Item 16. Form 10-K Summary

None.

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

February 22, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 22, 2019.

/s/ RICHARD D. FAIN
Richard D. Fain Director, Chairman and Chief Executive Officer (Principal Executive Officer)
/s/ JASON T. LIBERTY
Jason T. Liberty Executive Vice President, Chief Financial Officer (Principal Financial Officer)
/s/ HENRY L. PUJOL
Henry L. Pujol Senior Vice President, Chief Accounting Officer (Principal Accounting Officer)
*
John F. Brock Director
*
Stephen R. Howe Jr. Director
*
William L. Kimsey Director
*
Maritza G. Montiel Director
*
Ann S. Moore Director
*
Eyal M. Ofer Director
*
Thomas J. Pritzker Director
*
William K. Reilly Director
*
Bernt Reitan Director
*
Vagn O. Sørensen Director
*
Donald Thompson Director
*
Arne Alexander Wilhelmsen Director

*By:	/s/ JASON T. LIBERTY
	Jason T. Liberty, as Attorney-in-Fact

ROYAL CARIBBEAN CRUISES LTD.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Comprehensive Income (Loss)	F-4
Consolidated Balance Sheets	F-5
Consolidated Statements of Cash Flows	F-6
Consolidated Statements of Shareholders' Equity	F-8
Notes to the Consolidated Financial Statements	F-9

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

of Royal Caribbean Cruises Ltd.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Royal Caribbean Cruises Ltd. and its subsidiaries (the "Company") as of December 31, 2018 and 2017, and the related consolidated statements of comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for stock-based compensation expense in 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management's Report on Internal Control Over Financial Reporting, management has excluded Silversea Cruises from its assessment of internal control over financial reporting as of December 31, 2018 because it was acquired by the Company in a purchase business combination during 2018. We have also excluded Silversea Cruises from our audit of internal control over financial reporting. Silversea Cruises is a majority-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 5.0% and 1.4%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2018.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and

F-2

procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Miami, Florida

February 22, 2019

We have served as the Company’s auditor since at least 1989, which includes periods before the Company became subject to SEC reporting requirements. We have not been able to determine the specific year we began serving as auditor of the Company.

F-3

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Year Ended December 31,
	2018				2017				2016
	(in thousands, except per share data)
Passenger ticket revenues	$	6,792,716			$	6,313,170			$	6,149,323
Onboard and other revenues	2,701,133				2,464,675				2,347,078
Total revenues	9,493,849				8,777,845				8,496,401
Cruise operating expenses:
Commissions, transportation and other	1,433,739				1,363,170				1,349,677
Onboard and other	537,355				495,552				493,558
Payroll and related	924,985				852,990				882,891
Food	520,909				492,857				485,673
Fuel	710,617				681,118				713,676
Other operating	1,134,602				1,010,892				1,090,064
Total cruise operating expenses	5,262,207				4,896,579				5,015,539
Marketing, selling and administrative expenses	1,303,144				1,186,016				1,108,742
Depreciation and amortization expenses	1,033,697				951,194				894,915
Operating Income	1,894,801				1,744,056				1,477,205
Other income (expense):
Interest income	32,800				30,101				20,856
Interest expense, net of interest capitalized	(333,672		)		(299,982		)		(307,370		)
Equity investment income	210,756				156,247				128,350
Other income (expense) (1)	11,107				(5,289		)		(35,653		)
	(79,009		)		(118,923		)		(193,817		)
Net Income	1,815,792				1,625,133				1,283,388
Less: Net Income attributable to noncontrolling interest	4,750				—				—
Net Income attributable to Royal Caribbean Cruises Ltd.	$	1,811,042			$	1,625,133			$	1,283,388
Earnings per Share:
Basic	$	8.60			$	7.57			$	5.96
Diluted	$	8.56			$	7.53			$	5.93
Comprehensive Income (Loss)
Net Income	$	1,815,792			$	1,625,133			$	1,283,388
Other comprehensive income (loss):
Foreign currency translation adjustments	(14,251		)		17,307				2,362
Change in defined benefit plans	7,643				(5,583		)		(1,636		)
(Loss) gain on cash flow derivative hedges	(286,861		)		570,495				411,223
Total other comprehensive (loss) income	(293,469		)		582,219				411,949
Comprehensive Income	$	1,522,323			$	2,207,352			$	1,695,337
Less: Comprehensive Income attributable to noncontrolling interest	4,750				—				—
Comprehensive Income attributable to Royal Caribbean Cruises Ltd.	$	1,517,573			$	2,207,352			$	1,695,337

---

(1)	For the year ended December 31, 2016, Other income (expense) included a $21.7 million loss related to the 2016 elimination of the Pullmantur reporting lag.

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

F-4

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED BALANCE SHEETS

	As of December 31,
	2018				2017
	(in thousands, except share data)
Assets
Current assets
Cash and cash equivalents	$	287,852			$	120,112
Trade and other receivables, net	324,507				318,641
Inventories	153,573				111,393
Prepaid expenses and other assets	456,547				258,171
Derivative financial instruments	19,565				99,320
Total current assets	1,242,044				907,637
Property and equipment, net	23,466,163				19,735,180
Goodwill	1,378,353				288,512
Other assets	1,611,710				1,429,597
Total assets	$	27,698,270			$	22,360,926
Liabilities, redeemable noncontrolling interest and shareholders' equity
Current liabilities
Current portion of long-term debt	$	1,646,841			$	1,188,514
Commercial paper	775,488				—
Accounts payable	488,212				360,113
Accrued interest	74,550				47,469
Accrued expenses and other liabilities	899,761				903,022
Derivative financial instruments	78,476				47,464
Customer deposits	3,148,837				2,308,291
Total current liabilities	7,112,165				4,854,873
Long-term debt	8,355,370				6,350,937
Other long-term liabilities	583,254				452,813
Total liabilities	16,050,789				11,658,623
Commitments and contingencies (Note 18)
Redeemable noncontrolling interest	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; 235,847,683 and 235,198,901 shares issued, December 31, 2018 and December 31, 2017, respectively)	2,358				2,352
Paid-in capital	3,420,900				3,390,117
Retained earnings	10,263,282				9,022,405
Accumulated other comprehensive loss	(627,734		)		(334,265		)
Treasury stock (26,830,765 and 21,861,308 common shares at cost, December 31, 2018 and December 31, 2017, respectively)	(1,953,345		)		(1,378,306		)
Total shareholders' equity	11,105,461				10,702,303
Total liabilities, redeemable noncontrolling interest and shareholders’ equity	$	27,698,270			$	22,360,926

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

F-5

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2018				2017				2016
Operating Activities
Net Income	$	1,815,792			$	1,625,133			$	1,283,388
Adjustments:
Depreciation and amortization	1,033,697				951,194				894,915
Impairment losses	33,651				—				—
Net deferred income tax (benefit) expense	(2,679		)		1,730				2,608
Loss (gain) on derivative instruments not designated as hedges	61,148				(61,704		)		45,670
Share-based compensation expense	46,061				69,459				32,659
Equity investment income	(210,756		)		(156,247		)		(128,350		)
Amortization of debt issuance costs	41,978				45,943				52,795
Gain on sale of property and equipment	—				(30,902		)		—
Gain on sale of unconsolidated affiliate	(13,680		)		—				—
Recognition of deferred gain	(21,794		)		—				—
Changes in operating assets and liabilities:
(Increase) decrease in trade and other receivables, net	(9,573		)		(32,043		)		4,759
(Increase) decrease in inventories	(23,849		)		2,424				(1,679		)
(Increase) decrease in prepaid expenses and other assets	(71,770		)		20,859				11,519
Increase in accounts payable	91,737				36,780				29,564
Increase in accrued interest	18,773				1,303				7,841
Increase in accrued expenses and other liabilities	42,937				34,215				20,718
Increase in customer deposits	385,990				274,705				188,632
Dividends received from unconsolidated affiliates	243,101				109,677				75,942
Other, net	18,375				(17,960		)		(4,291		)
Net cash provided by operating activities	3,479,139				2,874,566				2,516,690
Investing Activities
Purchases of property and equipment	(3,660,028		)		(564,138		)		(2,494,363		)
Cash received on settlement of derivative financial instruments	76,529				63,224				110,637
Cash paid on settlement of derivative financial instruments	(98,074		)		—				(323,839		)
Investments in and loans to unconsolidated affiliates	(27,172		)		(10,396		)		(9,155		)
Cash received on loans to unconsolidated affiliates	124,238				62,303				38,213
Proceeds from the sale of property and equipment	—				230,000				—
Proceeds from the sale of unconsolidated affiliate	13,215				—				—
Acquisition of Silversea Cruises, net of cash acquired	(916,135		)		—				—
Other, net (1)	(1,731		)		5,415				(46,385		)
Net cash used in investing activities	(4,489,158		)		(213,592		)		(2,724,892		)
Financing Activities
Debt proceeds	8,590,740				5,866,966				7,338,560
Debt issuance costs	(81,959		)		(51,590		)		(88,241		)
Repayments of debt	(6,963,511		)		(7,835,087		)		(6,365,570		)
Proceeds from issuance of commercial paper notes	4,730,286				—				—
Repayments of commercial paper notes	(3,965,450		)		—				—

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

F-6

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

	Year Ended December 31,
	2018				2017				2016
Purchase of treasury stock	(575,039		)		(224,998		)		(299,960		)
Dividends paid	(527,494		)		(437,455		)		(346,487		)
Proceeds from exercise of common stock options	4,264				2,525				2,258
Other, net	(13,764		)		3,843				3,249
Net cash provided by (used in) financing activities	1,198,073				(2,675,796		)		243,809
Effect of exchange rate changes on cash	(20,314		)		2,331				(24,569		)
Net increase (decrease) in cash and cash equivalents	167,740				(12,491		)		11,038
Cash and cash equivalents at beginning of year	120,112				132,603				121,565
Cash and cash equivalents at end of year	$	287,852			$	120,112			$	132,603
Supplemental Disclosures
Cash paid during the year for:
Interest, net of amount capitalized	$	252,466			$	249,615			$	256,775
Non-Cash Investing Activities
Contingent consideration for the acquisition of Silversea Cruises	$	44,000			$	—			$	—
Purchases of property and equipment included in accounts payable and accrued expenses and other liabilities	$	—			$	139,644			$	—
Notes receivable issued upon sale of property and equipment	$	—			$	20,409			$	213,042

---

(1) Amount includes $26.0 million in 2016 related to cash included in the divestiture of Pullmantur Holdings.

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

F-7

ROYAL CARIBBEAN CRUISES LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	Common Stock				Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Treasury Stock				Total Shareholders' Equity
	(in thousands)
Balances at January 1, 2016	$	2,339			$	3,297,619			$	6,944,862			$	(1,328,433	)		$	(853,348	)		$	8,063,039
Activity related to employee stock plans	7				30,898				—				—				—				30,905
Common stock dividends, $1.71 per share	—				—				(367,909		)		—				—				(367,909		)
Changes related to cash flow derivative hedges	—				—				—				411,223				—				411,223
Change in defined benefit plans	—				—				—				(1,636		)		—				(1,636		)
Foreign currency translation adjustments	—				—				—				2,362				—				2,362
Purchase of treasury stock	—				—				—				—				(299,960		)		(299,960		)
Net Income attributable to Royal Caribbean Cruises Ltd.	—				—				1,283,388				—				—				1,283,388
Balances at December 31, 2016	2,346				3,328,517				7,860,341				(916,484		)		(1,153,308		)		9,121,412
Activity related to employee stock plans	6				61,600				—				—				—				61,606
Common stock dividends, $2.16 per share	—				—				(463,069		)		—				—				(463,069		)
Changes related to cash flow derivative hedges	—				—				—				570,495				—				570,495
Change in defined benefit plans	—				—				—				(5,583		)		—				(5,583		)
Foreign currency translation adjustments	—				—				—				17,307				—				17,307
Purchases of treasury stock	—				—				—				—				(224,998		)		(224,998		)
Net Income attributable to Royal Caribbean Cruises Ltd.	—				—				1,625,133				—				—				1,625,133
Balances at December 31, 2017	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				30,783				—				—				—				30,789
Common stock dividends, $2.60 per share	—				—				(546,689		)		—				—				(546,689		)
Changes related to cash flow derivative hedges	—				—				—				(286,861		)		—				(286,861		)
Change in defined benefit plans	—				—				—				7,643				—				7,643
Foreign currency translation adjustments	—				—				—				(14,251		)		—				(14,251		)
Purchases of treasury stock	—				—				—				—				(575,039		)		(575,039		)
Net Income attributable to Royal Caribbean Cruises Ltd.	—				—				1,811,042				—				—				1,811,042
Balances at December 31, 2018	$	2,358			$	3,420,900			$	10,263,282			$	(627,734	)		$	(1,953,345	)		$	11,105,461

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

F-8

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1. General

Description of Business

We are a global cruise company. We own and operate four global cruise brands: Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and, most recently, 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. Together, our Global Brands and our Partner Brands operate a combined 60 ships as of December 31, 2018. Our ships operate on a selection of worldwide itineraries that call on more than 1,000 destinations on all seven continents.

