What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-04-29 · 233 added, 154 removed, 304 unchanged (56% of the section changed)

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Furthermore, they are subject to risks, uncertainties and other factors that could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements.

Examples of these risks, uncertainties and other factors include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q and, in particular, the risks discussed under the caption "Risk Factors" in Part II, Item 1A herein.

All forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date of this filing.

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

• a discussion of our results of operations for the quarter ended March 31, 2021, compared to the same period in 2020;

• a discussion of our results of operations for the quarter and six months ended June 30, 2021, compared to the same periods in 2020;

• a discussion of our business outlook;

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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.

Cruise Operating Expenses

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As discussed in more detail herein, certain of these metrics are non-GAAP financial measures.

These non-GAAP

financial measures are provided along with the related GAAP financial measures as we believe they provide useful information to investors as a supplement to our consolidated financial statements, which are prepared and presented in accordance with GAAP.

These non-GAAP financial measures are provided along with the related GAAP financial measures as we believe they provide useful information

to investors as a supplement to our consolidated financial statements, which are prepared and presented in accordance with GAAP.

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

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

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

(as defined below) divided by weighted average shares outstanding or by diluted weighted average shares outstanding, as applicable.

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

Adjusted Net Loss represents net loss 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) loss on the extinguishment of debt;

Adjusted Net Loss attributable to Royal Caribbean Cruises Ltd.

represents net loss 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) gain or loss on the extinguishment of debt;

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

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

reorganization;

(iv) impairment and credit losses recognized in the first quarter of 2020 as a result of the impact of COVID-19 and, in 2021, recovery of credit losses recognized during 2020;

(iii) the estimated cash refund expected to be paid to Pullmantur guests and other expenses incurred as part of the Pullmantur reorganization;

(iv) impairment and credit losses recognized as a result of the impact of COVID-19;

(v) equity investment asset impairments;

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workforce and other initiative expenses;

(viii) the change in the fair value in the Silversea Cruises contingent consideration and the amortization of the Silversea Cruises intangible assets resulting from the our acquisition of a 66.7% interest in Silversea Cruises in 2018;

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

and (x) the net gain recognized in the first quarter of 2021 in relation to the sale of the Azamara brand.

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.

(viii) the change in the fair value in the Silversea Cruises contingent consideration and the amortization of the Silversea Cruises intangible assets resulting from our acquisition of a 66.7% interest in Silversea Cruises in 2018;

(x) the net gain recognized in the first quarter of 2021 in relation to the sale of the Azamara brand;

and (xi) currency translation losses recognized during the second quarter of 2020, in connection with the ships classified as assets held-for-sale that were previously chartered to Pullmantur.

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

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

Occupancy , in accordance with cruise vacation industry practice, is calculated by dividing Passenger Cruise Days (as defined below) by APCD.

A percentage in excess of 100% indicates that three or more passengers occupied some cabins.

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

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

Although discussed in previous periods, we do not disclose or reconcile in this report our Gross Yields, Net Yields, Gross Cruise Costs, Net Cruise Costs and Net Cruise Costs Excluding Fuel, as defined in our Annual Report on Form 10-K for the year ended December 31, 2019.

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

However, our 2020 and 2021 reduction in capacity and revenues and the shift in the nature of our running costs due to the suspension of our operations do not allow for a meaningful analysis and comparison of these metrics and as such these metrics have been excluded from this report.

However, our 2020 and 2021 reduction in capacity and revenues and the shift in the nature of our running costs, due to the impact of the COVID-19 pandemic on our operations, do not allow for a meaningful analysis and comparison of these metrics and as such these metrics have been excluded from this report.

Recent Developments:

Return to Healthy Sailing

Our voluntary suspension of our Global Brands’ cruise operations established in March 2020 in an effort to contain COVID-19, has been extended through at least June 30, 2021, for most of our cruise operations.

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.

We have begun certain limited operations and have announced additional, limited cruise operations on 13 out of our 59 Global and Partner Brand ships, in each case, outside of the U.S.

with reduced guest occupancy, modified itineraries, and enhanced health, safety and vaccination protocols for our crew and guests, developed in collaboration with governments and health authorities and under the advice of the Healthy Sail Panel (“HSP”).

The HSP was 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, applicable regulations, engineering and general health safety.

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”), and recently issued technical instructions under the

Conditional Order, that will permit cruise ship passenger operations in U.S.

waters under certain conditions and using a phased approach.

The Conditional Order 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.

We continue to work with the CDC, other U.S.

regulatory agencies and the HSP to develop our plan to return to service in consideration of global vaccination efforts.

For cruise ship operations in U.S.

waters, our return to service plan also considers the requirements of the CDC's framework for the Conditional Order, including recently issued technical instructions.

On April 28, 2021, the CDC issued a letter to members of the cruising industry communicating that it remains committed to the resumption of cruise ship passenger operations in the U.S.

following the requirements of the Conditional Order by mid-summer 2021.

In the communication, the CDC provided clarifications to its previously issued technical instructions regarding several matters including port operations and COVID-19 testing and vaccination protocols.

We are currently evaluating the impact of these clarifications on the technical instructions.

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 additional 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, variants of disease 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 June 30, 2021, for most of our cruise operations.

Our voluntary suspension of our global cruise operations commenced in March 2020 in response to the COVID-19 outbreak.

We have restarted our global cruise operations in a phased manner, following the requirements and recommendations of regulatory agencies, with reduced guest occupancy, modified itineraries and enhanced health, safety and vaccination protocols.

Our Global Brands have returned to service from U.S.

ports, and 12 of our ships have sailed or are expected to sail from these U.S.

ports by August 31, 2021.

More broadly, a total of 36 of our 60 Global and Partner Brand ships have resumed sailing or have announced their intention to resume sailing by August 31, 2021.

Additionally, we anticipate having 80% of the fleet in service by end of year 2021.

Uncertainties remain as to the specifics, timing and costs of administering and implementing our health and safety measures, some of which may be significant.

Based on our assessment of these requirements and recommendations, the status of COVID-19 infection and/or vaccination rates in the U.S.

or globally or for other reasons, we may determine it necessary to cancel or modify certain of our Global Brands’ cruise sailings.

We believe the impact to our global bookings resulting from COVID-19 will continue to have a material negative impact on our results of operations and liquidity, which may be prolonged beyond containment of the disease and its variants.

Update on Bookings

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

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

Cumulative advance bookings for the first half of 2022 are within historical ranges and at higher prices when compared to 2019.

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

Since our annual filing, approximately 75% of bookings made for the remainder of 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 March 31, 2021 we had $1.8 billion in customer deposits, of which approximately 45% are FCCs.

Approximately 50% of the guests booked on cancelled sailings since our suspension of operations have requested cash refunds.

Overall booking volumes have improved, and pricing remains strong.

During the second quarter of 2021, we received about 50% more new bookings compared to the first quarter of 2021, with trends improving from one month to the next.

By June, we were receiving about 90% more bookings each week when compared to the first quarter of 2021, with improvements of a similar magnitude for both 2021 and 2022 sailings.

Overall, the booking activity for 2021 sailings is consistent with our expected capacity and occupancy ramp up, at prices that are higher than in 2019.

While it’s too early to make any definitive conclusions of the impact of the Delta variant on bookings, we have seen a modest impact on closer-in bookings.

However, 2022 continues to remain strong;

in particular the spring and summer months are performing well.

As of June 30, 2021 we had $2.4 billion in customer deposits, which has increased by $530 million from the March 31, 2021 balance.

Approximately 40% of the customer deposit balance is related to future cruise credits.

This has dropped from 45% in the prior quarter, indicating net new demand.

Update on Recent Liquidity Actions and Ongoing Uses of Cash

As of March 31, 2021, we had liquidity of approximately $5.8 billion in the form of cash and cash equivalents of $5.1 billion and a $0.7 billion commitment expiring on August 12, 2022 for a 364-day term loan facility.

As of March 31, 2021, 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.

As of June 30, 2021, we had liquidity of approximately $5.0 billion in the form of cash and cash equivalents of $4.3 billion and a $0.7 billion commitment expiring on August 12, 2022 for a 364-day term loan facility.

As of June 30, 2021, our revolving credit facilities were mostly utilized through a combination of amounts drawn and letters of credit issued under the facilities.

We continue to prioritize and bolster liquidity while taking steps to improve our balance sheet and reduce its interest costs to be well positioned for recovery.

Reduced Operating Expenses

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

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

In particular, we:

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

The average monthly cash burn rate for the first quarter of 2021 was approximately $300 million.

This is slightly higher than the previously announced range driven mainly by fleet wide restart expenses and timing.

As we transition back to operations, we expects to incur incremental spend related to bringing ships back to operating status, returning crew members to ships and implementing enhanced health and safety protocols.

The decision to return each vessel considers many variables, including deployment opportunities, commercial potential, cost of operations and cash flow.

Given the fluidity of return to service decisions and costs related to the ramp-up, we cannot reasonably estimate a monthly average cash burn rate or related offsets to the cash burn generated by revenue and deposits from returning ships.

Monthly average cash burn rate for ships that are still in lay-up status will remain consistent with previous expectations.

The average monthly cash burn rate for the second quarter of 2021 was approximately $330 million.

This is slightly higher than the previous quarter as we have additional ships in operation.

As we continue to ramp up operations, we expect to incur incremental spend related to bringing ships back to operating status, returning crew members to ships and implementing enhanced health and safety protocols.

We also expect to continue to collect deposits related to those sailings and for future cruises.

The decision to bring ships back into service considers many variables, including deployment opportunities, commercial potential, cost of operations and cash flow.

Capital Expenditures

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

Based upon current ship orders and delivery schedules, we project capital expenditures of $1.1 billion for the remainder of 2021.

As of June 30, 2021, we anticipate overall full year capital expenditures, based on our existing ships on order, will be approximately $2.1 billion for 2021.

This amount does not include any ships on order by our Partner Brands.

We took delivery of Odyssey of the Seas during the first quarter ended March 31, 2021 and expect delivery of Silver Dawn during the fourth quarter of 2021.

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Debt Maturities, New Financings and Other Liquidity Actions

During the quarter ended March 31, 2021, the Company continued to take actions to further improve its liquidity position and manage cash flow.

During the six months ended June 30, 2021, the Company continued to take actions to further improve its liquidity position and manage cash flow.

In particular, we:

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• issued $1.5 billion of 5.5% senior unsecured notes due in 2028 for net proceeds of approximately $1.48 billion;

interest on the senior notes accrues at 5.5% per annum and is payable semi-annually;

• issued $650.0 million of 4.25% senior unsecured notes due in 2026 for net proceeds of approximately $640.6 million, which were used to fully repay the Silversea Notes, in the amount of $619.8 million, and to pay the related call premiums, accrued interest and fees;

• issued 16.9 million shares of common stock for approximately $1.5 billion;

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• amended $6.3 billion of our export-credit facilities to extend the waiver of the financial covenants through and including the third quarter of 2022 and defer $1.15 billion of principal payments due between April 2021 and April 2022.

Expected debt maturities for the remainder 2021 are $0.2 billion and $2.2 billion for 2022.

As we gradually return our fleet into service, we will continue to 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.

As of the date of this report, expected debt maturities for the remainder of 2021 are $0.02 billion and $2.2 billion for 2022.

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

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and Adjusted Net Loss attributable to Royal Caribbean Cruises Ltd.

for the first quarter of 2021 were $(1.13) billion and $(1.08) billion, or $(4.66) and $(4.44) per share on a diluted basis, respectively, reflecting the impact of our suspension of global fleet sailings, compared to Net Loss attributable to Royal Caribbean Cruises Ltd.

for the second quarter of 2021 were $(1.35) billion and $(1.29) billion, or $(5.29) and $(5.06) per share on a diluted basis, respectively, reflecting the impact of the continued suspension of the majority of our sailings, compared to Net Loss attributable to Royal Caribbean Cruises Ltd.

and Adjusted Net Loss attributable Royal Caribbean Cruises Ltd.

of $(1.44) billion and $(310.4) million, or $(6.91) and $(1.48) per share on a diluted basis, respectively, for the first quarter of 2020.

Significant items for the quarter ended March 31, 2021 include:

• Total revenues, excluding the effect of changes in foreign currency exchange rates, decreased $2.0 billion for the quarter ended March 31, 2021 as compared to the same period in 2020, reflecting the volume impact of our cancelled sailings during the first quarter of 2021, as a result of the continued impact of COVID-19, which was higher than the volume impact of cancelled sailings during the first quarter of 2020.

APCDs for the first quarter ended March 31, 2021 were 384,224 compared to 8,217,133 in the same period in 2020.

• The effect of changes in foreign currency exchange rates related to our passenger ticket and onboard and other revenue transactions, denominated in currencies other than the United States dollar, resulted in an increase in total revenues of $2.5 million for the quarter ended March 31, 2021 compared to the same period in 2020.

• Total cruise operating expenses, excluding the effect of changes in foreign currency exchange rates, decreased $1.2 billion for the quarter ended March 31, 2021 as compared to the same period in 2020.

The decrease was primarily due to lower costs incurred as a result of our suspension of operations due to COVID-19.

of $(1.64) billion and $(1.28) billion, or $(7.83) and $(6.13) per share on a diluted basis, respectively, for the second quarter of 2020.

Net Loss attributable to Royal Caribbean Cruises Ltd.

and Adjusted Net Loss attributable to Royal Caribbean Cruises Ltd.

for the six months ended June 30, 2021 were $(2.48) billion and $(2.37) billion, or $(9.96) and $(9.51) per share on a diluted basis, respectively, compared to Net Loss attributable to Royal Caribbean Cruises Ltd.

and Adjusted Net Loss attributable Royal Caribbean Cruises Ltd.

of $(3.08) billion and $(1.59) billion, or $(14.74) and $(7.61) per share on a diluted basis, respectively, for the six months ended June 30, 2020.

Significant items for the quarter and six months ended June 30, 2021 include:

• Total revenues, excluding the effect of changes in foreign currency exchange rates, decreased $127.3 million and $2.1 billion, respectively, for the quarter and six months ended June 30, 2021, as compared to the same periods in 2020.

The decrease in total revenues in the second quarter of 2021 reflects a 57% decrease in occupancy compared to the second quarter of 2020.

Our occupancy in the second of quarter 2020 includes Silversea Cruises' first quarter 2020 sailings prior to the suspension of our global sailings in March of 2020, reported on a one quarter lag.

For the six months ended June 30, 2021, the decrease in total revenues reflects a 89.9% capacity decrease compared to the same period in 2020 reflecting the lay-up of the majority of our fleet during the six months ended 2021, compared to the operation of the majority of our fleet up through our global suspension in March of 2020.

Higher ticket pricing for the Silversea brand also resulted in higher total revenues for the quarter and six months ended June 30, 2020.

• The effect of changes in foreign currency exchange rates related to our passenger ticket and onboard and other revenue transactions, denominated in currencies other than the United States dollar, resulted in an increase in total revenues of $2.6 million and $5.1 million for the quarter and six months ended June 30, 2021, respectively, compared to the same periods in 2020.

• Total cruise operating expenses, excluding the effect of changes in foreign currency exchange rates, decreased $259.4 million and $1.5 billion for the quarter and six months ended June 30, 2021, respectively, as compared to the same periods in 2020.

The decrease was primarily due to lower costs incurred as a result of the continued suspension of the majority of our operations due to COVID-19 during the quarter and six months ended June 30, 2021.

• The effect of changes in foreign currency exchange rates related to our cruise operating expenses, denominated in currencies other than the U.S.

dollar, resulted in an increase in total operating expenses of $4.1 million for the quarter ended March 31, 2021, compared to the same period in 2020.

• Our consolidated results of operations include Silversea Cruises’ results of operations on a three-month reporting lag for October, November and December 2020, for the quarter ended March 31, 2021.

dollar, resulted in an increase in total operating expenses of $3.8 million and $7.9 million, respectively, for the quarter and six months ended June 30, 2021, compared to the same periods in 2020.

• Our consolidated results of operations include Silversea Cruises’ results of operations on a three-month reporting lag for January, February and March 2021, for the quarter ended June 30, 2021, and from October 1, 2020 through March 31, 2021 for the six months ended June 30, 2021.

• In March 2021, we extended the maturity date or termination date of certain of the advances and commitments, as applicable, held by consenting lenders under our $1.0 billion unsecured loan due April 2022 and our $1.55 billion unsecured revolving credit facility due October 2022, by 18 months to October 2023 and April 2024, respectively.

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• In March 2021, we took delivery of Odyssey of the Seas.

