ROYAL CARIBBEAN GROUP Cautionary Note Concerning Forward-Looking Statements The discussion under this caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this document includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, business and industry prospects or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. Words such as "anticipate," "believe," "could," "estimate," "expect," "goal," "intend," "may," "plan," "project," "seek," "should," "will," "driving" and similar expressions are intended to further identify any of these forward-looking statements. Forward-looking statements reflect management's current expectations but they are based on judgments and are inherently uncertain. Furthermore, they are subject to risks, uncertainties and other factors that could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements. Examples of these risks, uncertainties and other factors include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q and, in particular, the risks discussed under the caption "Risk Factors" in Part II, Item 1A herein. All forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date of this document. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
The discussion and analysis of our financial condition and results of operations is organized to present the following: •a review of our financial presentation, including discussion of certain operational and financial metrics we utilize to assist us in managing our business; •a discussion of our results of operations for the quarter endedJune 30, 2020 and six months endedJune 30, 2020 , compared to the same periods in 2019; •a discussion of our business outlook •a discussion of our liquidity and capital resources, including our future capital and contractual commitments and potential funding sources. 31
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Critical Accounting Policies
Valuation of
The outbreak of COVID-19 has resulted in an unprecedented global response to contain the spread and control the resurgence of the disease. These global efforts have resulted in travel restrictions and created significant uncertainty regarding worldwide port closures and availability. As part of the global containment effort, the Company previously announced a voluntary suspension of its Global Brands' cruise operations through at leastOctober 31, 2020 , excludingChina andAustralia . Continued disruptions to travel and port operations in various regions may result in further suspensions. Refer to Note 1. General to our consolidated financial statements for further information regarding COVID-19 and its impact to the Company. As a result of these developments, we performed interim impairment evaluations on our goodwill, indefinite-lived intangible assets and long-lived assets as discussed below in connection with the preparation of our financial statements for the quarters endedMarch 31, 2020 andJune 30, 2020 . When performing the goodwill impairment test, the fair value of the reporting unit is determined and compared to the carrying value of the net assets allocated to the reporting unit. We typically estimate the fair value of our reporting units using a probability-weighted discounted cash flow model, which may also include a combination of a market-based valuation approach. The estimation of fair value utilizing discounted expected future cash flows includes numerous uncertainties which require our significant judgment when making assumptions of expected revenues, operating costs, marketing, selling and administrative expenses, interest rates, ship additions and retirements as well as assumptions regarding the cruise vacation industry's competitive environment and general economic and business conditions, among other factors. The principal assumptions we use in the discounted cash flow model are projected operating results, weighted average cost of capital, revenue base, revenue growth rate and terminal rate. The discounted cash flow model uses the most current projected operating results for the upcoming fiscal year as a base. To that base, we add future years' cash flows assuming multiple revenue and expense scenarios that reflect the impact of different global economic environments beyond the base year on the reporting unit. We discount the projected cash flows using rates specific to the reporting unit based on its weighted-average cost of capital. If the fair value of the reporting unit exceeds its carrying value, no write-down of goodwill is required. As amended by ASU No. 2017-04, Intangibles -Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment, if the fair value of the reporting unit is less than the carrying value of its net assets, an impairment is recognized based on the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to such reporting unit. For further discussion of our critical accounting policies, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report on Form 10-K for the year endedDecember 31, 2019 , as updated by our Current Report on Form 8-K datedMay 13, 2020 . For further discussion on impairment losses recorded in the six months endedJune 30, 2020 , refer to Note 3. Impairment and Credit Losses to our consolidated financial statements.
Royal Caribbean International Reporting Unit
We performed interim impairment evaluations ofRoyal Caribbean International's goodwill in connection with the preparation of our financial statements during the quarters endedMarch 31, 2020 andJune 30, 2020 . As a result of the tests, we determined that the fair value of theRoyal Caribbean International reporting unit exceeded its carrying value by approximately 30% and 8% resulting in no impairment to theRoyal Caribbean International goodwill in either period. We estimated the fair value of theRoyal Caribbean International reporting unit using a probability-weighted discounted cash flow model in combination with a market based valuation approach. Significant assumptions used in these valuations include the weighted average cost of capital discount factor, revenue base, revenue growth rate and terminal rate. As ofJune 30, 2020 , the carrying amount of goodwill attributable to ourRoyal Caribbean reporting unit was$296.5 million .
Silversea Cruises Reporting Unit
We performed an interim impairment evaluation ofSilversea Cruises' goodwill and trade name in connection with the preparation of our financial statements for the quarter endedMarch 31, 2020 . As a result of this analysis, we determined that the carrying value of theSilversea Cruises reporting unit exceeded its fair value. Similarly, we determined that the carrying value ofSilversea Cruises' trade name exceeded its fair value as well. Accordingly, upon the completion of the impairment test, we recognized impairment charges of$576.2 million and$30.8 million for goodwill and the trade name, respectively, during the quarter endedMarch 31, 2020 . We estimated the fair value of theSilversea Cruises reporting unit using a probability-weighted discounted cash flow model in combination with a market based valuation approach. Significant assumptions used in these valuations include the weighted average cost of capital discount factor, revenue growth rates and royalty rate.We did not recognize any impairment charges related to theSilversea Cruises reporting unit for the quarter endedJune 30, 2020 .
Long-lived Assets
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During the quarter ended March 31, 2020 , we identified that the undiscounted
cash flows of certain long-lived assets, consisting of 8 ships and certain
right-of-use assets, were less than their carrying values. Events surrounding
the COVID-19 pandemic negatively impacted the expected undiscounted cash flows
of these assets. As a result of this determination, we evaluated these assets
pursuant to our long-lived asset impairment test, which resulted in an
impairment charge of $463.0 million to write down these assets to their
estimated fair values during the quarter ended March 31, 2020 .
During the quarter ended June 30, 2020 , Monarch, Horizon and Sovereign, the
three ships that we chartered to Pullmantur Holdings prior to the filing of the
Pullmantur reorganization, met accounting criteria to be classified as held for
sale which resulted in related impairment charges of $15.2 million during the
quarter ended June 30, 2020 to adjust the carrying value of the assets held for
sale to their fair value, less cost to sell. During the quarter ended March 31,
2020 , an impairment charge of $156.1 million , included in the $463.0 million
impairment charge to write down certain long-lived assets, was recorded for
these ships. As of June 30, 2020 , assets held for sale were not material to our
consolidated balance sheet.
We also updated our undiscounted cash flows analysis for other long-lived assets
during the quarter ended June 30, 2020 and identified that the undiscounted cash
flows for some of those assets, consisting of 2 ships and one right-of-use
asset, were less than their carrying values. Based on our evaluation, we
determined that an additional impairment charge of $49.7 million was required to
write down these assets to their estimated fair values during the quarter ended
June 30, 2020 .
The combined impairment charges of $65.0 million and $1.1 billion related to our
goodwill, trademarks and trade names, vessels and right-of-use assets were
recognized in earnings during the quarter and six months ended June 30, 2020 ,
respectively, and are reported within Impairment and credit losses within our
consolidated statements of comprehensive income (loss). For further information
on the impairment losses and the fair value measurements used to estimate the
fair value of these assets, refer to Note 3. Impairment and Credit Losses and
Note 13. Fair Value Measurements and Derivative Instruments to our consolidated
financial statements.
These impairment assessments and the resulting charges were determined based on
management's current estimates and projections using information through the
time of the issuance of these financial statements. The adverse impact COVID-19
will continue to have on our business, operating results, cash flows and overall
financial condition is uncertain and may result in changes to the assumptions
used in the impairment tests discussed above, which may result in additional
impairments of our goodwill, indefinite-lived intangible assets and long-lived
assets in the future. Refer to Risk Factors in Part 2, Item 1A. for further
discussion on risks related to the COVID-19 pandemic.
Seasonality
Our revenues are seasonal based on demand for cruises. Demand has historically
been strongest for cruises during the Northern Hemisphere's summer months and
holidays. In order to mitigate the impact of the winter weather in the Northern
Hemisphere and to capitalize on the summer season in the Southern Hemisphere,
our brands have focused on deployment to the Caribbean , Asia and Australia
during that period.
