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Item 7. Management’s Discussion and Analysis

2021-02-26 compared with 2020-02-25 · 464 added, 499 removed, 319 unchanged (75% of the section changed)

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The discussion under this caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this document, includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements other than statements of historical fact, including statements regarding guidance (including our expectations for the first quarter and full year of 2020, our earnings and yield estimates for 2020 set forth under the heading "Outlook" below and our goals for our program), business and industry prospects or future results of operations or financial position, made in this Annual Report on Form 10-K are forward-looking.

All statements other than statements of historical fact, including statements regarding our expectations for the first quarter and full year of 2021, business and industry prospects or future results of operations or financial position, made in this Annual Report on Form 10-K are forward-looking.

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

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

• a discussion of our results of operations for the year ended December 31, 2019 compared to the same period in 2018 and the year ended December 31, 2018 compared to the same period in 2017;

• a discussion of our business outlook, including our expectations for selected financial items for the first quarter and full year of 2020;

• a discussion of our results of operations for the year ended December 31, 2020 compared to the same period in 2019;

• a discussion of our business outlook, and

• a discussion of our liquidity and capital resources, including our future capital and contractual commitments and potential funding sources.

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A discussion of our results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018 is included in Part II.

Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 25, 2020 , as updated by our Current Report on Form 8-K dated May 13, 2020, and is incorporated by reference into this Form 10-K.

Critical Accounting Policies

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We believe our most critical accounting policies are as follows:

Liquidity and COVID-19

The effects of COVID-19 have had and continue to have a material negative impact on our operations, financial results and liquidity.

The full extent of the impact will be determined by the length of time COVID-19 influences our industry and our eventual gradual return to service.

Given the ongoing effects of COVID-19 on our operations and global bookings, we have identified the estimation of our future liquidity requirements as a critical accounting policy.

The estimation of our future liquidity requirements includes numerous assumptions that are subject to various risks and uncertainties.

The principal assumptions used to estimate our future liquidity requirements during our out-of-service period consist of:

• Expected date of return to operations;

• Expected gradual resumption of cruise operations;

• Expected lower than comparable historical occupancy levels during the resumption of cruise operations;

• Expected incremental expenses for the resumption of cruise operations, for the maintenance of additional public health protocols and procedures for additional regulations.

The assumptions used to estimate our liquidity requirements are frequently and continuously evaluated because of the unprecedented non-operational environment we are experiencing due to COVID-19.

In addition, the magnitude, duration and speed of the global pandemic continues to be uncertain.

As a result, we have made reasonable estimates and judgments of the impact of COVID-19 on our liquidity within our financial statements and there may be changes to those estimates in future periods.

We have taken and will continue to take actions to improve our liquidity, including:

• Reduction of capital expenditures;

• Reduction of operating expenses (including furloughing staff and laying up vessels);

• Amending credit agreements to defer payments and covenant requirements, as well as extend maturity dates;

• Raising capital through debt and stock issuances;

• Suspending dividend payments.

Ship Accounting

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Improvement costs that we believe add value to our ships are capitalized as additions to the ship and depreciated over the shorter of the improvements' estimated useful lives or that of the associated ship.

The estimated cost and accumulated depreciation of replaced or refurbished ship components are written off and any resulting losses are recognized within Cruise operating expenses in our Consolidated Statements of Comprehensive Income (Loss).

The estimated cost and accumulated depreciation of replaced or refurbished ship components are written

off and any resulting losses are recognized within Cruise operating expenses in our Consolidated Statements of Comprehensive Income (Loss).

We periodically review estimated useful lives and residual values for ongoing reasonableness, considering long term views on our intended use of each class of ships and the planned level of improvements to maintain and enhance vessels within those classes.

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The activities associated with those drydocking costs cannot be performed while the vessel is in service and, as such, are done during a drydock as a planned major maintenance activity.

The significant deferred drydock costs consist of hauling and wharfage services provided by the drydock facility, hull inspection and related activities (e.g., scraping, pressure cleaning, bottom painting), maintenance to steering propulsion, thruster equipment and ballast

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tanks, port services such as tugs, pilotage and line handling, and freight associated with these items.

We perform a detailed analysis of the various activities performed for each drydock and only defer those costs that are directly related to planned major maintenance activities necessary to maintain Class.

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If our ships were estimated to have no residual value, depreciation expense for 2020 would have increased by approximately $345.3 million.

We have evaluated our estimated ship useful lives and projected residual values in light of our current environment and determined that there are no changes to these estimates based on our return to service expectations.

Business Combinations

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Financial Statements and Supplementary Data for further information on the acquisition.

On July 9, 2020, we acquired the remaining 33.3% interest in Silversea Cruises that we did not already own (the "noncontrolling interest") from Heritage.

As a result of the acquisition of the noncontrolling interest, Silversea Cruises is now a wholly owned cruise brand.

As consideration for the noncontrolling interest, we issued to Heritage 5.2 million shares of common stock, par value $0.01 per share, of Royal Caribbean Cruises Ltd.

Pursuant to the agreement governing the acquisition, among other things, the parties terminated any existing obligation to issue Heritage any contingent consideration, at fair value, in connection with our acquisition of a 66.7% interest in Silversea Cruises on July 31, 2018.

The share purchase did not result in a change of control.

The purchase was accounted for as an equity transaction and no gain or loss was recognized in earnings.

Refer to Note 11 .

Redeemable Noncontrolling Interest to our consolidated financial statements under Item 8.

Statements and Supplementary Data for further information regarding our acquisition of Silversea Cruises' noncontrolling interest.

We account for business combinations in accordance with ASC 805, Business Combinations , by applying the acquisition method of accounting.

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Uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date.

We continue to collect information and reevaluate these estimates and assumptions quarterly.

We will record any adjustments to our preliminary estimates to goodwill, provided that we are within the one-year measurement period.

Our purchase price measurement period for the Silversea Cruises 2018 acquisition was closed during 2019.

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We review goodwill and indefinite-lived intangible assets for impairment at the reporting unit level annually or, when events or circumstances dictate, more frequently.

The impairment review for goodwill consists of a qualitative assessment of whether it is more-likely-than-not that a reporting unit's fair value is less than its carrying amount, and if necessary, a two-step goodwill impairment test.

The impairment review for goodwill consists of a qualitative assessment of whether it is more-likely than-not that a reporting unit's fair value is less than its carrying value, and if necessary, a goodwill impairment test.

Factors to consider when performing the qualitative assessment include general economic conditions, limitations on accessing capital, changes in forecasted operating results, changes in fuel prices and fluctuations in foreign exchange rates.

If the qualitative assessment demonstrates

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that it is more-likely-than-not that the estimated fair value of the reporting unit exceeds its carrying value, it is not necessary to perform the two-step goodwill impairment test.

We may elect to bypass the qualitative assessment and proceed directly to step one, for any reporting unit, in any period.

On a periodic basis, we elect to bypass the qualitative assessment and proceed to step one to corroborate the results of recent years' qualitative assessments.

We can resume the qualitative assessment for any reporting unit in any subsequent period.

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

We estimate the fair value of our reporting units using a probability-weighted discounted cash flow model.

The goodwill impairment analysis consists of a comparison of the fair value of the reporting unit with its carrying value.

We typically estimate the fair value of our reporting units using a probability-weighted discounted cash flow model, which may also include a combination of a market-based valuation approach.

The estimation of fair value utilizing discounted expected future cash flows includes numerous uncertainties which require our significant judgment when making assumptions of expected revenues, operating costs, marketing, selling and administrative expenses, interest rates, ship additions and retirements as well as assumptions regarding the cruise vacation industry's competitive environment and general economic and business conditions, among other factors.

The principal assumptions we use in the discounted cash flow model are projected operating results, weighted-average cost of capital, and terminal value.

The principal assumptions used in the discounted cash flow model for our 2020 impairment assessments were:

• The timing of our return to service, changes in market conditions and port or other restrictions;

• Forecasted net revenues, primarily the timing of returning to normalized operations, occupancy rates from existing and expected ship deliveries, including options, and terminal growth rate;

• Weighted average cost of capital (i.e., discount rate).

The discounted cash flow model uses the most current projected operating results for the upcoming fiscal year as a base.

To that base, we add future years' cash flows assuming multiple revenue and expense scenarios that reflect the impact of different global economic environments beyond the base year on the reporting unit.

To that base, we add future years' cash flows based on multiple revenue and expense scenarios reflecting the impact of various return to service management assumptions beyond the base year on the reporting unit.

We discount the projected cash flows using rates specific to the reporting unit based on its weighted-average cost of capital.

If the fair value of the reporting unit exceeds its carrying value, no further analysis or write-down of goodwill is required.

If the fair value of the reporting unit is less than the carrying value of its net assets, the implied fair value of the reporting unit is allocated to all its underlying assets and liabilities, including both recognized and unrecognized tangible and intangible assets, based on their fair value.

If necessary, goodwill is then written down to its implied fair value.

If the fair value of the reporting unit exceeds its carrying value, no write-down of goodwill is required.

As amended by ASU No.

2017-04, Intangibles - Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment , if the fair value of the reporting unit is less than the carrying value of its net assets, an impairment is recognized based on the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to such reporting unit.

The impairment review for indefinite-life intangible assets can be performed using a qualitative or quantitative impairment assessment.

The quantitative assessment consists of a comparison of the fair value of the asset with its carrying amount.

The quantitative assessment consists of a comparison of the fair value of the asset with its carrying value.

We estimate the fair value of these assets using a discounted cash flow model and various valuation methods depending on the nature of the intangible asset, such as the relief-from-royalty method, for trademarks and trade names.

If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

If the fair value exceeds its carrying amount, the indefinite-life intangible asset is not considered impaired.

The principal assumptions used in the discounted cash flow model for our 2020 impairment assessments were:

• Forecasted net revenues, primarily the timing of returning to normalized operations, occupancy rates from existing and expected ship deliveries, including options, and terminal growth rate;

• Royalty rate;

• Weighted average cost of capital (i.e., discount rate).

If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

If the fair value exceeds its carrying value, the indefinite-life intangible asset is not considered impaired.

Other intangible assets assigned finite useful lives are amortized on a straight-line basis over their estimated useful lives.

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Financial Statements and Supplemental Data for further information on indefinite-life intangible assets.

We review our ships and other long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated undiscounted future cash flows, that the carrying amount of these assets may not be fully recoverable.

We review our ships and other long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated undiscounted future cash flows, that the carrying value of these assets may not be fully recoverable.

We evaluate asset impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

The lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the ship level for our ships and, prior to the sale of the aircraft, at the aggregated asset group level for our aircraft.

The lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the ship level for our ships.

If estimated future cash flows are less than the carrying value of an asset, an impairment charge is recognized to the extent its carrying value exceeds fair value.

Refer to Note 7 .

Property and Equipment to our consolidated financial statements under Item 8.

Financial Statements and Supplemental Data for further information on determination of fair value for long-lived assets.

We estimate fair value based on quoted market prices in active markets, if available.

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Accordingly, we estimate the fair value of a reporting unit and an indefinite-life intangible asset using an expected present value technique.

Royal Caribbean International

During the fourth quarter of 2019, we performed a qualitative assessment of the Royal Caribbean International reporting unit.

Based on our qualitative assessment, we concluded that it was more-likely-than-not that the estimated fair value of the Royal Caribbean International reporting unit exceeded its carrying value and thus, we did not proceed to the two-step goodwill impairment test.

No indicators of impairment exist primarily because the reporting unit's fair value has consistently exceeded its carrying value by a significant margin and forecasts of operating results expected to be generated by the reporting unit appear sufficient to support its carrying value.

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December 31, 2019, the carrying amount of goodwill attributable to our Royal Caribbean reporting unit was $299.2 million.

Silversea Cruises

The goodwill for the Silversea Cruises reporting unit was recorded at fair value at July 31, 2018, the acquisition date.

Refer to Note 3.

Business Combination to our consolidated financial statements under Item 8.

Financial Statements and Supplemental Data for further information on the Silversea Cruises acquisition.

During the fourth quarter of 2019, we performed a qualitative assessment of the Silversea Cruises reporting unit.

Based on our qualitative assessment, we concluded that it was more-likely-than-not that the estimated fair value of the Silversea Cruises reporting unit exceeded its carrying value and thus, we did not proceed to the two-step goodwill impairment test.

No indicators of impairment exist primarily because forecasts of operating results expected to be generated by the reporting unit appear sufficient to support its carrying value.

As of December 31, 2019, the carrying amount of goodwill attributable to our Silversea Cruises reporting unit was $1.1 billion.

The indefinite-life intangible asset related to the Silversea Cruises trade name acquired in the Silversea Cruises acquisition was recorded at fair value at July 31, 2018, the acquisition date.

During the fourth quarter of 2019, we performed a qualitative assessment of the Silversea Cruises trade name.

As a result of the assessment performed no impairment charge was recorded related to trade name intangible assets for the year ended December 31, 2019.

As of December 31, 2019 and 2018, the carrying amount of indefinite-life intangible assets was $352.3 million and $351.7 million, respectively, which primarily relates to the Silversea Cruises trade name acquired in the Silversea Cruises acquisition.

The outbreak of COVID-19 has resulted in an unprecedented global response to contain the spread and control the resurgence of the disease.

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

As part of the global containment effort, the Company previously announced a voluntary suspension of its Global Brands' cruise operations through at least April 30, 2021, for most of our cruise operations.

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

Royal Caribbean International Reporting Unit

We performed interim impairment evaluations of Royal Caribbean International’s goodwill in connection with the preparation of our quarterly financial statements for the periods ended March 31, 2020 and June 30, 2020 due to the significant impact that COVID-19 has had on our projected cash flows and triggering events identified in those quarters.

Our extended suspension of our operations and the possibility of further extensions created some uncertainty in forecasting the operating results and future cash flows used in our impairment analyses.

