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 endedMarch 31, 2020 compared to the same period 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. 35
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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 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 cruise operations fromMarch 13 through at leastJuly 31, 2020 andChina sailings until at leastJune 30, 2020 . 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 an interim impairment evaluation 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 quarter endedMarch 31, 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, and terminal value. 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 three months endedMarch 31, 2020 , refer to Note 3. Impairment and Credit Losses to our consolidated financial statements.
Royal Caribbean International Reporting Unit
We performed an interim impairment evaluation ofRoyal Caribbean International's goodwill in connection with the preparation of our financial statements during the quarter endedMarch 31, 2020 . As a result of the test, we determined that the fair value of theRoyal Caribbean International reporting unit exceeded its carrying value by approximately 32% resulting in no impairment to theRoyal Caribbean International goodwill. As ofMarch 31, 2020 , the carrying amount of goodwill attributable to ourRoyal Caribbean reporting unit was$296.3 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 .
Long-lived Assets
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 endedMarch 31, 2020 . 36
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The combined impairment charge of$1.1 billion related to our goodwill, trademarks and trade names, vessels and right-of-use assets was recognized in earnings during the quarter endedMarch 31, 2020 and is 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 theCaribbean ,Asia andAustralia 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: •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. 37
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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 quarter of 2020 as a result of the impact of
COVID-19; (ii) the change in fair value in the Silversea Cruises contingent
consideration; (iii) net insurance recoveries related to the collapse of the
drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas; (iv)
restructuring charges incurred in relation to the reorganization of our
international sales and marketing structure and other initiatives expenses; (v)
the amortization of the Silversea Cruises intangible assets resulting from the
acquisition; (vi) 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 (previously known as Silversea Cruises Group
Ltd. ) noncontrolling interest; (vii) transaction costs related to the Silversea
Cruises acquisition and (viii) equity investment impairment..
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.
Gross Cruise Costs represent the sum of total cruise operating expenses plus
marketing, selling and administrative expenses. For the periods presented, Gross
Cruise Costs exclude (i) restructuring charges incurred in relation to the
reorganization of our international sales and marketing structure and other
initiative costs and (ii) transaction costs related to the Silversea Cruises
acquisition, which were included within Marketing, selling and administrative
expenses.
Gross Yields represent total revenues per APCD.
Net Cruise Costs and Net Cruise Costs Excluding Fuel represent Gross Cruise
Costs excluding commissions, transportation and other expenses and onboard and
other expenses and, in the case of Net Cruise Costs Excluding Fuel, fuel
expenses (each of which is described above under the Description of Certain Line
Items heading). In measuring our ability to control costs in a manner that
positively impacts net income, we believe changes in Net Cruise Costs and Net
Cruise Costs Excluding Fuel to be the most relevant indicators of our
performance. A reconciliation of historical Gross Cruise Costs to Net Cruise
Costs and Net Cruise Costs Excluding Fuel is provided below under Results of
Operations. Net Cruise Costs and Net Cruise Costs Excluding Fuel exclude net
insurance recoveries related to the collapse of the drydock structure at Grand
Bahama Shipyard involving Oasis of the Seas.
Net Revenues represent total revenues less commissions, transportation and other
expenses and onboard and other expenses (each of which is described above under
the Description of Certain Line Items heading).
Net Yields represent Net Revenues per APCD. We utilize Net Revenues and Net
Yields to manage our business on a day-to-day basis as we believe that they are
the most relevant measures of our pricing performance because they reflect the
cruise revenues earned by us net of our most significant variable costs, which
are commissions, transportation and other expenses and onboard and other
expenses. A reconciliation of historical Gross Yields to Net Yields is provided
below under Results of Operations.
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.
Passenger Cruise Days represent the number of passengers carried for the period
multiplied by the number of days of their respective cruises.
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We believe Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel are our most relevant non-GAAP financial measures. However, a significant portion of our revenue and expenses are denominated in currencies other thanthe United States dollar. Because our reporting currency isthe United States dollar, the value of these revenues and expenses can be affected by changes in currency exchange rates. Although such changes in local currency prices are just one of many elements impacting our revenues and expenses, they can be an important element. For this reason, we also monitor Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel as if the current period's currency exchange rates had remained constant with the comparable prior period's rates, or on a "Constant Currency" basis. It should be emphasized that Constant Currency is primarily used for comparing short-term changes and/or projections. Changes in guest sourcing and shifting the amount of purchases between currencies can change the impact of the purely currency-based fluctuations. The use of certain significant non-GAAP measures, such as Net Yields,Net Cruise Costs and Net Cruise Costs Excluding Fuel, allows us to perform capacity and rate analysis to separate the impact of known capacity changes from other less predictable changes which affect our business. We believe these non-GAAP measures provide expanded insight to measure revenue and cost performance in addition to the standard GAAP based financial measures. There are no specific rules or regulations for determining non-GAAP and Constant Currency measures, and as such, they may not be comparable to other companies within the industry. 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 cruise operations fromMarch 13 through at leastJuly 31, 2020 andChina sailings until at leastJune 30, 2020 . Continued disruptions to travel and port operations in various regions may result in further suspensions. The Company has 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. The Company will continue to work with theCenters 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 when we are out of service and once operations resume. Update on Bookings Prior to the outbreak of COVID-19, the Company started the year in a strong booked position and at higher prices on a prior year comparable basis. Given the impact of COVID-19, booking volumes for the remainder of 2020 are meaningfully lower than the same time last year at prices that are down low-single digits. Due to the suspension in sailings, booking trends reflect elevated cancellations for 2020 and more typical levels for 2021 and beyond. Although still early in the booking cycle, the booked position for 2021 is within historical ranges when compared to same time last year with 2021 prices up mid-single digits compared to 2020, subject to the uncertainty around the duration of our suspension of sailings and resumption of service. The Company has instituted several programs in order to best serve its guests: for cancelled cruises, guests are offered the choice of future cruise credits valued at 125% of the initial cruise fare paid in lieu of providing cash refunds. These future cruise credits can be redeemed on any sailing on or beforeDecember 31, 2021 . As ofApril 30, 2020 , approximately 45% of the guests booked on cancelled sailings have requested cash refunds. For non-cancelled cruises, the Company has implemented a "Cruise with Confidence" policy. This policy allows guests to cancel up to 48 hours prior to sailing (for sailings on or beforeAugust 1, 2020 ) and receive a full credit for their fare usable untilApril 30, 2022 . As ofMarch 31, 2020 , the Company had$2.4 billion in customer deposits. This includes approximately$0.8 billion of future cruise credits related to previously announced voyage cancellations. The Company also continues to take future bookings for 2020, 2021 and 2022, and receive new customer deposits and final payments on these bookings. Update on Recent Liquidity Actions and Ongoing Uses of Cash As ofApril 30, 2020 , the Company had liquidity of approximately$2.3 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. 