NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As used in this Quarterly Report on Form 10-Q, the terms “Royal Caribbean,” the “Company,” “we,” “our” and “us” refer to Royal Caribbean Cruises Ltd. and, depending on the context, Royal Caribbean Cruises Ltd.’s consolidated subsidiaries and/or affiliates. The terms “Royal Caribbean International,” “Celebrity Cruises,” “Azamara Club Cruises” and "Silversea Cruises" refer to our wholly- or majority-owned global cruise brands. Throughout this report, we also refer to regional brands in which we hold an ownership interest, including “TUI Cruises” and “Pullmantur.” However, because these regional brands are unconsolidated investments, our operating results and other disclosures herein do not include these brands unless otherwise specified. In accordance with cruise vacation industry practice, the term “berths” is determined based on double occupancy per cabin even though many cabins can accommodate three or more passengers. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019, including the audited consolidated financial statements and related notes included therein, as updated by our Current Report on Form-8K dated May 13, 2020.
This Quarterly Report on Form 10-Q also includes trademarks, trade names and service marks of other companies. Use or display by us of other parties’ trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, these other parties other than as described herein.
Note 1. General
Description of Business
We are a global cruise company. As of March 31, 2020, we control and operate four global cruise brands: Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and Silversea Cruises (collectively, our "Global Brands").
We also own a 50% joint venture interest in the German brand TUI Cruises and a 49% interest in the Spanish brand Pullmantur (collectively, our "Partner Brands"). We account for our investments in our Partner Brands under the equity method of accounting.
Management's Plan and Liquidity
As part of the global containment effort for the COVID-19 pandemic, the Company implemented a voluntary suspension of its global cruise operations effective March 13, 2020, which has subsequently been extended through at least July 31, 2020 and China sailings until at least June 30, 2020. On March 14, 2020, concurrent with our and the broader cruise industry’s suspension, the U.S. Centers for Disease Control and Prevention (“CDC”) issued a No Sail Order through April 13, 2020. On April 9, 2020, the CDC modified its existing No Sail Order to extend it until the earliest of (a) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, (b) the date the Director of the CDC rescinds or modifies the No Sail Order or (c) 100 days after the order appears on the Federal Register, which would be July 24, 2020.
Significant events affecting travel, including COVID-19, typically have an impact on the booking pattern for cruise vacations, with the full extent of the impact generally determined by the length of time the event influences travel decisions. Based on our assumptions and estimates and our financial condition, we believe that the liquidity described in the following paragraphs will be sufficient to fund our liquidity requirements for at least the next twelve months. However, there can be no assurance that our assumptions and estimates are accurate due to possible unknown variables, including, but not limited to, whether the CDC will issue additional No Sail Orders on cruises out of the United States. The No Sail Order is currently set to expire on or before July 24, 2020. The Company, working with the CDC, is developing its enhanced safety and health protocols as well as other operational procedures necessary to return its vessels to service and is targeting mid-summer of 2020 to begin sailings; however, if the ban on cruising is extended beyond the third quarter of 2020, it will have a material adverse impact on our current and forecasted liquidity levels. There are also other unknown variables related to the unprecedented suspension of our operations and, as such, there is significant uncertainty in our ability to predict future liquidity requirements.
As of March 31, 2020, the Company had liquidity of $3.6 billion, consisting of cash and cash equivalents, net of our outstanding commercial paper notes. During the quarter ended March 31, 2020 and through the issuance of these financial statements, as described in Note 7. Debt, the Company:
•increased the capacity under our revolving credit facilities by $0.6 billion and fully drew on both facilities;
•entered into 364-day senior secured term loan for $2.2 billion, which was subsequently increased to $2.35 billion and was repaid in its entirety through the date of these financial statements; and
•secured deferrals of existing debt amortization under our export-credit backed ship debt facilities which increased the Company’s liquidity by an additional $0.8 billion.
The Company has also undertaken several proactive measures as well as has future plans to mitigate the financial and operational impacts of COVID-19, through new financing options, reduction of capital expenditures and operating expenses, including furloughing staff, laying up vessels, as well as agreeing with certain of our lenders not to pay dividends or engage in stock repurchases.
We were in compliance with all of our debt covenants as of March 31, 2020 and the date these financial statements were issued. Subsequent to March 31, 2020, we amended each of our outstanding facilities to waive compliance with all financial covenants in such facilities through and including the first quarter of 2021.
We also have agreements with a number of credit card processors that transact advance passenger ticket deposits and onboard transactions related to our cruise voyages. These agreements allow the credit card processors to require under certain circumstances, including the existence of a material adverse change, excessive chargebacks and other triggering events, that we maintain a reserve which could be satisfied by posting collateral. While we have not posted any collateral under these agreements as of the date of the issuance of the financial statements, we are currently in discussions with certain processors which may result in the posting of collateral to satisfy reserve requirements. Based on the triggers in the various agreements and the conversations to date, we believe the maximum reserve we may need to provide under these agreements in the next twelve months is approximately $300 million.
Any covenant waiver may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections that would be applicable. There can be no assurance that we would be able to obtain waivers in a timely manner, or on acceptable terms at all. If we were not able to obtain waivers or repay the debt facilities, this would lead to an event of default and potential acceleration of amounts due under all of our outstanding debt and derivative contract payables.
Note 2. Summary of Significant Accounting Policies
Adoption of Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments. This ASU, along with subsequent ASUs issued to clarify certain of its provisions, introduces new guidance which makes substantive changes to the accounting model for financial assets subject to credit losses that are measured at amortized cost, as well as certain off-balance sheet credit exposures. The updates include the introduction of a new current expected credit loss (“CECL”) model that is based on expected rather than incurred losses. On January 1, 2020, we adopted these updates using the modified retrospective approach. The adoption did not have a material impact to our consolidated financial statements.
Recent Accounting Pronouncements
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivative and Hedging (Topic 815), which clarifies the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. The guidance clarifies how to account for the transition into and out of the equity method of accounting when considering observable transactions under the measurement alternative. The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions to the current guidance on contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are currently evaluating the impact of the new guidance on our consolidated financial statements.
Note 3. Impairment and Credit Losses
The increased challenges related to COVID-19 has significantly impacted our expected investments, operating plans and projected cash flows. Refer to Note 1. General for further information regarding COVID-19 and its impact to the Company. As a result of these developments, we performed interim impairment evaluations on certain assets as further discussed below.
Goodwill & Intangible Assets
The following are the carrying amounts of goodwill attributable to our Royal Caribbean International, Celebrity Cruises and Silversea Cruises reporting units and the changes in such balances during the quarter ended March 31, 2020 (in thousands) are as follows:
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Royal Caribbean International
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Celebrity Cruises
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Silversea Cruises
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Total
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Balance at December 31, 2019
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$
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299,226
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$
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1,632
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$
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1,084,786
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$
|
1,385,644
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Impairment charge
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—
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—
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(576,208)
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(576,208)
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Transfer of goodwill attributable to the 2019 purchase of photo operations onboard our ships
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(2,694)
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2,694
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—
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—
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Foreign currency translation adjustment
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(220)
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—
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—
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(220)
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Balance at March 31, 2020
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$
|
296,312
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$
|
4,326
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|
$
|
508,578
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$
|
809,216
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|
We performed an interim impairment evaluation of Royal Caribbean International’s goodwill in connection with the preparation of our financial statements during the quarter ended March 31, 2020. As a result of the test, we determined that the fair value of the Royal Caribbean International reporting unit exceeded its carrying value by approximately 32% resulting in no impairment to the Royal Caribbean International goodwill. As of March 31, 2020, the carrying amount of goodwill attributable to our Royal Caribbean reporting unit was $296.3 million.
We also performed an interim impairment evaluation of Silversea Cruises’ goodwill in connection with the preparation of our financial statements for the quarter ended March 31, 2020. We estimated the fair value of the Silversea Cruises reporting unit using a probability-weighted discounted cash flow model in combination with a market based valuation approach. As a result of this analysis, we determined that the carrying value of the Silversea Cruises reporting unit exceeded its fair value. Accordingly, we recognized a goodwill impairment charge of $576.2 million during the quarter ended March 31, 2020, which is also the accumulated impairment charge as of March 31, 2020.
Intangible assets consist of finite and indefinite life assets and are reported within Other assets in our consolidated balance sheets. The following is a summary of our intangible assets as of March 31, 2020 and December 31, 2019 (in thousands):
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March 31, 2020
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Gross Carrying Value
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Accumulated Amortization
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Accumulated Impairment losses
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Net Carrying Value
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Finite-life intangible assets:
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Customer relationships
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$
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97,400
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$
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9,199
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$
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—
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$
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88,201
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Galapagos operating license
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47,669
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6,506
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—
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41,163
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Other finite-life intangible assets
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11,560
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8,188
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—
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3,372
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Total finite-life intangible assets
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156,629
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23,893
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—
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132,736
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Indefinite-life intangible assets
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352,275
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|
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—
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30,800
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321,475
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Total intangible assets, net
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$
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508,904
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$
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23,893
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$
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30,800
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$
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454,211
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December 31, 2019
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Gross Carrying Value
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Accumulated Amortization
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Net Carrying Value
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Finite-life intangible assets:
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Customer relationships
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$
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97,400
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$
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7,576
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$
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89,824
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Galapagos operating license
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47,669
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|
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6,010
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41,659
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Other finite-life intangible assets
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11,560
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6,743
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|
|
4,817
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Total finite-life intangible assets
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156,629
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20,329
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136,300
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Indefinite-life intangible assets
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352,275
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—
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352,275
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Total intangible assets, net
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$
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508,904
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$
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20,329
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$
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488,575
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Impairment charges related to the Silversea Cruises trade name included within Indefinite-life intangible assets in the table above was $30.8 million as of March 31, 2020.
Long-lived Assets
We identified that the undiscounted cash flows of certain long-lived assets, consisting of 8 ships and certain right-of-use assets, were less than their carrying values. Events surrounding the COVID-19 pandemic negatively impacted the expected undiscounted cash flows of these assets. As a result of this determination, we evaluated these assets pursuant to our long -lived asset impairment test, which resulted in an impairment charge of $463.0 million to write down these assets to their estimated fair values during the quarter ended March 31, 2020.
Notes Receivable
We reviewed our notes receivable for credit losses in connection with the preparation of our financial statements for the quarter ended March 31, 2020. In evaluating the allowance for loan losses, management considered factors such as historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. Based on these credit loss estimation factors, we recorded and subsequently wrote-off loan loss allowances of $38.1 million primarily due to loans and other net receivables related to Pullmantur Holdings S.L. ("Pullmantur Holdings"). Refer to Note 6. Other Assets for further information regarding our investment in Pullmantur Holdings.
Equity Investments
For an equity method investment that experiences a loss in fair value determined to be other than temporary, we will reduce our basis in the investment to fair value and record an impairment loss. Given the recent impact of the COVID-19 pandemic to our business, we evaluated whether our equity method investments were other than temporarily impaired. Based on our review of each of the investment's most recent financial results and projections, we determined that certain of our equity method investments, primarily Grand Bahama Shipyard Ltd. (“Grand Bahama”), were other than temporarily impaired, which resulted in an impairment charge of $39.7 million during the quarter ended March 31, 2020. Refer to Note 6. Other Assets for information regarding our significant equity investments.
The combined impairment and credit loss charge of $1.1 billion related to our goodwill, trademarks and trade names, vessels, right-of-use assets and notes receivable was recognized in earnings during the quarter ended March 31, 2020 and is reported within Impairment and credit losses within our consolidated statements of comprehensive (loss) income. The impairment charge of $39.7 million related to our equity investments was recognized in earnings during the quarter ended March 31, 2020 and is reported within Equity investment (loss) income within our consolidated statements of comprehensive (loss) income. For further information on the measurements used to estimate the fair value of these assets, refer to Note 13. Fair Value Measurements and Derivative Instruments. These impairment assessments and the resulting charges were determined based on management’s current estimates and projections using information through the time of the issuance of these financial statements. The adverse impact COVID-19 will continue to have on our business, operating results, cash flows and overall financial condition is uncertain and may result in changes to the assumptions used in the impairment tests discussed above, which may result in additional impairments to these assets in the future.
Note 4. Revenues
Revenue Recognition
Revenues are measured based on consideration specified in our contracts with customers and are recognized as the related performance obligations are satisfied.
The majority of our revenues are derived from passenger cruise contracts which are reported within Passenger ticket revenues in our consolidated statements of comprehensive (loss) income. Our performance obligation under these contracts is to provide a cruise vacation in exchange for the ticket price. We satisfy this performance obligation and recognize revenue over the duration of each cruise, which generally range from two to 25 nights.
Passenger ticket revenues include charges to our guests for port costs that vary with passenger head counts. These type of port costs, along with port costs that do not vary by passenger head counts, are included in our cruise operating expenses. The amounts of port costs charged to our guests and included within Passenger ticket revenues on a gross basis were $124.5 million and $152.0 million for the quarters ended March 31, 2020 and 2019, respectively.
Our total revenues also include Onboard and other revenues, which consist primarily of revenues from the sale of goods and services onboard our ships that are not included in passenger ticket prices. We receive payment before or concurrently with the transfer of these goods and services to passengers during a cruise and recognize revenue at the time of transfer over the duration of the related cruise.
Disaggregated Revenues
The following table disaggregates our total revenues by geographic regions where we provide cruise itineraries (in thousands):
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Quarter Ended March 31,
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2020
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2019
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Revenues by itinerary
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North America(1)
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$
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1,324,573
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$
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1,681,058
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Asia/Pacific(2)
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362,398
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|
490,075
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Europe(3)
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19,540
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7,982
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Other regions(4)
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158,043
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|
162,505
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Total revenues by itinerary
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1,864,554
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2,341,620
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Other revenues(5)
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168,196
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98,147
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Total revenues
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$
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2,032,750
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$
|
2,439,767
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(1)Includes the United States, Canada, Mexico and the Caribbean.
(2)Includes Southeast Asia (e.g., Singapore, Thailand and the Philippines), East Asia (e.g., China and Japan), South Asia (e.g., India and Pakistan) and Oceania (e.g., Australia and Fiji Islands) regions.
(3)Includes European countries (e.g., Nordics, Germany, France, Italy, Spain and the United Kingdom).
(4)Includes seasonality impacted itineraries primarily in South and Latin American countries.
(5)Includes revenues primarily related to cancellation fees, vacation protection insurance, pre- and post-cruise tours and fees for operating certain port facilities. Amounts also include revenues related to our bareboat charter, procurement and management related services we perform on behalf of our unconsolidated affiliates. Refer to Note 6. Other Assets for more information on our unconsolidated affiliates.
Passenger ticket revenues are attributed to geographic areas based on where the reservation originates. For the quarters ended March 31, 2020 and 2019, our guests were sourced from the following areas:
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Quarter Ended March 31,
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2020
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2019
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Passenger ticket revenues:
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United States
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68
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%
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66
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%
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Australia
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9
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%
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|
8
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%
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All other countries (1)
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23
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%
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26
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%
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(1)No other individual country's revenue exceeded 10% for the quarters ended March 31, 2020 and 2019.
Customer Deposits and Contract Liabilities
Our payment terms generally require an upfront deposit to confirm a reservation, with the balance due prior to the cruise. Deposits received on sales of passenger cruises are initially recorded as Customer deposits in our consolidated balance sheets and subsequently recognized as passenger ticket revenues during the duration of the cruise. ASC 606, Revenues from Contracts with Customers, defines a “contract liability” as an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration from the customer. We do not consider customer deposits to be a contract liability until the customer no longer retains the unilateral right, resulting from the passage of time, to cancel such customer's reservation and receive a full refund.
The current reduction in demand for cruising due to the COVID-19 pandemic has resulted in an unprecedented low level of advance bookings and the associated customer deposits received. At the same time, we experienced significant cancellations beginning in the second half of March, which has led to issuance of refunds to customers, while the remainder have been rebooked on future cruises or received credits in lieu of cash refunds. As of March 31, 2020, refunds due to customers mostly as a result of booking cancellations were $847.2 million compared to $32.9 million as of March 31, 2019. Due to the uncertainty around the return of demand for cruising, we are unable to estimate the amount of the March 31, 2020 customer deposits that will be recognized in earnings compared to amounts that will be refunded to customers or issued as a credit for future travel through the end of 2020. Customer deposits presented in our consolidated balance sheets include contract liabilities of $470.2 million and $1.7 billion as of March 31, 2020 and December 31, 2019, respectively.
Contract Receivables and Contract Assets
Although we generally require full payment from our customers prior to their cruise, we grant credit terms to a relatively small portion of our revenue sourced in select markets outside of the United States. As a result, we have outstanding receivables from passenger cruise contracts in those markets. We also have receivables from credit card merchants for cruise ticket purchases and goods and services sold to guests during cruises that are collected before, during or shortly after the cruise voyage. In addition, we have receivables due from concessionaires onboard our vessels. These receivables are included within Trade and other receivables, net in our consolidated balance sheets.
We have contract assets that are conditional rights to consideration for satisfying the construction services performance obligations under a service concession arrangement. As of March 31, 2020 and December 31, 2019, our contract assets were $54.9 million and $55.5 million, respectively, and were included within Other assets in our consolidated balance sheets. Given the short duration of our cruises and our collection terms, we do not have any other significant contract assets.
Assets Recognized from the Costs to Obtain a Contract with a Customer
Prepaid travel agent commissions are an incremental cost of obtaining contracts with customers that we recognize as an asset and include within Prepaid expenses and other assets in our consolidated balance sheets. Prepaid travel agent commissions were $33.5 million and $163.2 million as of March 31, 2020 and December 31, 2019, respectively. Substantially all of our prepaid travel agent commissions at December 31, 2019 were expensed and reported primarily within Commissions, transportation and other in our consolidated statements of comprehensive income (loss) for the quarter ended March 31, 2020.
Note 5. (Loss) Earnings Per Share
A reconciliation between basic and diluted (loss) earnings per share is as follows (in thousands, except per share data):
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Quarter Ended March 31,
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2020
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2019
|
Net (Loss) Income attributable to Royal Caribbean Cruises Ltd. for basic and diluted earnings per share
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$
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(1,444,479)
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$
|
249,681
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Weighted-average common shares outstanding
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209,097
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|
209,322
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Dilutive effect of stock-based awards
|
—
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|
552
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Diluted weighted-average shares outstanding
|
209,097
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|
|
209,874
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Basic (loss) earnings per share
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$
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(6.91)
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$
|
1.19
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Diluted (loss) earnings per share
|
$
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(6.91)
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|
$
|
1.19
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There were approximately 877,000 antidilutive shares for the quarter ended March 31, 2020 and no antidilutive shares for the quarter ended March 31, 2019.
Note 6. Other Assets
A Variable Interest Entity (“VIE”) is an entity in which the equity investors have not provided enough equity to finance the entity’s activities or the equity investors: (1) cannot directly or indirectly make decisions about the entity’s activities through their voting rights or similar rights; (2) do not have the obligation to absorb the expected losses of the entity; (3) do not have the right to receive the expected residual returns of the entity; or (4) have voting rights that are not proportionate to their economic interests and the entity’s activities involve or are conducted on behalf of an investor with a disproportionately small voting interest.
We have determined that TUI Cruises GmbH, our 50%-owned joint venture, which operates the brand TUI Cruises, is a VIE. As of March 31, 2020, the net book value of our investment in TUI Cruises was $613.9 million, primarily consisting of $467.9 million in equity and a loan of €130.8 million, or approximately $143.5 million based on the exchange rate at March 31, 2020. As of December 31, 2019, the net book value of our investment in TUI Cruises was $598.1 million, primarily consisting of $443.1 million in equity and a loan of €133.2 million, or approximately $149.5 million based on the exchange rate at December 31, 2019. The loan, which was made in connection with the sale of Splendour of the Seas in April 2016, accrues interest at a rate of 6.25% per annum and is payable over 10 years. This loan is 50% guaranteed by TUI AG, our joint venture partner in TUI Cruises, and is secured by a first priority mortgage on the ship. The majority of these amounts were included within Other assets in our consolidated balance sheets. TUI Cruises has various ship construction and financing agreements which include certain restrictions on each of our and TUI AG’s ability to reduce our current ownership interest in TUI Cruises below 37.55% through May 2031.
Our investment amount, outstanding term loan and the potential obligations under the bank loan guarantee are substantially our maximum exposure to loss in connection with our investment in TUI Cruises. We have determined that we are not the primary beneficiary of TUI Cruises. We believe that the power to direct the activities that most significantly impact TUI Cruises’ economic performance are shared between ourselves and TUI AG. All the significant operating and financial decisions of TUI Cruises require the consent of both parties, which we believe creates shared power over TUI Cruises. Accordingly, we do not consolidate this entity and account for this investment under the equity method of accounting.
On February 7, 2020, TUI Cruises entered into an agreement to acquire Hapag-Lloyd Cruises, a luxury and expedition brand for German-speaking guests, from TUI AG. Hapag-Lloyd Cruises operates two luxury liners and three smaller expedition ships. The transaction is subject to regulatory approval and customary closing conditions. The majority of the purchase price for this acquisition is being financed by third-party financing, however, each shareholder is making a contribution of €75 million to fund a portion of the purchase price.
We have determined that Pullmantur Holdings, in which we have a 49% noncontrolling interest and Springwater Capital LLC has a 51% interest, is a VIE for which we are not the primary beneficiary, as we do not have the power to direct the activities that most significantly impact the entity's economic performance. Accordingly, we do not consolidate this entity and we account for this investment under the equity method of accounting. As of March 31, 2020, we did not have any exposure to loss in Pullmantur Holdings as a result of the loans and net receivables written-off as of March 31, 2020. Refer to Note 3. Impairment and Credit Losses for further information on our credit loss evaluation related to these receivables as of March 31, 2020.
As of December 31, 2019, our maximum exposure to loss in Pullmantur Holdings was $49.7 million, consisting of loans and other receivables. These amounts were included within Trade and other receivables, net and Other assets in our consolidated balance sheets.
We have provided a non-revolving working capital facility to a Pullmantur Holdings subsidiary in the amount of up to €15.0 million or approximately $16.5 million based on the exchange rate at March 31, 2020. Proceeds of the facility, which were available to be drawn through December 2018 accrued interest at an interest rate of 6.5% per annum and are payable through 2022. An affiliate of Springwater Capital LLC has guaranteed repayment of 51% of the outstanding amounts under the facility. As of March 31, 2020, €11.4 million, or approximately $12.5 million, based on the exchange rate at March 31, 2020, was outstanding under this facility and was fully written-off as of March 31, 2020. As of December 31, 2019, €11.0 million, or approximately $12.3 million, based on the exchange rate at December 31, 2019, was outstanding under this facility.
We have determined that Grand Bahama, a ship repair and maintenance facility in which we have a 40% noncontrolling interest, is a VIE. This facility serves cruise and cargo ships, oil and gas tankers and offshore units. We utilize this facility, among other ship repair facilities, for our regularly scheduled drydocks and certain emergency repairs as may be required. During the quarters ended March 31, 2020 and 2019, we made payments of $0.2 million and $40.3 million, respectively, to Grand Bahama for ship repair and maintenance services. We have determined that we are not the primary beneficiary of this facility as we do not have the power to direct the activities that most significantly impact the facility’s economic performance. Accordingly, we do not consolidate this entity and we account for this investment under the equity method of accounting. During the quarter ended March 31, 2020, we performed an impairment evaluation on our investment in Grand Bahama. As a result of the evaluation, we did not deem our investment balance to be recoverable and recorded an impairment charge of $30.1 million. Refer to Note 3. Impairment and Credit Losses for further information regarding the impairment evaluation. As of March 31, 2020, the net book value of our investment in Grand Bahama was $24.0 million, consisting of loans. As of December 31, 2019, the net book value of our investment in Grand Bahama was $47.9 million, consisting of $27.0 million in equity and loans of $20.9 million. These amounts represent our maximum exposure to loss related to our investment in Grand Bahama. Our loans to Grand Bahama mature between December 2020 and March 2026 and bear interest at LIBOR plus 2.00% to 3.75%, capped at 5.75% for the majority of the outstanding loan balance. Interest payable on the loans is due on a semi-annual basis. We did not receive any principal and interest payments during the quarter ended March 31, 2020. During the quarter ended March 31, 2019, we received principal and interest payments of $6.6 million. The loan balances are included within Trade and other receivables, net and Other assets in our consolidated balance sheets. As of March 31, 2020, the loans were accruing interest under the effective yield method. Effective April 1, 2020, we determined the loans to be in non-accrual status.
We monitor credit risk associated with the loans through our participation on Grand Bahama’s board of directors along with our review of Grand Bahama’s financial statements and projected cash flows. Based on this review, we do not expect to realize credit losses associated with the outstanding loans as of March 31, 2020.
The following tables set forth information regarding our investments accounted for under the equity method of accounting, including the entities discussed above (in thousands):
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Quarter Ended March 31,
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|
|
2020
|
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2019
|
|
|
|
|
Share of equity (loss) income from investments
|
|
$
|
(10,392)
|
|
|
$
|
33,694
|
|
|
|
|
|
Dividends received (1)
|
|
$
|
1,991
|
|
|
$
|
42,435
|
|
|
|
|
|
(1)There were no dividends received from TUI Cruises for the quarter ended March 31, 2020. For the quarter ended March 31, 2019, amount includes dividends of €50.0 million from TUI Cruises, net of tax withholdings.
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|
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As of March 31, 2020
|
|
As of December 31, 2019
|
Total notes receivable due from equity investments
|
|
$
|
167,352
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|
|
$
|
193,351
|
|
Less-current portion (1)
|
|
27,323
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|
|
19,681
|
|
Long-term portion (2)
|
|
$
|
140,029
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|
|
$
|
173,670
|
|
(1)Included within Trade and other receivables, net in our consolidated balance sheets.
(2)Included within Other assets in our consolidated balance sheets.
We also provide ship management services to TUI Cruises GmbH and Pullmantur Holdings. Additionally, we bareboat charter to Pullmantur Holdings the vessels currently operated by its brands, which were retained by us following the sale of our 51% interest in Pullmantur Holdings. We recorded the following as it relates to these services in our operating results within our consolidated statements of comprehensive income (loss) (in thousands):
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|
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|
|
|
Quarter Ended March 31,
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|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,411
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|
|
$
|
11,882
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|
|
|
|
|
|
|
Expenses
|
|
$
|
782
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|
|
$
|
974
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|
|
|
|
|
|
|
As of March 31, 2020 and December 31, 2019, our total credit loss allowance related to receivables subject to credit loss evaluation was $5.7 million and $5.6 million, respectively.
Note 7. Debt
Debt consist of the following (in thousands):
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|
|
|
|
|
|
Interest Rate (1)
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|
Maturities Through
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|
Quarter ended March 31, 2020
|
|
Year ended December 31, 2019
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Fixed rate debt:
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|
|
|
|
|
|
|
|
Unsecured senior notes
|
|
2.65% to 7.50%
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2020 - 2028
|
|
$
|
1,767,059
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|
|
$
|
1,746,280
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Secured senior notes
|
|
7.25%
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2025
|
|
658,645
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|
|
662,398
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Unsecured term loans
|
|
2.53% to 5.41%
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2021 - 2032
|
|
3,480,147
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|
|
2,806,774
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|
Total fixed rate debt
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|
|
|
|
|
5,905,851
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|
|
5,215,452
|
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Variable rate debt:
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|
|
|
|
|
|
|
|
Unsecured revolving credit facilities (2)
|
|
2.79%
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|
2022 - 2024
|
|
3,475,000
|
|
|
165,000
|
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Commercial paper
|
|
1.93%
|
|
2020
|
|
343,557
|
|
|
1,434,180
|
|
USD secured term loan
|
|
2.25% to 2.75%
|
|
2021
|
|
2,200,000
|
|
|
—
|
|
USD unsecured term loan
|
|
1.55% to 5.64%
|
|
2020 - 2028
|
|
3,471,256
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|
|
3,519,853
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|
Euro unsecured term loan
|
|
1.15% to 1.58%
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|
2021 - 2028
|
|
661,487
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|
|
676,740
|
|
Total variable rate debt
|
|
|
|
|
|
10,151,300
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|
|
5,795,773
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Finance lease liabilities
|
|
|
|
|
|
226,471
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|
|
230,258
|
|
Total debt (3)
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|
|
|
|
|
16,283,622
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|
|
11,241,483
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Less: unamortized debt issuance costs
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|
|
|
|
|
(254,750)
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|
|
(206,607)
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|
Total debt, net of unamortized debt issuance costs
|
|
|
|
|
|
16,028,872
|
|
|
11,034,876
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Less—current portion including commercial paper
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|
|
|
|
|
(3,755,550)
|
|
|
(2,620,766)
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|
Long-term portion
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|
|
|
|
|
$
|
12,273,322
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|
|
$
|
8,414,110
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|
(1) Interest rates based on outstanding loan balance as of March 31, 2020 and, for variable rate debt, include either LIBOR or EURIBOR plus the applicable margin.
(2) Includes $1.9 billion facility due in 2024 and $1.6 billion facility due in 2022, each of which accrue interest at LIBOR plus 1.10%, which interest rate was 2.55% as of March 31, 2020 and each is subject to a facility fee of 0.15%.
(3) At March 31, 2020 and December 31, 2019, the weighted average interest rate for total debt was 3.98% and 3.99%, respectively.
In March 2020, we increased the capacity of our $1.7 billion and $1.2 billion unsecured revolving credit facilities due in 2024 and 2022, by $200 million and $400 million, respectively, utilizing their respective accordion features. As of March 31, 2020, our aggregate revolving borrowing capacity was $3.5 billion and was fully drawn upon.
In March 2020, we took delivery of Celebrity Apex. To finance the purchase, we borrowed $722.2 million under a previously committed unsecured term loan which is 100% guaranteed by Bpifrance Assurance Export, the official export credit agency of France. The loan amortizes semi-annually over 12 years and bears interest at a fixed rate of 3.23% per annum.
As of March 31, 2020, we had $343.6 million of commercial paper notes outstanding with a weighted average interest rate of 1.93% and a weighted average maturity of approximately 4 days. As of March 31, 2019, we had $1.1 billion of commercial paper notes outstanding with a weighted average interest rate of 3.04% and a weighted average maturity of approximately 34 days.
In March 2020, we borrowed $2.2 billion pursuant to a 364-day senior secured term loan agreement. The loan would have matured 364 days after funding and maturity could have been extended at our option for an additional 364 days subject to customary conditions, including the payment of a 1.00% extension fee. Our obligation under the loan was guaranteed by our wholly-owned subsidiaries, Celebrity Cruises Holdings Inc., Celebrity Cruises Inc. and certain of our wholly-owned vessel-owning subsidiaries, and was secured by certain of our trademarks and a pledge of 100% of the equity interests of certain of our vessel-owning subsidiaries. Interest accrued at LIBOR plus a margin of 2.25% which would have increased to 2.50% and 2.75%, 180 days and 365 days, respectively, after funding. We were also required to pay a duration fee in an amount equal to 0.25% of the aggregate loan principal amount every 60 days. Two of our board members each purchased a participation interest equal to $100 million in our 364-day, $2.2 billion senior secured term loan agreement. In May 2020, this secured term loan was increased by an additional $150 million through an accordion feature.
In May 2020, we issued $3.32 billion in senior secured notes, less original issue discount. $1.0 billion of the notes accrue interest at 10.875% and mature in 2023. The remaining $2.32 billion of the notes accrue interest at a fixed rate of 11.5% and mature in 2025. The notes are fully and unconditionally guaranteed by Celebrity Cruises Holdings Inc., Celebrity Cruises Inc., and certain of our wholly-owned vessel-owning subsidiaries. The notes are secured by first priority security interests in the collateral (which generally includes certain of our material intellectual property, a pledge of 100% of the equity interests of certain of our vessel-owning subsidiaries and mortgages on the 28 vessels owned by such subsidiaries, subject to permitted liens and certain exclusions and release provisions). The obligations under the senior secured notes will be secured by the collateral in an amount not to exceed $1.662 billion based on our debt rating as of the date of issuance. We repaid the $2.35 billion, 364-day senior secured term loan in its entirety with a portion of the proceeds of these $3.32 billion secured notes. We expect to use the remainder of the proceeds for general corporate purposes, which may include repayment of additional indebtedness.
Subsequent to March 31, 2020 and through the date of these financial statements, we amended certain export-credit backed ship debt facilities to benefit from a 12-month debt amortization and financial covenant holiday ("Debt Holiday"). Under the Debt Holiday, deferred debt amortization of approximately $0.8 billion will be paid over a period of four years after the 12-month deferral period. The Debt Holiday was offered by certain export credit agencies as a result of the current impact to cruise-line borrowers as a result of COVID-19.
Except for Celebrity Flora and Azamara Pursuit, all of our unsecured ship financing term loans are guaranteed by the export credit agency in the respective country in which the ship is constructed. As of March 31, 2020, in consideration for these guarantees, depending on the financing arrangement, we pay to the applicable export credit agency (1) a fee of 1.01% per annum based on the outstanding loan balance semi-annually over the term of the loan (subject to adjustments based upon our credit ratings) or (2) an upfront fee of 2.35% to 2.37% of the maximum loan amount. We amortize the fees that are paid upfront over the life of the loan and those that are paid semi-annually over each respective payment period. Prior to the loan being drawn, we present these fees within Other assets in our consolidated balance sheets. Once the loan is drawn, such fees are classified as a discount to the related loan, or contra-liability account, within Current portion of long-term debt or long-term debt. In our consolidated statements of cash flows, we classify these fees within Amortization of debt issuance costs.
Except for the 2027 series (which are not redeemable), unsecured senior notes outstanding as of March 31, 2020 are redeemable upon the payment of a make-whole premium prior to maturity, or with respect to the 2028 series, prior to the par call date. The 2028 series may also be redeemed three months prior to maturity at par.
Certain of our debt agreements contain covenants that, among other things, require us to maintain a minimum level of shareholder's equity and certain financial ratios. We were in compliance with our financial covenants as of March 31, 2020. However, subsequent to March 31, 2020, we amended these debt agreements to waive the quarterly testing of our financing covenants through and including the first quarter of 2021. For information related to the covenant in our PortMiami Terminal "A" operating lease agreement, refer to Note 8. Leases.
As part of obtaining these debt compliance waivers, we are now required to maintain a minimum of $300 million in cash and cash equivalents tested on a monthly basis through March 31, 2021, and we are not permitted during the covenant waiver period, subject to limited exceptions, to pay cash dividends or make share repurchases unless we would have been compliant with our fixed charge coverage ratio at such time. In addition, the lenders under such unsecured bank facilities required a number of structural enhancements to such facilities. Under certain of our agreements, the contractual interest rate, facility fee and/or export credit agency fee vary with our debt rating. On April 2, 2020, S&P Global downgraded us from BBB- to BB and on May 13, 2020, Moody’s downgraded us from Baa3 to Ba2.
The following is a schedule of annual maturities on our total debt net of debt issuance costs, and including capital leases and commercial paper, as of March 31, 2020 for each of the next five years (in thousands):
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|
|
|
|
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Year
|
|
Remainder of 2020
|
1,082,153
|
|
2021
|
3,102,445
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|
2022
|
4,289,601
|
|
2023
|
823,209
|
|
2024
|
2,706,216
|
|
Thereafter
|
4,025,248
|
|
|
16,028,872
|
|
Finance Leases
Silversea Cruises operates two ships, the Silver Whisper and Silver Explorer, under finance leases. The finance lease for the Silver Whisper will expire in 2022, subject to an option to purchase the ship, and the finance lease for the Silver Explorer will expire in 2021, subject to an option to extend the lease for up to an additional six years. The total aggregate amount of the finance lease liabilities recorded for these ships was $54.3 million and $55.6 million at March 31, 2020 and December 31, 2019, respectively. The lease payments on the Silver Whisper are subject to adjustments based on the LIBOR rate.
Note 8. Leases
Our operating leases primarily relate to preferred berthing arrangements, real estate and shipboard equipment and are included within Operating lease right-of-use assets, and Long-term operating lease liabilities with the current portion of the liability included within Current portion of operating lease liabilities in our consolidated balance sheets as of March 31, 2020 and December 31, 2019. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.
During the first quarter ended March 31, 2020, we identified that the undiscounted cash flows of certain right-of-use assets, were less than their carrying values. Events surrounding the COVID-19 pandemic negatively impacted the expected undiscounted cash flows of these assets. As a result of this determination, we evaluated these assets pursuant to our long-lived asset impairment test, which resulted in an impairment charge of $45.9 million to write down these right-of-use assets to their estimated fair values during the quarter ended March 31, 2020.
Our finance leases include two ships, Silver Whisper and Silver Explorer, operated by Silversea Cruises. Finance leases are included within Property and equipment, net and Long-term debt, with the current portion of the debt reported within Current portion of debt, in our consolidated balance sheets. The finance lease for Silver Whisper will expire in 2022, subject to an option to purchase the ship, and the finance lease for Silver Explorer will expire in 2021, subject to an option to extend the lease for up to an additional six years.
For some of our real estate leases and berthing agreements, we do have the option to extend our current lease term. For those lease agreements with renewal options, the renewal periods for real estate leases range from one to 10 years and the
renewal periods for berthing agreements range from one to 20 years. Generally, we do not include renewal options as a component of our present value calculation for berthing agreements. However, for certain real estate leases, we include them. Additionally, we do have a residual value guarantee associated with our lease of a terminal at Port of Miami in Miami, Florida that approximates a percentage of cost of the asset as of the inception of the lease. We consider the possibility of incurring costs associated with the residual value guarantee to be remote. As of March 31, 2020, we were not in compliance with one covenant in our Port of Miami Terminal "A" operating lease agreement, which we subsequently obtained a waiver for and amended our agreement with the lessor to increase the lien basket in line with our debt facilities.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of lease payments. We estimate our incremental borrowing rates based on LIBOR and U.S. Treasury note rates corresponding to lease terms increased by the Company’s credit risk spread and reduced by the estimated impact of collateral. We used the incremental borrowing rate as of the adoption date for operating leases that commenced prior to that date. In addition, we have lease agreements with lease and non-lease components, which are generally accounted for separately. However, for berthing agreements, we account for the lease and non-lease components as a single lease component.
Additionally, we bareboat charter to Pullmantur Holdings the vessels currently operated by its brands, which were retained by us following the sale of our 51% interest in Pullmantur Holdings in 2016. We account for the bareboat charters of these vessels as operating leases for which we are the lessor. The remaining payments and term of these leases are immaterial to our consolidated financial statements.
The components of lease expense were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Comprehensive Income (Loss) Classification
|
Quarter Ended March 31, 2020
|
|
Quarter Ended March 31, 2019
|
Lease costs:
|
|
|
|
|
Operating lease costs
|
Commission, transportation and other
|
$
|
14,745
|
|
|
$
|
19,056
|
|
Operating lease costs
|
Other operating expenses
|
7,001
|
|
|
6,931
|
|
Operating lease costs
|
Marketing, selling and administrative expenses
|
5,368
|
|
|
5,679
|
|
Financial lease costs:
|
|
|
|
|
Amortization of right-of-use-assets
|
Depreciation and amortization expenses
|
4,881
|
|
|
3,195
|
|
Interest on lease liabilities
|
Interest expense, net of interest capitalized
|
1,933
|
|
|
596
|
|
Total lease costs
|
|
$
|
33,928
|
|
|
$
|
35,457
|
|
In addition, certain of our berth agreements include variable lease costs based on the number of passengers berthed. During the quarter ended March 31, 2020, we had $25.6 million of variable lease costs recorded within Commission, transportation and other in our consolidated statement of comprehensive income (loss).
Weighted average of the remaining lease terms and weighted average discount rates are as follows:
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|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
|
Weighted average of the remaining lease term
|
|
|
|
Operating leases
|
8.6 years
|
|
|
Finance leases
|
30.17 years
|
|
|
Weighted average discount rate
|
|
|
|
Operating leases
|
4.7
|
%
|
|
|
Finance leases
|
4.5
|
%
|
|
|
Supplemental cash flow information related to leases is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2020
|
Quarter Ended March 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
$
|
27,841
|
|
$
|
31,981
|
|
Operating cash flows from finance leases
|
$
|
1,933
|
|
$
|
596
|
|
Financing cash flows from finance leases
|
$
|
3,823
|
|
$
|
3,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020, maturities related to lease liabilities were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
Year
|
Operating Leases
|
|
Finance Leases
|
Remainder of 2020
|
$
|
97,082
|
|
|
$
|
37,905
|
|
2021
|
117,145
|
|
|
46,451
|
|
2022
|
106,714
|
|
|
23,480
|
|
2023
|
101,557
|
|
|
12,539
|
|
2024
|
75,509
|
|
|
12,528
|
|
|
|
|
|
Thereafter
|
417,122
|
|
|
406,088
|
|
Total lease payments
|
915,129
|
|
|
538,991
|
|
Less: Interest
|
(232,267)
|
|
|
(312,520)
|
|
Present value of lease liabilities
|
$
|
682,862
|
|
|
$
|
226,471
|
|
Note 9. Redeemable Noncontrolling Interest
In connection with the acquisition of Silversea Cruises, we recorded redeemable noncontrolling interest due to the put options held by the non-controlling interest shareholder, which may require us to purchase the remaining interest, or 33.3% of Silversea Cruises, upon the occurrence or nonoccurrence of certain future events that are not solely within our control. At the acquisition date, the estimated fair value of the redeemable noncontrolling interest was based on 33.3% of Silversea Cruises' equity value, which was determined based on the transaction price paid for 66.7% of Silversea Cruises. As of March 31, 2020, the non-controlling controlling interest shareholder's interest is presented as Redeemable noncontrolling interest and is classified outside of shareholders' equity in our consolidated balance sheets. Additionally, the noncontrolling interest's share in the net earnings (loss) and contractual accretion requirements associated with the put options are included in Net Income attributable to noncontrolling interest in our consolidated statements of comprehensive income (loss).
The following table presents changes in the redeemable noncontrolling interest as of March 31, 2020 (in thousands):
|
|
|
|
|
|
Beginning balance January 1, 2019
|
$
|
542,020
|
|
Net income attributable to noncontrolling interest, including the contractual accretion of the put options
|
28,713
|
|
Distribution to noncontrolling interest
|
(752)
|
|
Balance at December 31, 2019
|
$
|
569,981
|
|
|
|
Net income attributable to noncontrolling interest, including the contractual accretion of the put options
|
7,444
|
|
|
|
Ending balance March 31, 2020
|
$
|
577,425
|
|
Note 10. Commitments and Contingencies
Ship Purchase Obligations
Our future capital commitments consist primarily of new ship orders. As of March 31, 2020, we had one Quantum-class ship, two Oasis-class ships and three ships of a new generation, known as our Icon-class, on order for our Royal Caribbean International brand with an aggregate capacity of approximately 32,400 berths. As of March 31, 2020, we had two Edge-class ships on order for our Celebrity Cruises brand with an aggregate capacity of approximately 6,500 berths. Additionally, as of March 31, 2020, we have five ships on order for our Silversea Cruises brand with an aggregate capacity of approximately 2,400 berths.
In June 2019, Silversea Cruises entered into a $300 million unsecured term loan facility for the financing of Silver Moon to pay a portion of the ship's contract price through a facility guaranteed by us. We expect to draw upon this loan when we take delivery of the ship. The loan will be due and payable at maturity in June 2028. Interest on the loan will accrue at LIBOR plus 1.50%.
In September 2019, Silversea Cruises entered into two credit agreements, guaranteed by us, for the unsecured financing of the first and second Evolution-class ships for an amount of up to 80% of each ship's contract price through facilities to be guaranteed 95% by Euler Hermes, the official export credit agency of Germany. The maximum loan amount under each facility is not to exceed the United States dollar equivalent of €351.6 million in the case of the first Evolution-class ship and €359.0 million in the case of the second Evolution-class ship, or approximately $385.8 million and $393.9 million, respectively, based on the exchange rate at March 31, 2020. Each loan, once funded, will amortize semi-annually and will mature 12 years following the delivery of each ship. At our election, interest on each loan will accrue either (1) at a fixed rate of 4.14% and 4.18%, respectively (inclusive of the applicable margin) or (2) at a floating rate equal to LIBOR plus 0.79% and 0.83%, respectively. The first and second Evolution-class ships will each have a capacity of approximately 600 berths and are currently scheduled for delivery in the first quarters of 2022 and 2023, respectively.
In December 2019, we entered into a credit agreement for the unsecured financing of the sixth Oasis-class ship for up to 80% of the ship’s contract price through a facility to be guaranteed 100% by Bpifrance Assurance Export, the official export credit agency of France. Under the financing arrangement, we have the right, but not the obligation, to satisfy the obligations to be incurred upon delivery and acceptance of the ship under the shipbuilding contract by assuming, at delivery and acceptance, the debt indirectly incurred by the shipbuilder during the construction of the ship. The maximum loan amount under the facility is not to exceed the United States dollar equivalent of €1.3 billion, or approximately $1.4 billion based on the exchange rate at March 31, 2020. The loan will amortize semi-annually and will mature 12 years following delivery of the ship. Interest on the loan will accrue at a fixed rate of 3.00% (inclusive of margin). The sixth Oasis-class ship will have a capacity of approximately 5,700 berths and is currently scheduled for delivery in the fall of 2023.
In December 2019, we entered into a credit agreement for the unsecured financing of the third Icon-class ship for up to 80% of the ship’s contract price. Finnvera plc, the official export credit agency of Finland, has agreed to guarantee 95% of the substantial majority of the financing, with a smaller portion of the financing to be 95% guaranteed by Euler Hermes, the official German export credit agency. The maximum loan amount under the facility is not to exceed the United States dollar equivalent of €1.4 billion, or approximately $1.6 billion based on the exchange rate at March 31, 2020. The loan, once funded, will amortize semi-annually and will mature 12 years following the delivery of the ship. Approximately 60% of the loan will accrue interest at a fixed rate of 3.29%. The balance of the loan will accrue interest at a floating rate of LIBOR plus 0.85%. The third Icon-class ship will have a capacity of approximately 5,600 berths and is currently scheduled for delivery in the second quarter of 2025.
