Royal Caribbean Cruise Lines 2006 Annual Report Download

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ROYAL CARIBBEAN CRUISES LTD.
ANNUAL REPORT
2006

Table of contents

  • Page 1
    ROYAL CARIBBEAN CRUISES LTD. A N N U A L 2 R E P O R T 0 0 6

  • Page 2
    ... health and fitness, and energizing onboard and shoreside activities designed for guests of all ages. Royal Caribbean's current 20-ship fleet will be joined by Liberty of the Seas in 2007, Independence of the Seas in 2008, and two Project Genesis ships in 2009 and 2010. • Celebrity Cruises offers...

  • Page 3
    Financial Highlights (dollars in thousands, except per share data) 04 05 06 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 ...

  • Page 4
    ... and most innovative vessel, Freedom of the Seas, in April 2006, the first of three vessels in her class. • We placed four additional ship orders, two for Royal Caribbean International and two for Celebrity Cruises, bringing our total number of ships on order to seven for an additional capacity...

  • Page 5
    ... continue to view Celebrity as the top premium cruise brand. Travel agents voted Royal Caribbean Best Overall Cruise Line in the survey taken by trade publication Travel Weekly. This is a true testament to the outstanding service we provide our travel partners and our guests. Innovative Hardware...

  • Page 6
    New Build Program Ship Royal Caribbean International Freedom class: Expected Delivery Date Approximate Berths Liberty of the Seas Independence of the Seas Project Genesis class: 2nd Quarter 2007 2nd Quarter 2008 3,600 3,600 Unnamed I Unnamed II Celebrity Cruises Solstice class: 3rd Quarter 2009...

  • Page 7
    ... Fund, helps preserve and protect the islands' unique species and habitats. Clean oceans are good for the environment, good for our guests and good for our business. I'm also proud to report that 10 Royal Caribbean and Celebrity Cruises ships won 2006 Green Planet Awards from Kuoni Switzerland...

  • Page 8
    ... SeaPass program to better track guests as they board or disembark their cruise. These strategies will enhance guests' vacation experiences, safeguard our employees and reduce overall costs. We are indebted to the Environmental, Safety & Security Committee of the Board of Directors for their...

  • Page 9
    FREEDOM OF THE SEAS SAILS INTO NEW YORK HARBOR R OYA L C A R I B B E A N C R U I S E S LT D . 7

  • Page 10
    ... right) Richard D. Fain, Chairman & Chief Executive Officer, Royal Caribbean Cruises Ltd. William K. Reilly, Founding Partner, Aqua International Partners L .P. Laura Laviada, Founder, Area Editores Arne Alexander Wilhelmsen, President & Chief Executive Officer, Anders Wilhelmsen & Co. AS Eyal Ofer...

  • Page 11
    ... Selected Financial Data Management's Report on Internal Control Over Financial Reporting Report of Independent Registered Certified Public Accounting Firm Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Shareholders...

  • Page 12
    ...impact of changes in other laws and regulations affecting our business, • the impact of pending or threatened litigation, • the delivery of scheduled new ships, • emergency ship repairs, • negative incidents involving cruise ships including those involving the health and safety of passengers...

  • Page 13
    ... is based on quoted market prices in active markets, if available. Such markets are often not available for used cruise ships. Accordingly, we also base fair value on independent appraisals, sales price negotiations and projected future cash flows discounted at a rate determined by management to be...

  • Page 14
    ... 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 hotel and air packages. Also included are revenues we receive from independent third party concessionaires that pay us a percentage...

  • Page 15
    ... three years: Year Ended December 31, 2006 2005 2004 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...

  • Page 16
    ...10% change in the market price of fuel would result in a $24 million change in fuel costs after taking into account existing hedges. We expected a 12.2% increase in capacity driven by the acquisition of Pullmantur, the April delivery of Liberty of the Seas, and a full year of service from Freedom of...

  • Page 17
    ... a pending lawsuit against Rolls Royce and Alstom Power Conversion, co-producers of the mermaid pod-propulsion system on Millennium-class ships, for the recurring Mermaid pod failures. Under the terms of the partial settlement, we received $38.0 million from Alstom and released them from the suit...

  • Page 18
    ... in 2006, the lengthening of Enchantment of the Seas in 2005, and the delivery of Jewel of the Seas in 2004 as well as progress payments for ships under construction in all years. The increase in net cash used in investing activities was also driven by the purchase of Pullmantur which resulted in...

  • Page 19
    ... rates. Future Capital Commitments Our future capital commitments consist primarily of new ship orders. As of December 31, 2006, we had two Freedom-class ships and one ship of a new class designated for Royal Caribbean International and three Solstice-class ships, designated for Celebrity Cruises...

  • Page 20
    ... or public securities markets. Although we believe our existing unsecured revolving credit facility, cash flows from operations, our ability to obtain new borrowings and/or raise new capital or a combination of these sources will be sufficient to fund operations, debt payment requirements, capital...

  • Page 21
    ... based on quoted market prices for similar or identical financial instruments to those we hold. A hypothetical one percentage point decrease in interest rates at December 31, 2006 would increase the fair value of our long-term fixed rate debt, by approximately $158.7 million, net of an increase in...

  • Page 22
    Selected Financial Data and Management's Report on Internal Control Over Financial Reporting SELECTED FINANCIAL DATA The selected consolidated financial data presented below for the years 2002 through 2006 and as of the end of each such year, are derived from our audited financial statements and ...

  • Page 23
    ...Registered Certified Public Accounting Firm To the Board of Directors and Shareholders of Royal Caribbean Cruises Ltd.: We have completed integrated audits of Royal Caribbean Cruises Ltd.'s 2006, 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as...

  • Page 24
    ... Statements of Operations Year Ended December 31, (in thousands, except per share data) 2006 2005 2004 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...

  • Page 25
    ... liabilities Current portion of long-term debt Accounts payable Accrued expenses and other liabilities Customer deposits Total current liabilities Long-term debt Other long-term liabilities Commitments and contingencies (Note 12) Shareholders' equity Common stock ($.01 par value; 500,000,000 shares...

  • Page 26
    ... Purchases of treasury stock Other, net Net cash provided by (used in) financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year The accompanying notes are an integral part of these financial...

  • Page 27
    ... Stock Total Shareholders' Equity Balances at January 1, 2004 Issuance under employee related plans Common stock dividends Changes related to cash flow derivative hedges Minimum pension liability adjustment Net income Balances at December 31, 2004 Issuance under employee related plans Purchases...

  • Page 28
    Consolidated Statements of Shareholders' Equity (Continued) Comprehensive income is as follows (in thousands): Year Ended December 31, 2006 2005 2004 Net income Changes related to cash flow derivative hedges Minimum pension liability adjustment Currency translation adjustment Total comprehensive ...

  • Page 29
    ... Description of Business We are a global cruise company. We operate three cruise brands, Royal Caribbean International, Celebrity Cruises and Pullmantur Cruises with 20, 9 and 5 cruise ships, respectively, at December 31, 2006. Our ships operate on a selection of worldwide itineraries that call on...

  • Page 30
    ....) Stock-Based Employee Compensation We have three stock-based compensation plans, which provide for awards to our officers, directors and key employees. The plans consist of a 1990 Employee Stock Option Plan, a 1995 Incentive Stock Option Plan and a 2000 Stock Award Plan. The 1990 Stock Option Plan...

  • Page 31
    ... (in thousands, except per share data): Year Ended December 31, 2005 2004 Income before cumulative effect of a change in accounting principle Deduct: Total stock-based employee compensation expense determined under fair value method for all awards Pro forma income before cumulative effect...

  • Page 32
    ...to fiscal 2006, we accounted for forfeitures as they occurred. Stock options activity and information about stock options outstanding are summarized in the following tables: Dividend yield Expected stock price volatility Risk-free interest rate Expected option life 1.4% 33.0% 4.5% 5 years 1.0% 48...

  • Page 33
    ...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 1.3 years. Segment Reporting We operate three cruise brands, Royal Caribbean International, Celebrity Cruises and Pullmantur...

  • Page 34
    ... venture partner in Island Cruises. The notes bear interest at 6.0% and are due from First Choice in March 2009. Variable Interest Entities Financial Accounting Standard Board Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities ("FIN46"), addresses consolidation by business...

  • Page 35
    ... on an 8.0% term loan secured by a certain Celebrity ship. We borrowed $150.0 million on our unsecured revolving credit facility to prepay the term loan. During 2006, we called for redemption all of our outstanding zero coupon convertible notes due May 18, 2021. Most holders of the notes elected to...

  • Page 36
    ..., except per share data): Year Ended December 31, 2006 2005 2004 2007 2008 2009 2010 2011 $ 373,422 283,371 265,113 1,058,493 619,735 Income before cumulative effect of a change in accounting principle Cumulative effect of a change in accounting principle (Note 2) Net income Interest on dilutive...

  • Page 37
    ... employees who have completed the minimum period of continuous service. Annual contributions to the plan are based on fixed percentages of participants' salaries and years of service, not to exceed certain maximums. Pension cost was $13.9 million, $12.8 million and $12.2 million for the years ended...

  • Page 38
    ... 2010. Litigation In April 2005, a purported class action lawsuit was filed in the United States District Court of the Southern District of Florida alleging that Celebrity Cruises improperly requires its cabin stewards to share guest gratuities with assistant cabin stewards. The suit sought payment...

  • Page 39
    ... the outcome of such claims, net of expected insurance recoveries, will not have a material adverse effect upon our financial condition, results of operations or liquidity. Operating Leases On July 5, 2002, we added Brilliance of the Seas to Royal Caribbean International's fleet. In connection with...

  • Page 40
    ... four nominees of A. Wilhelmsen AS., four nominees of Cruise Associates and our Chief Executive Officer. They have the power to determine, among other things, our policies and the policies of our subsidiaries and actions requiring shareholder approval. NOTE 14. SUBSEQUENT EVENTS In January 2007, we...

  • Page 41
    ...FINANCIAL DATA (UNAUDITED) First Quarter (In thousands, except per share data... in accounting principle $ 119,499 Cumulative effect of a change in accounting principle1 - Net income...the third quarter of 2005, we changed our method of accounting for drydocking costs. (See Note 2. Summary of Significant...

  • Page 42
    © Royal Caribbean Cruises, Ltd. Design: Image Factory www.imagefactory.com This report was printed on recycled materials. 40 R OYA L C A R I B B E A N C R U I S E S LT D .

  • Page 43
    ... 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. Corporate Office Royal Caribbean Cruises Ltd. 1050 Caribbean Way Miami, Florida...

  • Page 44
    ROYAL CARIBBEAN CRUISES LT D . , 1050 CARIBBEAN W AY, MIAMI, FLORIDA 33132