Fair Value Measurements and Derivative Instruments

6 Months Ended

Jun. 30, 2012

Fair Value Measurements and Derivative Instruments

Fair Value Measurements and Derivative Instruments

Note 9. Fair Value Measurements and Derivative Instruments

Fair Value Measurements

The estimated fair value of our financial instruments that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows (in thousands):

	Fair Value Measurements At June 30, 2012 Using								Fair Value Measurements at December 31, 2011 Using
Description	Total		Level 11		Level 22		Level 33		Total		Level 11		Level 22		Level 33
Assets:
Cash and cash equivalents4	$	212,209	212,209		–		–		$	262,186	262,186		–		–
Total Assets	$	212,209	$	212,209	$	–	$	–	$	262,186	$	262,186	$	–	$	–
Liabilities:
Long-term debt (including current portion of long-term debt)5			3,458,805		4,886,692		–		$	8,557,095	3,424,722		5,132,373		–
	$	8,345,497
Total Liabilities	$	8,345,497	$	3,458,805	$	4,886,692	$	–	$	8,557,095	$	3,424,722	$	5,132,373	$	–

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 our creditworthiness based on publicly available credit default swap rates.
3.	Inputs that are unobservable. The Company did not use any Level 3 inputs as of June 30, 2012 and December 31, 2011.
4.	Consists of cash and marketable securities with original maturities of less than 90 days.
5.	Consists of unsecured revolving credit facilities, unsecured senior notes, senior debentures and unsecured term loans. Does not include our capital lease obligations.

Other Financial Instruments

The carrying amounts of accounts receivable, accounts payable, accrued interest and accrued expenses approximate fair value at June 30, 2012 and December 31, 2011.

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 June 30, 2012 Using								Fair Value Measurements at December 31, 2011 Using
Description	Total		Level 11		Level 22		Level 33		Total		Level 11		Level 22		Level 33
Assets:
Derivative financial instruments4	$	156,105	—		156,105		—		$	201,130	—		201,130		—
Investments5	$	6,975	6,975		—		—		$	6,941	6,941		—		—
Total Assets	$	163,080	$	6,975	$	156,105	$	—	$	208,071	$	6,941	$	201,130	$	—
Liabilities:
Derivative financial instruments6	$	195,593	—		195,593		—		$	84,344	—		84,344		—
Total Liabilities	$	195,593	$	—	$	195,593	$	—	$	84,344	$	—	$	84,344	$	—

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, cross currency 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. For fuel call options, fair value is determined by using the prevailing market price for the instruments consisting of published price quotes for similar assets based on recent transactions in an active market. 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 June 30, 2012 and December 31, 2011.
4.	Consists of foreign currency forward contracts, interest rate, cross currency, fuel swaps and fuel call options. 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 interest rate, fuel swaps, foreign currency forward contracts and collar options. Please refer to the “Fair Value of Derivative Instruments” table for breakdown by instrument type.

The reported fair values are based on a variety of factors and assumptions.  Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of June 30, 2012 or December 31, 2011, or that will be realized in the future, and do not include expenses that could be incurred in an actual sale or settlement.

Concentrations of Credit Risk

We monitor our credit risk associated with financial and other institutions with which we conduct significant business and, to minimize these risks, we select counterparties with credit risks acceptable to us and we limit our exposure to any individual counterparty.  Credit risk, including but not limited to counterparty nonperformance under derivative instruments, our revolving credit facilities and new ship progress payment guarantees, is not considered significant, as we primarily conduct business with large, well-established financial institutions, insurance companies and export credit agencies with which we have long-term relationships and which have credit risks acceptable to us or where the credit risk is spread out among a large number of counterparties. In addition, our exposure under foreign currency forward contracts, foreign currency collar options, fuel call options, interest rate and fuel swap agreements was approximately $30.9 million as of June 30, 2012, and is limited to the cost of replacing the contracts in the event of non-performance by the counterparties to the contract, all of which are currently our lending banks.  We do not anticipate nonperformance by any of our significant counterparties. In addition, we have established guidelines regarding credit ratings and instrument maturities that we follow to maintain safety and liquidity. We do not normally require collateral or other security to support credit relationships; however, in certain circumstances this option is available to us.

