Royal Caribbean Cruise Lines 2005 Annual Report Download - page 26

uled drydocks. The increase in Net Yields was primarily due to high-
er cruise ticket prices, occupancy levels and amounts spent per pas-
senger onboard. These increases were primarily attributable to
improved consumer sentiment towards leisure travel. In 2003, we
experienced lower cruise ticket prices due to consumer apprehen-
sion towards travel prior to and during the war in Iraq and econom-
ic uncertainty. Occupancy in 2004 was 105.7% compared to 103.2%
in 2003. Gross Yields increased 9.1% in 2004 compared to 2003 pri-
marily due to the same reasons discussed above for Net Yields.
Onboard and other revenues included concession revenues of
$196.3 million and $163.0 million in 2004 and 2003, respectively,
which increased in 2004 primarily due to the same reasons dis-
cussed above for Net Revenues.
Net Cruise Costs increased 16.5% in 2004 compared to 2003. The
increase was due to the 10.3% increase in capacity mentioned
above and a 5.6% increase in Net Cruise Costs per APCD. The
increase in Net Cruise Costs per APCD was primarily attributed
to increases in fuel prices, marketing, selling and administrative
expenses, crew salaries and medical expenses, port expenses and
costs associated with hurricanes. The weighted-average fuel price
(net of the financial impact of fuel swap agreements) for the year
ended December 31, 2004 increased 14% per metric ton from the
year ended December 31, 2003. As a percentage of total revenues,
fuel costs were 5.5% and 5.2% for 2004 and 2003, respectively. The
increase in marketing, selling and administrative expenses was pri-
marily attributable to increases in general and administrative costs
associated with the expansion of our reservations and sales force
and additional information technology projects. In addition, adver-
tising 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 was primarily attributed to itinerary changes. In
2004, we incurred approximately $11.3 million in costs related to
the impact of hurricanes. In contrast, other operating expenses in
2003 were reduced by approximately $5.8 million in connection
with a litigation settlement. Gross Cruise Costs per APCD increased
6.7% in 2004 compared to 2003 primarily due to the same reasons
discussed above for Net Cruise Costs per APCD.
Depreciation and amortization expenses increased 8.7% in 2004
compared to 2003. The increase was primarily due to incremental
depreciation associated with the full year effect of the addition of
Mariner of the Seas and Serenade of the Seas in 2003 and Jewel of
the Seas
in 2004.
Gross interest expense increased to $317.2 million in 2004 from
$284.3 million in 2003. The increase was primarily attributable to a
higher average debt level and higher interest rates. Interest capitalized
during 2004 decreased to $7.2 million from $15.9 million in 2003 due
to a lower average level of investment in ships under construction.
Liquidity and Capital Resources
Cash flow generated from operations provides us with a significant
source of liquidity. Net cash provided by operating activities was
$1.1 billion in each of 2005 and 2004 and $0.9 billion in 2003. Net
cash provided by operating activities was positively impacted in
2005 by an increase in income before the cumulative effect of a
change in accounting principle compared to 2004. This increase was
primarily offset by a lower rate of increase in customer deposits in
2005 relative to 2004. The increase in net cash provided by operat-
ing activities in 2004 compared to 2003 was primarily due to an
increase in net income.
Net cash used in investing activities decreased to $89.0 million in
2005, from $632.5 million in 2004 and $1.1 billion in 2003. The
decrease in 2005 was primarily due to the receipt of $348.1 million
in connection with the redemption of our investment in First Choice
convertible preferred shares. In addition, our capital expenditures
were approximately $429.9 million for the year ended December 31,
2005 compared to approximately $630.1 million in 2004 and $1.0
billion in 2003. Capital expenditures were primarily related to ships
under construction and the lengthening of
Enchantment of the Seas
in 2005, the deliveries of Jewel of the Seas in 2004 and Serenade of
the Seas
and Mariner of the Seas in 2003, as well as progress pay-
ments for ships under construction in all years.
Net cash used in financing activities increased to $1.5 billion in 2005
compared to $0.1 billion in 2004 and net cash provided by financ-
ing activities was $0.3 billion in 2003. The increase in 2005 was pri-
marily due to payments made on various debt instruments and an
Accelerated Share Repurchase (“ASR”) transaction. We made pay-
ments on various term loans, senior notes, revolving credit facilities
and capital leases totaling approximately $931.9 million, $361.4 mil-
lion and $471.1 million in 2005, 2004 and 2003, respectively. In
addition, in 2005, we paid $335.8 million in connection with the
exercise of purchase options on our capital lease obligations for
Legend of the Seas and Splendour of the Seas and we prepaid a
total of $297.0 million on secured and unsecured term loans. We
also purchased 5.5 million shares of our common stock in 2005 from
an investment bank at an initial price of $45.40 per share as part of
an ASR transaction. Total consideration paid to repurchase such
shares, including commissions and other fees, was approximately
$249.1 million (see Note 6.
Shareholders’ Equity to our consolidat-
ed financial statements). In 2005, we drew $200.0 million on unse-
cured variable rate term loans due 2010 and $190.0 million on our
revolving credit facility. In 2004, we drew $225.0 million on an unse-
cured variable rate term loan due 2006 through 2012. In 2003, we
received net cash proceeds of $590.5 million from the issuance of
senior unsecured notes due through 2013 (see Note 5.
Long-Term
Debt
to our consolidated financial statements) and we drew $240.0
24 Royal Caribbean Cruises Ltd.
Management’s Discussion and
Analysis of Financial Condition
and Results of Operations (continued)