Royal Caribbean Cruise Lines 2005 Annual Report Download

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Annual Report Two Thousand Five

Table of contents

  • Page 1
    Annual Report Two Thousand Five

  • Page 2
    ...have six ships on order for an additional capacity of approximately 22,050 berths, with scheduled deliveries from 2006 through 2009. Our common stock is listed on the New York Stock Exchange and the Oslo Stock Exchange under the symbol RCL. Our headquarters are located in Miami, Florida, U.S.A., and...

  • Page 3
    ..., except per share data) 05 04 03 Total Revenues Operating Income Income Before Cumulative Effect of a Change in Accounting Principle Net Income Earnings Per Share (diluted) Income Before Cumulative Effect of a Change in Accounting Principle Net Income Shareholders' Equity 12005 includes...

  • Page 4
    2 Royal Caribbean Cruises Ltd. Dear Fellow Shareholders: We have achieved many milestones over the course of our 35-year history, but I can think of few years as remarkable as 2005. Profitability soared to $663 million ($3.03 per share), an increase of 39.8 percent over 2004, and revenues reached ...

  • Page 5
    ...surf and body board at sea; full-size boxing ring, cantilevered whirlpools, H2O Zone interactive water park and new family friendly stateroom configurations that can accommodate as many as 14 guests. We also moved forward with plans to build Project Genesis, a 5,400-guest, 220,000-GRT ship. At 1,180...

  • Page 6
    ...optimal cruise experience and increasing efficiencies across our fleets also continues with the refurbishment of existing ships. Royal Caribbean's lengthened and revitalized Enchantment of the Seas added 151 additional staterooms, which now generate excellent revenues without commensurate costs. Her...

  • Page 7
    ...Ship Overall in the Travel Weekly survey. It is undeniable that earning prestigious awards helps build excitement about our brands, but we also remain engaged in developing innovative advertising campaigns that tout the quality vacation experiences Royal Caribbean International and Celebrity Cruises...

  • Page 8
    ...Port of Stockholm awarded Royal Caribbean International's Jewel of the Seas and Celebrity Cruises' Constellation its Environmental Life Buoy Certificate for their use of low-sulfur fuel and technology to reduce atmospheric emissions. In 2004, Jewel of the Seas was the first international cruise ship...

  • Page 9
    Royal Caribbean Cruises Ltd. 7 procedures we have in place to protect the millions of guests and crew members who sail with us each year. While certain high-profile situations have received extensive media coverage, much of which has been based on inaccurate or misleading information, incidences ...

  • Page 10

  • Page 11
    ... the first-ever shipboard surf park. Royal Caribbean International, the cruise line that introduced the first onboard rockclimbing walls, ice-skating rinks and in-line skating tracks, now offers guests even more opportunities to "Get Out There." Enchantment of the Seas, which re-entered service in...

  • Page 12
    ... at paradise. New verandah staterooms onboard Celebrity Cruises' Century will feature more spacious accommodations with new décor, flat-screen televisions, wireless Internet access and more luxurious bedding, including premium mattresses, Euro pillows, bed throws and custom-designed pillow shams...

  • Page 13

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  • Page 15
    ...ensuring the safety and security of our guests and crew. The Port of Stockholm awarded Royal Caribbean International's Jewel of the Seas and Celebrity Cruises' Constellation its Environmental Life Buoy Certificate in 2005 for their maritime environmental initiatives, especially the use of low-sulfur...

  • Page 16
    14 Royal Caribbean Cruises Ltd. New. More. We're making cruise vacations as much about the onboard experience as the places we visit. Freedom of the Seas' adult guests will find the most remarkable relaxation areas at sea in the jungle-themed Solarium. This adults-only oasis will feature two large ...

  • Page 17

  • Page 18
    ...Royal Caribbean Cruises Ltd. 2005 Board of Directors (from left) John D. Chandris Chairman, Chandris (UK) Limited Gert W. Munthe Managing Partner, Ferd Private Equity William K. Reilly Founding Partner, Aqua International Partners Richard D. Fain Chairman & Chief Executive Officer, Royal Caribbean...

