Carnival Cruises 2013 Annual Report Download - page 75

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Table of Contents
NOTE 7 – Contingencies
Litigation
As a result of the 2012 Ship Incident, litigation claims, enforcement actions, regulatory actions and investigations, including, but not limited to, those arising
from personal injury, loss of life, loss of or damage to personal property, business interruption losses or environmental damage to any affected coastal waters
and the surrounding areas, have been and may be asserted or brought against various parties, including us. The existing assertions are ongoing and there are
significant jurisdictional uncertainties. The ultimate outcome of these matters cannot be determined at this time. However, we do not expect these matters to
have a significant impact on our results of operations because we have insurance coverage for these types of third-party claims.
Additionally, in the normal course of our business, various claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits
are covered by insurance and, accordingly, the maximum amount of our liability, net of any insurance recoverables, is typically limited to our self-insurance
retention levels. Management believes the ultimate outcome of these claims and lawsuits will not have a material adverse impact on our consolidated financial
statements.
Contingent Obligations – Lease Out and Lease Back Type (“LILO”) Transactions
At November 30, 2013, Carnival Corporation had estimated contingent obligations totaling $416 million, excluding termination payments as discussed below,
to participants in LILO transactions for two of its ships. At the inception of these leases, the aggregate of the net present value of these obligations was paid by
Carnival Corporation to a group of major financial institutions, who agreed to act as payment undertakers and directly pay these obligations. As a result, these
contingent obligations are considered extinguished and neither the funds nor the contingent obligations have been included in our Consolidated Balance Sheets.
In the event that Carnival Corporation were to default on its contingent obligations and assuming performance by all other participants, we estimate that it
would, as of November 30, 2013, be responsible for a termination payment of $33 million. In 2017, Carnival Corporation has the right to exercise options that
would terminate these LILO transactions at no cost to it.
In certain cases, if the credit ratings of the financial institutions who are directly paying the contingent obligations fall below AA-, then Carnival Corporation
will be required to replace these financial institutions with other financial institutions whose credit ratings are at least AA or meet other specified credit
requirements. In such circumstances, it would incur additional costs, although we estimate that they would not be material to our consolidated financial
statements. For the two financial institution payment undertakers subject to this AA- credit rating threshold, one has a credit rating of AA and the other has a
credit rating of AA-. If Carnival Corporation’s credit rating, which is BBB+, falls below BBB, it will be required to provide a standby letter of credit for $40
million, or, alternatively, provide mortgages for this aggregate amount on these two ships.
Contingent Obligations – Indemnifications
Some of the debt contracts that we enter into include indemnification provisions that obligate us to make payments to the counterparty if certain events occur.
These contingencies generally relate to changes in taxes and changes in laws that increase lender capital costs and other similar costs. The indemnification
clauses are often standard contractual terms and were entered into in the normal course of business. There are no stated or notional amounts included in the
indemnification clauses, and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses. We
have not been required to make any material payments under such indemnification clauses in the past and, under current circumstances, we do not believe a
request for material future indemnification payments is probable.
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