| Fair Value Measurements, Derivative Instruments and Hedging Activities | Fair Value Measurements, Derivative Instruments and Hedging Activities Fair Value Measurements U.S. accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: • Level 1 measurements are based on unadjusted quoted prices 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. • Level 2 measurements are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or market data other than quoted prices that are observable for the assets or liabilities. • Level 3 measurements are based on unobservable data that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable market participants at the measurement date. Therefore, even when market assumptions are not readily available, our own assumptions are set to reflect those that we believe market participants would use in pricing the asset or liability at the measurement date. The fair value measurement of a financial asset or financial liability must reflect the nonperformance risk of the counterparty and us. Therefore, the impact of our counterparty’s creditworthiness was considered when in an asset position, and our creditworthiness was considered when in a liability position in the fair value measurement of our financial instruments. Creditworthiness did not have a significant impact on the fair values of our financial instruments at February 29, 2016 and November 30, 2015 . Both the counterparties and we are expected to continue to perform under the contractual terms of the instruments. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, certain estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange. Financial Instruments that are not Measured at Fair Value on a Recurring Basis The carrying values and estimated fair values and basis of valuation of our financial instrument assets and liabilities that are not measured at fair value on a recurring basis were as follows (in millions): February 29, 2016 November 30, 2015 Carrying Fair Value Carrying Fair Value Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Assets Cash and cash equivalents (a) $ 579 $ 579 $ — $ — $ 647 $ 647 $ — $ — Restricted cash (b) 3 3 — — 7 7 — — Long-term other assets (c) 117 1 86 31 119 1 87 31 Total $ 699 $ 583 $ 86 $ 31 $ 773 $ 655 $ 87 $ 31 Liabilities Fixed rate debt (d) $ 5,203 $ — $ 5,463 $ — $ 5,193 $ — $ 5,450 $ — Floating rate debt (d) 3,865 — 3,796 — 3,594 — 3,589 — Total $ 9,068 $ — $ 9,259 $ — $ 8,787 $ — $ 9,039 $ — (a) Cash and cash equivalents are comprised of cash on hand, and at November 30, 2015 also included a money market deposit account and time deposits. Due to their short maturities, the carrying values approximate their fair values. (b) Restricted cash is comprised of a money market deposit account. (c) At February 29, 2016 and November 30, 2015 , long-term other assets were substantially all comprised of notes and other receivables. The fair values of our Level 1 and Level 2 notes and other receivables were based on estimated future cash flows discounted at appropriate market interest rates. The fair values of our Level 3 notes receivable were estimated using risk-adjusted discount rates. (d) Debt does not include the impact of interest rate swaps. The net difference between the fair value of our fixed rate debt and its carrying value was due to the market interest rates in existence at February 29, 2016 and November 30, 2015 being lower than the fixed interest rates on these debt obligations, including the impact of any changes in our credit ratings. At February 29, 2016 and November 30, 2015 , the net difference between the fair value of our floating rate debt and its carrying value was due to the market interest rates in existence at February 29, 2016 and November 30, 2015 being slightly higher than the floating interest rates on these debt obligations, including the impact of any changes in our credit ratings. The fair values of our publicly-traded notes were based on their unadjusted quoted market prices in markets that are not sufficiently active to be Level 1 and, accordingly, are considered Level 2. The fair values of our other debt were estimated based on appropriate market interest rates being applied to this debt. Financial Instruments that are Measured at Fair Value on a Recurring Basis The estimated fair value and basis of valuation of our financial instrument assets and liabilities that are measured at fair value on a recurring basis were as follows (in millions): February 29, 2016 November 30, 2015 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Assets Cash equivalents (a) $ 199 $ — $ — $ 748 $ — $ — Restricted cash (b) 23 — — 22 — — Marketable securities held in rabbi trusts (c) 97 6 — 105 8 — Derivative financial instruments (d) — 14 — — 29 — Long-term other asset (e) — — 21 — — 21 Total $ 319 $ 20 $ 21 $ 875 $ 37 $ 21 Liabilities Derivative financial instruments (d) $ — $ 718 $ — $ — $ 625 $ — Total $ — $ 718 $ — $ — $ 625 $ — (a) Cash equivalents are comprised of money market funds. (b) The majority of restricted cash is comprised of money market funds. (c) At February 29, 2016 and November 30, 2015 , marketable securities held in rabbi trusts were comprised of Level 1 bonds, frequently-priced mutual funds invested in common stocks and money market funds and Level 2 other investments. Their use is restricted to funding certain deferred compensation and non-qualified U.S. pension plans. (d) See “Derivative Instruments and Hedging Activities” section below for detailed information regarding our derivative financial instruments. (e) Long-term other asset is comprised of an auction-rate security. The fair value was based on a broker quote in an inactive market, which is considered a Level 3 input. During the three months ended February 29, 2016 , there were no purchases or sales pertaining to this auction rate security. We measure our derivatives using valuations that are calibrated to the initial trade prices. Subsequent valuations are based on observable inputs and other variables included in the valuation models such as interest rate, yield and commodity price curves, forward currency exchange rates, credit spreads, maturity dates, volatilities and netting arrangements. We use the income approach to value derivatives for foreign currency options and forwards, interest rate swaps and fuel derivatives using observable market data for all significant inputs and standard valuation techniques to convert future amounts to a single present value amount, assuming that participants are motivated, but not compelled to transact. We also corroborate our fair value estimates using valuations provided by our counterparties. Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis Sale of Ship In March 2016, we entered into a bareboat charter/sale agreement under which the 1,546-passenger capacity Pacific Pearl will be chartered to an unrelated entity from April 2017 through April 2027. Under this agreement, ownership of Pacific Pearl will be transferred to the buyer in April 2027. This transaction did not meet the criteria to qualify as a sales-type lease and, accordingly, it will be accounted for as an operating lease whereby we recognize the charter revenue over the term of the agreement. Valuation of Goodwill and Other Intangibles The reconciliation of the changes in the carrying amounts of our goodwill, which has been allocated to our North America and Europe, Australia & Asia (“EAA”) cruise brands, was as follows (in millions): North America EAA Total Balance at November 30, 2015 $ 1,898 $ 1,112 $ 3,010 Foreign currency translation adjustment — (30 ) (30 ) Balance at February 29, 2016 $ 1,898 $ 1,082 $ 2,980 At July 31, 2015, all of our cruise brands carried goodwill, except for Seabourn and Fathom. As of that date, we performed our annual goodwill impairment reviews and no goodwill was impaired. The reconciliation of the changes in the carrying amounts of our other intangible assets not subject to amortization, which represent trademarks that have been allocated to our North America and EAA cruise brands, was as follows (in millions): North America EAA Total Balance at November 30, 2015 $ 927 $ 307 $ 1,234 Foreign currency translation adjustment — (10 ) (10 ) Balance at February 29, 2016 $ 927 $ 297 $ 1,224 At July 31, 2015, we also performed our annual trademark impairment reviews for our cruise brands that have trademarks recorded, which are AIDA Cruises ("AIDA"), P&O Cruises (Australia), P&O Cruises (UK) and Princess. No trademarks were considered to be impaired at this time. The determination of our cruise brand, cruise ship and trademark fair values includes numerous assumptions that are subject to various risks and uncertainties. We believe that we have made reasonable estimates and judgments in determining whether our goodwill, cruise ships and trademarks have been impaired. However, if there is a change in assumptions used or if there is a change in the conditions or circumstances influencing fair values in the future, then we may need to recognize an impairment charge. The reconciliation of the changes in the net carrying amounts of our other intangible assets subject to amortization, which represent port usage rights, was as follows (in millions): Cruise Support EAA Total Balance at November 30, 2015 (See "Note 1 - General") $ 62 $ 12 $ 74 Amortization (1 ) — (1 ) Foreign currency translation adjustment (3 ) — (3 ) Balance at February 29, 2016 $ 58 $ 12 $ 70 Port usage rights are stated at cost. Amortization is computed using the straight-line method over the shorter of the arrangement