Derivative Instruments

We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices.  We manage these risks through a combination of our normal operating and financing activities and through the use of derivative financial instruments pursuant to our hedging practices and policies.  The financial impact of these hedging instruments is primarily offset by corresponding changes in the underlying exposures being hedged.  We achieve this by closely matching the amount, term and conditions of the derivative instrument with the underlying risk being hedged.  Although certain of our derivative financial instruments do not qualify for hedge accounting, we do not hold or issue derivative financial instruments for trading or other speculative purposes.  We monitor our derivative positions using techniques including market valuations and sensitivity analyses.

We enter into various forward, swap and option contracts to manage our interest rate exposure and to limit our exposure to fluctuations in foreign currency exchange rates and fuel prices. These instruments are recorded on the balance sheet at their fair value and the vast majority are designated as hedges.  We also have non-derivative financial instruments designated as hedges of our net investment in our foreign operations and investments.

At inception of the hedge relationship, a derivative instrument that hedges the exposure to changes in the fair value of a firm commitment or a recognized asset or liability is designated as a fair value hedge.  A derivative instrument that hedges a forecasted transaction or the variability of cash flows related to a recognized asset or liability is designated as a cash flow hedge.

Changes in the fair value of derivatives that are designated as fair value hedges are offset against changes in the fair value of the underlying hedged assets, liabilities or firm commitments.  Gains and losses on derivatives that are designated as cash flow hedges are recorded as a component of accumulated other comprehensive (loss) income until the underlying hedged transactions are recognized in earnings.  The foreign currency transaction gain or loss of our non-derivative financial instruments designated as hedges of our net investment in foreign operations and investments are recognized as a component of accumulated other comprehensive (loss) income along with the associated foreign currency translation adjustment of the foreign operation.

On an ongoing basis, we assess whether derivatives used in hedging transactions are “highly effective” in offsetting changes in the fair value or cash flow of hedged items.  We use the long-haul method to assess hedge effectiveness using regression analysis for each hedge relationship under our interest rate, foreign currency and fuel hedging programs.  We apply the same methodology on a consistent basis for assessing hedge effectiveness to all hedges within each hedging program (i.e. interest rate, foreign currency and fuel). We perform regression analyses over an observation period commensurate with the contractual life of the derivative instrument, up to three years for interest rate and foreign currency relationships and four years for fuel relationships.  High effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the changes in the fair values of the derivative instrument and the hedged item. The determination of ineffectiveness is based on the amount of dollar offset between the change in fair value of the derivative instrument and the change in fair value of the hedged item at the end of the reporting period.  If it is determined that a derivative is not highly effective as a hedge or hedge accounting is discontinued, any change in fair value of the derivative since the last date at which it was determined to be effective is recognized in earnings. In addition, the ineffective portion of our highly effective hedges is recognized in earnings immediately and reported in other income (expense) in our consolidated statements of comprehensive income.

Cash flows from derivative instruments that are designated as fair value or cash flow hedges are classified in the same category as the cash flows from the underlying hedged items. In the event that hedge accounting is discontinued, cash flows subsequent to the date of discontinuance are classified within investing activities.  Cash flows from derivative instruments not designated as hedging instruments are classified as investing activities.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates to our long-term debt obligations including future interest payments.  At June 30, 2012 and December 31, 2011, approximately 40% of our long-term debt was effectively fixed and approximately 60% was floating.  We use interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest expense.  We manage the risk that changes in interest rates will have either on the fair value of debt obligations or on the amount of future interest payments by monitoring changes in interest rate exposures and by evaluating hedging opportunities.

