Certain statements under this caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," may constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in such forward-looking statements. Such factors include inter alia general economic and business conditions, cruise industry competition, the impact of tax laws and regulations affecting the Company and its principal shareholders, changes in other laws and regulations affecting the Company, delivery schedule of new vessels, emergency ship repairs, incidents involving cruise vessels at sea, changes in interest rates and weather. General SUMMARY Royal Caribbean Cruises Ltd. (the "Company") reported improved revenues, operating income, net income and earnings per share during 1996 as shown in the table below. The improvements were primarily due to an increase in capacity related to the full year impact of the 1,800-passenger Legend of the Seas which began service in the second quarter of 1995 and the delivery of the 1,800-passenger Splendour of the Seas in the second quarter of 1996. Also affecting results in 1996 was a gain of $10.3 million from the sale of Song of Norway in the fourth quarter and a charge of $2.0 million for expenses incurred in evaluating a potential transaction. Net income in 1995 included a gain of $19.2 million from the sale of Nordic Prince. Accordingly, on a comparable basis before the charge and the gains on the sale of the ships, earnings increased 10% to $142.6 million or $2.24 per share in 1996, from $129.8 million or $2.05 per share in 1995.

(In thousands, except per share amounts)	1996		1995		1994
Revenues	$	1,357,325	$	1,183,952	$	1,171,423
Operating Income		217,033		183,933		185,720
Net Income		150,866		148,958		136,625
Earnings Per Share	$	2.37	$	2.35	$	2.16
SELECTED STATISTICAL INFORMATION
	1996		1995		1994
Passengers Carried		973,602		873,515		866,288
Passenger Cruise Days		6,055,068		5,224,655		5,180,426
Occupancy Percentage		101.3%		100.5%		100.8%

FLEET EXPANSION The Company's fleet expansion continued in 1996 with the delivery of two Vision-class vessels, which are approximately 70,000 tons each and range in capacity from 1,800 to 2,000 berths. Splendour of the Seas and Grandeur of the Seas, which were delivered in March and November 1996, respectively, represent the second and third of the six Vision-class vessels to be added by 1998. In 1995, the Company took delivery of Legend of the Seas, the first of the Vision-class vessels. With the delivery of these three ships, the Company's capacity increased approximately 32% from 14,228 berths at December 31, 1994, to 18,750 berths at December 31, 1996. Additionally, the Company has on order three Vision-class vessels: Rhapsody of the Seas, Enchantment of the Seas and Vision of the Seas which are scheduled for delivery in April 1997, July 1997 and April 1998, respectively. In November 1996, the Company contracted for an approximate 130,000-ton vessel, designated as Project Eagle, to be delivered in the fall of 1999, with an option exercisable anytime prior to December 31, 1997 for an additional Eagle-class vessel to be delivered in the fall of 2000. Each Eagle-class vessel will have a double occupancy capacity of approximately 3,100 passengers. With the delivery of the four vessels on order, the Company's capacity will increase approximately 43%, from 18,750 berths at December 31, 1996 to 26,800 berths in 1999. If the Company exercises the option for the additional Eagle-class vessel, capacity will increase by a further 12% in the year 2000. In October 1996, the Company sold Song of Norway which was built in 1970 and was the Company's first ship. The Company will continue to operate the ship under a charter agreement until March 1997. The sale price was $40.0 million and the Company recognized a gain of $10.3 million on the sale. Results of Operations The following table presents operating data as a percentage of revenues:

	1996	1995	1994
Revenues	100.0%	100.0%	100.0%
Expenses:
Operating	63.0	62.7	62.2
Marketing, selling   and administrative	14.3	15.0	15.3
Depreciation and   amortization	6.7	6.8	6.6
Operating Income	16.0	15.5	15.9
Other Income (Expense)	(4.9)	(2.9)	(3.8)
Income Before   Extraordinary Item	11.1%	12.6%	12.1%

REVENUES Revenues increased 14.6% in 1996 to $1.36 billion compared to $1.18 billion in 1995 as a result of a 15.0% increase in capacity. Capacity increased in 1996 primarily due to the full year impact of the 1,800-passenger Legend of the Seas which began service in the second quarter of 1995 and the delivery of the 1,800-passenger Splendour of the Seas in the second quarter of 1996. Revenue per available lower berth ("Yield") in 1996 remained approximately the same as in 1995; however, there was a continued shift in the mix of revenues. Although the shift in the mix of revenues was not as pronounced as that which occurred in 1995, shipboard and other revenues continued to become a higher percentage of total revenues. Occupancy levels were 101.3% in 1996 as compared to 100.5% in 1995. The Company's philosophy is to use a variety of revenue management techniques to maximize occupancy and revenue. Revenues increased 1.1% in 1995 to $1.18 billion primarily as a result of a corresponding increase in capacity. There were more potential passenger cruise days in 1995 as compared to 1994 as a result of the addition of the 1,800-passenger Legend of the Seas in the second quarter of 1995 which was partially offset by the sale of the 1,000-passenger Nordic Prince in the first quarter of 1995. Yield in 1995 remained consistent with 1994 as did occupancy levels, which were 100.5% in 1995 as compared to 100.8% in 1994. Total passenger per diems in 1995 were the same as 1994; however, there was a shift in the mix of revenues. In 1995, there was a decline in cruise ticket per diems which was offset by an increase in shipboard and other revenue per diems. The decline in cruise ticket per diems was a result of pricing pressure from an increased level of discounting among the Company's competitors. EXPENSES Operating expenses increased 15.1% in 1996 to $854.5 million compared to $742.5 million in 1995. This increase was primarily due to the 15.0% increase in capacity and higher variable costs associated with the increased occupancy. Operating expenses increased as a percentage of revenues primarily as a result of higher expenses due to changes in itineraries and an increase in shipboard and other expenses resulting from higher shipboard and other revenue per diems. This increase was partially offset by savings in air cost associated with a small reduction in the percentage of passengers using the Company's air program. Operating expenses increased 1.9% in 1995 to $742.5 million compared to $728.8 million in 1994. Operating expenses as a percentage of revenues increased in 1995 due to a shift in the mix of revenues. A decline in cruise ticket revenues was offset by an increase in shipboard and other revenues. A significant portion of the increase in shipboard revenues was due to the conversion of the onboard retail stores from a concession to an internal operation. Accordingly, commission income received from concessionaires was replaced with higher margins generated from store revenues less the related cost of sales, which increased operating expenses as a percentage of revenues. Marketing, selling and administrative expenses increased 9.7% in 1996 to $194.6 million versus $177.5 million in 1995. The majority of the increase was due to higher payroll, advertising and telecommunications costs. For 1996, these expenses decreased by 0.7% as a percentage of revenues as a result of the economies of scale achieved with the increase in capacity. Marketing, selling and administrative expenses decreased in 1995 to $177.5 million compared to $179.1 million in 1994 due to savings related to brochure and production costs which were partially offset by an increase in selling and administrative expenses. Depreciation and amortization increased 13.9% in 1996 to $91.2 million compared to $80.1 million in 1995 primarily as a result of the addition of Splendour of the Seas in the second quarter of 1996 and the full year impact of Legend of the Seas which was introduced in the second quarter of 1995. Depreciation and amortization increased 2.8% in 1995 to $80.1 million primarily as a result of the addition of Legend of the Seas which was partially offset by the sale of Nordic Prince. OTHER INCOME (EXPENSE) Interest expense, net of capitalized interest, increased to $76.5 million in 1996 from $54.8 million in 1995 and $43.3 million in 1994. The increase in both 1996 and 1995 was primarily a result of an increase in the average debt level driven by the Company's fleet expansion program. In addition, a portion of the increase in 1995 was due to higher weighted-average interest rates. Other income (expense) in 1996 includes a gain of $10.3 million from the sale of Song of Norway as compared to 1995 which includes a gain of $19.2 million from the sale of Nordic Prince. See Note 3 to the Consolidated Financial Statements. Other income (expense) in 1996 also includes a charge of $2.0 million for expenses incurred in evaluating a potential transaction with Costa Crociere S.p.A. EXTRAORDINARY ITEM Net income for 1994 reflects an extraordinary item of $5.7 million, or $0.09 per share, resulting from the early retirement of a portion of the Company's debt. Liquidity and Capital Resources LIQUIDITY The Company generated substantial cash flows resulting in net cash provided by operating activities of $299.5 million in 1996 as compared to $224.6 million in 1995 and $217.5 million in 1994. These internally generated funds were used to repay debt and to fund the Company's capital expenditures, the principal component of which is its fleet expansion program. As of December 31, 1996, the Company's liquidity was $858.4 million consisting of $40.4 million in cash and cash equivalents and $818.0 million available under the $1.0 billion revolving credit facility (the "$1 Billion Revolving Credit Facility"). In February 1997, the Company issued 3,450,000 shares of $3.625 Series A Convertible Preferred Stock. After deduction of the underwriting discount and other estimated expenses of the offering, the net proceeds to the Company were approximately $167.1 million. See Note 12 to the Consolidated Financial Statements. The Company's cash management practice is to utilize excess cash to reduce outstanding balances under the $1 Billion Revolving Credit Facility, rather than investing excess cash at a rate lower than its cost of borrowing. In the second quarter of 1996, the Company amended and restated its $750.0 million revolving credit facility with the $1 Billion Revolving Credit Facility, which increased the maximum borrowing amount, lowered the contractual borrowing rates, resulted in less restrictive covenants and extended the maturity date. DEBT Total indebtedness increased to $1,367.0 million as of December 31, 1996 from $935.7 million as of December 31, 1995, and $747.1 million as of December 31, 1994. The increase in indebtedness during 1996 and 1995 was due to the fleet expansion program which was partially offset by repayments of debt using cash generated from operations. In March 1996, the Company entered into a $264.0 million capital lease to finance Splendour of the Seas. The capital lease has an implicit interest rate of 7.8% over 15 years. In August 1996, the Company issued $175.0 million of 7-1/4% Senior Notes due 2006. In March and September 1995, the Company issued $150.0 million of 8-1/4% Senior Notes due 2005 and $150.0 million of 7-1/8% Senior Notes due 2002, respectively. In April 1995, the Company entered into a $260.0 million capital lease to finance Legend of the Seas. The capital lease has an implicit interest rate of 7.8% over 15 years. See Note 4 to the Consolidated Financial Statements. As of December 31, 1996, the Company has outstanding $104.0 million of 11-3/8% Senior Subordinated Notes due 2002 which are redeemable at the Company's option, in whole or in part, on any date subsequent to May 14, 1997 at pre-established redemption prices. It is the Company's intention to redeem these notes. DIVIDENDS During 1996, the Company paid two quarterly cash dividends of $0.13 per share and two quarterly cash dividends of $0.14 per share, totaling $34.4 million. During 1995, the Company paid two quarterly cash dividends of $0.11 per share and two quarterly cash dividends of $0.13 per share, totaling $30.5 million. CAPITAL EXPENDITURES The Company's capital expenditures were $722.4 million in 1996, as compared to $427.5 million in 1995 and $145.5 million in 1994. The largest portion of capital expenditures related to delivery of Splendour of the Seas and Grandeur of the Seas in 1996, delivery of Legend of the Seas in 1995 and progress payments for ships under construction in 1996, 1995 and 1994. Also included are shoreside capital expenditures and costs for vessel refurbishing to maintain consistent fleet standards. Additionally, capital expenditures in 1994 included $24.5 million for the construction of the Company's second office facility which was subsequently sold and leased back in 1995. The Company has four ships on order of which three are Vision-class vessels scheduled for delivery in April 1997, July 1997 and April 1998, respectively, and one Eagle-class vessel scheduled for delivery in the fall of 1999. The contract price of the four ships, which excludes capitalized interest and other ancillary costs, is approximately $1.3 billion of which the Company deposited $42.2 million during 1996, $33.3 million during 1995 and $22.8 million during 1994. Additional deposits due prior to the date of delivery of $64.6 million in 1997 and $25.3 million in 1998 are required. The Company currently estimates that overall capital expenditures will be approximately $765 million, $400 million and $565 million for 1997, 1998 and 1999, respectively. The capital expenditures are expected to be funded through a combination of cash flows provided by operations, drawdowns under the $1 Billion Revolving Credit Facility, and debt or equity issued in private or public markets. In addition, the Company has export credits available for up to 80% of the contract price of the ships to be delivered in April 1998 and the fall of 1999. The Company also has an option to purchase an additional Eagle-class vessel for a contract price of approximately $500 million (denominated in U.S. Dollars or Finnish Markka, depending on the date of exercise), which expires on December 31, 1997. An export credit is available for up to 80% of the contract price of the ship in the event the Company exercises the option. Capitalized interest was $15.9 million in 1996, an increase of $1.8 million from 1995. Capitalized interest was $14.1 million in 1995, an increase of $6.8 million from 1994. Capitalized interest was higher in both 1996 and 1995 than in the previous year because of a higher level of construction-in-progress expenditures associated with the Company's shipbuilding program. Additionally, in 1995 there was a higher interest capitalization rate. In addition, the Company continuously considers potential acquisitions, strategic alliances and adjustments to its fleet composition, including the acquisition or disposition of vessels. If any of such acquisitions, strategic alliances and adjustments to its fleet composition occur, they would be financed by the issuances of additional shares of equity securities, the incurrence of additional indebtedness or from cash flows from operations. OTHER The Company enters into interest rate swap agreements to manage interest costs as part of its liability risk management program. The differential in interest rates to be paid or received under these agreements is recognized in income as part of interest expense over the life of the contracts. The objective of the program is to control fluctuations in interest expense which could occur as a result of movements in market interest rates. The Company continuously evaluates its debt portfolio including its interest rate swap agreements and makes periodic adjustments to the mix of fixed rate and floating rate debt based on its view of interest rate movements. See Note 9 to the Consolidated Financial Statements.

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