Royal Caribbean Cruise Lines 2007 Annual Report Download - page 40

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
Fuel Swap Agreements
The fair values of our fuel swap agreements were estimated based
on quoted market prices for similar or identical financial instru-
ments to those we hold. Our exposure to market risk for changes
in fuel prices relates to the forecasted consumption of fuel on
our ships. We use fuel swap agreements to mitigate the impact
of fluctuations in fuel prices. As of December 31, 2007 and 2006,
we had fuel swap agreements, designated as cash flow hedges,
to pay fixed prices for fuel with an aggregate notional amount
of $223.9 million, maturing through 2009, and $205.3 million,
maturing through 2008, respectively.
Cross Currency Swap Agreements
The fair values of our cross currency swap agreements were esti-
mated based on the present value of expected future cash flows.
Our exposure to market risk for fluctuations in foreign currency
exchange rates relates to our euro-denominated long-term debt.
As of December 31, 2007 we had cross currency swap agreements
designated as fair value hedges with an estimated fair value of
$54.0 million, maturing in 2014.
Other Financial Instruments
The carrying amounts of all other financial instruments approxi-
mate fair value at December 31, 2007 and 2006.
NOTE 14. COMMITMENTS
AND CONTINGENCIES
Capital Expenditures
As of December 31, 2007,we had one Freedom-class ship, two ships
of a newProjectGenesis classand four Solstice-classshipson order
for an aggregate additional capacity of approximately 25,800 berths.
The aggregate cost of the ships is approximately $7.0 billion, of
which wehavedeposited $499.6 million as of December 31, 2007.
(See Note 13. Fair Value of Financial Instruments).
As of December 31, 2007, we anticipated overall capital expendi-
tures, including the seven ships on order, will be approximately
$1.9 billion for 2008, $2.0 billion for 2009, $2.2 billion for 2010
and $1.0 billion for 2011.
Recently we reached an agreement with Meyer Werft to build a fifth
Solstice-class ship for Celebrity Cruises, subject to certain conditions,
for an additional capacity of approximately 2,850 berths, expected
to enter service in the fourth quarter of 2012. Based on current
exchange rates, we estimate the all-in cost of this ship will be
approximately $912.0 million. This amount is not included in the
anticipated overall capital expenditures reflected above.
Litigation
In April 2005, a purported class action lawsuit was filed in the
United States District Court for the Southern District of Florida
alleging thatCelebrity Cruises improperly requires its cabin stew-
ards to share guest gratuities with assistant cabin stewards. The
suit sought payment of damages, including penalty wages under
the U.S.Seaman’s Wage Act. In March 2006, the Southern District
of Florida dismissed the suit and held that the case should be
arbitrated pursuant to the arbitration provision in Celebrity’s
collective bargaining agreement. In June 2007, the United States
11th Circuit Court of Appeals affirmed the District Court’s order
dismissing the suit and subsequently denied the plaintiff’s peti-
tion for re-hearing and petition for re-hearing enbanc. In January
2008, the United States Supreme Court denied the plaintiff’s
petition requesting that the Court grant certiorari jurisdiction
over the action. We are not able at this time to estimate the
impact of this proceeding on us.
In January 2006, a purported class action lawsuit was filed in the
United States District Court for the Southern District of New York
alleging that we infringed rights in copyrighted works and other
intellectual property by presenting performances on our cruise
ships without securing the necessary licenses. The suit seeks
payment of damages, disgorgement of profits and a permanent
injunction against future infringement. In April 2006, we filed a
motion to sever and transfer the case to the United States District
Court for the Southern District of Florida. The motion is pending.
We are not able at this time to estimate the impact of this
proceeding on us.
We have a lawsuit pending in the Circuit Court for Miami-Dade
County,Florida against Rolls Royce, co-producer of the Mermaid
pod-propulsion system on Millennium-class ships, for the recur-
ring Mermaid pod failures. Alstom Power Conversion, the other
co-producer of the pod-propulsion system, settled out of this
suit in January 2006 for $38.0 million. The $38.0 million settlement
resulted in a gain of $36.0 million, net of reimbursements to
insurance companies, which we have recorded within other income
in our consolidated statements of operations for the year ended
December 31, 2006. We are not able at this time to estimate the
outcome tous of the Rolls Royce proceeding.
Celebrity Cruises has been awarded damages in connection with
its pending case in New York federal court against Essef Corp. for
claims stemming from a 1994 outbreak of Legionnaires’ disease on
one of Celebrity Cruises’ ships. The award reflects the culmination
of twojury trials held in June 2006 and June 2007, respectively, as
most recently modified by the trial judge in January 2008. Judg-
ment has not yet been entered and when entered, the judgment
is subject to appeal. The award would result in a net payment to
Celebrity Cruises (after costs and payment to insurers) of approxi-
mately $15.0 million. We are not able at this time to estimate the
outcome of this proceeding, and as of December 31, 2007, no
amount of this award has been recognized in our consolidated
financial statements.
In July 2006, a purported class action lawsuit was filed in the
United States District Court for the Central District of California
alleging that we failed to timely pay crew wages and failed to
pay proper crew overtime. The suit seeks payment of damages,
including penalty wages under the U.S. Seaman’s Wage Act and
equitable relief damages under the California Unfair Competition
Law. In December 2006, the District Court granted our motion to
dismissthe claim and held that it should be arbitrated pursuant
to the arbitration provision in Royal Caribbean’s collective bar-
gaining agreement. In January 2007, the plaintiffs appealed the
order tothe United States Ninth Circuit Court of Appeals. We are
not able atthis time toestimate the impact of this proceeding.