Our future capital commitments consist primarily of new ship orders. As of March 31, 2020, our Global Brands and Partner Brands have the following ships on order. COVID-19 has impacted shipyard operations and we expect that this will result in delivery delays of ships on order and will adjust the timing of our contractual ship deliveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ship
|
|
Shipyard
|
|
Contractual Delivery Dates
|
|
Approximate
Berths
|
Royal Caribbean International —
|
|
|
|
|
|
|
Oasis-class:
|
|
|
|
|
|
|
Wonder of the Seas
|
|
Chantiers de l'Atlantique
|
|
2nd Quarter 2021
|
|
5,700
|
Unnamed
|
|
Chantiers de l'Atlantique
|
|
4nd Quarter 2023
|
|
5,700
|
Quantum-class:
|
|
|
|
|
|
|
Odyssey of the Seas
|
|
Meyer Werft
|
|
4th Quarter 2020
|
|
4,200
|
Icon-class:
|
|
|
|
|
|
|
Unnamed
|
|
Meyer Turku Oy
|
|
2nd Quarter 2022
|
|
5,600
|
Unnamed
|
|
Meyer Turku Oy
|
|
2nd Quarter 2024
|
|
5,600
|
Unnamed
|
|
Meyer Turku Oy
|
|
2nd Quarter 2025
|
|
5,600
|
Celebrity Cruises —
|
|
|
|
|
|
|
Edge-class:
|
|
|
|
|
|
|
Celebrity Beyond
|
|
Chantiers de l'Atlantique
|
|
4th Quarter 2021
|
|
3,250
|
Unnamed
|
|
Chantiers de l'Atlantique
|
|
4th Quarter 2022
|
|
3,250
|
Silversea Cruises —
|
|
|
|
|
|
|
Silver Origin
|
|
De Hoop
|
|
2nd Quarter 2020
|
|
100
|
Muse-Class:
|
|
|
|
|
|
|
Silver Moon
|
|
Fincantieri
|
|
3rd Quarter 2020
|
|
550
|
Silver Dawn
|
|
Fincantieri
|
|
3rd Quarter 2021
|
|
550
|
Evolution Class:
|
|
|
|
|
|
|
Unnamed
|
|
Meyer Werft
|
|
1st Quarter 2022
|
|
600
|
Unnamed
|
|
Meyer Werft
|
|
1st Quarter 2023
|
|
600
|
TUI Cruises (50% joint venture) (2)—
|
|
|
|
|
|
|
Mein Schiff 7
|
|
Meyer Turku Oy
|
|
2nd Quarter 2023
|
|
2,900
|
Unnamed
|
|
Fincantieri
|
|
3rd Quarter 2024
|
|
4,100
|
Unnamed
|
|
Fincantieri
|
|
1st Quarter 2026
|
|
4,100
|
Total Berths
|
|
|
|
|
|
52,400
|
As of March 31, 2020, the aggregate cost of our ships on order presented in the table above, excluding any ships on order by our Partner Brands, was approximately $13.8 billion, of which we had deposited $810.9 million as of such date. Approximately 63.6% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at March 31, 2020. Refer to Note 13. Fair Value Measurements and Derivative Instruments for further information.
In addition, as of March 31, 2020, we have an agreement in place with Chantiers de l'Atlantique to build an additional Edge-class ship for delivery in the 4th quarter of 2024, which is contingent upon completion of conditions precedent and financing.
Litigation
As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2019, as updated by our Current Report on Form 8-K dated May 13, 2020, two lawsuits were filed against Royal Caribbean Cruises Ltd. in August 2019 in the U.S. District Court for the Southern District of Florida under Title III of the Cuban Liberty and Democratic Solidarity Act, also known as the Helms-Burton Act. The complaint filed by Havana Docks Corporation alleges it holds an interest in the Havana Cruise Port Terminal and the complaint filed by Javier Garcia-Bengochea alleges that he holds an interest in the Port of Santiago, Cuba, both of which were expropriated by the Cuban Government. The complaints further allege that Royal Caribbean Cruises Ltd. trafficked in those properties by embarking and disembarking passengers at these facilities. The plaintiffs seek all available statutory remedies, including the value of the expropriated property, plus interest, treble damages, attorneys’ fees and costs. Royal Caribbean Cruises Ltd. filed its answer to each complaint in October 2019. We believe we have meritorious defenses to the claims, and we intend to vigorously defend ourselves against them. We believe that it is unlikely that the outcome of these matters will have a material adverse impact to our financial condition, results of operations or cash
flows. However, the outcome of litigation is inherently unpredictable and subject to significant uncertainties, and there can be no assurances that the final outcome of this case will not be material.
We are also routinely involved in 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.
Other
If any person acquires ownership of more than 50% of our common stock or, subject to certain exceptions, during any 24-month period, a majority of our board of directors is no longer comprised of individuals who were members of our board of directors on the first day of such period, we may be obligated to prepay indebtedness outstanding under our credit facilities, which we may be unable to replace on similar terms. Our public debt securities also contain change of control provisions that would be triggered by a third-party acquisition of greater than 50% of our common stock coupled with a ratings downgrade. If this were to occur, it would have an adverse impact on our liquidity and operations.
Note 11. Shareholders’ Equity
During the first quarter of 2020, we declared a cash dividend on our common stock of $0.78 per share, which was paid in April 2020. During the first quarter of 2020, we also paid a cash dividend on our common stock of $0.78 per share, which was declared during the fourth quarter of 2019.
During the first quarter of 2019, we declared a cash dividend on our common stock of $0.70 per share, which was paid in April 2019. During the first quarter of 2019, we also paid a cash dividend on our common stock of $0.70 per share, which was declared during the fourth quarter of 2018.
Subsequent to March 31, 2020, we agreed with certain of our our lenders not to pay dividends or engage in common stock repurchases for so long as our debt covenant waivers are in effect.
Note 12. Changes in Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in accumulated other comprehensive income (loss) by component for the quarters ended March 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss) for the Quarter Ended March 31, 2020
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss) for the Quarter Ended March 31, 2019
|
|
|
|
|
|
|
|
Changes related to cash flow derivative hedges
|
|
Changes in defined benefit plans
|
|
Foreign currency translation adjustments
|
|
Accumulated other comprehensive loss
|
|
Changes related to cash flow derivative hedges
|
|
Changes in defined benefit plans
|
|
Foreign currency translation adjustments
|
|
Accumulated other comprehensive loss
|
Accumulated comprehensive loss at beginning of the year
|
$
|
(688,529)
|
|
|
$
|
(45,558)
|
|
|
$
|
(63,626)
|
|
|
$
|
(797,713)
|
|
|
$
|
(537,216)
|
|
|
$
|
(26,023)
|
|
|
$
|
(64,495)
|
|
|
$
|
(627,734)
|
|
Other comprehensive income (loss) before reclassifications
|
(322,985)
|
|
|
(8,094)
|
|
|
10,290
|
|
|
(320,789)
|
|
|
61,565
|
|
|
(841)
|
|
|
564
|
|
|
61,288
|
|
Amounts reclassified from accumulated other comprehensive loss
|
22,380
|
|
|
505
|
|
|
—
|
|
|
22,885
|
|
|
(12,722)
|
|
|
188
|
|
|
—
|
|
|
(12,534)
|
|
Net current-period other comprehensive income (loss)
|
(300,605)
|
|
|
(7,589)
|
|
|
10,290
|
|
|
(297,904)
|
|
|
48,843
|
|
|
(653)
|
|
|
564
|
|
|
48,754
|
|
Ending balance
|
$
|
(989,134)
|
|
|
$
|
(53,147)
|
|
|
$
|
(53,336)
|
|
|
$
|
(1,095,617)
|
|
|
$
|
(488,373)
|
|
|
$
|
(26,676)
|
|
|
$
|
(63,931)
|
|
|
$
|
(578,980)
|
|
The following table presents reclassifications out of accumulated other comprehensive income (loss) for the quarters ended March 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
|
|
|
|
|
|
|
|
|
Details About Accumulated Other Comprehensive Income (Loss) Components
|
|
Quarter Ended March 31, 2020
|
|
Quarter Ended March 31, 2019
|
|
|
|
|
|
Affected Line Item in Statements of
Comprehensive Income (Loss)
|
Gain (loss) on cash flow derivative hedges:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(3,391)
|
|
|
$
|
(391)
|
|
|
|
|
|
|
Interest expense, net of interest capitalized
|
Foreign currency forward contracts
|
|
(3,337)
|
|
|
(3,334)
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
Foreign currency forward contracts
|
|
(1,763)
|
|
|
(1,315)
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel swaps
|
|
344
|
|
|
(256)
|
|
|
|
|
|
|
Other income (expense)
|
Fuel swaps
|
|
(14,233)
|
|
|
18,018
|
|
|
|
|
|
|
Fuel
|
|
|
(22,380)
|
|
|
12,722
|
|
|
|
|
|
|
|
Amortization of defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
(505)
|
|
|
(188)
|
|
|
|
|
|
|
Payroll and related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(505)
|
|
|
(188)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(22,885)
|
|
|
$
|
12,534
|
|
|
|
|
|
|
|
Note 13. Fair Value Measurements and Derivative Instruments
Fair Value Measurements
The estimated fair value of our financial instruments that are not measured at fair value, categorized based upon the fair value hierarchy, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2020 Using
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019 Using
|
|
|
|
|
|
|
|
|
Description
|
|
Total Carrying Amount
|
|
Total Fair Value
|
|
Level 1(1)
|
|
Level 2(2)
|
|
Level 3(3)
|
|
Total Carrying Amount
|
|
Total Fair Value
|
|
Level 1(1)
|
|
Level 2(2)
|
|
Level 3(3)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(4)
|
|
$
|
3,890,811
|
|
|
$
|
3,890,811
|
|
|
$
|
3,890,811
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
243,738
|
|
|
$
|
243,738
|
|
|
$
|
243,738
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
3,890,811
|
|
|
$
|
3,890,811
|
|
|
$
|
3,890,811
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
243,738
|
|
|
$
|
243,738
|
|
|
$
|
243,738
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (including current portion of debt)(5)
|
|
$
|
15,458,844
|
|
|
$
|
15,635,346
|
|
|
$
|
—
|
|
|
$
|
15,635,346
|
|
|
$
|
—
|
|
|
$
|
9,370,438
|
|
|
$
|
10,059,055
|
|
|
$
|
—
|
|
|
$
|
10,059,055
|
|
|
$
|
—
|
|
Total Liabilities
|
|
$
|
15,458,844
|
|
|
$
|
15,635,346
|
|
|
$
|
—
|
|
|
$
|
15,635,346
|
|
|
$
|
—
|
|
|
$
|
9,370,438
|
|
|
$
|
10,059,055
|
|
|
$
|
—
|
|
|
$
|
10,059,055
|
|
|
$
|
—
|
|
(1) Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.
(2) Inputs other than quoted prices included within Level 1 that are observable for the liability, either directly or indirectly. For unsecured revolving credit facilities and unsecured term loans, fair value is determined utilizing the income valuation approach. This valuation model takes into account the contract terms of our debt such as the debt maturity and the interest rate on the debt. The valuation model also takes into account the creditworthiness of the Company.
(3) Inputs that are unobservable. The Company did not use any Level 3 inputs as of March 31, 2020 and December 31, 2019.
(4) Consists of cash and marketable securities with original maturities of less than 90 days.
(5) Consists of unsecured revolving credit facilities, senior notes, senior debentures and term loans. These amounts do not include our capital lease obligations or commercial paper.
Other Financial Instruments
The carrying amounts of accounts receivable, accounts payable, accrued interest, accrued expenses and commercial paper approximate fair value at March 31, 2020 and December 31, 2019.
