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, integration of Celebrity into the Company, 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, Year 2000 compliance and weather.
General
SUMMARY
Royal Caribbean Cruises Ltd. (the "Company") reported improved revenues, operating income and net income for the year ended December 31, 1997 as shown in the table below. The improvements were driven primarily by capacity increases resulting from the acquisition of Celebrity Cruise Lines Inc. ("Celebrity") in July 1997 and additions to the Royal Caribbean International brand ("Royal Caribbean") as well as improved revenues per available lower berth ("Yield"). Net income for 1997 included an extraordinary loss resulting from the early extinguishment of debt of $7.6 million, or $0.10 per share on a diluted basis. The 1997 results also included a gain of $4.0 million from the sale of Sun Viking in the fourth quarter. The 1996 results included a gain of $10.3 million from the sale of Song of Norway. Accordingly, income before extraordinary item and gains on ship sales increased to $178.7 million, or $2.35 per share on a diluted basis in 1997 versus $140.6 million, or $2.19 per share in 1996. The 1997 results included the results of Celebrity from July 1, 1997.
Selected Statistical Information
CELEBRITY ACQUISITION
In July 1997, the Company acquired all of the outstanding stock of Celebrity, a provider of cruises to the North American market operating under the Celebrity Cruises brand ("Celebrity Cruises"). The purchase price was $515.0 million, payable in cash of $245.0 million and 7,448,276 shares of the Company's common stock. Celebrity Cruises operates five cruise ships with a total capacity of approximately 8,200 berths. Celebrity Cruises offers more than 30 different itineraries ranging from seven to 18 nights and calls on over 50 destinations in Alaska, Bermuda, the Caribbean and the Panama Canal.
FLEET EXPANSION
The Company's fleet expansion continued in 1997 with the delivery of two Vision-class vessels, which are approximately 75,000 tons each and range in capacity from 1,950 to 2,000 berths. Rhapsody of the Seas and Enchantment of the Seas, which were delivered in April and July 1997, respectively, represent the fourth and fifth of the six Vision-class vessels to be added by 1998 to the Royal Caribbean fleet. With delivery of these five ships, Royal Caribbean's capacity increased approximately 53% from 14,228 berths at December 31, 1994, to 21,700 at December 31, 1997. Royal Caribbean expects to take delivery of the sixth Vision-class vessel, Vision of the Seas, in April 1998.
In October 1997, the Company took delivery of the 1,850-passenger Mercury which is the last of a three-ship fleet expansion program of Century-class ships added to the Celebrity Cruises fleet since 1995.
In November 1996, Royal Caribbean contracted for an Eagle-class vessel to be delivered in the fall of 1999. In March 1997, Royal Caribbean contracted for a second Eagle-class vessel to be delivered in the fall of 2000 and, in January 1998, exercised its option to build a third Eagle-class vessel for delivery in the spring of 2002. The Eagle-class vessels will be the largest passenger cruise ships built to date: 136,000 tons with 3,100 berths.