Royal Caribbean Cruise Lines 2005 Annual Report Download - page 38

Year Ended December 31,
2005 2004 2003
Earnings per share
before cumulative
effect of a change
in accounting
principle:
Basic — as reported $ 3.22 $ 2.39 $ 1.45
Basic — pro forma $ 3.17 $ 2.34 $ 1.39
Diluted — as reported $ 3.03 $ 2.26 $ 1.42
Diluted — pro forma $ 2.99 $ 2.22 $ 1.36
Earnings per share:
Basic — as reported $ 3.47 $ 2.39 $ 1.45
Basic — pro forma $ 3.42 $ 2.34 $ 1.39
Diluted — as reported $ 3.26 $ 2.26 $ 1.42
Diluted — pro forma $ 3.22 $ 2.22 $ 1.36
Diluted earnings per share did not include options to purchase 1.3
million shares for each of the years ended December 31, 2005 and
2004 because the effect of including them would have been
antidilutive. Also, diluted earnings per share in 2005 did not include
0.2 million shares we received in 2006 in connection with the settle-
ment of an Accelerated Share Repurchase (“ASR”) transaction
because the effect of including them would have been antidilutive
(see Note 6.
Shareholders’ Equity ). For the year ended December 31,
2003, diluted earnings per share did not include options to
purchase 5.3 million shares as well as 17.7 million and 13.8 million
shares of our common stock issuable upon conversion of our Liquid
Yield Option™ Notes and zero coupon convertible notes, respective-
ly, because the effect of including them would have been
antidilutive.
The weighted-average fair value of options granted during 2005,
2004 and 2003 was $20.37, $13.10 and $8.18 per share, respec-
tively. Fair value information for our stock options was estimated
using the Black-Scholes option-pricing model based on the follow-
ing weighted-average assumptions:
2005 2004 2003
Dividend yield 1.0% 1.1% 2.7%
Expected stock price
volatility 48.8% 41.6% 42.4%
Risk-free interest rate 3.5% 3% 3%
Expected option life 5 years 5 years 5 years
We operate two cruise brands, Royal Caribbean International and
Celebrity Cruises. The brands have been aggregated as a single
operating segment based on the similarity of their economic charac-
teristics as well as product and services provided.
Information by geographic area is shown in the table below.
Passenger ticket revenues are attributed to geographic areas based
on where the reservation was made.
2005 2004 2003
Passenger ticket revenues:
United States 79% 82% 81%
All other countries 21% 18% 19%
In December 2004, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based
Payment,” (“SFAS 123R”). SFAS 123R supersedes Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock
Issued to Employees,” and amends SFAS No. 95, “Statement of Cash
Flows.” SFAS 123R requires the measurement and recognition of
compensation expense at fair value of employee stock awards,
except for employee share purchase plans if they meet certain con-
ditions. Compensation expense for awards and related tax effects
shall be recognized as they vest. Through December 31, 2005, we
used the intrinsic value method to measure compensation expense
for stock based awards to our employees under APB Opinion No. 25
and disclosed pro forma information. In April 2005, the Securities
and Exchange Commission (“SEC”) issued a rule that amends the
implementation dates for SFAS 123R. The new SEC rule calls for the
implementation of SFAS 123R at the beginning of the first quarter of
2006, instead of the third quarter of 2005. For previously issued
awards, we will adopt SFAS 123R on a prospective basis and recog-
nize compensation expense on the unvested portion of the awards
over the remaining vesting period. SFAS 123R is expected to reduce
our results of operations by approximately $12 million for the year
ended December 31, 2006.
Reclassifications have been made to prior year amounts to conform
to the current year presentation.
36 Royal Caribbean Cruises Ltd.
Notes to the Consolidated
Financial Statements (continued)