Assets and liabilities that are recorded at fair value have been categorized based upon the fair value hierarchy. The following table presents information about the Company’s financial instruments recorded at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2020 Using
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019 Using
|
|
|
|
|
|
|
Description
|
|
Total
|
|
Level 1(1)
|
|
Level 2(2)
|
|
Level 3(3)
|
|
Total
|
|
Level 1(1)
|
|
Level 2(2)
|
|
Level 3(3)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments(4)
|
|
$
|
40,960
|
|
|
$
|
—
|
|
|
$
|
40,960
|
|
|
$
|
—
|
|
|
$
|
39,994
|
|
|
$
|
—
|
|
|
$
|
39,994
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
40,960
|
|
|
$
|
—
|
|
|
$
|
40,960
|
|
|
$
|
—
|
|
|
$
|
39,994
|
|
|
$
|
—
|
|
|
$
|
39,994
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments(5)
|
|
$
|
557,492
|
|
|
$
|
—
|
|
|
$
|
557,492
|
|
|
$
|
—
|
|
|
$
|
257,728
|
|
|
$
|
—
|
|
|
$
|
257,728
|
|
|
$
|
—
|
|
Contingent consideration (6)
|
|
11,381
|
|
|
—
|
|
|
—
|
|
|
11,381
|
|
|
62,400
|
|
|
—
|
|
|
—
|
|
|
62,400
|
|
Total Liabilities
|
|
$
|
568,873
|
|
|
$
|
—
|
|
|
$
|
557,492
|
|
|
$
|
11,381
|
|
|
$
|
320,128
|
|
|
$
|
—
|
|
|
$
|
257,728
|
|
|
$
|
62,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.
(2)Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. For foreign currency forward contracts, interest rate swaps and fuel swaps, fair value is derived using valuation models that utilize the income valuation approach. These valuation models take into account the contract terms, such as maturity, as well as other inputs, such as foreign exchange rates and curves, fuel types, fuel curves and interest rate yield curves. Derivative instrument fair values take into account the creditworthiness of the counterparty and the Company.
(3)Inputs that are unobservable.
(4)Consists of foreign currency forward contracts, interest rate swaps and fuel swaps.
(5)Consists of foreign currency forward contracts, interest rate swaps and fuel swaps.
(6)The contingent consideration related to the Silversea Cruises acquisition was estimated by applying a Monte-Carlo simulation method using our closing stock price along with significant inputs not observable in the market, including the probability of achieving the milestones and estimated future operating results. The Monte-Carlo simulation is a generally accepted statistical technique used to generate a defined number of valuation paths in order to develop a reasonable estimate of fair value.
The reported fair values are based on a variety of factors and assumptions. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of March 31, 2020 or December 31, 2019, or that will be realized in the future, and do not include expenses that could be incurred in an actual sale or settlement.
Nonfinancial Instruments Recorded at Fair Value on a Nonrecurring Basis
The following table presents information about the Company’s nonfinancial instruments recorded at fair value on a nonrecurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2020 Using
|
|
|
|
Description
|
Total Carrying Amount
|
Total Fair Value
|
Level 3
|
Total Impairment
|
Silversea Cruises Goodwill (1)
|
$
|
508,579
|
|
$
|
508,579
|
|
$
|
508,579
|
|
$
|
576,208
|
|
Indefinite-life intangible asset (2)
|
$
|
318,700
|
|
$
|
318,700
|
|
$
|
318,700
|
|
$
|
30,800
|
|
Long-lived assets - vessels(3)
|
$
|
156,270
|
|
$
|
156,270
|
|
$
|
156,270
|
|
$
|
417,057
|
|
Right-of-use assets(4)
|
$
|
57,068
|
|
$
|
57,068
|
|
$
|
57,068
|
|
$
|
45,945
|
|
Equity-method investments(5)
|
—
|
|
—
|
|
—
|
|
$
|
39,735
|
|
Total
|
$
|
1,040,617
|
|
$
|
1,040,617
|
|
$
|
1,040,617
|
|
$
|
1,109,745
|
|
_________________________________________________________________________________________________________
(1) We estimated the fair value of the Silversea Cruises reporting unit using a probability-weighted discounted cash flow model in combination with a market based valuation approach. The principal assumptions used in the discounted cash flow model are projected operating results, weighted-average cost of capital and terminal value. Significantly impacting these assumptions were changes in market conditions associated with COVID-19 and its impact to the business and related operating plans. The discounted cash flow model used our 2020 projected operating results as a base. To that base we added future years’ cash flows through 2030 assuming multiple revenue and expense scenarios that reflect the impact of different global economic environments for this period on Silversea Cruises' reporting unit. We assigned a probability to each revenue and expense scenario. We discounted the projected cash flows using rates specific to Silversea Cruises' reporting unit based on its weighted-average cost of capital, which was determined to be 12.75%. A significant input in performing the fair value assessment for the Silversea Cruises goodwill was forecasted operating results, which takes into consideration expected ship deliveries, including ship options.
(2) We estimated the fair value of our indefinite-life intangible asset using a discounted cash flow model and the relief-from-royalty method. The trade name relates to Silversea Cruises and we used a discount rate of 13.25%, comparable to the rate used in valuing the Silversea Cruises reporting unit. Significant inputs in performing the fair value assessment for the trade name were the royalty rate of 3.0% and forecasted net revenues, which takes into consideration expected ship deliveries, including ship options.
(3) We estimated the fair value of two of our vessels using a blended indication from the income and cost approaches. The fair value of the remaining vessels was estimated primarily based on their orderly liquidation values. A significant input in performing the fair value assessments for these vessels was management's expected use of the vessels, which takes into consideration forecasted operating results.
(4) Impairments to our right-of-use assets relate to certain of our berthing arrangements. We estimated the fair value of these right-of-use assets using estimated projected discounted cash flows. A significant input in performing the fair value assessments for these assets was our expected passenger headcount.
(5) We estimated the fair value of our other than temporarily impaired equity-method investments using a discounted cash flow model. A significant input in performing the fair value assessments for these assets was forecasted operating results for these investments.
We believe that our estimates and judgments related to the fair values of goodwill, intangibles and long-lived assets discussed above are reasonable. A change in the conditions, circumstances or strategy which influence determinations of fair value, may result in the recognition of additional impairment charges.
Master Netting Agreements
We have master International Swaps and Derivatives Association (“ISDA”) agreements in place with our derivative instrument counterparties. These ISDA agreements generally provide for final close out netting with our counterparties for all positions in the case of default or termination of the ISDA agreement. We have determined that our ISDA agreements provide us with rights of setoff on the fair value of derivative instruments in a gain position and those in a loss position with the same counterparty. We have elected not to offset such derivative instrument fair values in our consolidated balance sheets.
See Credit Related Contingent Features for further discussion on contingent collateral requirements for our derivative instruments.
The following table presents information about the Company’s offsetting of financial assets under master netting agreements with derivative counterparties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet
|
|
Gross Amount of Eligible Offsetting
Recognized
Derivative Liabilities
|
|
Cash Collateral
Received
|
|
Net Amount of
Derivative Assets
|
|
Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet
|
|
Gross Amount of Eligible Offsetting
Recognized
Derivative Assets
|
|
Cash Collateral
Received
|
|
Net Amount of
Derivative Assets
|
Derivatives subject to master netting agreements
|
|
$
|
40,960
|
|
|
$
|
(40,960)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,994
|
|
|
$
|
(39,994)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,960
|
|
|
$
|
(40,960)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,994
|
|
|
$
|
(39,994)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The following table presents information about the Company’s offsetting of financial liabilities under master netting agreements with derivative counterparties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
Gross Amount of Derivative Liabilities Presented in the Consolidated Balance Sheet
|
|
Gross Amount of Eligible Offsetting
Recognized
Derivative Assets
|
|
Cash Collateral
Pledged
|
|
Net Amount of
Derivative Liabilities
|
|
Gross Amount of Derivative Liabilities Presented in the Consolidated Balance Sheet
|
|
Gross Amount of Eligible Offsetting
Recognized
Derivative Liabilities
|
|
Cash Collateral
Pledged
|
|
Net Amount of
Derivative Liabilities
|
Derivatives subject to master netting agreements
|
|
$
|
(557,492)
|
|
|
$
|
40,960
|
|
|
$
|
—
|
|
|
$
|
(516,532)
|
|
|
$
|
(257,728)
|
|
|
$
|
39,994
|
|
|
$
|
—
|
|
|
$
|
(217,734)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(557,492)
|
|
|
$
|
40,960
|
|
|
$
|
—
|
|
|
$
|
(516,532)
|
|
|
$
|
(257,728)
|
|
|
$
|
39,994
|
|
|
$
|
—
|
|
|
$
|
(217,734)
|
|
Concentrations of Credit Risk
We monitor our credit risk associated with financial and other institutions with which we conduct significant business and, to minimize these risks, we select counterparties with credit risks acceptable to us and we seek to limit our exposure to an individual counterparty. Credit risk, including but not limited to counterparty nonperformance under derivative instruments, our credit facilities and new ship progress payment guarantees, is not considered significant, as we primarily conduct business with large, well-established financial institutions, insurance companies and export credit agencies many of which we have long-term relationships with and which have credit risks acceptable to us or where the credit risk is spread out among a large number of counterparties. As of March 31, 2020 we had counterparty credit risk exposure under our derivative instruments of $19.2 million, which were limited to the cost of replacing the contracts in the event of non-performance by the counterparties to the contracts, the majority of which are currently our lending banks. We do not anticipate nonperformance by any of our significant counterparties. In addition, we have established guidelines we follow regarding credit ratings and instrument maturities to maintain safety and liquidity. We do not normally require collateral or other security to support credit relationships; however, in certain circumstances this option is available to us.
Derivative Instruments
We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We try to mitigate these risks through a combination of our normal operating and financing activities and through the use of derivative financial instruments pursuant to our hedging practices and policies. The financial impact of these hedging instruments is primarily offset by corresponding changes in the underlying exposures being hedged. We achieve this by closely matching the notional amount, term and conditions of the derivative instrument with the underlying risk being hedged. Although certain of our derivative financial instruments do not qualify or are not accounted for under hedge accounting, our objective is not to hold or issue derivative financial instruments for trading or other speculative purposes.
We enter into various forward, swap and option contracts to manage our interest rate exposure and to limit our exposure to fluctuations in foreign currency exchange rates and fuel prices. These instruments are recorded on the balance sheet at their fair value and the vast majority are designated as hedges. We also use non-derivative financial instruments designated as hedges of our net investment in our foreign operations and investments.
At inception of the hedge relationship, a derivative instrument that hedges the exposure to changes in the fair value of a firm commitment or a recognized asset or liability is designated as a fair value hedge. A derivative instrument that hedges a forecasted transaction or the variability of cash flows related to a recognized asset or liability is designated as a cash flow hedge.
Changes in the fair value of derivatives that are designated as fair value hedges are offset against changes in the fair value of the underlying hedged assets, liabilities or firm commitments. Gains and losses on derivatives that are designated as cash flow hedges are recorded as a component of Accumulated other comprehensive loss until the underlying hedged transactions are recognized in earnings. The foreign currency transaction gain or loss of our non-derivative financial instruments and the changes in the fair value of derivatives designated as hedges of our net investment in foreign operations and investments are recognized as a component of Accumulated other comprehensive loss along with the associated foreign currency translation adjustment of the foreign operation or investment, with the amortization of excluded components affecting earnings.
On an ongoing basis, we assess whether derivatives used in hedging transactions are "highly effective" in offsetting changes in the fair value or cash flow of hedged items. For our net investment hedges, we use the dollar offset method to measure effectiveness. For all other hedging programs, we use the long-haul method to assess hedge effectiveness using regression analysis for each hedge relationship. The methodology for assessing hedge effectiveness is applied on a consistent basis for each one of our hedging programs (i.e., interest rate, foreign currency ship construction, foreign currency net investment and fuel). For our regression analyses, we use an observation period of up to three years, utilizing market data relevant to the hedge horizon of each hedge relationship. High effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the changes in the fair values of the derivative instrument and the hedged item. If it is determined that a derivative is not highly effective as a hedge or hedge accounting is discontinued, any change in fair value of the derivative since the last date at which it was determined to be effective is recognized in earnings.
