Royal Caribbean Cruise Lines 2011 Annual Report Download - page 95

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ROYAL CARIBBEAN CRUISES LTD. 91
The effect of derivatives not designated as hedging instruments on the consolidated financial statements was
as follows:
Amount of Gain (Loss) Recognized
in Income on Derivative
Derivatives Not Designated as Hedging
Instruments under ASC 815-20
Location of Gain (Loss)
Recognized in Income on
Derivative
Year Ended
December 31, 2011
Year Ended
December 31, 2010
(in thousands)
Foreign exchange contracts Other income (expense)   ()
Fuel call options Other income (expense)  ()
 ()
Credit Related Contingent Features
Our current interest rate derivative instruments may
require us to post collateral if our Standard & Poor’s
and Moody’s credit ratings remain below specified
levels. Specifically, if on the fifth anniversary of enter-
ing into a derivative transaction and on all succeeding
fifth-year anniversaries our credit ratings for our senior
unsecured debt were to be below BBB- by Standard &
Poor’s and Baa3 by Moody’s, then each counterparty
to such derivative transaction with whom we are in a
net liability position that exceeds the applicable mini-
mum call amount may demand that we post collateral
in an amount equal to the net liability position. The
amount of collateral required to be posted following
such event will change each time our net liability posi-
tion increases or decreases by more than the applica-
ble minimum call amount. If our credit rating for our
senior debt is subsequently equal to, or above BBB-
by Standard & Poor’s or Baa3 by Moody’s, then any
collateral posted at such time will be released to us
and we will no longer be required to post collateral
unless we meet the collateral trigger requirement at
the next fifth-year anniversary. Currently, our senior
unsecured debt credit rating is BB with a stable out-
look by Standard & Poor’s and Ba2 with a stable out-
look by Moody’s. We currently have three interest rate
derivative transactions that have a term of at least
five years. One of these transactions will reach its fifth
anniversary in July 2012. All of the instruments relat-
ing to this transaction are in a net asset position as
of December 31, 2011. Therefore, as of December 31,
2011, we are not required to post collateral for any of
our derivative instruments.
NOTE 14. COMMITMENTS AND
CONTINGENCIES
Capital Expenditures
Our future capital commitments consist primarily of
new ship orders. As of December 31, 2011, we had
Celebrity Reflection and one Project Sunshine ship
under construction for an aggregate additional capac-
ity of approximately 7,100 berths.
As of December 31, 2011, the aggregate cost of the
two ships currently under construction including
amounts due to the shipyard and other ship related
costs was approximately $2.0 billion, of which we had
deposited $185.8 million as of such date. Approxi-
mately 43.3% of the aggregate cost of these two ships
was exposed to fluctuations in the euro exchange rate
at December 31, 2011. These amounts do not include
any costs associated with the construction agreement
entered into by TUI Cruises to build its first newbuild
ship. (See Note 13. Fair Value Measurements and
Derivative Instruments.)
We have committed bank financing arrangements
for Celebrity Reflection and our two Project Sunshine
ships, each of which include sovereign financing
guarantees.
Litigation
Between August 1, 2011 and September 8, 2011, three
similar purported class action lawsuits were filed
against us and certain of our officers in the U.S. District
Court of the Southern District of Florida. The cases
have since been consolidated and a consolidated
amended complaint was filed on February 17, 2012.
The consolidated amended complaint was filed on
behalf of a purported class of purchasers of our
common stock during the period from October 26,
2010 through July 27, 2011 and names the Company,
our Chairman and CEO, our CFO and the Presidents
and CEOs of our Royal Caribbean International and
Celebrity Cruises brands as defendants. The con-
solidated amended complaint alleges violations of
Section 10(b) of the Securities Exchange Act of 1934
and SEC Rule 10b-5 as well as, in the case of the indi-
vidual defendants, the control person provisions of
the Securities Exchange Act. The complaint principally
alleges that the defendants knowingly made incorrect
statements concerning the Company’s outlook for 2011
by not taking into proper account lagging European
and Mediterranean bookings. The consolidated
amended complaint seeks unspecified damages,
interest, and attorneys’ fees. We believe the claims
are without merit and we intend to vigorously defend
ourselves against them.