UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 20-F
(Mark One)


[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934
  OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
  For the fiscal year ended December 31, 20022003
  OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-11884

ROYAL CARIBBEAN CRUISES LTD.

(Exact name of Registrant as specified in its charter)

Republic of Liberia
(Jurisdiction of incorporation or organization)

1050 Caribbean Way, Miami, Florida 33132
(Address of principal executive offices)

     Securities registered or to be registered pursuant to Section 12(b) of the Act:

Commission file number: 1-11884

ROYAL CARIBBEAN CRUISES LTD.
(Exact name of Registrant as specified in its charter)

Republic of Liberia
(Jurisdiction of incorporation or organization)

1050 Caribbean Way, Miami, Florida 33132
(Address of principal executive offices)

         Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of each class Name of each exchange on which registered
Common Stock, par value $.01 per shareNew York Stock Exchange

Liquid Yield Option™ Notes due February 2, 2021New York Stock Exchange

Zero Coupon Convertible Notes due May 18, 2021 New York Stock Exchange
New York Stock Exchange
New York Stock Exchange

     Securities registered or to be registered pursuant to Section 12(g) of the Act: None

     Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

     Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: As of December 31, 2002, the Registrant had outstanding 192,982,513 shares of common stock, par value $.01 per share.

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]        No[  ]

     Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 [  ]         Item 18 [X]

TABLE OF CONTENTS


PART I

         Securities registered or to be registered pursuant to Section 12(g) of the Act: None

         Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

         Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: As of December 31, 2003, the Registrant had outstanding 196,106,658 shares of common stock, par value $.01 per share.

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]       No [ ] 

Indicate by check mark which financial statement item the registrant has elected to follow:


Item 1. Identity of Directors, Senior Management and Advisers

17[ ]       Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on the Company
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7.     Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities Other than Equity Securities
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16. Reserved
PART III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
SIGNATURES
CERTIFICATIONS
Ex-4.4 Agreement 10/25/2002
Ex-4.7 Lease w/ City of Wichita, Kansas
Ex-8.1 List of Subsidiaries
Ex-10.1 Consent of PricewaterhouseCoopers LLP
Ex-10.2 Certification of CEO & CFO18 [X] 

ROYAL CARIBBEAN CRUISES LTD.

INDEX TO ANNUAL REPORT ON FORM 20-F


ROYAL CARIBBEAN CRUISES LTD.

INDEX TO ANNUAL REPORT ON FORM 20-F




  Page
  
PagePART I
  
PART I
Item 1.Identity of Directors, Senior Management and Advisers 1
Item 2.Offer Statistics and Expected Timetable 1
Item 3.Key Information 1
Item 4.Information on the Company 65
Item 5.Operating and Financial Review and Prospects18
Item 6.Directors, Senior Management and Employees2731
Item 7.Major Shareholders and Related Party Transactions3338
Item 8.Financial Information3439
Item 9.The Offer and Listing3540
Item 10.Additional Information3641
Item 11.Quantitative and Qualitative Disclosures About Market Risk3945
Item 12.Description of Securities Other than Equity Securities45
  39
PART II 
PART II
Item 13.Defaults, Dividend Arrearages and Delinquencies3946
Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds3946
Item 15.Controls and Procedures3946
Item 16.16A.Audit Committee Financial ExpertReserved46
Item 16B.Code of Ethics46
Item 16C.Principal Accountant Fees and Services46
Item 16D.Exemptions from the Listing Standards for Audit Committees47
Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers47
  39
PART III
Item 17.Financial Statements40
Item 18.Financial Statements40
Item 19.Exhibits40
Signatures  
41Item 17.Financial Statements48
CertificationsItem 18.Financial Statements48
Item 19.Exhibits48
  
41Signatures49



PART I

PART I

As used in this Annual Report onForm 20-F, the terms “Royal Caribbean,” “the Company,” “we,” “our” and “us” refer to Royal Caribbean Cruises Ltd., the term “Celebrity” refers to Celebrity Cruise Lines Inc. and the terms “Royal Caribbean International” and “Celebrity Cruises” refer to our two cruise brands. In accordance with cruise industry practice, the term “berths” represents double occupancy capacity per cabin even though many cabins can accommodate three or more guests.

Item 1.Identity of Directors, Senior Management and Advisers

     Not applicable.

Item 2.Offer Statistics and Expected Timetable

     Not applicable.

Item 3.         As used in this Annual Report on Form 20-F, the terms "Royal Caribbean," "Company," "we," "our" and "us" refer to Royal Caribbean Cruises Ltd., the term "Celebrity" refers to Celebrity Cruise Lines Inc. and the terms "Royal Caribbean International" and "Celebrity Cruises" refer to our two cruise brands. In accordance with cruise industry practice, the term "berths" is determined based on double occupancy per cabin even though many cabins can accommodate three or more passengers.

Item 1. Identity of Directors, Senior Management and Advisers

         Not applicable.

Item 2. Offer Statistics and Expected Timetable

         Not applicable.

Item 3.Key Information

Selected Financial Data

         The following selected financial data are for each of the fiscal years in the period 19981999 through 20022003 and as of the end of each such fiscal year. The financial information presented for fiscal years 2003, 2002 2001, and 20002001 and as of the end of fiscal years 20022003 and 20012002 is derived from our audited financial statements and should be read together with such financial statements and the related notes included elsewhere herein.

                      
   Year Ended December 31,
   
   2002 2001 2000 1999 1998
   
 
 
 
 
   (in thousands, except per share data)
Operating Data:
                    
 Revenues $3,434,347  $3,145,250  $2,865,846  $2,546,152  $2,636,291 
 Operating income  550,975   455,605   569,540   480,174   488,735 
 Net income  351,284   254,457   445,363   383,853   330,770 
Per Share Data — Diluted:
                    
 Operating income $2.81  $2.35  $2.95  $2.58  $2.70 
 Net income $1.79  $1.32  $2.31  $2.06  $1.83 
 Weighted-average shares and potentially dilutive shares  195,731   193,481   192,935   186,456   181,165 
 Dividends declared per common share $0.52  $0.52  $0.48  $0.40  $0.34 
Balance Sheet Data:
                    
 Total assets $10,538,531  $10,368,782  $7,828,465  $6,380,511  $5,686,076 
 Total debt, including capital leases  5,444,838   5,646,112   3,410,096   2,342,177   2,469,082 
 Common stock  1,930   1,923   1,921   1,812   1,690 
 Total shareholders’ equity  4,034,694   3,756,584   3,615,915   3,261,156   2,454,758 


Year Ended December 31,
    2003  2002  2001  2000  1999 
 
(in thousands, except per share data)
Operating Data:  
  Total revenues  $3,784,249 $3,434,347 $3,145,250 $2,865,846 $2,546,152 
  Operating income   526,185  550,975  455,605  569,540  480,174 
  Net income   280,664  351,284  254,457  445,363  383,853 
Per Share Data — Diluted:  
  Operating income  $2.67 $2.81 $2.35 $2.95 $2.58 
  Net income  $1.42 $1.79 $1.32 $2.31 $2.06 
  Weighted-average shares and  
    potentially dilutive shares   197,341  195,731  193,481  192,935  186,456 
  Dividends declared per  
     common share  $0.52 $0.52 $0.52 $0.48 $0.40 
Balance Sheet Data:  
  Total assets  $11,322,742 $10,538,531 $10,368,782 $7,828,465 $6,380,511 
  Total debt, including capital leases   5,835,804  5,444,838  5,646,112  3,410,096  2,342,177 
  Common stock   1,961  1,930  1,923  1,921  1,812 
  Total shareholders' equity   4,262,897  4,034,694  3,756,584  3,615,915  3,261,156 

1


Risk Factors

The Risk Factorsrisk factors set forth below and elsewhere in this Annual Report on Form 20-F are important factors, among others, that could cause actual results to differ from expected or historic results. It is not possible to predict or identify all such factors. Consequently, this list should not be considered a complete statement of all potential risks or uncertainties. See(See Item 5. “OperatingOperating and Financial Review and Prospects,” for a note regarding forward-looking statements.)

We may lose business to competitors throughout the vacation market

         We operate in the vacation market and cruising is one of many alternatives for people choosing a vacation. We therefore risk losing business not only to other cruise lines, but also to other vacation operators which provide other leisure options including hotels, resorts and package holidays and tours.

         We face significant competition from other cruise lines, both on the basis of cruise pricing and also in terms of the nature of ships and services we offer to cruise passengers. Our principal competitors within the cruise vacation industry include Carnival Corporation & plc, which owns, among others, Carnival Cruise Lines, Princess Cruises, Holland America Line, Cunard Line and Costa Cruises;Cruises, P&O Princess Cruises plc, (“P&O Princess”)and Cunard Line; and Star Cruises, which owns, among others, Princess Cruises, P&O Cruises, Swan Hellenic and AIDA; Star Cruises which owns Star Cruises,and Norwegian Cruise Line and Orient Line; and others.Line.

         On January 8,In April 2003, Carnival Corporation and P&O Princess announced that they had entered into an agreement to combine the two companies, subject to, among other things, shareholder approval.Cruises plc combined their companies. The combined companies would have a wide portfolio of cruise brands and could have stronger financial flexibility and greater access to capital markets than each currently haspreviously had on an uncombined basis. The combined companies may also have better access to the travel agency distribution network and to berthing facilities in various ports throughout the world. These factors may make it more difficult for us to compete effectively within the cruise vacation market.

         In the event that we do not compete effectively with other vacation alternatives and cruise companies, our market share could decrease and our results of operations and financial condition could be adversely affected.

Overcapacity within the cruise vacation industry, a reduction in demand or geo-political and economic uncertainties could have a negative impact on net revenue per available passenger cruise day (“net revenue yields”),revenues, result in impairment of ship assets and may adversely affect profitability

         Cruising capacity has grown in recent years and we expect it to continue to increase further as all of the major cruise vacation companies are expected to introduce new ships. In order to utilize new capacity, the cruise vacation industry will need to improve its position in the overall vacation market. Failure of the cruise vacation industry to do so could have a negative impact on net revenue yields. Net revenue represents gross revenue less costs of air transportation, travel agent commissions and other direct costs of sales. Should net revenue yields be negatively impacted, we could experience an adverse effect on our results of operations and financial condition, including ship asset impairments.

Demand for cruises and other vacation products has been and is expected to continue to be affected bydependent on the strength of the economies in the countries in which we market our products, the public’s attitude towards the safety of travel and the geo-political climate. In the future, demand for cruises is also likely to be increasingly dependent on the underlying economic strength of the countries in which cruise companies market their products. Economic or political changes including those that reduce disposable income in the countries in which we market our products, may affect demand for vacations, including cruise vacations and may lead to reduced occupancy and/or price discounting which, in turn, may reduce the profitabilitycould adversely affect our results of operations and financial condition and could result in impairment of our business.asset values.

         Furthermore, events such as terrorist attacks, war and other hostilities and the resulting political instability and concerns over safety and security aspects of traveling have had, and could have in the future, a significant adverse impact on demand and pricing in the travel and vacation industry. In addition, events such as terrorist attacks, war and other hostilities and the resulting security measures and concerns could impact our ability to source qualified crew from throughout the world at competitive costs and, therefore, increase our shipboard employee costs.

2

Incidents at sea or adverse publicity concerning the cruise industry could affect our reputation and harm our future sales and profitability

         The operation of cruise ships involves the risk of accidents, illnesses and other incidents at sea which may bring into question passenger safety, health, security and vacation satisfaction and thereby adversely affect future industry performance. While we make passenger safety our foremosta priority in the design and operation of our ships, incidents involving passenger cruise ships could adversely affect future sales and profitability. In addition, adverse media publicity concerning the cruise industry in general could impact demand and consequently have an adverse impact on our profitability.

2


Environmental and health and safety legislation could affect operations and increase operating costs

         Some environmental groups have lobbied for more stringent regulation of cruise ships. Some groups have also generated negative publicity about the cruise industry and its environmental impact. Stricter environmental and health and safety regulations could affect our operations and increase the cost of compliance and adversely affect the cruise industry. It cannot be assured that our costs of complying withrelating to current and future environmental, health and safety laws or liabilities arising from past or future releases of, or exposure to, hazardous substances or to ship discharges,regulations will not materially adversely affect our business, results of operations or financial condition.

We may not be able to obtain financing on terms that are favorable or consistent with our expectations

         To fund our capital expenditures and scheduled debt payments, we rely on a combination of cash flows provided by 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. Our $1.0 billion revolving credit facility expires in June 2003. Any amounts outstanding at that time will be payable immediately if the facility is not replaced. We intend to replace this facility prior to its expiration date, although such replacement may be at an amount less than $1.0 billion. Our credit ratings impact our ability to obtain financing in financial markets and the terms of the financing. Any future lowering of our credit ratings may have adverse consequences on our ability to access the financial markets and/or on our cost of financings. In addition, interest rates and our ability to obtain financing are dependent on many economic and political factors beyond our control. Accordingly, we can notcannot be sure that our cash flows from operations and additional financings will be available in accordance with our expectations.

Conducting business internationally may result in increased costs

         We operate our business internationally and plan to continue to develop our international presence. Operating internationally exposes us to a number of risks. Examples include currency fluctuations, interest rate movements, imposition of trade barriers and restrictions on repatriation of earnings. Additional risks include political risks and risk of increases in duties and taxes as well as changes in laws and policies affecting cruising, vacation or maritime businesses, or governing the governing operations of foreign-based companies. Additional risks include currency fluctuations, interest rate movements, imposition of trade barriers and restrictions on repatriation of earnings. If we are unable to address these risks adequately, our results of operations and financial condition could be adversely affected.

Ship construction delays or faults may result in cancellation of cruises and unscheduled drydocks and repairs

        We depend on the shipyards to construct and deliver our cruise ships on a timely basis and in good working order. The inherentsophisticated nature of building a ship involves risks similar to those encountered in other sophisticated projects.risks. Delays or faults in ship construction have in the past and may continue in the future to result in delays or cancellation of cruises or necessitate unscheduled drydocks and repairs of the ship. Shipyard insolvency and other industrial actions could also delay or indefinitely postpone the timely delivery of new ships. We have experienced mechanical problems with the pod propulsion units on Millennium-classcertain ships and there can be no assurance that we will not experience such problems in the future. These events together with any related adverse publicity could, to the extent they are not covered by contractual provisions or insurances, adversely affect our financial results.

Our operating costs could increase due to market forces and economic or political instability beyond our control

         Some of ourOur operating costs, including fuel, insurance, port expenses and security costs, are subject to increases due to market forces and economic or political instability beyond our control. Increases in these operating costs could adversely affect our profitability.

3

Unavailability of ports of call may adversely affect our profits

         We believe that port destinations are a major reason why guestspassengers choose to go on a particular cruise or on a cruise vacation. The availability of ports is affected by a number of factors, including, but not limited to, existing capacity constraints, security concerns, adverse weather conditions and natural disasters, financial limitations on port development, local governmental regulations and local community concerns about port development and other adverse impacts on their communities from additional tourists. The inability to continue to maintain and increaseAny limitations on the availability of our ports of call could adversely affect our profits.

3


A change in our tax status under the United States Internal Revenue Code may have adverse effects on our income

         We and our wholly owned subsidiary, Celebrity Cruises Inc., the operatora number of Celebrity Cruises, are foreign corporations engaged in a trade or business in the United States and our ship-owning subsidiaries are foreign corporations that in many cases, depending upon the itineraries of their ships, receivederive income from a United States trade or business and/or from sources within the United States. Drinker Biddle & Reath LLP, our United States tax counsel, has delivered to us an opinion to the effect that pursuantthis income, to Section 883 of the Internal Revenue Code, our income, the income of Celebrity Cruises Inc. and the ship-owning subsidiaries, in each caseextent derived from or incidental to the international operation of a ship or ships, is exempt from United States income tax.tax pursuant to Section 883 of the Internal Revenue Code. We believe that substantially allthe bulk of our income the income(including that of Celebrity Cruises Inc. and our ship-owning subsidiariessubsidiaries) is derived from or incidental to the international operation of a ship or ships within the meaning ofships. In 2003, final regulations under Section 883 were issued, which narrowed the scope of the Internal Revenue Code.

     Our tax counsel is of the opinion based on certain representations and assumptionsactivities that we, Celebrity Cruises Inc., and our ship-owning subsidiaries currently qualify for the Section 883 exemption because each of them is incorporated in a qualifying jurisdiction and our stock is primarily and regularly traded on an established securities market in the United States or Norway. To date, however, no final Treasury regulations or other definitive interpretations of the relevant portions of Section 883 have been promulgated, although regulations have been proposed and reissued in revised form in August 2002. As noted in our tax counsel’s opinion, such final regulations or official interpretations could differ materially from our tax counsel’s interpretation of this Internal Revenue Code provision and, even in the absence of such final regulations or official interpretations,are considered by the Internal Revenue Service might successfully challengeto be incidental to the international operation of ships. Because the regulations are new, the scope of such interpretation. In addition,income that will not qualify for exemption under Section 883 is not clear. (SeeOutlook under Item 5.Operating and Financial Review and Prospects.)

         It should be noted that the provisions of Section 883 are subject to change at any time by legislation. Moreover, changes could occur in the future with respect to the identity, residence, or holdings of our direct or indirect shareholders that could affect our and our subsidiaries’ eligibility for the Section 883 exemption. Accordingly, there can be no assurance that we Celebrity Cruises Inc., and our ship-owning subsidiaries are, and will in the futurecontinue to be exempt from United States income tax on United States source shipping income.

income in the future. If we Celebrity Cruises Inc., and our ship-owning subsidiaries were not entitled to the benefit of Section 883, of the Internal Revenue Code, eachwe and our subsidiaries would be subject to United States taxation on a portion of itsthe income derived from or incidental to the international operation of our ships, which would reduce our net income. SeeTaxation of the Companywithin Item 4. for a discussion of thesuch taxation of us, Celebrity Cruises Inc., and our ship-owning subsidiaries in the absence of an exemption under Section 883 of the Internal Revenue Code.883.

We are controlled by principal shareholders that have the power to determine our policies, management and actions requiring shareholder approval

         As of February 21, 2003,27, 2004, A. Wilhelmsen AS., a Norwegian corporation indirectly owned by members of the Wilhelmsen family of Norway, owned approximately 24.0%21.7% of our common stock and Cruise Associates, a Bahamian general partnership indirectly owned by 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, owned approximately 25.0%24.4% of our common stock. A. Wilhelmsen AS. and Cruise Associates have the power to determine, among other things:

•our policies and the policies of our subsidiaries,

•the persons who will be our directors and officers, and the directors and officers of our subsidiaries and

•actions requiring shareholder approval.

4


         A. Wilhelmsen AS. and Cruise Associates are parties to a shareholders’shareholders' agreement. The agreement provides that our board of directors will consist of the following persons:


•four nominees of A. Wilhelmsen AS.,

•four nominees of Cruise Associates and

•our Chief Executive Officer.


     The shareholders’ agreement provides that the boards of directors of our subsidiaries shall have substantially similar composition.

     In connection with our acquisition of Celebrity, A. Wilhelmsen AS. and Cruise Associates have also agreed to vote their shares of our common stock to elect one additional director to our board of directors to be nominated by Archinav Holdings, Ltd., a former shareholder of Celebrity, for a specified period until 2004. In addition, until either of them should decide otherwise, A. Wilhelmsen AS. and Cruise Associates have agreed to vote their shares of common stock in favor of two additional named directors of our board of directors.         During the term of the shareholders’ agreement, certain corporate actions require the approval of at least one director nominated by A. Wilhelmsen AS. and one director nominated by Cruise Associates. Our principal shareholders are not prohibited from engaging in a business that may compete with our business, subject to certain exceptions. The failure ofIf A. Wilhelmsen AS. and Cruise Associates to continuecease to own a specified percentage of our common stock, might obligate uswe may be obligated to prepay indebtedness outstanding under and/or result in the termination of somemajority of our credit facilities.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.

4


The holders of our common stock may experience dilution in the value of their equity interest as a result of the issuance and sale of additional shares of our common stock

        A substantial number of shares of our common stock were either issued by us in private transactions not involving a public offering and are therefore treated as “restricted securities” for purposes of Rule 144 under the Securities Act of 1933 (the “Securities Act”) or are held by our affiliates and, therefore, treated as “restricted securities”. These shares include the 46,409,33042,966,472 shares of our common stock held by A. Wilhelmsen AS. and the 48,281,900 held by Cruise Associates. No predictions can be made as to the effect, if any, that market sales of such shares, or the availability of such shares for future market sales, will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of our common stock, (including shares issued upon exercise of stock options), or the perceptions that such sales could occur, could materially adversely affect the prevailing market price for our common stock and could impair our future ability to raise capital through an offering of equity securities. Each of A. Wilhelmsen AS. and Cruise Associates has the right, pursuant to a registration rights agreement, to require us, subject to certain qualifications, to effect the registration under the Securities Act of all or a specified minimum numberpart of their shares of common stock. Monument Capital Corporation, a Liberian corporation (holder, as nominee, of 1,071,412 shares of common stock), and Archinav Holdings, Ltd. (holder of 7,597,242 shares of common stock) are also parties to the registration rights agreement. See “Share Ownership”(See Share Ownership under Item 6. and “MajorItem 7. Major Shareholders and Related Party Transactions” under Item 7.Transactions.)

We are not a United States corporation and our shareholders may be subject to the uncertainties of a foreign legal system in protecting their interests

        Our corporate affairs are governed by our Restated Articles of Incorporation and By-Laws and by the Business Corporation Act of Liberia. The provisions of the Business Corporation Act of Liberia resemble provisions of the corporation laws of a number of states in the United States. However, while most states have a fairly well developed body of case law interpreting their respective corporate statutes, there are very few judicial cases in Liberia interpreting the Business Corporation Act of Liberia. For example, the rights and fiduciary responsibilities of directors under Liberian law are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain United States jurisdictions. Thus, our public shareholders may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.

5

Item 4.Information on the Company

History and Development of the Company

        Royal Caribbean International was founded in 1968. The current parent corporation, Royal Caribbean Cruises Ltd., was incorporated on July 23, 1985 in the Republic of Liberia under the Business Corporation Act of Liberia. The address of the principal executive offices is 1050 Caribbean Way, Miami, Florida 33132; the telephone number is (305) 539-6000. Our registered agent is Michael J. Smith, Vice President, General Counsel and Secretary, 1050 Caribbean Way, Miami, Florida 33132.

        We are the world’s second largest cruise company with 2528 cruise ships with 53,04258,448 berths.

        See theBusiness Overviewsection below and Item 5.Operating and Financial Review and Prospectsfor more information regarding our history and development, significant capital expenditures, ships under construction and methods of financing.

Business Overview

General

        We operate two brands, Royal Caribbean International and Celebrity Cruises, which was acquired in July 1997.Cruises. Our brands offer a wide array of shipboardonboard activities, services and amenities, including swimming pools, sun decks, beauty salons, exercise and spa facilities, ice skating rinks, in-line skating, basketball courts, rock climbing walls, miniature golf courses, gaming facilities, lounges, bars, Las Vegas-style entertainment, retailcinemas and “Royal Promenades” which include interior shopping, dining and cinemas. an entertainment boulevard.

5


Our ships operate on a selection of worldwide itineraries that call on approximately 200160 destinations. We compete principally on the basis of quality of ships, quality of service, variety of itineraries and price.

The Royal Caribbean International Brand

        Royal Caribbean International serves the volume cruise vacation sector, which we categorize as the contemporary and premium segments. The contemporary segment is served by cruises that are generally seven daysnights or shorter and feature a casual ambiance. The premium segment is served by cruises that are generally seven to 14 daysnights and appeal to the more experienced cruiserpassenger who is usually more affluent. The brand operates 1618 cruise ships with 36,68841,994 berths, offering various cruise itineraries that range from threetwo to 1714 nights and call on destinations throughout the world.

        Royal Caribbean International’s strategy is to attract an array of vacationing consumers in the contemporary segment by providing a wide variety of itineraries and cruise lengths with multiple innovative options for onboard dining, entertainment and other onboard activities. Additionally, Royal Caribbean International offers a variety of shore excursions at each port of call. We believe that the variety and quality of Royal Caribbean International’s product offeringofferings represent excellent value to consumers, especially to couples and families traveling with children. Because of the brand’s extensive product offerings, we believe Royal Caribbean International is well positioned to attract new consumers to the cruise industry and to continue to bring past guestspassengers back for their next vacation. While the brand is positioned at the upper end of the contemporary segment, we believe that Royal Caribbean International’s quality enables it to attract consumers from the premium segment as well, thereby achieving one of the broadest market coverages of any of the major brands in the cruise industry.

The Celebrity Cruises Brand

        Celebrity Cruises primarily serves the premium segment. Celebrity Cruises operates nine10 cruise ships with 16,35416,454 berths and offers various cruise itineraries that range from sixtwo to 1716 nights.

        Celebrity Cruises’ strategy is to attract consumers who want an enhanced cruise vacation in terms of modern ships,

gourmet dining and service, extensive and luxurious spa facilities, large staterooms and a high staff-to-gueststaff-to-passenger ratio. These are hallmarks of the premium cruise vacation segment, which is Celebrity Cruises’ primary target. Celebrity Cruises also attracts experienced cruisers from the contemporary and luxury cruise categories. Celebrity Cruises has expanded its fleet to provide an increased variety of itineraries and cruise lengths and has a higher proportion of its fleet deployment in seasonal markets (i.e. Alaska, Bermuda, Europe, Hawaii, the Panama Canal and South America) than the Royal Caribbean International brand.

6

Termination of Proposed Combination with P&O Princess

     In October 2002, our proposed combination with 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. We also agreed to terminate, effective January 1, 2003, our joint venture with P&O Princess to create and operate a cruise line to target customers in southern Europe. The venture was terminated before it commenced business operations.

Industry

        Since 1970, cruising has been one of the fastest growing sectors of the vacation market, as the number of North American guestspassengers has grown to an estimated 7.68.2 million in 20022003 from 0.5 million in 1970, a compound annual growth rate of approximately 9%. We have sought to capitalize on the increasing popularity of cruises through an extensive fleet expansion program.

        According to our estimates, the North American market was served by an estimated 102103 cruise ships with approximately 110,500125,900 berths at the end of 1997.1998. We estimate that this capacity has increased to approximately 173,500195,700 berths on 117131 ships by the end of 2002.2003. The increase in capacity over the last five years is net of approximately 3631 ships with approximately 27,50026,000 berths that have either been retired or moved out of the North American market. There are a number of cruise ships on order with an estimated 54,90035,900 berths which will be placed in service between 20032004 and 2006. Although we cannot predict the rate at which future retirements will occur, we believe ship retirements will continue due to competitive pressures and the age of the ships.

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         The following table details the growth in the North American cruise market of both guestspassengers and weighted-average berths over the past five years:

         
    Weighted
  North Average
  American Supply of Berths
  Cruise Marketed in
Year Guests(1) North America(2)
 
 
1998  5,428,000   118,747 
1999  5,894,000   130,152 
2000  6,886,000   144,499 
2001  6,906,000   151,690 
2002  7,640,000   163,187 


Year
North
American
Cruise
Passengers(1)
Weighted-Average
Supply of Berths
Marketed in
North America(2)
1999   5,894,000  130,152 
2000   6,886,000  144,499 
2001   6,906,000  151,690 
2002   7,640,000  163,187 
2003   8,195,000  182,698 
            
(1) Source: Cruise Lines International Association based on passengers carried for at least two consecutive nights.
(2) Source: Our estimates.

(1)Source: Cruise Lines International Association based on guests carried for at least two consecutive nights.
(2)Source: Our estimates.

         Cruise lines compete for consumers’ disposable leisure time spending with other vacation alternatives such as land-based resort hotels and sightseeing destinations, and demand for such activities is influenced by geo-political and general economic conditions. We believe that cruise guestspassengers currently represent only a small share of the vacation market and that a significant portion of cruise guestspassengers carried are “first-time cruisers.”cruisers”.

        Our ships operate worldwide and have itineraries that call on destinations in Alaska, Australia/New Zealand, the Bahamas, the Baltic, Bermuda, California, Canada, the Caribbean, Europe, the Galapagos Islands, Hawaii, Mexico, New England, the Panama Canal, Scandinavia and South America. Competition for cruise guests seeking these itineraries is vigorous. We compete with a number of cruise lines; however, our principal competitors are Carnival Cruise Lines, Princess Cruises, Holland America Line and Norwegian Cruise Line and Princess Cruises.Line. We compete principally on the basis of quality of ships, quality of service, variety of itineraries and price.

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Operating Strategies

         Our principal operating strategies are to:


•improve the awareness and market penetration of both brands,

•continue to expand our fleet with state-of-the-art cruise ships,

•continue to improve our competitive position with respect toand expand the quality and innovation of our onboard product,

fleet,
•expand into new markets and itineraries,

•further expand our international guestpassenger sourcing,

•utilize sophisticated yield management systems (revenue optimization per berth),

•further improve our technological capabilities, and

•maintain strong relationships with travel agencies, the principal industry distribution system.


Brand Awareness

        Our strategy continues to broaden the recognition of both the Royal Caribbean International brand and the Celebrity Cruises brand in the cruise vacation sector. Each brand has a distinct identity and marketing focus but utilizes shared infrastructure resources.

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        We have positioned the Royal Caribbean International brand in the contemporary and premium segments of the cruise vacation sector. As such, Royal Caribbean International focuses on providing multiple choices to its guestspassengers through a variety of itineraries, accommodations, dining options, ship activities and shore excursions. Hallmarks of the brand include friendly and engaging service, modern ships, family programs, entertainment, health and fitness and energizing onboard and shore sideshoreside activities designed for guestspassengers of all ages. In December 2002,Recommend Magazinerecognized Royal Caribbean International was named Best Overall Cruise Line in the 2003 Travel Weekly “First Annual Readers’ Choice Awards” which surveyed more than 2,200 travel professionals. The brand was also acclaimed for having the Best Large Ship,best large ship, onboard entertainment and food in its “SixthRecommend magazine’s “Seventh Annual Readers’ Choice Awards,Awards.” which surveyed more than 1,000 travel agents.In addition,Porthole Cruise Magazine named Royal Caribbean International as the leader in three categories in their “Fifth Annual Readers’ Choice Awards:” Best Caribbean Itineraries, Best Eco-Friendly Cruise Line and Best Computer Facilities.

        We have positioned the Celebrity Cruises brand in the premium segment of the cruise vacation sector. The brand places emphasis on its gourmet dining, impeccable service, large staterooms, a high staff-to-gueststaff-to-passenger ratio and luxurious spa facilities.facilities offering a “taste of luxury”. Recently, the brand introduced the “Celebrity ConciergeClass,” an enhanced level of accommodations featuring new amenities and priority services. Celebrity Cruises was rated number one amonghas been honored in the annual Condé Nast Traveler’s“World’s Greatest Ships” review “Best Cruise Ships in the World” readers’ poll for the large ship category, with Constellation receiving the top award. All of Celebrity Cruises’ large ships, seven in total, ranked in the top 10. Furthermore, certain Celebrity Cruises’ ships received the poll’s highest rating in the service, design and food criteria. In addition, several of Celebrity Cruises’ concierges have become the first hoteliers in the premium cruise sector to receive the prestigious “Les Clefs D’Or,” the crossed golden keys signifying a provider of extraordinary service.

        In January 2003, in which five2004, Celebrity Cruises launched Celebrity Xpeditions, a series of unique, upscale experiences designed to differentiate and elevate the Celebrity Cruises brand within the premium cruise segment. A Celebrity Xpedition may be experienced as part of the top 10 ships withincruise vacation or as a separate itinerary. The first of these limited-capacity experiences offers itineraries to the “large ship” category wereGalapagos Islands, aboard a 100-berth ship named Xpedition.

        Royal Celebrity ships.Tours completed its third year of operations offering fully escorted, premium land tour packages in Alaska, British Columbia and Europe. Tour itineraries include travel by deluxe motorcoach and/or Wilderness Express traincars.

Fleet Expansion

        Currently,We believe our combined fleet has an average age of approximately five years, which we believe is one of the youngest of any major cruise company. Based on the ships currently on order, byour December 31, 2004 our year-end capacity is expected to increase to 60,30860,560 berths.

We have increased our average ship size and number of available berths, which has enabled us to achieve certain economies of scale. Larger ships allow us to

transport more guestspassengers than smaller ships without a corresponding increase in certain operating expenses. This increase in fleet size also provides a larger revenue base to absorb our marketing, selling and administrative expenses.

        Royal Caribbean International.Founded in 1968, Royal Caribbean International was the first cruise line to design ships especially for warm water year-round cruising. Royal Caribbean International operated a modern fleet in the 1970s1970’s and early 1980s,1980’s, establishing a reputation for high quality. Between 1988 and 1992, the brand tripled its capacity by embarking on its first major capital expansion program.

Royal Caribbean International committed tocompleted its second capital expansion program with orders forby taking delivery of six Vision-class ships, ranging in size from 1,804 to 2,000 berths, for delivery from 1995 through 1998. During this same period, Royal Caribbean International sold four of its original ships because these ships were older in age and design and no longer consistent with its image and marketing strategy.

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        Royal Caribbean International is currently engaged inbegan its third capital expansion program. It placedprogram with orders for five Voyager-class ships and four Radiance-class ships. The Voyager-class ships,, Voyager of the Seas, Explorer of the Seas, Adventure of the Seas, andSeas, Navigator of the Seas andMariner of the Seas, were placed in service from 1999 through 2002. Royal Caribbean International has one additional Voyager-class ship on order. These Voyager-class ships are the largest cruise ships currently in existence and we believe they are the most innovative passenger cruise ships ever built.2003. Each ship is approximately 140,000 gross tons with 3,114 berths. This new class of ships is designed to provide more diverse vacation options for families and for those seeking active sports and entertainment alternatives during their vacation experience. Each Voyager-class ship has a variety of unique features: the cruise industry’s first horizontal atrium, the “Royal Promenade” (which is four decks tall, longer than a football field and provides entertainment, shopping and dining experiences), recreational activities such as ice skating, in-line skating, rock climbing, miniature golf and full court basketball, enhanced staterooms, expanded dining options and a variety of intimate spaces.

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        Also in connection with theRoyal Caribbean International will complete its third capital expansion program Royal Caribbean Internationalwith the delivery of its last Radiance-class ship,Jewel of the Seas, in the second quarter of 2004. The brand introduced twoits other three Radiance-class ships,Radiance of the Seas,andBrilliance of the Seas andSerenade of the Seas, in 2001, 2002 and 2002,2003, respectively. Royal Caribbean International has two additional Radiance-class ships on order and options to purchase two more ships. The Radiance-class ships (approximately 90,000 gross tons each) are a progression from the brand’s Vision-class seriesships and have approximately 2,0762,100 berths each. The Radiance-class ships incorporate many of the dining and entertainment options of the Voyager-class ships, as well as offer a wide array of unique features. These features include panoramic glass elevators facing outward to the sea, floor to ceiling glass windows offering spectacular sea views and a billiards club.club featuring gyroscopic billiard tables.

        Building on the success of our Voyager-class ships, in September 2003, we entered into an agreement with a shipyard to purchase an Ultra-Voyager ship designated for the Royal Caribbean International fleet. The Ultra-Voyager will be approximately 15% larger than the Voyager-class with approximately 3,600 berths. The Ultra-Voyager is scheduled for delivery in the second quarter of 2006. We also have an option, exercisable through August 2004, to purchase an additional Ultra-Voyager ship for delivery, subject to certain conditions, in 2007.

        Celebrity Cruises.Cruises. Celebrity Cruises was founded in 1990 and operated three ships between 1992 and 1995. Between 1995 and 1997, Celebrity Cruises undertook its first capital expansion program, adding three Century-class ships which range in size from 1,750 to 1,870 berths and disposing of one of its original three ships. Celebrity Cruises recently completed its second capital expansion program and tookwith the delivery ofMillennium, Infinity, SummitandConstellation, the new Millennium-class series, from 2000 through 2002. Each Millennium-class ship has 2,034 berths and is approximately 90,000 gross tons.

        The Millennium-class ships have elevated the Celebrity brand’s position in the premium segment of the marketplace. This new class of ships, which are a progression from the Century-class ships, builds on the brand’s primary strengths, including gourmet dining, luxurious spa facilities impeccable service and spacious staterooms and suites complete with balconies. On the Millennium-class ships, an entire resort deck is dedicated to health, fitness and the rejuvenating powers of water. Celebrity Cruises’ spas are among the most luxurious facilities afloat and offer a variety of features, including a large hydropool with neck massage and body jets. Guestsjets and luxurious services including “acupuncture at sea”. Passengers can relax inNotes, the music library, or stop by the piano, champagne or martini bar for drinks and caviar.

ProductFleet Innovation

         We recognize the needplace a strong focus on product innovation, not only for stimulating repeat business, but also for driving new and innovative onboard products and experiencesdemand for our guests, which we develop based on guest feedback, crew suggestions, market researchproducts. The Voyager, Radiance and competitiveMillennium-class ships introduced several product reviews. Accordingly, we continueinnovations to invest in designthe marketplace, and our brands have begun to adopt these innovations on new ships and additional product offerings on our existing fleet. Expanded dining options, recreational activities such as signature elements. For example, rock climbing ice skatingwalls reflect Royal Caribbean International’s focus on active vacationers, while world class spa facilities reflect Celebrity Cruises’ focus on savvy, discerning travelers. In order to offer passengers a wider range of activities and amenities and to ensure consistency across our fleets, we have embarked on a program of revitalizing our older ships to update and refresh their interiors and to incorporate signature brand elements. We revitalized Monarch of the latest technology such as our Internet CaféSeas in 2003 by upgrading passenger staterooms and interactive television, are amongpublic areas and by adding new dining venues and a rock climbing wall. We announced in February 2004 that Empress of the services currently offered.

     In 2001, we began the operation of Royal Celebrity Tours, a tour company offering fully-escorted, premium land tour programs in Alaska for guests traveling on our ships. We offer deluxe motorcoach and rail packages with glass-domed railcars that are among the largest in the world. In 2002, we doubled our Alaska tour capacity and in an effort to further increase our tour presence in North America, we launched a Canadian Rockies tour program. In addition, we launched a European tour program for the 2003 season.Seas would undergo renovations during 2004.

WorldwideNew Markets and Itineraries

        Our ships operate worldwide with a selection of itineraries that call on approximately 200160 ports. New ships allow us to expand into new destinations, itineraries and markets. Both Royal Caribbean International and Celebrity Cruises have added new itineraries departing from major United States drive markets, with Royal Caribbean International expanding into Tampa, New Orleans, Galveston and Port Canaveral and Celebrity Cruises expanding into San Francisco, San Diego, Baltimore and Charleston.markets. Both brands also have expanded their mix of itineraries in Alaska and Europe and are now also offering a wide variety of cruise tours from these destinations in order to provide vacationers with a much broader range of product options. Recently, we launched Celebrity Xpeditions with sailings to the Galapagos Islands.

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        In an effort to secure satisfactory berthing facilities for our ships, and to provide new or enhanced cruise destinations for our passengers, we assist from time to time we assist or invest in the development or enhancement of certain port facilities and infrastructure located in strategically important ports of call. Generally, we collaborate with local private or governmental entities by providing management andand/or financial assistance. In exchange for our involvement, we generally secure preferential berthing rights for our ships.

International GuestsPassengers

     International guests have grown from approximately 7% of total guests in 1991 to approximately 16% of total guests in 2002. One        Although the majority of our strategies ispassengers continue to use fleet deploymentoriginate from the United States, international passengers represent an important segment of our business. We sell and expanded itinerariesmarket the Royal Caribbean International and Celebrity Cruises brands to increase our guest sourcing outside North America. We carry out our international sales effortpassengers through our sales offices located in London, Frankfurt, Oslo and Genoa and through a network of 4142 independent international representatives located throughout the world. We also are ableIn order to accept bookingsaccommodate the needs of international passengers, we have made selected adjustments to our onboard product and service, including the use of multi-lingual service staff on ships with a high mix of international passengers. International passengers have grown from approximately 213,000 in various currencies.1998 to approximately 455,000 in 2003. See Note 22. of the Notes to the Consolidated Financial Statements for additional information on total revenues by geographic area for each of the last three financial years.

        In connection with our international strategy, in July 2000 we entered intohave a multi-faceted strategic alliance with First Choice Holidays PLC (“First Choice”), one of the United Kingdom’s largest integrated tour operators. First Choice Holidays PLC now provides both brands with a significantly larger distribution base in the United Kingdom and access to First Choice Holidays PLC’sChoice’s significant retail outlets, operated under several well-known brand names, as well as use of its new distribution technology, including its unique interactive digital sales technology and online e-retail outlets. We have provided First Choice Holidays PLC with special training and promotional material geared at increasing distribution of both brands. This marketing alliance was solidified by our investment in 2000 of approximately $300 million in convertible preferred stock issued by First Choice Holidays PLC. If fully converted, our holding would represent approximately a 17% interest in First Choice Holidays PLC.

Separately, we entered intoare party to a joint venture with First Choice Holidays PLC to launchwhich operates a new cruise brand, Island Cruises.Viking Serenade,Cruises, that offers itineraries designed to attract international passengers. Island Cruises operates a 1,512-passenger1,512-berth ship which operatedsailing under the Royal Caribbean International brand until February 14, 2002, is the first ship operated by Island Cruises. As part of the transaction,Viking Serenadewas renamedname Island Escapeand it offers itineraries designed to attract international guests..

Revenue Management

        We believe we have one of the most advanced revenue management capabilitiessystems in the industry which enableenables us to make more advantageous decisions about pricing, inventory and marketing actions. We are continuously working to refine these systems and tools through increased forecasting capabilities, ongoing improvements to our understanding of price/demand relationships, and greater automation of the decision process.

Technological Development

        We continue to invest in information technology to support our corporate infrastructure and guestpassenger and travel trade relations. Both Royal Caribbean International and Celebrity Cruises have extensive websites that are world-class marketing portals with consumer booking engines, providing access to millions of Internet users throughout the world. We have streamlined our documentation process by providing cruise-only passengers with electronic documents accessible online. We also offer guestspassengers the ability to complete their embarkation forms online prior to the embarkation date and have automated our pierside embarkation process. To further enhance our customer service, we have provided online access so guestspassengers can book shore excursions via our websites. We recently launched a new website for Royal Caribbean International, which dramatically improves the ease of use and distribution of multimedia marketing information to our current and potential customers. Additionally, we have implemented a customer relationship management tool, which further improves our ability to respond to passenger and travel agent inquiries in a timely and accurate manner. Other innovations include royalcaribbeanRoyal Caribbean onlineSM(SM) and online@celebritycruisesSM(SM), which allow guestspassengers access to the Internet while onboard our ships. We also have installed interactive televisions in guests’passenger staterooms on most ships, enabling guestspassengers to shop for shore excursions, select a dinner wine and monitor their onboard accounts. In addition, we introduced automation in the management of dining, which integrates passenger dining preferences from the booking process to the onboard delivery experience. For the trade, we have cruisingpower.com, a website dedicated to Internet communications with the travel community, which enables fast access to online tools. These online tools includeCruiseMatch® 2000 Online, an Internet browser-based booking system,CruisePaySM(SM), an online payment service, Insight, a booking summary report andCruise WriterSM(SM), which provides the capability to customize brochures and flyers. We have also launchedCruiseManager, an independent browser-based booking tool for travel agents.

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Travel Agency Support

        Independent travel agencies generate the majority of the bookings for our ships and we are committed to further developing and strengthening this very important distribution channel. Royal Caribbean International and Celebrity Cruises continue to have onea large sales force, the majority of the largest sales forces in the industry which is focuseddual branded, that focuses on assisting travel agencies in growing and developing their business. Both brands provide cooperative marketing support to agencies, as well as strong training programs. New “channel management” programs have been instituted to increase focus and support all high growth areas such as homebased, Internet, corporate and incentive agencies. For our key accounts, we have moved from a single-branded sales force representing both Royal Caribbean International and Celebrity Cruises to separate “brand champions” dedicated to each brand. We were the first cruise company to developoffer an automated bookingreservations system, for the trade,CruiseMatch® 2000Online. This automated reservations system, which allows travel agents direct access to our computer reservation system to improve ease of bookings. More than 30,000 independent travel agencies worldwide can book cruises for bookings with both brands usingCruiseMatch® 2000.brands. We have customer service representatives that are trained to assist travel agents in providing a higher guestlevel of service level.and Insight, the first Internet service tool of its kind in the industry, which assists agencies with productivity and enhances customer service. We operate two reservation call centers, one in Miami, Florida and the other in Wichita, Kansas, thereby offering flexibility and extended hours of operations.

