|12 Months Ended|
Dec. 31, 2020
On January 1, 2019, we adopted ASU No. 2016-02, Leases (“Topic 842”). Topic 842 supersedes the lease accounting
requirements in Accounting Standards Codification (“ASC”) 840—Leases. In August 2018, the FASB issued ASU
2018-11, Targeted Improvements to Topic 842, which included an option to apply the new leases standard at the
adoption date using a modified retrospective approach, which the Company elected.
Nature of Leases
We have finance leases for certain ship equipment and a corporate office. We have operating leases for port facilities, corporate offices, warehouses, and certain equipment. Many of our leases include both lease and non-lease components. We have adopted the practical expedient which allows us to combine lease and non-lease components by class of asset. We have applied this expedient for office leases, port facilities, and certain equipment.
The components of lease expense and revenue were as follows (in thousands):
Total expense under non-cancelable operating leases, primarily for offices, motor vehicles and office equipment was $16.9 million for the year ended December 31, 2018 under the previous lease accounting standard (ASC 840).
Lease balances were as follows (in thousands):
Supplemental cash flow and non-cash information related to leases was as follows (in thousands):
Other supplemental information related to leases was as follows:
As of December 31, 2020, maturities of lease liabilities were as follows (in thousands):
Significant Assumptions and Judgments in Applying Topic 842 and Practical Expedients Elected
Our leases contain both fixed and variable payments. Fixed payments and variable lease payments that depend on a rate or index are included in the calculation of the right-of-use asset. Other variable payments are excluded from the calculation unless there is an unavoidable fixed minimum cost related to those payments such as a minimum annual guarantee. Our lease assets are amortized on a straight-line basis except for our rights to use port facilities. The expenses related to port facilities are amortized based on passenger counts as this basis represents the pattern in which the economic benefit is derived from the right to use the underlying asset.
For non-consecutive lease terms, which relate to our rights to use certain port facilities, the term of the lease is based on the number of days on which we have the right to use a specified asset. We have adopted the practical expedient to exclude leases with terms of less than one year from being included on the balance sheet. Lease expense for agreements that are short-term are disclosed below and include both fixed and variable payments.
Certain leases include one or more options to extend or terminate and are primarily in five-year increments. Lease extensions and terminations, including auto-renewing lease terms, were only included in the calculation of the right-of-use asset to the extent that the right to renew or terminate was at the option of the lessor only or where there was a more than insignificant penalty for termination.
As our leases do not have a readily determinable implicit rate, we used our weighted average cost of debt to determine the net present value of the lease payments at the adoption date. Our weighted average cost of debt is similar to the incremental borrowing rate we would have obtained if we had borrowed collateralized debt over the lease term to purchase the asset, and the rate was adjusted for longer term leases.
We have also adopted the practical expedient which allows us, by class of asset, to not separate lease and non-lease components when we are the lessor in the underlying transaction, the transactions would otherwise be accounted for under ASC 606–Revenue Recognition and the non-lease components are the predominant components of the agreements. We have applied this practical expedient to transactions with cruise passengers and concession service providers related to the use of our ships. We refer you to Note 3 – “Revenue and Expense from Contracts with Customers.”
Impact of COVID-19
In April 2020, the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of COVID-19. In this guidance, entities can elect not to apply lease modification accounting with respect to such lease concessions and instead, treat the concession as if it was a part of the existing contract. The Company has elected to not evaluate leases under the lease modification accounting framework for concessions that result from effects of the COVID-19 pandemic. In relation to our rights to use port facilities, we have elected the approach consistent with resolving a contingency, which allows us to remeasure the lease liability and recognize the amount of change in the lease liability as an adjustment to the carrying amount of the associated right-of-use asset. As of December 31, 2020, our port facilities were remeasured with a downward adjustment of $17.7 million to both other long-term assets and accrued expenses and other liabilities. Another $2.1 million was reclassified from accrued expenses and other liabilities to other long-term assets as a result of contractual extensions. As the full amount of the concession will not be determinable until the force majeure period under the related arrangements has ended, further remeasurements will be required. During the contingency period, we are recognizing lease expense for these port facilities as incurred.
Leases That Have Not Yet Commenced
We have multiple agreements that have been executed where the lease term has not commenced as of December 31, 2020. These are primarily related to our rights to use certain port facilities which were under construction during 2020. Although we may have provided design input, construction management services, or advances related to these assets, we have determined that we did not control these assets during the period of construction. As of December 31, 2020, these agreements are under force majeure and are now not expected to commence until the second or third
quarter of 2021. These port facilities have undiscounted minimum annual guarantees of approximately $1.2 billion of passenger fees.
The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef