Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

Commitments and Contingencies
12 Months Ended
Dec. 31, 2017
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies
11. Commitments and Contingencies


Operating Leases


Total expense under non-cancelable operating lease commitments, primarily for offices, motor vehicles and office equipment was $17.0 million, $15.0 million and $12.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, minimum annual rentals for non-cancelable leases with initial or remaining terms in excess of one year were as follows (in thousands):


Year   Amount  
2018   $ 15,204  
2019     14,788  
2020     14,185  
2021     13,227  
2022     13,277  
Thereafter     61,110  
Total minimum annual rentals   $ 131,791  


Rental payments applicable to such operating leases are recognized on a straight-line basis over the term of the lease.


Ship Construction Contracts


Project Leonardo will introduce an additional four ships with expected delivery dates through 2025 and we have an option to introduce two additional ships for delivery in 2026 and 2027, subject to certain conditions. The four Leonardo ships are each approximately 140,000 Gross Tons with approximately 3,300 Berths. We have an Explorer Class Ship, Seven Seas Splendor, on order for delivery in the winter of 2020. This ship is approximately 55,000 Gross Tons and 750 Berths. We have two Breakaway Plus Class Ships, Norwegian Bliss and Norwegian Encore, on order for delivery in the spring of 2018 and fall of 2019, respectively. These ships are approximately 168,000 Gross Tons each with approximately 4,000 Berths each. The combined contract price of the seven ships on order was approximately €5.5 billion, or $6.6 billion based on the euro/U.S. dollar exchange rate as of December 31, 2017. We have obtained export credit financing for each of the ships which is expected to fund approximately 80% of the contract price of each ship expected to be delivered through 2025, subject to certain conditions. For ships expected to be delivered after 2023, the contract prices are subject to adjustment under certain circumstances.


In connection with the contracts to build the ships, we do not anticipate any contractual breaches or cancellation to occur. However, if any such events were to occur, it could result in, among other things, the forfeiture of prior deposits or payments made by us and potential claims and impairment losses which may materially impact our business, financial condition and results of operations.


As of December 31, 2017, minimum annual payments for non-cancelable ship construction contracts with initial or remaining terms in excess of one year were as follows (in thousands):


Year   Amount  
2018   $ 1,016,892  
2019     893,881  
2020     469,334  
2021     172,872  
2022     968,340  
Thereafter     2,616,900  
Total minimum annual payments   $ 6,138,219  


Port Facility Commitments


As of December 31, 2017, future commitments to pay for usage of certain port facilities were as follows (in thousands):


Year   Amount  
2018   $ 30,509  
2019     21,460  
2020     21,928  
2021     18,179  
2022     5,137  
Thereafter     41,095  
Total port facility future commitments   $ 138,308  


Other Commitments


The FMC requires evidence of financial responsibility for those offering transportation on passenger ships operating out of U.S. ports to indemnify passengers in the event of non-performance of the transportation. Accordingly, each of our three brands are required to maintain a $30.0 million third-party performance guarantee in respect of liabilities for non-performance of transportation and other obligations to passengers. The guarantee requirements are subject to additional consumer price index-based adjustments. Also, each of our brands have a legal requirement to maintain a security guarantee based on cruise business originated from the U.K. As of December 31, 2017, approximately British Pound Sterling 11.8 million was in place as to support our security guarantees. We also are required by other jurisdictions to establish financial responsibility to meet liability in the event of non-performance of our obligations to passengers from those jurisdictions.


From time to time, various other regulatory and legislative changes have been or may in the future be proposed that may have an effect on our operations in the U.S. and the cruise industry in general.




In the normal course of our business, various claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits are covered by insurance and, accordingly, the maximum amount of our liability is typically limited to our deductible amount.


Nonetheless, the ultimate outcome of these claims and lawsuits that are not covered by insurance cannot be determined at this time. We have evaluated our overall exposure with respect to all of our threatened and pending litigation and, to the extent required, we have accrued amounts for all estimable probable losses associated with our deemed exposure. We are currently unable to estimate any other potential contingent losses beyond those accrued, as discovery is not complete nor is adequate information available to estimate such range of loss or potential recovery. However, based on our current knowledge, we do not believe that the aggregate amount or range of reasonably possible losses with respect to these matters will be material to our consolidated results of operations, financial condition or cash flows. We intend to vigorously defend our legal position on all claims and, to the extent necessary, seek recovery.