Royal Caribbean Cruise Lines 2012 Annual Report Download - page 95

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The effect of derivatives not designated as hedging instruments on the consolidated financial statements was
as follows:
Location of Gain (Loss)
Amount of Gain (Loss) Recognized
in Income on Derivative
Derivatives Not Designated as Hedging
Instruments under ASC 815-20
Recognized in Income
on Derivative
Year Ended
December 31, 2012
Year Ended
December 31, 2011
(in thousands)
Foreign currency forward contracts Other income (expense)  
Fuel swaps 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 Ba1 with a stable out-
look by Moody’s. We currently have four interest rate
derivative hedges that have a term of at least five
years. The aggregate fair values of all derivative
instruments with such credit-related contingent fea-
tures in net liability positions as of December 31, 2012
and December 31, 2011 were $55.5 million and $11.4
million, respectively, which do not include the impact
of any such derivatives in net asset positions. The
earliest that any of the four interest rate derivative
hedges will reach their fifth anniversary is November
2016. Therefore, as of December 31, 2012, we were
not required to post collateral for any of our deriva-
tive transactions.
NOTE 14. COMMITMENTS AND
CONTINGENCIES
Capital Expenditures
Our future capital commitments consist primarily of
new ship orders. As of December 31, 2012, we had
two Quantum-class ships and one Oasis-class ship
on order for our Royal Caribbean International brand
with an aggregate capacity of approximately 13,600
berths. The agreement for our Oasis-class ship is sub-
ject to certain closing conditions and is expected to
become effective in the first quarter of 2013. We also
have an option to construct a fourth Oasis-class ship
which will expire five days prior to the first anniver-
sary of the effective date of the contract.
During 2012, we exercised our option under the agree-
ment with Meyer Werft to construct Anthem of the
Seas, the second Quantum-class ship, with approxi-
mately 4,100 berths which is expected to enter ser-
vice in the second quarter of 2015. During 2011, we
entered into credit agreements to finance the con-
struction of Quantum of the Seas and Anthem of the
Seas. Each facility makes available to us unsecured
term loans in an amount up to the United States dollar
equivalent corresponding to approximately €595.0
million. Hermes has agreed to guarantee to the lend-
ers payment of 95% of the financing. The loans will
amortize semi-annually and will mature 12 years fol-
lowing delivery of the applicable ship. Pursuant to the
credit agreements, interest on the loans will accrue
at our election (to be made prior to funding) at either
a fixed rate of 4.76% or a floating rate of LIBOR plus
a margin of 1.30%. Separately, we have entered into
forward-starting interest rate swap agreements which
effectively convert the floating rates available to us
per the credit agreements to fixed rates (including
applicable margin) of 3.74% and 3.86% for Quantum
of the Seas and Anthem of the Seas, respectively.
See Note 13. Fair Value Measurements and Derivative
Instruments for further information regarding these
swap agreements.
As of December 31, 2012, the aggregate cost of our
ships on order was approximately $3.6 billion, of
which we had deposited $131.0 million as of such
date. Approximately 49.7% of the aggregate cost
was exposed to fluctuations in the euro exchange
rate at December 31, 2012. (See Note 13. Fair Value
Measurements and Derivative Instruments).
Litigation
Between August 1, 2011 and September 8, 2011, three
similar purported class action lawsuits were filed
against us and certain of our current and former