Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies
12. Commitments and Contingencies


Operating Leases


Total expense under non-cancelable operating lease commitments, primarily for offices, motor vehicles and office equipment was $16.9 million, $17.0 million and $15.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, minimum annual rentals for non-cancelable leases with initial or remaining terms in excess of one year were as follows (in thousands):


Year   Amount  
2019   $ 16,651  
2020     16,105  
2021     15,315  
2022     14,391  
2023     13,462  
Thereafter     52,626  
Total minimum annual rentals   $ 128,550  


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 six ships, each approximately 140,000 Gross Tons with approximately 3,300 Berths, with expected delivery dates from 2022 through 2027, subject to certain conditions. The effectiveness of the contracts to construct two of the ships, expected to be delivered in 2026 and 2027, is contingent upon certain Italian government approvals. We have a Breakaway Plus Class Ship, Norwegian Encore, with approximately 168,000 Gross Tons with 4,000 Berths, on order for delivery in the fall of 2019, and an Explorer Class Ship, Seven Seas Splendor, with approximately 55,000 Gross Tons and 750 Berth, on order for delivery in the winter of 2020. We also plan to introduce three additional ships, one for Regent and two for Oceania Cruises (we refer you to Note 17— “Subsequent Events”).


The combined contract prices of the eight ships on order for delivery was approximately €6.3 billion, or $7.2 billion based on the euro/U.S. dollar exchange rate as of December 31, 2018.


We have obtained export credit financing for the ships on order which is expected to fund approximately 80% of each contract price, subject to certain conditions. We refer you to Note 17— “Subsequent Events” for details regarding the financing for certain 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, 2018, 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  
2019   $ 912,858  
2020     474,869  
2021     187,818  
2022     1,029,328  
2023     946,895  
Thereafter     1,589,673  
Total minimum annual payments   $ 5,141,441  


Port Facility Commitments


As of December 31, 2018, future commitments to pay for usage of certain port facilities were as follows (in thousands):


Year   Amount  
2019   $ 62,388  
2020     73,853  
2021     77,829  
2022     77,546  
2023     79,784  
Thereafter     1,366,636  
Total port facility future commitments   $ 1,738,036  


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, 2018, approximately British Pound Sterling 30.5 million was in place 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.