Operating results for the quarter ended March 31, 2021 compared to the same period in 2020 are shown in the following table (in thousands, except per share data):

Quarter Ended March 31,

• In June 2021, we issued $650.0 million of senior unsecured notes due in 2026 for net proceeds of approximately $640.6 million, which were used to fully repay the Silversea Notes in the amount of $619.8 million and to pay the related call premiums, accrued interest and fees.

Interests on the Silversea Notes accrued at 7.25% per annum and was payable semi-annually.

• In June 2021, Hapag-Lloyd took delivery of Hanseatic Spirit.

Operating results for the quarter and six months ended June 30, 2021 compared to the same periods in 2020 are shown in the following tables (in thousands, except per share data):

Quarter Ended June 30,

Revenues % of Total

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Diluted Loss per Share $ (5.29) $ (7.83)

Six Months Ended June 30,

Revenues % of Total

Passenger ticket revenues $ 43,629 46.9 % $ 1,483,873 67.2 %

Onboard and other revenues 49,299 53.1 % 724,482 32.8 %

Total revenues 92,928 100.0 % 2,208,355 100.0 %

Cruise operating expenses:

Commissions, transportation and other 8,137 8.8 % 345,953 15.7 %

Onboard and other 13,079 14.1 % 145,297 6.6 %

Payroll and related 264,276 284.4 % 574,267 26.0 %

Food 25,668 27.6 % 148,799 6.7 %

Fuel 100,931 108.6 % 273,460 12.4 %

Other operating 296,226 318.8 % 703,463 31.9 %

Total cruise operating expenses 708,317 762.2 % 2,191,239 99.2 %

Marketing, selling and administrative expenses 543,599 585.0 % 697,308 31.6 %

Depreciation and amortization expenses 633,605 681.8 % 644,087 29.2 %

Impairment and credit losses 40,172 43.2 % 1,264,615 57.3 %

Operating Loss (1,832,765) (1,972.2) % (2,588,894) (117.2) %

Other income (expense):

Interest income 9,531 10.3 % 10,740 0.5 %

Interest expense, net of interest capitalized (577,325) (621.3) % (311,800) (14.1) %

Equity investment loss (107,959) (116.2) % (62,245) (2.8) %

Other income (expense) 29,541 31.8 % (116,684) (5.3) %

(646,212) (695.4) % (479,989) (21.7) %

Net Loss $ (2,478,977) (2,667.6) % $ (3,068,883) (139.0) %

Net Income attributable to noncontrolling interest — — % 14,888 0.7 %

Net Loss attributable to Royal Caribbean Cruises Ltd.

$ (2,478,977) (2,667.6) % $ (3,083,771) (139.6) %

Diluted Loss per Share $ (9.96) $ (14.74)

Adjusted Net Loss attributable to Royal Caribbean Cruises Ltd.

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were calculated as follows (in thousands, except per share data):

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net Loss attributable to Royal Caribbean Cruises Ltd.

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

Loss on extinguishment of debt (1)

(Gain) Loss on extinguishment of debt (1)

$ (4,470) $ 40,335 $ (3,156) 40,335

Convertible debt amortization of debt discount (2)

26,073 4,184 52,146 4,184

Pullmantur reorganization settlement (3)

— 21,637 5,000 21,637

Impairment and credit losses (4)

40,621 156,497 40,172 1,264,615

Equity investment impairment (5)

Equity investment impairments (5)

— — 26,042 39,735

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Restructuring charges and other initiatives expense (7)

330 32,982 1,647 45,025

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

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Noncontrolling interest adjustment (9)

— 22,557 — 46,616

Net gain related to the sale of the Azamara brand (10)

1,220 — (4,936) —

Currency translation adjustment losses (11)

— 69,044 — 69,044

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

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Diluted 254,577 209,385 248,823 209,241

(1) Represents a debt extinguishment loss on the partial repayment of the $1.55 billion unsecured revolving credit facility.

(1) For the three months ended June 30, 2021, represents the net gain on the full repayment of the Silversea Notes in the amount of $619.8 million.

For the six months ended June 30, 2021, represents the net gain on the full repayment of the Silversea Notes and the first quarter 2021 loss on the partial repayment of the $1.55 billion unsecured revolving credit facility.

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

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

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

reorganization.

(4) In 2021, represents the recovery of credit losses recognized during 2020.

In 2020, represents asset impairment and credit losses recorded in the first quarter of 2020 as a result of the impact of COVID-19.

(5) Represent equity investment asset impairments, primarily for our investment in TUI Cruises GmbH in 2021 and Grand Bahama Shipyard in 2020, as a result of the impact of COVID-19.

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

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

(4) In 2021 and 2020, represents asset impairment and credit losses as a result of the impact of COVID-19.

In 2021, amounts are net of the recovery of credit losses recognized in 2020.

(5) Represent equity investment asset impairments, primarily for our investments in TUI Cruises GmbH in 2021 and Grand Bahama Shipyard in 2020, as a result of the impact of COVID-19.

(6) Amounts include net insurance recoveries related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas.

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

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(8) Related to the Silversea Cruises acquisition.

(9) Adjustment made 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.'s) noncontrolling interest.

(10) Represents the net gain recognized in the first quarter of 2021 in relation to the sale of the Azamara brand.

(11) Represents currency translation losses recognized during the second quarter of 2020, in connection with the ships classified as assets held-for-sale that were previously chartered to Pullmantur.

Selected statistical information is shown in the following table:

Quarter Ended March 31, (1)

Quarter Ended June 30, (1)

Six Months Ended June 30, (1)

2021 2020 2021 2020

Passengers Carried 34,273 20,027 75,482 1,259,846

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Occupancy 27.5 % 84.5 % 32.1 % 102.6 %

(1) Due to the three-month reporting lag, these metrics include October, November and December amounts for Silversea Cruises.

(1) Due to the three-month reporting lag, we include Silversea Cruises' results of operations from January 1 through March 31 for the quarters ended June 30, 2021 and 2020 and from October 1 through March 31 for the six months ended June 30, 2021 and 2020.

Refer to Note 1.

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

The Company’s operations are still heavily impacted by the magnitude, duration, speed and geographic reach of COVID-19 and its related variants.

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We expect to incur a net loss on both a U.S.

GAAP and adjusted basis for our second quarter and our 2021 fiscal year, the extent of which will depend on many factors including the timing and extent of our return to service.

GAAP and adjusted basis for our third quarter and our 2021 fiscal year, 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.

Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020

In this section, references to 2021 refer to the quarter ended March 31, 2021 and references to 2020 refer to the quarter ended March 31, 2020.

Total revenues for 2021 decreased $2.0 billion, or 97.9%, to $42.0 million from $2.0 billion in 2020.

Quarter Ended June 30, 2021 Compared to Quarter Ended June 30, 2020

In this section, references to 2021 refer to the quarter ended June 30, 2021 and references to 2020 refer to the quarter ended June 30, 2020.

Total revenues for 2021 decreased $124.7 million, or 71.0%, to $50.9 million from $175.6 million in 2020.

Passenger ticket revenues comprised 44.8% of our 2021 total revenues.

Passenger ticket revenues for 2021 decreased by $1.4 billion, or 98.5%, from 2020.

The decrease was due to a decrease in capacity, driven by a higher amount of cancelled sailings in 2021 resulting from the suspension of our global fleet operations in response to COVID-19, which began in mid-March 2020.

Passenger ticket revenues for 2021 decreased by $84.2 million, or 78.7%, from 2020.

The decrease in Passenger ticket revenues in the second quarter of 2021 reflects a 57% decrease in occupancy compared to the second quarter of 2020.

Our occupancy in the second of quarter 2020 includes Silversea Cruises' first quarter 2020 sailings prior to the suspension of our global sailings in March of 2020, reported on a one quarter la g.

Higher ticket pricing for the Silversea brand also resulted in higher Passenger ticket revenues for the quarter ended June 30, 2020.

The remaining 55.2% of 2021 total revenues was comprised of Onboard and other revenues , which decreased $40.5 million, or 59.0%, to $28.1 million in 2021 from $68.6 million in 2020.

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

The decrease in Onboard and other revenues was primarily due to the decrease in occupancy noted above.

Favorable movements in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar increased Onboard and other revenues by $1.9 million.

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Cruise Operating Expenses

Total Cruise operating expenses for 2021 decreased $1.2 billion, or 81.2%, to $0.3 billion from $1.5 billion in 2020.

Total Cruise operating expenses for 2021 decreased $255.6 million, or 37.6%, to $424.8 million from $680.4 million in 2020.

The decrease was primarily due to:

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Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2021 decreased $14.2 million, or 4.4%, to $310.2 million from $324.3 million in 2020.

The decrease was primarily due to a reduction in the carrying value of depreciable assets, resulting from the 2020 asset impairments, that exceeded the carrying value of assets placed in service during the same period.

Additionally, we ceased the recognition of depreciation expense on the Azamara fleet during the quarter ended March 31, 2021.

The decreases were partially offset by the addition of Celebrity Apex in 2020.

Depreciation and amortization expenses for 2021 were in line with prior year expenses, with an increase of $3.7 million, or 1.2%, to $323.4 million from $319.8 million in 2020.

Impairment and Credit Losses

Impairment and credit losses for 2021 decreased by $1.1 billion as a result of charges recorded during the quarter ended March 31, 2020 due to the impact of COVID-19 on our operations and cash flows, impacting our long-lived assets related to goodwill, intangibles, vessels and operating lease right-of-use asset, as well as incurring credit losses.

Impairment and credit losses for 2021 decreased by $115.9 million as a result of charges recorded during the quarter ended June 30, 2020 due to the impact of COVID-19 on our operations and cash flows, which adversely impacted our long-lived assets related to vessels and operating lease right-of-use assets, and resulted in credit losses.

Other Income (Expense)

Interest expense, net of interest capitalized for 2021 increased $85.9 million, or 39.3%, to $304.8 million from $218.9 million in 2020.

The increase was primarily due to new debt issuances after the first quarter of 2020 and through the first quarter of 2021, higher interest rates on our new debt and a higher average balance on our revolver.

Equity investment loss increased by $49.5 million to $59.9 million from $10.4 million mainly due to continued losses reported by our equity investments as a result of the adverse impact of COVID-19 on their operations and earnings.

The increase was primarily due to new debt issuances during and after the second quarter of 2020 and through the second quarter of 2021, and to a lesser extent higher interest rates.

Equity investment loss in 2021 was generally consistent with the prior year, with a slight decrease of $3.8 million, to $48.1 million from $51.9 million in 2020.

Other income (expense) We recognized Other income of $24.5 million in 2021, compared to Other expense of $83.8 million in 2020.

The $37.9 million increase in income was primarily due to:

the 2020 recognition of $65.7 million expense related to the change in fair value of mostly fuel swap derivative instruments with no hedge accounting, compared to $14.3 million in income recognized in 2021, resulting in a change of $80.0 million of income;

an increase of $6.4 million in foreign exchange gain on remeasurement of our monetary assets, net of hedging, and an increase of $6.7 million in net tax benefit mostly attributable to the suspension in our operations in 2021 compared to 2020.

The increases in income were partially offset by $51.0 million in income recognized in 2020, which did not recur in 2021, for the change in fair value of contingent consideration related to our acquisition of 66.7% interest in Silversea Cruises in 2018.

Due to the settlement of the contingent consideration in 2020, there was no impact for the three months ended March 31, 2021.