term or their expected useful lives. Derivative Instruments and Hedging Activities We utilize derivative and non-derivative financial instruments, such as foreign currency forwards, options and swaps, foreign currency debt obligations and foreign currency cash balances, to manage our exposure to fluctuations in certain foreign currency exchange rates, and interest rate swaps to manage our interest rate exposure in order to achieve a desired proportion of fixed and floating rate debt. In addition, we utilize our fuel derivatives program to mitigate a portion of the risk to our future cash flows attributable to potential fuel price increases, which we define as our “economic risk.” Our policy is to not use any financial instruments for trading or other speculative purposes. All derivatives are recorded at fair value. The changes in fair value are recognized currently in earnings if the derivatives do not qualify as effective hedges, or if we do not seek to qualify for hedge accounting treatment, such as for our fuel derivatives. If a derivative is designated as a fair value hedge, then changes in the fair value of the derivative are offset against the changes in the fair value of the underlying hedged item. If a derivative is designated as a cash flow hedge, then the effective portion of the changes in the fair value of the derivative is recognized as a component of accumulated other comprehensive income ("AOCI") until the underlying hedged item is recognized in earnings or the forecasted transaction is no longer probable. If a derivative or a non-derivative financial instrument is designated as a hedge of our net investment in a foreign operation, then changes in the fair value of the financial instrument are recognized as a component of AOCI to offset a portion of the change in the translated value of the net investment being hedged, until the investment is sold or substantially liquidated. We formally document hedging relationships for all derivative and non-derivative hedges and the underlying hedged items, as well as our risk management objectives and strategies for undertaking the hedge transactions. We classify the fair values of all our derivative contracts as either current or long-term, depending on whether the maturity date of the derivative contract is within or beyond one year from the balance sheet date. The cash flows from derivatives treated as hedges are classified in our Consolidated Statements of Cash Flows in the same category as the item being hedged. Our cash flows related to fuel derivatives are classified within investing activities. The estimated fair values of our derivative financial instruments and their location in the Consolidated Balance Sheets were as follows (in millions): Balance Sheet Location February 29, 2016 November 30, 2015 Derivative assets Derivatives designated as hedging instruments Net investment hedges (a) Prepaid expenses and other $ 11 $ 14 Other assets – long-term 3 13 Interest rate swaps (b) Prepaid expenses and other — 2 Total derivative assets $ 14 $ 29 Derivative liabilities Derivatives designated as hedging instruments Net investment hedges (a) Accrued liabilities and other $ 2 $ — Other long-term liabilities 4 — Interest rate swaps (b) Accrued liabilities and other 12 11 Other long-term liabilities 32 27 Foreign currency zero cost collars (c) Accrued liabilities and other 3 — Other long-term liabilities 13 26 66 64 Derivatives not designated as hedging instruments Fuel (d) Accrued liabilities and other 240 227 Other long-term liabilities 412 334 652 561 Total derivative liabilities $ 718 $ 625 (a) We had foreign currency forwards totaling $186 million at February 29, 2016 and $43 million at November 30, 2015 that are designated as hedges of our net investments in foreign operations, which have a euro-denominated functional currency. At February 29, 2016 , these foreign currency forwards settle through July 2017. We also had foreign currency swaps totaling $399 million at February 29, 2016 and $387 million at November 30, 2015 that are designated as hedges of our net investments in foreign operations, which have a euro-denominated functional currency. At February 29, 2016 and November 30, 2015 , these foreign currency swaps settle through September 2019. (b) We have euro interest rate swaps designated as cash flow hedges whereby we receive floating interest rate payments in exchange for making fixed interest rate payments. These interest rate swap agreements effectively changed $575 million at February 29, 2016 and $568 million at November 30, 2015 of EURIBOR-based floating rate euro debt to fixed rate euro debt. These interest rate swaps settle through March 2025. In addition, at November 30, 2015 , we had U.S. dollar interest rate swaps designated as fair value hedges