Royal Caribbean Group - 10-Q quarterly report FY2019 Q3

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-11884

ROYAL CARIBBEAN CRUISES LTD.

(Exact name of registrant as specified in its charter)



Republic of	Liberia	98-0081645
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1050 Caribbean Way, Miami, Florida 33132

(Address of principal executive offices) (zip code)

(305) 539-6000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	RCL	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 209,631,168 shares of common stock outstanding as of October 23, 2019.

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ROYAL CARIBBEAN CRUISES LTD.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited; in thousands, except per share data)



	Quarter Ended September 30,
	2019			2018
Passenger ticket revenues	$	2,344,779		$	2,042,911
Onboard and other revenues	842,071			753,276
Total revenues	3,186,850			2,796,187
Cruise operating expenses:
Commissions, transportation and other	488,921			430,039
Onboard and other	200,656			171,028
Payroll and related	263,993			221,205
Food	149,621			133,324
Fuel	177,677			182,415
Other operating	342,170			273,353
Total cruise operating expenses	1,623,038			1,411,364
Marketing, selling and administrative expenses	352,725			325,167
Depreciation and amortization expenses	320,295			259,923
Operating Income	890,792			799,733
Other income (expense):
Interest income	5,625			5,831
Interest expense, net of interest capitalized	(102,038		)	(86,510		)
Equity investment income	103,654			95,169
Other expense	(7,668		)	(3,832		)
	(427		)	10,658
Net Income	890,365			810,391
Less: Net Income attributable to noncontrolling interest	7,125			—
Net Income attributable to Royal Caribbean Cruises Ltd.	$	883,240		$	810,391
Earnings per Share:
Basic	$	4.21		$	3.88
Diluted	$	4.20		$	3.86
Weighted-Average Shares Outstanding:
Basic	209,575			209,054
Diluted	210,121			209,928
Comprehensive Income
Net Income	$	890,365		$	810,391
Other comprehensive income (loss):
Foreign currency translation adjustments	(15,510		)	(3,479		)
Change in defined benefit plans	(12,456		)	1,153
(Loss) gain on cash flow derivative hedges	(265,224		)	36,946
Total other comprehensive (loss) income	(293,190		)	34,620
Comprehensive Income	597,175			845,011
Less: Comprehensive Income attributable to noncontrolling interest	7,125			—
Comprehensive Income attributable to Royal Caribbean Cruises Ltd.	$	590,050		$	845,011

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited; in thousands, except per share data)



	Nine Months Ended September 30,
	2019			2018
Passenger ticket revenues	$	6,072,599		$	5,141,125
Onboard and other revenues	2,360,649			2,020,423
Total revenues	8,433,248			7,161,548
Cruise operating expenses:
Commissions, transportation and other	1,279,010			1,078,953
Onboard and other	510,255			412,805
Payroll and related	799,094			674,676
Food	436,002			381,349
Fuel	519,772			515,065
Other operating	1,037,113			838,946
Total cruise operating expenses	4,581,246			3,901,794
Marketing, selling and administrative expenses	1,144,546			975,451
Depreciation and amortization expenses	924,180			753,529
Operating Income	1,783,276			1,530,774
Other income (expense):
Interest income	21,751			26,662
Interest expense, net of interest capitalized	(313,757		)	(236,252		)
Equity investment income	170,393			168,232
Other (expense) income	(34,537		)	5,923
	(156,150		)	(35,435		)
Net Income	1,627,126			1,495,339
Less: Net Income attributable to noncontrolling interest	21,375			—
Net Income attributable to Royal Caribbean Cruises Ltd.	$	1,605,751		$	1,495,339
Earnings per Share:
Basic	$	7.67		$	7.08
Diluted	$	7.65		$	7.05
Weighted-Average Shares Outstanding:
Basic	209,477			211,099
Diluted	210,032			211,973
Comprehensive Income
Net Income	$	1,627,126		$	1,495,339
Other comprehensive income (loss):
Foreign currency translation adjustments	(7,683		)	(13,840		)
Change in defined benefit plans	(22,831		)	6,949
(Loss) gain on cash flow derivative hedges	(288,115		)	110,576
Total other comprehensive (loss) income	(318,629		)	103,685
Comprehensive Income	1,308,497			1,599,024
Less: Comprehensive Income attributable to noncontrolling interest	21,375			—
Comprehensive Income attributable to Royal Caribbean Cruises Ltd.	$	1,287,122		$	1,599,024

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



	As of
	September 30,			December 31,
	2019			2018
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	276,730		$	287,852
Trade and other receivables, net	348,991			324,507
Inventories	167,213			153,573
Prepaid expenses and other assets	399,390			456,547
Derivative financial instruments	11,633			19,565
Total current assets	1,203,957			1,242,044
Property and equipment, net	25,005,404			23,466,163
Operating lease right-of-use assets	697,461			—
Goodwill	1,373,065			1,378,353
Other assets	1,545,574			1,611,710
Total assets	$	29,825,461		$	27,698,270
Liabilities, Redeemable Noncontrolling Interest and Shareholders’ Equity
Current liabilities
Current portion of debt	$	943,060		$	1,646,841
Commercial paper	922,201			775,488
Current portion of operating lease liabilities	93,058			—
Accounts payable	538,949			488,212
Accrued interest	124,561			74,550
Accrued expenses and other liabilities	979,939			899,761
Derivative financial instruments	101,561			78,476
Customer deposits	3,410,205			3,148,837
Total current liabilities	7,113,534			7,112,165
Long-term debt	8,819,212			8,355,370
Long-term operating lease liabilities	620,570			—
Other long-term liabilities	731,844			583,254
Total liabilities	17,285,160			16,050,789
Commitments and contingencies (Note 11)
Redeemable noncontrolling interest	563,394			542,020
Shareholders’ equity
Preferred stock ($0.01 par value; 20,000,000 shares authorized; none outstanding)	—			—
Common stock ($0.01 par value; 500,000,000 shares authorized; 236,494,616 and 235,847,683 shares issued, September 30, 2019 and December 31, 2018, respectively)	2,365			2,358
Paid-in capital	3,466,641			3,420,900
Retained earnings	11,412,773			10,263,282
Accumulated other comprehensive loss	(946,363		)	(627,734		)
Treasury stock (26,887,147 and 26,830,765 common shares at cost, at September 30, 2019 and December 31, 2018, respectively)	(1,958,509		)	(1,953,345		)
Total shareholders’ equity	11,976,907			11,105,461
Total liabilities, redeemable noncontrolling interest and shareholders’ equity	$	29,825,461		$	27,698,270

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in thousands)



	Nine Months Ended September 30,
	2019			2018
Operating Activities
Net Income	$	1,627,126		$	1,495,339
Adjustments:
Depreciation and amortization	924,180			753,529
Impairment losses	—			33,651
Net deferred income tax expense (benefit)	4,664			(2,926		)
Loss on derivative instruments not designated as hedges	24,229			41,397
Share-based compensation expense	51,256			63,420
Equity investment income	(170,393		)	(168,232		)
Amortization of debt issuance costs	24,154			31,656
Amortization of commercial paper notes discount	23,583			3,844
Loss on extinguishment of debt	6,326			—
Change in fair value of contingent consideration	10,700			—
Gain on sale of unconsolidated affiliate	—			(13,680		)
Recognition of deferred gain	—			(21,794		)
Changes in operating assets and liabilities:
Increase in trade and other receivables, net	(36,682		)	(17,141		)
Increase in inventories	(13,640		)	(21,760		)
Decrease (increase) in prepaid expenses and other assets	41,757			(76,471		)
Increase in accounts payable	51,011			35,433
Increase in accrued interest	50,011			45,735
Increase (decrease) in accrued expenses and other liabilities	81,026			(15,856		)
Increase in customer deposits	261,335			349,230
Dividends received from unconsolidated affiliates	148,285			241,697
Other, net	(1,860		)	(10,087		)
Net cash provided by operating activities	3,107,068			2,746,984
Investing Activities
Purchases of property and equipment	(2,341,895		)	(2,509,127		)
Cash received on settlement of derivative financial instruments	6,442			74,008
Cash paid on settlement of derivative financial instruments	(86,671		)	(50,891		)
Investments in and loans to unconsolidated affiliates	(6,889		)	(15,194		)
Cash received on loans to unconsolidated affiliates	27,697			49,501
Proceeds from the sale of unconsolidated affiliate	—			13,215
Acquisition of Silversea Cruises, net of cash acquired	—			(916,135		)
Other, net	(1,028		)	(3,989		)
Net cash used in investing activities	(2,402,344		)	(3,358,612		)
Financing Activities
Debt proceeds	3,080,564			6,626,295
Debt issuance costs	(42,491		)	(54,775		)
Repayments of debt	(3,424,339		)	(5,833,602		)
Proceeds from issuance of commercial paper notes	19,807,417			2,165,991
Repayments of commercial paper notes	(19,684,288		)	(1,171,000		)
Purchases of treasury stock	—			(575,039		)
Dividends paid	(439,543		)	(381,465		)
Proceeds from exercise of common stock options	1,452			4,206
Other, net	(13,681		)	(14,857		)
Net cash (used in) provided by financing activities	(714,909		)	765,754
Effect of exchange rate changes on cash	(937		)	(19,417		)
Net (decrease) increase in cash and cash equivalents	(11,122		)	134,709
Cash and cash equivalents at beginning of period	287,852			120,112
Cash and cash equivalents at end of period	$	276,730		$	254,821
Supplemental Disclosure
Cash paid during the period for:
Interest, net of amount capitalized	$	179,497		$	154,231
Non-cash Investing Activities
Contingent consideration for the acquisition of Silversea Cruises	$	—		$	44,000

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited; in thousands)



	Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders' Equity
Balance at July 1, 2019	$	2,364	$	3,454,831	$	10,692,890		$	(653,173	)	$	(1,958,509	)	$	11,538,403
Activity related to employee stock plans	1		11,810		—			—			—			11,811
Common stock dividends, $0.78 per share	—		—		(163,357		)	—			—			(163,357		)
Changes related to cash flow derivative hedges	—		—		—			(265,224		)	—			(265,224		)
Change in defined benefit plans	—		—		—			(12,456		)	—			(12,456		)
Foreign currency translation adjustments	—		—		—			(15,510		)	—			(15,510		)
Net Income attributable to Royal Caribbean Cruises Ltd.	—		—		883,240			—			—			883,240
Balance at September 30, 2019	$	2,365	$	3,466,641	$	11,412,773		$	(946,363	)	$	(1,958,509	)	$	11,976,907



	Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders' Equity
Balance at January 1, 2019	$	2,358	$	3,420,900	$	10,263,282		$	(627,734	)	$	(1,953,345	)	$	11,105,461
Activity related to employee stock plans	7		45,741		—			—			(5,164		)	40,584
Common stock dividends, $2.18 per share	—		—		(456,260		)	—			—			(456,260		)
Changes related to cash flow derivative hedges	—		—		—			(288,115		)	—			(288,115		)
Change in defined benefit plans	—		—		—			(22,831		)	—			(22,831		)
Foreign currency translation adjustments	—		—		—			(7,683		)	—			(7,683		)
Net Income attributable to Royal Caribbean Cruises Ltd.	—		—		1,605,751			—			—			1,605,751
Balance at September 30, 2019	$	2,365	$	3,466,641	$	11,412,773		$	(946,363	)	$	(1,958,509	)	$	11,976,907

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -Continued

(unaudited; in thousands)



	Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders' Equity
Balance at July 1, 2018	$	2,358	$	3,397,561	$	9,429,784		$	(265,200	)	$	(1,790,805	)	$	10,773,698
Activity related to employee stock plans	—		28,249		—			—			—			28,249
Common stock dividends, $0.70 per share	—		—		(146,283		)	—			—			(146,283		)
Changes related to cash flow derivative hedges	—		—		—			36,946			—			36,946
Change in defined benefit plans	—		—		—			1,153			—			1,153
Foreign currency translation adjustments	—		—		—			(3,479		)	—			(3,479		)
Purchases of treasury stock	—		—		—			—			(162,540		)	(162,540		)
Net Income attributable to Royal Caribbean Cruises Ltd.	—		—		810,391			—			—			810,391
Balance at September 30, 2018	$	2,358	$	3,425,810	$	10,093,892		$	(230,580	)	$	(1,953,345	)	$	11,338,135



	Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders' Equity
Balance at January 1, 2018	$	2,352	$	3,390,117	$	9,022,405		$	(334,265	)	$	(1,378,306	)	$	10,702,303
Cumulative effect of accounting changes	—		—		(23,476		)	—			—			(23,476		)
Activity related to employee stock plans	6		35,693		—			—			—			35,699
Common stock dividends, $1.90 per share	—		—		(400,376		)	—			—			(400,376		)
Changes related to cash flow derivative hedges	—		—		—			110,576			—			110,576
Change in defined benefit plans	—		—		—			6,949			—			6,949
Foreign currency translation adjustments	—		—		—			(13,840		)	—			(13,840		)
Purchases of treasury stock	—		—		—			—			(575,039		)	(575,039		)
Net Income attributable to Royal Caribbean Cruises Ltd.	—		—		1,495,339			—			—			1,495,339
Balance at September 30, 2018	$	2,358	$	3,425,810	$	10,093,892		$	(230,580	)	$	(1,953,345	)	$	11,338,135

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

As used in this Quarterly Report on Form 10-Q, the terms “Royal Caribbean,” the “Company,” “we,” “our” and “us” refer to Royal Caribbean Cruises Ltd. and, depending on the context, Royal Caribbean Cruises Ltd.’s consolidated subsidiaries and/or affiliates. The terms “Royal Caribbean International,” “Celebrity Cruises,” “Azamara” and "Silversea Cruises" refer to our wholly- or majority-owned global cruise brands. Throughout this report, we also refer to regional brands in which we hold an ownership interest, including “TUI Cruises” and “Pullmantur.” However, because these regional brands are unconsolidated investments, our operating results and other disclosures herein do not include these brands unless otherwise specified. In accordance with cruise vacation industry practice, the term “berths” is determined based on double occupancy per cabin even though many cabins can accommodate three or more passengers. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018, including the audited consolidated financial statements and related notes included therein.

This Quarterly Report on Form 10-Q also includes trademarks, trade names and service marks of other companies. Use or display by us of other parties’ trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, these other parties other than as described herein.

Note 1. General

Description of Business

We are a global cruise company. As of September 30, 2019, we control and operate four global cruise brands: Royal Caribbean International, Celebrity Cruises, Azamara and Silversea Cruises (collectively, our "Global Brands").

We also own a 50% joint venture interest in the German brand TUI Cruises and a 49% interest in the Spanish brand Pullmantur (collectively, our "Partner Brands"). We account for our investments in our Partner Brands under the equity method of accounting.

Basis for Preparation of Consolidated Financial Statements

The unaudited consolidated financial statements are presented pursuant to the rules and regulations of the Securities and Exchange Commission. In our opinion, these statements include all adjustments necessary for a fair statement of the results of the interim periods reported herein. Adjustments consist only of normal recurring items, except for any items discussed in the notes below. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted as permitted by such rules and regulations. Estimates are required for the preparation of financial statements in accordance with these principles. Actual results could differ from these estimates. Refer to Note 2. Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2018 for a discussion of our significant accounting policies.

All significant intercompany accounts and transactions are eliminated in consolidation. We consolidate entities over which we have control, usually evidenced by a direct ownership interest of greater than 50%, and variable interest entities where we are determined to be the primary beneficiary. Refer to Note 7. Other Assets for further information regarding our variable interest entities. We consolidate the operating results of Silversea Cruises on a three-month reporting lag to allow for more timely preparation of our consolidated financial statements. No material events or other transactions involving Silversea Cruises have occurred from July 1, 2019 through September 30, 2019 that would require further disclosure or adjustment to our consolidated financial statements as of and for the quarter ended September 30, 2019. For affiliates we do not control but over which we have significant influence on financial and operating policies, usually evidenced by a direct ownership interest from 20% to 50%, the investment is accounted for using the equity method.

Note 2. Summary of Significant Accounting Policies

Adoption of Accounting Pronouncements

Leases

On January 1, 2019, we adopted the guidance codified in Accounting Standard Codification ("ASC") 842, Leases ("ASC 842") using the modified retrospective approach and elected the optional transition method, which allows entities to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Upon adoption, we applied the guidance to all existing leases.

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For leases with a term greater than 12 months, the new guidance requires the lease rights and obligations arising from the leasing arrangements, including operating leases, to be recognized as assets and liabilities on the balance sheet. Upon adoption of the new guidance, the most significant impact was the recognition of right-of-use assets and lease liabilities relating to operating leases in the amounts of $801.8 million and $820.5 million, respectively, reported within Operating lease right-of-use assets and Long-term operating lease liabilities, respectively, with the current portion of the liability reported within Current portion of operating lease liabilities, in our consolidated balance sheet as of January 1, 2019. Accounting for finance leases remained substantially unchanged and continues to be reported within Property and equipment, net and Long-term debt, with the current portion of the debt reported within Current portion of debt, in our consolidated balance sheets. There was no cumulative effect of applying the new standard and accordingly there was no adjustment to our retained earnings upon adoption. The comparative information presented has not been restated and continues to be reported under the accounting standards in effect for those periods. For further information on leases, refer to Note 9. Leases.

This guidance did not have a material impact to our consolidated statements of comprehensive income (loss), consolidated statements of cash flows and our debt-covenants calculations under our current agreements.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments. This ASU, along with subsequent ASUs issued to clarify certain of its provisions, introduces new guidance which makes substantive changes to the accounting model for financial assets subject to credit losses that are measured at amortized cost, as well as certain off-balance sheet credit exposures. The primary updates include the introduction of a new current expected credit loss (“CECL”) model that is based on expected rather than incurred losses. This ASU and the related amendments will be effective for our annual reporting period beginning January 1, 2020. We are currently evaluating the impact of the adoption of this guidance to our consolidated financial statements.

Reclassifications

For the nine months ended September 30, 2019, we separately presented Amortization of commercial paper notes discount in our consolidated statements of cash flows. As a result, the prior year amortization amount was reclassified within Operating Activities to conform to the current year presentation.

Note 3. Business Combination

On July 31, 2018, we acquired a 66.7% equity stake in Silversea Cruise Holding Ltd. ("Silversea Cruises"), an ultra-luxury and expedition cruise line, from Heritage Cruise Holding Ltd. ("HCH"), previously known as Silversea Cruises Group Ltd. Silversea Cruises enhances our presence in the ultra-luxury and expedition markets and provides us with an opportunity to drive long-term capacity growth in these markets.

The purchase price consisted of $1.02 billion in cash, net of assumed liabilities, and contingent consideration that can range from zero up to a maximum of approximately 472,000 shares of our common stock, and is payable upon achievement of certain 2019-2020 performance metrics by Silversea Cruises. The fair value of the contingent consideration at the acquisition date was $44.0 million. Changes in the fair value of the contingent consideration are recorded in our results of operations, if any, in the period of the change. Refer to Note 14. Fair Value Measurements and Derivative Instruments for further information on the valuation of the contingent consideration.

To finance a portion of the purchase price, we drew in full on a $700 million unsecured credit agreement and the remainder of the transaction consideration was financed through the use of our revolving credit facilities.

We have accounted for this transaction under the provisions of ASC 805, Business Combinations. The purchase price for the Silversea Cruises acquisition was allocated based on estimates of the fair value of assets acquired and liabilities assumed at the acquisition date, with the excess allocated to goodwill. Goodwill is not deductible for tax purposes and consisted primarily of the opportunity to expand our cruise operations in strategic growth areas.

For reporting purposes, we include Silversea Cruises’ results of operations on a three-month reporting lag from April 1, 2019 through June 30, 2019 for the quarter ended September 30, 2019 and from October 1, 2018 through June 30, 2019 for the nine months ended September 30, 2019. We have included Silversea Cruises' balance sheet as of June 30, 2019 in our consolidated balance sheet as of September 30, 2019. Refer to Note 1. General for further information on this three-month reporting lag.

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Our purchase price allocation was final as of March 31, 2019. There were no material measurement period adjustments recorded during the nine months ended September 30, 2019.

Pro-forma financial results relating to the Silversea Cruises acquisition are not presented, as this acquisition was not material to our consolidated results of operations.

Note 4. Intangible Assets

Intangible assets consist of finite and indefinite life assets and are reported within Other assets in our consolidated balance sheets.

The following is a summary of our intangible assets as of September 30, 2019 and December 31, 2018 (in thousands):



	September 30, 2019
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Finite-life intangible assets:
Customer relationships	$	97,400	$	5,952	$	91,448
Galapagos operating license	47,669		5,470		42,199
Other finite-life intangible assets	11,560		5,298		6,262
Total finite-life intangible assets	156,629		16,720		139,909
Indefinite-life intangible assets	351,725		—		351,725
Total intangible assets, net	$	508,354	$	16,720	$	491,634



	December 31, 2018
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Finite-life intangible assets:
Customer relationships	$	97,400	$	1,082	$	96,318
Galapagos operating license	47,669		4,206		43,463
Other finite-life intangible assets	11,560		963		10,597
Total finite-life intangible assets	156,629		6,251		150,378
Indefinite-life intangible assets	351,725		—		351,725
Total intangible assets, net	$	508,354	$	6,251	$	502,103

The estimated future amortization for finite-life intangible assets for each of the next five years is as follows (in thousands):



Year
Remainder of 2019	$	3,490
2020	$	12,995
2021	$	8,179
2022	$	8,179
2023	$	8,179
2024	$	8,179

Note 5. Revenues

Revenue Recognition

Revenues are measured based on consideration specified in our contracts with customers and are recognized as the related performance obligations are satisfied.

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The majority of our revenues are derived from passenger cruise contracts which are reported within Passenger ticket revenues in our consolidated statements of comprehensive income (loss). Our performance obligation under these contracts is to provide a cruise vacation in exchange for the ticket price. We satisfy this performance obligation and recognize revenue over the duration of each cruise, which generally range from two to 25 nights.

Passenger ticket revenues include charges to our guests for port costs that vary with passenger head counts. These type of port costs, along with port costs that do not vary by passenger head counts, are included in our operating expenses. The amounts of port costs charged to our guests and included within Passenger ticket revenues on a gross basis were $184.0 million and $174.1 million for the quarters ended September 30, 2019 and 2018, respectively, and $509.6 million and $462.2 million for the nine months ended September 30, 2019 and 2018, respectively.

Our total revenues also include onboard and other revenues, which consist primarily of revenues from the sale of goods and services onboard our ships that are not included in passenger ticket prices. We receive payment before or concurrently with the transfer of these goods and services to passengers during a cruise and recognize revenue at the time of transfer over the duration of the related cruise.

Disaggregated Revenues

The following table disaggregates our total revenues by geographic regions where we provide cruise itineraries (in thousands):



	Quarter Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenues by itinerary
North America ⁽¹⁾	$	1,617,446	$	1,450,119	$	4,870,273	$	4,061,545
Asia/Pacific ⁽²⁾	272,062		235,374		1,089,914		1,051,551
Europe ⁽³⁾	1,060,424		968,952		1,663,118		1,566,351
Other regions ⁽⁴⁾	102,184		28,948		461,193		207,764
Total revenues by itinerary	3,052,116		2,683,393		8,084,498		6,887,211
Other revenues ⁽⁵⁾	134,734		112,794		348,750		274,337
Total revenues	$	3,186,850	$	2,796,187	$	8,433,248	$	7,161,548


(1)	Includes the United States, Canada, Mexico and the Caribbean.


(2)	Includes Southeast Asia (e.g., Singapore, Thailand and the Philippines), East Asia (e.g., China and Japan), South Asia (e.g., India and Pakistan) and Oceania (e.g., Australia and Fiji Islands) regions.


(3)	Includes European countries (e.g., Nordics, Germany, France, Italy, Spain and the United Kingdom).


(4)	Includes itineraries primarily in South and Latin American countries.

(5)

Includes revenues primarily related to cancellation fees, vacation protection insurance, pre- and post-cruise tours and fees for operating certain port facilities. Amounts also include revenues related to our bareboat charter, procurement and management related services we perform on behalf of our unconsolidated affiliates. Refer to Note 7. Other Assets for more information on our unconsolidated affiliates.

Passenger ticket revenues are attributed to geographic areas based on where the reservation originates. For the quarters ended September 30, 2019 and 2018, our guests were sourced from the following areas:



	Quarter Ended September 30,
	2019		2018
Passenger ticket revenues:
United States	62	%	59	%
United Kingdom	12	%	13	%
All other countries ⁽¹⁾	26	%	28	%

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For the nine months ended September 30, 2019 and 2018, our guests were sourced from the following areas:



	Nine Months Ended September 30,
	2019		2018
Passenger ticket revenues:
United States	65	%	60	%
United Kingdom	9	%	10	%
All other countries ⁽¹⁾	26	%	30	%


(1)	No other individual country's revenue exceeded 10% for the quarters and nine months ended September 30, 2019 and 2018.

Customer Deposits and Contract Liabilities

Our payment terms generally require an upfront deposit to confirm a reservation, with the balance due prior to the cruise. Deposits received on sales of passenger cruises are initially recorded as Customer deposits in our consolidated balance sheets and subsequently recognized as passenger ticket revenues during the duration of the cruise. ASC 606, Revenues from Contracts with Customers, defines a “contract liability” as an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration from the customer. We consider customer deposits to be a contract liability once the customer no longer retains the unilateral right, resulting from the passage of time, to cancel such customer's reservation and receive a full refund. Customer deposits presented in our consolidated balance sheets include contract liabilities of $1.9 billion as of both September 30, 2019 and December 31, 2018, respectively. Substantially all of our contract liabilities as of December 31, 2018 were recognized and reported within Total revenues in our consolidated statement of comprehensive income (loss) for the nine months ended September 30, 2019.

Contract Receivables and Contract Assets

Although we generally require full payment from our customers prior to their cruise, we grant credit terms to a relatively small portion of our revenue sourced in select markets outside of the United States. As a result, we have outstanding receivables from passenger cruise contracts in those markets. We also have receivables from credit card merchants for cruise ticket purchases and goods and services sold to guests during cruises that are collected before, during or shortly after the cruise voyage. In addition, we have receivables due from concessionaires onboard our vessels. These receivables are included within Trade and other receivables, net in our consolidated balance sheets.

We have contract assets that are conditional rights to consideration for satisfying the construction services performance obligations under a service concession arrangement. As of September 30, 2019 and December 31, 2018, our contract assets were $56.1 million and $57.8 million, respectively, and were included within Other assets in our consolidated balance sheets. Given the short duration of our cruises and our collection terms, we do not have any other significant contract assets.

Assets Recognized from the Costs to Obtain a Contract with a Customer

Prepaid travel agent commissions are an incremental cost of obtaining contracts with customers that we recognize as an asset and include within Prepaid expenses and other assets in our consolidated balance sheets. Prepaid travel agent commissions were $146.5 million and $153.5 million as of September 30, 2019 and December 31, 2018, respectively. Substantially all of our prepaid travel agent commissions at December 31, 2018 were expensed and reported within Commissions, transportation and other in our consolidated statements of comprehensive income (loss) for the nine months ended September 30, 2019.

Note 6. Earnings Per Share

A reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share data):



	Quarter Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net Income attributable to Royal Caribbean Cruises Ltd. for basic and diluted earnings per share	$	883,240	$	810,391	$	1,605,751	$	1,495,339
Weighted-average common shares outstanding	209,575		209,054		209,477		211,099
Dilutive effect of stock-based awards	546		874		555		874
Diluted weighted-average shares outstanding	210,121		209,928		210,032		211,973
Basic earnings per share	$	4.21	$	3.88	$	7.67	$	7.08
Diluted earnings per share	$	4.20	$	3.86	$	7.65	$	7.05

There were no antidilutive shares for the quarters and nine months ended September 30, 2019 and 2018.

Note 7. Other Assets

A Variable Interest Entity (“VIE”) is an entity in which the equity investors have not provided enough equity to finance the entity’s activities or the equity investors: (1) cannot directly or indirectly make decisions about the entity’s activities through their voting rights or similar rights; (2) do not have the obligation to absorb the expected losses of the entity; (3) do not have the right to receive the expected residual returns of the entity; or (4) have voting rights that are not proportionate to their economic interests and the entity’s activities involve or are conducted on behalf of an investor with a disproportionately small voting interest.

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We have determined that TUI Cruises GmbH, our 50%-owned joint venture, which operates the brand TUI Cruises, is a VIE. As of September 30, 2019, the net book value of our investment in TUI Cruises was $521.7 million, primarily consisting of $368.2 million in equity and a loan of €138.7 million, or approximately $151.2 million based on the exchange rate at September 30, 2019. As of December 31, 2018, the net book value of our investment in TUI Cruises was $578.1 million, primarily consisting of $403.0 million in equity and a loan of €150.6 million, or approximately $172.2 million based on the exchange rate at December 31, 2018. The loan, which was made in connection with the sale of Splendour of the Seas in April 2016, accrues interest at a rate of 6.25% per annum and is payable over 10 years. This loan is 50% guaranteed by TUI AG, our joint venture partner in TUI Cruises, and is secured by a first priority mortgage on the ship. The majority of these amounts were included within Other assets in our consolidated balance sheets.

In addition, we and TUI AG have each guaranteed the repayment by TUI Cruises of 50% of a bank loan. As of September 30, 2019, the outstanding principal amount of the loan was €29.1 million, or approximately $31.7 million based on the exchange rate at September 30, 2019. The loan amortizes quarterly and is currently secured by a first mortgage on Mein Schiff Herz. Based on current facts and circumstances, we do not believe potential obligations under our guarantee of this bank loan are probable. In addition to our guarantee of the bank loan, TUI Cruises has various ship construction and financing agreements which 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 2031.

Our investment amount, outstanding term loan and the potential obligations under the bank loan guarantee are substantially our maximum exposure to loss in connection with our investment in TUI Cruises. We have determined that we are not the primary beneficiary of TUI Cruises. We believe that the power to direct the activities that most significantly impact TUI Cruises’ economic performance are shared between ourselves and TUI AG. All the significant operating and financial decisions of TUI Cruises require the consent of both parties, which we believe creates shared power over TUI Cruises. Accordingly, we do not consolidate this entity and account for this investment under the equity method of accounting.

In March 2009, we sold Celebrity Galaxy to TUI Cruises for €224.4 million, or $290.9 million, to serve as the original Mein Schiff 1. Due to the related party nature of this transaction, the gain on the sale of the ship of $35.9 million was deferred and being recognized over the remaining life of the ship, which was estimated to be 23 years. In April 2018, TUI Cruises sold the original Mein Schiff 1 and as a result we accelerated the recognition of the remaining balance of the deferred gain, which was $21.8 million. This amount is included within Other (expense) income in our consolidated statements of comprehensive income (loss) for the nine months ended September 30, 2018.

We have determined that Pullmantur Holdings S.L. ("Pullmantur Holdings"), in which we have a 49% noncontrolling interest and Springwater Capital LLC has a 51% interest, is a VIE for which we are not the primary beneficiary, as we do not have the power to direct the activities that most significantly impact the entity's economic performance. Accordingly, we do not consolidate this entity and we account for this investment under the equity method of accounting. As of September 30, 2019 and December 31, 2018, our maximum exposure to loss in Pullmantur Holdings was $49.6 million and $58.5 million, respectively, consisting of loans and other receivables. These amounts were included within Trade and other receivables, net and Other assets in our consolidated balance sheets.

We have provided a non-revolving working capital facility to a Pullmantur Holdings subsidiary in the amount of up to €15.0 million or approximately $16.4 million based on the exchange rate at September 30, 2019. Proceeds of the facility, which were available to be drawn through December 2018, accrue interest at an interest rate of 6.5% per annum and are payable through 2022. An affiliate of Springwater Capital LLC has guaranteed repayment of 51% of the outstanding amounts under the facility. As of September 30, 2019, €12.0 million, or approximately $13.1 million, based on the exchange rate at September 30, 2019, was outstanding under this facility. As of December 31, 2018, €14.0 million, or approximately $16.0 million, based on the exchange rate at December 31, 2018, was outstanding under this facility.

We have determined that Grand Bahama Shipyard Ltd. (“Grand Bahama”), a ship repair and maintenance facility in which we have a 40% noncontrolling interest, is a VIE. This facility serves cruise and cargo ships, oil and gas tankers and offshore units. We utilize this facility, among other ship repair facilities, for our regularly scheduled drydocks, ship upgrades and certain emergency repairs as may be required. During the quarter and nine months ended September 30, 2019, we made payments of $0.4 million and $45.5 million, respectively, to Grand Bahama for ship repair and maintenance services. During the quarter and nine months ended September 30, 2018, we made payments of $17.3 million and $41.6 million, respectively, to Grand Bahama for ship repair and maintenance services. We have determined that we are not the primary beneficiary of this facility as we do not have the power to direct the activities that most significantly impact the facility’s economic performance. Accordingly, we do not consolidate this entity and we account for this investment under the equity method of accounting. As of September 30, 2019, the net book value of our investment in Grand Bahama was $47.8 million, consisting of $33.5 million in equity and a loan of $14.3 million. As of December 31, 2018, the net book value of our investment in Grand Bahama was $56.1 million, consisting of $41.4 million in equity and a loan of $14.7 million. These amounts represent our maximum exposure to loss related to our investment in Grand Bahama. Our loan to Grand Bahama matures in March 2025 and bears interest at the lower of (i) LIBOR plus 3.50% and (ii)

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5.50%. Interest payable on the loan is due on a semi-annual basis. During both the quarters ended September 30, 2019 and 2018, no payments were received. During the nine months ended September 30, 2019 and 2018, we received principal and interest payments of $7.6 million and $14.2 million, respectively. The loan balance is included within Other assets in our consolidated balance sheets. The loan is currently accruing interest under the effective yield method.

In April 2019, Grand Bahama experienced an incident involving one of its drydocks where Oasis of the Seas was undergoing maintenance. The damage from the incident resulted in a write-off of the related drydock by Grand Bahama. Our equity investment income for the quarter and nine months ended September 30, 2019 reflects our equity share of the write-off and other incidental expenses. Grand Bahama's management is working with its insurance underwriter to determine coverage under their existing policies.

We monitor credit risk associated with the loan through our participation on Grand Bahama’s board of directors along with our review of Grand Bahama’s financial statements and projected cash flows. Based on this review, we believe the risk of loss associated with the outstanding loan is not probable as of September 30, 2019.

In March 2018, we and Ctrip.com International Ltd. ("Ctrip") announced the decision to end the Skysea Holding International Ltd. ("Skysea Holding") venture in which we have a 36% ownership interest. As a result, we reviewed the recoverability of our investment in Skysea Holding and determined that our investment, debt facility and other receivables due from the brand were impaired and recognized an impairment charge of $23.3 million, which was included within Other (expense) income in our consolidated statement of comprehensive income (loss) for the nine months ended September 30, 2018. The charge reflected a full impairment of our investment in Skysea Holding and other receivables due to us and reduced the debt facility and the related accrued interest due to us from Skysea Holding to its net realizable value. In December 2018, the Golden Era, the ship operated by SkySea Cruises, and owned by a wholly-owned subsidiary of Skysea Holding, was sold to an affiliate of TUI AG. Proceeds from the sale were distributed to Ctrip and us, which eliminated our net receivable balance due from Skysea Holding, resulting in no further impairment charges. As of September 30, 2019 and December 31, 2018, we do not have any material exposures to loss related to our investment in Skysea Holding.

The following tables set forth information regarding our investments accounted for under the equity method of accounting, including the entities discussed above (in thousands):



	Quarter Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Share of equity income from investments	$	103,654	$	95,169	$	170,393	$	168,232
Dividends received ⁽¹⁾	$	67,713	$	82,755	$	148,285	$	241,697

(1)

For the quarter ended September 30, 2019, TUI Cruises paid us dividends of €80.0 million, or approximately $88.5 million, based on the exchange rate at the time of the transactions. For the nine months ended September 30, 2019, TUI Cruises paid us dividends totaling €170.0 million, or approximately $190.3 million, based on the exchange rates at the time of the transactions. The amounts included in the table above are net of tax withholdings.



	As of September 30, 2019		As of December 31, 2018
Total notes receivable due from equity investments	$	178,853	$	201,979
Less-current portion ⁽¹⁾	19,091		19,075
Long-term portion ⁽²⁾	$	159,762	$	182,904


(1)	Included within Trade and other receivables, net in our consolidated balance sheets.


(2)	Included within Other assets in our consolidated balance sheets.

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We also provide ship management services to TUI Cruises GmbH, Pullmantur Holdings and Skysea Holding (which ceased cruising operations in September 2018). Additionally, we bareboat charter to Pullmantur Holdings the vessels currently operated by its brands, which were retained by us following the sale of our 51% interest in Pullmantur Holdings. We recorded the following as it relates to these services in our operating results within our consolidated statements of comprehensive income (loss) (in thousands):



	Quarter Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenues	$	11,857	$	12,170	$	35,714	$	40,400
Expenses	$	1,365	$	1,735	$	3,450	$	8,643

Note 8. Debt

In June 2018, we established a commercial paper program pursuant to which we may issue short-term unsecured notes from time to time in an aggregate amount of up to $1.2 billion, which was increased to $2.9 billion in August 2019. The commercial paper issued is backstopped by our revolving credit facilities. As of September 30, 2019, we had $923.0 million of commercial paper notes outstanding with a weighted average interest rate of 2.36% and a weighted average maturity of approximately 34 days. As of December 31, 2018, we had $777.0 million of commercial paper notes outstanding with a weighted average interest rate of 3.19% and a weighted average maturity of approximately 23 days.

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. The interest rate and facility fee vary with our senior debt rating and are currently set at LIBOR plus 1.0% per annum and 0.125% per annum, respectively. These amendments did not result in the extinguishment of debt. In addition, 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 April 2019, we entered into and drew in full on an unsecured three-year term loan agreement in the amount of $1.0 billion. The loan accrues interest at a floating rate of LIBOR plus an applicable margin, which varies with our senior debt rating, and is currently 1.075% per annum. 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) for the nine months ended September 30, 2019.

In April 2019, we took delivery of Spectrum of the Seas. To finance the purchase, we borrowed $908.0 million under a previously committed unsecured term loan which is 95% guaranteed by Euler Hermes Aktiengesellschaft, the official export credit agency of Germany. The loan amortizes semi-annually over 12 years and bears interest at a fixed rate of 3.45% per annum.

In May 2019, we took delivery of Celebrity Flora. The purchase was financed through an unsecured term loan facility entered into in November 2017 in an amount up to €80.0 million, or approximately $87.2 million based on the exchange rate at September 30, 2019. As of September 30, 2019, we had fully drawn on this facility. The loan is due and payable at maturity in November 2024. Interest on the loan accrues at a floating rate based on EURIBOR plus the applicable margin. The applicable margin varies with our debt rating and was 1.195% as of September 30, 2019.

Note 9. Leases

Our operating leases primarily relate to preferred berthing arrangements, real estate and shipboard equipment and are included within Operating lease right-of-use assets, and Long-term operating lease liabilities with the current portion of the liability included within Current portion of operating lease liabilities in our consolidated balance sheet as of September 30, 2019. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. Refer to Note 2. Summary of Significant Accounting Policies, for further information on the adoption of ASC 842.

Finance leases are included within Property and equipment, net and Long-term debt, with the current portion of the debt reported within Current portion of debt, in our consolidated balance sheets.

Our finance leases include two ships, Silver Whisper and Silver Explorer, operated by Silversea Cruises. The finance lease for Silver Whisper will expire in 2022, subject to an option to purchase the ship, and the finance lease for Silver Explorer will expire in 2021, subject to an option to extend the lease for up to an additional 6 years.

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In June 2019, the Company entered into a new master lease agreement (“Master Lease”) with Miami-Dade County relating to the buildings and surrounding land located at its Miami headquarters, which are classified as finance leases in accordance with ASC 842. Prior to entering into the Master Lease, the buildings were classified as operating lease assets. The finance lease for the buildings and land will expire in 2072, which includes an initial 43 years lease term and two five-year options to extend the lease. We consider the possibility of exercising the two five-year options reasonably certain.

For some of our real estate leases and berthing agreements, we do have the option to extend our current lease term. For those lease agreements with renewal options, the renewal periods for real estate leases range from one to 10 years and the renewal periods for berthing agreements range from one year to 20 years. Generally, we do not include renewal options as a component of our present value calculation for berthing agreements. However, for certain real estate leases, we include them. Additionally, we do have a residual value guarantee associated with our lease of a terminal at PortMiami 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.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of lease payments. We estimate our incremental borrowing rates based on LIBOR and U.S. Treasury note rates corresponding to lease terms increased by the Company’s credit risk spread and reduced by the estimated impact of collateral. We used the incremental borrowing rate as of the adoption date for operating leases that commenced prior to that date. In addition, we have lease agreements with lease and non-lease components, which are generally accounted for separately. However, for berthing agreements, we account for the lease and non-lease components as a single lease component.

