Royal Caribbean Cruise Lines 2001 Annual Report Download - page 46

Notes to the Consolidated Financial Statements (continued)
44 Royal Caribbean Cruises Ltd.
their separate legal identities but would operate as if they were
a single unified economic entity. The contracts governing the
dual-listed company merger would provide that the boards of
directors of the two companies would be identical and that, as far
as possible, the shareholders of Royal Caribbean and P&O
Princess would be placed in substantially the same economic
position as if they held shares in a single enterprise which
owned all of the assets of both companies. The net effect of
the dual-listed company merger would be that the shareholders
of Royal Caribbean would own an economic interest equal to
49.3% of the combined company and the shareholders of
P&O Princess would own an economic interest equal to
50.7% of the combined company.
The obligations of Royal Caribbean and P&O Princess to effect
the dual-listed company merger are subject to the satisfaction
of various conditions, including the receipt of certain regula-
tory approvals and consents and approval by the shareholders
of each of Royal Caribbean and P&O Princess. No assurance
can be given that all required approvals and consents will be
obtained, and if such approvals and consents are obtained, no
assurance can be given as to the terms, conditions and timing
of the approvals and consents. If the dual-listed company
merger is not completed by November 16, 2002, either party
can terminate the agreement if it is not in material breach of its
obligations thereunder. We have incurred, and continue to
incur, costs which have been or will be deferred in connection
with the dual-listed company merger. In the event the transac-
tion is not consummated, we would be required to write these
costs off, resulting in an estimated impact to earnings of approx-
imately $15 million. If the dual-listed company merger is
completed, these deferred costs, together with additional
costs, would be capitalized as part of the transaction.
If the merger agreement is terminated under certain circum-
stances, we would be obligated to pay P&O Princess a break
fee of $62.5 million. These circumstances include, among other
things, our board of directors withdrawing or adversely
modifying its recommendation to shareholders to approve the
dual-listed company merger, our board of directors recom-
mending an alternative acquisition transaction to shareholders,
and our shareholders failing to approve the dual-listed
company merger if another acquisition proposal with respect
to Royal Caribbean exists at that time. Similarly, P&O Princess
would be obligated to pay us a break fee of $62.5 million upon
the occurrence of reciprocal circumstances.
In December 2001, Carnival Corporation (Carnival) announced
a competing pre-conditional offer to acquire all of the
outstanding shares of P&O Princess. In connection with its
pre-conditional offer, Carnival solicited proxies from P&O
Princess’ shareholders in favor of an adjournment of the
P&O Princess’ special meeting prior to a shareholder vote to
approve the dual-listed company merger. On February 14,
2002, Royal Caribbean and P&O Princess convened special
meetings of their respective shareholders to approve the dual-
listed company merger. Prior to voting to approve the merger,
the shareholders of each company voted to adjourn their
respective meetings until an unspecified future date. We do
not know at this time the date on which the meetings will
be reconvened.
Note 4. Property and Equipment
Property and equipment consists of the following (in thousands):
2001 2000
Land $ 7,056 $ 7,056
Vessels 8,289,028 6,168,383
Vessels under capital lease 771,131 768,474
Vessels under construction 396,286 508,954
Other 366,914 313,689
9,830,415 7,766,556
Less – accumulated depreciation
and amortization (1,224,967) (934,747)
$ 8,605,448 $6,831,809
Vessels under construction include progress payments for the
construction of new vessels as well as planning, design, interest,
commitment fees and other associated costs. We capitalized
interest costs of $37.0 million, $44.2 million and $34.6 million
for the years 2001, 2000 and 1999, respectively. Accumulated
amortization related to vessels under capital lease was
$136.2 million and $112.9 million at December 31, 2001 and
2000, respectively.
Note 5. Other Assets
In July 2000, we purchased a new issue of convertible
preferred stock, denominated in British pound sterling, for
approximately $300 million from First Choice Holidays PLC.
The convertible preferred stock carries a 6.75% coupon.
Dividends of $19.4 million and $9.2 million were earned in
2001 and 2000, respectively and recorded in Other income
(expense). If fully converted, our holding would represent
approximately a 17% interest in First Choice Holidays PLC.