Financial Presentation
Description of Certain Line Items
Revenues
Our revenues are comprised of the following:
•Passenger ticket revenues, which consist of revenue recognized from the sale of
passenger tickets and the sale of air transportation to and from our ships; and
•Onboard and other revenues, which consist primarily of revenues from the sale
of goods and/or services onboard our ships not included in passenger ticket
prices, cancellation fees, sales of vacation protection insurance, pre- and
post-cruise tours and fees for operating certain port facilities. Onboard and
other revenues also include revenues we receive from independent third-party
concessionaires that pay us a percentage of their revenues in exchange for the
right to provide selected goods and/or services onboard our ships, as well as
revenues received for our bareboat charter, procurement and management related
services we perform on behalf of our unconsolidated affiliates.
Cruise Operating Expenses
Our cruise operating expenses are comprised of the following:
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•Commissions, transportation and other expenses, which consist of those costs
directly associated with passenger ticket revenues, including travel agent
commissions, air and other transportation expenses, port costs that vary with
passenger head counts and related credit card fees;
•Onboard and other expenses, which consist of the direct costs associated with
onboard and other revenues, including the costs of products sold onboard our
ships, vacation protection insurance premiums, costs associated with pre- and
post-cruise tours and related credit card fees, as well as, the minimal costs
associated with concession revenues, as the costs are mostly incurred by
third-party concessionaires, and costs incurred for the procurement and
management related services we perform on behalf of our unconsolidated
affiliates;
•Payroll and related expenses, which consist of costs for shipboard personnel
(costs associated with our shoreside personnel are included in Marketing,
selling and administrative expenses);
•Food expenses, which include food costs for both guests and crew;
•Fuel expenses, which include fuel and related delivery, storage and emission
consumable costs and the financial impact of fuel swap agreements; and
•Other operating expenses, which consist primarily of operating costs such as
repairs and maintenance, port costs that do not vary with passenger head counts,
vessel related insurance, entertainment and gains and/or losses related to the
sale of our ships, if any.
We do not allocate payroll and related expenses, food expenses, fuel expenses or
other operating expenses to the expense categories attributable to passenger
ticket revenues or onboard and other revenues since they are incurred to provide
the total cruise vacation experience.
Selected Operational and Financial Metrics
We utilize a variety of operational and financial metrics which are defined
below to evaluate our performance and financial condition. As discussed in more
detail herein, certain of these metrics are non-GAAP financial measures. These
non-GAAP financial measures are provided along with the related GAAP financial
measures as we believe they provide useful information to investors as a
supplement to our consolidated financial statements, which are prepared and
presented in accordance with GAAP. The presentation of non-GAAP financial
information is not intended to be considered in isolation or as a substitute
for, or superior to, the financial information prepared and presented in
accordance with GAAP.
Adjusted (Loss) Earnings per Share ("Adjusted EPS") represents Adjusted Net
(Loss) Income attributable to Royal Caribbean Cruises Ltd. divided by weighted
average shares outstanding or by diluted weighted average shares outstanding, as
applicable. We believe that this non-GAAP measure is meaningful when assessing
our performance on a comparative basis.
Adjusted Net (Loss) Income represents net (loss) income less net income
attributable to noncontrolling interest excluding certain items that we believe
adjusting for is meaningful when assessing our performance on a comparative
basis. For the periods presented, these items included (i) asset impairment and
credit losses recorded in the first and second quarters of 2020 as a result of
the impact of COVID-19; (ii) equity investment impairment charges recorded in
the first quarter of 2020 as a result of the impact of COVID-19; (iii) currency
translation losses recognized in connection with the ships classified as assets
held-for-sale that were previously chartered to Pullmantur; (iv) settlement
costs with Pullmantur S.A. incurred in connection with its reorganization
filing; (v) restructuring charges incurred in relation to the reduction in our
U.S. workforce in the second quarter of 2020, the reorganization of our global
sales and marketing structure and other initiatives expenses; (vi) the
amortization of non-cash debt discount on the $1.15 billion convertible notes;
(vii) loss on the extinguishment of debt; (viii) the amortization of the
Silversea Cruises intangible assets resulting from the 2018 Silversea Cruises
acquisition; (ix) the noncontrolling interest adjustment to exclude the impact
of the contractual accretion requirements associated with the put option held by
Heritage Cruise Holding Ltd.'s ("Heritage") prior to the July 2020
noncontrolling interest purchase; (x) the change in fair value in the Silversea
Cruises contingent consideration; (xi) net insurance recoveries or costs related
to the collapse of the drydock structure at the Grand Bahama Shipyard involving
Oasis of the Seas; (xii) transaction costs related to the 2018 Silversea Cruises
acquisition.
Available Passenger Cruise Days ("APCD") is our measurement of capacity and
represents double occupancy per cabin multiplied by the number of cruise days
for the period, which excludes canceled cruise days and drydock days. We use
this measure to perform capacity and rate analysis to identify our main
non-capacity drivers that cause our cruise revenue and expenses to vary.
Occupancy, in accordance with cruise vacation industry practice, is calculated
by dividing Passenger Cruise Days by APCD. A percentage in excess of 100%
indicates that three or more passengers occupied some cabins.
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Passenger Cruise Days represent the number of passengers carried for the period
multiplied by the number of days of their respective cruises.
Although discussed in previous periods, we did not report nor reconcile our
Gross Yields, Net Revenues, Net Yields, Gross Cruise Costs, Net Cruise Costs and
Net Cruise Costs Excluding Fuel, as defined in our Annual Report on Form 10-K
for the year ended December 31, 2019 , for the quarter and six months ended June
30, 2020 . Historically, we have utilized these financial metrics to measure
relevant rate comparisons to other periods. However, our 2020 reduction in
capacity and revenues and the shift in the nature of our running costs due to
the suspension of our operations do not allow for a meaningful comparison to the
2019 metrics and as such these metrics have been excluded from this report.
Recent Developments: COVID-19
The disruptions to our operations resulting from the COVID-19 pandemic
("COVID-19") have had, and continue to have, a material negative impact on our
financial condition and results of operations. The outbreak of COVID-19 has
resulted in an unprecedented global response to contain the spread of the
disease. These global efforts have resulted in travel restrictions and created
significant uncertainty regarding worldwide port closures and availability. As
part of the global containment effort, the Company previously announced a
voluntary suspension of its Global Brands' cruise operations beginning March 13 ,
which has been extended through at least October 31, 2020 , excluding China and
Australia . Containment efforts as a result of the disease and continued
disruptions to travel and port operations in various regions may result in
further suspensions.
We have been developing a comprehensive and multi-faceted program to address the
unique public health challenges posed by COVID-19. This includes, among other
things, enhanced screening, upgraded cleaning and disinfection protocols and
plans for social distancing. Together with Norwegian Cruise Line, we recently
established a "Healthy Sail Panel " made up of leading experts in relevant
fields, including epidemiology, infectious diseases, public policy and
regulation, engineering and general health safety to advise us in our effort to
establish and implement appropriate safety protocols. We are working with the
Centers for Disease Control and Prevention , global public health authorities and
national and local governments to enhance measures to protect the health, safety
and security of guests, crew and the communities visited while we are out of
service and once operations resume.
Update on Bookings
The extended suspension of cruising has significantly impacted bookings for the
remainder of 2020 which are meaningfully lower than the same time last year and
at lower prices. Although still early in the booking cycle, the booked position
for 2021 is trending well and is within historical ranges. Pricing for 2021
bookings is relatively flat year-over-year when including the negative yield
impact of bookings made with future cruise credits; it is slightly up
year-over-year when excluding them.
The Company has implemented various programs to best serve its booked guests
providing the choice of future cruise credits ("FCCs") or the opportunity to
"Lift & Shift" their booking to the same sailing the following year in lieu of
providing cash refunds. Over the past two months, approximately 60% of the 2021
bookings are new and the rest are due to the redemption of FCCs and the "Lift &
Shift" program.
As of June 30, 2020 , the Company had $1.8 billion in customer deposits of which
approximately $300 million correspond to fourth quarter 2020 sailings.
Approximately 48% of the guests booked on cancelled sailings have requested cash
refunds.
Update on Recent Liquidity Actions and Ongoing Uses of Cash
As of June 30, 2020 , the Company had liquidity of approximately $4.1 billion all
in the form of cash and cash equivalents. In response to the financial impacts
of COVID-19, the Company has taken preemptive actions that focus on
strengthening liquidity through significant cost and capital reductions, cash
conservation and additional financing sources, as described below.
Reduced Operating Expenses
The Company has taken significant actions to reduce operating expenses during
the suspension of its global cruise operations. In particular, we:
• significantly reduced ship operating expenses, including crew payroll, food,
fuel, insurance and port charges;
• further reduced operating expenses as the Company's ships are currently
transitioning into various levels of layup with several ships in the fleet
transitioning into cold layup;
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• eliminated or significantly reduced marketing and selling expenses for the
remainder of 2020;
• reduced and furloughed our workforce, with approximately 23% of our US
shoreside employee base being impacted; and
• suspended travel for shoreside employees and instituted a hiring freeze across
the organization.
The Company may seek to further reduce its average monthly expenses under a
further prolonged non-revenue scenario. This includes consideration of
additional vessels heading to cold layup as well as further assessment of its US
shoreside workforce, including those coming back from furlough.
Reduced Capital Expenditures
Since the start of February 2020 , the Company has identified approximately $4.4
billion of total capital expenditure reductions or deferrals in 2020 and 2021.
The reductions or deferrals of capital expenditures comprise of the following:
• $1.3 billion of non-newbuild, discretionary capital expenditures; and
• $3.1 billion in reduced spend or deferred installment payments for newbuild
related payments which the Company is currently finalizing.
COVID-19 has impacted shipyard operations which have resulted in delivery delays
of ships previously planned for delivery in 2020 and 2021. Of five ships
originally scheduled for delivery between July 2020 and December 2021 , we expect
that Silver Moon , Silver Dawn and Odyssey of the Seas will be delivered within
the remaining time frame. The exact duration of the ship delivery delays are
currently under discussion with the impacted shipyards.
Debt Maturities, New Financings and Other Liquidity Actions
Since the start of February 2020 , the Company has taken several additional
actions to further improve its liquidity position and manage cash flow. In
particular, we:
• increased the capacity under our revolving credit facilities by $0.6 billion ,
and fully drew on both facilities;
• entered into a $2.35 billion 364-day senior secured loan agreement with an
option to extend the maturity for an additional 364 days secured by 28 ships
with a net book value of approximately $12 billion as of March 31, 2020 , after
giving effect to the vessel impairment described in Note 3. Impairment and
Credit Losses in the Notes to our Consolidated Financial Statements;
• issued $3.32 billion in senior secured notes, of which $1.0 billion is due in
2023 and $2.32 billion is due in 2025. The previously mentioned $2.35 billion ,
364-day senior secured loan was repaid in its entirety with a portion of the
proceeds of these notes;
• secured deferrals of existing debt amortization under our export-credit backed
debt facilities which increased the Company's liquidity by an additional
$0.9 billion ;
•issued $1.0 billion senior guaranteed notes maturing 2023;
•issued $1.15 billion convertible notes maturing 2023;
•qualified for a government commercial paper program by the Bank of England and
issued £300.0 million, or approximately $370.8 million , of commercial paper
thereunder; and
• agreed with certain of our lenders that we will not pay dividends or engage in
stock repurchases for so long as our debt covenant waivers are in effect.
Expected debt maturities for the remainder of 2020 and 2021 are $0.3 billion and
$1.3 billion , respectively. The Company estimates its cash burn to be, on
average, in the range of approximately $250 million to $290 million per month
during a prolonged suspension of operations. This range includes all interest
expenses, including the increases driven by the latest capital raises. It also
includes ongoing ship operating expenses, administrative expenses, hedging
costs, expected necessary capital expenditures (net of committed financings in
the case of newbuilds) and excludes cash refunds of customer deposits,
commissions, debt obligations and cash inflows from new and existing bookings.
The Company is considering ways to further reduce the average monthly cash burn
under a further prolonged out-of-service scenario and during re-start of
operations.
The Company continues to identify and evaluate further actions to improve its
liquidity. These include and are not limited to: further reductions in capital
expenditures, operating expenses and administrative costs and additional
financings.
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Furthermore, both our export credit facilities and non-export credit bank
facilities contain covenants that require us, among other things, to maintain a
fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital
ratio to no more than 62.5%. In the second quarter of 2020, the requisite
lenders under such facilities agreed to waive the requirement to comply with
such financial covenants through and including the first quarter of 2021. In
certain of these facilities, we agreed to additional covenants during the
covenant waiver period, including that we maintain at least $300 million in
unrestricted cash and cash equivalents (tested monthly) and that we are not
permitted during the covenant waiver period, subject to limited exceptions, to
pay cash dividends or make share repurchases unless we would have been compliant
with our fixed charge coverage ratio at such time. Subsequent to June 30, 2020 ,
we further amended our export facilities and certain of our non-export credit
facilities, to extend the financial covenant waiver through and including, the
fourth quarter of 2021. In connection therewith, we increased the minimum
liquidity covenant to $500 million , as applicable, subject to reduction in the
event of further capital raises, and extended the dividend and share repurchase
restrictions through the new waiver period.
Results of Operations
Summary
Net Loss and Adjusted Net Loss attributable to Royal Caribbean Cruises Ltd. for
the second quarter of 2020 were $(1,639.3) million and $(1,282.6) million , or
$(7.83) and $(6.13) per share on a diluted basis, respectively, reflecting the
impact of our suspension of global fleet sailings starting in mid-March,
compared to Net Income and Adjusted Net Income attributable to Royal Caribbean
Cruises Ltd. of $472.8 million and $532.7 million , or $2.25 and $2.54 per share
on a diluted basis, respectively, for the second quarter of 2019.
Net Loss and Adjusted Net Loss to attributable Royal Caribbean Cruises Ltd. for
the six months ended June 30, 2020 were $(3,083.8) million and $(1,593.0)
million , or $(14.74) and $(7.61) per share on a diluted basis, respectively,
compared to Net Income and Adjusted Net Income attributable to Royal Caribbean
Cruises Ltd. of $722.5 million and $808.6 million , or $3.44 and $3.85 per share
on a diluted basis, respectively, for the six months ended June 30, 2019 .
Significant items for the quarter and six months ended June 30, 2020 include:
•Total revenues, excluding the effect of changes in foreign currency exchange
rates, decreased $2,629.5 million and $3,014.9 million for the quarter and six
months ended June 30, 2020 as compared to the same periods in 2019, reflecting
the volume impact of our cancelled sailings during 2020 as a result of the
COVID-19 pandemic.
•The effect of changes in foreign currency exchange rates related to our
passenger ticket and onboard and other revenue transactions, denominated in
currencies other than the United States dollar, resulted in a decrease in total
revenues of $1.5 million and $23.2 million for the quarter and six months ended
June 30, 2020 compared to the same periods in 2019.
•Total cruise operating expenses, excluding the effect of changes in foreign
currency exchange rates, decreased $861.0 million and $752.3 million for the
quarter and six months ended June 30, 2020 as compared to the same periods in
2019 due to the suspension of operations during the full quarter ended June 30,
2020 .
•The effect of changes in foreign currency exchange rates related to our cruise
operating expenses, denominated in currencies other than the United States
dollar, resulted in decreases in total operating expenses of $2.7 million and
$14.3 million for the quarter and six months ended June 30, 2020 compared to the
same period in 2019.
•During the quarter and six months ended June 30, 2020 , as a result of the
current and expected ongoing impact of COVID-19 pandemic on our operations and
cash flows, we recorded total impairment and credit losses of $156.5 million and
$ 1.3 billion . The impairment charges related to our goodwill, trademarks and
trade names, vessels and right-of-use assets and the credit losses related to
our notes receivable.
•Our consolidated results of operations include Silversea Cruises' results of
operations on a three-month reporting lag from January 1, 2020 through March 31,
2020 for the quarter ended June 30, 2020 and from October 1, 2019 through March
31, 2020 for the six months ended June 30, 2020 . Refer to Note 1. General to our
consolidated financial statements for further information on this three-month
reporting lag.
•In March 2020 , we increased the capacity of our $1.7 billion and $1.2 billion
unsecured revolving credit facilities due in 2024 and 2022, by $200 million and
$400 million , respectively.
•In March and June 2020 , we took delivery of Celebrity Apex and Silver Origin,
respectively. To finance the purchase of Celebrity Apex, we borrowed $0.7
billion under a previously committed unsecured term loan.
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•In March 2020 , we borrowed $2.2 billion pursuant to a 364-day senior secured
term loan agreement which would have matured 364 days after funding and could
have been extended at our option for an additional 364 days. Subsequently, the
term loan was increased to $2.35 billion and was repaid on May 19, 2020 .
•In May 2020 , we issued $3.32 billion in senior secured notes, less original
issue discount. $1.0 billion of the notes accrue interest at 10.875% and mature
in 2023. The remaining $2.32 billion of the notes accrue interest at a fixed
rate of 11.5% and mature in 2025.
•In June 2020 , we issued $1.0 billion in senior unsecured notes which accrue
interest at 9.125% and mature in 2023.
•In June 2020 , we issued $1.15 billion in convertible notes which accrue
interest at 4.25% and mature in 2023. The notes are convertible into shares of
common stock of the Company, cash, or a combination of common stock and cash, at
our election.
•In May 2020 , we qualified for a U.K. government commercial paper program
providing £300.0 million of available liquidity and issued £300.0 million, or
approximately $370.8 million , of commercial paper thereunder.
Operating results for the quarter ended June 30, 2020 compared to the same
period in 2019 are shown in the following table (in thousands, except per share
data):
Quarter Ended June 30,
2020 2019
% of Total % of Total
Revenues Revenues
Passenger ticket revenues $ 107,022 60.9 % $ 2,017,836 71.9 %
Onboard and other revenues 68,583 39.1 % 788,795 28.1 %
Total revenues 175,605 100.0 % 2,806,631 100.0 %
Cruise operating expenses:
Commissions, transportation and other 28,824 16.4 % 426,934 15.2 %
Onboard and other 21,579 12.3 % 174,429 6.2 %
Payroll and related 243,877 138.9 % 265,569 9.5 %
Food 27,483 15.7 % 146,847 5.2 %
Fuel 79,192 45.1 % 181,924 6.5 %
Other operating 279,465 159.1 % 348,801 12.4 %
Total cruise operating expenses 680,420 387.5 % 1,544,504 55.0 %
Marketing, selling and administrative expenses 301,418 171.6 % 376,874 13.4 %
Depreciation and amortization expenses 319,757 182.1 % 311,600 11.1 %
Impairment and credit losses 156,497 89.1 % - - %
Operating (Loss) Income (1,282,487) (730.3) % 573,653 20.4 %
Other (expense) income:
Interest income 5,206 3.0 % 6,342 0.2 %
Interest expense, net of interest capitalized (218,889) (124.6) % (111,304) (4.0) %
Equity investment (loss) income (51,853) (29.5) % 33,045 1.2 %
Other expense (83,825) (47.7) % (21,781) (0.8) %
(349,361) (198.9) % (93,698) (3.3) %
Net (Loss) Income (1,631,848) (929.3) % 479,955 17.1 %Less: Net Income attributable to noncontrolling interest 7,444
4.2 % 7,125 0.3 %
Net (Loss) Income attributable to
$ (1,639,292) (933.5) %$ 472,830 16.8 % Diluted (Loss) Earnings per Share$ (7.83) $ 2.25 38
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Six Months Ended June 30,
2020 2019
% of Total % of Total
Revenues Revenues
Passenger ticket revenues $ 1,483,873 67.2 % $ 3,727,820 71.1 %
Onboard and other revenues 724,482 32.8 % 1,518,578 28.9 %
Total revenues 2,208,355 100.0 % 5,246,398 100.0 %
Cruise operating expenses:
Commissions, transportation and other 345,953 15.7 % 790,089 15.1 %
Onboard and other 145,297 6.6 % 309,599 5.9 %
Payroll and related 574,267 26.0 % 535,101 10.2 %
Food 148,799 6.7 % 286,381 5.5 %
Fuel 273,460 12.4 % 342,095 6.5 %
Other operating 703,463 31.9 % 694,943 13.2 %
Total cruise operating expenses 2,191,239 99.2 % 2,958,208 56.4 %
Marketing, selling and administrative expenses 697,308 31.6 % 791,821 15.1 %
Depreciation and amortization expenses 644,087 29.2 % 603,885 11.5 %
Impairment and credit losses 1,264,615 57.3 % - - %
Operating (Loss) Income (2,588,894) (117.2) % 892,484 17.0 %
Other (expense) income:
Interest income 10,740 0.5 % 16,126 0.3 %
Interest expense, net of interest capitalized (311,800) (14.1) % (211,719) (4.0) %
Equity investment income (62,245) (2.8) % 66,739 1.3 %
Impairment loss related to Skysea Holding - - % - - %
Extinguishment of unsecured senior notes - - % - - %
Other expense (116,684) (5.3) % (26,869) (0.5) %
(479,989) (21.7) % (155,723) (3.0) %
Net (Loss) Income $ (3,068,883) (139.0) % $ 736,761 14.0 %
Less: Net Income attributable to noncontrolling
interest 14,888 0.7 % 14,250 0.3 %
Net (Loss) Income attributable to Royal Caribbean
Cruises Ltd. $ (3,083,771) (139.6) % $ 722,511 13.8 %
Diluted (Loss) Earnings per Share $ (14.74) $ 3.44
39--------------------------------------------------------------------------------
Adjusted Net (Loss) Income attributable to
Six Months Ended June
Quarter Ended June 30, 30,
2020 2019 2020 2019
Net (Loss) Income attributable to Royal Caribbean
Cruises Ltd. $ (1,639,292)
(1,282,573) 532,735 (1,592,985) 808,582
Net Adjustments to Net (Loss) Income attributable to
$ 356,719 $ 59,905 $ 1,490,786 $ 86,071 Adjustments to Net (Loss) Income attributable toRoyal Caribbean Cruises Ltd. : Impairment and credit losses (1)$ 156,497 $ - 1,264,615 $ - Equity investment impairment (2) - - 39,735 - Currency translation adjustment losses (3) 69,044 - 69,044 - Pullmantur reorganization settlement (4) 21,637 - 21,637 -
Restructuring charges and other initiatives expense (5)
32,982 - 45,025 -
Convertible debt amortization of debt discount (6) 4,184
- 4,184 -
Loss on extinguishment of debt (7) 40,335 6,326 40,335 6,326
Amortization of
3,069 3,069 6,138 6,138
Noncontrolling interest adjustment (8) 22,557 12,663 46,616 34,574
Change in fair value of the Silversea contingent
consideration (9) 6,414 10,700 (44,605) 10,700
Net insurance recoveries of Oasis of the Seas
incident (10) - 27,147 (1,938) 27,147
Transaction costs related to the 2018 Silversea
Cruises acquisition (8) - - - 1,186
Net Adjustments to Net (Loss) Income attributable to
$ 356,719
Basic:
(Loss) Earnings per Share$ (7.83)
Adjusted (Loss) Earnings per Share$ (6.13)
Diluted:
(Loss) Earnings per Share$ (7.83)
Adjusted (Loss) Earnings per Share$ (6.13)
Weighted-Average Shares Outstanding: Basic 209,385 209,531 209,241 209,427 Diluted 209,385 210,052 209,241 209,962 (1)Represents asset impairment and credit losses recorded in the first and second quarters of 2020 as a result of the impact of COVID-19. (2)Represents equity investment asset impairment, primarily for our investment inGrand Bahama Shipyard , recorded in the first quarter of 2020 as a result of the impact of COVID-19. 40 -------------------------------------------------------------------------------- (3)Represents currency translation losses recognized in connection with the ships classified as assets held-for-sale that were previously chartered to Pullmantur. Refer to Note 6. Other Assets for further information. (4)Represents settlement costs with Pullmantur in connection with its reorganization filing. (5)Represents restructuring charges incurred in relation to the reduction in ourU.S. workforce in the second quarter of 2020, the reorganization of our international sales and marketing structure and other initiatives expenses. (6)Represents the amortization of non-cash debt discount on the$1.15 billion convertible notes. (7)For the quarter and six months endedJune 30, 2020 , loss on the extinguishment of the$2.2 billion Senior Secured Term Loan. For the quarter and six months endedJune 30, 2019 , loss on the extinguishment of the$700 million 364-day loan related to the 2018Silversea Cruises acquisition and the remaining balance of the unsecured term loan originally incurred in 2010 to purchase Allure of the Seas. (8)Related to the 2018Silversea Cruises acquisition. (9)Adjustment made to exclude the impact of the contractual accretion requirements associated with the put option held by theSilversea Cruises noncontrolling interest prior to theJuly 2020 noncontrolling interest purchase. (10)Amount includes net insurance recoveries related to the collapse of the drydock structure at theGrand Bahama Shipyard involving Oasis of the Seas.
Selected statistical information is shown in the following table (1):
Quarter Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Passengers Carried 20,027 1,663,900 1,259,846 3,197,126
Passenger Cruise Days 181,268 11,321,528 8,648,375 21,883,345
APCD 214,449 10,437,420 8,431,579 20,298,020
Occupancy 84.5 % 108.5 % 102.6 % 107.8 %
(1)) Due to the three-month reporting lag, we include Silversea Cruises' result
of operations from January 1 through March 31 for the quarters ended June 30,
2020 and 2019 and from October 1 through March 31 for the six months ended June
30, 2020 and 2019. Refer to Note 1. General to our consolidated financial
statements for more information on the three-month reporting lag.
2020 Outlook
On March 10, 2020 , we withdrew our full-year 2020 guidance due to the heightened
impact and uncertainty of changes in the magnitude, duration and geographic
reach of COVID-19. The magnitude, duration and speed of COVID-19 and related
disruptions remain uncertain. As a consequence, the Company cannot reasonably
estimate the impact of COVID-19 on its business, financial condition or near or
longer-term financial or operational results with reasonable certainty. The
adverse impact of the COVID-19 pandemic on our revenues, consolidated results of
operations, cash flows and financial condition has been and will continue to be
material in 2020. We expect to incur a net loss on both a US GAAP and adjusted
basis for our third quarter and the 2020 fiscal year, the extent of which will
depend on the timing and extent of the return to service.
41
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Quarter Ended June 30, 2020 Compared to Quarter Ended June 30, 2019
In this section, references to 2020 refer to the quarter ended June 30, 2020 and
references to 2019 refer to the quarter ended June 30, 2019 .
Revenues
Total revenues for 2020 decreased $2,631.0 million , or 93.7%, to $0.2 billion
from $2.8 billion in 2019.
Passenger ticket revenues comprised 60.9% of our 2020 total revenues. Passenger
ticket revenues for 2020 decreased by $1,910.8 million , or 94.7%, from 2019. The
decrease was due to a 97.9% decrease in capacity, which decreased Passenger
ticket revenues by $1,976.6 million , driven by our cancelled sailings resulting
from the suspension of our global fleet operations in mid-March 2020 in response
to the COVID-19 pandemic. The decrease in Passenger ticket revenues due to
capacity and foreign currency exchange rate movements was somewhat offset by a
$66.4 million increase in rate primarily due to the reporting of Silversea
Cruises' January through March sailings in our consolidated results for the
quarter months ended June 30, 2020 due to the three month reporting lag.
The remaining 39.1% of 2020 total revenues was comprised of Onboard and other
revenues, which decreased $720.2 million , or 91.3%, to $68.6 million in 2020
from $788.8 million in 2019. The decrease in Onboard and other revenues was
primarily due to the 97.9% decrease in capacity noted above, and was partially
offset by higher cancellation fee revenue associated with non-refundable
deposits.
Onboard and other revenues included concession revenues of $2.7 million in 2020
and $87.2 million in 2019.
Cruise Operating Expenses
Total Cruise operating expenses for 2020 decreased $864.1 million , or (55.9)%,
to $0.7 billion from $1.5 billion in 2019. The majority of the decrease was due
to our cancelled sailings as follows:
•a $398.1 million decrease in Commissions, transportation and other primarily
due to lower commission and variable passenger tax expenses;
•a $152.9 million decrease in Onboard and other expenses mostly due to lower
shore excursion costs and beverage costs;
•a $119.4 million decrease in Food expenses;
•a $102.7 million decrease in Fuel expenses; and
•a $69.30 million decrease in Other operating expenses mostly due to lower port
fees and a decrease in ship maintenance and consumable costs.
The decrease in Cruise operating expenses was partially offset by the favorable
effect of changes in foreign currency exchange rates related to our cruise
operating expenses denominated in currencies other than the United States dollar
of $2.7 million .
Marketing, Selling and Administrative Expenses
Marketing, selling and administrative expenses for 2020 decreased $75.5 million ,
or 20.0%, to $301.4 million from $376.9 million in 2019. The decrease was due to
a reduction and deferral of global sales and marketing activities due to the
suspension of our operations.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for 2020 increased $8.2 million , or 2.6%,
to $319.8 million from $311.6 million in 2019. The increase was primarily due to
new shipboard additions associated with our 2019 ship modernization projects,
additions related to our shoreside projects and the addition of Celebrity Apex
and Silver Origin in the first and second quarters of 2020, respectively.
Impairment and Credit Losses
During the quarter ended June 30, 2020 , as a result of the current and expected
ongoing impact of the COVID-19 pandemic on our operations and cash flows, we
recorded total impairment and credit losses of $156.5 million related to the
impaired value of certain of long-lived assets and due to credit losses on
receivables mostly related to the sale of our property and equipment. See Note
3. Impairment and Credit Losses for further information on the impacted assets.
42
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Other Income (Expense)
Interest expense, net of interest capitalized for 2020 increased $107.6 million ,
or 96.7%, to $218.9 million from $111.3 million in 2019. The increase was
primarily due to interest expense related to new debt issuances in 2020, a
higher average balance on our revolver facilities and a loss on the
extinguishment of the $2.35 billion senior term loan of $40.3 million .
Equity investment (loss) income in 2020 was $(51.9) million compared to
$33.0 million in 2019. The $84.9 million variance was primarily due to losses
reported by our equity investments as a result of the adverse impact of COVID-19
on their operations and earnings.
Other expense in 2020 was $83.8 million compared to $21.8 million in 2019. The
increase of $62.0 million in Other expense was primarily due to the recognition
of a deferred currency translation adjustment loss of $69.0 million in the
quarter ended June 30, 2020 related to the 2016 sale of our majority interest in
the Pullmantur brand. We recognized the deferred currency translation loss as we
no longer have significant involvement in Pullmantur's operations. In June 2020 ,
we terminated the agreements chartering our ships to the Pullmantur brand as a
result of its reorganization filing under Spanish law. We also recognized $21.6
million of expense during the second quarter of 2020, approximating the
estimated total cash refund expected to be paid to Pullmantur guests and other
expenses incurred as part of a settlement agreement with our joint venture
partner as part of the brand's reorganization. These expenses were partially
offset by the recognition of income on remeasurement of our foreign monetary
assets of $15.7 million in 2020 compared to loss of $1.8 million in 2019 and a
decrease in net tax expense mostly attributable to the suspension in our
operations of $11.9 million .
Other Comprehensive (Loss) Income
Other comprehensive income (loss) in 2020 was $144.4 million compared to $(74.2)
million in 2019. The increase in income of $218.6 million was primarily due to
Gain on cash flow derivative hedges in 2020 of $124.3 million compared to a Loss
on cash flow derivative hedges in 2019 of $71.7 million . The increase in cash
flow derivative hedge income in 2020 was primarily due to increases in the fair
values of our fuel swaps and interest rate swaps in 2020 compared to decreases
in the fair values of these in 2019 due to changes in market rates.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
In this section, references to 2020 refer to the six months ended June 30, 2020
and references to 2019 refer to the six months ended June 30, 2019 .
Revenues
Total revenues for 2020 decreased $3.0 billion , or 57.9%, to $2.2 billion from
$5.2 billion in 2019.
Passenger ticket revenues comprised 67.2% of our 2020 total revenues. Passenger
ticket revenues for 2020 decreased by $2.2 billion , or 60.2%, from 2019. The
decrease was due to a 58% decrease in capacity driven by our cancelled sailings
resulting from the suspension of our global fleet operations since mid-March
2020 in response to the COVID-19 pandemic.
Passenger ticket revenues were also decreased by $15.7 million due to the
unfavorable effect of changes in foreign currency exchange rates related to our
revenues in currencies other than the United States dollar.
The remaining 32.8% of 2020 total revenues was comprised of Onboard and other
revenues, which decreased $794.1 million , or 52.3%, to $724.5 million in 2020
from $1.5 billion in 2019. The decrease in Onboard and other revenues was
primarily due to the 58% decrease in capacity related to cancelled sailings
noted above and, to a much lesser extent, to the unfavorable effect of changes
in foreign currency exchange rates related to our onboard and other revenues
denominated in currencies other than the United States dollar of $7.4 million .
Onboard and other revenues included concession revenue of $74.7 million in 2020
and $184.5 million in 2019.
Cruise Operating Expenses
Total cruise operating expenses for 2020 decreased $0.8 billion , or (25.9)%, to
$2.2 billion from $3.0 billion in 2019. The majority of the decrease was due to
the 58% decrease in capacity noted above as a result of our cancelled sailings
as follows::
•a $444.1 million decrease in Commissions, transportation and other primarily
due to lower commission and variable passenger tax expenses;
•a $164.3 million decrease in Onboard and other expenses mostly due to lower
shore excursion costs and beverage costs;
43
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•a $137.6 million decrease in Food expenses;
•a $68.6 million decrease in Fuel expenses; and
•the favorable effect of changes in foreign currency exchange rates related to
our expense transactions denominated in currencies other than the United States
dollar of $14.7 million .
Marketing, Selling and Administrative Expenses
Marketing, selling and administrative expenses decreased $94.5 million , or
11.9%, to $697.3 million from $791.8 million in 2019. The decrease was due to
the reduction and deferral of global sales and marketing activities due to the
suspension of our operations.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for 2020 increased $40.2 million , or
6.7%, to $644.1 million from $603.9 million in 2019. The increase was primarily
due to the additions of Spectrum of the Seas in the second quarter of 2019 and
Celebrity Apex and Silver Origin in the first and second quarters of 2020,
respectively. Additionally, the increase is also attributable to new shipboard
additions associated with our ship upgrade projects and additions related to our
shoreside projects.
Impairment and Credit Losses
For the six months ended June 30, 2020 , as a result of the current and expected
ongoing impact of the COVID-19 pandemic on our operations and cash flows, we
recorded total impairment and credit losses of $1.3 billion , most of which was
recorded during the three months ended March 31, 2020 , related to the impairment
of goodwill, intangibles, long-lived assets and credit losses related to the
sale of our property and equipment. See Note 3. Impairment and Credit Losses for
further information on the impacted long-lived assets.
Other Income (Expense)
Interest expense, net of interest capitalized, for 2020 increased $100.1
million , or 47.3%, to $311.8 million from $211.7 million in 2019. The increase
was primarily due to interest expense related to new debt issuances in 2020, a
higher average balance on our revolver and a loss on extinguishment of the $2.35
billion senior term loan of $40.3 million .
Equity investment (loss) income decreased $129.0 million , or (193.3)%, to a loss
of $(62.2) million in 2020 from income of $66.7 million in 2019 mainly due to
losses reported by our equity investments as a result of the adverse impact of
COVID-19 on their operations and earnings and a $39.7 million impairment charge
of equity investments, recorded during the three months ended March 31, 2020 ,
primarily for our investment in Grand Bahama Shipyard .
Other expense was $116.7 million in 2020 compared to $26.9 million in 2019. The
$89.8 million increase in expense includes recognition of a deferred currency
translation adjustment loss of $69.0 million in the quarter ended June 30, 2020
related to the 2016 sale of our majority interest in the Pullmantur brand. We
recognized the deferred currency translation loss as we no longer have
significant involvement in Pullmantur's operations. In June 2020 , we terminated
the agreements chartering our ships to the Pullmantur brand as a result of its
reorganization filing under Spanish law. We also recognized $21.6 million of
expense during the second quarter of 2020, approximating the estimated total
cash refund expected to be paid to Pullmantur guests and other expenses incurred
as part of a settlement agreement with our joint venture partner as part of the
brand's reorganization and a net $76.9 million loss related the change in fair
value of fuel swaps with no hedge accounting. These expenses were partially
offset by income of $55.3 million for the change in contingent consideration
payable as of June 30, 2020 to Heritage and a decrease in net tax expense mostly
attributable to the suspension in our operations of $16.2 million .
Other Comprehensive (Loss)
Other comprehensive loss in 2020 was $153.5 million compared to other
comprehensive loss of $25.4 million in 2019. The change of $128.1 million , or
503.5%, was primarily due to a loss on cash flow derivative hedges in 2020 of
$176.3 million , compared to a loss on cash flow derivative hedges of $22.9
million in 2019 primarily due to a decrease in our fuel swap values in 2020
compared to an increase in 2019 due to changes in fuel prices.
Future Application of Accounting Standards
Refer to Note 2. Summary of Significant Accounting Policies to our consolidated
financial statements for further information on Recent Accounting
Pronouncements.
Liquidity and Capital Resources
Sources and Uses of Cash
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As a result of the COVID-19 impact on our business, including the suspension of
global sailings, we have experienced a decrease in bookings and an increase in
customer deposit refunds since the first quarter of 2020 which has significantly
affected our liquidity and cash flow.
Net cash (used in) provided by operating activities decreased $4.2 billion to
cash used of $(2.0) billion for the first six months in 2020 compared to cash
provided of $2.2 billion for the same period in 2019. The current disruptions to
our business led to a net decrease in customer deposits of $1.6 billion in the
first six months of 2020. Also affecting our operating cash flows, was a
decrease of Onboard and other revenues of 794.1 million and a decrease of $78.6
million in dividends received from unconsolidated affiliates during the first
six months in 2020 compared to the same period in 2019.
Net cash used in investing activities decreased $307.9 million to $1.6 billion
for the first six months in 2020 compared to $1.9 billion for the same period in
2019. The decrease in investing activities was primarily attributable to a
decrease in capital expenditures of $474.3 million .
Net cash provided by financing activities was $7.5 billion for the first six
months in 2020 compared to Net cash used in financing activities of $(348.9)
million for the same period in 2019. The change was primarily attributable to an
increase in debt proceeds of $9.9 billion for the first six months in 2020
compared to the same period in 2019, partially offset by an increase of debt
repayments of $415.5 million . Also offsetting the increase in debt proceeds, was
net repayments of commercial paper of $1.1 billion during the first six months
of 2020 compared to net borrowings of commercial paper of $254.7 million during
the same period in 2019. The increase in debt proceeds was primarily due to the
$2.2 billion 364-day Senior Secured Term Loan which was repaid in May 2020 , the
$3.32 billion Senior Secured Notes issued in May 2020 , the $722.2 million
unsecured term loan borrowed to finance Celebrity Apex, issuance of $1.0 billion
senior unsecured notes, issuance of $1.15 billion convertible notes, and higher
drawings on our revolving credit facilities, resulting in a fully utilized
balance, during the first six months of 2020, compared to the same period in
2019.
45
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Future Capital Commitments
Capital Expenditures
As of June 30, 2020 , our Global Brands and our Partner Brands have 16 ships on
order. Their original contractual delivery dates and their approximate berths
are listed below. COVID-19 has impacted shipyard operations and will result in
delays of our previously contracted ship deliveries. Of five ships originally
scheduled for delivery between July 2020 and December 2021 , we expect that
Silver Moon , Silver Dawn and Odyssey of the Seas will be delivered within the
remaining time frame. The exact duration of the ship delivery delays are
currently under discussion with the impacted shipyards:
Approximate
Ship Shipyard Contractual Delivery Date Berths
Royal Caribbean International -
Oasis-class:
Wonder of the Seas Chantiers de l'Atlantique 2nd Quarter 2021 5,700
Unnamed Chantiers de l'Atlantique 4th Quarter 2023 5,700
Quantum-class:
Odyssey of the Seas Meyer Werft 4th Quarter 2020 4,200
Icon-class:
Unnamed Meyer Turku Oy 2nd Quarter 2022 5,600
Unnamed Meyer Turku Oy 2nd Quarter 2024 5,600
Unnamed Meyer Turku Oy 2nd Quarter 2025 5,600
Celebrity Cruises -
Edge-class:
Celebrity Beyond Chantiers de l'Atlantique 4th Quarter 2021 3,250
Unnamed Chantiers de l'Atlantique 4th Quarter 2022 3,250
Silversea Cruises -
Muse-Class:
Silver Moon Fincantieri 3rd Quarter 2020 550
Silver Dawn Fincantieri 3rd Quarter 2021 550
Evolution Class:
Unnamed Meyer Werft 1st Quarter 2022 600
Unnamed Meyer Werft 1st Quarter 2023 600
TUI Cruises (50% joint venture) -
Mein Schiff 7 Meyer Turku Oy 2nd Quarter 2023 2,900
Unnamed Fincantieri 3rd Quarter 2024 4,100
Unnamed Fincantieri 1st Quarter 2026 4,100
Hapag-Lloyd Cruises (50% joint
venture) -
Hanseatic Spirit VARD 2nd Quarter 2021 230
Total Berths 52,530
In April 2019 , we entered into an agreement with Chantiers de l'Atlantique to
build the fifth Edge-class ship for Celebrity Cruises . The ship is expected to
have an aggregate capacity of approximately 3,200 berths. The order with
Chantiers de l'Atlantique is contingent upon completion of conditions precedent
and financing.
Our future capital commitments consist primarily of new ship orders. As of
June 30, 2020 , the aggregate cost of our ships on order presented in the table
above, excluding any ships on order by our Partner Brands, was $13.9 billion , of
which we had deposited $833.1 million . Approximately 62.5% of the aggregate cost
was exposed to fluctuations in the Euro exchange rate at June 30, 2020 . Refer to
Note 13. Fair Value Measurements and Derivative Instruments to our consolidated
financial statements.
Decreased demand for cruising as a result of concerns regarding the COVID-19
pandemic has had, and is expected to continue to have, a material impact on our
cash flows, liquidity and financial position. In order to preserve liquidity
throughout the COVID-19 pandemic, we deferred a significant portion of our
planned 2020 and 2021 capital expenditures. As of June 30 ,
46
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2020, we anticipate overall full year capital expenditures, based on our
existing ships on order, will be approximately $0.6 billion for 2020 and $1.8
billion for 2021. These amounts do not include any ships on order by our Partner
Brands.
Contractual Obligations
As of June 30, 2020 , our contractual obligations were as follows (in thousands):
Payments due by period
Less than 1-3 3-5 More than
Total 1 year years years 5 years
Operating Activities:
Operating lease obligations(1) $ 896,392 $ 129,399 $ 222,661 $ 161,074 $ 383,258
Interest on debt(2) 5,971,864 1,337,362 2,558,857 1,488,907 586,738
Other(3) 584,344 184,427 359,804 18,025 22,088
Investing Activities: 0
Ship purchase obligations(4) 10,911,178 2,851,979 4,258,418 3,800,781 -
Financing Activities: 0
Commercial paper(5) 368,952 368,952 - - -
Debt obligations(6) 18,241,406 661,231 8,126,910 6,458,695 2,994,570
Finance lease obligations(7) 218,301 45,052 30,486 10,739 132,024
Other(8) 15,393 5,819 7,702 1,872 -
Total $ 37,207,830 $ 5,584,221 $ 15,564,838 $ 11,940,093 $ 4,118,678
(1) We are obligated under noncancelable operating leases primarily for
preferred berthing arrangements, real estate and shipboard equipment. Amounts
represent contractual obligations with initial terms in excess of one year.
(2) Long-term debt obligations mature at various dates through fiscal year 2037
and bear interest at fixed and variable rates. Interest on variable-rate debt is
calculated based on forecasted debt balances, including the impact of interest
rate swap agreements using the applicable rate at June 30, 2020 . Debt
denominated in other currencies is calculated based on the applicable exchange
rate at June 30, 2020 .
(3) Amounts primarily represent future commitments with remaining terms in
excess of one year to pay for our usage of certain port facilities, marine
consumables, services and maintenance contracts. Included in the 1-3 year figure
is estimated cash collateral of $181.1 million that we are required to deliver
on or before July 18, 2021 in connection with our Port of Miami terminal
operating lease. See Note 8. Leases for further information on the collateral
requirement.
(4) Amounts are based on contractual installment and delivery dates for our
ships on order. Included in these figures are $9.0 billion in final contractual
installments, which have committed financing. COVID-19 has impacted shipyard
operations and will result in delays for our previously contracted ship
deliveries. Of five ships originally scheduled for delivery between July 2020
and December 2021 , we expect that Silver Moon , Silver Dawn and Odyssey of the
Seas will be delivered within the remaining time frame. The exact duration of
the ship delivery delays are currently under discussion with the impacted
shipyards. Amounts do not include potential obligations which remain subject to
cancellation at our sole discretion or any agreements entered for ships on order
that remain contingent upon completion of conditions precedent. Additionally,
amounts do not include activity related to Silversea Cruises , including ships
placed on order, if any, during the three-month reporting lag period.
(5) Refer to Note 7. Debt to our consolidated financial statements for further
information.
(6) Amounts represent debt obligations with initial terms in excess of one year.
Debt denominated in other currencies is calculated based on the applicable
exchange rate at June 30, 2020 . In addition, debt obligations presented above
are net of debt issuance costs of $314.4 million as of June 30, 2020 .
(7) Amounts represent finance lease obligations with initial terms in excess of
one year, net of imputed interest.
(8) Amounts represent fees payable to sovereign guarantors in connection with
certain of our export credit debt facilities and facility fees on our revolving
credit facilities.
Please refer to Funding Needs and Sources for discussion on the planned funding
of the above contractual obligations.
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As a normal part of our business, depending on market conditions, pricing and
our overall growth strategy, we continuously consider opportunities to enter
into contracts for the building of additional ships. We may also consider the
sale of ships or the purchase of existing ships. We continuously consider
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 through cash flows from
operations.
Off-Balance Sheet Arrangements
TUIC has entered into various ship construction and credit agreements that
include certain restrictions on each of our and TUI AG's ability to reduce our
current ownership interest in TUIC below 37.55% through May 2033 .
Some of the contracts that we enter into include indemnification provisions that
obligate us to make payments to the counterparty if certain events occur. These
contingencies generally relate to changes in taxes, increased lender capital
costs and other similar costs. The indemnification clauses are often standard
contractual terms and are entered into in the normal course of business. There
are no stated or notional amounts included in the indemnification clauses and we
are not able to estimate the maximum potential amount of future payments, if
any, under these indemnification clauses. We have not been required to make any
payments under such indemnification clauses in the past and, under current
circumstances, we do not believe an indemnification obligation is probable.
We have a residual value guarantee associated with our operating lease of a
terminal at Port of Miami in Miami, Florida that approximates a percentage of
cost of the asset as of the inception of the lease. We consider the possibility
of incurring costs associated with the residual value guarantee to be remote.