39 -------------------------------------------------------------------------------- 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; • 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 estimates that its average ongoing ship operating expenses and administrative expenses are approximately$150 million to$170 million per month during a prolonged suspension of operations. The Company may seek to further reduce this average monthly requirement under a further prolonged non-revenue scenario. Reduced Capital Expenditures Since the start ofFebruary 2020 , the Company has identified approximately$3.0 billion and$1.4 billion of capital expenditure reductions or deferrals in 2020 and 2021, respectively. The reductions or deferrals of capital expenditures in 2020 comprise: •$1.2 billion of non-newbuild, discretionary capital expenditures; and •$1.8 billion in reduced spend or deferred installment payments for newbuild related payments which the Company is currently finalizing. The Company believes COVID-19 has impacted shipyard operations and will result in delivery delays of ships previously planned for delivery in 2020 and 2021. Debt Maturities, New Financings and Other Liquidity Actions Since the start ofFebruary 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 ofMarch 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; • obtained a$0.8 billion , 12-month debt amortization and financial covenant holiday with respect to certain export-credit backed facilities; • amended certain of our non-export-credit backed bank facilities to incorporate a 12-month financial covenant holiday; 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$0.4 billion and$0.9 billion , respectively. The expected debt maturities do not include the repayment at maturity of the$2.35 billion 364-day senior secured loan agreement, which we repaid in full with a portion of the proceeds from the issuance of the$3.32 billion secured senior notes. The Company estimates its cash burn to be, on average, in the range of approximately$250 million to$275 million per month during a prolonged suspension of operations. This range includes ongoing ship operating expenses, administrative 40 -------------------------------------------------------------------------------- expenses, debt service expense, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits as well as cash inflows from new and existing bookings. The Company is considering ways to further reduce the average monthly requirement under a further prolonged out-of-service scenario and during start-up 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. Furthermore, certain of our separate unsecured bank facilities totaling an outstanding principal amount of approximately$4.7 billion as ofMarch 31, 2020 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%. InMay 2020 , the requisite lenders under such unsecured bank facilities agreed to waive the requirement to comply with such financial covenants, so that the next time we will be required to comply with such covenants will be for the three months then endedJune 30, 2021 . As a condition to obtaining such waivers, we agreed to certain additional covenants during the covenant waiver period, including that we maintain at least$300 million in unrestricted cash and cash equivalents (tested monthly) and that we are not permitted during the covenant waiver period, subject to limited exceptions, to pay cash dividends or make share repurchases unless we would have been compliant with our fixed charge coverage ratio at such time. Results of Operations Summary Net Loss attributable toRoyal Caribbean Cruises Ltd. and Adjusted Loss attributable toRoyal Caribbean Cruises Ltd. for the first quarter of 2020 were$(1.4) billion and$(310.4) million , or$(6.91) and$(1.48) 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 attributable toRoyal Caribbean Cruises Ltd. and Adjusted Net Income attributableRoyal Caribbean Cruises Ltd. of$249.7 million and$275.8 million , or$1.19 and$1.31 per share on a diluted basis, respectively, for the first quarter of 2019. Significant items for the quarter endedMarch 31, 2020 include: •Total revenues, excluding the effect of changes in foreign currency exchange rates, decreased$385.3 million for the quarter endedMarch 31, 2020 as compared to the same period in 2019, reflecting the volume impact of our cancelled sailings during the first quarter of 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 thanthe United States dollar, resulted in a decrease in total revenues of$21.6 million for the quarter endedMarch 31, 2020 compared to the same period in 2019. •Total cruise operating expenses, excluding the effect of changes in foreign currency exchange rates, increased$105.4 million for the quarter endedMarch 31, 2020 as compared to the same period in 2019. The increase was primarily due to incremental costs incurred as a result of the COVID-19 pandemic. •The effect of changes in foreign currency exchange rates related to our cruise operating expenses, denominated in currencies other thanthe United States dollar, resulted in a decrease in total operating expenses of$8.3 million for the quarter endedMarch 31, 2020 compared to the same period in 2019. •During the quarter endedMarch 31, 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$1.1 billion related to goodwill, intangibles, vessels, operating lease right-of-use assets and credit losses related to other long-lived assets. •Our consolidated results of operations for the quarter endedMarch 31, 2020 include the results for October, November andDecember 2019 forSilversea Cruises due