ROYAL CARIBBEAN CRUISES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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, including statements regarding our expectations for the
first quarter and full year of 2021, business and industry prospects or future
results of operations or financial position, made in this Annual Report on
Form 10-K 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 Annual Report on Form 10-K and, in particular, the risks
discussed under the caption "Risk Factors" in Part I, Item 1A herein.
All forward-looking statements made in this Annual Report on Form 10-K 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 critical accounting policies and 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 year ended December 31, 2020
compared to the same period in 2019;
•a discussion of our business outlook, and
•a discussion of our liquidity and capital resources, including our future
capital and contractual commitments and potential funding sources.
A discussion of our results of operations for the year ended December 31, 2019
compared to the year ended December 31, 2018 is included in Part II. Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of our   Annual Report on Form 10-K for the year ended December 31,
2019, filed with the SEC on February 25, 2020  , as updated by our Current
Report on Form 8-K dated May 13, 2020, and is incorporated by reference into
this Form 10-K.

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Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). (Refer
to Note 1. General and Note 2. Summary of Significant Accounting Policies to our
consolidated financial statements under Item 8. Financial Statements and
Supplementary Data). Certain of our accounting policies are deemed "critical,"
as they require management's highest degree of judgment, estimates and
assumptions. We have discussed these accounting policies and estimates with the
audit committee of our board of directors. We believe our most critical
accounting policies are as follows:
Liquidity and COVID-19
The effects of COVID-19 have had and continue to have a material negative impact
on our operations, financial results and liquidity. The full extent of the
impact will be determined by the length of time COVID-19 influences our industry
and our eventual gradual return to service. Given the ongoing effects of
COVID-19 on our operations and global bookings, we have identified the
estimation of our future liquidity requirements as a critical accounting policy.
The estimation of our future liquidity requirements includes numerous
assumptions that are subject to various risks and uncertainties. The principal
assumptions used to estimate our future liquidity requirements during our
out-of-service period consist of:
•Expected date of return to operations;
•Expected gradual resumption of cruise operations;
•Expected lower than comparable historical occupancy levels during the
resumption of cruise operations; and
•Expected incremental expenses for the resumption of cruise operations, for the
maintenance of additional public health protocols and procedures for additional
regulations.
The assumptions used to estimate our liquidity requirements are frequently and
continuously evaluated because of the unprecedented non-operational environment
we are experiencing due to COVID-19. In addition, the magnitude, duration and
speed of the global pandemic continues to be uncertain. As a result, we have
made reasonable estimates and judgments of the impact of COVID-19 on our
liquidity within our financial statements and there may be changes to those
estimates in future periods.
We have taken and will continue to take actions to improve our liquidity,
including:
•Reduction of capital expenditures;
•Reduction of operating expenses (including furloughing staff and laying up
vessels);
•Amending credit agreements to defer payments and covenant requirements, as well
as extend maturity dates;
•Raising capital through debt and stock issuances; and
•Suspending dividend payments.
Ship Accounting
Ships represent our most significant assets and are stated at cost less
accumulated depreciation and amortization. Depreciation of ships is generally
computed net of a 10%-15% projected residual value, using the straight-line
method over the estimated useful life of the asset, which is generally 30-35
years. The 30-35 year useful life and 10%-15% residual value is the
weighted-average of all major components of a ship. Our useful life and residual
value estimates take into consideration the impact of anticipated technological
changes, long-term cruise and vacation market conditions and historical useful
lives of similarly-built ships. In addition, we take into consideration our
estimates of the weighted-average useful lives of the ships' major component
systems, such as hull, superstructure, main electric, engines and cabins. We
employ a cost allocation methodology at the component level, in order to support
the estimated weighted-average useful lives and residual values, as well as to
determine the net cost basis of assets being replaced. Given the very large and
complex nature of our ships, our accounting estimates related to ships and
determinations of ship improvement costs to be capitalized require considerable
judgment and are inherently uncertain. We do not have cost segregation studies
performed to specifically componentize our ship systems. However, we estimate
the costs, useful lives and residual values of component systems based
principally on general and technical information known about major ship
component systems and their lives, as well as our knowledge of the cruise
vacation industry. We do not identify and track depreciation by ship component
systems, but instead utilize these estimates to determine the net cost basis of
assets replaced or refurbished. Improvement costs that we believe add value to
our ships are capitalized as additions to the ship and depreciated over the
shorter of the improvements' estimated useful lives or that of the associated
ship. The estimated cost and accumulated depreciation of replaced or refurbished
ship components are written

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off and any resulting losses are recognized within Cruise operating expenses in
our Consolidated Statements of Comprehensive Income (Loss).
We periodically review estimated useful lives and residual values for ongoing
reasonableness, considering long term views on our intended use of each class of
ships and the planned level of improvements to maintain and enhance vessels
within those classes. In the event a factor is identified that may trigger a
change in the estimated useful lives and residual values of our ships, a review
of the estimate is completed. In the fourth quarter of 2019, we completed a
modernization of the Oasis of the Seas under our ship upgrade program. The level
of capital investment, as well as planned investment levels in the other ships
within the Oasis class, triggered a review of the estimated useful lives and
residual values of the Oasis-class ships. Following a review of the estimate,
considering the intended use of the vessel and assessment of the estimated lives
of component assets forming the Oasis class ships, we concluded a change to the
estimated lives and residual values of Oasis class ships was required. Effective
fourth quarter of 2019, we revised the estimated useful lives and residual
values of the Oasis-class ships from 30 years with a 15% residual value to 35
years with a 10% residual value. The change in the estimated useful lives and
residual values was accounted for prospectively as a change in accounting
estimate. For further information regarding this change in accounting estimate,
refer to Note 2. Summary of Significant Accounting Policies to our consolidated
financial statements under Item 8. Financial Statements and Supplementary Data.
We use the deferral method to account for drydocking costs. Under the deferral
method, drydocking costs incurred are deferred and charged to expense on a
straight-line basis over the period to the next scheduled drydock, which we
estimate to be a period of thirty to sixty months based on the vessel's age as
required by Class. Deferred drydock costs consist of the costs to drydock the
vessel and other costs incurred in connection with the drydock which are
necessary to maintain the vessel's Class certification. Class certification is
necessary in order for our cruise ships to be flagged in a specific country,
obtain liability insurance and legally operate as passenger cruise ships. The
activities associated with those drydocking costs cannot be performed while the
vessel is in service and, as such, are done during a drydock as a planned major
maintenance activity. The significant deferred drydock costs consist of hauling
and wharfage services provided by the drydock facility, hull inspection and
related activities (e.g., scraping, pressure cleaning, bottom painting),
maintenance to steering propulsion, thruster equipment and ballast tanks, port
services such as tugs, pilotage and line handling, and freight associated with
these items. We perform a detailed analysis of the various activities performed
for each drydock and only defer those costs that are directly related to planned
major maintenance activities necessary to maintain Class. The costs deferred are
related to activities not otherwise routinely periodically performed to maintain
a vessel's designed and intended operating capability. Repairs and maintenance
activities are charged to expense as incurred.
We use judgment when estimating the period between drydocks, which can result in
adjustments to the estimated amortization of drydock costs. If the vessel is
disposed of before the next drydock, the remaining balance in deferred drydock
is written-off to the gain or loss upon disposal of vessel in the period in
which the sale takes place. We also use judgment when identifying costs incurred
during a drydock which are necessary to maintain the vessel's Class
certification as compared to those costs attributable to repairs and maintenance
which are expensed as incurred.
We believe we have made reasonable estimates for ship accounting purposes.
However, should certain factors or circumstances cause us to revise our
estimates of ship useful lives or projected residual values, depreciation
expense could be materially higher or lower. If circumstances cause us to change
our assumptions in making determinations as to whether ship improvements should
be capitalized, the amounts we expense each year as repairs and maintenance
costs could increase, partially offset by a decrease in depreciation expense. If
we had reduced our estimated average ship useful life by one year, depreciation
expense for 2020 would have increased by approximately $157.3 million. If our
ships were estimated to have no residual value, depreciation expense for 2020
would have increased by approximately $345.3 million. We have evaluated our
estimated ship useful lives and projected residual values in light of our
current environment and determined that there are no changes to these estimates
based on our return to service expectations.
Business Combinations
On July 31, 2018, we acquired a 66.7% equity stake in Silversea Cruises for
$1.02 billion in cash and contingent consideration. Refer to Note 3. Business
Combination to our consolidated financial statements under Item 8. Financial
Statements and Supplementary Data for further information on the acquisition.
On July 9, 2020, we acquired the remaining 33.3% interest in Silversea Cruises
that we did not already own (the "noncontrolling interest") from Heritage. As a
result of the acquisition of the noncontrolling interest, Silversea Cruises is
now a wholly owned cruise brand. As consideration for the noncontrolling
interest, we issued to Heritage 5.2 million shares of common stock, par value
$0.01 per share, of Royal Caribbean Cruises Ltd. Pursuant to the agreement
governing the acquisition, among other things, the parties terminated any
existing obligation to issue Heritage any contingent consideration, at fair
value, in connection with our acquisition of a 66.7% interest in Silversea
Cruises on July 31, 2018. The share purchase did not result in a change of
control. The purchase was accounted for as an equity transaction and no gain or
loss was recognized in earnings. Refer to Note 11. Redeemable Noncontrolling
Interest to our consolidated financial statements under Item 8. Financial

