Royal Caribbean Cruise Lines 2008 Annual Report Download - page 71

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Royal Caribbean Cruises Ltd. F-16
NOTE 16.
COMMITMENTS AND CONTINGENCIES
Capital Expenditures
As of December 31, 2008, we had two Oasis-class ships and four
Solstice-class ships on order for an aggregate additional capacity of
approximately 22,200 berths. The aggregate cost of the ships is approxi-
mately $6.5 billion, of which we have deposited $540.1 million as of
December 31, 2008. Approximately 13.9% of the aggregate cost was
exposed to fluctuations in the euro exchange rate at December 31, 2008.
(See Note 15. Fair Value Measurements).
As of December 31, 2008, we anticipated overall capital expenditures,
including the six ships on order, will be approximately $2.1 billion for 2009,
$2.2 billion for 2010, $1.0 billion for 2011 and $1.0 billion for 2012.
Litigation
In January 2006, a purported class action lawsuit was filed in the
United States District Court for the Southern District of New York
alleging that we infringed rights in copyrighted works and other
intellectual property by presenting performances on our cruise ships
without securing the necessary licenses. The suit seeks payment of
damages, disgorgement of profits and a permanent injunction against
future infringement. In April 2006, we filed a motion to sever and
transfer the case to the United States District Court for the Southern
District of Florida. The motion is pending. We are not able at this time
to estimate the impact of this proceeding.
We have a lawsuit pending in the Circuit Court for Miami-Dade
County, Florida against Rolls Royce, co-producer of the Mermaid pod-
propulsion system on Millennium-class ships, for the recurring Mermaid
pod failures. Alstom Power Conversion, the other co-producer of the pod-
propulsion system, settled out of this suit in January 2006 for $38.0 mil-
lion. In December 2008, Rolls Royce filed its answer to our lawsuit
denying the allegations and asserting various affirmative defenses. At
the same time, Rolls Royce counterclaimed that we engaged in a civil
conspiracy with Alstom Power Conversion and its various affiliates
(“Alstom”), that we tortiously interfered with Rolls Royce’s joint venture
agreement with Alstom and that we caused Alstom to breach its
fiduciary obligations owing to Rolls Royce under the joint venture
agreement. Rolls Royce alleges damages against us in excess of
$100.0 million for these claims. They also brought a third-party com-
plaint against Alstom and are seeking indemnification and contribution
from them. We have moved to dismiss Rolls Royce’s counterclaims on
the basis that they are frivolous, unfounded and untimely. We are not
able at this time to estimate the outcome of the Rolls Royce proceed-
ing although we believe we have meritorious claims against Rolls Royce
and meritorious defenses to the counterclaims, both of which we
intend to vigorously pursue.
In July 2006, a purported class action lawsuit was filed in the United
States District Court for the Central District of California alleging that
we failed to timely pay crew wages and failed to pay proper crew
overtime. The suit seeks payment of damages, including penalty wages
under the United States Seaman’s Wage Act and equitable relief dam-
ages under the California Unfair Competition Law. In December 2006,
the District Court granted our motion to dismiss the claim and held
that it should be arbitrated pursuant to the arbitration provision in
Royal Caribbean’s collective bargaining agreement. In November 2008,
the United States Ninth Circuit Court of Appeals affirmed the District
Court’s finding and plaintiffs subsequent request for rehearing and
rehearing en banc was denied. We are not able at this time to
estimate the impact of this proceeding.
The Miami District Office of the United States Equal Employment
Opportunity Commission (“EEOC”) has alleged that certain of our
shipboard employment practices do not comply with United States
employment laws. In June 2007, the EEOC proposed payment of
monetary sanctions and certain remedial actions. Following discussions
with the EEOC regarding this matter, the EEOC informed us that they
transferred the matter to its legal unit for litigation review. To date,
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 Florida Attorney General’s office is investigating 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 fuel supple-
ments in 2007. We are cooperating with the Attorney General’s office
in connection with this investigation and are not able at this time to
estimate the impact of this investigation.
In October 2008, we were named as a defendant in a purported class
action filed in the United States District Court, Western District of
Washington against Park West Galleries, Inc. (“Park West”), Fine Arts
Sales, Inc., HSBC Bank Nevada, NA, HSBC Finance Corporation, Holland
America Line Inc., Holland America Line – USA Inc. and other unnamed
parties on behalf of purchasers of artwork from Park West. The suit
alleges that Park West sold art pieces that Park West falsely claimed
were authored by certain artists. The suit seeks damages and equitable
relief on behalf of the class members and alleges claims for violation of
the Racketeer Influenced and Corrupt Organizations Act (RICO), breach
of contract, statutory fraud and other similar claims. Park West has a
concession to sell artwork onboard Royal Caribbean International and
Celebrity Cruises ships. In January 2009, we were dismissed without
prejudice from the case.