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 with nine ships, from Silversea Cruises Group Ltd. ("SCG") for $1.02 billion in cash and contingent consideration. Refer to Note 3. Business Combination for further information on the Silversea Cruises acquisition.

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. Skysea Holding ceased cruising operations in September 2018, and 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, our joint venture partner in TUI Cruises. Refer to Note 8. Other Assets for further information regarding our investment in SkySea Holding.

Basis for Preparation of Consolidated Financial Statements

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). 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 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 8. 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 September 30, 2018 through December 31, 2018 that would require further disclosure or adjustment to our consolidated financial statements as of and for the year ended December 31, 2018. 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.

Effective July 31, 2016, we sold 51% of our interest in Pullmantur Holdings, the parent company of the Pullmantur brand. We retained a 49% interest in Pullmantur Holdings as well as full ownership of the four vessels currently operated by the Pullmantur brand under bareboat charter arrangements. Prior to January 1, 2016, we consolidated the operating results of Pullmantur Holdings on a two-month reporting lag to allow for more timely preparation of our consolidated financial statements. Effective January 1, 2016, we eliminated the two-month reporting lag to reflect Pullmantur Holdings' financial position, results of operations and cash flows concurrently and consistently with the fiscal calendar of the Company ("elimination of the Pullmantur reporting lag") and accounted for this change in accounting principle in our consolidated results for the year ended December 31, 2016. The impact of the elimination of the reporting lag was immaterial for our fiscal year ended December 31, 2016. Accordingly, the results of Pullmantur Holdings for November and December 2015 were included in our statement of comprehensive income (loss) for the year ended

F-9

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2016. The effect of this change was a decrease to net income of $21.7 million, which has been reported within Other income (expense) in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2016.

Note 2. Summary of Significant Accounting Policies

Revenues and Expenses

Deposits received on sales of passenger cruises are initially recorded as customer deposit liabilities on our balance sheet. Customer deposits are subsequently recognized as passenger ticket revenues, together with revenues from onboard and other goods and services and all associated cruise operating expenses of a voyage. For further information on revenue recognition, refer to Note. 4 Revenues.

Cash and Cash Equivalents

Cash and cash equivalents include cash and marketable securities with original maturities of less than 90 days.

Inventories

Inventories consist of provisions, supplies and fuel carried at the lower of cost (weighted-average) or net realizable value.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. We capitalize interest as part of the cost of acquiring certain assets. Improvement costs that we believe add value to our ships are capitalized as additions to the ship and depreciated over the shorter of the improvements' estimated useful lives or that of the associated ship. The estimated cost and accumulated depreciation of replaced or refurbished ship components are written off and any resulting losses are recognized in Cruise operating expenses. Liquidated damages received from shipyards as a result of the late delivery of a new ship are recorded as reductions to the cost basis of the ship.

Depreciation of property and equipment is computed using the straight-line method over the estimated useful life of the asset. The useful lives of our ships are generally 30 years, net of a 15% projected residual value. The 30-year useful life of our newly constructed ships and 15% associated residual value are both based on the weighted-average of all major components of a ship. Our useful life and residual value estimates take into consideration the impact of anticipated technological changes, long-term cruise and vacation market conditions and historical useful lives of similarly-built ships. In addition, we take into consideration our estimates of the weighted-average useful lives of the ships' major component systems, such as hull, superstructure, main electric, engines and cabins. Depreciation for assets under capital leases is computed using the shorter of the lease term or related asset life.

Depreciation of property and equipment is computed utilizing the following useful lives:

	Years
Ships	generally 30
Ship improvements	3-20
Buildings and improvements	10-40
Computer hardware and software	3-10
Transportation equipment and other	3-30
Leasehold improvements	Shorter of remaining lease term or useful life 3-30

We review long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated undiscounted future cash flows, that the carrying amount of these assets may not be fully recoverable. For purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets

F-10

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

and liabilities. The lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the ship level for our ships. If estimated future cash flows are less than the carrying value of an asset, an impairment charge is recognized to the extent its carrying value exceeds fair value.

We use the deferral method to account for drydocking costs. Under the deferral method, drydocking costs incurred are deferred and charged to expense on a straight-line basis over the period to the next scheduled drydock, which we estimate to be a period of thirty to sixty months based on the vessel's age as required by Class. Deferred drydock costs consist of the costs to drydock the vessel and other costs incurred in connection with the drydock which are necessary to maintain the vessel's Class certification. Class certification is necessary in order for our cruise ships to be flagged in a specific country, obtain liability insurance and legally operate as passenger cruise ships. The activities associated with those drydocking costs cannot be performed while the vessel is in service and, as such, are done during a drydock as a planned major maintenance activity. The significant deferred drydock costs consist of hauling and wharfage services provided by the drydock facility, hull inspection and related activities (e.g., scraping, pressure cleaning, bottom painting), maintenance to steering propulsion, thruster equipment and ballast tanks, port services such as tugs, pilotage and line handling, and freight associated with these items. We perform a detailed analysis of the various activities performed for each drydock and only defer those costs that are directly related to planned major maintenance activities necessary to maintain Class. The costs deferred are not otherwise routinely periodically performed to maintain a vessel's designed and intended operating capability. Repairs and maintenance activities are charged to expense as incurred.

Goodwill

Goodwill represents the excess of cost over the fair value of net tangible and identifiable intangible assets acquired. We review goodwill for impairment at the reporting unit level annually or, when events or circumstances dictate, more frequently. The impairment review for goodwill consists of a qualitative assessment of whether it is more-likely-than-not that a reporting unit's fair value is less than its carrying amount, and if necessary, a two-step goodwill impairment test. Factors to consider when performing the qualitative assessment include general economic conditions, limitations on accessing capital, changes in forecasted operating results, changes in fuel prices and fluctuations in foreign exchange rates. If the qualitative assessment demonstrates that it is more-likely-than-not that the estimated fair value of the reporting unit exceeds its carrying value, it is not necessary to perform the two-step goodwill impairment test. We may elect to bypass the qualitative assessment and proceed directly to step one, for any reporting unit, in any period. On a periodic basis, we elect to bypass the qualitative assessment and proceed to step one to corroborate the results of recent years' qualitative assessments. We can resume the qualitative assessment for any reporting unit in any subsequent period. When performing the two-step goodwill impairment test, the fair value of the reporting unit is determined and compared to the carrying value of the net assets allocated to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, no further analysis or write-down of goodwill is required. If the fair value of the reporting unit is less than the carrying value of its net assets, the implied fair value of the reporting unit is allocated to all its underlying assets and liabilities, including both recognized and unrecognized tangible and intangible assets, based on their fair value. If necessary, goodwill is then written down to its implied fair value.

Intangible Assets

In connection with our acquisitions, we have acquired certain intangible assets to which value has been assigned based on our estimates. Intangible assets that are deemed to have an indefinite life are not amortized, but are subject to an annual impairment test, or when events or circumstances dictate, more frequently. The indefinite-life intangible asset impairment test consists of a comparison of the fair value of the indefinite-life intangible asset with its carrying amount. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If the fair value exceeds its carrying amount, the indefinite-life intangible asset is not considered impaired.

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

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Contingencies — Litigation

On an ongoing basis, we assess the potential liabilities related to any lawsuits or claims brought against us. While it is typically very difficult to determine the timing and ultimate outcome of such actions, we use our best judgment to determine if it is probable that we will incur an expense related to the settlement or final adjudication of such matters and whether a reasonable estimation of such probable loss, if any, can be made. In assessing probable losses, we take into consideration estimates of the amount of insurance recoveries, if any, which are recorded as assets when recoverability is probable. We accrue a liability when we believe a loss is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertainties related to the eventual outcome of litigation and potential insurance recoveries, it is possible that certain matters may be resolved for amounts materially different from any provisions or disclosures that we have previously made.

Advertising Costs

Advertising costs are expensed as incurred except those costs which result in tangible assets, such as brochures, which are treated as prepaid expenses and charged to expense as consumed. Advertising costs consist of media advertising as well as brochure, production and direct mail costs.

Media advertising was $255.7 million, $233.5 million and $240.3 million, and brochure, production and direct mail costs were $133.4 million, $126.7 million and $120.8 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Derivative Instruments

We enter into various forward, swap and option contracts to manage our interest rate exposure and to limit our exposure to fluctuations in foreign currency exchange rates and fuel prices. These instruments are recorded on the balance sheet at their fair value and the vast majority are designated as hedges. We also use non-derivative financial instruments designated as hedges of our net investment in our foreign operations and investments. Although certain of our derivative financial instruments do not qualify or are not accounted for under hedge accounting, our objective is not to hold or issue derivative financial instruments for trading or other speculative purposes.

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. In certain hedges of our net investment in foreign operations and investments, we exclude forward points from the assessment of hedge effectiveness and we amortize the related amounts directly into 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. We use the long-haul method to assess hedge effectiveness using regression analysis for each hedge relationship under our interest rate, foreign currency and fuel hedging programs. We apply the same methodology on a consistent basis for assessing hedge effectiveness to all hedges within each hedging program (i.e., interest rate, foreign currency and fuel). We perform regression analyses over 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

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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.

Foreign Currency Translations and Transactions

We translate assets and liabilities of our foreign subsidiaries whose functional currency is the local currency, at exchange rates in effect at the balance sheet date. We translate revenues and expenses at weighted-average exchange rates for the period. Equity is translated at historical rates and the resulting foreign currency translation adjustments are included as a component of Accumulated other comprehensive loss, which is reflected as a separate component of Shareholders' equity. Exchange gains or losses arising from the remeasurement of monetary assets and liabilities denominated in a currency other than the functional currency of the entity involved are immediately included in our earnings, except for certain liabilities that have been designated to act as a hedge of a net investment in a foreign operation or investment. Exchange gains (losses) were $57.6 million, $(75.6) million and $39.8 million for the years ended December 31, 2018, 2017 and 2016, respectively, and were recorded within Other income (expense). The majority of our transactions are settled in United States dollars. Gains or losses resulting from transactions denominated in other currencies are recognized in income at each balance sheet date.

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 December 31, 2018 and 2017, we had counterparty credit risk exposure under our derivative instruments of approximately $5.6 million and $212.8 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.

Earnings Per Share

Basic earnings per share is computed by dividing Net Income attributable to Royal Caribbean Cruises Ltd. by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options and conversion of potentially dilutive securities.

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Stock-Based Employee Compensation

We measure and recognize compensation expense at the estimated fair value of employee stock awards. Compensation expense for awards and the related tax effects are recognized as they vest. We use the estimated amount of expected forfeitures to calculate compensation costs for all outstanding awards.

Segment Reporting

We control and operate four global cruise brands: Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and most recently, Silversea Cruises. We also own a 50% joint venture interest in the German brand TUI Cruises, a 49% interest in the Spanish brand Pullmantur and a 36% interest in the Chinese brand SkySea Cruises, which ceased cruising operations in September 2018. We believe our brands possess the versatility to enter multiple cruise market segments within the cruise vacation industry. Although each of these brands have its own marketing style as well as ships and crews of various sizes, the nature of the products sold and services delivered by these brands share a common base (i.e., the sale and provision of cruise vacations). Our brands also have similar itineraries as well as similar cost and revenue components. In addition, our brands source passengers from similar markets around the world and operate in similar economic environments with a significant degree of commercial overlap. As a result, our brands have been aggregated as a single reportable segment based on the similarity of their economic characteristics, types of consumers, regulatory environment, maintenance requirements, supporting systems and processes as well as products and services provided. Our Chairman and Chief Executive Officer has been identified as the chief operating decision-maker and all significant operating decisions including the allocation of resources are based upon the analyses of the Company as one segment. Refer to Note 4. Revenues for passenger ticket revenue information by geographic area.