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Statements and Supplementary Data for further information regarding our
acquisition of Silversea Cruises' noncontrolling interest.
We account for business combinations in accordance with ASC 805, Business
Combinations, by applying the acquisition method of accounting.
The acquisition method of accounting requires that we record the assets acquired
and liabilities assumed, and the noncontrolling interest, if any, at their
respective fair values at the acquisition date. Goodwill is recognized as the
excess of the purchase price over the fair value of the net assets acquired.
Significant estimates and assumptions are made by management to value such
assets and liabilities based on third party valuations such as appraisals or
internal valuations based on discounted cash flow analyses or other valuation
techniques. Although we believe that those estimates and assumptions are
reasonable and appropriate, they are inherently uncertain and subject to change.
If during the measurement period (not to exceed one year), additional
information is obtained about facts and circumstances that existed as of
the acquisition date related to the fair value of the assets acquired and
liabilities assumed, we may adjust our estimates to account for subsequent
adjustments to the provisional amounts recognized at the acquisition date,
resulting in an offsetting adjustment to the goodwill associated with the
business acquired.
Uncertain tax positions and tax-related valuation allowances are initially
established in connection with a business combination as of the acquisition
date. Our purchase price measurement period for the Silversea Cruises 2018
acquisition was closed during 2019.
Any contingent consideration is estimated at fair value at the acquisition date.
Liability-classified contingent consideration is remeasured each reporting
period, with changes in fair value recognized in earnings until the contingent
consideration is settled.
Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets
We review goodwill and indefinite-lived intangible assets for impairment at the
reporting unit level annually or, when events or circumstances dictate, more
frequently. The impairment review for goodwill consists of a qualitative
assessment of whether it is more-likely than-not that a reporting unit's fair
value is less than its carrying value, and if necessary, a goodwill impairment
test. Factors to consider when performing the qualitative assessment include
general economic conditions, limitations on accessing capital, changes in
forecasted operating results, changes in fuel prices and fluctuations in foreign
exchange rates.
The goodwill impairment analysis consists of a comparison of the fair value of
the reporting unit with its carrying value. 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 used in the discounted cash flow model for our 2020 impairment
assessments were:
•The timing of our return to service, changes in market conditions and port or
other restrictions;
•Forecasted net revenues, primarily the timing of returning to normalized
operations, occupancy rates from existing and expected ship deliveries,
including options, and terminal growth rate; and
•Weighted average cost of capital (i.e., discount 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 based on multiple revenue and expense scenarios reflecting the impact of
various return to service management assumptions 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 value of a reporting unit exceeds its fair value, not to exceed the
total amount of goodwill allocated to such reporting unit.
The impairment review for indefinite-life intangible assets can be performed
using a qualitative or quantitative impairment assessment. The quantitative
assessment consists of a comparison of the fair value of the asset with its
carrying value. We estimate the fair value of these assets using a discounted
cash flow model and various valuation methods depending on the nature of the
intangible asset, such as the relief-from-royalty method, for trademarks and
trade names. The principal assumptions used in the discounted cash flow model
for our 2020 impairment assessments were:

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•Forecasted net revenues, primarily the timing of returning to normalized
operations, occupancy rates from existing and expected ship deliveries,
including options, and terminal growth rate;
•Royalty rate; and
•Weighted average cost of capital (i.e., discount rate).
If the carrying value exceeds its fair value, an impairment loss is recognized
in an amount equal to that excess. If the fair value exceeds its carrying value,
the indefinite-life intangible asset is not considered impaired. Other
intangible assets assigned finite useful lives are amortized on a straight-line
basis over their estimated useful lives. Refer to Note 6. Intangible Assets to
our consolidated financial statements under Item 8. Financial Statements and
Supplemental Data for further information on indefinite-life intangible assets.
We review our ships and other long-lived assets for impairment whenever events
or changes in circumstances indicate, based on estimated undiscounted future
cash flows, that the carrying value of these assets may not be fully
recoverable. We evaluate asset impairment at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other
assets and liabilities. The lowest level for which we maintain identifiable cash
flows that are independent of the cash flows of other assets and liabilities is
at the ship level for our ships. If estimated future cash flows are less than
the carrying value of an asset, an impairment charge is recognized to the extent
its carrying value exceeds fair value. Refer to Note 7. Property and Equipment
to our consolidated financial statements under Item 8. Financial Statements and
Supplemental Data for further information on determination of fair value for
long-lived assets.
We estimate fair value based on quoted market prices in active markets, if
available. If active markets are not available, we base fair value on
independent appraisals, sales price negotiations and projected future cash flows
discounted at a rate estimated by management to be commensurate with the
business risk. Quoted market prices are often not available for individual
reporting units and for indefinite-life intangible assets. Accordingly, we
estimate the fair value of a reporting unit and an indefinite-life intangible
asset using an expected present value technique.
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 of ports and destinations
generally. As part of the global containment effort, the Company previously
announced a voluntary suspension of its Global Brands' cruise operations through
at least April 30, 2021, for most of our cruise operations.
As a result of the developments in 2020, we performed interim impairment
evaluations, in addition to our annual impairment reviews, of certain of our
goodwill, indefinite-lived intangible assets and long-lived assets in connection
with the preparation of our 2020 quarterly and annual financial statements, as
further discussed below.
Royal Caribbean International Reporting Unit
We performed interim impairment evaluations of Royal Caribbean International's
goodwill in connection with the preparation of our quarterly financial
statements for the periods ended March 31, 2020 and June 30, 2020 due to the
significant impact that COVID-19 has had on our projected cash flows and
triggering events identified in those quarters. Our extended suspension of our
operations and the possibility of further extensions created some uncertainty in
forecasting the operating results and future cash flows used in our impairment
analyses. As a result of the tests, we determined that the fair value of the
Royal Caribbean International reporting unit exceeded its carrying value by
approximately 30% and 8% as of March 31, 2020 and June 30, 2020, respectively,
resulting in no impairment to the Royal Caribbean International goodwill in
those periods. The fair value of the Royal Caribbean International reporting
unit as of March 31, 2020 was determined using a discounted cash flow model and
a probability-weighted discounted cash flow model in combination with a market
based valuation approach for the June 30, 2020 and November 30, 2020
assessments. We did not perform interim impairment evaluation of Royal Caribbean
International's goodwill during the quarter ended September 30, 2020 as no
triggering events were identified.
During the fourth quarter of 2020, we performed our annual impairment review of
goodwill for Royal Caribbean International's reporting unit. We did not perform
a qualitative assessment but instead proceeded directly to the goodwill
impairment test. As a result of the test, we determined the fair value of the
Royal Caribbean International reporting unit exceeded its carrying value by
approximately 14% resulting in no impairment to Royal Caribbean International's
goodwill. As of December 31, 2020, the carrying value of goodwill attributable
to our Royal Caribbean reporting unit was $296.6 million.
Silversea Cruises Reporting Unit
We performed interim impairment evaluations of Silversea Cruises' goodwill and
trade name in connection with the preparation of our financial statements for
the quarter ended March 31, 2020. As a result of these analyses, we determined
that the carrying value of the Silversea Cruises reporting unit exceeded its
fair value. Similarly, we determined that the carrying value of Silversea
Cruises' trade name exceeded its fair value. 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

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quarter ended March 31, 2020. We estimated the fair value of the Silversea
Cruises reporting unit using a probability-weighted discounted cash flow model
in combination with a market based valuation approach. We did not perform
interim impairment evaluations of Silversea Cruises' reporting unit or trade
names during the quarters ended June 30, 2020 and September 30, 2020 as no
triggering events were identified.
During the fourth quarter of 2020, we performed our annual impairment review of
Silversea Cruises' goodwill. We did not perform a qualitative assessment but
instead proceeded directly to the goodwill impairment test. As a result of the
test, we determined the fair value of the Silversea Cruises reporting unit
exceeded its carrying value by approximately 12%, resulting in no impairment to
Silversea Cruises' goodwill. As of December 31, 2020, the carrying value of
goodwill attributable to our Silversea Cruises reporting unit was $508.6
million.
During the fourth quarter of 2020, we performed our annual impairment review of
Silversea Cruises' trade name. As a result of the quantitative test, we
determined that the fair value of the Silversea Cruises' trade name exceeded its
carrying value by approximately 3%, resulting in no impairment to Silversea
Cruises' trade name. We will continue to closely monitor the change in fair
value of the Silversea Cruises' trade name. Any further adverse developments due
to COVID-19 or other events affecting the projected cash flows for Silversea
Cruises may lead to further impairment of the Silversea Cruises' trade name. As
of December 31, 2020 and 2019, the carrying value of indefinite-life intangible
assets was $321.5 million and $352.3 million, respectively, which primarily
relates to the Silversea Cruises trade name.
Long-lived Assets
Events surrounding the COVID-19 pandemic negatively impacted the expected
undiscounted cash flows of certain of our long-lived assets. We evaluated these
assets during the year ended 2020 pursuant to our long-lived asset impairment
test which resulted in an impairment charge of $464.2 million during the year
ended December 31, 2020, to write down certain ships operated by our Global
Brands to their estimated fair values. The amount also includes impairment
charges for ships that our Global Brands disposed of during 2020 as well as the
three Azamara ships.
We also recorded impairment charges of $171.3 million during the year ended
December 31, 2020 for the three ships that we chartered to Pullmantur Holdings
prior to the filing of the Pullmantur reorganization. During the quarter ended
September 30, 2020, we sold the ships to third parties for amounts approximating
their carrying values and no further impairment was recorded.
During the year ended December 31, 2020, we also determined that certain
construction in progress projects would be reduced in scope or would no longer
be completed as a result of our capital cost containment measures in response to
the COVID-19 impact on our liquidity. This led to an impairment charge of $91.5
million of construction in progress assets reported in Property and equipment,
net.
In addition, during the year ended December 31, 2020, we identified that the
undiscounted cash flows for certain right-of-use assets were less than their
carrying values due to the negative impact of COVID-19. We evaluated these
assets pursuant to our long-lived asset impairment test, resulting in an
impairment charge of $65.9 million to write down these assets to their estimated
fair values during the year ended December 31, 2020.
The combined impairment charge of $1.5 billion primarily related to our
goodwill, trademarks and trade names, vessels, construction in progress, and
right-of-use assets were recognized in earnings during the year ended December
31, 2020 and is reported within Impairment and credit losses within our
consolidated statements of comprehensive income (loss). 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 that 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 1, Item 1A. for further
discussion on risks related to the COVID-19 pandemic.
Derivative Instruments
We enter into various forward, swap and option contracts to manage our interest
rate exposure and to limit our exposure to fluctuations in foreign currency
exchange rates and fuel prices. These instruments are recorded on the balance
sheet at their fair value and the vast majority are designated as hedges. We
also use non-derivative financial instruments designated as hedges of our net
investment in our foreign operations and investments. Although certain of our
derivative financial instruments do not qualify or are not accounted for under
hedge accounting, we do not hold or issue derivative financial instruments for
trading or other speculative purposes. We account for derivative financial
instruments in accordance with authoritative guidance. Refer to Note 2. Summary
of Significant Accounting Policies and Note 19. Commitments and Contingencies to
our consolidated financial statements under Item 8. Financial Statements and
Supplementary Data for more information on related authoritative guidance, the
Company's hedging programs and derivative financial instruments.

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On a regular basis, we enter into foreign currency forward contracts, interest
rate and fuel swaps and options with third-party institutions in
over-the-counter markets. We estimate the fair value of our foreign currency
forward contracts and interest rate swaps using expected future cash flows based
on the instruments' contract terms and published forward prices for foreign
currency exchange and interest rates. We value floors which are embedded within
our interest rate swaps using standard option pricing models with inputs based
on the options' contract terms, such as exercise price and maturity, and readily
available market data, such as forward interest rates and interest rate
volatility. We apply present value techniques and LIBOR or EURIBOR-based
discount rates to convert the expected future cash flows to the current fair
value of the instruments.
We estimate the fair value of our fuel swaps using expected future cash flows
based on the swaps' contract terms and forward prices. We derive forward prices
from published forward fuel curves which in turn are based on actual market
transactions and published price quotes for similar assets. We apply present
value techniques and LIBOR-based discount rates to convert the expected future
cash flows to the current fair value of the instruments. We also corroborate our
fair value estimates using valuations provided by our counterparties.
We adjust the valuation of our derivative financial instruments to incorporate
credit risk.
We believe it is unlikely that materially different estimates for the fair value
of our foreign currency forward contracts and interest rate and fuel swaps and
options would be derived from other appropriate valuation models using similar
assumptions, inputs or conditions suggested by actual historical experience.
The current suspension of our cruise operations due to the COVID-19 pandemic and
our 2020 and expected 2021 ship disposals resulted in reductions to our
forecasted fuel purchases. As of December 31, 2020, we discontinued cash flow
hedge accounting on 0.6 million metric tons of our fuel swap agreements maturing
in 2020 and 2021, which resulted in the reclassification of a net $104.4 million
loss from Accumulated other comprehensive loss to Other expense during the year
ended December 31, 2020. Changes in the fair value of fuel swaps for which cash
flow hedge accounting was discontinued are currently recognized in Other expense
each reporting period.
Future suspension of our operations or modifications to our itineraries may
affect our expected forecasted fuel purchases which could result in further
discontinuance of fuel swap cash flow hedge accounting and the reclassification
of deferred gains or losses from Accumulated other comprehensive loss into
earnings. Refer to Risk Factors in Part 1, Item 1A. for further discussion on
risks related to the COVID-19 pandemic.
Contingencies-Litigation
On an ongoing basis, we assess the potential liabilities related to any lawsuits
or claims brought against us. While it is typically very difficult to determine
the timing and ultimate outcome of such actions, we use our best judgment to
determine if it is probable that we will incur an expense related to the
settlement or final adjudication of such matters and whether a reasonable
estimation of such probable loss, if any, can be made. In assessing probable
losses, we take into consideration estimates of the amount of insurance
recoveries, if any, which are recorded as assets when recoverability is
probable. We accrue a liability when we believe a loss is probable and the
amount of loss can be reasonably estimated. Due to the inherent uncertainties
related to the eventual outcome of litigation and potential insurance
recoveries, it is possible that certain matters may be resolved for amounts
materially different from any provisions or disclosures that we have previously
made.
Seasonality
Our revenues are seasonal based on demand for cruises. Demand is 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

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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.
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 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 that were previously chartered to Pullmantur; (iv)
the estimated cash refund expected to be paid to Pullmantur guests and other
expenses incurred as part of the Pullmantur S.A. reorganization; (v)
restructuring charges incurred in relation to the reduction in our U.S.
workforce and other initiatives expenses in 2020 and the reorganization of our
international sales and marketing structure primarily in 2019; (vi) the
amortization of non-cash debt discount on our convertible notes; (vii) loss on
the extinguishment of debt; (viii) the amortization of the Silversea Cruises
intangible assets resulting from the 2018 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.
("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; (xiii) the impairment
loss and other costs related to the exit of our tour operations business; (xiv)
the impairment loss related to Skysea Holding; and (xv) the impact of the change
in accounting principle related to the recognition of stock-based compensation
expense from the graded attribution method to the straight-line attribution
method for time-based stock awards.
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

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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.
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 prior 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
twelve months ended December 31, 2019. 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 as a result of the
COVID-19 pandemic ("COVID-19") do not allow for a meaningful comparison to the
prior period metrics and as such these metrics have been excluded from this
report.
Recent Developments: COVID-19
The disruptions to our operations resulting from 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 of ports and destinations generally. As
part of the global containment effort, we previously announced a voluntary
suspension of our Global Brands' cruise operations beginning March 13, 2020,
which has been extended through at least April 30, 2021, for most of our cruise
operations.
We continue to work with government and health authorities across the globe to
address the unique public health challenges posed by COVID-19 and expect to
re-start our global cruise operation in a phased manner. Notably, we resumed
limited cruise operations outside of the U.S. in July and September with TUI
Cruises and Hapag-Lloyd, respectively, for a limited period. Recently, we also
received approval from the Singaporean Government to resume sailings out of
Singapore. As a result, Quantum of the Seas, a ship from the Royal Caribbean
International fleet, resumed cruising from Singapore in December 2020. These
initial cruises are and will most likely continue to take place with reduced
guest occupancy, modified itineraries and enhanced health protocols developed in
collaboration with governments and health authorities.
CDC Framework for Conditional Sailing Order
On and effective as of October 30, 2020, the U.S. Centers for Disease Control
and Prevention ("CDC") issued a Framework for Conditional Sailing Order (the
"Conditional Order") that will conditionally permit cruise ship passenger
operations in U.S. waters under certain conditions and using a phased approach.
The Conditional Order replaces the CDC's No Sail Order that expired on October
31, 2020 and will remain in effect until the earlier of (1) the expiration of
the Secretary of Health and Human Services' declaration that COVID-19
constitutes a public health emergency, (2) the rescission or modification by the
CDC Director of the Conditional Order based on specific public health or other
considerations, or (3) November 1, 2021. See Part I. Item 1. Business -
Regulation for further details on the Conditional Order.
We are working with both the CDC and the Healthy Sail Panel ("HSP"), formed in
June 2020 by us and Norwegian Cruise Line Holdings Ltd. and composed of leading
experts in relevant fields, including epidemiology, infectious diseases, public
policy and regulation, engineering and general health safety, to prepare and
develop our plan to meet the framework for the Conditional Order. While the
Conditional Order represents an important step in our return to service, many
uncertainties remain as to the specifics, timing and costs of administering and
implementing the requirements of the Conditional Order, some of which may be
significant. Further, the Conditional Order contemplates that the CDC may issue
additional requirements through technical instructions or orders as needed and
that the phases described above will be further determined based on public
health considerations, including the trajectory of the pandemic and the ability
of cruise ship operators to successfully employ measures that mitigate the risk
of COVID-19. Based on our assessment of these conditions or for other reasons,
we may determine it necessary to further extend our voluntary suspension of our
Global Brands' cruise sailings which currently extends through at least April
30, 2021, for most of our cruise operations.
Update on Bookings
Booking activity for the second half of 2021 is aligned with our anticipated
resumption of cruises. Pricing on these bookings is higher than 2019 both
including and excluding the dilutive impact of future cruise credits (FCCs).
While the brands are still in the process of opening for sale the remainder of
their 2022/2023 seasons, first and second quarter 2022 sailings have been open
for some time. Cumulative advance bookings for the first half of 2022 are within
historical ranges and at higher prices. This was achieved with minimal sales and
marketing spend, which we believe highlights a strong long-term demand for
cruising.

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Since our last quarterly filing, approximately 75% of bookings made for 2021 are
new and the rest are due to the redemption of FCCs and our "Lift & Shift"
program. We continue to provide guests who were booked on a suspended sailing
with the option to request a refund, to receive an FCC, or to "lift and shift"
their booking to the following year.
As of December 31, 2020, we had $1.8 billion in customer deposits of which
approximately 50% are FCCs and the rest are related to new bookings.
Approximately 53% of the guests booked on cancelled sailings since our
suspension of operations have requested cash refunds.
Update on Recent Liquidity Actions and Ongoing Uses of Cash
As of December 31, 2020, we had liquidity of approximately $4.4 billion in the
form of cash and cash equivalents of $3.7 billion and a $0.7 billion one-year
commitment through August 12, 2021, for a 364-day term loan facility. As of
December 31, 2020, our revolving credit facilities were fully utilized through a
combination of amounts drawn and letters of credit issued under the facilities.
Given the current environment, we continue to prioritize and bolster liquidity
through significant cost and capital expenditure reductions, cash conservation
and additional financing sources, as described below, to ensure that we are well
positioned for recovery.
Reduced Operating Expenses
We have taken significant actions to reduce operating expenses during the
suspension of our 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 transitioned during
the year into various levels of layup;
•eliminated or significantly reduced marketing and selling expenses in 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.•
We may seek to further reduce our average monthly expenses under a further
prolonged non-revenue scenario and during the restart of operations. This
includes consideration of additional vessels heading to cold layup as well as
further assessment of our shoreside workforce, including those coming back from
furlough.
Reduced Capital Expenditures
Since the start of February 2020, we have identified approximately $4.2 billion
of total capital expenditure reductions or deferrals in 2020 and 2021. The
reductions or deferrals of capital expenditures are comprised of the following:
•$1.4 billion of non-newbuild, discretionary capital expenditures? and
•$2.8 billion in reduced spend or deferred installment payments for newbuild
related payments which we are currently finalizing.
COVID-19 has impacted shipyard operations which have and will continue to result
in delays of our previously contracted ship deliveries. During 2021, the Company
expects the delivery of Odyssey of the Seas and Silver Dawn during the first and
fourth quarters, respectively. As it relates to 2022, the Company has two ship
deliveries scheduled: Wonder of the Seas and Celebrity Beyond. The exact
durations 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, we have taken several additional actions to
further improve our liquidity position and manage cash flow. In particular, we:
•  increased the capacity under our unsecured 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 in March
of 2020, which was repaid in May of 2020 with proceeds from the $3.32 billion
senior secured notes ("Secured Notes") discussed below;
•  issued $3.32 billion in 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. The Secured Notes are unconditionally guaranteed by
Celebrity Cruises Holdings Inc., Celebrity Cruises Inc. and certain of our
wholly-owned vessel-owning subsidiaries. $1.66 billion of the obligations under
the Secured Notes and the related guarantees are secured by first priority
security interests in collateral, which includes certain of our material
intellectual property, a pledge of 100% of the equity interests of certain of
our vessel-owning subsidiaries and mortgages on the 28 vessels owned by such
subsidiaries;

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•  secured deferrals of existing debt amortization under our export-credit
backed debt facilities which increased the Company's liquidity by an additional
$1.5 billion;
•issued $1.0 billion senior guaranteed notes ("Unsecured Notes") maturing 2023;
•issued $1.725 billion senior convertible notes maturing 2023;
•qualified for a government commercial paper program by the Bank of England and
issued £300.0 million, or approximately $409.9 million, of unsecured commercial
paper thereunder;
•secured a commitment for a $700.0 million 364-day term loan facility available
for draw any time prior to August 12, 2021;
•issued approximately 22.6 million shares of common stock for approximately $1.6
billion; and
•  agreed with certain of our lenders that we will not pay dividends or engage
in stock repurchases until at least the end of the third quarter of 2022.
Expected debt maturities for 2021 are $0.4 billion, assuming completion of a
remaining $0.4 billion in ship principal amortization deferrals. We estimate our
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, ongoing ship operating expenses, administrative
expenses, hedging costs, expected necessary capital expenditures (net of
committed financings in the case of newbuilds) and excludes changes in customer
deposits, commissions, principal repayments, and fees and collateral postings
related to financing and hedging activities.
As we return our fleet into service, we have incurred, as it relates to existing
operations, and will incur incremental spend as we bring the ships out of their
various levels of layup, return the crew to our vessels, take the necessary
steps to ensure compliance with the recommended protocols and gear up our sales
and marketing activities.
We continue to identify and evaluate further actions to enhance our liquidity
and support our recovery. These include and are not limited to further
reductions in capital expenditures, operating expenses and administrative costs
and additional financings, and refinancings.
Both our non-export credit agency facilities and our export credit agency
("ECA") 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%, and under certain facilities, to
maintain minimum shareholders' equity. During the course of 2020, we amended our
export credit facilities, substantially all of our non-export credit facilities
totaling an outstanding amount of $11.2 billion as of December 31, 2020, and our
credit card processing agreements in order to waive the applicable financial
covenants through and including the fourth quarter of 2021. The remainder of our
credit facilities with financial covenants (totaling $130 million as of December
31, 2020) benefit from a financial covenant waiver through and including the
first quarter of 2021. Certain of these amended agreements impose a
monthly-tested liquidity covenant. As of December 31, 2020, the minimum
liquidity requirement was $350.0 million. Pursuant to these amendments, we have
also agreed that we will not pay cash dividends or effectuate share repurchases
during the waiver period unless we are in compliance with the fixed charge
coverage covenant as of the end of the most recently completed quarter for the
duration of the waiver period.
During the first quarter of 2021, we amended $4.9 billion of our non-export
credit facilities and certain of our credit card processing agreements to extend
the waiver of the financial covenants through and including the third quarter of
2022 or, if earlier, that date falling after January 1, 2022 on which we elect
to comply with the modified covenants. In addition, pursuant to the amendments,
we have modified the manner in which such covenants are calculated (temporarily
in certain cases and permanently in others) as well as the levels at which our
net debt to capitalization covenant will be tested during the period commencing
immediately following the end of the waiver period and continuing through the
end of 2023. The amendments also increase the monthly-tested minimum liquidity
covenant to $500 million for the duration of the waiver period (subject to
reduction to $350 million, if we raise at least $500 million of additional
capital). Pursuant to these amendments, the restrictions on paying cash
dividends and effectuating share repurchases were extended through and including
the third quarter of 2022.
As of December 31, 2020, we were in compliance with the applicable minimum
liquidity covenant and we estimate that we will be in compliance for at least
the next twelve months. Refer to Note 9. Debt for further information regarding
our debt covenants.
During the first quarter of 2021, we also amended $6.2 billion of our export
credit facilities to extend the waiver of the financial covenants through and
including at least the end of the third quarter of 2022. These amendments also
allow for the deferral of up to $1.1 billion of principal payments due between
April 2021 and April 2022 subject to the satisfaction of various conditions
precedent. As of February 19, 2021, the conditions precedent have been satisfied
for 13 of the 15 amended facilities, which will allow us to defer $0.8 billion
of amortization payments due during this period. There can be no assurances that
the conditions precedent will be met for the remaining two facilities. The
deferred amounts will be repayable semi-annually over a

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five-year period starting in April 2022. Pursuant to these amendments, we have
agreed to implement the same liquidity covenant that applies in our non-export
credit facilities. The amendments also provide for mandatory prepayment of the
deferred amounts upon the taking of certain actions. Subject to a number of
carve-outs, these include, but are not limited to, issuance of dividends,
completion of share repurchases, issuances of debt other than for crisis and
recovery purposes, the making of loans and the sale of assets other than at
arm's length.
In addition, in the fourth quarter of 2020 and the first quarter of 2021, we
entered into amendments to our drawn and undrawn ECA facilities to provide for
the issuance of guarantees in satisfaction of existing obligations under these
facilities. Following issuance, which in the case of the undrawn facilities,
will occur once the debt is drawn, the guarantees will be released under certain
circumstances as other debt is repaid or refinanced on an unsecured and
unguaranteed basis. In connection with and following the issuance of the
guarantees, the guarantor subsidiaries are restricted from issuing additional
guarantees in favor of lenders, other than those lenders who are party to the
ECA facilities, and certain of the guarantor subsidiaries are restricted from
incurring additional debt. In addition, the ECA facilities will benefit from
guarantees to be issued by intermediary parent companies of subsidiaries that
take delivery of any new vessels subject to export-credit backed financing.





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Executive Overview
During 2020, the world was heavily impacted by the COVID-19 pandemic. As part of
the containment effort resulting from the global pandemic, we implemented a
voluntary suspension of our cruise operation beginning March 13, 2020, which has
been extended through at least April 30, 2021, for most of our cruise
operations. As a result, we cancelled almost 2,000 sailings that were originally
scheduled to sail in 2020.
Throughout the COVID-19 pandemic, our focus has been on the safety and
well-being of our guests and crew, the care of our fleet, and the strength of
our liquidity position. We repatriated 46,998 crew members, moved our whole
fleet into various level of lay-up and formed an expert panel with Norwegian
Cruise Line Holdings, called the Healthy Sail Panel ("HSP"), to develop a
comprehensive set of enhanced health and safety protocols. Based on the detailed
scientific recommendations of the HSP we were able to successfully resume
operations in Singapore, with Quantum of the Seas, and in Europe with TUI
Cruises and Hapag-Lloyd.
Since the suspension of our global cruise operation, we have taken aggressive
actions to enhance our liquidity, preserve cash and obtain additional financing.
During 2020, we raised approximately $9.3 billion of new capital through a
combination of bond issuances, common stock public offerings and other loan
facilities. We also reduced our steady-state monthly cruise operating expenses
by approximately 80% and reduced the 2020 capital expenditures by $3.0 billion.
In addition, in the second quarter of 2020 and the first quarter of 2021, we
amended our export credit facilities to allow for the deferral of $1.5 billion
of principal amortization through April 2022. We also amended over $11 billion
of commercial bank and export credit facilities to provide covenant waivers
through at least the third quarter of 2022. Given the current environment, we
continue to prioritize and bolster our liquidity, working to ensure we are well
positioned for recovery. Our average cash burn rate continues to be within the
range of $250 million - $290 million per month during this prolonged suspension
of operations, despite increased interest expenses from additional financing.
During the year ended December 31, 2020, we executed several measures to
structurally reduce our cost base, realign our capital allocation and improve
our scale and margins. Besides working on reducing our G&A expenses and
streamlining our procurement efforts, we successfully divested three of our
oldest and less efficient ships, Empress of the Seas, Majesty of the Seas and
Celebrity Xperience and are assisting in the reorganization in Spanish courts of
Pullmantur Cruceros. We also acquired the remaining share of Silversea without
impacting our liquidity and expanded our joint-venture with TUI Cruises to
include Hapag-Lloyd Cruises. Despite disruptions in shipyard operations, we
successfully took delivery of three new ships - Celebrity Apex, Silver Moon and
Silver Origin. Moreover, in January 2021, we entered into a definitive agreement
to sell our Azamara brand to Sycamore Partners in an all-cash transaction which
is expected to close in the first quarter of 2021. The deal includes Azamara's
three-ship fleet and associated intellectual property. By reshaping our fleet's
efficiency and the corporations' cost structure we are aligning our company to
better support our operating leverage and earnings growth during our recovery.
As the pandemic persists, we will continue to search for further opportunities
in our operations. As important, we are also focusing on our healthy
return-to-service program, as well as returning to financial health.
We continue to work and collaborate with the HSP, epidemiological and policy
experts, health authorities and various governments around the globe to ensure a
healthy and safe return to cruising for guests, crew and the communities we
visit. Regarding the resumption of operations out of the U.S., we continue to
prepare and develop our plan to meet the Framework for Conditional Sailing Order
issued by the U.S. Centers for Disease Control and Prevention (CDC). Overall,
and due to the challenges posed by the pandemic, we expect to re-start our
global cruise operation in a phased manner with reduced guest occupancy,
modified itineraries and enhanced health and safety protocols.




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Results of Operations
In addition to the items discussed above under "Executive Overview," significant
items for 2020 include:
•Our Net (Loss) Income attributable to Royal Caribbean Cruises Ltd. and Adjusted
Net (Loss) Income for the year ended December 31, 2020 was $(5.8) billion and
$(3.9) billion, or $(27.05) and $(18.31) per share on a diluted basis,
respectively, as compared to Net Income attributable to Royal Caribbean Cruises
Ltd. and Adjusted Net Income of $1.9 billion and $2.0 billion, or $8.95 and
$9.54 per share on a diluted basis, respectively, for the year ended December
31, 2019.
•Total revenues, excluding the effect of changes in foreign currency rates,
decreased by $8.7 billion for the year ended December 31, 2020 compared to the
same period 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 $22.0 million for the year ended December 31, 2020 compared to the
same period in 2019.
•Total cruise operating expenses, excluding the effect of changes in foreign
currency rate, decreased by $3.3 billion for the year ended December 31, 2020
compared to the same period in 2019 due to our cancelled sailings in 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 a decrease in total operating expenses of $11.2 million for
the year ended December 31, 2020 compared to the same period in 2019.
•During the year ended December 31, 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 $1.6 billion. The
impairment charges related to our goodwill, trademarks and trade names,
long-lived assets, including right-of-use assets, and 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 October 1, 2019 through September
30, 2020 for the twelve months ended December 31, 2020, from October 1, 2018
through September 30, 2019 in our consolidated results of operations for the
year ended December 31, 2019 and from the date of acquisition of July 31, 2018
to September 30, 2018 in our consolidated results of operations for the year
ended December 31, 2018. Refer to Note 1. General to our consolidated financial
statements under Item 1. Financial Statements for further information on this
three-month reporting lag.
•During the year ended December 31, 2020, we executed and amended various
financing arrangements, as summarized below. Refer to Note 9. Debt and Note 12.
Shareholders' Equity, to our consolidated financial statements under Item 8.
Financial Statements and Supplemental Data for further information on the
following underlying financing transactions:
•a $0.6 billion increase in the capacity available under our revolving credit
facilities;
•additional liquidity of $6.8 billion through the issuance of new debt,
including convertible debt, net of repayments, and the securing of a one-year
$700 million commitment for a 364-day term loan facility;
•£300.0 million, or $409.9 million, based on exchange rates as of December 31,
2020, of available and issued liquidity under an unsecured government commercial
paper program with the Bank of England;
•the deferral of $0.9 million of existing debt amortization under our
export-credit backed ship debt facilities through April 2021, which will be paid
over a period of four years after the deferral period; and
•22.6 million shares of common stock for approximately $1.6 billion.


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We reported Net Income attributable to Royal Caribbean Cruises Ltd, Adjusted Net
Income, earnings per share and Adjusted Earnings per Share as shown in the
following table (in thousands, except per share data):
                                                                           

Year Ended December 31,

                                                               2020                  2019                 2018

Net (Loss) Income attributable to Royal Caribbean Cruises Ltd.

$ (5,797,462)         $ 1,878,887          $ 1,811,042
Adjusted Net (Loss) Income attributable to Royal
Caribbean Cruises Ltd.                                      (3,924,579)           2,002,847            1,873,363

Net Adjustments to Net (Loss) Income attributable to Royal Caribbean Cruises Ltd. - Increase

$  1,872,883          $   123,960          $    62,321
Adjustments to Net (Loss) Income attributable to Royal
Caribbean Cruises Ltd.:
Impairment and credit losses (1)                          $  1,566,380          $         -          $         -
Equity investment impairment (2)                                39,735                    -                    -

Recognition of deferred currency translation adjustment loss on sale of assets (3)

                                      69,044                    -                    -
Convertible debt amortization of debt discount (4)              46,546                    -                    -
Pullmantur reorganization settlement (5)                        21,637                    -                    -

Oasis of the Seas incident, Grand Bahama's drydock write-off and other incidental expenses (6)

                     (1,938)              35,239                    -
Loss on extinguishment of debt (7)                              41,109                6,326                    -

Change in the fair value of contingent consideration and amortization of Silversea Cruises intangible assets related to Silversea Cruises acquisition (8)

                   (33,814)              30,675                2,046

Restructuring charges and other initiatives expense (9) 51,853

          13,707                    -
Transaction and integration costs related to the
Silversea Cruises acquisition (8)                                    -                2,048               31,759
Noncontrolling interest adjustment (10)                         72,331               35,965                3,156
Impairment loss related to Skysea Holding (11)                       -                    -               23,343

Impairment and other costs related to exit of tour operations business (12)

                                             -                    -               11,255
Impact of change in accounting principle (13)                        -                    -               (9,238)

Net Adjustments to Net (Loss) Income attributable to Royal Caribbean Cruises Ltd. - Increase

$  1,872,883

$ 123,960 $ 62,321

Basic:

  (Loss) Earnings per Share                               $     (27.05)         $      8.97          $      8.60
  Adjusted (Loss) Earnings per Share                      $     (18.31)         $      9.56          $      8.90

Diluted:
  (Loss) Earnings per Share                               $     (27.05)         $      8.95          $      8.56
  Adjusted (Loss) Earnings per Share                      $     (18.31)         $      9.54          $      8.86

Weighted-Average Shares Outstanding:
Basic                                                          214,335              209,405              210,570
Diluted                                                        214,335              209,930              211,554



(1)  Represents asset impairment and credit losses recorded in 2020 as a result
of the impact of COVID-19.
(2)  Represents equity investment asset impairment, primarily for our investment
in Grand Bahama Shipyard, recorded in the first quarter of 2020 as a result of
the impact of COVID-19.
(3)  Represents currency translation losses recognized in connection with the
ships sold in 2020 that were previously chartered to Pullmantur. Refer to Note
8. Other Assets to our consolidated financial statements under Item 1. Financial
Statements and Supplementary Data for further information.
(4)  Represents the amortization of non-cash debt discount on our convertible
notes.

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(5)  Represents estimated cash refunds expected to be paid to Pullmantur guests
and other expenses incurred as part of the Pullmantur S.A. reorganization.
(6)  In 2020, amount includes net insurance recoveries related to the collapse
of the drydock structure at the Grand Bahama Shipyard involving Oasis of the
Seas. In 2019, amount includes incidental costs, net of insurance recoveries, of
$14.5 million related to the collapse of the drydock structure at the Grand
Bahama Shipyard involving Oasis of the Seas, which were reported primarily
within Other operating expenses in our consolidated statements of comprehensive
income (loss) for the year ended December 31, 2019; and $20.7 million regarding
the Grand Bahama incident involving one of its drydocks, included in Equity
investment income within our consolidated statements of comprehensive income
(loss) for the year ended December 31, 2019. Refer to Note 8. Other Assets to
our consolidated financial statements under Item 8. Financial Statements and
Supplementary Data for information.
(7)  In 2020, represents the loss on the extinguishment of the $2.35 billion
364-day senior secured term loan. In 2019, represents the loss on the
extinguishment of the $700 million 364-day loan related to the 2018 Silversea
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 2018 Silversea Cruises acquisition. Refer to Note 1. General
and Note 11. Redeemable Noncontrolling Interest to our consolidated financial
statements under Item 8. Financial Statements and Supplementary Data for
information on the Silversea Cruises acquisition.
(9)  Represents restructuring charges incurred in relation to the reduction in
our U.S. workforce and other initiatives expenses in 2020 and the reorganization
of our international sales and marketing structure primarily in 2019. Refer to
Note 20. Restructuring Charges to our consolidated financial statements under
item 8. Financial Statements and Supplementary Data for further information on
the restructuring activities.
(10)  Adjustment made to exclude the impact of the contractual accretion
requirements associated with the put option held by Silversea Cruises Group
Ltd.'s noncontrolling interest. Refer to Note 11. Redeemable Noncontrolling
Interest to our consolidated financial statements under Item 8. Financial
Statements and Supplementary Data for further information on noncontrolling
interest.
(11)  Represents an impairment loss related to Skysea Holding recorded in 2018.
(12)  In 2014, we created a tour operations business that focused on developing,
marketing and selling land based tours around the world through an e-commerce
platform. During the second quarter of 2018, we decided to cease operations and
exit this business. As a result, we incurred exit costs, primarily consisting of
fixed asset impairment charges and severance expense.
(13)  In January 2018, we elected to change our accounting policy from the
graded attribution method to the straight-line attribution method for time-based
stock awards. Refer to Note 2. Summary of Significant Accounting Policies to our
consolidated financial statements under Item 8. Financial Statements and
Supplementary Data for further information on our accounting policy.

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The following table presents operating results as a percentage of total revenues
for the last three years:
                                                                              Year Ended December 31,
                                                                2020                    2019                   2018
Passenger ticket revenues                                           68.1  %                71.7  %                71.5  %
Onboard and other revenues                                          31.9  %                28.3  %                28.5  %
Total revenues                                                     100.0  %               100.0  %               100.0  %
Cruise operating expenses:
Commissions, transportation and other                               15.6  %                15.1  %                15.1  %
Onboard and other                                                    7.1  %                 5.8  %                 5.7  %
Payroll and related                                                 35.7  %                 9.9  %                 9.7  %
Food                                                                 7.3  %                 5.3  %                 5.5  %
Fuel                                                                16.8  %                 6.4  %                 7.5  %
Other operating                                                     42.7  %                12.8  %                12.0  %
Total cruise operating expenses                                    125.2  %                55.4  %                55.4  %
Marketing, selling and administrative expenses                      54.3  %                14.2  %                13.7  %
Depreciation and amortization expenses                              57.9  %                11.4  %                10.9  %
Impairment and credit losses                                        70.9  %                   -  %                   -  %

Operating (loss) income                                           (208.3) %                19.0  %                20.0  %
Other income (expense):
Interest income                                                      1.0  %                 0.2  %                 0.3  %
Interest expense, net of interest capitalized                      (38.2) %                (3.7) %                (3.5) %
Equity investment (loss) income                                     (9.7) %                 2.1  %                 2.2  %

Other (expense) income                                              (6.2) %                (0.2) %                 0.1  %
                                                                   (53.1) %                (1.6) %                (0.8) %
Net (Loss) Income                                                 (261.5) %                17.4  %                19.1  %
Less: Net Income attributable to noncontrolling interest             1.0  %                 0.3  %                 0.1  %
Net (Loss) Income attributable to Royal Caribbean Cruises
Ltd.                                                              (262.5) %                17.2  %                19.1  %

Selected statistical information is shown in the following table:

                                          Year Ended December 31,
                                2020(1)               2019 (1)          2018 (1)
Passengers Carried                 1,295,144         6,553,865         6,084,201
Passenger Cruise Days              8,697,893        44,803,953        41,853,052
APCD                               8,539,903        41,432,451        38,425,304
Occupancy                              101.9  %          108.1  %          108.9  %

___________________________________________________________________

(1)  We acquired Silversea Cruises on July 31, 2018 and report their results on
a three-month reporting lag. As a result, 2020 figures include October 2019
through September 2020 Silversea Cruises amounts, 2019 figures include October
2018 through September 2019 Silversea Cruises amounts and 2018 figures include
August and September 2018 Silversea Cruises amounts. Refer to Note 1. General
and Note 3. Business Combination to our consolidated financial statements under
Item 8. Financial Statements and Supplementary Data for further information on
the three-month reporting lag.

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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. 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 2021. We expect
to incur a net loss on both a US GAAP and adjusted basis for our first quarter
of 2021, the extent of which will depend on many factors including the timing
and extent of our return to service. See Recent Developments: COVID-19 - Update
on Bookings for further indication of the booking environment for 2021 and 2022.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
In this section, references to 2020 refer to the year ended December 31, 2020
and references to 2019 refer to the year ended December 31, 2019.
Revenues
Total revenues for 2020 decreased $8.7 billion, or 79.8%, to $2.2 billion from
$11.0 billion in 2019.
Passenger ticket revenues comprised 68.1% of our 2020 total revenues. Passenger
ticket revenues decreased by $6.4 billion, or 80.9% from 2019. The decrease was
primarily due to a 79.4% 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 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 31.9% of 2020 total revenues was comprised of Onboard and other
revenues, which decreased $2.4 billion, or 77.2%. The decrease in Onboard and
other revenues was primarily due to the 79.4% decrease in capacity noted above.
Additionally, Onboard and other revenues includes, to a much lesser extent, 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 $6.4 million.
Onboard and other revenues included concession revenues of $76.0 million in 2020
and $363.8 million in 2019.
Cruise Operating Expenses
Total cruise operating expenses for 2020 decreased $3.3 billion, or 54.4%, to
$2.8 billion in 2020 from $6.1 billion in 2019. The majority of the decrease was
due to the 79.4% decrease in capacity noted above as a result of our cancelled
sailings, including:
•a $1.3 billion decrease in Commissions, transportation and other primarily due
to lower commission and variable passenger tax expenses;
•a $482.6 million decrease in Onboard and other expenses mostly due to lower
shore excursion costs and beverage costs;
•a $463.5 million decrease in Other operating expenses mostly due to lower port
fees and a decrease in ship maintenance and consumable costs;
•a $422.2 million decrease in Food expenses;
•a $326.9 million decrease in Fuel expenses;
•a $290.8 million decrease in Payroll and related expenses resulting from
reduced onboard staffing levels; 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 $11.2 million.
Marketing, Selling and Administrative Expenses
Marketing, selling and administrative expenses for 2020 decreased $359.6
million, or 23.1% to $1.2 billion from $1.6 billion in 2019. The decrease was
primarily due to the reduction and deferral of global sales and marketing
activities due to the suspension of our operations.


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Depreciation and Amortization Expenses
Depreciation and amortization expenses for 2020 increased $33.3 million, or
2.7%, to $1.3 billion. The increase was primarily due to the additions of
Celebrity Apex and Silver Origin in the first and second quarters of 2020,
respectively, and a full year of depreciation in 2020 for Spectrum of the Seas.
Additionally, the increase is also attributable to new shipboard additions in
2019 associated with our ship modernization projects and additions related to
our shoreside projects.
Impairment and Credit Losses
For the year ended December 31, 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 $1.6 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.
Other Income (Expense)
Interest expense, net of interest capitalized, increased $435.7 million, or
106.7%, to $844.2 million in 2020 from $408.5 million in 2019. The increase was
primarily due to new debt issuances in 2020, a higher average balance on our
revolver balances and a loss on extinguishment of the $2.35 billion senior
secured term loan of $41.1 million.
Equity investment (loss) income decreased $444.3 million, or 192.3%, to a loss
of $213.3 million in 2020 from income of $231.0 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 $137.1 million in 2020 compared to $24.5 million in 2019. The
increase in expense of $112.6 million 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 in 2020 as we no
longer have significant involvement in Pullmantur's operations. 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 Refer to Note 8.
Other Assets to our consolidated financial statements under Item 8. Financial
Statements and Supplemental Data for further information on our investment in
Pullmantur. In addition, we recorded a net $92.0 million loss related to the
change in fair value of mostly fuel swap derivative instruments with no hedge
accounting. These expenses were partially offset by income of $45.1 million for
the change in contingent consideration payable in 2020 to Heritage, the former
minority shareholder of Silversea Cruises, and a decrease of $47.6 million in
net tax expense mostly attributable to the suspension in our operations.
Other Comprehensive Income (Loss)
Other comprehensive income in 2020 was $58.4 million compared to Other
comprehensive loss of $170.0 million in 2019. The change of $228.4 million in
2020 was primarily due to a Gain on cash flow derivative hedges in 2020 of $38.0
million compared to a Loss on cash flow derivative hedges of $151.3 million in
2019. The decrease was primarily due to an increase in the fair value of our
foreign currency forward contracts in 2020 compared to a decrease in fair value
of our foreign currency contracts in 2019.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
A discussion of our results of operations for the year ended December 31, 2019
compared to the year ended December 31, 2018 is included in Part II. Item 7 of
our   Annual Report on Form 10-K for the     year ended     Decem    ber
3    1    , 2    01    9  , filed with the SEC on February 25, 2020, as updated
by our Current Report on Form 8-K dated May 13, 2020, and is incorporated by
reference into this Form 10-K.


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Future Application of Accounting Standards
Refer to Note 2. Summary of Significant Accounting Policies to our consolidated
financial statements under Item 8. Financial Statements and Supplementary Data
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 since the first quarter of 2020, which has
significantly affected our liquidity and cash flow.
Net cash (used in) provided by operating activities decreased $7.4 billion to
cash used of $(3.7) billion for the twelve months ended December 31, 2020,
compared to cash provided of $3.7 billion in 2019. The current disruptions to
our business led to a decrease in collections from our guests as well as an
increase of refunds to guests for cancelled sailings during the twelve months
ended December 31, 2020 compared to the same period in 2019.
Net cash provided by operating activities increased $237.2 million to $3.7
billion in 2019 compared to $3.5 billion in 2018. The increase in cash provided
by operating activities was primarily attributable to an increase in proceeds
from customer deposits, an increase in cash receipts from onboard spending and a
decrease in fuel costs in 2019 compared to 2018. Additionally, dividends
received from unconsolidated affiliates decreased by $92.9 million.
Net cash used in investing activities decreased $0.9 billion to $2.2 billion in
2020 compared to $3.1 billion in 2019. The decrease in investing activities was
primarily attributable to a decrease in capital expenditures of $1.1 billion.
Net cash used in investing activities decreased $1.4 billion to $3.1 billion in
2019 compared to $4.5 billion in 2018. The decrease was primarily attributable
to the $916.1 million of cash paid for the acquisition of Silversea Cruises, net
of cash acquired, in 2018, which did not recur in 2019 and a decrease in capital
expenditures of $635.4 million due mostly to the delivery of two more ships in
2018 compared to 2019, partially offset by higher fleet modernization costs in
2019 compared to 2018.
Net cash provided by financing activities was $9.3 billion in 2020 compared to
Net cash used in financing activities of $0.7 billion in 2019. The change was
primarily attributable to an increase in debt proceeds of $10.0 billion in 2020
compared to the same period in 2019, and $1.4 million in proceeds from common
stock issuances on 2020. These proceeds were partially offset by net repayments
of commercial paper of $1.1 billion during the twelve months ended December 31,
2020 compared to net borrowings of commercial paper of $0.6 billion during the
same period in 2019.
Net cash used by financing activities was $0.7 billion in 2019 compared to Net
cash provided in financing activities of $1.2 billion in 2018. The change was
primarily attributable to a decrease in debt proceeds of $5.1 billion in 2019
compared to 2018 primarily due to a decrease in borrowings on our revolving
credit facilities and less unsecured term loan borrowings resulting from less
ship deliveries in 2019 and the financing of the acquisition of Silversea
Cruises in 2018. This decrease in proceeds was partially offset by a decrease in
repayments of debt of $2.9 billion and a decrease in stock repurchases of $475.5
million in 2019 compared to 2018.
Future Capital Commitments
Capital Expenditures
Our future capital commitments consist primarily of new ship orders. As of
December 31, 2020, we have two Oasis-class ships, one Quantum-class ship, and
three ships of a new generation, known as our Icon-class, on order for our Royal
Caribbean International brand with an aggregate capacity of approximately 32,400
berths. As of December 31, 2020, we have two Edge-class ships on order for our
Celebrity Cruises brand, with an aggregate capacity of approximately 6,500
berths. Additionally, as of December 31, 2020, we have three ships on order for
our Silversea Cruises brand with an aggregate capacity of approximately 1,750
berths. Refer to Item 1. Business-Operations for further information on our
ships on order. For the 15 ships on order we have committed financing
arrangements in place covering 80% of the cost of the ship, almost all of which
include sovereign financing guarantees. Additionally, we have an agreement in
place with Chantiers de l'Atlantique to build an additional Edge-class ship for
delivery in 2025, which is contingent upon completion of conditions precedent
and financing.
As of December 31, 2020, the aggregate cost of our ships on order, not including
any ships on order by our Partner Brands and the Silversea Cruises ships that
remain contingent upon final documentation and financing, was approximately
$14.2 billion, of which we had deposited $684.8 million as of such date.
Approximately 66.3% of the aggregate cost was exposed to fluctuations in the
Euro exchange rate at December 31, 2020. Refer to Note 18. Fair Value
Measurements and Derivative Instruments and Note 19. Commitments and
Contingencies to our consolidated financial statements under Item 8. Financial
Statements and Supplementary Data.

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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 December 31, 2020, we
anticipate overall full year capital expenditures, based on our existing ships
on order, will be approximately $2.1 billion for 2021. These amounts do not
include any ships on order by our Partner Brands.
Contractual Obligations
As of December 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)         $    873,415          $   124,108

$ 226,823 $ 153,818 $ 368,666 Interest on long-term debt(2)

             3,690,617              908,230             1,521,157               746,103              515,127
Other(3)                                    567,193              202,618               327,671                14,185               22,719
Investing Activities:
Ship purchase obligations(4)             11,602,504            1,321,218             5,585,545             3,384,256            1,311,485

Financing Activities:
Commercial paper(5)                         409,319              409,319                     -                     -                    -
Debt obligations(6)                      18,706,358              909,912             8,546,804             6,341,360            2,908,282
Capital lease obligations(7)                213,365               51,855                21,335                11,092              129,083
Other(8)                                     20,177                8,889                10,261                 1,027                    -
Total                                  $ 36,082,948          $ 3,936,149          $ 16,239,596          $ 10,651,841          $ 5,255,362

___________________________________________________________________

(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)   Debt obligations mature at various dates through fiscal year 2032 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 December 31, 2020. Debt
denominated in other currencies is calculated based on the applicable exchange
rate at December 31, 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 10. Leases to our consolidated financial statements
under Item 1. Financial Statements 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 $9.4 billion in final contractual
installments, which have committed financing. COVID-19 has impacted shipyard
operations which have and will result in delays for our previously contracted
ship deliveries. 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)  In June 2020, RCL Cruises Ltd., we established a commercial paper facility
under the Joint HM Treasury and Bank of England's COVID Corporate Financing
Facility commercial paper program in an aggregate principal amount up to
£300.0 million. Refer to Note 9. Debt to our consolidated financial statements
under Item 8. Financial Statements and Supplemental Data to our consolidated
financial statements for further information.
(6) Debt denominated in other currencies is calculated based on the applicable
exchange rate at December 31, 2020. In addition, debt obligations presented
above are net of debt issuance costs of $314.8 million as of December 31, 2020.
(7)    Amounts represent capital lease obligations with initial terms in excess
of one year.
(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 below 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
TUI 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 in TUI Cruises 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
December 31, 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.
Since the COVID-19 pandemic began, our senior unsecured ratings from Moody's and
S&P have been downgraded and are currently B2 and B, respectively. These
downgrades reduce our ability to incur secured indebtedness by reducing the
amount of indebtedness that we are permitted to secure, and may negatively
impact our access to, and cost of, debt financing. Additionally, as a result of
Moody's downgrade of the Silversea Notes from Baa3 to Ba2 on August 31, 2020 and
S&P's downgrade of Silversea Cruises' Notes from BBB- to BB on August 31, 2020,
certain covenants of the indenture governing the Silversea Notes have been
reinstated. On February 25, 2021, S&P Global further downgraded the Silversea
Cruises Notes from BB to BB-, which had no further impact with respect to the
Silversea Cruises' Notes.
The Company also has agreements with its credit card processors relating to
customer deposits received by the Company for future voyages. These agreements
allow the credit card processors to require, under certain circumstances,
including breach
of the financial covenants, the existence of other material adverse changes,
excessive chargebacks, and other triggering events, the Company to maintain a
reserve that can be satisfied by posting collateral.
Executed amendments are in place for the majority of these providers, waiving
reserve requirements tied to breach of our financial covenants through at least
March 31, 2022 or September 30, 2022 depending on the agreement, and as such, we
do not anticipate any incremental collateral requirements for the processors
covered by these waivers in the next 12 months. We have a $75.0 million held in
reserve with a processor where the agreement was amended in the first quarter of
2021, such that future proceeds will be withheld in reserve, of which the
maximum projected exposure is approximately $200.0 million. The amount and
timing are dependent on future factors that are uncertain, such as the date we
return to operations, volume and value of future deposits and whether we
transfer our business to other processors. If we require additional waivers on
the credit card processing agreements and are not able to obtain them, this
could lead to the termination of these agreements or the trigger of reserve
requirements.
Certain of our surety agreements with third party providers for the benefit of
certain agencies and associations that provide travel related bonds allow the
surety to request collateral in the form of cash or letters of credit. As of
December 31, 2020, we have posted collateral in the amount of approximately
$91 million.
As of December 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

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of Global Brands' cruise operations from March 13, 2020, which has been extended
through at least April 30, 2021, for most of our cruise operations. 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 December 31, 2020, we had $11.6
billion of committed financing for our ships on order.
As of December 31, 2020, we had $3.9 billion in contractual obligations due
through December 31, 2021, of which approximately $1.3 billion relates to debt
maturities, $0.9 billion relates to interest on debt and $1.3 billion relates to
progress payments on our ship orders and the final installments payable due upon
the delivery of Odyssey of the Seas.
As of December 31, 2020, we had liquidity of $4.4 billion, consisting of cash
and cash equivalents of $3.7 billion and a $0.7 billion one-year commitment for
a 364-day term loan facility. As of December 31, 2020, our revolving credit
facilities were fully utilized through a combination of amounts drawn and
letters of credit issued under the facilities. 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 12. Shareholders' Equity
to our consolidated financial statements under Item 8. 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 from the
issuance of these financial statements. However, there is no assurance that our
assumptions and estimates are accurate due to possible unknown variables related
to this unprecedented suspension of our operations and, as such, there is
inherent uncertainty in our ability to predict future liquidity requirements.
Refer to Note 1. General, Management's Plan and Liquidity, to our consolidated
financial statements under Item 1. Financial Statements for further information.
Under certain of our agreements, the contractual interest rate, facility fee
and/or export credit agency fee vary with our debt rating. On August 24, 2020,
Moody's downgraded our senior unsecured rating from Ba2 to B2, and on August 31,
2020, S&P Global downgraded our senior unsecured rating from BB to B+, thereby
increasing the contractual interest rate, facility fee and export credit agency
fee across various facilities. On February 25, 2021, S&P Global further
downgraded our senior unsecured rating from B+ to B, which had no further
financial impact.
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%, and under certain facilities, to maintain a minimum level of
shareholders' equity.  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.
As of December 31, 2020, financial covenant testing on our export-credit and
non-export credit facilities totaling $11.2 billion of, and our credit card
processing agreements was waived through the fourth quarter of 2021 following
amendments to the agreements during 2020.
During the first quarter of 2021, we further amended $4.9 billion of our
non-export credit facilities and $6.2 billion of our export credit facilities,
and certain credit card processing agreements, to extend the waiver of our
financial covenants through and including at least the third quarter of 2022.
In addition, pursuant to the amendments for the non-export credit facilities, we
have modified the manner in which such covenants are calculated, temporarily in
certain cases and permanently in others, as well as the levels at which our net
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capitalization covenant will be tested during the period commencing immediately
following the end of the waiver period and continuing through the end of 2023.
The amendments impose a monthly-tested minimum liquidity covenant of $500.0
million for the duration of the waiver period, subject to reduction to $350.0
million if we raise at least $500.0 million of additional capital, which can be
satisfied through previously undrawn facilities. In addition, the amendments to
the non-export credit facilities place restrictions on paying cash dividends and
effectuating share repurchases through the end of the third quarter of 2022,
while the export credit facility amendments require us to prepay any deferred
amounts if we elect to issue dividends or complete share repurchases. As of
December 31, 2020, we were in compliance with the applicable minimum liquidity
covenant and we estimate that we will be in compliance for at least the next
twelve months.
In addition to the above, during 2020, we amended our Port of Miami Terminal "A"
operating lease agreement to increase the lien basket in line with our debt
facilities. In the first quarter of 2021, we also amended this lease to obtain a
financial covenant waiver through the end of the third quarter of 2022, on the
same terms as apply to the non-export credit facilities. As of December 31,
2020, we were in compliance with the amended covenants under the lease
agreement.
Any further covenant waivers may lead to increased costs, increased interest
rates, additional restrictive covenants and other available lender protections
as may be agreed with our lenders. There can be no assurance that we would be
able to obtain additional waivers in a timely manner, or on acceptable terms. If
we require additional waivers and are not able to obtain them 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 contracts.
If we require additional waivers on the credit card processing agreements and
are not able to obtain them, 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 the second quarter of 2020.
During the second quarter of 2020, we agreed with certain of our lenders not to
pay dividends or engage in common stock repurchases for so long as our debt
covenant waivers are in effect. In addition, in the event we declare a dividend
or engage in share repurchases, we will need to repay the amounts deferred under
our export credit facilities as part of the principal amortization deferral
provided in 2020 and the first quarter of 2021. Accordingly, we did not declare
any additional dividends during 2020.

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