Additionally, we bareboat charter to Pullmantur Holdings the vessels currently operated by its brands, which were retained by us following the sale of our 51% interest in Pullmantur Holdings in 2016. We account for the bareboat charters of these vessels as operating leases for which we are the lessor. The remaining payments and term of these leases are immaterial to our consolidated financial statements.

Supplemental balance sheet information for leases was as follows (in thousands):



	As of September 30, 2019
Lease assets:
Finance lease right-of-use assets, net:
Property and equipment, gross	$	374,494
Accumulated depreciation	(51,493		)
Property and equipment, net	323,001
Operating lease right-of-use assets	697,461
Total lease assets	$	1,020,462
Lease liabilities:
Finance lease liabilities:
Current portion of debt	$	34,603
Long-term debt	203,675
Total finance lease liabilities	238,278
Operating lease liabilities:
Current portion of operating lease liabilities	93,058
Long-term operating lease liabilities	620,570
Total operating lease liabilities	713,628
Total lease liabilities	$	951,906

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The components of lease expense were as follows (in thousands):



	Consolidated Statement of Comprehensive Income (Loss) Classification	Quarter Ended September 30, 2019		Nine Months Ended September 30, 2019
Lease costs:
Operating lease costs	Commission, transportation and other	$	19,057	$	57,170
Operating lease costs	Other operating expenses	6,930		20,791
Operating lease costs	Marketing, selling and administrative expenses	4,276		14,501
Finance lease costs:
Amortization of right-of-use-assets	Depreciation and amortization expenses	6,081		14,805
Interest on lease liabilities	Interest expense, net of interest capitalized	1,514		3,680
Total lease costs		$	37,858	$	110,947

In addition, certain of our berth agreements include variable lease costs based on the number of passengers berthed. During the quarter and nine months ended September 30, 2019, we had $17.3 million and $73.1 million, respectively, of variable lease costs recorded within Commission, transportation and other in our consolidated statement of comprehensive income (loss).

Weighted average of the remaining lease terms and weighted average discount rates are as follows:



	As of September 30, 2019
Weighted average of the remaining lease term
Operating leases	10.5 years
Finance leases	28.9 years
Weighted average discount rate
Operating leases	4.65	%
Finance leases	4.42	%

Supplemental cash flow information related to leases is as follows (in thousands):



	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	94,125
Operating cash flows from finance leases	$	3,680
Financing cash flows from finance leases	$	19,009
Supplemental noncash information:
Right-of-use assets obtained in exchange for lease obligations:
Finance leases	$	122,237

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As of September 30, 2019, maturities related to lease liabilities were as follows (in thousands):



Year	Operating Leases			Finance Leases
Remainder of 2019	$	30,765		$	17,209
2020	122,718			42,912
2021	109,984			45,803
2022	103,551			22,832
2023	101,442			11,891
Thereafter	492,553			414,098
Total lease payments	961,013			554,745
Less: Interest	(247,385		)	(316,467		)
Present value of lease liabilities	$	713,628		$	238,278

Operating lease payments do not include any costs related to options to extend lease terms as none are reasonably certain of being exercised.

Under ASC 840, Leases, future minimum lease payments under noncancelable operating leases as of December 31, 2018 were as follows (in thousands):



Year
2019	$	67,682
2020	64,237
2021	56,142
2022	52,759
2023	52,522
Thereafter	383,974
	$	677,316

Note 10. Redeemable Noncontrolling Interest

In connection with the acquisition of Silversea Cruises, we recorded a redeemable noncontrolling interest of $537.8 million due to the put options held by HCH. The put options may require us to purchase HCH's remaining interest, or 33.3% of Silversea Cruises, upon the occurrence or nonoccurrence of certain future events that are not solely within our control. HCH's interest is presented as Redeemable noncontrolling interest and is classified outside of shareholders' equity in our consolidated balance sheets. Additionally, the noncontrolling interest's share in the net earnings (loss) and contractual accretion requirements associated with the put options are included in Net Income attributable to noncontrolling interest in our consolidated statements of comprehensive income (loss).

The following table presents changes in the redeemable noncontrolling interest as of September 30, 2019 (in thousands):



Beginning balance January 1, 2019	$	542,020
Net income attributable to noncontrolling interest, including the contractual accretion of the put options	21,375
Distribution to noncontrolling interest	(501		)
Other	500
Ending balance September 30, 2019	$	563,394

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Note 11. Commitments and Contingencies

Ship Purchase Obligations

Our future capital commitments consist primarily of new ship orders. As of September 30, 2019, our Global Brands have the following ships on order:



Ship	Shipyard	Expected to Enter Service	Approximate Berths
Royal Caribbean International —
Oasis-class:
Wonder of the Seas	Chantiers de l’Atlantique	2nd Quarter 2021	5,700
Quantum-class:
Odyssey of the Seas	Meyer Werft	4th Quarter 2020	4,200
Icon-class:
Unnamed	Meyer Turku Oy	2nd Quarter 2022	5,600
Unnamed	Meyer Turku Oy	2nd Quarter 2024	5,600
Celebrity Cruises —
Edge-class:
Celebrity Apex	Chantiers de l’Atlantique	2nd Quarter 2020	2,900
Celebrity Beyond	Chantiers de l’Atlantique	4th Quarter 2021	3,250
Unnamed	Chantiers de l’Atlantique	4th Quarter 2022	3,250
Silversea Cruises — ⁽¹⁾
Silver Origin	De Hoop	4th Quarter 2020	100
Muse-class:
Silver Moon	Fincantieri	4th Quarter 2020	550
Silver Dawn	Fincantieri	1st Quarter 2022	550
Evolution-class:
Unnamed	Meyer Werft	3rd Quarter 2022	600
Unnamed	Meyer Werft	2nd Quarter 2023	600
Total Berths			32,900


(1)	The "Expected to Enter Service" dates for Silversea Cruises' new ships takes into consideration the three-month reporting lag. Refer to Note 1. General for further information.

In June 2019, Silversea Cruises entered into a $300 million unsecured term loan facility for the financing of Silver Moon to pay a portion of the ship's contract price through a facility guaranteed by us. We expect to draw upon this loan when we take delivery of the ship. The loan will be due and payable at maturity in June 2028. Interest on the loan will accrue at LIBOR plus 1.50%.

In September 2019, Silversea Cruises entered into two credit agreements, guaranteed by us, for the unsecured financing of the first and second Evolution-class ships for an amount of up to 80% of each ship's contract price through facilities to be guaranteed 95% by Euler Hermes Aktiengesellschaft, the official export credit agency of Germany. The maximum loan amount under each facility is not to exceed the United States dollar equivalent of €351.6 million in the case of the first Evolution-class ship and €359.0 million in the case of the second Evolution-class ship, or approximately $383.3 million and $391.4 million, respectively, based on the exchange rate at September 30, 2019. Each loan, once funded, will amortize semi-annually and will mature 12 years following the delivery of each ship. At our election, interest on each loan will accrue either (1) at a fixed rate of 4.14% and 4.18%, respectively (inclusive of the applicable margin) or (2) at a floating rate equal to LIBOR plus 0.79% and 0.83%, respectively.

As of September 30, 2019, the aggregate cost of our ships on order presented in the table above, was $11.1 billion, of which we had deposited $705.5 million. Approximately 57.9% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at September 30, 2019. Refer to Note 14. Fair Value Measurements and Derivative Instruments for further information.

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In addition, as of September 30, 2019, we have the following agreements in place for new ships on order for our Global Brands, which are contingent upon completion of conditions precedent and financing:



Ship	Shipyard	Expected to Enter Service	Approximate Berths
Royal Caribbean International —
Oasis-class:
Unnamed	Chantiers de l’Atlantique	4th Quarter 2023	5,700
Icon-class:
Unnamed	Meyer Turku Oy	2nd Quarter 2025	5,600
Celebrity Cruises —
Edge-class:
Unnamed	Chantiers de l’Atlantique	4th Quarter 2024	3,250

Litigation

On August 27, 2019, two lawsuits were filed against Royal Caribbean Cruises Ltd. in the U.S. District Court for the Southern District of Florida under Title III of the Cuban Liberty and Democratic Solidarity Act, also known as the Helms-Burton Act. The complaint filed by Havana Docks Corporation alleges it holds an interest in the Havana Cruise Port Terminal and the complaint filed by Javier Garcia-Bengochea alleges that he holds an interest in the Port of Santiago, Cuba, both of which were expropriated by the Cuban Government. The complaints further allege that Royal Caribbean Cruises Ltd. trafficked in those properties by embarking and disembarking passengers at these facilities. The plaintiffs seek all available statutory remedies, including the value of the expropriated property, plus interest, treble damages, attorneys’ fees and costs. Royal Caribbean Cruises Ltd. filed its answer to each complaint on October 4, 2019. We believe we have meritorious defenses to the claims, and we intend to vigorously defend ourselves against them. We believe that it is unlikely that the outcome of these matters will have a material adverse impact to our financial condition, results of operations or cash flows. However, the outcome of litigation is inherently unpredictable and subject to significant uncertainties, and there can be no assurances that the final outcome of this case will not be material.

We are routinely involved in claims typical within the cruise vacation industry. The majority of these claims are covered by insurance. Although the outcome of any litigation is inherently unpredictable and subject to significant uncertainties, we believe it is unlikely that the outcome of such claims, net of expected insurance recoveries, will have a material adverse impact on our financial condition, results of operations and cash flows.

Other

If any person acquires ownership of more than 50% of our common stock or, subject to certain exceptions, during any 24-month period, a majority of our board of directors is no longer comprised of individuals who were members of our board of directors on the first day of such period, we may be obligated to prepay indebtedness outstanding under our credit facilities, which we may be unable to replace on similar terms. Our public debt securities also contain change of control provisions that would be triggered by a third-party acquisition of greater than 50% of our common stock coupled with a ratings downgrade. If this were to occur, it would have an adverse impact on our liquidity and operations.

Note 12. Shareholders’ Equity

Dividends Declared

In September 2019 we declared a cash dividend on our common stock of $0.78 per share, which was paid in October 2019. During both first and second quarters of 2019, we declared a cash dividend on our common stock of $0.70 per share, which was paid in April 2019 and July 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.

During the third quarter of 2018, we declared a cash dividend on our common stock of $0.70 per share, which was paid in October 2018. During both first and second quarters of 2018, we declared a cash dividend on our common stock of $0.60 per share, which was paid in April 2018 and July 2018, respectively. During the first quarter of 2018, we also paid a cash dividend on our common stock of $0.60 per share, which was declared during the fourth quarter of 2017.

For the nine months ended September 30, 2019 and 2018, cash dividends declared but not yet paid were $163.5 million and $146.8 million, respectively.

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Common Stock Repurchase Program

In May 2018, our board of directors authorized a 24-month common stock repurchase program for up to $1.0 billion. The timing and number of shares to be repurchased will depend on a variety of factors, including price and market conditions. Repurchases under the program may be made at management's discretion from time to time on the open market or through privately negotiated transactions. During the quarter and nine months ended September 30, 2019, there were no common stock repurchases under this program. During the year ended December 31, 2018, we repurchased 2.8 million shares of our common stock under this program, for a total of approximately $300.0 million, in open market transactions. As of September 30, 2019, we have approximately $700.0 million that remains available for future stock repurchase transactions under our Board authorized program.

Note 13. Changes in Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2019 and 2018 (in thousands):



	Accumulated Other Comprehensive Income (Loss) for the Nine Months Ended September 30, 2019												Accumulated Other Comprehensive Income (Loss) for the Nine Months Ended September 30, 2018
	Changes related to cash flow derivative hedges			Changes in defined benefit plans			Foreign currency translation adjustments			Accumulated other comprehensive loss			Changes related to cash flow derivative hedges			Changes in defined benefit plans			Foreign currency translation adjustments			Accumulated other comprehensive loss
Accumulated comprehensive loss at beginning of the year	$	(537,216	)	$	(26,023	)	$	(64,495	)	$	(627,734	)	(250,355		)	(33,666		)	(50,244		)	(334,265		)
Other comprehensive income (loss) before reclassifications	(271,726		)	(23,408		)	(7,683		)	(302,817		)	106,505			5,863			(13,840		)	98,528
Amounts reclassified from accumulated other comprehensive loss	(16,389		)	577			—			(15,812		)	4,071			1,086			—			5,157
Net current-period other comprehensive income (loss)	(288,115		)	(22,831		)	(7,683		)	(318,629		)	110,576			6,949			(13,840		)	103,685
Ending balance	$	(825,331	)	$	(48,854	)	$	(72,178	)	$	(946,363	)	$	(139,779	)	$	(26,717	)	$	(64,084	)	$	(230,580	)

The following table presents reclassifications out of accumulated other comprehensive income (loss) for the quarters and nine months ended September 30, 2019 and 2018 (in thousands):



	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
Details About Accumulated Other Comprehensive Income (Loss) Components	Quarter Ended September 30, 2019			Quarter Ended September 30, 2018			Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018			Affected Line Item in Statements of Comprehensive Income (Loss)
Gain (loss) on cash flow derivative hedges:
Interest rate swaps	$	(373	)	$	(1,395	)	$	(1,173	)	$	(10,371	)	Interest expense, net of interest capitalized
Foreign currency forward contracts	(3,592		)	(3,157		)	(10,471		)	(9,625		)	Depreciation and amortization expenses
Foreign currency forward contracts	(1,251		)	(835		)	(3,866		)	13,808			Other income (expense)
Fuel swaps	(472		)	466			(1,916		)	658			Other income (expense)
Fuel swaps	2,435			4,548			33,815			1,459			Fuel
	(3,253		)	(373		)	16,389			(4,071		)
Amortization of defined benefit plans:
Actuarial loss	(194		)	(372		)	(577		)	(1,086		)	Payroll and related
	(194		)	(372		)	(577		)	(1,086		)
Total reclassifications for the period	$	(3,447	)	$	(745	)	$	15,812		$	(5,157	)

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Note 14. Fair Value Measurements and Derivative Instruments

Fair Value Measurements

The estimated fair value of our financial instruments that are not measured at fair value, categorized based upon the fair value hierarchy, are as follows (in thousands):



	Fair Value Measurements at September 30, 2019 Using										Fair Value Measurements at December 31, 2018 Using
Description	Total Carrying Amount		Total Fair Value		Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾		Total Carrying Amount		Total Fair Value		Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾
Assets:
Cash and cash equivalents⁽⁴⁾	$	276,730	$	276,730	$	276,730	$	—	$	—	$	287,852	$	287,852	$	287,852	$	—	$	—
Total Assets	$	276,730	$	276,730	$	276,730	$	—	$	—	$	287,852	$	287,852	$	287,852	$	—	$	—
Liabilities:
Long-term debt (including current portion of debt)⁽⁵⁾	$	9,523,994	$	10,241,498	$	—	$	10,241,498	$	—	$	9,871,267	$	10,244,214	$	—	$	10,244,214	$	—
Total Liabilities	$	9,523,994	$	10,241,498	$	—	$	10,241,498	$	—	$	9,871,267	$	10,244,214	$	—	$	10,244,214	$	—

(1) Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.

(2) Inputs other than quoted prices included within Level 1 that are observable for the liability, either directly or indirectly. For unsecured revolving credit facilities and unsecured term loans, fair value is determined utilizing the income valuation approach. This valuation model takes into account the contract terms of our debt such as the debt maturity and the interest rate on the debt. The valuation model also takes into account the creditworthiness of the Company.

(3) Inputs that are unobservable. The Company did not use any Level 3 inputs as of September 30, 2019 and December 31, 2018.

(4) Consists of cash and marketable securities with original maturities of less than 90 days.

(5) Consists of unsecured revolving credit facilities, senior notes, senior debentures and term loans. These amounts do not include our capital lease obligations or commercial paper.

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Other Financial Instruments

The carrying amounts of accounts receivable, accounts payable, accrued interest, accrued expenses and commercial paper approximate fair value at September 30, 2019 and December 31, 2018.

Assets and liabilities that are recorded at fair value have been categorized based upon the fair value hierarchy. The following table presents information about the Company’s financial instruments recorded at fair value on a recurring basis (in thousands):



	Fair Value Measurements at September 30, 2019 Using								Fair Value Measurements at December 31, 2018 Using
Description	Total		Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾		Total		Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾
Assets:
Derivative financial instruments⁽⁴⁾	$	30,883	$	—	$	30,883	$	—	$	65,297	$	—	$	65,297	$	—
Total Assets	$	30,883	$	—	$	30,883	$	—	$	65,297	$	—	$	65,297	$	—
Liabilities:
Derivative financial instruments⁽⁵⁾	$	385,576	$	—	$	385,576	$	—	$	201,812	$	—	$	201,812	$	—
Contingent consideration ⁽⁶⁾	54,700		—		—		54,700		44,000		—		—		44,000
Total Liabilities	$	440,276	$	—	$	385,576	$	54,700	$	245,812	$	—	$	201,812	$	44,000


(1)	Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.

(2)

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. For foreign currency forward contracts, interest rate swaps and fuel swaps, fair value is derived using valuation models that utilize the income valuation approach. These valuation models take into account the contract terms, such as maturity, as well as other inputs, such as foreign exchange rates and curves, fuel types, fuel curves and interest rate yield curves. Derivative instrument fair values take into account the creditworthiness of the counterparty and the Company.


(3)	Inputs that are unobservable.


(4)	Consists of foreign currency forward contracts, interest rate swaps and fuel swaps. Refer to the “Fair Value of Derivative Instruments” table for breakdown by instrument type.


(5)	Consists of foreign currency forward contracts, interest rate swaps and fuel swaps. Refer to the “Fair Value of Derivative Instruments” table for breakdown by instrument type.

(6)

The contingent consideration related to the Silversea Cruises acquisition is estimated by applying a Monte-Carlo simulation method using our closing stock price along with significant inputs not observable in the market, including the probability of achieving the milestones and estimated future operating results. The Monte-Carlo simulation is a generally accepted statistical technique used to generate a defined number of valuation paths in order to develop a reasonable estimate of fair value. Refer to Note 3. Business Combination for further information on the Silversea Cruises acquisition. For the nine months ended September 30, 2019, we recorded a contingent consideration expense of $10.7 million within Other (expense) income in our consolidated statements of comprehensive income (loss).

The reported fair values are based on a variety of factors and assumptions. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of September 30, 2019 or December 31, 2018, or that will be realized in the future, and do not include expenses that could be incurred in an actual sale or settlement.

We have master International Swaps and Derivatives Association (“ISDA”) agreements in place with our derivative instrument counterparties. These ISDA agreements generally provide for final close out netting with our counterparties for all positions in the case of default or termination of the ISDA agreement. We have determined that our ISDA agreements provide us with rights of setoff on the fair value of derivative instruments in a gain position and those in a loss position with the same counterparty. We have elected not to offset such derivative instrument fair values in our consolidated balance sheets.

See Credit Related Contingent Features for further discussion on contingent collateral requirements for our derivative instruments.

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The following table presents information about the Company’s offsetting of financial assets under master netting agreements with derivative counterparties (in thousands):



	Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
	As of September 30, 2019									As of December 31, 2018
	Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet		Gross Amount of Eligible Offsetting Recognized Derivative Liabilities			Cash Collateral Received		Net Amount of Derivative Assets		Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet		Gross Amount of Eligible Offsetting Recognized Derivative Assets			Cash Collateral Received		Net Amount of Derivative Assets
Derivatives subject to master netting agreements	$	30,883	$	(30,067	)	$	—	$	816	$	65,297	$	(60,303	)	$	—	$	4,994
Total	$	30,883	$	(30,067	)	$	—	$	816	$	65,297	$	(60,303	)	$	—	$	4,994

The following table presents information about the Company’s offsetting of financial liabilities under master netting agreements with derivative counterparties (in thousands):



	Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
	As of September 30, 2019										As of December 31, 2018
	Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet			Gross Amount of Eligible Offsetting Recognized Derivative Assets		Cash Collateral Pledged		Net Amount of Derivative Liabilities			Gross Amount of Derivative Liabilities Presented in the Consolidated Balance Sheet			Gross Amount of Eligible Offsetting Recognized Derivative Liabilities		Cash Collateral Pledged		Net Amount of Derivative Liabilities
Derivatives subject to master netting agreements	$	(385,576	)	$	30,067	$	—	$	(355,509	)	$	(201,812	)	$	60,303	$	—	$	(141,509	)
Total	$	(385,576	)	$	30,067	$	—	$	(355,509	)	$	(201,812	)	$	60,303	$	—	$	(141,509	)

Concentrations of Credit Risk

We monitor our credit risk associated with financial and other institutions with which we conduct significant business and, to minimize these risks, we select counterparties with credit risks acceptable to us and we seek to limit our exposure to an individual counterparty. Credit risk, including but not limited to counterparty nonperformance under derivative instruments, our credit facilities and new ship progress payment guarantees, is not considered significant, as we primarily conduct business with large, well-established financial institutions, insurance companies and export credit agencies many of which we have long-term relationships with and which have credit risks acceptable to us or where the credit risk is spread out among a large number of counterparties. As of September 30, 2019 and December 31, 2018, we had counterparty credit risk exposure under our derivative instruments of $0.8 million and $5.6 million, respectively, which were limited to the cost of replacing the contracts in the event of non-performance by the counterparties to the contracts, the majority of which are currently our lending banks. We do not anticipate nonperformance by any of our significant counterparties. In addition, we have established guidelines we follow regarding credit ratings and instrument maturities to maintain safety and liquidity. We do not normally require collateral or other security to support credit relationships; however, in certain circumstances this option is available to us.

