What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-10 · 264 added, 184 removed, 400 unchanged (53% of the section changed)

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All statements other than statements of historical fact, business and industry prospects or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking.

Words such as "anticipate," "believe," "could," "estimate," "expect," "goal," "intend," "may," "plan," "project," "seek," "should," "will," "driving" and similar expressions are intended to further identify any of these forward-looking statements.

Words such as "anticipate," "believe," "could," "estimate," "expect," "goal," "intend," "look to," "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.

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• a review of our financial presentation, including discussion of certain operational and financial metrics we utilize to assist us in managing our business;

• a discussion of our results of operations for the quarter ended June 30, 2020 and six months ended June 30, 2020, compared to the same periods in 2019;

• a discussion of our results of operations for the quarter ended September 30, 2020 and nine months ended September 30, 2020, compared to the same periods in 2019;

• a discussion of our business outlook;

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These global efforts have resulted in travel restrictions and created significant uncertainty regarding worldwide port closures and availability.

As part of the global containment effort, the Company previously announced a voluntary suspension of its Global Brands' cruise operations through at least October 31, 2020, excluding China and Australia.

As part of the global containment effort, the Company previously announced a voluntary suspension of its Global Brands' cruise operations through at least December 31, 2020, excluding sailings from Singapore.

Celebrity Cruises also suspended their full 2020/21 Winter program in Australia and Asia.

Additionally, Azamara suspended their 2020/21 Winter sailings throughout Australia and New Zealand, South Africa and South America.

On and effective as of October 30, 2020, the 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.

We are currently reviewing the Conditional Order and assessing the uncertainties relating to the Conditional Order’s requirements.

Based on our initial 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 December 31, 2020.

Continued disruptions to travel and port operations in various regions may result in further suspensions.

Refer to Note 1.

General to our consolidated financial statements for further information regarding COVID-19 and its impact to the Company.

As a result of these developments, we performed interim impairment evaluations on our goodwill, indefinite-lived intangible assets and long-lived assets as discussed below in connection with the preparation of our financial statements for the quarters ended March 31, 2020 and June 30, 2020.

General to our consolidated financial statements under Item 1.

Financial Statements for further information regarding COVID-19 and its impact to the Company.

As a result of these developments, we performed interim impairment evaluations on certain of our goodwill, indefinite-lived intangible assets and long-lived assets in 2020 in connection with the preparation of our quarterly financial statements as further discussed below.

When performing the goodwill impairment test, the fair value of the reporting unit is determined and compared to the carrying value of the net assets allocated to the reporting unit.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report on Form 10-K for the year ended December 31, 2019, as updated by our Current Report on Form 8-K dated May 13, 2020.

For further discussion on impairment losses recorded in the six months ended June 30, 2020, refer to Note 3.

I mpairment and Credit Losses to our consolidated financial statements.

For further discussion on impairment losses recorded in the nine months ended September 30, 2020, refer to Note 3.

Impairment and Credit Losses to our consolidated financial statements under Item 1 .

Financial Statements .

Royal Caribbean International Reporting Unit

We performed interim impairment evaluations of Royal Caribbean International’s goodwill in connection with the preparation of our financial statements during the quarters ended March 31, 2020 and June 30, 2020.

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% resulting in no impairment to the Royal Caribbean International goodwill in either period.

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.

As a result of the tests, we determined that the fair value of the Royal Caribbean International reporting unit exceeded its carrying value as of March 31, 2020 and June 30, 2020 by approximately 30% and 8%, respectively, resulting in no impairment to the Royal Caribbean International goodwill in either period.

We estimated the fair value of the Royal Caribbean International reporting unit using a probability-weighted discounted cash flow model in combination with a market based valuation approach.

Significant assumptions used in these valuations include the weighted average cost of capital discount factor, revenue base, revenue growth rate and terminal rate.

As of June 30, 2020, the carrying amount of goodwill attributable to our Royal Caribbean reporting unit was $296.5 million.

We did not perform an interim impairment evaluation of Royal Caribbean International's goodwill during the quarter ended September 30, 2020 as no triggering events were identified.

As of September 30, 2020, the carrying amount of goodwill attributable to our Royal Caribbean International reporting unit was $296.6 million.

Silversea Cruises Reporting Unit

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As a result of this analysis, 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 as well.

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 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.

Significant assumptions used in these valuations include the weighted average cost of capital discount factor, revenue growth rates and royalty rate.We did not recognize any impairment charges related to the Silversea Cruises reporting unit for the quarter ended June 30, 2020.

Significant assumptions used in these valuations include the weighted average cost of capital discount factor, revenue growth rates and royalty rate.

We did not perform an interim impairment evaluation of Silversea Cruises' reporting unit during the quarters ended June 30, 2020 and September 30, 2020 as no triggering events were identified.

As of September 30, 2020, the carrying amount of goodwill attributable to our Silversea Cruises reporting unit was $508.6 million.

Long-lived Assets

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During the quarter ended March 31, 2020, an impairment charge of $156.1 million, included in the $463.0 million impairment charge to write down certain long-lived assets, was recorded for these ships.

As of June 30, 2020, assets held for sale were not material to our consolidated balance sheet.

We also updated our undiscounted cash flows analysis for other long-lived assets during the quarter ended June 30, 2020 and identified that the undiscounted cash flows for some of those assets, consisting of 2 ships and one right-of-use asset, were less than their carrying values.

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.

Due to the continuing effect of COVID-19, we also updated our undiscounted cash flows analysis for other long-lived assets during the quarter ended June 30, 2020 and identified that the undiscounted cash flows for some of those assets, consisting of 2 ships and one right-of-use asset, were less than their carrying values.

Based on our evaluation, we determined that an additional impairment charge of $49.7 million was required to write down these assets to their estimated fair values during the quarter ended June 30, 2020.

The combined impairment charges of $65.0 million and $1.1 billion related to our goodwill, trademarks and trade names, vessels and right-of-use assets were recognized in earnings during the quarter and six months ended June 30, 2020, respectively, and are reported within Impairment and credit losses within our consolidate d statements of comprehensive income (loss).

We performed undiscounted cash flow recoverability evaluations for three ships with a combined net book value of approximately $400.0 million in connection with the preparation of our financial statements during the three months ended September 30, 2020.

As a result of these recoverability evaluations, it was determined the carrying value of these three ships to be recoverable at September 30, 2020.

Our assessment applied probability scenario cash flows by using a 50% weighting to undiscounted cash flows through the remaining life of the ships and 50% to cash flows assuming disposal of the ships.

In the event that our intent to continue to operate the ships changes, or the probability of disposing increases to 75%, the vessels would need to be fair valued and we expect that a material impairment charge would be recorded.

We will continue to monitor these ships and our intent to use these ships in light of the COVID-19 environment.

For the quarter ended September 30, 2020, we had no further indication of impairment to the carrying amount of our other ships and our right-of-use assets .

During the quarter ended September 30, 2020, we determined that certain construction in progress projects would be reduced in scope or would no longer be completed as a result of capital cost containment measures due to the impact COVID-19 has had on our operations.

This led to the impairment of $83.9 million of construction in progress assets previously reported in Property and equipment, net .

The combined impairment charges of $83.9 million and $1.3 billion primarily related to our goodwill, trademarks and trade names, vessels and right-of-use assets were recognized in earnings during the quarter and nine months ended September 30, 2020, respectively, and are reported within Impairment and credit losses within our consolidate d statements of comprehensive income (loss).

For further information on the impairment losses and the fair value measurements used to estimate the fair value of these assets, refer to Note 3.

Impairment and Credit Losses and Note 13.

Fair Value Measurements and Derivative Instruments t o our consolidated financial statements .

Fair Value Measurements and Derivative Instruments t o our consolidated financial statements under Item 1.

Financial Statements .

These impairment assessments and the resulting charges were determined based on management’s current estimates and projections using information through the time of the issuance of these financial statements.

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Adjusted Net (Loss) Income represents net (loss) income less net income attributable to noncontrolling interest excluding certain items that we believe adjusting for is meaningful when assessing our performance on a comparative basis.

For the periods presented, these items included (i) asset impairment and credit losses recorded in the first and second quarters of 2020 as a result of the impact of COVID-19;

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 classified as assets held-for-sale that were previously chartered to Pullmantur;

(iv) settlement costs with Pullmantur S.A.

incurred in connection with its reorganization filing;

(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 in the second quarter of 2020, the reorganization of our global sales and marketing structure and other initiatives expenses;

workforce in 2020 and the reorganization of our global sales and marketing structure and other initiatives expenses;

(vi) the amortization of non-cash debt discount on the $1.15 billion convertible notes;

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(viii) the amortization of the Silversea Cruises intangible assets resulting from the 2018 Silversea Cruises acquisition;

(ix) the noncontrolling interest adjustment to exclude the impact of the contractual accretion requirements associated with the put option held by Heritage Cruise Holding Ltd.'s ("Heritage") prior to the July 2020 noncontrolling interest purchase;

(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;

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Passenger Cruise Days represent the number of passengers carried for the period multiplied by the number of days of their respective cruises.

Although discussed in previous periods, we did not report nor reconcile our Gross Yields, Net Revenues, Net Yields, Gross Cruise Costs, Net Cruise Costs and Net Cruise Costs Excluding Fuel, as defined in our Annual Report on Form 10-K for the year ended December 31, 2019, for the quarter and six months ended June 30, 2020.

Although discussed in previous periods, we did not report nor reconcile our Gross Yields, Net Revenues, Net Yields, Gross Cruise Costs, Net Cruise Costs and Net Cruise Costs Excluding Fuel, as defined in our Annual Report on Form 10-K for the year ended December 31, 2019, or for the quarter and nine months ended September 30, 2020.

Historically, we have utilized these financial metrics to measure relevant rate comparisons to other periods.

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These global efforts have resulted in travel restrictions and created significant uncertainty regarding worldwide port closures and availability.

As part of the global containment effort, the Company previously announced a voluntary suspension of its Global Brands' cruise operations beginning March 13, which has been extended through at least October 31, 2020, excluding China and Australia.

Celebrity Cruises also suspended their full 2020/21 Winter program in Australia and Asia.

Additionally, Azamara suspended their 2020/21 Winter sailings throughout Australia and New Zealand, South Africa and South America.

Containment efforts as a result of the disease and continued disruptions to travel and port operations in various regions may result in further suspensions.

We have been developing a comprehensive and multi-faceted program to address the unique public health challenges posed by COVID-19.

This includes, among other things, enhanced screening, upgraded cleaning and disinfection protocols and plans for social distancing.

Together with Norwegian Cruise Line, we recently established a “Healthy Sail Panel” made up of leading experts in relevant fields, including epidemiology, infectious diseases, public policy and regulation, engineering and general health safety to advise us in our effort to establish and implement appropriate safety protocols.

We are working with the Centers for Disease Control and Prevention, global public health authorities and national and local governments to enhance measures to protect the health, safety and security of guests, crew and the communities visited while we are out of service and once operations resume.

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 with TUI Cruises and Hapag-Lloyd, which are now operating three and two vessels, respectively, and in September, for a limited period, with one Silversea ship.

Recently, we also received approval from the Singaporean Government.

As a result, we anticipate that Quantum of the Seas , a ship from the Royal Caribbean International fleet, will resume cruising from Singapore in December 2020.

These initial cruises are and will most likely take place with reduced guest occupancy, modified itineraries and enhanced health protocols developed in collaboration with governments and health authorities.

Update on Healthy Sail Panel Recommendations

On September 21, 2020, the Healthy Sail Panel ("HSP") submitted its recommendations to the Centers for Disease Control and Prevention (“CDC”) in response to a CDC request for public comment that will be used to inform future public health guidance and preventative measures relating to travel on cruise ships.

The HSP’s 65-plus-page report includes 74 recommendations to protect the public health and safety of guests, crew and the communities where cruise ships call.

Recommendations include testing, the use of face coverings, and enhanced sanitation procedures on ships and in terminals.

The HSP identified five areas of focus every cruise operator should address to improve health and safety for guests and crew, and reduce the risk of infection and spread of COVID-19 on cruise ships:

Testing, Screening and Exposure Reduction

Sanitation and Ventilation

Response, Contingency Planning and Execution

Destination and Excursion Planning

Mitigating Risks for Crew Members

In each category, the HSP created practical and actionable recommendations to address specific safety concerns.

Among the recommendations are key strategies such as:

◦ Taking aggressive measures to prevent COVID-19 from entering a ship through robust education, screening and testing of both crew and guests prior to embarkation;

◦ Reducing transmission via air management strategies and enhanced sanitation practices;

◦ Implementing detailed plans to address positive infection on board, including contingencies for onboard treatment, isolation and rapid evacuation and repatriation;

◦ Closely controlling shore excursions;

◦ Enhanced protection for crew members.

CDC Framework for Conditional Sailing Order

On and effective as of October 30, 2020, the 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 shall 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 CDC Director rescinds or modifies the Conditional Order based on specific public health or other considerations, or (3) November 1, 2021.

The phases outlined in the Conditional Order include:

◦ Establishment of laboratory testing of crew and guests onboard cruise ships in U.S.

waters and upon embarkation and disembarkation;

◦ Simulated voyages designed to test a cruise ship operators’ ability to mitigate COVID-19 on cruise ships;

◦ Meeting and maintaining requirements for a Conditional Sailing Certificate, which include, among other things, implementing the required testing protocols, a prohibition on offering itineraries longer than seven days, and the demonstration at each port where a ship intends to dock of approval with U.S.

port and local health authorities, which requires medical care agreements addressing evacuation to onshore hospitals, housing agreements with onshore facilities for isolation and quarantine of COVID-19 cases, and port agreements to limit the number of cruise ships at any single port;

◦ A return to passenger voyages in a manner that mitigates the risk of COVID-19 introduction, transmission, or spread among passengers and crew onboard ships and ashore to communities.

While the Conditional Order represents an important step in our return to service, many uncertainties remain as to the specifics and timing of implementation, administration and costs of 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 ships operators to successfully employ measures that mitigate the risk of COVID-19.

We will continue to work closely with both the CDC and the HSP as we make our plans to implement a comprehensive set of health and safety measures at every step of the guest journey with rigorous protocols, while continuing to deliver on our brands’ leading vacation experiences.

We are also designing itineraries where we will be able to control the vacation experience in compliance with the health and safety protocols contained in the Conditional Order.

Beyond these health and safety protocols, our resumption of operations will include a staggered return of the fleet to service which will include bringing the fleet from layup status to fully operational;

bringing crew back to an appropriate staffing level and expected reduced load factors for a period of time;

and implementation of the health and safety protocols on ships as they resume operations and while protocols are required.

However, we are currently reviewing the Conditional Order and assessing the uncertainties relating to the Conditional Order’s requirements.

Update on Bookings

The extended suspension of cruising has significantly impacted bookings for the remainder of 2020 which are meaningfully lower than the same time last year and at lower prices.

Although still early in the booking cycle, the booked position for 2021 is trending well and is within historical ranges.

Pricing for 2021 bookings is relatively flat year-over-year when including the negative yield impact of bookings made with future cruise credits;

it is slightly up year-over-year when excluding them.

The Company has implemented various programs to best serve its booked guests providing the choice of future cruise credits (“FCCs”) or the opportunity to “Lift & Shift” their booking to the same sailing the following year in lieu of providing cash refunds.

Over the past two months, approximately 60% of the 2021 bookings are new and the rest are due to the redemption of FCCs and the “Lift & Shift” program.

As of June 30, 2020, the Company had $1.8 billion in customer deposits of which approximately $300 million correspond to fourth quarter 2020 sailings.

Booking activity for the first half of 2021 is aligned with our anticipated staggered resumption of cruises.

The cumulative booked position for our sailings in the second half of 2021 is within historical ranges with prices that are down slightly year-over-year when including the negative yield impact of bookings made with future cruise credits (“FCCs”) and about flat when excluding them.

Since our last business update, more than 65% of the 2021 bookings are new and the rest are due to the redemption of FCCs and the “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 September 30, 2020, we had $1.8 billion in customer deposits of which approximately 50% are FCCs and $180 million correspond to fourth quarter 2020 sailings.

Approximately 50% of the guests booked on cancelled sailings have requested cash refunds.

Update on Recent Liquidity Actions and Ongoing Uses of Cash

As of June 30, 2020, the Company had liquidity of approximately $4.1 billion all in the form of cash and cash equivalents.

In response to the financial impacts of COVID-19, the Company has taken preemptive actions that focus on strengthening liquidity through significant cost and capital reductions, cash conservation and additional financing sources, as described below.

As of September 30, 2020, we had liquidity of approximately $3.7 billion in the form of cash and cash equivalents of $3.0 billion and a $0.7 billion one-year commitment for a 364-day term loan facility .

As of September 30, 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 reductions, cash conservation and additional financing sources, as described below, to ensure that we are well positioned for recovery .

Reduced Operating Expenses

The Company has taken significant actions to reduce operating expenses during the suspension of its global cruise operations.

We have taken significant actions to reduce operating expenses during the suspension of our global cruise operations.

In particular, we:

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• suspended travel for shoreside employees and instituted a hiring freeze across the organization.

The Company may seek to further reduce its average monthly expenses under a further prolonged non-revenue scenario.

This includes consideration of additional vessels heading to cold layup as well as further assessment of its US shoreside workforce, including those coming back from furlough.

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 U.S.

shoreside workforce, including those coming back from furlough.

Reduced Capital Expenditures

Since the start of February 2020, the Company has identified approximately $4.4 billion of total capital expenditure reductions or deferrals in 2020 and 2021.

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 comprise of the following:

• $1.4 billion of non-newbuild, discretionary capital expenditures;

• $3.1 billion in reduced spend or deferred installment payments for newbuild related payments which the Company is currently finalizing.

COVID-19 has impacted shipyard operations which have resulted in delivery delays of ships previously planned for delivery in 2020 and 2021.

Of five ships originally scheduled for delivery between July 2020 and December 2021, we expect that Silver Moon, Silver Dawn and Odyssey of the Seas will be delivered within the remaining time frame.

• $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 result in delays of our previously contracted ship deliveries as noted below.

Of the six ships originally scheduled for delivery between July 2020 and December 2021, Silver Moon was delivered in October 2020 and we expect that Silver Dawn and Odyssey of the Seas will be delivered within the remaining time frame, with the shift of the Odyssey of the Seas expected delivery into early 2021.

The exact duration of the ship delivery delays are currently under discussion with the impacted shipyards.

Debt Maturities, New Financings and Other Liquidity Actions

Since the start of February 2020, the Company has taken several additional actions to further improve its liquidity position and manage cash flow.

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 revolving credit facilities by $0.6 billion, and fully drew on both facilities;

• entered into a $2.35 billion 364-day senior secured loan agreement with an option to extend the maturity for an additional 364 days secured by 28 ships with a net book value of approximately $12 billion as of March 31, 2020, after giving effect to the vessel impairment described in Note 3.

Impairment and Credit Losses in the Notes to our Consolidated Financial Statements;

• 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 with an option to extend the maturity for an additional 364 days.

The senior secured loan balance was repaid with proceeds from the $3.32 billion Senior Secured Notes discussed below;

• issued $3.32 billion in Senior Secured Notes, of which $1.0 billion is due in 2023 and $2.32 billion is due in 2025.

The previously mentioned $2.35 billion, 364-day senior secured loan was repaid in its entirety with a portion of the proceeds of these notes.

The Senior 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 Senior 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;

• secured deferrals of existing debt amortization under our export-credit backed debt facilities which increased the Company’s liquidity by an additional $0.9 billion;

• issued $1.0 billion senior guaranteed notes maturing 2023;

• issued $1.15 billion convertible notes maturing 2023;

• qualified for a government commercial paper program by the Bank of England and issued £300.0 million, or approximately $370.8 million, of commercial paper thereunder;

• issued $1.15 billion and $575.0 million senior convertible notes maturing 2023;

• qualified for a government commercial paper program by the Bank of England and issued £300.0 million, or approximately $387.9 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 9.6 million shares of common stock for approximately $575 million;

• agreed with certain of our lenders that we will not pay dividends or engage in stock repurchases for so long as our debt covenant waivers are in effect.

Expected debt maturities for the remainder of 2020 and 2021 are $0.3 billion and $1.3 billion, respectively.

The Company estimates its cash burn to be, on average, in the range of approximately $250 million to $290 million per month during a prolonged suspension of operations.

This range includes all interest expenses, including the increases driven by the latest capital raises.

It also includes ongoing ship operating expenses, administrative expenses, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits, commissions, debt obligations and cash inflows from new and existing bookings.

The Company is considering ways to further reduce the average monthly cash burn under a further prolonged out-of-service scenario and during re-start of operations.

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 cash refunds of customer deposits, commissions, debt obligations and cash inflows from new and existing bookings.

When we start returning our fleet into service, we 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 restart our sales and marketing activities.

The total cash spend for the third quarter was approximately $1.1 billion, mainly driven by ship operating expenses.

These expenses sequentially declined each month within the quarter as the fleet achieved the desired levels of layup by end of August 2020.

Our cash burn rate for the quarter was consistent with our previously announced range when excluding cash refunds of customer deposits, commissions, debt obligations, cash inflows from new and existing bookings and fees and collateral postings related to our financing and hedging activities.

The Company continues to identify and evaluate further actions to improve its liquidity.

These include and are not limited to:

further reductions in capital expenditures, operating expenses and administrative costs and additional financings.

Furthermore, both our export credit facilities and non-export credit bank facilities contain covenants that require us, among other things, to maintain a fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital ratio to no more than 62.5%.

These include and are not limited to further reductions in capital expenditures, operating expenses and administrative costs and additional financings.

In the second quarter of 2020, the requisite lenders under such facilities agreed to waive the requirement to comply with such financial covenants through and including the first quarter of 2021.

In certain of these facilities, we agreed to additional covenants during the covenant waiver period, including that we maintain at least $300 million in unrestricted cash and cash equivalents (tested monthly) and that we are not permitted during the covenant waiver period, subject to limited exceptions, to pay cash dividends or make share repurchases unless we would have been compliant with our fixed charge coverage ratio at such time.

Subsequent to June 30, 2020, we further amended our export facilities and certain of our non-export credit facilities, to extend the financial covenant waiver through and including, the fourth quarter of 2021.

In connection therewith, we increased the minimum liquidity covenant to $500 million, as applicable, subject to reduction in the event of further capital raises, and extended the dividend and share repurchase restrictions through the new waiver period.

In certain of these facilities, we agreed to additional covenants during the covenant waiver period, including unrestricted cash and cash equivalents to be tested monthly, and that we are not permitted during the covenant waiver period, subject to limited exceptions, to pay cash dividends or make share repurchases unless we would have been compliant with our fixed charge coverage ratio at such time.

In the third quarter of 2020, we further amended our export facilities and certain of our non-export credit facilities, to extend the financial covenant waiver through and including, the fourth quarter of 2021.

In connection therewith, the minimum liquidity requirement was $500.0 million as of September 30, 2020;

however, this amount was subsequently reduced to $350.0 million upon completion of our capital raising activities in October 2020.

Results of Operations

Net Loss and Adjusted Net Loss attributable to Royal Caribbean Cruises Ltd.

for the second quarter of 2020 were $(1,639.3) million and $(1,282.6) million, or $(7.83) and $(6.13) per share on a diluted basis, respectively, reflecting the impact of our suspension of global fleet sailings starting in mid-March, compared to Net Income and Adjusted Net Income attributable to Royal Caribbean Cruises Ltd.

of $472.8 million and $532.7 million, or $2.25 and $2.54 per share on a diluted basis, respectively, for the second quarter of 2019.

for the third quarter of 2020 were $1.3 billion and $1.2 billion, or $6.29 and $5.62 per share on a diluted basis, respectively, reflecting the impact of our suspension of global fleet sailings starting in mid-March, compared to Net Income and Adjusted Net Income attributable to Royal Caribbean Cruises Ltd.

of $883.2 million and $896.8 million, or $4.20 and $4.27 per share on a diluted basis, respectively, for the third quarter of 2019.

