Royal Caribbean Cruise Lines 2008 Annual Report Download

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ROYAL CARIBBEAN CRUISES LTD.
2008 Annual Report

Table of contents

  • Page 1
    ROYAL CARIBBEAN CRUISES LTD. 2008 Annual Report

  • Page 2
    .... * 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 strive for continuous improvement in...

  • Page 3
    Total Revenues Operating Income Net Income Earnings Per Share (diluted) Shareholders' Equity (dollars in thousands, except per share data) * B efore 88...616 01 $3,757 $6,532,525 831,984 573,722 2.68 6,803,012 02 $4,035 2008 03 $4,263 04 $4,805 05 $5,554 $6,149,139 901,335 603,405 2.82 6,757...

  • Page 4
    ...Royal Caribbean International's Oasis class and four in Celebrity Cruises' Solstice class. In addition to our cruises, our company offers unique pre- and post-cruise hotel packages, including fully escorted premium land-tours in Alaska, Asia, Australia, New Zealand, Canada, Europe, and South America...

  • Page 5
    ...cruise vacations to families, couples, and singles of all ages looking for active experiences, onboard and shoreside. Its revolutionary and innovative ships are renowned for amenities such as rock-climbing walls, ice-skating rinks and surf simulators. Its 20 ships will be joined by Oasis of the Seas...

  • Page 6
    ... net cruise costs, excluding fuel, by five to seven percent per available guest cruise day in 2009. All while maintaining our excellent product and service. High and volatile fuel prices also presented us with challenges last year. We took very specific steps to address these challenges, including...

  • Page 7
    Royal Caribbean Cruises Ltd. 5

  • Page 8

  • Page 9
    ... of special initiatives for travel agents, such as: s Opportunity to earn additional commissions, s Increased marketing funds, s Easier ways to earn complimentary staterooms for large groups, s Reductions in deposits for select bookings, and s Incentives for agents to earn free cruises. LIQUIDITY...

  • Page 10
    ... sister ships will go a long way to improving the brand's overall financial contribution. Celebrity's products continue to earn rave reviews and awards, but we need to do more to ensure this translates into higher revenues and bottom line performance. Pullmantur, our Spanish cruise and tour company...

  • Page 11
    Royal Caribbean Cruises Ltd. 9

  • Page 12
    ...in Celebrity Solstice. Finally, in November, Royal Caribbean International will launch Oasis of the Seas, one of the most highly anticipated and revolutionary cruise ships ever built. Oasis of the Seas will have a number of new features that have never before been offered on a cruise ship, providing...

  • Page 13
    200 8 F O R M 1 0 -K

  • Page 14
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  • Page 15
    ... No.) 1050 Caribbean Way, Miami, Florida 33132 (Address of principal executive offices) (zip code) (305) 539-6000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $.01 per share Name of each...

  • Page 16
    ... and Management and Related Stockholder Matters ...34 Certain Relationships and Related Transactions, and Director Independence ...34 Principal Accountant Fees and Services ...34 PART IV I T E M 15 . Signatures Exhibits and Financial Statement Schedules ...34 ...35 Royal Caribbean Cruises Ltd...

  • Page 17
    ... range from two to 18 nights. Royal Caribbean International offers a variety of itineraries to destinations worldwide, including Alaska, Asia, Australia, Bermuda, Canada, the Caribbean, Europe, Hawaii, Latin America and New Zealand. Royal Caribbean International's strategy is to attract an array of...

  • Page 18
    ... full year of operation offering global itineraries to many ports not accessible by larger ships. Europe, South America, the Caribbean, Asia, and the Panama Canal were all visited by either Azamara Journey or Azamara Quest in 2008. Azamara Cruises offers a wide array of onboard services, amenities...

  • Page 19
    .... Our ships operate worldwide and have itineraries that call on destinations in Alaska, Asia, Australia, the Bahamas, Bermuda, California, Canada, the Caribbean, Europe, the Galapagos Islands, Hawaii, Mexico, New England, New Zealand, the Panama Canal and South America. OPERATING STRATEGIES Our...

  • Page 20
    ...rst-time cruisers, Royal Caribbean International provides multiple choices to guests through a wide array of itineraries, accommodations, dining options, onboard activities and shore excursions. The hallmarks of the brand include friendly and engaging service, state-of-the-art ships, family programs...

  • Page 21
    ... bar; a sloped-beach entry pool and many other new features. The Oasis-class ships will also offer new categories in onboard accommodations including bi-level, urban-style two bedroom/two bathroom suites and balcony staterooms facing some of the distinct neighborhoods. Royal Caribbean International...

  • Page 22
    ... French bistro and a spa with a sea water center, to customize the ship for French guests. New Markets and Itineraries Our ships operate worldwide with a selection of itineraries that call on approximately 425 ports. New ships, including both newly constructed ships and those we acquire, allow us to...

  • Page 23
    ... well as provide group insurance. Pullmantur and Azamara Cruises were also incorporated into the online tool in 2008. In 2008, we also launched a program directed to help support our travel agents during the current economic downturn. The program, Agent Support Action Plan (ASAP), includes multiple...

  • Page 24
    ... kind in the industry, assists agencies with productivity and enhances customer service. We currently operate reservation call centers to support our travel agent community in the United States, Canada, France, Spain and the United Kingdom offering ï¬,exibility and extended hours of operations. We...

  • Page 25
    ... Europe, Baltic Eastern Mediterranean Western Mediterranean Mexico 2004 2006 700 700 Europe, Caribbean, Panama Canal Europe, Asia 2005 750 88,250 Mediterranean, Caribbean The year a ship entered service refers to the year in which the ship commenced cruise revenue operations for the Company...

  • Page 26
    ...areas for youth of all ages, cinemas, conference centers, internet cafes and shore excursions at each port of call. Royal Caribbean International offers rock climbing walls on its ships, additional activities including ice skating rinks and in-line skating on its Voyagerclass and Freedom-class ships...

  • Page 27
    ...own a number of registered trademarks related to the Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Cruises and CDF Croisières de France cruise brands. The registered trademarks include the name "Royal Caribbean" and its crown and anchor logo, the name "Celebrity Cruises" and...

  • Page 28
    ... to the international operation of ships include income from the sale of air and land transportation, shore excursions and pre- and post-cruise tours. To the extent the income from these activities is earned from sources within the United States, that income will be subject to United States taxation...

  • Page 29
    ... Alaska and certain other affiliated companies to Alaska corporate state income taxes and also imposes a 33% tax on income from onboard gambling activities conducted in Alaska waters. This did not have a material impact to our results of operations for all years presented. Royal Caribbean Cruises...

  • Page 30
    ... of positions including Executive Vice President, Revenue Performance. In such capacity, Mr. Rice was responsible for revenue management, air/sea, groups, international operations, decision support, reservations and customer service for both Royal Caribbean International and Celebrity Cruises. As...

  • Page 31
    ...Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources. As of December 31, 2008, we had two ships of a new Oasis-class designated for Royal Caribbean International and four Solstice-class ships designated for Celebrity Cruises on order...

  • Page 32
    ...our ability to provide reasonably priced vacation packages to our passengers. Many of our passengers depend on scheduled commercial airline services to transport them to or from the ports where our cruises embark or disembark. Increases in the price of airfare would increase the overall price of the...

  • Page 33
    ... change in our tax status under the United States Internal Revenue Code, or other jurisdictions, may have adverse effects on our income. We and a number of our subsidiaries are foreign corporations that derive income from a United States trade or business and/or from sources within the United States...

  • Page 34
    ... our cruise ships, including their size and primary areas of operation, may be found within the Operating Strategies - Fleet Development and Maintenance section and the Operations - Cruise Ships and Itineraries section in Item 1. Business. Information regarding our cruise ships under construction...

  • Page 35
    ... of the class members and alleges claims for violation of the Racketeer Inï¬,uenced and Corrupt Organizations Act (RICO), breach of contract, statutory fraud and other similar claims. Park West has a concession to sell artwork onboard Royal Caribbean International and Celebrity Cruises ships. In...

  • Page 36
    ... the high and low prices of our common stock as reported by the NYSE and the OSE for the two most recent years by quarter: NYSE Common Stock High Low OSE Common Stock (1) High Low to engage, in any business in Liberia, including voyages exclusively within the territorial waters of the Republic of...

  • Page 37
    ... our business or our principal shareholders, s the impact of changes in other laws and regulations affecting our business, s the impact of pending or threatened litigation, enforcement actions, fines or penalties, s the impact of delayed or cancelled ship orders, Royal Caribbean Cruises Ltd...

  • Page 38
    ...Item 8. Financial Statements and Supplementary Data). Our service life and residual value estimates take into consideration the impact of anticipated technological changes, long-term cruise and vacation market conditions and historical useful lives of similarly-built ships. In addition, we take into...

  • Page 39
    ...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's land-based tours and hotel and air packages. Also included are revenues we receive from independent third party...

  • Page 40
    ... transportation expenses, port costs that vary with passenger head counts and related credit card fees. s 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...

  • Page 41
    ... share. s We settled our pending case against Pentair Water Treatment (OH) Company (formerly known as Essef Corporation). Pursuant to the terms of the settlement agreement, we were paid, net of costs and payments to insurers, approximately $17.6 million which we recognized during the third quarter...

  • Page 42
    ...redeploy the ship to Pullmantur at that time. s We discontinued the Company's dividend beginning in the fourth quarter of 2008. We reported historical total revenues, operating income, net income and earnings per share as shown in the following table (in thousands, except per share data): Year Ended...

  • Page 43
    ... year of Liberty of the Seas, which entered service in May 2007, the addition of Ocean Dream, which entered service in March 2008, and the addition of Celebrity Solstice, which entered service in November 2008. The remaining increase of $63.7 million is due primarily to an increase in ticket prices...

  • Page 44
    ... Pullmantur's tour business and, to a lesser extent, an increase in ticket prices. This increase was partially offset by a decrease in onboard revenues primarily due to an expanded cruise season in certain markets and itinerary changes for certain ships where passengers spend less onboard our ships...

  • Page 45
    ... of new ship orders. As of December 31, 2008, we had two ships of a new Oasis-class designated for Royal Caribbean International and four Solstice-class ships, designated for Celebrity Cruises, on order for an aggregate additional capacity of approximately 22,200 berths. The aggregate cost of...

  • Page 46
    ... future commitments with remaining terms in excess of one year to pay for our usage of certain port facilities, marine consumables, services and maintenance contracts. (4) (5) As a normal part of our business, depending on market conditions, pricing and our overall growth strategy, we continuously...

  • Page 47
    ... to finance Celebrity Equinox. We must elect to use the remaining commitments within six months of the relevant ship delivery and they are each subject to customary funding conditions. We also have two Oasis-class vessels under construction in Finland. Oasis of the Seas is scheduled for delivery in...

  • Page 48
    ... of the euro as of December 31, 2008, assuming no changes in comparative interest rates, would result in a $588.5 million increase in the United States dollar cost of the foreign currency denominated ship construction contracts. This increase would be largely offset by an increase in the...

  • Page 49
    ...2008 has been audited by PricewaterhouseCoopers LLP, the independent registered certified public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, as stated in their report, which is included on page F-2. None. Royal Caribbean Cruises...

  • Page 50
    ..., EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE AND PRINCIPAL ACCOUNTANT FEES AND SERVICES. The information...

  • Page 51
    ... 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROYAL CARIBBEAN CRUISES LTD. (Registrant) By: /s/ BRIAN J. RICE Brian J. Rice Executive Vice President and Chief Financial Of...

  • Page 52
    ... between the Company, as issuer, and The Bank of New York Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 333-136186) filed with the Commission on July 31, 2006). 4.3 4.4 4.5 4.6 36 Royal Caribbean Cruises Ltd.

  • Page 53
    ... 25, 2007 among the Company, as issuer, The Bank of New York, as trustee, transfer agent, principal paying agent and security registrar, and AIB/BNY Fund Management (Ireland) Limited, as Irish paying agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed...

  • Page 54
    ...22 Form of Royal Caribbean Cruises Ltd. 2008 Equity Incentive Plan Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008 filed with the Commission). 10.23 Employment Agreement dated...

  • Page 55
    ... 2007 for Members of the Board of Directors of the Company (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007 filed with the Commission). 10.41 Royal Caribbean Cruises Ltd. Executive Short-Term Bonus Plan dated...

  • Page 56
    ...ed Public Accounting Firm ...F-2 Consolidated Statements of Operations ...F-3 Consolidated Balance Sheets ...F-4 Consolidated Statements of Cash Flows ...F-5 Consolidated Statements of Shareholders' Equity ...F-6 Notes to the Consolidated Financial Statements ...F-7 F-1 Royal Caribbean Cruises Ltd...

  • Page 57
    ... 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 assurance...

  • Page 58
    ... per share data) Year Ended December 31, 2008 2007 2006 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...

  • Page 59
    ... portion of long-term debt Accounts payable Accrued interest Accrued expenses and other liabilities Customer deposits Hedged firm commitments Total current liabilities Long-term debt Other long-term liabilities Commitments and contingencies (Note 16) Shareholders' equity Preferred stock ($0.01 par...

  • Page 60
    ... OF CASH F L O W S (in thousands) Year Ended December 31, 2008 2007 2006 Operating Activities Net income Adjustments: Depreciation and amortization Accretion of original issue discount on debt Changes in operating assets and liabilities: Decrease (increase) in trade and other receivables, net...

  • Page 61
    ... Balances at December 31, 2007 Issuance under employee related plans Common stock dividends Changes related to cash ï¬,ow derivative hedges Change in defined benefit plans Foreign currency translation adjustments Net income Balances at December 31, 2008 $2,165 12 48 - 2,225 10 - - - - - 2,235...

  • Page 62
    ... cruise company. We own five cruise brands, Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Cruises, and CDF Croisières de France with 20, nine, six, two and one ships, respectively, at December 31, 2008. Our ships operate on a selection of worldwide itineraries that call...

  • Page 63
    ...including but not limited to counterparty nonperformance under derivative instruments, our revolving credit facility and new ship progress payment guarantees, is not considered significant, as we primarily conduct business with large, well-established financial institutions and insurance companies...

  • Page 64
    ... cruise brands, Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Cruises and CDF Croisières de France. The brands have been aggregated as a single reportable segment based on the similarity of their economic characteristics as well as products and services provided. Information...

  • Page 65
    ...) $779,246 We performed the annual impairment review for goodwill during the fourth quarter of 2008. We determined the fair value of our two reporting units which include goodwill, Royal Caribbean International and Pullmantur, using a probability-weighted discounted cash ï¬,ow model. The principal...

  • Page 66
    ...tourism and hospitality industry. We used the same discount rate used in valuing the Pullmantur reporting unit. Based on the discounted cash ï¬,ow model we determined the fair value of our trademarks and trade names exceeded their carrying value. Finite-life intangible assets and related accumulated...

  • Page 67
    ... appreciation rights, (iii) restricted stock, (iv) restricted stock units and (v) performance shares of up to 13,000,000 shares of our common stock for the 2000 Stock Award Plan and 5,000,000 shares of our common stock for the 2008 Equity Plan. During any calendar year, no one individual shall be...

  • Page 68
    ... and the last business day of each month of the purchase period. Shares of common stock of 36,836, 20,759 and 18,116 were issued under the ESPP at a weightedaverage price of $20.97, $37.25 and $36.00 during 2008, 2007 and 2006, respectively. Under an executive compensation program approved in 1994...

  • Page 69
    ... that are considered the international operation of a ship or incidental thereto. Accordingly, our provision for United States federal and state income taxes includes taxes on certain activities not considered incidental to the international operation of our ships. Royal Caribbean Cruises Ltd. F-14

  • Page 70
    ... of accumulated other comprehensive loss. NOTE 15 . FAIR VALUE MEASUREMENTS The Company uses quoted prices in active markets when available to determine the fair value of its financial instruments and does not hold them for trading or other speculative purposes. The estimated fair value of our...

  • Page 71
    ... of the class members and alleges claims for violation of the Racketeer Inï¬,uenced and Corrupt Organizations Act (RICO), breach of contract, statutory fraud and other similar claims. Park West has a concession to sell artwork onboard Royal Caribbean International and Celebrity Cruises ships. In...

  • Page 72
    ... pending case against Pentair Water Treatment (OH) Company (formerly known as Essef Corporation) for claims stemming from a 1994 outbreak of Legionnaires' disease on one of Celebrity Cruises' ships. Pursuant to the terms of the settlement agreement, we were paid, net of costs and payment to insurers...

  • Page 73
    ... $0.07 per share in 2008, comprised of $9.0 million related to termination benefits and $5.3 million related to contract termination costs. Expenses related to termination benefits were included in marketing, selling and administrative expenses and contract termination costs were included in other...

  • Page 74
    ... INFORMATION You also may obtain copies of our annual report on Form 10-K, quarterly financial reports, 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...

  • Page 75
    ... President and Group President, Global Primary Products ALCOA RICHARD D. FAIN Chairman and Chief Executive Officer, Royal Caribbean Cruises Ltd. WILLIAM L. KIMSEY Ernst & Young (retired) WILLIAM K. REILLY Founding Partner, Aqua International Partners L.P. LAURA D. B. LAVIADA Founder, Area Editores...

  • Page 76
    ROYAL CARIBBEAN CRUISES LTD. 1050 Caribbean Way Miami, Florida 33132