Derivative Instruments

We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We try to mitigate these risks through a combination of our normal operating and financing activities and through the use of derivative financial instruments pursuant to our hedging practices and policies. The financial impact of these hedging instruments is primarily offset by corresponding changes in the underlying exposures being hedged. We achieve this by closely matching the notional amount, term and conditions of the derivative instrument with the underlying risk being hedged. Although certain of our derivative financial instruments do not qualify or are not accounted for under hedge accounting, our objective is not to hold or issue derivative financial instruments for trading or other speculative purposes.

We enter into various forward, swap and option contracts to manage our interest rate exposure and to limit our exposure to fluctuations in foreign currency exchange rates and fuel prices. These instruments are recorded on the balance sheet at their fair value and the vast majority are designated as hedges. We also use non-derivative financial instruments designated as hedges of our net investment in our foreign operations and investments.

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At inception of the hedge relationship, a derivative instrument that hedges the exposure to changes in the fair value of a firm commitment or a recognized asset or liability is designated as a fair value hedge. A derivative instrument that hedges a forecasted transaction or the variability of cash flows related to a recognized asset or liability is designated as a cash flow hedge.

Changes in the fair value of derivatives that are designated as fair value hedges are offset against changes in the fair value of the underlying hedged assets, liabilities or firm commitments. Gains and losses on derivatives that are designated as cash flow hedges are recorded as a component of Accumulated other comprehensive loss until the underlying hedged transactions are recognized in earnings. The foreign currency transaction gain or loss of our non-derivative financial instruments and the changes in the fair value of derivatives designated as hedges of our net investment in foreign operations and investments are recognized as a component of Accumulated other comprehensive loss along with the associated foreign currency translation adjustment of the foreign operation or investment, with the amortization of excluded components affecting earnings.

On an ongoing basis, we assess whether derivatives used in hedging transactions are “highly effective” in offsetting changes in the fair value or cash flow of hedged items. For our net investment hedges, we use the dollar offset method to measure effectiveness. For all other hedging programs, we use the long-haul method to assess hedge effectiveness using regression analysis for each hedge relationship. The methodology for assessing hedge effectiveness is applied on a consistent basis for each one of our hedging programs (i.e., interest rate, foreign currency ship construction, foreign currency net investment and fuel). For our regression analyses, we use an observation period of up to three years, utilizing market data relevant to the hedge horizon of each hedge relationship. High effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the changes in the fair values of the derivative instrument and the hedged item. If it is determined that a derivative is not highly effective as a hedge or hedge accounting is discontinued, any change in fair value of the derivative since the last date at which it was determined to be effective is recognized in earnings.

Cash flows from derivative instruments that are designated as fair value or cash flow hedges are classified in the same category as the cash flows from the underlying hedged items. In the event that hedge accounting is discontinued, cash flows subsequent to the date of discontinuance are classified within investing activities. Cash flows from derivative instruments not designated as hedging instruments are classified as investing activities.

We consider the classification of the underlying hedged item’s cash flows in determining the classification for the designated derivative instrument’s cash flows. We classify derivative instrument cash flows from hedges of benchmark interest rate or hedges of fuel expense as operating activities due to the nature of the hedged item. Likewise, we classify derivative instrument cash flows from hedges of foreign currency risk on our newbuild ship payments as investing activities.

Interest Rate Risk

Our exposure to market risk for changes in interest rates primarily relates to our debt obligations including future interest payments. At September 30, 2019 and December 31, 2018, approximately 66.1% and 59.1%, respectively, of our debt was effectively fixed. We use interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest expense.

Market risk associated with our fixed rate debt is the potential increase in fair value resulting from a decrease in interest rates. We use interest rate swap agreements that effectively convert a portion of our fixed-rate debt to a floating-rate basis to manage this risk. At September 30, 2019 and December 31, 2018, we maintained interest rate swap agreements on the following fixed-rate debt instruments:



Debt Instrument	Swap Notional as of September 30, 2019 (In thousands)		Maturity	Debt Fixed Rate	Swap Floating Rate: LIBOR plus	All-in Swap Floating Rate as of September 30, 2019
Oasis of the Seas term loan	$	87,500	October 2021	5.41%	3.87%	6.49%
Unsecured senior notes	650,000		November 2022	5.25%	3.63%	5.79%
	$	737,500

These interest rate swap agreements are accounted for as fair value hedges.

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Market risk associated with our long-term floating rate debt is the potential increase in interest expense from an increase in interest rates. We use interest rate swap agreements that effectively convert a portion of our floating-rate debt to a fixed-rate basis to manage this risk. At September 30, 2019 and December 31, 2018, we maintained interest rate swap agreements on the following floating-rate debt instruments:



Debt Instrument	Swap Notional as of September 30, 2019 (In thousands)		Maturity	Debt Floating Rate		All-in Swap Fixed Rate
Celebrity Reflection term loan	$	299,979	October 2024	LIBOR plus	0.40%	2.85%
Quantum of the Seas term loan	459,375		October 2026	LIBOR plus	1.30%	3.74%
Anthem of the Seas term loan	483,333		April 2027	LIBOR plus	1.30%	3.86%
Ovation of the Seas term loan	622,500		April 2028	LIBOR plus	1.00%	3.16%
Harmony of the Seas term loan ⁽¹⁾	566,959		May 2028	EURIBOR plus	1.15%	2.26%
Odyssey of the Seas term loan⁽²⁾	460,000		October 2032	LIBOR plus	0.95%	3.20%
	$	2,892,146


(1)	Interest rate swap agreements hedging the Euro-denominated term loan for Harmony of the Seas include EURIBOR zero-floor matching the hedged debt EURIBOR zero-floor. Amount presented is based on the exchange rate as of September 30, 2019.


(2)	Interest rate swap agreements hedging the term loan for Odyssey of the Seas includes a LIBOR zero-floor matching the hedged debt LIBOR zero-floor. The anticipated unsecured term loan for the financing of Odyssey of the Seas is expected to be drawn in October 2020.

These interest rate swap agreements are accounted for as cash flow hedges.

The notional amount of interest rate swap agreements related to outstanding debt and our current unfunded financing arrangements as of September 30, 2019 and December 31, 2018 was $3.6 billion and $3.4 billion, respectively.

Foreign Currency Exchange Rate Risk

Derivative Instruments

Our primary exposure to foreign currency exchange rate risk relates to our ship construction contracts denominated in Euros, our foreign currency denominated debt and our international business operations. We enter into foreign currency forward contracts to manage portions of the exposure to movements in foreign currency exchange rates. As of September 30, 2019, the aggregate cost of our ships on order was $11.1 billion, of which we had deposited $705.5 million as of such date. These amounts do not include any ships placed on order that are contingent upon completion of conditions precedent and/or financing, any ships on order by our Partner Brands and any ships on order placed by Silversea Cruises during the reporting lag period. Refer to Note 11. Commitments and Contingencies, for further information on our ships on order. At September 30, 2019 and December 31, 2018, approximately 57.9% and 53.5%, respectively, of the aggregate cost of the ships under construction was exposed to fluctuations in the Euro exchange rate. Our foreign currency forward contract agreements are accounted for as cash flow or net investment hedges depending on the designation of the related hedge.

On a regular basis, we enter into foreign currency forward contracts and, from time to time, we utilize cross-currency swap agreements and collar options to minimize the volatility resulting from the remeasurement of net monetary assets and liabilities denominated in a currency other than our functional currency or the functional currencies of our foreign subsidiaries. During the third quarter of 2019, we maintained an average of approximately $725.4 million of these foreign currency forward contracts. These instruments are not designated as hedging instruments. For the quarters ended September 30, 2019 and 2018, changes in the fair value of the foreign currency forward contracts resulted in a loss of $26.0 million and $12.1 million, respectively. For the nine months ended September 30, 2019 and 2018, changes in the fair value of the foreign currency forward contracts resulted in a loss of $25.2 million and $43.4 million, respectively. These amounts were recognized in earnings within Other (expense) income in our consolidated statements of comprehensive income (loss).

We consider our investments in our foreign operations to be denominated in relatively stable currencies and to be of a long-term nature. As of September 30, 2019, we maintained foreign currency forward contracts and designated them as hedges of a portion of our net investments primarily in TUI Cruises of €173.0 million, or approximately $188.6 million based on the exchange rate at September 30, 2019. These forward currency contracts mature in October 2021.

The notional amount of outstanding foreign exchange contracts, excluding the forward contracts entered into to minimize remeasurement volatility, as of September 30, 2019 and December 31, 2018 was $3.0 billion and $3.2 billion, respectively.

Non-Derivative Instruments

We also address the exposure of our investments in foreign operations by denominating a portion of our debt in our subsidiaries’ and investments’ functional currencies and designating it as a hedge of these subsidiaries and investments. We had designated debt as a hedge of our net investments

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primarily in TUI Cruises of €286.0 million, or approximately $311.8 million, as of September 30, 2019. As of December 31, 2018, we had designated debt as a hedge of our net investments in TUI Cruises of €280.0 million, or approximately $320.2 million.

Fuel Price Risk

Our exposure to market risk for changes in fuel prices relates primarily to the consumption of fuel on our ships. We use fuel swap agreements to mitigate the financial impact of fluctuations in fuel prices.

Our fuel swap agreements are generally accounted for as cash flow hedges. At September 30, 2019, we have hedged the variability in future cash flows for certain forecasted fuel transactions occurring through 2023. As of September 30, 2019 and December 31, 2018, we had the following outstanding fuel swap agreements as hedges of our fuel exposure:



	Fuel Swap Agreements
	As of September 30, 2019	As of December 31, 2018
	(metric tons)
2019	221,150	856,800
2020	830,468	830,500
2021	488,900	488,900
2022	322,900	322,900
2023	82,400	—



	Fuel Swap Agreements
	As of September 30, 2019		As of December 31, 2018
	(% hedged)
Projected fuel purchases:
2019	60	%	58	%
2020	55	%	54	%
2021	30	%	28	%
2022	19	%	19	%
2023	5	%	—	%

At September 30, 2019, $25.4 million of estimated unrealized net loss associated with our cash flow hedges pertaining to fuel swap agreements is expected to be reclassified to earnings from Accumulated other comprehensive loss within the next twelve months. Reclassification is expected to occur as the result of fuel consumption associated with our hedged forecasted fuel purchases.

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The fair value and line item caption of derivative instruments recorded within our consolidated balance sheets were as follows (in thousands):



	Fair Value of Derivative Instruments
	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	As of September 30, 2019		As of December 31, 2018		Balance Sheet Location	As of September 30, 2019		As of December 31, 2018
	Balance Sheet Location	Fair Value		Fair Value		Balance Sheet Location	Fair Value		Fair Value
Derivatives designated as hedging instruments under ASC 815-20⁽¹⁾
Interest rate swaps	Other assets	$	1,415	$	23,518	Other long-term liabilities	$	85,004	$	40,467
Foreign currency forward contracts	Derivative financial instruments	—		4,044		Derivative financial instruments	54,985		39,665
Foreign currency forward contracts	Other assets	13,351		10,844		Other long-term liabilities	144,592		16,854
Fuel swaps	Derivative financial instruments	6,698		10,966		Derivative financial instruments	43,160		37,627
Fuel swaps	Other assets	4,241		9,204		Other long-term liabilities	53,997		65,182
Total derivatives designated as hedging instruments under 815-20		25,705		58,576			381,738		199,795
Derivatives not designated as hedging instruments under ASC 815-20
Foreign currency forward contracts	Derivative financial instruments	$	3,811	$	1,751	Derivative financial instruments	$	3,046	$	808
Foreign currency forward contracts	Other assets	—		1,579		Other long-term liabilities	—		833
Fuel swaps	Derivative financial instruments	1,124		2,804		Derivative financial instruments	370		376
Fuel swaps	Other Assets	243		587		Other long-term liabilities	422		—
Total derivatives not designated as hedging instruments under 815-20		5,178		6,721			3,838		2,017
Total derivatives		$	30,883	$	65,297		$	385,576	$	201,812


(1)	Accounting Standard Codification 815-20 “Derivatives and Hedging.”

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The location and amount of gain or (loss) recognized in income on fair value and cash flow hedging relationships were as follows (in thousands):

Quarter Ended September 30, 2019

Quarter Ended September 30, 2018

Fuel Expense

Depreciation and Amortization Expenses

Interest Income (Expense)

Other Income (Expense)

Fuel Expense

Depreciation and Amortization Expenses

Interest Income (Expense)

Other Income (Expense)

Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded

$177,677

$320,295

$(96,413)

$(7,668)

$182,415

$259,923

$(80,679)

$(3,832)

The effects of fair value and cash flow hedging:

Gain or (loss) on fair value hedging relationships in Subtopic 815-20

Interest contracts

Hedged items

n/a

$(4,116)

—

n/a

$2,124

—

Derivatives designated as hedging instruments

n/a

$2,920

—

n/a

$(3,512)

—

Gain or (loss) on cash flow hedging relationships in Subtopic 815-20

Interest contracts

Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income

n/a

$(373)

n/a

$(1,395)

n/a

Commodity contracts

Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income

$2,435

n/a

$(472)

$4,548

n/a

$466

Foreign exchange contracts

Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income

n/a

$(3,592)

n/a

$(1,251)

n/a

$(3,157)

n/a

$(835)

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Nine Months Ended September 30, 2019

Nine Months Ended September 30, 2018

Fuel Expense

Depreciation and Amortization Expenses

Interest Income (Expense)

Other Income (Expense)

Fuel Expense

Depreciation and Amortization Expenses

Interest Income (Expense)

Other Income (Expense)

Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded

$519,772

$924,180

$(292,006)

$(34,537)

$515,065

$753,529

$(209,590)

$5,923

The effects of fair value and cash flow hedging:

Gain or (loss) on fair value hedging relationships in Subtopic 815-20

Interest contracts

Hedged items

n/a

$(25,862)

—

n/a

$18,680

—

Derivatives designated as hedging instruments

n/a

$19,699

—

n/a

$(21,392)

—

Gain or (loss) on cash flow hedging relationships in Subtopic 815-20

Interest contracts

Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income

n/a

$(1,173)

n/a

$(10,371)

n/a

Commodity contracts

Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income

$33,815

n/a

$(1,916)

$1,459

n/a

$658

Foreign exchange contracts

Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income

n/a

$(10,471)

n/a

$(3,866)

n/a

$(9,625)

n/a

$13,808

The carrying value and line item caption of non-derivative instruments designated as hedging instruments recorded within our consolidated balance sheets were as follows (in thousands):



		Carrying Value
Non-derivative instrument designated as hedging instrument under ASC 815-20	Balance Sheet Location	As of September 30, 2019		As of December 31, 2018
Foreign currency debt	Current portion of debt	$	69,399	$	38,168
Foreign currency debt	Long-term debt	242,398		281,984
		$	311,797	$	320,152

The effect of derivative instruments qualifying and designated as hedging instruments and the related hedged items in fair value hedges on the consolidated statements of comprehensive income (loss) was as follows (in thousands):



Derivatives and Related Hedged Items under ASC 815-20 Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative and Hedged Item	Amount of Gain (Loss) Recognized in Income on Derivative										Amount of Gain (Loss) Recognized in Income on Hedged Item
		Quarter Ended September 30, 2019		Quarter Ended September 30, 2018			Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018			Quarter Ended September 30, 2019			Quarter Ended September 30, 2018		Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018
Interest rate swaps	Interest income (expense), net of interest capitalized	$	2,920	$	(3,512	)	$	19,699	$	(21,392	)	$	(4,116	)	$	2,124	$	(25,862	)	$	18,680
		$	2,920	$	(3,512	)	$	19,699	$	(21,392	)	$	(4,116	)	$	2,124	$	(25,862	)	$	18,680

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The fair value and line item caption of derivative instruments recorded within our consolidated balance sheets for the cumulative basis adjustment for fair value hedges were as follows (in thousands):



Line Item in the Statement of Financial Position Where the Hedged Item is Included	Carrying Amount of the Hedged Liabilities				Cumulative amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities
	As of September 30, 2019		As of December 31, 2018		As of September 30, 2019		As of December 31, 2018
Current portion of debt and Long-term debt	$	734,811	$	725,486	$	1,097	$	(24,766	)
	$	734,811	$	725,486	$	1,097	$	(24,766	)

The effect of derivative instruments qualifying and designated as cash flow hedging instruments on the consolidated financial statements was as follows (in thousands):



Derivatives under ASC 815-20 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) on Derivative												Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
	Quarter Ended September 30, 2019			Quarter Ended September 30, 2018			Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018				Quarter Ended September 30, 2019			Quarter Ended September 30, 2018			Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018
Interest rate swaps	$	(23,488	)	$	10,166		$	(91,949	)	$	56,223		Interest expense, net of interest capitalized	$	(373	)	$	(1,395	)	$	(1,173	)	$	(10,371	)
Foreign currency forward contracts	(131,523		)	(35,397		)	(202,273		)	(133,360		)	Depreciation and amortization expenses	(3,592		)	(3,157		)	(10,471		)	(9,625		)
Foreign currency forward contracts	—			—			—			—			Other income (expense)	(1,251		)	(835		)	(3,866		)	13,808
Fuel swaps	—			—			—			—			Other income (expense)	(472		)	466			(1,916		)	658
Fuel swaps	(113,467		)	61,805			22,496			183,642			Fuel	2,435			4,548			33,815			1,459
	$	(268,478	)	$	36,574		$	(271,726	)	$	106,505			$	(3,253	)	$	(373	)	$	16,389		$	(4,071	)

The table below represents amounts excluded from the assessment of effectiveness for our net investment hedging instruments for which the difference between changes in fair value and periodic amortization is recorded in accumulated other comprehensive income (loss) (in thousands):



Gain (Loss) Recognized in Income (Net Investment Excluded Components)	Nine Months Ended September 30, 2019
Net inception fair value at January 1, 2019	$	(8,359	)
Amount of gain recognized in income on derivatives for the period ended September 30, 2019	2,790
Amount of loss remaining to be amortized in accumulated other comprehensive loss, as of September 30, 2019	(4,056		)
Fair value at September 30, 2019	$	(9,625	)

The effect of non-derivative instruments qualifying and designated as net investment hedging instruments on the consolidated financial statements was as follows (in thousands):



	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
Non-derivative instruments under ASC 815-20 Net Investment Hedging Relationships	Quarter Ended September 30, 2019		Quarter Ended September 30, 2018		Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018
Foreign Currency Debt	$	12,811	$	1,700	$	15,519	$	9,309
	$	12,811	$	1,700	$	15,519	$	9,309

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There was no amount recognized in income (ineffective portion and amount excluded from effectiveness testing) for the quarters and nine months ended September 30, 2019 and 2018.

The effect of derivatives not designated as hedging instruments on the consolidated financial statements was as follows (in thousands):



		Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives Not Designated as Hedging Instruments under ASC 815-20	Location of Gain (Loss) Recognized in Income on Derivatives	Quarter Ended September 30, 2019			Quarter Ended September 30, 2018			Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018
Foreign currency forward contracts	Other income (expense)	$	(26,035	)	$	(12,097	)	$	(25,189	)	$	(43,356	)
Fuel swaps	Fuel	—			478			(14		)	1,804
Fuel swaps	Other income (expense)	1,095			(28		)	974			155
		$	(24,940	)	$	(11,647	)	$	(24,229	)	$	(41,397	)

Credit Related Contingent Features

Our current interest rate derivative instruments may require us to post collateral if our Standard & Poor’s and Moody’s credit ratings are below specified levels. Specifically, if on the fifth anniversary of executing a derivative instrument, or on any succeeding fifth-year anniversary, our credit ratings for our senior unsecured debt were to be rated below BBB- by Standard & Poor’s and Baa3 by Moody’s, then the counterparty may periodically demand that we post collateral in an amount equal to the difference between (i) the net market value of all derivative transactions with such counterparty that have reached their fifth year anniversary, to the extent negative, and (ii) the applicable minimum call amount.

