Royal Caribbean Cruise Lines 2012 Annual Report Download - page 87

83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2012, we had $6.2 million of total
unrecognized compensation expense, net of esti-
mated forfeitures, related to performance share unit
grants, which will be recognized over the weighted-
average period of 2 years.
NOTE 10. EARNINGS PER SHARE
A reconciliation between basic and diluted earnings
per share is as follows (in thousands, except per
share data):
Year Ended December 31,   
Net income for basic
and diluted earnings
per share      
Weighted-average com-
mon shares outstanding   
Dilutive effect of stock
options, performance
stock awards and
restricted stock awards   
Diluted weighted-average
shares outstanding   
Basic earnings per share:
Net income      
Diluted earnings per share:
Net income      
Diluted earnings per share did not reflect options to
purchase an aggregate of 3.1 million, 2.8 million and
2.6 million shares for each of the years ended Decem-
ber 31, 2012, 2011 and 2010, respectively, because the
effect of including them would have been antidilutive.
NOTE 11. RETIREMENT PLAN
We maintain a defined contribution pension plan cov-
ering full-time shoreside employees who have com-
pleted the minimum period of continuous service.
Annual contributions to the plan are discretionary
and are based on fixed percentages of participants’
salaries and years of service, not to exceed certain
maximums. Pension expenses were $15.2 million,
$15.3 million and $13.3 million for the years ended
December 31, 2012, 2011 and 2010, respectively.
NOTE 12. INCOME TAXES
We and the majority of our subsidiaries are currently
exempt from United States corporate tax on United
States source income from the international operation
of ships pursuant to Section 883 of the Internal Rev-
enue Code. Regulations under Section 883 have lim-
ited the activities that are considered the international
operation of a ship or incidental thereto. Accordingly,
our provision for United States federal and state
income taxes includes taxes on certain activities not
considered incidental to the international operation
of our ships.
Additionally, some of our ship-operating subsidiaries
are subject to income tax under the tonnage tax
regimes of Malta or the United Kingdom. Under
these regimes, income from qualifying activities is
not subject to corporate income tax. Instead, these
subsidiaries are subject to a tonnage tax computed
by reference to the tonnage of the ship or ships regis-
tered under the relevant provisions of the tax regimes.
Income from activities not considered qualifying activ-
ities, which we do not consider significant, remains
subject to Maltese or United Kingdom corporate
income tax.
Income tax (expense) for items not qualifying under
Section 883, tonnage taxes and income taxes for
the remainder of our subsidiaries was approximately
$(55.5) million, $(20.7) million and $(20.3) million
and was recorded within other income (expense) for
the years ended December 31, 2012, 2011 and 2010,
respectively. In addition, all interest expense and pen-
alties related to income tax liabilities are classified as
income tax expense within other income (expense).
We do not expect to incur income taxes on future dis-
tributions of undistributed earnings of foreign subsid-
iaries. Consequently, no deferred income taxes have
been provided for the distribution of these earnings.
We regularly review deferred tax assets for recover-
ability based on our history of earnings, expectations
of future earnings, and tax planning strategies. Real-
ization of deferred tax assets ultimately depends on
the existence of sufficient taxable income to support
the amount of deferred taxes. A valuation allowance
is recorded in those circumstances in which we con-
clude it is not more-likely-than-not we will recover
the deferred tax assets prior to their expiration. As
previously disclosed, during 2012 European econo-
mies continued to demonstrate instability in light of
heightened concerns over sovereign debt issues as
well as the impact of proposed austerity measures