Royal Caribbean Cruise Lines 2007 Annual Report Download

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Table of contents

  • Page 1
    R OYA L C A R I B B E A N C R U I S E S LT D . 2 0 0 7 A N N U A L R E P O RT

  • Page 2
    ... 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 1 1 2.82 2.82 6,757,343 2.94 2.94 6,091,575 3.03 3.26 1 5,554,465 2005 includes $52.5 million, or...

  • Page 3
    ...any problem that is brought to our attention. We engage in conduct that enhances our corporate reputation and employee morale. We are committed to act in the highest ethical manner and respect the rights and dignity of others. We are loyal to the Royal Caribbean Cruises Ltd. family of companies, and...

  • Page 4
    ...worldwide itineraries that call on approximately 380 destinations. In conjunction with our cruise vacations, we offer pre- and post-cruise hotel packages, including fully escorted premium land packages. Combined, our brands carried more than 3.9 million passengers in 2007. Our common stock is listed...

  • Page 5
    ... vacation industry. Azamara Cruises is a deluxe cruise brand designed to deliver truly unique destinations, immersive excursions, and an exceptional onboard experience, within an intimate, small-ship environment. The line consists of two 700-guest ships, Azamara Journey and Azamara Quest. Pullmantur...

  • Page 6
    ... included: • Growing revenue yields an average of 0.7 percent; • Integrating Pullmantur Cruises, our new Spanish cruise line, into the Royal Caribbean family of brands; • Partially offsetting huge increases in fuel prices through energy-saving initiatives and hedging; • Forming a national...

  • Page 7
    ... Royal Caribbean International's winter deployment featured itineraries originating in Australia, Asia, Brazil and the Dominican Republic. The three Vision-class ships that are delivering these programs have enjoyed significant year-over-year, net ticket revenue increases. Onboard revenue and costs...

  • Page 8

  • Page 9
    ...of Glass, and unrivaled dining venues offering trendsetting cuisine and design. Celebrity Solstice will be followed by Celebrity Equinox in 2009, Celebrity Eclipse in 2010, a fourth Solstice-class ship in 2011, and a fifth in 2012. The dining experience has always been central to our guests' cruise...

  • Page 10
    ... area, including increased centralized organization and oversight; a stronger and better equipped Guest Care team; a greatly enhanced workplace safety program; and an upgraded public health management department. All of these steps, and others like them, help us ensure a leadership position in this...

  • Page 11

  • Page 12
    ... to see healthy booking volumes and improved pricing. Based on this improving revenue performance and our focus on controlling costs, we expect 2008 to be a year of solid improvement in EPS. We've made a number of strategic and structural changes that should drive improved performance, including...

  • Page 13
    ...22 Management's Report on Internal Control Over Financial Reporting 23 Report of Independent Registered Certified Public Accounting Firm 24 Consolidated Statements of Operations 25 Consolidated Balance Sheets 26 Consolidated Statements of Cash Flows 27 Consolidated Statements of Shareholders' Equity...

  • Page 14
    ..., debt payment requirements, capital expenditures and other commitments, • changes in our stock price or principal shareholders, • the impact of changes in operating and financing costs, including changes in foreign currency, interest rates, fuel, food, payroll, insurance and security costs...

  • Page 15
    ... 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, pre- and post-cruise tours, Pullmantur Cruises' land-based tours and hotel and air packages. Also included are revenues we receive...

  • Page 16
    ... lease costs, costs associated with Pullmantur Cruises' land-based tours, vessel related insurance and entertainment. We do not allocate payroll and related costs, food costs, fuel costs or other operating costs to the expense categories attributable to passenger ticket revenues or onboard and...

  • Page 17
    ... of seven additional cruise ships. These new ships are expected to continue to help us maintain our current position within the worldwide cruise industry. The year-over-year percentage increase in our capacity for fiscal 2008, 2009, 2010 and 2011, is currently planned to be 5.1%, 9.3%, 11...

  • Page 18
    ... 2% compared to 2007. Excluding fuel, we expected Net Cruise Costs per APCD to increase in the range of 1% to 2% compared to 2007. We do not forecast fuel prices and our cost outlook for fuel is based on current "at-the-pump" prices including any hedge impacts. If fuel prices for the full year 2008...

  • Page 19
    ... was primarily due to increases in shore excursions and land-tour packages sold to our guests as a result of an expanded cruise season in certain markets and itinerary changes for certain ships as well as the acquisition of Pullmantur. Onboard and other revenues included concession revenues of $239...

  • Page 20
    ...result of lower trip insurance premiums and lower commission expenses as a result of an increase in direct business. Depreciation and amortization expenses increased 4.9% in 2006 compared to 2005. The increase was primarily due to the addition of Freedom of the Seas, ship improvements and shore side...

  • Page 21
    ..., including the seven ships on order, will be approximately $1.9 billion for 2008, $2.0 billion for 2009, $2.2 billion for 2010, and $1.0 billion for 2011. Recently we reached an agreement with Meyer Werft to build a fifth Solstice-class ship for Celebrity Cruises, subject to certain conditions...

  • Page 22
    ..., 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. We continuously consider potential acquisitions and strategic alliances. If any of...

  • Page 23
    ... dollar value of our net investment. Fuel Price Risk Our exposure to market risk for changes in fuel prices relates 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 8.9% in 2007, 9.2% in...

  • Page 24
    ...31, 2007. The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, the independent registered certified public accounting firm that audited our consolidated financial statements included in our Annual Report on Form 10...

  • Page 25
    ... and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable...

  • Page 26
    ... 31, 2007 2006 2005 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 27
    ... portion of long-term debt Accounts payable Accrued expenses and other liabilities Customer deposits Hedged firm commitments Total current liabilities Long-term debt Other long-term liabilities Commitments and contingencies (Note 14) Shareholders' equity Preferred stock ($0.01 par value; 20,000,000...

  • Page 28
    ... 236,477 Supplemental Schedule of Noncash Investing Activity The Company purchased all of the capital stock of Pullmantur for approximately $558.9 million in November 2006. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $ 1,111,117 Cash paid...

  • Page 29
    ...) Total Treasury Shareholders' Stock Equity Balances at January 1, 2005 Issuance under employee related plans Purchases of treasury stock Common stock dividends Changes related to cash flow derivative hedges Minimum pension liability adjustment Debt converted to common stock Net income Balances at...

  • Page 30
    ... other comprehensive income (loss) related to derivatives designated as cash flow hedges, change in defined benefit plans and the foreign currency translation adjustments (in thousands): Year Ended December 31, 2007 2006 2005 Accumulated net (loss) gain on cash flow derivative hedges at beginning...

  • Page 31
    ...TAT E M E N T S NOTE 1. GENERAL Description of Business We are a global cruise company. We own five cruise brands, Royal Caribbean International, Celebrity Cruises, Pullmantur Cruises, and Azamara Cruises with 21, eight, four and two ships, respectively, at December 31, 2007, and CDF Croisières de...

  • Page 32
    ... of Financial Accounting Standard ("SFAS") No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123R"). SFAS 123R requires the measurement and recognition of compensation expense at the fair value of employee stock awards. Compensation expense for awards and related tax effects is recognized...

  • Page 33
    ...the intrinsic value method to account for stock-based awards to our employees under APB Opinion No. 25, "Accounting for Stock Issued to Employees," and disclosed pro forma information as if we had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation...

  • Page 34
    ... $558.9 million. We include Pullmantur's results of operations on a two-month lag to allow for more timely preparation of our consolidated financial statements. The acquisition was accounted for as a business purchase combination using the purchase method of accounting under the provisions of...

  • Page 35
    ... fixed charge coverage ratio and limit our Net Debt-to-Capital ratio. We are in compliance with all covenants as of December 31, 2007. Following is a schedule of annual maturities on long-term debt as of December 31, 2007 for each of the next five years (in thousands): Year 2008 2009 2010 2011 2012...

  • Page 36
    ... forma income before cumulative effect of a change in accounting principle for diluted earnings per share Net income, as reported Deduct: Total stock-based employee compensation expense determined under fair value method for all awards Pro forma net income Add: Interest on dilutive convertible notes...

  • Page 37
    .... As of December 31, 2007, there was approximately $9.3 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock options granted under our stock incentive plans which is expected to be recognized over a weighted-average period of 1.2 years. Restricted...

  • Page 38
    ... years ended December 31, 2007, 2006 and 2005, respectively, for the plan. N O T E 1 1 . I N C O M E TA X E S We and the majority of our subsidiaries are currently exempt from United States corporate tax on United States source income from the international operation of ships pursuant to Section 883...

  • Page 39
    ... fair values of certain of our financial instruments are as follows (in thousands): 2007 Long-term debt (including current portion of long-term debt) Foreign currency forward contracts in a net gain position Interest rate swap agreements in a net receivable position Fuel swap agreements in a net...

  • Page 40
    ... class action lawsuit was filed in the United States District Court for 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 of damages, including penalty wages...

  • Page 41
    ... on our financial condition or results of operations. The Office of the Attorney General for the State of Florida is conducting a review of our fuel supplement that we implemented in the fourth quarter of 2007 on our Royal Caribbean International, Celebrity Cruises and Azamara cruise brands. In...

  • Page 42
    ...): Year 2008 2009 2010 2011 2012 Thereafter $123,722 74,511 65,089 66,728 70,141 230,249 $630,440 N O T E 1 5 . R E L AT E D PA RT I E S A. Wilhelmsen AS. and Cruise Associates collectively own approximately 35.7% of our common stock and are parties to a shareholders' agreement which provides...

  • Page 43
    ... requirements and the income and other tax liabilities of A. Wilhelmsen AS., Cruise Associates and their respective affiliates relating to their ownership of common stock. ISSUER PURCHASES OF EQUITY SECURITIES None. STOCK PERFORMANCE GRAPH The following graph compares the performance of the Company...

  • Page 44
    ..., press releases and corporate governance documents free of charge through our Investor Relations website at www.rclinvestor.com or by contacting the Investor Relations Department at our corporate headquarters. C O R P O R AT E O F F I C E Royal Caribbean Cruises Ltd. 1050 Caribbean Way Miami...

  • Page 45
    ... W. ARO NSO N , Managing Partner, ACON Investments, LLC WILLIAM K . RE ILLY , Founding Partner, Aqua International Partners L.P. WILLIAM L . KIMS E Y , Ernst & Young (retired) L A URA D. B. L AVIADA , Founder, Area Editores T H OMAS J. PRITZKE R , Chairman and Chief Executive Officer, The Pritzker...

  • Page 46
    R OYA L C A R I B B E A N C R U I S E S LT D . 1 0 5 0 C A R I B B E A N W AY, M I A M I , F L O R I D A 3 3 1 3 2