whereby we receive fixed interest rate payments in exchange for making floating interest rate payments. At November 30, 2015 , these interest rate swap agreements effectively changed $500 million of fixed rate debt to U.S. dollar LIBOR-based floating rate debt. These interest rate swaps settled in February 2016. (c) At February 29, 2016 and November 30, 2015 , we had foreign currency derivatives consisting of foreign currency zero cost collars that are designated as foreign currency cash flow hedges for a portion of our euro-denominated shipbuilding payments. See “Newbuild Currency Risks” below for additional information regarding these derivatives. (d) At February 29, 2016 and November 30, 2015 , we had fuel derivatives consisting of zero cost collars on Brent crude oil (“Brent”) to cover a portion of our estimated fuel consumption through 2018. See “Fuel Price Risks” below for additional information regarding these derivatives. Our derivative contracts include rights of offset with our counterparties. We have elected to net certain of our derivative assets and liabilities within counterparties. The amounts recognized within assets and liabilities were as follows (in millions): February 29, 2016 Gross Amounts Gross Amounts Offset in the Balance Sheet Total Net Amounts Presented in the Balance Sheet Gross Amounts not Offset in the Balance Sheet Net Amounts Assets $ 20 $ (6 ) $ 14 $ (14 ) $ — Liabilities $ 724 $ (6 ) $ 718 $ (14 ) $ 704 November 30, 2015 Gross Amounts Gross Amounts Offset in the Balance Sheet Total Net Amounts Presented in the Balance Sheet Gross Amounts not Offset in the Balance Sheet Net Amounts Assets $ 73 $ (44 ) $ 29 $ (29 ) $ — Liabilities $ 669 $ (44 ) $ 625 $ (29 ) $ 596 The effective gain (loss) portions of our derivatives qualifying and designated as hedging instruments recognized in other comprehensive loss were as follows (in millions): Three Months Ended February 29/28, 2016 2015 Net investment hedges $ (13 ) $ 39 Foreign currency zero cost collars – cash flow hedges $ 10 $ (37 ) Interest rate swaps – cash flow hedges $ (3 ) $ (2 ) There are no credit risk related contingent features in our derivative agreements, except for bilateral credit provisions within our fuel derivative counterparty agreements. These provisions require interest-bearing, non-restricted cash to be posted or received as collateral to the extent the fuel derivative fair value payable to or receivable from an individual counterparty exceeds $100 million . At February 29, 2016 and November 30, 2015 , we had $82 million and $25 million , respectively, of collateral posted to one of our fuel derivative counterparties. At February 29, 2016 and November 30, 2015 , no collateral was required to be received from our fuel derivative counterparties. The amount of estimated cash flow hedges’ unrealized gains and losses that are expected to be reclassified to earnings in the next twelve months is not significant. We have not provided additional disclosures of the impact that derivative instruments and hedging activities have on our consolidated financial statements as of February 29, 2016 and November 30, 2015 and for the three months ended February 29/28, 2016 and 2015 where such impacts were not significant. Fuel Price Risks Our exposure to market risk for changes in fuel prices substantially all relates to the consumption of fuel on our ships. We use our fuel derivatives program to mitigate a portion of our economic risk attributable to potential fuel price increases. We designed our fuel derivatives program to maximize operational flexibility by utilizing derivative markets with significant trading liquidity and our program currently consists of zero cost collars on Brent. All of our derivatives are based on Brent prices whereas the actual fuel used on our ships is marine fuel. Changes in the Brent prices may not show a high degree of correlation with changes in our underlying marine fuel prices. We will not realize any economic gain or loss upon the monthly maturities of our zero cost collars unless the average monthly price of Brent is above the ceiling price or below the floor price. We believe that these derivatives will act as economic hedges; however, hedge accounting is not applied. As part of our fuel derivatives program, we will continue to evaluate various derivative products and strategies. Our unrealized and realized losses on fuel derivatives were as follows (in millions): Three Months Ended February 29/28, 2016 2015 Unrealized losses on fuel derivatives $ 145 $ 112 Realized losses on fuel derivatives 91 57 Losses on fuel derivatives $ 236 $ 169 At February 29, 2016 , our outstanding fuel derivatives consisted of zero cost collars on Brent as follows: Maturities (a) Transaction Barrels Weighted-Average