Adoption of Accounting Pronouncements

On January 1, 2018, we adopted the guidance codified in Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, and applied the guidance to all contracts using the modified retrospective method. The new standard converged wide-ranging revenue recognition concepts and requirements that lead to diversity in application for particular industries and transactions into a single revenue standard containing comprehensive principles for recognizing revenue. The cumulative effect of applying the newly issued guidance was not material and accordingly there was no adjustment made to our retained earnings upon adoption on January 1, 2018. The newly adopted guidance has not had a material impact on our consolidated financial statements on an ongoing basis. Due to the adoption of ASC 606, we currently present prepaid commissions as an asset within Prepaid expenses and other assets. In addition, we have reclassified prepaid commissions of $64.6 million from Customer deposits to Prepaid expenses and other assets in our consolidated balance sheet as of December 31, 2017. Refer to Note 4. Revenues for disclosures with respect to our revenue recognition policies.

On January 1, 2018, we adopted the guidance in Accounting Standard Update ("ASU") 2016-16, Income Taxes 740: Intra-Entity Transfers of Assets Other Than Inventory, which requires the income tax consequences of an intra-entity transfer of an asset, other than inventory, to be recognized at the time that the transfer occurs, rather than when the asset is sold to an outside party. We adopted the standard using the modified retrospective method and recorded a cumulative-effect adjustment to reduce retained earnings as of January 1, 2018 by $6.6 million, which reflects the elimination of the deferred tax asset related to intercompany asset transfers.

On January 1, 2018, we adopted the guidance in ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which was issued to simplify and align the financial reporting of hedging relationships to the economic results of an entity’s risk management activities. We adopted the amended guidance using the modified retrospective approach. Adoption of the guidance allowed us to modify the designated risk in our fair value interest rate hedges to the benchmark interest rate component, resulting in changes to the cumulative and ongoing fair value measurement for the hedged debt. Upon adoption, we also elected to hedge the contractually specified components of our commodities purchase contracts. For our cash flow hedges, there will be no periodic measurement or recognition of ineffectiveness. For all hedges, the earnings effect of the hedging instrument will be reported in the same period and in the same income statement line item in which the earnings effect of the hedged item is reported. As a result of the adoption of this guidance, we recorded a cumulative-effect adjustment to reduce retained

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earnings as of January 1, 2018 by $16.9 million. The cumulative-effect adjustment includes an increase to the debt carrying value of $14.4 million for our fair value interest rate hedges as of January 1, 2018, which reflects the cumulative fair value measurement change to debt at adoption resulting from the modified designated risk, and an increase to other comprehensive income (loss) of $2.5 million, which represents an increase to the deferred gain on active cash flow hedges at adoption. Additionally, the new standard requires modifications to existing presentation and disclosure requirements on a prospective basis. As such, disclosures for the year ended December 31, 2018 conform to these disclosure requirements. Refer to Note 16. Changes in Accumulated Other Comprehensive Income (Loss) and Note 17. Fair Value Measurements and Derivative Instruments for additional information.

Recent Accounting Pronouncements

Leases

In February 2016, amended GAAP guidance was issued to increase the transparency and comparability of lease accounting among organizations. For leases with a term greater than 12 months, the amendments require the lease rights and obligations arising from the leasing arrangements, including operating leases, to be recognized as assets and liabilities on the balance sheet. The amendments also expand the required disclosures surrounding leasing arrangements. The guidance will be effective for our annual reporting period beginning after December 15, 2018, including interim periods therein.

The amended guidance requires the use of a modified retrospective approach in applying the new lease accounting standard. We 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.

The standard will have a material effect on our consolidated balance sheets due to the recognition of operating lease assets and operating lease liabilities primarily related to real estate, shipboard equipment and preferred berthing arrangements. Upon adoption, we expect that there will be no cumulative-effect adjustment of initially applying the guidance to our opening balance of retained earnings.

We do not expect this amended guidance to have a material impact to our consolidated statements of comprehensive income, consolidated statements of cash flows and our debt-covenant compliance under our current agreements on an ongoing basis.

Derivatives and Hedging

In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which permits use of the OIS rate based on SOFR as a U.S. benchmark interest rate for purposes of applying hedge accounting. SOFR is a new index calculated by short-term repurchase agreements backed by U.S Treasury securities. The guidance is required to be adopted on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the adoption date. This ASU will be effective for our annual reporting period beginning January 1, 2019. The adoption of this newly issued guidance is not expected to have a material impact to our consolidated financial statements.

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Change in Accounting Principle - Stock-based Compensation

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. The adoption of the straight-line attribution method for time-based stock awards represents a change in accounting principle which we believe to be preferable because it is the predominant method used in our industry. A change in accounting principle requires retrospective application, if material. The impact of the adoption of the straight-line attribution method to our time-based awards was immaterial to prior periods and to our year ended December 31, 2018. As a result, we have accounted for this change in accounting principle in our consolidated results for the year ended December 31, 2018. The effect of this change was an increase to Net Income attributable to Royal Caribbean Cruises Ltd. of $9.2 million, or $0.04 per share for each of basic and diluted earnings per share, for year ended December 31, 2018, which is reported within Marketing, selling and administrative expenses in our consolidated statements of comprehensive income (loss).

Reclassifications

For the year ended December 31, 2018, we separately presented Cash received on settlement of derivative financial instruments and Cash paid on settlement of derivative financial instruments in our consolidated statements of cash flows. As a result, prior years amounts were reclassified within Investing Activities to conform to current year presentation. Additionally, we have reclassified prepaid commissions of $64.6 million from Customer deposits to Prepaid expenses and Other assets in our consolidated balance sheet as of December 31, 2017 to conform with current year presentation. Refer to the Adoption of Accounting Pronouncements presented above for further information on this reclassification.

Note 3. Business Combination

On July 31, 2018, we acquired a 66.7% equity stake in Silversea Cruises enhancing our presence in the ultra-luxury and expedition markets and providing 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 and was recorded within Other liabilities in our consolidated balance sheets. Subsequent changes to the fair value of the contingent consideration are recorded in our results of operations in the period of the change. Refer to Note 17. 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 entered into and drew in full on a $700 million credit agreement. Refer to Note 9. Debt for further information on the credit agreement. 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 preliminary 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, beginning with our fourth quarter 2018, we included Silversea Cruises’ results of operations on a three-month reporting lag from the acquisition date through September 30, 2018. We have included Silversea Cruises' balance sheet as of September 30, 2018 in our consolidated balance sheet as of December 31, 2018. Refer to Note 1. General for further information on this three-month reporting lag.

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The following table summarizes the purchase price allocation based on preliminary estimated fair values of the assets acquired and liabilities assumed related to the Silversea Cruises acquisition as of July 31, 2018. We have not finalized the allocation of the purchase price as it requires extensive use of accounting estimates and valuation methodologies in the determination of such fair values.

(in thousands)		Estimated Fair Value as of Acquisition Date (as Previously Reported)				Measurement Period Adjustments (1)				Estimated Fair Value as of Acquisition Date (as Adjusted)
Assets
Cash and cash equivalents		$	103,865			$	—			$	103,865
Trade and other receivables, net		5,640				1,523				7,163
Inventories		19,004				(673		)		18,331
Prepaid expenses and other assets(2)		119,920				576				120,496
Derivative financial instruments		2,886				—				2,886
Property and equipment, net(3)		1,109,467				4,803				1,114,270
Goodwill		1,086,539				3,471				1,090,010
Other assets(4)		494,657				3,800				498,457
Total assets acquired		2,941,978				13,500				2,955,478
Liabilities
Current portion of long-term debt(5)		26,851				—				26,851
Accounts payable		36,960				—				36,960
Accrued interest		1,773				—				1,773
Accrued expenses and other liabilities		80,571				1,960				82,531
Customer deposits		453,798				—				453,798
Long-term debt(5)		727,935				—				727,935
Other long-term liabilities		12,320				11,540				23,860
Total liabilities assumed		1,340,208				13,500				1,353,708
Redeemable noncontrolling interest(6)		537,770				—				537,770
Total purchase price		$	1,064,000			$	—			$	1,064,000

(1)	As a result of additional information obtained about facts and circumstances that existed as of the acquisition date, we recorded measurement period adjustments during the fourth quarter of 2018, which resulted in a net increase to Goodwill of $3.5 million.

(2)	Amount includes $32.0 million of cash held as collateral with credit card processors as of July 31, 2018.

(3)	Property and equipment, net includes two ships under capital lease agreements amounting to $156.0 million as of July 31, 2018. The respective capital lease liabilities are reported within Long-term debt. Refer to Note 9. Debt for further information on the capital lease financing arrangements.

(4)	Amount includes $494.6 million of intangible assets. Refer to Note 6. Intangible Assets for further information on the intangible assets acquired.

(5)	Refer to Note 9. Debt for further information on long-term debt assumed.

(6)	Refer to Note 10. Redeemable Noncontrolling Interest for further information on the redeemable noncontrolling interest recorded.

Similar to our other ship-operating and vessel-owning subsidiaries, Silversea Cruises is currently exempt from U.S. corporate tax on U.S. source income from the international operation of ships pursuant to Section 883 of the Internal Revenue Code. Additionally, the deferred tax liability recognized in connection with the acquisition of Silversea Cruises was not material to our consolidated financial statements and there were no net operating losses recognized as of December 31, 2018.

For the year ended December 31, 2018, Total revenues and Net Income in our consolidated statements of comprehensive income (loss) include $130.1 million and $3.3 million, respectively, of revenues and net income from

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Silversea Cruises since the date of acquisition through September 30, 2018. For the year ended December 31, 2018, our results of operations also include transaction-related costs of $31.8 million, which were included primarily within Marketing, selling and administrative expenses in our consolidated statements of comprehensive income (loss).

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

Note 4. 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.

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 $611.4 million, $569.5 million and $570.3 million for the years ended December 31, 2018, 2017 and 2016, 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.

As a practical expedient, we have omitted disclosures on our remaining performance obligations as the duration of our contracts with customers is less than a year.

Disaggregated Revenues

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

	Year Ended December 31,
	2018				2017				2016
Revenues by itinerary
North America(1)	$	5,399,951			$	5,062,305			$	4,606,875
Asia/Pacific(2)	1,463,083				1,588,802				1,536,799
Europe(3)	1,914,549				1,509,586				1,711,496
Other regions	348,145				285,954				354,529
Total revenues by itinerary	9,125,728				8,446,647				8,209,699
Other revenues(4)	368,121				331,198				286,702
Total revenues	$	9,493,849			$	8,777,845			$	8,496,401

(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., the Nordics, Germany, France, Italy, Spain and the United Kingdom).

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(4)	Includes revenues primarily related to cancellation fees, vacation protection insurance and pre- and post-cruise tours. 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 8. 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 years ended December 31, 2018, 2017 and 2016, our guests were sourced from the following areas:

	Year Ended December 31,
	2018			2017			2016
Passenger ticket revenues:
United States	61	%		59	%		55	%
United Kingdom	10	%		9	%		10	%
All other countries (1)	29	%		32	%		35	%

(1)	No other individual country's revenue exceeded 10% for the years ended December 31, 2018, 2017 and 2016.

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 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 do not consider customer deposits to be a contract liability until 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 and $1.4 billion as of December 31, 2018 and 2017, respectively. Substantially all of our contract liabilities as of December 31, 2017 were recognized and reported within Total revenues in our consolidated statement of comprehensive income (loss) for the year ended December 31, 2018.

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 source 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 December 31, 2018 and 2017, our contract assets were $57.8 million and $60.1 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 $153.5 million and $64.6 million as of December 31, 2018 and 2017, respectively. Substantially all of our prepaid travel agent commissions at December 31, 2017 were expensed and reported within Commissions, transportation and other in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2018.

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Note 5. Goodwill

The carrying amount of goodwill attributable to our Royal Caribbean International, Celebrity Cruises and Silversea Cruises reporting units and the changes in such balances during the years ended December 31, 2018 and 2017 were as follows (in thousands):

	Royal Caribbean International				Celebrity Cruises				Silversea Cruises				Total
Balance at December 31, 2016	$	286,754			$	1,632			$	—			$	288,386
Foreign currency translation adjustment	126				—				—				126
Balance at December 31, 2017	286,880				1,632				—				288,512
Goodwill attributable to the acquisition of Silversea Cruises (1)	—				—				1,090,010				1,090,010
Foreign currency translation adjustment	(169		)		—				—				(169		)
Balance at December 31, 2018	$	286,711			$	1,632			$	1,090,010			$	1,378,353

---

(1)	In 2018, we purchased Silversea Cruises. Refer to Note 3. Business Combination for further information.

During the fourth quarter of 2018, we performed a qualitative assessment of whether it was more-likely-than-not that our Royal Caribbean International reporting unit's fair value was less than its carrying amount before applying the two-step goodwill impairment test. The qualitative analysis included assessing the impact of certain factors such as general economic conditions, limitations on accessing capital, changes in forecasted operating results, changes in fuel prices and fluctuations in foreign exchange rates. Based on our qualitative assessment, we concluded that it was more-likely-than-not that the estimated fair value of the Royal Caribbean International reporting unit exceeded its carrying value and thus, we did not proceed to the two-step goodwill impairment test. No indicators of impairment exist primarily because the reporting unit's fair value has consistently exceeded its carrying value by a significant margin and forecasts of operating results generated by the reporting unit appear sufficient to support its carrying value. As a result of our assessment, we did not record an impairment of goodwill for the year ended December 31, 2018.

During the fourth quarter of 2018, we also performed a qualitative assessment of whether it was more-likely-than-not that our Silversea Cruises reporting unit's fair value was less than its carrying amount before applying the two-step goodwill impairment test. The qualitative analysis included assessing the impact of certain factors such as general economic conditions, limitations on accessing capital, changes in forecasted operating results, changes in fuel prices and fluctuations in foreign exchange rates. Based on our qualitative assessment, we concluded that it was more-likely-than-not that the estimated fair value of the Silversea Cruises reporting unit exceeded its carrying value and thus, we did not proceed to the two-step goodwill impairment test. No indicators of impairment exist primarily because forecasted operating results of the reporting unit appear sufficient to support its carrying value. As a result of our assessment, we did not record an impairment of goodwill for the year ended December 31, 2018.

For the years ended December 31, 2017 and 2016, we did not record an impairment of goodwill for our reporting units.

F-20

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6. 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 December 31, 2018 (in thousands, except weighted average amortization period):

		As of December 31, 2018
		Remaining Weighted Average Amortization Period (Years)		Gross Carrying Value				Accumulated Amortization				Net Carrying Value
Finite-life intangible assets:
Customer relationships		14.8		$	97,400			$	1,082			$	96,318
Galapagos operating licenses		25.8		47,669				4,206				43,463
Other finite-life intangible assets		1.8		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

As of December 31, 2017, finite-life intangible assets had a gross carrying amount and accumulated amortization amount of $11.6 million and $3.7 million, respectively, consisting of operating licenses to operate in the Galapagos Islands. As of December 31, 2017, the remaining weighted average remaining life of these licenses was approximately 26.6 years. The carrying amount of indefinite-life intangible assets was not material as of December 31, 2017.

As of December 31, 2018, intangible assets, net include intangible assets acquired in the Silversea Cruises acquisition, which were recorded at fair value at acquisition date as follows:

		Fair Value at Acquisition Date (in thousands)				Weighted Average Amortization Period (Years)
Silversea Cruises trade name		$	349,500			Indefinite-life
Customer relationships		97,400				15
Galapagos operating license		36,100				26
Other finite-life intangible assets		11,560				2
Total intangible assets		$	494,560

Amortization expense for finite-life intangible assets was immaterial to our consolidated financial statements for the years ended December 31, 2018, 2017 and 2016.

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

Year
2019	$	13,959
2020	$	12,995
2021	$	8,179
2022	$	8,179
2023	$	8,179

F-21

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7. Property and Equipment

Property and equipment consists of the following (in thousands):

	As of December 31,
	2018				2017
Ships	$	27,209,553			$	23,714,745
Ship improvements	2,965,634				2,410,525
Ships under construction	817,800				642,235
Land, buildings and improvements, including leasehold improvements and port facilities	321,136				250,079
Computer hardware and software, transportation equipment and other	1,120,988				762,512
Total property and equipment	32,435,111				27,780,096
Less—accumulated depreciation and amortization(1)	(8,968,948		)		(8,044,916		)
	$	23,466,163			$	19,735,180

(1)	Amount includes accumulated depreciation and amortization for assets in service.

Ships under construction include progress payments for the construction of new ships as well as planning, design, capitalized interest and other associated costs. We capitalized interest costs of $49.6 million, $24.2 million and $25.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.

During 2018, we completed our purchase of Azamara Pursuit and took delivery of Symphony of the Seas and Celebrity Edge. Refer to Note 9. Debt for further information.

Upon our acquisition of Silversea Cruises, we added to our fleet nine ships, two of which are under capital lease agreements. Refer to Note 3. Business Combination for further information on the Silversea Cruises acquisition and Note 9. Debt for further information on the capital leases.

During 2018, Silversea Cruises entered into an agreement with Shipyard De Hoop to build a ship designed for the Galapagos Islands. Refer to Note 18. Commitments and Contingencies for further information on the aggregate costs of our ships on order.

During 2017, we sold our three aircraft and 6% of our ownership stake in Wamos Air, S.A. (formerly known as Pullmantur Air, S.A.) to Wamos Air, S.A. In connection with the sale transaction, we extended two loans to Wamos Air, S.A. totaling €17.3 million. The loans accrue interest at rates ranging from 4.78% to 5.35% per annum, amortize through maturity of October 2019 and July 2021, respectively, and are secured by first priority security interests over the aircraft engines and shares sold in connection with the transaction. The sale resulted in an immaterial gain that was recognized in earnings during the year ended December 31, 2017. Post-sale, we retained a 13% interest in Wamos Air, S.A. During the year ended December 31, 2018, we received principal and interest payments of $4.0 million. As of December 31, 2018, a receivable of €14.1 million, or approximately $16.1 million, based on the exchange rate at December 31, 2018, was outstanding related to the principal amount of these loans.

During 2017, we sold Legend of the Seas to an affiliate of TUI AG, our joint venture partner in TUI Cruises. The sale resulted in a gain of $30.9 million and was reported within Other operating within Cruise operating expenses in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2017.

During 2016, we sold our 51% interest in Pullmantur Holdings. We retained full ownership of the four vessels currently operated by the Pullmantur brand under bareboat charter arrangements. We account for the bareboat charters of the vessels to Pullmantur Holdings as operating leases.

In April 2016, we sold Splendour of the Seas to TUI Cruises. Concurrent with the acquisition, TUI Cruises leased the ship to an affiliate of TUI AG, our joint venture partner in TUI Cruises, which now operates the ship. The gain recognized did not have a material effect to our consolidated financial statements.

F-22

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8. 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.

We have determined that TUI Cruises GmbH, our 50%-owned joint venture, which operates the brand TUI Cruises, is a VIE. 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. As of December 31, 2017, the net book value of our investment in TUI Cruises was $624.5 million, primarily consisting of $422.8 million in equity and a loan of €166.5 million, or approximately $199.8 million, based on the exchange rate at December 31, 2017. 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. Refer to Note 7. Property and Equipment for further information. 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 December 31, 2018, the outstanding principal amount of the loan was €37.0 million, or approximately $42.3 million, based on the exchange rate at December 31, 2018. In April 2018, Mein Schiff 1 was sold to an affiliate of TUI AG. The proceeds were used to repay €44.2 million of the bank loan and secure the release of the first mortgage on Mein Schiff 1. The loan amortizes quarterly and is currently secured by a first mortgage on Mein Schiff Herz, previously known as Mein Schiff 2. Based on current facts and circumstances, we do not believe potential obligations under our guarantee of this bank loan are probable. 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. As mentioned above, 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 income (expense) in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2018.

We have determined that Pullmantur Holdings S.L. ("Pullmantur Holdings"), in which we have a 49% noncontrolling 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 December 31, 2018 and December 31, 2017, our maximum exposure to loss in Pullmantur Holdings was $58.5 million and $53.7 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. Refer to Note 7. Property and Equipment for further information on the our vessels currently operated by the Pullmantur brand under bareboat charter arrangements.

F-23

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We have provided a working capital facility to a Pullmantur Holdings subsidiary in the amount of up to €15.0 million or approximately $17.2 million based on the exchange rate at December 31, 2018. Proceeds of the facility, which were drawn through December 2018 at an interest rate of 6.5% per annum, are payable through 2022. Springwater Capital LLC, 51% owner of Pullmantur Holdings, has guaranteed repayment of 51% of the outstanding amounts under the 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 and certain emergency repairs as may be required. During the years ended December 31, 2018 and 2017, we made payments of $44.7 million and $16.0 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 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 $14.6 million. As of December 31, 2017, the net book value of our investment in Grand Bahama was approximately $49.4 million, consisting of $32.4 million in equity and a loan of $17.0 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) 5.50%. Interest payable on the loan is due on a semi-annual basis. We have experienced strong payment performance on the loan since its amendment, in 2016, and as a result completed an evaluation and review of the loan resulting in a reclassification of the loan to accrual status as of October 2017. During the years ended December 31, 2018 and 2017, we received principal and interest payments of $16.4 million and $15.7 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, which includes the recognition of previously unrecognized interest that accumulated while the loan was in non-accrual status.

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 December 31, 2018.

In March 2018, Skysea Holding's board of directors agreed to exit the business given the increasing challenges faced by the brand. Skysea Holding ceased cruising operations in September 2018. We have determined that Skysea Holding, in which we have a 36% ownership 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. In December 2014, we and Ctrip, which also owns 36% of Skysea Holding, each provided a debt facility to a wholly owned subsidiary of Skysea Holding in the amount of $80.0 million, with an applicable interest rate of 6.5% per annum, which originally matured in January 2030. The facilities, which were pari passu to each other, were each 100% guaranteed by Skysea Holding and were secured by first priority mortgages on the ship, Golden Era. Due to payment performance, the loans were classified to non-accrual status in 2017.

We review our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. During 2018, given SkySea Holding’s dissolution and sale of the Golden Era, we reviewed the recoverability of our investment, debt facility and other receivables due from the brand. As a result of this analysis, we determined that our investment in SkySea Holding and the carrying value of our debt facility and other receivables due from the brand were impaired and recognized an impairment charge of $23.3 million during the year ended December 31, 2018. The charge reflected a full impairment of our investment in SkySea Holding and reduced the debt facility and other receivables due to us to their net realizable value. This impairment charge was recognized in Other income (expense) within our consolidated statements of comprehensive income (loss) for the year ended December 31, 2018.

F-24

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In December 2018, the Golden Era was sold to an affiliate of TUI AG, our joint venture partner in TUI Cruises. Proceeds from the sale were distributed to the existing shareholders which eliminated our net receivable balance due from Skysea Holding, resulting in no further impairment charges. As of December 31, 2018, we do not have any exposures to loss related to our investment in Skysea Holding. As of December 31, 2017, the net book value of our investment in Skysea Holding and its subsidiaries was $96.0 million, which consisted of $4.4 million in equity and loans and other receivables of $91.6 million. The majority of these amounts were included within Other assets in our consolidated balance sheets and represented our maximum exposure to loss related to our investment in Skysea Holding as of December 31, 2017.

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

		Year ended December 31,
		2018				2017				2016
Share of equity income from investments		$	210,756			$	156,247			$	128,350
Dividends received		$	243,101			$	109,677			$	75,942

		As of December 31,
		2018				2017
Total notes receivable due from equity investments		$	201,979			$	314,323
Less-current portion(1)		19,075				38,658
Long-term portion(2)		$	182,904			$	275,665

---

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

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

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):

		Year ended December 31,
		2018				2017				2016
Revenues		$	54,705			$	53,532			$	30,517
Expenses		$	11,531			$	15,176			$	12,795

F-25

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Summarized financial information for our affiliates accounted for under the equity method of accounting was as follows (in thousands):

		As of December 31,
		2018				2017
Current assets		$	471,428			$	532,330
Non-current assets		3,826,018				3,673,613
Total assets		$	4,297,446			$	4,205,943
Current liabilities		$	1,064,741			$	1,152,193
Non- current liabilities		2,217,909				1,974,166
Total liabilities		$	3,282,650			$	3,126,359
Equity attributable to:
Noncontrolling interest		$	1,672			$	1,753

		Year ended December 31,
		2018				2017				2016
Total revenues		$	2,255,352			$	1,994,014			$	1,340,662
Total expenses		(1,779,160		)		(1,684,276		)		(1,078,470		)
Net income		$	476,192			$	309,738			$	262,192

F-26

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9. Debt

Debt consists of the following (in thousands):

						As of December 31,
		Interest Rate		Maturities Through		2018				2017
Fixed rate debt:
Senior notes		2.65% to 7.50%		2020 - 2028		$	1,724,194			$	1,866,359
Secured senior notes		7.25%		2025		670,437				—
Unsecured term loans		2.53% to 5.41%		2021 - 2030		2,148,351				333,351
Total fixed rate debt						4,542,982				2,199,710
Variable rate debt (1):
Unsecured revolving credit facilities(2)		3.54% to 3.61%		2020 - 2022		795,000				580,000
Commercial paper		3.19%		2019		775,488				—
USD unsecured term loan		2.92% to 6.52%		2019 - 2028		4,005,848				4,079,670
Euro unsecured term loan		1.15% to 1.58%		2021 - 2028		734,176				814,085
Total variable rate debt						6,310,512				5,473,755
Capital lease obligations						130,944				33,139
Total debt (3)						10,984,438				7,706,604
Less: unamortized debt issuance costs						(206,739		)		(167,153		)
Total debt, net of unamortized debt issuance costs						10,777,699				7,539,451
Less—current portion including commercial paper						(2,422,329		)		(1,188,514		)
Long-term portion						$	8,355,370			$	6,350,937

(1)	Calculation based on outstanding loan balance and interest rate as of December 31, 2018. For variable rate debt, interest rate includes either LIBOR or EURIBOR plus the applicable margin.

(2)	Includes $1.4 billion facility due in 2020 and $1.2 billion due in 2022, each of which accrue interest at LIBOR plus 1.10%, currently 3.91%, and are subject to a facility fee of 0.15%.

(3)	At December 31, 2018 and 2017, the weighted average interest rate for total debt was 4.14% and 3.92%, respectively.

In October 2018, we took delivery of Celebrity Edge. Through a novation agreement we put in place in June 2016, we had the right, but not the obligation, to finance the final installment payable to the shipyard by assuming upon our delivery and acceptance of the ship the debt indirectly incurred by the shipbuilder during the construction of the ship. We borrowed a total of $729.0 million (inclusive of the amount novated to us). The loan, which is unsecured, amortizes semi-annually over 12 years and bears interest at a fixed rate of 3.23%. In our consolidated statement of cash flows for the year ended December 31, 2018, the acceptance of the ship and satisfaction of our obligation under the shipbuilding contract was classified as an outflow and constructive disbursement within Investing Activities while the amounts novated and effectively advanced from our lenders under our previously committed financing arrangements were classified as an inflow and constructive receipt within Financing Activities.

On July 31, 2018, we closed on the Silversea Cruises acquisition and subsequently drew in full on an unsecured credit agreement in the amount of $700 million due July 2019. We are required to prepay the loan with the proceeds of certain debt issuances prior to maturity. Interest on the loan accrues at a floating rate based on LIBOR plus a margin that varies with our credit rating and which is currently 1.00%.

Upon our acquisition of Silversea Cruises, we recorded, at a fair value of $672.0 million, 7.25% senior secured notes with a principal amount of $620 million due February 2025, in accordance with ASC 805. The notes were previously issued by Silversea Cruise Finance Ltd., a wholly owned subsidiary of Silversea Cruises, and are guaranteed and secured by substantially all of the assets of Silversea Cruises and a number of its subsidiaries, subject to certain exceptions. Refer to Note 3. Business Combination for further information on the Silversea Cruises acquisition.

F-27

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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. The interest rate for the commercial paper notes varies based on duration, market conditions and our credit ratings. The maturities of the commercial paper notes can vary, but cannot exceed 397 days from the date of issuance. We use the proceeds from our commercial paper notes for general corporate purposes. The commercial paper issued is backstopped by our revolving credit facilities. 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 March 2018, we took delivery of Symphony of the Seas. Through a novation agreement we put in place in January 2015, we had the right, but not the obligation, to finance the final installment payable to the shipyard by assuming upon our delivery and acceptance of this ship the debt indirectly incurred by the shipbuilder during the construction of the ship. We borrowed a total of $1.2 billion (inclusive of the amount novated to us). The loan, which is unsecured, amortizes semi-annually over 12 years and bears interest at a fixed rate of 3.82%. In our consolidated statement of cash flows for the year ended December 31, 2018, the acceptance of the ship and satisfaction of our obligation under the shipbuilding contract was classified as an outflow and constructive disbursement within Investing Activities while the amounts novated and effectively advanced from our lender under our previously committed financing arrangements were classified as an inflow and constructive receipt within Financing Activities.

In March 2018, we entered into and drew in full on a credit agreement in the amount of $130.0 million due February 2023. The loan accrues interest at a floating rate of LIBOR plus an applicable margin. The applicable margin varies with our debt rating and was 1.195% as of December 31, 2018. Amounts from the issuance of this loan were used for capital expenditures.

Except for Celebrity Flora, all of our unsecured ship financing term loans are guaranteed by the export credit agency in the respective country in which the ship is constructed. In consideration for these guarantees, depending on the financing arrangement, we pay to the applicable export credit agency (1) a fee of 0.77% per annum based on the outstanding loan balance semi-annually over the term of the loan (subject to adjustment based upon our credit ratings) or (2) an upfront fee of 2.35% to 2.37% of the maximum loan amount. We amortize the fees that are paid upfront over the life of the loan and those that are paid semi-annually over each respective payment period. Prior to the loan being drawn, we present these fees within Other assets in our consolidated balance sheets. Once the loan is drawn, such fees are classified as a discount to the related loan, or contra-liability account, within Current portion of long-term debt or Long-term debt. In our consolidated statements of cash flows, we classify these fees within Amortization of debt issuance costs.

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

The unsecured senior notes and senior debentures are not redeemable prior to maturity, except that certain series may be redeemed upon the payment of a make-whole premium.

Capital Leases

Silversea Cruises operates two ships, the Silver Whisper and Silver Explorer, under capital leases. The capital lease for the Silver Whisper will expire in 2022, subject to an option to purchase the ship, and the capital lease for the Silver Explorer will expire in 2021, subject to an option to extend the lease for up to an additional six years. The total aggregate amount of the finance lease obligations recorded for these ships at the acquisition date was $82.8 million. The lease payments on the Silver Whisper are subject to adjustments based on the LIBOR rate. Refer to Note 3. Business Combination for further information regarding the assets acquired and liabilities assumed in the Silversea Cruises acquisition.

F-28

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Following is a schedule of annual maturities on our total debt net of debt issuance costs, and including capital leases and commercial paper, as of December 31, 2018 for each of the next five years (in thousands):

Year
2019	$	2,422,329
2020	1,681,978
2021	843,976
2022	1,607,975
2023	664,025
Thereafter	3,557,416
	$	10,777,699

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 SCG. The put options may require us to purchase SCG'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. At the acquisition date, the estimated fair value of the redeemable noncontrolling interest was based on 33.3% of Silversea Cruises' equity value, which was determined based on the transaction price paid for 66.7% of Silversea Cruises. As of December 31, 2018, SCG'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 interests our consolidated statements of comprehensive income (loss).

The following table presents changes in the redeemable noncontrolling interest as of December 31, 2018 (in thousands):

Balance as at January 1, 2018	$	—
Additions (Silversea Cruises acquisition)	537,770
Net income attributable to noncontrolling interest, including the contractual accretion of the put options	4,750
Other	(500		)
Balance at December 31, 2018	$	542,020

Note 11. Shareholders' Equity

During the fourth and third quarters of 2018, we declared a cash dividend on our common stock of $0.70 per share which was paid in the first quarter of 2019 and fourth quarter of 2018, respectively. During 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 the second and third quarters of 2018, respectively.

During the fourth and third quarters of 2017, we declared a cash dividend on our common stock of $0.60 per share which was paid in the first quarter of 2018 and fourth quarter of 2017, respectively. During the first and second quarters of 2017, we declared a cash dividend on our common stock of $0.48 per share which was paid in the second and third quarters of 2017, respectively. During the first quarter of 2017, we also paid a cash dividend on our common stock of $0.48 per share which was declared during the fourth quarter of 2016.

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 year ended December 31, 2018, we repurchased

F-29

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.8 million shares of our common stock under this program, for a total of $300.0 million, in open market transactions that were recorded within Treasury stock in our consolidated balance sheets. As of December 31, 2018, we have $700.0 million that remains available for future stock repurchase transactions under our Board authorized program.

In April 2017, our board of directors authorized a 12-month common stock repurchase program for up to $500.0 million that was completed in February 2018. During 2018 and 2017, we repurchased 2.1 million and 1.8 million shares of our common stock for a total of $275.0 million and $225.0 million, respectively, totaling $500.0 million in open market transactions that were recorded within Treasury stock in our consolidated balance sheets.

Note 12. Stock-Based Employee Compensation

We currently have awards outstanding under one stock-based compensation plan, our 2008 Equity Plan, which provides for awards to our officers, directors and key employees. The 2008 Equity Plan, as amended, provides for the issuance of up to 14,000,000 shares of our common stock pursuant to grants of (i) incentive and non-qualified stock options, (ii) stock appreciation rights, (iii) stock awards (including time-based and/or performance-based stock awards) and (iv) restricted stock units (including time-based and performance-based restricted stock units). During any calendar year, no one individual (other than non-employee members of our board of directors) may be granted awards of more than 500,000 shares and no non-employee member of our board of directors may be granted awards with a value in excess of $500,000 at the grant date. Options and restricted stock units outstanding as of December 31, 2018 generally vest in equal installments over four years from the date of grant. In addition, performance shares and performance share units generally vest in three years. With certain limited exceptions, awards are forfeited if the recipient ceases to be an employee before the shares vest.

Prior to 2012, our officers received a combination of stock options and restricted stock units. Beginning in 2012, our officers instead receive their long-term incentive awards through a combination of performance share units and restricted stock units. Each performance share unit award is expressed as a target number of performance share units based upon the fair market value of our common stock on the date the award is issued. The actual number of shares underlying each award (not to exceed 200% of the target number of performance share units) will be determined based upon the Company's achievement of a specified performance target range. In 2018, we issued a target number of 184,550 performance share units, which will vest approximately three years following the award issue date. The performance payout of these grants will be based on return on our invested capital ("ROIC") and earnings per share (“EPS”) for the year ended December 31, 2020, as may be adjusted by the Talent and Compensation Committee of our board of directors in early 2021 for events that are outside of management's control.

Beginning in 2016, our senior officers meeting certain minimum age and service criteria receive their long-term incentive awards through a combination of restricted stock awards and restricted stock units. The restricted stock awards are subject to both performance and time-based vesting criteria while the restricted stock units are subject only to time-based vesting criteria. Each restricted stock award is issued in an amount equal to 200% of the target number of shares underlying the award based upon the fair market value of our common stock on the date the award is issued. Dividends accrue (but do not get paid) on the restricted stock awards during the vesting period, with the accrued amounts to be paid out following vesting only on the number of shares underlying the award which actually vest based on satisfaction of the performance criteria. The actual number of shares that vest (not to exceed 200% of the shares) will be determined based upon the Company's achievement of a specified performance target range. In 2018, we issued 120,022 restricted stock awards, representing 200%(1) of the target number of shares underlying the award, all of which are considered issued and outstanding from the date of issuance, however; grantees will only retain those shares earned as the result of the Company achieving the performance goals during the measurement period. The performance payout of the 2018 awards will be based on ROIC and EPS for the year ended December 31, 2020, as may be adjusted by the Talent and Compensation Committee of our board of directors in early 2021 for events that are outside of management's control.