  • Page 19
    Royal Caribbean Cruises Ltd. 17 Financial Table of Contents Management's Discussion and Analysis of Financial Condition and Results of Operations Selected Financial Data Management's Report on Internal Control Over Financial Reporting Report of Independent Registered Certified Public Accounting ...

  • Page 20
    18 Royal Caribbean Cruises Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations As used in this document, the terms "Royal Caribbean," "Company," "we," "our" and "us" refer to Royal Caribbean Cruises Ltd., the term "Celebrity" refers to Celebrity Cruise Lines ...

  • Page 21
    ... making assumptions of revenues, operating costs, marketing, selling and administrative expenses, interest rates, ship additions and retirements, cruise vacation industry competition and general economic and business conditions, among other factors. Goodwill is reviewed annually or whenever events...

  • Page 22
    ..., port costs that vary with passenger head counts and related credit card fees. Onboard and other expenses consist of the direct costs associated with onboard and other revenues. These costs include the cost of products sold onboard our ships, vacation protection insurance premiums, costs associated...

  • Page 23
    Royal Caribbean Cruises Ltd. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) ticket prices, occupancy levels and onboard revenues as consumer sentiment towards leisure travel improved in 2004. During 2004, Net Yields increased 9.2% and Net ...

  • Page 24
    22 Royal Caribbean Cruises Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Gross Yields and Net Yields were calculated as follows (in thousands, except APCD and Yields): Year Ended December 31, 2005 2004 2003 Outlook Full Year 2006 Passenger...

  • Page 25
    Royal Caribbean Cruises Ltd. 23 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) • • • Higher fuel costs account for approximately 7.0 to 8.0 percentage points of the increase. As announced on February 2, 2006, "at-the-pump" fuel price was ...

  • Page 26
    ... and sales force and additional information technology projects. In addition, advertising costs increased primarily due to an increase in television media spending and the launch of the Cirque du Soleil and Celebrity Xpeditions marketing campaigns for Celebrity Cruises. The increase in port expenses...

  • Page 27
    ...-class ship for Celebrity Cruises, Celebrity Equinox, for an additional capacity of approximately 2,850 berths, with scheduled delivery in the third quarter of 2009. Also, in February 2006, we entered into an agreement with a shipyard to build a new class of ship for Royal Caribbean International...

  • Page 28
    ... with a weighted-average fixed rate of 7.8% to LIBOR-based floating rate debt. The estimated fair value of our long-term fixed rate debt at December 31, 2005, excluding our Liquid Yield Optionâ„¢ Notes and zero coupon convertible notes, was $2.4 billion using quoted market prices, where available...

  • Page 29
    Royal Caribbean Cruises Ltd. 27 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) million. At December 31, 2005, we have an interest rate swap agreement that effectively changes $25 million of LIBOR-based floating rate debt to fixed rate debt of 4....

  • Page 30
    ... third quarter of 2005, we changed our method of accounting for drydocking costs from the accrual in advance to the deferral method (see Note 2. Summary of Significant Accounting Policies to our consolidated financial statements). Management's Report on Internal Control Over Financial Reporting Our...

  • Page 31
    ... management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform...

  • Page 32
    ... per share data) 2003 Passenger ticket revenues Onboard and other revenues Total revenues Cruise operating expenses Commissions, transportation and other Onboard and other Payroll and related Food Fuel Other operating Total cruise operating expenses Marketing, selling and administrative expenses...

  • Page 33
    Royal Caribbean Cruises Ltd. 31 Consolidated Balance Sheets As of December 31, 2005 (in thousands, except per share data) 2004 Assets Current assets Cash and cash equivalents Trade and other receivables, net Inventories Prepaid expenses and other assets Total current assets Property and equipment...

  • Page 34
    ... Increase in customer deposits Other, net Net cash provided by operating activities Investing Activities Purchases of property and equipment Purchases of short-term investments Proceeds from sale of short-term investments Proceeds from redemption of investment Other, net Net cash used in investing...

