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Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risks | 9 Months Ended
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Aug. 31, 2022
Fair Value Disclosures [Abstract] |
Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risks | Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risks Fair Value Measurements Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured using inputs in one of the following three categories: •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. 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
| August 31, 2022 |  | November 30, 2021
| Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
(in millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Level 1 |  | Level 2 |  | Level 3
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed rate debt (a) | $ | 20,980 |  |  | $ | — |  |  | $ | 16,431 |  |  | $ | — |  |  | $ | 19,555 |  |  | $ | — |  |  | $ | 19,013 |  |  | $ | — |
Floating rate debt (a) | 13,828 |  |  | — |  |  | 12,004 |  |  | — |  |  | 14,415 |  |  | — |  |  | 13,451 |  |  | — |
Total | $ | 34,808 |  |  | $ | — |  |  | $ | 28,435 |  |  | $ | — |  |  | $ | 33,970 |  |  | $ | — |  |  | $ | 32,463 |  |  | $ | — |
(a)The debt amounts above do not include the impact of interest rate swaps or debt issuance costs. 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 current market interest rates being applied to this debt. Financial Instruments that are Measured at Fair Value on a Recurring Basis
| August 31, 2022 |  | November 30, 2021
(in millions) | Level 1 |  | Level 2 |  | Level 3 |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 7,071 |  |  | $ | — |  |  | $ | — |  |  | $ | 8,939 |  |  | $ | — |  |  | $ | — |
Short-term investments (a) | — |  |  | — |  |  | — |  |  | 200 |  |  | — |  |  | — |
Derivative financial instruments | — |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  | — |
Total | $ | 7,071 |  |  | $ | — |  |  | $ | — |  |  | $ | 9,139 |  |  | $ | 1 |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | — |  |  | $ | 13 |  |  | $ | — |
Total | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | — |  |  | $ | 13 |  |  | $ | — |
(a)Short term investments consist of marketable securities with original maturities of between three and twelve months. Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis Valuation of Goodwill and Trademarks As of July 31, 2022, we performed our annual goodwill and trademark impairment reviews and determined there was no impairment for goodwill or trademarks. As of August 31, 2022 and November 30, 2021, goodwill for our North America and Australia (“NAA”) segment was $579 million. We had no goodwill for our Europe and Asia (“EA”) segment as of August 31, 2022 and November 30, 2021.
| Trademarks
(in millions) | NAA Segment |  | EA Segment |  | Total
November 30, 2021 | $ | 927 |  |  | $ | 248 |  |  | $ | 1,175 |
Exchange movements | — |  |  | (30) |  |  | (30) |
August 31, 2022 | $ | 927 |  |  | $ | 218 |  |  | $ | 1,145 |
Impairment of Ships We review our long-lived assets for impairment whenever events or circumstances indicate potential impairment. As a result of the continued effects of COVID-19 on our business, and our updated expectations of the estimated selling values for certain of our ships, we determined that a ship, which we subsequently sold, had a net carrying value that exceeded its estimated discounted future cash flows as of February 28, 2022. We compared the estimated selling value to the net carrying value and, as a result, recognized ship impairment charges as summarized in the table below during the first quarter of 2022. The principal assumption used in our cash flow analyses was the timing of the sale and its proceeds, which is considered a Level 3 input. We believe that we have made reasonable estimates and judgments as part of our assessment. A change in principal assumptions, including those regarding ship deployment given Costa Cruises’ Asia markets, particularly China, remain closed to cruising, may result in a need to perform additional impairment reviews and a need to recognize additional impairment charges. The impairment charges summarized in the table below are included in ship and other impairments in our Consolidated Statements of Income (Loss).
| Three Months Ended August 31, |  | Nine Months Ended August 31,
(in millions) | 2022 |  | 2021 |  | 2022 |  | 2021
NAA Segment | $ | — |  |  | $ | 273 |  |  | $ | 8 |  |  | $ | 273 |
EA Segment | — |  |  | 202 |  |  | — |  |  | 251 |
Total ship impairments | $ | — |  |  | $ | 475 |  |  | $ | 8 |  |  | $ | 524 |
Refer to Note 1 - “General, Use of Estimates and Risks and Uncertainty” for additional discussion. Derivative Instruments and Hedging Activities
(in millions) | Balance Sheet Location |  | August 31, 2022 |  | November 30, 2021
Derivative assets |  |  |  |  |
Derivatives designated as hedging instruments |  |  |  |  |
Cross currency swaps (a) | Prepaid expenses and other |  | $ | — |  |  | $ | 1 |
Total derivative assets |  |  | $ | — |  |  | $ | 1 |
Derivative liabilities |  |  |  |  |
Derivatives designated as hedging instruments |  |  |  |  |
Cross currency swaps (a) | Other long-term liabilities |  | $ | — |  |  | $ | 8 |
Interest rate swaps (b) | Accrued liabilities and other |  | 1 |  |  | 3 |
| Other long-term liabilities |  | — |  |  | 2 |
Total derivative liabilities |  |  | $ | 1 |  |  | $ | 13 |
(a)At August 31, 2022, we had no cross-currency swaps. At November 30, 2021, we had a cross currency swap totaling $201 million that was designated as a hedge of our net investment in foreign operations with a euro-denominated functional currency. (b)We have 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 $108 million at August 31, 2022 and $160 million at November 30, 2021 of EURIBOR-based floating rate euro debt to fixed rate euro debt. At August 31, 2022, these interest rate swaps settle through 2025. Our derivative contracts include rights of offset with our counterparties. We have elected to net certain of our derivative assets and liabilities within counterparties, when applicable.
|  | August 31, 2022
(in millions) |  | 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 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Liabilities |  | $ | 1 |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | 1 |
|  | November 30, 2021
(in millions) |  | 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 |  | $ | 1 |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | 1 |
Liabilities |  | $ | 13 |  |  | $ | — |  |  | $ | 13 |  |  | $ | — |  |  | $ | 13 |
The effect of our derivatives qualifying and designated as hedging instruments recognized in other comprehensive income (loss) and in net income (loss) was as follows:
| Three Months Ended August 31, |  | Nine Months Ended August 31,
(in millions) | 2022 |  | 2021 |  | 2022 |  | 2021
Gains (losses) recognized in AOCI: |  |  |  |  |  |  |
Cross currency swaps – net investment hedges - included component | $ | 40 |  |  | $ | — |  |  | $ | 72 |  |  | $ | — |
Cross currency swaps – net investment hedges - excluded component | $ | (7) |  |  | $ | — |  |  | $ | (26) |  |  | $ | — |
Interest rate swaps - cash flow hedges | $ | 1 |  |  | $ | 1 |  |  | $ | 10 |  |  | $ | 3 |
Gains (losses) reclassified from AOCI - cash flow hedges: |  |  |  |  |  |  |
Interest rate swaps - Interest expense, net of capitalized interest | $ | — |  |  | $ | (1) |  |  | $ | (1) |  |  | $ | (4) |
Foreign currency zero cost collars - Depreciation and amortization | $ | 1 |  |  | $ | 1 |  |  | $ | 2 |  |  | $ | 1 |
Gains (losses) recognized on derivative instruments (amount excluded from effectiveness testing – net investment hedges) |  |  |  |  |  |  |
Cross currency swaps – Interest expense, net of capitalized interest | $ | 2 |  |  | $ | — |  |  | $ | 5 |  |  | $ | — |
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 material. Financial Risks Fuel Price Risks We manage our exposure to fuel price risk by managing our consumption of fuel. Substantially all of our exposure to market risk for changes in fuel prices relates to the consumption of fuel on our ships. We manage fuel consumption through ship maintenance practices, modifying our itineraries and implementing innovative technologies. 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 monitor our exposure to, and manage, the economic foreign currency exchange risks faced by our operations and realized if we exchange one currency for another. We consider hedging certain of our ship commitments and net investments in foreign operations. The financial impacts of our hedging instruments generally offset the changes in the underlying exposures being hedged. Operational Currency Risks Our operations primarily utilize the U.S. dollar, Euro, Sterling or the Australian dollar as their functional currencies. Our operations also have revenue and expenses denominated in non-functional currencies. Movements in foreign currency exchange rates affect our financial statements. Investment Currency Risks We consider our investments in foreign operations to be denominated in stable currencies and of a long-term nature. We partially mitigate the currency exposure of our investments in foreign operations by designating a portion of our foreign currency debt and derivatives as hedges of these investments. As of August 31, 2022, we have designated $410 million of our sterling-denominated debt as non-derivative hedges of our net investments in foreign operations. For the three and nine months ended August 31, 2022, we recognized $32 million and $57 million of gains on these non-derivative net investment hedges in the cumulative translation adjustment section of other comprehensive income (loss). We also have euro-denominated debt, which provides an economic offset for our operations with euro functional currency. Newbuild Currency Risks Our shipbuilding contracts are typically denominated in euros. Our decision to hedge a non-functional currency ship commitment for our cruise brands is made on a case-by-case basis, considering the amount and duration of the exposure, market volatility, economic trends, our overall expected net cash flows by currency and other offsetting risks. At August 31, 2022, our remaining newbuild currency exchange rate risk primarily relates to euro-denominated newbuild contract payments to non-euro functional currency brands, which represent a total unhedged commitment of $5.2 billion for newbuilds scheduled to be delivered through 2025. The cost of shipbuilding orders that we may place in the future that are denominated in a different currency than our cruise brands’ will be affected by foreign currency exchange rate fluctuations. These foreign currency exchange rate fluctuations may affect our decision 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. 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. We seek to manage these credit risk exposures, including counterparty nonperformance primarily associated with our cash equivalents, investments, notes receivables, reserve funds related to customer deposits, future financing facilities, contingent obligations, derivative instruments, insurance contracts, long-term ship charters and new ship progress payment guarantees, by: •Conducting business with well-established financial institutions, insurance companies and export credit agencies •Diversifying our counterparties •Having guidelines regarding credit ratings and investment maturities that we follow to help safeguard liquidity and minimize risk •Generally requiring collateral and/or guarantees to support notes receivable on significant asset sales, long-term ship charters and new ship progress payments to shipyards At August 31, 2022, our exposures under derivative instruments were not material. We also monitor the creditworthiness of travel agencies and tour operators in Asia, Australia and Europe, which includes charter-hire agreements in Asia and credit and debit card providers to which we extend credit in the normal course of our business. Concentrations of credit risk associated with trade receivables and other receivables, charter-hire agreements and contingent obligations are not considered to be material, principally due to the large number of unrelated accounts, the nature of these contingent obligations and their short maturities. Normally, we have not required collateral or other security to support normal credit sales. Historically, we have not experienced significant credit losses, including counterparty nonperformance; however, because of the impact COVID-19 is having on economies, we have experienced, and may continue to experience, an increase in credit losses. 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.

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI https://asc.fasb.org/topic&trid=2155941 + Details
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