to the three month reporting lag for the entity. •InMarch 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. •InMarch 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$2.35 billion and was repaid onMay 19, 2020 . •InMarch 2020 , we took delivery of Celebrity Apex. 41 -------------------------------------------------------------------------------- Operating results for the quarter endedMarch 31, 2020 compared to the same period in 2019 are shown in the following table (in thousands, except per share data): Quarter Ended March 31, 2020 2019 % of Total % of Total Revenues Revenues Passenger ticket revenues$ 1,376,851 67.7 %$ 1,709,984 70.1 % Onboard and other revenues 655,899 32.3 % 729,783 29.9 % Total revenues 2,032,750 100.0 % 2,439,767 100.0 % Cruise operating expenses: Commissions, transportation and other 317,129 15.6 % 363,155 14.9 % Onboard and other 123,718 6.1 % 135,170 5.5 % Payroll and related 330,390 16.3 % 269,532 11.0 % Food 121,316 6.0 % 139,534 5.7 % Fuel 194,268 9.6 % 160,171 6.6 % Other operating 423,998 20.9 % 346,142 14.2 % Total cruise operating expenses 1,510,819 74.3 % 1,413,704 57.9 % Marketing, selling and administrative expenses 395,890 19.5 % 414,947 17.0 % Depreciation and amortization expenses 324,330 16.0 % 292,285 12.0 % Impairment and credit losses 1,108,118 54.5 % - - % Operating (Loss) Income (1,306,407) (64.3) % 318,831 13.1 % Other (expense) income: Interest income 5,534 0.3 % 9,784 0.4 % Interest expense, net of interest capitalized (92,911) (4.6) % (100,415) (4.1) % Equity investment (loss) income (10,392) (0.5) % 33,694 1.4 % Other expense (32,859) (1.6) % (5,088) (0.2) % (130,628) (6.4) % (62,025) (2.5) % Net (Loss) Income (1,437,035) (70.7) % 256,806 10.5 %
Less: Net Income attributable to noncontrolling interest 7,444
0.4 % 7,125 0.3 %
Net (Loss) Income attributable to
$ (1,444,479) (71.1) %$ 249,681 10.2 % Diluted (Loss) Earnings per Share$ (6.91) $ 1.19 42
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Adjusted Net (Loss) Income attributable to
Quarter Ended
2020 2019
Net (Loss) Income attributable to Royal Caribbean Cruises Ltd. $ (1,444,479) $ 249,681
Adjusted Net (Loss) Income attributable to Royal Caribbean Cruises Ltd. (310,412) 275,847
Net Adjustments to Net (Loss) Income attributable to
$ 1,134,067 $ 26,166 Adjustments to Net (Loss) Income attributable toRoyal Caribbean Cruises Ltd. : Impairment and credit losses (1)$ 1,108,118 $ - Equity investment impairment (2) 39,735 -
Change in fair value of the Silversea contingent consideration (3)
(51,019) -
Net insurance recoveries of Oasis of the Seas incident (4) (1,938) -
Restructuring charges and other initiatives expense (5) 12,043 -
Amortization of
3,069 3,069
Noncontrolling interest adjustment (6) 24,059 21,911
Transaction costs related to Silversea acquisition (3) - 1,186
Net Adjustments to Net (Loss) Income attributable to
$
1,134,067
Basic:
(Loss) Earnings per Share$ (6.91) $ 1.19 Adjusted (Loss) Earnings per Share$ (1.48) $ 1.32
Diluted:
(Loss) Earnings per Share$ (6.91) $ 1.19 Adjusted (Loss) Earnings per Share$ (1.48) $ 1.31 Weighted-Average Shares Outstanding: Basic 209,097 209,322 Diluted 209,097 209,874 (1)Represents asset impairment and credit losses recorded in the first quarter 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. (3)Related to theSilversea Cruises acquisition. (4)Amount includes net insurance recoveries related to the collapse of the drydock structure at theGrand Bahama Shipyard involving Oasis of the Seas. (5)Represents restructuring charges incurred in relation to the reorganization of our international sales and marketing structure and other initiatives expenses. (6)Adjustment made to exclude the impact of the contractual accretion requirements associated with the put option held bySilversea Cruises Group Ltd.'s noncontrolling interest. 43 --------------------------------------------------------------------------------
Selected statistical information is shown in the following table:
Quarter Ended March 31, (1)
2020 2019
Passengers Carried 1,239,817 1,533,226
Passenger Cruise Days 8,467,106 10,561,817
APCD 8,217,133 9,860,600
Occupancy 103.0 % 107.1 %
(1)Due to the three-month reporting lag, these metrics include October, November
and December amounts for
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--------------------------------------------------------------------------------Gross Yields and Net Yields were calculated as follows (in thousands, except APCD and Yields):
Quarter Ended March 31,
2020 On a Constant
2020 Currency Basis 2019
Passenger ticket revenues $ 1,376,851 $ 1,391,923 $ 1,709,984
Onboard and other revenues 655,899 662,465 729,783
Total revenues 2,032,750 2,054,388 2,439,767
Less:
Commissions, transportation and other 317,129 320,131 363,155 Onboard and other 123,718 124,119 135,170 Net Revenues$ 1,591,903 $ 1,610,138 $ 1,941,442 APCD 8,217,133 8,217,133 9,860,600 Gross Yields$ 247.38 $ 250.01 $ 247.43 Net Yields$ 193.73 $ 195.95 $ 196.89
Gross Cruise Costs, Net Cruise Costs and Net Cruise Costs Excluding Fuel were calculated as follows (in thousands, except APCD and costs per APCD):
Quarter Ended March 31,
2020 On a Constant
2020 Currency Basis 2019
Total cruise operating expenses $ 1,510,819 $ 1,519,124 $ 1,413,704
Marketing, selling and administrative expenses (1) (2) 383,847 385,694 413,761
Gross Cruise Costs 1,894,666 1,904,818 1,827,465
Less:
Commissions, transportation and other 317,129 320,131 363,155 Onboard and other 123,718 124,119 135,170 Net Cruise Costs Including Other Costs 1,453,819 1,460,568 1,329,140
Less:
Net insurance recoveries related to the Oasis of the Seas incident included within cruise operating expenses
(1,580) (1,580) - Net Cruise Costs 1,455,399 1,462,148 1,329,140 Less: Fuel (3) 193,458 193,463 160,171 Net Cruise Costs Excluding Fuel$ 1,261,941 $ 1,268,685 $ 1,168,969 APCD 8,217,133 8,217,133 9,860,600 Gross Cruise Costs per APCD$ 230.58 $ 231.81 $ 185.33 Net Cruise Costs per APCD$ 177.12 $ 177.94 $ 134.79 Net Cruise Costs Excluding Fuel per APCD$ 153.57 $ 154.40 $ 118.55
(1)For the quarter ended
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(3) For the quarter ended March 31, 2020 , the amount does not include the fuel
impact of the Oasis of the Seas incident of $0.8 million already considered to
arrive at Net Cruise Costs.
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 duration and intensity of this global health crisis and
related disruptions continue to be highly uncertain. The adverse impact of the
COVID-19 pandemic on our revenues, consolidated results of operations, cash
flows and financial condition will be material in 2020. We expect to report a
loss for the second quarter ended June 30, 2020 and the year ended December 31,
2020 , the extent of which will depend on the timing and extent of our return to
service. However, we cannot reasonably estimate the magnitude of the expected
loss or any future results as it is not known when the COVID-19 pandemic will
end, when or how quickly the current travel restrictions and advisories will be
modified or cease to be necessary and the resulting impact on the global economy
and the Company's operations.
46-------------------------------------------------------------------------------- Quarter EndedMarch 31, 2020 Compared to Quarter EndedMarch 31, 2019 In this section, references to 2020 refer to the quarter endedMarch 31, 2020 and references to 2019 refer to the quarter endedMarch 31, 2019 . Revenues Total revenues for 2020 decreased$407.0 million , or 16.7%, to$2.0 billion from$2.4 billion in 2019. Passenger ticket revenues comprised 67.7% of our 2020 total revenues. Passenger ticket revenues for 2020 decreased by$333.1 million , or 19.5%, from 2019. The decrease was due to a 16.7% decrease in capacity, which decreased Passenger ticket revenues by$285.2 million , driven by our cancelled sailings resulting from the suspension of our global fleet operations inmid-March 2020 in response to the COVID-19 pandemic. To a lesser degree, we experienced decreased capacity due to a higher number of drydock days in 2020, partially offset by the inclusion of Spectrum of the Seas in our fleet during the first quarter of 2020. Passenger ticket revenues was also affected negatively by unfavorable foreign currency exchange rates movements related to our revenue transactions denominated in currencies other thanthe United States dollar of$15.0 million . The remaining 32.3% of 2020 total revenues was comprised of Onboard and other revenues, which decreased$73.9 million , or 10.1%, to$655.9 million in 2020 from$729.8 million in 2019. The decrease in Onboard and other revenues was primarily due to the 16.7% decrease in capacity noted above, and was partially offset by higher cancellation fee revenue associated with non-refundable deposits. Unfavorable movements in foreign currency exchange rates related to our revenue transactions denominated in currencies other thanthe United States dollar decreased Onboard and other revenues by$6.6 million . Onboard and other revenues included concession revenues of$72.0 million in 2020 and$91.7 million in 2019. Cruise Operating Expenses Total Cruise operating expenses for 2020 increased$97.1 million , or 6.9%, to$1.5 billion from$1.4 billion in 2019. The increase was primarily due to: •a$60.8 million increase in Payroll and related costs primarily due to crew contract terminations and higher repatriation costs as a result our cancelled sailings due to the COVID-19 pandemic; •a$34.1 million increase in Fuel expenses; •an increase in commissions as a result of sailing cancellations, mostly recorded in Other operating and •to a lesser extent, an increase in running costs related to the inclusion of Spectrum of the Seas in 2020. The increase in Cruise operating expenses was partially offset by: •a$11.5 million decrease in Onboard and other expenses and$18.2 million decrease in Food due to the decrease in capacity discussed above and •the favorable effect of changes in foreign currency exchange rates related to our cruise operating expenses denominated in currencies other thanthe United States dollar of$8.3 million . Marketing, Selling and Administrative Expenses Marketing, selling and administrative expenses for 2020 decreased$19.1 million , or 4.6%, to$395.9 million from$414.9 million in 2019. The decrease was primarily due to a lower stock price year over year related to our performance share awards, partially offset by an increase in payroll and benefits expense primarily driven by an increase in headcount. Depreciation and Amortization Expenses Depreciation and amortization expenses for 2020 increased$32.0 million , or 11.0%, to$324.3 million from$292.3 million in 2019. The increase was primarily due to new shipboard additions associated with our 2019 ship modernization projects, additions related to A Perfect Day and the addition of Spectrum of the Seas in the first quarter of 2019. 47 -------------------------------------------------------------------------------- Impairment and Credit Losses During the quarter endedMarch 31, 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$1.1 billion related to goodwill, intangibles, vessels, operating lease right-of-use assets and credit losses related to other long-lived assets. Other Income (Expense) Interest expense, net of interest capitalized for 2020 decreased$7.5 million , or 7.5%, to$92.9 million from$100.4 million in 2019. The decrease was primarily due to lower interest rates overall and as a result of debt refinancing in 2019. Equity investment (loss) income was a loss of($10.4) million for the three months endedMarch 31, 2020 . The loss includes a$39.7 million impairment charge of equity investments, primarilyGrand Bahama Shipyard , that we deemed to be impaired due to the impact of the COVID-19 pandemic to our business. Excluding the impairment loss, we reported equity investment income of$29.3 million in 2020 compared to income of$33.7 million in 2019. Other expense for 2020 increased$27.8 million to$32.9 million from$5.1 million in 2019. The increase was primarily due to a net$26.6 million loss related the change in fair value of fuel swaps with no hedge accounting and$11.1 million in foreign currency losses on the remeasurement of monetary assets. Gross and Net Yields Gross and Net Yields remained flat and decreased 1.6%, respectively, in 2020 compared to 2019. Gross and Net Yields on a Constant Currency basis increased 1.0% and decreased 0.5%, respectively, in 2020 compared to 2019. Gross and Net Cruise Costs Gross Cruise Costs increased 3.7% in 2020 compared to 2019 primarily due to the net increase in cruise operating expenses discussed above. Net Cruise Costs increased 9.5% in 2020 compared to 2019 primarily due to a decrease in Commissions, transportation and other and Onboard and other related to the decrease in capacity discussed above. Gross and Net Cruise Costs per APCD increased 24.4% and 31.4%, respectively, in 2020 compared to 2019 and Gross and Net Cruise Costs per APCD on a Constant Currency basis increased 25.1% and 32.0%, respectively, in 2020 compared to 2019 due to the increase in Gross Cruise Costs and Net Cruise Costs discussed above applied to a lower number of APCD's in 2020. Net Cruise Costs Excluding Fuel Net Cruise Costs Excluding Fuel per APCD increased 29.5% in 2020 compared to 2019 and increased 30.2% in 2020 compared to 2019 on a Constant Currency basis. Other Comprehensive (Loss) Income Other comprehensive (loss) in 2020 was$(297.9) million compared to Other comprehensive income of$48.8 million in 2019. The increase in loss of$(346.7) million was primarily due to a Loss on cash flow derivative hedges in 2020 of$(300.6) million compared to a Gain on cash flow derivative hedges in 2019 of$48.8 million . 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 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 in the first quarter of 2020 which has significantly affected our liquidity and cash flow. Net cash provided by operating activities decreased$879.7 million to$198.7 million for the first three months in 2020 compared to$1.1 billion for the same period in 2019. The current disruptions to our business led to a decrease in customer deposits of$959.6 million in the first three months of 2020. Also affecting our operating cash flows, we experienced a decrease of Onboard and other revenues of$73.9 million and a decrease of$40.4 million in dividends received from unconsolidated affiliates during the first three months in 2020 compared to the same period in 2019. Net cash used in investing activities increased$890.7 million to$1.3 billion for the first three months in 2020 compared to$450.4 million for the same period in 2019. The increase