Royal Caribbean Cruise Lines 2013 Annual Report Download - page 60
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PART II
The lessor has advised us that they believe their char-
acterization of the lease is correct. Based on the fore-
going 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 indemnify the lessor, we cannot at this
time predict the impact that such an occurrence
would have on our financial condition and results of
operations.
In connection with the sale of Celebrity Mercury in
February 2011, we and TUI AG each guaranteed
repayment of 50% of an €180.0 million amortizing
bank loan provided to TUI Cruises which is due 2016.
As of December 31, 2013, €135.0 million, or approxi-
mately $186.0 million based on the exchange rate at
December 31, 2013, remains outstanding. Based on
current facts and circumstances, we do not believe
potential obligations under this guarantee are probable.
TUI Cruises entered into construction agreements
with STX Finland that includes certain restrictions on
each of our and TUI AG’s ability to reduce our current
ownership interest in TUI Cruises below 37.5% through
the construction periods for the first and second TUI
newbuild vessels. In addition, the credit agreements
for the financing of the ships extend this restriction
through 2019.
Some of the 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, increased lender capital costs and other similar
costs. The indemnification clauses are often standard
contractual terms and are 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 indem-
nification clauses. We have not been required to make
any payments under such indemnification clauses in
the past and, under current circumstances, we do not
believe an indemnification obligation is probable.
Other than the items described above, we are not
party to any other off-balance sheet arrangements,
including guarantee contracts, retained or contingent
interest, certain derivative instruments and variable
interest entities, that either have, or are reasonably
likely to have, a current or future material effect on
our financial position.
FUNDING NEEDS AND SOURCES
We have significant contractual obligations of which
our debt service obligations and the capital expendi-
tures associated with our ship purchases represent
our largest funding needs. We have approximately
$3.0 billion in contractual obligations due in 2014
of which approximately $1.6 billion relates to debt
maturities and $934.5 million relates to the acquisi-
tion of Quantum of the Seas along with progress pay-
ments on our ship purchases. In addition, we have
$11.2 billion in contractual obligations due beyond
2013 of which debt maturities and ship purchase
obligations represent $6.5 billion and $2.8 billion,
respectively. We have historically relied on a combina-
tion of cash flows provided by operations, drawdowns
under our available credit facilities, the incurrence of
additional debt and/or the refinancing of our existing
debt and the issuance of additional shares of equity
securities to fund these obligations.
We had a working capital deficit of $3.3 billion as
of December 31, 2013 as compared to a working capi-
tal deficit of $3.2 billion as of December 31, 2012.
Included within our working capital deficit is $1.6 bil-
lion and $1.5 billion of current portion of long-term
debt as of December 31, 2013 and December 31, 2012,
respectively. The increase in working capital deficit
was primarily due to the increase in current maturities
of long-term debt. Similar to others in our industry,
we operate with a substantial working capital deficit.
This deficit is mainly attributable to the fact that,
under our business model, a vast majority of our
passenger ticket receipts are collected in advance of
the applicable sailing date. These advance passenger
receipts remain a current liability until the sailing date.
The cash generated from these advance receipts is
used interchangeably with cash on hand from other
sources, such as our revolving credit facilities and
other cash from operations. The cash received as
advanced receipts can be used to fund operating
expenses for the applicable future sailing or other-
wise, pay down our revolving credit facilities, invest
in long-term investments or any other use of cash. In
addition, we have a relatively low-level of accounts
receivable and rapid turnover results in a limited
investment in inventories. We generate substantial
cash flows from operations and our business model,
along with our unsecured revolving credit facilities,
has historically allowed us to maintain this working
capital deficit and still meet our operating, investing
and financing needs. We expect that we will continue
to have working capital deficits in the future.