The $108.3 million increase in income was primarily due to the 2020 recognition of a deferred currency translation adjustment loss of $69.0 million in the quarter ended June 30, 2020 related to the 2016 sale of our majority interest in the Pullmantur brand.

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

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

We also recognized $20.0 million of expense during the second quarter of 2020, approximating the estimated total cash refunds 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.

In 2021, we recognized $15.1 million in income related to the change in fair value of fuel swap derivative instruments with no hedge accounting compared with an expense of $8.3 million recognized in 2020, resulting in a change of $23.4 million.

Other Comprehensive Income (Loss)

Other comprehensive income in 2021 was $44.9 million compared to Other comprehensive income of $144.4 million in 2020.

The decrease in income of $99.5 million was primarily due to a decrease in Gain on cash flow derivative hedges of $72.9 million in 2021 compared to 2020, primarily due to a decrease in the fair value of our foreign currency forwards and interest rate swaps in 2021 compared to an increase in their fair values in 2020.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

In this section, references to 2021 refer to the six months ended June 30, 2021 and references to 2020 refer to the six months ended June 30, 2020.

Total revenues for 2021 decreased $2.1 billion, or 95.8%, to $92.9 million from $2.2 billion in 2020.

Passenger ticket revenues comprised 46.9% of our 2021 total revenues.

Passenger ticket revenues for 2021 decreased by $1.4 billion, or 97.1%, from 2020.

The decrease in Passenger ticket revenues was due to a 89.9% decrease in capacity driven by the lay-up of the majority of our fleet during the six months ended 2021 compared to the operation of the majority of our fleet up through our global suspension in March of 2020.

Our results of operations for the six months ended June 2020 include Silversea Cruises' fourth quarter 2019 and first quarter 2020 sailings, reported on a one quarter lag.

Additionally, higher ticket pricing for the Silversea brand also resulted in higher Passenger ticket revenues for the six months ended June 30, 2020.

Passenger ticket revenues also increased by $1.2 million due to the favorable effect of changes in foreign currency exchange rates related to our revenues in currencies other than the United States dollar.

The remaining 53.1% of 2021 total revenues was comprised of Onboard and other revenues , which decreased $675.2 million, or 93.2%, to $49.3 million in 2021 from $724.5 million in 2020.

The decrease in Onboard and other revenues was primarily due to the decrease in capacity noted above and offset by the favorable 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 $3.9 million.

Onboard and other revenues included concession revenue of 2.4 million in 2021 and $74.7 million in 2020.

Cruise Operating Expenses

Total cruise operating expenses for 2021 decreased $1.5 billion, or 67.7%, to $708.3 million from $2.2 billion in 2020.

The majority of the decrease was due to the 89.9% decrease in capacity noted above as a result of our cancelled sailings as follows:

• a decrease in commissions as a result of sailing cancellations, including those reported in Other operating;

• a $310.0 million decrease in Payroll and related expense;

• a $132.2 million decrease in Onboard and other expenses mostly due to lower shore excursion costs and beverage costs;

• a $172.5 million decrease in Fuel expenses;

• a $123.1 million decrease in Food expenses;

• the unfavorable effect of changes in foreign currency exchange rates related to our expense transactions denominated in currencies other than the United States dollar of $7.9 million.

Marketing, Selling and Administrative Expenses

Marketing, selling and administrative expenses decreased $153.7 million, or 22.0%, to $543.6 million from $697.3 million in 2020.

The decrease was due to the reduction and deferral of global sales and marketing activities due to the COVID-19 impact on our operations.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2021 decreased $10.5 million, or 1.6%, to $633.6 million from $644.1 million in 2020.

The decrease was primarily due to the sale of Azamara ships and other asset dispositions after the second quarter of 2020, offset by the addition of Odyssey of the Seas in the first quarter of 2021 and Celebrity Apex in the first quarter of 2020.

Impairment and Credit Losses

Impairment and credit losses for 2021 decreased by $1.2 billion as a result of charges recorded during the six months ended June 30, 2020 due to the impact of COVID-19 on our operations and cash flows, which impacted our long-lived assets related to goodwill, intangibles, vessels and operating lease right-of-use asset, and resulted in credit losses.

Other Income (Expense)

Interest expense, net of interest capitalized, for 2021 increased $265.5 million, or 85.2%, to $577.3 million from $311.8 million in 2020.

The increase was due to interest expense related to new debt issuances in 2020 and 2021, a higher average balance on our revolver and higher interest rates.

Equity investment loss increased $45.7 million, or 73.4%, to a loss of $108.0 million in 2021 from a loss of $62.2 million in 2020 mainly as a result of the continued adverse impact of COVID-19 on our equity investees' operations and a $26.0 million impairment charge of our investee's long-lived assets, partially offset with a $39.7 million impairment charge of equity investments in 2020, primarily for our investment in Grand Bahama Shipyard.

Other income (expense) We recognized Other income of $29.5 million in 2021 compared to Other expense of $116.7 million in 2020.

The $146.2 million change was primarily due to a $106.9 million year-over-year increase in the fair value of fuel swaps with no hedge accounting.

Additionally, we recorded a deferred currency translation adjustment loss of $69.0 million in the quarter ended June 30, 2020 related to the 2016 sale of our majority interest in the Pullmantur brand.

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

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

We also recognized $20.0 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.

The increases in Other income were partially offset by income reported in 2020 of $44.6 million for the change in contingent consideration payable to Heritage in 2020, which did not recur in 2021.

Other Comprehensive (Loss)

Other comprehensive income in 2021 was $75.4 million compared to Other comprehensive loss of $153.5 million in 2020.