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

The fair value of the Royal Caribbean International reporting unit as of March 31, 2020 was determined using a discounted cash flow model and a probability-weighted discounted cash flow model in combination with a market based valuation approach for the June 30, 2020 and November 30, 2020 assessments.

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

During the fourth quarter of 2020, we performed our annual impairment review of goodwill for Royal Caribbean International's reporting unit.

We did not perform a qualitative assessment but instead proceeded directly to the goodwill impairment test.

As a result of the test, we determined the fair value of the Royal Caribbean International reporting unit exceeded its carrying value by approximately 14% resulting in no impairment to Royal Caribbean International's goodwill.

As of December 31, 2020, the carrying value of goodwill attributable to our Royal Caribbean reporting unit was $296.6 million.

Silversea Cruises Reporting Unit

We performed interim impairment evaluations of Silversea Cruises’ goodwill and trade name in connection with the preparation of our financial statements for the quarter ended March 31, 2020.

As a result of these analyses, we determined that the carrying value of the Silversea Cruises reporting unit exceeded its fair value.

Similarly, we determined that the carrying value of Silversea Cruises’ trade name exceeded its fair value.

Accordingly, upon the completion of the impairment test, we recognized impairment charges of $576.2 million and $30.8 million for goodwill and the trade name, respectively, during the

quarter ended March 31, 2020.

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

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

During the fourth quarter of 2020, we performed our annual impairment review of Silversea Cruises' goodwill.

We did not perform a qualitative assessment but instead proceeded directly to the goodwill impairment test.

As a result of the test, we determined the fair value of the Silversea Cruises reporting unit exceeded its carrying value by approximately 12%, resulting in no impairment to Silversea Cruises' goodwill.

As of December 31, 2020, the carrying value of goodwill attributable to our Silversea Cruises reporting unit was $508.6 million.

During the fourth quarter of 2020, we performed our annual impairment review of Silversea Cruises' trade name.

As a result of the quantitative test, we determined that the fair value of the Silversea Cruises' trade name exceeded its carrying value by approximately 3%, resulting in no impairment to Silversea Cruises' tr ade name.

We will continue to closely monitor the change in fair value of the Silversea Cruises' trade name.

Any further adverse developments due to COVID-19 or other events affecting the projected cash flows for Silversea Cruises may lead to further impairment of the Silversea Cruises' trade name.

As of December 31, 2020 and 2019, the carrying value of indefinite-life intangible assets was $321.5 million and $352.3 million, respectively, which primarily relates to the Silversea Cruises trade name.

Long-lived Assets

Events surrounding the COVID-19 pandemic negatively impacted the expected undiscounted cash flows of certain of our long-lived assets.

We evaluated these assets during the year ended 2020 pursuant to our long-lived asset impairment test which resulted in an impairment charge of $464.2 million during the year ended December 31, 2020, to write down certain ships operated by our Global Brands to their estimated fair values.

The amount also includes impairment charges for ships that our Global Brands disposed of during 2020 as well as the three Azamara ships.

We also recorded impairment charges of $171.3 million during the year ended December 31, 2020 for the three ships that we chartered to Pullmantur Holdings prior to the filing of the Pullmantur reorganization.

During the quarter ended September 30, 2020, we sold the ships to third parties for amounts approximating their carrying values and no further impairment was recorded.

During the year ended December 31, 2020, we also determined that certain construction in progress projects would be reduced in scope or would no longer be completed as a result of our capital cost containment measures in response to the COVID-19 impact on our liquidity.

This led to an impairment charge of $91.5 million of construction in progress assets reported in Property and equipment, net.

In addition, during the year ended December 31, 2020, we identified that the undiscounted cash flows for certain right-of-use assets were less than their carrying values due to the negative impact of COVID-19.

We evaluated these assets pursuant to our long-lived asset impairment test, resulting in an impairment charge of $65.9 million to write down these assets to their estimated fair values during the year ended December 31, 2020.

The combined impairment charge of $1.5 billion primarily related to our goodwill, trademarks and trade names, vessels, construction in progress, and right-of-use assets were recognized in earnings during the year ended December 31, 2020 and is reported within Impairment and credit losses within our consolidate d statements of comprehensive income (loss).

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

The adverse impact that COVID-19 will continue to have on our business, operating results, cash flows and overall financial condition is uncertain and may result in changes to the assumptions used in the impairment tests discussed above, which may result in additional impairments of our goodwill, indefinite-lived intangible assets and long-lived assets in the future.

Refer to Risk Factors in Part 1, Item 1A.

for further discussion on risks related to the COVID-19 pandemic.

Derivative Instruments

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Summary of Significant Accounting Policies and Note 19 .

Fair Value Measurements and Derivative Instruments to our consolidated financial statements under Item 8.

Commitments and Contingencies to our consolidated financial statements under Item 8.

Financial Statements and Supplementary Data for more information on related authoritative guidance, the Company's hedging programs and derivative financial instruments.

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We believe it is unlikely that materially different estimates for the fair value of our foreign currency forward contracts and interest rate and fuel swaps and options would be derived from other appropriate valuation models using similar assumptions, inputs or conditions suggested by actual historical experience.

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The current suspension of our cruise operations due to the COVID-19 pandemic and our 2020 and expected 2021 ship disposals resulted in reductions to our forecasted fuel purchases.

As of December 31, 2020, we discontinued cash flow hedge accounting on 0.6 million metric tons of our fuel swap agreements maturing in 2020 and 2021, which resulted in the reclassification of a net $104.4 million loss from Accumulated other comprehensive loss to Other expense during the year ended December 31, 2020.

Changes in the fair value of fuel swaps for which cash flow hedge accounting was discontinued are currently recognized in Other expense each reporting period.

Future s uspension of our operations or modifications to our itineraries may affect our expected forecasted fuel purchases which could result in further discontinuance of fuel swap cash flow hedge accounting and the reclassification of deferred gains or losses from Accumulated other comprehensive loss into earnings .

Refer to Risk Factors in Part 1, Item 1A.

for further discussion on risks related to the COVID-19 pandemic.

Contingencies—Litigation

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• Onboard and other revenues , which consist primarily of revenues from the sale of goods and/or services onboard our ships not included in passenger ticket prices, cancellation fees, sales of vacation protection insurance, pre- and post-cruise tours and fees for operating certain port facilities.

Onboard and other revenues also include revenues we receive from independent third party concessionaires that pay us a percentage of their revenues in exchange for the right to provide selected goods and/or services onboard our ships, as well as revenues received for our bareboat charter, procurement and management related services we perform on behalf of our unconsolidated affiliates.

bareboat charter, procurement and management related services we perform on behalf of our unconsolidated affiliates.

Cruise Operating Expenses

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• Fuel expenses , which include fuel and related delivery, storage and emission consumable costs and the financial impact of fuel swap agreements;

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• Other operating expenses , which consist primarily of operating costs such as repairs and maintenance, port costs that do not vary with passenger head counts, vessel related insurance, entertainment and gains and/or losses related to the sale of our ships, if any.

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The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Program refers to the multi-year program designed to communicate and motivate employees to work towards company specific goals.

The program includes five goals by 2025:

delivering $20.00 adjusted earnings per share;

further reducing the company’s carbon footprint by 25% against a 2019 base;

delivering strong returns on invested capital;

and continuing to improve on record guest satisfaction and employee engagement metrics.

These goals have been put in place to focus our leadership on achieving outsized improvements in our performance going forward and are purposely aspirational.

The strategies that we will employ to achieve the goals of the program are consistent with our ongoing operating strategies as listed in the Operating Strategies section.

During the six-year time horizon of this program, there are many factors that will impact our ability to achieve these ambitious goals.

In particular, our goal of reducing our carbon footprint by 25% will be challenging and will depend on our ability to take aggressive steps including the use of new technologies that have not yet been developed or proven.

Adjusted Earnings per Share ("Adjusted EPS") represents Adjusted Net Income attributable to Royal Caribbean Cruises Ltd.

Adjusted (Loss) Earnings per Share ("Adjusted EPS") represents Adjusted Net (Loss) Income attributable to Royal Caribbean Cruises Ltd.

divided by weighted average shares outstanding or by diluted weighted average shares outstanding, as applicable.

We believe that this non-GAAP measure is meaningful when assessing our performance on a comparative basis.

Adjusted Net Income represents net 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) costs, net of insurance recoveries, related to the Grand Bahama drydock structure incident involving Oasis of the Seas ;

(ii) our equity share of the write-off of the Grand Bahama drydock and other incidental expenses by Grand Bahama;

(iii) the noncontrolling interest adjustment to exclude the impact of the contractual accretion requirements associated with the put option held by Heritage Cruise Holding Ltd.'s (previously known as Silversea Cruises Group Ltd.) noncontrolling interest;

(iv) the change in fair value in the contingent consideration related to the Silversea Cruises acquisition;

(v) a loss on the early extinguishment of debt related to the repayment of certain loans;

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

(vii) integration costs related to the Silversea Cruises acquisition;

(viii) transaction costs related to the Silversea Cruises acquisition;

(ix) restructuring charges incurred in relation to the reorganization of our international sales and marketing structure and other initiatives;

(x) the impairment loss and other costs related to the exit of our tour operations business;

(xi) the impairment loss related to Skysea Holding;

and (xii) the impact of the change in accounting principle related to the recognition of stock-based compensation expense from the graded attribution method to the straight-line attribution method for time-based stock awards.

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

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

(ii) equity investment impairment charges recorded in the first quarter of 2020 as a result of the impact of COVID-19;

(iii) currency translation losses recognized in connection with the ships that were previously chartered to Pullmantur;

(iv) the estimated cash refund expected to be paid to Pullmantur guests and other expenses incurred as part of the Pullmantur S.A.

reorganization;

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

workforce and other initiatives expenses in 2020 and the reorganization of our international sales and marketing structure primarily in 2019;

(vi) the amortization of non-cash debt discount on our convertible notes;

(vii) loss on the extinguishment of debt;

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

(ix) the noncontrolling interest adjustment to exclude the impact of the contractual accretion requirements associated with the put option held by Heritage Cruise Holding Ltd.

("Heritage"), prior to the July 2020 noncontrolling interest purchase;

(x) the change in fair value in the Silversea Cruises contingent consideration;

(xi) net insurance recoveries or costs related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas;

(xii) transaction costs related to the 2018 Silversea Cruises acquisition;

(xiii) the impairment loss and other costs related to the exit of our tour operations business;

(xiv) the impairment loss related to Skysea Holding;

and (xv) the impact of the change in accounting principle related to the recognition of stock-based compensation expense from the graded attribution method to the straight-line attribution method for time-based stock awards.

Available Passenger Cruise Days (" APCD ") is our measurement of capacity and represents double occupancy per cabin multiplied by the number of cruise days for the period, which excludes canceled cruise days and drydock days.

We use this measure to perform capacity and rate analysis to identify our main non-capacity drivers that cause our cruise revenue and expenses to vary.

Gross Cruise Costs represent the sum of total cruise operating expenses plus marketing, selling and administrative expenses.

For the periods presented, Gross Cruise Costs exclude (i) restructuring charges incurred

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in relation to the reorganization of our international sales and marketing structure and other initiatives;

(ii) transaction costs related to the Silversea Cruises acquisition;

(iii) integration costs related to the Silversea Cruises acquisition;

(iv) the impairment loss and other costs related to the exit of our tour operations business;

and (v) the impact of the change in accounting principle related to the recognition of stock-based compensation expense from the graded attribution method to the straight-line attribution method for time-based stock awards, which were included within Marketing, selling and administrative expenses .

Gross Yields represent total revenues per APCD.

Net Cruise Costs and Net Cruise Costs Excluding Fuel represent Gross Cruise Costs excluding commissions, transportation and other expenses and onboard and other expenses and, in the case of Net Cruise Costs Excluding Fuel, fuel expenses (each of which is described above under the Description of Certain Line Items heading).

In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Costs and Net Cruise Costs Excluding Fuel to be the most relevant indicators of our performance.

A reconciliation of historical Gross Cruise Costs to Net Cruise Costs and Net Cruise Costs Excluding Fuel is provided below under Results of Operations.

Net Cruise Costs and Net Cruise Costs Excluding Fuel exclude the costs, net of insurance recoveries, related to the Grand Bahama drydock structure incident involving Oasis of the Seas .

Net Revenues represent total revenues less commissions, transportation and other expenses and onboard and other expenses (each of which is described above under the Description of Certain Line Items heading).

Net Yields represent Net Revenues per APCD.

We utilize Net Revenues and Net Yields to manage our business on a day-to-day basis as we believe that they are the most relevant measures of our pricing performance because they reflect the cruise revenues earned by us net of our most significant variable costs, which are commissions, transportation and other expenses and onboard and other expenses.

A reconciliation of historical Gross Yields to Net Yields is provided below under Results of Operations .

measure to perform capacity and rate analysis to identify our main non-capacity drivers that cause our cruise revenue and expenses to vary.

Occupancy , in accordance with cruise vacation industry practice, is calculated by dividing Passenger Cruise Days by APCD.

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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.

We believe Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel are our most relevant non-GAAP financial measures.

However, a significant portion of our revenue and expenses are denominated in currencies other than the United States dollar.

Because our reporting currency is the United States dollar, the value of these revenues and expenses can be affected by changes in currency exchange rates.

Although such changes in local currency prices are just one of many elements impacting our revenues and expenses, they can be an important element.

For this reason, we also monitor Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel as if the current period's currency exchange rates had remained constant with the comparable prior period's rates, or on a "Constant Currency" basis.

It should be emphasized that Constant Currency is primarily used for comparing short-term changes and/or projections.

Changes in guest sourcing and shifting the amount of purchases between currencies can change the impact of the purely currency-based fluctuations.

The use of certain significant non-GAAP measures, such as Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel, allows us to perform capacity and rate analysis to separate the impact of known capacity changes from other less predictable changes which affect our business.

We believe these non-GAAP measures provide expanded insight to measure revenue and cost performance in addition to the standard GAAP based financial measures.

There are no specific rules or regulations for determining non-GAAP and Constant Currency measures, and as such, they may not be comparable to other companies within the industry.

We have not provided a quantitative reconciliation of (i) projected Total revenues to projected Net Revenues, (ii) projected Gross Yields to projected Net Yields, (iii) projected Gross Cruise Costs to projected Net Cruise Costs and projected Net Cruise Costs Excluding Fuel and (iv) projected Net Income attributable to Royal Caribbean Cruises Ltd.

and Earnings per Share to projected Adjusted Net Income and Adjusted Earnings per Share because preparation of meaningful GAAP projections of Total revenues, Gross Yields, Gross Cruise Costs, Net Income attributable to Royal Caribbean Cruises Ltd.

and Earnings per Share would require unreasonable effort.

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significant uncertainty, we are unable to predict, without unreasonable effort, the future movement of foreign exchange rates, fuel prices and interest rates inclusive of our related hedging programs.

In addition, we are unable to determine the future impact of restructuring expenses or other non-core business related gains and losses which may result from strategic initiatives.

These items are uncertain and could be material to our results of operations in accordance with GAAP.

Due to this uncertainty, we do not believe that reconciling information for such projected figures would be meaningful.

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Although discussed in prior periods, we did not report nor reconcile our Gross Yields, Net Revenues, Net Yields, Gross Cruise Costs, Net Cruise Costs and Net Cruise Costs Excluding Fuel, as defined in our Annual Report on Form 10-K for twelve months ended December 31, 2019.

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

However, our 2020 reduction in capacity and revenues and the shift in the nature of our running costs due to the suspension of our operations as a result of the COVID-19 pandemic ("COVID-19") do not allow for a meaningful comparison to the prior period metrics and as such these metrics have been excluded from this report.

Recent Developments:

The disruptions to our operations resulting from COVID-19 have had, and continue to have, a material negative impact on our financial condition and results of operations.

The outbreak of COVID-19 has resulted in an unprecedented global response to contain the spread of the disease.

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

As part of the global containment effort, we previously announced a voluntary suspension of our Global Brands’ cruise operations beginning March 13, 2020, which has been extended through at least April 30, 2021, for most of our cruise operations.

We continue to work with government and health authorities across the globe to address the unique public health challenges posed by COVID-19 and expect to re-start our global cruise operation in a phased manner.

Notably, we resumed limited cruise operations outside of the U.S.

in July and September with TUI Cruises and Hapag-Lloyd, respectively, for a limited period.

Recently, we also received approval from the Singaporean Government to resume sailings out of Singapore.

As a result, Quantum of the Seas , a ship from the Royal Caribbean International fleet, resumed cruising from Singapore in December 2020.

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

CDC Framework for Conditional Sailing Order

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

Centers for Disease Control and Prevention ("CDC") issued a Framework for Conditional Sailing Order (the “Conditional Order”) that will conditionally permit cruise ship passenger operations in U.S.

waters under certain conditions and using a phased approach.

The Conditional Order replaces the CDC’s No Sail Order that expired on October 31, 2020 and will remain in effect until the earlier of (1) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, (2) the rescission or modification by the CDC Director of the Conditional Order based on specific public health or other considerations, or (3) November 1, 2021.

Business - Regulation for further details on the Conditional Order.

We are working with both the CDC and the Healthy Sail Panel ("HSP"), formed in June 2020 by us and Norwegian Cruise Line Holdings Ltd.

and composed of leading experts in relevant fields, including epidemiology, infectious diseases, public policy and regulation, engineering and general health safety, to prepare and develop our plan to meet the framework for the Conditional Order.

While the Conditional Order represents an important step in our return to service, many uncertainties remain as to the specifics, timing and costs of administering and implementing the requirements of the Conditional Order, some of which may be significant.

Further, the Conditional Order contemplates that the CDC may issue additional requirements through technical instructions or orders as needed and that the phases described above will be further determined based on public health considerations, including the trajectory of the pandemic and the ability of cruise ship operators to successfully employ measures that mitigate the risk of COVID-19.

Based on our assessment of these conditions or for other reasons, we may determine it necessary to further extend our voluntary suspension of our Global Brands’ cruise sailings which currently extends through at least April 30, 2021, for most of our cruise operations.

Update on Bookings

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

Pricing on these bookings is higher than 2019 both including and excluding the dilutive impact of future cruise credits (FCCs).

While the brands are still in the process of opening for sale the remainder of their 2022/2023 seasons, first and second quarter 2022 sailings have been open for some time.

Cumulative advance bookings for the first half of 2022 are within historical ranges and at higher prices.

This was achieved with minimal sales and marketing spend, which we believe highlights a strong long-term demand for cruising.

Since our last quarterly filing, approximately 75% of bookings made for 2021 are new and the rest are due to the redemption of FCCs and our “Lift & Shift” program.

We continue to provide guests who were booked on a suspended sailing with the option to request a refund, to receive an FCC, or to “lift and shift” their booking to the following year.

As of December 31, 2020, we had $1.8 billion in customer deposits of which approximately 50% are FCCs and the rest are related to new bookings.

Approximately 53% of the guests booked on cancelled sailings since our suspension of operations have requested cash refunds.

Update on Recent Liquidity Actions and Ongoing Uses of Cash

As of December 31, 2020, we had liquidity of approximately $4.4 billion in the form of cash and cash equivalents of $3.7 billion and a $0.7 billion one-year commitment through August 12, 2021, for a 364-day term loan facility .

As of December 31, 2020, our revolving credit facilities were fully utilized through a combination of amounts drawn and letters of credit issued under the facilities.

Given the current environment, we continue to prioritize and bolster liquidity through significant cost and capital expenditure reductions, cash conservation and additional financing sources, as described below, to ensure that we are well positioned for recovery .

Reduced Operating Expenses

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

In particular, we:

• significantly reduced ship operating expenses, including crew payroll, food, fuel, insurance and port charges;

• further reduced operating expenses as the Company’s ships transitioned during the year into various levels of layup;

• eliminated or significantly reduced marketing and selling expenses in 2020;

• reduced and furloughed our workforce, with approximately 23% of our US shoreside employee base being impacted;

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

We may seek to further reduce our average monthly expenses under a further prolonged non-revenue scenario and during the restart of operations.

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

Reduced Capital Expenditures

Since the start of February 2020, we have identified approximately $4.2 billion of total capital expenditure reductions or deferrals in 2020 and 2021.

The reductions or deferrals of capital expenditures are comprised of the following:

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

• $2.8 billion in reduced spend or deferred installment payments for newbuild related payments which we are currently finalizing.

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

During 2021, the Company expects the delivery of Odyssey of the Seas and Silver Dawn during the first and fourth quarters, respectively.

As it relates to 2022, the Company has two ship deliveries scheduled:

Wonder of the Seas and Celebrity Beyond .

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

Debt Maturities, New Financings and Other Liquidity Actions

Since the start of February 2020, we have taken several additional actions to further improve our liquidity position and manage cash flow.

In particular, we:

• increased the capacity under our unsecured revolving credit facilities by $0.6 billion, and fully drew on both facilities;

• entered into a $2.35 billion 364-day senior secured loan agreement in March of 2020, which was repaid in May of 2020 with proceeds from the $3.32 billion senior secured notes ("Secured Notes") discussed below;

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

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

The Secured Notes are unconditionally guaranteed by Celebrity Cruises Holdings Inc., Celebrity Cruises Inc.

and certain of our wholly-owned vessel-owning subsidiaries.

$1.66 billion of the obligations under the Secured Notes and the related guarantees are secured by first priority security interests in collateral, which includes certain of our material intellectual property, a pledge of 100% of the equity interests of certain of our vessel-owning subsidiaries and mortgages on the 28 vessels owned by such subsidiaries;

• secured deferrals of existing debt amortization under our export-credit backed debt facilities which increased the Company’s liquidity by an additional $1.5 billion;

• issued $1.0 billion senior guaranteed notes (“Unsecured Notes”) maturing 2023;

• issued $1.725 billion senior convertible notes maturing 2023;

• qualified for a government commercial paper program by the Bank of England and issued £300.0 million, or approximately $409.9 million, of unsecured commercial paper thereunder;

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

• issued approximately 22.6 million shares of common stock for approximately $1.6 billion;

• agreed with certain of our lenders that we will not pay dividends or engage in stock repurchases until at least the end of the third quarter of 2022.

Expected debt maturities for 2021 are $0.4 billion, assuming completion of a remaining $0.4 billion in ship principal amortization deferrals.

We estimate our cash burn to be, on average, in the range of approximately $250 million to $290 million per month during a prolonged suspension of operations.

This range includes all interest expenses, ongoing ship operating expenses, administrative expenses, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes changes in customer deposits, commissions, principal repayments, and fees and collateral postings related to financing and hedging activities.

As we return our fleet into service, we have incurred, as it relates to existing operations, and will incur incremental spend as we bring the ships out of their various levels of layup, return the crew to our vessels, take the necessary steps to ensure compliance with the recommended protocols and gear up our sales and marketing activities.

We continue to identify and evaluate further actions to enhance our liquidity and support our recovery.

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

Both our non-export credit agency facilities and our export credit agency (“ECA”) facilities contain covenants that require us, among other things, to maintain a fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital ratio to no more than 62.5%, and under certain facilities, to maintain minimum shareholders’ equity.

During the course of 2020, we amended our export credit facilities, substantially all of our non-export credit facilities totaling an outstanding amount of $11.2 billion as of December 31, 2020, and our credit card processing agreements in order to waive the applicable financial covenants through and including the fourth quarter of 2021.

The remainder of our credit facilities with financial covenants (totaling $130 million as of December 31, 2020) benefit from a financial covenant waiver through and including the first quarter of 2021.

Certain of these amended agreements impose a monthly-tested liquidity covenant.

As of December 31, 2020, the minimum liquidity requirement was $350.0 million.

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

During the first quarter of 2021, we amended $4.9 billion of our non-export credit facilities and certain of our credit card processing agreements to extend the waiver of the financial covenants through and including the third quarter of 2022 or, if earlier, that date falling after January 1, 2022 on which we elect to comply with the modified covenants.

In addition, pursuant to the amendments, we have modified the manner in which such covenants are calculated (temporarily in certain cases and permanently in others) as well as the levels at which our net debt to capitalization covenant will be tested during the period commencing immediately following the end of the waiver period and continuing through the end of 2023.

The amendments also increase the monthly-tested minimum liquidity covenant to $500 million for the duration of the waiver period (subject to reduction to $350 million, if we raise at least $500 million of additional capital).

Pursuant to these amendments, the restrictions on paying cash dividends and effectuating share repurchases were extended through and including the third quarter of 2022.

As of December 31, 2020, we were in compliance with the applicable minimum liquidity covenant and we estimate that we will be in compliance for at least the next twelve months.

Refer to Note 9.

Debt for further information regarding our debt covenants.

During the first quarter of 2021, we also amended $6.2 billion of our export credit facilities to extend the waiver of the financial covenants through and including at least the end of the third quarter of 2022.

These amendments also allow for the deferral of up to $1.1 billion of principal payments due between April 2021 and April 2022 subject to the satisfaction of various conditions precedent.

As of February 19, 2021, the conditions precedent have been satisfied for 13 of the 15 amended facilities, which will allow us to defer $0.8 billion of amortization payments due during this period.

There can be no assurances that the conditions precedent will be met for the remaining two facilities.

The deferred amounts will be repayable semi-annually over a

five-year period starting in April 2022.

Pursuant to these amendments, we have agreed to implement the same liquidity covenant that applies in our non-export credit facilities.

The amendments also provide for mandatory prepayment of the deferred amounts upon the taking of certain actions.

Subject to a number of carve-outs, these include, but are not limited to, issuance of dividends, completion of share repurchases, issuances of debt other than for crisis and recovery purposes, the making of loans and the sale of assets other than at arm’s length.

In addition, in the fourth quarter of 2020 and the first quarter of 2021, we entered into amendments to our drawn and undrawn ECA facilities to provide for the issuance of guarantees in satisfaction of existing obligations under these facilities.

Following issuance, which in the case of the undrawn facilities, will occur once the debt is drawn, the guarantees will be released under certain circumstances as other debt is repaid or refinanced on an unsecured and unguaranteed basis.

In connection with and following the issuance of the guarantees, the guarantor subsidiaries are restricted from issuing additional guarantees in favor of lenders, other than those lenders who are party to the ECA facilities, and certain of the guarantor subsidiaries are restricted from incurring additional debt.

In addition, the ECA facilities will benefit from guarantees to be issued by intermediary parent companies of subsidiaries that take delivery of any new vessels subject to export-credit backed financing.

Executive Overview

By all accounts, 2019 was another year of very strong performance.

We introduced three new vessels - Spectrum of the Seas, Celebrity Flora, and TUI Cruise s Mein Schiff 2 , launched a very successful Perfect Day destination at Coco Cay, modernized six ships and implemented Excalibur, our digital transformation platform, on most of the fleet.

In addition, we continued to find efficiencies, implement synergies and reduce costs, while at the same time, remained focused on strategic investments in areas that will boost revenue.

Our 2019 net income was $1.9 billion, or $8.95 per diluted share, compared to $1.8 billion, or $8.56 per diluted share, in 2018.

Adjusted Net Income for 2019 was $2.0 billion, or $9.54 per diluted share, compared to $1.9 billion, or $8.86 per diluted share, in 2018.

Adjusted EPS for 2019, on a diluted basis, represents an 8% increase in earnings compared to 2018.

We were able to achieve these results despite the dry-dock incident in the Grand Bahama shipyard, the cancellation of cruises to Cuba beginning in June of this year and an unusual hurricane season, all of which negatively impacted the company’s adjusted earnings per share for the year by approximately $0.80.

Total revenues increased $1.5 billion in 2019 to $11.0 billion, compared to $9.5 billion in 2018, primarily driven by increases in both ticket and onboard yields.