The amount of collateral required to be posted following such event will change as, and to the extent, our net liability position increases or decreases by more than the applicable minimum call amount. If our credit rating for our senior unsecured debt is subsequently equal to or above BBB- by Standard & Poor’s or Baa3 by Moody’s, then any collateral posted at such time will be released to us and we will no longer be required to post collateral unless we meet the collateral trigger requirement at the next fifth-year anniversary. At September 30, 2019, five of our interest rate derivative instruments had reached their fifth anniversary; however, our senior unsecured debt credit rating was Baa2 by Moody’s and BBB- by Standard & Poor’s and, accordingly, we were not required to post any collateral as of such date.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Concerning Forward-Looking Statements

The discussion under this caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this document includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance (including our expectations for the fourth quarter and full year of 2019 and our earnings and yield estimates for 2019 set forth under the heading "Outlook" below), business and industry prospects or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. Words such as "anticipate," "believe," "could," "estimate," "expect," "goal," "intend," "may," "plan," "project," "seek," "should," "will," "driving" and similar expressions are intended to further identify any of these forward-looking statements. Forward-looking statements reflect management's current expectations but they are based on judgments and are inherently uncertain. Furthermore, they are subject to risks, uncertainties and other factors that could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements. Examples of these risks, uncertainties and other factors include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q and, in particular, the risks discussed under the caption "Risk Factors" in Part II, Item 1A herein.

All forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date of this document. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

The discussion and analysis of our financial condition and results of operations is organized to present the following:


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


•	a discussion of our results of operations for the quarter and nine months ended September 30, 2019 compared to the same periods in 2018;


•	a discussion of our business outlook, including our expectations for selected financial items for the fourth quarter and full year of 2019; and


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

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Critical Accounting Policies

For a discussion of our critical accounting policies, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report on Form 10-K for the year ended December 31, 2018.

Seasonality

Our revenues are seasonal based on demand for cruises. Demand is strongest for cruises during the Northern Hemisphere’s summer months and holidays. In order to mitigate the impact of the winter weather in the Northern Hemisphere and to capitalize on the summer season in the Southern Hemisphere, our brands have focused on deployment to the Caribbean, Asia and Australia during that period.

Financial Presentation

Description of Certain Line Items

Revenues

Our revenues are comprised of the following:


•	Passenger ticket revenues, which consist of revenue recognized from the sale of passenger tickets and the sale of air transportation to and from our ships; and

•

Onboard and other revenues, which consist primarily of revenues from the sale of goods and/or services onboard our ships not included in passenger ticket prices, cancellation fees, sales of vacation protection insurance, pre- and post-cruise tours and fees for operating certain port facilities. Onboard and other revenues also include revenues we receive from independent third party concessionaires that pay us a percentage of their revenues in exchange for the right to provide selected goods and/or services onboard our ships as well as revenues received for our bareboat charter, procurement and management related services we perform on behalf of our unconsolidated affiliates.

Cruise Operating Expenses

Our cruise operating expenses are comprised of the following:


•	Commissions, transportation and other expenses, which consist of those costs directly associated with passenger ticket revenues, including travel agent commissions, air and other transportation expenses, port costs that vary with passenger head counts and related credit card fees;

•

Onboard and other expenses, which consist of the direct costs associated with onboard and other revenues, including the costs of products sold onboard our ships, vacation protection insurance premiums, costs associated with pre- and post-cruise tours and related credit card fees as well as the minimal costs associated with concession revenues, as the costs are mostly incurred by third-party concessionaires, and costs incurred for the procurement and management related services we perform on behalf of our unconsolidated affiliates;


•	Payroll and related expenses, which consist of costs for shipboard personnel (costs associated with our shoreside personnel are included in Marketing, selling and administrative expenses);


•	Food expenses, which include food costs for both guests and crew;


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


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

We do not allocate payroll and related expenses, food expenses, fuel expenses or other operating expenses to the expense categories attributable to passenger ticket revenues or onboard and other revenues since they are incurred to provide the total cruise vacation experience.

Selected Operational and Financial Metrics

We utilize a variety of operational and financial metrics which are defined below to evaluate our performance and financial condition. As discussed in more detail herein, certain of these metrics are non-GAAP financial measures. These non-GAAP financial

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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 Earnings per Share ("Adjusted EPS") represents Adjusted Net 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 attributable to Royal Caribbean Cruises Ltd. 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) the impairment loss and other costs related to the exit of our tour operations business; (x) the impairment loss related to Skysea Holding; and (xi) 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) transaction costs related to the Silversea Cruises acquisition; (ii) the impairment loss and other costs related to the exit of our tour operations business; and (iii) 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.

Occupancy, in accordance with cruise vacation industry practice, is calculated by dividing Passenger Cruise Days by APCD. A percentage in excess of 100% indicates that three or more passengers occupied some cabins.

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

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

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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 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 and Earnings per Share would require unreasonable effort. Due to 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.

Results of Operations

Summary

Net Income attributable to Royal Caribbean Cruises Ltd. and Adjusted Net Income attributable to Royal Caribbean Cruises Ltd. for the third quarter of 2019 were $883.2 million and $896.8 million, or $4.20 and $4.27 per share on a diluted basis, respectively, compared to Net Income attributable to Royal Caribbean Cruises Ltd. and Adjusted Net Income attributable Royal Caribbean Cruises Ltd. of $810.4 million and $836.3 million, or $3.86 and $3.98 per share on a diluted basis, respectively, for the third quarter of 2018.

Net Income attributable to Royal Caribbean Cruises Ltd. and Adjusted Net Income attributable to Royal Caribbean Cruises Ltd. for the nine months ended September 30, 2019 were $1.6 billion and $1.7 billion, or $7.65 and $8.12 per share on a diluted basis, respectively, compared to Net Income attributable to Royal Caribbean Cruises Ltd. and Adjusted Net Income attributable Royal Caribbean Cruises Ltd. of $1.5 billion and $1.6 billion, or $7.05 and $7.32 per share on a diluted basis, respectively, for the nine months ended September 30, 2018.

For reporting purposes, we include Silversea Cruises’ results of operations on a three-month reporting lag from April 1, 2019 through June 30, 2019 for the quarter ended September 30, 2019 and from October 1, 2018 through June 30, 2019 for the nine months ended September 30, 2019. For the quarter and nine months ended September 30, 2018, Silversea Cruises' results of operations are not included in our consolidated results of operations due to the three-month reporting lag. Refer to Note 1. General to our consolidated financial statements under Item 1. Financial Statements for further information on this three-month reporting lag.

Significant items for the quarter and nine months ended September 30, 2019 include:

•

Total revenues, excluding the effect of changes in foreign currency exchange rates, increased $427.8 million and $1.4 billion for the quarter and nine months ended September 30, 2019 respectively, as compared to the same periods in 2018. The increases were 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.


•	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 $37.1 million and $115.0 million for the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018.


•	Total cruise operating expenses, excluding the effect of changes in foreign currency exchange rates, increased $223.2 million and $712.1 million for the quarter and nine months ended September 30, 2019 as compared to the same periods

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in 2018. The increase was primarily due to an increase in capacity and the addition of Silversea Cruises, which are further discussed below.


•	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 $11.6 million and $32.6 million for the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018.


•	The estimated negative impact resulting from 2019 hurricane-related disruptions was approximately $0.13 per share on a diluted basis to our Net Income attributable to Royal Caribbean Cruises Ltd for the quarter and nine months ended September 30, 2019.

•

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 $0.02 and $0.28 per share on a diluted basis to our Net Income attributable to Royal Caribbean Cruises Ltd. for the quarter and nine months ended September 30, 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 $0.13 and $0.16 per share on a diluted basis to our Net Income attributable to Royal Caribbean Cruises Ltd. for the quarter and nine months ended September 30, 2019, respectively.

•

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) for the nine months ended September 30, 2019.

Other Items


•	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 $87.2 million based on the exchange rate at September 30, 2019, respectively, under previously committed unsecured term loans. Refer to Note 8. 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 8. Debt 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 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 June 2019, we entered into a $300 million unsecured term loan facility for the financing of Silversea Cruises' Silver Moon. Refer to Note 8. Debt to our consolidated financial statements under Item 1. Financial Statements for further information.

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Operating results for the quarter and nine months ended September 30, 2019 compared to the same periods in 2018 are shown in the following tables (in thousands, except per share data):



	Quarter Ended September 30,
	2019					2018
				% of Total Revenues					% of Total Revenues
Passenger ticket revenues	$	2,344,779		73.6	%	$	2,042,911		73.1	%
Onboard and other revenues	842,071			26.4	%	753,276			26.9	%
Total revenues	3,186,850			100.0	%	2,796,187			100.0	%
Cruise operating expenses:
Commissions, transportation and other	488,921			15.3	%	430,039			15.4	%
Onboard and other	200,656			6.3	%	171,028			6.1	%
Payroll and related	263,993			8.3	%	221,205			7.9	%
Food	149,621			4.7	%	133,324			4.8	%
Fuel	177,677			5.6	%	182,415			6.5	%
Other operating	342,170			10.7	%	273,353			9.8	%
Total cruise operating expenses	1,623,038			50.9	%	1,411,364			50.5	%
Marketing, selling and administrative expenses	352,725			11.1	%	325,167			11.6	%
Depreciation and amortization expenses	320,295			10.1	%	259,923			9.3	%
Operating Income	890,792			28.0	%	799,733			28.6	%
Other income (expense):
Interest income	5,625			0.2	%	5,831			0.2	%
Interest expense, net of interest capitalized	(102,038		)	(3.2	)%	(86,510		)	(3.1	)%
Equity investment income	103,654			3.3	%	95,169			3.4	%
Other expense	(7,668		)	(0.2	)%	(3,832		)	(0.1	)%
	(427		)	—	%	10,658			0.4	%
Net Income	890,365			27.9	%	810,391			29.0	%
Less: Net Income attributable to noncontrolling interest	7,125			0.2	%	—			—	%
Net Income attributable to Royal Caribbean Cruises Ltd.	$	883,240		27.7	%	$	810,391		29.0	%
Diluted Earnings per Share	$	4.20				$	3.86

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	Nine months ended September 30,
	2019					2018
				% of Total Revenues					% of Total Revenues
Passenger ticket revenues	$	6,072,599		72.0	%	$	5,141,125		71.8	%
Onboard and other revenues	2,360,649			28.0	%	2,020,423			28.2	%
Total revenues	8,433,248			100.0	%	7,161,548			100.0	%
Cruise operating expenses:
Commissions, transportation and other	1,279,010			15.2	%	1,078,953			15.1	%
Onboard and other	510,255			6.1	%	412,805			5.8	%
Payroll and related	799,094			9.5	%	674,676			9.4	%
Food	436,002			5.2	%	381,349			5.3	%
Fuel	519,772			6.2	%	515,065			7.2	%
Other operating	1,037,113			12.3	%	838,946			11.7	%
Total cruise operating expenses	4,581,246			54.3	%	3,901,794			54.5	%
Marketing, selling and administrative expenses	1,144,546			13.6	%	975,451			13.6	%
Depreciation and amortization expenses	924,180			11.0	%	753,529			10.5	%
Operating Income	1,783,276			21.1	%	1,530,774			21.4	%
Other income (expense):
Interest income	21,751			0.3	%	26,662			0.4	%
Interest expense, net of interest capitalized	(313,757		)	(3.7	)%	(236,252		)	(3.3	)%
Equity investment income	170,393			2.0	%	168,232			2.3	%
Other (expense) income	(34,537		)	(0.4	)%	5,923			0.1	%
	(156,150		)	(1.9	)%	(35,435		)	(0.5	)%
Net Income	1,627,126			19.3	%	1,495,339			20.9	%
Less: Net Income attributable to noncontrolling interest	21,375			0.3	%	—			—	%
Net Income attributable to Royal Caribbean Cruises Ltd.	$	1,605,751		19.0	%	$	1,495,339		20.9	%
Diluted Earnings per Share	$	7.65				$	7.05

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



	Quarter Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019		2018
Net Income attributable to Royal Caribbean Cruises Ltd.	$	883,240		$	810,391	$	1,605,751	$	1,495,339
Adjusted Net Income attributable to Royal Caribbean Cruises Ltd.	896,838			836,299		1,705,420		1,551,278
Net Adjustments to Net Income attributable to Royal Caribbean Cruises Ltd. - Increase	$	13,598		$	25,908	$	99,669	$	55,939
Adjustments to Net Income attributable to Royal Caribbean Cruises Ltd.:
Grand Bahama's drydock write-off and other incidental expenses ⁽¹⁾	$	1,588		$	—	$	16,709	$	—
Noncontrolling interest adjustment ⁽²⁾	8,508			—		43,082		—
Oasis of the Seas incident ⁽³⁾	(429		)	—		11,597		—
Change in the fair value of contingent consideration related to Silversea Cruises acquisition ⁽⁴⁾	—			—		10,700		—
Loss on extinguishment of debt	—			—		6,326		—
Amortization of Silversea Cruises intangible assets resulting from the acquisition⁽⁴⁾	3,069			—		9,207		—
Integration costs related to Silversea Cruises acquisition	862			—		862		—
Transaction costs related to Silversea Cruises acquisition⁽⁴⁾	—			25,908		1,186		30,579
Impairment and other costs related to exit of tour operations business⁽⁵⁾	—			—		—		11,255
Impairment loss related to Skysea Holding⁽⁶⁾	—			—		—		23,343
Impact of change in accounting principle⁽⁷⁾	—			—		—		(9,238		)
Net Adjustments to Net Income attributable to Royal Caribbean Cruises Ltd. - Increase	$	13,598		$	25,908	$	99,669	$	55,939

Basic:
Earnings per Share	$	4.21		$	3.88	$	7.67	$	7.08
Adjusted Earnings per Share	$	4.28		$	4.00	$	8.14	$	7.35

Diluted:
Earnings per Share	$	4.20		$	3.86	$	7.65	$	7.05
Adjusted Earnings per Share	$	4.27		$	3.98	$	8.12	$	7.32

Weighted-Average Shares Outstanding:
Basic	209,575			209,054		209,477		211,099
Diluted	210,121			209,928		210,032		211,973


(1)	Amounts are included in our equity investment income within our consolidated statements of comprehensive income (loss) for the quarter and nine months ended September 30, 2019. Refer to Note 7. Other Assets to our consolidated financial statements under Item 1. Financial Statements for information regarding the Grand Bahama incident involving one of its drydocks.

(2)

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.) noncontrolling interest. Refer to Note 10. Redeemable Noncontrolling Interest to our consolidated financial statements under Item 1. Financial Statements for further information on the noncontrolling interest.

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(3)	Represents incidental costs, net of insurance recoveries, 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 quarter and nine months ended September 30, 2019.


(4)	Refer to Note 3. Business Combination to our consolidated financial statements under Item 1. Financial Statements for information on the Silversea Cruises acquisition.


(5)	In 2014, we created a tour operations business that focused on developing, marketing and selling land based tours around the world through an e-commerce platform. During the second quarter of 2018, we decided to cease operations and exit this business. As a result, we incurred exit costs, primarily consisting of fixed asset impairment charges and severance expense.


(6)	Refer to Note 7. Other Assets to our consolidated financial statements under Item 1. Financial Statements for information on the impairment loss related to Skysea Holding for the nine months ended September 30, 2018.

(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, resulting in an increase to Net Income attributable to Royal Caribbean Cruises Ltd. of $9.2 million, which is reported within Marketing, selling and administrative expenses in our consolidated statements of comprehensive income (loss) for the nine months ended September 30, 2018.

Selected statistical information is shown in the following table:



	Quarter Ended September 30,				Nine Months Ended September 30,
	2019⁽¹⁾		2018		2019⁽¹⁾		2018
Passengers Carried	1,728,997		1,635,884		4,926,123		4,501,890
Passenger Cruise Days	11,863,189		11,103,471		33,746,534		30,942,320
APCD	10,733,254		9,923,690		31,031,274		28,242,132
Occupancy	110.5	%	111.9	%	108.8	%	109.6	%

(1)

Due to the three-month reporting lag, we included Silversea Cruises' result of operations from April 1, 2019 through June 30, 2019 for the quarter ended September 30, 2019 and from October 1, 2018 through June 30, 2019 for the nine months ended September 30, 2019. Refer to Note 1. General and Note 3. Business Combination to our consolidated financial statements under Item 1. Financial Statements for more information on the three-month reporting lag and the Silversea Cruises acquisition.

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



	Quarter Ended September 30,						Nine Months Ended September 30,
	2019		2019 On a Constant Currency Basis		2018		2019		2019 On a Constant Currency Basis		2018
Passenger ticket revenues	$	2,344,779	$	2,377,350	$	2,042,911	$	6,072,599	$	6,173,459	$	5,141,125
Onboard and other revenues	842,071		846,596		753,276		2,360,649		2,374,817		2,020,423
Total revenues	3,186,850		3,223,946		2,796,187		8,433,248		8,548,276		7,161,548
Less:
Commissions, transportation and other	488,921		495,974		430,039		1,279,010		1,296,848		1,078,953
Onboard and other	200,656		202,229		171,028		510,255		513,397		412,805
Net Revenues	$	2,497,273	$	2,525,743	$	2,195,120	$	6,643,983	$	6,738,031	$	5,669,790

APCD	10,733,254		10,733,254		9,923,690		31,031,274		31,031,274		28,242,132
Gross Yields	$	296.91	$	300.37	$	281.77	$	271.77	$	275.47	$	253.58
Net Yields	$	232.67	$	235.32	$	221.20	$	214.11	$	217.14	$	200.76

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



	Quarter Ended September 30,								Nine Months Ended September 30,
	2019			2019 On a Constant Currency Basis			2018		2019		2019 On a Constant Currency Basis		2018
Total cruise operating expenses	$	1,623,038		$	1,634,594		$	1,411,364	$	4,581,246	$	4,613,867	$	3,901,794
Marketing, selling and administrative expenses ^{(1) (2)}	351,863			354,751			299,259		1,142,498		1,153,627		942,855
Gross Cruise Costs	1,974,901			1,989,345			1,710,623		5,723,744		5,767,494		4,844,649
Less:
Commissions, transportation and other	488,921			495,974			430,039		1,279,010		1,296,848		1,078,953
Onboard and other	200,656			202,229			171,028		510,255		513,397		412,805
Net Cruise Costs including other costs	1,285,324			1,291,142			1,109,556		3,934,479		3,957,249		3,352,891
Less:
Costs, net of insurance recoveries, related to the Oasis of the Seas incident included within cruise operating expenses	(429		)	(429		)	—		11,597		11,597		—
Net Cruise Costs	1,285,753			1,291,571			1,109,556		3,922,882		3,945,652		3,352,891
Less:
Fuel ⁽³⁾	178,373			178,374			182,415		519,772		519,791		515,065
Net Cruise Costs Excluding Fuel	$	1,107,380		$	1,113,197		$	927,141	$	3,403,110	$	3,425,861	$	2,837,826

APCD	10,733,254			10,733,254			9,923,690		31,031,274		31,031,274		28,242,132
Gross Cruise Costs per APCD	$	184.00		$	185.34		$	172.38	$	184.45	$	185.86	$	171.54
Net Cruise Costs per APCD	$	119.79		$	120.33		$	111.81	$	126.42	$	127.15	$	118.72
Net Cruise Costs Excluding Fuel per APCD	$	103.17		$	103.71		$	93.43	$	109.67	$	110.40	$	100.48

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(1)	For both the quarter and nine months ended September 30, 2019, the amounts do not include integration costs related to the Silversea Cruises acquisition of $0.9 million. In addition, for the nine months ended September 30, 2019, the amount does not include the transaction costs related to the Silversea Cruises acquisition of $1.2 million.

(2)

For the quarter and nine months ended September 30, 2018, the amounts do not include the transaction costs related to the Silversea Cruises acquisition of $25.9 million and $30.6 million, respectively. For the nine months ended September 30, 2018, the amount does not include 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 related to the recognition of stock-based compensation expense, which resulted in an increase to Net Income attributable to Royal Caribbean Cruises Ltd. of $9.2 million.


(3)	For the quarter and nine months ended September 30, 2019, the amounts do not include fuel expense, net of insurance recoveries, related to the Oasis of the Seas incident.

2019 Outlook

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 October 30, 2019, we announce the following full year and fourth quarter 2019 guidance based on the then current fuel pricing, interest rates and currency exchange rates:

Full Year 2019



	As Reported	Constant Currency
Net Yields	Approx. 6.75%	Approx. 8.0%
Net Cruise Costs per APCD	Approx. 7.5%	Approx. 8.0%
Net Cruise Costs per APCD, Excluding Fuel	Approx. 10.5%	Approx. 11.0%
Capacity Change	7.9%
Depreciation and Amortization	$1,237 to $1,241 million
Interest Expense, net	$374 to $378 million
Fuel Consumption (metric tons)	1,486,200
Fuel Expenses	$696 million
Percent Hedged (fwd consumption)	60%
Adjusted Earnings per Share-Diluted	$9.50 to $9.55

Fourth Quarter 2019



	As Reported	Constant Currency
Net Yields	Approx. 6.25%	Approx. 6.75%
Net Cruise Costs per APCD	Approx. 10.0%	Approx. 10.25%
Net Cruise Costs per APCD, Excluding Fuel	Approx. 14.25%	Approx. 14.5%
Capacity Change	2.3%
Depreciation and Amortization	$322 to $326 million
Interest Expense, net	$89 to $93 million
Fuel Consumption (metric tons)	371,400
Fuel Expenses	$176 million
Percent Hedged (fwd consumption)	60%
Adjusted Earnings per Share-Diluted	Approx. $1.40

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Sensitivity ⁽¹⁾



	Fourth Quarter 2019
1% Change in Currency	$5 million
1% Change in Net Yields	$19 million
1% Change in NCC x Fuel	$10 million
100 basis pt. Change in LIBOR	$5 million
10% Change in Fuel Prices	$9 million


(1)	Due to the three-month reporting lag, Silversea Cruises does not impact the sensitivity analysis above for the fourth quarter 2019.

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 2019, the top five foreign currencies are ranked below. For example, the Australian Dollar is expected to be the most impactful currency in the fourth quarter of 2019. Rankings for the first, second and third quarters of 2019 are based on actual results. Rankings for the fourth quarter and full year are based on estimated net exposures.



Ranking	Q1	Q2	Q3	Q4	FY 2019
1	AUD	GBP	GBP	AUD	GBP
2	CAD	CAD	CNH	GBP	AUD
3	GBP	AUD	EUR	CAD	CAD
4	CNH	CNH	CAD	EUR	CNH
5	EUR	MXN	AUD	CNH	EUR

The currency abbreviations above are defined as follows:



Currency Abbreviation		Currency
AUD		Australian Dollar
CAD		Canadian Dollar
CNH		Chinese Yuan
EUR		Euro
GBP		British Pound
MXN		Mexican Peso

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Quarter Ended September 30, 2019 Compared to Quarter Ended September 30, 2018

In this section, references to 2019 refer to the quarter ended September 30, 2019 and references to 2018 refer to the quarter ended September 30, 2018.

Revenues

Total revenues for 2019 increased $390.7 million, or 14.0%, to $3.2 billion from $2.8 billion in 2018.

Passenger ticket revenues comprised 73.6% of our 2019 total revenues. Passenger ticket revenues for 2019 increased by $301.9 million, or 14.8%, from 2018. The increase was primarily due to:

•

an 8.2% increase in capacity, which increased Passenger ticket revenues by $166.7 million, primarily due to the additions of Spectrum of the Seas in the second quarter of 2019, Celebrity Edge in the fourth quarter of 2018 and the addition of Silversea Cruises to our fleet in the second half of 2018, net of the negative impact of canceled and modified sailings resulting from hurricane-related disruptions during the third quarter of 2019; and

•

an increase of $167.8 million in ticket prices primarily driven by the improvement in our ticket price on a per passenger basis due to the addition of Silversea Cruises to our fleet in the second half of 2018, the additions of Spectrum of the Seas and Celebrity Edge and higher pricing on our Caribbean 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 an unfavorable effect of changes in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $32.6 million.

The remaining 26.4% of 2019 total revenues was comprised of Onboard and other revenues, which increased $88.8 million, or 11.8%, to $842.1 million in 2019 from $753.3 million in 2018. The increase in Onboard and other revenues was primarily due to:


•	a $60.5 million increase attributable to the 8.2% increase in capacity noted above, net of the negative impact of canceled and modified sailings resulting from hurricane-related disruptions during the third quarter of 2019;


•	a $16.9 million increase in onboard revenue attributable to higher spending on a per passenger basis primarily due to our revenue enhancing initiatives, including shore excursions, Perfect Day at CocoCay, specialty restaurants, internet services, beverage package sales and promotions and new programs and activities offered to our guests; and


•	a $15.1 million increase in other revenue primarily due to revenue associated with our new cruise terminal at PortMiami and cancellation fees associated with non-refundable deposits and higher pricing.

The increase in Onboard and other revenues was partially offset by an unfavorable effect of changes in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of $4.5 million.

Onboard and other revenues included concession revenues of $91.5 million in 2019 and $86.7 million in 2018.

Cruise Operating Expenses

Total Cruise operating expenses for 2019 increased $211.7 million, or 15.0%, to $1.6 billion from $1.4 billion in 2018. The increase was primarily due to:


•	the 8.2% increase in capacity noted above, which increased cruise operating expenses by $114.8 million; and


•	a $126.8 million increase in total cruise operating expenses, excluding the impact of the increase in capacity and the decrease in fuel expense, was primarily due to the addition of Silversea Cruises to our fleet in the second half of 2018, expenses associated with operating PerfectDay at CocoCay and our new cruise terminal at PortMiami.

The increase in Cruise operating expenses was partially offset by:


•	a $19.5 million decrease in fuel expenses, excluding the impact of the increase in capacity. Our cost of fuel (net of the financial impact of fuel swap agreements) for 2019 decreased 12.3% per metric ton compared to 2018; and


•	a favorable effect of changes in foreign currency exchange rates related to our cruise operating expenses denominated in currencies other than the United States dollar of $11.6 million.

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Marketing, Selling and Administrative Expenses

Marketing, selling and administrative expenses for 2019 increased $27.6 million, or 8.5%, to $352.7 million from $325.2 million 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. Additionally, 2019 includes expenses associated with Hurricane Dorian relief efforts, which did not occur in 2018.

The increase was partially offset by a decrease in compensation expense related to our performance share awards due to a lower stock price year over year. Additionally, marketing, selling and administrative expenses for 2018 include transaction costs incurred by us related to the Silversea Cruises acquisition, which did not recur in 2019.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2019 increased $60.4 million, or 23.2%, to $320.3 million from $259.9 million in 2018. The increase was primarily due to the additions of Spectrum of the Seas in the second quarter of 2019 and 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.

Other Income (Expense)

Interest expense, net of interest capitalized for 2019 increased $15.5 million, or 17.9%, to $102.0 million from $86.5 million in 2018. The increase was primarily due to a higher average debt level compared to 2018, mostly attributable to the financing of our newbuilds and our acquisition of Silversea Cruises in the second half of 2018 and to a lesser extent, higher interest rates in 2019 compared to 2018.

Equity investment income increased $8.5 million, or 8.9%, to $103.7 million in 2019 from $95.2 million in 2018 mainly due to an increase in income from TUI Cruises.

Gross and Net Yields

Gross and Net Yields increased 5.4% and 5.2%, respectively, in 2019 compared to 2018 primarily due to the increases in passenger ticket and onboard and other revenues discussed above. Gross and Net Yields on a Constant Currency basis increased 6.6% and 6.4%, respectively, in 2019 compared to 2018.

Gross and Net Cruise Costs

Gross and Net Cruise Costs increased 15.4% and 15.9%, respectively, in 2019 compared to 2018 primarily due to the increase in cruise operating expenses and capacity discussed above. Gross and Net Cruise Costs per APCD increased 6.7% and 7.1%, respectively, in 2019 compared to 2018 and Gross and Net Cruise Costs per APCD on a Constant Currency basis increased 7.5% and 7.6%, respectively, in 2019 compared to 2018.

Net Cruise Costs Excluding Fuel

Net Cruise Costs Excluding Fuel per APCD increased 10.4% in 2019 compared to 2018 and on a Constant Currency basis increased 11.0% in 2019 compared to 2018.

Other Comprehensive (Loss) Income

Other comprehensive loss in 2019 was $293.2 million compared to Other comprehensive income of $34.6 million in 2018. The change of $327.8 million was primarily due to the Loss on cash flow derivative hedges in 2019 of $265.2 million compared to the Gain on cash flow derivative hedges of $36.9 million in 2018. The change of $302.2 million in 2019 was primarily due to a decrease in fuel swap instrument values in 2019 compared to an increase in 2018 and a greater decrease in foreign currency forward contract values in 2019 compared to the decrease in 2018.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

In this section, references to 2019 refer to the nine months ended September 30, 2019 and references to 2018 refer to the nine months ended September 30, 2018.

Revenues

Total revenues for 2019 increased $1.3 billion, or 17.8%, to $8.4 billion from $7.2 billion in 2018.

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Passenger ticket revenues comprised 72.0% of our 2019 total revenues. Passenger ticket revenues for 2019 increased by $931.5 million, or 18.1%, from 2018. The increase was primarily due to:

•

a 9.9% increase in capacity, which increased passenger ticket revenues by $507.8 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 and Celebrity Edge in the fourth quarter of 2018 and the addition of Silversea Cruises to our fleet in the second half of 2018, net of the negative impact of canceled and modified sailings resulting from hurricane-related disruptions during the third quarter of 2019; and

•

an increase of $524.5 million in ticket prices primarily driven by the improvement in our ticket price on a per passenger basis due to the addition of Silversea Cruises to our fleet in the second half of 2018, the additions of Spectrum of the Seas, Symphony of the Seas, Azamara Pursuit and Celebrity Edge, and 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 remaining 28.0% of 2019 total revenues was comprised of Onboard and other revenues, which increased $340.2 million, or 16.8%, to $2.4 billion in 2019 from $2.0 billion in 2018. The increase in Onboard and other revenues was primarily due to:


•	a $195.5 million increase attributable to the 9.9% increase in capacity noted above, net of the negative impact of canceled and modified sailings resulting from hurricane-related disruptions during the third quarter of 2019;


•	a $101.9 million increase in onboard revenue attributable to higher spending on a per passenger basis primarily due to our revenue enhancing initiatives, including 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; and


•	a $56.2 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.

Onboard and other revenues included concession revenue of $276.0 million in 2019 and $249.3 million in 2018.

Cruise Operating Expenses

Total cruise operating expenses for 2019 increased $679.5 million, or 17.4%, to $4.6 billion from $3.9 billion in 2018. The increase was primarily due to:


•	the 9.9% increase in capacity noted above, which increased cruise operating expenses by $382.8 million; and

•

a $373.9 million increase in total cruise operating expenses, excluding the impact of the increase in capacity and the decrease in fuel expense, 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 PerfectDay at CocoCay and our new cruise terminal at PortMiami.

The increase in Cruise operating expenses was partially offset by:


•	a $45.8 million decrease in fuel expenses, excluding the impact of the increase in capacity. Our cost of fuel (net of the financial impact of fuel swap agreements) for 2019 decreased 9.8% per metric ton compared to 2018; and


•	a favorable effect of changes in foreign currency exchange rates related to our expense transactions denominated in currencies other than the United States dollar of $32.6 million.

Marketing, Selling and Administrative Expenses

Marketing, selling and administrative expenses increased $169.1 million, or 17.3%, to $1.1 billion from $975.5 million 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, 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.

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Marketing, selling and administrative expenses for 2018 include transaction costs incurred by us related to the Silversea Cruises acquisition, which were not significant in 2019, and the impairment and other costs related to the exit of our tour operations business, which did not recur in 2019.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2019 increased $170.7 million, or 22.6%, to $924.2 million from $753.5 million in 2018. The increase was 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 and 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.

Other Income (Expense)

Interest expense, net of interest capitalized, for 2019 increased $77.5 million, or 32.8%, to $313.8 million from $236.3 million in 2018. The increase was primarily due to a higher average debt level compared to 2018, mostly attributable to the financing of our newbuilds and our acquisition of Silversea Cruises in the second half of 2018, and to a lesser extent, higher interest rates in 2019 compared to 2018.

Equity investment income remained consistent compared to 2018. In 2019, our equity investment income includes our equity share of the write-off and other expenses resulting from the Grand Bahama drydock structure incident involving Oasis of the Seas.

Other expense was $34.5 million in 2019 compared to Other income of $5.9 million in 2018. Other expense in 2019 includes $6.3 million of debt extinguishment associated with the remaining balance of the unsecured term loan related to the purchase of Allure of the Seas and the repayment of the $700 million loan associated with the Silversea Cruises acquisition. Refer to Note 8. Debt to our consolidated financial statements under Item 1. Financial Statements for further information. Other income in 2018 included a gain of $21.8 million related to the recognition of the remaining balance of a deferred gain from the sale of Celebrity Galaxy to TUI Cruises and a gain of $13.7 million related to the sale of our remaining equity interest in a travel agency business, neither of which recurred in 2019. These gains in Other income 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 7. Other Assets to our consolidated financial statements under Item 1. Financial Statements.

Gross and Net Yields

Gross and Net Yields increased 7.2% and 6.6%, respectively, in 2019 compared to 2018 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 8.6% and 8.2%, respectively, in 2019 compared to 2018.

Gross and Net Cruise Costs

Gross and Net Cruise Costs increased 18.1% and 17.0%, respectively, in 2019 compared to 2018 and Gross and Net Cruise Costs per APCD increased 7.5% and 6.5%, respectively, in 2019 compared to 2018, primarily due to the increase in cruise operating expenses discussed above. Gross and Net Cruise Costs per APCD on a Constant Currency basis increased 8.3% and 7.1%, respectively, in 2019 compared to 2018.

Net Cruise Costs Excluding Fuel

Net Cruise Costs Excluding Fuel per APCD increased 9.1% in 2019 compared to 2018 and on a Constant Currency basis increased 9.9% in 2019 compared to 2018.

Other Comprehensive (Loss) Income

Other comprehensive loss in 2019 was $318.6 million compared to Other comprehensive income of $103.7 million in 2018. The change of $422.3 million was primarily due to a Loss on cash flow derivative hedges in 2019 of $288.1 million, compared to a Gain on cash flow derivative hedges of $110.6 million in 2018. The change of $398.7 million in 2019 was primarily due to a smaller increase in fuel swap instrument values in 2019 compared to the increase in 2018, a decrease in interest rate contract values in 2019 compared to an increase in 2018 and a greater decrease in foreign currency forward contract values in 2019 compared to the decrease in 2018.

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Future Application of Accounting Standards

We have reviewed all recently issued, but not yet effective, accounting pronouncements and we do not expect the future adoption of any such pronouncements to have a material impact on our consolidated financial statements.

Liquidity and Capital Resources

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 $360.1 million to $3.1 billion for the first nine months in 2019 compared to $2.7 billion for the same period 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.

Net cash used in investing activities decreased $956.3 million to $2.4 billion for the first nine months in 2019 compared to $3.4 billion for the same period 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.

Net cash used in financing activities was $714.9 million for the first nine months in 2019 compared to Net cash provided by financing activities of $765.8 million for the same period in 2018. The change was primarily attributable to a decrease in debt proceeds of $3.5 billion due to a decrease in borrowings on our revolving credit facilities and a net decrease in proceeds from the issuance of commercial paper notes of $871.9 million for the first nine months in 2019 compared to the same period in 2018. These decreases in cash were partially offset by a decrease in repayments of debt of $2.4 billion. Additionally, during the first nine months of 2019, there were no stock repurchases compared to $575.0 million of stock repurchases during the same period in 2018.

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Future Capital Commitments

Capital Expenditures

As of September 30, 2019, our Global Brands and our Partner Brands have 15 ships on order. The expected dates that these ships will enter service and their approximate berths are as follows:



Ship	Shipyard	Expected to Enter Service	Approximate Berths
Royal Caribbean International —
Oasis-class:
Wonder of the Seas	Chantiers de l’Atlantique	2nd Quarter 2021	5,700
Quantum-class:
Odyssey of the Seas	Meyer Werft	4th Quarter 2020	4,200
Icon-class:
Unnamed	Meyer Turku Oy	2nd Quarter 2022	5,600
Unnamed	Meyer Turku Oy	2nd Quarter 2024	5,600
Celebrity Cruises —
Edge-class:
Celebrity Apex	Chantiers de l’Atlantique	2nd Quarter 2020	2,900
Celebrity Beyond	Chantiers de l’Atlantique	4th Quarter 2021	3,250
Unnamed	Chantiers de l’Atlantique	4th Quarter 2022	3,250
Silversea Cruises — ⁽¹⁾
Silver Origin	De Hoop	4th Quarter 2020	100
Muse-class:
Silver Moon	Fincantieri	4th Quarter 2020	550
Silver Dawn	Fincantieri	1st Quarter 2022	550
Evolution-class:
Unnamed	Meyer Werft	3rd Quarter 2022	600
Unnamed	Meyer Werft	2nd Quarter 2023	600
TUI Cruises (50% joint venture) —
Mein Schiff 7	Meyer Turku Oy	2nd Quarter 2023	2,850
Unnamed	Fincantieri	3rd Quarter 2024	4,100
Unnamed	Fincantieri	1st Quarter 2026	4,100
Total Berths			43,950


(1)	The "Expected to Enter Service" dates for Silversea Cruises' new ships takes into consideration the three-month reporting lag. Refer to Note 1. General under Item 1. Financial Statements for further information.

In September 2019, Silversea Cruises entered into two credit agreements, guaranteed by us, for the unsecured financing of the first and second Evolution-class ships, a new generation of ships for Silversea Cruises, 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.

Our future capital commitments consist primarily of new ship orders. As of September 30, 2019, the aggregate cost of our ships on order presented in the table above, excluding any ships on order by our Partner Brands, was $11.1 billion, of which we had deposited $705.5 million. Approximately 57.9% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at September 30, 2019. Refer to Note 14. Fair Value Measurements and Derivative Instruments to our consolidated financial statements under Item 1. Financial Statements for further information.

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In addition, as of September 30, 2019, we have the following agreements in place for new ships on order, which are contingent upon completion of conditions precedent and financing:



Ship	Shipyard	Expected to Enter Service	Approximate Berths
Royal Caribbean International —
Oasis-class:
Unnamed	Chantiers de l’Atlantique	4th Quarter 2023	5,700
Icon-class:
Unnamed	Meyer Turku Oy	2nd Quarter 2025	5,600
Celebrity Cruises —
Edge-class:
Unnamed	Chantiers de l’Atlantique	4th Quarter 2024	3,250

As of September 30, 2019, we anticipate overall full year capital expenditures, based on our existing ships on order, will be approximately $3.0 billion for 2019, $4.5 billion for 2020, $3.5 billion for 2021, $3.6 billion for 2022 and $2.9 billion for 2023. These amounts do not include any ships on order by our Partner Brands.

Contractual Obligations

As of September 30, 2019, our contractual obligations were as follows (in thousands):



	Payments due by period
			Less than		1-3		3-5		More than
	Total		1 year		years		years		5 years
Operating Activities:
Operating lease obligations ⁽¹⁾	$	961,013	$	123,155	$	218,202	$	185,662	$	433,994
Interest on debt ⁽²⁾	2,006,801		355,891		609,923		399,918		641,069
Other ⁽³⁾	489,050		207,374		215,081		31,170		35,425
Investing Activities:	0
Ship purchase obligations ⁽⁴⁾	8,486,877		1,056,290		5,110,395		2,320,192		—
Financing Activities:	0
Commercial paper ⁽⁵⁾	922,201		922,201		—		—		—
Debt obligations ⁽⁶⁾	9,523,994		908,456		2,840,140		1,993,285		3,782,113
Finance lease obligations ⁽⁷⁾	238,278		34,604		62,804		9,908		130,962
Other ⁽⁸⁾	16,334		5,030		7,943		3,361		—
Total	$	22,644,548	$	3,613,001	$	9,064,488	$	4,943,496	$	5,023,563


(1)	We are obligated under noncancelable operating leases primarily for preferred berthing arrangements, real estate and shipboard equipment. Amounts represent contractual obligations with initial terms in excess of one year.

(2)

Long-term debt obligations mature at various dates through fiscal year 2036 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 September 30, 2019. Debt denominated in other currencies is calculated based on the applicable exchange rate at September 30, 2019. Amounts include imputed interest for our finance lease obligations, refer to Note 9. Leases to our consolidated financial statements under Item 1. Financial Statements for further information.


