<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER PURSUANT TO RULES 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
FOR THE MONTH OF NOVEMBER , 1998
-------------------
ROYAL CARIBBEAN CRUISES LTD.
- --------------------------------------------------------------------------------
(TRANSLATION OF REGISTRANT'S NAME INTO ENGLISH)
1050 CARIBBEAN WAY, MIAMI, FLORIDA 33132
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT FILES OR WILL FILE ANNUAL
REPORTS UNDER COVER FORM 20-F OR FORM 40-F.
FORM 20-F X FORM 40-F
--------------- ----------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT BY FURNISHING THE INFORMATION
CONTAINED IN THIS FORM IS ALSO THEREBY FURNISHING THE INFORMATION TO THE
COMMISSION PURSUANT TO RULE 12G3-2(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934.
YES NO X
--------------- ----------------
<PAGE> 2
ROYAL CARIBBEAN CRUISES LTD.
QUARTERLY FINANCIAL REPORT
THIRD QUARTER 1998
<PAGE> 3
ROYAL CARIBBEAN CRUISES LTD.
INDEX TO QUARTERLY FINANCIAL REPORT
PAGE
Consolidated Statements of Operations
for the Third Quarters and Nine Months 1
Ended September 30, 1998 and 1997
Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 2
Consolidated Statements of Cash
Flows for the Nine Months Ended
September 30, 1998 and 1997 3
Notes to the Consolidated Financial
Statements 4
Management's Discussion and
Analysis of Financial Condition and
Results of Operations 8
<PAGE> 4
ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- -------------------------------
1998 1997 1998 1997
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 744,910 $ 612,542 $ 2,061,143 $ 1,410,599
------------ ------------ ------------ ------------
EXPENSES
Operating 415,106 362,980 1,214,101 868,687
Marketing, selling and administrative 94,238 85,567 275,497 196,450
Depreciation and amortization 51,974 47,084 146,959 100,517
------------ ------------ ------------ ------------
561,318 495,631 1,636,557 1,165,654
------------ ------------ ------------ ------------
OPERATING INCOME 183,592 116,911 424,586 244,945
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 5,528 1,576 12,449 2,538
Interest expense, net of capitalized
interest (42,162) (43,198) (128,380) (86,444)
Other income (expense) 3,080 642 (1,310) (709)
------------ ------------ ------------ ------------
(33,554) (40,980) (117,241) (84,615)
------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 150,038 75,931 307,345 160,330
EXTRAORDINARY ITEM -- -- -- (7,558)
------------ ------------ ------------ ------------
NET INCOME $ 150,038 $ 75,931 $ 307,345 $ 152,772
============ ============ ============ ============
BASIC EARNINGS PER SHARE*
Income before extraordinary item $ 0.87 $ 0.50 $ 1.78 $ 1.14
Extraordinary item -- -- -- (0.06)
------------ ------------ ------------ ------------
Net income $ 0.87 $ 0.50 $ 1.78 $ 1.08
============ ============ ============ ============
Weighted average shares outstanding 168,835,302 146,040,578 167,129,189 133,944,204
============ ============ ============ ============
DULUTED EARNINGS PER SHARE*
Income before extraordinary item $ 0.82 $ 0.48 $ 1.70 $ 1.11
Extraordinary item -- -- -- (0.05)
------------ ------------ ------------ ------------
Net income $ 0.82 $ 0.48 $ 1.70 $ 1.06
============ ============ ============ ============
Weighted average shares outstanding 182,484,976 158,831,766 180,821,437 144,389,760
============ ============ ============ ============
* Earnings per share is computed after giving effect to the two-for-one stock
split effective July 31, 1998.
Prior year amounts have been restated.
The accompanying notes are an integral part of these financial statements.
</TABLE>
1
<PAGE> 5
ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
-------------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 350,731 $ 110,793
Trade and other receivables, net 39,997 22,628
Inventories 28,815 37,274
Prepaid expenses 27,721 40,450
---------- ----------
Total current assets 447,264 211,145
PROPERTY AND EQUIPMENT - at cost less accumulated depreciation 5,042,723 4,785,291
GOODWILL - less accumulated amortization of $104,762 and
$96,952, respectively 312,404 320,214
OTHER ASSETS 17,700 23,098
---------- ----------
$5,820,091 $5,339,748
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 131,998 $ 141,013
Accounts payable 104,593 108,474
Accrued liabilities 271,591 210,454
Customer deposits 416,725 429,403
---------- ----------
Total current liabilities 924,907 889,344
LONG-TERM DEBT 2,446,722 2,431,683
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock 172,500 172,500
Common stock 1,688 1,621
Paid-in capital 1,360,454 1,188,304
Retained earnings 918,599 660,655
Treasury stock (4,779) (4,359)
---------- ----------
Total shareholders' equity 2,448,462 2,018,721
---------- ----------
$5,820,091 $5,339,748
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 6
ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 307,345 $ 152,772
Adjustments:
Depreciation and amortization 146,959 100,517
Extraordinary item (non-cash portion) -- 2,387
Gain on sale of vessel (31,031) --
Writedown of vessel to fair value 32,035 --
Changes in operating assets and liabilities:
Increase in trade and other receivables, net (17,369) (3,753)
Decrease (increase) in inventories 8,459 (2,789)
Decrease in prepaid expenses 13,723 684
Decrease in accounts payable, trade (3,881) (1,891)
Increase in accrued liabilities 55,839 42,084
(Decrease) increase in customer deposits (12,678) 35,674
Other, net 2,843 2,808
--------- ---------
Net cash provided by operating activities 502,224 328,493
--------- ---------
INVESTING ACTIVITIES
Purchase of property and equipment (481,665) (734,009)
Proceeds from disposal of vessel 94,500 69,966
Acquisition of Celebrity Cruise Lines Ltd.,
net of cash and short term investments acquired -- (213,410)
Other, net 347 (7,009)
--------- ---------
Net cash used in investing activities (386,818) (884,453)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 296,141 303,000
Repayment of long-term debt (287,402) (151,220)
Proceeds from issuance of Preferred Stock -- 167,030
Proceeds from issuance of Common Stock 165,532 364,631
Dividends (49,400) (34,699)
Other, net (359) 2,070
--------- ---------
Net cash provided by financing activities 124,512 650,812
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 239,938 94,852
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 110,793 40,419
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 350,731 $ 135,271
========= =========
SUPPLEMENTAL DISCLOSURE
Interest paid, net of amount capitalized $ 117,058 $ 80,350
========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital stock issued for acquisition $ -- $ 270,000
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 7
ROYAL CARIBBEAN CRUISES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS FOR PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all normal recurring accruals necessary for a fair
presentation. The Company's revenues are moderately seasonal and results for
interim periods are not necessarily indicative of the results for the entire
year.
The interim unaudited Consolidated Financial Statements should be read in
conjunction with the audited Consolidated Financial Statements and notes thereto
for 1997.
NOTE 2 - ACQUISITION
On July 2, 1997, the Company entered into a definitive agreement to acquire all
of the outstanding stock of Celebrity Cruise Lines Inc. and its subsidiaries
("Celebrity"). Celebrity is a provider of cruises to the North American market.
This acquisition has been accounted for under the purchase method and the
results of the operations of Celebrity have been included in the consolidated
financial statements since July 1, 1997. The total cost of the acquisition was
allocated to the tangible assets acquired and liabilities assumed based on their
respective fair values.
The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company, including Celebrity, as if the acquisition
had occurred January 1, 1997.
-----------------------------------------------------------------------
Nine Months
Ended
(In thousands, except per share amounts) Sept. 30, 1997
-----------------------------------------------------------------------
Revenue $1,668,163
Income before Extraordinary Item $ 152,051
Net Income $ 144,493
Basic Earnings per Share
Income before Extraordinary Item $1.00
Net Income $0.95
Diluted Earnings per Share
Income before Extraordinary Item $0.99
Net Income $0.94
-----------------------------------------------------------------------
4
<PAGE> 8
NOTE 3 - STOCK SPLIT
On June 23, 1998, the Company authorized a two-for-one split of its common stock
effected in the form of a stock dividend. The additional shares were distributed
on July 31, 1998 to shareholders of record on July 10, 1998. All share and per
share information has been retroactively restated to reflect this stock split.
NOTE 4 - FIXED ASSETS
In May 1998, the Company sold SONG OF AMERICA for $94.5 million and recognized a
gain on the sale of $31.0 million which is included in Other income/expense. The
Company will continue to operate SONG OF AMERICA under a charter agreement until
March 1999.
Also included in Other income/expense is a charge of $32.0 million which was
recorded in the second quarter of 1998 related to the write-down to fair market
value of VIKING SERENADE. Based on the Company's strategic objective to maintain
a modernized fleet, the unique circumstances of this vessel and indications of
the current value of VIKING SERENADE, the Company recorded a write-down of the
carrying value of VIKING SERENADE to its current estimated fair market value.
The Company continues to operate and depreciate the vessel which is classified
as part of Fixed Assets on the balance sheet.
NOTE 5 - LONG-TERM DEBT
On March 16, 1998, the Company completed a debt offering of $150.0 million of
6.75% Senior Notes due 2008 and $150.0 million of 7.25% Senior Debentures due
2018. Net proceeds to the Company were approximately $296.1 million.
NOTE 6 - COMMON STOCK
On March 9, 1998, the Company completed a public offering of 13,800,000 shares
of common stock at a price of $28.25 per share. Of the total shares sold,
7,699,310 shares were sold by selling shareholders and the balance of 6,100,690
shares were sold by the Company. After deduction of the underwriting discount
and other estimated expenses of the offering, net proceeds to the Company were
approximately $165.5 million.
5
<PAGE> 9
NOTE 7 - EARNINGS PER SHARE
Below is reconciliation between basic and diluted earnings per share before
extraordinary item under FAS 128 for the quarters and nine months ended
September 30, 1998 and 1997 (in thousands except per share amounts):
<TABLE>
<CAPTION>
Third Quarter Ended September 30, Third Quarter Ended September 30,
------------------------------------ ------------------------------------
1998 1997
------------------------------------ ------------------------------------
Income Shares Per Share Income Shares Per Share
---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income before
extraordinary item $ 150,038 $ 75,931
Less: Preferred stock
dividends (3,127) (3,127)
---------- ----------
Basic EPS $ 146,911 168,835 $ 0.87 $ 72,804 146,041 $ 0.50
---------- ----------
Effect of Dilutive Securities:
Stock options 3,002 2,143
Convertible preferred stock 3,127 10,648 3,127 10,648
---------- ---------- ---------- ----------
Diluted EPS $ 150,038 182,485 $ 0.82 $ 75,931 158,832 $ 0.48
========== ========= ========== ========== ========== ==========
Nine Months Ended September 30, Nine Months Ended September 30,
------------------------------------ ------------------------------------
1998 1997
------------------------------------ ------------------------------------
Income Shares Per Share Income Shares Per Share
---------- --------- ---------- ---------- ---------- ----------
Income before
extraordinary item $ 307,345 $ 160,330
Less: Preferred stock
dividends (9,381) (7,639)
---------- ----------
Basic EPS $ 297,964 167,129 $ 1.78 $ 152,691 133,944 $ 1.14
---------- ----------
Effect of Dilutive Securities:
Stock options 3,044 1,753
Convertible preferred stock 9,381 10,648 7,639 8,693
---------- ---------- ---------- ----------
Diluted EPS $ 307,345 180,821 $ 1.70 $ 160,330 144,390 $ 1.11
========== ========= ========== ========== ========== ==========
</TABLE>
Extraordinary loss per share for the nine months ended September 30, 1997 for
basic and diluted earnings per share was ($0.06) and ($0.05), respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES. In the first quarter of 1998, the Company signed contracts
for the construction of one Vantage-class vessel designated for the Royal
Caribbean International fleet, scheduled for delivery in February 2001 and two
Millennium-class vessels designated for the Celebrity fleet, scheduled for
delivery in June 2000 and January 2001. The Company also has three Eagle-class
vessels on order for the Royal Caribbean International fleet scheduled for
delivery in the fall of 1999, fall of 2000 and spring of 2002. The aggregate
contract price of the six ships, which excludes capitalized interest and other
ancillary costs, is approximately $2.5 billion. Additionally, the Company has
the right, cancelable on or before January 31, 1999, to purchase up to three
additional vessels with delivery dates between September 2001 and June 2002 at
an aggregate contract price of approximately $1.0 billion (two of which are
denominated in French francs and are subject to change based on fluctuations in
exchange rates).
6
<PAGE> 10
LITIGATION. In June 1998, Royal Caribbean Cruises Ltd. (the "Company") entered
into a plea agreement with the U.S. Department of Justice settling previously
filed charges contained in two indictments pending in the U.S. District of
Puerto Rico and the Southern District of Florida, respectively. The indictments,
which pertained to events that occurred in 1994 and prior years, contained a
total of 11 felony counts related to improper disposal of oil-contaminated bilge
water and attempts to conceal such activities from the U.S. Coast Guard. Under
the plea agreement, the Company pled guilty to 8 of the 11 counts and agreed to
pay $9 million. The U.S. government is continuing its investigation of the
Company's waste disposal practices through federal grand jury proceedings in Los
Angeles, California, Miami, Florida and New York, New York. Although the Company
is not able at this time to estimate the timing or impact of these continuing
investigations, the Company may be subject to additional charges for violations
of U.S. law.
Beginning in December 1995, a series of purported class action suits were
filed alleging that the Company misrepresented to its passengers the amount of
its port charge expenses. The suits seek declaratory relief and damages in an
unspecified amount. Beginning in August 1996, several purported class action
suits were filed alleging that the Company should have paid commissions to
travel agents on port charges included in the price of cruise fares. The suits
seek damages in an unspecified amount. Similar suits are pending against other
companies in the cruise industry, including Celebrity. In February 1997, the
Company and certain other cruise lines, including Celebrity, entered into an
Assurance of Voluntary Compliance with the Florida Attorney General's office.
Under the Assurance of Voluntary Compliance, the Company and Celebrity agreed to
include all components of the cruise ticket price, other than governmental taxes
and fees, in the advertised price. The various suits are at a preliminary stage
and the Company is not able at this time to estimate the timing or impact of
those proceedings on the Company.
The Company is routinely involved in other claims typical to the cruise
industry. The majority of these claims are covered by insurance. Management
believes the outcome of such other claims which are not covered by insurance
would not have a material adverse effect upon the Company's financial condition
or results of operations.
NOTE 9- RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 standardizes the accounting for
derivative instruments and hedging activities and is effective for fiscal years
beginning after June 15, 1999. The Company is in the process of evaluating the
impact of the adoption of SFAS 133 but does not expect the adoption to have a
material effect on the financial statements.
7
<PAGE> 11
ROYAL CARIBBEAN CRUISES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements under this caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations", may constitute
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and other
factors, which may cause the actual results, performance or achievements to
differ materially from the future results, performance or achievements expressed
or implied in such forward-looking statements. Such factors include inter alia
general economic and business conditions, cruise industry competition, the
impact of tax laws and regulations affecting the Company and its principal
shareholders, changes in other laws and regulations affecting the Company,
delivery schedule of new vessels, emergency ship repairs, incidents involving
cruise vessels at sea, changes in interest rates, Year 2000 compliance and
weather.
RESULTS OF OPERATIONS
SUMMARY. For the third quarter ended September 30, 1998, the Company
reported an increase in net income of 97.6% compared to the same period in 1997.
Third quarter net income was $150.0 million, or $0.82 per share on a diluted
basis, as compared to $75.9 million, or $0.48 per share, in 1997. The earnings
improvement was driven primarily by increased capacity, improved revenue per
available lower berth ("yield") and lower operating costs as a percentage of
revenues.
Third quarter revenue increased 21.6% to $744.9 million compared to $612.5
million for the same period in 1997 due to a 13.4% increase in capacity and a
7.2% increase in yield. The increase in capacity is attributed to additions to
both the Royal Caribbean International and Celebrity fleets. The yield
improvement for the quarter was a result of higher occupancy levels which
reached 109.4%, compared to 107.6% for the same period in 1997 and higher rates
(per diems). Operating income increased 57.0% to $183.6 million from $116.9
million for the same period in 1997.
For the nine-month period ended September 30, 1998, revenues increased 46.1% to
$2.1 billion compared to $1.4 billion in 1997 due to a 42.2% increase in
capacity and a 2.8% increase in yield. Operating income increased 73.3% to
$424.6 million from $244.9 million in 1997. Net income for the nine months ended
September 30, 1998 increased more than 100% to $307.3 million or $1.70 per share
on a diluted basis, as compared to $152.8 million or $1.06 per share in 1997.
Included in the 1997 results is an extraordinary charge of approximately $0.05
per share associated with the early extinguishment of debt.
8
<PAGE> 12
The following table presents statements of operations data as a percentage of
total revenues:
<TABLE>
<CAPTION>
======================================================================================================================
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Expenses
Operating 55.7 59.2 58.9 61.6
Marketing, selling and administrative 12.7 14.0 13.4 13.9
Depreciation and amortization 7.0 7.7 7.1 7.1
----- ---- ----- ---
Operating Income 24.6 19.1 20.6 17.4
Other Income (Expense) (4.5) (6.7) (5.7) (6.0)
----- ----- ------ -----
Income Before Extraordinary Item 20.1 12.4 14.9 11.4
Extraordinary Item -- -- -- (0.6)
----- ----- ----- -----
Net Income 20.1% 12.4% 14.9% 10.8%
===== ===== ===== =====
======================================================================================================================
</TABLE>
The Company's revenues are moderately seasonal, due to variations in rates and
occupancy percentages.
REVENUES. Total revenues for the third quarter of 1998 increased 21.6%
to $744.9 million compared to $612.5 million for the same period in 1997. The
increase in revenues for the third quarter was primarily due to a 13.4% increase
in capacity as well as a 7.2% increase in yield. The capacity increase was a
result of the introduction of VISION OF THE SEAS in the second quarter of 1998,
MERCURY in October 1997, ENCHANTMENT OF THE SEAS in July 1997, partially offset
by the sale of SUN VIKING which left the fleet in the first quarter of 1998. The
increase in yield was due to an increase in occupancy levels to 109.4% from
107.6% in 1997 as well as an increase in passenger per diems.
Revenues for the first nine months of 1998 increased 46.1% to $2.1 billion from
$1.4 billion for the first nine months of 1997. The increase in revenues for the
nine months ended September 30, 1998 is due to a 42.2% increase in capacity and
a 2.8% increase in yield. The acquisition of Celebrity in the third quarter of
1997 accounted for approximately two-thirds of the capacity increase while
additions to the Royal Caribbean International fleet accounted for the balance
of the increase. The increase in yield was due to an increase in occupancy
levels to 106.4% as compared to 105.6% for the same period in 1997 as well as an
increase in cruise ticket per diems, partially offset by a decrease in shipboard
revenue per diems. The reduction in shipboard revenue per diems is due to the
inclusion of Celebrity's results in the first half of 1998. Celebrity utilizes a
higher percentage of concessionaires onboard its vessels than does Royal
Caribbean International, resulting in a dilutive effect on the per diem. The
concessionaires pay a commission (net) to the Company which is recorded as
revenue, in contrast to in-house operations, where shipboard revenues and the
related cost of sales are recorded on a gross basis.
EXPENSES. Operating expenses increased 14.4% to $415.1 million for the
third quarter of 1998 as compared to $363.0 million for the third quarter of
1997. Operating expenses increased 39.8% to $1.2 billion for the first nine
months of 1998 as compared to $868.7 million for the comparable period in 1997.
The increase in operating expenses for the third quarter and nine months was
primarily due to the increase in capacity. As a percentage of revenue, total
9
<PAGE> 13
operating expenses decreased 3.5 percentage points and 2.7 percentage points for
the quarter and nine months ended September 30, 1998, respectively.
Marketing, selling and administrative expenses increased 10.1% to $94.2 million
for the third quarter of 1998 from $85.6 million in 1997 and 40.2% to $275.5
million for the first nine months of 1998 from $196.5 million for the comparable
period in 1997. The increase in both periods was primarily due to the
acquisition of Celebrity Cruises as well as higher advertising and staffing
costs. As a percentage of revenue, marketing selling and administrative expenses
decreased 1.3% and 0.5% for the third quarter and nine months ended September
30, 1998 due primarily to economies of scale.
Depreciation and amortization for the third quarter of 1998 increased 10.4% to
$52.0 million from $47.1 million in 1997 and increased 46.2% to $147.0 million
for the first nine months of 1998 compared to $100.5 million in 1997. The
increases are primarily due to the acquisition of Celebrity Cruises and the
addition of ENCHANTMENT OF THE SEAS, VISION OF THE SEAS and MERCURY partially
offset by the departure from the fleet of SUN VIKING.
OTHER INCOME (EXPENSE). Interest expense, net of capitalized interest,
decreased to $42.2 million in the third quarter of 1998 as compared to $43.2
million for the third quarter of 1997, and increased to $128.4 million for the
nine months ended September 30, 1998 as compared to $86.4 million for the same
period in 1997. The decrease for the quarter is primarily due to the
restructuring of certain existing financing facilities. The increase for the
nine months is a result of an increase in the average debt level as a result of
the Company's fleet expansion program as well as the acquisition of Celebrity in
1997.
In the second quarter of 1998, the Company sold SONG OF AMERICA for $94.5
million and recognized a gain on the sale of $31.0 million which is included in
Other income/expense for the nine months ended September 30, 1998. The Company
will continue to operate SONG OF AMERICA under a charter agreement until March
1999.
Also included in Other income/expense for the nine months ended September 30,
1998 is a charge of $32.0 million which was recorded in the second quarter of
1998 related to the write-down to fair market value of VIKING SERENADE. Based on
the Company's strategic objective to maintain a modernized fleet, the unique
circumstances of this vessel and indications of the current value of VIKING
SERENADE, the Company recorded a write-down of the carrying value of VIKING
SERENADE to its current estimated fair market value. The Company continues to
operate and depreciate the vessel which is classified as part of Fixed Assets on
the balance sheet.
EXTRAORDINARY ITEM. In May 1997, the Company redeemed $104.5 million of
11-3/8% Senior Subordinated Notes and incurred an extraordinary charge of
approximately $7.6 million, or $0.05 per share on the early extinguishment of
debt.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH. Net cash provided by operating activities was
$502.2 million for the first nine months of 1998 as compared to $328.5 million
for the first nine months of 1997. The increase was primarily due to higher net
income as well as timing differences in cash payments relating to operating
assets and liabilities.
10
<PAGE> 14
In March 1998, the Company issued $150.0 million of 6.75% Senior Notes due 2008
and $150.0 million of 7.25% Senior Debentures due 2018. The net proceeds to the
Company were approximately $296.1 million (see Note 5 - Long-Term Debt).
In March 1998, the Company issued 6,100,690 shares of common stock. The net
proceeds to the Company were approximately $165.5 million (see Note 6 - Common
Stock).
During the nine months ended September 30, 1998, the Company made scheduled
principal payments totaling approximately $287.4 million under various term
loans and capital leases.
During the nine months ended September 30, 1998, the Company expended
approximately $481.7 million on capital projects as compared to $734.0 million
for the first nine months of 1997. Capital expenditures for the first nine
months of 1998 included $304.3 million in payments for VISION OF THE SEAS as
well as $132.4 million in payments for other ships under construction. Capital
expenditures in the first nine months of 1997 included $304.9 million in
payments for RHAPSODY OF THE SEAS, $310.4 million in payments for ENCHANTMENT OF
THE SEAS as well as $83.4 million in payments for other ships under
construction. Also included in capital expenditures are shoreside capital
expenditures and costs for vessel refurbishing to maintain consistent fleet
standards.
During the first nine months of 1998, the Company paid two quarterly cash
dividends of $0.075 per common share and one quarterly cash dividend of $0.09
per common share, totaling $40.0 million. In addition, the Company paid three
quarterly cash dividends of $0.91 per preferred share or $9.4 million.
FUTURE COMMITMENTS. In the first quarter of 1998, the Company signed
contracts for the construction of one Vantage-class vessel designated for the
Royal Caribbean International fleet, scheduled for delivery in February 2001 and
two Millennium-class vessels designated for the Celebrity fleet, scheduled for
delivery in June 2000 and January 2001. The Company also has three Eagle-class
vessels on order for the Royal Caribbean International fleet, the first of
which, VOYAGER OF THE SEAS, is scheduled for delivery in the fall of 1999,
followed by two sister vessels scheduled for delivery in the fall of 2000 and
spring of 2002. The aggregate contract price of the six ships, which excludes
capitalized interest and other ancillary costs, is approximately $2.5 billion.
Additionally, the Company has the right, cancelable on or before January 31,
1999, to purchase up to three additional vessels with delivery dates between
September 2001 and June 2002 at an aggregate contract price of approximately
$1.0 billion (two of which are denominated in French francs and are subject to
change based on fluctuations in exchange rates).
FUNDING SOURCES. As of September 30, 1998, the Company's liquidity was
$1.35 billion consisting of $350.7 million in cash and cash equivalents and $1.0
billion available on the $1.0 billion revolving credit facility (the "$1 Billion
Revolving Credit Facility"). In addition, the agreements related to the ships on
order require the shipyards to make available export financing for up to 80% of
the contract price of the vessels.
The Company's cash management practice is to utilize excess cash to reduce
outstanding balances under the $1 Billion Revolving Credit Facility, and to the
extent the cash balances exceed the amounts drawn under the $1 Billion Revolving
Credit Facility, the Company invests in short-term securities.
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In addition, the Company continuously considers potential acquisitions,
strategic alliances and adjustments to its fleet composition, including the
acquisition or disposition of vessels. If any such acquisitions, strategic
alliances and adjustments to its fleet composition were to occur, they would be
financed by the issuance of additional shares of equity securities, the
incurrence of additional indebtedness or from cash flows from operations.
IMPACT OF YEAR 2000
The "Year 2000 issue" is the result of computer programs that were written using
two digits rather than four to define the applicable year. If the Company's
computer programs with date-sensitive functions are not Year 2000 compliant,
they may recognize a date using "00" as the Year 1900 rather than the Year 2000.
This could result in a system failure or miscalculations causing disruptions to
operations.
STATE OF READINESS. The Company continuously upgrades its computer
systems. In 1992, the Company implemented a new computer reservation and
passenger services system which was designed to be Year 2000 compliant. Since
then, the Company has sought to fix Year 2000 issues as an indirect part of its
efforts to upgrade many of its internally developed computer systems. Prior to
1998, the Company did not separately track associated Year 2000 software
compliance costs.
In 1997, the Company engaged a third-party consultant to assess the status of
the Company relative to the Year 2000 issue. The assessment was completed in
early 1998. The Company then formed an internally staffed program management
office that is conducting a comprehensive review of computer programs to address
the impact of the Year 2000 issue on its operations and otherwise address the
Year 2000 issues identified by the third-party consultant (the "Year 2000
Project"). Employees in various departments throughout the Company are assisting
the program management office by addressing Year 2000 issues applicable to their
departments.
The Company has identified three major categories of Year 2000 risk:
(1) INTERNALLY DEVELOPED SOFTWARE SYSTEMS -- these include the Company's
reservation, accounting, remote reservation booking and revenue management
systems;
(2) THIRD PARTY SUPPLIED SOFTWARE SYSTEMS AND EQUIPMENT WITH EMBEDDED CHIP
TECHNOLOGY -- these include the Company's computer hardware equipment,
building facilities control systems and shipboard equipment and control
systems (e.g., navigation, engine, and bridge control systems, fire alarm
and safety systems); and
(3) EXTERNAL VENDORS AND SUPPLIERS - these include key suppliers (e.g.,
suppliers of air travel, hotel accommodations, food and other on-board
provisions), travel agents, on-board concessionaires and other third
parties whose system failures potentially could have a significant impact
on the Company's operations.
The general phases common to all three categories are (1) inventorying Year 2000
items, (2) assessing the Year 2000 compliance of key items, (3) repairing or
replacing key internally developed and third-party supplied non-compliant items,
(4) testing and certifying key internally developed and third-party supplied
items, and (5) designing and implementing contingency plans as needed.
The Company has substantially completed its inventory of all internally
developed and third-party supplied software systems and equipment and has
identified external vendors and suppliers whose system failures potentially
could have a significant impact on the Company's operations ("Key External
Vendors").
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The Company has completed its assessment of its internally developed software
systems. Through the use of questionnaires and other communications, the Company
has contacted substantially all third-party suppliers of critical software and
equipment and Key External Vendors to ascertain whether their systems and/or
equipment are Year 2000 compliant. The Company has been receiving responses from
these third parties, and is evaluating them as they are received.
The Company has repaired substantially all internally developed software systems
that were determined non-compliant. By mid-1999, the Company plans to complete
testing and certification of these systems, at which time it expects that its
key internally developed software systems will be Year 2000 compliant.
As the Company identifies non-compliant systems and equipment supplied by third
parties or used by Key External Vendors, it will request that they be
remediated. If a party's response is unsatisfactory, the Company will implement
appropriate contingency plans, including, when possible, the repair or
replacement of supplied systems or equipment or the replacement of a vendor.
The Company's objective is to complete all assessment, remediation and
certification of third party supplied software systems and equipment in the
third quarter of 1999. Over the next few months as the Company receives more
information on the extent of the Year 2000 compliance by third party suppliers
and Key External Vendors, the nature of any contingency plans that may be needed
will evolve.
The Company is currently preparing contingency plans to identify and determine
how to handle its most reasonably likely worst case scenarios. It expects to
complete these plans in the third quarter of 1999 in conjunction with completion
of its assessment, remediation, testing and certification phases.
The Company has not retained third-party consultants to assist it in the
remediation, testing or certification phases, although it may choose to do so in
the future.
RISKS. Based on its current assessment efforts, the Company does not
believe that Year 2000 issues will have a material adverse effect on the results
of its operations, liquidity or financial condition. However, this assessment is
dependent on the ability of third-party suppliers and others whose system
failures potentially could have a significant impact on the Company's operations
to be Year 2000 compliant. For instance, the operations of the Company could be
impacted by disruptions in airlines, port authorities, travel agents or others
in the transportation or sales distribution channels whose systems are not Year
2000 compliant. Although the Company cannot control the conduct of these third
parties, the Year 2000 Project is expected to reduce the Company's level of
uncertainty and the adverse effect that any such failures may have.
COSTS. The total cost associated with required modifications to become
Year 2000 compliant are not expected to be material to the company's financial
position.
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The Company estimates that it will incur approximately $6.0 million in expense
on efforts directly related to fixing the Year 2000 issue, as well as an
additional $5.0 million of capital expenditures related to the accelerated
replacement of non-compliant systems. The Company has incurred approximately
$2.0 million in expense since January 1, 1998, and spent an additional $2.0
million for capital expenditures related to the accelerated replacement of
non-compliant systems. Estimated costs do not include costs that may be incurred
by the Company as a result of the failure of any third parties to become Year
2000 compliant or costs to implement any contingency plans.
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INCORPORATION BY REFERENCE
This report on Form 6-K is hereby incorporated by reference in registrant's
Registration Statement on Form F-3 (File No. 333-8708) filed with the Securities
and Exchange Commission.
SIGNATURES
Pursuant to the requirements 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)
Date: November 18, 1998 By /s/ Richard J. Glasier
-----------------------------------------
Richard J. Glasier
Executive Vice President and Chief
Financial Officer
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