Royal Caribbean Cruise Lines 2001 Annual Report Download - page 51

Notes to the Consolidated Financial Statements (continued)
Royal Caribbean Cruises Ltd. 49
Our exposure under foreign currency contracts, interest rate
and fuel swap agreements is limited to the cost of replacing the
contracts in the event of non-performance by the counter-
parties to the contracts, all of which are currently our lending
banks. To minimize this risk, we select counterparties with
credit risks acceptable to us and we limit our exposure to
any individual counterparty. Furthermore, all foreign
currency forward contracts are denominated in primary
currencies.
Note 12. Commitments and Contingencies
CAPITAL EXPENDITURES
As of December 31, 2001, we have six ships on order. Three
are Radiance-class vessels scheduled for delivery in the third
quarter of 2002, fourth quarter of 2003 and second quarter of
2004. Two are Voyager-class vessels with delivery scheduled in
the first quarters of 2003 and 2004. One is a Millennium-class
vessel scheduled for delivery in the second quarter of 2002.
The aggregate contract price of the six ships, which excludes
capitalized interest and other ancillary costs, is approximately
$2.6 billion, of which we have deposited $316.5 million as of
December 31, 2001. Additional deposits are due prior to the
dates of delivery of $127.0 million in 2002 and $5.2 million in
2003. We anticipate that overall capital expenditures will be
approximately $1.1 billion, $1.1 billion and $1.0 billion for
2002, 2003 and 2004, respectively. Two of the ships on order,
with an aggregate capacity of 4,200 berths, are committed to
the joint venture with P&O Princess. The aggregate contract
price of these two ships, excluding capitalized interest and
other ancillary costs, is approximately $0.8 billion and is
included in our projected capital costs above.
Pursuant to the joint venture agreement entered into in
November 2001 with P&O Princess, we have committed up
to $500.0 million in shareholder equity, with approximately
$5.0 million contributed to date and the balance due and
payable when called by the joint venture company. We have
agreed to assign our ship-build contracts for Serenade of the
Seas and Jewel of the Seas to the joint venture company. The
aggregate contract price of these two ships, excluding capi-
talized interest and other ancillary costs, is approximately
$0.8 billion, of which we have deposited $79.3 million as of
December 31, 2001. Also, we have obtained commitments for
export financing for up to 80% of the contract price of these
two vessels. Any payments we have made under these
contracts prior to assignment will be credited against our
shareholder equity commitment. The joint venture share-
holders intend that the joint venture company be financed
through third-party indebtedness and each joint venture share-
holder has committed to provide necessary credit support in
the form of guarantees on a pro rata basis, subject to legal or
regulatory restrictions. To the extent that third-party financing
cannot be obtained, and if approved in accordance with the
terms of the joint venture agreement, the joint venture share-
holders will provide financing on a pro rata basis on identical
terms. Subject to the terms of the joint venture agreement, the
agreement can be terminated by either party if certain
commercial benchmarks have not been achieved by January 1,
2003 or April 1, 2003.
Under the joint venture agreement, if a change of control
occurs with respect to a joint venture shareholder, the other
shareholder has a right to acquire the interest of that share-
holder at fair market value in exchange for preferred stock or a
15-year subordinated note (or a combination thereof) of the
purchasing shareholder. Notwithstanding the foregoing, the joint
venture shareholder subject to a change of control has
the right, subject to certain conditions, to put its interest in the
joint venture to the other joint venture shareholder at a
discount to fair market value in exchange for preferred stock
or a 20-year subordinated note (or a combination thereof) of
the purchasing shareholder.
LITIGATION
In April 1999, a lawsuit was filed in the United States District
Court for the Southern District of New York on behalf of
current and former crew members alleging that we failed to
pay the plaintiffs their full wages. The suit seeks payment of
(i) the wages alleged to be owed, (ii) penalty wages under
46 U.S.C. Section 10313 of U.S. law and (iii) punitive
damages. In November 1999, a purported class action suit was
filed in the same court alleging a similar cause of action. We are
not able at this time to estimate the impact of these proceedings
on us; there can be no assurance that such proceedings, if
decided adversely, would not have a material adverse effect on
our results of operations.
We are routinely involved in other claims typical within the
cruise industry. The majority of these claims is covered by
insurance. We believe the outcome of such other claims, net
of expected insurance recoveries, is not expected to have a
material adverse effect upon our financial condition or
results of operations.