Market risk associated with our long-term fixed rate debt is the potential increase in fair value resulting from a decrease in interest rates.  We use interest rate swap agreements that effectively convert a portion of our fixed-rate debt to a floating-rate basis to manage this risk.  At June 30, 2012 and December 31, 2011, we maintained interest rate swap agreements that effectively changed $350.0 million of debt with a fixed rate of 7.25% to LIBOR-based floating rate debt plus a margin of 1.72%, for an interest rate that was approximately 2.46% and 2.49% as of June 30, 2012 and December 31, 2011, respectively.  Additionally, at June 30, 2012 and December 31, 2011, we maintained interest rate swap agreements on the $420.0 million fixed rate portion of our Oasis of the Seas unsecured amortizing term loan.  The interest rate swap agreements effectively changed the balance of the unsecured term loan, which was $332.5 million as of June 30, 2012, with a fixed rate of 5.41% to LIBOR-based floating rate equal to LIBOR plus 3.87%, currently approximately 4.6%. These interest rate swap agreements are accounted for as fair value hedges.

Market risk associated with our long-term floating rate debt is the potential increase in interest expense from an increase in interest rates.  We use interest rate swap agreements that effectively convert a portion of our floating-rate debt to a fixed-rate basis to manage this risk.  During the second quarter of 2012, we entered into forward-starting interest rate swap agreements that hedge the anticipated unsecured amortizing term loans that will finance our purchase of the first and second Project Sunshine ships. Forward-starting interest rate swaps hedging the first Project Sunshine ship loan will effectively convert $735.0 million of the anticipated loan balance from LIBOR plus 1.30% to a fixed rate of 3.74% (inclusive of margin) beginning in October 2014. Forward-starting interest rate swaps hedging the second Project Sunshine ship loan will effectively convert $725.0 million of the anticipated loan balance from LIBOR plus 1.30% to a fixed rate of 3.86% (inclusive of margin) beginning in April 2015.  These interest rate swap agreements are accounted for as cash flow hedges.

In addition, at June 30, 2012 and December 31, 2011, we maintained forward-starting interest rate swap agreements that beginning April 2013 effectively convert the interest rate on the Celebrity Reflection unsecured amortizing term loan balance of approximately $627.2 million from LIBOR plus 0.40% to a fixed-rate of 2.85% (inclusive of margin).  These interest rate swap agreements are accounted for as cash flow hedges.

The notional amount of interest rate swap agreements related to outstanding debt and on our current financing arrangements as of June 30, 2012 and December 31, 2011 was $2.8 billion and $1.3 billion, respectively.

Foreign Currency Exchange Rate Risk

Derivative Instruments

Our primary exposure to foreign currency exchange rate risk relates to our ship construction contracts denominated in euros and our growing international business operations.  We enter into foreign currency forward contracts, collar options and cross currency swap agreements to manage portions of the exposure to movements in foreign currency exchange rates.  Approximately 15.6% and 43.3% of the aggregate cost of the ships under construction was exposed to fluctuations in the euro exchange rate at June 30, 2012 and December 31, 2011, respectively.  The majority of our foreign currency forward contracts, collar options and cross currency swap agreements are accounted for as cash flow or fair value hedges depending on the designation of the related hedge.

During the first quarter of 2012, we terminated a portion of our foreign currency forward contracts for Celebrity Reflection because their maturity dates were not aligned with the ship’s delivery date. Simultaneously, we entered into new foreign currency forward contracts that were aligned with the ship’s delivery date and designated the contracts as cash flow hedges.  We effected the termination of the contracts by entering into offsetting foreign currency forward contracts.  Neither the original nor the offsetting foreign currency forward contracts are designated as hedging instruments.  As a result, subsequent changes in the fair value of the original and offsetting foreign currency forward contracts are recognized in earnings immediately and are reported within other income (expense) in our consolidated statements of comprehensive income.  We deferred a loss of $10.8 million within accumulated other comprehensive income (loss) and a gain of $1.7 million within accrued expenses and other liabilities for the terminated contracts. Once the ship is placed in service, the net deferred loss of $9.1 million will be recognized as an increase to depreciation expense over the estimated useful life of the vessel.

During the second quarter of 2012, we entered into foreign currency collar options to hedge a portion of our foreign currency exposure on the construction contract price for the second Project Sunshine ship.  These foreign currency collar options are accounted for as cash flow hedges and mature in April 2015.

At June 30, 2012 and December 31, 2011, we maintained cross currency swap agreements that effectively change €150.0 million of our €1.0 billion Eurobonds with a fixed rate of 5.625% to $190.9 million of debt at a fixed rate of 6.68%.

On a regular basis, we enter into foreign currency forward contracts to minimize the volatility resulting from the remeasurement of net monetary assets and liabilities denominated in a currency other than our functional currency or the functional currencies of our foreign subsidiaries. During the second quarter of 2012, we maintained an average of approximately $322.8 million of these foreign currency forward contracts.  These instruments are not designated as hedging instruments.   Changes in the fair value of the foreign currency forward contracts are recognized in earnings within other income (expense) in our consolidated statements of comprehensive income.

The notional amount of outstanding foreign exchange contracts including our forward contracts, cross currency swap agreements and collar options as of June 30, 2012 and December 31, 2011 was $2.0 billion and $0.9 billion, respectively.

Non-Derivative Instruments

We consider our investments in our foreign operations to be denominated in relatively stable currencies and of a long-term nature.  We partially address the exposure of our investments in foreign operations by denominating a portion of our debt in our subsidiaries’ and investments’ functional currencies.  As of June 30, 2012 and December 31, 2011, we have assigned debt of approximately €626.5 million and €665.0 million, or approximately $795.1 million and $863.2 million, respectively, as a hedge of our net investments in Pullmantur and TUI Cruises.

Fuel Price Risk

Our exposure to market risk for changes in fuel prices relates primarily to the consumption of fuel on our ships.  We use fuel swap agreements and fuel call options to mitigate the financial impact of fluctuations in fuel prices.

Our fuel swap agreements are accounted for as cash flow hedges.  At June 30, 2012, we have hedged the variability in future cash flows for certain forecasted fuel transactions occurring through 2016.  As of June 30, 2012 and December 31, 2011, we have entered into the following fuel swap agreements:

	Fuel Swap Agreements
	As of June 30, 2012	As of December 31, 2011
	(metric tons)
2012	388,300	738,000
2013	755,300	644,000
2014	535,000	418,000
2015	321,000	284,000
2016	104,370	-

	Fuel Swap Agreements
Projected fuel purchases for year:	As of June 30, 2012	As of December 31, 2011
	(% hedged)
2012	57%	55%
2013	54%	47%
2014	38%	30%
2015	22%	20%
2016	7%	0%

At June 30, 2012 and December 31, 2011, $29.5 million and $78.5 million, respectively, of estimated unrealized net gains associated with our cash flow hedges pertaining to fuel swap agreements were expected to be reclassified to earnings from other accumulated comprehensive (loss) income within the next twelve months.  Reclassification is expected to occur as the result of fuel consumption associated with our hedged forecasted fuel purchases.

Additionally, as of June 30, 2012 and December 31, 2011, we maintained fuel call options on a total of 1.0 million barrels of fuel oil which mature in 2013 in order to provide protection in the event fuel prices exceed the options’ exercise prices.  Our fuel call options are not designated as hedging instruments. As a result, changes in the fair value of our fuel call options are recognized in earnings immediately and are reported in other income (expense) in our consolidated statements of comprehensive income (loss).  As of June 30, 2012 and December 31, 2011, the fuel call options represented 9% of our projected 2013 fuel requirements.

The fair value and line item caption of derivative instruments recorded were as follows:

Fair Value of Derivative Instruments

	Asset Derivatives					Liability Derivatives
		As of June 30, 2012		As of December 31, 2011			As of June 30, 2012		As of December 31, 2011
	Balance Sheet Location	Fair Value		Fair Value		Balance Sheet Location	Fair Value		Fair Value
In thousands
Derivatives designated as hedging instruments under ASC 815-201
Interest rate swaps	Other Assets	$	65,729	$	65,531	Other long-term liabilities	$	41,147	$	11,369
Cross currency swaps	Other Assets	-		2,914		Other long-term liabilities	2,140		-
Foreign currency forward contracts	Derivative Financial Instruments	211		1,895		Accrued expenses and other liabilities	39,895		31,775
Foreign currency forward contracts	Other Assets	-		-		Other long-term liabilities	11,035		-
Foreign currency collar options	Other Assets	-		-		Other long-term liabilities	6,906		-
Fuel swaps	Derivative Financial Instruments	37,413		82,747		Accrued expenses and other liabilities	5,994		-
Fuel swaps	Other Assets	11,003		26,258		Other long-term liabilities	40,160		29,213
Total derivatives designated as hedging instruments under 815-20		$	114,356	$	179,345		$	147,277	$	72,357

Derivatives not designated as hedging instruments under ASC 815-20
Foreign currency forward contracts	Derivative Financial Instruments	$	13,931	$	-	Accrued expenses and other liabilities	$	22,857	$	-
Foreign currency forward contracts	Other Assets	18,912		5,414		Other long-term liabilities	25,459		11,987
Fuel call options	Derivative Financial Instruments	3,741		-		Accrued expenses and other liabilities	-		-
Fuel call options	Other Assets	5,165		16,371		Other long-term liabilities	-		-
Total derivatives not designated as hedging instruments under 815-20		$	41,749	$	21,785		$	48,316	$	11,987
Total derivatives		$	156,105	$	201,130		$	195,593	$	84,344

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

The carrying value and line item caption of non-derivative instruments recorded was as follows:

		Carrying Value
Non-derivative instrument designated as hedging instrument under ASC 815-20	Balance Sheet Location	As of June 30, 2012		As of December 31, 2011
In thousands
Foreign currency debt	Long-term debt	$	795,120	$	863,217
		$	795,120	$	863,217

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 was as follows:

		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	Location of Gain (Loss) Recognized in Income on Derivative and Hedged Item	Quarter Ended June 30, 2012		Quarter Ended June 30, 2011		Six Months Ended June 30, 2012		Six Months Ended June 30, 2011		Quarter Ended June 30, 2012		Quarter Ended June 30, 2011		Six Months Ended June 30, 2012		Six Months Ended June 30, 2011
In thousands
Interest rate swaps	Interest expense, net of interest capitalized	$	4,880	$	4,444	$	9,862	$	8,881	$	7,107	$	7,971	$	14,367	$	15,594
Interest rate swaps	Other income (expense)	5,959		7,333		1,416		1,374		(5,616)		(6,933)		(1,902)		(1,043)
Foreign currency forward contracts	Other income (expense)	–		(10)		–		22,901		–		(28)		–		(23,720)
		$	10,839	$	11,767	$	11,278	$	33,156	$	1,491	$	1,010	$	12,465	$	(9,169)

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

	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)				Location of Gain (Loss) Reclassified	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives under ASC 815-20 Cash Flow Hedging Relationships	Quarter Ended June 30, 2012	Quarter Ended June 30, 2011	Six Months Ended June 30, 2012	Six Months Ended June 30, 2011	from Accumulated OCI into Income (Effective Portion)	Quarter Ended June 30, 2012	Quarter Ended June 30, 2011	Six Months Ended June 30, 2012	Six Months Ended June 30, 2011
In thousands
Cross currency swaps	$ (8,783)	$  13,691	$ (12,370)	$  38,578	Other income (expense)	$ (9,800)	$ 13,760	$ (12,721)	$  44,720
Interest rate swaps	(35,478)	–	(30,924)	–	Other income (expense)	–	–	–	–
Foreign currency forward contracts	(47,758)	44,307	(30,050)	112,156	Depreciation and amortization expenses	(196)	(175)	(392)	(349)
Foreign currency forward contracts	–	–	–	(12,375)	Other income (expense)	(239)	(71)	(477)	191
Foreign currency collar options	(12,564)	–	(12,564)	–	Depreciation and amortization expenses	–	–	–	–
Fuel swaps	(165,746)	14,464	(4,479)	193,479	Fuel	28,158	42,427	63,985	78,501
	$(270,329)	$  72,462	$ (90,387)	$331,838		$  17,923	$ 55,941	$   50,395	$123,063

