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RCL Royal Caribbean

Filed: 22 Feb 19, 5:15pm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) 
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                    to                                   
Commission file number: 1-11884
ROYAL CARIBBEAN CRUISES LTD.
(Exact name of registrant as specified in its charter)
Republic of Liberia
(State or other jurisdiction of
incorporation or organization)
98-0081645
(I.R.S. Employer Identification No.)
1050 Caribbean Way, Miami, Florida 33132
(Address of principal executive offices) (zip code)
(305) 539-6000
(Registrant's telephone number, including area code)
Securities 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 share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x    No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No x
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 o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x    No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
Emerging growth company o
  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No x
The aggregate market value of the registrant's common stock at June 30, 2018 (based upon the closing sale price of the common stock on the New York Stock Exchange on June 29, 2018) held by those persons deemed by the registrant to be non-affiliates was approximately $18.5 billion. Shares of the registrant's common stock held by each executive officer and director and by each entity or person that, to the registrant's knowledge, owned 10% or more of the registrant's outstanding common stock as of June 30, 2018 have been excluded from this number in that these persons may be deemed affiliates of the registrant. This determination of possible affiliate status is not necessarily a conclusive determination for other purposes.
There were 209,186,598 shares of common stock outstanding as of February 14, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Definitive Proxy Statement relating to its 2019 Annual Meeting of Shareholders are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K as indicated herein.
 



ROYAL CARIBBEAN CRUISES LTD.
TABLE OF CONTENTS




PART I
As used in this Annual Report on Form 10-K, the terms “Royal Caribbean,” the “Company,” “we,” “our” and “us” refer to Royal Caribbean Cruises Ltd. and, depending on the context, Royal Caribbean Cruises Ltd.’s consolidated subsidiaries and/or affiliates. The terms “Royal Caribbean International,” “Celebrity Cruises,” ���Azamara Club Cruises” and “Silversea Cruises” refer to our wholly- or majority-owned global cruise brands. Throughout this Annual Report on Form 10-K, we also refer to regional brands in which we hold an ownership interest, including “TUI Cruises,” “Pullmantur” and “SkySea Cruises.” However, because these regional brands are unconsolidated investments, our operating results and other disclosures herein do not include these brands unless otherwise specified. In accordance with cruise vacation industry practice, the term “berths” is determined based on double occupancy per cabin even though many cabins can accommodate three or more passengers.
This Annual Report on Form 10-K also includes trademarks, trade names and service marks of other companies. Use or display by us of other parties’ trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, these other parties other than as described herein.

Item 1. Business.
General
We are the world’s second largest cruise company. We control and operate four global cruise brands: Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and, most recently, Silversea Cruises (collectively, our "Global Brands"). We also own a 50% joint venture interest in the German brand TUI Cruises and a 49% interest in the Spanish brand Pullmantur (collectively, our "Partner Brands"). Together, our Global Brands and our Partner Brands operate a combined total of 60 ships in the cruise vacation industry with an aggregate capacity of approximately 135,520 berths as of December 31, 2018.
Our ships operate on a selection of worldwide itineraries that call on more than 1,000 destinations on all seven continents. In addition to our headquarters in Miami, Florida, we have offices and a network of international representatives around the world, which primarily focus on sales and market development.
We compete principally by operating valued brands that offer exceptional service provided by our crew and on the basis of innovation and quality of ships, variety of itineraries, choice of destinations and price. We believe that our commitment to build state-of-the-art ships and to invest in the maintenance and upgrade of our fleet to, among other things, incorporate many of our latest signature innovations, allows us to continue to attract new and loyal repeat guests.
We believe cruising continues to be a popular vacation choice due to its inherent value, extensive itineraries and variety of shipboard and shoreside activities. In addition, we believe our brands are well-positioned globally and possess the ability to attract a wide range of guests by appealing to multiple customer bases allowing our global sourcing to be well diversified.
Royal Caribbean was founded in 1968 as a partnership. Its corporate structure has evolved over the years and, 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.
Our Global Brands
Our Global Brands include Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and Silversea Cruises.
We believe our Global Brands possess the versatility to enter multiple cruise market segments within the cruise vacation industry. Although each of our Global Brands has its own marketing style, as well as ships and crews of various sizes, the nature of the products sold and services delivered by our Global Brands share a common base (i.e., the sale and provision of cruise vacations). Our Global Brands also have similar itineraries as well as similar cost and revenue components. In addition, our Global Brands source passengers from similar markets around the world and operate in similar economic environments with a significant degree of commercial overlap. As a result, we strategically manage our Global Brands as a single business with the ultimate objective of maximizing long-term shareholder value.

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Royal Caribbean International
Royal Caribbean International is positioned to compete in both the contemporary and premium segments of the cruise vacation industry. The brand appeals to families with children of all ages, as well as both older and younger couples, providing cruises that generally feature a casual ambiance, as well as a variety of activities and entertainment venues. We believe that the quality of the Royal Caribbean International brand allows it to achieve market coverage that is among the broadest of any of the major cruise brands in the cruise vacation industry. Royal Caribbean International’s strategy is to attract an array of vacationing guests by providing a wide variety of itineraries to destinations worldwide, including Alaska, Asia, Australia, Bahamas, Bermuda, Canada, the Caribbean, Europe, the Panama Canal and New Zealand, with cruise lengths ranging from two to 23 nights. Royal Caribbean International offers multiple innovative options for onboard dining, entertainment and other onboard activities. Because of the brand’s ability to deliver extensive and innovative product offerings at an excellent value to consumers, we believe Royal Caribbean International is well positioned to attract new consumers to cruising and to continue to bring loyal repeat guests back for their next vacation.
Royal Caribbean International operates 25 ships with an aggregate capacity of approximately 82,500 berths, including the brand's newest ship, Symphony of the Seas, which entered service in March 2018. Additionally, as of December 31, 2018, we have five ships on order with an aggregate capacity of approximately 25,300 berths. These ships consist of our fourth and fifth Quantum-class ships, which are scheduled to enter service in the second quarter of 2019 and fourth quarter of 2020, respectively, our fifth Oasis-class ship, which is scheduled to enter service in the second quarter of 2021, and the first two ships of a new generation, known as our Icon-class, which are expected to enter service in 2022 and 2024, respectively.
Celebrity Cruises
Celebrity Cruises is positioned within the premium segment of the cruise vacation industry. Celebrity Cruises’ strategy is to target affluent consumers by delivering a destination-rich, modern luxury experience on upscale ships that offer, among other things, luxurious accommodations, refined design-forward spaces, high-standard service and fine dining. Celebrity Cruises offers a range of itineraries to destinations, including Alaska, Asia, Australia, Bermuda, Canada, the Caribbean, Europe, the Galapagos Islands, Hawaii, India, New Zealand, the Panama Canal and South America, with cruise lengths ranging from two to 19 nights.
Celebrity Cruises operates 13 ships with an aggregate capacity of approximately 26,070 berths, including the brand's first Edge-class ship, Celebrity Edge, which entered service in December 2018. Additionally, as of December 31, 2018, we have four ships on order with an aggregate capacity of approximately 9,400 berths. These ships consist of three Edge-class ships, which are expected to enter service in the second quarter of 2020 and the fourth quarters of 2021 and 2022, respectively, and a ship designed for the Galapagos Islands, which is expected to enter service in the second quarter of 2019.
Azamara Club Cruises
Azamara Club Cruises is designed to serve the up-market segment of the North American, United Kingdom and Australian markets. The up-market segment incorporates elements of the premium segment and the luxury segment, which is generally characterized by smaller ships, high standards of accommodation and service and exotic itineraries. Azamara Club Cruises’ strategy is to deliver distinctive destination experiences through unique itineraries with more overnights and longer stays as well as comprehensive tours allowing guests to experience the destination in more depth. Azamara Club Cruises offers a variety of itineraries to popular destinations, including Asia, Australia/New Zealand, Northern and Western Europe, the Mediterranean, Cuba and South America with cruise lengths ranging from four to 21 nights.
Azamara Club Cruises operates three ships with an aggregate capacity of approximately 2,100 berths, including Azamara Pursuit, which entered service during the third quarter of 2018.
Silversea Cruises
On July 31, 2018, we acquired a 66.7% equity stake in Silversea Cruise Holding Ltd. ("Silversea Cruises"), an ultra-luxury and expedition cruise line. Refer to Note 3. Business Combinations to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on the Silversea Cruises acquisition.

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Silversea Cruises, formed in the early 1990's, is positioned as a luxury cruise line with smaller ships, high standards of accommodations, fine dining, personalized service and exotic itineraries. Silversea Cruises delivers distinctive destination experiences by visiting unique and remote destinations, including the Galapagos Islands, Antarctica and the Arctic.
Silversea Cruises operates nine ships, with an aggregate capacity of approximately 2,650 berths offering cruise itineraries generally ranging from six to 25 nights. As of December 31, 2018, Silversea Cruises has three ships on order with an aggregate capacity of approximately 1,200 berths, which are scheduled for delivery in the first and third quarter of 2020 and the third quarter of 2021, respectively. Additionally, Silversea Cruises signed a memorandum of understanding with Meyer Werft to build two ships of a new generation, which are expected to enter service in 2022 and 2023, respectively. The memorandum of understanding with Meyer Werft is contingent upon completion of final documentation and financing, which are expected to be completed in the first quarter of 2019.
Our Partner Brands
Our Global Brands are complemented by our 50% joint venture interest in TUI Cruises, which is specifically tailored for the German market and our 49% interest in the Spanish brand Pullmantur, which is primarily focused on the Spanish and Latin American cruise markets. We account for our investments in our Partner Brands under the equity method of accounting and, accordingly, the operating results of these Partner Brands are not included in our consolidated results of operations. Refer to Note 1. General and Note 8. Other Assets to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further details.
TUI Cruises
TUI Cruises is a joint venture owned 50% by us and 50% by TUI AG, a German tourism company, which is designed to serve the contemporary and premium segments of the German cruise market by offering a product tailored for German guests. All onboard activities, services, shore excursions and menu offerings are designed to suit the preferences of this target market.
TUI Cruises operates six ships, with an aggregate capacity of approximately 14,750 berths as of December 31, 2018. Additionally, TUI Cruises has four ships on order with an aggregate capacity of approximately 13,900 berths, of which one ship was delivered in January 2019 and the remaining ships on order are scheduled for delivery in the second quarter of 2023, the third quarter of 2024 and the first quarter of 2026, respectively.
Pullmantur
The Pullmantur brand is a joint venture owned 49% by us and 51% by Cruises Investment Holdings S.A.R.L., an affiliate of Springwater Capital LLC. Pullmantur operates in the contemporary segment of the Spanish and Latin American cruise markets and is designed to attract Spanish-speaking families and couples and includes Spanish-speaking crew, as well as tailored food and entertainment options. The four ships operated by Pullmantur have an aggregate capacity of approximately 7,450 berths.
SkySea Cruises
In March 2018, we and Ctrip.com International Ltd. announced the decision to end the Skysea Holding International Ltd. ("Skysea Holding") venture in which we have a 36% ownership interest. In September 2018, Skysea Holding ceased cruising operations and in December 2018, the Golden Era, the ship operated by Skysea Cruises, and owned by the wholly-owned subsidiary of Skysea Holding, was sold to an affiliate of TUI AG, our joint venture partner in TUI Cruises.
Industry
Cruising is considered a well-established vacation sector in the North American and European markets and a developing sector in several other emerging markets. Industry data indicates that market penetration rates are still low and that a significant portion of cruise guests carried are first-time cruisers. We believe this presents an opportunity for long-term growth and a potential for increased profitability.

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The following table details industry market penetration rates for North America, Europe and Asia/Pacific computed based on the number of annual cruise guests as a percentage of the total population:
Year 
North America(1)(2)
 
Europe(1)(3)
 
Asia/Pacific(1)(4)
2014 3.46% 1.23% 0.06%
2015 3.36% 1.25% 0.08%
2016 3.43% 1.23% 0.11%
2017 3.56% 1.28% 0.15%
2018 3.59% 1.31% 0.19%
___________________________________________________________________
(1)Source: Our estimates are based on a combination of data obtained from publicly available sources including the International Monetary Fund, United Nations, Department of Economic and Social Affairs, Cruise Lines International Association ("CLIA") and G.P. Wild. In addition, our estimates incorporate our own analysis utilizing the same publicly available cruise industry data as a base.
(2)Our estimates include the United States and Canada.
(3)Our estimates include European countries relevant to the industry (most notably: the Nordics, Germany, France, Italy, Spain and the United Kingdom).
(4)Our estimates include the Southeast Asia (most notably: Singapore, Thailand and the Philippines), East Asia (most notably: China and Japan), South Asia (most notably: India and Pakistan) and Oceania (most notably: Australia and Fiji Islands) regions.
We estimate that the global cruise fleet was served by a weighted average of approximately 546,000 berths during 2018 with approximately 323 ships at the end of 2018. As of December 31, 2018, there were approximately 89 ships with an estimated 198,000 berths that are expected to be placed in service in the global cruise market between 2019 and 2023, although it is also possible that ships could be ordered or taken out of service during these periods. We estimate that the global cruise industry carried approximately 28.0 million cruise guests in 2018 compared to approximately 26.7 million cruise guests carried in 2017 and approximately 24.0 million cruise guests carried in 2016.
The following table details the growth in global weighted average berths and the global, North American, European and Asia/Pacific cruise guests over the past five years (in thousands, except berth data):
Year 
Weighted-Average
Supply of
Berths
Marketed
Globally
(1)
 
Royal Caribbean Cruises Ltd. Total Berths(2)
 
Global
Cruise
Guests
(1)
 
North American Cruise Guests(1)(3)
 
European Cruise Guests(1)(4)
 
Asia/Pacific Cruise Guests(1)(5)
2014 448,000 105,750 22,039 12,269 6,387 2,382
2015 469,000 112,700 23,000 12,004 6,587 3,129
2016 493,000 123,270 24,000 12,274 6,512 4,466
2017 515,000 124,070 26,700 12,865 6,779 5,415
2018 546,000 135,520 28,000 13,054 6,986 7,006
___________________________________________________________________
(1)Source: Our estimates of the number of global cruise guests and the weighted-average supply of berths marketed globally are based on a combination of data that we obtain from various publicly available cruise industry trade information sources. We use data obtained from Seatrade Insider, Cruise Industry News and company press releases to estimate weighted-average supply of berths and CLIA and G.P. Wild to estimate cruise guest information. In addition, our estimates incorporate our own analysis utilizing the same publicly available cruise industry data as a base.
(2)Total berths include our berths related to our Global Brands and Partner Brands.
(3)Our estimates include the United States and Canada.

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(4)Our estimates include European countries relevant to the industry (most notably: the Nordics, Germany, France, Italy, Spain and the United Kingdom).
(5)Our estimates include the Southeast Asia (most notably: Singapore, Thailand and the Philippines), East Asia (most notably: China and Japan), South Asia (most notably: India and Pakistan) and Oceania (most notably: Australia and Fiji Islands) regions.
North America
Industry cruise guests are primarily sourced from North America, which represented approximately 47% of global cruise guests in 2018. The compound annual growth rate in cruise guests sourced from this market was approximately 2% from 2014 to 2018.
Europe
Industry cruise guests sourced from Europe represented approximately 25% of global cruise guests in 2018. The compound annual growth rate in cruise guests sourced from this market was approximately 2% from 2014 to 2018.
Asia/Pacific
Industry cruise guests sourced from the Asia/Pacific region represented approximately 25% of global cruise guests in 2018. The compound annual growth rate in cruise guests sourced from this market was approximately 31% from 2014 to 2018. The Asia/Pacific region is experiencing the highest growth rate of the major regions, although it represents a relatively small sector compared to North America.
Competition
We compete with a number of cruise lines. Our principal competitors are Carnival Corporation & plc, which owns, among others, Aida Cruises, Carnival Cruise Line, Costa Cruises, Cunard Line, Holland America Line, P&O Cruises, Princess Cruises and Seabourn; Disney Cruise Line; MSC Cruises; and Norwegian Cruise Line Holdings Ltd, which owns Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. Cruise lines also compete with other vacation alternatives such as land-based resort hotels, Internet-based alternative lodging sites and sightseeing destinations for consumers’ leisure time. Interest for such activities is influenced by political and general economic conditions. Companies within the vacation market are dependent on consumer discretionary spending.
Operating Strategies
Our principal operating strategies are to:
protect the health, safety and security of our guests and employees,
protect the environment in which our vessels and organization operate,
strengthen and support our human capital in order to better serve our global guest base and grow our business,
strengthen our consumer engagement in order to enhance our revenues,
increase the awareness and market penetration of our brands globally,
focus on cost efficiency, manage our operating expenditures and ensure adequate cash and liquidity, with the overall goal of maximizing our return on invested capital and long-term shareholder value,
strategically invest in our fleet through the upgrade and maintenance of existing ships and the transfer of key innovations, while prudently expanding our fleet with new state-of-the-art cruise ships,
capitalize on the portability and flexibility of our ships by deploying them into those markets and itineraries that provide opportunities to optimize returns, while continuing our focus on existing key markets,
further enhance our technological capabilities to service customer preferences and expectations in an innovative manner, while supporting our strategic focus on profitability, and
maintain strong relationships with travel agencies, which continue to be the principal industry distribution channel, while enhancing our consumer outreach programs.

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Safety, environment and health policies
We are committed to protecting the health, safety and security of our guests, employees and others working on our behalf. We are also focused on the environmental health of the marine environment and communities in which we operate. Our efforts in these areas are guided by a Maritime Advisory Board of experts, overseen by the Safety, Environment and Health Committee of our board of directors and managed by our dedicated Safety, Environment and Health Department, which is responsible for all of our maritime safety, global security, environmental stewardship and medical/public health activities.
We believe in transparent reporting on our safety, environment and health performance, as well as our corporate responsibility efforts, and annually publish a Sustainability Report. This report, which is accessible on our corporate website, highlights our progress with regards to those environmental and social aspects of our business that we believe are most significant to our organization and stakeholders. In addition to providing an overview, the report complies with the guidelines of the Global Reporting Initiative to ensure the report is as complete and accurate as possible. Our corporate website also provides information about our sustainability initiatives, environmental performance goals and our voluntary reporting of onboard security incidents. The foregoing information contained on our website is not a part of any of these reports and is not incorporated by reference herein or in any other report or document we file with the Securities and Exchange Commission.
Human capital
We believe that our employees, both shipboard and shoreside, are a critical success factor for our business. We strive to identify, hire, develop, motivate and retain the best employees, who provide our guests with extraordinary vacations. Attracting, engaging, and retaining key employees has been and will remain critical to our success.
We focus on providing our employees with a competitive compensation structure and development and other personal and professional growth opportunities in order to strengthen and support our human capital. We also select, develop and have strategies to retain high performing leaders to advance the enterprise now and in the future. To that end, we pay special attention to identifying high performing potential leaders and developing bench strength so these leaders can assume leadership roles throughout the organization. We strive to maintain a work environment that reinforces collaboration, motivation and innovation, and believe that maintaining a strong employee-focused culture is beneficial to the growth and expansion of our business.
Consumer engagement
We place a strong focus on identifying the needs of our guests and creating product features and innovations that our customers value. We are focused on targeting high-value guests by better understanding consumer data and insights to create communication strategies that resonate with our target audiences.
We target customers across all touch points and identify underlying needs for which guests are willing to pay a premium. We rely on various programs and technologies during the cruise-planning, cruising and after-cruise periods aimed at increasing ticket prices, onboard revenues and occupancy. We have and continue to strategically invest in onboard projects on our ships that we believe drive marketability, profitability and improve the guest experience.
Global awareness and market penetration
We increase brand awareness and market penetration of our cruise brands in various ways, including the use of communication strategies and marketing campaigns designed to emphasize the qualities of each brand and to broaden the awareness of the brand, especially among target groups. Our marketing strategies include the use of travel agencies, traditional media, mobile and digital media as well as social media, influencers and brand websites. Our brands engage past and potential guests by collaborating with travel partners and through call centers, international offices and international representatives. In addition, our Global Brands target repeat guests with exclusive benefits offered through their respective loyalty programs.
We sell and market our Global Brands, Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and Silversea Cruises, to guests outside of the United States and Canada through our commercial teams located in Europe, Asia, Australia, New Zealand and Mexico. We believe that having a local presence in these markets provides us with the ability to react more quickly to local market conditions and better understand our consumer base in each market. We further extend our geographic reach with a network of approximately 76 independent international

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representatives located throughout the world covering more than 180 countries. Historically, our focus has been to primarily source guests for our Global Brands from North America. We continue to expand our focus on selling and marketing our cruise brands to guests in countries outside of North America by tailoring itineraries and onboard product offerings to the cultural characteristics and preferences of our international guests. In addition, we explore opportunities that may arise to acquire or develop brands tailored to specific markets.
Passenger ticket revenues generated by sales originating in countries outside of the United States were approximately 39% of total passenger ticket revenues in 2018, 41% in 2017 and 45% in 2016. International guests have grown from approximately 2.2 million in 2014 to approximately 2.3 million in 2018. Refer to Item 1A. Risk Factors - “Conducting business globally may result in increased costs and other risks” for a discussion of the risks associated with our international operations.
Cost efficiency, operating expenditures and adequate cash and liquidity
We have adopted a number of strategies to control our operating costs and will continue to do so in 2019. For example, we have adopted numerous initiatives to reduce energy consumption and, by extension, fuel costs. These include the design of more energy-efficient ships as well as the implementation of more efficient hardware, including improvements in operations and voyage planning as well as improvements to the propulsion, machinery, HVAC and lighting systems. The overall impact of these efforts has resulted in an approximate 30% improvement in energy efficiency from 2005 through 2018 and we believe that our energy consumption per guest is currently the lowest in the cruise industry. In order to sustain our competitive advantage, we will continue to seek to lead with innovative technologies and commit to achieve our short and long-term sustainability goals.
We are focused on maintaining a strong liquidity position, investment grade credit metrics and a balanced debt maturity profile. We believe these strategies enhance our ability to achieve our overall goal of maximizing our long-term shareholder value.
Fleet upgrade, maintenance and expansion
We place a strong focus on innovation, which we seek to achieve by introducing new concepts on our new ships and continuously making improvements to our fleet through modernization projects. Several of these innovations have become signature elements of our brands. For the Royal Caribbean International brand, we introduced the “Royal Promenade” (a boulevard with shopping, dining and entertainment venues) and, more recently, interior balconies on the Oasis class ships and a two-level family suite on Symphony of the Seas. For the Celebrity Cruises brand, we enhanced many of the brand's design features through the introduction of the Solstice class ships. More recently, with the introduction of Celebrity Edge, the first ship of a new generation of ships, we introduced the "Magic Carpet" (a cantilevered, floating platform that reaches a height of 13 stories above sea level and can serve as a dining venue, full bar and platform for live music) and newly designed staterooms with an "Infinite Veranda" where, with the touch of a button, the entire living space becomes the veranda.
In 2018, the Royal Caribbean International and Celebrity Cruises brands announced the "Royal Amplified" and "Celebrity Revolution" modernization programs to upgrade vessels across their fleet. As part of these modernization programs, we incorporate certain innovations included in our newer ships to some of the ships in the remaining fleet. The process of integrating some of our latest innovations into our older vessels allows us to create a greater level of consistency of product across our fleet.
As part of the newbuild and modernization programs, we also seek to bring innovations in the areas of safety, reliability and energy efficiency to our fleet.
We are committed to building state-of-the-art ships at a moderate growth rate and we believe our success in this area provides us with a competitive advantage. Our newer vessels traditionally generate higher revenue yield premiums and are more efficient to operate than older vessels.
As of December 31, 2018, our Global Brands and Partner Brands have 16 ships on order. Refer to the Operations section below for further information on our ships on order.
In addition, we regularly evaluate opportunities to order new ships, purchase existing ships or sell ships in our current fleet. In the current environment of high industry demand, we recently have placed new ship orders earlier than we have historically done as well as more aggressively sought to sell older capacity.

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Markets and itineraries
In an effort to penetrate untapped markets, diversify our consumer base and respond to changing economic and geopolitical market conditions, we continue to seek opportunities to deploy ships to new and stronger markets and itineraries throughout the world. The portability of our ships allows us to deploy our ships to meet demand within our existing cruise markets. We make deployment decisions generally 12 to 18 months in advance, with the goal of optimizing the overall profitability of our portfolio. Additionally, the infrastructure investments we have made to create a flexible global sourcing model have made our brands relevant in a number of markets around the world, which allows us to be opportunistic and source the highest yielding guests for our itineraries.
Our ships offer a wide selection of itineraries that call on more than 1,000 destinations in 126 countries, spanning all seven continents. We are focused on obtaining the best possible long-term shareholder returns by operating in established markets while growing our presence in developing markets. New capacity allows us to expand into new markets and itineraries. Our brands have expanded their mix of itineraries while strengthening our ability to further penetrate the Asian and Australian markets. The recent acquisition of Silversea Cruises adds more than 500 new destinations allowing us to expand and enhance our selection of exotic itineraries. Additionally, in order to provide unique destination experiences to our guests, we are investing in our private land destinations. For instance, in 2018, we announced Perfect Day Island Collection, an initiative to develop a series of private island destinations around the world. The first in the collection, Perfect Day at CocoCay, is scheduled to open in Spring 2019 and will include a wide range of attractions, such as a water park, zip line, wave and freshwater pools and overwater cabanas, to deliver a unique family experience.
Also, in order to capitalize on the summer season in the Southern Hemisphere and mitigate the impact of the winter weather in the Northern Hemisphere, our brands have focused on deployment in the Caribbean, Asia and Australia during that period.
In an effort to secure desirable berthing facilities for our ships, and to provide new or enhanced cruise destinations for our guests, we actively assist or invest in the development or enhancement of certain port facilities and infrastructure, including mixed-use commercial properties, located in strategic ports of call. For instance, in late 2018, a new cruise terminal of approximately 170,000 square feet was completed at PortMiami in Miami, Florida, serving as one of our homeports. Generally, we collaborate with local, private or governmental entities by providing management and/or financial assistance and often enter into long-term port usage arrangements. Our participation in these efforts is generally accomplished via investments with the relevant government authority and/or various other strategic partnerships established to develop and/or operate the port facilities, by providing direct development and management expertise or in certain limited circumstances, by providing direct or indirect financial support. In exchange for our involvement, we generally secure preferential berthing rights for our ships.
Technological capabilities
The need to develop and use innovative technology is increasingly important. Technology is a pervasive part of virtually every business process we use to support our strategic focus and provide a quality experience to our customers before, during and after their cruise.
In the past year, we have digitalized the guest journey from port check-in and onboard purchases to digital stateroom features. As the use of our various websites, mobile and social media platforms continue to increase both on shore and shipboard by both our guests and crew, we continually invest in our systems, infrastructure and technologies to facilitate this growth. For instance, in 2018, we continued to advance our onboard technology in areas such as Internet connectivity at sea, stateroom automation and guest-to-guest chat.
Additionally, we continue to invest in our distribution channels to ensure the best go-to-market approach, whether through travel partners or direct to customer. Commensurate with our destination strategy, we intend to invest in technology to service our guests seamlessly as they transition from ship to our private destinations to enjoy Internet connectivity or local activities.
Cyber security and data privacy are a continued focus, and we have made and will continue to make investments to protect our customer data, intellectual property and global operations.

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Travel agency support and consumer outreach
Travel agencies continue to be the primary source of ticket sales for our ships. We believe in the value of this distribution channel and invest in maintaining strong relationships with our travel partners. To accomplish this goal, we seek to ensure that our commission rates and incentive structures remain competitive with the marketplace. We provide brand dedicated sales representatives who serve as advisors to our travel partners. We also provide trained customer service representatives, call centers and online training tools.
In addition, we continue to operate our Consumer Outreach department, which provides consumers 24-hour access to our vacation planners and customer service agents in our call centers. In addition, we maintain and invest in our websites, including mobile applications and mobile websites, which allow guests to directly plan, book and customize their cruise, including the ability to add a variety of onboard amenities. We enable our guests to communicate and book with us through various channels such as phone, web, chat, text message, and/or email.
We also have a robust Onboard Cruise Sales department to help guests to book their next cruise vacations while onboard our ships.
Guest Services
We offer to handle virtually all travel aspects related to guest reservations and transportation, including arranging guest pre- and post-hotel stay arrangements and air transportation.
Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and Silversea Cruises offer rewards to their guests through their loyalty programs, Crown & Anchor Society, Captain’s Club, Le Club Voyage and Venetian Society, respectively, to encourage repeat business. Crown & Anchor Society has approximately 13 million members worldwide. Captain’s Club, Le Club Voyage and Venetian Society have approximately 4.5 million members combined worldwide. Members are recognized through increasing membership status by accumulating cruise points or credits, depending on the brand, which may be redeemed on future sailings. Members are awarded points or credits in proportion to the number of cruise days and stateroom category. The loyalty programs provide tiers of membership benefits which entitle guests to upgraded experiences and rewards relative to the status achieved once the guests have accumulated the number of cruise points or credits specified for each tier. In addition, upon achieving a certain level of cruise points or credits, members benefit from reciprocal membership benefits across all of our loyalty programs. Examples of the rewards available under our loyalty programs include, but are not limited to, priority ship embarkation, priority waitlist for shore excursions, complimentary laundry service, complimentary Internet, booklets with onboard discount offers, upgraded bathroom amenities, private seating on the pool deck, ship tours and, in the case of our most loyal guests who have achieved the highest levels of cruise points or credits, complimentary cruise days. We regularly work to enhance each of our loyalty programs by adding new features and amenities in order to reward our repeat guests.

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Operations
Cruise Ships and Itineraries
As of December 31, 2018, our Global Brands and Partner Brands collectively operated 60 ships with a selection of worldwide itineraries that call on more than 1,000 destinations.
The following table presents summary information concerning the ships we expect to operate in 2019 under our Global Brands and Partner Brands and their geographic areas of operation based on current 2019 itineraries (subject to change).
Ship Year Ship
Built
 
Year Ship
Entered/Will Enter Service
(1)
 Approximate
Berths
 Primary Areas of Operation
Royal Caribbean International        
Spectrum of the Seas 2019 2019 4,250 Eastern Asia
Symphony of the Seas 2018 2018 5,500 Eastern/Western Caribbean
Harmony of the Seas 2016 2016 5,450 Eastern/Western Caribbean
Ovation of the Seas 2016 2016 4,100 Australia, Alaska
Anthem of the Seas 2015 2015 4,150 Southern Caribbean, Bahamas, Bermuda, Canada
Quantum of the Seas 2014 2014 4,150 Eastern Asia
Allure of the Seas 2010 2010 5,450 Eastern/Western Caribbean
Oasis of the Seas 2009 2009 5,450 Eastern/Western Caribbean, Europe
Independence of the Seas 2008 2008 3,850 Western Caribbean, Europe
Liberty of the Seas 2007 2007 3,750 Western Caribbean
Freedom of the Seas 2006 2006 3,750 Southern Caribbean
Jewel of the Seas 2004 2004 2,150 Western/Southern Caribbean, Europe, Middle East
Mariner of the Seas 2003 2003 3,300 Bahamas
Serenade of the Seas 2003 2003 2,100 Eastern/Southern Caribbean, Bermuda, Canada
Navigator of the Seas 2002 2002 3,250 Western/Southern Caribbean, Bahamas
Brilliance of the Seas 2002 2002 2,100 Western Caribbean, Europe
Adventure of the Seas 2001 2001 3,300 Eastern/Western Caribbean, Bahamas, Canada
Radiance of the Seas 2001 2001 2,100 Australia, Alaska
Explorer of the Seas 2000 2000 3,250 Australia, Europe, Western/Southern Caribbean
Voyager of the Seas 1999 1999 3,250 Eastern Asia, Australia
Vision of the Seas 1998 1998 2,000 Western/Southern Caribbean, Europe
Enchantment of the Seas 1997 1997 2,250 Western Caribbean
Rhapsody of the Seas 1997 1997 2,000 Western Caribbean, Europe
Grandeur of the Seas 1996 1996 1,950 Bahamas, Southern Caribbean, Bermuda, Canada
Majesty of the Seas 1992 1992 2,350 Western Caribbean, Cuba
Empress of the Seas 1990 2016 1,550 Cuba
Celebrity Cruises        
Celebrity Flora 2019 2019 100 Galapagos Islands
Celebrity Edge 2018 2018 2,900 Eastern/Western Caribbean, Europe
Celebrity Reflection 2012 2012 3,000 Southern Caribbean, Europe

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Ship Year Ship
Built
 
Year Ship
Entered/Will Enter Service
(1)
 Approximate
Berths
 Primary Areas of Operation
Celebrity Silhouette 2011 2011 2,850 Southern Caribbean, Europe
Celebrity Eclipse 2010 2010 2,850 South America, Alaska
Celebrity Equinox 2009 2009 2,850 Eastern/Western Caribbean
Celebrity Solstice 2008 2008 2,850 Australia, Alaska
Celebrity Xploration 2007 2016 20 Galapagos Islands
Celebrity Constellation 2002 2002 2,150 Middle East, India, Europe
Celebrity Summit 2001 2001 2,150 Southern Caribbean, Bermuda, Canada
Celebrity Infinity 2001 2001 2,150 Western Caribbean, Bahamas, Europe
Celebrity Xpedition 2001 2004 100 Galapagos Islands
Celebrity Millennium 2000 2000 2,150 Eastern Asia, Alaska
Celebrity Xperience 1982 2016 50 Galapagos Islands
Azamara Club Cruises        
Azamara Pursuit 2001 2018 700 South America, Europe
Azamara Quest 2000 2007 700 Australia, Asia, Alaska
Azamara Journey 2000 2007 700 Cuba, Europe
Silversea Cruises        
Muse 2017 2017 550 Australia, Asia, Alaska
Spirit 2009 2009 600 Southern Caribbean, Europe, Asia
Whisper 2001 2001 350 Southern Caribbean, Europe
Shadow 2000 2000 350 Asia, Europe, Southern Caribbean
Wind 1995 1995 250 Southern Caribbean, Europe, Canada
Cloud 1994 1994 250 South America, Europe
Galapagos 1990 2013 100 Galapagos Islands
Discoverer 1989 2014 100 Africa, Australia, Asia
Explorer 1989 2008 100 South America, Europe
Pullmantur        
Zenith 1992 2014 1,400 Europe
Monarch 1991 2013 2,350 Southern Caribbean
Horizon 1990 2010 1,400 Middle East, Europe
Sovereign 1988 2008 2,300 South America, Europe
TUI Cruises        
Mein Schiff 2 (2)
 2019 2019 2,850 Europe, Southern Caribbean
Mein Schiff 1 (3)
 2018 2018 2,850 Europe, Canada, Western Caribbean
Mein Schiff 6 2017 2017 2,500 Western Caribbean, Europe, Asia
Mein Schiff 5 2016 2016 2,500 Southern Caribbean, Europe, Middle East
Mein Schiff 4 2015 2015 2,500 Middle East, Europe
Mein Schiff 3 2014 2014 2,500 Asia, Europe
Mein Schiff Herz 1997 2011 1,900 Europe
Total 142,720  
__________________________________________________________________
(1)The year a ship entered service refers to the year in which the ship commenced or is expected to commence cruise revenue operations for the brand.
(2)
TUI Cruises' newbuild entered service as Mein Schiff 2 in February 2019 and the existing Mein Schiff 2 was renamed Mein Schiff Herz.
(3)
TUI Cruises' newbuild entered service as Mein Schiff 1 and the existing Mein Schiff 1, not included above, was transferred to an affiliate of TUI AG, our joint venture partner in TUI Cruises.

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As of December 31, 2018, our Global Brands and our Partner Brands have 16 ships on order. Two ships on order are being built in Germany by Meyer Werft GmbH, four are being built in Finland by Meyer Turku shipyard, four are being built in France by Chantiers de l’Atlantique (formerly known as STX France), four are being built in Italy by Fincantieri and two are being built in the Netherlands by De Hoop Lobith. As of December 31, 2018, the expected dates that the ships on order will enter service and their approximate berths are as follows:
Ship 
Expected to Enter
Service
 
Approximate
Berths
Royal Caribbean International —    
Oasis-class:    
Unnamed 2nd Quarter 2021 5,500
Quantum-class:    
Spectrum of the Seas 2nd Quarter 2019 4,250
Odyssey of the Seas 4th Quarter 2020 4,250
Icon-class:    
Unnamed 2nd Quarter 2022 5,650
Unnamed 2nd Quarter 2024 5,650
Celebrity Cruises —    
Edge-class:    
Celebrity Apex 2nd Quarter 2020 2,900
Unnamed 4th Quarter 2021 3,200
Unnamed 4th Quarter 2022 3,200
Celebrity Flora 2nd Quarter 2019 100
Silversea Cruises —    
Silver Origin 1st Quarter 2020 100
Silver Moon 3rd Quarter 2020 550
Silver Dawn 3rd Quarter 2021 550
TUI Cruises (50% joint venture)—    
Mein Schiff 2 (1)
 1st Quarter 2019 2,850
Mein Schiff 7 2nd Quarter 2023 2,850
Unnamed 3rd Quarter 2024 4,100
Unnamed 1st Quarter 2026 4,100
Total Berths   49,800
___________________________________________________________________
(1)
TUI Cruises' newbuild entered service as Mein Schiff 2 in February 2019.
In addition, in September 2018, Silversea Cruises signed a memorandum of understanding with Meyer Werft to build two ships of a new generation of ships. The ships are expected to have an aggregate capacity of approximately 1,200 berths and are expected to enter service in 2022 and 2023, respectively. The memorandum of understanding with Meyer Werft is contingent upon the completion of final documentation and financing, which are expected to be completed in the first quarter of 2019.
In February 2019, we entered into an agreement with Chantiers de l’Atlantique to build the sixth Oasis-class ship for Royal Caribbean International. The ship is expected to have an aggregate capacity of approximately 5,700 berths and is expected to enter service in the fourth quarter of 2023. The order with Chantiers de l’Atlantique is contingent upon completion of conditions precedent and financing, which is expected to be completed in 2019.

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Seasonality
Our revenues are seasonal based on the demand for cruises. Demand is strongest for cruises during the Northern Hemisphere’s summer months and holidays. In order to mitigate the impact of the winter weather in the Northern Hemisphere and to capitalize on the summer season in the Southern Hemisphere, our brands have focused on deployment in the Caribbean, Asia and Australia during that period.
Passengers and Capacity
Selected statistical information is shown in the following table (see Financial Presentation- Description of Certain Line Items and Selected Operational and Financial Metrics under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, for definitions):

Year Ended December 31,

2018 (1)
 2017 
2016 (2)
 2015 2014
Passengers Carried6,084,201 5,768,496 5,754,747 5,401,899 5,149,952
Passenger Cruise Days41,853,052 40,033,527 40,250,557 38,523,060 36,710,966
Available Passenger Cruise Days (APCD)38,425,304 36,930,939 37,844,644 36,646,639 34,773,915
Occupancy108.9% 108.4% 106.4% 105.1% 105.6%
___________________________________________________________________
(1)
These amounts include only August and September 2018 amounts for Silversea Cruises due to the three-month reporting lag. Refer to Note 1. General and Note 3. Business Combination to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for more information on the three-month reporting lag and the Silversea Cruises acquisition.
(2)
These amounts do not include November and December 2015 amounts for Pullmantur as the net Pullmantur result for those months was included within Other expense in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2016, as a result of the elimination of the Pullmantur two-month reporting lag, and did not affect Gross Yields, Net Yields, Gross Cruise Costs, Net Cruise Costs and Net Cruise Costs Excluding Fuel. Additionally, effective August 2016, we no longer include Pullmantur in these amounts.
Cruise Pricing
Our cruise ticket prices include accommodations and a wide variety of activities and amenities, including meals and entertainment. Prices vary depending on many factors including the destination, cruise length, stateroom category selected and the time of year the cruise takes place. Although we grant credit terms in select markets mainly outside of the United States, our payment terms generally require an upfront deposit to confirm a reservation, with the balance due prior to the sailing. Our cruises are generally available for sale at least one year in advance and often more than two years in advance of sailing. During the selling period of a cruise, we continually monitor and adjust our cruise ticket prices for available guest staterooms based on demand, with the objective of maximizing net yields.
As we grow our business globally, our sale arrangements with travel agents may vary. For instance, although our direct business is growing at a rapid pace, sale arrangements through travel agent charter and group sales are proportionately higher in the China market than in our other markets which are primarily through retail agency and direct sales.
We have developed and implemented enhancements to our reservations system that provide us and our travel partners with additional capabilities, making it easier to do business with us.
We offer air transportation to our guests through our air transportation program available in major cities around the world. Generally, air tickets are sold to guests at prices close to cost which vary by gateway and destination.
Passenger ticket revenues accounted for approximately 72% of total revenues in 2018, 2017 and 2016.
Onboard Activities and Other Revenues
Our cruise brands offer modern fleets with a wide array of onboard services, amenities and activities which vary by brand and ship. While many onboard activities are included in the base price of a cruise, we realize additional revenues from, among other things, gaming, the sale of alcoholic and other beverages, Internet and other telecommunication services, gift shop items, shore excursions, photography, spa/salon and fitness services, art auctions,

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retail shops and a wide variety of specialty restaurants and dining options. Many of these services are available for pre-booking prior to embarkation. These activities are provided either directly by us or by independent concessionaires from which we receive a percentage of their revenues.
In conjunction with our cruise vacations, we offer pre- and post-cruise hotel packages to our Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, and Silversea Cruises guests. We also offer cruise vacation protection coverage to guests in a number of markets, which provides guests with coverage for trip cancellation, medical protection and baggage protection. Onboard and other revenues accounted for approximately 28% of total revenues in 2018, 2017 and 2016.
Segment Reporting
We control and operate four cruise brands, Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, and Silversea Cruises. In addition, we have a 50% investment in a joint venture with TUI AG which operates the German brand TUI Cruises, a 49% interest in the Spanish brand Pullmantur and a 36% interest in the Chinese brand SkySea Cruises, which ceased cruising operations in September 2018. We believe our brands possess the versatility to enter multiple cruise market segments within the cruise vacation industry. Although each of our brands has its own marketing style as well as ships and crews of various sizes, the nature of the products sold and services delivered by our brands share a common base (i.e., the sale and provision of cruise vacations). Our brands also have similar itineraries as well as similar cost and revenue components. In addition, our brands source passengers from similar markets around the world and operate in similar economic environments with a significant degree of commercial overlap. As a result, our brands have been aggregated as a single reportable segment based on the similarity of their economic characteristics, types of consumers, regulatory environment, maintenance requirements, supporting systems and processes as well as products and services provided. Our Chairman and Chief Executive Officer has been identified as the chief operating decision-maker and all significant operating decisions including the allocation of resources are based upon the analyses of the Company as one segment. (For financial information, see Item 8. Financial Statements and Supplementary Data.)
Employees
As of December 31, 2018, our Global Brands employed approximately 77,000 employees, including 70,000 shipboard employees as well as 7,000 full-time and 100 part-time employees in our shoreside operations. As of December 31, 2018, approximately 89% of our shipboard employees were covered by collective bargaining agreements.
Insurance
We maintain insurance on the hull and machinery of our ships, with insured values generally equal to the net book value of each ship. This coverage is maintained with reputable insurance underwriters from the British, Scandinavian, French, United States and other reputable international insurance markets.
We are members of four Protection and Indemnity ("P&I") clubs, which are part of a worldwide group of 13 P&I clubs, known as the International Group of P&I Clubs (the “IG”). Liabilities, costs and expenses for illness and injury to crew, guest injury, pollution and other third-party claims in connection with our cruise activities are covered by our P&I clubs, subject to the clubs’ rules and the limits of coverage determined by the IG. P&I coverage provided by the clubs is on a mutual basis and we are subject to additional premium calls in the event of a catastrophic loss incurred by any member of the 13 P&I clubs, whereby the reinsurance limits purchased by the IG are exhausted. We are also subject to additional premium calls based on investment and underwriting shortfalls experienced by our own individual insurers.
We maintain war risk insurance for legal liability to crew, guests and other third parties as well as for loss or damage to our vessels arising from acts of war, including invasion, insurrection, terrorism, rebellion, piracy and hijacking. Our primary war risk coverage is provided by a Norwegian war risk insurance association and our excess war risk insurance is provided by our four P&I clubs. Consistent with most marine war risk policies, our coverage is subject to cancellation in the event of a change in risk. In the event of a war between major powers, our primary policies terminate after thirty days’ notice and our excess policies terminate immediately. Our excess policies are also subject to cancellation after a notice period of seven days in the event of other changes in risk. These notice periods allow for premiums to be renegotiated based on changes in risk.

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Insurance coverage for other exposures, such as shoreside property and casualty, passenger off-vessel, directors and officers and network security and privacy, are maintained with various global insurance companies.
We do not carry business interruption insurance for our ships based on our evaluation of the risks involved and protective measures already in place, as compared to the cost of insurance.
All insurance coverage is subject to certain limitations, exclusions and deductible levels. In addition, in certain circumstances, we either self-insure or 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.
Trademarks
We own a number of registered trademarks related to the Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and Silversea Cruises cruise brands. The registered trademarks include the name “Royal Caribbean International” and its crown and anchor logo, the name “Celebrity Cruises” and its “X” logo, the name “Azamara Club Cruises” and its globe with an “A” logo, the name “Silversea Cruises” and its logo, and the names of various cruise ships, as well as loyalty program names, ship venues and other marketing programs. We believe our largest brands' trademarks are widely recognized throughout the world and have considerable value. The duration of trademark registrations varies from country to country. However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained.
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, our ships are registered in the Bahamas, Malta or in the case of our ships operating in the Galapagos Islands, Ecuador. Each ship is subject to regulations issued by its country of registry, including regulations issued pursuant to international treaties governing the safety of our ships, guests and crew as well as environmental protection. Each country of registry conducts periodic inspections to verify compliance with these regulations as discussed more fully below. Ships operating out of ports of call around the world are also subject to inspection by the maritime authorities of that country for compliance with international treaties and local regulations. Additionally, ships operating out of the 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 and health conditions. Our ships are also subject to similar inspections pursuant to the laws and regulations of various other countries our ships visit.
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. Health, safety, security, environmental and financial responsibility issues are, and we believe will continue to be, an area of focus by the relevant government authorities in the United States and internationally. From time to time, various regulatory and legislative changes may be proposed that could impact our operations and subject us to increasing compliance costs in the future.
Safety and Security Regulations
Our ships are required to comply with international safety standards defined in the International Convention for Safety of Life at Sea (“SOLAS”), which, among other things, establishes requirements for ship design, structural features, materials, construction, lifesaving equipment and safe management and operation of ships to ensure guest and crew safety. The SOLAS standards are revised from time to time and changes are incorporated into the operation of our ships. Compliance with these modified standards have not historically had a material effect on our operating costs. SOLAS incorporates the International Safety Management Code (“ISM Code”), which provides an international standard for the safe management and operation of ships and for pollution prevention. The ISM Code is mandatory for all vessels, including passenger vessel operators.
All of our operations and ships are regularly audited by various national authorities, and we are required to maintain the relevant certificates of compliance with the ISM Code.

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Our ships are subject to various security requirements, including the International Ship and Port Facility Security Code (“ISPS Code”), which is part of SOLAS, and the U.S. Maritime Transportation Security Act of 2002 (“MTSA”), which applies to ships that operate in U.S. ports. In order to satisfy these security requirements, we implement security measures, conduct vessel security assessments, and develop security plans. The security plans for all of our ships have been submitted to and approved by the respective countries of registry for our ships in compliance with the ISPS Code and the MTSA.
The Cruise Vessel Security and Safety Act of 2010, which applies to passenger vessels which embark or include port stops within the United States, requires the implementation of certain safety design features as well as the establishment of practices for the reporting of and dealing with allegations of crime. The cruise industry supported this legislation and we believe that our internal standards are generally as strict or stricter than the law requires. A few provisions of the law call for regulations which have not yet been finalized. We do not expect the proposed regulations will have a material impact to our operations.
Environmental Regulations
We are subject to various international and national laws and regulations relating to environmental protection. Under such laws and regulations, we are generally prohibited from discharging materials other than food waste into the waterways. We have made, and will continue to make, capital and other expenditures to comply with environmental laws and regulations. From time to time, environmental and other regulators consider more stringent regulations, which may affect our operations and increase our compliance costs. We believe that the impact of ships on the global environment will continue to be an area of focus by the relevant authorities throughout the world and, accordingly, may subject us to increasing compliance costs in the future, including the items described below.
Our ships are subject to the International Maritime Organization’s (‘‘IMO’’) regulations under the International Convention for the Prevention of Pollution from Ships (the ‘‘MARPOL Regulations’’) and the International Convention for the Control and Management of Ships Ballast Water and Sediments (Ballast Water Management Convention), which includes requirements designed to minimize pollution by oil, sewage, garbage, air emissions and the transfer of non-native/non-indigenous species. We have obtained the relevant international compliance certificates relating to oil, sewage, air pollution prevention and ballast water for all of our ships.
The MARPOL Regulations impose global limitations on the sulfur content of emissions emitted by ships operating worldwide to 3.5%, which will be further reduced to 0.5% beginning in January 2020. We do not expect this reduced limitation will have a material impact to our results of operations largely due to a number of mitigating steps we have taken over the last several years, including equipping all of our new ships delivered during or after 2014 with advanced emissions purification ("AEP") systems covering all engines and actively developing and testing AEP systems on the majority of our remaining fleet.
The MARPOL Regulations also establish special Emission Control Areas (‘‘ECAs’’) with stringent limitations on sulfur emissions in these areas. There are four established ECAs that restrict sulfur emissions: the Baltic Sea, the North Sea/English Channel, certain waters surrounding the North American coast, and the waters surrounding Puerto Rico and the U.S. Virgin Islands (the “Caribbean ECA”). Ships operating in these sulfur ECAs have been required to reduce their emissions sulfur content from 1.0% to 0.1%. This reduction has not had a significant impact on our results of operations to date due to the mitigating steps described above.
We continue to implement our AEP system strategy both for our ships on order and for the majority of the ships on our fleet. As our new ships are delivered, they will provide us with additional operational and deployment flexibility. From 2014 to 2017, we had in place exemptions for 19 of our ships which applied while they were sailing in the North American and Caribbean ECAs. These exemptions delayed the requirement to comply with the additional sulfur content reduction pending our continued development and deployment of AEP systems on these ships. By the end of 2018, we completed installations on all ships covered by the exemptions. We believe that the learning from our existing endeavors as well as our further efforts with regards to this technology will allow us to continue an effective AEP system retrofit strategy for our fleet.
All new ships that began construction after January 1, 2016 are required to meet more stringent nitrogen oxide emission limits when operating within the North American and U.S. Caribbean Sea ECA. We comply with these rules

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for those relevant ships in service. All of our ships under construction are being built to comply with these rules. These rules have not had and are not expected to have a significant impact to our operations or costs.
Effective July 1, 2015, the European Commission adopted legislation that requires cruise ship operators with ships visiting ports in the European Union to monitor and report on the ship’s annual carbon dioxide emissions starting in 2018. Compliance with this regulation did not have a material impact to our costs or results of operations in 2018. Additionally, in 2019, the IMO's monitoring and reporting system (IMO data and collection system), which is applicable to all ship itineraries, will enter into force. While we do not expect compliance with either of these regulations to materially impact our costs or results of operations, the legislations both present the new monitoring and reporting requirements as the first step of a staged approach, which could ultimately result in additional costs or charges associated with carbon dioxide emissions.
The IMO Ballast Water Management Convention, which came in effect in 2017, requires ships that carry and discharge ballast water to meet specific discharge standards by installing Ballast Water Treatment Systems within the next five years. Compliance with this regulation has not had a material effect on our results of operations and we do not expect the continuing compliance with this regulation to have a material effect on our results of operations.
Refer to Item 1A. Risk Factors - "Environmental, labor, health and safety, financial responsibility and other maritime regulations could affect operations and increase costs" for further discussion of the risks associated with the regulations discussed above.
Consumer Financial Responsibility Regulations
We are required to obtain certificates from the United States Federal Maritime Commission relating to our ability to satisfy liability in cases of non-performance of obligations to guests, as well as casualty and personal injury. As a condition to obtaining the required certificates, we generally arrange through our insurers for the provision of surety for our ship-operating companies. The required amount is currently $30.0 million per operator and is subject to additional consumer price index based adjustments.
We are also required by the United Kingdom, Norway, Finland and the Baltics to establish our financial responsibility for any liability resulting from the non-performance of our obligations to guests from these jurisdictions. In the United Kingdom we are currently required by the Association of British Travel Agents to provide performance bonds totaling approximately £74 million. The Norwegian Travel Guarantee Fund requires us to maintain performance bonds in varying amounts during the course of the year to cover our financial responsibility in Norway, Finland and the Baltics. These amounts ranged from NOK 44 million to NOK 116 million during 2018.
Certain other jurisdictions also require that we establish financial responsibility to our guests resulting from the non-performance of our obligations; however, the related amounts do not have a material effect on our costs.
Taxation of the Company
The following is a summary of our principal taxes, exemptions and special regimes. In addition to or instead of income taxation, virtually all jurisdictions where our ships call impose some tax or fee, or both, based on guest headcount, tonnage or some other measure. We also collect and remit value added tax (VAT) or sales tax in many jurisdictions where we operate.
Our consolidated operations are primarily foreign corporations engaged in the owning and operating of passenger cruise ships in international transportation.
U.S. Income Taxation
The following is a discussion of the application of the U.S. federal and state income tax laws to us and is based on the current provisions of the U.S. Internal Revenue Code, Treasury Department regulations, administrative rulings, court decisions and the relevant state tax laws, regulations, rulings and court decisions of the states where we have business operations. All of the foregoing is subject to change, and any such change could affect the accuracy of this discussion.

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Application of Section 883 of the Internal Revenue Code
We, Celebrity Cruises, Inc. and Silversea Cruises Ltd. are engaged in a trade or business in the United States, and many of our ship-owning subsidiaries, depending upon the itineraries of their ships, receive income from sources within the United States. Additionally, our United Kingdom tonnage tax company is a ship-operating company classified as a disregarded entity for U.S. federal income tax purposes that may earn U.S. source income. Under Section 883 of the Internal Revenue Code, certain foreign corporations may exclude from gross income (and effectively from branch profits tax as such earnings do not give rise to effectively connected earnings and profits) U.S. source income derived from or incidental to the international operation of a ship or ships, including income from the leasing of such ships.
A foreign corporation will qualify for the benefits of Section 883 if, in relevant part: (1) the foreign country in which the foreign corporation is organized grants an equivalent exemption to corporations organized in the United States; and (2) the stock of the corporation (or the direct or indirect corporate parent thereof) is “primarily and regularly traded on an established securities market” in the United States. In the opinion of our U.S. tax counsel, Drinker Biddle & Reath LLP, based on the representations and assumptions set forth in that opinion, we, Celebrity Cruises Inc., and our ship-owning subsidiaries with U.S. source shipping income qualify for the benefits of Section 883 because we and each of those subsidiaries are incorporated in Liberia, which is a qualifying country, and our common stock is primarily and regularly traded on an established securities market in the United States (i.e., we are a "publicly traded" corporation). In addition, in the opinion of Drinker Biddle and Reath LLP, based on the representations and assumptions set forth in that opinion, Silversea Cruises Ltd. and its ship-owning subsidiaries with U.S. source shipping income qualify for the benefits of Section 883 because Silversea Cruises Ltd. and each of those subsidiaries is incorporated in Bahamas, which is a qualifying country, and more than 50% of Silversea Cruises Ltd.’s shares were indirectly owned (through a number of intermediary non U.S. companies) by a qualifying individual, and such individual and intermediary entities have complied with the relevant document requirements. If, in the future, (1) Liberia or Bahamas no longer qualify as equivalent exemption jurisdictions, and we do not reincorporate in a jurisdiction that does qualify for the exemption, or (2) we fail to qualify as a publicly traded corporation, we and all of our ship-owning or operating subsidiaries that rely on Section 883 to exclude qualifying income from gross income would be subject to U.S. federal income tax on their U.S. source shipping income and income from activities incidental thereto.
We believe that most of our income and the income of our ship-owning subsidiaries, including our U.K. tonnage tax company which is considered a division for U.S. tax purposes, is derived from or incidental to the international operation of a ship or ships and, therefore, is exempt from taxation under Section 883.
Regulations under Section 883 list activities that are not considered by the Internal Revenue Service to be incidental to the international operation of ships including the sale of air and land transportation, shore excursions and pre- and post-cruise tours. Our income from these activities that is earned from sources within the United States will be subject to U.S. taxation.
Taxation in the Absence of an Exemption Under Section 883
If we, the operator of our vessels, Celebrity Cruises Inc., Silversea Cruises Ltd., or our ship-owning subsidiaries were to fail to meet the requirements of Section 883 of the Internal Revenue Code, or if the provision was repealed, then, as explained below, such companies would be subject to U.S. income taxation on a portion of their income derived from or incidental to the international operation of our ships.
Because we, Celebrity Cruises Inc. and Silversea Cruises Ltd. conduct a trade or business in the United States, we, Celebrity Cruises Inc. and Silversea Cruises Ltd. would be taxable at regular corporate rates on our separate company taxable income (i.e., without regard to the income of our ship-owning subsidiaries) on income which is effectively connected with our U.S. trade or business (generally only income from U.S. sources). In addition, if any of our earnings and profits effectively connected with our U.S. trade or business were withdrawn, or were deemed to have been withdrawn, from our U.S. trade or business, those withdrawn amounts would be subject to a “branch profits” tax at the rate of 30%. We, Celebrity Cruises Inc. and Silversea Cruises Ltd. would also be potentially subject to tax on portions of certain interest paid by us at rates of up to 30%.
If Section 883 were not available to our ship-owning subsidiaries, each such subsidiary would be subject to a

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special 4% tax on its U.S. source gross transportation income, if any, each year because it does not have a fixed place of business in the United States and its income is derived from the leasing of a ship.
Other United States Taxation
We, Celebrity Cruises Inc. and Silversea Cruises Ltd. earn U.S. source income from activities not considered incidental to international shipping. The tax on such income is not material to our results of operation for all years presented.
State Taxation
We, Celebrity Cruises Inc., Silversea Cruises Ltd. and certain of our subsidiaries are subject to various U.S. state income taxes which are generally imposed on each state’s portion of the U.S. source income subject to federal income taxes. Additionally, the state of Alaska subjects an allocated portion of the total income of companies doing business in Alaska and certain other affiliated companies to Alaska corporate state income taxes and also imposes a 33% tax on adjusted gross income from onboard gambling activities conducted in Alaska waters. This did not have a material impact to our results of operations for all years presented.
2017 Tax Cuts and Jobs Act
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. Among other things, the new legislation reduced the federal corporate income tax rate to 21% from 35%, resulting in an immaterial benefit in 2017 related to the reduction of our U.S. deferred tax liability. Although there are a number of provisions which apply to us, there was no material impact to our overall tax expense as a result of the legislation.  
Maltese and Spanish Income Taxation
Effective July 31, 2016, we sold 51% of our interest in Pullmantur Holdings S.L. ("Pullmantur Holdings"), the parent company of the Pullmantur brand. We account for our retained investment under the equity method of accounting. There was no tax impact to us as a result of this sale transaction. The surviving Pullmantur company continues to be subject to the tax laws of Spain and Malta, among others.
Under the sale agreement, we remain responsible for pre-sale tax matters with respect to years that are still open under the statute of limitations.
United Kingdom Income Taxation
During the year ended December 31, 2018, we operated 16 ships under the United Kingdom tonnage tax regime (“U.K. tonnage tax”).
Companies subject to U.K. tonnage tax pay a corporate tax on a notional profit determined with reference to the net tonnage of qualifying vessels. The requirements for a company to qualify for the U.K. tonnage tax regime include being subject to U.K. corporate income tax, operating qualifying ships, which are strategically and commercially managed in the United Kingdom, and fulfilling a seafarer training requirement.
Relevant shipping profits include income from the operation of qualifying ships and from shipping related activities. Our U.K. income from non-shipping activities which do not qualify under the U.K. tonnage tax regime and which are not considered significant, remain subject to regular U.K. corporate income tax.
Brazilian Income Taxation
Previously, Pullmantur and our U.K. tonnage tax company chartered certain ships to Brazilian subsidiary companies for operations in Brazil. Both Pullmantur and Royal Caribbean International ceased charters to Brazilian subsidiary companies in January 2016 and March 2016, respectively. While Brazilian charters took place, the Brazilian subsidiaries' earnings were subject to Brazilian taxation which was not considered significant. The charter payments made to the U.K. tonnage tax company and to Pullmantur were exempt from Brazilian income tax under Brazilian

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domestic law. Additionally, remittances of revenue from sales of certain cruises in the Brazilian market are subject to taxation.
Chinese Taxation
Our U.K. tonnage tax company operates ships in international transportation in China. The income earned from this operation is exempt from taxation in China under the U.K./China double tax treaty and other circulars addressing indirect taxes. Changes to or failure to qualify for the treaty or circular could cause us to lose the benefits provided which would have a material impact on our results of operations. Our Chinese income from non-shipping activities or from shipping activities not qualifying for treaty or circular protection and which are considered insignificant, remain subject to Chinese taxation.
Other Taxation
We and certain of our subsidiaries are subject to value-added and other indirect taxes most of which are reclaimable, zero-rated or exempt.
Website Access to Reports
We make available, free of charge, access to our Annual Reports, all quarterly and current reports and all amendments to those reports, as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission through our website at www.rclcorporate.com. The information contained on our website is not a part of any of these reports and is not incorporated by reference herein.

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Executive Officers of the Company
As of February 22, 2019, our executive officers are:
NameAge Position
Richard D. Fain71 Chairman, Chief Executive Officer and Director
Jason T. Liberty43 Executive Vice President, Chief Financial Officer
Michael W. Bayley60 President and Chief Executive Officer, Royal Caribbean International
Lisa Lutoff-Perlo61 President and Chief Executive Officer, Celebrity Cruises
Lawrence Pimentel67 President and Chief Executive Officer, Azamara Club Cruises
Harri U. Kulovaara66 Executive Vice President, Maritime
Bradley H. Stein63 Senior Vice President, General Counsel, Chief Compliance Officer
Henry L. Pujol51 Senior Vice President, Chief Accounting Officer
Richard D. Fain has served as a director since 1981 and as our Chairman and Chief Executive Officer since 1988. Mr. Fain is a recognized industry leader, having participated in shipping for over 40 years and having held a number of prominent industry positions, such as Chairman of the Cruise Lines International Association (CLIA), the largest cruise industry trade association. He currently serves as Chairman of the University of Miami Board of Trustees as well as serving on the National Board of the Posse Foundation. He is also former chairman of the Miami Business Forum, the Greater Miami Convention and Visitors Bureau, and the United Way of Miami-Dade.
Jason T. Liberty has been employed by the Company since 2005 and has served as Chief Financial Officer since May 2013. From May 2013 to February 2017, he served as Senior Vice President and Chief Financial Officer, and from February 2017 to May 2018, Mr. Liberty served as Executive Vice President and Chief Financial Officer, in each case overseeing the Company’s Treasury, Accounting, Corporate, Strategic and Revenue Planning, Corporate Development, Deployment, Internal Audit and Investor Relations functions. Since May 2018, in addition to the above functions, he has also overseen the Company’s Information Technology, Supply Chain, Risk Management, Legal and Port Operations functions. Prior to his role as Chief Financial Officer, Mr. Liberty served as Senior Vice President, Strategy and Finance from September 2012 through May 2013, overseeing the Company’s Corporate and Strategic Planning, Treasury, Investor Relations and Deployment functions. Prior to this, Mr. Liberty served, from 2010 through 2012, as Vice President of Corporate and Revenue Planning and, from 2008 to 2010, as Vice President of Corporate and Strategic Planning. Before joining Royal Caribbean, Mr. Liberty was a Senior Manager at the international public accounting firm of KPMG LLP.
Michael W. Bayley has served as President and Chief Executive Officer of Royal Caribbean International since December 2014. Prior to this, he served as President and Chief Executive Officer of Celebrity Cruises since August 2012. Mr. Bayley has been employed by Royal Caribbean for over 30 years, having started as an Assistant Purser onboard one of the Company’s ships. He has served in a number of roles including as Executive Vice President, Operations from February 2012 until August 2012. Other positions Mr. Bayley has held include Executive Vice President, International from May 2010 until February 2012; Senior Vice President, International from December 2007 to May 2010; Senior Vice President, Hotel Operations for Royal Caribbean International; and Chairman and Managing Director of Island Cruises.
Lisa Lutoff-Perlo has served as President and Chief Executive Officer of Celebrity Cruises since December 2014. Prior to this, she served as Executive Vice President, Operations for Royal Caribbean International from September 2012 to December 2014, where she was responsible for all of Royal Caribbean International's hotel, marine and port operations. Ms. Lutoff-Perlo has been employed with the Company since 1985 in a variety of positions within both Celebrity Cruises and Royal Caribbean International.  She started at Royal Caribbean International as District Sales Manager for New England and from August 2008 to August 2012 she was responsible for Celebrity Cruises’ hotel operation.

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Lawrence Pimentel has served as President and Chief Executive Officer of Azamara Club Cruises since July 2009. From 2001 until January 2009, Mr. Pimentel was President, Chief Executive Officer, Director and co-owner of SeaDream Yacht Club, a privately held luxury cruise line located in Miami, Florida with two yacht-style ships that sailed primarily in the Caribbean and Mediterranean. From April 1991 to February 2001, Mr. Pimentel was President and Chief Executive Officer of Carnival Corp.’s Seabourn Cruise Line and from May 1998 to February 2001, he was President and Chief Executive Officer of Carnival Corp.’s Cunard Line.
Harri U. Kulovaara has served as Executive Vice President, Maritime since January 2005. Mr. Kulovaara is responsible for fleet design and newbuild operations. Mr. Kulovaara also chairs our Maritime Safety Advisory Board. Mr. Kulovaara has been employed with Royal Caribbean since 1995 in a variety of positions, including Senior Vice President, Marine Operations, and Senior Vice President, Quality Assurance. Mr. Kulovaara is a naval architect and engineer.
Bradley H. Stein has served as General Counsel and Corporate Secretary of the Company since 2006. He has also served as Senior Vice President and Chief Compliance Officer of the Company since February 2009 and February 2011, respectively. Mr. Stein has been with Royal Caribbean since 1992. Before joining Royal Caribbean, Mr. Stein worked in private practice in New York and Miami.
Henry L. Pujol has served as Senior Vice President, Chief Accounting Officer of the Company since May 2013. Mr. Pujol originally joined Royal Caribbean in 2004 as Assistant Controller and was promoted to Corporate Controller in May 2007. Before joining Royal Caribbean, Mr. Pujol was a Senior Manager at the international public accounting firm of KPMG LLP.

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Item 1A. Risk Factors
The risk factors set forth below and elsewhere in this Annual Report on Form 10-K are important factors that could cause actual results to differ from expected or historical results. It is not possible to predict or identify all such risks. There may be additional risks that we consider not to be material, or which are not known, and any of these risks could have the effects set forth below. The ordering of the risk factors set forth below is not intended to reflect any Company indication of priority or likelihood. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a cautionary note regarding forward-looking statements.
Adverse worldwide economic or other conditions could reduce the demand for cruises and passenger spending, adversely impacting our operating results, cash flows and financial condition including potentially impairing the value of our ships and other assets.
The demand for cruises is affected by international, national and local economic conditions. Weak or uncertain economic conditions impact consumer confidence and pose a risk as vacationers may postpone or reduce discretionary spending. This, in turn, may result in cruise booking slowdowns, decreased cruise prices and lower onboard revenues. Given the global nature of our business, we are exposed to many different economies and our business could be hurt by challenging conditions in any of our markets. Any significant deterioration of international, national or local economic conditions could result in a prolonged period of booking slowdowns, depressed cruise prices and reduced onboard revenues.
Fears of terrorist attacks, war, and other hostilities could have a negative impact on our results of operations.
Events such as terrorist attacks, war (or war-like conditions), conflicts (domestic or cross-border), civil unrest and other hostilities, including an escalation in the frequency or severity of incidents, and the resulting political instability, travel restrictions and advisories, and concerns over safety and security aspects of traveling or the fear of any of the foregoing have had, and could have in the future, a significant adverse impact on demand and pricing in the travel and vacation industry. In view of our global operations, we are susceptible to a wide range of adverse events. These events could also result in additional security measures taken by local authorities which may potentially impact access to ports and/or destinations.
Our operating costs could increase due to market forces and economic or geo-political factors beyond our control.
Our operating costs, including fuel, food, payroll and benefits, airfare, taxes, insurance and security costs, are all subject to increases due to market forces and economic or geo-political conditions or other factors beyond our control. Increases in these operating costs could adversely affect our profitability.
Fluctuations in foreign currency exchange rates, fuel prices and interest rates could affect our financial results.
We are exposed to market risk attributable to changes in foreign currency exchange rates, fuel prices and interest rates. Significant changes in any of the foregoing could have a material impact on our financial results, net of the impact of our hedging activities and natural offsets. Our operating results have been and will continue to be impacted, often significantly, by changes in each of these factors. The value of our earnings in foreign currencies is adversely impacted by a strong United States dollar. In addition, any significant increase in fuel prices could materially and adversely affect our business as fuel prices not only impact our fuel costs, but also some of our other expenses, such as crew travel, freight and commodity prices. Also, a significant increase in interest rates could materially impact the cost of our floating rate debt. Furthermore, regulatory changes, such as the announcement of the United Kingdom’s Financial Conduct Authority to phase out LIBOR by the end of 2021, may adversely affect our portfolio of floating-rate debt and interest rate derivatives. If LIBOR ceases to exist, we may need to renegotiate any credit agreements or interest rate derivatives agreements extending beyond 2021 that utilize LIBOR as a factor in determining the interest rate or hedge rate, which could adversely impact our cost of debt.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for more information.
Conducting business globally may result in increased costs and other risks.
We operate our business globally. Operating internationally exposes us to a number of risks, including increased exposure to a wider range of regional and local economic conditions, volatile local political conditions, potential

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changes in duties and taxes, including changing and/or uncertain interpretations of existing tax laws and regulations, required compliance with additional laws and policies affecting cruising, vacation or maritime businesses or governing the operations of foreign-based companies, currency fluctuations, interest rate movements, difficulties in operating under local business environments, port quality and availability in certain regions, U.S. and global anti-bribery laws or regulations, imposition of trade barriers and restrictions on repatriation of earnings.
Our future growth strategies increasingly depend on the growth and sustained profitability of certain international markets, such as China. Some factors that will be critical to our success in developing these markets may be different than those affecting our more-established North American and European markets. In the Chinese market, in particular, our future success depends on our ability to continue to raise awareness of our products, evolve the available distribution channels and adapt our offerings to best suit the Chinese consumer. China’s economy differs from the economies of other developed countries in many respects and, as the legal and regulatory system in China continues to evolve, there may be greater uncertainty as to the interpretation and enforcement of applicable laws and regulations. In March 2017, China's National Tourism Administration issued a directive to travel agents to halt sales of holiday packages to South Korea. This travel restriction has had a direct impact on our related itineraries impacting the overall performance of our China business. It is uncertain what the ultimate scope and duration of this restriction will be, but to the extent that this or similar sanctions affecting regional travel and/or tourism continues or are put in place, it may impact local demand, available cruise itineraries and the overall financial performance of the China market.
Operating globally also exposes us to numerous and sometimes conflicting legal, regulatory and tax requirements. In many parts of the world, including countries in which we operate, practices in the local business communities might not conform to international business standards. We must adhere to policies designed to promote legal and regulatory compliance as well as applicable laws and regulations. However, we might not be successful in ensuring that our employees, agents, representatives and other third parties with whom we associate throughout the world properly adhere to them. Failure by us, our employees or any of these third parties to adhere to our policies or applicable laws or regulations could result in penalties, sanctions, damage to our reputation and related costs which in turn could negatively affect our results of operations and cash flows.
We have operations in and source passengers from the United Kingdom and other member countries of the European Union. In March 2017, the United Kingdom notified the European Council of its intent to withdraw from the European Union. Since the initial referendum in June 2016, the expected withdrawal has resulted in increased volatility in the global financial markets and, in particular, in global currency exchange rates. The expected withdrawal could potentially adversely affect tax, legal and regulatory regimes to which our business in the region is subject. The expected withdrawal could also, among other potential outcomes, disrupt the free movement of goods, services and people between the United Kingdom and the European Union. Further, as the expected withdrawal approaches, continued uncertainty around these issues could lead to adverse effects on the economy of the United Kingdom, including the value of the British Pound, and the other economies in which we operate, making it more difficult to source passengers from these regions. These risks may be exacerbated if a structured withdrawal agreement is not ratified before the March 29, 2019 deadline, and/or if voters of other countries within the European Union similarly elect to exit the European Union in future referendums.
As a global operator, our business may be also impacted by changes in U.S. policy or priorities in areas such as trade, immigration and/or environmental or labor regulations, among others. Depending on the nature and scope of any such changes, they could impact our domestic and international business operations. Any such changes, and any international response to them, could potentially introduce new barriers to passenger or crew travel and/or cross border transactions, impact our guest experience and/or increase our operating costs. For example, we are currently monitoring developments in Venezuela as well as the U.S. government's recent comments regarding its policy towards Cuba and its impact to our business. A significant shift in U.S. policy towards Cuba, including the administration’s possible taking action to limit the ability of companies like us to continue to conduct business in Cuba, and/or a significant deterioration in the Cuban economy could impact our Cuban itineraries and associated ticket and tour revenues.  
In addition, the administration has stated it is reviewing whether to continue to suspend the right of private parties to bring litigation under the Helms-Burton Act against companies making unauthorized use of property confiscated by the Cuban government. If such suspension is lifted, monetary and other claims may be brought against us and other companies doing business in Cuba.  Although we believe we have meritorious defenses to any such claims, it is possible that such claims could lead to an adverse impact on our business.

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If we are unable to address these risks adequately, our financial position and results of operations could be adversely affected, including potentially impairing the value of our ships and other assets.
Price increases for commercial airline service for our guests or major changes or reduction in commercial airline service and/or availability could adversely impact the demand for cruises and undermine our ability to provide reasonably priced vacation packages to our guests.
Many of our guests depend on scheduled commercial airline services to transport them to or from the ports where our cruises embark or disembark. Increases in the price of airfare would increase the overall price of the cruise vacation to our guests, which may adversely impact demand for our cruises. In addition, changes in the availability of commercial airline services could adversely affect our guests’ ability to obtain airfare, as well as our ability to fly our guests to or from our cruise ships, which could adversely affect our results of operations.
Incidents or adverse publicity concerning our ships, port facilities, land destinations and/or passengers or the cruise vacation industry in general, unusual weather conditions and other natural disasters or disruptions could affect our reputation as well as impact our sales and results of operations.
The ownership and/or operation of cruise ships, private destinations, port facilities and shore excursions involves the risk of accidents, illnesses, mechanical failures, environmental incidents and other incidents which may bring into question safety, health, security and vacation satisfaction which could negatively impact our reputation. Incidents involving cruise ships, and, in particular the safety, health and security of guests and crew and media coverage thereof have impacted and could in the future impact demand for our cruises and pricing in the industry. Our reputation and our business could also be damaged by negative publicity regarding the cruise industry in general, including publicity regarding the spread of contagious disease and the potentially adverse environmental impacts of cruising. The considerable expansion in the use of social media and digital marketing over recent years has compounded the potential scope of any negative publicity. If any such incident or news cycle occurs during a time of high seasonal demand, the effect could disproportionately impact our results of operations for the year. In addition, incidents involving cruise ships may result in additional costs to our business, increasing government or other regulatory oversight and, in the case of incidents involving our ships, potential litigation.
Our cruise ships, port facilities and land destinations may also be adversely impacted by weather or natural disasters or disruptions, such as hurricanes. We are often forced to alter itineraries and occasionally cancel a cruise or a series of cruises or to redeploy our ships due to these types of events, which could have an adverse effect on our sales and profitability in the current and future periods. Increases in the frequency, severity or duration of severe weather events, including those related to climate change, could exacerbate their impact and cause further disruption to our operations or make certain destinations less desirable. In addition, these and any other events which impact the travel industry more generally may negatively impact our ability to deliver guests or crew to our cruises and/or interrupt our ability to obtain services and goods from key vendors in our supply chain. Any of the foregoing could have an adverse impact on our results of operations and on industry performance.
An increase in capacity worldwide or excess capacity in a particular market could adversely impact our cruise sales and/or pricing.
Although our ships can be redeployed, cruise sales and/or pricing may be impacted by the introduction of new ships into the marketplace, reductions in cruise capacity, overall market growth and deployment decisions of ourselves and our competitors. As of December 31, 2018, a total of 89 new ships with approximately 198,000 berths are on order for delivery through 2023 in the cruise industry. The further net growth in capacity from these new ships and future orders, without an increase in the cruise industry’s demand and/or share of the vacation market, could depress cruise prices and impede our ability to achieve yield improvement.
In addition, to the extent that we or our competitors deploy ships to a particular itinerary and the resulting capacity in that region exceeds the demand, we may lower pricing and profitability may be lower than anticipated. This risk exists in emerging cruise markets, such as China, where capacity has grown rapidly over the past few years and in mature markets where excess capacity is typically redeployed. Any of the foregoing could have an adverse impact on our results of operations, cash flows and financial condition, including potentially impairing the value of our ships and other assets.


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Unavailability of ports of call may adversely affect our results of operations.
We believe that port destinations are a major reason why guests choose to go on a particular cruise or on a cruise vacation. The availability of ports and destinations is affected by a number of factors, including existing capacity constraints, constraints related to the size of certain ships, security, environmental and health concerns, adverse weather conditions and natural disasters, financial limitations on port development, exclusivity arrangements that ports may have with our competitors, geopolitical developments, local governmental regulations and local community concerns about port development and other adverse impacts on their communities from additional tourists and overcrowding. In addition, fuel costs may adversely impact the destinations on certain of our itineraries.
Today certain ports and destinations are facing a surge of both cruise and non-cruise tourism which, in certain cases, has fueled anti-tourism sentiments and related countermeasures to limit the volume of tourists allowed in these destinations, including proposed limits on cruise ships and cruise passengers. In 2019, for example, the local government of Dubrovnik, Croatia will cap the number of cruise ships that can dock each day to two and the number of corresponding passengers to 5,000. Similar potential restrictions in ports and destinations such as Barcelona, Venice, Amsterdam and the Norwegian fjords could limit the itinerary and destination options we can offer our passengers going forward.
Any limitations on the availability or feasibility of our ports of call or on the availability of shore excursions and other service providers at such ports could adversely affect our results of operations.
Our reliance on shipyards, their subcontractors and our suppliers to implement our newbuild and ship upgrade programs and to repair and maintain our ships exposes us to risks which, if realized, could adversely impact our business.
We rely on shipyards, their subcontractors and our suppliers to effectively construct our new ships and to repair, maintain and upgrade our existing ships on a timely basis and in a cost effective manner.
There are a limited number of shipyards with the capability and capacity to build our new ships. Increased demand for available new construction slots and/or continued consolidation in the cruise shipyard industry could impact our ability to: (1) construct new ships, when and as planned, (2) cause us to continue to commit to new ship orders earlier than we have historically done so and/or (3) result in stronger bargaining power on the part of the shipyards and the export credit agencies providing financing for the project.  Our inability to timely and cost-effectively procure new capacity could have a significant negative impact on our future business plans and results of operations.
Building, repairing, maintaining and/or upgrading a ship is sophisticated work that involves significant risks. In addition, the prices of labor and/or various commodities that are used in the construction of ships can be subject to volatile price changes, including the impact of fluctuations in foreign exchange rates. Shipyards, their subcontractors and/or our suppliers may encounter financial, technical or design problems when doing these jobs.  If materialized, these problems could impact the timely delivery or costs of new ships or the ability of shipyards to repair and upgrade our fleet in accordance with our needs or expectations.  In addition, delays or mechanical faults may result in cancellation of cruises or, in more severe situations, new ship orders, or necessitate unscheduled drydocks and repairs of ships. These events and any related adverse publicity could result in lost revenue, increased operating expenses, or both, and thus adversely affect our results of operations.
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, internet-based alternative lodging sites and package holidays and tours.
We face significant competition from other cruise lines on the basis of cruise pricing, travel agent preference and also in terms of the nature of ships and services we offer to guests. Our principal competitors within the cruise vacation industry include Carnival Corporation & plc, which owns, among others, Aida Cruises, Carnival Cruise Line, Costa Cruises, Cunard Line, Holland America Line, P&O Cruises, Princess Cruises and Seabourn; Disney Cruise Line; MSC Cruises; and Norwegian Cruise Line Holdings Ltd, which owns Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. Our revenues are sensitive to the actions of other cruise lines in many areas including pricing, scheduling, capacity and promotions, which can have a substantial adverse impact not only on our revenues, but on overall industry revenues.

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In the event that we do not effectively market or differentiate our cruise brands from our competitors or otherwise compete effectively with other vacation alternatives and new or existing cruise companies, our results of operations and financial position could be adversely affected.
We may not be able to obtain sufficient financing or capital for our needs or may not be able to do so on terms that are acceptable or consistent with our expectations.
To fund our capital expenditures (including new ship orders), operations and scheduled debt payments, we have historically relied on a combination of cash flows provided by operations, drawdowns under available credit facilities, the incurrence of additional indebtedness and the sale of equity or debt securities in private or public securities markets. Any circumstance or event which leads to a decrease in consumer cruise spending, such as worsening global economic conditions or significant incidents impacting the cruise industry, could negatively affect our operating cash flows. See “-Adverse worldwide economic or other conditions…” and “-Incidents or adverse publicity concerning our ships and/or passengers or the cruise vacation industry…” for more information.
Although we believe we can access sufficient liquidity to fund our operations, investments and obligations as expected, there can be no assurances to that effect. Our ability to access additional funding as and when needed, our ability to timely refinance and/or replace our outstanding debt securities and credit facilities on acceptable terms and our cost of funding will depend upon numerous factors including, but not limited to, the vibrancy of the financial markets, our financial performance, the performance of our industry in general and the size, scope and timing of our financial needs. In addition, even where financing commitments have been secured, significant disruptions in the capital and credit markets could cause our banking and other counterparties to breach their contractual obligations to us. This could include failures of banks or other financial service companies to fund required borrowings under our loan agreements or to pay us amounts that may become due or return collateral that is refundable under our derivative contracts for hedging of fuel prices, interest rates and foreign currencies or other agreements. If any of the foregoing occurs it may have a negative impact on our cash flows, including our ability to meet our obligations, our results of operations and our financial condition.
Our liquidity could be adversely impacted if we are unable to satisfy the covenants required by our credit facilities.
Our debt agreements contain covenants, including covenants restricting our and their ability to take certain actions and financial covenants. Our ability to maintain our credit facilities may also be impacted by changes in our ownership base. More specifically, we may be required to prepay our bank financing facilities if any person acquires ownership of more than 50% of our common stock or, subject to certain exceptions, during any 24-month period, a majority of our board of directors is no longer comprised of individuals who were members of our board of directors on the first day of such period.  Our public debt securities also contain change of control provisions that would be triggered by a third-party acquisition of greater than 50% of our common stock coupled with a ratings downgrade.
Failure to comply with the terms of these debt facilities could result in an event of default. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default acceleration clauses, our outstanding debt and derivative contract payables could become due and/or terminated. In addition, in such events, our credit card processors could hold back payments to create a reserve. We cannot provide assurances that we would have sufficient liquidity to repay, or the ability to refinance the debt if such amounts were accelerated upon an event of default.
If we are unable to appropriately balance our cost management and capital allocation strategies with our goal of satisfying guest expectations, it may adversely impact our business success.
Our goals call for us to provide high quality products and deliver high quality services. There can be no assurance that we can successfully balance these goals with our cost management and capital allocation strategies. Our business also requires us to make capital allocation decisions, such as ordering new ships, upgrading our existing fleet, enhancing our technology and data capabilities, and expanding our portfolio of land-based assets, based on expected market preferences, competition and projected demand. There can be no assurance that our strategies will be successful, which could adversely impact our business, financial condition and results of operations. Investments in older tonnage, in particular, run the risk of not meeting expected returns and diluting related asset values.
Our attempts to expand our business into new markets and new ventures may not be successful.
We opportunistically seek to grow our business through, among other things, expansion into new destination or source markets and establishment of new ventures complementary to our current offerings. These attempts to expand

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our business increase the complexity of our business, require significant levels of investment and can strain our management, personnel, operations and systems. There can be no assurance that these business expansion efforts will develop as anticipated or that we will succeed, and if we do not, we may be unable to recover our investment, which could adversely impact our business, financial condition and results of operations.
Our reliance on travel agencies to sell and market our cruises exposes us to certain risks which, if realized, could adversely impact our business.
We rely on travel agencies to generate the majority of bookings for our ships. Accordingly, we must ensure that our commission rates and incentive structures remain competitive. If we fail to offer competitive compensation packages, these agencies may be incentivized to sell cruises offered by our competitors to our detriment, which could adversely impact our operating results. Our reliance on third-party sellers is particularly pronounced in certain markets, such as China, where we have a large number of travel agent charter and group sales and less retail agency and direct bookings. In addition, the travel agent industry is sensitive to economic conditions that impact discretionary income of consumers. Significant disruptions, especially disruptions impacting those agencies that sell a high volume of our business, or contractions in the industry could reduce the number of travel agencies available for us to market and sell our cruises, which could have an adverse impact on our financial condition and results of operations.
Disruptions in our shoreside or shipboard operations or our information systems may adversely affect our results of operations.
Our principal executive office and principal shoreside operations are located in Florida, and we have shoreside offices throughout the world. Actual or threatened natural disasters (e.g., hurricanes/typhoons, earthquakes, tornadoes, fires or floods) or similar events in these locations may have a material impact on our business continuity, reputation and results of operations. In addition, substantial or repeated information system failures, computer viruses or cyber-attacks impacting our shoreside or shipboard operations could adversely impact our business. We do not generally carry business interruption insurance for our shoreside or shipboard operations or our information systems. As such, any losses or damages incurred by us could have an adverse impact on our results of operations.
The loss of key personnel, our inability to recruit or retain qualified personnel, or disruptions among our shipboard personnel due to strained employee relations could adversely affect our results of operations.
Our success depends, in large part, on the skills and contributions of key executives and other employees, and on our ability to recruit, develop and retain high quality personnel and develop adequate succession plans. As demand for qualified personnel in the industry grows, we must continue to effectively recruit, train, motivate and retain our employees, both shoreside and on our ships, in order to effectively compete in our industry, maintain our current business and support our projected global growth.
As of December 31, 2018, 89% of our shipboard employees were covered by collective bargaining agreements. A dispute under our collective bargaining agreements could result in a work stoppage of those employees covered by the agreements. We may not be able to satisfactorily renegotiate these collective bargaining agreements when they expire. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage on our ships. We may also be subject to or affected by work stoppages unrelated to our business or collective bargaining agreements. Any such work stoppages or potential work stoppages could have a material adverse effect on our financial results, as could a loss of key employees, our inability to recruit or retain qualified personnel or disruptions among our personnel.
Business activities that involve our co-investments with third parties may subject us to additional risks.
Partnerships, joint ventures and other business structures involving our co-investments with third parties generally include some form of shared control over the operations of the business and create additional risks, including the possibility that other investors in such ventures could become bankrupt or otherwise lack the financial resources to meet their obligations, or could have or develop business interests, policies or objectives that are inconsistent with ours. In addition to financial risks, our co-investment activities may also present managerial and operational risks and expose us to reputational or legal concerns. These or other issues related to our co-investments with third parties could adversely impact our operations.


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Past or pending business acquisitions or potential acquisitions that we may decide to pursue in the future carry inherent risks which could adversely impact our financial performance and condition.
The Company, from time to time, has engaged in acquisitions (e.g., our recent Silversea Cruises acquisition) and may pursue acquisitions in the future, which are subject to, among other factors, the Company’s ability to identify attractive business opportunities and to negotiate favorable terms for such opportunities. Accordingly, the Company cannot make any assurances that potential acquisitions will be completed timely or at all, or that if completed, we would realize the anticipated benefits of such acquisition. Acquisitions also carry inherent risks such as, among others: (1) the potential delay or failure of our efforts to successfully integrate business processes and realizing expected synergies; (2) difficulty in aligning procedures, controls and/or policies; and (3) future unknown liabilities and costs that may be associated with an acquisition. In addition, acquisitions may also adversely impact our liquidity and/or debt levels, and the recognized value of goodwill and other intangible assets can be negatively affected by unforeseen events and/or circumstances, which may result in an impairment charge. Any of the foregoing events could adversely impact our financial condition and results of operations.
We rely on supply chain vendors and third-party service providers who are integral to the operations of our businesses. These vendors and service providers may be unable or unwilling to deliver on their commitments or may act in ways that could harm our business.
We rely on supply chain vendors to deliver key products to the operations of our businesses around the world. Any event impacting a vendor’s ability to deliver goods of the required quality at the location and time needed could negatively impact our ability to deliver our cruise experience. Events impacting our supply chain could be caused by factors beyond the control of our suppliers or us, including inclement weather, natural disasters, increased demand, problems in production or distribution and/or disruptions in third-party logistics or transportation systems. Interruptions to our supply chain could increase costs and could limit the availability of products critical to our operations.
In order to achieve cost and operational efficiencies, we outsource to third-party vendors certain services that are integral to the operations of our global businesses, such as our onboard concessionaires, certain of our call center operations and operation of a large part of our information technology systems. We are subject to the risk that certain decisions are subject to the control of our third-party service providers and that these decisions may adversely affect our activities. A failure to adequately monitor a third-party service provider’s compliance with a service level agreement or regulatory or legal requirements could result in significant economic and reputational harm to us. There is also a risk the confidentiality, privacy and/or security of data held by third parties or communicated over third-party networks or platforms could become compromised.
If we are unable to keep pace with developments in technology or technological obsolescence, our operations or competitive position could become impaired.
Our business continues to demand the use of sophisticated technology and systems. These technologies and systems require significant investment and must be proven, refined, updated, and/or replaced with more advanced systems in order to continue to meet our customers’ demands and expectations. If we are unable to do so in a timely manner or within reasonable cost parameters or if we are unable to appropriately and timely train our employees to operate any of these new systems, our business could suffer. We also may not achieve the benefits that we anticipate from any new technology or system, which could result in higher than anticipated costs or impair our operating results.
We are exposed to cyber-attacks and data breaches, including the risks and costs associated with protecting our systems and maintaining integrity and security of our business information, as well as personal data of our guests, employees and business partners.
We are subject to cyber-attacks. These cyber-attacks can vary in scope and intent from attacks with the objective of compromising our systems, networks and communications for economic gain to attacks with the objective of disrupting, disabling or otherwise compromising our maritime and/or shoreside operations. The attacks can encompass a wide range of methods and intent, including phishing attacks, illegitimate requests for payment, theft of intellectual property, theft of confidential or non-public information, installation of malware, installation of ransomware and theft of personal or business information. The breadth and scope of these attacks, as well as the techniques and sophistication used to conduct these attacks, have grown over time.

29


A successful cyber-attack may target us directly, or it may be the result of a third party's inadequate care. In either scenario, the Company may suffer damage to its systems and data that could interrupt our operations, adversely impact our reputation and brand and expose us to increased risks of governmental investigation, litigation and other liability, any of which could adversely affect our business. Furthermore, responding to such an attack and mitigating the risk of future attacks could result in additional operating and capital costs in systems technology, personnel, monitoring and other investments.
In addition, we are also subject to various risks associated with the collection, handling, storage and transmission of sensitive information. In the course of doing business, we collect large volumes of employee, customer and other third-party data, including personally identifiable information and individual credit data, for various business purposes. We are subject to federal, state and international laws (including the European Union General Data Protection Regulation which took effect in May 2018), as well as industry standards, relating to the collection, use, retention, security and transfer of personally identifiable information and individual credit data. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between the Company and its subsidiaries, and among the Company, its subsidiaries and other parties with which the Company has commercial relations. Several jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing international requirements has caused, and may cause us to incur substantial costs or require us to change our business practices. If we fail to comply with the various applicable data collection and privacy laws, we could be exposed to fines, penalties, restrictions, litigation or other expenses, and our business could be adversely impacted.
While we continue to evolve our cyber-security practices in line with our business' reliance on technology and the changing external threat landscape, and we invest time, effort and financial resources to secure our systems, networks and communications, our security measures cannot provide absolute assurance that we will be successful in preventing or responding to all cyber-attacks. For example, in September 2018, we discovered instances of unauthorized access to a number of employee e-mail communications, some of which contained proprietary business and personally identifiable information. We have implemented additional safeguards, and we do not believe that we experienced any material losses related to this incident; however, there can be no assurance that this or any other breach or incident will not have a material impact on our operations and financial results in the future.
Any breach, theft, loss, or fraudulent use of guest, employee, third-party or company data, could adversely impact our reputation and brand and our ability to retain or attract new customers, and expose us to risks of data loss, business disruption, governmental investigation, litigation and other liability, any of which could adversely affect our business. Significant capital investments and other expenditures could be required to remedy the problem and prevent future breaches, including costs associated with additional security technologies, personnel, experts and credit monitoring services for those whose data has been breached. Further, if we or our vendors experience significant data security breaches or fail to detect and appropriately respond to significant data security breaches, we could be exposed to government enforcement actions and private litigation.
The potential unavailability of insurance coverage, an inability to obtain insurance coverage at commercially reasonable rates or our failure to have coverage in sufficient amounts to cover our incurred losses may adversely affect our financial condition or results of operations.
We seek to maintain appropriate insurance coverage at commercially reasonable rates. We normally insure based on the cost of an asset rather than replacement value and we also elect to self-insure, co-insure, or use deductibles in certain circumstances for certain risks such as loss of use of a ship or a cyber-security breach. The limits of insurance coverage we purchase are based on the availability of the coverage, evaluation of our risk profile and cost of coverage. Accordingly, we are not protected against all risks and we cannot be certain that our coverage will be adequate for liabilities actually incurred which could result in an unexpected decrease in our revenue and results of operations in the event of an incident.
We are members of four Protection and Indemnity ("P&I") clubs, which are part of a worldwide group of 13 P&I clubs, known as the International Group of P&I Clubs (the “IG”). P&I coverage provided by the clubs is on a mutual basis and we are subject to additional premium calls in the event of a catastrophic loss incurred by any member of the 13 P&I clubs, whereby the reinsurance limits purchased by the IG are exhausted. We are also subject to additional premium calls based on investment and underwriting shortfalls experienced by our own individual insurers.

30


We cannot be certain that insurance and reinsurance coverage will be available to us and at commercially reasonable rates in the future or at all or, if available, that it will be sufficient to cover potential claims. Additionally, if we or other insureds sustain significant losses, the result may be higher insurance premiums, cancellation of coverage, or the inability to obtain coverage. Such events could adversely affect our financial condition or results of operations.
Environmental, labor, health and safety, financial responsibility and other maritime regulations could affect operations and increase operating costs.
The United States and various state and foreign government or regulatory agencies have enacted or may enact environmental regulations or policies, such as requiring the use of low sulfur fuels, that could increase our direct cost to operate in certain markets, increase our cost for fuel, limit the supply of compliant fuel, cause us to incur significant expenses to purchase and/or develop new equipment and adversely impact the cruise vacation industry. While we have taken and expect to continue to take a number of actions to mitigate the potential impact of certain of these regulations, there can be no assurances that these efforts will be successful or completed on a timely basis.
There is increasing global regulatory focus on climate change, greenhouse gas (GHG) and other emissions. These regulatory efforts, both internationally and in the United States are still developing, and we cannot yet determine what the final regulatory programs or their impact will be in any jurisdiction where we do business. However, such climate change-related regulatory activity in the future may adversely affect our business and financial results by requiring us to reduce our emissions, purchase allowances or otherwise pay for our emissions. Such activity may also impact us by increasing our operating costs, including fuel costs.
Some environmental groups have also lobbied for more stringent regulation of cruise ships and have generated negative publicity about the cruise vacation industry and its environmental impact. See Item 1. Business-Regulation-Environmental Regulations.
In addition, we are subject to various international, national, state and local laws, regulations and treaties that govern, among other things, discharge from our ships, safety standards applicable to our ships, treatment of disabled persons, health and sanitary standards applicable to our guests, security standards on board our ships and at the ship/port interface areas, and financial responsibilities to our guests. These issues are, and we believe will continue to be, an area of focus by the relevant authorities throughout the world. This could result in the enactment of more stringent regulation of cruise ships that could subject us to increasing compliance costs in the future.
A change in our tax status under the United States Internal Revenue Code, or other jurisdictions, may have adverse effects on our income.
We and a number of our subsidiaries are foreign corporations that derive income from a U.S. trade or business and/or from sources within the United States. Drinker Biddle & Reath LLP, our U.S. tax counsel, has delivered to us an opinion, based on certain representations and assumptions set forth in it, to the effect that this income, to the extent derived from or incidental to the international operation of a ship or ships, is excluded from gross income for U.S. federal income tax purposes pursuant to Section 883 of the Internal Revenue Code. We believe that most of our income (including that of our subsidiaries) is derived from or incidental to the international operation of ships.
Our ability to rely on Section 883 could be challenged or could change in the future. Provisions of the Internal Revenue Code, including Section 883, are subject to legislative change at any time. Moreover, changes could occur in the future with respect to the identity, residence or holdings of our direct or indirect shareholders, trading volume or trading frequency of our shares, or relevant foreign tax laws of Liberia such that it no longer qualifies as an equivalent exemption jurisdiction, that could affect our eligibility for the Section 883 exemption. Accordingly, there can be no assurance that we will continue to be exempt from U.S. income tax on U.S. source shipping income in the future. If we were not entitled to the benefit of Section 883, we and our subsidiaries would be subject to U.S. taxation on a portion of the income derived from or incidental to the international operation of our ships, which would reduce our net income.
Additionally, portions of our business are operated by companies that are within the United Kingdom tonnage tax regime. Further, some of our operations are conducted in jurisdictions where we rely on tax treaties to provide exemption from taxation. To the extent the United Kingdom tonnage tax laws change or we do not continue to meet

31


the applicable qualification requirements or if tax treaties are changed or revoked, we may be required to pay higher income tax in these jurisdictions, adversely impacting our results of operations.
As budgetary constraints continue to adversely impact the jurisdictions in which we operate, increases in income tax regulations, tax audits or tax reform affecting our operations may be imposed.
Litigation, enforcement actions, fines or penalties could adversely impact our financial condition or results of operations and/or damage our reputation.
Our business is subject to various United States and international laws and regulations that could lead to enforcement actions, fines, civil or criminal penalties or the assertion of litigation claims and damages. In addition, improper conduct by our employees, agents or joint venture partners could damage our reputation and/or lead to litigation or legal proceedings that could result in civil or criminal penalties, including substantial monetary fines. In certain circumstances it may not be economical to defend against such matters and/or a legal strategy may not ultimately result in us prevailing in a matter. Such events could lead to an adverse impact on our financial condition or results of operations.
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 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. As such, 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 certain United States jurisdictions. For example, the right of shareholders to bring a derivative action in Liberian courts may be more limited than in United States jurisdictions. There may also be practical difficulties for shareholders attempting to bring suit in Liberia and Liberian courts may or may not recognize and enforce foreign judgments. Thus, our public shareholders may have more difficulty in protecting their interests with respect to actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.
Provisions of our Articles of Incorporation, By-Laws and Liberian law could inhibit others from acquiring us, prevent a change of control, and may prevent efforts by our shareholders to change our management.
Certain provisions of our Articles of Incorporation and By-Laws and Liberian law may inhibit third parties from effectuating a change of control of the Company without approval from our board of directors which could result in the entrenchment of current management. These include provisions in our Articles of Incorporation that prevent third parties, other than A. Wilhelmsen AS. and Cruise Associates, from acquiring beneficial ownership of more than 4.9% of our outstanding shares without the consent of our board of directors.


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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Information about our cruise ships, including their size and primary areas of operation, may be found within the Operating Strategies - Fleet upgrade, maintenance and expansion section and the Operations - Cruise Ships and Itineraries sections in Item 1. Business. Information regarding our cruise ships under construction, estimated expenditures and financing may be found within the Future Capital Commitments and Funding Needs and Sources sections of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our principal executive office and principal shoreside operations are located in leased office buildings at the Port of Miami, Florida. We also lease a number of other offices in the U.S. and throughout Europe, Asia, Mexico, South America and Australia to administer our brand operations globally.
We believe that our facilities are adequate for our current needs and that we are capable of obtaining additional facilities as necessary.
We also operate two private destinations which we utilize as ports-of-call on certain itineraries: (i) an island we own in the Bahamas which we call CocoCay; and (ii) Labadee, a secluded peninsula we lease on the north coast of Haiti.
Item 3.    Legal Proceedings
On September 24, 2018, a proposed class-action lawsuit was filed by Roger and Maureen Carretta against Royal Caribbean Cruises Ltd. d/b/a Royal Caribbean International in the United States District Court for the Southern District of Florida relating to the marketing and sales of our Travel Protection Program. The plaintiffs purported to represent an alleged class of passengers who purchased the Travel Protection Program. The complaint alleged that the Company concealed that it received "kickbacks," in the form of undisclosed commissions on the sale of the travel insurance portion of the product from an underwriter, and allegedly improperly bundled Travel Insurance Policies with non-insurance products. The complaint sought damages in an indeterminate amount. On November 26, 2018, the Court dismissed the entire action with prejudice on the grounds that, among others, the claim was filed beyond the time limitations contained in the passenger ticket contract. Plaintiffs did not appeal the decision and the time period for filing an appeal has lapsed.
We are routinely involved in other claims typical within the cruise vacation industry. The majority of these claims are covered by insurance. We believe the outcome of such claims, net of expected insurance recoveries, will not have a material adverse impact on our financial condition or results of operations and cash flows.
Item 4.    Mine Safety Disclosures
None.

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PART II
Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed on the New York Stock Exchange ("NYSE") under the symbol "RCL."
Holders
As of February 14, 2019, there were 1,398 record holders of our common stock. Since certain of our shares are held by brokers and other institutions on behalf of shareholders, the foregoing number is not representative of the number of beneficial owners.
Dividends
Holders of our common stock have an equal right to share in our profits in the form of dividends when and if declared by our board of directors out of funds legally available. Holders of our common stock have no rights to any sinking fund.
There are no exchange control restrictions on remittances of dividends on our common stock since (1) we are and intend to maintain our status as a nonresident Liberian entity under the Liberia Revenue Code of 2000 as Amended and the regulations thereunder, 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. 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 an individual or entity subject to taxation in Liberia as a result of having a permanent establishment within the meaning of the Liberia Revenue Code of 2000 as Amended in Liberia.
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. Refer to Note 11. Shareholders' Equity to our consolidated financial statements under Item 8. Financial Statements and Supplemental Data for further information on dividends declared.
Share Repurchases
During the quarter ended December 31, 2018, there were no common stock repurchases.
As of December 31, 2018, we have approximately $700.0 million that remains available for future common stock repurchase transactions under a 24-month common stock repurchase program for up to $1.0 billion authorized by our board of directors on May 9, 2018. Refer to Note 11. Shareholders' Equity to our consolidated financial statements under Item 8. Financial Statements and Supplemental Data for further information.

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Performance Graph
The following graph compares the total return, assuming reinvestment of dividends, on an investment in the Company, based on performance of the Company's common stock, with the total return of the Standard & Poor's 500 Composite Stock Index ("S&P 500") and the Dow Jones United States Travel and Leisure Index for a five year period by measuring the changes in common stock prices from December 31, 2013 to December 31, 2018.
chart-c7af88fd7055571e90ea04.jpg
 12/13 12/14 12/15 12/16 12/17 12/18
Royal Caribbean Cruises Ltd
100.00 176.94 220.72 182.99 271.25 227.46
S&P 500100.00 113.69 115.26 129.05 157.22 150.33
Dow Jones U.S. Travel & Leisure100.00 116.37 123.23 132.56 164.13 154.95
The stock performance graph assumes for comparison that the value of the Company's common stock and of each index was $100 on December 31, 2013 and that all dividends were reinvested. Past performance is not necessarily an indicator of future results.

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Item 6.    Selected Financial Data
The selected consolidated financial data presented below for the years ended December 31, 2014 through December 31, 2018 and as of the end of each such year, except for Adjusted Net Income amounts, are derived from our audited consolidated financial statements and should be read in conjunction with those financial statements and the related notes as well as in conjunction with Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
 Year Ended December 31,
 
2018 (1)
 2017 2016 2015 2014
 (in thousands, except per share data)
Operating Data:         
Total revenues$9,493,849
 $8,777,845
 $8,496,401
 $8,299,074
 $8,073,855
Operating Income$1,894,801
 $1,744,056
 $1,477,205
 $874,902
 $941,859
Net Income$1,815,792
 $1,625,133
 $1,283,388
 $665,783
 $764,146
Net Income attributable to Royal Caribbean Cruises Ltd.$1,811,042
 $1,625,133
 $1,283,388
 $665,783
 $764,146
Adjusted Net Income attributable to Royal Caribbean Ltd.(2) (3) (4) (5)
$1,873,363
 $1,625,133
 $1,314,689
 $1,065,066
 $755,729
Per Share Data—Basic:         
Net Income attributable to Royal Caribbean Cruises Ltd.$8.60
 $7.57
 $5.96
 $3.03
 $3.45
Adjusted Net Income attributable to Royal Caribbean Cruises Ltd.$8.90
 $7.57
 $6.10
 $4.85
 $3.41
Weighted-average shares210,570
 214,617
 215,393
 219,537
 221,658
Per Share Data—Diluted:         
Net Income attributable to Royal Caribbean Cruises Ltd.$8.56
 $7.53
 $5.93
 $3.02
 $3.43
Adjusted Net Income attributable to Royal Caribbean Cruises Ltd.$8.86
 $7.53
 $6.08
 $4.83
 $3.39
Weighted-average shares and potentially dilutive shares211,554
 215,694
 216,316
 220,689
 223,044
Dividends declared per common share$2.60
 $2.16
 $1.71
 $1.35
 $1.10
Balance Sheet Data:         
Total assets (6)
$27,698,270
 $22,360,926
 $22,310,324
 $20,782,043
 $20,524,060
Total debt, including commercial paper and capital leases$10,777,699
 $7,539,451
 $9,387,436
 $8,527,243
 $8,254,818
Common stock$2,358
 $2,352
 $2,346
 $2,339
 $2,331
Total shareholders' equity$11,105,461
 $10,702,303
 $9,121,412
 $8,063,039
 $8,284,359
___________________________________________________________________
(1)
On July 31, 2018, we acquired a 66.7% equity stake in Silversea Cruise Holding Ltd ("Silversea Cruises"). Refer to Note 3. Business Combination to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for information on the Silversea Cruises acquisition.
(2)
For 2018, 2017 and 2016, refer to Financial Presentation and Results of Operations under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for the definition of Adjusted Net Income and a reconciliation of Adjusted Net Income to Net income.
(3)
Amount for 2017 includes a gain of $30.9 million related to the sale of Legend of the Seas.
(4)Amount for 2015 excludes the impairment of Pullmantur related assets of $399.3 million.
(5)
Amount for 2014 excludes restructuring and related impairment charges of $4.3 million, other initiative costs of $21.2 million, an $11.0 million loss related to the estimated impact of Pullmantur's non-core businesses that were sold in 2014 and a loss of $17.4 million recognized on the sale of Celebrity Century. Additionally, the amount for 2014 excludes $28.9 million of net income resulting from

36


the change in our voyage proration methodology and the reversal of a deferred tax asset valuation allowance of $33.5 million due to Spanish tax reform.
(6)
We reclassified prepaid commissions of $64.6 million from Customer deposits to Prepaid expenses and other assets in our consolidated balance sheet as of December 31, 2017 in order to conform to the current year presentation.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Concerning Forward-Looking Statements
The discussion under this caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this document, including, for example, under the "Risk Factors" and "Business" captions, includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance (including our expectations for the first quarter and full year of 2019 and our earnings and yield estimates for 2019 set forth under the heading "Outlook" below), business and industry prospects or future results of operations or financial position, made in this Annual Report on Form 10-K are forward-looking. Words such as "anticipate," "believe," "could," "estimate," "expect," "goal," "intend," "may," "plan," "project," "seek," "should," "will," "driving" and similar expressions are intended to further identify any of these forward-looking statements. Forward-looking statements reflect management's current expectations but they are based on judgments and are inherently uncertain. Furthermore, they are subject to risks, uncertainties and other factors that 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, those discussed in this Annual Report on Form 10-K and, in particular, the risks discussed under the caption "Risk Factors" in Part I, Item 1A of this report.
All forward-looking statements made in this Annual Report on Form 10-K speak only as of the date of this document. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
The discussion and analysis of our financial condition and results of operations have been organized to present the following:
a review of our critical accounting policies and of our financial presentation, including discussion of certain operational and financial metrics we utilize to assist us in managing our business;
a discussion of our results of operations for the year ended December 31, 2018 compared to the same period in 2017 and the year ended December 31, 2017 compared to the same period in 2016;
a discussion of our business outlook, including our expectations for selected financial items for the first quarter and full year of 2019; and
a discussion of our liquidity and capital resources, including our future capital and contractual commitments and potential funding sources.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). (Refer to Note 1. General and Note 2. Summary of Significant Accounting Policies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data). 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 policies and estimates with the audit committee of our board of directors. We believe our most critical accounting policies are as follows:
Ship Accounting
Our ships represent our most significant assets and are stated at cost less accumulated depreciation and amortization. Depreciation of ships is generally computed net of a 15% projected residual value using the straight-line method over the estimated useful life of the asset, which is generally 30 years. The 30-year useful life of our newly

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constructed ships and 15% associated residual value are both based on the weighted-average of all major components of a ship. Our useful life and residual 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 weighted-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. We 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 vacation 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. Improvement costs that we believe add value to our ships are capitalized as additions to the ship and depreciated over the shorter of the improvements' estimated useful lives or that of the associated ship. The estimated cost and accumulated depreciation of replaced or refurbished ship components are written off and any resulting losses are recognized in Cruise operating expenses.
We use the deferral method to account for drydocking costs. Under the deferral method, drydocking costs incurred are deferred and charged to expense on a straight-line basis over the period to the next scheduled drydock, which we estimate to be a period of thirty to sixty months based on the vessel's age as required by Class. Deferred drydock costs consist of the costs to drydock the vessel and other costs incurred in connection with the drydock which are necessary to maintain the vessel's Class certification. Class certification is necessary in order for our cruise ships to be flagged in a specific country, obtain liability insurance and legally operate as passenger cruise ships. The activities associated with those drydocking costs cannot be performed while the vessel is in service and, as such, are done during a drydock as a planned major maintenance activity. The significant deferred drydock costs consist of hauling and wharfage services provided by the drydock facility, hull inspection and related activities (e.g., scraping, pressure cleaning, bottom painting), maintenance to steering propulsion, thruster equipment and ballast tanks, port services such as tugs, pilotage and line handling, and freight associated with these items. We perform a detailed analysis of the various activities performed for each drydock and only defer those costs that are directly related to planned major maintenance activities necessary to maintain Class. The costs deferred are related to activities not otherwise routinely periodically performed to maintain a vessel's designed and intended operating capability. Repairs and maintenance activities are charged to expense as incurred.
We use judgment when estimating the period between drydocks, which can result in adjustments to the estimated amortization of drydock costs. If the vessel is disposed of before the next drydock, the remaining balance in deferred drydock is written-off to the gain or loss upon disposal of vessel in the period in which the sale takes place. We also use judgment when identifying costs incurred during a drydock which are necessary to maintain the vessel's Class certification as compared to those costs attributable to repairs and maintenance which are expensed as incurred.
We believe we have made reasonable estimates for ship accounting purposes. However, should certain factors or circumstances cause us to revise our estimates of ship useful lives or projected residual values, depreciation expense could be materially higher or 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 ship useful life by one year, depreciation expense for 2018 would have increased by approximately $63.8 million. If our ships were estimated to have no residual value, depreciation expense for 2018 would have increased by approximately $243.0 million.
Business Combinations
On July 31, 2018, we acquired a 66.7% equity stake in Silversea Cruises for $1.02 billion in cash and contingent consideration. Refer to Note 3. Business Combination to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on the acquisition
We account for business combinations in accordance with ASC 805, Business Combinations, by applying the acquisition method of accounting. The acquisition method of accounting requires that we record the assets acquired and liabilities assumed, and the noncontrolling interest, if any, at their respective fair values at the acquisition date. Goodwill is recognized as the excess of the purchase price over the fair value of the net assets acquired. Significant

39


estimates and assumptions are made by management to value such assets and liabilities based on third party valuations such as appraisals or internal valuations based on discounted cash flow analyses or other valuation techniques. Although we believe that those estimates and assumptions are reasonable and appropriate, they are inherently uncertain and subject to change. If during the measurement period (not to exceed one year), additional information is obtained about facts and circumstances that existed as of the acquisition date related to the fair value of the assets acquired and liabilities assumed, we may adjust our estimates to account for subsequent adjustments to the provisional amounts recognized at the acquisition date, resulting in an offsetting adjustment to the goodwill associated with the business acquired.
Uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date. We continue to collect information and reevaluate these estimates and assumptions quarterly. We will record any adjustments to our preliminary estimates to goodwill, provided that we are within the one-year measurement period.
Any contingent consideration is estimated at fair value at the acquisition date. Liability-classified contingent consideration is remeasured each reporting period, with changes in fair value recognized in earnings until the contingent consideration is settled.
Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets
We review goodwill and indefinite-lived intangible assets for impairment at the reporting unit level annually or, when events or circumstances dictate, more frequently. The impairment review for goodwill consists of a qualitative assessment of whether it is more-likely-than-not that a reporting unit's fair value is less than its carrying amount, and if necessary, a two-step goodwill impairment test. Factors to consider when performing the qualitative assessment include general economic conditions, limitations on accessing capital, changes in forecasted operating results, changes in fuel prices and fluctuations in foreign exchange rates. If the qualitative assessment demonstrates that it is more-likely-than-not that the estimated fair value of the reporting unit exceeds its carrying value, it is not necessary to perform the two-step goodwill impairment test. We may elect to bypass the qualitative assessment and proceed directly to step one, for any reporting unit, in any period. On a periodic basis, we elect to bypass the qualitative assessment and proceed to step one to corroborate the results of recent years' qualitative assessments. We can resume the qualitative assessment for any reporting unit in any subsequent period.
When performing the two-step goodwill impairment test, the fair value of the reporting unit is determined and compared to the carrying value of the net assets allocated to the reporting unit. We estimate the fair value of our reporting units using a probability-weighted discounted cash flow model. The estimation of fair value utilizing discounted expected future cash flows includes numerous uncertainties which require our significant judgment when making assumptions of expected revenues, operating costs, marketing, selling and administrative expenses, interest rates, ship additions and retirements as well as assumptions regarding the cruise vacation industry's competitive environment and general economic and business conditions, among other factors. The principal assumptions we use in the discounted cash flow model are projected operating results, weighted-average cost of capital, and terminal value. The discounted cash flow model uses the most current projected operating results for the upcoming fiscal year as a base. To that base, we add future years' cash flows assuming multiple revenue and expense scenarios that reflect the impact of different global economic environments beyond the base year on the reporting unit. We discount the projected cash flows using rates specific to the reporting unit based on its weighted-average cost of capital. If the fair value of the reporting unit exceeds its carrying value, no further analysis or write-down of goodwill is required. If the fair value of the reporting unit is less than the carrying value of its net assets, the implied fair value of the reporting unit is allocated to all its underlying assets and liabilities, including both recognized and unrecognized tangible and intangible assets, based on their fair value. If necessary, goodwill is then written down to its implied fair value.
The impairment review for indefinite-life intangible assets consists of a comparison of the fair value of the asset with its carrying amount. We estimate the fair value of these assets using a discounted cash flow model and various valuation methods depending on the nature of the intangible asset, such as the relief-from-royalty method for trademarks and trade names. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If the fair value exceeds its carrying amount, the indefinite-life intangible asset is not considered impaired. As of December 31, 2018, the carrying amount of indefinite-life intangible assets was $351.7 million, which primarily relates to the Silversea Cruises trade name acquired in the Silversea Cruises acquisition. Other intangible assets assigned finite useful lives are amortized on a straight-line basis over their estimated useful lives. Refer to Note 6, Intangible

40


Assets to our consolidated financial statements under Item 8. Financial Statements and Supplemental Data for further information on indefinite-life intangible assets.
We review our ships and other long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated undiscounted future cash flows, that the carrying amount of these assets may not be fully recoverable. We evaluate asset impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the ship level for our ships and, prior to the sale of the aircraft, at the aggregated asset group level for our aircraft. If estimated future cash flows are less than the carrying value of an asset, an impairment charge is recognized to the extent its carrying value exceeds fair value.
We estimate fair value based on quoted market prices in active markets, if available. If active markets are not available, we base fair value on independent appraisals, sales price negotiations and projected future cash flows discounted at a rate estimated by management to be commensurate with the business risk. Quoted market prices are often not available for individual reporting units and for indefinite-life intangible assets. Accordingly, we estimate the fair value of a reporting unit and an indefinite-life intangible asset using an expected present value technique.
Royal Caribbean International
During the fourth quarter of 2018, we performed a qualitative assessment of the Royal Caribbean International reporting unit. Based on our qualitative assessment, we concluded that it was more-likely-than-not that the estimated fair value of the Royal Caribbean International reporting unit exceeded its carrying value and thus, we did not proceed to the two-step goodwill impairment test. No indicators of impairment exist primarily because the reporting unit's fair value has consistently exceeded its carrying value by a significant margin and forecasts of operating results expected to be generated by the reporting unit appear sufficient to support its carrying value. As of December 31, 2018, the carrying amount of goodwill attributable to our Royal Caribbean reporting unit was $286.7 million.
Silversea Cruises
The goodwill for the Silversea Cruises reporting unit was recorded at fair value at July 31, 2018, the acquisition date. Refer to Note 3. Business Combination to our consolidated financial statements under Item 8. Financial Statements and Supplemental Data for further information on the Silversea Cruises acquisition. During the fourth quarter of 2018, we performed a qualitative assessment of the Silversea Cruises reporting unit. Based on our qualitative assessment, we concluded that it was more-likely-than-not that the estimated fair value of the Silversea Cruises reporting unit exceeded its carrying value and thus, we did not proceed to the two-step goodwill impairment test. No indicators of impairment exist primarily because forecasts of operating results expected to be generated by the reporting unit appear sufficient to support its carrying value. As of December 31, 2018, the carrying amount of goodwill attributable to our Silversea Cruises reporting unit was $1.1 billion.
Derivative 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. These instruments are recorded on the balance sheet at their fair value and the vast majority are designated as hedges. We also use non-derivative financial instruments designated as hedges of our net investment in our foreign operations and investments. Although certain of our derivative financial instruments do not qualify or are not accounted for under hedge accounting, we do not hold or issue derivative financial instruments for trading or other speculative purposes. We account for derivative financial instruments in accordance with authoritative guidance. Refer to Note 2. Summary of Significant Accounting Policies and Note 17. Fair Value Measurements and Derivative Instruments to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for more information on related authoritative guidance, the Company's hedging programs and derivative financial instruments.
On a regular basis, we enter into foreign currency forward contracts, interest rate and fuel swaps and options with third-party institutions in over-the-counter markets. We estimate the fair value of our foreign currency forward contracts and interest rate swaps using expected future cash flows based on the instruments' contract terms and published forward prices for foreign currency exchange and interest rates. We apply present value techniques and LIBOR or EURIBOR-based discount rates to convert the expected future cash flows to the current fair value of the instruments.

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We estimate the fair value of our fuel swaps using expected future cash flows based on the swaps' contract terms and forward prices. We derive forward prices from forward fuel curves based on pricing inputs provided by third-party institutions that transact in the fuel indices we hedge. We validate these pricing inputs against actual market transactions and published price quotes for similar assets. We apply present value techniques and LIBOR-based discount rates to convert the expected future cash flows to the current fair value of the instruments. We also corroborate our fair value estimates using valuations provided by our counterparties.
We adjust the valuation of our derivative financial instruments to incorporate credit risk.
We believe it is unlikely that materially different estimates for the fair value of our foreign currency forward contracts and interest rate and fuel swaps and options would be derived from other appropriate valuation models using similar assumptions, inputs or conditions suggested by actual historical experience.
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, which are recorded as assets when recoverability is probable. 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.
Seasonality
Our revenues are seasonal based on demand for cruises. Demand is strongest for cruises during the Northern Hemisphere's summer months and holidays. In order to mitigate the impact of the winter weather in the Northern Hemisphere and to capitalize on the summer season in the Southern Hemisphere, our brands have focused on deployment to the Caribbean, Asia and Australia during that period.
Financial Presentation
Description of Certain Line Items
Revenues
Our revenues are comprised of the following:
Passenger ticket revenues, which consist of revenue recognized from the sale of passenger tickets and the sale of air transportation to and from our ships; and
Onboard and other revenues, which consist primarily of revenues from the sale of goods and/or services onboard our ships not included in passenger ticket prices, cancellation fees, sales of vacation protection insurance and pre- and post-cruise tours. Onboard and other revenues also includes revenues we receive from independent third-party concessionaires that pay us a percentage of their revenues in exchange for the right to provide selected goods and/or services onboard our ships, as well as revenues received for our bareboat charter, procurement and management related services we perform on behalf of our unconsolidated affiliates.
Cruise Operating Expenses
Our cruise operating expenses are comprised of the following:
Commissions, transportation and other expenses, which 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;

42


Onboard and other expenses, which consist of the direct costs associated with onboard and other revenues, including the costs of products sold onboard our ships, vacation protection insurance premiums, costs associated with pre- and post-cruise tours and related credit card fees as well as the minimal costs associated with concession revenues, as the costs are mostly incurred by third-party concessionaires and costs incurred for the procurement and management related services we perform on behalf of our unconsolidated affiliates;
Payroll and related expenses, which consist of costs for shipboard personnel (costs associated with our shoreside personnel are included in Marketing, selling and administrative expenses);
Food expenses, which include food costs for both guests and crew;
Fuel expenses, which include fuel and related delivery, storage and emission consumable costs and the financial impact of fuel swap agreements; and
Other operating expenses, which consist primarily of operating costs such as repairs and maintenance, port costs that do not vary with passenger head counts, vessel related insurance, entertainment and gains and/or losses related to the sale of our ships, if any.
We do not allocate payroll and related expenses, food expenses, fuel expenses or other operating expenses 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.
Selected Operational and Financial Metrics
We utilize a variety of operational and financial metrics which are defined below to evaluate our performance and financial condition. As discussed in more detail herein, certain of these metrics are non-GAAP financial measures. These non-GAAP financial measures are provided along with the related GAAP financial measures as we believe they provide useful information to investors as a supplement to our consolidated financial statements, which are prepared and presented in accordance with GAAP. The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
Adjusted Earnings per Share ("Adjusted EPS") represents Adjusted Net Income attributable to Royal Caribbean Cruises Ltd. divided by weighted average shares outstanding or by diluted weighted average shares outstanding, as applicable. We believe that this non-GAAP measure is meaningful when assessing our performance on a comparative basis.
Adjusted Net Income attributable to Royal Caribbean Cruises Ltd. ("Adjusted Net Income") represents net income less net income attributable to noncontrolling interest excluding certain items that we believe adjusting for is meaningful when assessing our performance on a comparative basis. For the periods presented, these items included (i) the impairment loss related to Skysea Holding, (ii) the impairment loss and other costs related to the exit of our tour operations business, (iii) the transaction costs related to the Silversea Cruises acquisition, (iv) the amortization of the Silversea Cruises intangible assets resulting from the acquisition, (v) the noncontrolling interest adjustment to exclude the impact of the contractual accretion requirements associated with the put option held by Silversea Cruises Group Ltd.'s noncontrolling interest, (vi) the impact of the change in accounting principle related to the recognition of stock-based compensation expense from the graded attribution method to the straight-line attribution method for time-based stock awards, (vii) the net loss related to the elimination of the Pullmantur reporting lag, (viii) the net gain related to the 51% sale of the Pullmantur and CDF Croisières de France ("CDF") brands, (ix) the restructuring charges and other initiative costs related to our Pullmantur right-sizing strategy and (x) other restructuring initiatives.
Available Passenger Cruise Days ("APCD") is our measurement of capacity and represents double occupancy per cabin multiplied by the number of cruise days for the period, which excludes canceled cruise days and drydock days. We use this measure to perform capacity and rate analysis to identify our main non-capacity drivers that cause our cruise revenue and expenses to vary.
Gross Cruise Costs represent the sum of total cruise operating expenses plus marketing, selling and administrative expenses. For the periods presented, Gross Cruise Costs exclude the impairment loss and other costs related to the exit of our tour operations business, the transaction costs related to the Silversea Cruises acquisition, the impact of the

43


change in accounting principle related to the recognition of stock-based compensation expense from the graded attribution method to the straight-line attribution method for time-based stock awards and restructuring charges, which were included within Marketing, selling and administrative expenses.
Gross Yields represent total revenues per APCD.
Net Cruise Costs and Net Cruise Costs Excluding Fuel represent Gross Cruise Costs excluding commissions, transportation and other expenses and onboard and other expenses and, in the case of Net Cruise Costs Excluding Fuel, fuel expenses (each of which is described above under the Description of Certain Line Items heading). In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Costs and Net Cruise Costs Excluding Fuel to be the most relevant indicators of our performance. A reconciliation of historical Gross Cruise Costs to Net Cruise Costs and Net Cruise Costs Excluding Fuel is provided below under Results of Operations. For the periods presented, Net Cruise Costs excludes the net gain related to the 51% sale of the Pullmantur and CDF brands, restructuring charges and other initiative costs related to our Pullmantur right-sizing strategy and other restructuring initiatives.
Net Revenues represent total revenues less commissions, transportation and other expenses and onboard and other expenses (each of which is described above under the Description of Certain Line Items heading).
Net Yields represent Net Revenues per APCD. We utilize Net Revenues and Net Yields to manage our business on a day-to-day basis as we believe that they are the most relevant measures of our pricing performance because they reflect the cruise revenues earned by us net of our most significant variable costs, which are commissions, transportation and other expenses and onboard and other expenses. A reconciliation of historical Gross Yields to Net Yields is provided below under Results of Operations. For the periods presented, Net Yields excludes initiative costs related to the sale of the Pullmantur and CDF brands.
Occupancy, in accordance with cruise vacation industry practice, is calculated by dividing Passenger Cruise Days by APCD. A percentage in excess of 100% indicates that three or 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.
We believe Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel are our most relevant non-GAAP financial measures. However, a significant portion of our revenue and expenses are denominated in currencies other than the United States dollar. Because our reporting currency is the United States dollar, the value of these revenues and expenses can be affected by changes in currency exchange rates. Although such changes in local currency prices are just one of many elements impacting our revenues and expenses, they can be an important element. For this reason, we also monitor Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel as if the current period's currency exchange rates had remained constant with the comparable prior period's rates, or on a "Constant Currency" basis.
It should be emphasized that Constant Currency is primarily used for comparing short-term changes and/or projections. Changes in guest sourcing and shifting the amount of purchases between currencies can change the impact of the purely currency-based fluctuations.
The use of certain significant non-GAAP measures, such as Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel, allows us to perform capacity and rate analysis to separate the impact of known capacity changes from other less predictable changes which affect our business. We believe these non-GAAP measures provide expanded insight to measure revenue and cost performance in addition to the standard GAAP based financial measures. There are no specific rules or regulations for determining non-GAAP and Constant Currency measures, and as such, they may not be comparable to other companies within the industry.
We have not provided a quantitative reconciliation of (i) projected Total revenues to projected Net Revenues, (ii) projected Gross Yields to projected Net Yields, (iii) projected Gross Cruise Costs to projected Net Cruise Costs and projected Net Cruise Costs Excluding Fuel and (iv) projected Net Income attributable to Royal Caribbean Cruises Ltd. and Earnings per Share to projected Adjusted Net Income and Adjusted Earnings per Share because preparation of meaningful GAAP projections of Total revenues, Gross Yields, Gross Cruise Costs, Net Income attributable to Royal Caribbean Cruises Ltd. and Earnings per Share would require unreasonable effort. Due to significant uncertainty, we

44


are unable to predict, without unreasonable effort, the future movement of foreign exchange rates, fuel prices and interest rates inclusive of our related hedging programs. In addition, we are unable to determine the future impact of restructuring expenses or other non-core business related gains and losses which may result from strategic initiatives. These items are uncertain and could be material to our results of operations in accordance with GAAP. Due to this uncertainty, we do not believe that reconciling information for such projected figures would be meaningful.

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Executive Overview
Our 2018 net income was $1.8 billion, or $8.56 per diluted share, compared to $1.6 billion, or $7.53 per diluted share, in 2017. Adjusted Net Income for 2018 was $1.9 billion, or $8.86 per diluted share, compared to $1.6 billion, or $7.53 per diluted share, in 2017. Adjusted EPS for 2018 represents the fifth straight year we achieved double digit earnings growth with an 18% increase compared to 2017.
Additionally, Net Yields on a Constant-Currency basis increased for the ninth consecutive year. For the year ended December 31, 2018, our Net Yields on a Constant-Currency basis increased by 4.4%, primarily driven by increases in both ticket and onboard yields. Net onboard revenue yield in 2018 grew by 5.1% year-over-year on a Constant Currency basis. Growth came from a variety of revenue enhancing initiatives, including beverage package sales and promotions, gaming initiatives and new strategies and promotions on our shore excursions, specialty restaurants and Internet services.
We remain dedicated to finding efficiencies, identifying synergies and reducing costs, while at the same time, focusing on strategic investments in areas that will boost revenue. In 2018, our Net Cruise Costs Excluding Fuel increased by 4.1% on a Constant Currency basis compared to 2017.
The Company remains focused on improving returns for our shareholders. In 2018, we bought back $575 million shares of common stock and we have $700 million remaining under our $1.0 billion share repurchase program that was announced in May 2018. Consistent with our earnings growth, we also announced a 17% increase to our common stock dividend, our sixth consecutive year with a dividend increase.
For the first time in our history, in 2018, three of our Global Brands each welcomed a ship. Royal Caribbean International welcomed newbuild Symphony of the Seas in March; Azamara Club Cruises welcomed Azamara Pursuit in September; and Celebrity Cruises welcomed newbuild Celebrity Edge in November. Also in 2018, TUI Cruises, our 50% joint venture, took delivery of a new Mein Schiff 1.
In addition, in July 2018, we acquired a 66.7% equity stake in Silversea Cruises, an ultra-luxury and expedition cruise line with nine ships. This acquisition enhances our presence in the ultra-luxury and expedition markets and provide us with an opportunity to drive long-term capacity growth in these markets.
In 2019, we expect our capacity to increase by 8.6% as each of the ships added to our Global Brands' fleet in 2018 will have it first full year of sailings. In addition, our Royal Caribbean brand will welcome Spectrum of the Seas, our first ship tailored to the Chinese market, which will expand our commitment to that market. In the second quarter of 2019, our Celebrity Cruises brand will welcome Celebrity Flora, the brand's first newbuild designed specifically for the Galapagos Islands. Additionally, we will have our first full year with Silversea Cruises and will launch Perfect Day at CocoCay in Spring 2019, the first development in our Perfect Day Island Collection.
From an offering perspective, we are expanding our short Caribbean program that includes the newly modernized Mariner of the Seas and the soon-to-be modernized Navigator of the Seas. We are also improving our Alaska itineraries to include larger ships for both our Royal Caribbean International and Celebrity Cruises brands. Additionally, Silversea Cruises' newest ship, the Silver Muse, will be in Alaska and Azamara will have its first Alaskan season.

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Results of Operations
In addition to the items discussed above under "Executive Overview," significant items for 2018 include:
Our Net Income attributable to Royal Caribbean Cruises Ltd. and Adjusted Net Income for the year ended December 31, 2018 was $1.8 billion and $1.9 billion, or $8.56 and $8.86 per share on a diluted basis, respectively, as compared to both Net Income attributable to Royal Caribbean Cruises Ltd. and Adjusted Net Income of $1.6 billion, or $7.53 per share on a diluted basis, respectively, for the year ended December 31, 2017.
Total revenues, excluding the effect of changes in foreign currency rates, increased by $704.9 million for the year ended December 31, 2018 compared to the same period in 2017 primarily due to an increase in capacity and an increase in ticket prices and onboard spending on a per passenger basis, which are further discussed below.
The effect of changes in foreign currency exchange rates related to our passenger ticket and onboard and other revenue transactions, denominated in currencies other than the United States dollar, resulted in an increase in total revenues of $11.1 million for the year ended December 31, 2018 compared to the same period in 2017.
Total cruise operating expenses, excluding the effect of changes in foreign currency rate, increased by $357.5 million for the year ended December 31, 2018 compared to the same period in 2017, primarily due to an increase in capacity, which is further discussed below.
The effect of changes in foreign currency exchange rates related to our cruise operating expenses, denominated in currencies other than the United States dollar, resulted in an increase in total operating expenses of $8.1 million for the year ended December 31, 2018 compared to the same period in 2017.
On July 31, 2018, we acquired a 66.7% equity stake in Silversea Cruises for $1.02 billion in cash and contingent consideration payable upon achievement of certain 2019-2020 performance metrics by Silversea Cruises. Due to the three-month reporting lag, our consolidated results of operations for the year ended December 31, 2018 only include results for August and September 2018 for Silversea Cruises. Refer to Note 1. General and Note 3. Business Combination to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on the three-month reporting lag and the Silversea Cruises acquisition.
Other items for 2018 include:
In March 2018, we took delivery of Symphony of the Seas. To finance the purchase, we borrowed $1.2 billion under a previously committed unsecured term loan. Refer to Note 9. Debt to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information. The ship entered service at the end of the first quarter of 2018.
In March 2018, we completed the purchase of Azamara Pursuit, which entered service during the third quarter of 2018.
In April 2018, TUI Cruises, our 50% joint venture, took delivery of a new Mein Schiff 1 and also sold the original Mein Schiff 1 to an affiliate of TUI AG. Due to the sale of the original Mein Schiff 1, we recognized a gain of $21.8 million for the year ended December 31, 2018 related to our deferred gain from the 2009 sale of this ship to TUI Cruises. Refer to Note 8. Other Assets to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information.
In October 2018, we took delivery of Celebrity Edge. To finance the purchase, we borrowed $729.0 million under a previously committed unsecured term loan. Refer to Note 9. Debt to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information. The ship entered service in December 2018.
For the year ended December 31, 2018, we recognized an impairment loss of $23.3 million related to the Skysea Holding investment, debt facility and other receivables due, which is reported within Other income

47


(expense) within our consolidated statements of comprehensive income (loss). Refer to Note 8. Other Assets to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on the impairment.
We reported Net Income attributable to Royal Caribbean Cruises Ltd, Adjusted Net Income, earnings per share and Adjusted Earnings per Share as shown in the following table (in thousands, except per share data):
 Year Ended December 31,
 2018 2017 2016
Net Income attributable to Royal Caribbean Cruises Ltd.$1,811,042
 $1,625,133
 $1,283,388
Adjusted Net Income attributable to Royal Caribbean Cruises Ltd.1,873,363
 1,625,133
 1,314,689
Net Adjustments to Net Income attributable to Royal Caribbean Cruises Ltd. - Increase$62,321
 $
 $31,301
Adjustments to Net Income attributable to Royal Caribbean Cruises Ltd.:     
Impairment loss related to Skysea Holding (1)
$23,343
 $
 $
Impairment and other costs related to exit of tour operations business (2)
11,255
 
 
Transaction costs related to the Silversea Cruises acquisition (3)
31,759
 
 
Amortization of Silversea Cruises intangible assets resulting from the acquisition (3)
2,046
 
 
Noncontrolling interest adjustment (4)
3,156
 
 
Impact of change in accounting principle (5)
(9,238) 
 
Net loss related to the elimination of the Pullmantur reporting lag
 
 21,656
Net gain related to the sale of the Pullmantur and CDF Croisières de France brands
 
 (3,834)
Restructuring charges
 
 8,452
Other initiative costs
 
 5,027
Net Adjustments to Net Income attributable to Royal Caribbean Cruises Ltd. - Increase$62,321
 $
 $31,301
      
Basic:     
   Earnings per Share$8.60
 $7.57
 $5.96
   Adjusted Earnings per Share$8.90
 $7.57
 $6.10
      
Diluted:     
   Earnings per Share$8.56
 $7.53
 $5.93
   Adjusted Earnings per Share$8.86
 $7.53
 $6.08
      
Weighted-Average Shares Outstanding:     
Basic210,570
 214,617
 215,393
Diluted211,554
 215,694
 216,316
(1)
Refer to Note 8. Other Assets to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for information on the impairment loss related to Skysea Holding.
(2)
In 2014, we created a tour operations business that focused on developing, marketing and selling land based tours around the world through an e-commerce platform. During the second quarter of 2018, we decided to cease operations and exit this business. As a result, we incurred exit costs, primarily consisting of fixed asset impairment charges and severance expense.
(3)
Refer to Note 3. Business Combination to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for information on the Silversea Cruises acquisition.

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(4)
Adjustment made to exclude the impact of the contractual accretion requirements associated with the put option held by Silversea Cruises Group Ltd.'s noncontrolling interest. Refer to Note 10. Noncontrolling Interest to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on noncontrolling interest.
(5)
In January 2018, we elected to change our accounting policy for recognizing stock-based compensation expense from the graded attribution method to the straight-line attribution method for time-based stock awards. Refer to Note 2. Summary of Significant Accounting Policies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on our accounting policy.
The following table presents operating results as a percentage of total revenues for the last three years:
 Year Ended December 31,
 2018 2017 2016
Passenger ticket revenues71.5 % 71.9 % 72.4 %
Onboard and other revenues28.5 % 28.1 % 27.6 %
Total revenues100.0 % 100.0 % 100.0 %
Cruise operating expenses:     
Commissions, transportation and other15.1 % 15.5 % 15.9 %
Onboard and other5.7 % 5.6 % 5.8 %
Payroll and related9.7 % 9.7 % 10.4 %
Food5.5 % 5.6 % 5.7 %
Fuel7.5 % 7.8 % 8.4 %
Other operating12.0 % 11.5 % 12.8 %
Total cruise operating expenses55.4 % 55.8 % 59.0 %
Marketing, selling and administrative expenses13.7 % 13.5 % 13.0 %
Depreciation and amortization expenses10.9 % 10.8 % 10.5 %
Operating income20.0 % 19.9 % 17.4 %
Other income (expense):     
Interest income0.3 % 0.3 % 0.2 %
Interest expense, net of interest capitalized(3.5)% (3.4)% (3.6)%
Equity investment income2.2 % 1.8 % 1.5 %
Other income (expense)0.1 % (0.1)% (0.4)%
 (0.8)% (1.4)% (2.3)%
Net Income19.1 % 18.5 % 15.1 %
Less: Net Income attributable to noncontrolling interest0.1 %  %  %
Net Income attributable to Royal Caribbean Cruises Ltd.19.1 % 18.5 % 15.1 %
Selected statistical information is shown in the following table:
 Year Ended December 31,
 
2018 (1)
 2017 
2016 (2)
Passengers Carried6,084,201
 5,768,496
 5,754,747
Passenger Cruise Days41,853,052
 40,033,527
 40,250,557
APCD38,425,304
 36,930,939
 37,844,644
Occupancy108.9% 108.4% 106.4%
___________________________________________________________________
(1)
Due to the three-month reporting lag, these amounts only include August and September 2018 amounts for Silversea Cruises. Refer to Note 1. General and Note 3. Business Combination to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on the three-month reporting lag and the Silversea Cruises acquisition.
(2)
These amounts do not include November and December 2015 amounts for Pullmantur as the net Pullmantur result for those months was included within Other expense in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2016, as a result of the elimination of the Pullmantur reporting lag, and did not affect Gross Yields, Net Yields, Gross Cruise Costs,

49


Net Cruise Costs and Net Cruise Costs Excluding Fuel. Additionally, effective August 2016, we no longer include Pullmantur Holdings in these amounts.
Gross Yields and Net Yields were calculated as follows (in thousands, except APCD and Yields):
 Year Ended December 31,
 2018 2018
On a
Constant
Currency
basis
 2017 2016
Passenger ticket revenues$6,792,716
 $6,784,937
 $6,313,170
 $6,149,323
Onboard and other revenues2,701,133
 2,697,798
 2,464,675
 2,347,078
Total revenues9,493,849
 9,482,735
 8,777,845
 8,496,401
Less:       
Commissions, transportation and other1,433,739
 1,432,267
 1,363,170
 1,349,677
Onboard and other537,355
 536,941
 495,552
 493,558
Net revenues including other initiative costs7,522,755
 7,513,527
 6,919,123
 6,653,166
Less:       
Other initiative costs included within Net Revenues
 
 
 (2,230)
Net Revenues$7,522,755
 $7,513,527
 $6,919,123
 $6,655,396
        
APCD38,425,304
 38,425,304
 36,930,939
 37,844,644
Gross Yields$247.07
 $246.78
 $237.68
 $224.51
Net Yields$195.78
 $195.54
 $187.35
 $175.86

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Gross Cruise Costs, Net Cruise Costs and Net Cruise Costs Excluding Fuel were calculated as follows (in thousands, except APCD and costs per APCD):
 Year Ended December 31,
 2018 2018 On a
Constant
Currency
basis
 2017 2016
Total cruise operating expenses$5,262,207
 $5,254,105
 $4,896,579
 $5,015,539
Marketing, selling and administrative expenses (1) (2)
1,269,368
 1,264,509
 1,186,016
 1,100,290
Gross Cruise Costs6,531,575
 6,518,614
 6,082,595
 6,115,829
Less:       
Commissions, transportation and other1,433,739
 1,432,267
 1,363,170
 1,349,677
Onboard and other537,355
 536,941
 495,552
 493,558
Net Cruise Costs including other initiative costs4,560,481
 4,549,406
 4,223,873
 4,272,594
Less:       
Net gain related to the sale of Pullmantur and CDF Croisières de France brands included within other operating expenses
 
 
 (3,834)
Other initiative costs included within cruise operating expenses and marketing, selling and administrative expenses
 
 
 2,433
Net Cruise Costs4,560,481
 4,549,406
 4,223,873
 4,273,995
Less:       
Fuel (3)
710,617
 710,621
 681,118
 713,252
Net Cruise Costs Excluding Fuel$3,849,864
 $3,838,785
 $3,542,755
 $3,560,743
        
APCD38,425,304
 38,425,304
 36,930,939
 37,844,644
Gross Cruise Costs per APCD$169.98
 $169.64
 $164.70
 $161.60
Net Cruise Costs per APCD$118.68
 $118.40
 $114.37
 $112.94
Net Cruise Cost Excluding Fuel per APCD$100.19
 $99.90
 $95.93
 $94.09
___________________________________________________________________
(1)
For the year ended December 31, 2018, the amount does not include transaction costs related to the Silversea Cruises acquisition of $31.8 million, the impairment and other costs related to the exit of our tour operations business of $11.3 million and the impact of the change in accounting principle of $9.2 million related to the recognition of stock-based compensation expense. Refer to Note 2. Summary of Significant Accounting Policies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on the change in an accounting principle.
(2)For the year ended December 31, 2016, the amount does not include restructuring charges of $8.5 million.
(3)
For the year ended December 31, 2016, the amount does not include fuel expense of $0.4 million included within other initiative costs associated with the redeployment of Pullmantur’s Empress to the Royal Caribbean International brand.

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Outlook
The company does not make predictions about fuel pricing, interest rates or currency exchange rates but does provide guidance about its future business activities. On January 30, 2019, we announced the following initial full year and first quarter 2019 guidance based on the then current fuel pricing, interest rates and currency exchange rates:
Full Year 2019
 As Reported Constant Currency
Net Yields6.0% to 8.0% 6.5% to 8.5%
Net Cruise Costs per APCD5.25% to 5.75% 5.5% to 6.0%
Net Cruise Costs per APCD, excluding Fuel8.25% to 8.75% 8.5% to 9.0%
Capacity Change8.6%  
Depreciation and Amortization$1,245 to $1,255 million  
Interest Expense, net$393 to $403 million  
Fuel Consumption (metric tons)1,486,300  
Fuel Expenses$690 million  
Percent Hedged (fwd consumption)58%  
10% change in Fuel Prices$37 million  
1% Change in Currency$21 million  
1% Change in Net Yields$87 million  
1% Change in NCC x Fuel$45 million  
100 basis pt. Change in LIBOR$36 million  
Adjusted Earnings per Share — Diluted$9.75 to $10.00  
First Quarter 2019

As Reported
Constant Currency
Net Yields5.5% to 6.0% 7.5% to 8.0%
Net Cruise Costs per APCD6.5% to 7.0% Approx. 7.5%
Net Cruise Costs per APCD, excluding Fuel9.0% to 9.5% Approx. 10.0%
Capacity Change10.8%  
Depreciation and Amortization$289 to $293 million  
Interest Expense, net$91 to $95 million  
Fuel Consumption (metric tons)364,200  
Fuel Expenses$163 million  
Percent Hedged (fwd consumption)57%  
10% change in Fuel Prices$9 million  
1% Change in Currency$4 million  
1% Change in Net Yields$19 million  
1% Change in NCC x Fuel$12 million  
100 basis pt. Change in LIBOR$6 million  
Adjusted Earnings per Share — DilutedApprox. $1.10  
Since our earnings release on January 30, 2019, bookings have remained consistent with our previous expectations. Fuel prices and foreign currency exchange rates have fluctuated and are likely to continue to do so. Accordingly, except for the influence of fuel prices and foreign currency exchange rates, our forecast remains essentially unchanged.

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Volatility in foreign currency exchange rates affects the United States dollar value of our earnings. Based on our highest net exposure for each quarter and the full year 2019, the top five foreign currencies are ranked below. For example, the Australian Dollar is the most impactful currency in the first and fourth quarters of 2019. Rankings are based on estimated net exposures.
Ranking Q1 Q2 Q3 Q4 YTD 2019
1 AUD GBP GBP AUD GBP
2 CAD CAD CNH GBP AUD
3 GBP AUD EUR EUR CAD
4 CNH EUR CAD CAD EUR
5 EUR CNH AUD CNH CNH
The currency abbreviations above are defined as follows:
Currency Abbreviation Currency
AUD Australian Dollar
CAD Canadian Dollar
CNH Chinese Yuan
EUR Euro
GBP British Pound
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
In this section, references to 2018 refer to the year ended December 31, 2018 and references to 2017 refer to the year ended December 31, 2017.
Revenues
Total revenues for 2018 increased $716.0 million, or 8.2%, to $9.5 billion from $8.8 billion in 2017.
Passenger ticket revenues comprised 71.5% of our 2018 total revenues. Passenger ticket revenues increased by $479.5 million, or 7.6% from 2017. The increase was primarily due to:
a 4.0% increase in capacity, which increased Passenger ticket revenues by $255.5 million, primarily due to the addition of Symphony of the Seas in the second quarter of 2018, Azamara Pursuit in the third quarter of 2018 and, to a lesser extent, Celebrity Edge in the fourth quarter of 2018 and the Silversea Cruises fleet, partially offset by the sale of Legend of the Seas in 2017 and additional dry dock days in 2018 compared to 2017. Additionally, 2017 includes the impact of canceled sailings from hurricane-related disruptions which did not recur in 2018;
an increase of $216.3 million in ticket prices primarily driven by higher pricing on Asia/Pacific and Europe sailings and the increase to our ticket price on a per passenger basis due to the addition of Symphony of the Seas, Azamara Pursuit, Celebrity Edge and the Silversea Cruises fleet, partially offset by a decrease in pricing on Caribbean sailings; and
the favorable effect of changes in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $7.8 million.
The remaining 28.5% of 2018 total revenues was comprised of Onboard and other revenues, which increased $236.5 million, or 9.6%. The increase in Onboard and other revenues was primarily due to:
a $112.5 million increase in onboard revenue attributable to higher spending on a per passenger basis primarily due to our revenue enhancing initiatives, including beverage package sales and promotions, gaming initiatives, and new strategies and promotions on our shore excursions, specialty restaurants and Internet services;
a $97.4 million increase attributable to the 4.0% increase in capacity noted above; and

53


a $23.2 million increase in other revenues primarily due to cancellation fees mostly associated with non-refundable deposit promotions and the addition of Silversea Cruises.
Onboard and other revenues included concession revenues of $339.0 million in 2018 and $326.5 million in 2017.
Cruise Operating Expenses
Total cruise operating expenses for 2018 increased $365.6 million, or 7.5%, to $5.3 billion in 2018 from $4.9 billion in 2017. The increase was primarily due to:
the 4.0% increase in capacity noted above, which increased cruise operating expenses by $198.6 million;
a $30.9 million gain recognized in 2017 resulting from the sale of Legend of the Seas, which did not recur in 2018;
a $37.3 million increase in payroll and related expenses primarily driven by Silversea Cruises' higher crew to passenger ratio, an increase in employee bonuses and changes in our gratuity structure;
a $23.5 million increase in air expense primarily related to the addition of Silversea Cruises and itinerary changes;
a $19.7 million increase in vessel maintenance primarily due to the timing of scheduled drydocks; and
an unfavorable effect of changes in foreign currency exchange rates related to our cruise operating expenses denominated in currencies other than the United States dollar of $8.1 million.
Marketing, Selling and Administrative Expenses
Marketing, selling and administrative expenses for 2018 increased $117.1 million, or 9.9%, to $1.3 billion from $1.2 billion in 2017. The increase was primarily due to transaction costs incurred by us related to the Silversea Cruises acquisition, marketing, selling and administrative expenses due to the addition of Silversea Cruises, the impairment and other costs related to the exit of our tour operations business, which occurred in 2018, and an increase in payroll and benefits expense primarily driven by an increase in headcount, partially offset by lower stock prices year over year related to our performance share awards, as well as higher spending on advertisement.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for 2018 increased $82.5 million, or 8.7%, to $1.0 billion. The increase was primarily due to the addition of Symphony of the Seas, Azamara Pursuit and Silversea Cruises to our fleet and, to a lesser extent, the addition of Celebrity Edge, new shipboard additions associated with our ship upgrade projects and additions related to our shoreside projects. The increase was partially offset by the sale of Legend of the Seas in 2017.
Other Income (Expense)
Interest expense, net of interest capitalized, increased $33.7 million, or 11.2%, to $333.7 million in 2018 from $300.0 million in 2017. The increase was primarily due to a higher average debt level in 2018 compared to 2017 attributable to the financing of Symphony of the Seas, Celebrity Edge and our acquisition of Silversea Cruises in 2018, and higher interest rates in 2018 compared to 2017, partially offset by an increase in capitalized interest due to our ships on order.
Equity investment income increased $54.5 million, or 34.9%, to $210.8 million in 2018 from $156.2 million in 2017 primarily due to an increase in income from TUI Cruises.
Other income was $11.1 million in 2018 compared to Other expense of $5.3 million in 2017. The change of $16.4 million was mainly due to a gain of $21.8 million in 2018 related to the recognition of the remaining balance of a deferred gain from the sale of Celebrity Galaxy to TUI Cruises in March 2009. In April 2018, TUI Cruises sold this ship to an affiliate of TUI AG, resulting in the recognition of the remaining balance of the deferred gain. In addition, Other income in 2018 includes a gain of $13.7 million related to the sale of our remaining equity interest in a travel agency business that we sold in 2015. The increase in Other income was partially offset by an impairment charge of $23.3 million to write down our investment balance, debt facility and other receivables due from Skysea Holding to

54


their net realizable value in 2018. For further information on the deferred gain recognized and impairment charge, refer to Note 8. Other Assets to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data.
Gross and Net Yields
Gross and Net Yields increased 4.0% and 4.5% in 2018, respectively, compared to 2017 primarily due to the increase in passenger ticket and onboard and other revenues, which are further discussed above. Gross and Net Yields on a Constant Currency basis increased 3.8% and 4.4%, respectively, in 2018 compared to 2017.
Gross and Net Cruise Costs
Gross and Net Cruise Costs increased 7.4% and 8.0%, respectively, in 2018 compared to 2017 and Gross and Net Cruise Costs per APCD increased 3.2% and 3.8%, respectively, in 2018, compared to 2017, primarily due to the increase in cruise operating expenses discussed above. Gross and Net Cruise Costs on a Constant Currency basis increased 7.2% and 7.7% respectively, in 2018 compared to 2017.
Net Cruise Costs Excluding Fuel
Net Cruise Costs Excluding Fuel per APCD increased 4.4% in 2018 compared to 2017 and on a Constant Currency basis increased 4.1% in 2018 compared to 2017.
Other Comprehensive (Loss) Income
Other comprehensive loss in 2018 was $293.5 million compared to Other comprehensive income of $582.2 million in 2017. The change of $875.7 million was primarily due to the Loss on cash flow derivative hedges in 2018 of $286.9 million compared to the Gain on cash flow derivative hedges of $570.5 million in 2017. The change of $857.4 million in 2018 was primarily due to a decrease in foreign currency forward contract values in 2018 compared to an increase in 2017, a decrease in fuel swap instrument values in 2018 compared to an increase in 2017 and fuel swap losses recognized in income in 2017 compared to fuel swap gains recognized in income in 2018.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
In this section, references to 2017 refer to the year ended December 31, 2017 and references to 2016 refer to the year ended December 31, 2016.
Revenues
Total revenues for 2017 increased $281.4 million, or 3.3%, to $8.8 billion from $8.5 billion in 2016.
Passenger ticket revenues comprised 71.9% of our 2017 total revenues. Passenger ticket revenues increased by $163.8 million, or 2.7% from 2016, despite the impact of canceled sailings resulting from hurricane-related disruptions during the third quarter of 2017. The increase was primarily due to:
an increase of $301.8 million in ticket prices primarily driven by the improvement in our ticket price on a per passenger basis due to the exit of the Pullmantur ships and the addition of Harmony of the Seas and Ovation of the Seas, as well as higher pricing on North America and Europe sailings. The increase in ticket prices on these itineraries was partially offset by lower pricing on Asia/Pacific sailings; and
the favorable effect of changes in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of approximately $10.6 million.
The increase in Passenger ticket revenues was partially offset by a 2.4% decrease in capacity, which decreased Passenger ticket revenues by $148.5 million primarily due to the sale of our majority interest in Pullmantur Holdings during the third quarter of 2016, the sale of Splendour of the Seas in the second quarter of 2016 and the sale of Legend of the Seas in first quarter of 2017, which was partially offset by an increase in capacity due to the addition of Ovation of the Seas and Harmony of the Seas into our fleet during the second quarter of 2016.
The remaining 28.1% of 2017 total revenues was comprised of Onboard and other revenues, which increased $117.6 million, or 5.0%. The increase in Onboard and other revenues was primarily due to:

55


a $125.3 million increase in onboard revenue attributable to higher spending on a per passenger basis primarily due to our revenue enhancing initiatives, including beverage package, shore excursion and specialty restaurant sales and promotions and increased revenue associated with internet and other telecommunication services; and
a $45.7 million increase in other revenue primarily due to charter revenue and management fees earned from Pullmantur Holdings.
The increase was partially offset by a $55.6 million decrease attributable to the 2.4% decrease in capacity noted above, including the impact of canceled sailings resulting from hurricane-related disruptions during the third quarter of 2017.
Onboard and other revenues included concession revenues of $326.5 million in 2017 and $316.9 million in 2016.
Cruise Operating Expenses
Total cruise operating expenses for 2017 decreased $119.0 million, or 2.4%, to $4.9 billion in 2017 from $5.0 billion in 2016. The decrease was primarily due to:
a $120.5 million decrease attributable to the 2.4% decrease in capacity noted above;
a $30.9 million gain resulting from the sale of Legend of the Seas in 2017 compared to an immaterial gain from the sale of Splendour of the Seas in 2016;
a $17.2 million decrease in air expense due to itinerary changes and lower ticket costs;
a $16.8 million decrease in vessel maintenance primarily due to the timing of scheduled drydocks; and
a $15.5 million decrease in fuel expense, excluding the impact of the decrease in capacity. Our cost of fuel (net of the financial impact of fuel swap agreements) for 2017 decreased 4.6% per metric ton compared to 2016.
The decrease was partially offset by:
a $33.8 million increase in commissions expense mainly due to the increase in ticket prices discussed above and changes in commission incentives;
a $19.3 million increase in head taxes primarily due to itinerary changes; and
an $18.9 million increase in food expenses mainly due to our new culinary initiatives.
Marketing, Selling and Administrative Expenses
Marketing, selling and administrative expenses for 2017 increased $77.3 million, or 7.0%, to $1.2 billion from $1.1 billion in 2016. The increase was primarily due to an increase in payroll and benefits mostly driven by higher stock prices year over year related to our performance share awards, partially offset by a decrease in expenses due to the sale of our majority interest in Pullmantur Holdings.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for 2017 increased $56.3 million, or 6.3%, to $951.2 million from $894.9 million in 2016. The increase was primarily due to the addition of Ovation of the Seas and Harmony of the Seas in the second quarter of 2016, new shipboard additions associated with our ship upgrade projects and, to a lesser extent, additions related to our shoreside projects. The increase was partially offset by the decrease in depreciation associated with the sale of Legend of the Seas in the first quarter of 2017 and, to a lesser extent, the sale of Splendour of the Seas in the second quarter of 2016.




