Royal Caribbean Cruise Lines 2010 Annual Report Download - page 87

2010 ANNUAL REPORT 84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
overall capital expenditures will be approximately
$1.0 billion for 2011, $1.0 billion for 2012, $350.0 million
for 2013 and $1.1 billion for 2014.
Litigation
We commenced an action in June 2010 in the United
States District Court for Puerto Rico seeking a declar-
atory judgment that Puerto Rico’s distributorship laws
do not apply to our relationship with an international
representative located in Puerto Rico. In September
2010, that international representative filed a number
of counterclaims against Royal Caribbean Cruises Ltd.
and Celebrity Cruises Inc. alleging violations of Puerto
Rico’s distributorship laws, bad faith breach of con-
tract, tortious interference with contract, violations of
various federal and state antitrust and unfair competi-
tion laws. The international representative is seeking
in excess of $40.0 million on each of these counter-
claims together with treble damages in the amount
of $120.0 million on several of the counterclaims as
well as injunctive relief and declaratory judgment. We
believe that the claims made against us are without
merit and we intend to vigorously defend ourselves
against them.
In September 2010, the United States District Court
for the Western District of Washington denied motions
seeking permission by the Court to rename Royal
Caribbean Cruises Ltd., Celebrity Cruises Inc. and
other cruise lines as defendants in five actions, one of
which is a pending class action, being brought against
Park West Galleries, Inc., doing business as Park West
Gallery, PWG Florida, Inc., Fine Art Sales, Inc., Vista
Fine Art LLC, doing business as Park West At Sea
(together, “Park West”), and other named and unnamed
parties. Royal Caribbean Cruises Ltd. and Celebrity
Cruises Inc. had previously been dismissed from these
actions on the basis that the claims against them were
not timely filed and/or properly pled. The actions are
being brought on behalf of purchasers of artwork at
shipboard art auctions conducted by Park West on
the named cruise lines alleging that the artwork Park
West sells is not what it represents to its customers
and that Royal Caribbean Cruises Ltd., Celebrity Cruises
Inc. and other named cruise lines are complicit in the
activities of Park West, including engaging in a con-
spiracy with Park West in violation of the Racketeer
Influenced and Corrupt Organizations Act (“RICO”),
and are being enriched unjustly from the sale of the
artwork. The actions seek refund and restitution of all
monies acquired from the sale of artwork at shipboard
auctions, recovery for the amount of payments for the
purchased artwork, damages on the RICO claims in an
indeterminate amount, and other permitted statutory
damages and equitable relief. We will vigorously
oppose any attempt by plaintiffs to rename either
Royal Caribbean Cruises Ltd. or Celebrity Cruises Inc.
as defendants and, if we are so renamed, we believe
we have meritorious defenses to the claims against us
which we will vigorously pursue. Under the current
facts and circumstances, we no longer consider this
matter to be a material proceeding.
Commencing in September 2009 and through August
2010 demands for arbitration were made under our
collective bargaining agreement covering Celebrity
Cruises’ crewmembers on behalf of twenty nine cur-
rent and/or former Celebrity Cruises’ cabin stewards
and others similarly situated. These demands, all
brought by the same counsel, contend that between
2001 and 2005 Celebrity Cruises improperly required
the named cabin stewards to share guest gratuities
with assistant cabin stewards. The demands seek pay-
ment of damages, including penalty wages, under the
U.S. Seaman’s Wage Act of approximately $0.6 million
for the named crewmembers and estimates damages
in excess of $200.0 million, for the entire class of
other similarly situated crewmembers. In the fourth
quarter of 2010, all but five of the demands were dis-
missed for failure to file the claims timely and the
other five are pending determination. Counsel has
brought an action in the United States District Court
for the Southern District of Florida seeking to over-
turn these arbitration awards, and is also appealing
the dismissal of a similar action brought in October
2009 on behalf of ten crew members and others
similarly situated in the United States District Court
for the Southern District of Florida making the same
contentions and seeking the same damages as the
arbitration demands. We believe we have meritorious
defenses to the pending arbitration demands and
actions which we intend to vigorously pursue. Under
the current facts and circumstances, we no longer
consider this matter to be a material proceeding.
We are routinely involved in other claims typical
within the cruise vacation industry. The majority of
these claims 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 denomi-
nated in British pound sterling for the Brilliance of
the Seas. The lease payments vary based on sterling
LIBOR. The lease has a contractual life of 25 years;
however, the lessor has the right to cancel the lease
at years 10 and 18. Accordingly, the lease term for
accounting purposes is 10 years. In the event of early
termination at year 10, we have the option to cause
the sale of the vessel at its fair value and use the pro-
ceeds toward the applicable termination obligation
plus any unpaid amounts due under the contractual
term of the lease. Alternatively, we can make a termi-
nation payment of approximately £126.0 million, or
approximately $196.7 million based on the exchange
rate at December 31, 2010, if the lease is canceled in