	Location of Gain (Loss) Recognized in Income	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	on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Quarter Ended June 30, 2012		Quarter Ended June 30, 2011		Six Months Ended June 30, 2012		Six Months Ended June 30, 2011
In thousands
Cross currency swaps	Other income (expense)	(234)		–		(234)		–
Interest rate swaps	Other income (expense)	(71)		–		(70)		–
Foreign currency forward contracts	Other income (expense)	(16)		1,661		(9)		2,689
Foreign currency forward contracts	Other income (expense)	–		–		–		–
Foreign currency collar options	Other income (expense)	–		–		–		–
Fuel swaps	Other income (expense)	(4,418)		1,685		(3,889)		6,769
		$	(4,739)	$	3,346	$	(4,202)	$	9,458

The effect of non-derivative instruments qualifying and designated as hedging instruments in net investment hedges on the consolidated financial statements was as follows:

	Amount of Gain (Loss) Recognized in OCI (Effective Portion)				Location of Gain (Loss) in Income	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	Quarter Ended June 30, 2012	Quarter Ended June 30, 2011	Six Months Ended June 30, 2012	Six Months Ended June 30, 2011	(Ineffective Portion and Amount Excluded from Effectiveness Testing)	Quarter Ended June 30, 2012		Quarter Ended June 30, 2011		Six Months Ended June 30, 2012		Six Months Ended June 30, 2011
In thousands
Foreign Currency Debt	$     35,888	$  (17,294)	$    15,118	$  (54,502)	Other income (expense)	$	-	$	-	$	-	$	-
	$     35,888	$  (17,294)	$    15,118	$  (54,502)		$	-	$	-	$	-	$	-

The effect of derivatives not designated as hedging instruments on the consolidated financial statements was as follows:

Derivatives Not Designated as Hedging	Location of Gain	Amount of Gain (Loss) Recognized in Income on Derivative
Instruments under ASC 815-20	(Loss) Recognized in Income on Derivative	Quarter Ended June 30, 2012		Quarter Ended June 30, 2011		Six Months Ended June 30, 2012		Six Months Ended June 30, 2011
In thousands
Foreign currency forward contracts	Other income (expense)	$	(3,876)	$	4,697	$	4,497	$	4,697
Fuel swaps	Other income (expense)	(1,763)		-		(1,763)		-
Fuel call options	Other income (expense)	(10,152)		642		(7,470)		24,795
		$	(15,791)	$	5,339	$	(4,736)	$	29,492

Credit Related Contingent Features

Our current interest rate derivative instruments may require us to post collateral if our Standard & Poor’s and Moody’s credit ratings remain below specified levels. Specifically, if on the fifth anniversary of entering into a derivative transaction and on all succeeding fifth-year anniversaries our credit ratings for our senior unsecured debt were to be below BBB- by Standard & Poor’s and Baa3 by Moody’s, then each counterparty to such derivative transaction with whom we are in a net liability position that exceeds the applicable minimum call amount may demand that we post collateral in an amount equal to the net liability position.  The amount of collateral required to be posted following such event will change each time our net liability position increases or decreases by more than the applicable minimum call amount.  If our credit rating for our senior debt is subsequently equal to, or above BBB- by Standard & Poor’s or Baa3 by Moody’s, then any collateral posted at such time will be released to us and we will no longer be required to post collateral unless we meet the collateral trigger requirement at the next fifth-year anniversary.  Currently, our senior unsecured debt credit rating is BB with a stable outlook by Standard & Poor’s and Ba1 with a stable outlook by Moody’s.  We currently have five interest rate derivative transactions that have a term of at least five years.  As of June 30, 2012, none of these interest rate derivative transactions had reached its fifth anniversary and, accordingly, we were not required to post collateral for any of our derivative transactions as of June 30, 2012.  On July 2, 2012, one of the five interest rate derivative transactions reached its fifth anniversary.  However, the transaction is in a net asset position as of the date of this filing and thus, we are currently not required to post collateral.