During 2019, our Gross Yields and Net Yields increased by 8.0%, on a Constant-Currency basis, marking the tenth consecutive year of revenue growth.

The addition of new vessels to the fleet, the consolidation of Silversea Cruises, Perfect Day at CocoCay and our Miami terminal operation also contributed to our year-over-year revenue growth.

Onboard revenue and Net onboard revenue growth came from a variety of revenue enhancing initiatives, including beverage package sales and promotions, gaming initiatives and new strategies and promotions on our shore excursions, specialty restaurants and Internet services.

Cruise operating expenses increased $801.0 million in 2019 to $6.1 billion from $5.3 billion in 2018.

Adjusting for capacity, our Gross Cruise Costs and Net Cruise Costs Excluding Fuel increased by 8.7% and 11.4%, respectively, on a Constant Currency basis compared to 2018 driven primarily by the consolidation of Silversea Cruises, our new operations of Perfect Day at CocoCay and our terminal operation in Miami.

The Company remains focused on improving returns for our shareholders.

In 2019, we bought back $100.0 million in shares of common stock and have $600.0 million remaining under our $1.0 billion share repurchase program that was announced in May 2018.

Consistent with our earnings growth, we also announced a 11% increase to our common stock dividend, our seventh consecutive year with a dividend increase.

Perfect Day at CocoCay is the first of our Perfect Day Island Collection of next-level private destinations.

The island debuted a combination of first-of-their-kind thrills and one-of-a-kind ways to chill that significantly change what is possible in a vacation destination.

The island features the tallest waterslide in North America, the Up and Away helium balloon, and the Caribbean’s largest wave pool.

The year 2020 has started off challenging as we address the impact of the recent coronavirus outbreak on our operations.

Prior to the outbreak, our sailings in China were trending particularly well both in terms of rate and volume.

Our itineraries in China were expected to represent 6% and 4% of our full year and first quarter 2020 capacity, respectively.

The travel restrictions and other measures taken by China and other countries to contain the disease have resulted in the cancellation of an increasing number of our cruises in the region.

We have also implemented several measures restricting the boarding of certain at-risk guests and crew on our ships.

These and other concerns and restrictions relating to the coronavirus outbreak are having an impact on the demand for cruises and causing travel restrictions, guest cancellations, an unavailability of ports and/or destinations, ship redeployments and an inability to source our crew, provisions or supplies from certain places.

All of these issues are having and are likely to continue to have a material impact on our bookings, operations and our overall financial performance.

However, given the fluidity and uncertainty of this situation, we are unable to predict the full financial impact that this incident will have on our operations and financial condition, including what our yields and earnings for 2020 will be (see Outlook ).

In 2020, we expect our capacity to increase 4.8% year-over-year as we add Odyssey of the Seas and Celebrity Apex as well as two Silversea vessels, Silver Origin and Silver Moon , to the fleet.

We’ve slightly

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increased our capacity in the Caribbean to over 50% of our total capacity in 2020, driven by the inaugural winter seasons of Odyssey of the Seas and Celebrity Apex .

Our European itineraries will account for 17% of our 2020 capacity with the year-over-year increase driven by the timing of drydocks and the addition of Celebrity Apex and Silver Moon .

Excluding the impact of the recent coronavirus outbreak, we expect another year of total revenue and net yield growth driven by our new ships, strong demand for our core products and continued growth from our onboard revenue areas.

In addition, we recently announced our program which presents specific goals to be achieved by 2025:

delivering $20.00 adjusted earnings per share;

further reducing the company’s carbon footprint by 25%;

delivering strong returns on invested capital;

and continuing to improve on record guest satisfaction and employee engagement metrics.

Our management team is goal motivated and our aim, through this program, is to establish clear, simple, and ambitious targets that will motivate our people and drive superior results.

Adopting these clear and simple goals will help guide our everyday decision-making to focus on People, Profits and Planet.

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During 2020, the world was heavily impacted by the COVID-19 pandemic.

As part of the containment effort resulting from the global pandemic, we implemented a voluntary suspension of our cruise operation beginning March 13, 2020, which has been extended through at least April 30, 2021, for most of our cruise operations.

As a result, we cancelled almost 2,000 sailings that were originally scheduled to sail in 2020.

Throughout the COVID-19 pandemic, our focus has been on the safety and well-being of our guests and crew, the care of our fleet, and the strength of our liquidity position.

We repatriated 46,998 crew members, moved our whole fleet into various level of lay-up and formed an expert panel with Norwegian Cruise Line Holdings, called the Healthy Sail Panel ("HSP"), to develop a comprehensive set of enhanced health and safety protocols.

Based on the detailed scientific recommendations of the HSP we were able to successfully resume operations in Singapore, with Quantum of the Seas , and in Europe with TUI Cruises and Hapag-Lloyd.

Since the suspension of our global cruise operation, we have taken aggressive actions to enhance our liquidity, preserve cash and obtain additional financing.

During 2020, we raised approximately $9.3 billion of new capital through a combination of bond issuances, common stock public offerings and other loan facilities.

We also reduced our steady-state monthly cruise operating expenses by approximately 80% and reduced the 2020 capital expenditures by $3.0 billion.

In addition, in the second quarter of 2020 and the first quarter of 2021, we amended our export credit facilities to allow for the deferral of $1.5 billion of principal amortization through April 2022.

We also amended over $11 billion of commercial bank and export credit facilities to provide covenant waivers through at least the third quarter of 2022.

Given the current environment, we continue to prioritize and bolster our liquidity, working to ensure we are well positioned for recovery.

Our average cash burn rate continues to be within the range of $250 million - $290 million per month during this prolonged suspension of operations, despite increased interest expenses from additional financing.

During the year ended December 31, 2020, we executed several measures to structurally reduce our cost base, realign our capital allocation and improve our scale and margins.

Besides working on reducing our G&A expenses and streamlining our procurement efforts, we successfully divested three of our oldest and less efficient ships, Empress of the Seas , Majesty of the Seas and Celebrity Xperience and are assisting in the reorganization in Spanish courts of Pullmantur Cruceros.

We also acquired the remaining share of Silversea without impacting our liquidity and expanded our joint-venture with TUI Cruises to include Hapag-Lloyd Cruises.

Despite disruptions in shipyard operations, we successfully took delivery of three new ships – Celebrity Apex , Silver Moon and Silver Origin .

Moreover, in January 2021, we entered into a definitive agreement to sell our Azamara brand to Sycamore Partners in an all-cash transaction which is expected to close in the first quarter of 2021.

The deal includes Azamara’s three-ship fleet and associated intellectual property.

By reshaping our fleet’s efficiency and the corporations’ cost structure we are aligning our company to better support our operating leverage and earnings growth during our recovery.

As the pandemic persists, we will continue to search for further opportunities in our operations.

As important, we are also focusing on our healthy return-to-service program, as well as returning to financial health.

We continue to work and collaborate with the HSP, epidemiological and policy experts, health authorities and various governments around the globe to ensure a healthy and safe return to cruising for guests, crew and the communities we visit.

Regarding the resumption of operations out of the U.S., we continue to prepare and develop our plan to meet the Framework for Conditional Sailing Order issued by the U.S.

Centers for Disease Control and Prevention (CDC).

Overall, and due to the challenges posed by the pandemic, we expect to re-start our global cruise operation in a phased manner with reduced guest occupancy, modified itineraries and enhanced health and safety protocols.

Results of Operations

For reporting purposes, we include Silversea Cruises’ results of operations on a three-month reporting lag from October 1, 2018 through September 30, 2019 in our consolidated results of operations for the year ended December 31, 2019 and from the date of acquisition through September 30, 2018 in our consolidated results of operations for the year ended December 31, 2018.

Refer to Note 1.

General and Note 3.

Business Combinations to our consolidated financial statements under Item 8.

Financial Statements and Supplementary Data for further information on the three-month reporting lag and the Silversea Cruises acquisition.

In addition to the items discussed above under "Executive Overview," significant items for 2020 include:

• Our Net Income attributable to Royal Caribbean Cruises Ltd.

and Adjusted Net Income for the year ended December 31, 2019 was $1.9 billion and $2.0 billion, or $8.95 and $9.54 per share on a diluted basis, respectively, as compared to Net Income attributable to Royal Caribbean Cruises Ltd.

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

and Adjusted Net (Loss) Income for the year ended December 31, 2020 was $(5.8) billion and $(3.9) billion, or $(27.05) and $(18.31) per share on a diluted basis, respectively, as compared to Net Income attributable to Royal Caribbean Cruises Ltd.

and Adjusted Net Income of $1.9 billion and $2.0 billion, or $8.95 and $9.54 per share on a diluted basis, respectively, for the year ended December 31, 2019.

• Total revenues, excluding the effect of changes in foreign currency rates, increased by $1.6 billion for the year ended December 31, 2019 compared to the same period in 2018 primarily due to an increase in capacity and an increase in ticket prices and onboard spending on a per passenger basis, which are further discussed below.

• Total revenues, excluding the effect of changes in foreign currency rates, decreased by $8.7 billion for the year ended December 31, 2020 compared to the same period in 2019 reflecting the volume impact of our cancelled sailings during 2020 as a result of the COVID-19 pandemic.

• The effect of changes in foreign currency exchange rates related to our passenger ticket and onboard and other revenue transactions, denominated in currencies other than the United States dollar, resulted in a decrease in total revenues of $22.0 million for the year ended December 31, 2020 compared to the same period in 2019.

• Total cruise operating expenses, excluding the effect of changes in foreign currency rate, increased by $837.5 million for the year ended December 31, 2019 compared to the same period in 2018, primarily due to an increase in capacity, which is further discussed below.

• Total cruise operating expenses, excluding the effect of changes in foreign currency rate, decreased by $3.3 billion for the year ended December 31, 2020 compared to the same period in 2019 due to our cancelled sailings in 2020.

• The effect of changes in foreign currency exchange rates related to our cruise operating expenses, denominated in currencies other than the United States dollar, resulted in a decrease in total operating expenses of $11.2 million for the year ended December 31, 2020 compared to the same period in 2019.

• Effective June 5th, 2019, we stopped sailings to Cuba as the U.S government rescinded authorized travel to Cuba under the People-to-People program and prohibited travel to Cuba via cruise ships.

The estimated negative impact resulting from this regulatory change, primarily due to changes in itineraries, is approximately $0.29 per share on a diluted basis to our Net Income attributable to Royal Caribbean Cruises Ltd.

• The estimated negative impact resulting from the Grand Bahama drydock structure incident involving Oasis of the Seas , net of insurance recoveries and including our share of the write-off of the related drydock by Grand Bahama, is approximately $0.36 per share on a diluted basis to our Net Income attributable to Royal Caribbean Cruises Ltd.

• The estimated negative impact resulting from 2019 hurricane-related disruptions was approximately $0.15 per share on a diluted basis to our Net Income attributable to Royal Caribbean Cruises Ltd.

• In April 2019, we entered into and drew in full on an unsecured three-year term loan agreement in the amount of $1.0 billion.

Proceeds of this loan were used to repay the $700 million 364-day loan due July 2019 related to the acquisition of Silversea Cruises and the remaining balance of the unsecured term loan originally incurred in 2010 to purchase Allure of the Seas .

The repayment of these loans resulted in a total loss on the extinguishment of debt of $6.3 million, which was recognized within Other (expense) income within our consolidated statements of comprehensive income (loss).

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Other items for 2019 include:

• In February 2019, TUI Cruises, our 50% joint venture, took delivery of a new Mein Schiff 2 and the existing Mein Schiff 2 was renamed Mein Schiff Herz.

• During the second quarter of 2019, we took delivery of Spectrum of the Seas and Celebrity Flora .

To finance the purchases, we borrowed $908.0 million and €80.0 million, or approximately $89.8 million based on the exchange rate at December 31, 2019, respectively, under previously committed unsecured term loans.

Refer to Note 9.

Debt to our consolidated financial statements under Item 1.

Financial Statements for further information.

Additionally, Spectrum of the Seas and Celebrity Flora entered service in April 2019 and at the end of June 2019, respectively.

• In April 2019, we amended our $1.4 billion unsecured revolving credit facility due in 2020 to extend the termination date through April 2024, increase the facility size to $1.7 billion and reduce pricing.

Refer to Note 9.

Debt to our consolidated financial statements under Item 1.

Financial Statements for further information.

• In April 2019, Silversea Cruises entered into an agreement with Meyer Werft to build two ships of a new generation, known as the Evolution-class.

In September 2019, we entered into credit agreements for the unsecured financing of these ships for up to 80% of each ship's contract price.

Refer to Note 11.

Commitments and Contingencies to our consolidated financial statements under Item 1.

Financial Statements for further information.

• In May 2019, we amended our $1.15 billion unsecured revolving credit facility due in 2022 to reduce pricing to match pricing on our $1.7 billion unsecured revolving credit facility due in 2024.

• In June 2019, we entered into a $300 million unsecured term loan facility for the financing of Silversea Cruises' Silver Moon .

Refer to Note 9.

Debt to our consolidated financial statements under Item 1.

Financial Statements for further information.

• In June 2019, we entered into an agreement with Meyer Turku to build a third Icon-class ship.

In December 2019, we entered into a credit agreement for the unsecured financing for up to 80% of the ship's contract price.

• During the year ended December 31, 2020, as a result of the current and expected ongoing impact of the COVID-19 pandemic on our operations and cash flows, we recorded total impairment and credit losses of $1.6 billion.

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

• Our consolidated results of operations include Silversea Cruises’ results of operations on a three-month reporting lag from October 1, 2019 through September 30, 2020 for the twelve months ended December 31, 2020, from October 1, 2018 through September 30, 2019 in our consolidated results of operations for the year ended December 31, 2019 and from the date of acquisition of July 31, 2018 to September 30, 2018 in our consolidated results of operations for the year ended December 31, 2018.