Cash flows from derivative instruments that are designated as fair value or cash flow hedges are classified in the same category as the cash flows from the underlying hedged items. In the event that hedge accounting is discontinued, cash flows subsequent to the date of discontinuance are classified within investing activities. Cash flows from derivative instruments not designated as hedging instruments are classified as investing activities.
We consider the classification of the underlying hedged item’s cash flows in determining the classification for the designated derivative instrument’s cash flows. We classify derivative instrument cash flows from hedges of benchmark interest rate or hedges of fuel expense as operating activities due to the nature of the hedged item. Likewise, we classify derivative instrument cash flows from hedges of foreign currency risk on our newbuild ship payments as investing activities.
Interest Rate Risk
Our exposure to market risk for changes in interest rates primarily relates to our debt obligations including future interest payments. At March 31, 2020 and December 31, 2019, approximately 47.0% and 62.1%, respectively, of our debt was effectively fixed. We use interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest expense.
Market risk associated with our fixed rate debt is the potential increase in fair value resulting from a decrease in interest rates. We use interest rate swap agreements that effectively convert a portion of our fixed-rate debt to a floating-rate basis to manage this risk. At March 31, 2020 and December 31, 2019, we maintained interest rate swap agreements on the following fixed-rate debt instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Instrument
|
Swap Notional as of March 31, 2020 (In thousands)
|
Maturity
|
Debt Fixed Rate
|
Swap Floating Rate: LIBOR plus
|
All-in Swap Floating Rate as of March 31, 2020
|
Oasis of the Seas term loan
|
$
|
70,000
|
|
October 2021
|
5.41%
|
3.87%
|
5.8%
|
Unsecured senior notes
|
650,000
|
|
November 2022
|
5.25%
|
3.63%
|
5.32%
|
|
$
|
720,000
|
|
|
|
|
|
These interest rate swap agreements are accounted for as fair value hedges.
Market risk associated with our long-term floating rate debt is the potential increase in interest expense from an increase in interest rates. We use interest rate swap agreements that effectively convert a portion of our floating-rate debt to a fixed-rate basis to manage this risk. At March 31, 2020 and December 31, 2019, we maintained interest rate swap agreements on the following floating-rate debt instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Instrument
|
Swap Notional as of March 31, 2020 (In thousands)
|
Maturity
|
Debt Floating Rate
|
|
All-in Swap Fixed Rate
|
Celebrity Reflection term loan
|
$
|
272,708
|
|
October 2024
|
LIBOR plus
|
|
0.40%
|
|
2.85%
|
Quantum of the Seas term loan
|
428,750
|
|
October 2026
|
LIBOR plus
|
|
1.30%
|
|
3.74%
|
Anthem of the Seas term loan
|
453,125
|
|
April 2027
|
LIBOR plus
|
|
1.30%
|
|
3.86%
|
Ovation of the Seas term loan
|
587,917
|
|
April 2028
|
LIBOR plus
|
|
1.00%
|
|
3.16%
|
Harmony of the Seas term loan (1)
|
538,899
|
|
May 2028
|
EURIBOR plus
|
|
1.15%
|
|
2.26%
|
Odyssey of the Seas term loan (2)
|
460,000
|
|
October 2032
|
LIBOR plus
|
|
0.95%
|
|
3.20%
|
Odyssey of the Seas term loan (2)
|
191,667
|
|
October 2032
|
LIBOR plus
|
|
0.95%
|
|
2.83%
|
|
$
|
2,933,066
|
|
|
|
|
|
(1)Interest rate swap agreements hedging the Euro-denominated term loan for Harmony of the Seas include EURIBOR zero-floor matching the hedged debt EURIBOR zero-floor. Amount presented is based on the exchange rate as of March 31, 2020.
(2)Interest rate swap agreements hedging the term loan of Odyssey of the Seas include LIBOR zero-floors matching the debt LIBOR zero-floor. The effective dates of the $460.0 million and $191.7 million interest rate swap agreements are October 2020 and October 2022, respectively. The anticipated unsecured term loan for the financing of Odyssey of the Seas was initially expected to be drawn in October 2020. However, due to the impact of COVID-19 to shipyard operations, there may be a delay in the ship delivery.
These interest rate swap agreements are accounted for as cash flow hedges.
The notional amount of interest rate swap agreements related to outstanding debt and our current unfunded financing arrangements as of March 31, 2020 and December 31, 2019 was $3.7 billion and $3.5 billion, respectively.
Foreign Currency Exchange Rate Risk
Derivative Instruments
Our primary exposure to foreign currency exchange rate risk relates to our ship construction contracts denominated in Euros, our foreign currency denominated debt and our international business operations. We enter into foreign currency forward contracts to manage portions of the exposure to movements in foreign currency exchange rates. As of March 31, 2020, the aggregate cost of our ships on order was $13.8 billion, of which we had deposited $810.9 million as of such date. These amounts do not include any ships placed on order that are contingent upon completion of conditions precedent and/or financing, any ships on order by our Partner Brands and any ships on order placed by Silversea Cruises during the reporting lag period. Refer to Note 10. Commitments and Contingencies, for further information on our ships on order. At March 31, 2020 and December 31, 2019, approximately 63.6% and 65.9%, respectively, of the aggregate cost of the ships under construction was exposed to fluctuations in the Euro exchange rate. Our foreign currency forward contract agreements are accounted for as cash flow or net investment hedges depending on the designation of the related hedge.
On a regular basis, we enter into foreign currency forward contracts and, from time to time, we utilize cross-currency swap agreements and collar options to minimize the volatility resulting from the remeasurement of net monetary assets and liabilities denominated in a currency other than our functional currency or the functional currencies of our foreign subsidiaries. During the first quarter of 2020, we maintained an average of approximately $549.8 million of these foreign currency forward contracts. These instruments are not designated
as hedging instruments. For the quarters ended March 31, 2020 and 2019, changes in the fair value of the foreign currency forward contracts resulted in a loss and a gain of $(52.7) million and $5.0 million, respectively. These amounts were recognized in earnings within Other income (expense) in our consolidated statements of comprehensive income (loss).
We consider our investments in our foreign operations to be denominated in relatively stable currencies and to be of a long-term nature. As of March 31, 2020, we maintained foreign currency forward contracts and designated them as hedges of a portion of our net investments primarily in TUI Cruises of €245.0 million, or approximately $268.8 million based on the exchange rate at March 31, 2020. These forward currency contracts mature in October 2021.
The notional amount of outstanding foreign exchange contracts, excluding the forward contracts entered into to minimize remeasurement volatility, as of both March 31, 2020 and December 31, 2019 was $3.7 billion and $2.9 billion, respectively.
Non-Derivative Instruments
We also address the exposure of our investments in foreign operations by denominating a portion of our debt in our subsidiaries’ and investments’ functional currencies and designating it as a hedge of these subsidiaries and investments. We had designated debt as a hedge of our net investments primarily in TUI Cruises of €286.0 million, or approximately $313.8 million, as of March 31, 2020. As of December 31, 2019, we had designated debt as a hedge of our net investments in TUI Cruises of €319.0 million, or approximately $358.1 million.
Fuel Price Risk
Our exposure to market risk for changes in fuel prices relates primarily to the consumption of fuel on our ships. We use fuel swap agreements to mitigate the financial impact of fluctuations in fuel prices.
Our fuel swap agreements are generally accounted for as cash flow hedges. In the case that our hedged forecasted fuel consumption is not probable of occurring, hedge accounting will be discontinued and the related accumulated other comprehensive gain or loss will be reclassified to Other income (expense) immediately.
At March 31, 2020, we have hedged the variability in future cash flows for certain forecasted fuel transactions occurring through 2023. As of March 31, 2020 and December 31, 2019, we had the following outstanding fuel swap agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel Swap Agreements
|
|
|
|
As of March 31, 2020
|
|
As of December 31, 2019
|
|
(metric tons)
|
|
|
2020(1)
|
596,850
|
|
|
830,500
|
|
2021
|
614,900
|
|
|
488,900
|
|
2022
|
404,300
|
|
|
322,900
|
|
2023
|
82,400
|
|
|
82,400
|
|
|
|
|
|
(1) As a result of the COVID-19 pandemic, we discontinued cash flow hedge accounting on 0.2 million metric tons of our fuel swap agreements maturing in 2020 as of March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel Swap Agreements
|
|
|
|
As of March 31, 2020
|
|
As of December 31, 2019
|
|
(% hedged)
|
|
|
Projected fuel purchases:
|
|
|
|
2020
|
60
|
%
|
|
54
|
%
|
2021
|
39
|
%
|
|
30
|
%
|
2022
|
23
|
%
|
|
19
|
%
|
2023
|
5
|
%
|
|
5
|
%
|
|
|
|
|
At March 31, 2020, $70.8 million of estimated unrealized loss associated with our cash flow hedges pertaining to fuel swap agreements is expected to be reclassified to earnings from Accumulated other comprehensive loss within the next twelve months. Reclassification is expected to occur as the result of fuel consumption associated with our hedged forecasted fuel purchases.
The fair value and line item caption of derivative instruments recorded within our consolidated balance sheets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
Balance Sheet Location
|
|
As of March 31, 2020
|
|
As of December 31, 2019
|
|
Balance Sheet Location
|
|
As of March 31, 2020
|
|
As of December 31, 2019
|
|
|
|
|
Fair Value
|
|
Fair Value
|
|
|
|
Fair Value
|
|
Fair Value
|
Derivatives designated as hedging instruments under ASC 815-20(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other assets
|
|
$
|
19,787
|
|
|
$
|
11
|
|
|
Other long-term liabilities
|
|
$
|
113,312
|
|
|
$
|
64,168
|
|
Foreign currency forward contracts
|
|
Derivative financial instruments
|
|
—
|
|
|
—
|
|
|
Derivative financial instruments
|
|
75,862
|
|
|
75,260
|
|
Foreign currency forward contracts
|
|
Other assets
|
|
21,173
|
|
|
9,380
|
|
|
Other long-term liabilities
|
|
119,303
|
|
|
64,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel swaps
|
|
Derivative financial instruments
|
|
—
|
|
|
16,922
|
|
|
Derivative financial instruments
|
|
66,098
|
|
|
16,901
|
|
Fuel swaps
|
|
Other assets
|
|
—
|
|
|
8,677
|
|
|
Other long-term liabilities
|
|
119,472
|
|
|
33,965
|
|
Total derivatives designated as hedging instruments under 815-20
|
|
|
|
40,960
|
|
|
34,990
|
|
|
|
|
494,047
|
|
|
255,005
|
|
Derivatives not designated as hedging instruments under ASC 815-20
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Derivative financial instruments
|
|
$
|
—
|
|
|
$
|
3,186
|
|
|
Derivative financial instruments
|
|
$
|
—
|
|
|
$
|
2,419
|
|
Foreign currency forward contracts
|
|
Other assets
|
|
—
|
|
|
—
|
|
|
Other long-term liabilities
|
|
—
|
|
|
—
|
|
Fuel swaps
|
|
Derivative financial instruments
|
|
—
|
|
|
1,643
|
|
|
Derivative financial instruments
|
|
61,347
|
|
|
295
|
|
Fuel swaps
|
|
Other Assets
|
|
—
|
|
|
175
|
|
|
Other long-term liabilities
|
|
2,098
|
|
|
9
|
|
Total derivatives not designated as hedging instruments under 815-20
|
|
|
|
—
|
|
|
5,004
|
|
|
|
|
63,445
|
|
|
2,723
|
|
Total derivatives
|
|
|
|
$
|
40,960
|
|
|
$
|
39,994
|
|
|
|
|
$
|
557,492
|
|
|
$
|
257,728
|
|
(1)Accounting Standard Codification 815-20 “Derivatives and Hedging.”
