<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 AUGUST, 1999
---------------
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
SECOND QUARTER 1999
<PAGE> 3
ROYAL CARIBBEAN CRUISES LTD.
INDEX TO QUARTERLY FINANCIAL REPORT
PAGE
----
Consolidated Statements of Operations
for the Second Quarters and Six Months 1
Ended June 30, 1999 and 1998
Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 2
Consolidated Statements of Cash
Flows for the Six Months Ended
June 30, 1999 and 1998 3
Notes to the Consolidated Financial
Statements 4
Management's Discussion and
Analysis of Financial Condition and
Results of Operations 7
<PAGE> 4
ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Second Quarter Ended June 30, Six Months Ended June 30,
----------------------------- --------------------------
1999 1998 1999 1998
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES $ 617,664 $ 656,456 $ 1,227,710 $1,316,233
--------- ----------- ----------- ----------
EXPENSES
Operating 370,210 402,585 736,823 798,995
Marketing, selling and administrative 90,879 84,967 178,693 181,259
Depreciation and amortization 48,465 47,371 95,694 94,985
--------- ----------- ----------- ----------
509,554 534,923 1,011,210 1,075,239
--------- ----------- ----------- ----------
OPERATING INCOME 108,110 121,533 216,500 240,994
--------- ----------- ----------- ----------
OTHER INCOME (EXPENSE)
Interest income 1,164 4,342 2,055 6,921
Interest expense, net of capitalized
interest (33,953) (43,662) (69,175) (86,218)
Other income (expense) 10,026 (2,443) 26,163 (4,390)
--------- ----------- ----------- ----------
(22,763) (41,763) (40,957) (83,687)
--------- ----------- ----------- ----------
NET INCOME $ 85,347 $ 79,770 $ 175,543 $ 157,307
========= =========== =========== ==========
EARNINGS PER SHARE
Basic $ 0.49 $ 0.45 $ 1.00 $ 0.91
========= =========== =========== ==========
Diluted $ 0.47 $ 0.44 $ 0.96 $ 0.86
========= =========== =========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 169,341 168,711 169,200 166,262
========= =========== =========== ==========
Diluted 183,474 182,636 183.280 183,038
========= =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
As of
------------------------------
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 156,775 $ 172,921
Trade and other receivables, net 91,404 36,532
Inventories 30,786 31,834
Prepaid expenses 40,818 45,044
----------- -----------
Total current assets 319,783 286,331
PROPERTY AND EQUIPMENT - at cost less accumulated depreciation 5,232,303 5,073,008
GOODWILL - less accumulated amortization of $112,572 and
$107,365, respectively 304,594 309,801
OTHER ASSETS 17,685 16,936
----------- -----------
$ 5,874,365 $ 5,686,076
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 128,087 $ 127,919
Accounts payable 98,779 115,833
Accrued liabilities 239,067 243,477
Customer deposits 530,312 402,926
----------- -----------
Total current liabilities 996,245 890,155
LONG-TERM DEBT 2,277,736 2,341,163
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock 172,500 172,500
Common stock 1,696 1,690
Paid-in capital 1,368,869 1,361,796
Retained earnings 1,062,518 923,691
Treasury stock (5,199) (4,919)
----------- -----------
Total shareholders' equity 2,600,384 2,454,758
----------- -----------
$ 5,874,365 $ 5,686,076
=========== ===========
</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>
Six Months Ended June 30,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 175,543 $ 157,307
Adjustments
Depreciation and amortization 95,694 94,985
Gain on sale of vessel -- (31,031)
Write-down of vessel to fair value -- 32,035
Changes in operating assets and liabilities:
(Increase) in trade and other receivables, net (54,872) (6,329)
Decrease (increase) in inventories 1,048 (1,009)
Decrease in prepaid expenses 4,226 9,525
(Decrease) increase in accounts payable, trade (17,054) 57
(Decrease) increase in accrued liabilities (4,410) 52,816
Increase in customer deposits 127,386 60,905
Other, net 1,998 1,768
--------- ---------
Net cash provided by operating activities 329,559 371,029
--------- ---------
Investing Activities
Purchase of property and equipment (249,686) (424,506)
Proceeds from disposal of vessel -- 94,500
Other, net (2,340) 757
--------- ---------
Net cash used in investing activities (252,026) (329,249)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 296,141
Repayment of long-term debt (60,586) (214,493)
Proceeds from issuance of Common Stock -- 165,532
Dividends (36,716) (31,077)
Other,net 3,623 1,304
--------- ---------
Net cash (used in) provided by financing activities (93,679) 217,407
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (16,146) 259,187
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 172,921 110,793
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 156,775 $ 369,980
========= =========
SUPPLEMENTAL DISCLOSURE
Interest paid, net of amount capitalized $ 72,999 $ 83,410
========= =========
</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 1998.
NOTE 2 - EARNINGS PER SHARE
Below is a reconciliation between basic and diluted earnings per share for the
quarters and six months ended June 30, 1999 and 1998 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Second Quarter Ended June 30, Second Quarter Ended June 30,
---------------------------------- ------------------------------------
1999 1998
---------------------------------- ------------------------------------
Income Shares Per Share Income Shares Per Share
-------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 85,347 $ 79,770
Less: Preferred stock
dividends (3,127) (3,127)
-------- --------
Basic EPS $ 82,220 169,341 $0.49 76,643 168,711 $0.45
===== =====
Effect of Dilutive Securities:
Stock options 3,485 3,277
Convertible preferred stock 3,127 10,648 3,127 10,648
-------- ------- -------- -------
Diluted EPS 85,347 183,474 0.47 79,770 182,636 0.44
======== ======= ===== ======== ======= =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, Six Months Ended June 30,
---------------------------------- ------------------------------------
1999 1998
---------------------------------- ------------------------------------
Income Shares Per Share Income Shares Per Share
-------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income $175,543 $157,307
Less: Preferred stock
dividends (6,254) (6,254)
-------- --------
Basic EPS 169,289 169,200 $1.00 $151,053 166,262 $0.91
===== =====
Effect of Dilutive Securities:
Stock options 3,432 6,128
Convertible preferred stock 6,254 10,648 6,254 10,648
-------- ------- -------- -------
Diluted EPS $175,543 183,280 0.96 $157,307 183,038 $0.86
======== ======= ===== ======== ======= =====
</TABLE>
4
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NOTE 3 - COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES. The Company currently has a total of nine ships on order.
The aggregate contract price of the nine ships, which excludes capitalized
interest and other ancillary costs, is approximately $3.6 billion of which the
Company has deposited $354.6 million. Additional deposits are due prior to the
dates of delivery of $101.6 million in 1999, $88.1 million in 2000, and $25.0
million in 2001. The Company anticipates that overall capital expenditures will
be approximately $1.0, $1.2, and $1.4 billion for 1999, 2000 and 2001.
LITIGATION. Since October 1994, the U.S. Government has been investigating the
Company's waste disposal practices through a series of federal grand jury
proceedings. In July 1999, the Company entered into a plea agreement with the
U.S. Department of Justice in order to resolve those investigations on behalf
of the Company. Under the plea agreement, the Company has agreed to plead
guilty to twenty-one felony counts and to pay a criminal fine of $18 million to
resolve all outstanding counts against the Company. The felony counts relate to
the improper disposal of oil-contaminated bilge water and attempts to conceal
such activities from the U.S. Coast Guard, the improper disposal of other waste
water, known as gray water, that was contaminated with pollutants, and the
storage of hazardous waste on land for more than 90 days without a permit. The
plea agreement, which also calls for Company probation of up to five years and
a Court supervised Environmental Compliance Plan, is subject to the approval of
U.S. District Courts in Alaska, California, Florida, New York, Puerto Rico and
the Virgin Islands. Although the plea agreement resolves the federal criminal
investigation of the Company, it does not preclude the Company from becoming
subject to additional civil or State actions. The July 1999 plea agreement is
in addition to a plea agreement entered into in June 1998 pursuant to which the
Company pled guilty to eight felony counts and paid a criminal fine of $9
million for other similar offenses. In August 1999, the State of Alaska filed a
civil lawsuit against the Company seeking monetary damages for alleged
violations of Alaskan laws relating to the discharge of oil and hazardous
waste. The Company is not able at this time to estimate the timing or impact of
this lawsuit on the Company.
Beginning in December 1995, several purported class action suits were
filed alleging that Royal Caribbean International and Celebrity Cruise Lines
Inc. ("Celebrity") misrepresented to its guests 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 Royal Caribbean International and Celebrity 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. In February 1997,
Royal Caribbean International, Celebrity and certain other cruise lines entered
into an Assurance of Voluntary Compliance with the Florida Attorney General's
office. Under the Assurance of Voluntary Compliance, Royal Caribbean
International and Celebrity agreed to include all components of the cruise
ticket price, other than governmental taxes and fees, in the advertised price.
In January 1999, Royal Caribbean International entered into an agreement to
settle certain of the class-action suits filed on behalf of its guests.
Celebrity entered into a similar settlement agreement. Under the terms of the
settlement agreements, each of Royal Caribbean International and Celebrity will
issue travel vouchers having face amounts ranging from $8 to $30, in the case
of Royal Caribbean International, and from $20 to $45 in the case of Celebrity,
to guests who are U.S. residents and who sailed on Royal Caribbean
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<PAGE> 9
International or Celebrity, as the case may be, between April 1992 and April
1997. Such vouchers may be applied to reduce the cruise fare of a future cruise
on Royal Caribbean International or Celebrity, as the case may be, and are
valid for up to three years from the date of issuance. The settlements have
received final court approval. Since the amount and timing of the vouchers to
be redeemed and the effect of redemption on revenues is not reasonably
determinable, the Company has not established a liability for the vouchers and
will account for their redemption as a reduction of future revenues. In
December 1998, a Florida state court judge dismissed one of the class-action
suits filed on behalf of travel agents for failure to state a claim under
Florida law. The plaintiff in that case has filed an appeal of that decision.
The Company is not able at this time to estimate the timing or impact of the
travel agent proceedings on the Company.
In April 1999 a lawsuit was filed in the United States District Court
for the Southern District of New York on behalf of current and former crew
members alleging that the Company failed to pay the plaintiffs their full
wages. The suit seeks payment of (i) the wages alleged to be owed, (ii) penalty
wages under U.S. law and (iii) punitive damages. The Company is not able at
this time to estimate the impact of these proceedings on the Company; there can
be no assurance that such proceedings, if decided adversely, would not have a
material adverse effect on the Company's results of operations.
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.
OTHER. The Company has a commitment through 2013 to pay a minimum amount for its
annual usage of certain port facilities (in thousands):
Year
-----------
1999 $ 6,500
2000 7,500
2001 9,500
2002 9,500
2003 10,000
Thereafter 117,000
--------
$160,000
========
6
<PAGE> 10
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. Net income for the second quarter before the previously
disclosed plea agreements with the U.S. Department of Justice increased 11.9%
to $99.3 million or $0.54 per share on a diluted basis compared to $88.8
million or $0.49 per share for the same period in 1998. Included in the results
are charges of $14 million and $9 million in 1999 and 1998, respectively
related to the plea agreements. On an as-reported basis, net income for the
quarter increased 7% to $85.3 million or $0.47 per share compared to $79.8
million or $0.44 per share in 1998.
Second quarter revenues were $617.7 million compared to $656.5 million for the
same period in 1998. The results for the quarter were impacted by a temporary
decline in capacity associated with Grandeur of the Seas and Enchantment of the
Seas being out of service during the quarter for unscheduled engine repairs and
the sale of Song of America, which left the fleet in March of this year. The
Company recovers lost income from ships being out of service through its
loss-of-hire insurance. Included in net income for the quarter is approximately
$9.4 million of loss-of-hire insurance, which is recorded in Other income.
For the six-month period ended June 30, 1999, net income increased 11.6% to
$175.5 million or $0.96 per share as compared to $157.3 million or $0.86 per
share in 1998. Revenues declined 6.7% to $1.2 billion for the six month period
ended June 30, 1999 as compared to $1.3 billion in 1998. The decline in
revenues for the six month period is primarily due to a decline in capacity as
discussed above. Additionally, Monarch of the Seas was out of service for most
of the first quarter due to a grounding incident in mid-December 1998, which
also negatively affected capacity for the six months ended June 30, 1999.
Included in net income for the six months ended June 30, 1999 is approximately
$26.5 million of loss-of-hire insurance.
As a result of the temporary decline in capacity and the inclusion of
loss-of-hire insurance in Other income during the quarter and six months ended
June 30, 1999, certain operating margins are not comparative year over year.
7
<PAGE> 11
The following table presents statements of operations data as a percentage of
total revenues:
<TABLE>
<CAPTION>
Second Quarter Ended June 30, Six Months Ended June 30,
----------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Expenses
Operating 59.9 61.3 60.0 60.7
Marketing, selling and administrative 14.7 12.9 14.6 13.8
Depreciation and amortization 7.8 7.2 7.8 7.2
----- ----- ----- -----
Operating Income 17.6 18.6 17.6 18.3
Other Income (Expense) (3.8) (6.4) (3.3) (6.4)
----- ----- ----- -----
Net Income 13.8% 12.2% 14.3% 11.9%
===== ===== ===== =====
</TABLE>
The Company's revenues are moderately seasonal, due to variations in rates and
occupancy percentages.
REVENUES. Total revenues for the second quarter of 1999 decreased 5.9%
to $617.7 million compared to $656.5 million for the same period in 1998. The
decrease in revenues for the second quarter was due primarily to a 6.5% decline
in capacity, partially offset by an increase in gross revenue per available
lower berth ("Yield"). The increase in Yield was due to an increase in guest per
diems, partially offset by a reduction in air revenue per diems associated with
fewer guests electing to use the Company's air program and the redemption of
discount cruise certificates issued to guests that were affected by the ships
which were out of service. Occupancy for the quarter declined slightly to 104.8%
from 105.0% in 1998.
Revenues for the first six months of 1999 declined 6.7% to $1.2 billion from
$1.3 billion for the first six months of 1998. The decline in revenues was due
to a 5.2% decrease in capacity and a 1.6% decline in Yield. The decline in
Yield was the result of a decline in occupancy levels from 104.8% in 1998 to
103.4% in 1999 as well as a reduction in air revenue per diems and the
redemption of discount cruise certificates, partially offset by improved guest
per diems.
EXPENSES. Operating expenses decreased 8.0% to $370.2 million for the
second quarter of 1999 as compared to $402.6 million for the same period in
1998. For the six months ended June 30, 1999, operating expenses declined 7.8%
to $736.8 million as compared to $799.0 million in 1998. The decrease for the
quarter and six months ended June 30, 1999 is due primarily to the decline in
capacity as well as lower air costs due to a lower percentage of guests
electing to use the Company's air program. Included in operating expenses are
charges of $14.0 and $9.0 million in the second quarter of 1999 and 1998,
respectively, related to the settlement with the U.S. Department of Justice. As
a percentage of revenues, operating expenses decreased to 59.9% and 60.0% for
the quarter and first six months of 1999, respectively.
8
<PAGE> 12
Marketing, selling and administrative expenses increased 7.0% to $91.0 million
for the second quarter of 1999 from $85.0 million in 1998 and decreased 1.4% to
$179.0 million for the first six months of 1999 from $181.3 million for the
comparable period in 1998. The increase during the quarter is due primarily to
increased advertising and staffing costs associated with the expansion of the
Company's European operations as well as additional staffing costs associated
with the Company's domestic operations. As a percentage of revenue, marketing,
selling and administrative expenses increased to 14.7% from 12.9% in the second
quarter of 1998 due to the increased spending as well as a decline in the
revenue base. For the six months ended June 30, 1999, the decrease is due
primarily to a decline in domestic advertising costs offset by the increase in
European operations. As a percentage of revenue, marketing, selling and
administrative expenses for the six months ended June 30, 1999 increased to
14.6% from 13.8% for the same period in 1998. The increase for the six month
period is due to the decline in the revenue base.
Depreciation and amortization remained relatively consistent at $48.5 million
and $95.7 million compared to $47.4 million and $95.0 million for the quarter
and six months ended June 30, 1999 and 1998, respectively.
OTHER INCOME (EXPENSE). Gross interest expense (excluding capitalized
interest) decreased to $41.0 million in the second quarter of 1999 as compared
to $47.4 million in 1998, and decreased to $82.7 million for the six months
ended June 30, 1999 as compared to $93.1 million for the same period in 1998.
The decline for the quarter and six months ended June 30, 1999 is due primarily
to a decrease in the average debt level due to prepayments made during 1998 as
well as a decrease in interest rates. Capitalized interest increased $3.3
million and $6.6 million for the quarter and six months ended June 30, 1999,
respectively, due to an increase in expenditures related to the ships under
construction.
Included in Other income (expense) for the quarter and six months ended June 30,
1999 is $9.4 million and $26.5 million, respectively, of loss of hire insurance
resulting from ships being out of service. Other income (expense) in 1998
includes a gain of $31.0 million from the sale of Song of America as well as a
$32.0 million charge related to the write-down to fair market value of Viking
Serenade.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH. Net cash provided by operating activities
was $330.0 million for the first six months of 1999 as compared to $371.0
million for the first six months of 1998. The decrease was due to timing
differences in cash payments and receipts relating to operating assets and
liabilities.
During the first six months of 1999, the Company paid quarterly cash dividends
on its common stock of $30.5 million as well as quarterly cash dividends on its
preferred stock, totaling $6.2 million.
The Company made principal payments totaling $60.6 million during the first six
months of 1999 under various term loans and capital lease agreements.
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<PAGE> 13
The Company's capital expenditures decreased to $250.0 million for the first
six months of 1999 as compared to $424.5 million for the first six months of
1998. Capital expenditures included $185.5 million and $94.6 million in
payments for ships under construction during the first six months of 1999 and
1998, respectively. Included in capital expenditures in 1998 is $300.6 million
in payments for Vision of the Seas, which entered service in the second quarter
of 1998. Also included in capital expenditures are shoreside capital
expenditures and costs for vessel improvements to maintain consistent fleet
standards.
FUTURE COMMITMENTS. The Company currently has nine ships on order for
an additional capacity of 21,500 berths. The aggregate contract price of the
nine ships, which excludes capitalized interest and other ancillary costs, is
approximately $3.6 billion of which the Company has deposited $354.6 million.
Additional deposits are due prior to the dates of delivery of $101.6 million in
1999, $88.1 million in 2000 and $25.0 million in 2001. The Company anticipates
that overall capital expenditures will be approximately $1.0, $1.2 and $1.4
billion for 1999, 2000 and 2001, respectively.
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.
FUNDING SOURCES. As of June 30, 1998, the Company's liquidity was
approximately $1.2 billion consisting of $156.8 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"). The capital expenditures
and scheduled debt payments will be funded through a combination of cash flows
provided by operations, drawdowns under the $1 Billion Revolving Credit
Facility, and sales of securities in private or public securities markets. In
addition, the agreements related to the ships scheduled for delivery subsequent
to 1999 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.
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
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<PAGE> 14
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 compliant 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 completed its inventory and assessment of its key internally
developed software systems and equipment and has repaired those internally
developed software systems that were determined non-compliant. The Company
plans to complete testing and certification of these systems by the end of the
third quarter of 1999, at which time it expects that its key internally
developed software systems will be Year 2000 compliant. The Company has
retained a third-party consultant to perform an independent study and
evaluation of its certification and testing procedures.
Through the use of questionnaires and other communications with third party
suppliers of software systems and equipment and external vendors, the Company
has (i) completed its assessment of material software and equipment supplied by
third parties and (ii) identified those external vendors whose system failures
could potentially have a significant impact on the Company's operations. The
Company has requested that all identified non-compliant systems and equipment
be remediated. Depending on the third party's response, the Company will
implement appropriate contingency plans, including, when possible, the repair
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or replacement of supplied systems or equipment or the replacement of the
external vendor. The Company expects to complete most remediation and
certification of third-party supplied software systems and equipment and
evaluation of compliance by external vendors by the end of the third quarter of
1999 and the remainder in the fourth quarter of 1999.
The Company is developing contingency plans for each of its critical business
units and its cruise vessels which identify and determine how to handle its
most reasonably likely worst case scenarios in the event of system failures.
The plans assess the impact of system failures on business operations and
provide for backup and/or alternate procedures to be followed if a failure
should occur. The plans (i) provide for the establishment of a command center
at the Company's facilities during the Year 2000 rollover to monitor fleet and
shoreside operations, (ii) provide for the assignment of key internal staff to
be on-site at the Company's facilities during the Year 2000 rollover, and (iii)
identify individuals from key external suppliers who can be contacted if
necessary in the event of system failures. The plans also provide for the
stockpiling of essential and critical supplies and the identification of
alternative supply sources should there be a disruption of the normal supply
chain operations. The Company plans to substantially complete its contingency
planning by the end of the third quarter 1999 with refinements to be made as
needed throughout the remainder of the year.
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.
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
$3.1 million in expenses since January 1, 1998, and spent an additional $2.7
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.
The information contained in this "Impact of Year 2000" section is a Year 2000
Readiness Disclosure pursuant to the Year 2000 Information and Readiness
Disclosure Act.
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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: August 18, 1999 By /s/ Richard J. Glasier
------------------------------
Richard J. Glasier
Executive Vice President and
Chief Financial Officer
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