Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Concerning Forward-Looking Statements

The discussion under this caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this document, includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance (including our expectations for the first quarter and full year of 2020, our earnings and yield estimates for 2020 set forth under the heading "Outlook" below and our goals for our program), business and industry prospects or future results of operations or financial position, made in this Annual Report on Form 10-K are forward-looking. Words such as "anticipate," "believe," "could," "estimate," "expect," "goal," "intend," "may," "plan," "project," "seek," "should," "will," "driving" and similar expressions are intended to further identify any of these forward-looking statements. Forward-looking statements reflect management's current expectations but they are based on judgments and are inherently uncertain. Furthermore, they are subject to risks, uncertainties and other factors that could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements. Examples of these risks, uncertainties and other factors include, but are not limited to, those discussed in this Annual Report on Form 10-K and, in particular, the risks discussed under the caption "Risk Factors" in Part I, Item 1A herein.

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

Overview

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

a review of our critical accounting policies and of our financial presentation, including discussion of certain operational and financial metrics we utilize to assist us in managing our business;
a discussion of our results of operations for the year ended December 31, 2019 compared to the same period in 2018 and the year ended December 31, 2018 compared to the same period in 2017;
a discussion of our business outlook, including our expectations for selected financial items for the first quarter and full year of 2020; and
a discussion of our liquidity and capital resources, including our future capital and contractual commitments and potential funding sources.

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Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). (Refer to Note 1. General and Note 2. Summary of Significant Accounting Policies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data). Certain of our accounting policies are deemed "critical," as they require management's highest degree of judgment, estimates and assumptions. We have discussed these accounting policies and estimates with the audit committee of our board of directors. We believe our most critical accounting policies are as follows:

Ship Accounting

Ships represent our most significant assets and are stated at cost less accumulated depreciation and amortization. Depreciation of ships is generally computed net of a 10%-15% projected residual value, using the straight-line method over the estimated useful life of the asset, which is generally 30-35 years. The 30-35 year useful life and 10%-15% residual value is 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. We employ a cost allocation methodology at the component level, in order to support the estimated weighted-average useful lives and residual values, as well as to determine the net cost basis of assets being replaced. Given the very large and complex nature of our ships, our accounting estimates related to ships and determinations of ship improvement costs to be capitalized require considerable judgment and are inherently uncertain. We do not have cost segregation studies performed to specifically componentize our ship systems. However, we estimate the costs, useful lives and residual values of component systems based principally on general and technical information known about major ship component systems and their lives, as well as our knowledge of the cruise vacation industry. We do not identify and track depreciation by ship component systems, but instead utilize these estimates to determine the net cost basis of assets replaced or refurbished. Improvement costs that we believe add value to our ships are capitalized as additions to the ship and depreciated over the shorter of the improvements' estimated useful lives or that of the associated ship. The estimated cost and accumulated depreciation of replaced or refurbished ship components are written off and any resulting losses are recognized within Cruise operating expenses in our Consolidated Statements of Comprehensive Income (Loss).

We periodically review estimated useful lives and residual values for ongoing reasonableness, considering long term views on our intended use of each class of ships and the planned level of improvements to maintain and enhance vessels within those classes. In the event a factor is identified that may trigger a change in the estimated useful lives and residual values of our ships, a review of the estimate is completed. In the fourth quarter of 2019, we completed a modernization of the Oasis of the Seas under our ship upgrade program. The level of capital investment, as well as planned investment levels in the other ships within the Oasis class, triggered a review of the estimated useful lives and residual values of the Oasis-class ships. Following a review of the estimate, considering the intended use of the vessel and assessment of the estimated lives of component assets forming the Oasis class ships, we concluded a change to the estimated lives and residual values of Oasis class ships was required. Effective fourth quarter of 2019, we revised the estimated useful lives and residual values of the Oasis-class ships from 30 years with a 15% residual value to 35 years with a 10% residual value. The change in the estimated useful lives and residual values was accounted for prospectively as a change in accounting estimate. For further information regarding this change in accounting estimate, refer to Note 2. Summary of Significant Accounting Policies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data.

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

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tanks, port services such as tugs, pilotage and line handling, and freight associated with these items. We perform a detailed analysis of the various activities performed for each drydock and only defer those costs that are directly related to planned major maintenance activities necessary to maintain Class. The costs deferred are related to activities 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.

We use judgment when estimating the period between drydocks, which can result in adjustments to the estimated amortization of drydock costs. If the vessel is disposed of before the next drydock, the remaining balance in deferred drydock is written-off to the gain or loss upon disposal of vessel in the period in which the sale takes place. We also use judgment when identifying costs incurred during a drydock which are necessary to maintain the vessel's Class certification as compared to those costs attributable to repairs and maintenance which are expensed as incurred.

We believe we have made reasonable estimates for ship accounting purposes. However, should certain factors or circumstances cause us to revise our estimates of ship useful lives or projected residual values, depreciation expense could be materially higher or lower. If circumstances cause us to change our assumptions in making determinations as to whether ship improvements should be capitalized, the amounts we expense each year as repairs and maintenance costs could increase, partially offset by a decrease in depreciation expense. If we had reduced our estimated average ship useful life by one year, depreciation expense for 2019 would have increased by approximately $129.3 million. If our ships were estimated to have no residual value, depreciation expense for 2019 would have increased by approximately $325.1 million.

Business Combinations

On July 31, 2018, we acquired a 66.7% equity stake in Silversea Cruises for $1.02 billion in cash and contingent consideration. Refer to Note 3. Business Combination to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on the acquisition.

We account for business combinations in accordance with ASC 805, Business Combinations, by applying the acquisition method of accounting. The acquisition method of accounting requires that we record the assets acquired and liabilities assumed, and the noncontrolling interest, if any, at their respective fair values at the acquisition date. Goodwill is recognized as the excess of the purchase price over the fair value of the net assets acquired. Significant estimates and assumptions are made by management to value such assets and liabilities based on third party valuations such as appraisals or internal valuations based on discounted cash flow analyses or other valuation techniques. Although we believe that those estimates and assumptions are reasonable and appropriate, they are inherently uncertain and subject to change. If during the measurement period (not to exceed one year), additional information is obtained about facts and circumstances that existed as of the acquisition date related to the fair value of the assets acquired and liabilities assumed, we may adjust our estimates to account for subsequent adjustments to the provisional amounts recognized at the acquisition date, resulting in an offsetting adjustment to the goodwill associated with the business acquired.

Uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date. We continue to collect information and reevaluate these estimates and assumptions quarterly. We will record any adjustments to our preliminary estimates to goodwill, provided that we are within the one-year measurement period. Our purchase price measurement period for the Silversea Cruises acquisition was closed during 2019.

Any contingent consideration is estimated at fair value at the acquisition date. Liability-classified contingent consideration is remeasured each reporting period, with changes in fair value recognized in earnings until the contingent consideration is settled.

Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets

We review goodwill and indefinite-lived intangible assets for impairment at the reporting unit level annually or, when events or circumstances dictate, more frequently. The impairment review for goodwill consists of a qualitative assessment of whether it is more-likely-than-not that a reporting unit's fair value is less than its carrying amount, and if necessary, a two-step goodwill impairment test. Factors to consider when performing the qualitative assessment include general economic conditions, limitations on accessing capital, changes in forecasted operating results, changes in fuel prices and fluctuations in foreign exchange rates. If the qualitative assessment demonstrates

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that it is more-likely-than-not that the estimated fair value of the reporting unit exceeds its carrying value, it is not necessary to perform the two-step goodwill impairment test. We may elect to bypass the qualitative assessment and proceed directly to step one, for any reporting unit, in any period. On a periodic basis, we elect to bypass the qualitative assessment and proceed to step one to corroborate the results of recent years' qualitative assessments. We can resume the qualitative assessment for any reporting unit in any subsequent period.

When performing the two-step goodwill impairment test, the fair value of the reporting unit is determined and compared to the carrying value of the net assets allocated to the reporting unit. We estimate the fair value of our reporting units using a probability-weighted discounted cash flow model. The estimation of fair value utilizing discounted expected future cash flows includes numerous uncertainties which require our significant judgment when making assumptions of expected revenues, operating costs, marketing, selling and administrative expenses, interest rates, ship additions and retirements as well as assumptions regarding the cruise vacation industry's competitive environment and general economic and business conditions, among other factors. The principal assumptions we use in the discounted cash flow model are projected operating results, weighted-average cost of capital, and terminal value. The discounted cash flow model uses the most current projected operating results for the upcoming fiscal year as a base. To that base, we add future years' cash flows assuming multiple revenue and expense scenarios that reflect the impact of different global economic environments beyond the base year on the reporting unit. We discount the projected cash flows using rates specific to the reporting unit based on its weighted-average cost of capital. If the fair value of the reporting unit exceeds its carrying value, no further analysis or write-down of goodwill is required. If the fair value of the reporting unit is less than the carrying value of its net assets, the implied fair value of the reporting unit is allocated to all its underlying assets and liabilities, including both recognized and unrecognized tangible and intangible assets, based on their fair value. If necessary, goodwill is then written down to its implied fair value.

