Our off-balance sheet arrangements consist primarily of operating lease commitments as discussed in Note 12 – 12. Commitments and Contingencies.) Contingencies. Under theBrilliance of the Seaslong-term operating lease, we have agreed to indemnify the lessor to the extent its after-tax return is negatively impacted by unfavorable changes in corporate tax rates and capital allowance deductions. These indemnifications could result in an increase in our annual lease payments. We are unable to estimate the maximum potential increase in such lease payments due to the various circumstances, timing or combination of events that could trigger such indemnifications. Current facts indicate thatUnder current circumstances we do not believe an indemnification is not probable; however, if one occurs, we may have remedies available to us under the termsprobable. Some of the lease agreement. 24
contracts that we enter into include indemnification provisions that obligate us to make payments to the counterparty if certain events occur. These contingencies generally relate to changes in taxes, increased lender capital costs and other similar costs. The indemnification clauses are often standard contractual terms and were entered into in the normal course of business. There are no stated or notional amounts included in the indemnification clauses and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses. We have not been required to make any payments under such indemnification clauses in the past and, under current circumstances, we do not believe an indemnification is probable. 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, 2002,2003, our liquidity was $1.2$1.1 billion consisting of approximately $0.2 billion$330.1 million in cash and cash equivalents and $1.0 billion$780.0 million available under our $1.0 billion unsecured revolving credit facility. Our $1.0 billionfacility due 2008. (See Note 6. Long-Term Debt.) Since December 31, 2003, we have received additional commitments to our revolving credit facility expires in June 2003. Any amounts outstanding at that time will be payable immediately ifbringing the amount available under this facility to $1.0 billion. The other terms of the facility iswere unchanged. (See Note 14. Subsequent Events.) We have also decided not replaced. We intend to replace this facilityuse the secured export financing previously available to us. In January 2004, we entered into an 8-year, $200.0 million unsecured term loan, at LIBOR plus 1.75%, which can be drawn any time prior to its expiration date, although such replacement may be at an amount less than $1.0 billion. In addition, we have commitments for export financing for up to 80%July 1, 2004. Capital expenditures, scheduled debt payments and potential obligations under our zero coupon convertible notes and Liquid Yield Option™ Notes (as discussed above in footnote (1) of the contract price of two ships on order,Serenade of the SeasandJewel of the Seas, not to exceed $624.0 million in aggregate. Capital expenditures and scheduled debt paymentscontractual obligations table) will be funded through a combination of cash flows from operations, drawdowns under our available credit facilities, the incurrence of additional indebtedness and the sales of equity or debt securities in private or public securities markets. Geo-political and economic uncertainties coupled with market volatility have adversely impacted terms and availability of financing in the financial markets, and it is indeterminable how long this situation will continue. Therefore, thereThere can be no assurances that cash flows from operations and additional financing from external sources will be available in accordance with our expectations. 28
Our financing agreements contain covenants that require us, among other things, to maintain minimum liquidity, net worth, and fixed charge coverage ratio and limit our debt to capital ratio. We are in compliance with all covenants as of December 31, 2002.2003. If A. Wilhelmsen AS. and Cruise Associates, our two principal shareholders, cease to own a specified percentage of our common stock, we may be obligated to prepay indebtedness outstanding under the majority of our credit facilities, which we may be unable to replace on similar terms. If this were to occur, it could have an adverse impact on our operations and liquidity. We believe our availability under current existing credit facilities, cash flows from operations and our ability to obtain new borrowings and/or raise new capital will be sufficient to fund operations, debt payment requirements and capital expenditures over the next year.12-month period. Financial Instruments and Other General We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We minimize these risks through a combination of our normal operating and financing activities and through the use of derivative financial instruments pursuant to our hedging practices and policies. The financial impacts of these hedging instruments are primarily 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. Derivative positions are monitored using techniques including market valuations and sensitivity analyses. (See Note 11 – 11. Financial Instruments.) Interest Rate Risk Our exposure to market risk for changes in interest rates relates to our long-term debt obligations and our operating lease forBrilliance of the Seas. We enter into interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest expense and rent expense. Market risk associated with our long-term fixed rate debt is the potential increase in fair value resulting from a decrease in interest rates. At December 31, 2002,2003, our interest rate swap agreements effectively changed $375.0$243.8 million of fixed rate debt with a weighted-average fixed rate of 7.58%8.02% to LIBOR-based floating rate debt. The estimated fair value of our long-term fixed rate debt at December 31, 2002,2003, excluding our Liquid Yield Option™ Notes and Zero Coupon Convertible Notes,zero coupon convertible notes, was $2.2$3.2 billion using quoted market prices, where available, or using discounted cash flow analyses based on market rates available to us for similar debt with the same remaining maturities. The fair value of our associated interest rate swap agreements was estimated to be $64.0$24.8 million as of December 31, 20022003 based on quoted market prices for similar or identical financial instruments to those we hold. A hypothetical one percentage point decrease in interest rates at December 31, 20022003 would increase the fair value of our long-term fixed rate debt, excluding our Liquid Yield Option™ Notes and Zero Coupon Convertible Notes,zero coupon convertible notes, by approximately $80.3$152.3 million, net of an increase in the fair value of the associated interest rate swap agreements. 25
Market risk associated with our long-term floating rate debt is the potential increase in interest expense from an increase in interest rates. At December 31, 2002, 58%2003, 67% of our debt was effectively fixed and 42%33% was floating. A hypothetical one percentage point increase in interest rates would increase our 20032004 interest expense by approximately $15.7$14.2 million. At December 31, 2002,2003, we have interest rate swap agreements that effectively change $25.0 million of LIBOR-based floating rate debt to fixed rate debt of 4.395% beginning January 2005. 29
Market risk associated with our operating lease forBrilliance of the Seas is the potential increase in rent expense from an increase in sterling LIBOR rates. Beginning January 2004, we have effectively changed £75.0 million of the operating lease obligations from a floating rate to a fixed rate obligation with a weighted-average rate of 5.02% through a combination of interest rates.rate swap agreements and rate fixings with the lessor. A hypothetical one percentage point increase in intereststerling LIBOR rates would increase our 20032004 rent expense by approximately $4.5 million. At$3.4 million, based on the exchange rate at December 31, 2002, we have2003, net of the effect of interest rate swap agreements that effectively change British pound sterling 50.0 million of sterling LIBOR-based operating lease payments to fixedswaps and interest rate lease payments with a weighted-average rate of 5.05% beginning January 2004.fixings. Convertible Notes The estimated fair values of our Liquid Yield Option™ Notes and Zero Coupon Convertible Noteszero coupon convertible notes fluctuate with the price of our common stock and at December 31, 20022003 were $575.4$727.7 million and $365.0$511.5 million, respectively. A hypothetical 10% decrease or increase in our December 31, 20022003 common stock price would decrease or increase the value of our Liquid Yield Option™ Notes and Zero Coupon Convertible Noteszero coupon convertible notes by $10.2approximately $27.6 million and $9.3$36.1 million, respectively. Foreign Currency Exchange Rate Risk Our primary exposure to foreign currency exchange rate risk relates to our firm commitments under one ship construction contract denominated in euros. We entered into foreign currencyeuro denominated forward contracts and purchased call options to manage this risk and were substantially hedgedfully-hedged as of December 31, 2002.2003. The estimated fair value of these forwardsuch euro denominated contracts at December 31, 2002,2003, was ana net unrealized gain of $31.0approximately $15.0 million, which is recorded, alongbased on quoted market prices for equivalent instruments with an offsetting $31.0 million fair value asset related to our ship constructionthe same remaining maturities. These euro denominated forward contracts on our accompanying 2002 balance sheet.and purchased call options mature through 2006. A hypothetical 10% strengthening of the United States dollar as of December 31, 2002,2003, assuming no changes in comparative interest rates, would result in a $75.8$34.8 million decrease in the fair value of these contracts.forward contracts and purchased call options. This decrease in fair value would be fully offset by a decrease in the United States dollar value of the related foreign currency denominated ship construction contract. We are also exposed to foreign currency exchange rate fluctuations on the United States dollar value of our foreign currency denominated forecasted transactions. To manage this exposure, we take advantage of any natural offsets of our foreign currency revenues and expenses and enter into foreign currency forward contracts and/or option contracts for a portion of the remaining exposure related to these forecasted transactions. Our principal net foreign currency exposure relates to the euro, the Norwegian kroner, British pound sterling and the euro.Canadian dollar. At December 31, 2002,2003, the estimated fair value of such contracts was an unrealized gainloss of approximately $6.4$0.6 million based on quoted market prices for equivalent instruments with the same remaining maturities. The estimated unrealized gain has been deferred and, if realized, will be recorded in earnings when the transactions being hedged are recognized in 2003. A hypothetical 10% strengthening of the United States dollar as of December 31, 2002,2003, assuming no changes in comparative interest rates, would decreaseincrease the fair value of these contracts by approximately $3.6$1.7 million. This decreaseincrease in fair value would be fully offset by a decrease in the United States dollar value of the forecasted transactions being hedged. Fuel Price Risk Our exposure to market risk for changes in fuel prices relates to the consumption of fuel on our ships. Fuel cost, as a percentage of our total revenues, was approximately 5.2% in 2003, 4.5% in 2002 and 3.7% in 2001, and 3.3% in 2000.2001. We use fuel swap agreements and zero cost collars to mitigate the financial impact of fluctuations in fuel prices. As of December 31, 2002,2003, we had fuel swap agreements and zero cost collars to pay fixed prices for fuel with an aggregate notional amount of approximately $39.4$30.2 million, maturing through 2003.2004. The estimated fair value of these contracts at December 31, 20022003 was an unrealized gain of $7.5$4.0 million. The effective portion of the estimated unrealized gain has been deferred and, if realized, will be recorded in earnings when the transactions being hedged are recognized in 2003. We estimate that a hypothetical 10% increase in our weighted-average fuel price for the year ended December 31, 20022003 would increase our 20032004 fuel cost by approximately $18.1$24.1 million. This increase would be partially offset by a $1.5 millionan increase in the fair value of our fuel swap agreements.agreements of approximately $4.0 million. 2630
Item 6.Directors, Senior Management and Employees Directors and Senior Management Our directors and senior management are listed below. Officers are appointed by the board of directors and serve at their discretion.
The board of directors is divided into three classes. The current term of office for directors in Class III expires at the 20032004 Annual Meeting. The current term of office for directors in Class IIIII expires at the 20042005 Annual Meeting and the current term of office for directors in Class IIII expires at the 20052006 Annual Meeting. Each newly elected director will serve three years from the date of his or her election. For a description of the arrangements between the major shareholders regarding the nomination and election of directors, see Item 7.Major Shareholders and Related Party Transactions.Transactions. Information regarding our directors and senior management is as follows: | | |
---|
Name | | Age | | Position |
| |
| |
| Richard D. Fain(1) | |
| 55
|
| | Chairman, Chief Executive Officer and Director | Jack L. Williams | |
| 53
|
| | President and Chief Operating Officer, Royal Caribbean International and Celebrity Cruises | Adam M. Goldstein | |
| 43
|
| | Executive Vice President, Brand Operations,
Royal Caribbean International | Bonnie S. Biumi | |
| 40
|
| | Acting Chief Financial Officer | Tor B. Arneberg(2) | |
| 74
|
| | Director | Bernard W. Aronson(1) | |
| 56
|
| | Director | John D. Chandris(1) | |
| 52
|
| | Director | Arvid Grundekjoen(1) | |
| 47
|
| | Director | Laura Laviada(3) | |
| 52
|
| | Director | Gert W. Munthe (2) | |
| 46
|
| | Director | Eyal Ofer(3) | |
| 52
|
| | Director | Thomas J. Pritzker(2) | |
| 52
|
| | Director | William K. Reilly(3) | |
| 63
|
| | Director | Edwin W. Stephan(2) | |
| 71
|
| | Director | Arne Wilhelmsen(3) | |
| 73
|
| Age | Position |
|
|
|
---|
Richard D. Fain (1) | 56 | Chairman, Chief Executive Officer and Director | Jack L. Williams | 54 | President and Chief Operating Officer, Royal Caribbean International and Celebrity Cruises | Adam M. Goldstein | 44 | Executive Vice President, Brand Operations, Royal Caribbean International | Luis E. Leon | 51 | Executive Vice President and Chief Financial Officer | Tor B. Arneberg(2) | 75 | Director |
(1) | | Class I director | (2) | | Class II director | (3) | | Bernard W. Aronson (1) | 57 | Director | John D. Chandris (1) | 53 | Director | Arvid Grundekjoen (1) | 48 | Director | William L. Kimsey (2) | 61 | Director | Laura Laviada (3) | 53 | Director | Gert W. Munthe (2) | 47 | Director | Eyal Ofer (3) | 53 | Director | Thomas J. Pritzker(2) | 53 | Director | William K. Reilly (3) | 64 | Director | Arne Alexander Wilhelmsen (3) | 38 | Director | | (1) Class I director (2) Class II director (3) Class III director |
The board has adopted corporate governance standards which set forth the necessary qualifications for board members and contain guidelines established by the board to assist it in determining director independence for purposes of the corporate governance rules of the New York Stock Exchange. A copy of our corporate governance standards is posted on our website at www.rclinvestor.com. Based on the guidelines contained in our corporate governance standards, our board has determined that all of our directors are independent with the exception of Messrs. Fain and Reilly. Richard D. Fain has served as a director since 1981 and as our Chairman and Chief Executive Officer since 1988. Mr. Fain is Chairman of the International Council of Cruise Lines, an industry trade organization, and is a director of First Choice Holidays PLC. Mr. Fain has been involved in the shipping industry for over 25 years. Jack L. Williams has served as President and Chief Operating Officer of Royal Caribbean International since January 1997 and, additionally, as President and Chief Operating Officer of Royal Caribbean International and Celebrity Cruises since November 2001. Prior to 1997, Mr. Williams was Vice President and General Sales Manager for American Airlines where he had been employed for 23 years in a variety of positions in finance, marketing and operations. Adam M. Goldstein has served as Executive Vice President, Brand Operations for Royal Caribbean International since November 2002 and, in such capacity, oversees fleet operations, sales and marketing, supply chain management and newbuilding for the Royal Caribbean International brand and oversees the operation of our tour company, Royal Celebrity Tours. Mr. Goldstein has been employed with Royal Caribbean since 1988 in a variety of positions, including Senior Vice President, Total Guest Satisfaction and Senior Vice President, Marketing. Mr. Goldstein served as National Chair of the Travel Industry Association of America in 2001. Bonnie S. Biumi31
Luis E. Leon has served as Acting Chief Financial Officer since July 2002 and 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 since August 2003. Prior thereto and since 2001, Mr. Leon was the Chief Financial Officer for Graphic Packaging International Corporation, a New York Stock Exchange-listed manufacturer of People’s Telephone Company,folding cartons for the food and consumer products industry with revenue in excess of $1.1 billion. In such capacity, Mr. Leon was responsible for all financial and information technology functions of the company. From 1994 through 2001, Mr. Leon held various financial and management positions with GS Industries, Inc., a Miami-based publicly-owned telecommunications services company. Priorleading maker of wire rod grinding media for the mining industry, including serving as Executive Vice President and Chief Financial Officer and as a member of the board and member of its executive committee. From 1999 to that, Ms. Biumi was a senior manager with Price Waterhouse. 27
2001, Mr. Leon also served as the Chief Operating Officer for GS Industries, Inc.'s Mining Products division. Tor B. 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 through 1982, Mr. Arneberg co-founded and operated AgTek International, a company involved in the commercial fishing industry. Prior to that, Mr. Arneberg was director of marketing for Xerox Corporation. He is an executive trusteeExecutive Trustee and vice presidentVice President of the American Scandinavian Foundation and is an investor and member of the Boardboard of Directorsdirectors of Precision Contract Manufacturing, Inc. in Springfield, Vermont. Mr. Arneberg 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. Mr. Aronson serves as a director of Liz Claiborne, Inc. and Hyatt International, 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. Prior to September 1997, Mr. Chandris served as Chairman of Celebrity Cruise Lines Inc. Mr. Chandris is a director of various real estate companies in the United Kingdom, in particular, Leathbond Limited, a United Kingdom real estate company,London Cambridge Properties Limited and Ringmerit Limited. Mr. Chandris also serves on the board of the classification society, Lloyd’s Register. Arvid Grundekjoen has served as a director since November 2000. Since 2002, Mr. Grundekjoen has been Chairman of the Board of Awilco ASA, a public shipping company, and served as Chief Executive Officer of the company from 1992 until 2001. He is also President and Chief Executive Officer of Anders Wilhelmsen & Co. AS. and serves as Chairman of the supervisory boards of Linstow AS. and Creati AS. Mr. Gundekjoen has previously served as President of Teamco, a data processing and information technology company. William L. Kimsey has served as a director since April 2003. Mr. Kimsey was employed for 32 years through September 2002 with the independent public accounting firm Ernst & Young. From 1998 through 2002, Mr. Kimsey served as the Chief Executive Officer of Ernst & Young Global and Global Executive Board member of Ernst & Young and from 1993 through 1998 as the Firm Deputy Chairman and Chief Operating Officer. Among other responsibilities during his tenure with Ernst & Young, Mr. Kimsey oversaw the successful combination of Ernst & Young with over 55 former Arthur Andersen practices throughout the world. Mr. Kimsey also serves on the board of Western Digital Corporation, Parsons Corporation and Accenture, Ltd. Mr. Kimsey is a certified public accountant and a member of the American Institute of Certified Public Accountants. Laura Laviada has served as a director since July 1997. In 2002, she founded Area Editores, a publishing company specializing in art and architectural books. Currently, she is actively involved in the restoration and development of Mexico City’s historic district. Prior to 2000, Ms. Laviada was the Chairman and Chief Executive Officer of Editorial Televisa, the largest Spanish language magazine publisher in the world with 40 titles distributed throughout 19 countries. In October 2000, Ms. Laviada sold her equity interest in the company and is currently involved in several non-profit organizations, including Pro-mujer, an organization that provides credit and micro-enterprise training for women in Mexico. 32
Gert W. Munthe has served as a director since May 2002. Since September 2002, Mr. Munthe has served as managing partner of Ferd Private Equity, a private equity company that focuses on mid-cap companies in the technology area. From 1994 through January 2000, Mr. Munthe was a director of Alpharma, Inc., a New York Stock Exchange-listed life science company active in animal health and generic pharmaceuticals, and served as its Chief Operating Officer from 1998 until 1999 and as its Chief Executive Officer in 1999. From 1993 through 1998, Mr. Munthe was the President and Chief Executive Officer of NetCom, a leading wireless telecommunication operator in Norway that iswas listed on the Oslo and London Stock Exchanges. Mr. Munthe is a director of Anders Wilhelmsen & Co. AS. He served in the Royal Norwegian Navy and was previously with McKinsey & Co. Eyal Ofer has served as a director since May 1995. Mr. Ofer has served as the Chairman of Carlyle M.G. Limited since May 1991 and as Chairman of Associated Bulk Carriers Limited since September 2002.1991. Thomas J. Pritzker has served as a director since February 1999. Mr. Pritzker is Chairman and CEOChief Executive Officer of The Pritzker Organization and Hyatt Corporation. He is Chairman of Hyatt International and a partner in the law firm of Pritzker & Pritzker. He is Chairman and CEO of Hyatt Corporation and Hyatt International. Mr. Pritzker is a member of the Boardboard of Trusteestrustees of the University of Chicago and the Art Institute of Chicago. 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 that finances water purificationcompanies and projects in developing countries. From 1989 to 1993, Mr. Reilly served as the Administrator of the United States Environmental Protection Agency. He has also previously served as the Payne Visiting Professor at Stanford University’s Institute of International Studies, presidentPresident of World Wildlife Fund and of The Conservation Foundation, executive director of the Rockefeller Task Force on Land Use and Urban Growth andFoundation. He is Chairman of the Natural Resources Councilboard of America. HeWorld Wildlife Fund and also serves on the Boardboard of Trusteestrustees of the American Academy in Rome, the National Geographic Society World Wildlife Fund,and the Packard Foundation and the Presidio Trust.Foundation. He also serves as a director of DuPont, Conoco, Ionics, Eden Springs and Evergreen Holdings. 28
Edwin W. Stephan has served as a director since January 1996. From our inception in 1968 through 1995, Mr. Stephan served as our President or General Manager. Mr. Stephan has been involved in the cruise industry for over 40 years.
Arne Alexander Wilhelmsen has served as a director since 1968.May 2003. Mr. Wilhelmsen one of our founders, is a principal and Chairman of the Board of A. Wilhelmsen AS. and other holding companiesExecutive Vice President in the Anders Wilhelmsen & Co. Group.group of companies and has held a variety of managerial positions within the group of companies since 1995. Mr. Wilhelmsen is a member of the board of directors of A. Wilhelmsen AS. and various other business units within the A. Wilhelmsen group of companies. From 1996 through 1997, Mr. Wilhelmsen was engaged as a marketing analyst for the Company and since 2001 has served as a member of the board of directors of Royal Caribbean Cruise Line AS., a wholly owned subsidiary of the Company that is responsible for the sales and marketing activities of the Company in Europe. Mr. Wilhelmsen has been involved in the shipping industry for over 40 years.a Masters of Business Administration from IMD, Lausanne, Switzerland. Compensation Cash Compensation Our executive planning committeesenior management consists of Messrs. Fain, Williams, Goldstein and Goldstein, Ms. Biumi and Mr. Thomas H. Murphy, Vice President, Chief Information Officer.Leon. We paid our directors and members of our executive planning committee (16senior management (15 persons) aggregate cash compensation of $4.6$5.3 million during the year ended December 31, 2002.2003. Executive Bonus Plan Our Executive Bonus Plan is designed to attract and retain highly qualified executives who will contribute to our overall performance. Pursuant to the bonus plan, eligible employees are entitled to receive discretionary annual bonuses that are based on various factors deemed appropriate by the compensation committee of the board of directors, including, but not limited to, our financial performance and the individual performance of eligible employees. Retirement Plan and Other Executive Compensation Plans All eligible shoreside officers and employees are participants in our Retirement Plan. As defined in the plan, companyCompany contributions ranging from 8% to 12% of the participant’s compensation, depending on the length of such participant’s employment, are made on an annual basis to the participant’s account. At the election of the participant and his or her spouse, benefits generally are payable as a lump sum, a life annuity, a joint and 50 percent survivor annuity or in installments over a period not to exceed 120 months. If a participant’s benefit is less than $5,000, it is only payable as a lump sum. Benefits are payable upon the termination of employment or retirement of the participant. Benefits payable under the plan must commence no later than the later of the April 1st following the year in which the participant attains age 70 1/2, or the participant’s termination of employment with us. 33
We also have a Supplemental Executive Retirement Plan. Under the Supplemental Executive Retirement Plan, we accrue, but do not fund, an annual amount for the account of each of our executives equal to the reduction in our contribution under the Retirement Plan in accordance with Section 401(a)(17) of the Internal Revenue Code. Other terms and benefits of the Supplemental Executive Retirement Plan are the same as those of the Retirement Plan. 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 10,086 shares 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. Mr. Fain is also entitled to receive, upon his cessation of employment by us for certain reasons, an amount equal to nine months’ compensation, and is entitled to continued eligibility with respect to certain benefit plans for up to two years following cessation of his employment. The aggregate amount set aside or accrued to provide retirement benefits for the directors and members of the executive planning committee,senior management, as a group, was approximately $1.0 million during 2002.2003. We have stock optionaward plans under which we issue stock options and stock awards to our directors, officers and key employees to purchase shares of our common stock.employees. The plans consist of a 1990 Employee Stock Option Plan, a 1995 Incentive Stock Option Plan and a 2000 Stock OptionAward Plan. The 1995 Incentive Stock Option Plan provides for the issuance of options to purchase up to 6,700,000 shares of our common stock. The 2000 Stock OptionAward Plan provides for the issuance of options and stock awards of up to 13,000,000 shares of our common stock. The 1990 Employee Stock Option Plan terminated by its terms in March 2000, although all options that had been outstanding at the time of termination remained in effect pending their subsequent exercise or earlier termination in accordance with the option terms. All options granted under the stock award plans terminate on the earlier of the option expiration date (which is generally ten years from the date of grant), or within a specified period following the recipient’s cessation of employment or service as a director. 29
Prior to September 2003, the 2000 Stock Award Plan was known as the 2000 Stock Option Plan and provided for the issuance of nonqualified stock options. The Plan was amended in September 2003 and amended and restated in February 2004 and is now known as the 2000 Stock Award Plan. As amended and restated, the 2000 Stock Award Plan provides for the issuance, in addition to nonqualifed stock options, of (i) incentive stock options, (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units and (v) performance shares. Any awards granted under the 2000 Stock Award Plan, other than nonqualified stock options, are conditioned upon shareholder approval of the amended and restated plan at the 2004 annual meeting of our shareholders. 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 Mr. Fain. The options, which vested immediately, will generally expire upon termination of Mr. Fain’s employment. As of February 21, 2003, 354,71427, 2004, 79,714 options were outstanding. During 2002,2003, we issued (i) 20,000100,000 options to Mr. Gert W. Munthe, one of our directors,Leon that have an exercise price of $16.83 per share$28.40 and that expire in September 2012, andAugust 2013, (ii) 20,0001,931 options to Mr. Adam Goldstein, a membereach of our executive planning committee,non-management directors (Messrs. Arneberg, Aronson, Chandris, Grundekjoen, Kimsey, Munthe, Ofer, Pritzker, Reilly, Wilhelmsen and Ms. Laviada) that have an exercise price of $19.65 per share$31.375 and that expire in November 2012.September 2013 and (iii) 1,275 restricted stock units to each of the foregoing non-management directors, subject to shareholder approval at the 2004 annual meeting of our shareholders. Each recipient of the restricted stock units is entitled to receive shares of common stock in accordance with a five-year vesting schedule. Generally, the shares are forfeited if the recipient ceases to be a director before the shares vest. We issued options totaling 617,600and stock awards covering 551,016 shares of common stock during 20022003 to our employees and directors as a group. 34
Our 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 employees of the companyCompany and designated subsidiaries 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 New York Stock Exchange on the first business day of the purchase period and the last business day of each month of the purchase period. Board Practices Our board has adopted corporate governance standards which, along with board committee charters and key committee practices, provide the framework for the governance of the corporation. A copy of our corporate governance standards is posted in the corporate governance section on our website at www.rclinvestor.com. Our compensation committee consists of four independent directors who meet the proposed independence requirements of the New York Stock Exchange. The purpose of the compensation committee is to approve and evaluate the compensation plans, policies and programs applicable to our executives, including the administration of our stock optionaward plans and the granting of optionsawards under the plans. Among other responsibilities, the compensation committee reviews and approves corporate goals and objectives relevant to the compensation of our Chief Executive Officer and sets compensation levels based on this evaluation. The current members of the compensation committee are Messrs. Arneberg (Committee Chairman), Aronson, and Munthe and Ms. Laviada. The compensation committee operates under the authority of our board of directors as provided by the terms of our By-Laws. Our board has adopted a charter for the compensation committee that provides specific guidance to the committee as to its role and responsibility. A copy of the charter for the compensation committee is located on our website at www.rclinvestor.com. Our audit committee consists of three independentfour directors who meet the existing and proposed independence requirements of the New York Stock Exchange.Exchange and the additional independence requirements imposed on audit committee members under the rules of the Securities and Exchange Commission. The purpose of the audit committee is to assist our board of directors in the oversight of (i) the integrity of our financial statements, (ii) the qualifications and independence of our independent auditor, (iii) the performance of our internal audit function and our independent auditors and (iv) our compliance with related legal and regulatory requirements. In furtherance of this purpose, the audit committee regularly reviews and discusses with management and our independent auditor our annual audited and quarterly financial statements. The audit committee has the sole authority to appoint or replace our independent auditor (subject to shareholder ratification) and to approve all audit engagement fees and terms and all non-audit engagements with the independent auditor. The current members of the audit committee are Messrs. Kimsey (Committee Chairman), Arneberg, Aronson and Munthe. Mr. Kimsey serves as the financial expert of the audit committee as such term is defined under the rules of the Securities and Exchange Commission. The audit committee operates under the authority of our board of directors as provided by the terms of our By-Laws. Our board has adopted a charter for the audit committee that provides specific guidance to the committee as to its role, responsibility and compliance with the Securities and Exchange Commission’s audit committee rules. A copy of the charter of the audit committee is located on our website at www.rclinvestor.com. Our nominating and director affairs committee consists of three independentfour directors who meet the proposed independence requirements of the New York Stock Exchange. The purpose of the nominating and director affairs committee is to assist the board by identifying qualified individuals for nomination as members of the board of directors and of board committees, to recommend to the board corporate governance guidelines, to review and make recommendations to the board concerning board committee structure, operations and board reporting and to evaluate board and management performance, and to assist the board in its oversight of our financial affairs.performance. The current members of the nominating and director affairs committee are Messrs. Pritzker (Committee Chairman), Grundekjoen, Ofer and Ofer.Wilhelmsen. The nominating and director affairs committee operates under the authority of our board of directors as provided by the terms of our By-Laws. Our board has adopted a charter for the nominating and director affairs committee that provides specific guidance to the committee as to its role and responsibility. A copy of the charter of the nominating and director affairs committee is located on our website at www.rclinvestor.com. 35
For the term of our board of directors, see theDirectors and Senior Managementsection of this Item 6. 30
Employees As of December 31, 2002,2003, we employed approximately 2,7003,400 full-time and 500650 part-time employees in our shoreside operations worldwide. We also employed approximately 24,60032,300 crew and staff for our ships. As of December 31, 2002,2003, approximately 70%78% of our shipboard employees were covered by collective bargaining agreements. We believe that our relationship with our employees is good. Share Ownership The beneficial ownership of shares of our common stock as of February 21, 200327, 2004 of our directors and members of our executive planning committeesenior management is as follows: |
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| | | | Name | Number of Shares | | Percent of Common Stock |
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Tor B. Arneberg | 27,334 | (1) | Less than 1% | Bernard W. Aronson | 84,334 | (2) | Less than 1% | John D. Chandris | 71,000 | (3) | Less than 1% | Richard D. Fain | 2,843,551 | (4) | 1.4% | Adam M. Goldstein | 256,458 | (5) | Less than 1% | Arvid Grundekjoen | 20,000 | (6) | Less than 1% | William L. Kimsey | — | (7) | — | Laura Laviada | 71,000 | (8) | Less than 1% | Luis E. Leon | — | (9) | — | Gert W. Munthe | 6,667 | (10) | Less than 1% | Eyal Ofer | 99,334 | (11) | Less than 1% | Thomas J. Pritzker | 49,334 | (12) | Less than 1% | William K. Reilly | 25,517 | (13) | Less than 1% | Arne Alexander Wilhelmsen | 42,966,472 | (14) | 21.7% | Jack L. Williams | 402,001 | (15) | Less than 1% | |
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(1) | Amount represents 27,334 options that will vest on or before May 1, 2004 and which are exercisable as follows: (i) 4,000 are exercisable at $28.88 per share and expire on March 31, 2010 and (ii) 23,334 are exercisable at $9.55 per share and expire on October 16, 2001. Amount does not include 22,597 unvested stock options and unvested rights to acquire 1,275 shares of stock. | | (2) | Amount represents 84,334 options that will vest on or before May 1, 2004 and which are exercisable as follows: (i) 10,000 are exercisable at $14.38 per share and expire on June 13, 2006; (ii) 15,000 are exercisable at $26.75 per share and expire on September 24, 2008; (iii) 16,000 are exercisable at $28.88 per share and expire on March 31, 2010; (iv) 10,000 are exercisable at $20.30 per share and expire on December 4, 2010, and (v) 33,334 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 22,597 unvested stock options and unvested rights to acquire 1,275 shares of stock. | | (3) | Amount represents 71,000 options that will vest on or before May 1, 2004 and which are exercisable as follows: (i) 15,000 are exercisable at $21.92 per share and expire on September 25, 2007; (ii) 16,000 are exercisable at $28.88 per share and expire on March 31, 2010; (iii) 10,000 are exercisable at $20.30 per share and expire on December 4, 2010; and (iv) 30,000 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 20,931 unvested stock options and unvested rights to acquire 1,275 shares of stock. |
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| (4) | Amount includes (i)1,180,000 shares of common stock covered by options that will vest on or before May 1, 2004; (ii) 1,071,412 shares of common stock held by Monument Capital Corporation, a Liberian Corporation as nominee for various trusts primarily for the benefit of certain members of the Fain family; (iii) 576,384 shares of common stock issued to a trust for the benefit of Mr. Fain; and (iv) 247 shares of common stock held by Mr. Fain's minor daughter. Mr. Fain disclaims beneficial ownership of some or all of the shares of common stock referred to in (ii), (iii) and (iv) above. Of the 1,180,000 shares of common stock covered by the foregoing vested options (A) 79,714 are exercisable at $9.00 per share and will generally expire on the termination of Mr. Fain's employment; (B) 50,000 are exercisable at $13.78 per share and expire on February 3, 2005; (C) 20,286 are exercisable at $11.19 per share and expire on January 2, 2006; (D) 100,000 are exercisable at $13.31 per share and expire on October 15, 2006; (E) 200,000 are exercisable at $25.59 per share and expire on January 27, 2008; (F) 100,000 are exercisable at $35.09 per share and expire on February 5, 2009; (G) 120,000 are exercisable at $48.00 per share and expire on February 4, 2010; (H) 60,000 are exercisable at $28.78 per share and expire on March 3, 2010; (I) 150,000 are exercisable at $20.30 per share and expire on December 4, 2010; and (J) 300,000 are exercisable at $9.90 per share and expire on October 12, 2011. Amount does not include 195,000 unvested stock options held by Mr. Fain. | | (5) | Amount includes (i) 226,043 shares of common stock covered by options that will vest on or before May 1, 2004; and (ii) 27,915 shares of common stock held jointly by Mr. Goldstein and his wife. Of the 226,043 shares of common stock covered by the foregoing vested options; (A) 50,000 are exercisable at $13.31 per share and expire on October 15, 2006; (B) 40,000 are exercisable at $27.02 per share and expire on February 26, 2008; (C) 35,000 are exercisable at $35.09 per share and expire on February 5, 2009; (D) 20,000 are exercisable at $48.00 per share and expire on February 4, 2010; (E) 9,375 are exercisable at $28.78 per share and expire on March 3, 2010; (F) 25,000 are exercisable at $20.30 per share and expire on December 4, 2010; and (G) 46,668 are exercisable at $9.90 per share and expire on October 12, 2011. Amount does not include 51,457 unvested stock options held by Mr. Goldstein. | | (6) | Amount does not include (i) 11,931 unvested stock options and unvested rights to acquire 1,275 shares of stock and (ii) 42,966,472 shares of stock owned by A. Wilhemsen AS., an affiliate of Anders Wilhemsen & Co. AS. Mr.Grundekjoen is the President and Chief Executive Officer of Anders Wilhemsen & Co. AS. | | (7) | Amount does not include 21,931 unvested stock options and unvested rights to acquire 1,275 shares of stock. | | (8) | Amount represents 71,000 options that will vest on or before May 1, 2004 and which are exercisable as follows: (i) 15,000 are exercisable at $18.06 per share and expire on July 11, 2007; (ii) 16,000 are exercisable at $28.88 per share and expire on March 31, 2010; (iii) 10,000 are exercisable at $20.30 per share and expire on December 4, 2010; and (iv) 30,000 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 20,931 unvested stock options and unvested rights to acquire 1,275 shares of stock. | | (9) | Amount does not include 100,000 unvested stock options. | | (10) | Amount represents 6,667 options that will vest on or before May 1, 2004 and which are exercisable at $16.83 per share and expire on September 5, 2012. Amount does not include 15,264 unvested stock options and unvested rights to acquire 1,275 shares of stock. | | (11) | Amount represents 99,334 options that will vest on or before May 1, 2004 and which are exercisable as follows: (i) 15,000 are exercisable at $11.19 per share and expire on June 12, 2005; (ii) 10,000 are exercisable at $14.38 per share and expire on June 13, 2006; (iii) 15,000 are exercisable at $26.75 per share and expire on September 24, 2008; (iv) 16,000 are exercisable at $28.88 per share and expire on March 31, 2010; (v) 10,000 are exercisable at $20.30 per share and expire on December 4, 2010; and (vi) 33,334 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 22,597 unvested stock options, unvested rights to acquire 1,275 shares of stock and 48,281,900 shares held by Cruise Associates. (See Item 7. Major Shareholders and Related Party Transactions.) | | | | | | | | | | | | | | | Percent of | Name | | Number of Shares | | Common Stock |
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| Tor B. Arneberg | | | 72,334 | (1) | | Less than 1 | % | Bernard W. Aronson | | | 72,334 | (2) | | Less than 1 | % | Bonnie S. Biumi | | | 58,740 | (3) | | Less than 1 | % | John D. Chandris | | | 48,667 | (4) | | Less than 1 | % | Richard D. Fain | | | 2,812,707 | (5) | | 1.3 | % | Adam M. Goldstein | | | 244,336 | (6) | | Less than 1 | % | Arvid Grundekjoen | | | 19,667 | (7) | | Less than 1 | % | Laura Laviada | | | 48,667 | (8) | | Less than 1 | % | Gert W. Munthe | | | — | (9) | | | — | | Thomas H. Murphy | | | 62,449 | (10) | | Less than 1 | % | Eyal Ofer | | | 72,334 | (11) | | Less than 1 | % | Thomas J. Pritzker | | | 30,334 | (12) | | Less than 1 | % | William K. Reilly | | | 34,851 | (13) | | Less than 1 | % | Edwin W. Stephan | | | 323,334 | (14) | | Less than 1 | % | Arne Wilhelmsen | | | 46,481,664 | (15) | | 24.0 | % | Jack L. Williams | | | 425,103 | (16) | | Less than 1 | % |
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(1) | | Amount represents 72,334 options that will vest on or before May 1, 2003 and which are exercisable as follows: (i) 15,000 are exercisable at $14.16 per share and expire on May 20, 2004; (ii) 10,000 are exercisable at $14.38 per share and expire on June 13, 2006; (iii) 12,000 are exercisable at $26.75 per share and expire on September 24, 2008; (iv) 12,000 are exercisable at $28.88 per share and expire on March 31, 2010; (v) 6,667 are exercisable at $20.30 per share and expire on December 4, 2010, and (vi) 16,667 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 47,666
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| (12) | Amount represents 49,334 options that will vest on or before May 1, 2004 and which are exercisable as follows: (i) 16,000 are exercisable at $28.88 per share and expire on March 31, 2010; (ii) 10,000 are exercisable at $20.30 per share and expire on December 4, 2010; and (iii) 23,334 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 17,597 unvested stock options, unvested rights to acquire 1,275 shares of stock and 48,281,900 shares held by Cruise Associates. (See Item 7. Major Shareholders and Related Party Transactions.) | | (13) | Amount includes 22,667 options that will vest on or before May 1, 2004 and which are exercisable as follows: (i) 16,000 are exercisable at $28.88 per share and expire on March 31, 2010; (ii) 5,000 are exercisable at $20.30 per share and expire on December 4, 2010; and (iii) 1,667 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 19,264 unvested stock options and unvested rights to acquire 1,275 shares of stock. | | (14) | Amount represents 42,966,472 shares held by A. Wilhelmsen AS., a Norwegian corporation. Amount does not include 1,931 unvested stock options and unvested rights to acquire 1,275 shares of stock. | | (15) | Amount represents 402,001 options that will vest on or before May 1, 2004 and which are exercisable as follows: (i) 80,000 are exercisable at $27.02 per share and expire on February 26, 2008; (ii) 50,000 are exercisable at $35.09 per share and expire on February 5, 2009; (iii) 48,000 are exercisable at $48.00 per share and expire on February 4, 2010; (iv) 24,000 are exercisable at $28.78 per share and expire on March 3, 2010; (v) 100,000 are exercisable at $20.30 per share and expire on December 4, 2010; and (vi)100,001 are exercisable at $9.90 per share and expire on October 12, 2011. Amount does not include 117,999 unvested stock options. | | (2) | | Amount represents 72,334 options that will vest on or before May 1, 2003 and which are exercisable as follows: (i) 15,000 are exercisable at $14.16 per share and expire on May 20, 2004; (ii) 10,000 are exercisable at $14.38 per share and expire on June 13, 2006; (iii) 12,000 are exercisable at $26.75 per share and expire on September 24, 2008; (iv) 12,000 are exercisable at $28.88 per share and expire on March 31, 2010; (v) 6,667 are exercisable at $20.30 per share and expire on December 4, 2010, and (vi) 16,667 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 47,666 unvested options. | | (3) | | Amount includes 57,268 options that will vest on or before May 1, 2003 and which are exercisable as follows: (i) 17,100 are exercisable at $41.63 per share and expire on May 21, 2009; (ii) 9,000 are exercisable at $48.00 per share and expire on February 4, 2010; (iii) 4,500 are exercisable at $28.78 per share and expire on March 3, 2010; (iv) 15,000 are exercisable at $20.30 per share and expire on December 4, 2010; and (v) 11,668 are exercisable at $9.90 per share and expire on October 12, 2011. Amount does not include 52,732 unvested options. | | (4) | | Amount represents 48,667 options that will vest on or before May 1, 2003 and which are exercisable as follows: (i) 15,000 are exercisable at $21.92 per share and expire on September 25, 2007; (ii) 12,000 are exercisable at $28.88 per share and expire on March 31, 2010; (iii) 6,667 are exercisable at $20.30 per share and expire on December 4, 2010; and (iv) 15,000 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 41,333 unvested options. |
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(5) | | Amount includes (i) 1,189,500 shares of common stock covered by options that will vest on or before May 1, 2003; (ii) 1,071,412 shares of common stock held by Monument Capital Corporation, a Liberian Corporation as nominee for various trusts primarily for the benefit of certain members of the Fain family; (iii) 536,040 shares of common stock issued to a trust for the benefit of Mr. Fain; and (iv) 247 shares of common stock held by Mr. Fain’s minor daughter. Mr. Fain disclaims beneficial ownership of some or all of the shares of common stock referred to in (ii), (iii) and (iv) above. Of the 1,189,500 shares of common stock covered by the foregoing vested options (A) 354,714 are exercisable at $9.00 per share and will generally expire on the termination of Mr. Fain’s employment; (B) 50,000 are exercisable at $13.78 per share and expire on February 3, 2005; (C) 20,286 are exercisable at $11.19 per share and expire on January 2, 2006; (D) 100,000 are exercisable at $13.31 per share and expire on October 15, 2006; (E) 200,000 are exercisable at $25.59 per share and expire on January 27, 2008; (F) 79,500 are exercisable at $35.09 per share and expire on February 5, 2009; (G) 90,000 are exercisable at $48.00 per share and expire on February 4, 2010; (H) 45,000 are exercisable at $28.78 per share and expire on March 3, 2010; (I) 100,000 are exercisable at $20.30 per share and expire on December 4, 2010; and (J) 150,000 are exercisable at $9.90 per share and expire on October 12, 2011. Amount does not include 460,500 unvested stock options held by Mr. Fain. | | (6) | | Amount includes (i) 211,751 options that will vest on or before May 1, 2003; (ii) 27,915 shares of common stock held jointly by Mr. Goldstein and his wife; and (iii) 4,670 shares of common stock issued to Mr. Goldstein’s minor children. Of the 211,751 shares of stock covered by the foregoing vested options, (A) 20,000 are exercisable at $13.44 per share and expire on December 31, 2003; (B) 12,500 are exercisable at $11.19 per share and expire on January 2, 2006; (C) 50,000 are exercisable at $13.31 per share and expire on October 15, 2006; (D) 40,000 are exercisable at $27.02 per share and expire on February 26, 2008; (E) 28,000 are exercisable at $35.09 per share and expire on February 5, 2009; (F) 15,000 are exercisable at $48.00 per share and expire on February 4, 2010; (G) 6,250 are exercisable at $28.78 per share and expire on March 3, 2010; (H) 16,667 are exercisable at $20.30 per share and expire on December 4, 2010; and (I) 23,334 are exercisable at $9.90 per share and expire on October 12, 2011. Amount does not include 98,249 unvested options. | | (7) | | Amount includes 16,667 options that will vest on or before May 1, 2003 and which are exercisable as follows: (i) 6,667 at $20.30 per share and expire on December 4, 2010; and (ii) 10,000 at $9.55 per share and expire on October 16, 2011. Amount does not include 23,333 unvested options. | | (8) | | Amount represents 48,667 options that will vest on or before May 1, 2003 and which are exercisable as follows: (i) 15,000 are exercisable at $18.06 per share and expire on July 11, 2007; (ii) 12,000 are exercisable at $28.88 per share and expire on March 31, 2010; (iii) 6,667 are exercisable at $20.30 per share and expire on December 4, 2010; and (iv) 15,000 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 41,333 unvested options. | | (9) | | Amount does not include 20,000 unvested options. | | (10) | | Amount includes 62,101 options that will vest on or before May 1, 2003 and which are exercisable as follows: (i) 11,100 are exercisable at $41.63 per share and expire on May 21, 2009; (ii) 12,000 are exercisable at $48.00 per share and expire on February 4, 2010; (iii) 6,000 are exercisable at $28.78 per share and expire on March 3, 2010; (iv) 16,667 are exercisable at $20.30 per share and expire on December 4, 2010; and (v) 16,334 are exercisable at $9.90 per share and expire on October 12, 2011. Amount does not include 61,899 unvested options. | | (11) | | Amount represents 72,334 options that will vest on or before May 1, 2003 and which are exercisable as follows: (i) 15,000 are exercisable at $11.19 per share and expire on June 12, 2005; (ii) 10,000 are exercisable at $14.38 per share and expire on June 13, 2006; (iii) 12,000 are exercisable at $26.75 per share and expire on September 24, 2008; (iv) 12,000 are exercisable at $28.88 per share and expire on March 31, 2010; (v) 6,667 are exercisable at $20.30 per share and expire on December 4, 2010; and (vi) 16,667 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include (A) 47,666 unvested options and (B) 48,281,900 shares held by Cruise Associates. See Item 7.Major Shareholders and Related Party Transactions. | | (12) | | Amount represents 30,334 options that will vest on or before May 1, 2003 and which are exercisable as follows: (i) 12,000 are exercisable at $28.88 per share and expire on March 31, 2010; (ii) 6,667 are exercisable at $20.30 per share and expire on December 4, 2010; and (iii) 11,667 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include (A) 34,666 unvested options and (B) 48,281,900 shares held by Cruise Associates. See Item 7.Major Shareholders and Related Party Transactions. |
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(13) | | Amount includes 32,001 options that will vest on or before May 1, 2003 and which are exercisable as follows: (i) 12,000 are exercisable at $28.88 per share and expire on March 31, 2010; (ii) 6,667 are exercisable at $20.30 per share and expire on December 4, 2010; and (iii) 13,334 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 37,900 unvested options. | | (14) | | Amount includes 73,334 options that will vest on or before May 1, 2003 and which are exercisable as follows: (i) 40,000 are exercisable at $13.44 per share and expire on December 31, 2003; (ii) 10,000 are exercisable at $14.38 per share and expire on June 13, 2006; (iii) 6,667 are exercisable at $20.30 per share and expire on December 4, 2010; and (iv) 16,667 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 36,666 unvested options. | | (15) | | Amount includes (i) 46,409,330 shares held by A. Wilhelmsen AS., a Norwegian corporation and (ii) 72,334 shares of common stock covered by options that will vest on or before May 1, 2003. See Item 7.Major Shareholders and Related Party Transactions. Mr. Wilhelmsen disclaims beneficial ownership of some of the shares of common stock referred to in (i) above. Of the 72,334 options (A) 15,000 are exercisable at $14.16 per share and expire on May 20, 2004; (B) 10,000 are exercisable at $14.38 per share and expire on June 13, 2006; (C) 12,000 are exercisable at $26.75 per share and expire on September 24, 2008; (D) 12,000 are exercisable at $28.88 per share and expire on March 31, 2010; (E) 6,667 are exercisable at $20.30 per share and expire on December 4, 2010; and (F) 16,667 are exercisable at $9.55 per share and expire on October 16, 2011. Amount does not include 47,666 unvested stock options held by Mr. Wilhelmsen. | | (16) | | Amount includes 405,668 options that will vest on or before May 1, 2003 and which are exercisable as follows: (i) 65,000 are exercisable at $12.16 per share and expire on January 6, 2007; (ii) 80,000 are exercisable at $27.02 per share and expire on February 26, 2008; (iii) 40,000 are exercisable at $35.09 per share and expire on February 5, 2009; (iv) 36,000 are exercisable at $48.00 per share and expire on February 4, 2010; (v) 18,000 are exercisable at $28.78 per share and expire on March 3, 2010; (vi) 66,667 are exercisable at $20.30 per share and expire on December 4, 2010; and (vii) 100,001 are exercisable at $9.90 per share and expire on October 12, 2011. Amount does not include 279,332 unvested options. |
Item 7.Major Shareholders and Related Party Transactions The following table sets forth certain information regarding the beneficial ownership of our common stock as of February 21, 2003,27, 2004, unless otherwise specified, by each person who is known by us to own beneficially more than 5% of the outstanding common stock. | | | | | | | | | | | Number of | | | | | | | Shares | | | | | | | of | | | | | | | Common | | Percentage | Name | | Stock | | Ownership |
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| A. Wilhelmsen AS.(1) | | | 46,409,330 | | | | 24.0 | % | Cruise Associates(2) | | | 48,281,900 | | | | 25.0 | % | Putnam, LLC d/b/a Putnam Investments(3) | | | 15,838,743 | | | | 8.2 | % |
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Name | | Number of Shares of Common Stock | | Percentage Ownership | |
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A. Wilhelmsen AS. (1) | | 42,966,472 | | 21.7 | % | Cruise Associates (2) | | 48,281,900 | | 24.4 | % | Oppenheimer Funds, Inc.(3) | | 10,452,240 | | 5.3 | % | |
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(1) | A. Wilhelmsen AS. is a Norwegian corporation, the indirect beneficial owners of which are members of the Wilhelmsen family of Norway. | (2) | 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 and various trusts primarily for the benefit of certain members of the Ofer family. | (3) | According to a Schedule 13G filed by Oppenheimer Funds, Inc. on February 10, 2004 with the United States Securities and Exchange Commission, Oppenheimer Funds, Inc. beneficially owns 10,452,240 shares of our common stock. According to the Schedule 13G, Oppenheimer Funds, Inc. is an investment advisor. | | A.Wilhelmsen AS. is a Norwegian corporation, the indirect beneficial owners of which are members of the Wilhelmsen family of Norway. A. Wilhelmsen AS. disclaims beneficial ownerhsip of 3,442,858 of the above stated shares. | | (2) | | 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. | | (3) | | According to a Schedule 13G filed by Putnam Investments on February 14, 2003 with the United States Securities and Exchange Commission, Putnam Investments beneficially owns 15,838,743 shares of our common stock. According to the Schedule 13G, securities reported as being beneficially owned by Putnam Investments consist of securities beneficially owned by subsidiaries of Putnam Investments which are registered investment advisors, which in turn include securities beneficially owned by clients of such investment advisors, which clients may include investment companies registered under the Investment Company Act and/or employee benefit plans, pension funds, endowment funds or other institutional clients. |
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A. Wilhelmsen A.Wilhelmsen AS. and Cruise Associates are parties to a shareholders agreement on certain matters relative to our organization and operation and certain matters concerning their respective ownership of our voting stock. During the term of 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 Edwin W. Stephan and William K. Reilly as our directors.
Of the current directors, A. Wilhelmsen AS. nominated Tor B. Arneberg, Arvid Grundekjoen, Gert W. Munthe and Arne Alexander Wilhelmsen, and Cruise Associates nominated Bernard W. Aronson, Laura Laviada, Eyal Ofer and Thomas J. Pritzker. Archinav Holdings, Ltd. nominated John D. Chandris. 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 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. In 2002,2003, William K. Reilly, one of our directors, provided environmental consulting services to us for which he was paid $300,000. ThisHis arrangement has been renewed for 20032004 on the same terms. As of February 21, 200327, 2004 there were 1,0721,045 record holders of our common stock in the United States, holding 63,415,727114,544,971 shares or approximately 32.85%57.9% of the total outstanding common stock. Since certain of our shares are held by nominees, the foregoing figures are not representative of the number and location of beneficial owners.Item 8.Financial Information Consolidated Statements and Other Financial Information Our Consolidated Financial Statements have been prepared in accordance with Item 18.Financial Statements and are included beginning on page F-1 of this report. Litigation In April 1999, a lawsuit waslawsuits were 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 sought payment of (i) the wages alleged to be owed, (ii) penalty wages under 46 United States Code Section 10313 and (iii) punitive damages. In November 1999, a purported class action suit was filed in the same court alleging a similar cause of action. In October 2002, we entered into settlement agreements in connection with boththe lawsuits. Under the terms of the settlement agreements,In September 2002, we could be required to make aggregate paymentsrecorded a charge of $20.0 million for whichin connection with the settlement agreements. In September 2003, we recorded a reserve asreduced the amount of September 30, 2002.the charge by approximately $5.8 million based on the actual number of claims filed in these actions. We are routinely involved in other claims typical within the cruise industry. The majority of these claims is covered by insurance. We believe the outcome of such other claims, net of expected insurance recoveries, is not expected to have a material adverse effect uponon our financial condition or results of operations. Policy on Dividend Distributions For our policy on dividend distributions, see Item 7.Major Shareholders and Related Party Transactions. 3439
Item 9.The Offer and Listing Markets Our common stock is listed on the New York Stock Exchange (“NYSE”) and the Oslo Stock Exchange (“OSE”) under the symbol “RCL”. The table below sets forth the intra-day high and low prices of our common stock for the five most recent fiscal years, the two most recent years by quarter, and the six most recent six months: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NYSE | | | | | | OSE | | | | | | | | | Common Stock | | | | | | Common Stock(1) | | | | |
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| Previous Five Years: | | | | | | | | | | | | | | | | | | | | | | | | | | 2002 | | | | | | $ | 24.38 | | | $ | 14.00 | | | | | | | | 210.36 | | | | 104.36 | | | 2001 | | | | | | | 30.25 | | | | 7.75 | | | | | | | | 266.00 | | | | 67.50 | | | 2000 | | | | | | | 56.38 | | | | 16.13 | | | | | | | | 446.00 | | | | 152.00 | | | 1999 | | | | | | | 58.88 | | | | 31.38 | | | | | | | | 450.00 | | | | 246.00 | | | 1998 | | | | | | | 43.91 | | | | 17.00 | | | | | | | | 327.50 | | | | 137.00 | | Previous Two Years (by quarter): | | | | | | | | | | | | | | | | | | | | | | | | | | 2002 | | | | | | | | | | | | | | | | | | | | | | | | | | | Fourth Quarter | | | | | | | 22.44 | | | | 15.00 | | | | | | | | 165.18 | | | | 111.32 | | | | Third Quarter | | | | | | | 20.59 | | | | 14.00 | | | | | | | | 156.70 | | | | 104.36 | | | | Second Quarter | | | | | | | 24.38 | | | | 19.35 | | | | | | | | 203.52 | | | | 145.04 | | | | First Quarter | | | | | | | 23.95 | | | | 16.03 | | | | | | | | 210.36 | | | | 142.32 | | | 2001 | | | | | | | | | | | | | | | | | | | | | | | | | | | Fourth Quarter | | | | | | | 17.60 | | | | 8.32 | | | | | | | | 168.50 | | | | 91.00 | | | | Third Quarter | | | | | | | 24.88 | | | | 7.75 | | | | | | | | 221.00 | | | | 67.50 | | | | Second Quarter | | | | | | | 23.09 | | | | 18.65 | | | | | | | | 210.50 | | | | 171.00 | | | | First Quarter | | | | | | | 30.25 | | | | 19.87 | | | | | | | | 266.00 | | | | 184.50 | | Previous Six Months: | | | | | | | | | | | | | | | | | | | | | | | | | | February 2003 | | | | | | | 15.93 | | | | 12.72 | | | | | | | | 110.84 | | | | 89.83 | | | January 2003 | | | | | | | 18.21 | | | | 14.98 | | | | | | | | 126.65 | | | | 103.13 | | | December 2002 | | | | | | | 22.30 | | | | 16.51 | | | | | | | | 163.12 | | | | 114.47 | | | November 2002 | | | | | | | 22.44 | | | | 18.03 | | | | | | | | 165.18 | | | | 133.11 | | | October 2002 | | | | | | | 20.20 | | | | 15.00 | | | | | | | | 152.91 | | | | 111.32 | | | September 2002 | | | | | | | 17.75 | | | | 14.00 | | | | | | | | 132.53 | | | | 104.36 | |
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| NYSE | OSE | | Common Stock | Common Stock(1) | |
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| Previous Five Years: | | | | | 2003 | $35.00 | $12.42 | 243.89 | 89.08 | 2002 | 24.38 | 14.00 | 210.36 | 104.36 | 2001 | 30.25 | 7.75 | 266.00 | 67.50 | 2000 | 56.38 | 16.13 | 446.00 | 152.00 | 1999 | 58.88 | 31.38 | 450.00 | 246.00 | Previous Two Years (by quarter): | | 2003 | | Fourth Quarter | 35.00 | 27.08 | 237.43 | 186.20 | Third Quarter | 32.68 | 22.27 | 243.89 | 159.06 | Second Quarter | 23.42 | 14.60 | 170.16 | 105.22 | First Quarter | 18.21 | 12.42 | 127.00 | 89.08 | 2002 | | Fourth Quarter | 22.44 | 15.00 | 165.18 | 111.32 | Third Quarter | 20.59 | 14.00 | 156.70 | 104.36 | Second Quarter | 24.38 | 19.35 | 203.52 | 145.04 | First Quarter | 23.95 | 16.03 | 210.36 | 142.32 | Previous Six Months: | February 2004 | 45.00 | 40.34 | 317.26 | 277.88 | January 2004 | 42.99 | 34.82 | 302.01 | 231.79 | December 2003 | 35.00 | 29.50 | 237.43 | 196.41 | November 2003 | 30.42 | 27.08 | 217.33 | 186.20 | October 2003 | 31.78 | 28.28 | 225.86 | 198.85 | September 2003 | 32.68 | 28.04 | 243.89 | 197.56 | | (1) Denominated in Norwegian kroner. |
40
(1) | | Denominated in Norwegian kroner. |
35
Our Zero Coupon Convertible Noteszero coupon convertible notes due May 18, 2021 and our Liquid Yield Option™ Notes due February 2, 2021 are each listed on the New York Stock Exchange.NYSE. The tablestable below setsets forth (i) the intra-day high and low prices of our Zero Coupon Debt Securitieszero coupon convertible notes for last yearthe three most recent years, two most recent years by quarter and the six most recent six months and (ii) the highest and lowest closing prices of our Liquid Yield Option™ Notes for last yearthe three most recent years, two most recent years by quarter and the six most recent six months: | | | | | | | | | | | | | | | | | | | | | Zero Coupon Debt | | Liquid Yield Option™ | | | | Securities | | Notes | | | |
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| | | | High | | Low | | High | | Low | | | |
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| Previous Two Years: | | | | | | | | | | | | | | | | | | 2002 | | $ | 456.58 | | | $ | 347.39 | | | $ | 408.13 | | | $ | 316.85 | | | 2001 | | | 441.56 | | | | 268.71 | | | | 416.91 | | | | 207.50 | | Previous Two Years (by quarter): | | | | | | | | | | | | | | | | | 2002 | | | | | | | | | | | | | | | | | | Fourth Quarter | | | 456.58 | | | | 377.87 | | | | 408.13 | | | | 339.38 | | | Third Quarter | | | 406.10 | | | | 367.26 | | | | 366.25 | | | | 329.38 | | | Second Quarter | | | 456.04 | | | | 395.87 | | | | 385.00 | | | | 361.25 | | | First Quarter | | | 436.10 | | | | 347.39 | | | | 377.50 | | | | 316.85 | | 2001 | | | | | | | | | | | | | | | | | | Fourth Quarter | | | 357.56 | | | | 268.71 | | | | 356.65 | | | | 207.50 | | | Third Quarter | | | 441.56 | | | | 284.58 | | | | 371.95 | | | | 346.25 | | | Second Quarter | | | 411.72 | | | | 387.11 | | | | 390.10 | | | | 347.72 | | | First Quarter | | | — | | | | — | | | | 416.91 | | | | 365.00 | | Previous Six Months: | | | | | | | | | | | | | | | | | | February 2003 | | | 418.99 | | | | 392.13 | | | | 390.00 | | | | 375.00 | | | January 2003 | | | 430.65 | | | | 404.68 | | | | 393.75 | | | | 385.00 | | | December 2002 | | | 452.76 | | | | 410.50 | | | | 405.00 | | | | 383.75 | | | November 2002 | | | 456.58 | | | | 412.23 | | | | 408.13 | | | | 365.00 | | | October 2002 | | | 430.36 | | | | 377.87 | | | | 372.50 | | | | 339.38 | | | September 2002 | | | 397.03 | | | | 367.26 | | | | 343.13 | | | | 329.38 | |
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| Zero Coupon | Liquid Yield | | Convertible Notes | Option™ Notes | |
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| High | Low | High | Low | |
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| Previous Three Years: | 2003 | $582.30 | $392.13 | $478.13 | $355.00 | 2002 | 456.58 | 347.39 | 408.13 | 316.85 | 2001 | 441.56 | 268.71 | 416.91 | 207.50 | Previous Two Years (by quarter): | 2003 | | Fourth Quarter | 582.30 | 494.54 | 478.13 | 410.00 | Third Quarter | 550.65 | 453.72 | 458.75 | 400.00 | Second Quarter | 465.53 | 414.52 | 428.13 | 355.00 | First Quarter | 432.50 | 392.13 | 400.00 | 356.25 | 2002 | | Fourth Quarter | 456.58 | 377.87 | 408.13 | 339.38 | Third Quarter | 406.10 | 367.26 | 366.25 | 329.38 | Second Quarter | 456.04 | 395.87 | 385.00 | 361.25 | First Quarter | 436.10 | 347.39 | 377.50 | 316.85 | Previous Six Months: | February 2004 | 717.43 | 654.15 | 538.75 | 501.25 | January 2004 | 681.62 | 581.52 | 526.25 | 475.00 | December 2003 | 582.30 | 517.52 | 478.13 | 410.00 | November 2003 | 526.29 | 494.54 | 455.63 | 440.00 | October 2003 | 543.87 | 510.42 | 466.25 | 442.50 | September 2003 | 550.65 | 506.51 | 458.75 | 412.50 |
Item 10.Additional Information Articles of Incorporation and By-Laws Article Third of our Restated Articles of Incorporation provides that we may engage in any lawful act or activity for which companies may be organized under the Business Corporation Act of Liberia. However, we are restricted from doing business in Liberia within the meaning of the Business Corporation Act of Liberia. In accordance with our By-Laws, our board of directors has the authority to fix the compensation of our directors. There is no requirement that a person own any shares in our companyCompany in order to qualify as a director. Holders of our common stock have an equal right to share in our profits in the form of dividends when declared by our board of directors out of funds legally available for the distribution of dividends. If declared, there are no relevant time limits under Liberian law pursuant to which the entitlement to the dividend would lapse. Holders of our common stock have no rights to any sinking fund. Our Articles of Incorporation prohibit any person, other than our two existing largest shareholders, from owning, as determined for purposes of Section 883(c)(3) of the United States Internal Revenue Code of 1986 as amended, and the regulations promulgated thereunder, shares that give such person in the aggregate more than 4.9% of the relevant class or classes or our common stock. Our Articles of Incorporation provide for the lapse of rights, and sale, of any shares acquired in excess of such limit. See(SeeTaxation of the Companywithin Item 4. for an explanation of this restriction.) 3641
Our By-Laws require advance notice of shareholder proposals and require the vote of holders of at least 50% of our outstanding shares of common stock to call a special shareholders meeting. Our Articles of Incorporation provide for the division of our board of directors into three classes with directors in each class holding office for staggered terms of three years each. The Articles of Incorporation also require, with certain exceptions, the authorization of the affirmative vote of holders of not less than two-thirds of our outstanding shares of common stock to amend the Articles of Incorporation. The provisions described in this paragraph are referred to as “Shareholder Protection Measures”. The Shareholder Protection Measures are intended to enable our board of directors to effectively respond to third party proposals for the acquisition or restructuring of our companyCompany in a manner that protects our best interests and those of our shareholders. However, these provisions may adversely affect the market price of our shares if they are viewed as discouraging takeover attempts, or they may prevent our shareholders from receiving a premium above market price from a potential bidder in a takeover context. For additional information about our Articles of Incorporation and By-Laws, and a description of the rights attaching to our shares of stock, see “Description of Capital Stock” contained in our Registration Statement on Form F-3 as filed with the Securities and Exchange Commission, File No. 333-56058. Material Contracts The following is a summary of our material contracts: Indenture dated as of July 15, 1994 between us, as Issuer, and The Bank of New York, formerly Nationsbank of Georgia, National Association, as Trustee. This indenture is the form of indenture we have used when issuing senior securities pursuant to the Supplemental Indentures First through Thirteenth described below. First Supplemental Indenture dated as of July 28, 1994 between us, as Issuer, and The Bank of New York, as Trustee. We issued $125.0 million aggregate principal amount of 8 1/8% Senior Notes8.125% senior notes due 2004 at a price of 97.871%, net of underwriting discount. The notes are unsecured and are not redeemable prior to maturity. Second Supplemental Indenture dated as of March 29, 1995 between us, as Issuer, and The Bank of New York, as Trustee. We issued $150.0 million aggregate principal amount of 8 1/4% Senior Notes8.25% senior notes due 2005 at a price of 98.579%, net of underwriting discount. The notes are unsecured and are not redeemable prior to maturity. Third Supplemental Indenture dated as of September 18, 1995 between us, as Issuer, and The Bank of New York, as Trustee. We issued $150.0 million aggregate principal amount of 7 1/8% Senior Notes7.125% senior notes due 2002 at a price of 98.644%, net of underwriting discount. The notes were unsecured and were paid down upon maturity in September 2002. Fourth Supplemental Indenture dated as of August 12, 1996 between us, as Issuer, and The Bank of New York, as Trustee. We issued $175.0 million aggregate principal amount of 7 1/4% Senior Notes7.25% senior notes due 2006 at a price of 98.017%, net of underwriting.underwriting discount. The notes are unsecured and are not redeemable prior to maturity. Fifth Supplemental Indenture dated as of October 14, 1997 between us, as Issuer, and The Bank of New York, as Trustee. We issued $200.0 million aggregate principal amount of 7% Senior Notes7.0% senior notes due 2007 at a price of 99.058%, net of underwriting.underwriting discount. The notes are unsecured and are not redeemable prior to maturity. Sixth Supplemental Indenture dated as of October 14, 1997 between us, as Issuer, and The Bank of New York, as Trustee. We issued $300.0 million aggregate principal amount of 7 1/2% Senior Debentures7.5% senior debentures due 2027 at a price of 97.716%, net of underwriting.underwriting discount. The debentures are unsecured and are not redeemable prior to maturity. Seventh Supplemental Indenture dated as of March 16, 1998 between us, as Issuer, and The Bank of New York, as Trustee. We issued $150.0 million aggregate principal amount of 6 3/4% Senior Notes6.75% senior notes due 2008 at a price of 98.778%, net of underwriting.underwriting discount. The notes are unsecured and are not redeemable prior to maturity. 42
Eighth Supplemental Indenture dated as of March 16, 1998 between us, as Issuer, and The Bank of New York, as Trustee. We issued $150.0 million aggregate principal amount of 7 1/4% Senior Debentures7.25% senior debentures due 2018 at a price of 98.749%, net of underwriting.underwriting discount. The debentures are unsecured and are not redeemable prior to maturity. Ninth Supplemental Indenture dated as of February 2, 2001 between us, as Issuer, and The Bank of New York, as Trustee. We issued $500.0 million aggregate principal amount of 8 3/4% Senior Notes8.75% senior notes due 2011 at a price of 99.015%., net of underwriting discount. The notes are unsecured and are not redeemable prior to maturity. 37
Tenth Supplemental Indenture dated as of February 2, 2001 between us, as Issuer, and The Bank of New York, as Trustee. We issued $1.506 billion aggregate principal amount of Liquid Yield Option™ Notes (LYONs) due 2021. The LYONs are unsecured zero coupon bonds with a yield to maturity of 4.875%. The LYONs are convertible into 17.7 million shares of common stock if certain conditions are met. Eleventh Supplemental Indenture dated as of May 18, 2001 between us, as Issuer, and The Bank of New York, as Trustee. We issued $883.0 million aggregate principal amount of Zero Coupon Convertible Noteszero coupon convertible notes due May 18, 2021. The notes are unsecured zero coupon bonds with a yield to maturity of 4.75%. The notes are convertible into 13.8 million shares of common stock if certain conditions are met. Twelfth Supplemental Indenture dated as of May 9, 2003 between us, as Issuer, and The Bank of New York, as Trustee. We issued $250.0 million aggregate principal amount of 8.0% senior notes due 2010 at a price of 97.964%, net of underwriting discount. The notes are unsecured and are not redeemable prior to maturity. Thirteenth Supplemental Indenture dated as of November 21, 2003 between us, as Issuer, and The Bank of New York, as Trustee. We issued $350.0 million aggregate principal amount of 6.875% senior notes due 2013 at a price of 98.750%, net of underwriting discount. The notes are unsecured and are not redeemable prior to maturity. Amended and Restated Credit Agreement dated as of June 28, 1996 among us and various financial institutions and the Bank of Nova Scotia, as Administrative Agent. Under ourThis facility, which was to have expired by its terms in June 2003, was replaced on March 27, 2003 by a new unsecured revolving credit facility we can have outstandingas described in the paragraph below. We had the right to borrow up to $1.0 billion untilunder this facility and it bore interest at LIBOR plus 0.45% on balances outstanding and a 0.2% facility fee. The margin and facility fee varied with our debt rating. The facility contained covenants that required us, among other things, to maintain minimum liquidity, net worth, and fixed charge coverage and limited our debt to capital ratio. Credit Agreement dated as of March 27, 2003 among us and various financial institutions and Citibank, N.A., as Administrative Agent which replaced the Amended and Restated Credit Agreement dated as of June 2003.28, 1996. This unsecured revolving credit facility was initially in the amount of $500.0 million and has since been increased to $1.0 billion as of February 17, 2004. The unsecured revolving credit facility bears interest at LIBOR plus 0.45%1.75% on balances outstanding and a 0.20% facility0.6% commitment fee. The margin and facilitycommitment fee vary with our debt rating. The unsecured revolving credit facility contains covenants that require us, among other things, to maintain minimum liquidity, net worth and fixed charge coverage and limit our net debt to capital ratio. Credit Agreement dated as of June 9, 2000 between us and various financial institutions and Bank of America, N.A., as Administrative Agent. We entered into a $575.0 million (subsequently increased to $625.0 millionmillion) unsecured term loan bearing interest at LIBOR plus 1.25%, which is due in 2005. The margin varies with our debt rating. The term loan contains covenants that require us, among other things, to maintain minimum net worth and fixed charge coverage and limit our debt to capital ratio. Credit Agreement dated as of May 18, 2001 among us and various financial institutions and Bank of America, N.A. as Administrative Agent. We entered into a $345.8 million unsecured term loan, which can only be drawn if holders of our Zero Coupon Convertible Noteszero coupon convertible notes require us to purchase their Notesnotes on May 18, 2004. The facility bears a 0.20%0.6% facility fee and will bear interest at LIBOR plus a margin on outstanding balances if drawn. The margin and facility fee vary with our debt rating. The facility commitment expires if the holders of our Zero Coupon Convertible Noteszero coupon convertible notes do not require us to purchase their Notesnotes on May 18, 2004. If utilized, the facility is due in 2007. The term loan contains covenants that require us, among other things, to maintain minimum net worth and fixed charge coverage and limit our debt to capital ratio. Implementation Agreement dated as of November 19, 2001 between us and P&O Princess. The agreement governed the implementation of the now terminated dual-listed company merger between us and P&O Princess and stipulated the conditions precedent which must be satisfied or waived prior to completion of the dual-listed company merger.43
Joint Venture Agreement dated as of November 19, 2001 among P&O Princess, Joex Limited and us. This agreement created a now terminated joint venture between P&O Princess and us to jointly create and operate a cruise line company to target customers in southern Europe.
Agreement dated October 25, 2002 among P&O Princess, Joex Limited and us by which P&O Princess plc agreed to pay us a break fee in connection with the termination of the proposed combination of P&O Princess plc and us, and the parties agreed to terminate effective January 1, 2003, the venture to jointly create and operate a cruise line company to target customers in southern Europe. Amended and Restated Registration Rights Agreement dated as of July 30, 1997 among us, A. Wilhelmsen AS., Cruise Associates, Monument Capital Corporation, Archinav Holdings, Ltd. and Overseas Cruiseship, Inc. Pursuant to this agreement, A. Wilhelmsen AS. and Cruise Associates have the right on a specified number of occasions to require, subject to certain qualifications and limitations, that we effect the registration under the United States Securities Act of 1933 of all or a specified number of shares of common stock. Each of A. Wilhelmsen AS. and Cruise Associates has certain additional registration rights at such time or times as we publicly offer securities. Monument Capital Corporation and Archinav Holdings, Ltd. areis also partiesa party to the registration rights agreement and may exercise such rights as provided by the registration rights agreement. Office Building Lease Agreement dated July 25, 1989 between us and Miami-Dade County, Florida. We entered into a 20-year lease of an office building of approximately 162,500 square feet at the Port of Miami, Florida for use as part of our principal offices. The lease term expires in 2011. Base rent payable under the lease is equal to the amount necessary to satisfy the debt service of the construction costs of $16,500,000 over the lease term. The lease has two five-year renewals. 38
Office Building Lease Agreement dated January 18, 1994 between us and Miami-Dade County, Florida. We entered into a 20-year lease of an office building of approximately 180,000 square feet at the Port of Miami, Florida for use as part of our principal offices. The lease term expires in 2015. Base rent payable under the lease is equal to the amount necessary to satisfy the construction costs of $16,650,000 over the lease term. The lease has two five-year renewals. Lease dated as of December 1, 1997 between the City of Wichita, Kansas and us, as amended by a First Supplemental Lease Agreement dated December 1, 2000. We entered into a lease of approximately 89,000 square feet of office space in Wichita, Kansas which is used primarily as an additional reservation center. The City of Wichita issued industrial revenue bonds in the aggregate principal amount of $25,800,000 to acquire, renovate and equip the building. The bonds are secured by the property and the rentals under the lease. We have the right to purchase the building and land for a nominal amount upon repayment of the bonds. Multi-Tenant Office Lease Agreement dated May 3, 2000 between us and Opus Real Estate National IV Fl, L.L.C. (formerly Miramar 75, L.L.C.), as amended by four Amendments dated June 1, 2000, November 20, 2000, October 11, 2001 and September 25, 2003, respectively. We entered into a 15-year lease for an office building consisting of approximately 128,000 square feet in Miramar, Florida which is used primarily as office space. The lease expires in 2016, and has two five-year renewals. Base rent is currently equal to $18.11 per rentable square foot, subject to annual escalations. Exchange Controls There are now no exchange control restrictions on remittances of dividends on our common stock or on the conduct of our operations in Liberia by reason of our incorporation in Liberia. 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 ship-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 to a holder that is a resident Liberian entity or a resident individual or entity or a citizen of Liberia. 44
Documents on Display Our Restated Articles of Incorporation, By-Laws, and material contracts are filed as exhibits to this Annual Report on Form 20-F. Item 11.Quantitative and Qualitative Disclosures about Market Risk Our quantitative and qualitative disclosures about market risk are included in Item 5.Operating and Financial Review and ProspectsProspects.. Item 12.Description of Securities Other than Equity Securities Not applicable. 45
PART II Item 13.Defaults, Dividend Arrearages and Delinquencies None. Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds None. Item 15.Controls and Procedures Within the 90-day period prior to the filing of this report, weWe carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Acting Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and concluded that those controls and procedures were effective. There were We have designed our disclosure controls and procedures to provide a reasonable level of assurance of reaching our desired control objectives. We believe our disclosure controls and procedures are effective in reaching that level of assurance. However, in designing and evaluating the disclosure controls and procedures, we recognize that many controls and procedures, no significant changesmatter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that our internal controls orwill succeed in other factors that could significantly affect these controls subsequent to the date the controls were evaluated. achieving their stated goals under all possible conditions.Item 16.16 A.Reserved Audit Committee Financial Expert 39 Our board has determined that William L. Kimsey, the Chairman of our audit committee, is a financial expert as such term is defined under applicable rules of the Securities and Exchange Commission. Our board has also determined that Mr. Kimsey meets the independence standards of the New York Stock Exchange.
Item 16 B. Code of Ethics Our board has adopted a Code of Business Conduct and Ethics that is applicable to all of our employees, including our principal executive officer, our principal financial officer and our principal accounting officer. A copy of our Code of Business Conduct and Ethics is posted on our website at www.rclinvestor.com. Item 16 C. Principal Accountant Fees and Services Aggregate fees for professional services rendered by PricewaterhouseCoopers LLP as of or for the years ended December 31, 2003 and 2002 were: |
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| 2003 | 2002 | |
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| Audit fees | $632,058 | $ 457,177 | Audit related fees | 40,000 | 808,778 | Tax fees | 195,391 | 335,326 | All other fees | 6,684 | 123,938 | |
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| Total | $874,133 | $1,725,219 | |
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|
Pursuant to the terms of its charter, the audit committee shall approve all audit engagement fees and terms and all non-audit engagements with the independent auditor. The Chairman of the audit committee shall also be the authority to approve any non-audit engagements with the independent auditors. The Chairman shall report any such approvals to the committee at its next meeting. 46
Our audit committee pre-approved 100% of the services performed by our independent auditors for audit related and non-audit related services for the year ended December 31, 2003 that were required to be pre-approved. The audit fees for the years ended December 31, 2003 and 2002 were for professional services rendered for the annual audits of our consolidated financial statements, statutory audits required by foreign jurisdictions, quarterly reviews, issuance of consents and review of documents filed with the Securities and Exchange Commission. In addition, the audit fees for the year ended December 31, 2003 included services related to two debt offerings and the statutory audit of a new foreign subsidiary. The audit related fees for the year ended December 31, 2003 were for the audit of employee benefit plans. The audit related fees for the year ended December 31, 2002 were for services rendered in connection with the potential combination with P&O Princess Cruises plc and for the audit of employee benefit plans. Tax fees for the years ended December 31, 2003 and 2002 were for services performed in connection with income tax compliance, consulting and tax research services, assistance with tax audits and expatriate tax services. The all other fees category for the year ended December 31, 2002 includes fees primarily related to assessments and recommendations regarding audit committee effectiveness and actuarial services for an employee benefit plan. The audit committee has considered and determined that the services provided by PricewaterhouseCoopers LLP are compatible with maintaining PricewaterhouseCoopers LLP’s independence. Item 16 D. Exemptions from the Listing Standards for Audit Committees Not applicable. Item 16 E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers Neither we nor any of our affiliated purchasers made directly or indirectly on our behalf any purchases of our shares in the twelve-month period ended December 31, 2003. 47
PART III Item 17.Financial Statements Our Consolidated Financial Statements have been prepared in accordance with Item 18.Financial StatementsStatements. Item 18.Financial Statements Our Consolidated Financial Statements are included beginning at page F-1 of this Annual Report on Form 20-F. Item 19.Exhibits The exhibits listed on the accompanyingIndex to Exhibitsare filed and incorporated by reference as part of this Annual Report on Form 20-F. 4048
SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. | | | | | ROYAL CARIBBEAN CRUISES LTD. |
(Registrant) | | | | | | Date: March 24, 2003 | By: | | /s/ BONNIE S. BIUMI
Bonnie S. Biumi
Acting | |
---|
| ROYAL CARIBBEAN CRUISES LTD. | | (Registrant) | Date: March 15, 2004 | | | By:/s/LUISE. LEON | | Luis E. Leon | | Chief Financial Officer |
49 CERTIFICATIONS
I, Richard D. Fain, certify that:
1. | | I have reviewed this annual report on Form 20-F of Royal Caribbean Cruises Ltd.; | | 2. | | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | | 3. | | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; | | 4. | | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
| a) | | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | | | b) | | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and | | | c) | | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| a) | | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | | | b) | | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. | | The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| | Date: March 24, 2003 | | | | | | | /s/ RICHARD D. FAIN
Richard D. Fain
Chief Executive Officer |
41
I, Bonnie S. Biumi, certify that:
1. | | I have reviewed this annual report on Form 20-F of Royal Caribbean Cruises Ltd.; | | 2. | | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | | 3. | | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; | | 4. | | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
| a) | | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | | | b) | | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and | | | c) | | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| a) | | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | | | b) | | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. | | The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| | Date: March 24, 2003 | | | | | | | /s/ BONNIE S. BIUMI
Bonnie S. Biumi
Acting Chief Financial Officer |
42
ROYAL CARIBBEAN CRUISES LTD. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
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| | | Page | | | | | Page | | |
| Report of Independent Certified Public Accountants | | | F-2 | | Consolidated Statements of Operations | | | F-3 | | Consolidated Balance Sheets | | | F-4 | | Consolidated Statements of Cash Flows | | | F-5 | | Consolidated Statements of Shareholders’ Equity | | | F-6 | | Notes to the Consolidated Financial Statements | | | F-7 | |
F-1
Report of Independent Certified Public Accountants | F-2 | Consolidated Statements of Operations | F-3 | Consolidated Balance Sheets | F-4 | Consolidated Statements of Cash Flows | F-5 | Consolidated Statements of Shareholders' Equity | F-6 | Notes to the Consolidated Financial Statements | F-7 |
F-1
Report of Independent Certified Public Accountants To the Shareholders and Directors of
of Royal Caribbean Cruises Ltd. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of shareholders’ equity present fairly, in all material respects, the financial position of Royal Caribbean Cruises Ltd. and its subsidiaries at December 31, 20022003 and 2001,2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20022003 in conformity with accounting principles generally accepted in the United States of America. 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 of America, 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 our opinion. PricewaterhouseCoopers LLP Miami,Florida