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

(4)

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 Expenditures section.


(5)	Refer to Note 8. Debt to our consolidated financial statements under Item 1. Financial Statements for further information.

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(6)	Amounts represent debt obligations with initial terms in excess of one year. Debt denominated in other currencies is calculated based on the applicable exchange rate at September 30, 2019. In addition, debt obligations presented above are net of debt issuance costs of $172.2 million as of September 30, 2019.


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


(8)	Amounts represent fees payable to sovereign guarantors in connection with certain of our export credit debt facilities and facility fees on our revolving credit facilities.

In addition, we have leasehold improvement commitments under the lease of our corporate facilities of approximately $300 million to be incurred within the next three years of which we have incurred $8.8 million as of September 30, 2019.

Please refer to Funding Needs and Sources for discussion on the planned funding of the above contractual obligations.

As a normal part of our business, depending on market conditions, pricing and our overall growth strategy, we continuously consider opportunities to enter into contracts for the building of additional ships. We may also consider the sale of ships or the purchase of existing ships. We continuously consider potential acquisitions and strategic alliances. If any of these were to occur, they would be financed through the incurrence of additional indebtedness, the issuance of additional shares of equity securities or through cash flows from operations.

Off-Balance Sheet Arrangements

We and TUI AG have each guaranteed the repayment by TUI Cruises of 50% of a bank loan. As of September 30, 2019, the outstanding principal amount of the loan was €29.1 million, or approximately $31.7 million based on the exchange rate at September 30, 2019. The loan amortizes quarterly and is currently secured by a first mortgage on Mein Schiff Herz. 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 2031.

Some of the contracts that we enter into include indemnification provisions that obligate us to make payments to the counterparty if certain events occur. These contingencies generally relate to changes in taxes, increased lender capital costs and other similar costs. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business. There are no stated or notional amounts included in the indemnification clauses and we are not able to estimate the maximum potential amount of future payments, if any, under these indemnification clauses. We have not been required to make any payments under such indemnification clauses in the past and, under current circumstances, we do not believe an indemnification obligation is probable.

As of September 30, 2019, 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

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 September 30, 2019, we had $3.6 billion in contractual obligations due through September 30, 2020 of which approximately $1.8 billion relates to debt maturities including our commercial paper notes, $355.9 million relates to interest on debt and $1.1 billion relates to progress payments on our ship orders and the final installments payable due upon the deliveries of Celebrity Apex and Silver Origin, which are scheduled for delivery in the first and second quarter of 2020, respectively. 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 September 30, 2019, we had a working capital deficit of $5.9 billion, which included $943.1 million of current portion of debt, including finance leases, and $922.2 million 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 $775.5 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 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, 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

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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 September 30, 2019, we had liquidity of $2.2 billion, consisting of $276.7 million in cash and cash equivalents and $1.9 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 September 30, 2019, we have approximately $700.0 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. Refer to Note 12. Shareholders' Equity to our consolidated financial statements under Item 1. Financial Statements for further information.

Debt Covenants

Certain of our financing agreements contain covenants that require us, among other things, to maintain minimum net worth of at least $9.7 billion, a fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital ratio to no more than 62.5%. The fixed charge coverage ratio is calculated by dividing net cash from operations for the past four quarters by the sum of dividend payments plus scheduled principal debt payments in excess of any new financings for the past four quarters. Our minimum net worth and maximum net debt-to-capital calculations exclude the impact of Accumulated other comprehensive loss on Total shareholders’ equity. We were well in excess of all debt covenant requirements as of September 30, 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.

Dividends

In September 2019, we declared a cash dividend on our common stock of $0.78 per share, which was paid in October 2019. During both 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 April 2019 and July 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.

During the third quarter of 2018, we declared a cash dividend on our common stock of $0.70 per share, which was paid in October 2018. During both the first and second quarters of 2018, we declared a cash dividend on our common stock of $0.60 per share, which was paid in April 2018 and July 2018, respectively. During the first quarter of 2018, we also paid a cash dividend on our common stock of $0.60 per share, which was declared during the fourth quarter of 2017.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For a discussion of our market risks, refer to Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no significant developments or material changes since the date of our Annual Report.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chairman and Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based upon such evaluation, our Chairman and Chief Executive Officer and Chief Financial Officer concluded that those controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chairman and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely

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decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In July 2018, we acquired Silversea Cruise Holding Ltd. ("Silversea Cruises") and we are in the process of implementing the controls and procedures at Silversea Cruises and integrating the acquired business into our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Readers are cautioned that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

The risk factors set forth below and elsewhere in this Quarterly Report on Form 10-Q are important factors that could cause actual results to differ from expected or historical results. It is not possible to predict or identify all such risks. There may be additional risks that we consider not to be material, or which are not known, and any of these risks could have the effects set forth below. The ordering of the risk factors set forth below is not intended to reflect any Company indication of priority or likelihood. See Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a cautionary note regarding forward-looking statements.

Adverse worldwide economic or other conditions could reduce the demand for cruises and passenger spending, adversely impacting our operating results, cash flows and financial condition including potentially impairing the value of our ships and other assets.

The demand for cruises is affected by international, national and local economic conditions. Weak or uncertain economic conditions impact consumer confidence and pose a risk as vacationers may postpone or reduce discretionary spending. This, in turn, may result in cruise booking slowdowns, decreased cruise prices and lower onboard revenues. Given the global nature of our business, we are exposed to many different economies and our business could be hurt by challenging conditions in any of our markets. Any significant deterioration of international, national or local economic conditions, including those resulting from geopolitical events and/or international disputes, could result in a prolonged period of booking slowdowns, depressed cruise prices and/or reduced onboard revenues.

Fears of terrorist attacks, war, and other hostilities could have a negative impact on our results of operations.

Events such as terrorist attacks, war (or war-like conditions), conflicts (domestic or cross-border), civil unrest and other hostilities, including an escalation in the frequency or severity of incidents, and the resulting political instability, travel restrictions and advisories, and concerns over safety and security aspects of traveling or the fear of any of the foregoing have had, and could have in the future, a significant adverse impact on demand and pricing in the travel and vacation industry. In view of our global operations, we are susceptible to a wide range of adverse events. These events could also result in additional security measures taken by local authorities which may potentially impact access to ports and/or destinations.

Our operating costs could increase due to market forces and economic or geo-political factors beyond our control.

Our operating costs, including fuel, food, payroll and benefits, airfare, taxes, insurance and security costs, are all subject to increases due to market forces and economic or geo-political conditions or other factors beyond our control. Increases in these operating costs could adversely affect our profitability.

Fluctuations in foreign currency exchange rates, fuel prices and interest rates could affect our financial results.

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We are exposed to market risk attributable to changes in foreign currency exchange rates, fuel prices and interest rates. Significant changes in any of the foregoing could have a material impact on our financial results, net of the impact of our hedging activities and natural offsets. Our operating results have been and will continue to be impacted, often significantly, by changes in each of these factors. The value of our earnings in foreign currencies is adversely impacted by a strong United States dollar. In addition, any significant increase in fuel prices could materially and adversely affect our business as fuel prices not only impact our fuel costs, but also some of our other expenses, such as crew travel, freight and commodity prices. Also, a significant increase in interest rates could materially impact the cost of our floating rate debt. Furthermore, regulatory changes, such as the announcement of the United Kingdom’s Financial Conduct Authority to phase out LIBOR by the end of 2021, may adversely affect our portfolio of floating-rate debt and interest rate derivatives. If LIBOR ceases to exist, we may need to renegotiate any credit agreements or interest rate derivatives agreements extending beyond 2021 that utilize LIBOR as a factor in determining the interest rate or hedge rate, which could adversely impact our cost of debt.

See Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 3. Quantitative and Qualitative Disclosures About Market Risk for more information.

Conducting business globally may result in increased costs and other risks.

We operate our business globally. Operating internationally exposes us to a number of risks, including increased exposure to a wider range of regional and local economic conditions, volatile local political conditions, potential changes in duties and taxes, including changing and/or uncertain interpretations of existing tax laws and regulations, required compliance with additional laws and policies affecting cruising, vacation or maritime businesses or governing the operations of foreign-based companies, currency fluctuations, interest rate movements, difficulties in operating under local business environments, port quality and availability in certain regions, U.S. and global anti-bribery laws or regulations, imposition of trade barriers and restrictions on repatriation of earnings.

Our future growth strategies increasingly depend on the growth and sustained profitability of certain international markets, such as China. Some factors that will be critical to our success in developing these markets may be different than those affecting our more-established North American and European markets. In the Chinese market, in particular, our future success depends on our ability to continue to raise awareness of our products, evolve the available distribution channels and adapt our offerings to best suit the Chinese consumer. China’s economy differs from the economies of other developed countries in many respects and, as the legal and regulatory system in China continues to evolve, there may be greater uncertainty as to the interpretation and enforcement of applicable laws and regulations.

Operating globally also exposes us to numerous and sometimes conflicting legal, regulatory and tax requirements. In many parts of the world, including countries in which we operate, practices in the local business communities might not conform to international business standards. We must adhere to policies designed to promote legal and regulatory compliance as well as applicable laws and regulations. However, we might not be successful in ensuring that our employees, agents, representatives and other third parties with whom we associate throughout the world properly adhere to them. Failure by us, our employees or any of these third parties to adhere to our policies or applicable laws or regulations could result in penalties, sanctions, damage to our reputation and related costs which in turn could negatively affect our results of operations and cash flows.

We have operations in and source passengers from the United Kingdom and other member countries of the European Union. In March 2017, the United Kingdom notified the European Council of its intent to withdraw from the European Union. Since the initial referendum in June 2016, the expected withdrawal has resulted in increased volatility in the global financial markets and, in particular, in global currency exchange rates. The expected withdrawal could potentially adversely affect tax, legal and regulatory regimes to which our business in the region is subject. The expected withdrawal could also, among other potential outcomes, disrupt the free movement of goods, services and people between the United Kingdom and the European Union. Further, as the expected withdrawal approaches, continued uncertainty around these issues could lead to adverse effects on the economy of the United Kingdom, including the value of the British Pound, and the other economies in which we operate, making it more difficult to source passengers from these regions. These risks may be exacerbated if a structured withdrawal agreement is not ratified before the deadline (currently, January 31, 2020), and/or if voters of other countries within the European Union similarly elect to exit the European Union in future referendums.

As a global operator, our business may be also impacted by changes in U.S. policy or priorities in areas such as trade, immigration and/or environmental or labor regulations, among others. Depending on the nature and scope of any such changes, they could impact our domestic and international business operations. Any such changes, and any international response to them, could potentially introduce new barriers to passenger or crew travel and/or cross border transactions, impact our guest experience and/or increase our operating costs.

If we are unable to address these risks adequately, our financial position and results of operations could be adversely affected, including potentially impairing the value of our ships and other assets.

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Changes in U.S. foreign travel policy may affect our results of operations.

Changes in U.S. foreign policy could result in the imposition of travel restrictions or travel bans on U.S. persons to certain countries or result in the imposition of U.S. rules, regulations or legislation that could expose us to penalties or claims of monetary damages. The timing and scope of these changes are unpredictable, and they could cause us to cancel scheduled sailings, possibly on short notice, or could result in possible litigation against us. This, in turn, could decrease our revenue, increase our operating costs and otherwise impair our profitability. For instance, in June 2019, the U.S. government announced that cruise ships would no longer be allowed to travel between the U.S. and Cuba. This required us to change our high yielding Cuba sailings on short notice which impacted our earnings. Moreover, in May 2019, the U.S. government activated Title III of the Cuban Liberty and Solidarity (Libertad) Act of 1996, popularly known as the Helms-Burton Act. This allowed certain individuals whose property was confiscated by the Cuban government to sue in U.S. courts anyone who "traffics" in the property in question. The activation of Title III has resulted in litigation against us and others in the tourism industry.

Price increases for commercial airline service for our guests or major changes or reduction in commercial airline service and/or availability could adversely impact the demand for cruises and undermine our ability to provide reasonably priced vacation packages to our guests.

Many of our guests depend on scheduled commercial airline services to transport them to or from the ports where our cruises embark or disembark. Increases in the price of airfare would increase the overall price of the cruise vacation to our guests, which may adversely impact demand for our cruises. In addition, changes in the availability of commercial airline services could adversely affect our guests’ ability to obtain airfare, as well as our ability to fly our guests to or from our cruise ships, which could adversely affect our results of operations.

Incidents or adverse publicity concerning our ships, port facilities, land destinations and/or passengers or the cruise vacation industry in general, unusual weather conditions and other natural disasters or disruptions could affect our reputation as well as impact our sales and results of operations.

The ownership and/or operation of cruise ships, private destinations, port facilities and shore excursions involves the risk of accidents, illnesses, mechanical failures, environmental incidents and other incidents which may bring into question safety, health, security and vacation satisfaction which could negatively impact our reputation. Incidents involving cruise ships, and, in particular the safety, health and security of guests and crew and media coverage thereof have impacted and could in the future impact demand for our cruises and pricing in the industry. Our reputation and our business could also be damaged by negative publicity regarding the cruise industry in general, including publicity regarding the spread of contagious disease and the potentially adverse environmental impacts of cruising. The considerable expansion in the use of social media and digital marketing over recent years has compounded the potential scope of any negative publicity. If any such incident or news cycle occurs during a time of high seasonal demand, the effect could disproportionately impact our results of operations for the year. In addition, incidents involving cruise ships may result in additional costs to our business, increasing government or other regulatory oversight and, in the case of incidents involving our ships, potential litigation.

Our cruise ships, port facilities and land destinations may also be adversely impacted by weather or natural disasters or disruptions, such as hurricanes. We are often forced to alter itineraries and occasionally cancel a cruise or a series of cruises or to redeploy our ships due to these types of events, which could have an adverse effect on our sales and profitability in the current and future periods. Increases in the frequency, severity or duration of severe weather events, including those related to climate change, could exacerbate their impact and cause further disruption to our operations or make certain destinations less desirable. In addition, these and any other events which impact the travel industry more generally may negatively impact our ability to deliver guests or crew to our cruises and/or interrupt our ability to obtain services and goods from key vendors in our supply chain. Any of the foregoing could have an adverse impact on our results of operations and on industry performance.

An increase in capacity worldwide or excess capacity in a particular market could adversely impact our cruise sales and/or pricing.

Although our ships can be redeployed, cruise sales and/or pricing may be impacted by the introduction of new ships into the marketplace, reductions in cruise capacity, overall market growth and deployment decisions of ourselves and our competitors. As of December 31, 2018, a total of 89 new ships with approximately 198,000 berths are on order for delivery through 2023 in the cruise industry. The further net growth in capacity from these new ships and future orders, without an increase in the cruise industry’s demand and/or share of the vacation market, could depress cruise prices and impede our ability to achieve yield improvement.

In addition, to the extent that we or our competitors deploy ships to a particular itinerary/region and the resulting capacity in that region exceeds the demand, we may lower pricing and profitability may be lower than anticipated. This risk exists in emerging cruise markets, where capacity has grown rapidly over the past few years and in mature markets where excess capacity is typically

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redeployed. Any of the foregoing could have an adverse impact on our results of operations, cash flows and financial condition, including potentially impairing the value of our ships and other assets.

Unavailability of ports of call may adversely affect our results of operations.

We believe that port destinations are a major reason why guests choose to go on a particular cruise or on a cruise vacation. The availability of ports and destinations is affected by a number of factors, including industry demand and competition for key ports and destinations, existing capacity constraints, constraints related to the size of certain ships, security, financial limitations on port development, exclusivity arrangements that ports may have with our competitors, geopolitical developments and local governmental regulations. In addition, fuel costs may adversely impact the destinations on certain of our itineraries.

Increased demand and competition for key ports of call or destinations, limitations on the availability or feasibility of use of specific ports of call and/or constraints on the availability of shore excursions and other service providers at such ports or destinations could adversely affect our results of operations.

Growing anti-tourism sentiments and environmental concerns related to cruising could adversely impact our operations.

Certain ports and destinations are facing a surge of both cruise and non-cruise tourism which, in certain cases, has fueled anti-tourism sentiments and related countermeasures to limit the volume of tourists allowed in these destinations. In certain destinations, countermeasures to limit the volume of tourists are being contemplated and/or put into effect, including proposed limits on cruise ships and cruise passengers. For example, effective 2020, the local government of Dubrovnik, Croatia will cap the number of cruise ships that can dock each day to two and the number of corresponding passengers. Similar existing and potential restrictions in ports and destinations such as Venice and Barcelona could limit the itinerary and destination options we can offer our passengers going forward. Some environmental groups have also generated negative publicity about the environmental impact of the cruise vacation industry and are advocating for more stringent regulation of ship emissions at berth and at sea. These anti-tourism sentiments and growing environmental scrutiny of the cruise industry and any related countermeasures could adversely impact our operations and financial results and subject us to increasing compliance costs.

Our reliance on shipyards, their subcontractors and our suppliers to implement our newbuild and ship upgrade programs and to repair and maintain our ships exposes us to risks which, if realized, could adversely impact our business.

We rely on shipyards, their subcontractors and our suppliers to effectively construct our new ships and to repair, maintain and upgrade our existing ships on a timely basis and in a cost-effective manner. There are a limited number of shipyards with the capability and capacity to build, repair, maintain and/or upgrade our ships.

Increased demand for available new construction slots and/or continued consolidation in the cruise shipyard industry could impact our ability to: (1) construct new ships, when and as planned, (2) cause us to continue to commit to new ship orders earlier than we have historically done so and/or (3) result in stronger bargaining power on the part of the shipyards and the export credit agencies providing financing for the project. Our inability to timely and cost-effectively procure new capacity could have a significant negative impact on our future business plans and results of operations.

Building, repairing, maintaining and/or upgrading a ship is sophisticated work that involves significant risks. In addition, the prices of labor and/or various commodities that are used in the construction of ships can be subject to volatile price changes, including the impact of fluctuations in foreign exchange rates. Shipyards, their subcontractors and/or our suppliers may encounter financial, technical or design problems when doing these jobs. If materialized, these problems could impact the timely delivery or costs of new ships or the ability of shipyards to repair and upgrade our fleet in accordance with our needs or expectations. In addition, delays, mechanical faults and/or unforeseen incidents, such as the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas, may result in cancellation of cruises or, in more severe situations, new ship orders, or necessitate unscheduled drydocks and repairs of ships. These events and any related adverse publicity could result in lost revenue, increased operating expenses, or both, and thus adversely affect our results of operations.

We may lose business to competitors throughout the vacation market.

We operate in the vacation market and cruising is one of many alternatives for people choosing a vacation. We therefore risk losing business not only to other cruise lines, but also to other vacation operators, which provide other leisure options, including hotels, resorts, internet-based alternative lodging sites and package holidays and tours.

We face significant competition from other cruise lines on the basis of cruise pricing, travel agent preference and also in terms of the nature of ships, services and destinations we offer to guests. Our principal competitors within the cruise vacation industry include Carnival Corporation & plc, which owns, among others, Aida Cruises, Carnival Cruise Line, Costa Cruises, Cunard Line, Holland America Line, P&O Cruises, Princess Cruises and Seabourn; Disney Cruise Line; MSC Cruises; and Norwegian Cruise Line Holdings Ltd, which owns Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. Our revenues are

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sensitive to the actions of other cruise lines in many areas, including pricing, scheduling, capacity and promotions, which can have a substantial adverse impact not only on our revenues, but on overall industry revenues.

In the event that we do not effectively market or differentiate our cruise brands from our competitors or otherwise compete effectively with other vacation alternatives and new or existing cruise companies, our results of operations and financial position could be adversely affected.

We may not be able to obtain sufficient financing or capital for our needs or may not be able to do so on terms that are acceptable or consistent with our expectations.

To fund our capital expenditures (including new ship orders), operations and scheduled debt payments, we have historically relied on a combination of cash flows provided by operations, drawdowns under available credit facilities, the incurrence of additional indebtedness and the sale of equity or debt securities in private or public securities markets. Any circumstance or event which leads to a decrease in consumer cruise spending, such as worsening global economic conditions or significant incidents impacting the cruise industry, could negatively affect our operating cash flows. See “-Adverse worldwide economic or other conditions…” and “-Incidents or adverse publicity concerning our ships and/or passengers or the cruise vacation industry…” for more information.