Also in connection with the Port of Miami terminal operating lease, we are
required to deliver on or before July 18, 2021 , cash collateral in an amount
equal to the lesser of our residual value guarantee or the aggregate balance of
the lessors' terminal construction debt, estimated at $181.1 million as of June
30, 2020 . The collateral is to be issued to an escrow agent and pledged to the
benefit of the terminal construction debt lenders until all amounts due by us
under the lease have been paid in full.
On April 2, 2020 , S&P Global downgraded us from BBB- to BB and on May 13, 2020 ,
Moody's downgraded us from Baa3 to Ba2. Our access to, and cost of debt
financing is negatively impacted by the downgrades.
Certain of our credit card processing agreements that govern the terms to
advance passenger ticket deposits, require under certain circumstances,
including existence of a material adverse change, excessive chargebacks and
other triggering events, that we maintain a reserve which could be satisfied by
posting collateral. We have executed amendments to these agreements, such that
certain covenant and collateral requirements are waived for a period through
December 2021 . Based on the triggers in the various agreements, we do not
believe any incremental collateral will be required, although the maximum
additional collateral or reserves we could potentially need to provide under
these agreements in the next twelve months is approximately $75 million .
As of June 30, 2020 , other than the items described above, we are not party to
any other off-balance sheet arrangements, including guarantee contracts,
retained or contingent interest, certain derivative instruments and variable
interest entities, that either have, or are reasonably likely to have, a current
or future material effect on our financial position.
Funding Needs and Sources
Historically, we relied on a combination of cash flows provided by operations,
draw downs under our available credit facilities, the incurrence of additional
debt and/or the refinancing of our existing debt and the issuance of additional
shares of equity securities to fund our obligations. The impact of COVID-19
resulted in our previously announced voluntary suspension of Global Brands'
cruise operations from March 13 which has been extended through at least October
31, 2020 , excluding China and Australia . This suspension of operations has
strained our sources of cash flow and liquidity, causing us to take actions
resulting in reductions in our operating expenses, reductions in our capital
expenses and new financings and other liquidity actions.
The Company continues to identify and evaluate further actions to improve its
liquidity. These include, and are not limited to, further reductions in capital
expenditures, operating expenses and administrative costs and additional
financings. See further discussion on these liquidity actions at Recent
Developments - COVID-19.
We have significant contractual obligations of which our debt service
obligations and the capital expenditures associated with our ship purchases
represent our largest funding needs. As of June 30, 2020 , we had $11.3 billion
of committed financing for our ships on order.
As of June 30, 2020 , we had $5.6 billion in contractual obligations due through
June 30, 2021 , of which approximately $0.7 billion relates to debt maturities,
$1.3 billion relates to interest on debt and $2.9 billion relates to progress
payments on our
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ship orders and the final installments payable due upon the delivery of Silver
Moon , Odyssey of the Seas and Wonder of the Seas, based on their contractual
delivery dates.
As of June 30, 2020 , we had liquidity of $4.1 billion , consisting of cash and
cash equivalents. As of June 30, 2020 , our revolving credit facilities were
fully utilized. In connection with our debt covenant waiver extensions, we
agreed with certain of our lenders not to pay dividends or engage in stock
repurchases. Refer to Note 11. Shareholders' Equity to our consolidated
financial statements for further information.
Based on our assumptions and estimates and our financial condition, we believe
that the liquidity resulting from the actions mentioned above will be sufficient
to fund our liquidity requirements over at least the next twelve months.
However, there is no assurance that our assumptions and estimates are accurate
due to possible unknown variables related this unprecedented suspension of our
operations and, as such, there is inherent uncertainty in our ability to predict
future liquidity requirements.
Under certain of our agreements, the contractual interest rate, facility fee
and/or export credit agency fee vary with our debt rating. On April 2, 2020 , S&P
Global downgraded us from BBB- to BB and on May 13, 2020 , Moody's downgraded us
from Baa3 to Ba2, thereby increasing the contractual interest rate, facility fee
and export credit agency fee across various facilities.
If any person acquires ownership of more than 50% of our common stock or,
subject to certain exceptions, during any 24-month period, a majority of our
board of directors is no longer comprised of individuals who were members of our
board of directors on the first day of such period, we may be obligated to
prepay indebtedness outstanding under our credit facilities, which we may be
unable to replace on similar terms. Our public debt securities also contain
change of control provisions that would be triggered by a third-party
acquisition of greater than 50% of our common stock coupled with a ratings
downgrade. If this were to occur, it would have an adverse impact on our
liquidity and operations.
Debt Covenants
Both our export credit facilities and our non-export credit facilities contain
covenants that require us, among other things, to maintain a fixed charge
coverage ratio of at least 1.25x and limit our net debt-to-capital ratio to no
more than 62.5%. The fixed charge coverage ratio is calculated by dividing net
cash from operations for the past four quarters by the sum of dividend payments
plus scheduled principal debt payments in excess of any new financings for the
past four quarters. Our minimum net worth and maximum net debt-to-capital
calculations exclude the impact of Accumulated other comprehensive loss on Total
shareholders' equity.
During the second quarter of 2020, we amended our export credit facilities and
our non-export credit facilities and certain of our credit card processing
agreements which contain financial covenants to suspend the testing of these
covenants through and including the first quarter of 2021. Certain of these
amendments imposed a new monthly-tested minimum liquidity covenant $300 million
for the duration of the waiver period. Pursuant to these amendments, we have
also agreed that we will not pay cash dividends or effectuate share repurchases
during the wavier period unless we are in compliance with the fixed charge
coverage ratio covenant as of the end of the most recently completed quarter.
Subsequent to June 30, 2020 , we further amended our export credit facilities,
certain of our non-export credit facilities and our credit card processing
agreements to extend the financial covenant waiver through and including, the
fourth quarter of 2021. In connection therewith, we increased the minimum
liquidity covenant to $500 million , as applicable, subject to reduction in the
event of further capital raises, and extended the dividend and share repurchase
restrictions through the extended waiver period. As of June 30, 2020 and the
date of these financial statements, we were in compliance with the minimum
liquidity covenant, as increased by the recent amendments.
In addition to the above, during the quarter ended June 30, 2020 , we amended our
Port of Miami Terminal "A" operating lease agreement to increase the lien basket
in line with our debt facilities. As of June 30, 2020 , were in compliance with
the covenants under the lease agreement.
Any covenant waiver may lead to increased costs, increased interest rates,
additional restrictive covenants and other available lender protections as the
lenders may require. There can be no assurance that we would be able to obtain
waivers in a timely manner, or on acceptable terms. If we were not able to
obtain waivers or repay the debt facilities, this would lead to an event of
default and potential acceleration of amounts due under all of our outstanding
debt and derivative contract payables. If we were not able to obtain waivers on
the credit card processing agreements, this could lead to the termination of
these agreements or the trigger of reserve requirements.
Dividends
During the first quarter of 2020, we declared a cash dividend on our common
stock of $0.78 per share, which was paid in April 2020 . During the first quarter
of 2020, we also paid a cash dividend on our common stock of $0.78 per share,
which was declared during the fourth quarter of 2019. Subsequent to March 31,
2020 , we agreed with certain of our lenders not to pay
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--------------------------------------------------------------------------------dividends for so long as our debt covenant waivers are in effect. Accordingly, we did not declare a dividend in the second quarter of 2020.
During the first quarter of 2019, we declared a cash dividend on our common stock of$0.70 per share, which was paid inApril 2019 . During the first quarter of 2019, we also paid a cash dividend on our common stock of$0.70 per share, which was declared during the fourth quarter of 2018. Item 3. Quantitative and Qualitative Disclosures About Market Risk For a discussion of our market risks, refer to Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , as updated by our Current Report on Form 8-K datedMay 13, 2020 . There have been no significant developments or material changes since the date of our Annual Report. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chairman and Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based upon such evaluation, our Chairman and Chief Executive Officer and Chief Financial Officer concluded that those controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chairman and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by theSEC's rules and forms. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) during the quarter endedJune 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations on Effectiveness of Controls Readers are cautioned that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions. 50
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