Royal Caribbean Cruise Lines 2013 Annual Report Download - page 100
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Francaise d’Assurance pour le Commerce Extérieur
(“COFACE”), the official export credit agency of
France, has agreed to guarantee to the lenders pay-
ment of 100% of the financing. The loan amortizes
semi-annually and will mature 12 years following deliv-
ery of the ship. Interest on the loan will accrue at our
election at either a fixed rate of 2.6% or a floating rate
at EURIBOR plus a margin of 1.15%. A commitment
fee varying from 0.15% to 0.30% per annum is due
through funding.
As of December 31, 2013, the aggregate cost of our
ships on order was approximately $4.7 billion, of
which we had disbursed $518.8 million as of such
date. Approximately 36.3% of the aggregate cost
was exposed to fluctuations in the Euro exchange
rate at December 31, 2013. (See Note 14. Fair Value
Measurements and Derivative Instruments).
Litigation
A class action complaint was filed in June 2011 against
Royal Caribbean Cruises Ltd. in the United States
District Court for the Southern District of Florida on
behalf of a purported class of stateroom attendants
employed onboard Royal Caribbean International
cruise vessels alleging that they were required to pay
other crew members to help with their duties in vio-
lation of the U.S. Seaman’s Wage Act. Plaintiffs seek
judgments for damages, wage penalties and interest
in an indeterminate amount. In May 2012, the Court
granted our motion to dismiss the complaint on the
basis that the applicable collective bargaining agree-
ment requires any such claims to be arbitrated. The
United States Court of Appeals, 11th Circuit affirmed
the Court’s dismissal and denied Plaintiff’s petition
for re-hearing and re-hearing en banc. We believe the
underlying claims made against us are without merit,
and we intend to vigorously defend ourselves against
them. Because of the inherent uncertainty as to the
outcome of this proceeding, we are unable at this
time to estimate the possible impact of this matter
on us.
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 and
cash flows.
Operating Leases
In July 2002, we entered into an operating lease
denominated in British pound sterling for the Brilliance
of the Seas. The lease payments vary based on sterling
LIBOR and are included in Other operating expenses
in our consolidated statements of comprehensive
income (loss). Brilliance of the Seas lease expense
amounts were approximately £12.3 million, £14.6 mil-
lion and £15.9 million, or approximately $19.1 million,
$23.3 million and $25.6 million for the years ended
December 31, 2013, 2012 and 2011, respectively. The
lease has a contractual life of 25 years; however, both
the lessor and we have certain rights to cancel the
lease at year 18 (i.e. 2020) upon advance notice given
approximately one year prior to cancellation. In the
event of early termination at year 18, we have the
option to cause the sale of the vessel at its fair value
and to use the proceeds towards the applicable termi-
nation payment. Alternatively, we could opt at such
time to make a termination payment of approximately
£65.4 million, or approximately $108.3 million based
on the exchange rate at December 31, 2013, and relin-
quish our right to cause the sale of the vessel. Under
current circumstances we do not believe early termi-
nation of this lease is probable.
Under the Brilliance of the Seas operating lease, we
have agreed to indemnify the lessor to the extent its
after-tax return is negatively impacted by unfavorable
changes in corporate tax rates, capital allowance
deductions and certain unfavorable determinations
which may be made by the United Kingdom tax
authorities. These indemnifications could result in
an increase in our lease payments. We are unable to
estimate the maximum potential increase in our lease
payments due to the various circumstances, timing
or a combination of events that could trigger such
indemnifications. The United Kingdom tax authorities
are disputing the lessor’s accounting treatment of
the lease and the lessor and tax authorities are in dis-
cussions on the matter. If the characterization of the
lease by the lessor is ultimately determined to be
incorrect, we could be required to indemnify the
lessor under certain circumstances. The lessor has
advised us that they believe their characterization of
the lease is correct. Based on the foregoing and our
review of available information, we do not believe an
indemnification payment is probable. However, if the
lessor loses its dispute and we are required to indem-
nify the lessor, we cannot at this time predict the
impact that such an occurrence would have on our
financial condition and results of operations.