Royal Caribbean Reports 2001 Earnings

Royal Caribbean Cruises (RCC) has reported net income of $254.5 million, or $1.32 per share, on revenues of $3.1 billion for the year ended Dec. 31, 2001, compared to net income of $445.4 million, or $2.31 per share, on revenues of $2.9 billion for the year ended Dec. 31, 2000.

According to RCC, earnings were negatively impacted by the events of 9/11 and ships out of service, only partially offset by insurance proceeds. Excluding the impact of these items, net income would have been $318.9 million, the company said.

RCC attributed the increase in revenues to a 20.8 percent increase in capacity, partially offset by a decline in net yields.

RCC reported 15,341,570 passenger cruise days and a load factor of 101.8 percent for 2001, compared to 13,019,811 passenger cruise days and a load factor of 104.4 percent for 2000.

Fourth Quarter

RCC reported a net loss of $39.0 million, or $0.20 per share, on revenues of $656.0 million for the fourth quarter ended Dec. 31, 2001, compared to net income of $30.0 million, or $0.16 per share, on revenues of $642.1 million for the fourth quarter of 2000.

The company also said that it reduced its cost structure in the fourth quarter and that operating, sales and administrative expenses were down approximately 10 percent on a per-available-berth basis compared to the fourth quarter of the previous year. Also included in the fourth quarter of 2001 were $6.5 million in severance expenses related to the previous reduction of the shoreside workforce.

Looking Forward

“We have seen a strong resurgence over the past five months,” said Richard Fain, chairman and CEO of RCC. “We have made a dramatic recovery both in volume and pricing.”

In a conference call to analysts, Jack Williams, president of the two RCC brands, Royal Caribbean International and Celebrity Cruises, said that booking levels are close to normal. He added that he was “very pleased” with the booking levels in the new ports (where ships have been deployed for 2002).

“We have seen record booking levels since the Wave Season began,” Williams said.

But he added that new itineraries had impacted demand and led to closer-in bookings.

Williams continued, “We have again returned to increasing our revenue year-over-year. We are experiencing a steep incline, which we find very encouraging.

“The booking window has expanded nicely beyond the 90-day window.”

He also said that discounts had been reduced for departures in Q1 of 02. The exception is South America, where weaker market conditions have necessitated deep discounts.

“We are where we want to be right now compared to last year,” said Williams, with reference to forward bookings, load factors and pricing.

Richard Glasier, CFO, added that onboard revenues have held up.

The company’s previous guidance had suggested that yields would be down 10 to 15 percent in Q1; now they are actually closer to 10 percent, Williams pointed out. He expects the yield decline to be less for the balance of the year as well. “Directionally, we are headed the right way,” Williams added.

“Booking activity continues to improve as we get closer to sailings,” Williams said. “We have reached record booking levels since the Wave Period began. And, pricing has returned to pre-9/11 levels.”

Added Fain: ”We are getting bookings because demand is there. We did not ‘steal’ (future) Wave bookings by discounting last year.

“We have a 23 percent increase in capacity in Q1,” Fain said.”We are filling that and we are filling the big hole left after 9/11. That shows how strong we are.”

The company will experience capacity increases of 12 percent in Q2, 16 percent in Q3 and 15 percent in Q4. Next year (03), RCC forecasted a 15 percent capacity increase for the full year. According to Glasier, the company bas set a further cost-cutting target of five percent for 2002, excluding fuel costs. “We have looked at costs everywhere, but not really on the ships,” Glasier explained, adding that marketing costs were not being cut either.

Glasier said that some general administrative programs and some IT programs had been cut and that further savings had been obtained in purchasmg and logistics.

RCC absorbed a 21 percent capacity increase in 01. At year’s end 2001, RCC said its net debt to capitalization level was 56.7 percent and that the company’s liquidity was $1.3 billion, including $700 million in cash, plus $1 billion of OECD credit.

The earnings guidance for 2002 is in the range of $1.30 per share (same as for 01), jumping to $2.10 in 2003 on the assumption that the conditions return to normal. If the merger is concluded, the returns could go higher, according to Ryan, Beck & CO.

Merger Update

“The process is not helpful when it gets to be so controversial and rancorous,” said Fain about the merger development. He said it did not interfere with the operations of either company (RCC and POC) yet, but if it continues, it can begin to interfere, he added.

According to Fain, it is time for the shareholders to finalize their decision and then leave the rest to the normal procedural process and move on.

He brushed aside questions about whether the merger of RCC and POC would change the companies’ tax-exempt status in the U.S.

“We have seen Carnival Corporation attempting to raise that issue,” he said. “We consulted originally with three different tax experts and we went back to all three. All three responded robustly that Carnival has gotten it wrong,” Fain said.

A lawsuit has been filed by an RCC shareholder, charging that the merger would expose the company to damaging U.S. tax liabilities. “We think it (the lawsuit) is without merit,” Fain said.

“We feel quite confident. We think Carnivars efforts are misguided,” he added.

Fain said that RCC and POC designed the joint venture to tap what he called the largest and fastest growing market: Southern Europe. either RCC nor POC have been very active there, he said. “It would be difficult to attack it on an individual basis, but we can do it on a combined basis.”

Fending off questions of what will happen to the joint venture if the merger’ does not happen, Fain said he would rather focus on the values to be created rather than how to avoid it.

Not knowing whether he was the groom or the bride (in the merger), he said, when you plan your wedding, you cannot plan your divorce at the same time.

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