Weighted-Average Fiscal 2016 (Q2 - Q4) June 2012 2,673 $ 75 $ 108 February 2013 1,620 $ 80 $ 120 April 2013 2,250 $ 75 $ 115 6,543 Fiscal 2017 February 2013 3,276 $ 80 $ 115 April 2013 2,028 $ 75 $ 110 January 2014 1,800 $ 75 $ 114 October 2014 1,020 $ 80 $ 113 8,124 Fiscal 2018 January 2014 2,700 $ 75 $ 110 October 2014 3,000 $ 80 $ 114 5,700 (a) Fuel derivatives mature evenly over each month within the above fiscal periods. Foreign Currency Exchange Rate Risks Overall Strategy We manage our exposure to fluctuations in foreign currency exchange rates through our normal operating and financing activities, including netting certain exposures to take advantage of any natural offsets and, when considered appropriate, through the use of derivative and non-derivative financial instruments. Our primary focus is to manage the economic foreign currency exchange risks faced by our operations, which are the ultimate foreign currency exchange risks that would be realized by us if we exchanged one currency for another, and not accounting risks. While we will continue to monitor our exposure to these economic risks, we do not currently hedge our foreign currency exchange risks with derivative or non-derivative financial instruments, with the exception of certain of our ship commitments and net investments in foreign operations. The financial impacts of the hedging instruments we do employ generally offset the changes in the underlying exposures being hedged. Operational Currency Risks Our European and Australian cruise brands generate significant revenues and incur significant expenses in their euro, sterling or Australian dollar functional currency, which subjects us to "foreign currency translational" risk related to these currencies. Accordingly, exchange rate fluctuations of the euro, sterling and Australian dollar against the U.S. dollar will affect our reported financial results since the reporting currency for our consolidated financial statements is the U.S. dollar. Any strengthening of the U.S. dollar against these foreign currencies has the financial statement effect of decreasing the U.S. dollar values reported for these cruise brands’ revenues and expenses. Any weakening of the U.S. dollar has the opposite effect. Substantially all of our brands also have non-functional currency risk related to their international sales operations, which has become an increasingly larger part of most of their businesses over time, and principally includes the euro, sterling and Australian, Canadian and U.S. dollars. In addition, all of our brands have non-functional currency expenses for a portion of their operating expenses. Accordingly, we also have "foreign currency transactional" risks related to changes in the exchange rates for our brands’ revenues and expenses that are in a currency other than their functional currency. However, these brands’ revenues and expenses in non-functional currencies create some degree of natural offset from these currency exchange movements. Investment Currency Risks We consider our investments in foreign operations to be denominated in relatively stable currencies and of a long-term nature. We partially mitigate our net investment currency exposures by denominating a portion of our foreign currency intercompany payables in our foreign operations’ functional currencies, substantially all sterling. We have designated $2.4 billion as of February 29, 2016 and $2.6 billion as of November 30, 2015 of our foreign currency intercompany payables as non-derivative hedges of our net investments in foreign operations. Accordingly, we have included $691 million at February 29, 2016 and $509 million at November 30, 2015 of cumulative foreign currency transaction non-derivative gains in the cumulative translation adjustment component of AOCI, which offsets a portion of the losses recorded in AOCI upon translating our foreign operations’ net assets into U.S. dollars. During the three months ended February 29/28, 2016 and 2015 , we recognized foreign currency non-derivative transaction gains of $182 million and $72 million , respectively, in the cumulative translation adjustment component of AOCI. Newbuild Currency Risks Our shipbuilding contracts are typically denominated in euros. Our decisions regarding whether or not to hedge a non-functional currency ship commitment for our cruise brands are made on a case-by-case basis, taking into consideration the amount and duration of the exposure, market volatility, economic trends, our overall expected net cash flows by currency and other offsetting risks. We use foreign currency derivative contracts and have used non-derivative financial instruments to manage foreign currency exchange rate risk for some of our ship construction payments. In January 2015, we entered into foreign