FebruaryJanuary 28, 20032004, except for Note 14 as to which the date is March 12, 2004 F-2
ROYAL CARIBBEAN CRUISES LTD. CONSOLIDATED STATEMENTS OF OPERATIONS | | | | | | | | | | | | | | | | | Year Ended December 31, | | | |
| | | | 2002 | | 2001 | | 2000 | | | |
| |
| |
| | | | (in thousands, except per share data) | INCOME STATEMENT | | | | | | | | | | | | | Revenues | | $ | 3,434,347 | | | $ | 3,145,250 | | | $ | 2,865,846 | | | | |
| | | |
| | | |
| | Expenses | | | | | | | | | | | | | | Operating | | | 2,113,217 | | | | 1,934,391 | | | | 1,652,459 | | | Marketing, selling and administrative | | | 431,055 | | | | 454,080 | | | | 412,799 | | | Depreciation and amortization | | | 339,100 | | | | 301,174 | | | | 231,048 | | | | |
| | | |
| | | |
| | | | | 2,883,372 | | | | 2,689,645 | | | | 2,296,306 | | | | |
| | | |
| | | |
| | Operating Income | | | 550,975 | | | | 455,605 | | | | 569,540 | | | | |
| | | |
| | | |
| | Other Income (Expense) | | | | | | | | | | | | | | Interest income | | | 12,413 | | | | 24,544 | | | | 7,922 | | | Interest expense, net of capitalized interest | | | (266,842 | ) | | | (253,207 | ) | | | (154,328 | ) | | Other income (expense) | | | 54,738 | | | | 27,515 | | | | 22,229 | | | | |
| | | |
| | | |
| | | | | (199,691 | ) | | | (201,148 | ) | | | (124,177 | ) | | | |
| | | |
| | | |
| | Net Income | | $ | 351,284 | | | $ | 254,457 | | | $ | 445,363 | | | | |
| | | |
| | | |
| | | | | | | | | | | | | | | EARNINGS PER SHARE: | | | | | | | | | | | | | | Basic | | $ | 1.82 | | | $ | 1.32 | | | $ | 2.34 | | | | |
| | | |
| | | |
| | | Diluted | | $ | 1.79 | | | $ | 1.32 | | | $ | 2.31 | | | | |
| | | |
| | | |
| |
|
| | | |
---|
| Year Ended December 31, |
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|
|
---|
| | | | 2003 | | | 2002 | | | 2001 | | |
|
|
|
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| (in thousands, except per share data) |
---|
Passenger ticket revenues | | | $ | 2,775,055 | | $ | 2,589,942 | | $ | 2,427,944 | | Onboard and other revenues | | | | 1,009,194 | | | 844,405 | | | 717,306 | | |
|
|
|
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Total revenues | | | | 3,784,249 | | | 3,434,347 | | | 3,145,250 | | |
|
|
|
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Operating expenses | | | Commissions, transportation and other | | | | 684,344 | | | 669,177 | | | 726,516 | | Onboard and other | | | | 249,537 | | | 208,231 | | | 179,882 | | Payroll and related | | | | 426,462 | | | 314,370 | | | 283,919 | | Food | | | | 239,483 | | | 255,703 | | | 216,136 | | Other operating | | | | 781,209 | | | 665,736 | | | 527,938 | | |
|
|
|
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Total operating expenses | | | | 2,381,035 | | | 2,113,217 | | | 1,934,391 | | Marketing, selling and administrative expenses | | | | 514,334 | | | 431,055 | | | 454,080 | | Depreciation and amortization expenses | | | | 362,695 | | | 339,100 | | | 301,174 | | |
|
|
|
---|
| | | | 3,258,064 | | | 2,883,372 | | | 2,689,645 | | |
|
|
|
---|
Operating Income | | | | 526,185 | | | 550,975 | | | 455,605 | | |
|
|
|
---|
Other Income (Expense) | | | Interest income | | | | 4,519 | | | 12,413 | | | 24,544 | | Interest expense, net of capitalized interest | | | | (268,398) | | | (266,842) | | | (253,207) | | Other income (expense) | | | | 18,358 | | | 54,738 | | | 27,515 | | |
|
|
|
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| | | | (245,521) | | | (199,691) | | | (201,148) | | |
|
|
|
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Net Income | | | $ | 280,664 | | $ | 351,284 | | $ | 254,457 | | |
|
|
|
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EARNINGS PER SHARE: | | | Basic | | | $ | 1.45 | | $ | 1.82 | | $ | 1.32 | | |
|
|
|
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Diluted | | | $ | 1.42 | | $ | 1.79 | | $ | 1.32 | | |
|
|
|
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The accompanying notes are an integral part of these financial statements. F-3
ROYAL CARIBBEAN CRUISES LTD. CONSOLIDATED BALANCE SHEETS | | | | | | | | | | | | | | | As of December 31, | | | | |
| | | | | 2002 | | 2001 | | | | |
| |
| | | | | (in thousands, except share data) | ASSETS | | | | | | | | | Current Assets | | | | | | | | | | Cash and cash equivalents | | $ | 242,584 | | | $ | 727,178 | | | Trade and other receivables, net | | | 79,535 | | | | 72,196 | | | Inventories | | | 37,299 | | | | 33,493 | | | Prepaid expenses and other assets | | | 88,325 | | | | 53,247 | | | | |
| | | |
| | | | Total current assets | | | 447,743 | | | | 886,114 | | Property and Equipment — at cost less accumulated depreciation and amortization | | | 9,276,484 | | | | 8,605,448 | | Goodwill — less accumulated amortization of $138,606 | | | 278,561 | | | | 278,561 | | Other Assets | | | 535,743 | | | | 598,659 | | | | |
| | | |
| | | | $ | 10,538,531 | | | $ | 10,368,782 | | | | |
| | | |
| | | | | | | | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | Current Liabilities | | | | | | | | | | Current portion of long-term debt | | $ | 122,544 | | | $ | 238,581 | | | Accounts payable | | | 171,153 | | | | 144,070 | | | Accrued expenses and other liabilities | | | 308,281 | | | | 283,913 | | | Customer deposits | | | 567,955 | | | | 446,085 | | | | |
| | | |
| | | | Total current liabilities | | | 1,169,933 | | | | 1,112,649 | | Long-Term Debt | | | 5,322,294 | | | | 5,407,531 | | Other Long-Term Liabilities | | | 11,610 | | | | 92,018 | | Commitments and Contingencies (Note 12) | | | | | | | | | | | | | | | | | | Shareholders’ Equity | | | | | | | | | | Common stock ($.01 par value; 500,000,000 shares authorized; 192,982,513 and 192,310,198 shares issued) | | | 1,930 | | | | 1,923 | | | Paid-in capital | | | 2,053,649 | | | | 2,045,904 | | | Retained earnings | | | 1,982,580 | | | | 1,731,423 | | | Accumulated other comprehensive income (loss) | | | 3,693 | | | | (16,068 | ) | | Treasury stock (515,868 and 475,524 common shares at cost) | | | (7,158 | ) | | | (6,598 | ) | | | |
| | | |
| | | | Total shareholders’ equity | | | 4,034,694 | | | | 3,756,584 | | | | |
| | | |
| | | | $ | 10,538,531 | | | $ | 10,368,782 | | | | |
| | | |
| |
|
| | |
---|
| As of December 31, |
---|
|
|
---|
| | | | 2003 | | | 2002 | | |
|
|
---|
| (in thousands, except share data) |
---|
ASSETS | | | Current Assets | | | | | | Cash and cash equivalents | | | $ | 330,086 | | $ | 242,584 | | Trade and other receivables, net | | | | 89,489 | | | 79,535 | | Inventories | | | | 53,277 | | | 37,299 | | Prepaid expenses and other assets | | | | 101,698 | | | 88,325 | | |
|
|
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Total current assets | | | | 574,550 | | | 447,743 | | Property and Equipment — at cost less accumulated depreciation and | | | amortization | | | | 9,943,495 | | | 9,276,484 | | Goodwill — less accumulated amortization of $138,606 | | | | 278,561 | | | 278,561 | | Other assets | | | | 526,136 | | | 535,743 | | |
|
|
---|
| | | $ | 11,322,742 | | $ | 10,538,531 | | |
|
|
---|
LIABILITIES AND SHAREHOLDERS' EQUITY | | | Current Liabilities | | | Current portion of long-term debt | | | $ | 315,232 | | $ | 122,544 | | Accounts payable | | | | 187,756 | | | 171,153 | | Accrued expenses and other liabilities | | | | 271,944 | | | 308,281 | | Customer deposits | | | | 729,595 | | | 567,955 | | |
|
|
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Total current liabilities | | | | 1,504,527 | | | 1,169,933 | | Long-Term Debt | | | | 5,520,572 | | | 5,322,294 | | Other Long-Term Liabilities | | | | 34,746 | | | 11,610 | | Commitments and Contingencies (Note 12) | | | Shareholders' Equity | | | Common stock ($.01 par value; 500,000,000 shares authorized; | | | 196,106,658 and 192,982,513 shares issued) | | | | 1,961 | | | 1,930 | | Paid-in capital | | | | 2,100,612 | | | 2,053,649 | | Retained earnings | | | | 2,162,195 | | | 1,982,580 | | Accumulated other comprehensive income | | | | 5,846 | | | 3,693 | | Treasury stock (556,212 and 515,868 common shares at cost) | | | | (7,717) | | | (7,158) | | |
|
|
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Total shareholders' equity | | | | 4,262,897 | | | 4,034,694 | | |
|
|
---|
| | | $ | 11,322,742 | | $ | 10,538,531 | | |
|
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The accompanying notes are an integral part of these financial statements. F-4
ROYAL CARIBBEAN CRUISES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | | |
| | | | | 2002 | | 2001 | | 2000 | | | | |
| |
| |
| | | | | (in thousands) | OPERATING ACTIVITIES | | | | | | | | | | | | | Net income | | $ | 351,284 | | | $ | 254,457 | | | $ | 445,363 | | Adjustments: | | | | | | | | | | | | | | Depreciation and amortization | | | 339,100 | | | | 301,174 | | | | 231,048 | | | Accretion of original issue discount | | | 46,796 | | | | 36,061 | | | | — | | Changes in operating assets and liabilities: | | | | | | | | | | | | | | Increase in trade and other receivables, net | | | (7,339 | ) | | | (18,587 | ) | | | (150 | ) | | Increase in inventories | | | (3,806 | ) | | | (3,378 | ) | | | (3,717 | ) | | (Increase) decrease in prepaid expenses and other assets | | | (8,469 | ) | | | 3,305 | | | | 1,865 | | | Increase (decrease) in accounts payable | | | 27,083 | | | | (14,073 | ) | | | 55,102 | | | | (Decrease) increase in accrued expenses and other liabilities | | | (2,240 | ) | | | 75,645 | | | | (8,204 | ) | | Increase (decrease) in customer deposits | | | 121,870 | | | | 2,674 | | | | (21,622 | ) | | Other, net | | | 6,191 | | | | (3,589 | ) | | | 3,631 | | | | |
| | | |
| | | |
| | Net cash provided by operating activities | | | 870,470 | | | | 633,689 | | | | 703,316 | | | | |
| | | |
| | | |
| | | | | | | | | | | INVESTING ACTIVITIES | | | | | | | | | | | | | Purchases of property and equipment | | | (689,991 | ) | | | (1,737,471 | ) | | | (1,285,649 | ) | Investment in convertible preferred stock | | | — | | | | — | | | | (305,044 | ) | Net proceeds from ship transfer to joint venture | | | — | | | | — | | | | 47,680 | | Other, net | | | (6,275 | ) | | | (46,501 | ) | | | (21,417 | ) | | | |
| | | |
| | | |
| | Net cash used in investing activities | | | (696,266 | ) | | | (1,783,972 | ) | | | (1,564,430 | ) | | | |
| | | |
| | | |
| | | | | | | | | | | FINANCING ACTIVITIES | | | | | | | | | | | | | Proceeds from issuance of long-term debt, net | | | — | | | | 1,834,341 | | | | 1,195,000 | | Repayments of long-term debt | | | (603,270 | ) | | | (45,553 | ) | | | (128,086 | ) | Dividends | | | (100,127 | ) | | | (99,955 | ) | | | (94,418 | ) | Other, net | | | 44,599 | | | | 10,818 | | | | 2,958 | | | | |
| | | |
| | | |
| | Net cash (used in) provided by financing activities | | | (658,798 | ) | | | 1,699,651 | | | | 975,454 | | | | |
| | | |
| | | |
| | Net (Decrease) Increase in Cash and Cash Equivalents | | | (484,594 | ) | | | 549,368 | | | | 114,340 | | Cash and Cash Equivalents at Beginning of Year | | | 727,178 | | | | 177,810 | | | | 63,470 | | | | |
| | | |
| | | |
| | Cash and Cash Equivalents at End of Year | | $ | 242,584 | | | $ | 727,178 | | | $ | 177,810 | | | | |
| | | |
| | | |
| | | | | | | | | | | SUPPLEMENTAL DISCLOSURES | | | | | | | | | | | | | Cash paid during the year for: | | | | | | | | | | | | | | Interest, net of amount capitalized | | $ | 236,523 | | | $ | 203,038 | | | $ | 146,434 | | | | |
| | | |
| | | |
| | Noncash investing and financing activities: | | | | | | | | | | | | | | Acquisition of ship through debt | | $ | 319,951 | | | $ | 326,738 | | | $ | — | | | | |
| | | |
| | | |
| |
|
| | | |
---|
| Year Ended December 31, |
---|
|
|
---|
| | | | 2003 | | | 2002 | | | 2001 | | |
|
|
|
---|
| (in thousands) |
---|
Operating Activities | | | | | | | | | Net income | | | $ | 280,664 | | $ | 351,284 | | $ | 254,457 | | Adjustments: | | | Depreciation and amortization | | | | 362,695 | | | 339,100 | | | 301,174 | | Accretion of original issue discount | | | | 48,874 | | | 46,796 | | | 36,061 | | Changes in operating assets and liabilities: | | | Decrease (increase) in trade and other receivables, net | | | | 10,011 | | | (7,339) | | | (18,587) | | Increase in inventories | | | | (15,978) | | | (3,806) | | | (3,378) | | Decrease (increase) in prepaid expenses and other assets | | | | 6,670 | | | (8,469) | | | 3,305 | | Increase (decrease) in accounts payable | | | | 19,756 | | | 27,083 | | | (14,073) | | (Decrease) increase in accrued expenses and other liabilities | | | | (3,340) | | | (2,240) | | | 75,645 | | Increase in customer deposits | | | | 161,640 | | | 121,870 | | | 2,674 | | Other, net | | | | (13,189) | | | 6,191 | | | (3,589) | | |
|
|
|
---|
Net cash provided by operating activities | | | | 857,803 | | | 870,470 | | | 633,689 | | |
|
|
|
---|
Investing Activities | | | Purchases of property and equipment | | | | (1,029,530) | | | (689,991) | | | (1,737,471) | | Other, net | | | | (73,114) | | | (6,275) | | | (46,501) | | |
|
|
|
---|
Net cash used in investing activities | | | | (1,102,644) | | | (696,266) | | | (1,783,972) | | |
|
|
|
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Financing Activities | | | Proceeds from issuance of long-term debt, net | | | | 590,536 | | | — | | | 1,834,341 | | Repayments of long-term debt | | | | (231,100) | | | (603,270) | | | (45,553) | | Dividends | | | | (98,320) | | | (100,127) | | | (99,955) | | Other, net | | | | 71,227 | | | 44,599 | | | 10,818 | | |
|
|
|
---|
Net cash provided by (used in) financing activities | | | | 332,343 | | | (658,798) | | | 1,699,651 | | |
|
|
|
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Net Increase (Decrease) in Cash and Cash Equivalents | | | | 87,502 | | | (484,594) | | | 549,368 | | Cash and Cash Equivalents at Beginning of Year | | | | 242,584 | | | 727,178 | | | 177,810 | | |
|
|
|
---|
Cash and Cash Equivalents at End of Year | | | $ | 330,086 | | $ | 242,584 | | $ | 727,178 | | |
|
|
|
---|
Supplemental Disclosures | | | Cash paid during the year for: | | | Interest, net of amount capitalized | | | $ | 219,598 | | $ | 236,523 | | $ | 203,038 | | |
|
|
|
---|
Noncash investing and financing activities: | | | Acquisition of a ship through debt | | | $ | — | | $ | 319,951 | | $ | 326,738 | | |
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|
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The accompanying notes are an integral part of these financial statements. F-5
ROYAL CARIBBEAN CRUISES LTD. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | | | | Other | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive | | | | | Total | | | | Preferred | | Common | | Paid-in | | Retained | | Income | | Treasury | Shareholders' | | | | Stock | | Stock | | Capital | | Earnings | | (Loss) | | Stock | Equity | | | |
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| | | | | | | | (in thousands) | | | | | Balances at January 1, 2000 | | $ | 172,200 | | | $ | 1,812 | | | $ | 1,866,647 | | | $ | 1,225,976 | | | $ | — | | | $ | (5,479 | ) | | $ | 3,261,156 | | Issuance under preferred stock conversion | | | (172,200 | ) | | | 106 | | | | 172,094 | | | | — | | | | — | | | | — | | | | — | | Issuance under employee related plans | | | — | | | | 3 | | | | 4,370 | | | | — | | | | — | | | | (559 | ) | | | 3,814 | | Preferred stock dividends | | | — | | | | — | | | | — | | | | (3,121 | ) | | | — | | | | — | | | | (3,121 | ) | Common stock dividends | | | — | | | | — | | | | — | | | | (91,297 | ) | | | — | | | | — | | | | (91,297 | ) | Net income | | | — | | | | — | | | | — | | | | 445,363 | | | | — | | | | — | | | | 445,363 | | | | |
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| | Balances at December 31, 2000 | | | — | | | | 1,921 | | | | 2,043,111 | | | | 1,576,921 | | | | — | | | | (6,038 | ) | | | 3,615,915 | | Issuance under employee related plans | | | — | | | | 2 | | | | 2,793 | | | | — | | | | — | | | | (560 | ) | | | 2,235 | | Common stock dividends | | | — | | | | — | | | | — | | | | (99,955 | ) | | | — | | | | — | | | | (99,955 | ) | Transition adjustment SFAS No. 133 | | | — | | | | — | | | | — | | | | — | | | | 7,775 | | | | — | | | | 7,775 | | Changes related to cash flow derivative hedges | | | — | | | | — | | | | — | | | | — | | | | (23,843 | ) | | | — | | | | (23,843 | ) | Net income | | | — | | | | — | | | | — | | | | 254,457 | | | | — | | | | — | | | | 254,457 | | | | |
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| | Balances at December 31, 2001 | | | — | | | | 1,923 | | | | 2,045,904 | | | | 1,731,423 | | | | (16,068 | ) | | | (6,598 | ) | | | 3,756,584 | | Issuance under employee related plans | | | — | | | | 7 | | | | 7,745 | | | | — | | | | — | | | | (560 | ) | | | 7,192 | | Common stock dividends | | | — | | | | — | | | | — | | | | (100,127 | ) | | | — | | | | — | | | | (100,127 | ) | Changes related to cash flow derivative hedges | | | — | | | | — | | | | — | | | | — | | | | 19,761 | | | | — | | | | 19,761 | | Net income | | | — | | | | — | | | | — | | | | 351,284 | | | | — | | | | — | | | | 351,284 | | | | |
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| | Balances at December 31, 2002 | | $ | — | | | $ | 1,930 | | | $ | 2,053,649 | | | $ | 1,982,580 | | | $ | 3,693 | | | | (7,158 | ) | | $ | 4,034,694 | | | | |
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| | | | Common Stock | | | Paid-in Capital | | | Retained Earnings | | | Accumulated Other Comprehensive Income (Loss) | | | Treasury Stock | | | Total Shareholders' Equity | |
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| (in thousands) |
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Balances at January 1, 2001 | | | $ | 1,921 | | $ | 2,043,111 | | $ | 1,576,921 | | $ | — | | $ | (6,038) | | $ | 3,615,915 | | Issuance under employee related plans | | | | 2 | | | 2,793 | | | — | | | — | | | (560) | | | 2,235 | | Common stock dividends | | | | — | | | — | | | (99,955) | | | — | | | — | | | (99,955) | | Transition adjustment SFAS No. 133 | | | | — | | | — | | | — | | | 7,775 | | | — | | | 7,775 | | Changes related to cash flow derivative hedges | | | | — | | | — | | | — | | | (23,843) | | | — | | | (23,843) | | Net income | | | | — | | | — | | | 254,457 | | | — | | | — | | | 254,457 | | |
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Balances at December 31, 2001 | | | | 1,923 | | | 2,045,904 | | | 1,731,423 | | | (16,068) | | | (6,598) | | | 3,756,584 | | Issuance under employee related plans | | | | 7 | | | 7,745 | | | — | | | — | | | (560) | | | 7,192 | | Common stock dividends | | | | — | | | — | | | (100,127) | | | — | | | — | | | (100,127) | | Changes related to cash flow derivative hedges | | | | — | | | — | | | — | | | 19,761 | | | — | | | 19,761 | | Net income | | | | — | | | — | | | 351,284 | | | — | | | — | | | 351,284 | | |
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Balances at December 31, 2002 | | | | 1,930 | | | 2,053,649 | | | 1,982,580 | | | 3,693 | | | (7,158) | | | 4,034,694 | | Issuance under employee related plans | | | | 31 | | | 46,963 | | | — | | | — | | | (559) | | | 46,435 | | Common stock dividends | | | | — | | | — | | | (101,049) | | | — | | | — | | | (101,049) | | Changes related to cash flow derivative hedges | | | | — | | | — | | | — | | | 11,526 | | | — | | | 11,526 | | Minimum pension liability adjustment | | | | — | | | — | | | — | | | (9,373) | | | — | | | (9,373) | | Net income | | | | — | | | — | | | 280,664 | | | — | | | — | | | 280,664 | | |
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Balances at December 31, 2003 | | | $ | 1,961 | | $ | 2,100,612 | | $ | 2,162,195 | | $ | 5,846 | | $ | (7,717) | | $ | 4,262,897 | | |
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Comprehensive income is as follows: | | | | | | | | | | | | | | | Year Ended December 31, | | |
| | | 2002 | | 2001 | | 2000 | | |
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| |
| | | (in thousands) | Net income | | $ | 351,284 | | | $ | 254,457 | | | $ | 445,363 | | Transition adjustment SFAS No. 133 | | | — | | | | 7,775 | | | | — | | Changes related to cash flow derivative hedges | | | 19,761 | | | | (23,843 | ) | | | — | | | | |
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| | Total comprehensive income | | $ | 371,045 | | | $ | 238,389 | | | $ | 445,363 | | | | |
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| Year Ended December 31, |
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| | | | 2003 | | | 2002 | | | 2001 | | |
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| (in thousands) |
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Net income | | | $ | 280,664 | | $ | 351,284 | | $ | 254,457 | | Transition adjustment SFAS No. 133 | | | | — | | | — | | | 7,775 | | Changes related to cash flow derivative hedges | | | | 11,526 | | | 19,761 | | | (23,843) | | Minimum pension liability adjustment | | | | (9,373) | | | — | | | — | | |
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Total comprehensive income | | | $ | 282,817 | | $ | 371,045 | | $ | 238,389 | | |
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The accompanying notes are an integral part of these financial statements. F-6
ROYAL CARIBBEAN CRUISES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTENote 1. GENERAL General
Description of Business We are a global cruise company. We operate two cruise brands, Royal Caribbean International and Celebrity Cruises, with 1618 cruise ships and 9 cruise ships, respectively, at December 31, 2002.2003. Our ships operate on a selection of worldwide itineraries that call on approximately 200160 destinations. Basis for Preparation of Consolidated Financial Statements The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and are presented in United States dollars. 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. For the year ended December 31, 2003, we changed the reporting format of our consolidated statements of operations to separately present our significant sources of revenue and their directly related variable costs and expenses. We have also separately identified certain ship operating expenses, such as payroll and related expenses and food costs. All prior periods were reclassified to conform to the current year presentation. NOTENote 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESSummary of Significant Accounting Policies
Cruise Revenues and Expenses
Deposits received on sales of guestpassenger cruises represent unearned revenue and are initially recorded as customer deposit liabilities on our balance sheet. Customer deposits are subsequently recognized as cruisepassenger ticket revenues, together with revenues from shipboardonboard and other activities and all associated direct costs of a voyage, upon completion of voyages with durations of ten days or less and on a pro rata basis for voyages in excess of ten days. Minor amounts of revenues and expenses from 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 and fuel carried at the lower of cost (weighted-average) or market. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. We capitalize interest as part of the cost of construction.acquiring certain assets. Improvement costs that we believe add value to our ships are capitalized as additions to the ship and depreciated over the improvements’ estimated useful lives, while costs of repairs and maintenance are charged to expense as incurred. The estimated cost and accumulated depreciation of refurbished or replaced ship components are written-off and any resulting gain or loss is recognized in operating expenses. Liquidated damages received from shipyards as a result of late delivery of new ships are recorded in other income (expense). We review long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated future cash flows, that the carrying amount of these assets may not be fully recoverable. F-7
