NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As used in this Quarterly Report on Form 10-Q, the terms "Royal Caribbean,” "Royal Caribbean Group," 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” and "Silversea Cruises" refer to our wholly owned global cruise brands. Throughout this report, we also refer to regional brands in which we hold an ownership interest, including “TUI Cruises,” and “Hapag-Lloyd Cruises.” 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 8-K 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 June 30, 2020, we control and operate four global cruise brands: Royal Caribbean International, Celebrity Cruises, Azamara, and Silversea Cruises (collectively, our "Global Brands").
We also own a 50% joint venture interest in TUI Cruises GmbH ("TUIC"), our 50%-owned joint venture that operates the German brands TUI Cruises and Hapag-Lloyd Cruises (collectively, our "Partner Brands"). On June 30, 2020, TUIC acquired Hapag-Lloyd Cruises, a luxury and expedition brand for German-speaking guests, from TUI AG for approximately €1.2 billion, or $1.3 billion. See Note 6. Other Assets for further information on the acquisition. We account for our investments in our Partner Brands under the equity method of accounting.
On June 22, 2020, Pullmantur S.A, a subsidiary of Pullmantur Holdings S.L. ("Pullmantur Holdings"), in which we own a 49% non-controlling interest, filed for reorganization under the terms of the Spanish insolvency laws (the "Pullmantur reorganization") due to the negative impact of the COVID-19 pandemic on the company. The Pullmantur brand has cancelled all its ship operations until, at least, November 15, 2020. We suspended equity method accounting for Pullmantur Holdings during the second quarter of 2020. Refer to Note 6. Other Assets for further information regarding Pullmantur's reorganization filing and its impact to the Company.
On July 9, 2020, we acquired the 33.3% interest in Silversea Cruises that we did not already own (the "noncontrolling interest") from Heritage Cruise Holding Ltd. ("Heritage"). As a result of the acquisition, Silversea Cruises is now a wholly owned cruise brand. As consideration for the noncontrolling interest, we issued to Heritage 5.2 million shares of common stock, par value $0.01 per share, of Royal Caribbean Cruises Ltd. Pursuant to the agreement governing the acquisition, among other things, the parties terminated any existing obligation to issue Heritage any contingent consideration, at fair value, in connection with our acquisition of a 66.7% interest in Silversea Cruises on July 31, 2018. The share purchase did not result in a change of control. The purchase will be accounted for as an equity transaction and no gain or loss will be recognized in earnings. See Note 9. Redeemable Noncontrolling Interest for further information regarding our acquisition of Silversea Cruises' noncontrolling interest.
Management's Plan and Liquidity
As part of the global containment effort for the COVID-19 pandemic, we implemented a voluntary suspension of our Global Brands' cruise operations effective March 13, 2020 which has been extended through at least October 31, 2020, excluding China and Australia. 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 which has been extended through 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) September 30, 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 continue to extend the current No Sail Orders on cruises out of the United States and whether efforts by other countries to contain the disease will further restrict our ability to commence operations. The suspension of our operations and the impact to our global bookings resulting from the COVID-19 pandemic will continue to have a material negative impact on our results of operations and liquidity, which may be prolonged beyond containment of the disease.
We have undertaken several proactive measures to mitigate the financial and operational impacts of COVID-19, including reduction of capital expenditures and operating expenses, furloughing staff and laying up of vessels.
As of June 30, 2020, we had liquidity of $4.1 billion, consisting of cash and cash equivalents. Through the six months ended June 30, 2020 and through the issuance of these financial statements, we executed and amended various financing arrangements, as described in Note 7. Debt, which resulted in a $0.6 billion increase in our revolving credit facilities; additional liquidity of $5.5 billion with the issuance of new debt, net of repayments; £300.0 million, or $370.8 million based on exchange rates as of June 30, 2020, of available and issued liquidity under a government commercial paper program with the Bank of England and the deferral of $0.9 billion of existing debt amortization under our export-credit backed ship debt facilities through April 2021.
Additionally, as of June 30, 2020, we amended our export credit facilities and our non-export credit facilities, totaling an outstanding principal amount of $11.0 billion, and certain of our credit card processing agreements to suspend the testing of financial covenants through and including the first quarter of 2021. Certain of the amended agreements imposed a monthly-tested liquidity covenant of $300.0 million of cash and cash equivalents for the duration of the waiver period. Subsequent to June 30, 2020, we further extended the financial covenant waiver on our export credit facilities, certain of our non-export credit facilities and our credit card processor agreements through and including the fourth quarter of 2021, which resulted in an increased minimum liquidity covenant of $500.0 million, as applicable, subject to reduction in the event of further capital raises.
Pursuant to these amendments, we have also agreed that we will not pay cash dividends or effectuate share repurchases during the waiver period unless we are in compliance with the fixed charge coverage covenant as of the end of the most recently completed quarter for the duration of the waiver period. As of June 30, 2020, we were in compliance with the minimum liquidity covenant of $300.0 million and we estimate that we will be in compliance with our amended minimum liquidity covenant of $500.0 million for at least the next twelve months. Refer to Note 7. Debt for further information regarding our debt covenants.
Any further covenant waivers may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections as may be agreed with our lenders. There can be no assurance that we would be able to obtain additional waivers in a timely manner, or on acceptable terms. If we were not able to obtain additional 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 contracts. If we were not able to obtain waivers on the credit card processing agreements, this could lead to the termination of these agreements or the trigger of reserve requirements.
Certain of our credit card processing agreements that govern the terms to advance passenger ticket deposits, require under certain circumstances, including existence of a material adverse change, excessive chargebacks and other triggering events, that we maintain a reserve which could be satisfied by posting collateral. We have executed amendments to these agreements, such that certain covenant and collateral requirements are waived for a period through December 2021. Based on the triggers in the various agreements, we do not believe any incremental collateral will be required, although the maximum additional collateral or reserves we could potentially need to provide under these agreements in the next twelve months is approximately $75 million.
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.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative under ASC 815 or for convertible debt issued at a substantial premium. The ASU removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception, permitting more contracts to qualify for it. In addition, the guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The ASU is effective for annual reporting periods beginning after December 15, 2021, including interim reporting periods within those annual periods, with early adoption permitted no earlier than the fiscal year beginning after December 15, 2020. 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 and six months ended June 30, 2020 (in thousands) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal Caribbean International
|
|
Celebrity Cruises
|
|
Silversea Cruises
|
|
Total
|
|
Balance at January 1, 2020
|
$
|
299,226
|
|
|
$
|
1,632
|
|
|
$
|
1,084,786
|
|
|
$
|
1,385,644
|
|
|
Impairment charge
|
—
|
|
|
—
|
|
|
(576,208)
|
|
|
(576,208)
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of goodwill attributable to the 2019 purchase of photo operations onboard our ships
|
(2,694)
|
|
|
2,694
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustment
|
(52)
|
|
|
—
|
|
|
—
|
|
|
(52)
|
|
|
Balance at June 30, 2020
|
$
|
296,480
|
|
|
$
|
4,326
|
|
|
$
|
508,578
|
|
|
$
|
809,384
|
|
We performed interim impairment evaluations of Royal Caribbean International’s goodwill in connection with the preparation of our financial statements for the quarters ended March 31, 2020 and June 30, 2020 due to the significant impact that COVID-19 has had on our projected cash flows. Our extended suspension of our operations and the possibility of further extensions have created some uncertainty in forecasting the operating results and future cash flows used in our impairment analyses. As a result of our evaluations, we determined that the fair value of the Royal Caribbean International reporting unit exceeded its carrying values as of March 31, 2020 and June 30, 2020 by approximately 30% and 8%, respectively, resulting in
no impairment to the Royal Caribbean International goodwill. We will continue to monitor Royal Caribbean International's goodwill for any additional adverse impact of COVID-19 that may result in changes to the assumptions used in the impairment testing, and will perform interim testing impairment evaluations, if deemed necessary, prior to our annual impairment evaluation to be performed in the fourth quarter of 2020.
We estimated the fair value of the Royal Caribbean International reporting unit using a probability-weighted discounted cash flow model in combination with a market based valuation approach. Significant assumptions used in these valuations include the weighted average cost of capital discount factor, revenue base, revenue growth rate and terminal rate. As of the three months ended June 30, 2020, the carrying amount of goodwill attributable to our Royal Caribbean International reporting unit was $296.5 million.
We also performed an interim impairment evaluation of Silversea Cruises’ goodwill and trade name 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. Significant assumptions used in these valuations include the weighted average cost of capital discount factor, revenue growth rates and royalty rate. As a result of the analysis, we determined that the carrying value of the Silversea Cruises reporting unit exceeded its fair value as of March 31, 2020. Accordingly, we recognized a goodwill impairment charge of $576.2 million for the quarter ended March 31, 2020. For the quarter ended June 30, 2020, we had no further indication of impairment to the carrying amount of the Silversea Cruises goodwill and trade name.
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 June 30, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Accumulated Impairment losses
|
|
Net Carrying Value
|
|
Finite-life intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
|
$
|
97,400
|
|
|
$
|
10,822
|
|
|
$
|
—
|
|
|
$
|
86,578
|
|
|
Galapagos operating license
|
|
|
|
47,669
|
|
|
6,927
|
|
|
—
|
|
|
40,742
|
|
|
Other finite-life intangible assets
|
|
|
|
11,560
|
|
|
9,633
|
|
|
—
|
|
|
1,927
|
|
|
Total finite-life intangible assets
|
|
|
|
156,629
|
|
|
27,382
|
|
|
—
|
|
|
129,247
|
|
|
Indefinite-life intangible assets
|
|
|
|
352,275
|
|
|
—
|
|
|
30,800
|
|
|
321,475
|
|
|
Total intangible assets, net
|
|
|
|
$
|
508,904
|
|
|
$
|
27,382
|
|
|
$
|
30,800
|
|
|
$
|
450,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Finite-life intangible assets:
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
|
$
|
97,400
|
|
|
$
|
7,576
|
|
|
$
|
89,824
|
|
|
Galapagos operating license
|
|
|
|
47,669
|
|
|
6,010
|
|
|
41,659
|
|
|
Other finite-life intangible assets
|
|
|
|
11,560
|
|
|
6,743
|
|
|
4,817
|
|
|
Total finite-life intangible assets
|
|
|
|
156,629
|
|
|
20,329
|
|
|
136,300
|
|
|
Indefinite-life intangible assets
|
|
|
|
352,275
|
|
|
—
|
|
|
352,275
|
|
|
Total intangible assets, net
|
|
|
|
$
|
508,904
|
|
|
$
|
20,329
|
|
|
$
|
488,575
|
|
Impairment charges related to the Silversea Cruises trade name included within Indefinite-life intangible assets in the table above were $30.8 million for the six months ended June 30, 2020 and were recorded during the quarter ended Mach 31, 2020.
Long-lived Assets
During the quarter ended March 31, 2020, 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.
During the quarter ended June 30, 2020, we terminated the agreements chartering Monarch of the Seas, Horizon of the Seas and Sovereign of the Seas to Pullmantur Holdings and agreed to sell the ships to a third party. Consequently, the ships met accounting criteria to be classified as held for sale which resulted in a further impairment charge of $15.2 million during the quarter ended June 30, 2020 to adjust the carrying value of the assets held for sale to their fair value, less cost to sell. As of June 30, 2020, the net book value of assets held for sale was not material to our consolidated balance sheet.
As a result of the continuing effect of COVID-19 on our expected future operating cash flows, we determined certain impairment triggers had occurred. Accordingly, we updated and performed undiscounted cash flow analyses on certain ships in our fleet and right of use of assets as of June 30, 2020 and identified further impairment on two ships and one right of use asset, as the undiscounted cashflows were less than their carrying values. We determined that an additional impairment charge of $49.7 million was required to write down these assets to their estimated fair values as of June 30, 2020.
These impairment charges were reported within Impairment and Credit Losses in our consolidated statements of comprehensive (loss) income.
Notes Receivable
We reviewed our notes receivable for credit losses in connection with the preparation of our financial statements. In evaluating the credit loss allowance, 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 during the quarter ended March 31, 2020, primarily due to loans and other net receivables related to Pullmantur Holdings. Refer to Note 6. Other Assets for further information regarding our investment in Pullmantur Holdings. During the quarter ended June 30, 2020, we incurred credit losses of $91.6 million due to loss provisions recognized on notes receivable related to our previous sale of property and equipment and on net receivables related to Pullmantur Holdings.
The following table summarizes our credit loss allowance related to receivables for the six months ended June 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Loss Allowance
|
|
|
|
|
|
Balance at January 1, 2020
|
|
$
|
5,635
|
|
|
|
|
|
|
Loss provision for receivables
|
|
168,858
|
|
|
|
|
|
Bad debt write-offs
|
|
(91,142)
|
|
|
|
|
|
Balance at June 30, 2020
|
|
$
|
83,351
|
|
|
|
|
|
Our credit loss allowance balance as of June 30, 2020 primarily related to a $73.3 million loss provision recognized during the three months ended June 30, 2020 on notes receivable related to our previous sale of property and equipment.
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. For the quarter ended June 30, 2020, we had no further indication of impairment to our equity investment balances. Refer to Note 6. Other Assets for information regarding our significant equity investments.
During the three and six months ended June 30, 2020, we recognized combined impairment and credit loss charges of $156.5 million and $1.3 billion, respectively. The impairment charges related to our goodwill, trademarks and trade names, vessels and right-of-use assets and the credit losses related to our notes receivable are 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 reported within Equity investment (loss) income within our consolidated statements of comprehensive (loss) income during the quarter ended March 31, 2020 and six months ended June 30, 2020. 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 one 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. There were no port costs charged to our guests and included within Passenger ticket revenues on a gross basis for the quarter ended June 30, 2020. The amounts of port costs charged to our guests and included within Passenger ticket revenues on a gross basis were $173.6 million for the quarter ended June 30, 2019, and $124.5 million and $325.6 million for the six months ended June 30, 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
Revenues by itinerary
|
|
|
|
|
|
|
|
|
|
|
|
|
North America(1)
|
$
|
25,574
|
|
|
$
|
1,571,769
|
|
|
$
|
1,350,147
|
|
|
$
|
3,252,827
|
|
|
|
|
|
|
Asia/Pacific(2)
|
38,539
|
|
|
327,777
|
|
|
400,937
|
|
|
817,852
|
|
|
|
|
|
|
Europe(3)
|
—
|
|
|
594,712
|
|
|
19,135
|
|
|
602,694
|
|
|
|
|
|
|
Other regions(4)
|
73,082
|
|
|
196,504
|
|
|
231,530
|
|
|
359,009
|
|
|
|
|
|
|
Total revenues by itinerary
|
137,195
|
|
|
2,690,762
|
|
|
2,001,749
|
|
|
5,032,382
|
|
|
|
|
|
|
Other revenues(5)
|
38,410
|
|
|
115,869
|
|
|
206,606
|
|
|
214,016
|
|
|
|
|
|
|
Total revenues
|
$
|
175,605
|
|
|
$
|
2,806,631
|
|
|
$
|
2,208,355
|
|
|
$
|
5,246,398
|
|
|
|
|
|
(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 and six months ended June 30, 2020 and 2019, our guests were sourced from the following areas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Passenger ticket revenues:
|
|
|
|
|
|
|
|
|
United States
|
61
|
%
|
|
67
|
%
|
|
|
|
|
|
United Kingdom
|
18
|
%
|
|
9
|
%
|
|
|
|
|
|
China
|
11
|
%
|
|
5
|
%
|
|
|
|
|
|
All other countries (1)
|
10
|
%
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
Passenger ticket revenues:
|
|
|
|
|
United States
|
67
|
%
|
|
66
|
%
|
|
|
|
|
|
|
All other countries (1)
|
33
|
%
|
|
34
|
%
|
(1)No other individual country's revenue exceeded 10% for the quarters and six months ended June 30, 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. Additionally, refunds payable to guests who have elected cash refunds for cancelled sailings are recorded in Accounts Payable. 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 other customers have been rebooked on future cruises or received credits in lieu of cash refunds. As of June 30, 2020, refunds due to customers mostly as a result of booking cancellations were $467.9 million compared to $25.5 million as of June 30, 2019 and are included within Accounts payable in our consolidated balance sheets. Customer deposits also include deposits related to cancelled cruises prior to the election of a cash refund by guests. Due to the uncertainty around the return of demand for cruising, we are unable to estimate the amount of the June 30, 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 $161.8 million and $1.7 billion as of June 30, 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 June 30, 2020 and December 31, 2019, our contract assets were $54.3 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 $163.2 million as of December 31, 2019. Our prepaid travel agent commissions at December 31, 2019 were expensed and reported primarily within Other operating in our consolidated statements of comprehensive income (loss) during the six months ended June 30, 2020. We did not report any prepaid travel agent commissions as of June 30, 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net (Loss) Income attributable to Royal Caribbean Cruises Ltd. for basic and diluted earnings per share
|
$
|
(1,639,292)
|
|
|
$
|
472,830
|
|
|
(3,083,771)
|
|
|
722,511
|
|
|
Weighted-average common shares outstanding
|
209,385
|
|
|
209,531
|
|
|
209,241
|
|
|
209,427
|
|
|
Dilutive effect of stock-based awards
|
—
|
|
|
521
|
|
|
—
|
|
|
535
|
|
|
Diluted weighted-average shares outstanding
|
209,385
|
|
|
210,052
|
|
|
209,241
|
|
|
209,962
|
|
|
Basic (loss) earnings per share
|
$
|
(7.83)
|
|
|
$
|
2.26
|
|
|
$
|
(14.74)
|
|
|
$
|
3.45
|
|
|
Diluted (loss) earnings per share
|
$
|
(7.83)
|
|
|
$
|
2.25
|
|
|
$
|
(14.74)
|
|
|
$
|
3.44
|
|
There were approximately 421,000 and 662,000 antidilutive shares for the quarter and six month ended June 30, 2020, respectively. There were no antidilutive shares for the quarter and six month ended June 30, 2019.
Since the Company expects to settle in cash the principal outstanding under the 4.25% convertible notes that mature in 2023, we currently use the treasury stock method when calculating their potential dilutive effect, if any. While no shares of the convertible notes are currently convertible, they would be anti-dilutive for the three and six months ended June 30, 2020.
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 ("TUIC"), our 50%-owned joint venture, which operates the brands TUI Cruises and Hapag-Lloyd Cruises, is a VIE. We have determined that we are not the primary beneficiary of TUIC. We believe that the power to direct the activities that most significantly impact TUIC’s economic performance are shared between ourselves and TUI AG, our joint venture partner. All the significant operating and financial decisions of TUIC require the consent of both parties, which we believe creates shared power over TUIC. Accordingly, we do not consolidate this entity and account for this investment under the equity method of accounting.
On June 30, 2020, TUIC acquired Hapag-Lloyd Cruises, a luxury and expedition brand for German-speaking guests, from TUI AG for approximately €1.2 billion, or approximately $1.3 billion. Hapag-Lloyd Cruises operates two luxury liners and two smaller expedition ships. We and TUI AG each made an equity contribution of €75.0 million, or approximately $84.2 million, to TUIC to fund a portion of the purchase price, the remainder of which was financed by third-party financing.
As of June 30, 2020, the net book value of our investment in TUIC was $655.6 million, primarily consisting of $509.0 million in equity and a loan of €126.8 million, or approximately $142.4 million based on the exchange rate at June 30, 2020. As
of December 31, 2019, the net book value of our investment in TUIC 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 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. TUIC 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 TUIC below 37.55% through May 2033. Our investment amount and outstanding term loan are substantially our maximum exposure to loss in connection with our investment in TUIC.
We 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. On June 22, 2020, Pullmantur S.A., a subsidiary of Pullmantur Holdings, filed for reorganization under the terms of the Spanish insolvency laws at the direction of its Board as a result of the adverse impact of the COVID-19 pandemic on the company's operations and liquidity. We suspended the equity method of accounting for Pullmantur Holdings during the second quarter of 2020 as we do not intend to fund the entity's future losses and lost our ability to exert significant influence over the entity's activities as a result of the reorganization process.
In connection with the reorganization, we terminated the agreements chartering three of our ships to Pullmantur Holdings and agreed to sell the ships to a third party. Refer to Note 3. Impairment and Credit Losses for further discussion on the impact of the ships' sale on our consolidated financial statements. In addition, we recognized a loss of $69.0 million during the quarter ended June 30, 2020, representing deferred currency translation adjustment losses, net of hedging, as we no longer have significant involvement in the Pullmantur operation. This loss was recorded within Other expense in our consolidated statements of comprehensive (loss) income for the quarter ended June 30, 2020.
During the quarter ended June 30, 2020, we entered into an agreement with Springwater Capital LLC to settle the guarantees previously issued by them and for costs that we incurred as a result of Pullmantur S.A.'s reorganization. As part of this settlement, we agreed to provide Pullmantur guests the option to apply their paid deposits toward a Royal Caribbean International or Celebrity Cruises sailing, or request a cash refund. An amount of $21.6 million, approximating the estimated total cash refund expected to be paid to Pullmantur guests and other expenses incurred as part of the reorganization, was recorded in Other expense in our consolidated statements of comprehensive (loss) income for the quarter ended June 30, 2020.
We had previously provided a non-revolving working capital facility to a Pullmantur Holdings subsidiary in the amount of up to €15.0 million or approximately $16.8 million based on the exchange rate at June 30, 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 were payable through 2022. During the quarter ended March 31, 2020, we recorded and subsequently wrote-off loan loss allowances on the facility receivable balance of $12.5 million. 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.
During the quarter ended June 30, 2020, we funded Pullmantur $18.3 million for operational purposes during its reorganization for which we recorded and subsequently wrote-off loss allowances. See Note 3. Impairments and Credit losses for further discussion.
As of June 30, 2020, we did not have any exposure to credit loss in Pullmantur Holdings. Refer to Note 3. Impairment and Credit Losses for further information on our credit loss evaluation of Pullmantur related receivables as of June 30, 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 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 six months ended June 30, 2020, we made payments of $0.2 million to Grand Bahama for ship repair and maintenance services. We made payments of $4.8 million and $45.1 million during the quarter and six months ended June 30, 2019, respectively. 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.
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. We suspended the equity method of accounting for this investment during the second quarter of 2020.
As of June 30, 2020, we had exposure to credit loss in Grand Bahama consisting of $24.0 million in loans. 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 principal and interest payments during the first half of 2020. During the quarter and six months ended June 30, 2019, we received principal and interest payments of $1.1 million and $7.6 million, respectively. The loan balances are included within Trade and other receivables, net and Other assets in our consolidated balance sheets.
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. Effective April 1, 2020, we placed the loans in non-accrual status based on our review of Grand Bahama's projected cash flows which have been adversely affected by impacts to their operations caused by the 2019 crane accident related to Oasis of the Seas, Hurricane Dorian and most recently, COVID-19. As of our June 30, 2020 assessment, no credit losses were recorded related to these 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 represented our maximum exposure to loss related to our investment in Grand Bahama.
The following tables set forth information regarding our investments accounted for under the equity method of accounting, including the entities discussed above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Share of equity (loss) income from investments
|
|
$
|
(51,853)
|
|
|
$
|
33,045
|
|
|
$
|
(62,245)
|
|
|
$
|
66,739
|
|
|
Dividends received (1)
|
|
$
|
—
|
|
|
$
|
38,137
|
|
|
$
|
1,991
|
|
|
$
|
80,572
|
|
(1)There were no dividends received from TUIC for the quarter and six months ended June 30, 2020. For the quarter ended June 30, 2019, the amount includes dividends from TUIC of €40.0 million, or approximately $45.6 million, based on exchange rate at the time of the transaction. For the six months ended June 30, 2019, amounts include dividends from TUIC of €90 million or approximately $101.8 million based on the exchange rates at the time of the transactions. The amounts included in the table above are net of tax withholding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
|
As of December 31, 2019
|
|
Total notes receivable due from equity investments
|
|
$
|
166,255
|
|
|
$
|
184,558
|
|
|
Less-current portion (1)
|
|
27,712
|
|
|
25,933
|
|
|
Long-term portion (2)
|
|
$
|
138,543
|
|
|
$
|
158,625
|
|
(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 TUIC and bareboat chartered three vessels to Pullmantur Holdings, prior to it filing for reorganization. We recorded the following as it relates to these services in our operating results within our consolidated statements of comprehensive income (loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenues
|
|
$
|
2,807
|
|
|
$
|
11,975
|
|
|
$
|
10,218
|
|
|
$
|
23,857
|
|
|
Expenses
|
|
$
|
1,364
|
|
|
$
|
1,111
|
|
|
$
|
2,146
|
|
|
$
|
2,085
|
|
Note 7. Debt
Debt consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate(1)
|
|
Maturities Through
|
|
Quarter Ended June 30, 2020
|
|
Year Ended December 31, 2019
|
|
Fixed rate debt:
|
|
|
|
|
|
|
|
|
|
Unsecured senior notes
|
|
2.65% to 9.13%
|
|
2020 - 2028
|
|
$
|
2,768,980
|
|
|
$
|
1,746,280
|
|
|
Secured senior notes
|
|
7.25% to 11.50%
|
|
2023 - 2025
|
|
3,887,409
|
|
|
662,398
|
|
|
Unsecured term loans
|
|
2.53% to 5.41%
|
|
2021 - 2032
|
|
3,385,090
|
|
|
2,806,774
|
|
|
Convertible notes
|
|
4.25%
|
|
2023
|
|
939,010
|
|
|
—
|
|
|
Total fixed rate debt
|
|
|
|
|
|
10,980,489
|
|
|
5,215,452
|
|
|
Variable rate debt:
|
|
|
|
|
|
|
|
|
|
Unsecured revolving credit facilities(2)
|
|
1.48%
|
|
2022 - 2024
|
|
3,385,000
|
|
|
165,000
|
|
|
UK Commercial paper
|
|
|
|
2021
|
|
368,952
|
|
|
—
|
|
|
USD Commercial paper
|
|
|
|
—
|
|
—
|
|
|
1,434,180
|
|
|
USD unsecured term loan
|
|
1.55% to 4.05%
|
|
2020 - 2028
|
|
3,546,179
|
|
|
3,519,853
|
|
|
Euro unsecured term loan
|
|
1.15% to 1.58%
|
|
2021 - 2028
|
|
644,169
|
|
|
676,740
|
|
|
Total variable rate debt
|
|
|
|
|
|
7,944,300
|
|
|
5,795,773
|
|
|
Finance lease liabilities
|
|
|
|
|
|
218,302
|
|
|
230,258
|
|
|
Total debt (3)
|
|
|
|
|
|
19,143,091
|
|
|
11,241,483
|
|
|
Less: unamortized debt issuance costs
|
|
|
|
|
|
(314,432)
|
|
|
(206,607)
|
|
|
Total debt, net of unamortized debt issuance costs
|
|
|
|
|
|
18,828,659
|
|
|
11,034,876
|
|
|
Less—current portion including commercial paper
|
|
|
|
|
|
$
|
(1,075,235)
|
|
|
$
|
(2,620,766)
|
|
|
Long-term portion
|
|
|
|
|
|
17,753,424
|
|
|
8,414,110
|
|
(1) Interest rates based on outstanding loan balance as of June 30, 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 $1.5 billion facility due in 2022, each of which accrue interest at LIBOR plus 1.30%, which interest rate was 1.60% as of June 30, 2020 and each is subject to a facility fee of 0.20%.
(3) At June 30, 2020 and December 31, 2019, the weighted average interest rate for total debt was 5.68% 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 June 30, 2020, our aggregate revolving borrowing capacity was $3.5 billion and was fully utilized.
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.
In March 2020, we borrowed $2.2 billion pursuant to a 364-day senior secured term loan agreement (the "Secured Term Loan"). In May 2020, the Secured Term Loan was increased by an additional $150 million through the exercise of the accordion feature. The increased Secured Term Loan balance was repaid with proceeds from the $3.32 billion senior secured notes issued in May 2020 and discussed below. The Senior Secured Term 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 obligations were 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% at 180 days and 365 days, respectively, after funding. We would have also been required to pay a duration fee in an amount equal to 0.25% of the aggregate loan principal amount every 60 days. Additionally, two of our board members each purchased a participation interest equal to $100 million.
The repayment of this Secured Term Loan in May 2020 resulted in a total loss on the extinguishment of debt of $40.3 million, which was recognized within Interest expense, net of interest capitalized within our consolidated statements of comprehensive income (loss) for the three and six months ended June 30, 2020.
In May 2020, we issued $3.32 billion in senior secured notes, less original issue discount. We repaid the $2.35 billion, 364-day Secured Term Loan in its entirety with a portion of the proceeds of these $3.32 billion secured notes. $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 "2025 Secured Notes"). The notes are fully and unconditionally guaranteed by Celebrity Cruises Holdings Inc., Celebrity Cruises Inc., and certain of our wholly-owned vessel-owning subsidiaries. $1.66 billion of the obligations under the 2025 Secured Notes and the related guarantees 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), subject to certain adjustments after the date of issuance based on our debt rating as of the date of issuance and our lien basket amount in certain of our credit facilities. Prior to June 1, 2022, we may, at our option, redeem some or all of the 2025 Secured Notes at 100% of the principal amount plus accrued and unpaid interest plus the applicable “make-whole premium” described in the Secured Notes Indenture. On or after June 1, 2022, we may, at our option, redeem some or all of the 2025 Secured Notes at the applicable redemption prices set forth in the Secured Notes Indenture.
In June 2020, we issued $1.0 billion in senior unsecured notes which accrue interest at 9.125% and mature in 2023. The notes are fully and unconditionally guaranteed by RCI Holdings LLC, which owns 100% of the equity interests in certain of our wholly-owned vessel-owning subsidiaries.
In June 2020, we issued $1.15 billion aggregate principal amount of convertible notes which accrue interest at 4.25% and mature in 2023. The notes are convertible into shares of common stock of the Company, cash, or a combination of common stock and cash, at the election of the Company. The initial conversion rate per $1,000 principal amount of the convertible notes is 13.8672 shares of our common stock, which is equivalent to an initial conversion price of approximately $72.11 per share, subject to adjustment in certain circumstances. Prior to March 15, 2023, the convertible notes will be convertible at the option of holders during certain periods, and only under the following conditions:
•during any calendar quarter after September 30, 2020, if the last reported sale price per share of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
•if, prior to March 15, 2023, the trading price per $1,000 principal amount of notes is less than 98% of the product of the last reported sale price per share of our common stock and the conversation rate for ten consecutive trading days (in which case the notes are convertible at any time during the five business day period following the 10 consecutive trading day period);
•if we call the notes for a tax redemption or
•upon the occurrence of specified corporate events.
On or after March 15, 2023, the convertible notes will be convertible at any time until the close of business on the second scheduled trading day immediately preceding their maturity date.
Holders of the convertible notes may require the Company, upon the occurrence of certain events that constitute a fundamental change under the indenture, to offer to repurchase the convertible notes at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest.
We allocated $907.9 million of the convertible notes' proceeds, net of debt issue costs, to Long-term debt and $209.0 million to Paid-in-capital on our Consolidated Balance Sheet. The amount allocated to Long-term debt represents the difference between the $1.15 billion aggregate principal amount of the convertible notes and the amount of the proceeds allocated to the debt component as a debt discount. The fair value of the convertible notes' debt component was determined utilizing a present value calculation. We recognized the equity component by ascribing the difference between the proceeds and the fair value of the debt component to Paid-in-capital and the corresponding debt discount will be amortized to interest expense over the term of the convertible notes using the straight-line method, which approximates the effective interest method. Debt issuance costs on the convertible notes were allocated to the debt and equity components in proportion to the allocation of proceeds to those components. We incurred total debt issue costs of $35.1 million on the issuance of the debt and allocated $6.2 million to Paid-in-capital. Debt issuance costs attributable to debt will be amortized to interest expense over the term of the convertible notes.
The net carrying value of the liability component of the convertible notes was as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
As of June 30, 2020
|
|
|
Principal
|
1,150,000
|
|
|
|
Less: Unamortized debt discount and transaction costs
|
242,051
|
|
|
|
|
$
|
907,949
|
|
|
The interest expense recognized related to the convertible notes was as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
As of June 30, 2020
|
|
|
Contractual interest expense
|
2,987
|
|
|
|
Amortization of debt discount and transaction costs
|
4,910
|
|
|
|
|
$
|
7,897
|
|
|
In June 2020, RCL Cruises Ltd., our subsidiary that operates and manages our business in the United Kingdom, established a commercial paper facility for the purpose of issuing short-term, unsecured Sterling-denominated notes that are eligible for purchase under the Joint HM Treasury and Bank of England’s COVID Corporate Financing Facility commercial paper program (the “Program”) in an aggregate principal amount up to £300.0 million. The maturities of the commercial paper notes can vary by note, but cannot exceed 364 days from the date of issuance. As of June 30, 2020, we had £300.0 million, or approximately $370.8 million, based on the exchange rate at June 30, 2020, of commercial paper notes outstanding under this program
As of December 31, 2019, we had $1.4 billion of commercial paper notes outstanding under our traditional commercial paper program established on June 14, 2018. As of June 30, 2020, we did not have a balance outstanding on this commercial paper program. We terminated this commercial paper program as of August 5, 2020.
During the quarter ended June 30, 2020, we amended certain export-credit backed ship debt facilities to benefit from a 12-month debt amortization ("Debt Holiday"). Under the Debt Holiday, deferred debt amortization of approximately $0.9 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 the financings incurred to acquire 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 June 30, 2020, in consideration for these guarantees, depending on the financing arrangement, we pay to the applicable export credit agency (1) a fee of 1.96% 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.
Both our export credit facilities and our non-export credit facilities totaling an outstanding principal amount of approximately $11.0 billion as of June 30, 2020 contain covenants that, among other things, require us to maintain financial ratios, including in certain cases, a fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital ratio. During the quarter ended June 30, 2020, we amended our export credit facilities and our non-export credit facilities and certain of our credit card processing agreements which contain financial covenants to suspend the testing of these covenants through and including the first quarter of 2021. Certain of these amendments imposed a new monthly-tested minimum liquidity covenant of $300 million of cash and cash equivalents for the duration of the waiver period. Pursuant to these amendments, we also agreed that we will not pay cash dividends or effectuate share repurchases during the waiver period unless we are in compliance with the fixed charge coverage covenant as of the end of the most recently completed quarter.
Subsequent to June 30, 2020, we further amended certain of these agreements to extend the financial covenant waiver through and including the fourth quarter of 2021. In connection therewith, we increased the minimum liquidity covenant to $500 million, as applicable, subject to reduction in the event of further capital raises, and extended the dividend and share repurchase restrictions through the new waiver period. Pursuant to these amendments, debt totaling an outstanding amount of
approximately $130.0 million will remain subject to the covenant waiver to the first quarter of 2021. This debt is prepayable at any time without penalty. As of June 30, 2020 and the date of these financial statements, we were in compliance with the minimum liquidity covenant, as increased by the recent amendments. For information related to the covenants in our Port of Miami Terminal "A" operating lease agreement, refer to Note 8. Leases.
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 finance leases and commercial paper, as of June 30, 2020 for each of the next five years (in thousands):
|
|
|
|
|
|
|
|
Year
|
|
|
Remainder of 2020
|
343,565
|
|
|
2021
|
1,289,145
|
|
|
2022
|
4,135,263
|
|
|
2023
|
3,914,635
|
|
|
2024
|
2,858,219
|
|
|
Thereafter
|
6,287,832
|
|
|
|
18,828,659
|
|
Finance Leases
Silversea Cruises operates the Silver Whisper, under a finance lease. The finance lease for the Silver Whisper will expire in 2022, subject to an option to purchase the ship. The total aggregate amount of the finance lease liabilities recorded for this ship was $31.5 million and $55.6 million at June 30, 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 June 30, 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 three months ended March 31, 2020, we determined that the lease for Silver Explorer, operated by Silversea Cruises and previously classified as a finance lease, is an operating lease based on modification of the terms of the lease during the quarter. Due to the three-month reporting lag for Silversea Cruises, the reclassification of the lease to an operating lease is reflected in our Consolidated Balance Sheet as of June 30, 2020. The operating lease for Silver Explorer will expire in 2023.
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. We updated our analysis during the second quarter ended June 30, 2020, which resulted in an impairment of the Silver Exporer right-of-use asset of $13.3 million to write down the asset to its estimated fair value as of June 30, 2020.
Our finance leases include Silver Whisper, operated by Silversea Cruises, and 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.
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.
We have a residual value guarantee associated with our Port of Miami Terminal "A" operating lease agreement ("Port of Miami terminal lease") 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.
Also in connection with the Port of Miami terminal lease, we are required to deliver on or before July 18, 2021, cash collateral in an amount equal to the lesser of our residual value guarantee or the aggregate balance of the lenders' terminal construction debt, estimated at $181.1 million as of June 30, 2020. The collateral is to be returned when all amounts due by us under the lease have been paid in full.
During the quarter ended June 30, 2020, we amended our Port of Miami terminal lease to increase the lien basket in line with our debt facilities and obtain a financial covenant waiver to the first quarter of 2021. This obligation is prepayable at any time without penalty. As of June 30, 2020, we were in compliance with the amended covenants under the lease agreement.
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. 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.
Commencing in 2016 when we sold our 51% interest in the Pullmantur brand to Pullmantur Holdings, and continuing through the quarter ended June 30, 2020, we bareboat chartered to Pullmantur Holdings the vessels operated by the Pullmantur brand. On June 22, 2020, Pullmantur S.A., a subsidiary of Pullmantur Holdings, filed for reorganization in Spain. We terminated the bareboat charters. See Note 6. Other Assets for further discussion of Pullmantur. We accounted for the bareboat charters of these vessels as operating leases for which we were the lessor.
The components of lease expense were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Comprehensive Income (Loss) Classification
|
Quarter Ended June 30, 2020
|
|
Six Months Ended June 30, 2020
|
|
Lease costs:
|
|
|
|
|
|
Operating lease costs
|
Commission, transportation and other
|
$
|
17,875
|
|
|
$
|
32,620
|
|
|
Operating lease costs
|
Other operating expenses
|
7,740
|
|
|
14,741
|
|
|
Operating lease costs
|
Marketing, selling and administrative expenses
|
5,662
|
|
|
11,030
|
|
|
Financial lease costs:
|
|
|
|
|
|
Amortization of right-of-use-assets
|
Depreciation and amortization expenses
|
(2,886)
|
|
|
1,995
|
|
|
Interest on lease liabilities
|
Interest expense, net of interest capitalized
|
1,263
|
|
|
3,196
|
|
|
Total lease costs
|
|
$
|
29,654
|
|
|
$
|
63,582
|
|
In addition, certain of our berthing agreements include variable lease costs based on the number of passengers berthed. During the six months ended June 30, 2020, we had $25.6 million of variable lease costs recorded within Commission, transportation and other in our consolidated statement of comprehensive income (loss). For the quarter ended June 30, 2020 there were no variable lease costs as a result of the ongoing suspension of our cruise operations. During the quarter and six months ended June 30, 2019, we had $21.5 million and $55.8 million, respectively, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
|
|
|
Weighted average years of the remaining lease term
|
|
|
|
|
Operating leases
|
8.6
|
|
|
|
Finance leases
|
40.3
|
|
|
|
Weighted average discount rate
|
|
|
|
|
Operating leases
|
4.48
|
%
|
|
|
|
Finance leases
|
6.68
|
%
|
|
|
Supplemental cash flow information related to leases is as follows (in thousands):
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
$
|
60,352
|
|
|
Operating cash flows from finance leases
|
$
|
3,196
|
|
|
Financing cash flows from finance leases
|
$
|
8,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020, maturities related to lease liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
Operating Leases
|
|
Finance Leases
|
|
Remainder of 2020
|
$
|
68,104
|
|
|
$
|
24,116
|
|
|
2021
|
121,802
|
|
|
49,744
|
|
|
2022
|
110,034
|
|
|
23,480
|
|
|
2023
|
103,778
|
|
|
12,539
|
|
|
2024
|
75,543
|
|
|
12,529
|
|
|
|
|
|
|
|
Thereafter
|
417,131
|
|
|
407,624
|
|
|
Total lease payments
|
896,392
|
|
|
530,032
|
|
|
Less: Interest
|
(224,186)
|
|
|
(311,730)
|
|
|
Present value of lease liabilities
|
$
|
672,206
|
|
|
$
|
218,302
|
|
Note 9. Redeemable Noncontrolling Interest
In connection with the 2018 Silversea Cruises acquisition, we recorded redeemable noncontrolling interest due to the put options held by the noncontrolling interest shareholder. At the date of the 2018 Silversea Cruises acquisition, 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 in the 2018 Silversea Cruises acquisition. As of June 30, 2020, the noncontrolling 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 for the quarters and six months ended June 30, 2020 and June 30, 2019 (in thousands):
|
|
|
|
|
|
|
|
Beginning balance at April 1, 2020
|
$
|
577,425
|
|
|
Net income attributable to noncontrolling interest, including the contractual accretion of the put options
|
7,444
|
|
|
|
|
|
Balance at June 30, 2020
|
$
|
584,869
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, 2020
|
$
|
569,981
|
|
|
Net income attributable to noncontrolling interest, including the contractual accretion of the put options
|
14,888
|
|
|
Ending balance June 30, 2020
|
$
|
584,869
|
|
|
|
|
|
|
|
|
|
Beginning balance at April 1, 2019
|
$
|
549,645
|
|
|
Net income attributable to noncontrolling interest, including the contractual accretion of the put options
|
7,125
|
|
|
|
|
|
Ending balance at June 30, 2019
|
$
|
556,770
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, 2019
|
$
|
542,020
|
|
|
Net income attributable to noncontrolling interest, including the contractual accretion of the put options
|
14,250
|
|
|
Distribution to noncontrolling interest
|
500
|
|
|
Ending balance at June 30, 2019
|
$
|
556,770
|
|
On July 9, 2020, we acquired the 33.3% noncontrolling interest in Silversea Cruises from Heritage in exchange for 5.2 million shares of common stock, par value $0.01 per share, of Royal Caribbean Cruises Ltd. on the date of acquisition. Pursuant to the agreement governing the acquisition of the noncontrolling interest, among other things, the parties terminated any existing obligation to issue Heritage any contingent consideration, at fair value, in connection with our acquisition of a 66.7% interest in Silversea Cruises on July 31, 2018. The purchase of the 33.3% interest in Silversea Cruises will be accounted for as an equity transaction in July 2020 and no gain or loss will be recognized in earnings. The carrying amount of Silversea Cruises' noncontrolling interest will be adjusted to zero and the difference between the carrying amount of noncontrolling interest and the fair value of the consideration paid will be recognized in additional paid in capital.
Note 10. Commitments and Contingencies
Ship Purchase Obligations
Our future capital commitments consist primarily of new ship orders. As of June 30, 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 June 30, 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 June 30, 2020, we have four ships on order for our Silversea Cruises brand with an aggregate capacity of approximately 2,300 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, provided however, that each lender may elect to cause us to repay the outstanding amount of any advances held by such lender on June 2026 upon 90 days advance notice. The loan amortizes semi-annually starting six months after funding, with 1/24th of the outstanding principal payable every six months and the balance payable upon maturity. 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 $394.8 million and $403.1 million, respectively, based on the exchange rate at June 30, 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.
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 $1.5 billion based on the exchange rate at June 30, 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.
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 June 30, 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.
Our future capital commitments consist primarily of new ship orders. As of June 30, 2020, our Global Brands and Partner Brands have the following ships on order. COVID-19 has impacted shipyard operations and will result in delays of our previously contracted ship deliveries. Of five ships originally scheduled for delivery between July 2020 and December 2021, we expect that Silver Moon, Silver Dawn and Odyssey of the Seas will be delivered within the remaining time frame. The exact duration of the ship delivery delays are currently under discussion with the impacted shipyards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ship
|
|
|
Shipyard
|
|
Contractual Delivery Date
|
|
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
|
|
4th 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 —
|
|
|
|
|
|
|
|
|
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) —
|
|
|
|
|
|
|
|
|
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
|
|
Hapag-Lloyd Cruises (50% joint venture) —
|
|
|
|
|
|
|
|
|
Hanseatic Spirit
|
|
|
Vard
|
|
2nd Quarter 2021
|
|
230
|
|
Total Berths
|
|
|
|
|
|
|
52,530
|
As of June 30, 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 $13.9 billion, of which we had deposited $833.1 million as of such date. Approximately 62.5% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at June 30, 2020. Refer to Note 13. Fair Value Measurements and Derivative Instruments for further information.
In addition, as of June 30, 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 both the first and second quarters of 2019, we declared a cash dividend on our common stock of $0.70 per share, which was paid in April 2019 and July 2019, respectively. 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.
During the three months ended June 30, 2020, we agreed with certain of our lenders not to pay dividends or engage in common stock repurchases for so long as our debt covenant waivers are in effect. In addition, in the event we declare a dividend or engage in share repurchases, we will need to repay the amounts deferred under our export credit facilities as part of the Debt Holiday. Accordingly, we did not declare a dividend during the second quarter of 2020.
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 six months ended June 30, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss) for the six months ended June 30, 2020
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss) for the Six Months Ended June 30, 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
|
(221,571)
|
|
|
(14,900)
|
|
|
2,327
|
|
|
(234,144)
|
|
|
(3,249)
|
|
|
(10,758)
|
|
|
7,827
|
|
|
(6,180)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
45,297
|
|
|
1,033
|
|
|
34,300
|
|
|
80,630
|
|
|
(19,642)
|
|
|
383
|
|
|
—
|
|
|
(19,259)
|
|
|
Net current-period other comprehensive income (loss)
|
(176,274)
|
|
|
(13,867)
|
|
|
36,627
|
|
|
(153,514)
|
|
|
(22,891)
|
|
|
(10,375)
|
|
|
7,827
|
|
|
(25,439)
|
|
|
Ending balance
|
$
|
(864,803)
|
|
|
$
|
(59,425)
|
|
|
$
|
(26,999)
|
|
|
$
|
(951,227)
|
|
|
$
|
(560,107)
|
|
|
$
|
(36,398)
|
|
|
$
|
(56,668)
|
|
|
$
|
(653,173)
|
|
The following table presents reclassifications out of accumulated other comprehensive income (loss) for the quarters and six months ended June 30, 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 June 30, 2020
|
|
Quarter Ended June 30, 2019
|
|
Six Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2019
|
|
Affected Line Item in Statements of
Comprehensive Income (Loss)
|
|
Gain (loss) on cash flow derivative hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(6,016)
|
|
|
$
|
(409)
|
|
|
$
|
(9,407)
|
|
|
$
|
(800)
|
|
|
Interest expense, net of interest capitalized
|
|
Foreign currency forward contracts
|
|
(3,780)
|
|
|
(3,545)
|
|
|
(7,117)
|
|
|
(6,879)
|
|
|
Depreciation and amortization expenses
|
|
Foreign currency forward contracts
|
|
(2,581)
|
|
|
(1,300)
|
|
|
(4,344)
|
|
|
(2,615)
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel swaps
|
|
2,149
|
|
|
(1,188)
|
|
|
2,493
|
|
|
(1,444)
|
|
|
Other income (expense)
|
|
Fuel swaps
|
|
(12,689)
|
|
|
13,362
|
|
|
(26,922)
|
|
|
31,380
|
|
|
Fuel
|
|
|
|
(22,917)
|
|
|
6,920
|
|
|
(45,297)
|
|
|
19,642
|
|
|
|
|
Amortization of defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
(528)
|
|
|
(195)
|
|
|
(1,033)
|
|
|
(383)
|
|
|
Payroll and related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(528)
|
|
|
(195)
|
|
|
(1,033)
|
|
|
(383)
|
|
|
|
|
Release of net foreign cumulative translation due to sale or liquidation of businesses
|
|
|
|
|
|
|
|
|
|
|
|
Foreign cumulative translation
|
|
(34,300)
|
|
|
—
|
|
|
(34,300)
|
|
|
—
|
|
|
Other expense
|
|
Total reclassifications for the period
|
|
$
|
(57,745)
|
|
|
$
|
6,725
|
|
|
$
|
(80,630)
|
|
|
$
|
19,259
|
|
|
|
During the quarter and six months ended June 30, 2020, a $69.0 million loss was recorded within Other expense in our consolidated statements of comprehensive (loss) income, consisting of a $92.6 million loss resulting from the recognition of a currency translation adjustment, partially offset by the recognition of a deferred $23.6 million foreign exchange gain related to the Pullmantur net investment hedge. In connection with the Pullmantur reorganization, we no longer have significant involvement in the Pullmantur operations and these amounts previously deferred in Accumulated other comprehensive loss were recognized in earnings. Of the $69.0 million loss, $34.3 million was released from Accumulated other comprehensive loss as of June 30, 2020.
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 June 30, 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)
|
|
$
|
4,146,691
|
|
|
$
|
4,146,691
|
|
|
$
|
4,146,691
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
243,738
|
|
|
$
|
243,738
|
|
|
$
|
243,738
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
4,146,691
|
|
|
$
|
4,146,691
|
|
|
$
|
4,146,691
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
243,738
|
|
|
$
|
243,738
|
|
|
$
|
243,738
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (including current portion of debt)(5)
|
|
$
|
18,241,405
|
|
|
$
|
18,915,653
|
|
|
$
|
—
|
|
|
$
|
18,915,653
|
|
|
$
|
—
|
|
|
$
|
9,370,438
|
|
|
$
|
10,059,055
|
|
|
$
|
—
|
|
|
$
|
10,059,055
|
|
|
$
|
—
|
|
|
Total Liabilities
|
|
$
|
18,241,405
|
|
|
$
|
18,915,653
|
|
|
$
|
—
|
|
|
$
|
18,915,653
|
|
|
$
|
—
|
|
|
$
|
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 June 30, 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 June 30, 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 June 30, 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)
|
|
$
|
39,045
|
|
|
$
|
—
|
|
|
$
|
39,045
|
|
|
$
|
—
|
|
|
$
|
39,994
|
|
|
$
|
—
|
|
|
$
|
39,994
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
39,045
|
|
|
$
|
—
|
|
|
$
|
39,045
|
|
|
$
|
—
|
|
|
$
|
39,994
|
|
|
$
|
—
|
|
|
$
|
39,994
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments(5)
|
|
$
|
404,284
|
|
|
$
|
—
|
|
|
$
|
404,284
|
|
|
$
|
—
|
|
|
$
|
257,728
|
|
|
$
|
—
|
|
|
$
|
257,728
|
|
|
$
|
—
|
|
|
Contingent consideration (6)
|
|
17,795
|
|
|
—
|
|
|
—
|
|
|
17,795
|
|
|
62,400
|
|
|
—
|
|
|
—
|
|
|
62,400
|
|
|
Total Liabilities
|
|
$
|
422,079
|
|
|
$
|
—
|
|
|
$
|
404,284
|
|
|
$
|
17,795
|
|
|
$
|
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 2018 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 June 30, 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 June 30, 2020 Using
|
|
|
|
|
|
Description
|
Total Carrying Amount
|
Total Fair Value
|
Level 3
|
Total Impairment for the Quarter ended June 30, 2020
|
Total Impairment for the Six Months ended June 30, 2020
|
|
Silversea Cruises Goodwill (1)
|
$
|
508,578
|
|
$
|
508,579
|
|
$
|
508,579
|
|
$
|
—
|
|
576,208
|
|
|
Indefinite-life intangible asset (2)
|
$
|
299,173
|
|
$
|
299,173
|
|
$
|
299,173
|
|
$
|
—
|
|
30,800
|
|
|
Long-lived assets - vessels(3)
|
$
|
28,607
|
|
$
|
28,607
|
|
$
|
28,607
|
|
$
|
51,613
|
|
468,670
|
|
|
Right-of-use assets(4)
|
$
|
16,427
|
|
$
|
16,427
|
|
$
|
16,427
|
|
$
|
13,276
|
|
59,221
|
|
|
Equity-method investments(5)
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
39,735
|
|
|
Total
|
$
|
852,785
|
|
$
|
852,786
|
|
$
|
852,786
|
|
$
|
64,889
|
|
1,174,634
|
|
_________________________________________________________________________________________________________
(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. The fair value of Silversea Cruises’ goodwill was estimated as of March 31, 2020, the date of the last impairment test.
(2) We estimated the fair value of our indefinite-life intangible asset using a discounted cash flow model and the relief-from-royalty method. For the Silversea Cruises trade name 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. The fair value of the Silversea Cruises trade name was estimated as of March 31, 2020, the date of the last impairment test.
(3) For the vessels impaired as of March 31, 2020, we estimated the fair value of two of our vessels using a blended indication from the income and cost approaches and the fair value of the remaining vessels was estimated primarily based on their orderly liquidation values. For the vessels impaired as of June 30, 2020, we estimated the fair value of the vessels using a modified market approach based on the carrying values and orderly liquidation values of the vessels. 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 and a ship operating lease. We estimated the fair value of the berthing arrangements using estimated projected discounted cash flows and the fair value of the ship operating lease was estimated using a cost approach. The fair value of the berthing arrangements was estimated as of March 31, 2020, the date these assets were last impaired, and a significant input in performing the fair value assessments for these assets was our expected passenger headcount. The fair value of the ship operating lease was estimated as of June 30, 2020 and significant inputs in performing the fair value assessment for this asset were current and residual values of the vessel, expected rate of return and remaining lease payments.
(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. The fair value of these equity-method investments was estimated as of March 31, 2020, the date these assets were last impaired.
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 June 30, 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
|
|
$
|
39,045
|
|
|
$
|
(38,697)
|
|
|
$
|
—
|
|
|
$
|
348
|
|
|
$
|
39,994
|
|
|
$
|
(39,994)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,045
|
|
|
$
|
(38,697)
|
|
|
$
|
—
|
|
|
$
|
348
|
|
|
$
|
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 June 30, 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
|
|
$
|
(404,284)
|
|
|
$
|
38,697
|
|
|
$
|
20,160
|
|
|
$
|
(345,427)
|
|
|
$
|
(257,728)
|
|
|
$
|
39,994
|
|
|
$
|
—
|
|
|
$
|
(217,734)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(404,284)
|
|
|
$
|
38,697
|
|
|
$
|
20,160
|
|
|
$
|
(345,427)
|
|
|
$
|
(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 June 30, 2020, we had counterparty credit risk exposure under our derivative instruments of $1.7 million, which was 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 June 30, 2020 and December 31, 2019, approximately 66.3% 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 June 30, 2020 and December 31, 2019, we maintained interest rate swap agreements on the following fixed-rate debt instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Instrument
|
Swap Notional as of June 30, 2020 (In thousands)
|
Maturity
|
Debt Fixed Rate
|
Swap Floating Rate: LIBOR plus
|
All-in Swap Floating Rate as of June 30, 2020
|
|
Oasis of the Seas term loan
|
$
|
52,500
|
|
October 2021
|
5.41%
|
3.87%
|
4.84%
|
|
Unsecured senior notes
|
650,000
|
|
November 2022
|
5.25%
|
3.63%
|
4.02%
|
|
|
$
|
702,500
|
|
|
|
|
|
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 June 30, 2020 and December 31, 2019, we maintained interest rate swap agreements on the following floating-rate debt instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Instrument
|
Swap Notional as of June 30, 2020 (In thousands)
|
Maturity
|
Debt Floating Rate
|
|
All-in Swap Fixed Rate
|
|
Celebrity Reflection term loan
|
$
|
245,437
|
|
October 2024
|
LIBOR plus
|
0.40%
|
2.85%
|
|
Quantum of the Seas term loan
|
398,125
|
|
October 2026
|
LIBOR plus
|
1.30%
|
3.74%
|
|
Anthem of the Seas term loan
|
422,917
|
|
April 2027
|
LIBOR plus
|
1.30%
|
3.86%
|
|
Ovation of the Seas term loan
|
553,333
|
|
April 2028
|
LIBOR plus
|
1.00%
|
3.16%
|
|
Harmony of the Seas term loan (1)
|
519,056
|
|
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%
|
|
|
$
|
2,790,535
|
|
|
|
|
|
(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 June 30, 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 June 30, 2020 and December 31, 2019 was $3.5 billion.
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 June 30, 2020, the aggregate cost of our ships on order was $13.9 billion, of which we had deposited $833.1 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 June 30, 2020 and December 31, 2019, approximately 62.5% 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 second quarter of 2020, we maintained an average of approximately $275.1 million of these foreign currency forward contracts. These instruments are not designated as hedging instruments. For the quarters ended June 30, 2020 and 2019, changes in the fair value of the foreign currency forward contracts resulted in a gain and a loss of $12.5 million and $(4.2) 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 June 30, 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 $275.1 million based on the exchange rate at June 30, 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 June 30, 2020 and December 31, 2019 was $3.4 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 €326.0 million, or approximately $366.0 million, as of June 30, 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.
The current suspension of our cruise operations due to the COVID-19 pandemic resulted in reductions to our forecasted fuel purchases. As of June 30, 2020, we discontinued cash flow hedge accounting on 0.3 million metric tons of our fuel swap agreements maturing in 2020 and 2021. The discontinuance of the hedging relationship for these fuel swap agreements resulted in the reclassification of a net $68.6 million loss from Accumulated other comprehensive loss to Other expense during the six months ended June 30, 2020. Changes in the fair value of these fuel derivatives are currently recognized in Other expense each reporting period.
At June 30, 2020, we have hedged the variability in future cash flows for certain forecasted fuel transactions occurring through 2023. As of June 30, 2020 and December 31, 2019, we had the following outstanding fuel swap agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel Swap Agreements
|
|
|
|
|
As of June 30, 2020
|
|
As of December 31, 2019
|
|
Designated as hedges:
|
(metric tons)
|
|
|
|
2020
|
205,400
|
|
|
792,900
|
|
|
2021
|
599,700
|
|
|
488,900
|
|
|
2022
|
404,300
|
|
|
322,900
|
|
|
2023
|
82,400
|
|
|
82,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel Swap Agreements
|
|
|
|
|
As of June 30, 2020
|
|
As of December 31, 2019
|
|
|
(% hedged)
|
|
|
|
Designated hedges as a % of projected fuel purchases:
|
|
|
|
|
2020
|
64
|
%
|
|
52
|
%
|
|
2021
|
40
|
%
|
|
30
|
%
|
|
2022
|
23
|
%
|
|
19
|
%
|
|
2023
|
5
|
%
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel Swap Agreements
|
|
|
|
|
As of June 30, 2020
|
|
As of December 31, 2019
|
|
Not designated as hedges:
|
(metric tons)
|
|
|
|
2020
|
172,100
|
|
|
37,600
|
|
|
2021
|
15,200
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2020, $52.0 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 June 30, 2020
|
|
As of December 31, 2019
|
|
Balance Sheet Location
|
|
As of June 30, 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
|
|
$
|
21,695
|
|
|
$
|
11
|
|
|
Other long-term liabilities
|
|
$
|
102,687
|
|
|
$
|
64,168
|
|
|
Foreign currency forward contracts
|
|
Derivative financial instruments
|
|
697
|
|
|
—
|
|
|
Derivative financial instruments
|
|
83,034
|
|
|
75,260
|
|
|
Foreign currency forward contracts
|
|
Other assets
|
|
16,482
|
|
|
9,380
|
|
|
Other long-term liabilities
|
|
60,887
|
|
|
64,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel swaps
|
|
Derivative financial instruments
|
|
—
|
|
|
16,922
|
|
|
Derivative financial instruments
|
|
40,285
|
|
|
16,901
|
|
|
Fuel swaps
|
|
Other assets
|
|
—
|
|
|
8,677
|
|
|
Other long-term liabilities
|
|
80,462
|
|
|
33,965
|
|
|
Total derivatives designated as hedging instruments under 815-20
|
|
|
|
38,874
|
|
|
34,990
|
|
|
|
|
367,355
|
|
|
255,005
|
|
|
Derivatives not designated as hedging instruments under ASC 815-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Derivative financial instruments
|
|
$
|
171
|
|
|
$
|
3,186
|
|
|
Derivative financial instruments
|
|
$
|
165
|
|
|
$
|
2,419
|
|
|
Foreign currency forward contracts
|
|
Other assets
|
|
—
|
|
|
—
|
|
|
Other long-term liabilities
|
|
—
|
|
|
—
|
|
|
Fuel swaps
|
|
Derivative financial instruments
|
|
—
|
|
|
1,643
|
|
|
Derivative financial instruments
|
|
35,334
|
|
|
295
|
|
|
Fuel swaps
|
|
Other Assets
|
|
—
|
|
|
175
|
|
|
Other long-term liabilities
|
|
1,430
|
|
|
9
|
|
|
Total derivatives not designated as hedging instruments under 815-20
|
|
|
|
171
|
|
|
5,004
|
|
|
|
|
36,929
|
|
|
2,723
|
|
|
Total derivatives
|
|
|
|
$
|
39,045
|
|
|
$
|
39,994
|
|
|
|
|
$
|
404,284
|
|
|
$
|
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 June 30, 2020
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 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
|
|
|
|
|
|
$79,192
|
|
$319,757
|
|
$(213,683)
|
|
$(83,825)
|
|
|
|
$181,924
|
|
$311,600
|
|
$(104,962)
|
|
$(21,781)
|
|
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
|
|
$(1,904)
|
|
$—
|
|
|
|
n/a
|
|
n/a
|
|
$(13,287)
|
|
$—
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
|
n/a
|
|
n/a
|
|
$2,870
|
|
$—
|
|
|
|
n/a
|
|
n/a
|
|
$10,944
|
|
$—
|
|
|
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
|
|
$(6,016)
|
|
n/a
|
|
|
|
n/a
|
|
n/a
|
|
$(409)
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income
|
|
|
$(12,689)
|
|
n/a
|
|
n/a
|
|
$2,149
|
|
|
|
$13,362
|
|
n/a
|
|
n/a
|
|
$(1,188)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income
|
|
|
n/a
|
|
$(3,780)
|
|
n/a
|
|
$(2,581)
|
|
|
|
n/a
|
|
$(3,545)
|
|
n/a
|
|
$(1,300)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 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
|
|
|
|
|
|
$273,460
|
|
$644,087
|
|
$(301,060)
|
|
$
|
(116,684)
|
|
|
|
|
$342,095
|
|
$603,885
|
|
$(195,593)
|
|
$
|
(26,869)
|
|
|
|
|
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
|
|
$(23,234)
|
|
—
|
|
|
|
n/a
|
|
n/a
|
|
$(21,746)
|
|
$
|
—
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
|
n/a
|
|
n/a
|
|
$23,299
|
|
—
|
|
|
|
n/a
|
|
n/a
|
|
$16,779
|
|
$
|
—
|
|
|
|
|
|
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
|
|
$(9,407)
|
|
n/a
|
|
|
|
n/a
|
|
n/a
|
|
$(800)
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income
|
|
|
$(26,922)
|
|
n/a
|
|
n/a
|
|
$
|
2,493
|
|
|
|
|
$31,380
|
|
n/a
|
|
n/a
|
|
$
|
(1,444)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income
|
|
|
n/a
|
|
$(7,117)
|
|
n/a
|
|
$
|
(4,344)
|
|
|
|
|
n/a
|
|
$(6,879)
|
|
n/a
|
|
$(2,615)
|
|
|
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 June 30, 2020
|
|
As of December 31, 2019
|
|
Foreign currency debt
|
|
Current portion of debt
|
|
$
|
73,595
|
|
|
$
|
73,572
|
|
|
Foreign currency debt
|
|
Long-term debt
|
|
292,454
|
|
|
284,506
|
|
|
|
|
|
|
$
|
366,049
|
|
|
$
|
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 June 30, 2020
|
|
Quarter Ended June 30, 2019
|
|
Six Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2019
|
|
Quarter Ended June 30, 2020
|
|
Quarter Ended June 30, 2019
|
|
Six Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2019
|
|
Interest rate swaps
|
|
Interest expense, net of interest capitalized
|
|
$
|
2,870
|
|
|
$
|
10,944
|
|
|
$
|
23,299
|
|
|
$
|
16,779
|
|
|
$
|
(1,904)
|
|
|
$
|
(13,287)
|
|
|
$
|
(23,234)
|
|
|
$
|
(21,746)
|
|
|
Interest rate swaps
|
|
Other income (expense)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,870
|
|
|
$
|
10,944
|
|
|
$
|
23,299
|
|
|
$
|
16,779
|
|
|
$
|
(1,904)
|
|
|
$
|
(13,287)
|
|
|
$
|
(23,234)
|
|
|
$
|
(21,746)
|
|
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 June 30, 2020
|
|
As of December 31, 2019
|
|
As of June 30, 2020
|
|
As of December 31, 2019
|
|
Current portion of debt and Long-term debt
|
|
$
|
721,611
|
|
|
$
|
715,234
|
|
|
$
|
21,934
|
|
|
$
|
(1,301)
|
|
|
|
|
$
|
721,611
|
|
|
$
|
715,234
|
|
|
$
|
21,934
|
|
|
$
|
(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 June 30, 2020
|
|
Quarter Ended June 30, 2019
|
|
Six Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2019
|
|
|
|
Quarter Ended June 30, 2020
|
|
Quarter Ended June 30, 2019
|
|
Six Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
4,406
|
|
|
$
|
(40,132)
|
|
|
$
|
(48,189)
|
|
|
$
|
(68,461)
|
|
|
Interest expense, net of interest capitalized
|
|
$
|
(6,016)
|
|
|
$
|
(409)
|
|
|
$
|
(9,407)
|
|
|
$
|
(800)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
42,354
|
|
|
19,394
|
|
|
(57,660)
|
|
|
(70,750)
|
|
|
Depreciation and amortization expenses
|
|
(3,780)
|
|
|
(3,545)
|
|
|
(7,117)
|
|
|
(6,879)
|
|
|
Foreign currency forward contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other income (expense)
|
|
(2,581)
|
|
|
(1,300)
|
|
|
(4,344)
|
|
|
(2,615)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel swaps
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other income (expense)
|
|
2,149
|
|
|
(1,188)
|
|
|
2,493
|
|
|
(1,444)
|
|
|
Fuel swaps
|
|
54,655
|
|
|
(44,076)
|
|
|
(115,722)
|
|
|
135,962
|
|
|
Fuel
|
|
(12,689)
|
|
|
13,362
|
|
|
(26,922)
|
|
|
31,380
|
|
|
|
|
$
|
101,415
|
|
|
$
|
(64,814)
|
|
|
$
|
(221,571)
|
|
|
$
|
(3,249)
|
|
|
|
|
$
|
(22,917)
|
|
|
$
|
6,920
|
|
|
$
|
(45,297)
|
|
|
$
|
19,642
|
|
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)
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
Net inception fair value at January 1, 2020
|
|
|
|
$
|
(8,008)
|
|
|
Amount of gain recognized in income on derivatives for the period ended June 30, 2020
|
|
|
|
3,273
|
|
|
Amount of gain (loss) remaining to be amortized in accumulated other comprehensive loss, as of June 30, 2020
|
|
|
|
1,580
|
|
|
Fair value at June 30, 2020
|
|
|
|
$
|
(3,155)
|
|
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 June 30, 2020
|
|
Quarter Ended June 30, 2019
|
|
Six Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2019
|
|
Foreign Currency Debt
|
|
$
|
(7,541)
|
|
|
$
|
(2,994)
|
|
|
$
|
(52)
|
|
|
$
|
2,708
|
|
|
|
|
$
|
(7,541)
|
|
|
$
|
(2,994)
|
|
|
$
|
(52)
|
|
|
$
|
2,708
|
|
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 June 30, 2020
|
|
Quarter Ended June 30, 2019
|
|
Six Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2019
|
|
Foreign currency forward contracts
|
|
Other income (expense)
|
|
$
|
12,504
|
|
|
$
|
(4,168)
|
|
|
$
|
(40,172)
|
|
|
$
|
846
|
|
|
Fuel swaps
|
|
Fuel
|
|
—
|
|
|
122
|
|
|
—
|
|
|
(14)
|
|
|
Fuel swaps
|
|
Other income (expense)
|
|
(9,153)
|
|
|
(21)
|
|
|
(76,359)
|
|
|
(119)
|
|
|
|
|
|
|
$
|
3,351
|
|
|
$
|
(4,067)
|
|
|
$
|
(116,531)
|
|
|
$
|
713
|
|
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 have the right to 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.
During the quarter ended June 30, 2020, our senior unsecured debt credit rating was BB by Standard & Poor's and Ba2 by Moody's. As of June 30, 2020, six of our interest rate derivative hedges had a term of at least five years requiring us to post collateral of $20.2 million to satisfy our obligations under our interest rate derivative agreements, taking into account collateral waivers issued by certain banks. We believe the maximum additional collateral we may need to provide under these agreements in the next twelve months is approximately $73.6 million.
Note 14. Restructuring Charges
We incurred restructuring charges of $29.3 million and $46.9 million for the quarter and six months ended June 30, 2020, respectively, in connection with the centralization of our global sales and marketing structure and the reduction of our U.S. workforce.
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 June 30, 2020, we incurred $21.5 million restructuring costs and expect to incur $1.9 million additional costs as it relates to the restructuring activities of this strategy.
The following table summarizes our restructuring exit costs as it relates to the centralization of our global sales and marketing structure (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance January 1, 2020
|
|
Accruals
|
|
Payments
|
|
Ending balance June 30, 2020
|
|
Cumulative
Charges
Incurred
|
|
Expected
Additional
Expenses
to be
Incurred
|
|
Termination benefits
|
$
|
8,389
|
|
|
$
|
2,620
|
|
|
$
|
2,748
|
|
|
$
|
8,261
|
|
|
$
|
11,500
|
|
|
$
|
312
|
|
|
Contract termination costs
|
338
|
|
|
—
|
|
|
—
|
|
|
338
|
|
|
338
|
|
|
390
|
|
|
Other related costs
|
2,785
|
|
|
6,837
|
|
|
6,996
|
|
|
2,626
|
|
|
9,645
|
|
|
1,247
|
|
|
Total
|
$
|
11,512
|
|
|
$
|
9,457
|
|
|
$
|
9,744
|
|
|
$
|
11,225
|
|
|
$
|
21,483
|
|
|
$
|
1,949
|
|
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 $25.4 million during the quarter ended June 30, 2020. In July 2020, we incurred an additional $1.5 million of termination benefits related to this workforce reduction.
The following table summarizes our restructuring costs as it relates to the April 2020 reduction in our workforce (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance January 1, 2020
|
|
Accruals
|
|
Payments
|
|
Ending balance June 30, 2020
|
|
Cumulative
Charges
Incurred
|
|
Expected
Additional
Expenses
to be
Incurred
|
|
Termination benefits
|
$
|
—
|
|
|
$
|
25,382
|
|
|
$
|
10,872
|
|
|
$
|
14,509
|
|
|
$
|
25,382
|
|
|
$
|
1,537
|
|
|
Contract termination costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other related costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
—
|
|
|
$
|
25,382
|
|
|
$
|
10,872
|
|
|
$
|
14,509
|
|
|
$
|
25,382
|
|
|
$
|
1,537
|
|
