Royal Caribbean Cruise Lines 2003 Annual Report Download - page 31

NOTE 8. EARNINGS PER SHARE
A reconciliation between basic and diluted earnings per share
is as follows (in thousands, except per share data):
Year Ended December 31,
2003 2002 2001
Net income $280,664 $351,284 $254,457
Weighted-average
common shares
outstanding 194,074 192,485 192,231
Dilutive effect of
stock options 3,267 3,246 1,250
Diluted weighted-
average shares
outstanding 197,341 195,731 193,481
Basic earnings per share $ 1.45 $ 1.82 $ 1.32
Diluted earnings per share $ 1.42 $ 1.79 $ 1.32
Our diluted earnings per share computation for the years
ended December 31, 2003 and 2002 did not include 17.7 mil-
lion and 13.8 million shares of our common stock issuable
upon conversion of our Liquid Yield OptionTM Notes and zero
coupon convertible notes, respectively, as our common stock
was not issuable under the contingent conversion provisions of
these debt instruments. Options to purchase 5.3 million, 8.7
million and 9.4 million shares for the years ended December
31, 2003, 2002 and 2001, respectively, were not included in
the computation of diluted earnings per share because the
effect of including them would have been antidilutive.
NOTE 9. RETIREMENT PLAN
We maintain a defined contribution pension plan covering full-
time shoreside 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 $9.4 million, $8.5 million and $8.3 million for the years
2003, 2002 and 2001, respectively.
NOTE 10. INCOME TAXES
We and the majority of our subsidiaries are currently exempt
from United States corporate tax on income from the interna-
tional operation of ships pursuant to Section 883 of the Internal
Revenue Code. Income tax expense related to our remaining
subsidiaries was not significant for the years ended December
31, 2003, 2002 and 2001.
Final regulations under Section 883 were published on August
26, 2003, and will be effective for the year ending December
31, 2004. These regulations confirmed that we qualify for the
exemption provided by Section 883, but also narrowed the
scope of activities which are considered by the Internal
Revenue Service to be incidental to the international operation
of ships. The activities listed in the regulations as not being
incidental to the international operation of ships include income
from the sale of air and other transportation such as transfers,
shore excursions and pre and post tours. To the extent the
income from such activities is earned from sources within the
United States, such income will be subject to United States
taxation. At December 31, 2003, we estimated the application
of these new regulations will reduce our 2004 net income by
approximately $0.04 to $0.05 per share (unaudited).
NOTE 11. FINANCIAL INSTRUMENTS
The estimated fair values of our financial instruments are as
follows (in thousands):
2003 2002
Cash and cash equivalents $ 330,086 $ 242,584
Long-term debt
(including current portion
of long-term debt) (6,092,777) (5,039,646)
Foreign currency forward
contracts and purchased
call options in a net
gain position 14,474 37,376
Interest rate swap agreements
in a net receivable position 23,945 62,835
Fuel swap and zero cost
collar agreements in a
net receivable position 4,016 7,491
The reported fair values are based on a variety of factors and
assumptions. Accordingly, the fair values may not represent
actual values of the financial instruments that could have been
realized as of December 31, 2003 or 2002 or that will be real-
ized in the future and do not include expenses that could be
incurred in an actual sale or settlement. Our financial instru-
ments are not held for trading or speculative purposes.
Our exposure under foreign currency contracts, interest rate
and fuel swap agreements is limited to the cost of replacing the
contracts in the event of non-performance by the counterpar-
ties to the contracts, all of which are currently our lending
banks. To minimize this risk, we select counterparties with
credit risks acceptable to us and we limit our exposure to an
individual counterparty. Furthermore, all foreign currency for-
ward contracts are denominated in primary currencies.
ROYAL CARIBBEAN CRUISES LTD. 29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)