in investing activities was primarily attributable to an increase in 48 -------------------------------------------------------------------------------- capital expenditures of$782.4 million due to the delivery of Celebrity Apex in the first three months of 2020 compared to no ship deliveries or purchases during the same period in 2019. Net cash provided by financing activities was$4.8 billion for the first three months in 2020 compared to Net cash used in financing activities of$667.7 million for the same period in 2019. The change was primarily attributable to an increase in debt proceeds of$6.7 billion for the first three months in 2020 compared to the same period in 2019, partially offset by an increase of debt repayments of$224.8 million . Also offsetting the increase in debt proceeds, was net repayments of commercial paper of$1.1 billion during the first three months of 2020 compared to net borrowings of commercial paper of$328.6 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 agreement and the$722.2 million unsecured term loan borrowed to finance Celebrity Apex, both borrowed inMarch 2020 , and higher drawings on our revolving credit facilities, resulting in a fully drawn balance, during the first three months of 2020, compared to the same period in 2019. Future Capital Commitments Capital Expenditures As ofMarch 31, 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 we expect that this will result in delivery delays of ships on order and will adjust the timing of our contractual ship deliveries: Approximate Ship Shipyard Contractual Delivery Date BerthsRoyal Caribbean International - Oasis-class: Wonder of the Seas Chantiers de l'Atlantique 2nd Quarter 2021 5,700 Unnamed Chantiers de l'Atlantique 4nd 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 - Silver Origin De Hoop 2nd Quarter 2020 100 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 600TUI Cruises (50% joint venture) (2)- 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 Total Berths 52,400 InApril 2019 , we entered into an agreement with Chantiers de l'Atlantique to build the fifth Edge-class ship forCelebrity Cruises . The ship is expected to have an aggregate capacity of approximately 3,200 berths and is expected to enter service in the 49 -------------------------------------------------------------------------------- fourth quarter of 2024. 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 ofMarch 31, 2020 , the aggregate cost of our ships on order presented in the table above, excluding any ships on order by our Partner Brands, was$13.8 billion , of which we had deposited$810.9 million . Approximately 63.6% of the aggregate cost was exposed to fluctuations in the Euro exchange rate atMarch 31, 2020 . These amounts do not include the ship order placed bySilversea Cruises during the reporting lag period. 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 ofMarch 31, 2020 , we anticipate overall full year capital expenditures, based on our existing ships on order, will be approximately$0.5 billion for 2020 and$2.1 billion for 2021. These amounts do not include any ships on order by our Partner Brands. Contractual Obligations As ofMarch 31, 2020 , our contractual obligations were as follows (in thousands): Payments due by period Less than 1-3 3-5 More than Total 1 year years years 5 years Operating Activities: Operating lease obligations(1)$ 915,129 $ 127,273 $ 219,304 $ 168,384 $ 400,168 Interest on debt(2) 2,416,916 516,618 826,821 454,155 619,322 Other(3) 510,721 241,783 224,488 22,347 22,103 Investing Activities: 0 Ship purchase obligations(4) 10,629,536 1,551,358 4,920,903 2,981,077 1,176,198 Financing Activities: 0 Commercial paper(5) 343,557 343,557 - - - Debt obligations(6) 15,458,844 3,377,652 4,902,203 3,361,788 3,817,201 Finance lease obligations(7) 226,471 34,342 49,605 10,601 131,923 Other(8) 19,132 6,366 9,790 2,976 - Total$ 30,520,306 $ 6,198,949 $ 11,153,114 $ 7,001,328 $ 6,166,915 (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 atMarch 31, 2020 . Debt denominated in other currencies is calculated based on the applicable exchange rate atMarch 31, 2020 . The interest related to the$2.2 billion 364-day secured term loan is reported in the Less than 1 year column. Subsequent toMarch 31, 2020 , the$2.2 billion 364-day term loan was fully repaid with a portion of the proceeds from the$3.32 billion secured bond issued inMay 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. (4) Amounts are based on contractual installment and delivery dates for our ships on order. Included in these figures are$8.8 billion in final contractual installments, which have committed financing. COVID-19 has impacted shipyard operations and we expect that this will result in delivery delays of ships on order and will adjust the timing of our contractual ship deliveries. 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 toSilversea 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 atMarch 31, 2020 . In addition, debt obligations presented above are 50 -------------------------------------------------------------------------------- net of debt issuance costs of$254.7 million as ofMarch 31, 2020 . The$2.2 billion 364-day secured term loan is reported in the "Less than 1 year" column. Subsequent toMarch 31, 2020 , the term loan was refinanced with debt maturing in 2023 and 2025. (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. 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 ArrangementsTUI Cruises 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 inTUI Cruises below 37.55% throughMay 2031 . 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. OnApril 2, 2020 , S&P Global downgraded us from BBB- to BB and onMay 13, 2020 , Moody's downgraded us from Baa3 to Ba2. Our access to, and cost of debt financing is negatively impacted by by the downgrades. Based on our current projected fair value of certain derivative instruments in net liability positions, on or prior toSeptember 23, 2020 , we will be required to post collateral of approximately$80.4 million as a result of the downgrades. As ofMarch 31, 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 cruise operations fromMarch 13 through at leastJuly 31, 2020 andChina sailings until at leastJune 30, 2020 . 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 ofMarch 31, 2020 , we had$8.8 billion of committed financing for final delivery installments on our ships on order. As ofMarch 31, 2020 , we had$6.2 billion in contractual obligations due throughMarch 31, 2021 , of which approximately$3.4 billion relates to debt maturities,$516.6 million relates to interest on debt and$1.6 billion relates to progress payments on our ship orders and the final installments payable due upon the delivery of Odyssey of the Seas, Silver Origin andSilver Moon , based on their contractual delivery dates. The$2.2 billion 364-day secured term loan is reported as maturing prior toMarch 31, 2021 ; however, subsequent toMarch 31, 2020 , the term loan was refinanced with debt maturing in 2023 and 2025. As ofMarch 31, 2020 , we had liquidity of$3.6 billion , consisting of cash and cash equivalents, net of commercial paper issuances. As ofMarch 31, 2020 , our revolving credit facilities were fully drawn. Subsequent toMarch 31, 2020 , we agreed 51 -------------------------------------------------------------------------------- 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. 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 Certain of our financing agreements contain covenants that require us, among other things, to maintain minimum net worth of at least$9.9 billion , 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. We were in compliance with our financial covenants as ofMarch 31, 2020 . However, we amended these debt agreements to waive the quarterly testing of our financing covenants through and including the first quarter of 2021. In addition to the above, as ofMarch 31, 2020 , we were not in compliance with one covenant in ourPort of Miami Terminal "A" operating lease agreement which we subsequently obtained a waiver for and amended our agreement with the lessor to increase the lien basket in line with our debt facilities. As part of obtaining these debt compliance waivers, we are now required to maintain a minimum of$300 million in cash and cash equivalents tested on a monthly basis throughMarch 31, 2021 , and 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. In addition, the lenders under such unsecured bank facilities required a number of structural enhancements to such facilities. Under certain of our agreements, the contractual interest rate, facility fee and/or export credit agency fee vary with our debt rating. OnApril 2, 2020 , S&P Global downgraded us from BBB- to BB and onMay 13, 2020 , Moody's downgraded us from Baa3 to Ba2. Any covenant waiver may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections that would be applicable. There can be no assurance that we would be able to obtain waivers in a timely manner, or on acceptable terms at all. 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. Dividends During the first quarter of 2020, we declared a cash dividend on our common stock of$0.78 per share, which was paid inApril 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. 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. Subsequent toMarch 31, 2020 , we agreed with certain of our lenders not to pay dividends for so long as our debt covenant waivers are in effect. 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 52 -------------------------------------------------------------------------------- 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 endedMarch 31, 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. 53
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