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Other Income (Expense)
Interest expense, net of interest capitalized, decreased $7.4 million, or 2.4%, to $300.0 million in 2017 from $307.4 million in 2016. The decrease was due to a lower average debt level in 2017 compared to 2016, partially offset by higher interest rates in 2017 compared to 2016.
Equity investment income increased $27.9 million, or 21.7%, to $156.2 million in 2017 from $128.4 million in 2016 primarily due to an increase in income from TUI Cruises.
Other expense decreased $30.4 million, or 85.2%, to $5.3 million in 2017 from $35.7 million in 2016. The decrease was primarily due to a net loss of $21.7 million related to the elimination of the Pullmantur reporting lag in 2016 which did not recur in 2017.
Gross and Net Yields
Gross and Net Yields increased 5.9% and 6.5% in 2017, respectively, compared to 2016 primarily due to the increase in passenger ticket and onboard and other revenues discussed above.
Gross and Net Cruise Costs
Gross Cruise Costs remained consistent in 2017 compared to 2016. Net Cruise Costs decreased 1.2% in 2017 compared to 2016 primarily due to the decrease in capacity and cruise operating expenses discussed above. Gross Cruise Costs per APCD and Net Cruise Costs per APCD increased 1.9% and 1.3% in 2017, respectively, compared to 2016. The increase was mainly due to the hurricane related disruptions during the third quarter of 2017 which reduced our capacity; however, certain operating expenses were still incurred, negatively impacting our metrics per APCD. Net Cruise Costs Excluding Fuel per APCD increased 2.0% in 2017 compared to 2016.
Other Comprehensive Income
Other comprehensive income in 2017 was $582.2 million compared to $411.9 million in 2016. The increase of $170.3 million, or 41.3%, was primarily due to the Gain on cash flow derivative hedges in 2017 of $570.5 million compared to $411.2 million in 2016. The increase of $159.3 million in 2017 was primarily due to an increase in foreign currency forward contract values in 2017 compared to a decrease in 2016, which was partially offset by lower amounts of fuel swap losses reclassified to income in 2017 and a smaller increase in fuel swap instrument values in 2017 compared to 2016.
Future Application of Accounting Standards
Refer to Note 2. Summary of Significant Accounting Policies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on Recent Accounting Pronouncements.
Liquidity and Capital Resources
Sources and Uses of Cash
Cash flow generated from operations provides us with a significant source of liquidity. Net cash provided by operating activities increased $604.6 million to $3.5 billion in 2018 compared to $2.9 billion in 2017. The increase in cash provided by operating activities was primarily attributable to an increase in proceeds from customer deposits, an increase in cash receipts from onboard spending and an increase of $133.4 million in dividends received from unconsolidated affiliates.
Net cash provided by operating activities increased $357.9 million to $2.9 billion in 2017 compared to $2.5 billion in 2016. The increase in cash provided by operating activities was primarily attributable to an increase in proceeds from customer deposits, an increase in cash receipts from onboard spending and a decrease in fuel costs in 2017 compared to 2016. Additionally, dividends received from unconsolidated affiliates increased by $33.7 million.
Net cash used in investing activities increased $4.3 billion to $4.5 billion in 2018 compared to $213.6 million in 2017. The increase was primarily attributable to an increase in capital expenditures of $3.1 billion primarily due to the

57


delivery of Symphony of the Seas and Celebrity Edge and to a lesser extent the purchase of Azamara Pursuit in 2018 compared to no ship deliveries or purchases in 2017 and $916.1 million of cash paid for the acquisition of Silversea Cruises, net of cash acquired, in 2018 as well as $230.0 million of proceeds received from the sale of property and equipment in 2017, which did not recur in 2018.
Net cash used in investing activities decreased $2.5 billion to $213.6 million in 2017 compared to $2.7 billion in 2016. The decrease was primarily attributable to a decrease in capital expenditures of $1.9 billion due to ship deliveries in 2016 of Ovation of the Seas and Harmony of the Seas, compared to no ship deliveries in 2017. In addition, we received $230.0 million of proceeds from the sale of property and equipment in 2017 which did not occur in 2016. Furthermore, during 2017, we received cash of $63.2 million on settlements on our foreign currency forward contracts compared to net cash paid of $213.2 million during 2016.
Net cash provided by financing activities was $1.2 billion in 2018 compared to Net cash used in financing activities of $2.7 billion in 2017. The change was primarily attributable to an increase in proceeds from the issuance of commercial paper notes of $4.7 billion in 2018 compared to none issued in 2017 and an increase in debt proceeds of $2.7 billion in 2018 compared to 2017. The increase in debt proceeds in 2018 was primarily due to the $1.2 billion unsecured term loan borrowed to finance Symphony of the Seas, the $729.0 million unsecured term loan borrowed to finance Celebrity Edge, the $700.0 million unsecured term loan borrowed to finance the acquisition of Silversea Cruises, an increase in borrowings on our revolving credit facilities and the $130.0 million credit agreement.
This increase was partially offset by repayments of commercial paper notes of $4.0 billion in 2018 compared to no repayments in 2017, an increase in stock repurchases of $350.0 million and a higher amount of dividends paid during 2018 compared to 2017.
Net cash used in financing activities was $2.7 billion in 2017 compared to Net cash provided in financing activities of $243.8 million in 2016. The change was primarily attributable to a decrease in debt proceeds of $1.5 billion, an increase in debt repayments of $1.5 billion and a higher amount of dividends paid during 2017 compared to 2016, partially offset by a decrease of stock repurchases of $75.0 million during 2017 compared to 2016. The decrease in debt proceeds was primarily due to the $841.8 million unsecured term loan borrowed in 2016 to finance Ovation of the Seas and the €700.7 million and $226.1 million unsecured term loans borrowed in 2016 to finance Harmony of the Seas that did not recur in 2017 and lower drawings on our revolving credit facilities during 2017 compared to 2016, partially offset by $800 million in proceeds received from unsecured senior notes issued during 2017 which did not occur in 2016. The increase in repayment of debt was primarily due to higher payments on our revolving credit facilities.
Future Capital Commitments
Our future capital commitments consist primarily of new ship orders. As of December 31, 2018, we have one Oasis-class ship, two Quantum-class ships and two ships of a new generation, known as our Icon-class, on order for our Royal Caribbean International brand with an aggregate capacity of approximately 25,300 berths. As of December 31, 2018, we have three Edge-class ships and a ship designed for the Galapagos Islands on order for our Celebrity Cruises brand with an aggregate capacity of approximately 9,400 berths. Additionally as of December 31, 2018, we have three ships on order for our Silversea Cruises brand with an aggregate capacity of approximately 1,200 berths. Refer to Item 1. Business-Operations for further information on our ships on order. For each of these orders, we have committed financing arrangements in place covering 80% of the cost of the ship, almost all of which include sovereign financing guarantees.
As of December 31, 2018, the aggregate cost of our ships on order, not including any ships on order by our Partner Brands and the Silversea Cruises ships that remain contingent upon final documentation and financing, was approximately $11.4 billion, of which we had deposited $651.7 million as of such date. Approximately 53.5% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at December 31, 2018. (Refer to Note 17. Fair Value Measurements and Derivative Instruments and Note 18. Commitments and Contingencies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data).
In February 2019, we entered into an agreement with Chantiers de l’Atlantique to build the sixth Oasis-class ship for Royal Caribbean International. The ship is expected to have an aggregate capacity of approximately 5,700 berths

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and is expected to enter service in the fourth quarter of 2023. The order with Chantiers de l’Atlantique is contingent upon completion of conditions precedent and financing, which is expected to be completed in 2019.
As of December 31, 2018, anticipated overall capital expenditures, based on our existing ships on order, are approximately $2.9 billion for 2019, $3.3 billion for 2020, $2.9 billion for 2021 and $3.4 billion for 2022.
Contractual Obligations
As of December 31, 2018, our contractual obligations were as follows (in thousands):
 Payments due by period
   Less than 1-3 3-5 More than
 Total 1 year years years 5 years
Operating Activities: 
  
  
  
  
Operating lease obligations(1)
$677,316
 $67,682
 $120,380
 $105,281
 $383,973
Interest on long-term debt(2)
1,654,937
 349,736
 510,679
 414,775
 379,747
Other(3)
819,841
 224,253
 321,225
 124,668
 149,695
Investing Activities:

        
Ship purchase obligations(4)
9,075,882
 1,241,657
 4,107,744
 2,500,756
 1,225,725
Financing Activities:

        
Commercial paper(5)
775,488
 775,488
 
 
 
Debt obligations(6)
9,871,267
 1,614,506
 2,456,251
 2,252,831
 3,547,679
Capital lease obligations(7)
130,944
 32,335
 69,703
 19,168
 9,738
Other(8)
18,365
 8,018
 8,632
 1,715
 
Total$23,024,040
 $4,313,675
 $7,594,614
 $5,419,194
 $5,696,557
___________________________________________________________________
(1)     We are obligated under noncancelable operating leases primarily for offices, warehouses and motor vehicles. Amounts represent contractual obligations with initial terms in excess of one year.
(2)     Debt obligations mature at various dates through fiscal year 2036 and bear interest at fixed and variable rates. Interest on variable-rate debt is calculated based on forecasted debt balances, including the impact of interest rate swap agreements, using the applicable rate at December 31, 2018. Debt denominated in other currencies is calculated based on the applicable exchange rate at December 31, 2018.
(3)      Amounts primarily represent future commitments with remaining terms in excess of one year to pay for our usage of certain port facilities, marine consumables, services and maintenance contracts.
(4)     Amounts do not include potential obligations which remain subject to cancellation at our sole discretion and activity related to Silversea Cruises during the three-month reporting lag period. Additionally, amounts do not include the conditional agreement with Meyer Werft for the two Silversea Cruises ships of a new generation.
(5)     
Refer to Note 9. Debt to our consolidated financial statements under Item 8. Financial Statements and Supplemental Data to our consolidated financial statements for further information.
(6)Debt denominated in other currencies is calculated based on the applicable exchange rate at December 31, 2018. In addition, debt obligations presented above are net of debt issuance costs of $206.7 million as of December 31, 2018.
(7)     Amounts represent capital lease obligations with initial terms in excess of one year.
(8)    Amounts represent fees payable to sovereign guarantors in connection with certain of our export credit debt facilities and facility fees on our revolving credit facilities.
Please refer to Funding Needs and Sources below for discussion on the planned funding of the above contractual obligations.
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 or the purchase of existing ships. We continuously consider potential acquisitions and strategic alliances.

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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.
Off-Balance Sheet Arrangements
We and TUI AG have each guaranteed the repayment by TUI Cruises of 50% of a bank loan. As of December 31, 2018, the outstanding principal amount of the loan was €37.0 million, or approximately $42.3 million, based on the exchange rate at December 31, 2018. The loan amortizes quarterly and is currently secured by a first mortgage on Mein Schiff Herz, previously known as Mein Schiff 2. Based on current facts and circumstances, we do not believe potential obligations under our guarantee of this bank loan are probable.
TUI Cruises has entered into various ship construction and credit agreements that include certain restrictions on each of our and TUI AG's ability to reduce our current ownership interest in TUI Cruises below 37.55% through May 2031.
In July 2016, we executed an agreement with Miami Dade County (“MDC”), which was simultaneously assigned to Sumitomo Banking Corporation (“SMBC”), to lease land from MDC and construct a new cruise terminal of approximately 170,000 square feet at PortMiami in Miami, Florida, which was completed during the fourth quarter of 2018 and serves as a homeport. During the construction period, SMBC funded the costs of the terminal’s construction and land lease. Once the terminal was substantially completed, we commenced operating and leasing the terminal from SMBC for a five-year term. We determined that the lease arrangement between SMBC and us should be accounted for as an operating lease.
Some of the contracts that we enter into include indemnification provisions that obligate us to make payments to the counterparty if certain events occur. These contingencies generally relate to changes in taxes, increased lender capital costs and other similar costs. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business. There are no stated or notional amounts included in the indemnification clauses and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses. We have not been required to make any payments under such indemnification clauses in the past and, under current circumstances, we do not believe an indemnification obligation is probable.
As of December 31, 2018, other than the items described above, we are not party to any other off-balance sheet arrangements, including guarantee contracts, retained or contingent interest, certain derivative instruments and variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on our financial position.
Funding Needs and Sources
We have significant contractual obligations of which our debt service obligations and the capital expenditures associated with our ship purchases represent our largest funding needs. As of December 31, 2018, we had approximately $4.3 billion in contractual obligations due through December 31, 2019 of which approximately $1.6 billion relates to debt maturities, $349.7 million relates to interest on long-term debt and $1.2 billion relates to progress payments on our ship orders and the final installments payable due upon the deliveries of Spectrum of the Seas and Celebrity Flora in 2019. We have historically relied on a combination of cash flows provided by operations, drawdowns under our available credit facilities, the incurrence of additional debt and/or the refinancing of our existing debt and the issuance of additional shares of equity securities to fund these obligations.
As of December 31, 2018, we had a working capital deficit of $5.9 billion, which included $1.6 billion of current portion of debt, including capital leases, and $775.5 million of commercial paper. As of December 31, 2017, we had a working capital deficit of $3.9 billion, which included $1.2 billion of current portion of debt, including capital leases. Similar to others in our industry, we operate with a substantial working capital deficit. This deficit is mainly attributable to the fact that, under our business model, a vast majority of our passenger ticket receipts are collected in advance of the applicable sailing date. These advance passenger receipts remain a current liability until the sailing date. The cash generated from these advance receipts is used interchangeably with cash on hand from other sources, such as our revolving credit facilities, commercial paper and other cash from operations. The cash received as advanced receipts

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can be used to fund operating expenses for the applicable future sailing or otherwise, pay down our revolving credit facilities and commercial paper notes, invest in long term investments or any other use of cash. In addition, we have a relatively low-level of accounts receivable and rapid turnover results in a limited investment in inventories. We generate substantial cash flows from operations, and our business model, along with our unsecured revolving credit facilities, has historically allowed us to maintain this working capital deficit and still meet our operating, investing and financing needs. We expect that we will continue to have working capital deficits in the future.
As of December 31, 2018, we had liquidity of $1.3 billion, consisting of $287.9 million in cash and cash equivalents and $1.0 billion available under our unsecured credit facilities, net of our outstanding commercial paper notes. We anticipate that our cash flows from operations and our current financing arrangements, as described above, will be adequate to meet our capital expenditures and debt repayments over the next twelve-month period.
As of December 31, 2018, we have $700.0 million that remains available for future common stock repurchase transactions under a 24-month common stock repurchase program for up to $1.0 billion authorized by our board of directors in May 2018. Repurchases under the program may be made at management's discretion from time to time on the open market or through privately negotiated transactions and are expected to be funded from available cash or borrowings under our revolving credit facilities. Refer to Note 11. Shareholders' Equity to our consolidated financial statements under Item 8. Financial Statements and Supplemental Data for further information.
If any person acquires ownership of more than 50% of our common stock or, subject to certain exceptions, during any 24-month period, a majority of our board of directors is no longer comprised of individuals who were members of our board of directors on the first day of such period, we may be obligated to prepay indebtedness outstanding under our credit facilities, which we may be unable to replace on similar terms. Our public debt securities also contain change of control provisions that would be triggered by a third-party acquisition of greater than 50% of our common stock coupled with a ratings downgrade. If this were to occur, it would have an adverse impact on our liquidity and operations.
Debt Covenants
Certain of our financing agreements contain covenants that require us, among other things, to maintain minimum net worth of at least $8.9 billion, a fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital ratio to no more than 62.5%. The fixed charge coverage ratio is calculated by dividing net cash from operations for the past four quarters by the sum of dividend payments plus scheduled principal debt payments in excess of any new financings for the past four quarters. Our minimum net worth and maximum net debt-to-capital calculations exclude the impact of Accumulated other comprehensive loss on Total shareholders' equity. We were well in excess of all debt covenant requirements as of December 31, 2018. The specific covenants and related definitions can be found in the applicable debt agreements, the majority of which have been previously filed with the Securities and Exchange Commission.
Dividends
In December 2018, we declared a cash dividend on our common stock of $0.70 per share which was paid in the first quarter of 2019. We declared a cash dividend on our common stock of $0.70 per share during the third quarter of 2018 which was paid in the fourth quarter of 2018. During the first and second quarters of 2018, we declared a cash dividend on our common stock of $0.60 per share which was paid in the second and third quarters of 2018, respectively. During the first quarter of 2018, we also paid a cash dividend on our common stock of $0.60 per share which was declared during the fourth quarter of 2017.

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Item 7A.    Quantitative and Qualitative Disclosures About Market Risk
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 try to mitigate 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 impact of these hedging instruments is 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. Although certain of our derivative financial instruments do not qualify or are not accounted for under hedge accounting, our objective is not to hold or issue derivative financial instruments for trading or other speculative purposes. (Refer to Note 17. Fair Value Measurements and Derivative Instruments to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data.)
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates to our long-term debt obligations including future interest payments. At December 31, 2018, approximately 59.1% of our long-term debt was effectively fixed as compared to 57.4% as of December 31, 2017. We use interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest 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. We use interest rate swap agreements that effectively convert a portion of our fixed-rate debt to a floating-rate basis to manage this risk. At December 31, 2018 and 2017, we maintained interest rate swap agreements on the following fixed-rate debt instruments:
Debt InstrumentSwap Notional as of December 31, 2018 (In thousands)MaturityDebt Fixed RateSwap Floating Rate: LIBOR plusAll-in Swap Floating Rate as of December 31, 2018
Oasis of the Seas term loan
$105,000
October 20215.41%3.87%6.63%
Unsecured senior notes650,000
November 20225.25%3.63%6.25%
 $755,000
    
These interest rate swap agreements are accounted for as fair value hedges.
The estimated fair value of our long-term fixed-rate debt at December 31, 2018 was $2.7 billion, using quoted market prices, where available, or using the present value of expected future cash flows which incorporates risk profile. The fair value of our fixed to floating interest rate swap agreements was estimated to be a liability of $25.4 million as of December 31, 2018, based on the present value of expected future cash flows. A hypothetical one percentage point decrease in interest rates at December 31, 2018 would increase the fair value of our hedged and unhedged long-term fixed-rate debt by approximately $133.9 million and would increase the fair value of our fixed to floating interest rate swap agreements by approximately $24.3 million.
Market risk associated with our long-term floating-rate debt is the potential increase in interest expense from an increase in interest rates. We use interest rate swap agreements that effectively convert a portion of our floating-rate debt to a fixed-rate basis to manage this risk. A hypothetical one percentage point increase in interest rates would increase our forecasted 2019 interest expense by approximately $35.7 million, assuming no change in foreign currency exchange rates.

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At December 31, 2018 and 2017, we maintained interest rate swap agreements on the following floating-rate debt instruments:
Debt InstrumentSwap Notional as of December 31, 2018 (In thousands)MaturityDebt Floating RateAll-in Swap Fixed Rate
Celebrity Reflection term loan
$327,250
October 2024LIBOR plus0.40%2.85%
Quantum of the Seas term loan
490,000
October 2026LIBOR plus1.30%3.74%
Anthem of the Seas term loan
513,542
April 2027LIBOR plus1.30%3.86%
Ovation of the Seas term loan
657,083
April 2028LIBOR plus1.00%3.16%
Harmony of the Seas term loan (1)
627,660
May 2028EURIBOR plus1.15%2.26%
 $2,615,535
    
___________________________________________________________________
(1)
Interest rate swap agreements hedging the Euro-denominated term loan for Harmony of the Seas include EURIBOR zero-floors matching the hedged debt EURIBOR zero-floor. Amount presented is based on the exchange rate as of December 31, 2018.
These interest rate swap agreements are accounted for as cash flow hedges.
The fair value of our floating to fixed interest rate swap agreements was estimated to be an asset of $7.6 million as of December 31, 2018 based on the present value of expected future cash flows. These interest rate swap agreements are accounted for as cash flow hedges.
Foreign Currency Exchange Rate Risk
Our primary exposure to foreign currency exchange rate risk relates to our ship construction contracts denominated in Euros, our foreign currency denominated debt and our international business operations. On a regular basis, we enter into foreign currency forward contracts and, from time to time, we utilize cross-currency swap agreements and collar options to manage portions of the exposure to movements in foreign currency exchange rates.
The estimated fair value, as of December 31, 2018, of our Euro-denominated forward contracts associated with our ship construction contracts was a liability of $40.7 million, based on the present value of expected future cash flows. As of December 31, 2018, the aggregate cost of our ships on order, not including ships on order by our Partner Brands and the Silversea Cruises ships that remain contingent upon final documentation and financing, was approximately $11.4 billion, of which we had deposited $651.7 million as of such date. Approximately 53.5% and 54.0% of the aggregate cost of the ships under construction was exposed to fluctuations in the Euro exchange rate at December 31, 2018 and 2017, respectively. A hypothetical 10% strengthening of the Euro as of December 31, 2018, assuming no changes in comparative interest rates, would result in a $609.0 million increase in the United States dollar cost of the foreign currency denominated ship construction contracts exposed to fluctuations in the Euro exchange rate. Our foreign currency forward contract agreements are accounted for as cash flow or net investment hedges depending on the designation of the related hedge.
Our international business operations subject us to foreign currency exchange risk. We transact business in many different foreign currencies and maintain investments in foreign operations which may expose us to financial market risk resulting from fluctuations in foreign currency exchange rates. Movements in foreign currency exchange rates may affect the value of our earnings in foreign currencies and cash flows. We manage most of this exposure on a consolidated basis, which allows us to take advantage of any natural offsets. Therefore, weakness in one particular currency might be offset by strengths in other currencies over time. The extent to which one currency is effective as a natural offset of another currency fluctuates over time. In addition, some foreign currency exposures have little to no mitigating natural offsets available.
We consider our investments in our foreign operations to be denominated in relatively stable currencies and of a long-term nature. As of December 31, 2018, we maintained foreign currency forward contracts and designated them as hedges of a portion of our net investment in TUI Cruises of €101.0 million, or approximately $115.5 million based on the exchange rate at December 31, 2018. These forward currency contracts mature in October 2021.

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We also address the exposure of our investments in foreign operations by denominating a portion of our debt in our subsidiaries' and investments' functional currencies and designating it as a hedge of these subsidiaries and investments. We had designated debt as a hedge of our net investments primarily in TUI Cruises of approximately €280.0 million, or approximately $320.2 million, through December 31, 2018. As of December 31, 2017, we had designated debt as a hedge of our net investments primarily in TUI Cruises of approximately €246.0 million, or approximately $295.3 million.
We have included approximately $86.1 million and $68.5 million of foreign-currency transaction losses and of changes in the fair value of derivatives in the foreign currency translation adjustment component of Accumulated other comprehensive loss at December 31, 2018 and 2017, respectively.
On a regular basis, we enter into foreign currency forward contracts and, from time to time, we utilize cross-currency swap agreements and collar options to minimize the volatility resulting from the remeasurement of net monetary assets and liabilities denominated in a currency other than our functional currency or the functional currencies of our foreign subsidiaries. During 2018, we maintained an average of approximately $741.5 million of these foreign currency forward contracts. These instruments are not designated as hedging instruments. For the years ended December 31, 2018, 2017 and 2016 changes in the fair value of the foreign currency forward contracts resulted in (losses) gains of approximately $(62.4) million, $62.0 million and $(51.1) million, respectively, which offset gains (losses) arising from the remeasurement of monetary assets and liabilities denominated in foreign currencies in those same years of $57.6 million, $(75.6) million and $39.8 million, respectively. These changes were recognized in earnings within Other income (expense) in our consolidated statements of comprehensive income (loss).
Fuel Price Risk
Our exposure to market risk for changes in fuel prices relates primarily to the consumption of fuel on our ships. Fuel cost (net of the financial impact of fuel swap agreements), as a percentage of our total revenues, was approximately 7.5% in 2018, 7.8% in 2017 and 8.4% in 2016. We use fuel swap agreements to mitigate the financial impact of fluctuations in fuel prices.
As of December 31, 2018, we had fuel swap agreements to pay fixed prices for fuel with an aggregate notional amount of approximately $1.1 billion, maturing through 2022. The fuel swap agreements represented 58% of our projected 2019 fuel requirements, 54% of our projected 2020 fuel requirements, 28% of our projected 2021 fuel requirements and 19% of our projected 2022 fuel requirements. These fuel swap agreements are generally accounted for as cash flow hedges. The estimated fair value of these contracts at December 31, 2018 was estimated to be an liability of $79.6 million. We estimate that a hypothetical 10% increase in our weighted-average fuel price from that experienced during the year ended December 31, 2018 would increase our forecasted 2019 fuel cost by approximately $37.0 million, net of the impact of fuel swap agreements.
Item 8.    Financial Statements and Supplementary Data
Our Consolidated Financial Statements and Quarterly Selected Financial Data are included beginning on page F-1 of this report.
Item 9.    Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.

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Item 9A.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chairman and Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based upon such evaluation, our Chairman and Chief Executive Officer and Chief Financial Officer concluded that those controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chairman and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's (the "SEC") rules and forms.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our management, with the participation of our Chairman and Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2018.
In July 31, 2018, we acquired Silversea Cruise Holding Ltd. ("Silversea Cruises"). Due to the timing of this acquisition, we excluded Silversea Cruises from the scope of our management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2018. The total assets, excluding goodwill and identifiable intangible assets, and total revenues of Silversea Cruises represent approximately 5.0% and 1.4%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2018. This exclusion is in accordance with the general guidance issued by the SEC Staff that an assessment of a recent business acquisition may be omitted from management's report on internal control over financial reporting in the first year of consolidation. We are in the process of evaluating the controls and procedures at Silversea Cruises and integrating Silversea Cruises into our internal control over financial reporting.
The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, as stated in its report, which is included herein on page F-2.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
It should be noted that any system of controls, however 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 is only reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.
Item 9B.    Other Information
None.

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PART III
Items 10, 11, 12, 13 and 14. Directors, Executive Officers and Corporate Governance; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters; Certain Relationships and Related Transactions; and Director Independence and Principal Accountant Fees and Services.
Except for information concerning executive officers (called for by Item 401(b) of Regulation S-K), which is included in Part I of this Annual Report on Form 10-K, the information required by Items 10, 11, 12, 13 and 14 is incorporated herein by reference to certain sections of the Royal Caribbean Cruises Ltd. Definitive Proxy Statement relating to our 2019 Annual Meeting of Shareholders (the "Proxy Statement") to be filed with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year. Please refer to the following sections in the Proxy Statement for more information: "Corporate Governance"; "Proposal 1—Election of Directors"; "Certain Relationships and Related Person Transactions"; "Section 16(a) Beneficial Ownership Reporting Compliance"; "Executive Compensation"; "Security Ownership of Certain Beneficial Owners and Management"; and "Proposal 3—Ratification of Principal Independent Registered Public Accounting Firm." Copies of the Proxy Statement will become available when filed through our Investor Relations website at www.rclcorporate.com (please see "Financial Reports" under "Financial Information"); by contacting our Investor Relations department at 1050 Caribbean Way, Miami, Florida 33132—telephone (305) 982-2625; or by visiting the SEC's website at www.sec.gov.
We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, including our executive officers, and our directors. A copy of the Code of Business Conduct and Ethics is posted in the corporate governance section of our website at www.rclcorporate.com and is available in print, without charge, to shareholders upon written request to our Corporate Secretary at Royal Caribbean Cruises, Ltd., 1050 Caribbean Way, Miami, Florida 33132. Any amendments to the code or any waivers from any provisions of the code granted to executive officers or directors will be promptly disclosed to investors by posting on our website at www.rclcorporate.com. None of the websites referenced in this Annual Report on Form 10-K or the information contained therein is incorporated herein by reference.

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PART IV
Item 15.    Exhibits and Financial Statement Schedules
(a)(1)  Financial Statements
Our Consolidated Financial Statements have been prepared in accordance with Item 8. Financial Statements and Supplementary Data and are included beginning on page F-1 of this report.
(2)Financial Statement Schedules
None.
(3)Exhibits
Exhibits 10.30 through 10.49 represent management compensatory plans or arrangements.
    Incorporated By Reference
Exhibit Number Exhibit Description Form Exhibit Filing Date/ Period End Date
3.1  S-3 3.1 3/23/2009
3.2  8-K 3.1 12/6/2018
4.1 Indenture dated as of July 15, 1994, by and between the Company, as issuer, and The Bank of New York Trust Company, N.A., successor to NationsBank of Georgia, National Association, as Trustee 20-F 2.4 12/31/1994
4.2 Sixth Supplemental Indenture dated as of October 14, 1997, to the Indenture, dated as of July 15, 1994, by and between the Company, as issuer, and The Bank of New York Trust Company, N.A., as Trustee 20-F 2.11 12/31/1997
4.3 Eighth Supplemental Indenture dated as of March 16, 1998, to the Indenture, dated as of July 15, 1994, by and between the Company, as issuer, and The Bank of New York Trust Company, N.A., as Trustee 20-F 2.13 12/31/1997
4.4  S-3 4.1 7/31/2006
4.5  8-K 4.1 11/7/2012
4.6  8-K 4.1 11/28/2017
4.7       
4.8       
4.9       
10.1 Amended and Restated Registration Rights Agreement dated as of July 30, 1997, by and among the Company, A. Wilhelmsen AS., Cruise Associates, Monument Capital Corporation, Archinav Holdings, Ltd. and Overseas Cruiseship, Inc. 20-F 2.20 12/31/1997
10.2  8-K 10.1 12/7/2017

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    Incorporated By Reference
Exhibit Number Exhibit Description Form Exhibit Filing Date/ Period End Date
10.3  8-K 10.3 10/17/2017
10.4  10-K 10.7 12/31/2015
10.5  10-Q 10.4 6/30/2018
10.6  10-K 10.8 12/31/2015
10.7  10-Q 10.5 6/30/2018
10.8  10-Q 10.1 3/31/2016
10.9  10-Q 10.6 6/30/2018
10.10  10-K 10.10 12/31/2015
10.11  10-Q 10.1 3/31/2018
10.12  8-K 10.1 11/19/2015
10.13  10-Q 10.7 6/30/2018
10.14  10-Q 10.8 6/30/2018
10.15  8-K 10.2 11/19/2015

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    Incorporated By Reference
Exhibit Number Exhibit Description Form Exhibit Filing Date/ Period End Date
10.16  10-Q 10.9 6/30/2018
10.17  10-Q 10.10 6/30/2018
10.18       
10.19  8-K 10.2 6/28/2016
10.20       
10.21  8-K 10.1 7/28/2017
10.22  8-K 10.2 7/28/2017
10.23  8-K 10.3 7/28/2017
10.24  8-K 10.1 10/17/2017
10.25  10-Q 10.11 6/30/2018
10.26  8-K 10.2 10/17/2017

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    Incorporated By Reference
Exhibit Number Exhibit Description Form Exhibit Filing Date/ Period End Date
10.27  10-Q 10.12 6/30/2018
10.28  8-K 10.1 7/5/2018
10.29  8-K 10.1 6/18/2018
10.30  10-K 10.17 12/31/2016
10.31  10-Q 10.3 9/30/2008
10.32  10-Q 10.4 9/30/2008
10.33  10-K 10.23 12/31/2013
10.34  10-Q 10.7 9/30/2017
10.35  10-K 10.31 12/31/2010
10.36  10-K 10.27 12/31/2014
10.37  10-K 10.26 12/31/2015
10.38  10-K 10.22 12/31/2012
10.39  10-Q 10.2 6/30/2013
10.40  10-Q 10.3 6/30/2015
10.41  10-K 10.33 12/31/2014
10.42  10-K 10.31 12/31/2016
10.43  10-Q 10.4 6/30/2015
10.44  8-K 10.3 12/8/2005
10.45  10-K 10.31 12/31/2006
10.46  10-K 10.31 12/31/2007
10.47  10-Q 10.1 9/30/2008
10.48  10-K 10.38 12/31/2008
10.49  10-K 10.35 12/31/2013
18.1       
21.1       

70


*Filed herewith
**Furnished herewith
Interactive Data File
101The following financial statements from Royal Caribbean Cruises Ltd.'s Annual Report on Form 10-K for the year ended December 31, 2018 formatted in XBRL are as follows:
 (i)the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016;
 (ii)the Consolidated Balance Sheets at December 31, 2018 and 2017;
 (iii)the Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016;
 (iv)the Consolidated Statements of Shareholders' Equity for the years ended December 31, 2018, 2017 and 2016; and
 (v)the Notes to the Consolidated Financial Statements, tagged in summary and detail.

Item 16.    Form 10-K Summary
None.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ROYAL CARIBBEAN CRUISES LTD.
(Registrant)
By:/s/ JASON T. LIBERTY
 
Jason T. Liberty  Executive Vice President, Chief Financial Officer
(Principal Financial Officer and duly authorized signatory)

February 22, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 22, 2019.
/s/ RICHARD D. FAIN
Richard D. Fain
 Director, Chairman and Chief Executive Officer
(Principal Executive Officer)
 
/s/ JASON T. LIBERTY
Jason T. Liberty
 Executive Vice President, Chief Financial Officer
(Principal Financial Officer)
 
/s/ HENRY L. PUJOL
Henry L. Pujol
 Senior Vice President, Chief Accounting Officer (Principal Accounting Officer)
 
*
John F. Brock
Director
 
*
Stephen R. Howe Jr.
Director
 
*
William L. Kimsey
 Director
 
*
Maritza G. Montiel
Director
 
*
Ann S. Moore
 Director
 
*
Eyal M. Ofer
 Director
 
*
Thomas J. Pritzker
 Director
 
*
William K. Reilly
 Director
 
*
Bernt Reitan
 Director
 
*
Vagn O. Sørensen
 Director
 
*
Donald Thompson
 Director
 
*
Arne Alexander Wilhelmsen
 Director
*By:/s/ JASON T. LIBERTY
 
Jason T. Liberty, as Attorney-in-Fact


71


ROYAL CARIBBEAN CRUISES LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1



Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of Royal Caribbean Cruises Ltd.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Royal Caribbean Cruises Ltd. and its subsidiaries (the "Company") as of December 31, 2018 and 2017, and the related consolidated statements of comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for stock-based compensation expense in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management's Report on Internal Control Over Financial Reporting, management has excluded Silversea Cruises from its assessment of internal control over financial reporting as of December 31, 2018 because it was acquired by the Company in a purchase business combination during 2018. We have also excluded Silversea Cruises from our audit of internal control over financial reporting. Silversea Cruises is a majority-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 5.0% and 1.4%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2018.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and

F-2


procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Miami, Florida
February 22, 2019
We have served as the Company’s auditor since at least 1989, which includes periods before the Company became subject to SEC reporting requirements. We have not been able to determine the specific year we began serving as auditor of the Company.


F-3


ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Year Ended December 31,
 2018 2017 2016
 (in thousands, except per share data)
Passenger ticket revenues$6,792,716
 $6,313,170
 $6,149,323
Onboard and other revenues2,701,133
 2,464,675
 2,347,078
Total revenues9,493,849
 8,777,845
 8,496,401
Cruise operating expenses:     
Commissions, transportation and other1,433,739
 1,363,170
 1,349,677
Onboard and other537,355
 495,552
 493,558
Payroll and related924,985
 852,990
 882,891
Food520,909
 492,857
 485,673
Fuel710,617
 681,118
 713,676
Other operating1,134,602
 1,010,892
 1,090,064
Total cruise operating expenses5,262,207
 4,896,579
 5,015,539
Marketing, selling and administrative expenses1,303,144
 1,186,016
 1,108,742
Depreciation and amortization expenses1,033,697
 951,194
 894,915
Operating Income1,894,801
 1,744,056
 1,477,205
Other income (expense):     
Interest income32,800
 30,101
 20,856
Interest expense, net of interest capitalized(333,672) (299,982) (307,370)
Equity investment income210,756
 156,247
 128,350
Other income (expense) (1)
11,107
 (5,289) (35,653)
 (79,009) (118,923) (193,817)
Net Income1,815,792
 1,625,133
 1,283,388
Less: Net Income attributable to noncontrolling interest4,750
 
 
Net Income attributable to Royal Caribbean Cruises Ltd.$1,811,042
 $1,625,133
 $1,283,388
Earnings per Share:     
Basic$8.60
 $7.57
 $5.96
Diluted$8.56
 $7.53
 $5.93
Comprehensive Income (Loss)     
Net Income$1,815,792
 $1,625,133
 $1,283,388
Other comprehensive income (loss):     
Foreign currency translation adjustments(14,251) 17,307
 2,362
Change in defined benefit plans7,643
 (5,583) (1,636)
(Loss) gain on cash flow derivative hedges(286,861) 570,495
 411,223
Total other comprehensive (loss) income(293,469) 582,219
 411,949
Comprehensive Income$1,522,323
 $2,207,352
 $1,695,337
Less: Comprehensive Income attributable to noncontrolling interest4,750
 
 
Comprehensive Income attributable to Royal Caribbean Cruises Ltd.$1,517,573
 $2,207,352
 $1,695,337
___________________________________________________________________
(1)
For the year ended December 31, 2016, Other income (expense) included a $21.7 million loss related to the 2016 elimination of the Pullmantur reporting lag.

The accompanying notes are an integral part of these consolidated financial statements.
F-4


ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED BALANCE SHEETS
 As of December 31,
 2018 2017
 (in thousands, except share data)
Assets   
Current assets   
Cash and cash equivalents$287,852
 $120,112
Trade and other receivables, net324,507
 318,641
Inventories153,573
 111,393
Prepaid expenses and other assets456,547
 258,171
Derivative financial instruments19,565
 99,320
Total current assets1,242,044
 907,637
Property and equipment, net23,466,163
 19,735,180
Goodwill1,378,353
 288,512
Other assets1,611,710
 1,429,597
Total assets$27,698,270
 $22,360,926
Liabilities, redeemable noncontrolling interest and shareholders' equity   
Current liabilities   
Current portion of long-term debt$1,646,841
 $1,188,514
Commercial paper775,488
 
Accounts payable488,212
 360,113
Accrued interest74,550
 47,469
Accrued expenses and other liabilities899,761
 903,022
Derivative financial instruments78,476
 47,464
Customer deposits3,148,837
 2,308,291
Total current liabilities7,112,165
 4,854,873
Long-term debt8,355,370
 6,350,937
Other long-term liabilities583,254
 452,813
Total liabilities16,050,789
 11,658,623
Commitments and contingencies (Note 18)
 
Redeemable noncontrolling interest542,020
 
Shareholders' equity   
Preferred stock ($0.01 par value; 20,000,000 shares authorized; none outstanding)
 
Common stock ($0.01 par value; 500,000,000 shares authorized; 235,847,683 and 235,198,901 shares issued, December 31, 2018 and December 31, 2017, respectively)2,358
 2,352
Paid-in capital3,420,900
 3,390,117
Retained earnings10,263,282
 9,022,405
Accumulated other comprehensive loss(627,734) (334,265)
Treasury stock (26,830,765 and 21,861,308 common shares at cost, December 31, 2018 and December 31, 2017, respectively)(1,953,345) (1,378,306)
Total shareholders' equity11,105,461
 10,702,303
Total liabilities, redeemable noncontrolling interest and shareholders’ equity$27,698,270
 $22,360,926

The accompanying notes are an integral part of these consolidated financial statements.
F-5


ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS

 Year Ended December 31,
 2018 2017 2016
  
Operating Activities     
Net Income$1,815,792
 $1,625,133
 $1,283,388
Adjustments:     
Depreciation and amortization1,033,697
 951,194
 894,915
Impairment losses33,651
 
 
Net deferred income tax (benefit) expense(2,679) 1,730
 2,608
Loss (gain) on derivative instruments not designated as hedges61,148
 (61,704) 45,670
Share-based compensation expense46,061
 69,459
 32,659
Equity investment income(210,756) (156,247) (128,350)
Amortization of debt issuance costs41,978
 45,943
 52,795
Gain on sale of property and equipment
 (30,902) 
Gain on sale of unconsolidated affiliate(13,680) 
 
Recognition of deferred gain(21,794) 
 
Changes in operating assets and liabilities:     
(Increase) decrease in trade and other receivables, net(9,573) (32,043) 4,759
(Increase) decrease in inventories(23,849) 2,424
 (1,679)
(Increase) decrease in prepaid expenses and other assets(71,770) 20,859
 11,519
Increase in accounts payable91,737
 36,780
 29,564
Increase in accrued interest18,773
 1,303
 7,841
Increase in accrued expenses and other liabilities42,937
 34,215
 20,718
Increase in customer deposits385,990
 274,705
 188,632
Dividends received from unconsolidated affiliates243,101
 109,677
 75,942
Other, net18,375
 (17,960) (4,291)
Net cash provided by operating activities3,479,139
 2,874,566
 2,516,690
Investing Activities     
Purchases of property and equipment(3,660,028) (564,138) (2,494,363)
Cash received on settlement of derivative financial instruments76,529
 63,224
 110,637
Cash paid on settlement of derivative financial instruments(98,074) 
 (323,839)
Investments in and loans to unconsolidated affiliates(27,172) (10,396) (9,155)
Cash received on loans to unconsolidated affiliates124,238
 62,303
 38,213
Proceeds from the sale of property and equipment
 230,000
 
Proceeds from the sale of unconsolidated affiliate13,215
 
 
Acquisition of Silversea Cruises, net of cash acquired(916,135) 
 
Other, net (1)
(1,731) 5,415
 (46,385)
Net cash used in investing activities(4,489,158) (213,592) (2,724,892)
Financing Activities     
Debt proceeds8,590,740
 5,866,966
 7,338,560
Debt issuance costs(81,959) (51,590) (88,241)
Repayments of debt(6,963,511) (7,835,087) (6,365,570)
Proceeds from issuance of commercial paper notes4,730,286
 
 
Repayments of commercial paper notes(3,965,450) 
 

The accompanying notes are an integral part of these consolidated financial statements.
F-6


ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

 Year Ended December 31,
 2018 2017 2016
Purchase of treasury stock(575,039) (224,998) (299,960)
Dividends paid(527,494) (437,455) (346,487)
Proceeds from exercise of common stock options4,264
 2,525
 2,258
Other, net(13,764) 3,843
 3,249
Net cash provided by (used in) financing activities1,198,073
 (2,675,796) 243,809
Effect of exchange rate changes on cash(20,314) 2,331
 (24,569)
Net increase (decrease) in cash and cash equivalents167,740
 (12,491) 11,038
Cash and cash equivalents at beginning of year120,112
 132,603
 121,565
Cash and cash equivalents at end of year$287,852
 $120,112
 $132,603
Supplemental Disclosures     
Cash paid during the year for:     
Interest, net of amount capitalized$252,466
 $249,615
 $256,775
      
Non-Cash Investing Activities     
Contingent consideration for the acquisition of Silversea Cruises$44,000
 $
 $
Purchases of property and equipment included in accounts payable and accrued expenses and other liabilities$
 $139,644
 $
Notes receivable issued upon sale of property and equipment$
 $20,409
 $213,042
___________________________________________________________________
(1)    Amount includes $26.0 million in 2016 related to cash included in the divestiture of Pullmantur Holdings.


The accompanying notes are an integral part of these consolidated financial statements.
F-7


ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders' Equity
 (in thousands)
Balances at January 1, 2016$2,339
 $3,297,619
 $6,944,862
 $(1,328,433) $(853,348) $8,063,039
Activity related to employee stock plans7
 30,898
 
 
 
 30,905
Common stock dividends, $1.71 per share
 
 (367,909) 
 
 (367,909)
Changes related to cash flow derivative hedges
 
 
 411,223
 
 411,223
Change in defined benefit plans
 
 
 (1,636) 
 (1,636)
Foreign currency translation adjustments
 
 
 2,362
 
 2,362
Purchase of treasury stock
 
 
 
 (299,960) (299,960)
Net Income attributable to Royal Caribbean Cruises Ltd.
 
 1,283,388
 
 
 1,283,388
Balances at December 31, 20162,346
 3,328,517
 7,860,341
 (916,484) (1,153,308) 9,121,412
Activity related to employee stock plans6
 61,600
 
 
 
 61,606
Common stock dividends, $2.16 per share
 
 (463,069) 
 
 (463,069)
Changes related to cash flow derivative hedges
 
 
 570,495
 
 570,495
Change in defined benefit plans
 
 
 (5,583) 
 (5,583)
Foreign currency translation adjustments
 
 
 17,307
 
 17,307
Purchases of treasury stock
 
 
 
 (224,998) (224,998)
Net Income attributable to Royal Caribbean Cruises Ltd.
 
 1,625,133
 
 
 1,625,133
Balances at December 31, 20172,352
 3,390,117
 9,022,405
 (334,265) (1,378,306) 10,702,303
Cumulative effect of accounting changes
 
 (23,476) 
 
 (23,476)
Activity related to employee stock plans6
 30,783
 
 
 
 30,789
Common stock dividends, $2.60 per share
 
 (546,689) 
 
 (546,689)
Changes related to cash flow derivative hedges
 
 
 (286,861) 
 (286,861)
Change in defined benefit plans
 
 
 7,643
 
 7,643
Foreign currency translation adjustments
 
 
 (14,251) 
 (14,251)
Purchases of treasury stock
 
 
 
 (575,039) (575,039)
Net Income attributable to Royal Caribbean Cruises Ltd.
 
 1,811,042
 
 
 1,811,042
Balances at December 31, 2018$2,358
 $3,420,900
 $10,263,282
 $(627,734) $(1,953,345) $11,105,461



The accompanying notes are an integral part of these consolidated financial statements.
F-8


ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General
Description of Business
We are a global cruise company. We own and operate four global cruise brands: Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and, most recently, Silversea Cruises (collectively, our "Global Brands"). We also own a 50% joint venture interest in the German brand TUI Cruises and a 49% interest in the Spanish brand Pullmantur (collectively, our "Partner Brands"). We account for our investments in our Partner Brands under the equity method of accounting. Together, our Global Brands and our Partner Brands operate a combined 60 ships as of December 31, 2018. Our ships operate on a selection of worldwide itineraries that call on more than 1,000 destinations on all seven continents.
On July 31, 2018, we acquired a 66.7% equity stake in Silversea Cruise Holding Ltd. ("Silversea Cruises"), an ultra-luxury and expedition cruise line with nine ships, from Silversea Cruises Group Ltd. ("SCG") for $1.02 billion in cash and contingent consideration. Refer to Note 3. Business Combination for further information on the Silversea Cruises acquisition.
In March 2018, we and Ctrip.com International Ltd. ("Ctrip") announced the decision to end the Skysea Holding International Ltd. ("Skysea Holding") venture in which we have a 36% ownership interest. Skysea Holding ceased cruising operations in September 2018, and in December 2018, the Golden Era, the ship operated by SkySea Cruises, and owned by a wholly-owned subsidiary of Skysea Holding, was sold to an affiliate of TUI AG, our joint venture partner in TUI Cruises. Refer to Note 8. Other Assets for further information regarding our investment in SkySea Holding.
Basis for Preparation of Consolidated Financial Statements
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Estimates are required for the preparation of financial statements in accordance with these principles. Actual results could differ from these estimates. Refer to Note 2. Summary of Significant Accounting Policies for a discussion of our significant accounting policies.
All significant intercompany accounts and transactions are eliminated in consolidation. We consolidate entities over which we have control, usually evidenced by a direct ownership interest of greater than 50%, and variable interest entities where we are determined to be the primary beneficiary. Refer to Note 8. Other Assets for further information regarding our variable interest entities. We consolidate the operating results of Silversea Cruises on a three-month reporting lag to allow for more timely preparation of our consolidated financial statements. No material events or other transactions involving Silversea Cruises have occurred from September 30, 2018 through December 31, 2018 that would require further disclosure or adjustment to our consolidated financial statements as of and for the year ended December 31, 2018. For affiliates we do not control but over which we have significant influence on financial and operating policies, usually evidenced by a direct ownership interest from 20% to 50%, the investment is accounted for using the equity method.
Effective July 31, 2016, we sold 51% of our interest in Pullmantur Holdings, the parent company of the Pullmantur brand. We retained a 49% interest in Pullmantur Holdings as well as full ownership of the four vessels currently operated by the Pullmantur brand under bareboat charter arrangements. Prior to January 1, 2016, we consolidated the operating results of Pullmantur Holdings on a two-month reporting lag to allow for more timely preparation of our consolidated financial statements. Effective January 1, 2016, we eliminated the two-month reporting lag to reflect Pullmantur Holdings' financial position, results of operations and cash flows concurrently and consistently with the fiscal calendar of the Company ("elimination of the Pullmantur reporting lag") and accounted for this change in accounting principle in our consolidated results for the year ended December 31, 2016. The impact of the elimination of the reporting lag was immaterial for our fiscal year ended December 31, 2016. Accordingly, the results of Pullmantur Holdings for November and December 2015 were included in our statement of comprehensive income (loss) for the year ended

F-9

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


December 31, 2016. The effect of this change was a decrease to net income of $21.7 million, which has been reported within Other income (expense) in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2016.
Note 2. Summary of Significant Accounting Policies
Revenues and Expenses
Deposits received on sales of passenger cruises are initially recorded as customer deposit liabilities on our balance sheet. Customer deposits are subsequently recognized as passenger ticket revenues, together with revenues from onboard and other goods and services and all associated cruise operating expenses of a voyage. For further information on revenue recognition, refer to Note. 4 Revenues.
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 net realizable value.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. We capitalize interest as part of the cost of acquiring certain assets. Improvement costs that we believe add value to our ships are capitalized as additions to the ship and depreciated over the shorter of the improvements' estimated useful lives or that of the associated ship. The estimated cost and accumulated depreciation of replaced or refurbished ship components are written off and any resulting losses are recognized in Cruise operating expenses. Liquidated damages received from shipyards as a result of the late delivery of a new ship are recorded as reductions to the cost basis of the ship.
Depreciation of property and equipment is computed using the straight-line method over the estimated useful life of the asset. The useful lives of our ships are generally 30 years, net of a 15% projected residual value. The 30-year useful life of our newly constructed ships and 15% associated residual value are both based on the weighted-average of all major components of a ship. Our useful life and residual 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 weighted-average useful lives of the ships' major component systems, such as hull, superstructure, main electric, engines and cabins. Depreciation for assets under capital leases is computed using the shorter of the lease term or related asset life.
Depreciation of property and equipment is computed utilizing the following useful lives:
 Years
Shipsgenerally 30
Ship improvements3-20
Buildings and improvements10-40
Computer hardware and software3-10
Transportation equipment and other3-30
Leasehold improvementsShorter of remaining lease term or useful life 3-30
We review long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated undiscounted future cash flows, that the carrying amount of these assets may not be fully recoverable. For purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets

F-10

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


and liabilities. The lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the ship level for our ships. If estimated future cash flows are less than the carrying value of an asset, an impairment charge is recognized to the extent its carrying value exceeds fair value.
We use the deferral method to account for drydocking costs. Under the deferral method, drydocking costs incurred are deferred and charged to expense on a straight-line basis over the period to the next scheduled drydock, which we estimate to be a period of thirty to sixty months based on the vessel's age as required by Class. Deferred drydock costs consist of the costs to drydock the vessel and other costs incurred in connection with the drydock which are necessary to maintain the vessel's Class certification. Class certification is necessary in order for our cruise ships to be flagged in a specific country, obtain liability insurance and legally operate as passenger cruise ships. The activities associated with those drydocking costs cannot be performed while the vessel is in service and, as such, are done during a drydock as a planned major maintenance activity. The significant deferred drydock costs consist of hauling and wharfage services provided by the drydock facility, hull inspection and related activities (e.g., scraping, pressure cleaning, bottom painting), maintenance to steering propulsion, thruster equipment and ballast tanks, port services such as tugs, pilotage and line handling, and freight associated with these items. We perform a detailed analysis of the various activities performed for each drydock and only defer those costs that are directly related to planned major maintenance activities necessary to maintain Class. The costs deferred are not otherwise routinely periodically performed to maintain a vessel's designed and intended operating capability. Repairs and maintenance activities are charged to expense as incurred.
Goodwill
Goodwill represents the excess of cost over the fair value of net tangible and identifiable intangible assets acquired. We review goodwill for impairment at the reporting unit level annually or, when events or circumstances dictate, more frequently. The impairment review for goodwill consists of a qualitative assessment of whether it is more-likely-than-not that a reporting unit's fair value is less than its carrying amount, and if necessary, a two-step goodwill impairment test. Factors to consider when performing the qualitative assessment include general economic conditions, limitations on accessing capital, changes in forecasted operating results, changes in fuel prices and fluctuations in foreign exchange rates. If the qualitative assessment demonstrates that it is more-likely-than-not that the estimated fair value of the reporting unit exceeds its carrying value, it is not necessary to perform the two-step goodwill impairment test. We may elect to bypass the qualitative assessment and proceed directly to step one, for any reporting unit, in any period. On a periodic basis, we elect to bypass the qualitative assessment and proceed to step one to corroborate the results of recent years' qualitative assessments. We can resume the qualitative assessment for any reporting unit in any subsequent period. When performing the two-step goodwill impairment test, the fair value of the reporting unit is determined and compared to the carrying value of the net assets allocated to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, no further analysis or write-down of goodwill is required. If the fair value of the reporting unit is less than the carrying value of its net assets, the implied fair value of the reporting unit is allocated to all its underlying assets and liabilities, including both recognized and unrecognized tangible and intangible assets, based on their fair value. If necessary, goodwill is then written down to its implied fair value.
Intangible Assets
In connection with our acquisitions, we have acquired certain intangible assets to which value has been assigned based on our estimates. Intangible assets that are deemed to have an indefinite life are not amortized, but are subject to an annual impairment test, or when events or circumstances dictate, more frequently. The indefinite-life intangible asset impairment test consists of a comparison of the fair value of the indefinite-life intangible asset with its carrying amount. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If the fair value exceeds its carrying amount, the indefinite-life intangible asset is not considered impaired.
Other intangible assets assigned finite useful lives are amortized on a straight-line basis over their estimated useful lives.



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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, which are recorded as assets when recoverability is probable. 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.
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 costs consist of media advertising as well as brochure, production and direct mail costs.
Media advertising was $255.7 million, $233.5 million and $240.3 million, and brochure, production and direct mail costs were $133.4 million, $126.7 million and $120.8 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Derivative 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. These instruments are recorded on the balance sheet at their fair value and the vast majority are designated as hedges. We also use non-derivative financial instruments designated as hedges of our net investment in our foreign operations and investments. Although certain of our derivative financial instruments do not qualify or are not accounted for under hedge accounting, our objective is not to hold or issue derivative financial instruments for trading or other speculative purposes.
At inception of the hedge relationship, a derivative instrument that hedges the exposure to changes in the fair value of a firm commitment or a recognized asset or liability 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.
Changes in the fair value of derivatives that are designated as fair value hedges are offset against changes in the fair value of the underlying hedged assets, liabilities or firm commitments. Gains and losses on derivatives that are designated as cash flow hedges are recorded as a component of Accumulated other comprehensive loss until the underlying hedged transactions are recognized in earnings. The foreign currency transaction gain or loss of our non-derivative financial instruments and the changes in the fair value of derivatives designated as hedges of our net investment in foreign operations and investments are recognized as a component of Accumulated other comprehensive loss along with the associated foreign currency translation adjustment of the foreign operation or investment. In certain hedges of our net investment in foreign operations and investments, we exclude forward points from the assessment of hedge effectiveness and we amortize the related amounts directly into earnings.
On an ongoing basis, we assess whether derivatives used in hedging transactions are "highly effective" in offsetting changes in the fair value or cash flow of hedged items. We use the long-haul method to assess hedge effectiveness using regression analysis for each hedge relationship under our interest rate, foreign currency and fuel hedging programs. We apply the same methodology on a consistent basis for assessing hedge effectiveness to all hedges within each hedging program (i.e., interest rate, foreign currency and fuel). We perform regression analyses over an observation period of up to three years, utilizing market data relevant to the hedge horizon of each hedge relationship. High effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the changes in the fair values of the derivative instrument and the hedged item. If it is determined that a derivative is

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


not highly effective as a hedge or hedge accounting is discontinued, any change in fair value of the derivative since the last date at which it was determined to be effective is recognized in earnings.
Cash flows from derivative instruments that are designated as fair value or cash flow hedges are classified in the same category as the cash flows from the underlying hedged items. In the event that hedge accounting is discontinued, cash flows subsequent to the date of discontinuance are classified within investing activities. Cash flows from derivative instruments not designated as hedging instruments are classified as investing activities.
We consider the classification of the underlying hedged item’s cash flows in determining the classification for the designated derivative instrument’s cash flows. We classify derivative instrument cash flows from hedges of benchmark interest rate or hedges of fuel expense as operating activities due to the nature of the hedged item. Likewise, we classify derivative instrument cash flows from hedges of foreign currency risk on our newbuild ship payments as investing activities.
Foreign Currency Translations and Transactions
We translate assets and liabilities of our foreign subsidiaries whose functional currency is the local currency, at exchange rates in effect at the balance sheet date. We translate revenues and expenses at weighted-average exchange rates for the period. Equity is translated at historical rates and the resulting foreign currency translation adjustments are included as a component of Accumulated other comprehensive loss, which is reflected as a separate component of Shareholders' equity. Exchange gains or losses arising from the remeasurement of monetary assets and liabilities denominated in a currency other than the functional currency of the entity involved are immediately included in our earnings, except for certain liabilities that have been designated to act as a hedge of a net investment in a foreign operation or investment. Exchange gains (losses) were $57.6 million, $(75.6) million and $39.8 million for the years ended December 31, 2018, 2017 and 2016, respectively, and were recorded within Other income (expense). The majority of our transactions are settled in United States dollars. Gains or losses resulting from transactions denominated in other currencies are recognized in income at each balance sheet date.
Concentrations of Credit Risk
We monitor our credit risk associated with financial and other institutions with which we conduct significant business and, to minimize these risks, we select counterparties with credit risks acceptable to us and we seek to limit our exposure to an individual counterparty. Credit risk, including but not limited to counterparty nonperformance under derivative instruments, our credit facilities and new ship progress payment guarantees, is not considered significant, as we primarily conduct business with large, well-established financial institutions, insurance companies and export credit agencies many of which we have long-term relationships with and which have credit risks acceptable to us or where the credit risk is spread out among a large number of counterparties. As of December 31, 2018 and 2017, we had counterparty credit risk exposure under our derivative instruments of approximately $5.6 million and $212.8 million, respectively, which were limited to the cost of replacing the contracts in the event of non-performance by the counterparties to the contracts, the majority of which are currently our lending banks. We do not anticipate nonperformance by any of our significant counterparties. In addition, we have established guidelines we follow regarding credit ratings and instrument maturities to maintain safety and liquidity. We do not normally require collateral or other security to support credit relationships; however, in certain circumstances this option is available to us.
Earnings Per Share
Basic earnings per share is computed by dividing Net Income attributable to Royal Caribbean Cruises Ltd. by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options and conversion of potentially dilutive securities.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Stock-Based Employee Compensation
We measure and recognize compensation expense at the estimated fair value of employee stock awards. Compensation expense for awards and the related tax effects are recognized as they vest. We use the estimated amount of expected forfeitures to calculate compensation costs for all outstanding awards.
Segment Reporting
We control and operate four global cruise brands: Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and most recently, Silversea Cruises. We also own a 50% joint venture interest in the German brand TUI Cruises, a 49% interest in the Spanish brand Pullmantur and a 36% interest in the Chinese brand SkySea Cruises, which ceased cruising operations in September 2018. We believe our brands possess the versatility to enter multiple cruise market segments within the cruise vacation industry. Although each of these brands have its own marketing style as well as ships and crews of various sizes, the nature of the products sold and services delivered by these brands share a common base (i.e., the sale and provision of cruise vacations). Our brands also have similar itineraries as well as similar cost and revenue components. In addition, our brands source passengers from similar markets around the world and operate in similar economic environments with a significant degree of commercial overlap. As a result, our brands have been aggregated as a single reportable segment based on the similarity of their economic characteristics, types of consumers, regulatory environment, maintenance requirements, supporting systems and processes as well as products and services provided. Our Chairman and Chief Executive Officer has been identified as the chief operating decision-maker and all significant operating decisions including the allocation of resources are based upon the analyses of the Company as one segment. Refer to Note 4. Revenues for passenger ticket revenue information by geographic area.
Adoption of Accounting Pronouncements
On January 1, 2018, we adopted the guidance codified in Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, and applied the guidance to all contracts using the modified retrospective method. The new standard converged wide-ranging revenue recognition concepts and requirements that lead to diversity in application for particular industries and transactions into a single revenue standard containing comprehensive principles for recognizing revenue. The cumulative effect of applying the newly issued guidance was not material and accordingly there was no adjustment made to our retained earnings upon adoption on January 1, 2018. The newly adopted guidance has not had a material impact on our consolidated financial statements on an ongoing basis. Due to the adoption of ASC 606, we currently present prepaid commissions as an asset within Prepaid expenses and other assets. In addition, we have reclassified prepaid commissions of $64.6 million from Customer deposits to Prepaid expenses and other assets in our consolidated balance sheet as of December 31, 2017. Refer to Note 4. Revenues for disclosures with respect to our revenue recognition policies.
On January 1, 2018, we adopted the guidance in Accounting Standard Update ("ASU") 2016-16, Income Taxes 740: Intra-Entity Transfers of Assets Other Than Inventory, which requires the income tax consequences of an intra-entity transfer of an asset, other than inventory, to be recognized at the time that the transfer occurs, rather than when the asset is sold to an outside party. We adopted the standard using the modified retrospective method and recorded a cumulative-effect adjustment to reduce retained earnings as of January 1, 2018 by $6.6 million, which reflects the elimination of the deferred tax asset related to intercompany asset transfers.
On January 1, 2018, we adopted the guidance in ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which was issued to simplify and align the financial reporting of hedging relationships to the economic results of an entity’s risk management activities. We adopted the amended guidance using the modified retrospective approach. Adoption of the guidance allowed us to modify the designated risk in our fair value interest rate hedges to the benchmark interest rate component, resulting in changes to the cumulative and ongoing fair value measurement for the hedged debt. Upon adoption, we also elected to hedge the contractually specified components of our commodities purchase contracts. For our cash flow hedges, there will be no periodic measurement or recognition of ineffectiveness. For all hedges, the earnings effect of the hedging instrument will be reported in the same period and in the same income statement line item in which the earnings effect of the hedged item is reported. As a result of the adoption of this guidance, we recorded a cumulative-effect adjustment to reduce retained

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


earnings as of January 1, 2018 by $16.9 million. The cumulative-effect adjustment includes an increase to the debt carrying value of $14.4 million for our fair value interest rate hedges as of January 1, 2018, which reflects the cumulative fair value measurement change to debt at adoption resulting from the modified designated risk, and an increase to other comprehensive income (loss) of $2.5 million, which represents an increase to the deferred gain on active cash flow hedges at adoption. Additionally, the new standard requires modifications to existing presentation and disclosure requirements on a prospective basis. As such, disclosures for the year ended December 31, 2018 conform to these disclosure requirements. Refer to Note 16. Changes in Accumulated Other Comprehensive Income (Loss) and Note 17. Fair Value Measurements and Derivative Instruments for additional information.
Recent Accounting Pronouncements
Leases
In February 2016, amended GAAP guidance was issued to increase the transparency and comparability of lease accounting among organizations. For leases with a term greater than 12 months, the amendments require the lease rights and obligations arising from the leasing arrangements, including operating leases, to be recognized as assets and liabilities on the balance sheet. The amendments also expand the required disclosures surrounding leasing arrangements. The guidance will be effective for our annual reporting period beginning after December 15, 2018, including interim periods therein.
The amended guidance requires the use of a modified retrospective approach in applying the new lease accounting standard. We elected the optional transition method, which allows entities to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
The standard will have a material effect on our consolidated balance sheets due to the recognition of operating lease assets and operating lease liabilities primarily related to real estate, shipboard equipment and preferred berthing arrangements. Upon adoption, we expect that there will be no cumulative-effect adjustment of initially applying the guidance to our opening balance of retained earnings.
We do not expect this amended guidance to have a material impact to our consolidated statements of comprehensive income, consolidated statements of cash flows and our debt-covenant compliance under our current agreements on an ongoing basis.
Derivatives and Hedging
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which permits use of the OIS rate based on SOFR as a U.S. benchmark interest rate for purposes of applying hedge accounting. SOFR is a new index calculated by short-term repurchase agreements backed by U.S Treasury securities. The guidance is required to be adopted on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the adoption date. This ASU will be effective for our annual reporting period beginning January 1, 2019. The adoption of this newly issued guidance is not expected to have a material impact to our consolidated financial statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Change in Accounting Principle - Stock-based Compensation
In January 2018, we elected to change our accounting policy for recognizing stock-based compensation expense from the graded attribution method to the straight-line attribution method for time-based stock awards. The adoption of the straight-line attribution method for time-based stock awards represents a change in accounting principle which we believe to be preferable because it is the predominant method used in our industry. A change in accounting principle requires retrospective application, if material. The impact of the adoption of the straight-line attribution method to our time-based awards was immaterial to prior periods and to our year ended December 31, 2018. As a result, we have accounted for this change in accounting principle in our consolidated results for the year ended December 31, 2018. The effect of this change was an increase to Net Income attributable to Royal Caribbean Cruises Ltd. of $9.2 million, or $0.04 per share for each of basic and diluted earnings per share, for year ended December 31, 2018, which is reported within Marketing, selling and administrative expenses in our consolidated statements of comprehensive income (loss).
Reclassifications
For the year ended December 31, 2018, we separately presented Cash received on settlement of derivative financial instruments and Cash paid on settlement of derivative financial instruments in our consolidated statements of cash flows. As a result, prior years amounts were reclassified within Investing Activities to conform to current year presentation. Additionally, we have reclassified prepaid commissions of $64.6 million from Customer deposits to Prepaid expenses and Other assets in our consolidated balance sheet as of December 31, 2017 to conform with current year presentation. Refer to the Adoption of Accounting Pronouncements presented above for further information on this reclassification.
Note 3. Business Combination
On July 31, 2018, we acquired a 66.7% equity stake in Silversea Cruises enhancing our presence in the ultra-luxury and expedition markets and providing us with an opportunity to drive long-term capacity growth in these markets.
The purchase price consisted of $1.02 billion in cash, net of assumed liabilities, and contingent consideration that can range from zero up to a maximum of approximately 472,000 shares of our common stock, and is payable upon achievement of certain 2019-2020 performance metrics by Silversea Cruises. The fair value of the contingent consideration at the acquisition date was $44.0 million and was recorded within Other liabilities in our consolidated balance sheets. Subsequent changes to the fair value of the contingent consideration are recorded in our results of operations in the period of the change. Refer to Note 17. Fair Value Measurements and Derivative Instruments for further information on the valuation of the contingent consideration.
To finance a portion of the purchase price, we entered into and drew in full on a $700 million credit agreement. Refer to Note 9. Debt for further information on the credit agreement. The remainder of the transaction consideration was financed through the use of our revolving credit facilities.
We have accounted for this transaction under the provisions of ASC 805, Business Combinations. The purchase price for the Silversea Cruises acquisition was allocated based on preliminary estimates of the fair value of assets acquired and liabilities assumed at the acquisition date, with the excess allocated to goodwill. Goodwill is not deductible for tax purposes and consisted primarily of the opportunity to expand our cruise operations in strategic growth areas.
For reporting purposes, beginning with our fourth quarter 2018, we included Silversea Cruises’ results of operations on a three-month reporting lag from the acquisition date through September 30, 2018. We have included Silversea Cruises' balance sheet as of September 30, 2018 in our consolidated balance sheet as of December 31, 2018. Refer to Note 1. General for further information on this three-month reporting lag.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following table summarizes the purchase price allocation based on preliminary estimated fair values of the assets acquired and liabilities assumed related to the Silversea Cruises acquisition as of July 31, 2018. We have not finalized the allocation of the purchase price as it requires extensive use of accounting estimates and valuation methodologies in the determination of such fair values.
(in thousands) Estimated Fair Value as of Acquisition Date (as Previously Reported) 
Measurement Period Adjustments (1)
 Estimated Fair Value as of Acquisition Date (as Adjusted)
Assets      
Cash and cash equivalents $103,865
 $
 $103,865
Trade and other receivables, net 5,640
 1,523
 7,163
Inventories 19,004
 (673) 18,331
Prepaid expenses and other assets(2)
 119,920
 576
 120,496
Derivative financial instruments 2,886
 
 2,886
Property and equipment, net(3)
 1,109,467
 4,803
 1,114,270
Goodwill 1,086,539
 3,471
 1,090,010
Other assets(4)
 494,657
 3,800
 498,457
Total assets acquired 2,941,978
 13,500
 2,955,478
Liabilities      
Current portion of long-term debt(5)
 26,851
 
 26,851
Accounts payable 36,960
 
 36,960
Accrued interest 1,773
 
 1,773
Accrued expenses and other liabilities 80,571
 1,960
 82,531
Customer deposits 453,798
 
 453,798
Long-term debt(5)
 727,935
 
 727,935
Other long-term liabilities 12,320
 11,540
 23,860
Total liabilities assumed 1,340,208
 13,500
 1,353,708
Redeemable noncontrolling interest(6)
 537,770
 
 537,770
Total purchase price $1,064,000
 $
 $1,064,000
(1)
As a result of additional information obtained about facts and circumstances that existed as of the acquisition date, we recorded measurement period adjustments during the fourth quarter of 2018, which resulted in a net increase to Goodwill of $3.5 million.
(2)Amount includes $32.0 million of cash held as collateral with credit card processors as of July 31, 2018.
(3)
Property and equipment, net includes two ships under capital lease agreements amounting to $156.0 million as of July 31, 2018. The respective capital lease liabilities are reported within Long-term debt. Refer to Note 9. Debt for further information on the capital lease financing arrangements.
(4)
Amount includes $494.6 million of intangible assets. Refer to Note 6. Intangible Assets for further information on the intangible assets acquired.
(5)
Refer to Note 9. Debt for further information on long-term debt assumed.
(6)
Refer to Note 10. Redeemable Noncontrolling Interest for further information on the redeemable noncontrolling interest recorded.
Similar to our other ship-operating and vessel-owning subsidiaries, Silversea Cruises is currently exempt from U.S. corporate tax on U.S. source income from the international operation of ships pursuant to Section 883 of the Internal Revenue Code. Additionally, the deferred tax liability recognized in connection with the acquisition of Silversea Cruises was not material to our consolidated financial statements and there were no net operating losses recognized as of December 31, 2018.
For the year ended December 31, 2018, Total revenues and Net Income in our consolidated statements of comprehensive income (loss) include $130.1 million and $3.3 million, respectively, of revenues and net income from

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Silversea Cruises since the date of acquisition through September 30, 2018. For the year ended December 31, 2018, our results of operations also include transaction-related costs of $31.8 million, which were included primarily within Marketing, selling and administrative expenses in our consolidated statements of comprehensive income (loss).
Pro-forma financial results relating to the Silversea Cruises acquisition are not presented, as this acquisition is not material to our consolidated results of operations.
Note 4. Revenues
Revenue Recognition
Revenues are measured based on consideration specified in our contracts with customers and are recognized as the related performance obligations are satisfied.
The majority of our revenues are derived from passenger cruise contracts which are reported within Passenger ticket revenues in our consolidated statements of comprehensive income (loss). Our performance obligation under these contracts is to provide a cruise vacation in exchange for the ticket price. We satisfy this performance obligation and recognize revenue over the duration of each cruise, which generally range from two to 25 nights.
Passenger ticket revenues include charges to our guests for port costs that vary with passenger head counts. These type of port costs, along with port costs that do not vary by passenger head counts, are included in our operating expenses. The amounts of port costs charged to our guests and included within Passenger ticket revenues on a gross basis were $611.4 million, $569.5 million and $570.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Our total revenues also include onboard and other revenues, which consist primarily of revenues from the sale of goods and services onboard our ships that are not included in passenger ticket prices. We receive payment before or concurrently with the transfer of these goods and services to passengers during a cruise and recognize revenue at the time of transfer over the duration of the related cruise.
As a practical expedient, we have omitted disclosures on our remaining performance obligations as the duration of our contracts with customers is less than a year.
Disaggregated Revenues
The following table disaggregates our total revenues by geographic regions where we provide cruise itineraries (in thousands):
 Year Ended December 31,
 2018 2017 2016
Revenues by itinerary     
North America(1)
$5,399,951
 $5,062,305
 $4,606,875
Asia/Pacific(2)
1,463,083
 1,588,802
 1,536,799
Europe(3)
1,914,549
 1,509,586
 1,711,496
Other regions348,145
 285,954
 354,529
Total revenues by itinerary9,125,728
 8,446,647
 8,209,699
Other revenues(4)
368,121
 331,198
 286,702
Total revenues$9,493,849
 $8,777,845
 $8,496,401
(1)Includes the United States, Canada, Mexico and the Caribbean.
(2)Includes Southeast Asia (e.g., Singapore, Thailand and the Philippines), East Asia (e.g., China and Japan), South Asia (e.g., India and Pakistan) and Oceania (e.g., Australia and Fiji Islands) regions.
(3)Includes European countries (e.g., the Nordics, Germany, France, Italy, Spain and the United Kingdom).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


(4)
Includes revenues primarily related to cancellation fees, vacation protection insurance and pre- and post-cruise tours. Amounts also include revenues related to our bareboat charter, procurement and management related services we perform on behalf of our unconsolidated affiliates. Refer to Note 8. Other Assets for more information on our unconsolidated affiliates.
Passenger ticket revenues are attributed to geographic areas based on where the reservation originates. For the years ended December 31, 2018, 2017 and 2016, our guests were sourced from the following areas:
 Year Ended December 31,
 2018 2017 2016
Passenger ticket revenues:     
United States61% 59% 55%
United Kingdom10% 9% 10%
All other countries (1)
29% 32% 35%
(1)
No other individual country's revenue exceeded 10% for the years ended December 31, 2018, 2017 and 2016.
Customer Deposits and Contract Liabilities
Our payment terms generally require an upfront deposit to confirm a reservation, with the balance due prior to the cruise. Deposits received on sales of passenger cruises are initially recorded as Customer deposits in our consolidated balance sheets and subsequently recognized as passenger ticket revenues during the duration of the cruise. ASC 606 defines a “contract liability” as an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration from the customer. We do not consider customer deposits to be a contract liability until the customer no longer retains the unilateral right, resulting from the passage of time, to cancel such customer's reservation and receive a full refund. Customer deposits presented in our consolidated balance sheets include contract liabilities of $1.9 billion and $1.4 billion as of December 31, 2018 and 2017, respectively. Substantially all of our contract liabilities as of December 31, 2017 were recognized and reported within Total revenues in our consolidated statement of comprehensive income (loss) for the year ended December 31, 2018.
Contract Receivables and Contract Assets
Although we generally require full payment from our customers prior to their cruise, we grant credit terms to a relatively small portion of our revenue source in select markets outside of the United States. As a result, we have outstanding receivables from passenger cruise contracts in those markets. We also have receivables from credit card merchants for cruise ticket purchases and goods and services sold to guests during cruises that are collected before, during or shortly after the cruise voyage. In addition, we have receivables due from concessionaires onboard our vessels. These receivables are included within Trade and other receivables, net in our consolidated balance sheets.
We have contract assets that are conditional rights to consideration for satisfying the construction services performance obligations under a service concession arrangement. As of December 31, 2018 and 2017, our contract assets were $57.8 million and $60.1 million, respectively, and were included within Other assets in our consolidated balance sheets. Given the short duration of our cruises and our collection terms, we do not have any other significant contract assets.
Assets Recognized from the Costs to Obtain a Contract with a Customer
Prepaid travel agent commissions are an incremental cost of obtaining contracts with customers that we recognize as an asset and include within Prepaid expenses and other assets in our consolidated balance sheets. Prepaid travel agent commissions were $153.5 million and $64.6 million as of December 31, 2018 and 2017, respectively. Substantially all of our prepaid travel agent commissions at December 31, 2017 were expensed and reported within Commissions, transportation and other in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2018.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 5. Goodwill
The carrying amount of goodwill attributable to our Royal Caribbean International, Celebrity Cruises and Silversea Cruises reporting units and the changes in such balances during the years ended December 31, 2018 and 2017 were as follows (in thousands):
 Royal Caribbean International Celebrity Cruises Silversea Cruises Total
Balance at December 31, 2016$286,754
 $1,632
 $
 $288,386
Foreign currency translation adjustment126
 
 
 126
Balance at December 31, 2017286,880
 1,632
 
 288,512
Goodwill attributable to the acquisition of Silversea Cruises (1)

 
 1,090,010
 1,090,010
Foreign currency translation adjustment(169) 
 
 (169)
Balance at December 31, 2018$286,711
 $1,632
 $1,090,010
 $1,378,353
___________________________________________________________________
(1)
In 2018, we purchased Silversea Cruises. Refer to Note 3. Business Combination for further information.
During the fourth quarter of 2018, we performed a qualitative assessment of whether it was more-likely-than-not that our Royal Caribbean International reporting unit's fair value was less than its carrying amount before applying the two-step goodwill impairment test. The qualitative analysis included assessing the impact of certain factors such as general economic conditions, limitations on accessing capital, changes in forecasted operating results, changes in fuel prices and fluctuations in foreign exchange rates. Based on our qualitative assessment, we concluded that it was more-likely-than-not that the estimated fair value of the Royal Caribbean International reporting unit exceeded its carrying value and thus, we did not proceed to the two-step goodwill impairment test. No indicators of impairment exist primarily because the reporting unit's fair value has consistently exceeded its carrying value by a significant margin and forecasts of operating results generated by the reporting unit appear sufficient to support its carrying value. As a result of our assessment, we did not record an impairment of goodwill for the year ended December 31, 2018.
During the fourth quarter of 2018, we also performed a qualitative assessment of whether it was more-likely-than-not that our Silversea Cruises reporting unit's fair value was less than its carrying amount before applying the two-step goodwill impairment test. The qualitative analysis included assessing the impact of certain factors such as general economic conditions, limitations on accessing capital, changes in forecasted operating results, changes in fuel prices and fluctuations in foreign exchange rates. Based on our qualitative assessment, we concluded that it was more-likely-than-not that the estimated fair value of the Silversea Cruises reporting unit exceeded its carrying value and thus, we did not proceed to the two-step goodwill impairment test. No indicators of impairment exist primarily because forecasted operating results of the reporting unit appear sufficient to support its carrying value. As a result of our assessment, we did not record an impairment of goodwill for the year ended December 31, 2018.
For the years ended December 31, 2017 and 2016, we did not record an impairment of goodwill for our reporting units.

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ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 6. Intangible Assets
Intangible assets consist of finite and indefinite life assets and are reported within Other assets in our consolidated balance sheets.
The following is a summary of our intangible assets as of December 31, 2018 (in thousands, except weighted average amortization period):
  As of December 31, 2018
  
Remaining Weighted Average Amortization Period
(Years)
 Gross Carrying Value Accumulated Amortization Net Carrying Value
Finite-life intangible assets:        
Customer relationships 14.8 $97,400
 $1,082
 $96,318
Galapagos operating licenses 25.8 47,669
 4,206
 43,463
Other finite-life intangible assets 1.8 11,560
 963
 10,597
Total finite-life intangible assets   156,629
 6,251
 150,378
Indefinite-life intangible assets   351,725
 
 351,725
Total intangible assets, net   $508,354
 $6,251
 $502,103
As of December 31, 2017, finite-life intangible assets had a gross carrying amount and accumulated amortization amount of $11.6 million and $3.7 million, respectively, consisting of operating licenses to operate in the Galapagos Islands. As of December 31, 2017, the remaining weighted average remaining life of these licenses was approximately 26.6 years. The carrying amount of indefinite-life intangible assets was not material as of December 31, 2017.
As of December 31, 2018, intangible assets, net include intangible assets acquired in the Silversea Cruises acquisition, which were recorded at fair value at acquisition date as follows:
  Fair Value at Acquisition Date (in thousands) Weighted Average Amortization Period (Years)
Silversea Cruises trade name $349,500
 Indefinite-life
Customer relationships 97,400
 15
Galapagos operating license 36,100
 26
Other finite-life intangible assets 11,560
 2
Total intangible assets $494,560
  
Amortization expense for finite-life intangible assets was immaterial to our consolidated financial statements for the years ended December 31, 2018, 2017 and 2016.
The estimated future amortization for finite-life intangible assets for each of the next five years is as follows (in thousands):
Year 
2019$13,959
2020$12,995
2021$8,179
2022$8,179
2023$8,179

F-21

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Note 7. Property and Equipment
Property and equipment consists of the following (in thousands):
 As of December 31,
 2018 2017
Ships$27,209,553
 $23,714,745
Ship improvements2,965,634
 2,410,525
Ships under construction817,800
 642,235
Land, buildings and improvements, including leasehold improvements and port facilities321,136
 250,079
Computer hardware and software, transportation equipment and other1,120,988
 762,512
Total property and equipment32,435,111
 27,780,096
Less—accumulated depreciation and amortization(1)
(8,968,948) (8,044,916)
 $23,466,163
 $19,735,180
(1)Amount includes accumulated depreciation and amortization for assets in service.
Ships under construction include progress payments for the construction of new ships as well as planning, design, capitalized interest and other associated costs. We capitalized interest costs of $49.6 million, $24.2 million and $25.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.
During 2018, we completed our purchase of Azamara Pursuit and took delivery of Symphony of the Seas and Celebrity Edge. Refer to Note 9. Debt for further information.
Upon our acquisition of Silversea Cruises, we added to our fleet nine ships, two of which are under capital lease agreements. Refer to Note 3. Business Combination for further information on the Silversea Cruises acquisition and Note 9. Debt for further information on the capital leases.
During 2018, Silversea Cruises entered into an agreement with Shipyard De Hoop to build a ship designed for the Galapagos Islands. Refer to Note 18. Commitments and Contingencies for further information on the aggregate costs of our ships on order.
During 2017, we sold our three aircraft and 6% of our ownership stake in Wamos Air, S.A. (formerly known as Pullmantur Air, S.A.) to Wamos Air, S.A. In connection with the sale transaction, we extended two loans to Wamos Air, S.A. totaling €17.3 million. The loans accrue interest at rates ranging from 4.78% to 5.35% per annum, amortize through maturity of October 2019 and July 2021, respectively, and are secured by first priority security interests over the aircraft engines and shares sold in connection with the transaction. The sale resulted in an immaterial gain that was recognized in earnings during the year ended December 31, 2017. Post-sale, we retained a 13% interest in Wamos Air, S.A. During the year ended December 31, 2018, we received principal and interest payments of $4.0 million. As of December 31, 2018, a receivable of €14.1 million, or approximately $16.1 million, based on the exchange rate at December 31, 2018, was outstanding related to the principal amount of these loans.
During 2017, we sold Legend of the Seas to an affiliate of TUI AG, our joint venture partner in TUI Cruises. The sale resulted in a gain of $30.9 million and was reported within Other operating within Cruise operating expenses in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2017.
During 2016, we sold our 51% interest in Pullmantur Holdings. We retained full ownership of the four vessels currently operated by the Pullmantur brand under bareboat charter arrangements. We account for the bareboat charters of the vessels to Pullmantur Holdings as operating leases.
In April 2016, we sold Splendour of the Seas to TUI Cruises. Concurrent with the acquisition, TUI Cruises leased the ship to an affiliate of TUI AG, our joint venture partner in TUI Cruises, which now operates the ship. The gain recognized did not have a material effect to our consolidated financial statements.

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ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 8. Other Assets
A Variable Interest Entity ("VIE") is an entity in which the equity investors have not provided enough equity to finance the entity's activities or the equity investors (1) cannot directly or indirectly make decisions about the entity's activities through their voting rights or similar rights; (2) do not have the obligation to absorb the expected losses of the entity; (3) do not have the right to receive the expected residual returns of the entity; or (4) have voting rights that are not proportionate to their economic interests and the entity's activities involve or are conducted on behalf of an investor with a disproportionately small voting interest.
We have determined that TUI Cruises GmbH, our 50%-owned joint venture, which operates the brand TUI Cruises, is a VIE. As of December 31, 2018, the net book value of our investment in TUI Cruises was $578.1 million, primarily consisting of $403.0 million in equity and a loan of €150.6 million, or approximately $172.2 million, based on the exchange rate at December 31, 2018. As of December 31, 2017, the net book value of our investment in TUI Cruises was $624.5 million, primarily consisting of $422.8 million in equity and a loan of €166.5 million, or approximately $199.8 million, based on the exchange rate at December 31, 2017. The loan, which was made in connection with the sale of Splendour of the Seas in April 2016, accrues interest at a rate of 6.25% per annum and is payable over 10 years. This loan is 50% guaranteed by TUI AG, our joint venture partner in TUI Cruises, and is secured by a first priority mortgage on the ship. Refer to Note 7. Property and Equipment for further information. The majority of these amounts were included within Other assets in our consolidated balance sheets.
In addition, we and TUI AG have each guaranteed the repayment by TUI Cruises of 50% of a bank loan. As of December 31, 2018, the outstanding principal amount of the loan was €37.0 million, or approximately $42.3 million, based on the exchange rate at December 31, 2018. In April 2018, Mein Schiff 1 was sold to an affiliate of TUI AG. The proceeds were used to repay €44.2 million of the bank loan and secure the release of the first mortgage on Mein Schiff 1. The loan amortizes quarterly and is currently secured by a first mortgage on Mein Schiff Herz, previously known as Mein Schiff 2. Based on current facts and circumstances, we do not believe potential obligations under our guarantee of this bank loan are probable. In addition to our guarantee of the bank loan, TUI Cruises has various ship construction and financing agreements which include certain restrictions on each of our and TUI AG’s ability to reduce our current ownership interest in TUI Cruises below 37.55% through May 2031.
Our investment amount, outstanding term loan and the potential obligations under the bank loan guarantee are substantially our maximum exposure to loss in connection with our investment in TUI Cruises. We have determined that we are not the primary beneficiary of TUI Cruises. We believe that the power to direct the activities that most significantly impact TUI Cruises’ economic performance are shared between ourselves and TUI AG. All the significant operating and financial decisions of TUI Cruises require the consent of both parties, which we believe creates shared power over TUI Cruises. Accordingly, we do not consolidate this entity and account for this investment under the equity method of accounting.
In March 2009, we sold Celebrity Galaxy to TUI Cruises for €224.4 million, or $290.9 million, to serve as the original Mein Schiff 1. Due to the related party nature of this transaction, the gain on the sale of the ship of $35.9 million was deferred and being recognized over the remaining life of the ship which was estimated to be 23 years. As mentioned above, in April 2018, TUI Cruises sold the original Mein Schiff 1 and as a result we accelerated the recognition of the remaining balance of the deferred gain, which was $21.8 million. This amount is included within Other income (expense) in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2018.
We have determined that Pullmantur Holdings S.L. ("Pullmantur Holdings"), in which we have a 49% noncontrolling interest, is a VIE for which we are not the primary beneficiary, as we do not have the power to direct the activities that most significantly impact the entity's economic performance. Accordingly, we do not consolidate this entity and we account for this investment under the equity method of accounting. As of December 31, 2018 and December 31, 2017, our maximum exposure to loss in Pullmantur Holdings was $58.5 million and $53.7 million, respectively, consisting of loans and other receivables. These amounts were included within Trade and other receivables, net and Other assets in our consolidated balance sheets. Refer to Note 7. Property and Equipment for further information on the our vessels currently operated by the Pullmantur brand under bareboat charter arrangements.

F-23

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


We have provided a working capital facility to a Pullmantur Holdings subsidiary in the amount of up to €15.0 million or approximately $17.2 million based on the exchange rate at December 31, 2018. Proceeds of the facility, which were drawn through December 2018 at an interest rate of 6.5% per annum, are payable through 2022. Springwater Capital LLC, 51% owner of Pullmantur Holdings, has guaranteed repayment of 51% of the outstanding amounts under the facility. As of December 31, 2018, €14.0 million, or approximately $16.0 million, based on the exchange rate at December 31, 2018, was outstanding under this facility.
We have determined that Grand Bahama Shipyard Ltd. ("Grand Bahama"), a ship repair and maintenance facility in which we have a 40% noncontrolling interest, is a VIE. This facility serves cruise and cargo ships, oil and gas tankers and offshore units. We utilize this facility, among other ship repair facilities, for our regularly scheduled drydocks and certain emergency repairs as may be required. During the years ended December 31, 2018 and 2017, we made payments of $44.7 million and $16.0 million, respectively, to Grand Bahama for ship repair and maintenance services. We have determined that we are not the primary beneficiary of this facility, as we do not have the power to direct the activities that most significantly impact the facility's economic performance. Accordingly, we do not consolidate this entity and we account for this investment under the equity method of accounting. As of December 31, 2018, the net book value of our investment in Grand Bahama was $56.1 million, consisting of $41.4 million in equity and a loan of $14.6 million. As of December 31, 2017, the net book value of our investment in Grand Bahama was approximately $49.4 million, consisting of $32.4 million in equity and a loan of $17.0 million. These amounts represent our maximum exposure to loss related to our investment in Grand Bahama. Our loan to Grand Bahama matures in March 2025 and bears interest at the lower of (i) LIBOR plus 3.50% and (ii) 5.50%. Interest payable on the loan is due on a semi-annual basis. We have experienced strong payment performance on the loan since its amendment, in 2016, and as a result completed an evaluation and review of the loan resulting in a reclassification of the loan to accrual status as of October 2017. During the years ended December 31, 2018 and 2017, we received principal and interest payments of $16.4 million and $15.7 million, respectively. The loan balance is included within Other assets in our consolidated balance sheets. The loan is currently accruing interest under the effective yield method, which includes the recognition of previously unrecognized interest that accumulated while the loan was in non-accrual status.
We monitor credit risk associated with the loan through our participation on Grand Bahama's board of directors along with our review of Grand Bahama's financial statements and projected cash flows. Based on this review, we believe the risk of loss associated with the outstanding loan is not probable as of December 31, 2018.
In March 2018, Skysea Holding's board of directors agreed to exit the business given the increasing challenges faced by the brand. Skysea Holding ceased cruising operations in September 2018. We have determined that Skysea Holding, in which we have a 36% ownership interest, is a VIE for which we are not the primary beneficiary, as we do not have the power to direct the activities that most significantly impact the entity's economic performance. Accordingly, we do not consolidate this entity and we account for this investment under the equity method of accounting. In December 2014, we and Ctrip, which also owns 36% of Skysea Holding, each provided a debt facility to a wholly owned subsidiary of Skysea Holding in the amount of $80.0 million, with an applicable interest rate of 6.5% per annum, which originally matured in January 2030. The facilities, which were pari passu to each other, were each 100% guaranteed by Skysea Holding and were secured by first priority mortgages on the ship, Golden Era. Due to payment performance, the loans were classified to non-accrual status in 2017.
We review our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. During 2018, given SkySea Holding’s dissolution and sale of the Golden Era, we reviewed the recoverability of our investment, debt facility and other receivables due from the brand. As a result of this analysis, we determined that our investment in SkySea Holding and the carrying value of our debt facility and other receivables due from the brand were impaired and recognized an impairment charge of $23.3 million during the year ended December 31, 2018. The charge reflected a full impairment of our investment in SkySea Holding and reduced the debt facility and other receivables due to us to their net realizable value. This impairment charge was recognized in Other income (expense) within our consolidated statements of comprehensive income (loss) for the year ended December 31, 2018.

F-24

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In December 2018, the Golden Era was sold to an affiliate of TUI AG, our joint venture partner in TUI Cruises. Proceeds from the sale were distributed to the existing shareholders which eliminated our net receivable balance due from Skysea Holding, resulting in no further impairment charges. As of December 31, 2018, we do not have any exposures to loss related to our investment in Skysea Holding. As of December 31, 2017, the net book value of our investment in Skysea Holding and its subsidiaries was $96.0 million, which consisted of $4.4 million in equity and loans and other receivables of $91.6 million. The majority of these amounts were included within Other assets in our consolidated balance sheets and represented our maximum exposure to loss related to our investment in Skysea Holding as of December 31, 2017.
The following tables set forth information regarding our investments accounted for under the equity method of accounting, including the entities discussed above, (in thousands):
  Year ended December 31,
  2018 2017 2016
Share of equity income from investments $210,756
 $156,247
 $128,350
Dividends received $243,101
 $109,677
 $75,942
  As of December 31,
  2018 2017
Total notes receivable due from equity investments $201,979
 $314,323
Less-current portion(1)
 19,075
 38,658
Long-term portion(2)
 $182,904
 $275,665
___________________________________________________________________
(1)     Included within Trade and other receivables, net in our consolidated balance sheets.
(2)    Included within Other assets in our consolidated balance sheets.
We also provide ship management services to TUI Cruises GmbH, Pullmantur Holdings and Skysea Holding (which ceased cruising operations in September 2018). Additionally, we bareboat charter to Pullmantur Holdings the vessels currently operated by its brands, which were retained by us following the sale of our 51% interest in Pullmantur Holdings. We recorded the following as it relates to these services in our operating results within our consolidated statements of comprehensive income (loss) (in thousands):
  Year ended December 31,
  2018 2017 2016
Revenues $54,705
 $53,532
 $30,517
Expenses $11,531
 $15,176
 $12,795

F-25

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Summarized financial information for our affiliates accounted for under the equity method of accounting was as follows (in thousands):
  As of December 31,
  2018 2017
Current assets $471,428
 $532,330
Non-current assets 3,826,018
 3,673,613
Total assets $4,297,446
 $4,205,943
     
Current liabilities $1,064,741
 $1,152,193
Non- current liabilities 2,217,909
 1,974,166
Total liabilities $3,282,650
 $3,126,359
     
Equity attributable to:    
Noncontrolling interest $1,672
 $1,753
  Year ended December 31,
  2018 2017 2016
Total revenues $2,255,352
 $1,994,014
 $1,340,662
Total expenses (1,779,160) (1,684,276) (1,078,470)
Net income $476,192
 $309,738
 $262,192

F-26

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 9. Debt
Debt consists of the following (in thousands):
       As of December 31,
  Interest Rate Maturities Through 2018 2017
Fixed rate debt:        
Senior notes  2.65% to 7.50% 2020 - 2028 $1,724,194
 $1,866,359
Secured senior notes 7.25% 2025 670,437
 
Unsecured term loans  2.53% to 5.41% 2021 - 2030 2,148,351
 333,351
Total fixed rate debt     4,542,982
 2,199,710
Variable rate debt (1):
        
Unsecured revolving credit facilities(2)
  3.54% to 3.61% 2020 - 2022 795,000
 580,000
Commercial paper 3.19% 2019 775,488
 
USD unsecured term loan 2.92% to 6.52% 2019 - 2028 4,005,848
 4,079,670
Euro unsecured term loan 1.15% to 1.58% 2021 - 2028 734,176
 814,085
Total variable rate debt     6,310,512
 5,473,755
Capital lease obligations     130,944
 33,139
Total debt (3)
     10,984,438
 7,706,604
Less: unamortized debt issuance costs     (206,739) (167,153)
Total debt, net of unamortized debt issuance costs     10,777,699
 7,539,451
Less—current portion including commercial paper     (2,422,329) (1,188,514)
Long-term portion     $8,355,370
 $6,350,937
(1)Calculation based on outstanding loan balance and interest rate as of December 31, 2018. For variable rate debt, interest rate includes either LIBOR or EURIBOR plus the applicable margin.
(2)
Includes $1.4 billion facility due in 2020 and $1.2 billion due in 2022, each of which accrue interest at LIBOR plus 1.10%, currently 3.91%, and are subject to a facility fee of 0.15%.
(3)At December 31, 2018 and 2017, the weighted average interest rate for total debt was 4.14% and 3.92%, respectively.
In October 2018, we took delivery of Celebrity Edge. Through a novation agreement we put in place in June 2016, we had the right, but not the obligation, to finance the final installment payable to the shipyard by assuming upon our delivery and acceptance of the ship the debt indirectly incurred by the shipbuilder during the construction of the ship. We borrowed a total of $729.0 million (inclusive of the amount novated to us). The loan, which is unsecured, amortizes semi-annually over 12 years and bears interest at a fixed rate of 3.23%. In our consolidated statement of cash flows for the year ended December 31, 2018, the acceptance of the ship and satisfaction of our obligation under the shipbuilding contract was classified as an outflow and constructive disbursement within Investing Activities while the amounts novated and effectively advanced from our lenders under our previously committed financing arrangements were classified as an inflow and constructive receipt within Financing Activities.
On July 31, 2018, we closed on the Silversea Cruises acquisition and subsequently drew in full on an unsecured credit agreement in the amount of $700 million due July 2019. We are required to prepay the loan with the proceeds of certain debt issuances prior to maturity. Interest on the loan accrues at a floating rate based on LIBOR plus a margin that varies with our credit rating and which is currently 1.00%.
Upon our acquisition of Silversea Cruises, we recorded, at a fair value of $672.0 million, 7.25% senior secured notes with a principal amount of $620 million due February 2025, in accordance with ASC 805. The notes were previously issued by Silversea Cruise Finance Ltd., a wholly owned subsidiary of Silversea Cruises, and are guaranteed and secured by substantially all of the assets of Silversea Cruises and a number of its subsidiaries, subject to certain exceptions. Refer to Note 3. Business Combination for further information on the Silversea Cruises acquisition.

F-27

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In June 2018, we established a commercial paper program pursuant to which we may issue short-term unsecured notes from time to time in an aggregate amount of up to $1.2 billion. The interest rate for the commercial paper notes varies based on duration, market conditions and our credit ratings. The maturities of the commercial paper notes can vary, but cannot exceed 397 days from the date of issuance. We use the proceeds from our commercial paper notes for general corporate purposes. The commercial paper issued is backstopped by our revolving credit facilities. As of December 31, 2018, we had $777.0 million of commercial paper notes outstanding with a weighted average interest rate of 3.19% and a weighted average maturity of approximately 23 days.
In March 2018, we took delivery of Symphony of the Seas. Through a novation agreement we put in place in January 2015, we had the right, but not the obligation, to finance the final installment payable to the shipyard by assuming upon our delivery and acceptance of this ship the debt indirectly incurred by the shipbuilder during the construction of the ship. We borrowed a total of $1.2 billion (inclusive of the amount novated to us). The loan, which is unsecured, amortizes semi-annually over 12 years and bears interest at a fixed rate of 3.82%. In our consolidated statement of cash flows for the year ended December 31, 2018, the acceptance of the ship and satisfaction of our obligation under the shipbuilding contract was classified as an outflow and constructive disbursement within Investing Activities while the amounts novated and effectively advanced from our lender under our previously committed financing arrangements were classified as an inflow and constructive receipt within Financing Activities.
In March 2018, we entered into and drew in full on a credit agreement in the amount of $130.0 million due February 2023. The loan accrues interest at a floating rate of LIBOR plus an applicable margin. The applicable margin varies with our debt rating and was 1.195% as of December 31, 2018. Amounts from the issuance of this loan were used for capital expenditures.
Except for Celebrity Flora, all of our unsecured ship financing term loans are guaranteed by the export credit agency in the respective country in which the ship is constructed. In consideration for these guarantees, depending on the financing arrangement, we pay to the applicable export credit agency (1) a fee of 0.77% per annum based on the outstanding loan balance semi-annually over the term of the loan (subject to adjustment based upon our credit ratings) or (2) an upfront fee of 2.35% to 2.37% of the maximum loan amount. We amortize the fees that are paid upfront over the life of the loan and those that are paid semi-annually over each respective payment period. Prior to the loan being drawn, we present these fees within Other assets in our consolidated balance sheets. Once the loan is drawn, such fees are classified as a discount to the related loan, or contra-liability account, within Current portion of long-term debt or Long-term debt. In our consolidated statements of cash flows, we classify these fees within Amortization of debt issuance costs.
Under certain of our agreements, the contractual interest rate, facility fee and/or export credit agency fee vary with our debt rating.
The unsecured senior notes and senior debentures are not redeemable prior to maturity, except that certain series may be redeemed upon the payment of a make-whole premium.
Capital Leases
Silversea Cruises operates two ships, the Silver Whisper and Silver Explorer, under capital leases. The capital lease for the Silver Whisper will expire in 2022, subject to an option to purchase the ship, and the capital lease for the Silver Explorer will expire in 2021, subject to an option to extend the lease for up to an additional six years. The total aggregate amount of the finance lease obligations recorded for these ships at the acquisition date was $82.8 million. The lease payments on the Silver Whisper are subject to adjustments based on the LIBOR rate. Refer to Note 3. Business Combination for further information regarding the assets acquired and liabilities assumed in the Silversea Cruises acquisition.

F-28

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Following is a schedule of annual maturities on our total debt net of debt issuance costs, and including capital leases and commercial paper, as of December 31, 2018 for each of the next five years (in thousands):
Year 
2019$2,422,329
20201,681,978
2021843,976
20221,607,975
2023664,025
Thereafter3,557,416
 $10,777,699
Note 10. Redeemable Noncontrolling Interest
In connection with the acquisition of Silversea Cruises, we recorded a redeemable noncontrolling interest of $537.8 million due to the put options held by SCG. The put options may require us to purchase SCG's remaining interest, or 33.3% of Silversea Cruises, upon the occurrence or nonoccurrence of certain future events that are not solely within our control. At the acquisition date, the estimated fair value of the redeemable noncontrolling interest was based on 33.3% of Silversea Cruises' equity value, which was determined based on the transaction price paid for 66.7% of Silversea Cruises. As of December 31, 2018, SCG's interest is presented as Redeemable noncontrolling interest and is classified outside of shareholders' equity in our consolidated balance sheets. Additionally, the noncontrolling interest's share in the net earnings (loss) and contractual accretion requirements associated with the put options are included in Net Income attributable to noncontrolling interests our consolidated statements of comprehensive income (loss).
The following table presents changes in the redeemable noncontrolling interest as of December 31, 2018 (in thousands):
Balance as at January 1, 2018$
Additions (Silversea Cruises acquisition)537,770
Net income attributable to noncontrolling interest, including the contractual accretion of the put options4,750
Other(500)
Balance at December 31, 2018$542,020
Note 11. Shareholders' Equity
During the fourth and third quarters of 2018, we declared a cash dividend on our common stock of $0.70 per share which was paid in the first quarter of 2019 and fourth quarter of 2018, respectively. During the first and second quarters of 2018, we declared a cash dividend on our common stock of $0.60 per share which was paid in the second and third quarters of 2018, respectively.
During the fourth and third quarters of 2017, we declared a cash dividend on our common stock of $0.60 per share which was paid in the first quarter of 2018 and fourth quarter of 2017, respectively. During the first and second quarters of 2017, we declared a cash dividend on our common stock of $0.48 per share which was paid in the second and third quarters of 2017, respectively. During the first quarter of 2017, we also paid a cash dividend on our common stock of $0.48 per share which was declared during the fourth quarter of 2016.
In May 2018, our board of directors authorized a 24-month common stock repurchase program for up to $1.0 billion. The timing and number of shares to be repurchased will depend on a variety of factors, including price and market conditions. Repurchases under the program may be made at management's discretion from time to time on the open market or through privately negotiated transactions. During the year ended December 31, 2018, we repurchased

F-29

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


2.8 million shares of our common stock under this program, for a total of $300.0 million, in open market transactions that were recorded within Treasury stock in our consolidated balance sheets. As of December 31, 2018, we have $700.0 million that remains available for future stock repurchase transactions under our Board authorized program.
In April 2017, our board of directors authorized a 12-month common stock repurchase program for up to $500.0 million that was completed in February 2018. During 2018 and 2017, we repurchased 2.1 million and 1.8 million shares of our common stock for a total of $275.0 million and $225.0 million, respectively, totaling $500.0 million in open market transactions that were recorded within Treasury stock in our consolidated balance sheets.
Note 12. Stock-Based Employee Compensation
We currently have awards outstanding under one stock-based compensation plan, our 2008 Equity Plan, which provides for awards to our officers, directors and key employees. The 2008 Equity Plan, as amended, provides for the issuance of up to 14,000,000 shares of our common stock pursuant to grants of (i) incentive and non-qualified stock options, (ii) stock appreciation rights, (iii) stock awards (including time-based and/or performance-based stock awards) and (iv) restricted stock units (including time-based and performance-based restricted stock units). During any calendar year, no one individual (other than non-employee members of our board of directors) may be granted awards of more than 500,000 shares and no non-employee member of our board of directors may be granted awards with a value in excess of $500,000 at the grant date. Options and restricted stock units outstanding as of December 31, 2018 generally vest in equal installments over four years from the date of grant. In addition, performance shares and performance share units generally vest in three years. With certain limited exceptions, awards are forfeited if the recipient ceases to be an employee before the shares vest.
Prior to 2012, our officers received a combination of stock options and restricted stock units. Beginning in 2012, our officers instead receive their long-term incentive awards through a combination of performance share units and restricted stock units. Each performance share unit award is expressed as a target number of performance share units based upon the fair market value of our common stock on the date the award is issued. The actual number of shares underlying each award (not to exceed 200% of the target number of performance share units) will be determined based upon the Company's achievement of a specified performance target range. In 2018, we issued a target number of 184,550 performance share units, which will vest approximately three years following the award issue date. The performance payout of these grants will be based on return on our invested capital ("ROIC") and earnings per share (“EPS”) for the year ended December 31, 2020, as may be adjusted by the Talent and Compensation Committee of our board of directors in early 2021 for events that are outside of management's control.
Beginning in 2016, our senior officers meeting certain minimum age and service criteria receive their long-term incentive awards through a combination of restricted stock awards and restricted stock units. The restricted stock awards are subject to both performance and time-based vesting criteria while the restricted stock units are subject only to time-based vesting criteria. Each restricted stock award is issued in an amount equal to 200% of the target number of shares underlying the award based upon the fair market value of our common stock on the date the award is issued. Dividends accrue (but do not get paid) on the restricted stock awards during the vesting period, with the accrued amounts to be paid out following vesting only on the number of shares underlying the award which actually vest based on satisfaction of the performance criteria. The actual number of shares that vest (not to exceed 200% of the shares) will be determined based upon the Company's achievement of a specified performance target range. In 2018, we issued 120,022 restricted stock awards, representing 200%(1) of the target number of shares underlying the award, all of which are considered issued and outstanding from the date of issuance, however; grantees will only retain those shares earned as the result of the Company achieving the performance goals during the measurement period. The performance payout of the 2018 awards will be based on ROIC and EPS for the year ended December 31, 2020, as may be adjusted by the Talent and Compensation Committee of our board of directors in early 2021 for events that are outside of management's control.
On January 24, 2018, the Company issued a one-time bonus award for all non-officer employees. These awards vest, in equal installments, over the 3 years following the award issue date. For shoreside eligible employees, awards were issued as equity-settled restricted stock units.

F-30

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


We also provide an Employee Stock Purchase Plan ("ESPP") to facilitate the purchase by employees of up to 1,300,000 shares of common stock in the aggregate. 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 85% 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. During the years ended December 31, 2018, 2017 and 2016, 74,100, 51,989 and 42,347 shares of our common stock were purchased under the ESPP at a weighted-average price of $97.50, $93.15 and $65.48, respectively.
Total compensation expense recognized for employee stock-based compensation for the years ended December 31, 2018, 2017 and 2016 was as follows (in thousands):
 Employee Stock-Based Compensation
Classification of expense2018 2017 2016
Marketing, selling and administrative expenses$46,061
 $69,459
 $32,659
Total compensation expense$46,061
 $69,459
 $32,659
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The estimated fair value of stock options, less estimated forfeitures, is amortized over the vesting period using the graded-vesting method. We did not issue any stock options during the years ended December 31, 2018, 2017 and 2016.
Stock option activity and information about stock options outstanding are summarized in the following table:
Stock Option ActivityNumber of
Options
 Weighted-
Average
Exercise
Price
 Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
(1)


 
 (years) (in thousands)
Outstanding at January 1, 2018272,724
 $32.15
 1.41 $24,053
Granted
 
 
 

Exercised(117,977) $36.14
 
 

Canceled(1,654) $32.49
 
 

Outstanding at December 31, 2018153,093
 $29.06
 1.23 $10,399
Vested at December 31, 2018153,093
 $29.06
 1.23 $10,399
Options Exercisable at December 31, 2018153,093
 $29.06
 1.23 $10,399
___________________________________________________________________
(1)The intrinsic value represents the amount by which the fair value of stock exceeds the option exercise price.
The total intrinsic value of stock options exercised during the years ended December 31, 2018, 2017 and 2016 was $11.1 million, $4.5 million and $2.3 million, respectively. As of December 31, 2018, there was no unrecognized compensation cost, net of estimated forfeitures, related to stock options granted under our stock incentive plan.
Restricted stock units are converted into shares of common stock upon vesting or, if applicable, are settled on a one-for-one basis. The cost of these awards is determined using the fair value of our common stock on the date of the grant, and compensation expense is recognized over the vesting period. Restricted stock activity is summarized in the following table:

F-31

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Restricted Stock Units ActivityNumber of
Awards
 Weighted-
Average
Grant Date
Fair Value
Non-vested share units as of January 1, 2018737,899
 $83.78
Granted392,427
 $122.12
Vested(276,059) $78.09
Canceled(53,682) $101.82
Non-vested share units as of December 31, 2018800,585
 $103.32
The weighted-average estimated fair value of restricted stock units granted during the years ended December 31, 2017 and 2016 was $99.03 and $64.51, respectively. The total fair value of shares released on the vesting of restricted stock units during the years ended December 31, 2018, 2017 and 2016 was $33.9 million, $38.7 million and $23.2 million, respectively. As of December 31, 2018, we had $43.1 million of total unrecognized compensation expense, net of estimated forfeitures, related to restricted stock unit grants, which will be recognized over the weighted-average period of 1.68 years.
Performance share units are converted into shares of common stock upon vesting on a one-for-one basis. We estimate the fair value of each performance share when the grant is authorized and the related service period has commenced. We remeasure the fair value of our performance shares in each subsequent reporting period until the grant date has occurred, which is the date when the performance conditions are satisfied. We recognize compensation cost over the vesting period based on the probability of the service and performance conditions being achieved adjusted for each subsequent fair value measurement until the grant date. If the specified service and performance conditions are not met, compensation expense will not be recognized and any previously recognized compensation expense will be reversed. Performance share units activity is summarized in the following table:
Performance Share Units ActivityNumber of
Awards
 Weighted-
Average
Grant Date
Fair Value
Non-vested share units as of January 1, 2018353,150
 $74.87
Granted184,550
 $97.98
Vested(218,568) $72.79
Canceled(16,571) $109.46
Non-vested share units as of December 31, 2018302,561
 $88.57
The weighted-average estimated fair value of performance share units granted during the years ended December 31, 2017 and 2016 was $84.16 and $65.83, respectively. The total fair value of shares released on the vesting of performance share units during the years ended December 31, 2018, 2017 and 2016 was $27.3 million, $10.0 million and $16.9 million, respectively. As of December 31, 2018, we had $7.7 million of total unrecognized compensation expense, net of estimated forfeitures, related to performance share unit grants, which will be recognized over the weighted-average period of 1.00 year.

F-32

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The shares underlying our restricted stock awards to age and service eligible senior officers are issued as of the grant date in an amount equal to 200% of the target number of shares. Following the vesting date, the restrictions will lift with respect to the number of shares for which the performance criteria was met and any excess shares will be canceled. Dividends will accrue on the issued restricted shares during the vesting period, but will not be paid to the recipient until the awards vest and the final number of shares underlying the award is determined, at which point, the dividends will be paid in cash only on the earned shares. We estimate the fair value of each restricted stock award when the grant is authorized and the related service period has commenced. We remeasure the fair value of these restricted stock awards in each subsequent reporting period until the grant date has occurred, which is the date when the performance conditions are satisfied. We recognize compensation cost over the vesting period based on the probability of the service and performance conditions being achieved adjusted for each subsequent fair value measurement until the grant date. If the specified service and performance conditions are not met, compensation expense will not be recognized, any previously recognized compensation expense will be reversed, and any unearned shares will be returned to the Company. Restricted stock awards activity is summarized in the following table:
Restricted Stock Awards ActivityNumber of
Awards
 Weighted-
Average
Grant Date
Fair Value
Non-vested share units as of January 1, 2018270,176
 $81.28
Granted120,022
 $129.23
Vested
 
Canceled
 
Non-vested share units as of December 31, 2018390,198
 $96.03
The weighted-average estimated fair value of restricted stock awards granted during the years ended December 31, 2017 and 2016 was $95.04 and $66.93, respectively. As of December 31, 2018, we had $1.6 million of total unrecognized compensation expense, net of estimated forfeitures, related to restricted stock award grants, which will be recognized over the weighted-average period of 1.08 years.
Note 13. Earnings Per Share
A reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share data):
 Year Ended December 31,
 2018 2017 2016
Net Income attributable to Royal Caribbean Cruises Ltd. for basic and diluted earnings per share$1,811,042
 $1,625,133
 $1,283,388
Weighted-average common shares outstanding210,570
 214,617
 215,393
Dilutive effect of stock-based awards984
 1,077
 923
Diluted weighted-average shares outstanding211,554
 215,694
 216,316
Basic earnings per share$8.60
 $7.57
 $5.96
Diluted earnings per share$8.56
 $7.53
 $5.93
There were no antidilutive shares for the years ended December 31, 2018, 2017 and 2016.

F-33

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 14. Retirement Plan
We maintain a defined contribution plan covering shoreside employees. Effective January 1, 2016, we commenced annual, non-elective contributions to the plan on behalf of all eligible participants equal to 3% of participants' eligible earnings. Remaining annual contributions to the plan are discretionary and are based on fixed percentages of participants' salaries and years of service, not to exceed certain maximums. Contribution expenses were $18.9 million, $17.4 million and $16.7 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Note 15. Income Taxes
We are subject to corporate income taxes in countries where we have operations or subsidiaries. We and the majority of our ship-operating and vessel-owning subsidiaries are currently exempt from U.S. corporate tax on U.S. source income from the international operation of ships pursuant to Section 883 of the Internal Revenue Code. Regulations under Section 883 have limited the activities that are considered the international operation of a ship or incidental thereto. Accordingly, our provision for U.S. federal and state income taxes includes taxes on certain activities not considered incidental to the international operation of our ships.
Additionally, one of our ship-operating subsidiaries is subject to tax under the tonnage tax regime of the United Kingdom. Under this regime, income from qualifying activities is subject to corporate income tax, but the tax is computed by reference to the tonnage of the ship or ships registered under the relevant provisions of the tax regimes (the "relevant shipping profits"), which replaces the regular taxable income base. Income from activities not considered qualifying activities, which we do not consider significant, remains subject to United-Kingdom corporate income tax.
Income tax expense for items not qualifying under Section 883, tonnage tax and income taxes for the remainder of our subsidiaries was approximately $20.9 million, $18.3 million and $20.1 million for the years ended December 31, 2018, 2017 and 2016, respectively, and was recorded within Other income (expense). In addition, all interest expense and penalties related to income tax liabilities are classified as income tax expense within Other income (expense).
For a majority of our subsidiaries, we do not expect to incur income taxes on future distributions of undistributed earnings. Accordingly, no deferred income taxes have been provided for the distribution of these earnings. Where we do expect to incur income taxes on future distributions of undistributed earnings, we have provided for deferred taxes, which we do not consider significant to our operations.
As of December 31, 2018, the Company had deferred tax assets, including net operating losses (“NOLs”) in foreign jurisdictions of $24.8 million. If not utilized, $14.0 million of the NOLs are subject to expiration between 2019 and 2025. The Company has recognized $0.4 million of benefit related to these NOLs, as the remaining NOLs have full valuation allowances.
Net deferred tax assets and deferred tax liabilities and corresponding valuation allowances related to our operations were not material as of December 31, 2018 and 2017.
We regularly review deferred tax assets for recoverability based on our history of earnings, expectations of future earnings, and tax planning strategies. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income to support the amount of deferred taxes. A valuation allowance is recorded in those circumstances in which we conclude it is not more-likely-than-not we will recover the deferred tax assets prior to their expiration.

F-34

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 16. Changes in Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in accumulated other comprehensive loss by component for the years ended December 31, 2018 and 2017 (in thousands):
  Changes related to cash flow derivative hedges Changes in defined
benefit plans
 Foreign currency translation adjustments Accumulated other comprehensive (loss) income
         
Accumulated comprehensive loss at January 1, 2016 $(1,232,073) $(26,447) $(69,913) $(1,328,433)
Other comprehensive income (loss) before reclassifications 73,973
 (2,777) 2,362
 73,558
Amounts reclassified from accumulated other comprehensive loss 337,250
 1,141
 
 338,391
Net current-period other comprehensive income (loss) 411,223
 (1,636) 2,362
 411,949
         
Accumulated comprehensive loss at January 1, 2017 (820,850) (28,083) (67,551) (916,484)
Other comprehensive income (loss) before reclassifications 381,865
 (6,755) 17,307
 392,417
Amounts reclassified from accumulated other comprehensive loss 188,630
 1,172
 
 189,802
Net current-period other comprehensive income (loss) 570,495
 (5,583) 17,307
 582,219
         
Accumulated comprehensive loss at January 1, 2018 (250,355) (33,666) (50,244) (334,265)
Other comprehensive (loss) income before reclassifications (297,994) 6,156
 (14,251) (306,089)
Amounts reclassified from accumulated other comprehensive loss 11,133
 1,487
 
 12,620
Net current-period other comprehensive (loss) income (286,861) 7,643
 (14,251) (293,469)
         
Accumulated comprehensive loss at December 31, 2018 $(537,216) $(26,023) $(64,495) $(627,734)

F-35

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following table presents reclassifications out of accumulated other comprehensive loss for the years ended December 31, 2018, 2017 and 2016 (in thousands):
  Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
Details about Accumulated Other Comprehensive Loss Components Year Ended December 31, 2018 Year Ended December 31, 2017 Year Ended December 31, 2016 Affected Line Item in Statements of Comprehensive Income (Loss)
Gain (loss) on cash flow derivative hedges:        
Interest rate swaps (10,931) (31,603) (41,480) Interest expense, net of interest capitalized
Foreign currency forward contracts (12,843) (10,840) (8,114) Depreciation and amortization expenses
Foreign currency forward contracts 12,855
 (9,472) (14,342) Other income (expense)
Foreign currency forward contracts 
 
 (207) Other indirect operating expenses
Foreign currency collar options 
 (2,408) (2,408) Depreciation and amortization expenses
Fuel swaps (1,580) 7,382
 13,685
 Other income (expense)
Fuel swaps 1,366
 (141,689) (284,384) Fuel
  (11,133) (188,630) (337,250)  
Amortization of defined benefit plans:        
Actuarial loss (1,487) (1,172) (1,141) Payroll and related
  (1,487) (1,172) (1,141)  
Total reclassifications for the period $(12,620) $(189,802) $(338,391)  


F-36

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 17. Fair Value Measurements and Derivative Instruments
Fair Value Measurements
The estimated fair value of our financial instruments that are not measured at fair value, categorized based upon the fair value hierarchy, are as follows (in thousands):
 Fair Value Measurements at December 31, 2018 Fair Value Measurements at December 31, 2017
DescriptionTotal Carrying Amount Total Fair Value 
Level 1(1)
 
Level 2(2)
 
Level 3(3)
 Total Carrying Amount Total Fair Value 
Level 1(1)
 
Level 2(2)
 
Level 3(3)
Assets:                   
Cash and cash equivalents(4)
$287,852
 $287,852
 $287,852
 
 
 $120,112
 $120,112
 $120,112
 
 
Total Assets$287,852
 $287,852
 $287,852
 $
 $
 $120,112
 $120,112
 $120,112
 $
 $
Liabilities:                   
Long-term debt (including current portion of long-term debt)(5)
$9,871,267
 $10,244,214
 
 $10,244,214
 
 $7,506,312
 $8,038,092
 
 $8,038,092
 
Total Liabilities$9,871,267
 $10,244,214
 $
 $10,244,214
 $
 $7,506,312
 $8,038,092
 $
 $8,038,092
 $
___________________________________________________________________
(1)Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.
(2)Inputs other than quoted prices included within Level 1 that are observable for the liability, either directly or indirectly. For unsecured revolving credit facilities and unsecured term loans, fair value is determined utilizing the income valuation approach. This valuation model takes into account the contract terms of our debt such as the debt maturity and the interest rate on the debt. The valuation model also takes into account the creditworthiness of the Company.
(3)Inputs that are unobservable. The Company did not use any Level 3 inputs as of December 31, 2018 and 2017.
(4)Consists of cash and marketable securities with original maturities of less than 90 days.
(5)Consists of unsecured revolving credit facilities, senior notes, senior debentures and term loans. These amounts do not include our capital lease obligations or commercial paper.
Fair Value Measurements on a Nonrecurring Basis
During 2018, we announced that Skysea Holding would cease cruising operations by the end of 2018. As a result, we did not deem our investment balance to be recoverable and estimated the fair value of our investment to be zero. For further information on our Skysea Holding investment and impairment, refer to Note 8. Other Assets.
Other Financial Instruments
The carrying amounts of accounts receivable, accounts payable, accrued interest, accrued expenses and commercial paper approximate fair value as of December 31, 2018 and 2017.

F-37

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Assets and liabilities that are recorded at fair value have been categorized based upon the fair value hierarchy. The following table presents information about the Company's financial instruments recorded at fair value on a recurring basis (in thousands):
 Fair Value Measurements at December 31, 2018 Fair Value Measurements at December 31, 2017
DescriptionTotal Fair Value 
Level 1(1)
 
Level 2(2)
 
Level 3(3)
 Total Fair Value 
Level 1(1)
 
Level 2(2)
 
Level 3(3)
Assets:               
Derivative financial instruments(4)
$65,297
 $
 $65,297
 $
 $320,385
 $
 $320,385
 $
Investments(5)

 
 
 
 3,340
 3,340
 
 
Total Assets$65,297
 $
 $65,297
 $
 $323,725
 $3,340
 $320,385
 $
Liabilities:               
Derivative financial instruments(6)
$201,812
 $
 $201,812
 $
 $115,961
 $
 $115,961
 $
Contingent consideration(7)
44,000
 
 
 44,000
 
 
 
 
Total Liabilities$245,812
 $
 $201,812
 $44,000
 $115,961
 $
 $115,961
 $
___________________________________________________________________
(1)Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.
(2)Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. For foreign currency forward contracts, interest rate swaps and fuel swaps, fair value is derived using valuation models that utilize the income valuation approach. These valuation models take into account the contract terms, such as maturity as well as other inputs, such as foreign exchange rates and curves, fuel types, fuel curves and interest rate yield curves. Derivative instrument fair values take into account the creditworthiness of the counterparty and the Company.
(3)Inputs that are unobservable. The Company did not use any Level 3 inputs as of December 31, 2017.
(4)Consists of foreign currency forward contracts, interest rate swaps and fuel swaps. Refer to the "Fair Value of Derivative Instruments" table for breakdown by instrument type.
(5)
Consists of exchange-traded equity securities and mutual funds reported within Other assets in our consolidated balance sheets.
(6)Consists of foreign currency forward contracts, interest rate swaps and fuel swaps. Refer to the "Fair Value of Derivative Instruments" table for breakdown by instrument type.
(7)
The contingent consideration related to the Silversea Cruises acquisition was estimated by applying a Monte-Carlo simulation method using our closing stock price along with significant inputs not observable in the market, including the probability of achieving the milestones and estimated future operating results. The Monte-Carlo simulation is a generally accepted statistical technique used to generate a defined number of valuation paths in order to develop a reasonable estimate of fair value. Refer to Note 3. Business Combination for further information on the Silversea Cruises acquisition.
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, 2018 or 2017, or that will be realized in the future, and do not include expenses that could be incurred in an actual sale or settlement.
We have master International Swaps and Derivatives Association (“ISDA”) agreements in place with our derivative instrument counterparties. These ISDA agreements generally provide for final close out netting with our counterparties for all positions in the case of default or termination of the ISDA agreement. We have determined that our ISDA agreements provide us with rights of setoff on the fair value of derivative instruments in a gain position and those in a loss position with the same counterparty. We have elected not to offset such derivative instrument fair values in our consolidated balance sheets.
See Credit Related Contingent Features for further discussion on contingent collateral requirements for our derivative instruments.

F-38

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following table presents information about the Company’s offsetting of financial assets under master netting agreements with derivative counterparties (in thousands):
  Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
  As of December 31, 2018 As of December 31, 2017
  Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet Gross Amount of Eligible Offsetting
Recognized
Derivative Liabilities
 Cash Collateral
Received
 Net Amount of
Derivative Assets
 Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet Gross Amount of Eligible Offsetting
Recognized
Derivative Assets
 Cash Collateral
Received
 Net Amount of
Derivative Assets
                 
Derivatives subject to master netting agreements $65,297
 $(60,303) $
 $4,994
 $320,385
 $(104,751) $
 $215,634
Total $65,297
 $(60,303) $
 $4,994
 $320,385
 $(104,751) $
 $215,634
The following table presents information about the Company’s offsetting of financial liabilities under master netting agreements with derivative counterparties (in thousands):
  Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
  As of December 31, 2018 As of December 31, 2017
  Gross Amount of Derivative Liabilities Presented in the Consolidated Balance Sheet Gross Amount of Eligible Offsetting
Recognized
Derivative Assets
 Cash Collateral
Pledged
 Net Amount of
Derivative Liabilities
 Gross Amount of Derivative Liabilities Presented in the Consolidated Balance Sheet Gross Amount of Eligible Offsetting
Recognized
Derivative Liabilities
 Cash Collateral
Pledged
 Net Amount of
Derivative Liabilities
                 
Derivatives subject to master netting agreements $(201,812) $60,303
 $
 $(141,509) $(115,961) $104,751
 $
 $(11,210)
Total $(201,812) $60,303
 $
 $(141,509) $(115,961) $104,751
 $
 $(11,210)
Derivative Instruments
We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We try to mitigate 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 impact of these hedging instruments is primarily offset by corresponding changes in the underlying exposures being hedged. We achieve this by closely matching the notional amount, term and conditions of the derivative instrument with the underlying risk being hedged. Although certain of our derivative financial instruments do not qualify or are not accounted for under hedge accounting, our objective is not to hold or issue derivative financial instruments for trading or other speculative purposes.
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. These instruments are recorded on the balance sheet at their fair value and the vast majority are designated as hedges. We also use non-derivative financial instruments designated as hedges of our net investment in our foreign operations and investments.
At inception of the hedge relationship, a derivative instrument that hedges the exposure to changes in the fair value of a firm commitment or a recognized asset or liability 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.
Changes in the fair value of derivatives that are designated as fair value hedges are offset against changes in the fair value of the underlying hedged assets, liabilities or firm commitments. Gains and losses on derivatives that are designated as cash flow hedges are recorded as a component of Accumulated other comprehensive loss until the underlying hedged transactions are

F-39

ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


recognized in earnings. The foreign currency transaction gain or loss of our non-derivative financial instruments and the changes in the fair value of derivatives designated as hedges of our net investment in foreign operations and investments are recognized as a component of Accumulated other comprehensive loss along with the associated foreign currency translation adjustment of the foreign operation or investment, with the amortization of excluded components affecting earnings.
On an ongoing basis, we assess whether derivatives used in hedging transactions are "highly effective" in offsetting changes in the fair value or cash flow of hedged items. We use the long-haul method to assess hedge effectiveness using regression analysis for each hedge relationship under our interest rate, foreign currency and fuel hedging programs. We apply the same methodology on a consistent basis for assessing hedge effectiveness to all hedges within each hedging program (i.e., interest rate, foreign currency and fuel). We perform regression analyses over an observation period of up to three years, utilizing market data relevant to the hedge horizon of each hedge relationship. High effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the changes in the fair values of the derivative instrument and the hedged item. If it is determined that a derivative is not highly effective as a hedge or hedge accounting is discontinued, any change in fair value of the derivative since the last date at which it was determined to be effective is recognized in earnings.
Cash flows from derivative instruments that are designated as fair value or cash flow hedges are classified in the same category as the cash flows from the underlying hedged items. In the event that hedge accounting is discontinued, cash flows subsequent to the date of discontinuance are classified within investing activities. Cash flows from derivative instruments not designated as hedging instruments are classified as investing activities.
We consider the classification of the underlying hedged item’s cash flows in determining the classification for the designated derivative instrument’s cash flows. We classify derivative instrument cash flows from hedges of benchmark interest rate or hedges of fuel expense as operating activities due to the nature of the hedged item. Likewise, we classify derivative instrument cash flows from hedges of foreign currency risk on our newbuild ship payments as investing activities.
Interest Rate Risk
Our exposure to market risk for changes in interest rates primarily relates to our debt obligations including future interest payments. At December 31, 2018 and 2017, approximately 59.1% and 57.4%, respectively, of our long-term debt was effectively fixed. We use interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest expense.
Market risk associated with our fixed rate debt is the potential increase in fair value resulting from a decrease in interest rates. We use interest rate swap agreements that effectively convert a portion of our fixed-rate debt to a floating-rate basis to manage this risk. At December 31, 2018 and 2017, we maintained interest rate swap agreements on the following fixed-rate debt instruments:
Debt InstrumentSwap Notional as of December 31, 2018 (In thousands)MaturityDebt Fixed RateSwap Floating Rate: LIBOR plusAll-in Swap Floating Rate as of December 31, 2018
Oasis of the Seas term loan
$105,000
October 20215.41%3.87%6.63%
Unsecured senior notes650,000
November 20225.25%3.63%6.25%
 $755,000
    
These interest rate swap agreements are accounted for as fair value hedges.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Market risk associated with our long-term floating rate debt is the potential increase in interest expense from an increase in interest rates. We use interest rate swap agreements that effectively convert a portion of our floating-rate debt to a fixed-rate basis to manage this risk. At December 31, 2018 and 2017, we maintained interest rate swap agreements on the following floating-rate debt instruments:
Debt InstrumentSwap Notional as of December 31, 2018 (In thousands)MaturityDebt Floating RateAll-in Swap Fixed Rate
Celebrity Reflection term loan
$327,250
October 2024LIBOR plus0.40%2.85%
Quantum of the Seas term loan
490,000
October 2026LIBOR plus1.30%3.74%
Anthem of the Seas term loan
513,542
April 2027LIBOR plus1.30%3.86%
Ovation of the Seas term loan
657,083
April 2028LIBOR plus1.00%3.16%
Harmony of the Seas term loan (1)
627,660
May 2028EURIBOR plus1.15%2.26%
 $2,615,535
    
___________________________________________________________________
(1)
Interest rate swap agreements hedging the Euro-denominated term loan for Harmony of the Seas include a EURIBOR zero-floor matching the hedged debt EURIBOR zero-floor. Amount presented is based on the exchange rate as of December 31, 2018.
These interest rate swap agreements are accounted for as cash flow hedges.
The notional amount of interest rate swap agreements related to outstanding debt as of December 31, 2018 and 2017 was $3.4 billion and $3.8 billion, respectively.
Foreign Currency Exchange Rate Risk
Derivative Instruments
Our primary exposure to foreign currency exchange rate risk relates to our ship construction contracts denominated in Euros, our foreign currency denominated debt and our international business operations. We enter into foreign currency forward contracts to manage portions of the exposure to movements in foreign currency exchange rates. As of December 31, 2018, the aggregate cost of our ships on order, not including any ships on order by our Partner Brands and the Silversea Cruises ships that remain contingent upon final documentation and financing, was approximately $11.4 billion, of which we had deposited $651.7 million as of such date. At December 31, 2018 and 2017, approximately 53.5% and 54.0%, respectively, of the aggregate cost of the ships under construction was exposed to fluctuations in the Euro exchange rate. Our foreign currency forward contract agreements are accounted for as cash flow or net investment hedges depending on the designation of the related hedge.
On a regular basis, we enter into foreign currency forward contracts and, from time to time, we utilize cross-currency swap agreements and collar options to minimize the volatility resulting from the remeasurement of net monetary assets and liabilities denominated in a currency other than our functional currency or the functional currencies of our foreign subsidiaries. During the year ended December 31, 2018, we maintained an average of approximately $741.5 million of these foreign currency forward contracts. These instruments are not designated as hedging instruments. For the years ended December 31, 2018, 2017 and 2016, changes in the fair value of the foreign currency forward contracts resulted in (losses) gains of approximately $(62.4) million, $62.0 million and $(51.1) million, respectively, which offset gains (losses) arising from the remeasurement of monetary assets and liabilities denominated in foreign currencies in those same years of $57.6 million, $(75.6) million and $39.8 million, respectively. These amounts were recognized in earnings within Other income (expense) in our consolidated statements of comprehensive income (loss).
We consider our investments in our foreign operations to be denominated in relatively stable currencies and of a long-term nature. As of December 31, 2018, we maintained foreign currency forward contracts and designated them as hedges of a portion of our net investments primarily in TUI cruises of €101.0 million, or approximately $115.5 million based on the exchange rate at December 31, 2018. These forward currency contracts mature in October 2021.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The notional amount of outstanding foreign exchange contracts, excluding the forward contracts entered into to minimize remeasurement volatility, as of December 31, 2018 and 2017 was $3.7 billion and $4.6 billion, respectively.
Non-Derivative Instruments
We also address the exposure of our investments in foreign operations by denominating a portion of our debt in our subsidiaries' and investments' functional currencies and designating it as a hedge of these subsidiaries and investments. We had designated debt as a hedge of our net investments primarily in TUI Cruises of approximately €280.0 million, or approximately $320.2 million, through December 31, 2018. As of December 31, 2017, we had designated debt as a hedge of our net investments primarily in TUI Cruises of approximately €246.0 million, or approximately $295.3 million.
Fuel Price Risk
Our exposure to market risk for changes in fuel prices relates primarily to the consumption of fuel on our ships. We use fuel swap agreements to mitigate the financial impact of fluctuations in fuel prices.
Our fuel swap agreements are accounted for as cash flow hedges. At December 31, 2018, we have hedged the variability in future cash flows for certain forecasted fuel transactions occurring through 2022. As of December 31, 2018 and 2017, we had the following outstanding fuel swap agreements:
 Fuel Swap Agreements
 As of December 31, 2018 As of December 31, 2017
 (metric tons)
2018
 673,700
2019856,800
 668,500
2020830,500
 531,200
2021488,900
 224,900
2022322,900
 
 Fuel Swap Agreements
 As of December 31, 2018 As of December 31, 2017
 (% hedged)
Projected fuel purchases for year:   
2018
 50%
201958% 46%
202054% 36%
202128% 14%
202219% 
At December 31, 2018 and 2017, $26.8 million and $23.7 million, respectively, of estimated unrealized net loss associated with our cash flow hedges pertaining to fuel swap agreements were expected to be reclassified to earnings from Accumulated other comprehensive loss within the next twelve months. Reclassification is expected to occur as the result of fuel consumption associated with our hedged forecasted fuel purchases.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The fair value and line item caption of derivative instruments recorded within our consolidated balance sheets were as follows (in thousands):
 Fair Value of Derivative Instruments
 Asset Derivatives Liability Derivatives
 Balance Sheet
Location
 As of December 31, 2018 As of December 31, 2017 Balance Sheet
Location
 As of December 31, 2018 As of December 31, 2017
  Fair Value Fair Value  Fair Value Fair Value
Derivatives designated as hedging instruments under ASC 815-20(1)
           
Interest rate swapsOther assets $23,518
 $7,330
 Other long-term liabilities $40,467
 $46,509
Foreign currency forward contractsDerivative financial instruments 4,044
 68,352
 Derivative financial instruments 39,665
 
Foreign currency forward contractsOther assets 10,844
 158,879
 Other long-term liabilities 16,854
 6,625
Fuel swapsDerivative financial instruments 10,966
 13,137
 Derivative financial instruments 37,627
 38,488
Fuel swapsOther assets 9,204
 51,265
 Other long-term liabilities 65,182
 13,411
Total derivatives designated as hedging instruments under ASC 815-20  58,576
 298,963
   199,795
 105,033
Derivatives not designated as hedging instruments under ASC 815-20           
Foreign currency forward contractsDerivative financial Instruments 1,751
 9,945
 Derivative financial instruments 808
 2,933
Foreign currency forward contractsOther assets 1,579
 2,793
 Other long-term liabilities 833
 1,139
Fuel swapsDerivative financial instruments 2,804
 7,886
 Derivative financial instruments 376
 6,043
Fuel swapsOther assets 587
 798
 Other long-term liabilities 
 813
Total derivatives not designated as hedging instruments under ASC 815-20  6,721
 21,422
   2,017
 10,928
Total derivatives  $65,297
 $320,385
   $201,812
 $115,961
___________________________________________________________________
(1)
Accounting Standard Codification 815-20 "Derivatives and Hedging."

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The location and amount of gain or (loss) recognized in income on fair value and cash flow hedging relationships were as follows (in thousands):
    Year Ended December 31, 2018 Year Ended December 31, 2017
  Fuel Expense Depreciation and Amortization Expenses Interest Income (Expense) Other Income (Expense) Fuel Expense Depreciation and Amortization Expenses Interest Income (Expense) Other Income (Expense)
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded$710,617 $1,033,697 $(300,872) $11,107
 $681,118 $951,194 $(269,881) $(5,289)
The effects of fair value and cash flow hedging:               
 Gain or (loss) on fair value hedging relationships in Subtopic 815-20               
  Interest contracts               
   Hedged itemsn/a n/a $4,673
  n/a n/a  $6,065
   Derivatives designated as hedging instrumentsn/a n/a $(8,854)  n/a n/a $3,007
 $(3,139)
 Gain or (loss) on cash flow hedging relationships in Subtopic 815-20               
  Interest contracts               
   Amount of gain or (loss) reclassified from accumulated other comprehensive loss into incomen/a n/a $(10,931) n/a n/a n/a $(31,603) n/a
  Commodity contracts               
   Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income$1,366
 n/a n/a $(1,580) $(141,689) n/a n/a $7,382
  Foreign exchange contracts               
   Amount of gain or (loss) reclassified from accumulated other comprehensive loss into incomen/a $(12,843) n/a $12,855
 n/a $(13,248) n/a $(9,472)
    Year Ended December 31, 2016
  Fuel Expense Depreciation and Amortization Expenses Interest Income (Expense) Other Income (Expense)
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded$713,676
 $894,915
 $(286,514) $(35,653)
The effects of fair value and cash flow hedging:       
 Gain or (loss) on fair value hedging relationships in Subtopic 815-20       
  Interest contracts       
   Hedged itemsn/a n/a $7,203
 $5,072
   Derivatives designated as hedging instrumentsn/a n/a $7,488
 $(3,625)
 Gain or (loss) on cash flow hedging relationships in Subtopic 815-20       
  Interest contracts       
   Amount of gain or (loss) reclassified from accumulated other comprehensive loss into incomen/a n/a $(41,480) n/a
  Commodity contracts       
   Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income$(284,384) n/a n/a $13,685
  Foreign exchange contracts       
   Amount of gain or (loss) reclassified from accumulated other comprehensive loss into incomen/a $(10,522) n/a $(14,342)

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ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The carrying value and line item caption of non-derivative instruments designated as hedging instruments recorded within our consolidated balance sheets were as follows (in thousands):
    Carrying Value
Non-derivative instrument designated as
hedging instrument under ASC 815-20
 Balance Sheet Location As of December 31, 2018 As of December 31, 2017
Foreign currency debt Current portion of long-term debt $38,168
 $70,097
Foreign currency debt Long-term debt 281,984
 225,226
    $320,152
 $295,323
The effect of derivative instruments qualifying and designated as hedging instruments and the related hedged items in fair value hedges on the consolidated statements of comprehensive income (loss) was as follows (in thousands):
  Location of Gain (Loss) Recognized in Income on Derivative and Hedged Item Amount of Gain (Loss) Recognized in Income on Derivative Amount of Gain (Loss) Recognized in Income on Hedged Item
Derivatives and related Hedged Items under ASC 815-20 Fair Value Hedging Relationships Year Ended December 31, 2018 Year Ended December 31, 2017 Year Ended December 31, 2016 Year Ended December 31, 2018 Year Ended December 31, 2017 Year Ended December 31, 2016
Interest rate swaps Interest expense, net of interest capitalized $(8,854) $3,007
 $7,488
 $4,673
 $
 $7,203
Interest rate swaps Other income (expense) 
 (3,139) (3,625) 
 6,065
 5,072

 
 $(8,854) $(132) $3,863
 $4,673
 $6,065
 $12,275
The fair value and line item caption of derivative instruments recorded within our consolidated balance sheets for the cumulative basis adjustment for fair value hedges were as follows (in thousands):
Line Item in the Statement of Financial Position Where the Hedged Item is Included Carrying Amount of the Hedged Liabilities Cumulative amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities
 As of December 31, 2018 As of December 31, 2017 As of December 31, 2018 As of December 31, 2017
Current portion of long-term debt and Long-term debt $725,486
 $749,155
 $(24,766) $(34,813)
  $725,486
 $749,155
 $(24,766) $(34,813)
The effect of derivative instruments qualifying and designated as cash flow hedging instruments on the consolidated financial statements was as follows (in thousands):
  Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) on Derivative Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Derivatives under ASC 815-20 Cash Flow Hedging Relationships Year Ended December 31, 2018 Year Ended December 31, 2017 Year Ended December 31, 2016  Year Ended December 31, 2018 Year Ended December 31, 2017 Year Ended December 31, 2016
Interest rate swaps $18,578
 $(13,312) $(31,049) Interest expense $(10,931) $(31,603) $(41,480)
Foreign currency forward contracts (222,645) 276,573
 (51,092) Depreciation and amortization expenses (12,843) (10,840) (8,114)
Foreign currency forward contracts 
 
 
 Other income (expense) 12,855
 (9,472) (14,342)
Foreign currency forward contracts 
 
 
 Other indirect operating expenses 
 
 (207)
Foreign currency collar options 
 
 
 Depreciation and amortization expenses 
 (2,408) (2,408)
Fuel swaps 
 
 
 Other income (expense) (1,580) 7,382
 13,685
Fuel swaps (93,927) 118,604
 156,139
 Fuel 1,366
 (141,689) (284,384)
  $(297,994) $381,865
 $73,998
   $(11,133) $(188,630) $(337,250)

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ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The table below represents amounts excluded from the assessment of effectiveness for our net investment hedging instruments for which the difference between changes in fair value and periodic amortization is recorded in accumulated other comprehensive income (loss) (in thousands):
Gain (Loss) Recognized in Income (Net Investment Excluded Components) Year Ended December 31, 2018
Net inception fair value at January 1, 2018 $(11,335)
Amount of gain recognized in income on derivatives for the year ended December 31, 2018 2,976
Amount of loss remaining to be amortized in accumulated other comprehensive loss as of December 31, 2018 (1,339)
Fair value at December 31, 2018 (9,698)
The effect of non-derivative instruments qualifying and designated as net investment hedging instruments on the consolidated financial statements was as follows (in thousands):
  Amount of Gain (Loss)
Recognized in Other Comprehensive Income (Loss)
 
Non-derivative instruments under ASC 815-20
Net Investment Hedging Relationships
 Year Ended December 31, 2018 Year Ended December 31, 2017 Year Ended December 31, 2016 
Foreign Currency Debt $13,210
 $(38,971) $20,295
 
  $13,210
 $(38,971) $20,295
 
The effect of derivatives not designated as hedging instruments on the consolidated financial statements was as follows (in thousands):
    Amount of Gain (Loss) Recognized
in Income on Derivative
Derivatives Not Designated as Hedging
Instruments under ASC 815-20
 Location of Gain (Loss)
Recognized in Income
on Derivative
 Year Ended December 31, 2018 Year Ended December 31, 2017 Year Ended December 31, 2016
Foreign currency forward contracts Other income (expense) $(62,423) $61,952
 $(51,029)
Fuel swaps Fuel 1,161
 
 
Fuel swaps Other income (expense) 114
 (1,133) (1,000)

 
 $(61,148) $60,819
 $(52,029)
Credit Related Contingent Features
Our current interest rate derivative instruments may require us to post collateral if our Standard & Poor's and Moody's credit ratings are below specified levels. Specifically, if on the fifth anniversary of executing a derivative instrument or on any succeeding fifth-year anniversary our credit ratings for our senior unsecured debt were to be rated below BBB- by Standard & Poor's and Baa3 by Moody's, then the counterparty may periodically demand that we post collateral in an amount equal to the difference between (i) the net market value of all derivative transactions with such counterparty that have reached their fifth year anniversary, to the extent negative, and (ii) the applicable minimum call amount.
The amount of collateral required to be posted following such event will change as, and to the extent, our net liability position increases or decreases by more than the applicable minimum call amount. If our credit rating for our senior unsecured debt is subsequently equal to, or above BBB- by Standard & Poor's or Baa3 by Moody's, then any collateral posted at such time will be released to us and we will no longer be required to post collateral unless we meet the collateral trigger requirement at the next fifth-year anniversary. At December 31, 2018, five of our interest rate derivative instruments had reached their fifth anniversary; however, our senior unsecured debt credit rating was Baa2 by Moody's and BBB- by Standard & Poor's and, accordingly, we were not required to post any collateral as of such date.

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ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 18. Commitments and Contingencies
Ship Purchase Obligations
Our future capital commitments consist primarily of new ship orders. As of December 31, 2018, we had two Quantum-class ships, one Oasis-class ship and two ships of a new generation of ships, known as our Icon-class, on order for our Royal Caribbean International brand with an aggregate capacity of approximately 25,300 berths. As of December 31, 2018, we have three Edge-class ships and a ship designed for the Galapagos Islands on order for our Celebrity brand with an aggregate capacity of approximately 9,400 berths. Additionally as December 31, 2018, we have three ships on order with an aggregate capacity of approximately 1,200 berths for our Silversea Cruises brand. The following provides further information on recent developments with respect to our ship orders.
During 2017, we entered into credit agreements for the unsecured financing of the two Icon-class ships for up to 80% of each ship’s contract price. For each ship, the official Finnish export credit agency, Finnvera, plc, has agreed to guarantee 100% of a substantial majority of the financing to the lenders, with a smaller portion of the financing to be 95% guaranteed by Euler Hermes, the official German export credit agency. The maximum loan amount under each facility is not to exceed €1.4 billion, or approximately $1.6 billion, based on the exchange rate at December 31, 2018. Interest on approximately 75% of each loan will accrue at a fixed rate of 3.56% and 3.76% for the first and the second Icon-class ships, respectively, and the balance will accrue interest at a floating rate ranging from LIBOR plus 1.10% to 1.15% and LIBOR plus 1.15% to 1.20% for the first and the second Icon-class ships, respectively. Each loan will amortize semi-annually and will mature 12 years following delivery of each ship. The first and second Icon-class ships will each have a capacity of approximately 5,650 berths and are expected to enter service in the second quarters of 2022 and 2024, respectively.
During 2017, we entered into credit agreements for the unsecured financing of the third and fourth Edge-class ships and the fifth Oasis-class ship for up to 80% of each ship’s contract price through facilities to be guaranteed 100% by Bpifrance Assurance Export, the official export credit agency of France. Under these financing arrangements, we have the right, but not the obligation, to satisfy the obligations to be incurred upon delivery and acceptance of each ship under the shipbuilding contract by assuming, at delivery and acceptance, the debt indirectly incurred by the shipbuilder during the construction of each ship. The maximum loan amount under each facility is not to exceed €684.2 million in the case of the third Edge-class ship and the United States dollar equivalent of €714.6 million and €1.1 billion in the case of the fourth Edge-class ship and fifth Oasis-class ship, or approximately $817.1 million and $1.3 billion, respectively, based on the exchange rate at December 31, 2018. The loans will amortize semi-annually and will mature 12 years following delivery of each ship. Interest on the loans will accrue at a fixed rate of 1.28% for the third Edge-class ship and at a fixed rate of 3.18% for both, the fourth Edge-class ship and the fifth Oasis-class ship. The third and fourth Edge-class ships, each of which will have a capacity of approximately 3,200, are expected to enter service in the fourth quarters of 2021 and 2022, respectively. The fifth Oasis-class ship will have a capacity of approximately 5,500 berths and is expected to enter service in the second quarter of 2021.
During 2016, we entered into credit agreements for the unsecured financing of our first two Edge-class ships for up to 80% of each ship’s contract price through facilities to be guaranteed 100% by COFACE, the official export credit agency of France. Celebrity Edge, the first Edge-class ship for our Celebrity Cruises brand, entered service in December 2018. For further information on the financing agreement for this ship, refer to Note 9. Debt. The second Edge-class ship will have a capacity of approximately 2,900 berths and is expected to enter service in the first quarter of 2020. Under the financing arrangement for the second Edge-class ship, we have the right, but not the obligation, to satisfy the obligations to be incurred upon delivery and acceptance of the vessel under the shipbuilding contract by assuming, at delivery and acceptance, the debt indirectly incurred by the shipbuilder during the construction of each ship. The maximum loan amount under the facility for the second Edge-class ship delivery is not to exceed the United States dollar equivalent of €627.1 million, or approximately $717.0 million, respectively, based on the exchange rate at December 31, 2018. The loan will amortize semi-annually and will mature 12 years following delivery of the ship. Interest on the loan will accrue at a fixed rate of 3.23%.
During 2015, we entered into credit agreements for the unsecured financing of the fourth and fifth Quantum-class ships for up to 80% of each of the ship’s contract price. Hermes has agreed to guarantee to the lenders payment of 95%

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ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


of the financing. The ships will each have a capacity of approximately 4,250 berths and are expected to enter service in the second quarter of 2019 and the fourth quarter of 2020, respectively. These credit agreements make available to us unsecured term loans in an amount up to the United States dollar equivalent of €762.9 million and €777.5 million, or approximately $872.3 million and $889.0 million, respectively, based on the exchange rate at December 31, 2018. The loan will amortize semi-annually and will mature 12 years following delivery of each ship. At our election, prior to delivery of each ship, interest on the loans will accrue either (1) at a fixed rate of 3.45% (inclusive of the applicable margin) or (2) at a floating rate equal to LIBOR plus 0.95%.
In September 2018, Silversea Cruises signed a memorandum of understanding with Meyer Werft to build two ships of a new generation of ships. The ships are expected to have an aggregate capacity of approximately 1,200 berths and are expected to enter service in 2022 and 2023, respectively. The memorandum of understanding with Meyer Werft is contingent upon the completion of final documentation and financing, which are expected to be completed in the first quarter of 2019.
In February 2019, we entered into an agreement with Chantiers de l’Atlantique to build the sixth Oasis-class ship for Royal Caribbean International. The ship is expected to have an aggregate capacity of approximately 5,700 berths and is expected to enter service in the fourth quarter of 2023. The order with Chantiers de l’Atlantique is contingent upon completion of conditions precedent and financing, which is expected to be completed in 2019.
As of December 31, 2018, the aggregate cost of our ships on order, not including any ships on order by our Partner Brands and the Silversea Cruises ships that remain contingent upon final documentation and financing, was approximately $11.4 billion, of which we had deposited $651.7 million as of such date. Approximately 53.5% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at December 31, 2018. Refer to Note 17. Fair Value Measurements and Derivative Instruments for further information.
Litigation
On September 24, 2018, a proposed class-action lawsuit was filed by Roger and Maureen Carretta against Royal Caribbean Cruises Ltd. d/b/a Royal Caribbean International in the United States District Court for the Southern District of Florida relating to the marketing and sales of our Travel Protection Program. The plaintiffs purported to represent an alleged class of passengers who purchased the Travel Protection Program. The complaint alleged that the Company concealed that it received "kickbacks," in the form of undisclosed commissions on the sale of the travel insurance portion of the product from an underwriter, and allegedly improperly bundled Travel Insurance Policies with non-insurance products. The complaint sought damages in an indeterminate amount. On November 26, 2018, the Court dismissed the entire action with prejudice on the grounds that, among others, the claim was filed beyond the time limitations contained in the passenger ticket contract. Plaintiffs did not appeal the decision and the time period for filing an appeal has lapsed.
We are routinely involved in other claims typical within the cruise vacation industry. The majority of these claims are covered by insurance. We believe the outcome of such claims, net of expected insurance recoveries, will not have a material adverse impact on our financial condition or results of operations and cash flows.
Operating Leases
We are obligated under other noncancelable operating leases primarily for offices, warehouses and motor vehicles. As of December 31, 2018, future minimum lease payments under noncancelable operating leases were as follows (in thousands):

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Year 
2019$67,682
202064,237
202156,142
202252,759
202352,522
Thereafter383,974
 $677,316
Total expense for all operating leases amounted to $32.2 million, $29.3 million and $29.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.
In July 2016, we executed an agreement with Miami Dade County (“MDC”), which was simultaneously assigned to Sumitomo Banking Corporation (“SMBC”), to lease land from MDC and construct a new cruise terminal of approximately 170,000 square feet at PortMiami in Miami, Florida, which was completed during the fourth quarter of 2018 and serves as a homeport. During the construction period, SMBC funded the costs of the terminal’s construction and land lease. Once the terminal was substantially completed, we commenced operating and leasing the terminal from SMBC for a five-year term. We determined that the lease arrangement between SMBC and us should be accounted for as an operating lease and is included in the table above.
Some of the contracts that we enter into include indemnification provisions that obligate us to make payments to the counterparty if certain events occur. These contingencies generally relate to changes in taxes, increased lender capital costs and other similar costs. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business. There are no stated or notional amounts included in the indemnification clauses and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses. We have not been required to make any payments under such indemnification clauses in the past and, under current circumstances, we do not believe an indemnification in any material amount is probable.
If any person acquires ownership of more than 50% of our common stock or, subject to certain exceptions, during any 24-month period, a majority of our board of directors is no longer comprised of individuals who were members of our board of directors on the first day of such period, we may be obligated to prepay indebtedness outstanding under our credit facilities, which we may be unable to replace on similar terms. Our public debt securities also contain change of control provisions that would be triggered by a third-party acquisition of greater than 50% of our common stock coupled with a ratings downgrade. If this were to occur, it would have an adverse impact on our liquidity and operations.
At December 31, 2018, we have future commitments to pay for our usage of certain port facilities, marine consumables, services and maintenance contracts as follows (in thousands):
Year 
2019$224,253
2020184,308
2021136,917
202279,401
202345,266
Thereafter149,696
 $819,841

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ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 19. Quarterly Selected Financial Data (Unaudited)
 (In thousands, except per share data)
 First Quarter Second Quarter Third Quarter Fourth Quarter
 2018 2017 2018 2017 2018 2017 2018 2017
Total revenues(1)
$2,027,756
 $2,008,560
 $2,337,605
 $2,195,274
 $2,796,187
 $2,569,544
 $2,332,301
 $2,004,467
Operating income$274,146
 $279,522
 $456,895
 $419,697
 $799,733
 $737,488
 $364,027
 $307,349
Net Income attributable to Royal Caribbean Cruises Ltd.$218,653
 $214,726
 $466,295
 $369,526
 $810,391
 $752,842
 $315,703
 $288,039
Earnings per share               
Basic$1.03
 $1.00
 $2.20
 $1.72
 $3.88
 $3.51
 $1.51
 $1.35
Diluted$1.02
 $0.99
 $2.19
 $1.71
 $3.86
 $3.49
 $1.50
 $1.34
Dividends declared per share$0.60
 $0.480
 $0.60
 $0.480
 $0.70
 $0.60
 $0.70
 $0.60
___________________________________________________________________
(1)Our revenues are seasonal based on the demand for cruises. Demand is strongest for cruises during the Northern Hemisphere's summer months and holidays.

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