Sales, Marketing and GuestPassenger Services

        Royal Caribbean International has a comprehensive marketing program which positions the brand as providing high quality, excellent value cruise vacations. Royal Caribbean International’s marketing strategies focus on active adults and families who are vacation enthusiasts interested in exploring new destinations, seeking new experiences and having a real “lust for life.” As a member of our life”. The “Crown & Anchor Society” loyalty program includes such benefits as the award-winning Crown & Anchor Society, frequent cruisers can enjoy a host of new magazine, special cruise offers and exciting benefits.onboard amenities.

        Celebrity Cruises has revamped and transformedenhanced its brand image with a series of cutting-edge, fully integrated consumer campaigns designed to build awareness and bookings. Marketing strategies deliver the brand message to experienced travelers who appreciate quality and value. Past guest relationship programs havevalue in the ultimate premium cruise experience, with a taste of luxury. The “Captain’s Club” loyalty program has been enhanced to reward the most loyal Celebrity Cruises’ passengers by offering special services and amenities. Membership in the Captain’s Club has doubled over the past year and continues to be a marketing focus as these passengers are far more likely to cruise again with Celebrity Cruises than non-members.

        We offer to handle virtually all travel aspects related to guestpassenger reservations and transportation, including arranging guestpassenger air transportation. Our air/sea program offers guestspassengers the choice of our standard air or custom air.air programs. Our standard air program allows our guestspassengers to benefit from comprehensive relationships that we maintain with many of the major airlines ranging from fare negotiation and space handling to baggage transfer. CustomOur custom air serviceprogram enables a guestpassenger to customize their flight arrangements, including selection of airline, specific flights and class of service.

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Operations

Cruise Ships and Itineraries

        We operate 2528 ships, under two brands, on a selection of worldwide itineraries ranging from threetwo to 1716 nights that call on approximately 200160 destinations. The following table represents summary information concerning our ships and their areas of operation based on 20032004 itineraries (subject to change):

         
  Year Ship    
Ship Entered Service Berths Primary Areas of Operation
 
 
 
Royal Caribbean International        
Mariner of the Seas (1) 2003 
3,114

 Eastern/Western Caribbean
Serenade of the Seas (1) 2003 
2,076

 Canada/New England, Southern Caribbean
Navigator of the Seas 2002 
3,114

 Eastern/Western Caribbean
Brilliance of the Seas 2002 
2,076

 Caribbean, Europe
Adventure of the Seas 2001 
3,114

 Southern Caribbean
Radiance of the Seas 2001 
2,064

 Eastern/Western/Southern Caribbean,
Hawaii, Alaska, Panama Canal
Explorer of the Seas 2000 
3,114

 Eastern/Western Caribbean
Voyager of the Seas 1999 
3,114

 Western Caribbean
Vision of the Seas 1998 
2,000

 Hawaii, Alaska, Mexican Riviera
Enchantment of the Seas 1997 
1,950

 Eastern/Western Caribbean
Rhapsody of the Seas 1997 
2,000

 Western Caribbean
Grandeur of the Seas 1996 
1,950

 Western Caribbean, Panama Canal,
Canada/New England, Europe
Splendour of the Seas 1996 
1,804

 Caribbean, Panama Canal, Europe
Legend of the Seas 1995 

1,804


 Hawaii, Alaska, Panama Canal,
Australia/New Zealand
Majesty of the Seas 1992 2,354 Bahamas
Monarch of the Seas 1991 2,354
 Western Caribbean, Baja Mexico
Nordic Empress 1990 
1,600

 Western Caribbean, Bermuda
Sovereign of the Seas 1988 
2,276

 Bahamas
Celebrity Cruises        
Constellation 2002 
2,034

 Southern Caribbean, Europe
Summit 2001 
2,034

 Caribbean, Alaska, Panama Canal
Infinity 2001 
2,034

 Hawaii, Alaska, Panama Canal
Millennium 2000 
2,034

 Eastern Caribbean, Europe
Mercury 1997 
1,870

 Western Caribbean, Alaska,
Coastal California/Mexican Riviera
Galaxy 1996 
1,870

 Caribbean, Canada/New England
Century 1995 
1,750

 Eastern/Western Caribbean
Zenith 1992 
1,374

 Western Caribbean, Southern Caribbean,
South America, Bermuda
Horizon 1990 
1,354

 Eastern/Western Caribbean, Panama
Canal, Bermuda


 ShipYear Ship Entered ServiceBerthsPrimary Areas of Operation
Royal Caribbean International
  Jewel of the Seas(1)20042,112Eastern/Western Caribbean, Canada/New England, Europe
  Mariner of the Seas20033,114Eastern/Western Caribbean
  Serenade of the Seas20032,112Alaska, Southern Caribbean, Panama
Canal, Hawaii
  Navigator of the Seas20023,114Eastern/Western Caribbean
  Brilliance of the Seas20022,110Caribbean, Europe, Panama Canal
  Adventure of the Seas20013,114Southern Caribbean
  Radiance of the Seas20012,110Eastern/Western Caribbean, Pacific
Northwest, Alaska, Hawaii, Panama Canal
  Explorer of the Seas20003,114Eastern/Western Caribbean
  Voyager of the Seas19993,114Eastern/Western Caribbean, Canada
  Vision of the Seas19982,000Hawaii, Alaska, Mexican Riviera,
Pacific Northwest
  Enchantment of the Seas19971,950Western Caribbean
  Rhapsody of the Seas19972,000Western Caribbean
  Grandeur of the Seas19961,950Caribbean, Bahamas,
Canada/NewEngland
  Splendour of the Seas19961,804Caribbean, Panama Canal, Europe
  Legend of the Seas19951,804Hawaii, Mexican Riviera, Panama
Canal
  Majesty of the Seas19922,354Bahamas
  Monarch of the Seas19912,354Baja Mexico
  Empress of the Seas(2)19901,600Western/Southern Caribbean,
Bermuda
  Sovereign of the Seas19882,276Bahamas
Celebrity Cruises
  Constellation20022,034Southern Caribbean, Europe,
Canada/New England
  Summit20012,034Caribbean, Alaska, Panama Canal,
Pacific Coastal
  Infinity20012,034Hawaii, Alaska, Panama Canal, South
America
  Millennium20002,034Eastern Caribbean, Europe
  Mercury19971,870Alaska, Pacific Coastal, California,
Mexican Riviera
  Galaxy19961,870Caribbean, Canada/New England,
Panama Canal, Europe
  Century19951,750Eastern/Western Caribbean
  Zenith19921,374Western/Southern Caribbean,
Bahamas, Bermuda
  Horizon19901,354Eastern/Western Caribbean, Bermuda
  Xpedition(3)2004   100Galapagos Islands
            
(1)   Jewel of the Seas is scheduled for delivery in the second quarter of 2004.
(2)   FormerlyNordic Empress.
(3)   Xpedition was built in 2001.
(1)Ship is scheduled for delivery in 2003, but is not yet in service.

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        Currently, theWe believe our combined fleetsfleet is one of Royal Caribbean International and Celebrity Cruises have an average age of approximately five years, which we believe is among the youngest of theany major cruise companies.

company. We have threetwo ships on order for the Royal Caribbean International brand. The planned berths and expected delivery dates of the ships on order are as follows:


     
Expected
ShipDelivery DateBerths
Voyager class:
Mariner of the Seas4th Quarter 20033,114
Radiance class:(1)
Serenade of the Seas3rd Quarter 20032,076
Jewel of the Seas2nd Quarter 20042,076 

ShipExpected
Delivery DateBerths

Radiance-class:  Jewel of the Seas2nd Quarter 20042,112Ultra-Voyager: (a)  Unnamed2nd Quarter 20063,600(a)   We have an option, exercisable through August 2004, for one additional Ultra-Voyager ship with delivery, subject to certain conditions, in 2007.
(1)We have options on two Radiance-class ships with delivery dates in the fourth quarters of 2005 and 2006.

        The Voyager-classRadiance-class ship is being built in Papenburg, Germany by Meyer Werft and the Ultra-Voyager ship is being built in Turku, Finland by Kvaerner-Masa Yards,Kvaerner Masa-Yards.

Seasonality

        Our revenues are seasonal based on the demand for cruises. Demand is strongest for cruises during the summer months.

Passengers and Capacity

        Selected statistical information is shown in the following table (see Item 5.Operating and Financial Review and Prospects – Terminology, for definitions):


Year Ended December 31,
    2003  2002  2001  2000  1999 
Passengers Carried   2,990,607  2,768,475  2,438,849  2,049,902  1,704,034 
Passenger Cruise Days   20,064,702  18,112,782  15,341,570  13,019,811  11,227,196 
Available Passenger Cruise Days   19,439,238  17,334,204  15,067,605  12,475,916  10,720,950 
Occupancy Percentage   103.2% 104.5% 101.8% 104.4% 104.7%

Cruise Pricing

        Our cruise prices include a wide variety of activities and amenities, including meals and entertainment. Prices vary depending on the destination, cruise length, cabin category selected and the Radiance-class shipstime of year the voyage takes place. Additionally, we offer air transportation as a service for passengers that elect to utilize the air program. Our air transportation is available from cities in the United States, Canada and Europe and prices vary by gateway and destination. On average, air tickets are being built in Papenburg, Germany by Meyer Werft.sold to passengers at prices close to cost.

ShipboardOnboard Activities and Shipboard Revenues

        Both brands offer modern fleets with a wide array of shipboardonboard activities, services and amenities including swimming pools, sun decks, spa facilities (which include massage and exercise facilities), beauty salons, ice skating rinks, rock climbing walls, gaming facilities, lounges, bars, Las Vegas-style entertainment, retail shopping, libraries, cinemas, conference centers and shore excursions at each port of call. In addition, the Royal Caribbean International brand offers rock climbing walls and the Voyager-class ships offer additional activities including ice skating rinks and in-line skating. While many shipboardonboard activities are included in the base price of a cruise, additional revenues are realized from, among other things, gaming, the sale of alcoholic and other beverages, gift shop items, shore excursions, photography and spa services. In addition, both Royal Caribbean International and Celebrity Cruises offer a catalogue gift service to provide travel agents and others with the opportunity to purchase “bon voyage” gifts.

Seasonality13

     Our revenues are seasonal based on the demand for cruises. Demand is strongest for cruises during the summer months.

Guests and Capacity

     The following table sets forth the aggregate number of guests carried and the number of guests carried expressed as a percentage of the capacity of our ships:

                     
  Year Ended December 31,
  
  2002 2001 2000 1999 1998
  
 
 
 
 
Number of Guests Carried  2,768,475   2,438,849   2,049,902   1,704,034   1,841,152 
Occupancy Percentage  104.5%  101.8%  104.4%  104.7%  105.2%


        In accordanceconjunction with our cruise industry practice, capacity is determined based on double occupancy per cabin even though many cabins can accommodate three or more guests; accordingly, a percentage in excess of 100% indicates that more than two guests occupied some cabins.

Cruise Pricing

     Our cruise prices include a wide variety of activities and amenities, including meals and entertainment. Prices vary depending on the destination, cruise length, cabin category selected and the time of year the voyage takes place. Additionally,vacations, we offer air transportation as a service for guests that elect to utilize the air program. Our air transportation is available from cities in the United States, Canadapre and Europe and prices vary by gateway and destination. On average, air tickets are sold to passengerspost tours, which generally include vacations at prices close to cost. Furthermore,nearby attractions or other destinations. In addition, we sell cruise vacation protection coverage which provides guestspassengers with coverage for trip cancellation, medical protection and baggage protection.

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Suppliers

        Our largest purchases are for travel agency commissions,services, food and related items, port facility utilization, airfare,fuel, air, advertising, fuel, hotel supplies and products related to guestpassenger accommodations. Most of the supplies we require are available from numerous sources at competitive prices. None of our suppliers provided goods or services in excess of 10% of our total revenues in 2002.2003.

Insurance

        We maintain an aggregate of approximately $12 billion of insurance on the hull and machinery of our ships, which includes additional coverage for disbursements, earnings and increased value, which are maintained in amounts related to the value of each ship. The coverage for each of the hull policies is maintained with syndicates of insurance underwriters from the British, Scandinavian, French, United States and other international insurance markets.

        We maintain liability protection and indemnity insurance on each of our ships through either Assuranceforeningen GARD or the United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited.

        We maintain war risk insurance, including terrorist risks, on each ship through a Norwegian war risk insurance organization in an amount equal to the total insured hull value. This coverage includes physical damage to the ship for which coverage would be excluded by reason of war exclusion clauses in the hull policies. Protection and indemnity war risk coverage is also maintained for risks that would be excluded by the rules of the indemnity insurance organizations, subject to certain limitations. Consistent with most marine war risk policies, under the terms of our war risk insurance coverage, underwriters can give seven days notice to the insured that the policy can be canceled and reinstated at higher premium rates.

        We also maintain a form of business interruption insurance with our insurance underwriters in the event that a ship is unable to operate during scheduled cruise periods due to loss or damage to the ship arising from certain covered events which last more than a specified period of time. Insurance coverage is also maintained for certain events which would result in a delayed delivery of our contracted new ships, which we normally place starting approximately two years prior to the scheduled delivery dates.

        Insurance coverage for shoreside property, shipboardonboard consumables and inventory, and general liability risks are maintained with insurance underwriters in the United States and the United Kingdom. We have decided not to carry business interruption insurance for shoreside operations based on our evaluation of the risks involved and our protective measures already in place, as compared to the premium expense.

        All insurance coverage is subject to certain limitations, exclusions and deductible levels. In addition, in certain circumstances, we co-insure a portion of these risks. Premiums charged by insurance carriers, including carriers in the maritime insurance industry, increase or decrease from time to time and tend to be cyclical in nature. These cycles are impacted both by our own loss experience and by losses incurred in direct and reinsurance markets. We historically have been able to obtain insurance coverage in amounts and at premiums we have deemed to be commercially acceptable. No assurance can be given that affordable and secure insurance markets will be available to us in the future, particularly for war risk insurance.

        The Athens Convention relating to the Carriage of Passengers and their Luggage by Sea (1974) and the 1976 Protocol to the Athens Convention are generally applicable to passenger ships. The United States has not ratified the Athens Convention; however, the 1976 Athens Convention Protocol may be contractually enforced for cruises that do not call at a United States port if the ship flies the flag of a country that has ratified the 1976 Protocol or for cruises which begin or end in such a country. The International Maritime Organization Diplomatic Conference agreed upon a new Protocol to


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the Athens Convention on November 1, 2002. The 2002 Protocol, which has not yet been ratified, substantially increases the level of compulsory insurance which must be maintained by passenger ship operators. No assurance can be given as to if or when the 2002 Protocol will be ratified. If ratified, no assurance can be given that affordable and secure insurance markets will be available to provide the level of coverage required under the 2002 Protocol.