currency zero cost collars that are designated as cash flow hedges for a portion of Majestic Princess' and Seabourn Encore's euro-denominated shipyard payments. The Majestic Princess' collars mature in March 2017 at a weighted-average ceiling of $590 million and a weighted-average floor of $504 million . The Seabourn Encore's collars mature in November 2016 at a weighted-average ceiling of $221 million and a weighted-average floor of $185 million . If the spot rate is between the weighted-average ceiling and floor rates on the date of maturity, then we would not owe or receive any payments under these collars. At February 29, 2016 , our remaining newbuild currency exchange rate risk relates to euro-denominated newbuild contract payments, which represent a total unhedged commitment of $1.9 billion and substantially relates to Carnival Cruise Line, Holland America Line, P&O Cruises (Australia) and Seabourn newbuilds scheduled to be delivered through 2019. The cost of shipbuilding orders that we may place in the future that is denominated in a different currency than our cruise brands’ or the shipyards’ functional currency is expected to be affected by foreign currency exchange rate fluctuations. These foreign currency exchange rate fluctuations may affect our desire to order new cruise ships. Interest Rate Risks We manage our exposure to fluctuations in interest rates through our debt portfolio management and investment strategies. We evaluate our debt portfolio to determine whether to make periodic adjustments to the mix of fixed and floating rate debt through the use of interest rate swaps and the issuance of new debt or the early retirement of existing debt. At February 29, 2016 , 64% and 36% ( 60% and 40% at November 30, 2015 ) of our debt bore fixed and floating interest rates, respectively, including the effect of interest rate swaps. In addition, to the extent that we have excess cash available for investment, we purchase high quality short-term investments with floating interest rates, which offset a portion of the impact of interest rate fluctuations arising from our floating interest rate debt portfolio. Concentrations of Credit Risk As part of our ongoing control procedures, we monitor concentrations of credit risk associated with financial and other institutions with which we conduct significant business. Our maximum exposure under foreign currency and fuel derivative contracts and interest rate swap agreements that are in-the-money, which were not material at February 29, 2016 , is the replacement cost, net of any collateral received or contractually allowed offset, in the event of nonperformance by the counterparties to the contracts, all of which are currently our lending banks. We seek to minimize these credit risk exposures, including counterparty nonperformance primarily associated with our cash equivalents, investments, committed financing facilities, contingent obligations, derivative instruments, insurance contracts and new ship progress payment guarantees, by normally conducting business with large, well-established financial institutions, insurance companies and export credit agencies, and by diversifying our counterparties. In addition, we have guidelines regarding credit ratings and investment maturities that we follow to help safeguard liquidity and minimize risk. We normally do require collateral and/or guarantees to support notes receivable on significant asset sales, long-term ship charters and new ship progress payments to shipyards. We currently believe the risk of nonperformance by any of these significant counterparties is remote. We also monitor the creditworthiness of travel agencies and tour operators in Asia, Australia and Europe and credit and debit card providers to which we extend credit in the normal course of our business, which includes charter-hire agreements in Asia prior to sailing. Our credit exposure also includes contingent obligations related to cash payments received directly by travel agents and tour operators for cash collected by them on cruise sales in Australia and most of Europe where we are obligated to honor our guests' cruise payments made by them to their travel agents and tour operators regardless of whether we have received these payments. Concentrations of credit risk associated with these trade receivables, charter-hire agreements and contingent obligations are not considered to be material, principally due to the large number of unrelated accounts within our customer base, the nature of these contingent obligations and their short maturities. We have experienced only minimal credit losses on our trade receivables, charter-hire agreements and contingent obligations. We do not normally require collateral or other security to support normal credit sales. |