Depreciation of property and equipment, which includes amortization of ships under capital leases, is computed using the straight-line method over estimated useful lives of primarily 30 years for ships, net of a 15% projected residual value, three to twelve years for other property and equipment and the shorter of the lease term or related asset life for leasehold improvements. (See Note 4 — 4.Property and Equipment.) Advertising Costs Advertising costs are expensed as incurred except those costs which result in tangible assets, such as brochures, which are treated as prepaid expenses and charged to expense as consumed. Advertising expenses consist of media advertising as well as brochure, production and direct mail costs. Media advertising was $119.2 million, $97.9 million $103.4 million and $98.9$103.4 million, and brochure, production and direct mail costs were $73.5 million, $69.5 million $77.5 million and $79.2$77.5 million for the years 2003, 2002 2001 and 2000,2001, respectively. F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Drydocking Drydocking costs are accrued evenly over the period to the next scheduled drydocking and are included in accrued expenses and other liabilities. Financial Instruments We enter into various forward, swap and option contracts to manage our interest rate exposure and to limit our exposure to fluctuations in foreign currency exchange rates and fuel prices. Derivative instruments are recorded on the balance sheet at their fair value. On an ongoing basis, we assess whether derivatives used in hedging transactions are “highly effective” in offsetting changes in fair value or cash flowAt inception of hedged items and therefore qualify as eitherthe hedge relationship, a fair value or cash flow hedge. A derivative instrument that hedges the exposure to changes in the fair value of a recognized asset or liability, or a firm commitment is designated as a fair value hedge. A derivative instrument that hedges a forecasted transaction or the variability of cash flows related to a recognized asset or liability is designated as a cash flow hedge. Unrealized gains and losses onChanges in the fair value of derivatives that are designated as fair value hedges are recorded on the balance sheet as offsets toand offset against changes in the changesfair value of the underlying hedged assets, liabilities or firm commitments. Changes in fair value of related hedged assets, liabilities and firm commitments. Realized gains and losses on foreign currency forward contractsderivatives that hedge foreign currency denominated firm commitments related to ships under construction are included in the cost basis of the ships. Realized gains and losses on all other fair value hedges are recognized in earnings as offsets to the related hedged items. For derivative instruments that qualifydesignated as cash flow hedges the effective portions of changes in fair value of the derivatives are deferred and recorded as a component of accumulated other comprehensive income until the underlying hedged transactions occur and are recognized in earnings. All other portions ofOn an ongoing basis, we assess whether derivates used in hedging transactions are “highly effective” in offsetting changes in thefair value or cash flow of hedged items. If it is determined that a derivative is not highly effective as a hedge, changes in fair value of cash flow hedgesthe derivatives are recognized in earnings currently.immediately. Our risk-management policies and objectives for holding hedging instruments have not changed with the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” on January 1, 2001. The implementation of SFAS No. 133 did not have a material impact on our results of operations or financial position at adoption or during the twelve months ended December 31, 2001. Foreign Currency Transactions The majority of our transactions are settled in United States 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. F-8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Stock-Based Compensation
Stock-Based Compensation
We use the intrinsic value method to account for stock-based compensation usingemployee compensation. The following table illustrates the intrinsic value method. Had the fair value method been used to account for such compensation, compensation costs would have reducedeffect on net income and earnings per share as followsif we had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to such compensation (in thousands, except per share data): | | | | | | | | | | | | | | | Year Ended December 31, | | |
| | | 2002 | | 2001 | | 2000 | | |
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| Net income, as reported | | $ | 351,284 | | | $ | 254,457 | | | $ | 445,363 | | Deduct: Total stock-based employee compensation expense determined under fair value method for all awards | | | (20,544 | ) | | | (37,017 | ) | | | (28,797 | ) | | | |
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| | Pro forma net income | | $ | 330,740 | | | $ | 217,440 | | | $ | 416,566 | | | | |
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| | Earnings per share: | | | | | | | | | | | | | Basic – as reported | | $ | 1.82 | | | $ | 1.32 | | | $ | 2.34 | | Basic – pro forma | | $ | 1.72 | | | $ | 1.13 | | | $ | 2.19 | | Diluted – as reported | | $ | 1.79 | | | $ | 1.32 | | | $ | 2.31 | | Diluted – pro forma | | $ | 1.69 | | | $ | 1.13 | | | $ | 2.18 | |
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| Year Ended December 31, |
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| | | | 2003 | | | 2002 | | | 2001 | | |
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Net income, as reported | | | $ | 280,664 | | $ | 351,284 | | $ | 254,457 | | Deduct: Total stock-based employee compensation expense determined under fair value method for all awards | | | | (11,834) | | | (20,544) | | | (37,017) | | |
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Pro forma net income | | | $ | 268,830 | | $ | 330,740 | | $ | 217,440 | | |
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Earnings per share: | | | Basic — as reported | | | $ | 1.45 | | $ | 1.82 | | $ | 1.32 | | Basic — pro forma | | | $ | 1.39 | | $ | 1.72 | | $ | 1.13 | | Diluted — as reported | | | $ | 1.42 | | $ | 1.79 | | $ | 1.32 | | Diluted — pro forma | | | $ | 1.36 | | $ | 1.69 | | $ | 1.13 | |
The weighted-average fair value of options granted during 2003, 2002 and 2001 was $8.18, $6.84 and 2000 was $6.84, $4.35 and $12.43 per share, respectively. Fair value information for our stock options was estimated using the Black-Scholes option-pricing model based on the following weighted-average assumptions: | | | | | | | | | | | | | | | 2002 | | 2001 | | 2000 | | |
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| Dividend yield | | | 2.7 | % | | | 2.5 | % | | | 2.0 | % | Expected stock price volatility | | | 42.9 | % | | | 43.3 | % | | | 38.4 | % | Risk-free interest rate | | | 3 | % | | | 4 | % | | | 6 | % | Expected option life | | 5 years | | 5 years | | 6 years |
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| | | | 2003 | | | 2002 | | | 2001 | | |
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Dividend yield | | | | 2.7 | % | | 2.7 | % | | 2.5 | % | Expected stock price volatility | | | | 42.4 | % | | 42.9 | % | | 43.3 | % | Risk-free interest rate | | | | 3 | % | | 3 | % | | 4 | % | Expected option life | | | | 5 years | | | 5 years | | | 5 years | |
Segment Reporting We operate two cruise 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. Information by geographic area is shown in the table below. RevenuesTotal revenues are attributed to geographic areas based on the source of the guest. | | | | | | | | | | | | | | | 2002 | | 2001 | | 2000 | | |
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| Revenues: | | | | | | | | | | | | | United States | | | 82 | % | | | 81 | % | | | 82 | % | All Other Countries | | | 18 | % | | | 19 | % | | | 18 | % |
passenger.F-9
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| | | | 2003 | | | 2002 | | | 2001 | | |
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Total revenues: | | | | | | | | | | | | United States | | | | 81 | % | | 82 | % | | 81 | % | All other countries | | | | 19 | % | | 18 | % | | 19 | % |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting Pronouncements Goodwill represents the excess of cost over the fair value of net assets acquired, and prior to January 1, 2002, it was amortized over 40 years using the straight-line method. Upon adoption of SFAS No. 142, “Goodwill��Goodwill and Other Intangible Assets” on January 1, 2002, we ceased to amortize goodwill. Goodwill amortization was $10.4 million in 2001 and 2000.2001. In addition, we were required to perform an initial impairment review of our goodwill upon adoption, annually thereafter and whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. We completed our initial and annual impairment tests and determined that goodwill was not impaired. For the yearsyear ended December 31, 2001, and 2000, net income, excluding the amortization of goodwill, would have been $264.9 million and $455.8 million, respectively. Basicbasic and diluted earnings per share would have been $1.38 and $1.37, respectively, for 2001 and $2.40 and $2.36, respectively, for 2000.respectively. F-9
In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation Number (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires recognition of an initial liability for the fair value of the guarantor’s obligation upon issuance of certain guarantees. Disclosure requirements have been expanded to include information about each guarantee, even if the likelihood of any required payment is remote. We adopted the disclosure requirements of FIN 45 as of December 31, 2002. On January 2002,1, 2003, we adopted SFAS No. 144, “Accountingthe initial recognition and measurement provisions which were effective on a prospective basis for the Impairmentguarantees issued or Disposal of Long-Lived Assets,” which requires the measurement and recognition of the impairment of (i) long-lived assets to be held and used and (ii) long-lived assets to be held for sale.modified after December 31, 2002. The implementation of SFAS No. 144FIN 45 did not have a material impact on our results of operations or financial position at adoption or during the year ended December 31, 2002.2003. In June 2002,January 2003, the Financial Accounting Standards BoardFASB issued FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” In December 2003, the FASB issued a revision to FIN 46 (“FIN 46-R”). The modifications that were incorporated into FIN 46-R did not impact us or our implementation of FIN 46. FIN 46 requires consolidation of variable interest entities by the primary beneficiary if certain criteria are met. For variable interest entities created or acquired after January 31, 2003, we adopted the provisions of FIN 46 in our first quarter of 2003. For variable interest entities created or acquired prior to February 1, 2003, we adopted the provisions of FIN 46 in our second quarter of 2003. We have evaluated our joint ventures, minority interests in affiliates and other arrangements to determine if they are variable interest entities. One of our minority interests, a ship repair facility in which we invested in April 2001, is a variable interest entity under FIN 46; however, we are not the primary beneficiary and accordingly do not consolidate this entity. As of December 31, 2003, our investment in this entity including equity and loans, which is also our maximum exposure to loss, was approximately $41 million. In January 2003, we adopted SFAS No.146,No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires that liabilities for costs associated with an exit activity or disposal of long-lived assets be recognized when the liabilities are incurred and when the fair value can be determined. SFAS No. 146 is effective for any exit or disposal activities that are initiated after December 31, 2002. In November 2002, Financial Accounting Standards Board Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantors, Including Indirect Guarantees of Indebtedness of Others” was issued. FIN No. 45 requires recognition of an initial liability for the fair value of the guarantor’s obligation upon issuance of a guarantee. Disclosure requirements have been expanded to include information about each guarantee, even if the likelihood of any required payment is remote. We adopted the disclosure requirements of FIN No. 45 as of December 31, 2002. The initial recognition and measurement provisions are effective on a prospective basis for guarantees issued or modified after December 31, 2002.
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an Amendmentimplementation of SFAS No. 123,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 amends the requirements of SFAS No. 123 requiring prominent disclosures in annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We continue to use the intrinsic value method and, as a result, the adoption of SFAS No. 148146 had no impact on our results of operations or financial position.position at adoption or during the year ended December 31, 2003.
In JanuaryApril 2003, the Financial Accounting Standards BoardFASB issued FINSFAS No. 46, “Consolidation149, “Amendment of Variable Interest Entities,Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies accounting and reporting for derivative instruments, in particular, the circumstances under which a contract with an Interpretationinitial net investment meets the characteristics of ARB No. 51.” FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if specific criteria are met. FIN No. 46 is effective for all new variable interest entities createda derivative and when a derivative contains a financing component. For contracts entered into or acquiredmodified after January 31, 2003. For variable interest entities created or acquired prior to February 1,June 30, 2003, we adopted the provisions of FINSFAS No. 46 must be applied for the first interim or annual period beginning after June 15,149 in our third quarter of 2003. We are currently evaluating the effect that the adoptionThe implementation of FINSFAS No. 46 will have149 had no impact on our results of operations or financial position at adoption or during the year ended December 31, 2003. In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards to classify and measure certain financial position.instruments as liabilities which, under previous guidance, were classified as equity. For financial instruments entered into or modified after May 31, 2003, we adopted the provisions of SFAS No. 150 in our second quarter of 2003. For financial instruments entered into or modified prior to June 1, 2003, we adopted the provisions of SFAS No. 150 in our third quarter of 2003. The implementation of SFAS No. 150 had no impact on our results of operations or financial position at adoption or during the year ended December 31, 2003. In December 2003, the FASB issued a revision to SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88 and 106.” The revised SFAS No. 132 requires additional disclosures about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. The new disclosures are effective for financial statements with fiscal years ending after December 15, 2003. The implementation of the revised SFAS No. 132 had no impact on the disclosures to our financial statements for the year ended December 31, 2003. F-10
NOTENote 3. TERMINATION OF PROPOSED COMBINATION WITH Termination of Proposed Combination with P&O PRINCESSPrincess Cruises plc
In October 2002, our proposed combination with P&O Princess Cruises plc (“P&O Princess”) was terminated prior to its consummation and P&O Princess paid us a break fee of $62.5 million. We incurred approximately $29.5 million of merger-related costs. The net proceeds of $33.0 million were included in Otherother income (expense). We also agreed to terminate, effective as of January 1, 2003, our joint venture with P&O Princess. The venture was terminated before it commenced business operations. F-10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Note 4.Property and Equipment
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands): | | | | | | | | | | | 2002 | | 2001 | | |
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| Land | | $ | 7,056 | | | $ | 7,056 | | Ships | | | 9,404,959 | | | | 8,289,028 | | Ships under capital lease | | | 772,096 | | | | 771,131 | | Ships under construction | | | 265,782 | | | | 396,286 | | Other | | | 378,345 | | | | 366,914 | | | | |
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| | | | | 10,828,238 | | | | 9,830,415 | | Less — accumulated depreciation and amortization | | | (1,551,754 | ) | | | (1,224,967 | ) | | | |
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| | | | $ | 9,276,484 | | | $ | 8,605,448 | | | | |
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| | | | 2003 | | | 2002 | | |
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Land | | | $ | 7,056 | | $ | 7,056 | | Ships | | | | 10,536,947 | | | 9,404,959 | | Ships under capital lease | | | | 772,986 | | | 772,096 | | Ships under construction | | | | 121,167 | | | 265,782 | | Other | | | | 365,535 | | | 378,345 | | |
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| | | | 11,803,691 | | | 10,828,238 | | Less — accumulated depreciation and amortization | | | | (1,860,196) | | | (1,551,754) | | |
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| | | $ | 9,943,495 | | $ | 9,276,484 | | |
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Ships under construction include progress payments for the construction of new ships as well as planning, design, interest, commitment fees and other associated costs. We capitalized interest costs of $15.9 million, $23.4 million $37.0 million and $44.2$37.0 million for the years 2003, 2002 2001 and 2000,2001, respectively. Accumulated amortization related to ships under capital lease was $159.9$183.3 million and $136.2$159.9 million at December 31, 20022003 and 2001,2002, respectively. NOTENote 5. OTHER ASSETSOther Assets
We hold convertible preferred stock in First Choice Holidays PLC denominated in British pound sterling valued at approximately $300 million. The convertible preferred stock carries a 6.75% coupon. Dividends of $21.5 million, $20.3 million $19.4 million and $9.2$19.4 million were earned in 2003, 2002 2001 and 2000,2001, respectively and recorded in Otherother income (expense). If fully converted, our holding would represent approximately a 17% interest in First Choice Holidays PLC. F-11
NOTENote 6. LONG-TERM DEBTLong-Term Debt
Long-term debt consists of the following (in thousands): | | | | | | | | | | | 2002 | | 2001 | | |
| |
| $1 billion unsecured revolving credit facility bearing interest at LIBOR plus 0.45% on balances outstanding, 0.2% facility fee, due 2003 | | $ | — | | | $ | 350,000 | | Senior Notes and Senior Debentures bearing interest at rates ranging from 6.75% to 8.75%, due 2004 through 2011, 2018 and 2027 | | | 1,835,591 | | | | 1,950,341 | | Liquid Yield Option™ Notes with yield to maturity of 4.875%, due 2021 | | | 630,528 | | | | 600,878 | | Zero Coupon Convertible Notes with yield to maturity of 4.75%, due 2021 | | | 372,774 | | | | 355,628 | | $625 million unsecured term loan bearing interest at LIBOR plus 1.25%, due 2005 | | | 625,000 | | | | 625,000 | | $360 million unsecured term loan bearing interest at LIBOR plus 1.0%, due 2006 | | | 360,000 | | | | 360,000 | | $300 million unsecured term loan bearing interest at LIBOR plus 0.8%, due 2009 through 2010 | | | 300,000 | | | | 300,000 | | Unsecured term loan bearing interest at 8.0%, due 2006 | | | 84,440 | | | | 109,250 | | Term loans bearing interest at rates ranging from 6.7% to 8.0%, due through 2010, secured by certain Celebrity ships | | | 466,209 | | | | 506,675 | | Term loans bearing interest at LIBOR plus 0.45% to 1.535%, due through 2010, secured by certain Celebrity ships | | | 379,609 | | | | 78,491 | | Capital lease obligations with implicit interest rates ranging from 7.0% to 7.2%, due through 2011 | | | 390,687 | | | | 409,849 | | | | |
| | | |
| | | | | 5,444,838 | | | | 5,646,112 | | Less — current portion | | | (122,544 | ) | | | (238,581 | ) | | | |
| | | |
| | Long-term portion | | $ | 5,322,294 | | | $ | 5,407,531 | | | | |
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| | | | 2003 | | | 2002 | | |
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Unsecured revolving credit facilities | | | $ | — | | $ | — | | Senior notes and senior debentures bearing interest at rates ranging from | | | 6.75% to 8.75%, due 2004 through 2013, 2018 and 2027 | | | | 2,400,284 | | | 1,835,591 | | Liquid Yield Option™ Notes with yield to maturity of 4.875%, due 2021 | | | | 661,640 | | | 630,528 | | Zero coupon convertible notes with yield to maturity of 4.75%, due 2021 | | | | 390,535 | | | 372,774 | | $625 million unsecured term loan bearing interest at LIBOR | | | plus 1.25%, due 2005 | | | | 625,000 | | | 625,000 | | $360 million unsecured term loan bearing interest at LIBOR | | | plus 1.0%, due 2006 | | | | 360,000 | | | 360,000 | | $300 million unsecured term loan bearing interest at LIBOR | | | plus 0.8%, due 2009 through 2010 | | | | 200,000 | | | 300,000 | | Unsecured term loan bearing interest at 8.0%, due 2006 | | | | 59,919 | | | 84,440 | | Term loans bearing interest at rates ranging from 6.7% to 8.0%, due | | | through 2010, secured by certain Celebrity ships | | | | 308,842 | | | 466,209 | | Term loans bearing interest at LIBOR plus 0.45% to 1.535%, due through | | | 2010, secured by certain Celebrity ships | | | | 459,586 | | | 379,609 | | Capital lease obligations with implicit interest rates ranging from 6.5% to | | | 7.2%, due through 2011 | | | | 369,998 | | | 390,687 | | |
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| | | | 5,835,804 | | | 5,444,838 | | Less — current portion | | | | (315,232) | | | (122,544) | | |
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Long-term portion | | | $ | 5,520,572 | | $ | 5,322,294 | | |
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F-11
In November 2003, we received net proceeds of $345.6 million from the issuance, at par, of our 6.875% senior unsecured notes, due 2013. In May 2003, we received net proceeds of $244.9 million from the issuance, at a price of 99.339% of par, of our 8.0% senior unsecured notes, due 2010. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) In March 2003, we replaced our $1.0 billion unsecured revolving credit facility, bearing interest at LIBOR plus 0.45% and a facility fee of 0.2%, due in June 2003 with a $500.0 million unsecured revolving credit facility, bearing interest at LIBOR plus 1.75%, due in March 2008. Through December 31, 2003, we increased the commitment amount to $780.0 million. The commitment fee is 0.6% of the undrawn portion of the revolving credit facility. The interest rate and the commitment fee vary with our debt rating. The covenants are substantially the same as our previous revolving credit facility. (See Note 14.Subsequent Events.)
In May 2002, we entered into a $320.0 million term loan bearing interest at a variable rate of six-month LIBOR plus 1.535%, due through 2010 and secured byConstellation.Constellation. In September 2002, our $150.0 million 7.125% senior notes matured and were paid in full. During 2001, we drew $360.0 million under our unsecured term loan that bears interest at LIBOR plus 1.0%, due 2006. In August 2001, we entered into a $326.7 million term loan bearing interest at a fixed rate of 8.0%, due in 2010 and secured bySummit.
In May 2001, we received net proceeds of $339.4 million from the issuance of Zero Coupon Convertible Notes, due 2021. In February 2001, we received net proceeds of $494.6 million and $560.8 million from the issuance of 8.75% Senior Notes due 2011 and Liquid Yield Option™ Notes due 2021, respectively.
The Liquid Yield Option™ Notes and the Zero Coupon Convertible Noteszero coupon convertible notes are zero coupon bonds with yields to maturity of 4.875% and 4.75%, respectively, due 2021. Each Liquid Yield Option™ Note and Zero Coupon Convertible Notezero coupon convertible note was issued at a price of $381.63 and $391.06, respectively, and will have a principal amount at maturity of $1,000. The Liquid Yield Option™ Notes and Zero Coupon Convertible Noteszero coupon convertible notes are convertible at the option of the holder into 17.7 million and 13.8 million shares of common stock, respectively, if the market price of our common stock reaches certain levels. These conditions were not met at December 31, 20022003 for the Liquid Yield Option™ Notes or the Zero Coupon Convertible Noteszero coupon convertible notes and therefore, the shares issuable upon conversion are not included in the earnings per share calculation. We may redeem the Liquid Yield Option™ Notes beginning on February 2, 2005, and the Zero Coupon Convertible Noteszero coupon convertible notes beginning on May 18, 2006, at their accreted values for cash as a whole at any time, or from time to time in part. Holders may require us to purchase any outstanding Liquid Yield Option™ Notes at their accreted value on February 2, 2005 and February 2, 2011 and any outstanding Zero Coupon Convertible Noteszero coupon convertible notes at their accreted value on May 18, 2004, May 18, 2009, and May 18, 2014. We may choose to pay the purchase price in cash or common stock or a combination thereof. In addition, weWe have a three-year $345.8 million unsecured variable rate term loan facility due 2007 and the unsecured revolving credit facility due 2008 available to us should the holders of the Zero Coupon Convertible Noteszero coupon convertible notes require us to purchase their notes on May 18, 2004. In addition, the unsecured revolving credit facility due 2008 is available to us should the holders of the Liquid Yield Option™ Notes require us to purchase their notes on February 2, 2005. F-12
During 20022003 and 2001,2002, under the terms of two of our secured term loans, we elected to defer principal payments totaling $64.4 million each year to 20042005 through 2007.2008. The contractual interest ratesrate on balances outstanding under our $1.0 billion unsecured revolving credit facility and the $625.0 million unsecured term loan varyvaries with our debt rating. The Senior Notes, Senior Debentures,senior notes, senior debentures, Liquid Yield Option™ Notes and Zero Coupon Convertible Noteszero coupon convertible notes are unsecured. The Senior Notessenior notes and Senior Debenturessenior debentures are not redeemable prior to maturity. We entered into a $264.0 million capital lease to financeSplendour of the Seasand a $260.0 million capital lease to financeLegend of the Seasin 1996 and 1995, respectively. The capital leases each have semi-annual payments of approximately $12.0 million over 15 years with final payments of $99.0 million and $97.5 million, respectively. Our debt agreements contain covenants that require us, among other things, to maintain minimum liquidity, net worth and fixed charge coverage ratio and limit our debt to capital ratio. We are in compliance with all covenants as of December 31, 2002.2003. Following is a schedule of annual maturities on long-term debt as of December 31, 20022003 for each of the next five years (in thousands): | | | | | Year | | | | |
| | | | | 2003 | | $ | 122,544 | | 2004(1) | | | 364,385 | | 2005(2) | | | 1,660,941 | | 2006 | | | 713,361 | | 2007 | | | 350,878 | |
F-12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| (1) | | Includes $51.8 million related to our Zero Coupon Convertible Notes. This amount represents the $397.6 million accreted value of the notes as of May 18, 2004, the first date holders may require us to purchase any outstanding notes net of a $345.8 million loan facility available to us to satisfy this obligation. We may choose to pay any amounts in cash or common stock or a combination thereof. | | | (2) | | Includes the $697.2 million accreted value of our Liquid Yield Option™ Notes as of February 2, 2005, the first date |
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Year | | | | | |
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2004(1) | | | $ | 315,232 | | 2005(2) | | | | 956,586 | | 2006 | | | | 731,151 | | 2007(1) | | | | 715,812 | | 2008(1)(2) | | | | 990,973 | | |
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(1) | | The holders may require us to purchase any outstanding notes. We may choose to pay any amounts in cash or common stock or a combination thereof. |
NOTE 7. SHAREHOLDERS’ EQUITY
In April 2000, we redeemed all outstanding shares of our zero coupon convertible preferrednotes may require us to purchase any notes outstanding at an accreted value of $397.6 million on May 18, 2004. We may choose to pay any amount in cash or common stock and dividends ceasedor a combination thereof. We have a $345.8 million loan facility due 2007 available to accrue.us to satisfy this obligation. The remaining amount would be funded through our unsecured revolving credit facility due 2008.
| (2) | | The holders of our Liquid Yield Option™ Notes may require us to purchase any notes outstanding at an accreted value of $697.2 million on February 2, 2005. We may choose to pay any amounts in cash or common stock or a combination thereof. We have our unsecured revolving credit facility due 2008 available to us to satisfy this obligation. |
Note 7.Shareholders’ Equity Our Employee Stock Purchase Plan (“ESPP”), which has been in effect since January 1, 1994, facilitates the purchase by employees of up to 800,000 shares of common stock. Offerings to employees are made on a quarterly basis. Subject to certain limitations, the purchase price for each share of common stock is equal to 90% of the average of the market prices of the common stock as reported on the New York Stock Exchange on the first business day of the purchase period and the last business day of each month of the purchase period. Shares of common stock of 21,280, 25,649 33,395 and 40,83833,395 were issued under the Employee Stock Purchase PlanESPP at a weighted-average price of $19.56, $17.34 and $17.69 during 2003, 2002 and $23.09 during 2002, 2001, and 2000, respectively. Under an executive compensation program approved in 1994, we will award to a trust 10,086 shares of common stock per quarter, up to a maximum of 806,880 shares. We issued 40,344 shares each year under the program during 2003, 2002 2001 and 2000.2001. Compensation expense related to our “Taking Stock in Employees” program, which was discontinued effective December 31, 2001, was $1.6 million and $2.1 million in 2001 and 2000, respectively.2001. Under the plan, employees were awarded five shares of our stock, or the cash equivalent, at the end of each year of employment. We have three Employee Stock Option Plans which provide for awards to our officers, directors and key employees of options to purchase shares of our common stock. During 2001, two of the Employee Stock Option Plans were amended to increase the number of shares reserved for issuance by a total of 8,000,00013,000,000 shares of common stock between the two plans. During 2003, one of the Employee Stock Option Plans was amended to provide for the issuance of restricted stock and restricted stock units. Each recipient of the restricted stock units is entitled to receive shares of common stock in accordance with a five-year vesting schedule. Generally, the shares are forfeited if the recipient ceases to be a director or employee before the shares vest. We awarded 14,025 restricted stock units in 2003. Options are granted at a price not less than the fair value of the shares on the date of grant. Options expire not later than ten years after the date of grant and generally become exercisable in full over three or five years after the grant date. F-13
Stock option activity and information about stock options outstanding are summarized in the following tables: Stock Option Activity | | | | | | | | | | | | | | | | | | | | | | | | | | | 2002 | | 2001 | | 2000 | | |
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| | | | | | | Weighted | | | | | | Weighted | | | | | | Weighted | | | | | | | Average | | | | | | Average | | | | | | Average | | | Number of | | Exercise | | Number of | | Exercise | | Number of | | Exercise | | | Options | | Price | | Options | | Price | | Options | | Price | | |
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| Outstanding options at January 1 | | | 17,022,241 | | | $ | 21.49 | | | | 11,291,784 | | | $ | 27.17 | | | | 6,894,172 | | | $ | 24.82 | | Granted | | | 617,600 | | | $ | 20.89 | | | | 6,525,775 | | | $ | 12.41 | | | | 5,036,100 | | | $ | 30.21 | | Exercised | | | (599,122 | ) | | $ | 11.10 | | | | (104,526 | ) | | $ | 13.22 | | | | (186,436 | ) | | $ | 12.68 | | Canceled | | | (1,806,142 | ) | | $ | 23.61 | | | | (690,792 | ) | | $ | 29.84 | | | | (452,052 | ) | | $ | 30.65 | | | | |
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| | | | | | Outstanding options at December 31 | | | 15,234,577 | | | $ | 21.63 | | | | 17,022,241 | | | $ | 21.49 | | | | 11,291,784 | | | $ | 27.17 | | | | |
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| | | | | | Options exercisable at December 31 | | | 7,890,128 | | | $ | 21.82 | | | | 4,679,421 | | | $ | 20.79 | | | | 2,707,234 | | | $ | 16.02 | | | | |
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| | | | | | | |
| | | | | | Available for future grants at December 31 | | | 6,744,505 | | | | | | | | 5,871,763 | | | | | | | | 3,839,246 | | | | | | | | |
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F-13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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| 2003 | 2002 | 2001 |
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| Number of Options | Weighted-Average Exercise Price | Number of Options | Weighted-Average Exercise Price | Number of Options | Weighted-Average Exercise Price |
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| | | | | | | | | | | | | | | | | | Outstanding options at January 1 | 15,234,577 | | | $21.63 | | | 17,022,241 | | | $21.49 | | | 11,291,784 | | | $27.17 | | Granted | 536,991 | | | $25.59 | | | 617,600 | | | $20.89 | | | 6,525,775 | | | $12.41 | | Exercised | (3,064,355) | | | $14.89 | | | (599,122) | | | $11.10 | | | (104,526) | | | $13.22 | | Canceled | (712,691) | | | $25.72 | | | (1,806,142) | | | $23.61 | | | (690,792) | | | $29.84 | | |
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Outstanding options at December 31 | 11,994,522 | | | $23.28 | | | 15,234,577 | | | $21.63 | | | 17,022,241 | | | $21.49 | | |
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Exercisable options at December 31 | 7,949,284 | | | $23.53 | | | 7,890,128 | | | $21.82 | | | 4,679,421 | | | $20.79 | | |
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Available for future grants at December 31 | 6,793,185 | | | | | | 6,744,505 | | | | | | 5,871,763 | |
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Stock Options Outstanding | | | | | | | | | | | | | | | | | | | | | As of December 31, 2002 | | Options Outstanding | | Options Exercisable |
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| | | | | | | Weighted | | Weighted | | | | | | Weighted | | | | | | | Average | | Average | | | | | | Average | | | Number | | Remaining | | Exercise | | Number | | Exercise | Exercise Price Range | | Outstanding | | Life | | Price | | Exercisable | | Price |
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| $ 9.00 - - $ 9.90 | | | 4,843,071 | | | 8.16 years | | $ | 9.80 | | | | 1,658,285 | | | $ | 9.68 | | $11.19 - $20.30 | | | 3,590,838 | | | 5.88 years | | $ | 17.30 | | | | 2,774,390 | | | $ | 16.52 | | $21.71 - $28.78 | | | 3,958,018 | | | 6.93 years | | $ | 25.39 | | | | 2,018,603 | | | $ | 25.22 | | $28.88 - $48.00 | | | 2,842,650 | | | 6.67 years | | $ | 41.99 | | | | 1,438,850 | | | $ | 41.25 | | | | |
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| | | | | | | | | 15,234,577 | | | 7.03 years | | $ | 21.63 | | | | 7,890,128 | | | $ | 21.82 | | | | |
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| As of December 31, 2003 |
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| Outstanding | Exercisable |
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Exercise Price Range | | Number of Options | | Weighted-Average Remaining Life | | Weighted-Average Exercie Price | | Number of Options | | Weighted-Average Exercise Price | |
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$ 9.00 - $ 9.90 | | 3,466,803 | | 7.86 years | | $ 9.81 | | 2,001,753 | | $ 9.77 | | $11.19 - $20.30 | | 2,254,822 | | 5.64 years | | $17.90 | | 1,932,769 | | $17.72 | | $21.71 - $28.78 | | 3,426,156 | | 6.28 years | | $25.67 | | 2,130,812 | | $25.88 | | $28.88 - $48.00 | | 2,846,741 | | 5.97 years | | $41.08 | | 1,883,950 | | $41.44 | | |
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| | 11,994,522 | | 6.54 years | | $23.28 | | 7,949,284 | | $23.53 | | |
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NOTENote 8. EARNINGS PER SHARE Earnings Per Share
Below is a A reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share data):
| | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | | |
| | | | | 2002 | | 2001 | | 2000 | | | | |
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| Basic: | | | | | | | | | | | | | | Net income | | $ | 351,284 | | | $ | 254,457 | | | $ | 445,363 | | | | Less preferred stock dividends | | | — | | | | — | | | | (1,933 | ) | | | |
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| | | Net income less preferred stock dividends | | $ | 351,284 | | | $ | 254,457 | | | $ | 443,430 | | | | |
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| | | Weighted-average common shares outstanding | | | 192,485 | | | | 192,231 | | | | 189,397 | | | | |
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| | | Basic earnings per share | | $ | 1.82 | | | $ | 1.32 | | | $ | 2.34 | | | | |
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| | Diluted: | | | | | | | | | | | | | | Net income | | $ | 351,284 | | | $ | 254,457 | | | $ | 445,363 | | | | |
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| | | Weighted-average common shares outstanding | | | 192,485 | | | | 192,231 | | | | 189,397 | | | | Dilutive effect of stock options | | | 3,246 | | | | 1,250 | | | | 1,428 | | | | Convertible preferred stock | | | — | | | | — | | | | 2,110 | | | | |
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| | | Diluted weighted-average shares outstanding | | | 195,731 | | | | 193,481 | | | | 192,935 | | | | |
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| | | Diluted earnings per share | | $ | 1.79 | | | $ | 1.32 | | | $ | 2.31 | | | | |
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| Year Ended December 31, |
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| 2003 | 2002 | 2001 |
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Net income | | | $ | 280,664 | | $ | 351,284 | | $ | 254,457 | | |
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Weighted-average common shares outstanding | | | | 194,074 | | | 192,485 | | | 192,231 | | Dilutive effect of stock options | | | | 3,267 | | | 3,246 | | | 1,250 | | |
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Diluted weighted-average shares outstanding | | | | 197,341 | | | 195,731 | | | 193,481 | | |
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Basic earnings per share | | | $ | 1.45 | | $ | 1.82 | | $ | 1.32 | | Diluted earnings per share | | | $ | 1.42 | | $ | 1.79 | | $ | 1.32 | |
Our diluted earnings per share computation for the years ended December 31, 2003 and 2002 did not include 17.7 million and 13.8 million shares of our common stock issuable upon conversion of our Liquid Yield Option™ Notes and zero coupon convertible notes, respectively, as our common stock was not issuable under the contingent conversion provisions of these debt instruments. Options to purchase 5.3 million, 8.7 million and 9.4 million shares for the years ended December 31, 2003, 2002 and 2001, respectively, were not included in the computation of diluted earnings per share because the effect of including them would have been antidilutive. F-14
NOTENote 9. RETIREMENT PLANS Retirement Plan
We maintain a defined contribution pension plan covering all of our 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 $9.4 million, $8.5 million $8.3 million and $7.3$8.3 million for the years 2003, 2002 2001 and 2000,2001, respectively. Effective January 1, 2000, we instituted a defined benefit pension plan to cover all of our shipboard employees not covered under another pension plan through their collective bargaining agreement. Benefits to eligible employees are accrued based on the employee’s years of service. Pension expense was approximately $3.5 million, $3.2 million and $1.9 million in 2002, 2001 and 2000, respectively.
F-14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTENote 10. INCOME TAXES Income Taxes
We and the majority of our subsidiaries are not subject tocurrently exempt from United States corporate income tax on income generated from the international operation of ships pursuant to Section 883 of the Internal Revenue Code, provided that we meet certain tests related to country of incorporation and composition of shareholders. We believe that we and a majority of our subsidiaries meet these tests.Code. Income tax expense related to our remaining subsidiaries was not significant for the years ended December 31, 2003, 2002 and 2001. Final regulations under Section 883 were published on August 26, 2003, and will be effective for the year ending December 31, 2004. These regulations confirmed that we qualify for the exemption provided by Section 883, but also narrowed the scope of activities which are considered by the Internal Revenue Service to be incidental to the international operation of ships. The activities listed in the regulations as not being incidental to the international operation of ships include income from the sale of air and other transportation such as transfers, shore excursions and pre and post tours. To the extent the income from such activities is not significant.earned from sources within the United States, such income will be subject to United States taxation. At December 31, 2003, we estimated the application of these new regulations will reduce our 2004 net income by approximately $0.04 to $0.05 per share (unaudited). NOTENote 11. FINANCIAL INSTRUMENTSFinancial Instruments
The estimated fair values of our financial instruments are as follows (in thousands): | | | | | | | | | | | 2002 | | 2001 | | |
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| Cash and Cash Equivalents | | $ | 242,584 | | | $ | 727,178 | | Long-Term Debt (including current portion of long-term debt) | | | (5,039,646 | ) | | | (5,031,858 | ) | Foreign Currency Forward Contracts gains (losses) | | | 37,376 | | | | (99,110 | ) | Interest Rate Swap Agreements in a net receivable position | | | 62,835 | | | | 35,668 | | Fuel Swap and Zero Cost Collar Agreements in a net receivable (payable) position | | | 7,491 | | | | (7,799 | ) |
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| 2003 | 2002 |
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Cash and cash equivalents | | $ | 330,086 | | | $ | 242,584 | | Long-term debt (including current portion of long-term debt) | | | (6,092,777) | | | | (5,039,646) | | Foreign currency forward contracts and purchased call options in a net gain position | | | 14,474 | | | | 37,376 | | Interest rate swap agreements in a net receivable position | | | 23,945 | | | | 62,835 | | Fuel swap and zero cost collar agreements in a net receivable position | | | 4,016 | | | | 7,491 | |
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, 20022003 or 20012002 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 ourOur financial instruments none of which are not held for trading or speculative purposes:purposes. Our exposure under foreign currency contracts, interest rate and fuel swap agreements is limited to the cost of replacing the contracts in the event of non-performance by the counterparties to the contracts, all of which are currently our lending banks. To minimize this risk, we select counterparties with credit risks acceptable to us and we limit our exposure to an individual counterparty. Furthermore, all foreign currency forward contracts are denominated in primary currencies. Cash and Cash Equivalents The carrying amounts of cash and cash equivalents approximate their fair values due to the short maturity of these instruments. F-15
Long-Term Debt The fair values of our Senior Notes, Senior Debentures,senior notes, senior debentures, Liquid Yield Option™ Notes and Zero Coupon Convertible Noteszero coupon convertible notes were estimated by obtaining quoted market prices. The fair values of all other debt were estimated using discounted cash flow analyses based on market rates available to us for similar debt with the same remaining maturities. Foreign Currency Contracts The fair values of our foreign currency forward contracts and purchased call options were estimated using current market prices for similar instruments. Our exposure to market risk for fluctuations in foreign currency exchange rates relates to our firm commitments ona ship construction contractscontract and forecasted transactions. We use foreign currency forward contracts and purchased call options to mitigate the impact of fluctuations in foreign currency exchange rates. As of December 31, 2002,2003, we had foreign currency forward contracts and purchased call options in a notional amount of $488.0$684.0 million maturing through 2003. Our foreign currency forward contracts related to firm commitments on ships under construction had aggregate unrealized gains2006. The fair value of approximately $31.0 million and unrealized losses of approximately $99.3 million at December 31, 2002 and 2001, respectively. Approximately $6.4 million of unrealized gains on our foreign currency forward contracts related to forecasted transactions were deferredship construction contracts, designated as fair value hedges, was a net unrealized gain of approximately $3.8 million and $31.0 million at December 31, 2003 and 2002, respectively. The fair value of our foreign currency forward contracts and if realized, will be recorded in earnings when the transactions being hedged are recognized in 2003. Deferred gains from hedging forecasted transactions were not materialpurchased call options related to a ship construction contract, designated as cash flow hedges, was an unrealized gain, net of option premiums, of approximately $11.2 million at December 31, 2001.2003. Interest Rate Swap Agreements The fair values of our interest rate swap agreements were estimated based on quoted market prices for similar or identical financial instruments to those we hold. Our exposure to market risk for changes in interest rates relates to our long-term debt obligations and our operating lease forBrilliance of the Seas. We enter into interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest expense and rent expense. F-15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Market risk associated with our long-term fixed rate debt is the potential increase in fair value resulting from a decrease in interest rates. As of December 31, 2002,2003, we had interest rate swap agreements, designated as fair value hedges, which exchanged fixed interest rates for floating interest rates in a notional amount of $375.0$243.8 million, maturing in 2006 through 2011. Market risk associated with our long-term floating rate debt is the potential increase in interest expense from an increase in interest rates. As of December 31, 2002,2003, we had interest rate swap agreements, designated as cash flow hedges, which, beginning January 2005, exchange floating rate term debt for a fixed interest rate of 4.395% in a notional amount of $25.0 million, maturing in 2008. Market risk associated with our operating lease forBrilliance of the Seas is the potential increase in rent expense from an increase in intereststerling LIBOR rates. AsBeginning January 2004, we have effectively changed £75.0 million of December 31, 2002, we hadthe operating lease obligation from a floating rate to a fixed rate obligation with a weighted-average rate of 5.02% through a combination of interest rate swap agreements, that effectively change British pound sterling 50.0 million of sterling LIBOR-based operating lease payments to fixeddesignated as cash flow hedges, and rate lease paymentsfixings with a weighted-average fixed rate of 5.05% beginning January 2004.the lessor, maturing in 2012. Fuel Swap Agreements The fair values of our fuel swap and zero cost collar agreements were estimated based on quoted market prices for similar or identical financial instruments to those we hold. Our exposure to market risk for changes in fuel prices relates to the forecasted consumption of fuel on our ships. We use fuel swap and zero cost collar agreements to mitigate the impact of fluctuations in fuel prices. As of December 31, 2002,2003, we had fuel swap agreements, designated as cash flow hedges, to pay fixed prices for fuel with an aggregate notional amount of $39.4$30.2 million, maturing through 2003. Approximately $6.7 million2004. F-16
Note 12.Commitments and Contingencies Capital Expenditures In September 2003, we entered into an agreement with a shipyard to purchase an Ultra-Voyager ship designated for the Royal Caribbean International fleet, scheduled for delivery in the second quarter of unrealized gains and $7.0 million of unrealized losses2006. Including the Ultra-Voyager, we had two ships on these contracts were deferredorder at December 31, 2002 and 2001, respectively. Deferred unrealized gains, if realized, will be recorded in earnings when the transactions being hedged are recognized in 2003. Our exposure under foreign currency contracts, interest rate and fuel swap agreements is limited to the cost of replacing the contracts in the event of non-performance by the counterparties to the contracts, all of which are currently our lending banks. To minimize this risk, we select counterparties with credit risks acceptable to us and we limit our exposure to any individual counterparty. Furthermore, all foreign currency forward contracts are denominated in primary currencies.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Capital Expenditures
As of December 31, 2002, we had three ships on order2003 for an additional capacity of 7,2665,712 berths. The aggregate contract pricecost of the threetwo ships which excludes capitalized interest and other ancillary costs, is approximately $1.3$1.2 billion, of which we have deposited $0.2 billion$93.2 million as of December 31, 2002.2003. We anticipate that overall capital expenditures will be approximately $1.1$0.7 billion, $0.5$0.3 billion and $0.1$0.9 billion for 2003, 2004, 2005 and 2005,2006, respectively.
Litigation In April 1999, a lawsuit waslawsuits were 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 sought payment of (i) the wages alleged to be owed, (ii) penalty wages under 46 United States Code Section 10313 and (iii) punitive damages. In November 1999, a purported class action suit was filed in the same court alleging a similar cause of action. In October 2002, we entered into settlement agreements in connection with boththe lawsuits. Under the terms of the settlement agreements,In September 2002, we could be required to make aggregate paymentsrecorded a charge of $20.0 million for whichin connection with the settlement agreements. In September 2003, we recorded a reserve asreduced the amount of September 30, 2002.the charge by approximately $5.8 million based on the actual number of claims filed in these actions. We are routinely involved in other claims typical within the cruise industry. The majority of these claims is covered by insurance. We believe the outcome of such other claims, net of expected insurance recoveries, is not expected to have a material adverse effect uponon our financial condition, or results of operations. F-16
operations or liquidity. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Operating Leases On July 5, 2002, we addedBrilliance of the Seasto Royal Caribbean International’s fleet. In connection with this addition, we novated our original ship building contract and entered into a long-terman operating lease denominated in British pound sterling. The total lease term is 25 years cancelable by either party at years 10 and 18. In connection with the novation of the contract, we received $77.7 million for reimbursement of shipyard deposits previously made. The lease payments vary based on sterling LIBOR. The lease has a contractual life of 25 years; however, the lessor has the right to cancel the lease at years 10 and 18. Accordingly, the lease term for accounting purposes is 10 years. In the event of early termination, we have the option to cause the sale of the vessel at its fair value and use the proceeds toward the applicable termination obligation plus any unpaid amounts due under the contractual term of the lease. Alternatively, we can make a termination payment of approximately £126 million, or approximately $224 million based on the exchange rate at December 31, 2003, and relinquish our right to cause the sale of the vessel. This termination amount, which is our maximum exposure, has been included in the table below for noncancelable operating leases. In addition, we are obligated under other noncancelable operating leases primarily for office and warehouse facilities, computer equipment and motor vehicles. As of December 31, 2002,2003, future minimum lease payments under noncancelable operating leases were as follows (in thousands): |
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Year | | | |
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2004 | | $ 47,040 | | 2005 | | 45,620 | | 2006 | | 43,152 | | 2007 | | 42,126 | | 2008 | | 41,904 | | Thereafter(1) | | 387,777 | | |
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| | $607,619 | | |
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(1) | | Under the Brilliance of the Seas lease agreement, we may be required to make a termination payment of approximately £126 million, or approximately $224 milion based on the exchange rate at December 31, 2003, if the lease is canceled at year 10. | | | | | Year | | | | |
| | | | | 2003 | | $ | 47,020 | | 2004 | | | 46,858 | | 2005 | | | 43,538 | | 2006 | | | 40,582 | | 2007 | | | 39,870 | | Thereafter | | | 196,065 | | | | |
| | | | $ | 413,933 | | | | |
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|
Total expense for all operating leases amounted to $44.1 million, $24.3 million $9.8 million and $6.7$9.8 million for the years 2003, 2002 and 2001, and 2000, respectively. F-17
Under theBrilliance of the Seaslong-term operating lease, we have agreed to indemnify the lessor to the extent its after-tax return is negatively impacted by unfavorable changes in corporate tax rates and capital allowance deductions. These indemnifications could result in an increase in our annual lease payments. We are unable to estimate the maximum potential increase in such lease payments due to the various circumstances, timing or combination of events that could trigger such indemnifications. Current facts indicate thatUnder current circumstances we do not believe an indemnification is probable. Other Some of the contracts that we enter into include indemnification provisions that obligate us to make payments to the counterparty if certain events occur. These contingencies generally relate to changes in taxes, increased lender capital costs and other similar costs. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business. There are no stated or notional amounts included in the indemnification clauses and we are not probable; however,able to estimate the maximum potential amount of future payments, if one occurs,any, under these indemnification clauses. We have not been required to make any payments under such indemnification clauses in the past and, under current circumstances, we do not believe an indemnification is probable. If A. Wilhelmsen AS. and Cruise Associates, our two principal shareholders, cease to own a specified percentage of our common stock, we may have remedies availablebe obligated to usprepay indebtedness outstanding under the termsmajority of the lease agreement.our credit facilities, which we may be unable to replace on similar terms. If this were to occur, it could have an adverse impact on our operations and liquidity. Other
At December 31, 2002,2003, we have future commitments to pay for our usage of certain port facilities, marine consumables, information technology hardware and software, maintenance contracts and communication services as follows (in thousands): | | | | | Year | | | | |
| | | | | 2003 | | $ | 39,259 | | 2004 | | | 40,617 | | 2005 | | | 28,479 | | 2006 | | | 24,973 | | 2007 | | | 21,443 | | Thereafter | | | 106,821 | | | | |
| | | | $ | 261,592 | | | | |
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Year | | | |
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2004 | $ | 65,281 | | 2005 | | 48,016 | | 2006 | | 29,693 | | 2007 | | 24,016 | | 2008 | | 23,862 | | Thereafter | | 115,844 | | |
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| $ | 306,712 | | |
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NOTENote 13. SUBSEQUENT EVENTSRelated Parties
We currentlyA. Wilhelmsen AS. and Cruise Associates collectively own approximately 46.1% of our common stock and are parties to a shareholders’ agreement which provides that our board of directors will consist of four nominees of A. Wilhelmsen AS., four nominees of Cruise Associates and our Chief Executive Officer. They have canceledthe power to determine, among other things, our policies and the policies of our subsidiaries and actions requiring shareholder approval. Note 14. Subsequent Events On March 12, 2004, we announced the cancellation of a total of five weeks of sailings in the first quarter of 2003one-week sailing due to the unanticipated drydock of one ship. F-17 As of February 17, 2004, the commitment amount under our unsecured revolving credit facility due 2008 has increased to $1.0 billion. The other terms of the facility were unchanged.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 14. QUARTERLY DATA (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | (in thousands, except
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| per share data) | | 2002 | | 2001 | | 2002 | | 2001 | | 2002 | | 2001 | | 2002 | | 2001 |
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| Revenues | | $ | 799,953 | | | $ | 726,878 | | | $ | 821,804 | | | $ | 821,674 | | | $ | 1,031,660 | | | $ | 940,721 | | | $ | 780,930 | | | $ | 655,977 | | Operating Income | | $ | 112,412 | | | $ | 90,084 | | | $ | 130,520 | | | $ | 135,275 | | | $ | 241,597 | | | $ | 211,257 | | | $ | 66,446 | | | $ | 18,989 | | Net Income (Loss) | | $ | 52,813 | | | $ | 52,497 | | | $ | 66,700 | | | $ | 81,713 | | | $ | 193,494 | | | $ | 159,212 | | | $ | 38,277 | | | $ | (38,965 | ) | Earnings (Loss) Per Share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | $ | 0.27 | | | $ | 0.27 | | | $ | 0.35 | | | $ | 0.43 | | | $ | 1.01 | | | $ | 0.83 | | | $ | 0.20 | | | $ | (0.20 | ) | | Diluted | | $ | 0.27 | | | $ | 0.27 | | | $ | 0.34 | | | $ | 0.42 | | | $ | 0.99 | | | $ | 0.82 | | | $ | 0.20 | | | $ | (0.20 | ) | Dividends Declared Per Share | | $ | 0.13 | | | $ | 0.13 | | | $ | 0.13 | | | $ | 0.13 | | | $ | 0.13 | | | $ | 0.13 | | | $ | 0.13 | | | $ | 0.13 | |
In January 2004, we entered into an 8-year, $200.0 million unsecured term loan, at LIBOR plus 1.75%, which can be drawn any time prior to July 1, 2004.F-18
Note 15.Quarterly Data (Unaudited) |
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| First Quarter | Second Quarter | Third Quarter | Fourth Quarter |
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| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 |
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| (in thousands, except per share data) |
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Total Revenues | | | $ | 880,164 | | $ | 799,953 | | $ | 905,841 | | $ | 821,804 | | $ | 1,120,199 | | $ | 1,031,660 | | $ | 878,045 | | $ | 780,930 | | Operating Income | | | $ | 114,942 | | $ | 112,412 | | $ | 117,203 | | $ | 130,520 | | $ | 249,161 | | $ | 241,597 | | $ | 44,879 | | $ | 66,446 | Net Income (Loss) | | | $ | 53,174 | | $ | 52,813 | | $ | 55,672 | | $ | 66,700 | | $ | 191,867 | | $ | 193,494 | | $ | (20,049) | | $ | 38,277 | Earnings (Loss) Per Share: | Basic | | | $ | 0.28 | | $ | 0.27 | | $ | 0.29 | | $ | 0.35 | | $ | 0.99 | | $ | 1.01 | | $ | (0.10) | | $ | 0.20 | Diluted | | | $ | 0.27 | | $ | 0.27 | | $ | 0.28 | | $ | 0.34 | | $ | 0.97 | | $ | 0.99 | | $ | (0.10) | | $ | 0.20 | Dividends Declared Per Share | | | $ | 0.13 | | $ | 0.13 | | $ | 0.13 | | $ | 0.13 | | $ | 0.13 | | $ | 0.13 | | $ | 0.13 | | $ | 0.13 |
INDEX TO EXHIBITS | | | | | | | | | Exhibit | | | | Description | | | | |
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| | | | | 1.1 | | — | | 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, File No. 1-11884; October 14, 1999; Document No. 1 in the Company’s Form 6-K filed with the Commission on May 18, 1999; and Document No. 1 in the Company’s Form 6-K filed with the Commission on August 28, 2000). | 1.2 | | — | | 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). | 2.1 | | — | | 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, File No. 1-11884). | 2.2 | | — | | 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, File No. 1-11884). | 2.3 | | — | | 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, File No. 1.11884). | 2.4 | | — | | 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, File No. 1-11884). | 2.5 | | — | | 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, File No. 1-11884). | 2.6 | | — | | 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, File No. 1-11884). | 2.7 | | — | | 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 |
Exhibit | | Description |
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1.1 | | — 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, File No. 1-11884; Document No. 1 in the Company's Form 6-K filed with the Commission on October 14, 1999; Document No. 1 in the Company's Form 6-K filed with the Commission May 18, 1999; and Document No. 1 in the Company's Form 6-K filed with the Commission on August 28, 2000). | 1.2 | | — 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). | 2.1 | | — 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, File No. 1-11884). | 2.2 | | — 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, File No. 1-11884). | 2.3 | | — 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, File No. 1-11884). | 2.4 | | — 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, File No. 1-11884). | 2.5 | | — 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, File No. 1-11884). | 2.6 | | — 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, File No. 1-11884). |
| | | | | 2.8 | | — | | 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, File No. 1-11884). | 2.9 | | — | | 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, File No. 1-11884). | 2.10 | | — | | Ninth Supplemental Indenture dated as of February 2, 2001 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 2000 Annual Report on Form 20-F filed with the Commission). | 2.11 | | — | | Tenth Supplemental Indenture dated as of February 2, 2001 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 2000 Annual Report on Form 20-F filed with the Commission). | 2.12 | | — | | Eleventh Supplemental Indenture dated as of May 18, 2001 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 | 2.7 | | — 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, File No. 1-11884). | 2.8 | | — 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, File No. 1-11884). | 2.9 | | — 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, File No. 1-11884). | 2.10 | | — Ninth Supplemental Indenture dated as of February 2, 2001 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 2000 Annual Report on Form 20-F filed with the Commission). | 2.11 | | — Tenth Supplemental Indenture dated as of February 2, 2001 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 2000 Annual Report on Form 20-F filed with the Commission). | 2.12 | | — Eleventh Supplemental Indenture dated as of May 18, 2001 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 2001 Annual Report on Form 20-F filed with the Commission). |
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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, File No. 1-11884; and Exhibit 1.1 to the Company’s 1997 Annual Report on Form 20-F filed with the Commission, File No. 1-11884). | 2.14 | | — | | Credit Agreement dated as of June 9, 2000 among the Company and various financial institutions and Bank of America, N.A. as Administrative Agent (incorporated by reference to Exhibit 2.14 to the Company’s 2000 Annual Report on Form 20-F filed with the Commission). | 2.15 | | — | | Credit Agreement dated as of May 18, 2001 among the Company and various financial institutions and Bank of America, N.A. as Administrative Agent (incorporated by reference to Exhibit 2.17 to the Company’s 2001 Annual Report on form 20-F filed with the Commission). | 4.1 | | — | | Implementation Agreement, dated as of November 19, 2001 between Royal Caribbean Cruises Ltd. and P&O Princess Cruises plc (incorporated by reference to Document No. 2 in the Company’s Form 6-K filed with the Commission on December 27, 2001). | 4.2 | | — | | Joint Venture Agreement, dated as of November 19, 2001, among Royal Caribbean Cruises Ltd., P&O Princess Cruises plc and Joex Limited (incorporated by reference to Document No. 7 in the Company’s Form 6-K filed with the Commission on December 27, 2001). | 4.3 | | — | | 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). | 4.4 | | — | | Agreement, dated October 25, 2002, among the Company, P&O |
| | | | | | | | | Princess Cruises plc and Joex Limited. | 4.5 | | — | | Office Building Lease Agreement dated July 25, 1989 between Miami-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). | 4.6 | | — | | Office Building Lease Agreement dated January 18, 1994 between Miami-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, File No. 1-11884). | 4.7 | | — | | Lease by and between City of Wichita, Kansas and the Company dated as of December 1, 1997, together with First Supplemental Lease Agreement dated December 1, 2000. | 4.8 | | — | | 1990 Stock Option Plan of the Company, as amended (incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8, File No. 333-7290, filed with the Commission). | 4.9 | | — | | 1995 Incentive Stock Option Plan of the Company, as amended (incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8, File No. 333-84980, filed with the Commission). | 4.10 | | — | | 2000 Stock Option Plan of the Company, as amended (incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8, File No. 333-84982, filed with the Commission). | 8.1 | | — | | List of Subsidiaries. | 10.1 | | — | | — Twelfth Supplemental Indenture dated as of May 9, 2003 to Indenture dated as of July 15, 1994 between the Company, as issuer, and the Bank of New York, as Trustee. | 2.14 | | — Thirteenth Supplemental Indenture dated as of November 21, 2003 to Indenture dated as of July 15, 1994 between the Company, as issuer, and the Bank of New York, as Trustee. | 2.15 | | — 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, File No. 1-11884; and Exhibit 1.1 to the Company's 1997 Annual Report on Form 20-F filed with the Commission, File No. 1-11884). | 2.16 | | — Credit Agreement dated as of March 27, 2003 among the Company and various financial institutions and Citibank, N.A, as Administrative Agent (incorporated by reference to Document No. 2 in the Company's Form 6-K filed with the Commission on March 28, 2003). | 2.17 | | —Credit Agreement dated as of June 9, 2000 among the Company and various financial institutions and Bank of America, N.A. as Administrative Agent (incorporated by reference to Exhibit 2.14 to the Company's 2000 Annual Report on Form 20-F filed with the Commission). | 2.18 | | — Credit Agreement dated as of May 18, 2001 among the Company and various financial institutions and Bank of America, N.A. as Administrative Agent (incorporated by reference to Exhibit 2.17 to the Company's 2001 Annual Report on Form 20-F filed with the Commission). | 4.1 | | — 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, File No. 1-11884). | 4.2 | | — Agreement, dated October 25, 2002, among the Company, P&O Princess Cruises plc and Joex Limited (incorporated by reference to Exhibit 4.4 to the Company's 2002 Annual Report on Form 20-F filed with the Commission). | 4.3 | | — Office Building Lease Agreement dated July 25, 1989 between Miami-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). | 4.4 | | — Office Building Lease Agreement dated January 18, 1994 between Miami-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, File No. 1-11884). | 4.5 | | — Lease by and between City of Wichita, Kansas and the Company dated as of December 1, 1997, together with First Supplemental Lease Agreement dated December 1, 2000 (incorporated by reference to Exhibit 4.7 to the Company's 2002 Annual Report on Form 20-F filed with the Commission). | 4.6 | | — Multi-Tenant Office Lease Agreement dated May 3, 2000 between the Company and Opus Real Estate National IV FL, L.L.C. (formerly Miramar 75, L.L.C.), together with four Amendments thereto dated June 1, 2000, November 20, 2000, October 11, 2001 and September 25, 2003. | 4.7 | | — 1990 Stock Option Plan of the Company, as amended (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8, File No. 333-7290, filed with the Commission). | 4.8 | | — 1995 Incentive Stock Option Plan of the Company, as amended (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8, File No. 333-84980, filed with the Commission). | 4.9 | | — Amended and Restated 2000 Stock Award Plan of the Company. | 8.1 | | — List of Subsidiaries. | 12.1 | | — Certifications required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934. | 13.1 | | — Certification furnished pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). | 14.1 | | — Consent of PricewaterhouseCoopers LLP, independent certified public accountants. | 10.2 | | — | | Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of the Sarbanes-Oxley Act of 2002. |
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