Commitments and Contingencies

Capital Expenditures

Our future capital commitments consist primarily of new ship orders. As of December 31, 2015, we had three Quantum-class ships and two Oasis-class ships on order for our Royal Caribbean International brand with an aggregate capacity of approximately 23,350 berths. Additionally, we have two "Project Edge" ships on order for our Celebrity Cruises brand with an aggregate capacity of approximately 5,800 berths. The following provides further information on our ship orders:

During 2014, our conditional agreement with STX France to build the fourth Oasis-class ship for Royal Caribbean International became effective. We received commitments for the unsecured financing of the ship for up to 80% of the ship’s contract price through a facility to be guaranteed 100% by COFACE, the official export credit agency of France. The ship will have a capacity of approximately 5,450 berths and is expected to enter service in the second quarter of 2018. In January 2015, we entered into a financing arrangement for the US dollar financing of this ship. Through the financing arrangement, we have the right, but not the obligation, to satisfy the obligations to be incurred upon delivery and acceptance of the vessel under the shipbuilding contract by assuming, at delivery and acceptance, the debt indirectly incurred by the shipbuilder during the construction of the ship. The amount assumed under this arrangement is not to exceed the US dollar equivalent of €931.2 million, or approximately $1.0 billion, based on the exchange rate at December 31, 2015. The loan, if we were to elect assumption at the date of actual delivery, 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 3.82% (inclusive of the applicable margin).

In 2015, we entered into agreements with Meyer Werft to build the fourth and fifth Quantum-class ships for Royal Caribbean International. We received commitments for the unsecured financing of the ships for up to 80% of each of the ship’s contract price. Hermes has agreed to guarantee to the lenders payment of 95% of the financing. The ships will each have a capacity of approximately 4,150 berths and is expected to enter service in the second quarter of 2019 and the fourth quarter of 2020, respectively.

In 2015, our conditional agreements with STX France to build two ships of a new generation of Celebrity Cruises ships, known as "Project Edge" became effective. We received commitments for the unsecured financing of the ships for up to 80% of the ship’s contract price through a facility to be guaranteed 100% by COFACE. The ships will each have a capacity of approximately 2,900 berths and are expected to enter service in the second half of 2018 and the first half of 2020, respectively.

In 2014, we entered into a credit agreement for the US dollar financing of a portion of the third Oasis-class ship. The credit agreement makes available to us an unsecured term loan in an amount up to the US dollar equivalent of €178.4 million, or approximately $193.9 million, based on the exchange rate at December 31, 2015. The loan amortizes semi-annually and will mature 12 years following delivery of the ship. At our election, prior to the ship delivery, interest on the loan will accrue either (1) at a fixed rate of 2.53% (inclusive of the applicable margin) or (2) at a floating rate equal to LIBOR plus 1.20%. In connection with this credit agreement, we amended the €892.2 million credit agreement, originally entered into in 2013 to finance the ship, reducing the maximum facility amount to approximately €713.8 million. Both of the facilities are 100% guaranteed by COFACE.

As of December 31, 2015, the aggregate cost of our ships on order, not including the TUI Cruises' ships on order, was approximately $7.8 billion, of which we had deposited $546.5 million as of such date. Approximately 58.2% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at December 31, 2015. (Refer to Note 14. Fair Value Measurements and Derivative Instruments).

Litigation

A class action complaint was filed in June 2011 against Royal Caribbean Cruises Ltd. in the United States District Court for the Southern District of Florida on behalf of a purported class of stateroom attendants employed onboard Royal Caribbean International cruise vessels. The complaint alleged that the stateroom attendants were required to pay other crew members to help with their duties and that certain stateroom attendants were required to work back of house assignments without the ability to earn gratuities, in each case in violation of the U.S. Seaman’s Wage Act. In May 2012, the district court granted our motion to dismiss the complaint on the basis that the applicable collective bargaining agreement requires any such claims to be arbitrated. The United States Court of Appeals, 11th Circuit, affirmed the district court’s dismissal and denied the plaintiffs’ petition for re-hearing and re-hearing en banc. In October 2014, the United States Supreme Court denied the plaintiffs’ request to review the order compelling arbitration. Subsequently, approximately 575 crew members submitted demands for arbitration. The demands make substantially the same allegations as in the federal court complaint and are similarly seeking damages, wage penalties and interest in an indeterminate amount. Unlike the federal court complaint, the demands for arbitration are being brought individually by each of the crew members and not on behalf of a purported class of stateroom attendants. In February 2016, we settled this matter as to all demanding crew members in exchange for our payment in the aggregate of an immaterial amount. The settlement is subject to finalization of all settlement documents.

In April 2015, the Alaska Department of Environmental Conservation issued Notices of Violation to Royal Caribbean International and Celebrity Cruises seeking monetary penalties for alleged violations of the Alaska Marine Visible Emission Standards that occurred over the past five years on certain of our vessels. We believe we have meritorious defenses to the allegations and we are cooperating with the state of Alaska. We do not believe that the ultimate outcome of these claims will have a material adverse impact on our financial condition or results of operations and cash flows.

We are routinely involved in other 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.

Operating Leases

In July 2002, we entered into an operating lease denominated in British pound sterling for the Brilliance of the Seas. In December 2014, we terminated the leasing of Brilliance of the Seas and, as part of the agreement, purchased the ship for a net settlement purchase price of approximately £175.4 million or $275.4 million. Refer to Note 5. Property and Equipment for further discussion on the transaction. Prior to the purchase, the lease payments varied based on sterling LIBOR and were included in Other operating expenses in our consolidated statements of comprehensive income (loss). Brilliance of the Seas lease expense amounts were approximately £11.7 million and £12.3 million, or approximately $19.3 million and $19.1 million for the years ended December 31, 2014 and 2013, respectively.

We are obligated under other noncancelable operating leases primarily for offices, warehouses and motor vehicles. As of December 31, 2015, future minimum lease payments under noncancelable operating leases were as follows (in thousands):



Year
2016	$	22,229
2017	18,774
2018	15,432
2019	12,323
2020	10,806
Thereafter	146,951
	$	226,515

Total expense for all operating leases amounted to $29.7 million, $52.0 million and $57.5 million for the years 2015, 2014 and 2013, respectively.

Other

Some of the contracts that we enter into include indemnification provisions that obligate us to make payments to the counterparty if certain events occur. These contingencies generally relate to changes in taxes, increased lender capital costs and other similar costs. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business. There are no stated or notional amounts included in the indemnification clauses and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses. We have not been required to make any payments under such indemnification clauses in the past and, under current circumstances, we do not believe an indemnification in any material amount is probable.

If (i) any person other than A. Wilhelmsen AS. and Cruise Associates and their respective affiliates (the "Applicable Group") acquires ownership of more than 33% of our common stock and the Applicable Group owns less of our common stock than such person, or (ii) subject to certain exceptions, during any 24-month period, a majority of the Board is no longer comprised of individuals who were members of the Board on the first day of such period, we may be obligated to prepay indebtedness outstanding under our ship financing facilities, which we may be unable to replace on similar terms. Our other debt agreements also contain change of control provisions that would be triggered by the acquisition of greater than 50% of our common stock by (i) any person or (ii) in the case of our public debt securities, by a person other than a member of the Applicable Group coupled with a ratings downgrade. If this were to occur, it would have an adverse impact on our liquidity and operations.

At December 31, 2015, we have future commitments to pay for our usage of certain port facilities, marine consumables, services and maintenance contracts as follows (in thousands):



Year
2016	$	60,064
2017	60,964
2018	28,437
2019	100,048
2020	28,665
Thereafter	86,556
	$	364,734