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Trademarks

        We own a number of registered trademarks related to the Royal Caribbean International and Celebrity Cruises brands, including the name “Royal Caribbean” and its crown and anchor logo, the name “Celebrity Cruises” and its “X” logo, and the names of our cruise ships. We believe such trademarks are widely recognized throughout the world and have considerable value.

Regulation

        Our ships are regulated by various international, national, state and local laws, regulations and treaties in force in the jurisdictions in which they operate. In addition, all of our ships are registered in either the Bahamas, Norway or Norway.Ecuador. Each ship is subject to regulations issued by its country of registry, including regulations issued pursuant to international treaties governing the safety of the ship and its guests.passengers. Each country of registry conducts periodic inspections to verify compliance with these regulations. Ships operating out of United States ports are subject to inspection by the United States Coast Guard for compliance with international treaties and by the United States Public Health Service for sanitary conditions. Our ships are also subject to similar inspections pursuant to the laws and regulations of various other countries our ships visit.

        Our ships are required to comply with international safety standards defined in the Safety of Life at Sea Convention. The Safety of Life at Sea Convention standards are revised from time to time, and the most recent modifications are being phased in through 2010.2010, including the new International Ship & Port Facility Security code and the Maritime Transportation Security Act of 2002, each of which will be effective starting July 1, 2004. We do not anticipate that we will be required to make any material expenditures in order to comply with these rules.

     In 1993, the Safety of Life at Sea Convention was amended to adopt the International Safety Management Code. The International Safety Management Code provides an international standard for the safe management and operation of ships and for pollution prevention. The International Safety Management Code became mandatory for passenger ship operators such as ourselves on July 1, 1998.

        We are also subject to various United States and international laws and regulations relating to environmental protection. Under such laws and regulations, we are prohibited from, among other things, discharging certain materials, such as petrochemicals and plastics, into the waterways.

        We are required to obtain certificates from the United States Federal Maritime Commission relating to our ability to meet liability in cases of nonperformancenon-performance of obligations to guestspassengers, as well as casualty and personal injury. Pursuant to the United States Federal Maritime Commission regulations, we arrange through our insurers for the provision of guarantees aggregating $45 million for our ship-operating companies as a condition to obtaining the required certificates. The United States Federal Maritime Commission recentlyhas proposed various revisions to the financial responsibility regulations which could require us to significantly increase the amount of our bonds and accordingly increase our costs of compliance.

        We are also required to establish financial responsibility by the United Kingdom and other jurisdictions forto meet liability in the event of non-performance of our obligations to passengers from these jurisdictions. In the United Kingdom, we are currently required by the United Kingdom Passenger Shipping Association and United Kingdom Civil Aviation Authority to provide performance bonds totaling approximately £24 million.

        We are required to obtain certificates from the United States Coast Guard relating to our ability to meet liability in cases of water pollution. Pursuant to United States Coast Guard regulations, we arrange through our insurers for the provision of guarantees aggregating $287.5$287 million as a condition to obtaining the required certificates.

        We hold a permit from the National Park of Galapagos granting the Celebrity cruise ship, Xpedition, the right to conduct cruises in the Galapagos Islands. The permit is subject to renewal by the National Park of Galapagos on an annual basis.

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        We believe that we are in material compliance with all the regulations applicable to our ships and that we have all licenses necessary to conduct our business. From time to time, various other regulatory and legislative changes have been or may in the future be proposed that could have an effect on the cruise industry in general.

Taxation of the Company

        The following discussion of the application of the United States federal income tax laws to us and to our subsidiaries is based on the current provisions of the United States Internal Revenue Code of 1986, as amended; proposed, temporary and final Treasury Department regulations; administrative rulings; and court decisions. All of the foregoing is subject to change, and any change thereto could affect the accuracy of this discussion.

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Application of Section 883 of the Internal Revenue Code

        We and our subsidiary, Celebrity Cruises Inc., the operator of Celebrity Cruises, are foreign corporations engaged in a trade or business in the United States, and our ship-owning subsidiaries are foreign corporations that, in many cases, depending upon the itineraries of their ships, receive income from sources within the United States. Under Section 883 of the Internal Revenue Code, certain foreign corporations are not subject to United States income or branch profits tax on United States source income derived from or incidental to the international operation of a ship or ships, including income from the leasing of such ships. In 2003, final regulations were issued under Section 883, which narrowed the scope of activities that 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 earned from sources within the United States, such income will be subject to United States taxation. These regulations will be effective for our 2004 fiscal year.

        A foreign corporation will qualify for the benefits of Section 883 of the Internal Revenue Code if in relevant part (i) the foreign country in which the foreign corporation is organized grants an equivalent exemption to corporations organized in the United States and (ii) more than 50% of the value of its capital stock is owned, directly or indirectly, by individuals who are residents of a foreign country that grants such an equivalent exemption to corporations organized in the United States or the stock of the corporation (or the direct or indirect corporate parent thereof) is “primarily and regularly traded on an established securities market” in the United States or another qualifying country, such as Norway.

        In the opinion of our United States tax counsel, Drinker Biddle & Reath LLP, and based on the representations and assumptions set forth therein, we, Celebrity Cruises Inc. and our ship-owning subsidiaries qualify for the benefits of Section 883 because we and each of those subsidiaries are incorporated in a qualifying jurisdiction and our common stock is primarily and regularly traded on an established securities market in the United States or Norway. In 2002, the Internal Revenue Service proposedThe final regulations issued under Section 883 that are consistent with this opinion. In addition, we believe that substantially all of our income is derived from or incidental to the international operation of a ship or ships. Any United States source income not so derived will be subject to United States taxation, but we believe that such income is not a material portion of our total income.

        Under certain circumstances, changes in our stock ownership could cause our common stock not to be “regularly traded on an established securities market” within the meaning of the proposed regulations under Section 883. To substantially reduce any such risk, in May 2000, our Articles of Incorporation waswere amended to prohibit any person, other than our two existing largest shareholders, from owning, as determined for purposes of Section 883(c)(3) of the Internal Revenue Code and the regulations promulgated thereunder, shares that give such person in the aggregate more than 4.9% of the relevant class or classes of our shares. Under Liberian law, this amendment may not be enforceable with respect to shares of common stock that were voted against the amendment or that were recorded as abstaining from the vote.

        There canAlso, it should be no assurancenoted that the opinions of our United States tax counsel set forth above will be accepted by the Internal Revenue Service or the courts. Furthermore, Section 883 has been the subject of legislative modifications in past years that have had the effect of limiting its availability to certain taxpayers, and there can be no assurance that future legislation or certain changes in our stock ownership will not preclude us from obtaining the benefits of Section 883. At this time, however, there is no known limiting legislation pending before the United States Congress.

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        We believe that the bulk of our income and the income of our subsidiaries is derived from or incidental to the international operation of a ship or ships and therefore it is exempt from taxation under Section 883. (See Item 5. Operating and Financial Review and Prospects – Outlook.)

Taxation in the Absence of an Exemption under Section 883 of the Internal Revenue Code

        In the event that we, Celebrity Cruises Inc. or our ship-owning subsidiaries were to fail to meet the requirements of Section 883 of the Internal Revenue Code, or if such provision was repealed, then, as explained below, such companies would be subject to United States income taxation on only a portion of their income.

        SinceBecause we and Celebrity Cruises Inc. conduct a trade or business in the United States, we and Celebrity Cruises Inc. would be taxable at regular corporate rates on our separate companyCompany taxable income (i.e., without regard to the income of our ship-owning subsidiaries), from United States sources, which includes 100% of income, if any, from transportation which begins and ends in the United States (not including possessions of the United States), 50% of income from transportation that either begins or ends in the United States, and no income from transportation that neither begins nor ends in the United States. The legislative history of the transportation income source rules suggests that a cruise that begins and ends in a United States port, but that calls on more than one foreign port, will derive United States source income only from the first and last legs of such cruise. Because there are no regulations or other Internal Revenue Service interpretations of these rules, the applicability of the transportation income source rules in the aforesaid favorable manner is not free from doubt. In addition, if any of our earnings and profits effectively connected with our United States trade or business were withdrawn or were deemed to have been withdrawn from our United States trade or business, such withdrawn amount would be subject to a “branch profits” tax at the rate of 30%. The amount of such earnings and profits would be equal to the aforesaid United States source income, with certain generally minor adjustments, less income taxes. Finally, we and Celebrity Cruises Inc. would also be potentially subject to tax on portions of certain interest paid by us at rates of up to 30%.

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        If Section 883 of the Internal Revenue Code was not available to a ship-owning subsidiary, such subsidiary would be subject to a special 4% tax on its United States source gross transportation income, if any, each year because its income is derived from the leasing of a ship and because it does not have a fixed place of business in the United States. Such United States source gross transportation income may be determined under any reasonable method, including ratios based upon (i) days traveling directly to or from United States ports to total days traveling; or (ii) the lessee’s United States source gross income from the ship (as determined under the source rules discussed in the preceding paragraph, and subject to the assumptions and qualifications set forth therein) to the lessee’s total gross income from the ship.

Organizational Structure

        We hold directly or indirectly all of the voting stock of the following significant subsidiaries:


 Jurisdiction of
Name
Name
Incorporation
Celebrity Cruise Lines Inc.Cayman Islands
Celebrity Cruises Holdings Inc.Liberia
Cruise Mar Shipping Holdings Ltd.Liberia
Cruise Mar Investments Inc.Liberia
Celebrity Cruises Inc.Liberia

Cruise Mar Shipping Holdings Ltd.Liberia
Cruise Mar Investments Inc.Liberia
Celebrity Cruises Inc.Liberia

Property Plants and Equipment

        Information about our cruise ships, including their size and primary areas of operation, may be found within theFleet ExpansionandCruise Ships and Itinerariessections withinBusiness Overview,in Item 4. Information regarding our cruise ships under construction, estimated expenditures and financing may be found within theFleet Expansion, Future Capital CommitmentsandFunding Sources sections of Item 5. Information about encumbrances on ships may be found within theMaterial Contractssection of Item 10.

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        Our principal executive office and shoreside operations are located at the Port of Miami, Florida where we lease three office buildings totaling approximately 359,000 square feet from Miami-Dade County, Florida under long-term leases with initial terms expiring in various years onin and after 2011.

        We also lease spacean office building in Wichita, Kansas totaling approximately 89,000 square feet which is used primarily as an additional reservation center. We lease an office building in Miramar, Florida totaling approximately 128,000 square feet. The facility is used primarily as additional office space and it is approximately 55%66% occupied. We lease space in Wichita, Kansas totaling approximately 89,000 square feet which is used primarily as an additional reservation center.

        Royal Caribbean International operates two private destinations: (i) an island we own in the Bahamas which we call CocoCay; and (ii) Labadee, a secluded peninsula which we lease and is located on the north coast of Haiti. Our ships have recently suspended calling on Labadee due to political unrest in Haiti.

        We believe that our facilities are adequate for our current needs. We evaluate our needs periodically and obtain additional facilities when considered necessary.

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Item 5.Operating and Financial Review and Prospects

Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations

        Certain statements under this caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this document constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not guarantee future performance and may involve risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements. Examples of these risks, uncertainties and other factors include, but are not limited to:

•general economic and business conditions,

•vacation industry competition, including cruise industry competition,

•changes in vacation industry capacity, including cruise capacity,

•the impact of tax laws and regulations affecting our business or our principal shareholders,

•the impact of changes in other laws and regulations affecting our business,

•the impact of pending or threatened litigation,

•the delivery of scheduled new ships,

•emergency ship repairs,

•incidents involving cruise ships, at sea,

•reduced consumer demand for cruises as a result of any number of reasons, including armed conflict, terrorist attacks, geo-political and economic uncertainties or the unavailability of air service,

•changes in our stock price, interest rates or oil prices, and
•weather.

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weather.


        The above examples are not exhaustive and new risks emerge from time to time. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

General

Summary

     We reported revenues, operating income, net income and earnings per share as shown in the following table:

             
  Year Ended December 31,
  
(in thousands, except per share data) 2002 2001 2000
 
 
 
Revenues $3,434,347  $3,145,250  $2,865,846 
Operating Income  550,975   455,605   569,540 
Net Income  351,284   254,457   445,363 
Basic Earnings Per Share $1.82  $1.32  $2.34 
Diluted Earnings Per Share $1.79  $1.32  $2.31 

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     Unaudited selected statistical information as shown in the following table:

             
  Year Ended December 31,
  
  2002 2001 2000
  
 
 
Guests Carried  2,768,475   2,438,849   2,049,902 
Guest Cruise Days  18,112,782   15,341,570   13,019,811 
Occupancy Percentage  104.5%  101.8%  104.4%

     Net income increased 38.1% to $351.3 million or $1.79 per share on a diluted basis in 2002 compared to $254.5 million or $1.32 per share in 2001. The increase in net income was primarily the result of an increase in capacity associated with the addition ofInfinity, Radiance of the Seas, SummitandAdventure of the Seasin 2001 andConstellation, Brilliance of the SeasandNavigator of the Seasin 2002.

     Net income for 2002 included net proceeds of $33.0 million received in connection with the termination of our merger agreement with P&O Princess Cruises plc (“P&O Princess”) and a charge of approximately $20.0 million recorded in connection with a litigation settlement. (See Note 12 — Commitments and Contingencies.) Net income for 2001 was adversely impacted by approximately $47.7 million due to lost revenues and extra costs directly associated with passengers not being able to reach their departure ports during the weeks following the terrorist attacks of September 11, 2001 and costs associated with business decisions taken in the aftermath of the attacks.

     We have canceled a total of five weeks of sailings in the first quarter of 2003 due to the unanticipated drydock of one ship, which we estimate will negatively impact net income by approximately $0.06 per share.

Termination of Proposed Combination with P&O Princess

     In October 2002, our proposed combination with 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. 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.

Fleet Expansion

     Our current fleet expansion program encompasses three distinct ship designs known as the Voyager class, Millennium class and Radiance class. Since 1999, we have taken delivery of four Voyager, four Millennium and two Radiance-class ships. We currently operate 25 ships with 53,042 berths.

     We have three ships on order for the Royal Caribbean International brand. The planned berths and expected delivery dates of the ships on order are as follows:

Expected
ShipDelivery DateBerths
Voyager class:
Mariner of the Seas4th Quarter 20033,114
Radiance class:(1)
Serenade of the Seas3rd Quarter 20032,076
Jewel of the Seas2nd Quarter 20042,076

(1)We have options on two Radiance-class ships with delivery dates in the fourth quarters of 2005 and 2006.

We believe the Voyager-class ships are the largest and the most innovative passenger cruise ships ever built. The Radiance-class ships are a progression from Royal Caribbean International’s Vision-class ships.

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Critical Accounting Policies

        Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates.States. (See Note 1 – 1. General and Note 2 – 2. Summary of Significant Accounting Policies.) Certain of our accounting policies are deemed “critical,” as they require management’s highest degree of judgment, estimates and assumptions. We have discussed these accounting estimates and disclosures with the audit committee of our board of directors. A discussion of what weWe believe to be our most critical accounting policies are as follows:

Ship Accounting

        Our ships represent our most significant assets and we state them at cost less accumulated depreciation andor amortization. Depreciation of ships, which includes amortization of ships under capital leases, is computed net of a 15% projected residual value using the straight-line method over estimated service lives of primarily 30 years. 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. 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. Repairs and maintenance activities are charged to expense as incurred.

        Our depreciationservice life and amortization assumptionsresidual value estimates take into consideration the impact of anticipated technological changes, long-term cruise and vacation market conditions and historical useful lives of similarly-built ships. In addition, we take into consideration our estimates of the average useful lives of the ships’ major component systems, such as hull, superstructure, main electric, engines and cabins. Given the very large and complex nature of our ships, our accounting estimates related to ships and determinations of ship improvement costs to be capitalized require considerable judgment and are inherently uncertain. ShouldWe do not have cost segregation studies performed to specifically componentize our ship systems; therefore, we estimate the costs of component systems based principally on general and technical information known about major ship component systems and their lives and our knowledge of the cruise industry. We do not identify and track depreciation by ship component systems, but instead utilize these estimates to determine the net cost basis of assets replaced or refurbished.

        We believe we have made reasonable estimates for ship accounting purposes. However, should certain factors or circumstances cause us to revise our estimateestimates of ship service lives or projected residual values, depreciation expense could be materially lowerhigher or higher.lower. If circumstances cause us to change our assumptions in making determinations as to whether ship improvements should be capitalized, the amounts we expense each year as repairs and maintenance costs could increase, partially offset by a decrease in depreciation expense. If we had reduced our estimated average 30-year ship service life by one year, depreciation expense for 2003 would have increased by approximately $10 million. Further, if our ships were estimated to have no residual value, depreciation expense for 2003 would have increased by approximately $60 million.

Valuation of Long-Lived Assets and Goodwill

        We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of our asset based on our estimate of its undiscounted future cash flows. If these estimated future cash flows arewere less than the carrying value of the asset, an impairment charge iswould be recognized for the difference between the asset’s estimated fair value and its carrying value. In addition, goodwill is reviewed annually, or earlier, if there is an indication of impairment.

        The determination of fair value is based on quoted market prices in active markets, if available. Such markets are often not available for used cruise ships. Accordingly, we also base fair value on independent appraisals, sales price negotiations and projected future cash flows discounted at a rate determined by management to be commensurate with our business risk. The estimation of fair value utilizing discounted forecasted cash flows includes numerous uncertainties which require our significant judgment when making assumptions of revenues, operating costs, marketing, selling and administrative expenses, interest rates, ship additions and retirements, cruise industry competition and general economic and business conditions, among other factors.

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        Goodwill is reviewed annually or whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be fully recoverable. The impairment review consists of comparing the fair value of goodwill to the carrying value. If the carrying value exceeds the fair value, an impairment charge would be recognized for the difference between the carrying value and the fair value. We use the market capitalization method in determining the fair value of our goodwill. If, under certain circumstances, this method is not representative of fair value, we use a present value of future cash flows approach.

        We believe we have made reasonable estimates and judgments in determining whether our long-lived assets and goodwill have been impaired; however, if there is a material change in the assumptions used in our determination of fair values or if there is a material change in the conditions or circumstances influencing fair value, we could be required to recognize a material impairment charge.

Contingencies –— Litigation

        On an ongoing basis, we assess the potential liabilities related to any lawsuits or claims brought against us. While it is typically very difficult to determine the timing and ultimate outcome of such actions, we use our best judgment to determine if it is probable that we will incur an expense related to the settlement or final adjudication of such matters and whether a reasonable estimation of such probable loss, if any, can be made. In assessing probable losses, we take into consideration estimates of the amount of insurance recoveries, if any. We accrue a liability when we believe a loss is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertainties related to the eventual outcome of litigation and potential insurance recoveries, it is possible that certain matters may be resolved for amounts materially different from any provisions or disclosures that we have previously made.

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Proposed Statement of Position

        On June 29, 2001, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (“AcSEC”) issued a proposed Statement of Position (“SOP”), “Accounting for Certain Costs and Activities Related to Property, Plant and Equipment.” Under the proposed SOP, we would be required to adopt a component method of accounting for our ships. Using this method, each component of a ship would be identified as an asset and depreciated over its own separate expected useful life. In addition, we would have to expense drydocking costs as incurred which differs from our current policy of accruing future drydocking costs evenly over the period to the next scheduled drydocking. Lastly, liquidated damages received from shipyards as mitigation of consequential economic costs incurred as a result of the late delivery of a new ship would have to be recorded as a reduction of the ship’s cost basis versus our current treatment of recording liquidated damages as nonoperating income.

        In late 2003, AcSEC revised the SOP, which would allow us to choose the level of componentization for our ships. The level of componentization elected could result in changes in the amount and timing of depreciation, repair and maintenance expenses and any write-offs that may be recognized on the replacement of ship components. Alternatively, the draft SOP allows us to identify each ship as a single component; however, this would require us to expense all subsequent replacements and refurbishments as incurred.

        We are uncertain as to whether the proposed SOP will be issued in its current form as it is subject to clearance by the Financial Accounting Standards Board. We have not yet analyzed the impact that this proposedthe SOP would have on our results of operationoperations or financial position, as wealthough it may be material. If implemented, the proposed SOP would be effective for the year ended December 31, 2005.

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Terminology

        Available Passenger Cruise Days represent double occupancy per cabin multiplied by the number of cruise days for the period.

        Gross Cruise Costs represent total operating expenses and marketing, selling and administrative expenses.

        Gross Yields represent total revenues per Available Passenger Cruise Day.

        Net Cruise Costs represent payroll and related, food and other operating expenses (each of which are uncertain whether,described below under the Results of Operations heading) and marketing, selling and administrative expenses.

        Net Yields represent total revenues less commissions, transportation and other, and onboard and other expenses (each of which are described below under the Results of Operations heading) per Available Passenger Cruise Day.

        Occupancy Percentage, in accordance with cruise industry practice, is calculated by dividing Passenger Cruise Days by Available Passenger Cruise Days. A percentage in excess of 100% indicates that three or in what form, it will be adopted.more passengers occupied some cabins.

        Passenger Cruise Days represent the number of passengers carried for the period multiplied by the number of days of their respective cruises.

Results of Operations

         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. In connection with this change, we have included port costs that vary with passenger head counts in the expense category attributable to passenger ticket revenues, which resulted in a change to Net Yields. All prior periods were reclassified to conform to the current year presentation.

        Our revenues consist of the following:

         Passenger ticket revenues consist of revenue recognized from the sale of passenger tickets and the sale of air transportation to our ships.

         Onboard and other revenues consist primarily of revenues from the sale of goods and/or services onboard our ships, cancellation fees, sales of vacation protection insurance and pre and post tours. Also included are revenues we receive from independent third party concessionaires that pay us a percentage of their revenues in exchange for the right to provide selected activities onboard our ships.

        Our operating expenses consist of the following:

        Commissions, transportation and other expenses consist of those costs directly associated with passenger ticket revenues, including travel agent commissions, air and other transportation expenses, port costs that vary with passenger head counts and related credit card fees.

        Onboard and other expenses consist of the direct costs associated with onboard and other revenues. These costs include the cost of products sold onboard our ships, vacation protection insurance premiums, costs associated with pre and post tours and related credit card fees. Concession revenues have minimal costs associated with them, as the costs related to these activities are incurred by the concessionaires.

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        Payroll and related expenses consist of costs for shipboard personnel, including officers, crew, hotel and administrative employees.

        Food expenses consist of food costs for both passengers and crew.

        Other operating expenses consist of operating costs such as fuel, repairs and maintenance, port costs that do not vary with passenger head counts, insurance, entertainment and all other operating costs.

        We do not allocate payroll and related costs, food costs or other operating costs to the expense categories attributable to passenger ticket revenues or onboard and other revenues since they are incurred to provide the total cruise vacation experience.

Summary

         We reported total revenues, operating income, net income and earnings per share as shown in the following table (in thousands, except per share data):


Year Ended December 31,
    2003  2002  2001 
Total Revenues  $3,784,249 $3,434,347 $3,145,250 
Operating Income   526,185  550,975  455,605 
Net Income   280,664  351,284  254,457 
Basic Earnings Per Share  $1.45 $1.82 $1.32 
Diluted Earnings Per Share  $1.42 $1.79 $1.32 


        Unaudited selected statistical information is shown in the following table:


Year Ended December 31,
    2003  2002  2001 
Passengers Carried   2,990,607  2,768,475  2,438,849 
Passenger Cruise Days   20,064,702  18,112,782  15,341,570 
Available Passenger Cruise Days   19,439,238  17,334,204  15,067,605 
Occupancy Percentage   103.2% 104.5% 101.8%


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        The following table presents operating data as a percentage of total revenues:


Year Ended December 31,
    2003  2002  2001 
Passenger ticket revenues   73.3   75.4   77.2  
Onboard and other revenues   26.7   24.6   22.8  
       Total revenues   100.0 % 100.0 % 100.0 %
Operating expenses  
     Commissions, transportation and other   18.1   19.5   23.1  
     Onboard and other   6.6   6.1   5.7  
     Payroll and related   11.3   9.2   9.0  
     Food   6.3   7.4   6.9  
    Other operating   20.6   19.3   16.8  
      Total operating expenses   62.9   61.5   61.5  
Marketing, selling and administrative expenses   13.6   12.6   14.4  
Depreciation and amortization expenses   9.6   9.9   9.6  
Operating Income   13.9   16.0   14.5  
Other Income (Expense)   (6.5)  (5.8)  (6.4) 
Net Income   7.4 % 10.2 % 8.1 %

         Several external events and factors have impacted our operating environment over the last three years. Consumer concerns regarding the terrorist attacks of September 11, 2001, the war in Iraq, the economy, Severe Acute Respiratory Syndrome (“SARS”) and noroviruses had adverse impacts on our business. As a result, we experienced lower cruise ticket prices attributed to consumer apprehension towards travel. Net income was $280.7 million or $1.42 per share on a diluted basis in 2003, compared to $351.3 million or $1.79 per share in 2002 and $254.5 million or $1.32 per share in 2001. Net income in 2002 included a charge of approximately $20.0 million recorded in connection with a litigation settlement. In 2003, we reduced the amount of the charge by approximately $5.8 million. (See Note 12. Commitments and Contingencies.) Net income in 2002 also included net proceeds of $33.0 million received in connection with the termination of our merger agreement with P&O Princess Cruises plc (“P&O Princess”). (See Note 3. Termination of Proposed Combination with P&O Princess Cruises plc.) The events of September 11, 2001 adversely affected our 2001 net income by approximately $47.7 million due to lost revenues and extra costs directly associated with passengers not being able to

              
   Year Ended December 31,
   
   2002 2001 2000
   
 
 
Revenues  100.0%  100.0%  100.0%
Expenses:            
 Operating  61.5   61.5   57.7 
 Marketing, selling and administrative  12.6   14.4   14.4 
 Depreciation and amortization  9.9   9.6   8.0 
   
   
   
 
Operating Income  16.0   14.5   19.9 
Other Income (Expense)  (5.8)  (6.4)  (4.4)
   
   
   
 
Net Income  10.2%  8.1%  15.5%
   
   
   
 

reach their departure ports during the weeks following the attacks. We incurred additional costs associated with business decisions taken in the aftermath of the attacks, including itinerary changes, charges related to office closures and severance costs due to a reduction in force.

Outlook

         On January 29, 2004, we announced that we expected Net Yields for the first quarter of 2004 to increase in the range of 5% to 7% and that Net Yields in the second quarter would increase more than in the first quarter. We now expect Net Yields for the first quarter of 2004 to be at the low end of this range. Limited visibility and prior year comparisons make forecasting Net Yields for the full year difficult. Assuming there are no external events and positive booking trends continue, we expect Net Yields for the full year 2004 to increase in the range of 5% to 7%. We utilize Net Yields for revenue management purposes and believe that it is the most relevant measure of our pricing performance. We have not provided a quantitative reconciliation of projected Gross Yields to projected Net Yields due to the significant uncertainty in projecting the costs deducted to arrive at this measure. We utilize Net Yields to manage our business on a day-to-day basis and believe it is a more relevant measure of our performance. As such, we do not believe that reconciling information is meaningful.

         Net Cruise Costs per Available Passenger Cruise Day for the full year 2004 are expected to increase approximately 1% to 2%. The increase in Net Cruise Costs is primarily attributable to increases in fuel prices, insurance expenses and port expenses (the latter associated with itinerary changes, increased occupancy levels, and other increases). Based upon year-over-year comparisons, we expect Net Cruise Costs, on an Available Passenger Cruise Day basis, to increase in the first half of the year and decrease in the second half of the year. In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Costs to be the most relevant indicator of our performance. We have not provided a quantitative reconciliation of projected Gross Cruise Costs to projected Net Cruise Costs due to the significant uncertainty in projecting the costs deducted to arrive at this measure. We utilize Net Cruise Costs to manage our business on a day-to-day basis and believe it is a more relevant measure of our performance. As such, we do not believe that reconciling information is meaningful.

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        On March 12, 2004, we announced the cancellation of a one-week sailing due to the unanticipated drydock of one ship, which we estimate will negatively impact net income by approximately $0.02 to $0.03 per share.

         Internal Revenue Code Section 883 provides an exemption from United States income taxes on certain income derived from or incidental to the international operation of ships. Final regulations under Section 883 were published on August 26, 2003. These regulations confirm that we qualify for the exemption provided by Section 883. The final regulations 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 earned from sources within the United States, such income will be subject to United States taxation. These regulations will be effective for our 2004 fiscal year. We currently estimate the application of these regulations will reduce our 2004 earnings by approximately $0.04 to $0.05 per share.

         Our zero coupon convertible notes become convertible during the first quarter of 2004 if the share price of our common stock closes above $34.27 for 20 days out of the last 30 trading days of the quarter. If the notes become convertible, we expect earnings per share for the quarter to be reduced by approximately $0.01. If the share price of our common stock closes above $34.68, $35.09 and $35.50 for 20 days out of the last 30 trading days of the second, third and fourth quarters, respectively, our zero coupon convertible notes will continue to be convertible. If the notes continue to be convertible for the remainder of the year, full year earnings per share would be reduced by approximately $0.06.

        Based on the above, we expect 2004 earnings per share to be in range of $2.10 to $2.30.

         Our Liquid Yield Option™ Notes become convertible during the second, third and fourth quarters of 2004 if the share price of our common stock closes above $46.08, $46.64 and $47.20, respectively, for 20 days out of the last 30 trading days of each quarter. If the notes become convertible, full year earnings per share would be reduced by approximately $0.02.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenues

         Passenger ticket revenues increased 7.1% to $2.8 billion in 2003 compared to $2.6 billion in 2002. The increase in passenger ticket revenues was primarily due to a 12.1% increase in capacity, partially offset by lower cruise ticket prices and occupancy levels. The increase in capacity was primarily associated with the full year effect of the additions of Constellation, Brilliance of the Seas and Navigator of the Seas and the deliveries of Serenade of the Seas and Mariner of the Seas in 2003. The increase in capacity was partially offset by the cancellation of sailings due to the unanticipated drydock of two ships in 2003 and the transfer of Viking Serenade to Island Cruises, our joint venture with First Choice Holidays PLC, in 2002. Lower cruise ticket prices and occupancy levels were attributable to consumer apprehension towards travel prior to and during the war in Iraq and continued economic uncertainty. Occupancy in 2003 was 103.2% compared to 104.5% in 2002.

         Onboard and other revenues increased 19.5% to $1.0 billion in 2003 compared to $0.8 billion in 2002. The increase was mainly attributable to a 19.8% increase in shipboard revenues resulting primarily from an increase in capacity and the assumption of certain onboard functions previously handled by a concessionaire. Included in onboard and other revenues were concession revenues of $163.0 million and $162.0 million in 2003 and 2002, respectively.

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         Gross Yields and Net Yields for 2003 decreased 1.7% and 0.6%, respectively, compared to 2002, primarily due to lower cruise ticket prices and occupancy levels.

Expenses

         Operating expenses increased 12.7% to $2.4 billion in 2003 compared to $2.1 billion in 2002. The increase was primarily due to costs associated with an increase in capacity, the assumption of certain onboard functions previously handled by a concessionaire, fuel costs and the Brilliance of the Seas lease. The change in the concession arrangement resulted in higher payroll and related expenses and onboard and other expenses, partially offset by a decrease in food costs. Fuel costs as a percentage of total revenues were 5.2% and 4.5% for 2003 and 2002, respectively. Included in other operating expenses in 2002 was a charge of $20.0 million recorded in connection with a litigation settlement. In 2003, we reduced the amount of the charge by approximately $5.8 million based on the actual number of claims filed in these actions. (See Note 12. Commitments and Contingencies.) Operating expenses per Available Passenger Cruise Day increased 0.5% in 2003 compared to 2002.

         Marketing, selling and administrative expenses increased 19.3% to $514.3 million in 2003 compared to $431.1 million in 2002. The increase in 2003 was primarily attributable to new initiatives associated with the Celebrity Cruises marketing campaign and a return to more normalized spending levels. The year 2002 reflected lower spending levels as a result of business decisions taken subsequent to the events of September 11, 2001. Marketing, selling and administrative expenses as a percentage of total revenues were 13.6% and 12.6% in 2003 and 2002, respectively. On a per Available Passenger Cruise Day basis, marketing, selling and administrative expenses in 2003 increased 6.4% from 2002.

         Net Cruise Costs per Available Passenger Cruise Day increased 4.9% in 2003 compared to 2002. The increase in 2003 was primarily attributed to higher payroll and related expenses, fuel costs, Brilliance of the Seas lease payments, marketing costs associated with the Celebrity Cruises marketing campaign and a return to more normalized spending levels, partially offset by the reduction in the litigation settlement charge and a decrease in food costs.

         Depreciation and amortization expenses increased 7.0% to $362.7 million in 2003 from $339.1 million in 2002. The increase was primarily due to incremental depreciation associated with the addition of new ships.

Other Income (Expense)

         Gross interest expense decreased to $284.3 million in 2003 from $290.3 million in 2002. The decrease was primarily attributable to lower interest rates. Capitalized interest decreased to $15.9 million in 2003 from $23.4 million in 2002 due to a lower average level of investment in ships under construction and lower interest rates.

         Included in other income (expense) in 2002 was $33.0 million of net proceeds received in connection with the termination of the P&O Princess merger agreement and $12.3 million of compensation from shipyards related to the late delivery of ships.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001


Revenues

         RevenuesPassenger ticket revenues increased 9.2%6.7% to $3.4$2.6 billion from $3.1compared to $2.4 billion in 2001. The increase in passenger ticket revenues was primarily due to a 15.0% increase in capacity, partially offset by a 5.1% decline in gross revenue per available passengerlower percentage of passengers who chose to book their air passage through us and lower cruise day.ticket prices. The increase in capacity was associated with the full year effect of the additions ofInfinity, Radiance of the Seas,,SummitandAdventure of the Seasduring 2001, and the deliveries of Constellation, Brilliance of the SeasandNavigator of the Seasin 2002,2002. The increase in capacity was partially offset by the transfer ofViking Serenadeto Island Cruises, our joint venture with First Choice Holidays PLC. The declinePLC in gross revenue per available passenger cruise day was primarily associated with a lower percentage of guests who chose to book their air passage through us, lower2002. Lower cruise ticket prices followingwere attributed to the events of September 11, 2001, a general softness in the United States economy and an increase in industry capacity. Net revenue per available passenger cruise day (“net yields”) for 2002 declined 0.7% from 200l. Net revenue represents gross revenues less costs of air transportation, travel agent commissions and other direct costs of sales. Occupancy for 2002 was 104.5% compared to 101.8% in 2001.

     Each year the cruise industry generally experiences25


         Onboard and other revenues increased 17.7% to $0.8 billion in 2002 compared to $0.7 billion in 2001. The increase was mainly attributable to a period of increased bookings, referred to as the “wave period,” that begins20.7% increase in early January and typically extends through February. In recent years, there has been a trend towards bookings closer-in to the sail dates. On January 30, 2003, we noted that this trend has reduced the importance of the wave period as an indicator of full year booking patterns while making it even more relevant for first quarter bookings. We also noted that bookings for the 2003 wave period were slower than we had anticipated, especially for sailings earlier in the year. We believe this can be attributed to uncertainty about the conflict in Iraq coupled with a weaker economy and the impact of last December’s publicity concerning stomach flu. While wave period bookings were lower than 2002, we had very strong bookings for 2003 sailings in late 2002 and we did not have to replace bookings as we did in late 2001 and early 2002 to make up for the bookings lost in the aftermath of September 11, 2001. As a result, we expected to achieveshipboard revenues resulting primarily from an increase in net yieldscapacity. Included in onboard and other revenues were concession revenues of $162.0 million and $131.6 million in 2002 and 2001, respectively.

        Gross Yields and Net Yields for 2002 decreased 5.1% and 0.7%, respectively, compared to 200l, primarily due to lower cruise ticket prices. In addition, the first quarterdecline in Gross Yields was also due to a lower percentage of 2003 in the range of 2%passengers who chose to 4%.

     Since then, bookings have become even softer and the war in Iraq makes it even more difficult to make predictions. Nevertheless, the Company still expects net yields for the first quarter to increase in the range of 2% to 4%. The Company also expects that net yields in the second quarter will be below last year’s level.

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book their air passage through us.

Expenses

         Operating expenses increased 9.2% to $2.1 billion in 2002 compared to $1.9 billion in 2001. Included in other operating expenses in 2002 iswas a charge of $20.0 million recorded in connection with a litigation settlement. (See Note 12 - 12. Commitments and Contingencies.Contingencies.) Operating costsexpenses per available passenger cruise dayAvailable Passenger Cruise Day in 2002 declineddecreased 5.0% fromcompared to 2001. The decline on a per available passenger cruise dayAvailable Passenger Cruise Day basis was associated with fewer guestspassengers purchasing air passage through us and lower commissions resulting from reduced cruise ticket prices.

         Marketing, selling and administrative expenses decreased 5.1% to $431.1 million in 2002 compared to $454.1 million in 2001. Marketing, selling and administrative expenses as a percentage of revenues were 12.6% and 14.4% in 2002 and 2001, respectively. Included in 2001 were charges associated with business decisions taken subsequent to the events of September 11, 2001 involving itinerary changes, office closures and severance costs related to a reduction in force. On a per available passenger cruise dayAvailable Passenger Cruise Day basis, marketing, selling and administrative expenses in 2002 decreased 17.5% from 2001 primarily due to economies of scale and cost reduction initiatives.

     Operating and marketing, selling and administrative expenses, on a        Net Cruise Costs per available passenger cruise day basis, are expectedAvailable Passenger Cruise Day decreased 2.2% in 2002 compared to increase 6%2001. The decrease in 2002 was primarily due to 8% in 2003 attributable in partcost reduction initiatives subsequent to increases in fuel costs, changes in our concession arrangement for the Celebrity brand food service, the full year impactevents of the operating lease forBrilliance of the Seas, and higher insurance and security costs.September 11, 2001.

         Depreciation and amortization expenses increased 12.6% to $339.1 million in 2002 from $301.2 million in 2001. The increase was primarily due to incremental depreciation associated with the addition of new ships, partially offset by the elimination of $10.4 million of goodwill amortization in 2002. (See Note 2 - 2. Summary of Significant Accounting Policies.)

Other Income (Expense)

        Gross interest expense, excluding capitalized interest, was $290.3 million in 2002, essentially unchanged from 2001. The increase in the average debt level associated with our fleet expansion program was offset by a decrease in interest rates. Capitalized interest decreased to $23.4 million in 2002 from $37.0 million in 2001 due to a lower average level of investment in ships under construction and lower interest rates.

         Included in Otherother income (expense) in 2002 was $33.0 million of net proceeds received in connection with the termination of the P&O Princess merger agreement. Also included in Otherother income (expense) in 2002 and 2001 were $20.3 million and $19.4 million, respectively, of dividend income from our investment in convertible preferred stock of First Choice Holidays PLC as well aswas $12.3 million and $7.2 million, respectively, of compensation from shipyards related to the late delivery of ships, partially offset by $6.6 million and $1.6 million, respectively, of losses from affiliated operations as well as other miscellaneous items.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenues

     Revenues increased 9.7% to $3.1 billion from $2.9 billion in 2000. The increase in revenues was primarily due to a 20.8% increase in capacity, partially offset by a 9.1% decline in gross revenue per available passenger cruise day. The increase in capacity was primarily due to the addition ofMillenniumandExplorer of the Seasin 2000, andInfinity, Radiance of the Seas, SummitandAdventure of the Seasin 2001. The increase in new capacity was partially offset by the cancellation of 14 weeks of sailings due to ship incidents and the events of September 11, 2001. The decline in gross revenue per available passenger cruise day was primarily attributed to the events related to September 11, 2001, a general softness in the United States economy and a significant growth of our fleet capacity. Net yields for 2001 declined 9.1% from the prior year. Occupancy for 2001 was 101.8% compared to 104.4% in 2000.

Expenses

     Operating expenses increased 17.1% to $1.9 billion in 2001 compared to $1.7 billion for the same period in 2000. The increase is primarily due to additional costs associated with increased capacity.

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     Marketing, selling and administrative expenses increased 10.0% to $454.1 million in 2001 from $412.8 million in 2000. On a per available passenger cruise day basis, marketing, selling and administrative expenses decreased 8.9% primarily due to economies of scale and cost containment efforts, partially offset by business decisions taken subsequent to the events of September 11, 2001 involving itinerary changes, office closures and severance costs related to a reduction in force. Marketing, selling and administrative expenses as a percentage of revenues were 14.4% for 2001 and 2000.

     Cost savings initiatives from 2000 and 2001 contributed to a 4.5% reduction in operating costs and marketing, selling and administrative expenses on a per available passenger cruise day basis, excluding fuel costs, in 2001 compared to 2000.

     Depreciation and amortization increased 30.4% to $301.2 million in 2001 from $231.0 million in 2000. The increase is primarily due to incremental depreciation associated with the addition of new ships.

Other Income (Expense)

     Gross interest expense, excluding capitalized interest, increased to $290.2 million in 2001 compared to $198.5 million in 2000. The increase is primarily due to an increase in the average debt level associated with our fleet expansion program, partially offset by a reduction in our weighted-average interest rate. Capitalized interest decreased from $44.2 million in 2000 to $37.0 million in 2001 due to a lower average level of investment in ships under construction and lower interest rates.

     Included in Other income (expense) in 2001 and 2000 is $19.4 million and $9.2 million, respectively, of dividend income from our investment in convertible preferred stock of First Choice Holidays PLC and $7.2 million and $10.2 million in 2001 and 2000, respectively, of compensation from a shipyard related to the late delivery of ships.

Liquidity and Capital Resources

Sources and Uses of Cash

        Net cash provided by operating activities was $857.8 million in 2003 compared to $870.5 million in 2002 compared toand $633.7 million in 2001 and $703.3 million in 2000.2001. The change in each year was primarily due to the timing of cash receipts related to customer deposits and fluctuations in net income.

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        During the year ended December 31, 2002,2003, our capital expenditures were approximately $1.0 billion compared to approximately $1.0 billion in 2002 and $2.1 billion in 2001 and $1.3 billion in 2000. The largest portion of capital2001. Capital expenditures were primarily related to the deliveries ofSerenade of the Seas andMariner of the Seas in 2003;ConstellationandNavigator of the Seasin 2002; andInfinity, Radiance of the Seas, SummitandAdventure of the Seasin 2001; andMillennium andExplorer of the Seasin 2000,2001, as well as progress payments for ships under construction in all years.

         Capitalized interest decreased to $15.9 million in 2003 from $23.4 million in 2002 fromand $37.0 million in 2001 and $44.2 million in 2000 due to a lower average level of investment in ships under construction and lower interest rates.

        In July 2002, we financed the addition ofBrilliance of the Seasto our fleet by novating our original ship building contract and entering 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. (See Note 12. Commitments and Contingencies.)

        During 2003, we received net cash proceeds of $0.6 billion from the issuance of senior unsecured notes due through 2013. During 2002, we obtained financing of $0.3 billion related to the acquisition ofConstellation. InDuring 2001, we received net cash proceeds of $1.8 billion from the issuance of Senior Notes, Liquid Yield Option™ Notes, Zero Coupon Convertible Notes,senior notes, term loans, zero coupon convertible notes and drawings on our revolving credit facility as well as obtained financing of $0.3 billion related to the acquisition ofSummit.SummitDuring 2000, we received net proceeds of $1.2 billion from the issuance of term loans and drawings on our revolving credit facility. These funds were used for ship deliveries and general corporate purposes, including capital expenditures.. (See Note 6 – 6.Long-Term Debt.Debt.)

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     The Liquid Yield Option™ Notes and the Zero 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 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 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, 2002 for the Liquid Yield Option™ Notes or the Zero 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 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 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, we have a three-year, $345.8 million unsecured variable rate term loan facility available to us should the holders of the Zero Coupon Convertible Notes require us to purchase their notes on May 18, 2004.

     In July 2000, we invested approximately $300 million in convertible preferred stock issued by First Choice Holidays PLC. (See Note 5 – Other Assets.) Independently, we entered into a joint venture with First Choice Holidays PLC to launch a new cruise brand, Island Cruises. As part of the transaction, ownership ofViking Serenadewas transferred to the joint venture at a valuation of $95.4 million. The contribution ofViking Serenade represented our 50% investment in the joint venture, as well as $47.7 million in proceeds used towards the purchase price of the convertible preferred stock.

        We made principal payments totaling approximately $231.1 million, $603.3 million $45.6 million and $128.1$45.6 million under various term loans, senior notes, revolving credit facilityfacilities and capital leases during 2003, 2002 2001 and 2000,2001, respectively.

        During 2003, 2002 2001 and 2000,2001, we paid quarterly cash dividends on our common stock totaling $98.3 million, $100.1 million and $100.0 million, and $91.3 million, respectively. In April 2000, we redeemed all outstanding shares of our convertible preferred stock and dividends ceased to accrue.

Future Capital Commitments

        We paid quarterly cash dividends on our convertible preferred stock totaling $3.1 million in 2000.

Future Commitments

     We currently have threetwo ships on order designated for the Royal Caribbean International fleet. We are scheduled to take delivery of Jewel of the Seas, a Radiance-class ship, in the second quarter of 2004. In September 2003, we entered into an agreement with a shipyard to purchase an Ultra-Voyager ship scheduled for delivery in the second quarter of 2006. We have an option, exercisable through August 2004, to purchase an additional Ultra-Voyager ship for delivery, subject to certain conditions, in 2007. The option has a price of approximately 0.6 billion euros.

        With the two ships currently on order we will increase capacity of 7,266by 5,712 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.

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Contractual Obligations and Off-Balance Sheet Arrangements

        As of December 31, 2003, our contractual obligations, with initial or remaining terms in excess of one year, were as follows (in thousands):


Payments due by period
    Total  Less than 1
year		  1-3
years		  3-5
years		  More than 5
years		 
 
Long-term debt obligations (1)  $5,465,806 $292,895 $1,637,579 $1,648,315 $1,887,017 
Capital lease obligations   369,998  22,337  50,158  58,470  239,033 
Operating lease obligations (2)(3)   607,619  47,040  88,772  84,030  387,777 
Ship purchase obligations   1,152,444  481,109  671,335  —  — 
Other (4)   306,712  65,281  77,709  47,878  115,844 
 
Total  $7,902,579 $908,662 $2,525,553 $1,838,693 $2,629,671 
             
(1)The holders of our zero coupon convertible notes may require us to purchase any notes outstanding at an accreted value of $397.6 million on May 18, 2004. 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 optionsa $345.8 million loan facility due 2007 available to purchase two additional Radiance-class ships with delivery datesus to satisfy the obligation on our zero coupon convertible notes. In addition, we have our unsecured revolving credit facility due 2008 available to us to satisfy these obligations. The loan and credit facilities are included in the fourth quarters of 2005 and 2006. The options have an aggregate contract price of $0.8 billion and expire on September 19, 2003. Under the terms of the options, the shipyard has the abilitythree to terminate them upon providing us advance notice.

     We have $5.4 billion of long-term debt of which $0.1 billion is due during the 12-month period ending December 31, 2003. Included in Long-term debt are two ships financed with capital leases. (See Note 6 – Long-Term Debt.)

five years category.

(2)We are obligated under noncancelable operating leases primarily for ship, office and warehouse facilities, computer equipment and motor vehicles. As
(3)Under the Brilliance of the Seas lease agreement, we may be required to make a termination payment of approximately £ 126 million, or approximately $224 million based on the exchange rate at December 31, 2002, future minimum2003, if the lease payments under noncancelable operating leases aggregated to $413.9 million, due through 2028. is canceled at year 10. This amount is included in the more than five years category. (See Note 12. Commitments and Contingencies.)
(4)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 aggregating to $261.6 million, due through 2027. (Seeservices.

        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.

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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.

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         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.

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        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.

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        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.

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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:


NameAgePosition
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

AgePosition
Richard D. Fain (1)56 Chairman, Chief Executive Officer and Director
Jack L. Williams54 President and Chief Operating Officer, Royal Caribbean International and Celebrity Cruises
Adam M. Goldstein44 Executive Vice President, Brand Operations, Royal Caribbean International
Luis E. Leon51 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.

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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.

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        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.

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     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.

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        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.

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        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.

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        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.

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        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:


    
NameNumber of Shares Percent of
Common Stock
 
Tor B. Arneberg27,334(1)Less than 1%
Bernard W. Aronson84,334(2)Less than 1%
John D. Chandris71,000(3)Less than 1%
Richard D. Fain2,843,551(4)1.4%
Adam M. Goldstein256,458(5)Less than 1%
Arvid Grundekjoen20,000(6)Less than 1%
William L. Kimsey—(7)—
Laura Laviada71,000(8)Less than 1%
Luis E. Leon—(9)—
Gert W. Munthe6,667(10)Less than 1%
Eyal Ofer99,334(11)Less than 1%
Thomas J. Pritzker49,334(12)Less than 1%
William K. Reilly25,517(13)Less than 1%
Arne Alexander Wilhelmsen42,966,472(14)21.7%
Jack L. Williams402,001(15)Less than 1%
            
(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.

36



(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
 
 
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

(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
 
 
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%


Name Number of
Shares of
Common Stock		 Percentage
Ownership		 
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%
            
(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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33

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)
    
 
    High Low High Low
    
 
 
 
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 


NYSEOSE
Common StockCommon Stock(1)
 HighLowHighLow
Previous Five Years:    
      2003$35.00$12.42243.8989.08
      200224.3814.00210.36104.36
      200130.257.75266.0067.50
      200056.3816.13446.00152.00
      199958.8831.38450.00246.00
Previous Two Years (by quarter): 
      2003 
          Fourth Quarter35.0027.08237.43186.20
          Third Quarter32.6822.27243.89159.06
          Second Quarter23.4214.60170.16105.22
          First Quarter18.2112.42127.0089.08
      2002 
          Fourth Quarter22.4415.00165.18111.32
          Third Quarter20.5914.00156.70104.36
          Second Quarter24.3819.35203.52145.04
          First Quarter23.9516.03210.36142.32
Previous Six Months:
       February 200445.0040.34317.26277.88
       January 200442.9934.82302.01231.79
       December 200335.0029.50237.43196.41
       November 200330.4227.08217.33186.20
       October 200331.7828.28225.86198.85
       September 200332.6828.04243.89197.56
            
(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
   
 
   High Low High Low
   
 
 
 
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 


 Zero CouponLiquid Yield
Convertible NotesOption™ Notes 
 HighLowHighLow
Previous Three Years:
  2003$582.30$392.13$478.13$355.00
  2002456.58347.39408.13316.85
  2001441.56268.71416.91207.50
Previous Two Years (by quarter):
2003 
  Fourth Quarter582.30494.54478.13410.00
  Third Quarter550.65453.72458.75400.00
  Second Quarter465.53414.52428.13355.00
  First Quarter432.50392.13400.00356.25
2002 
  Fourth Quarter456.58377.87408.13339.38
  Third Quarter406.10367.26366.25329.38
  Second Quarter456.04395.87385.00361.25
  First Quarter436.10347.39377.50316.85
Previous Six Months:
  February 2004717.43654.15538.75501.25
  January 2004681.62581.52526.25475.00
  December 2003582.30517.52478.13410.00
  November 2003526.29494.54455.63440.00
  October 2003543.87510.42466.25442.50
  September 2003550.65506.51458.75412.50

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:


 20032002
 
Audit fees$632,058$   457,177
Audit related fees40,000808,778
Tax fees195,391335,326
All other fees6,684123,938
 
Total$874,133$1,725,219
 

         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, 2003By:/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


 Page
  
Page
Report of Independent Certified Public AccountantsF-2
Consolidated Statements of OperationsF-3
Consolidated Balance SheetsF-4
Consolidated Statements of Cash FlowsF-5
Consolidated Statements of Shareholders’ EquityF-6
Notes to the Consolidated Financial StatementsF-7

F-1

Report of Independent Certified Public Accountants

F-2
Consolidated Statements of OperationsF-3
Consolidated Balance SheetsF-4
Consolidated Statements of Cash FlowsF-5
Consolidated Statements of Shareholders' EquityF-6
Notes to the Consolidated Financial StatementsF-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,
 
    2003  2002  2001 
 
(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  
 
        Total revenues   3,784,249   3,434,347   3,145,250  
 
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  
 
        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  
 
    (245,521)  (199,691)  (201,148) 
 
Net Income  $280,664  $351,284  $254,457  
 
EARNINGS PER SHARE:  
  Basic  $1.45  $1.82  $1.32  
 
  Diluted  $1.42  $1.79  $1.32  
 

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  
           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  $122,544  
   Accounts payable   187,756   171,153  
   Accrued expenses and other liabilities   271,944   308,281  
   Customer deposits   729,595   567,955  
           Total current liabilities   1,504,527   1,169,933  
Long-Term Debt   5,520,572   5,322,294  
Other Long-Term Liabilities   34,746   11,610  
Commitments and Contingencies (Note 12)  
Shareholders' Equity  
   Common stock ($.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) 
          Total shareholders' equity   4,262,897   4,034,694  
   $11,322,742  $10,538,531  

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) 
 
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  
 
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  
 

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 TreasuryShareholders' 
  Stock Stock Capital Earnings (Loss) StockEquity 
  
 
 
 
 
 
 
      (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 
   
   
   
   
   
   
   
 
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 
   
   
   
   
   
   
   
 
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 
   
   
   
   
   
   
   
 
Balances at December 31, 2002 $—  $1,930  $2,053,649  $1,982,580  $3,693   (7,158) $4,034,694 
   
   
   
   
   
   
   
 


    Common Stock  Paid-in Capital  Retained Earnings  Accumulated Other Comprehensive Income (Loss)  Treasury Stock  Total Shareholders'
Equity		 
 
(in thousands)
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  
 
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  
 
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  
 
Balances at December 31, 2003  $1,961  $2,100,612  $2,162,195  $5,846  $(7,717) $4,262,897  
 

Comprehensive income is as follows:

             
  Year Ended December 31,
  
  2002 2001 2000
  
 
 
  (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)  — 
   
   
   
 
Total comprehensive income $371,045  $238,389  $445,363 
   
   
   
 


Year Ended December 31,
 
    2003  2002  2001 
 
(in thousands)
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)   —  —  
 
Total comprehensive income  $282,817  $371,045  $238,389  
 

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.

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         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.

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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
  
 
 
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)
   
   
   
 
Pro forma net income $330,740  $217,440  $416,566 
   
   
   
 
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 


Year Ended December 31,
    2003  2002  2001 
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) 
Pro forma net income  $268,830  $330,740  $217,440  
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
  
 
 
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


    2003  2002  2001 
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
  
 
 
Revenues:            
United States  82%  81%  82%
All Other Countries  18%  19%  18%
passenger.

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    2003  2002  2001 
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
  
 
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 
   
   
 
   10,828,238   9,830,415 
Less — accumulated depreciation and amortization  (1,551,754)  (1,224,967)
   
   
 
  $9,276,484  $8,605,448 
   
   
 


    2003  2002 
 
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  
 
    11,803,691   10,828,238  
Less — accumulated depreciation and amortization   (1,860,196)  (1,551,754) 
 
   $9,943,495  $9,276,484  
 

        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 
   
   
 


    2003  2002 
 
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  
 
    5,835,804   5,444,838  
 Less — current portion   (315,232)  (122,544) 
 
 Long-term portion  $5,520,572  $5,322,294  
 

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

   Year     
2004(1)  $315,232 
2005(2)   956,586 
2006   731,151 
2007(1)   715,812 
2008(1)(2)   990,973 
            
(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
  
 
 
      Weighted     Weighted     Weighted
      Average     Average     Average
  Number of Exercise Number of Exercise Number of Exercise
  Options Price Options Price Options Price
  
 
 
 
 
 
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 
   
       
       
     
Outstanding options at December 31  15,234,577  $21.63   17,022,241  $21.49   11,291,784  $27.17 
   
       
       
     
Options exercisable at December 31  7,890,128  $21.82   4,679,421  $20.79   2,707,234  $16.02 
   
       
       
     
Available for future grants at December 31  6,744,505       5,871,763       3,839,246     
   
       
       
     

F-13

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 200320022001
 
 Number of OptionsWeighted-Average Exercise PriceNumber of OptionsWeighted-Average Exercise PriceNumber of OptionsWeighted-Average Exercise Price
 
                  
Outstanding options at January 115,234,577   $21.63  17,022,241   $21.49  11,291,784   $27.17 
Granted536,991   $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 
 
 
 
 
Outstanding options at December 3111,994,522   $23.28  15,234,577   $21.63  17,022,241   $21.49 
 
 
 
 
Exercisable options at December 317,949,284   $23.53  7,890,128   $21.82  4,679,421   $20.79 
 
 
 
 
Available for future grants at December 316,793,185      6,744,505      5,871,763 
 
 
 
 

Stock Options Outstanding

                     
As of December 31, 2002 Options Outstanding Options Exercisable
 
 
      Weighted Weighted     Weighted
      Average Average     Average
  Number Remaining Exercise Number Exercise
Exercise Price Range Outstanding Life Price Exercisable Price
 
 
 
 
 
$  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 
   
           
     
   15,234,577  7.03 years $21.63   7,890,128  $21.82 
   
           
     


As of December 31, 2003
 
OutstandingExercisable
 
Exercise Price Range Number of Options Weighted-Average Remaining Life Weighted-Average Exercie Price Number of Options Weighted-Average Exercise Price 
$  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 
 
  
 
  11,994,522 6.54 years $23.28 7,949,284 $23.53 
 
  
 

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
    
 
 
Basic:            
 Net income $351,284  $254,457  $445,363 
  Less preferred stock dividends  —   —   (1,933)
   
   
   
 
 Net income less preferred stock dividends $351,284  $254,457  $443,430 
   
   
   
 
 Weighted-average common shares outstanding  192,485   192,231   189,397 
   
   
   
 
 Basic earnings per share $1.82  $1.32  $2.34 
   
   
   
 
Diluted:            
 Net income $351,284  $254,457  $445,363 
   
   
   
 
 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 
   
   
   
 
 Diluted weighted-average shares outstanding  195,731   193,481   192,935 
   
   
   
 
 Diluted earnings per share $1.79  $1.32  $2.31 
   
   
   
 


Year Ended December 31,
 
 200320022001
 
Net income  $280,664 $351,284 $254,457 
 
Weighted-average common shares outstanding   194,074  192,485  192,231 
Dilutive effect of stock options   3,267  3,246  1,250 
 
Diluted weighted-average shares outstanding   197,341  195,731  193,481 
 
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
  
 
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)


 20032002
 
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):


Year   
2004 $  47,040 
2005 45,620 
2006 43,152 
2007 42,126 
2008 41,904 
Thereafter(1) 387,777 
 
  $607,619 
 
            
(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 
   
 


        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 
   
 


Year   
2004$65,281 
2005 48,016 
2006 29,693 
2007 24,016 
2008 23,862 
Thereafter 115,844 
 
 $306,712 
 

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
 
 
 
 
per share data) 2002 2001 2002 2001 2002 2001 2002 2001
 
 
 
 
 
 
 
 
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)


 First QuarterSecond QuarterThird QuarterFourth Quarter
 
 20032002200320022003200220032002
 
 (in thousands, except per share data)
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

F-19



INDEX TO EXHIBITS

ExhibitDescription
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

ExhibitDescription
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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