<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, 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
THIRD QUARTER 1999
<PAGE> 3
ROYAL CARIBBEAN CRUISES LTD.
INDEX TO QUARTERLY FINANCIAL REPORT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Operations
for the Third Quarters and Nine Months 1
Ended September 30, 1999 and 1998
Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 2
Consolidated Statements of Cash
Flows for the Nine Months Ended
September 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
</TABLE>
<PAGE> 4
ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
September 30, September 30,
--------------------------- -----------------------------
1999 1998 1999 1998
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 734,460 $ 744,910 $ 1,962,170 $ 2,061,143
--------- ----------- ----------- -----------
Expenses
Operating 393,198 415,106 1,130,021 1,214,101
Marketing, selling and administrative 92,787 94,238 271,480 275,497
Depreciation and amortization 50,250 51,974 145,944 146,959
--------- ----------- ----------- -----------
536,235 561,318 1,547,445 1,636,557
--------- ----------- ----------- -----------
Operating Income 198,225 183,592 414,725 424,586
--------- ----------- ----------- -----------
Other Income (Expense)
Interest income 2,573 5,528 4,628 12,449
Interest expense, net of capitalized interest (30,812) (42,162) (99,987) (128,380)
Other income (expense) (14) 3,080 26,149 (1,310)
--------- ----------- ----------- -----------
(28,253) (33,554) (69,210) (117,241)
--------- ----------- ----------- -----------
Net Income $ 169,972 $ 150,038 $ 345,515 $ 307,345
========= =========== =========== ===========
Earnings Per Share
Basic $ 0.98 $ 0.87 $ 1.98 $ 1.78
========= =========== =========== ===========
Diluted $ 0.92 $ 0.82 $ 1.88 $ 1.70
========= =========== =========== ===========
Weighted average shares outstanding
Basic 169,942 168,835 169,450 167,129
========= =========== =========== ===========
Diluted 184,254 182,485 183,637 180,821
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 5
ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
As of
-----------------------------
September 30, December 31,
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 664,786 $ 172,921
Trade and other receivables, net 52,339 36,532
Inventories 30,350 31,834
Prepaid expenses 45,213 45,044
----------- -----------
Total current assets 792,688 286,331
Property and Equipment - at cost less accumulated depreciation 5,314,954 5,073,008
Goodwill - less accumulated amortization of $115,175 and
$107,365, respectively 301,991 309,801
Other Assets 18,225 16,936
----------- -----------
$ 6,427,858 $ 5,686,076
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 128,077 $ 127,919
Accounts payable 118,400 115,833
Accrued liabilities 243,914 243,477
Customer deposits 471,288 402,926
----------- -----------
Total current liabilities 961,679 890,155
Long-Term Debt 2,263,376 2,341,163
Commitments and Contingencies
Shareholders' Equity
Preferred stock 172,500 172,500
Common stock 1,799 1,690
Paid-in capital 1,823,165 1,361,796
Retained earnings 1,210,678 923,691
Treasury stock (5,339) (4,919)
----------- -----------
Total shareholders' equity 3,202,803 2,454,758
----------- -----------
$ 6,427,858 $ 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>
Nine Months Ended
September 30,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Operating Activities
Net income $ 345,515 $ 307,345
Adjustments:
Depreciation and amortization 145,944 146,959
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 (15,807) (17,369)
Decrease in inventories 1,484 8,459
(Increase) decrease in prepaid expenses (169) 13,723
Increase (decrease) in accounts payable, trade 2,567 (3,881)
Increase in accrued liabilities 437 55,839
Increase (decrease) in customer deposits 68,362 (12,678)
Other, net 3,125 2,843
--------- ---------
Net cash provided by operating activities 551,458 502,244
--------- ---------
Investing Activities
Purchase of property and equipment (379,937) (481,665)
Proceeds from disposal of vessel -- 94,500
Other, net (3,803) 347
--------- ---------
Net cash used in investing activities (383,740) (386,818)
--------- ---------
Financing Activities
Proceeds from issuance of long-term debt -- 296,141
Repayment of long-term debt (73,483) (287,402)
Proceeds from issuance of Common Stock 450,210 165,532
Dividends (58,528) (49,400)
Other, net 5,948 (359)
--------- ---------
Net cash (used in) provided by financing activities 324,147 124,512
--------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents 491,865 239,938
Cash and Cash Equivalents at Beginning of Period 172,921 110,793
--------- ---------
Cash and Cash Equivalents at End of Period $ 664,786 $ 350,731