The location and amount of gain or (loss) recognized in income on fair value and cash flow hedging relationships were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel Expense
|
|
Depreciation and Amortization Expenses
|
|
Interest Income (Expense)
|
|
Other Income (Expense)
|
|
|
|
Fuel Expense
|
|
Depreciation and Amortization Expenses
|
|
Interest Income (Expense)
|
|
Other Income (Expense)
|
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded
|
|
|
|
|
|
$194,268
|
|
$324,330
|
|
$(87,377)
|
|
$(32,859)
|
|
|
|
$160,171
|
|
$292,285
|
|
$(90,631)
|
|
$(5,088)
|
The effects of fair value and cash flow hedging:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (loss) on fair value hedging relationships in Subtopic 815-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedged items
|
|
|
n/a
|
|
n/a
|
|
$(21,330)
|
|
$—
|
|
|
|
n/a
|
|
n/a
|
|
(8,459)
|
|
$—
|
|
|
|
Derivatives designated as hedging instruments
|
|
|
n/a
|
|
n/a
|
|
$20,430
|
|
$—
|
|
|
|
n/a
|
|
n/a
|
|
$(2,257)
|
|
$8,092
|
|
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income
|
|
|
n/a
|
|
n/a
|
|
$(3,391)
|
|
n/a
|
|
|
|
n/a
|
|
n/a
|
|
$(391)
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income
|
|
|
$(14,233)
|
|
n/a
|
|
n/a
|
|
$344
|
|
|
|
$18,018
|
|
n/a
|
|
n/a
|
|
$(256)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income
|
|
|
n/a
|
|
$(3,337)
|
|
n/a
|
|
$(1,763)
|
|
|
|
n/a
|
|
$(3,334)
|
|
n/a
|
|
$(1,315)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value and line item caption of non-derivative instruments designated as hedging instruments recorded within our consolidated balance sheets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
|
Non-derivative instrument designated as
hedging instrument under ASC 815-20
|
|
Balance Sheet Location
|
|
As of March 31, 2020
|
|
As of December 31, 2019
|
Foreign currency debt
|
|
Current portion of debt
|
|
$
|
70,293
|
|
|
$
|
73,572
|
|
Foreign currency debt
|
|
Long-term debt
|
|
243,506
|
|
|
284,506
|
|
|
|
|
|
$
|
313,799
|
|
|
$
|
358,078
|
|
The effect of derivative instruments qualifying and designated as hedging instruments and the related hedged items in fair value hedges on the consolidated statements of comprehensive income (loss) was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives and Related Hedged Items under ASC 815-20 Fair Value Hedging Relationships
|
|
Location of Gain (Loss) Recognized in Income on Derivative and Hedged Item
|
|
Amount of Gain (Loss)
Recognized in
Income on Derivative
|
|
|
|
|
|
|
|
Amount of Gain (Loss)
Recognized in
Income on Hedged Item
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2020
|
|
Quarter Ended March 31, 2019
|
|
|
|
|
|
Quarter Ended March 31, 2020
|
|
Quarter Ended March 31, 2019
|
|
|
|
|
Interest rate swaps
|
|
Interest expense, net of interest capitalized
|
|
$
|
20,430
|
|
|
$
|
(2,257)
|
|
|
|
|
|
|
$
|
(21,330)
|
|
|
$
|
(8,459)
|
|
|
|
|
|
Interest rate swaps
|
|
Other income (expense)
|
|
—
|
|
|
8,092
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,430
|
|
|
$
|
5,835
|
|
|
|
|
|
|
$
|
(21,330)
|
|
|
$
|
(8,459)
|
|
|
|
|
|
The fair value and line item caption of derivative instruments recorded within our consolidated balance sheets for the cumulative basis adjustment for fair value hedges were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line Item in the Statement of Financial Position Where the Hedged Item is Included
|
|
Carrying Amount of the Hedged Liabilities
|
|
|
|
Cumulative amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities
|
|
|
|
|
As of March 31, 2020
|
|
As of December 31, 2019
|
|
As of March 31, 2020
|
|
As of December 31, 2019
|
Current portion of debt and Long-term debt
|
|
$
|
736,885
|
|
|
$
|
715,234
|
|
|
$
|
20,029
|
|
|
$
|
(1,301)
|
|
|
|
$
|
736,885
|
|
|
$
|
715,234
|
|
|
$
|
20,029
|
|
|
$
|
(1,301)
|
|
The effect of derivative instruments qualifying and designated as cash flow hedging instruments on the consolidated financial statements was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
under ASC 815-20 Cash Flow Hedging Relationships
|
|
Amount of Gain (Loss) Recognized in
Accumulated Other
Comprehensive Income (Loss) on Derivative
|
|
|
|
|
|
|
|
Location of
Gain (Loss)
Reclassified
from
Accumulated
Other Comprehensive
Loss into Income
|
|
Amount of Gain (Loss) Reclassified from
Accumulated Other Comprehensive Income (Loss) into Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2020
|
|
Quarter Ended March 31, 2019
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2020
|
|
Quarter Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(52,595)
|
|
|
$
|
(28,329)
|
|
|
|
|
|
|
Interest expense, net of interest capitalized
|
|
$
|
(3,391)
|
|
|
$
|
(391)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
(100,014)
|
|
|
(90,144)
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
(3,337)
|
|
|
(3,334)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Other income (expense)
|
|
(1,763)
|
|
|
(1,315)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel swaps
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Other income (expense)
|
|
344
|
|
|
(256)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel swaps
|
|
(170,376)
|
|
|
180,038
|
|
|
|
|
|
|
Fuel
|
|
(14,233)
|
|
|
18,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(322,985)
|
|
|
$
|
61,565
|
|
|
|
|
|
|
|
|
$
|
(22,380)
|
|
|
$
|
12,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below represents amounts excluded from the assessment of effectiveness for our net investment hedging instruments for which the difference between changes in fair value and periodic amortization is recorded in accumulated other comprehensive income (loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in Income (Net Investment Excluded Components)
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
Net inception fair value at January 1, 2020
|
|
|
|
$
|
(8,008)
|
|
Amount of gain recognized in income on derivatives for the period ended March 31, 2020
|
|
|
|
1,617
|
|
Amount of gain (loss) remaining to be amortized in accumulated other comprehensive loss, as of March 31, 2020
|
|
|
|
1,654
|
|
Fair value at March 31, 2020
|
|
|
|
$
|
(4,737)
|
|
The effect of non-derivative instruments qualifying and designated as net investment hedging instruments on the consolidated financial statements was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-derivative instruments under ASC 815-20 Net
Investment Hedging Relationships
|
|
Quarter Ended March 31, 2020
|
|
Quarter Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Debt
|
|
$
|
7,489
|
|
|
$
|
5,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,489
|
|
|
$
|
5,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no amount recognized in income (ineffective portion and amount excluded from effectiveness testing) for the quarters ended March 31, 2020.
The effect of derivatives not designated as hedging instruments on the consolidated financial statements was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in Income on Derivatives
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging
Instruments under ASC 815-20
|
|
Location of
Gain (Loss) Recognized in
Income on Derivatives
|
|
Quarter Ended March 31, 2020
|
|
Quarter Ended March 31, 2019
|
|
|
|
|
Foreign currency forward contracts
|
|
Other income (expense)
|
|
$
|
(52,676)
|
|
|
$
|
5,014
|
|
|
|
|
|
Fuel swaps
|
|
Fuel
|
|
—
|
|
|
(136)
|
|
|
|
|
|
Fuel swaps
|
|
Other income (expense)
|
|
(67,206)
|
|
|
(98)
|
|
|
|
|
|
|
|
|
|
$
|
(119,882)
|
|
|
$
|
4,780
|
|
|
|
|
|
The current suspension of our cruise operations due to the COVID-19 pandemic resulted in changes to our forecasted fuel purchases. As of March 31, 2020, we discontinued cash flow hedge accounting on 0.2 million metric tons of our fuel swap agreements. The discontinuance of the hedging relationship for these fuel swap agreements resulted in the reclassification of a net $54.9 million loss from Accumulated other comprehensive loss to Other expense.
Credit Related Contingent Features
Our current interest rate derivative instruments require us to post collateral if our Standard & Poor’s and Moody’s credit ratings fall below specified levels. Specifically, under most of our agreements, if on the fifth anniversary of executing a derivative instrument, or on any succeeding fifth-year anniversary, our credit ratings for our senior unsecured debt is rated below BBB- by Standard & Poor’s and Baa3 by Moody’s, then the counterparty will periodically demand that we post collateral in an amount equal to the difference between (i) the net market value of all derivative transactions with such counterparty that have reached their fifth year anniversary, to the extent negative, and (ii) the applicable minimum call amount.
The amount of collateral required to be posted will change as, and to the extent, our net liability position increases or decreases by more than the applicable minimum call amount. If our credit rating for our senior unsecured 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, generally, at the next fifth-year anniversary.
At March 31, 2020, our senior unsecured debt credit rating was BBB- by Standard & Poor's and Baa3 by Moody's and as such we were not required to post collateral. We currently have five interest rate derivative hedges that have a term of at least five years. On April 2, 2020, S&P Global downgraded us from BBB- to BB and on May 13, 2020, Moody’s downgraded us from Baa3 to Ba2. Based on our current projected fair value of certain derivative instruments in net liability positions, on or prior to September 23, 2020, we will be required to post collateral of approximately $80.4 million.
Note 14. Restructuring Charges
For the quarter ended March 31, 2020, we incurred restructuring charges of $5.5 million in connection with our international sales and marketing strategy. We did not incur restructuring charges for the quarter ended March 31, 2019.
Centralization of Global Sales and Marketing Structure
During the year ended December 31, 2019, we implemented a strategy related to the restructuring and centralization of our international sales and marketing structure. Activities related to this strategy focused on moving from a multi-brand sales model to a brand dedicated sales model, which resulted in the consolidation of some of our international offices and personnel reorganization among our sales and marketing teams. The personnel reorganization resulted in the recognition of a liability for one-time termination benefits during the twelve months ended December 31, 2019. We also incurred contract termination costs related to the closure of some of our international offices and other related costs consisting of legal and consulting fees to implement this initiative. As a result of these actions, we incurred restructuring exit costs of $12.0 million for the year ended December 31, 2019, which were reported within Marketing, selling and administrative expenses in our consolidated statements of comprehensive income (loss). As of March 31, 2020, we incurred $5.5 million and we expected to incur $5.6 million additional costs as it relates to the restructuring activities of this strategy.
The following table summarizes our restructuring exit costs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance January 1, 2020
|
|
Accruals
|
|
Payments
|
|
Ending balance March 31, 2020
|
|
Cumulative
Charges
Incurred
|
|
Expected
Additional
Expenses
to be
Incurred
|
Termination benefits
|
$
|
8,389
|
|
|
$
|
761
|
|
|
$
|
1,824
|
|
|
$
|
7,326
|
|
|
$
|
9,641
|
|
|
$
|
2,220
|
|
Contract termination costs
|
338
|
|
|
—
|
|
|
—
|
|
|
338
|
|
|
338
|
|
|
300
|
|
Other related costs
|
2,785
|
|
|
4,786
|
|
|
2,408
|
|
|
5,163
|
|
|
7,594
|
|
|
3,036
|
|
Total
|
$
|
11,512
|
|
|
$
|
5,547
|
|
|
$
|
4,232
|
|
|
$
|
12,827
|
|
|
$
|
17,573
|
|
|
$
|
5,556
|
|
Operating Expense Reduction in Workforce
In April 2020, we reduced our US shoreside workforce by approximately 23% through a combination of permanent layoffs and 90-day furloughs with paid benefits. We incurred severance costs of $26.9 million in April 2020.