Net Loss and Adjusted Net Loss to attributable Royal Caribbean Cruises Ltd.

for the six months ended June 30, 2020 were $(3,083.8) million and $(1,593.0) million, or $(14.74) and $(7.61) per share on a diluted basis, respectively, compared to Net Income and Adjusted Net Income attributable to Royal Caribbean Cruises Ltd.

of $722.5 million and $808.6 million, or $3.44 and $3.85 per share on a diluted basis, respectively, for the six months ended June 30, 2019.

Significant items for the quarter and six months ended June 30, 2020 include:

• Total revenues, excluding the effect of changes in foreign currency exchange rates, decreased $2,629.5 million and $3,014.9 million for the quarter and six months ended June 30, 2020 as compared to the same periods in 2019, reflecting the volume impact of our cancelled sailings during 2020 as a result of the COVID-19 pandemic.

• The effect of changes in foreign currency exchange rates related to our passenger ticket and onboard and other revenue transactions, denominated in currencies other than the United States dollar, resulted in a decrease in total revenues of $1.5 million and $23.2 million for the quarter and six months ended June 30, 2020 compared to the same periods in 2019.

• Total cruise operating expenses, excluding the effect of changes in foreign currency exchange rates, decreased $861.0 million and $752.3 million for the quarter and six months ended June 30, 2020 as compared to the same periods in 2019 due to the suspension of operations during the full quarter ended June 30, 2020.

• The effect of changes in foreign currency exchange rates related to our cruise operating expenses, denominated in currencies other than the United States dollar, resulted in decreases in total operating expenses of $2.7 million and $14.3 million for the quarter and six months ended June 30, 2020 compared to the same period in 2019.

• During the quarter and six months ended June 30, 2020, as a result of the current and expected ongoing impact of COVID-19 pandemic on our operations and cash flows, we recorded total impairment and credit losses of $156.5 million and $ 1.3 billion.

The impairment charges related to our goodwill, trademarks and trade names, vessels and right-of-use assets and the credit losses related to our notes receivable.

• Our consolidated results of operations include Silversea Cruises’ results of operations on a three-month reporting lag from January 1, 2020 through March 31, 2020 for the quarter ended June 30, 2020 and from October 1, 2019 through March 31, 2020 for the six months ended June 30, 2020.

for the nine months ended September 30, 2020 were $4.4 billion and 2.8 billion, or $21.01 and $13.26 per share on a diluted basis, respectively, compared to Net Income and Adjusted Net Income attributable to Royal Caribbean Cruises Ltd.

of $1.6 billion and $1.7 billion, or $7.65 and $8.12 per share on a diluted basis, respectively, for the nine months ended September 30, 2019.

Significant items for the quarter and nine months ended September 30, 2020 include:

• Total revenues, excluding the effect of changes in foreign currency exchange rates, decreased $3,221.0 million and $6,235.8 million for the quarter and nine months ended September 30, 2020 as compared to the same periods in 2019, reflecting the volume impact of our cancelled sailings during 2020 as a result of the COVID-19 pandemic.

• The effect of changes in foreign currency exchange rates related to our passenger ticket and onboard and other revenue transactions, denominated in currencies other than the United States dollar, resulted in an increase in total revenues of $0.4 million for the quarter and a decrease of $22.7 million for the nine months ended September 30, 2020 compared to the same periods in 2019.

• Total cruise operating expenses, excluding the effect of changes in foreign currency exchange rates, decreased $1,315.3 million and $2,068.0 million for the quarter and nine months ended September 30, 2020 as compared to the same periods in 2019 due to the suspension of operations during the full quarter ended September 30, 2020.

• The effect of changes in foreign currency exchange rates related to our cruise operating expenses, denominated in currencies other than the United States dollar, resulted in an increase in total operating expenses of $0.9 million and a decrease of $13.4 million for the nine months ended September 30, 2020 compared to the same periods in 2019.

• During the quarter and nine months ended September 30, 2020, as a result of the current and expected ongoing impact of COVID-19 pandemic on our operations and cash flows, we recorded total impairment and credit losses of $89.9 million and $1.4 billion, respectively.

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 April 1, 2020 through June 30, 2020 for the quarter ended September 30, 2020 and from October 1, 2019 through June 30, 2020 for the nine months ended September 30, 2020.

Refer to Note 1.

General to our consolidated financial statements for further information on this three-month reporting lag.

General to our consolidated financial statements under Item 1.

Financial Statements for further information on this three-month reporting lag.

• In March 2020, we increased the capacity of our $1.7 billion and $1.2 billion unsecured revolving credit facilities due in 2024 and 2022, by $200 million and $400 million, respectively.

• In March and June 2020, we took delivery of Celebrity Apex and Silver Origin , respectively.

To finance the purchase of Celebrity Apex , we borrowed $0.7 billion under a previously committed unsecured term loan.

• In March 2020, we borrowed $2.2 billion pursuant to a 364-day senior secured term loan agreement which would have matured 364 days after funding and could have been extended at our option for an additional 364 days.

Subsequently, the term loan was increased to $2.35 billion and was repaid on May 19, 2020.

• In May 2020, we issued $3.32 billion in senior secured notes, less original issue discount.

To finance the purchase of Celebrity Apex , we borrowed $722.2 million under a previously committed unsecured term loan.

• In March 2020, we borrowed $2.2 billion pursuant to a 364-day senior secured term loan agreement.

Subsequently, the term loan was increased to $2.35 billion and was repaid in May 2020.

• In May 2020, we issued $3.32 billion in Senior Secured Notes.

$1.0 billion of the notes accrue interest at 10.875% and mature in 2023.

The remaining $2.32 billion of the notes accrue interest at a fixed rate of 11.5% and mature in 2025.

• In May 2020, we qualified for a U.K.

government commercial paper program providing £300.0 million of available liquidity and issued £300.0 million, or approximately $387.9 million, of unsecured commercial paper thereunder.

• In June 2020, we issued $1.0 billion in senior unsecured notes which accrue interest at 9.125% and mature in 2023.

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The notes are convertible into shares of common stock of the Company, cash, or a combination of common stock and cash, at our election.

• In May 2020, we qualified for a U.K.

government commercial paper program providing £300.0 million of available liquidity and issued £300.0 million, or approximately $370.8 million, of commercial paper thereunder.

Operating results for the quarter ended June 30, 2020 compared to the same period in 2019 are shown in the following table (in thousands, except per share data):

Quarter Ended June 30,

• In August 2020, we secured a commitment for a $700.0 million 364-day term loan facility available for draw any time prior to August 12, 2021.

Operating results for the quarter ended September 30, 2020 compared to the same period in 2019 are shown in the following table (in thousands, except per share data):

Quarter Ended September 30,

Revenues % of Total

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Diluted (Loss) Earnings per Share $ (6.29) $ 4.20

Six Months Ended June 30,

Nine Months Ended September 30,

Revenues % of Total

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Interest expense, net of interest capitalized (571,149) (26.3) % (313,757) (3.7) %

Equity investment income (62,245) (2.8) % 66,739 1.3 %

Impairment loss related to Skysea Holding — — % — — %

Extinguishment of unsecured senior notes — — % — — %

Equity investment (loss) income (140,258) (6.4) % 170,393 2.0 %

Other expense (127,537) (5.9) % (34,537) (0.4) %

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Adjusted Net (Loss) Income attributable to Royal Caribbean Cruises Ltd and Adjusted (Loss) Earnings per Share attributable to Royal Caribbean Cruises Ltd were calculated as follows (in thousands, except per share data):

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Diluted 214,163 210,121 210,894 210,032

(1) Represents asset impairment and credit losses recorded in the first and second quarters of 2020 as a result of the impact of COVID-19.

(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 classified as assets held-for-sale that were previously chartered to Pullmantur.

(3) Represents currency translation losses recognized in connection with the ships classified as assets held-for-sale and subsequently sold that were previously chartered to Pullmantur.

Refer to Note 6.

Other Assets for further information.

(4) Represents settlement costs with Pullmantur in connection with its reorganization filing.

Other Assets to our consolidated financial statements under Item 1.

Financial Statements for further information.

(4) Represents estimated cash refunds expected to be paid to Pullmantur guests and other expenses incurred as part of the Pullmantur S.A reorganization.

(5) Represents restructuring charges incurred in relation to the reduction in our U.S.

workforce in the second quarter of 2020, the reorganization of our international sales and marketing structure and other initiatives expenses.

workforce in 2020 and the reorganization of our international sales and marketing structure and other initiatives expenses.

(6) Represents the amortization of non-cash debt discount on the $1.15 billion convertible notes.

(7) For the quarter and six months ended June 30, 2020, loss on the extinguishment of the $2.2 billion Senior Secured Term Loan.

For the quarter and six months ended June 30, 2019, 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 .

(7) In 2020, represents the loss on the extinguishment of the $2.2 billion 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.

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Selected statistical information is shown in the following table (1):

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine months ended September 30,

2020 2019 2020 2019

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Occupancy 100.0 % 110.5 % 102.6 % 108.8 %

(1) ) Due to the three-month reporting lag, we include Silversea Cruises' result of operations from January 1 through March 31 for the quarters ended June 30, 2020 and 2019 and from October 1 through March 31 for the six months ended June 30, 2020 and 2019.

(1) ) Due to the three-month reporting lag, we include Silversea Cruises' result of operations from April 1 through June 30 for the quarters ended September 30, 2020 and 2019 and from October 1 through June 30 for the nine months ended June 30, 2020 and 2019.

Refer to Note 1.

General to our consolidated financial statements for more information on the three-month reporting lag.

General to our consolidated financial statements under Item 1.

Financial Statements for more information on the three-month reporting lag.

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.

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The adverse impact of the COVID-19 pandemic on our revenues, consolidated results of operations, cash flows and financial condition has been and will continue to be material in 2020.

We expect to incur a net loss on both a US GAAP and adjusted basis for our third quarter and the 2020 fiscal year, the extent of which will depend on the timing and extent of the return to service.

Quarter Ended June 30, 2020 Compared to Quarter Ended June 30, 2019

In this section, references to 2020 refer to the quarter ended June 30, 2020 and references to 2019 refer to the quarter ended June 30, 2019.

Total revenues for 2020 decreased $2,631.0 million, or 93.7%, to $0.2 billion from $2.8 billion in 2019.

Passenger ticket revenues comprised 60.9% of our 2020 total revenues.

We expect to incur a net loss on both a US GAAP and adjusted basis for our fourth quarter and the 2020 fiscal year.

See Recent Developments:

COVID-19 – Update on Bookings for further indication of the booking environment for 2021.

Quarter Ended September 30, 2020 Compared to Quarter Ended September 30, 2019

In this section, references to 2020 refer to the quarter ended September 30, 2020 and references to 2019 refer to the quarter ended September 30, 2019.

Total revenues for 2020 decreased $3,220.5 million, or 101.1%, from 2019.

Passenger ticket revenues for 2020 decreased by $2,341.6 million, or 99.9%, from 2019.

The decrease was due to a 99.9% decrease in capacity, which decreased Passenger ticket revenues by $2,344.3 million, driven by our cancelled sailings resulting from the suspension of our global fleet operations in mid-March 2020 in response to the COVID-19 pandemic.

The decrease in Passenger ticket revenues due to capacity and foreign currency exchange rate movements was somewhat offset by a $66.4 million increase in rate primarily due to the reporting of Silversea Cruises' January through March sailings in our consolidated results for the quarter months ended June 30, 2020 due to the three month reporting lag.

The remaining 39.1% of 2020 total revenues was comprised of Onboard and other revenues , which decreased $720.2 million, or 91.3%, to $68.6 million in 2020 from $788.8 million in 2019.

The decrease in Onboard and other revenues was primarily due to the 97.9% decrease in capacity noted above, and was partially offset by higher cancellation fee revenue associated with non-refundable deposits.

Onboard and other revenues decreased $879.0 million, or 104.4%, to $(36.9) million in 2020 from $842.1 million in 2019.

Onboard and other revenues for the quarter ended September 30, 2020 includes a charge of $67.9 million to correct cancellation revenue, for certain immaterial bookings, that was incorrectly recognized during the six months ended June 30, 2020.

The charge is offsetting cancellation and other revenue recognized during the quarter ended September 30, 2020 and is considered immaterial to our financial statements.

Onboard and other revenues included concession revenues of $0.4 million in 2020 and $91.5 million in 2019.

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• a $492.2 million decrease in Commissions, transportation and other primarily due to lower commission and variable passenger tax expenses;

During the three months ended September 30, 2020, we recognized income in Commissions transportation and other as a result of rebates received from various ports for past sailings.

• a $194.6 million decrease in Onboard and other expenses mostly due to lower shore excursion costs and beverage costs;

• a $144.0 million decrease in Food expenses;

• a $144.8 million decrease in Payroll and related expenses resulting from reduced onboard staffing levels;

• a $123.9 million decrease in Fuel expenses;

• a $214.9 million decrease in Other operating expenses mostly due to lower port fees and a decrease in ship maintenance and consumable costs.

The decrease in Cruise operating expenses was partially offset by the favorable effect of changes in foreign currency exchange rates related to our cruise operating expenses denominated in currencies other than the United States dollar of $2.7 million.

Marketing, Selling and Administrative Expenses

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Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2020 increased $8.2 million, or 2.6%, to $319.8 million from $311.6 million in 2019.

The increase was primarily due to new shipboard additions associated with our 2019 ship modernization projects, additions related to our shoreside projects and the addition of Celebrity Apex and Silver Origin in the first and second quarters of 2020, respectively.

Depreciation and amortization expenses for 2020 decreased $3.2 million, or 1.0%, to $317.1 million from $320.3 million in 2019.

The decrease was primarily due to the reclassification of the Silversea Cruises Silver Explorer lease to an operating lease from a finance lease, based on modification of the terms of the lease during the second quarter of 2020, and a net reduction in long lived assets due to impairments in 2020, partially offset by additions associated with our 2019 ship modernization projects, shoreside projects and the addition of Celebrity Apex and Silver Origin in the first and second quarters of 2020.

Impairment and Credit Losses

During the quarter ended June 30, 2020, as a result of the current and expected ongoing impact of the COVID-19 pandemic on our operations and cash flows, we recorded total impairment and credit losses of $156.5 million related to the impaired value of certain of long-lived assets and due to credit losses on receivables mostly related to the sale of our property and equipment.

Impairment and Credit Losses for further information on the impacted assets.

During the quarter ended September 30, 2020, as a result of the current and expected ongoing impact of the COVID-19 pandemic on our operations and cash flows, we recorded total impairment and credit losses of $89.9 million primarily related to construction in progress projects that were reduced in scope or determined to no longer be completed as a result of cost containment measures due to the impact COVID-19 has had on our operations.

Other Income (Expense)

Interest expense, net of interest capitalized for 2020 increased $157.3 million, or 154.2%, to $259.3 million from $102.0 million in 2019.

The increase was primarily due to interest expense related to new debt issuances in 2020, a higher average balance on our revolver facilities and a loss on the extinguishment of the $2.35 billion senior term loan of $40.3 million.

Equity investment (loss) income in 2020 was $(51.9) million compared to $33.0 million in 2019.

The $84.9 million variance was primarily due to losses reported by our equity investments as a result of the adverse impact of COVID-19 on their operations and earnings.

The increase was primarily due to new debt issuances in 2020 and a higher average balance on our revolver facilities.

Equity investment (loss) income in 2020 was loss of $78.0 million compared to income of $103.7 million in 2019.

The decrease of $181.7 million was primarily due to losses reported by our equity investments as a result of the adverse impact of COVID-19 on their operations and earnings.

Other expense in 2020 was $10.9 million compared to $7.7 million in 2019.

The increase of $62.0 million in Other expense was primarily due to the recognition of a deferred currency translation adjustment loss of $69.0 million in the quarter ended June 30, 2020 related to the 2016 sale of our majority interest in the Pullmantur brand.

We recognized the deferred currency translation loss as we no longer have significant involvement in Pullmantur's operations.

In June 2020, we terminated the agreements chartering our ships to the Pullmantur brand as a result of its reorganization filing under Spanish law.

These expenses were partially offset by the recognition of income on remeasurement of our foreign monetary assets of $15.7 million in 2020 compared to loss of $1.8 million in 2019 and a decrease in net tax expense mostly attributable to the suspension in our operations of $11.9 million.

The increase of $3.2 million in Other expense was primarily due to the recognition of $12.7 million in higher losses on mostly fuel swap derivative instruments that are marked to market and the recognition of higher net losses on remeasurement of our foreign monetary assets by $8.6 million in 2020, offset by a decrease in net tax expense mostly attributable to the suspension in our operations of $19.5 million.

Other Comprehensive (Loss) Income

Other comprehensive income (loss) in 2020 was $144.4 million compared to $(74.2) million in 2019.

Other comprehensive income (loss) in 2020 was income of $82.1 million compared to loss of $293.2 million in 2019.

The increase in income of $375.3 million was primarily due to Gain on cash flow derivative hedges in 2020 of $66.1 million compared to a Loss on cash flow derivative hedges in 2019 of $(265.2) million.

The increase in cash flow derivative hedge income in 2020 was primarily due to increases in the fair values of our fuel swaps and interest rate swaps in 2020 compared to decreases in the fair values of these in 2019 due to changes in market rates.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

In this section, references to 2020 refer to the six months ended June 30, 2020 and references to 2019 refer to the six months ended June 30, 2019.

The increase in cash flow derivative hedge income in 2020 was primarily due to an increase in the fair value of our foreign currency forwards in 2020 compared to a decrease in the fair value of these foreign currency forwards in 2019 due to changes in market rates.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

In this section, references to 2020 refer to the nine months ended September 30, 2020 and references to 2019 refer to the nine months ended September 30, 2019

Total revenues for 2020 decreased $6.3 billion, or 74.2%, to $2.2 billion from $8.4 billion in 2019.

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The remaining 31.6% of 2020 total revenues was comprised of Onboard and other revenues , which decreased $1,673.1 million, or 70.9% to $687.6 million in 2020 from $2.4 billion in 2019.

The decrease in Onboard and other revenues was primarily due to the 58% decrease in capacity related to cancelled sailings noted above and, to a much lesser extent, to the unfavorable effect of changes in foreign currency exchange rates related to our onboard and other revenues denominated in currencies other than the United States dollar of $7.4 million.

The decrease in Onboard and other revenues was primarily due to the 73% decrease in capacity related to cancelled sailings noted above.

Onboard and other revenues for the nine months ended September 30, 2020 also includes a charge of $67.9 million recorded in the quarter ended September 30, 2020 to correct cancellation revenue, for certain immaterial bookings, that was incorrectly recognized during the six months ended June 30, 2020.

The charge is considered immaterial to our financial statements.

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 $7.0 million.

Onboard and other revenues included concession revenue of $75.1 million in 2020 and $276.0 million in 2019.

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• a $281.6 million decrease in Food expenses;

• a $206.4 million decrease in Other operating expenses mostly due to lower port fees and a decrease in ship maintenance and consumable costs.

• a $192.5 million decrease in Fuel expenses;

• a $105.6 million decrease in Payroll and related expenses resulting from reduced onboard staffing levels;

• 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 $13.4 million.

Marketing, Selling and Administrative Expenses

Marketing, selling and administrative expenses decreased $94.5 million, or 11.9%, to $697.3 million from $791.8 million in 2019.

Marketing, selling and administrative expenses decreased $200.5 million, or 17.5%, to $944.1 million from $1.1 billion in 2019.

The decrease was 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 for 2020 increased $37.0 million, or 4.0%, to $961.2 million from $924.2 million in 2019.

The increase was primarily due to the additions of Spectrum of the Seas in the second quarter of 2019 and Celebrity Apex and Silver Origin in the first and second quarters of 2020, respectively.

Additionally, the increase is also attributable to new shipboard additions associated with our ship upgrade projects and additions related to our shoreside projects.

The increase was primarily due to the additions of Celebrity Apex and Silver Origin in the first and second quarters of 2020, respectively.

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 six months ended June 30, 2020, as a result of the current and expected ongoing impact of the COVID-19 pandemic on our operations and cash flows, we recorded total impairment and credit losses of $1.3 billion, most of which was recorded during the three months ended March 31, 2020, related to the impairment of goodwill, intangibles, long-lived assets and credit losses related to the sale of our property and equipment.

Impairment and Credit Losses for further information on the impacted long-lived assets.

For the nine months ended September 30, 2020, as a result of the current and expected ongoing impact of the COVID-19 pandemic on our operations and cash flows, we recorded total impairment and credit losses of $1.4 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 , for 2020 increased $257.4 million, or 82.0%, to $571.1 million from $313.8 million in 2019.

The increase was primarily due to interest expense related to new debt issuances in 2020, a higher average balance on our revolver and a loss on extinguishment of the $2.35 billion senior term loan of $40.3 million.

The increase was primarily due to new debt issuances in 2020, a higher average balance on our revolver and a loss on extinguishment of the $2.35 billion senior secured term loan of $41.1 million recorded mostly during the three months ended June 30, 2020.

Equity investment (loss) income decreased $310.7 million, or 182.3%, to a loss of $140.3 million in 2020 from income of $170.4 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.

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In June 2020, we terminated the agreements chartering our ships to the Pullmantur brand as a result of its reorganization filing under Spanish law.

We also recognized $21.6 million of expense during the second quarter of 2020, approximating the estimated total cash refund expected to be paid to Pullmantur guests and other expenses incurred as part of a settlement agreement with our joint venture partner as part of the brand's reorganization and a net $76.9 million loss related the change in fair value of fuel swaps with no hedge accounting.

These expenses were partially offset by income of $55.3 million for the change in contingent consideration payable as of June 30, 2020 to Heritage and a decrease in net tax expense mostly attributable to the suspension in our operations of $16.2 million.

We also recognized $21.6 million of expense during the second quarter of 2020, approximating the estimated total cash refund expected to be paid to Pullmantur guests and other expenses incurred as part of a settlement agreement with our joint venture partner as part of the brand's reorganization and a net $87.5 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 $55.8 million for the change in contingent consideration payable in 2020 to Heritage and a decrease in net tax expense mostly attributable to the suspension in our operations of $35.7 million.

Other Comprehensive (Loss)

Other comprehensive loss in 2020 was $71.4 million compared to other comprehensive loss of $318.6 million in 2019.

The change of $128.1 million, or 503.5%, was primarily due to a loss on cash flow derivative hedges in 2020 of $176.3 million, compared to a loss on cash flow derivative hedges of $22.9 million in 2019 primarily due to a decrease in our fuel swap values in 2020 compared to an increase in 2019 due to changes in fuel prices.

The change of $247.2 million, or (77.6)%, was primarily due to a loss on cash flow derivative hedges in 2020 of $110.1 million, compared to a loss on cash flow derivative hedges of $288.1 million in 2019.

The reduction in cash flow derivative hedge loss in 2020 was primarily due to an increase in the fair value of our foreign currency forwards in 2020 compared to a decrease in the fair value of these foreign currency forwards in 2019 due to changes in market rates.

Future Application of Accounting Standards

Refer to Note 2.

Summary of Significant Accounting Policies to our consolidated financial statements for further information on Recent Accounting Pronouncements.

Summary of Significant Accounting Policies to our consolidated financial statements under Item 1.

Financial Statements for further information on Recent Accounting Pronouncements.

Liquidity and Capital Resources

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As a result of the COVID-19 impact on our business, including the suspension of global sailings, we have experienced a decrease in bookings and an increase in customer deposit refunds since the first quarter of 2020 which has significantly affected our liquidity and cash flow.

Net cash (used in) provided by operating activities decreased $4.2 billion to cash used of $(2.0) billion for the first six months in 2020 compared to cash provided of $2.2 billion for the same period in 2019.

The current disruptions to our business led to a net decrease in customer deposits of $1.6 billion in the first six months of 2020.

Also affecting our operating cash flows, was a decrease of Onboard and other revenues of 794.1 million and a decrease of $78.6 million in dividends received from unconsolidated affiliates during the first six months in 2020 compared to the same period in 2019.

Net cash used in investing activities decreased $307.9 million to $1.6 billion for the first six months in 2020 compared to $1.9 billion for the same period in 2019.

Net cash (used in) provided by operating activities decreased $6.0 billion to cash used of $2.9 billion for the nine months ended September 30, 2020, compared to cash provided of $3.1 billion for the same period 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 guest for cancelled sailings during the nine months ended September 30, 2020 compared to the same period in 2019.

Net cash (used in) investing activities decreased $613.7 million to $1.8 billion for the nine months ended September 30, 2020 compared to $2.4 billion for the same period in 2019.

The decrease in investing activities was primarily attributable to a decrease in capital expenditures of $768.7 million.

Net cash provided by financing activities was $7.5 billion for the first six months in 2020 compared to Net cash used in financing activities of $(348.9) million for the same period in 2019.

The change was primarily attributable to an increase in debt proceeds of $9.9 billion for the first six months in 2020 compared to the same period in 2019, partially offset by an increase of debt repayments of $415.5 million.

Also offsetting the increase in debt proceeds, was net repayments of commercial paper of $1.1 billion during the first six months of 2020 compared to net borrowings of commercial paper of $254.7 million during the same period in 2019.

The increase in debt proceeds was primarily due to the $2.2 billion 364-day Senior Secured Term Loan which was repaid in May 2020, the $3.32 billion Senior Secured Notes issued in May 2020, the $722.2 million unsecured term loan borrowed to finance Celebrity Apex , issuance of $1.0 billion senior unsecured notes, issuance of $1.15 billion convertible notes, and higher drawings on our revolving credit facilities, resulting in a fully utilized balance, during the first six months of 2020, compared to the same period in 2019.

Net cash provided by financing activities was $7.5 billion for the nine months ended September 30, 2020 compared to Net cash used in financing activities of $0.7 billion for the same period in 2019.

The change was primarily attributable to an increase in debt proceeds of $9.6 billion for the nine months ended September 30, 2020 compared to the same period in 2019, partially offset by net repayments of commercial paper of $1.1 billion during the nine months ended September 30, 2020 compared to net borrowings of commercial paper of $0.1 billion during the same period in 2019.

The increase in debt proceeds was primarily due to the $2.2 billion 364-day Senior Secured Term Loan which was repaid in May 2020, the $3.32 billion Senior Secured Notes issued in May 2020, issuance of $1.0 billion senior unsecured notes, issuance of $1.15 billion convertible notes, the $0.7 billion unsecured term loan borrowed to finance Celebrity Apex , and higher drawings on our revolving credit facilities, resulting in a fully utilized balance, during the nine months ended September 30, 2020, compared to the same period in 2019.

Future Capital Commitments

Capital Expenditures

As of June 30, 2020, our Global Brands and our Partner Brands have 16 ships on order.

As of September 30, 2020, our Global Brands and our Partner Brands have 16 ships on order.

Their original contractual delivery dates and their approximate berths are listed below.

COVID-19 has impacted shipyard operations and will result in delays of our previously contracted ship deliveries.

Of five ships originally scheduled for delivery between July 2020 and December 2021, we expect that Silver Moon, Silver Dawn and Odyssey of the Seas will be delivered within the remaining time frame.

COVID-19 has impacted shipyard operations which have and will result in delays of our previously contracted ship deliveries as noted below.

The exact duration of the ship delivery delays are currently under discussion with the impacted shipyards:

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Silversea Cruises —

Silver Moon Fincantieri 3rd Quarter 2020 550

Silver Dawn Fincantieri 3rd Quarter 2021 550

Silver Moon (1)

Fincantieri 3rd Quarter 2020 550

Silver Dawn Fincantieri 4th Quarter 2021 550

Evolution Class:

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Total Berths 52,530

(1) In October 2020, we took delivery of Silver Moon .

In April 2019, we entered into an agreement with Chantiers de l’Atlantique to build the fifth Edge-class ship for Celebrity Cruises.

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Our future capital commitments consist primarily of new ship orders.

As of June 30, 2020, the aggregate cost of our ships on order presented in the table above, excluding any ships on order by our Partner Brands, was $13.9 billion, of which we had deposited $833.1 million.

Approximately 62.5% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at June 30, 2020.

As of September 30, 2020, the aggregate cost of our ships on order presented in the table above, excluding any ships on order by our Partner Brands, was $14.1 billion, of which we had deposited $770.7 million.

Approximately 64.4% of the aggregate cost was exposed to fluctuations in the Euro exchange

rate at September 30, 2020.

Refer to Note 13.

Fair Value Measurements and Derivative Instruments to our consolidated financial statements.

Fair Value Measurements and Derivative Instruments to our consolidated financial statements under Item 1.

Financial Statements .

Decreased demand for cruising as a result of concerns regarding the COVID-19 pandemic has had, and is expected to continue to have, a material impact on our cash flows, liquidity and financial position.

In order to preserve liquidity throughout the COVID-19 pandemic, we deferred a significant portion of our planned 2020 and 2021 capital expenditures.

As of June 30,

2020, we anticipate overall full year capital expenditures, based on our existing ships on order, will be approximately $0.6 billion for 2020 and $1.8 billion for 2021.

As of September 30, 2020, we anticipate overall full year capital expenditures, based on our existing ships on order, will be approximately $0.6 billion for 2020 and $1.8 billion for 2021.

These amounts do not include any ships on order by our Partner Brands.

Contractual Obligations

As of June 30, 2020, our contractual obligations were as follows (in thousands):

As of September 30, 2020, our contractual obligations were as follows (in thousands):

Payments due by period

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(2) Long-term 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 June 30, 2020.

Debt denominated in other currencies is calculated based on the applicable exchange rate at June 30, 2020.

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 September 30, 2020.

Debt denominated in other currencies is calculated based on the applicable exchange rate at September 30, 2020.

(3) Amounts primarily represent future commitments with remaining terms in excess of one year to pay for our usage of certain port facilities, marine consumables, services and maintenance contracts.

Included in the 1-3 year figure is estimated cash collateral of $181.1 million that we are required to deliver on or before July 18, 2021 in connection with our Port of Miami terminal operating lease.

Leases for further information on the collateral requirement.

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 $9.3 billion in final contractual installments, which have committed financing.

COVID-19 has impacted shipyard operations and will result in delays for our previously contracted ship deliveries.

Of five ships originally scheduled for delivery between July 2020 and December 2021, we expect that Silver Moon, Silver Dawn and Odyssey of the Seas will be delivered within the remaining time frame.

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.

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(5) Refer to Note 7.

Debt to our consolidated financial statements for further information.

Debt to our consolidated financial statements under Item 1.

Financial Statements for further information.

(6) Amounts represent debt obligations with initial terms in excess of one year.

Debt denominated in other currencies is calculated based on the applicable exchange rate at June 30, 2020.

In addition, debt obligations presented above are net of debt issuance costs of $314.4 million as of June 30, 2020.

Debt denominated in other currencies is calculated based on the applicable exchange rate at September 30, 2020.

In addition, debt obligations presented above are net of debt issuance costs of $315.7 million as of September 30, 2020.

(7) Amounts represent finance lease obligations with initial terms in excess of one year, net of imputed interest.

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We consider the possibility of incurring costs associated with the residual value guarantee to be remote.

Also in connection with the Port of Miami terminal operating lease, we are required to deliver on or before July 18, 2021, cash collateral in an amount equal to the lesser of our residual value guarantee or the aggregate balance of the lessors' terminal construction debt, estimated at $181.1 million as of June 30, 2020.

The collateral is to be issued to an escrow agent and pledged to the benefit of the terminal construction debt lenders until all amounts due by us under the lease have been paid in full.

On April 2, 2020, S&P Global downgraded us from BBB- to BB and on May 13, 2020, Moody’s downgraded us from Baa3 to Ba2.

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+.

Our access to, and cost of debt financing is negatively impacted by the downgrades.

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Based on the triggers in the various agreements, we do not believe any incremental collateral will be required, although the maximum additional collateral or reserves we could potentially need to provide under these agreements in the next twelve months is approximately $75 million.

As of June 30, 2020, other than the items described above, we are not party to any other off-balance sheet arrangements, including guarantee contracts, retained or contingent interest, certain derivative instruments and variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on our financial position.

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.

Several of these agreements are currently up for renewal.

We expect that our current and/or new providers will request collateral in the amount of approximately $80 million based on the exchange rate at September 30, 2020.

As of September 30, 2020, other than the items described above, we are not party to any other off-balance sheet arrangements, including guarantee contracts, retained or contingent interest, certain derivative instruments and variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on our financial position.

Funding Needs and Sources

Historically, we relied on a combination of cash flows provided by operations, draw downs under our available credit facilities, the incurrence of additional debt and/or the refinancing of our existing debt and the issuance of additional shares of equity securities to fund our obligations.

The impact of COVID-19 resulted in our previously announced voluntary suspension of Global Brands' cruise operations from March 13 which has been extended through at least October 31, 2020, excluding China and Australia.

The impact of COVID-19 resulted in our previously announced voluntary suspension of Global Brands' cruise operations from March 13, 2020 which has been extended through at least December 31, 2020, excluding sailings from Singapore.

Celebrity Cruises will also be suspending their full 2020/21 Winter program in Australia and Asia.

Additionally, Azamara will be suspending their 2020/21 Winter sailings throughout Australia & New Zealand, South Africa and South America.

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.

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We have significant contractual obligations of which our debt service obligations and the capital expenditures associated with our ship purchases represent our largest funding needs.

As of June 30, 2020, we had $11.3 billion of committed financing for our ships on order.

As of June 30, 2020, we had $5.6 billion in contractual obligations due through June 30, 2021, of which approximately $0.7 billion relates to debt maturities, $1.3 billion relates to interest on debt and $2.9 billion relates to progress payments on our

ship orders and the final installments payable due upon the delivery of Silver Moon, Odyssey of the Seas and Wonder of the Seas , based on their contractual delivery dates.

As of June 30, 2020, we had liquidity of $4.1 billion, consisting of cash and cash equivalents.

As of June 30, 2020, our revolving credit facilities were fully utilized.

As of September 30, 2020, we had $11.3 billion of committed financing for our ships on order.

As of September 30, 2020, we had $5.5 billion in contractual obligations due through September 30, 2021, of which approximately $0.8 billion relates to debt maturities, $0.9 billion relates to interest on debt and $3.0 billion relates to progress payments on our ship orders and the final installments payable due upon the delivery of Silver Moon, Odyssey of the Seas and Wonder of the Seas , based on their contractual delivery dates.

As of September 30, 2020, we had liquidity of $3.7 billion, consisting of cash and cash equivalents of $3.0 billion and a $0.7 billion one-year commitment for a 364-day term loan facility .

As of September 30, 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 11 .

Shareholders' Equity to our consolidated financial statements for further information.

Based on our assumptions and estimates and our financial condition, we believe that the liquidity resulting from the actions mentioned above will be sufficient to fund our liquidity requirements over at least the next twelve months.

Shareholders' Equity to our consolidated financial statements under Item 1.

Financial Statements for further information.

However, there is no assurance that our assumptions and estimates are accurate due to possible unknown variables related this unprecedented suspension of our operations and, as such, there is inherent uncertainty in our ability to predict future liquidity requirements.

Under certain of our agreements, the contractual interest rate, facility fee and/or export credit agency fee vary with our debt rating.

On April 2, 2020, S&P Global downgraded us from BBB- to BB and on May 13, 2020, Moody’s downgraded us from Baa3 to Ba2, thereby increasing the contractual interest rate, facility fee and export credit agency fee across various facilities.

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.

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.

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Debt Covenants

Both our export credit facilities and our non-export credit facilities contain covenants that require us, among other things, to maintain a fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital ratio to no more than 62.5%.

The fixed charge coverage ratio is calculated by dividing net cash from operations for the past four quarters by the sum of dividend payments plus scheduled principal debt payments in excess of any new financings for the past four quarters.

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During the second quarter of 2020, we amended our export credit facilities and our non-export credit facilities and certain of our credit card processing agreements which contain financial covenants to suspend the testing of these covenants through and including the first quarter of 2021.

Certain of these amendments imposed a new monthly-tested minimum liquidity covenant $300 million for the duration of the waiver period.

Certain of these amendments imposed a new monthly-tested minimum liquidity covenant of $300 million for the duration of the waiver period.

Pursuant to these amendments, we have also agreed that we will not pay cash dividends or effectuate share repurchases during the wavier period unless we are in compliance with the fixed charge coverage ratio covenant as of the end of the most recently completed quarter.

Subsequent to June 30, 2020, we further amended our export credit facilities, certain of our non-export credit facilities and our credit card processing agreements to extend the financial covenant waiver through and including, the fourth quarter of 2021.

During the third quarter of 2020, we further amended our export credit facilities, certain of our non-export credit facilities and our credit card processing agreements to extend the financial covenant waiver through and including, the fourth quarter of 2021.

As of June 30, 2020 and the date of these financial statements, we were in compliance with the minimum liquidity covenant, as increased by the recent amendments.

In addition to the above, during the quarter ended June 30, 2020, we amended our Port of Miami Terminal "A" operating lease agreement to increase the lien basket in line with our debt facilities.

As of June 30, 2020, were in compliance with the covenants under the lease agreement.

Any covenant waiver may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections as the lenders may require.

There can be no assurance that we would be able to obtain waivers in a timely manner, or on acceptable terms.

If we were not able to obtain waivers or repay the debt facilities, this would lead to an event of default and potential acceleration of amounts due under all of our outstanding debt and derivative contract payables.

If we were not able to obtain waivers on the credit card processing agreements, this could lead to the termination of these agreements or the trigger of reserve requirements.

As of September 30, 2020 and the date of these financial statements, we were in compliance with the minimum liquidity covenant as amended.

Subsequent to September 30, 2020, the minimum liquidity covenant was reduced to $350.0 million due to our capital raising activities in October 2020.

In addition to the above, during the quarter ended June 30, 2020, we amended our Port of Miami Terminal "A" operating lease agreement to increase the lien basket in line with our debt facilities and obtain a financial covenant waiver to the first quarter of 2021.

As of September 30, 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.

During the first quarter of 2020, we declared a cash dividend on our common stock of $0.78 per share, which was paid in April 2020.

During the first quarter of 2020, we also paid a cash dividend on our common stock of $0.78 per share, which was declared during the fourth quarter of 2019.

Subsequent to March 31, 2020, we agreed with certain of our lenders not to pay

dividends for so long as our debt covenant waivers are in effect.

Accordingly, we did not declare a dividend in the second quarter of 2020.

Subsequent to March 31, 2020, we agreed with certain of our lenders not to pay dividends for so long as our debt covenant waivers are in effect.

Accordingly, we did not declare a dividend in the second and third quarters of 2020.

During the first quarter of 2019, we declared a cash dividend on our common stock of $0.70 per share, which was paid in April 2019.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis