715			Depreciation and amortization expenses	(2,710		)	(2,710		)	(8,130		)	(5,408		)
Foreign currency forward contracts	—			—			—			—			Other expense	(1,512		)	(3,465		)	(9,187		)	(10,206		)
Foreign currency forward contracts	—			—			—			—			Other operating	—			—			—			(207		)
Foreign currency collar options	—			—			—			—			Depreciation and amortization expenses	(602		)	(601		)	(1,806		)	(1,806		)
Fuel swaps	—			—			—			—			Other expense	1,758			2,760			6,533			9,356
Fuel swaps	67,878			(3,090		)	33,183			94,640			Fuel	(32,386		)	(64,654		)	(114,149		)	(223,484		)
	$	186,935		$	14,913		$	230,341		$	(9,150	)		$	(43,312	)	$	(80,623	)	$	(151,319	)	$	(263,774	)