On January 24, 2018, the Company issued a one-time bonus award for all non-officer employees. These awards vest, in equal installments, over the 3 years following the award issue date. For shoreside eligible employees, awards were issued as equity-settled restricted stock units.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We also provide an Employee Stock Purchase Plan ("ESPP") to facilitate the purchase by employees of up to 1,300,000 shares of common stock in the aggregate. Offerings to employees are made on a quarterly basis. Subject to certain limitations, the purchase price for each share of common stock is equal to 85% of the average of the market prices of the common stock as reported on the New York Stock Exchange on the first business day of the purchase period and the last business day of each month of the purchase period. During the years ended December 31, 2018, 2017 and 2016, 74,100, 51,989 and 42,347 shares of our common stock were purchased under the ESPP at a weighted-average price of $97.50, $93.15 and $65.48, respectively.

Total compensation expense recognized for employee stock-based compensation for the years ended December 31, 2018, 2017 and 2016 was as follows (in thousands):

	Employee Stock-Based Compensation
Classification of expense	2018				2017				2016
Marketing, selling and administrative expenses	$	46,061			$	69,459			$	32,659
Total compensation expense	$	46,061			$	69,459			$	32,659

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The estimated fair value of stock options, less estimated forfeitures, is amortized over the vesting period using the graded-vesting method. We did not issue any stock options during the years ended December 31, 2018, 2017 and 2016.

Stock option activity and information about stock options outstanding are summarized in the following table:

Stock Option Activity	Number of Options			Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value(1)
								(years)		(in thousands)
Outstanding at January 1, 2018	272,724			$	32.15			1.41		$	24,053
Granted	—			—
Exercised	(117,977	)		$	36.14
Canceled	(1,654	)		$	32.49
Outstanding at December 31, 2018	153,093			$	29.06			1.23		$	10,399
Vested at December 31, 2018	153,093			$	29.06			1.23		$	10,399
Options Exercisable at December 31, 2018	153,093			$	29.06			1.23		$	10,399

---

(1)	The intrinsic value represents the amount by which the fair value of stock exceeds the option exercise price.

The total intrinsic value of stock options exercised during the years ended December 31, 2018, 2017 and 2016 was $11.1 million, $4.5 million and $2.3 million, respectively. As of December 31, 2018, there was no unrecognized compensation cost, net of estimated forfeitures, related to stock options granted under our stock incentive plan.

Restricted stock units are converted into shares of common stock upon vesting or, if applicable, are settled on a one-for-one basis. The cost of these awards is determined using the fair value of our common stock on the date of the grant, and compensation expense is recognized over the vesting period. Restricted stock activity is summarized in the following table:

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restricted Stock Units Activity	Number of Awards			Weighted- Average Grant Date Fair Value
Non-vested share units as of January 1, 2018	737,899			$	83.78
Granted	392,427			$	122.12
Vested	(276,059	)		$	78.09
Canceled	(53,682	)		$	101.82
Non-vested share units as of December 31, 2018	800,585			$	103.32

The weighted-average estimated fair value of restricted stock units granted during the years ended December 31, 2017 and 2016 was $99.03 and $64.51, respectively. The total fair value of shares released on the vesting of restricted stock units during the years ended December 31, 2018, 2017 and 2016 was $33.9 million, $38.7 million and $23.2 million, respectively. As of December 31, 2018, we had $43.1 million of total unrecognized compensation expense, net of estimated forfeitures, related to restricted stock unit grants, which will be recognized over the weighted-average period of 1.68 years.

Performance share units are converted into shares of common stock upon vesting on a one-for-one basis. We estimate the fair value of each performance share when the grant is authorized and the related service period has commenced. We remeasure the fair value of our performance shares in each subsequent reporting period until the grant date has occurred, which is the date when the performance conditions are satisfied. We recognize compensation cost over the vesting period based on the probability of the service and performance conditions being achieved adjusted for each subsequent fair value measurement until the grant date. If the specified service and performance conditions are not met, compensation expense will not be recognized and any previously recognized compensation expense will be reversed. Performance share units activity is summarized in the following table:

Performance Share Units Activity	Number of Awards			Weighted- Average Grant Date Fair Value
Non-vested share units as of January 1, 2018	353,150			$	74.87
Granted	184,550			$	97.98
Vested	(218,568	)		$	72.79
Canceled	(16,571	)		$	109.46
Non-vested share units as of December 31, 2018	302,561			$	88.57

The weighted-average estimated fair value of performance share units granted during the years ended December 31, 2017 and 2016 was $84.16 and $65.83, respectively. The total fair value of shares released on the vesting of performance share units during the years ended December 31, 2018, 2017 and 2016 was $27.3 million, $10.0 million and $16.9 million, respectively. As of December 31, 2018, we had $7.7 million of total unrecognized compensation expense, net of estimated forfeitures, related to performance share unit grants, which will be recognized over the weighted-average period of 1.00 year.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The shares underlying our restricted stock awards to age and service eligible senior officers are issued as of the grant date in an amount equal to 200% of the target number of shares. Following the vesting date, the restrictions will lift with respect to the number of shares for which the performance criteria was met and any excess shares will be canceled. Dividends will accrue on the issued restricted shares during the vesting period, but will not be paid to the recipient until the awards vest and the final number of shares underlying the award is determined, at which point, the dividends will be paid in cash only on the earned shares. We estimate the fair value of each restricted stock award when the grant is authorized and the related service period has commenced. We remeasure the fair value of these restricted stock awards in each subsequent reporting period until the grant date has occurred, which is the date when the performance conditions are satisfied. We recognize compensation cost over the vesting period based on the probability of the service and performance conditions being achieved adjusted for each subsequent fair value measurement until the grant date. If the specified service and performance conditions are not met, compensation expense will not be recognized, any previously recognized compensation expense will be reversed, and any unearned shares will be returned to the Company. Restricted stock awards activity is summarized in the following table:

Restricted Stock Awards Activity	Number of Awards			Weighted- Average Grant Date Fair Value
Non-vested share units as of January 1, 2018	270,176			$	81.28
Granted	120,022			$	129.23
Vested	—			—
Canceled	—			—
Non-vested share units as of December 31, 2018	390,198			$	96.03

The weighted-average estimated fair value of restricted stock awards granted during the years ended December 31, 2017 and 2016 was $95.04 and $66.93, respectively. As of December 31, 2018, we had $1.6 million of total unrecognized compensation expense, net of estimated forfeitures, related to restricted stock award grants, which will be recognized over the weighted-average period of 1.08 years.

Note 13. Earnings Per Share

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

	Year Ended December 31,
	2018				2017				2016
Net Income attributable to Royal Caribbean Cruises Ltd. for basic and diluted earnings per share	$	1,811,042			$	1,625,133			$	1,283,388
Weighted-average common shares outstanding	210,570				214,617				215,393
Dilutive effect of stock-based awards	984				1,077				923
Diluted weighted-average shares outstanding	211,554				215,694				216,316
Basic earnings per share	$	8.60			$	7.57			$	5.96
Diluted earnings per share	$	8.56			$	7.53			$	5.93

There were no antidilutive shares for the years ended December 31, 2018, 2017 and 2016.

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14. Retirement Plan

We maintain a defined contribution plan covering shoreside employees. Effective January 1, 2016, we commenced annual, non-elective contributions to the plan on behalf of all eligible participants equal to 3% of participants' eligible earnings. Remaining annual contributions to the plan are discretionary and are based on fixed percentages of participants' salaries and years of service, not to exceed certain maximums. Contribution expenses were $18.9 million, $17.4 million and $16.7 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Note 15. Income Taxes

We are subject to corporate income taxes in countries where we have operations or subsidiaries. We and the majority of our ship-operating and vessel-owning subsidiaries are currently exempt from U.S. corporate tax on U.S. source income from the international operation of ships pursuant to Section 883 of the Internal Revenue Code. Regulations under Section 883 have limited the activities that are considered the international operation of a ship or incidental thereto. Accordingly, our provision for U.S. federal and state income taxes includes taxes on certain activities not considered incidental to the international operation of our ships.

Additionally, one of our ship-operating subsidiaries is subject to tax under the tonnage tax regime of the United Kingdom. Under this regime, income from qualifying activities is subject to corporate income tax, but the tax is computed by reference to the tonnage of the ship or ships registered under the relevant provisions of the tax regimes (the "relevant shipping profits"), which replaces the regular taxable income base. Income from activities not considered qualifying activities, which we do not consider significant, remains subject to United-Kingdom corporate income tax.

Income tax expense for items not qualifying under Section 883, tonnage tax and income taxes for the remainder of our subsidiaries was approximately $20.9 million, $18.3 million and $20.1 million for the years ended December 31, 2018, 2017 and 2016, respectively, and was recorded within Other income (expense). In addition, all interest expense and penalties related to income tax liabilities are classified as income tax expense within Other income (expense).

For a majority of our subsidiaries, we do not expect to incur income taxes on future distributions of undistributed earnings. Accordingly, no deferred income taxes have been provided for the distribution of these earnings. Where we do expect to incur income taxes on future distributions of undistributed earnings, we have provided for deferred taxes, which we do not consider significant to our operations.

As of December 31, 2018, the Company had deferred tax assets, including net operating losses (“NOLs”) in foreign jurisdictions of $24.8 million. If not utilized, $14.0 million of the NOLs are subject to expiration between 2019 and 2025. The Company has recognized $0.4 million of benefit related to these NOLs, as the remaining NOLs have full valuation allowances.

Net deferred tax assets and deferred tax liabilities and corresponding valuation allowances related to our operations were not material as of December 31, 2018 and 2017.

We regularly review deferred tax assets for recoverability based on our history of earnings, expectations of future earnings, and tax planning strategies. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income to support the amount of deferred taxes. A valuation allowance is recorded in those circumstances in which we conclude it is not more-likely-than-not we will recover the deferred tax assets prior to their expiration.

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 16. Changes in Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive loss by component for the years ended December 31, 2018 and 2017 (in thousands):

		Changes related to cash flow derivative hedges				Changes in defined benefit plans				Foreign currency translation adjustments				Accumulated other comprehensive (loss) income
Accumulated comprehensive loss at January 1, 2016		$	(1,232,073	)		$	(26,447	)		$	(69,913	)		$	(1,328,433	)
Other comprehensive income (loss) before reclassifications		73,973				(2,777		)		2,362				73,558
Amounts reclassified from accumulated other comprehensive loss		337,250				1,141				—				338,391
Net current-period other comprehensive income (loss)		411,223				(1,636		)		2,362				411,949
Accumulated comprehensive loss at January 1, 2017		(820,850		)		(28,083		)		(67,551		)		(916,484		)
Other comprehensive income (loss) before reclassifications		381,865				(6,755		)		17,307				392,417
Amounts reclassified from accumulated other comprehensive loss		188,630				1,172				—				189,802
Net current-period other comprehensive income (loss)		570,495				(5,583		)		17,307				582,219
Accumulated comprehensive loss at January 1, 2018		(250,355		)		(33,666		)		(50,244		)		(334,265		)
Other comprehensive (loss) income before reclassifications		(297,994		)		6,156				(14,251		)		(306,089		)
Amounts reclassified from accumulated other comprehensive loss		11,133				1,487				—				12,620
Net current-period other comprehensive (loss) income		(286,861		)		7,643				(14,251		)		(293,469		)
Accumulated comprehensive loss at December 31, 2018		$	(537,216	)		$	(26,023	)		$	(64,495	)		$	(627,734	)

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents reclassifications out of accumulated other comprehensive loss for the years ended December 31, 2018, 2017 and 2016 (in thousands):

		Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
Details about Accumulated Other Comprehensive Loss Components		Year Ended December 31, 2018				Year Ended December 31, 2017				Year Ended December 31, 2016				Affected Line Item in Statements of Comprehensive Income (Loss)
Gain (loss) on cash flow derivative hedges:
Interest rate swaps		(10,931		)		(31,603		)		(41,480		)		Interest expense, net of interest capitalized
Foreign currency forward contracts		(12,843		)		(10,840		)		(8,114		)		Depreciation and amortization expenses
Foreign currency forward contracts		12,855				(9,472		)		(14,342		)		Other income (expense)
Foreign currency forward contracts		—				—				(207		)		Other indirect operating expenses
Foreign currency collar options		—				(2,408		)		(2,408		)		Depreciation and amortization expenses
Fuel swaps		(1,580		)		7,382				13,685				Other income (expense)
Fuel swaps		1,366				(141,689		)		(284,384		)		Fuel
		(11,133		)		(188,630		)		(337,250		)
Amortization of defined benefit plans:
Actuarial loss		(1,487		)		(1,172		)		(1,141		)		Payroll and related
		(1,487		)		(1,172		)		(1,141		)
Total reclassifications for the period		$	(12,620	)		$	(189,802	)		$	(338,391	)

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 17. 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 December 31, 2018																				Fair Value Measurements at December 31, 2017
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)	$	287,852			$	287,852			$	287,852			—				—				$	120,112			$	120,112			$	120,112			—				—
Total Assets	$	287,852			$	287,852			$	287,852			$	—			$	—			$	120,112			$	120,112			$	120,112			$	—			$	—
Liabilities:
Long-term debt (including current portion of long-term debt)(5)	$	9,871,267			$	10,244,214			—				$	10,244,214			—				$	7,506,312			$	8,038,092			—				$	8,038,092			—
Total Liabilities	$	9,871,267			$	10,244,214			$	—			$	10,244,214			$	—			$	7,506,312			$	8,038,092			$	—			$	8,038,092			$	—

---

(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 December 31, 2018 and 2017.

(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.

Fair Value Measurements on a Nonrecurring Basis

During 2018, we announced that Skysea Holding would cease cruising operations by the end of 2018. As a result, we did not deem our investment balance to be recoverable and estimated the fair value of our investment to be zero. For further information on our Skysea Holding investment and impairment, refer to Note 8. Other Assets.

Other Financial Instruments

The carrying amounts of accounts receivable, accounts payable, accrued interest, accrued expenses and commercial paper approximate fair value as of December 31, 2018 and 2017.

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 December 31, 2018																Fair Value Measurements at December 31, 2017
Description	Total Fair Value				Level 1(1)				Level 2(2)				Level 3(3)				Total Fair Value				Level 1(1)				Level 2(2)				Level 3(3)
Assets:
Derivative financial instruments(4)	$	65,297			$	—			$	65,297			$	—			$	320,385			$	—			$	320,385			$	—
Investments(5)	—				—				—				—				3,340				3,340				—				—
Total Assets	$	65,297			$	—			$	65,297			$	—			$	323,725			$	3,340			$	320,385			$	—
Liabilities:
Derivative financial instruments(6)	$	201,812			$	—			$	201,812			$	—			$	115,961			$	—			$	115,961			$	—
Contingent consideration(7)	44,000				—				—				44,000				—				—				—				—
Total Liabilities	$	245,812			$	—			$	201,812			$	44,000			$	115,961			$	—			$	115,961			$	—

---

(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. The Company did not use any Level 3 inputs as of December 31, 2017.

(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 exchange-traded equity securities and mutual funds reported within Other assets in our consolidated balance sheets.

(6)	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.

(7)

The contingent consideration related to the Silversea Cruises acquisition was 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.

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 December 31, 2018 or 2017, 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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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 December 31, 2018																As of December 31, 2017
		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		$	65,297			$	(60,303	)		$	—			$	4,994			$	320,385			$	(104,751	)		$	—			$	215,634
Total		$	65,297			$	(60,303	)		$	—			$	4,994			$	320,385			$	(104,751	)		$	—			$	215,634

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 December 31, 2018																As of December 31, 2017
		Gross Amount of Derivative Liabilities 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		$	(201,812	)		$	60,303			$	—			$	(141,509	)		$	(115,961	)		$	104,751			$	—			$	(11,210	)
Total		$	(201,812	)		$	60,303			$	—			$	(141,509	)		$	(115,961	)		$	104,751			$	—			$	(11,210	)

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.

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

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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. We use the long-haul method to assess hedge effectiveness using regression analysis for each hedge relationship under our interest rate, foreign currency and fuel hedging programs. We apply the same methodology on a consistent basis for assessing hedge effectiveness to all hedges within each hedging program (i.e., interest rate, foreign currency and fuel). We perform regression analyses over 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 December 31, 2018 and 2017, approximately 59.1% and 57.4%, respectively, of our long-term 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 December 31, 2018 and 2017, we maintained interest rate swap agreements on the following fixed-rate debt instruments:

Debt Instrument	Swap Notional as of December 31, 2018 (In thousands)			Maturity	Debt Fixed Rate	Swap Floating Rate: LIBOR plus	All-in Swap Floating Rate as of December 31, 2018
Oasis of the Seas term loan	$	105,000		October 2021	5.41%	3.87%	6.63%
Unsecured senior notes	650,000			November 2022	5.25%	3.63%	6.25%
	$	755,000

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

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 December 31, 2018 and 2017, we maintained interest rate swap agreements on the following floating-rate debt instruments:

Debt Instrument	Swap Notional as of December 31, 2018 (In thousands)			Maturity	Debt Floating Rate		All-in Swap Fixed Rate
Celebrity Reflection term loan	$	327,250		October 2024	LIBOR plus	0.40%	2.85%
Quantum of the Seas term loan	490,000			October 2026	LIBOR plus	1.30%	3.74%
Anthem of the Seas term loan	513,542			April 2027	LIBOR plus	1.30%	3.86%
Ovation of the Seas term loan	657,083			April 2028	LIBOR plus	1.00%	3.16%
Harmony of the Seas term loan (1)	627,660			May 2028	EURIBOR plus	1.15%	2.26%
	$	2,615,535

---

(1)	Interest rate swap agreements hedging the Euro-denominated term loan for Harmony of the Seas include a EURIBOR zero-floor matching the hedged debt EURIBOR zero-floor. Amount presented is based on the exchange rate as of December 31, 2018.

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

The notional amount of interest rate swap agreements related to outstanding debt as of December 31, 2018 and 2017 was $3.4 billion and $3.8 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 December 31, 2018, the aggregate cost of our ships on order, not including any ships on order by our Partner Brands and the Silversea Cruises ships that remain contingent upon final documentation and financing, was approximately $11.4 billion, of which we had deposited $651.7 million as of such date. At December 31, 2018 and 2017, approximately 53.5% and 54.0%, 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 year ended December 31, 2018, we maintained an average of approximately $741.5 million of these foreign currency forward contracts. These instruments are not designated as hedging instruments. For the years ended December 31, 2018, 2017 and 2016, changes in the fair value of the foreign currency forward contracts resulted in (losses) gains of approximately $(62.4) million, $62.0 million and $(51.1) million, respectively, which offset gains (losses) arising from the remeasurement of monetary assets and liabilities denominated in foreign currencies in those same years of $57.6 million, $(75.6) million and $39.8 million, respectively. These amounts were recognized in earnings within Other income (expense) in our consolidated statements of comprehensive income (loss).

We consider our investments in our foreign operations to be denominated in relatively stable currencies and of a long-term nature. As of December 31, 2018, we maintained foreign currency forward contracts and designated them as hedges of a portion of our net investments primarily in TUI cruises of €101.0 million, or approximately $115.5 million based on the exchange rate at December 31, 2018. These forward currency contracts mature in October 2021.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The notional amount of outstanding foreign exchange contracts, excluding the forward contracts entered into to minimize remeasurement volatility, as of December 31, 2018 and 2017 was $3.7 billion and $4.6 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 primarily in TUI Cruises of approximately €280.0 million, or approximately $320.2 million, through December 31, 2018. As of December 31, 2017, we had designated debt as a hedge of our net investments primarily in TUI Cruises of approximately €246.0 million, or approximately $295.3 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 accounted for as cash flow hedges. At December 31, 2018, we have hedged the variability in future cash flows for certain forecasted fuel transactions occurring through 2022. As of December 31, 2018 and 2017, we had the following outstanding fuel swap agreements:

	Fuel Swap Agreements
	As of December 31, 2018			As of December 31, 2017
	(metric tons)
2018	—			673,700
2019	856,800			668,500
2020	830,500			531,200
2021	488,900			224,900
2022	322,900			—

	Fuel Swap Agreements
	As of December 31, 2018			As of December 31, 2017
	(% hedged)
Projected fuel purchases for year:
2018	—			50	%
2019	58	%		46	%
2020	54	%		36	%
2021	28	%		14	%
2022	19	%		—

At December 31, 2018 and 2017, $26.8 million and $23.7 million, respectively, of estimated unrealized net loss associated with our cash flow hedges pertaining to fuel swap agreements were 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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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 December 31, 2018				As of December 31, 2017				Balance Sheet Location		As of December 31, 2018				As of December 31, 2017
		Fair Value				Fair Value					Fair Value				Fair Value
Derivatives designated as hedging instruments under ASC 815-20(1)
Interest rate swaps	Other assets		$	23,518			$	7,330			Other long-term liabilities		$	40,467			$	46,509
Foreign currency forward contracts	Derivative financial instruments		4,044				68,352				Derivative financial instruments		39,665				—
Foreign currency forward contracts	Other assets		10,844				158,879				Other long-term liabilities		16,854				6,625
Fuel swaps	Derivative financial instruments		10,966				13,137				Derivative financial instruments		37,627				38,488
Fuel swaps	Other assets		9,204				51,265				Other long-term liabilities		65,182				13,411
Total derivatives designated as hedging instruments under ASC 815-20			58,576				298,963						199,795				105,033
Derivatives not designated as hedging instruments under ASC 815-20
Foreign currency forward contracts	Derivative financial Instruments		1,751				9,945				Derivative financial instruments		808				2,933
Foreign currency forward contracts	Other assets		1,579				2,793				Other long-term liabilities		833				1,139
Fuel swaps	Derivative financial instruments		2,804				7,886				Derivative financial instruments		376				6,043
Fuel swaps	Other assets		587				798				Other long-term liabilities		—				813
Total derivatives not designated as hedging instruments under ASC 815-20			6,721				21,422						2,017				10,928
Total derivatives			$	65,297			$	320,385					$	201,812			$	115,961

---

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

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

				Year Ended December 31, 2018																Year Ended December 31, 2017
				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				$710,617				$1,033,697				$(300,872)				$	11,107			$681,118				$951,194				$(269,881)				$	(5,289	)
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				n/a				$	4,673			—				n/a				n/a				—				$	6,065
			Derivatives designated as hedging instruments	n/a				n/a				$	(8,854	)		—				n/a				n/a				$	3,007			$	(3,139	)
	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				n/a				$	(10,931	)		n/a				n/a				n/a				$	(31,603	)		n/a
		Commodity contracts
			Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income	$	1,366			n/a				n/a				$	(1,580	)		$	(141,689	)		n/a				n/a				$	7,382
		Foreign exchange contracts
			Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income	n/a				$	(12,843	)		n/a				$	12,855			n/a				$	(13,248	)		n/a				$	(9,472	)

				Year Ended December 31, 2016
				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				$	713,676			$	894,915			$	(286,514	)		$	(35,653	)
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				n/a				$	7,203			$	5,072
			Derivatives designated as hedging instruments	n/a				n/a				$	7,488			$	(3,625	)
	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				n/a				$	(41,480	)		n/a
		Commodity contracts
			Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income	$	(284,384	)		n/a				n/a				$	13,685
		Foreign exchange contracts
			Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income	n/a				$	(10,522	)		n/a				$	(14,342	)

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 December 31, 2018				As of December 31, 2017
Foreign currency debt		Current portion of long-term debt		$	38,168			$	70,097
Foreign currency debt		Long-term debt		281,984				225,226
				$	320,152			$	295,323

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):

		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
Derivatives and related Hedged Items under ASC 815-20 Fair Value Hedging Relationships		Year Ended December 31, 2018				Year Ended December 31, 2017				Year Ended December 31, 2016				Year Ended December 31, 2018				Year Ended December 31, 2017				Year Ended December 31, 2016
Interest rate swaps		Interest expense, net of interest capitalized		$	(8,854	)		$	3,007			$	7,488			$	4,673			$	—			$	7,203
Interest rate swaps		Other income (expense)		—				(3,139		)		(3,625		)		—				6,065				5,072
				$	(8,854	)		$	(132	)		$	3,863			$	4,673			$	6,065			$	12,275

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 December 31, 2018				As of December 31, 2017				As of December 31, 2018				As of December 31, 2017
Current portion of long-term debt and Long-term debt		$	725,486			$	749,155			$	(24,766	)		$	(34,813	)
		$	725,486			$	749,155			$	(24,766	)		$	(34,813	)

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

		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 into Income
Derivatives under ASC 815-20 Cash Flow Hedging Relationships		Year Ended December 31, 2018				Year Ended December 31, 2017				Year Ended December 31, 2016					Year Ended December 31, 2018				Year Ended December 31, 2017				Year Ended December 31, 2016
Interest rate swaps		$	18,578			$	(13,312	)		$	(31,049	)		Interest expense		$	(10,931	)		$	(31,603	)		$	(41,480	)
Foreign currency forward contracts		(222,645		)		276,573				(51,092		)		Depreciation and amortization expenses		(12,843		)		(10,840		)		(8,114		)
Foreign currency forward contracts		—				—				—				Other income (expense)		12,855				(9,472		)		(14,342		)
Foreign currency forward contracts		—				—				—				Other indirect operating expenses		—				—				(207		)
Foreign currency collar options		—				—				—				Depreciation and amortization expenses		—				(2,408		)		(2,408		)
Fuel swaps		—				—				—				Other income (expense)		(1,580		)		7,382				13,685
Fuel swaps		(93,927		)		118,604				156,139				Fuel		1,366				(141,689		)		(284,384		)
		$	(297,994	)		$	381,865			$	73,998					$	(11,133	)		$	(188,630	)		$	(337,250	)

F-45

ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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)		Year Ended December 31, 2018
Net inception fair value at January 1, 2018		$	(11,335	)
Amount of gain recognized in income on derivatives for the year ended December 31, 2018		2,976
Amount of loss remaining to be amortized in accumulated other comprehensive loss as of December 31, 2018		(1,339		)
Fair value at December 31, 2018		(9,698		)

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		Year Ended December 31, 2018				Year Ended December 31, 2017				Year Ended December 31, 2016
Foreign Currency Debt		$	13,210			$	(38,971	)		$	20,295
		$	13,210			$	(38,971	)		$	20,295

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 Derivative
Derivatives Not Designated as Hedging Instruments under ASC 815-20		Location of Gain (Loss) Recognized in Income on Derivative		Year Ended December 31, 2018				Year Ended December 31, 2017				Year Ended December 31, 2016
Foreign currency forward contracts		Other income (expense)		$	(62,423	)		$	61,952			$	(51,029	)
Fuel swaps		Fuel		1,161				—				—
Fuel swaps		Other income (expense)		114				(1,133		)		(1,000		)
				$	(61,148	)		$	60,819			$	(52,029	)

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 December 31, 2018, 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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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 18. Commitments and Contingencies

Ship Purchase Obligations

Our future capital commitments consist primarily of new ship orders. As of December 31, 2018, we had two Quantum-class ships, one Oasis-class ship and two ships of a new generation of ships, known as our Icon-class, on order for our Royal Caribbean International brand with an aggregate capacity of approximately 25,300 berths. As of December 31, 2018, we have three Edge-class ships and a ship designed for the Galapagos Islands on order for our Celebrity brand with an aggregate capacity of approximately 9,400 berths. Additionally as December 31, 2018, we have three ships on order with an aggregate capacity of approximately 1,200 berths for our Silversea Cruises brand. The following provides further information on recent developments with respect to our ship orders.

During 2017, we entered into credit agreements for the unsecured financing of the two Icon-class ships for up to 80% of each ship’s contract price. For each ship, the official Finnish export credit agency, Finnvera, plc, has agreed to guarantee 100% of a substantial majority of the financing to the lenders, with a smaller portion of the financing to be 95% guaranteed by Euler Hermes, the official German export credit agency. The maximum loan amount under each facility is not to exceed €1.4 billion, or approximately $1.6 billion, based on the exchange rate at December 31, 2018. Interest on approximately 75% of each loan will accrue at a fixed rate of 3.56% and 3.76% for the first and the second Icon-class ships, respectively, and the balance will accrue interest at a floating rate ranging from LIBOR plus 1.10% to 1.15% and LIBOR plus 1.15% to 1.20% for the first and the second Icon-class ships, respectively. Each loan will amortize semi-annually and will mature 12 years following delivery of each ship. The first and second Icon-class ships will each have a capacity of approximately 5,650 berths and are expected to enter service in the second quarters of 2022 and 2024, respectively.

During 2017, we entered into credit agreements for the unsecured financing of the third and fourth Edge-class ships and the fifth Oasis-class ship for up to 80% of each ship’s contract price through facilities to be guaranteed 100% by Bpifrance Assurance Export, the official export credit agency of France. Under these financing arrangements, we have the right, but not the obligation, to satisfy the obligations to be incurred upon delivery and acceptance of each ship under the shipbuilding contract by assuming, at delivery and acceptance, the debt indirectly incurred by the shipbuilder during the construction of each ship. The maximum loan amount under each facility is not to exceed €684.2 million in the case of the third Edge-class ship and the United States dollar equivalent of €714.6 million and €1.1 billion in the case of the fourth Edge-class ship and fifth Oasis-class ship, or approximately $817.1 million and $1.3 billion, respectively, based on the exchange rate at December 31, 2018. The loans will amortize semi-annually and will mature 12 years following delivery of each ship. Interest on the loans will accrue at a fixed rate of 1.28% for the third Edge-class ship and at a fixed rate of 3.18% for both, the fourth Edge-class ship and the fifth Oasis-class ship. The third and fourth Edge-class ships, each of which will have a capacity of approximately 3,200, are expected to enter service in the fourth quarters of 2021 and 2022, respectively. The fifth Oasis-class ship will have a capacity of approximately 5,500 berths and is expected to enter service in the second quarter of 2021.

During 2016, we entered into credit agreements for the unsecured financing of our first two Edge-class ships for up to 80% of each ship’s contract price through facilities to be guaranteed 100% by COFACE, the official export credit agency of France. Celebrity Edge, the first Edge-class ship for our Celebrity Cruises brand, entered service in December 2018. For further information on the financing agreement for this ship, refer to Note 9. Debt. The second Edge-class ship will have a capacity of approximately 2,900 berths and is expected to enter service in the first quarter of 2020. Under the financing arrangement for the second Edge-class ship, we have the right, but not the obligation, to satisfy the obligations to be incurred upon delivery and acceptance of the vessel under the shipbuilding contract by assuming, at delivery and acceptance, the debt indirectly incurred by the shipbuilder during the construction of each ship. The maximum loan amount under the facility for the second Edge-class ship delivery is not to exceed the United States dollar equivalent of €627.1 million, or approximately $717.0 million, respectively, based on the exchange rate at December 31, 2018. The loan will amortize semi-annually and will mature 12 years following delivery of the ship. Interest on the loan will accrue at a fixed rate of 3.23%.

During 2015, we entered into credit agreements for the unsecured financing of the fourth and fifth Quantum-class ships for up to 80% of each of the ship’s contract price. Hermes has agreed to guarantee to the lenders payment of 95%

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

of the financing. The ships will each have a capacity of approximately 4,250 berths and are expected to enter service in the second quarter of 2019 and the fourth quarter of 2020, respectively. These credit agreements make available to us unsecured term loans in an amount up to the United States dollar equivalent of €762.9 million and €777.5 million, or approximately $872.3 million and $889.0 million, respectively, based on the exchange rate at December 31, 2018. The loan will amortize semi-annually and will mature 12 years following delivery of each ship. At our election, prior to delivery of each ship, interest on the loans will accrue either (1) at a fixed rate of 3.45% (inclusive of the applicable margin) or (2) at a floating rate equal to LIBOR plus 0.95%.

In September 2018, Silversea Cruises signed a memorandum of understanding with Meyer Werft to build two ships of a new generation of ships. The ships are expected to have an aggregate capacity of approximately 1,200 berths and are expected to enter service in 2022 and 2023, respectively. The memorandum of understanding with Meyer Werft is contingent upon the completion of final documentation and financing, which are expected to be completed in the first quarter of 2019.

In February 2019, we entered into an agreement with Chantiers de l’Atlantique to build the sixth Oasis-class ship for Royal Caribbean International. The ship is expected to have an aggregate capacity of approximately 5,700 berths and is expected to enter service in the fourth quarter of 2023. The order with Chantiers de l’Atlantique is contingent upon completion of conditions precedent and financing, which is expected to be completed in 2019.

As of December 31, 2018, the aggregate cost of our ships on order, not including any ships on order by our Partner Brands and the Silversea Cruises ships that remain contingent upon final documentation and financing, was approximately $11.4 billion, of which we had deposited $651.7 million as of such date. Approximately 53.5% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at December 31, 2018. Refer to Note 17. Fair Value Measurements and Derivative Instruments for further information.

Litigation

On September 24, 2018, a proposed class-action lawsuit was filed by Roger and Maureen Carretta against Royal Caribbean Cruises Ltd. d/b/a Royal Caribbean International in the United States District Court for the Southern District of Florida relating to the marketing and sales of our Travel Protection Program. The plaintiffs purported to represent an alleged class of passengers who purchased the Travel Protection Program. The complaint alleged that the Company concealed that it received "kickbacks," in the form of undisclosed commissions on the sale of the travel insurance portion of the product from an underwriter, and allegedly improperly bundled Travel Insurance Policies with non-insurance products. The complaint sought damages in an indeterminate amount. On November 26, 2018, the Court dismissed the entire action with prejudice on the grounds that, among others, the claim was filed beyond the time limitations contained in the passenger ticket contract. Plaintiffs did not appeal the decision and the time period for filing an appeal has lapsed.

We are routinely involved in other claims typical within the cruise vacation industry. The majority of these claims are covered by insurance. We believe the outcome of such claims, net of expected insurance recoveries, will not have a material adverse impact on our financial condition or results of operations and cash flows.

Operating Leases

We are obligated under other noncancelable operating leases primarily for offices, warehouses and motor vehicles. As of December 31, 2018, future minimum lease payments under noncancelable operating leases were as follows (in thousands):

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Total expense for all operating leases amounted to $32.2 million, $29.3 million and $29.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.

In July 2016, we executed an agreement with Miami Dade County (“MDC”), which was simultaneously assigned to Sumitomo Banking Corporation (“SMBC”), to lease land from MDC and construct a new cruise terminal of approximately 170,000 square feet at PortMiami in Miami, Florida, which was completed during the fourth quarter of 2018 and serves as a homeport. During the construction period, SMBC funded the costs of the terminal’s construction and land lease. Once the terminal was substantially completed, we commenced operating and leasing the terminal from SMBC for a five-year term. We determined that the lease arrangement between SMBC and us should be accounted for as an operating lease and is included in the table above.

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 in any material amount is probable.

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.

At December 31, 2018, we have future commitments to pay for our usage of certain port facilities, marine consumables, services and maintenance contracts as follows (in thousands):

Year
2019	$	224,253
2020	184,308
2021	136,917
2022	79,401
2023	45,266
Thereafter	149,696
	$	819,841

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ROYAL CARIBBEAN CRUISES LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 19. Quarterly Selected Financial Data (Unaudited)

	(In thousands, except per share data)
	First Quarter								Second Quarter								Third Quarter								Fourth Quarter
	2018				2017				2018				2017				2018				2017				2018				2017
Total revenues(1)	$	2,027,756			$	2,008,560			$	2,337,605			$	2,195,274			$	2,796,187			$	2,569,544			$	2,332,301			$	2,004,467
Operating income	$	274,146			$	279,522			$	456,895			$	419,697			$	799,733			$	737,488			$	364,027			$	307,349
Net Income attributable to Royal Caribbean Cruises Ltd.	$	218,653			$	214,726			$	466,295			$	369,526			$	810,391			$	752,842			$	315,703			$	288,039
Earnings per share
Basic	$	1.03			$	1.00			$	2.20			$	1.72			$	3.88			$	3.51			$	1.51			$	1.35
Diluted	$	1.02			$	0.99			$	2.19			$	1.71			$	3.86			$	3.49			$	1.50			$	1.34
Dividends declared per share	$	0.60			$	0.480			$	0.60			$	0.480			$	0.70			$	0.60			$	0.70			$	0.60

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(1)	Our revenues are seasonal based on the demand for cruises. Demand is strongest for cruises during the Northern Hemisphere's summer months and holidays.

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