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Fair Value Measurements, Derivative Instruments and Hedging Activities and Financial Risks | 6 Months Ended
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May 31, 2023
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
| May 31, 2023 |  | November 30, 2022
| 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) | $ | 24,298 |  |  | $ | — |  |  | $ | 21,005 |  |  | $ | — |  |  | $ | 23,542 |  |  | $ | — |  |  | $ | 18,620 |  |  | $ | — |
Floating rate debt (a) | 10,213 |  |  | — |  |  | 8,812 |  |  | — |  |  | 12,074 |  |  | — |  |  | 10,036 |  |  | — |
Total | $ | 34,511 |  |  | $ | — |  |  | $ | 29,817 |  |  | $ | — |  |  | $ | 35,615 |  |  | $ | — |  |  | $ | 28,656 |  |  | $ | — |
(a)The debt amounts above do not include the impact of interest rate swaps or debt issuance costs and discounts. 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
| May 31, 2023 |  | November 30, 2022
(in millions) | Level 1 |  | Level 2 |  | Level 3 |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 4,468 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,029 |  |  | $ | — |  |  | $ | — |
Restricted cash | 38 |  |  | — |  |  | — |  |  | 1,988 |  |  | — |  |  | — |
Derivative financial instruments | — |  |  | 21 |  |  | — |  |  | — |  |  | 1 |  |  | — |
Total | $ | 4,507 |  |  | $ | 21 |  |  | $ | — |  |  | $ | 6,016 |  |  | $ | 1 |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments | $ | — |  |  | $ | 41 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Total | $ | — |  |  | $ | 41 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
The restricted cash amount at May 31, 2023 includes $20 million, which is included in other assets. Nonfinancial Instruments that are Measured at Fair Value on a Nonrecurring Basis Valuation of Goodwill and Trademarks As of May 31, 2023 and November 30, 2022, goodwill for our North America and Australia (“NAA”) segment was $579 million.
| Trademarks
(in millions) | NAA Segment |  | Europe Segment |  | Total
November 30, 2022 | $ | 927 |  |  | $ | 224 |  |  | $ | 1,151 |
Exchange movements | — |  |  | 8 |  |  | 8 |
May 31, 2023 | $ | 927 |  |  | $ | 231 |  |  | $ | 1,158 |
Derivative Instruments and Hedging Activities
(in millions) | Balance Sheet Location |  | May 31, 2023 |  | November 30, 2022
Derivative assets |  |  |  |  |
Derivatives designated as hedging instruments |  |  |  |  |
Cross currency swaps (a) | Prepaid expenses and other |  | $ | — |  |  | $ | — |
Interest rate swaps (b) | Prepaid expenses and other |  | 19 |  |  | 1 |
| Other assets |  | — |  |  | 1 |
Derivatives not designated as hedging instruments |  |  |  |  |
Interest rate swaps (b) | Prepaid expenses and other |  | 1 |  |  | — |
Total derivative assets |  |  | $ | 21 |  |  | $ | 1 |
Derivative liabilities |  |  |  |  |
Derivatives designated as hedging instruments |  |  |  |  |
Interest rate swaps (b) | Other long-term liabilities |  | 41 |  |  | — |
Total derivative liabilities |  |  | $ | 41 |  |  | $ | — |
(a)At May 31, 2023, we had a cross currency swap totaling $653 million that is designated as a hedge of our net investment in foreign operations with euro-denominated functional currencies. At May 31, 2023, this cross currency swap settles through 2024. (b)We have interest rate swaps whereby we receive EURIBOR-based floating interest rate payments in exchange for making fixed interest rate payments. These interest rate swap agreements effectively changed $69 million at May 31, 2023 and $89 million at November 30, 2022 of EURIBOR-based floating rate euro debt to fixed rate euro debt. As of May 31, 2023, these EURIBOR-based interest rate swaps were not designated as cash flow hedges. As of November 30, 2022, one of these swaps was designated as a cash flow hedge. During the six months ended May 31, 2023 we entered into interest rate swap agreements which effectively changed $2.5 billion at May 31, 2023 of LIBOR-based floating rate USD debt to fixed rate USD debt. At May 31, 2023, these interest rate swaps settle through 2027 and are designated as cash flow hedges. 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.
|  | May 31, 2023
(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 |  | $ | 21 |  |  | $ | — |  |  | $ | 21 |  |  | $ | — |  |  | $ | 21 |
Liabilities |  | $ | 41 |  |  | $ | — |  |  | $ | 41 |  |  | $ | — |  |  | $ | 41 |
|  | November 30, 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 |  | $ | 1 |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | 1 |
Liabilities |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
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 May 31, |  | Six Months Ended May 31,
(in millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Gains (losses) recognized in AOCI: |  |  |  |  |  |  |
Cross currency swaps – net investment hedges - included component | $ | (5) |  |  | $ | 27 |  |  | $ | 9 |  |  | $ | 33 |
Cross currency swaps – net investment hedges - excluded component | $ | — |  |  | $ | (11) |  |  | $ | (4) |  |  | $ | (20) |
Interest rate swaps – cash flow hedges | $ | (33) |  |  | $ | 6 |  |  | $ | (19) |  |  | $ | 9 |
Gains (losses) reclassified from AOCI – cash flow hedges: |  |  |  |  |  |  |
Interest rate swaps – Interest expense, net of capitalized interest | $ | 9 |  |  | $ | (1) |  |  | $ | 10 |  |  | $ | (1) |
Foreign currency zero cost collars – Depreciation and amortization | $ | — |  |  | $ | 1 |  |  | $ | 1 |  |  | $ | 1 |
Gains (losses) recognized on derivative instruments (amount excluded from effectiveness testing – net investment hedges) |  |  |  |  |  |  |
Cross currency swaps – Interest expense, net of capitalized interest | $ | 3 |  |  | $ | 3 |  |  | $ | 4 |  |  | $ | 4 |
The amount of gains and losses on derivatives not designated as hedging instruments recognized in earnings during the three and six months ended May 31, 2023 and estimated cash flow hedges’ unrealized gains and losses that are expected to be reclassified to earnings in the next twelve months are 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 May 31, 2023, we have designated $432 million of our sterling-denominated debt as non-derivative hedges of our net investments in foreign operations and also had a cross currency swap with a notional amount of $653 million, which is designated as a hedge of our net investments in foreign operations. For the three and six months ended May 31, 2023, we recognized $20 million and $9 million of losses on these 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 May 31, 2023, our remaining newbuild currency exchange rate risk relates to euro-denominated newbuild contract payments for non-euro functional currency brands, which represent a total unhedged commitment of $3.5 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’ functional currency 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 and cash equivalents, investments, notes receivables, reserve funds related to customer deposits, future financing facilities, contingent obligations, derivative instruments, insurance contracts 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 and new ship progress payments to shipyards We also monitor the creditworthiness of travel agencies and tour operators in Australia and Europe and credit and debit card providers to which we extend credit in the normal course of our business. 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 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. We have not experienced significant credit losses, including counterparty nonperformance on our trade receivables and contingent obligations.

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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 -Topic 820 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//820/tableOfContent + Details
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