Depreciation and amortization increased to $143.8 million in 1997 from $91.2 million in 1996. The increase was primarily due to the acquisition of Celebrity and the introduction of Rhapsody of the Seas and Enchantment of the Seas in 1997 as well as the full-year impact of Splendour of the Seas and Grandeur of the Seas which were introduced in 1996. Depreciation and amortization increased 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.
OTHER INCOME (EXPENSE)
Interest expense, net of capitalized interest, increased to $128.5 million in 1997 from $76.5 million in 1996 and $54.8 million in 1995. The increases were a result of an increase in the average debt level associated with the Company's fleet expansion program in both years and from the acquisition of Celebrity in 1997.
Other income in 1997 includes a gain of $4.0 million from the sale of Sun Viking as compared to 1996 which includes a gain of $10.3 million from the sale of Song of Norway and 1995 which includes a gain of $19.2 million from the sale of Nordic Prince. (See Note 4-Property and Equipment.)
EXTRAORDINARY ITEM
In May 1997, the Company redeemed the remaining $104.5 million of 11-3/8% Senior Subordinated Notes and incurred an extraordinary charge of approximately $7.6 million, or $0.10 per share on a diluted basis, on the early extinguishment of debt. (See Note 5-Long-Term Debt.)
Liquidity and Capital Resources
SOURCES AND USES OF CASH
The Company generated substantial cash flows resulting in net cash provided by operating activities of $434.1 million in 1997 as compared to $299.5 million in 1996 and $224.6 million in 1995. The increase was primarily due to higher net income as well as timing differences in cash payments relating to operating assets and liabilities.
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 were $167.0 million, a portion of which was used to repay indebtedness under the Company's $1.0 billion revolving credit facility (the "$1 Billion Revolving Credit Facility").
In May 1997, the Company redeemed the remaining $104.5 million of 11-3/8% Senior Subordinated Notes. (See Note 5-Long-Term Debt.)
In July 1997, the Company acquired all of the outstanding stock of Celebrity for a purchase price of $515.0 million, payable in cash of $245.0 million and 7,448,276 shares of the Company's common stock. (See Note 3-Acquisition.)
In September 1997, the Company received total net proceeds of $364.6 million from the sale of 9,353,715 shares of common stock. The net proceeds from the sale of common stock were used to repay the amounts drawn from the $1 Billion Revolving Credit Facility in connection with the acquisition of Celebrity. (See Note 6-Shareholders' Equity.)
In October 1997, the Company issued $200.0 million of 7% Senior Notes due 2007 and $300.0 million of 7-1/2% Senior Debentures due 2027. Aggregate net proceeds to the Company were approximately $491.0 million and were used to repay indebtedness under the $1 Billion Revolving Credit Facility.
In October 1997, Celebrity took delivery of the 1,850-passenger Mercury. The Company funded the final payment through a drawdown under the $1 Billion Revolving Credit Facility. Celebrity had committed secured financing of $254.0 million for this vessel; however, in December 1997, the Company reached an agreement with the lender to borrow $200.0 million on an unsecured basis. The net proceeds were used to repay a portion of the funds borrowed under the Company's $1 Billion Revolving Credit Facility.
During the year ended December 31, 1997, the Company's capital expenditures were approximately $1.1 billion on capital projects as compared to $722.4 million during 1996. The largest portion of capital expenditures related to the delivery of Rhapsody of the Seas, Enchantment of the Seas, and Mercury in 1997, delivery of Splendour of the Seas and Grandeur of the Seas in 1996, as well as progress payments for ships under construction. Also included in capital expenditures are shoreside capital expenditures and costs for vessel refurbishing to maintain consistent fleet standards.
The Company received proceeds of $100.0 million from the sale of vessels in 1997. (See Note 4-Property and Equipment.)
Capitalized interest was $15.8 million in 1997 as compared to $15.9 million in 1996 and $14.1 million in 1995. Capitalized interest was higher in 1996 over the previous year because of a higher level of construction - in - progress expenditures associated with the Company's fleet expansion.