Although we believe we can access sufficient liquidity to fund our operations, investments and obligations as expected, there can be no assurances to that effect. Our ability to access additional funding as and when needed, our ability to timely refinance and/or replace our outstanding debt securities and credit facilities on acceptable terms and our cost of funding will depend upon numerous factors including, but not limited to, the vibrancy of the financial markets, our financial performance, the performance of our industry in general and the size, scope and timing of our financial needs. In addition, even where financing commitments have been secured, significant disruptions in the capital and credit markets could cause our banking and other counterparties to breach their contractual obligations to us. This could include failures of banks or other financial service companies to fund required borrowings under our loan agreements or to pay us amounts that may become due or return collateral that is refundable under our derivative contracts for hedging of fuel prices, interest rates and foreign currencies or other agreements. If any of the foregoing occurs it may have a negative impact on our cash flows, including our ability to meet our obligations, our results of operations and our financial condition.

Our liquidity could be adversely impacted if we are unable to satisfy the covenants required by our credit facilities.

Our debt agreements contain covenants, including covenants restricting our and their ability to take certain actions and financial covenants. Our ability to maintain our credit facilities may also be impacted by changes in our ownership base. More specifically, we may be required to prepay our bank financing facilities if any person acquires ownership of more than 50% of our common stock or, subject to certain exceptions, during any 24-month period, a majority of our board of directors is no longer comprised of individuals who were members of our board of directors on the first day of such period. Our public debt securities also contain change of control provisions that would be triggered by a third-party acquisition of greater than 50% of our common stock coupled with a ratings downgrade.

Failure to comply with the terms of these debt facilities could result in an event of default. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default acceleration clauses, our outstanding debt and derivative contract payables could become due and/or terminated. In addition, in such events, our credit card processors could hold back payments to create a reserve. We cannot provide assurances that we would have sufficient liquidity to repay, or the ability to refinance the debt if such amounts were accelerated upon an event of default.

If we are unable to appropriately balance our cost management and capital allocation strategies with our goal of satisfying guest expectations, it may adversely impact our business success.

Our goals call for us to provide high quality products and deliver high quality services. There can be no assurance that we can successfully balance these goals with our cost management and capital allocation strategies. Our business also requires us to make capital allocation decisions across a broad scope of investment options with varying return profiles and time horizons for value realization. These include significant capital investment decisions such as ordering new ships, upgrading our existing fleet, enhancing our technology and/or data capabilities, and expanding our portfolio of land-based assets, based on expected market preferences, competition and projected demand. There can be no assurance that our strategies will be successful, which could adversely impact our business, financial condition and results of operations. Investments in older tonnage, in particular, run the risk of not meeting expected returns and diluting related asset values.

Our attempts to expand our business into new markets and new ventures may not be successful.

We opportunistically seek to grow our business through, among other things, expansion into new destination or source markets and establishment of new ventures complementary to our current offerings. These attempts to expand our business increase the

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complexity of our business, require significant levels of investment and can strain our management, personnel, operations and systems. There can be no assurance that these business expansion efforts will develop as anticipated or that we will succeed, and if we do not, we may be unable to recover our investment, which could adversely impact our business, financial condition and results of operations.

Our reliance on travel agencies to sell and market our cruises exposes us to certain risks which, if realized, could adversely impact our business.

We rely on travel agencies to generate the majority of bookings for our ships. Accordingly, we must ensure that our commission rates and incentive structures remain competitive. If we fail to offer competitive compensation packages, these agencies may be incentivized to sell cruises offered by our competitors to our detriment, which could adversely impact our operating results. Our reliance on third-party sellers is particularly pronounced in certain markets, such as China, where we have a large number of travel agent charter and group sales and less retail agency and direct bookings. In addition, the travel agent industry is sensitive to economic conditions that impact discretionary income of consumers. Significant disruptions, especially disruptions impacting those agencies that sell a high volume of our business, or contractions in the industry could reduce the number of travel agencies available for us to market and sell our cruises, which could have an adverse impact on our financial condition and results of operations.

Disruptions in our shoreside or shipboard operations or our information systems may adversely affect our results of operations.

Our principal executive office and principal shoreside operations are located in Florida, and we have shoreside offices throughout the world. Actual or threatened natural disasters (e.g., hurricanes/typhoons, earthquakes, tornadoes, fires or floods) or similar events in these locations may have a material impact on our business continuity, reputation and results of operations. In addition, substantial or repeated information system failures, computer viruses or cyber-attacks impacting our shoreside or shipboard operations could adversely impact our business. We do not generally carry business interruption insurance for our shoreside or shipboard operations or our information systems. As such, any losses or damages incurred by us could have an adverse impact on our results of operations.

The loss of key personnel, our inability to recruit or retain qualified personnel, or disruptions among our shipboard personnel due to strained employee relations could adversely affect our results of operations.

Our success depends, in large part, on the skills and contributions of key executives and other employees, and on our ability to recruit, develop and retain high quality personnel as well as having adequate succession plans. As demand for qualified personnel in the industry grows, we must continue to effectively recruit, train, motivate and retain our employees, both shoreside and on our ships, in order to effectively compete in our industry, maintain our current business and support our projected global growth.

As of September 30, 2019, 89% of our shipboard employees were covered by collective bargaining agreements. A dispute under our collective bargaining agreements could result in a work stoppage of those employees covered by the agreements. We may not be able to satisfactorily renegotiate these collective bargaining agreements when they expire. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage on our ships. We may also be subject to or affected by work stoppages unrelated to our business or collective bargaining agreements. Any such work stoppages or potential work stoppages could have a material adverse effect on our financial results, as could a loss of key employees, our inability to recruit or retain qualified personnel or disruptions among our personnel.

Business activities that involve our co-investments with third parties may subject us to additional risks.

Partnerships, joint ventures and other business structures involving our co-investments with third parties generally include some form of shared control over the operations of the business and create additional risks, including the possibility that other investors in such ventures could become bankrupt or otherwise lack the financial resources to meet their obligations, or could have or develop business interests, policies or objectives that are inconsistent with ours. In addition to financial risks, our co-investment activities may also present managerial and operational risks and expose us to reputational or legal concerns. These or other issues related to our co-investments with third parties could adversely impact our operations.

Past or pending business acquisitions or potential acquisitions that we may decide to pursue in the future carry inherent risks which could adversely impact our financial performance and condition.

The Company, from time to time, has engaged in acquisitions (e.g., our Silversea Cruises acquisition) and may pursue acquisitions in the future, which are subject to, among other factors, the Company’s ability to identify attractive business opportunities and to negotiate favorable terms for such opportunities. Accordingly, the Company cannot make any assurances that potential acquisitions will be completed timely or at all, or that if completed, we would realize the anticipated benefits of such acquisition. Acquisitions also carry inherent risks such as, among others: (1) the potential delay or failure of our efforts to successfully integrate business processes and realizing expected synergies; (2) difficulty in aligning procedures, controls and/or policies; and

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(3) future unknown liabilities and costs that may be associated with an acquisition. In addition, acquisitions may also adversely impact our liquidity and/or debt levels, and the recognized value of goodwill and other intangible assets can be negatively affected by unforeseen events and/or circumstances, which may result in an impairment charge. Any of the foregoing events could adversely impact our financial condition and results of operations.

We rely on supply chain vendors and third-party service providers who are integral to the operations of our businesses. These vendors and service providers may be unable or unwilling to deliver on their commitments or may act in ways that could harm our business.

We rely on supply chain vendors to deliver key products to the operations of our businesses around the world. Any event impacting a vendor’s ability to deliver goods of the expected quality at the location and time needed could negatively impact our ability to deliver our cruise experience. Events impacting our supply chain could be caused by factors beyond the control of our suppliers or us, including inclement weather, natural disasters, increased demand, problems in production or distribution and/or disruptions in third-party logistics or transportation systems. Interruptions to our supply chain could increase costs and could limit the availability of products critical to our operations.

In order to achieve cost and operational efficiencies, we outsource to third-party vendors certain services that are integral to the operations of our global businesses, such as our onboard concessionaires, certain of our call center operations and operation of a large part of our information technology systems. We are subject to the risk that certain decisions are subject to the control of our third-party service providers and that these decisions may adversely affect our activities. A failure to adequately monitor a third-party service provider’s compliance with a service level agreement or regulatory or legal requirements could result in significant economic and reputational harm to us. There is also a risk the confidentiality, privacy and/or security of data held by third parties or communicated over third-party networks or platforms could become compromised.

If we are unable to keep pace with developments in technology or technological obsolescence, our operations or competitive position could become impaired.

Our business continues to demand the use of sophisticated technology and systems. These technologies and systems require significant investment and must be proven, refined, updated, upgraded and/or replaced with more advanced systems in order to continue to meet our customers’ demands and expectations. If we are unable to do so in a timely manner or within reasonable cost parameters or if we are unable to appropriately and timely train our employees to operate any of these new systems, our business could suffer. We also may not achieve the benefits that we anticipate from any new technology or system, which could result in higher than anticipated costs or impair our operating results.

We are exposed to cyber-attacks and data breaches, including the risks and costs associated with protecting our systems and maintaining integrity and security of our business information, as well as personal data of our guests, employees and business partners.

We are subject to cyber-attacks. These cyber-attacks can vary in scope and intent from attacks with the objective of compromising our systems, networks and communications for economic gain to attacks with the objective of disrupting, disabling or otherwise compromising our maritime and/or shoreside operations. The attacks can encompass a wide range of methods and intent, including phishing attacks, illegitimate requests for payment, theft of intellectual property, theft of confidential or non-public information, installation of malware, installation of ransomware and theft of personal or business information. The breadth and scope of these attacks, as well as the techniques and sophistication used to conduct these attacks, have grown over time.

A successful cyber-attack may target us directly, or it may be the result of a third party's inadequate care. In either scenario, the Company may suffer damage to its systems and data that could interrupt our operations, adversely impact our reputation and brand and expose us to increased risks of governmental investigation, litigation, fines and other liability, any of which could adversely affect our business. Furthermore, responding to such an attack and mitigating the risk of future attacks could result in additional operating and capital costs in systems technology, personnel, monitoring and other investments.

In addition, we are also subject to various risks associated with the collection, handling, storage and transmission of sensitive information. In the course of doing business, we collect large volumes of employee, customer and other third-party data, including personally identifiable information and individual credit data, for various business purposes. We are subject to federal, state and international laws (including the European Union General Data Protection Regulation), as well as industry standards, relating to the collection, use, retention, security and transfer of personally identifiable information and individual credit data. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between the Company and its subsidiaries, and among the Company, its subsidiaries and other parties with which the Company has commercial relations. Several jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing international requirements has caused, and may cause us to incur substantial costs or require us to change our business practices. If we fail to

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comply with the various applicable data collection and privacy laws, we could be exposed to fines, penalties, restrictions, litigation or other expenses, and our business could be adversely impacted.

While we continue to evolve our cyber-security practices in line with our business' reliance on technology and the changing external threat landscape, and we invest time, effort and financial resources to secure our systems, networks and communications, our security measures cannot provide absolute assurance that we will be successful in preventing or responding to all cyber-attacks. There can be no assurance that any breach or incident will not have a material impact on our operations and financial results.

Any breach, theft, loss, or fraudulent use of guest, employee, third-party or company data, could adversely impact our reputation and brand and our ability to retain or attract new customers, and expose us to risks of data loss, business disruption, governmental investigation, litigation and other liability, any of which could adversely affect our business. Significant capital investments and other expenditures could be required to remedy the problem and prevent future breaches, including costs associated with additional security technologies, personnel, experts and credit monitoring services for those whose data has been breached. Further, if we or our vendors experience significant data security breaches or fail to detect and appropriately respond to significant data security breaches, we could be exposed to government enforcement actions and private litigation.

The potential unavailability of insurance coverage, an inability to obtain insurance coverage at commercially reasonable rates or our failure to have coverage in sufficient amounts to cover our incurred losses may adversely affect our financial condition or results of operations.

We seek to maintain appropriate insurance coverage at commercially reasonable rates. We normally insure based on the cost of an asset rather than replacement value and we also elect to self-insure, co-insure, or use deductibles in certain circumstances for certain risks such as loss of use of a ship or a cyber-security breach. The limits of insurance coverage we purchase are based on the availability of the coverage, evaluation of our risk profile and cost of coverage. Accordingly, we are not protected against all risks and we cannot be certain that our coverage will be adequate for liabilities actually incurred which could result in an unexpected decrease in our revenue and results of operations in the event of an incident.

We are members of four Protection and Indemnity ("P&I") clubs, which are part of a worldwide group of 13 P&I clubs, known as the International Group of P&I Clubs (the “IG”). P&I coverage provided by the clubs is on a mutual basis and we are subject to additional premium calls in the event of a catastrophic loss incurred by any member of the 13 P&I clubs, whereby the reinsurance limits purchased by the IG are exhausted. We are also subject to additional premium calls based on investment and underwriting shortfalls experienced by our own individual insurers.

We cannot be certain that insurance and reinsurance coverage will be available to us and at commercially reasonable rates in the future or at all or, if available, that it will be sufficient to cover potential claims. Additionally, if we or other insureds sustain significant losses, the result may be higher insurance premiums, cancellation of coverage, or the inability to obtain coverage. Such events could adversely affect our financial condition or results of operations.

Environmental, labor, health and safety, financial responsibility and other maritime regulations could affect operations and increase operating costs.

The United States and various state and foreign government or regulatory agencies have enacted or may enact environmental regulations or policies, such as requiring the use of low sulfur fuels, that could increase our direct cost to operate in certain markets, increase our cost for fuel, limit the supply of compliant fuel, cause us to incur significant expenses to purchase and/or develop new equipment and adversely impact the cruise vacation industry. While we have taken and expect to continue to take a number of actions to mitigate the potential impact of certain of these regulations, there can be no assurances that these efforts will be successful or completed on a timely basis.

There is increasing global regulatory focus on climate change, greenhouse gas (GHG) and other emissions. These regulatory efforts, both internationally and in the United States are still developing, and we cannot yet determine what the final regulatory programs or their impact will be in any jurisdiction where we do business. However, such climate change-related regulatory activity in the future may adversely affect our business and financial results by requiring us to reduce our emissions, purchase allowances or otherwise pay for our emissions. Such activity may also impact us by increasing our operating costs, including fuel costs.

In addition, we are subject to various international, national, state and local laws, regulations and treaties that govern, among other things, discharge from our ships, safety standards applicable to our ships, treatment of disabled persons, health and sanitary standards applicable to our guests, security standards on board our ships and at the ship/port interface areas, and financial responsibilities to our guests. These issues are, and we believe will continue to be, an area of focus by the relevant authorities throughout the world. This could result in the enactment of more stringent regulation of cruise ships that could subject us to increasing compliance costs in the future.

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A change in our tax status under the United States Internal Revenue Code, or other jurisdictions, may have adverse effects on our income.

We and a number of our subsidiaries are foreign corporations that derive income from a U.S. trade or business and/or from sources within the United States. In connection with the year end audit, each year, Drinker Biddle & Reath LLP, our U.S. tax counsel, delivers to us an opinion, based on certain representations and assumptions set forth in it, to the effect that this income, to the extent derived from or incidental to the international operation of a ship or ships, is excluded from gross income for U.S. federal income tax purposes pursuant to Section 883 of the Internal Revenue Code. We believe that most of our income (including that of our subsidiaries) is derived from or incidental to the international operation of ships.

Our ability to rely on Section 883 could be challenged or could change in the future. Provisions of the Internal Revenue Code, including Section 883, are subject to legislative change at any time. Moreover, changes could occur in the future with respect to the identity, residence or holdings of our direct or indirect shareholders, trading volume or trading frequency of our shares, or relevant foreign tax laws of Liberia such that it no longer qualifies as an equivalent exemption jurisdiction, that could affect our eligibility for the Section 883 exemption. Accordingly, there can be no assurance that we will continue to be exempt from U.S. income tax on U.S. source shipping income in the future. If we were not entitled to the benefit of Section 883, we and our subsidiaries would be subject to U.S. taxation on a portion of the income derived from or incidental to the international operation of our ships, which would reduce our net income.

Additionally, portions of our business are operated by companies that are within the United Kingdom tonnage tax regime. Further, some of our operations are conducted in jurisdictions where we rely on tax treaties to provide exemption from taxation. To the extent the United Kingdom tonnage tax laws change or we do not continue to meet the applicable qualification requirements or if tax treaties are changed or revoked, we may be required to pay higher income tax in these jurisdictions, adversely impacting our results of operations.

As budgetary constraints continue to adversely impact the jurisdictions in which we operate, increases in income tax regulations, tax audits or tax reform affecting our operations may be imposed.

Litigation, enforcement actions, fines or penalties could adversely impact our financial condition or results of operations and/or damage our reputation.

Our business is subject to various United States and international laws and regulations that could lead to enforcement actions, fines, civil or criminal penalties or the assertion of litigation claims and damages. In addition, improper conduct by our employees, agents or joint venture partners could damage our reputation and/or lead to litigation or legal proceedings that could result in civil or criminal penalties, including substantial monetary fines. In certain circumstances it may not be economical to defend against such matters and/or our legal strategy may not ultimately result in us prevailing in a matter. Such events could lead to an adverse impact on our financial condition or results of operations.

We are not a United States corporation and our shareholders may be subject to the uncertainties of a foreign legal system in protecting their interests.

Our corporate affairs are governed by our Articles of Incorporation and By-Laws and by the Business Corporation Act of Liberia. The provisions of the Business Corporation Act of Liberia resemble provisions of the corporation laws of a number of states in the United States. However, while most states have a fairly well developed body of case law interpreting their respective corporate statutes, there are very few judicial cases in Liberia interpreting the Business Corporation Act of Liberia. As such, the rights and fiduciary responsibilities of directors under Liberian law are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in certain United States jurisdictions. For example, the right of shareholders to bring a derivative action in Liberian courts may be more limited than in United States jurisdictions. There may also be practical difficulties for shareholders attempting to bring suit in Liberia and Liberian courts may or may not recognize and enforce foreign judgments. Thus, our public shareholders may have more difficulty in protecting their interests with respect to actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.

Provisions of our Articles of Incorporation, By-Laws and Liberian law could inhibit others from acquiring us, prevent a change of control, and may prevent efforts by our shareholders to change our management.

Certain provisions of our Articles of Incorporation and By-Laws and Liberian law may inhibit third parties from effectuating a change of control of the Company without approval from our board of directors which could result in the entrenchment of current management. These include provisions in our Articles of Incorporation that prevent third parties, other than A. Wilhelmsen AS.

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and Cruise Associates, from acquiring beneficial ownership of more than 4.9% of our outstanding shares without the consent of our board of directors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchases

During the quarter ended September 30, 2019, there were no common stock repurchases.

As of September 30, 2019, we have approximately $700 million that remains available for future stock repurchase transactions under a 24-month common stock repurchase program for up to $1.0 billion authorized by our board of directors on May 9, 2018. Refer to Note 12. Shareholders' Equity to our consolidated financial statements under Item 1. Financial Statements for further information.

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Item 6. Exhibits



10.1			Amendment and Restatement Agreement, dated as of August 15, 2019, in respect of a Facility Agreement dated, as of July 9, 2013, by and between the Company, the Lenders from time to time party thereto, Société Générale, as Facility Agent and Mandated Lead Arranger, BNP Paribas, as Documentation Bank and Mandated Lead Arranger, and HSBC France, as Mandated Lead Arranger*

31.1			Certification of the Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*

31.2			Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*

32.1			Certifications of the Chairman and Chief Executive Officer and the Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code**



*		Filed herewith
**		Furnished herewith

Interactive Data File

101 The following financial statements of Royal Caribbean Cruises Ltd. for the period ended September 30, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language) are filed herewith:


(i)	the Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the quarter and nine months ended September 30, 2019 and 2018;


(ii)	the Consolidated Balance Sheets at September 30, 2019 (Unaudited) and December 31, 2018;


(iii)	the Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2019 and 2018;


(iv)	the Consolidated Statements of Shareholders' Equity (Unaudited) for the the quarter and nine months ended September 30, 2019 and 2018; and

(v) the Notes to the Consolidated Financial Statements, tagged in summary and detail.

104 Cover Page Interactive Data File (the cover page XBRL tags are embedded within Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		ROYAL CARIBBEAN CRUISES LTD.
		(Registrant)


		/s/ JASON T. LIBERTY
		Jason T. Liberty
		Executive Vice President, Chief Financial Officer
October 30, 2019		(Principal Financial Officer and duly authorized signatory)

Royal Caribbean Group - 10-Q quarterly report FY2019 Q3

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements	1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3. Quantitative and Qualitative Disclosures About Market Risk	52

Item 4. Controls and Procedures	52

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	54

Item 1A. Risk Factors	54

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	63

Item 6. Exhibits	64

SIGNATURES	65