RCL

Royal Caribbean Cruises Ltd. - Form 20-F Summary (Fiscal Year Ended Dec 31, 1999)

Business Context and Reporting Period

This is the Annual Report on Form 20-F for Royal Caribbean Cruises Ltd. for the fiscal year ended December 31, 1999. The Company is the world's second-largest cruise operator, managing two brands: Royal Caribbean International (contemporary/premium segments) and Celebrity Cruises (premium segment). As of year-end 1999, the fleet consisted of 17 ships with 32,900 berths. The Company operates globally, calling on approximately 200 destinations.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Revenues decreased 3.4% to $2.5 billion, driven by a 2.9% reduction in capacity (due to the departure of the Song of America and unscheduled repairs on three other vessels) and a 0.6% decline in yield (revenue per berth).
• Profit Growth: Despite lower revenues, Net Income increased 16.0% to $383.9 million. This was achieved through cost efficiencies (operating expenses dropped 6.1%) and a $26.5 million loss-of-hire insurance recovery recorded in "Other Income."
• Legal Settlements: The Company incurred $17.3 million in charges in 1999 related to environmental settlements ($14.0 million with the U.S. DOJ and $3.3 million with the State of Alaska), compared to $9.0 million in 1998.
• Capital Expenditures: Capital spending increased significantly to approximately $1.0 billion in 1999 (vs. $0.6 billion in 1998), primarily for the delivery of the Voyager of the Seas and progress payments on new vessels.

Guidance, Outlook, and Risks

• Fleet Expansion: The Company has 10 ships on order with an aggregate contract price of $3.9 billion. Capacity is projected to increase 69.3% to 55,700 berths by 2004. Future capital expenditures are estimated at $1.3 billion (2000), $1.6 billion (2001), and $1.4 billion (2002).
• Outlook: Management expects continued growth driven by new ship deliveries and international guest sourcing, which now represents 17% of total guests.
• Risks and Contingencies:
  • Legal: Pending class-action lawsuits regarding travel agent commissions and crew wages; potential for additional civil actions despite the 1999 DOJ plea agreement.
  • Taxation: Reliance on Section 883 of the U.S. Internal Revenue Code for tax exemption on U.S. source income. Proposed regulations could jeopardize this status if stock ownership thresholds are not met.
  • Operational: Risks related to ship delivery schedules, emergency repairs, and general economic conditions affecting discretionary travel spending.
• Unusual Items: The 1999 results include a $26.5 million insurance recovery for lost hire and $17.3 million in legal settlement charges. The 1998 results included a $31.0 million gain on the sale of a vessel and a $32.0 million write-down of another vessel.

Investor Verification Checklist

• Environmental Compliance: Verify the status of the Court-supervised Environmental Compliance Plan following the 1999 plea agreement and the potential for further state-level civil actions.
• Tax Status: Confirm the Company's ability to maintain Section 883 tax exemption status under proposed IRS regulations regarding shareholder ownership limits.
• Capital Commitments: Review the $3.9 billion in shipbuilding contracts and the Company's ability to fund future capital expenditures ($1.3B+ annually) through cash flow, debt, or equity.
• Legal Exposure: Monitor the outcome of pending class-action suits regarding travel agent commissions and crew wages, which could result in unspecified damages.
• Yield Trends: Assess the sustainability of revenue per berth (yield) given the decline in 1999 and the shift in guest air transportation habits.