Royal Caribbean Cruise Lines 2007 Annual Report Download - page 41

The Miami District Office of the U.S. Equal Employment Opportunity
Commission (“EEOC”) has alleged that certain of our shipboard
employment practices do not comply with U.S. employment laws.
In June 2007, the EEOC proposed payment of monetary sanctions
and certain remedial actions. We are reviewing the matter with
the EEOC, and no legal proceedings have been initiated. We do
not believe that this matter will have a material adverse impact
on our financial condition or results of operations.
The Office of the Attorney General for the State of Florida is con-
ducting a review of our fuel supplement that we implemented in
the fourth quarter of 2007 on our Royal Caribbean International,
Celebrity Cruises and Azamara cruise brands. In addition, we have
been informed that the same office is conducting an investigation
to determine whether there is or has been a violation of state or
Federal anti-trust laws in connection with the setting by us and
other cruise line operators of our respective fuel supplements.
We are cooperating with the Attorney General’s office in connec-
tion with this review and investigation. The outcome of this review
and investigation will not have an impact to our 2007 consolidated
financial statements. At this time, weareunable todetermine the
impact of this item on our 2008 consolidated financial statements.
In February 2008, a purported class action lawsuit was filed in the
United States District Court for the Southern District of Florida.
The lawsuit alleges, among other things, that we, other cruise
lines and a trade association violated Federal anti-trust laws or
state deceptive and unfair trade practices laws by conspiring
to fix the prices of the fuel supplements announced by the vari-
ous cruiselines or misleading consumers as to the relationship
between each cruiseline’sfuel costs and the fuel supplements it
is charging its customers. We are not able at this time to estimate
the impact of this proceeding on us.
We are routinely involved in other claims typical within the cruise
vacation industry.The majority of theseclaims are covered by
insurance. We believe the outcome of such claims, net of
expected insurance recoveries, will not have a material adverse
impact on our financial condition or results of operations.
Operating Leases
In 2002, we entered into an operating lease denominated in
British pound sterling for the Brilliance of the Seas.The lease
payments vary based on sterling LIBOR. The lease has a contrac-
tual life of 25 years; however, the lessor has the right to cancel the
lease at years 10 and 18. Accordingly, the lease term for account-
ing purposes is 10 years. In the event of early termination at year
10, wehavethe option to cause the sale of the vessel at its fair
value and use the proceeds toward the applicable termination
obligation plus any unpaid amounts due under the contractual
term of the lease. Alternatively, we can make a termination
payment of approximately £126.0 million, or approximately
$250.3 million based on the exchange rate at December 31, 2007,
if the lease is canceled in 2012, and relinquish our right to cause
the sale of the vessel. This is analogous to a guaranteed residual
value. This termination amount, which is our maximum exposure,
has been included in the table below for noncancelable operating
leases. Under current circumstances we do not believe early
termination of this lease is probable.
Under the Brilliance of the Seas operating lease, we have agreed
to indemnify the lessor to the extent its after-tax return is nega-
tively impacted by unfavorable changes in corporate tax rates,
capital allowance deductions and certain unfavorable determina-
tions which may be made by United Kingdom tax authorities.
These indemnifications could result in an increase in our lease
payments. We are unable to estimate the maximum potential
increase in our lease payments due to the various circumstances,
timing or a combination of events that could trigger such indem-
nifications. Under current circumstances we do not believe an
indemnification under the provisions of the lease in any material
amount is probable.
In addition, we are obligated under other noncancelable operat-
ing leases primarily for offices, warehouses and motor vehicles.
As of December 31, 2007, future minimum lease payments under
noncancelable operating leases were as follows (in thousands):
Year
2008 $ 67,042
2009 59,498
2010 53,439
2011 50,587
2012 278,954
Thereafter 36,227
$545,747
Total expense for all operating leases amounted to $65.6 million,
$57.0 million and $57.9million for the years 2007, 2006 and
2005, respectively.
Other
Some of the contracts that we enter into include indemnification
provisions that obligate us to make payments to the counterparty
if certain events occur.These contingencies generally relate to
changes in taxes, increased lender capital costs and other similar
costs. The indemnification clauses are often standard contractual
terms and are entered into in the normal course of business. There
are no stated or notional amounts included in the indemnification
clauses and wearenot able to estimate the maximum potential
amount of future payments, if any, under these indemnification
clauses. Wehavenot been required to make any payments under
such indemnification clauses in the past and, under current circum-
stances, we do not believe an indemnification in any material
amount is probable.
If any person other than A. Wilhelmsen AS. and Cruise Associates,
our twoprincipal shareholders, acquires ownership of more than
30% of our common stock and our two principal shareholders, in
the aggregate, own less of our common stock than such person
and do not collectively havethe right to elect, or to designate for
election, atleast a majority of the board of directors, we may be
obligated to prepay indebtedness outstanding under the majority
of our credit facilities, which we may be unable to replace on
similar terms. If this were to occur, it could have an adverse
impact on our liquidity and operations.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued