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Fair Value Measurements and Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2021

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 March 31, 2021 Using										Fair Value Measurements at December 31, 2020 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)	$	5,091,463	$	5,091,463	$	5,091,463	$	—	$	—	$	3,684,474	$	3,684,474	$	3,684,474	$	—	$	—

Total Assets	$	5,091,463	$	5,091,463	$	5,091,463	$	—	$	—	$	3,684,474	$	3,684,474	$	3,684,474	$	—	$	—
Liabilities:
Long-term debt (including current portion of debt)(5)	$	20,725,927	$	23,195,196	$	—	$	23,195,196	$	—	$	18,706,359	$	20,981,040	$	—	$	20,981,040	$	—
Total Liabilities	$	20,725,927	$	23,195,196	$	—	$	23,195,196	$	—	$	18,706,359	$	20,981,040	$	—	$	20,981,040	$	—

(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 March 31, 2021 and December 31, 2020.

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

(5) Consists of unsecured revolving credit facilities, senior notes, term loans and convertible notes. These amounts do not include our finance lease obligations or commercial paper.

The following table presents information about the Company’s nonfinancial instruments recorded at fair value on a nonrecurring basis (in thousands):


	Fair Value Measurement at December 31, 2020 Using
Description	Total Carrying Amount	Total Fair Value	Level 3	Total Impairment for the year ended December 31, 2020
Silversea Goodwill(1)	508,578	508,578	508,578	576,208
Indefinite-life intangible asset(2)	318,700	318,700	318,700	30,800
Long-lived assets(3)	577,193	577,193	577,193	727,063
Right-of-use assets(4)	67,265	67,265	67,265	65,909
Equity-method investments(5)	—	—	—	39,735
Total	1,471,736	1,471,736	1,471,736	1,439,715

___________________________________________________________________________________________________

(1) We estimated the fair value of the Silversea Cruises reporting unit using a probability-weighted discounted cash flow model in combination with a market based valuation approach. The principal assumptions used in the discounted cash flow model were (i) the timing of our return to service, changes in market conditions and port or other restrictions; (ii) forecasted net revenues, primarily the timing of returning to normalized operations, occupancy rates from existing and expected ship deliveries, including options, and terminal growth rate; and (iii) weighted average cost of capital (i.e., discount rate). The discounted cash flow model used our 2020 projected operating results as a base. To that base we added future years’ cash flows through 2030 assuming multiple revenue and expense scenarios that reflect the impact of different global economic environments for this period on the Silversea Cruises' reporting unit. We assigned a probability to each revenue and expense scenario. We discounted the projected cash flows using rates specific to the Silversea Cruises' reporting unit based on its weighted-average cost of capital, which was determined to be 12.75%. The fair value of Silversea Cruises’ goodwill was estimated as of March 31, 2020, the date the asset was last impaired.

(2) Amount represents the Silversea Cruises trade name which makes up the majority of our indefinite-life intangible assets, totaling $321.5 million. We estimated the fair value of our the Silversea Cruises trade name using a discounted cash flow model and the relief-from-royalty method and used a discount rate of 13.25%. Significant inputs in performing the fair value assessment for the trade name were (i) forecasted net revenues, primarily the timing of returning to normalized operations, occupancy rates from existing and expected ship deliveries, including options, and terminal growth rate; (ii) the royalty rate of 3.0%; and (iii) weighted average cost of capital (i.e., discount rate). The fair value of the Silversea Cruises trade name was estimated as of March 31, 2020, the date the asset was last impaired.

(3) Impairments primarily relate to certain vessels during 2020. In addition, certain construction in progress projects generated impairments during the quarter ended September 30, 2020 and quarter ended December 31, 2020. For the vessels impaired during the quarter ended March 31, 2020, we estimated the fair value of two of our vessels using a blended indication from the income and cost approaches and the fair value of the remaining vessels was estimated primarily based on their orderly liquidation values. For the vessels impaired during the quarter ended June 30, 2020, we estimated the fair value of the vessels using a modified market approach based on the carrying values and orderly liquidation values of the vessels. For the vessels impaired during the quarter ended December 31, 2020, we estimated the fair value of the three Azamara vessels using a market approach. A significant input in performing the fair value assessments for these vessels was management's expected use of the vessels, which takes into consideration forecasted operating results. During the quarter ended September 30, 2020 and quarter ended

December 31, 2020, construction in progress assets were impaired due to a reduction in scope or the decision to not complete the projects. The impairment was calculated based on orderly liquidation values. The fair value of these assets were estimated as of the date the asset was last impaired.

(4) Impairments to our right-of-use assets relate to certain of our berthing arrangements and a ship operating lease. We estimated the fair value of the berthing arrangements using estimated projected discounted cash flows and the fair value of the ship operating lease was estimated using a market approach. The fair value of the berthing arrangements was estimated as of March 31, 2020, the date these assets were last impaired. A significant input in performing the fair value assessments for these assets was our expected passenger headcount. The fair value of the ship operating lease was estimated as of December 31, 2020, the date this asset was last impaired, and significant inputs in performing the fair value assessment using the market approach for this asset were the expected rate of return and remaining lease payments.

(5) We estimated the fair value of our other than temporarily impaired equity-method investments using a discounted cash flow model. A significant input in performing the fair value assessments for these assets was forecasted operating results for these investments. The fair value of these equity-method investments was estimated as of March 31, 2020, the date these assets were last impaired. For further information on our equity method investments, refer to Note 6. Other Assets.

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 March 31, 2021 Using								Fair Value Measurements at December 31, 2020 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)	$	72,900	$	—	$	72,900	$	—	$	108,539	$	—	$	108,539	$	—

Total Assets	$	72,900	$	—	$	72,900	$	—	$	108,539	$	—	$	108,539	$	—
Liabilities:
Derivative financial instruments(5)	$	196,293	$	—	$	196,293	$	—	$	259,705	$	—	$	259,705	$	—

Total Liabilities	$	196,293	$	—	$	196,293	$	—	$	259,705	$	—	$	259,705	$	—

(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 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. Derivative instrument fair values take into account the creditworthiness of the counterparty and the Company.

(3)Inputs that are unobservable. No Level 3 inputs were used in fair value measurements of Other financial instruments as of March 31, 2021 and December 31, 2020.

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

(5) Consists of foreign currency forward contracts, interest rate swaps and fuel swaps. 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 (in thousands):


	Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
	As of March 31, 2021								As of December 31, 2020
	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 Liabilities		Cash Collateral Received		Net Amount of Derivative Assets
Derivatives subject to master netting agreements	$	72,900	$	(63,789)	$	—	$	9,111	$	108,539	$	(80,743)	$	—	$	27,796

Total	$	72,900	$	(63,789)	$	—	$	9,111	$	108,539	$	(80,743)	$	—	$	27,796

Offsetting Liabilities

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


	Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
	As of March 31, 2021								As of December 31, 2020
	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 Assets		Cash Collateral Pledged		Net Amount of Derivative Liabilities
Derivatives subject to master netting agreements	$	(196,293)	$	63,789	$	71,587	$	(60,917)	$	(259,705)	$	80,743	$	57,273	$	(121,689)

Total	$	(196,293)	$	63,789	$	71,587	$	(60,917)	$	(259,705)	$	80,743	$	57,273	$	(121,689)

Schedule of Price Risk Derivatives

As of March 31, 2021 and December 31, 2020, we had the following outstanding fuel swap agreements:


	Fuel Swap Agreements
	As of March 31, 2021	As of December 31, 2020
Designated as hedges:	(metric tons)
2021	284,050	385,050
2022	389,650	389,650
2023	82,400	82,400


	Fuel Swap Agreements
	As of March 31, 2021		As of December 31, 2020
	(% hedged)
Designated hedges as a % of projected fuel purchases:
2021	43	%	40	%
2022	25	%	23	%
2023	5	%	5	%


	Fuel Swap Agreements
	As of March 31, 2021	As of December 31, 2020
Not designated as hedges:	(metric tons)
2021	172,400	229,850
2022	14,650	14,650

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 (in thousands):


	Fair Value of Derivative Instruments
	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	As of March 31, 2021		As of December 31, 2020		Balance Sheet Location	As of March 31, 2021		As of December 31, 2020
		Fair Value		Fair Value			Fair Value		Fair Value
Derivatives designated as hedging instruments under ASC 815-20(1)
Interest rate swaps	Other assets	$	16,152	$	17,271	Other long-term liabilities	$	97,981	$	144,653
Interest rate-swaps	Derivative financial instruments	149		261		Derivative financial instruments	—		—
Foreign currency forward contracts	Derivative financial instruments	30,268		63,894		Derivative financial instruments	26,903		13,294
Foreign currency forward contracts	Other assets	5,842		20,836		Other long-term liabilities	23,032		7,306


Fuel swaps	Derivative financial instruments	15,099		5,093		Derivative financial instruments	9,135		25,203
Fuel swaps	Other assets	2,225		350		Other long-term liabilities	20,854		50,117
Total derivatives designated as hedging instruments under 815-20		69,735		107,705			177,905		240,573
Derivatives not designated as hedging instruments under ASC 815-20
Foreign currency forward contracts	Derivative financial instruments	$	1,201	$	—	Derivative financial instruments	$	4,284	$	160
Foreign currency forward contracts	Other assets	—		—		Other long-term liabilities	—		—
Fuel swaps	Derivative financial instruments	1,935		834		Derivative financial instruments	13,076		18,028
Fuel swaps	Other Assets	29		—		Other long-term liabilities	1,028		944
Total derivatives not designated as hedging instruments under 815-20		3,165		834			18,388		19,132
Total derivatives		$	72,900	$	108,539		$	196,293	$	259,705

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

The fair value and line item caption of derivative instruments recorded within our consolidated balance sheets for the cumulative basis adjustment for fair value hedges were as follows (in thousands):


Line Item in the Statement of Financial Position Where the Hedged Item is Included	Carrying Amount of the Hedged Liabilities				Cumulative amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities
	As of March 31, 2021		As of December 31, 2020		As of March 31, 2021		As of December 31, 2020
Current portion of debt and Long-term debt	$	662,822	$	700,331	$	14,582	$	17,512
	$	662,822	$	700,331	$	14,582	$	17,512

Derivative Instruments, Gain (Loss)

The location and amount of gain or (loss) recognized in income on fair value and cash flow hedging relationships were as follows (in thousands):

Quarter Ended March 31, 2021

Quarter Ended March 31, 2020

Fuel Expense

Depreciation and Amortization Expenses

Interest Income (Expense)

Other Income (Expense)

Fuel Expense

Depreciation and Amortization Expenses

Interest Income (Expense)

Other Income (Expense)

Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded

$41,822

$310,166

$(267,653)

$5,033

$194,268

$324,330

$(87,377)

$(32,859)

The effects of fair value and cash flow hedging:

Gain or (loss) on fair value hedging relationships in Subtopic 815-20

Interest contracts

Hedged items

n/a

$2,930

$—

n/a

$(21,330)

$—

Derivatives designated as hedging instruments

n/a

$(552)

$—

n/a

$20,430

$—

Gain or (loss) on cash flow hedging relationships in Subtopic 815-20

Interest contracts

Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income

n/a

$(9,509)

n/a

$(3,391)

n/a

Commodity contracts

Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income

$3,759

n/a

$(407)

$(14,233)

n/a

$344

Foreign exchange contracts

Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income

n/a

$(3,781)

n/a

$(1,291)

n/a

$(3,337)

n/a

$(1,763)

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 (in thousands):


		Carrying Value
Non-derivative instrument designated as hedging instrument under ASC 815-20	Balance Sheet Location	As of March 31, 2021		As of December 31, 2020
Foreign currency debt	Current portion of debt	$	—	$	43,696
Foreign currency debt	Long-term debt	132,826		219,335
		$	132,826	$	263,031

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 (in thousands):


	Amount of Gain (Loss) Recognized in Other Comprehensive Loss
Non-derivative instruments under ASC 815-20 Net Investment Hedging Relationships	Quarter Ended March 31, 2021		Quarter Ended March 31, 2020
Foreign Currency Debt	$	5,822	$	7,489
	$	5,822	$	7,489

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 (in thousands):


		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 March 31, 2021		Quarter Ended March 31, 2020
Foreign currency forward contracts	Other income (expense)	$	(13,498)	$	(52,676)

Fuel swaps	Other income (expense)	12,655		(67,206)
		$	(843)	$	(119,882)

Fair Value Hedging

Derivative Instruments

Schedule of Interest Rate Derivatives

At March 31, 2021 and December 31, 2020, we maintained interest rate swap agreements on the following fixed-rate debt instruments:


Debt Instrument	Swap Notional as of March 31, 2021 (in thousands)		Maturity	Debt Fixed Rate	Swap Floating Rate: LIBOR plus	All-in Swap Floating Rate as of March 31, 2021
Oasis of the Seas term loan	$	35,000	October 2021	5.41%	3.87%	4.12%
Unsecured senior notes	650,000		November 2022	5.25%	3.63%	3.83%
	$	685,000

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 loss was as follows (in thousands):


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 March 31, 2021		Quarter Ended March 31, 2020			Quarter Ended March 31, 2021		Quarter Ended March 31, 2020
Interest rate swaps	Interest expense, net of interest capitalized	$	(552)	$	20,430		$	2,930	$	(21,330)


		$	(552)	$	20,430		$	2,930	$	(21,330)

Cash flow hedge

Derivative Instruments

Schedule of Interest Rate Derivatives

At March 31, 2021 and December 31, 2020, we maintained interest rate swap agreements on the following floating-rate debt instruments:


Debt Instrument	Swap Notional as of March 31, 2021 (in thousands)		Maturity	Debt Floating Rate		All-in Swap Fixed Rate
Celebrity Reflection term loan	$	218,167	October 2024	LIBOR plus	0.40%	2.85%
Quantum of the Seas term loan	367,500		October 2026	LIBOR plus	1.30%	3.74%
Anthem of the Seas term loan	392,708		April 2027	LIBOR plus	1.30%	3.86%
Ovation of the Seas term loan	518,750		April 2028	LIBOR plus	1.00%	3.16%
Harmony of the Seas term loan (1)	509,411		May 2028	EURIBOR plus	1.15%	2.26%
Odyssey of the Seas term loan (2)	460,000		October 2032	LIBOR plus	0.95%	3.21%
Odyssey of the Seas term loan (2)	191,667		October 2032	LIBOR plus	0.95%	2.84%
	$	2,658,203

(1)Interest rate swap agreements hedging the Euro-denominated term loan for Harmony of the Seas include EURIBOR zero-floor matching the hedged debt EURIBOR zero-floor. Amount presented is based on the exchange rate as of March 31, 2021.

(2)Interest rate swap agreements hedging the term loan of Odyssey of the Seas include LIBOR zero-floors matching the debt LIBOR zero-floor. The effective dates of the $460.0 million and $191.7 million interest rate swap agreements are October 2020 and October 2022, respectively. The unsecured term loan for the financing of Odyssey of the Seas was drawn on March 2021.

Derivative Instruments, Gain (Loss)

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


Derivatives under ASC 815-20 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss on Derivatives				Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
	Quarter Ended March 31, 2021		Quarter Ended March 31, 2020					Quarter Ended March 31, 2021		Quarter Ended March 31, 2020

Interest rate swaps	$	43,408	$	(52,595)			Interest expense, net of interest capitalized	$	(9,509)	$	(3,391)

Foreign currency forward contracts	(99,581)		(100,014)				Depreciation and amortization expenses	(3,781)		(3,337)
Foreign currency forward contracts	—		—				Other income (expense)	(1,291)		(1,763)


Fuel swaps	—		—				Other income (expense)	(407)		344
Fuel swaps	55,246		(170,376)				Fuel	3,759		(14,233)
	$	(927)	$	(322,985)				$	(11,229)	$	(22,380)

The table below represents amounts excluded from the assessment of effectiveness for our net investment hedging instruments for which the difference between changes in fair value and periodic amortization is recorded in accumulated other comprehensive income (loss) (in thousands):


Gain (Loss) Recognized in Income (Net Investment Excluded Components)	Three Months Ended March 31, 2021

Net inception fair value at January 1, 2021	$	(1,915)
Amount of gain recognized in income on derivatives for the period ended March 31, 2021	1,637
Amount of gain (loss) remaining to be amortized in accumulated other comprehensive loss, as of March 31, 2021	(993)
Fair value at March 31, 2021	$	(1,271)