========= =========
Supplemental Disclosure
Interest paid, net of amount capitalized $ 95,032 $ 117,058
========= =========
</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 nine months ended September 30, 1999 and 1998 (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Third Quarter Ended September 30, Third Quarter Ended September 30,
-------------------------------------- ------------------------------------
1999 1998
-------------------------------------- ------------------------------------
Income Shares Per Share Income Shares Per Share
--------- ------- ---------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 169,972 $ 150,038
Less: Preferred stock
dividends (3,127) (3,127)
--------- ---------
Basic EPS $ 166,845 169,942 $ 0.98 $ 146,911 168,835 $ 0.87
======= =======
Effect of Dilutive Securities:
Stock options 3,663 3,002
Convertible preferred stock 3,127 10,648 3,127 10,648
--------- ------- --------- -------
Diluted EPS $ 169,972 184,254 $ 0.92 $ 150,038 182,485 $ 0.82
========= ======= ======= ========= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, Nine Months Ended September 30,
-------------------------------------- ------------------------------------
1999 1998
-------------------------------------- ------------------------------------
Income Shares Per Share Income Shares Per Share
--------- ------- ---------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 345,515 $ 307,345
Less: Preferred stock
dividends (9,381) (9,381)
--------- ---------
Basic EPS $ 336,134 169,450 $ 1.98 $ 297,964 167,129 $ 1.78
======= =======
Effect of Dilutive Securities:
Stock options 3,539 3,004
Convertible preferred stock 9,381 10,648 9,381 10,648
--------- ------- --------- -------
Diluted EPS $ 345,515 183,637 $ 1.88 $ 307,345 180,821 $ 1.70
========= ======= ======= ========= ======= =======
</TABLE>
4
<PAGE> 8
NOTE 3 - COMMON STOCK
On September 23, 1999, the Company completed a public offering of 10,800,000
shares of common stock at a price of $46.69 per share. Of the total shares sold,
10,000,000 shares were sold by the Company and the balance of 800,000 shares
were sold by a selling shareholder. After deduction of the underwriting discount
and other estimated expenses of the offering, net proceeds to the Company were
approximately $450.2 million. On October 13, 1999, the Company issued an
additional 825,000 shares of common stock at a price of $46.69 in connection
with the public offering. After deduction of the underwriting discount and other
estimated expenses of the offering, net proceeds to the Company for the
additionally issued shares were approximately $37.2 million.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES. The Company currently has a total of eight ships on order.
The aggregate contract price of the eight ships, which excludes capitalized
interest and other ancillary costs, is approximately $3.1 billion of which the
Company has deposited $325.4 million. Additional deposits are due prior to the
dates of delivery of $25.0 million in 1999, $88.1 million in 2000, and $25.0
million in 2001. In October 1999, the Company took delivery of the
3,100-passenger VOYAGER OF THE SEAS. The Company anticipates that overall
capital expenditures will be approximately $1.0, $1.2, and $1.4 billion for
1999, 2000 and 2001, respectively.
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 also calls for Company probation of up to five years and a Court
supervised Environmental Compliance Plan. 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 their guests the amount of their 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
5
<PAGE> 9
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 have issued 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 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 commitments through 2014 to pay a minimum amount for its
annual usage of certain port facilities (in thousands):
Year
----
1999 $ 1,946
2000 8,720
2001 10,238
2002 12,050
2003 12,524
Thereafter 151,362
---------
$ 196,840
=========
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 third quarter of 1999 increased 13.3% to
$170.0 million or $0.92 per share on a diluted basis compared to $150.0 million
or $0.82 per share for the same period in 1998. The increase in net income was
achieved through higher guest per diems, lower operating expenses and reduced
debt costs.
Third quarter revenues were $734.5 million compared to $744.9 million for the
same period in 1998. The decrease in total revenue resulted from a reduction in
capacity associated with the sale of SONG OF AMERICA, which left the fleet in
March of this year, offset by an increase in gross revenue per available lower
berth ("Yield").
For the nine-month period ended September 30, 1999, net income increased 12.4%
to $345.5 million or $1.88 per share on a diluted basis compared to $307.3
million or $1.70 per share in 1998. The increase in net income is the result of
higher guest per diems, lower operating expenses and reduced debt costs.
Included in net income are charges of $14 million and $9 million in 1999 and
1998, respectively, related to the plea agreements with the U.S. Department of
Justice.
Revenues declined 4.8% to $2.0 billion for the nine-month period ended September
30, 1999 as compared to $2.1 billion in 1998. The decline in revenues for the
nine-month period is due to a decline in capacity related to the sale of SONG OF
AMERICA as discussed above as well as a temporary decline in capacity associated
with GRANDEUR OF THE SEAS and ENCHANTMENT OF THE SEAS being out of service
during the second quarter of 1999 due to unscheduled engine repairs.
Additionally, MONARCH OF THE SEAS was out of service for most of the first
quarter due to a grounding incident in mid-December 1998. The Company recovers
lost income from ships being out of service through its loss-of-hire insurance.
Included in net income for the nine months ended September 30, 1999 is
approximately $26.5 million of loss-of-hire insurance, which is recorded in
Other income.
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<PAGE> 11
As a result of the temporary decline in capacity and the inclusion of
loss-of-hire insurance in Other income during the nine months ended September
30, 1999, certain operating margins are not comparative year over year.
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,
------------------- -------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Expenses
Operating 53.5 55.7 57.6 58.9
Marketing, selling and administrative 12.6 12.7 13.8 13.4
Depreciation and amortization 6.8 7.0 7.4 7.1
------ ------ ------ ------
Operating Income 27.1 24.6 21.2 20.6
Other Income (Expense) (4.0) (4.5) (3.6) (5.7)
------ ------ ------ ------
Net Income 23.1% 20.1% 17.6% 14.9%
====== ====== ====== ======
</TABLE>
The Company's revenues are moderately seasonal, due to variations in rates and
occupancy percentages.
REVENUES. Total revenues for the third quarter of 1999 decreased 1.4%
to $734.5 million compared to $744.9 million for the same period in 1998. The
decrease in revenues for the third quarter was due to a 2.8% decline in
capacity, partially offset by an increase in Yield of 1.4%. The decline in
capacity is associated with the sale of SONG OF AMERICA, as mentioned above.
The increase in Yield was due to an increase in guest per diems, partially
offset by a reduction in air revenue associated with fewer guests electing to
use the Company's air program. Occupancy for the quarter was slightly lower at
109.0% compared to 109.4% for the same quarter in 1998.
Revenues for the first nine months of 1999 declined 4.8% to $2.0 billion from
$2.1 billion for the first nine months of 1998. The decline in revenues was due
to a 4.4% decrease in capacity and a 0.4% decline in Yield. The decline in Yield
was the result of a decline in occupancy levels from 106.4% in 1998 to 105.4% in
1999 as well as a reduction in air revenue and the redemption of discount cruise
certificates issued to guests that were affected by the ships which were out of
service during the first two quarters of 1999, partially offset by improved
guest per diems.
EXPENSES. Operating expenses decreased 5.3% to $393.2 million for the
third quarter of 1999 as compared to $415.1 million for the same period in 1998.
For the nine months ended September 30, 1999, operating expenses declined 6.9%
to $1.1 billion as compared to $1.2 billion in 1998. The decrease for the
quarter and nine months ended September 30, 1999 is due primarily to the decline
in capacity and 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
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with the U.S. Department of Justice. As a percentage of revenues, operating
expenses decreased from 55.7% to 53.5% and from 58.9% to 57.6% for the third
quarter and first nine months of 1999, respectively.
Marketing, selling and administrative expenses decreased 1.5% to $92.8 million
for the third quarter of 1999 from $94.2 million for the same period in 1998 and
decreased 1.5% to $271.5 million for the first nine months of 1999 from $275.5
million for the comparable period in 1998. As a percentage of revenue,
marketing, selling and administrative expenses decreased slightly to 12.6% in
the third quarter of 1999 from 12.7% in the third quarter of 1998. As a
percentage of revenue, marketing, selling and administrative expenses for the
nine months ended September 30, 1999 increased to 13.8% from 13.4% for the same
period in 1998. The increase for the nine-month period is due to the decline in
the revenue base.
Depreciation and amortization remained relatively consistent at $50.3 million
and $145.9 million compared to $52.0 million and $147.0 million for the quarter
and nine months ended September 30, 1999 and 1998, respectively.
OTHER INCOME (EXPENSE). Gross interest expense (excluding capitalized
interest) decreased to $40.4 million in the third quarter of 1999 as compared to
$45.8 million in 1998, and decreased to $123.0 million for the nine months ended
September 30, 1999 as compared to $138.9 million for the same period in 1998.
The decline for the quarter and nine months ended September 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
$6.0 million and $12.5 million for the quarter and nine months ended September
30, 1999, respectively, due to an increase in expenditures related to the ships
under construction.
Included in Other income (expense) for the nine months ended September 30, 1999
is $26.5 million 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
$551.5 million for the first nine months of 1999 as compared to $502.2 million
for the first nine months of 1998. The increase was due to higher net income as
well as timing differences in cash payments and receipts relating to operating
assets and liabilities.
In September 1999, the Company issued 10,000,000 shares of common stock. The net
proceeds to the Company were approximately $450.2 million. (see Note 3 - Common
Stock).
During the first nine months of 1999, the Company paid quarterly cash dividends
on its common stock of $49.1 million as well as quarterly cash dividends on its
preferred stock, totaling $9.4 million.
The Company made principal payments totaling $73.5 million during the first nine
months of 1999 under various term loans and capital lease agreements.
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<PAGE> 13
The Company's capital expenditures decreased to $379.9 million for the first
nine months of 1999 as compared to $481.7 million for the first nine months of
1998. Capital expenditures included $304.3 million and $132.4 million in
payments for ships under construction during the first nine months of 1999 and
1998, respectively. Included in capital expenditures in 1998 is $304.3 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 eight ships on order for
an additional capacity of 18,400 berths. The aggregate contract price of the
eight ships, which excludes capitalized interest and other ancillary costs, is
approximately $3.1 billion of which the Company has deposited $325.4 million.
Additional deposits are due prior to the dates of delivery of $25.0 million in
1999, $88.1 million in 2000 and $25.0 million in 2001. In October 1999, the
Company took delivery of the 3,100-passenger VOYAGER OF THE SEAS. The Company
anticipates that overall capital expenditures will be approximately $1.0, $1.2
and $1.4 billion for 1999, 2000 and 2001, respectively.
As a normal part of the Company's business, depending on market
conditions, pricing and the Company's overall growth strategy, the Company
continuously considers opportunities to enter into contracts for the building of
additional ships. The Company may also consider the sale of ships which are
older in age and design. The Company also continuously considers potential
acquisitions and strategic alliances. If any of these were to occur, they would
be financed through the incurrence of additional indebtedness, the issuance of
additional shares of equity securities, or from cash flows from operations.
The Company had $2.4 billion of long-term debt as of September 30,
1999, of which $128.1 million is due during the twelve month period ending
September 30, 2000.
FUNDING SOURCES. As of September 30, 1999, the Company's liquidity was
approximately $1.7 billion consisting of $664.8 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, the incurrence of additional indebtedness and sales of securities in
private or public securities markets. 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.
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.
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<PAGE> 14
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 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 has
completed its testing and certification of these systems and believes that its
key internally developed software systems are Year 2000 compliant. The Company
retained a third-party consultant which has performed 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 and certified. To date, substantially all third-party suppliers of
key
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software and equipment and key external vendors have certified that their
systems and/or equipment are Year 2000 compliant. The Company has developed
contingency plans which it will implement in the event that the systems or
equipment of any third-party supplier or external vendor proves to be
non-compliant.
The Company has substantially completed its 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. These 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 shore-side 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. These 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 will continue to refine these plans, 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 $4.5 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
$3.4 million in expenses since January 1, 1998, and spent an additional $3.8
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. 333-89015) 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 16, 1999 By /s/ Richard J. Glasier
----------------------------
Richard J. Glasier
Executive Vice President and
Chief Financial Officer
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