The increase in income of $328.4 million was primarily due to a Gain on cash flow derivative hedges in 2021 of $10.3 million compared to a Loss on cash flow derivative hedges in 2020 of $300.6 million, as a result of an increase in the fair value of our fuel swaps and interest rate swaps in 2021 compared to a decrease in the fair value of our fuel swaps and interest rate swaps in 2020.

The change of $228.9 million, or 149.1%, was primarily due to a gain on cash flow derivative hedges in 2021 of $61.8 million, compared to a loss on cash flow derivative hedges of $176.3 million in 2020 primarily due to an increase in the fair value of our fuel swaps in 2021 compared to a decrease in 2020.

Future Application of Accounting Standards

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Sources and Uses of Cash

Net cash used by operating activities decreased $1.0 billion to $(0.8) billion for the first quarter of 2021 compared to Net cash provided by operating activities of $198.7 million for the same period in 2020.

The continued suspension of the majority of our global sailings as a result of COVID-19 has significantly affected our liquidity and cash flow resulting in decreased guest ticket collections and a decrease of Onboard and other revenues of $634.7 million during the first three months in 2021, compared to the same period in 2020.

We also began to incur return to service expenses for certain ships in our fleet during the first quarter of 2021, as we have announced additional limited sailings for the summer of 2021.

Net cash used in investing activities decreased $373.6 million to $1.0 billion for the first three months in 2021, compared to $1.3 billion for the same period in 2020.

The decrease was primarily attributable to a decrease in capital expenditures of $190.9 million during the first quarter of 2021, compared to the same period in 2020 and an increase in proceeds from the sale of property and equipment and other assets of $175.4 million during the first quarter of 2021 compared to 2020.

Net cash provided by financing activities was $3.2 billion for the first quarter of 2021, compared to $4.8 billion for the same period in 2020.

The decrease of $1.6 billion was primarily attributable to a decrease in debt proceeds and issuance of commercial paper notes of $11.0 billion, partially offset by lower repayments of debt and commercial paper notes of $7.6 million during the first quarter of 2021, compared to the same period in 2020.

The $3.4 billion decrease in net debt and commercial paper notes proceeds, was further offset by $1.6 billion of proceeds from common stock issuances during the first quarter of 2021.

Net cash used in operating activities decreased $0.8 billion to $(1.3) billion for the first six months of 2021 compared to Net cash used in operating activities of $(2.0) billion for the same period in 2020.

Our gradual resumption of operations during the first half of 2021 and our announcement for the resumption of future operations has generated increased guest ticket collections, resulting in an increase of customer deposits of $0.6 billion during the six months ended June 30, 2021, compared to a decrease of customer deposits of $(1.6) billion during the six months ended June 30, 2020, when the suspension of our global operations commenced.

The increase in customer deposits was offset by increased service expenses for certain ships in

our fleet during the first half of 2021, reflecting our resumption of limited cruise operations globally and preparations for our announced sailings in the near term.

Net cash used in investing activities decreased $0.4 billion to $1.2 billion for the first six months in 2021, compared to $1.6 billion for the same period in 2020.

The decrease was primarily attributable to an increase in proceeds from the sale of property and equipment and other assets of $175.4 million during the first six months of 2021 compared to 2020 and a decrease in capital expenditures of $105.7 million during the first six months of 2021, compared to the same period in 2020.

Net cash provided by financing activities were $3.0 billion for the first six months of 2021, compared to $7.5 billion for the same period in 2020.

The decrease of $4.5 billion was primarily attributable to higher debt proceeds and issuance of commercial paper notes of $16.3 billion during the first six months of 2020, partially offset by lower repayments of debt and commercial paper notes of $9.7 billion during the first six months of 2021 and $1.6 billion of proceeds from common stock issuances in the first quarter of 2021.

Future Capital Commitments

Capital Expenditures

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

As of March 31, 2021, the dates that the ships on order by our Global and Partner Brands are expected to be delivered, subject to change in the event of construction delays, and their approximate berths are as follows:

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

As of June 30, 2021, the dates that the ships on order by our Global and Partner Brands are expected to be delivered, subject to change in the event of construction delays, and their approximate berths are as follows:

Ship Shipyard Expected Delivery Date Approximate

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Unnamed Chantiers de l'Atlantique 2nd Quarter 2024 5,700

Unnamed Meyer Turku Oy 3rd Quarter 2023 5,600

Icon of the Seas Meyer Turku Oy 3rd Quarter 2023 5,600

Unnamed Meyer Turku Oy 2nd Quarter 2025 5,600

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Unnamed Fincantieri 1st Quarter 2026 4,100

Hapag-Lloyd Cruises (50% joint venture) —

Hanseatic Spirit Vard Fincantieri 2nd Quarter 2021 230

Total Berths 47,800

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Our future capital commitments consist primarily of new ship orders.

As of March 31, 2021, the aggregate cost of our ships on order presented in the table above, excluding any ships on order by our Partner Brands, was $12.9 billion, of which we had deposited $602.5 million.

Approximately 70.5% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at March 31, 2021.

As of June 30, 2021, the aggregate cost of our ships on order presented in the table above, excluding any ships on order by our Partner Brands, was $12.9 billion, of which we had

deposited $739.5 million.

Approximately 70.1% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at June 30, 2021.

Decreased demand for cruising as a result of concerns regarding COVID-19 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 March 31, 2021, we anticipate overall full year capital expenditures, based on our existing ships on order, will be approximately $2.1 billion for 2021.

As of June 30, 2021, we anticipate overall full year capital expenditures, based on our existing ships on order, will be approximately $2.1 billion for 2021.

This amount does not include any ships on order by our Partner Brands.