The impairment review for indefinite-life intangible assets can be performed using a qualitative or quantitative impairment assessment. The quantitative assessment consists of a comparison of the fair value of the asset with its carrying amount. We estimate the fair value of these assets using a discounted cash flow model and various valuation methods depending on the nature of the intangible asset, such as the relief-from-royalty method for trademarks and trade names. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If the fair value exceeds its carrying amount, the indefinite-life intangible asset is not considered impaired. Other intangible assets assigned finite useful lives are amortized on a straight-line basis over their estimated useful lives. Refer to Note 6. Intangible Assets to our consolidated financial statements under Item 8. Financial Statements and Supplemental Data for further information on indefinite-life intangible assets.

We review our ships and other long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated undiscounted future cash flows, that the carrying amount of these assets may not be fully recoverable. We evaluate asset impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the ship level for our ships and, prior to the sale of the aircraft, at the aggregated asset group level for our aircraft. 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 estimate fair value based on quoted market prices in active markets, if available. If active markets are not available, we base fair value on independent appraisals, sales price negotiations and projected future cash flows discounted at a rate estimated by management to be commensurate with the business risk. Quoted market prices are often not available for individual reporting units and for indefinite-life intangible assets. Accordingly, we estimate the fair value of a reporting unit and an indefinite-life intangible asset using an expected present value technique.

Royal Caribbean International

During the fourth quarter of 2019, we performed a qualitative assessment of the Royal Caribbean International reporting unit. Based on our qualitative assessment, we concluded that it was more-likely-than-not that the estimated fair value of the Royal Caribbean International reporting unit exceeded its carrying value and thus, we did not proceed to the two-step goodwill impairment test. No indicators of impairment exist primarily because the reporting unit's fair value has consistently exceeded its carrying value by a significant margin and forecasts of operating results expected to be generated by the reporting unit appear sufficient to support its carrying value. As of

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

Silversea Cruises

The goodwill for the Silversea Cruises reporting unit was recorded at fair value at July 31, 2018, the acquisition date. Refer to Note 3. Business Combination to our consolidated financial statements under Item 8. Financial Statements and Supplemental Data for further information on the Silversea Cruises acquisition. During the fourth quarter of 2019, we performed a qualitative assessment of the Silversea Cruises reporting unit. Based on our qualitative assessment, we concluded that it was more-likely-than-not that the estimated fair value of the Silversea Cruises reporting unit exceeded its carrying value and thus, we did not proceed to the two-step goodwill impairment test. No indicators of impairment exist primarily because forecasts of operating results expected to be generated by the reporting unit appear sufficient to support its carrying value. As of December 31, 2019, the carrying amount of goodwill attributable to our Silversea Cruises reporting unit was $1.1 billion.

The indefinite-life intangible asset related to the Silversea Cruises trade name acquired in the Silversea Cruises acquisition was recorded at fair value at July 31, 2018, the acquisition date. During the fourth quarter of 2019, we performed a qualitative assessment of the Silversea Cruises trade name. As a result of the assessment performed no impairment charge was recorded related to trade name intangible assets for the year ended December 31, 2019. As of December 31, 2019 and 2018, the carrying amount of indefinite-life intangible assets was $352.3 million and $351.7 million, respectively, which primarily relates to the Silversea Cruises trade name acquired in the Silversea Cruises acquisition.

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, we do not hold or issue derivative financial instruments for trading or other speculative purposes. We account for derivative financial instruments in accordance with authoritative guidance. Refer to Note 2. Summary of Significant Accounting Policies and Note 18. Fair Value Measurements and Derivative Instruments to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for more information on related authoritative guidance, the Company's hedging programs and derivative financial instruments.

On a regular basis, we enter into foreign currency forward contracts, interest rate and fuel swaps and options with third-party institutions in over-the-counter markets. We estimate the fair value of our foreign currency forward contracts and interest rate swaps using expected future cash flows based on the instruments' contract terms and published forward prices for foreign currency exchange and interest rates. We value floors which are embedded within our interest rate swaps using standard option pricing models with inputs based on the options’ contract terms, such as exercise price and maturity, and readily available market data, such as forward interest rates and interest rate volatility. We apply present value techniques and LIBOR or EURIBOR-based discount rates to convert the expected future cash flows to the current fair value of the instruments.

We estimate the fair value of our fuel swaps using expected future cash flows based on the swaps' contract terms and forward prices. We derive forward prices from published forward fuel curves which in turn are based on actual market transactions and published price quotes for similar assets. We apply present value techniques and LIBOR-based discount rates to convert the expected future cash flows to the current fair value of the instruments. We also corroborate our fair value estimates using valuations provided by our counterparties.

We adjust the valuation of our derivative financial instruments to incorporate credit risk.

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

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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.

Seasonality

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

Financial Presentation

Description of Certain Line Items

Revenues

Our revenues are comprised of the following:

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

Cruise Operating Expenses

Our cruise operating expenses are comprised of the following:

Commissions, transportation and other expenses, which consist of those costs directly associated with passenger ticket revenues, including travel agent commissions, air and other transportation expenses, port costs that vary with passenger head counts and related credit card fees;
Onboard and other expenses, which consist of the direct costs associated with onboard and other revenues, including the costs of products sold onboard our ships, vacation protection insurance premiums, costs associated with pre- and post-cruise tours and related credit card fees as well as the minimal costs associated with concession revenues, as the costs are mostly incurred by third-party concessionaires and costs incurred for the procurement and management related services we perform on behalf of our unconsolidated affiliates;
Payroll and related expenses, which consist of costs for shipboard personnel (costs associated with our shoreside personnel are included in Marketing, selling and administrative expenses);
Food expenses, which include food costs for both guests and crew;
Fuel expenses, which include fuel and related delivery, storage and emission consumable costs and the financial impact of fuel swap agreements; and

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

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

Selected Operational and Financial Metrics

We utilize a variety of operational and financial metrics which are defined below to evaluate our performance and financial condition. As discussed in more detail herein, certain of these metrics are non-GAAP financial measures. These non-GAAP financial measures are provided along with the related GAAP financial measures as we believe they provide useful information to investors as a supplement to our consolidated financial statements, which are prepared and presented in accordance with GAAP. The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Program refers to the multi-year program designed to communicate and motivate employees to work towards company specific goals. The program includes five goals by 2025: delivering $20.00 adjusted earnings per share; further reducing the company’s carbon footprint by 25% against a 2019 base; delivering strong returns on invested capital; and continuing to improve on record guest satisfaction and employee engagement metrics. These goals have been put in place to focus our leadership on achieving outsized improvements in our performance going forward and are purposely aspirational. The strategies that we will employ to achieve the goals of the program are consistent with our ongoing operating strategies as listed in the Operating Strategies section. During the six-year time horizon of this program, there are many factors that will impact our ability to achieve these ambitious goals. In particular, our goal of reducing our carbon footprint by 25% will be challenging and will depend on our ability to take aggressive steps including the use of new technologies that have not yet been developed or proven.

Adjusted Earnings per Share ("Adjusted EPS") represents Adjusted Net Income attributable to Royal Caribbean Cruises Ltd. divided by weighted average shares outstanding or by diluted weighted average shares outstanding, as applicable. We believe that this non-GAAP measure is meaningful when assessing our performance on a comparative basis.

Adjusted Net Income represents net income less net income attributable to noncontrolling interest excluding certain items that we believe adjusting for is meaningful when assessing our performance on a comparative basis. For the periods presented, these items included (i) costs, net of insurance recoveries, related to the Grand Bahama drydock structure incident involving Oasis of the Seas; (ii) our equity share of the write-off of the Grand Bahama drydock and other incidental expenses by Grand Bahama; (iii) the noncontrolling interest adjustment to exclude the impact of the contractual accretion requirements associated with the put option held by Heritage Cruise Holding Ltd.'s (previously known as Silversea Cruises Group Ltd.) noncontrolling interest; (iv) the change in fair value in the contingent consideration related to the Silversea Cruises acquisition; (v) a loss on the early extinguishment of debt related to the repayment of certain loans; (vi) the amortization of the Silversea Cruises intangible assets resulting from the acquisition; (vii) integration costs related to the Silversea Cruises acquisition; (viii) transaction costs related to the Silversea Cruises acquisition; (ix) restructuring charges incurred in relation to the reorganization of our international sales and marketing structure and other initiatives; (x) the impairment loss and other costs related to the exit of our tour operations business; (xi) the impairment loss related to Skysea Holding; and (xii) the impact of the change in accounting principle related to the recognition of stock-based compensation expense from the graded attribution method to the straight-line attribution method for time-based stock awards.

Available Passenger Cruise Days ("APCD") is our measurement of capacity and represents double occupancy per cabin multiplied by the number of cruise days for the period, which excludes canceled cruise days and drydock days. We use this measure to perform capacity and rate analysis to identify our main non-capacity drivers that cause our cruise revenue and expenses to vary.

Gross Cruise Costs represent the sum of total cruise operating expenses plus marketing, selling and administrative expenses. For the periods presented, Gross Cruise Costs exclude (i) restructuring charges incurred

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in relation to the reorganization of our international sales and marketing structure and other initiatives; (ii) transaction costs related to the Silversea Cruises acquisition; (iii) integration costs related to the Silversea Cruises acquisition; (iv) the impairment loss and other costs related to the exit of our tour operations business; and (v) the impact of the change in accounting principle related to the recognition of stock-based compensation expense from the graded attribution method to the straight-line attribution method for time-based stock awards, which were included within Marketing, selling and administrative expenses.

Gross Yields represent total revenues per APCD.

Net Cruise Costs and Net Cruise Costs Excluding Fuel represent Gross Cruise Costs excluding commissions, transportation and other expenses and onboard and other expenses and, in the case of Net Cruise Costs Excluding Fuel, fuel expenses (each of which is described above under the Description of Certain Line Items heading). In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Costs and Net Cruise Costs Excluding Fuel to be the most relevant indicators of our performance. A reconciliation of historical Gross Cruise Costs to Net Cruise Costs and Net Cruise Costs Excluding Fuel is provided below under Results of Operations. Net Cruise Costs and Net Cruise Costs Excluding Fuel exclude the costs, net of insurance recoveries, related to the Grand Bahama drydock structure incident involving Oasis of the Seas.

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

Net Yields represent Net Revenues per APCD. We utilize Net Revenues and Net Yields to manage our business on a day-to-day basis as we believe that they are the most relevant measures of our pricing performance because they reflect the cruise revenues earned by us net of our most significant variable costs, which are commissions, transportation and other expenses and onboard and other expenses. A reconciliation of historical Gross Yields to Net Yields is provided below under Results of Operations.

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

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

We believe Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel are our most relevant non-GAAP financial measures. However, a significant portion of our revenue and expenses are denominated in currencies other than the United States dollar. Because our reporting currency is the United States dollar, the value of these revenues and expenses can be affected by changes in currency exchange rates. Although such changes in local currency prices are just one of many elements impacting our revenues and expenses, they can be an important element. For this reason, we also monitor Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel as if the current period's currency exchange rates had remained constant with the comparable prior period's rates, or on a "Constant Currency" basis.

It should be emphasized that Constant Currency is primarily used for comparing short-term changes and/or projections. Changes in guest sourcing and shifting the amount of purchases between currencies can change the impact of the purely currency-based fluctuations.

The use of certain significant non-GAAP measures, such as Net Yields, Net Cruise Costs and Net Cruise Costs Excluding Fuel, allows us to perform capacity and rate analysis to separate the impact of known capacity changes from other less predictable changes which affect our business. We believe these non-GAAP measures provide expanded insight to measure revenue and cost performance in addition to the standard GAAP based financial measures. There are no specific rules or regulations for determining non-GAAP and Constant Currency measures, and as such, they may not be comparable to other companies within the industry.

We have not provided a quantitative reconciliation of (i) projected Total revenues to projected Net Revenues, (ii) projected Gross Yields to projected Net Yields, (iii) projected Gross Cruise Costs to projected Net Cruise Costs and projected Net Cruise Costs Excluding Fuel and (iv) projected Net Income attributable to Royal Caribbean Cruises Ltd. and Earnings per Share to projected Adjusted Net Income and Adjusted Earnings per Share because preparation of meaningful GAAP projections of Total revenues, Gross Yields, Gross Cruise Costs, Net Income attributable to Royal Caribbean Cruises Ltd. and Earnings per Share would require unreasonable effort. Due to

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significant uncertainty, we are unable to predict, without unreasonable effort, the future movement of foreign exchange rates, fuel prices and interest rates inclusive of our related hedging programs. In addition, we are unable to determine the future impact of restructuring expenses or other non-core business related gains and losses which may result from strategic initiatives. These items are uncertain and could be material to our results of operations in accordance with GAAP. Due to this uncertainty, we do not believe that reconciling information for such projected figures would be meaningful.

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Executive Overview

By all accounts, 2019 was another year of very strong performance. We introduced three new vessels - Spectrum of the Seas, Celebrity Flora, and TUI Cruises Mein Schiff 2, launched a very successful Perfect Day destination at Coco Cay, modernized six ships and implemented Excalibur, our digital transformation platform, on most of the fleet. In addition, we continued to find efficiencies, implement synergies and reduce costs, while at the same time, remained focused on strategic investments in areas that will boost revenue.

Our 2019 net income was $1.9 billion, or $8.95 per diluted share, compared to $1.8 billion, or $8.56 per diluted share, in 2018. Adjusted Net Income for 2019 was $2.0 billion, or $9.54 per diluted share, compared to $1.9 billion, or $8.86 per diluted share, in 2018. Adjusted EPS for 2019, on a diluted basis, represents an 8% increase in earnings compared to 2018. We were able to achieve these results despite the dry-dock incident in the Grand Bahama shipyard, the cancellation of cruises to Cuba beginning in June of this year and an unusual hurricane season, all of which negatively impacted the company’s adjusted earnings per share for the year by approximately $0.80.

Total revenues increased $1.5 billion in 2019 to $11.0 billion, compared to $9.5 billion in 2018, primarily driven by increases in both ticket and onboard yields. During 2019, our Gross Yields and Net Yields increased by 8.0%, on a Constant-Currency basis, marking the tenth consecutive year of revenue growth. The addition of new vessels to the fleet, the consolidation of Silversea Cruises, Perfect Day at CocoCay and our Miami terminal operation also contributed to our year-over-year revenue growth. Onboard revenue and Net onboard revenue growth came from a variety of revenue enhancing initiatives, including beverage package sales and promotions, gaming initiatives and new strategies and promotions on our shore excursions, specialty restaurants and Internet services.

Cruise operating expenses increased $801.0 million in 2019 to $6.1 billion from $5.3 billion in 2018. Adjusting for capacity, our Gross Cruise Costs and Net Cruise Costs Excluding Fuel increased by 8.7% and 11.4%, respectively, on a Constant Currency basis compared to 2018 driven primarily by the consolidation of Silversea Cruises, our new operations of Perfect Day at CocoCay and our terminal operation in Miami.

The Company remains focused on improving returns for our shareholders. In 2019, we bought back $100.0 million in shares of common stock and have $600.0 million remaining under our $1.0 billion share repurchase program that was announced in May 2018. Consistent with our earnings growth, we also announced a 11% increase to our common stock dividend, our seventh consecutive year with a dividend increase.

Perfect Day at CocoCay is the first of our Perfect Day Island Collection of next-level private destinations. The island debuted a combination of first-of-their-kind thrills and one-of-a-kind ways to chill that significantly change what is possible in a vacation destination. The island features the tallest waterslide in North America, the Up and Away helium balloon, and the Caribbean’s largest wave pool.

The year 2020 has started off challenging as we address the impact of the recent coronavirus outbreak on our operations. Prior to the outbreak, our sailings in China were trending particularly well both in terms of rate and volume. Our itineraries in China were expected to represent 6% and 4% of our full year and first quarter 2020 capacity, respectively. The travel restrictions and other measures taken by China and other countries to contain the disease have resulted in the cancellation of an increasing number of our cruises in the region. We have also implemented several measures restricting the boarding of certain at-risk guests and crew on our ships. These and other concerns and restrictions relating to the coronavirus outbreak are having an impact on the demand for cruises and causing travel restrictions, guest cancellations, an unavailability of ports and/or destinations, ship redeployments and an inability to source our crew, provisions or supplies from certain places. All of these issues are having and are likely to continue to have a material impact on our bookings, operations and our overall financial performance. However, given the fluidity and uncertainty of this situation, we are unable to predict the full financial impact that this incident will have on our operations and financial condition, including what our yields and earnings for 2020 will be (see Outlook).

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

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increased our capacity in the Caribbean to over 50% of our total capacity in 2020, driven by the inaugural winter seasons of Odyssey of the Seas and Celebrity Apex. Our European itineraries will account for 17% of our 2020 capacity with the year-over-year increase driven by the timing of drydocks and the addition of Celebrity Apex and Silver Moon. Excluding the impact of the recent coronavirus outbreak, we expect another year of total revenue and net yield growth driven by our new ships, strong demand for our core products and continued growth from our onboard revenue areas.

In addition, we recently announced our program which presents specific goals to be achieved by 2025: delivering $20.00 adjusted earnings per share; further reducing the company’s carbon footprint by 25%; delivering strong returns on invested capital; and continuing to improve on record guest satisfaction and employee engagement metrics. Our management team is goal motivated and our aim, through this program, is to establish clear, simple, and ambitious targets that will motivate our people and drive superior results. Adopting these clear and simple goals will help guide our everyday decision-making to focus on People, Profits and Planet.

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Results of Operations

For reporting purposes, we include Silversea Cruises’ results of operations on a three-month reporting lag from October 1, 2018 through September 30, 2019 in our consolidated results of operations for the year ended December 31, 2019 and from the date of acquisition through September 30, 2018 in our consolidated results of operations for the year ended December 31, 2018. Refer to Note 1. General and Note 3. Business Combinations to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on the three-month reporting lag and the Silversea Cruises acquisition.

In addition to the items discussed above under "Executive Overview," significant items for 2019 include:

Our Net Income attributable to Royal Caribbean Cruises Ltd. and Adjusted Net Income for the year ended December 31, 2019 was $1.9 billion and $2.0 billion, or $8.95 and $9.54 per share on a diluted basis, respectively, as compared to Net Income attributable to Royal Caribbean Cruises Ltd. and Adjusted Net Income of $1.8 billion and $1.9 billion, or $8.56 and $8.86 per share on a diluted basis, respectively, for the year ended December 31, 2018.
Total revenues, excluding the effect of changes in foreign currency rates, increased by $1.6 billion for the year ended December 31, 2019 compared to the same period in 2018 primarily due to an increase in capacity and an increase in ticket prices and onboard spending on a per passenger basis, which are further discussed below.
The effect of changes in foreign currency exchange rates related to our passenger ticket and onboard and other revenue transactions, denominated in currencies other than the United States dollar, resulted in a decrease in total revenues of $127.4 million for the year ended December 31, 2019 compared to the same period in 2018.
Total cruise operating expenses, excluding the effect of changes in foreign currency rate, increased by $837.5 million for the year ended December 31, 2019 compared to the same period in 2018, primarily due to an increase in capacity, which is further discussed below.
The effect of changes in foreign currency exchange rates related to our cruise operating expenses, denominated in currencies other than the United States dollar, resulted in a decrease in total operating expenses of $36.9 million for the year ended December 31, 2019 compared to the same period in 2018.
Effective June 5th, 2019, we stopped sailings to Cuba as the U.S government rescinded authorized travel to Cuba under the People-to-People program and prohibited travel to Cuba via cruise ships. The estimated negative impact resulting from this regulatory change, primarily due to changes in itineraries, is approximately $0.29 per share on a diluted basis to our Net Income attributable to Royal Caribbean Cruises Ltd.
The estimated negative impact resulting from the Grand Bahama drydock structure incident involving Oasis of the Seas, net of insurance recoveries and including our share of the write-off of the related drydock by Grand Bahama, is approximately $0.36 per share on a diluted basis to our Net Income attributable to Royal Caribbean Cruises Ltd.
The estimated negative impact resulting from 2019 hurricane-related disruptions was approximately $0.15 per share on a diluted basis to our Net Income attributable to Royal Caribbean Cruises Ltd.
In April 2019, we entered into and drew in full on an unsecured three-year term loan agreement in the amount of $1.0 billion. Proceeds of this loan were used to repay the $700 million 364-day loan due July 2019 related to the acquisition of Silversea Cruises and the remaining balance of the unsecured term loan originally incurred in 2010 to purchase Allure of the Seas. The repayment of these loans resulted in a total loss on the extinguishment of debt of $6.3 million, which was recognized within Other (expense) income within our consolidated statements of comprehensive income (loss).

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Other items for 2019 include:

In February 2019, TUI Cruises, our 50% joint venture, took delivery of a new Mein Schiff 2 and the existing Mein Schiff 2 was renamed Mein Schiff Herz.
During the second quarter of 2019, we took delivery of Spectrum of the Seas and Celebrity Flora. To finance the purchases, we borrowed $908.0 million and €80.0 million, or approximately $89.8 million based on the exchange rate at December 31, 2019, respectively, under previously committed unsecured term loans. Refer to Note 9. Debt to our consolidated financial statements under Item 1. Financial Statements for further information. Additionally, Spectrum of the Seas and Celebrity Flora entered service in April 2019 and at the end of June 2019, respectively.
In April 2019, we amended our $1.4 billion unsecured revolving credit facility due in 2020 to extend the termination date through April 2024, increase the facility size to $1.7 billion and reduce pricing. Refer to Note 9. Debt to our consolidated financial statements under Item 1. Financial Statements for further information.
In April 2019, Silversea Cruises entered into an agreement with Meyer Werft to build two ships of a new generation, known as the Evolution-class. In September 2019, we entered into credit agreements for the unsecured financing of these ships for up to 80% of each ship's contract price. Refer to Note 11. Commitments and Contingencies to our consolidated financial statements under Item 1. Financial Statements for further information.
In May 2019, we amended our $1.15 billion unsecured revolving credit facility due in 2022 to reduce pricing to match pricing on our $1.7 billion unsecured revolving credit facility due in 2024.
In June 2019, we entered into a $300 million unsecured term loan facility for the financing of Silversea Cruises' Silver Moon. Refer to Note 9. Debt to our consolidated financial statements under Item 1. Financial Statements for further information.
In June 2019, we entered into an agreement with Meyer Turku to build a third Icon-class ship. In December 2019, we entered into a credit agreement for the unsecured financing for up to 80% of the ship's contract price. Refer to Note 19. Commitments and Contingencies to our consolidated financial statements for further information.
In December 2019, we entered into a credit agreement for the unsecured financing for up to 80% contract price for the sixth Oasis-class ship. Refer to Note 19. Commitments and Contingencies to our consolidated financial statements for further information.

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


	Year Ended December 31,
	2019		2018		2017
Net Income attributable to Royal Caribbean Cruises Ltd.	$	1,878,887	$	1,811,042	$	1,625,133
Adjusted Net Income attributable to Royal Caribbean Cruises Ltd.	2,002,847		1,873,363		1,625,133
Net Adjustments to Net Income attributable to Royal Caribbean Cruises Ltd. - Increase	$	123,960	$	62,321	$	—
Adjustments to Net Income attributable to Royal Caribbean Cruises Ltd.:
Oasis of the Seas incident, Grand Bahama's drydock write-off and other incidental expenses (1)	35,239		—		—

Loss on extinguishment of debt	6,326		—		—
Change in the fair value of contingent consideration and amortization of Silversea Cruises intangible assets related to Silversea Cruises acquisition (2)	30,675		2,046		—
Restructuring charges and other initiatives expense (3)	13,707		—		—






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

Noncontrolling interest adjustment (4)	35,965		3,156		—
Impairment loss related to Skysea Holding (5)	—		23,343		—
Impairment and other costs related to exit of tour operations business (6)	—		11,255		—
Impact of change in accounting principle (7)	—		(9,238)		—
Net Adjustments to Net Income attributable to Royal Caribbean Cruises Ltd. - Increase	$	123,960	$	62,321	$	—

Basic:
Earnings per Share	$	8.97	$	8.60	$	7.57
Adjusted Earnings per Share	$	9.56	$	8.90	$	7.57

Diluted:
Earnings per Share	$	8.95	$	8.56	$	7.53
Adjusted Earnings per Share	$	9.54	$	8.86	$	7.53

Weighted-Average Shares Outstanding:
Basic	209,405		210,570		214,617
Diluted	209,930		211,554		215,694

(1)Amount includes incidental costs, net of insurance recoveries of $14.5 million related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas, which were reported primarily within Other operating expenses in our consolidated statements of comprehensive income (loss) for the year ended December 31, 2019; and $20.7 million regarding the Grand Bahama incident involving one of its drydocks, included in our equity investment income within our consolidated statements of comprehensive income (loss) for the year ended December 31, 2019. Refer to Note 8. Other Assets to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for information.

(2)Refer to Note 3. Business Combination to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for information on the Silversea Cruises acquisition.

(3)Represents restructuring charges incurred in relation to the reorganization of our international sales and marketing structure and other initiatives expenses. Refer to Note 20. Restructuring Charges to our consolidated financial statements under item 8. Financial Statements and Supplementary Data for further information on the restructuring activities.

(4)Adjustment made to exclude the impact of the contractual accretion requirements associated with the put option held by Silversea Cruises Group Ltd.'s noncontrolling interest. Refer to Note 11. Noncontrolling Interest to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on noncontrolling interest.

(5)Refer to Note 8. Other Assets to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for information on the impairment loss related to Skysea Holding.

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

(7)In January 2018, we elected to change our accounting policy for recognizing stock-based compensation expense from the graded attribution method to the straight-line attribution method for time-based stock awards. Refer to Note 2. Summary of Significant Accounting Policies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on our accounting policy.

The following table presents operating results as a percentage of total revenues for the last three years:


	Year Ended December 31,
	2019		2018		2017
Passenger ticket revenues	71.7	%	71.5	%	71.9	%
Onboard and other revenues	28.3	%	28.5	%	28.1	%
Total revenues	100.0	%	100.0	%	100.0	%
Cruise operating expenses:
Commissions, transportation and other	15.1	%	15.1	%	15.5	%
Onboard and other	5.8	%	5.7	%	5.6	%
Payroll and related	9.9	%	9.7	%	9.7	%
Food	5.3	%	5.5	%	5.6	%
Fuel	6.4	%	7.5	%	7.8	%
Other operating	12.8	%	12.0	%	11.5	%
Total cruise operating expenses	55.4	%	55.4	%	55.8	%
Marketing, selling and administrative expenses	14.2	%	13.7	%	13.5	%
Depreciation and amortization expenses	11.4	%	10.9	%	10.8	%


Operating income	19.0	%	20.0	%	19.9	%
Other income (expense):
Interest income	0.2	%	0.3	%	0.3	%
Interest expense, net of interest capitalized	(3.7)	%	(3.5)	%	(3.4)	%
Equity investment income	2.1	%	2.2	%	1.8	%

Other (expense) income	(0.2)	%	0.1	%	(0.1)	%
	(1.6)	%	(0.8)	%	(1.4)	%
Net Income	17.4	%	19.1	%	18.5	%
Less: Net Income attributable to noncontrolling interest	0.3	%	0.1	%	—	%
Net Income attributable to Royal Caribbean Cruises Ltd.	17.2	%	19.1	%	18.5	%

Selected statistical information is shown in the following table:


	Year Ended December 31,
	2019 (1)		2018 (1)		2017
Passengers Carried	6,553,865		6,084,201		5,768,496
Passenger Cruise Days	44,803,953		41,853,052		40,033,527
APCD	41,432,451		38,425,304		36,930,939
Occupancy	108.1	%	108.9	%	108.4	%

(1) We acquired Silversea Cruises on July 31, 2018 and report their results on a three-month reporting lag. As a result, 2019 figures include October 2018 through September 2019 Silversea Cruises amounts and 2018 figures include August and September 2018 Silversea Cruises amounts. Refer to Note 1. General and Note 3. Business Combination to our consolidated financial statements

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under Item 8. Financial Statements and Supplementary Data for further information on the three-month reporting lag and the Silversea Cruises acquisition.

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


	Year Ended December 31,
	2019		2019 On a Constant Currency basis		2018		2017
Passenger ticket revenues	$	7,857,057	$	7,968,116	$	6,792,716	$	6,313,170
Onboard and other revenues	3,093,604		3,109,939		2,701,133		2,464,675
Total revenues	10,950,661		11,078,055		9,493,849		8,777,845
Less:
Commissions, transportation and other	1,656,297		1,675,941		1,433,739		1,363,170
Onboard and other	639,782		643,350		537,355		495,552




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

APCD	41,432,451		41,432,451		38,425,304		36,930,939
Gross Yields	$	264.30	$	267.38	$	247.07	$	237.68
Net Yields	$	208.88	$	211.40	$	195.78	$	187.35

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


	Year Ended December 31,
	2019		2019 On a Constant Currency basis		2018		2017
Total cruise operating expenses	$	6,062,765	$	6,099,657	$	5,262,207	$	4,896,579
Marketing, selling and administrative expenses (1) (2)	1,543,498		1,555,703		1,269,368		1,186,016
Gross Cruise Costs	7,606,263		7,655,360		6,531,575		6,082,595
Less:
Commissions, transportation and other	1,656,297		1,675,941		1,433,739		1,363,170
Onboard and other	639,782		643,350		537,355		495,552
Net Cruise Costs Including Other Costs	5,310,184		5,336,069		4,560,481		4,223,873
Less:


Costs, net of insurance recoveries, related to the Oasis of the Seas incident included within cruise operating expenses	14,530		14,530		—		—


Net Cruise Costs	5,295,654		5,321,539		4,560,481		4,223,873
Less:
Fuel	697,962		697,981		710,617		681,118
Net Cruise Costs Excluding Fuel	$	4,597,692	$	4,623,558	$	3,849,864	$	3,542,755

APCD	41,432,451		41,432,451		38,425,304		36,930,939
Gross Cruise Costs per APCD	$	183.58	$	184.77	$	169.98	$	164.70
Net Cruise Costs per APCD	$	127.81	$	128.44	$	118.68	$	114.37
Net Cruise Costs Excluding Fuel per APCD	$	110.97	$	111.59	$	100.19	$	95.93

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

(2) For the year ended December 31, 2018, the amount does not include transaction costs related to the Silversea Cruises acquisition of $31.8 million, the impairment and other costs related to the exit of our tour operations business of $11.3 million and the impact of the change in accounting principle of $9.2 million related to the recognition of stock-based compensation expense. Refer to Note 2. Summary of Significant Accounting Policies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on the change in an accounting principle.

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Outlook

The widely reported coronavirus outbreak and efforts by China and other countries to move aggressively to contain the spread of the disease have adversely impacted our business, including a drop in demand for cruises, guest cancellations, travel restrictions, an unavailability of ports and/or destinations, cruise cancellations, ship redeployments and an inability to source our crew, provisions or supplies from certain places. We have implemented several measures to protect guest and crew, including denying boarding to those that have travelled from, to or through mainland China or Hong Kong in the past 15 days and performing mandatory specialized health screenings on at-risk guest and crew. These measures have caused us to cancel cruise bookings or restrict certain guests from booking our cruises. We are assessing the developments constantly and will update our protective measures as needed.

As a result of these measures, we have now cancelled 30 sailings in Southeast Asia and modified several itineraries in the region which overall have an estimated impact of $0.90 per share to our 2020 financial performance. If the company were to cancel all of its remaining sailings in Asia through the end of April, it would impact our 2020 financial performance by an additional $0.30.

There are still too many variables and uncertainties regarding the impact of this outbreak on our business in Asia and elsewhere to reasonably forecast the full impact on our business, including what our yields and earnings for 2020 will be. These concerns and restrictions over the outbreak are impacting our bookings and are having, and are likely to continue to have, a material impact on our overall financial performance.

The company does not make predictions about fuel pricing, interest rates or currency exchange rates but does provide guidance about its future business activities. On February 4, 2020, we announced the following initial full year and first quarter 2020 guidance based on the then current fuel pricing, interest rates and currency exchange rates. Given the fluidity of the circumstances related to the recent coronavirus and the actions being taken to contain its spread, the following 2020 guidance does not include any financial impact related to the coronavirus outbreak:

Full Year 2020


	As Reported	Constant Currency
Net Yields	2.5% to 4.5%	2.25% to 4.25%
Net Cruise Costs per APCD	1.75% to 2.25%	1.75% to 2.25%
Net Cruise Costs per APCD, excluding Fuel	1.75% to 2.25%	1.75% to 2.25%
Capacity Change	4.8%
Depreciation and Amortization	$1,376 to $1,392 million
Interest Expense, net	$368 to $384 million
Fuel Consumption (metric tons)	1,534,300
Fuel Expenses	$744 million
Percent Hedged (fwd consumption)	54%
10% change in Fuel Prices	$37 million
1% Change in Currency	$21 million
1% Change in Net Yields	$91 million
1% Change in NCC x Fuel	$48 million
100 basis pt. Change in LIBOR	$37 million
Adjusted Earnings per Share — Diluted	$10.40 to $10.70

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First Quarter 2020


	As Reported	Constant Currency
Net Yields	(0.5%) to (1.0%)	Approx. (0.5%)
Net Cruise Costs per APCD	Approx. 4.25%	Approx. 4.5%
Net Cruise Costs per APCD, excluding Fuel	Approx. 3.0%	Approx. 3.0%
Capacity Change	4.5%
Depreciation and Amortization	$321 to $325 million
Interest Expense, net	$85 to $89 million
Fuel Consumption (metric tons)	375,200
Fuel Expenses	$191 million
Percent Hedged (fwd consumption)	62%
10% change in Fuel Prices	$9 million
1% Change in Currency	$4 million
1% Change in Net Yields	$20 million
1% Change in NCC x Fuel	$12 million
100 basis pt. Change in LIBOR	$7 million
Adjusted Earnings per Share — Diluted	$0.80 to $0.85

Since our earnings release on February 4, 2020, fuel prices and foreign currency exchange rates have fluctuated and are likely to continue to do so. Accordingly, except for the impact of the recent coronavirus outbreak, described above, fuel prices and foreign currency exchange rates, our forecast remains essentially unchanged.

Volatility in foreign currency exchange rates affects the United States dollar value of our earnings. Based on our highest net exposure for each quarter and the full year 2020, the top five foreign currencies are ranked below. For example, the Australian Dollar is the most impactful currency in the first and fourth quarters of 2020. Rankings are based on estimated net exposures.


Ranking	Q1	Q2	Q3	Q4	YTD 2020
1	AUD	GBP	GBP	AUD	GBP
2	CAD	CAD	CNH	GBP	AUD
3	GBP	AUD	EUR	CAD	CAD
4	BRL	CNH	CAD	EUR	CNH
5	MXN	EUR	AUD	CNH	EUR

The currency abbreviations above are defined as follows:


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

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

In this section, references to 2019 refer to the year ended December 31, 2019 and references to 2018 refer to the year ended December 31, 2018.

Revenues

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

Passenger ticket revenues comprised 71.7% of our 2019 total revenues. Passenger ticket revenues increased by $1.1 billion, or 15.7% from 2018. The increase was primarily due to:

an 7.8% increase in capacity, which increased Passenger ticket revenues by $565.0 million, primarily due to the additions of Spectrum of the Seas in the second quarter of 2019, Symphony of the Seas in the second quarter of 2018, Azamara Pursuit in the third quarter of 2018, Celebrity Edge in the fourth quarter of 2018 and the acquisition of Silversea Cruises in the second half of 2018, partially offset by a significant increase in dry dock days in 2019 compared to 2018 and the negative impact of canceled and modified sailings resulting from the dry-dock incident in the Grand Bahama shipyard and hurricane-related disruptions during 2019.
an increase of $614.0 million in ticket prices primarily driven by the addition of Spectrum of the Seas, Symphony of the Seas, Azamara Pursuit, Celebrity Edge and the Silversea Cruises fleet, and the higher pricing on our Caribbean and Asia/Pacific sailings, net of the negative impact to our ticket price on a per passenger basis resulting from itinerary changes related to the travel restrictions to Cuba.

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

The remaining 28.3% of 2019 total revenues was comprised of Onboard and other revenues, which increased $392.5 million, or 14.5%. The increase in Onboard and other revenues was primarily due to:

a $118.4 million increase in onboard revenue attributable to higher spending on a per passenger basis primarily due to shore excursions, Perfect Day at CocoCay, specialty restaurants, internet services, beverage package sales and promotions, gaming initiatives and new programs and activities offered to our guests;
a $193.6 million increase attributable to the 7.8% increase in capacity noted above, net of the negative impact of canceled and modified sailings resulting from the dry-dock incident in the Grand Bahama shipyard and hurricane-related disruptions in 2019; and
a $79.7 million increase in other revenues primarily due to revenue associated with our new cruise terminal at PortMiami and cancellation fees associated with non-refundable deposits and higher pricing.

Onboard and other revenues included concession revenues of $363.8 million in 2019 and $339.0 million in 2018.

Cruise Operating Expenses

Total cruise operating expenses for 2019 increased $800.6 million, or 15.2%, to $6.1 billion in 2019 from $5.3 billion in 2018. The increase was primarily due to:

the 7.8% increase in capacity noted above, which increased cruise operating expenses by $433.3 million;
a $367.3 million increase in total cruise operating expenses, excluding capacity, was primarily due to the addition of Silversea Cruises to our fleet in the second half of 2018 as well as incidental costs related to the collapse of the drydock structure at the Grand Bahama Shipyard involving Oasis of the Seas, expenses associated with operating Perfect Day at CocoCay and our new cruise terminal at PortMiami.

The increase in Cruise operating expenses was partially offset by:

a $47.0 million decrease in fuel expenses, excluding the impact of capacity. Our cost of fuel (net of the financial impact of fuel swap agreements) for 2019 decreased 11% per metric ton compared to 2018; and

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

Marketing, Selling and Administrative Expenses

Marketing, selling and administrative expenses for 2019 increased $256.1 million, or 19.7%, to $1.6 billion from $1.3 billion in 2018. The increase was primarily due to the addition of Silversea Cruises in the second half of 2018, higher spending on advertisement and media promotions and an increase in payroll and benefits expense primarily driven by an increase in headcount and higher stock price year over year related to our performance share awards. Additionally, 2019 includes expenses associated with Hurricane Dorian relief efforts, which did not occur in 2018.

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

Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2019 increased $212.2 million, or 20.5%, to $1.2 billion. The increase was primarily due to the addition of Spectrum of the Seas in the second quarter of 2019, Symphony of the Seas in the second quarter of 2018, Azamara Pursuit in the third quarter of 2018, Celebrity Edge in the fourth quarter of 2018 and the addition of Silversea Cruises to our fleet in the second half of 2018. Additionally, to a lesser extent, the increase is also attributable to new shipboard additions associated with our ship upgrade projects and additions related to our shoreside projects.

Other Income (Expense)

Interest expense, net of interest capitalized, increased $74.8 million, or 22.4%, to $408.5 million in 2019 from $333.7 million in 2018. The increase was primarily due to a higher average debt level in 2019 compared to 2018 attributable to the financing of our newbuilds and our acquisition of Silversea Cruises in the second half of 2018 and to lesser extent, higher interest rates in 2019 compared to 2018.

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

Other expense was $24.5 million in 2019 compared to Other income of $11.1 million in 2018. The increase in expense of $35.6 million was mainly due to higher taxes resulting from a full year of Silversea Cruises activity reported in 2019 and higher U.S. taxable income in 2019; and an increase in the fair value of contingent consideration related to the Silversea Cruises acquisition. In addition, a gain of $21.8 million was reported in 2018 related to the recognition of the remaining balance of a deferred gain from the sale of Celebrity Galaxy to TUI Cruises in March 2009. In April 2018, TUI Cruises sold this ship to an affiliate of TUI AG, resulting in the recognition of the remaining balance of the deferred gain. Other income in 2018 also includes a gain of $13.7 million related to the sale of our remaining equity interest in a travel agency business that we sold in 2015. The gains in 2018 were partially offset by an impairment charge of $23.3 million to write down our investment balance, debt facility and other receivables due from Skysea Holding to their net realizable value in 2018. For further information on the deferred gain recognized and impairment charge, refer to Note 8. Other Assets to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data.

Gross and Net Yields

Gross and Net Yields increased 7.0% and 6.7% in 2019, respectively, compared to 2018 primarily due to the increase in passenger ticket and onboard and other revenues discussed above. Gross and Net Yields on a Constant Currency basis increased 8.2% and 8.0%, respectively, in 2019 compared to 2018.

Gross and Net Cruise Costs

Gross and Net Cruise Costs increased 16.5% and 16.1%, respectively, in 2019 compared to 2018 and Gross and Net Cruise Costs per APCD increased 8.0% and 7.7%, respectively, in 2019, compared to 2018, primarily due to the increase in cruise operating expenses discussed above. Gross and Net Cruise Costs on a Constant Currency basis increased 17.2% and 16.7% respectively, in 2019 compared to 2018.

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Net Cruise Costs Excluding Fuel

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

Other Comprehensive (Loss) Income

Other comprehensive loss in 2019 was $170.0 million compared to Other comprehensive loss of $293.5 million in 2018. The decrease in loss of $123.5 million was primarily due to the Loss on cash flow derivative hedges in 2019 of $151.3 million compared to the Loss on cash flow derivative hedges of $286.9 million in 2018. The decrease of $135.5 million in Loss on cash flow derivative hedges in 2019 was primarily due to an increase in the fair value of our fuel swap instruments held in 2019 compared to 2018.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

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

Revenues

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

Passenger ticket revenues comprised 71.5% of our 2018 total revenues. Passenger ticket revenues increased by $479.5 million, or 7.6% from 2017. The increase was primarily due to:

a 4.0% increase in capacity, which increased Passenger ticket revenues by $255.5 million, primarily due to the addition of Symphony of the Seas in the second quarter of 2018, Azamara Pursuit in the third quarter of 2018 and, to a lesser extent, Celebrity Edge in the fourth quarter of 2018 and the Silversea Cruises fleet, partially offset by the sale of Legend of the Seas in 2017 and additional dry dock days in 2018 compared to 2017. Additionally, 2017 includes the impact of canceled sailings from hurricane-related disruptions which did not recur in 2018;
an increase of $216.3 million in ticket prices primarily driven by higher pricing on Asia/Pacific and Europe sailings and the increase to our ticket price on a per passenger basis due to the addition of Symphony of the Seas, Azamara Pursuit, Celebrity Edge and the Silversea Cruises fleet, partially offset by a decrease in pricing on Caribbean sailings; and
the favorable effect of changes in foreign currency exchange rates related to our revenue transactions denominated in currencies other than the United States dollar of approximately $7.8 million.

The remaining 28.5% of 2018 total revenues was comprised of Onboard and other revenues, which increased $236.5 million, or 9.6%. The increase in Onboard and other revenues was primarily due to:

a $112.5 million increase in onboard revenue attributable to higher spending on a per passenger basis primarily due to our revenue enhancing initiatives, including beverage package sales and promotions, gaming initiatives, and new strategies and promotions on our shore excursion, specialty restaurant and Internet services;
a $97.4 million increase attributable to the 4.0% increase in capacity noted above; and
a $23.2 million increase in other revenue primarily due to cancellation fees mostly associated with non-refundable deposit promotions and the addition of Silversea Cruises.

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

Cruise Operating Expenses

Total cruise operating expenses for 2018 decreased $365.6 million, or 7.5%, to $5.3 billion in 2018 from $4.9 billion in 2017. The decrease was primarily due to:

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

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a $30.9 million gain recognized in 2017 resulting from the sale of Legend of the Seas, which did not recur in 2018;
a $37.3 million increase in payroll and related expenses primarily driven by Silversea Cruises' higher crew to passenger ratio, an increase in employee bonuses and changes in our gratuity structure;
a $23.5 million increase in air expense primarily related to the addition of Silversea Cruises and itinerary changes;
a $19.7 million increase in vessel maintenance primarily due to the timing of scheduled drydocks; and
an unfavorable effect of changes in foreign currency, exchange rates related to our cruise operating expenses denominated in currencies other than the United States dollar of $8.1 million.

Marketing, Selling and Administrative Expenses

Marketing, selling and administrative expenses for 2018 increased $117.1 million, or 9.9%, to $1.3 billion from $1.2 billion in 2017. The increase was primarily due to transaction costs incurred by us related to the Silversea Cruises acquisition, marketing, selling and administrative expenses due to the addition of Silversea Cruises, the impairment and other costs related to the exit of our tour operations business, which occurred in 2018, and an increase in payroll and benefits expense primarily driven by an increase in headcount, partially offset by lower stock prices year over year related to our performance share awards, as well as higher spending on advertisement.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for 2018 increased $82.5 million, or 8.7%, to $1.0 billion. The increase was primarily due to the addition of Symphony of the Seas, Azamara Pursuit and Silversea Cruises to our fleet and, to a lesser extent, the addition of Celebrity Edge, new shipboard additions associated with our ship upgrade projects and additions related to our shoreside projects. The increase was partially offset by the sale of Legend of the Seas in 2017.

Other Income (Expense)

Interest expense, net of interest capitalized, increased $33.7 million, or 11.2%, to $333.7 million in 2018 from $300.0 million in 2017. The increase was mostly due to a higher average debt level in 2018 compared to 2017, attributable to the financing of Symphony of the Seas, Celebrity Edge and our acquisition of Silversea Cruises in 2018, and higher interest rates in 2018 compared to 2017, partially offset by an increase in capitalized interest due to our ships on order.

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

Other income was $11.1 million in 2018 compared to Other expense of $5.3 million in 2017. The change of $16.4 million was mainly due to a gain of $21.8 million in 2018 related to the recognition of the remaining balance of a deferred gain from the sale of Celebrity Galaxy to TUI Cruises in March 2009. In April 2018, TUI Cruises sold this ship to an affiliate of TUI AG, resulting in the recognition of the remaining balance of the deferred gain. In addition, Other income in 2018 includes a gain of $13.7 million related to the sale of our remaining equity interest in a travel agency business that we sold in 2015. The increase in Other income was partially offset by an impairment charge of $23.3 million to write down our investment balance, debt facility and other receivables due from Skysea Holding to their net realizable value in 2018. For further information on the deferred gain recognized and impairment charge, refer to Note 8. Other Assets to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data.

Gross and Net Yields

Gross and Net Yields increased 4.0% and 4.5% in 2018, respectively, compared to 2017 primarily due to the increase in passenger ticket and onboard and other revenues, which are further discussed above. Gross and Net Yields on a Constant Currency basis increased 3.8% and 4.4%, respectively, in 2018 compared to 2017.

Gross and Net Cruise Costs

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Gross and Net Cruise Costs increased 7.4% and 8.0%, respectively, in 2018 compared to 2017 and Gross and Net Cruise Costs per APCD increased 3.2% and 3.8%, respectively, in 2018 compared to 2017, primarily due to the increase in cruise operating expenses discussed above. Gross and Net Cruise Costs on a Constant Currency basis increased 7.2% and 7.7%, respectively, in 2018 compared to 2017.

Net Cruise Costs Excluding Fuel

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

Other Comprehensive (Loss) Income

Other comprehensive loss in 2018 was $293.5 million compared to Other comprehensive income of $582.2 million in 2017. The change of $875.7 million was primarily due to the Loss on cash flow derivative hedges in 2018 of $286.9 million compared to the Gain on cash flow derivative hedges of $570.5 million in 2017. The change of $857.4 million in 2018 was primarily due to a decrease in foreign currency forward contract values in 2018 compared to an increase in 2017, a decrease in fuel swap instrument values in 2018 compared to an increase in 2017 and fuel swap losses recognized in income in 2017 compared to fuel swap gains recognized in income in 2018.

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Future Application of Accounting Standards

Refer to Note 2. Summary of Significant Accounting Policies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data for further information on Recent Accounting Pronouncements.

Liquidity and Capital Resources

Sources and Uses of Cash

Cash flow generated from operations provides us with a significant source of liquidity. Net cash provided by operating activities increased $237.2 million to $3.7 billion in 2019 compared to $3.5 billion in 2018. The increase in cash provided by operating activities was primarily attributable to an increase in proceeds from customer deposits and an increase in cash receipts from onboard spending. The increase was partially offset by a decrease in dividends received from unconsolidated affiliates of $92.9 million.

Net cash provided by operating activities increased $604.6 million to $3.5 billion in 2018 compared to $2.9 billion in 2017. The increase in cash provided by operating activities was primarily attributable to an increase in proceeds from customer deposits, an increase in cash receipts from onboard spending and a decrease in fuel costs in 2018 compared to 2017. Additionally, dividends received from unconsolidated affiliates increased by $133.4 million.

Net cash used in investing activities decreased $1.4 billion to $3.1 billion in 2019 compared to $4.5 billion in 2018. The decrease was primarily attributable to the $916.1 million of cash paid for the acquisition of Silversea Cruises, net of cash acquired, in 2018, which did not recur in 2019 and a decrease in capital expenditures of $635.4 million due mostly to the delivery of two more ships in 2018 compared to 2019, partially offset by higher fleet modernization costs in 2019 compared to 2018.

Net cash used in investing activities increased $4.3 billion to $4.5 billion in 2018 compared to $213.6 million in 2017. The increase was primarily attributable to an increase in capital expenditures of $3.1 billion primarily due to the delivery of Symphony of the Seas and Celebrity Edge and to a lesser extent the purchase of Azamara Pursuit in 2018 compared to no ship deliveries or purchases in 2017 and $916.1 million of cash paid for the acquisition of Silversea Cruises, net of cash acquired, in 2018 as well as $230.0 million of proceeds received from the sale of property and equipment in 2017, which did not recur in 2018.

Net cash used in financing activities was $670.4 million in 2019 compared to Net cash provided in financing activities of $1.2 billion in 2018. The change was primarily attributable to a decrease in debt proceeds of $5.1 billion in 2019 compared to 2018 primarily due to a decrease in borrowings on our revolving credit facilities and less unsecured term loan borrowings resulting from less ship deliveries in 2019 and the financing of the acquisition of Silversea Cruises in 2018. This decrease in proceeds was partially offset by a decrease in repayments of debt of $2.9 billion and a decrease in stock repurchases of $475.5 million in 2019 compared to 2018.

Net cash provided by financing activities was $1.2 billion in 2018 compared to Net cash used in financing activities of $2.7 billion in 2017. The change was primarily attributable to an increase in proceeds from the issuance of commercial paper notes of $4.7 billion in 2018 compared to none issued in 2017 and an increase in debt proceeds of $2.7 billion in 2018 compared to 2017. The increase in debt proceeds in 2018 was primarily due to the $1.2 billion unsecured term loan borrowed to finance Symphony of the Seas, and the $729.0 million unsecured term loan borrowed to finance Celebrity Edge, the $700.0 million unsecured term loan borrowed to finance the acquisition of Silversea Cruises, an increase in borrowings on our revolving credit facilities and the $130.0 million credit agreement.

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Future Capital Commitments

Our future capital commitments consist primarily of new ship orders. As of December 31, 2019, we have two Oasis-class ships, one Quantum-class ship, and three ships of a new generation, known as our Icon-class, on order for our Royal Caribbean International brand with an aggregate capacity of approximately 32,400 berths. As of December 31, 2019, we have three Edge-class ships with an aggregate capacity of approximately 9,400 berths. Additionally as of December 31, 2019, we have five ships on order for our Silversea Cruises brand with an aggregate capacity of approximately 2,400 berths. Refer to Item 1. Business-Operations for further information on our ships on order. For each of these orders, we have committed financing arrangements in place covering 80% of the cost of the ship, almost all of which include sovereign financing guarantees.

As of December 31, 2019, the aggregate cost of our ships on order, not including any ships on order by our Partner Brands and the Silversea Cruises ships that remain contingent upon final documentation and financing, was approximately $14.8 billion, of which we had deposited $881.5 million as of such date. Approximately 65.9% of the aggregate cost was exposed to fluctuations in the Euro exchange rate at December 31, 2019. (Refer to Note 18. Fair Value Measurements and Derivative Instruments and Note 19. Commitments and Contingencies to our consolidated financial statements under Item 8. Financial Statements and Supplementary Data).

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

Contractual Obligations

As of December 31, 2019, our contractual obligations were as follows (in thousands):


	Payments due by period
			Less than		1-3		3-5		More than
	Total		1 year		years		years		5 years
Operating Activities:
Operating lease obligations(1)	$	938,354	$	126,234	$	217,941	$	177,057	$	417,122
Interest on long-term debt(2)	1,918,714		348,821		588,296		383,167		598,430
Other(3)	455,404		202,879		194,936		23,356		34,233
Investing Activities:
Ship purchase obligations(4)	11,418,681		2,195,931		4,958,432		3,060,998		1,203,320

Financing Activities:
Commercial paper(5)	1,434,180		1,434,180		—		—		—
Debt obligations(6)	9,370,438		1,153,024		3,270,006		1,476,538		3,470,870
Capital lease obligations(7)	230,258		33,562		53,203		10,541		132,952
Other(8)	15,008		4,841		7,406		2,761
Total	$	25,781,037	$	5,499,472	$	9,290,220	$	5,134,418	$	5,856,927

(1) We are obligated under noncancelable operating leases primarily for offices, warehouses and motor vehicles. Amounts represent contractual obligations with initial terms in excess of one year.

(2) Debt obligations mature at various dates through fiscal year 2037 and bear interest at fixed and variable rates. Interest on variable-rate debt is calculated based on forecasted debt balances, including the impact of interest rate swap agreements, using the applicable rate at December 31, 2019. Debt denominated in other currencies is calculated based on the applicable exchange rate at December 31, 2019.

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

(4) Amounts do not include potential obligations which remain subject to cancellation at our sole discretion or any agreements entered for ships on order that remain contingent upon completion of conditions precedent. Additionally, amounts do not include activity related to Silversea Cruises, including ships placed on order, if any, during the three-month reporting lag period. Refer to the Capital Expenditure section.

(5) Refer to Note 9. Debt to our consolidated financial statements under Item 8. Financial Statements and Supplemental Data to our consolidated financial statements for further information.

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(6) Debt denominated in other currencies is calculated based on the applicable exchange rate at December 31, 2019. In addition, debt obligations presented above are net of debt issuance costs of $206.6 million as of December 31, 2019.

(7) Amounts represent capital lease obligations with initial terms in excess of one year.

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

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

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

Off-Balance Sheet Arrangements

We and TUI AG have each guaranteed the repayment by TUI Cruises of 50% of a bank loan. As of December 31, 2019, the outstanding principal amount of the loan was €26.4 million, or approximately $29.7 million, based on the exchange rate at December 31, 2019. The loan amortizes quarterly and is currently secured by a first mortgage on Mein Schiff Herz, previously known as Mein Schiff 2. Based on current facts and circumstances, we do not believe potential obligations under our guarantee of this bank loan are probable.

TUI Cruises has entered into various ship construction and credit agreements that include certain restrictions on each of our and TUI AG's ability to reduce our current ownership interest in TUI Cruises below 37.55% through May 2031.

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

As of December 31, 2019, other than the items described above, we are not party to any other off-balance sheet arrangements, including guarantee contracts, retained or contingent interest, certain derivative instruments and variable interest entities, that either have, or are reasonably likely to have, a current or future material effect on our financial position.

Funding Needs and Sources

We have significant contractual obligations of which our debt service obligations and the capital expenditures associated with our ship purchases represent our largest funding needs. As of December 31, 2019, we had approximately $5.5 billion in contractual obligations due through December 31, 2020 of which approximately $2.6 billion relates to debt maturities including our commercial paper notes, $348.8 million relates to interest on debt and $2.2 billion relates to progress payments on our ship orders and the final installments payable due upon the deliveries of Celebrity Apex, Silver Origin, Silver Moon and Odyssey of the Seas in 2020*.* We have historically relied on a combination of cash flows provided by operations, drawdowns under our available credit facilities and our commercial paper program, the incurrence of additional debt and/or the refinancing of our existing debt and the issuance of additional shares of equity securities to fund these obligations.

As of December 31, 2019, we had a working capital deficit of $6.8 billion, which included $1.2 billion of current portion of debt, including finance leases, and $1.4 billion of commercial paper. As of December 31, 2018, we had a working capital deficit of $5.9 billion, which included $1.6 billion of current portion of debt, including finance leases and $0.8 million of commercial paper. Similar to others in our industry, we operate with a substantial working capital deficit. This deficit is mainly attributable to the fact that, under our business model, a vast majority of our passenger ticket receipts are collected in advance of the applicable sailing date. These advance passenger

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receipts remain a current liability until the sailing date. The cash generated from these advance receipts is used interchangeably with cash on hand from other sources, such as our revolving credit facilities, commercial paper and other cash from operations. The cash received as advanced receipts can be used to fund operating expenses for the applicable future sailing or otherwise, pay down our revolving credit facilities and commercial paper, invest in long term investments or any other use of cash. In addition, we have a relatively low-level of accounts receivable and rapid turnover results in a limited investment in inventories. We generate substantial cash flows from operations, and our business model, along with our unsecured revolving credit facilities, has historically allowed us to maintain this working capital deficit and still meet our operating, investing and financing needs. We expect that we will continue to have working capital deficits in the future.

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

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

As of December 31, 2019, we have approximately $600.0 million that remains available for future common stock repurchase transactions under a 24-month common stock repurchase program for up to $1.0 billion authorized by our board of directors in May 2018. Repurchases under the program may be made at management's discretion from time to time on the open market or through privately negotiated transactions and are expected to be funded from available cash or borrowings. Refer to Note 12. Shareholders' Equity to our consolidated financial statements under Item 8. Financial Statements and Supplemental Data for further information.

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.

Debt Covenants

Certain of our financing agreements contain covenants that require us, among other things, to maintain minimum net worth of at least $9.9 billion, a fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital ratio to no more than 62.5%. The fixed charge coverage ratio is calculated by dividing net cash from operations for the past four quarters by the sum of dividend payments plus scheduled principal debt payments in excess of any new financings for the past four quarters. Our minimum net worth and maximum net debt-to-capital calculations exclude the impact of Accumulated other comprehensive loss on Total shareholders' equity. We were well in excess of all debt covenant requirements as of December 31, 2019. The specific covenants and related definitions can be found in the applicable debt agreements, the majority of which have been previously filed with the Securities and Exchange Commission.

Dividends

In December 2019, we declared a cash dividend on our common stock of $0.78 per share which was paid in the first quarter of 2020. We declared a cash dividend on our common stock of $0.78 per share during the third quarter of 2019 which was paid in the fourth quarter of 2019. During the first and second quarters of 2019, we declared a cash dividend on our common stock of $0.70 per share which was paid in the second and third quarters of 2019, respectively. During the first quarter of 2019, we also paid a cash dividend on our common stock of $0.70 per share which was declared during the fourth quarter of 2018.

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