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Fair Value Measurements and Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 2022

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, 2022										Fair Value Measurements at December 31, 2021
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)	$	1,566,213	$	1,566,213	$	1,566,213	$	—	$	—	$	2,701,770	$	2,701,770	$	2,701,770	$	—	$	—
Total Assets	$	1,566,213	$	1,566,213	$	1,566,213	$	—	$	—	$	2,701,770	$	2,701,770	$	2,701,770	$	—	$	—
Liabilities:
Long-term debt (including current portion of debt)(5)	$	22,927,144	$	21,948,811	$	—	$	21,948,811	$	—	$	20,618,065	$	22,376,480	$	—	$	22,376,480	$	—
Total Liabilities	$	22,927,144	$	21,948,811	$	—	$	21,948,811	$	—	$	20,618,065	$	22,376,480	$	—	$	22,376,480	$	—

(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, 2022 and December 31, 2021.

(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 Measurements at September 30, 2022
Description	Total Carrying Amount	Total Fair Value	Level 3	Total Impairment for the Nine Months ended September 30, 2022 (1)
Long-lived assets	—	—	—	10,186
Total	—	—	—	10,186

(1) Amount is primarily composed of construction in progress assets that were impaired during the three months ended September 30, 2022 due to a reduction in scope or the decision to not complete the projects. The impairments were calculated based on orderly liquidation values. The fair value of these assets was estimated as of the date the assets were last impaired.


	Fair Value Measurements at December 31, 2021
Description	Total Carrying Amount	Total Fair Value	Level 3	Total Impairment for the Year Ended December 31, 2021 (1)
Long-lived assets	—	—	—	55,213
Total	—	—	—	55,213

(1) Amount is primarily composed of construction in progress assets that were impaired during the year ended 2021 due to a reduction in scope or the decision to not complete the projects. The impairments were calculated based on orderly liquidation values. The fair value of these assets was estimated as of the date the assets were last impaired.

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, 2022								Fair Value Measurements at December 31, 2021
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)	$	189,150	$	—	$	189,150	$	—	$	69,808	$	—	$	69,808	$	—
Total Assets	$	189,150	$	—	$	189,150	$	—	$	69,808	$	—	$	69,808	$	—
Liabilities:
Derivative financial instruments(5)	$	312,358	$	—	$	312,358	$	—	$	200,541	$	—	$	200,541	$	—
Total Liabilities	$	312,358	$	—	$	312,358	$	—	$	200,541	$	—	$	200,541	$	—

(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 September 30, 2022 and December 31, 2021.

(4)Consists of 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 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 September 30, 2022								As of December 31, 2021
	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	$	189,150	$	(145,297)	$	—	$	43,853	$	69,808	$	(67,995)	$	—	$	1,813
Total	$	189,150	$	(145,297)	$	—	$	43,853	$	69,808	$	(67,995)	$	—	$	1,813

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 September 30, 2022								As of December 31, 2021
	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	$	(312,358)	$	145,297	$	—	$	(167,061)	$	(200,541)	$	67,995	$	44,411	$	(88,135)
Total	$	(312,358)	$	145,297	$	—	$	(167,061)	$	(200,541)	$	67,995	$	44,411	$	(88,135)

Schedule of Price Risk Derivatives

As of September 30, 2022 and December 31, 2021, we had the following outstanding fuel swap agreements:


	Fuel Swap Agreements
	As of September 30, 2022	As of December 31, 2021
Designated as hedges:	(metric tons)
2022	257,950	821,850
2023	743,601	249,050


	Fuel Swap Agreements
	As of September 30, 2022		As of December 31, 2021
	(% hedged)
Designated hedges as a % of projected fuel purchases:
2022	64	%	54	%
2023	45	%	15	%


	Fuel Swap Agreements
	As of September 30, 2022	As of December 31, 2021
Not designated as hedges:	(metric tons)
2022(1)	94,382	231,900
2023	—	—

(1) As of September 30, 2022, 47,191 metric tons relate to fuel swap agreements with discontinued hedge accounting, in which we effectively pay fixed prices and receive floating prices from the counterparty. The remaining 47,191 metric tons relate to fuel swap agreements that were not designated as hedges since inception, in which we effectively pay floating prices and receive fixed prices from the counterparty.

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 September 30, 2022		As of December 31, 2021		Balance Sheet Location	As of September 30, 2022		As of December 31, 2021
		Fair Value		Fair Value			Fair Value		Fair Value
Derivatives designated as hedging instruments under ASC 815-20(1)
Interest rate swaps	Other assets	$	115,495	$	—	Other long-term liabilities	$	—	$	62,080
Interest rate-swaps	Derivative financial instruments			6,478		Derivative financial instruments	—		—
Foreign currency forward contracts	Derivative financial instruments	—		7,357		Derivative financial instruments	189,396		116,027
Foreign currency forward contracts	Other assets	—		2,070		Other long-term liabilities	53,307		8,813
Fuel swaps	Derivative financial instruments	53,903		31,919		Derivative financial instruments	41,793		7,944
Fuel swaps	Other assets	10,131		13,452		Other long-term liabilities	16,403		1,202
Total derivatives designated as hedging instruments under 815-20		$	179,529	$	61,276		$	300,899	$	196,066
Derivatives not designated as hedging instruments under ASC 815-20
Foreign currency forward contracts	Derivative financial instruments	$	—	$	—	Derivative financial instruments	$	—	$	—
Foreign currency forward contracts	Other assets	—		—		Other long-term liabilities	—		—
Fuel swaps	Derivative financial instruments	9,621		8,430		Derivative financial instruments	11,459		3,264
Fuel swaps	Other Assets	—		102		Other long-term liabilities	—		1,211
Total derivatives not designated as hedging instruments under 815-20		9,621		8,532			11,459		4,475
Total derivatives		$	189,150	$	69,808		$	312,358	$	200,541

(1)Subtopic 815-20 “Hedging-General” under ASC 815.

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 September 30, 2022		As of December 31, 2021		As of September 30, 2022		As of December 31, 2021
Current portion of debt and Long-term debt	$	—	$	655,502	$	—	$	6,428
	$	—	$	655,502	$	—	$	6,428

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 September 30, 2022		As of December 31, 2021
Foreign currency debt	Current portion of debt	$	57,211	$	75,518
Foreign currency debt	Long-term debt	302,376		34,795
		$	359,587	$	110,313

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 September 30, 2022		Quarter Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Foreign Currency Debt	$	22,464	$	2,585	$	42,023	$	5,593
	$	22,464	$	2,585	$	42,023	$	5,593

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 September 30, 2022		Quarter Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Foreign currency forward contracts	Other income (expense)	$	(88,440)	$	(12,880)	$	(176,322)	$	(25,854)
Fuel swaps	Other income (expense)	(230)		8,222		36		35,858
		$	(88,670)	$	(4,658)	$	(176,286)	$	10,004

Fair Value Hedging

Derivative Instruments

Schedule of Interest Rate Derivatives

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


Debt Instrument	Swap Notional as of December 31, 2021 (in thousands)		Maturity	Debt Fixed Rate	Swap Floating Rate: LIBOR plus	All-in Swap Floating Rate as of December 31, 2021
Unsecured senior notes	650,000		November 2022	5.25%	3.63%	3.79%
	$	650,000

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 September 30, 2022		Quarter Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021		Quarter Ended September 30, 2022		Quarter Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Interest rate swaps	Interest expense (income), net of interest capitalized	$	966	$	383	$	(3,569)	$	148	$	(4,417)	$	2,100	$	4,534	$	7,098
		$	966	$	383	$	(3,569)	$	148	$	(4,417)	$	2,100	$	4,534	$	7,098

Cash flow hedge

Derivative Instruments

Schedule of Interest Rate Derivatives

At September 30, 2022 and December 31, 2021, we maintained interest rate swap agreements on the following floating-rate debt instruments:


Debt Instrument	Swap Notional as of September 30, 2022 (in thousands)		Maturity	Debt Floating Rate		All-in Swap Fixed Rate as of September 30, 2022
Celebrity Reflection term loan	$	136,354	October 2024	LIBOR plus	0.40%	2.85%
Quantum of the Seas term loan	275,625		October 2026	LIBOR plus	1.30%	3.74%
Anthem of the Seas term loan	302,083		April 2027	LIBOR plus	1.30%	3.86%
Ovation of the Seas term loan	415,000		April 2028	LIBOR plus	1.00%	3.16%
Harmony of the Seas term loan (1)	339,697		May 2028	EURIBOR plus	1.15%	2.26%
Odyssey of the Seas term loan (2)	402,500		October 2032	LIBOR plus	0.96%	3.21%
Odyssey of the Seas term loan (2)	191,667		October 2032	LIBOR plus	0.96%	2.84%
	$	2,062,926

(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 September 30, 2022.

(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 $402.5 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
	Quarter Ended September 30, 2022		Quarter Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Interest rate swaps	$	55,016	$	1,534	$	159,132	$	29,228
Foreign currency forward contracts	(148,275)		(48,221)		(311,252)		(150,376)


Fuel swaps	(132,208)		28,193		134,059		144,900
	$	(225,467)	$	(18,494)	$	(18,061)	$	23,752

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)	Nine Months Ended September 30, 2022
Net inception fair value at January 1, 2022	$	(554)
Amount of gain recognized in income on derivatives for the period ended September 30, 2022	554

Fair value at September 30, 2022	$	—