Contractual Obligations

As of March 31, 2021, our contractual obligations were as follows (in thousands):

As of June 30, 2021, our contractual obligations were as follows (in thousands):

Payments due by period

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(2) Long-term debt obligations mature at various dates through fiscal year 2033 and bear interest at fixed and variable rates.

Interest on variable-rate debt is calculated based on forecasted debt balances, including the impact of interest rate swap agreements using the applicable rate at March 31, 2021.

Debt denominated in other currencies is calculated based on the applicable exchange rate at March 31, 2021.

Interest on variable-rate debt is calculated based on forecasted debt balances, including the impact of interest rate swap agreements using the applicable rate at June 30, 2021.

Debt denominated in other currencies is calculated based on the applicable exchange rate at June 30, 2021.

(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.

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

Debt denominated in other currencies is calculated based on the applicable exchange rate at March 31, 2021.

In addition, debt obligations presented above are net of debt issuance costs of $363.3 million as of March 31, 2021.

Debt denominated in other currencies is calculated based on the applicable exchange rate at June 30, 2021.

In addition, debt obligations presented above are net of debt issuance costs of $367.0 million as of June 30, 2021.

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

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We continuously consider potential acquisitions and strategic alliances.

If any of these were to occur, they would be financed through the incurrence of additional indebtedness, the issuance of additional shares of equity securities or through cash flows from operations.

If any of these

were to occur, they would be financed through the incurrence of additional indebtedness, the issuance of additional shares of equity securities or through cash flows from operations.

Off-Balance Sheet Arrangements

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There are no stated or notional amounts included in the indemnification clauses and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses.

We have not been required to make

any payments under such indemnification clauses in the past and, under current circumstances, we do not believe an indemnification obligation is probable.

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

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

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

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.

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.

In June of 2021, we issued a notice to SMBC Leasing and Finance, Inc (the "Lessor"), exercising our existing option under our operating lease with the Lessor to purchase Terminal A at PortMiami in July of 2021 for the pre-agreed purchase price of $220.0 million.

Our July 2021 purchase of the Port of Miami terminal eliminated the residual value guarantee and a requirement under the lease to post $181.1 million of cash collateral on or before July 18, 2021.

On February 25, 2021, S&P Global downgraded our senior unsecured rating from B+ to B, which had no financial impact, and downgraded our $3.32 billion Senior Secured Notes and Silversea Notes (which were fully repaid in June 2021 with a portion of the proceeds from the $650 million Unsecured Notes) from BB to BB-.

This downgrade had no impact on the terms of the notes.

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These agreements allow the credit card processors to require us, under certain circumstances, including breach of the financial covenants, the existence of other material adverse changes, excessive chargebacks, and other triggering events, to maintain a reserve that can be satisfied by posting collateral.

As of March 31, 2021, we have posted letters of credit as collateral with our sureties and credit card processors, under our revolving credit facilities in the amount of $172.7 million.

As of June 30, 2021, we have posted letters of credit as collateral with our sureties and credit card processors under our revolving credit facilities in the amount of $164.2 million.

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

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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.

As of March 31, 2021, 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.

As of June 30, 2021, 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, drawdowns 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 has resulted in our voluntary suspension of global cruise operations from March 2020 through at least June 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 impact of COVID-19 has resulted in our voluntary suspension of global cruise operations from March 2020 up to our recent gradual resumption of operations.

The suspension of operations 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.

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

As of March 31, 2020, we had $10.5 billion of committed financing for final delivery installments on our ships on order.

As of March 31, 2021, we had $3.3 billion in contractual obligations due through March 31, 2022, of which approximately $0.2 billion relates to debt maturities, $981.4 million relates to interest on debt and $1.8 billion relates to progress payments on our ship orders and the final installments payable due upon the delivery of Silver Dawn and Wonder of the Seas , based on their expected delivery dates.

As of March 31, 2021, we had liquidity of $5.8 billion, consisting of cash and cash equivalents of $5.1 billion and a $0.7 billion commitment through August 12, 2022 for a 364-day term loan facility.

As of March 31, 2021, our revolving credit facilities were fully utilized through a combination of amounts drawn and letters of credit issued under the facilities.

agreed with certain of our lenders not to pay dividends or engage in stock repurchases.

As of June 30, 2021, we had $10.5 billion of committed financing for final delivery installments on our ships on order.

As of June 30, 2021, we had $4.7 billion in contractual obligations due through June 30, 2022, of which approximately $0.7 billion relates to debt maturities, $1.0 billion relates to interest on debt and $2.5 billion relates to progress payments on our ship orders and the final installments payable due upon the delivery of Silver Dawn, Wonder of the Seas and Celebrity Beyond , based on their expected delivery dates.

As of June 30, 2021, we had liquidity of $5.0 billion, consisting of cash and cash equivalents of $4.3 billion and a $0.7 billion commitment through August 12, 2022 for a 364-day term loan facility.

As of June 30, 2021, our revolving credit facilities were mostly utilized through a combination of amounts drawn and letters of credit issued under the facilities.

We have agreed with certain of our lenders not to pay dividends or engage in stock repurchases.

Refer to Note 10 .

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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 March 31, 2021, 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 the first quarter of 2021, we amended our Port of Miami Terminal "A" operating lease agreement 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 March 31, 2021, we were in compliance with the amended covenants under the lease agreement.

As of June 30, 2021, 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.

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.

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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.

Accordingly, we did not declare a dividend during the four consecutive quarters ending March 31, 2021.

Accordingly, we did not declare a dividend during the five consecutive quarters ending June 30, 2021.

Pursuant to amendments made to these agreements during the first quarter of 2021, the restrictions on paying cash dividends and effectuating share repurchases were extended through and including the third quarter of 2022.

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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-Q

Item 2. Management’s Discussion and Analysis