Refer to Note 1 .

Commitments and Contingencies to our consolidated financial statements for further information.

• In December 2019, we entered into a credit agreement for the unsecured financing for up to 80% contract price for the sixth Oasis-class ship.

General to our consolidated financial statements under Item 1.

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

• During the year ended December 31, 2020, we executed and amended various financing arrangements, as summarized below.

Refer to Note 9 .

Commitments and Contingencies to our consolidated financial statements for further information.

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Debt and Note 12.

Shareholders' Equity , to our consolidated financial statements under Item 8.

Financial Statements and Supplemental Data for further information on the following underlying financing transactions:

• a $0.6 billion increase in the capacity available under our revolving credit facilities;

• additional liquidity of $6.8 billion through the issuance of new debt, including convertible debt, net of repayments, and the securing of a one-year $700 million commitment for a 364-day term loan facility;

• £300.0 million, or $409.9 million, based on exchange rates as of December 31, 2020, of available and issued liquidity under an unsecured government commercial paper program with the Bank of England;

• the deferral of $0.9 million of existing debt amortization under our export-credit backed ship debt facilities through April 2021, which will be paid over a period of four years after the deferral period;

• 22.6 million shares of common stock for approximately $1.6 billion.

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

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2020 2019 2018

Net Income attributable to Royal Caribbean Cruises Ltd.

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

$ (5,797,462) $ 1,878,887 $ 1,811,042

Adjusted Net Income attributable to Royal Caribbean Cruises Ltd.

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

(3,924,579) 2,002,847 1,873,363

Net Adjustments to Net Income attributable to Royal Caribbean Cruises Ltd.

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

- Increase $ 1,872,883 $ 123,960 $ 62,321

Adjustments to Net Income attributable to Royal Caribbean Cruises Ltd.:

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

Impairment and credit losses (1) $ 1,566,380 $ — $ —

Equity investment impairment (2) 39,735 — —

Recognition of deferred currency translation adjustment loss on sale of assets (3) 69,044 — —

Convertible debt amortization of debt discount (4) 46,546 — —

Pullmantur reorganization settlement (5) 21,637 — —

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

(1,938) 35,239 —

Loss on extinguishment of debt (7) 41,109 6,326 —

Change in the fair value of contingent consideration and amortization of Silversea Cruises intangible assets related to Silversea Cruises acquisition (8) (33,814) 30,675 2,046

30,675 2,046 —

Restructuring charges and other initiatives expense (9) 51,853 13,707 —

Transaction and integration costs related to the Silversea Cruises acquisition (8) — 2,048 31,759

2,048 31,759 —

Noncontrolling interest adjustment (10) 72,331 35,965 3,156

35,965 3,156 —

Impairment loss related to Skysea Holding (11) — — 23,343

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Impact of change in accounting principle (13) — — (9,238)

Net Adjustments to Net Income attributable to Royal Caribbean Cruises Ltd.

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

- Increase $ 1,872,883 $ 123,960 $ 62,321

Earnings per Share $ 8.97 $ 8.60 $ 7.57

Adjusted Earnings per Share $ 9.56 $ 8.90 $ 7.57

Earnings per Share $ 8.95 $ 8.56 $ 7.53

Adjusted Earnings per Share $ 9.54 $ 8.86 $ 7.53

(Loss) Earnings per Share $ (27.05) $ 8.97 $ 8.60

Adjusted (Loss) Earnings per Share $ (18.31) $ 9.56 $ 8.90

(Loss) Earnings per Share $ (27.05) $ 8.95 $ 8.56

Adjusted (Loss) Earnings per Share $ (18.31) $ 9.54 $ 8.86

Weighted-Average Shares Outstanding:

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Diluted 214,335 209,930 211,554

(1) Amount includes incidental costs, net of insurance recoveries of $14.5 million related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas , which were reported primarily within Other operating expenses in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2019;

and $20.7 million regarding the Grand Bahama incident involving one of its drydocks, included in our equity investment income within our consolidated statements of comprehensive income (loss) for the year ended December 31, 2019.

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

(2) Represents equity investment asset impairment, primarily for our investment in Grand Bahama Shipyard, recorded in the first quarter of 2020 as a result of the impact of COVID-19.

(3) Represents currency translation losses recognized in connection with the ships sold in 2020 that were previously chartered to Pullmantur.

Refer to Note 8 .

Other Assets to our consolidated financial statements under Item 1.

Financial Statements and Supplementary Data for further information.

(4) Represents the amortization of non-cash debt discount on our convertible notes.

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

reorganization.

(6) In 2020, amount includes net insurance recoveries related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas.

In 2019, amount includes incidental costs, net of insurance recoveries, of $14.5 million related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas , which were reported primarily within Other operating expenses in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2019;

and $20.7 million regarding the Grand Bahama incident involving one of its drydocks, included in Equity investment income within our consolidated statements of comprehensive income (loss) for the year ended December 31, 2019.

Refer to Note 8 .

Other Assets to our consolidated financial statements under Item 8.

Financial Statements and Supplementary Data for information.

(7) In 2020, represents the loss on the extinguishment of the $2.35 billion 364-day senior secured term loan.

In 2019, represents the loss on the extinguishment of the $700 million 364-day loan related to the 2018 Silversea Cruises acquisition and the remaining balance of the unsecured term loan originally incurred in 2010 to purchase Allure of the Seas.

(8) Related to the 2018 Silversea Cruises acquisition.

Refer to Note 1 .

Business Combination to our consolidated financial statements under Item 8.

General and Note 11 .

Redeemable Noncontrolling Interest to our consolidated financial statements under Item 8.

Financial Statements and Supplementary Data for information on the Silversea Cruises acquisition.

(3) Represents restructuring charges incurred in relation to the reorganization of our international sales and marketing structure and other initiatives expenses.

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

workforce and other initiatives expenses in 2020 and the reorganization of our international sales and marketing structure primarily in 2019.

Refer to Note 20 .

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Refer to Note 11 .

Noncontrolling Interest to our consolidated financial statements under Item 8.

Redeemable Noncontrolling Interest to our consolidated financial statements under Item 8.

Financial Statements and Supplementary Data for further information on noncontrolling interest.

(5) Refer to Note 8.

Other Assets to our consolidated financial statements under Item 8.

Financial Statements and Supplementary Data for information on the impairment loss related to Skysea Holding.

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(11) Represents an impairment loss related to Skysea Holding recorded in 2018.

(12) In 2014, we created a tour operations business that focused on developing, marketing and selling land based tours around the world through an e-commerce platform.

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As a result, we incurred exit costs, primarily consisting of fixed asset impairment charges and severance expense.

(7) In January 2018, we elected to change our accounting policy for recognizing stock-based compensation expense from the graded attribution method to the straight-line attribution method for time-based stock awards.

(13) In January 2018, we elected to change our accounting policy from the graded attribution method to the straight-line attribution method for time-based stock awards.

Refer to Note 2 .

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Depreciation and amortization expenses 57.9 % 11.4 % 10.9 %

Operating income 19.0 % 20.0 % 19.9 %

Impairment and credit losses 70.9 % — % — %

Operating (loss) income (208.3) % 19.0 % 20.0 %

Other income (expense):

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Interest expense, net of interest capitalized (38.2) % (3.7) % (3.5) %

Equity investment income 2.1 % 2.2 % 1.8 %

Equity investment (loss) income (9.7) % 2.1 % 2.2 %

Other (expense) income (6.2) % (0.2) % 0.1 %

(53.1) % (1.6) % (0.8) %

Net Income 17.4 % 19.1 % 18.5 %

Net (Loss) Income (261.5) % 17.4 % 19.1 %

Net Income attributable to noncontrolling interest 1.0 % 0.3 % 0.1 %

Net Income attributable to Royal Caribbean Cruises Ltd.

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

(262.5) % 17.2 % 19.1 %

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Year Ended December 31,

2020(1) 2019 (1) 2018 (1)

Passengers Carried 1,295,144 6,553,865 6,084,201

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(1) We acquired Silversea Cruises on July 31, 2018 and report their results on a three-month reporting lag.

As a result, 2019 figures include October 2018 through September 2019 Silversea Cruises amounts and 2018 figures include August and September 2018 Silversea Cruises amounts.

As a result, 2020 figures include October 2019 through September 2020 Silversea Cruises amounts, 2019 figures include October 2018 through September 2019 Silversea Cruises amounts and 2018 figures include August and September 2018 Silversea Cruises amounts.

Refer to Note 1.

General and Note 3.

Business Combination to our consolidated financial statements

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under Item 8.

Financial Statements and Supplementary Data for further information on the three-month reporting lag and the Silversea Cruises acquisition.

Gross Yields and Net Yields were calculated as follows (in thousands, except APCD and Yields:

Year Ended December 31,

basis 2018 2017

Passenger ticket revenues $ 7,857,057 $ 7,968,116 $ 6,792,716 $ 6,313,170

Onboard and other revenues 3,093,604 3,109,939 2,701,133 2,464,675

Total revenues 10,950,661 11,078,055 9,493,849 8,777,845

Commissions, transportation and other 1,656,297 1,675,941 1,433,739 1,363,170

Onboard and other 639,782 643,350 537,355 495,552

Net Revenues $ 8,654,582 $ 8,758,764 $ 7,522,755 $ 6,919,123

APCD 41,432,451 41,432,451 38,425,304 36,930,939

Gross Yields $ 264.30 $ 267.38 $ 247.07 $ 237.68

Net Yields $ 208.88 $ 211.40 $ 195.78 $ 187.35

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Gross Cruise Costs, Net Cruise Costs and Net Cruise Costs Excluding Fuel were calculated as follows (in thousands, except APCD and costs per APCD):

Year Ended December 31,

2019 2019 On a

basis 2018 2017

Total cruise operating expenses $ 6,062,765 $ 6,099,657 $ 5,262,207 $ 4,896,579

Marketing, selling and administrative expenses (1) (2)

1,543,498 1,555,703 1,269,368 1,186,016

Gross Cruise Costs 7,606,263 7,655,360 6,531,575 6,082,595

Commissions, transportation and other 1,656,297 1,675,941 1,433,739 1,363,170

Onboard and other 639,782 643,350 537,355 495,552

Net Cruise Costs Including Other Costs 5,310,184 5,336,069 4,560,481 4,223,873

Costs, net of insurance recoveries, related to the Oasis of the Seas incident included within cruise operating expenses

14,530 14,530 — —

Net Cruise Costs 5,295,654 5,321,539 4,560,481 4,223,873

Fuel 697,962 697,981 710,617 681,118

Net Cruise Costs Excluding Fuel $ 4,597,692 $ 4,623,558 $ 3,849,864 $ 3,542,755

APCD 41,432,451 41,432,451 38,425,304 36,930,939

Gross Cruise Costs per APCD $ 183.58 $ 184.77 $ 169.98 $ 164.70

Net Cruise Costs per APCD $ 127.81 $ 128.44 $ 118.68 $ 114.37

Net Cruise Costs Excluding Fuel per APCD $ 110.97 $ 111.59 $ 100.19 $ 95.93

___________________________________________________________________

(1) For the year ended December 31, 2019, the amount does not include integration costs related to the Silversea Cruises acquisition of $0.9 million, transaction costs related to the Silversea Cruises acquisition of $1.2 million and restructuring and other initiative costs of $13.7 million.

(2) For the year ended December 31, 2018, the amount does not include transaction costs related to the Silversea Cruises acquisition of $31.8 million, the impairment and other costs related to the exit of our tour operations business of $11.3 million and the impact of the change in accounting principle of $9.2 million related to the recognition of stock-based compensation expense.

Refer to Note 2.

Summary of Significant Accounting Policies to our consolidated financial statements under Item 8.

Financial Statements and Supplementary Data for further information on the change in an accounting principle.

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The widely reported coronavirus outbreak and efforts by China and other countries to move aggressively to contain the spread of the disease have adversely impacted our business, including a drop in demand for cruises, guest cancellations, travel restrictions, an unavailability of ports and/or destinations, cruise cancellations, ship redeployments and an inability to source our crew, provisions or supplies from certain places.

We have implemented several measures to protect guest and crew, including denying boarding to those that have travelled from, to or through mainland China or Hong Kong in the past 15 days and performing mandatory specialized health screenings on at-risk guest and crew.

These measures have caused us to cancel cruise bookings or restrict certain guests from booking our cruises.

We are assessing the developments constantly and will update our protective measures as needed.

As a result of these measures, we have now cancelled 30 sailings in Southeast Asia and modified several itineraries in the region which overall have an estimated impact of $0.90 per share to our 2020 financial performance.

If the company were to cancel all of its remaining sailings in Asia through the end of April, it would impact our 2020 financial performance by an additional $0.30.

There are still too many variables and uncertainties regarding the impact of this outbreak on our business in Asia and elsewhere to reasonably forecast the full impact on our business, including what our yields and earnings for 2020 will be.

These concerns and restrictions over the outbreak are impacting our bookings and are having, and are likely to continue to have, a material impact on our overall financial performance.

The company does not make predictions about fuel pricing, interest rates or currency exchange rates but does provide guidance about its future business activities.

On February 4, 2020, we announced the following initial full year and first quarter 2020 guidance based on the then current fuel pricing, interest rates and currency exchange rates.

Given the fluidity of the circumstances related to the recent coronavirus and the actions being taken to contain its spread, the following 2020 guidance does not include any financial impact related to the coronavirus outbreak:

Full Year 2020

As Reported Constant Currency

Net Yields 2.5% to 4.5% 2.25% to 4.25%

Net Cruise Costs per APCD 1.75% to 2.25% 1.75% to 2.25%

Net Cruise Costs per APCD, excluding Fuel 1.75% to 2.25% 1.75% to 2.25%

Capacity Change 4.8%

Depreciation and Amortization $1,376 to $1,392 million

Interest Expense, net $368 to $384 million

Fuel Consumption (metric tons) 1,534,300

Fuel Expenses $744 million

Percent Hedged (fwd consumption) 54%

10% change in Fuel Prices $37 million

1% Change in Currency $21 million

1% Change in Net Yields $91 million

1% Change in NCC x Fuel $48 million

100 basis pt.

Change in LIBOR $37 million

Adjusted Earnings per Share — Diluted $10.40 to $10.70

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First Quarter 2020

As Reported Constant Currency

Net Yields (0.5%) to (1.0%) Approx.

Net Cruise Costs per APCD Approx.

4.25% Approx.

Net Cruise Costs per APCD, excluding Fuel Approx.

Capacity Change 4.5%

Depreciation and Amortization $321 to $325 million

Interest Expense, net $85 to $89 million

Fuel Consumption (metric tons) 375,200

Fuel Expenses $191 million

Percent Hedged (fwd consumption) 62%

10% change in Fuel Prices $9 million

1% Change in Currency $4 million

1% Change in Net Yields $20 million

1% Change in NCC x Fuel $12 million

100 basis pt.

Change in LIBOR $7 million

Adjusted Earnings per Share — Diluted $0.80 to $0.85

Since our earnings release on February 4, 2020, fuel prices and foreign currency exchange rates have fluctuated and are likely to continue to do so.

Accordingly, except for the impact of the recent coronavirus outbreak, described above, fuel prices and foreign currency exchange rates, our forecast remains essentially unchanged.

Volatility in foreign currency exchange rates affects the United States dollar value of our earnings.

Based on our highest net exposure for each quarter and the full year 2020, the top five foreign currencies are ranked below.

For example, the Australian Dollar is the most impactful currency in the first and fourth quarters of 2020.

Rankings are based on estimated net exposures.

Ranking Q1 Q2 Q3 Q4 YTD 2020

1 AUD GBP GBP AUD GBP

2 CAD CAD CNH GBP AUD

3 GBP AUD EUR CAD CAD

4 BRL CNH CAD EUR CNH

5 MXN EUR AUD CNH EUR

The currency abbreviations above are defined as follows:

Currency Abbreviation Currency

AUD Australian Dollar

BRL Brazilian Real

CAD Canadian Dollar

CNH Chinese Yuan

GBP British Pound

MXN Mexican Peso

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Business Combination to our consolidated financial statements under Item 8.

Financial Statements and Supplementary Data for further 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.

The magnitude, duration and speed of COVID-19 and related disruptions remain uncertain.

As a consequence, the Company cannot reasonably estimate the impact of COVID-19 on its business, financial condition or near or longer-term financial or operational results.

The adverse impact of the COVID-19 pandemic on our revenues, consolidated results of operations, cash flows and financial condition has been and will continue to be material in 2021.

We expect to incur a net loss on both a US GAAP and adjusted basis for our first quarter of 2021, the extent of which will depend on many factors including the timing and extent of our return to service.

See Recent Developments:

COVID-19 – Update on Bookings for further indication of the booking environment for 2021 and 2022.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

In this section, references to 2020 refer to the year ended December 31, 2020 and references to 2019 refer to the year ended December 31, 2019.

Total revenues for 2019 increased $1.5 billion, or 15.3%, to $11.0 billion from $9.5 billion in 2018.

Total revenues for 2020 decreased $8.7 billion, or 79.8%, to $2.2 billion from $11.0 billion in 2019.

Passenger ticket revenues comprised 68.1% of our 2020 total revenues.

Passenger ticket revenues increased by $1.1 billion, or 15.7% from 2018.

The increase was primarily due to:

• an 7.8% increase in capacity, which increased Passenger ticket revenues by $565.0 million, primarily due to the additions of Spectrum of the Seas in the second quarter of 2019, Symphony of the Seas in the second quarter of 2018, Azamara Pursuit in the third quarter of 2018, Celebrity Edge in the fourth quarter of 2018 and the acquisition of Silversea Cruises in the second half of 2018, partially offset by a significant increase in dry dock days in 2019 compared to 2018 and the negative impact of canceled and modified sailings resulting from the dry-dock incident in the Grand Bahama shipyard and hurricane-related disruptions during 2019.

• an increase of $614.0 million in ticket prices primarily driven by the addition of Spectrum of the Seas, Symphony of the Seas, Azamara Pursuit , Celebrity Edge and the Silversea Cruises fleet, and the higher pricing on our Caribbean and Asia/Pacific sailings, net of the negative impact to our ticket price on a per passenger basis resulting from itinerary changes related to the travel restrictions to Cuba.

The increase in Passenger ticket revenues was partially offset by the unfavorable effect of changes in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $(111.1) million.

The remaining 28.3% of 2019 total revenues was comprised of Onboard and other revenues , which increased $392.5 million, or 14.5%.

The increase in Onboard and other revenues was primarily due to:

• a $118.4 million increase in onboard revenue attributable to higher spending on a per passenger basis primarily due to shore excursions, Perfect Day at CocoCay, specialty restaurants, internet services, beverage package sales and promotions, gaming initiatives and new programs and activities offered to our guests;

• a $193.6 million increase attributable to the 7.8% increase in capacity noted above, net of the negative impact of canceled and modified sailings resulting from the dry-dock incident in the Grand Bahama shipyard and hurricane-related disruptions in 2019;

• a $79.7 million increase in other revenues primarily due to revenue associated with our new cruise terminal at PortMiami and cancellation fees associated with non-refundable deposits and higher pricing.

Passenger ticket revenues decreased by $6.4 billion, or 80.9% from 2019.

The decrease was primarily due to a 79.4% decrease in capacity driven by our cancelled sailings resulting from the suspension of our global fleet operations since mid-March 2020 in response to the COVID-19 pandemic.

Passenger ticket revenues also decreased by $15.7 million due to the unfavorable effect of changes in foreign currency exchange rates related to our revenues in currencies other than the United States dollar.

The remaining 31.9% of 2020 total revenues was comprised of Onboard and other revenues , which decreased $2.4 billion, or 77.2%.

The decrease in Onboard and other revenues was primarily due to the 79.4% decrease in capacity noted above.

Additionally, Onboard and other revenues includes, to a much lesser extent, the unfavorable effect of changes in foreign currency exchange rates related to our onboard and other revenues denominated in currencies other than the United States dollar of $6.4 million.

Onboard and other revenues included concession revenues of $76.0 million in 2020 and $363.8 million in 2019.

Cruise Operating Expenses

Total cruise operating expenses for 2019 increased $800.6 million, or 15.2%, to $6.1 billion in 2019 from $5.3 billion in 2018.

The increase was primarily due to:

• the 7.8% increase in capacity noted above, which increased cruise operating expenses by $433.3 million;

• a $367.3 million increase in total cruise operating expenses, excluding capacity, was primarily due to the addition of Silversea Cruises to our fleet in the second half of 2018 as well as incidental costs related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas , expenses associated with operating Perfect Day at CocoCay and our new cruise terminal at PortMiami.

The increase in Cruise operating expenses was partially offset by:

• a $47.0 million decrease in fuel expenses, excluding the impact of capacity.

Our cost of fuel (net of the financial impact of fuel swap agreements) for 2019 decreased 11% per metric ton compared to 2018;

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• a favorable effect of changes in foreign currency exchange rates related to costs denominated in currencies other than the United States dollar of $37.0 million.

Total cruise operating expenses for 2020 decreased $3.3 billion, or 54.4%, to $2.8 billion in 2020 from $6.1 billion in 2019.

The majority of the decrease was due to the 79.4% decrease in capacity noted above as a result of our cancelled sailings, including:

• a $1.3 billion decrease in Commissions, transportation and other primarily due to lower commission and variable passenger tax expenses;

• a $482.6 million decrease in Onboard and other expenses mostly due to lower shore excursion costs and beverage costs;

• a $463.5 million decrease in Other operating expenses mostly due to lower port fees and a decrease in ship maintenance and consumable costs;

• a $422.2 million decrease in Food expenses;

• a $326.9 million decrease in Fuel expenses;

• a $290.8 million decrease in Payroll and related expenses resulting from reduced onboard staffing levels;

• the favorable effect of changes in foreign currency exchange rates related to our expense transactions denominated in currencies other than the United States dollar of $11.2 million.

Marketing, Selling and Administrative Expenses

Marketing, selling and administrative expenses for 2019 increased $256.1 million, or 19.7%, to $1.6 billion from $1.3 billion in 2018.

The increase was primarily due to the addition of Silversea Cruises in the second half of 2018, higher spending on advertisement and media promotions and an increase in payroll and benefits expense primarily driven by an increase in headcount and higher stock price year over year related to our performance share awards.

Additionally, 2019 includes expenses associated with Hurricane Dorian relief efforts, which did not occur in 2018.

Marketing, selling and administrative expenses for 2019 and 2018 include transaction costs incurred by us related to the Silversea Cruises acquisition of $1.2 million and $31.8 million, respectively.

Marketing, selling and administrative expenses for 2020 decreased $359.6 million, or 23.1% to $1.2 billion from $1.6 billion in 2019.

The decrease was primarily due to the reduction and deferral of global sales and marketing activities due to the suspension of our operations.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2020 increased $33.3 million, or 2.7%, to $1.3 billion.

The increase was primarily due to the addition of Spectrum of the Seas in the second quarter of 2019, Symphony of the Seas in the second quarter of 2018, Azamara Pursuit in the third quarter of 2018, Celebrity Edge in the fourth quarter of 2018 and the addition of Silversea Cruises to our fleet in the second half of 2018.

Additionally, to a lesser extent, 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, and a full year of depreciation in 2020 for Spectrum of the Seas.

Additionally, the increase is also attributable to new shipboard additions in 2019 associated with our ship modernization projects and additions related to our shoreside projects.

Impairment and Credit Losses

For the year ended December 31, 2020, as a result of the current and expected ongoing impact of the COVID-19 pandemic on our operations and cash flows, we recorded total impairment and credit losses of $1.6 billion, most of which was recorded during the three months ended March 31, 2020, related to the impairment of goodwill, intangibles, long-lived assets and credit losses related to the sale of our property and equipment.

Other Income (Expense)

Interest expense, net of interest capitalized , increased $435.7 million, or 106.7%, to $844.2 million in 2020 from $408.5 million in 2019.

The increase was primarily due to a higher average debt level in 2019 compared to 2018 attributable to the financing of our newbuilds and our acquisition of Silversea Cruises in the second half of 2018 and to lesser extent, higher interest rates in 2019 compared to 2018.

Equity investment income increased $20.2 million, or 9.6%, to $231.0 million in 2019 from $210.8 million in 2018 primarily due to an increase in income from various equity investments, partially offset by equity investment losses from Grand Bahama as a result of a drydock write-off in 2019.

Other expense was $24.5 million in 2019 compared to Other income of $11.1 million in 2018.

The increase in expense of $35.6 million was mainly due to higher taxes resulting from a full year of Silversea Cruises activity reported in 2019 and higher U.S.

taxable income in 2019;

and an increase in the fair value of contingent consideration related to the Silversea Cruises acquisition.

In addition, a gain of $21.8 million was reported in 2018 related to the recognition of the remaining balance of a deferred gain from the sale of Celebrity Galaxy to TUI Cruises in March 2009.

In April 2018, TUI Cruises sold this ship to an affiliate of TUI AG, resulting in the recognition of the remaining balance of the deferred gain.

Other income in 2018 also includes a gain of $13.7 million related to the sale of our remaining equity interest in a travel agency business that we sold in 2015.

The gains in 2018 were partially offset by an impairment charge of $23.3 million to write down our investment balance, debt facility and other receivables due from Skysea Holding to their net realizable value in 2018.

For further information on the deferred gain recognized and impairment charge, refer to Note 8.

The increase was primarily due to new debt issuances in 2020, a higher average balance on our revolver balances and a loss on extinguishment of the $2.35 billion senior secured term loan of $41.1 million.

Equity investment (loss) income decreased $444.3 million, or 192.3%, to a loss of $213.3 million in 2020 from income of $231.0 million in 2019 mainly due to losses reported by our equity investments as a result of the adverse impact of COVID-19 on their operations and earnings and a $39.7 million impairment charge of equity investments, recorded during the three months ended March 31, 2020, primarily for our investment in Grand Bahama Shipyard.

Other expense was $137.1 million in 2020 compared to $24.5 million in 2019.

The increase in expense of $112.6 million includes recognition of a deferred currency translation adjustment loss of $69.0 million in the quarter ended June 30, 2020 related to the 2016 sale of our majority interest in the Pullmantur brand.

We recognized the deferred currency translation loss in 2020 as we no longer have significant involvement in Pullmantur's operations.

We also recognized $21.6 million of expense during the second quarter of 2020, approximating the estimated total cash refund expected to be paid to Pullmantur guests and other expenses incurred as part of a settlement agreement with our joint venture partner as part of the brand's reorganization Refer to Note 8 .

Other Assets to our consolidated financial statements under Item 8.

Financial Statements and Supplementary Data .

Gross and Net Yields

Gross and Net Yields increased 7.0% and 6.7% in 2019, respectively, compared to 2018 primarily due to the increase in passenger ticket and onboard and other revenues discussed above.

Gross and Net Yields on a Constant Currency basis increased 8.2% and 8.0%, respectively, in 2019 compared to 2018.

Gross and Net Cruise Costs

Gross and Net Cruise Costs increased 16.5% and 16.1%, respectively, in 2019 compared to 2018 and Gross and Net Cruise Costs per APCD increased 8.0% and 7.7%, respectively, in 2019, compared to 2018, primarily due to the increase in cruise operating expenses discussed above.

Gross and Net Cruise Costs on a Constant Currency basis increased 17.2% and 16.7% respectively, in 2019 compared to 2018.

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Net Cruise Costs Excluding Fuel

Net Cruise Costs Excluding Fuel per APCD increased 10.8% in 2019 compared to 2018 and on a Constant Currency basis increased 11.4% in 2019 compared to 2018.

Other Comprehensive (Loss) Income

Other comprehensive loss in 2019 was $170.0 million compared to Other comprehensive loss of $293.5 million in 2018.

The decrease in loss of $123.5 million was primarily due to the Loss on cash flow derivative hedges in 2019 of $151.3 million compared to the Loss on cash flow derivative hedges of $286.9 million in 2018.

The decrease of $135.5 million in Loss on cash flow derivative hedges in 2019 was primarily due to an increase in the fair value of our fuel swap instruments held in 2019 compared to 2018.

Financial Statements and Supplemental Data for further information on our investment in Pullmantur.

In addition, we recorded a net $92.0 million loss related to the change in fair value of mostly fuel swap derivative instruments with no hedge accounting.

These expenses were partially offset by income of $45.1 million for the change in contingent consideration payable in 2020 to Heritage, the former minority shareholder of Silversea Cruises, and a decrease of $47.6 million in net tax expense mostly attributable to the suspension in our operations.

Other Comprehensive Income (Loss)

Other comprehensive income in 2020 was $58.4 million compared to Other comprehensive loss of $170.0 million in 2019.

The change of $228.4 million in 2020 was primarily due to a Gain on cash flow derivative hedges in 2020 of $38.0 million compared to a Loss on cash flow derivative hedges of $151.3 million in 2019.

The decrease was primarily due to an increase in the fair value of our foreign currency forward contracts in 2020 compared to a decrease in fair value of our foreign currency contracts in 2019.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

In this section, references to 2018 refer to the year ended December 31, 2018 and references to 2017 refer to the year ended December 31, 2017.

Total revenues for 2018 increased $716.0 million, or 8.2%, to $9.5 billion from $8.8 billion in 2017.

Passenger ticket revenues comprised 71.5% of our 2018 total revenues.

Passenger ticket revenues increased by $479.5 million, or 7.6% from 2017.

The increase was primarily due to:

• a 4.0% increase in capacity, which increased Passenger ticket revenues by $255.5 million, primarily due to the addition of Symphony of the Seas in the second quarter of 2018, Azamara Pursuit in the third quarter of 2018 and, to a lesser extent, Celebrity Edge in the fourth quarter of 2018 and the Silversea Cruises fleet , partially offset by the sale of Legend of the Seas in 2017 and additional dry dock days in 2018 compared to 2017.

Additionally, 2017 includes the impact of canceled sailings from hurricane-related disruptions which did not recur in 2018;

• an increase of $216.3 million in ticket prices primarily driven by higher pricing on Asia/Pacific and Europe sailings and the increase to our ticket price on a per passenger basis due to the addition of Symphony of the Seas, Azamara Pursuit, Celebrity Edge and the Silversea Cruises fleet, partially offset by a decrease in pricing on Caribbean sailings;

• the favorable effect of changes in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of approximately $7.8 million.

The remaining 28.5% of 2018 total revenues was comprised of Onboard and other revenues , which increased $236.5 million, or 9.6%.

The increase in Onboard and other revenues was primarily due to:

• a $112.5 million increase in onboard revenue attributable to higher spending on a per passenger basis primarily due to our revenue enhancing initiatives, including beverage package sales and promotions, gaming initiatives, and new strategies and promotions on our shore excursion, specialty restaurant and Internet services;

• a $97.4 million increase attributable to the 4.0% increase in capacity noted above;

• a $23.2 million increase in other revenue primarily due to cancellation fees mostly associated with non-refundable deposit promotions and the addition of Silversea Cruises.

Onboard and other revenues included concession revenues of $339.0 million in 2018 and $326.5 million in 2017.

Cruise Operating Expenses

Total cruise operating expenses for 2018 decreased $365.6 million, or 7.5%, to $5.3 billion in 2018 from $4.9 billion in 2017.

The decrease was primarily due to:

• the 4.0% increase in capacity noted above, which increased cruise operating expenses by $198.6 million;

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• a $30.9 million gain recognized in 2017 resulting from the sale of Legend of the Seas, which did not recur in 2018;

• a $37.3 million increase in payroll and related expenses primarily driven by Silversea Cruises' higher crew to passenger ratio, an increase in employee bonuses and changes in our gratuity structure;

• a $23.5 million increase in air expense primarily related to the addition of Silversea Cruises and itinerary changes;

• a $19.7 million increase in vessel maintenance primarily due to the timing of scheduled drydocks;

• an unfavorable effect of changes in foreign currency, exchange rates related to our cruise operating expenses denominated in currencies other than the United States dollar of $8.1 million.

Marketing, Selling and Administrative Expenses

Marketing, selling and administrative expenses for 2018 increased $117.1 million, or 9.9%, to $1.3 billion from $1.2 billion in 2017.

The increase was primarily due to transaction costs incurred by us related to the Silversea Cruises acquisition, marketing, selling and administrative expenses due to the addition of Silversea Cruises, the impairment and other costs related to the exit of our tour operations business, which occurred in 2018, and an increase in payroll and benefits expense primarily driven by an increase in headcount, partially offset by lower stock prices year over year related to our performance share awards, as well as higher spending on advertisement.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2018 increased $82.5 million, or 8.7%, to $1.0 billion.

T he increase was primarily due to the addition of Symphony of the Seas, Azamara Pursuit and Silversea Cruises to our fleet and, to a lesser extent, the addition of Celebrity Edge , new shipboard additions associated with our ship upgrade projects and additions related to our shoreside projects.

The increase was partially offset by the sale of Legend of the Seas in 2017.

Other Income (Expense)

Interest expense, net of interest capitalized , increased $33.7 million, or 11.2%, to $333.7 million in 2018 from $300.0 million in 2017.

The increase was mostly due to a higher average debt level in 2018 compared to 2017, attributable to the financing of Symphony of the Seas, Celebrity Edge and our acquisition of Silversea Cruises in 2018, and higher interest rates in 2018 compared to 2017, partially offset by an increase in capitalized interest due to our ships on order.

Equity investment income increased $54.5 million, or 34.9%, to $210.8 million in 2018 from $156.2 million in 2017 primarily due to an increase in income from TUI Cruises.

Other income was $11.1 million in 2018 compared to Other expense of $5.3 million in 2017.

The change of $16.4 million was mainly due to a gain of $21.8 million in 2018 related to the recognition of the remaining balance of a deferred gain from the sale of Celebrity Galaxy to TUI Cruises in March 2009.

In April 2018, TUI Cruises sold this ship to an affiliate of TUI AG, resulting in the recognition of the remaining balance of the deferred gain.

In addition, Other income in 2018 includes a gain of $13.7 million related to the sale of our remaining equity interest in a travel agency business that we sold in 2015.

The increase in Other income was partially offset by an impairment charge of $23.3 million to write down our investment balance, debt facility and other receivables due from Skysea Holding to their net realizable value in 2018.

For further information on the deferred gain recognized and impairment charge, refer to Note 8.

Other Assets to our consolidated financial statements under Item 8.

Financial Statements and Supplementary Data .

Gross and Net Yields

Gross and Net Yields increased 4.0% and 4 .5% in 2018, respectively, compared to 2017 primarily due to the increase in passenger ticket and onboard and other revenues, which are further discussed above.

Gross and Net Yields on a Constant Currency basis increased 3.8% and 4.4%, respectively, in 2018 compared to 2017.

Gross and Net Cruise Costs

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Gross and Net Cruise Costs increased 7.4% and 8.0%, respectively, in 2018 compared to 2017 and Gross and Net Cruise Costs per APCD increased 3.2% and 3.8%, respectively, in 2018 compared to 2017, primarily due to the increase in cruise operating expenses discussed above.

Gross and Net Cruise Costs on a Constant Currency basis increased 7.2% and 7.7%, respectively, in 2018 compared to 2017.

Net Cruise Costs Excluding Fuel

Net Cruise Costs Excluding Fuel per APCD increased 4.4% in 2018 compared to 2017 and on a Constant Currency basis increased 4.1% in 2018 compared to 2017.

Other Comprehensive (Loss) Income

Other comprehensive loss in 2018 was $293.5 million compared to Other comprehensive income of $582.2 million in 2017.

The change of $875.7 million was primarily due to the Loss on cash flow derivative hedges in 2018 of $286.9 million compared to the Gain on cash flow derivative hedges of $570.5 million in 2017.

The change of $857.4 million in 2018 was primarily due to a decrease in foreign currency forward contract values in 2018 compared to an increase in 2017, a decrease in fuel swap instrument values in 2018 compared to an increase in 2017 and fuel swap losses recognized in income in 2017 compared to fuel swap gains recognized in income in 2018.

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A discussion of our results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018 is included in Part II.

Item 7 of our Annual Report on Form 10-K for the year ended Decem ber 3 1 , 2 01 9 , filed with the SEC on February 25, 2020, as updated by our Current Report on Form 8-K dated May 13, 2020, and is incorporated by reference into this Form 10-K.

Future Application of Accounting Standards

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Sources and Uses of Cash

Cash flow generated from operations provides us with a significant source of liquidity.

Net cash provided by operating activities increased $237.2 million to $3.7 billion in 2019 compared to $3.5 billion in 2018.

The increase in cash provided by operating activities was primarily attributable to an increase in proceeds from customer deposits and an increase in cash receipts from onboard spending.

The increase was partially offset by a decrease in dividends received from unconsolidated affiliates of $92.9 million.

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

Net cash (used in) provided by operating activities decreased $7.4 billion to cash used of $(3.7) billion for the twelve months ended December 31, 2020, compared to cash provided of $3.7 billion in 2019.

The current disruptions to our business led to a decrease in collections from our guests as well as an increase of refunds to guests for cancelled sailings during the twelve months ended December 31, 2020 compared to the same period in 2019.

Net cash provided by operating activities increased $237.2 million to $3.7 billion in 2019 compared to $3.5 billion in 2018.

The increase in cash provided by operating activities was primarily attributable to an increase in proceeds from customer deposits, an increase in cash receipts from onboard spending and a decrease in fuel costs in 2019 compared to 2018.

Additionally, dividends received from unconsolidated affiliates increased by $133.4 million.

Additionally, dividends received from unconsolidated affiliates decreased by $92.9 million.

Net cash used in investing activities decreased $0.9 billion to $2.2 billion in 2020 compared to $3.1 billion in 2019.

The decrease in investing activities was primarily attributable to a decrease in capital expenditures of $1.1 billion.

Net cash used in investing activities decreased $1.4 billion to $3.1 billion in 2019 compared to $4.5 billion in 2018.

The decrease was primarily attributable to the $916.1 million of cash paid for the acquisition of Silversea Cruises, net of cash acquired, in 2018, which did not recur in 2019 and a decrease in capital expenditures of $635.4 million due mostly to the delivery of two more ships in 2018 compared to 2019, partially offset by higher fleet modernization costs in 2019 compared to 2018.

Net cash used in investing activities increased $4.3 billion to $4.5 billion in 2018 compared to $213.6 million in 2017.

The increase was primarily attributable to an increase in capital expenditures of $3.1 billion primarily due to the delivery of Symphony of the Seas and Celebrity Edge and to a lesser extent the purchase of Azamara Pursuit in 2018 compared to no ship deliveries or purchases in 2017 and $916.1 million of cash paid for the acquisition of Silversea Cruises, net of cash acquired, in 2018 as well as $230.0 million of proceeds received from the sale of property and equipment in 2017, which did not recur in 2018.

Net cash used in financing activities was $670.4 million in 2019 compared to Net cash provided in financing activities of $1.2 billion in 2018.

Net cash provided by financing activities was $9.3 billion in 2020 compared to Net cash used in financing activities of $0.7 billion in 2019.

The change was primarily attributable to an increase in debt proceeds of $10.0 billion in 2020 compared to the same period in 2019, and $1.4 million in proceeds from common stock issuances on 2020.

These proceeds were partially offset by net repayments of commercial paper of $1.1 billion during the twelve months ended December 31, 2020 compared to net borrowings of commercial paper of $0.6 billion during the same period in 2019.

Net cash used by financing activities was $0.7 billion in 2019 compared to Net cash provided in financing activities of $1.2 billion in 2018.

The change was primarily attributable to a decrease in debt proceeds of $5.1 billion in 2019 compared to 2018 primarily due to a decrease in borrowings on our revolving credit facilities and less unsecured term loan borrowings resulting from less ship deliveries in 2019 and the financing of the acquisition of Silversea Cruises in 2018.

This decrease in proceeds was partially offset by a decrease in repayments of debt of $2.9 billion and a decrease in stock repurchases of $475.5 million in 2019 compared to 2018.

Net cash provided by financing activities was $1.2 billion in 2018 compared to Net cash used in financing activities of $2.7 billion in 2017.

The change was primarily attributable to an increase in proceeds from the issuance of commercial paper notes of $4.7 billion in 2018 compared to none issued in 2017 and an increase in debt proceeds of $2.7 billion in 2018 compared to 2017.

The increase in debt proceeds in 2018 was primarily due to the $1.2 billion unsecured term loan borrowed to finance Symphony of the Sea s, and the $729.0 million unsecured term loan borrowed to finance Celebrity Edge, the $700.0 million unsecured term loan borrowed to finance the acquisition of Silversea Cruises, an increase in borrowings on our revolving credit facilities and the $130.0 million credit agreement.

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Future Capital Commitments

Capital Expenditures

Our future capital commitments consist primarily of new ship orders.

As of December 31, 2020, we have two Oasis-class ships, one Quantum-class ship, and three ships of a new generation, known as our Icon-class, on order for our Royal Caribbean International brand with an aggregate capacity of approximately 32,400 berths.

As of December 31, 2019, we have three Edge-class ships with an aggregate capacity of approximately 9,400 berths.

Additionally as of December 31, 2019, we have five ships on order for our Silversea Cruises brand with an aggregate capacity of approximately 2,400 berths.

As of December 31, 2020, we have two Edge-class ships on order for our Celebrity Cruises brand, with an aggregate capacity of approximately 6,500 berths.

Additionally, as of December 31, 2020, we have three ships on order for our Silversea Cruises brand with an aggregate capacity of approximately 1,750 berths.

Refer to Item 1.

Business-Operations for further information on our ships on order.

For each of these orders, we have committed financing arrangements in place covering 80% of the cost of the ship, almost all of which include sovereign financing guarantees.

For the 15 ships on order we have committed financing arrangements in place covering 80% of the cost of the ship, almost all of which include sovereign financing guarantees.

Additionally, we have an agreement in place with Chantiers de l’Atlantique to build an additional Edge-class ship for delivery in 2025, which is contingent upon completion of conditions precedent and financing.

As of December 31, 2020, the aggregate cost of our ships on order, not including any ships on order by our Partner Brands and the Silversea Cruises ships that remain contingent upon final documentation and financing, was approximately $14.2 billion, of which we had deposited $684.8 million as of such date.

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Financial Statements and Supplementary Data .

As of December 31, 2019, anticipated overall capital expenditures, based on our existing ships on order, are approximately $4.7 billion for 2020, $3.5 billion for 2021, $3.6 billion for 2022 and $2.9 billion for 2023.

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

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

As of December 31, 2020, we anticipate overall full year capital expenditures, based on our existing ships on order, will be approximately $2.1 billion for 2021.

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

Contractual Obligations

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(1) We are obligated under noncancelable operating leases primarily for offices, warehouses and motor vehicles.

(1) We are obligated under noncancelable operating leases primarily for preferred berthing arrangements, real estate and shipboard equipment.

Amounts represent contractual obligations with initial terms in excess of one year.

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

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

See Note 10 .

Leases to our consolidated financial statements under Item 1.

Financial Statements for further information on the collateral requirement

(4) Amounts are based on contractual installment and delivery dates for our ships on order.

Included in these figures are $9.4 billion in final contractual installments, which have committed financing.

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

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

Amounts do not include potential obligations which remain subject to cancellation at our sole discretion or any agreements entered for ships on order that remain contingent upon completion of conditions precedent.

Additionally, amounts do not include activity related to Silversea Cruises, including ships placed on order, if any, during the three-month reporting lag period.

Refer to the Capital Expenditure section.

(5) In June 2020, RCL Cruises Ltd., we established a commercial paper facility under the Joint HM Treasury and Bank of England’s COVID Corporate Financing Facility commercial paper program in an aggregate principal amount up to £300.0 million.

Refer to Note 9 .

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Financial Statements and Supplemental Data to our consolidated financial statements for further information.

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(6) Debt denominated in other currencies is calculated based on the applicable exchange rate at December 31, 2020.

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Off-Balance Sheet Arrangements

We and TUI AG have each guaranteed the repayment by TUI Cruises of 50% of a bank loan.

As of December 31, 2019, the outstanding principal amount of the loan was € 26.4 million, or approximately $ 29.7 million, based on the exchange rate at December 31, 2019.

The loan amortizes quarterly and is currently secured by a first mortgage on Mein Schiff Herz, previously known as Mein Schiff 2 .

Based on current facts and circumstances, we do not believe potential obligations under our guarantee of this bank loan are probable.

TUI Cruises has entered into various ship construction and credit agreements that include certain restrictions on each of our and TUI AG's ability to reduce our current ownership interest in TUI Cruises below 37.55% through May 2033.

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We have not been required to make any payments under such indemnification clauses in the past and, under current circumstances, we do not believe an indemnification obligation is probable.

We have a residual value guarantee associated with our operating lease of a terminal at Port of Miami in Miami, Florida that approximates a percentage of cost of the asset as of the inception of the lease.

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

Also in connection with the Port of Miami terminal operating lease, we are required to deliver on or before July 18, 2021, cash collateral in an amount equal to the lesser of our residual value guarantee or the aggregate balance of the lessors' terminal construction debt, estimated at $181.1 million as of December 31, 2020.

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

Since the COVID-19 pandemic began, our senior unsecured ratings from Moody’s and S&P have been downgraded and are currently B2 and B, respectively.

These downgrades reduce our ability to incur secured indebtedness by reducing the amount of indebtedness that we are permitted to secure, and may negatively impact our access to, and cost of, debt financing.

Additionally, as a result of Moody’s downgrade of the Silversea Notes from Baa3 to Ba2 on August 31, 2020 and S&P’s downgrade of Silversea Cruises' Notes from BBB- to BB on August 31, 2020, certain covenants of the indenture governing the Silversea Notes have been reinstated.

On February 25, 2021, S&P Global further downgraded the Silversea Cruises Notes from BB to BB-, which had no further impact with respect to the Silversea Cruises’ Notes.

The Company also has agreements with its credit card processors relating to customer deposits received by the Company for future voyages.

These agreements allow the credit card processors to require, under certain circumstances, including breach

of the financial covenants, the existence of other material adverse changes, excessive chargebacks, and other triggering events, the Company to maintain a reserve that can be satisfied by posting collateral.

Executed amendments are in place for the majority of these providers, waiving reserve requirements tied to breach of our financial covenants through at least March 31, 2022 or September 30, 2022 depending on the agreement, and as such, we do not anticipate any incremental collateral requirements for the processors covered by these waivers in the next 12 months.

We have a $75.0 million held in reserve with a processor where the agreement was amended in the first quarter of 2021, such that future proceeds will be withheld in reserve, of which the maximum projected exposure is approximately $200.0 million.

The amount and timing are dependent on future factors that are uncertain, such as the date we return to operations, volume and value of future deposits and whether we transfer our business to other processors.

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

Certain of our surety agreements with third party providers for the benefit of certain agencies and associations that provide travel related bonds allow the surety to request collateral in the form of cash or letters of credit.

As of December 31, 2020, we have posted collateral in the amount of approximately $91 million.

As of December 31, 2020, other than the items described above, we are not party to any other off-balance sheet arrangements, including guarantee contracts, retained or contingent interest, certain derivative instruments and variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on our financial position.

Funding Needs and Sources

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

The impact of COVID-19 resulted in our previously announced voluntary suspension

of Global Brands' cruise operations from March 13, 2020, which has been extended through at least April 30, 2021, for most of our cruise operations.

This suspension of operations has strained our sources of cash flow and liquidity, causing us to take actions resulting in reductions in our operating expenses, reductions in our capital expenses and new financings and other liquidity actions.

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

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

See further discussion on these liquidity actions at Recent Developments :

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

As of December 31, 2019, we had approximately $5.5 billion in contractual obligations due through December 31, 2020 of which approximately $2.6 billion relates to debt maturities including our commercial paper notes, $348.8 million relates to interest on debt and $2.2 billion relates to progress payments on our ship orders and the final installments payable due upon the deliveries of Celebrity Apex, Silver Origin, Silver Moon and Odyssey of the Seas in 2020 .

We have historically relied on a combination of cash flows provided by operations, drawdowns under our available credit facilities and our commercial paper program, the incurrence of additional debt and/or the refinancing of our existing debt and the issuance of additional shares of equity securities to fund these obligations.

As of December 31, 2019, we had a working capital deficit of $6.8 billion, which included $1.2 billion of current portion of debt, including finance leases, and $1.4 billion of commercial paper.

As of December 31, 2018, we had a working capital deficit of $5.9 billion, which included $1.6 billion of current portion of debt, including finance leases and $0.8 million of commercial paper.

Similar to others in our industry, we operate with a substantial working capital deficit.

This deficit is mainly attributable to the fact that, under our business model, a vast majority of our passenger ticket receipts are collected in advance of the applicable sailing date.

These advance passenger

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receipts remain a current liability until the sailing date.

The cash generated from these advance receipts is used interchangeably with cash on hand from other sources, such as our revolving credit facilities, commercial paper and other cash from operations.

The cash received as advanced receipts can be used to fund operating expenses for the applicable future sailing or otherwise, pay down our revolving credit facilities and commercial paper, invest in long term investments or any other use of cash.

In addition, we have a relatively low-level of accounts receivable and rapid turnover results in a limited investment in inventories.

We generate substantial cash flows from operations, and our business model, along with our unsecured revolving credit facilities, has historically allowed us to maintain this working capital deficit and still meet our operating, investing and financing needs.

We expect that we will continue to have working capital deficits in the future.

As of December 31, 2019, we had liquidity of $1.5 billion, consisting of $243.7 million in cash and cash equivalents and $1.3 billion available under our unsecured credit facilities, net of our outstanding commercial paper notes.

We anticipate that our cash flows from operations and our current financing arrangements, as described above, will be adequate to meet our capital expenditures and debt repayments over the next twelve-month period.

As of December 31, 2019, we have approximately $600.0 million that remains available for future common stock repurchase transactions under a 24-month common stock repurchase program for up to $1.0 billion authorized by our board of directors in May 2018.

Repurchases under the program may be made at management's discretion from time to time on the open market or through privately negotiated transactions and are expected to be funded from available cash or borrowings.

As of December 31, 2020, we had $11.6 billion of committed financing for our ships on order.

As of December 31, 2020, we had $3.9 billion in contractual obligations due through December 31, 2021, of which approximately $1.3 billion relates to debt maturities, $0.9 billion relates to interest on debt and $1.3 billion relates to progress payments on our ship orders and the final installments payable due upon the delivery of Odyssey of the Seas .

As of December 31, 2020, we had liquidity of $4.4 billion, consisting of cash and cash equivalents of $3.7 billion and a $0.7 billion one-year commitment for a 364-day term loan facility .

As of December 31, 2020, our revolving credit facilities were fully utilized through a combination of amounts drawn and letters of credit issued under the facilities.

In connection with our debt covenant waiver extensions, we agreed with certain of our lenders not to pay dividends or engage in stock repurchases.

Refer to Note 12.

Shareholders' Equity to our consolidated financial statements under Item 8.

Financial Statements and Supplemental Data for further information.

Financial Statements for further information.

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

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

Refer to Note 1 .

General, Management’s Plan and Liquidity, to our consolidated financial statements under Item 1.

Financial Statements for further information.

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

On August 24, 2020, Moody’s downgraded our senior unsecured rating from Ba2 to B2, and on August 31, 2020, S&P Global downgraded our senior unsecured rating from BB to B+, thereby increasing the contractual interest rate, facility fee and export credit agency fee across various facilities.

On February 25, 2021, S&P Global further downgraded our senior unsecured rating from B+ to B, which had no further financial impact.

If any person acquires ownership of more than 50% of our common stock or, subject to certain exceptions, during any 24-month period, a majority of our board of directors is no longer comprised of individuals who were members of our board of directors on the first day of such period, we may be obligated to prepay indebtedness outstanding under our credit facilities, which we may be unable to replace on similar terms.

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Debt Covenants

Certain of our financing agreements contain covenants that require us, among other things, to maintain minimum net worth of at least $9.9 billion, a fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital ratio to no more than 62.5%.

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

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

Our minimum net worth and maximum net debt-to-capital calculations exclude the impact of Accumulated other comprehensive loss on Total shareholders’ equity .

We were well in excess of all debt covenant requirements as of December 31, 2019.

The specific covenants and related definitions can be found in the applicable debt agreements, the majority of which have been previously filed with the Securities and Exchange Commission.

In December 2019, we declared a cash dividend on our common stock of $0.78 per share which was paid in the first quarter of 2020.

We declared a cash dividend on our common stock of $0.78 per share during the third quarter of 2019 which was paid in the fourth quarter of 2019.

During the first and second quarters of 2019, we declared a cash dividend on our common stock of $0.70 per share which was paid in the second and third quarters of 2019, respectively.

During the first quarter of 2019, we also paid a cash dividend on our common stock of $0.70 per share which was declared during the fourth quarter of 2018.

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As of December 31, 2020, financial covenant testing on our export-credit and non-export credit facilities totaling $11.2 billion of, and our credit card processing agreements was waived through the fourth quarter of 2021 following amendments to the agreements during 2020.

During the first quarter of 2021, we further amended $4.9 billion of our non-export credit facilities and $6.2 billion of our export credit facilities, and certain credit card processing agreements, to extend the waiver of our financial covenants through and including at least the third quarter of 2022.

In addition, pursuant to the amendments for the non-export credit facilities, we have modified the manner in which such covenants are calculated, temporarily in certain cases and permanently in others, as well as the levels at which our net debt to

capitalization covenant will be tested during the period commencing immediately following the end of the waiver period and continuing through the end of 2023.

The amendments impose a monthly-tested minimum liquidity covenant of $500.0 million for the duration of the waiver period, subject to reduction to $350.0 million if we raise at least $500.0 million of additional capital, which can be satisfied through previously undrawn facilities.

In addition, the amendments to the non-export credit facilities place restrictions on paying cash dividends and effectuating share repurchases through the end of the third quarter of 2022, while the export credit facility amendments require us to prepay any deferred amounts if we elect to issue dividends or complete share repurchases.

As of December 31, 2020, we were in compliance with the applicable minimum liquidity covenant and we estimate that we will be in compliance for at least the next twelve months.

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

In the first quarter of 2021, we also amended this lease to obtain a financial covenant waiver through the end of the third quarter of 2022, on the same terms as apply to the non-export credit facilities.

As of December 31, 2020, we were in compliance with the amended covenants under the lease agreement.

Any further covenant waivers may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections as may be agreed with our lenders.

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

If we require additional waivers and are not able to obtain them or repay the debt facilities, this would lead to an event of default and potential acceleration of amounts due under all of our outstanding debt and derivative contracts.

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

During the second quarter of 2020, we agreed with certain of our lenders not to pay dividends or engage in common stock repurchases for so long as our debt covenant waivers are in effect.

In addition, in the event we declare a dividend or engage in share repurchases, we will need to repay the amounts deferred under our export credit facilities as part of the principal amortization deferral provided in 2020 and the first quarter of 2021.

Accordingly, we did not declare any additional dividends during 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis