Annual Report of a Foreign Private Issuer — Form 20-F
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 20-F Royal Caribbean Cruises Ltd. 48 262K
2: EX-1.1 3rd Supp Agreement to Loan Facility "Galaxy" 38 65K
3: EX-1.2 3rd Supp. Agreement to Loan Facility "Century" 38 65K
4: EX-1.3 7th Supp. Agreement to Loan Facility "Zenith" 34 63K
5: EX-2.14 Credit Agreement 70 191K
6: EX-23 Consent of Pricewaterhouse Coopers LLP 1 5K
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[Download Table]
(MARK ONE)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-11884
ROYAL CARIBBEAN CRUISES LTD.
(Exact name of Registrant as specified in its charter)
REPUBLIC OF LIBERIA
(Jurisdiction of incorporation or organization)
1050 CARIBBEAN WAY, MIAMI, FLORIDA 33132
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the
Act:
[Enlarge/Download Table]
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, par value $.01 per share New York Stock Exchange
$3.625 Series A Convertible Preferred Stock New York Stock Exchange
par value $.01 per share
Securities registered or to be registered pursuant to Section 12(g) of the
Act: None
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report: As of December 31, 1998, the Registrant had outstanding 168,945,222
shares of common stock, par value $.01 per share.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark which financial statement item the registrant has
elected to follow:
Item 17 [ ] Item 18 [X]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ROYAL CARIBBEAN CRUISES LTD.
INDEX TO REPORT ON FORM 20-F
[Download Table]
PAGE
----
PART I.
Item 1. Description of Business..................................... 1
Item 2. Description of Property..................................... 13
Item 3. Legal Proceedings........................................... 13
Item 4. Control of Registrant....................................... 14
Item 5. Nature of Trading Market.................................... 15
Item 6. Exchange Controls and Other Limitations Affecting Security
Holders..................................................... 15
Item 7. Taxation.................................................... 16
Item 8. Selected Financial Data..................................... 16
Item 9. Management's Discussion and Analysis of Financial Condition
and
Results of Operations....................................... 16
Item 9A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 22
Item 10. Directors and Officers of the Registrant.................... 22
Item 11. Compensation of Directors and Officers...................... 25
Item 12. Options to Purchase Securities From Registrant or
Subsidiaries................................................ 26
Item 13. Interest of Management in Certain Transactions.............. 27
PART II.
Item 14. Description of Securities to be Registered.................. 27
PART III.
Item 15. Defaults Upon Senior Securities............................. 27
Item 16. Changes in Securities and Changes in Security for Registered
Securities.................................................. 27
PART IV.
Item 17. Financial Statements........................................ 27
Item 18. Financial Statements........................................ 27
Item 19. Financial Statements and Exhibits........................... 27
SIGNATURES............................................................. 28
PART I
As used in this document, the terms "Royal Caribbean", "we", "our" and "us"
refer to Royal Caribbean Cruises Ltd., the term "Celebrity" refers to Celebrity
Cruise Lines Inc. and the terms "Royal Caribbean International" and "Celebrity
Cruises" refer to our two cruise brands.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
We are the world's second largest cruise company with 17 cruise ships and a
total of 32,900 berths. Our ships operate worldwide with a selection of
itineraries that call on approximately 200 destinations.
We operate two brands, Royal Caribbean International and Celebrity Cruises.
We acquired Celebrity in July 1997. Both brands offer a wide array of shipboard
activities, services and amenities, including swimming pools, sun decks, beauty
salons, exercise and massage facilities, gaming facilities, lounges, bars,
show-time entertainment, retail shopping and cinemas.
The Royal Caribbean International Brand
Royal Caribbean International serves the volume cruise vacation market
which we categorize as the contemporary and premium segments. The brand operates
12 cruise ships with an aggregate of 24,700 berths, offering various cruise
itineraries that range from three to 21 nights and call on approximately 160
destinations.
Royal Caribbean International's strategy is to attract an array of
vacationing consumers in the contemporary segment of the volume market by
providing a wide variety of itineraries and cruise lengths with multiple options
for onboard dining, entertainment, and other onboard activities. Additionally,
we offer a variety of shore execursions at each port of call. We believe that
the variety and quality of Royal Caribbean International's product offering
represents excellent value to consumers, especially to couples and families
traveling with children. Because of the brand's extensive product offerings, we
believe Royal Caribbean International is well positioned to attract new
consumers to the cruise industry and continue to bring past guests back for
their next vacation. While the brand is positioned at the upper end of the
contemporary segment, we believe that Royal Caribbean International's quality
enables it to attract consumers from the premium segment as well, thereby
achieving the broadest market coverage of any of the major brands in the cruise
industry.
The Celebrity Cruises Brand
Celebrity Cruises primarily serves the premium segment of the cruise
vacation market. Celebrity Cruises operates five cruise ships with an aggregate
of 8,200 berths. Celebrity Cruises offers various cruise itineraries that range
from five to 15 nights and call on approximately 100 destinations.
Celebrity Cruises' strategy is to attract consumers who want an enhanced
cruise vacation in terms of modern vessels, gourmet dining and service,
extensive and luxurious spa facilities, large staterooms and a high
staff-to-guest ratio. Celebrity Cruises is expanding its fleet to provide an
increasing variety of itineraries and cruise lengths and therefore has a higher
proportion of its fleet deployment in seasonal markets (i.e.Alaska, Bermuda,
Europe and Trans-Canal) than does the Royal Caribbean International brand. These
are hallmarks of the premium cruise vacation market, which is Celebrity Cruises'
primary target. Celebrity Cruises also attracts consumers from the contemporary
and luxury cruise categories.
INDUSTRY
Since 1970, cruising has been one of the fastest growing sectors of the
vacation market, as the number of North American guests has grown to an
estimated 5.9 million in 1999 from 0.5 million in 1970, a compound annual growth
rate of approximately 8.9% according to Cruise Lines International Association.
We have
1
capitalized on the increasing popularity of cruises through an extensive fleet
expansion program. Our revenues increased at a compound annual growth rate of
approximately 16% between 1989 and 1999.
According to our estimates, the North American market was served by an
estimated 124 cruise ships with an aggregate capacity of approximately 100,650
berths at the end of 1994. The number of berths in the industry is estimated to
have increased to approximately 138,000 berths on 127 ships by the end of 1999.
The net increase in capacity over the last five years is inclusive of
approximately 33 ships with an aggregate capacity of approximately 20,000 berths
that have either been retired or moved out of the North American market. There
are a number of cruise ships on order with a total estimated capacity of 72,500
berths which will be placed in service between 2000 and 2004. Although we cannot
predict the rate at which future retirements will occur, we believe ship
retirements will continue due to competitive pressures and the age of the
vessels.
The following table details the growth in the North American cruise market
of both guests and weighted average berths over the past five years:
[Enlarge/Download Table]
WEIGHTED
AVERAGE
NORTH SUPPLY OF BERTHS
AMERICAN MARKETED IN
CRUISE NORTH
YEAR GUESTS(1) AMERICA(2)
---- --------- ----------------
1995........................................................ 4,378,000 103,313
1996........................................................ 4,659,000 105,586
1997........................................................ 5,051,000 109,257
1998........................................................ 5,428,000 118,747
1999........................................................ 5,894,000 130,152
---------------
(1) Source: Cruise Lines International Association based on guests carried for
at least three consecutive nights.
(2) Source: Our estimates.
The following table details the total number of worldwide guests carried on
our ships for at least three consecutive nights:
[Download Table]
GUESTS
CARRIED ON
OUR PERCENTAGE
YEAR SHIPS(1) CHANGE
---- ---------- ----------
1995........................................................ 1,058,126 0.6%
1996........................................................ 1,245,696 17.7
1997........................................................ 1,633,457 31.1
1998........................................................ 1,841,152 12.7
1999........................................................ 1,704,034 (7.4)
---------------
(1) 1995 -- 1997 are pro forma to include Celebrity.
As shown in the tables above, the North American cruise market experienced
growth between 1998 and 1999 in both the total number of cruise guests and the
number of weighted average berths. Over the same time period, while we
maintained approximately the same occupancy levels, the number of guests carried
on our ships decreased primarily as a result of an increase in the average
lengths of our itineraries and a temporary reduction in capacity.
Cruise lines compete for consumers' disposable leisure time dollars with
other vacation alternatives such as land-based resort hotels and sightseeing
destinations, and public demand for such activities is influenced by general
economic conditions. We believe that cruise guests currently represent only a
small share of the vacation market and that a significant portion of cruise
guests carried are "first-time cruisers."
Our ships operate worldwide and call on destinations in Alaska, Australia,
the Bahamas, Bermuda, Canada, the Caribbean, Europe, the Far East, Hawaii,
Mexico, New England, the Panama Canal, Scandina-
2
via and South America. Competition for cruise guests in all of these geographic
areas is vigorous. In most of these areas, we compete with cruise ships owned by
other international operators. We compete with a number of cruise lines;
however, our principal competitors are Carnival Cruise Line, Holland America
Line, Norwegian Cruise Line and Princess Cruises. We compete principally on the
basis of quality of service, variety of itineraries and price.
OPERATING STRATEGIES
Our principal operating strategies are to:
- build the awareness and market penetration of both brands,
- continue to expand our fleet with state-of-the-art cruise ships,
- broaden our itineraries worldwide,
- maintain our competitive position with respect to the quality and
innovation of our onboard product,
- further expand our international guest sourcing,
- utilize sophisticated yield management systems (revenue optimization per
berth),
- further improve our technological capabilities and
- maintain strong relationships with travel agencies, the principal
industry distribution system.
Brand Awareness
Our strategy is to continue to broaden the recognition of both the Royal
Caribbean International brand and the Celebrity Cruises brand in the cruise
vacation marketplace. Each brand has a distinct identity and marketing focus but
utilizes shared infrastructure resources.
Royal Caribbean International has positioned itself in the contemporary and
premium segments of the cruise vacation market and focuses on providing multiple
choices to its guests through a variety of itineraries, accommodations, dining
options, ship activities and shore excursions. Hallmarks of the brand include
friendly and engaging service, modern ships, family programs, entertainment,
health and fitness and activities designed for guests of all ages.
Celebrity Cruises primarily serves the premium segment of the cruise
vacation market. The brand is recognized for its gourmet dining, impeccable
service, large staterooms, a high staff-to-guest ratio and luxurious spa
facilities. In 1998 and 1999, Berlitz rated Celebrity Cruises the highest rated
premium cruise line in the large vessel category (over 1,000 berths).
Fleet Expansion
Currently, our combined fleet has an average age of approximately five
years, which we believe is the youngest of any major cruise company. Based on
the ships currently on order, our year-end berth capacity is expected to
increase 69.3% to 55,700 berths between 1999 and 2004.
Our increased average ship size and number of available berths have enabled
us to achieve certain economies of scale. Larger ships allow us to transport
more guests than smaller ships without a corresponding increase in certain
operating expenses. This increase in fleet size also provides a larger revenue
base to absorb our marketing, selling and administrative expenses.
Royal Caribbean International
Founded in 1968, Royal Caribbean International was the first cruise line to
design ships specially for warm water year round cruising. Royal Caribbean
International operated a modern fleet in the 1970's and early 1980's,
establishing a reputation for high quality. Between 1988 and 1992, the brand
tripled its capacity by embarking on its first major capital expansion program.
3
Royal Caribbean International committed to its second capital expansion
program with orders for six Vision-class vessels, ranging in size from 1,800 to
2,000 berths, for delivery from 1995 through 1998. During this same period,
Royal Caribbean International sold four of its original vessels because these
ships were older in age and design and no longer consistent with its image and
marketing strategy. Each Vision-class ship features a seven-deck atrium with
glass elevators, skylights and glass walls, a pool and entertainment complex
covered by a moveable glass roof, hundreds of cabins with verandahs, a two-deck
main dining room, a state-of-the-art show theater, a glass-encased
indoor/outdoor cafe and a shopping mall.
Royal Caribbean International took delivery of Voyager of the Seas, the
first of the Voyager-class vessels, in October 1999. The Voyager-class vessels
are the largest and most innovative passenger cruise ships ever built. Each ship
is approximately 140,000 gross tons with 3,100 berths. This new class of vessels
is designed to provide more diverse vacation options for families and for those
seeking active sports and entertainment alternatives during their vacation
experience. Each Voyager-class ship has a variety of unique features: the cruise
industry's first horizontal atrium (which is four decks tall, longer than a
football field and provides entertainment, shopping and dining experiences),
recreational activities such as rock climbing, ice skating, miniature golf and
full court basketball, enhanced staterooms, expanded dining options and a
variety of intimate spaces.
Royal Caribbean International currently has two additional Voyager-class
vessels on order. The two ships are scheduled for delivery in the third quarter
of 2000 and first quarter of 2002. We have signed a letter of intent with
Kvaerner Masa-Yards to build the fourth and fifth Voyager-class vessels for the
Royal Caribbean International fleet with delivery dates scheduled for 2002 and
2003. The letter of intent is subject to the fulfillment of certain conditions,
such as financing by the shipyard.
Royal Caribbean International also has four Vantage-class vessels on order
and options to purchase two additional vessels. The four ships on order are
scheduled for delivery in the first quarter of 2001, second quarter of 2002,
second quarter of 2003 and second quarter of 2004. The delivery dates for the
two vessels on option are in the second quarters of 2005 and 2006. The
Vantage-class is a progression from the brand's Vision-class series and will
have approximately 2,100 berths.
CELEBRITY CRUISES
Celebrity Cruises was founded in 1990 and operated three ships between 1992
and 1995. Between 1995 and 1997, Celebrity Cruises undertook its first capital
expansion program, adding three Century-class vessels which range in size from
1,750 to 1,850 berths and disposing of one of its original three vessels.
Celebrity Cruises has on order four Millennium-class vessels which will have
2,000 berths each and are scheduled for delivery in the second quarter 2000,
first quarter 2001, third quarter 2001 and second quarter 2002. With the
addition of the four Millennium-class vessels, Celebrity's capacity will nearly
double, from 8,200 berths in 1999 to 16,200 berths by the end of 2002.
The Millennium-class ships are a progression from the Century-class
vessels, which have been widely accepted in the premium segment of the
marketplace. This new class of vessels will build on the brand's primary
strengths, including gourmet dining, spacious staterooms and suites complete
with verandahs, luxurious spa facilities and impeccable service. On the
Millennium-class ships, an entire resort deck is dedicated to health, fitness
and the rejuvenating powers of water. Celebrity Cruises' Aqua Spa(SM) is the
largest, most luxurious spa afloat and offers a variety of features, including a
large hydropool with neck massage and body jets. Guests can relax in the music
library, Notes, smoke cigars at Michael's Club or stop by The Platinum Club for
champagne and caviar.
Worldwide Itineraries
Our ships operate worldwide with a selection of itineraries that call on
approximately 200 destinations. New ships allow us to expand into new
destinations, itineraries and markets. Royal Caribbean International offers the
Royal Journeys(SM) program which provides global cruise itineraries spanning
four continents. For the second year in a row, we are deploying a Celebrity
Cruises vessel to the European market. Celebrity Cruises is also introducing
Celebrity Voyages(SM), which offers 10 to 15-night itineraries throughout the
Caribbean and
4
South America beginning in November 2000. In addition, we are increasing our
capacity in the short cruise market in 2000 by establishing a Royal Caribbean
International vessel year-round in Port Canaveral to provide 3 and 4-night
Bahamas cruises.
Product Innovation
We recognize the need for new and innovative onboard products and
experiences for our guests, which we develop based on guest feedback, crew
suggestions and competitive product reviews. Accordingly, we continue to invest
in design innovations on new ships and additional product offerings on our
existing fleet. Expanded dining options, recreational activities such as rock
climbing and ice skating and the latest technology such as our Internet Cafe and
interactive TV are among the services currently offered.
International Guests
International guests continue to provide an increasing share of our growth.
International guests have grown from approximately 7% of total guests in 1991 to
approximately 17% of total guests in 1999. One of our strategies is to use fleet
deployment and expanded itineraries to increase our guest sourcing outside North
America. Over the past two years, we have increased our investment in
information technology spending and increased our international advertising to
enhance brand awareness worldwide. We carry out our international sales effort
through our sales offices located in London, Frankfurt, Oslo, Genoa and Paris,
and a network of 38 independent international representatives located throughout
the world. We are also able to accept bookings in various currencies.
Revenue Management
We continue to develop more sophisticated pricing and revenue management
programs to maximize our revenue and occupancy by projecting the demand for our
cruises in various guest markets and, based on certain variables, directing our
marketing efforts toward such markets. In addition to projecting demand, we
believe these programs will enable us to react quickly to changes in market
conditions.
Technological Development
We continue to invest heavily in information technology to support our
corporate infrastructure and guest and travel-trade relations. We now have fully
automated our pierside embarkation process. We have developed a corporate
shoreside intranet as well as electronic ship to shore communication tools to
improve our internal productivity. Both Royal Caribbean International and
Celebrity Cruises have extensive websites, providing access to millions of
Internet users throughout the world. We also have begun installing interactive
television in guests' staterooms, enabling them to shop for shore excursions,
select a dinner wine and monitor their onboard accounts. Another innovation,
Royal Caribbean Online(SM), allows guests unprecedented access to the Internet
and their e-mail.
Travel Agency Support
Essentially all of the bookings for our ships are made by independent
travel agencies and we are committed to supporting the travel agency community.
We maintain a large sales support organization including a district sales team
of approximately 110 members that supports both brands in North America. We were
the first cruise company to develop an automated booking system, Cruisematch
2000(TM). This automated reservations system allows travel agents direct access
to our computer reservation system to improve ease of bookings. More than 30,000
independent travel agencies worldwide can book cruises for both brands using
Cruisematch 2000(TM). We also have a desktop publishing system,
Cruisewriter(sm), that allows travel agents to customize marketing materials for
their clients. Our new Customer Service Center uses state-of-the-art technology
to help travel agents resolve booking and billing issues before guests sail. We
operate two reservation call centers, one in Miami, Florida and the other in
Wichita, Kansas, thereby offering flexibility and extended hours of operations.
5
SALES, MARKETING AND GUEST SERVICES
In addition to our large sales support organization, we believe that
maintaining personal contact with travel agency owners, managers and front-line
retail agents is crucial to retaining travel agency loyalty. We augment this
type of contact with an extensive program of seminars, CD-ROM training tools and
Internet updates designed to familiarize travel agents with the cruise industry
and the marketing of cruises.
Royal Caribbean International has a comprehensive marketing program with an
emphasis on building consumer preference using the tag line, Like No Vacation on
Earth(SM). Through its advertising, Royal Caribbean International positions
itself as a provider of high quality, excellent value, all-inclusive cruise
vacations. Royal Caribbean International's marketing strategy focuses on
educating and enticing non-cruisers to the brand, while continuing to invite
past guests to sail again. Royal Caribbean International's current television
campaign, using the popular "Lust for Life" music, appeals to a broad
demographic of consumers who have an interest in a vacation that allows them to
experience its innovative ships, while seeing the world and choosing from
exciting onboard and destination activities.
Celebrity Cruises pursues a comprehensive marketing program with a combined
emphasis on consumer and trade markets. Celebrity is currently developing a new
advertising campaign (e.g. television, magazine, newspaper) which is expected to
be launched during the second quarter of 2000. The campaign will focus on
increasing the level and depth of consumer and trade awareness and knowledge of
the Celebrity Cruises product. We believe that Celebrity Cruises represents
enhanced value to the premium segment based on elements such as its gourmet
dining experience, staff-to-guest ratio, cabin size, museum quality artwork,
technology, AquaSpa(SM) packages and its modern fleet of ships, all of which
have been built in the 1990's.
We offer to handle travel aspects related to guest reservations and
transportation. Arranging guest air transportation is one of our important areas
of operation. We have developed a new technology, "EZ-Book," which enables an
automated process of booking air at the lowest costs and preferred routing. We
maintain a comprehensive relationship with many of the major airlines ranging
from fare negotiation and space handling to baggage transfer.
6
OPERATIONS
Cruise Ships and Itineraries
We operate 17 ships, under two brands, worldwide with a selection of
itineraries ranging from three to 21 nights that call on approximately 200
destinations. The following table represents summary information concerning our
ships and their areas of operation based on 2000 itineraries (subject to
change):
[Enlarge/Download Table]
YEAR VESSEL
ENTERED SERVICE BERTHS(1) PRIMARY AREAS OF OPERATION
--------------- --------- -------------------------------
ROYAL CARIBBEAN INTERNATIONAL:
Explorer of the Seas(2)............ 2000 3,100 Eastern Caribbean
Voyager of the Seas................ 1999 3,100 Western Caribbean
Vision of the Seas................. 1998 2,000 Panama Canal, Hawaii, Alaska,
Pacific Northwest
Enchantment of the Seas............ 1997 1,950 Eastern & Western Caribbean
Rhapsody of the Seas............... 1997 2,000 Alaska, Mexico, Hawaii
Grandeur of the Seas............... 1996 1,950 Eastern & Southern Caribbean
Splendour of the Seas.............. 1996 1,800 Europe, Caribbean, Canada/New
England, South America
Legend of the Seas................. 1995 1,800 Europe, Far East, Australia
Majesty of the Seas................ 1992 2,350 Southern Caribbean, Bahamas
Monarch of the Seas................ 1991 2,350 Southern Caribbean
Viking Serenade(3)................. 1982/1991 1,500 Mexican Baja
Nordic Empress..................... 1990 1,600 Southern Caribbean, Bermuda
Sovereign of the Seas.............. 1988 2,250 Bahamas
CELEBRITY CRUISES:
Millennium(4)...................... 2000 2,000 Europe, Eastern & Western
Caribbean
Mercury............................ 1997 1,850 Caribbean, Alaska, Panama
Canal, South America
Galaxy............................. 1996 1,850 Southern Caribbean, Alaska
Century............................ 1995 1,750 Eastern & Western Caribbean
Zenith............................. 1992 1,350 Panama Canal, Bermuda,
Caribbean
Horizon............................ 1990 1,350 Caribbean, Bermuda
---------------
(1) Based on double occupancy per cabin.
(2) Explorer of the Seas is expected to enter service in the fourth quarter of
2000.
(3) Indicates year placed in service and year redeployed after conversion to
expand capacity.
(4) Millennium is expected to enter service in the second quarter of 2000.
Currently, the combined fleets of Royal Caribbean International and
Celebrity Cruises have an average age of approximately five years, which we
believe is the youngest of any major cruise company.
7
New Vessels
We have 10 ships on order as follows:
[Enlarge/Download Table]
EXPECTED
VESSEL DELIVERY DATES BERTHS(1)
------ -------------------- ---------
ROYAL CARIBBEAN INTERNATIONAL:
Voyager-class
Explorer of the Seas(2)................................ 3rd Quarter 2000 3,100
Adventure of the Seas.................................. 1st Quarter 2002 3,100
Vantage-class
Radiance of the Seas................................... 1st Quarter 2001 2,100
Brilliance of the Seas................................. 2nd Quarter 2002 2,100
Unnamed................................................ 2nd Quarter 2003 2,100
Unnamed................................................ 2nd Quarter 2004 2,100
CELEBRITY CRUISES:
Millennium-class
Millennium(2).......................................... 2nd Quarter 2000 2,000
Infinity............................................... 1st Quarter 2001 2,000
Unnamed................................................ 3rd Quarter 2001 2,000
Unnamed................................................ 2nd Quarter 2002 2,000
---------------
(1) Based on double occupancy per cabin.
(2) Included in table on prior page -- Cruise Ships and Itineraries.
The Voyager-class vessels are being built in Turku, Finland by
Kvaerner-Masa Yards, the Vantage-class vessels are being built in Papenburg,
Germany by Meyer Werft, and the Millennium-class vessels are being built by
Chantiers de l'Atlantique in St. Nazaire, France. These three yards have built
the majority of the vessels in both the Royal Caribbean International and
Celebrity Cruises fleets.
Shipboard Activities and Shipboard Revenues
Both brands offer modern fleets with a wide array of shipboard activities,
services and amenities including swimming pools, sun decks, spa facilities which
include massage and exercise facilities, beauty salons, gaming facilities (which
operate while the ships are at sea), lounges, bars, Las Vegas-style
entertainment, retail shopping, libraries, cinemas, conference centers and shore
excursions at each port of call. While many shipboard activities are included in
the base price of a cruise, additional revenues are realized from gaming, the
sale of alcoholic and other beverages, the sale of gift shop items and shore
excursions, photography and spa services. In addition, both Royal Caribbean
International and Celebrity Cruises offer a catalogue gift service to provide
travel agents and others with the opportunity to purchase "bon voyage" gifts.
Private Destinations
Royal Caribbean International operates two private destinations: CocoCay,
an island we own which is known as Little Stirrup Cay and is located in the
Bahamas; and Labadee, a secluded peninsula which we lease and is located on the
north coast of Haiti. The facilities at CocoCay and Labadee include a variety of
watersports activities, refreshment bars, artisan markets and picnic facilities.
Seasonality
Our revenues are moderately seasonal, due to variations in rates and
occupancy percentages.
8
Guests and Capacity
The following table sets forth the aggregate number of guests carried and
the number of guests carried expressed as a percentage of the total capacity of
our ships:
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
Number of Guests Carried.............................. 1,704,034 1,841,152 1,465,450
Percentage of Total Capacity.......................... 104.7% 105.2% 104.2%
In accordance with cruise industry practice, total capacity is determined
based on double occupancy per cabin even though some cabins accommodate three or
four guests; accordingly, a percentage in excess of 100% indicates that more
than two guests occupied some cabins.
Cruise Pricing
Our cruise prices include a wide variety of activities and amenities,
including all meals and entertainment. Prices vary depending on the destination,
cruise length, cabin category selected and the time of year the voyage takes
place. Additionally, we offer air transportation as a service for our guests
that elect to utilize our air program. Our air transportation prices vary by
gateway and destination and are available from cities in the United States,
Canada and Europe. Furthermore, we sell trip cancellation insurance which
provides guests with insurance coverage for trip cancellation, medical
protection and baggage protection.
SUPPLIERS
Our largest purchases are for airfare, food and related items, advertising,
diesel fuel, hotel supplies and products related to guest accommodations. Most
of the supplies we require are available from numerous sources at competitive
prices. Our largest operating cost is air transportation for our guests. None of
our suppliers provided goods or services in excess of 10% of our revenues in
1999.
INSURANCE
We maintain an aggregate of approximately $7.0 billion of insurance on the
hull and machinery of our ships, which includes additional coverage for
disbursements, earnings and increased value, which are maintained in amounts
related to the value of each vessel. The coverage for each of the hull policies
is maintained with syndicates of insurance underwriters from the British,
Scandinavian, United States and other international insurance markets.
Liability coverage for shipowners, commonly referred to as protection and
indemnity insurance, is available through a worldwide network of mutual
insurance associations. Each of these associations participates in and is
subject to rules issued by the International Group of Protection and Indemnity
Associations. We maintain protection and indemnity insurance on each of our
ships through either Assuranceforeningen GARD or the United Kingdom Mutual Steam
Ship Assurance Association (Bermuda Limited).
We maintain war risk insurance on each vessel through a Norwegian war risk
insurance organization in an amount equal to the total insured hull value. This
coverage includes physical damage to the vessel and protection and indemnity
risks for which coverage would be excluded by reason of war exclusion clauses in
the hull policies or rules of the indemnity insurance organizations.
We also maintain a form of business interruption insurance with our
insurance underwriters in the event that a vessel is unable to operate during
scheduled cruise periods due to loss or damage to the vessel arising from
certain covered events which last more than a specified period of time.
Insurance coverage is also maintained for certain events which would result in a
delayed delivery of our contracted new vessels, which we normally place starting
approximately two years prior to the scheduled delivery dates.
9
Insurance coverage for shoreside property, shipboard consumables and
inventory and general liability risks are maintained with insurance underwriters
in the United States and the United Kingdom. We have decided not to carry
business interruption insurance for our shoreside operations based on our
evaluation of the risks involved and our protective measures already in place,
as compared to the premium expense.
All insurance coverage is subject to certain limitations, exclusions and
deductible levels. In addition, in certain circumstances, we co-insure a portion
of these risks. Premiums charged by insurance carriers, including carriers in
the maritime insurance industry, increase or decrease from time to time and tend
to be cyclical in nature. We historically have been able to obtain insurance
coverage in amounts and at premiums we have deemed to be commercially
acceptable. We believe that, based on our historical experience, we will
continue to be able to do so.
EMPLOYEES
As of December 31, 1999, we employed approximately 2,400 full-time and 400
part-time employees in our shoreside operations worldwide. We also employed
approximately 20,000 crew and staff for our vessels. As of December 31, 1999,
approximately 70% of our shipboard employees were covered by collective
bargaining agreements. We believe that our relationship with our employees is
good.
TRADEMARKS
We own a number of registered trademarks relating to, among other things,
the name ROYAL CARIBBEAN, its crown and anchor logo, the name CELEBRITY, its "X"
logo and the names of our cruise ships. We believe such trademarks are widely
recognized throughout the world and have considerable value.
REGULATION
All of our ships are registered in Norway or Liberia except for Mercury
which is registered in Panama. Each ship is subject to regulations issued by its
country of registry, including regulations issued pursuant to international
treaties governing the safety of the ship and its guests. Each country of
registry conducts periodic inspections to verify compliance with these
regulations. In addition, ships operating out of United States ports are subject
to inspection by the United States Coast Guard for compliance with international
treaties and by the United States Public Health Service for sanitary conditions.
Our ships are required to comply with international safety standards
defined in the Safety of Life at Sea Convention. The Safety of Life at Sea
Convention standards are revised from time to time, and the most recent
modifications are being phased in through 2010. We do not anticipate that we
will be required to make any material expenditures in order to comply with these
rules.
In 1993, the Safety of Life at Sea Convention was amended to adopt the
International Safety Management Code. The International Safety Management Code
provides an international standard for the safe management and operation of
ships and for pollution prevention. The International Safety Management Code
became mandatory for passenger vessel operators such as ourselves on July 1,
1998.
We are also subject to various United States and international laws and
regulations relating to environmental protection. Under such laws and
regulations, we are prohibited from, among other things, discharging certain
materials, such as petrochemicals and plastics, into the waterways.
We are required to obtain certificates from the United States Federal
Maritime Commission relating to our ability to meet liability in cases of
nonperformance of obligations to guests as well as casualty and personal injury.
Under the Federal Maritime Commission's current regulations, we are required to
provide a $15 million bond for each of Royal Caribbean International and
Celebrity Cruises as a condition to obtaining the required certificates. The
Federal Maritime Commission has proposed a revision to its regulations that
would require us to significantly increase the amount of this bond based on the
level of our customer deposits. We
10
have indicated to the Federal Maritime Commission that we support an increase in
the bond amount and do not expect any revisions to the Federal Maritime
Commission regulations to have a material effect on us.
We are required to obtain certificates from the United States Coast Guard
relating to our ability to meet liability in cases of water pollution. Under the
United States Coast Guard's current regulations, Royal Caribbean International
and Celebrity Cruises are required to provide guarantees of approximately $123.5
million and $70.0 million, respectively, as a condition to obtaining the
required certificates.
We believe that we are in material compliance with all the regulations
applicable to our ships and that we have all licenses necessary to the conduct
of our business. From time to time various other regulatory and legislative
changes have been or may in the future be proposed that could have an effect on
the cruise industry in general.
TAXATION OF THE COMPANY
The following discussion of the application of the federal income tax laws
to us and to our subsidiaries is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), proposed, temporary and final
Treasury Department regulations, administrative rulings and court decisions. All
of the foregoing are subject to change, and any change thereto could affect the
accuracy of this discussion.
Application of Section 883 of the Code
We and our subsidiary, Celebrity, the operator of Celebrity Cruises, are
foreign corporations engaged in a trade or business in the United States, and
our vessel-owning subsidiaries are foreign corporations that, in many cases,
depending upon the itineraries of their vessels, receive income from sources
within the United States. Under Section 883 of the Code, certain foreign
corporations are not subject to United States income or branch profits tax on
United States source income derived from or incidental to the international
operation of a ship or ships, including income from the leasing of such ships.
A foreign corporation will qualify for the benefits of Section 883 of the
Code if in relevant part (1) the foreign country in which the foreign
corporation is organized grants an equivalent exemption to corporations
organized in the United States and (2) more than 50% of the value of its capital
stock is owned, directly or indirectly, by individuals who are residents of a
foreign country that grants such an equivalent exemption to corporations
organized in the United States ("qualifying shareholders") or the stock of the
corporation (or the direct or indirect corporate parent thereof) is "primarily
and regularly traded on an established securities market" in the United States.
In the opinion of our United States tax counsel, and based on the
representations and assumptions set forth therein, we, Celebrity and our
vessel-owning subsidiaries should qualify for the benefits of Section 883
because we and each of those subsidiaries are incorporated in a qualifying
jurisdiction and our common stock and series A convertible preferred stock
should be considered to be primarily and regularly traded on an established
securities market in the United States. In addition, we believe that
substantially all of our income is derived from or incidental to the
international operation of a ship or ships. Any United States source income not
so derived will be subject to United States taxation, but we believe that such
income is not a material portion of our total income.
Although no final regulations have been promulgated that explain when stock
will be considered "primarily and regularly traded on an established securities
market" for purposes of Section 883, regulations on this subject have recently
been proposed by the Internal Revenue Service. The proposed regulations have no
current legal effect and may be modified before they are finalized. They
provide, in relevant part, that a corporation's stock will satisfy this
requirement only if more than 50% is owned by persons who each own less than 5%
of the value of the corporation's stock.
Our United states tax counsel expects us to meet the ownership requirements
of Section 883 in 2001 and beyond because (a) the proposed regulations may be
modified prior to finalization; and/or (b) we and our two largest shareholders
may take steps to reduce their aggregate shareholding to below 50%.
Additionally, we will recommend to our shareholders at the annual meeting that
our Articles of Incorporation be amended to
11
prohibit any person, other than our two existing largest shareholders, from
holding shares that give such person in the aggregate more than 4.9% of the
relevant class or classes of our shares. However, in the event that final
regulations are issued substantially as currently proposed and, contrary to our
tax counsel's expectations, they are effective for the year 2000, our U.S.
source income for the year 2000 will be subject to U.S. income tax.
There can be no assurance that the opinions of our United States tax
counsel set forth above will be accepted by the Internal Revenue Service or the
courts. In addition, there can be no assurance that the expectations of our
United States tax counsel will be realized. Furthermore, Section 883 has been
the subject of legislative modifications in past years that have had the effect
of limiting its availability to certain taxpayers and there can be no assurance
that future legislation or certain changes in our stock ownership will not
preclude us from obtaining the benefits of Section 883.
Taxation in the Absence of an Exemption under Section 883 of the Code
In the event that we, Celebrity, or our vessel-owning subsidiaries were to
fail to meet the requirements of Section 883 of the Code, or if such provision
were repealed then as explained below, such companies would be subject to United
States income taxation on only a portion of their income.
Since we and Celebrity conduct a trade or business in the United States, we
and Celebrity would be taxable at regular corporate rates on our company taxable
income (i.e., without regard to the income of the vessel-owning subsidiaries),
from United States sources, which includes 100% of income, if any, from
transportation which begins and ends in the United States (not including
possessions of the United States), 50% of income from transportation which
either begins or ends in the United States, and no income from transportation
which neither begins nor ends in the United States. The legislative history of
the transportation income source rules suggests that a cruise that begins and
ends in a United States port, but that calls on more than one foreign port, will
derive United States source income only from the first and last legs of such
cruise. Because there are no regulations or other Internal Revenue Service
interpretations of these rules, the applicability of the transportation income
source rules in the aforesaid favorable manner is not free from doubt. In
addition, if any of our earnings and profits effectively connected with our
United States trade or business are withdrawn or are deemed to have been
withdrawn from our United States trade or business (by dividend distribution,
for example, or otherwise), such withdrawn amount would be subject to a "branch
profits" tax at the rate of 30%. The amount of such earnings and profits would
be equal to the aforesaid United States source income, with certain generally
minor adjustments, less income taxes. Finally, we and Celebrity would also be
potentially subject to tax on portions of certain interest paid by us at rates
of up to 30%.
If Section 883 of the Code were not available to a vessel-owning
subsidiary, such subsidiary would be subject to a special 4% tax on its United
States source gross transportation income, if any, each year because its income
is derived from the leasing of a vessel and because it does not have a fixed
place of business in the United States. Such United States source gross
transportation income may be determined under any reasonable method, including
ratios based upon (i) days traveling directly to or from United States ports to
total days traveling; or (ii) the lessee's United States source gross income
from the vessel (as determined under the source rules discussed in the preceding
paragraph, and subject to the assumptions and qualifications set forth therein)
to the lessee's total gross income from the vessel.
While we believe that the methods we would use to calculate our United
States source income are reasonable, the calculations would be based on an
interpretation of applicable law that in many respects is not clear due to the
absence of controlling regulations. Our position as to certain matters of law
and our determination of the amount of income subject to United States taxation
could be challenged by the Internal Revenue Service and, if so challenged, might
not be upheld by a United States court. Furthermore, there can be no assurance
that the applicable law will not change or that regulations or rulings will not
take a different position. In addition, although we do not currently intend to
change our operations or the operations of our subsidiaries, such a change, or
changes in the amount, source or character of our or any subsidiary's income and
expense, could affect the amount of income that would be subject to United
States tax in the event Section 883 of the Code were not available to us or our
subsidiaries.
12
ITEM 2. DESCRIPTION OF PROPERTY
Our principal executive office and shoreside operations are located on the
Port of Miami, Florida where we lease three office buildings totaling
approximately 359,430 square feet from Miami-Dade County, Florida under
long-term leases with initial terms expiring in various years on and after 2011.
We also lease space in Wichita, Kansas for use primarily as an additional
reservation center.
Royal Caribbean International operates two private destinations: (i)
CocoCay, an island we own which is known as Little Stirrup Cay and is located in
the Bahamas; and (ii) Labadee, a secluded peninsula which we lease and is
located on the north coast of Haiti.
We believe that our facilities are adequate for our current needs. We
evaluate our needs periodically and obtain additional facilities when considered
necessary.
ITEM 3. LEGAL PROCEEDINGS
Since October 1994, the U.S. Government has been investigating our waste
disposal practices through a series of federal grand jury proceedings. In July
1999, we entered into a plea agreement with the U.S. Department of Justice in
order to resolve those investigations. Under the plea agreement, we agreed to
plead guilty to twenty-one felony counts and to pay a criminal fine of $18
million to resolve all outstanding counts against Royal Caribbean. The felony
counts relate to the improper disposal of oil-contaminated bilge water and
attempts to conceal such activities from the U.S. Coast Guard, the improper
disposal of other waste water, known as gray water, that was contaminated with
pollutants, and the storage of hazardous waste on land for more than 90 days
without a permit. The plea agreement calls for us to be on probation for up to
five years and a Court supervised Environmental Compliance Plan. Although the
plea agreement resolves the federal criminal investigation, it does not preclude
us from becoming subject to additional civil or State actions. The July 1999
plea agreement is in addition to a plea agreement entered into in June 1998
pursuant to which we pled guilty to eight felony counts and paid a criminal fine
of $9 million for other similar offenses. In January 2000, we entered into a
settlement with the State of Alaska resolving a civil lawsuit filed by the State
against us seeking monetary damages for alleged violations of Alaskan laws
relating to the discharge of oil and hazardous waste and agreed to make payments
totaling $3.3 million.
Beginning in December 1995, several purported class action suits were filed
alleging that Royal Caribbean International and Celebrity Cruises misrepresented
to their guests the amount of their port charge expenses. Similar suits were
filed against other companies in the cruise industry. In January 1999, Royal
Caribbean International and Celebrity Cruises entered into agreements to settle
the suits. Under the terms of the settlement agreements, each of Royal Caribbean
International and Celebrity Cruises have issued travel vouchers having face
amounts ranging from $8 to $30 in the case of Royal Caribbean International, and
from $20 to $45 in the case of Celebrity Cruises, to guests who are U.S.
residents and who sailed on Royal Caribbean International or Celebrity Cruises,
as the case may be, between April 1992 and April 1997. Such vouchers may be
applied to reduce the cruise fare of a future cruise on Royal Caribbean
International or Celebrity Cruises, as the case may be, and are valid for up to
three years from the date of issuance.
Beginning in August 1996, several purported class-action suits were filed
alleging that Royal Caribbean International and Celebrity Cruises should have
paid commissions to travel agents on port charges included in the price of
cruise fares. The suits seek damages in an unspecified amount. Similar suits are
pending against other companies in the cruise industry. In December 1998, a
Florida state court judge dismissed one of the class-action suits filed on
behalf of travel agents for failure to state a claim under Florida law. The
plaintiff in that case has filed an appeal of that decision. We are not able at
this time to estimate the timing or impact of the travel agent proceedings on
our business.
In April 1999 a lawsuit was filed in the United States District Court for
the Southern District of New York on behalf of current and former crew members
alleging that we failed to pay the plaintiffs their full wages. The suit seeks
payment of (i) the wages alleged to be owed, (ii) penalty wages under U.S. law
and (iii) punitive damages. In November 1999, a purported class action suit was
filed in the same court alleging a similar cause of action. We are not able at
this time to estimate the impact of these proceedings on our
13
business; there can be no assurance that such proceedings, if decided adversely,
would not have a material adverse effect on our results of operations.
We are routinely involved in other claims typical to the cruise industry.
The majority of these claims are covered by insurance. We believe the outcome of
such other claims which are not covered by insurance would not have a material
adverse effect upon our financial condition or results of operations.
ITEM 4. CONTROL OF REGISTRANT
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 1, 2000 (i) by each person who is
known by us to own beneficially more than 10% of any class of the outstanding
common stock and (ii) by all of our directors and executive officers as a group.
[Enlarge/Download Table]
NUMBER OF SHARES
OF COMMON PERCENTAGE
NAME STOCK(1) OWNERSHIP
---- ---------------- ----------
A. Wilhelmsen AS(2)......................................... 46,329,330 25.2%
Cruise Associates(3)...................................... 50,781,900 27.6%
All Directors and Officers (41 persons)(4)................ 3,129,497 1.7%
---------------
(1) For purposes of this table, any security which a person or group has a right
to acquire within 60 days after March 1, is deemed to be owned by such
person or group. Such security is deemed to be outstanding for the purpose
of computing the percentage ownership of such person or group, but is not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person or group.
(2) A. Wilhelmsen AS is a Norwegian corporation, the indirect beneficial owners
of which are members of the Wilhelmsen family of Norway.
(3) Cruise Associates is a Bahamian general partnership, the indirect beneficial
owners of which are various trusts primarily for the benefit of certain
members of the Pritzker family of Chicago, Illinois, and various trusts
primarily for the benefit of certain members of the Ofer family.
(4) Includes (i) 1,549,024 shares of common stock issuable upon exercise of
options granted to officers and directors, (ii) 1,071,412 shares of common
stock held by Monument Capital Corporation as nominee for various trusts
primarily for the benefit of certain members of the Fain family and (iii)
415,008 shares of common stock issued to a trust for the benefit of Mr.
Fain. Mr. Fain disclaims beneficial ownership of some or all of the shares
of common stock referred to in (ii) and (iii) above. Does not include shares
of common stock held by A. Wilhelmsen AS or Cruise Associates.
A. Wilhelmsen AS and Cruise Associates are parties to a shareholders
agreement and, pursuant thereto, have agreed upon certain matters relative to
our organization and operation and certain matters concerning their respective
ownership of our voting stock. Pursuant to the shareholders agreement, A.
Wilhelmsen AS and Cruise Associates have agreed to vote their shares of common
stock in favor of the following individuals as our directors: (i) up to four
nominees of A. Wilhelmsen AS (at least one of whom must be independent); (ii) up
to four nominees of Cruise Associates (at least one of whom must be
independent); and (iii) one nominee who must be Richard D. Fain or such other
individual who is then employed as our chief executive officer. In connection
with our acquisition of Celebrity, A. Wilhelmsen AS and Cruise Associates have
agreed to vote their shares of common stock in favor of the election of one
additional director to be nominated by Archinav Holdings, Ltd., for a specified
period until 2004. In addition, until either of them should decide otherwise, A.
Wilhelmsen AS and Cruise Associates have agreed to vote their shares of common
stock in favor of two additional named directors of our board of directors.
The shareholders agreement provides that A. Wilhelmsen AS and Cruise
Associates will from time to time consider our dividend policy with due regard
for the interests of the shareholders in maximizing the return on their
investment and our ability to pay such dividends. The declaration of dividends
shall at all times be subject to the final determination of our board of
directors that a dividend is prudent at that time in consideration of the needs
of the business. The shareholders agreement also provides that payment of
14
dividends will depend, among other factors, upon our earnings, financial
condition and capital requirements and the income and other tax liabilities of
A. Wilhelmsen AS, Cruise Associates and their respective affiliates relating to
their ownership of common stock.
ITEM 5. NATURE OF TRADING MARKET
Our common stock is listed on the New York Stock Exchange ("NYSE") and the
Oslo Stock Exchange ("OSE") under the symbol "RCL". Our convertible preferred
stock is listed on the NYSE under the symbol "RCL Pr". The table below sets
forth the quarterly high and low prices of the common stock and convertible
preferred stock for our two most recent fiscal years:
[Enlarge/Download Table]
NYSE OSE NYSE
COMMON STOCK COMMON STOCK(1) PREFERRED STOCK
------------------- -------------------- --------------------
1999 HIGH LOW HIGH LOW HIGH LOW
---- -------- ------- -------- -------- -------- --------
First Quarter................... $40 1/4 $31 3/8 302 1/2 246 $123 5/16 $ 98 11/16
Second Quarter.................. 44 1/2 31 7/8 350 266 1/2 138 3/16 103
Third Quarter................... 51 5/8 41 1/16 401 328 156 5/8 131 1/8
Fourth Quarter.................. 58 7/8 42 5/8 450 338 172 5/16 131 3/4
1998
----
First Quarter................... $35 7/16 $24 3/4 262 1/2 185 $113 $ 80 1/8
Second Quarter.................. 40 3/8 32 5/8 305 247 1/2 126 1/8 104
Third Quarter................... 43 29/32 23 1/8 327 1/2 195 139 72 2/3
Fourth Quarter.................. 37 1/8 17 274 137 115 1/4 60
---------------
(1) Denominated in Norwegian Kroner.
As of December 31, 1999, there were 1,010 record holders of common stock in
the United States, holding 66,974,758 shares or approximately 37.0% of the total
outstanding common stock.
During 1999, we paid two quarterly cash dividends of $0.09 per common
share, and two quarterly cash dividends of $0.11 per common share, totaling
$69.1 million. In addition, we paid dividends on our convertible preferred stock
totaling $12.5 million. During 1998, we paid two quarterly cash dividends of
$0.08 per common share and two quarterly cash dividends of $0.09 per common
share, totaling $55.2 million as well as dividends on our convertible preferred
stock totaling $12.5 million.
On March 10, 2000, we announced that we would redeem all outstanding shares
of the convertible preferred stock on April 14, 2000. The shares of the
convertible preferred stock will stop trading on the NYSE prior to the April
14th redemption date, and dividends will cease to accrue on the shares of
convertible preferred stock on April 14th. The convertible preferred stock is
convertible into shares of common stock at the option of the holder, and we
believe that most holders will convert their shares of preferred stock into
common stock prior to the April 14th redemption date.
The declaration and payment of future common stock dividends, if any, will
at all times be subject to the final determination of the Board of Directors
that a dividend is prudent at the time in consideration of the needs of our
business. Payment of dividends will depend, among other things, upon our
earnings, financial condition and capital requirements and certain tax
considerations of A. Wilhelmsen AS, Cruise Associates and their respective
affiliates.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are now no exchange control restrictions on remittances of dividends
on our common stock or our convertible preferred stock, or on the conduct of our
operations in Liberia by reason of our incorporation in Liberia.
15
ITEM 7. TAXATION
Since (1) we are and intend to maintain our status as a "non-resident
corporation" under the Internal Revenue Code of Liberia and (2) our
vessel-owning subsidiaries are not now engaged, and are not in the future
expected to engage, in any business in Liberia, including voyages exclusively
within the territorial waters of the Republic of Liberia, we have been advised
by Watson, Farley & Williams, our special Liberian counsel, that under current
Liberian law, no Liberian taxes or withholding will be imposed on payments to
holders of our securities other than a holder that is a resident Liberian entity
or a resident individual or entity or a citizen of Liberia.
ITEM 8. SELECTED FINANCIAL DATA
The following selected financial data are for each of the fiscal years in
the period 1995 through 1999 and as of the end of each such fiscal year. The
financial information presented for fiscal years 1999, 1998 and 1997 and as of
the end of fiscal years 1999 and 1998 is derived from our financial statements
and should be read together with such financial statements and the related notes
included elsewhere herein. The 1997 financial information includes the results
of Celebrity commencing July 1, 1997.
[Enlarge/Download Table]
FISCAL YEARS
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues............................. $2,546,152 $2,636,291 $1,939,007 $1,357,325 $1,183,952
Net Income........................... 383,853 330,770 175,127 150,866 148,958
Net income per share -- basic(1)..... 2.15 1.90 1.17 1.19 1.17
Net income per share -- diluted(2)... 2.06 1.83 1.15 1.17 1.16
Dividends declared per common
share.............................. 0.40 0.34 0.29 0.27 0.24
Total assets......................... 6,380,511 5,686,076 5,339,748 2,842,299 2,203,243
Total debt, including capital
leases............................. 2,342,177 2,469,082 2,572,696 1,366,967 935,692
---------------
(1) Net income per share -- basic is computed by dividing net income, after
deducting preferred stock dividends accumulated during the period, by the
weighted-average number of shares of common stock outstanding during each
period.
(2) Net income per share -- diluted is computed by dividing net income by the
weighted-average number of shares of common stock, common stock equivalents
and other potentially dilutive securities outstanding during each period.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements under this caption "Management's Discussion and Analysis
of Financial Condition and Results Of Operations," include forward-looking
statements. These forward-looking statements are subject to risks, uncertainties
and other factors, which may cause our actual results, performance or
achievements to differ materially from the future results, performance or
achievements expressed or implied in those forward-looking statements. Examples
of these risks, uncertainties and other factors include:
- general economic and business conditions,
- cruise industry competition,
- the impact of tax laws and regulations,
- changes in other laws and regulations,
- the delivery schedule of new vessels,
- emergency ship repairs,
- incidents involving cruise vessels at sea,
16
- reduced consumer demand for cruises as a result of any number of reasons,
including armed conflict or political instability,
- changes in interest rates and
- weather.
GENERAL
Summary
We reported improved net income and earnings per share for the year ended
December 31, 1999 as shown in the table below. Net income increased 16.0% to
$383.9 million or $2.06 per share on a diluted basis compared to $330.8 million
or $1.83 per share in 1998. The improvements were attained despite a decline in
revenues and operating income resulting from a temporary reduction in capacity.
Monarch of the Seas missed 11 voyages during the first quarter of 1999 due to a
grounding incident in mid-December 1998 and Grandeur of the Seas and Enchantment
of the Seas lost two and six voyages, respectively, during the first half of
1999 due to unscheduled engine repairs. We recover certain lost income from
ships being out of service through our loss-of-hire insurance. Included in net
income for 1999 is approximately $26.5 million of loss-of-hire insurance, which
is recorded in Other income (expense).
Included in net income in 1999 and 1998 are charges of $14.0 million and
$9.0 million, respectively, related to settlements with the U.S. Department of
Justice and $3.3 million in 1999 related to a settlement with the State of
Alaska. Net income for 1998 also includes a reduction in earnings of
approximately $9.0 million related to the Monarch of the Seas incident.
Accordingly, on a comparable basis, before the previously mentioned settlements
and the Monarch of the Seas incident, earnings increased to $401.2 million or
$2.15 per share in 1999, from $348.8 million or $1.93 per share in 1998.
As a result of the temporary decline in capacity and the inclusion of
loss-of-hire insurance in Other income (expense) during 1999, certain operating
margins are not comparative year over year.
[Enlarge/Download Table]
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues............................................... $2,546,152 $2,636,291 $1,939,007
Operating Income....................................... 480,174 488,735 303,555
Net Income............................................. 383,853 330,770 175,127
Basic Earnings Per Share............................... $ 2.15 $ 1.90 $ 1.17
Diluted Earnings Per Share............................. $ 2.06 $ 1.83 $ 1.15
SELECTED STATISTICAL INFORMATION:
[Enlarge/Download Table]
1999 1998 1997
---------- ---------- ---------
Guests Carried.......................................... 1,704,034 1,841,152 1,465,450
Guest Cruise Days....................................... 11,227,196 11,607,906 8,759,651
Occupancy Percentage.................................... 104.7% 105.2% 104.2%
Fleet Expansion
Our fleet expansion continued with the delivery of Voyager of the Seas in
October 1999, the first of three Voyager-class vessels to be added to the Royal
Caribbean International fleet. With the delivery of Voyager of the Seas, six
Vision-class vessels from 1995 through 1998 and the acquisition of Celebrity in
1997, our capacity has increased approximately 131.2% from 14,228 berths at
December 31, 1994 to 32,900 at December 31, 1999.
We currently have 10 ships on order, options to purchase two additional
Vantage-class vessels and a letter of intent to purchase two additional
Voyager-class vessels. The delivery dates for the two vessels on option are
17
in the second quarters of 2005 and 2006. The vessels under the letter of intent
would be scheduled for delivery in 2002 and 2003. The planned berths and
expected delivery dates of the ships on order are as follows:
[Enlarge/Download Table]
EXPECTED
VESSEL DELIVERY DATES BERTHS(1)
------ ------------------- ---------
ROYAL CARIBBEAN INTERNATIONAL:
Voyager-class
Explorer of the Seas................................... 3rd Quarter 2000 3,100
Adventure of the Seas.................................. 1st Quarter 2002 3,100
Vantage-class
Radiance of the Seas................................... 1st Quarter 2001 2,100
Brilliance of the Seas................................. 2nd Quarter 2002 2,100
Unnamed................................................ 2nd Quarter 2003 2,100
Unnamed................................................ 2nd Quarter 2004 2,100
CELEBRITY CRUISES:
Millennium-class
Millennium............................................. 2nd Quarter 2000 2,000
Infinity............................................... 1st Quarter 2001 2,000
Unnamed................................................ 3rd Quarter 2001 2,000
Unnamed................................................ 2nd Quarter 2002 2,000
---------------
(1) Based on double occupancy per cabin.
The Voyager-class vessels are the largest passenger cruise ships ever
built. The Vantage-class vessels are a progression from Royal Caribbean
International's Vision-class vessels, while the Millennium-class vessels are a
progression from Celebrity Cruises' Century-class vessels.
Based on the ships currently on order, our year-end berth capacity will
increase 69.3% to 55,700 berths between 1999 and 2004.
In May 1998, we sold Song of America for $94.5 million and recognized a
gain on the sale of $31.0 million. We operated Song of America under a charter
agreement until March 1999.
RESULTS OF OPERATIONS:
The following table presents operating data as a percentage of revenues:
[Enlarge/Download Table]
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
Revenues.................................................... 100.0% 100.0% 100.0%
Expenses:
Operating................................................. 58.8 60.5 62.9
Marketing, selling and administrative..................... 14.6 13.6 14.0
Depreciation and amortization............................. 7.8 7.4 7.4
----- ----- -----
Operating Income............................................ 18.8 18.5 15.7
Other Income (Expense)...................................... (3.8) (6.0) (6.3)
----- ----- -----
Income Before Extraordinary Item............................ 15.0% 12.5% 9.4%
===== ===== =====
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues
Revenues decreased 3.4% to $2.5 billion in 1999 compared to $2.6 billion
for the same period in 1998. The decline in revenues is due to a 2.9% decrease
in capacity and a 0.6% decline in gross revenue per available lower berth
("Yield"). The reduction in capacity is associated with the departure of Song of
America from the
18
fleet in March 1999 and a temporary decline in capacity associated with ships
out of service as mentioned previously. The reduction in capacity was partially
offset by the full-year impact of Vision of the Seas which entered service in
the second quarter of 1998 and Voyager of the Seas which entered service in the
fourth quarter of 1999. The decrease in Yield is primarily due to a reduction in
air revenue per diems associated with fewer guests using our air program,
partially offset by improved guest per diems.
We offer air transportation as a service to our guests through our air
program. Generally, revenues received from air tickets sold to guests are
approximately the same as our underlying cost. Therefore, when a guest purchases
his or her own air transportation, rather than use our air program, both our
revenues and operating expenses decrease by approximately the same amount.
Expenses
Operating expenses decreased 6.1% to $1.5 billion in 1999 as compared to
$1.6 billion in 1998. Included in operating expenses are charges of $17.3
million and $9.0 million in 1999 and 1998, respectively, related to settlements
with the U.S. Department of Justice and the State of Alaska, as previously
mentioned. The decrease in operating expenses is primarily due to the decline in
capacity and lower air costs from fewer guests using our air program. As a
percentage of revenues, operating expenses decreased from 60.5% in 1998 to 58.8%
in 1999 primarily due to fewer guests using our air program.
Marketing, selling and administrative expenses increased 3.5% to $371.8
million in 1999 from $359.2 million in 1998. The increase is primarily due to an
increased investment in information technology spending and an increase in
international advertising to enhance our brand awareness worldwide. As a
percentage of revenue, marketing, selling and administrative expenses increased
to 14.6% in 1999 from 13.6% in 1998. Approximately half of the margin increase
is the result of higher expenses described above and approximately half is due
to a decline in revenues from ships out of service.
Depreciation and amortization remained relatively consistent at $197.9
million in 1999 compared to $194.6 million in 1998.
Other Income (Expense)
Gross interest expense (excluding capitalized interest) decreased to $165.2
million in 1999 as compared to $182.8 million in 1998. The decline is primarily
due to a decrease in the average debt level from prepayments made during 1998 as
well as a decrease in interest rates. Capitalized interest increased $19.6
million from $15.0 million in 1998 to $34.6 million in 1999, due to an increase
in expenditures related to ships under construction.
Included in Other income (expense) in 1999 is $26.5 million of loss-of-hire
insurance resulting from ships out of service. Other income (expense) in 1998
includes a gain of $31.0 million from the sale of Song of America as well as a
$32.0 million charge related to the write-down to fair market value of Viking
Serenade. Also included in Other income (expense) in 1998 is $3.8 million of net
costs related to the Monarch of the Seas incident. (See Year Ended December 31,
1998 Compared to Year Ended December 31, 1997.)
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues
Revenues increased 36.0% to $2.6 billion compared to $1.9 billion in 1997.
The increase in revenues was primarily due to a 31.2% increase in capacity and a
3.6% increase in Yield. The acquisition of Celebrity (which occurred in July
1997) accounted for approximately two-thirds of the capacity increase, while
additions to the Royal Caribbean International fleet accounted for the balance
of the increase. The increase in Yield was due to an increase in occupancy
levels to 105.2% as compared to 104.2% in 1997 as well as an increase in cruise
ticket per diems, partially offset by a reduction in shipboard revenue per
diems. The reduction in shipboard revenue per diems is due to the inclusion of
Celebrity's results for the full year 1998 as compared to six months in 1997.
Celebrity derives a higher percentage of its shipboard revenue from
concessionaires than does Royal Caribbean International, resulting in a dilutive
effect on the per diem.
19
Concessionaires pay us a net commission which is recorded as revenue, in
contrast to in-house operations, where shipboard revenues and related cost of
sales are recorded on a gross basis.
Expenses
Operating expenses increased 30.7% in 1998 to $1.6 billion as compared to
$1.2 billion in 1997. The increase in operating expenses was primarily due to
the increase in capacity. Included in operating expenses is a $9.0 million
charge related to the plea agreement with the U.S. Department of Justice. As a
percentage of revenues, operating expenses decreased 2.4% in 1998 primarily due
to improved ticket pricing as well as the inclusion of Celebrity's results for
the full year of 1998 versus six months of 1997. Celebrity's operating expenses
as a percentage of revenues were lower than Royal Caribbean International's due
to lower shipboard cost of sales as a result of the higher use of
concessionaires onboard Celebrity vessels as discussed above.
Marketing, selling and administrative expenses increased 31.9% in 1998 to
$359.2 million from $272.4 million in 1997. The increase was primarily due to
the acquisition of Celebrity as well as higher advertising and staffing costs.
As a percentage of revenues, marketing, selling and administrative expenses
decreased to 13.6% in 1998 as a result of economies of scale.
Depreciation and amortization increased to $194.6 million in 1998 from
$143.8 million in 1997. The increase was primarily due to the acquisition of
Celebrity as well as additions to the Royal Caribbean International fleet.
Other Income (Expense)
Interest expense, net of capitalized interest, increased to $167.9 million
in 1998 as compared to $128.5 million in 1997. The increase is due to the
increase in the average debt level as a result of our fleet expansion program as
well as the acquisition of Celebrity in July 1997.
Included in Other income (expense) in 1998 is a $31.0 million gain from the
sale of SONG OF AMERICA as well as a $32.0 million charge related to the
write-down to fair market value of Viking Serenade. Based on our strategic
objectives, the unique circumstances of this vessel and indications of the
current value of Viking Serenade, we recorded a write-down of the carrying value
to its estimated fair market value. We continue to operate and depreciate the
vessel which is classified as part of Property and Equipment on the balance
sheet.
On December 15, 1998, Monarch of the Seas experienced significant damage to
the ship's hull and equipment, resulting in the ship being out of service until
mid-March 1999. The incident resulted in a net reduction in earnings of
approximately $9.0 million or $0.05 per share in the fourth quarter of 1998.
This reduction is comprised of lost revenue, net of related variable expenses,
of $5.2 million, and costs associated with repairs to the ship, guest
transportation and lodging, commissions and various other costs, net of
estimated insurance recoveries, of $3.8 million. The costs of $3.8 million were
included in Other income (expense) for the quarter and year ended December 31,
1998.
Included in Other income (expense) in 1997 is a $4.0 million gain from the
sale of Sun Viking.
Extraordinary Item
Included in 1997 is an extraordinary charge of $7.6 million or $0.05 per
share related to the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Net cash provided by operating activities was $583.4 million in 1999 as
compared to $526.9 million in 1998 and $434.1 million in 1997. The increase was
primarily due to higher net income.
20
In 1999, we issued 10,825,000 shares of common stock. The net proceeds were
approximately $487.4 million.
During the year ended December 31, 1999, our capital expenditures were
approximately $1.0 billion as compared to $0.6 billion during 1998 and $1.1
billion during 1997. The largest portion of capital expenditures related to the
delivery of Voyager of the Seas in 1999, delivery of Vision of the Seas in 1998,
delivery of Rhapsody of the Seas, Enchantment of the Seas and Mercury in 1997,
as well as progress payments for ships under construction in all years. Also
included in capital expenditures are shoreside capital expenditures primarily
related to information technology in support of our growth plans.
We received proceeds of $94.5 million from the sale of a vessel during
1998.
Capitalized interest increased to $34.6 million in 1999 from $15.0 million
in 1998 and $15.8 million in 1997. The increase during 1999 was due to an
increase in expenditures related to ships under construction.
During 1999, we paid quarterly cash dividends on our common stock totaling
$69.1 million as well as quarterly cash dividends on our preferred stock,
totaling $12.5 million. During 1998, we paid quarterly cash dividends on our
common stock totaling $55.2 million as well as quarterly cash dividends on our
preferred stock, totaling $12.5 million.
We made principal payments totaling approximately $127.9 and $343.2 million
under various term loans and capital leases during 1999 and 1998, respectively.
Future Commitments
We currently have 10 ships on order for an additional capacity of 22,800
berths. The aggregate contract price of the 10 ships, which excludes capitalized
interest and other ancillary costs, is approximately $3.9 billion, of which we
deposited $247.0 million during 1999, $119.3 million during 1998 and $23.7
million during 1997. Additional deposits are due prior to the dates of delivery
of $88.1 million in 2000, $64.6 million in 2001 and $39.6 million in 2002. We
anticipate that overall capital expenditures, based on ships currently on order
plus estimates of other shoreside capital expenditures, will be approximately
$1.3, $1.6 and $1.4 billion for 2000, 2001 and 2002, respectively. The amount
and timing of such expenditures are our current projections. Any additional
ships ordered would have an impact on these estimates.
We have options to purchase two additional Vantage-class vessels with
delivery dates in the second quarters of 2005 and 2006. The options have an
aggregate contract price of $804.6 million. We have the right to cancel the
first option on or before August 31, 2000 and the second option on or before
delivery of Radiance of the Seas, which is currently scheduled for the first
quarter of 2001. We have also signed a letter of intent to purchase two
additional Voyager-class vessels with delivery dates scheduled for 2002 and
2003. The aggregate contract price of the two ships is 1.1 billion euros. The
letter of intent is subject to the fulfillment of certain conditions, such as
financing by the shipyard.
We had $2.3 billion of long-term debt of which $128.1 million is due during
the 12-month period ending December 31, 2000.
As a normal part of our business, depending on market conditions, pricing
and our overall growth strategy, we continuously consider opportunities to enter
into contracts for the building of additional ships. We may also consider the
sale of ships. We continuously consider potential acquisitions and strategic
alliances. If any of these were to occur, they would be financed through the
incurrence of additional indebtedness, the issuance of additional shares of
equity securities or through cash flows from operations.
Funding Sources
As of December 31, 1999, our liquidity was $1.1 billion consisting of $63.5
million in cash and cash equivalents and $1.0 billion available under our $1.0
billion unsecured revolving credit facility. Effective January 2000, we have
$300.0 million available from April 1, 2000 through June 30, 2000 under a $300.0
million credit facility. Capital expenditures and scheduled debt payments will
be funded through a combination of cash flows provided by operations, drawdowns
under our available credit facilities, the
21
incurrence of additional indebtedness and sales of securities in private or
public securities markets. In addition, the agreements related to six of the 10
ships under construction, require the shipyards to make available export
financing for up to 80% of the contract price of the vessels.
Other
We enter into interest rate swap agreements to manage interest costs as
part of our liability risk management program. The differential in interest
rates to be paid or received under these agreements is recognized in income as
part of interest expense over the life of the contracts. The objective of the
program is to modify our exposure to interest rate movements. We continuously
evaluate our debt portfolio, including interest rate swap agreements, and make
periodic adjustments to the mix of fixed rate and floating rate debt based on
our view of interest rate movements.
Impact of Year 2000
We experienced no significant computer system failures or disruptions as a
result of the changeover from 1999 to 2000 (the "Year 2000 issue"), and the Year
2000 issue had no material adverse effect on the results of our operations,
liquidity or financial condition. Since January 1, 1998, we incurred
approximately $3.6 million in expense on efforts directly related to fixing the
Year 2000 issue, as well as an additional $3.8 million of capital expenditures
related to the accelerated replacement of non-compliant systems. Prior to 1998,
we did not separately track associated Year 2000 software compliant costs.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
We are exposed to market risk attributable to changes in interest rates,
currency exchange rates and commodity prices. As a result, we enter into various
derivative transactions to manage a portion of these exposures to market risk
pursuant to our hedging practices and policies. The impacts of these hedging
instruments are offset by corresponding changes in the underlying exposures
being hedged. We achieve this by closely matching the amount, term and
conditions of the derivative instrument with the underlying risk being hedged.
We do not hold or issue derivative financial instruments for trading or other
speculative purposes. Derivatives positions are monitored using techniques
including market valuations and sensitivity analysis.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates to our
long-term debt obligations. At December 31, 1999, the fair value of our
long-term fixed rate debt was estimated at $2,340.0 million using quoted market
prices where available, or discounted cash flow analyses. Market risk associated
with our long-term debt is the potential increase in fair value resulting from a
decrease in interest rates. We use interest rate swaps to modify our exposure to
interest rate movements and manage our interest expense. Our interest rate swaps
are primarily floating rate instruments that are tied to LIBOR. The fair value
of our interest rate swaps was approximately $(13.7) million at December 31,
1999. A 10% decrease in assumed interest rates would increase the fair value of
our long-term debt by approximately $87.3 million. This increase would be
partially offset by an increase in the fair value of our interest rate swaps of
$14.3 million.
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Our directors and executive officers are listed below. Officers are
appointed by the Board of Directors.
At our 1999 Annual Meeting, our shareholders approved the establishment of
a classified board of directors. Four directors were elected for a term of one
year, four directors were elected for a term of two years and four directors
were elected for a term of three years, and until their successors are duly
elected and
22
qualified. In subsequent meetings, each newly elected director will serve three
years from the date of his or her election.
[Enlarge/Download Table]
NAME AGE POSITION
---- --- --------
Richard D. Fain(1)......................... 52 Chairman, Chief Executive Officer and
Director
Jack L. Williams........................... 50 President, Royal Caribbean International
Richard E. Sasso........................... 50 President, Celebrity Cruises
Richard J. Glasier......................... 54 Executive Vice President and Chief
Financial Officer
Bonnie S. Biumi............................ 37 Vice President and Treasurer
Michael J. Smith........................... 45 Vice President, General Counsel and
Secretary
Edwin W. Stephan(2)........................ 68 Director and Vice Chairman
Tor Arneberg(2)............................ 71 Director
Bernard W. Aronson(1)...................... 53 Director
John D. Chandris(1)........................ 49 Director
Kaspar K. Kielland(1)...................... 70 Director
Laura Laviada(3)........................... 49 Director
Jannik Lindbaek(2)......................... 61 Director
Eyal Ofer(3)............................... 49 Director
Thomas J. Pritzker(2)...................... 49 Director
William K. Reilly(3)....................... 60 Director
Arne Wilhelmsen(3)......................... 70 Director
---------------
(1) Term as a director ends in 2000
(2) Term as a director ends in 2001
(3) Term as a director ends in 2002
Richard D. Fain has served as our Chairman and Chief Executive Officer
since April 1988. Mr. Fain has served as a Director since 1981. Mr. Fain is vice
chairman of the International Council of Cruise Lines, an industry trade
organization, and served as its chairman from 1992 to 1994. Mr. Fain is a
director of Assuranceforeningen GARD, a mutual shipowners' insurance
organization. Mr. Fain has been involved in the shipping industry for over 20
years. Mr. Fain has served as a director of SEMX Corporation, a manufacturer of
electronics packaging materials, since November 1991.
Jack L. Williams has served as President of Royal Caribbean International
since January 1997. Formerly Vice President and General Sales Manager for
American Airlines, Mr. Williams had been employed at American Airlines for 23
years in a variety of positions in finance, marketing and operations. In his
most recent assignment, Mr. Williams was responsible for American Airlines'
sales programs and promotions worldwide.
Richard E. Sasso has served as President of Celebrity Cruises since January
1996. From the founding of Celebrity in 1990 through January 1996, Mr. Sasso
served as its Senior Vice President Sales and Marketing. Mr. Sasso has been
involved in the cruise industry for over 28 years.
Richard J. Glasier has served as our Executive Vice President and Chief
Financial Officer since June 1996 and as our Senior Vice President and Chief
Financial Officer since 1985. Mr. Glasier has held various senior financial
positions in the hospitality and cruise industry for 20 years.
Bonnie S. Biumi has served as our Vice President and Treasurer since May
1999. From December 1997 through May 1999, Ms. Biumi served as the Chief
Financial Officer of Neff Corp., a New York Stock Exchange listed equipment
rental company based in Miami, Florida. From 1994 through 1997, Ms. Biumi served
as Executive Vice President and Chief Financial Officer of People's Telephone
Company, Inc., a Miami-based publicly owned telecommunications services company.
Prior to that, Ms. Biumi was a senior manager with Price Waterhouse.
23
Michael J. Smith has served as our Vice President, General Counsel and
Secretary since February 1995 and Secretary and General Counsel since 1990.
Edwin W. Stephan has served as a Director since January 1996. From our
inception in 1968 through 1995, Mr. Stephan served as President or General
Manager of the Company. Mr. Stephan has been involved in the cruise industry for
over 30 years.
Tor Arneberg has served as a Director since November 1988. Mr. Arneberg is
a senior advisor and has served as an Executive Vice President of Nightingale &
Associates, a management consulting company, since 1982. From 1975 until 1982,
Mr. Arneberg co-founded and operated AgTek International, a company a company
involved in the commercial fishing industry. Prior to that, Mr. Arneberg was
director of marketing for Xerox Corporation. He is an executive trustee and vice
president of the American Scandinavian Foundation and received a silver medal in
the 1952 Summer Olympics in Helsinki, Finland as a member of the Norwegian
Olympic Yachting Team.
Bernard W. Aronson has served as a Director since July 1993. Mr. Aronson is
currently Managing Partner of ACON Investments, LLC. Prior to that he served as
international advisor to Goldman, Sachs & Co. From June 1989 to July 1993, Mr.
Aronson served as Assistant Secretary of State for Inter-American Affairs. Prior
to that, Mr. Aronson served in various positions in the private and government
sectors. Mr. Aronson is a member of the Council on Foreign Relations. Since
January, 1998, Mr. Aronson has served as a Director of Liz Claiborne, Inc.
John D. Chandris has served as a Director since July 1997. Mr. Chandris is
Chairman of Chandris (UK) Limited, a shipbrokering office based in London,
England. Until September 1997, Mr. Chandris also served as Chairman of Celebrity
Cruise Lines Inc. Mr. Chandris is a director of Leathbond Limited, a U.K. real
estate company, and serves on the Board of the classification society, Lloyd's
Register.
Kaspar K. Kielland has served as a Director since July 1993. Until May
1996, Mr. Kielland served as Chairman of Kvaerner A/S, a company of diversified
shipping, shipbuilding and energy businesses. From 1980 through 1988, Mr.
Kielland served as President and Chief Executive Officer of Elkem A/S, a company
engaged in aluminum and ferro-alloys. Since 1991, Mr. Kielland has served as a
Director of Anders Wilhelmsen & Co. A/S. In 1985, Mr. Kielland was awarded the
Knight 1st Class of the Royal Norwegian Order of St. Olav.
Laura Laviada has served as a Director since July 1997. Ms. Laviada is the
President and Chief Executive Officer of Editorial Televisa, a Spanish language
magazine publishing company based in Mexico and a Grupo Televisa subsidiary. A
former magazine editor, Ms. Laviada began her career in 1979 when she founded TU
magazine. In 1988, she created ERES and two years later created SOMOS. In 1995,
when Editorial Eres merged with Editorial Televisa, Ms. Laviada was named
President and Chief Executive Officer of the company.
Jannik Lindbaek has served as a Director since May 1999. From 1994 until
1999, Mr. Lindbaek served as Executive Vice President of International Finance
Corp., Washington D.C. International Finance Corp. is the private sector arm of
the World Bank Group and makes equity investments and loans to private sector
projects in developing countries. From 1986 until 1994, Mr. Lindbaek served as
President and Chief Executive Officer of Nordic Investment Bank, Helsinki,
Finland, a multilateral financial institution owned by the five Nordic
countries. From 1976 through 1985, Mr. Lindbaek served as President and Chief
Executive Officer of Storebrand Insurance Co., Oslo, Norway, the largest
insurance group in Norway. Mr. Lindbaek is a director of Vital Life Insurance
Co., Anders Wilhelmsen & Co. and Chairman of the Board (non-executive) of Den
norske Bank. Mr. Lindbaek also serves on the International Advisory Boards of
The Chubb Corporation and the East African Development Bank and is Chairman of
the Bergen Festival of Music and Drama, Bergen, Norway.
Eyal Ofer has served as a Director since May 1995. Mr. Ofer has served as
the Chief Executive Officer of Carlyle M.G. Limited since May 1991.
24
Thomas J. Pritzker has served as a Director since February 1999. Mr.
Pritzker is President of The Pritzker Organization and a partner in the law firm
of Pritzker & Pritzker. He is Chairman of Hyatt Hotels and Resorts and President
of Hyatt Corporation. Mr. Pritzker is also a founder and Chairman of First
Health Corporation, a publicly traded company engaged in the managed care
industry, and a founder and a director of Triton Container Holding, Ltd., a
major lessor of dry van containers. Mr. Pritzker is a member of the Board of
Trustees of the University of Chicago and the Art Institute of Chicago where he
is Chairman of the Committee on Asian Art.
William K. Reilly has served as a Director since January 1998. Mr. Reilly
is the Chief Executive Officer of Aqua International Partners, an investment
group which finances water purification in developing countries. From 1989 to
1993, Mr. Reilly served as the Administrator of the U.S. Environmental
Protection Agency. He has also previously served as the Payne Visiting Professor
at Stanford University's Institute of International Studies, president of World
Wildlife Fund and of The Conservation Foundation, executive director of the
Rockefeller Task Force on Land Use and Urban Growth and Chairman of the Natural
Resources Council of America. He serves on the Board of Trustees of the American
Academy in Rome, the National Geographic Society, World Wildlife Fund, the
Packard Foundation, Yale University Corporation and the Presidio Trust. He also
serves as a director of Dupont, Conoco and Evergreen Holdings.
Arne Wilhelmsen has served as a Director since 1968. Mr. Wilhelmsen, one of
our founders, is a principal and Chairman of the Board of Anders Wilhelmsen &
Co. A/S and other holding companies in the Anders Wilhelmsen & Co. Group. Mr.
Wilhelmsen has been involved in the shipping industry for over 40 years.
Our Compensation Committee consists of not less than two directors who are
not salaried officers of our company. The purpose of the Compensation Committee
is to review the compensation of our executives and to make determinations
relative to that. The current members of the Compensation Committee are Mr.
Arneberg and Mr. Aronson.
The Audit Committee consists of three directors. The purpose of the Audit
Committee is to provide general oversight of audit, legal compliance and
potential conflict of interest matters. The current members of the Audit
Committee are Messrs. Arneberg, Aronson and Lindbaek.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
CASH COMPENSATION
We paid our directors and officers (46 persons) aggregate cash compensation
of $12.0 million during the year ended December 31, 1999.
EXECUTIVE COMPENSATION PURSUANT TO PLANS
Executive Bonus Plan
Our Executive Bonus Plan provides a means of rewarding key executives who
contribute to our profitable growth. Annual bonuses under the Executive Bonus
Plan are paid to eligible executives based upon (i) the extent to which our
financial performance during the year meets certain established objectives and
(ii) the extent to which the executive attains established individual and
corporate performance objectives. The Executive Bonus Plan is administered by
the Compensation Committee of the Board of Directors.
Retirement Plan and Other Executive Compensation Plans
All eligible shoreside officers and employees are participants in our
Retirement Plan. Contributions of between 8% and 12% of the participant's
compensation (as defined in the plan), depending on the length of such
participant's employment, are made on an annual basis to the participant's
account. Benefits under the Retirement Plan are payable on the later of the date
the participant attains the age of 65 or the date the participant actually
retires, but in no event later than the April 1st following the calendar year in
which the participant attains the age of 70 1/2. Benefits are payable as
follows: (i) in a single lump sum, payable upon termination of employment; (ii)
as a life annuity, payable monthly upon retirement during the lifetime of the
employee; (iii) in installments payable upon retirement for a period not to
exceed 120 months; or (iv) a joint
25
and 50% surviving spouse annuity, payable monthly upon retirement during the
lifetime of the employee and spouse.
We also have a Supplemental Executive Retirement Plan ("SERP"). Under SERP,
we accrue, but do not fund, an annual amount for the account of each Company
Executive equal to the reduction in our contribution under the Retirement Plan
due to recently enacted changes to Section 401(a)(17) of the Code. Other terms
and benefits of SERP are the same as those of the Retirement Plan.
In connection with his employment, Richard D. Fain is entitled to receive
upon his cessation of employment by us for any reason the assets of a grantor
trust established by us for the benefit of Mr. Fain. We make quarterly
contributions of common stock to the grantor trust and will continue to do so
until the earlier of the cessation of Mr. Fain's employment or June 2014.
The aggregate amount set aside or accrued during 1999 to provide pension,
retirement or other executive compensation benefits for the 46 directors and
officers as a group was $1.3 million.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Our 1990 Employee Stock Option Plan provides for the issuance of options to
directors, officers and other key employees to purchase up to 6,703,000 shares
of our common stock. As of March 22, 2000 there were outstanding under the 1990
Employee Stock Option Plan options to purchase an aggregate of 3,777,982 shares
of common stock. The outstanding options are exercisable at prices ranging from
$7.24 to $44.19 per share and expire on various dates between January 31, 2001
and September 2, 2009. By its terms, the 1990 Employee Stock Option Plan
terminated on March 14, 2000. No new options may be granted under the plan
although all outstanding options still remain in effect.
Our 1995 Incentive Stock Option Plan provides for the issuance of options
to purchase up to 2,700,000 shares of our common stock to officers and other key
employees. In September 1999, the Board of Directors increased to 3,700,000 the
number of shares available for issuance of options under the Incentive Stock
Option Plan, subject to approval by our shareholders at the 2000 Annual Meeting.
As of March 22, 2000, there were outstanding under the 1995 Incentive Stock
Option Plan, options to purchase an aggregate of 2,695,590 shares of common
stock. The outstanding options are exercisable at prices ranging from $11.19 to
$48.00 per share and expire on various dates between February 3, 2005 and March
3, 2010.
In September 1999, our Board of Directors adopted the 2000 Stock Option
Plan, subject to approval by our shareholders at the 2000 Annual Meeting. The
2000 Stock Option Plan provides for the issuance of options to directors,
officers and other key employees to purchase up to 8,000,000 shares of our
common stock. As of March 22, 2000, there were outstanding under the 2000 Stock
Option Plan, options to purchase an aggregate of 2,461,600 shares of common
stock. The outstanding options are exercisable at prices ranging from $28.78 to
$48.00 per share and expire on various dates between September 2, 2009 and March
3, 2010.
In connection with our initial public offering in April 1993, we issued
379,714 stock options at an exercise price of $9.00 per share to one of our
officers. The options, which vested immediately, will generally expire upon
termination of the Officer's employment. As of March 22, 2000, 354,714 options
were outstanding.
The 1994 Employee Stock Purchase Plan provides for the grant of rights to
eligible employees to purchase a maximum of 800,000 shares of common stock. The
1994 Employee Stock Purchase Plan is generally available to all of our employees
who have been employed for at least one year and who customarily work at least
five months per calendar year. Offerings to employees under the 1994 Employee
Stock Purchase Plan are made on a quarterly basis. Subject to certain
limitations, the purchase price for each share of common stock under the 1994
Employee Stock Purchase Plan is equal to 90% of the average of the market prices
of the common stock as reported on the NYSE on the first business day of the
purchase period and the last business day of each month of the purchase period.
Effective January 1, 1998, we instituted a program, "Taking Stock in
Employees," to award stock to employees up to a maximum of 1,400,000 shares of
common stock. Employees are awarded 50 shares of our
26
common stock which vest over a 10-year period. Employees can elect to receive
cash equal to the fair market value of the stock upon vesting. Compensation
expense was $3.3 million in 1999 related to this program.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Not applicable.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
In February 1999, we amended our By-Laws to increase the shareholder vote
to call a special meeting from 20% to 50%. Effective as of the 1999 Annual
Meeting, we also amended the By-Laws to require that any shareholder proposal or
nomination for election to the Board of Directors must be submitted to our
Secretary at least 120 days in advance of the first anniversary of our last
annual meeting.
In May 1999, we (i) amended our By-Laws and Articles of Incorporation to
provide for a classified Board of Directors, and (ii) amended our Articles of
Incorporation to increase, subject to certain exceptions, from a majority to
66 2/3% the number of outstanding shares needed to amend the Articles of
Incorporation or to approve any shareholder proposed amendment to the By-Laws.
This latter amendment does not apply to any amendment to the Articles of
Incorporation (a) to change our registered agent or registered address; (b) to
change the authorized number of shares of our stock which we shall have
authority to issue; and (c) which arises from the filing of a copy of a
resolution establishing and designating the shares of any class or any series of
any class.
PART IV
ITEM 17. FINANCIAL STATEMENTS
Our Consolidated Financial Statements have been prepared in accordance with
Item 18 hereof.
ITEM 18. FINANCIAL STATEMENTS
Our Consolidated Financial Statements are included beginning at page F-1 of
this report and are hereby incorporated herein by this reference.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) The list of financial statements is set forth in the accompanying Index
to Consolidated Financial Statements and is hereby incorporated herein by this
reference.
(b) The exhibits listed on the accompanying Exhibit Index are filed and
incorporated by reference as part of this report and such Exhibit Index is
hereby incorporated by this reference.
27
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROYAL CARIBBEAN CRUISES LTD.
(Registrant)
By: /s/ RICHARD J. GLASIER
------------------------------------
Richard J. Glasier
Executive Vice President and
Chief Financial Officer
Date: April 4, 2000
28
ROYAL CARIBBEAN CRUISES LTD.
FINANCIAL TABLE OF CONTENTS
[Download Table]
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Operations....................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Cash Flows....................... F-5
Notes to the Consolidated Financial Statements.............. F-6
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Directors
of Royal Caribbean Cruises Ltd.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of cash flows present fairly,
in all material respects, the financial position of Royal Caribbean Cruises Ltd.
and its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Miami, Florida
January 28, 2000
F-2
ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
INCOME STATEMENT
Revenues................................................... $2,546,152 $2,636,291 $1,939,007
---------- ---------- ----------
Expenses
Operating................................................ 1,496,252 1,593,728 1,219,268
Marketing, selling and administrative.................... 371,817 359,214 272,368
Depreciation and amortization............................ 197,909 194,614 143,816
---------- ---------- ----------
2,065,978 2,147,556 1,635,452
---------- ---------- ----------
Operating Income........................................... 480,174 488,735 303,555
---------- ---------- ----------
Other Income (Expense)
Interest income.......................................... 8,182 15,912 4,666
Interest expense, net of capitalized interest............ (130,625) (167,869) (128,531)
Other income (expense)................................... 26,122 (6,008) 2,995
---------- ---------- ----------
(96,321) (157,965) (120,870)
---------- ---------- ----------
Income Before Extraordinary Item........................... 383,853 330,770 182,685
Extraordinary Item......................................... -- -- (7,558)
---------- ---------- ----------
Net Income................................................. $ 383,853 $ 330,770 $ 175,127
========== ========== ==========
EARNINGS PER SHARE
Basic Earnings Per Share
Income before extraordinary item......................... $ 2.15 $ 1.90 $ 1.22
Extraordinary item....................................... -- -- (0.05)
---------- ---------- ----------
Net income............................................... $ 2.15 $ 1.90 $ 1.17
========== ========== ==========
Diluted Earnings Per Share
Income before extraordinary item......................... $ 2.06 $ 1.83 $ 1.20
Extraordinary item....................................... -- -- (0.05)
---------- ---------- ----------
Net income............................................... $ 2.06 $ 1.83 $ 1.15
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
[Enlarge/Download Table]
AS OF DECEMBER 31,
------------------------
1999 1998
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents................................. $ 63,470 $ 172,921
Trade and other receivables, net.......................... 53,459 36,532
Inventories............................................... 26,398 31,834
Prepaid expenses.......................................... 51,050 45,044
---------- ----------
Total current assets.............................. 194,377 286,331
Property and Equipment-at cost less accumulated depreciation
and amortization.......................................... 5,858,185 5,073,008
Goodwill -- less accumulated amortization of $117,778
and $107,365, respectively................................ 299,388 309,801
Other Assets................................................ 28,561 16,936
---------- ----------
$6,380,511 $5,686,076
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt......................... $ 128,086 $ 127,919
Accounts payable.......................................... 103,041 115,833
Accrued liabilities....................................... 209,104 243,477
Customer deposits......................................... 465,033 402,926
---------- ----------
Total current liabilities......................... 905,264 890,155
Long-Term Debt.............................................. 2,214,091 2,341,163
Commitments and Contingencies (Note 12)
Shareholders' Equity
Preferred stock ($.01 par value; 20,000,000 shares
authorized; 3,450,000 cumulative convertible preferred
shares issued; 3,444,000 and 3,450,000 shares
outstanding stated at liquidation value)............... 172,200 172,500
Common stock ($.01 par value; 500,000,000 shares
authorized 181,217,378 and 168,945,222 shares
issued)................................................ 1,812 1,690
Paid-in capital........................................... 1,866,647 1,361,796
Retained earnings......................................... 1,225,976 923,691
Treasury stock (394,836 and 354,492 common shares at
cost).................................................. (5,479) (4,919)
---------- ----------
Total shareholders' equity........................ 3,261,156 2,454,758
---------- ----------
$6,380,511 $5,686,076
========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- ----------- -----------
OPERATING ACTIVITIES
Net income................................................ $383,853 $ 330,770 $ 175,127
Adjustments:
Depreciation and amortization........................... 197,909 194,614 143,816
Gain on sale of assets.................................. -- (31,031) (4,000)
Write-down of vessel to fair value...................... -- 32,035 --
Extraordinary item...................................... -- -- 2,387
Changes in operating assets and liabilities:
(Increase) decrease in trade and other receivables,
net.................................................. (16,927) (13,904) 145
Decrease (increase) in inventories...................... 5,436 5,440 (1,885)
Increase in prepaid expenses............................ (6,006) (3,600) (6,206)
(Decrease) increase in accounts payable, trade.......... (12,792) 7,359 2,010
(Decrease) increase in accrued liabilities.............. (34,373) 27,722 31,299
Increase (decrease) in customer deposits................ 62,107 (26,477) 89,896
Other, net.............................................. 4,151 3,930 1,532
-------- ----------- -----------
Net cash provided by operating activities....... 583,358 526,858 434,121
-------- ----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment........................ (972,481) (556,953) (1,106,214)
Proceeds from sale of assets.............................. -- 94,500 99,966
Acquisition of Celebrity Cruise Lines Inc., net of cash,
cash equivalents and short-term investments acquired.... -- -- (152,423)
Other, net................................................ (14,963) 247 (11,802)
-------- ----------- -----------
Net cash used in investing activities........... (987,444) (462,206) (1,170,473)
-------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.................. -- 296,141 695,189
Repayment of long-term debt............................... (127,919) (403,178) (367,353)
Dividends................................................. (81,568) (67,734) (49,984)
Proceeds from issuance of common stock.................... 487,399 165,532 364,631
Proceeds from issuance of preferred stock................. -- -- 167,030
Other, net................................................ 16,723 6,715 (2,787)
-------- ----------- -----------
Net cash provided by (used in) financing
activities.................................... 294,635 (2,524) 806,726
-------- ----------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents...... (109,451) 62,128 70,374
Cash and Cash Equivalents, Beginning of Year.............. 172,921 110,793 40,419
-------- ----------- -----------
Cash and Cash Equivalents, End of Year.................... $ 63,470 $ 172,921 $ 110,793
======== =========== ===========
SUPPLEMENTAL DISCLOSURE
Interest paid, net of amount capitalized.................. $133,925 $ 170,278 $ 127,457
======== =========== ===========
Capital stock issued for acquisition...................... $ -- $ -- $ 270,000
======== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
Description of Business
Royal Caribbean Cruises Ltd., a Liberian corporation, and its subsidiaries
(the "Company"), is a global cruise company. The Company operates two cruise
brands, Royal Caribbean International, which operates 12 cruise ships, and
Celebrity Cruises, which operates five cruise ships. The Company's ships operate
worldwide and call on destinations in Alaska, Australia, the Bahamas, Bermuda,
Canada, the Caribbean, Europe, the Far East, Hawaii, Mexico, New England, the
Panama Canal and Scandinavia.
Basis for Preparation of Consolidated Financial Statements
The consolidated financial statements are prepared in accordance with U.S.
generally accepted accounting principles and are presented in U.S. dollars.
Management estimates are required for the preparation of financial statements in
accordance with generally accepted accounting principles. Actual results could
differ from these estimates. All significant intercompany accounts and
transactions are eliminated in consolidation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cruise Revenues and Expenses
Deposits received on sales of guest cruises are recorded as customer
deposits and are recognized, together with revenues from shipboard activities
and all associated direct costs of a voyage, upon completion of voyages with
durations of 10 days or less and on a pro rata basis for voyages in excess of 10
days. Certain revenues and expenses for pro rata voyages are estimated.
Cash and Cash Equivalents
Cash and cash equivalents include cash and marketable securities with
original maturities of less than 90 days.
Inventories
Inventories consist of provisions, supplies, fuel and gift shop merchandise
carried at the lower of cost (weighted-average) or market.
Property and Equipment
Property and equipment are stated at cost. Significant vessel improvement
costs are capitalized as additions to the vessel, while costs of repairs and
maintenance are charged to expense as incurred. The Company capitalizes interest
as part of the cost of construction. The Company reviews long-lived assets,
identifiable intangibles and goodwill and reserves for impairment whenever
events or changes in circumstances indicate, based on estimated future cash
flows, that the carrying amount of the assets will not be fully recoverable.
Depreciation of property and equipment, which includes amortization of
vessels under capital lease, is computed using the straight-line method over
useful lives of primarily 30 years for vessels and three to 10 years for other
property and equipment. (See Note 5-Property and Equipment.)
Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired and is being amortized over 40 years using the straight-line method.
F-6
ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising Costs
Advertising costs are expensed as incurred except those costs which result
in tangible assets, such as brochures, are treated as prepaid supplies and
charged to operations as consumed. Advertising expense consists of media
advertising as well as brochure, production and direct mail costs. Media
advertising was $93.1, $76.7 and $62.5 million, and brochure, production and
direct mail costs were $57.4, $63.2 and $33.7 million for the years 1999, 1998
and 1997, respectively.
Drydocking
Drydocking costs are accrued evenly over the period to the next scheduled
drydocking and are included in accrued liabilities.
Financial Instruments
The Company enters into various forward, option and swap contracts to limit
its exposure to fluctuations in foreign currency exchange rates and oil prices,
to modify its exposure to interest rate movements and to manage its interest
costs. The differential in interest rates and oil prices to be paid or received
under these agreements is recognized in income over the life of the contracts as
part of interest expense and fuel expense, respectively. Foreign exchange
forward and/or option contracts are revalued as of the balance sheet date based
on forward and/or option contracts with comparable characteristics, and
resulting gains and losses are recognized in income currently.
Foreign Currency Transactions
The majority of the Company's transactions are settled in U.S. dollars.
Gains or losses resulting from transactions denominated in other currencies and
remeasurements of other currencies are recognized in income currently.
Earnings Per Share
Basic earnings per share is computed by dividing net income, after
deducting preferred stock dividends accumulated during the period, by the
weighted-average number of shares of common stock outstanding during each
period. Diluted earnings per share is computed by dividing net income by the
weighted-average number of shares of common stock, common stock equivalents and
other potentially dilutive securities outstanding during each period.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method and discloses certain fair market value information with respect to its
stock option activity in the notes to the financial statements.
Segment Reporting
The Company operates two brands, Royal Caribbean International and
Celebrity Cruises. The brands have been aggregated as a single operating segment
based on the similarity of their economic characteristics as well as product and
services provided.
F-7
ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information about geographic areas is shown in the table below. Revenues
are attributed to geographic areas based on the source of the customer.
[Download Table]
1999 1998 1997
---- ---- ----
Revenues:
United States............................................... 83% 84% 85%
All Other Countries......................................... 17% 16% 15%
NOTE 3. STOCK SPLIT
On June 23, 1998, the Company authorized a two-for-one split of its common
stock effected in the form of a stock dividend. The additional shares were
distributed on July 31, 1998 to shareholders of record on July 10, 1998. All
share and per share information has been retroactively restated to reflect this
stock split.
NOTE 4. ACQUISITION
In July 1997, the Company acquired all of the outstanding stock of
Celebrity Cruise Lines Inc. ("Celebrity"), a provider of cruises to the North
American market. The purchase price was $515.0 million, payable in cash of
$245.0 million and 14,896,552 shares of the Company's common stock. This
acquisition has been accounted for under the purchase method and the results of
the operations of Celebrity have been included in the consolidated financial
statements since July 1, 1997. The total cost of the acquisition was allocated
to the tangible assets acquired and liabilities assumed based on their
respective fair values.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company, including Celebrity, as if
the acquisition had occurred January 1, 1997 (in thousands, except per share
amounts).
[Download Table]
1997
----------
Revenue..................................................... $2,196,571
Income before extraordinary item............................ $ 174,406
Net income.................................................. $ 166,848
Earnings per share
Income before extraordinary item
Basic..................................................... $ 1.10
Diluted................................................... $ 1.10
Net income
Basic..................................................... $ 1.05
Diluted................................................... $ 1.05
The unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as additional depreciation expense as
a result of a step-up in the basis of fixed assets and increased interest
expense on acquisition debt. They do not purport to be indicative of the results
which would actually have been achieved if this acquisition had been effected on
the date indicated or of those results which may be obtained in the future.
F-8
ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
[Enlarge/Download Table]
1999 1998
---------- ----------
Land........................................................ $ 7,549 $ 5,320
Vessels..................................................... 5,158,278 4,457,070
Vessels under capital lease................................. 766,826 763,350
Vessels under construction.................................. 495,483 285,243
Other....................................................... 223,920 170,290
---------- ----------
6,652,056 5,681,273
Less -- accumulated depreciation and amortization........... (793,871) (608,265)
---------- ----------
$5,858,185 $5,073,008
========== ==========
Vessels under construction includes progress payments for the construction
of new vessels as well as planning, design, interest, commitment fees and other
associated costs. The Company capitalized interest costs of $34.6, $15.0 and
$15.8 million for the years 1999, 1998 and 1997, respectively. Accumulated
amortization related to vessels under capital lease was $90.2 and $67.9 million
at December 31, 1999 and 1998, respectively.
In May 1998, the Company sold Song of America for $94.5 million and
recognized a gain on the sale of $31.0 million which is included in Other income
(expense). In the second quarter of 1998, the Company incurred a $32.0 million
charge related to the write-down to fair market value of Viking Serenade. Based
on the Company's strategic objectives, the unique circumstances of this vessel
and indications of the current value of Viking Serenade, the Company recorded a
write-down of the carrying value to its estimated fair market value which is
included in Other income (expense). The Company continues to operate and
depreciate the vessel which is classified as part of Property and Equipment on
the balance sheet.
In October 1997, the Company sold Sun Viking for $30.0 million and
recognized a gain on the sale of $4.0 million. In September 1997, the Company
sold Meridian. The sale price was $62.1 million and there was no gain or loss
recognized in the transaction. The Company has recorded the gains in Other
income (expense).
F-9
ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
[Enlarge/Download Table]
1999 1998
---------- ----------
$1 billion revolving credit facility, LIBOR plus 0.30%
interest rate on balances outstanding, 0.15% facility fee,
due 2003.................................................. $ -- $ --
Senior Notes and Senior Debentures bearing interest at rates
ranging from 6.75% to 8.25%, due 2002 through 2008, 2018
and 2027.................................................. 1,391,012 1,390,006
Unsecured fixed rate loan bearing interest at 8.0%, due
2006...................................................... 159,703 185,277
Fixed rate loans bearing interest at rates ranging from 6.7%
to 8.0%, due through 2005, secured by certain Celebrity
vessels................................................... 322,084 403,560
Variable rate loans bearing interest at 6.5% through Nov.
2001, LIBOR plus 0.45% through 2004, due through 2004,
secured by certain Celebrity vessels...................... 25,342 30,978
Capital lease obligations, implicit interest rates ranging
from 7.0% to 7.2%, due through 2011....................... 444,036 459,261
---------- ----------
2,342,177 2,469,082
Less -- current portion..................................... (128,086) (127,919)
---------- ----------
Long-term portion........................................... $2,214,091 $2,341,163
========== ==========
Under the Company's $1.0 billion unsecured revolving credit facility (the
"$1 Billion Revolving Credit Facility"), the contractual interest rate on
balances outstanding varies with the Company's debt rating.
In March 1998, the Company issued $150.0 million of 6.75% Senior Notes due
2008 and $150.0 million of 7.25% Senior Debentures due 2018. Net proceeds to the
Company were approximately $296.1 million.
In May 1997, the Company redeemed the remaining $104.5 million of 11 3/8%
Senior Subordinated Notes and incurred an extraordinary charge of approximately
$7.6 million, or $0.05 per share on the early extinguishment of debt.
The Senior Notes and Senior Debentures are unsecured and are not redeemable
prior to maturity.
The Company entered into a $264.0 million capital lease to finance
Splendour of the Seas and a $260.0 million capital lease to finance Legend of
the Seas in 1996 and 1995, respectively. The capital leases each have
semi-annual payments of $12.0 million over 15 years with final payments of $99.0
and $97.5 million, respectively.
The Company's debt agreements contain covenants that require the Company,
among other things, to maintain minimum liquidity amounts, net worth and fixed
charge coverage ratios and limit debt to capital ratios. The Company is in
compliance with all covenants as of December 31, 1999. Following is a schedule
of principal repayments on long-term debt (in thousands):
[Download Table]
YEAR
----
2000........................................................ $ 128,086
2001........................................................ 109,982
2002........................................................ 260,009
2003........................................................ 110,948
2004........................................................ 217,940
Thereafter.................................................. 1,515,212
----------
$2,342,177
==========
F-10
ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. SHAREHOLDERS' EQUITY
The following represents an analysis of the changes in shareholders' equity
for the years 1999, 1998 and 1997 (in thousands):
[Enlarge/Download Table]
PREFERRED COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
--------- ------ ---------- ---------- -------- ----------
Balance, January 1, 1997.................. $ -- $1,276 $ 551,945 $ 535,512 $(3,799) $1,084,934
Issuance of Convertible Preferred Stock... 172,500 -- (5,470) -- -- 167,030
Acquisition of Celebrity Cruise Lines
Inc..................................... -- 148 269,852 -- -- 270,000
Issuance of Common Stock.................. -- 187 364,444 -- -- 364,631
Issuance under Employee Related Plans..... -- 10 7,533 -- (560) 6,983
Preferred stock dividends................. -- -- -- (9,201) -- (9,201)
Common stock dividends.................... -- -- -- (40,783) -- (40,783)
Net Income................................ -- -- -- 175,127 -- 175,127
-------- ------ ---------- ---------- ------- ----------
Balance, December 31, 1997................ 172,500 1,621 1,188,304 660,655 (4,359) 2,018,721
Issuance of Common Stock.................. -- 61 165,471 -- -- 165,532
Issuance under Employee Related Plans..... -- 8 8,021 -- (560) 7,469
Preferred stock dividends................. -- -- -- (12,506) -- (12,506)
Common stock dividends.................... -- -- -- (55,228) -- (55,228)
Net Income................................ -- -- -- 330,770 -- 330,770
-------- ------ ---------- ---------- ------- ----------
Balance, December 31, 1998................ 172,500 1,690 1,361,796 923,691 (4,919) 2,454,758
Issuance of Common Stock.................. -- 108 487,291 -- -- 487,399
Issuance under Preferred Stock
Conversion.............................. (300) -- 300 -- -- --
Issuance under Employee Related Plans..... -- 14 17,260 -- (560) 16,714
Preferred stock dividends................. -- -- -- (12,506) -- (12,506)
Common stock dividends.................... -- -- -- (69,062) -- (69,062)
Net Income................................ -- -- -- 383,853 -- 383,853
-------- ------ ---------- ---------- ------- ----------
Balance, December 31, 1999................ $172,200 $1,812 $1,866,647 $1,225,976 $(5,479) $3,261,156
======== ====== ========== ========== ======= ==========
In 1999, the Company completed a public offering of 11,625,000 shares of
common stock at a price of $46.69 per share. Of the total shares sold,
10,825,000 shares were sold by the Company and the balance of 800,000 shares
were sold by a selling shareholder. After deduction of the underwriting discount
and other estimated expenses of the offering, net proceeds to the Company were
approximately $487.4 million.
In March 1998, the Company completed a public offering of 13,800,000 shares
of common stock at a price of $28.25 per share. Of the total shares sold,
6,100,690 shares were sold by the Company, and the balance of 7,699,310 shares
were sold by selling shareholders. After deduction of the underwriting discount
and other estimated expenses of the offering, net proceeds to the Company were
approximately $165.5 million.
In February 1997, the Company issued 3,450,000 shares of $3.625 Series A
Convertible Preferred Stock (the "Convertible Preferred Stock"). The Convertible
Preferred Stock has a liquidation preference of $50 per share and is convertible
by the holder at any time into shares of common stock at a conversion price of
$16.20 per share of common stock (equivalent to a conversion rate of 3.0864
shares of common stock for each share of Convertible Preferred Stock). The
shares of Convertible Preferred Stock are redeemable, at the option of the
Company, subsequent to February 16, 2000 at pre-established redemption prices.
The Company's Employee Stock Purchase Plan facilitates the purchase by
employees of up to 800,000 shares of common stock commencing January 1, 1994.
The purchase price is derived from a formula based on 90% of the fair market
value of the common stock during the quarterly purchase period, subject to
certain restrictions. Shares of common stock of 35,263, 35,546 and 33,276 were
issued under the Employee Stock Purchase Plan at an average price of $37.81,
$28.33 and $16.48 during 1999, 1998 and 1997, respectively.
F-11
ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under an executive compensation program approved in 1994, the Company will
award to a trust 10,086 shares of common stock per quarter, up to a maximum of
806,880 shares. The Company issued 40,344 shares each year under the program
during 1999, 1998 and 1997.
The Company has an Employee Stock Option Plan and an Incentive Stock Option
Plan which provide for awards to officers, directors and key employees of the
Company up to an aggregate 14,703,000 shares and 3,700,000 shares of common
stock, respectively. Options are granted at a price not less than the fair value
of the shares on the date of grant and expire not later than 10 years after the
date of grant. Options under the Employee Stock Option Plan generally become
exercisable as to 40% of the amount granted two years after the grant date and
20% of the amount granted at the end of each of the three succeeding years.
Options under the Incentive Stock Option Plan generally become exercisable as to
25% of the amount granted two years after the grant date and 25% of the amount
granted at the end of each of the three succeeding years.
Stock option activity and information about stock options are summarized in
the following tables.
[Download Table]
NUMBER OF AVERAGE
STOCK OPTION ACTIVITY OPTIONS PRICE
--------------------- ---------- -------
Balance at January 1, 1997.................................. 5,321,700 $10.81
Granted................................................... 1,080,000 $19.49
Exercised................................................. (831,608) $ 7.87
Canceled.................................................. (95,776) $13.16
----------
Balance at December 31, 1997................................ 5,474,316 $12.92
Granted................................................... 2,013,000 $25.07
Exercised................................................. (652,474) $ 9.90
Canceled.................................................. (342,452) $16.74
----------
Balance at December 31, 1998................................ 6,492,390 $16.78
Granted................................................... 2,285,500 $39.23
Exercised................................................. (1,318,714) $11.01
Canceled.................................................. (565,004) $23.03
----------
Balance at December 31, 1999................................ 6,894,172 $24.82
==========
Available for Future Grants, end of the Year................ 8,553,864
STOCK OPTIONS OUTSTANDING
AS OF DECEMBER 31, 1999
[Enlarge/Download Table]
OUTSTANDING EXERCISABLE
-------------------------------------- --------------------------
AVERAGE
REMAINING AVERAGE AVERAGE
EXERCISE PRICE RANGE SHARES LIFE EXERCISE PRICE SHARES EXERCISE PRICE
-------------------- --------- --------- -------------- --------- --------------
$7.24 - $12.16......................... 923,430 4.6 years $ 9.96 653,380 $ 9.35
$13.31 - $19.97........................ 1,649,842 6.2 years $14.59 916,850 $13.98
$21.92 - $32.85........................ 2,155,400 8.3 years $24.34 78,950 $21.92
$35.09 - $44.19........................ 2,165,500 9.4 years $39.42 -- --
--------- ---------
6,894,172 7.6 years $24.82 1,649,180 $12.53
========= =========
The Company uses the intrinsic value method of accounting for stock-based
compensation. Had the fair value based method been used to account for such
compensation, compensation costs would have reduced net income by $15.0, $8.2
and $4.0 million or $0.08, $0.05 and $0.03 per share in 1999, 1998 and 1997,
respectively. The weighted-average fair value of options granted during 1999,
1998 and 1997 was $15.52, $10.49 and $7.80, respectively. Fair market value
information for the Company's stock options for 1999, 1998 and 1997 was
estimated using the Black-Scholes Model assuming an expected dividend rate of
1.0% in 1999
F-12
ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 1.5% in 1998 and 1997, an estimated term of six years, a risk-free rate of
return of approximately 5% in 1999 and 1998 and 6% in 1997, and an expected
volatility of 35.6%, 35.0% and 28.0% in 1999, 1998 and 1997, respectively.
Effective January 1, 1998, the Company instituted a program, "Taking Stock
in Employees," to award stock to employees up to a maximum of 1,400,000 shares
of common stock. Employees are awarded 50 shares of the Company's stock which
vest over a 10-year period. Employees can elect to receive cash equal to the
fair market value of the stock upon vesting. Compensation expense was $3.3 and
$3.6 million in 1999 and 1998, respectively, related to this program.
NOTE 8. EARNINGS PER SHARE
Below is a reconciliation between basic and diluted earnings per share
before extraordinary item for the years ended December 31, 1999, 1998 and 1997
(in thousands, except per share amounts).
[Enlarge/Download Table]
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1999 1998 1997
-------------------------- -------------------------- --------------------------
PER PER PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
-------- ------- ----- -------- ------- ----- -------- ------- -----
Income before extraordinary item......... $383,853 $330,770 $182,685
Less: Preferred stock dividend........... (12,506) (12,506) (10,765)
-------- -------- --------
Basic earnings per share................. 371,347 172,319 $2.15 318,264 167,577 $1.90 171,920 141,010 $1.22
===== ===== =====
Effect of Dilutive Securities
Stock options.......................... 3,508 2,940 1,978
Convertible preferred stock............ 12,506 10,629 12,506 10,648 10,765 9,186
-------- ------- -------- ------- -------- -------
Diluted earnings per share............... $383,853 186,456 $2.06 $330,770 181,165 $1.83 $182,685 152,174 $1.20
======== ======= ===== ======== ======= ===== ======== ======= =====
Extraordinary loss per share for the year ended 1997 for basic and diluted
earnings per share was ($0.05).
NOTE 9. RETIREMENT PLANS
The Company maintains a defined contribution pension plan covering all of
its full-time shoreside employees who have completed the minimum period of
continuous service. Annual contributions to the plan are based on fixed
percentages of participants' salaries and years of service, not to exceed
certain maximums. Pension cost was $7.2, $6.9 and $4.9 million for the years
1999, 1998 and 1997, respectively.
Effective January 1, 2000, the Company instituted a defined benefit pension
plan to cover all of its shipboard employees not covered under another pension
plan. Benefits to eligible employees are accrued based on the employee's years
of service. The Company made an initial funding pursuant to this plan as of
December 31, 1999.
NOTE 10. INCOME TAXES
The Company and the majority of its subsidiaries are not subject to U.S.
corporate income tax on income generated from the international operation of
ships pursuant to Section 883 of the Internal Revenue Code, provided that they
meet certain tests related to country of incorporation and composition of
shareholders. The Company believes that it and a majority of its subsidiaries
meet these tests. Income tax expense related to the Company's remaining
subsidiaries is not significant.
F-13
ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11. FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
[Enlarge/Download Table]
1999 1998
------------------------- -------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
Cash and Cash Equivalents........... $ 63,470 $ 63,470 $ 172,921 $ 172,921
Long-Term Debt (including current
portion of long-term debt)........ (2,342,177) (2,339,960) (2,469,082) (2,564,985)
Interest Rate Swap Agreements in a
net receivable (payable)
position.......................... 2,130 (13,661) 2,370 48,558
The carrying amounts shown are the amounts reported in the consolidated
balance sheets. 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 December 31, 1999 or
1998 or that will be realized in the future and do not include expenses that
could be incurred in an actual sale or settlement. The following methods were
used to estimate the fair values of the Company's financial instruments, none of
which are held for trading or speculative purposes:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
Long-Term Debt
The fair values of the $1 Billion Revolving Credit Facility, the capital
leases, the secured fixed and variable rate loans and the unsecured fixed rate
loan were estimated based on the market rates available to the Company for
similar debt with the same remaining maturities. The fair values of the Senior
Notes and Senior Debentures were estimated by obtaining quoted market prices.
Interest Rate Swap Agreements
The fair value of interest rate swap agreements was estimated based on
quoted market prices for similar or identical financial instruments to those
held by the Company. The Company's exposure to market risk for changes in
interest rates relates to its long-term debt obligations. Market risk associated
with the Company's long-term debt is the potential increase in fair value
resulting from a decrease in interest rates. The Company uses interest rate
swaps to modify its exposure to interest rate movements and manage its interest
expense. As of December 31, 1999, the Company had agreements in effect which
exchanged fixed interest rates for floating interest rates in a notional amount
of $850.0 million maturing in 2002 through 2008.
The Company has exposure under these interest rate swap agreements for the
cost of replacing the contracts in the event of nonperformance by the
counterparties, all of which are currently the Company's lending banks. To
minimize that risk, the Company limits its exposure to any individual
counterparty and selects counterparties with credit risks acceptable to the
Company.
During June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137, Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement 133. The Statement defers the effective date of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, until January 1,
2000 for the Company. The Company has not yet determined the impact that the
adoption of SFAS No. 133 will have on its earnings or statement of financial
position.
F-14
ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES
Capital Expenditures
The Company has 10 ships on order. Two are Voyager-class vessels designated
for the Royal Caribbean International fleet, which are scheduled for delivery in
the third quarter of 2000 and first quarter of 2002. The Company also has four
Vantage-class vessels designated for the Royal Caribbean International fleet
scheduled for delivery in the first quarter of 2001 and second quarters of 2002,
2003 and 2004 and four Millennium-class vessels designated for the Celebrity
Cruises fleet, scheduled for delivery in the second quarter of 2000, first
quarter of 2001, third quarter of 2001 and second quarter of 2002. The aggregate
contract price of the 10 ships, which excludes capitalized interest and other
ancillary costs, is approximately $3.9 billion, of which the Company deposited
$247.0 million during 1999, $119.3 million during 1998 and $23.7 million during
1997. Additional deposits are due prior to the dates of delivery of $88.1
million in 2000, $64.6 million in 2001 and $39.6 million in 2002.
Litigation
In July 1999, the Company entered into a plea agreement with the U.S.
Department of Justice resolving a series of federal grand jury investigations of
the Company's waste disposal practices. The Company was assessed fines of $18.0
million of which $4.0 million had previously been accrued in connection with the
plea agreement. In January 2000, the Company entered into a settlement with the
State of Alaska resolving a civil lawsuit relating to the same incidents. The
settlement calls for the Company to make payments totaling $3.3 million, which
were accrued in 1999.
Beginning in August 1996, several purported class action suits were filed
alleging that Royal Caribbean International and Celebrity should have paid
commissions to travel agents on a portion of the port charges that were included
in the price of cruise fares. The suits seek damages in an unspecified amount.
Similar suits are pending against other companies in the cruise industry. In
December 1998, a Florida state court dismissed one of the suits for failure to
state a claim under Florida law. The plaintiff in that case has filed an appeal
of that decision. The Company is not able at this time to estimate the timing or
impact of these proceedings on the Company.
In April 1999, a lawsuit was filed in the United States District Court for
the Southern District of New York on behalf of current and former crew members
alleging that the Company failed to pay the plaintiffs their full wages. The
suit seeks payment of (i) the wages alleged to be owed, (ii) penalty wages under
U.S. law and (iii) punitive damages. In November 1999, a purported class action
suit was filed in the same court alleging a similar cause of action. The Company
is not able at this time to estimate the impact of these proceedings on the
Company; there can be no assurance that such proceedings, if decided adversely,
would not have a material adverse effect on the Company's results of operations.
The Company is routinely involved in other claims typical to the cruise
industry. The majority of these claims are covered by insurance. Management
believes that the outcome of such other claims which are not covered by
insurance are not expected to have a material adverse effect upon the Company's
financial condition or results of operations.
F-15
ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating Leases
The Company is obligated under noncancelable operating leases for various
facilities, primarily office and warehouse space. As of December 31, 1999,
future minimum lease payments under noncancelable operating leases were as
follows (in thousands):
[Download Table]
YEAR
----
2000........................................................ $ 5,485
2001........................................................ 4,882
2002........................................................ 4,523
2003........................................................ 4,058
2004........................................................ 3,849
Thereafter.................................................. 22,414
-------
$45,211
=======
Total rent expense for all operating leases amounted to $5.1, $6.9 and $5.7
million for the years 1999, 1998 and 1997, respectively.
Other
At December 31, 1999, the Company has commitments through 2014 to pay a
minimum amount for its annual usage of certain port facilities as follows (in
thousands):
[Download Table]
YEAR
----
2000........................................................ $ 9,720
2001........................................................ 11,238
2002........................................................ 13,050
2003........................................................ 12,524
2004........................................................ 13,302
Thereafter.................................................. 138,060
--------
$197,894
========
NOTE 13. QUARTERLY DATA (UNAUDITED)
[Enlarge/Download Table]
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------------- ------------------- ------------------- -------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues.............................. $610,046 $659,777 $617,664 $656,456 $734,460 $744,910 $583,982 $575,148
Operating Income...................... 108,390 119,461 108,110 121,533 198,225 183,592 65,449 64,149
-------- -------- -------- -------- -------- -------- -------- --------
Net Income............................ $ 90,196 $ 77,537 $ 85,347 $ 79,770 $169,972 $150,038 $ 38,338 $ 23,425
======== ======== ======== ======== ======== ======== ======== ========
Earnings Per Share
Basic............................... $ 0.52 $ 0.45 $ 0.49 $ 0.45 $ 0.98 $ 0.87 $ 0.19 $ 0.12
-------- -------- -------- -------- -------- -------- -------- --------
Diluted............................. $ 0.49 $ 0.44 $ 0.47 $ 0.44 $ 0.92 $ 0.82 $ 0.19 $ 0.12
-------- -------- -------- -------- -------- -------- -------- --------
Dividends Declared Per Share.......... $ 0.09 $ 0.08 $ 0.09 $ 0.08 $ 0.11 $ 0.09 $ 0.11 $ 0.09
-------- -------- -------- -------- -------- -------- -------- --------
F-16
INDEX TO EXHIBITS
[Download Table]
EXHIBIT DESCRIPTION
------- -----------
1.1 -- Third Supplemental Agreement dated September 2, 1999 to Loan
Facility Agreement dated November 29, 1993 between Esker
Marine Shipping Inc. and Kreditanstalt fur Wiederaufbau
("KfW").
1.2 -- Third Supplemental Agreement dated September 2, 1999 to Loan
Facility Agreement dated November 29, 1993 between Blue
Sapphire Marine Inc. and KfW.
1.3 -- Seventh Supplemental Agreement dated September 2, 1999 to
Loan Facility Agreement dated June 21, 1990 between Zenith
Shipping Corporation and KfW.
2.1 -- Restated Articles of Incorporation of the Company, as
amended (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form F-1, File No.
33-59304, filed with the Securities and Exchange Commission
(the "Commission"); Exhibit 2.2 to the Company's 1996 Annual
Report on Form 20-F filed with the Commission; Document No.
1 in the Company's Form 6-K filed with the Commission on
October 14, 1999; and Document No. 1 in the Company's Form
6-K filed with the Commission on May 18, 1999).
2.2 -- Certificate of the Powers, Designations, Preferences and
Rights of the Convertible Preferred Stock (incorporated by
reference to Exhibit 2.2 to the Company's 1996 Annual Report
on Form 20-F filed with the Commission).
2.3 -- Restated By Laws of the Company (incorporated by reference
to Document No. 2 to the Company's Form 6-K filed with the
Commission on May 18, 1999).
2.4 -- Indenture dated as of July 15, 1994 between the Company, as
issuer, and The Bank of New York, successor to NationsBank
of Georgia, National Association, as Trustee (incorporated
by reference to Exhibit 2.4 to the Company's 1994 Annual
Report on Form 20-F filed with the Commission).
2.5 -- First Supplemental Indenture dated as of July 28, 1994 to
Indenture dated as of July 15, 1994 between the Company, as
issuer, and The Bank of New York, successor to NationsBank
of Georgia, National Association, as Trustee (incorporated
by reference to Exhibit 2.5 to the Company's 1994 Annual
Report on Form 20-F filed with the Commission).
2.6 -- Second Supplemental Indenture dated as of March 29, 1995 to
Indenture dated as of July 15, 1994 between the Company, as
issuer, and The Bank of New York, successor to NationsBank
of Georgia, National Association, as Trustee (incorporated
by reference to Exhibit 2.5 to the Company's 1995 Annual
Report on Form 20-F filed with the Commission).
2.7 -- Third Supplemental Indenture dated as of September 18, 1995
to Indenture dated as of July 15, 1994 between the Company,
as issuer, and The Bank of New York, successor to
NationsBank of Georgia, National Association, as Trustee
(incorporated by reference to Exhibit 2.6 to the Company's
1995 Annual Report on Form 20-F filed with the Commission).
2.8 -- Fourth Supplemental Indenture dated as of August 12, 1996 to
Indenture dated as of July 15, 1994 between the Company, as
issuer, and The Bank of New York, as Trustee (incorporated
by reference to Document No. 2 in the Company's Form 6-K
filed with the Commission on February 10, 1997).
2.9 -- Fifth Supplemental Indenture dated as of October 14, 1997 to
Indenture dated as of July 15, 1994 between the Company, as
issuer, and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 2.10 to the Company's 1997 Annual
Report on Form 20-F filed with the Commission).
2.10 -- Sixth Supplemental Indenture dated as of October 14, 1997 to
Indenture dated as of July 15, 1994 between the Company, as
issuer and The Bank of New York, as Trustee (incorporated by
reference to Exhibit 2.11 to the Company's 1997 Annual
Report on Form 20-F filed with the Commission).
2.11 -- Seventh Supplemental Indenture dated as of March 16, 1998 to
Indenture dated as of July 15, 1994 between the Company, as
issuer, and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 2.12 to the Company's 1997 Annual
Report on Form 20-F filed with the Commission).
[Download Table]
EXHIBIT DESCRIPTION
------- -----------
2.12 -- Eighth Supplemental Indenture dated as of March 16, 1998 to
Indenture dated as of July 15, 1994 between the Company, as
issuer, and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 2.13 to the Company's 1997 Annual
Report on Form 20-F filed with the Commission).
2.13 -- Amended and Restated Credit Agreement dated as of June 28,
1996 among the Company and various financial institutions
and The Bank of Nova Scotia as Administrative Agent and
Amendment No. 1 thereto (incorporated by reference to
Document No. 3 in the Company's Form 6-K filed with the
Commission on February 10, 1997 and Exhibit 1.1 to the
Company's 1997 Annual Report on Form 20-F filed with the
Commission).
2.14 -- Credit Agreement dated as of December 16, 1999 between the
Company and KfW.
2.15 -- New Credit Agreement dated December 12, 1997 between
Seabrook Maritime Inc. and KfW (incorporated by reference to
Exhibit 2.13 to the Company's 1997 Annual Report on Form
20-F filed with the Commission).
2.16 -- Loan Facility Agreement dated November 29, 1993 between
Esker Marine Shipping Inc. and KfW, together with
supplemental agreements thereto (incorporated by reference
to Exhibit 2.16 to the Company's 1997 Annual Report on Form
20-F filed with the Commission and to Exhibit 1.8 to the
Company's 1998 Annual Report on Form 20-F filed with the
Commission).
2.17 -- Loan Facility Agreement dated November 29, 1993 between Blue
Sapphire Marine Inc. and KfW, together with supplemental
agreements thereto (incorporated by reference to Exhibit
2.17 to the Company's 1997 Annual Report on Form 20-F filed
with the Commission and to Exhibit 1.9 to the Company's 1998
Annual Report on Form 20-F filed with the Commission).
2.18 -- Loan Facility Agreement dated June 21, 1990 between Zenith
Shipping Corporation and KfW, together with supplemental
agreements thereto (incorporated by reference to Exhibit
2.18 to the Company's 1997 Annual Report on Form 20-F filed
with the Commission and to Exhibit 1.10 to the Company's
1998 Annual Report on Form 20-F filed with the Commission).
2.19 -- Amended and Restated Registration Rights Agreement dated as
of July 30, 1997 among the Company, A. Wilhelmsen AS, Cruise
Associates, Monument Capital Corporation, Archinav Holdings,
Ltd. and Overseas Cruiseship, Inc (incorporated by reference
to Exhibit 2.20 to the Company's 1997 Annual Report on Form
20-F filed with the Commission).
2.20 -- Lease Agreement dated March 3, 1993 between the Company and
G.I.E. Cruise Vision One and Amendment Nos. 1, 2 and 3
thereto (incorporated by reference to Exhibit 2.9 to the
Company's 1994 Annual Report on Form 20-F filed with the
Commission; Exhibit 1.4 to the Company's 1995 Annual Report
on Form 20-F filed with the Commission; and to Exhibit 1.3
to the Company's 1998 Annual Report on Form 20-F filed with
the Commission).
2.21 -- Lease Agreement dated March 3, 1993 between the Company and
G.I.E. Cruise Vision Two and Amendment Nos. 1, 2, 3 and 4
thereto (incorporated by reference to Exhibit 2.11 to the
Company's 1995 Annual Report on Form 20-F filed with the
Commission and to Exhibit 1.4 to the Company's 1998 Annual
Report on Form 20-F filed with the Commission).
2.22 -- Office Building Lease Agreement dated July 25, 1989 between
Dade County and the Company, as amended (incorporated by
reference to Exhibits 10.116 and 10.117 to the Company's
Registration Statement on Form F-1, File No. 33-46157, filed
with the Commission).
2.23 -- Office Building Lease Agreement dated January 18, 1994
between Dade County and the Company (incorporated by
reference to Exhibit 2.13 to the Company's 1993 Annual
Report on Form 20-F filed with the Commission).
23 -- Consent of PricewaterhouseCoopers LLP, independent certified
public accountants.
---------------
* Portions of this document have been omitted pursuant to an order by the
Commission granting confidential treatment. Confidential portions of this
document have been separately filed with the Commission.
** Portions of this document have been omitted pursuant to an application filed
with the Commission for an order for confidential treatment. Confidential
portions of this document have been separately filed with the Commission.
Dates Referenced Herein and Documents Incorporated by Reference
↑Top
Filing Submission 0000950144-00-004542 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Thu., Apr. 25, 3:08:22.2pm ET 