  • Page 35
    Royal Caribbean Cruises Ltd. 33 Consolidated Statements of Shareholders' Equity Accumulated Other Retained Comprehensive Earnings Income (Loss) Common Stock Paid-in Capital Total Treasury Shareholders' Stock Equity (in thousands) Balances at January 1, 2003 Issuance under employee related ...

  • Page 36
    ... General Inventories Inventories consist of provisions, supplies and fuel carried at the lower of cost (weighted-average) or market. Description of Business We are a global cruise company. We operate two cruise brands, Royal Caribbean International and Celebrity Cruises, with 19 and 9 cruise ships...

  • Page 37
    ... associated with the dilutive securities. (See Note 7. Earnings Per Share.) $ 754,352 $ 519,719 $ 268,830 206,217 198,946 194,074 Stock-Based Employee Compensation We use the intrinsic value method to account for stock-based employee compensation. The following table illustrates the effect on...

  • Page 38
    ...Royal Caribbean International and Celebrity Cruises. The brands have been aggregated as a single operating segment based on the similarity of their economic characteristics as well as product and services provided. Information by geographic area is shown in the table below. Passenger ticket revenues...

  • Page 39
    ... our purchase options on capital lease obligations for Legend of the Seas and Splendour of the Seas (see Note 5. Long-Term Debt). Ships under construction include progress payments for the construction of new ships as well as planning, design, interest, commitment fees and other associated costs. We...

  • Page 40
    .... Holders may require us to purchase any outstanding Liquid Yield Optionâ„¢ Notes at their accreted value on February 2, 2011 and any outstanding zero coupon convertible notes at their accreted value on May 18, 2009 and May 18, 2014. We may choose to pay the purchase price in cash or common stock or...

  • Page 41
    Royal Caribbean Cruises Ltd 39 Notes to the Consolidated Financial Statements (continued ) were issued under the ESPP at a weighted-average price of $40.83, $39.34 and $19.56 during 2005, 2004 and 2003, respectively. Under an executive compensation program approved in 1994, we will award to a ...

  • Page 42
    ... 211,175 We and the majority of our subsidiaries are currently exempt from United States corporate tax on income from the international operation of ships pursuant to Section 883 of the Internal Revenue Code. Income tax expense related to our remaining subsidiaries was not significant for the years...

  • Page 43
    ... floating rate term debt for a fixed interest rate of 4.395% in a notional amount of $25.0 million, maturing in 2008. Market risk associated with our operating lease for Brilliance of the Seas is the potential increase in rent expense from an increase in sterling LIBOR rates. As of January 2006, we...

  • Page 44
    ... 2006 2007 2008 2009 2010 Thereafter 1 $ $ 47,262 45,776 43,395 41,738 41,437 293,891 513,499 Note 11. Commitments and Contingencies Capital Expenditures As of December 31, 2005, we had three Freedom-class ships designated for Royal Caribbean International and one Solstice-class ship, Celebrity...

  • Page 45
    ...-class ship for Celebrity Cruises, Celebrity Equinox, for an additional capacity of approximately 2,850 berths, with scheduled delivery in the third quarter of 2009. Also, in February, 2006 we entered into an agreement with a shipyard to build a new class of ship for Royal Caribbean International...

  • Page 46
    44 Royal Caribbean Cruises Ltd. Notes to the Consolidated Financial Statements (continued) Note 14. Quarterly Selected Financial Data (Unaudited) (in thousands, except per share data) FIRST QUARTER 2005 2004 SECOND QUARTER 2005 2004 THIRD QUARTER 2005 2004 FOURTH QUARTER 2005 2004 Total revenues ...

  • Page 47
    ... of our annual report on Form 10-K, quarterly financial reports, press releases and corporate governance documents through our Investor Relations website at www.rclinvestor.com or by contacting the Investor Relations Department at our corporate headquarters. Our chief executive officer and chief...

  • Page 48
    Royal Caribbean Cruises Ltd., 1050 Caribbean Way, Miami, F L 33132