Royal Caribbean Cruise Lines 2012 Annual Report Download - page 59

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PART II
as part of our refinancing strategy for our upcoming
2013 and 2014 maturities. In addition, we may elect to
fund our contractual obligations through other means
if opportunities arise.
As of December 31, 2012, we have on order two
Quantum-class ships and one Oasis-class ship. Each
of the Quantum-class ships have committed unse-
cured bank financing arrangements which include
sovereign financing guarantees. The agreement for
our Oasis-class ship is subject to certain closing con-
ditions and is expected to become effective in the
first quarter of 2013.
We anticipate that our cash flows from operations,
our current available credit facilities and our current
and anticipated financing arrangements will be ade-
quate to meet our capital expenditures and debt
repayments over the next twelve-month period.
We continue our focus on ensuring adequate cash
and liquidity. We are focused on cost efficiency and
continue to implement cost containment initiatives
including a number of initiatives to reduce energy
consumption and, by extension, fuel costs. These
include the design of more fuel efficient ships and
the implementation of other hardware and energy
efficiencies.
If (i) any person other than A. Wilhelmsen AS. and
Cruise Associates and their respective affiliates (the
“Applicable Group”) acquires ownership of more than
33% of our common stock and the Applicable Group
owns less of our common stock than such person, or
(ii) subject to certain exceptions, during any 24-month
period, a majority of the Board is no longer comprised
of individuals who were members of the Board on
the first day of such period, 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. Certain of our outstanding
debt securities also contain change of control provi-
sions that would be triggered by the acquisition of
greater than 50% of our common stock by a person
other than a member of the Applicable Group cou-
pled with a ratings downgrade. If this were to occur,
it would have an adverse impact on our liquidity
and operations.
DEBT COVENANTS
Certain of our financing agreements contain covenants
that require us, among other things, to maintain mini-
mum net worth of at least $5.6 billion, a fixed charge
coverage ratio of at least 1.25x and limit our net debt-
to-capital ratio to no more than 62.5%. The fixed charge
coverage ratio is calculated by dividing net cash from
operations for the past four quarters by the sum of
dividend payments plus scheduled principal debt
payments in excess of any new financings for the past
four quarters. Our minimum net worth and maximum
net debt-to-capital calculations exclude the impact of
accumulated other comprehensive (loss) income on
total shareholders’ equity. We are well in excess of all
debt covenant requirements as of Decem ber 31, 2012.
The specific covenants and related definitions can be
found in the applicable debt agreements, the majority
of which have been previously filed with the Securities
and Exchange Commission.
DIVIDENDS
We declared and paid cash dividends on our common
stock of $0.10 per share during each of the first and
second quarters of 2012 and $0.12 per share during
each of the third and fourth quarters of 2012.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
FINANCIAL INSTRUMENTS AND OTHER
General
We are exposed to market risk attributable to changes
in interest rates, foreign currency exchange rates and
fuel prices. We manage these risks through a combi-
nation of our normal operating and financing activities
and through the use of derivative financial instruments
pursuant to our hedging practices and policies. The
financial impact of these hedging instruments is pri-
marily offset by corresponding changes in the under-
lying exposures being hedged. We achieve this by
closely matching the amount, term and conditions
of the derivative instrument with the underlying risk
being hedged. Although certain of our derivative finan-
cial instruments do not qualify or are not accounted
for under hedge accounting, we do not hold or issue
derivative financial instruments for trading or other
speculative purposes. We monitor our derivative posi-
tions using techniques including market valuations
and sensitivity analyses. (See Note 13. Fair Value
Measurements and Derivative Instruments to our con-
solidated financial statements under Item 8. Financial
Statements and Supplementary Data.)
Interest Rate Risk
Our exposure to market risk for changes in interest
rates relates to our long-term debt obligations, includ-
ing future interest payments, and our operating lease
for Brilliance of the Seas. At December 31, 2012,
approximately 45.8% of our long-term debt was
effectively fixed as compared to 40% as of December
31, 2011. We use interest rate swap agreements to
modify our exposure to interest rate movements and
to manage our interest expense and rent expense.
Market risk associated with our long-term fixed rate
debt is the potential increase in fair value resulting